EDC PR 2016 (FS section)

Financial Statement
The recoverable amounts have been determined based on VIU calculation using cash flow
projections based on financial budgets approved by senior management covering a five-year
period. The pre-tax discount rate applied to cash flow projections in 2016 ranges from 8.99% to
9.00%; while in 2015, the pre-tax discount rate applied ranges from 9.87% to 9.90%. The cash
flows beyond the remaining term of the existing agreements are extrapolated using growth rate of
4.0% in 2016 and 2015.
Following are the key assumptions used:
Budgeted Gross Margin
Budgeted gross margin is the average gross margin achieved in the year immediately before
the budgeted year, increased for expected efficiency improvements.
Discount Rate
Discount rate reflects the current market assessment of the risk specific to each CGU. The
discount rate is based on the average percentage of the EDC’s weighted average cost of
capital. This rate is further adjusted to reflect the market assessment of any risk specific to the
CGU for which future estimates of cash flows have not been adjusted.
Growth Rate
Cash flows beyond the five-year period are extrapolated using a determined constant growth
rate to arrive at the terminal value of each CGU.
No impairment loss on goodwill was recognized in 2016, 2015 and 2014. The carrying value of
goodwill as of December 31, 2016 and 2015 amounted to ₱2,661.8 million and ₱2,651.3 million,
respectively (see Note 13).
Recoverability of Exploration and Evaluation Assets
Exploration and evaluation costs are recognized as assets in accordance with PFRS 6, Exploration
for and Evaluation of Mineral Resources. Capitalization of these costs is based, to a certain
extent, on management’s judgment of the degree to which the expenditure may be associated with
finding specific geothermal reserve.
The application of the Company’s accounting policy for exploration and evaluation assets requires
judgment and estimates in determining whether it is likely that the future economic benefits are
certain, which may be based on assumptions about future events or circumstances. Estimates and
assumptions may change if new information becomes available. If, after the exploration and
evaluation assets are capitalized, information becomes available suggesting that the recovery of
expenditure is unlikely, the amount capitalized is written-off in the consolidated statements of
income in the period when the new information becomes available.
The Company reviews the carrying values of its exploration and evaluation assets whenever
events or changes in circumstances indicate that their carrying values may exceed their estimated
net recoverable amounts. An impairment loss is recognized when the carrying values of these
assets are not recoverable and exceeds their fair value.
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