Table of Contents
o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
OR | ||||
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
For the Fiscal Year Ended: December 31, 2005 | ||||
OR | ||||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
OR | ||||
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
Date of event requiring this shell company report | ||||
For the transition period from to |
Title of Each Class | Name of Each Exchange on Which Registered | |
American Depositary Shares Ordinary shares with a par value of€1 each | New York Stock Exchange New York Stock Exchange(*) |
Table of Contents
i
Table of Contents
ii
Table of Contents
• | References to “dollars,” “$” and “U.S. dollars” are to United States dollars; | |
• | References to “€” or “euro” are to the euro, the single currency established for participants in the third stage of the European Economic and Monetary Union, or EMU, commencing January 1, 1999; and | |
• | References to “lire,” “lira” or “Lit.” are to Italian lire. |
iii
Table of Contents
Market share information and statistics |
Adjustments |
iv
Table of Contents
Antitrust Authority | The Italian Antitrust Authority. | |
Average thermal efficiency | A measure of the efficiency of a thermal generating plant in converting sources of energy such as fuel oil into electricity. Average thermal efficiency is expressed as the amount of electricity actually produced in kWh as a percentage of the kWh equivalent of the energy source consumed. | |
Bersani Decree | Legislative Decree No. 79 of March 16, 1999, aimed at liberalizing the Italian electricity market. | |
CIP 6 | Regulation 6/92 issued byComitato Interministeriale Prezzi, an Italian governmental committee, which established incentives for new generation plants using renewable resources and for the sale of electricity produced from renewable resources. | |
CO2 | Carbon dioxide. | |
Combined Cycle Gas Turbine (or “CCGT”) | A type of generating plant that produces electricity through both gas turbines and steam turbines. Conventional boilers or other generators recover and use the exhaust heat exiting from gas turbines. | |
Co-generation | The simultaneous generation of steam and electricity, typically where the need arises for industrial purposes. | |
Communications Authority | The Italian Authority for the Guarantee of Communications. | |
Decommissioning | The phase of declassification, decontamination and dismantling of nuclear power installations and clean up of the plant site with the aim of achieving: (i) the complete demolition of the nuclear power plant; (ii) the removal of any limitation due to the presence of radioactive material; and (iii) the restoration of the site for other activities. | |
Eligible Customer | Electricity customers in Italy who meet consumption thresholds that permit them to participate in the free market for electricity. | |
Emission trading rights | Tradable emission permits that give the right to produce the equivalent of one ton of carbon dioxide. These permits can either be assigned through a national allowance plan or earned through investments in projects in developing countries (Certified Emission Reductions) or in transition economies countries (Emission Reduction Units). | |
Energy Authority | The Italian Authority for Electric Energy and Gas. | |
Environment Ministry | The Italian Ministry of the Environment. | |
Gencos | The three generating companies we disposed of in order to comply with the Bersani Decree, Elettrogen S.p.A. (now Endesa Italia |
v
Table of Contents
S.p.A.), Eurogen S.p.A. (now Edipower S.p.A.) and Interpower S.p.A. (now Tirreno Power S.p.A.). | ||
Generating unit | An electric generator together with the turbine or other device which drives it. | |
Gigawatt (GW) | 1,000,000,000 watts (1,000 megawatts). | |
Gigawatt hour (GWh) | One gigawatt of power supplied or demanded for one hour. | |
GHG | “Greenhouse gases,” which are gases that contribute to the greenhouse effect, such as carbon dioxide, methane, nitrous oxide, chlorofluorocarbons and ozone. | |
Gross installed capacity | The maximum power that can be produced continuously throughout a prolonged period of operation with all equipment assumed to be fully operational. | |
GRTN | Gestore del Sistema Elettrico — GRTN S.p.A. (formerly Gestore della Rete di Trasmissione Nazionale), a company owned by the MEF that until October 2005 mainly managed Italy’s national electricity transmission grid. These activities were transferred to Terna in November 2005. Since that time, the GRTN has focused on managing and promoting renewable resources (an activity it carried out also prior to November 2005). GRTN also owns the Single Buyer and the Market Operator (both as defined below). | |
Independent power producers | Industrial companies that produce electricity for their own use and for sale to third parties. | |
Italian power exchange(Borsa dell’Energia Elettrica) | A virtual marketplace in which producers, importers, wholesalers, the GRTN and Terna, other Eligible Customers and the Single Buyer buy and sell electricity at prices determined through a competitive bidding process. | |
Kilovolt (kV) | 1,000 volts. | |
Kilovolt ampere (kVA) | 1,000 volts ampere. | |
Kilowatt (kW) | 1,000 watts. | |
Kilowatt hour (kWh) | One kilowatt of power supplied or demanded for one hour. | |
Market Operator | The entity, wholly owned by the GRTN, that manages the Italian power exchange. | |
Marzano Law | Law No. 239 of August 23, 2004, aimed at reorganizing existing energy market regulation and further liberalizing the energy market. | |
MEF | The Italian Ministry of the Economy and Finance and its predecessor, the Ministry of the Treasury, Budget and Economic Planning. | |
Megawatt (MW) | 1,000,000 watts (1,000 kilowatts). | |
Megawatt hour (MWh) | One megawatt of power supplied or demanded for one hour. | |
Megavolt ampere (MVA) | 1,000,000 volts ampere. | |
Ministry of Productive Activities | The Italian Ministry of Productive Activities and its predecessor, the Ministry of Industry, Commerce and Handcrafts. |
vi
Table of Contents
Net Installed Capacity | The maximum power that can be produced continuously throughout a prolonged period of operation with all equipment assumed to be fully operational, as measured at the point of entry to the transmission network (or minus the power absorbed by plant use and the power lost in the transformers required to raise the voltage to the network level). | |
Non-Eligible Customers | Electricity customers in Italy who do not meet consumption thresholds entitling them to participate in the free market. | |
NH3 | Ammonia. | |
NOx | Nitrogen oxides. | |
Orimulsion | Abbreviation of “Orinoco emulsion,” which is a fossil fuel from the Orinoco river basin in Venezuela consisting of very fine bitumen dispersed in water. Orimulsion emits the same amount of CO2 as fuel oil of equivalent energy value. | |
Resellers | Other distribution companies to whom we transport electricity because their networks are attached to our network rather than directly to the national transmission grid. | |
Single Buyer(Acquirente Unico) | A company wholly owned by the GRTN, responsible for ensuring the supply of electricity to regulated customers who do not yet have access to the liberalized electricity market. | |
SO2 | Sulfur dioxide. | |
Substation | Equipment which switches and/or changes or regulates the voltage of electricity in a transmission and/or distribution network. | |
Terawatt (TW) | 1,000,000,000,000 watts (1,000 gigawatts). | |
Terawatthour (TWh) | One terawatt of power supplied or demanded for one hour. | |
Thermal unit | A generating unit which uses combustible fuel as the source of energy to drive an electric generator. | |
Volt | The basic unit of electric force. | |
Voltampere | The basic unit of apparent electrical power. | |
Watt | The basic unit of active electrical power. |
vii
Table of Contents
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS |
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
ITEM 3. | KEY INFORMATION |
Energy Generation, Distribution and Sales |
Other Operations |
1
Table of Contents
Internal organizations |
Ownership |
Strategy |
2
Table of Contents
As of December 31, | |||||||||||||
2004 | 2005 | 2005(2) | |||||||||||
(Dollars in | |||||||||||||
(Euro in millions, | millions, except | ||||||||||||
except per share | per share amounts) | ||||||||||||
amounts)(1) | |||||||||||||
CONSOLIDATED STATEMENT OF INCOME DATA | |||||||||||||
Amounts in accordance with IFRS: | |||||||||||||
Operating revenues | € | 31,011 | € | 34,059 | $40,333 | ||||||||
Operating expenses: | |||||||||||||
Depreciation, amortization and impairment | 2,201 | 2,207 | 2,614 | ||||||||||
Other | 22,940 | 26,314 | 31,162 | ||||||||||
Total operating expenses | 25,141 | 28,521 | 33,776 | ||||||||||
Operating income | 5,870 | 5,538 | 6,557 | ||||||||||
Financial income (expense) and income (expense) from investments | (827 | ) | (714 | ) | (846 | ) | |||||||
Income (expense) from investments accounted for using the equity method | (25 | ) | (30 | ) | (36 | ) | |||||||
Income before taxes | 5,018 | 4,794 | 5,675 | ||||||||||
Income taxes | 2,116 | 1,934 | 2,290 | ||||||||||
Income from continuing operations | 2,902 | 2,860 | 3,385 | ||||||||||
Income from discontinued operations (net of tax) | (155 | ) | 1,272 | 1,506 | |||||||||
Net income (before minority interest) | 2,747 | 4,132 | 4,892 | ||||||||||
Earnings per share(2) | 0.45 | 0.67 | 0.79 | ||||||||||
Number of shares outstanding (in millions) | 6,104 | 6,157 | 6,157 | ||||||||||
Amounts in accordance with U.S. GAAP(3) | |||||||||||||
Operating revenues | 36,022 | 39,635 | 46,936 | ||||||||||
Operating expenses | 32,316 | 31,627 | 37,453 | ||||||||||
Operating income(4) | 3,706 | 8,008 | 9,483 | ||||||||||
Income before taxes(4) | 2,614 | 7,031 | 8,326 | ||||||||||
Net income (before minority interest) | 1,129 | 4,945 | 5,856 | ||||||||||
Earnings per share(2) | 0.18 | 0.80 | 0.95 |
3
Table of Contents
As of December 31, | ||||||||||||
2001 | 2002 | 2003 | ||||||||||
(Euro in millions, except per | ||||||||||||
share amounts) | ||||||||||||
CONSOLIDATED STATEMENT OF INCOME DATA | ||||||||||||
Amounts in accordance with U.S. GAAP: | ||||||||||||
Operating revenues | €28,781 | €30,604 | €31,237 | |||||||||
Depreciation and amortization | 4,478 | 4,069 | 4,506 | |||||||||
Operating income | 5,337 | (5) | 2,617 | (6) | 4,966 | |||||||
Income before taxes | 3,965 | 1,373 | 3,798 | |||||||||
Net income | 3,688 | 1,399 | 2,376 | |||||||||
Earnings per share(2) | 0.61 | 0.23 | 0.39 |
As of December 31, | ||||||||||||
2004 | 2005 | 2005(1) | ||||||||||
(Dollars in | ||||||||||||
(Euro in millions) | millions) | |||||||||||
CONSOLIDATED BALANCE SHEET DATA | ||||||||||||
Amounts in accordance with IFRS: | ||||||||||||
Fixed assets, net | €36,702 | €30,188 | $ | 35,749 | ||||||||
Current assets | 13,532 | 12,746 | 15,094 | |||||||||
Total assets | 65,378 | 50,502 | 59,804 | |||||||||
Current liabilities | 18,607 | 13,446 | 15,923 | |||||||||
Short-term debt(7) | 6,589 | 2,296 | 2,719 | |||||||||
Long-term debt(8) | 20,291 | 10,967 | 12,987 | |||||||||
Shareholders’ equity | 17,953 | 19,057 | 22,567 | |||||||||
Amounts in accordance with U.S. GAAP(3): | ||||||||||||
Fixed assets, net | 37,589 | 30,320 | 35,905 | |||||||||
Total assets | 67,152 | 50,596 | 59,916 | |||||||||
Short-term debt(7) | 6,589 | 2,296 | 2,719 | |||||||||
Long-term debt(8) | 20,291 | 10,967 | 12,987 | |||||||||
Shareholders’ equity | 15,697 | 17,638 | 20,887 |
As of December 31, | ||||||||||||
2001 | 2002 | 2003 | ||||||||||
(Euro in millions) | ||||||||||||
CONSOLIDATED BALANCE SHEET DATA | ||||||||||||
Amounts in accordance with U.S. GAAP: | ||||||||||||
Fixed assets, net | €36,035 | €38,304 | €37,407 | |||||||||
Total assets | 63,799 | 66,423 | 68,505 | |||||||||
Short-term debt(7) | 7,107 | 8,371 | 8,643 | |||||||||
Long-term debt(8) | 16,072 | 17,172 | 18,005 | |||||||||
Shareholders’ equity | 19,467 | 18,526 | 18,651 |
4
Table of Contents
As of December 31, | ||||||||||||
2004 | 2005 | 2005(1) | ||||||||||
(Dollars in | ||||||||||||
(Euro in | millions) | |||||||||||
millions)(1) | ||||||||||||
CONSOLIDATED CASH FLOW DATA | ||||||||||||
Amounts in accordance with IFRS: | ||||||||||||
Net cash provided by operating activities | € | 4,835 | € | 5,693 | $ | 6,742 | ||||||
Net cash (used in) provided by investing activities | (1,953 | ) | 1,092 | 1,293 | ||||||||
Net cash (used in) provided by financing activities | (2,966 | ) | (6,654 | ) | (7,880 | ) | ||||||
Amounts in accordance with U.S. GAAP(3): | ||||||||||||
Net cash provided by operating activities | 5,730 | 4,864 | 5,760 | |||||||||
Net cash used in investing activities | 1,055 | (1,982 | ) | (2,347 | ) | |||||||
Net cash (used in) provided by financing activities | (6,654 | ) | (2,966 | ) | (3,512 | ) |
As of December 31, | ||||||||||||
2001 | 2002 | 2003 | ||||||||||
(Euro in millions) | ||||||||||||
CONSOLIDATED CASH FLOW DATA | ||||||||||||
Amounts in accordance with U.S. GAAP: | ||||||||||||
Net cash provided by operating activities | € | 5,554 | € | 3,815 | € | 6,843 | ||||||
Net cash used in investing activities | (8,707 | ) | (4,241 | ) | (4,730 | ) | ||||||
Net cash (used in) provided by financing activities | 3,249 | 239 | (2,061 | ) |
As of December 31, | ||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||
Operating Data (Unaudited) | ||||||||||||||||||||
Net installed capacity (GW) in Italy | 50.0 | 43.8 | (9) | 41.8 | 42.0 | 42.2 | ||||||||||||||
Net electricity production in Italy (TWh) | 169.1 | (10) | 145.1 | (11 | ) 137.8 | 125.9 | 112.1 | |||||||||||||
Electricity sales to end users in Italy (TWh)(12) | 194.9 | 181.3 | 152.2 | 157.8 | 148.2 | |||||||||||||||
Total electricity distributed in Italy (TWh)(13) | 256.3 | 258.0 | 265.0 | 261.2 | 259.3 | |||||||||||||||
Natural gas sold to end users (billions of cubic meters) | 1.1 | 4.0 | 4.4 | 5.2 | 5.2 | |||||||||||||||
Natural gas sales customers at year end (millions) | 0.6 | 1.7 | 1.8 | 2.0 | 2.1 | |||||||||||||||
Employees | 72,661 | 71,204 | 64,770 | 61,898 | 51,778 |
(1) | We have translated euro amounts into dollar amounts at the noon buying rate for euro on December 31, 2005, of€1.00 = $1.1842. | |
(2) | We calculate earnings per share by dividing our consolidated net income by the number of Enel’s ordinary shares outstanding during each period. Prior to Enel’s initial public offering in November 1999, all of Enel’s ordinary shares were owned by the MEF. At December 31, 2005, the MEF owned 21.4% and its subsidiary Cassa Depositi e Prestiti owned 10.2% of Enel’s ordinary shares. You should consider that Enel’s share capital was Lit. 12,126,150,379,000 (corresponding to€6,262,634,023) divided into 12,126,150,379 shares with a par value of each share of Lit. 1,000 (corresponding to€0.52) until July 9, 2001, the date on which both the re-denomination of Enel’s share capital in euros and a one-for-two reverse stock split became effective. As a result of the re-denomination and the reverse stock split, Enel’s share capital amounted to€6,063,075,189, divided into 6,063,075,189 shares, each with a par value of€1. As of December 31, 2005 Enel’s share capital amounts to€6,157,071,646 divided into 6,157,071,646 shares with a par value of€1. | |
(3) | For information concerning differences between IFRS and U.S. GAAP that are relevant to our consolidated financial statements, you should read note 21 to our consolidated financial statements. | |
(4) | You should read note 21 to our consolidated financial statements for a discussion of the impacts generated by the differences between IFRS and U.S. GAAP in calculating operating income. |
5
Table of Contents
(5) | Includes gain on sale of Elettrogen, previously classified as other non-operating income (expense). | |
(6) | Includes gain on sale of Eurogen, previously classified as other non-operating income (expense). | |
(7) | Includes current portion of long-term debt. | |
(8) | Excludes current portion of long-term debt. | |
(9) | Including 2.6 GW of capacity of Interpower, which was divested in January 2003. |
(10) | Including 12.2 TWh generated by Elettrogen and Valgen before they were divested during 2001, and 20.9 TWh generated by Eurogen, which was divested in May 2002. |
(11) | Including 8.0 TWh generated by Eurogen before it was divested, and 5.7 TWh generated by Interpower. |
(12) | Excluding sales to resellers. |
(13) | Including electricity distributed to resellers. |
End of | ||||||||||||||||
Period | Average | High | Low | |||||||||||||
U.S. dollars per euro(1) | ||||||||||||||||
Year: | ||||||||||||||||
2001 | 0.8901 | 0.8909 | 0.9535 | 0.8370 | ||||||||||||
2002 | 1.0485 | 0.9495 | 1.0485 | 0.8594 | ||||||||||||
2003 | 1.2597 | 1.1411 | 1.2597 | 1.0361 | ||||||||||||
2004 | 1.3538 | 1.2478 | 1.3625 | 1.1801 | ||||||||||||
2005 | 1.1842 | 1.24001 | 1.3476 | 1.6667 | ||||||||||||
Month ended: | ||||||||||||||||
December 31, 2005 | 1.1842 | 1.18609 | 1.2041 | 1.1699 | ||||||||||||
January 31, 2006 | 1.2158 | 1.21255 | 1.2287 | 1.1980 | ||||||||||||
February 28, 2006 | 1.1925 | 1.19397 | 1.2100 | 1.1860 | ||||||||||||
March 31, 2006 | 1.2139 | 1.20284 | 1.2197 | 1.1886 | ||||||||||||
April 30, 2006 | 1.2624 | 1.29192 | 1.2624 | 1.2091 | ||||||||||||
May 31, 2006 | 1.2833 | 1.27674 | 1.2888 | 1.2606 |
(1) | Based on the Noon Buying Rate for the euro for the periods indicated. |
6
Table of Contents
Future regulation could have a significant adverse effect on our energy businesses and their profitability |
Regulatory changes promoting market liberalization have significantly increased competition in our energy businesses |
• | An increase in bilateral contracts between our competitors and final customers; | |
• | The construction of new generation facilities by our competitors and the development of new interconnection lines that will increase the volume of electricity that may be imported in Italy; and | |
• | Possible initiatives taken by the Energy Authority to further competition such as the imposition of virtual power plant contracts and of restrictions on the operation of pumping plants. |
7
Table of Contents
Our facilities are subject to operating risks outside of our control; certain of our activities depend on third-party patents and licenses |
We may not be able to complete our power plant conversion and other capital investment programs on schedule or realize the expected benefits of these programs |
Significant increases in fuel prices or disruptions in our fuel supplies could have a negative effect on our business |
8
Table of Contents
Our expansion outside of Italy subjects us to risks associated with local market conditions, as well as to risks associated with operating the businesses we acquire |
9
Table of Contents
We face legal proceedings and potential regulatory measures arising from the 2003 power outage that affected all of Italy that could have a material adverse effect on our financial condition and results of operations. Further power outages involving our electricity operations could also adversely affect our financial condition and results of operations |
10
Table of Contents
We have been and are subject to regulatory investigations, including for possible abuse of dominant position and market abuse |
The European Commission has launched an investigation into the functioning of the European energy market that could lead to measures which could have a material adverse effect on our operations |
The European Commission may decide that priority access rights of long-term supply contracts are contrary to EU law |
11
Table of Contents
A European Commission challenge to Italian regulations on hydroelectric concessions could adversely affect our business, financial condition and result of operations |
We are dependent on government concessions for our electricity and gas distribution businesses |
12
Table of Contents
Our businesses are subject to numerous environmental regulations, and we are parties to a significant number of legal proceedings relating to environmental matters, that could significantly affect our financial condition and results of operations |
13
Table of Contents
We may be unable to exit the telecommunications business on acceptable terms or in accordance with the currently envisaged timetable, which would have an adverse effect on our management’s current business plan |
Our historical consolidated financial and operating results may not be indicative of future performance |
The Italian social security fund is seeking to impose significant liabilities on us |
14
Table of Contents
Legislation enacted in 2005 could increase our local property tax burden |
We are defendants in a number of legal proceedings |
The MEF, Enel’s controlling shareholder, has significant influence over Enel’s actions |
The special powers of the Italian government may permit it to influence Enel’s business, regardless of the level of its shareholding |
15
Table of Contents
• | The power to oppose the acquisition by persons or entities of an interest in the Company equal to or in excess of 3% of the shares with voting rights at the ordinary shareholders’ meetings; | |
• | The power to oppose certain types of shareholders’ agreements entered into by holders of at least one-twentieth of the voting capital stock at ordinary shareholders’ meetings; | |
• | The power to veto any resolution to dissolve, merge or demerge Enel, transfer a significant part of Enel’s business or Enel’s registered headquarters outside of Italy, change Enel’s corporate purpose or eliminate or modify any of the MEF’s special powers; and | |
• | The power to directly appoint one non-voting member of Enel’s board of directors, in addition to the voting members elected by Enel’s shareholders. |
The value of ordinary shares or ADSs may be adversely affected by sales of substantial amounts of shares by the MEF or other shareholders or the perception that such sales could occur |
The value, expressed in dollars, of the ordinary shares and ADSs and of any dividends Enel pays in respect of its ordinary shares and ADSs will be affected by the euro/dollar exchange rate |
It is possible that the price of ordinary shares and ADSs will experience significant volatility |
16
Table of Contents
If you hold ADSs rather than ordinary shares it may be difficult for you to exercise some of your rights as a shareholder |
• | Anticipated trends in our businesses, including trends in demand for electricity; | |
• | Changes in the regulatory environment and expectations on how and when new regulations will be implemented; | |
• | The remuneration of our generation activities based on competitive electricity prices rather than tariffs following the introduction of trading on the Italian power exchange; | |
• | The impact of changes in electricity and gas tariffs; | |
• | Our ability to implement our cost reduction program successfully; | |
• | The possibility that significant volumes of lower-cost electricity will become available as a result of increased imports and the construction of new plants in Italy; | |
• | Our intention to divest our interest in Weather Investment; | |
• | Our intentions with respect to future dividend payments; | |
• | Our intention to expand our core businesses, including by increasing our presence in renewable energy and developing our gas distribution and sales business; | |
• | Our intention to expand our operations outside Italy; and | |
• | Future capital expenditures and investments. |
17
Table of Contents
ITEM 4. | INFORMATION ON THE COMPANY |
18
Table of Contents
19
Table of Contents
2003 | 2004 | 2005 | |||||||||||
Net installed capacity (GW) in Italy at year end | 41.8 | 42.0 | 42.2 | ||||||||||
Net electricity production in Italy (TWh) | 137.8 | 125.9 | 112.1 | ||||||||||
Electricity sales to end users in Italy (TWh)(1) | 152.2 | 157.8 | 148.2 | ||||||||||
Electricity sales on the regulated market in Italy (TWh) | 141.5 | 137.0 | 129.7 | ||||||||||
Electricity sales on the free market in Italy (TWh) | 10.7 | 20.8 | 18.5 | ||||||||||
Total electricity distributed in Italy (TWh)(2) | 265.0 | 261.2 | 259.3 | ||||||||||
Natural gas sales to end users in Italy (billions of cubic meters) | 4.4 | 5.2 | 5.1 | ||||||||||
Natural gas sales customers in Italy at year end (millions) | 1.8 | 2.0 | 2.1 |
(1) | Excluding sales to resellers. |
(2) | Including electricity distributed to resellers. |
20
Table of Contents
21
Table of Contents
22
Table of Contents
23
Table of Contents
• | Reducing our Italian power generation costs to levels lower than those of our competitors, in particular through the conversion of certain generation plants to run on less expensive fuels, and the alignment of our other operating costs with international best practice through an integrated approach to quality and standards; | |
• | Increasing our presence in the market for electricity generated from renewable resources; | |
• | Increasing electricity sales volumes and the number of customers in the free market in order to maximize our production margin by matching production volumes and sales volumes; | |
• | Consolidating our position in the natural gas distribution business in Italy, where we are the second-largest operator; | |
• | Extracting value from the integrated management of our electricity and natural gas services in Italy; | |
• | Meeting our operating efficiency targets in the distribution and sale of electricity and natural gas; and | |
• | Expanding our operations outside Italy, particularly in countries where we are already present or where market liberalization and privatization efforts are in progress, in which we can capitalize on the experience and technical know-how we have acquired in the Italian market. |
Generation and Energy Management |
• | Continue its program to convert certain of our thermal generation plants to CCGT plants capable of generating approximately 5,000 MW. Much of this program has already been completed; |
24
Table of Contents
• | Upgrade additional plants to run on lower-cost fuels, such as coal, while still respecting environmental norms; | |
• | Consolidate its position in the field of renewable energy, including through an investment program expected to total approximately€1.3 billion from 2006 through 2010. This program includes plans for the maintenance, refurbishment and construction of wind, hydroelectric and geothermal generation plants in Italy that we expect will result in 300 MW of additional net installed capacity; | |
• | Reduce CO2 emissions through our integrated investment strategy, which contemplates the conversion of old oil-fired plants into CCGT and high efficiency coal plants and the enhancement of our renewable generation capacity, as well as sourcing CO2 credits by participating in the Clean Development Mechanism and Joint Implementation Projects (emission reduction projects under the terms of the Kyoto Protocol); | |
• | Continually seek to achieve operating excellence while increasing the efficiency and availability of its plants and respecting the environment and the health and safety of its employees; | |
• | Continue its efforts to reduce its operating and maintenance expenses until it attains international best practice levels; and | |
• | Optimize its fuel procurement activities, through a diversification of suppliers and supply channels. |
Infrastructure and Networks |
• | Continue our program to reduce operating costs and optimize our investment expenditures, by seeking constantly to improve our administrative processes, increasing our use of technology to support our activities and evaluating our investments more strictly from a financial perspective; | |
• | Continue to improve our performance with respect to the targets set by the Energy Authority for quality and continuity of service in those geographic areas where these targets have not yet been achieved, and maintaining the quality and continuity of service where they have been achieved or exceeded; and | |
• | Complete the roll-out of our “Telemanagement” digital metering program in Italy by the end of 2006, in order to (i) reduce costs associated with physical measurement of consumption andon-site maintenance of meters by our personnel, as these tasks would be accomplished remotely; (ii) measure the electricity consumption of our customers more accurately; (iii) improve our response times in providing technical assistance to our customers and provide higher quality service; and (iv) offer our customers tailored tariff plans that promote the use of electricity in off-peak periods and provide customers with opportunities to save money. We entered into an agreement with IBM in March 2004 to commercialize our digital metering know-how for use by other utilities in Italy and abroad in an effort to further benefit from this program. At March 31, 2006, we had installed approximately 27.6 million digital meters, of which approximately 25.5 million were connected to our remote network. |
25
Table of Contents
Market |
International Operations |
Spain. The Spanish electricity market is particularly important for us, since the demand for electricity in Spain is expected to grow at a higher rate than in other European markets, and we are already present in Spain through our Spanish subsidiaries Enel Viesgo Generaciòn (electricity generation), Electra de Viesgo Distribuciòn (electricity distribution) and our affiliate EUFR (electricity generation from renewable resources). We intend to develop our ability to generate electricity from renewable resources and convert certain coal and gas/oil-fired units into CCGT and more environmentally friendly plants. Moreover, by 2009 we intend to implement a Telemanagement digital meter system in Spain similar to the system we are completing in Italy. Please see “— Sales, Infrastructure and Networks — Domestic Distribution and Sales Operations — Telemanagement Systems” for a description of our Telemanagement digital meter system in Italy. We expect to invest approximately€2,044 million in our Spanish operations from 2006 through 2010. | |
Romania. We are interested in the Romanian electricity market, particularly in light of Romania’s scheduled accession to the EU in 2007. We are already present in Romania through Enel Electrica Banat (formerly Electrica Banat), and Enel Electrica Dobrogea (formerly Electrica Dobrogea), two distribution companies in which we acquired a 51% stake in 2005, and where we are introducing management know-how and standards that are in line with Western European best practices. Moreover, in June 2006 we won the auction for a 67.5% stake in the Romanian power distribution company Electrica Muntenia Sud. Upon the successful completion of this transaction, we expect to serve approximately 2.5 million customers in Romania, including customers from Enel Electrica Banat and Enel Electrica Dobrogea. We also intend to enter the Romanian generation business, once it is privatized. | |
Slovakia. We are interested in the Slovakian electricity market due to its strong interconnection with other Central European markets. We already have a strong presence in the Slovakian electricity market through SE, and we will monitor further opportunities that may arise. We also plan to upgrade SE’s existing nuclear plants and to invest in renewable resources. We are currently committed to develop two additional nuclear units for SE by 2013. Finally, in April 2006 we submitted a binding offer for the acquisition of a |
26
Table of Contents
90% interest in Paroplinovy Cyklus Bratislava, a Slovakian electricity generation company with an installed capacity of 220 MW. We do not expect the outcome of this offer to be known before August 2006. | |
Northern and Latin America. We are present in North America and Central and South America through Enel North America and Enel Latin America, respectively. We intend to grow our operations in these regions, particularly in the renewable resources market through the acquisitions and development of hydroelectric, wind and geothermal generation plants in North America and in Central and South America. |
Italian Electricity Demand |
Average Annual | ||||||||||||||||||||||||
Growth Rate | ||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2001-2005 | |||||||||||||||||||
Growth in real GDP(1) | 1.8 | % | 0.4 | % | 0.3 | % | 1.2 | % | 0.0 | % | 0.74 | % | ||||||||||||
Growth in electricity demand(2) | 2.1 | % | 1.9 | % | 3.2 | % | 1.5 | % | 1.3 | % | 2.0 | % |
(1) | National Institute of Statistics (Istituto Nazionale di Statistica). |
(2) | Terna (data for the years before 2005 were provided by the GRTN). Data for 2005 are provisional. |
Per Capita | ||||||||||||
Residential | Residential | |||||||||||
Inhabitants | Consumption | Consumption | ||||||||||
(In millions) | (TWh) | (KWh/inhabitant) | ||||||||||
France | 59.8 | 141.0 | 2,358 | |||||||||
United Kingdom | 59.4 | 117.2 | 1,973 | |||||||||
Germany | 82.6 | 135.7 | 1,643 | |||||||||
Spain | 41.1 | 53.7 | 1,307 | |||||||||
Italy | 57.7 | 63.7 | 1,104 | |||||||||
European Union | 380.2 | 685.3 | 1,803 |
27
Table of Contents
Generation and Energy Management |
Domestic Generation |
Generating Facilities |
28
Table of Contents
2003 | 2004 | 2005* | |||||||||||
(In GWh) | (In GWh) | (In GWh) | |||||||||||
Gross production: | |||||||||||||
Thermal | 242,784 | 246,125 | 252,412 | ||||||||||
Hydroelectric | 44,277 | 49,908 | 42,482 | ||||||||||
Geothermal and other renewable | 6,804 | 7,288 | 7,465 | ||||||||||
Total gross production in Italy | 293,865 | 303,321 | 302,359 | ||||||||||
Power used by auxiliary installations | (13,682 | ) | (13,299 | ) | (12,704 | ) | |||||||
Total net production in Italy | 280,183 | 290,022 | 289,655 | ||||||||||
Net electricity imports | 50,968 | 45,635 | 49,155 | ||||||||||
Total pumped storage consumption | (10,492 | ) | (10,300 | ) | (9,369 | ) | |||||||
Total electricity demand in Italy | 320,659 | 325,357 | 329,441 | ||||||||||
* | Data for 2005 are provisional. |
At December 31, 2005 | 2005 | ||||||||||||||||||||
Net | Weighted | Percentage | Forced | ||||||||||||||||||
Installed | Average Age | Net | of Our Net | Outage | |||||||||||||||||
Capacity | of Plant | Production | Production | Factor | |||||||||||||||||
(GW) | (Years) | (GWh) | |||||||||||||||||||
(Percent) | |||||||||||||||||||||
Thermal | 26.9 | 20 | 81,823 | 73.0 | % | 1.5 | % | ||||||||||||||
Hydroelectric | 14.4 | 43 | 24,883 | 22.2 | % | 1.4 | % | ||||||||||||||
Geothermal and other renewable | 0.9 | 8 | 5,381 | 4.8 | % | 1.5 | % | ||||||||||||||
Total | 42.2 | 112,087 | 100.0 | % | |||||||||||||||||
Thermal Production |
29
Table of Contents
• | completing the upgrading of the coal-burning technology of our existing coal plant, Sulcis, which we expect to become operational in the second half of 2006 (accouting for approximately 300 MW); | |
• | converting three units at our fuel-oil plant at Torrevaldaliga Nord to clean coal technology, a process which is in progress and which we expect complete between 2008 and 2009 (accounting for approximately 1,900 MW); and | |
• | subject to receipt of required permits, converting another three units to clean coal technology (accounting for approximately 1,900 MW). Depending on whether and when we obtain the required permits, we estimate that the converted facilities would be operational by 2010 or 2011. |
30
Table of Contents
Hydroelectric Production |
Production from Geothermal and Other Renewable Resources |
31
Table of Contents
Fuel |
32
Table of Contents
2003 | 2004 | 2005 | |||||||||||||||||||||||
Net | Net | Net | |||||||||||||||||||||||
Electricity | Percentage | Electricity | Percentage | Electricity | Percentage | ||||||||||||||||||||
Produced | of Total | Produced | of Total | Produced | of Total | ||||||||||||||||||||
(GWh) | (GWh) | (GWh) | |||||||||||||||||||||||
Thermal | |||||||||||||||||||||||||
— Natural gas | 48,802 | 35.4 | 40,602 | 32.3 | 37,824 | 33.7 | |||||||||||||||||||
— Coal and orimulsion | 30,030 | 21.8 | 30,700 | 24.4 | 30,001 | 26.8 | |||||||||||||||||||
— Oil | 27,838 | 20.2 | 20,552 | 16.3 | 13,998 | 12.5 | |||||||||||||||||||
Total thermal | 106,669 | 77.4 | 91,854 | 73.0 | 81,823 | 73.0 | |||||||||||||||||||
Hydroelectric | 26,012 | 18.9 | 28,659 | 22.8 | 24,883 | 22.2 | |||||||||||||||||||
Geothermal | 5,036 | 3.6 | 5,120 | 4.1 | 5,012 | 4.5 | |||||||||||||||||||
Wind and photovoltaic | 77 | 0.06 | 235 | 0.2 | 369 | 0.3 | |||||||||||||||||||
Total | 137,794 | 100.0 | % | 125,868 | 100.0 | % | 112,087 | 100.0 | % | ||||||||||||||||
• | 46% natural gas; | |
• | 37% coal; and | |
• | 17% fuel oil. |
33
Table of Contents
Fuel Oil |
Year Ended | |||||||||||||
December 31, | |||||||||||||
2003 | 2004 | 2005 | |||||||||||
(In millions of tons) | |||||||||||||
Domestic suppliers | 1.2 | 1.0 | 0.9 | ||||||||||
Foreign suppliers | 5.3 | 3.8 | 2.7 | ||||||||||
Total fuel oil purchased | 6.5 | 4.8 | 3.6 | ||||||||||
Year Ended | |||||||||||||
December 31, | |||||||||||||
2003 | 2004 | 2005 | |||||||||||
(In millions of tons) | |||||||||||||
Fuel oil purchased | |||||||||||||
Low sulfur | 4.0 | 3.0 | 2.3 | ||||||||||
Mid sulfur | 2.5 | 1.6 | 1.0 | ||||||||||
High sulfur | 0.0 | 0.2 | 0.3 | ||||||||||
Total | 6.5 | 4.8 | 3.6 | ||||||||||
Natural Gas |
34
Table of Contents
Coal |
CO2 emission rights |
35
Table of Contents
Purchased Power |
2003 | 2004 | 2005 | |||||||||||
(TWh) | |||||||||||||
Long-term contracts | 15.5 | 14.4 | 14.4 | ||||||||||
Annual contracts | 0.6 | 1.1 | 2.5 | ||||||||||
Spot purchases | 0.0 | 0.1 | 0.1 | ||||||||||
Total imports | 16.0 | 15.7 | 17.0 | ||||||||||
International Generation |
36
Table of Contents
37
Table of Contents
Enel | Enel | Total at | |||||||||||||||||||||||
North | Latin | Maritza | Uniòn | December 31, | |||||||||||||||||||||
America | America | Viesgo | East III | Fenosa | 2005 | ||||||||||||||||||||
(MW) | |||||||||||||||||||||||||
Thermal | — | — | 1,592 | 549 | — | 2,141 | |||||||||||||||||||
Hydroelectric | 313 | 174 | 672 | — | — | 1,159 | |||||||||||||||||||
Wind | 67 | 24 | — | — | 321 | 412 | |||||||||||||||||||
Biomass and Biogas | 22 | — | — | — | — | 22 | |||||||||||||||||||
Cogeneration | — | — | — | — | 52 | 52 | |||||||||||||||||||
Total | 402 | 198 | 2,264 | 549 | 373 | 3,786 | |||||||||||||||||||
38
Table of Contents
Sales, Infrastructure and Networks |
Domestic Distribution and Sales Operations |
Electricity Companies |
• | Enel Distribuzione, which owns the electricity distribution network serving the free and regulated markets and sells electricity on the regulated market; | |
• | Deval, a subsidiary in which we own a 51% interest, which engages in similar activities in the region of Valle d’Aosta ; | |
• | Enel Energia, which sells electricity on the free market to customers with annual consumption of up to 100 GWh (while sales to customers with higher consumption levels are made through Enel Trade of our Generation and Energy Management Division); | |
• | Enel Sole, which provides public and art lighting services; and | |
• | Enel.si, which provides electricity systems-related services. |
Distribution of Electricity |
39
Table of Contents
Year Ended December 31, | |||||||||||||
2003 | 2004 | 2005 | |||||||||||
(In GWh) | |||||||||||||
Distributed to free market | 102,973 | 113,691 | 121,370 | ||||||||||
Distributed (and sold) on the regulated market | 141,453 | 136,961 | 129,677 | ||||||||||
Total | 244,426 | 250,652 | 251,047 | ||||||||||
At December 31, | ||||||
2003 | 2004 | 2005 | ||||
Employees | 33,106 | 32,595 | 29,299 |
Electricity Distribution Network |
Under- | Insulated | Bare | Number of | Transformer | ||||||||||||||||||||
Type | ground Lines | Aerial Lines | Aerial Lines | Total Lines | Substations | Capacity | ||||||||||||||||||
(km) | (km) | (km) | (km) | (MVA) | ||||||||||||||||||||
Primary: | ||||||||||||||||||||||||
High voltage lines (40-150 kV) | 468 | — | 18,484 | 18,952 | ||||||||||||||||||||
Primary substations | 2,029 | 94,000 | ||||||||||||||||||||||
Secondary: | ||||||||||||||||||||||||
Medium voltage lines (1-30 kV) | 125,017 | 7,932 | 202,202 | 335,151 | ||||||||||||||||||||
Low voltage lines | 226,238 | 385,915 | 123,873 | 736,026 | ||||||||||||||||||||
Secondary substations | 411,404 | 68,600 |
40
Table of Contents
Consolidation of Electricity Distribution Networks |
41
Table of Contents
Sales to Regulated Electricity Market |
• | All Non-Eligible Customers, or customers who do not meet the consumption threshold for participation in the free market; and | |
• | Those Eligible Customers, or customers who meet the consumption threshold for participation in the free market, that choose not to participate in it. |
2004 | 2005 | ||||||||||||||||||||||||||||||||
Distributed | Distributed | ||||||||||||||||||||||||||||||||
and Sold | and Sold | ||||||||||||||||||||||||||||||||
Distributed | on the | Distributed | on the | ||||||||||||||||||||||||||||||
to the Free | Regulated | to the Free | Regulated | ||||||||||||||||||||||||||||||
Market | Market | Total | Revenues | Market | Market | Total | Revenues | ||||||||||||||||||||||||||
(In GWh) | (Millions | (In GWh) | (Millions | ||||||||||||||||||||||||||||||
of euro) | of euro) | ||||||||||||||||||||||||||||||||
High voltage(1) | 45,083 | 4,827 | 49,910 | €529 | 46,212 | 5,319 | 51,131 | €611 | |||||||||||||||||||||||||
Medium voltage | 63,372 | 23,966 | 87,338 | 2,782 | 67,060 | 20,247 | 87,307 | 2,641 | |||||||||||||||||||||||||
Low voltage | 5,236 | 108,168 | 113,404 | 11,791 | 8,098 | 104,111 | 112,209 | 12,260 | |||||||||||||||||||||||||
Total | 113,691 | 136,961 | 250,652 | €15,102 | 121,370 | 129,677 | 251,047 | €15,512 | |||||||||||||||||||||||||
(1) | High-voltage sales on the regulated market are sales to the Ferrovie dello Stato, the Italian railway system. All high-voltage customers are Eligible Customers. |
42
Table of Contents
Telemanagement System |
Customer Service |
43
Table of Contents
Continuity and Quality of Network Service |
Sales of Electricity to the Free Market |
• | specially tailored contract terms for different types of customers; and | |
• | value-added services such as energy monitoring and management. |
International Distribution and Sales Operations |
44
Table of Contents
2003 | 2004 | 2005 | ||||||||||
Electricity sales (TWh)(1) | 3.943 | 4.458 | 8.093 | |||||||||
Electricity sales on the regulated market (TWh)(1) | 3.734 | 3.709 | 6.766 | |||||||||
Electricity sales on the free market (TWh)(1) | 0.209 | 0.749 | 1.327 | |||||||||
Electricity transported on our distribution networks (TWh)(2) | 4.741 | 4.952 | 9.651 |
(1) | Excluding sales to resellers |
(2) | Excluding electricity distributed to resellers |
Public and Art Lighting |
45
Table of Contents
Electricity Systems-related Services |
Gas Distribution and Sales |
• | Enel Rete Gas and other minor companies, which own local distribution networks in specific parts of Italy and hold the related concessions for their use; and | |
• | Enel Gas and Easygas (which we acquired in October 2005), which sell natural gas to end users. |
46
Table of Contents
2004 | 2005 | ||||||||
Retail (millions of m3) | 2,783 | 3,021 | |||||||
Business | 2,403 | 2,068 | |||||||
Natural gas sold | 5,186 | 5,089 | |||||||
Retail | 1,963,577 | 2,140,865 | |||||||
Business | 2,038 | 2,129 | |||||||
Number of customers | 1,965,615 | 2,142,994 |
Competition in the Electricity and Gas Markets |
47
Table of Contents
• | An increase in bilateral contracts between our competitors and final customers; | |
• | Regulations limiting each operator’s access to international electricity sources to a maximum percentage of available interconnection capacity; and | |
• | The development of new interconnection lines that will increase the volume of electricity that may be imported in Italy. Through 2005, other producers were authorized to build approximately 20 GW of new generating capacity in Italy, of which approximately 6 GW is already operational, and another 8 GW is expected to be operational by 2010. For imports, we expect an additional 2.1 GW of capacity to become available between 2006 and 2010, of which 1.3 GW of import capacity has already become available. |
Percentage of Total | Percentage of | ||||||||||||
Producer | 2005 Production | Italian Output | Demand | ||||||||||
(GWh) | |||||||||||||
Enel | 112,087 | 39 | % | 31 | % | ||||||||
Former Gencos | 52,162 | 18 | % | 16 | % | ||||||||
Edison* | 33,369 | 11 | % | 10 | % | ||||||||
Eni | 25,000 | 9 | % | 8 | % | ||||||||
Main municipal electricity companies* | 10,596 | 4 | % | 3 | % | ||||||||
Other independent power producers | 56,441 | 19 | % | 17 | % | ||||||||
Total production in Italy | 289,655 | 100 | % | — | |||||||||
Pumped storage consumption | (9,369 | ) | — | — | |||||||||
Net imports | 49,155 | — | 15 | % | |||||||||
Total demand in Italy | 329,441 | — | 100 | % | |||||||||
48
Table of Contents
Source: | Enel elaboration based on provisional data for Italy from Terna, and publicly available information of other producers. |
* | Excluding stakes in former Gencos. |
Net Installed Capacity (GW) by Producer | 2004 | 2005 | |||||||
Enel | 42.0 | 42.2 | |||||||
Former Gencos | 17.5 | 18.2 | |||||||
Eni | 3.6 | 4.7 | |||||||
Edison* | 5.7 | 6.9 | |||||||
Main municipal electricity companies* | 2.8 | 4.0 | |||||||
Other independent power producers | 9.8 | 10.7 | |||||||
Total net installed capacity in Italy | 81.5 | 86.8 | |||||||
* | Excluding stakes in former Gencos. |
Seasonality of Electricity and Gas Consumption |
Discontinued Operations |
49
Table of Contents
Telecommunications |
Transmission |
Services and Other Activities |
50
Table of Contents
Services |
• | supporting Enel Distribuzione in completing the roll-out of the Telemanagement system for remote metering; and | |
• | developing a disaster recovery system to enhance the stability and performance of critical information technology applications. |
Engineering and Construction |
Real Estate and Other Services |
Factoring |
51
Table of Contents
Professional Training Services |
Water |
Capital Investment Program |
2004 | 2005 | ||||||||
(In millions of | |||||||||
euro) | |||||||||
Generation and Energy Management | €857 | €1,027 | |||||||
Sales, Infrastructure and Networks | 1,711 | 1,692 | |||||||
Transmission | 277 | 141 | |||||||
Telecommunications | 867 | 287 | |||||||
Corporate and Others(1) | 122 | 110 | |||||||
Total | €3,834 | €3,257 | |||||||
(1) | In 2004 we did not incur capital expenditures with respect to activities of our Corporate sector. |
2004 | 2005 | ||||||||
(In millions of | |||||||||
euro) | |||||||||
Generation and Energy Management | €842 | €1,003 | |||||||
Sales, Infrastructure and Networks | 1,632 | 1,574 | |||||||
Transmission | 277 | 139 | |||||||
Telecommunications | 680 | 251 | |||||||
Corporate and Others(1) | 87 | 70 | |||||||
Total | €3,518 | €3,037 | |||||||
(1) | In 2004 we have not incurred capital expenditures with respect to activities of our Corporate sector. |
52
Table of Contents
Generation and Energy Management |
• | In Italy, the ongoing process of conversion of our approximately 1,900 MW oil-fired plant at Torrevaldaliga North to clean coal technology, on which we spent approximately€159 million during the year, and of construction of fluidized bed combustion facilities at a section of our power plant at Sulcis with approximately 300 MW of net installed capacity, on which we spent approximately€54 million. We also continued implementing our strategic plan to increase investment in renewable generation facilities (wind, hydroelectric, geothermal), spending approximately€280 million in 2005. Of this amount, we spent€133 million on capital improvements that we expect will allow us to comply with regulations requiring us to provide a specified amount of “green certificates” each year; and | |
• | In our international operations, the development of Uniòn Fenosa’s generation facilities (approximately€111 million), the improvement of Enel Viesgo Generatiòn’s plants (approximately€51 million, of which we invested€32 million in new projects), the Maritza East III’s ongoing plant refurbishment project (approximately€45 million), Enel Latin America’s new projects (approximately€12 million), as well as regular maintenance and other minor expenditures to improve the capacity, efficiency and productivity of plants in North America (approximately€5 million). |
• | For CCGT conversions, we have completed the conversion of approximately 4,300 MW and plan to continue the CCGT conversion program, with the most significant projects at our Santa Barbara and Termini Imerese power plants (for approximately 750 MW); and | |
• | For coal conversions, we plan to continue the conversions of our thermal generation plants at Torrevaldaliga North, finish our trial phase in Sulcis, and begin similar conversions of certain other power generation units, expected to affect in the aggregate approximately 4,100 MW of net installed capacity. The conversion plans for approximately 1,900 MW of this amount are still subject to regulatory approval. |
Sales, Infrastructure and Networks |
53
Table of Contents
Services and Other Activities |
Transmission and Telecommunications |
Capital Expenditures for the International Division in the 2006-2010 period |
54
Table of Contents
• | setting and adjusting tariffs on the basis of general criteria established by law; | |
• | advising the Ministry of Productive Activities on the structuring and administration of licensing and authorization regimes for the energy sector; | |
• | ensuring the quality of services provided to customers; | |
• | overseeing the separation of utility companies into distinct units for accounting and management purposes; | |
• | promoting competition; and | |
• | otherwise protecting the interests of consumers, including the authority to mediate disputes between utilities and consumers, and to impose sanctions for violations of regulations. |
• | liberalized, as of April 1, 1999, the generation, import and export of electricity; | |
• | provided that consumers, or Eligible Customers, meeting certain consumption thresholds, which have been progressively reduced, may negotiate supply agreements directly with any domestic or foreign producer, wholesaler or distributor of electricity, while other, “Non-Eligible Customers” must continue to |
55
Table of Contents
purchase electricity from the distributor serving the area in which they are located and pay regulated prices determined by the Energy Authority; | ||
• | provided that after January 1, 2003, no electricity company may produce or import more than 50% of the total of imported and domestically produced electricity in Italy, which limit resulted in our sale of the Gencos; | |
• | provided for the establishment of the Single Buyer, a central purchaser of electricity from producers on behalf of all Non-Eligible Customers; | |
• | provided for the creation of the Italian power exchange, a virtual marketplace in which producers, importers, wholesalers, the GRTN, other Eligible Customers and the Single Buyer buy and sell electricity at prices determined through a competitive bidding process; | |
• | provided for the creation of a Market Operator to manage the Italian power exchange; | |
• | provided for the separation of management and operation of the national electricity transmission grid, which was to be licensed to an independent transmission system operator, the GRTN, from ownership of the grid assets, which were retained by existing owners, primarily Terna; and | |
• | established a new licensing regime for electricity distribution and provided incentives for the consolidation of electricity distribution networks within each municipality. |
56
Table of Contents
Eligible and Non-Eligible Customers |
57
Table of Contents
The Single Buyer |
The Italian Power Exchange |
58
Table of Contents
59
Table of Contents
Imports |
60
Table of Contents
Incentives to Provide Generation Capacity |
New Generation Plants |
Transmission |
Distribution of Electricity |
61
Table of Contents
The Tariff Structure |
• | Operating costs of generation (for electricity prices on the regulated market), transmission and distribution activities, including procurement costs, and amortization and depreciation. In order for operators to be able to recover particular costs, the costs must be both actually incurred by them and recognized by the Energy Authority; | |
• | An appropriate return on invested capital, including both equity and debt financing; and | |
• | The costs associated with system charges. |
62
Table of Contents
• | low-voltage domestic consumers (residential customers); | |
• | low-voltage public lighting; | |
• | other low-voltage end users; | |
• | medium-voltage public lighting; | |
• | other medium-voltage end users; and | |
• | high-voltage end users. |
Generation Component of Electricity Tariffs |
• | Hydroelectric or geothermal generation, since these plants do not incur fuel costs; and | |
• | The resale of electricity imported under long-term contracts in effect as of the date of the entry into force of the first Electricity Directive on February 19, 1997, which was frequently cheaper than electricity generated in Italy. |
63
Table of Contents
Transmission and Distribution Components |
64
Table of Contents
System Charges and Other Charges |
• | Charges concerning the electricity system, established by the Ministry of Productive Activities, that consist of: |
• | a nuclear surcharge, covering part of the costs incurred by So.g.i.n., the company to which we transferred our discontinued Italian nuclear operations, in connection with the dismantling of nuclear plants and decommissioning of nuclear fuels; this surcharge is designed to cover substantially all of such costs when added to the funds that we transferred to So.g.i.n.; | |
• | a surcharge that benefits producers from renewable resources; | |
• | special surcharges covering the cost of supplying electricity at mandated discounts to certain customers (primarily the Italian state-owned railway company and Acciai Speciali Terni S.p.A., both of which transferred electricity assets to us as part of the nationalization of the Italian electricity industry in 1962); | |
• | research and development surcharges, covering related costs; and | |
• | certain stranded costs that have not yet been recovered. Please see “— Stranded Costs” below for a discussion of these costs. |
• | Other general interest charges established by the Energy Authority to adjust or refine the operation of the tariff mechanism, which include adjustments to cover potential differences between distributors’ costs as recognized under the current tariff structure and actual tariff revenues. | |
• | Incentives for the enhancement of the quality of service. | |
• | Charges recovered through upward adjustments to the price caps, as established by the Energy Authority, which cover: |
• | costs deriving from unforeseeable events, changes in the regulatory framework or new obligations for universal service; | |
• | costs deriving from demand-side management initiatives intended to promote a more efficient use of resources by electricity customers, including information campaigns; and | |
• | additional recognized costs incurred in connection with the offer of value-added services on top of basic options. |
65
Table of Contents
Stranded Costs |
• | undertook for reasons of public policy; | |
• | undertook at a time when the electricity markets were not yet open to competition; and | |
• | could have been recovered in a monopoly regime but cannot be recovered under a regime of competitive electricity pricing. |
• | they minimize the impact of those costs (and, hence, the amount of the refund) on their future operations; and | |
• | they submit an industrial plan demonstrating the long-term profitability of the activity related to the stranded costs. |
Continuity and Quality of Service Regulation |
66
Table of Contents
Promotion of Renewable Resources |
67
Table of Contents
Hydroelectric Power |
Taxes |
• | A state tax for residential uses (of€0.0047/kWh) and for other uses (of€0.0031/kWh excluding users with consumption over 1.2 GWh per month); | |
• | Additional local taxes that vary from€0.0093/kWh up to a maximum of€0.0204/kWh; and | |
• | Value-added tax of 20% for all users with the exception of residential and industrial customers (who are taxed at a rate of 10%). |
68
Table of Contents
Gas Eligible and Non-Eligible Customers |
Transport and Storage |
Distribution and Sale of Gas |
Restrictions on Sale and Imports of Gas |
69
Table of Contents
Rules Governing Distribution of Gas |
Distribution Tariffs and Sales Tariffs for Gas Non-Eligible Customers |
70
Table of Contents
Gas Emergency |
Electromagnetic Fields |
71
Table of Contents
CO2Emissions |
72
Table of Contents
• | Switching fuel; | |
• | Converting existing oil-fired thermal power plants into gas-fired or high-efficiency coal-fired plants; | |
• | Increasing renewable energy capacity; and | |
• | Sourcing CO2 credits through the development of Clean Development Mechanism (CDM) and Joint Implemetation (JI) projects in the energy sector (in particular geothermal), investing in carbon funds and purchasing emission reductions through bilateral contracting. |
SO2, NOxand Other Emissions |
73
Table of Contents
Percentage | ||||||||
Year | Metric Tons | Change | ||||||
(In thousands) | ||||||||
2001 | 213 | (11 | ) | |||||
2002 | 187 | (21 | ) | |||||
2003 | 101 | (58 | ) | |||||
2004 | 94 | (61 | ) | |||||
2005 | 73 | (69 | ) |
Percentage | ||||||||
Year | Metric Tons | Change | ||||||
(In thousands) | ||||||||
2001 | 71 | (8 | ) | |||||
2002 | 71 | (9 | ) | |||||
2003 | 62 | (20 | ) | |||||
2004 | 56 | (28 | ) | |||||
2005 | 49 | (37 | ) |
74
Table of Contents
PCBs and Asbestos |
• | electric transformers and other equipment which contains PCBs above 500 parts per million must be decommissioned or decontaminated by 2009; | |
• | equipment which contains PCBs below the limit set out above can be used until the end of its operational life; and | |
• | equipment which has been contaminated by PCBs spillage must be decommissioned by 2005. |
Water Pollution Prevention |
Solid Waste Management |
Site Clearance |
75
Table of Contents
Landscape Safeguards |
• | re-using routes of previous power lines wherever possible; | |
• | using towers for high voltage lines whose design is aimed at reducing the environmental and aesthetic impact in non-urban areas of particular landscape value; | |
• | acting to reduce the impact of lines in environmentally sensitive or protected areas; | |
• | increasing use of underground cables in urban areas where possible; | |
• | for medium-voltage lines, placing underground cables in urban areas and aerial cables with low environmental impact in other areas with specific environmental value; and | |
• | using aerial insulated cables or underground cables in low voltage networks (at present, we have built approximately two-thirds of our network in this way). |
Environmental Registrations, Certifications and Authorizations |
Cost of Compliance |
76
Table of Contents
Discontinued Nuclear Operations |
Nuclear Liability |
77
Table of Contents
ITEM 4A. | UNRESOLVED STAFF COMMENTS |
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
78
Table of Contents
Overview |
79
Table of Contents
Tariffs and Prices |
• | a “generation cost component,” reflecting fuel costs; and | |
• | the application of global price-cap reductions to transmission and distribution transport charges. |
Macroeconomic Factors |
80
Table of Contents
Critical Accounting Policies |
81
Table of Contents
Comparability of Information |
Regulatory and Other Developments |
• | Start of operation of the Italian power exchange and the Single Buyer. On April 1, 2004, the Italian power exchange for the spot trading of electricity started operations and the Single Buyer became responsible for purchasing all of the electricity to be supplied to the regulated market. Please see “Item 4. Information on the Company — Regulatory Matters — Electricity Regulation” for a detailed discussion of the Italian power exchange, the Single Buyer and related developments in the Italian electricity market. As a result of this development, since April 1, 2004, our Generation and Energy Management segment sells the electricity it produces that is destined for the regulated market to the Single Buyer, and our Sales, Infrastructure and Networks segment purchases the electricity that it distributes on the regulated market from the Single Buyer. These sales and purchases are recorded as operating revenues and operating expenses, respectively. Before April 1, 2004, our Generation and Energy Management segment sold electricity for distribution on the regulated market directly to our Sales, Infrastructure and Networks segment, and the revenues and costs arising from these sales were eliminated from, and therefore not recorded in, our consolidated financial statements. As a result, both our operating revenues and operating expenses have increased substantially on a consolidated basis since April 1, 2004. Sales to the Single |
82
Table of Contents
Buyer are now included in the line item “Sales to regulatory entities, sales on the free market and sales on foreign markets” in the results presented below. For prior periods, this line item was referred to as “Sales to Eligible Customers, sales to the GRTN and sales on foreign markets,” as the Single Buyer was not fully operational. Purchases from the Single Buyer are recorded in the operating expense line item “Purchased Power.” | ||
• | Capacity payments. In order to address a current deficit in Italian generation capacity relative to rising electricity demand, the regulatory framework provides incentives to power generators both to build new capacity as well as to maintain their existing plants in good working order and available to cover sudden variations in electricity demand. Effective March 1, 2004, the Energy Authority established a provisional system of payments to remunerate producers that make generation capacity available to the electricity system at times of peak demand, known as “capacity payments.” Capacity payments to a given producer comprise both an amount due for capacity available on “critical” days (set by the GRTN and now by Terna) and a further amount payable when pool market prices fall below specified thresholds, as an extra incentive. This provisional system has been in place from March 2004 and during all of 2005. | |
• | August 2004 decree on stranded costs. Stranded costs are current costs deriving from contractual commitments or investment decisions that electricity companies undertook for reasons of public policy, at a time when the electricity markets were not yet open to competition, and could have been recovered in a monopoly regime but cannot be recovered under a regime of competitive electricity pricing. Please see “Item 4. Information on the Company — Regulatory Matters — Electricity Regulation” for more information on stranded costs. In August 2004, the MEF and the Ministry of Productive Activities issued a joint decree that determined the overall amount of stranded costs we are entitled to recover. On December 1, 2004, following the European Commission’s approval of the decree, we became entitled to recover approximately€513 million on account of stranded costs related to our generation plants for the period 2000-2003, as well as our stranded costs related to the Nigerian LNG contract, which were determined to be€555 million in respect of the 2000-2003 period and approximately€910 million in respect of the 2004-2009 period (€151 million of which related to 2004). As a result, in 2004 we recorded as “other revenues” a total of€1,219 million arising in connection with stranded costs, the amount we became entitled to receive in respect of 2004 and prior years under the August 2004 decree. Of this total, the€513 million related to our generation plants and the€151 million related to the Nigerian LNG contract for 2004 were recorded by our Generation and Energy Management segment, and the€555 million related to the Nigerian LNG contract in respect of the 2000-2003 period were recorded by our Corporate segment. In 2005, our Generation and Management segment recorded€158 million for stranded costs related to our Nigerian LNG contract. In 2005, we received payments amounting to€361 million for stranded costs accounted in 2004. We have yet to receive any other amount in this regard. | |
• | Increased estimates of the useful lives of certain generation assets. Effective January 1, 2005, following an independent appraisal, we increased our estimates of the useful lives of certain assets related to power generation plants. As a consequence, the amount of depreciation expense we recorded in 2005 with respect to these assets was lower than the amount recorded for the same assets in 2004 by€100 million. |
Changes in Scope of Consolidation |
• | the disposal of a controlling stake in Terna as of September 15, 2005; | |
• | the disposal of a controlling stake in Wind as of August 11, 2005; | |
• | the acquisition of Enel Electrica Banat and Enel Electrica Dobrogea as of April 28, 2005; | |
• | the acquisition of Italgestioni and Italgestioni Gas (together, the “Italgestioni Group”), which are companies active in the distribution and sale of natural gas to end users in the provinces of Calabria and Naples, as of December 14, 2004; |
83
Table of Contents
• | the acquisition of Ottogas Rete and Ottogas Vendita (together, the “Ottogas Group”), which are companies active in the distribution and sale of natural gas to end users in the area of Naples and Salerno, as of September 15, 2004; and | |
• | the disposal of NewReal (a real estate company) as of July 14, 2004. |
Business Segments |
84
Table of Contents
85
Table of Contents
Sale of Wind |
86
Table of Contents
Year Ended | |||||||||
December 31, | |||||||||
2004 | 2005 | ||||||||
Operating revenues | 100.0 | % | 100.0 | % | |||||
Operating expenses | |||||||||
Personnel | (10.4 | ) | (8.1 | ) | |||||
Fuel for thermal generation | (11.6 | ) | (11.5 | ) | |||||
Purchased power | (33.5 | ) | (42.0 | ) | |||||
Depreciation and amortization | (7.1 | ) | (6.5 | ) | |||||
Other operating expenses | (18.5 | ) | (15.6 | ) | |||||
Total operating expenses | (81.1 | ) | (83.7 | ) | |||||
Operating income | 18.9 | 16.3 | |||||||
Financial income (expense) and income (expense) from investments | (2.7 | ) | (2.1 | ) | |||||
Income (expense) from investments accounted for using the equity method | (0.1 | ) | (0.1 | ) | |||||
Income before taxes | 16.1 | 14.1 | |||||||
Income taxes | (6.8 | ) | (5.7 | ) | |||||
Income from continuing operations | 9.3 | 8.4 | |||||||
Income from discontinued operations | (0.5 | ) | 3.7 | ||||||
Income (before minority interests) | 8.8 | 12.1 | |||||||
Net Income | 8.5 | % | 11.4 | % |
Year Ended | ||||||||
December 31, | ||||||||
2004 | 2005 | |||||||
Operating revenues | 17.5 | % | 9.6 | % | ||||
Operating expenses | (21.1 | ) | (7.9 | ) | ||||
Operating income (loss) | (3.6 | ) | 1.7 | |||||
Net financial expense | (1.5 | ) | (0.7 | ) | ||||
Income taxes | 2.0 | 0.6 | ||||||
Net income (loss) before capital gains | (3.1 | ) | 0.4 | |||||
Gains on disposal of assets | 2.6 | 3.3 | ||||||
Income from discontinued operations | (0.5 | )% | 3.7 | % |
87
Table of Contents
Operating Revenues |
Year Ended | |||||||||
December 31, | |||||||||
2004 | 2005 | ||||||||
(In millions of | |||||||||
euro) | |||||||||
Electricity sales: | |||||||||
Tariff revenues from sales on the regulated market and transport of electricity on our distribution network | 15,305 | 15,347 | |||||||
Sales to regulatory entities, sales on the free market and sales on foreign markets(1) | 9,776 | 13,548 | |||||||
Equalization Fund contributions | 17 | 113 | |||||||
Total revenues from electricity sales | 25,098 | 29,008 | |||||||
Gas sales to end users | 1,374 | 1,556 | |||||||
Fees for customer connections, inspections and repositioning services | 657 | 656 | |||||||
Other revenues(2) | 3,882 | 2,839 | |||||||
Total operating revenues | 31,011 | 34,059 |
(1) | “Sales to regulatory entities” includes sales to Terna, the Single Buyer (since April 1, 2004) and the Market Operator. While sales to third-party resellers of electricity on the free market are included in “Sales on the free market”, this line item does not include revenues from sales to resellers purchasing electricity for distribution on the regulated market. Since April 1, 2004, these resellers have been required to purchase electricity directly from the Single Buyer. Revenues received prior to that date from resellers purchasing electricity for distribution on the regulated market were recorded in the line item “Tariff revenues from sales on the regulated market and transport of electricity on our distribution network.” |
(2) | “Other revenues” mainly includes our revenues from sales of fuel (including natural gas) to third parties, engineering and contracting activities, and non-recurring items such as reversals of provisions, bonus payments and reimbursements. |
Electricity sales |
88
Table of Contents
Gas sales to end users |
Fees for customer connections, inspections and repositioning services |
Other revenues |
89
Table of Contents
Year Ended | |||||||||
December 31, | |||||||||
2004 | 2005 | ||||||||
(In millions of | |||||||||
euro) | |||||||||
Generation and Energy Management | € | 13,028 | € | 14,215 | |||||
Sales, Infrastructure and Networks | 19,254 | 20,422 | |||||||
Corporate | 1,649 | 1,103 | |||||||
Services and Other Activities | 1,794 | 1,660 | |||||||
Eliminations | (4,714 | ) | (3,341 | ) | |||||
Total operating revenues from continuing operations | € | 31,011 | € | 34,059 |
Generation and Energy Management |
Sales, Infrastructure and Networks |
90
Table of Contents
Corporate |
Services and Other Activities |
Eliminations |
91
Table of Contents
Operating Expenses |
Year Ended | |||||||||
December 31, | |||||||||
2004 | 2005 | ||||||||
(In millions of | |||||||||
euro) | |||||||||
Operating expenses: | |||||||||
Personnel | € | 3,224 | € | 2,762 | |||||
Fuel for thermal generation | 3,598 | 3,910 | |||||||
Fuel for trading and gas for resale to end users | 1,795 | 1,604 | |||||||
Purchased power | 10,380 | 14,321 | |||||||
Other operating expenses: | |||||||||
Services and rentals | 3,106 | 3,057 | |||||||
Materials and supplies | 1,027 | 798 | |||||||
Other | 783 | 911 | |||||||
Capitalized expenses | (973 | ) | (1,049 | ) | |||||
Total | € | 22,940 | € | 26,314 |
Personnel |
Fuel for thermal generation |
Fuel for trading and gas for resale to end users |
92
Table of Contents
Purchased power |
Services and rentals |
Materials and supplies |
Other costs |
Capitalized expenses |
Year Ended | ||||||||
December 31, | ||||||||
2004 | 2005 | |||||||
(In millions of | ||||||||
euro) | ||||||||
Generation and Energy Management | € | 9,248 | 10,511 | |||||
Sales, Infrastructure and Networks | 15,724 | 16,685 | ||||||
Corporate | 997 | 1,036 | ||||||
Services and Other Activities | 1,580 | 1,411 | ||||||
Eliminations | (4,609 | ) | (3,329 | ) | ||||
Total | € | 22,940 | € | 26,314 |
Generation and Energy Management |
93
Table of Contents
Sales, Infrastructure and Networks |
Corporate |
94
Table of Contents
Services and Other Activities |
Eliminations |
Depreciation, Amortization and Impairment |
Year Ended | ||||||||
December 31, | ||||||||
2004 | 2005 | |||||||
(In millions of | ||||||||
euro) | ||||||||
Generation and Energy Management | € | 1,249 | 1,139 | |||||
Sales, Infrastructure and Networks | 837 | 959 | ||||||
Corporate | 5 | 14 | ||||||
Services and Other Activities | 108 | 95 | ||||||
Eliminations | 2 | 0 | ||||||
Total | € | 2,201 | 2,207 |
95
Table of Contents
Operating Income |
Year Ended | ||||||||
December 31, | ||||||||
2004 | 2005 | |||||||
(In millions of | ||||||||
euro) | ||||||||
Generation and Energy Management | € | 2,531 | € | 2,565 | ||||
Sales, Infrastructure and Networks | 2,693 | 2,778 | ||||||
Corporate | 647 | 53 | ||||||
Services and Other Activities | 106 | 154 | ||||||
Eliminations | (107 | ) | (12 | ) | ||||
Total | € | 5,870 | € | 5,538 |
Generation and Energy Management |
Sales, Infrastructure and Networks |
96
Table of Contents
Corporate |
Services and Other Activities |
Eliminations |
Financial Income/ Expense and Income/ Expenses from Investments |
Income/ Expense from Investments Accounted For Using The Equity Method |
Income Taxes |
Year Ended | |||||||||
December 31, | |||||||||
2004 | 2005 | ||||||||
(In millions of | |||||||||
euro) | |||||||||
Current taxes | 1,328 | 1,398 | |||||||
Difference on estimated income tax from prior years | (14 | ) | 14 | ||||||
Deferred tax assets | 459 | 277 | |||||||
Deferred tax liabilities | 343 | 245 | |||||||
Total | 2,116 | 1,934 |
97
Table of Contents
Income/loss from discontinued operations |
Net income |
• | Fixed assets and related depreciation; | |
• | Capitalized interest and related depreciation; | |
• | Customers’ connection fees; | |
• | Pension and employee termination accounting; | |
• | Other post-retirement benefits accounting; | |
• | Early retirement program; | |
• | Goodwill, impairment and related amortization; | |
• | Intangible assets; |
98
Table of Contents
• | Asset retirement obligations; | |
• | Gain on sale of real estate businesses; | |
• | Stock option compensation expense; | |
• | Accounting for income taxes; and | |
• | Investment in equity securities. |
Critical Accounting Policies under U.S. GAAP |
99
Table of Contents
New U.S. GAAP Accounting Standards |
100
Table of Contents
101
Table of Contents
Cash Flow Analysis |
102
Table of Contents
Capital Resources |
103
Table of Contents
At December 31, | |||||||||
2004 | 2005 | ||||||||
(In millions of | |||||||||
euro) | |||||||||
Cash at banks and marketable securities (note 2) | (364 | ) | (508 | ) | |||||
Factoring receivables (note 4) | (391 | ) | (374 | ) | |||||
Other finance receivables | (11 | ) | (3 | ) | |||||
Total | (766 | ) | (885 | ) | |||||
Short-term debt (note 10): | |||||||||
Bank loans | |||||||||
— Use of revolving credit lines | 400 | 0 | |||||||
— Other short-term bank debt | 2,162 | 970 | |||||||
Total bank loans | 2,562 | 970 | |||||||
Commercial paper | 2,487 | 276 | |||||||
Other short-term financial loans | 191 | 116 | |||||||
Total short-term debt | 5,240 | 1,362 | |||||||
Net short-term debt | 4,474 | 477 | |||||||
Long-term debt (including current maturities) (note 10): | |||||||||
Bank loans | 11,672 | 3,195 | |||||||
Bonds | 9,776 | 8,599 | |||||||
Other loans | 374 | 191 | |||||||
Total Long-Term Debt (including current maturities) | 22,822 | 11,985 | |||||||
Long-term receivables | (1,598 | ) | (66 | ) | |||||
Net Long-Term Debt (including current maturities) | 20,224 | 11,919 | |||||||
Net Financial Indebtedness | 24,698 | 12,396 |
104
Table of Contents
105
Table of Contents
Long-Term | Short-Term | |||||||||||
Rating Agency | Debt | Debt | Outlook | |||||||||
Standard & Poor’s | A+ | A-1 | Negative | |||||||||
Moody’s Investors Service | Aa3 | P-1 | Stable |
Future Liquidity and Capital Resources |
• | the sale on February 2006 of a 6.28% stake in Wind to Weather for€328 million in line with the provisions of the agreements signed by the parties on May 26, 2005; | |
• | the acquisition of a 66% interest in SE for€840 million (of which we already paid€168 million as a deposit in 2005); | |
• | the acquisition of a 67.5% interest in Electrica Muntenia Sud for€820 million. Closing of this transaction is expected by the end of the third quarter of 2006; and | |
• | the distribution, made on June 22, 2006, of an ordinary dividend equal to€0.44 per share, amounting in the aggregate to approximately€2,715 million; and an interim dividend on 2006 results that we expect to pay in November 2006. |
106
Table of Contents
Contractual Obligations |
Payments Due by Period | ||||||||||||||||||||
Less Than | More Than | |||||||||||||||||||
Contractual Obligations | Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | |||||||||||||||
(In millions of euro) | ||||||||||||||||||||
Long-term debt (including current maturities) | 11,902 | 935 | 1,813 | 1,276 | 7,878 | |||||||||||||||
Capital (Finance) Lease Obligations(*) | — | — | — | — | — | |||||||||||||||
Operating leases | 1,728 | 240 | 474 | 468 | 546 | |||||||||||||||
Purchase obligations | 55,660 | 6,898 | 8,215 | 7,639 | 32,908 | |||||||||||||||
Other long-term obligations | 0 | 0 | ||||||||||||||||||
Total | 69,290 | 8,073 | 10,502 | 9,383 | 41,332 |
• | Commitments to suppliers of fuel. We have entered into various fuel supply contracts, primarily for the purchase of fuel oil and natural gas, in respect of which we will be required to pay a total€51,647 million. Our aggregate expenditures related to these commitments are expected to total€19,066 million for the period from January 1, 2006 through December 31, 2010. Please see “Item 4. Information on the Company — Business — The Enel Group — Generation and Energy Management — Fuel” for information about our purchases of fuel. |
107
Table of Contents
• | Commitments to suppliers of electricity. We also have unconditional purchase obligations for electric power in respect of which we will be required to pay a total of€4,013 million. Our aggregate expenditures related to these commitments are expected to total€3,686 million for the period from January 1, 2006 through December 31, 2010. |
Commitments |
• | Approximately€6,692 million (€6,813 million including intangible assets) relating to our Italian generation businesses; | |
• | Approximately€1,300 million relating to generation development from renewable resources; | |
• | Approximately€4,408 million relating to our international operations; | |
• | Approximately€5,859 million relating to our electricity distribution and sale businesses, including approximately€624 million for our Telemanagement project; and | |
• | Approximately€338 million relating to our gas distribution business. |
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
108
Table of Contents
Year Initially | ||||||
Name | Position | Appointed | ||||
Piero Gnudi | Chairman | 2002 | ||||
Fulvio Conti | Director, general manager (direttore generale), chief executive officer | 2005 | ||||
Giulio Ballio | Director | 2005 | ||||
Augusto Fantozzi | Director | 2005 | ||||
Alessandro Luciano | Director | 2005 | ||||
Fernando Napolitano | Director | 2002 | ||||
Francesco Taranto | Director | 2000 | ||||
Gianfranco Tosi | Director | 2002 | ||||
Francesco Valsecchi | Director | 2005 |
109
Table of Contents
110
Table of Contents
111
Table of Contents
Year Appointed | ||||||||||||||
Year Joined | to Current | |||||||||||||
Name | Age | Management Position | the Group | Position | ||||||||||
Andrea Brentan | 57 | Business Development Unit of International Division | 2002 | 2005 | ||||||||||
Alessandro Bufacchi | 59 | Information and Communication Technology | 2000 | 2000 | ||||||||||
Antonio Cardani | 56 | Audit | 2000 | 2000 | ||||||||||
Salvatore Cardillo | 56 | Legal Affairs | 2000 | 2000 | ||||||||||
Gianluca Comin | 43 | Communication | 2002 | 2002 | ||||||||||
Luigi Ferraris | 44 | Chief Financial Officer in charge of Accounting, Planning and Control | 1999 | 2005 | ||||||||||
Sandro Fontecedro | 61 | Head of Generation and Energy Management Division | 1970 | 2003 | ||||||||||
Livio Gallo | 55 | Head of Infrastructure and Networks Division | 1999 | 2005 | ||||||||||
Claudio Machetti | 47 | Chief Financial Officer in charge of Finance | 2000 | 2005 | ||||||||||
Gianfilippo Mancini | 40 | Energy Management Unit of Generation and Energy Management Division | 1997 | 2005 | ||||||||||
Massimo Romano | 46 | Institutional and Regulatory Affairs | 1997 | 1999 | ||||||||||
Paolo Ruzzini | 54 | Human Resources | 2003 | 2003 | ||||||||||
Claudio Sartorelli | 60 | Corporate Affairs | 1970 | 1996 | ||||||||||
Francesco Starace | 50 | Head of Market Division | 2000 | 2005 | ||||||||||
Carlo Tamburi | 47 | Procurement and Services | 2003 | 2005 |
112
Table of Contents
113
Table of Contents
114
Table of Contents
Year Initially | ||||||
Name | Position | Appointed | ||||
Eugenio Pinto | Chairman | 2005 | ||||
Carlo Conte | Auditor | 2004 | ||||
Franco Fontana | Auditor | 2001 | ||||
Giancarlo Giordano | Alternate Auditor | 2004 | ||||
Paolo Sbordoni | Alternate Auditor | 2004 |
115
Table of Contents
Base | Bonuses and | Non-Monetary | Other | ||||||||||||||||
Name | Positions(s) Held | Compensation | Other Incentives | Benefits | Compensation | ||||||||||||||
(In euros) | |||||||||||||||||||
Current and former directors | |||||||||||||||||||
Piero Gnudi | Chairman | 700,755.14 | 585,998.30 | (1) | 11,050.68 | (2) | 2,640,000.00 | (3) | |||||||||||
Paolo Scaroni | Chief executive officer, general manager, director(6) | 294,507.19 | 3,187,024.91 | (4) | 5,997,675.71 | (5) | |||||||||||||
Fulvio Conti | Chief executive officer, general manager, director | 350,000.00 | 350,000.00 | (7) | 982,959.61 | (8) | |||||||||||||
Mauro Miccio | Director(6) | 47,404.21 | |||||||||||||||||
Franco Morganti | Director(6) | 46,630.90 | 28,506.84 | (9) | |||||||||||||||
Giulio Ballio | Director | 63,583.10 | |||||||||||||||||
Augusto Fantozzi | Director | 62,833.10 | |||||||||||||||||
Alessandro Luciano | Director | 62,833.10 | |||||||||||||||||
Fernando Napolitano | Director | 110,479.99 | |||||||||||||||||
Francesco Taranto | Director | 117,029.40 | 18,273.97 | (10) | |||||||||||||||
Gianfranco Tosi | Director | 109,963.53 | |||||||||||||||||
Francesco Valsecchi | Director | 62,883.10 | |||||||||||||||||
Total compensation of Directors | 2,028,852.76 | 4,123,023.21 | �� | 11,050.68 | 9,667,416.13 | ||||||||||||||
Current and former statutory auditors | |||||||||||||||||||
Angelo Provasoli | Chairman(11) | 35,860.80 | |||||||||||||||||
Eugenio Pinto | Chairman | 49,416.80 | |||||||||||||||||
Franco Fontana | Statutory Auditor | 74,500.00 | |||||||||||||||||
Carlo Conte | Statutory Auditor | 75,000.00 | (12) | ||||||||||||||||
Total compensation of Statutory Auditors | 234,777.60 | ||||||||||||||||||
Total compensation paid | 2,263,630.36 | 4,123,023.21 | 11,050.68 | 9,667,416.13 |
(1) | This amount is composed of: (i) €186,000.00 as a variable part of the base compensation relating to fiscal year 2004, resolved upon and paid in 2005; (ii) €199,998.30 as a variable part of the base compensation relating to fiscal year 2005, resolved upon and paid in 2005; and (iii) €200,000.00 as bonus for the sale of Wind to Weather. | |
(2) | Insurance policies. | |
(3) | This compensation was determined on the basis of a “phantom stock option plan” granted by the board of directors to Piero Gnudi for his role of chairman of the board of directors from 2002 through 2005. Under this “phantom stock option plan” the beneficiary was awarded the right to receive a compensation, subject to ordinary taxation, equal to the difference between the market value of Enel’s shares at the time of the exercise of the “phantom stock options” assigned and the exercise price of the same options determined at the time of the grant, such amount being multiplied by the number of the “phantom stock options” assigned. In “phantom stock option plans”, unlike conventional stock option plans, neither actual stock options are granted nor shares are issued. |
116
Table of Contents
(4) | This amount is composed of: (i) €700,000.00 as a variable part of the compensation relating to fiscal year 2004, resolved upon and paid in 2005, (ii)€291,666.66 as a variable part of the compensation relating to fiscal year 2005, resolved upon and paid in 2005, (iii) €1,695,358.25 as a bonus entry compensation and (iv) €500,000.00 as bonus for the sale of Wind to Weather. | |
(5) | This amount is composed of: (i) €312,410.07 as base compensation for services rendered as general manager in 2005, and (ii) €600,000.00 as a variable part of the same compensation relating to fiscal year 2004, resolved upon and paid in 2005, (iii) €250,000.00 as a variable part of the same compensation relating to fiscal year 2005, resolved upon and paid in 2005, (iv) €322,291.64 for severance indemnity, (v) €1,872,000.00 as compensation determined on the basis of a “phantom stock option plan” and subject to ordinary taxation. For a description of Enel’s “phantom stock option plans” please see note (3) above; (vi) €2,640,974.00 for a bonus connected to the exercise of stock options granted in his capacity of general manager. This bonus is paid to all managers when they exercise the options granted; its amount is proportionate to the number of options exercised and is connected to dividends distributed by Enel for assets divestment. | |
(6) | Former member of Enel’s board of directors. | |
(7) | Variable part of the base compensation relating to fiscal year 2005, resolved upon and paid in 2005. | |
(8) | This amount is composed of: (i) €431,980.74 as base compensation for services rendered as general manager in 2005, (ii) €408,333.31 as a variable part of the same compensation relating to fiscal year 2005 and paid in 2005 (iii) €142,645.56 as bonus connected to the exercise of stock options following May 30, 2005 (date of his appointment as chief executive officer and general manager) granted to Mr. Conti for his position as head of Enel’s Finance, Administration and Control department vested until June 20, 2005. This bonus is paid to all managers when they exercise the options granted; its amount is proportionate to the number of options exercised and is connected to dividends distributed by Enel for assets divestment. | |
(9) | Compensation paid for services rendered to Wind, as director until August 11, 2005 (for the amount of€18,273.97) and for certain non-managerial tasks delegated to him by the board of directors in his capacity as director (for the amount of€10,232.87). Mr. Morganti ceased to perform these tasks, effective as of March 24, 2005. |
(10) | Compensation paid as a director of Wind until August 11, 2005. |
(11) | Mr. Provasoli resigned on May 26, 2005. |
(12) | Compensation paid to the MEF (for the amount of€55,000.00) pursuant to the directive of Council of Ministers — Public Office department (Dipartimento della Funzione Pubblica) of March 1, 2000. |
• | In April 2001, 621,280 options to purchase the same number of Enel’s ordinary shares, under the 2001 stock option plan. Of these options, 56% vested and, consequently, 347,916 options were exercisable starting in 2004. These options expired on December 31, 2005. The exercise price for these options was€7.272. During the period between June 1, 2005, and June 16, 2005, Mr. Conti exercised all of the vested options and sold 332,916 of the resulting shares on the market; |
117
Table of Contents
• | In March 2002, a further 902,500 options to purchase the same number of Enel’s ordinary shares, under the 2002 stock option plan. All these options vested and, consequently, 30% of the options were exercisable starting in 2003, an additional 30% starting in 2004 and the remaining 40% starting in 2005. These options expire on December 31, 2007. The exercise price for these options is€6.426. During the period between May 24, 2004, and June 11, 2004, Mr. Conti exercised 250,000 of these options and sold the resulting shares on the market. Subsequently, during the period between November 12, 2004, and December 2, 2004, Mr. Conti exercised a further 175,000 of these options, and between February 3, 2005, and February 23, 2005, a further 141,500 of these options and sold all of the resulting shares on the market. As of May 31, 2006, Mr. Conti has not exercised any of the remaining 336,000 options; | |
• | In April 2003, a further 992,800 options to purchase the same number of Enel’s ordinary shares, under the 2003 stock option plan. All these options vested and, consequently, 30% of the options are exercisable starting from 2004, an additional 30% starting from 2005 and the remaining 40% starting from 2006. These options expire on December 31, 2008. The exercise price for these options is€5.240. During the period between May 24, 2004, and June 11, 2004, Mr. Conti exercised 297,840 of these options and sold the resulting shares on the market. Subsequently, during the period between February 3, 2005, and February 23, 2005, Mr. Conti exercised a further 200,000 of these options and sold the resulting shares on the market. As of May 31, 2006, Mr.Conti has not exercised any of the remaining 494,960 options; | |
• | In March 2004, a further 600,000 options to purchase the same number of Enel’s ordinary shares, under the 2004 stock option plan. All these options vested and, consequently, 15% of the options may be exercised starting from 2005, another 15% starting from 2006, an additional 30% starting from 2007 and the remaining 40% starting from 2008. These options expire on December 31, 2009. The exercise price for these options is€6.242. As of May 31, 2006, Mr. Conti has not exercised any of these options; and | |
• | In March 2005, a further 600,000 options to purchase the same number of Enel’s ordinary shares, under the 2005 stock option plan. Given that the conditions precedent provided for in the 2005 stock option plan were not satisfied, none of these options vested and all automatically lapsed. |
Number of | |||||
Ordinary Shares | |||||
Held as of | |||||
Name of Director or Statutory Auditor | May 31, 2006 | ||||
Piero Gnudi | 70,524 | (1) | |||
Fulvio Conti | 41,324 | (2) | |||
Francesco Taranto | 10,000 | ||||
Giulio Ballio | 1,700 | (3) | |||
Giancarlo Giordano | 524 | ||||
All other directors and statutory auditors | 0 | ||||
Total | 124,072 |
(1) | 46,000 of which are held by a company controlled by Mr. Gnudi and 24,262 by Mr. Gnudi’s wife. |
(2) | 762 of which are held by Mr. Conti’s wife. |
118
Table of Contents
(3) | All of these shares are held by Mr. Ballio’s wife. |
Number of | |||||||||
Employees | Division | ||||||||
Generation and Energy Management | 9,904 | 19 | % | ||||||
Sales, Infrastructure and Networks | 35,783 | 69 | % | ||||||
Services and Other Activities | 5,522 | 11 | % | ||||||
Holding Company | 569 | 1 | % | ||||||
Discontinued Operations | 0 | 0 | % | ||||||
Total Enel Group | 51,778 | 100 | % |
Estimated Number of | ||||
Potential Retirees | ||||
2006 | 1,700 | |||
2007 | 1,700 | |||
2008 | 1,000 | |||
2009 | 1,200 | |||
2010 | 800 |
As of December 31, | ||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||
Employees (other than managers) | 71,802 | 70,313 | 63,985 | 61,193 | 51,216 | |||||||||||||||
Managers | 859 | 891 | 785 | 705 | 562 | |||||||||||||||
Total | 72,661 | 71,204 | 64,770 | 61,898 | 51,778 | |||||||||||||||
119
Table of Contents
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
120
Table of Contents
• | The material acquisition of Enel’s shares by third parties; | |
• | Material shareholders’ agreements; | |
• | Major corporate changes; and | |
• | The appointment of one non-voting director. |
• | Special rules concerning appointments of directors and statutory auditors in order to ensure that minority shareholders are represented; and | |
• | Limitations on the maximum number of shares that a shareholder, or group of shareholders, other than the MEF (or other entities controlled by the Italian state), may hold. |
121
Table of Contents
122
Table of Contents
ITEM 8. | FINANCIAL INFORMATION |
Electromagnetic field proceedings |
Blackout litigation |
123
Table of Contents
Brownout litigation |
124
Table of Contents
INPS circular |
Alleged abuse of market power proceedings |
125
Table of Contents
Alleged abuse of dominant position by Enel Energia. |
Alleged abuse of dominant position by Enel and Enel Produzione |
Alleged abuse of dominant position by Enel Viesgo Generaciòn |
Orimulsion arbitration |
126
Table of Contents
Echelon arbitration |
Congestion fees litigation with the Energy Authority |
Suspension of the conversion works at the Torrevaldaliga Nord power plant |
Criminal proceedings involving certain former Enelpower executives |
127
Table of Contents
2001 | 2002 | 2003 | 2004 | 2005 | ||||||
Dividends per ordinary share (in euros)(1) | €0.36 | €0.36 | €0.36 | €0.69 | €0.63 | |||||
Dividends per ordinary share (in U.S. dollars)(2) | $0.32 | $0.38 | $0.45 | $0.87 | $0.78 |
(1) | The amount of the aggregate dividend for each of 2001, 2002, 2003, 2004 and 2005 was equal to approximately 52%, 109%, 87%, 162% and 100% of our consolidated net income for the relevant year, respectively (with the amounts used for 2004 and 2005 being under IFRS). |
(2) | We have translated the historical dividend amounts into U.S. dollars using the noon buying rate for euro in effect on the respective payment dates. The noon buying rate for euro may differ from the rate that may be used by the Depositary for the ADSs in order to convert euro into U.S. dollars for purposes of making payments to holders of ADSs. |
128
Table of Contents
• | our financial performance; | |
• | cash and capital requirements; | |
• | any restrictions in financing agreements; and | |
• | prevailing business conditions. |
129
Table of Contents
ITEM 9. | THE OFFER AND LISTING |
ADSs | ||||||||
High | Low | |||||||
(In dollars) | ||||||||
2001 | 38.85 | 25.00 | ||||||
2002 | 30.31 | 22.60 | ||||||
2003 | 35.85 | 26.58 | ||||||
2004 | ||||||||
First Quarter | 40.89 | 34.35 | ||||||
Second Quarter | 41.98 | 38.47 | ||||||
Third Quarter | 41.19 | 37.48 | ||||||
Fourth Quarter | 49.44 | 40.00 | ||||||
2005 | ||||||||
First Quarter | 49.95 | 46.23 | ||||||
Second Quarter | 48.76 | 42.24 | ||||||
Third Quarter | 45.58 | 41.57 | ||||||
Fourth Quarter | 42.81 | 38.42 | ||||||
December 2005-May 2006 | ||||||||
December 2005 | 40.81 | 39.27 | ||||||
January 2006 | 42.65 | 40.35 | ||||||
February 2006 | 42.98 | 41.02 | ||||||
March 2006 | 42.83 | 41.01 | ||||||
April 2006 | 43.26 | 40.79 | ||||||
May 2006 | 44.85 | 43.11 |
130
Table of Contents
Ordinary Shares | ||||||||
High | Low | |||||||
(In euros) | ||||||||
2001 | 8.051 | 5.650 | ||||||
2002 | 6.765 | 4.490 | ||||||
2003 | 6.022 | 5.015 | ||||||
2004 | ||||||||
First Quarter | 6.581 | 5.464 | ||||||
Second Quarter | 6.920 | 6.454 | ||||||
Third Quarter | 6.651 | 6.143 | ||||||
Fourth Quarter | 7.245 | 6.570 | ||||||
2005 | ||||||||
First Quarter | 7.485 | 6.889 | ||||||
Second Quarter | 7.53 | 6.977 | ||||||
Third Quarter | 7.30 | 6.845 | ||||||
Fourth Quarter | 7.147 | 6.499 | ||||||
December 2005-May 2006 | ||||||||
December 2005 | 6.815 | 6.632 | ||||||
January 2006 | 7.005 | 6.675 | ||||||
February 2006 | 7.189 | 6.861 | ||||||
March 2006 | 7.073 | 6.853 | ||||||
April 2006 | 6.995 | 6.695 | ||||||
May 2006 | 6.978 | 6.715 |
ITEM 10. | ADDITIONAL INFORMATION |
131
Table of Contents
132
Table of Contents
No. of | Total Options | Strike Price | ||||||||||||||||||
Year of Grant | Grantees | Granted | Options Exercised | € | Expiration | |||||||||||||||
2002 | 383 | (1) | 41,748,500 | 35,007,900 | 6.426 | (2) | December 31, 2007 | |||||||||||||
2003 | 549 | (3) | 47,624,005 | 38,337,287 | 5.240 | December 31, 2008 | ||||||||||||||
2004 | 640 | (3) | 38,527,550 | 14,334,553 | 6.242 | December 31, 2009 | ||||||||||||||
2005 | 448 | (3) | 28,757,000 | (4) | — | 7.273 | December 31, 2010 |
(1) | Including Enel’s former chief executive officers, Mr. Tatò and Mr. Scaroni, each in his capacity as general managers (direttori generali), as well as Enel’s current chief executive officer, Mr. Conti, in his capacity as chief financial officer. |
(2) | The strike price for the options granted to Enel’s former chief executive officer, Mr. Scaroni, was determined with regard to the reference price of Enel’s shares on Telematico on the date of his appointment as general manager (direttore generale), and was therefore set at€6.480. |
(3) | Including Enel’s former chief executive officer, Mr. Scaroni, in his capacity as general manager (direttore generale) as well as Enel’s current chief executive officer, Mr. Conti, in his capacity as chief financial officer. |
(4) | The conditions for the exercise of options under the 2005 plan were not satisfied, therefore none of the options granted thereunder became exercisable. |
(i) under the May 2001 authorization, on April 10, 2003, Enel’s board of directors resolved to increase the Company’s share capital by an amount not to exceed€41,748,500 through the issuance (in one or more tranches) of a maximum of 41,748,500 new ordinary shares to satisfy the exercise of options granted under the 2002 plan and to be subscribed for by December 31, 2007; as of May 24, 2006, 35,007,900 ordinary shares had been issued in connection with the exercise of an equivalent number of options under the 2002 plan; | |
(ii) under the May 2003 authorization, on April 7, 2004, Enel’s board of directors resolved to increase the Company’s share capital by an amount not to exceed€47,624,005 through the issuance (in one or more tranches) of a maximum of 47,624,005 new ordinary shares to satisfy the exercise of options granted under the 2003 plan and to be subscribed for by December 31, 2008; as of May 24, 2006, 38,337,287 ordinary shares had been issued in connection with the exercise of an equivalent number of options under the 2003 plan; | |
(iii) under the May 2004 authorization, on March 30, 2005, Enel’s board of directors resolved to increase the Company’s share capital by an amount not to exceed€38,527,550 through the issuance (in one or more tranches) of a maximum of 38,527,550 new ordinary shares to satisfy the exercise of options granted under the 2004 plan and to be subscribed for by December 31, 2009; as of May 24, 2006, 14,334,553 ordinary shares had been issued in connection with the exercise of an equivalent number of options under the 2004 plan; | |
(iv) at the annual meeting held on May 26, 2005, Enel’s shareholders authorized the board of directors, for a period of five years, to increase Enel’s share capital by a maximum total amount of€28,757,000 in order to permit the issuance (in one or more tranches) of a maximum of 28,757,000 new ordinary shares under the terms of the 2005 stock option plan. Given that one of the two conditions precedent for the exercise of the options was not satisfied, the options granted under the 2005 plan are not exercisable and such authorization to increase Enel’s share capital lapsed automatically; | |
(iv) at the annual meeting held on May 26, 2006, Enel’s shareholders authorized the board of directors, for a period of five years, to increase Enel’s share capital by a maximum total amount of€31,790,000 in |
133
Table of Contents
order to permit the issuance (in one or more tranches) of a maximum of 31,790,000 new ordinary shares under the terms of the 2006 stock option plan, as approved by the same annual meeting. This authorization, together with those granted in previous years and not yet utilized or expired, would entail a maximum potential dilution of Enel’s share capital amounting to 1.15%. |
134
Table of Contents
General |
Authorization of Shares |
Form and Transfer of Shares |
135
Table of Contents
• | an Italian or EU bank; | |
• | a non-EU bank authorized by the Bank of Italy to operate in the Italian market; | |
• | Società di Intermediazione Mobiliare, or SIM; | |
• | an EU investment company; | |
• | a non-EU investment company authorized by CONSOB to provide investment services in Italy; | |
• | an Italian asset management company; | |
• | a stock broker; | |
• | the company which has issued the shares; | |
• | the controlling shareholder of the company which has issued the shares; | |
• | the Bank of Italy; | |
• | an EU or non-EU entity operating a centralized clearing system; | |
• | a financial intermediary operating a clearing system governed by art. 69 (2) and 70 of the TUF; | |
• | a financial intermediary registered on the list kept by the Bank of Italy under art. 107 of Legislative Decree No. 385 of September 1, 1993; | |
• | Poste Italiane S.p.A. (the Italian Post Office company); | |
• | Cassa Depositi e Prestiti; | |
• | the MEF; and | |
• | the managers of foreign clearing, settlement and guarantee systems for financial instruments, provided that they are subject to supervision equivalent to that provided by Italian law. |
136
Table of Contents
Limitations on shareholdings |
• | Controlling entities and directly or indirectly controlled entities of the holder, as well as entities controlled by the same controlling entity; and | |
• | Affiliated personal entities of the holder, including spouses and other closely related personal relatives. |
Special powers of the MEF |
Opposition to material acquisitions of shares |
137
Table of Contents
Opposition to material shareholders’ agreements |
Members of Enel’s Board of Directors |
Veto power over material changes |
Dividend Rights |
138
Table of Contents
Voting Rights |
Board of Directors |
139
Table of Contents
Statutory Auditors |
140
Table of Contents
External Auditors |
141
Table of Contents
Meetings of Shareholders |
142
Table of Contents
Preemptive Rights |
Reports to Shareholders |
Liquidation Rights |
Purchase by the Company of its Own Shares |
143
Table of Contents
Notification of the Acquisition of Shares and Voting Rights |
144
Table of Contents
(i) concern prior consultation for the exercise of voting rights in a listed company or its controlling company; | |
(ii) contain limitations on the transfer of shares or securities which grant the right to purchase or subscribe shares of the companies mentioned in (i) above; | |
(iii) provide for the purchase of shares or securities mentioned in (ii) above; or | |
(iv) have as their object or effect the exercise (including joint exercise) of a dominant influence over a listed company or its controlling company. |
145
Table of Contents
Minority Shareholders’ Rights |
146
Table of Contents
Tender Offer Rules |
147
Table of Contents
Liability for Mismanagement of Subsidiaries |
Overview |
148
Table of Contents
Independent Directors |
149
Table of Contents
Executive Sessions |
Audit Committee and Internal Audit Function |
150
Table of Contents
Compensation Committee |
151
Table of Contents
Nominating Committee |
Corporate Governance Guidelines/ Code of Business Conduct and Ethics |
Certifications as to Violations of NYSE Standards |
152
Table of Contents
Shareholder Approval of Adoption and Modification of Equity Compensation Plans |
153
Table of Contents
Withholding Tax on Dividends |
154
Table of Contents
155
Table of Contents
Tax on capital gains |
156
Table of Contents
Taxation of Distributions from Capital Reserves |
Transfer tax |
157
Table of Contents
Estate and gift tax |
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
158
Table of Contents
Foreign exchange risk |
159
Table of Contents
• | contracts with a notional amount of€1,569 million used to hedge the foreign exchange risk related to fuel purchases, electricity imports and expected cash flows in currencies other than the euro (€855 million as of December 31, 2004); and | |
• | contracts with a notional amount of€35 million used to hedge the foreign exchange risk related to the repayment of the commercial paper we issued in foreign currency (€715 million as of December 31, 2004). |
Interest rate risk |
160
Table of Contents
Commodity price risk |
• | Futures on commodities: €290.7 million or 5,971 contracts; | |
• | Options on commodities: €0.2 million or 24,165 metric tons, of which€9 million for options on copper and aluminium collars; | |
• | Swaps on petroleum and coal indexes: €613.2 million or 2,013,355 metric tons; | |
• | Swaps and forwards on power: €107.5 million; | |
• | Swaps on gas transmission fee: €17,6 million or 1 billion cubic meters per year; | |
• | Contracts for differences: €7,638 million; and | |
• | Congestion contracts: €0 million. |
• | Futures on commodities: no contracts; | |
• | Options on commodities: no contracts; | |
• | Swaps on petroleum and coal indexes: €537.56 million or 4,133,000 metric tons; | |
• | Swaps on gas transmission fee: €17.9 million or 1 billion cubic meters per year; | |
• | Contracts for differences: €5,133 million; and | |
• | Congestion contracts: €118 million. |
161
Table of Contents
As of December 31 | |||||||||
2005 | 2004 | ||||||||
Fair Value | |||||||||
(In millions of euro) | |||||||||
Futures on commodities | 16.30 | 0.00 | |||||||
Assets | 17.50 | 0.00 | |||||||
Liabilities | (1.20 | ) | 0.00 | ||||||
Options on commodities | 1.86 | 0.00 | |||||||
Assets | 1.86 | 0.00 | |||||||
Liabilities | 0.00 | 0.00 | |||||||
Swaps on petroleum and coal indexes | (12.90 | ) | 12.20 | ||||||
Assets | 10.60 | 22.30 | |||||||
Liabilities | (23.50 | ) | (10.10 | ) | |||||
Swaps and forwards on power | (1.05 | ) | 2.34 | ||||||
Assets | 397.25 | 35.61 | |||||||
Liabilities | (398.31 | ) | (33.27 | ) | |||||
Swaps on gas transmission fee | (12.20 | ) | (11.70 | ) | |||||
Assets | 0.00 | 0.00 | |||||||
Liabilities | (12.20 | ) | (11.70 | ) | |||||
Contracts for difference with the Single Buyer | 100.00 | 0.00 | |||||||
Assets | 100.00 | 0.00 | |||||||
Liabilities | 0.0 | 0.00 | |||||||
Total | 92.00 | 2.84 | |||||||
Assets | 527.21 | 24.64 | |||||||
Liabilities | (435.21 | ) | (21.80 | ) |
162
Table of Contents
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
ITEM 13. | DEFAULTS, DIVIDENDS AVERAGES AND DELINQUENCIES |
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND PROCEEDS |
ITEM 15. | CONTROLS AND PROCEDURES |
ITEM 16. | [RESERVED] |
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |
163
Table of Contents
ITEM 16B. | CODE OF ETHICS |
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Audit and Non-Audit Fees |
Year Ended | |||||||||
December 31, | |||||||||
2004 | 2005 | ||||||||
(In millions | |||||||||
of euro) | |||||||||
Audit fees | 2.0 | 4.1 | |||||||
Audit-related fees | 1.3 | 2.0 | |||||||
Tax fees | 0.0 | 0.0 | |||||||
Other fees | 0.0 | 0.0 | |||||||
Total fees | 3.3 | 6.1 |
Audit Committee Pre-Approval Policies and Procedures |
164
Table of Contents
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
ITEM 17. | FINANCIAL STATEMENTS |
165
Table of Contents
ITEM 18. | FINANCIAL STATEMENTS |
Report of Independent Registered Public Accounting Firm | F-1 | |||
Consolidated Statements of Income for the years ended December 31, 2005 and 2004 | F-2 | |||
Consolidated Balance Sheets as of December 31, 2005 and 2004 | F-3 | |||
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2005 and 2004 | F-5 | |||
Consolidated Statements of Cash Flows for the years ended December 31, 2005 and 2004 | F-6 | |||
Notes to Consolidated Financial Statements | F-7 | |||
Report of Independent Registered Public Accounting Firm | F-109 |
166
Table of Contents
ITEM 19. | EXHIBITS |
167
Table of Contents
F-1
Table of Contents
2005 | 2004 | 2005 | ||||||||||||||
Note | (millions | |||||||||||||||
(millions of euro) | of U.S. | |||||||||||||||
dollars) | ||||||||||||||||
Operating Revenues | 2, 6 | |||||||||||||||
Revenues from sales and services | 6.a | 32,272 | 28,658 | 38,217 | ||||||||||||
Other revenues | 6.b | 1,787 | 2,353 | 2,116 | ||||||||||||
34,059 | 31,011 | 40,333 | ||||||||||||||
Operating expenses: | 7 | |||||||||||||||
Raw materials and consumables | 7.a | 20,633 | 16,800 | 24,434 | ||||||||||||
Services and rentals | 7.b | 3,057 | 3,106 | 3,620 | ||||||||||||
Personnel | 7.c | 2,762 | 3,224 | 3,271 | ||||||||||||
Depreciation, amortization and impairment | 2, 7.d | 2,207 | 2,201 | 2,614 | ||||||||||||
Other operating expenses | 7.e | 911 | 783 | 1,079 | ||||||||||||
Capitalized expenses | 7.f | (1,049 | ) | (973 | ) | (1,242 | ) | |||||||||
28,521 | 25,141 | 33,776 | ||||||||||||||
Operating income | 5,538 | 5,870 | 6,557 | |||||||||||||
Financial income (expense) and income (expense) from investments | 8 | (714 | ) | (827 | ) | (846 | ) | |||||||||
Income (expense) from investments accounted for using the equity method | 9 | (30 | ) | (25 | ) | (36 | ) | |||||||||
(744 | ) | (852 | ) | (882 | ) | |||||||||||
Income before taxes | 4,794 | 5,018 | 5,675 | |||||||||||||
Income taxes | 2, 10 | 1,934 | 2,116 | 2,290 | ||||||||||||
Income from continuing operations | 2,860 | 2,902 | 3,385 | |||||||||||||
Income from discontinued operations, net of tax | 2, 5 | 1,272 | (155 | ) | 1,506 | |||||||||||
Income for the period (shareholders of Parent Company and minority interests) | 4,132 | 2,747 | 4,891 | |||||||||||||
Attributable to minority interests | 237 | 116 | 280 | |||||||||||||
Attributable to shareholders of Parent Company | 3,895 | 2,631 | 4,611 | |||||||||||||
Earnings per share (euro) | 0.67 | 0.45 | 0.79 | |||||||||||||
Diluted earnings per share (euro) | 0.67 | * | 0.45 | * | 0.79 | |||||||||||
Earnings from continuing operations per share (euro) | 0.46 | 0.48 | 0.54 | |||||||||||||
Diluted earnings from continuing operations per share (euro) | 0.46 | * | 0.48 | * | 0.54 | |||||||||||
Earnings from discontinued operations per share (euro) | 0.21 | (0.03 | ) | 0.25 | ||||||||||||
Diluted earnings from discontinued operations per share (euro) | 0.21 | * | (0.03 | )* | 0.25 |
(*) | Calculated by adjusting the average number of ordinary shares for the period (6,171,352,406) to take account of the diluting effect of stock options for the period (euro 29 million), |
F-2
Table of Contents
2005 | 2004 | 2005 | ||||||||||||||
Note | (millions | |||||||||||||||
(millions of euro) | of U.S. | |||||||||||||||
dollars) | ||||||||||||||||
ASSETS | ||||||||||||||||
Current assets | 11 | |||||||||||||||
Inventories | 2, 11.a | 884 | 1,345 | 1,047 | ||||||||||||
Trade receivables | 11.b | 8,316 | 8,027 | 9,848 | ||||||||||||
Tax receivables | 11.c | 789 | 854 | 934 | ||||||||||||
Current financial assets | 11.d | 569 | 509 | 674 | ||||||||||||
Cash and cash equivalents | 2, 11.e | 476 | 331 | 564 | ||||||||||||
Other current assets | 11.f | 1,712 | 2,466 | 2,026 | ||||||||||||
12,746 | 13,532 | 15,093 | ||||||||||||||
Non-current assets | 12 | |||||||||||||||
Property, plant and equipment | 12.a | 30,188 | 36,702 | 35,749 | ||||||||||||
Intangible assets | 12.b | 2,182 | 10,071 | 2,584 | ||||||||||||
Deferred tax assets | 12.c | 1,778 | 2,953 | 2,106 | ||||||||||||
Investments accounted for using the equity method | 2, 12.d | 1,797 | 190 | 2,128 | ||||||||||||
Non-current financial assets | 12.e | 836 | 1,776 | 990 | ||||||||||||
Other non-current assets | 12.f | 975 | 154 | 1154 | ||||||||||||
37,756 | 51,846 | 44,711 | ||||||||||||||
TOTAL ASSETS | 50,502 | 65,378 | 59,804 | |||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities | 13 | |||||||||||||||
Short-term loans | 13.a | 1,361 | 5,192 | 1,612 | ||||||||||||
Current portion of long-term loans | 14.a | 935 | 1,397 | 1,107 | ||||||||||||
Trade payables | 13.b | 6,610 | 6,818 | 7,828 | ||||||||||||
Income tax payable | 28 | 99 | 33 | |||||||||||||
Current financial liabilities | 13.c | 294 | 493 | 348 | ||||||||||||
Other current liabilities | 13.d | 4,218 | 4,608 | 4,995 | ||||||||||||
13,446 | 18,607 | 15,923 | ||||||||||||||
Non-current liabilities | 14 | |||||||||||||||
Long-term loans | 14.a | 10,967 | 20,291 | 12,987 | ||||||||||||
Post-employment and other employee benefits | 14.b | 2,662 | 2,910 | 3,152 | ||||||||||||
Provisions for risks and charges | 14.c | 1,267 | 1,404 | 1,500 | ||||||||||||
Deferred tax liabilities | 14.d | 2,464 | 2,512 | 2,918 | ||||||||||||
Non-current financial liabilities | 14.e | 262 | 370 | 310 | ||||||||||||
Other non-current liabilities | 14.f | 18 | 218 | 22 | ||||||||||||
17,640 | 27,705 | 20,889 | ||||||||||||||
TOTAL LIABILITIES | 31,086 | 46,312 | 36,812 | |||||||||||||
F-3
Table of Contents
2005 | 2004 | 2005 | ||||||||||||||
Note | (millions | |||||||||||||||
(millions of euro) | of U.S. | |||||||||||||||
dollars) | ||||||||||||||||
Equity attributable to the shareholders of the Parent Company | 15 | |||||||||||||||
Share capital | 6,157 | 6,104 | 7,291 | |||||||||||||
Other reserves | 4,219 | 3,878 | 4,996 | |||||||||||||
Reserve from measurement of financial instruments | 2 | (229 | ) | 2 | ||||||||||||
Retained earnings | 5,953 | 7,583 | 7,050 | |||||||||||||
Net income for the year* | 2,726 | 617 | 3,228 | |||||||||||||
19,057 | 17,953 | 22,567 | ||||||||||||||
Equity attributable to minority interests | 359 | 1,113 | 425 | |||||||||||||
TOTAL SHAREHOLDERS’ EQUITY | 19,416 | 19,066 | 22,992 | |||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 50,502 | 65,378 | 59,804 |
F-4
Table of Contents
Share Capital and Reserves Attributable to the Shareholders of the Parent | ||||||||||||||||||||||||||||||||||||||||||||
Company | ||||||||||||||||||||||||||||||||||||||||||||
Translation | ||||||||||||||||||||||||||||||||||||||||||||
of Financial | Equity | |||||||||||||||||||||||||||||||||||||||||||
Statements | Reserve from | Net | Attributable to | Equity | ||||||||||||||||||||||||||||||||||||||||
Share | in Currencies | Measurement | Income | Shareholders | Attributable | |||||||||||||||||||||||||||||||||||||||
Share | Premium | Legal | Statutory | Retained | Other Than | of Financial | for the | of Parent | to Minority | |||||||||||||||||||||||||||||||||||
Capital | Reserve | Reserve | Reserves | Earnings | Euro | Instruments | Year | Company | Interests | Total | ||||||||||||||||||||||||||||||||||
(millions of euro) | ||||||||||||||||||||||||||||||||||||||||||||
January 1, 2004 | 6,063 | — | 1,453 | 2,215 | 7,382 | 18 | (200 | ) | 2,509 | 19,440 | 181 | 19,621 | ||||||||||||||||||||||||||||||||
Exercise of stock options | 41 | 208 | — | — | (8 | ) | — | — | — | 241 | — | 241 | ||||||||||||||||||||||||||||||||
Other changes | — | — | — | — | (105 | ) | — | — | — | (105 | ) | 816 | 711 | |||||||||||||||||||||||||||||||
Allocation of income | — | — | — | — | 314 | — | — | (314 | ) | — | — | — | ||||||||||||||||||||||||||||||||
Dividends | — | — | — | — | — | — | — | (2,195 | ) | (2,195 | ) | — | (2,195 | ) | ||||||||||||||||||||||||||||||
Interim dividends | — | — | — | — | — | — | — | (2,014 | ) | (2,014 | ) | — | (2,014 | ) | ||||||||||||||||||||||||||||||
Net income for the year recognized in equity | — | — | — | — | — | (16 | ) | (29 | ) | — | (45 | ) | — | (45 | ) | |||||||||||||||||||||||||||||
Net income for the year recognized in income statement | — | — | — | — | — | — | — | 2,631 | 2,631 | 116 | 2,747 | |||||||||||||||||||||||||||||||||
December 31, 2004 | 6,104 | 208 | 1,453 | 2,215 | 7,583 | 2 | (229 | ) | 617 | 17,953 | 1,113 | 19,066 | ||||||||||||||||||||||||||||||||
Exercise of stock options | 53 | 303 | — | — | (17 | ) | — | — | — | 339 | 339 | |||||||||||||||||||||||||||||||||
Change in scope of consolidation | — | — | — | — | — | — | — | — | — | (892 | ) | (892 | ) | |||||||||||||||||||||||||||||||
Other changes | — | — | — | — | (16 | ) | — | — | — | (16 | ) | (7 | ) | (23 | ) | |||||||||||||||||||||||||||||
Dividends | — | — | — | — | (1,597 | ) | — | — | (617 | ) | (2,214 | ) | (89 | ) | (2,303 | ) | ||||||||||||||||||||||||||||
Interim dividends | — | — | — | — | — | — | — | (1,169 | ) | (1,169 | ) | — | (1,169 | ) | ||||||||||||||||||||||||||||||
Net income for the year recognized in equity | — | — | — | — | — | 38 | 231 | — | 269 | (3 | ) | 266 | ||||||||||||||||||||||||||||||||
Net income for the year recognized in income statement | — | — | — | — | — | — | — | 3,895 | 3,895 | 237 | 4,132 | |||||||||||||||||||||||||||||||||
December 31, 2005 | 6,157 | 511 | 1,453 | 2,215 | 5,953 | 40 | 2 | 2,726 | 19,057 | 359 | 19,416 | |||||||||||||||||||||||||||||||||
(millions of U.S. dollars) | ||||||||||||||||||||||||||||||||||||||||||||
December 31, 2005 | 7,291 | 605 | 1,721 | 2,623 | 7,050 | 47 | 2 | 3,228 | 22,567 | 425 | 22,992 |
F-5
Table of Contents
2005 | 2004 | 2005 | ||||||||||
(millions | ||||||||||||
(millions of euro) | of U.S. | |||||||||||
dollars) | ||||||||||||
Income for the period (shareholders of Parent Company and minority interests) | 4,132 | 2,747 | 4,893 | |||||||||
Adjustments for: | ||||||||||||
Amortization of intangible assets | 308 | 491 | 365 | |||||||||
Depreciation of property, plant and equipment | 2,561 | 2,994 | 3,033 | |||||||||
Exchange rate gains and losses | 22 | (1 | ) | 26 | ||||||||
Provisions | 781 | 1,042 | 925 | |||||||||
Financial (income)/expense | 808 | 1,001 | 957 | |||||||||
Income taxes | 2,147 | 1,498 | 2,542 | |||||||||
(Gains)/losses and other non-monetary items | (1,295 | ) | 1,081 | (1,534 | ) | |||||||
Cash flows from operating activities before changes in net working capital | 9,464 | 10,853 | 11,207 | |||||||||
Increase/(Decrease) in provisions including termination benefits | (814 | ) | (1,078 | ) | (964 | ) | ||||||
(Increase)/ Decrease in inventories | 125 | (39 | ) | 148 | ||||||||
(Increase)/ Decrease in trade receivables | (1,919 | ) | (768 | ) | (2,272 | ) | ||||||
(Increase)/ Decrease in financial and non-financial assets/liabilities | 250 | (1,546 | ) | 296 | ||||||||
Increase/(Decrease) in trade payables | 1,265 | 819 | 1,498 | |||||||||
Interest income and other financial income collected | 202 | 341 | 239 | |||||||||
Interest expense and other financial expense paid | (1,065 | ) | (1,473 | ) | (1,261 | ) | ||||||
Income taxes paid | (1,815 | ) | (2,274 | ) | (2,149 | ) | ||||||
Cash flows from operating activities(a) | 5,693 | 4,835 | 6,742 | |||||||||
Investments in property, plant and equipment | (3,037 | ) | (3,538 | ) | (3,596 | ) | ||||||
Investments in intangible assets | (220 | ) | (296 | ) | (261 | ) | ||||||
Investments in entities (or business units) less cash and cash equivalents acquired | (524 | ) | (126 | ) | (621 | ) | ||||||
Disposals of entities (or business units) less cash and cash equivalents sold | 4,652 | 1,941 | 5,509 | |||||||||
(Increase)/ Decrease in other investing activities | 221 | 66 | 262 | |||||||||
Cash flows from investing/disinvesting activities(b) | 1,092 | (1,953 | ) | 1,293 | ||||||||
New financing | 1,759 | 3,986 | 2,083 | |||||||||
Repayments and other changes | (5,283 | ) | (2,947 | ) | (6,256 | ) | ||||||
Dividends paid | (3,472 | ) | (4,256 | ) | (4,112 | ) | ||||||
Increase in share capital and reserves due to the exercise of stock options | 339 | 241 | 401 | |||||||||
Capital contributed by minority shareholders | 3 | 10 | 4 | |||||||||
Cash flows from financing activities(c) | (6,654 | ) | (2,966 | ) | (7,880 | ) | ||||||
Impact of exchange rate fluctuations on cash and cash equivalents(d) | 14 | (5 | ) | 17 | ||||||||
Increase/(Decrease) in cash and cash equivalents (a+b+c+d) | 145 | (89 | ) | 172 | ||||||||
Cash and cash equivalents at beginning of the period | 363 | 452 | 430 | |||||||||
Cash and cash equivalents at end of the period(*) | 508 | 363 | 602 |
(*) | Include Euro 28 million and Euro 32 million of other securities classified as current assets as of December 31, 2005 and 2004, respectively. |
F-6
Table of Contents
(1) | GENERAL |
F-7
Table of Contents
(2) | SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES |
F-8
Table of Contents
F-9
Table of Contents
F-10
Table of Contents
Useful Life | ||||
Civil buildings | 40 years | |||
Hydroelectric power plants(1) | 40 years | |||
Thermoelectric power plants(1)(2) | 40 years | |||
Geothermal power plants(3) | 20 years | |||
Alternative energy power plants(4) | 20 years | |||
Transport lines | 40 years | |||
Transformation plant | 32-42 years | |||
Medium- and low-voltage distribution networks | 30-40 years | |||
Gas distribution networks and meters | 25-50 years | |||
Telecommunications systems and networks | 5.5-20 years | |||
Industrial and commercial equipment | 4 years |
(1) | Excluding assets to be relinquished at end of concession, which are depreciated over the duration of the concession if shorter than useful life. |
(2-4) | Useful life as from January 1, 2005; previously it was equal to (2) 20 years; (3) 12.5 years; (4) 21.3 years. For additional details, please see note 12.a. |
F-11
Table of Contents
Intangible assets |
Impairment losses |
F-12
Table of Contents
Debt securities |
Equity investments in other entities and other financial assets |
Trade receivables |
Cash and cash equivalents |
F-13
Table of Contents
Trade payables |
Financial liabilities |
Derivative financial instruments |
F-14
Table of Contents
• | revenues from the sale of goods are recognized when the significant risks and rewards of ownership are transferred to the buyer; | |
• | revenues from the sale and transport of electricity and gas are recognized when the supply or service is provided, even if these have not yet been invoiced, and are determined using estimates as well as the fixed meter reading figures. Where applicable, this revenue is based on the rates and related components established by the Electricity and Gas Authority or the corresponding foreign authorities during the applicable period. Specifically, the Energy Authority in 2004 established a price equalizing mechanism intended to minimize the effects of a timing discrepancy in the setting of prices distributors pay to the |
F-15
Table of Contents
Single Buyer for electricity to be distributed on the regulated market and the prices that distributors may charge to end users on the regulate market. At the closing date, the Company reflects in revenue its best estimate of costs incurred by the Single Buyer not yet reflected in the electricity sale price to end users; | ||
• | revenues from the rendering of services are recognized in line with the stage of completion of the services; | |
• | the connection fees related to the electricity distribution are considered as standalone transaction and all other services are paid for separately; based on this assumption such fees are recognized up-front as revenues, since no further obligation for the Company exists and all other service are paid for separately; | |
• | revenues for the telecommunications sector from traffic, interconnections and roaming are recorded according to the usage by customers and telephone operators calculated on an accrual basis. Such revenues include the amount relating to the access to and use of the Company’s network by customers and other domestic and international telephone operators. Revenues from the sale of rechargeable telephone cards are recorded solely for the amount corresponding to prepaid traffic effectively used by customers during the year. The prepaid traffic not yed used as of balance sheet date is recognized as “deferred income”. Revenues from the sale of mobile and fixed telephones and related accessories are recorded at the time of the transfer of ownership. |
F-16
Table of Contents
• | cash flow hedges, related to hedging the risk of changes in the cash flows on certain long-term floating-rate loans; | |
• | fair value hedges, related to hedging the risk of changes in the fair value of fixed-rate liabilities; | |
• | trading derivatives, related to hedging interest and exchange rate risk and commodity risk but which do not qualify for recognition under IAS 39 as hedges of specific assets, liabilities, commitments or future transactions. |
F-17
Table of Contents
2006 | 2007 | 2008 | 2009 | 2010 | Beyond | |||||||||||||||||
62 | 45 | 41 | 25 | 21 | 91 |
F-18
Table of Contents
Tariff Structure |
F-19
Table of Contents
Increased Competition |
• | An increase in bilateral contracts between its competitors and final customers; | |
• | Regulations limiting each operator’s access to international electricity sources to a maximum percentage of available interconnection capacity; and | |
• | The construction of new generation facilities by its competitors and the development of new interconnection lines that would increase the volume of electricity that may be imported in Italy. |
(3) | CHANGES IN THE SCOPE OF CONSOLIDATION |
• | the sale of NewReal (real estate sector) on July 14, 2004; | |
• | the acquisition of controlling investments in Ottogas Rete and Ottogas Vendita (distribution and sale of natural gas to end-users) on September 15, 2004; | |
• | the acquisition of controlling investments in Italgestioni and Italgestioni Gas (distribution and sale of natural gas to end-users) on December 14, 2004; | |
• | the acquisition of controlling investments in Electrica Banat and Electrica Dobrogea (electricity distribution and sales in Romania) on April 28, 2005; | |
• | the disposal of 62.75% of Wind on August 11, 2005 and its deconsolidation, with the reclassification of the remaining stake of 37.25% under non-current financial assets; | |
• | the disposal of 43.85% of Terna and its deconsolidation as from September 15, 2005. |
F-20
Table of Contents
(Millions of euro) | ||||
Property, plant and equipment | 305 | |||
Intangible assets | 3 | |||
Trade receivables and inventories | 57 | |||
Cash and cash equivalents and other current assets | 133 | |||
Total assets | 498 | |||
Trade payables | (61 | ) | ||
Other financial liabilities and other current liabilities | (91 | ) | ||
Other provisions and other payables | (191 | ) | ||
Total liabilities | (343 | ) | ||
Total net assets acquired | 155 | |||
Negative goodwill | (24 | ) | ||
Total consideration paid and capital increase at the acquisition date | 131 | |||
of which to current financial liabilities | (15 | ) | ||
CASH FLOW AT THE ACQUISITION DATE | 116 |
(4) | SEGMENT INFORMATION |
F-21
Table of Contents
Continuing Operations | Discontinued Operations | |||||||||||||||||||||||||||||||||||||||||||
Generation | Sales, | Services | Eliminations | Eliminations | ||||||||||||||||||||||||||||||||||||||||
and Energy | Infrastructure | and Other | and | Telecomm | and | |||||||||||||||||||||||||||||||||||||||
Management | and Networks | Activities | Corporate | Adjustments | Total | Transmission | Unications | Adjustments | Total | Total | ||||||||||||||||||||||||||||||||||
(millions of euro) | ||||||||||||||||||||||||||||||||||||||||||||
Revenues from third parties | 12,518 | 20,081 | 374 | 872 | 214 | 34,059 | 711 | 2,604 | (62 | ) | 3,253 | 37,312 | ||||||||||||||||||||||||||||||||
Revenues from other divisions | 1,697 | 341 | 1,286 | 231 | (3,555 | ) | — | 29 | 144 | (173 | ) | — | — | |||||||||||||||||||||||||||||||
Total revenues | 14,215 | 20,422 | 1,660 | 1,103 | (3,341 | ) | 34,059 | 740 | 2,748 | (235 | ) | 3,253 | 37,312 | |||||||||||||||||||||||||||||||
Gross operating margin | 3,704 | 3,737 | 249 | 67 | (12 | ) | 7,745 | 524 | 903 | (1 | ) | 1,426 | 9,171 | |||||||||||||||||||||||||||||||
Amortization, depreciation and impairment losses | 1,139 | 959 | 95 | 14 | — | 2,207 | 118 | 736 | — | 854 | 3,061 | |||||||||||||||||||||||||||||||||
Operating income | 2,565 | 2,778 | 154 | 53 | (12 | ) | 5,538 | 406 | 167 | (1 | ) | 572 | 6,110 | |||||||||||||||||||||||||||||||
Net financial income (expense) and income (expense) from investments accounted for using the equity method | — | — | — | — | — | (744 | ) | — | — | — | (240 | ) | (984 | ) | ||||||||||||||||||||||||||||||
Income taxes | — | — | — | — | — | 1,934 | — | — | — | 213 | 2,147 | |||||||||||||||||||||||||||||||||
Net income before capital gains | — | — | — | — | — | 2,860 | — | — | — | 119 | 2,979 | |||||||||||||||||||||||||||||||||
Gains on disposal of assets | — | — | — | — | — | — | — | — | — | 1,153 | 1,153 | |||||||||||||||||||||||||||||||||
Net income (Group and minority interests) | — | — | — | — | — | 2,860 | — | — | — | 1,272 | 4,132 | |||||||||||||||||||||||||||||||||
Operating assets | 19,622 | 23,154 | 2,927 | — | (1,850 | ) | 43,853 | — | — | — | — | 43,853 | ||||||||||||||||||||||||||||||||
Operating liabilities | 4,247 | 9,298 | 2,377 | — | (1,552 | ) | 14,370 | — | — | — | — | 14,370 | ||||||||||||||||||||||||||||||||
Capital expenditure | 1,027 | 1,692 | 99 | 11 | — | 2,829 | 142 | 286 | — | 428 | 3,257 |
Continuing Operations | Discontinued Operations | |||||||||||||||||||||||||||||||||||||||||||
Generation | Sales, | Services | Eliminations | Eliminations | ||||||||||||||||||||||||||||||||||||||||
and Energy | Infrastructure | and Other | and | Telecomm | and | |||||||||||||||||||||||||||||||||||||||
Management | and Networks | Activities | Corporate | Adjustments | Total | Transmission | Unications | Adjustments | Total | Total | ||||||||||||||||||||||||||||||||||
(millions of euro) | ||||||||||||||||||||||||||||||||||||||||||||
Revenues from third parties | 10,070 | 19,105 | 742 | 1,200 | (106 | ) | 31,011 | 967 | 4,474 | (2 | ) | 5,439 | 36,450 | |||||||||||||||||||||||||||||||
Revenues from other divisions | 2,958 | 149 | 1,052 | 449 | (4,608 | ) | — | 50 | 253 | (303 | ) | — | — | |||||||||||||||||||||||||||||||
Total revenues | 13,028 | 19,254 | 1,794 | 1,649 | (4,714 | ) | 31,011 | 1,017 | 4,727 | (305 | ) | 5,439 | 36,450 | |||||||||||||||||||||||||||||||
Gross operating margin | 3,780 | 3,530 | 214 | 652 | (105 | ) | 8,071 | 649 | 1,421 | 14 | 2,084 | 10,155 | ||||||||||||||||||||||||||||||||
Amortization, depreciation and impairment losses | 1,249 | 837 | 108 | 5 | 2 | 2,201 | 159 | 3,037 | 6 | 3,202 | 5,403 | |||||||||||||||||||||||||||||||||
Operating income | 2,531 | 2,693 | 106 | 647 | (107 | ) | 5,870 | 490 | (1,616 | ) | 8 | (1,118 | ) | 4,752 | ||||||||||||||||||||||||||||||
Net financial income (expense) and income (expense) from investments accounted for using the equity method | — | — | — | — | — | (852 | ) | — | — | — | (467 | ) | (1,319 | ) | ||||||||||||||||||||||||||||||
Income taxes | — | — | — | — | — | 2,116 | — | — | — | (618 | ) | 1,498 | ||||||||||||||||||||||||||||||||
Net income before capital gains | — | — | — | — | — | 2,902 | — | — | — | (967 | ) | 1,935 | ||||||||||||||||||||||||||||||||
Gains on disposal of assets | — | — | — | — | — | — | — | — | — | 812 | 812 | |||||||||||||||||||||||||||||||||
Net income (Group and minority interests) | — | — | — | — | — | 2,902 | — | — | — | (155 | ) | 2,747 | ||||||||||||||||||||||||||||||||
Operating assets | 18,882 | 20,806 | 3,510 | — | (2,405 | ) | 40,793 | 4,585 | 12,940 | — | 17,525 | 58,318 | ||||||||||||||||||||||||||||||||
Operating liabilities | 3,491 | 8,285 | 3,981 | — | (3,060 | ) | 12,697 | 571 | 2,181 | — | 2,752 | 15,449 | ||||||||||||||||||||||||||||||||
Capital expenditure | 857 | 1,711 | 112 | 10 | — | 2,690 | 277 | 868 | — | 1,144 | 3,834 |
F-22
Table of Contents
2005 | 2004 | ||||||||
(millions of euro) | |||||||||
Total assets (consolidated financial statements) | 50,502 | 65,378 | |||||||
Non-current financial assets | 2,601 | 358 | |||||||
Current financial assets | 156 | 57 | |||||||
Cash and cash equivalents | 476 | 331 | |||||||
Tax receivables | 3,416 | 6,314 | |||||||
Sector assets | 43,853 | 58,318 | |||||||
— of which: | |||||||||
Generation and Energy Management | 19,622 | 18,882 | |||||||
Sales, Infrastructure and Networks | 23,154 | 20,806 | |||||||
Other Activities | 2,927 | 3,510 | |||||||
Corporate, eliminations and adjustments | (1,850 | ) | (2,405 | ) | |||||
Telecommunications and Transmission | — | 17,525 | |||||||
Total liabilities (consolidated financial statements) | 31,086 | 46,312 | |||||||
Non-current financial liabilities | 262 | 377 | |||||||
Current financial liabilities | 294 | 463 | |||||||
Long and short-term loans | 13,262 | 26,905 | |||||||
Tax liabilities | 2,898 | 3,118 | |||||||
Sector liabilities | 14,370 | 15,449 | |||||||
— of which: | |||||||||
Generation and Energy Management | 4,247 | 3,491 | |||||||
Sales, Infrastructure and Networks | 9,298 | 8,285 | |||||||
Other Activities | 2,377 | 3,981 | |||||||
Corporate, eliminations and adjustments | (1,552 | ) | (3,060 | ) | |||||
Telecommunications and Transmission | — | 2,752 |
(5) | DISCONTINUED OPERATIONS |
2005 | 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Operating revenues | 3,253 | 5,439 | (2,186 | ) | ||||||||
Operating expenses | (2,681 | ) | (6,557 | ) | 3,876 | |||||||
Operating income (losses) | 572 | (1,118 | ) | 1,690 | ||||||||
Net financial expense | (240 | ) | (467 | ) | 227 | |||||||
Income taxes | (213 | ) | 618 | (831 | ) | |||||||
Net income before capital gains | 119 | (967 | ) | 1,086 | ||||||||
Gains on disposal of assets, net of taxes | 1,153 | 812 | 341 | |||||||||
NET INCOME FROM DISCONTINUED OPERATIONS | 1,272 | (155 | ) | 1,427 |
F-23
Table of Contents
2005 | ||||
(millions | ||||
of euro) | ||||
Property, plant and equipment, igoodwill and other intangible assets | (13,922 | ) | ||
Other non-current assets (net) | 543 | |||
Inventories and trade receivables | (1,739 | ) | ||
Cash and cash equivalents | (413 | ) | ||
Other current assets (net) | 448 | |||
Trade payables, other provisions and other payables | 2,540 | |||
Gross financial debt | 8,839 | |||
Net assets sold | (3,704 | ) | ||
Gross cash flow | (4,869 | ) | ||
Cash and cash equivalents | 413 | |||
Net cash flow | (4,456 | ) |
(6) | OPERATING REVENUES |
(6.a) Revenues from sales and services — euro 32,272 million |
2005 | 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Revenues from the sale and transport of electricity and contributions from Electricity Equalization Fund | 29,008 | 25,098 | 3,910 | |||||||||
Revenues from the sale and transport of natural gas to end-users | 1,556 | 1,374 | 182 | |||||||||
Revenues from fuel sales | 446 | 894 | (448 | ) | ||||||||
Connection fees for the electricity and gas networks | 656 | 657 | (1 | ) | ||||||||
Revenues for contract work in progress | 290 | 609 | (319 | ) | ||||||||
Other sales and services | 44 | 42 | 2 | |||||||||
Net income (charges) from commodity risk management | 272 | (16 | ) | 288 | ||||||||
Total | 32,272 | 28,658 | 3,614 |
F-24
Table of Contents
2005 | 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Income | ||||||||||||
Realized on contracts for differences | 289 | — | 289 | |||||||||
Realized on other contracts | 113 | 92 | 21 | |||||||||
Total realized income | 402 | 92 | 310 | |||||||||
Unrealized on contracts for differences | 43 | — | 43 | |||||||||
Unrealized on other contracts | 48 | 15 | 33 | |||||||||
Total unrealized income | 91 | 15 | 76 | |||||||||
Total income | 493 | 107 | 386 | |||||||||
Charges | ||||||||||||
Realized on other contracts | (188 | ) | (103 | ) | (85 | ) | ||||||
Total realized charges | (188 | ) | (103 | ) | (85 | ) | ||||||
Unrealized on other contracts | (33 | ) | (20 | ) | (13 | ) | ||||||
Total unrealized charges | (33 | ) | (20 | ) | (13 | ) | ||||||
Total charges | (221 | ) | (123 | ) | (98 | ) | ||||||
NET INCOME (CHARGES) FROM COMMODITY RISK MANAGEMENT | 272 | (16 | ) | 288 |
(6.b) Other revenues — euro 1,787 million |
2005 | 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Prior-year’ regulatory items | 338 | — | 338 | |||||||||
Stranded costs | 158 | 1,219 | (1,061 | ) | ||||||||
Gains on sale of equity investments | 131 | 13 | 118 | |||||||||
Bonus for service continuity | 115 | 250 | (135 | ) | ||||||||
Other | 1,045 | 871 | 174 | |||||||||
Total | 1,787 | 2,353 | (566 | ) |
F-25
Table of Contents
2005 | 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Italy | 32,252 | 29,233 | 3,019 | |||||||||
Europe | 1,656 | 1,549 | 107 | |||||||||
Middle East | 27 | 56 | (29 | ) | ||||||||
Americas | 117 | 160 | (43 | ) | ||||||||
Others | 7 | 13 | (6 | ) | ||||||||
Total | 34,059 | 31,011 | 3,048 |
(7) | OPERATING EXPENSES |
(7.a) Raw materials and consumables — euro 20,633 million |
2005 | 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Electricity purchases | 14,321 | 10,380 | 3,941 | |||||||||
Fuel and gas purchases | 5,514 | 5,393 | 121 | |||||||||
Materials purchases | 798 | 1,027 | (229 | ) | ||||||||
Total | 20,633 | 16,800 | 3,833 | |||||||||
of which capitalized | (665 | ) | (673 | ) | (8 | ) |
(7.b) Services and rentals — euro 3,057 million |
2005 | 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Electricity transport | 1,048 | 1,068 | (20 | ) | ||||||||
Maintenance and repairs | 395 | 347 | 48 | |||||||||
Telephone and postal | 144 | 133 | 11 | |||||||||
Services by deconsolidated companies | 127 | 213 | (86 | ) | ||||||||
Services and tenders for contract work in progress | 120 | 260 | (140 | ) | ||||||||
Advertising and publications | 62 | 63 | (1 | ) | ||||||||
Leases and rentals | 387 | 349 | 38 | |||||||||
Other | 774 | 673 | 101 | |||||||||
Total | 3,057 | 3,106 | (49 | ) |
F-26
Table of Contents
(7.c) Personnel — euro 2,762 million |
2005 | 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Wages and salaries | 1,957 | 1,989 | (32 | ) | ||||||||
Social security contributions | 529 | 537 | (8 | ) | ||||||||
Termination benefits | 111 | 97 | 14 | |||||||||
Other costs | 165 | 601 | (436 | ) | ||||||||
Total | 2,762 | 3,224 | (462 | ) | ||||||||
Of which capitalized | (384 | ) | (300 | ) | 84 |
Average Number | Headcount | |||||||||||||||
2005 | 2004 | 2005-2004 | At Dec. 31, 2005 | |||||||||||||
Senior managers | 618 | 581 | 37 | 562 | ||||||||||||
Middle managers | 4,144 | 4,024 | 120 | 4,103 | ||||||||||||
Employees | 29,231 | 29,515 | (284 | ) | 28,480 | |||||||||||
Workers | 19,369 | 17,278 | 2,091 | 18,633 | ||||||||||||
Total continuing operations | 53,362 | 51,398 | 1,964 | 51,778 | ||||||||||||
Discontinued operations | 6,722 | 10,820 | (4,098 | ) | — | |||||||||||
TOTAL | 60,084 | 62,218 | (2,134 | ) | 51,778 |
(7.d) Depreciation, amortization and impairment losses — euro 2,207 million |
2005 | 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Depreciation of property, plant and equipment | 1,918 | 1,990 | (72 | ) | ||||||||
Amortization of intangible assets | 138 | 121 | 17 | |||||||||
Impairment losses | 151 | 90 | 61 | |||||||||
Total | 2,207 | 2,201 | 6 |
F-27
Table of Contents
(7.e) Other operating expenses — euro 911 million |
2005 | 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Provisions for risks and charges | 212 | 203 | 9 | |||||||||
Purchase of green certificates | 119 | 104 | 15 | |||||||||
Charges for CO2emissions | 228 | — | 228 | |||||||||
Taxes and duties | 144 | 158 | (14 | ) | ||||||||
Other | 208 | 318 | (110 | ) | ||||||||
Total | 911 | 783 | 128 |
(7.f) Capitalized expenses — euro (1,049) million |
2005 | 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Personnel | (384 | ) | (300 | ) | 84 | |||||||
Materials | (665 | ) | (673 | ) | (8 | ) | ||||||
Total | (1,049 | ) | (973 | ) | 76 |
F-28
Table of Contents
(8) | FINANCIAL INCOME (EXPENSE) AND INCOME (EXPENSE) FROM INVESTMENTS — EURO (714) MILLION |
2005 | 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Financial income: | ||||||||||||
— interest and other income from non-current financial assets | 29 | 49 | (20 | ) | ||||||||
— foreign exchange gains | 23 | 165 | (142 | ) | ||||||||
— income realized from derivative instruments | 13 | 16 | (3 | ) | ||||||||
— income unrealized from derivative instruments | 55 | 13 | 42 | |||||||||
— other income | 99 | 118 | (19 | ) | ||||||||
Total income | 219 | 361 | (142 | ) | ||||||||
Financial expense: | ||||||||||||
— interest and other charges on financial debt | (686 | ) | (771 | ) | 85 | |||||||
— foreign exchange losses | (52 | ) | (143 | ) | 91 | |||||||
— expense realized on derivative instruments | (75 | ) | (122 | ) | 47 | |||||||
— expense unrealized on derivative instruments | (19 | ) | (13 | ) | (6 | ) | ||||||
— accretion of post-employment and other employee benefits | (112 | ) | (134 | ) | 22 | |||||||
Total financial expense | (944 | ) | (1,183 | ) | 239 | |||||||
Total financial income (expense) | (725 | ) | (822 | ) | 97 | |||||||
Income (expense) from investments: | ||||||||||||
— income from investments | 11 | 4 | 7 | |||||||||
— expense on investments | — | (9 | ) | 9 | ||||||||
Total income (expense) from investments | 11 | (5 | ) | 16 | ||||||||
TOTAL | (714 | ) | (827 | ) | 113 |
(9) | INCOME (EXPENSE) FROM INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD — EURO (30) MILLION |
2005 | 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Income from associates | 7 | 8 | (1 | ) | ||||||||
Expense on associates | (37 | ) | (33 | ) | (4 | ) | ||||||
Total | (30 | ) | (25 | ) | (5 | ) |
(10) | INCOME TAXES — EURO 1,934 MILLION |
2005 | 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Current taxes | 1,398 | 1,328 | 70 | |||||||||
Difference on estimated income taxes from prior years | 14 | (14 | ) | 28 | ||||||||
Deferred tax assets | 277 | 459 | (182 | ) | ||||||||
Deferred tax liabilities | 245 | 343 | (98 | ) | ||||||||
Total | 1,934 | 2,116 | (182 | ) |
F-29
Table of Contents
2005 | 2004 | |||||||||||||||
(millions of euro) | ||||||||||||||||
Income before taxes | 4,794 | 5,018 | ||||||||||||||
Theoretical tax due calculated as 33% of pre-tax income | 1,582 | 33.0 | % | 1,656 | 33.0 | % | ||||||||||
Permanent differences and minor items | (12 | ) | (0.3 | )% | 103 | 2.1 | % | |||||||||
Difference on estimated income taxes from prior years | 14 | 0.3 | % | (14 | ) | (0.3 | )% | |||||||||
IRAP | 350 | 7.3 | % | 371 | 7.4 | % | ||||||||||
Income tax for the year | 1,934 | 40.3 | % | 2,116 | 42.2 | % |
(11.a) Inventories — euro 884 million |
At Dec. 31, 2005 | At Dec. 31, 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Raw materials, consumables and supplies: | ||||||||||||
— fuel | 585 | 590 | (5 | ) | ||||||||
— materials, equipment and other inventories | 115 | 499 | (384 | ) | ||||||||
Total | 700 | 1,089 | (389 | ) | ||||||||
Buildings available for sale | 166 | 208 | (42 | ) | ||||||||
Finished products and goods | — | 44 | (44 | ) | ||||||||
Other | 18 | 4 | 14 | |||||||||
TOTAL | 884 | 1,345 | (461 | ) |
F-30
Table of Contents
(11.b) Trade receivables — euro 8,316 million |
At Dec. 31, 2005 | At Dec. 31, 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Customers: | ||||||||||||
— sale and transport of electricity | 6,850 | 5,532 | 1,318 | |||||||||
— distribution and sale of natural gas to end-users | 611 | 516 | 95 | |||||||||
— other activities | 506 | 652 | (146 | ) | ||||||||
Total | 7,967 | 6,700 | 1,267 | |||||||||
Trade receivables for telecommunication and transmission services | — | 1,212 | (1,212 | ) | ||||||||
Trade receivables due from associates | 290 | 19 | 271 | |||||||||
Receivables for contract work in progress | 59 | 96 | (37 | ) | ||||||||
TOTAL | 8,316 | 8,027 | 289 |
(Millions of euro) | ||||
Total at Jan 1, 2004 | 328 | |||
Accruals* | 241 | |||
Utilization | (83 | ) | ||
Total at Dec. 31, 2004 | 486 | |||
Accruals** | 188 | |||
Utilization | (22 | ) | ||
Net changes in scope of consolidation | (305 | ) | ||
Total at Dec. 31, 2005 | 347 |
(*) | include euro 151 million in respect of Telecommunication and Transmission sectors. |
(**) | include euro 37 million in respect of Telecommunication and Transmission sectors until date of deconsolidation. |
(11.c) Tax receivables — euro 789 million |
F-31
Table of Contents
(11.d) Current financial assets — euro 569 million |
At Dec. 31, 2005 | At Dec. 31, 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Receivables for factoring advances | 374 | 391 | (17 | ) | ||||||||
Derivative contracts | 115 | 27 | 88 | |||||||||
Other securities | 28 | 32 | (4 | ) | ||||||||
Investments | 43 | 2 | 41 | |||||||||
Other | 9 | 57 | (48 | ) | ||||||||
Total | 569 | 509 | 60 |
Notional Amount | Fair Value | |||||||||||||||||||
At Dec. 31, 2005 | At Dec. 31, 2004 | At Dec. 31, 2005 | At Dec. 31, 2004 | 2005-2004 | ||||||||||||||||
(millions of euro) | ||||||||||||||||||||
Cash flow hedge derivatives: | ||||||||||||||||||||
— interest rates | 60 | 4 | — | — | — | |||||||||||||||
— exchange rates | 1 | 100 | — | 7 | (7 | ) | ||||||||||||||
— commodities | 1,372 | — | 57 | — | 57 | |||||||||||||||
Total | 1,433 | 104 | 57 | 7 | 50 | |||||||||||||||
Trading derivatives: | ||||||||||||||||||||
— interest rates | 60 | 60 | 1 | 2 | (1 | ) | ||||||||||||||
— exchange rates | 703 | 361 | 9 | 4 | 5 | |||||||||||||||
— commodities | 7,179 | 5,690 | 48 | 14 | 34 | |||||||||||||||
Total | 7,942 | 6,111 | 58 | 20 | 38 | |||||||||||||||
TOTAL | 9,375 | 6,215 | 115 | 27 | 88 |
• | two-way contracts for differences, with a notional value of euro 1,372 million (euro 5,133 million in 2004) and a fair value of euro 57 million (nil at December 31, 2004); | |
• | one-way contracts for differences, with a notional value of euro 6,266 million and a fair value of euro 43 million (not entered into 2004); | |
• | derivatives on fuels, energy and metals with a notional value of euro 913 million (euro 557 million in 2004) and a fair value of euro 5 million (euro 14 million in 2004). |
F-32
Table of Contents
(11.e) Cash and cash equivalents — euro 476 million |
At Dec. 31, 2005 | At Dec. 31, 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Bank deposits | 432 | 322 | 110 | |||||||||
Post Office deposits | 40 | 7 | 33 | |||||||||
Cash and cash equivalents on hand | 4 | 2 | 2 | |||||||||
Total | 476 | 331 | 145 |
(11.f) Other current assets — euro 1,712 million |
At Dec. 31, 2005 | At Dec. 31, 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Electricity Equalization Fund | 816 | 1,682 | (866 | ) | ||||||||
Receivables due from employees | 9 | 10 | (1 | ) | ||||||||
Receivables due from others | 887 | 774 | 113 | |||||||||
Total | 1,712 | 2,466 | (754 | ) |
(12) | NON-CURRENT ASSETS |
(12.a) Property, plant and equipment — euro 30,188 million |
Ordinary | ||||||||||||||||||||||||||||||||
Assets | Change in | Exchange | Disposals | |||||||||||||||||||||||||||||
At Jan. 1, | Entering | Scope of | Rate Gains | and Other | At Dec. 31, | |||||||||||||||||||||||||||
2004 | Investments | Service | Depreciation | Consolidation | (Losses ) | Changes | 2004 | |||||||||||||||||||||||||
(millions of euro) | ||||||||||||||||||||||||||||||||
Land | 865 | 1 | 4 | — | (69 | ) | — | (450 | ) | 351 | ||||||||||||||||||||||
Buildings | 4,620 | 66 | 70 | (168 | ) | (1,345 | ) | — | 400 | 3,643 | ||||||||||||||||||||||
Plant and machinery | 29,395 | 2,067 | 1,235 | (2,639 | ) | 154 | (17 | ) | (72 | ) | 30,123 | |||||||||||||||||||||
Industrial and commercial equipment | 134 | 17 | — | (26 | ) | (1 | ) | — | (23 | ) | 101 | |||||||||||||||||||||
Other assets | 386 | 82 | 11 | (120 | ) | — | — | (36 | ) | 323 | ||||||||||||||||||||||
Leasehold improvements | 109 | 20 | 8 | (41 | ) | — | — | (8 | ) | 88 | ||||||||||||||||||||||
Total assets in use | 35,509 | 2,253 | 1,328 | (2,994 | ) | (1,261 | ) | (17 | ) | (189 | ) | 34,629 | ||||||||||||||||||||
Assets under construction and advances | 2,141 | 1,285 | (1,328 | ) | — | (12 | ) | — | (13 | ) | 2,073 | |||||||||||||||||||||
TOTAL | 37,650 | 3,538 | — | (2,994 | ) | (1,273 | ) | (17 | ) | (202 | ) | 36,702 |
F-33
Table of Contents
Ordinary | ||||||||||||||||||||||||||||||||
Assets | Change in | Exchange | Disposals | |||||||||||||||||||||||||||||
At Jan. 1, | Entering | Depreciation | Scope of | Rate Gains | and Other | At Dec. 31, | ||||||||||||||||||||||||||
2005 | Investments | Service | (1) | Consolidation | (Losses ) | Changes | 2005 | |||||||||||||||||||||||||
(millions of euro) | ||||||||||||||||||||||||||||||||
Land | 351 | 1 | 2 | — | (16 | ) | 1 | 52 | 391 | |||||||||||||||||||||||
Buildings | 3,643 | 64 | 48 | (210 | ) | (325 | ) | — | 133 | 3,353 | ||||||||||||||||||||||
Plant and machinery | 30,123 | 1,743 | 766 | (2,191 | ) | (6,329 | ) | 245 | (211 | ) | 24,146 | |||||||||||||||||||||
Industrial and commercial equipment | 101 | 16 | 1 | (24 | ) | (10 | ) | — | (4 | ) | 80 | |||||||||||||||||||||
Other assets | 323 | 56 | 15 | (101 | ) | (119 | ) | — | (23 | ) | 151 | |||||||||||||||||||||
Leasehold improvements | 88 | 13 | 10 | (35 | ) | (59 | ) | — | 10 | 27 | ||||||||||||||||||||||
Total assets in use | 34,629 | 1,893 | 842 | (2,561 | ) | (6,858 | ) | 246 | (43 | ) | 28,148 | |||||||||||||||||||||
Assets under construction and advances | 2,073 | 1,144 | (842 | ) | — | (600 | ) | 1 | 264 | 2,040 | ||||||||||||||||||||||
TOTAL | 36,702 | 3,037 | — | (2,561 | ) | (7,458 | ) | 247 | 221 | 30,188 |
(1) | Include euro 643 million (euro 1,004 million in 2004) in respect of Telecommunication and Transmission sectors until date of deconsolidation. |
• | deconsolidation of Transmission and Telecommunications sectors following the sale in 2005 of the Company’s majority stakes in Terna and Wind (euro 7,823 million); | |
• | acquisition of Electrica Banat and Electrica Dobrogea (euro 305 million); | |
• | acquisition of new companies in the United States (euro 35 million); | |
• | acquisition of Metanodotti Padani and Metanodotti Trentini (euro 25 million). |
F-34
Table of Contents
Gross Value | Accumulated Depreciation | Net Value | ||||||||||
(millions of euro) | ||||||||||||
Power plants:(1) | ||||||||||||
— thermal | 17,654 | 10,745 | 6,909 | |||||||||
— hydro | 8,220 | 3,820 | 4,400 | |||||||||
— geothermal | 1,772 | 1,051 | 721 | |||||||||
— alternative energy resources | 474 | 105 | 369 | |||||||||
Total power plants | 28,120 | 15,721 | 12,399 | |||||||||
Transport lines and transformer stations | 7,475 | 3,517 | 3,958 | |||||||||
Electricity distribution networks | 36,275 | 24,856 | 11,419 | |||||||||
Telecommunications networks | 5,616 | 2,530 | 3,086 | |||||||||
Gas distribution networks | 2,708 | 1,036 | 1,672 | |||||||||
Primary and secondary substations | 1,253 | 648 | 605 | |||||||||
Offices, warehouses etc.(2) | 1,025 | 254 | 771 | |||||||||
Equipment and other assets | 2,206 | 1,487 | 719 | |||||||||
Total assets in use | 84,678 | 50,049 | 34,629 | |||||||||
Assets under construction and advances | 2,073 | — | 2,073 | |||||||||
TOTAL AT DEC. 31, 2004 | 86,751 | 50,049 | 36,702 |
Gross Value | Accumulated Depreciation | Net Value | ||||||||||
(millions of euro) | ||||||||||||
Power plants:(1) | ||||||||||||
— thermal | 17,951 | 11,430 | 6,521 | |||||||||
— hydro | 8,361 | 3,939 | 4,422 | |||||||||
— geothermal | 1,726 | 1,093 | 633 | |||||||||
— alternative energy resources | 706 | 140 | 566 | |||||||||
Total power plants | 28,744 | 16,602 | 12,142 | |||||||||
Electricity distribution networks | 37,330 | 25,048 | 12,282 | |||||||||
Gas distribution networks | 2,655 | 1,029 | 1,626 | |||||||||
Primary and secondary substations | 1,289 | 615 | 674 | |||||||||
Offices, warehouses etc.(2) | 988 | 116 | 872 | |||||||||
Equipment and other assets | 1,542 | 990 | 552 | |||||||||
Total assets in use | 72,548 | 44,400 | 28,148 | |||||||||
Assets under construction and advances | 2,040 | — | 2,040 | |||||||||
TOTAL AT DEC. 31, 2005 | 74,588 | 44,400 | 30,188 |
(1) | The values also include industrial land and buildings. |
(2) | The values include non-industrial buildings (offices, warehouses, parking facilities etc), buildings for civil use and non-appurtenant land. |
F-35
Table of Contents
2005 | 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Power plants: | ||||||||||||
— thermal | 570 | 455 | 115 | |||||||||
— hydro | 206 | 188 | 18 | |||||||||
— geothermal | 84 | 55 | 29 | |||||||||
— alternative energy resources | 130 | 122 | 8 | |||||||||
Total power plants | 990 | 820 | 170 | |||||||||
Transport lines and transformer stations | 133 | 267 | (134 | ) | ||||||||
Electricity distribution networks | 1,381 | 1,435 | (54 | ) | ||||||||
Gas distribution networks | 70 | 80 | (10 | ) | ||||||||
Telecommunication networks | 251 | 680 | (429 | ) | ||||||||
Land, buildings and other assets and equipment | 212 | 256 | (44 | ) | ||||||||
TOTAL CAPITAL EXPENDITURE | 3,037 | 3,538 | (501 | ) |
Euro | ||||
Million | ||||
Balance as of January 1, 2005 | 88 | |||
Disposal of investment | (53 | ) | ||
Accretion expense | 2 | |||
Balance as of December 31, 2005 | 37 | |||
F-36
Table of Contents
(12.b) Intangible assets — euro 2,182 million |
Assets | Exchange | Changes in | ||||||||||||||||||||||||||||||
At Jan. 1, | Entering | Rate Gains | Scope of | Other | At Dec. 31, | |||||||||||||||||||||||||||
2004 | Increases | Service | (Losses) | Consolidation | Amortization | Changes | 2004 | |||||||||||||||||||||||||
(millions of euro) | ||||||||||||||||||||||||||||||||
Development costs | 9 | 1 | — | — | — | (4 | ) | — | 6 | |||||||||||||||||||||||
Industrial patents and intellectual property rights | 469 | 157 | 7 | — | — | (228 | ) | 6 | 411 | |||||||||||||||||||||||
Concessions, licenses, trademarks and similar rights | 2,664 | 5 | — | — | — | (142 | ) | (1 | ) | 2,526 | ||||||||||||||||||||||
Assets under development and advances | 189 | 117 | (117 | ) | — | (2 | ) | — | (13 | ) | 174 | |||||||||||||||||||||
Other: | ||||||||||||||||||||||||||||||||
— software development | 95 | — | 110 | — | — | (59 | ) | (20 | ) | 126 | ||||||||||||||||||||||
— other | 75 | 16 | — | (4 | ) | 15 | (16 | ) | 33 | 119 | ||||||||||||||||||||||
Total other | 170 | 16 | 110 | (4 | ) | 15 | (75 | ) | 13 | 245 | ||||||||||||||||||||||
Goodwill | 8,343 | — | — | — | 47 | — | (1,681 | ) | 6,709 | |||||||||||||||||||||||
TOTAL | 11,844 | 296 | — | (4 | ) | 60 | (449 | ) | (1,676 | ) | 10,071 |
Assets | Exchange | Changes in | ||||||||||||||||||||||||||||||
At Jan. 1, | Entering | Rate Gains | Scope of | Other | At Dec. 31, | |||||||||||||||||||||||||||
2005 | Increases | Service | (Losses) | Consolidation | Amortization(1) | Changes | 2005 | |||||||||||||||||||||||||
(millions of euro) | ||||||||||||||||||||||||||||||||
Development costs | 6 | — | — | — | — | — | (6 | ) | — | |||||||||||||||||||||||
Industrial patents and intellectual property rights | 411 | 72 | 59 | — | (245 | ) | (149 | ) | (15 | ) | 133 | |||||||||||||||||||||
Concessions, licenses, trademarks and other similar rights | 2,526 | 36 | — | 1 | (2,410 | ) | (96 | ) | 20 | 77 | ||||||||||||||||||||||
Assets under development and advances | 174 | 97 | (68 | ) | — | (70 | ) | — | (1 | ) | 132 | |||||||||||||||||||||
Other: | ||||||||||||||||||||||||||||||||
— software development | 126 | 11 | 9 | — | — | (52 | ) | 11 | 105 | |||||||||||||||||||||||
— other | 119 | 1 | — | 9 | 26 | (11 | ) | 16 | 160 | |||||||||||||||||||||||
Total other | 245 | 12 | 9 | 9 | 26 | (63 | ) | 27 | 265 | |||||||||||||||||||||||
Goodwill | 6,709 | 3 | — | 23 | (5,120 | ) | — | (40 | ) | 1,575 | ||||||||||||||||||||||
TOTAL | 10,071 | 220 | — | 33 | (7,819 | ) | (308 | ) | (15 | ) | 2,182 |
(1) | Includes euro 170 million (euro 328 million in 2004) in respect of Telecommunications and Transmission sectors until date of deconsolidation. |
F-37
Table of Contents
At Dec. 31, | ||||||||||||||||||||||||
2005 | Discount Rate | |||||||||||||||||||||||
Amount | Tax Rate | Growth Rate(1) | WACC(2) | Ke(3) | ||||||||||||||||||||
(millions of euro) | ||||||||||||||||||||||||
Viesgo Generacion | 657 | 35 | % | no terminal value | 6.7 | % | 15 years | |||||||||||||||||
Electra de Viesgo Distribucion | 24 | 35 | % | 1.5 | % | 6 | % | — | 10 years | |||||||||||||||
Enel Rete Gas/ Enel Gas | 583 | 38 | % | 0 | % | 7 | % | — | 15 years | |||||||||||||||
Enel North America | 85 | 40.4 | % | 0 | % | 6.2 | % | — | 10 years | |||||||||||||||
Enel Latin America | 73 | 25.5 | % | 2 | % | 10.9 | % | 11 years | ||||||||||||||||
Enel Unión Fenosa Renovables | 131 | 35 | % | no terminal value | — | 9.3 | % | 20 years | ||||||||||||||||
Maritza | 15 | 15 | % | no terminal value | — | 10.2 | % | 17 years | ||||||||||||||||
WISCO | 7 | 39 | % | no terminal value | 7.5 | % | 20 years | |||||||||||||||||
Total | 1,575 |
(1) | Perpetual growth rate of cash flow after explicit period. |
(2) | WACC represents the weighted average capital cost. |
(3) | Ke represents the expected return on capital invested. |
F-38
Table of Contents
(12.c) Deferred tax assets — euro 1,778 million |
Increase/ | ||||||||||||||||||||
(Decrease) | ||||||||||||||||||||
Taken to | Change in | |||||||||||||||||||
At Dec. 31, | Income | Other | Scope of | At Dec. 31, | ||||||||||||||||
2004 | Statement(1) | Changes | Consolidation | 2005 | ||||||||||||||||
(millions of euro) | ||||||||||||||||||||
Nature of the temporary differences: | ||||||||||||||||||||
Impairment of property, plant and equipment and intangible assets | 83 | 5 | (1 | ) | (19 | ) | 68 | |||||||||||||
Accruals to provisions for risks and charges and impairment losses with deferred deductibility | 995 | (251 | ) | 11 | (188 | ) | 567 | |||||||||||||
Tax losses carried forward | 845 | (86 | ) | (2 | ) | (632 | ) | 125 | ||||||||||||
Measurement of financial assets | 164 | (11 | ) | 36 | (37 | ) | 152 | |||||||||||||
Other items | 866 | 23 | 5 | (28 | ) | 866 | ||||||||||||||
Total | 2,953 | (320 | ) | 49 | (904 | ) | 1,778 |
(1) | Includes a reduction of euro 43 million relating to Telecommunications and Transmission sectors assets until date of deconsolidation. |
• | the recognition of the deductible share for 2005 (euro 247 million) referring to previous years impairments of investments on which tax deductibility was deferred over more than one year; | |
• | a net decrease (euro 86 million) attributable mainly to Wind’s tax losses carried forward until the date of its removal from the scope of consolidation; | |
• | change in the scope of consolidation essentially attributable to the deconsolidation of Wind (euro 852 million). |
F-39
Table of Contents
(12.d) Investments accounted for using the equity method — euro 1,797 million |
At Dec. 31, | At Dec. 31, | |||||||||||||||||||
2005 | % Holding | 2004 | % Holding | 2005-2004 | ||||||||||||||||
(millions of euro) | ||||||||||||||||||||
Wind Telecomunicazioni SpA | 1,728 | 37.25 | % | — | — | 1,728 | ||||||||||||||
Gesam SpA | 14 | 40.00 | % | 13 | 40.00 | % | 1 | |||||||||||||
Idrosicilia SpA | 9 | 40.00 | % | — | — | 9 | ||||||||||||||
Cesi SpA | 7 | 25.92 | % | 10 | 40.92 | % | (3 | ) | ||||||||||||
Immobiliare Foro Bonaparte SpA | — | — | 95 | 49.00 | % | (95 | ) | |||||||||||||
Leasys SpA | — | — | 13 | 49.00 | % | (13 | ) | |||||||||||||
Idrolatina Srl | — | — | 8 | 46.88 | % | (8 | ) | |||||||||||||
Brindisi LNG SpA | — | — | 8 | 50.00 | % | (8 | ) | |||||||||||||
Others | 39 | — | 43 | — | (4 | ) | ||||||||||||||
Total | 1,797 | 190 | 1,607 |
• | the inclusion of Idrosicilia and of the residual interest in Wind after the disposal in 2005 of 62.75% of that company; | |
• | the disposal of the investment in Immobiliare Foro Bonaparte; | |
• | the sale of the investments in Leasys, Idrolatina and Brindisi LNG; | |
• | the sale of 20% of Idrosicilia and the consequent reclassification of the remainder under investments accounted for using the equity method; | |
• | a reduction in the investment in Cesi following the sale of Terna which owns a 15% interest in that company. |
(12.e) Non-current financial assets — euro 836 million |
At Dec. 31, | At Dec. 31, | |||||||||||
2005 | 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Investments in other companies | 594 | 69 | 525 | |||||||||
Receivables due from associates and other investments | 34 | — | 34 | |||||||||
Advance paid on the acquisition of Slovenské Elektrárne | 168 | — | 168 | |||||||||
Financial receivables due from financing entities | 27 | 1,595 | (1,568 | ) | ||||||||
Cash flow hedge and fair value hedge derivatives | 11 | 44 | (33 | ) | ||||||||
Other items | 2 | 68 | (66 | ) | ||||||||
Total | 836 | 1,776 | (940 | ) |
F-40
Table of Contents
At Dec. 31, | At Dec. 31, | |||||||||||||||||||
2005 | % Holding | 2004 | % Holding | 2005-2004 | ||||||||||||||||
(millions of euro) | ||||||||||||||||||||
Weather Investments | 286 | 5.20 | % | — | — | 286 | ||||||||||||||
Terna | 213 | 5.12 | % | — | — | 213 | ||||||||||||||
Red Electrica Espanola | 35 | 1.00 | % | 15 | 1.00 | % | 20 | |||||||||||||
LaGeo | 25 | 12.50 | % | 25 | 12.50 | % | — | |||||||||||||
Echelon | 20 | 7.54 | % | 16 | 7.28 | % | 4 | |||||||||||||
Tri Alpha Energy | 7 | 6.74 | % | — | — | 7 | ||||||||||||||
Sheldon Springs Hydro Associates | — | — | 8 | 1.00 | % | (8 | ) | |||||||||||||
Other | 8 | — | 5 | — | 3 | |||||||||||||||
Total | 594 | 69 | 525 |
Notional Value | Fair Value | |||||||||||||||||||
At Dec. 31, | At Dec. 31, | At Dec. 31, | At Dec. 31, | |||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005-2004 | ||||||||||||||||
(millions of euro) | ||||||||||||||||||||
Cash flow hedge derivatives: | ||||||||||||||||||||
— interest rates | 327 | 327 | 11 | 5 | 6 | |||||||||||||||
Fair value hedge derivatives: | ||||||||||||||||||||
— interest rates | — | 1,200 | — | 39 | (39 | ) | ||||||||||||||
Total | 327 | 1,527 | 11 | 44 | (33 | ) |
F-41
Table of Contents
(12.f) Other non-current assets — euro 975 million |
At Dec. 31, | At Dec. 31, | |||||||||||
2005 | 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Tax receivables falling due at more than 12 months | — | 16 | (16 | ) | ||||||||
Receivables from Electricity Equalization Fund | 847 | — | 847 | |||||||||
Other long-term receivables: | ||||||||||||
— advances to suppliers | 6 | 2 | 4 | |||||||||
— tax paid on account on employee termination indemnities | 19 | 33 | (14 | ) | ||||||||
— security deposits | — | 5 | (5 | ) | ||||||||
— loans to employees | 44 | 52 | (8 | ) | ||||||||
— other receivables | 59 | 46 | 13 | |||||||||
Total | 128 | 138 | (10 | ) | ||||||||
TOTAL | 975 | 154 | 821 |
(13.a) Short-term loans — euro 1,361 million |
At Dec. 31, 2005 | At Dec. 31, 2004 | 2005-2004 | ||||||||||||||||||||||
Book Value | Fair Value | Book Value | Fair Value | Book Value | Fair Value | |||||||||||||||||||
(millions of euro) | ||||||||||||||||||||||||
Short-term amounts due to banks | 970 | 970 | 2,560 | 2,562 | (1,590 | ) | (1,592 | ) | ||||||||||||||||
Commercial paper | 275 | 275 | 2,441 | 2,441 | (2,166 | ) | (2,166 | ) | ||||||||||||||||
Other short-term financial payables | 116 | 116 | 191 | 191 | (75 | ) | (75 | ) | ||||||||||||||||
Total | 1,361 | 1,361 | 5,192 | 5,194 | (3,831 | ) | (3,833 | ) |
F-42
Table of Contents
(13.b) Trade payables — euro 6,610 million |
(13.c) Current financial liabilities — euro 294 million |
At Dec. 31, | At Dec. 31, | |||||||||||
2005 | 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Deferred financial income | 176 | 240 | (64 | ) | ||||||||
Trading and cash flow hedge derivatives | 103 | 188 | (85 | ) | ||||||||
Other items | 15 | 65 | (50 | ) | ||||||||
Total | 294 | 493 | (199 | ) |
Notional Value | Fair Value | |||||||||||||||||||
At Dec. 31, | At Dec. 31, | At Dec. 31, | At Dec. 31, | |||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005-2004 | ||||||||||||||||
(millions of euro) | ||||||||||||||||||||
Cash flow hedge derivatives: | ||||||||||||||||||||
— interest rates | 191 | 415 | 10 | 11 | (1 | ) | ||||||||||||||
— exchange rates | 20 | 40 | — | 2 | (2 | ) | ||||||||||||||
Total | 211 | 455 | 10 | 13 | (3 | ) | ||||||||||||||
Trading derivatives: | ||||||||||||||||||||
— interest rates | 610 | 2,109 | 55 | 86 | (31 | ) | ||||||||||||||
— exchange rates | 1,147 | 1,368 | 15 | 67 | (52 | ) | ||||||||||||||
— commodities | 125 | 18 | 13 | 12 | 1 | |||||||||||||||
— other | — | — | 10 | 10 | — | |||||||||||||||
Total | 1,882 | 3,495 | 93 | 175 | (82 | ) | ||||||||||||||
TOTAL | 2,093 | 3,950 | 103 | 188 | (85 | ) |
F-43
Table of Contents
(13.d) Other current liabilities — euro 4,218 million |
At Dec. 31, | At Dec. 31, | |||||||||||
2005 | 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Advances | 121 | 151 | (30 | ) | ||||||||
Tax payables | 199 | 239 | (40 | ) | ||||||||
Payables due to the Electricity Equalization Fund | 406 | 512 | (106 | ) | ||||||||
Social security contributions payable | 144 | 176 | (32 | ) | ||||||||
Payables due to employees | 353 | 306 | 47 | |||||||||
Payables due to customers for security deposits and reimbursements | 1,755 | 1,728 | 27 | |||||||||
Other | 1,240 | 1,496 | (256 | ) | ||||||||
Total | 4,218 | 4,608 | (390 | ) |
(14) | NON-CURRENT LIABILITIES |
(14.a) Long-term loans (including the current portions) — euro 11,902 million |
F-44
Table of Contents
Notional | Current | |||||||||||||||||||||||||||||||||||||||||||
Balance at | Value at | Balance at | Portion | Maturing in | ||||||||||||||||||||||||||||||||||||||||
Long Term | ||||||||||||||||||||||||||||||||||||||||||||
Maturity | Dec. 31, 2005 | Dec. 31, 2004 | Portion | 2006 | 2007 | 2008 | 2009 | 2010 | Beyond | |||||||||||||||||||||||||||||||||||
(millions of euro) | ||||||||||||||||||||||||||||||||||||||||||||
Bonds: | ||||||||||||||||||||||||||||||||||||||||||||
— listed, fixed rate | 2006-2033 | 5,621 | 5,663 | 7,200 | 5,396 | 225 | — | 997 | — | 100 | 4,299 | |||||||||||||||||||||||||||||||||
— listed, floating rate | 2006-2012 | 799 | 802 | 402 | 633 | 166 | — | 50 | 86 | 100 | 397 | |||||||||||||||||||||||||||||||||
— unlisted, fixed rate | 2006-2008 | 94 | 118 | 163 | 58 | 36 | — | 58 | — | — | — | |||||||||||||||||||||||||||||||||
— unlisted, floating rate | 2006-2032 | 1,933 | 1,933 | 1,851 | 1,912 | 21 | 22 | 21 | 330 | 79 | 1,460 | |||||||||||||||||||||||||||||||||
— EU institutions, fixed rate | 2006-2009 | 77 | 77 | 116 | 41 | 36 | 31 | 9 | 1 | — | — | |||||||||||||||||||||||||||||||||
— EU institutions, floating rate | 2006-2009 | 6 | 6 | 9 | 3 | 3 | 1 | 1 | 1 | — | — | |||||||||||||||||||||||||||||||||
Total | 8,530 | 8,599 | 9,741 | 8,043 | 487 | 54 | 1,136 | 418 | 279 | 6,156 | ||||||||||||||||||||||||||||||||||
Bank loans: | ||||||||||||||||||||||||||||||||||||||||||||
— fixed rate | 2006-2015 | 80 | 80 | 89 | 71 | 9 | 6 | 6 | 6 | 6 | 47 | |||||||||||||||||||||||||||||||||
— floating rate | 2006-2023 | 777 | 791 | 8,056 | 587 | 190 | 55 | 111 | 55 | 61 | 305 | |||||||||||||||||||||||||||||||||
— EU institutions, fixed rate | 2006-2009 | 86 | 86 | 121 | 56 | 30 | 30 | 12 | 14 | — | — | |||||||||||||||||||||||||||||||||
— EU institutions, floating rate | 2006-2018 | 2,238 | 2,238 | 3,307 | 2,068 | 170 | 164 | 209 | 209 | 209 | 1,277 | |||||||||||||||||||||||||||||||||
Total | 3,181 | 3,195 | 11,573 | 2,782 | 399 | 255 | 338 | 284 | 276 | 1,629 | ||||||||||||||||||||||||||||||||||
Non-bank loans | ||||||||||||||||||||||||||||||||||||||||||||
— fixed rate | 2006-2026 | 138 | 138 | 131 | 96 | 42 | 12 | 14 | 8 | 7 | 55 | |||||||||||||||||||||||||||||||||
— floating rate | 2006-2020 | 53 | 53 | 243 | 46 | 7 | 2 | 2 | 2 | 2 | 38 | |||||||||||||||||||||||||||||||||
Total | 191 | 191 | 374 | 142 | 49 | 14 | 16 | 10 | 9 | 93 | ||||||||||||||||||||||||||||||||||
TOTAL | 11,902 | 11,985 | 21,688 | 10,967 | 935 | 323 | 1,490 | 712 | 564 | 7,878 |
Notional | Notional Interest | Effective | ||||||||||||||||||
Balance at | Value at | Rate | Interest Rate | |||||||||||||||||
Dec. 31, 2005 | Dec. 31, 2004 | Dec. 31, 2005 | Dec. 31, 2005 | Dec. 31, 2005 | ||||||||||||||||
Euro | 11,444 | 20,878 | 11,503 | 3.83 | % | 3.84 | % | |||||||||||||
U.S. dollar | 185 | 212 | 185 | 6.49 | % | 6.57 | % | |||||||||||||
Pound sterling | 62 | 63 | 62 | 5.86 | % | 5.86 | % | |||||||||||||
Swiss franc | 22 | 30 | 22 | 6.70 | % | 6.70 | % | |||||||||||||
Japanese yen | 109 | 116 | 133 | 1.41 | % | 1.51 | % | |||||||||||||
Brazilian real | — | 332 | — | — | — | |||||||||||||||
Other currencies | 80 | 57 | 80 | 8.79 | % | 8.79 | % | |||||||||||||
Total non-euro currencies | 458 | 810 | 482 | |||||||||||||||||
TOTAL | 11,902 | 21,688 | 11,985 |
F-45
Table of Contents
Notional Value | Changes in | Exchange | Notional Value | |||||||||||||||||||||
Scope of | New | Rate | ||||||||||||||||||||||
At Dec. 31, 2004 | Repayments | Consolidation | Financing | Differences | Dec. 31, 2005 | |||||||||||||||||||
Bonds | 9,782 | (880 | ) | (1,390 | ) | 1,087 | — | 8,599 | ||||||||||||||||
Bank loans | 11,672 | (2,756 | ) | (6,525 | ) | 664 | 140 | 3,195 | ||||||||||||||||
Non-bank loans | 374 | (22 | ) | (191 | ) | 8 | 22 | 191 | ||||||||||||||||
Total | 21,828 | (3,658 | ) | (8,106 | ) | 1,759 | 162 | 11,985 |
7-Year Bond — Floating Rate Bond | 7-Year Bond — Fixed Rate Bond | |||
Amount | euro 400 million | euro 600 million | ||
Repayment | Single amount on March 14, 2012 | Single amount on March 14, 2012 | ||
Interest rate | Six-month Euribor + 0.10% | 3.625% annually | ||
Issue price | 100.00 | 99.836 | ||
Early repayment | Not allowed | Not allowed | ||
Listed on stock exchange of | Milan | Milan |
F-46
Table of Contents
At Dec. 31, 2005 | At Dec. 31, 2004 | |||||||||||||||
Book | Fair | Book | Fair | |||||||||||||
Value | Value | Value | Value | |||||||||||||
(millions of euro) | ||||||||||||||||
Bonds: | 8,530 | 9,061 | 9,741 | 10,168 | ||||||||||||
— fixed-rate portion | 5,792 | 6,235 | 7,484 | 7,909 | ||||||||||||
— floating-rate portion | 2,738 | 2,826 | 2,257 | 2,259 | ||||||||||||
Bank loans: | 3,181 | 3,185 | 11,573 | 11,659 | ||||||||||||
— fixed-rate bank loans | 166 | 173 | 210 | 223 | ||||||||||||
— floating-rate bank loans | 3,015 | 3,012 | 11,363 | 11,436 | ||||||||||||
Non-bank loans: | 191 | 191 | 374 | 375 | ||||||||||||
— fixed-rate loans | 138 | 138 | 131 | 131 | ||||||||||||
— floating-rate loans | 53 | 53 | 243 | 244 | ||||||||||||
Total | 11,902 | 12,437 | 21,688 | 22,202 |
At Dec. 31, 2005 | At Dec. 31, 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Bonds: | 8,043 | 8,866 | (823 | ) | ||||||||
— fixed-rate bond | 5,495 | 6,626 | (1,131 | ) | ||||||||
— floating-rate bond | 2,548 | 2,240 | 308 | |||||||||
Bank loans: | 2,782 | 11,101 | (8,319 | ) | ||||||||
— fixed-rate bank loans | 127 | 156 | (29 | ) | ||||||||
— floating-rate bank loans | 2,655 | 10,945 | (8,290 | ) | ||||||||
Non-bank loans: | 142 | 324 | (182 | ) | ||||||||
— fixed-rate bond | 96 | 119 | (23 | ) | ||||||||
— floating-rate bond | 46 | 205 | (159 | ) | ||||||||
Total | 10,967 | 20,291 | (9,324 | ) |
F-47
Table of Contents
At Dec. 31, 2005 | At Dec. 31, 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Bonds: | 487 | 875 | (388 | ) | ||||||||
— fixed-rate bond | 297 | 858 | (561 | ) | ||||||||
— floating-rate bond | 190 | 17 | 173 | |||||||||
Bank loans: | 399 | 472 | (73 | ) | ||||||||
— fixed-rate bank loans | 39 | 54 | (15 | ) | ||||||||
— floating-rate bank loans | 360 | 418 | (58 | ) | ||||||||
Non-bank loans: | 49 | 50 | (1 | ) | ||||||||
— fixed-rate bond | 42 | 12 | 30 | |||||||||
— floating-rate bond | 7 | 38 | (31 | ) | ||||||||
Total | 935 | 1,397 | (462 | ) |
(14.b) Post-employment and other employee benefits — euro 2,662 million |
Termination benefits |
Additional months’ pay and similar benefits |
Loyalty bonus |
F-48
Table of Contents
Company supplementary pension plan |
Healthcare plan |
Electricity discounts |
F-49
Table of Contents
2005 | 2004 | |||||||
(millions of euro) | ||||||||
Benefits due on termination of employment and other long-term benefits | ||||||||
Benefit obligations at January 1 | 1,696 | 1,887 | ||||||
Service cost | 83 | (1) | 90 | |||||
Interest cost | 68 | (1) | 90 | |||||
Benefit paid | (229 | ) | (371 | ) | ||||
Changes in scope of consolidation | (113 | ) | — | |||||
Unrecognized actuarial (gains)/losses in year | (3 | ) | — | |||||
Benefit obligations at December 31 | 1,502 | 1,696 | ||||||
Liabilities at December 31 | 1,505 | 1,696 | ||||||
Other post employment benefits | ||||||||
Benefit obligations at January 1 | 1,214 | 1,137 | ||||||
Service cost | 8 | (1) | 74 | |||||
Interest cost | 49 | (1) | 54 | |||||
Benefit paid | (53 | ) | (51 | ) | ||||
Changes in scope of consolidation | (61 | ) | — | |||||
Unrecognized actuarial (gains)/losses in year | 19 | — | ||||||
Benefit obligations at December 31 | 1,176 | 1,214 | ||||||
Liabilities at December 31 | 1,157 | 1,214 |
(1) | Includes Telecommunications and Transmission sectors until date of deconsolidation. |
2005 | 2004 | |||||||
Discount rate | 4.00 | % | 4.25 | % | ||||
Rate of increase in personnel costs | 3.00 | % | 3.00 | % | ||||
Rate of increase in healthcare costs | 3.00 | % | 3.00 | % |
F-50
Table of Contents
(14.c) Provisions for risks and charges — euro 1,267 million |
Provision | Changes in | Utilization and | ||||||||||||||||||
Made During | Scope of | Other | ||||||||||||||||||
At Dec. 31, 2004 | the Year(1) | Consolidation | Changes | At Dec. 31, 2005 | ||||||||||||||||
(millions of euro ) | ||||||||||||||||||||
Provision for litigation, risks and other charges: | ||||||||||||||||||||
— litigation | 382 | 56 | (38 | ) | (59 | ) | 341 | |||||||||||||
— CO2emissions charges | — | 228 | — | — | 228 | |||||||||||||||
— other | 727 | 171 | (134 | ) | (187 | ) | 577 | |||||||||||||
Total | 1,109 | 455 | (172 | ) | (246 | ) | 1,146 | |||||||||||||
Provision for early-retirement incentives | 295 | 69 | (8 | ) | (235 | ) | 121 | |||||||||||||
TOTAL | 1,404 | 524 | (180 | ) | (481 | ) | 1,267 |
(1) | Includes euro 15 million in respect of Telecommunications and Transmission segments until their deconsolidation. |
Litigation |
Other |
Provision for early retirement incentives |
F-51
Table of Contents
(14.d) Deferred tax liabilities — euro 2,464 million |
Increase | ||||||||||||||||||||
(Decrease) | ||||||||||||||||||||
Taken to | Changes in | |||||||||||||||||||
At Dec. 31, | Income | Other | Scope of | At Dec. 31, | ||||||||||||||||
2004 | Statement(1) | Changes | Consolidation | 2005 | ||||||||||||||||
(millions of euro) | ||||||||||||||||||||
Nature of the temporary differences: | ||||||||||||||||||||
Differences on non-current and financial assets | 2,100 | 282 | 20 | (502 | ) | 1,900 | ||||||||||||||
Income subject to deferred taxation | 98 | (41 | ) | — | — | 57 | ||||||||||||||
Allocation of goodwill to assets | 61 | (3 | ) | 39 | — | 97 | ||||||||||||||
Measurement of financial instruments | 12 | (19 | ) | 105 | (2 | ) | 96 | |||||||||||||
Other items | 241 | 64 | — | 9 | 314 | |||||||||||||||
Total | 2,512 | 283 | 164 | (495 | ) | 2,464 |
(1) | Includes a postive effect of euro 38 million in respect of Telecommunications and Transmission segments until date of deconsolidation. |
(14.e) Non-current financial liabilities — euro 262 million |
Notional Amount | Fair Value | |||||||||||||||||||
At Dec. 31, | At Dec. 31, | At Dec. 31, | At Dec. 31, | |||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005-2004 | ||||||||||||||||
(millions of euro) | ||||||||||||||||||||
Cash flow hedge derivatives: | ||||||||||||||||||||
— interest rates | 3,749 | 6,268 | 262 | 370 | (108 | ) |
(14.f) Other non-current liabilities — euro 18 million |
At Dec. 31, 2005 | At Dec. 31, 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Payables due to Ferrovie dello Stato | — | 202 | (202 | ) | ||||||||
Other items | 18 | 16 | 2 | |||||||||
Total | 18 | 218 | (200 | ) |
F-52
Table of Contents
(15) | EQUITY ATTRIBUTABLE TO THE SHAREHOLDERS OF THE PARENT COMPANY |
Equity attributable to the shareholders of the Parent Company — euro 19,057 million |
Share capital — euro 6,157 million |
Other reserves — euro 4,219 million |
Share premium reserve — euro 511 million |
Legal reserve — euro 1,453 million |
Reserve pursuant to Law — euro 2,215 million |
Foreign currency translation reserve — euro 40 million |
Retained earnings carried forward — euro 5,953 million |
F-53
Table of Contents
Reserve for measurement of financial instruments — euro 2 million |
(16) | RELATED PARTIES |
Balance Sheet at | Income Statement | |||||||||||||||
Dec. 31, 2005 | 2005 | |||||||||||||||
Receivables | Payables | Costs | Revenues | |||||||||||||
(millions of euro) | ||||||||||||||||
Continuing operations: | ||||||||||||||||
— Single Buyer | 653 | 2,199 | 10,150 | 1,160 | ||||||||||||
— ISO | 200 | 231 | 1,294 | 1,745 | ||||||||||||
— Market Operator | 1,230 | 210 | 1,159 | 6,308 | ||||||||||||
— Italian Post Office | 1 | 20 | 98 | 14 | ||||||||||||
— ENI | 2 | 589 | 1,848 | 123 | ||||||||||||
— Terna(1) | 378 | 334 | 292 | 316 | ||||||||||||
Discontinued operations: | ||||||||||||||||
— ISO | — | — | — | 710 | ||||||||||||
— Italian Post Office | — | — | 1 | 1 | ||||||||||||
Total | 2,464 | 3,583 | 14,842 | 10,377 |
(1) | Costs and revenues refer to the period from the date of deconsolidation to December 31, 2005. |
F-54
Table of Contents
Balance Sheet at | Income Statement | |||||||||||||||
Dec. 31, 2005 | 2005 | |||||||||||||||
Receivables | Payables | Costs | Revenues | |||||||||||||
(millions of euro) | ||||||||||||||||
Continuing operations: | ||||||||||||||||
— Wind Telecomunicazioni SpA(1) | 291 | 193 | 134 | 26 | ||||||||||||
— Cesi SpA | 4 | 24 | 23 | 4 | ||||||||||||
— Immobiliare Foro Bonaparte SpA(2) | — | — | 20 | — | ||||||||||||
— Leasys SpA(2) | — | — | 152 | 2 | ||||||||||||
Discontinued operations: | ||||||||||||||||
— Wind Telecomunicazioni SpA(1) | — | — | 4 | — | ||||||||||||
— Cesi SpA | — | — | 1 | — | ||||||||||||
— Immobiliare Foro Bonaparte SpA(2) | — | — | 1 | — | ||||||||||||
— Leasys SpA(2) | — | — | 10 | — | ||||||||||||
— Idrolatina Srl(2) | — | — | 2 | — | ||||||||||||
Total | 295 | 217 | 347 | 32 |
(1) | Costs and revenues refer to the period from the date of deconsolidation to December 31, 2005. |
(2) | Costs and revenues refer to the period from January 1, 2005 until date of disposal. |
F-55
Table of Contents
(17) | CONTRACTUAL COMMITMENTS AND GUARANTEES |
At Dec. 31, 2005 | At Dec. 31, 2004 | 2005-2004 | ||||||||||
(millions of euro) | ||||||||||||
Guarantees given | ||||||||||||
Guarantees | 1,244 | 825 | 419 | |||||||||
Total | 1,244 | 825 | 419 | |||||||||
Other commitments | ||||||||||||
Commitments for: | ||||||||||||
— electricity purchases | 4,013 | 3,642 | 371 | |||||||||
— fuel purchases | 51,647 | 28,542 | 23,105 | |||||||||
— various supplies | 4,111 | 2,101 | 2,010 | |||||||||
— tenders | 204 | 2,032 | (1,828 | ) | ||||||||
— other | 3 | 52 | (49 | ) | ||||||||
Total | 59,978 | 36,369 | 23,609 | |||||||||
TOTAL | 61,222 | 37,194 | 24,028 |
• | 2006: euro 74 million; | |
• | 2007: euro 74 million; | |
• | 2008: euro 74 million; | |
• | 2009: euro 73 million; | |
• | 2010: euro 68 million. |
F-56
Table of Contents
Natural Gas | Fuel Oil | Coal | Logistic Services | Total | ||||||||||||||||
(millions of euro) | ||||||||||||||||||||
Period: | ||||||||||||||||||||
— 2006-2010 | 18,209 | 117 | 504 | 236 | 19,066 | |||||||||||||||
— 2011-2015 | 17,301 | — | 206 | 60 | 17,567 | |||||||||||||||
— 2016-2020 | 13,227 | — | 207 | 46 | 13,480 | |||||||||||||||
— 2021 and beyond | 1,410 | — | 124 | — | 1,534 | |||||||||||||||
Total | 50,147 | 117 | 1,041 | 342 | 51,647 |
(18) | CONTINGENT LIABILITIES AND ASSETS |
F-57
Table of Contents
F-58
Table of Contents
F-59
Table of Contents
F-60
Table of Contents
(19) | STOCK OPTION PLANS |
F-61
Table of Contents
2001 Plan | 2002 Plan | 2003 Plan | 2004 Plan | 2005 Plan | ||||||||||||||||||||||||||||||||||||||||
Weighted | Weighted | Weighted | Weighted | Weighted | ||||||||||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Average | ||||||||||||||||||||||||||||||||||||||||
Number of | Share | Number of | Share | Number of | Share | Number of | Share | Number of | Share | |||||||||||||||||||||||||||||||||||
Options | Price | Options | Price | Options | Price | Options | Price | Options | Price | Total | ||||||||||||||||||||||||||||||||||
Options granted | 19,193,468 | (1) | 5.464 | 41,748,500 | (3) | 5.464 | 47,624,005 | 5.464 | 38,527,550 | (4) | 6.428 | — | — | 147,093,522 | ||||||||||||||||||||||||||||||
Options exercised at | ||||||||||||||||||||||||||||||||||||||||||||
December 31, 2004 | — | — | 24,104,556 | 6.826 | 16,342,119 | 6.690 | — | — | — | — | 40,446,675 | |||||||||||||||||||||||||||||||||
Options canceled/forfeited at December 31, 2004 | 2,503,326 | 6.777 | 4,824,000 | 6.632 | 3,237,700 | 6.453 | 1,231,000 | 6.664 | — | — | 11,796,026 | |||||||||||||||||||||||||||||||||
Options outstanding at January 1, 2005 | 16,690,142 | 7.240 | 12,819,944 | 7.240 | 28,044,186 | 7.240 | 37,296,550 | 7.240 | — | — | 94,850,822 | |||||||||||||||||||||||||||||||||
New options granted in 2005 | — | — | — | — | — | 28,757,000 | (5) | 7.425 | 28,757,000 | |||||||||||||||||||||||||||||||||||
Options exercised in 2005 | 16,301,333 | 7.432 | 10,697,094 | 7.494 | 14,158,373 | 7.449 | 12,392,982 | 7.114 | — | — | 53,549,782 | |||||||||||||||||||||||||||||||||
Options canceled/forfeited in 2005 | 388,809 | 7.322 | 48,500 | 7.229 | 50,726 | 7.229 | 394,500 | 7.084 | — | — | 882,535 | |||||||||||||||||||||||||||||||||
Options outstanding at December 31, 2005 | — | 6.632 | 2,074,350 | 6.632 | 13,835,087 | 6.632 | 24,509,068 | 6.632 | 28,757,000 | (2) | 6.632 | 69,175,505 | ||||||||||||||||||||||||||||||||
— of which exercisable at December 31, 2005 | — | 6.632 | 2,074,350 | 6.632 | 2,203,002 | 6.632 | 4,718,900 | 6.632 | 28,757,000 | (2) | 6.632 | 37,753,252 | ||||||||||||||||||||||||||||||||
Fair value at grant date (euro) | 0.48 | 0.17 | 0.37 | 0.18 | 0.27 | |||||||||||||||||||||||||||||||||||||||
Volatility | 27 | % | 28 | % | 28 | % | 17 | % | 15 | % | ||||||||||||||||||||||||||||||||||
Vesting period | 2.5 years | 2 years | 2 years | 3.5 years | 3.5 years | |||||||||||||||||||||||||||||||||||||||
Option expiry | June 05 | Dec. 07 | Dec. 08 | Dec. 09 | Dec. 10 | |||||||||||||||||||||||||||||||||||||||
Average expected annual dividends | 0.36 | 0.28 | 0.28 | 0.36 | 0.42 | |||||||||||||||||||||||||||||||||||||||
Risk-free interest rate | 4.05 | % | 2.82 | % | 2.82 | % | 2.72 | % | 3.30 | % | ||||||||||||||||||||||||||||||||||
Vesting period (regards last tranche for each plan) | 2001-2004 | 2002-2005 | 2003-2006 | 2004-2008 | 2005-2009 |
(1) | Portion actually exercisable (56%) of total options granted (34,274,050). |
(2) | Declared lapsed by the Enel Board of Directors at the meeting on March 22, 2006. |
(3) | 2,503,500 granted to Enel’s Chief Executive Officer at euro 6.480. |
(4) | 2,500,000 granted to Enel’s Chief Executive Officer at euro 6.242. |
(5) | 600,000 granted to Enel’s Chief Executive Officer at euro 7.273. |
F-62
Table of Contents
(20) | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS-EU) |
• | business combinations: the Company has not applied IFRS 3 retrospectively to business combinations that took place before the transition date; | |
• | measurement of property, plant and equipment and of intangible assets at fair value or deemed cost: the Company has applied the revalued amount method to certain asset categories; | |
• | employee benefits: the Company has decided to recognize all cumulative actuarial gains and losses existing at January 1, 2004, while it has opted for the corridor approach for all subsequent actuarial gains and losses; | |
• | translation reserve for balance sheets of consolidated entities from countries outside the euro area: as permitted by IFRS 1, the Company has not availed itself of the exemption and has maintained the net cumulative exchange rate differences arising from prior translations of financial statements of foreign entities as determined prior to the transition date; | |
• | share-based payment: the Company has not applied the exemption allowed by IFRS 1 for share-based payments and has applied IFRS 2 to all the plans existing at January 1, 2004; |
F-63
Table of Contents
• | classification and measurement of financial instruments: the Company has not postponed the transition date for IAS 32 and IAS 39 to January 1, 2005, and has taken the related effects into account in the opening balance sheet at January 1, 2004; | |
• | designation of financial instruments at fair value through profit and loss or as available for sale: the Company has decided to adopt this method at the transition date (January 1, 2004) rather than at the initial recognition date for IAS 39. |
• | figures calculated under Italian GAAP reclassified for IFRS-EU purposes; | |
• | adjustments for alignment with IFRS-EU. |
Italian GAAP | ||||||||||||||||
Reclassified | IAS/IFRS-EU | |||||||||||||||
for IAS | Adjustments | IAS/IFRS-EU | Notes | |||||||||||||
(millions of euro) | ||||||||||||||||
ASSETS | ||||||||||||||||
Non-current assets | ||||||||||||||||
Property, plant and equipment | 37,265 | 385 | 37,650 | 20.1 | ||||||||||||
Intangible assets | 13,422 | (1,578 | ) | 11,844 | 20.2-20.3 | |||||||||||
Deferred tax assets | 2,038 | 479 | 2,517 | 20.4 | ||||||||||||
Investments accounted for using the equity method | 255 | — | 255 | |||||||||||||
Non-current financial assets | 1,630 | (5 | ) | 1,625 | 20.5 | |||||||||||
Other non-current assets | 172 | — | 172 | |||||||||||||
Total non-current assets | 54,782 | (719 | ) | 54,063 | ||||||||||||
Current assets | ||||||||||||||||
Inventories | 1,321 | 12 | 1,333 | |||||||||||||
Trade receivables | 7,321 | (52 | ) | 7,269 | 20.6-20.7 | |||||||||||
Current financial assets | 627 | — | 627 | |||||||||||||
Cash and cash equivalents | 424 | — | 424 | |||||||||||||
Other current assets | 1,986 | (55 | ) | 1,931 | 20.8 | |||||||||||
Total current assets | 11,679 | (95 | ) | 11,584 | ||||||||||||
TOTAL ASSETS | 66,461 | (814 | ) | 65,647 |
F-64
Table of Contents
Italian GAAP | ||||||||||||||||
Reclassified | IAS/IFRS-EU | |||||||||||||||
for IAS | Adjustments | IAS/IFRS-EU | Notes | |||||||||||||
(millions of euro) | ||||||||||||||||
LIABILITIES | ||||||||||||||||
Shareholders’ equity | ||||||||||||||||
Share capital | 6,063 | — | 6,063 | |||||||||||||
Other reserves | 3,669 | (1,685 | ) | 1,984 | ||||||||||||
Retained earnings | 11,393 | — | 11,393 | |||||||||||||
Group shareholders’ equity | 21,125 | (1,685 | ) | 19,440 | ||||||||||||
Minority interests | 190 | (9 | ) | 181 | ||||||||||||
TOTAL SHAREHOLDERS’ EQUITY | 21,315 | (1,694 | ) | 19,621 | ||||||||||||
Non-current liabilities | ||||||||||||||||
Long-term loans | 18,597 | (35 | ) | 18,562 | 20.9 | |||||||||||
Termination indemnities and other employee benefits | 1,767 | 1,257 | 3,024 | 20.10 | ||||||||||||
Provisions for risks and charges | 1,417 | (190 | ) | 1,227 | 20.11 | |||||||||||
Deferred tax liabilities | 2,515 | (461 | ) | 2,054 | 20.12 | |||||||||||
Other non-current liabilities | 329 | — | 329 | |||||||||||||
Total non-current liabilities | 24,625 | 571 | 25,196 | |||||||||||||
Current liabilities | ||||||||||||||||
Short-term loans | 4,145 | — | 4,145 | |||||||||||||
Current portion of long-term loans | 3,986 | — | 3,986 | |||||||||||||
Trade payables | 6,061 | (37 | ) | 6,024 | 20.13 | |||||||||||
Income tax payable | 714 | — | 714 | |||||||||||||
Current financial liabilities | 373 | 391 | 764 | 20.14 | ||||||||||||
Other current liabilities | 5,242 | (45 | ) | 5,197 | 20.15 | |||||||||||
Total current liabilities | 20,521 | 309 | 20,830 | |||||||||||||
TOTAL LIABILITIES | 45,146 | 880 | 46,026 | |||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 66,461 | (814 | ) | 65,647 |
F-65
Table of Contents
Italian GAAP | ||||||||||||||||
Reclassified | IAS/IFRS-EU | |||||||||||||||
for IAS | Adjustments | IAS/IFRS-EU | Notes | |||||||||||||
(millions of euro) | ||||||||||||||||
ASSETS | ||||||||||||||||
Non-current assets | ||||||||||||||||
Property, plant and equipment | 36,546 | 156 | 36,702 | 20.1 | ||||||||||||
Intangible assets | 11,430 | (1,359 | ) | 10,071 | 20.2-20.3 | |||||||||||
Deferred tax assets | 2,339 | 614 | 2,953 | 20.4 | ||||||||||||
Investments accounted for using the equity method | 190 | — | 190 | |||||||||||||
Non-current financial assets | 1,731 | 45 | 1,776 | 20.5 | ||||||||||||
Other non-current assets | 154 | — | 154 | |||||||||||||
Total non-current assets | 52,390 | (544 | ) | 51,846 | ||||||||||||
Current assets | ||||||||||||||||
Inventories | 1,345 | — | 1,345 | |||||||||||||
Trade receivables | 8,090 | (63 | ) | 8,027 | 20.6-20.7 | |||||||||||
Current financial assets | 553 | (44 | ) | 509 | ||||||||||||
Cash and cash equivalents | 331 | — | 331 | |||||||||||||
Other current assets | 3,367 | (47 | ) | 3,320 | 20.8 | |||||||||||
Total current assets | 13,686 | (154 | ) | 13,532 | ||||||||||||
TOTAL ASSETS | 66,076 | (698 | ) | 65,378 |
F-66
Table of Contents
Italian GAAP | ||||||||||||||||
Reclassified | IAS/IFRS-EU | |||||||||||||||
for IAS | Adjustments | IAS/IFRS-EU | Notes | |||||||||||||
(millions of euro) | ||||||||||||||||
LIABILITIES | ||||||||||||||||
Shareholders’ equity | ||||||||||||||||
Share capital | 6,104 | — | 6,104 | |||||||||||||
Other reserves | 3,868 | (1,816 | ) | 2,052 | ||||||||||||
Retained earnings | 9,183 | (3 | ) | 9,180 | ||||||||||||
Net income for the period | 692 | (75 | ) | 617 | ||||||||||||
Group shareholders’ equity | 19,847 | (1,894 | ) | 17,953 | ||||||||||||
Minority interests | 1,131 | (18 | ) | 1,113 | ||||||||||||
TOTAL SHAREHOLDERS’ EQUITY | 20,978 | (1,912 | ) | 19,066 | 20.24 | |||||||||||
Non-current liabilities | ||||||||||||||||
Long-term loans | 20,334 | (43 | ) | 20,291 | 20.9 | |||||||||||
Termination indemnities and other employee benefits | 1,574 | 1,336 | 2,910 | 20.10 | ||||||||||||
Provisions for risks and charges | 1,494 | (90 | ) | 1,404 | 20.11 | |||||||||||
Deferred tax liabilities | 2,906 | (394 | ) | 2,512 | 20.12 | |||||||||||
Non-current financial liabilities | 4 | 366 | 370 | 20.14 | ||||||||||||
Other non-current liabilities | 218 | — | 218 | |||||||||||||
Total non-current liabilities | 26,530 | 1,175 | 27,705 | |||||||||||||
Current liabilities | ||||||||||||||||
Short-term loans | 5,192 | — | 5,192 | |||||||||||||
Current portion of long-term loans | 1,397 | — | 1,397 | |||||||||||||
Trade payables | 6,706 | (37 | ) | 6,669 | 20.13 | |||||||||||
Payables for contract work in progress | 149 | — | 149 | |||||||||||||
Income tax payable | 99 | — | 99 | |||||||||||||
Current financial liabilities | 379 | 114 | 493 | 20.14 | ||||||||||||
Other current liabilities | 4,646 | (38 | ) | 4,608 | 20.15 | |||||||||||
Total current liabilities | 18,568 | 39 | 18,607 | |||||||||||||
TOTAL LIABILITIES | 45,098 | 1,214 | 46,312 | |||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 66,076 | (698 | ) | 65,378 |
F-67
Table of Contents
Italian GAAP | ||||||||||||||||
Reclassified | IAS/IFRS-EU | |||||||||||||||
for IAS | Adjustments | IAS/IFRS-EU | Notes | |||||||||||||
(millions of euro) | ||||||||||||||||
Ordinary revenues | 36,489 | — | 36,489 | |||||||||||||
Non-recurring revenues | 999 | (135 | ) | 864 | ||||||||||||
TOTAL REVENUES | 37,488 | (135 | ) | 37,353 | 20.16 | |||||||||||
Personnel | 3,790 | 3 | 3,793 | 20.17 | ||||||||||||
Fuel for thermal generation | 3,598 | — | 3,598 | |||||||||||||
Purchased power | 10,465 | — | 10,465 | |||||||||||||
Interconnection and roaming | 1,346 | — | 1,346 | |||||||||||||
Services, leases and rentals | 4,003 | 19 | 4,022 | 20.18 | ||||||||||||
Fuel for trading and gas for resale to end-uers | 1,795 | — | 1,795 | |||||||||||||
Materials | 1,255 | — | 1,255 | |||||||||||||
Other | 1,148 | (4 | ) | 1,144 | ||||||||||||
Capitalized costs | (1,032 | ) | — | (1,032 | ) | |||||||||||
Amortization, depreciation and impairment losses | 5,536 | (133 | ) | 5,403 | 20.19 | |||||||||||
Provisions | 20 | (20 | ) | — | 20.20 | |||||||||||
OPERATING INCOME | 5,564 | — | 5,564 | |||||||||||||
Net financial income (expense) | (1,149 | ) | (170 | ) | (1,319 | ) | 20.21 | |||||||||
INCOME BEFORE EXTRAORDINARY ITEMS AND INCOME TAX | 4,415 | (170 | ) | 4,245 | ||||||||||||
Extraordinary items | (66 | ) | 66 | — | 20.22 | |||||||||||
INCOME BEFORE TAXES | 4,349 | (104 | ) | 4,245 | ||||||||||||
Income taxes | 1,517 | (19 | ) | 1,498 | 20.23 | |||||||||||
INCOME BEFORE MINORITY INTERESTS | 2,832 | (85 | ) | 2,747 | ||||||||||||
Minority interests | (126 | ) | 10 | (116 | ) | |||||||||||
NET INCOME | 2,706 | (75 | ) | 2,631 |
• | elimination of the accumulated depreciation of land included in the plant book value, which under IFRS-EU has to be separated from the plant and can no longer be depreciated (+euro 70 million at January 1, 2004 and +euro 72 million at December 31, 2004 — see note 20.24.a Reconciliation of shareholders’ equity); |
F-68
Table of Contents
• | reversal of impairment losses on property, plant and equipment due to reflect prospectively the review of remaining useful lives of the relevant assets (+euro 153 million at January 1, 2004 and +euro 56 million at December 31, 2004 — see note 20.24 (a) in Reconciliation of shareholders’ equity). An asset retirement plan is treated as a change to the asset’s useful life under IFRS-EU which results in a prospective change to the amounts depreciated. Under Italian GAAP when an asset’s useful life is reassessed and determined to be shorter than originally estimated, an impairment loss is recorded. Consequently, the impairment losses recognized under Italian GAAP were eliminated and the new useful life has been used to depreciate the assets. This had a positive effect on shareholders’ equity at January 1, 2004, and December 31, 2004, of approximately euro 153 million and euro 56 million, respectively; | |
• | capitalization of dismantling and restoration charges (+euro 27 million at January 1, 2004 and +euro 24 million at December 31, 2004, see note 20.24.(a) in Reconciliation of shareholders’ equity) and simultaneous accrual to a provision for charges for the estimated present value of future costs on the liabilities side of the balance sheet (see note 20.11); | |
• | reversal of a provision for plant demolition that did not comply with the recognition criteria of IFRS-EU (+euro 15 million at January 1, 2004 and +euro 35 million at December 31, 2004); | |
• | reversal, separation and recalculation of the depreciation for significant plant components as a consequence of component analysis approach (-euro 21 million at January 1, 2004 and -euro 32 million at December 31, 2004; see note 20.24.(a) in Reconciliation of shareholders’ equity); | |
• | deferral of connection fees for the gas sector over the same period of depreciation of related investments (-euro 38 million at January 1, 2004 and -euro 59 million at December 31, 2004); | |
• | recognition of the fair value of the real estate assets under IFRS-EU (+euro 179 million at January 1, 2004 and +euro 61 million at December 31, 2004). |
Jan. 1, 2004 | Dec. 31, 2004 | |||||||
(millions of euro) | ||||||||
Start-up costs | (26 | ) | (21 | ) | ||||
Research, development and advertising | (31 | ) | (1 | ) | ||||
Deferred charges | (22 | ) | (14 | ) | ||||
Effect of discounting of “other similar rights” | (76 | ) | (83 | ) | ||||
Extraordinary contribution for the suppression of the Electricity Industry Employee Pension Fund | (1,423 | ) | (1,334 | ) | ||||
Goodwill | — | 94 | ||||||
TOTAL INTANGIBLE ASSETS | (1,578 | ) | (1,359 | ) |
F-69
Table of Contents
• | the adjustment of foreign currency medium- to long-term payables using the period-end exchange rate, equal to -euro 33 million at January 1, 2004 and -euro 28 million at December 31, 2004, from the method used under Italian GAAP, where these payables were recognized using the hedge exchange rate; | |
• | adoption of the amortized cost method to measure medium- to long-term bank loans and bond issues equal to -euro 2 million at January 1, 2004 and -euro 15 million at December 31, 2004. |
Jan. 1, 2004 | Dec. 31, 2004 | |||||||
(millions of euro) | ||||||||
Termination benefit | (60 | ) | (80 | ) | ||||
Electricity discounts | 952 | 1,014 | ||||||
Other benefits | 365 | 402 | ||||||
Total | 1,257 | 1,336 |
F-70
Table of Contents
Jan. 1, 2004 | Dec. 31, 2004 | |||||||
(millions of euro) | ||||||||
Provision for dismantling and restoration charges | 40 | 43 | ||||||
Provision for demolition of plant | (103 | ) | (103 | ) | ||||
Provision for company restructuring | (76 | ) | (30 | ) | ||||
Other provisions | (51 | ) | — | |||||
Total | (190 | ) | (90 | ) |
• | elimination of a euro 114 million capital gain recognized under Italian GAAP on the sale of the real estate business; | |
• | reversal of the release of euro 23 million of restructuring charges which did not meet the criteria for recognition under IFRS-EU. |
F-71
Table of Contents
Dec. 31, 2004 | ||||
(millions of euro) | ||||
Amortization of goodwill | (657 | ) | ||
Amortization of intangible assets | (51 | ) | ||
FPE contribution | (88 | ) | ||
Component analysis | 11 | |||
Impairment of plants | 97 | |||
Impairment of goodwill | 555 | |||
Total | (133 | ) |
• | a euro 796 million decrease due to the elimination of amortization of goodwill, which is no longer allowed under IFRS-EU, amortization of certain intangible assets which did not meet the criteria for recognition under IFRS-EU and the elimination of extraordinary contribution (FPE) charge recognized under Italian GAAP; | |
• | a euro 663 million increase due to the separation and recalculation of significant plant components (“component analysis”), greater depreciation charges following the reversal of impairment of plant parts and review of remaining useful life and impairment of goodwill related to the telecommunication companies. |
• | interest cost of employee benefit obligations (+euro 144 million); | |
• | the recognition of the fair value of ineffective portion of derivative financial instruments (+euro 29 million) designated as hedges. |
F-72
Table of Contents
Income Before | ||||||||||||||||
Total | Total | Minority Interests | ||||||||||||||
Shareholders’ | Shareholders’ | for Year Ending | ||||||||||||||
Equity at | Equity at | December 31, | ||||||||||||||
Notes | January 1, 2004 | December 31, 2004 | 2004 | |||||||||||||
ITALIAN GAAP | 21,315 | 20,978 | 2,832 | |||||||||||||
Adjustments: | ||||||||||||||||
— Property, plant and equipment And related depreciation | a | 330 | 79 | (246 | ) | |||||||||||
— Start-up, development and advertising costs And other intangible assets | b | (1,501 | ) | (1,372 | ) | 138 | ||||||||||
— Goodwill | c | — | 94 | 103 | ||||||||||||
— Derivative financial instruments | d | (391 | ) | (480 | ) | (29 | ) | |||||||||
— Other employee costs (e.g. termination benefits, stock option plans, Asem healthcare scheme, etc.) | e | (1,257 | ) | (1,336 | ) | (87 | ) | |||||||||
— Provisions for risks and charges (restructuring, demolition, breakdowns, etc.) | f | 241 | 168 | (73 | ) | |||||||||||
— Other adjustments | g | (54 | ) | (71 | ) | 95 | ||||||||||
Tax impact of the adjustments | 938 | 1,006 | 14 | |||||||||||||
Total adjustments net of tax effects | (1,694 | ) | (1,912 | ) | (85 | ) | ||||||||||
IFRS-EU | 19,621 | 19,066 | 2,747 |
F-73
Table of Contents
• | recognition of the fair value of the derivative asset or liability in the balance sheet at its fair value; | |
• | recognition of a cash flow hedge reserve in equity for the effective part of the hedge; | |
• | recognition of the ineffective part of the hedge in the income statement. |
• | recognition of the derivative asset or liability in the balance sheet at its fair value; | |
• | set-off of the change in fair value of the hedged risk against the hedged item. |
F-74
Table of Contents
F-75
Table of Contents
21. | RECONCILIATION OF NET INCOME AND SHAREHOLDERS’ EQUITY FROM IFRS-EU AND U.S. GAAP |
F-76
Table of Contents
Net Income | Shareholders’ Equity | |||||||||||||||||||||||||||||
For the Years Ended | For the Years Ended | |||||||||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||||||||
Note | 2005 | 2004 | 2005 | 2005 | 2004 | 2005 | ||||||||||||||||||||||||
(millions of | (millions of | |||||||||||||||||||||||||||||
(millions of euro) | U.S. dollars) | (millions of euro) | U.S. dollars) | |||||||||||||||||||||||||||
Financial statements: | ||||||||||||||||||||||||||||||
Of the parent company | 3,895 | 2,631 | 4,612 | 19,057 | 17,953 | 22,567 | ||||||||||||||||||||||||
Of the minority interest | 21.1 | 237 | 116 | 281 | 359 | 1,113 | 425 | |||||||||||||||||||||||
Total | 4,132 | 2,747 | 4,893 | 19,416 | 19,066 | 22,992 | ||||||||||||||||||||||||
Increases/ (Decreases) due to: | ||||||||||||||||||||||||||||||
Minority Interest | 21.1 | (237 | ) | (116 | ) | (281 | ) | (359 | ) | (1,113 | ) | (425 | ) | |||||||||||||||||
Customers’ connection fees | 21.2 | (419 | ) | (464 | ) | (496 | ) | (1,827 | ) | (1,408 | ) | (2,164 | ) | |||||||||||||||||
Fixed Asset and Related Depreciation | 21.3 | 183 | 1,057 | 217 | 645 | 462 | 764 | |||||||||||||||||||||||
Capitalized interest and related depreciation | 21.4 | (12 | ) | (33 | ) | (14 | ) | 1,236 | 1,248 | 1,464 | ||||||||||||||||||||
Assets retirement obligations | 21.10 | 1 | (6 | ) | 1 | 10 | 9 | 12 | ||||||||||||||||||||||
Negative goodwill | 21.8 | (24 | ) | — | (28 | ) | (24 | ) | — | (28 | ) | |||||||||||||||||||
Pension and employee termination accounting | 21.6 | 47 | (11 | ) | 56 | 146 | 73 | 173 | ||||||||||||||||||||||
Other post-retirement benefits accounting | 21.6 | (41 | ) | 49 | (49 | ) | 5 | 46 | 6 | |||||||||||||||||||||
Stock compensation cost | 21.12 | (9 | ) | (85 | ) | (11 | ) | (76 | ) | (67 | ) | (90 | ) | |||||||||||||||||
Early retirement program | 21.5 | (121 | ) | 197 | (143 | ) | 76 | 197 | 90 | |||||||||||||||||||||
Gain on Real Estate disposal | 21.11 | 220 | (667 | ) | 261 | (447 | ) | (667 | ) | (529 | ) | |||||||||||||||||||
Intangible assets | 28 | 5 | 33 | (32 | ) | (60 | ) | (38 | ) | |||||||||||||||||||||
Goodwill amortization and other intangibles | 21.7 | 947 | (86 | ) | 1,121 | (775 | ) | 166 | (918 | ) | ||||||||||||||||||||
Goodwill impairment | 21.7 | (69 | ) | (1,722 | ) | (82 | ) | 97 | (1,722 | ) | 115 | |||||||||||||||||||
Deferred taxes on equity reserves | 21.9 | — | — | — | (571 | ) | (571 | ) | (676 | ) | ||||||||||||||||||||
Investment in equity securities | 21.13 | (4 | ) | 4 | (5 | ) | 19 | 9 | 22 | |||||||||||||||||||||
Other differences | 21.14 | 24 | 10 | 28 | 61 | 37 | 72 | |||||||||||||||||||||||
Tax effect of reconciling items | 62 | 146 | 73 | 29 | (27 | ) | 34 | |||||||||||||||||||||||
Minorities on reconciling items | 21.1 | (10 | ) | 6 | (12 | ) | 9 | 19 | 11 | |||||||||||||||||||||
Amounts under U.S. GAAP corresponding to Parent Company | 4,698 | 1,031 | 5,562 | 17,638 | 15,697 | 20,887 |
F-77
Table of Contents
As of December 31, | ||||||||||||
2005 | 2004 | 2005 | ||||||||||
(millions of | ||||||||||||
(millions of euro) | U.S. dollars) | |||||||||||
Assets | ||||||||||||
Current Assets | 12,654 | 16,761 | 14,985 | |||||||||
Fixed Assets, net | 30,320 | 37,589 | 35,905 | |||||||||
Other non-current assets | 7,622 | 12,802 | 9,026 | |||||||||
50,596 | 67,152 | 59,916 | ||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||
Current liabilities | 13,446 | 21,107 | 15,923 | |||||||||
Long-term debt | 10,967 | 20,291 | 12,987 | |||||||||
Other non-current liabilities | 8,195 | 8,959 | 9,705 | |||||||||
Total liabilities | 32,608 | 50,357 | 38,615 | |||||||||
Minority interest | 350 | 1,098 | 414 | |||||||||
Shareholders’ equity | 17,638 | 15,697 | 20,887 | |||||||||
50,596 | 67,152 | 59,916 | ||||||||||
2005 | 2004 | 2005 | ||||||||||
(millions of | ||||||||||||
(millions of euro) | U.S. dollars) | |||||||||||
Operating revenues | 39,635 | 36,022 | 46,936 | |||||||||
Operating expenses | 31,627 | 32,316 | 37,453 | |||||||||
Operating income | 8,008 | 3,706 | 9,483 | |||||||||
Financial loss | (944 | ) | (1,056 | ) | (1,118 | ) | ||||||
Loss on equity method investments | (33 | ) | (36 | ) | (39 | ) | ||||||
Income before income taxes and minority interest | 7,031 | 2,614 | 8,326 | |||||||||
Income tax expense | 2,086 | 1,485 | 2,470 | |||||||||
Income before minority interest | 4,945 | 1,129 | 5,856 | |||||||||
Minority interest | (247 | ) | (98 | ) | (292 | ) | ||||||
Net income | 4,698 | 1,031 | 5,564 |
F-78
Table of Contents
2005 | 2004 | 2005 | ||||||||||
(millions of | ||||||||||||
(millions of euro) | U.S. dollars) | |||||||||||
U.S. GAAP shareholders’ equity at the beginning of the year | 15,697 | 18,651 | 18,588 | |||||||||
Movements during the year: | ||||||||||||
Net income for the year | 4,698 | 1,031 | 5,562 | |||||||||
Interim dividend | (1,169 | ) | (2,014 | ) | (1,384 | ) | ||||||
Residual dividend | (2,214 | ) | (2,195 | ) | (2,622 | ) | ||||||
Accumulated other comprehensive income (loss) | ||||||||||||
— Minimum pension liabilities | 17 | 43 | 22 | |||||||||
— Financial instruments | 241 | (45 | ) | 285 | ||||||||
— Other | 29 | (15 | ) | 34 | ||||||||
Exercise of stock options | 339 | 241 | 401 | |||||||||
U.S. GAAP shareholders’ equity at the end of the year | 17,638 | 15,697 | 20,887 | |||||||||
2005 | 2004 | 2005 | ||||||||||
(millions of | ||||||||||||
(millions of euro) | U.S. dollars) | |||||||||||
Net income in accordance with U.S. GAAP | 4,698 | 1,031 | 5,562 | |||||||||
Minimum pension liabilities | 17 | 43 | 22 | |||||||||
Investments in equity securities | 141 | 5 | 167 | |||||||||
Derivatives | 100 | (50 | ) | 118 | ||||||||
Other changes | 29 | (15 | ) | 34 | ||||||||
Total comprehensive income | 4,985 | 1,014 | 5,903 | |||||||||
F-79
Table of Contents
F-80
Table of Contents
2005 | 2004 | 2005 | ||||||||||||
(millions of | ||||||||||||||
(millions of euro) | U.S. dollars) | |||||||||||||
Utility plant, gross: | ||||||||||||||
Generating Plant: | ||||||||||||||
Hydroelectric | 6,661 | 6,506 | 7,888 | |||||||||||
Thermal | 17,304 | 17,205 | 20,492 | |||||||||||
Geothermal and renewable sources | 2,317 | 2,127 | 2,744 | |||||||||||
Transmission Line | — | 6,565 | — | |||||||||||
Distribution Electricity Network | 33,710 | 32,551 | 39,919 | |||||||||||
Distribution Gas Network | 2,733 | 2,767 | 3,237 | |||||||||||
Telecommunication networks | — | 5,604 | — | |||||||||||
Land and Buildings | 1,792 | 2,449 | 2,122 | |||||||||||
Other | 1,478 | 2,179 | 1,751 | |||||||||||
Construction in progress | 2,038 | 2,069 | 2,413 | |||||||||||
Total | 68,033 | 80,022 | 80,566 | |||||||||||
Accumulated Depreciation: | ||||||||||||||
Generating Plant: | ||||||||||||||
Hydroelectric | 2,595 | 2,484 | 3,073 | |||||||||||
Thermal | 9,641 | 9,176 | 11,417 | |||||||||||
Geothermal and renewable sources | 1,108 | 1,019 | 1,312 | |||||||||||
Transmission Line | — | 2,600 | — | |||||||||||
Distribution Electricity Network | 21,867 | 21,102 | 25,895 | |||||||||||
Distribution Gas Network | 1,029 | 1,080 | 1,219 | |||||||||||
Telecommunication networks | — | 2,548 | — | |||||||||||
Land and Buildings | 607 | 947 | 719 | |||||||||||
Other | 866 | 1,477 | 1,026 | |||||||||||
Total | 37,713 | 42,433 | 44,661 | |||||||||||
Utility plant, net: | ||||||||||||||
Generating Plant: | ||||||||||||||
Hydroelectric | 4,066 | 4,022 | 4,815 | |||||||||||
Thermal | 7,663 | 8,029 | 9,075 | |||||||||||
Geothermal and renewable sources | 1,209 | 1,108 | 1,432 | |||||||||||
Transmission Line | — | 3,965 | — | |||||||||||
Distribution Electricity Network | 11,843 | 11,449 | 14,024 | |||||||||||
Distribution Gas Network | 1,704 | 1,687 | 2,018 | |||||||||||
Telecommunication networks | — | 3,056 | — | |||||||||||
Land and Buildings | 1,185 | 1,502 | 1,403 | |||||||||||
Other | 612 | 702 | 725 | |||||||||||
Construction in progress | 2,038 | 2,069 | 2,413 | |||||||||||
Total | 30,320 | 37,589 | 35,905 | |||||||||||
F-81
Table of Contents
21.6. | Employee Benefit Obligations |
F-82
Table of Contents
Other | ||||||||||||||||
Post-retirement | ||||||||||||||||
Pensions Benefits | Benefits | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(millions of euro) | (millions of euro) | |||||||||||||||
Change in Projected Benefit Obligation: | ||||||||||||||||
Benefit Obligation at Jan 1 | 1,990 | 1,985 | 1,241 | 1,158 | ||||||||||||
Service cost | 78 | 101 | 6 | 12 | ||||||||||||
Interest cost | 78 | 104 | 48 | 56 | ||||||||||||
Actuarial (gain) loss | (12 | ) | 17 | 39 | 69 | |||||||||||
Settlement | (48 | ) | (209 | ) | — | — | ||||||||||
PBO of business acquired (disposed) | (113 | ) | — | (61 | ) | — | ||||||||||
Benefits paid | (181 | ) | (172 | ) | (53 | ) | (54 | ) | ||||||||
Adjustment(1) | — | 163 | — | — | ||||||||||||
Plan amendment | — | 1 | — | — | ||||||||||||
Benefit Obligation at Dec 31 | 1,792 | 1,990 | 1,220 | 1,241 | ||||||||||||
Change in Plan Asset: | ||||||||||||||||
Fair value of plan assets at beginning of year | 297 | 129 | 22 | 18 | ||||||||||||
Actuarial return on plan assets | 14 | 12 | 1 | 1 | ||||||||||||
Company contribution | 156 | 388 | — | 3 | ||||||||||||
Benefit paid | (111 | ) | (178 | ) | (1 | ) | (1 | ) | ||||||||
Settlement | (48 | ) | (209 | ) | — | — | ||||||||||
Adjustments(1) | — | 158 | — | 2 | ||||||||||||
Gains/(Losses) | 4 | (3 | ) | 4 | (1 | ) | ||||||||||
Fair value of plan assets at end of year | 312 | 297 | 26 | 22 | ||||||||||||
Reconciliation of Funded Status of the Plan: | ||||||||||||||||
Funded (unfunded) status | (1,480 | ) | (1,693 | ) | (1,194 | ) | (1,219 | ) | ||||||||
Unrecognized net (gain) loss | 400 | 377 | 42 | 51 | ||||||||||||
Unrecognized net transition obligation | (14 | ) | (16 | ) | — | — | ||||||||||
Accrued benefit cost | (1,094 | ) | (1,332 | ) | (1,152 | ) | (1,168 | ) | ||||||||
Adjustment for minimum liability | (265 | ) | (291 | ) | — | — | ||||||||||
Amount recognized in the consolidated balance sheet | (1,359 | ) | (1,623 | ) | (1,152 | ) | (1,168 | ) | ||||||||
Information for pension plans with an accumulated benefit obligation in excess of plan assets: | ||||||||||||||||
Projected benefit obligation | (1,794 | ) | (1,990 | ) | (1,208 | ) | (1,241 | ) | ||||||||
Accumulated benefit obligation | (1,676 | ) | (1,854 | ) | (1,134 | ) | (1,189 | ) | ||||||||
Fair value of plan assets | 312 | 297 | 26 | 22 |
(1) | The adjustments reflect the pension plans of certain Spanish companies that in the previous Annual Report were erroneously not disclosed. |
F-83
Table of Contents
Other | ||||||||||||||||
Post-retirement | ||||||||||||||||
Pensions Benefits | Benefits | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(millions of euro) | (millions of euro) | |||||||||||||||
Prepaid benefit cost | — | — | — | — | ||||||||||||
Accrued benefit cost | (1,359 | ) | (1,623 | ) | (1,152 | ) | (1,168 | ) | ||||||||
Intangible assets | — | — | — | — | ||||||||||||
Accumulated other comprehensive income | 265 | 291 | — | — | ||||||||||||
Net amount recognized | (1,094 | ) | (1,332 | ) | (1,152 | ) | (1,168 | ) | ||||||||
Other Post- | ||||||||||||||||
Pensions | retirement | |||||||||||||||
Benefits | Benefits | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(millions of | (millions of | |||||||||||||||
euro) | euro) | |||||||||||||||
Components of Net Periodic Benefit Cost: | ||||||||||||||||
Service cost | 78 | 101 | 6 | 12 | ||||||||||||
Interest cost | 78 | 104 | 48 | 56 | ||||||||||||
Expected return on plan assets | (13 | ) | (13 | ) | (1 | ) | (1 | ) | ||||||||
Amortization and of actuarial (gain) loss | 13 | 17 | — | — | ||||||||||||
Net periodic benefit cost | 156 | 209 | 53 | 67 | ||||||||||||
Settlement cost and other adjustments | 39 | 71 | — | 2 | ||||||||||||
Total cost accrual | 195 | 280 | 53 | 69 | ||||||||||||
Additional Information |
Pensions | ||||||||
Benefits | ||||||||
2005 | 2004 | |||||||
(millions of | ||||||||
euro) | ||||||||
Increase (decrease) in minimum liability included in other comprehensive income | 26 | 53 |
2005 | 2004 | |||||||
Assumed health care cost trend rates at December 31 | ||||||||
Health care cost trend rate assumed for next year | 3.00 | % | 3.00 | % | ||||
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 3.00 | % | 3.00 | % | ||||
Year that the rate reaches the ultimate trend rate | 2006 | 2005 |
F-84
Table of Contents
1-Percentage- | 1-Percentage- | |||||||
Point Increase | Point Decrease | |||||||
(millions of euro) | ||||||||
Effect on total cost | 1 | (1 | ) | |||||
Effect on accumulated post-retirement benefit obligation | 28 | (22 | ) |
Estimated Future Benefit Payments |
Pension | Other Post- | |||||||
Benefits | retirement Benefits | |||||||
(millions of euro) | ||||||||
2006 | 103 | 56 | ||||||
2007 | 111 | 58 | ||||||
2008 | 129 | 60 | ||||||
2009 | 156 | 61 | ||||||
2010 | 187 | 63 | ||||||
Years 2011-2015 | 1,129 | 326 |
21.7. | Business Combination, Goodwill and Intangible Assets |
F-85
Table of Contents
21.7.1 | Camuzzi Purchase Price Allocation |
Millions of euro | ||||
Current assets | 479 | |||
Fixed assets, net | 866 | |||
Intangible assets | 632 | |||
Other non-current assets | 98 | |||
Total assets acquired | 2,075 | |||
Current liabilities | (658 | ) | ||
Long-term debt | (228 | ) | ||
Minority interest | (2 | ) | ||
Other non-current liabilities | (142 | ) | ||
Total liabilities assumed | (1,030 | ) | ||
Net assets acquired | 1,045 |
F-86
Table of Contents
21.7.2 | EUFER Acquisition |
Millions of euro | ||||
Current assets | 46 | |||
Fixed assets, net | 168 | |||
Goodwill | 123 | |||
Other non-current assets | 39 | |||
Total assets acquired | 376 | |||
Current liabilities | (47 | ) | ||
Long-term debt | (135 | ) | ||
Minority interest | (14 | ) | ||
Other non-current liabilities | (2 | ) | ||
Total liabilities assumed | (198 | ) | ||
Net assets acquired | 178 |
21.7.3 | Wind Acquisition |
F-87
Table of Contents
Millions of euro | ||||
Current assets | 395 | |||
Fixed assets, net | 922 | |||
Goodwill | 855 | |||
Intangible assets | 595 | |||
Other non-current assets | 1,284 | |||
Total assets acquired | 4,051 | |||
Current liabilities | (622 | ) | ||
Long-term debt | (1,855 | ) | ||
Minority interest | (7 | ) | ||
Other non-current liabilities | (178 | ) | ||
Total liabilities assumed | (2,662 | ) | ||
Net assets acquired | 1,389 |
21.7.4 | Maritza Acquisition |
Millions of euro | ||||
Current assets | 95 | |||
Fixed assets, net | 57 | |||
Goodwill | 28 | |||
Other non-current assets | 9 | |||
Total assets acquired | 189 | |||
Current liabilities | (53 | ) | ||
Long-term debt | — | |||
Minority interest | (61 | ) | ||
Other non-current liabilities | — | |||
Total liabilities assumed | (114 | ) | ||
Net assets acquired | 75 |
F-88
Table of Contents
21.7.5 | Viesgo Acquisition |
Millions of euro | ||||
Current assets | 252 | |||
Fixed assets, net | 1,421 | |||
Goodwill | 757 | |||
Other non-current assets | 123 | |||
Total assets acquired | 2,553 | |||
Current liabilities | (457 | ) | ||
Long-term debt | (12 | ) | ||
Minority interest | (19 | ) | ||
Other non-current liabilities | (145 | ) | ||
Total liabilities assumed | (633 | ) | ||
Net assets acquired | 1,920 |
21.7.6 | Goodwill disclosures |
Sales, | ||||||||||||||||||||||||
Generation | Infrastructure | |||||||||||||||||||||||
Telecommu- | and Energy | and | International | |||||||||||||||||||||
nications | Management | Networks | Operations | Other | Total | |||||||||||||||||||
Balance as of January 1, 2004 | 6,213 | — | — | 1,064 | — | 7,277 | ||||||||||||||||||
Reclassification due to change in reorganized segment | — | 1,064 | — | (1,064 | ) | — | — | |||||||||||||||||
Goodwill acquired during the year | — | 7 | 8 | — | 7 | 22 | ||||||||||||||||||
Impairment | (3,393 | ) | — | — | — | — | (3,393 | ) | ||||||||||||||||
Balance as of December 31, 2004 | 2,820 | 1,071 | 8 | 7 | 3,906 | |||||||||||||||||||
Exchange differences | 23 | 23 | ||||||||||||||||||||||
Disposals(1) | (2,820 | ) | (2,820 | ) | ||||||||||||||||||||
Balance as of December 31, 2005 | — | 1,094 | 8 | 7 | 1,109 | |||||||||||||||||||
(1) | Following the disposal of the 62.75% of stake in Wind, the remaining goodwill, equal to euro 1,050 million, has been classified in the related investment. |
F-89
Table of Contents
21.7.7 | Intangible Assets disclosures |
Customer | Customer | |||||||||||
Relationships | Licences | Portfolio | ||||||||||
Balance as of January 1, 2004, net | 599 | 135 | 100 | |||||||||
Additions in 2004 | 21 | |||||||||||
2004 amortization expense | (59 | ) | (13 | ) | (14 | ) | ||||||
Balance as of December 31, 2004, net | 561 | 122 | 86 | |||||||||
Additions in 2005 | — | — | — | |||||||||
2005 amortization expense | (51 | ) | (11 | ) | (8 | ) | ||||||
Disposals in 2005 | (60 | ) | (72 | ) | (78 | ) | ||||||
Balance as of December 31, 2005, net | 450 | 39 | — | |||||||||
21.8. | Negative Goodwill |
F-90
Table of Contents
21.9. | Current and Deferred Taxes |
21.10. | Accounting for Asset Retirement Obligations |
21.11. | Gain on sale of real estate business |
21.12. | Stock option compensation cost |
F-91
Table of Contents
21.12.1 | Stock option compensation disclosures |
Number of | Average Grant | |||||||
Options | Price (euro) | |||||||
Outstanding at January 1, 2001 | 5,513,200 | 8.6 | ||||||
Granted | 34,274,050 | 7.3 | ||||||
Exercised | — | — | ||||||
Forfeited | (15,080,582 | ) | 7.3 | |||||
Outstanding at December 31, 2001 | 24,706,668 | 7.6 | ||||||
Outstanding at January 1, 2002 | 24,706,668 | 7.6 | ||||||
Granted | 41,748,500 | 6.4 | ||||||
Exercised | — | — | ||||||
Forfeited | — | — | ||||||
Outstanding at December 31, 2002 | 66,455,168 | 6.9 | ||||||
Outstanding at January 1, 2003 | 66,455,168 | 6.9 | ||||||
Granted | 47,624,005 | 5.2 | ||||||
Exercised | — | — | ||||||
Forfeited | — | — | ||||||
Outstanding at December 31, 2003 | 114,079,173 | 6.2 | ||||||
Outstanding at January 1, 2004 | 114,079,173 | 6.2 | ||||||
Granted | 38,527,550 | 6.2 | ||||||
Exercised | (40,446,675 | ) | 6.0 | |||||
Forfeited | (17,309,226 | ) | 6.8 | |||||
Outstanding at December 31, 2004 | 94,850,822 | 6.2 | ||||||
Outstanding at January 1, 2005 | 94,850,822 | 6.2 | ||||||
Granted | 28,757,000 | 7.3 | ||||||
Exercised | (53,549,782 | ) | 4.1 | |||||
Forfeited | (29,639,535 | ) | 7.2 | |||||
Outstanding at December 31, 2005 | 40,418,505 | 5.9 | ||||||
F-92
Table of Contents
2005 | 2004 | |||||||
Net income in accordance with U.S. GAAP, as reported | 4,698 | 1,031 | ||||||
Stock-based employee compensation expense, as reported | 165 | 139 | ||||||
Stock-based employee compensation expense under fair value | (179 | ) | (122 | ) | ||||
Pro forma net income | 4,684 | 1,048 |
2005 | 2004 | |||||||||||||||
As Reported | Pro Forma | As Reported | Pro Forma | |||||||||||||
Basic and diluted earnings per share | 0.77 | 0.76 | 0.17 | 0.17 |
21.13. | Investments in Equity Securities |
21.14. | Other differences |
21.15. | Classification Differences |
21.16. | Recently U.S. Accounting Pronouncements |
F-93
Table of Contents
F-94
Table of Contents
F-95
Table of Contents
(22) | ADDITIONAL U.S. GAAP DISCLOSURES |
(a) | Accounting for Income Taxes |
2005 | 2004 | 2005 | ||||||||||
(millions of | ||||||||||||
(millions of euro) | U.S. dollars) | |||||||||||
Current | 1,398 | 1,525 | 1,656 | |||||||||
Deferred | 688 | (40 | ) | 815 | ||||||||
Total | 2,086 | 1,485 | 2,471 | |||||||||
2005 | 2004 | |||||||
Theoretical tax rate * | 33.0 | % | 33.0 | % | ||||
Change in tax rates | 0.0 | % | 0.0 | % | ||||
Permanent differences | (9.7 | )% | 13.8 | % | ||||
Minor items | 0.7 | % | (1.0 | )% | ||||
Difference on estimated income taxes from prior years | 0.2 | % | (0.5 | )% | ||||
Regional taxes (IRAP) | 5.4 | % | 11.5 | % | ||||
Income tax rate for the year | 29.6 | % | 56.8 | % | ||||
* | Italian Corporate income tax rate (IRES). |
The permanent differences mainly relate to the un-taxable gain on disposal of investment and undeductible impairment of Telecommunication goodwill. |
F-96
Table of Contents
For the Years Ended | ||||||||||||
December 31, | ||||||||||||
2005 | 2004 | 2005 | ||||||||||
(millions of | ||||||||||||
(millions of euros) | U.S. dollars) | |||||||||||
Deferred tax assets: | ||||||||||||
Deferred tax assets: | ||||||||||||
Other post retirement benefits accounting | — | 376 | — | |||||||||
Assets write-downs | — | 377 | — | |||||||||
Provision for litigation and contingent liabilities | 515 | 658 | 610 | |||||||||
Tax loss carryforwards | 343 | 1,500 | 406 | |||||||||
Customers’ connection fees | 681 | 550 | 806 | |||||||||
Measurement of financial assets | 146 | — | 173 | |||||||||
Deferred income | 174 | 220 | 206 | |||||||||
Other | 821 | 479 | 972 | |||||||||
Total deferred tax assets | 2,680 | 4,160 | 3,173 | |||||||||
Valuation allowances | (218 | ) | (595 | ) | (258 | ) | ||||||
Total deferred tax assets, net | 2,462 | 3,565 | 2,915 | |||||||||
Deferred tax liabilities: | ||||||||||||
Other post retirement benefits accounting | (2 | ) | — | (2 | ) | |||||||
Assets write-downs | (172 | ) | — | (204 | ) | |||||||
Revaluation of utility plant | (95 | ) | (222 | ) | (112 | ) | ||||||
Accelerated depreciation of utility plant | (1,640 | ) | (2,087 | ) | (1,942 | ) | ||||||
Capitalization of interest on utility plant | (460 | ) | (465 | ) | (545 | ) | ||||||
Equity reserves | (282 | ) | (581 | ) | (334 | ) | ||||||
Other | (20 | ) | (356 | ) | (24 | ) | ||||||
Total deferred tax liabilities | (2,671 | ) | (3,711 | ) | (3,163 | ) | ||||||
Net deferred tax liabilities | (209 | ) | (146 | ) | (248 | ) | ||||||
• | 2006: euro 16 million; | |
• | 2007: euro 16 million; | |
• | 2008: euro 14 million; | |
• | 2009: euro 12 million; | |
• | 2010: euro 24 million; | |
• | no limits: euro 864 million. |
F-97
Table of Contents
2005 | 2004 | |||||||
(millions of euro) | ||||||||
Minimum Pension Liabilities | (17 | ) | 20 | |||||
Investments in equity securities | 2 | (2 | ) |
(b) | Earnings per Share |
2005 | 2004 | 2005 | ||||||||||
(millions of | ||||||||||||
(millions of euro)* | U.S. dollars)* | |||||||||||
Income available to common shareholders | 4,698 | 1,031 | 5,563 | |||||||||
Weighted average shares — basic (in millions) | 6,142 | 6,087 | 6,142 | |||||||||
Weighted average shares — diluted (in millions) | 6,171 | 6,215 | 6,171 | |||||||||
Earnings per share-basic: | 0.76 | 0.17 | 0.91 | |||||||||
Earnings per share-diluted: | 0.76 | 0.17 | 0.90 |
(*) | Except per-share data which is in euro and U.S. dollars. |
(c) | Effects of Regulation |
(d) | Derivatives |
F-98
Table of Contents
(d.1) Derivative Financial Instruments disclosures |
• | For “cash flow hedges”, the effective portion of the gain or loss from the derivative hedging instrument is accumulated in other comprehensive income (“OCI”) and recognized in earnings during the period that the hedged forecasted transaction impacts earnings. The ineffective portion of the gain or loss from the derivative hedging instrument is recognized in earnings immediately. | |
• | For “fair value hedges”, the gain or loss on the derivative instrument designated and qualifying as a fair value hedging instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk is recognized currently in earnings in the same accounting period. | |
• | For all other derivative contracts which do not qualify for the special hedge accounting treatment under SFAS 133, gains and losses are recorded in earnings each reporting period. |
a. It has (1) one or more underlying and (2) one or more notional amounts or payment provisions or both. | |
b. No initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors. | |
c. Its terms require or permit net settlement, it can readily be settled net by a means outside the contract, or it provides for delivery of an asset that puts the recipient in a position not substantially different from net settlement. |
(d.2) Cash Flow Hedges |
F-99
Table of Contents
Gains/ | Reclassified | Gains/ | Reclassified | Gains/ | Reclassified | ||||||||||||||||||||||||||||||||||||
OCI at | Losses | to | OCI at | Losses | to | OCI at | Losses | to | OCI at | ||||||||||||||||||||||||||||||||
December | Recorded | Earnings | December | Recorded | Earnings | December | Recorded | Earnings | December | ||||||||||||||||||||||||||||||||
Type of Operation: | 31, 2002 | in 2003 | in 2003 | 31, 2003 | in 2004 | in 2004 | 31, 2004 | in 2005 | in 2005 | 31, 2005 | |||||||||||||||||||||||||||||||
Interest rate swaps | (270 | ) | (29 | ) | 14 | (285 | ) | 24 | (106 | ) | (367 | ) | 188 | (80 | ) | (259 | ) | ||||||||||||||||||||||||
Interest rate collars | (4 | ) | (3 | ) | (7 | ) | 11 | (5 | ) | (1 | ) | 1 | 0 | ||||||||||||||||||||||||||||
Swaptions | (2 | ) | 2 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||
CFD with Single Buyer | 0 | 57 | 57 | ||||||||||||||||||||||||||||||||||||||
Total | (276 | ) | (30 | ) | 14 | (292 | ) | 35 | (111 | ) | (368 | ) | 246 | (80 | ) | (202 | ) |
F-100
Table of Contents
(d.2.1) Other Derivative Contracts |
Gain/Losses | ||||||||
included in | ||||||||
earnings | ||||||||
Type of Operation | 2005 | 2004 | ||||||
(millions of | ||||||||
euro) | ||||||||
Interest rate swaps | — | (2 | ) | |||||
Interest rate collars | 12 | (8 | ) | |||||
Swaptions | — | — | ||||||
Forward exchange agreements | (6 | ) | 1 | |||||
Options | — | — | ||||||
Commodity swaps | (25 | ) | 7 | |||||
Commodity futures | 13 | 2 | ||||||
Contract for differences | 43 | — | ||||||
National and International congestion contracts | — | — | ||||||
Options | 2 | — | ||||||
Total | 39 | — |
(d.3) Notional Amounts and Credit Exposures of Derivatives |
F-101
Table of Contents
(d.4) Interest Rate Risk Management |
Notional Amount | ||||||||
2005 | 2004 | |||||||
(millions of euro) | ||||||||
Interest rate swaps | 4,866 | 9,633 | ||||||
Interest rate collars | 62 | 690 | ||||||
Swaptions | 69 | 60 | ||||||
Total | 4,997 | 10,383 | ||||||
(d.5) Foreign Exchange Rate Risk Management |
Notional | ||||||||
Amount | ||||||||
2005 | 2004 | |||||||
(millions of | ||||||||
euro) | ||||||||
Forward exchange contracts relating to Commodity hedging | 1,357 | 536 | ||||||
Forward exchange contracts relating to hedges of commercial paper | 35 | 715 | ||||||
Forward exchange contracts relating to hedges of future cash flows | 212 | 319 | ||||||
Other forward exchange contracts | 194 | 215 | ||||||
Options | 73 | 85 | ||||||
Total | 1,871 | 1,870 | ||||||
F-102
Table of Contents
• | contracts with a notional amount of euro 1,569 million used to hedge the foreign exchange risk related to fuel purchases, electricity imports and expected cash flows in currencies other than the euro (euro 855 million as of December 31, 2004); and | |
• | contracts with a notional amount of euro 35 million used to hedge the foreign exchange risk related to the repayment of the commercial paper the Company issued in foreign currency (euro 715 million as of December 31, 2004). |
(d.6) Commodity Risk Management |
F-103
Table of Contents
• | Futures on commodities: euro 290.7 million or 5,971 contracts; | |
• | Options on commodities: euro 0.2 million or 24,165 metric tons; euro 9 million for options on copper and aluminum; | |
• | Swaps on petroleum indexes: euro 613.2 million or 2,013,355 metric tons; | |
• | Swaps and forwards on power: euro 107.5 million; | |
• | Swaps on gas transmission fee: euro 17.6 million, 5 years and 1 billion cubic meters per year; | |
• | Contracts for differences: euro 7,638 million; and | |
• | National and International congestion contracts: no contracts for 2006. |
• | Futures on commodities: no contracts existing at the balance sheet date; | |
• | Options on commodities: no contracts existing at the balance sheet date; | |
• | Swaps on petroleum indexes: euro 537.56 million or 4,133,000 tons; | |
• | Swaps on gas transmission fee: euro 17,9 million, 6 years and 1 billion cubic meters per year; | |
• | Contracts for differences: euro 5,133 million; and | |
• | National and International congestion contracts: euro 118 million. |
• | Cash and cash equivalents: the carrying values of cash and cash equivalents approximate their fair values because of their short maturities. |
F-104
Table of Contents
• | Investments in equity securities classified as available for sale: the carrying value of such investments reflects their fair value as of the balance sheet date. | |
• | Short-term debt: the carrying value of short-term debt approximates fair value because of the short period of time between the origination and maturity of the borrowings. | |
• | Other noncurrent assets: the carrying value of such assets reflects their fair value as of the balance sheet date. | |
• | Bonds payable-listed: the fair value of bonds payable-listed is based upon period-end market prices. | |
• | Other bonds and long-term debt (including current maturities): the fair values of other bonds and long-term debt (including current maturities) are based on discounted cash flow analysis. |
As of December 31, | ||||||||||||||||
2005 | 2005 | 2004 | 2004 | |||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
(millions of euro) | ||||||||||||||||
Bonds payable-listed | 6,465 | 6,864 | 7,610 | 7,989 | ||||||||||||
Other bonds and long-term debt, including current maturities | 5,520 | 5,573 | 14,212 | 14,207 | ||||||||||||
As of | ||||||||
December, 31 | ||||||||
2005 | 2004 | |||||||
Fair Value | ||||||||
(millions of | ||||||||
euro) | ||||||||
Interest rate swaps | (315 | ) | (408 | ) | ||||
— assets | 12 | 46 | ||||||
— liabilities | (327 | ) | (454 | ) | ||||
Interest rate collars | — | (13 | ) | |||||
— assets | — | — | ||||||
— liabilities | — | (13 | ) | |||||
Swaptions | — | — | ||||||
— assets | — | — | ||||||
— liabilities | — | — | ||||||
Total interest rate derivatives | (315 | ) | (421 | ) | ||||
— assets | 12 | 46 | ||||||
— liabilities | (327 | ) | (467 | ) | ||||
Forward exchange contracts relating to commodity hedging | (5 | ) | (34 | ) | ||||
— assets | 6 | — | ||||||
— liabilities | (11 | ) | (34 | ) | ||||
Forward exchange contracts relating to hedge of commercial papers | 1 | (28 | ) | |||||
— assets | 1 | — | ||||||
— liabilities | — | (28 | ) |
F-105
Table of Contents
As of | ||||||||
December, 31 | ||||||||
2005 | 2004 | |||||||
Fair Value | ||||||||
(millions of | ||||||||
euro) | ||||||||
Forward exchange contracts relating to hedge of future cash flows | (2 | ) | 4 | |||||
— assets | 1 | 8 | ||||||
— liabilities | (3 | ) | (4 | ) | ||||
Other Forward exchange contracts | — | — | ||||||
— assets | 1 | 3 | ||||||
— liabilities | (1 | ) | (3 | ) | ||||
Futures | 16 | — | ||||||
— assets | 17 | — | ||||||
— liabilities | (1 | ) | — | |||||
Options | (8 | ) | (10 | ) | ||||
— assets | 2 | — | ||||||
— liabilities | (10 | ) | (10 | ) | ||||
Swaps on Petroleum and Coal indexes | (13 | ) | 12 | |||||
— assets | 11 | 22 | ||||||
— liabilities | (24 | ) | (10 | ) | ||||
Swaps and forward (Power) | (1 | ) | 2 | |||||
— assets | 397 | 2 | ||||||
— liabilities | (398 | ) | — | |||||
Gas Transmission fee | (12 | ) | (12 | ) | ||||
— assets | ||||||||
— liabilities | (12 | ) | (12 | ) | ||||
Contracts for differences | 100 | — | ||||||
— assets | 100 | — | ||||||
— liabilities | — | — | ||||||
National and international congestion contracts differences | — | — | ||||||
— assets | — | — | ||||||
— liabilities | — | — | ||||||
Total | (239 | ) | (487 | ) | ||||
— assets | 548 | 81 | ||||||
— liabilities | (787 | ) | (568 | ) |
(23) | SUBSEQUENT EVENTS |
(a) | Sale of stake in Wind |
F-106
Table of Contents
(b) | Sale of Carbones Colombianos del Cerrejon (CCC) |
(c) | New acquisition in Russia |
(d) | Disposal of power distribution and sale assets |
(e) | Acquisition of Slovenské Elektrárne |
F-107
Table of Contents
(f) | Binding offers |
(g) | Transfer to Union Fenosa of 30% stake of Enel Union Fenosa Renovables |
(h) | New acquisition in Romania |
(i) | New acquisition in Brazil |
(j) | New acquisition in Bulgaria |
F-108
Table of Contents
1 | We have audited the consolidated balance sheets of Wind Telecomunicazioni SpA (an Italian corporation) and its subsidiaries (the “Company”) as of December 31, 2004, and the related consolidated statements of income, of changes in shareholders’ equity and of cash flows for the year then ended (expressed in Euro). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. |
2 | We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. |
3 | The consolidated financial statements as of December 31, 2004 do not include comparative information and notes for 2003 that would be required to present the financial position, the result of operations and the cash flows in conformity with International Financial Reporting Standards as adopted by EU. As described in the notes, in fact, these consolidated financial statements are intended to comprise the comparative financial statements to the year ended December 31, 2005, which will be the first IFRS compliant consolidated financial statements. |
4 | In our opinion, except for the matter reported in the previous paragraph regarding the omission of comparative financial information for 2003, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wind Telecomunicazioni SpA and its subsidiaries as of December 31, 2004 and the results of their operations and their cash flows for the year then ended, in conformity with the International Financial Reporting Standards issued by the International Accounting Standards Board as adopted by EU. |
5 | We draw your attention to the matters regarding deferred tax assets and intangible assets as described in the notes to the consolidated financial statements. |
6 | International Financial Reporting Standards vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in the notes to the consolidated financial statements under the caption US GAAP schedules and additional disclosures. |
PricewaterhouseCoopers SpA | |
Sergio Duca | |
Partner |
F-109
Table of Contents
ENEL S.P.A. | |
(Registrant) | |
/s/Luigi Ferraris | |
Name: Luigi Ferraris | |
Title: Chief Financial Officer | |
/s/Claudio Machetti | |
Name: Claudio Machetti | |
Title: Chief Financial Officer |
F-110