The document discusses how a pension fund expense is calculated for Fundação Cesp. The expense is calculated annually as the difference between the plan's actuarial liabilities and expected return on assets, plus current service costs. Cash disbursement is based on an annual actuarial valuation and differs from the accounting expense due to using different discount rates and methodologies prescribed by different regulatory agencies. Recent changes to accounting rules have increased the reported expense but do not impact the company's cash flows or covenants.
2. How the expense is calculated?
The expense with Fcesp is calculated in accordance to CVM Resolution 695/2012
The projected expense of Fcesp for the following year is calculated through the difference
between the actuarial liabilities and the expected return on plan assets, added by the current
service costs. The return rate shall be equal to the discount rate
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3. How the cash disbursement
is l l t d?
i calculated?
Cash disbursement results from the valuation of FCesp’s actuarial liabilities, prepared by an
actuary and in accordance to the rules issued by Previc (National Superintendency of
Pension Funds)
Actuarial valuation is reviewed on a annual basis at the end of the year
basis,
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4. Calculating the difference of
expenditure and disbursement
ACCOUNTING CASH
EXPENSE DISBURSEMENT
Regulatory Agency CVM PREVIC
Difference between interest on actuarial
Determination Result of the FCesp actuarial valuation
liabilities and plan assets
Calculated in accordance to market
Calculated in accordance to a FCesp’s Study
Discount rate value (National Treasury Notes/NTN-B)
Notes/NTN B)
(Resolution CNPC No. 9): 5.5% p.a.
on 12/31/2012: 3.75% p.a.
Recognition Company Financial Statements FCesp Financial Statements
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5. Main amendments
on accounting rules
g
Until 12.31.2012 From 01.01.2013
(Res. CVM 600)
600)¹ (Res. CVM 695)
Expected return on Determined by a study of a specialized Corresponds to the actuarial liabilities
plan assets company (6.79% for 2012) discount rate (3.75% for 2013)
Accrued over the years in the "corridor"
Actuarial Gains Fully recognized in the Company's balance
(10% excess of actuarial liabilities
and losses sheet (Liabilities and Shareholders‘ Equity)
recognized in the income statement)
Amortized over the average future
Corridor over 10% There is no impact (fully recognized in the
of plan liabilities service period of active participants
balance sheet of the Company)
and recognized in income statement
1 – Revoked by CVM Resolution 695, on December 13, 2012 5
6. Impact on the income statement due to
changes imposed by CVM
g p y
2012 2013
R$ million R$ milllion
Service cost 16.3
16 3 Discount rate decreases from 5 5% to 3 75%
5.5% 3.75% 29.3
29 3
Rate costs 916.6 Discount rate decreases from 5.5% to 3.75% 1,018.1
Expected return
(788.6) Rate of return decreases from 6.79% to 3.75% (696.5)
on plan assets
Amortization
of actuarial 15.3 Extinction of the corridor method -
gains and losses
Total expenditure 159.7 350.9
• Increase on expense shall be reversed through equity in the coming years due a grater expected
p g q y g y g p
profitability of the plan compared to the expected return on plan assets used in the calculation
• Average return over the last five years on 16% (above the actuarial target period)
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7. Cash impacts with the plan
Amendments set forth by CVM 695 has no influence on assumptions and on the calculation
method of the pension plan cash disbursement
2012 +4.4%
2013
R$ million R$ million
Cash disbursement IGP DI
IGP-DI discount rate decreases from +6% to +5.5%,
6% 5.5%,
271.7 283.6
before and after CVM 695 offset by marking securities to market
For 2014 is not expected a significant increase on cash disbursement, since the actuarial
assumptions were maintened
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8. Company's balance sheet x
FCesp balance sheet
p
Balanc e Sheet AES Eletropaulo Fundaç ão
(Dec /2012) CV M 600 CV M 695 CESP
Actuarial Liabilities 12,389
12 389 12,389
12 389 8,319
8 319
Total Liabilities 12,289 12,289 10,120
Debt Agreement - - (1,802)
Value of Assets 8,525 8,525 8,365
Defic it / (Surplus) 3,963 3,963 (44) Will be recorded in Other
b d d i Oth
Comprehensive Income,
Losses not recognized in the balance sheet ("corridor") (2,830) n/a n/a
in the Shareholders‘
Liability rec orded on the balanc e sheet 1,133 3,963 n/a Equity
Company's balance sheet: in accordance to the CVM’s rules
Calculation of actuarial liabilities in accordance to the market discount rate (NTN-B)
Assets at market value
Recognition of the liability and expense that affect the Company's income
Fundação CESP balance sheet: in accordance to the PREVIC’s rules
C l l ti
Calculation of actuarial liabilities according t th di
f t i l li biliti di to the discount rate set f th on PREVIC’ rules
t t t forth PREVIC’s l
Part of the assets marked on the curve
Calculation of employer contributions (cash disbursement) 8
9. Conclusion
The variation of the liabilities has no correlation with the Company's cash
disbursement
Increase on cash disbursement may occur in case of amendments on Fcesp’s
actuarial assumptions if previously approved by Eletropaulo
assumptions,
Amendments on accounting rules do not affect Company’s covenants.
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10. The statements contained in this document with regard to the business
prospects, projected operating and financial results, and growth potential
are merely forecasts based on the expectations of the Company’s
Management in the relation to its future performance. Such estimates are
highly dependent on the market behavior and on the conditions affecting
Brazil’s macroeconomic performance as well as the electric sector and
international market, and they are therefore subject to changes.