20-F/A 1 elpform20f_2010a.htm FORM 20-F/A elpform20f_2010a.htm - Generated by SEC Publisher for SEC Filing

 

As filed with the Securities and Exchange Commission on December 13, 2011

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

                                                           

FORM 20-F/A

                                                           


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

Commission file number: 001-14668

                                                           

COMPANHIA PARANAENSE DE ENERGIA – COPEL

(Exact Name of Registrant as Specified in its Charter)

Energy Company of Paraná

(Translation of Registrant’s Name into English

The Federative Republic of Brazil

(Jurisdiction of Incorporation or Organization)

                                                                              

Rua Coronel Dulcídio, 800

80420-170 Curitiba, Paraná, Brazil

(Address of Principal Executive Offices)

                                                                              

Lindolfo Zimmer

+55 41 3222 2027 – ri@copel.com

Rua Coronel Dulcídio, 800, 3rd floor - 80420-170 Curitiba, Paraná, Brazil

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

 

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

Preferred Class B Shares, without par value*

New York Stock Exchange

American Depositary Shares (as evidenced by American Depositary Receipts),

    each representing one Preferred Class B Share

New York Stock Exchange

                                        

* Not for trading, but only in connection with the listing of American Depositary Shares on the New York Stock Exchange.

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:  None

Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of December 31, 2010:

 

145,031,080 Common Shares, without par value

389,931 Class A Preferred Shares, without par value

128,234,364 Class B Preferred Shares, without par value

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

Yes              No ¨ 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ¨             No

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             No ¨ 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  

N/A

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 Securities Exchange Act of 1934. (Check one):

Large accelerated filer              Accelerated filer ¨               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 ¨                                    IFRS                                               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. 

N/A

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Yes ¨           No

 


 

EXPLANATORY NOTE

     Companhia Paranaense de Energia Copel (the Company ) is filing this Form 20-F/A (the Amendment ) to its Annual Report on Form 20-F filed on June 30, 2011 (the Annual Report ) to include in Item 18 Schedule A, which contains the condensed financial information required by Rule 12-04 of Regulation S-X.

     Other than the foregoing item, no part of the Annual Report is being amended, and the filing of this Amendment should not be understood to mean that any other statements contained in the Annual Report are true or complete as of any date subsequent to June 30, 2011.

1


 

Item 18. Financial Statements

            Reference is made to pages F-1 through F-144.

2


 

Exhibit 12.1

CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a) AS ADOPTED
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT

I, Lindolfo Zimmer, certify that:
 
1. I have reviewed this annual report on Form 20-F/A of Companhia Paranaense de Energia COPEL (the "Company" );

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 
3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

 
4.

The Company s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
(c)

Evaluated the effectiveness of the company s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
(d)

Disclosed in this report any change in the Company s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company s internal control over financial reporting; and

 

5.

The Company s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company s auditors and the audit committee of the Company s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company s ability to record, process, summarize and report financial information; and

 
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company s internal control over financial reporting.

 

Date: December 13, 2011

/s/ Lindolfo Zimmer
Name: Lindolfo Zimmer
Title: Chief Executive Officer

 

3


 

Exhibit 12.2

CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a) AS ADOPTED
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT

I, Ricardo Portugal Alves, certify that:
 
1. I have reviewed this annual report on Form 20-F/A of Companhia Paranaense de Energia COPEL (the "Company");

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 
3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

 
4.

The Company s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
(c)

Evaluated the effectiveness of the Company s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
(d)

Disclosed in this report any change in the Company s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company s internal control over financial reporting; and

 

5.

The Company s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company s auditors and the audit committee of the Company s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company s ability to record, process, summarize and report financial information; and

 
(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company s internal control over financial reporting.

 

Date: December 13, 2011

/s/ Ricardo Portugal Alves
Name: Ricardo Portugal Alves
Title: Chief Financial Officer

 

4


 

Exhibit 13.1

     CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Companhia Paranaense de Energia - COPEL (the Company ), does hereby certify, to such officer s knowledge, that:

The Annual Report on Form 20-F/A for the year ended December 31, 2010 (the Form 20-F/A ) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F/A fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: December 13, 2011

/s/ Lindolfo Zimmer
Name: Lindolfo Zimmer
Title: Chief Executive Officer

 

5


 

Exhibit 13.2

     CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Companhia Paranaense de Energia - COPEL (the Company ), does hereby certify, to such officer s knowledge, that:

The Annual Report on Form 20-F/A for the year ended December 31, 2010 (the Form 20-F/A ) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F/A fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: December 13, 2011

/s/ Ricardo Portugal Alves
Name: Ricardo Portugal Alves
Title: Chief Financial Officer

 

6


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Companhia Paranaense de Energia - COPEL
Curitiba - PR, Brazil
 

 

We have audited the financial statements of Companhia Paranaense de Energia -COPEL and subsidiaries (the "Company") as of December 31, 2010 and 2009 and as of January 1, 2009, and for each of the two years in the period ended December 31, 2010, and the Company's internal control over financial reporting as of December 31, 2010, and have issued our reports thereon dated June 16, 2011; such reports have previously been filed as part of the Company's Annual Report on Form 20-F for the year ended December 31, 2010. Our audits also included the financial statement schedule of the Company listed in the accompanying schedule to Item 18. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ Deloitte Touche Tohmatsu Auditores Independentes

Curitiba, Paraná, Brazil
     June 16, 2011 

F-1


 

 

Table of Contents

Companhia Paranaense de Energia – Copel

Consolidated Statement of Financial Position

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

         
ASSETS  Note       
    12.31.2010  12.31.2009  01.01.2009 
CURRENT ASSETS         
Cash and cash equivalents  5  1,794,416  1,518,523  1,649,481 
Bonds and securities  6  534,095  365,243  314,774 
Collaterals and escrow accounts  6  64,078  5,047  127 
Customers and distributors  7  1,162,627  1,071,986  981,842 
Dividends receivable  15  5,851  5,135  5,247 
CRC transferred to the State Government  8  58,816  49,549  47,133 
Receivables related to concession  9  54,700  44,070  27,685 
Other receivables  10  161,069  133,002  105,050 
Inventories  11  121,424  112,102  83,547 
Income tax and social contribution  12  158,213  270,558  200,544 
Other current recoverable taxes  12  37,536  31,933  28,021 
Prepaid expenses  13  4,965  4,966  3,573 
         
    4,157,790  3,612,114  3,447,024 
         
NONCURRENT ASSETS         
Noncurrent receivables         
Bonds and securities  6  7,151  40,103  69,063 
Collaterals and escrow accounts  6  26,280  24,195  37,868 
Customers and distributors  7  43,729  51,932  85,046 
CRC transferred to the State Government  8  1,282,377  1,205,025  1,272,770 
Judicial deposits  14  400,699  159,012  173,514 
Receivables related to concession  9  2,423,345  1,828,220  1,460,462 
Other receivables  10  15,224  16,949  12,214 
Income tax and social contribution  12  12,341  -  - 
Other noncurrent recoverable taxes  12  84,862  83,957  62,468 
Deferred income tax and social contribution  12  507,710  397,882  398,873 
Receivables from related parties  15  1,575  -  - 
    4,805,293  3,807,275  3,572,278 
         
Investments  16  483,450  405,653  406,755 
Property, plant, and equipment, net  17  6,663,945  6,659,648  6,772,095 
Intangible assets  18  1,748,954  1,828,213  1,735,689 
         
    13,701,642  12,700,789  12,486,817 
         
TOTAL ASSETS    17,859,432  16,312,903  15,933,841 
 
The accompanying notes are an integral part of these financial statements.

 

F - 2

 


 

 

Table of Contents

Companhia Paranaense de Energia – Copel

Consolidated Statement of Financial Position

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

 

         
LIABILITIES  Note       
    12.31.2010  12.31.2009  01.01.2009 
CURRENT LIABILITIES         
Payroll, social charges and accruals  19  175,584  206,957  159,388 
Suppliers  20  612,568  543,529  497,832 
Income tax and social contribution  12  153,249  124,505  134,263 
Other tax payable  12  378,871  325,990  235,588 
Loans and financing  21  83,095  81,698  98,461 
Debentures  22  621,157  54,195  195,000 
Dividends payable    163,634  90,806  243,652 
Post-employment benefits  23  24,255  22,505  21,344 
Customer charges due  24  56,105  29,523  43,123 
Research and Development and Energy Efficiency  25  155,991  121,005  126,484 
Payables related to concession - use of public property  26  40,984  38,029  38,166 
Other accounts payable  27  71,308  84,581  75,744 
         
    2,536,801  1,723,323  1,869,045 
         
NONCURRENT LIABILITIES         
Suppliers  20  144,936  175,796  214,157 
Tax payable  12  32,252  131,650  618 
Deferred income tax and social contribution  12  887,218  901,084  935,022 
Loans and financing  21  1,280,982  784,144  769,056 
Debentures  22  -  753,384  802,116 
Post-employment benefits  23  384,208  352,976  331,165 
Research and Development and Energy Efficiency  25  90,732  90,493  72,079 
Payables related to concession - use of public property  26  340,099  312,626  319,433 
Other accounts payable  27  -  2,953  6,674 
Reserve for risks  28  866,378  560,111  653,382 
         
    4,026,805  4,065,217  4,103,702 
EQUITY  29       
Attributable to Parent Company         
Share capital    6,910,000  4,460,000  4,460,000 
Capital reserves    -  838,340  838,340 
Equity valuation adjustments    1,559,516  1,660,634  1,750,069 
Legal reserves    478,302  428,912  377,590 
Retained earnings    2,056,526  2,908,112  2,316,218 
Additional proposed dividends    25,779  -  - 
    11,030,123  10,295,998  9,742,217 
         
Attributable to non-controlling interest    265,703  228,365  218,877 
         
    11,295,826  10,524,363  9,961,094 
         
TOTAL LIABILITIES AND EQUITY    17,859,432  16,312,903  15,933,841 
 
The accompanying notes are an integral part of these financial statements.

 

 



 

                                                                                                        

F - 3

 


 

 

Table of Contents

Companhia Paranaense de Energia – Copel

Consolidated Statements of Operations

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

 

       
CONTINUOUS OPERATIONS  Note     
    2010  2009 
OPERATING REVENUES       
Electricity sales to final customers  30  2,213,403  2,059,554 
Electricity sales to distributors  30  1,288,001  1,209,157 
Use of main distribution and transmission grid  30  2,272,421  1,975,117 
Construction revenues  30  663,534  601,880 
Telecommunications revenues  30  97,882  80,262 
Distribution of piped gas  30  237,272  205,158 
Other operating revenues  30  128,600  119,012 
    6,901,113  6,250,140 
         
Cost of sales and services provided       
Electricity purchased for resale  31  (1,972,275)  (1,816,848) 
Use of main distribution and transmission grid  31  (592,741)  (553,174) 
Personnel and Management  31  (634,277)  (630,917) 
Pension and healthcare plans  31  (97,528)  (85,243) 
Materials and supplies  31  (75,533)  (58,993) 
Raw materials and supplies for power generation  31  (22,975)  (21,231) 
Natural gas and supplies for the gas business  31  (144,648)  (128,916) 
Third-party services  31  (245,232)  (228,579) 
Depreciation and amortization  31  (511,491)  (509,230) 
Construction costs  31  (662,887)  (601,614) 
Other  31  (16,556)  5,961 
    (4,976,143)  (4,628,784) 
         
GROSS PROFIT    1,924,970  1,621,356 
Other Operating Revenues (Expenses)       
Sales expenses  31  (62,466)  (54,281) 
General and administrative expenses  31  (353,626)  (434,693) 
Other revenues (expenses), net  31  (575,908)  (89,247) 
Result of equity in investees  16  99,337  14,327 
    (892,663)  (563,894) 
         
OPERATING INCOME BEFORE FINANCIAL RESULTS    1,032,307  1,057,462 
         
Financial income ( Expenses )       
Financial revenues  32  652,231  337,396 
Financial expenses  32  (303,806)  (330,661) 
    348,425  6,735 
         
OPERATING INCOME    1,380,732  1,064,197 
INCOME TAX AND SOCIAL CONTRIBUTION       
Income tax and social contribution  12  (497,968)  (290,770) 
Deferred income tax and social contribution  12  127,517  38,851 
    (370,451)  (251,919) 
         
NET INCOME FOR THE PERIOD    1,010,281  812,278 
Attributable to Parent Company    987,807  791,776 
Attributable to non-controlling interest    22,474  20,502 
         
BASIC AND DILUTED NET EARNING PER SHARE ATTRIBUTED       
TO PARENT COMPANY SHAREHOLDERS - in reais       
Class A preferred shares  29  5.2075  3.7066 
Class B preferred shares  29  3.7904  3.0389 
Common shares  29  3.4456  2.7624 

The accompanying notes are an integral part of these financial statements.

F - 4

 


 

 

Table of Contents

Companhia Paranaense de Energia – Copel

Consolidated Statement of Comprehensive Income

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

 

  2010  2009 
NET INCOME FOR THE PERIOD  1,010,281  812,278 
Adjustments to financial assets classified as available for sale - Distribution concession  3,029  17,369 
(-) Taxes on financial asset adjustments  (1,030)  (5,905) 
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD  1,012,280  823,742 
Attributed to Parent Company  989,806  803,240 
Attributed to non-controlling  22,474  20,502 

F - 5

 


 

 

Table of Contents

Companhia Paranaense de Energia – Copel

Consolidated Statement of Changes in Equity

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

 

                         
    Attributable to Parent Company Total Attributable
to non-
controlling
Consolidated
Total
        Equity Accumulated Other Income reserves
    Retained  Additional  
    Share Capital valuation Comprehensive Legal earnings  proposed Retained
  Note  capital  reserves  adjustments  Income  reserve  reserve  dividends  earnings
Balance as of January 1, 2009 
(after adoption of the new accounting rules)
  4,460,000  838,340  1,750,069  -  377,590  2,316,218  -  -  9,742,217  218,877  9,961,094 
                         
Net income for the period    -  -  -  -  -  -  -  791,776  791,776  20,502  812,278 
Other comprehensive income                         
Adjustments to financial assets deemed available for sale, net of taxes    -  -  -  11,464  -  -  -  -  11,464  -  11,464 
Total comprehensive income for the period    -  -  -  11,464  -  -  -  791,776  803,240  20,502  823,742 
Transfer to retained earnings  29  -  -  (100,899)  -  -  -  -  100,899  -  -  - 
Allocation proposed at the G.S.M.:                         
Legal reserve    -  -  -  -  51,322  -  -  (51,322)  -  -  - 
Interest on capital    -  -  -  -  -  -  -  (230,000)  (230,000)  -  (230,000) 
Dividends    -  -  -  -  -  -  -  (19,459)  (19,459)  (11,014)  (30,473) 
Retained earnings    -  -  -  -  -  725,652  -  (725,652)  -  -  - 
Transfer to retained earnings    -  -  -  -  -  (133,758)  -  133,758  -  -  - 
Balance as of December 31, 2009    4,460,000  838,340  1,649,170  11,464  428,912  2,908,112  -  -  10,295,998  228,365  10,524,363 
Net income for the period    -  -  -    -  -  -  987,807  987,807  22,474  1,010,281 
Other comprehensive income                         
Adjustments to financial assets deemed available for sale, net of taxes    -  -  -  1,999  -  -  -  -  1,999  -  1,999 
Total comprehensive income for the period    -  -  -  1,999  -  -  -  987,807  989,806  22,474  1,012,280 
Transfer to retained earnings  29  -  -  (103,117)  -  -  -  -  103,117  -  -  - 
Share capital increase    2,450,000  (838,340)  -  -  -  (1,611,660)  -  -  -  -  - 
Advance for future capital increase    -  -  -  -  -  -  -  -  -  30,812  30,812 
Allocation proposed at the G.S.M.:                         
Legal reserve    -  -  -  -  49,390  -  -  (49,390)  -  -  - 
Interest on capital    -  -  -  -  -  -  -  (200,000)  (200,000)  -  (200,000) 
Dividends    -  -  -  -  -  -  25,779  (81,460)  (55,681)  (15,948)  (71,629) 
Retained earnings    -  -  -  -  -  760,074  -  (760,074)  -  -  - 
Balance as of December 31, 2010    6,910,000  -  1,546,053  13,463  478,302  2,056,526  25,779  -  11,030,123  265,703  11,295,826 
 
The accompanying notes are an integral part of these financial statements.

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Table of Contents

Companhia Paranaense de Energia – Copel

Consolidated Statement of Cash Flows

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

 

       
  Note     
    2010  2009 
Cash flows from operating activities       
Net income for the period    1,010,281  812,278 
Adjustments for the reconciliation of net income with the generation of cash       
by operating activities:       
Depreciation  17.2  336,902  348,965 
Amortization of intangible assets - concession  18  200,992  185,785 
Amortization of intangible assets - other  18  5,098  5,031 
Unrealized monetary and exchange variations, net    (116,826)  126,341 
Return on accounts receivable related to concession  9.1  (272,613)  (282,315) 
Result of equity in subsidiaries and investees  16.6  (99,337)  (14,327) 
Income tax and social contribution  12.1  497,968  290,770 
Deferred income tax and social contribution  12.2  (127,517)  (38,851) 
Provision for losses in receivables related to concession  9.3  21,333  6,700 
Allowance for doubtful accounts  31.6  26,424  16,448 
Provision for losses from devaluation of investments  31.6  2,114  733 
Reserves (reversal) for risks 31.6  334,238  (57,118) 
Provision for post-employment benefits    48,314  34,052 
Provision for research and development and energy efficiency  25  61,339  56,284 
Write-off of accounts receivable related to concession  9.1  25,707  26,686 
Write-off of investments  16.6  589  160 
Write-off of property, plant, and equipment, net  17.4  26,641  22,594 
Write-off of intangible assets, net  18  14,871  17,540 
Write-off of intangible assets related to concession - goodwill  18.4  44,572  - 
         
Increase (decrease) in assets       
Customers and distributors    84,274  107,429 
Dividends and interest on capital received    18,067  15,845 
CRC transferred to the State Government  8  129,095  130,967 
Judicial deposits    (241,687)  14,502 
Other receivables    (26,522)  (33,021) 
Inventories    (9,322)  (28,555) 
Income tax and social contribution    104,587  (70,014) 
Other recoverable taxes    3,630  (25,401) 
Receivables from related parties    (1,575)  - 
Prepaid expenses    1  (1,393) 
         
Increase (decrease) in liabilities       
Payroll, social charges and accruals    (31,373)  47,569 
Suppliers    4,122  (13,415) 
Paid income tax and social contribution    (469,224)  (300,528) 
Other taxes payables    (62,932)  219,341 
Loans and financing - interest due and paid  21  (106,408)  (119,102) 
Debentures - interest due and paid  22  (71,338)  (110,035) 
Post-employment benefits    (15,332)  (11,080) 
Customers charges due    26,582  (13,600) 
Research and development and energy efficiency    (45,399)  (56,601) 
Payables related to concession - use of public property    (38,274)  (38,266) 
Other accounts payable    (16,349)  4,919 
Reserves for risks    (27,971)  (36,153) 
         
Net cash generated (used) by operating activities    1,247,742  1,241,164 
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Companhia Paranaense de Energia – Copel

Consolidated Statement of Cash Flows

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

 

(continued)       
  Note     
    2010  2009 
Cash flows from investing activities       
Bonds and securities    (183,880)  (10,013) 
Additions to investiments    (180)  (151) 
Additions to property, plant, and equipment    (353,367)  (243,791) 
Additions to intangible assets related to concession  18  (655,411)  (679,248) 
Additions to other intangible assets  18  (28,177)  (1,122) 
Customer contributions    89,177  57,422 
         
Net cash generated (used) by investing activities    (1,131,838)  (876,903) 
         
Cash flows from financing activities       
Paid-in capital in subsidiaries by non-controlling shareholders    30,812  - 
Loans and financing from third-parties  21  552,479  144,262 
Payment of the principal amount of loans and financing  21  (46,593)  (62,987) 
Payment of the principal amount of debentures  22  (177,908)  (163,175) 
Dividends and interest on capital paid    (198,801)  (413,319) 
         
Net cash generated (used) by financing activities    159,989  (495,219) 
         
Increase (decrease) in cash and cash equivalents    275,893  (130,958) 
         
Cash and cash equivalents at the beginning of the period  5  1,518,523  1,649,481 
Cash and cash equivalents at the end of the period  5  1,794,416  1,518,523 
         
Variation in cash and cash equivalents    275,893  (130,958) 
 
The accompanying notes are an integral part of these financial statements

 

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

       

1 General Information

Companhia Paranaense de Energia - Copel (Copel, the Company or the Parent Company), headquartered at Rua Coronel Dulcídio, 800, Batel, Curitiba, State of Paraná, is a public company with shares traded on Corporate Governance Level 1 of the Special Listings of the São Paulo Stock, Commodities, and Futures Exchange (BM&FBOVESPA S.A.) and on stock exchanges in the United States of America and Spain. Copel is a mixed capital company, controlled by the Government of the State of Paraná. Copel and its subsidiaries (Group or Company) are engaged in researching, studying, planning, building, and exploiting the production, transformation, transportation, distribution, and sale of energy, in any form, but particularly electric energy. These activities are regulated by the National Electric Energy Agency (Agência Nacional de Energia Elétrica or ANEEL), which reports to the Ministry of Mines and Energy (Ministério das Minas e Energia or MME). Additionally, Copel takes part in consortiums, private enterprises, or mixed capital companies in order to operate mostly in the areas of energy, telecommunications, natural gas, and water supply and sanitation.

2 Main Accounting Policies

2.1       Statement of compliance

Copel’s financial statements are comprised by the consolidated financial statements prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

2.2       Basis of presentation

Authorization for the publication of these financial statements was granted at the Meeting of the Board of Officers held on March 21, 2011 and on June 16, 2011.

These financial statements featured in this report are prepared based on historical cost, except in the case of certain financial instruments valued at fair value and certain property, plant, and equipment valued at deemed cost at the transition date, as described in the following accounting practices. The historical cost is usually based on the fair value of the disbursements made in exchange for the assets at hand.

These consolidated financial statements are the first to be prepared by the Company in compliance with the IFRSs. The effects of the first-time adoption of the IFRSs are disclosed in Note 4.

Below is a summary of the main accounting policies adopted by the Copel group:

2.3       Basis for consolidation

The consolidated financial statement includes de statements of the Company and of its subsidiaries and exclusive investment funds. Control in subsidiaries is deemed as de power by the company to control their financial and operational policies to reap benefits from their activities.

2.4       Cash and cash equivalents

Cash and cash equivalents includes cash, bank deposits, and temporary short-term financial investments with original maturity of 90 days. Temporary short-term investments are recorded at cost as of the date of the balance sheets, plus earnings accrued as of the final date of the fiscal year. Cash and cash equivalents, have immediate liquidity, and are subject to an insignificant risk of change in value.

2.5       Customers and distributors

This item comprises billed power sales to final customers and to distributors, estimated power supplied but unbilled as of the date of the statements, and supply of natural gas, accounted for on an accrual basis.

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

2.6       Bonds and Securities

It comprises financial instruments classified as available for sale and held to maturity. The accounting treatment of these financial instruments is described in item 2.29.

2.7       Allowance for doubtful accounts

The allowance for doubtful accounts is recorded in amounts deemed sufficient by Copel’s senior management to cover potential losses on the realization of customer receivables and others whose recovery is considered unlikely.

This allowance is set up based on the amounts overdue by residential customers for over 90 days, the amounts overdue by commercial customers for over 180 days, and the amounts overdue by industrial and rural customers, public agencies, public lighting, and public services for over 360 days. It comprises receivables billed until the date of the balance sheets, accounted for on accrual basis.

2.8       Segments 

Operational segments are defined as business activities which may yield revenues and require expenses, whose operational results are regularly reviewed by the entity’s chief decision maker to underpin the decision-making regarding resources to be allocated to the segment and to evaluate its performance, and for which there is available individualized financial information.

2.9       Accounts payable related to concession – use of public property

This item corresponds to the amounts set forth in the concession agreement in connection with the right to explore hydraulic energy potential (onerous concession). These agreements are signed as Use of Public Property (Uso de Bem Público or UBP) agreements. Liability is recorded on the date of signature of the concession agreement, regardless of the schedule of disbursements set forth therein. The initial accrual of the liability (obligation) and the corresponding intangible asset (concession rights) corresponds to the future disbursements at present value.

Amortization of the intangible assets is calculated under the linear method for the remaining term of the concession. The financial liability is restated by the effective interest rate method and reduced by the payments under contract.

2.10     Dividends and interest on capital

The distribution of dividends and interest on capital are recorded as a liability in the Company’s financial statements at the end of the fiscal year, based on its by-laws. However, any amounts above the minimum mandatory dividends are only recorded under liabilities on the date they are approved and announced at the General Shareholders’ Meeting. The tax benefit of interest on capital is recorded in the statement of operations.

2.11     Intangible assets - concessions

Intangibles recorded at the acquisition date in companies which holds concessions and are amortized over the respective remaining terms of each concession (concession rights with limited term).

2.12     Investments in non-controlled companies

The results, assets, and liabilities of investees are incorporated into Copel’s financial statements according to the equity method. Pursuant to the equity method, investments in investees are at first recorded at cost and then adjusted for purposes of accounting of the Group’s share of comprehensive income/loss. When the Group’s share of losses in an investee exceeds its interest in it, the Group no longer recognizes these additional losses (accrual of losses down to zero). Any additional losses are only recognized if the Group has incurred legal obligations or other liabilities or has made payments on behalf of the investee.

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

The amount exceeding the cost of acquisition of the Group’s interest in the net fair value of assets, liabilities, and identifiable contingent liabilities of the investee on the date of acquisition is accrued as goodwill, when not related to concessions. For concessions, refer to item 2.11.

The requirements of IAS 39 are applicable for purposes of determining the need to record impairment losses in connection with the Group’s interests in investees. If necessary, the total book value of the investment (including goodwill) is tested for impairment pursuant to IAS 36 – Impairment of Assets, as a single asset, through comparison between its recoverable value and its book value. Recognized impairment losses are added to the book value of the corresponding investment. The reversal of these losses is recognized according to IAS 36 and as the recoverable value of the corresponding investment is subsequently increased.

2.13     Participation in joint ventures

A joint venture is an agreement under which the Group and other parties conduct economic activities subject to joint control, a situation where decisions about strategic financial and operational policies concerning the joint venture's activities require approval by all parties sharing joint control.

The Group presents its interest in Dominó Holdings in its consolidated financial statements according to the proportional consolidation method. The Group’s participation in the assets, liabilities, and results of Dominó Holdings are consolidated proportionally under the corresponding items of the consolidated financial statements, line by line.

2.14     Statement of operations

Revenues, costs, and expenses are recorded under the accrual method, i.e., when products are delivered and services actually rendered, regardless of receipt or payment.

2.15     Revenue recognition

Operating revenues are recognized when: (i) the amount of the revenue is reliably measurable; (ii) the costs incurred or to be incurred in the transaction are reliably measurable; (iii) it is likely that the economic benefits are received by the Company; and (iv) the risks and benefits have been fully transferred to the respective buyer.

Revenues are valued at the fair value of the payment received or to be received, with the deduction of discounts and/or bonuses granted and charges on sales.

2.15.1 Unbilled revenues

Unbilled revenues correspond to revenues from sales of power to final customers which have been delivered but not yet billed and to revenues from the use of the distribution grid not yet billed, both of which are calculated based on estimates covering the period from the meter reading day to the last day of the month.

2.15.2. Rendered services

Revenues under a service agreement are recognized according to the stage of completion of the agreement, determined as follows:

·         Installation fees are recognized according to the stage of completion of the installation services, determined proportionally between the total estimated time for completion of services and the time elapsed at the end of each reporting period;

·         Service fees included in the price of products sold are recognized proportionally to their total costs, based on historical trends of actual services rendered in connection with products sold previously.

·         Revenues for services are recognized at the contractual rates according to the number of hours worked and whenever direct expenses are incurred based on time and materials used.

 

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

2.15.3. Construction revenues and construction costs

IFRIC 12 and SIC 29 establish that electric energy utilities should record and measure revenues of according to IAS 11 - Construction Contracts and IAS 18, IFRIC 13 and SIC 31 – Revenues, even when governed by a single concession agreement. The Company records construction revenues in connection with the construction services for infrastructure employed in the power transmission and distribution services.

The respective costs are recognized when incurred in the statement of operations for the corresponding period, as construction costs.

Given that the Company outsources the construction of power distribution infrastructure to non-related parties and that a large part of the work is carried out over short periods, the construction margin to the Company’s power distribution business is not significant, and may reach amounts close to zero.

The construction margin adopted for the transmission business in 2010 is 1.65% (1.80% in 2009) and results from a calculation methodology which takes into account the respective business risk.

2.15.4. Revenues from dividends and interest

Revenues from dividends are recognized when the shareholder's right to receive said dividends is established.

Interest revenues from financial assets are recognized when it is likely that the future economic benefits shall be earned by the Group and the amount of these revenues may be determined reliably. Interest revenues are recognized according to the straight-line method based on the effective time and interest rate applicable to the outstanding principal amount; the effective interest rate is the one which discount with precision the estimated future cash earnings over their estimated lives or terms with regard to the initial net book value of the such financial assets.

2.15.5. Lease revenues

The Group’s policy for recognition of operating lease revenues is described in Note 2.16.1 – Leases – The Group as a Lessor.

2.16     Leases 

Leases are classified as financial whenever the terms of the lease substantially transfer all risks and benefits of property ownership to the lessee. All other leases are classified as operating leases.

2.16.1. The Group as a Lessor

Lease revenues from operating leases are recognized according to the linear method during the term of each lease.

2.16.2. The Group as a Lessee

Payments under operating leases are recognized as expenses according to the linear method based on the duration of the lease, except when other methods are more representative of the time when the economic benefits of the leased asset are consumed or received. Contingent payments resulting from operating leases are recognized as expenses in the period when they are settled.

2.17     Power purchase and sale transactions in the Spot Market (Electric Energy Trading Chamberor CCEE)

Power purchase and sale transactions in CCEE are recorded on the accrual basis according to the information disclosed by the Trading Chamber or to estimates prepared by Copel’s senior management, when this information is not available in time.

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

2.18     Research and Development Programs - R&D - and Energy Efficiency Programs - EEP

These are research and development and energy efficiency programs to which utilities are required to allocate 1% of their net operating revenues as defined by ANEEL pursuant to Law no. 9,991/00 and ANEEL Resolutions no. 300/08 and 316/08.

2.19     Provision for environmental costs and obligations

Environmental liabilities are recognized under liabilities when their occurrence is likely and may be reasonably estimated.

They are recognized as the Company assumes formal obligations before regulatory agencies or becomes aware of potential risks related to socio-environmental issues, which may lead to cash disbursements that are deemed probable and that may be estimated. During the project implementation phase, the provision is recorded against property, plant, and equipment or intangible assets in progress. Once the project enters commercial operation, all costs or expenses incurred with socio-environmental programs related to the project’s operation and maintenance licenses are recorded directly to expense for the corresponding period.

2.20     Post-employment benefits

The Company sponsors benefits plans to its employees, described in detail in Note 23. The amounts of these actuarial obligations (contributions, costs, liabilities, and/or assets) are calculated annually by an independent actuary on the same base date as the end of the fiscal period and are recorded pursuant to IAS 19, and by IFRIC 14.

The adoption of the project unit credit method adds each year of service as the source of an additional benefit unit, adding up to the calculation of the final liability.

Other actuarial assumptions are used which take into account biometric and economic tables in addition to historical data from the benefits plans, obtained from the manager of these plans, the Copel Foundation.

Actuarial gains or losses caused by changes in assumptions and/or actuarial adjustments are recognized according to the corridor approach, i.e., gains and losses are only recorded to the extent they exceed 10% of the plan assets or 10% of the accumulated projected employee benefits liabilities.

2.21     Taxes and social contributions

Sales and services revenues are subject to value-added tax (Imposto sobre Circulação de Mercadorias e Serviços or ICMS) and service tax (Imposto sobre Serviços or ISS), at the applicable rates, and to the PIS (Social Integration Program), COFINS (Contribution for the Financing of Social Security), and PASEP (Program for the Formation of the Civil Servants' Fund) social contributions.

Credits resulting from the non-cumulative nature of PIS/PASEP and COFINS charges are accounted for by deducting such from the cost of products sold in the statement of operations.

Advance payments of amounts eligible for offsetting are accounted for in current or noncurrent assets, according to their expected realization.

Income tax comprises corporate income tax and social contribution, which are calculated based on taxable income (adjusted income), at the applicable rates, which are: 15%, plus 10% on any amounts exceeding R$240 a year, for corporate income tax, and 9% for social contribution.

Deferred income tax and social contribution credits resulting from temporary discrepancies, tax losses or negative bases for the calculation of social contribution are recognized only as long as there is a possibility of a tax basis that allows for their realization. Deferred income tax and social contribution assets have been calculated on taxes losscarryforwards, and temporary differences, at the applicable rates, and take into account the expected future generation of taxable income, based on technical feasibility studies approved by the Company’s Board of Directors.

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

Provisional Measure no. 449/08, converted into Law no. 11,941/09, created the Transitional Tax Regime (Regime Tributário de Transição or RTT), applicable to entities subject to corporate income tax (Imposto de Renda da Pessoa Jurídica or IRPJ) based on taxable income. The adoption of this regime was optional in 2008 and 2009, whereas in 2010 it became mandatory and will remain so until a new law is passed governing the tax effects of the new accounting methods and criteria, with a view to tax neutrality.

The goal of this tax regime is to neutralize the potential tax impact resulting from the changes in accounting criteria for the recognition of revenues, costs, and expenses introduced by Law no. 11,638/07.

With the adoption of this regime the changes in criteria for the recognition of revenues, costs, and expenses will not have an effect on the assessment of the basis for the calculation of taxes, both on revenues and on income. The accounting methods and criteria to be considered for tax purposes are those in effect as of December 31, 2007.

2.22     Property, Plant, and Equipment

The Company has adopted the deemed cost to determine the fair value of Copel Geração e Transmissão’s property, plant, and equipment, specifically for the generation business as of the date of transition of Copel’s financial statements to the IFRSs (January 1, 2009). These assets are depreciated according to the linear method based on annual rates set forth and reviewed periodically by ANEEL, which are used and accepted by the market as representative of the economic useful life of the assets related to concession's infrastructure, limited to the term of mentioned concession, when applicable. The estimated useful life, the residual amounts, and depreciation are reviewed as of the date of the balance sheets, and the effect of any changes in estimates is recorded prospectively. (see Note 4.2.8).

Internal studies by the Group have shown that the balances as of January 1, 2009 of assets related to telecommunications business were compatible with their fair values and supported by impairment tests. (see Note 4.2.8).

Costs directly attributable to construction work as well as interest and financial charges on loans from third-parties during construction are recorded under property, plant, and equipment in progress.

2.23     Accounts receivable related to concession

2.23.1. Financial assets - Distribution

These refer to reimbursements set forth in the public power distribution service concession agreements, which the Company understands as an unconditional right to cash payments upon expiration of the concession from the granting authority (ANEEL). These reimbursements are designed to compensate the Company for the investments made in infrastructure which have not been recovered through the collection of tariffs at the end of the concession because of their useful lives being longer than the term of said concession.

Since these financial assets do not have determinable fixed cash flows – as the Company operates under the assumption that the value of the corresponding reimbursements will be based on the replacement cost of the concession assets and as they do not feature the necessary characteristics to be classified under any other category of financial assets – they are classified as “available for sale”. The cash flows related to these assets are determined taking into account the replacement cost of PPE named Regulatory Compensation Basis (Base de Remuneração Regulatória or BRR), defined by the granting authority. The methodology of the BRR is based on the replacement cost of the assets that make up the power distribution infrastructure related to the concession. This tariff basis (BRR) is reviewed every four years taking into account several factors. Its goal is to reflect the variation in the prices of physical assets, including write-offs, depreciation, and additions of assets to the concession infrastructure (physical assets).

The return on these financial assets is based on the regulatory Weighted Average Cost of Capital orWACC approved by ANEEL in the periodic rate review process every four years, whose amount is included in the composition of the revenues from tariffs charged to customers and collected monthly.

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

In the periods between periodic rate reviews, the balance of these financial assets must be adjusted according to Company’s management expectation of increase variations in cash flows resulting from changes in the assets making up the infrastructure (physical assets). These variations in the estimated cash flows are recorded directly to income for the corresponding period.

Since there is not an active market for these financial assets, the Company determines their fair value using the same components of the regulatory compensation rate set forth by ANEEL (regulatory WACC). These components, updated as of the date of the balance sheets, determine the new interest rate used by the Company to restate to present value the fixed cash flows set forth in the last periodic rate review and estimated until the next review in 2012. Due to the nature of these financial assets, the Company believes this methodology is the one which better reflects their fair value in the view of market participants, since the rate of return set forth by ANEEL takes into consideration, in addition to the risk-free rates of return, all risks inherent to the sector.  

2.23.2. Financial assets - Transmission

These refer to receivables in connection with the power transmission concession agreements and include the following amounts: (i) revenues from the construction of transmission infrastructure for use by system users; (ii) revenues from the operation and maintenance of infrastructure effectively constructed; and (iii) the financial return on these revenues guaranteed by the granting authority during the term of the concession.

Revenues under power transmission concession agreements are collected by making infrastructure available to system users, are not subject to demand risk, and are thus considered guaranteed revenues, called Annual Allowed Revenues (Receita Annual Permitida or RAP) to be collected over the term of the concession. Amounts are billed monthly to the users of this infrastructure, pursuant to reports issued by the National System Operator (Operador Nacional do Sistema or ONS, in Portuguese). Upon expiration of the concession, any uncollected amounts related to the construction, operation, and maintenance of infrastructure shall be received directly from the granting authority, as an unconditional right to cash reimbursement pursuant to the concession agreement, as compensation for investments made and not recovered through tariffs (RAP).

These financial assets do not have an active market, present fixed and ascertainable cash flows, and are thus classified as “loans and receivables”. They are initially estimated based on the respective fair values and later measured according to the amortized cost calculated under the effective interest rate method.

2.24     Intangible assets

2.24.1. Concession agreements - distribution

These comprise the right to access and to commercial operation of infrastructure, built or acquired by the operator or provided to be used by the operator as part of the electric energy public service concession agreement (the right to charge fees to the users of the public service provided by the operator), in compliance with IAS 38 – Intangible assets, IFRIC 12– Concession Agreements.

Intangible assets are determined as the remaining portion after the assessment of the financial assets (residual amount), due to their recovery being conditioned upon the rendering of the corresponding public service, i.e., the consumption of power by consumers, subject thus to demand risk.

Intangible assets are recorded at their fair acquisition and construction value, minus accumulated amortization and impairment losses, when applicable.

The amortization of intangible assets reflects the pattern of estimated accrual of the corresponding economic benefits by Copel Distribuição, with expectation of average amortization of 15% a year, limited to the term of the concession.

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

2.24.2. Intangible assets acquired separately

Intangible assets with defined useful lives acquired separately are recorded at cost, minus accumulated amortization and impairment losses. Amortization is recorded linearly based on the estimated useful lives of the corresponding assets. The estimated useful lives and the amortization method are reviewed at year-end, and the effect of any changes in estimates is recorded prospectively.

2.24.3. Write-off of intangible assets

Intangible assets are written-off upon sale or whenever there are no future economic benefits from use or sale to be received. Any gains or losses resulting from the write-off of intangible assets, measured as the difference between the net sale revenue and the asset's book value, are recorded to income or expense at the time of write-off.

2.25     Impairment value of assets

Property, plant, and equipment and intangible assets are assessed annually to detect evidence of unrecoverable losses or whenever significant events or changes in circumstances indicate that the book value of any such asset may not be recoverable. Whenever there is a loss, resulting from situations where an asset’s book value exceeds its recoverable value, defined as the greater between the asset’s value in use and its net sale value, this loss is recorded to expenses.

2.26     Materials and supplies (including those under property, plant, and equipment)

Materials and supplies in inventory, classified under current assets, have been recorded at their average acquisition cost, and those assigned for investments, classified under property, plant, and equipment, have been recorded at their actual purchase cost. Recorded amounts do not exceed their estimated sale price, minus all estimated costs of completion and required costs for carrying out the sale.

2.27     Provisions 

Provisions are recorded for current liabilities (legal or assumed) resulting from past events, whose amounts may be estimated reliably and whose settlement is likely.

When some or all economic benefits required for the settlement of a provision are expected to be recouped from a third party, a corresponding assets is recorded if, and only if, this reimbursement is virtually guaranteed and its amount may be reliably ascertained.

2.28     Earnings per share or EPS

Earnings per share are calculated based on the weighted average of the number of shares outstanding during the reporting period. For all presented periods, the Company has not had any potential instruments equivalent to common shares which could have a diluting effect. Thus the basic earnings per share are equivalent to the diluted earnings per share.

Since holders of preferred and common shares are entitled to different dividends, voting rights, and settlements, basic and diluted earnings per share have been calculated according to the “two-class method". The two-class method is a formula for allocation of earnings which determines earnings per preferred share and per common share according to the declared dividends, pursuant to the Company's by-laws and to the rights to participation in non-distributed earnings calculated in accordance with the right to dividends of each share type, as discussed in Note 29.1.6.

Basic and diluted earnings per share are shown in Note 29.1.7.

All earnings per share data is shown effectively on a per share basis.

2.29     Financial instruments

Financial assets and liabilities are recorded whenever a Group entity is a party to the terms and conditions of the financial instrument at hand.

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

Non-derivative financial instruments include cash and cash equivalents, receivables from customers, Recoverable Rate Deficit (Conta de Resultados a Compensaror CRC) transferred to the Government of the State of Paraná, financial investments, accounts receivable in connection with concessions, loans and financing, debentures, transactions with suppliers, accounts payable in connection with concessions (use of public property), and others. These financial instruments are recorded immediately on the date of transaction, i.e., when the corresponding right or liability arises, are initially recorded at fair value plus or minus any transaction costs that are directly attributable. After initial accrual, these instruments are valued as shown below:

Financial assets

2.29.1. Instruments held to maturity

If the Company and/or its subsidiaries are interested in and capable of holding any financial assets until maturity, they are classified as held to maturity. Investments held to maturity are valued at amortized cost according to the effective interest rate method, minus any reductions in their recoverable value.

2.29.2. Instruments available for sale

The initial assessment of financial instruments classified as “available for sale” is made based on their fair value and subsequently at their market value. The variation in the fair value resulting from the difference between the market interest rates and the effective interest rates is recorded directly to equity, net of tax effects, as an adjustment on accumulated other comprehensive income, without being recorded through income for the corresponding period. The interest portion set at the beginning of the corresponding agreement, calculated based on the effective interest rate method, as well as any changes in expected cash flows, are recorded to income for the applicable period.

At the time of settlement of a financial instrument classified as a financial asset available for sale, any gains or losses accrued under equity are recorded to income or expense for the applicable period.

2.29.3. Financial instruments recorded at fair value through profit and loss

Financial instruments are classified as recorded at fair value to income if they are held for dealing or designated as such at initial accrual. Financial instruments are recorded at fair value to income if the Company and/or its subsidiaries manage these investments and make purchase or sale decisions based on their fair value in the context of an investment and risk management strategy set by the Company and/or its subsidiaries. After initial accrual, attributable transaction costs are recorded to income when incurred.

2.29.4. Loans and receivables

This category only comprises non-derivative assets with fixed or ascertainable payments which are not quoted in any active markets. They are recognized according to the amortized cost or effective interest rate methods.

Financial liabilities and equity instruments

2.29.5 Classification as debt or equity instruments

Debt and equity instruments issued by a Group entity are classified as financial liabilities or equity, according to the nature of the underlying agreement and the definitions of financial liability and equity instrument.

2.29.6. Equity instruments

Equity instruments are contracts containing residual participation in the assets of a company after the deduction of all its liabilities. Equity instruments issued by the Group are recorded when the corresponding funds are received, net of the direct issuance costs.

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

The repurchase of the Company's own equity instruments is recorded and deducted directly to equity. No gains or losses are recorded to income from the purchase, sale, issue, or cancellation of the Company’s own equity instruments.

2.29.7. Compound instruments

The portions that make up the compound instruments issued by the Company (convertible securities) are classified separately as financial liabilities and equity according to the nature of the underlying agreement and the definitions of financial liabilities and equity instruments. The conversion option which is settled through the exchange of a fixed amount of cash or other financial asset for a fixed number of the Company’s own equity instruments is deemed an equity instrument.

On the date of issue, the fair value of the liability component is estimated according to the interest rates in effect on the market for similar non-convertible instruments. This amount is recorded as a liability based on the amortized cost as determined by the effective interest rate method until its elimination by conversion or until its maturity.

The conversion option classified as equity is determined by deducting the value of the liability component from the fair value of the compound instrument as a whole. This amount is recorded and included in equity, net of income tax effects, and is not reassessed. Furthermore, the conversion option classified as equity will remain recorded under equity until the option is exercised, in which case the balance recorded under equity will be transferred to the goodwill in the issue of securities item or to another item under equity. When the conversion option is not exercised on the date of maturity of a convertible security, the balance recorded under equity is transferred to the accrued earnings item or to another item under equity. No gains or losses are recorded to income after the conversion or the expiration of the conversion option.

The transaction costs related to the issue of convertible securities are allocated to liabilities and to the equity components proportionally to the allocation of the gross resources received. The transaction costs related to the equity component are recorded directly to equity. The transaction costs related to the liability component are included in the book value of this component and amortized over the lifespan of the corresponding convertible securities according to the effective interest rate method.

2.29.8. Financial liabilities

Financial liabilities are classified as “financial liabilities at fair value recorded to profit and loss” or “other financial liabilities”.

2.29.9. Financial liabilities recorded at fair value to profit and loss

Financial liabilities are classified as financial liabilities recorded at fair value to income when they are held for sale or designated at fair value recorded to income.

A financial liability is classified as held for sale if:

•     it was acquired mostly for repurchase in the short term;

•     it is part of an identified financial instrument portfolio managed jointly by the Group and features a recent pattern of effective short-term profitability; and

•     it is a derivative not designated as an actual hedging instrument.

A financial liability not held for sale may be designated as recorded at fair value to income at initial accrual if:

•     such designation eliminates or significantly reduces inconsistencies in valuation or accrual which would otherwise arise;

•     this financial liability is part of a group of financial assets or liabilities or both, managed and performance-evaluated based on its fair value in accordance with the established risk management or investment strategy of the Group, and when information about the Group is supplied internally on the same basis; or

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

•     this financial asset is part of a contract containing one or more embedded derivatives and IAS 39 - Financial Instruments: Accrual and Valuation allows the combined (assets or liabilities) contract to be fully designated as recorded at fair value to income.

Financial liabilities recorded at fair value to income are presented at fair value, and the respective gains or losses are recorded to income. Net gains or losses recorded to income incorporate interest paid on the financial liabilities. Fair value is determined according to the description contained in Note 36.

2.29.10. Other financial liabilities

Other financial liabilities (including loans) are valued at amortized cost according to the effective interest rate method.

The effective interest rate method is used to calculate the amortized cost of financial liabilities and to allocate their interest expenses over their respective terms. The effective interest rate is the rate that precisely deducts the estimated future cash flows (including fees paid or received that are an integral part of the effective interest rate, transaction costs, and other premiums or discounts) throughout the estimated lifespan of the liability at hand, or, when appropriate, throughout a shorter period, for the initial accrual of the net book value of the liability.

2.29.11. Write-offs of financial liabilities

The Group writes off financial liabilities only when its obligations are eliminated and cancelled or settled. The difference between the book value of the written-off financial liability and the corresponding disbursement made or to be made is recorded to income.

2.29.12. Financial instruments - derivatives

The Company maintains investment funds which operate with derivative financial instruments, with the sole purpose of protecting these funds' portfolios.

2.30     New and revised rules and interpretations which have not been adopted yet

The rules and changes in existing rules shown below have been published and are mandatory for the Group’s fiscal periods starting on January 1, 2011 of thereafter, or for subsequent periods. The Group has not, however, carried out early adoption of these rules and changes.

·         IFRS 9, “Financial instruments”, issued in November 2009. This rule is the first step in the process of replacement of IAS 39 “Financial Instruments: Recognition and Measurement”. IFRS 9 introduces new requirements for the classification, measurement, and write-off of financial assets and liabilities and will likely affect the Group’s recording of financial assets. This rule is not applicable until January 1, 2013, but it may be adopted early.

The Group is yet to evaluate the full impact of IFRS 9. Early indications, however, are that it may affect the Group’s accounting of debt-related financial assets available for sale, since IFRS 9 only allows the accrual of fair value gains and losses in other comprehensive income, if these are related to equity investments which are not kept for sale.

·         IAS 24 (revised), “Related Party Disclosures", issued in November 2009. It replaces IAS 24, “Related Party Disclosures", issued in 2003. The revised IAS 24 is mandatory for periods starting as of January 1, 2011. Early adoption, in whole or in part, is allowed.

The revised rule clarifies and simplifies the definition of related party and eliminates the requirement that entities related to the government disclose details of all transactions with the government and other government-related entities. The Group will apply the revised rule as of January 1, 2011. When it is applied, the Group and the Parent Company will be required to disclose all transactions between its subsidiaries and investees. The Group is currently operating systems which will collect the necessary information. Thus, it is not possible at this time to disclose the impact, if any, of the revised rule on the disclosures of related parties.

·         “Classification of rights issues” (change to IAS 32), issued in October 2009. The change applies to fiscal years starting as of February 1, 2010. Early adoption is allowed. The change addresses the accounting of stock rights denominated in currencies other than the issuer's functional currency. As long as certain conditions are met, these stock rights are now classified as equity,

 

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

regardless of the currency in which its price is denominated. Previously, this stock had to be accounted for as derivative liabilities. The change is applicable retroactively, in compliance with IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”. The Group will apply the revised rule as of January 1, 2011.

·         IFRIC 19, “Extinguishing Financial Liabilities with Equity Instruments”, applicable in fiscal periods started on July 1, 2010 or thereafter. The interpretation clarifies the accounting by an entity when the terms of a financial liability are renegotiated and result in the issue of equity instruments to the creditor in order to settle, in full or in part, the financial liability (debt conversion). This requires a gain or loss to be recorded to income, which is valued by the difference between the book value of the financial liability and the fair value of the equity instruments issued. If the fair value of the issued financial instruments can not be reliably valued, the equity instruments must be valued to reflect the fair value of the settled financial liability. The Group will apply this interpretation as of January 1, 2011. It does not anticipate any impact on the financial statements of the Group or the Parent Company.

 

 

 

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

·         “Prepayments of Minimum Funding Requirements" (amendment to IFRIC 14). These changes correct an unintentional consequence of IFRIC 14, IAS 19 - “The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction”. Without these changes, entities may not recognize as assets certain voluntary prepayments for minimum funding contributions. This was not the intended result when IFRIC 14 was issued, and these changes aim to correct that. They will be applicable in fiscal years starting on January 1, 2011. Early adoption is allowed. Changes must be applied retroactively to the first published comparative period. The Group will apply these changes in the reporting period starting on January 1, 2011.

The rules and changes in existing rules shown in the table below have been published and are mandatory for periods shown:

New interpretations and changes to existing rules

Introduced changes

Applicable in fiscal periods starting as of:

Date of application at Copel

Amendment to IAS 32, "Financial Instruments: Presentation – Disclosure of Stock Rights”

IASB has amended IAS 32 to allow rights, options, or warrants to acquire a fixed number of an entity's own equity instruments by a fixed amount in any currency to be classified as equity instruments, provided the entity offers rights, options, or warrants proportionally to all holders of the same category of non-derivative equity instruments.

Issued in October 2009.

Applicable in fiscal periods starting as of: February 1, 2010.

In the fiscal year starting on January 1, 2011, if applicable.

IFRIC 19 – “Extinguishing Financial Liabilities with Equity Instruments”

Clarifies the IFRS requirements when an entity renegotiates the terms of a financial liability with its creditor, who agrees to accept stock or other equity instruments to settle the financial liability in part or in full.

Issued in November 2009.

Applicable in fiscal periods starting as of: July 1, 2010

In the fiscal year starting on January 1, 2011, if applicable.

Amendment to IFRS 1 – “First-Time Adoption of IFRS – Limited Exemption from Comparative IFRS 7 Disclosures to Entities Adopting IFRS for the First Time”

Offers the entities that are adopting the IFRSs for the first time the same options given to current IFRS users when adopting the changes to IFRS 7. It also clarifies the transition rules for the changes to IFRS 7.

Issued on July 1, 2010.

Applicable in fiscal periods starting as of: January 1, 2011

In the fiscal year starting on January 1, 2011, if applicable.

IAS 24 - “Related Party Disclosures” (revised in 2009)

Changes the definition of related party and changes certain related-party disclosure requirements for entities related to the government.

Issued in November 2009.

Applicable in fiscal periods starting as of: January 1, 2011

In the fiscal year starting on January 1, 2011, if applicable.

Amendment to IFRIC 14

Eliminates unintentional consequences of the treatment of prepayments, where there are minimum funding requirements. The balances of prepayments of contributions in certain circumstances are recognized as assets instead of expenses.

Issued in November 2009.

Applicable in fiscal periods starting as of: January 1, 2011

In the fiscal year starting on January 1, 2011, if applicable.


 

IAS 19 – “The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction"

 

 

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

New interpretations and changes to existing rules

Introduced changes

Applicable in fiscal periods starting as of:

Date of application at Copel

IFRS 9 “Financial Instruments”

IFRS 9 is the first standard issued as part of a larger project to replace IAS 39. IFRS 9 retains, but rather simplifies, the measurement model and establishes two main categories of measurement of financial assets:  amortized cost and fair value. The classification basis depends on the entity’s business model and on the contractual characteristics of the cash flows of the financial assets. The guideline included in IAS 39 on impairment of financial assets and hedge accounting remains in effect.

Issued in November 2009.

Applicable in fiscal periods starting as of: January 1, 2013.

In the fiscal year starting on January 1, 2013, if applicable.


 

The prior years amounts do not have to be restated whether an entity adopts the new rules for the periods started or to be started before January 1, 2012.

Improvements to the IFRSs in 2010

The amendments shown in the table below are generally applicable to fiscal years starting as of January 1, 2011, unless otherwise indicated. Early adoption, although allowed by the IASB, is not available in Brazil.

New interpretations and changes to existing rules

Introduced changes

Applicability

IFRS 1 – “First-Time Adoption of IFRS”

(a) Changes in accounting policy in the year of adoption

Applied prospectively.

Clarifies that if a company which adopts the IFRS for the first time changes its accounting policies or its use of exemptions under IFRS 1 after having published an interim financial report according to IAS 34, "Interim Financial Reporting", then it must explain these changes and update the reconciliations between the prior GAAP and the IFRS.

 

(b) Basis for revaluation as deemed cost

Allows first-time adopters of the IFRS to use the fair value determined by a specific event as deemed cost, even if the event takes place after the transition date, but before the publication of the first IFRS-compliant financial statements. When this revaluation takes place after the transition date, but during a period covered by the entity's first IFRS-compliant financial statements, any subsequent adjustments to the fair value determined by an event shall be recorded to equity. This event may be, for instance, a privatization or acquisition.

Entities which have adopted the IFRS in previous periods may apply this change retroactively in the first fiscal year after the change becomes applicable, provided the valuation date is within the period of the first IFRS-compliant financial statements.

(c) Use of estimated cost for operations subject to regulated prices (such as public service utilities)

Applied prospectively.

Entities subject to regulated tariffs may use previous accounting figures, based on the previous GAAP, for property, plant, and equipment or intangible assets as deemed cost on a per item basis. Entities which use this exemption are required to test each item for impairment pursuant to IAS 36 on the transition date.

 

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

3          

New interpretations and changes to existing rules

Introduced changes

Applicability

IFRS 3 – “Business Combinations”

(a) Transition requirements for contingent consideration based on a business combination which took place before the revised IFRS became applicable.

Applicable in fiscal years starting as of July 1, 2010. Applied retroactively.

Clarifies that changes to IFRS 7 – “Financial Instruments: Disclosures”, IAS 32 – “Financial Instruments: Presentation”, and IAS 39 – “Financial Instruments: Recognition and Measurement”, which eliminate the exemption of contingent consideration, do not apply to contingent considerations arising from business combinations whose acquisition dates precede the application of IFRS 3 (as amended in 2008).

 

(b) Valuation of non-controlling interests

The choice to value non-controlling interests at fair value or at the proportionate share of the acquiree's net assets only applies to instruments which represent the current stockholding position and entitle their bearers a proportionate share of the net assets in case of liquidation. All other non-controlling interest components are measured at fair value, unless otherwise required by the IFRS.

Applicable to fiscal years starting as of July 1, 2010. Applied prospectively, as of the date the entity starts to apply IFRS 3.

Applicable in fiscal years starting as of July 1, 2010. Applied prospectively.

(c) Share-based payments which have not been exchanged or voluntarily exchanged

 

The guideline for application of IFRS 3 applies to all share-based payment transactions which are part of a business combination, including share-based payments which have not been exchanged or voluntarily exchanged.

 

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

New interpretations and changes to existing rules

Introduced changes

Applicability

IFRS 7 – “Financial Instruments”

Emphasizes the interaction between quantitative and qualitative disclosures about the nature and the extent of risks associated with financial instruments.

January 1, 2011

Applied retroactively.

IAS 1 – “Presentation of Financial Statements"

Clarifies that entities shall present an analysis of other comprehensive income for each component of equity, in the statement of changes in shareholders’ equity or in the notes to the financial statements.

January 1, 2011

Applied retroactively.

IAS 27 – “Consolidated and Separate Financial Statements”

Clarifies that the changes made as of IAS 27 to IAS 21 – “The Effect of Changes in Foreign Exchange Rates”, IAS 28 – “Investments in Associates”, and IAS 31 – “Interests in Joint Ventures” are prospectively applicable to fiscal years starting as of July 1, 2009, or before then, when IAS 27(R) was adopted early.

Applicable in fiscal years starting as of July 1, 2010. Applied retroactively.

IAS 34 – “Interim Financial Reporting"

Offers guidelines to illustrate how to apply the disclosure principles of IAS 34 and adds disclosure requirements about:

January 1, 2011

. circumstances which are likely to affect the fair value of financial instruments and their classification;

Applied retroactively.

. transfers of financial instruments between different levels of fair value ranking;

 

. changes in the classification of financial assets; and

 

. changes in contingent assets and liabilities.

 

IFRIC 13 – “Customer Loyalty Programmes”

The meaning of “fair value" is clarified in the context of measurement of credits in customer loyalty programmes.

January 1, 2011

 

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated         

 

3 Main Accounting Judgments and Estimates

In the application of the Group’s accounting policies described in Note 2 herein, Company management must make judgments and prepare estimates concerning the book values of assets and liabilities which may not be easily obtained from other sources. Estimates and the respective assumptions are based on historical experience and in other factors deemed material. Actual results may differ from these estimates.

Estimates and underlying assumptions are continuously reviewed. The effects resulting from reviewed accounting estimates are recognized in the period when these estimates are reviewed, if the review only affects this period, or also in subsequent periods if the review affects both the current period as well as future periods.

 

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

 

3.1 Main judgments in the application of accounting policies

Below are the main judgments, except those involving estimates (see Note 3.2), made by Company management during the process of application of the Group’s accounting policies and which most significantly affect the amounts recognized in the Company’s financial statements.

3.1.1. Financial assets held to maturity

Management has reviewed the Group’s financial assets in conformity with capital maintenance and liquidity requirements and has confirmed the Group’s intent and ability to hold these assets until maturity. The book value of the financial assets held to maturity is R$68,647 as of December 31, 2010 (R$120,867 as of December 31, 2009). These assets are described in detail in Note 6.

3.2       Main sources of uncertainty in estimates

Below are the main assumptions about the future and other main sources of uncertainty in estimates at the end of each reporting period, which may lead to significant adjustments in the book value of assets and liabilities in the next fiscal year.

3.2.1. Useful life of property, plant, and equipment

As shown in Note 2.22 – Property, Plant, and Equipment, the Group reviews the estimated useful lives of its assets under property, plant, and equipment at the end of each reporting period. During the current period, the Company has reviewed the useful life expectancy and confirmed the understanding that the use by the Company of the depreciation rates set by ANEEL is consistent with the useful lives of its assets. The review of the useful life expectancy of telecommunications assets has not resulted in significant changes.

3.2.2. Valuation of financial instruments

As described in Note 36 on financial instruments, the Group employs valuation techniques which include information not based on observable market data to estimate the fair value of certain kinds of financial instruments. This note features detailed information about the main assumptions used in the assessment of the fair value of financial instruments, as well as a sensitivity analysis of these assumptions.

Company management believes the chosen valuation techniques and the employed assumptions are adequate to determine the fair value of its financial instruments.

3.2.3. Unbilled revenues

Unbilled revenues correspond to revenues from sales of energy to final customers which have been delivered but not yet billed and to revenues from the use of the distribution grid not yet billed, both or which are calculated based on estimates covering the period from the meter reading day to the last day of the month.

3.2.4. Useful lives of intangible assets (finite useful life)

As shown in Note 2.24 – Intangible Assets, the Group reviews the estimated useful lives of its intangible assets at the end of each reporting period. During the current period, the Company has reviewed the useful life expectancy of its intangible assets, and no changes were made.

3.3       Power purchase and sale transactions in Spot Market (Electric Energy trading Chamberor CCEE)

Power purchase and sale transactions in CCEE are recorded on the accrual basis according to the information disclosed by the Trading Chamber or to estimates prepared by Copel’s senior management, when this information is not available in time.

The amount recognized as a provision is the best estimate of the considerations required to settle the liabilities at the end of each reporting period, taking into account the risks and uncertainties inherent to such liabilities. When this provision is measured based on the estimated cash flows required to settle the liability, its book value corresponds to the present value of these cash flows.

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

4

Effects of the first-time adoption of the IFRS

4.1       Effects of the first-time adoption of the IFRSs on the consolidated financial statements

4.1.1. Application of the IFRSs

The Company’s consolidated financial statements for the fiscal year ended on December 31, 2010 are the first statements to be presented in compliance with the IFRSs. The Company has applied the accounting policies discussed in Note 2 to all featured periods, including the balance sheet on the transition date, which has been set as January 1, 2009. In the measurement of adjustments to the opening balances and in the preparation of the balance sheet as of the transition date, the Company has applied the mandatory exemptions and certain optional exemptions from retrospective application contained in IFRS 1 and - First-Time Adoption of International Accounting Rules, as shown in the following notes.

4.1.1.1      Exemptions from full retrospective application – chosen by the Company

The Company has chosen to apply the following exemptions from retrospective application:

(a)  Business combination exemption

The Company has applied the business combination exemption described in IFRS 1 and, thus, has not restated the business combinations which took place before January 1, 2009, the transition date.

(b)  Fair value as deemed cost exemption

The Company has chosen to measure certain items of property, plant, and equipment at fair value as of January 1, 2009. The application of this exemption is detailed in Note 4.2.8.

(c)  Employee benefit exemption

The Company has chosen to recognize all past actuarial gains and losses cumulatively as of January 1, 2009. The application of this exemption is detailed in Note 4.2.6.

(d)  Loan cost exemption.

The Company has applied the exemption regarding borrowing costs set forth under IFRS 1 and IAS 23 and thus has not capitalized interest to eligible assets before January 1, 2009, the transition date.

The remaining optional exemptions do not apply to the Company, as shown below:

§   share-based payment and accounting of commercial leases the IFRSs had already been compatible as of 2009 regarding these transactions;

§         accumulated exchange differences, since the Company does not hold interests in foreign subsidiaries;

§    insurance contracts, since the Company does not have any such operations; assets and liabilities of subsidiaries, investees, and joint ventures, since only the Parent Company’s individual financial statements and the Company’s consolidated statements have been prepared;

§         compound financial instruments, since the Company did not have any outstanding balances in connection with this kind of instrument as of the transition date;

§         refurbishment liabilities included in the cost of land, buildings, and equipment, since the Company does not hold any liabilities of this kind.

4.1.1.2      Exceptions from retrospective application observed by the Company

The estimates used in the preparation of these financial statements as of January 1, 2009 and December 31, 2009 are consistent with the estimates made on the same dates in compliance with the previous Brazilian GAAP .

All other mandatory exceptions do not apply to the Company:

§       Hedge accounting

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Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

§  Reversal of financial assets and liabilities

§  Participation of non-controlling holders

4.1.2. Reconciliations with the previous accounting practices

Effects of adoption of the IFRSs on the consolidated statement of financial position

 

      First-time Adoption of 
IFRS
    First-time Adoption of
IFRS
 
 
    Previous        Previous       
ASSETS  Item   BR GAAP Reclassif.    Adjusments  IFRSs   BR GAAP Reclassif.    Adjusments  IFRSs 
    01.01.2009      01.01.2009  12.31.2009      12.31.2009 
CURRENT ASSETS                   
Cash and cash equivalents  4.2.9  1,813,576  (164,095)  -  1,649,481  1,696,152  (177,629)  -  1,518,523 
Bonds and securities/Collaterals and escrow accounts 4.2.9  150,796  164,105  -  314,901  192,660  177,630  -  370,290 
Customers and distributors  4.2.1  984,572  -  (2,730)  981,842  1,072,558  -  (572)  1,071,986 
Dividends receivable    5,247  -  -  5,247  5,135  -  -  5,135 
CRC transferred to the State Government    47,133  -  -  47,133  49,549  -  -  49,549 
Accounts receivable related to concession  4.2.3  -  -  27,685  27,685  -  -  44,070  44,070 
Other receivables  4.2.1  104,048  -  1,002  105,050  124,097  -  8,905  133,002 
Inventories  4.2.3  64,260  -  19,287  83,547  94,190  -  17,912  112,102 
Taxes and social contribution  4.2.7/8  189,135  11,409  -  200,544  279,241  (6,534)  (2,149)  270,558 
Other prepaid current taxes    28,021  -  -  28,021  31,933  -  -  31,933 
Deferred income tax and social contribution  4.2.9  40,183  (40,183)  -  -  41,238  (41,238)  -  - 
Prepaid expenses    3,573  -  -  3,573  4,966  -  -  4,966 
Deferred regulatory assets - CVA  4.2.1  111,098  -  (111,098)  -  218,500  -  (218,500)  - 
Other regulatory assets  4.2.1  31,511  -  (31,511)  -  17,526  -  (17,526)  - 
                   
    3,573,153  (28,764)  (97,365)  3,447,024  3,827,745  (47,771)  (167,860)  3,612,114 
NONCURRENT ASSETS                   
Noncurrent receivables                   
Financial investments    106,931  -  -  106,931  64,298  -  -  64,298 
Customers and distributors  4.2.1  85,141  -  (95)  85,046  52,388  -  (456)  51,932 
CRC transferred to State Government    1,272,770  -  -  1,272,770  1,205,025  -  -  1,205,025 
Judicial deposits  4.2.9  113,497  60,017  -  173,514  73,436  85,567  9  159,012 
Accounts receivable related to concession  4.2.3  -  -  1,460,462  1,460,462  -  -  1,828,220  1,828,220 
Other receivables    12,214  -  -  12,214  16,949  -  -  16,949 
Prepaid current taxes    62,468  -  -  62,468  83,957  -  -  83,957 
Deferred income tax and social contribution  4.2.7/9  400,141  40,183  (41,451)  398,873  355,021  41,238  1,623  397,882 
Deferred regulatory assets - CVA  4.2.1  53,494  -  (53,494)  -  98,963  -  (98,963)  - 
Other regulatory assets  4.2.1  11,085  -  (11,085)  -  -  -  -  - 
    2,117,741  100,200  1,354,337  3,572,278  1,950,037  126,805  1,730,433  3,807,275 
                   
Investments  4.2.9  395,938  -  10,817  406,755  395,565  -  10,088  405,653 
Property, plant, and equipment, net  4.2.3/8  7,048,675  -  (276,580)  6,772,095  7,528,432  -  (868,784)  6,659,648 
Intangible assets  4.2.3  118,119  -  1,617,570  1,735,689  131,717  -  1,696,496  1,828,213 
                   
    9,680,473  100,200  2,706,144  12,486,817  10,005,751  126,805  2,568,233  12,700,789 
                   
TOTAL ASSETS    13,253,626  71,436  2,608,779  15,933,841  13,833,496  79,034  2,400,373  16,312,903 

 

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

 

      First-time Adoption of
IFRS
 
    First-time Adoption of 
IFRS 
 
 LIABILITIES  Item   Previous 
BR GAAP
 Reclassif.   Adjusments  IFRSs Previous
 BR GAAP
 Reclassif.  Adjusments  IFRSs
    01.01.2009      01.01.2009  12.31.2009      12.31.2009 
CURRENT LIABILITIES                   
Payroll, social charges and accruals    159,388  -  -  159,388  206,957  -  -  206,957 
Suppliers    497,832  -  -  497,832  543,529  -  -  543,529 
Income tax and social contribution  4.2.7  115,476  18,787    134,263  123,486  -  1,019  124,505 
Other tax liabilities  4.2.9  242,966  (7,378)    235,588  332,524  (6,534)  -  325,990 
Deferred income tax and social contribution  4.2.9  48,630  (48,630)  -  -  80,443  -  (80,443)  - 
Loans and financing    98,461  -  -  98,461  81,698  -  -  81,698 
Debentures    195,000  -  -  195,000  54,195  -  -  54,195 
Dividends payable  4.2.9  245,166  -  (1,514)  243,652  90,806  -  -  90,806 
Post-employment benefits  4.2.6  22,066  -  (722)  21,344  22,505  -  -  22,505 
Regulatory charges    43,123  -  -  43,123  29,523  -  -  29,523 
R&D and Energy Efficiency    126,484  -  -  126,484  121,005  -  -  121,005 
Accounts payable related to concession - use of public property  4.2.3  38,649  -  (483)  38,166  36,576  -  1,453  38,029 
Other accounts payable  4.2.9  75,734  10  -  75,744  84,580  1  -  84,581 
Other regulatory liabilities  4.2.1  26,192  -  (26,192)  -  8,315  -  (8,315)  - 
Deferred regulatory liabilities - CVA  4.2.1  28,327  -  (28,327)  -  25,020  -  (25,020)  - 
                   
    1,963,494  (37,211)  (57,238)  1,869,045  1,841,162  (6,533)  (111,306)  1,723,323 
NONCURRENT LIABILITIES                   
Suppliers    214,157  -  -  214,157  175,796  -  -  175,796 
Tax liabilities    618  -  -  618  131,650  -  -  131,650 
Deferred income tax and social contribution  4.2.7/9  28,910  48,630  857,482  935,022  42,756  -  858,328  901,084 
Loans and financing    769,056  -  -  769,056  784,144  -  -  784,144 
Debentures    802,116  -  -  802,116  753,384  -  -  753,384 
Post-employment benefits  4.2.6  425,879  -  (94,714)  331,165  352,976  -  -  352,976 
R&D and Energy Efficiency    72,079  -  -  72,079  90,493  -  -  90,493 
Accounts payable related to concession - use of public property  4.2.3  -  -  319,433  319,433  -  -  312,626  312,626 
Deferred revenues  4.2.5  74,994  -  (74,994)  -  74,994  -  (74,994)  - 
Other accounts payable    6,674  -  -  6,674  2,953  -  -  2,953 
Reserve for risks  4.2.8  593,365  60,017  -  653,382  474,544  85,567    560,111 
Deferred regulatory liabilities - CVA  4.2.1  2,373  -  (2,373)  -  25,020  -  (25,020)  - 
Other regulatory liabilities  4.2.1  7,257  -  (7,257)  -  26  -  (26)  - 
                   
    2,997,478  108,647  997,577  4,103,702  2,908,736  85,567  1,070,914  4,065,217 
NON-CONTROLLING SHAREHOLDERS'                   
INTERESTS  4.2.9  239,567  (239,567)  -  -  253,537  (253,537)  -  - 
                   
EQUITY                   
Attributable to the Parent Company shareholders                   
Share capital    4,460,000  -  -  4,460,000  4,460,000  -  -  4,460,000 
Capital reserves    838,340  -  -  838,340  838,340  -  -  838,340 
Equity valuation adjustments  4.2.3/8  -  -  1,750,069  1,750,069  -  -  1,660,634  1,660,634 
Legal reserve    377,590  -  -  377,590  428,912  -  -  428,912 
Retained earnings    2,377,157  -  (60,939)  2,316,218  3,102,809  -  (194,697)  2,908,112 
    8,053,087  -  1,689,130  9,742,217  8,830,061  -  1,465,937  10,295,998 
                   
Attributable to non-controlling shareholders  4.2.9  -  239,567  (20,690)  218,877  -  253,537  (25,172)  228,365 
                   
    8,053,087  239,567  1,668,440  9,961,094  8,830,061  253,537  1,440,765  10,524,363 
                   
TOTAL LIABILITIES AND EQUITY    13,253,626  71,436  2,608,779  15,933,841  13,833,496  79,034  2,400,373  16,312,903 

 

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

Reconciliation of the consolidated equity

 

       
EQUITY  Item  01.01.2009  12.31.2009 
Total equity under the previous BR GAAP    8,053,087  8,830,061 
Non-controlling interests    239,567  253,537 
Revaluation of property, plant, and equipment  4.2.8  2,647,925  2,473,116 
Recognition of concession contracts - transmission  4.2.3  3,166  75,850 
Recognition of concession contracts - distribution  4.2.3  (37,670)  (35,824) 
Onerous concession contracts - use of public property (UBP)  4.2.3  (72,129)  (79,423) 
Write-off of regulatory assets and liabilities  4.2.1  (145,864)  (277,635) 
Post-employment benefits  4.2.6  95,436  - 
Reversal of negative goodwill  4.2.5  74,994  74,994 
Additional proposed dividends  4.2.9  1,514  - 
Capitalization of loan costs  4.2.2  -  13,516 
Other transition effects    -  (24,398) 
Tax effects on adjustments  4.2.7  (898,932)  (779,431) 
Total adjustments to equity    1,668,440  1,440,765 
TOTAL EQUITY UNDER THE IFRSs    9,961,094  10,524,363 

 

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

Effects of the adoption of the IFRSs on the consolidated statement of operations

 

CONTINUOUS OPERATIONS  Item   Previous BR GAAP  Effect of transition to IFRSs  IFRSs 
    12.31.2009    12.31.2009 
OPERATING REVENUES         
Electricity sales to final customers  4.2.1  2,066,448  (6,894)  2,059,554 
Electricity sales to distributors    1,209,157  -  1,209,157 
Use of main distribution and transmission grid  4.2.1  1,944,017  31,100  1,975,117 
Construction revenue and margin  4.2.4  -  601,880  601,880 
Telecommunications    80,262  -  80,262 
Distribution of piped gas    205,158  -  205,158 
Other operating revenues  4.2.1  112,269  6,743  119,012 
    5,617,311  632,829  6,250,140 
Cost of sales and services provided         
Electricity purchased for resale  4.2.1  (1,681,876)  (134,972)  (1,816,848) 
Use of main distribution and transmission grid  4.2.1  (609,649)  56,475  (553,174) 
Personnel and Management    (630,037)  (880)  (630,917) 
Pension and healthcare plans  4.2.6  (13,479)  (71,764)  (85,243) 
Materials and supplies    (58,390)  (603)  (58,993) 
Raw materials and supplies for power generation    (21,231)  -  (21,231) 
Natural gas and supplies for the gas business    (135,353)  6,437  (128,916) 
Third-party services    (228,536)  (43)  (228,579) 
Depreciation and amortization  4.2.3/8  (363,597)  (145,633)  (509,230) 
Construction costs  4.2.4  -  (601,614)  (601,614) 
Other costs  4.2.3  (23,962)  29,923  5,961 
    (3,766,110)  (862,674)  (4,628,784) 
GROSS PROFIT    1,851,201  (229,845)  1,621,356 
Other Operating Revenues (Expenses)         
Sales expenses  4.2.3/6/8  (45,566)  (8,715)  (54,281) 
General and administrative expenses  4.2.3/6/8  (388,226)  (46,467)  (434,693) 
Other revenues (expenses), net  4.2.3/6/8  (70,132)  (19,115)  (89,247) 
Result of equity in subsidiaries and investees    14,327  -  14,327 
    (489,597)  (74,297)  (563,894) 
         
RESULT OF OPERATIONS    1,361,604  (304,142)  1,057,462 
         
Interest income (losses)         
Interest revenues  4.2.1/3  365,918  (28,522)  337,396 
Interest expenses  4.2.1/2/3  (300,294)  (30,367)  (330,661) 
    65,624  (58,889)  6,735 
OPERATING INCOME    1,427,228  (363,031)  1,064,197 
INCOME TAX AND SOCIAL CONTRIBUTION         
Income tax and social contribution  4.2.7  (287,602)  (3,168)  (290,770) 
Deferred income tax and social contribution  4.2.7  (89,724)  128,575  38,851 
    (377,326)  125,407  (251,919) 
NET INCOME FOR THE PERIOD    1,049,902  (237,624)  812,278 
Attributed to Parent Company shareholders    1,026,433  (234,657)  791,776 
Attributed to non-controlling shareholders  4.2.9  23,469  (2,967)  20,502 

 

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

Reconciliation of the consolidated income

 

CONSOLIDATED INCOME  Item  Operating income  Net income for
 the period 
      12.31.2009 
Net income under the previous BR GAAP    1,427,228  1,049,902 
Depreciation of property,plant, & equipment (deemed cost)  4.2.8  (174,809)  (174,808) 
Recognition of concession contracts - transmission  4.2.3  72,684  72,684 
Recognition of concession contracts - distribution  4.2.3  (15,523)  (15,523) 
Onerous concession contracts - use of public property (UBP)  4.2.3  (7,294)  (7,294) 
Capitalization of borrowing costs  4.2.2  13,516  13,516 
Write-off of regulatory assets and liabilities  4.2.1  (131,771)  (131,771) 
Post-employment benefits  4.2.6  (95,436)  (95,436) 
Other transition effects    (24,398)  (24,398) 
Tax effects on adjustments  4.2.7  -  125,406 
Total adjustments to income    (363,031)  (237,624) 
NET INCOME FOR THE PERIOD UNDER THE IFRSs    1,064,197  812,278 

 

Effects of the adoption of the IFRSs on the consolidated statement of cash flows

 

    Effect of   
  Previous  transition   
STATEMENT OF CASH FLOWS  BR GAAP  to the IFRSs  IFRSs 
      12.31.2009 
Cash flows from operating activities  1,289,718  (48,554)  1,241,164 
Cash flows from investing activities  (911,726)  34,823  (876,903) 
Cash flows from financing activities  (495,416)  197  (495,219) 

 

4.2       Effects of the changes in accounting practices due to adoption of the IFRS framework on the consolidated financial statements

4.2.1. Conceptual structure for the preparation and presentation of financial statements

Companies must prepare their financial statements in accordance the IFRS framework, which establishes the bases for the recognition of assets, liabilities, revenues, and expenses, among other concepts. The differences between estimated amounts included in the calculation of electricity tariffs and those effectively recorded by the Company, recognized before the application of the IFRS framework as regulatory assets and liabilities, are not recognized in the balance sheet according to this pronouncement, since they do not meet the definition of assets and/or liabilities.

Thus, the balances of regulatory assets and liabilities accrued before the date of first-time adoption of the IFRS have been recorded against accrued earnings and income for the current fiscal period, on the accrual basis.

4.2.2. Borrowing costs IAS 23

The accounting practice adopted by the Company has been changed to reflect the requirement of capitalization of borrowing costs attributable to the acquisition, construction, or production of assets and eligible to be deemed part of the cost of said assets.

The amount of borrowing costs eligible for capitalization has been defined by the Company by applying the weighted average rate on the expenses with intangible assets and property, plant, and equipment in progress.

The Company has adopted this practice for accounting periods starting as of January 1, 2009.

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

4.2.3. Concession Contracts (IFRIC 12 and SIC 29)

These rules provide guidelines to concession holders about how to account for public service concessions to private entities and sets forth the general principles of revenue recognition and measurement of liabilities and rights related to service concession contracts.

On account of the adoption of this interpretation and of the right, under the electric energy public service concession contracts, to charge for the use of the concession infrastructure, the Company has recognized the following:

Distribution business: (i) an intangible asset which corresponds to the right to access to property that makes up the required infrastructure for carrying out the public services, and (ii) a financial asset corresponding to the remaining balance of infrastructure (residual value of physical infrastructure) at the end of the concession to be received directly from the granting authority, as compensation for investments made by the Company in infrastructure and not yet amortized. According to the concession contracts, this financial asset represents an unconditional right to reimbursement in cash or other financial asset directly from the granting authority.

Transmission business: a financial asset that corresponds to the construction, operation, and maintenance revenues under the concession contract which have been earned by making the constructed or acquired infrastructure available to users, with no demand risk and guaranteed by the Brazilian regulations, and that is considered an unconditional right to pre-determined cash flows under the concession contracts.

The intangible asset that is recognized as consideration for construction services is measured at fair value at the time of initial recognition. After initial recognition, the intangible asset is measured at cost, which includes the costs of capitalized loans minus accumulated amortization.

Under power distribution concession contracts, the financial asset is classified as a financial instrument available for sale, based on the assumption that the value of the reimbursement upon expiration of the concession contract will be calculated by the granting authority by taking into account the replacement cost of PPE named Regulatory Compensation Basis (Base de Remuneração Regulatória or BRR), defined by the granting authority. The BRR’s methodology is based on the replacement cost of the assets that make up the power distribution infrastructure related to the concession. The cash flows related to these assets are determined taking into account the replacement cost of PPE. BRR is reviewed every four years taking into account several factors. Its main goal is to reflect the variation in the prices of physical assets, including write-offs, depreciations, and additions of assets to the concession infrastructure (physical assets) associated with the financial asset.

The return on these financial assets is based on the regulatory WACC approved by ANEEL in the periodic rate review process every four years, whose amount is included in the composition of the revenues from tariffs charged to customers and collected monthly.

In the periods between periodic rate reviews, the balance of these financial assets is adjusted according to the expectation by Company management of variations in cash flows resulting from changes in the assets making up the infrastructure (physical assets). These variations in the estimated cash flows are recorded directly to income for the corresponding period.

Since there is not an active market for these financial assets, the variations in the fair value of the financial asset balance due to the perception of market participants regarding the difference between the regulatory rate of return and the market rates is adjusted periodically based on a methodology established by Company management, and this adjustment, when applicable, is recorded directly in the accumulated other comprehensive income account, under equity.

Given that the financial asset yields the annual 9.95% regulatory WACC and that this return is recognized as revenues for the monthly billing of customer tariffs, it is already valued at present value.

Under power transmission concession contracts, the financial asset is classified as “loans and receivables”, measured at first at fair value and subsequently at amortized cost, according to the effective interest rate method.

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

Furthermore, according to SIC 29, under concession contracts for use of public property (onerous concessions) where the concession holder’s right and the corresponding liability are deemed to arise simultaneously upon signature of the contract, particularly for the employment of water resources for power generation, the intangible asset is initially (upon term of acceptance) measured at cost.

In the case of concessions with fixed payments to the granting authority, the cost corresponding to the amounts already disbursed and to be disbursed in the future must be recognized at present value. Thus, payments for the use of public property which had been recorded as expenses when settled have been measured initially at their present value on the start date of the concession and recorded against intangible assets, which are amortized over the term of the concession. The corresponding liability is restated according to the respective financial charges incurred as of the date of presentation of the financial statements.

4.2.4. Construction contracts (IAS 11)

This pronouncement establishes the accounting treatment for revenues and expenses related to construction contracts and uses the recognition criteria set forth in IFRS framework for the Preparation and Presentation of Financial Statements to determine the time when contract revenues and the costs related to them must be recognized in the statement of operations.

In order to comply with this technical pronouncement, the Company has recorded revenues and costs related to construction services. The construction margin adopted was close to zero for the distribution business, given that the Company outsources the construction of infrastructure to non-related parties. The construction margin for the transmission business in 2010, however, was 1.65% (1.80% in 2009) and results from a calculation methodology which takes into account the respective business risk.

4.2.5. Reversal of negative goodwill on the acquisition of interests in subsidiaries

According to IFRS 3, when the amount paid in an acquisition is lower than the book value of the net assets and liabilities acquired pursuant to the previous BR GAAP, the Company recorded a negative goodwill in the balance sheet and to amortized it over a reasonable estimated term. According to the IFRSs, the difference between the amount paid and the fair value of the net assets and liabilities acquired must be recorded to income. On January 1, 2009, the Company reversed a negative goodwill balance that had been recorded under Deferred Revenues in the amount of R$74,994 to retained earnings. The equity as of January 1, 2009 and December 31, 2009 were increased accordingly.

4.2.6. Employee benefits

The Company has chosen to apply the employee benefits exemption of IFRS 1. Thus, the net cumulative actuarial gains, in the amount of R$868,065, have been fully amortized. Given the asset ceiling rule in IAS 19, the liability of R$95,436 recorded under retirement liabilities pursuant to the old BR GAAP was offset against accrued earnings as of January 1, 2009. Also given the asset ceiling rule, the pension plan surplus of R$772,629 was not recognized on the transition date because it was not available to the Company. From this date onwards, the Company has been offsetting actuarial losses against the unrecognized surplus. Should the surplus be drained by actuarial losses in the future, the Company will then follow the corridor approach, i.e., actuarial gains and losses will only be recorded to the extent they exceed 10% of the plan assets or 10% of the accumulated projected employee benefits liabilities.

4.2.7. Income tax and social contribution: the deferred taxes

The changes in accounting practices resulting from the first-time adoption to IFRS have had tax effects, which have been neutralized by the application of the the Transitional Tax Regime (Regime Tributário de Transição or RTT) set forth under Law no. 11,941, dated May 27, 2009. This neutrality has generated deferred income tax and social contribution balances.

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

4.2. 8. Deemed cost

The Company has chosen to adopt the deemed cost for the assets related to the power generation business of Copel Geração e Transmissão, adjusting the opening balances as of the transition date, January 1, 2009, according to their fair values, estimated by internal experts (engineers) with professional experience, objectivity, and technical knowledge of the evaluated assets. The evaluation was conducted per cash generating unit taking into consideration the use of the assets, the technological changes made and in progress, the economic environment where they operate, and the planning and other business peculiarities of the Company. The evaluation reports prepared by the experts on February 15, 2011 have been approved by the Board of Officers and the Board of Directors of the Group. Furthermore, a review of the estimated economic useful lives and the residual values of the assets has also been conducted. The increase in depreciation expenses which have been recalculated on account of the application of deemed cost resulted in R$156,453 in 2010 and R$155,058 in 2009.

Internal studies by the Group have shown that the balances as of January 1, 2009 of assets related to the telecommunications business were compatible with their fair values, as: i) there is no strong evidence that there are differences between the fair value, minus depreciation accrued in that fiscal year, and the fair value measured at the beginning of the fiscal year on January 1, 2009, and ii) the result of the impairment tests on these assets show that their book value is fully recoverable over their useful lives. The useful lives of these assets were reviewed as of January 1, 2010, and the main changes to the depreciation rates are described in Note 17.5. The same methodology was applied to the following subsidiaries: UEG Araucária Ltda, Elejor, and Centrais Eólicas.

Copel Geração e Transmissão’s property, plant, and equipment as of January 1, 2009 was increased by R$2,640,753, and jointly controlled subsidiary Dominó Holding’s property, plant, and equipment was increased by R$7,172, net of taxes. Deferred income tax and social contribution liabilities were increased by R$897,856 on account of the adoption of deemed cost by Copel Geração e Transmissão.

A breakdown of Copel Geração e Transmissão's power generation assets by category is shown below:

 

Previous BR GAAP  Deemed cost  IFRS 
Cost       
Machinery and equipment  1,291,931  1,825,501  3,117,432 
Reservoirs, dams, and w ater mains  2,668,134  4,128,844  6,796,978 
Buildings  442,892  858,989  1,301,881 
Land  91,727  83,467  175,194 
Vehicles  17,575  7,184  24,759 
Furniture and implements  3,345  2,618  5,963 
  4,515,604  6,906,603  11,422,207 
Accumulated depreciation       
Machinery and equipment  (517,723)  (969,722)  (1,487,445) 
Reservoirs, dams, and headrace channels  (1,046,460)  (2,681,944)  (3,728,529) 
Buildings  (229,501)  (605,512)  (835,013) 
Vehicles  (13,124)  (6,681)  (19,805) 
Furniture and implements  (2,319)  (1,991)  (4,310) 
  (1,809,127)  (4,265,850)  (6,075,102) 
Property, plant, and equipment in service, net  2,706,477  2,640,753  5,347,105 

Company management has estimated that the effects of the adoption of deemed cost on the depreciation expenses in future years will be close to those recorded in 2009 and 2010.

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

4.2.9. Reclassifications

In compliance with the new accounting pronouncements, the Company has made the following reclassifications in its financial statements.

·         Escrow deposits related to provision for risks and previously recorded as a reduction of the corresponding provisions have been reclassified to noncurrent assets (IAS 1);

·         Deferred taxes previously presented under current assets have been reclassified to noncurrent assets (IAS 1);

·         Exclusive funds previously presented under cash and cash equivalents have been reclassified to bonds and securities (IAS 27);

·         Dividends declared beyond the mandatory minimum, after the date of the financial statements but before authorization for their issue was given, were recognized as liabilities. In compliance with the new accounting practices, these dividends remain recorded under equity;

·         Non-controlling interests which were presented as noncurrent liabilities are now presented under equity, according to the new accounting practices. In the statement of operations, they were presented before income for the period, and now they are included in the Group’s consolidated results (IAS 1).

·         Reclassification of offsetting between tax assets and liabilities (IAS 1).

 

5 Cash and Cash Equivalents

5          

       
  12.31.2010 12.31.2009 01.01.2009
Cash and banks  58,958 79,615 88,161
Financial investments w ith immediate liquidity  1,735,458 1,438,908 1,561,320
  1,794,416 1,518,523 1,649,481

Financial investments with immediate liquidity are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value. These financial investments comprise: Certificates of Deposit (CDs); transactions with repurchase commitments - the issuer (Bank) is committed to buying a security back, and the buyer is committed to selling it; and quotas in investment funds which hold government issued securities. These investments have yielded on average 100% of the variation of the Interbank Deposit Certificate rate as of December 31, 2010 and December 31, 2009.

 

6 Bonds and securities

 

 

 

  12.31.2010 12.31.2009 01.01.2009
Current assets       
Bonds and securities (6.1)  534,095 365,243 314,774
Collaterals and escrow accounts (6.2)  64,078 5,047 127
  598,173 370,290 314,901
Long-term receivables       
Bonds and securities  7,151 40,103 69,063
Collateral under STN agreement (Note 21.2)  26,280 24,195 37,868
  33,431 64,298 106,931

 

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

         

6.1 Securities 

       
 
 
Category         
    12.31.2010  12.31.2009  01.01.2009 
Securities available for sale         

CDB (1 and 2) 

CDI  100,785  104,030  108,804 

Repurchase operation (3) 

CDI  17,328  -  19,390 

Repurchase operation (2) 

Selic  2,961  2,699  3,110 

Repurchase operation (2) 

Fixed rate  98,552  21,786  2,292 

LTN (2) 

Fixed rate  44,482  3,374  - 

LFT (2) 

Selic  175,043  32,777  48,938 

NTN - F 

Fixed rate  27,309  3,051  5,127 

Quotas in Funds (3 and 4) 

CDI  124  116,762  108,151 

LFBB 

CDI  6,015  -  - 
    472,599  284,479  295,812 
Securities held until maturity         

LTN (2) 

Fixed rate  6,140  84,520  88,025 

LFT (2) 

Selic  60,662  36,347  - 

Quotas in Funds (3 and 4) 

CDI  1,845  -  - 
    68,647  120,867  88,025 
    541,246  405,346  383,837 
  Current  534,095  365,243  314,774 
  Noncurrent  7,151  40,103  69,063 

LFT - Financial Treasury Bonds
LTN - National Treasury Bonds
NTN-F - National Treasury Notes - F series
LFBB - Banco do Brasil Financial Bonds

       

 

Copel holds bonds and securities which bear variable interest rates. The terms of these securities vary between one and 48 months from the end of the reporting period. Counterparts hold at least a credit rating of A. None of these assets is overdue or has issues of recovery or impairment at the end of the fiscal year.

1)     Among the main amounts invested in certificates of deposit (CDBs), there are:

·         R$65,612, restated as of December 31, 2010 (R$59,787 as of December 31, 2009 and R$54,403 as of January 1, 2009), invested in Banco do Brasil, yielding 100% of the variation of the DI rate, in a reserve account set up to secure to ANEEL the construction of the Mauá Power Plant by Copel Geração e Transmissão;

·         R$4,430 invested in Itaú Unibanco S.A., restated as of December 31, 2010 (R$21,072 as of December 31, 2009 and R$19,730 as of January 1, 2009), yielding 100% of the variation of the DI rate on average, in a reserve account set up to secure a debt to BNDES Participações S.A. - BNDESPAR, in connection with the issue of Elejor debentures, pursuant to a Private Agreement on Revenue Attachment and Other Covenants.

2)     Collaterals for ANEEL auctions by Copel Geração e Transmissão in the amount of R$67,162 as of December 31, 2010 (R$41,323 as of December 31, 2009);

3)     Collaterals for Agreements for Energy Trade on the Regulated Power Market (“Contratos de Comercialização de Energia no Ambiente Regulado” or CCEARs) at CCEE in the amount of R$27,146 as of 2010 (R$3,156 as of 2009); and.

4)     An allowance related to a financing agreement signed with BNDES in 2001 by UEG Araucária in the amount of R$26 in 2010 (R$26 in 2009).

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Table of Contents

Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

6.2       Collaterals and escrow accounts

There are R$63,473, restated as of December 31, 2010, invested in Caixa Econômica Federal, yielding the TR rate, in a reserve account set up to secure to ANEEL the construction of the Colíder Power Plant by Copel Geração e Transmissão. This amount is recorded under current assets.        

                 
7  Customers and distributors             
 
 
      Not yet  Overdue for  Overdue for       
      due  up to 90 days  over 90 days      Total 
            12.31.2010    12.31.2009  01.01.2009 
  Consumers               
  Residential    117,162  78,389  4,098  199,649  189,728  164,189 
  Industrial    114,881  33,724  35,434  184,039  176,972  155,920 
  Commercial    86,156  28,147  4,237  118,540  109,523  93,828 
  Rural    15,985  6,769  1,250  24,004  20,950  18,575 
  Public entities    19,970  19,235  4,061  43,266  38,154  24,948 
  Public lighting    15,199  286  188  15,673  13,317  14,341 
  Public services    13,970  355  10  14,335  12,388  12,286 
  Unbilled    198,363  -  -  198,363  170,960  151,659 
  Energy installment plan    84,477  6,656  10,708  101,841  97,422  91,614 
  Energy installment plan - long-term  40,498  -  -  40,498  48,036  78,123 
  Low income subsidies - Eletrobrás (7.1)  24,376  -  -  24,376  11,386  28,800 
  Penalties on overdue bills    2,842  3,809  2,960  9,611  9,985  9,101 
  State Government-"Luz Fraterna" Program  2,055  7,016  2,457  11,528  4,030  7,500 
  Other receivables    12,945  5,360  5,984  24,289  14,859  14,526 
  Other receivables - long-term  3,231  -  -  3,231  2,885  3,637 
      752,110  189,746  71,387  1,013,243  920,595  869,047 
  Distributors               
  Bulk supply               
  CCEAR - auction    133,004  -  -  133,004  127,854  96,074 
  Bilateral agreements    26,586  -  123  26,709  27,836  74,152 
  CCEE (Note 34)    21,446  -  105  21,551  40,609  9,931 
  Reimbursement to generators  -  -  1,194  1,194  303  571 
  Reimbursement to generators - long-term  -  -  -  -  -  321 
      181,036  -  1,422  182,458  196,602  181,049 
  Charges for use of power grid             
  Power grid    17,311  1,880  2,361  21,552  15,109  16,246 
  Basic network and connection grid  14,552  153  399  15,104  21,174  23,511 
      31,863  2,033  2,760  36,656  36,283  39,757 
  Telecommunications               
  Telecommunications services  2,918  6,735  7,918  17,571  9,650  8,376 
  Telecommunications services - long-term  -      -  1,011  3,211 
      2,918  6,735  7,918  17,571  10,661  11,587 
  Gas distribution    17,319  359  869  18,547  14,726  22,450 
  Allowance for doubtful accounts (7.2)  -  -  (62,119)  (62,119)  (54,949)  (57,002) 
      985,246  198,873  22,237  1,206,356  1,123,918  1,066,888 
  12.31.2010  Current  941,517  198,873  22,237  1,162,627     
    Noncurrent  43,729  -  -  43,729     
  12.31.2009  Current  875,319  182,177  14,490    1,071,986   
    Noncurrent  51,932  -  -    51,932   
  01.01.2009  Current  822,877  150,338  8,627      981,842 
    Noncurrent  85,046  -  -      85,046 

The average time for collection of energy sales is 12 days from customers and 10 days from power distribution concession and permit holders.

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Table of Contents

Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

7.1       Low income – customers rates

In September 2002, the Company started applying the low income rate to electricity bills based on the new criteria for eligibility as low income customers.

On December 17, 2002, Law no. 10,604 modified the means of compensation to utilities, authorizing the granting of an economic subsidy, in order to contribute to the low price for the low income rate. This subsidy is funded by the dividend surplus owed by Centrais Elétricas Brasileiras S.A. -Eletrobras to the Federal Government, in connection with the sale of power by Federal Government-owned generation companies at power auctions, and by Global Reversal Reserve (RGR) funds.

ANEEL, through different resolutions, set forth a new methodology for the calculation of the economic subsidy to which utilities are entitled, in order to offset the effects of the rate policy applicable to low income customers. As of December 2010, the low income rate was applied to 702,882 customers, who account for 23.7% of the total of 2,964,793 residential customers supplied by Copel.

7.2       Allowance for doubtful accounts

Copel’s senior management has considered the following amounts as sufficient to cover potential losses on the realization of receivables:

 

         
    Additions /     
  Balance   (reversals)  Write-offs  Balance 
  12.31.2009      12.31.2010 
Consumers and distributors         
Residential  6,245  11,680  (10,271)  7,654 
Industrial  40,101  5,375  (4,715)  40,761 
Commercial  5,863  8,539  (3,522)  10,880 
Rural  185  163  (279)  69 
Public entities  1,272  221  (40)  1,453 
Public lighting  149  6  -  155 
Public services  -  2  -  2 
Utilities  203  21  -  224 
Telecommunications  931  233  (243)  921 
  54,949  26,240  (19,070)  62,119 
 
 
    Additions /     
  Balance   (reversals)  Write-offs  Balance 
  01.01.2009      12.31.2009 
Consumers and distributors         
Residential  5,544  9,969  (9,268)  6,245 
Industrial  40,735  4,800  (5,434)  40,101 
Commercial  8,506  275  (2,918)  5,863 
Rural  177  297  (289)  185 
Public entities  947  325  -  1,272 
Public lighting  169  (20)  -  149 
Public services  -  1  (1)  - 
Utilities  206  (3)    203 
Utilities - long-term  246  (246)  -   
Telecommunications  472  675  (216)  931 
  57,002  16,073  (18,126)  54,949 

 

 

The applied criteria, in addition to taking into account management’s experience as far as the record of actual losses, also comply with the parameters recommended by ANEEL.

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Table of Contents

Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

8      Recoverable Rate Deficit (CRC) Transferred to the Government of the State of Paraná

By means of a fourth amendment dated January 21, 2005, the Company again renegotiated with the Government of Paraná the outstanding CRC (Conta de Resultados a Compensar or Account for Compensation of Income and Losses) balance as of December 31, 2004, in the amount of R$1,197,404, to be paid in 244 installments under the Price amortization system, restated according to the IGP-DI inflation index plus interest of 6.65% p.a., which are collected monthly, with the first installment due on January 30, 2005 and the others due in subsequent and consecutive months.

The State Government has been in compliance with the payments of the renegotiated installments according to the terms of the fourth amendment to the CRC agreement. Amortizations are secured by resources from dividends.

Maturity of noncurrent installments:

 

       
  12.31.2010  12.31.2009  01.01.2009 
2010  -  -  50,268 
2011  -  52,845  53,611 
2012  62,728  56,359  57,176 
2013  66,899  60,107  60,979 
2014  71,348  64,105  65,034 
2015  76,093  68,368  69,359 
2016  81,154  72,915  73,972 
2017  86,551  77,764  78,892 
2018  92,307  82,936  84,138 
2019  98,446  88,451  89,734 
2020  104,993  94,334  95,702 
2021  111,976  100,607  102,066 
2022  119,423  107,298  108,854 
2023  135,836  114,434  116,094 
After 2023  174,623  164,502  166,891 
  1,282,377  1,205,025  1,272,770 

 

Changes in CRC Transferred to the Government of the State of Paraná:

 

       
  Current  Noncurrent   
Balances  assets  receivables  Total 
As of January 1, 2009  47,133  1,272,770  1,319,903 
Interest and fees  83,834  -  83,834 
Monetary variation  (192)  (18,004)  (18,196) 
Transfers  49,741  (49,741)  - 
Amortization  (130,967)  -  (130,967) 
As of December 31, 2009  49,549  1,205,025  1,254,574 
Interest and fees  79,546  -  79,546 
Monetary variation  2,772  133,396  136,168 
Transfers  56,044  (56,044)  - 
Amortization  (129,095)  -  (129,095) 
As of December 31, 2010  58,816  1,282,377  1,341,193 

 

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Table of Contents

Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

9      Accounts receivable related to concession

9.1       Changes in accounts receivable related to concession

 

         
  Current  Noncurrent  Noncurrent   
Balances  assets  receivables  special liabilities  Total 
As of January 1, 2009  27,685  2,632,185  (1,171,723)  1,488,147 
Additions  -  282,315  -  282,315 
WACC-based regulatory return on capital  94,654  -  -  94,654 
Receipt of WACC-based regulatory return  (94,654)  -  -  (94,654) 
Capitalization of intangible assets in progress  -  380,844  (65,910)  314,934 
Transfers from long-term to current assets  197,952  (197,952)  -  - 
Transfers to charges for the use of main distributions and transmission grid - customers  (181,567)  -  -  (181,567) 
Allowance for losses  -  (6,700)  -  (6,700) 
Adjustment of financial assets classified as available for sale  -  17,369  -  17,369 
Monetary variation  -  (36,052)  20,530  (15,522) 
Write-offs  -  (26,686)  -  (26,686) 
As of December 31, 2009  44,070  3,045,323  (1,217,103)  1,872,290 
Additions  -  272,613  -  272,613 
WACC-based regulatory return on capital  126,685  -  -  126,685 
Receipt of WACC-based regulatory return  (126,685)  -  -  (126,685) 
Capitalization of intangible assets in progress  -  482,145  (69,889)  412,256 
Transfers from long-term to current assets  196,923  (196,923)  -  - 
Transfers to charges for the use of main distributions and transmission grid - customers  (186,293)  -  -  (186,293) 
Transfers of investments - assets assigned for future use  -  3  -  3 
Allowance for losses  -  (21,333)  -  (21,333) 
Adjustment of financial assets classified as available for sale  -  3,029  -  3,029 
Monetary variation  -  290,312  (139,125)  151,187 
Write-offs  -  (25,707)  -  (25,707) 
As of December 31, 2010  54,700  3,849,462  (1,426,117)  2,478,045 

 

a)     Effects of the variation of the WACC set by ANEEL compared to the indicator set by Company management.

 

9.2       Accounts receivable related to concession – Distribution

         
 
 
  Current  Noncurrent  Noncurrent   
Balances  assets    receivables  special liabilities  Total 
As of January 1, 2009  -  1,978,748  (1,171,723)  807,025 
WACC-based regulatory return on capital  94,654  -  -  94,654 
Receipt of WACC-based regulatory return  (94,654)  -  -  (94,654) 
Capitalization of intangible assets in progress  -  380,844  (65,910)  314,934 
Adjustment of financial assets classified as available for sale  -  17,369  -  17,369 
Monetary variation  -  (36,052)  20,530  (15,522) 
Write-offs  -  (26,686)  -  (26,686) 
As of December 31, 2009  -  2,314,223  (1,217,103)  1,097,120 
WACC-based regulatory return on capital  126,685  -  -  126,685 
Receipt of WACC-based regulatory return  (126,685)  -  -  (126,685) 
Capitalization of intangible assets in progress  -  482,145  (69,889)  412,256 
Transfers of investments - assets assigned for future use  -  3  -  3 
Adjustment of financial assets classified as available for sale  -  3,029  -  3,029 
Monetary variation  -  290,312  (139,125)  151,187 
Write-offs  -  (25,707)  -  (25,707) 
As of December 31, 2010  -  3,064,005  (1,426,117)  1,637,888 

 

a)     Effects of the variation of the WACC set by ANEEL compared to the indicator set by Company management.

The Electric Energy Public Service Concession Contract signed by the Federal Government (granting authority) and Copel Distribuição (concession holder – operator), which regulates the operation of the electric energy distribution public service, sets forth:

·         The services the operator must render and to whom (customer category) they must be rendered;

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Table of Contents

Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

·         The performance standards for the rendering of the public service, regarding maintenance and customer service quality improvement, and the duty by the operator, upon return of the concession, to return the infrastructure in the same conditions they were received upon the signature of the concession contract. To meet these obligations, constant investments are made throughout the term of the concession. Thus, the assets related to the concession may be replaced a few times until the expiration of the concession;

·         The requirement that the assets related to the infrastructure must revert to the granting authority at the end of the concession in exchange for reimbursement; and

·         The regulation of prices through a rate mechanism established in the concession contract based on a parametric formula (Portions A and B) and the establishment of types of rate review, to ensure rates are sufficient to cover costs, amortize investments, and provide return on the invested capital.

Based on the characteristics set forth under the power distribution concession agreement, Company management believes the conditions are met for the application of Technical Interpretation IFRIC 12 and SIC 29 – Concession Contracts, which provides guidelines for the accounting of public service concessions by private operators, so that the power distribution business is properly reflected, comprising:

(a) Estimated portion of investments made and not amortized or depreciated by the end of the concession for being an unconditional right to reimbursement in cash or other financial assets directly by the granting authority; and

(b) Remaining portion after the assessment of the financial asset (residual amount), classified as an intangible asset due its recovery being conditioned upon the rendering of the corresponding public service, i.e., the consumption of power by consumers (see Note 18).

The infrastructure that has been received or built for the distribution business, originally represented by property, plant, and equipment and intangible assets, is recovered through two cash flows: (a) a portion through power consumption by customers (monthly billing of energy consumed/sold) over the term of the concession; and (b) a portion as reimbursement for revertible assets at the end of the concession, to be received directly from the granting authority or from another entity to which the granting authority assigns this task.

This reimbursement is made based on the share of investments related to revertible assets which has not been amortized or depreciated yet and which have been made with the purpose of ensuring that the services rendered are continuous and up-to-date.

The financial asset is classified as a financial instrument available for sale, based on the assumption adopted by Company management that the value of the reimbursement upon expiration of the concession contract will be calculated by the granting authority by taking into account the replacement cost of PPE named Regulatory Compensation Basis (BRR), defined by the granting authority. The methodology of the BRR is based on the replacement cost of the assets that make up the power distribution infrastructure related to the concession.

The cash flows related to these assets are determined taking into account the replacement cost of PPE. BRR is reviewed every four years taking into account several factors. Its main goal is to reflect the variation in the prices of physical assets, including write-offs, depreciation, and additions of assets to the concession infrastructure (physical assets) associated with the financial asset.

The return on these financial assets is based on the regulatory WACC approved by ANEEL in the periodic rate review process every four years, whose amount is included in the composition of the revenues from tariffs charged to customers and collected monthly.

In the periods between periodic rate reviews, the balance of these financial assets is adjusted according to the expectation by Company management of increase or decrease in cash flows resulting from changes in the assets making up the infrastructure (physical assets). These variations in the estimated cash flows are recorded directly to income for the corresponding period.

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Table of Contents

Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

Since there is not an active market for these financial assets, the variations in the fair value of the financial asset balance due to the perception of market participants regarding the difference between the regulatory rate of return and the market rates is adjusted periodically based on a methodology established by Company management, and this adjustment, when applicable, is recorded directly in the accumulated other comprehensive income account, under equity.

9.3       Accounts receivable related to concession – Transmission

 

       
  Current  Noncurrent   
Balances  assets  receivables  Total 
As of January 1, 2009  27,685  653,437  681,122 
Additions  -  282,315  282,315 
Transfers from long-term to current assets  197,952  (197,952)  - 
Transfers to charges for the use of main dristribution and transmission grid  (181,567)  -  (181,567) 
Allow ance for losses  -  (6,700)  (6,700) 
As of December 31, 2009  44,070  731,100  775,170 
Additions  -  272,613  272,613 
Transfers from long-term to current assets  196,923  (196,923)  - 
Transfers to charges for the use of main dristribution and transmission grid  (186,293)  -  (186,293) 
Allow ance for losses  -  (21,333)  (21,333) 
As of December 31, 2010  54,700  785,457  840,157 

 

These refer to receivables in connection with the power transmission concession agreements and include the following amounts: (i) revenues from the construction of transmission infrastructure for use by system users; (ii) revenues from the operation and maintenance of infrastructure effectively constructed; and (iii) the financial return on these revenues guaranteed by the granting authority during the term of the concession.

Revenues under power transmission concession agreements are collected by making infrastructure available to system users, are not subject to demand risk, and are thus considered guaranteed revenues, called Permitted Revenues (Receita Anual Permitida or RAP) to be collected over the term of the concession. Amounts are billed monthly to the users of this infrastructure, pursuant to reports issued by the National System Operator (Operador Nacional do Sistema or ONS).

Upon expiration of the concession, any uncollected amounts related to the construction, operation, and maintenance of infrastructure shall be received directly from the granting authority, as an unconditional right to cash reimbursement pursuant to the concession agreement, as compensation for investments made and not recovered through guaranteed revenues.

For purposes of preparation of the future cash flows of transmission contracts in order to determine the effective interest rate to record the return on the balance of this asset over the term of the concession, Company management, in addition to taking into consideration the Permitted Revenues (RAP) to be received over the term of the concession, has also adopted the assumption that the final installment included in the cash flow refers to the reimbursement of the physical assets related to this financial asset.

As they feature fixed and ascertainable cash flows, these financial assets are classified as “loans and receivables”. They are initially estimated based on the respective fair values and later measured according to the amortized cost calculated under the effective interest rate method.

Commitments regarding transmission concessions

9.3.1. 525-kV Araraquara 2 - Taubaté Transmission Line

This transmission line was awarded to the Company at ANEEL Auction no. 001/10, on June 10, 2010.

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Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

Total expenses already owed to suppliers of equipment and services in connection with the Araraquara 2 – Taubaté Transmission Line amounted to R$243.398 as of December 31, 2010.

9.3.2. 230-kV Cerquilho III Substation

This 230/138-kV (300 MVA) substation was awarded to the Company at ANEEL Auction no. 001/10, on June 10, 2010.

Total expenses already owed to suppliers of equipment and services in connection with the Cerquilho III Substation amounted to R$40.724 as of December 31, 2010.

10   Other Receivables

  
       
  12.31.2010  12.31.2009  01.01.2009 
Current assets       
Service in progress, net (10.1)  110,374  92,472  64,765 
Advance payment for judicial deposits  9,927  3,183  5,732 
Advance payments to employees  9,126  8,352  8,264 
Disposal of property and rights  9,048  4,535  1,872 
Decommissioning in progress  6,284  6,181  4,795 
Installment plan for Onda Provedor de Serviços  4,348  4,349  4,348 
Lease of the Araucária Power Plant  4,296  550  7,474 
Recoverable salaries of transferred employees  4,174  3,663  3,819 
Services to third-parties  3,631  3,577  1,347 
Acquisition of fuels under the Fuel Consumption Account (CCC)  2,406  638  185 
Advance payments to suppliers  3,248  11,289  6,191 
Allowance for doubtful accounts (10.2)  (9,979)  (10,896)  (9,531) 
Other receivables  4,186  5,109  5,789 
  161,069  133,002  105,050 
Noncurrent receivables       
Advance payments to suppliers  9,902  8,290  2,435 
Disposal of property and rights  2,325  4,437  4,788 
Compulsory loans  2,833  3,814  3,561 
Other receivables  164  408  1,430 
  15,224  16,949  12,214 

 

10.1     Service in progress

This item refers to services currently in progress within the Company, most of which are related to the Research and Development and Energy Efficiency programs, which upon conclusion are offset against the respective liability recorded for this purpose, in compliance with the applicable regulations.

10.2     Allowance for doubtful accounts

The allowance for doubtful accounts refers to the balance of installments owed by Onda Provedor de Serviços, whose realization is unlikely, and to an unrealizable amount mostly comprising wages of loaned employees.

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Table of Contents

Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

11   Inventories 

 

Operation/Maintenance  Construction in progress -
inventories
 
  12.31.2010  12.31.2009  01.01.2009  12.31.2010  12.31.2009  01.01.2009 
Copel Geração e Transmissão  24,429  27,595  29,710  -  -  - 
Copel Distribuição  83,893  76,170  48,150  -  -  - 
Copel Telecomunicações  11,758  7,166  5,151  17,511  17,641  14,507 
Compagás  1,344  1,171  536  -  -  - 
Elejor  -  -  -  2,702  1,051  1,051 
  121,424  112,102  83,547  20,213  18,692  15,558 

 

12   Income Tax, Social Contribution, and Other Taxes

12.1     Income Tax and Social Contribution

 

       
  12.31.2010  12.31.2009  01.01.2009 
Current assets       
IRPJ and CSLL paid in advance  518,889  446,926  423,461 
IRPJ and CSLL to be offset against liabilities  (348,557)  (169,834)  (215,539) 
IRRF on IOC to be offset against liabilities  (12,119)  (6,534)  (7,378) 
  158,213  270,558  200,544 
Noncurrent       
IRPJ and CSLL paid in advance  12,341  -  - 
  12,341  -  - 
Current liabilities       
IRPJ and CSLL due  501,806  294,339  349,802 
IRRF on IOC to be offset against assets  (348,557)  (169,834)  (215,539) 
  153,249  124,505  134,263 
IRPJ = Corporate income tax       
CSLL = Social contribution on net income       
IRRF = Income tax withheld       
IOC = Interest on capital       

 

Amounts recorded as corporate income tax (IRPJ) and social contribution paid in advance refer to amounts paid in advance and corporate tax return (DIPJ) credits, which are offset against the respective taxes payable by each company, pursuant to the Brazilian tax legislation.

12.2     Deferred income tax and social contribution

Company records deferred income tax, calculated at the rate of 15%, plus an additional rate of 10%, and deferred social contribution, at the rate of 9%.

Taxes levied on the healthcare plan are realized according to the actuarial assessment conducted annually by an independent actuary. Deferred taxes on all other accruals will be realized as judicial rulings are issued.

Under current tax legislation, tax losses and negative bases for social contributions may be offset against future income, up to the limit of 30% of the taxable income for each year, without expiration period.

F - 45

 


 

 

Table of Contents

Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

Deferred income tax and social contribution credits have been recorded as follows:

 

  12.31.2010  12.31.2009  01.01.2009 
Noncurrent receivables       
Tax losses and negative tax basis  10,966  23,346  16,355 
Pension and healthcare plans  135,384  123,842  147,691 
Other temporary additions  -  -  - 
Reserve for litigation  290,385  172,080  168,486 
Allowance for doubtful accounts  24,477  22,350  22,959 
Amortization - concession  35,917  19,709  19,088 
Provision for effects of network charges  6,922  6,922  6,923 
FINAN provision  3,659  3,291  4,563 
Other  -  26,342  12,808 
  507,710  397,882  398,873 
Noncurrent liabilities       
Transitional Tax System - RTT  -  -  - 
Deemed cost of assets  802,556  854,742  906,721 
Other  47,607  12,092  (7,587) 
Other temporary exclusions  -  -  - 
Capitalization of financial charges  4,595  -  2,551 
Provision for negative goodwill  25,297  25,297  25,297 
Gas supply  7,163  8,953  8,040 
  887,218  901,084  935,022 
  (379,508)  (503,202)  (536,149) 

 

Company’s Board of Directors and Fiscal Council have approved the technical study prepared by the Chief Finance, Investor Relations, and Corporate Partnerships Office on future profitability projections, which indicates the realization of deferred taxes. According to the estimate of future taxable income, the realization of deferred taxes is shown below:

 

       
       
  Estimated  Actual  Estimated 
  realizable  realized  realizable 
  amount  amount  amount 
2010  (39,205)  58,140  - 
2011  -  -  17,311 
2012  -  -  10,045 
2013  -  -  472 
2014  -  -  286 
2015  -  -  265,084 
2016 to 2018  -  -  (34,694) 
2019 to 2021      (117,317) 
After 2021  -  -  (520,695) 
  (39,205)  58,140  (379,508) 

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Table of Contents

Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

12.3     Other taxes paid in advance and other taxes due

 

  12.31.2010  12.31.2009  01.01.2009 
Current assets       
ICMS(VAT) paid in advance (12.3.1)  36,785  29,868  26,863 
PIS/Pasep and Cofins taxes paid in advance  7,966  28,728  17,187 
PIS/Pasep and Cofins to be offset against liabilities  (7,966)  (27,820)  (17,187) 
Other taxes paid in advance  751  1,157  1,158 
  37,536  31,933  28,021 
Noncurrent receivables       
ICMS(VAT) paid in advance (12.3.1)  82,029  83,957  62,468 
Recoverable income tax withheld on finance investments  2,833  -  - 
  84,862  83,957  62,468 
Current liabilities       
ICMS (VAT) payable  173,989  164,209  132,380 
PIS/Pasep and Cofins payable  75,511  52,507  55,540 
PIS/Pasep and Cofins to be offset against assets  (7,966)  (27,820)  (17,187) 
Tax Recovery Programs (12.3.2)  94,887  107,974  35,068 
Income tax withheld on interest on capital  45,813  29,027  30,791 
Income tax withheld on IOC to be offset against assets  (12,119)  (6,534)  (7,378) 
Other taxes  8,756  6,627  6,374 
  378,871  325,990  235,588 
Noncurrent liabilities       
ICMS (VAT) payable  623  547  618 
Tax Recovery Programs (12.3.2)  31,629  131,103  - 
  32,252  131,650  618 

 

12.3.1. Recoverable ICMS (VAT)

The amounts recorded as recoverable ICMS (VAT) refer to credits from the acquisition of property, plant, and equipment under Supplemental Law no. 87/96, which shall be recovered monthly at the rate 1/48 pursuant to Supplemental Law no. 102, dated July 11, 2000.


12.3.2. Tax recovery programs

             
.             
  Debt  Benefits -  SELIC  Updated debt  Advance  Updated debt 
  amount  Law 11,941  Interest  amount  payment  amount 
Law no. 11,941/09             
IRPJ  42,538  (8,762)  2,313  36,089  (16,253)  19,836 
CSLL  5,925  (1,460)  298  4,763  (2,264)  2,499 
COFINS tax  43,956  (9,853)  2,309  36,412  (16,795)  19,617 
PIS/PASEP taxes  9,543  (2,139)  501  7,905  (3,646)  4,259 
COFINS tax - law suit  196,839  (60,174)  10,600  147,265  (66,960)  80,305 
  298,801  (82,388)  16,021  232,434  (105,918)  126,516 

 

 

The effects on the 2010 statement of operations, recorded as financial expenses, were R$14,623 under Consolidated (Note 32).

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Table of Contents

Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

Installment Plan – Law no. 11,941/09

Pursuant to a ruling by the 4th District Federal Court, which became final on August 18, 1998, Copel was granted immunity from the levy of COFINS tax on power sales. Even though this ruling was final, the Federal Revenue Service (RFB) issued Copel two notices for failure to collect COFINS tax: on February 19, 2002, notice no. 10980.000932/2002-90, for fiscal year 1997, and on August 22, 2003, notice no. 10980.007831/2003-21, for the first three quarters of 1998. Simultaneously, it filed a lawsuit requesting the cancellation of the immunity ruling, which, after a long legal battle regarding the lapse of RFB's right to dispute the ruling, has been submitted to 4th District Federal Court for judgment on the merits. Copel has thus reclassified the corresponding risk of loss as probable, since there’s consolidated legal precedent in favor of the federal government.

As this lawsuit was reclassified as probable loss, in November 2009 Copel chose to apply for the installment plan created under Law no. 11,941, dated May 27, 2009, to pay off the COFINS-related debt in connection with the two notices mentioned above. Since there has been a provision in connection with this lawsuit, in the amount of R$184,037, and in light of the reduced penalties afforded under Law no. 11,941/09, the original amount of this debt became R$136,665, which, restated according to the SELIC interest rate as of December 31, 2010 (pursuant to article 3, paragraph 3, of that law), totals R$147,265.

The Company also included in this installment plan fiscal debts owed by Copel Distribuição in connection with income tax and social contribution in February 2004, and income tax in December 2007, March 2008, and April 2008, which amount to R$48,463. These taxes were paid through compensation statements, which have not been approved by RFB. Taking into account reduced penalties and restatement by the SELIC interest rate (pursuant to Law no. 11,941/09), the amount of this debt as of December 31, 2010 was R$40,852. Copel further included debts resulting from revised bases for calculation of PIS/PASEP and COFINS taxes for 2005 to 2008, in the amount of R$53,499, which, taking into account the same benefits and restatement by the SELIC interest rate (pursuant to article 3, paragraph 3, of Law no. 11,941/09), amounted to R$44,317 as of December 31, 2010.

With the payment of installments and the accrual of SELIC interest as of December 31, 2010, pursuant to article 3, paragraph 3, of Law no. 11,941, the total outstanding debt is R$126,517.

As of the date of these statements, there has been no ratification of the installment plan by the RFB.

Copel has rigorously fulfilled its obligations in connection with these installment plans.

12.4     Reconciliation of the provision for income tax and social contribution

The reconciliation of the provision for income tax (IRPJ) and social contribution (CSLL), calculated at the applicable rates, with the amounts recorded in the statement of income is shown below:

 

     
  2010  2009 
Income before IRPJ and CSLL  1,380,732  1,064,197 
IRPJ and CSLL (34%)  (469,449)  (361,827) 
Tax effects on:     
Interest on capital  70,319  78,200 
Dividends  432  3,295 
Equity in results of investees  31,023  1,575 
FINAM - (losses) and gains 

- 

(183) 
Nondeductible expenses  (3,247)  (917) 
Tax benefit - Law no. 11,941/09  27,904 
Tax incentives  4,856  3,530 
Other  (4,385)  (3,496) 
Current IRPJ and CSLL  (497,968)  (290,770) 
Deferred IRPJ and CSLL  127,517  38,851 
Actual rate - %  26.8%  23.7% 
IRPJ = Corporate income tax     
CSLL = Social contribution on net income     

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Table of Contents

Companhia Paranaense de Energia – Copel

Notes to the Consolidated Financial Statements

All amounts expressed in thousands of Brazilian reais, unless otherwise stated

         
13  Prepaid Expenses       
 
 
    12.31.2010