Annual Report - EDP

notes to the consolidated EDP - and Energias company de Portugal, financial S.A. statementsfor the Notes years to the ended Consolidated 31 december and Company 2012 Financial and Statements 2011for the years ended 31 December 2012 and 2011- Discount rate: the discount rates used are post-tax, reflect EDPR Group’s best estimate of the risks specific to each CGU and range as follows:20. INVESTMENTS IN SUBSIDIARIES (COMPANY BASIS)This caption is analysed as follows:2012 2011Portugal and Spain 7.0% - 7.1% 6.7%United States 5.5% - 6.8% 5.0% - 6.9%Rest of Europe 5.9% - 8.2% 6.0% - 8.6%Impairment tests done have taken into account the regulation changes in each country, as disclosed in note 1.Were performed a series of sensitivity analyses of the results of impairment tests to reasonable changes in some of the key variables, such as:- EDPR NA, decrease in the Net Capacity Factors of 2.1%;- EDPR NA, 10% reduction of Merchant Prices;- EDPR EU, decrease of the terminal value until 10%.Furthermore, EDPR Group has done an additional sensitivity analysis increasing 100 basis points the discount rate used in case base for EDPR NA and EDPR EU CGU's.These sensitivity analyses performed for each assumption independently would not suppose any impairment for the goodwill allocated to each country.Goodwill impairment test analysis – EDP BrasilFor EDP Brasil, the cash flows were determined based on the production and consumption volume and estimated tariffs and installed capacity and tariff evolutionprospects in the different markets / power purchase agreements. The period of considered cash flows corresponds to the useful life of the plant & machinery andother relevant equipments or until the end of the concession contracts, if lower than the useful life.The discount rate used of 8.05% in 2011 (8.3% in 2011), reflects the Group’s best estimate regarding the specific risks related to each CGU.The terminal value of the distribution business corresponds to the present value of the assets and the end of the concession period (Regulatory Asset Base). In thegeneration / supply business, the terminal value corresponds to the present value of the assets net of amortisation at the end of the concession period.This sensitivity analysis of considering +100bps on the discount rate does not result in any impairment indicators for "goodwill".CompanyThousands of Euros Dec 2012 Dec 2011Acquisition cost 11,012,092 10,863,358Effect of equity method (transition to IFRS) -902,524 -1,020,632Equity investments in subsidiaries 10,109,568 9,842,726Impairment losses on equity investments in subsidiaries -200,034 -133,9439,909,534 9,708,783On the date of transition to IFRS, EDP, S.A. ceased to apply the equity method of accounting to its investments in its unconsolidated financial statements, havingconsidered this method in the determination of the deemed cost at transition date.Investments in subsidiaries are analysed as follows:CompanyDec 2012 Dec 2011Thousands of Euros Net amount Net amountInvestments in subsidiaries:EDP Renováveis S.A. 2,939,889 2,939,889EDP Gestão de Produção de Energia, S.A. 2,156,054 2,156,054Hidroeléctrica del Cantábrico, S.A. 1,981,798 1,981,798EDP Distribuição de Energia, S.A. 1,686,145 1,686,145EDP Servicios Financieros España, S.A. 482,695 481,695EDP Investments and Services, S.L. 281,854 -EDP Comercial, S.A. 238,473 188,463EDP Energias do Brasil, S.A. - 193,909Other 142,626 80,8309,909,534 9,708,783The variation in the caption Investments in subsidiaries on a company basis (200,751 thousands of Euros) results, essentially, from the share capital increase of EDPInvestments and Services, S.L. realised through a contribution in kind of 11.23% of the share voting rights over EDP Energias do Brasil (net effect of 87,945 thousands ofEuros), from the supplementary capital conceded to EDP Imobiliária e Participações, S.A. (65,000 thousands of Euros), EDP Comercial, S.A. (50,000 thousands of Euros)and EDP Serviços - Sistemas para a Qualidade e Eficiência Energética, S.A. (50,000 thousands of Euros) and from the impairment losses on equity investments in EDPImobiliária e Participações, S.A. (65,000 thousands of Euros).In August 2012, the shares that EDP, S.A. held on EDP Energias do Brasil, S.A., corresponding to 53,482,659 ordinary shares, representing 11.23% of the voting rights, inthe amount of 193,909 thousands of Euros was used to subscribe a share capital increase in EDP Investments and Services, S.L., through a contribution in kind of thereferred shares, evaluated in 281,854 thousands of Euros, having been recognised a gain on the financial statements of EDP, S.A. in the amount of 87,945 thousandsof Euros (see note 14).210A World Full Of Energy