2014 Financial Statement

EDC 2014 Performance Report
decision not to pursue any further commercial development of its exploration projects. In 2013,
the Parent Company has assessed that its Cabalian geothermal project located in Southern Leyte is
impaired due to issues on productivity and sustainability of geothermal resources in the area.
Accordingly, impairment loss amounting to ₱574.8 million was recognized in 2013. No
impairment loss was recognized in 2014 and 2012. As of December 31, 2014 and 2013, the
carrying amount of exploration and evaluation assets amounted to ₱2,801.5 million and
₱2,380.8 million, respectively (see Notes 14 and 33).
Retirement and Other Post-employment Benefits
The cost of defined benefits retirement plan and other post-employment medical and life insurance
benefits are determined using the projected unit credit method of actuarial valuations. The
actuarial valuation involves making assumptions about discount rates,future salary increases,
medical trend rate, mortality and disability rates and employee turnover rates. Due to the
complexity of the valuation, the underlying assumptions and its long-term nature, defined benefit
obligations are highly sensitive to changes in these assumptions. All assumptions are reviewed at
each reporting date. The net retirement and other post-employment benefits liability as of
December 31, 2014 and 2013 amounted to ₱1,796.0 million and ₱1,658.6 million, respectively.
The detailed information with respect to the Company’s net retirement and other post-employment
benefits is presented in Note 27 to the consolidated financial statements.
In determining the appropriate discount rate, management considers the interest rates of
government bonds that are denominated in the currency in which the benefits will be paid, with
extrapolated maturities corresponding to the expected duration of the defined benefit obligation.
The mortality rate is based on publicly available mortality tables for the specific country and is
modified accordingly with estimates of mortality improvements. Future salary increases and
pension increases are based on expected future inflation rates for the specific country.
Provision for Rehabilitation and Restoration Costs
In 2009, with the conversion of its Geothermal Service Contracts (GSCs) to Geothermal
Renewable Energy Service Contracts (GRESCs), the Company has made a judgment that the
GRESCs are subject to the provision for restoration costs. Similarly, under the Wind Energy
Service Contract (WESC), EBWPC is responsible for the removal and the disposal of all materials,
equipment and facilities installed in the contract area used for the wind energy project. In
determining the amount of provisions for rehabilitation and restoration costs, assumptions and
estimates are required in relation to the expected cost to rehabilitate and restore sites and
infrastructure when such obligation exists (see Note 33).
As of December 31, 2014 and 2013, the Company recognized provision for rehabilitation and
restoration costs amounting to ₱748.5 million and ₱654.5 million, respectively, presented under
“Provisions and other long-term liabilities” account in the consolidated statement of financial
position (see Note 18).
Provision for Liabilities on Regulatory Assessments and Other Contingencies
The Company has pending assessments from various regulatory agencies and outstanding legal
cases. The Company’s estimate of the probable costs for the resolution of these assessments and
legal cases has been developed in consultation with in-house and outside legal counsels and is
based upon the analysis of the potential outcomes. Management and its legal counsels believe that
the Company’s positions on these assessments are consistent with the relevant law and these
assessments would not have a material adverse effect on the Company’s consolidated financial
position and results of operations. It is possible, however, that future results of operations could be
materially affected by changes in the estimates or in the effectiveness of strategies relating to these
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