Energy Development Corporation 38th 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)
August 12, 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 June 30, 2014 (SEC Form 17-Q).
COVER SHEET
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 6 3 0 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 689 P=35,233,701,615 P=21,925,314,775 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.
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)
June 30, 2014 (Quarter Ending)
SEC FORM 17-Q (Form Type)
SEC Form 17Q – 2Q 2014 SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-Q
QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SRC RULE 17(2)(b) THEREUNDER
1. For the quarterly period ended June 30, 2014
2. Commission identification number: 66381
3. BIR Tax Identification No. 000-169-125-000
4. Exact name of issuer as specified in its charter: ENERGY DEVELOPMENT CORPORATION
5. PHILIPPINES 6. (SEC Use Only) Province, country or other jurisdiction of Industry Classification Code Incorporation or organization
7. One Corporate Centre Julia Vargas cor. Meralco Ave., Ortigas Center, Pasig City 1605 Address of issuer's principal office Postal Code
8. (632) 755-2332 Issuer's telephone number, including area code:
9. ______Former name, former address and former fiscal year, if changed since last report:
10. Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 of the RSA
Title of each Class Number of shares outstanding as of June 30, 2014 Common Stock, P1.00 par value 18,750,000,000 Preferred Stock, P0.01 par value 9,375,000,000
11. Are any or all of the securities listed on a Stock Exchange?
Yes [ √ ] No [ ]
If yes, state the name of such Stock Exchange and the class/es of securities listed therein: Philippine Stock Exchange Common Stock
12. Indicate by check mark whether the registrant:
(a) has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17 thereunder or Sections 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of the Corporation Code of the Philippines, during the preceding twelve (12) months (or for such shorter period the registrant was required to file such reports)
Yes [ √ ] No [ ]
(b) has been subject to such filing requirements for the past ninety (90) days.
Yes [ √ ] No [ ]
SEC Form 17Q – 2Q 2014 2 PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Our unaudited consolidated financial statements for the quarter ended June 30, 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 June 30, 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 – 2Q 2014 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 June 30, 2014 and December 31, 2013...... 16 CASH FLOW ...... 21 DISCUSSION ON THE SUBSIDIARIES ...... 22 FG Hydro ...... 22 Green Core Geothermal Inc...... 23 Bac-Man Geothermal Inc...... 24 FOREIGN EXCHANGE AND INTEREST RATE EXPOSURE ...... 25 OTHER MATTERS ...... 25 MAJOR STOCKHOLDERS ...... 26
SEC Form 17Q – 2Q 2014 4 OVERVIEW OF OUR BUSINESS
Principal Products or Services
As of June 30, 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 57.1% of the 3,761.8 GWh sales volume from its electricity business was sold to NPC. Electricity production of about 183.0 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 1,111.3 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. The Bacman Geothermal Inc (BGI)'s geothermal power plants generated electricity of 318.5 GWh that was sold to electric cooperatives and industrial customers. The Company’s total sales volume comprised of 3,578.8 GWh coming from electricity production in Leyte, Mindanao, Tongonan I, Palinpinon and BGI's geothermal power plants; and 183.0 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 – 2Q 2014 5 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 43.6% 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 EDC’s geothermal production steam fields are located are:
• Tongonan Geothermal Project (expiring in 2031)
SEC Form 17Q – 2Q 2014 6 • 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, 25-year contract period expiring in 2037) 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, 25-year contract period expiring in 2037) 6. Balingasag Geothermal Project (with a five-year pre-development period expiring in 2017, 25-year contract period expiring in 2037)
Wind Resource
1. Burgos Wind Project (WESC assigned by EDC to EDC Burgos Wind Power Corporation; 25-year contract period expiring in 2034, renewable for another 25 years) 2. Pagudpud Wind Project (with a 25-year contract period expiring in 2035, renewable for another 25 years) 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)
Solar Resource
1. Bago Solar Project (with a two-year pre-development period expiring in 2016, 25-year contract period expiring in 2039)
SEC Form 17Q – 2Q 2014 7 KEY PERFORMANCE INDICATORS
The top eight (8) key performance indicators are set forth below:
Ratio Jun – 14 Jun – 13 Current Ratio 1.13:1 2.75:1 Debt-to-Equity Ratio 1.42:1 1.55:1 Net Debt-to-Equity Ratio 1.21:1 1.10:1 Return on Assets (%) 7.89 9.20 Return on Equity (%) 21.67 26.44 Solvency Ratio 0.15 0.11 Interest Rate Coverage Ratio 4.33 4.07 Asset-to-Equity Ratio 2.67 2.83
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 – 2Q 2014 8 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 – 2Q 2014 9 OPERATING REVENUES AND EXPENSES
FINANCIAL HIGHLIGHTS
During the first semester of 2014, the recurring net income generated increased by 19.3% or P906.9 million to P5,603.2 million from the P4,696.3 million posted during the same period in 2013. The increase is mainly attributable to the P1,793.4 million increase in sale of electricity mainly from BGI and Mindanao's operations offset by the increase in cost of sales of electricity and general and administrative expenses.
Recurring net income attributable to equity holders of the parent was posted at P5,407.6 million, up by 28.3%, as compared to the P4,214.7 million for the first semester of 2013.
The Company posted a net income of P6,480.5 million in the first semester of 2014, a 68.4% or P2,632.3 million increase from the P3,848.2 million in the six-month period ending June 30, 2013. The movement was driven by the P1,793.4 million increase in revenues mainly due to BGI and Mindanao's operations. This was supplemented by the P1,206.3 million turnaround from foreign exchange losses of P831.4 million in June 2013 to foreign exchange gains of P374.9 million in the first semester of 2014. These were offset by the P290.9 million increase in provision for income tax.
Net income is equivalent to 42.6% of total revenues for the period ended June 30, 2014 as compared to the 28.6% from the same period in 2013.
Net income attributable to equity holders of the parent company at P6,285.3 million for the first semester of 2014 increased by P2,918.9 million from P3,366.4 million during the same period in 2013.
SEC Form 17Q – 2Q 2014 10 RESULTS OF OPERATIONS
The following table details the results of operations for EDC for the first semester of 2014 and 2013.
HORIZONTAL ANALYSIS VERTICAL ANALYSIS Favorable (Unfavorable) Variance (Amounts in PHP millions) JUNE 2014 JUNE 2013 Amount % 2014 2013 REVENUES Sale of electricity 15,227.3 13,433.9 1,793.4 13.3% 100.0% 100.0% COST OF SALES AND SERVICES Cost of sales of electricity and steam (4,781.3) (4,597.3) (184.0) 4.0% -31.4% -34.2% GENERAL AND ADMINISTRATIVE EXPENSES (2,541.5) (2,055.5) (486.0) 23.6% -16.7% -15.3% FINANCIAL INCOME (EXPENSE) Interest income 88.9 140.9 (52.0) -36.9% 0.6% 1.0% Interest expense (1,842.5) (1,678.1) (164.4) 9.8% -12.1% -12.5% (1,753.6) (1,537.2) (216.4) 14.1% -11.5% -11.5% OTHER INCOME (CHARGES) Foreign exchange (losses) gains, net 374.9 (831.4) 1,206.3 -145.1% 2.5% -6.2% Derivative (losses) gains, net 8.7 (3.7) 12.4 -335.1% 0.1% 0.0% Miscellaneous, net 570.2 (227.3) 797.5 -350.9% 3.7% -1.7% 953.8 (1,062.4) 2,016.2 -189.8% 6.3% -7.9% INCOME BEFORE INCOME TAX 7,104.7 4,181.5 2,923.2 69.9% 46.7% 31.1% BENEFIT FROM (PROVISION FOR) INCOME TAX Current (520.9) (416.0) (104.9) 25.2% -3.4% -3.1% Deferred (103.3) 82.7 (186.0) -224.9% -0.7% 0.6% (624.2) (333.3) (290.9) 87.3% -4.1% -2.5% NET INCOME 6,480.5 3,848.2 2,632.3 68.4% 42.6% 28.6% Net income attributable to: Equity holders of the Parent Company 6,285.3 3,366.4 2,918.9 86.7% 41.3% 25.1% Non-controlling interest 195.2 481.8 (286.6) -59.5% 1.3% 3.6% EBITDA 9,812.8 8,667.5 1,145.3 13.2% 64.4% 64.5% RECURRING NET INCOME 5,603.2 4,696.3 906.9 19.3% 36.8% 35.0% Recurring net income attributable to: Equity holders of the Parent Company 5,407.6 4,214.7 1,192.9 28.3% 35.5% 31.4% Non-controlling interest 195.5 481.7 (286.2) -59.4% 1.3% 3.6%
SEC Form 17Q – 2Q 2014 11 YTD June 30, 2014 vs. YTD June 30, 2013
Revenues
Total sale of electricity for the period ended June 30, 2014 increased by 13.3% or P1,793.4 million to P15,227.3 million from P13,433.9 million during the same period in 2013. The improvement was primarily due to the P1,515.8 million increase in BGI’s revenues and the P290.8 million increase in the Parent Company’s sale of electricity mainly from Mindanao asset.
General and Administrative Expenses
General and administrative expenses increased by 23.6% or P486.0 million to P2,541.5 million in the first semester of 2014 from P2,055.5 million during the same period in 2013 mainly due to the increase in the following: P216.2 million rental, insurance and taxes; P163.2 million in purchased services and utilities on account of various administrative activities; and P97.7 million in personnel costs.
Financial Income (Expenses)
Financial expenses-net increased by 14.1% or P216.4 million to P1,753.6 million in the first semester of 2014 from P1,537.2 million during the same period in 2013 due to the interest charges on new loans.
Interest income Interest income decreased by 36.9% or P52.0 million to P88.9 million in the first semester of 2014 from P140.9 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 9.8% or P164.4 million to P1,842.5 million in the first semester of 2014 from P1,678.1 million during the same period in 2013. The unfavorable variance is due to interest charges on P7 billion Bond and US$80 million term-loan acquired in May 2013 and December 2013.
Other Income (Charges)
Other income for the first semester of 2014 amounted to P953.8 million, or a 189.8% turnaround from the other charges of P1,062.4 million during the same period in 2013, primarily due to the foreign exchange gains recognized for the first semester of 2014.
SEC Form 17Q – 2Q 2014 12 Foreign exchange (losses) gains, net The Company recognized foreign exchange gains of P374.9 million for the first semester of 2014 compared to the foreign exchange losses of P831.4 million during the same period in 2013. The variance was mainly brought about by the foreign exchange gain versus foreign exchange loss on realignment of the total outstanding dollar-denominated long-term loans as of June 30, 2014 and June 30, 2013, respectively. The comparative foreign exchange rates against the USD were as follows:
PHP:US$ December 31, 2012 41.050 June 30, 2013 42.200 December 31, 2013 44.395 June 30, 2014 43.650
Derivatives (losses) gains, net Derivative gains of P8.7 million for the six months ended June 30, 2014 is a turnaround from the P3.7 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 semester of 2014 amounted to P570.2 million, or a P797.5 million turnaround from the miscellaneous charges - net of P227.3 million during the same period in 2013. The increase was mainly due to the following: P263.5 million proceeds from insurance claim for the period; P234.5 million gain on sale of property, plant and equipment for the period; and P220.0 million Input VAT claims written-off last year while there is none this year.
Benefit from (Provision for) Income Tax
The Company’s current tax expense increased by 25.2% or P104.9 million to P520.9 million in the six-month period ending June 30, 2014 from P416.0 million during the same period in 2013 mainly on account of higher revenues reduced by higher operating expenses.
Deferred tax expense of P103.3 million in June 2014, is a P186.0 million decrease from the P82.7 million benefit from deferred tax in the six-month period ending June 2013. The turnaround was primarily contributed by the recognition of deferred tax expense on unrealized foreign exchange gain as of June 30, 2014 versus the recognition of deferred tax asset on unrealized foreign exchange loss as of June 30, 2013.
SEC Form 17Q – 2Q 2014 13 Net Income
As a result of the foregoing, the Company’s net income increased by 68.4% or P2,632.3 million to P6,480.5 million for the first semester of 2014 from P3,848.2 million net income during the same period in 2013.
Net income is equivalent to 42.6% of total revenues in 2014 as compared to the 28.6% in 2013.
Net income attributable to equity holders of the parent company at P6,285.3 million for the first semester of 2014 is a P2,918.9 million increase from P3,366.4 million during the same period in 2013.
SEC Form 17Q – 2Q 2014 14
CAPITAL AND LIQUIDITY RESOURCES
As of the quarter ended Q2 Q2 YoY change (in millions of pesos) 2014 2013 Balance Sheet Data Total Assets …………………………… 107,489.1 101,887.0 5.5% Total Liabilities………………………... 67,223.2 65,924.2 2.0% Total Stockholder’s Equity …………… 40,265.9 35,962.8 12.0%
The Company’s assets as of June 30, 2014 amounted to P107,489.1 million, 5.5% higher as compared to the P101,887.0 million level as of June 30, 2013.
SEC Form 17Q – 2Q 2014 15 FINANCIAL POSITION
Horizontal and Vertical Analysis of Material Changes as of June 30, 2014 and December 31, 2013. HORIZONTAL VERTICAL ANALYSIS ANALYSIS Increase (Decrease) (Amounts in PHP millions) June 2014 December 2013 Amount % 2014 2013 ASSETS Current Assets Cash and cash equivalents 8,314.5 16,043.2 (7,728.7) -48.2% 7.7% 15.3% Trade and other receivables 6,199.5 3,611.4 2,588.1 71.7% 5.8% 3.4% Available-for-sale (AFS) investments - 341.8 (341.8) -100.0% 0.0% 0.3% Parts and supplies inventories 3,200.9 3,094.3 106.6 3.4% 3.0% 2.9% Derivative assets 3.5 14.2 (10.7) -75.4% 0.0% 0.0% Financial asset at FVPL 501.2 - 501.2 100.0% 0.5% 0.0% Other current assets 864.2 1,235.5 (371.3) -30.1% 0.8% 1.2% Total Current Assets 19,083.8 24,340.4 (5,256.6) -21.6% 17.8% 23.2% Noncurrent Assets Property, plant and equipment 73,068.9 66,240.0 6,828.9 10.3% 68.0% 63.1% Goodwill and intangible assets 4,343.4 4,399.5 (56.1) -1.3% 4.0% 4.2% Deferred tax assets 1,240.8 1,335.1 (94.3) -7.1% 1.2% 1.3% Exploration and evaluation assets 2,572.6 2,380.8 191.8 8.1% 2.4% 2.3% Available-for-sale (AFS) investments 503.9 407.2 96.7 23.7% 0.5% 0.4% Derivative assets 22.7 46.9 (24.2) -51.6% 0.0% 0.0% Other noncurrent assets 6,653.0 5,855.6 797.4 13.6% 6.2% 5.6% Total Noncurrent Assets 88,405.3 80,665.1 7,740.2 9.6% 82.2% 76.8% TOTAL ASSETS 107,489.1 105,005.5 2,483.6 2.4% 100.0% 100.0% LIABILITIES AND EQUITY LIABILITIES Current Liabilities Trade and other payables 6,305.5 6,982.0 (676.5) -9.7% 5.9% 6.6% Income tax payable 288.5 - 288.5 100.0% 0.3% 0.0% Due to related parties 63.4 53.3 10.1 18.9% 0.1% 0.1% Current portion of: Long-term debts 10,227.2 1,872.1 8,355.1 446.3% 9.5% 1.8% Derivative liabilities 4.3 0.5 3.8 760.0% 0.0% 0.0% Total Current Liabilities 16,888.9 8,907.9 7,981.0 89.6% 15.7% 8.5% Noncurrent Liabilities Long-term debts - net of current portion 46,931.8 56,676.7 (9,744.9) -17.2% 43.7% 54.0% Net retirement and other post-employment benefits 1,813.6 1,658.6 155.0 9.3% 1.7% 1.6% Provisions and other long-term liabilities 1,561.1 1,513.6 47.5 3.1% 1.5% 1.5% Derivative liabilities 27.8 3.7 24.1 651.4% 0.0% 0.1% Total Noncurrent Liabilities 50,334.3 59,852.6 (9,518.3) -15.9% 46.8% 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% 17.4% 17.9% Common stock in employee trust account (349.1) (351.5) 2.4 -0.7% -0.2% -0.3% Additional paid-in capital 6,284.3 6,282.8 1.5 0.0% 5.8% 6.0% Equity reserve (3,706.4) (3,706.4) - 0.0% -3.3% -3.5% Net accumulated unrealized gain on AFS investments 98.2 29.6 68.6 231.8% 0.1% 0.0% Retained earnings 17,607.1 13,204.2 4,402.9 33.3% 16.4% 12.6% Cumulative translation adjustment (60.9) (64.3) 3.4 -5.3% -0.1% -0.1% 38,717.0 34,238.2 4,478.8 13.1% 36.0% 32.6% Non-controlling interest 1,548.9 2,006.8 (457.9) -22.8% 1.4% 1.9% Total Equity 40,265.9 36,245.0 4,020.9 11.1% 37.5% 34.5% TOTAL LIABILITIES AND EQUITY 107,489.1 105,005.5 2,483.6 2.4% 100.0% 100.0%
SEC Form 17Q – 2Q 2014 16 Assets
Cash and cash equivalents
The 48.2% or P7,728.7 million decrease to P8,314.5 million as of June 30, 2014 from the P16,043.2 million December 31, 2013 balance was mainly due to the following; P9,185.3 million acquisition of property, plant and equipment primarily for EDC Burgos Wind Power Project and Leyte post typhoon Yolanda; P2,963.5 million interest and financing charges paid; and P2,540.8 million payment of cash dividends.
These were offset by the P7,438.3 million cash generated from operations.
Trade and other receivables
Trade and other receivables increased by 71.7% or P2,588.1 million to P6,199.5 million as of June 30, 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.
Derivative assets - current
This account decreased by 75.4% or P10.7 million to P3.5 million as of June 30, 2014 from the P14.2 million balance in December 31, 2013. The decrease was mainly due to maturity of the hedging contracts.
Financial asset at FVPL
The account balance of P501.2 million as of June 30, 2014 pertains to this period’s purchase of financial assets.
Other current assets
This account decreased by 30.1% or P371.3 million to P864.2 million as of June 30, 2014 from the P1,235.5 million balance in December 2013 primarily due to the tax credit certificates reclassified to noncurrent asset since all TCC are assessed to be applied more than one year from balance sheet date .
SEC Form 17Q – 2Q 2014 17 Property, plant and equipment
This account increased by 10.3% or P6,828.9 million to P73,068.9 million as of June 30, 2014 from the P66,240.0 million balance in December 2013 mainly due to the P9,341.0 million additions for EDC Burgos Wind Power Project and Leyte post typhoon Yolanda offset by the P1,811.0 million depreciation and amortization for the period.
Deferred tax assets
This account decreased by 7.1% or P94.3 million to P1,240.8 million as of June 30, 2014 from the P1,335.1 million balance as of December 31, 2013 mainly due to the recognized unrealized forex loss on realignment of dollar denominated long-term loans during the period.
Exploration and evaluation assets
This account increased by 8.1% or P191.8 million to P2,572.6 million as of June 30, 2014 from the balance of P2,380.8 million as of December 31, 2013 mainly due to the expenditures in Mindanao III areas, EDC Nasulo and EDC – Rangas.
Available-for-sale (AFS) investments – noncurrent
AFS investments increased by 23.7% or P96.7 million to P503.9 million as of June 30, 2014 from the P407.2 million balance as of December 31, 2013 mainly due to the newly acquired shares, realignment and MTM adjustment.
Derivative assets - noncurrent
This account decreased by 51.6% or P24.2 million to P22.7 million as of June 30, 2014 from the P46.9 million in December 31, 2013 since most of the hedging contracts resulted in derivative loss.
Other noncurrent assets
This account increased by 13.6% or P797.4 million to P6,653.0 million as of June 30, 2014 from the P5,855.6 million balance in December 2013 primarily due to the increase in tax credit certificates, input VAT and prepaid expenses.
Liabilities
Trade and other payables
This account decreased by 9.7% or P676.5 million to P6,305.5 million as of June 30, 2014 from the P6,982.0 million balance as of December 31, 2013 mainly due to the P485.1 million decrease in third parties accounts payable and the P266.6 million decrease in other payables.
SEC Form 17Q – 2Q 2014 18 Income tax payable
The P288.5 million account balance as of June 30, 2014 is primarily arising from the Parent, GCGI and FG Hydro’s taxable income for the period.
Due to related parties
This account increased by 18.9% or P10.1 million to P63.4 million as of June 30, 2014 from the P53.3 million balance as of December 31, 2013 mainly due to additional advances.
Long-term debts - current portion
Long-term debts - current portion increased by 446.3% or P8,355.1 million, to P10,227.2 million as of June 30, 2014 from the P1,872.1 million balance at year-end 2013 due to the reclassification from noncurrent to current.
Long-term debts - net of current portion
Long-term debts - net of current portion decreased by 17.2% or P9,744.9 million, to P46,931.8 million as of June 30, 2014 from the P56,676.7 million balance at year-end 2013 primarily due to the reclassification from noncurrent to current and prepayment of loans.
Net retirement and other post-employment benefits
This account increased by 9.3% or P155.0 million to P1,813.6 million as of June 30, 2014 from the P1,658.6 million in December 31, 2013 mainly due to retirement expense recognized during the period.
Derivative liabilities – non current
This account increased by P24.1 million to P27.8 million as of June 30, 2014 from the P3.7 million in December 31, 2013 since most of the non-current portion of the hedging contract is calculated to have derivative liability.
Equity
Net accumulated unrealized gain on AFS investments
This account increased by 231.8% or P68.6 million to P98.2 million as of June 30, 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.
SEC Form 17Q – 2Q 2014 19 Retained earnings
Retained earnings increased by 33.3% or P4,402.9 million, to P17,607.1 million as of June 30, 2014 from P13,204.2 million as of December 31, 2013 mainly due to the P6,285.3 million net income for the first semester 2014 offset by the P1,882.5 million cash dividends for the period.
Non-controlling interest
Non-controlling interest decreased by 22.8% or P457.9 million to P1,548.9 million as of June 30, 2014 from P2,006.8 million balance as of December 31, 2013 mainly due to the P658.3 million cash dividend on preferred shares offset by the P195.2 million net income for the first semester of 2014.
SEC Form 17Q – 2Q 2014 20 CASH FLOW
YTD June 30, 2014 vs. YTD June 30, 2013
Net cash flows from operating activities increased by 1.0% or P73.5 million to P7,160.9 million in the first semester of 2014 from P7,087.5 million during the same period in 2013 primarily due to the P157.5 million lower income taxes paid including creditable withholding taxes offset by the P85.3 million lower cash generation from operations.
Net cash flows used in investing activities increased by 143.5% or P5,554.2 million to P9,424.8 million in the six-month period ending June 2014 as compared to the P3,870.6 million during the same period in 2013. The increase was due to the P4,628.4 million higher acquisition of property, plant and equipment, P599.5 million higher increase in other noncurrent asset and the P542.8 million lower revenue generated from testing of property, plant and equipment.
The turnaround of P5,463.0 million net cash flows used in financing activities in the first semester of 2014 as compared to the P1,505.8 million net cash flows from financing activities during the same period in 2013 mainly due to the P6,908.9 million proceeds from long- term debts in 2013, while there is none this year.
SEC Form 17Q – 2Q 2014 21 DISCUSSION ON THE SUBSIDIARIES
FG Hydro
As of and for the periods ended June 30 (Amounts in PHP millions) 2014 2013 Operating revenues 1,537.0 1,524.2 Operating expenses 469.0 434.4 Other expenses – net 86.3 87.2 Income before tax 981.7 1,002.6 Provision for (benefit from) income tax 25.5 0.1 Net income 956.2 1,002.5 June 30, 2014 Dec. 31, 2013 Total current assets 1,656.8 1,733.8 Total noncurrent assets 6,215.6 6,403.6 Total current liabilities 591.8 547.2 Total noncurrent liabilities 3,415.2 3,602.8 Total equity 3,865.4 3,987.4
FG Hydro generated revenues of P1,537.0 million for the period ended June 30, 2014, P12.8 million higher than the revenues of P1,524.2 million for the same period in 2013. The favorable variance was mainly on account of higher sale of electricity and higher spot prices in the WESM.
Operating expenses for the period ended June 30, 2014 amounted to P469.0 million, P34.6 million or 7.9% higher than the June 30, 2013 level of P434.4 million. Interest expense as of June 30, 2014 was P8.2 million or 8.5% lower at P88.0 million compared to P96.2 million for the same period in 2013 due to lower long- term debt balance. With the expiry of FG Hydro’s income tax holiday incentive on April 12, 2014, a provision was made for current income tax amounting to P25.5 million. Overall, FG Hydro posted a net income of P956.2 million for the period ended June 30, 2014, P46.3 million or 4.6% lower than the P1,002.5 million reported income for the same period in 2013.
Total assets as of June 30, 2014 stood at P7,872.4 million, P265.0 million or 3.2% lower than the December 31, 2013 level of P8,137.4 million. The unfavorable variance was mainly due to lower cash balance and reduced net book values of property, plant and equipment and water rights.
As of June 30, 2014, total liabilities stood at P4,007.0 million, P143.0 or 3.4% lower than the December 31, 2013 level of P4,150.0 million mainly due to the continuous pay-out of the long term debt.
Total equity as of June 30, 2014 of P3,865.4 million is P122.0 million or 3.0% lower compared to the December 31, 2013 level of P3,987.4 million.
SEC Form 17Q – 2Q 2014 22 Green Core Geothermal Inc.
For the periods ended June 30 (Amounts in PHP millions) 2014 2013 Revenues 5,759.4 5,535.9 Cost of sale of electricity (4,524.6) (3,319.0) General and administrative expenses (222.6) (160.3) Other income (charges) - net 22.4 (17.7) Income before income tax 1,034.6 2,038.9 Provision for income tax (111.1) (209.4) Net income 923.5 1,829.5
As of June 30, 2014 December 31, 2013 Total Current Assets 4,790.0 4,916.2 Total Non-Current Assets 9,775.0 9,827.1 Total Liabilities 2,354.1 2,453.6 Total Equity 12,210.9 12,289.7
GCGI’s revenues increased by 4.0% or P223.5 million, to P5,759.4 million as of June 30, 2014 from P5,535.9 million for the same period in 2013 due to higher average tariff by P0.19/kWh.
Cost of sale of electricity increased by 36.3% or P1,205.6 million, to P4,524.6 million in 2014 from P3,319.0 million in 2013. The unfavorable variance was due to higher cost of steam by an average cost of P1.05/kWh (P1,137.6 million) and purchase of replacement power from EDC (P82.3 million).
General and administrative expenses increased by 38.9% or P62.3 million, to P222.6 million in 2014 from P160.3 million in 2013 due mainly to higher purchased services & utilities (P45.6 million).
This period’s other income of P22.4 million consisted mainly of interest income (P18.0 million) while last year’s other charges of P17.7 million pertained to foreign exchange losses (P42.8 million) offset by the interest income (P21.5 million).
With the foregoing, provision for income tax decreased by 46.9% or P98.3 million, to P111.1 million in 2014 from P209.4 million in 2013.
Total current assets decreased by P126.2 million, to P4,790.0 million as of June 30, 2014 from P4,916.2 million balance as of December 31, 2013. The decrease was due to lower cash & cash equivalents (P479.8 million) offset by higher trade & other receivables (P227.0 million), parts & supplies inventories (P79.9 million) and other current assets (P45.6 million).
Total liabilities decreased by P99.5 million, to P2,354.1 million as of June 30, 2014 from P2,453.6 million as of December 31, 2013 due mainly to lower trade & other payables (P128.8 million).
Total equity decreased by P78.8 million, to P12,210.9 million as of June 30, 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 (P923.5 million).
SEC Form 17Q – 2Q 2014 23 Bac-Man Geothermal Inc.
For the periods ended (Amounts in PHP millions) June 30, 2014 June 30, 2013 Revenues 1,534.8 19.0 Expenses (969.5) (92.8) Other income 2.4 2.0 Operating income 567.7 (71.8) Benefit from (Provision for) income tax 0.4 (13.6) Net income (loss) 568.1 (85.4)
As of Audited June 30, 2014 December 31, 2013 Total Current Assets 1,027.2 703.7 Total Non-Current Assets 4,700.0 4,170.0 Total Current Liabilities 2,578.4 2,295.8 Total Non-Current Liabilities 14.1 11.3 Total Equity 3,134.7 2,566.6
BGI declared commercial operations of Bac-Man Unit 3, Bac-Man Unit 1 and Bac-Man Unit 2 beginning October 1, 2013, January 28, 2014 and June 3, 2014, respectively.
Revenues increased to P=1,534.8 million in 2014 from P=19.0 million in 2013 due to the commercial operation of Bac-Man Units 3, 1 and 2.
The increase in expenses pertains primarily to the recognition of steam cost of P=736.3 million.
There was no provision for current income tax in 2014 due to the income tax holiday.
Balance sheet accounts have minimal movement during the period.
SEC Form 17Q – 2Q 2014 24 Commitments that will have an impact on the issuer’s liquidity
As of June 30, 2014, the Company has unserved purchase orders and awarded contracts for the purchase of various capital goods in the total amount of P2,603.0 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=21,925.3 million in long-term US dollar denominated loans as of June 30, 2014 which is 38.4% 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 – 2Q 2014 25 MAJOR STOCKHOLDERS
As of June 30, 2014, the total number of stockholders was 689 and the stock price was P6.30. Public float level was at 49.76% (or 9,330,363,166 common shares).
List of Top 20 Stockholders as of June 30, 2014
Number of Shares
2Rank Name Nationality 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 - 2,906,387,390 2,906,387,390 10.33
4 First Gen Corporation Filipino - 991,782,700 991,782,700 3.53
5 Northern Terracotta Power Corporation Filipino - 895,166,700 895,166,700 3.18
6 Peter D. Garrucho, Jr. Filipino - 5,670,000 5,670,000 0.02
Peace Equity Access for Community 7 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 Francis Giles Puno &/or Ma. Patricia Puno Filipino - 367,500 367,500 0.00
SEC Form 17Q – 2Q 2014 26 BOARD OF DIRECTORS
As of June 30, 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 June 30, 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
SEC Form 17Q – 2Q 2014 27 Project 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 *Retired effective July 01, 2014
SEC Form 17Q – 2Q 2014 28
ENERGY DEVELOPMENT CORPORATION AND SUBSIDIARIES FINANCIAL SOUNDNESS INDICATORS
Ratio June 30 2014 2013 Current 1.13:1.00 2.75:1.00
Debt-to-Equity 1.42:1.00 1.55:1.00
Net Debt-to-Equity 1.21:1.00 1.10:1.00
Return on Assets (%) 7.89 9.20
Return on Equity (%) 21.67 26.44
Solvency 0.15 0.11
Interest Rate Coverage 4.33:1.00 4.07:1.00
Asset-to-Equity 2.67:1.00 2.83:1.00
Prime Terracotta Holdings Corporation
E: 100% V: 100%
Red Vulcan Holdings Corporation
E: 40% V: 60%
D: 100% D: 60% D: 100% D: 100% D: 100% D: 100% EDC Wind Energy EDC Holdings EDC Drillco EDC Bright Solar EDC Geothermal First Gen Hydro Power Holdings Inc. International Limited Corporation (EDC Energy Holdings Inc. Corporation (EGC) Corporation (FGHPC) (EWEHI) (EHIL) Drillco) (EBSEHI)
D: 99.99% ID: 100% ID: 0.01% ID: 100% ID: 100% ID: 100% ID: 100% ID: 100% • Green Core Geothermal Inc. Energy Development EDC Burgos Wind EDC Pagudpod Wind EDC Bayog Burgos (GCGI) Energy Development (EDC) Corporation Hong Kong EDC Bright Solar Energy Power Power Power Corporation • Bac-Man Geothermal Inc. Corporation Chile Limitada Limited Holdings Inc. (EBSEHI) Corporation (EBWPC) Corporation (EPWPC) (EBBWPC) (BGI) (EDC HKL) • Unified Leyte Geothermal Energy Inc. (ULGEI) • Southern Negros Geothermal, ID: 95% ID: 95% ID: 100% ID: 100% Inc. (SNGI) PT EDC Panas Bumi EDC Chile • EDC Mindanao Geothermal PT EDC Indonesia EDC Peru Inc. (EMGI) Indonesia Holdings SPA Holdings S.A.C. • Bac-Man Energy Development Corporation ID: 100% ID: 100% (BEDC) • Kayabon Geothermal, Inc. EDC Geotermica Chile EDC Geotermica (KGI) SPA Peru S.A.C. •Mount Apo Renewable Inc. ID: 100% (MARI) EDC Geotermica Del Sur ID: 70% S.A.C.
ID: 70% ID: 100% Geotermica Crucero EDC Energia Azul S.A.C. EDC Quellaapacheta Legend: Peru S.A.C. D – Direct Ownership ID: 100% ID: 70% Geotermica Tutupaca ID – Indirect Ownership EDC Energia Peru S.A.C. E – Economic Interest Norte Peru S.A.C. V – Voting Interest ID: 100% EDC Energia Geotermica S.A.C. ID: 100% ID: 70% Geotermica Loriscota EDC Progreso Geotermico Peru S.A.C. Peru S.A.C.
ID: 100% EDC Energia Renovable Peru S.A.C. Lopez Inc.
52.8%
Lopez Holding Corporation
60.3% 46.2% 47.3%
Bayan First Philippine Telecommunication ABS-CBN Holdings Holdings Corporation Corporation
The Parent Company has 1% direct equity interest in BTI, as subsidiary of Bayantel. This excludes the economic interest related to voting rights assigned to Lopez. MAP OF RELATIONSHIPS OF THE COMPANIES WITHIN THE FPH / FIRST GEN GROUPS
*FPH’s Corporate Structure as of June 30, 2014
ENERGY DEVELOPMENT CORPORATION (A Subsidiary of Red Vulcan Holdings Corporation) SUPPLEMENTARY SCHEDULE OF ALL EFFECTIVE STANDARDS AND INTERPRETATIONS JUNE 30, 2014
PHILIPPINE FINANCIAL REPORTING STANDARDS Not Not AND INTERPRETATIONS Adopted Adopted Applicable Effective as of June 30, 2014 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 First-time Adoption of Philippine Financial (Revised) 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 Amendment to PFRS 1: Government Loans Amendment to PFRS 1: Meaning of ‘Effective PFRSs’* PFRS 2 Share-based Payment Amendments to PFRS 2: Vesting Conditions and Cancellations Amendment to PFRS 2: Group Cash-settled Share- based Payment Transactions Amendment to PFRS 2: Definition of Vesting Condition* PFRS 3 Business Combinations (Revised) Amendment to PFRS 3: Accounting for Contingent Consideration in a Business
1
PHILIPPINE FINANCIAL REPORTING STANDARDS Not Not AND INTERPRETATIONS Adopted Adopted Applicable Effective as of June 30, 2014 Combination* Amendment to PFRS 3: Scope Exceptions for Joint Arrangements* 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 PFRS 6 Exploration for and Evaluation of Mineral Resources PFRS 7 Financial Instruments: Disclosures Amendment to PFRS 7: Transition Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets Amendments to PAS 39 and PFRS 7: 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 Amendments to PFRS 8: Aggregation of Operating Segments and Reconciliation of the Total of the Reportable Segment’s Assets to the Entity’s Assets* 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
2
PHILIPPINE FINANCIAL REPORTING STANDARDS Not Not AND INTERPRETATIONS Adopted Adopted Applicable Effective as of June 30, 2014 PFRS 13 Fair Value Measurement Amendment to PFRS 13: Short-term Receivables and Payables* Amendment to PFRS 13: Portfolio Exception* Philippine Accounting Standards PAS 1 Presentation of Financial Statements (Revised) Amendment to PAS 1: Capital Disclosures Amendments to PAS 32 and PAS 1: Puttable Financial Instruments and Obligations Arising on Liquidation Amendment to PAS 1: Presentation of Items of 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 Amendment to PAS 16: Revaluation Method - Proportionate Restatement of Accumulated Depreciation* PAS 17 Leases PAS 18 Revenue PAS 19 Employee Benefits Amendments to PAS 19: Actuarial Gains and Losses, Group Plans and Disclosures PAS 19 Employee Benefits (Amended) Amendments to PAS19: Defined Benefit Plans - Employee Contributions*
3
PHILIPPINE FINANCIAL REPORTING STANDARDS Not Not AND INTERPRETATIONS Adopted Adopted Applicable Effective as of June 30, 2014 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 Borrowing Costs (Revised) PAS 24 Related Party Disclosures (Revised) Amendment to PAS 24: Disclosures - Key Management Personnel* PAS 26 Accounting and Reporting by Retirement Benefit Plans PAS 27 Separate Financial Statements (Amended) PAS 28 Investments in Associates and Joint Ventures (Amended) PAS 29 Financial Reporting in Hyperinflationary Economies 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 Amendment to PAS 38: Revaluation Method - Proportionate Restatement of Accumulated Amortization*
4
PHILIPPINE FINANCIAL REPORTING STANDARDS Not Not AND INTERPRETATIONS Adopted Adopted Applicable Effective as of June 30, 2014 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 Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets Amendments to PAS 39 and PFRS 7: 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 Amendment to PAS 40 and PFRS 3: Classifying property as investment property or owner-occupied property.* PAS 41 Agriculture 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
5
PHILIPPINE FINANCIAL REPORTING STANDARDS Not Not AND INTERPRETATIONS Adopted Adopted Applicable Effective as of June 30, 2014 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 15 Agreements for Construction of Real Estate* 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 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
6
PHILIPPINE FINANCIAL REPORTING STANDARDS Not Not AND INTERPRETATIONS Adopted Adopted Applicable Effective as of June 30, 2014 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 June 30, 2014. The Company did not early adopt these standards, interpretations and amendments.
7
Annex I
Energy Development Corporation (A Subsidiary of Red Vulcan Holdings Corporation) and Subsidiaries
Unaudited Interim Condensed Consolidated Financial Statements June 30, 2014 and 2013 (With Comparative Audited Figures as of December 31, 2013)
ENERGY DEVELOPMENT CORPORATION (A Subsidiary of Red Vulcan Holdings Corporation) AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION As of June 30, 2014 (With Comparative Audited Figures as of December 31, 2013)
June 30, December 31, 2014 2013 (Unaudited) (Audited)
ASSETS
Current Assets Cash and cash equivalents (Notes 5 and 23) P=8,314,478,121 P=16,043,154,556 Financial asset at fair value through profit or loss (Note 23) 501,170,959 – Trade and other receivables (Notes 6 and 23) 6,199,496,397 3,611,367,033 Available-for-sale (AFS) investments (Note 23) – 341,841,500 Parts and supplies inventories (Note 7) 3,200,937,645 3,094,303,449 Derivative assets (Note 23) 3,491,237 14,244,905 Other current assets (Note 8) 864,225,736 1,235,454,883 Total Current Assets 19,083,800,095 24,340,366,326
Noncurrent Assets Property, plant and equipment (Note 9) 73,068,947,051 66,240,009,563 Goodwill and intangible assets (Note 10) 4,343,428,274 4,399,527,299 Exploration and evaluation assets 2,572,556,882 2,380,775,489 Available-for-sale investments 503,883,722 407,242,129 Deferred tax assets – net 1,240,802,745 1,335,077,588 Derivative assets (Note 23) 22,693,038 46,885,196 Other noncurrent assets (Note 11) 6,652,953,257 5,855,620,746 Total Noncurrent Assets 88,405,264,969 80,665,138,010
TOTAL ASSETS P=107,489,065,064 P=105,005,504,336
LIABILITIES AND EQUITY
Current Liabilities Trade and other payables (Notes 12 and 22) P=6,305,515,906 P=6,981,975,893 Due to related parties (Notes 22 and 23) 63,360,559 53,347,005 Income tax payable 288,532,990 – Current portion of: Long-term debts (Notes 13 and 23) 10,227,187,834 1,872,075,873 Derivative liabilities (Note 23) 4,284,189 524,790 Total Current Liabilities 16,888,881,478 8,907,923,561
(Forward)
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June 30, December 31, 2014 2013 (Unaudited) (Audited)
Noncurrent Liabilities Long-term debts - net of current portion (Notes 13 and 23) P=46,931,828,556 P=56,676,684,462 Net retirement and other post-employment benefits 1,813,587,109 1,658,587,597 Provisions and other long-term liabilities 1,561,070,525 1,513,676,279 Derivative liabilities - net of current portion (Note 23) 27,847,227 3,673,532 Total Noncurrent Liabilities 50,334,333,417 59,852,621,870 Total Liabilities 67,223,214,895 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 6,284,327,330 6,282,808,842 Common shares in employee trust account (349,112,387) (351,494,001) Net accumulated unrealized gain on AFS investments 98,165,107 29,611,321 Cumulative translation adjustment on hedging transactions (61,932,427) (55,615,718) Cumulative translation adjustment arising from foreign subsidiaries 1,081,820 (8,698,511) Retained earnings 17,607,060,296 13,204,236,334 38,716,908,970 34,238,167,498 Non-controlling interest 1,548,941,199 2,006,791,407 Total Equity 40,265,850,169 36,244,958,905
TOTAL LIABILITIES AND EQUITY P=107,489,065,064 P=105,005,504,336
See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.
ENERGY DEVELOPMENT CORPORATION (A Subsidiary of Red Vulcan Holdings Corporation) AND SUBSIDIARIES UNAUDITD INTERIM CONSOLIDATED STATEMENTS OF INCOME
Three-Month Periods Ended Six-month Periods Ended June 30 June 30 2014 2013 2014 2013
SALE OF ELECTRICITY P=8,089,386,741 P=6,493,925,417 P=15,227,250,939 P=13,433,868,312
COST OF SALE OF ELECTRICITY (Note 15) (2,442,650,108) (2,402,552,995) (4,781,347,846) (4,597,266,395)
GENERAL AND ADMINISTRATIVE EXPENSES (Note 16) (1,279,920,348) (1,216,589,454) (2,541,525,429) (2,055,502,175)
FINANCIAL INCOME (EXPENSES) Interest income (Notes 4 and 18) 36,370,613 980,868,631 88,880,878 140,924,410 Interest expense (Notes 4 and 17) (869,858,086) (1,752,087,425) (1,842,451,151) (1,678,053,134) (833,487,473) (771,218,794) (1,753,570,273) (1,537,128,724)
OTHER INCOME (CHARGES) Foreign exchange gains (losses) - net (Note 19) 545,957,577 (929,994,513) 374,859,332 (831,440,396) Derivatives gains (losses) - net 1,170,958 1,754,330 8,688,938 (3,693,762) Miscellaneous - net (Note 20) 263,118,789 (221,801,224) 570,281,954 (227,325,723) 810,247,324 (1,150,041,407) 953,830,224 (1,062,459,881)
INCOME BEFORE INCOME TAX 4,343,576,136 953,522,767 7,104,637,615 4,181,511,137
PROVISION FOR INCOME TAX Current (288,135,169) (176,186,176) (520,896,347) (416,021,523) Deferred (98,529,815) 89,273,045 (103,274,369) 82,678,976 (386,664,984) (86,913,131) (624,170,716) (333,342,547)
NET INCOME P=3,956,911,152 P=866,609,636 P=6,480,466,899 P=3,848,168,590
Net income attributable to: Equity Holders of the Parent Company P=3,909,348,527 P=668,196,009 P=6,285,323,962 P=3,366,419,264 Non-controlling interest 47,562,625 198,413,627 195,142,937 481,749,326 P=3,956,911,152 P=866,609,636 P=6,480,466,899 P=3,848,168,590
Basic/Diluted Earnings Per Share for Net Income Attributable to Equity Holders of the Parent Company (Note 21) P=0.209 P=0.036 P=0.335 P=0.179
See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.
ENERGY DEVELOPMENT CORPORATION (A Subsidiary of Red Vulcan Holdings Corporation) AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three-Month Periods Ended Six-month Periods Ended June 30 June 30 2014 2013 2014 2013
NET INCOME P=3,956,911,152 P=866,609,636 P=6,480,466,899 P=3,848,168,590
OTHER COMPREHENSIVE INCOME Other comprehensive income to be reclassified to profit or loss in subsequent periods: Cumulative translation adjustment on hedging transactions (35,224,894) (74,998,409) (6,316,709) 102,823,894 Changes in fair value of available-for-sale investments 26,131,748 47,853,582 68,553,786 50,148,865 Cumulative translation adjustments on foreign subsidiaries 6,259,889 123,875 9,780,331 (10,799,454) (2,833,255) (27,020,952) 72,017,408 142,173,305 Other comprehensive income not to be reclassified to profit or loss in subsequent periods: Remeasurements of retirement and other post-employment benefits – 207,860,140 – 207,860,140 – 207,860,140 – 207,860,140
TOTAL COMPREHENSIVE INCOME P=3,954,077,897 P=1,047,448,824 P=6,552,484,307 P=4,198,202,035
Total comprehensive income attributable to: Equity Holders of the Parent Company P=3,906,515,272 P=849,035,197 P=6,357,341,370 P=3,716,452,709 Non-controlling interest 47,562,625 198,413,627 195,142,937 481,749,326
P=3,954,077,897 P=1,047,448,824 P=6,552,484,307 P=4,198,202,035
See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.
ENERGY DEVELOPMENT CORPORATION (A Subsidiary of Red Vulcan Holdings Corporation) AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2014 AND 2013
Equity Attributable to Equity Holders of the Parent Company Net Cumulative Cumulative Remeasurements Common Accumulated Translation Translation of Retirement Preferred Common Shares in Additional Unrealized Adjustments- Adjustments- and Other Post- Stock Stock Employee Paid-in Equity Gain on AFS Hedging Foreign Employment Retained Non-controlling Trust Account Capital Reserve Investments Transactions Subsidiaries Benefits Earnings Subtotal 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 – – – – – – – – – 6,285,323,962 6,285,323,962 195,142,937 6,480,466,899 Changes in fair value of Available- For-Sale investments recognized in equity – – – – – 68,553,786 – – – – 68,553,786 – 68,553,786 Cumulative translation adjustments – – – – – – (6,316,709) 9,780,331 – – 3,463,622 – 3,463,622 – – – – – 68,553,786 (6,316,709) 9,780,331 – 6,285,323,962 6,357,341,370 195,142,937 6,552,484,307 Cash dividend (Note 14) – – – – – – – – – (1,882,500,000) (1,882,500,000) (658,255,057) (2,540,755,057) Investments from non-controlling shareholders – – – – – – – – – – – 5,261,912 5,261,912 Share based payment – – 2,381,614 1,518,488 – – – – – – 3,900,102 – 3,900,102
Balances, June 30, 2014 (Unaudited) P=93,750,000 P=18,750,000,000 (P=349,112,387) P=6,284,327,330 (P=3,706,430,769) P=98,165,107 (P=61,932,427) P=1,081,820 P=– P=17,607,060,296 P=38,716,908,970 P=1,548,941,199 P=40,265,850,169 See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.
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Equity Attributable to Equity Holders of the Parent Company Net Cumulative Cumulative Remeasurements Common Accumulated Translation Translation of Retirement Preferred Common Shares in Additional Unrealized Adjustments- Adjustments- and Other Post- Stock Stock Employee Paid-in Equity Gain on AFS Hedging Foreign Employment Retained Non-controlling Trust Account Capital Reserve Investments Transactions Subsidiaries Benefits Earnings Subtotal Interest Total Equity
Balances, January 1, 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=111,522,725 (P=144,426,476) P=5,836,485 P=– P=12,331,621,322 P=33,361,309,767 P=2,072,545,121 P=35,433,854,888 Effect of adoption of PAS 19, Employee Benefits (Revised) – – – – – – – – – (694,686,126) (694,686,126) – (694,686,126) Balances, January 1, 2013, as restated 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=144,426,476) P=5,836,485 P=– P=11,636,935,196 P=32,666,623,641 P=2,072,545,121 P=34,739,168,762 Total comprehensive income: Net income – – – – – – – – – 3,366,419,264 3,366,419,264 481,749,326 3,848,168,590 Changes in fair value of AFS investments recognized in equity – – – – – (50,148,865) – – – – (50,148,865) – (50,148,865) Remeasurements of retirement and other post-employment benefits – – – – – – – – (207,860,140) – (207,860,140) – (207,860,140) Cumulative translation adjustments – – – – – – 102,823,894 (10,799,454) – – 92,024,440 – 92,024,440 – – – – – (50,148,865) 102,823,894 (10,799,454) (207,860,140) 3,366,419,264 3,200,434,699 481,749,326 3,682,184,025 Remeasurements of retirement and other post-employment benefits closed to retained earnings – – – – – – – – 207,860,140 (207,860,140) – – – Cash dividend – – – – – – – – – (1,507,500,000) (1,507,500,000) – (1,507,500,000) Cash dividend to non-controlling interest – – – – – – – – – – – (951,203,200) (951,203,200)
Balances, June 30, 2013 (Unaudited) P=93,750,000 P=18,750,000,000 (P=358,429,306) P=6,277,865,786 (P=3,706,430,769) P=61,373,860 (P=41,602,582) (P=4,962,969) P=– P=13,287,994,320 P=34,359,558,340 P=1,603,091,247 P=35,962,649,587
ENERGY DEVELOPMENT CORPORATION (A Subsidiary of Red Vulcan Holdings Corporation) AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six-Month Periods Ended June 30 2014 2013
CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=7,104,637,615 P=4,181,511,137 Adjustments for: Depreciation and amortization (Notes 9 and 10) 1,868,007,779 1,825,484,576 Interest expense (Note 17) 1,842,451,151 1,678,053,134 Retirement and post-employment benefits costs 154,999,512 142,181,812 Provision for doubtful accounts (Note 16) 28,622,726 25,455,857 Derivative losses - net (Note 23) 7,547,020 558,860 Share-based payment expense 3,900,102 – Input value-added tax (VAT) claims written-off – 220,039,070 Unrealized foreign exchange losses (gains) - net (360,522,078) 860,315,239 Gain on retirement of property, plant and equipment (233,783,974) (5,361,035) Interest income (Note 18) (88,880,878) (140,924,410) Operating income before working capital changes 10,326,978,975 8,787,314,240 Decrease (increase) in: Trade and other receivables (2,589,896,014) (28,097,314) Parts and supplies inventories (70,645,793) 34,662,299 Other current assets 416,188,565 (292,416,634) Increase (decrease) in: Trade and other payables (644,620,528) (1,098,813,501) Due to related parties 262,931 120,963,483 Cash generated from operations 7,438,268,136 7,523,612,573 Income taxes paid including creditable withholding taxes (277,322,776) (434,826,003) Retirement and other post-employment benefits paid – (1,330,200) Net cash flows from operating activities 7,160,945,360 7,087,456,370 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment (Note 9) (9,185,255,962) (4,556,880,462) Proceeds from: Sale of property, plant and equipment 758,267,154 31,813,337 Redemption of available-for-sale investments 346,500,000 – Revenue generated from testing of property, plant and equipment 145,726,728 688,478,452 Interest received 89,919,667 136,743,325 Purchase of available-for-sale investments (60,761,520) – Purchase of financial asset at Fair Value through Profit or Loss (501,170,959) – Decrease (increase) in: Exploration and evaluation assets (191,781,393) (278,516,236) Intangible assets (957,594) 333,557,741 Other noncurrent assets (825,327,481) (225,808,942) Net cash used in investing activities (9,424,841,360) (3,870,612,785) (Forward)
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For the Six-Month Periods Ended June 30 2014 2013
CASH FLOWS FROM FINANCING ACTIVITIES Payments of: Long-term debts (P=1,030,736,500) (P=1,219,951,250 ) Cash dividends (Note 14) (2,540,755,057) (2,458,703,200) Interest and financing charges (1,932,762,381) (1,692,874,489) Investments from non-controlling shareholders 5,261,912 – Proceeds from long-term debts (Note 13) – 6,908,882,304 Increase (decrease) in provisions and other long-term liabilities 35,981,933 (31,562,416) Net cash flows from (used in) in financing activities (5,463,010,093) 1,505,790,949
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,726,906,093) 4,722,634,534
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (1,770,342) 9,794,166
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 16,043,154,556 11,420,144,203
CASH AND CASH EQUIVALENTS AT END OF PERIOD (Notes 5 and 23) P=8,314,478,121 P=16,152,572,903
See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.
ENERGY DEVELOPMENT CORPORATION (A Subsidiary of Red Vulcan Holdings Corporation) AND SUBSIDIARIES NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information
Nature of Operations Energy Development Corporation (the “Parent Company” or “EDC”) and its subsidiaries (collectively hereinafter referred to as the “Company”) are primarily engaged in the business of exploring, developing, and operating geothermal energy and other indigenous renewable energy projects in the Philippines, and utilizing geothermal energy and other indigenous renewable energy sources for electricity generation.
EDC’s geothermal power projects engage in two principal activities: (i) the production of geothermal steam for use at EDC and its subsidiaries’ geothermal power plants, and (ii) the generation and sale of electricity through those geothermal power plants pursuant to take-or-pay power offtake arrangements. EDC’s steam and electricity sales are supported by medium- to long- term offtake agreements in various forms. EDC’s steam sales are backed by long-term offtake agreements with its subsidiaries: (i) Geothermal Resource Sales Contracts (GRSCs) with its subsidiary, Green Core Geothermal Inc. (GCGI); and (ii) a Steam Sales Agreement (SSA) with its subsidiary, Bac-Man Geothermal Inc. (BGI). EDC has three 25-year Power Purchase Agreements (PPAs) with National Power Corporation (NPC) covering EDC’s Unified Leyte and Mindanao Geothermal Power Projects. The PPAs for Unified Leyte and Mindanao I are scheduled to expire in 2022 while the PPA for Mindanao II will expire in 2024. EDC’s subsidiaries, GCGI and BGI, also hold offtake agreements in the form of Transition Supply Contracts (TSCs), Power Supply Contracts (PSCs) and Power Supply Agreements (PSAs) with various customers, particularly electric cooperatives.
EDC holds service contracts with the Department of Energy (DOE) corresponding to 13 geothermal contract areas, each granting EDC exclusive rights to explore, develop, and utilize the corresponding resources in the relevant contract area. EDC conducts commercial operations in the following four of its 13 geothermal contract areas:
. Tongonan, Kananga, Leyte - EDC operates three geothermal steamfield projects in Leyte, which deliver steam to the Tongonan geothermal power plant, owned by EDC’s subsidiary GCGI, and the four EDC-owned Unified Leyte geothermal power plants.
. Southern Negros, Valencia, Negros Oriental - EDC operates two geothermal steamfield projects in Southern Negros, which deliver steam to the two GCGI-owned Palinpinon geothermal power plants.
. Bacon-Manito, Albay and Sorsogon - EDC operates two geothermal steamfield projects, which deliver steam to two geothermal power plants in Albay and Sorsogon, owned by the Parent Company’s subsidiary BGI.
. Mt. Apo, Kidapawan, Cotabato - EDC operates one geothermal steamfield project, which delivers steam to two EDC-owned geothermal power plants on Mt. Apo.
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FG Hydro Power Corporation, a 60%-owned subsidiary of EDC, generates revenue from the sale of electricity generated by its 132 Megawatt (MW) Pantabangan-Masiway hydroelectric plants located in Nueva Ecija. FG Hydro sells its generated electricity to specific customers under various power supply contracts. Generated electricity in excess of the contracted levels is sold to the Wholesale Electricity Spot Market (WESM).
EDC Burgos Wind Power Corporation (EBWPC), a subsidiary of EDC, is currently constructing wind farm in Burgos, Ilocos Norte (see Note 9).
Subsidiaries The Parent Company and its subsidiaries 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 June 30, 2014 December 31, 2013 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 Mount Apo Renewable Inc.* – 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 Hot Rock Holding Ltd* – 100.00 – – Hot Rock Chile Ltd* – 100.00 – – Hot Rock Peru Ltd* – 100.00 – – Hot Rock Chile S.A* – 100.00 – –
(Forward)
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Percentage of Ownership June 30, 2014 December 31, 2013 Direct Indirect Direct Indirect Hot Rock Peru S.A* – 100.00 – – 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 EDC Bayog Burgos Power Corporation (EBBPC)* – 100.00 – – EDC Burgos Pagali Wind Power Corporation (EBPWPC)* – 100.00 – – EDC Bright Solar Energy Holdings, Inc. (EBSEHI)* 100.00 – – – EDC Bago Solar Power Corporation (EBSPC)* – 100.00 – – First Gen Hydro Power Corporation (FG Hydro) 60.00 – 60.00 – *Incorporated in 2014 and has not yet started commercial operations. **Incorporated in 2013 and has not yet started commercial operations. ***Incorporated in prior years and has not yet started commercial operations. ****Serves as an investment holding company.
Corporate Address The address of the registered office of the Parent Company is One Corporate Centre, Julia Vargas Avenue corner Meralco Avenue, Ortigas Centre, Pasig City.
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 August 12, 2014.
2. Basis of Preparation
The unaudited interim condensed consolidated financial statements as of June 30, 2014 and for the six-month periods ended June 30, 2014 and 2013 have been prepared in accordance with Philippine Accounting Standard (PAS) 34, Interim Financial Reporting. The unaudited interim condensed consolidated financial statements do not include all of 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.
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 new standards and interpretations effective as of beginning January 1, 2014.
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The nature and the impact of each new standard or amendment are described below:
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 cash-generating units (CGU) for which impairment loss has been recognized or reversed during the period. The amendments affect disclosures only and have no impact on the Company’s financial position or performance.
Investment Entities (Amendments to PFRS 10, PFRS 12 and PAS 27)
These amendments provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under PFRS 10, Consolidated Financial Statements. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. These amendments have no impact to the Company since none of the entities in the Company qualifies to be an investment entity under PFRS 10.
Philippine Interpretation IFRIC 21, Levies
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 has no impact on the Company’s financial position or performance.
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 have no impact to the Company as the Company has not novated its derivatives during the current or prior periods.
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. These amendments have no impact on the Company.
Future Changes in Accounting Policies The Group will adopt the following amended standards and Philippine interpretations enumerated below when these become effective. Except as otherwise indicated, the Group does not expect the adoption of these new and amended PFRS and Philippine interpretations to have significant impact on the consolidated financial statements.
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Effective 2015
PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions (Amendments)
The Amendments apply to contributions from employees or third parties to defined benefit plans. Contributions that are set out in the formal terms of the plan shall be accounted for as reductions to current service costs if they are linked to service or as part of the remeasurements of the net defined benefit asset or liability if they are not linked to service. Contributions that are discretionary shall be accounted for as reductions of current service cost upon payment of these contributions to the plans. The Amendments to PAS 19 are to be retrospectively applied for annual periods beginning on or after July 1, 2014.
Annual Improvements to PFRSs (2010-2012 cycle) The Annual Improvements to PFRSs (2010-2012 cycle) contain non-urgent but necessary amendments to the following standards:
PFRS 2, Share-based Payment - Definition of Vesting Condition
The Amendment revised the definitions of vesting condition and market condition and added the definitions of performance condition and service condition to clarify various issues. This Amendment shall be prospectively applied to share-based payment transactions for which the grant date is on or after July 1, 2014. This Amendment does not apply to the Group as it has no share-based payments.
PFRS 3, Business Combinations - Accounting for Contingent Consideration in a Business Combination
The Amendment clarifies that a contingent consideration that meets the definition of a financial instrument should be classified as a financial liability or as equity in accordance with PAS 32. Contingent consideration that is not classified as equity is subsequently measured at fair value through profit or loss whether or not it falls within the scope of PFRS 9 (or PAS 39, if PFRS 9 is not yet adopted). The Amendment shall be prospectively applied to business combinations for which the acquisition date is on or after July 1, 2014. The Group shall consider this amendment for future business combinations.
PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation of the Total of the Reportable Segments’ Assets to the Entity’s Assets
The Amendments require entities to disclose the judgment made by management in aggregating two or more operating segments. This disclosure should include a brief description of the operating segments that have been aggregated in this way and the economic indicators that have been assessed in determining that the aggregated operating segments share similar economic characteristics. The Amendments also clarify that an entity shall provide reconciliations of the total of the reportable segments’ assets to the entity’s assets if such amounts are regularly provided to the chief operating decision maker. These amendments are effective for annual periods beginning on or after July 1, 2014 and are applied retrospectively. The Amendments affect disclosures only and have no impact on the Group’s financial position or performance.
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PFRS 13, Fair Value Measurement - Short-term Receivables and Payables
The Amendment clarifies that short-term receivables and payables with no stated interest rates can be held at invoice amounts when the effect of discounting is immaterial.
PAS 16, Property, Plant and Equipment - Revaluation Method - Proportionate Restatement of Accumulated Depreciation
The Amendment clarifies that, upon revaluation of an item of property, plant and equipment, the carrying amount of the asset shall be adjusted to the revalued amount, and the asset shall be treated in one of the following ways: a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. The accumulated depreciation at the date of revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account any accumulated impairment losses. b. The accumulated depreciation is eliminated against the gross carrying amount of the asset.
The Amendment is effective for annual periods beginning on or after July 1, 2014. The Amendment shall apply to all revaluations recognized in annual periods beginning on or after the date of initial application of this amendment and in the immediately preceding annual period. The Amendment has no impact on the Group’s financial position or performance.
PAS 24, Related Party Disclosures - Key Management Personnel
The Amendments clarify that an entity is a related party of the reporting entity if the said entity, or any member of a group for which it is a part of, provides key management personnel services to the reporting entity or to the Parent Company of the reporting entity. The amendments also clarify that a reporting entity that obtains management personnel services from another entity (also referred to as management entity) is not required to disclose the compensation paid or payable by the management entity to its employees or directors. The reporting entity is required to disclose the amounts incurred for the key management personnel services provided by a separate management entity. The Amendments are applied retrospectively. The Amendments affect disclosures only and have no impact on the Group’s financial position or performance.
PAS 38, Intangible Assets - Revaluation Method - Proportionate Restatement of Accumulated Amortization
The Amendments clarify that, upon revaluation of an intangible asset, the carrying amount of the asset shall be adjusted to the revalued amount, and the asset shall be treated in one of the following ways: a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. The accumulated amortization at the date of revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account any accumulated impairment losses. b. The accumulated amortization is eliminated against the gross carrying amount of the asset.
The Amendments also clarify that the amount of the adjustment of the accumulated amortization should form part of the increase or decrease in the carrying amount accounted for in accordance with the standard.
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The Amendments are effective for annual periods beginning on or after July 1, 2014. The amendments shall apply to all revaluations recognized in annual periods beginning on or after the date of initial application of this amendment and in the immediately preceding annual period. The Amendments have no impact on the Group’s financial position or performance.
Annual Improvements to PFRSs (2011-2013 cycle) The Annual Improvements to PFRSs (2011-2013 cycle) contain non-urgent but necessary amendments to the following standards. The Amendments are effective for annual periods beginning on or after July 1, 2014 and are applied prospectively. Earlier application is permitted.
PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Meaning of ‘Effective PFRSs’
The Amendment clarifies that an entity may choose to apply either a current standard or a new standard that is not yet mandatory, but that permits early application, provided either standard is applied consistently throughout the periods presented in the entity’s first PFRS financial statements. This Amendment is applicable to the Group as it is a first-time adopter of PFRS.
PFRS 3, Business Combinations - Scope Exceptions for Joint Arrangements
The Amendment clarifies that PFRS 3 does not apply to the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself. The Amendment has no significant impact on the Group’s financial position or performance.
PFRS 13, Fair Value Measurement - Portfolio Exception
The Amendment clarifies that the portfolio exception in PFRS 13 can be applied to financial assets, financial liabilities and other contracts. The Amendment has no significant impact on the Group’s financial position or performance.
PAS 40, Investment Property
The Amendment clarifies the interrelationship between PFRS 3 and PAS 40 when classifying property as investment property or owner-occupied property. The Amendment stated that judgment is needed when determining whether the acquisition of investment property is the acquisition of an asset or a group of assets or a business combination within the scope of PFRS 3. This judgment is based on the guidance of PFRS 3. The Amendment has no significant impact on the Group’s financial position or performance.
PFRS 9, Financial Instruments
PFRS 9, as issued, reflects the first and third phases of the project to replace PAS 39 and applies to the classification and measurement of financial assets and liabilities and hedge accounting, respectively. Work on the second phase, which relate to impairment of financial instruments, and the limited amendments to the classification and measurement model is still ongoing, with a view to replace PAS 39 in its entirety. PFRS 9 requires all financial assets to be measured at fair value at initial recognition. A debt financial asset may, if the fair value option (FVO) is not invoked, be subsequently measured at amortized cost if it is held within a business model that has the objective to hold the assets to collect the contractual cash flows and its contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal outstanding. All other debt instruments are subsequently measured at fair value through profit or loss. All equity financial assets are
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measured at fair value either through other comprehensive income (OCI) or profit or loss. Equity financial assets held for trading must be measured at fair value through profit or loss. For liabilities designated as at FVPL using the fair value option, the amount of change in the fair value of a liability that is attributable to changes in credit risk must be presented in OCI. The remainder of the change in fair value is presented in profit or loss, unless presentation of the fair value change relating to the entity’s own credit risk in OCI would create or enlarge an accounting mismatch in profit or loss. All other PAS 39 classification and measurement requirements for financial liabilities have been carried forward to PFRS 9, including the embedded derivative bifurcation rules and the criteria for using the FVO. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Group’s financial assets, but will potentially have no impact on the classification and measurement of financial liabilities.
On hedge accounting, PFRS 9 replaces the rules-based hedge accounting model of PAS 39 with a more principles-based approach. Changes include replacing the rules-based hedge effectiveness test with an objectives-based test that focuses on the economic relationship between the hedged item and the hedging instrument, and the effect of credit risk on that economic relationship; allowing risk components to be designated as the hedged item, not only for financial items, but also for non-financial items, provided that the risk component is separately identifiable and reliably measurable; and allowing the time value of an option, the forward element of a forward contract and any foreign currency basis spread to be excluded from the designation of a financial instrument as the hedging instrument and accounted for as costs of hedging. PFRS 9 also requires more extensive disclosures for hedge accounting.
PFRS 9 currently has no mandatory effective date. PFRS 9 may be applied before the completion of the limited amendments to the classification and measurement model and impairment methodology. The Group will not adopt the standard before the completion of the limited amendments and the second phase of the project.
Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate
This interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion. The SEC and the Financial Reporting Standards Council (FRSC) have deferred the effectivity of this Interpretation until the final Revenue standard is issued by International Accounting Standards Board (IASB) and an evaluation of the requirements of the final Revenue standard against the practices of the Philippine real estate industry is completed. This interpretation is not relevant to the Group.
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4. Operating Segment Information
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) - This segment pertains to Leyte geothermal production field and power plant. This includes projects in Tongonan, Mahanagdong, Upper Mahiao, Malitbog and other projects in Leyte Province.
b. Negros Island Geothermal Business Unit (NIGBU) - This segment refers to Southern Negros geothermal production field and power plant. Power plants included in NIGBU are Palinpinon I and Palinpinon II.
c. Bacon-Manito Geothermal Business Unit (BGBU) - This segment relates to Bacon-Manito geothermal production field and power plant.
d. Mt. Apo Geothermal Business Unit (MAGBU) - This segment 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.
Management monitors the operating results of the business segments separately for the purpose of making decisions about resources to be allocated and of assessing performance. Finance costs, finance income, income taxes and other charges and income are managed on a group basis.
Segment performance is evaluated based on net income for the year and earnings before interest, taxes, and depreciation and amortization (EBITDA). Net income for the year is measured consistent with consolidated net income reported in the consolidated financial statements. EBITDA is calculated as total revenues minus costs of sales of electricity and general and administrative expenses, excluding non-cash items such as depreciation and amortization, impairment losses on non-financial assets, and loss on disposal of property, plant and equipment, among others.
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Financial information on the operating segments are summarized as follows:
Pantabangan/ LGBU NIGBU BGBU MAGBU Masiway WINBU Others Total Period Ended June 30, 2014 Segment revenue P=9,014,845,317 P=6,013,712,517 P=2,271,070,110 P=1,162,928,148 P=1,287,444,832 P=– P=– P=19,750,000,924 Intersegment revenue (1,382,297,010) (2,404,147,814) (736,305,161) – – – – (4,522,749,985) Total segment revenue P=7,632,548,307 P=3,609,564,703 P=1,534,764,949 P=1,162,928,148 P=1,287,444,832 P=– P=– P=15,227,250,939 Segment expenses (3,486,949,888) (1,379,675,700) (988,018,230) (836,852,539) (468,978,952) (17,217,166) – (7,177,692,475) Unallocated expenses – – – – – – (145,180,800) (145,180,800) Interest income 47,506,223 22,563,370 9,225,172 6,312,465 3,188,482 83,641 1,525 88,880,878 Interest expense (900,988,592) (471,793,777) (201,397,748) (175,865,077) (87,993,414) – (4,412,543) (1,842,451,151) Other expenses - net 469,138,844 152,189,201 48,251,997 45,632,945 (1,486,148) (5,055,231) 245,158,616 953,830,224 Income taxes (382,281,393) (186,409,910) 15,218,258 (14,452,664) (47,974,776) – (8,270,231) (624,170,716) Segment result P=3,378,973,501 P=1,746,437,887 P=418,044,398 P=187,703,278 P=684,200,024 (P=22,188,756) P=87,296,570 P=6,480,466,899
EBITDA P=5,129,900,771 P=2,535,306,091 P=744,877,893 P=508,413,436 P=1,028,750,285 (P=17,090,390) P=– P=9,930,158,086 Unallocated Expenses – – – – – – – (117,341,095) P=9,812,816,991
Pantabangan/ LGBU NIGBU BGBU MAGBU Masiway WINBU Others Total Period Ended June 30, 2013 Segment revenue P=8,625,417,663 P=5,016,097,350 P=18,976,143 P=898,020,254 P=1,524,190,592 P=– P=– P=16,082,702,002 Intersegment revenue (1,042,650,375) (1,606,183,315) – – – – – (2,648,833,690) Total segment revenue P=7,582,767,288 P=3,409,914,035 P=18,976,143 P=898,020,254 P=1,524,190,592 P=– P=– P=13,433,868,312 Segment expenses (3,440,577,840) (1,299,442,395) (647,313,348) (653,426,845) (434,557,994) (96,064,937) – (6,571,383,359) Unallocated expenses – – – – – – (81,385,211) (81,385,211) Interest income 84,408,474 33,578,149 18,338,924 10,283,200 18,819,002 48,291 (24,551,630) 140,924,410 Interest expense (834,309,330) (417,985,663) (161,044,011) (169,422,180) (96,238,545) – 946,595 (1,678,053,134) Other income - net (476,374,570) (429,099,418) (103,832,734) (37,563,926) (9,755,926) (2,775,685) (3,057,622) (1,062,459,881) Income taxes (284,307,953) (119,968,160) 67,940,922 2,717,777 274,867 – – (333,342,547) Segment result P=2,631,606,069 P=1,176,996,548 P= (806,934,104) P=50,608,280 P=1,002,731,996 (98,792,331) (P=108,047,869) P=3,848,168,590
EBITDA P=5,178,415,675 P=2,392,877,079 P=(450,807,811) P=418,628,188 P=1,299,942,591 (P=96,016,173) P= P=8,743,039,549 Unallocated Expenses (75,558,557) P=8,667,480,992
Pantabangan / LGBU NIGBU BGBU MAGBU WINBU Masiway Elimination Total As of and for the six- month period ended June 30, 2014 Segment assets P=68,505,918,575 P=24,702,928,450 P=13,334,357,437 P=9,826,317,772 P=18,890,006,001 P=7,872,360,037 (P=56,544,758,709) P=86,587,129,563 Unallocated corporate assets 20,901,935,501 Total assets P=107,489,065,064 Segment liabilities P=29,874,838,393 P=13,893,244,662 P=13,665,394,648 P=5,122,300,658 P=9,499,128,325 P=4,007,000,171 (P=14,045,242,979) P=62,016,663,878 Unallocated corporate liabilities 5,206,551,017 Total liabilities P=67,223,214,895 Capital expenditure P=1,567,802,852 P=592,185,516 P=565,936,603 (P=1,108,686) P=5,515,283,150 P=31,105,507 P=238,048,474 P=8,509,253,416 Unallocated capital expenditure 831,721,391 Total capital expenditure P=9,340,974,807 Depreciation and amortization (P=964,864,349) (P=294,009,363) (P=191,993,178) (P=178,890,001) (P=126,776) (P=210,284,405) (P=25,410,758) (P=1,865,578,830) Unallocated depreciation and amortization (2,428,949) Total depreciation and amortization (P=1,868,007,779) Other non-cash items (P=19,438,003) (P=11,407,725) (P=6,137,996) (P=3,447,825) P=– P=– P=– (P=40,431,549) Unallocated non-cash items – Total other non-cash items (P=40,431,549)
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Pantabangan / LGBU NIGBU BGBU MAGBU WINBU Masiway Elimination Total As of and for the year 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
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The following table shows the Company’s reconciliation of EBITDA to the consolidated net income (loss) for the six-month periods ended June 30, 2014 and 2013.
2014 2013 EBITDA P=9,812,816,991 P=8,667,480,992 Add (Deduct): Depreciation and amortization (Notes 9 and 10) (1,868,007,779) (1,825,484,576) Interest expense (Note 17) (1,842,451,151) (1,678,053,134) Provision for income tax (624,170,715) (333,342,547) Foreign exchange gains (losses) - net (Note 19) 374,859,332 (831,440,396) Interest income (Note 18) 88,880,878 140,924,410 Provision for doubtful accounts (Note 16) (28,622,726) (26,377,693) Derivatives loss - net (Note 23) 8,688,939 (3,693,762) Provision for impairment of parts and supplies inventories (11,808,823) (34,518,981) Miscellaneous - net (Note 20) 570,281,954 (227,325,723) Consolidated net income P=6,480,466,900 P=3,848,168,590
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
June 30, December 31, 2014 2013 (Unaudited) (Audited) Cash on hand and in banks P=1,838,863,832 P=3,941,157,345 Cash equivalents 6,475,614,289 12,101,997,211 P=8,314,478,121 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.
Interest income earned on cash in banks amounted to P=22.4 million and P=23.9 million for the six- months periods ended June 30, 2014 and 2013, respectively (see Note 18).
Meanwhile, cash equivalents earned interest of P=64.9 million and P=109.9 million for the six-month periods ended June 30, 2014 and 2013, respectively (see Note 18).
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6. Trade and Other Receivables
June 30, December 31, 2014 2013 (Unaudited) (Audited) Trade P=5,827,494,208 P=3,397,069,626 Others: Advances to employees 105,514,181 73,699,085 Non-trade accounts receivable 258,111,985 94,851,647 Loans and notes receivables 87,451,083 124,936,697 Employee receivables 12,073,363 11,958,401 Total other receivables 463,150,612 305,445,830 6,290,644,820 3,702,515,456 Less allowance for doubtful accounts 91,148,423 91,148,423 P=6,199,496,397 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.
No provision for doubtful accounts related to trade and other receivables was recognized for the six-month periods ended June 30, 2014 and 2013
7. Parts and Supplies Inventories
June 30, December 31, 2014 2013 (Unaudited) (Audited) On hand: Drilling tubular products and equipment spares P=1,468,664,032 P=1,461,354,072 Power plant spares 770,716,304 678,693,801 Pump, production/steam gathering system, steam turbine, valves and valve spares 555,254,278 477,428,028 Electrical, cable, wire product and compressor spares 113,256,448 121,659,974 Heavy equipment spares 91,227,034 65,130,865 Construction and hardware supplies, stationeries and office supplies, hoses, communication and other spares and supplies 64,084,784 68,258,675 Chemical, chemical products, gases and catalyst 63,785,406 136,692,032 Automotive, mechanical, bearing, seals, v-belt, gasket, tires and batteries 43,970,822 47,339,199 Measuring instruments, indicators and tools, safety equipment and supplies 29,978,537 33,832,918 3,200,937,645 3,090,389,564 In transit – 3,913,885 P=3,200,937,645 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.
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8. Other current assets
June 30, December 31, 2014 2013 (Unaudited) (Audited) Withholding tax certificates P=407,761,764 P=393,078,659 Prepaid expenses 290,628,154 302,435,288 Advances to contractors 78,074,445 67,064,239 Tax credit certificates 16,473,041 472,531,633 Others 71,288,332 345,064 P=864,225,736 P=1,235,454,883
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9. Property, Plant and Equipment
2014 (Six Months) Buildings, Improvements Exploration, Furniture, FCRS and and Other Machinery and Transportation Fixtures and Laboratory Construction Land Power Plants Production Wells Structures Equipment Equipment Equipment Equipment 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 62,851,617 17,615,187 2,821,071 2,177,488 35,340,886 19,553,884 10,651,642 18,716,211 9,171,246,820 9,340,974,806 Disposals/retirements – – – – (670,156,255) (3,187,832) (11,590,203) – – (684,934,290) Reclassifications – 3,454,054,796 (3,866,739) 18,286,761 6,460,486 (68,297,203) 4,022,066 56,725 (3,556,961,448) (146,244,556) Balances at June 30 578,204,663 42,202,686,951 25,465,966,725 2,148,906,893 4,812,666,861 141,126,712 1,104,470,822 681,511,130 21,905,725,753 99,041,266,510 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 – – period 1,100,650,863 392,309,501 52,456,361 145,044,324 9,395,170 74,467,215 36,627,726 1,810,951,160 Disposals/retirement – – – – (148,353,526) (3,187,817) (8,909,768) – – (160,451,111) Reclassifications – – ;– 1,501,465 42,863,771 178,433 (14,212,469) 27,223 – 30,358,423 Balances at June 30 17,627,581 12,995,908,312 8,869,042,992 671,142,548 2,452,100,930 75,570,848 562,675,363 328,250,885 25,972,319,459 Net Book Value P=560,577,082 P= 29,206,778,639 P=16,596,923,733 P=1,477,764,345 P=2,360,565,931 P=65,555,864 P=541,795,459 P=353,260,245 P=21,905,725,753 P=73,068,947,051
2013 (One Year) Buildings, Improvements Exploration, Furniture, FCRS and and Other Machinery and Transportation Fixtures and Laboratory Construction Land Power Plants Production Wells Structures Equipment Equipment Equipment Equipment 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
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Estimated Rehabilitation and Restoration Costs Fluid Collection and Recycling System (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=426.1 million and P=446.5 million as of June 30, 2014 and December 31, 2013, respectively. As of June 30, 2014 and December 31, 2013, the provision for rehabilitation costs under “Provisions and other long-term liabilities” amounted to P=666.9 million and P=654.4 million, respectively.
Rehabilitation of BMGPP Since 2010, BGI’s power plants, consisting of three units, have been under rehabilitation and testing procedures were performed in preparation for its planned commercial operations. Units 1, 2 and 3 commenced commercial operations on January 28, 2014, June 3, 2014 and October 1, 2013, respectively. For the six-month periods ended June 30, 2014 and 2013, the revenue from electricity generated during the testing period amounting to nil and P=688.5 million, respectively, were offset against the cost of property, plant and equipment.
Meanwhile, total revenue generated by Units 1, 2 and 3 from January to June 2014 during their commercial operations amounted to P=1,467.4 million and was presented as part of the “Sale of electricity” account in the consolidated statement of income.
Rehabilitation of Nasulo For the period ending June 2014, Nasulo power plant generated revenue from testing amounting to P=146.2 million which was offset against the property, plant and equipment. This is net of the eliminated sale to GCGI amounting to P=82.3 million.
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:
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June 30, 2014 June 30, 2013 (Unaudited) (Unaudited) Property, plant and equipment P=1,810,951,160 P=1,777,388,999 Intangible assets (Note 10) 57,056,619 48,095,577 P=1,868,007,779 P=1,825,484,576 Cost of sales of electricity (Note 15) P=1,654,611,353 P=1,643,529,968 General and administrative (Note 16) 213,396,426 181,954,608 P=1,868,007,779 P=1,825,484,576
10. Goodwill and Intangible Assets
2014 (Six Months) Other Intangible Goodwill Water Rights 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 – – 957,594 957,594 Balances at June 30 2,535,051,530 2,404,778,918 172,733,615 5,112,564,063 Accumulated Amortization Balances at January 1 – 685,361,992 26,717,178 712,079,170 Amortization (Notes 15and 16) – 48,095,578 8,961,041 57,056,619 Balances at June 30 – 733,457,570 35,678,219 769,135,789 Net Book Value P=2,535,051,530 P=1,671,321,348 P=137,055,396 P=4,343,428,274
2013 (One Year) Other Intangible Goodwill Water Rights 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 – – (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 – 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 17.4 years as of June 30, 2014.
As of December 31, 2013 and June 30, 2014, other intangible assets pertain to the Company’s software cost related to the acquisition of new accounting system.
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
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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).
11. Other Noncurrent Assets
June 30, December 31, 2014 2013 (Unaudited) (Audited) Input value-added tax P=4,355,170,186 P=4,177,522,698 Tax credit certificates 2,026,844,056 1,560,618,288 Special deposits and funds 224,437,801 177,990,509 Prepaid expenses 221,915,623 155,364,932 Long-term receivables 96,966,805 88,962,765 Others 183,723,199 168,287,470 7,109,057,670 6,328,746,662 Less allowance for doubtful accounts 456,104,413 473,125,916 P=6,652,953,257 P=5,855,620,746
Provision for doubtful accounts pertaining to input VAT and long-term receivables amounted to P=28.62 million and P=25.34 million for the six-month periods June 30, 2014 and 2013, respectively (Note 16).
Others pertain to advances to contractors, other deferred income taxes and other prepaid and deferred charges.
12. Trade and Other Payables
June 30, December 31, 2014 2013 (Unaudited) (Audited) Accounts payable: Third parties P=4,575,921,877 P=5,061,002,130 Related parties (Note 22) 406,766,503 235,996,358 Accrued interest on long-term debts 776,336,056 792,685,801 Withholding and other taxes payable 276,461,950 387,352,605 Royalty fee payable 67,690,307 39,671,237 Deferred credits 38,297,435 35,720,220 SSS and other contributions payable 5,149,218 4,064,414 Other payables 158,892,560 425,483,128 P=6,305,515,906 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.
Other payables pertain to non-trade payables on active employees, non-trade payables on separated employees, salaries and commissions payable and accrued liability on 13th month pay.
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13. Long-term Debts
The details of the Company’s long-term debts are as follows:
June 30, December 31, 2014 2013 Creditor/Project (Unaudited) (Audited) US$300.0 Million Notes P=12,977,710,689 P=13,194,176,160 Peso Public Bonds . Series 1 - P=8.5 billion 8,474,615,221 8,462,056,012 . Series 2 - P=3.5 billion 3,478,585,580 3,474,793,440 International Finance Corporation (IFC) [Note 20] . IFC 1 - P=4.1 billion 3,035,825,488 3,203,178,672 . IFC 2 - P=3.3 billion 2,837,735,431 2,959,680,920 Fixed Rate Note Facility (FXCN) . P=4.0 billion 3,873,349,070 3,891,039,339 . P=3.0 billion 2,904,699,414 2,917,900,934 Refinanced Syndicated Term Loan . US$175.0 million 5,667,926,644 6,146,814,636 Restructured Philippine National Bank (PNB) and Allied Bank Peso Loan 3,740,000,000 3,910,000,000 2013 Peso Fixed-Rate Bonds . P=4.0 billion 3,952,762,102 3,950,634,878 . P=3.0 billion 2,936,129,309 2,964,131,356 US$80 Million Term Loan 3,279,677,442 3,474,353,988 Total 57,159,016,390 58,548,760,335 Less current portion 10,227,187,834 1,872,075,873 Noncurrent portion P=46,931,828,556 P=56,676,684,462
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=43.650 on June 30, 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 shareholder 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.
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15. Cost of Sale of Electricity
June 30, June 30, 2014 2013 (Unaudited) (Unaudited) Depreciation and amortization (Notes 9 and 10) P=1,654,611,353 P=1,643,529,968 Personnel costs 953,371,327 841,154,026 Purchased services and utilities (Note 22) 831,059,299 654,163,900 Rental, insurance and taxes 499,864,277 592,227,171 Parts and supplies issued 426,921,866 314,086,203 Repairs and maintenance 232,185,016 430,693,319 Royalty fees 135,385,056 88,748,244 Business and related expenses 47,949,652 57,721,368 Proceeds from insurance claims – (25,057,804) P=4,781,347,846 P=4,597,266,395
16. General and Administrative Expenses
June 30, June 30, 2014 2013 (Unaudited) (Unaudited) Purchased services and utilities P=779,882,053 P=674,472,093 Personnel costs 757,766,733 660,083,468 Rental, insurance and taxes 443,420,334 227,194,471 Depreciation and amortization (Notes 9 and 10) 213,396,426 181,954,608 Business and related expenses 183,685,700 191,898,141 Parts and supplies issued 104,650,711 46,826,033 Provision for doubtful accounts (Notes 6 and 11) 28,622,726 26,377,692 Repairs and maintenance 18,291,924 12,176,687 Provision for impairment of parts and supplies inventories 11,808,822 34,518,982 P=2,541,525,429 P=2,055,502,175
17. Interest Expense
June 30, June 30, 2014 2013 (Unaudited) (Unaudited) Interest on long-term debts including amortization of transaction costs P=1,822,494,814 P=1,662,261,229 Interest accretion on provision for rehabilitation and restoration costs 16,050,783 11,886,351 Interest on loans payable 3,905,554 3,905,554 P=1,842,451,151 P=1,678,053,134
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18. Interest Income
June 30, June 30, 2014 2013 (Unaudited) (Unaudited) Interest on placements P=64,851,642 P=109,872,478 Interest on savings/current accounts 22,448,491 23,870,177 Accretion of “Day 1 loss” on security deposit 627,756 386,002 Interest on overdue accounts/others 852,884 111,795 Others 100,105 6,683,958 P=88,880,878 P=140,924,410
19. Foreign Exchange Gains (Losses) - net
June 30, June 30, 2014 2013 (Unaudited) (Unaudited) Realized foreign exchange gains - net P=4,556,924 P=43,971,224 Unrealized foreign exchange gains (losses) - net 370,302,408 (875,411,620) P=374,859,332 (P=831,440,396)
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 (Charges)
June 30, June 30, 2014 2013 (Unaudited) (Unaudited) Proceeds from insurance claims P=263,549,590 P=– Gain on sale of property, plant and equipment 234,454,358 – Gain on sale of parts and supplies inventories 72,448,900 – Input VAT claims written-off – (220,039,070) Others (170,894) (7,286,653) P=570,281,954 (P=227,325,723)
21. Earnings Per Share
The earnings per share amounts were computed as follows:
June 30, June 30, 2014 2013 (Unaudited) (Unaudited) (a) Net income attributable to equity shareholders of the Parent Company P=6,285,323,962 P=3,366,419,264
(Forward)
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June 30, June 30, 2014 2013 (Unaudited) (Unaudited) Less dividends on preferred shares P=7,500,000 P=7,500,000 (b) Net income attributable to common shareholders of the Parent Company P=6,277,823,962 P=3,358,919,264 (c) Weighted average number of common shares outstanding 18,750,000,000 18,750,000,000 Basic/diluted earnings per share (b/c) P=0.335 P=0.179
22. Related Party Transactions
a. 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 2013, the Parent Company purchased 1.7 million shares of First Gen with acquisition cost of P=21.8 million recorded as AFS investments. In 2014, the Company acquired additional 3.2 million shares with acquisition cost of P=60.8 million.
b. On January 29, 2014, EDC entered into a contract with Thermaprime Well Services, Inc. (Thermaprime) for the sale of Rig 16 and its ancillary items for an amount of P=825.0 million, exclusive of applicable VAT. The gain on sale amounted to P=247.5 million (see Note 20).
Thermaprime is a subsidiary of First Balfour, a wholly owned subsidiary of First Philippine Holdings. Thermaprime provides drilling services such as, but not limited to, rig operations, rig maintenance, well design and engineering.
c. First Balfour, Inc. (First Balfour) Following the regular bidding process, the Company awarded to First Balfour procurement contracts of various civil works, structural and mechanical/piping works.
First Balfour is a wholly owned subsidiary of First Holdings.
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 collectible/payable 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
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Corporation are 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.
Lopez Holdings Corporation has 57.3% interest in ABS-CBN Corp. 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, Inc.
Lopez Group Foundation, Inc. is the coordinative hub for the corporate social responsibility initiatives of Lopez Holdings Corporation.
First Philec Manufacturing Technologies Corp. (FPMTC) and First Philippine Realty Corp. (FPRC), formerly known as INAEC Development Corp, are wholly owned subsidiaries of First Holdings.
First Gen Energy Solutions (First GES) is wholly owned subsidiary of First Gen.
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Following are the amounts of transactions for the periods ended June 30, 2014 and 2013 and outstanding balances as of June 30, 2014 and December 31, 2013:
Transactions for the Net amount due from/to periods ended June 30 related parties June 30, December 31, 2014 2013 2014 2013 Related Party Nature of Transaction (Unaudited) (Unaudited) (Unaudited) (Audited) Trade and other receivables First Gen Energy Solutions Revenue from sale of electricity P=164,781,709 P=– P= 61,129,640 P=61,993,428
Due to related parties First Gen Consultancy fee 87,642,353 P=79,221,176 43,998,784 P=43,998,784 Interest-free advances 13,914,066 27,092,818 12,482,765 4,219,175 Lopez Holdings Corporation -do- 6,604,500 – 6,604,500 5,042,750 First Gas Power Corporation -do- 274,865 618,710 223,031 86,296 First Gas Holdings Corporation -do- 51,480 52,280 51,479 – 108,487,264 P=106,984,984 63,360,559 P=53,347,005
Trade and other payables First Balfour, Inc. Civil Works P=976,754,818 P=56,840,793 P=310,029,815 P=152,027,391 Thermaprime Purchase of services and utilities 584,413,090 512,269,901 94,065,819 78,485,096 Bayantel -do- 6,019,692 (328,720) 2,850,840 3,543,051 First Philec Manufacturing Technologies Corp. -do- – – 2,194,482 2,194,482 FPRC -do- 1,629,981 153,867 – 898,609 ABS-CBN Publishing -do- – – 3,600 3,600 ABS-CBN foundation -do- 715,000 – – 715,000 Adtel Inc. -do- 1,736,686 – (2,020,053) (2,460,292) First Electro Dynamics Corporation -do- – – (358,000) 589,421 Securities Transfer Services, Inc. -do- – 22,400 – – Rockwell Land Corporation -do- 86,875 16,800 – – ABS-CBN Corp. -do- 29,464 – – – ` P=1,571,385,606 P=568,975,041 P=406,766,503 P=235,996,358
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 six-month periods ended June 30, 2014 and 2013.
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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 and accordingly manage its exposure to financial risks. The Company has various other 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 maximum exposure of trade receivable is equal to 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 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 June 30, 2014 and December 31, 2013:
June 30, 2014 (Unaudited) Past Due but Not Impaired Neither Past Over 1 Year Past Due nor Less than 31 Days up to Over Due and Impaired 30 Days to 1 Year 3 Years 3 Years Impaired Total (In Thousand Pesos) Loans and receivables: Cash and cash equivalents (excluding cash on hand) P=8,311,401 P=– P=– P=– P=– P=– P=8,311,401 Trade receivables 5,516,494 112,865 106,986 – – 91,149 5,827,494 Loans and notes receivables 87,451 – – – – – 87,451 Employee receivables 12,074 – – – – – 12,074 Non-trade receivables 202,805 3,272 51,930 1,617 – – 259,624 Long-term receivables 96,967 – – – – 71,759 168,726 AFS investments: Debt investments 255,662 – – – – – 255,662 Equity investments 248,222 – – – – – 248,222 Financial asset at FVPL 501,171 – – – – – 501,171 Derivatives designated as cash flow hedges: Derivative assets 26,184 – – – – – 26,184 Total P=15,258,431 P=116,137 P=158,916 P=1,617 P=– P=162,908 P=15,698,009
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December 31, 2013 Past Due but Not Impaired Neither Past Over 1 Year Past Due nor Less than 31 Days up to Over Due and Impaired 30 Days to 1 Year 3 Years 3 Years 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: Debt investments 341,842 – – – – – 341,842 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 June 30, 2014 and December 31, 2013, 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. Meanwhile, past due but not impaired financial assets are classified as standard grade.
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 is mainly from the financial assets and liabilities that are denominated in US dollar (US$). This primarily arises from future payments of foreign currency-denominated loans and other commercial transactions and the Company’s investment in 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$ rates, US Price and Consumer Indices, and other inflation factors.
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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.
The Company’s foreign currency-denominated financial assets and liabilities (translated into Philippine peso) as of June 30, 2014, and December 31, 2013, are as follows:
June 30, 2014 Original Currency Sweden Chilean Japanese kroner Peso New Zealand Peso US$ yen (JP¥) (SEK) (CHP=) Euro (EUR) dollar (NZD) Equivalent1 Financial Assets Loans and receivables: Cash equivalents 22,430,000 − − − − − P=979,069,500 Cash on hand and in banks 5,825,072 − − 678,252,542 − − 307,845,298 Derivative assets designated as cash flow hedges 599,869 − − − − − 26,184,282 Total financial assets 28,854,941 − − 678,252,542 − − P=1,313,099,080
Financial Liabilities Liabilities at amortized cost: Accounts payable 18,346,720 20,338,361 2,227,862 − 84,497 526,777 P=849,375,917 Long-term debt 502,245,609 − − − − − 21,923,020,833 Accrued interest on long-term debts 8,798,492 − − − − − 384,054,176 Derivative liability 736,115 − − − − − 32,131,420 Total financial liabilities 530,126,936 20,338,361 2,227,862 − 84,497 526,777 P=23,188,582,346 1 US$1= =P43.650, JP¥1==P0.4316, SEK1==P6.5059, CHP1==P0.0790, EUR1==P59.7641 and NZD1==P38.3833 as of June 30, 2014
December 31, 2013 Original Currency United Sweden Chilean Japanese Kingdom kroner Peso New Zealand Peso US$ yen (JP¥) pound (GBP) (SEK) (CH=P) Euro (EUR) dollar (NZD) Equivalent1 Financial Assets Loans and receivables: 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 Financial Liabilities 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= =P44.395, JP¥1==P0.0095, GBP1==P72.90, SEK1==P6.79, CH=P1==P0.08449, EUR1==P60.82 and NZD1==P36.212 as of December 31, 2013.
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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 June 30, 2014 and year ended December 31, 2013. The impact on the Company’s income before income tax is due to revaluation of monetary assets and monetary liabilities while impact on equity arises from changes in the fair value of cross currency swaps designated as cash flow hedges as well as AFS debt investments.
Jun 30, 2014 (Unaudited) Foreign Currency Appreciates Effect on Income (Depreciates) By Before Income Tax Effect on Equity USD 10% or PHP4.365 (2,187,457,544) 197,730,816 (10% or PHP4.365) 2,187,457,544 (262,719,289) JPY 10% or PHP0.04316 (877,804) (10% or PHP0.04316) 877,804 SEK 10% or PHP0.65059 (1,449,425) (10% or PHP0.65059) 1,449,425 Chilean Peso 10% or PHP0.00790 5,358,091 (10% or PHP0.00790) (5,358,091) EURO 10% or PHP5.97641 (504,986) (10% or PHP5.97641) 504,986 NZD 10% or PHP3.83833 (2,021,945) (10% or PHP3.83833) 2,021,945
December 31, 2013 (Audited) Foreign Currency Appreciates Effect on Income (Depreciates) By 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 June 30, 2014 and December 31, 2013, the Company’s exposure to equity price risk is minimal.
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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.
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.
June 30, 2014 (Unaudited) More than 4 More than 1 Years but Interest Within year but less less than 5 More than Rates 1 Year than 4 years Years 5 Years Total Fixed Rate US$ 300.0 million Notes 6.50% 851,175 2,553,525 851,175 1,702,350 5,958,225 Peso Public Bonds Series 1 8.64% 734,553 734,553 Series 2 9.33% 326,645 490,874 817,519 IFC 1 7.40% 183,948 426,011 99,772 188,848 898,579 IFC 2 6.66% 190,541 470,353 122,719 384,757 1,168,370 FXCN P=3.0 billion 6.62% 194,052 570,246 186,112 546,424 1,496,834 P=4.0 billion 6.61% 258,482 759,581 247,905 727,849 1,993,817 2013Peso Fixed-Rate Bonds P=3.0 billion 4.16% 124,749 374,247 124,749 124,749 748,494 P=4.0 billion 4.73% 189,248 567,744 189,248 756,992 1,703,232 PNB and Allied Bank 4.5% 318,069 656,431 108,783 48,259 1,131,542 Floating Rate US$ 80.0 million 1.80% + LIBOR 168,118 497,269 – – 665,387 US$ 175.0 million Refinanced Syndicated Term 1.75% + Loan LIBOR 111,404 174,862 – – 286,266
December 31, 2013 More than 1 Year More than 4 Interest Within but less than 4 Years but less More than Rates 1 Year years than 5 Years 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
(Forward)
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December 31, 2013 More than 1 Year More than 4 Interest Within but less than 4 Years but less More than Rates 1 Year years than 5 Years 5 Years Total 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
(Forward) 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 1.75% + Loan LIBOR 121,870 235,811 – – 357,681
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 June 30, 2014 and December 31, 2013. The impact on the Company’s equity is due to changes in the fair value of AFS investments and cross currency swaps designated as cash flow hedges.
June 30, 2014 Effect on Equity Increase/Decrease Effect on Income Change in Fair Value of Cumulative Translation in Basis Points Before Income Tax AFS Investments Adjustment +100 (P=90,813,825) (2,620,635) 56,588,223 -100 90,813,825 1,220,081 (113,177,154)
December 31, 2013 Effect on Equity Increase/Decrease Effect on Income Change in Fair Value of Cumulative Translation in Basis Points Before Income Tax AFS Investments 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.
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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.
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 June 30, 2014 and December 31, 2013.
June 30, 2014 Less than 3 3 to >6 to >1 to More than On Demand Months 6 Months 12 Months 5 Years 5 Years Total
(In Thousand Pesos) Loans and receivables - Cash equivalents P=– P=6,475,614 P=– P=– P=– P=– P=6,475,614 Financial Asset at FVPL 501,171 – – – – – 501,171 AFS investments - Debt investments 255,662 – – – – – 255,662 P=756,833 P=6,475,614 P=– P=– P=– P=– P=7,232,447
December 31, 2013 Less than 3 3 to >6 to >1 to More than On Demand Months 6 Months 12 Months 5 Years 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 June 30, 2014 and December 31, 2013 based on contractual undiscounted payments:
June 30, 2014 On Less than 3 to >6 to >1 to More than Demand 3 Months 6 Months 12 Months 5 Years 5 Years Total (In Thousand Pesos) Liabilities at amortized cost: Accounts payable* P=− P=4,710,670 P=− P=− P=− P=− P=4,710,670 Accrued interest on long-term debts 83,650 389,400 327,466 − − − 800,516 Other payables − 20,073 − − − − 20,073 Due to related parties 63,361 − − − − − 63,361 Long-term debts − 467,962 1,925,546 11,684,502 26,341,722 34,779,326 75,199,058 Derivative liabilities designated as cash flow hedges 32,131 − − − − − 32,131 Total P=179,142 P=5,588,105 P=2,253,012 P=11,684,502 P=26,341,722 P=34,779,326 P=80,825,809 *excluding other liabilities which pertain to statutory liabilities to the Government
December 31, 2013 On Less than 3 to >6 to >1 to More than Demand 3 Months 6 Months 12 Months 5 Years 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
(Forward)
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December 31, 2013 On Less than 3 to >6 to >1 to More than Demand 3 Months 6 Months 12 Months 5 Years 5 Years Total Accrued interest on long-term debts P=84,356 P=394,725 P=313,605 P=− P=− P=− P=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
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 June 30, 2014 and December 31, 2013.
June 30, 2014 December 31, 2013 Carrying Carrying Amounts Fair Values Amounts Fair Values Financial Assets Loans and receivables: Long-term receivables P=96,966,807 P=91,659,827 P=88,962,765 P=84,641,685 AFS investments: Debt investments 255,661,627 255,661,627 341,841,500 341,841,500 Equity investments 248,222,095 248,222,095 407,242,129 407,242,129 Financial assets at FVPL: 501,170,959 501,170,959 − − Derivative assets 7,547,021 7,547,021 Derivative assets designated as cash flow hedge 26,184,275 26,184,275 53,583,080 53,583,080 P=1,128,205,763 P=1,122,898,783 P=899,176,495 P=894,855,415
Financial Liabilities Financial liabilities at amortized cost: Long-term debts P=57,159,016,390 P=68,308,748,446 P=58,548,760,334 P=62,920,736,836 Derivative liabilities designated as cash flow hedges 32,131,415 32,131,415 4,198,322 4,198,322 P=57,191,147,805 P=68,340,879,861 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 2.85% and 2.52% in June 30, 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
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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 6.50%and 1.75% to 7.40% in June 30, 2014 and December 31, 2013, respectively.
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).
June 30, 2014 Total Level 1 Level 2 Level 3 Loans and receivables: Long-term receivables P=96,966,807 P=− P=− P=96,966,807 Financial asset at FVPL 501,170,959 − 501,170,959 − AFS investments: Debt investments 255,661,627 255,661,627 − − Equity investments 248,222,095 248,222,095 − − Derivative asset designated as cash flow hedges 26,184,275 − 26,184,275 − Derivative liability designated as cash flow hedges 32,131,415 − 32,131,415 −
December 31, 2013 Total Level 1 Level 2 Level 3 Loans and receivables: 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 − − Derivative assets designated as cash flow hedges 53,583,080 − 53,583,080 −
For the six-month periods ended month June 30, 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.
June 30, 2014 Derivatives Liabilities at Financial Designated as Loans and AFS Amortized Assets at Cash Flow Receivables Investments Cost FVPL Hedges Total (In Thousand Pesos) Financial Assets Cash and cash equivalents P=8,314,478 P=− P=− P=− P=− P=8,314,478 Trade receivables 5,736,346 − − − − 5,736,346 Non-trade receivables 258,112 − − − − 258,112
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June 30, 2014 Derivatives Liabilities at Financial Designated as Loans and AFS Amortized Assets at Cash Flow Receivables Investments Cost FVPL Hedges Total (In Thousand Pesos) (Forward)
Loans and notes receivables P=87,451 P=− P=− P=− P=− P=87,451 Employee receivables 12,073 − − − − 12,073 Long-term receivables 96,967 − − − − 96,967 AFS - debt investments − 255,662 − − − 255,662 AFS - equity investments − 248,222 − − − 248,222 Financial asset at FVPL − − − 501,171 − 501,171 Derivative assets − − − − 26,184 26,184 Total financial assets P=14,505,427 P=503,884 P=− P=501,171 P=26,184 P=15,536,666 Financial Liabilities Accounts payable P=− P=− P=4,710,670 P=− P=− P=4,710,670 Accrued interest on long- term debts − − 776,336 − − 776,336 Other payables − − 20,073 − − 20,073 Due to related parties − − 63,361 − − 63,361 Long-term debts − − 57,159,016 − − 57,159,016 Derivative Liabilities − − − − 32,131 32,131 Total financial liabilities P=− P=− P=62,729,456 P=− P=32,131 P=62,761,587
December 31, 2013 Derivatives Liabilities at Financial Designated Loans and AFS Amortized Assets at as Cash Flow Receivables Investments Cost FVPL 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 Financial Liabilities Accounts payable P=− P=− P=5,351,131 P=− P=− P=5,351,131 Accrued interest on long- 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
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The table below demonstrates the income, expense, gains or losses of the Company’s financial instruments for the six-month periods ended June 30, 2014 and 2013.
June 30, 2014 (Unaudited) June 30, 2013 (Unaudited) Increase Increase Increase Increase (Decrease) (Decrease) (Decrease) (Decrease) Effect on Effect Effect on Effect Profit or Loss on Equity Profit or Loss on Equity Loans and receivables: Interest income on cash equivalents P=39,535,945 P=– P=109,872,478 P=– Interest income on cash in bank 20,620,035 – 23,870,259 – Interest on employees receivable 315,342 – 6,683,958 – Interest income on trade receivables – – – – AFS - equity investments - Net gain (loss) recognized in equity – – – – AFS - debt investments: Net gain (loss) recognized in equity – 68,553,786 – 47,853,582 Interest Income on ROP Bonds 75,725 – 111,795 – Financial liabilities at amortized cost: Interest expense on long-term loans (1,822,494,814) – (1,662,261,228) – (P=1,761,947,767) P=68,553,786 (P=1,521,722,738) P=47,853,582
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 June 30, 2014 and December 31, 2013.
June 30, 2014 December 31, 2013 Long-term liabilities P=57,159,016,390 P=58,548,760,335 Equity 40,265,850,169 36,244,958,905 Debt ratio 58.7% 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.
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The table below shows the derivative financial instruments of the Company:
June 30, 2014 December 31, 2013 (Unaudited) (Audited) Derivative Derivative Derivative Assets Liabilities Derivative Assets Liabilities Derivatives designated as accounting hedges Cross-currency swaps P=26,184,275 P=32,131,416 P=53,583,080 P=4,198,322 Derivatives not designated as accounting hedges Foreign currency forwards – – 7,547,021 – Total derivatives P=26,184,275 P=32,131,416 P=61,130,101 P=4,198,322 Presented as: Current P=3,491,237 P=4,284,189 P=14,244,905 P=524,790 Noncurrent 22,693,038 27,847,227 46,885,196 3,673,532 Total derivatives P=26,184,275 P=32,131,416 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 Aggregate notional amount Average Position (in million) forward rate Sell US$ - buy PHP= US$105.60 P=44.00
For the year ended December 31, 2013, the Company recognized P=12.9 million gain from the fair value changes of the currency swap contracts. These are recorded under “Derivative gains (losses) - net” in the consolidated statement of income.
The Company did not enter into any foreign currency swap transaction in 2014.
Foreign Currency Forward Contracts These are contractual agreements to buy or sell a foreign currency at an agreed rate on a future date.
In 2013, the Company entered into a total of 45 currency forward contracts with various counterparty banks. These contracts include one deliverable and 44 non-deliverable forward contracts. The deliverable buy JP¥ - sell US$ 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.
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For the year ended December 31, 2013, the Company recognized 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 did not enter into any foreign currency forward transaction in 2014.
Derivatives Designated as Accounting Hedges In 2012 and 2014, the Company entered into 6 and 4 non-deliverable cross-currency swap (NDCCS) agreements with an aggregate notional amount of US$65.00 million and US$30.00 million, respectively. This is 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 10 NDCCS converted 60.00% of hedged USD loan into a fixed rate peso loan.
Pertinent details of the NDCCS are as follows:
Notional amount Trade Effective Maturity Swap Fixed (in million) Date Date Date rate 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 US$10.00 05/03/12 06/27/12 06/17/17 42.10 4.76% 3-month LIBOR + 175 bps US$10.00 06/15/12 06/27/12 06/17/17 42.10 4.73% 3-month LIBOR + 175 bps US$10.00 07/17/12 09/27/12 06/17/17 41.25 4.58% 3-month LIBOR + 175 bps US$10.00 10/29/12 12/27/12 06/17/17 41.19 3.44% 3-month LIBOR + 175 bps US$7.50 05/14/14 06/27/14 06/17/17 43.60 3.80% 3-month LIBOR + 175 bps US$7.50 05/14/14 06/27/14 06/17/17 43.57 3.80% 3-month LIBOR + 175 bps US$7.50 06/09/14 06/27/14 06/17/17 43.55 3.60% 3-month LIBOR + 175 bps US$7.50 06/09/14 06/27/14 06/17/17 43.55 3.60% 3-month LIBOR + 175 bps
The maturity date of the six NDCCS coincides with the maturity date of the hedged loan.
As of June 30, 2014 and December 31, 2013, the outstanding aggregate notional amount of the Company’s NDCCS amounted to US$78.75 million and US$65.00 million, respectively. The aggregate fair value changes on these NDCCS amounting to P=55.3 million and P=55.6 million gain, as of June 30, 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=1,957.2 million and P=244.6 million gain in 2014 and 2013, respectively, recognized by the Company under “Cumulative Translation Adjustment on Hedging Transactions” account in the consolidated
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statements of financial position. No ineffectiveness was recognized in the consolidated statement of income for the period ended June 30, 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:
June 30, December 31, 2014 2013 (Six Months) (One Year) Balance at beginning of period (P=55,615,718) (P=144,426,476) Changes in fair value of the cash flow hedges (1,957,248,888) 244,634,426 (2,012,864,606) 100,207,950 Transferred to consolidated statement of income Foreign exchange (gain) / loss 40,792,500 (189,630,000) Interest expense 1,901,917,010 43,674,194 1,942,709,510 (145,955,806) Balance before tax (70,155,096) (45,747,856) Tax 8,222,670 (9,867,862) Balance at end of period (P=61,932,426) (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 June 30, 2014 and December 31, 2013.
June 30, December 31, 2014 2013 (Six Months) (One Year) Balance at beginning of period P=56,931,778 (P=238,675,102) Net changes in fair value of derivatives: Designated as accounting hedges (1,957,248,908) 244,634,426 Not designated as accounting hedges 7,517,980 14,243,178 (1,949,730,928) 258,877,604 Fair value of settled instruments: Designated as accounting hedges 1,901,917,010 43,674,194 Not designated as accounting hedges (15,065,000) (6,944,917) 1,886,852,010 36,729,277 Balance at end of period (P=5,947,141) P=56,931,779 Presented as: Derivative assets P=26,184,275 P=61,130,101 Derivative liabilities (32,131,416) (4,198,322) (P=5,947,141) 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 June 27, 2014, EDC has secured another bridge financing facility from Australia and New Zealand Banking Group Limited (ANZ) and Mizuho Bank, Ltd. amounting to US$90 million (P=3.98 billion) to be used also for the construction of Phase 2 of the Burgos Wind Project.
The Company made full drawdown on July 31, 2014.
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.