The consolidated financial statements include the financial statements of Edison Spa and those of the Italian and foreign subsidiaries over which Edison exercises control, either directly or indirectly. They also include the financial statements of companies over which Edison exercises joint control, in accordance with the terms of the relevant agreements with other shareholders.
Subsidiaries are consolidated from the moment the Group effectively acquires control and cease to be consolidated when control is transferred to another party.
The financial statements used for consolidation purposes are the latest statutory or consolidated statements of the individual companies or business operations, approved by respective corporate governance bodies, with the adjustments required to make them consistent with Group accounting principles.
For companies with fiscal years that do not coincide with the calendar year, the financial statements used were annual financial statements that match the Group’s financial year, approved by the respective Boards of Directors.
Subsidiaries are consolidated line by line. The assets, liabilities, revenues and expenses of the consolidated companies are recognized in the consolidated financial statements at their full value. The carrying amount of equity investments is eliminated by offsetting it against the underlying interest in the respective shareholders’ equity, and the individual assets and liabilities and contingent liabilities are measured at their fair value at the date when control of the investee company was established. Any residual value, if positive, is recognized as a non-current asset and posted to “Goodwill.”
Companies with respect to which the Group retains the majority of risks and enjoys the majority of benefits (so-called Special Purpose Vehicles) are consolidated line by line even if the interest in their share capital is less than 50%.
The shareholders’ equity and profit or loss amounts attributable to minority shareholders are shown separately in the balance sheet and income statement, respectively.
Joint ventures are consolidated by the proportional method. Joint control exists only in the case of a company for which, pursuant to contractual stipulations, financial, operational and strategic decisions always require the unanimous consent of all of the parties who share control. In such cases, the consolidated financial statements show the interest of the Group in the assets, liabilities, revenues and expenses of the joint venture by an amount proportionate to the interest held.
Payables and receivables and expenses and revenues that arise from transactions between companies included in the scope of consolidation are eliminated. Gains resulting from transactions between the abovementioned companies and reflected in items still included in the shareholders’ equity attributable to Parent Company shareholders are eliminated. The effects of fractional sales of investments in consolidated companies, when control is not relinquished, are recognized in shareholders’ equity at an amount equal to the difference between the sales price and the value of the corresponding interest in shareholders’ equity that is being sold.
Investments in associates over which the Group exercises a significant influence but not joint control, as defined above, are valued by the equity method, pursuant to which the carrying value of the investments is adjusted primarily to reflect the investor company’s interest in the profit or loss for the year and any dividends distributed by the investee company.
Subsidiaries that are in liquidation or are parties to composition with creditors proceedings are not consolidated. They are carried instead at their estimated realizable value. Their impact on the Group’s total assets and liabilities and net financial debt is not significant.
Changes in the Scope of Consolidation Compared with December 31, 2009
The changes in the Group’s scope of consolidation that occurred in 2010 are reviewed below:
Electric Power Operations:
- deconsolidation as of January 1, 2010 of Ascot Srl, in liquidation;
- establishment of Edison Energie Speciali Calabria Spa as a wholly owned subsidiary of Edison Spa;
- disposal to third parties of a 10% interest in Presenzano Energia Srl;
- acquisition, in July, of 100% control by Edison Energie Speciali Spa of Parco Eolico San Francesco Srl. This company is now being consolidated line by line. An analysis of the impact produced on the Group’s balance sheet by this business combinations is provided in the section of this Report entitled “Disclosure About Business Combinations (IFRS 3 Revised)”.
Corporate and Other Segments:
- deconsolidation as of November 1, 2010 of International Water Holdings Bv, in liquidation.
- a term sheet for the disposal of the business operations comprised of the Taranto thermoelectric power plants was signed in December 2010. The final agreement will be set forth in a contract to be executed afterwards.
The closing is expected to take place on January 15, 2012 or at an earlier date, at Edison’s discretion, in the event of an early termination of the CIP 6/92 contract pursuant to which one of the power plants currently operates.
Even though the assets and liabilities subject of the transaction do not constitute a business operation, they were treated as a Disposal Group, as required by IFRS 5, and are shown on the balance sheet under “Asset and Liabilities held for sale.”
Consolidation of Foreign Companies and Criteria Used to Translate Items Denominated in Foreign Currencies
Assets and liabilities of foreign companies that are denominated in currencies other than the euro are translated at the exchange rates in force at the end of the reporting period. Income and expenses are translated at the average rates for the year. Any resulting gains or losses are recognized in equity until the corresponding equity investment is sold.
Upon first-time adoption of the IFRS principles, cumulative translation differences generated by the consolidation of foreign companies were written off and, consequently, the reserve recognized in the consolidated financial statements reflects only cumulative translation differences that arose after January 1, 2004.
Transactions in foreign currencies are recognized at the exchange rate in force on the transaction date. Monetary assets and liabilities are translated at the exchange rates in force at the end of the reporting period. Any resulting foreign exchange translation differences and those realized when the positions are closed are recognized as financial income or expense.