SEC Form 17Q 2Q 2012 - Energy Development Corporation · One Corporate Centre Julia Vargas cor. Meralco Ave., ... Starting September 3, 2010, on account of the extended waiver,

SEC Form 17Q – 2Q 2012

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, 2012

(Quarter Ending)

SEC FORM 17-Q

(Form Type)

SEC Form 17Q – 2Q 2012 2

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, 2012

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. Merritt Road, Fort Bonifacio, Taguig City

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, 2012

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 2012

PART 1 FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Our unaudited consolidated financial statements for the quarter ended June 30, 2012

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, 2012. 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 2012 4

The following is a summary of the key sections of this MD&A:

OVERVIEW OF OUR BUSINESS ..............................................................................................5 Principal Products or Services ........................................................................................................ 5

Percentage of sales or revenues contributed by foreign sales ......................................................... 5

Distribution methods of products or services ................................................................................. 6

Competition..................................................................................................................................... 6

Dependence on one or a few major customers and identity of any such major customers ............ 7

Concessions and government share payments ............................................................................7 KEY PERFORMANCE INDICATORS ......................................................................................9 FINANCIAL HIGHLIGHTS .......................................................................................................10

RESULTS OF OPERATIONS ...................................................................................................11 CAPITAL AND LIQUIDITY RESOURCES ............................................................................16 FINANCIAL POSITION ............................................................................................................17

Horizontal and Vertical Analysis of Material Changes as of June 30, 2012 and December 31,

2011........................................................................................................................................... 17

Horizontal and Vertical Analysis of Material Changes as of June 30, 2012 and 2011. ........... 21

DISCUSSION ON THE SUBSIDIARIES .................................................................................27 FG Hydro .................................................................................................................................. 27

Green Core Geothermal Inc. ..................................................................................................... 27

Bac-Man Geothermal Inc. ......................................................................................................... 29

FOREIGN EXCHANGE AND INTEREST RATE EXPOSURE ...........................................30 OTHER MATTERS ....................................................................................................................30 MAJOR STOCKHOLDERS ......................................................................................................31

BOARD OF DIRECTORS ..........................................................................................................32 OFFICERS ...................................................................................................................................32

SEC Form 17Q – 2Q 2012 5

OVERVIEW OF OUR BUSINESS

Principal Products or Services

As of June 30, 2012, the Company operates twelve geothermal power plants in the five

geothermal service contract areas where it is principally involved in:

i. the production of geothermal steam for sale to National Power Corporation (NPC)

pursuant to Steam Sales Agreements (SSAs) and

ii. 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.

Starting September 3, 2010, on account of the extended waiver, the Company ceased billing to

NPC after Bacman Geothermal Inc’s (BGI) successful acquisition of the plants from NPC.

Through its 60% equity interest in First Gen Hydro Power Corporation (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 customers which include

the Wholesale Electricity Spot Market (WESM), distribution utilities covered by bilateral

contract quantities (BCQ) and the National Grid Corporation of the Philippines (NGCP) for

ancillary services.

For the Company’s third business segment, Energy Development Corporation (EDC) provides

drilling services to the Lihir Gold Limited in Papua New Guinea.

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.

Percentage of sales or revenues contributed by foreign sales

The Company generated P345.2 million from the contract it entered into with Lihir Gold Limited

(LGL) in Papua, New Guinea. This represents 2.2% of the Company’s P15,368.6 million gross

revenues for the first semester of 2012. For the fifth consecutive time, the Company’s contract

with LGL was once again renewed last July 1, 2011 and extended up to December 31, 2012.

SEC Form 17Q – 2Q 2012 6

Distribution methods of products or services

The Company’s 3,636.7 GWh total sales volume comprised of 3,235.3 GWh coming from

electricity production in Leyte, Mindanao, Tongonan I and Palinpinon geothermal power plants;

194.1 GWh in Bac-Man geothermal power plants (BMGPP) and 207.3 GWh (inclusive of 69.1

GWh sold to BGI’s customer) from FG Hydro’s Pantabangan-Masiway hydro power plants.

About 61.0% or 2,218.5 GWh generated by Leyte and Mindanao was sold to NPC. The 1,016.7

GWh generated by Tongonan I, Palinpinon I and II was sold to electric cooperatives and

industrial customers in the Visayas region and the Wholesale Electricity Spot Market (WESM).

BGI purchased 263.3 GWh to serve its contractual obligations to BATELEC and Linde

Philippines. Electricity production of about 207.3 GWh, by FG Hydro’s power plants, was sold

to the distribution utility clients comprised of electric cooperatives in the province of Nueva

Ecija, BGI and the WESM.

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 NGCP through its

high voltage backbone system.

FG Hydro generated 207.3 GWh of electricity as of first semester of 2012, of which 97% or

201.8 GWh was delivered to its contracted customers and 3% or 5.5 GWh was sold to the

WESM.

For the first semester of 2012, BGI generated 110.6 GWh, or P520.4 million, which was reported

as testing and commissioning revenues. This was netted off from the Property, Plant and

Equipment (PPE) as required by PAS 16.

Competition

The Company competes with other energy sources used for the production of power, particularly

coal, gas and oil, substantially all of which are imported.

Under the Company’s Geothermal Renewable Energy Service Contracts (GRESCs), it has long-

term exclusive rights to explore, develop, and utilize geothermal steam resources in specific

areas. Substantially all of the Company’s power capacity is sold through various offtake

agreements, such as PPAs for the supply of electricity to NPC and ESAs with DUs. Since most

of these agreements provide for take-or-pay quantities, the Company is not subject to direct

competition. Furthermore, the supply of steam is location-specific, such that each power plant

can only source its fuel from a dedicated nearby steam field.

On May 5, 2010, BGI, the Company’s wholly-owned subsidiary through EDC Geothermal

Corporation, submitted the winning bid of US$28.25 million for PSALM’s auction of the 150

MW BMGPP located in the towns of Bacon, Sorsogon Province and Manito, Albay Province.

The power plants were turned over to BGI in September 2010, and are currently under

rehabilitation to restore capacity and reliability.

SEC Form 17Q – 2Q 2012 7

The only other Philippine company engaged in the production of steam is Chevron Geothermal

Philippines Holdings. Aboitiz Power Corporation, a power distribution and generation company,

successfully bid for the 747 MW Tiwi-Makban geothermal power plant. Multinationals that

currently operate in the Philippines include Korea Electric Power Corporation, Marubeni,

CalEnergy, Tokyo Electric Power Company, AES, and Sumitomo.

Dependence on one or a few major customers and identity of any such major customers

Close to 43.1% 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 the EDC’s geothermal production steam fields

are located are:

• Tongonan Geothermal Project (expiring in 2031)

• 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,


Bacon-Manito Geothermal Power Plant (with a 25-year contract period expiring in 2037,


The Company also holds service contracts for the following prospect areas:

Geothermal Resource

1. Mt Cabalian Geothermal Project (expiring by 2034)

2. Mt. Labo Geothermal Project (with a five-year pre-development period expiring in 2015,

25-year contract period expiring in 2035)

3. Mainit Geothermal Project (with a five-year pre-development period expiring in 2015,


4. Ampiro Geothermal Project (with a five-year pre-development period expiring in 2017,


5. Mandalagan Geothermal Project (with a five-year pre-development period expiring in

SEC Form 17Q – 2Q 2012 8

2017, 25-year contract period expiring in 2037)

6. Mt. Zion Geothermal Project (with a five-year pre-development period expiring in 2017,


7. Lakewood Geothermal Project (with a five-year pre-development period expiring in


8. Balingasag Geothermal Project (with a five-year pre-development period expiring in


Wind Resource

1. Burgos Wind Project (WESC assigned by EDC to EDC Burgos Wind Power

Corporation; pre-development stage expiring in 2012, 25-year contract period expiring in

2034)

2. Pagudpud Wind Project (pre-development stage expiring in 2013, 25-year contract

period expiring in 2035)

3. Camiguin Wind Project (pre-development stage expiring in 2013, 25-year contract

period expiring in 2035)

SEC Form 17Q – 2Q 2012 9

KEY PERFORMANCE INDICATORS

The top five (5) key performance indicators are set forth below:

Ratio

Jun – 12

Jun – 11

Current Ratio 2.07:1 2.25:1

Debt-to-Equity Ratio 1.55:1 1.83:1

Net Debt-to-Equity Ratio 1.20:1 1.42:1

Return on Assets (%) 9.81 (4.24)

Return on Equity (%) 29.36 (11.72)

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.

SEC Form 17Q – 2Q 2012 10

OPERATING REVENUES AND EXPENSES

FINANCIAL HIGHLIGHTS

Net income for the first semester amounted to P5,730.9 million, or a 349.5% turnaraound

from the net loss of P2,296.8 million during the same period in 2011.

The following factors contributed to the increase:

P4,998.6 million impairment loss on property, plant and equipment of NNGP that

was recognized in June 2011;

P1,391.4 million FG Hydro’s revenues from sale of electricity as ancillary services;

and

P1,117.2 million GCGI’s higher revenues from Tongonan I and Palinpinon power

plants as per agreed contracts that became effective in mid-2011 and the additional

power supply agreements that were signed in December 2011.

Net income (loss) is equivalent to 37.3% of total revenues in 2012 as compared to the

(19.6%) from the same period in 2011.

Net income attributable to equity holders of the parent at P4,618.3 million for the first

semester of 2012, was a turnaround of the P2,331.1 million net loss attributable to equity

holders of the parent during the same period in 2011.

The recurring net income generated in the first semester of 2012 increased by 151.2% or

P3,035.0 million to P5,042.7 million from the P2,007.7 million posted during the same

period in 2011. This was mainly attributable to the P2,508.6 million increase in sale of

electricity by FG Hydro and GCGI and the P245.9 million decrease in interest expense.

Recurring net income attributable to equity holders of the parent was posted at

P3,929.9 million, up by 99.2%, as compared to the P1,973.1 million for the first semester

of 2011.

Cash and cash equivalents decreased by 9.9% or P1,237.4 million to P11,256.0 million as of

June 30, 2012 from the P12,493.4 million December 31, 2011 balance. The decrease was

mainly due to the following:

P4,712.1 million property, plant and equipment acquisition and other investments

P3,225.0 million payment of cash dividend;

P3,203.1 million debt servicing; and

P332.3 million payment of income tax.

These were offset by the P9,686.2 million cash generated from operations and

P520.4 million higher proceeds of incidental income from testing of property, plant and

equipment.

SEC Form 17Q – 2Q 2012 11

RESULTS OF OPERATIONS

The following table details the results of operations for EDC for the first semester of

2012 and 2011.

STATEMENT OF INCOME

Horizontal Analysis of Material Changes as of June 30, 2012 and 2011

Favorable (Unfavorable) Variance

(Amounts in PHP millions) June 2012 June 2011 Amount % 2012 2011

REVENUES

Sale of electricity 15,023.4 11,408.8 3,614.6 31.7% 97.8% 97.2%

Revenue from drilling services 345.2 326.7 18.5 5.7% 2.2% 2.8%

15,368.6 11,735.5 3,633.1 31.0% 100.0% 100.0%

COST OF SALES AND SERVICES*

Cost of sales of electricity and steam (5,726.8) (5,010.3) (716.5) 14.3% -37.3% -42.7%

Cost of drilling services (211.5) (278.9) 67.4 -24.2% -1.4% -2.4%

(5,938.3) (5,289.2) (649.1) 12.3% -38.7% -45.1%

GENERAL AND ADMINISTRATIVE EXPENSES* (2,196.3) (2,194.6) (1.7) 0.1% -14.3% -18.7%

FINANCIAL INCOME (EXPENSE)

Interest income 180.8 217.9 (37.1) -17.0% 1.2% 1.9%

Interest expense (1,920.2) (2,314.9) 394.7 -17.1% -12.5% -19.7%

(1,739.4) (2,097.0) 357.6 -17.1% -11.3% -17.8%

OTHER INCOME (CHARGES)

Loss on impairment of property, plant and equipment* - (4,998.6) 4,998.6 -100.0% 0.0% -42.6%

Foreign exchange gains, net 694.3 236.8 457.5 193.2% 4.5% 2.0%

Derivatives losses, net - (9.0) 9.0 -100.0% 0.0% -0.1%

Miscellaneous, net* (67.4) 12.5 (79.9) -639.2% -0.4% 0.1%

626.9 (4,758.3) 5,385.2 113.2% 4.1% -40.6%

INCOME BEFORE INCOME TAX 6,121.5 (2,603.6) 8,725.1 -335.1% 39.8% -22.2%

BENEFIT FROM (PROVISION FOR) INCOME TAX

Current (201.0) (247.1) 46.1 -18.7% -1.3% -2.1%

Deferred (189.6) 553.9 (743.5) -134.2% -1.2% 4.7%

(390.6) 306.8 (697.4) -227.3% -2.5% 2.6%

NET INCOME (LOSS) 5,730.9 (2,296.8) 8,027.7 -349.5% 37.3% -19.6%

Net income (loss) attributable to:

Equity holders of the Parent Company 4,618.3 (2,331.1) 6,949.4 -298.1% 30.1% -19.9%

Non-controlling interest 1,112.6 34.3 1,078.3 3143.7% 7.2% 0.3%

EBITDA 8,981.1 6,442.2 2,538.9 39.4% 58.4% 54.9%

RECURRING NET INCOME 5,042.7 2,007.7 3,035.0 151.2% 32.8% 17.1%

Recurring net income attributable to:

Equity holders of the Parent Company 3,929.9 1,973.1 1,956.8 99.2% 25.6% 16.8%

Non-controlling interest 1,112.7 34.6 1,078.1 3115.9% 7.2% 0.3%

HORIZONTAL ANALYSIS VERTICAL ANALYSIS

*New presentation based on SRC Rule 68 issued by Philippine SEC last October 20, 2011 – As amended effective for audited financial

statements covering periods ending December 31, 2011 and onwards, and for interim financial statements starting the first quarter of 2012, and thereafter.

SEC Form 17Q – 2Q 2012 12

YTD June 30, 2012 vs. YTD June 30, 2011

Revenues

Total revenues for the period ended June 30, 2012 increased by 31.0% or P3,633.1 million to

P15,368.6 million from P11,735.5 million in 2011.

Sale of electricity

Revenues from sale of electricity increased by 31.7% or P3,614.6 million to

P15,023.4 million in the first semester of 2012 from P11,408.8 million during the same

period in 2011. The increase in revenue was primarily due to the following:

P1,391.4 million FG Hydro’s revenues from sale of electricity as ancillary

services;

P1,308.2 million fresh contribution of BGI’s revenues coming from its PSAs; and

P1,117.2 million GCGI’s higher revenues from Tongonan I and Palinpinon power plants

as per agreed contracts that became effective in mid-2011 and the additional power

supply agreements that were signed in December 2011.

Revenue from drilling services

Revenue from drilling services increased by 5.7% or P18.5 million to P345.2 million in

the first semester of 2012 from P326.7 million during the same period in 2011. The

favorable variance was attributed to higher dollar revenues in 2012, i.e. US$8.1 million

versus the US$7.5 million as of June 2012 and June 2011, respectively. There were 23

non-revenue days reported in 2011 for the repair of Rig 11.

This was offset by lower average exchange rate by P0.791/US$1 (YTD June

2012=P42.697/US$1 vs. YTD June 2011=P43.488/US$1).

Cost of Sales and Services

Cost of sales and services increased by 12.3% or P649.1 million to P5,938.3 million in the first

semester of 2012 from P5,289.2 million during the same period in 2011.

Cost of sales of electricity and steam

Cost of sales of electricity and steam increased by 14.3% or P716.5 million to

P5,726.8 million in the first semester of 2012 from P5,010.3 million during the same

period in 2011 primarily due to BGI’s cost of replacement power.

Cost of drilling services

Cost of drilling services decreased by 24.2% or P67.4 million to P211.5 million in the

first semester of 2012 from P278.9 million during the same period in 2011 mainly due to

the major repair of Rig 11 undertaken in 2011.

SEC Form 17Q – 2Q 2012 13

Financial Income (Expenses)

Financial expenses-net decreased by 17.1% or P357.6 million to P1,739.4 million in the first

semester of 2012 from P2,097.0 million during the same period in 2011 due to the lower interest

charges on refinanced loans.

Interest income

Interest income decreased by 17.0% or P37.1 million to P180.8 million as of June 2012

from P217.9 million during the same period in 2011. The unfavorable variance was

mainly contributed by lower monthly average investible funds (YTD June 2012 =

P9.96 billion vs. YTD June 2011 = P14.78 billion).

Interest expense

Interest expense decreased by 17.1% or P394.7 million to P1,920.2 million as of June

2012 from P2,314.9 million during the same period in 2011. The favorable variance is

due to lower interest charges on refinanced loans.

Other Income (Charges)

Other income for the first semester amounted to P626.9 million, or a 113.2% improvement from

the other charges of P4,758.3 million in June 2011, primarily due to the absence of any provision

for impairment in 2012.

Loss on impairment of property, plant and equipment

Impairment loss on property, plant and equipment of NNGP amounting to

P4,998.6 million was recognized in June 2011 based on the result of the technical

assessment of the Northern Negros steam resource.

Foreign exchange gains (losses) - net

Net foreign exchange gains increased by P457.5 million, or 193.2%, to P694.3 million

from P236.8 million in 2011. The favorable variance was brought about by appreciation

of the peso against the US dollar.

The comparative foreign exchange rates against the USD were as follows:

JPY:US$ PHP:US$

December 31, 2010 81.659 43.840

June 30, 2011 80.473 43.330

December 31, 2011 77.912 43.840

June 30, 2012 79.447 42.120

SEC Form 17Q – 2Q 2012 14

Derivatives gain (loss) - net

The derivative loss as of June 30, 2011 amounting to P9.0 million came from the non-

deliverable forward (NDF) transactions for US dollar entered into with various banks.

Miscellaneous – net

The Company recognized miscellaneous charges – net of P67.4 million in June 2012

compared to miscellaneous income – net of P12.5 million in June 2011 mainly due to the

P114.7 million loss on debt extinguishment from the P3,108.0 million fixed rate

corporate notes in April 2012 and the P18.0 million lower gain on sale of obsolete

materials and supplies inventories and surplus assets. These were offset by the

P63.6 million recovery of allowance for impairment of NNGP power plant recognized in

2012.

Provision for Income Tax

The Company’s current tax expense decreased by 18.7% or P46.1 million to P201.0 million in

June 30, 2012 from P247.1 million in June 30, 2011. The favorable variance was due to the

Parent Company’s lower taxable income on steam and electricity operations mainly contributed

by the drop in revenues caused by the decrease in average steam price of Palinpinon and

Tongonan 1 and the absence of NNGP's revenues in 2012 (P89.7 million).

These were offset by:

Absence in 2012 of the additional deductible realized forex loss on full settlement of

various JBIC (OECF) loans in April 2011 and June 2011 (P24.0 million); and

BGI’s current tax expense due to its revenues from electricity (P20.0 million).

Deferred tax expense of P189.6 million in June 2012, or a 134.2% increase from the

P553.9 million deferred tax income in June 2011. The variance was primarily contributed by the

following:

Absence in 2012 of the deferred tax asset on provision for full impairment of NNGP's

PPE recognized in June 2011 (P499.9 million);

Parent Company’s deferred taxable income of P873.0 million in 2012 versus deferred

taxable loss of P148.8 million in 2011 mainly attributed to higher unrealized foreign

exchange gains on the realignment of foreign loans coupled with lower provision for

doubtful accounts on overdue receivables and impairment of non-moving inventory

materials (P107.4 million); and

GCGI’s deferred tax liability on the application of NOLCO (P119.7 million).

Net Income

As a result of the foregoing, the Company’s net income of P5,730.9 million for the first semester

of 2012 was an improvement over the P2,296.8 million net loss for the first semester of 2011.

Net income (loss) is equivalent to 37.3% of total revenues in 2012 as compared to the (19.6%) in

2011.

SEC Form 17Q – 2Q 2012 15

Net income attributable to equity holders of the parent at P4,618.3 million for the first semester

of 2012 was an improvement of the net loss attributable to equity holders of the parent at

P2,331.1 million during the same period in 2011.

SEC Form 17Q – 2Q 2012 16

CAPITAL AND LIQUIDITY RESOURCES

As of the quarter ended

(in millions of pesos)

Q2

2012

Q2

2011 YoY change

Balance Sheet Data

Total Assets …………………………… 91,939.5 84,277.4 9.1%

Total Liabilities………………………... 59,817.3 57,533.1 4.0%

Total Stockholder’s Equity …………… 32,122.2 26,744.3 20.1%

The Company’s assets as of June 30, 2012 amounted to P91,939.5 million, 9.1% higher as

compared to the P84,277.4 million level as of June 30, 2011.

SEC Form 17Q – 2Q 2012 17

FINANCIAL POSITION

Horizontal and Vertical Analysis of Material Changes as of June 30, 2012 and

December 31, 2011. STATEMENT OF FINANCIAL POSITION

Analysis of Material Changes as of June 30, 2012 and December 31, 2011

(Amounts In PHP millions) June 2012 Dec. 2011 Amount % 2012 2011

ASSETS

Current Assets

Cash and cash equivalents 11,256.0 12,493.4 (1,237.4) -9.9% 12.2% 13.9%

Trade and other receivables 3,718.9 3,411.3 307.6 9.0% 4.0% 3.8%

Available-for-sale (AFS) investments 140.8 673.9 (533.1) -79.1% 0.2% 0.7%

Parts and supplies inventories 3,271.8 3,355.8 (84.0) -2.5% 3.6% 3.7%

Other current assets 1,196.5 741.9 454.6 61.3% 1.3% 0.8%

Total Current Assets 19,584.0 20,676.3 (1,092.3) -5.3% 21.3% 23.0%

Noncurrent Assets

Property, plant and equipment 59,180.7 57,676.9 1,503.8 2.6% 64.4% 64.1%

Intangible assets 4,708.0 4,705.2 2.8 0.1% 5.1% 5.2%

Deferred tax assets 1,231.0 1,420.7 (189.7) -13.4% 1.3% 1.6%

Exploration and evaluation assets 1,490.1 1,087.1 403.0 37.1% 1.6% 1.2%

Other noncurrent assets 5,745.7 4,451.6 1,294.1 29.1% 6.2% 4.9%

Total Noncurrent Assets 72,355.5 69,341.5 3,014.0 4.3% 78.7% 77.0%

TOTAL ASSETS 91,939.5 90,017.8 1,921.7 2.1% 100.0% 100.0%

LIABILITIES AND EQUITY

LIABILITIES

Current Liabilities

Trade and other payables 7,624.8 6,704.1 920.7 13.7% 8.3% 7.4%

Income tax payable 36.9 18.7 18.2 97.3% 0.0% 0.0%

Due to related parties 45.8 60.1 (14.3) -23.8% 0.0% 0.1%

Current portion of:

Long-term debts 1,615.6 2,249.5 (633.9) -28.2% 1.8% 2.5%

Royalty fee payable 142.7 287.6 (144.9) -50.4% 0.2% 0.3%

Total Current Liabilities 9,465.8 9,320.0 145.8 1.6% 10.3% 10.4%

Noncurrent Liabilities

Long-term debts - net of current portion 48,273.5 49,240.1 (966.6) -2.0% 52.5% 54.7%

Net retirement and other post-employment

benefits 1,234.9 1,054.2 180.7 17.1% 1.3% 1.2%

Provisions and other long-term liabilities 793.5 756.8 36.7 4.8% 0.9% 0.9%

Derivative liabilities 49.6 - 49.6 100.0% 0.1% 0.1%

Total Noncurrent Liabilities 50,351.5 51,051.1 (699.6) -1.4% 54.8% 56.7%

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% 20.4% 20.8%

Common stock in employee trust account (372.3) (372.3) - 0.0% -0.3% -0.4%

Additional paid-in capital 6,267.0 6,267.0 - 0.0% 6.8% 7.0%

Equity reserve (3,706.4) (3,706.4) - 0.0% -3.9% -4.1%

Net accumulated unrealized gain on AFS

investments 89.6 91.8 (2.2) -2.4% 0.1% 0.1%

Retained earnings 9,040.5 6,304.7 2,735.8 43.4% 9.8% 7.0%

Cumulative translation adjustment (27.6) 0.6 (28.2) -4700.0% 0.0% 0.0%

30,134.6 27,429.2 2,705.4 9.9% 32.8% 30.5%

Non-controlling interest 1,987.6 2,217.5 (229.9) -10.4% 2.2% 2.5%

Total Equity 32,122.2 29,646.7 2,475.5 8.4% 34.9% 32.9%

TOTAL LIABILITIES AND EQUITY 91,939.5 90,017.8 1,921.7 2.1% 100.0% 100.0%

HORIZONTAL VERTICAL

Increase (Decrease)

SEC Form 17Q – 2Q 2012 18

Assets

Cash and cash equivalents

The 9.9% or P1,237.4 million decrease to P11,256.0 million as of June 30, 2012 from the

P12,493.4 million December 31, 2011 balance was mainly due to the following:

P4,712.1 million property, plant and equipment acquisition and other investments

P3,225.0 million payment of cash dividend;

P3,203.1 million debt servicing; and

P332.3 million payment of income tax.

These were offset by the P9,686.2 million cash generated from operations and

P520.4 million higher proceeds of incidental income from testing of property, plant and

equipment.

Trade and other receivables

Trade and other receivables increased by 9.0% or P307.6 million to P3,718.9 million as of

June 30, 2012 from the P3,411.3 million balance as of December 31, 2011 mainly due to

BGI’s revenues and increase in GCGI revenues for the period.

Available-for-sale (AFS) investments

AFS investments decreased by 79.1% or P533.1 million to P140.8 million as of

June 30, 2012 from the P673.9 million balance in December 2011 due to the P488.3 million

reclassification to other non-current assets of ROP bonds maturing beyond 2013.

Other current assets

This account increased by 61.3% or P454.6 million to P1,196.5 million as of June 30, 2012

from the P741.9 million balance in December 2011 primarily due to the Parent Company’s

higher prepaid insurance on industrial all risk of P195.7 million and prepaid real property

taxes of P110.2 million. The increase was also caused by GCGI’s higher withholding tax

certificates of P68.8 million and prepaid insurance of P55.8 million.

Deferred tax assets

This account decreased by 13.4% or P189.7 million to P1,231.0 million as of June 30, 2012

from the P1,420.7 million balance as of December 31, 2011 mainly due to the Parent

Company’s P100.8 million lower recognition of deferred tax assets on unrealized forex gains

on translation of long-term foreign loans and GCGI’s P120.4 million application of NOLCO

to its taxable income for the period. These were offset by BGI’s P52.0 million recognized

deferred tax asset due to testing and commissioning revenues charged against PPE.

SEC Form 17Q – 2Q 2012 19

Exploration and evaluation assets


from the balance of P1,087.1 million as of December 31, 2011 mainly due to the

expenditures for the exploration activities in Bacman Rangas/Kayabon and Tanawon areas.

Other noncurrent assets

This account increased by 29.1% or P1,294.1 million to P5,745.7 million as of June 30, 2012

from the P4,451.6 million balance as of December 31, 2011 mainly due to the following:

P630.5 million increase in Input VAT;

P488.3 million reclassification from current AFS investment account of ROP bonds

maturing beyond 2013; and

P95.7 million investment in shares.

Liabilities

Trade and other payables


from the P6,704.1 million balance as of December 31, 2011 mainly due to the P738.2 million

increase in BGI’s accounts payable arising from purchases of electricity from WESM and.

P213.9 million increase in FG Hydro’s accounts payable.

Income tax payable

This account increased by 97.3% or P18.2 million, to P36.9 million as of June 30, 2012 from

the P18.7 million balance as of December 31, 2011 arising from the Parent Company’s

taxable income for the period.

Due to related parties

This account decreased by 23.8%, or P14.3 million, to P45.8 million as of June 30, 2012

from the P60.1 million balance as of December 31, 2011 mainly due to the Parent

Company’s partial settlement of its liabilities.

Long-term debts - current portion

Long-term debts - current portion decreased by 28.2% or P633.9 million, to P1,615.6 million

as of June 30, 2012 from the P2,249.5 million balance at year-end 2011 primarily due to

P1,534.9 million prepayment of the FCRN loans series 1, 2 & 3 and P20.3 million settlement

of outstanding balance of OECF 8th yen loan. These were offset by the P712.9 million,

P117.9 million and P64.9 million of this year’s current portion of U$175 syndicated loan,

IFC B loan and FXCN loan tranche 1 & 2, respectively.

SEC Form 17Q – 2Q 2012 20

Royalty fee payable - current portion

Royalty fee payable decreased by 50.4% or P144.9 million, to P142.7 million as of

June 30, 2012 from the P287.6 million balance at year-end 2011 due to the payment for the

period.

Net retirement and other post-employment benefits


from the P1,054.2 million balance as of December 31, 2011 due to the accrual of retirement

benefits for the period.

Derivative liabilities – non current

The account balance of P49.6 million as of June 30, 2012 is the fair value of the cross-

currency swaps designated as accounting hedges.

Retained earnings

Retained earnings increased by 43.4% or P2,735.8 million, to P9,040.5 million as of

June 30, 2012 from P6,304.7 million as of December 31, 2011 mainly due to the

P4,618.3 million net income for the first semester of 2012 offset by the P1,882.5 million

payment of cash dividend.

Non-controlling interest

Non-controlling interest decreased by 10.4% or P229.9 million to P1,987.6 million as of

June 30, 2012 from P2,217.5 million balance as of December 31, 2011 mainly due to the

P1,342.5 million payment of cash dividend offset by the P1,112.6 million net income for the

first semester of 2012.

SEC Form 17Q – 2Q 2012 21

Horizontal and Vertical Analysis of Material Changes as of June 30, 2012 and 2011.

STATEMENT OF FINANCIAL POSITION

Analysis of Material Changes as of June 30, 2012 and 2011

(Amounts In PHP millions) June 2012 June 2011 Amount % 2012 2011

ASSETS

Current Assets

Cash and cash equivalents 11,256.0 10,900.4 355.6 3.3% 12.2% 12.9%

Trade and other receivables 3,718.9 2,580.4 1,138.5 44.1% 4.0% 3.1%

Available-for-sale (AFS) investments 140.8 685.6 (544.8) -79.5% 0.2% 0.8%

Parts and supplies inventories 3,271.8 3,330.2 (58.4) -1.8% 3.6% 4.0%

Derivative assets - 63.2 (63.2) -100.0% 0.0% 0.1%

Other current assets 1,196.5 1,251.1 (54.6) -4.4% 1.3% 1.5%

Total Current Assets 19,584.0 18,810.9 773.1 4.1% 21.3% 22.3%

Noncurrent Assets

Property, plant and equipment 59,180.7 54,607.9 4,572.8 8.4% 64.4% 64.8%

Intangible assets 4,708.0 4,708.0 - 0.0% 5.1% 5.6%

Deferred tax assets 1,231.0 1,429.4 (198.4) -13.9% 1.3% 1.7%

Exploration and evaluation assets 1,490.1 1,030.8 459.3 44.6% 1.6% 1.2%

Other noncurrent assets 5,745.7 3,690.4 2,055.3 55.7% 6.2% 4.4%

Total Noncurrent Assets 72,355.5 65,466.5 6,889.0 10.5% 78.7% 77.7%

TOTAL ASSETS 91,939.5 84,277.4 7,662.1 9.1% 100.0% 100.0%


LIABILITIES

Current Liabilities

Trade and other payables 7,624.8 5,997.5 1,627.3 27.1% 8.3% 7.1%

Income tax payable 36.9 78.2 (41.3) -52.8% 0.0% 0.1%

Due to related parties 45.8 124.7 (78.9) -63.3% 0.0% 0.1%

Derivative liabilities - 39.2 (39.2) -100.0% 0.0% 0.0%

Current portion of:

Long-term debts 1,615.6 1,833.0 (217.4) -11.9% 1.8% 2.2%

Royalty fee payable 142.7 295.9 (153.2) -51.8% 0.2% 0.4%

Total Current Liabilities 9,465.8 8,368.5 1,097.3 13.1% 10.3% 9.9%


Long-term debts - net of current portion 48,273.5 47,091.9 1,181.6 2.5% 52.5% 55.9%

Royalty fee payable - net of current portion - 133.7 (133.7) -100.0% 0.0% 0.2%

Net retirement and other post-employment benefits 1,234.9 1,370.1 (135.2) -9.9% 1.3% 1.6%

Provisions and other long-term liabilities 793.5 568.9 224.6 39.5% 0.9% 0.8%

Derivative liabilities 49.6 - 49.6 100.0% 0.1% 0.1%

Total Noncurrent Liabilities 50,351.5 49,164.6 1,186.9 2.4% 54.8% 58.3%

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% 20.4% 22.2%

Common stock in employee trust account (372.3) (377.5) 5.2 -1.4% -0.3% -0.4%

Additional paid-in capital 6,267.0 6,265.6 1.4 0.0% 6.8% 7.4%

Equity reserve (3,706.4) (3,706.4) - 0.0% -3.9% -4.4%

Net accumulated unrealized gain on AFS investments 89.6 106.8 (17.2) -16.1% 0.1% 0.1%

Retained earnings 9,040.5 4,140.8 4,899.7 118.3% 9.8% 4.9%

Cumulative translation adjustment (27.6) 1.4 (29.0) -2071.4% 0.0% 0.0%

30,134.6 25,274.5 4,860.1 19.2% 0.0% 30.0%

Non-controlling Interest 1,987.6 1,469.8 517.8 35.2% 2.2% 1.7%

Total Equity 32,122.2 26,744.3 5,377.9 20.1% 34.9% 31.7%

TOTAL LIABILITIES AND EQUITY 91,939.5 84,277.4 7,662.1 9.1% 100.0% 100.0%

HORIZONTAL VERTICAL

Increase (Decrease)

SEC Form 17Q – 2Q 2012 22

Assets

Trade and other receivables


from the P2,580.4 million balance as of June 30, 2011. The increase is mainly due to BGI’s

revenues and increase in FGHPC and GCGI’s revenues for the period.

Available-for-sale (AFS) investments

AFS Investments decreased by 79.5% or P544.8 million to P140.8 million as of

June 30, 2012 from the P685.6 million balance as of June 30, 2011 due to the P488.3 million

reclassification to other non-current assets of ROP bonds maturing beyond 2013.

Derivative assets

The derivative assets P63.2 million balance as of June 30, 2011 pertains to the fair value of

the outstanding foreign currency forward and foreign exchange swap contracts.

Property, plant and equipment


from the balance of P54,607.9 million as of June 30, 2011 primarily due to the

P7,835.3 million net additions partially offset by the P3,274.4 million depreciation for the

period.

Deferred tax assets


from the balance of P1,429.4 million as of June 30, 2011 mainly due to the Parent

Company’s P102.0 million lower recognition of deferred tax assets on unrealized forex gains

on translation of long-term foreign loans and GCGI’s P129.8 million application of NOLCO

to its taxable income for the period. These were offset by BGI’s P52.0 million recognized

deferred tax asset due to testing and commissioning revenues charged against PPE.

Exploration and evaluation assets


from the balance of P1,030.8 million as of June 30, 2011 primarily due to the expenses of

Mindanao III, Bacman Rangas/Kayabon, and Tanawon areas.

SEC Form 17Q – 2Q 2012 23

Other noncurrent assets

This account increased by 55.7% or P2,055.3 million, to P5,745.7 million as of

June 30, 2012 from the P3,690.4 million as of June 30, 2011 mainly due to the following:

P1,297.7 million increase in input VAT;

P488.3 million reclassification from current available for sale investment account of

ROP bonds maturing beyond 2013; and

P300.0 million increase in tax credit certificates.

Liabilities


This account increased by 27.1%, or P1,627.3 million, to P7,624.8 million as of

June 30, 2012 from the balance of P5,997.5 million in the same period of 2011 mainly due to

the P2,147.5 million increase in accounts payable offset by the P432.3 million decrease in

accrued interest and guarantee fees.

Income tax payable

Income tax payable decreased by 52.8% or P41.3 million to P36.9 million as of

June 30, 2012 from P78.2 million for the same period in 2011 arising from the Parent

Company’s lower taxable income.


This account decreased by 63.3% or P78.9 million to P45.8 million as of June 30, 2012 from

the balance of P124.7 million as of June 30, 2011 primarily due to the settlement of advances

from First Gen.

Derivative liabilities - current

This account balance of P39.2 million as of June 30, 2011 is the fair value of the outstanding

foreign currency forward in 2011.

Long-term debts (current portion)


from the balance of P1,833.0 million as of June 30, 2011 primarily due to the

P1,289.5 million regular and prepayment of the FCRN series 1, 2 & 3. This was offset by the

P1,060.9 million reclassification of the current portion of maturing US$175 million

syndicated loan, IFC A & B loans and FXCN loan tranche 1 & 2.

SEC Form 17Q – 2Q 2012 24

Royalty fee payable (current portion )

This account decreased by 51.8 % or P153.2 million to P142.7 million as of June 30, 2012

from the balance of P295.9 million as of June 30, 2011 mainly due to the Parent Company’s

P177.9 million payment to DOE and LGU’s offset by P18.5 million accretion on Day 1 gain

recognized from July 1, 2011 to June 30, 2012.

Royalty fee payable (net of current portion )

This account decreased by 100.0% or P133.7 million as of June 30, 2012 primarily due to the

reclassification to current portion of outstanding royalty fee payable in 2012.

Net retirement and other post-retirement benefits


from P1,370.1 million balance as of June 30, 2011 mainly due to contribution to the fund in

2011 offset by the accrual of retirement benefits for the period.

Provisions and other long-term liabilities

This account increased by 39.5% or P224.6 million to P793.5 million as of June 30, 2012

from P568.9 million balance as of June 30, 2011 mainly due to the Parent Company’s

P131.9 million additional asset retirement obligation and P90.0 million accrual of sick leave

and vacation leave benefits.

Derivative liabilities – non current

The account balance of P49.6 million as of June 30, 2012 is the fair value of the cross-

currency swaps designated as accounting hedges.

Net accumulated unrealized gain on AFS investments

This account decreased by 16.1% or P17.2 million to P89.6 million as of June 30, 2012 from

P106.8 million as of June 30, 2011 mainly due to the decrease in fair value of the

investments for the period.

Retained earnings

Retained earnings increased by 118.3% or P4,899.7 million to P9,040.5 million as of

June 30, 2012 from P4,140.8 million balance as of June 30, 2011 mainly due to the

P4,618.3 million net income for the first semester of 2012.

Non-controlling interest

Non-controlling interest increased by 35.2% or P517.8 million to P1,987.6 million as of

June 30, 2012 from P1,469.8 million balance as of June 30, 2011 mainly due to the net

SEC Form 17Q – 2Q 2012 25

income of P747.7 million posted from June 30, 2011 to December 31, 2011 and

P1,112.6 million net income for the first semester of 2012. This was offset by

P1,342.5 million payment of cash dividend this year.

SEC Form 17Q – 2Q 2012 26

CASH FLOW

June 30, 2012 vs. June 30, 2011

Net cash flows from operating activities increased by 32.3% or P1,738.5 million to

P7,125.8 million in the first semester of 2012 from P5,387.3 million during the same period in

2011 mainly due to the P2,326.5 million improved cash generation from operations due to

increased revenues and absence of P80.0 million contribution to retirement and other post-

retirement benefits. These were offset by the P336.2 million increase in interest and financing

charges paid and P331.7 million increase in payment of income tax.

Net cash flows used in investing activities decreased by 19.9% or P1,011.9 million to

P4,072.0 million in June 2012 as compared to the P5,083.8 million during the same period in

2011. The decrease was primarily due to lower acquisition of property, plant and equipment by

P1,036.0 million.

The movement of P8,678.2 million, to P4,238.5 million on net cash flows used in financing

activities in June 2012 from the P4,439.6 million net cash flows from financing activities during

the same period in 2011 was mainly due to lower proceeds from the P7,000 million FXCN loan

this year as compared to the P20,980.0 million proceeds from the US$300 million notes issuance

and $175 million loan last year. This was offset by the lower payment of long-term debts by

P5,040.1 million this year.

SEC Form 17Q – 2Q 2012 27

DISCUSSION ON THE SUBSIDIARIES

FG Hydro

(Amounts in PHP millions)

As of and for the periods ended

June 30

2012 2011

Operating revenues 2,558.9 661.6

Operating expenses 459.5 372.3

Other expenses – net 218.6 209.4

Income before tax 1,880.8 79.9

Provision for income tax 0.4 0.6

Net income 1,880.4 79.3

Total current assets 1,792.7 1,260.0

Total noncurrent assets 7,066.6 7,334.6

Total current liabilities 767.1 514.8

Total noncurrent liabilities 4,024.2 4,405.4

Total equity 4,068.0 3,674.4

FG Hydro generated revenues of P2,558.9 million for the period ended June 30, 2012, 286.7% higher

than the revenues of P661.6 million for the same period in 2011. The favorable variance was mainly on

account of revenues earned from sale of electricity, as ancillary services to National Grid Corporation of

the Philippines (“NGCP”), amounting to P1,391.4 million, and the temporary assumption of BGI’s Power

Supply Agreements (PSAs) with Batangas Electric Cooperative II (“BATELEC II”) 48MW and Linde

Philippines 6MW amounting to P377.1 million. There were no revenues from the said entities for the

same period in 2011.

The unfavorable variance in operating expenses is mainly on account of higher depreciation, operations

and maintenance expenses and taxes and licenses in 2012. The unfavorable variances, however, were

partly offset by higher interest income from short-term deposits of P30.5 million in 2012 versus

P20.7 million in 2011. Overall, FG Hydro posted a record net income of P1,880.4 million for the period

ended June 30, 2012, P1,801.1 million higher than the P79.3 million reported income for the same period

in 2011.

Total assets as of June 30, 2012 stood at P8,859.3 million, P264.7 million or 3.1% higher than the 2011

level of P8,594.6 million. The favorable variance was mainly due to higher cash and accounts receivable

trade balances in 2012. As compared with the same period in 2011, there were no electricity sales for

ancillary services yet.

As of June 30, 2012, total liabilities stood at P4,791.3 million, P128.9 million or 2.6% lower than the

2011 level of P4,920.2 million. The decrease in liabilities was mainly due to the continuous pay-out of the

scheduled semi-annual loan repayments.

Total equity as of June 30, 2012 of P4,067.9 million is P393.5 million or 10.7% higher compared to the

June 30, 2011 level of P3,674.4 million.

SEC Form 17Q – 2Q 2012 28

Green Core Geothermal Inc.



June 30

2012 2011

Revenues 4,902.3 3.933.2

Operating expenses* (3,616.2) (4,263.4)

Other income (charges) – net 64.1 (223.3)

Income (loss) before income tax 1,350.2 (553.5)

Benefit from (provision for) income tax (133.6) 55.4

Net income (loss) 1,216.6 (498.1)

Total Current Assets 1,912.0 1,412.8

Total Non-Current Assets 9,845.7 9,802.8

Total Liabilities 1,729.1 8,001.8

Total Equity 10,028.6 3,213.8

*Includes Cost of Sale of Electricity and General and Administrative Expenses

GCGI’s revenues increased by 24.6% or P969.1 million, to P4,902.3 million as of June 30, 2012 from

P3,933.2 million for the same period in 2011 due to higher revenues from the sale of electricity as per

agreed contracts that became effective in mid-2011 and the additional power supply agreements that were

signed in December 2011.

Operating expenses decreased by 15.2% or P647.2 million, to P3,616.2 million in 2012 from

P4,263.4 million in 2011 due to lower average cost of steam by P0.45/kWh (P409.9 million), lower

purchased services & utilities by P159.7 million and operations & maintenance by P140.5 million offset

by higher general & administrative expenses of P62.5 million.

This period’s other income of P64.1 million consists mainly of foreign exchange gains and the absence in

2012 of interest expense.

Provision of income tax – deferred of P133.6 million in 2012 was an increase from P55.4 million benefit

from income tax – deferred in 2011.

Total current assets increased by 35.3% or P499.2 million, to P1,912.0 million in 2012 from

P1,412.8 million in 2011 largely due to higher trade & other receivables of P356.4 million and other

current assets of P193.1 million offset by lower cash & cash equivalents of P35.5 million and parts &

supplies inventories of P14.2 million.

Total noncurrent assets increased by 0.4% or P42.9 million, to P9,845.7 million in 2012 from

P9,802.8 million in 2011 due to higher other noncurrent assets of P105.9 million and property, plant &

equipment of P86.5 million reduced by lower deferred tax asset of P149.5 million.

Total liabilities decreased by 78.4% or P6,272.7 million, to P1,729.1 million in 2012 from

P8,001.8 million in 2011 while total equity increased by 212.0% or P6,814.8 million, to

P10,028.6 million in 2012 from P3,213.8 million in 2011 due to the conversion of the P5,452.5 million

advances from EDC to equity coupled with the net income for the period July 1, 2011 to June 30, 2012

amounting to P1,362.3 million.

SEC Form 17Q – 2Q 2012 29

Bac-Man Geothermal Inc.



June 2012

June 2011

(Restated)

Revenues 1,308.2 –

Expenses (1,591.3) (7.3)

Other income 0.5 1.0

Operating income (loss) (282.6) (6.3)

Benefit from (provision for) income tax 25.0 0.6

Net loss (257.6) (5.7)

Total Current Assets 598.8 148.0

Total Non-Current Assets 3,523.4 2,462.0

Total Current Liabilities 1,253.5 2,647.9

Total Equity 2,868.7 (37.9)

*BGI was incorporated in the Philippines on April 7, 2010.

As of June 30, 2012, BGI has yet to start commercial operations.

Revenues from signed PSAs with BATELEC and Linde Philippines were generated through purchases

from WESM and FG Hydro.

The increase in expenses pertains primarily to the cost of replacement power from WESM

(P1,124.6 million) and FG Hydro (P377.1 million)

The increase in current assets by 304.6% or P=450.8 million is due mainly to the increase in trade and

other receivables amounting to P=359.8 million.

Non-current assets increased by 43.1% or P=1,061.4 million resulting mainly from the capitalized costs for

the rehabilitation of the power plants amounting to P=1,249.8 million. Testing and commissioning

revenues generated by Bac-man Unit 2 for the period amounting to P=520.4 million was netted off this

account as required by PAS 16. The increase in input VAT by P=209.8 million as a result of the increase

in expenses also contributed to the overall increase in non-current assets.

The decrease in liabilities and corresponding increase in equity results from the conversion of payables to

related parties into equity as capital infusion in December 2011.

SEC Form 17Q – 2Q 2012 30

Commitments that will have an impact on the issuer’s liquidity

As of June 30, 2012, the company has unserved purchase orders and awarded contracts for the

purchase of various capital goods in the total amount of P103.3 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=19,765.14 million in long-term US dollar denominated loans as of

June 30, 2012 which is 42.12% of the total company’s long-term loans.

OTHER MATTERS

CASH DIVIDEND

On March 13, 2012, the BOD of the Parent Company approved the following cash dividends

in favor of all stockholders of record as of March 28, 2012 and payable on or before

April 24, 2012:

cash dividend of P=0.0008 per share on the preferred shares

regular cash dividend of P=0.10 per share on the common shares.

In March and May 2012, FG Hydro declared and paid cash dividends to its preferred and

common shares amounting to P=88.5 million and P=1,254.0 million, respectively

SEC Form 17Q – 2Q 2012 31

MAJOR STOCKHOLDERS

As of June 30, 2012, the total number of stockholders was 700 and price was P6.03 per share.

The public float level was at 50.68% (or 9,501,587,389 common shares).

List of Top 20 Stockholders as of June 30, 2012

Rank Name Nationality

Number of Shares

% 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 - 6,736,468,952 6,736,468,952 23.95

3 PCD Nominee Corporation Filipino - 2,757,421,191 2,757,421,191 9.80

4 First Gen Corporation Filipino - 991,782,700 991,782,700 3.53

5 Northern Terracotta Power

Corporation

Filipino - 726,450,200 726,450,200 2.58

6 Peter D. Garrucho, Jr. Filipino - 5,670,000 5,670,000 0.02

7 Benjamin K. Liboro Filipino - 3,525,500 3,525,500 0.01

8 Arthur A. De Guia Filipino - 2,200,000 2,200,000 0.01

9 CROSLO Holdings Corporation Filipino - 1,600,000 1,600,000 0.01

10 Hi-Light Corporation Filipino - 1,577,500 1,577,500 0.01

11 Mapazon Corporation Filipino - 1,470,000 1,470,000 0.01

12 ALG Holdings Corporation Filipino - 875,000 875,000 0.00

13 Raul I. Macatangay Filipino - 725,000 725,000 0.00

14 Rosalind Camara Filipino - 663,750 663,750 0.00

15 Rodolfo R. Waga, Jr. Filipino - 658,750 658,750 0.00

16 Emelita D. Sabella Filipino - 521,000 521,000 0.00

17 Rodolfo R. Waga, Jr. &/or Grace

B. Waga

Filipino - 501,200 501,200 0.00

19 Hiro Budhrani &/or Astrid J.

Budhrani

Filipino - 500,000 500,000 0.00

18 Ma. Consuelo R. Lopez Filipino - 500,000 500,000 0.00

20 Peter Mar & /or Annabelle C.

Mar

Filipino - 500,000 500,000 0.00

SEC Form 17Q – 2Q 2012 32

BOARD OF DIRECTORS

As of June 30, 2012, 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, 2012, the 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

Agnes C. de Jesus Senior Vice President for Environment and

External Relations, and Compliance Officer

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

Danilo C. Catigtig Senior Vice President for Strategic Initiatives

Office

Rico G. Bersamin Senior Vice President for Steam Field

Operations

Ernesto G. Espinosa Vice President for Human Resource

Management

Vincent Martin C. Villegas Vice President for Business Development

Erwin O. Avante Vice President for Corporate Finance

Ferdinand B. Poblete Vice President, Chief Information Officer

Ariel Arman V. Lapus Vice President for Business Development

International

Ellsworth R. Lucero Vice President - Power

SEC Form 17Q – 2Q 2012 33

Name Position

Dwight A. Maxino Vice President - So. Negros Geothermal

Project

Manuel C. Paete Vice President - Leyte Geothermal Project

Liberato S. Virata Vice President - Bacon-Manito Geothermal

Project

Wilfredo A. Malonzo Vice President for Supply Chain

Management

Maribel A. Manlapaz 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

Annex I

Energy Development Corporation (A Subsidiary of Red Vulcan Holdings Corporation) and Subsidiaries

Unaudited Interim Condensed Consolidated Financial Statements June 30, 2012 and 2011 (With Comparative Figures as of December 31, 2011 )

ENERGY DEVELOPMENT CORPORATION (A Subsidiary of Red Vulcan Holdings Corporation)

AND SUBSIDIARIES

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF

FINANCIAL POSITION

June 30,

2012

(Unaudited)

December 31,

2011

(Audited)

June 30,

2011

(Unaudited,

Restated,

Note 26)

ASSETS

Current Assets

Cash and cash equivalents (Notes 5 and 24) P=11,255,972,999 P=12,493,406,963 P=10,900,365,601

Trade and other receivables (Notes 6 and 24) 3,718,889,023 3,411,309,528 2,580,364,278

Available-for-sale (AFS) investments (Note 24) 140,849,280 673,853,680 685,593,258

Parts and supplies inventories (Note 7) 3,271,835,082 3,355,767,653 3,330,190,461

Derivative assets (Note 24) – – 63,203,930

Due from related parties (Notes 23 and 24) – 7,812 –

Other current assets 1,196,452,814 741,911,257 1,251,099,445

Total Current Assets 19,583,999,198 20,676,256,893 18,810,816,973

Noncurrent Assets

Property, plant and equipment (Note 8) 59,180,658,433 57,676,929,006 54,607,901,317

Intangible assets (Note 9) 4,707,978,675 4,705,245,708 4,708,046,218

Deferred tax assets - net 1,231,044,680 1,420,656,657 1,429,366,220

Exploration and evaluation assets 1,490,058,527 1,087,079,413 1,030,820,685

Other noncurrent assets (Note 10) 5,745,750,905 4,451,649,107 3,690,386,752

Total Noncurrent Assets 72,355,491,220 69,341,559,891 65,466,521,192

TOTAL ASSETS P=91,939,490,418 P=90,017,816,784 P=84,277,338,165


Current Liabilities

Trade and other payables (Notes 11 and 24) P=7,624,847,376 P=6,704,075,261 P=5,997,455,447

Income tax payable 36,903,844 18,736,456 78,157,460

Due to related parties (Notes 23 and 24) 45,782,567 60,090,825 124,680,299

Derivative liabilities (Note 24) – – 39,227,456

Current portion of:

Long-term debts (Notes 12 and 24) 1,615,630,737 2,249,517,382 1,833,048,809

Royalty fee payable (Notes 13 and 24) 142,740,508 287,626,313 295,914,471

Total Current Liabilities 9,465,905,032 9,320,046,237 8,368,483,942

(Forward)

- 2 -

June 30,

2012

(Unaudited)

December 31,

2011

(Audited)

June 30,

2011

(Unaudited,

Restated,

Note 26)


Long-term debts - net of current portion

(Notes 12 and 24) P=48,273,468,573 P=49,240,054,073 P=47,091,886,962

Royalty fee payable - net of current portion

(Notes 13 and 24) – – 133,728,991

Net retirement and other post-employment

benefits 1,234,860,953 1,054,237,256 1,370,092,469

Provisions and other long-term liabilities

(Note 8) 793,527,349 756,877,725 569,020,582

Derivative liabilities (Note 24) 49,634,041 – –

Total Noncurrent Liabilities 50,351,490,916 51,051,169,054 49,164,729,004

Total Liabilities 59,817,395,948 60,371,215,291 57,533,212,946

Equity

Attributable to equity holders of the Parent

Company:

Preferred stock (Note 14) 93,750,000 93,750,000 93,750,000

Common stock (Note 14) 18,750,000,000 18,750,000,000 18,750,000,000

Common shares in employee trust account (372,272,723) (372,272,723) (377,483,019)

Additional paid-in capital 6,266,966,828 6,266,966,828 6,265,571,968

Equity reserve (3,706,430,769) (3,706,430,769) (3,706,430,769)

Net accumulated unrealized gain on AFS

investments 89,597,325 91,758,915 106,778,838

Cumulative translation adjustments (27,649,573) 592,534 1,370,000

Retained earnings 9,040,515,057 6,304,695,114 4,140,794,429

30,134,476,145 27,429,059,899 25,274,351,447

Non-controlling interest 1,987,618,325 2,217,541,594 1,469,773,772

Total Equity 32,122,094,470 29,646,601,493 26,744,125,219

TOTAL LIABILITIES AND EQUITY P=91,939,490,418 P=90,017,816,784 P=84,277,338,165

See accompanying Notes to Unaudited Interim Condensed Consolidated Financial Statements.


AND SUBSIDIARIES

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF INCOME

Three-month Periods Ended

June 30

Six-month Periods Ended

June 30

2012 2011 2012 2011

REVENUES (Note 4)

Sale of electricity P=7,486,654,065 P=5,610,615,517 P=15,023,410,507 P=11,408,776,024

Revenue from drilling services 177,640,053 172,094,892 345,221,433 326,711,529

7,664,294,118 5,782,710,409 15,368,631,940 11,735,487,553

COST OF SALES AND SERVICES

Cost of sales of electricity (Note 15) (2,985,460,975) (2,248,047,719) (5,726,765,662) (5,010,268,447)

Cost of drilling services (Note 16) (116,042,471) (170,601,063) (211,481,811) (278,924,490)

(3,101,503,446) (2,418,648,782) (5,938,247,473) (5,289,192,937)

GENERAL AND ADMINISTRATIVE

EXPENSES (Note 17)

(1,276,743,732) (1,305,240,938)

(2,196,326,904)

(2,194,646,589)

FINANCIAL INCOME (EXPENSES)

Interest expense (Notes 4 and 18) (904,899,021) (1,276,004,963) (1,920,244,374) (2,314,926,228)

Interest income - net of final tax (Notes 4 and

19) 86,905,261 93,955,446 180,775,443 217,873,134

(817,993,760) (1,182,049,517) (1,739,468,931) (2,097,053,094)

OTHER INCOME (CHARGES)

Foreign exchange gains - net (Note 20) 356,381,872 48,272,813 694,335,378 236,833,940

Loss on impairment of property, plant and

equipment (Notes 4 and 8)

–

(4,998,608,008)

–

(4,998,608,008)

Derivative losses - net (Note 24) – (46,526,531) – (8,973,485)

Miscellaneous - net (Note 21) (126,793,423) (18,243,498) (67,386,140) 12,459,014

229,588,449 (5,015,105,224) 626,949,238 (4,758,288,539)

INCOME (LOSS) BEFORE INCOME

TAX 2,697,641,629 (4,138,334,052) 6,121,537,870 (2,603,693,606)

BENEFIT FROM (PROVISION FOR)

INCOME TAX

Current (13,064,619) (78,641,622) (200,996,142) (247,075,683)

Deferred (100,506,067) 465,729,835 (189,611,977) 553,886,596

(113,570,686) 387,088,213 (390,608,119) 306,810,913

NET INCOME (LOSS) P=2,584,070,943 (P=3,751,245,839) P=5,730,929,751 (P=2,296,882,693)

Net income (loss) attributable to:

Equity holders of the Parent Company P=1,919,043,288 (P=3,709,034,962) P=4,618,319,943 (P=2,331,092,842)

Non-controlling interest 665,027,655 (42,210,877) 1,112,609,808 34,210,149

P=2,584,070,943 (P=3,751,245,839) P=5,730,929,751 (P=2,296,882,693)

Basic/Diluted Earnings (Loss) Per Share

for Net Income (Loss) Attributable to

Equity Holders of the Parent Company

(Note 22) P=0.102 (P=0.198) P=0.246 (P=0.125)



AND SUBSIDIARIES

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME

Three-month Periods Ended

June 30

Six-month Periods Ended

June 30 2012 2011 2012 2011

Net income (loss) P=2,584,070,943 (P=3,751,245,839) P=5,730,929,751 (P=2,296,882,693)

Other comprehensive income (loss)

Changes in fair value of AFS

investments recognized in

equity 9,522,086 (3,511,956) (2,161,590) (12,939,959)

Cumulative translation adjustments (28,242,107) – (28,242,107) –

Total comprehensive income (loss) P=2,565,350,922 (P=3,754,757,795) P=5,700,526,054 (P=2,309,822,652)

Total comprehensive income (loss)

attributable to:

Equity holders of the Parent

Company P=1,900,323,267 (P=3,712,546,918) P=4,587,916,246 (P=2,344,032,801)

Non-controlling interest 665,027,655 (42,210,877) 1,112,609,808 34,210,149

P=2,565,350,922 (P=3,754,757,795) P=5,700,526,054 (P=2,309,822,652)



AND SUBSIDIARIES

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2012 AND 2011

Equity Attributable to Equity Holders of the Parent Company

Preferred

Stock

(Note 14)

Common

Stock

(Note 14)

Common

Shares in

Employee

Trust Account

Additional

Paid-in

Capital

Equity

Reserve

Net

Accumulated

Unrealized

Gain on AFS

Investments

Retained Earnings Subtotal

Non-controlling

Interest Total Equity

Cumulative

Translation

Adjustments

Balances, January 1, 2011, as previously

reported P=93,750,000 P=18,750,000,000 (P=379,219,785) P=6,266,099,283 (P=3,706,430,769) P=119,718,797

P=1,370,000 P=9,524,603,810 P=30,669,891,336 P=1,569,089,721 P=32,238,981,057

Effect of voluntary change in accounting

policy (Note 26) – – – – – – – 155,072,607 155,072,607 – 155,072,607

Balances, January 1, 2011, as restated

(Audited) 93,750,000 18,750,000,000 (379,219,785) 6,266,099,283 (3,706,430,769) 119,718,797 1,370,000 9,679,676,417 30,824,963,943 1,569,089,721 32,394,053,664

Total comprehensive income (loss):

Net income (loss) – – – – – – – (2,331,092,842) (2,331,092,842) 34,210,149 (2,296,882,693)


investments recognized in equity

–

–

–

–

– (12,939,959)

–

– (12,939,959)

– (12,939,959)

– – – – – (12,939,959) – (2,331,092,842) (2,344,032,801) 34,210,149 (2,309,822,652)

Cash dividend (Note 14) – – – – – – – (3,007,500,000) (3,007,500,000) – (3,007,500,000)

Effect of subsidiary’s issuance of and

declaration of dividends on preferred

shares to non-controlling interest (NCI) (Note14) – – – – – – – (200,289,146) (200,289,146) (133,526,098) (333,815,244)

Share-based payment – – 1,736,766 464,953 – – – – 2,201,719 – 2,201,719

Deferred income tax effect of share-based

payment – – – (992,268) – – – – (992,268) – (992,268)

Balances, June 30, 2011 (Unaudited,

Restated (Note 26) P=93,750,000 P=18,750,000,000 (P=377,483,019) P=6,265,571,968 (P=3,706,430,769) P=106,778,838 P=1,370,000 P= 4,140,794,429 P=25,274,351,447 P=1,469,773,772 P=26,744,125,219

- 2 -

Equity Attributable to Equity Holders of the Parent Company

Preferred

Stock

(Note 14)

Common

Stock

(Note 14)

Common

Shares in

Employee

Trust Account

Additional

Paid-in

Capital

Equity

Reserve

Net

Accumulated

Unrealized

Gain on AFS

Investments

Cumulative

Translation

Adjustments Retained Earnings Subtotal

Non-controlling

Interest Total Equity

Balances, December 31, 2011 (Audited) P=93,750,000 P=18,750,000,000 (P=372,272,723) P=6,266,966,828 (P=3,706,430,769) P=91,758,915 P=592,534 P=6,304,695,114 P=27,429,059,899 P=2,217,541,594 P=29,646,601,493

Total comprehensive income (loss):

Net income – – – – – – – 4,618,319,943 4,618,319,943 1,112,609,808 5,730,929,751


investments recognized in equity

–

–

–

–

– (2,161,590)

–

– (2,161,590)

– (2,161,590)

Cumulative translation adjustments (28,242,107) (28,242,107) – (28,242,107)

– – – – – (2,161,590) (28,242,107) 4,618,319,943 4,587,916,246 1,112,609,808 5,700,526,054

Cash dividend (Note 14) – – – – – – – (1,882,500,000) (1,882,500,000) – (1,882,500,000)

Cash dividend on preferred shares to NCI

(Note 14) – – – – – – – – – (1,342,533,077) (1,342,533,077)

Balances, June 30, 2012 (Unaudited) P=93,750,000 P=18,750,000,000 (P=372,272,723) P=6,266,966,828 (P=3,706,430,769) P=89,597,325 (P=27,649,573) P=9,040,515,057 P=30,134,476,145 P=1,987,618,325 P=32,122,094,470



AND SUBSIDIARIES

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2012 AND 2011

Six-Month Periods Ended June 30

2012 2011

CASH FLOWS FROM OPERATING ACTIVITIES

Income (loss) before income tax P=6,121,537,870 (P=2,603,693,606)

Adjustments for:

Interest expense (Notes 4 and 18) 1,920,244,374 2,314,926,228

Depreciation and amortization (Notes 4 and 8) 1,744,729,127 1,815,972,247

Unrealized foreign exchange gains - net (779,247,270) (390,812,859)

Interest income (Notes 4 and 19) (180,775,443) (217,873,134)

Provision for:

Retirement and post-employment benefits 180,645,235 142,955,424

Doubtful accounts 39,969,032 211,273,157

Share-based benefits cost – 2,201,719

Loss on debt extinguishment (Note 21) 114,683,892 –

Recovery of impairment loss on property plant and

equipment (Note 8 and 21) (63,614,885) –

Loss on retirement of property, plant and equipment 469,116 251,147

Impairment loss on property, plant and equipment of

Northern Negros Geothermal Project (NNGP)

(Notes 4 and 8) – 4,998,608,008

Derivative losses (gains) - net (Note 32) – (23,976,474)

Operating income before working capital changes 9,098,641,048 6,255,910,580

Decrease (increase) in:

Trade and other receivables (313,019,362) 694,557,855

Due from related parties 7,812 (7,812)

Parts and supplies inventories 119,728,106 (504,419,807)

Other current assets (305,051,085) 92,256,606

Increase (decrease) in:

Trade and other payables 1,266,184,065 1,040,944,177

Due to related parties (27,332,385) (76,256,562)

Royalty fee payable (152,986,423) (143,276,596)

Cash generated from operations 9,686,171,776 7,359,708,441

Interest and financing charges paid (2,228,000,955) (1,891,819,261)

Income taxes paid including creditable withholding taxes (332,319,226) (608,155)

Retirement and other post-employment benefits paid (21,538) (80,000,000)

Net cash from operating activities 7,125,830,057 5,387,281,025

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of property, plant and equipment (Note 8) (3,483,763,152) (4,519,768,470)

Proceeds from incidental income from testing of property,

plant and equipment 520,417,469 –

Interest received 169,659,092 230,776,903

Proceeds from sale of property, plant and equipment 973,266 –

Increase in:

Exploration and evaluation assets (402,979,114) (18,077,698)

Intangible assets (50,828,546) –

Other noncurrent assets (825,369,702) (776,694,551)

Net cash used in investing activities (4,071,890,687) (5,083,763,816)

(Forward)

- 2 -

June 30, 2012

(Unaudited)

June 30, 2011

(Unaudited))

CASH FLOWS FROM FINANCING ACTIVITIES

Payments of:

Long-term debts (Note 12) (P=7,909,964,860) (P=12,950,075,858)

Cash dividends (Note 14) (3,225,033,077) (3,341,315,244)

Short-term loans – (175,000,000)

Proceeds from long-term debts (Note 12) 6,934,833,050 20,980,000,000

Decrease in provisions and other long-term liabilities (38,362,111) (73,975,550)

Net cash flows from (used in) financing activities (4,238,526,998) 4,439,633,348

NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS (1,184,587,628) 4,743,150,557

EFFECT OF FOREIGN EXCHANGE RATE CHANGES

ON CASH AND CASH EQUIVALENTS (52,846,336) (710,088)

CASH AND CASH EQUIVALENTS AT BEGINNING

OF PERIOD 12,493,406,963 6,157,925,132

CASH AND CASH EQUIVALENTS AT END OF

PERIOD (Notes 5 and 24) P=11,255,972,999 P=10,900,365,601



AND SUBSIDIARIES

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

1. Corporate Information

Corporate Structure

Energy Development Corporation (the “Parent Company” or “EDC”) is a subsidiary of Red

Vulcan Holdings Corporation (Red Vulcan). The Parent Company and its subsidiaries

(collectively hereinafter referred to as the “Company”), 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, 2012 December 31, 2011

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%

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% – –

EDC Geotermica Chile* – 100.00% – –

EDC Peru Holdings S.A.C. * – 100.00% – –

EDC Geotermica Peru S.A.C. * – 100.00% – –

EDC Wind Energy Holdings, Inc. (EWEHI) 100.00% – 100.00% –

EDC Burgos Wind Power Corporation (EBWPC) 33.33% 66.67% 33.33% 66.67%

EDC Pagudpud Wind Power Corporation

(EPWPC)* –

100.00% –

–

First Gen Hydro Power Corporation (FG Hydro) 60.00% – 60.00% –

* Incorporated in 2012 and has not yet started commercial operations.

**Incorporated in 2011 and has not yet started commercial operations.

- 2 -

History of Ownership

Beginning December 13, 2006, the common shares of EDC were listed and traded on the

Philippine Stock Exchange (PSE). Up to November 2007, EDC was controlled by the Philippine

National Oil Company (PNOC), a government-owned and controlled corporation, and the

PNOC EDC Retirement Fund.

On November 29, 2007, PNOC and PNOC EDC Retirement Fund sold their combined interests

in EDC to Red Vulcan (a Philippine corporation). Red Vulcan was then a wholly owned

subsidiary of First Gen Corporation (First Gen, a publicly listed Philippine corporation) through

Prime Terracota Holdings Corporation (Prime Terracota). First Gen’s indirect interest in EDC

consists of 6.0 billion common shares and 7.5 billion preferred shares. Control was then

established through First Gen’s 60% indirect voting interest in EDC. Meanwhile, First Philippine

Holdings Corporation (First Holdings) directly owns 66.2% of the common shares of First Gen.

Accordingly, First Holdings became then the ultimate parent of the Company.

On May 12, 2009, First Gen’s indirect voting interest in Red Vulcan was reduced to 45% with the

balance taken up by Lopez Inc. Retirement Fund (40%) and Quialex Realty Corporation (15%)

through the issuance of preferred shares by Prime Terracota. As a result of this transaction, Prime

Terracota replaced First Holdings as the ultimate parent of EDC effective May 12, 2009.

Nature of Operations

The Parent Company operates 12 geothermal energy projects in five Geothermal Service Contract

(GSC) areas, namely:

1. Bacon-Manito Geothermal Project (BMGP);

2. Mt. Apo Geothermal Project (MGP);

3. Northern Negros Geothermal Project (NNGP);

4. Southern Negros Geothermal Project (SNGP); and,

5. Tongonan Geothermal Project (TGP).

These GSCs are entered into with the Department of Energy (DOE) pursuant to the provisions of

Presidential Decree 1442. These GSCs were replaced by Geothermal Renewable Energy Service

Contracts (GRESCs) on October 23, 2009.

Geothermal steam produced is delivered to the National Power Corporation (NPC) and fed to the

Parent Company and subsidiary’s power plants to produce electricity. EDC sells steam and power

to NPC under the Steam Sales Agreements (SSAs) and Power Purchase Agreements (PPAs),

respectively. EDC also has drilling activities in Papua New Guinea. In August 2011, the Parent

Company assigned its electricity sales agreement with Iloilo I Electric Cooperative, Inc.

(ILECO I) to GCGI.

Subsidiaries

EGC

EGC, originally named as First Luzon Geothermal Energy Corporation, is a special-purpose

company incorporated on April 9, 2008 to participate in the bid for another local power plant. The

bid was won by and awarded to another local entity. Thereafter, EGC became an investment

holding company of its wholly owned subsidiaries, namely GCGI, BGI, ULGEI, SNGI, EMGI,

BEDC and KGI. EGC also has a 0.01% stake in EDC Chile Limitada.

On March 8, 2011, the Philippine SEC approved the change of its corporate name to EGC.

- 3 -

Further details on EGC’s wholly-owned subsidiaries follow:

GCGI was incorporated on June 22, 2009 with primary activities on power generation,

transmission, distribution, and other energy related businesses. GCGI is currently operating

the 192.5 Megawatt (MW) Palinpinon and 112.5 MW Tongonan 1 geothermal power plants in

Negros Oriental and Leyte, respectively, following its successful acquisition from the Power

Sector Assets and Liabilities Management Corporation (PSALM) in 2009.

BGI was incorporated on April 7, 2010 primarily to carry on the general business of

generating, transmitting, and/or distributing energy. BGI has successfully acquired the

150 MW Bac-Man Geothermal Power Plants (BMGPP) from PSALM in 2010. BMGPP is

currently under rehabilitation to restore its capacity and reliability.

On February 4, 2011, the Philippine SEC approved the incorporation of SNGI and EMGI,

wholly owned subsidiaries of EGC, to carry on the general business of generating,

transmitting, and/or distributing energy derived from any and all forms, types and kinds of

energy sources for lighting and power purposes and whole-selling the electric power to power

corporations, public electric utilities and electric cooperatives.

ULGEI is a company incorporated on June 23, 2010 to carry on the general business of

generating, transmitting, and/or distributing energy.

On September 22 and 28, 2011, the Philippine SEC approved the incorporation of BEDC and

KGI, wholly owned subsidiaries of EGC, to carry on the general business of generating,

transmitting, and/or distributing energy derived from any and all forms, types and kinds of

energy sources for lighting and power purposes and whole-selling the electric power to power

corporations, public electric utilities and electric cooperatives.

As of June 30, 2012, SNGI, EMGI, ULGEI, BEDC and KGI remain non-operating.

FG Hydro

On October 20 and November 17, 2008, in line with its objective of focusing on renewable

energy, the Parent Company acquired a total of 60% interest in FG Hydro from First Gen. FG

Hydro operates the 132 Megawatt (MW) Pantabangan and Masiway Hydro-Electric Power Plants

(PAHEP/MAHEP) located in Nueva Ecija, Philippines. FG Hydro buys from and sells electricity

to the Wholesale Electricity Spot Market (WESM) and to various privately-owned distribution

utilities (DUs) under the Transition Power Supply Contracts (TPSCs).

EDC Drillco

EDC Drillco is a company incorporated on September 28, 2009 to act as an independent service

contractor, consultant, specialized technical adviser for well construction and drilling, and other

allied activities.

EWEHI

EWEHI is a holding company incorporated on April 15, 2010.

EBWPC is a company incorporated on April 13, 2010 to carry on the general business of

generating, transmitting, and/or distributing energy. EBPWC is currently developing an

86 MW wind energy concession in Burgos, Ilocos Norte.

EPWPC is a company incorporated on February 29, 2012 to carry on the general business of

generating, transmitting, and/or distributing energy.

- 4 -

EDC Chile Limitada

EDC Chile Limitada is a limited liability company incorporated on February 11, 2010 in Santiago,

Chile with the purpose of exploring, evaluating and extracting any mineral or substance to

generate geothermal energy. On January 10, 2012, the Chilean Ministry of Energy awarded to

EDC the geothermal exploration concession of Newen, while San Rafael and Batea geothermal

exploration concessions were awarded on January 19, 2012.

On February 2, 2012, EDC entered into Joint Venture Agreements (JVA) with Hot Rock Limited

of Australia (HRL) to co-develop four geothermal exploration projects: the Calerias and Longavi

projects in Chile, and the Quellaapacheta and Chocopata projects in Peru. EDC and HRL

successfully concluded negotiations after discussions began with the signing of the Heads of

Terms Agreement last November 28, 2011.

On May 2, 2012, EDC executed Shareholders Agreements (SHA) with HRL to establish project

companies for each of the Calerias and Longavi geothermal concessions in Chile, as well as the

Chocopata and Quellaapacheta geothermal authorizations in Peru, allowing the joint venture to

commence exploration activities at each of the foregoing sites. Pursuant to the terms of the SHA,

EDC will hold 70% of the outstanding capital stock of each of the project companies, with HRL

taking the remaining 30%.

On July 23, 2012, EDC decided not to pursue the Calerias and Longavi projets pursuant to its

rights under the foregoing agreements (see Note 25).

EHIL

EHIL was incorporated on August 17, 2011 in British Virgin Islands and will serve as an

investment holding company of EDC’s international subsidiaries. EHIL is the holding company

of EDC HKL which was incorporated on November 22, 2011 in Hong Kong and will also serve as

a holding company. EDC HKL holds 99.9% stake in EDC Peru Holdings S.A.C., a foreign

subsidiary incorporated on the first quarter of the year in Lima, Peru. EDC Peru Holdings

S.A.C.holds 99.9% stake in EDC Geotermica Peru S.A.C., a foreign subsidiary incorporated on

the first quarter of the year in Lima, Peru. EHIL owns the remaining 0.1% stake in EDC Peru

Holdings S.A.C. and EDC Geotermica Peru S.A.C.

EDC Chile Holdings SPA, which was incorporated on the first quarter of the year in Santiago,

Chile, is wholly owned subsidiary of EDC HKL and is the holding company of EDC Geotermica

Chile, a foreign subsidiary was incorporated on the first quarter of the year in Santiago, Chile.

Corporate Address

In November 2011, the Parent Company changed its corporate address to One Corporate Centre,

Julia Vargas Avenue corner Meralco Avenue, Ortigas Center, Pasig City from Merritt Road, Fort

Bonifacio, Taguig City.

Authorization for Issuance of the Unaudited Interim Condensed Consolidated

Financial Statements

The consolidated financial statements were reviewed and approved by the Audit and Governance

Committee on August 9, 2012.

2. Basis of Preparation

The unaudited interim condensed consolidated financial statements have been prepared in

accordance with Philippine Accounting Standard (PAS) 34, “Interim Financial Reporting.”

- 5 -

Accordingly, the unaudited interim condensed consolidated financial statements do not include all

of the information and footnotes required in the annual consolidated financial statements, and

should be read in conjunction with the Company’s audited annual consolidated financial

statements as of and for the year ended December 31, 2011.

The unaudited interim condensed consolidated financial statements have been prepared on a

historical cost basis, except for derivative instruments, and AFS investments measured at fair

value. The unaudited interim condensed consolidated financial statements are presented in

Philippine peso (Peso), the Parent Company’s functional currency. All values are rounded to the

nearest peso, except when otherwise indicated.

As of June 30, 2012, the Company did not conduct an evaluation of the impact of the Philippine

Financial Reporting Standards 9, Financial Instruments: Classification and Measurement, in its

financial statements. The Company does not also intend to adopt PFRS 9 in its December 31,

2012 annual financial statements. The Company will assess the impact of PFRS 9 in its financial

statements upon completion of all the phases of PFRS 9.

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,

2011, except for the accounting for cash flow hedge.

Cash flow hedges

Cash flow hedges are hedges of the exposure to variability in cash flows that are attributable to a

particular risk associated with a recognized asset, liability or highly probable forecast transaction

and could affect the consolidated statement of income. The effective portion of the gain or loss on

the hedging instrument is recognized as other comprehensive income (loss) in the "Cumulative

translation adjustments" account in the consolidated statement of financial position while the

ineffective portion is recognized as "Mark-to-market gain (loss) on derivatives" in the

consolidated statement of income.

Amounts taken to other comprehensive income (loss) are transferred to the consolidated statement

of income when the hedge transaction affects profit or loss, such as when hedged financial income

or expense is recognized or when a forecast sale or purchase occurs. Where the hedged item is the

cost of a non-financial asset or liability, the amounts taken to other comprehensive income (loss)

are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction is no longer expected to occur, amounts previously recognized in other

comprehensive income (loss) are transferred to the consolidated statement of income. If the

hedging instrument expires or sold, terminated or exercised without replacement or rollover, or if

its designation as hedge is revoked, amounts previously recognized in other comprehensive

income (loss) remain in equity until the forecast transaction occurs. If the related transaction is

not expected to occur, the amount is recognized in the consolidated statement of income.

The company uses cross currency swaps to partially hedge its exposure to foreign currency and

interest rate risks on its floating rate Club Loan that is benchmarked against US LIBOR and with

flexible interest reset feature

- 6 -

The following new and amended accounting standards have became effective beginning

January 1, 2012.

PAS 12, Income Taxes - Recovery of Underlying Assets

The amendment clarified the determination of deferred tax on investment property measured

at fair value. The amendment introduces a rebuttable presumption that deferred tax on

investment property measured using the fair value model in PAS 40, Investment Property,

should be determined on the basis that its carrying amount will be recovered through sale.

Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that are

measured using the revaluation model in PAS 16, Property, Plant and Equipment, always be

measured on a sale basis of the asset. The amendment becomes effective for annual periods

beginning on or after January 1, 2012. The amendment has no impact on the Company’s

financial position or performance.

PFRS 7, Financial Instruments: Disclosures - Enhanced Derecognition Disclosure

Requirements

The amendment requires additional disclosure about financial assets that have been transferred

but not derecognized to enable the user of the Company’s financial statements to understand

the relationship with those assets that have not been derecognized and their associated

liabilities. In addition, the amendment requires disclosures about continuing involvement in

derecognized assets to enable the user to evaluate the nature of, and risks associated with, the

entity’s continuing involvement in those derecognized assets. The amendment becomes

effective for annual periods beginning on or after July 1, 2011. The amendment affects

disclosures only and has no impact on the Company’s financial position or performance

4. Operating Segment Information

The Company’s operating businesses are organized and managed separately according to the

nature of the products and services provided, with each segment representing a strategic business

unit that offers different products and serves different markets.

The Company’s identified operating segments below are consistent with the segments reported to

the Board of Directors (BOD), which is the Chief Operating Decision Maker (CODM) of the

Company.

a. Electricity segment - This segment pertains to: (1) EDC’s power plants covered mainly by

long-term PPAs with NPC; (2) FG Hydro’s spot sales to the WESM and with various DUs

covered by TPSCs; and (3) GCGI’s sales to WESM and to various NPC-assigned and new

customers covered by Power Supply Contracts and Power Supply Agreements, respectively.

b. Steam segment - This segment relates to EDC’s sale of steam to NPC plants covered by SSAs.

c. All other segments - This segment relate to segment performing drilling services for Lihir

Gold Ltd. in Papua New Guinea.

- 7 -

The Company has one geographical segment since it derives principally all its revenues from

domestic operations. Revenue from drilling services outside the Philippines is not material.

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.

All of the Company’s operations are in the Philippines and revenues generated are from domestic

operations except for revenue included in “All Other Segments” category, which is from drilling

services rendered to Lihir Gold Ltd.

Segment performance is evaluated based on net income (loss) for the period and earnings before

interest, taxes, and depreciation and amortization (EBITDA). Net income (loss) for the period is

measured consistent with consolidated net income (loss) in the unaudited interim condensed

consolidated financial statements. EBITDA is calculated as total revenues minus total operating

expenses except non-cash items such as depreciation and amortization, impairment loss on

property, plant and equipment, and loss on disposal of property, plant and equipment of a

subsidiary among others.

NPC is the main customer for the electricity segment which comprised 44% of the total electricity

revenue for the period ended June 30, 2012 and 59% for the period ended June 30, 2011 and the

only external customer for the steam segment, particularly for the BMGPP. However, following

the acquisition by BGI of the BMGPP in September 2010 and the subsequent rehabilitation of

these assets, the Parent Company ceased to bill NPC. In 2011, PSALM approved the request of

EDC to extend the waiver of billings and collections under Bac-Man steam contracts until: (a) the

execution of the deed of assignment from NPC/PSALM to BGI; or (b) such time that the BMGPP

resumes operations.

Financial information on the operating segments are summarized as follows:

Electricity Steam

All Other

Segments

Eliminations Total

For the Six-Month Period Ended

June 30, 2012

Segment revenue from external

customers P=15,023,410,507 P=– P=345,221,433 P=– P=15,368,631,940

Intersegment revenue 377,058,607 2,917,010,371 – (3,294,068,978) –

Total segment revenue 15,400,469,114 2,917,010,371 345,221,433 (3,294,068,978) 15,368,631,940

Segment expenses (9,207,712,237) (1,871,673,030) (225,153,847) 3,294,068,978 (8,010,470,136)

Segment results P=6,192,756,877 P=1,045,337,341 P=120,067,586 P=– 7,358,161,804

Unallocated interest expense (1,920,244,374)

Unallocated other income - net 626,949,238

Unallocated income taxes (390,608,119)

Unallocated interest income 180,775,443

Unallocated segment expenses (124,104,241)

Net income P=5,730,929,751

EBITDA P=7,736,106,419 P=1,239,476,480 P=129,529,267 P=– P=9,105,112,166

Unallocated expenses (124,015,066)

P=8,981,097,100

- 8 -

Electricity Steam All Other Segments

Eliminations Total

For the Six- Month Period Ended

June 30, 2011

Segment revenue from external customers P=11,408,776,024 P=– P=326,711,529 P=– P=11,735,487,553

Intersegment revenue 148,099,226 3,326,903,205 – (3,475,002,431) –

Total segment revenue 11,556,875,250 3,326,903,205 326,711,529 (3,475,002,431) 11,735,487,553 Segment expenses (13,599,011,990) (2,032,735,518) (297,657,553) 3,475,002,431 (12,454,402,630)

Segment results (P=2,042,136,740) P=1,294,167,687 P=29,053,976 P=– (718,915,077)

Unallocated interest expense (2,314,926,228) Unallocated income taxes 306,810,913

Unallocated other income - net 240,319,469

Unallocated interest income 217,873,134 Unallocated segment expenses (28,044,904)

Net loss (P=2,296,882,693)

EBITDA P=4,693,314,878 P=1,738,491,733 P=38,312,316 P=– P=6,470,118,927

Unallocated expenses

(27,898,355)

P=6,442,220,572

Electricity Steam

All Other

Segments

Eliminations Total

As of and for the Six-Month

Period Ended June 30, 2012

Segment assets P=40,075,039,522 P=13,857,039,775 P=2,693,280,852 P=– P=56,625,360,149

Unallocated corporate assets 35,314,130,269 35,314,130,269

Total assets P=91,939,490,418

Segment liabilities P=37,041,076,692 P=19,915,770,034 P=1,692,111,455 P=– P= 58,648,958,181

Unallocated corporate liabilities 1,168,437,767

Total liabilities P=59,817,395,948

Capital expenditure P=1,811,017,956 P=1,314,196,764 P=166,829,831 P=– P=3,292,044,551

Unallocated capital expenditure 470,379,610

Total capital expenditure P=3,762,424,161

Depreciation and amortization (P=1,512,181,485) (P=222,996,785) (P=9,461,681) P=– (P=1,744,639,951)

Unallocated depreciation and

amortization

(89,176)

Total depreciation and

amortization

(P=1,744,729,127)

Other non-cash items (P=139,206,463) (P=38,429,108) P=788 P=– (P=177,634,783)

Unallocated non-cash items 728,321,965

Total other non-cash items P=550,687,182

Electricity Steam All Others Eliminations Total

As of and for the Year Ended

December 31, 2011


Unallocated corporate assets 14,249,898,103


Segment liabilities P=36,727,310,548 P=20,589,217,647 P=1,774,574,665 P=– P=59,091,102,860






- 9 -

Electricity Steam All Others Eliminations Total


Unallocated depreciation and

amortization

(218,203)

Total depreciation and amortization (P=3,441,874,497)

Impairment loss P=4,998,608,008 P=– P=– P=– P=4,998,608,008

Other non-cash items (P=305,215,436) (P=340,416,065) (P=198,180) P=– (P=645,829,681)


Total other non-cash items (P=622,107,041)

Electricity Steam

All Other

Segments

Eliminations Total

As of and for the Six-month

Period Ended June 30, 2011


Unallocated corporate assets 14,825,256,718


Segment liabilities P=35,440,653,954 P=18,715,194,955 P=1,481,933,257 P=– P=55,637,782,166







Unallocated depreciation and amortization

(146,549)

Total depreciation and amortization (P=1,815,972,247)

Impairment loss (P=4,998,608,008) P=– P=– P=– (P=4,998,608,008)

Other non-cash items (P=207,307,140) (P=299,159,920) (P=198,180) P=– (P=506,665,240)


Total other non-cash items (P=101,229,836)

The following table shows the Company’s reconciliation of EBITDA to the consolidated net

income (loss) for the six-month periods ended June 30, 2012 and 2011.

2012 2011

EBITDA P=8,981,097,100 P=6,442,220,572

Add (Deduct):

Interest expense (Note 18) (1,920,244,374) (2,314,926,228)

Depreciation and amortization (Note 8) (1,744,729,127) (1,815,972,247)

Foreign exchange gains - net (Note 20) 694,335,379 236,833,940

Benefit from (provision for) income tax (390,608,119) 306,810,913

Interest income (Note 19) 180,775,443 217,873,134

Provision for doubtful accounts (Note 17) (40,564,481) (211,273,157)

Reversal of (provision for) impairment of parts and supplies

inventories (Note 17) 38,254,070 (163,327,141)

Impairment loss on property, plant and equipment of NNGP

(Note 8) – (4,998,608,008)

Derivatives loss - net (Note 24) – (8,973,485)

Miscellaneous - net (Note 21) (67,386,140) 12,459,014

Consolidated net income (loss) P=5,730,929,751 (P=2,296,882,693)

The Parent Company has intersegment revenue from/to GCGI for the sale of steam/electricity.

Intersegment revenues are all eliminated in consolidation. Segment information is measured in

- 10 -

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,

2012

(Unaudited)

December 31,

2011

(Audited)

June 30,

2011

(Unaudited)

Cash on hand and in banks P=1,759,636,785 P=692,764,092 P=584,586,674

Cash equivalents 9,496,336,214 11,800,642,871 10,315,778,927

P=11,255,972,999 P=12,493,406,963 P=10,900,365,601

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.

6. Trade and Other Receivables

June 30,

2012

(Unaudited)

December 31,

2011

(Audited)

June 30,

2011

(Unaudited)

Trade P=3,648,645,683 P=3,336,433,682 P=2,559,872,060

Others:

Loans and notes receivables 67,834,139 59,331,933 56,370,413

Non-trade accounts receivable 66,851,887 99,398,810 54,110,493

Advances to employees 58,268,872 37,934,595 30,148,448

Employee receivables 8,294,501 8,896,656 9,563,941

Claims receivable 147,473 153,322 133,971

Total other receivables 201,396,872 205,715,316 150,327,266

3,850,042,555 3,542,148,998 2,710,199,326

Less allowance for doubtful accounts 131,153,532 130,839,470 129,835,048

P=3,718,889,023 P=3,411,309,528 P=2,580,364,278

Trade receivables are noninterest-bearing and are generally collectible in 30 to 60 days. Majority

of the Company’s trade receivables came from revenues from sale of electricity to NPC.

Provision for doubtful accounts recognized for the six-month periods ended June 30, 2012 and

2011 amounted to P=0.31 million and P=94.45 million, respectively (see Note 17).

- 11 -

7. Parts and Supplies Inventories

June 30,

2012

(Unaudited)

December 31,

2011

(Audited)

June 30,

2011

(Unaudited,

Restated)

On hand:

Drilling tubular products and

equipment spares P=1,681,624,312 P=1,648,876,310 P=1,478,183,479

Power plant spares 712,182,128 718,777,618 752,853,323

Pump, production/steam gathering

system, steam turbine, valves

and valve spares

437,749,545 305,461,738

293,616,617

Electrical, cable, wire product and

compressor spares

104,793,187 83,543,105

81,931,813

Heavy equipment spares 92,515,925 90,293,956 59,003,908

Chemical products, gases and catalyst 91,043,513 113,397,104 260,853,086

Automotive, mechanical, bearing,

seals, v-belt, gasket, tires and

batteries

51,060,278 39,385,963

39,915,598

Construction and hardware supplies,

stationeries and office supplies,

hoses, communication and other

spares and supplies

60,567,182 20,268,296

13,099,285

Measuring instruments, indicators and

tools, safety equipment and

supplies

38,102,971 28,640,098

34,007,586

3,269,639,041 3,048,644,188 3,013,464,695

In transit 2,196,041 307,123,465 316,725,766

P=3,271,835,082 P=3,355,767,653 P=3,330,190,461

Inventories in transit include items not yet received but ownership or title to the goods has already

passed to the Company.

- 12 -

8. Property, Plant and Equipment

June 30, 2012 (Unaudited)

Land Power Plants

Fluid Collection

and Recycling

System (FCRS)

and Production

Wells

Buildings,

Improvements

and Other

Structures

Exploration,

Machinery and

Equipment

Transportation

Equipment

Furniture,

Fixtures and

Equipment

Laboratory

Equipment

Major Spares

and Others

Construction

in-Progress Total

Cost

Balances at January 1, 2012 P=379,809,254 P=37,204,980,737 P=20,651,972,508 P= 2,246,291,592 P=4,074,330,782 P=85,355,600 P=659,065,713 P=580,618,276 P=57,649,072 P= 9,517,751,748 P=75,457,825,282

Additions 46,069 100,491 60,019,734 112,429,723 440,048,897 12,791,764 109,975,382 12,166,095 66,812,672 2,868,068,419 3,682,459,246

Disposals/Retirements/Write-off – – – (97,658) (8,681,303) (280,022) (546,394) (116,185) (333,685) – (10,055,247)

Reclassifications – (2,251,994) 1,257,705,873 (29,276,489) (20,457,594) (12,738,218) (30,528,686) (16,760,810) (14,720,657) (1,701,995,178) (571,023,753)

Balances at June 30, 2012 379,855,323 37,202,829,234 21,969,698,115 2,329,347,168 4,485,240,782 85,129,124 737,966,015 575,907,376 109,407,402 10,683,824,989 78,559,205,528

Accumulated Depreciation and Impairment

Balances at January 1, 2012 17,255,629 7,867,549,819 6,368,571,711 429,037,601 1,949,150,666 34,764,668 347,350,269 172,673,077 3,678,839 590,863,997 17,780,896,276

Depreciation for the year – 1,049,861,783 400,726,949 45,578,046 74,707,556 6,055,893 89,323,721 30,379,601 – – 1,696,633,549

Reversal of impairment – NNGP (Note 8) – (63,614,885) – – – – – – – – (63,614,885)

Disposals/Retirements/Write-off – – – (97,657) (7,642,148) (235,522) (515,903) (116,177) – – (8,607,407)

Reclassifications – (589,307) – (3,364,204) 35,709,135 (13,049,054) (33,436,925) (12,030,083) – – (26,760,438)

Balances at June 30, 2012 17,255,629 8,853,207,410 6,769,298,660 471,153,786 2,051,925,209 27,535,985 402,721,162 190,906,418 3,678,839 590,863,997 19,378,547,095

Net Book Value P=362,599,694 P=28,349,621,824 P=15,200,399,455 P=1,858,193,382 P=2,433,315,573 P=57,593,139 P= 335,244,853 P= 385,000,958 P=105,728,563 P=10,092,960,992 P=59,180,658,433

December 31, 2011 (Audited)

Land Power Plants

FCRS and

Production Wells

Buildings,

Improvements

and Other

Structures

Exploration,

Machinery and

Equipment

Transportation

Equipment

Furniture,

Fixtures and

Equipment

Laboratory

Equipment

Major Spares

and Others

Construction

in-Progress Total

Cost

Balances at January 1, 2011 P=333,924,551 P=36,607,352,559 P=17,392,141,146 P=1,798,591,948 P=3,803,840,502 P=67,240,415 P=495,684,907 P=456,421,470 P=53,030,079 P=5,021,702,358 P=66,029,929,935

Additions 45,884,703 – 344,150,911 419,864,968 278,703,487 36,618,569 210,525,800 132,783,958 44,533,825 8,023,408,213 9,536,474,434

Disposals/Retirements/Write-off – (35,988,750) – (1,094,655) (1,812,341) (1) (1,899,186) (344,455) (583,522) – (41,722,910)

Reclassifications – 633,616,928 2,915,680,451 28,929,331 (6,400,866) (18,503,383) (45,245,808) (8,242,697) (39,331,310) (3,527,358,822) (66,856,176)

Balances at December 31, 2011 379,809,254 37,204,980,737 20,651,972,508 2,246,291,592 4,074,330,782 85,355,600 659,065,713 580,618,276 57,649,072 9,517,751,749 75,457,825,283


Balances at January 1, 2011 – 4,054,656,189 3,256,620,699 287,626,674 1,462,628,729 42,658,867 233,098,901 89,502,206 – – 9,426,792,265

Depreciation for the year – 2,158,122,126 692,852,385 84,957,014 258,849,165 4,939,887 85,937,845 60,024,918 – – 3,345,683,340

Impairment - NNGP 17,255,629 1,662,635,857 2,419,098,627 56,658,530 141,579,492 8 74,681,583 32,155,446 3,678,839 590,863,997 4,998,608,008

Disposals/Retirements/Write-off – (7,864,353) – (248,578) (1,805,755) – (1,667,039) (344,417) – – (11,930,142)

Reclassifications – – – 43,961 87,899,035 (12,834,094) (44,701,020) (8,665,076) – – 21,742,805

Balances at December 31, 2011 17,255,629 7,867,549,819 6,368,571,711 429,037,601 1,949,150,666 34,764,668 347,350,270 172,673,077 3,678,839 590,863,997 17,780,896,277

Net Book Value P=362,553,625 P=29,337,430,918 P=14,283,400,797 P=1,817,253,991 P=2,125,180,116 P=50,590,932 P=311,715,443 P=407,945,199 P=53,970,233 P=8,926,887,752 P=57,676,929,006

- 13 -


Land Power Plants

FCRS and

Production Wells

Buildings,

Improvements

and Other

Structures

Exploration,

Machinery and

Equipment

Transportation

Equipment

Furniture,

Fixtures and

Equipment

Laboratory

Equipment

Major Spares

and Others

Construction

in-Progress Total

Cost

Balance at January 1, 2011 P=333,924,551 P=36,607,352,559 P=17,392,141,146 P=1,798,591,947 P=3,803,840,502 P=67,240,415 P=495,684,907 P=456,421,470 P=53,030,079 P=5,097,727,288 P=66,105,954,864

Additions 45,811,538 6,089,286 304,026,186 284,926,579 101,637,695 22,324,167 25,236,964 63,485,929 – 3,970,256,312 4,823,794,656

Retirements/Write-off – – – (1,705,554) (4,991,340) (9,706,446) (33,879,055) (3,268,931) 5,208,787 – (48,342,539)

Reclassifications – 458,192,273 653,455,054 7,787,852 (2,880,241) – (2,641,774) – – (1,191,959,288) (78,046,124)

Balance at June 30, 2011 379,736,089 37,071,634,118 18,349,622,386 2,089,600,824 3,897,606,616 79,858,136 484,401,042 516,638,468 58,238,866 7,876,024,312 70,803,360,857


Balance at January 1, 2011 – 4,054,656,188 3,256,620,699 287,626,673 1,462,628,729 42,658,867 233,098,900 89,502,206 – – 9,426,792,262

Depreciation for the period – 1,106,456,718 372,518,855 51,115,148 162,892,046 5,424,497 43,798,156 25,671,249 – – 1,767,876,669

Impairment – NNGP 17,255,629 1,662,635,857 2,419,098,627 56,658,530 141,579,499 – 74,681,583 32,155,446 3,678,839 590,863,998 4,998,608,008

Retirements/Write-off – – – (926,227) (4,950,214) (9,706,432) (29,833,362) (2,668,003) (7,154) – (48,091,392)

Reclassifications – – – (539,402) 55,048,756 (143,177) (3,653,752) (438,432) – – 50,273,993

Balance at June 30, 2011 17,255,629 6,823,748,763 6,048,238,181 393,934,722 1,817,198,816 38,233,755 318,091,525 144,222,466 3,671,685 590,863,998 16,195,459,540

Net Book Value P=362,480,460 P=30,247,885,355 P=12,301,384,205 P=1,695,666,102 P=2,080,407,800 P=41,624,381 P=166,309,517 P=372,416,002 P=54,567,181 P=7,285,160,314 P=54,607,901,317

Impairment Assessment of NNGP

In 2011, after the five-month shutdown of the NNGP since November 22, 2010, the Northern Negros Geothermal Plant was operated during April to June to

complete the geothermal resource testing. Based on of the he subsequent technical assessment, EDC has come to a conclusion that the sustainable operation

of NNGP is only at 5-10 MW.

The Company evaluates the assets on a CGU basis for any indication of impairment at each reporting date. The Company assessed that there continues to be

an indication of impairment for NNGP and based on its impairment testing, recognized an impairment loss of P=4,998.6 million in June 2011.

In February 2012, EDC transferred vacuum pumps from NNGP to the Tongonan Power Plant (TPP) owned by GCGI. Since these assets can still be utilized

and included in the CGU of the TPP, the Company recognized a corresponding reversal of impairment loss amounting to P=63.6 million, representing the book

value of the assets transferred had no impairment loss been previously recognized (Note 21).

Estimated Rehabilitation and Restoration Costs

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 costs, net of accumulated amortization, amounted to P=362.98illion and P=311.98 million as of June 30, 2012 and December

31, 2011, respectively. As of June 30, 2012 and December 31, 2011, the provision for rehabilitation costs under “Other long-term liabilities” amounted to P=

483.49 million and P=406.78 million, respectively.

- 14 -

Details of depreciation and amortization charges recognized in the consolidated statements of income are shown below:

June 30,

2012

(Unaudited)

December 31,

2011

(Audited)

June 30,

2011

(Unaudited)

Property, plant and equipment P=1,696,633,549 P=3,345,683,340 P=1,767,876,669

Water rights (Note 9) 48,095,578 96,191,157 48,095,578

P=1,744,729,127 P=3,441,874,497 P=1,815,972,247

Cost of sales of electricity (Note 15) P=1,570,463,185 P=3,173,306,732 P=1,688,336,647

Cost of drilling services (Note 16) 575,835 1,110,041 430,145

General and administrative (Note 17) 173,690,107 267,457,724 127,205,455

P=1,744,729,127 P=3,441,874,497 P= 1,815,972,247

- 15 -

9. Intangible Assets


Goodwill Water Rights

Other

Intangible Asset Total

Cost

Balances at January 1, 2012 P=2,535,051,530 P=2,404,778,918 P=258,394,939 P=5,198,225,387

Additions – – 50,828,544 50,828,544

Balances at June 30, 2012 2,535,051,530 2,404,778,918 309,223,483 5,249,053,931

Accumulated Amortization

Balances at January 1, 2012 – 492,979,678 – 492,979,678

Amortization (Note 8) – 48,095,578 – 48,095,578

Balances at June 30, 2012 – 541,075,256 – 541,075,256

Net Book Value P=2,535,051,530 P=1,863,703,662 P=309,223,483 P=4,707,978,675



Other


Cost

Balances at January 1, 2011 P=2,535,051,530 P=2,404,778,918 P=– P=4,939,830,448

Additions – – 258,394,939 258,394,939

Balances at December 31, 2011 2,535,051,530 2,404,778,918 258,394,939 5,198,225,387




Balances at December 31, 2011 – 492,979,679 – 492,979,679




Other


Cost

Balances at January 1, 2011 P=2,535,051,530 P=2,404,778,918 P=– P=4,939,830,448

Additions – – 213,099,870 213,099,870




Balances at June 30, 2011 – 444,884,100 – 444,884,100


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 19.4 years as of June 30, 2012.

Other intangible asset pertains to the Company’s wind energy project development costs.

- 16 -

10. Other Noncurrent Assets

June 30,

2012

(Unaudited)

December 31,

2011

(Audited)

June 30,

2011

(Unaudited)

Input value-added tax (VAT) P=3,900,803,376 P=3,270,286,773 P=2,506,756,658

Tax credit certificates 1,338,884,446 1,338,884,447 1,038,884,446

AFS investments 605,639,146 20,443,924 20,756,197

Special deposits and funds 134,321,328 123,278,392 98,513,069

Long-term receivables 62,985,259 81,561,056 51,470,083

Prepaid expenses 12,262,967 12,246,824 13,584,248

Others 153,545,818 27,670,094 186,823,992

6,208,442,340 4,874,371,510 3,916,788,693

Less allowance for doubtful

accounts

462,691,435 422,722,403

226,401,941

P=5,745,750,905 P=4,451,649,107 P=3,690,386,752

Provision for doubtful accounts pertaining to input VAT and long-term receivables amounted to

P=40.25 million and P=116.82 million for the six-month periods June 30, 2012 and 2011,

respectively (Note 17).

11. Trade and Other Payables

June 30,

2012

(Unaudited)

December 31,

2011

(Audited)

June 30,

2011

(Unaudited)

Accounts payable:

Third parties P=6,179,538,202 P=4,653,828,081 P=4,171,338,859

Related parties (Note 23) 265,921,114 145,143,240 126,572,784

Accrued interest and guarantee

fees

779,443,062 1,047,605,943

1,211,742,356

Withholding and other taxes

payable

288,852,053 328,466,441

215,087,460

SSS and other contributions

payable

2,269,373 1,893,569

2,361,164

Deferred credits 22,974,635 22,095,129 184,725,515

Other payables 85,848,937 505,042,858 85,627,309

P=7,624,847,376 P=6,704,075,261 P=5,997,455,447

Accounts payable are noninterest-bearing and are normally settled on a 30 to 60 days payment

term.

The accrued interest represents interest accrual on outstanding loans.

- 17 -

12. Long-term Debts

June 30,

2012

(Unaudited)

December 31,

2011

(Audited)

June 30,

2011

(Unaudited)

US Dollar-denominated debts P=19,765,140,505 P=13,003,311,706 P=20,289,811,386

Japanese Yen-denominated debts – 20,252,444 62,936,059

Peso-denominated debts 30,123,958,805 38,466,007,305 28,572,188,326

49,889,099,310 51,489,571,455 48,924,935,771

Less current portion 1,615,630,737 2,249,517,382 1,833,048,809

Noncurrent portion P=48,273,468,573 P=49,240,054,073 P=47,091,886,962

Issuance of Fixed Rate Note (FXCN) and Prepayment of Fixed Rate Corporate Note (FRCN)

On April 4, 2012, EDC signed a 10-year FXCN facility agreement amounting to P=7,000.00

million. EDC used the proceeds to pay off in full its existing FRCN loan. On April 4, 2012, EDC

prepaid series one and three for P=1,774.32 million and P=1,007.07 million, respectively.

Subsequently, on May 3, 2012, the FRCN series two was also prepaid for P=4,211.10 million. The

extinguished FRCN series one and three loans are originally scheduled to mature in July 2014

while the extinguished FRCN series two is originally scheduled to mature on July 2016.

EDC recognized loss amounting to P=114.68 million arising from early extinguishment of debt

(Note 21).

Debt issuance costs amounting to P=51.05 million was capitalized as part of the new FXCN.

Overseas Economic Cooperation Fund (OECF)

On April 8, 2011, the Parent Company prepaid the JP¥8.1 billion (P=4,260.6 million) 21st Yen loan

with Japan International Cooperation Agency (JICA), a successor institution of the OECF (Japan).

The 21st Yen loan is originally scheduled to mature in March 2027.

On June 10, 2011, the Parent Company prepaid the OECF 19th Yen loan balance of JP¥218.6

million (P=117.4 million) originally scheduled to mature in December 2024. On June 17, 2011, the

Company has fully settled its OECF 9th Yen loan of JP¥207.7 million (P=111.5 million).

On July 20, 2011, the Parent Company prepaid the OECF 18th Yen loan balance of JP¥45.3

million (P=24.3 million) originally scheduled to mature in January 2023.

On January 31, 2012, EDC fully settled its matured JP¥1.5 billion OECF 8th Yen loan amounting to

P=20.25 million.

US$300.0 million Notes

On January 20, 2011, EDC issued a 10-year US$300.0 million Notes (P=13,350.0 million) at 6.50%

interest per annum which will mature on January 2021. The notes are intended to be used by the

Company to support the business expansion plans, finance capital expenditures, service debt

obligations and for general corporate purposes.

International Finance Corporation (IFC)

On May 20, 2011, the Parent Company signed a 15-year US$75.0 million loan facility with the

IFC to fund its medium-term capital expenditures program. The loan was drawn in Peso on

September 30, 2011, amounting to P=3,262.5 million. The loan is payable in 24 equal semi-annual

installments after a three-year grace period at an interest rate of 6.657% per annum.

- 18 -

Syndicated Loan Facility

On June 17, 2011, the Parent Company entered into a credit agreement for US$175.00 million

(P=7,630.00 million) syndicated term loan facility (Club Loan) with Australia New Zealand

Banking Group Limited, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Chinatrust (Philippines)

Commercial Banking Corporation, ING Bank N.V., Manila Branch, Maybank Group, Mizuho

Corporate Bank, Ltd., and Standard Chartered Bank as Mandated Lead Arrangers and

Bookrunners, and Standard Chartered Bank as Facility Agent. The purpose of the Club Loan is to

refinance the old US$175.00 million syndicated term loan which was availed on June 30, 2010 to

mature on June 30, 2013. The Club Loan, which was fully drawn as of agreement date, bears

interest based on the prevailing LIBOR plus spread of 175 basis points. The prevailing LIBOR

shall be based on term of 1-month, 3-month or 6-month depending on what interest reset

frequency EDC selects at the end of each term. The Club Loan will mature on June 17, 2017.

The Company’s foreign-currency denominated long-term debts were translated into Peso based on

the prevailing foreign exchange rates at financial reporting date (US$1=JP¥ 79.447:

US$1=P=42.12 as of June 30, 2012, US$1=JP¥77.912 USD1=P=43.84 as of December 31, 2011 and

US$1=JP¥80.743: USD1=P=43.330 as of June 30, 2011).

13. Royalty Fee Payable

June 30,

2012

(Unaudited)

December 31,

2011

(Audited)

June 30,

2011

(Unaudited)

Due to DOE and Local

Government Units (LGUs) P=142,740,508 P=287,626,313 P=429,643,462

Less current portion 142,740,508 287,626,313 295,914,471

Noncurrent portion P=– P=– P=133,728,991

As discussed in the nature of operations in Note 1, the Parent Company entered into five GSCs

with the DOE, which granted the Company the right to explore, develop, and utilize the country’s

geothermal resources subject to sharing of net proceeds with the Philippine Government. The

Parent Company pays royalty fees to the DOE and LGUs under the agreements.

14. Equity

As required under the Philippine Constitution, the Parent Company is subject to the nationality

requirement that at least sixty percent (60%) of its capital stock must be owned by Filipino citizens

since it is engaged in the exploration and exploitation of the country’s energy resources. The

Parent Company is compliant with the said nationality requirement.

Beginning December 13, 2006, the 15.0 billion common shares of the EDC were listed and traded

on the Philippine Stock Exchange (PSE) at an Initial Public Offering (IPO) price of P=3.20 per

share. After the initial IPO, there are no subsequent listings of shares by the Parent Company.

The combined interest of Red Vulcan entitles it to 60% voting interest and 40% economic interest

in EDC.

- 19 -

The ownership of the Parent Company’s preferred shares is limited to Filipino citizens. The

preferred shares have voting rights and subject to 8% cumulative interest. Red Vulcan holds the

entire 9.4 billion preferred shares equivalent to 20% voting interest in EDC. The common shares

are majority held by Filipinos, with Red Vulcan holding 7.5 billion shares or an equivalent of 40%

interest.

Issued and outstanding preferred and common shares as of June 30, 2012 and 2011 and

December 31, 2011 are as follows:

Number of Shares

Preferred stock - P=0.01 par value per share

Authorized 15,000,000,000

Issued and outstanding 9,375,000,000

Common stock - P=1 par value per share

Authorized 30,000,000,000

Issued and outstanding 18,750,000,000

The number of stockholders of the Parent Company as of June 30, 2012 and 2011, and

December 31, 2011 are as follows:

June 30,

2012

December 31,

2011

June 30,

2011

Preferred shares 1 1 1

Common shares 700 702 712

Retained Earnings

On March 13, 2012, the BOD of the Parent Company approved the following cash dividends in

favor of all stockholders of record as of March 28, 2012 and payable on or before April 24, 2012:

cash dividend of P=0.0008 per share on the preferred shares totaling P=7.5 million

cash dividend of P=0.10 per share on the common shares totaling P=1,875.0 million

On March 15, 2011, the BOD of the Parent Company approved the following cash dividends in

favor of all stockholders of record as of March 29, 2011 and payable on or before April 22, 2011:

cash dividend of P=0.0008 per share on the preferred shares totaling P=7.5 million

cash dividend of P=0.16 per share on the common shares totaling P=3,000.0 million

NCI

In March and May 2012, FG Hydro declared and paid cash dividends to its preferred and common

shares amounting to P=88.5 million and P=1,254.0 million, respectively.

In June 2011 and May 2010, FG Hydro declared and paid cash dividends to its preferred shares

and common shares amounting to P=333.8 million and P=240.0 million, respectively.

- 20 -

15. Cost of Sales of Electricity

June 30,

2012

(Unaudited)

June 30,

2011

(Unaudited)

Purchased services and utilities (Note 23) P=1,790,337,621 P=848,735,460

Depreciation and amortization 1,570,463,185 1,688,336,647

Personnel costs 815,553,989 748,535,029

Rental, insurance and taxes 547,195,669 503,289,303

Repairs and maintenance 532,366,303 624,865,933

Parts and supplies issued 427,026,017 446,194,240

Royalty fees 96,168,845 103,958,994

Proceeds from insurance claims (85,903,339) –

Business and related expenses 33,557,372 46,352,841

P=5,726,765,662 P=5,010,268,447

16. Cost of Drilling Services

June 30,

2012

(Unaudited)

June 30,

2011

(Unaudited)

Purchased services and utilities P=138,427,486 P=145,006,530





Depreciation 575,835 430,145

Personnel costs 215,546 17,575,624

P=211,481,811 P=278,924,490

17. General and Administrative Expenses

June 30,

2012

(Unaudited)

June 30,

2011

(Unaudited)

Personnel costs P=768,641,981 P=713,533,751

Purchased services and utilities 565,476,339 443,374,398



Depreciation 173,690,107 127,205,455


Provision for doubtful accounts (Notes 4, 6 and 10) 40,564,481 211,273,157

Provision for (reversal of) impairment of parts and

supplies inventories (Note 7) (38,254,070) 163,327,141


P=2,196,326,904 P=2,194,646,589

- 21 -

18. Interest Expense

June 30,

2012

(Unaudited)

June 30,

2011

(Unaudited)

Interest on long-term debts including amortization

of transaction costs P=1,892,449,285 P=2,244,779,424

Interest accretion on provision for rehabilitation

and restoration costs 14,992,001 47,208,390

Interest accretion of “Day 1” gain 8,100,618 18,136,486

Interest on liability from litigation 4,702,470 3,905,553

Interest on loans payable – 896,375

P=1,920,244,374 P=2,314,926,228

19. Interest Income

June 30,

2012

(Unaudited)

June 30,

2011

(Unaudited)

Interest on placements P=158,405,283 P=198,155,762

Interest on overdue accounts/others 18,639,846 16,180,875

Interest on savings/current accounts 1,538,029 3,536,497

Accretion of “Day 1 loss” on security deposit 540,752 – Others 1,651,533 –

P=180,775,443 P=217,873,134

20. Foreign Exchange Gains - net

June 30,

2012

(Unaudited)

June 30,

2011

(Unaudited)

Foreign exchange gains on long-term debts P=799,220,321 P=702,295,276

Foreign exchange losses on other accounts (104,884,943) (465,461,336)

P=694,335,378 P=236,833,940

This account pertains to foreign exchange gains adjustments realized on repayment of loans and

restatement of outstanding balances of foreign currency-denominated loans, short-term placements

and cash in banks. The following table shows the exchange rates used to restate outstanding

balances at financial reporting dates:

Equivalent to US$1.00

Currency June 30, 2012 December 31, 2011 June 30, 2011

Japanese Yen 79.447 77.912 80.743

Philippine Peso 42.120 43.840 43.330

- 22 -

21. Miscellaneous Income (Charges)

June 30,

2012

(Unaudited)

June 30,

2011

(Unaudited)

Loss on debt extinguishment (P=114,683,892) P=–

Recovery of impairment loss on property, plant and

equipment (Note 8) 63,614,885 –

“Day 1” loss on security deposit – (6,078,723)

Others (16,317,133) 18,537,737

(P=67,386,140) P=12,459,014

22. Earnings (Loss) Per Share (EPS)

The EPS amounts were computed as follows:

June 30,

2012

(Unaudited)

June 30,

2011

(Unaudited)

(a) Net income (loss) attributable to equity

shareholders of the Parent Company P=4,618,319,943 (P=2,331,092,842)

Less dividends on preferred shares 7,500,000 7,500,000

(b) Net income attributable to common

shareholders of the Parent Company P=4,610,819,943 (P=2,338,592,842)

(c) Weighted average number

of common shares outstanding 18,750,000,000 18,750,000,000

Basic/diluted earnings (loss) per share (b/c) P=0.246 (P=0.125)

The Parent Company does not have dilutive common stock equivalents as of June 30, 2012 and

2011.

23. Related Party Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the

other party or exercise significant influence over the other party in making financial and operating

decisions. Parties are also considered to be related if they are subject to common control or

common significant influence.

The following are the transactions that the Company had with related parties for the six-month

periods ended June 30, 2012 and 2011.

a. Thermaprime Well Services, Inc. (Thermaprime)

Thermaprime is a subsidiary of First Balfour, a wholly owned subsidiary of First Holdings.

Thermaprime provides drilling services such as, but not limited to, rig operations, rig

maintenance, well design and engineering.

As of June 30, 2012 and 2011, the outstanding balance amounted to P=100.22 million and

P=67.00 million, respectively, recorded under “Trade and other payables” account in the

condensed consolidated financial statements.

- 23 -

b. First Balfour, Inc. (First Balfour)

First Balfour is a wholly owned subsidiary of First Holdings. In 2011, the Company awarded

to First Balfour procurement contracts for various works such as Palinpinon 1 zero condensate

disposal system, civil, structural and mechanical/ piping works in Leyte and Bac-Man, and

refurbishment of BGI’s geothermal power plants.

As of June 30, 2012 and 2011, the outstanding balance amounted to P=141.50 million and

P=56.51 million, respectively, recorded under “Trade and other payables” account in the

condensed consolidated financial statements.

c. 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=8.70 million per month plus applicable

taxes. This was increased to P=11.80 million per month plus applicable taxes 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, 2012. Total consultancy services amounted to

P=82.67 million and P=80.80 million for the six-month periods ended June 30, 2012 and 2011,

respectively and were included in the “Cost of sales of electricity” under “Purchased services

and utilities”.

d. IFC

On May 20, 2011, the Parent Company signed a 15-year US$75.0 million loan facility with

IFC, a shareholder of the Parent Company. IFC has approximately 5% ownership interest in

the Parent Company. The loan was drawn in Peso on September 30, 2011, amounting to

P=3,262.5 million. As of June 30, 2012 and December 31, 2011, the outstanding balance of the

loan amounting to P=3,199.38 million and P=3,196.11 million, respectively, is included under

the “Long-term debts” account in the condensed consolidated statements of financial position

(see Note 12).

On November 27, 2008, the Parent Company entered into a loan agreement with IFC for

US$100.0 million or its Peso equivalent of P=4.10 billion. On January 7, 2009, the Parent

Company opted to draw the loan in Peso and received the proceeds amounting to

P=4,048.75 million, net of P=51.25 million front-end fee. As of June 30, 2012 and December

31, 2011, the outstanding loan amounted to P=3,704.40 million and P=3,871.27 million,

respectively.

e. 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 payable/collectible within

12 months and are non-interest bearing.

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 Corporation are

subsidiaries of First Gen. First Holdings, parent company of First Gen, is an associate of

Lopez Holdings Corporation (formerly Benpres Holdings Corporation).

- 24 -

Bayan Telecommunications Inc. (Bayantel) is 97.3%-owned by Bayantel Holdings on which

Lopez Holdings Corporation has 47.3% ownership.

Sky Cable Corporation (Sky Cable) is 80.72%-owned by ABS-CBN Corp. on which Lopez

Holdings Corporation has 57.3% interest.

Lopez Group Foundation, Inc. is the coordinative hub for the corporate social responsibility

initiatives of Lopez Holdings Corporation.

First Philec Manufacturing Technologies Corp., Securities Transfer Services, Inc. and First

Philippine Realty Corp. (FPRC), formerly known as INAEC Development Corp, are wholly

owned subsidiary of First Holdings.

Following are the amounts of related party transactions for the periods ended June 30, 2012 and

2011, and the outstanding balances as of June 30, 2012 and 2011, and December 31, 2011:

Transactions for the

periods ended June 30

Net amount due from/to

related parties

Related Party Nature of Transaction 2012

(Unaudited)

2011

(Unaudited) June 30, 2012

(Unaudited)

December 31, 2011

(Audited)

June 30, 2011

(Unaudited)

Due from related parties

First Gen Interest-free advances P=– P=– P=– P=3,437 P=– First Gen Northern Energy

Corp.

Interest-free advances – – – 2,511 –

First GES Interest-free advances – – – 1,864 –

P=– P=– P=– P=7,812 P=–


First Gen Consultancy fee P=82,668,148 P=80,795,294 P=41,079,083 P=53,863,530 P=26,931,765

Interest-free advances 13,043,328 48,952,271 4,696,479 6,061,620 97,425,988

Lopez Group Foundation, Inc.

Interest-free advances 1,095,000 318,400 – – –

Baung Private Power

Corporation

Interest-free advances 57,330 – – – – First Gas Power

Corporation

Interest-free advances 92,182 409,913 7,005 165,675 322,546

First Gas Holdings Corporation

Interest-free advances – 482,600 – – –

P=96,955,988 P=130,958,478 P=45,782,567 P=60,090,825 P=124,680,299


Thermaprime Work fees P=599,645,524 P=328,428,450 P=100,218,386 P=101,171,006 P=67,000,000

First Balfour, Inc. Refurbishment of BMGPP

and ancillary facilities 194,127,948 99,380,895 141,497,438 38,989,273 56,509,595 First Philec Manufacturing

Technologies Corp.

Purchase of services and

utilities 2,478,782 – 21,493,219 – –

FPRC Purchase of services and utilities 874,409 1,496,636 – 458,150 –

Bayantel


utilities 355,408 6,403,501 2,672,701 4,524,811 3,063,189 Securities Transfer

Services, Inc.


utilities 67,200 – 39,370 – –

Sky Cable Purchase of services and utilities – 25,182 – – –

P=797,549,271 P=435,734,664 P=265,921,114 P=145,143,240 P=126,572,784

Long-term debt

IFC Interest-bearing loans P=261,511,762 P=3,878,502 P=6,903,775,964 P=7,067,386,686 P=4,038,145,409

- 25 -

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 as mentioned

above, there were no guarantees that have been given to and/or received from any related party in

2012 and 2011.

The Company did not recognize any impairment losses on receivables from related parties for the

six-month periods ended June 30, 2012 and 2011.

24. 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. The Company has other various financial assets and liabilities such as

trade receivables, trade payables and other liabilities, which arise directly from operations.

Overview of the Company’s Risk Management

The Company has an Enterprise Risk Management (ERM) System in place covering all areas of

its organization, and it is aligned with ISO 31000:2009 (Risk Management - Principles and

Guidelines).

The risk management process involves a systematic application of management policies,

procedures, and practices to the activities of communicating, consulting, establishing the context,

and identifying, analyzing, evaluating, treating, monitoring, and reviewing risk. It is aligned and

integrated in the Company’s business model through the annual Strategy Execution Process which

integrates strategic planning, balanced scorecard, risk management, budget and performance

management processes.

The implementation of the Company’s ERM System provides the following benefits and

advantages:

a. Proactively identifies and manages the key exposures of the Company to protect corporate

assets and profits by identifying and preventing risks before they occur. Thus, it helps avoid

losses which can impair the operations or financial position of the Company in case of

fortuitous events;

b. Identifies and exploits areas of “risk-based advantage”;

c. Provides management at all levels with the required information to make informed decisions on

issues critical to the success of the business and its projects;

d. Establishes the accountability of risk owners in the management of risks;

e. Provides balance in the management of risks and an objective basis for allocating resources;

f. Ensures that efforts and initiatives are well-coordinated so that the Company does not manage

risks in silo;

g. Monitors the implementation and effectiveness of the risk treatment options;

h. Ensures compliance with the policies and processes that are established to manage risks; and

i. Reduces the reliance on increasingly expensive insurance protection. Insurance may provide

the financial relief in case of loss. However, certain risks are not insurable, while some though

insurable, may be too costly and uneconomical to insure.

- 26 -

Risk Assessment

One major activity in the Company’s ERM System is the risk assessment. It is the overall process

of risk identification, risk analysis, and risk evaluation (ISO 31000:2009). It is performed at the

project level by project teams, at the operational level by the line and middle management, at the

executive level by the Management Committee, and at the strategic level by the BOD through its

Risk Management Committee.

Risk Treatment

Risk management strategies and action plans are formulated once the risks have been evaluated

and the top risks have been identified. Risk treatment is a process to modify risk (ISO

Guide 73:2009) and is synonymous with risk mitigation, risk elimination, risk prevention, and risk

reduction. It can involve:

a. Avoiding the risk by deciding not to start or continue with the activity that gives rise to the

risk;

b. Taking or increasing risk in order to pursue an opportunity;

c. Removing the risk source;

d. Changing the likelihood;

e. Changing the consequences;

f. Sharing the risk with another party or parties (including contracts and risk financing); and

g. Retaining the risk by informed decision.

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

Credit risk is the risk that the Company will incur a loss arising from customers, clients or

counterparties that fail to discharge their contracted obligations.

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 Company does not hold any collateral from its trade receivables hence, its

maximum exposure to credit risk equals on these trade receivables equals 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, other receivables, amounts due from related

parties and AFS investments in debt securities, 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.

The Company trades only with recognized, creditworthy third parties and/or transacts only with

institutions and/or banks which have demonstrated financial soundness and which have passed the

financial evaluation and accreditation of the Company.

- 27 -

The following tables below show the Company’s aging analysis of past due but not impaired

financial assets as of June 30, 2012 and 2011, and December 31, 2011:


Past Due but Not Impaired

Neither Past

Due nor

Impaired

Less than

30 Days

31 Days

to 1 Year

Over 1 Year

up to

3 Years

Over

3 Years

Past

Due and

Impaired Total

(In Thousand Pesos)

Loans and receivables:

Cash and cash

equivalents (excluding cash on

hand) P=11,249,819 P=– P=– P=– P=– P=– P=11,249,819

Trade receivables 3,266,030 176,769 35,480 39,213 – 131,154 3,648,646

Loans and notes

receivables 53,381 4,100 6,183 4,170 – – 67,834

Employee receivables* 16,535 – – – – – 16,535

Non-trade receivables 29,645 31,337 5,646 224 – – 66,852

Advances to employees 33,465 9,939 12,187 2,678 – – 58,269

Long-term receivables – – – – – 63,733 63,733

AFS debt investments: 629,168 – – – – – 629,168

Total P=15,278,043 P=222,145 P=59,496 P=46,285 P=– P=194,887 P=15,800,856

*Includes noncurrent portion of employee receivables under other noncurrent assets.



Neither Past

Due nor Impaired

Less than 30 Days

31 Days to 1 Year

Over 1 Year

up to 3 Years

Over 3 Years

Past

Due and Impaired Total

(In Thousand Pesos)


Cash and cash

equivalents (excluding cash on

hand) P=12,486,732 P=– P=– P=– P=– P=– P=12,486,732

Trade receivables 2,942,461 75,181 150,377 37,576 – 130,839 3,336,434 Non-trade receivables 54,130 6,792 38,477 – – – 99,399

Loans and notes

receivables 59,332

– –

– –

– 59,332 Advances to

employees 26,025

1,416 7,727 2,767 –

– 37,935

Employee receivables* 19,949 – – – – – 19,949 Long-term receivables – – – – – 61,062 61,062

Due from related

parties 8 – – – – – 8 AFS debt investments: 673,854 – – – – – 673,854

Total P=16,262,491 P=83,389 P=196,581 P=40,343 P=– P=191,901 P=16,774,705




Neither Past Due nor

Impaired

Less than

30 Days

31 Days

to 1 Year

Over 1 Year up to

3 Years

Over

3 Years

Past Due and

Impaired Total

(In Thousand Pesos)

Loans and receivables: Cash and cash

equivalents

(excluding cash on hand) P=10,822,984 P=– P=– P=– P=– P=– P= 10,822,984

Trade receivables 1,238,381 708,705 471,616 11,335 – 129,835 2,559,872

Loans and notes receivables 56,371 – – – – – 56,371

Employee receivables* 24,367 – – – – – 24,367

Non-trade receivables 17,470 – 36,640 – – – 54,110

(Forward)

- 28 -



Neither Past Due nor

Impaired

Less than

30 Days

31 Days

to 1 Year

Over 1 Year up to

3 Years

Over

3 Years

Past Due and

Impaired Total

(In Thousand Pesos)

Advances to employees P=30,148 P=– P=– P=– P=– P=– P=30,148

Long-term receivables 918 – – – – 50,552 51,470 AFS investments:

Debt investments 685,593 – – – – – 685,593

Financial assets at FVPL: Derivative assets 63,204 – – – – – 63,204

Total P=12,939,436 P=708,705 P=508,256 P=11,335 P=– P=180,387 P=14,348,119


Credit Quality of Neither Past due nor Impaired Financial Assets

Financial assets are classified as high grade if the counterparties are not expected to default in

settling their obligations. These counterparties normally include customers, banks and related

parties who pay on or before due date. Thus, the credit risk exposure is minimal. 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, 2012 and 2011 and December 31, 2011, all 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.

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 resulted primarily from the financial assets and

liabilities that are denominated in US dollar and Japanese yen. These financial assets and

liabilities consist of foreign currency denominated loans and the Company’s investment in

marketable securities and 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 dollar rates, US Price and Consumer Indices, and other inflation factors.

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. Accordingly, in the first half of

2012, the Company entered into non-deliverable cross currency swaps to hedge its foreign

currency risk exposure on its US dollar-denominated Club Loan.

- 29 -

The Company’s foreign currency-denominated financial assets and liabilities (translated into

Philippine peso) as of June 30, 2012 and 2011, and December 31, 2011, are as follows:

June 30, 2012 (Unaudited) June 30, 2011 (Unaudited)

Original Currency Original Currency

Japanese Yen US Dollar

Sweden

Kroner

(SEK)

Peso

Equivalent1 Japanese Yen US Dollar

Peso

Equivalent2

Financial Assets


Cash equivalents − 60,871,823 − 2,563,921,185 − 138,592,260 6,005,202,626

Cash on hand and in banks 2,275 2,937,852 − 123,743,531 − 4,111,631 178,156,971

Trade and other receivables − 2,355,053 − 99,194,832 − 3,844,202 166,569,264 AFS debt investments: − 14,937,500 − 629,167,500 − 15,822,600 685,593,258

Financial assets at FVPL:

Derivative assets − − − − − 260,415 11,283,802

Total financial assets 2,275 81,102,228 − 3,416,027,053 − 162,631,108 7,046,805,921

Current Financial Liabilities

Liabilities at amortized cost:

Trade and other payables 20,507,389 60,882,278 2,295,717 2,589,067,560 83,869,656 16,002,232 756,266,984

Accrued interest and guarantee

fees 51,773,878

10,212,245 − 457,693,817 393,129,203 10,219,768 653,792,209

Current portion of long-term debts −

16,350,521 − 688,683,945 75,758,477 − 40,655,184


Derivative liabilities − 1,178,396 − 49,634,040 − 36,428 1,578,425

Total current financial liabilities 72,281,267 88,623,440 2,295,717 3,785,079,362 552,757,336 26,258,428 1,452,292,802

Noncurrent Financial Liability

Liability at amortized cost:

Long-term debts - net of current

portion −

407,907,326 − 17,181,056,571 41,519,062 468,262,437 20,312,092,260

Total financial liabilities 72,281,267 496,530,766 2,295,717 20,966,135,933 594,276,398 494,520,865 21,764,385,062 1USD1=JPY79.447,USD1= P=42.12 and SEK1=P=6.01 as of June 30, 2012

2USD1=JPY80.743 and USD1= P=43.33 as of June 30, 2011


Original Currency

Yen US Dollar SEK

Peso

Equivalent1

Financial Assets Loans and receivables:

Cash equivalents − 99,562,576 − 4,364,823,332 Cash on hand and in banks 125,208 1,909,007 − 83,761,320 Trade and other receivables − 1,802,580 − 79,025,107 AFS debt investments: − 15,370,750 − 673,853,680

Total financial assets 125,208 118,644,913 − 5,201,463,439

Current Financial Liabilities


Trade and other payables 53,561,520 69,067,270 10,776,022 3,126,615,268 Current portion of

long-term debts 35,992,417 − − 20,252,433 Accrued interest and

guarantee fees 52,256,670 10,214,835 − 477,222,468

Total current financial liabilities 141,810,607 79,282,105 10,776,022 3,624,090,169

Noncurrent Financial Liability

Liability at amortized cost: Long-term debts - net of

current portion − 468,600,735 − 20,543,456,222

Total financial liabilities 141,810,607 547,882,840 10,776,022 24,167,546,391 1US$1=JP¥77.912, US$1= P=43.840 and SEK1=P=6.363 as of December 31, 2011

- 30 -

The following tables demonstrate the sensitivity to a reasonably possible change in the US dollar

and Japanese yen and Sweden kroner exchange rates, with all other variables held constant, of the

Company’s income (loss) before income tax and equity for the periods ended June 30, 2012 and

2011 and year ended December 31, 2011 (arising from revaluation of financial assets and

liabilities and derivative instruments).


Foreign Currency

Appreciates

(Depreciates) By

Effect on Income

before Income Tax

Effect on Equity

USD 10% or P=4.212 (P=1,749,785,002) P=24,042,659

(10% or P=4.212) 1,749,785,002 (24,042,659

JPY 10% or P=0.05302 (3,831,975) –

(10% or P=0.05302) 3,831,975 –

SEK 10% or P=0.60077 (1,379,198) –

(10% or P=0.60077) 1,379,198 –


Foreign Currency

Appreciates

(Depreciates) By

Effect on Income

Before Income Tax Effect on Equity

USD 10% or P=4.38 (P=1,947,447,488) P=67,385,368

(10% or P=4.38) 1,947,447,488 (67,385,368)

JPY 10% or P=0.05627 (P=7,972,441) –

(10% or P=0.05627) 7,972,441 –

SSEK 10% or P=0.6363 (6,856,783) –

(10% or P=0.6363) 6,856,783 –


Foreign Currency

Appreciates

(Depreciates) By

Effect on Loss


USD 10% or P=4.333 (P=1,509,888,315) P=68,559,326

(10% or P=4.333) 1,509,888,315 (68,559,326

JPY 10% or P=0.05366 (31,891,305) –

(10% or P=0.05366) 31,891,305 –

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, 2012 and 2011 and December 31, 2011, the Company’s exposure to equity price

risk is minimal.

- 31 -

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 and

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.

Interest Rates

Within 1

Year

More than 1

Year but less

than 4 Years

More than 4

Years but

less than 5

Years

More than

5 Years Total

June 30, 2012

(Unaudited)

Fixed Rate

In Thousand Pesos

IFC A 7.40% P=275,563 P=673,285 P=172,943 P=499,147 P=1,620,938

IFC B 6.657% 285,958 572,086 156,630 647,150 1,661,824

PNB & Allied 9.03% 398,115 950,339 219,721 321,860 1,890,035

FXCN-Tr1 6.62% 198,023 582,157 190,082 920,632 1,890,894

FXCN-Tr2 6.61% 263,771 775,447 253,194 1,226,303 2,518,715

Public Bonds Series 1 8.64% 734,553 1,469,106 – – 2,203,659

Public Bonds Series 2 9.33% 326,645 979,934 163,322 – 1,469,901

USD300M Notes 6.50% 821,340 2,464,020 821,340 3,285,360 7,392,060

Floating Rate

USD 175M

Syndicated Club

Loan

1.75%%+

LIBOR

149,206

328,539

78,139

–

555,884

Interest

Rates

Within

1 Year

More than 1

year but less

than 4 years

More than 4

Years but

less than 5

Years

More than

5 Years

Total

December 31, 2011

(Audited)

In Thousand Pesos

Fixed Rate

OECF

PNB and Allied Bank

IFC 1

IFC 2

3.20%

9.03%

7.40%

6.66%

P=327

416,291

289,163

273,799

P=–

1,014,291

711,135

608,541

P=–

246,520

186,262

165,548

P=–

423,956

582,174

723,131

P=327

2,101,058

1,768,734

1,771,019

FRCN

Series 1

8.37%

180,117

207,851

–

–

387,968

Series 2 9.40% 423,750 816,579 92,983 – 1,333,312

Series 3

US$ 300M Notes

8.43%

6.50%

102,907

854,880

118,752

2,564,640

–

854,880

–

3,846,960

221,659

8,121,360

Peso Public Bonds:

Series 1 8.64% 734,553 1,836,383 – – 2,570,936

Series 2 9.33% 326,645 979,934 326,645 – 1,633,224 (forward)

- 32 -

Floating Rate

US$ 175.0M

Refinanced

Syndicated Club

Loan

1.75% +

LIBOR

155,724

372,675

89,541

38,506

656,446

Interest Rates Within 1 Year

More than 1

Year but less

than 4 Years

More than 4

Years but

less than 5

Years

More than

5 Years Total


Fixed Rate

In Thousand Pesos

OECF 3%-5.7% P=2,252 P=3,307 P=875 P=2,966 P=9,400

IFC 7.40%/7.90% 329,298 825,555 212,064 769,456 2,136,373

PNB & Allied 9.025% 431,232 1,076,563 271,891 541,581 2,321,267

FRCN Series 1 8.37% 179,471 235,708 – – 415,179

FRCN Series 2 9.4% 422,450 868,716 115,562 23,087 1,429,815

FRCN Series 3 8.43% 102,538 134,668 – – 237,206

Public Bonds Series 1 8.64% 734,553 2,203,659 – – 2,938,212

Public Bonds Series 2 9.33% 326,645 979,934 326,645 163,322 1,796,546

USD300M Notes 6.50% 844,935 2,534,805 844,935 4,224,675 8,449,350

Floating Rate

USD 175M

Syndicated Club

Loan

1.75% +

LIBOR

153,913

395,274

96,195

80,594

725,976

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 (loss) before income tax and

equity as of June 30, 2012 and 2011 and December 31, 2011. The effect on equity includes

impact of change in interest rates on derivatives designated as cash flow hedges as well as AFS

debt investments.


Increase/Decrease

in Basis Points

Effect on Income


USD +100 (P=54,756,000) P=41,260,961 -100 54,756,000 (31,790,195)


Increase/Decrease

in Basis Points

Effect on Income

Before Tax Effect on Equity

USD +100 (P=76,720,000) (P=8,929,578)

-100 76,720,000 19,217,468


Increase/Decrease

in Basis Points

Effect on Loss


USD +100 P=75,704,355 (P=15,589,828)

-100 (76,299,877) 18,759,833

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.

- 33 -

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.

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, 2012 and 2011 and

December 31, 2011.


On

Demand

Less than

3 Months

3 to

6 Months

>6 to

12 Months

>1 to

5 Years

More than

5 Years Total

(In Thousand Pesos)

AFS debt investments P=– P=140,849 P=– P=– P=– P=524,173 P=665,022

Loans and receivables

Cash equivalents – 9,496,336 – – – – 9,496,336

Trade receivables 251,462 3,266,030 – – – – 3,517,492

Total P=251,462 P=12,903,215 P=– P=– P=– P=524,173 P=13,678,850


On

Demand

Less than

3 Months

3 to

6 Months

>6 to

12 Months

>1 to

5 Years

More than

5 Years Total

(In Thousand Pesos)

AFS debt investments P=– P=673,854 P=– P=– P=– P=– P=673,854 Loans and receivables

Cash equivalents – 11,800,643 – – – – 11,800,643

Trade receivables 263,133 2,942,461 – – – – 3,205,594

Total P=263,133 P=15,416,958 P=– P=– P=– P=– P=15,680,091


On

Demand Less than 3 Months

3 to 6 Months

>6 to 12 Months

>1 to 5 Years

More than 5 Years Total

(In Thousand Pesos)

AFS debt investments P=− P=685,593 P=− P=− P=− P=− P=685,593

Loans and receivables

Cash equivalents − 10,315,779 − − − − 10,315,779 Trade receivables 1,191,656 1,238,381 − − − − 2,430,037

Total P=1,191,656 P=12,239,753 P=− P=− P=− P=− P=13,431,409

The tables below summarize the maturity analysis of the Company’s financial liabilities as of

June 30, 2012 and 2011 and December 31, 2011 based on contractual undiscounted payments:

- 34 -


On

Demand

Less than

3 Months

3 to

6 Months

>6 to

12 Months

>1 to

5 Years

More than

5 Years Total

(In Thousand Pesos)


Accounts payable P=− P=6,219,005 P=− P=− P=− P=− P=6,219,005

Accrued interest and

guarantee fees 86,667 370,924 321,852 − − − 779,443

Other current liabilities − 7,347 − − − − 7,347

Due to related parties 45,783 − − − − − 45,783

Royalty fee payable − 38,593 87,500 49,073 − − 175,166

Long-term debts − 77,354 1,355,116 2,223,248 34,993,491 32,381,264 71,030,473


On

Demand

Less than

3 Months

3 to

6 Months

>6 to

12 Months

>1 to

5 Years

More than

5 Years Total

(In Thousand Pesos)

Financial Liabilities at FVPL:

Derivative liabilities P=− P=49,634 P=− P=− P=− P=− P=49,634

Derivatives designated as cash flow hedges P=− P=12,649 P=12,518 P=12,940 P=125,613 P=7,968 P=171,688

Total P=132,450 P=6,775,506 P=1,776,986 P=2,285,261 P=35,119,104 P=32,389,232 P=78,478,539


On

Demand

Less than

3 Months

3 to

6 Months

>6 to

12 Months

>1 to

5 Years

More than

5 Years Total

(In Thousand Pesos)

Liabilities at amortized cost: Accounts payable P=− P=5,028,880 P=− P=− P=− P=− P=5,028,880


guarantee fees 90,769 713,620 243,217 − − − 1,047,606 Other payables − 3,518 − − − − 3,518

Due to related parties 60,091 − − − − − 60,091 Royalty fee payable − 133,228 87,500 136,573 − − 357,301

Long-term debts − 924,581 1,140,510 3,030,619 37,322,968 29,329,707 71,748,385

Total P=150,860 P=6,803,827 P=1,471,227 P=3,167,192 P=37,322,968 P=29,329,707 P=78,245,781


On

Demand

Less than

3 Months

3 to

6 Months

>6 to

12 Months

>1 to

5 Years

More than

5 Years Total

(In Thousand Pesos)


Accounts payable P=− P=3,749,098 P=− P=− P=− P=− P=3,749,098


guarantee fees 270,780 738,948 202,014 − − − 1,211,742 Other current liabilities − 1,741 − − − − 1,741

Due to related parties 184,253 − − − − − 184,253

Royalty fee payable − 131,410 87,500 175,000 136,573 − 530,483 Long-term debts − 640,673 926,711 2,894,839 32,527,560 32,087,473 69,077,256


Derivative liabilities − 13,084 26,143 − − − 39,227

Total P=455,033 P=5,283,333 P=1,265,296 P=3,069,839 P=32,664,133 P=32,087,473 P=74,825,107

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, 2012 and 2011 and December 31, 2011.

- 35 -


Carrying

Amount Fair Value

Carrying

Amount Fair Value

Financial Assets


Cash and cash equivalents P=11,255,972,999 P=11,255,972,999 P=10,900,365,601 P=10,900,365,601

Trade receivables 3,517,492,151 3,517,492,151 2,430,037,012 2,430,037,012

Loans and notes receivables 67,834,139 67,834,139 56,370,413 56,370,413

Non-trade receivables 66,851,887 66,851,887 54,110,493 54,110,494

Advances to employees 58,268,872 58,268,872 30,148,448 30,148,448

Employee receivables 16,534,538 16,534,538 24,367,295 24,367,295

Long-term receivables – – 918,278 873,840

AFS investments:

Debt investments 629,167,500 629,167,500 685,593,258 685,593,258

Equity investments 117,320,926 117,320,926 20,756,197 20,756,197


Derivative assets – – 63,203,930 63,203,930

P=16,290,912,865 P=16,290,912,865 P=14,265,870,925 P=14,265,826,488


Carrying

Amount Fair Value

Carrying

Amount Fair Value

Financial Liabilities

Financial liabilities at amortized cost:

Accounts payable P=6,219,004,991 P=6,219,004,991 P=3,749,097,516 P=3,749,097,516

Accrued interest and guarantee fees 779,443,062 779,443,062 1,211,742,356 1,211,742,356

Other current liabilities 7,346,926 7,346,926 1,740,917 1,740,917

Due to related parties 45,782,567 45,782,567 184,253,083 184,253,083

Royalty fee payable 142,740,508 144,937,508 429,643,462 432,904,425

Long-term debts 49,889,099,310 55,226,948,456 48,924,935,771 53,859,660,280

Derivatives designated as cash flow

hedges

49,634,041

49,634,041

–

–


Derivative Liabilities – – 39,227,456 39,227,456

P=57,133,051,405 P=62,473,097,551 P=54,540,640,561 P=59,478,626,033


Carrying

Amounts Fair Values

Financial Assets


Cash and cash equivalents P=12,493,406,963 P=12,493,406,963

Trade receivables 3,205,594,212 3,205,594,212

Non-trade receivables 99,398,810 99,398,810

Loans and notes receivables 59,331,933 59,331,933

Advances to employees 37,934,595 37,934,595

Employee receivables 19,948,544 19,948,544

Due from related parties 7,812 7,812

Long-term receivables − −

AFS investments:

Debt investments 673,853,680 673,853,680

Equity investments 20,443,924 20,443,924

P=16,609,920,473 P=16,609,920,473



Accounts payable P=5,028,879,595 P=5,028,879,595

Accrued interest and guarantee fees 1,047,605,943 1,047,605,943

Other payables 3,517,746 3,517,746

Loan payable − −

Due to related parties 60,090,825 60,090,825

- 36 -


Carrying

Amounts Fair Values

Royalty fee payable 287,626,313 290,907,188

Long-term debts 51,489,571,455 59,055,715,275

P=57,917,291,877 P=65,486,716,572

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.

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

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.

Derivative Assets and Derivative Liabilities. The fair value of the non-deliverable cross currency

swaps as of June 30, 2012 is based on quote provided by the counterparty bank while the fair

value of non-deliverable forwards outstanding as of June 30, 2011 are calculated by reference to

the prevailing forward rates.

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

1.75% to 10.83%, 1.91% to 10.88%, and 1.19% to 10.89% on June 30, 2012, December 31, 2011

and June 30, 2011, respectively. On the other hand, the fair value of the newly acquired peso loan

of FG Hydro is discounted using discount rates ranging from 4.93% to 7.91% on June 30, 2012.

Fair values of royalty fee payable are determined using discount rates ranging from 5.23% to

5.49%, from 5.32% to 6.43% and from 6.20% to 7.23%, as of June 30, 2012, December 31, 2011

and June 30, 2011, 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).

- 37 -

June 30, 2012 Level 1 Level 2 Level 3 At Cost

AFS investments:

Debt investments P=629,167,500 P=629,167,500 P=− P=− P=−

Equity investments 117,320,926 117,246,376 − − 74,550

Derivative designated as cash flow hedges 49,634,041 − 49,634,041 − −

December 31, 2011 Level 1 Level 2 Level 3 At Cost

AFS investments:

Debt investments P=673,853,680 P=673,853,680 P=− P=− P=−


June 30, 2011 Level 1 Level 2 Level 3 At Cost

Financial assets at FVPL

Derivative assets P=63,203,930 P=− P=63,203,930 P=− P=−

AFS investments:

Debt investments 685,593,258 685,593,258 − − −



Derivative liabilities 39,227,456 − 39,227,456 − −

For the six-month periods ended month June 30, 2012 and 2011, and for the year ended

December 31, 2011 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.


Loans and

Receivables

AFS

Investments

Liabilities at

Amortized

Cost

Derivatives

designated as

cash flow

hedges Total

(In Thousand Pesos)

Financial Assets

Cash and cash equivalents P=11,255,973 P=− P=− P=− P=11,255,973

Trade receivables 3,517,492 − − − 3,517,492

Loans and notes receivables 67,834 − − − 67,834

Non-trade receivables 66,852 − − − 66,852

Advances to employees 58,269 − − − 58,269

Employee receivables 16,535 − − − 16,535

AFS - debt investments − 629,168 − − 629,168

AFS - equity investments − 117,320 − − 117,320


Accounts payable − − 6,219,005 − 6,219,005

Accrued interest and guarantee fees − − 779,443 − 779,443

Other current liabilities − − 7,347 − 7,347

Due to related parties − − 45,783 − 45,783

Royalty fee payable − − 142,741 − 142,741

Long-term debt − − 49,889,099 − 49,889,099

Derivative liabilities − − − 49,634 49,634

Total P=14,982,955 P=746,488 P=57,083,418 P=49,634 P=72,862,495

- 38 -


Loans and

Receivables

AFS

Investments

Liabilities at

Amortized

Cost Total

(In Thousand Pesos)

Financial Assets

Cash and cash equivalents P=12,493,407 P=− P=− P=12,493,407

Trade receivables 3,205,594 − − 3,205,594

Non-trade receivables 99,399 − − 99,399

Loans and notes receivables 59,332 − − 59,332

Advances to employees 37,935 − − 37,935

Employee receivables 19,949 − − 19,949

Due from related parties 8 − − 8

AFS - debt investments − 673,854 − 673,854

AFS - equity investments − 20,444 − 20,444


Accounts payable − − 5,028,880 5,028,880

Accrued interest and guarantee fees − − 1,047,606 1,047,606

Other payables − − 3,518 3,518

Due to related parties − − 60,091 60,091

Royalty fee payable − − 287,626 287,626

Long-term debts − − 51,489,571 51,489,571

Total P=15,915,624 P=694,298 P=57,917,292 P=74,527,214


Loans and

Receivables

AFS

Investments

Financial

Assets at

FVPL

Liabilities at

Amortized

Cost

Financial

Liabilities

at FVPL Total

(In Thousand Pesos)

Financial Assets

Cash and cash equivalents P=10,900,366 P=– P=– P=– P=– P=10,900,366

Trade receivables 2,430,037 − − − − 2,430,037

Loans and notes receivables 56,370 − − − − 56,370

Non-trade receivables 54,110 − − − − 54,110

Advances to employees 30,148 − − − − 30,148

Employee receivables 24,367 − − − − 24,367

Other long-term receivables 918 − − − − 918

AFS - debt investments − 685,593 − − − 685,593

AFS - equity investments − 20,756 − − − 20,756

Derivative Assets − − 63,204 − − 63,204


Accounts payable − − − 3,749,098 − 3,749,098


guarantee fees − − − 1,211,742 − 1,211,742

Other current liabilities − − − 1,741 − 1,741

Due to related parties − − − 184,253 − 184,253

Royalty fee payable − − − 429,643 − 429,643

Long-term debt − − − 48,924,936 − 48,924,936

Derivative liabilities − − − − 39,227 39,227

Total P=13,496,316 P=706,349 P=63,204 P=54,501,413 P=39,227 P=40,274,771

The table below demonstrates the income, expense, gains or losses of the Company’s financial

instruments for the six-month periods ended June 30, 2012 and 2011.

- 39 -


Increase

(Decrease)

Increase

(Decrease)

Increase

(Decrease)

Increase

(Decrease)

Effect on

Profit or Loss

Effect

on Equity

Effect on

Profit or Loss

Effect

on Equity


Interest income on cash equivalents P=158,405,283 P=– P=198,155,762 P=–

Interest on employees receivable 1,678,884 – 15,045,202 –

Interest income on cash in bank 1,538,029 – 3,536,497 –

Interest income on trade receivables 1,501,623 – – –

Equity investments -

Net gain (loss) recognized in

equity – 8,069,897 – (9,128,585)

Debt investments:

Net gain (loss) recognized in

equity – (10,231,487) – (3,811,374)

Interest Income on ROP Bonds 18,639,846 – – –


Fair value changes on derivative

assets – – 37,553,046 –

Derivatives designated as cash flow

hedges

Fair value changes – 49,634,041 – – Interest expense 4,819,088


Interest expense on long-term loans (1,781,284,777) – (2,244,779,424) –

Interest expense on loan payable – – (896,375) –

Interest expense on royalty payable (8,100,618) – (18,136,486) –

(P=1,602,802,642) (P=47,472,451) (P=2,009,521,778) (P=12,939,959)

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, 2012 and 2011 and

December 31, 2011.

June 30, 2012 December 31, 2011 June 30, 2011

Long-term liabilities P=49,889,099,310 P=51,489,571,455 P=48,924,935,771

Equity 32,122,094,470 29,646,601,493 26,744,125,219

Debt ratio 60.8% 63.5% 64.8%

- 40 -

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 and to take advantage of market

opportunities. These derivatives are accounted for either as derivatives designated as accounting

hedges or derivatives not designated as accounting hedges.

The table below shows the derivative financial instruments of the Company for the periods ended

June 30, 2012 and 2011, and year ended December 31, 2011.

June 30, 2012

(Unaudited)

December 31, 2011

(Audited)

June 30, 2011

(Unaudited)

Derivative

Assets

Derivative

Liabilities

Derivative

Assets

Derivative

Liabilities

Derivative

Assets

Derivative

Liabilities

Derivatives designated as

accounting hedges

Cross-currency swaps P=– P=49,634,041 P=– P=– P=– P=–

Derivatives not designated as

accounting hedges

Foreign currency forwards – – – – 63,203,930 39,227,456

Foreign currency swaps – – – – – –

Total derivatives P=– P=49,634,041 P=– P=– P=63,203,930 P=39,227,456

Presented as:

Current P=– P=– P=– P=– P=63,203,930 P=39,227,456

Noncurrent – 49,634,041 – – – –

Total derivatives P=– P=49,634,041 P=– P=– P=63,203,930 P=39,227,456

Derivatives Not Designated as Accounting Hedges

Foreign Currency Forward Contracts. These are contractual agreements to buy or sell a foreign

currency at an agreed rate on a future date. These are customized contracts transacted with a bank

or financial institution.

As of December 31, 2011 and June 30, 2011, the Company has entered into a total of 38 and 27

foreign currency forward contracts, respectively. These include 6 deliverable buy JP¥ - sell US$,

16 non-deliverable buy US$ - sell PHP= and 16 non-deliverable sell US$ - buy PHP= forward

contracts. The aggregate notional amounts and weighted average forward rates of these foreign

currency forward contracts are as follows:

December 31, 2011 June 30, 2011

Position

Aggregate

notional amount

Average

forward rate

Aggregate

notional amount

Average

forward rate

Buy JP¥ - sell US$ JP¥2,441.00 million JP¥83.00 JP¥2,441.00 million JP¥83.00

Buy US$ - sell PHP= US$255.00 million P=43.12 US$155.00 million P=43.29

Sell US$ - buy PHP= US$255.00 million P=43.34 US$155.00 million P=43.52

In relation to 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 offsetting positions to lock-in gains at inception.

For the year ended December 31, 2011 and for the six-month period ended June 30, 2011, the

Company recognized P=68.25 million gain and P=35. 91 million gain, respectively, from fair value

changes of these currency forwards contracts. Such amount is recorded under “Derivative gains -

net” in the condensed consolidated statements of income.

- 41 -

Foreign Currency Swap Contracts. These are contractual agreements between two parties that

involve selling of one currency to another currency at trade date with a simultaneous agreement to

repurchase the sold currency at a future date against the payment of the currency bought at trade

date.

As of December 31, 2011 and June 30, 2011, the Company has entered into a total of 36 and 31

foreign currency swap contracts, respectively. The position of these foreign currency swap

contracts at trade date include sell JP¥ - buy PHP=, sell JP¥ - buy US$ and sell US$ - buy PHP=.

The aggregate notional amount and weighted average forward rate of foreign currency swap

contracts are as follows:

December 31, 2011 June 30, 2011

Position

Aggregate

notional amount

Average

forward

rate

Aggregate

notional amount

Average

forward rate

Sell JP¥ - buy PHP= JP¥12,450.00 million P=0.53 JP¥12,450.0

million

P=0.53

Sell JP¥ - buy US$ JP¥2,075.00 million JP¥81.00 JP¥2,075.0 million JP¥81.00

Sell US$ - buy PHP= US$701.00 million P=43.32 US$632.0 million P=43.41

For the year ended December 31, 2011 and for the six-month period ended June 30, 2011, the

Company recognized P=40.07 million gain and P=44.88 million loss from the fair value changes of

these currency swap contracts. Such amount is recorded under “Derivative gains (losses) - net ” in

the consolidated statements of income.

Derivatives Designated as Accounting Hedges

For the six-month period June 30, 2012, the Company entered into four non-deliverable cross-

currency swap (NDCCS) agreements with an aggregate notional amount of US$45.00 million to

partially hedge the foreign currency and interest rate risks on its floating rate Club 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 four NDCCS, the

Company receives floating US$ interest based on 3-month US LIBOR plus 175 basis points and

pays fixed peso interest. On specified dates, the Company also receives specified US$ amounts in

exchange for specified peso amounts based on the agreed swap rates. These US$ receipts

correspond with the expected interest and fixed principal amounts due on the hedged loan.

Effectively, the NDCCS converted 25.71% of hedged loan into a fixed rate peso Loan. Other

details of the NDCCS are as follows:

Notional amount

(in million)

Trade

Date

Effective

Date

Maturity

Date

Swap

rate

Fixed

rate

Variable rate

US$15.00 03/26/12 03/27/12 06/17/17 P43.05 4.87% 3-month LIBOR + 175 bps




- 42 -

The maturity date of the four NDCCS coincides with the maturity date of the hedged loan.

As of June 30, 2012, the outstanding aggregate notional amount of the Company’s NDCCS

amounted to US$45.00 million. The aggregate fair value changes on these NDCCS amounting to

P=49.63 million loss was recognized by the Company under “Cumulative Translation Adjustment”

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 date, the hedges were assessed to be highly effective. As

such, there was no ineffectiveness recognized immediately in the condensed consolidated

statement of income for the six-month period June 30, 2012.

June 30, 2012

(Unaudited)

Balance at beginning of year P=–

Changes in fair value of the cash flow hedges (54,453,129)

Transferred to consolidated statement of income 26,119,088)

Balance at end of year 28,334,041

(P=28,334,041)

Of the amounts transferred to the condensed consolidated statement of comprehensive income,

P=21.30 million and P=4.82 million are included in “Forex exchange gains (losses) - net” and

“Interest expense”, respectively.

Fair Value Changes of Derivatives

The tables below summarize the net movement in fair values of the Company’s derivatives as of

June 30, 2012, December 31, 2011 and June 30, 2011.

Derivatives not designated as accounting hedges

December 31, 2011 June 30, 2011

Derivative

Assets

Derivative

Liabilities Derivative

Assets

Derivative

Liabilities

Balance at beginning of year P=– P=– P=– P=–

Net changes in fair value 381,813,015 (273,493,638) 220,382,780 (229,356,265)

Settlement (381,813,015) 273,493,638 (157,178,850) 190,128,809

Balance at end of period P=– P=– P=63,203,930 (P=39,227,456)

There are no derivatives not designated as accounting hedges as of June 30, 2012. The net

changes in fair value of the Company’s derivatives not designated as accounting hedges for the

year ended December 31, 2011 and for the six-month period ended June 30, 2011, amounting to

P=108.32 million gain and P=8.97 million loss, respectively, were taken to the “Derivatives gain

(loss)” account in the condensed consolidated statements of income.

Derivatives designated as accounting hedges

Derivative Liabilities June 30, 2012

Balance at beginning of year P=–

Net changes in fair value (54,453,129)

Settlement (4,819,088)

Balance at end of year (P=49,634,041)

- 43 -

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” account.

25. Event After the Financial Reporting Period

On July 23, 2012, as a result of the initial geo-scientific surveys of the Calerias and Longavi

projects, EDC decided not to pursue the two geothermal projects covered by EDC’s Chilean JVA

with HRL dated February 2, 2012 and by the Longavi SHA dated May 2, 2012. EDC’s decision

not to pursue these projects pursuant to its rights under the foregoing agreements does not have a

material effect on EDC’s existing operations and financial condition since such projects were still

in its preliminary stages.

26. Restatements

Voluntary Change in Accounting Policy

Prior to 2011, the Company accounted for rig consumables as direct expense upon purchase since

these are primarily intended for immediate use. Over the years, the Company has accumulated a

large stock of unused rig consumables. As a result, starting January 1, 2011, the Company

adopted the policy of recognizing rig consumables as inventories.

PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, requires retrospective

application for a change in accounting policy, except when it is impracticable to determine period-

specific effects. If retrospective application is impracticable, the entity shall apply the new

accounting policy at the beginning of the earliest period for which retrospective application is

practicable. Because prior to January 1, 2011, the Company does not monitor the unused portion

of rig consumable, management determined that it is impracticable to establish the balance of rig

consumables in prior years. Accordingly, the effect of the voluntary change in accounting policy

was presented as an adjustment to the opening balance of 2011 retained earnings.

As at January 1, 2011, the voluntary change in accounting policy resulted to an increase in parts

and supplies inventories, retained earnings and deferred tax liability amounting to P=172.3 million,

P=155.1 million and P=17.2 million, respectively.

27. 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.

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

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with those followed in the preparation of the Company’s annual consolidated financial statements

as of and for the year ended December 31, 2011, except for the following estimates that follows:

Impairment of Intangible Asset not yet available for Use

On July 27, 2012, the Energy Regulatory Commission approved the initial Feed-in Tariff (FIT)

rates that shall apply to generation from renewable energy sources, particularly. For wind energy,

the approved FIT rate amounted Php8.53 per kwh. Accordingly, the Company used the new FIT

rate in the impairment assessment of the Company’s wind energy project development costs.

Based on the Company’s impairment assessment, the Company’s wind energy project

development remain to be recoverable. For the period June 30, 2012, no impairment loss was

recognized pertaining to this asset.

Provision for rehabilitation and restoration costs

Provision for rehabilitation and restoration costs is based on technical estimates of probable costs,

which may be incurred by the Company in the rehabilitation and restoration of the Company’s

steam fields and power plants’ contract areas from 2031 up to 2044. As of December 31, 2011, the

estimated rehabilitation and restoration costs are discounted using the Company’s risk-adjusted

rate. On June 30, 2012, the Company used risk-free rate in the computation of the provision. The

Company also changed the amounts of cash flow assumptions to reflect the best estimate of its

rehabilitation and restoration costs. As of June 30, 2012 and December 31, 2011, the provision for

rehabilitation and restoration costs amounted to P=483.49 million and P=406.78 million,

respectively.

Changes in the Composition of the Company During the Interim Period

On January 10, 2012, the Chilean Ministry of Energy awarded to EDC the geothermal exploration

concession of Newen, while San Rafael and Batea geothermal exploration concessions were

awarded on January 19, 2012.

On February 2, 2012, EDC entered into JVA with HRL to co-develop four geothermal exploration

projects: the Calerias and Longavi projects in Chile, and the Quellaapacheta and Chocopata

projects in Peru. EDC and HRL successfully concluded negotiations after discussions began with

the signing of the Heads of Terms Agreement last November 28, 2011.

On May 2, 2012, EDC executed SHA with HRL to establish project companies for each of the Calerias and Longavi geothermal concessions in Chile, as well as the Chocopata and

Quellaapacheta geothermal authorizations in Peru, allowing the joint venture to commence

exploration activities at each of the foregoing sites. Pursuant to the terms of the SHA, EDC will

hold 70% of the outstanding capital stock of each of the project companies, with HRL taking the

remaining 30%.

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.

Unusual items

There are no assets, liabilities, equity, net income or cash flows that are unusual because of their

nature, size or incidence during the current period.

Documents

SEC Form 17Q 2Q 2012 - Energy Development Corporation · One Corporate Centre Julia Vargas cor. Meralco Ave., ... Starting September 3, 2010, on account of the extended waiver,