Company Quick10K Filing
Edenor
20-F 2020-12-31 Filed 2021-04-26
20-F 2019-12-31 Filed 2020-04-27
20-F 2018-12-31 Filed 2019-04-30
20-F 2017-12-31 Filed 2018-04-27
20-F 2016-12-31 Filed 2017-04-28
20-F 2015-12-31 Filed 2016-04-28
20-F 2014-12-31 Filed 2015-05-12
20-F 2013-12-31 Filed 2014-04-28
20-F 2012-12-31 Filed 2013-04-30
20-F 2011-12-31 Filed 2012-04-26
20-F 2010-12-31 Filed 2011-06-14
20-F 2009-12-31 Filed 2010-06-08

EDN 20F Annual Report

Part I
Item 1. Identity of Directors, Senior Management and Advisors
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Item 16 H. Mine Safety Disclosures Not Applicable.
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
EX-8.1 exhibit_81.htm
EX-12.1 exhibit_121.htm
EX-12.2 exhibit_122.htm
EX-13.1 exhibit_131.htm

Edenor Earnings 2012-12-31

Balance SheetIncome StatementCash Flow

20-F 1 edenor20f_2012.htm FORM 20-F 2012 edenor20f_2012.htm - Generated by SEC Publisher for SEC Filing  

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012

Commission File number: 001-33422

Empresa Distribuidora y Comercializadora Norte S.A.
(Exact name of registrant as specified in its charter)

Distribution and Marketing Company of the North S.A.

Argentine Republic

(Translation of registrant’s name into English)

(Jurisdiction of incorporation or organization)

Avenida Del Libertador 6363

Ciudad de Buenos Aires, C1428ARG

Buenos Aires, Argentina
(Address of principal executive offices)

Leandro Montero

Tel.: +54 11 4346 5511 / Fax: +54 11 4346 5325 Avenida Del Libertador 6363 (C1428ARG)
Buenos Aires, Argentina

Chief Financial Officer

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class:

Name of each exchange on which registered

Class B Common Shares

New York Stock Exchange, Inc.*

American Depositary Shares, or ADSs, evidenced by American Depositary Receipts, each representing 20 Class B Common Shares

New York Stock Exchange, Inc.

*    Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

__________

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: N/A

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 462,292,111 Class A Common Shares, 442,210,385 Class B Common Shares and 1,952,604 Class C Common Shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes No þ 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934.  Yes No þ 

Note:  Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes þ  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer Accelerated filer þ  Non-accelerated filer

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:  U.S. GAAP
International Financial Reporting Standards as issued by the International Accounting Standards Board
þ  Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes No þ 

 

 

 


 
 

 

Item 1.

Identity of Directors, Senior Management and Advisors

1

Item 2.

Offer Statistics and Expected Timetable

1

Item 3.

Key Information

1

Item 4.

Information on the Company

30

Item 4A.

Unresolved Staff Comments

75

Item 5.

Operating and Financial Review and Prospects

75

Item 6.

Directors, Senior Management and Employees

121

Item 7.

Major Shareholders and Related Party Transactions

132

Item 8.

Financial Information

136

Item 9.

The Offer and Listing

142

Item 10.

Additional Information

145

Item 11.

Quantitative and Qualitative Disclosures about Market Risk

173

Item 12.

Description of Securities Other than Equity Securities

174

Item 13.

Defaults, Dividend Arrearages and Delinquencies

175

Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds

175

Item 15.

Controls and Procedures

175

Item 16A.

Audit Committee Financial Expert

177

Item 16B.

Code of Ethics

177

Item 16C.

Principal Accountant Fees and Services

177

Item 16D.

Exemptions from the Listing Standards for Audit Committees

178

Item 16E.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

178

Item 16F.

Change in Registrant’s Certifying Accountant

178

Item 16G.

Corporate Governance

178

Item 16H.

Mine Safety Disclosures

178

Item 17.

Financial Statements

182

Item 18.

Financial Statements

182

Item 19.

Exhibits

182

Index to Financial Statements

F-1

 


 
 

 

Table of Contents

 

PART I

Item 1.         Identity of Directors, Senior Management and Advisors

Not applicable.

Item 2.         Offer Statistics and Expected Timetable

Not applicable.

Item 3.         Key Information

In this annual report, except as otherwise specified, references to “we”, “us”, “our” and “the Company” are references to (i) Empresa Distribuidora y Comercializadora Norte S.A., or “Edenor”, on a standalone basis prior  to  March 1, 2011, (ii) Edenor, Empresa Distribuidora Eléctrica Regional S.A. (“Emdersa”)  and Aeseba S.A. (“Aeseba”) when references are made to information as of any date within the period between March 1, 2011 and December 31, 2012.  References to Edenor, Emdersa and/or Aeseba on standalone basis are made by naming each company as the case may be.   Our financial statements as of December 31, 2012, include  the financial data of Aeseba.  For more information, see “Item 4—Information on the Company—History and Development of the Company.”

FORWARD‑LOOKING STATEMENTS

This annual report includes forward‑looking statements, principally under the captions “Item 3. Key Information—Risk factors,” “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects.” We have based these forward‑looking statements largely on our current beliefs, expectations and projections about future events and financial trends affecting our business.  Forward‑looking statements may also be identified by words such as “believes,” “expects,” “anticipates,” “projects,” “intends,” “should,” “seeks,” “estimates,” “future” or similar expressions.  Many important factors, in addition to those discussed elsewhere in this annual report, could cause our actual results to differ materially from those expressed or implied in our forward‑looking statements, including, among other things:

·         the outcome and timing of the integral tariff revision process (Revisión Tarifaria Integral or “RTI”) and, more generally, uncertainties relating to future government approvals to increase or adjust our tariffs;

·         general political, economic, social, demographic and business conditions in the Republic of Argentina, or Argentina”  and particularly in the geographic market we serve;

·         the impact of regulatory reform and changes in the regulatory environment in which we operate;

·         electricity shortages;

·         potential disruption or interruption of our service;

·         restrictions on the ability to exchange Pesos into foreign currencies or to transfer funds abroad;

·         the revocation or amendment of our concession by the granting authority;

·         our ability to implement our capital expenditure plan, including our ability to arrange financing when required and on reasonable terms;

·         fluctuations in exchange rates, including a devaluation of the Peso;

·         the impact of high rates of inflation on our costs;

·         our ability to access to financing under reasonable terms, and

·         additional matters identified in “Risk factors”.

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Table of Contents

 

Forward‑looking statements speak only as of the date they were made, and we undertake no obligation to update publicly or to revise any forward‑looking statements after we file this annual report because of new information, future events or other factors.  In light of these limitations, undue reliance should not be placed on forward‑looking statements contained in this annual report.

SELECTED FINANCIAL DATA

The following tables present our summary financial data for the years ended December 31, 2012 and 2011. This information should be read in conjunction with our audited consolidated financial statements as of and for the years ended December 31, 2012  and 2011, and the related notes thereto (the Consolidated Financial Statementsˮ) and Item 5. Operating and Financial Review and Prospectsˮ included elsewhere in this annual report. The financial data as of December 31, 2012, is derived from our Consolidated Financial Statements. Our Consolidated Financial Statements are the first annual audited financial statements prepared in accordance with International Financial Reporting Standards (IFRSˮ), as issued by the International Accounting Standards Board (IASBˮ).  

Until the year ended December 31, 2011, our consolidated financial statements were prepared in accordance with generally accepted accounting principles in Argentina (Argentine GAAPˮ) and in accordance with the rules of the Argentine National Securities Commission (CNVˮ). For 2012, we have prepared our financial statements in accordance with IFRS, as issued by the IASB, and these have been approved by resolution of the Board of Directors’ meeting held on April 30, 2013.

The mandatory adoption of IFRS for public companies in Argentina is effective for fiscal years beginning January 1, 2012. Therefore, the consolidated financial statements as of December 31, 2011 for filing with the CNV were prepared in accordance with Argentine GAAP, which differs in certain respects from IFRS. The selected consolidated income statement data for the years ended December 31, 2012 and 2011 and the selected consolidated balance sheet data as of December 31, 2012 and 2011 have been prepared in accordance with IFRS and have been derived from our Consolidated Financial Statements, which were audited by Price Waterhouse & Co. S.R.L. (“PwC”), member firm of PricewaterhouseCoopers network, whose report dated April 30, 2013 is included elsewhere herein.  See Item 18 – “Financial Statements”.

We have prepared our annual financial statements for the fiscal year ended December 31, 2012 included herein, assuming that we will continue as a going concern. Our independent auditors, PwC, issued a report dated April 30, 2013, on our financial statements as of and for the years ended December 31, 2012 and 2011, which contains an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern.  As discussed in Note 1 to the Consolidated Financial Statements, the delay in obtaining tariff increases, the cost adjustments recognition requested by the Company in accordance with the terms of the Adjustment Agreement and the continuous increase in operating expenses that are necessary to maintain the level of service significantly affected the economic and financial position of the Company and have raised substantial doubt with respect to our ability to continue as a going concern.  Management's plans in response to these matters are also described in Note 1. However, our Consolidated Financial Statements as of and for the years ended December 31, 2012 and 2011 do not include any adjustments or reclassifications that might result from the outcome of this uncertainty.  See Item 3: “Key Information - Risk Factors - Risks Relating to Our Business - Failure or delay to negotiate further improvements to our tariff structure, including increases in our distribution margin, and/or to have our tariff adjusted to reflect increases in our distribution costs in a timely manner, could have a material adverse effect on our capacity to perform our financial and commercial obligations. As a result, there is substantial doubt with respect to the ability of the Company to continue as a going concern.” See Item 18: “Financial Statements.” 

Our Consolidated Financial Statements are included on pages F-1 through F-101 of this annual report.

Our financial statements as of December 31, 2012, include the financial data of Aeseba. In preparing the Consolidated Financial Statements, the Company combined the financial statements of Aeseba, including its subsidiary, Empresa Distribuidora de Energía Norte S.A. (“Eden”), an electricity distribution company with the concession area in the northern part of the Province of Buenos Aires, line by line, adding together alike items of assets, liabilities, equity, income and expenses in compliance with International Accounting Standard (“IAS”) 27 and IFRS 10.   Furthermore, as of December 31, 2011, in accordance with the decision of the Board of Directors to divest and sell the subsidiaries of Emdersa Holding S.A. (Emdersa Holdingˮ or “EHSA”), including Empresa

2


 
 

Table of Contents

 

Distribuidora Eléctrica Regional S.A. (“Emdersa”) and its subsidiaries, Empresa Distribuidora de San Luis S.A. (“Edesal”), Empresa Distribuidora de La Rioja S.A. (“Edelar”), Empresa Distribuidora de Salta S.A. (“Edesa”) and Emdersa Generación Salta S.A. (“EGSSA”), we have classified the corresponding assets and liabilities associated to these subsidiaries in the Consolidated Financial Statements as of December 31, 2012 and 2011 as “Assets of disposal groups classified as held for sale” and “Liabilities of disposal groups classified as held for sale”. As of October 11, 2011, October 25, 2011 and May 10, 2012 the Company sold its direct and indirect stake in EGSSA (subject to a condition precedent related to EMDERSA’s spin-off), Edesal and Edesa, respectively. The corresponding charges to results have been included within “Loss from discontinued operations” line item in our consolidated statements of comprehensive loss for the years ended December 31, 2012 and 2011.

 

In this annual report, except as otherwise specified, references to “$”, “U.S.$” and “Dollars” are to U.S. Dollars, and references to “Ps.” and “Pesos” are to Argentine Pesos.  Solely for the convenience of the reader, Peso amounts as of and for the year ended December 31, 2012 have been translated into U.S. Dollars at the buying rate for U.S. Dollars quoted by Banco de la Nación Argentina (Banco Nación) on December 31, 2012 of Ps. 4.918 to U.S. $1.00.  The U.S. Dollar equivalent information should not be construed to imply that the Peso amounts represent, or could have been or could be converted into, U.S. Dollars at such rates or any other rate.  See “Item 3. Key Information—Exchange Rates.”

 

 

 

3

 

 
 

Table of Contents

 

Certain figures included in this annual report have been subject to rounding adjustments.  Accordingly, figures shown as totals may not sum due to rounding.

 

 

 

 

Consolidated Statements of Comprehensive Loss

 

IFRS

2012(*)

2012(*)

2011(*)

 

(figures in millions)

 

Continuing Operations

 

 

 

Revenue from sales (1)

U.S. $

 757.5

Ps.

 3,725.3

Ps.

2,805.8

Revenue from construction (2)

23.9

117.6

87.4

Electric power purchases

(419.3)

(1,740.2)

(1,130.9)

Cost of Construction

(23.9)

(117.6)

(87.4)

Subtotal

338.2

1,663.0

1,480.4

Transmission and distribution expenses

(319.3)

(1,570.1)

(1,094.8)

Gross Profit

18.9

93.0

385.5

 

Selling expenses

 

(87.5)

(430.4)

 

(310.3)

Administrative expenses

(60.3)

(296.4)

(224.3)

Gain from acquisition of companies (3)

-

-

435.0

Other operating income

6.8

33.3

27.9

Other operating expenses

(22.9)

(112.8)

(54.9)

Operating (expense) income

(145.0)

(713.3)

258.9

Financial Income

17.5

86.0

55.6

Financial Expenses (4)

(60.4)

(296.8)

(216.1)

Other financial results

(33.9)

(166.7)

(97.2)

Net Financial Expense

(76.8)

(377.5)

(257.8)

(Loss) Profit before taxes

(221.8)

(1,090.8)

1.1

Income Tax

20.3

99.8

(153.0)

Loss for the year from continuing operations

(201.5)

(991.0)

(151.9)

Loss from discontinued operations

(4.6)

(22.4)

(139.5)

Loss for the year

(206.1)

(1,013.4)

(291.4)

 

 

 

 

Loss for the year attributable to:

 

 

 

Owners of the parent

(206.7)

(1,016.5)

(304.1)

Non- controlling interests

0.6

3.1

12.7

Loss for the year

(206.1)

(1,013.4)

(291.4)

 

 

 

 

Loss for the year attributable to Owners of the parent:

 

 

 

 

Continuing Operations

(203.5)

(1,000.6)

(157.7)

Discontinued Operations

(3.2)

(15.8)

(146.4)

 

U.S. $  

 (206.7)

Ps.

 (1,016.5)

Ps.

 (304.1)

 

Other Comprehensive (income) loss

 

 

 

Items that will not be reclassified to profit or loss

 

 

 

Actuarial losses on benefit plans

1.0

4.7

(13.8)

Tax effect of actuarial losses on benefit plans

(0.3)

(1.6)

4.8

Total other comprehensive loss from discontinued operations

-

-

(3.4)

Total other comprehensive income (loss)

0.6

3.1

(12.3)

 

 

 

 

Comprehensive loss for the year attributable to:

 

 

 

Owners of the parent

(206.0)

(1,013.2)

(315.4)

Non- controlling interests

0.6

2,8

11.7

Comprehensive loss for the year

(205.4)

(1,010.4)

(303.7)

 

 

 

 

 

 

Comprehensive loss for the year attributable to owners of the parent:

 

 

 

 

 

Continuing Operations

(202.8)

(997.4)

(166.4)

Discontinued Operations

(3.2)

(15.8)

(149.0)

 

U.S. $ 

(206.0)

Ps.

(1,013.2)

Ps.

 (315.4)

 

 

 

 

 
4
 

 
 

Table of Contents

 

 

 

 

 

Basic and diluted loss per share attributable to owners of the parent:

 

 

 

 

 

 

 

Number of shares outstanding

897,042,600

897,042,600

897,042,600

 

 

 

 

Basic and diluted loss per share – from continuing operations

(0.228)

(1.12)

(0.17)

Basic and diluted loss per share – from discontinued operations

(0.004)

(0.02)

(0.16)

 

 

 

 

Basic and diluted loss per ADS attributable to owners of the parent (5):

 

 

 

Basic and diluted loss per ADS - from continuing operations

(4.536)

(22.31)

(3.52)

Basic and diluted loss per ADS - from discontinued operations

(0.072)

(0.35)

(3.26)

 

______________________

(*)       Consolidated financial data.

(1)       Revenue from operations is recognized on an accrual basis and derives mainly from electricity distribution. Such revenue includes electricity supplied, whether billed or unbilled, at the end of each year, and has been valued on the basis of applicable tariffs and the charges determined by the Resolution 347/12.

(2)       In accordance with IFRIC 12, the construction of the infrastructure necessary for the subsidiary EDEN S.A. to distribute electricity is considered a service rendered to the concession authority and the corresponding revenue is reflected at cost within the sales account.

(3)       The excess of the fair value of the net assets acquired from Emdersa and Aeseba, including those recognized in the reassessment of the purchase price allocation, over the consideration paid and the non-controlling interest has been considered as a gain in bargain purchase, because the seller had started a process for divesting its net assets in the region and, consequently, it sold them at values lower than their respective fair value. The acquisitions have been recorded in accordance with the purchase method on the basis of the fair value measurements of the acquired assets and liabilities.

(4)       Includes commercial interests accrued by CAMMESA of Ps. 55.2 million, under the Commercial Interest line item.

(5)       Each ADS represents 20 Class B common shares.

 

5
 

 
 

Table of Contents

 

 

2012(*)

2012(*)

2011(*)

01.01.2011(*)

 

(figures in millions)

ASSETS

 

Non-current assets:

 

 

 

 

Property, plant and equipment

U.S.$                       883.4

Ps.                        4,344.6

Ps.                        3,995.3

Ps.                        3,712.3

Intangible Assets

172.0

845.8

793.0

-

Interest in joint ventures

0.1

0.4

0.4

0.4

Trade Receivables

9.7

47.7

45.7

45.5

Other receivables

14.3

70.5

50.3

18.5

Total non‑current assets

U.S.$                    1,079.5

Ps.                        5,309.1

Ps.                       4,884.7

Ps.                        3,776.8

Current assets:

 

 

 

 

Assets under construction

U.S.$                        17.2.

Ps.                             84.5

Ps.                            45.5

-

Inventories

17.3

85.0

45.3

12.4

Trade receivables

180.8

889.4

534.7

421.2

Derivative Financial Instruments

-

-

1.3

-

Financial Assets at fair value through profit or loss

0.7

3.4

2.1

430.8

Other receivables

27.6

135.6

76.3

40.1

Cash and cash equivalents

14.5

71.1

130.5

246.0

Total current assets

U.S.$                      258.0.

Ps.                       1, 269.0

Ps.                        835. 8

Ps.                       1,150.5

Assets of disposal groups classified as held for sale

45.4

223.4

1,291.1

-

TOTAL ASSETS

U.S.$                    1,383.0

Ps.                        6,801.4

Ps.                      7,011.6

Ps.                       4,927.3

 

 

 

 

 

EQUITY

 

 

 

 

 

 

 

 

 

Equity attributable to the owners

 

 

 

 

Share Capital

U.S $                          182.4

Ps.                            897.0

Ps.                         897.0

Ps.                         897.0

Adjustment to Share Capital

80.9

397.7

986.1

986.1

Additional paid- in capital

0.7

3.5

21.8

18.3

Treasury stock

1.9

9.4

9.4

9.4

Adjustment to treasury stock

2.1

10.3

10.3

10.3

Legal Reserve

-

-

64.0

64.0

Accumulated Deficit

(183.0)

(899.8)

(557.3)

(241.9)

Equity attributable to the owners

85.0

418.2

1,431.4

1,743.3

Non- controlling interests

14.5

71.1

415.8

-

TOTAL EQUITY

99.5

489.3

1,847.2

1,743.3

 

 

 

 

 

LIABILITIES

Non -Current liabilities:  

 

 

 

 

Trade payables

31.6

155.3

87.7

51.0

Deferred Revenues

53.8

264.4

174.8

-

Other liabilities (1)

385.3

1,894.8

1,373.7

984.5

Borrowings

274.6

1,350.7

1,189.9

1,035.1

Salaries and social security taxes payable

3.6

17.5

23.6

19.3

Benefit Plans

19.8

97.4

83.5

41.5

Provisions

16.3

80.0

66.1

6.8

Taxes Liabilities

2.0

10.0

17.7

9.0

Deferred Tax Liability

46.9

230.4

348.7

250.3

Total non- current liabilities

U.S. $                       833.8

Ps.                       4,100.5

Ps.                      3,365.7

Ps.                      2,397.5

Current liabilities:  

 

 

 

 

Trade payables

241.7

1,188.5

623.7

377.1

Borrowings

21.0

103.1

59.0

46.9

Derivative Financial Instruments

-

-

-

7.3

Salaries and social security taxes payable

78.1

384.3

275.8

180.4

Benefit plans

3.0

15.0

11.3

-

Taxes Liabilities

41.2

202.5

147.7

111.1

Other Liabilities(1)

30.6

150.4

128.6

5.9

Provisions

2.1

10.5

10.3

57.8

Total Current Liabilities

U.S. $                       417.7

Ps.                       2,054.4

Ps.                      1,256.5

Ps.                        786.5

         

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Table of Contents

 

 

Liabilities of disposal groups classified as held for sale

32.0

157.3

542.2

-

TOTAL LIABILITIES

U.S.$                     1,283.5

Ps.                       6,312.2

Ps.                      5,164.4

Ps.                     3,184.0

TOTAL LIABILITIES AND EQUITY

U.S.$                      1,383.0

Ps.                        6,801.4

Ps.                       7,011.6

Ps.                      4,927.3

         

 

(*)   Consolidated financial data.

(1)     Includes the amounts collected through the Program for the Rational Use of Electricity Power (PUREE), which as of December 31, 2012, 2011 and January 1, 2011 amounted to Ps. 1,352.5 million, Ps. 928.7 million and Ps. 529.1, respectively.  For the years ended December 31, 2012 and 2011, Ps. 74.7 million and Ps. 61.6 million, respectively, corresponded to PUREE funds collected by Aeseba, included under current liabilities, and Ps. 1,277.8 million and Ps. 867.1 corresponded to PUREE funds collected by Edenor, included under non-current liabilities. Edenor is permitted to retain funds from the PUREE that it would otherwise be required to transfer to CAMMESA according to Resolution SS.EE. 1037/07.

 

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Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

Cash flows from operating activities

2012(*)

2012(*)

2011(*)

 

(Figures in millions)

 

 

 

 

Loss for the year

U.S.$                   (206.1)

Ps.                     (1,013.4)

Ps.                     (291.4)

Adjustments to reconcile net loss to net cash flows provided by operating activities:  

 

 

 

Depreciation of property, plant and equipment

40.2

197.9

187.9

Amortization of intangible assets

5.1

24.9

20.1

Disposals of property, plant and equipment

0.4

1.9

1.9

Loss from retirement of intangible assets

1.6

8.0

10.7

Gain from the purchase of financial debt

-

-

(6.5)

Interest on loans and other liabilities

30.7

151.2

109.0

Exchange differences

39.5

194.1

102.8

Income Tax

(20.3)

(99.8)

153.0

Allowance for the impairment of trade receivables and other receivables

3.8

18.5

10.8

Provision of Contingencies, net of recovery

5.4

26.4

8.1

Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule and other trade receivables

(0.1)

(0.4)

(1.2)

Changes in fair value of financial instruments

(7.9)

(39.1)

(13.3)

Gain from acquisition of companies

(435.0)

Benefit Plans accrued

6.3

31.0

15.6

Discontinued Operations

50.1

246.2

202.3

 

Changes in operating assets and liabilities

(excluding previous adjustments)

Net increase in trade receivables

(69.5)

(342.0)

(136.6)

Net (decrease) increase in other receivables

2.4

11.7

(88.3)

Increase in inventories

(8.1)

(39.7)

(32.9)

Increase in assets under construction

(7.9)

(39.0)

(45.5)

Increase in trade payable

110.9

545.6

25.4

Increase in salaries and social security taxes

20.8

102.4

139.2

Decrease of benefit plans

(1.8)

(8.8)

(15.6)

Increase in taxes

10.1

49.7

36.5

Increase in deferred revenue

18.2

89.6

174.8

Increase in other liabilities

28.6

140.8

203.7

(Decrease) Increase in provisions

(2.5)

(12.4)

3.7

Income tax paid

(6.9)

(34.1)

(24.4)

Increase in funds obtained from PUREE (Res. SE N° 1037/07) (1)

83.5

410.7

338.0

Increase in funds obtained from PUREE (Res. MIVSPBA N° 252/07)

2.7

13.1

6.0

Net Cash Flows provided by operating activities

129.1

635.1

659.0

 

Cash flows from investing activities  

 

 

 

Increase from sale of financial assets at fair value

7.7

37.8

442.0

Additions of property, plant and equipment

(111.6)

(549.0)

(443.4)

Additions of intangible assets

(17.4)

(85.7)

(63.4)

Payment for acquisition of companies

-

-

(442.9)

Payment for acquisition of additional non controlling interests

-

-

(6.4)

Loans granted

(3.0)

(14.6)

-

Collection of loans proceed from borrowing

28.9

142.4

-

Collection for sale of discontinued operations

21.3

104.6

-

Discontinued Operations

(40.8)

(200.8)

(279.9)

Net Cash Flows used in investing activities

(115.0)

(565.5)

(794.0)

 

Cash flows from financing activities:

 

 

 

Loans taken

19.5

95.8

298.2

Repayment of borrowings

(42.8)

(210.3)

(380.4)

Change in non – controlling interest- Dividend Distribution Aeseba

 

(1.2)

 

(5.8)

 

Dividends paid(1)

(1.1)

(5.6)

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Discontinued Operations

(8.1)

(39.9)

98.5

Net cash flows (used in) provided by financing activities

(33.7)

(165.8)

16.3

Net decrease in cash and cash equivalents

(19.6)

( 96.2)

(118.8)

 

 

 

 

Cash and cash equivalents at beginning of year

U.S.$                     26.5

Ps.                    130.5

Ps.                      246.0

Gain from exchange differences in cash and cash equivalents

7.5

36.8

3.3

Changes in cash and cash equivalents

(19.6)

(96.2)

(118.8)

Cash and cash equivalents at end of the year

U.S.$                     14.5
Ps.                      71.1
Ps.                      130.5

 

Cash and cash equivalents in the statement of financial position

U.S.$                     14.5

Ps.                      71.1

Ps.                      130.5

Cash and cash equivalents included in assets of disposal groups classified as held for sale

2.3

11.2

28.3

Cash and cash equivalents at end of the year

U.S.$                     16.7
Ps.                      82.3
Ps.                      158.8

 

 

 

 

 

 

Supplemental cash flows information

2012

2012

2011

 

 

 

 

Financial cost charged to fixed assets

U.S.$                      1.3

6.4

4.1

 

 

 

 

Changes in assets for disposal classified as held for sale

 

 

 

Increased credit extended related companies

(8.5)

(41.7)

-

Decrease advance payments received related companies

(2.1)

(10.4)

-

Acquired Companies

-

-

 

119.0

Cash and cash equivalents

Property, plant and equipment and intangible assets

-

-

1,881.4

Inventories

-

-

4.3

Trade receivables

-

-

255.3

Other receivables

-

-

84.6

Trade payables

-

-

(257.8)

Borrowings

-

-

(450.0)

Deferred tax liability

-

-

(78.8)

Other liabilities

-

-

(331.0)

Net Assets

-

-

(1,227.0)

Non-controlling interests

-

-

(230.0)

Net assets acquired

-

-

996.9

Bargain Purchase

-

-

435.0

Cash Paid

-

-

(562.0)

Cash and cash equivalents in acquired companies

-

-

119.0

Net Cash Flows for acquisition of companies

-

-

(442.9)

 

(*) Consolidated financial data

(1) Correspond to Eden

 

 

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Year ended December 31,

 

2012

2011

2010

2009

2008

 

 

Operating data

Edenor

Aeseba

Edenor

Aeseba

 

 

 

Energy sales (in GWh):

20,760

2,868

20,098

2,791

19,293

18,220

18,616

Residential

8,662

648

8,139

619

7,796

7,344

7,545

Small Commercial

1,688

236

1,601

227

1,543

1,470

1,530

Medium Commercial

1,717

111

1,700

104

1,634

1,565

1,597

Industrial

3,335

814

3,442

807

3,378

3,204

3,277

Wheeling System(1)

4,261

294

4,156

291

3,891

3,622

3,700

Others:

 

 

 

 

 

 

 

Public Lighting

668

81

656

80

654

644

644

Shantytowns

410

675

384

657

377

351

304

Others(2)

20

9

20

6

20

20

19

Customers (in thousands) (3)

2,726

344

2,699

340

2,662

2,605

2,537

Energy Losses (%)

13.3%

10.6%

12.6%

10.4%

12.5%

11.9%

10.8%

MWh sold per employee

7,088.0

3,944.2

7,188.1

3,771.2

7,123.9

6,936.1

7,392.8

Customers per employee

931

473

965

460

971

978

997

               

______________________

         

(1) Wheeling system charges represent our tariffs for large users, which consist of a fixed charge for recognized technical losses and a charge for our distribution margins but exclude charges for electric power purchases, which are undertaken directly between generators and large users.

(2) Represents energy consumed internally by us and our facilities.

(3) We define a customer as one meter. We may supply more than one consumer through a single meter. In particular, because we measure our energy sales to each shantytown collectively using a single meter, each shantytown is counted as a single customer.

 

 

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EXCHANGE RATES

From April 1, 1991 until the end of 2001, the Convertibility Law established a fixed exchange rate under which the Central Bank was obliged to sell U.S. Dollars at a fixed rate of one Peso per U.S. Dollar (the “Convertibility Regime”).  On January 6, 2002, the Argentine Congress enacted the Public Emergency Law No. 25,561 (the “Public Emergency Law”), formally putting an end to the regime of the Convertibility Regime  and abandoning over ten years of U.S. Dollar-Peso parity.  The Public Emergency Law grants the Executive Branch of the Argentine government the power to set the exchange rate between the Peso and foreign currencies and to issue regulations related to the foreign exchange market.  The Public Emergency law has been extended until December 31, 2013.  For a brief period following the end of the Convertibility Regime, the Public Emergency Law established a temporary dual exchange rate system.  Since February 2002, the Peso has been allowed to float freely against other currencies.

The following table sets forth the annual high, low, average and period-end exchange rates for U.S. Dollars for the periods indicated, expressed in Pesos per U.S. Dollar at the purchasing exchange rate and not adjusted for inflation.  When preparing our financial statements, we utilize the selling exchange rates for U.S. Dollars quoted by Banco Nación to translate our U.S. Dollar denominated assets and liabilities into Pesos.  The Federal Reserve Bank of New York does not report a noon buying rate for Pesos.

 

Low

High

Average

Period End

 

(Pesos per U.S. Dollar)

Year ended December 31,

 

 

 

 

2008

3.01

3.47

3.16(1)

3.45

2009

3.45

3.88

3.73(1)

3.80

2010

3.79

3.99

3.91(1)

3.98

2011

3.97

4.30

4.13(1)

4.30

2012

4.31

4.92

4.58(1)

4.92

 

 

 

 

 

Month

 

 

 

 

 

 

 

 

 

January 2013

4.93(2)

4.98(2)

4.95

4.98

February 2013

4.98(2)

5.05(2)

5.01

5.05

March 2013

5.12(2)

5.05(2)

5.08

5.12

April 2013(3)

5.13 (4)

5.18(4)

5.15

5.18

_____________________

Source: Banco Nación

(1)           Represents the average of the exchange rates on the last day of each month during the period.

(2)           Average of the lowest and highest daily rates in the month

(3)           Represents the corresponding exchange rates from April 1 through April 29, 2013.

(4)           Represents the average of the lowest and highest daily rates from April 1 through April 29, 2013.

 

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RISK FACTORS  

Risks Related to Argentina

Overview

We are a stock corporation (sociedad anónima) incorporated under the laws of the Republic of Argentina and substantially all of our revenues are earned in Argentina and substantially all of our operations, facilities, and customers are located in Argentina.  Accordingly, our financial condition and results of operations depend to a significant extent on macroeconomic, regulatory, political and financial conditions prevailing in Argentina, including growth, inflation rates, currency exchange rates, interest rates, and other local, regional and international events and conditions that may affect Argentina in any manner.  For example, slower economic growth or economic recession could lead to a decreased demand for electricity in our concession area or a decline in the purchasing power of our customers, which, in turn, could lead to a decrease in collection rates from our customers or increased energy losses due to illegal use of our service.  Actions of the Argentine Government concerning the economy, including decisions with respect to inflation, interest rates, price controls, foreign exchange controls and taxes, have had and could continue to have a material adverse effect on private sector entities, including us.  For example, during the Argentine economic crisis of 2001, the Argentine Government froze electricity distribution margins and caused the pesification of our tariffs, which had a materially adverse effect on our business and financial condition and led us to suspend payments on our financial debt at the time. We cannot assure you that the Argentine Government will not adopt other policies that could adversely affect the Argentine economy or our business, financial condition or results of operations. In addition, we cannot assure you that future economic, regulatory, social and political developments in Argentina will not impair our business, financial condition or results of operations, or cause the market value of our ADSs and Class B common shares to decline.

A global financial crisis and unfavorable credit and market conditions may negatively affect our liquidity, customers, business, and results of operations

The effects of a global credit crisis and related turmoil in the global financial system may have a negative impact on our business, financial condition and results of operations, an impact that is likely to be more severe on an emerging market economy, such as Argentina.  The effect of this economic crisis on our customers and on us cannot be predicted.  Weak economic conditions could lead to reduced demand or lower prices for energy, which could have a negative effect on our revenues.  Economic factors such as unemployment, inflation levels and the availability of credit could also have a material adverse effect on demand for energy and therefore on our financial condition and operating results.  The financial and economic situation may also have a negative impact on third parties with whom we do, or may do, business.  In addition, our ability to access credit or capital markets may be restricted at a time when we would need financing, which could have an impact on our flexibility to react to changing economic and business conditions (See Risk Factors – “Argentina’s ability to obtain financing from international markets is limited, which may impair its ability to implement reforms and foster economic growth, and consequently, may affect our business, results of operations and prospects for growth”).  For these reasons, any of the foregoing factors or a combination of these factors could have an adverse effect on our results of operations and financial condition and cause the market value of our ADSs and Class B common shares to decline.

The Argentine economy remains fragile and any significant decline could adversely affect our financial condition  

Sustainable economic growth in Argentina is dependent on a variety of factors, including international demand for Argentine exports, the stability and competitiveness of the Argentine Peso against foreign currencies, confidence among consumers and foreign and domestic investors and a stable rate of inflation.

The Argentine economy remains fragile, as reflected by the following economic conditions:

·         GDP growth has declined and employment is beginning to show some signals of weakness;

·         inflation has accelerated recently and threatens to continue at those levels;

·         investment as a percentage of GDP remains too low to sustain the growth rate of recent years;

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·         the availability of long-term credit is scarce, while international financing remains limited;

·         the regulatory environment continues to be uncertain;

·         in the climate created by the above conditions, demand for  foreign currency has grown, generating a capital flight effect to which the Argentine Government has responded with regulations and currency exchange and transfer restrictions, and it is widely reported that in other countries where the Peso is traded, the Peso/U.S. Dollar exchange rate differs substantially from the official exchange rate in Argentina; and

·         previous GDP performance has depended to some extent on high commodity prices which, despite having a favorable long-term trend, are volatile in the short-term and beyond the control of the Argentine Government.

As in the recent past, Argentina’s economy may be adversely affected if political and social pressures inhibit the implementation by the Argentine Government of policies designed to control  inflation, generate growth and enhance consumer and investor confidence, or if policies implemented by the Argentine Government that are designed to achieve these goals are not successful. These events could materially adversely affect our financial condition and results of operations, or cause the market value of our ADSs and our Class B common shares to decline.

As public finances became increasingly tight, the Argentine Government decided to revise its subsidy policies, particularly those related to energy, electricity and gas, water and public transportation. However, as economic growth has not reached the levels of previous years (on average, GDP grew close to 8.0% per year between 2003 and 2010) and inflation has continued to increase, the manner in which the Argentine Government has revised those policies has been affected. As ultimately implemented, the revised policies will not have an impact on companies’ revenues but could affect the timing of the revision of the tariff process, and generate a strong negative impact on economic activity and an increase in prices, considering that they would be put into effect in a context of subpar growth, high inflation and capital flight.

We cannot assure you that a decline in economic growth, increased economic instability, or the expansion of economic policies and measures taken by the Argentine Government that affect private sector enterprises such as us, all developments over which we have no control, would not have an adverse effect on our business, financial condition or results of operations or would not have a negative impact on the market value of our ADSs and our Class B common shares.

The impact of inflation in Argentina on our costs could have a material adverse effect on our results of operations

Inflation has, in the past, materially undermined the Argentine economy and the Argentine Government’s ability to create conditions that permit growth. In recent years, Argentina has confronted inflationary pressure, evidenced by significantly higher fuel, energy and food prices, among other factors.  According to data published by the Instituto Nacional de Estadística y Censos (National Statistics and Census Institute or INDEC), the rate of inflation reached 10.9% in 2010, 9.5% in 2011 and 10.8% in 2012. The Argentine Government has implemented programs to control inflation and monitor prices for essential goods and services, including freezing the prices of supermarket products, and price support arrangements agreed between the Argentine Government and private sector companies in several industries and markets.

A high inflation environment would undermine Argentina’s foreign competitiveness by diluting the effects of the Argentine Peso devaluation, negatively impact the level of economic activity and employment and undermine confidence in Argentina’s banking system, which could further limit the availability of domestic and international credit to businesses. In turn, a portion of the Argentine debt is adjusted by the Coeficiente de Estabilización de Referencia (Stabilization Coefficient, or “CER”), a currency index, that is strongly related to inflation. Therefore, any significant increase in inflation would cause an increase in the Argentine external debt and consequently in Argentina’s financial obligations, which could exacerbate the stress on the Argentine economy.  A continuing high inflation environment could undermine our results of operations as a result of a delay in our ability to, or our inability to, adjust our tariffs accordingly and could adversely affect our ability to finance the working capital needs of our businesses on favorable terms, and adversely affect our results of operations and cause the market value of our ADSs and Class B common shares to decline.

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The credibility of several Argentine economic indexes has been called into question, which may lead to a lack of confidence in the Argentine economy and may in turn limit our ability to access the credit and capital markets

In January 2007, INDEC modified its methodology used to calculate the consumer price index (the “CPI”), which is calculated as the monthly average of a weighted basket of consumer goods and services that reflects the pattern of consumption of Argentine households. Since then, the credibility of the CPI, as well as other indexes published by the INDEC has been affected. As a result of the uncertainty relating to the accuracy of INDEC indexes, the inflation rate of Argentina and the other rates calculated by INDEC could be higher than as indicated in official reports.

Beginning November 23, 2010, the Argentine government consulted with the IMF for technical assistance in order to prepare a new national consumer price index with the aim of modernizing the current statistical system.  During the first quarter of 2011, a team from the IMF started working in conjunction with the INDEC to create such new national consumer price index.  Notwithstanding the foregoing, reports published by the IMF state that their staff also uses alternative measures of inflation for macroeconomic surveillance, including data produced by private sources, which have shown inflation rates considerably higher than those issued by the INDEC since 2007, and the IMF has called on Argentina to adopt remedial measures to address the quality of official data.  In its meeting held on February 1, 2013, the Executive Board of the IMF found that Argentina’s progress in implementing remedial measures since September 2012 has not been sufficient, and as a result, the IMF issued a declaration of censure against Argentina in connection with its breach of its related obligations to the IMF under the Articles of Agreement, and called on Argentina to adopt remedial measures to address the inaccuracy of inflation and GDP data without further delay.

Any required correction or restatement of the INDEC indexes could result in a significant further decrease in confidence in Argentina’s economy, which could, in turn, have an adverse effect on our ability to access international capital markets to finance our operations and growth, which could, in turn, adversely affect our results of operations and financial condition and cause the market value of our ADSs and Class B common shares to decline.

Given the limited credit available to emerging market nations as a result of the global economic crisis, our ability to access credit in the capital markets could be limited by the uncertainty relating to the inaccuracy of the economic indexes and rates in question which could adversely affect our results of operations and financial conditions and cause the market value of our ADSs and class B common shares to decline.

Argentina’s ability to obtain financing from international markets is limited, which may impair its ability to implement reforms and foster economic growth, and consequently, may affect our business, results of operations and prospects for growth

In 2005, Argentina restructured part of its sovereign debt that had been in default since the end of 2001.  The Argentine Government announced that as a result of this restructuring, it had approximately U.S.$129.2 billion in total gross public debt as of December 31, 2005. Holdout creditors that declined to participate in the exchanges commenced numerous lawsuits against Argentina in several countries, including the United States, Italy, Germany, and Japan. These lawsuits generally assert that Argentina has failed to make timely payments of interest and/or principal on their bonds, and seek judgments for the face value of and/or accrued interest on those bonds.  Judgments have been issued in several proceedings but to date judgment creditors have not succeeded in having those judgments enforced. In at least one case, plaintiffs have asserted that allowing Argentina to make payments under its newly issued bonds and remain in default on its pre-2002 bonds violates the pari passu clause in the original bonds and entitles the plaintiffs to enjoin such payments. The U.S. Court of Appeals for the Second Circuit has ruled in the case that the ranking clause in bonds issued by Argentina prevents Argentina from making such payments unless it makes pro rata payments in respect of defaulted debt that ranks pari passu with the performing bonds.  The judgment has been appealed, and we cannot predict when or in what form a final appellate decision will be granted. 

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In September 2008, Argentina announced its intention to cancel its external public debt to Paris Club creditor nations using reserves of the Banco Central de la República Argentina ( the Argentine Central Bank, or the “Central Bank”) in an amount equal to approximately U.S. $6.5 billion. However, as of the date of this annual report, the Argentine Government has not yet cancelled such debt. Indeed, negotiations in this respect remain stagnant. If no agreement with the Paris Club creditor nations is reached, financing from multilateral financial institutions may be limited or not available, which could adversely affect economic growth in Argentina and Argentina’s public finances.

Certain groups of holders that did not participate in the 2005 restructuring have filed claims against Argentina and it is possible that new claims will be filed in the future. In addition, foreign shareholders of several Argentine companies have filed claims before the ICSID alleging that certain government measures adopted during the country’s 2001 crisis were inconsistent with the fair and equitable treatment standards set forth in various bilateral investment treaties to which Argentina is a party. Since May 2005, the ICSID tribunals have issued several awards against Argentina.  Only the cases “CMS v. Argentina”, “Azurix v. Argentina” and “Vivendi v. Argentina” are currently final and unappealable, which decisions required that the Argentine Government pay U.S. $133.2 million, U.S. $165.2 million and U.S. $105 million, respectively.  As of the date of this annual report, Argentina has not yet paid the amounts referred to above.

On April 30, 2010, Argentina launched a new debt exchange to holders of the securities issued in the 2005 debt exchange and to holders of the securities that were eligible to participate in the 2005 debt exchange (other than Brady bonds) to exchange such debt for new securities and, in certain cases, a cash payment. As a result of the 2005 and 2010 exchange offers, Argentina restructured over 91% of the defaulted debt eligible for the 2005 and 2010 exchange offers. The creditors who did not participate in the 2005 or 2010 exchange offers may continue with legal action against Argentina for the recovery of debt, which could adversely affect Argentina’s access to the international capital markets.

Argentina’s past default and its failure to restructure completely its remaining sovereign debt and fully negotiate with the holdout creditors may limit Argentina’s ability to reenter the international capital markets.  Litigation initiated by holdout creditors as well as ICSID claims have resulted and may continue to result in judgments and awards against the Argentine Government which, if not paid, could prevent Argentina from obtaining credit from multilateral organizations. Judgment creditors have sought and may continue to seek to attach or enjoin assets of Argentina. A recent example of this is the Libertad Frigate case, in which a commercial court in Accra, Ghana, granted an order (which has been overturned) to detain an Argentine ship which had entered the Accra port on a routine trip.  In addition, various creditors have organized themselves into associations to engage in lobbying and public relations concerning Argentina’s default on its public indebtedness. Such groups have over the years unsuccessfully urged passage of federal and New York state legislation directed at Argentina’s defaulted debt and aimed at limiting Argentina’s access to the U.S. capital markets. Although neither the United States Congress nor the New York state legislature has adopted such legislation, we can make no assurance that legislation or other political actions designed to limit Argentina’s access to capital markets will not take effect. 

As a result of Argentina’s default and the events that have followed it, the government may not have the financial resources necessary to implement reforms and foster economic growth, which, in turn, could have a material adverse effect on the country’s economy and, consequently, our businesses and results of operations.  Furthermore, Argentina’s inability to obtain credit in international markets could have a direct impact on our own ability to access international credit markets to finance our operations and growth, which could adversely affect our results of operations and financial condition and cause the market value of our ADSs and our Class B common shares to decline.

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Significant fluctuations in the value of the Argentine Peso could adversely affect the Argentine economy, which could, in turn adversely affect our results of operations

The devaluation of the Argentine Peso could have a negative impact on the financial condition of many Argentine businesses including us.  Such situation could negatively impact the ability of Argentine businesses to honor their foreign currency-denominated debt, lead to very high inflation and, significantly reduce real wages, jeopardize the stability of businesses whose success is dependent on domestic market demand, including public utilities and the financial industry, and adversely affect the Argentine Government’s ability to honor its foreign debt obligations.  If the Argentine Peso devalues significantly, the negative effects on the Argentine economy could have adverse consequences to our businesses, our results of operations and the market value of our ADSs, including as measured in U.S. Dollars.

On the other hand, a substantial increase in the value of the Argentine Peso against the U.S. Dollar also presents risks for the Argentine economy, including the possibility of a reduction in exports (as a consequence of the loss of external competitiveness). Any such increase could also have a negative effect on economic growth and employment, reduce the Argentine public sector’s revenues from tax collection in real terms, and have a material adverse effect on our business, our results of operations and the market value of our ADSs as a result of the weakening of the Argentine economy in general. 

Certain measures that may be taken by the Argentine Government may adversely affect the Argentine economy and, as a result, our business and results of operations

In November 2008, the Argentine Government enacted Law No. 26,425 which provided for the nationalization of the Administradoras de Fondos de Jubilaciones y Pensiones (the AFJPs”) (See Risk Factors “The nationalization of Argentina’s private pension funds caused an adverse effect in the Argentine capital markets and increased the Argentine Government’s interest in certain stock exchange listed companies, such that the Argentine Government became a significant shareholder of such companies”). More recently, beginning in April 2012, the Argentine Government provided for the nationalization of YPF S.A. and imposed major changes to the system under which oil companies operate, principally through the enactment of Law No. 26,741 and Decree No. 1277/2012. Additionally, on December 19, 2012, the Argentine Government issued Decree No. 2552/2012 which, in its article 2, ordered the expropriation of the “Predio Rural de Palermo”. However, on January 4, 2013, the Federal Civil and Commercial Chamber granted an injunction that has temporarily blocked the application of Decree No. 2552/2012. We cannot assure you that these or other measures that may be adopted by the Argentine Government, such as expropriation, nationalization, forced renegotiation or modification of existing contracts, new taxation policies, changes in laws, regulations and policies affecting foreign trade, investment, etc, will not have a material adverse effect on the Argentine economy and, as a consequence, adversely affect our financial condition, our results of operations and the market value of our shares and ADSs.

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Exchange controls and restrictions on capital inflows and outflows may continue to limit the availability of international credit and could threaten the financial system and lead to renewed political and social tensions, adversely affecting the Argentine economy, and, as a result, our business.

In 2001 and 2002, Argentina imposed exchange controls and transfer restrictions, substantially limiting the ability of companies to retain foreign currency or make payments abroad. After 2002, these restrictions, including those requiring the Central Bank’s prior authorization for the transfer of funds abroad to pay principal and interest on debt obligations, were substantially eased through 2007. Since the last quarter of 2011, however, regulations were issued making foreign exchange transactions subject to the prior approval of the Argentine tax authorities.  Through a combination of foreign exchange and tax regulations, the Argentine authorities have significantly curtailed access to foreign exchange by individuals and private sector entities. 

Since the enhancement of exchange controls began in late 2011, and upon the introduction of measures that have practically closed the foreign exchange market to retail transactions, it is widely reported that the peso/U.S. dollar exchange rate in the unofficial market substantially differs from the official foreign exchange rate. See “Exchange Rates” and “Item 10. Exchange Controls.”  In addition to the foreign exchange restrictions,  in June 2005 the Argentine Government adopted various rules and regulations that established new restrictive controls on capital inflows into the country, including a requirement that for certain funds remitted into Argentina an amount equal to 30% of the funds must be deposited into an account with a local financial institution as a U.S. Dollar deposit for a one-year period without any accrual of interest, benefit or other use as collateral for any transaction. The Argentine Government could impose new exchange controls or restrictions on the movement of capital and take other measures that could limit our ability to access the international capital markets and impair our ability to make interest or principal payments abroad or payments.  Argentina may re-impose exchange controls, transfer restrictions or other measures in the future in response to capital flight or a significant depreciation of the Peso. 

The Argentine Government could impose further exchange controls, transfer restrictions or restrictions on the movement of capital, and/or take other measures in response to capital flight or a significant depreciation of the Peso, which could limit our ability to access the international capital markets, and could lead to renewed political and social tensions and undermine the Argentine Government’s public finances, which could adversely affect Argentina’s economy and prospects for economic growth, which, in turn, could adversely affect our business and results of operations and the market value of our shares and ADSs.  In addition, the Argentine Government or the Central Bank may reenact certain restrictions on the transfers of funds abroad, impairing our ability to make dividend payments to holders of the ADSs, which may adversely affect the market value of our ADSs.  As of the date of this annual report, however, the transfer of funds abroad to pay dividends is permitted to the extent such dividend payments are made in connection with audited financial statements approved by a shareholders’ meeting. Notwithstanding the foregoing, as of the date of this annual report, in light of applicable regulations the financial situation of the Company does not permit the payment of dividends.

The nationalization of Argentina’s private pension funds caused an adverse effect in the Argentine capital markets and increased the Argentine Government’s interest in certain stock exchange, such that the Argentine Government became a significant shareholder of such companies

In recent years a significant portion of the local demand for securities of Argentine companies came from the Argentine private pension funds. In response to the global economic crisis, in December 2008, by means of Argentine Law No. 26,425, the Argentine Congress unified the Argentine pension and retirement system into a system publicly administered by the Administración Nacional de la Seguridad Social (the National Social Security Agency, or “ANSES”), eliminating the pension and retirement system previously administered by private managers. In accordance with the new law, private pension managers transferred all of the assets administered by them under the pension and retirement system to the ANSES. With the nationalization of Argentina’s private pension funds, the Argentine Government became a significant shareholder in many of the country’s public companies. In April 2011, the Argentine Government lifted certain restrictions pursuant to which ANSES was prevented from exercising more than 5% of its voting rights in any stock exchange listed company (regardless of the equity interest held by ANSES in such companies). ANSES has publicly stated that it intends to exercise its voting rights in excess of such 5% limit in order to appoint directors in different stock exchange listed companies in which it holds an interest exceeding 5%. ANSES’ interests may differ from those of other investors, and consequently, those investors may understand that ANSES’ actions might have an adverse effect on such companies. As of the date of this annual report ANSES, owns shares representing 20.96% of the capital stock of our subsidiary Emdersa and 26.8% of the capital stock of Edenor.

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The Argentine Government has stated its intention to exert a stronger influence on the operation of stock exchange listed companies. We cannot assure you that these or other similar actions taken by the Argentine Government will not have an adverse effect on the Argentine economy and consequently on our financial condition and results of operations.

The Argentine economy could be adversely affected by economic developments in other markets and by more general “contagion” effects

Argentine financial and securities markets are influenced, to varying degrees, by economic and financial conditions in other markets.  Argentina’s economy remains vulnerable to external shocks, including those related or similar to the global economic crisis that began in 2008 and the recent uncertainties surrounding European sovereign debt.   For example, the recent challenges faced by the European Union to stabilize certain of its member economies, such as Greece, Ireland, Italy, Portugal and Spain, have had international implications affecting the stability of global financial markets, which has hindered economies worldwide.  Should measures taken by the European Union be insufficient to restore confidence and stability to the financial markets, any recovery of the global economy, including the U.S. and European Union economies, could be hindered or reversed, which could negatively affect the Argentine economy, and in turn our business and results of operations. Although economic conditions can vary from country to country, investors’ perception of the events occurring in other countries have in the past substantially affected, and may continue to substantially affect capital flows to other countries and the value of securities in other countries, including Argentina.  The Argentine economy was adversely impacted by the political and economic events that occurred in several emerging economies in the 1990s, including those in Mexico in 1994, the collapse of several Asian economies between 1997 and 1998, the economic crisis in Russia in 1998 and the Brazilian devaluation of its currency in January 1999.

In addition, international investors’ reactions to events occurring in one market sometimes demonstrate a “contagion” effect in which an entire region or class of investment is disfavored by international investors, Argentina could be adversely affected by negative economic or financial developments in other countries, which in turn may have material adverse effect on the Argentine economy and, indirectly, on our business, financial condition and results of operations, and the market value of our ADSs.

 

Argentina’s economy is vulnerable to external shocks that could be caused by significant economic difficulties of its major regional trading partners.

Argentina’s economy is vulnerable to adverse developments affecting its principal trading partners. A significant decline in the economic growth of any of Argentina’s major trading partners, such as Brazil, China or the United States, could have a material adverse impact on Argentina’s balance of trade and adversely affect Argentina’s economic growth. Recent economic slowdowns, especially in Brazil and China, have led to declines in Argentine exports.  Declining demand for Argentine exports, or a decline in the international market prices for those products, could have a material adverse effect on Argentina’s economic growth.

 

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The actions taken by the Argentine Government to reduce imports may affect our ability to purchase significant capital goods.

The Argentine Government has recently adopted some initiatives designed to limit the import of goods in order to prevent further deterioration of the Argentine balance of trade. The restriction of imports may limit our ability to purchase capital goods that are necessary for our operations, which may, in turn, adversely affect our business, financial condition and results of operations.

 

Risks Relating to the Electricity Distribution Sector

The Argentine Government has intervened in the electricity sector in the past, and is likely to continue intervening

To address the Argentine economic crisis in 2001 and 2002, the Argentine Government adopted the Public Emergency Law and other regulations, which made a number of material changes to the regulatory framework applicable to the electricity sector.  These changes severely affected electricity generation, distribution and transmission companies and included the freezing of distribution nominal margins, the revocation of adjustment and inflation indexation mechanisms of tariffs, a limitation on the ability of electricity distribution companies to pass on to the consumer increases in costs due to regulatory charges and the introduction of a new price-setting mechanism in the wholesale electricity market (the “WEM”) which had a significant impact on electricity generators and generated substantial price differences within the market.  The Argentine Government continues to intervene in this sector, including by granting temporary nominal margin increases, proposing a new social tariff regime for residents of poverty-stricken areas, creating specific charges to raise funds that are transferred to government-managed trust funds that finance investments in generation and distribution infrastructure and mandating investments for the construction of new generation plants and the expansion of existing transmission and distribution networks. 

Furthermore, on November 15, 2011, the Secretariat of Energy issued Note 8752, which provided that any approval by the provincial governments of increases to the electricity tariffs applicable to end-users as of November 1, 2011 will trigger a proportionate decrease in the federal subsidy available to that end-user in connection with the purchase of electricity. Since the issuance of Note 8752, certain provincial governments have initiated legal proceedings to challenge the jurisdiction of the Secretariat of Energy to issue Note 8752, particularly because of the potential chilling effect that this regulation may have on the ability of the provincial governments to increase electricity tariffs. These proceedings have not been resolved as of the date of this annual report. In addition to the foregoing, several provincial governments have recently enacted new regulations in order to charge electricity end-users amounts corresponding to the cuts in the federal subsidy.

On November 27, 2012, the Secretariat of Energy issued Resolution 2016, which approved the seasonal WEM prices – subsidized and not subsidized − for the period of November 2012 through April 2013. The Subsidizes WEM Seasonal Reference Price was established at Ps. 320 per MWh. Each local authority is to define the local prices to be included in the local distributor’s tariff.

The Argentine Government has also announced an analysis of new measures that would change the current regulatory framework of the energy sector. On March 26, 2013, the Secretariat of Energy issued Resolution 95, which introduced a new scheme for the remuneration for the electricity generation sector and several modifications to the organization of the WEM, including the suspension of the administration of new contracts, or the renewal of existing contracts, in the term market of the WEM.

We cannot assure you that these or other measures that may be adopted by the Argentine Government will not have a material adverse effect on our business and results of operations or on the market value of our shares and ADSs or that the Argentine Government will not adopt emergency legislation similar to the Public Emergency Law, or other similar resolutions, in the future that may further increase our regulatory obligations, including increased taxes, unfavorable alterations to our tariff structures and other regulatory obligations, compliance with which would increase our costs and have a direct negative impact on our results of operations and cause the market value of our ADSs and Class B common shares to decline.

 

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Electricity distributors were severely affected by the emergency measures adopted during the economic crisis, many of which remain in effect

Distribution tariffs include a regulated margin that is intended to cover the costs of distribution and provide an adequate return over the distributor’s asset base.  Under the Convertibility Regime, distribution tariffs were calculated in U.S. Dollars and distribution margins were adjusted periodically to reflect variations in U.S. inflation indexes.  Pursuant to the Public Emergency Law, in January 2002 the Argentine government froze all distribution margins, revoked all margin adjustment provisions in distribution concessions and converted distribution tariffs into Pesos at a rate of Ps. 1.00 per U.S. $ 1.00. These measures, coupled with the effect of high inflation and the devaluation of the Peso, led to a decline in distribution revenues in real terms and an increase of distribution costs in real terms, which could no longer be recovered through adjustments to the distribution margin.  This situation, in turn, led many public utility companies, including us and other important distribution companies, to suspend payments on their financial debt (which continued to be denominated in U.S. Dollars despite the pesification of revenues), effectively preventing these companies from obtaining further financing in the domestic or international credit markets and making additional investments. Although the Argentine Government has granted temporary and partial relief to some distribution companies, including a limited increase in distribution margins, a temporary cost adjustment mechanism which was not fully implemented and the ability to apply certain additional charges, distribution companies are currently involved in discussions with the regulatory and government authorities on additional, permanent measures needed to adapt the current tariff scheme to the post-crisis situation of this sector.  We cannot assure you that these measures will be adopted or implemented or that, if adopted, they will be sufficient to address the structural problems created for us by the economic crisis and its aftermath. If we become unable to cover the costs of distribution or if we do not receive an adequate return on our asset base, our results of operations may be adversely affected.

Electricity demand may be affected by tariff increases, which could lead distribution companies, such as us, to record lower revenues

  During the 2001 and 2002 economic crisis, electricity demand in Argentina decreased due to the decline in the overall level of economic activity and the deterioration in the ability of many consumers to pay their electricity bills. In the years following the 2001 and 2002 economic crisis electricity demand experienced significant growth, increasing as an estimated average of approximately 5.0% per annum from 2003 through 2012. This increase in electricity demand since 2003, reflects the relative low cost, in real terms, of electricity to consumers due to the freezing of distribution margins and the elimination of the inflation adjustment provisions in distribution concessions coupled with the devaluation of the Peso and inflation.  The Executive Branch of the Argentine Government granted temporary increases in transmission and distribution margins, and transmission and distribution companies are currently negotiating further increases and adjustments to their tariff schemes with the Argentine Government.  Although the increases in electricity transmission and distribution margins, which increased the cost of electricity to residential customers, have not had a significant negative effect on demand, we cannot make any assurances that these increases or any future increases in the relative cost of electricity will not have a material adverse effect on electricity demand or a decline in collections from customers. Further, in November 2011, the Argentine Government announced a cut in subsidies (which had no impact on our value added for distribution (“VAD”)) for electricity granted to certain customers that are presumed to be in a position to afford the cost without such subsidies. In this respect, we cannot assure you that these measures or any future measures (including increases on tariffs for residential users) will not lead electricity companies, like us, to record lower revenues and results of operations than currently anticipated, which may, in turn, have a material adverse effect on the market value of our ADSs.

If we experience continued energy shortages in the face of growing demand for electricity, our ability to deliver electricity to our customers could be adversely affected, which could result in customer claims, material penalties and decreased results of operations

In recent years, the condition of the Argentine electricity market has provided little incentive to generators to further invest in increasing their generation capacity, which would require material long-term financial commitments.  As a result, Argentine electricity generators are currently operating at near full capacity and may not be able to guarantee the supply of electricity to distribution companies, such as us, which, in turn, could limit the ability of these companies, including us, to provide electricity to customers, and could lead to a decline in growth of such companies. Under Argentine law, distribution companies, such as us, are responsible to their customers for any disruption in the supply of electricity. To date, the Argentine authorities have not been called upon to decide under which conditions energy shortages may constitute force majeure. In the past, however, the Argentine authorities have taken a restrictive view of force majeure and have recognized the existence of force majeure only in limited circumstances, such as internal malfunctions at the customer’s facilities, extraordinary meteorological events (such as major storms) and third-party work in public thoroughfares. As a result, we could face customer claims and fines and penalties for service disruptions caused by energy shortages unless the relevant Argentine authorities determine that energy shortages constitute force majeure, which claims, fines and penalties could have a materially adverse effect on our financial condition and results of operations, and cause the market value of our ADSs and Class B common shares to decline.

 

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Risks Relating to Our Business

Failure or delay to negotiate further improvements to our tariff structure, including increases in our distribution margin, and/or to have our tariff adjusted to reflect increases in our distribution costs in a timely manner, or at all, has affected our capacity to perform our commercial obligations and could also have a material adverse effect on our capacity to perform our financial obligations. As a result, there is substantial doubt with respect to the ability of the Company to continue as a going concern.

We are currently engaged in RTI with the ENRE, as required by the agreement entered into with the Argentine government in February 2006 relating to the adjustment and renegotiation of the terms of our concession (the “Adjustment Agreement”). However, the timeline for completing this process and the favorability to us of the final resolution are both uncertain  

The Adjustment Agreement currently contemplates a cost adjustment mechanism for the transition period during which the RTI is being conducted. This mechanism, known as the Cost Monitoring Mechanism (CMM), requires the ENRE to review our actual distribution costs every six months (in May and November of each year) and adjust our distribution margins to reflect variations of 5% or more in our distribution cost base. We may also request that the ENRE apply the CMM at any time that the variation in our distribution cost base is at least 10% or more.  Any adjustments, however, are subject to the ENRE’s assessment of variations in our costs, and we cannot guarantee that the ENRE will approve adjustments that are sufficient to cover our actual incremental costs. In the past, even when the ENRE has approved adjustments to our tariffs, there has been a lag between when we actually experience increases in our distribution costs and when we receive increased revenues following the corresponding adjustments to our distribution margins pursuant to the CMM. In addition, we have estimated that the actual distribution costs have been significantly higher than the ones determined with the CMM adjustments that have been requested. Despite the adjustment we were granted under the CMM in October 2007 and July 2008, we cannot assure you that we will receive similar adjustments in the future. As of the date of this annual report we have requested ten additional increases under the CMM beginning in May 2008, which increases are still being reviewed by the ENRE (other than the request submitted in May 2008). Under the terms of the Adjustment Agreement, these ten increases should have been approved in May 2008, November 2008, May 2009, November 2009, May 2010, November 2010, May 2011, November 2011, May 2012 and November 2012. 

During the years ended December 31, 2012 and 2011, we recorded a significant decrease in net income and operating income, and our working capital and liquidity levels were negatively affected, primarily as a result of the delay in obtaining a tariff increase and in having our tariff adjusted to reflect increases in our distribution costs, coupled with a constant increase in operating costs to maintain adequate service levels all of which has affected our capacity to perform our commercial obligations. In this context and in light of the situation that affects the electricity sector, the ENRE issued Resolution No. 347/12 in November 2012, which establishes the application of fixed and variable charges that have allowed the Company to obtain additional revenue as from November 2012. However, such additional revenue is insufficient to make up our operating deficit due to the constant increase in operating costs and the estimated salary or third-party costs increases for the year 2013.


                If we are not able to recover all of the incremental costs contemplated by the increase requests pursuant to the CMM and all such future cost increases or there is a significant lag time between when we incur the incremental costs and when we receive increased revenues, and/or if we are not successful in achieving a satisfactory renegotiation of our tariff structure,  we may be unable to comply with our financial obligations, we may suffer liquidity shortfalls and we may need to restructure our debt to ease our financial condition, any of which, individually or in the aggregate, would have a material adverse effect on our business and results of operations and may cause the value of our ADSs to decline. As a result, there is substantial doubt with respect to the ability of the Company to continue as a going concern.

 

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We have prepared our annual financial statements for the fiscal year ended December 31, 2012 included herein, assuming that we will continue as a going concern. Our independent auditors, PwC, issued a report dated April 30, 2013, on our Consolidated Financial Statements as of and for the years ended December 31, 2012 and 2011, which contains an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern. As discussed in Note 1 to our Consolidated Financial Statements, the delays in obtaining tariff increases and the cost adjustments recognition requested by the Company in accordance with the terms of the Adjustment Agreement, together with the continuous increase in operating expenses that are necessary to maintain the level of service, significantly affected the economic and financial position of the Company and have raised substantial doubt with respect to our ability to continue as a going concern.  Management's plans in response to these matters are also described in Note 1. However, our financial statements as of and for the year ended December 31, 2012 and 2011 do not include any adjustments or reclassifications that might result from the outcome of this uncertainty. See Item 18: “Financial Statements.”

The goal of the RTI is to achieve a comprehensive revision of our tariff structure, including further increases in our distribution margins and periodic adjustments based on changes in our cost base, to provide us with an adequate return on our asset base.  Although we believe the RTI will result in a new tariff structure, we cannot assure you that the RTI will conclude in a timely manner or at, all or that the new tariff structure will effectively cover all of our costs or provide us with an adequate return on our asset base.  Moreover, the RTI could result in the adoption of an entirely new regulatory framework for our business, with additional terms and restrictions on our operations and the imposition of mandatory investments. We also cannot predict whether a new regulatory framework will be implemented and what terms or restrictions could be imposed on our operations.

Our distribution tariffs may be subject to challenge by Argentine consumer and other groups

                In November 2006, two Argentine consumer associations, Asociación Civil por la Igualdad y la Justicia (ACIJ) and Consumidores Libres Cooperativa Limitada de Provisión de Servicios de Acción Comunitaria, brought an action against us and the Argentine government before a federal administrative court seeking to block the ratification of the Adjustment Agreement on the grounds that the approval mechanism was unconstitutional. In March 2007, the federal administrative court dismissed these claims and ruled in our favor on the grounds that the adoption of Executive Decree No. 1957/06, which ratified the Adjustment Agreement, rendered this action moot.  The ACIJ appealed this decision in April 2007, and the appeal was decided in our favor.  However, in April 2008, the ACIJ filed another complaint challenging the procedures utilized by the Argentine Congress in approving the Adjustment Agreement, to which we timely replied.  In addition, in 2008, the defensor del pueblo (Public Ombudsman) filed a claim opposing the resolutions establishing the tariff schedule, effective as of October 1, 2008, and naming us as defendant. On January 27, 2009, the ENRE notified us of a preliminary injunction, as a result of the Ombudsman’s claim, pursuant to which we were ordered to refrain from cutting the energy supply to customers challenging the October 2008 tariff increase until a decision is reached with respect to the claim.  This injunction has been appealed by us and the Argentine government, the resolution of which is still pending as of the date of this annual report.
               

In addition, in December 2009, another Argentine consumer association, Unión de Usuarios y Consumidores, brought an action against us and the Argentine government seeking to annul certain retroactive tariff increases.  In November 2010, the relevant court upheld the claim. We appealed the court’s order and requested that it be stayed pending a decision on the appeal. In December 2010, the court stayed its order pending a decision on the appeal. On June 1, 2011, the Administrative Court of Appeals (Cámara Nacional de Apelaciones en lo Contencioso Administrativo Federal – Sala V) overturned the judgment of the lower administrative court. The Unión de Usuarios y Consumidores filed an extraordinary federal appeal (“Recurso Extraordinario Federal”) against such decision, which was granted on March 11, 2011. The proceedings have been taken to the Supreme Court of Justice. 
               
              We cannot make assurances regarding how these complaints will be resolved nor can we make assurances that other actions or requests for injunctive relief will not be brought by these or other groups seeking to reverse the adjustments we have obtained or to block any further adjustments to our distribution tariffs. If these legal challenges are successful and prevent us from implementing tariff adjustments granted by the Argentine government, we could face a decline in collections from our customers, and a decline in our results of operations, which may have a material adverse effect on our financial condition and the market value of our ADSs.

 

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We have been, and may continue to be, subject to fines and penalties that could have a material adverse effect on our financial condition and results of operations

We operate in a highly regulated environment and have been and in the future may continue to be subject to significant fines and penalties by regulatory authorities, including for reasons outside our control, such as service disruptions attributable to problems at generation facilities or in the transmission network that result in a lack of electricity supply.  After 2001, the amount of fines and penalties imposed on our company has increased significantly, which we believe is mainly due to the economic and political environment in Argentina following the 2001 and 2002 economic crisis.  Although the Argentine government has agreed to forgive a significant portion of our accrued fines and penalties pursuant to the Adjustment Agreement and to allow us to repay the remaining balance over time, this forgiveness and repayment plan is subject to a number of conditions, including compliance with quality of service standards, reporting obligations and required capital investments. As of December 31, 2012, December 31, 2011 and January 1, 2011, our consolidated accrued fines and penalties totaled Ps. 662.0 million, Ps. 542.2 million and Ps. 455.4 million, respectively (taking into account our adjustment to fines and penalties following the ratification of the Adjustment Agreement). If we fail to comply with any of these conditions, the Argentine government may seek to obtain payment of these fines and penalties by our company.  In addition, we cannot assure you that we will not incur material fines in the future, which could have a material adverse effect on our financial condition, our results of operations and the market value of our ADSs.

If we are unable to control our energy losses, our results of operations could be adversely affected

Our concession does not allow us to pass through to our customers the cost of additional energy purchased to cover any energy losses that exceed the loss factor contemplated by our concession, which is, on average, 10%.  As a result, if we experience energy losses in excess of those contemplated by our concession, we may record lower operating profits than we anticipate. Prior to the 2001 and 2002 economic crisis, we had been able to reduce the high level of energy losses experienced at the time of the privatization to the levels contemplated (and reimbursed) under our concession. However, during the last couple of years, our level of energy losses, particularly our non-technical losses, started to grow again, in part as a result of the increase in poverty levels and, with it, the number of delinquent accounts and fraud. Although we continue to make investments to reduce energy losses, these losses continue to exceed the 10% average loss factor in the concession, and based on the current economic turmoil, we do not expect these losses to decrease in the near term. Our energy losses amounted to 13.3% in 2012, 12.6% in 2011 and 12.5% in 2010. We cannot assure you that our energy losses will not increase again in future periods, which may lead us to have lower margins and could adversely affect our financial condition, our results of operations and the market value of our ADSs.

The Argentine government could foreclose on the pledge of  our Class A common shares under certain circumstances, which could have a material adverse effect on our business and financial condition

Pursuant to our concession and the provisions of the Adjustment Agreement, the Argentine government has the right to foreclose on the pledge of  our Class A common shares and sell these shares to a third party buyer if:

·         the fines and penalties we incur in any given year exceed 20% of our gross energy sales, net of taxes (which corresponds to our energy sales);

·         we repeatedly and materially breach the terms of our concession and do not remedy these breaches upon the request of the ENRE;

 

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·         our controlling shareholder, EASA, creates any lien or encumbrance over our Class A common shares (other than the existing pledge in favor of the Argentine government);

·         we or EASA obstruct the sale of Class A common shares at the end of any management period under our concession;

·         EASA fails to obtain the ENRE’s approval in connection with the disposition of our Class A common shares;

·         our shareholders amend our articles of incorporation or voting rights in a way that modifies the voting rights of the Class A common shares without the ENRE’s approval; or

·         We, or any existing shareholders or former shareholders of EASA who have brought a claim against the Argentine government in the ICSID do not desist from such ICSID claims following completion of the RTI and the approval of a new tariff regime.

In 2012, the fines and penalties imposed on Edenor by the ENRE amounted to Ps. 116.9 million, which represented 4.0% of our energy sales.  See “Item 4. Information on the Company — Our Concession — Fines and Penalties.”

If the Argentine government were to foreclose on the pledge of  our Class A common shares, pending the sale of those shares, the Argentine government would also have the right to exercise the voting rights associated with such shares.  In addition, the foreclosure by the Argentine government on  the pledge of  our Class A common shares may be deemed to constitute a change of control under the terms of our Senior Notes due 2017 and due 2022. See “—We may not have the ability to raise the funds necessary to finance a change of control offer as required by the Senior Notes due 2017 and 2022.” If the Argentine government forecloses on the pledge of  our Class A common shares, our results of operations and financial condition could be significantly affected and the market value of our ADSs could also be affected.

Default by the Argentine government could lead to termination of our concession, and have a material adverse effect on our business and financial condition

If the Argentine government breaches its obligations in such a way that we cannot comply with our obligation under our concession or in such a way that our service is materially affected, we can request the termination of our concession, after giving the Argentine government 90 days’ prior notice. Upon termination of our concession, all our assets used to provide electricity distribution service would be transferred to a new state-owned company to be created by the Argentine government, whose shares would be sold in an international public bidding procedure. The amount obtained in such bidding would be paid to us, net of the payment of any debt owed by us to the Argentine government, plus compensation established as a percentage of the bidding price, ranging from 10% to 30% depending on the management period in which the sale occurs. Any such default could have a material adverse effect on our business and financial condition.

We employ a largely unionized labor force and could be subject to an organized labor action, including work stoppages that could have a material effect on our business

As of December 31, 2012, approximately 83% and 86% of Edenor and Eden employees, respectively, were union members. Although our relations with unions are currently stable and we have had an agreement in place with the two unions representing our employees since 1995, we cannot assure you that we will not experience work disruptions or stoppages in the future, which could have a material adverse effect on our business and revenues. We cannot assure you that we will be able to negotiate salary agreements on the same terms as those currently in effect, or that we will not be subject to strikes or work stoppages before or during the negotiation process. If we are unable to negotiate salary agreements or if we are subject to strikes or work stoppages, our results of operations, financial condition and the market value of our ADSs could be materially adversely affected.

 

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We might incur material labor liabilities in connection with our outsourcing that could have an adverse effect on our business and results of operations

We outsource a number of activities related to our business to third party contractors in order to maintain a flexible cost base.  As of December 31, 2012, Edenor had approximately 2,777 third‑party employees under contract.  Although we have very strict policies regarding compliance with labor and social security obligations by our contractors, we are not in a position to ensure that contractors’ employees will not initiate legal actions to seek indemnification from us based upon a number of judicial rulings issued by labor courts in Argentina recognizing joint and several liability between the contractor and the entity to which it is supplying services under certain circumstances. We cannot make any assurances that such proceedings will not be brought against us or that the outcome of such proceedings would be favorable to us. If we were to incur material labor liabilities in connection with our outsourcing, such liability could have an adverse effect on our financial condition, our results of operations and the market value of our ADSs. 

We currently are not able to effectively hedge our currency risk in full and, as a result, a devaluation of the Peso may have a material adverse effect on our results of operations and financial condition

Our revenues are collected in Pesos pursuant to tariffs that are not indexed to the U.S. Dollar, while a significant portion of our existing financial indebtedness is denominated in U.S. Dollars, which exposes us to the risk of loss from devaluation of the Peso. In the past we used to hedge this risk in part by converting a portion of our excess cash denominated in Pesos into U.S. Dollars and investing those funds outside Argentina, as permitted by applicable Argentine Central Bank regulations at the time and by entering into currency forward contracts; however, pursuant to new regulations of the Argentine Central Bank we can no longer hedge this risk by converting a portion of our excess cash denominated in Pesos unto U.S. Dollars and because of that we continue to have substantial exposure to the U.S. Dollar. We cannot assure you whether the Argentine Government will mantain these exchange regulations or whether it will allow us to access the market to acquire U.S. Dollars in the manner that we have done in the past.  Although we may also seek to enter into hedging transactions to cover all or a part of our exposure, we have not been able to hedge any of our exposure to the U.S. Dollar on terms we consider viable for our company. If we continue to be unable to effectively hedge all or a significant portion of our currency risk exposure, a devaluation of the Peso may significantly increase our debt service burden, which, in turn, may have a material adverse effect on our financial condition and results of operations.

In the event of an accident or event not covered by our insurance, we could face significant losses that could materially adversely affect our business and results of operations

As of December 31, 2012, our physical assets were insured for up to U.S. $887.7 million. However, we do not carry insurance coverage for losses caused by our network or business interruption, including loss of our concession. See “Item 4. Information on the Company—Our Business—Insurance.”  Although we believe our insurance coverage is commensurate with standards for the distribution industry, no assurance can be given of the existence or sufficiency of risk coverage for any particular risk or loss. If an accident or other event occurs that is not covered by our current insurance policies, we may experience material losses or have to disburse significant amounts from our own funds, which may have a material adverse effect on our net profits and our overall financial condition and on the market value of our ADSs.

A substantial number of our assets are not subject to attachment or foreclosure and the enforcement of judgments obtained against us by our shareholders may be substantially limited

A substantial number of our assets are essential to the public service we provide. Under Argentine law, as interpreted by the Argentine courts, assets which are essential to the provision of a public service are not subject to attachment or foreclosure, whether as a guarantee for an ongoing legal action or to allow for the enforcement of a legal judgment. Accordingly, the enforcement of judgments obtained against us by our shareholders may be substantially limited to the extent our shareholders seek to attach those assets to obtain payment on their judgment.

 

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If our controlling shareholder fails to meet its debt service obligations, its creditors may take measures that could have a material adverse effect on our results of operations

In July 2006, EASA completed a comprehensive restructuring of all of its outstanding financial indebtedness, which had been in default since 2002. In connection with this restructuring, EASA issued approximately U.S. $85.3 million in U.S. Dollar‑denominated notes in exchange for the cancellation of approximately 99.94% of its outstanding financial debt. Since EASA’s ability to meet its debt service obligations under these notes depends largely on our ability to pay dividends or make distributions or payments to EASA, our failure to do so could result in EASA becoming subject to actions by its creditors, including the attachment of EASA’s assets and petitions for involuntary bankruptcy proceedings. If EASA’s creditors were to attach our Class A common shares held by EASA, the Argentine government would have the right under our concession to foreclose on the pledge of  our Class A common shares held by the Argentine government, which could trigger a repurchase obligation under the terms of our restructured debt and our Senior Notes due 2017 and due 2022, and have a material adverse effect on our results of operations and financial condition.

Our exclusive right to distribute electric energy in our service area may be adversely affected by technological or other changes in the energy distribution industry, which would have a material adverse effect on our business

Although our concession grants us the exclusive right to distribute electric energy within our service area, this exclusivity may be revoked in whole or in part if technological developments would make it possible for the energy distribution industry to evolve from its present condition as a natural monopoly into a competitive business. In no case does the complete or partial revocation of our exclusive distribution rights entitle us to claim or to obtain reimbursement or indemnity. Although, to our knowledge, there are no current projects to introduce new technologies in the medium- or long-term which might reasonably modify the composition of the electricity distribution business, we cannot assure you that future developments will not enable  competition in our industry that would adversely affect  the exclusivity right granted by our concession. Any total or partial loss of our exclusive right to distribute electricity within our service area would likely lead to increased competition and result in lower revenues, which could have a material adverse effect on our financial condition, our results of operations and the market value of our ADSs.

Our acquisitions of Emdersa and Aeseba and the subsequent divestitures of Aeseba and the subsidiaries of Emdersa are subject to perfunctory approval by the Argentine Antitrust Commission and, in some cases, by the ENRE

In March 2011, Edenor acquired EMDERSA and AESEBA and several related companies. Edenor has since then, decided to divest, and is currently divesting, such companies. These acquisitions and divestitures are subject to perfunctory approval by the Argentine Antitrust Commission and, in some cases, by the ENRE. Although we have submitted all required documentation to the Argentine Antitrust Commission and to the ENRE, we cannot assure you that the Argentine Antitrust Commission or the ENRE, as applicable, will authorize such acquisitions and, therefore, the acquisitions may be revoked or the divestitures may never be perfected if the relevant approvals are not granted. If we do not have the regulatory authorization to consummate the acquisitions and divestitures this could have an adverse effect on our financial condition and consolidated results of operations and the market value of our shares and ADSs.

 

A potential nationalization or expropriation of 51% of our capital stock, represented by the Class A shares,  may limit the capacity of the Class B common shares to participate in the board of directors

 As of the date of this annual report, the ANSES owns shares representing 26.8% of our capital stock and appointed five Class B directors in our last Shareholders’ meeting. The remaining directors were appointed by the Class A shares.

 

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If the Argentine Government were to expropriate 51% of our capital stock, represented by our Class A shares, the Argentine Government would be the sole holder of the Class A shares and the ANSES would hold the majority of the Class B shares. Certain strategic transactions require the approval of the holders of the Class A shares. Consequently, the Argentine Government and the ANSES would be able to determine substantially all matters requiring approval by a majority of our shareholders, including the election of a majority of our directors, and would be able to direct our operations.

If the Argentine Government nationalizes or expropriates 51% of our capital stock, represented by our Class A shares, our results of operations and financial condition could be adversely affected and this could cause the market value of our ADSs and Class B common shares to decline.

We may not have the ability to raise the funds necessary to finance a change of control offer as required

by the Senior Notes due 2017 and 2022

 

As of the date of this annual report, approximately U.S.$324.8 million of our financial debt is represented by the Senior Notes due 2017 and 2022. Under the indentures for the Senior Notes due 2017 and 2022, if a change of control occurs, we must offer to buy back any and all such notes that are outstanding at a purchase price equal to 100% of the aggregate principal amount of such notes, plus any accrued and unpaid interest thereon and additional amounts, if any, through the purchase date. We may not have sufficient funds available to us to make the required repurchases of the Senior Notes due 2017 and 2022 upon a change of control. If we fail to repurchase such notes in these circumstances that may constitute an event of default under the indentures, which may in turn trigger cross-default provisions in other of our debt instruments then outstanding.

 

All of our outstanding financial indebtedness contains bankruptcy, reorganization proceedings and expropriation events of default, and we may be required to repay all of our outstanding debt upon the occurrence of any such events

As of the date of this annual report, approximately U.S.$ 324.8 million of our financial debt is represented by the Senior Notes due 2017 and 2022. Under the indentures for the Senior Notes due 2017 and due 2022, certain expropriation and condemnation events with respect to us may constitute an event of default, which if declared could trigger acceleration under the notes and require us to immediately repay all such accelerated debt. In addition, all of our outstanding financial indebtedness contains certain bankruptcy-related and reorganization proceedings (concurso preventivo)-related events of default. If we are not able to fulfill certain payment obligations as a result of our current financial situation, and the requirements set forth in the Argentine Bankruptcy Law No. 24,522 are met, any creditor, or even us, could file for our bankruptcy, or we could file for a voluntary reorganization proceeding (concurso preventivo). In addition, all of our outstanding financial indebtedness also contains cross-default provisions and/or cross-acceleration provisions that could cause all of our debt to be accelerated if the debt containing expropriation and/or bankruptcy and/or reorganization proceeding events of default goes into default or is accelerated. In such a case, we would expect to actively pursue formal waivers from the corresponding financial creditors to avoid this potential situation, but in case those waivers are not obtained and immediate repayment will be required, the Company could face short-term liquidity problems, which could adversely affect our results of operations and cause the market value of our ADSs and Class B common shares to decline.

We are currently required by law to undertake a mandatory capital stock reduction and we may in the future be required to be dissolved and liquidated.

Our accumulated deficit at the end of 2012 exceeded our reserves plus 50% of our capital stock, and therefore we are required to reduce our capital stock pursuant to Article 206 of the Argentine Corporations Law. Accordingly, on April 25, 2013, Edenor’s general ordinary and extraordinary shareholders’ meeting resolved to reduce Edenor’s capital stock.  As a result of the mandatory capital stock reduction, the Company’s losses will be offset against the share premium (prima de emisión) and capital stock adjustment (ajuste sobre el capital social), as well as against 10% of the Company’s capital stock.

In addition, if our shareholders’ equity becomes negative (that is, if our total liabilities exceed our total assets) at any year-end, we will be required to dissolve and liquidate pursuant to Article 94 of the Argentine Corporations Law unless we receive a capital contribution or expect future revenues or results of operations which would result in our assets exceeding our liabilities. A mandatory capital stock reduction could adversely affect our results of operations and financial conditions and cause the market value of our ADSs and Class B common shares to decline.

The New York Stock Exchange and/or the Buenos Aires Stock Exchange may suspend trading and/or delist our ADSs and Class B common shares, respectively, if our shareholders’ equity becomes negative or if our financial situation further deteriorates

The New York Stock Exchange and the Buenos Aires Stock Exchange (“BASE”) may suspend and/or cancel the listing of our ADSs and Class B common shares, respectively, if our shareholders’ equity becomes negative, or upon the occurrence of certain events relating to our financial situation.

 

The NYSE may in its sole discretion determine on an individual basis the suitability for continued listing of an issue in the light of all pertinent facts.  Some of the factors mentioned in the NYSE Listed Company Manual, which may subject a company to suspension and delisting procedures, include: “unsatisfactory financial conditions and/or operating results,”  “inability to meet current debt obligations or to adequately finance operations,” and “any other event or condition which may exist or occur that makes further dealings or listing of the securities on the NYSE inadvisable or unwarranted in the opinion of NYSE.

 

The BASE will suspend the listing of our Class B common shares if our financial statements or the financial information that we provide indicate that our shareholders’ equity becomes negative.  Furthermore, The BASE may cancel the listing of our Class B common shares if it determines that our shareholders’ equity and our financial and economic situation do not justify our access to the stock market or if the NYSE cancels the listing of our ADSs. 

 

We cannot assure you that the NYSE and/or BASE will not commence any suspension or delisting procedures in light of our current financial situation, including if our shareholders’ equity becomes negative.  A delisting or suspension of trading of our ADSs or Class B common shares by the New York Stock Exchange and/or BASE, respectively, could adversely affect our results of operations and financial conditions and cause the market value of our ADSs and Class B common shares to decline.

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                      Adoption of IFRS affects the presentation of our financial information, which has thus far been prepared under Argentine GAAP.

                      On January 1, 2012, we began preparing our financial statements in accordance with IFRS. Prior to the year ended December 31, 2012, we prepared our financial statements in accordance with Argentine GAAP. Because IFRS differ in certain significant respects from Argentine GAAP, our financial information prepared and presented in our previous annual reports under Argentine GAAP is not directly comparable to our IFRS financial data. The lack of comparability of our recent and our historical financial data may make it difficult to gain a full and accurate understanding of our operations and financial condition.

The designation of supervisors (veedores) by the CNV could adversely affect the economic and financial situation of the Company

 

The new Capital Markets Law No. 26,831 provides in Article 20 that the CNV may conduct an inspection on persons subject to its control (such as the Company). If after any inspection the CNV considers that a resolution of the board of directors of the Company violated the interests of minority shareholders or any holder of securities subject to the regime of a public offering, it may appoint a supervisor (veedor), who will have veto powers. Additionally, the CNV may suspend the board of directors for a period of 180 days, until the CNV rectifies the situation. This measure may only be appealed before the Ministry of Economy and Finance. If the CNV makes an inspection and considers that any right of a minority shareholder or holder of any security has been breached, it may proceed to suspend the board of directors for the 180-day period, in which case the economic and financial situation of the Company could be negatively affected.

 

Risks relating to ADSs and our Class B common shares

Restrictions on the movement of capital out of Argentina may impair the ability of holders of ADRs to receive dividends and distributions on, and the proceeds of any sale of, the Class B common shares underlying the ADSs

The Argentine government may impose restrictions on the conversion of Argentine currency into foreign currencies and on the remittance to foreign investors of proceeds from their investments in Argentina.  Argentine law currently permits the Argentine Government to impose these kinds of restrictions temporarily in circumstances where a serious imbalance develops in Argentina’s balance of payments or where there are reasons to foresee such an imbalance.  Beginning in December 2001, the Argentine Government implemented an unexpected number of monetary and foreign exchange control measures that included restrictions on the free disposition of funds deposited with banks and on the transfer of funds abroad, including dividends, without prior approval by the Central Bank, some of which are still in effect.  Among the restrictions that are still in effect are those relating to the payment prior to maturity of the principal amount of loans, bonds or other securities owed to non-Argentine residents, the requirement for Central Bank approval prior to acquiring foreign currency for certain types of investments and the requirement that 30% of certain types of capital inflows into Argentina be deposited in a non-interest-bearing account in an Argentine bank for a period of one year. Although the transfer of funds abroad in order to pay dividends no longer requires Central Bank approval to the extent such dividend payments are made in connection with audited financial statements approved by a shareholders’ meeting, restrictions on the movement of capital to and from Argentina such as those that previously existed could, if reinstated, impair or prevent the conversion of dividends, distributions, or the proceeds from any sale of shares, as the case may be, from Pesos into U.S. Dollars and the remittance of such U.S. Dollars abroad.  We cannot assure you that the Argentine government will not take similar measures in the future.  In such a case, the depositary for the ADSs may hold the Pesos it cannot otherwise convert for the account of the ADS holders who have not been paid.  Nonetheless, the adoption by the Argentine government of restrictions on the movement of capital out of Argentina may affect the ability of our foreign shareholders and holders of ADSs to obtain the full value of their shares and ADSs and may adversely affect the market value of our ADSs. 

 

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Our ability to pay dividends is limited

In accordance with Argentine corporate law, we may only pay dividends in Pesos out of our retained earnings, if any, as set forth in our audited consolidated financial statements prepared in accordance with IFRS as issued by the IASB. Our ability to pay dividends, however, is further restricted in accordance with the terms of the Adjustment Agreement, pursuant to which we have agreed not to pay dividends without the ENRE’s prior approval until we complete the RTI. We cannot predict with any certainty when this process will be completed.

Our shareholders’ ability to receive cash dividends may be limited

Our shareholders’ ability to receive cash dividends may be limited by the ability of the depositary to convert cash dividends paid in Pesos into U.S. Dollars. Under the terms of our deposit agreement with the depositary for the ADSs, the depositary will convert any cash dividend or other cash distribution we pay on the common shares underlying the ADSs into U.S. Dollars; if it can do so on a reasonable basis and can transfer the U.S. Dollars to the United States. If this conversion is not possible or if any government approval is needed and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADS holders to whom it is possible to do so. If the exchange rate fluctuates significantly during a time when the depositary cannot convert the foreign currency, shareholders may lose some or all of the value of the dividend distribution.

Under Argentine law, shareholder rights may be fewer or less well defined than in other jurisdictions

Our corporate affairs are governed by our by-laws and by Argentine corporate law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as the States of Delaware or New York, or in other jurisdictions outside Argentina. In addition, the rights of holders of the ADSs or the rights of holders of our common shares under Argentine corporate law to protect their interests relative to actions by our board of directors may be fewer and less well-defined than under the laws of those other jurisdictions.  Although insider trading and price manipulation are illegal under Argentine law, the Argentine securities markets are not as highly regulated or supervised as the U.S. securities markets or markets in some other jurisdictions.  In addition, rules and policies against self-dealing and regarding the preservation of shareholder interests may be less well-defined and enforced in Argentina that in the United States, putting holders of our common shares and ADSs at a potential disadvantage.

Holders of ADSs may be unable to exercise voting rights with respect to the Class B common shares underlying the ADSs at our shareholders’ meetings

Shares underlying the ADSs are held by the depositary in the name of the holder of the ADS.  As such, we will not treat holders of ADSs as shareholders and, therefore, holders of ADSs will not have shareholder rights. The depositary will be the holder of the common shares underlying the ADSs and holders may exercise voting rights with respect to the Class B common shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs. There are no provisions under Argentine law or under our by-laws that limit the exercise by ADS holders of their voting rights through the depositary with respect to the underlying Class B common shares.  However, there are practical limitations on the ability of ADS holders to exercise their voting rights due to the additional procedural steps involved in communicating with these holders. For example, holders of our common shares will receive notice of shareholders’ meetings through publication of a notice in an official gazette in Argentina, an Argentine newspaper of general circulation and the daily bulletin of the Buenos Aires Stock Exchange, and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. ADS holders, by comparison, do not receive notice directly from us.  Instead, in accordance with the deposit agreement, we provide the notice to the depositary. If we ask it to do so, the depositary will mail to holders of ADSs the notice of the meeting and a statement as to the manner in which instructions may be given by holders. To exercise their voting rights, ADS holders must then instruct the depositary as to voting the Class B common shares represented by their ADSs. Due to these procedural steps involving the depositary, the process for exercising voting rights may take longer for ADS holders than for holders of Class B common shares and Class B common shares represented by ADSs may not be voted as the holders of ADSs desire. Class B common shares represented by ADSs for which the depositary fails to receive timely voting instructions may, if requested by us, be voted at the corresponding meeting either in favor of the proposal of the board of directors or, in the absence of such a proposal, in accordance with the majority.

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Our shareholders may be subject to liability for certain votes of their securities

Because we are a limited liability corporation, our shareholders are not liable for our obligations. Shareholders are generally liable only for the payment of the shares they subscribe. However, shareholders who have a conflict of interest with us and who do not abstain from voting at the respective shareholders’ meeting may be liable for damages to us, but only if the transaction would not have been approved without such shareholders’ votes. Furthermore, shareholders who willfully or negligently vote in favor of a resolution that is subsequently declared void by a court as contrary to the law or our by-laws may be held jointly and severally liable for damages to us or to other third parties, including other shareholders.

Item 4.         Information on the Company

History and Development of the Company

Empresa Distribuidora y Comercializadora Norte S.A., or Edenor, is a public service company incorporated as a sociedad anónima (stock corporation) under the laws of Argentina. Our principal executive offices are located at Avenida del Libertador 6363, Ciudad de Buenos Aires, C1428ARG, Argentina, and our general telephone number at this location is +54 11 4346 5000.

We were incorporated on July 21, 1992, under the name Empresa Distribuidora Norte Sociedad Anónima, as part of the privatization of the Argentine state‑owned electricity utility, Servicios Eléctricos del Gran Buenos Aires S.A. (SEGBA).  In anticipation of its privatization, SEGBA was divided into three electricity distribution companies, including our company, and four electricity generation companies, and on May 14, 1992, the Argentine Ministry of Economy and Public Works and Utilities (currently the Ministry of Economy and Public Finance) approved the public sale of all of our company’s Class A common shares, representing 51% of the capital stock of our company.

A group of international investors, which included EDF International S.A. (a wholly owned subsidiary of Électricité de France S.A.), presented a bid for our Class A common shares through Electricidad Argentina S.A. (EASA), an Argentine company.  EASA was awarded the bid and, in August 1992, EASA and the Argentine government entered into a stock purchase agreement relating to the purchase of our Class A common shares.  In addition, on August 5, 1992, the Argentine government granted us a concession to distribute electricity on an exclusive basis within our concession area for a period of 95 years. On September 1, 1992, EASA acquired our Class A common shares and became our controlling shareholder.

In June 1996, our shareholders approved the change of our name to Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR S.A.) to more accurately reflect the description of our core business. The amendment to our by–laws related to our name change was approved by the ENRE and registered with the Public Registry of Commerce in 1997.

In 2001, EDF International S.A. (EDFI) acquired, in a series of transactions, all of the shares of EASA held by EASA’s other shareholders, ENDESA Internacional, YPF S.A., which was the surviving company of Astra, and SAUR.  As a result, EASA became a wholly–owned subsidiary of EDFI. In addition, EDFI purchased all of our Class B common shares held by these shareholders, increasing its direct and indirect interest in us to 90%.

On January 6, 2002, the Argentine congress enacted the Public Emergency Law, which authorized the Argentine government to implement certain measures to overcome the country’s economic crisis. Under the Public Emergency Law, the Argentine government altered the terms of our concession and the concessions of other public utility services by renegotiating tariffs, freezing distribution margins and revoking price adjustment mechanisms, among other measures.

In September 2005, Dolphin Energía and IEASA acquired an indirect controlling stake in our company from EDFI. Dolphin Energía and IEASA were at the time of such acquisition controlled by the principals of Grupo Dolphin, an Argentine advisory and consulting firm that carries out private equity activities. On September 28, 2007, Pampa Energía S.A. (“Pampa Energía” or “Pampa”) acquired all the outstanding capital stock of Dolphin Energía and IEASA from the then current shareholders of these companies, in exchange for common stock of Pampa Energía. Pampa Energía, which is managed by Grupo Dolphin’s former principals, owns a 50% interest in the company that co-controls the principal electricity transmission company in Argentina, Compañía de Transporte de Energía Eléctrica en Alta Tensión S.A. (Transener). In addition, Pampa Energía has controlling stakes in five generation plants located in the Salta, Mendoza, Neuquén and Buenos Aires provinces (Hidroeléctrica Nihuiles, Hidroeléctrica Diamante, Central Térmica Güemes, Central Térmica Loma de la Lata and Central Piedra Buena).  See “Item 7. Major Shareholders and Related Party Transactions.”

 

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In April 2007, we completed the initial public offering of our Class B common shares, in the form of shares and American depositary shares, or ADSs.  We and certain of our shareholders sold 18,050,097 ADSs, representing 361,001,940 Class B common shares, in an offering in the United States and elsewhere outside Argentina, and our Employee Stock Participation Program sold 81,208,416 Class B common shares in a concurrent offering in Argentina.  Our ADSs are listed in The New York Stock Exchange under the symbol “EDN,” and our Class B common shares are listed on the Buenos Aires Stock Exchange under the same symbol.  We received approximately U.S. $61.4 million in proceeds from the initial public offering, before expenses, which we used to repurchase a part of our then outstanding debt.  Following the initial public offering, EASA continues to hold 51% of our common shares, and approximately 49% are held by the public.  See “Item 7. Major Shareholders and Related Party Transactions.”

On November 20, 2008, the Argentine congress passed a law unifying the Argentine pension and retirement system into a system publicly administered by the ANSES and eliminating the retirement savings system previously administered by private pension funds under the supervision of a governmental agency. In accordance with the new law, private pension funds transferred all of the assets administered by them under the retirement savings system to the ANSES. As of the date of this annual report, ANSES held 242,999,553 of our Class B common shares, representing 26.8% of our capital stock.

Business Combinations


                Acquisition of EMDERSA and AESEBA

 

On March 4, 2011, our Board of Directors approved an offer from its indirect controlling company Pampa Energía. As a consequence, Edenor was appointed by Pampa as the acquiring party under the Pampa-AEI Agreement. Therefore, on March 4, 2011, we acquired from AEI Utilities, S.L. (“AEIU”) (i) 182,224,095 common shares of Emdersa representing 77.19% of Emdersa’s capital stock and votes (“Emdersa’s Shares”), (ii) 2 common shares of Empresa Distribuidora de San Luis S.A. (“Edesal”) representing 0.01% of Edesal’s capital stock and votes, (iii) 600 common shares of Emdersa Generación Salta S.A. (“EGSSA”)  representing 0.02% of EGGSA’s capital stock and votes, (iv) 1 common share of Empresa Distribuidora de Electricidad de la Rioja S.A. (“EDELAR”) representing 0.01% of EDELAR’s capital stock and votes, (v) 1 common share of Empresa de Sistemas Eléctricos Abiertos S.A. (“ESED”) representing 0.01% of ESED’s capital stock and votes, (all the shares mentioned in items (ii) through (v) hereinafter referred to as the “Residual Shares”) and (vi) 29,118,127 common shares of AESEBA S.A. representing 99.99% of AESEBA’s capital stock and votes (“AESEBA’s Shares”). The price paid by us for the aforementioned assets amounted to USD 90 million for Emdersa’s Shares and the Residual Shares acquired from AEIU and to USD 50 million for AESEBA’s Shares acquired from AEIU.

 

Within the framework of the offer made by Pampa and accepted by us, the parties additionally agreed that if within 3 years following acquisition date of Emdersa’s Shares, the Residual Shares and AESEBA’s Shares, we sold either totally or partially any of such shares, Pampa would be entitled to receive from the Company a payment equivalent to 50% of the amount received for the sale thereof in excess of the amount paid to AEIU for any of such Shares (Emdersa’s Shares and/or Residual Shares and/or AESEBA’s Shares).

 

In compliance with current regulations, we formally consulted the CNV about the steps to be followed with regards to the public offering for the acquisition of Emdersa’s shares that we are required to make to Emdersa’s minority shareholders due to the change in Emdersa´s control and in accordance with the provisions of the Capital Markets Law and the CNV’s regulations.

 

Spin-off Process – EMDERSA

 

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On August 23, 2011, Emdersa’s Board of Directors decided to convene an extraordinary general shareholders’ meeting, which was held on December 16, 2011, to consider (subject to approval by the relevant administrative authorities) the spin-off of certain assets and liabilities of Emdersa and the incorporation of three new companies, whose main assets would be the shares owned by Emdersa in each of Edesal, EDESA and EGGSA, respectively. Emdersa’s shareholders’ meeting held on December 16, 2011, which was resumed on January 13, 2012 after a recess, approved the special spin-off financial statements for the period ended September 30, 2011, the spin-off of the assets and the incorporation of the three companies referred to above, the share exchange relationship, the amount of shares of the three holding companies to be incorporated, which had to be delivered to Emdersa’s shareholders in exchange for the tendering of their shares in Emdersa, and the spin-off prospectus. Further, Emdersa’s shareholders approved the by-laws of the abovementioned new holding companies and the corresponding capital reduction of Emdersa from Ps. 236,066,302 to Ps. 60,975,926.

 

The Spin-off process was approved by the CNV on August 16, 2012 and registered with the Public Registry of Commerce on October 10, 2012, together with the registration of the three new companies, namely, EDESAL Holding S.A. (“EDESALH”), EDESA Holding S.A. (“EDESAH”) and EGSSA Holding S.A. (“EGSSAH”). On November 8, 2012, the new companies were authorized by the CNV to go public and obtained admission to the Buenos Aires Stock Exchange listing.

 

Company sale agreements - Disposal group classified as "held for sale"

Offers for the acquisition of EMDERSA subsidiaries.

 

The Company’s Board of Directors approved the following offer letters:

 

                                 i.            From Rovella Carranza S.A., on September 16, 2011, for the acquisition of the Company’s direct and indirect stake in Edesal (EDESAL Sale). 

 

                               ii.            From Pampa Energía S.A., on October 11, 2011, for the acquisition of the company’s direct and indirect stake in EGSSA (EGSSA Sale). 

 

                              iii.            From Salta Inversiones Eléctricas S.A. (SIESA), on April 23, 2012 for the acquisition of the company’s direct and indirect stake in Edesa (EDESA Sale

 

                             iv.            From Andes Energía Argentina S.A., on September 16, 2011 and December 15, 2011  to buy a purchase option for the acquisition of the company’s direct and indirect stake in Edelar (“EDELAR Offer”).

 

Additionally, in order for these transactions to be carried out, the Company was required to cause Emdersa to complete its partial spin-off process, which resulted in the creation of three new investment companies, EDESALH (holder of 99.99% of EDESAL’s capital stock and votes), EDESAH (holder of 90% of EDESA’s capital stock and votes) and EGGSAH (holder of 99.99% of EGGSA’s capital stock and votes).

 

EDESAL Sale

 

On September 16, 2011, the Board of Directors of the Company approved the offer for the acquisition of Edesal by Rovella Carranza S.A. for a total and final price of U.S. $ 26.7 million that was paid in two installments, the first of them, for U.S. $4.0 million was made within the three days of the acceptance of the offer, and the remaining balance was collected by Edenor on October 25, 2011.

 

Furthermore, as stipulated in the offer letter, on that date EDESAL repaid the financial loan granted by the company to EDESAL for an amount of Ps.37.5 million, plus interest accrued through the settlement date.

 

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At that time the Company transferred 24.80% of Emdersa’s shares and 0.01% of EDESAL’s shares to Rovella Carranza S.A. which set up a collateral trust, comprised by the parties and Deutsche Bank S.A. to ensure compliance with the parties’ obligations.

 

From the date of final payment and during the term of the trust, EDESAL’s management was in charge of a board of directors appointed by Emdersa, in accordance with the buyer’s proposal, which is comprised of five directors, four of whom were elected by the buyer and one of whom was elected by the seller, and equal number of alternate directors, four of whom were elected by the buyer and one of whom was elected by the seller.

 

As security for the compliance with the obligations undertaken, the company provided a performance bond in favour of Banco Itaú Argentina S.A. and Standard Bank Argentina S.A. for the total amount of Ps. 60 million as principal plus compensatory interest at an annual nominal rate of up to 16% as collateral for EDESAL’s payment obligations with respect to these banks. The performance bond was not enforced.

 

As a consequence of this transaction Edenor holds 0.13% interest in EDESALH.

 

 

EGSSA sale

 

On October 11, 2011, Edenor’s Board of Directors approved the offer received from its controlling shareholder Pampa Energía for the acquisition through a conditioned purchase and sale transaction of 78.44% of the shares and votes of an investment company to be organized, which will be the holder of 99.99% of the shares and votes of EGSSA together with 0.01% of EGSSA’s capital stock held by Edenor.

 

The condition precedent for the purchase and sale transaction was the carrying out of Emdersa’s spin-off within the maximum term of 24 months as from the date of acceptance of the offer, which condition was complied with in November 2012.

 

The total and final agreed-upon price for this transaction amounts to U.S. $10.8 million payable in two installments. The first installment, for an amount of U.S. $2.2 million, was paid on October 31, 2011, and the remaining balance will be paid in October 2013. The second installment accrues interest at an annual rate of 9.75%, payable semi-annually.

 

Furthermore, the offer implied the repayment by Pampa Energía of the financial loan granted by Edenor to EGSSA for an amount of U.S. $4.27 million, plus interest accrued through the settlement date, which was entered into on October 31, 2011.

 

As Emdersa’s spin-off process was concluded on November 22, 2012, shares representing 78.44% of the capital stock and votes of EGSSAH have been transferred in favor of Pampa Energía.

 

 

EDESA Sale

On April 23, 2012, the Company’s Board of Directors accepted the offer made by Salta Inversiones Eléctricas S.A. (“SIESA”) to Edenor and its subsidiary Emdersa Holding, for the acquisition of shares representing (i) 78.44% of the capital stock and voting rights of EDESAH and (ii) the remaining 0.01% of ESED.

 

The transaction was carried out on May 10, 2012 at the offered price payable through the delivery of Argentina’s sovereign debt bonds (Boden 2012) for a value equivalent to Ps. 100.5 million. Such price was partially cancelled through the payment of Ps. 83.8 million, with a sixth of the agreed-upon price remaining outstanding, whose payment SIESA is required to make in five annual and consecutive installments in US dollars, with the first of them falling due on May 5, 2013, at an interest rate of LIBOR + 2%. Payments relating to the price will be made (i) in immediately and freely available US dollars through transfer to a bank account specified by the seller, or, alternatively and at the seller’s exclusive option (that may be exercised in respect of each of the payments), (ii) through the delivery to the seller of an amount of Argentina’s sovereign debt bonds.

 

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As part of the aforementioned transaction, EDESA fully repaid the loan granted by Edenor for a total principal amount of Ps.131.3 million, plus interest accrued, and the buyer released Emdersa from any liability related to the collateral granted by the latter to EDESA in connection with the syndicated loan held by EDESA with various banks. By virtue of this transaction, Emdersa Holding, a directly controlled company of Edenor S.A., transferred to SIESA the shares representing 28.93% of Emdersa’s capital stock and votes, while Edenor transferred to that company 0.01% of ESED’s capital stock and votes.

 

 

As agreed in the EDESA sale agreement, SIESA and Emdersa Holding, as trustors and beneficiaries, and Deutsche Bank S.A. (“DB”) as trustee, set up a collateral trust to which they transferred their shareholdings representing Emdersa’s capital stock and votes, with SIESA transferring the shares representing 28.93% of Emdersa’s capital stock and votes (which were received at the closing of the transaction), and Emdersa Holding transferring the remaining 24.84% of the shares.

 

Upon the conclusion of EMDERSA’s spin-off process, the shares representing 78.44% of the capital stock and votes of EDESAH, holder of 90% of EDESA’s shares and votes, were issued, and DB, as trustee, transferred to EHSA the totality of EMDERSA’s shares that had been transferred by SIESA and EHSA to the trust, resulting in SIESA holding 78.44% of EDESAH’s capital stock and votes.

 

As a consequence of this transaction, Edenor holds 0.13% interest in EDESA.

 

EDELAR Offer

 

The offer from Andes Energía Argentina S.A. (“Andes Energía”), which was accepted by the Company’s Board of Directors on September 16, 2011, consisted of a proposal to buy a purchase option for a price of U.S. $1.5 million to buy, if Emdersa’s spin-off was completed within a term of 2 years, 78.44% of the Company’s direct and indirect stake in EDELAR for U.S. $20.29 million, to be paid in two installments. The purchase option was paid by the buyer on September 16, 2011. 

                

Subsequently, the Company’s Board of Directors approved proposals from Andes Energía to extend the term during which the buyer could exercise the option, with the Company retaining the right to freely sell or assign to any third party or cause the sale or assignment of some or all the shares that are the object of the transaction and/or the rights over such shares. In the event that a sale to a third party is made, Andes Energía’s option may not be exercised, there being no outstanding payment or any responsibility of any kind for the Company or Andes Energía.

On December 31, 2012, Andes Energía’s purchase option expired. As of the date of this annual report, the Company is currently negotiating with Andes Energía new terms and conditions. At the same time, the Company has received other expressions of interests in connection with such assets from third parties, which are currently being analyzed, although no specific offers have been received yet. 

 

Taking into consideration that the Company maintains its decision to sell these assets and that it has received other expressions of interests in connection thereto, such assets continue to be classified as assets available for sale.

 

Offer for the acquisition of EDEN

 

In 2013, the Company received offers from two investment groups for the acquisition of all of the shares of AESEBA, the controlling company of EDEN. On February 27, 2013, the Company's Board of Directors unanimously approved the acceptance of the offer letter sent by Servicios Eléctricos Norte BA S.L. (the "Purchaser") for the acquisition of AESEBA's shares representing 100% of its capital stock and voting rights. The price offered by the Purchaser is payable through the delivery of Edenor's debt securities for an amount equivalent,  at the closing date of the transaction, to approximately U.S. $80 million of face value of such securities. Such delivery is secured by the Purchaser's contribution to trust (the "Management Trust") of Ps. 326 million in Argentina's public debt securities, valued at the closing date of the transaction.

 

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                Furthermore, in order to implement this transaction, on March 19, 2013, the aforementioned Management Trust was set up by and among Purchaser (as settlor), Equity Trust Company (Uruguay) S.A. (as trustee) and the Company.

                At the closing date of the transaction (April 5, 2013), the Trust received as contributions Argentina's public debt securities for a face value amount equivalent to Ps.262 million considering the market value of each bond at the closing date, and including the guarantee the Company had received at the time of the acceptance of the offer. Moreover, the Purchaser is required to complete contributions on or prior to December 31, 2013, of Argentina´s sovereign bonds for an amount equivalent to approximately Ps. 64 million, taking into account the market value at the closing date. As a result of the liquidation of said securities that are contributed to the Management Trust, the Company's Class 7 and/or Class 9 Corporate Notes, maturing in 2022 and 2017, respectively, will be purchased.

                At the closing date of this transaction, the Company divested the AESEBA segment which will result in a loss in Edenor’s Financial Statements for 2013 of about Ps. 194.3 million (a Ps. 104.9 million loss after income tax effect). The repurchase of the Edenor´s Corporate Bonds will be recognized at the time the purchase transactions are executed.

                At December 31, 2012, the recording in the accounting of the Company's interest in AESEBA remained unchanged, given that at the end of the year such interest did not meet the criteria necessary to be classified and valued as "assets held for sale" in accordance with the international financial reporting standards for discontinued operations.

As of the date of this annual report, the Trust purchased U.S.$ 17.3 million of face value of our Notes due 2022 in the open market.

 

Discontinued Operations

Emdersa, through Edelar, supplies electricity to a service area with a population of approximately 290,000 that encompasses approximately 89,680 square miles in the Province of La Rioja. As of December 31, 2012, Edelar had approximately 118,068 customers and sold approximately 1,125 GWh of electricity in 2012.  Emdersa is a public company, whose shares are traded on the Buenos Aires Stock Exchange under the symbol “Emdehr”. Emdersa owns 99.9% of the capital stock of Edelar, and Edelar holds an exclusive long-term renewable concession granted by the regulator of the Province of La Rioja.

 Edelar’s concession is divided into an initial period of 15 years (which expired in 2010) followed by eight successive ten-year periods. At the end of each such period a competitive bidding process for the sale of a minimum of 51% of the share capital of Edelar will take place. We can participate in the bidding and will only be required to sell and transfer control of our interest in Edelar if there is a higher bid, in which case we will receive the amount bid by such bidder. Following such auction, a new ten- year concession will be granted to Edelar at the end of which the auction process would be held again. As of the date of this annual report, the competitive bidding process with respect to Edelar has not yet taken place.

Tariffs for Argentine electricity distribution companies are periodically reviewed by the regulators within the service area in which the concession is located. Edelar generally has RTIs every five years. Edelar’s tariffs were last reviewed in an RTI in 2008. Under their current tariff schemes, the tariffs are designed to provide for a pass-through to customers of the main variable cost items (mainly power purchase costs and transmission charges), recovery of reasonable operating and administrative costs, incentives to reduce costs and make required capital investments and a regulated rate of return on their regulated asset base. Tariffs are also adjusted every 6 or 12 months for inflation of fixed costs and to pass-through adjustments to variable costs. Edelar has been granted adjustments to its tariffs periodically to reflect increases in costs.

The table below summarizes energy sales information regarding Edelar, solely on the basis of public information filed by Emdersa in Argentina.

EDELAR’s Energy Sales

 

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Year Ended December 31,

 

2012

2011

2010

 

 

 

 

 

(in MWh, except percentages)

Residential..............................................................

412,516

36.6%

363,278

34.7%

353,009

33.9%

Commercial.............................................................

96,102

8.5%

90,577

8.6%

88,646

8.5%

Public lighting.........................................................

38,567

3.4%

37,926

3.6%

36,758

3.5%

Large users.............................................................

376,162

33.4%

359,627

34.3%

350,723

33.7%

Industrial................................................................

202,834

18.0%

196,841

18.8%

219,994

20.4%

Total.......................................................................

1,126,181

100.0%

1,048,249

100.0%

1,042,130

100.0%

 

  

 

Aeseba and its Subsidiaries

Aeseba is a holding company that owns 90% of the outstanding capital stock of Eden, an electricity distribution company that supplies electricity to a service area with a population of approximately 1.0 million that encompasses approximately 42,000 square miles in the northern part of the Province of Buenos Aires. As of December 31, 2012, Eden had approximately 344,065 customers and sold approximately 2,863 GWh of electricity in 2012. The remaining ownership interest in Eden is owned by its employees. Our acquisition of Eden is still pending antitrust approval.

Eden holds an exclusive long-term renewable concession from the relevant regulator of the Province of Buenos Aires.  Eden’s concession agreement is divided into nine administrative periods, the first of which lasted 15 years and expired on June, 2, 2012, followed by eight ten-year periods thereafter. At the end of the current term a competitive bid process which follows the same process described for Edelar above will take place.

Tariffs for Argentine electricity distribution companies are reviewed periodically by the regulators within the service area in which the concession is located (in the case of Eden, the Buenos Aires Province). Eden periodically has RTIs, and as of the date of this annual report, Eden’s tariffs are currently under an RTI process.  Under its current tariff scheme, the tariffs are designed to provide for a pass-through to customers of the main variable cost items (mainly power purchase costs and transmission charges), recovery of reasonable operating and administrative costs, incentives to reduce costs and make required capital investments and a regulated rate of return on its regulated asset base. Tariffs are also adjusted for inflation of fixed costs and to pass-through adjustments to variable costs.  Eden has been granted adjustments to its tariff periodically to reflect increases in costs. See “Item 3. Key Information—Risk factors—Risks Relating to the Electricity Distribution Sector— The Argentine government has intervened in the electricity sector in the past, and is likely to continue intervening.”

The table below summarizes energy sales information regarding Eden for the years ended December 31, 2012, 2011 and 2010, respectively.

 

 

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EDEN’s Energy Sales

 

Year Ended December 31,

 

2012

2011

2010

 

(in MWh, except percentages)

Residential

652,805

 22.80%

619,224

22.2%

598,619

22.6%

Commercial

346,821

 12.11%

331,086

11.9%

308,304

11.7%

Public lighting

80,783

 2.82%

79,716

2.9%

77,319

2.9%

Large users

1,488,579

 51.99%

1,462,983

52.5%

1,359,219

51.4%

Industrial (Grandes usuarios del MEM)

294,126

 10.27%

291,400

10.5%

299,936

11.3%

Total

2,863,114

 100%

2,784,409

100.0%

2,643,397

100.0%

           

 

The tables below summarize certain key financial information regarding Eden, solely on the basis of Eden’s statutory financial statements.

 

 

 

Income Statement:

Year ended December 31,

 

2012

2011

 

(figures in millions )

Net sales

U.S.$

 174.4

Ps.

 857.9

Ps.

 704.4

Cost of sales

(132.4)

(651.0)

(493.5)

Gross profit

42.1

206.9

210.9

Administrative and selling expenses

(25.7)

(126.3)

(88.5)

Operating income

16.4

80.6

122.4

Financial results

(5.2)

(25.8)

(27.1)

Other income or costs, net

(1.6)

(8.1)

1.6

Income before income taxes

9.5

46.7

96.9

Income Tax Expenses

(3.3)

(16.2)

(34.3)

Income for the Year

U.S $
6.2

Ps.

 30.5

Ps.

 62.6



 

 

Year ended December 31,

Balance Sheet:

2012

2011

 

(figures in millions)

Current assets

U.S $

 67.0

Ps.

329.7

Ps.

246.4

Non-Current assets

179.0

880.3

828.9

Total assets

246.0

1210.0

1075.4

Current liabilities

111.9

550.4

423.6

Non-Current liabilities

37.9

186.6

138.6

Total liabilities *

149.9

737.0

562.2

Total shareholders’ equity

96.2

473.0

513.2

Total liabilities and shareholders’ equity

U.S. $

 246.0

Ps.

1210.0

Ps.

1075.4

       

* On March 4, 2011, as a result of the change of control in Eden triggered by our acquisition of Aeseba, Eden prepaid the loan it had with Standard Bank Argentina S.A. and HSBC Argentina S.A.  Such repayment was made with Eden’s funds and with the proceeds from a loan that we granted to Eden in an aggregate amount equal to Ps. 80.0 million.  See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Debt.”

 

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Business Overview

We believe we are the largest electricity distribution company in Argentina and one of the largest in Latin America in terms of number of customers and electricity sold (both in GWh and in Pesos) in 2012. We hold a concession to distribute electricity on an exclusive basis to the northwestern part of the greater Buenos Aires metropolitan area and in the northern part of the City of Buenos Aires. As of December 31, 2012, Edenor and Eden served 2,726,422 customers and 343,951 customers, respectively The following table shows the percentage of the electricity produced and sold by generating companies that was purchased by us in the periods indicated:

 

Demand (GWh)

 

Wholesale Electricity

Market(1)

Edenor

Demand(2)

 

Eden´s

Demand

Edenor Demand as a % of the Wholesale Electricity Market

Eden’s demand as % of Wholesale

Electricity Market

2012

131,944

23,934

3,210