EDC 2014 SR (UPDATED)
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<strong>EDC</strong> <strong>2014</strong> Performance Report<br />
Impairment of Goodwill<br />
As of December 31, <strong>2014</strong> and 2013, the Company’s goodwill is allocated to the following CGUs:<br />
Entity<br />
Cash-Generating Unit<br />
Carrying Amount of<br />
Allocated Goodwill<br />
GCGI Palinpinon power plant complex ₱2,107.6 million<br />
GCGI Tongonan power plant complex 134.2 million<br />
FG Hydro Pantabangan- Masiway hydroelectric plants 293.3 million<br />
₱2,535.1 million<br />
Goodwill is tested for impairment annually as at September 30 for GCGI and December 31 for FG<br />
Hydro or more frequently, if events or changes in circumstances indicate that the carrying value<br />
may be impaired.<br />
This requires an estimation of the value-in-use of the CGUs to which goodwill is allocated.<br />
Estimating value-in-use requires the Company to estimate the expected future cash flows from the<br />
CGUs and discounts such cash flows using weighted average cost of capital to calculate the<br />
present value of those future cash flows.<br />
The recoverable amounts have been determined based on value-in-use calculation using cash flow<br />
projections based on financial budgets approved by senior management of GCGI and FG Hydro<br />
covering a five-year period. For GCGI, the pre-tax discount rate applied to cash flow projections<br />
in <strong>2014</strong> are 7.9% for Tongonan and 8.1% for Palinpinon; while in 2013, the pre-tax discount rate<br />
applied is 6.1% for Tongonan and 7.8% for Palinpinon. The cash flows beyond the remaining<br />
term of the existing agreements are extrapolated using growth rates of 4.0% for GCGI for the<br />
years ended December 31, <strong>2014</strong> and 2013, respectively, and 4.0% and 4.4% for the years ended<br />
December 31, <strong>2014</strong> and 2013, respectively, for FG Hydro.<br />
Following are the key assumptions used:<br />
Budgeted Gross Margin<br />
Budgeted gross margin is the average gross margin achieved in the year immediately before<br />
the budgeted year, increased for expected efficiency improvements.<br />
Discount Rate<br />
Discount rate reflects the current market assessment of the risk specific to each CGU. The<br />
discount rate is based on the average percentage of the Company’s weighted average cost of<br />
capital. This rate is further adjusted to reflect the market assessment of any risk specific to the<br />
CGU for which future estimates of cash flows have not been adjusted.<br />
No impairment loss on goodwill was recognized in the consolidated financial statements in <strong>2014</strong>,<br />
2013 and 2012. The carrying value of goodwill as of December 31, <strong>2014</strong> and 2013 amounted to<br />
₱2,651.5 million and ₱2,535.1 million, respectively (see Note 13).<br />
Impairment of Exploration and Evaluation Assets<br />
Exploration and evaluation costs are recognized as assets in accordance with PFRS 6, Exploration<br />
for and Evaluation of Mineral Resources. Capitalization of these costs is based, to a certain extent,<br />
on management’s judgment of the degree to which the expenditure may be associated with finding<br />
specific geothermal reserve. The Company determines impairment of projects based on the<br />
technical assessment of its resident scientists in various disciplines or based on management’s<br />
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