2014 Financial Statement

EDC 2014 Performance Report
Impairment of Goodwill
As of December 31, 2014 and 2013, the Company’s goodwill is allocated to the following CGUs:
Entity
Cash-Generating Unit
Carrying Amount of
Allocated Goodwill
GCGI Palinpinon power plant complex ₱2,107.6 million
GCGI Tongonan power plant complex 134.2 million
FG Hydro Pantabangan- Masiway hydroelectric plants 293.3 million
₱2,535.1 million
Goodwill is tested for impairment annually as at September 30 for GCGI and December 31 for FG
Hydro or more frequently, if events or changes in circumstances indicate that the carrying value
may be impaired.
This requires an estimation of the value-in-use of the CGUs to which goodwill is allocated.
Estimating value-in-use requires the Company to estimate the expected future cash flows from the
CGUs and discounts such cash flows using weighted average cost of capital to calculate the
present value of those future cash flows.
The recoverable amounts have been determined based on value-in-use calculation using cash flow
projections based on financial budgets approved by senior management of GCGI and FG Hydro
covering a five-year period. For GCGI, the pre-tax discount rate applied to cash flow projections
in 2014 are 7.9% for Tongonan and 8.1% for Palinpinon; while in 2013, the pre-tax discount rate
applied is 6.1% for Tongonan and 7.8% for Palinpinon. The cash flows beyond the remaining
term of the existing agreements are extrapolated using growth rates of 4.0% for GCGI for the
years ended December 31, 2014 and 2013, respectively, and 4.0% and 4.4% for the years ended
December 31, 2014 and 2013, respectively, for FG Hydro.
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 Company’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.
No impairment loss on goodwill was recognized in the consolidated financial statements in 2014,
2013 and 2012. The carrying value of goodwill as of December 31, 2014 and 2013 amounted to
₱2,651.5 million and ₱2,535.1 million, respectively (see Note 13).
Impairment 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 Company determines impairment of projects based on the
technical assessment of its resident scientists in various disciplines or based on management’s
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