JANET A. ENCARNACION - Energy Development … Geothermal Power Plant (with a 25-year contract period...

Energy Development Corporation 38

th Floor, One Corporate Centre Building, Julia Vargas corner Meralco Avenue

Ortigas Center, Pasig 1605, Philippines

Trunklines: +63 (2) 667-7332 (PLDT) / +63 (2) 755-2332 (Globe)

May 15, 2014

JANET A. ENCARNACION

HEAD, Disclosures Department

The Philippine Stock Exchange, Inc.

Philippine Stock Exchange Plaza

Ayala Triangle, Ayala Avenue, Makati City

Dear Ms. Encarnacion:

In compliance with PSE disclosure requirements, we submit the attached Energy

Development Corporation (Consolidated) Quarterly Report for the period ended

March 31, 2014 (SEC Form 17-Q).

SEC Form 17Q – 1Q 2014

SEC Number 66381

File Number _____

ENERGY DEVELOPMENT CORPORATION

(Company’s full Name)

One Corporate Centre Julia Vargas cor. Meralco Ave., Ortigas Center, Pasig City

(Company’s Address)

(632) 755-2332

(Telephone Number)

March 31, 2014

(Quarter Ending)

SEC FORM 17-Q

(Form Type)

6 6 3 8 1

SEC Registration Number

E N E R G Y D E V E L O P M E N T C O R P O R A T I O N

( A S u b s i d i a r y o f R e d V u l c a n H o l d i

n g s C o r p o r a t i o n ) A N D S U B S I D I A R I E S

(Company’s Full Name)

J u l i a V a r g a s C o r n e r M e r a l c o A v e n u

e , O r t i g a s C e n t e r , P a s i g C i t y

(Business Address: No. Street City/Town/Province)

Maribel A. Manlapaz 755-2332 (Contact Person) (Company Telephone Number)

0 3 3 1 S E C 1 7 0 5 0 6

Month Day (Form Type) Month Day (Fiscal Year) (Annual Meeting)

(Secondary License Type, If Applicable)

Article I

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

690 P=35,721,252,717 P=23,044,219,616

Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

S T A M P S

Remarks: Please use BLACK ink for scanning purposes.

COVER SHEET

SEC Form 17Q – 1Q 2014

PART 1 FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Our unaudited consolidated financial statements for the quarter ended March 31, 2014

have been prepared in accordance with Philippine Financial Reporting Standards (PFRS)

and are filed as Annex I of this report.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD & A”) The following is a discussion and analysis of the Company’s consolidated financial

performance for the quarter ended March 31, 2014. The prime objective of this MD&A

is to help the readers understand the dynamics of our Company’s business and the key

factors underlying our financial results. Hence, our MD&A is comprised of a discussion of

our core business and an analysis of the results of operations. This section also focuses on

key statistics from the unaudited financial statements and pertains to risks and uncertainties

relating to the geothermal power industry in the Philippines where we operate up to the

stated reporting period. However, our MD&A should not be considered all inclusive, as it

excludes unknown risks, uncertainties and changes that may occur in the general economic,

political and environment condition after the stated reporting date.

Our MD&A should be read in conjunction with our unaudited consolidated financial

statements and the accompanying notes. All financial information is reported in Philippine

Pesos (PhP) unless otherwise stated.

Any references in this MD&A to “we”, “us”, “our”, “Company” means the Energy

Development Corporation and its subsidiaries.

Additional information about the Company can be found on our corporate website

www.energy.com.ph.

SEC Form 17Q – 1Q 2014 4

The following is a summary of the key sections of this MD&A:

OVERVIEW OF OUR BUSINESS.............................................................................................. 5 Principal Products or Services ......................................................................................................... 5

Competition ..................................................................................................................................... 5

Concessions and government share payments ............................................................................ 6 KEY PERFORMANCE INDICATORS ..................................................................................... 8 FINANCIAL HIGHLIGHTS ....................................................................................................... 10 RESULTS OF OPERATIONS ................................................................................................... 11

CAPITAL AND LIQUIDITY RESOURCES ........................................................................... 15 FINANCIAL POSITION ............................................................................................................ 16

Horizontal and Vertical Analysis of Material Changes as of March 31, 2014 and December 31,

2013. .............................................................................................................................................. 16

CASH FLOW ............................................................................................................................... 20 DISCUSSION ON THE SUBSIDIARIES ................................................................................. 21

FG Hydro ....................................................................................................................................... 21

Green Core Geothermal Inc. ......................................................................................................... 22 Bac-Man Geothermal Inc. ............................................................................................................. 23

FOREIGN EXCHANGE AND INTEREST RATE EXPOSURE .......................................... 24 OTHER MATTERS .................................................................................................................... 24

MAJOR STOCKHOLDERS ...................................................................................................... 25

SEC Form 17Q – 1Q 2014 5

OVERVIEW OF OUR BUSINESS

Principal Products or Services

As of March 31, 2014, the Company operates twelve geothermal steam fields in the five geothermal

service contract areas where it is principally involved in the generation and sale of electricity

through Company-owned geothermal power plants to NPC and privately-owned distribution

utilities (DUs), pursuant to Power Purchase Agreements (PPAs) and Electricity Sales Agreements

(ESAs), respectively.

Through its 60% equity interest in First Gen Hydro (FG Hydro), the Company indirectly operates

the 120 MW Pantabangan and 12 MW Masiway Hydroelectric Power Plants, located in

Pantabangan, Nueva Ecija Province, Central Luzon. The power plants supply electricity into the

Luzon grid to service the consumption of its distribution utilities clients covered by bilateral

contract quantities (BCQ).

The Company has evolved into being the country’s premier pure renewable energy play, possessing

interests in geothermal energy and hydro power. For geothermal energy, its expertise spans the

entire geothermal value chain, i.e., from geothermal energy exploration and development, reservoir

engineering and management, engineering design and construction, environmental management and

energy research and development. With FG Hydro, the Company has not only acquired expertise in

hydropower operation and maintenance, but also the capability to sell power on a merchant basis.

Distribution methods of products or services

About 57.2% of the 1,821.3 GWh sales volume from its electricity business was sold to NPC.

Electricity production of about 138.0 GWh, i.e., pertaining to electricity generated by the hydro

power plants of FG Hydro, was sold mainly to its distribution utility clients comprised of electric

cooperatives in the province of Nueva Ecija while 527.2 GWh, i.e., generated by the geothermal

power plants in Tongonan I and Palinpinon, was sold mainly to electric cooperatives and industrial

customers in the Visayas region. Also, Bacman Units 1 and 3 geothermal power plant generated

electricity of 113.7 GWh that was sold to electric cooperatives and industrial customers. The

Company’s total sales volume comprised of 1,683.3 GWh coming from electricity production in

Leyte, Mindanao, Tongonan I, Palinpinon and Bacman 2 Unit 3 geothermal power plants; and

138.0 GWh sold from hydro power plant operations in Pantabangan, Nueva Ecija.

The electricity generated by the Company’s geothermal power plants is transmitted to customers

i.e., distribution utilities, electric cooperatives or bulk power customers by the National Grid

Corporation of the Philippines (NGCP) through its high voltage backbone system.

Competition

The Government, in implementing the thrust of the EPIRA, has paved the way for a more

independent and market driven Philippine power industry. This has allowed for competition, not

limited by location, and driven by market forces. As such, selling power and, consequently, the

SEC Form 17Q – 1Q 2014 6

dispatch of power plants depend on the ability to offer competitively priced power supply to the

market. The Company has multiple power projects in Luzon, Visayas, and Mindanao.

The successful privatization of NPC assets and NPC-IPP contracts in Luzon and Visayas, coupled

with the integration of the two Grids under the WESM, introduced new players and opened

competition in the power industry. Multinationals that currently operate in the Philippines and that

could potentially compete against the Company include KEPCO Power Corporation, CalEnergy

International Services, Inc., Marubeni Energy Corporation, and AES Corporation. Moreover, the

local power companies of the Aboitiz group and San Miguel group are the Company‘s two largest

competitors. In terms of generation capacities, the Aboitiz group has a total of 2,353 MW[1] in its

portfolio. Aboitiz Power Corporation is the Company’s only competitor in the geothermal energy

space, after it successfully bid for the 747 MW Tiwi-makban geothermal power plant. Chevron

Geothermal Philippines Holdings operates the Tiwi-Makban geothermal steam field, that supplies

the Aboitiz geothermal plant. The San Miguel group reportedly has 2,545[2] MW in its portfolio

after selling its 650 MW Limay combined-cycle gas turbine. Several of these competitors may have

greater financial resources and have more extensive operational experience and other capabilities

than the Company, giving them the ability to respond to operational, technology-related, financial,

and other challenges more quickly than the Company. The Company will face competition in both

the development of new power generation facilities and the acquisition of existing power plants, as

well as in the financing for these activities.

The performance of the Philippine economy and the historical high returns of power projects in the

country have attracted many potential competitors, including multinational development groups and

equipment suppliers, to explore opportunities in the development of electric power generation

projects in the Philippines. Accordingly, competition for and from new power projects may increase

in line with the long-term economic growth in the Philippines.

The Company believes that it will be able to compete because of its competitively-priced power, the

reliability of its power plants, its use of clean and renewable fuels, and its expertise and experience

in power supply contracting and trading.

[1] Data from Aboitiz Power: www.aboitizpower.com

[2] Data from San Miguel Corporation: www.sanmiguel.com.ph/businesses/new/power-energy/

Dependence on one or a few major customers and identity of any such major customers

Close to 45.2% of the Company’s total revenues are derived from existing long-term PPAs with

NPC.

Concessions and government share payments

The five geothermal service contract areas where the EDC’s geothermal production steam fields are

located are:

• Tongonan Geothermal Project (expiring in 2031)

http://www.aboitizpower.com/

http://www.sanmiguel.com.ph/businesses/new/power-energy/

SEC Form 17Q – 1Q 2014 7

• Southern Negros Geothermal Project (expiring in 2031)

• Bacon-Manito Geothermal Project (expiring in 2031)

• Mt. Apo Geothermal Project (expiring in 2042)

Northern Negros Geothermal Project (expiring in 2044)

The Company, through its subsidiaries Green Core Geothermal Inc. and Bac-Man Geothermal Inc.

secured three (3) Geothermal Operating Contracts covering power plant operations:

Tongonan Geothermal Power Plant (with a 25-year contract period expiring in 2037, renewable

for another 25 years)

Palinpinon Geothermal Power Plant (with a 25-year contract period expiring in 2037, renewable

for another 25 years)

Bacon-Manito Geothermal Power Plant (with a 25-year contract period expiring in 2037,

renewable for another 25 years)

The Company also holds service contracts for the following prospect areas:

Geothermal Resource

1. Mt. Labo Geothermal Project (with a five-year pre-development period expiring in 2015,

25-year contract period expiring in 2035)

2. Ampiro Geothermal Project (with a five-year pre-development period expiring in 2017, 25-

year contract period expiring in 2037)

3. Mandalagan Geothermal Project (with a five-year pre-development period expiring in 2017,


4. Mt. Zion Geothermal Project (with a five-year pre-development period expiring in 2017, 25-

year contract period expiring in 2037)

5. Lakewood Geothermal Project (with a five-year pre-development period expiring in 2017,


6. Balingasag Geothermal Project (with a five-year pre-development period expiring in 2017,


Wind Resource

1. Burgos Wind Project (WESC assigned by EDC to EDC Burgos Wind Power Corporation;

pre-development stage expiring in 2012, 25-year contract period expiring in 2034)

2. Pagudpud Wind Project (pre-development stage expiring in 2013, 25-year contract period

expiring in 2035)

3. Burgos 1 Wind Project (with a three-year pre-development period expiring in 2016, 25-year

contract period expiring in 2038)

4. Burgos 2 Wind Project (with a three-year pre-development period expiring in 2016, 25-year

contract period expiring in 2038)

SEC Form 17Q – 1Q 2014 8

KEY PERFORMANCE INDICATORS

The top eight (8) key performance indicators are set forth below:

Ratio

Mar – 14

Mar – 13

Current Ratio 2.41:1 2.07:1

Debt-to-Equity Ratio 1.60:1 1.35:1

Net Debt-to-Equity Ratio 1.21:1 1.00:1

Return on Assets (%) 5.10 11.23

Return on Equity (%) 14.18 31.47

Solvency Ratio 0.06 0.08

Interest Rate Coverage Ratio 3.67 4.69

Asset-to-Equity Ratio 2.92 2.64

Current Ratio – Total current assets divided by total current liabilities.

This ratio is a rough indication of a company’s ability to pay its short-term obligations.

Generally, a current ratio above 1.00 is indicative of a company’s greater capability to settle

its current obligations.

Debt-to-Equity Ratio – Total interest-bearing debts divided by stockholders’ equity.

This ratio expresses the relationship between capital contributed by the creditors and the

owners. The higher the ratio, the greater the risk being assumed by the creditors. A lower

ratio generally indicates greater long-term financial safety.

Net-Debt-to-Equity Ratio – Total interest-bearing debts less cash & cash equivalents

divided by stockholders’ equity.

This ratio measures the company’s financial leverage and stability. A negative net debt-to-equity

ratio means that the total of cash and cash equivalents exceeds interest-bearing

liabilities.

Return on Assets – Net income (annual basis) divided by total assets (average).

This ratio indicates how profitable a company is relative to its total assets. This also gives an

idea as to how efficient management is at using its assets to generate earnings.

Return on Equity – Net income (annual basis) divided by total stockholders’ equity (average).

This ratio reveals how much profit a company earned in comparison to the total amount of

shareholder equity found on the balance sheet. A business that has a high return on equity is

more likely to be one that is capable of internally generating cash. For the most part, the

company’s return on equity is compared with an industry average. The company is

considered superior if its return on equity is greater than the industry average.

Solvency Ratio – Net income excluding depreciation and non-cash provisions divided by total debt

obligations.

This ratio gauges a company’s ability to meet its long-term obligations.

SEC Form 17Q – 1Q 2014 9

Interest Rate Coverage Ratio – Earnings before interest and taxes of one period divided by

interest expense of the same period.

This ratio determines how easily a company can pay interest on outstanding debt.

Asset-to-Equity Ratio – Total assets divided by total stockholders’ equity.

This ratio shows a company’s leverage, the amount of debt used to finance the firm.

SEC Form 17Q – 1Q 2014 10

OPERATING REVENUES AND EXPENSES

FINANCIAL HIGHLIGHTS

During the first quarter of 2014, the Company posted a net income of P2,523.6 million, a

15.4% or P458.0 million decrease from the P2,981.6 million in the three-month period

ending March 31, 2013. The movement was driven by the P269.6 million turnaround from

foreign exchange gains of P98.5 million in March 2013 to foreign exchange losses of

P171.1 million in the first quarter of 2014. This was supplemented by the P144.0 million

increase in cost of sales of electricity mainly due to personnel costs.

Net income is equivalent to 35.4% of total revenues for the period ended March 31, 2014 as

compared to the 43.0% from the same period in 2013.

Net income attributable to equity holders of the parent company at P2,376.0 million for the

first quarter of 2014 decreased by P322.2 million from P2,698.2 million during the same

period in 2013.

The recurring net income generated in the first quarter of 2014 decreased by 17.3% or

P493.7 million to P2,368.0 million from the P2,861.7 million posted during the same period

in 2013. The decrease is mainly attributable to the P144.0 million increase in cost of sales of

electricity and steam and P422.7 million increase in general and administrative Expenses.

Recurring net income attributable to equity holders of the parent was posted at

P2,220.4 million, down by 13.9%, as compared to the P2,578.3 million for the first quarter

of 2013.

SEC Form 17Q – 1Q 2014 11

RESULTS OF OPERATIONS

The following table details the results of operations for EDC for the first quarter of 2014 and

2013.

STATEMENT OF INCOME

Horizontal Analysis of Material Changes as of March 31, 2014 and 2013

Favorable (Unfavorable) Variance

(Amounts in PHP millions) MAR 2014 MAR 2013 Amount % 2014 2013

REVENUES

Sale of electricity 7,137.9 6,939.9 198.0 2.9% 100.0% 100.0%

COST OF SALES AND SERVICES

Cost of sales of electricity and steam (2,338.7) (2,194.7) (144.0) 6.6% -32.8% -31.6%

GENERAL AND ADMINISTRATIVE EXPENSES (1,261.6) (838.9) (422.7) 50.4% -17.7% -12.1%

FINANCIAL INCOME (EXPENSE)

Interest income 52.5 74.0 (21.5) -29.1% 0.7% 1.1%

Interest expense (972.6) (839.9) (132.7) 15.8% -13.6% -12.1%

(920.1) (765.9) (154.2) 20.1% -12.9% -11.0%

OTHER INCOME (CHARGES)

Foreign exchange (losses) gains, net (171.1) 98.5 (269.6) -273.7% -2.4% 1.4%

Derivative (losses) gains, net 7.5 (5.4) 12.9 -238.9% 0.1% -0.1%

Miscellaneous, net 307.2 (5.5) 312.7 -5685.5% 4.3% -0.1%

143.6 87.6 56.0 63.9% 2.0% 1.2%

INCOME BEFORE INCOME TAX 2,761.1 3,228.0 (466.9) -14.5% 38.7% 46.5%

BENEFIT FROM (PROVISION FOR) INCOME TAX

Current (232.8) (239.8) 7.0 -2.9% -3.3% -3.5%

Deferred (4.7) (6.6) 1.9 -28.8% -0.1% -0.1%

(237.5) (246.4) 8.9 -3.6% -3.4% -3.6%

NET INCOME 2,523.6 2,981.6 (458.0) -15.4% 35.4% 43.0%

Net income attributable to:

Equity holders of the Parent Company 2,376.0 2,698.2 (322.2) -11.9% 33.3% 38.9%

Non-controlling interest 147.6 283.4 (135.8) -47.9% 2.1% 4.1%

EBITDA 4,477.1 4,802.7 (325.6) -6.8% 62.7% 69.2%

RECURRING NET INCOME 2,368.0 2,861.7 (493.7) -17.3% 33.2% 41.2%

Recurring net income attributable to:

Equity holders of the Parent Company 2,220.4 2,578.3 (357.9) -13.9% 31.1% 37.2%

Non-controlling interest 147.6 283.3 (135.7) -47.9% 2.1% 4.1%

HORIZONTAL ANALYSIS VERTICAL ANALYSIS

SEC Form 17Q – 1Q 2014 12

YTD March 31, 2014 vs. YTD March 31, 2013

Revenues

Total sale of electricity for the period ended March 31, 2014 increased by 2.9% or

P198.0 million to P7,137.9 million from P6,939.9 million during the same period in 2013. The

improvement was primarily due to the P370.9 million increase in BGI’s revenues from the

commercial operation of Bacman Units 1 and 3 and the P82.4 million increase in FG Hydro’s sale

of electricity. This was however offset by FG Hydro’s P249.6 million revenue adjustment due to

the recomputation of spot prices for Nov. and Dec. 2013 billings as ordered by the ERC

Cost of Sales of Electricity

Cost of sales of electricity increased by 6.6% or P144.0 million to P2,338.7 million in the first

quarter of 2014 from P2,194.7 million during the same period in 2013. The unfavorable variance

was driven mainly by the personnel costs.

General and Administrative Expenses

General and administrative expenses increased by 50.4% or P422.7 million to P1,261.6 million in

the first quarter of 2014 from P838.9 million during the same period in 2013 mainly due to the

increase in the following:

P136.4 million rental, insurance and taxes;

P89.9 milion in purchased services and utilities on account of various field administrative

activities in support to the full restoration of damaged power plant facilities in LGBU; and

P43.0 million in depreciation and amortization.

Financial Income (Expenses)

Financial expenses-net increased by 20.1% or P154.2 million to P920.1 million in the first quarter

of 2014 from P765.9 million during the same period in 2013 due to the interest charges on new

loans.

Interest income

Interest income decreased by 29.1% or P21.5 million to P52.5 million in the first quarter of

2014 from P74.0 million during the same period in 2013. The unfavorable variance is

mainly due to lower interest income on investments and short-term placement of funds with

the drop in weighted average interest rates.

Interest expense

Interest expense increased by 15.8% or P132.7 million to P972.6 million in the first quarter

of 2014 from P839.9 million during the same period in 2013. The unfavorable variance is

due to interest charges on P7 billion Bond and US$80 million term-loan acquired in May

2013 and December 2013, respectively, coupled with the depreciation of the PhP against

US$.

SEC Form 17Q – 1Q 2014 13

Other Income (Charges)

Other income increased by 63.9% or P56.0 million to P143.6 million in the first quarter of 2014

from P87.6 million during the same period in 2013, primarily due to the gain on sale of rig offset by

the foreign exchange losses recognized for the first quarter of 2014.

Foreign exchange (losses) gains, net

The Company recognized foreign exchange losses of P171.1 million for the first quarter of

2014 compared to the foreign exchange gains of P98.5 million during the same period in

2013. The variance was mainly brought about by the depreciation of the peso against the US

dollar in contrast to its appreciation during the same period in 2013

The comparative foreign exchange rates against the USD were as follows:

PHP:US$

December 31, 2012 41.050

March 31, 2013 40.800

December 31, 2013 44.395

March 31, 2014 44.815

Derivatives (losses) gains, net

Derivative gains of P7.5 million for the three months ended March 31, 2014 is a 238.9%

turnaround from the P5.4 million derivative losses during the same period in 2013. The

realized/unrealized derivative gain (loss) transactions came from the forward foreign

exchange contracts entered into with various banks considering the PhP and US$ exchange

rates as of the transactions/reporting dates.

Miscellaneous, net

Miscellaneous income - net for the first quarter of 2014 amounted to P307.2 million, or a

P312.7 million turnaround from the miscellaneous charges - net of P5.5 million during the

same period in 2013. The increase was mainly due to the P247.5 million gain on sale of Rig

16 in 2014.

Benefit from (Provision for) Income Tax

Deferred tax expense of P4.7 million in March 2014, is a 28.8% decrease from the

P6.6 million deferred tax expense in the three-month period ending March 2013. The decrease was

primarily contributed by the following:

Parent Company’s deferred tax income of P2.9 million was a reversal of P11.3 million

deferred tax expense in 2013; and

GCGI’s lower deferred tax expense by P7.7 million.

These were offset by the absence in 2014 of BGI’s deferred tax with the project’s income tax

holiday effective July 1, 2013. The deferred tax income recognized in 2013 is P20.6 million.

SEC Form 17Q – 1Q 2014 14

Net Income

As a result of the foregoing, the Company’s net income decreased by 15.4% or P458.0 million to

P2,523.6 million for the first quarter of 2014 from P2,981.6 million net income during the same

period in 2013.

Net income is equivalent to 35.4% of total revenues in 2014 as compared to the 43.0% in 2013.

Net income attributable to equity holders of the parent company at P2,376.0 million for the first

quarter of 2014 is a P322.2 million decrease from P2,698.2 million during the same period in 2013.

SEC Form 17Q – 1Q 2014 15

CAPITAL AND LIQUIDITY RESOURCES

As of the quarter ended

(in millions of pesos)

Q1

2014

Q1

2013 YoY change

Balance Sheet Data

Total Assets …………………………… 107,155.5 95,763.0 11.9%

Total Liabilities………………………... 70,472.6 59,525.5 18.4%

Total Stockholder’s Equity …………… 36,682.9 36,237.5 1.2%

The Company’s assets as of March 31, 2014 amounted to P107,155.5 million, 11.9% higher as

compared to the P95,763.0 million level as of March 31, 2013.

SEC Form 17Q – 1Q 2014 16

FINANCIAL POSITION

Horizontal and Vertical Analysis of Material Changes as of March 31, 2014 and

December 31, 2013.

(Amounts in PHP millions) March 2014 December 2013 Amount % 2014 2013

ASSETS

Current Assets

Cash and cash equivalents 14,247.8 16,043.2 (1,795.4) -11.2% 13.3% 15.3%

Trade and other receivables 4,987.6 3,611.4 1,376.2 38.1% 4.7% 3.4%

Available-for-sale (AFS) investments - 341.8 (341.8) -100.0% 0.0% 0.3%

Parts and supplies inventories 3,316.3 3,094.3 222.0 7.2% 3.1% 2.9%

Derivative assets 12.6 14.2 (1.6) -11.3% 0.0% 0.0%

Financial asset at FVPL 500.0 - 500.0 100.0% 0.5% 0.0%

Other current assets 1,560.3 1,235.5 324.8 26.3% 1.5% 1.2%

Total Current Assets 24,624.6 24,340.4 284.2 1.2% 23.0% 23.2%

Noncurrent Assets

Property, plant and equipment 67,705.1 66,240.0 1,465.1 2.2% 63.2% 63.1%

Goodwill and intangible assets 4,371.4 4,399.5 (28.1) -0.6% 4.1% 4.2%

Deferred tax assets 1,330.7 1,335.1 (4.4) -0.3% 1.2% 1.3%

Exploration and evaluation assets 2,462.0 2,380.8 81.2 3.4% 2.3% 2.3%

Available-for-sale (AFS) investments 447.3 407.2 40.1 9.8% 0.4% 0.4%

Derivative assets 88.1 46.9 41.2 87.8% 0.1% 0.0%

Other noncurrent assets 6,126.3 5,855.6 270.7 4.6% 5.7% 5.6%

Total Noncurrent Assets 82,530.9 80,665.1 1,865.8 2.3% 77.0% 76.8%

TOTAL ASSETS 107,155.5 105,005.5 2,150.0 2.0% 100.0% 100.0%

LIABILITIES AND EQUITY

LIABILITIES

Current Liabilities

Trade and other payables 8,081.9 6,982.0 1,099.9 15.8% 7.5% 6.6%

Income tax payable 359.0 - 359.0 100.0% 0.3% 0.0%

Due to related parties 48.1 53.3 (5.2) -9.8% 0.0% 0.1%

Current portion of:

Long-term debts 1,730.6 1,872.1 (141.5) -7.6% 1.6% 1.8%

Derivative liabilities - 0.5 (0.5) -100.0% 0.0% 0.0%

Total Current Liabilities 10,219.6 8,907.9 1,311.7 14.7% 9.5% 8.5%

Noncurrent Liabilities

Long-term debts - net of current portion 57,034.9 56,676.7 358.2 0.6% 53.2% 54.0%

Net retirement and other post-employment benefits 1,736.1 1,658.6 77.5 4.7% 1.6% 1.6%

Provisions and other long-term liabilities 1,482.0 1,513.6 (31.6) -2.1% 1.4% 1.5%

Derivative liabilities - 3.7 (3.7) -100.0% 0.0% 0.1%

Total Noncurrent Liabilities 60,253.0 59,852.6 400.4 0.7% 56.2% 57.0%

EQUITY

Equity Attributable to Equity Holders of the Parent

Preferred stock 93.8 93.8 - 0.0% 0.1% 0.1%

Common stock 18,750.0 18,750.0 - 0.0% 17.5% 17.9%

Common stock in employee trust account (350.3) (351.5) 1.2 -0.3% -0.2% -0.3%

Additional paid-in capital 6,283.6 6,282.8 0.8 0.0% 5.9% 6.0%

Equity reserve (3,706.4) (3,706.4) - 0.0% -3.4% -3.5%

Net accumulated unrealized gain on AFS investments 72.0 29.6 42.4 143.2% 0.1% 0.0%

Retained earnings 13,697.7 13,204.2 493.5 3.7% 12.8% 12.6%

Cumulative translation adjustment (31.9) (64.3) 32.4 -50.4% 0.0% -0.1%

34,808.5 34,238.2 570.3 1.7% 32.5% 32.6%

Non-controlling interest 1,874.4 2,006.8 (132.4) -6.6% 1.7% 1.9%

Total Equity 36,682.9 36,245.0 437.9 1.2% 34.2% 34.5%

TOTAL LIABILITIES AND EQUITY 107,155.5 105,005.5 2,150.0 2.0% 100.0% 100.0%

HORIZONTAL

ANALYSIS

VERTICAL

ANALYSIS

Increase (Decrease)

SEC Form 17Q – 1Q 2014 17

Assets

Cash and cash equivalents

The 11.2% or P1,795.4 million decrease to P14,247.8 million as of March 31, 2014 from the

P16,043.2 million December 31, 2013 balance was mainly due to the P2,875.6 million

acquisition of property, plant and equipment and P628.2 million interest and financing charges

paid. These were offset by the P1,878.5 million cash generated from operations.

Trade and other receivables

Trade and other receivables increased by 38.1% or P1,376.2 million to P4,987.6 million as of

March 31, 2014 from the P3,611.4 million balance as of December 31, 2013 primarily caused

by additional trade receivables from customers.

Available-for-sale (AFS) investments - current

The 100% decrease of AFS investments from the P341.8 million balance as of

December 31, 2013 is caused by the maturity of ROP bonds due on January 15, 2014.

Parts and supplies inventories

This account increased by 7.2% or P222.0 million to P3,316.3 million as of March 31, 2014

from the P3,094.3 million balance in December 2013 due to purchase of various materials and

supplies for plants maintenance and rehabilitation activities.

Derivative assets - current

This account decreased by P1.6 million to P12.6 million as of March 31, 2014 from the

P14.2 million in December 31, 2013. The decrease was mainly due to maturity of the hedging

contracts.

Financial asset at FVPL

The account balance of P500.0 million as of March 31, 2014 pertains to this period’s purchase

of financial assets at FVPL.

Other current assets

This account increased by 26.3% or P324.8 million to P1,560.3 million as of

March 31, 2014 from the P1,235.5 million balance in December 2013 primarily due to the

P220.2 million increase in tax credit certificates and the P98.9 million higher prepaid expenses.

SEC Form 17Q – 1Q 2014 18

Available-for-sale (AFS) investments – noncurrent

AFS investments increased by 9.8% or P40.1 million to P447.3 million as of

March 31, 2014 from the P407.2 million balance as of December 31, 2013 mainly due to the

newly acquired First Gen Corporation Shares, realignment and MTM adjustment.

Derivative assets - noncurrent

This account increased by 87.8% or P41.2 million to P88.1 million as of March 31, 2014 from

the P46.9 million in December 31, 2013. There was an increase since the outstanding hedging

of foreign loans of the company resulted in derivative gain.

Liabilities

Trade and other payables

This account increased by 15.8% or P1,099.9 million to P8,081.9 million as of March 31, 2014

from the P6,982.0 million balance as of December 31, 2013 mainly due to the P1,882.5 million

dividends declared last February 28, 2014, P401.4 million increase in accrued interest and

guarantee fees and the P295.5 million increase in other payables. These were offset by the

P1,498.3 million decrease in accounts payable.

Income tax payable

The P359.0 million account balance as of March 31, 2014 is primarily arising from the Parent’s,

GCGI’s and FG Hydro’s taxable income for the period.

Due to related parties

This account decreased by 9.8% or P5.2 million to P48.1 million as of March 31, 2014 from the

P53.3 million balance as of December 31, 2013 mainly due to the settlement of liabilities.

Long-term debts - current portion

Long-term debts - current portion decreased by 7.6% or P141.5 million, to P1,730.6 million as

of March 31, 2014 from the P1,872.1 million balance at year-end 2013 primarily due to the

regular amortization of the loans.

Derivative liabilities – non current

There was a 100% decrease from the P3.7 million balance in December 31, 2013 since all of the

hedging contract is calculated to have derivative asset.

SEC Form 17Q – 1Q 2014 19

Equity

Net accumulated unrealized gain on AFS investments

This account increased by 143.2% or P42.4 million to P72.0 million as of March 31, 2014 from

the P29.6 million in December 31, 2013. The increase is mainly due to higher fair value of AFS

investments for the period.

Retained earnings

Retained earnings increased by 3.7% or P493.5 million, to P13,697.7 million as of

March 31, 2014 from P13,204.2 million as of December 31, 2013 mainly due to the

P2,376.0 million net income for the first quarter of 2014 offset by the P1,882.5 million cash

dividends for the period.

Non-controlling interest

Non-controlling interest decreased by 6.6% or P132.4 million to P1,874.4 million as of

March 31, 2014 from P2,006.8 million balance as of December 31, 2013 mainly due to the

P280.0 million cash dividend on preferred shares offset by the P147.6 million net income for

the first quarter of 2014.

SEC Form 17Q – 1Q 2014 20

CASH FLOW

YTD March 31, 2014 vs. YTD March 31, 2013

Net cash flows from operating activities decreased by 43.1% or P1,329.3 million to

P1,755.8 million in the first quarter of 2014 from P3,085.1 million during the same period in 2013

primarily due to the P1,359.3 million lower cash generation from operations.

Net cash flows used in investing activities increased by 135.3% or P1,498.7 million to

P2,606 .3 million in the three-month period ending March 2014 as compared to the

P1,107.6 million during the same period in 2013. The decrease was due to the

P1,816.8 million higher acquisition of property, plant and equipment offset by the P321.9 million

proceeds from early redemption of available-for-sale investments in 2014.

Net cash flows used in financing activities increased by 67.2% or P380.3 million to

P946.7 million in the first quarter of 2014 from P566.4 million during the same period in 2013

mainly due to the P280.0 million cash dividends in 2014 while none in 2013 and the P86.2 million

increase in interest and financing charges.

SEC Form 17Q – 1Q 2014 21

DISCUSSION ON THE SUBSIDIARIES

FG Hydro

(Amounts in PHP millions)

As of and for the periods ended

March 31 2014 2013

Operating revenues 1,097.4 984.2 Operating expenses 225.1 225.1 Other expenses - net 44.3 50.5 Income before tax 828.0 708.6 Provision for (benefit from) income tax - 0.1 Net income 828.0 708.5

March 31, 2014 Dec. 31, 2013

Total current assets 2,005.7 1,733.8 Total noncurrent assets 6,276.7 6,403.6 Total current liabilities 562.4 547.2 Total noncurrent liabilities 3,604.6 3,602.8 Total equity 4,115.4 3,987.4

FG Hydro generated revenues of P1,097.4 million for the period ended March 31, 2014, P113.2 million or

11.5% higher than the revenues of P984.2 million for the same period in 2013. The favorable variance was

mainly on account of higher ancillary service revenues and higher spot prices in the WESM.

Operating expenses for the period ended March 31, 2014 remained at same level as the same period in 2013

at P225.1 million. Interest expense as of March 31, 2014 was P4.4 million or 9.0% lower at P44.4 million

compared to P48.8 million for the same period in 2013 due to lower long-term debt balance. Overall, FG

Hydro posted a net income of P828.0 million for the period ended March 31, 2014, P119.5 million or 16.8%

higher than the P708.5 million reported income for the same period in 2013.

Total assets as of March 31, 2014 stood at P8,282.4 million, P145.0 million or 1.7% higher than the

December 31, 2013 level of P8,137.4 million. The favorable variance was mainly due to higher cash

balance.

As of March 31, 2014, total liabilities stood at P4,167.0 million, slightly higher than the December 31, 2013

level of P4,150.0 million.

Total equity as of March 31, 2014 of P4,115.4 million is P128.0 million or 3.2% higher compared to the

December 31, 2013 level of P3,987.4 million.

SEC Form 17Q – 1Q 2014 22

Green Core Geothermal Inc.

(Amounts in PHP millions)

For the periods ended March 31

2014 2013

Revenues 2,610.6 2,692.9 Cost of sale of electricity (2,160.4) (1,687.8) General and administrative expenses (124.0) (77.5) Other income (charges) - net 13.2 23.0 Income before income tax 339.4 950.6 Provision for income tax (45.8) (98.5) Net income 293.6 852.1

As of

March 31, 2014 December 31, 2013

Total Current Assets 4,047.2 4,916.2 Total Non-Current Assets 9,824.9 9,827.1 Total Liabilities 2,291.1 2,453.6 Total Equity 11,581.0 12,289.7

GCGI’s revenues decreased by 3.1% or P82.3 million, to P2,610.6 million as of March 31, 2014 from

P2,692.9 million for the same period in 2013 owing largely to lower sales volume.

Cost of sale of electricity increased by 28.0% or P472.6 million, to P2,160.4 million in 2014 from

P1,687.8 million in 2013, primarily due to higher cost of steam (P482.3 million).

General and administrative expenses increased by 60.0% or P46.5 million, to P124.0 million in 2014 from

P77.5 million in 2013 due mainly to higher purchased services & utilities (P44.8 million).

Other income (charges) – net decreased by 42.6% or P9.8 million, to P13.2 million in 2014 from

P23.0 million in 2013 due largely to lower interest income (P4.8 million) and foreign exchange gains

(P3.3 million).

With the foregoing, provision for income tax decreased by 53.5% or P52.7 million, to P45.8 million in 2014

from P98.5 million in 2013.

Total current assets decreased by 17.7% or P869.0 million, to P4,047.2 million as of March 31, 2014 from

P4,916.2 million balance as of December 31, 2013. The decrease was due to lower cash & cash equivalents

(P1,237.1 million) offset by higher trade & other receivables (P218.5 million), parts & supplies inventories

(P100.0 million) and other current assets (P49.0 million).

Total liabilities decreased by 6.6% or P162.5 million, to P2,291.1 million as of March 31, 2014 from

P2,453.6 million as of December 31, 2013. The decrease was attributed to lower trade & other payables

(P295.2 million) offset by higher amounts due to related parties (P82.8 million).

Total equity decreased by 5.8% or P708.7 million, to P11,581.0 million as of March 31, 2014 from

P12,289.7 million as of December 31, 2013 due to this period’s cash dividend (P1,000.0 million) offset by

this period’s net income (P293.6 million).

SEC Form 17Q – 1Q 2014 23

Bac-Man Geothermal Inc.

(Amounts in PHP millions) For the periods ended

March 31, 2014 March 31, 2013 Revenues 453.4 82.5 Expenses (490.9) (47.2) Other income (0.3) 0.6 Operating income (37.8) 35.9 Provision for income tax – (5.8) Net income (loss) (37.8) 30.1

As of

March 31, 2014 Audited

December 31, 2013 Total Current Assets 684.4 703.7 Total Non-Current Assets 4,547.5 4,170.0 Total Current Liabilities 2,690.4 2,295.8 Total Non-Current Liabilities 12.7 11.3 Total Equity 2,528.8 2,566.6

BGI declared commercial operations of Bac-Man Unit 3 and Bac-Man Unit 1, beginning October 1, 2013

and January 28, 2014, respectively.

Revenues amounting to P=453.4 million from Bac-Man Units 3 and 1 are now reported in the income

statement.

The increase in expenses pertains primarily to the recognition of steam cost of P=302.4 million and net trading

losses in 2014 amounting to P=91.0 million. These were supplemented by the increase in depreciation

expenses of P=13.6 million and purchased services and utilities of P=12.7 million.

Net trading gains amounting to P=82.5 million was recognized in 2013

No provision for income tax in 2014 due to the income tax holiday.

Balance sheet accounts have minimal movement during the quarter.

SEC Form 17Q – 1Q 2014 24

Commitments that will have an impact on the issuer’s liquidity

As of March 31, 2014, the Company has unserved purchase orders and awarded contracts for the

purchase of various capital goods in the total amount of P592.7 million.

Other than these, we are not aware of any other material commitments that should impact the

Company’s liquidity.

Legal proceedings

There are no other material changes in the contingent liabilities since the last annual balance sheet

date.

FOREIGN EXCHANGE AND INTEREST RATE EXPOSURE

The Company has P=23,044.2 million in long-term US dollar denominated loans as of

March 31, 2014 which is 39.2% of the total Company’s long-term loans.

OTHER MATTERS

CASH DIVIDEND

On February 28, 2014, EDC declared cash dividends amounting to P=1.9 billion to its common

shareholders and P=7.5 million to its preferred shareholders of record as of March 17, 2014

payable on or before April 10, 2014.

On January 29, 2014, FG Hydro declared cash dividends to its non-controlling common

shareholder amounting to P=280.0 million paid on February 4, 2014.

SEC Form 17Q – 1Q 2014 25

MAJOR STOCKHOLDERS

As of March 31, 2014, the total number of stockholders was 690 and the stock price was P=5.66. Public float

level was at 49.83% (or 9,343,137,364 common shares).

List of Top 20 Stockholders as of March 31, 2014

Rank Name Nationality

Number of Shares

% Preferred Common Total

1 Red Vulcan Holdings Corporation Filipino 9,375,000,000 7,500,000,000 16,875,000,000 60.00

2 PCD Nominee Corporation Foreign - 6,421,996,061 6,421,996,061 22.83

3 PCD Nominee Corporation Filipino - 2,918,559,390 2,918,559,390 10.38

4 First Gen Corporation Filipino - 991,782,700 991,782,700 3.53

5 Northern Terracotta Power Corporation Filipino - 882,666,700 882,666,700 3.14

6 Peter D. Garrucho, Jr. Filipino - 5,670,000 5,670,000 0.02

7

Peace Equity Access for Community

Empowerment Foundation, Inc. Filipino - 3,030,000 3,030,000 0.01

8 Croslo Holdings Corporation Filipino - 2,200,000 2,200,000 0.01

9 Arthur A. de Guia Filipino - 2,200,000 2,200,000 0.01

10 William Go Kim Huy Filipino - 2,000,000 2,000,000 0.01

11 Anthony M. Mabasa Filipino - 1,000,000 1,000,000 0.00

12 ALG Holdings Corporation Filipino - 875,000 875,000 0.00

13 First Life Financial Co., Inc. Filipino - 800,000 800,000 0.00

14 Raul I. Macatangay Filipino - 725,000 725,000 0.00

15 Rosalind Camara Filipino - 663,750 663,750 0.00

16 Emelita D. Sabella Filipino - 521,000 521,000 0.00

17 Ma. Consuelo R. Lopez Filipino - 500,000 500,000 0.00

18 Peter Mar &/or Annabelle C. Mar Filipino - 500,000 500,000 0.00

19 Virginia Maria D. Nicolas Filipino - 393,000 393,000 0.00

20 Carlos Go &/or Lenny Go Filipino - 375,000 375,000 0.00

SEC Form 17Q – 1Q 2014 26

BOARD OF DIRECTORS

As of March 31, 2014, the members of Board of Directors of EDC are as follows:

Oscar M. Lopez Chairman Emeritus

Federico R. Lopez Chairman and Chief Executive Officer

Peter D. Garrucho, Jr. Director

Elpidio L. Ibañez Director

Ernesto B. Pantangco Director and Executive Vice President

Francis Giles B. Puno Director

Richard B. Tantoco Director, President and Chief Operating Officer

Jonathan C. Russell Director

Edgar O. Chua Independent Director

Francis Ed. Lim Independent Director

Arturo T. Valdez Independent Director

OFFICERS

As of March 31, 2014, the members of Officers of EDC are as follows:

Name Position

Federico R. Lopez Chief Executive Officer

Richard B. Tantoco President and Chief Operating Officer

Ernesto B. Pantangco Executive Vice President

Nestor H. Vasay Senior Vice President, Chief Financial Officer

and Treasurer

Marcelino M. Tongco Senior Vice President for Strategic Contracting

Manuel S. Ogena Senior Vice President for Technical Services

Dominic M. Camu Senior Vice President for Power Generation

Rico G. Bersamin Senior Vice President for Steam Field

Operations

Ma. Elizabeth D. Nasol Vice President for Human Resource

Management

Vincent Martin C. Villegas Vice President for Business Development

Erwin O. Avante Vice President for Corporate Finance and

Compliance Officer

Ferdinand B. Poblete Vice President, Chief Information Officer

Ariel Arman V. Lapus Vice President for Business Development -

International

Ellsworth R. Lucero Vice President for Power Generation

Dwight A. Maxino Vice President, Southern Negros and Northern

Negros Geothermal Field

Manuel C. Paete Vice President, Leyte Geothermal Production

Field

Liberato S. Virata Vice President, Bacon-Manito Geothermal

Project

SEC Form 17Q – 1Q 2014 27

Wilfredo A. Malonzo Vice President for Supply Chain Management

Maribel A. Manlapaz Assistant Vice President, Comptroller

Teodorico Jose R. Delfin Corporate Secretary

Ana Maria A. Katigbak Assistant Corporate Secretary

Glenn L. Tee Senior Manager, Internal Audit

Erudito S. Recio Senior Manager, Investor Relations

ENERGY DEVELOPMENT CORPORATION AND SUBSIDIARIES

FINANCIAL SOUNDNESS INDICATORS

Ratio March 31

2014 2013

Current 2.41:1.00 2.07:1.00

Debt-to-Equity 1.60:1.00 1.35:1.00

Net Debt-to-Equity 1.21:1.00 1.00:1.00

Return on Assets (%) 5.10 11.23

Return on Equity (%) 14.18 31.47

Solvency 0.06 0.08

Interest Rate Coverage 3.67:1.00 4.69:1.00

Asset-to-Equity 2.92:1.00 2.64:1.00

MAP OF RELATIONSHIPS OF THE COMPANIES WITHIN THE FPH / FIRST GEN GROUPS

*FPH’s Corporate Structure as of March 31, 2014

1

ENERGY DEVELOPMENT CORPORATION (A Subsidiary of Red Vulcan Holdings Corporation)

SUPPLEMENTARY SCHEDULE OF ALL EFFECTIVE STANDARDS

AND INTERPRETATIONS MARCH 31, 2014

PHILIPPINE FINANCIAL REPORTING STANDARDS

AND INTERPRETATIONS Effective as of March 31, 2014

Adopted Not

Adopted Not

Applicable

Framework for the Preparation and Presentation of

Financial Statements Conceptual Framework Phase A: Objectives and qualitative

characteristics

PFRSs Practice Statement Management Commentary

Philippine Financial Reporting Standards

PFRS 1

(Revised) First-time Adoption of Philippine Financial

Reporting Standards

Amendments to PFRS 1 and PAS 27: Cost of an

Investment in a Subsidiary, Jointly Controlled

Entity or Associate

Amendments to PFRS 1: Additional Exemptions

for First-time Adopters

Amendment to PFRS 1: Limited Exemption from

Comparative PFRS 7 Disclosures for First-time

Adopters

Amendments to PFRS 1: Severe Hyperinflation

and Removal of Fixed Date for First-time Adopters

Amendments to PFRS 1: Government Loans

PFRS 2 Share-based Payment

Amendments to PFRS 2: Vesting Conditions and

Cancellations

Amendments to PFRS 2: Group Cash-settled

Share-based Payment Transactions

PFRS 3

(Revised) Business Combinations

PFRS 4 Insurance Contracts

Amendments to PAS 39 and PFRS 4: Financial

Guarantee Contracts

PFRS 5 Non-current Assets Held for Sale and

Discontinued Operations

2



Adopted Not

Adopted Not

Applicable

PFRS 6 Exploration for and Evaluation of Mineral

Resources

PFRS 7 Financial Instruments: Disclosures

Amendments to PFRS 7: Transition



Adopted Not

Adopted Not

Applicable

Amendments to PAS 39 and PFRS 7:

Reclassification of Financial Assets


Reclassification of Financial Assets - Effective

Date and Transition

Amendments to PFRS 7: Improving Disclosures

about Financial Instruments

Amendments to PFRS 7: Disclosures - Transfers of

Financial Assets

Amendments to PFRS 7: Disclosures - Offsetting

Financial Assets and Financial Liabilities*

Amendments to PFRS 7: Mandatory Effective

Date of PFRS 9 and Transition Disclosures*

PFRS 8 Operating Segments

PFRS 9 Financial Instruments*

Amendments to PFRS 9: Mandatory Effective

Date of PFRS 9 and Transition Disclosures*

PFRS 10 Consolidated Financial Statements*

PFRS 11 Joint Arrangements*

PFRS 12 Disclosure of Interests in Other Entities*

PFRS 13 Fair Value Measurement*

Philippine Accounting Standards

PAS 1

(Revised) Presentation of Financial Statements

Amendment to PAS 1: Capital Disclosures

Amendments to PAS 32 and PAS 1: Puttable

Financial Instruments and Obligations Arising on

Liquidation

Amendments to PAS 1: Presentation of Items of

3



Adopted Not

Adopted Not

Applicable

Other Comprehensive Income*

PAS 2 Inventories

PAS 7 Statement of Cash Flows

PAS 8 Accounting Policies, Changes in Accounting

Estimates and Errors

PAS 10 Events after the Balance Sheet Date

PAS 11 Construction Contracts

PAS 12 Income Taxes

Amendment to PAS 12 - Deferred Tax: Recovery

of Underlying Assets

PAS 16 Property, Plant and Equipment

PAS 17 Leases

PAS 18 Revenue

PAS 19 Employee Benefits

Amendments to PAS 19: Actuarial Gains and

Losses, Group Plans and Disclosures

PAS 19

(Amended) Employee Benefits*

PAS 20 Accounting for Government Grants and Disclosure

of Government Assistance

PAS 21 The Effects of Changes in Foreign Exchange Rates

Amendment: Net Investment in a Foreign

Operation

PAS 23

(Revised) Borrowing Costs

PAS 24

(Revised) Related Party Disclosures

PAS 26 Accounting and Reporting by Retirement Benefit

Plans

PAS 27

(Amended) Separate Financial Statements*

PAS 28

(Amended) Investments in Associates and Joint Ventures*

PAS 29 Financial Reporting in Hyperinflationary

Economies

4



Adopted Not

Adopted Not

Applicable

PAS 31 Interests in Joint Ventures

PAS 32 Financial Instruments: Disclosure and Presentation

Amendments to PAS 32 and PAS 1: Puttable

Financial Instruments and Obligations Arising on

Liquidation

Amendment to PAS 32: Classification of Rights

Issues

Amendments to PAS 32: Offsetting Financial

Assets and Financial Liabilities*

PAS 33 Earnings per Share

PAS 34 Interim Financial Reporting

PAS 36 Impairment of Assets

PAS 37 Provisions, Contingent Liabilities and Contingent

Assets

PAS 38 Intangible Assets

PAS 39 Financial Instruments: Recognition and

Measurement

Amendments to PAS 39: Transition and Initial

Recognition of Financial Assets and Financial

Liabilities

Amendments to PAS 39: Cash Flow Hedge

Accounting of Forecast Intragroup Transactions

Amendments to PAS 39: The Fair Value Option

Amendments to PAS 39 and PFRS 4: Financial

Guarantee Contracts


Reclassification of Financial Assets


Reclassification of Financial Assets - Effective

Date and Transition

Amendments to Philippine Interpretation IFRIC-9

and PAS 39: Embedded Derivatives

Amendment to PAS 39: Eligible Hedged Items

PAS 40 Investment Property

PAS 41 Agriculture

5



Adopted Not

Adopted Not

Applicable

Philippine Interpretations

IFRIC 1 Changes in Existing Decommissioning,

Restoration and Similar Liabilities

IFRIC 2 Members’ Share in Co-operative Entities and

Similar Instruments

IFRIC 4 Determining Whether an Arrangement Contains a

Lease

IFRIC 5 Rights to Interests arising from Decommissioning,

Restoration and Environmental Rehabilitation

Funds

IFRIC 6 Liabilities arising from Participating in a Specific

Market - Waste Electrical and Electronic

Equipment

IFRIC 7 Applying the Restatement Approach under PAS 29

Financial Reporting in Hyperinflationary

Economies

IFRIC 8 Scope of PFRS 2

IFRIC 9 Reassessment of Embedded Derivatives

Amendments to Philippine Interpretation

IFRIC - 9 and PAS 39: Embedded Derivatives

IFRIC 10 Interim Financial Reporting and Impairment

IFRIC 11 PFRS 2- Group and Treasury Share Transactions

IFRIC 12 Service Concession Arrangements

IFRIC 13 Customer Loyalty Programmes

IFRIC 14 The Limit on a Defined Benefit Asset, Minimum

Funding Requirements and their Interaction

Amendments to Philippine Interpretations

IFRIC- 14, Prepayments of a Minimum Funding

Requirement

IFRIC 16 Hedges of a Net Investment in a Foreign Operation

IFRIC 17 Distributions of Non-cash Assets to Owners

IFRIC 18 Transfers of Assets from Customers

IFRIC 19 Extinguishing Financial Liabilities with Equity

Instruments

IFRIC 20 Stripping Costs in the Production Phase of a

Surface Mine*

6



Adopted Not

Adopted Not

Applicable

SIC-7 Introduction of the Euro

SIC-10 Government Assistance - No Specific Relation to

Operating Activities

SIC-12 Consolidation - Special Purpose Entities

Amendment to SIC - 12: Scope of SIC 12

SIC-13 Jointly Controlled Entities - Non-Monetary

Contributions by Venturers

SIC-15 Operating Leases - Incentives

SIC-21 Income Taxes - Recovery of Revalued Non-

Depreciable Assets

SIC-25 Income Taxes - Changes in the Tax Status of an

Entity or its Shareholders

SIC-27 Evaluating the Substance of Transactions

Involving the Legal Form of a Lease

SIC-29 Service Concession Arrangements: Disclosures.

SIC-31 Revenue - Barter Transactions Involving

Advertising Services

SIC-32 Intangible Assets - Web Site Costs

*These standards, interpretations and amendments to existing standards became effective subsequent to March 31, 2014. The

Company did not early adopt these standards, interpretations and amendments.

Energy Development Corporation (A Subsidiary of Red Vulcan Holdings Corporation) and Subsidiaries

Unaudited Interim Condensed Consolidated Financial Statements March 31, 2014 and 2013 (With Comparative Audited Figures as of December 31, 2013)


AND SUBSIDIARIES

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF

FINANCIAL POSITION As of March 31, 2014

(With Comparative Audited Figures as of December 31, 2013)

March 31,

2014

(Unaudited)

December 31,

2013

(Audited)

ASSETS

Current Assets

Cash and cash equivalents (Notes 5 and 23) P=14,247,765,753 P=16,043,154,556

Financial asset at fair value through profit or loss (Note 23) 500,000,000 –

Trade and other receivables (Notes 6 and 23) 4,987,604,223 3,611,367,033

Available-for-sale (AFS) investments (Note 23) – 341,841,500

Parts and supplies inventories (Note 7) 3,316,277,000 3,094,303,449

Derivative assets (Note 23) 12,581,498 14,244,905

Other current assets (Note 8) 1,560,336,795 1,235,454,883

Total Current Assets 24,624,565,269 24,340,366,326

Noncurrent Assets

Property, plant and equipment (Note 9) 67,705,062,705 66,240,009,563

Goodwill and intangible assets (Note 10) 4,371,447,185 4,399,527,299

Exploration and evaluation assets 2,462,036,651 2,380,775,489

Available-for-sale investments 447,319,018 407,242,129

Deferred tax assets - net 1,330,654,542 1,335,077,588

Derivative assets (Note 23) 88,070,486 46,885,196

Other noncurrent assets (Note 11) 6,126,322,248 5,855,620,746

Total Noncurrent Assets 82,530,912,835 80,665,138,010

TOTAL ASSETS P=107,155,478,104 P=105,005,504,336

LIABILITIES AND EQUITY

Current Liabilities

Trade and other payables (Notes 12 and 22) P=8,081,895,360 P=6,981,975,893

Due to related parties (Notes 22 and 23) 48,149,789 53,347,005

Income tax payable 359,024,486 –

Current portion of:

Long-term debts (Notes 13 and 23) 1,730,583,872 1,872,075,873

Derivative liabilities (Note 23) – 524,790

Total Current Liabilities P=10,219,653,507 8,907,923,561

(Forward)

- 2 -

March 31,

2014

(Unaudited)

December 31,

2013

(Audited)

Noncurrent Liabilities

Long-term debts - net of current portion

(Notes 13 and 23) P=57,034,888,461 P=56,676,684,462

Net retirement and other post-employment benefits 1,736,087,353 1,658,587,597 Provisions and other long-term liabilities 1,482,033,415 1,513,676,279 Derivative liabilities - net of current portion (Note 23) – 3,673,532

Total Noncurrent Liabilities 60,253,009,229 59,852,621,870

Total Liabilities 70,472,662,736 68,760,545,431

Equity

Attributable to equity holders of the Parent Company:

Preferred stock 93,750,000 93,750,000 Common stock 18,750,000,000 18,750,000,000 Equity reserve (3,706,430,769) (3,706,430,769) Additional paid-in capital 6,283,568,086 6,282,808,842 Common shares in employee trust account (350,303,194) (351,494,001) Net accumulated unrealized gain on AFS investments 72,033,359 29,611,321 Cumulative translation adjustment on hedging transactions (26,707,533) (55,615,718) Cumulative translation adjustment arising from foreign

subsidiaries (5,178,069) (8,698,511) Retained earnings 13,697,711,769 13,204,236,334

34,808,443,649 34,238,167,498 Non-controlling interest 1,874,371,719 2,006,791,407

Total Equity 36,682,815,368 36,244,958,905

TOTAL LIABILITIES AND EQUITY P=107,155,478,104 P=105,005,504,336

See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.


AND SUBSIDIARIES

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF INCOME

For the Three-Month Periods Ended

March 31

2014 2013

SALE OF ELECTRICITY P=7,137,864,198 P=6,939,942,895

COST OF SALE OF ELECTRICITY (Note 15) (2,338,697,738) (2,194,713,400)

GENERAL AND ADMINISTRATIVE EXPENSES (Note 16) (1,261,605,081) (838,912,721)

FINANCIAL INCOME (EXPENSES)

Interest income (Notes 4 and 18) 52,510,265 74,034,291

Interest expense (Notes 4 and 17) (972,593,065) (839,944,221)

(920,082,800) (765,909,930)

OTHER INCOME (CHARGES)

Foreign exchange gains - net (Note 19) (171,098,245) 98,554,117

Derivatives gain (loss) - net 7,517,980 (5,448,092)

Miscellaneous - net (Note 20) 307,163,165 (5,524,499)

143,582,900 87,581,526

INCOME BEFORE INCOME TAX 2,761,061,479 3,227,988,370

PROVISION FOR INCOME TAX

Current (232,761,178) (239,835,347)

Deferred (4,744,554) (6,594,069)

(237,505,732) (246,429,416)

NET INCOME P=2,523,555,747 P=2,981,558,954

Net income attributable to:

Equity Holders of the Parent Company P=2,375,975,435 P=2,698,223,255

Non-controlling interest 147,580,312 283,335,699

P=2,523,555,747 P=2,981,558,954

Basic/Diluted Earnings Per Share for Net Income

Attributable to Equity Holders of the Parent Company

(Note 21) P=0.126 P=0.144



AND SUBSIDIARIES

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME


March 31

2014 2013

NET INCOME P=2,523,555,747 P=2,981,558,954

OTHER COMPREHENSIVE INCOME

Other comprehensive income to be

reclassified to profit or loss in subsequent

periods:

Changes in fair value of available-for-sale

investments recognized in equity 42,422,038 2,295,283

Cumulative translation adjustments on foreign

subsidiaries 32,428,627 17,149,906

Total other comprehensive income - net of tax effect 74,850,665 19,445,189

TOTAL COMPREHENSIVE INCOME P=2,598,406,412 P=3,001,004,143

Total comprehensive income attributable to:

Equity Holders of the Parent Company P=2,450,826,100 P=2,717,668,444

Non-controlling interest 147,580,312 283,335,699

P=2,598,406,412 P=3,001,004,143



AND SUBSIDIARIES

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2014 AND 2013

Equity Attributable to Equity Holders of the Parent Company

Preferred

Stock

(Note 14)

Common

Stock

(Note 14)

Common

Shares in

Employee

Trust Account

Additional

Paid-in

Capital

Equity

Reserve

Net

Accumulated

Unrealized

Gain on AFS

Investments

Cumulative

Translation

Adjustments-

Hedging

Transactions

Cumulative

Translation

Adjustments-

Foreign

Subsidiaries

Remeasurements

of Retirement

and Other Post-

Employment

Benefits

Retained

Earnings Subtotal

Non-controlling

Interest Total Equity

Balances, January 1, 2014 P=93,750,000 P=18,750,000,000 (P=351,494,001) P=6,282,808,842 (P=3,706,430,769) P=29,611,321 (P=55,615,718) (P=8,698,511)

P=– P=13,204,236,334 P=34,238,167,498 P=2,006,791,407 P=36,244,958,905

Total comprehensive income: – – – –

Net income – – – – – – – – – 2,375,975,435 2,375,975,435 147,580,312 2,523,555,747

Changes in fair value of AFS

investments recognized

in equity – – – – – 42,422,038 – – – – 42,422,038 42,422,038

Cumulative translation

adjustments – – – – – 28,908,185 3,520,442 32,428,627 32,428,627

– – – – – 42,422,038 28,908,185 3,520,442 2,375,975,435 2,450,826,100 147,580,312 2,598,406,412

Cash dividend (Notes 12 and 14) – – – – – – – – – (1,882,500,000) (1,882,500,000) (280,000,000) (2,162,500,000)

Share based payment – – 1,190,807 759,244 – – – – – – 1,950,051 – 1,950,051

Balances, March 31, 2014

(Unaudited) P=93,750,000 P=18,750,000,000 (350,303,194) 6,283,568,086 (3,706,430,769) 72,033,359 (26,707,533) (5,178,069) 13,697,711,769 34,808,443,649 1,874,371,719 36,682,815,368


- 2 –

Equity Attributable to Equity Holders of the Parent Company

Preferred

Stock

Common

Stock

Common

Shares in

Employee

Trust Account

Additional

Paid-in

Capital

Equity

Reserve

Net

Accumulated

Unrealized

Gain on AFS

Investments

Cumulative

Translation

Adjustment

Retained

Earnings Subtotal

Non-controlling

Interest Total Equity

Balances, January 1, 2013, as previously

reported P=93,750,000 P=18,750,000,000 (P=358,429,306) P=6,277,865,786 (P=3,706,430,769) P=111,522,725 (P=138,589,991) P=12,331,621,322 P=33,361,309,767 P=2,072,545,121 P=35,433,854,888

Total comprehensive income:

Net income – – – – – – – 2,698,223,255 2,698,223,255 283,335,699 2,981,558,954

Changes in fair value of AFS investments

recognized in equity – – – – – 2,295,283 – – 2,295,283 – 2,295,283

Cumulative translation adjustment – – – – – – 17,149,906 – 17,149,906 – 17,149,906

– – – – – 2,295,283 17,149,906 2,698,223,255 2,717,668,444 283,335,699 3,001,004,143

Prior period adjustment- impact of PAS 19 – – – – – – – (689,361,078) (689,361,078) – (689,361,078)

Documentary stamp tax on common shares

subscription – – – – – – – (624,500) (624,500) – (624,500)

Cash dividend – – – – – – – (1,507,500,000) (1,507,500,000) – (1,507,500,000)

Balances, March 31, 2013 P=93,750,000 P=18,750,000,000 (P=358,429,306) P=6,277,865,786 (P=3,706,430,769) P=113,818,008 (P=121,440,085) P=12,832,358,999 P=33,881,492,633 P=2,355,880,820 P=36,237,373,453



AND SUBSIDIARIES

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2014 AND 2013


March 31

2014 2013

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax P=2,761,061,479 P=3,227,988,370

Adjustments for:

Interest expense (Note 17) 972,593,065 839,944,223

Depreciation and amortization (Notes 9 and 10) 935,536,150 889,248,222

Unrealized foreign exchange losses (gains) - net 204,551,170 (118,082,162)

Retirement and post-employment benefits costs 77,499,756 92,057,925

Provision for doubtful accounts 8,132,751 8,580,142

Derivative losses (gains) - net (Note 23) 7,547,020 (1,349,710)

Share-based payment expense 1,950,051 –

Gain on sale of property, plant and equipment (231,835,675) (364,344)

Interest income (Note 18) (52,510,265) (74,034,291)

Operating income before working capital changes 4,684,525,502 4,863,988,375

Decrease (increase) in:

Trade and other receivables (1,378,003,840) 579,945,109

Parts and supplies inventories (221,973,551) 71,819,758

Other current assets (75,879,901) (248,382,603)

Increase (decrease) in:

Trade and other payables (1,189,921,239) (2,015,672,567)

Due to related parties 59,800,683 (13,823,150)

Cash generated from operations 1,878,547,654 3,237,874,922

Income taxes paid including creditable withholding taxes (122,738,704) (151,811,971)

Retirement and other post-employment benefits paid – (974,367)

Net cash flows from operating activities 1,755,808,950 3,085,088,584

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of property, plant and equipment (Note 9) (2,875,603,570) (1,058,833,296)

Proceeds from:

Sale of property, plant and equipment 753,638,487 15,279,493

Redemption of available-for-sale investments 321,940,895 –

Revenue generated from testing of property,

plant and equipment – 299,366,077

Interest received 53,890,239 91,134,598

Purchase of financial asset at FVPL (500,000,000) –

Increase in:

Exploration and evaluation assets (81,261,162) (333,292,643)

Intangible assets (448,195) –

Other noncurrent assets (278,523,301) (121,300,818)

Net cash used in investing activities (2,606,366,607) (1,107,646,589)

(Forward)

- 2 -

March 31,

2014

(Unaudited)

March 31,

2013

(Unaudited)

CASH FLOWS FROM FINANCING ACTIVITIES

Payments of:

Cash dividends (Note 14) (P=280,000,000) P=–

Interest and financing charges (628,151,034) (541,977,560)

Decrease in provisions and other long-term liabilities (38,554,666) (24,385,806)

Net cash flows used in financing activities (946,705,700) (566,363,366)

NET INCREASE (DECREASE) IN CASH AND

CASH EQUIVALENTS (1,797,263,357) 1,411,078,629

EFFECT OF FOREIGN EXCHANGE RATE CHANGES

ON CASH AND CASH EQUIVALENTS 1,874,554 2,579,720

CASH AND CASH EQUIVALENTS AT

BEGINNING OF PERIOD 16,043,154,556 11,420,144,205

CASH AND CASH EQUIVALENTS AT END OF PERIOD

(Notes 5 and 23) P=14,247,765,753 P=12,833,802,554



AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

1. Corporate Information

Corporate Structure

Energy Development Corporation (the “Parent Company” or “EDC”) is a subsidiary of Red

Vulcan Holdings Corporation (Red Vulcan). The Parent Company and its subsidiaries

(collectively hereinafter referred to as the “Company”), were separately incorporated and

registered with the Philippine Securities and Exchange Commission (SEC) except for its foreign

subsidiaries. Below are the Parent Company’s ownership interests in its subsidiaries:

Percentage of Ownership


Direct Indirect Direct Indirect

EDC Drillco Corporation (EDC Drillco) 100.00 – 100.00 – EDC Geothermal Corp. (EGC) 100.00 – 100.00 –

Green Core Geothermal Inc. (GCGI) – 100.00 – 100.00

Bac-Man Geothermal Inc. (BGI) – 100.00 – 100.00 Unified Leyte Geothermal Energy Inc. (ULGEI) – 100.00 – 100.00 Southern Negros Geothermal, Inc. (SNGI)

**** – 100.00 – 100.00 EDC Mindanao Geothermal Inc. (EMGI)

**** – 100.00 – 100.00 Bac-Man Energy Development Corporation

(BEDC)**** – 100.00 – 100.00

Kayabon Geothermal, Inc. (KGI)**** – 100.00 – 100.00

Energy Development (EDC) Corporation Chile Limitada

[EDC Chile Limitada] 99.99 0.01 99.99 0.01

EDC Holdings International Limited (EHIL)*** 100.00 – 100.00 –

Energy Development Corporation Hong Kong Limited

(EDC HKL) *** – 100.00 – 100.00

EDC Chile Holdings SPA** – 100.00 – 100.00

EDC Geotermica Chile** – 100.00 – 100.00

EDC Peru Holdings S.A.C. ** – 100.00 – 100.00

EDC Geotermica Peru S.A.C. **

– 100.00 – 100.00

EDC Quellaapacheta**

– 70.00 – 70.00

EDC Geotérmica Del Sur S.A.C.* – 100.00 – 100.00

EDC Energía Azul S.A.C. * – 100.00 – 100.00

Geotermica Crucero Peru S.A.C. * – 70.00 – 70.00

EDC Energía Perú S.A.C. * – 100.00 – 100.00

Geotermica Tutupaca Norte Peru S.A.C. * – 70.00 – 70.00

EDC Energía Geotérmica S.A.C. * – 100.00 – 100.00

EDC Progreso Geotérmico Perú S.A.C. * – 100.00 – 100.00

Geotermica Loriscota Peru S.A.C. * – 70.00 – 70.00

EDC Energía Renovable Perú S.A.C. * – 100.00 – 100.00

PT EDC Indonesia** – 95.00 – 95.00

PT EDC Panas Bumi Indonesia** – 95.00 – 95.00

EDC Wind Energy Holdings, Inc. (EWEHI) 100.00 – 100.00 – EDC Burgos Wind Power Corporation (EBWPC) – 100.00 – 100.00 EDC Pagudpud Wind Power Corporation

(EPWPC)** – 100.00 – 100.00

First Gen Hydro Power Corporation (FG Hydro) 60.00 – 60.00 – *Incorporated in 2013 and has not yet started commercial operations. **Incorporated in 2012 and has not yet started commercial operations. ***Serves as an investment holding company. ****Incorporated in 2011 and has not yet started commercial operations.

- 2 -

History of Ownership

Beginning December 13, 2006, the common shares of EDC were listed and traded in the

Philippine Stock Exchange (PSE). Up to November 2007, EDC was controlled by the Philippine

National Oil Company (PNOC), a government-owned and controlled corporation, and the

PNOC EDC Retirement Fund.

On November 29, 2007, PNOC and PNOC EDC Retirement Fund sold their combined interests in

EDC to Red Vulcan (a Philippine corporation). Red Vulcan was then a wholly owned subsidiary

of First Gen Corporation (First Gen, a publicly listed Philippine corporation) through Prime

Terracota Holdings Corporation (Prime Terracota, a Philippine corporation). First Gen’s indirect

interest in EDC consists of 6.0 billion common shares and 7.5 billion preferred shares. Control

was then established through First Gen’s 60% indirect voting interest in EDC. Meanwhile, First

Philippine Holdings Corporation (First Holdings, a publicly listed Philippine corporation) directly

owns 66.2% of the common shares of First Gen. Accordingly, First Holdings became then the

ultimate parent of the Company.

On May 12, 2009, First Gen’s indirect voting interest in Red Vulcan was reduced to 45% with the

balance taken up by Lopez Inc. Retirement Fund (40%) and Quialex Realty Corporation (15%)

through the issuance of preferred shares by Prime Terracota. As a result of this transaction, Prime

Terracota replaced First Holdings as the ultimate parent of EDC effective May 12, 2009.

Beginning January 1, 2013, Lopez, Inc. became the ultimate parent of EDC by virtue of the new

definition of control under Philippine Financial Reporting Standards (PFRS) 10, Consolidated

Financial Statements.

Nature of Operations

The Parent Company operates 12 geothermal energy projects in five Geothermal Service Contract

(GSC) areas, namely:

1. Bacon-Manito Geothermal Project (BMGP);

2. Mt. Apo Geothermal Project (MGP);

3. Northern Negros Geothermal Project (NNGP);

4. Southern Negros Geothermal Project (SNGP); and

5. Tongonan Geothermal Project (TGP).

These GSCs are entered into with the Department of Energy (DOE) pursuant to the provisions of

Presidential Decree 1442 (P.D. 1442). These GSCs were replaced by Geothermal Renewable

Energy Service Contracts (GRESCs) on October 23, 2009 in accordance with the provisions of

R.A. 9513 or the Renewable Energy Act of 2008 (RE Law).

Geothermal steam produced is delivered and fed to the Parent Company’s and subsidiary’s power

plants to produce electricity. EDC sells steam and electricity to NPC under the Steam Sales

Agreements (SSAs) and Power Purchase Agreements (PPAs), respectively. Meanwhile, GCGI

and BGI sells electricity to bilateral customers under various Power Supply Agreements (PSAs).

Corporate Address

The Parent Company’s principal place of business is at One Corporate Centre, Julia Vargas

Avenue corner Meralco Avenue, Ortigas Centre, Pasig City.

- 3 -

Authorization for Issuance of the Unaudited Interim Condensed Consolidated Financial

Statements

The interim condensed consolidated financial statements were reviewed, approved and authorized

for issuance by the Board of Directors (BOD) thru the Audit and Governance Committee on

May 14, 2014.

2. Basis of Preparation

The unaudited interim condensed consolidated financial statements have been prepared in

accordance with Philippine Accounting Standard (PAS) 34, Interim Financial Reporting.

Accordingly, the unaudited interim condensed consolidated financial statements do not include all

the information and disclosures required in the annual consolidated financial statements, and

should be read in conjunction with the Company’s annual consolidated financial statements as at

December 31, 2013.

The unaudited interim condensed consolidated financial statements have been prepared on a

historical cost basis, except for the financial asset at FVPL, derivative instruments and AFS

investments that have been measured at fair value. The unaudited interim condensed consolidated

financial statements are presented in Philippine peso (Peso), which is the Parent Company’s

functional currency. All values are rounded to the nearest peso, except when otherwise indicated.

3. Significant Accounting Policies

The accounting policies adopted in the preparation of the unaudited interim condensed

consolidated financial statements are consistent with those followed in the preparation of the

Company’s annual consolidated financial statements as of and for the year ended

December 31, 2013, except for the adoption of the following new and amended accounting

standards that became effective beginning January 1, 2014.

New and Amended Standards

Investment Entities (Amendments to PFRS 10, PFRS 12 and PAS 27)

These amendments are effective for annual periods beginning on or after January 1, 2014.

They provide an exception to the consolidation requirement for entities that meet the

definition of an investment entity under PFRS 10. The exception to consolidation requires

investment entities to account for subsidiaries at fair value through profit or loss. It is not

expected that this amendment would be relevant to the Company since none of the entities in

the Company would qualify to be an investment entity under PFRS 10.

Philippine Interpretation IFRIC 21, Levies (IFRIC 21)

IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers

payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon

reaching a minimum threshold, the interpretation clarifies that no liability should be

anticipated before the specified minimum threshold is reached. IFRIC 21 is effective for

annual periods beginning on or after January 1, 2014. The Company does not expect that

IFRIC 21 will have material financial impact in future financial statements.

- 4 -

PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial

Liabilities (Amendments)

The amendments clarify the meaning of “currently has a legally enforceable right to set-off”

and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as

central clearing house systems) which apply gross settlement mechanisms that are not

simultaneous. The amendments affect presentation only and have no impact on the

Company’s financial position or performance. The amendments to PAS 32 are to be

retrospectively applied for annual periods beginning on or after January 1, 2014.

PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives and

Continuation of Hedge Accounting (Amendments)

These amendments provide relief from discontinuing hedge accounting when novation of a

derivative designated as a hedging instrument meets certain criteria. These amendments are

effective for annual periods beginning on or after January 1, 2014. The Company has not

novated its derivatives during the current period. However, these amendments would be

considered for future novations.

PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets

(Amendments)

These amendments remove the unintended consequences of PFRS 13 on the disclosures

required under PAS 36. In addition, these amendments require disclosure of the recoverable

amounts for the assets or CGUs for which impairment loss has been recognized or reversed

during the period. These amendments are effective retrospectively for annual periods

beginning on or after January 1, 2014 with earlier application permitted, provided PFRS 13 is

also applied. The amendments affect disclosures only and have no impact on the Company’s

financial position or performance.

4. Operating Segment Information

In 2013, the reportable segments of the Company have been changed from business segment

(electricity, steam and drilling) to geographical segment, with each segment representing a

strategic business location that has similar economic and political conditions, proximity of

operations and special risks associated with operations in a particular area.

The Company’s identified reportable segments below are consistent with the segments reported to

the BOD, which is the Chief Operating Decision Maker (CODM) of the Company.

a. Leyte Geothermal Business Unit (LGBU) - refers to Leyte Geothermal Production Field and

Power Plant. This includes projects in Tongonan, Mahanagdong, Upper Mahiao, Malitbog and

other projects in Leyte.

b. Negros Island Geothermal Business Unit (NIGBU) - refers to Southern Negros Geothermal

Production Field and Power Plant.

c. Bacon-Manito Geothermal Business Unit (BGBU) - refers to Bacon-Manito Geothermal

Production Field and Power Plant.

- 5 -

d. Mt. Apo Geothermal Business Unit (MAGBU) - refers to Mt. Apo Geothermal Production

Field and Power Plant.

e. Pantabangan/Masiway - This segment relates to Pantabangan-Masiway hydroelectric complex

located in Nueva Ecija Province.

f. Wind-Ilocos Norte Business Unit (WINBU) - This segment pertains to wind projects in

Northern Luzon, including Burgos wind energy project.

g. All others - refers to other wind energy projects, foreign investments and head office of the

Company.

Segment information is measured in conformity with the accounting policies adopted for

preparing and presenting the consolidated financial statements. Intersegment revenue are made at

normal commercial terms and conditions.

- 6 -

Financial information on the operating segments are summarized as follows:

Pantabangan/

LGBU NIGBU BGBU MGBU Masiway WINBU All others Total

Period Ended March 31, 2014

Segment revenue from external customers P=4,235,973,428 P=2,840,357,107 P=755,874,577 P=588,902,992 P=847,856,667 P=– P=– P=9,268,964,771

(654,329,591) (1,174,337,877) (302,433,105) – – – – (2,131,100,573)

Total segment revenue P=3,581,643,837 P=1,666,019,230 P=453,441,472 P=588,902,992 P=847,856,667 P=– P=– P=7,137,864,198

Segment expenses (1,715,932,347) (694,942,834) (550,047,330) (308,611,197) (225,091,069) (4,936,078) – (3,499,560,855)

Unallocated expenses (P=100,741,964) (P=100,741,964)

Interest income P=28,595,830 P=13,279,621 P=5,424,878 P=3,853,165 P=1,339,163 16,390 1,218 52,510,265

Interest expense (479,344,257) (268,165,343) (94,683,882) (92,981,359) (44,440,671) 7,022,447 (972,593,065)

Other income – net (47,411,387) (50,844,109) (9,979,864) 6,640,953 (1,225,098) (1,274,070) 247,676,475 143,582,900

Income taxes (140,372,173) (70,138,867) 15,211,981 (16,801,680) (22,446,991) (2,958,002) (237,505,732)

Net income P=1,227,179,503 P=595,207,698 (P=180,632,745) P=181,002,874 P=555,992,001 (P=6,193,758) P=151,000,174 P=2,523,555,747

EBITDA P=2,351,522,497 P=1,123,514,967 (P=3,415,720) P=370,980,398 P=727,645,000 (P=4,872,690) P=– P=4,565,374,452

Unallocated expenses (88,257,584)

P=4,477,116,868

Pantabangan/

LGBU NIGBU BGBU MAGBU Masiway WINBU Others Total

Period Ended March 31, 2013

Segment revenue from external customers P=4,330,357,975 P=2,431,176,409 P=82,539,711 P=457,983,138 P=984,204,545 P=– P=– P=8,286,261,778

(546,123,697) (800,195,186) – – – – – (1,346,318,883)

Total segment revenue P=3,784,234,278 P=1,630,981,223 P=82,539,711 P=457,983,138 P=984,204,545 P=– P=– P=6,939,942,895

Segment expenses (1,579,610,013) (618,807,890) (298,986,914) (288,086,838) (225,297,476) (172,450) – (3,010,961,581)

Unallocated segment expenses (22,664,540) (22,664,540)

Interest income 36,699,640 18,079,694 7,541,874 4,269,536 7,434,814 5,145 3,588 74,034,291

Interest expense (419,081,126) (209,178,395) (77,904,084) (84,955,862) (48,824,754) – – (839,944,221)

Other income - net 45,952,519 38,234,883 6,532,822 6,355,668 (9,125,623) (3,730) (365,013) 87,581,526

Income taxes (184,062,569) (82,472,392) 26,158,750 (6,000,947) (52,258) – – (246,429,416)

Net income 1,684,132,729 776,837,123 (254,117,841) 89,564,695 708,339,248 (171,035) (23,025,965) P=2,981,558,954

EBITDA P=2,704,054,811 P=1,146,066,965 (P=145,307,166) P=249,167,532 P=864,156,462 P=– P=– P=4,818,138,604

Unallocated expenses (15,431,920)

P=4,802,706,684

Pantabangan /

LGBU NIGBU BGBU MAGBU WINBU Masiway Elimination Total

As of and for the period ended

March 31, 2014

Segment assets P=67,826,202,006 P=41,135,847,937 P=12,530,874,612 P=9,860,072,395 P=10,556,713,733 P=8,282,452,849 (P=47,894,206,503) P=102,297,957,029

Unallocated corporate assets 4,857,521,075

Total assets P=107,155,478,104

Segment liabilities P=30,503,053,142 P=22,915,772,859 P=16,874,055,502 P=5,034,306,234 P=8,211,672,204 P=4,167,045,949 (P=12,924,454,986) P= 74,781,450,904

Unallocated corporate liabilities (4,308,788,168)

Total liabilities P=70,472,662,736

Capital expenditure P=685,801,474 P=95,707,047 P=368,675,497 P=33,680,635 P=1,402,403,617 P=9,660,096 P=78,619,652 P=2,674,548,018

Unallocated capital expenditure 284,313,676

Total capital expenditure P=2,958,861,694

Depreciation and amortization (P=487,683,001) (P=148,073,457) (P=92,455,304) (P=89,897,217) (P=42,259) (P=104,879,402) (P=11,288,020) (P=934,318,660)

Unallocated depreciation and amortization (630,234)

Total depreciation and amortization (P=934,948,894)

Other non-cash items P=1,871,994 (P=4,365,114) (P=734,834) (P=791,386) P=– P=– P=– P=4,019,340

Unallocated non-cash items

–

Total other non-cash items P=4,019,340

Pantabangan /

LGBU NIGBU BGBU MAGBU WINBU Masiway Elimination Total

As of and for the period ended

December 31, 2013

Segment assets P=65,205,296,071 P=25,469,361,138 P=11,968,739,199 P=9,886,351,624 P=7,814,935,084 P=8,387,255,753 (P=93,724,126,317) P=35,007,812,552

Unallocated corporate assets 69,997,691,784

Total assets P=105,005,504,336

Segment liabilities P=28,473,511,585 P=25,297,887,519 P=16,129,261,708 P=5,289,122,797 P=5,463,699,797 P=4,127,840,853 (P=59,498,621,034) P=25,282,703,225

Unallocated corporate liabilities 43,477,842,206

Total liabilities P=68,760,545,431

Capital expenditure P=2,628,115,271 P=986,383,567 P=1,408,204,079 P=549,451,912 P=4,085,608,975 P=58,608,479 P=– P=9,716,372,283

Unallocated capital expenditure 1,531,302,376

Total capital expenditure P=11,247,674,659

Depreciation and amortization P=2,004,853,928 P=561,616,822 P=210,437,608 P=350,803,482 P=132,408 P=420,901,765 P=– P=3,548,746,013

Unallocated depreciation and amortization 20,601,339

Total depreciation and amortization P=3,569,347,352

Other non-cash items P=78,677,802 P=20,688,290 P=70,561,550 P=13,972,713 P=949,204 P=– P=– P=184,849,559

Unallocated non-cash items (1,849,215)

Total other non-cash items P=183,000,344

- 9 -

The following table shows the Company’s reconciliation of EBITDA to the consolidated net

income (loss) for the three-month periods ended March 31, 2014 and 2013.

2014 2013

EBITDA P=4,477,116,868 P=4,802,706,684

Add (Deduct):

Depreciation and amortization (Notes 9 and 10) (935,536,150) (889,248,222)

Interest expense (Note 17) (972,593,065) (839,944,221)

Provision for income tax (237,505,732) (246,429,416)

Foreign exchange gains (losses) - net (Note 19) (171,098,245) 98,554,117

Interest income (Note 18) 52,510,265 74,034,291

Provision for doubtful accounts (Note 167) (8,132,751) (8,537,248)

Derivatives loss - net (Note 234) 7,517,980 (5,448,092)

Reversal of impairment of parts and supplies

inventories 4,113,412 1,395,562

Miscellaneous - net (Note 20) 307,163,165 (5,524,501)

Consolidated net income P=2,523,555,747 P=2,981,558,954

The Parent Company has intersegment revenue from/to GCGI and BGI for the sale of

steam/electricity. Intersegment revenues are all eliminated in consolidation. Segment information

is measured in conformity with the accounting policies adopted for preparing and presenting the

consolidated financial statements. Intersegment revenue are made at normal commercial terms

and conditions.

Unallocated expenses pertain to expenses of the corporate, technical and administrative support

groups while unallocated corporate assets and liabilities which include among others certain cash

and cash equivalents, property, plant and equipment, parts and supplies inventories, trade and

other payables and retirement and post-employment benefits, pertain to the Head Office and are

managed on a group basis.

5. Cash and Cash Equivalents

March 31,

2014

(Unaudited)

December 31,

2013

(Audited)

Cash on hand and in banks P=2,810,445,708 P=3,941,157,345

Cash equivalents 11,437,320,045 12,101,997,211

P=14,247,765,753 P=16,043,154,556

Cash in banks earn interest at the respective bank deposit rates. Cash equivalents consist of

money market placements, which are made for varying periods of up to three months depending

on the immediate cash requirements of the Company.

6. Trade and Other Receivables

March 31,

2014

(Unaudited)

December 31,

2013

(Audited)

Trade P=4,681,963,672 P=3,397,069,626

Others:

Advances to employees 88,352,412 73,699,085

Non-trade accounts receivable 171,760,020 94,851,647

Loans and notes receivables 124,950,616 124,936,697

Employee receivables 11,725,926 11,958,401

Total other receivables 396,788,974 305,445,830

5,078,752,646 3,702,515,456

Less allowance for doubtful accounts 91,148,423 91,148,423

P=4,987,604,223 P=3,611,367,033

Trade receivables are noninterest-bearing and are generally collectible in 30 to 60 days. Majority

of the Company’s trade receivables arose from sale of electricity to NPC.

Provision for doubtful accounts amounted to nil for the periods ended March 31, 2014 and 2013.

7. Parts and Supplies Inventories

March 31,

2014

December 31,

2013

On hand:

Drilling tubular products and equipment spares P=1,552,032,335 P=1,461,354,072

Power plant spares 782,951,772 678,693,801

Pump, production/steam gathering system,

steam turbine, valves and valve spares 543,477,284 477,428,028

Electrical, cable, wire product and compressor

spares 115,927,257 121,659,974

Heavy equipment spares 91,983,612 65,130,865

Chemical, chemical products, gases and catalyst 83,757,794 136,692,032

Construction and hardware supplies, stationeries

and office supplies, hoses, communication

and other spares and supplies 63,874,186 68,258,675

Automotive, mechanical, bearing, seals, v-belt,

gasket, tires and batteries 45,485,471 47,339,199

Measuring instruments, indicators and tools,

safety equipment and supplies 33,849,596 33,832,918

3,313,339,307 3,090,389,564

In transit 2,937,693 3,913,885

P=3,316,277,000 P=3,094,303,449

Inventories in transit include items not yet received but ownership or title to the goods has already

been passed to the Company.

8. Other current assets

March 31,

2014

December 31,

2013

Withholding tax certificates P=613,313,016 P=393,078,659

Tax credit certificates 472,531,633 472,531,633

Prepaid expenses 401,322,789 302,435,288

Advances to contractors 72,154,710 67,064,239

Others 1,014,647 345,064

P=1,560,336,795 P=1,235,454,883

- 12 -

9. Property, Plant and Equipment

March 31, 2014

Land Power Plants

FCRS and

Production Wells

Buildings,

Improvements

and Other

Structures

Exploration,

Machinery and

Equipment

Transportation

Equipment

Furniture,

Fixtures and

Equipment

Laboratory

Equipment

Construction

in Progress Total

Cost

Balances at January 1 P=515,353,046 P=38,731,016,968 P=25,467,012,393 P=2,128,442,644 P=5,441,021,744 P=193,057,863 P=1,101,387,317 P=662,738,194 P=16,291,440,381 P=90,531,470,550

Additions – 9,738,777 (4,638,471) 95,786 24,460,578 7,116,796 5,817,484 12,496,234 2,903,774,510 2,958,861,694

Disposals/retirements – – – – (669,356,465) (2,403,008) (205,815) (1) – (671,965,289)

Reclassifications – 1,574,387,231 771,731 2,090,267 75,402 (68,206,172) 1,527,365 53,363 (1,568,781,532) (58,082,345)

Balances at March 31 515,353,046 40,315,142,976 25,463,145,653 2,130,628,697 4,796,201,259 129,565,479 1,108,526,351 675,287,790 17,626,433,359 92,760,284,610

Accumulated Depreciation,

Amortization and Impairment

Balances at January 1 17,627,581 11,895,257,449 8,476,733,491 617,184,722 2,412,546,361 69,185,062 511,330,385 291,595,936 – 24,291,460,987

Depreciation and amortization for the year – 540,151,038 196,149,738 26,070,270 80,456,753 4,669,918 36,996,023 18,244,508 4,269,592 907,007,840

Disposals/retirement – – – – (147,553,740) (2,402,997) (205,739) – – (150,162,476)

Reclassifications – 28,750 – 1,435,557 16,073,152 192,666 (6,558,651) 13,672 (4,269,592) 6,915,554

Balances at March 31 17,627,581 12,435,437,237 8,672,883,229 644,690,549 2,361,522,526 71,644,649 541,562,018 309,854,116 – 25,055,221,905

Net Book Value P=497,725,465 P=27,879,705,739 P=16,790,262,424 P=1,485,938,148 P=2,434,678,733 P=57,920,830 P=566,964,333 P=365,433,674 P=17,626,433,359 P=67,705,062,705

December 31, 2013

Land Power Plants FCRS and

Production Wells

Buildings,

Improvements

and Other Structures

Exploration,

Machinery and Equipment

Transportation Equipment

Furniture,

Fixtures and Equipment

Laboratory Equipment

Construction in Progress Total

Cost

Balances at January 1 P=515,587,728 P=37,329,247,352 P=22,545,392,364 P=2,378,453,064 P=3,938,188,809 P=286,850,994 P=629,797,360 P=617,995,651 P=13,168,080,990 P=81,409,594,312 Additions – 149,652,902 133,924,564 47,343,279 195,718,071 16,408,565 63,402,914 34,683,517 10,606,540,847 11,247,674,659

Disposals/retirements – (672,748,540) – (13,625,188) (151,257,597) (26,134,412) (55,453,415) (15,308,799) – (934,527,951)

Reclassifications (234,682) 1,924,865,254 2,787,695,465 (283,728,511) 1,458,372,461 (84,067,284) 463,640,458 25,367,825 (7,483,181,456) (1,191,270,470)

Balances at December 31 515,353,046 38,731,016,968 25,467,012,393 2,128,442,644 5,441,021,744 193,057,863 1,101,387,317 662,738,194 16,291,440,381 90,531,470,550

Accumulated Depreciation, Amortization

and Impairment

Balances at January 1 17,255,629 9,864,027,894 7,123,326,992 516,196,390 1,876,398,510 96,393,978 426,269,376 218,642,240 590,863,997 20,729,375,006

Depreciation and amortization for the year – 2,136,698,413 650,990,367 105,228,014 368,848,266 15,386,426 110,751,071 58,536,459 – 3,446,439,016 Disposals/retirements – (167,347,957) – (5,141,356) (148,653,037) (5,478,882) (47,190,772) (10,286,418) – (384,098,422)

Reclassifications 371,952 61,879,099 702,416,132 901,674 315,952,622 (37,116,460) 21,500,710 24,703,655 (590,863,997) 499,745,387

Balances at December 31 17,627,581 11,895,257,449 8,476,733,491 617,184,722 2,412,546,361 69,185,062 511,330,385 291,595,936 – 24,291,460,987

Net Book Value P=497,725,465 P=26,835,759,519 P=16,990,278,902 P=1,511,257,922 P=3,028,475,383 P=123,872,801 P=590,056,932 P=371,142,258 P=16,291,440,381 P=66,240,009,563

- 13 -

Estimated Rehabilitation and Restoration Costs

FCRS and production wells include the estimated rehabilitation and restoration costs of the

Company’s steam fields and power plants’ contract areas at the end of the contract period. These

were based on technical estimates of probable costs, which may be incurred by the Company in

the rehabilitation and restoration of the said steam fields and power plants’ contract areas from

2031 up to 2044, discounted using the Company’s risk-adjusted rate. These costs, net of

accumulated amortization, amounted to P=506.70 million and P=346.28 million as of March 31,

2014 and December 31, 2013, respectively. As of March 31, 2014 and December 31, 2013, the

provision for rehabilitation costs under “Provisions and other long-term liabilities” amounted to

P=696.72 million and P=493.52 million, respectively.

Rehabilitation of BMGPP

Since 2010, BGI’s power plants are undergoing rehabilitation. In 2011, BGI performed testing

procedures in preparation for its planned commercial operations. As of March 31, 2014, Unit 2 is

still under rehabilitation while Unit 1 and Unit 3 commenced commercial operations on January

28, 2014 and October 1, 2013, respectively.

Meanwhile, revenue generated by Unit 1 from January 28, 2014 to March 31, 2014 and Unit 3

from January 1, 2014 to March 31, 2014 during their commercial operations amounting to P=308.5

million and P=145.0 million, respectively, were presented as part of the “Revenue from sale of

electricity” account in the consolidated statement of income.

Burgos Wind Energy Project

In March 2013, the Parent Company entered into an agreement with Vestas of Denmark for the

construction of the 87 MW wind farm in Burgos, Ilocos Norte. Under the Engineering,

Procurement and Construction (EPC), Vestas is responsible for the design, manufacture, delivery

of the works from the place of manufacture to the project site, erection, testing and commissioning

for a complete and operational wind farm. The agreement covers the installation of 29 units of

V90 3.0 MW turbine together with associated on-site civil and electrical works. The Company

issued Notice to Proceed to Vestas in June 2013.

On April 30, 2014, the Company has signed on for the installation of an additional twenty one

(21) wind turbines. This raises the total project investment cost to US$450 million from

US$300 million, and once fully completed, increases the total generating capacity to 150 MW

from 87 MW.

Depreciation and Amortization

Details of depreciation and amortization charges recognized in the unaudited interim consolidated

statements of income are shown below:

March 31,

2014

(Unaudited)

March 31,

2013

(Unaudited)

Property, plant and equipment P=907,007,840 P=865,200,434

Intangible assets (Note 10) 28,528,310 24,047,789

P=935,536,150 P=889,248,223

Cost of sales of electricity (Note 15) P=824,150,589 P=820,829,217

General and administrative (Note 16) 111,385,561 68,419,006

P=935,536,150 P=889,248,223

- 14 -

10. Goodwill and Intangible Assets

March 31, 2014

Goodwill Water Rights

Other Intangible

Assets Total

Cost

Balances at January 1 P=2,535,051,530 P=2,404,778,918 P=171,776,021 P=5,111,606,469

Additions – – 448,196 448,196

Balances at March 31 2,535,051,530 2,404,778,918 172,224,217 5,112,054,665

Accumulated Amortization

Balances at January 1 – 685,361,992 26,717,178 712,079,170

Amortization

(Notes 15and 16) – 24,047,789 4,480,521 28,528,310

Balances at March 31 – 709,409,781 31,197,699 740,607,480

Net Book Value P=2,535,051,530 P= 1,695,369,137 P=141,026,518 P=4,371,447,185

December 31, 2013

Goodwill Water Rights

Other Intangible

Assets Total

Cost

Balances at January 1 P=2,535,051,530 P=2,404,778,918 P=467,744,367 P=5,407,574,815

Reclassifications (Note 9) – – (467,744,367) (467,744,367)

Additions – – 171,776,021 171,776,021

Balances at December 31 2,535,051,530 2,404,778,918 171,776,021 5,111,606,469

Accumulated Amortization

Balances at January 1 – 589,170,835 – 589,170,835

Amortization

(Notes 15 and 16) – 96,191,157 26,717,178 122,908,335

Balances at December 31 – 685,361,992 26,717,178 712,079,170

Net Book Value P=2,535,051,530 P=1,719,416,926 P=145,058,843 P=4,399,527,299

Water rights are amortized using the straight-line method over 25 years, which is the term of the

Agreement with National Irrigation Administration. The remaining amortization period of water

rights is 17.7 years as of March 31, 2014.

Other intangible assets pertain to the Company’s wind energy project development costs and

software cost related to the acquisition of new accounting system in 2013.

Reclassification

In 2013, the Company reclassified the wind energy project development costs amounting to

P=467.74 million into property, plant and equipment. Management believes that the technical

feasibility and commercial viability of the project has already been established following the

issuance by the Company of notice to proceed to its wind farm contractor, Vestas (see Note 9).

- 15 -

11. Other Noncurrent Assets

March 31,

2014

(Unaudited)

December 31,

2013

(Audited)

Input value-added tax P=4,419,331,447 P=4,177,522,698

Tax credit certificates 1,482,893,864 1,560,618,288

Special deposits and funds 224,339,989 177,990,509

Prepaid expenses 205,312,056 155,364,932

Long-term receivables 96,447,621 88,962,765

Others 179,255,938 168,287,470

6,607,580,915 6,328,746,662

Less allowance for doubtful accounts 481,258,667 473,125,916

P=6,126,322,248 P=5,855,620,746

Provision for doubtful accounts pertaining to input VAT and long-term receivables amounted to

P=9.8 million and P=8.5 million for the three-month periods ended March 31, 2014 and 2013,

respectively (Note 16).

12. Trade and Other Payables

March 31,

2014

(Unaudited)

December 31,

2013

(Audited)

Accounts payable:

Third parties P=3,212,451,510 P=5,061,002,130

Related parties (Note 22) 586,220,789 235,996,358

Royalty fee payable 51,817,809 39,671,237

Dividends payable 1,882,500,000 –

Accrued interest and guarantee fees 1,194,109,430 792,685,801

Withholding and other taxes payable 392,570,936 387,352,605

Deferred credits 36,454,488 35,720,220

SSS and other contributions payable 4,763,030 4,064,414

Other payables 721,007,368 425,483,128

P=8,081,895,360 P=6,981,975,893

Accounts payable are noninterest-bearing and are normally settled on a 30 to 60 days term.

The accrued interest represents interest accrual on outstanding loans.

- 16 -

13. Long-term Debts

March 31,

2014

(Unaudited)

December 31,

2013

(Audited)

US Dollar-denominated debts P=23,044,219,616 P=22,815,344,784

Peso-denominated debts 35,721,252,717 35,733,415,550

58,765,472,333 58,548,760,334

Less current portion 1,730,583,872 1,872,075,873

Noncurrent portion P=57,034,888,461 P=56,676,684,461

The Company’s foreign-currency denominated long-term debts were translated into Philippine

pesos based on the prevailing foreign exchange rates at the date of the unaudited interim

consolidated statement of financial position (USD1= P=44.815 on March 31, 2014 and

USD1= P=44.395 on December 31, 2013).

14. Dividends

Parent Company

On February 28, 2014, EDC declared cash dividends amounting to P=1.9 billion to its common

shareholders and P=7.5 million to its preferred shareholders of record as of March 17, 2014 payable

on or before April 10, 2014.

FG Hydro

On January 29, 2014, FG Hydro declared cash dividends to its non-controlling common

shareholder amounting to P=280.0 million paid on February 4, 2014.

15. Cost of Sale of Electricity

March 31,

2014

(Unaudited)

March 31,

2013

(Unaudited)

Depreciation and amortization P=824,150,589 P=820,829,217

Personnel costs 531,474,558 385,725,206

Purchased services and utilities (Note 22) 360,238,049 291,487,988

Rental, insurance and taxes 285,005,469 341,325,748

Parts and supplies issued 197,132,764 100,268,013

Repairs and maintenance 74,777,943 205,650,497

Royalty fees 56,688,509 45,341,410

Business and related expenses 20,076,727 26,672,805

Proceeds from insurance claims (10,846,870) (22,587,484)

P=2,338,697,738 P=2,194,713,400

- 17 -

16. General and Administrative Expenses

March 31,

2014

(Unaudited)

March 31,

2013

(Unaudited)

Personnel costs P=377,801,540 P=261,371,101

Purchased services and utilities 353,931,674 264,072,847

Rental, insurance and taxes 273,141,555 136,773,154

Depreciation and amortization 111,385,561 68,419,005

Business and related expenses 75,910,574 69,013,273

Parts and supplies issued 50,471,211 24,749,005

Repairs and maintenance 14,943,627 7,372,650

Provision for doubtful accounts (Note 6 and 11) 9,794,134 8,537,248

Reversal of impairment of parts and supplies

inventories (Note 7) (5,774,795) (1,395,562)

P=1,261,605,081 P=838,912,721

17. Interest Expense

March 31,

2014

(Unaudited)

March 31,

2013

(Unaudited)

Interest on long-term debts including amortization

of transaction costs P=962,843,591 P=833,604,675

Interest accretion on provision for rehabilitation

and restoration costs 7,796,697 6,339,546

Interest on liability from litigation 1,952,777 –

P=972,593,065 P=839,944,221

18. Interest Income

March 31,

2014

(Unaudited)

March 31,

2013

(Unaudited)

Interest on placements P=39,766,220 P=64,985,166

Interest on savings/current accounts 12,042,025 1,026,221

Accretion of “Day 1 loss” on security deposit 310,951 288,600

Interest on overdue accounts/others – 1,413,560

Others 391,069 6,320,744

P=52,510,265 P=74,034,291

- 18 -

19. Foreign Exchange Gains (Losses) - net

March 31,

2014

(Unaudited)

March 31,

2013

(Unaudited)

Realized foreign exchange gains - net P=29,982,860 P=123,373,303

Unrealized foreign exchange losses - net (201,081,105) (24,819,186)

(P=171,098,245) P=98,554,117

This account pertains to foreign exchange adjustments on repayment of loans and restatement of

outstanding balances of foreign currency-denominated loans, short-term placements and cash in

banks.

20. Miscellaneous Income

March 31,

2014

(Unaudited)

March 31,

2013

(Unaudited)

Gain on sale of property, plant and equipment (P=247,502,828) P=–

Others (59,660,337) (5,524,499)

(P=307,163,165) (P=5,524,499)

21. Earnings Per Share

The Earnings Per Share amounts were computed as follows:

March 31,

2014

(Unaudited)

March 31,

2013

(Unaudited)

(a) Net income attributable to equity shareholders of

the Parent Company P=2,375,975,436 P=2,698,223,255

Less dividends on preferred shares 7,500,000 7,500,000

(b) Net income attributable to common shareholders

of the Parent Company P=2,368,475,436 P=2,690,723,255

(c) Weighted average number

of common shares outstanding 18,750,000,000 18,750,000,000

Basic/diluted earnings per share (b/c) P=0.126 P=0.144

The Parent Company does not have dilutive common stock equivalents as of March 31, 2014 and

2013.

- 19 -

22. Related Party Transactions

a. First Balfour, Inc. (First Balfour)

Following the regular bidding process, the Company awarded to First Balfour procurement

contracts of various structural and mechanical/piping works.

First Balfour is a wholly owned subsidiary of First Holdings.

b. First Gen

First Gen provides financial consultancy, business development and other related services to

the Parent Company under a consultancy agreement beginning September 1, 2008. Such

agreement is for a period of three years up to August 31, 2011. Under the terms of the

agreement, billings for consultancy services shall be P=8.7 million per month plus applicable

taxes. This was increased to P=11.8 million effective September 2009 to cover the cost of

additional officers and staff assigned to the Parent Company. The consultancy agreement was

subsequently extended for another 16 months, from September 1, 2011 to December 31, 2013.

The consultancy agreement was further extended for another two years from January 1, 2013

to December 31, 2014.

In 2012, the Parent Company purchased 5.4 million shares of First Gen with acquisition cost

of P=77.09 million recorded as AFS investments.

c. IFC

IFC is a shareholder of the Parent Company that has approximately 5% ownership interest in

the Parent Company. On May 20, 2011, the Parent Company signed a 15-year US$75.0

million loan facility with IFC. The loan was drawn in Peso on September 30, 2011,

amounting to P=3,262.5 million. As of March 31, 2014 and December 31, 2013, the

outstanding balance of the loan amounting to P=2,961.5 million and P=2,959.7 million,

respectively, is included under the “Long-term debts” account in the unaudited interim

consolidated statements of financial position (see Note 13).

On November 27, 2008, the Parent Company entered into a loan agreement with IFC for

US$100.0 million or its Peso equivalent of P=4.1 billion. On January 7, 2009, the Parent

Company opted to draw the loan in Peso and received the proceeds amounting to

P=4,048.8 million, net of P=51.3 million front-end fee. The loan is payable in 24 equal semi-

annual installments after a three-year grace period at an interest rate of 7.4% per annum for the

first five years subject to repricing for another five to 10 years. Under the loan agreement, the

Parent Company is restricted from creating liens and is subject to certain financial covenants.

As of March 31, 2014 and December 30, 2013, the outstanding loan amounted to

P=3,205.0 million and P=3,537.5 million, respectively.

d. Other Related Parties

In the ordinary course of business, the Company avails of or grants advances from/to its

related parties for working capital requirements. Such advances are payable/collectible within

12 months and are non-interest bearing.

Following are the other related parties identified by the Company:

Bauang Private Power Corporation is a subsidiary of First Private Power Corporation, an

associate of First Gen. First Gas Holdings Corporation and First Gas Power Corporation are

- 20 -

subsidiaries of First Gen. First Holdings, parent company of First Gen, is an associate of

Lopez Holdings Corporation (formerly Benpres Holdings Corporation).

Bayan Telecommunications Inc. (Bayantel) is 97.3%-owned by Bayantel Holdings on which

Lopez Holdings Corporation has 47.3% ownership.

Sky Cable Corporation (Sky Cable) is 80.7%-owned by ABS-CBN Corp. on which Lopez

Holdings Corporation has 57.3% interest. ABS-CBN Publishing, Inc. is a wholly owned

subsidiary of ABS-CBN Corp.

Rockwell Land Corporation is 86.79% owned by First Holdings.

First Electro Dynamics Corporation (FEDCOR) is a wholly owned subsidiary of First

Holdings.

Adtel Inc. is a wholly owned subsidiary of Lopez Incorporated.

Lopez Group Foundation, Inc. is the coordinative hub for the corporate social responsibility

initiatives of Lopez Holdings Corporation.

First Philec Manufacturing Technologies Corp., Securities Transfer Services, Inc. and First

Philippine Realty Corp. (FPRC), formerly known as INAEC Development Corp, are wholly

owned subsidiaries of First Holdings.

Thermaprime Well Services, Inc. (Thermaprime) is a subsidiary of First Balfour, a wholly

owned subsidiary of First Holdings. Thermaprime provides drilling services such as, but not

limited to, rig operations, rig maintenance, well design and engineering.

On January 29, 2014, EDC entered into a contract between Thermaprime Well Services, Inc.

for the sale of Rig 16 and its ancillary items for an amount of Php 825,000,000, exclusive of

applicable vat. The company gained Php247,502,828 from the sale.

First Gen Energy Solutions (First GES) and First Gen Northern Energy Corp. are wholly

owned subsidiaries of First Gen.

First Philippine Industrial Corp. is 60% owned by First Holdings.

- 21 -

Following are the amounts of transactions for the periods ended March 31, 2014 and 2013 and

outstanding balances as of March 31, 2014 and December 31, 2013:

Transactions for the periods ended March 31

Net amount due from/to related parties

Related Party Nature of Transaction 2014

(Unaudited)

2013

(Unaudited)

March 31,

2014

(Unaudited)

December 31,

2013

(Audited)

Trade and other receivables

First Gen Energy

Solutions

Revenue from sale of electricity P=80,539,272 P=– P=63,935,920 P=61,993,428

Due to related parties

First Gen Consultancy fee P=43,821,176 P=35,827,372 P=43,998,784 P=43,998,784

Interest-free advances 4,265,195 13,915,942 4,099,171 4,219,175

Lopez Group Foundation,

Inc.

Interest-free advances 5,042,750 First Gas Power 41,760 – 41,760 73,110

First Gas Power Corporation

Interest-free advances 10,074 138,517 10,074 13,186 First Gas Holdings

Corporation

Interest-free advances 52,280

P=48,138,205 P=49,934,111 P=48,149,789 P=53,347,005

Trade and other payables

Thermaprime Work fees P=195,000,000 P=255,740,955 P=227,498,650 P=78,485,096

First Balfour, Inc. Refurbishment of BMGPP and ancillary facilities 389,793,444 4,010,543 353,085,664 152,027,391

First Philec Manufacturing

Technologies Corp.

Purchase of services and utilities

– – 2,194,482 2,194,482

Bayantel Purchase of services and utilities 3,607,856 227,024 3,700,241 3,543,051

FPRC Purchase of services and utilities 985,106 98,109 211,102 898,609 ABS-CBN Publishing Purchase of services and utilities – – 3,600 3,600

ABS-CBN foundation Purchase of services and utilities 715,000 – – 715,000

Adtel Inc. Purchase of services and utilities 1,736,686 – (830,950) (2,460,292) First Electro Dynamics

Corporation


– – 358,000 589,421

First Philippine Industrial Corporation


– – – –

Rockwell Land Corporation Purchase of services and utilities 86,875 16,800 – –

Sky Cable Purchase of services and utilities – – –

ABS-CBN Corp. Purchase of services and utilities 29,464 – – –

P=591,954,431 P=260,093,431 P=586,220,789 P=235,996,358

Long-term debt

IFC Interest-bearing loans P=99,360,503 P=124,598,103 P=6,166,463,239 P=6,162,859,592

The purchases from related parties are made at normal commercial terms and conditions. The

amounts outstanding are unsecured and will be settled in cash. Except for the US$80.0 million

letters of credit issued by the Parent Company in favor of EDC Chile Limitada, there were no

guarantees that have been given to and/or received from any related party in 2014 and 2013.

The Company did not recognize any impairment losses on receivables from related parties for the

three-month periods epnded March 31, 2014 and 2013.

- 22 -

23. Financial Risk Management Objectives and Policies

The Company’s financial instruments consist mainly of cash and cash equivalents, AFS

investments and long-term debts. The main purpose of these financial instruments is to finance

the Company’s operations. The Company has other various financial assets and liabilities such as

trade receivables, trade payables and other liabilities, which arise directly from operations.

Financial Risk Management Policy

The main financial risks arising from the Company’s financial instruments are credit risk, foreign

currency risk, interest rate risk, equity price risk and liquidity risk. The Company’s policies for

managing the aforementioned risks are summarized hereinafter below.

Credit Risk

The Company’s geothermal and power generation business trades with only one major customer,

NPC, a government-owned-and-controlled corporation. Any failure on the part of NPC to pay its

obligations to the Company would significantly affect the Company’s business operations. As a

practice, the Company monitors closely its collection from NPC and charges interest on delayed

payments following the provision of its respective SSAs and PPAs. Receivable balances are

monitored on an ongoing basis to ensure that the Company’s exposure to bad debts is not

significant. The Company does not hold any collateral from its trade receivables hence, its

maximum exposure to credit risk equals on these trade receivables equals its carrying amount.

With respect to the credit risk arising from other financial assets of the Company, which comprise

of cash and cash equivalents excluding cash on hand, financial asset at FVPL, other receivables,

amounts due from related parties and AFS investments, the Company’s exposure to credit risk

arises from default of the counterparty, with a maximum exposure equal to the carrying amount of

these instruments before

taking into account any collateral and other credit enhancements.

The following tables below show the Company’s aging analysis of the Company’s financial assets

as of March 31, 2014 and December 31, 2013:

March 31, 2014 (Unaudited)

Past Due but Not Impaired

Neither Past

Due nor

Impaired

Less than

30 Days

31 Days

to 1 Year

Over 1 Year

up to

3 Years

Over

3 Years

Past

Due and

Impaired Total

(In Thousand Pesos) Loans and receivables:

Cash and cash

equivalents (excluding cash on

hand) P=14,227,422 P=– P=– P=– P=– P=– P=14,227,422

Trade receivables 3,372,389 240,361 978,065 – – 91,149 4,681,964

Loans and notes

receivables 124,951 – – – – – 124,951

Employee receivables 11,726 – – – – – 11,726

Non-trade receivables 127,955 5,112 38,692 – – – 171,759

Long-term receivables 96,448 – – – – 72,278 168,726

AFS investments:

Debt investments 260,732 – – – – – 260,732

Equity investments 186,587 – – – – – 186,587

Financial asset at FVPL: Designated as at FVPL 500,000 – – – – – 500,000

Derivative Asset 100,652 – – – – – 100,652

Total P=19,008,862 P=245,473 P=1,016,757 P=– P=– P=163,427 P=20,434,519

- 23 -

December 31, 2013

Past Due but Not Impaired

Neither Past

Due nor

Impaired

Less than

30 Days

31 Days

to 1 Year

Over 1 Year

up to

3 Years

Over

3 Years

Past

Due and

Impaired Total

(In Thousand Pesos)

Loans and receivables:

Cash and cash

equivalents

(excluding cash on

hand) P=16,013,213 P=– P=– P=– P=– P=– P=16,013,213

Trade receivables 3,213,038 17,048 75,835 – – 91,149 3,397,070

Non-trade receivables 84,773 – 10,060 19 – – 94,852

Loans and notes

receivables 124,936 – – – – – 124,936

Employee

receivables* 11,958 – – – – – 11,958

Long-term

receivables 16,685 – – – – 72,278 88,963

AFS investments:


Equity investments 407,242 – – – – – 407,242

Financial assets at

FVPL:

Derivative assets 7,547 – – – – – 7,547

Derivative assets

designated as cash

flow hedges 53,583 – – – – – 53,583

Total P=20,274,817 P=17,048 P=85,895 P=19 P=– P=163,427 P=20,541,206

Credit Quality of Financial Assets

Financial assets are classified as high grade if the counterparties are not expected to default in

settling their obligations. Thus, the credit risk exposure is minimal. These counterparties

normally include customers, banks and related parties who pay on or before due date. Financial

assets are classified as a standard grade if the counterparties settle their obligation with the

Company with tolerable delays. Low grade accounts are accounts, which have probability of

impairment based on historical trend. These accounts show propensity of default in payment

despite regular follow-up actions and extended payment terms.

As of March 31, 2014 and December 31, 2013, all financial assets categorized as neither past due

nor impaired are viewed by management as high grade, considering the collectibility of the

receivables and the credit history of the counterparties.

Foreign Currency Risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument

will fluctuate because of changes in foreign exchange rates.

The Company’s exposure to foreign currency risk resulted primarily from the financial assets and

liabilities that are denominated in US dollar. These financial assets and liabilities consist of

foreign currency denominated loans, cash equivalents, trade and other payables and the

Company’s investment in marketable securities and ROP Bonds.

The Company’s exposure to foreign currency risk to some degree is mitigated by some provisions

in the Company’s GRESCs, SSAs and PPAs. The service contracts allow full cost recovery while

the sales contracts include billing adjustments covering the movements in Philippine peso and the

US dollar rates, US Price and Consumer Indices, and other inflation factors.

- 24 -

To mitigate further the effects of foreign currency risk, the Company will prepay, refinance or

hedge its foreign currency denominated loans, whenever deemed feasible. The Company also

enters into derivative contracts to mitigate foreign currency risk. Accordingly, in the first half of

2012, the Company entered into non-deliverable cross currency swaps to hedge its foreign

currency risk exposure on its US dollar-denominated Club Loan.

The Company’s foreign currency-denominated financial assets and liabilities (translated into

Philippine peso) as of March 31, 2014, and December 31, 2013, are as follows:

March 31, 2014

Original Currency

US$ Japanese yen (JP¥)

Chilean Peso

(CHP=) Euro (EUR)

New Zealand

dollar (NZD)

Peso

Equivalent1

Financial Assets


Cash equivalents 38,900,000 − − − − 1,743,303,500

Cash on hand and in banks 4,508,404 − 115,195,991 − − 202,044,125

Derivative assets designated as

cash flow hedges 2,245,944 − − − − 100,651,980

Total financial assets 45,654,348 − 115,195,991 − − 2,045,999,605

Financial Liabilities

Liabilities at amortized cost:

Accounts payable 12,259,210 13,822,941 − 207,100 556,919 589,948,393

Long-term debt 514,026,898 − − − − 23,036,115,434

Accrued interest on long-

term debts 6,112,143 − − − − 273,915,689

Total financial liabilities 532,398,251 13,822,941 − 207,100 556,919 23,899,979,516 1 US$1= P=44.8150, JP¥1=P=0.4358, CHP1=P=0.0817, EUR1=P=61.8965 and NZD1=P=38.9812 as of March 31, 2014

December 31, 2013

Original Currency

US$

Japanese

yen (JP¥)

United

Kingdom

pound (GBP)

Sweden

kroner

(SEK)

Chilean

Peso

(CHP=) Euro (EUR)

New Zealand

dollar (NZD)

Peso

Equivalent1

Financial Assets


Cash equivalents 56,300,000 − − − − − − P=2,499,438,500

Cash on hand and in

banks 11,917,441 − − − 96,005,271 − − 537,186,567

AFS investments:

Debt investments 7,696,268 − − − − − − 341,675,818

Financial assets at FVPL:

Derivative assets 169,997 − − − − − − 7,547,020

Derivative assets

designated as cash flow

hedges 1,206,962 − − − − − − 53,583,080

Total financial assets 77,290,668 − − − 96,005,271 − − P=3,439,430,985


Liabilities at amortized

cost:

Accounts payable 26,621,867 13,822,941 138,000 1,254,342 − 139,000 621,331 P=1,231,408,505

Long-term debt 513,785,044 − − − − − − 22,809,487,028

Accrued interest on

long-term debts 8,891,194 − − − − − − 394,724,558

Derivative liabilities

designated as cash flow

hedges 94,568 − − − − − − 4,198,322

Total financial liabilities 549,392,673 13,822,941 138,000 1,254,342 − 139,000 621,331 P=24,439,818,413 1 US$1= P=44.395, J P¥1=P=0.0095, GBP1=P=72.90, SEK1=P=6.79, CHP=1=P=0.08449, EUR1=P=60.82 and NZD1=P=36.212 as of December 31, 2013.

- 25 -

The following tables demonstrate the sensitivity to a reasonably possible change in the foreign

currency exchange rates applicable to the Company, with all other variables held constant, of the

Company’s income (loss) before income tax and equity for the periods ended March 31, 2014 and

year ended December 31, 2013 (arising from revaluation of financial assets and liabilities and

derivative instruments).


Foreign Currency

Appreciates (Depreciates) By

Effect on Income

Before Income Tax

USD 10% or PHP4.482 (P=2,191,407,999)

(10% or PHP4.482) 2,191,407,999

JPY (10% or PHP0.04358) 602,378

10% or PHP0.04358 (602,378)

eEURO 10% or PHP6.18965 (1,281,877)

(10% or PHP6.18965) 1,281,877

NZD 10% or PHP3.89812 (2,170,936)

(10% or PHP3.89812) 2,170,936

December 31, 2013 (Audited)

Foreign Currency

Appreciates

(Depreciates) By

Effect on Income

Before Income Tax Effect on Equity

USD 10% or P=4.440 (P=2,101,957,381) P=57,158,762

(10% or P=4.440) 2,101,957,381 (56,878,221)

GBP 10% or P=7.28967 (1,005,974)

(10% or P=7.28967) (1,005,974)

SEK 10% or P=0.67867 851,284

(10% orP=0.67867) (851,284)

EUR 10% or P=6.08161 (845,344)

(10% or P=6.08161) (845,344)

NZD 10% or P=3.62120 (2,249,963)

(10% orP=3. 62120) 2,249,963

The effect of changes in foreign exchange rates in equity pertains to the fair valuation of AFS

investments and derivatives designated as cash flow hedges, and is exclusive of the impact of

changes affecting the Company’s condensed consolidated statements of income.

Equity Price Risk

Equity price risk is the risk that the fair value of traded equity instruments decreases as the result

of the changes in the levels of equity indices and the value of the individual stocks.

As of March 31, 2014 and December 31, 2013, the Company’s exposure to equity price risk is

minimal.

Interest Rate Risk

The Company’s exposure to the risk of changes in market interest rates relates primarily to the

Company’s long-term debt obligations with floating interest rates, derivative assets, derivative

liabilities and AFS investments.

The interest rates of some of the Company’s long-term borrowings and AFS debt investments are

fixed at the inception of the loan agreement.

The Company regularly evaluates its interest rate risk by taking into account the cost of qualified

borrowings being charged by its creditors. Prepayment, refinancing or hedging the risks are

undertaken when deemed feasible and advantageous to the Company.

- 26 -

Interest Rate Risk Table

The following tables provide for the effective interest rates and interest payments by period of

maturity of the Company’s long-term debts.


Interest

Rates

Within

1 Year

More than 1

year but less

than 4 years

More than 4

Years but

less than 5

Years

More than

5 Years Total

Fixed Rate

US$ 300.0 million

Notes 6.50% P=873,893 P=2,621,678 P=873,893 P=1,747,785 P=6,117,249

Peso Public Bonds

Series 1 8.64% 734,553 367,277 – – 1,101,830

Series 2 9.33% 326,645 653,289 – – 979,934

IFC 1 7.40% 215,594 457,491 110,265 235,966 1,019,316

IFC 2 6.66% 198,438 495,716 131,173 443,829 1,269,156

FXCN

P=3.0 billion 6.62% 195,045 573,224 187,104 639,231 1,594,604

P=4.0 billion 6.61% 259,804 763,547 249,227 851,471 2,124,049

2013Peso Fixed-Rate

Bonds

P=3.0 billion 4.16% 124,749 374,247 124,749 187,124 810,869

P=4.0 billion 4.73% 189,248 567,744 189,248 851,616 1,797,856

PNB and Allied

Bank 4.5% 339,622 733,570 137,142 94,769 1,305,103

Floating Rate

US$ 80.0 million

1.80% +

LIBOR 151,315 512,322 42,247 – 705,884

US$ 175.0 million

Refinanced

Syndicated Term

Loan

1.75% +

LIBOR 118,383 207,414 – – 325,797

December 31, 2013

Interest

Rates

Within

1 Year

More than 1 Year

but less than 4

years

More than 4

Years but less

than 5 Years

More than

5 Years Total

(In Thousand Pesos)

Fixed Rate

US$ 300.0 million

Notes 6.50% P=865,703 P=2,597,108 P=865,703 P=2,164,256 P=6,492,770

Peso Public Bonds

Series 1 8.64% 734,553 367,277 – – 1,101,830

Series 2 9.33% 326,645 653,289 – – 979,934

IFC 1 7.40% 237,045 557,732 134,425 287,669 1,216,871

IFC 2 6.66% 198,995 495,716 131,173 443,829 1,269,713

FXCN

P=3.0 billion 6.62% 195,045 573,224 187,104 639,231 1,594,604

P=4.0 billion 6.61% 259,804 763,547 249,227 851,471 2,124,049

2013Peso Fixed-Rate

Bonds

P=3.0 billion 4.16% 124,749 374,247 124,749 187,124 810,869

P=4.0 billion 4.73% 189,248 567,744 189,248 851,616 1,797,856

PNB and Allied Bank 4.5% 339,622 733,570 137,142 94,769 1,305,103

Floating Rate

US$ 80.0 million 1.80% +

LIBOR 75,475 206,427 32,996 – 314,898

US$ 175.0 million

Refinanced

Syndicated Term

Loan

1.75% +

LIBOR 121,870 235,811 – – 357,681

- 27 -

The following tables demonstrate the sensitivity to a reasonably possible change in interest rates,

with all other variables held constant, of the Company’s income before income tax and equity as

of March 31, 2014 and December 31, 2013. The effect on equity includes impact of change in

interest rates on derivatives designated as cash flow hedges as well as AFS debt investments.


Increase/Decrease

in Basis Points

Effect on Loss

Before Income Tax Effect on Equity

+100 (P=78,426,250) (P=104,592,924)

-100 78,426,250 (102,779,386)

December 31, 2013

Effect on Equity

Increase/Decrease

in Basis Points

Effect on Income

Before Income Tax

Change in Fair Value of

AFS Investments

Cumulative Translation

Adjustment

+100 (P=77,691,250) (P=2,594,736) 28,830,862

-100 77,691,250 2,875,278 (53,977,832)

The effect of changes in interest rates in equity pertains to the fair valuation of AFS investments

and derivatives designated as cash flow hedges, and is exclusive of the impact of the changes

affecting the Company’s condensed consolidated statement of income.

Liquidity Risk

The Company’s objective is to maintain a balance between continuity of funding and sourcing

flexibility through the use of available financial instruments. The Company manages its liquidity

profile to meet its working and capital expenditure requirements and service debt obligations. As

part of the liquidity risk management program, the Company regularly evaluates and considers the

maturity of both its financial investments and financial assets (e.g. trade receivables, other

financial assets) and resorts to short-term borrowings whenever its available cash or matured

placements is not enough to meet its daily working capital requirements. To ensure immediate

availability of short-term borrowings, the Company maintains credit lines with banks on a

continuing basis.

Liquidity risk arises primarily when the Company has difficulty collecting its receivables from its

major customer, NPC. Other instances that contribute to its exposure to liquidity risk are when the

Company finances long-term projects with internal cash generation and when there is credit

crunch especially at times when the company has temporary funding gaps.

- 28 -

The tables below show the maturity profile of the Company’s financial assets used for liquidity

purposes based on contractual undiscounted cash flows as of March 31, 2014 and

December 31, 2013.

March 31, 2014

On Demand

Less than 3

Months

3 to

6 Months

>6 to

12 Months

>1 to

5 Years

More than

5 Years Total

(In Thousand Pesos)

Loans and receivables -

Cash equivalents P=– P=11,437,320 P=– P=– P=– P=– P=11,437,320

Financial Asset at FVPL 500,000 – – – – – 500,000

AFS investments -


P=760,732 P=11,437,320 P=– P=– P=– P=– P=12,198,052

December 31, 2013

On Demand

Less than 3

Months

3 to

6 Months

>6 to

12 Months

>1 to

5 Years

More than

5 Years Total

(In Thousand Pesos)

Loans and receivables -

Cash equivalents P=– P=12,101,997 P=– P=– P=– P=– P=12,101,997

AFS investments - Debt investments 377,617 – – – – – 377,617

P=377,617 P=12,101,997 P=– P=– P=– P=– P=12,479,614

The tables below summarize the maturity analysis of the Company’s financial liabilities as of

March 31, 2014 and December 31, 2013 based on contractual undiscounted payments:

March 31, 2014

On

Demand

Less than

3 Months

3 to

6 Months

>6 to

12 Months

>1 to

5 Years

More than

5 Years Total

(In Thousand Pesos) Liabilities at amortized

cost:

Accounts payable* P=− P=4,197,237 P=− P=− P=− P=− P=4,197,237

Accrued interest on

long-term debts 85,570 933,431 174,108 − − − 1,193,109

Other payables − 1,964,673 − − − − 1,964,673

Due to related parties 48,150 − − − − − 48,150

Long-term debts − 2,388,219 480,494 2,855,906 36,281,805 36,356,966 78,363,390

Total P=133,720 P=9,483,560 P=654,602 P=2,855,906 P=36,281,805 P=36,356,966 P=85,766,559

*excluding other liabilities which pertain to statutory liabilities to the Government

December 31, 2013

On

Demand

Less than

3 Months

3 to

6 Months

>6 to

12 Months

>1 to

5 Years

More than

5 Years Total

(In Thousand Pesos) Liabilities at amortized

cost:

Accounts payable* P=− P=5,351,131 P=− P=− P=− P=− P=5,351,131 Accrued interest on

long-term debts 84,356 394,725 313,605 − − − 792,686

Other payables − 56,563 − − − − 56,563 Due to related parties 53,347 − − − − − 53,347

Royalty payable 39,671 − − − − − 39,671

Long-term debts − 87,278 2,162,178 2,371,072 36,429,373 36,743,861 77,793,762 Derivative liabilities

designated as cash

flow hedges − 525 − − 3,673 − 4,198

Total P=177,374 P=5,890,222 P=2,475,783 P=2,371,072 P=36,433,046 P=36,743,861 P=84,091,358

*excluding other liabilities which pertain to statutory liabilities to the Government

- 29 -

Financial Assets and Financial Liabilities

Set out below is a comparison of carrying amounts and fair values of the Company’s financial

instruments as of March 31, 2014 and December 31, 2013.


Carrying

Amounts Fair Values

Carrying

Amounts Fair Values

Financial Assets


Long-term receivables P=96,447,622 P= 91,342,860 P=88,962,765 P=84,641,685

AFS investments:

Debt investments 260,731,975 260,731,975 341,841,500 341,841,500

Equity investments 186,587,044 186,587,044 407,242,129 407,242,129

Financial assets at FVPL: 500,000,000 500,000,000 − −

Derivative assets − − 7,547,021 7,547,021

Derivative assets designated as cash

flow hedge 100,651,984 100,651,984 53,583,080 53,583,080

P=1,144,418,625 P=1,139,313,863 P=899,176,495 P=894,855,415


Financial liabilities at amortized cost:

Long-term debts P=58,793,733,965 P=70,766,076,655 P=58,548,760,334 P=62,920,736,836

Derivative liabilities designated as cash

flow hedges − − 4,198,322 4,198,322

P=58,793,733,965 P=70,766,076,655 P=58,552,958,656 P=62,924,935,158

The methods and assumptions used by the Company in estimating the fair value of financial

instruments are:

Cash and Cash Equivalents. Carrying amounts approximate fair values due to its short-term

nature.

Trade and Other Receivables, Royalty Fee Chargeable to NPC, Due to Related Parties, Trade and

Other Payables and Loan Payable. These are instruments with relatively short maturity ranging

one to three months, and thus, the carrying amounts approximate fair values.

Long-term Receivables. The fair value of long-term receivables was computed by discounting the

expected cash flow using the applicable rate of 2.76% and 2.52% in March 31, 2014 and

December 31, 2013, respectively

AFS Investments. Fair values of quoted debt and equity securities are based on quoted market

prices. For equity investments that are not quoted, the investments are carried at cost less

allowance for impairment losses due to the unpredictable nature of future cash flows and the lack

of suitable methods of arriving at a reliable fair value.

Long-term Debts and Royalty Fee Payable. The fair values for the Company’s long-term debts are

estimated using the discounted cash flow methodology with the applicable rates ranging from

1.76% to 6.32% and 1.75% to 7.40% in March 31, 2014 and December 31, 2013, respectively.

- 30 -

The following tables show the fair value information of financial instruments classified under

FVPL , derivatives designated as cash flow hedges and AFS investments analyzed by sources of

inputs on fair valuation as follows:

Quoted prices in active markets for identical assets or liabilities (Level 1);

Those involving inputs other than quoted prices included in Level 1 that are observable for the

asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and

Those with inputs for the asset or liability that are not based on observable market data

(unobservable inputs) (Level 3).

March 31, 2014

Total Level 1 Level 2 Level 3


Long-term receivables P=96,447,622 P=− P=− P=96,447,622

Financial asset at FVPL 500,000,000 500,000,000 − −

AFS investments:

Debt investments 260,731,975 260,731,975 − −

Equity investments 186,587,044 186,587,044 − −


cash flow hedges 100,651,984 − 100,651,984 −

December 31, 2013

Total Level 1 Level 2 Level 3


Long-term receivables P=88,962,765 P=− P=− P=88,962,765

Financial asset at FVPL:

Derivative assets 7,547,020 − 7,547,020 −

AFS investments:

Debt investments 341,841,500 341,841,500 − −

Equity investments 407,242,129 407,242,129 − −


cash flow hedges 53,583,080 − 53,583,080 −

For the three-month periods ended month March 31, 2014, and for the year ended

December 31, 2013 there were no transfers between level 1 and level 2 fair value measurements

and no transfers into and out of Level 3 fair value measurements.

The Company classifies its financial instruments in the following categories.

March 31, 2014

Loans and

Receivables AFS

Investments

Liabilities at

Amortized

Cost

Financial

Assets at

FVPL

Derivatives

Designated as

Cash Flow

Hedges Total

(In Thousand Pesos)

Financial Assets

Cash and cash equivalents P=14,247,766 P=− P=− P=− P=− P=14,247,766

Trade receivables 4,590,815 − − − − 4,590,815

Non-trade receivables 171,760 − − − − 171,760

Loans and notes

receivables 124,951 − − − − 124,951

Employee receivables 11,726 − − − − 11,726

Long-term receivables 96,448 − − − − 96,448

AFS - debt investments − 260,732 − − − 260,732

AFS - equity investments − 186,587 − − − 186,587

Financial asset at FVPL − − − 500,000 − 500,000

Derivative assets − − − 100,652 100,652

Total financial assets P=19,243,466 P= 447,319 P=− P=500,000 P=100,652 P= 20,291,437

- 31 -

March 31, 2014

Loans and

Receivables

AFS

Investments

Liabilities at

Amortized

Cost

Financial

Assets at

FVPL

Derivatives

Designated

as Cash Flow

Hedges Total

(In Thousand Pesos)


Accounts payable P=− P=− P=4,197,237 P=− P=− P=4,197,237


term debts − − 1,194,109 − − 1,194,109

Other payables − − 1,964,673 − − 1,964,673

Due to related parties − − 48,150 − − 48,150

Long-term debts − − 58,765,472 − − 58,765,472

Total financial liabilities P=− P=− P=66,169,641 P=− P=− P=66,169,641

December 31, 2013

Loans and

Receivables

AFS

Investments

Liabilities at

Amortized

Cost

Financial

Assets at

FVPL

Derivatives

Designated

as Cash Flow

Hedges Total

(In Thousand Pesos)

Financial Assets

Cash and cash equivalents P=16,043,155 P=− P=− P=− P=− P=16,043,155

Trade receivables 3,305,921 − − − − 3,305,921

Non-trade receivables 94,852 − − − − 94,852

Loans and notes

receivables 124,937 − − − − 124,937

Employee receivables 11,958 − − − − 11,958

Long-term receivables 16,685 − − − − 16,685

AFS - debt investments − 341,842 − − − 341,842

AFS - equity investments − 407,242 − − − 407,242

Derivative assets − − − 7,547 53,583 61,130

Total financial assets P=19,597,508 P=749,084 P=− P=7,547 P=53,583 P=20,407,722


Accounts payable P=− P=− P=5,351,131 P=− P=− P=5,351,131


term debts − − 792,686 − − 792,686

Other payables − − 56,563 − − 56,563

Due to related parties − − 53,347 − − 53,347

Royalty payable − − 39,671 − − 39,671

Long-term debts − − 58,548,760 − − 58,548,760

Derivative liabilities − − − − 4,198 4,198

Total financial liabilities P=− P=− P=64,842,158 P=− P=4,198 P=64,846,356

- 32 -

The table below demonstrates the income, expense, gains or losses of the Company’s financial

instruments for the three-month periods ended March 31, 2014 and 2013.

March 31, 2014 (Unaudited) March 31, 2013 (Unaudited)

Increase

(Decrease)

Increase

(Decrease)

Increase

(Decrease)

Increase

(Decrease)

Effect on

Profit or Loss

Effect

on Equity

Effect on

Profit or Loss

Effect

on Equity


Interest income on cash equivalents P=39,766,220 P=– P=64,888,347 P=– Interest income on cash in bank 12,057,324 – 1,026,222 –

Interest on employees receivable 315,342 – 1,237,558 –

Interest income on trade receivables – – 59,355 – AFS - equity investments -

Net gain (loss) recognized in

equity – 42,422,037 – (8,696,830)

AFS - debt investments:

Net gain (loss) recognized in

equity – – – 10,992,113

Interest Income on ROP Bonds 75,725 – 6,534,212 – Financial liabilities at amortized cost:

Interest expense on long-term loans (962,843,591) – (833,604,675) –

(P=910,628,980) P=42,422,037 (P=759,858,981) (P=2,295,283)

Capital Management

The primary objective of the Company’s capital management is to ensure that it maintains a

healthy capital ratio in order to comply with its financial loan covenants and support its business

operations.

The Company manages and makes adjustment to its capital structure as it deems necessary. To

maintain or adjust its capital structure, the Company may increase the levels of capital

contributions from its creditors and owners/shareholders through debt and new shares issuance,

respectively.

The Company monitors capital using the debt ratio, which is long-term liabilities divided by long-

term liabilities plus equity. The Company’s policy is to keep the debt ratio not more than 70:30.

The Company’s long-term liabilities include both the current and long-term portions of long-term

debts. Equity includes capital stock attributable to common and preferred shares, unrealized gains

reserve and retained earnings.

The table below shows the Company’s debt ratio as at March 30, 2013 and December 31, 2013.


Long-term liabilities P=58,765,472,333 P=58,548,760,335

Equity 36,682,815,368 36,244,958,905

Debt ratio 61.6% 61.8%

Derivative Financial Instruments

The Company engages in derivative transactions, particularly foreign currency forwards, foreign

currency swaps and cross-currency swaps, to manage its foreign currency risk and/or interest rate

risk arising from its foreign-currency denominated loans. These derivatives are accounted for

either as derivatives designated as accounting hedges or derivatives not designated as accounting

hedges.

- 33 -

The table below shows the derivative financial instruments of the Company:

March 14, 2014

(Unaudited)

December 31, 2013

(Audited)

Derivative

Assets

Derivative

Liabilities Derivative Assets

Derivative

Liabilities

Derivatives designated as

accounting hedges

Cross-currency swaps P=– P=– P=53,583,080 P=4,198,322

Derivatives not designated as

accounting hedges

Foreign currency forwards 100,651,984 – 7,547,021 –

Total derivatives P=100,651,984 P=– P=61,130,101 P=4,198,322

Presented as:

Current P=12,581,498 P=– P=14,244,905 P=524,790

Noncurrent 88,070,486 – 46,885,196 3,673,532

Total derivatives P=100,651,984 – P=61,130,101 P=4,198,322

Derivatives Not Designated as Accounting Hedges

Foreign Currency Swap Contracts

A foreign currency swap is an agreement to exchange amounts in different currencies based on the

spot rate at trade date and to re-exchange the same currencies at a future date based on an agreed

rate.

In December 31, 2013, the Company entered into a total of 22 foreign currency swap contracts,

respectively, with terms as follows:

December 31, 2013

Position

Aggregate

notional amount

(in million)

Average

forward rate

Sell US$ - buy PHP= US$105.60 P=44.00

For the period ended December 31, 2013, the Company recognized P= 12.9 million gain,

respectively, from the fair value changes of the currency swap contracts. These are recorded under

“Derivative gains (losses) - net” in the consolidated statement of income.

The Company did not enter into any foreign currency swap transaction in 2014.

Foreign Currency Forward Contracts

These are contractual agreements to buy or sell a foreign currency at an agreed rate on a future

date.

In 2013, the Company entered into a total of 45 currency forward contracts with various

counterparty banks. These contracts include one deliverable and 44 non-deliverable forward

contracts. The deliverable buy JP¥ - sell US$ forward contract has notional amount and forward

rate of US$3.0 million and JP¥91.0, respectively. As for the non-deliverable forward contracts,

the Company entered into sell US$ - buy PHP= transactions with onshore banks and simultaneously

entered into buy US$ - sell PHP= transactions with offshore banks as an offsetting position. The

aggregate notional amount of these sell PHP= - buy US$ forward contracts was US$130.0 million

while the average forward rate was P=43.61.

- 34 -

For the period ended March 31, 2014 and December 31, 2013, the Company recognized

P=7.5 million loss and P=1.6 million gain from fair value changes of these foreign currency forwards

contracts. Such amount is recorded under “Derivative gains - net” in the consolidated statement of

income.

The Company settled its foreign currency forward transaction in 2014 resulting to a 15.1 million

gain that was recorded under “Derivative gains - net” in the consolidated statement of income..

Derivatives Designated as Accounting Hedges

In 2012, the Company entered into 6 non-deliverable cross-currency swap (NDCCS) agreements

with an aggregate notional amount of US$65.00 million to partially hedge the foreign currency

and interest rate risks on its Refinanced Syndicated Term Loan that is benchmarked against US

LIBOR and with flexible interest reset feature that allows the Company to select what interest

reset frequency to apply (i.e., monthly, quarterly or semi-annually). As it is the Company’s

intention to reprice the interest rate on the hedged loan quarterly, the Company utilizes NDCCS

with quarterly interest payments and receipts.

Under the NDCCS agreements, the Company receives floating interest based on 3-month US

LIBOR plus 175 basis points and pays fixed peso interest. On specified dates, the Company also

receives specified USD amounts in exchange for specified peso amounts based on the agreed swap

rates. These USD receipts correspond with the expected interest and fixed principal amounts due

on the hedged loan. Effectively, the 6 NDCCS converted 37.14% of hedged USD loan into a

fixed rate peso loan.

Pertinent details of the NDCCS are as follows:

Notional

amount (in

million)

Trade

Date

Effective

Date

Maturity

Date

Swap

rate

Fixed

rate

Variable rate

US$15.00 03/26/12 03/27/12 06/17/17 P43.05 4.87% 3-month LIBOR + 175 bps

US$10.00 04/18/12 06/27/12 06/17/17 42.60 4.92% 3-month LIBOR + 175 bps





The maturity date of the six NDCCS coincides with the maturity date of the hedged loan.

As of March 31, 2014 and December 31, 2013, the outstanding aggregate notional amount of the

Company’s NDCCS amounted to US$65.00 million. The aggregate fair value changes on these

NDCCS amounting to P=26.7 million and P=55.6 million gain, as of March 31, 2014 and December

31, 2013, respectively, were recognized by the Company under “Cumulative Translation

Adjustment on Hedging Transactions” account.

Hedge Effectiveness Results

Since the critical terms of the hedged loan and the NDCCS match, except for one to two days

timing difference on the interest reset dates, the hedges were assessed to be highly effective. As

such, the aggregate fair value changes on these NDCCS amounting to P=955.4 million and P=244.6

million gain, in March 31, 2014 and December 31, 2013, respectively, recognized by the

Company under “Cumulative Translation Adjustment on Hedging Transactions” account in the

consolidated statements of financial position. No ineffectiveness was recognized in the

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consolidated statement of income for the period ended March 31, 2014 and year ended December

31, 2013.

The net movement of changes made to “Cumulative Translation Adjustment on Hedging

Transactions” account for the Company’s cash flow hedges is as follows:

March 31,

2014

December 31,

2013

Balance at beginning of year (P=55,615,718) (P=144,426,476)

Changes in fair value of the cash flow hedges (955,372,520) 244,634,426

(1,010,988,238) 100,207,950

Transferred to consolidated statement of income

Foreign exchange (gain) / loss (22,359,042) (189,630,000)

Interest expense 1,006,639,747 43,674,194

984,280,705 (145,955,806)

Balance before tax (26,707,533) (45,747,856)

Tax – (9,867,862)

Balance at end of year (P=26,707,533) (P=55,615,718)

Fair Value Changes of Derivatives

The tables below summarize the net movement in fair values of the Company’s derivatives as of

March 31, 2014 and December 31, 2013.

March 31,

2014

December 31,

2013

Balance at beginning of year P=56,931,779 (P=238,675,102)

Net changes in fair value of derivatives:

Designated as accounting hedges (955,372,520) 244,634,426

Not designated as accounting hedges 7,517,978 14,243,178

(947,854,540) 258,877,604

Fair value of settled instruments:

Designated as accounting hedges 1,006,639,747 43,674,194

Not designated as accounting hedges (15,065,000) (6,944,917)

991,574,747 36,729,277

Balance at end of year P=100,651,984 P=56,931,779

Presented as:

Derivative assets P=100,651,984 P=61,130,101

Derivative liabilities – (4,198,322)

P=100,651,984 P=56,931,779

The effective portion of the changes in the fair value of the NDCCS designated as accounting

hedges were deferred in equity under “Cumulative Translation Adjustment on Hedging

Transactions” account.

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24. Event After the Financial Reporting Period

On April 2, 2014 Department of Energy certified the Company’s Wind Energy Service Contracts

(WESC) as a registered RE developer.

The Board is proposing two (2) amendments to the Seventh Article of the Company’s Articles of

Incorporation. The first amendment consists of the reclassification of Three Billion

(3,000,000,000) authorized and unissued Common Shares, with a par value of One Peso (Php

1.00) per share from the existing authorized capital stock, into Three Hundred Million

(300,000,000) Non-Voting Preferred Shares with a par value of Ten Pesos (Php 10.00) per share

to be known as “Non-Voting Preferred Shares. These new Non-Voting Preferred Shares are

intended to be issued in series and the issue value of such shares will be determined at the time of

each issuance

The second amendment will be a modification of the limited denial of preemptive right already

existing in the Articles. The proposed amendment seeks to deny the preemptive right.

25. Other Matters

Seasonality or Cyclicality of Interim Operations

Except for FG Hydro’s sale of electricity coming from hydroelectric power/operations, seasonality

or cyclicality of interim operations is not applicable to the Parent Company’s type of business

because of the nature of its contracts with NPC, which includes guaranteed volume under the

applicable take-or-pay, minimum energy off-take or contracted energy provisions. GCGI’s sales

to cooperatives and industries are also not subject to seasonality or cyclicality.

Issuances, Repurchases, and Repayments of Debt and Equity Securities

There are no issuances, repurchases and repayments of debt and equity securities during the

current period

Changes in Estimates of Amounts Reported in Prior Financial Years

The key assumptions concerning the future and other key sources of estimation uncertainty used in

preparation of the unaudited interim condensed consolidated financial statements are consistent

with those followed in the preparation of the Company’s annual consolidated financial statements

as of and for the year ended December 31, 2013.

Changes in the Composition of the Company During the Interim Period

There are no material changes in the composition of the registrant during the period.

Changes in Contingent Liabilities or Contingent Assets Since the Last Annual Reporting Date

There are no material changes in the contingent liabilities or contingent assets since the last annual

reporting date.

Existence of Material Contingencies and Any Other Events or Transactions that are Material to

an Understanding of the Current Interim Period

There are no material contingencies and any other events or transactions during the period.

JANET A. ENCARNACION - Energy Development … Geothermal Power Plant (with a 25-year contract period...

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Transcript of JANET A. ENCARNACION - Energy Development … Geothermal Power Plant (with a 25-year contract period...