FPH - First Philippine Holdings Corporation

FPHA Lopez Group Company

April 3, 2014

SECURITIES AND EXCHANGE COMMISSIONSEC Building, EDSA GreenhillsMandaluyong City, Metro Manila

The management of First Philippine Holdings Corporation (the Company) is responsible for thepreparation and fair presentation of the consolidated financial statements as at December 31, 2013 and2012 and January 1,2012, and for each of the three years in the period ended December 31,2013, inaccordance with the Philippine Financial Reporting Standards, including the: additional componentsattached therein. This responsibility includes designing and implementing internal controls relevantto the preparation and fair presentation of consolidated financial statements that are free from materialmisstatement, whether due to fraud or error, selecting and applying appropriate accounting policies,and making accounting estimates that are reasonable in the circumstances.

The Board of Directors reviews and approves the consolidated financial statements and submits thesame to the stockholders of the Company.

SyCip Gorres Velayo & Co., the independent auditors, appointed by the stockholders, has examinedthe consolidated financial statements of the Company in accordance with Philippine Standards onAuditing, and in its report to the stockholders, has expressed its opinion on the fairness of presentationupon completion of such examination.

Signed under oath by the following:

cP~·~~FEDERICO R. LOPEZ /Chairman of the Board J

& Chief Executive Officer /

~ELPIDIO L. IBANEZ

President &Chief Operating Officer

8J::t?/FRANCIS GILES B. PUNO

Executive Vice President, Treasurer& Chief Finance Officer

SUBSCRIBED AND SWORN to before me tM,lR 0 ~~V.ril, 2014, affiants exhibited to metheir Competent Evidence ofIdentity (CEI) and Community Tax Certificate (CTC) Nos. as follows:

NameFederico R. LopezElpidio L. IbanezFrancis Giles B. Puno

Details of CEI/CTCSSS#03-7278902-0/06298929SSS#03-2569048-3/06312251SSS#33-5536302-1/06298930

Issued On/Issued At1-29-2014!Pasig City2-06-20 14!Pasig City1-29-2014!Pasig City

Doc. No. DI\P:Page No. J5 ;Book No. _"-_;Series of2014. ~u.'.nE M.BACORRO

NOTARY PUBlIC~ AND INTHf ClTIES Of PASIG, TAGUIG AND SAN JUANAND IN THe MUNIOPALITY OF PATEROS, METRO MANILA

UNTIL DECEMBER. 31,201<4I'TR NO. 8439473; 1/11/13; PASIG err-

I8P NO. 08770; RSM CHAPTER; UFE'l1ME MEMBERROU. NO. 559104I APPOINTMENT NO. 201l (2013-20t,.4)

4F BENPRES BtDG.EXCHANGE ROAD. PASIG em

First Philippine Holdings Corporation

4th Floor, Benpres Building, Exchange Road corner Meralco Avenue, Pasig City 1600, Philippinestel +63 2 631-8024 • fax +63 2 631-4089 • www.fphc.com

COVER SHEET

(Contact Person)499 - 6046Mr. Ramon T. Pagdagdagan

(Company Telephone Number)

~~Month Day

(Fiscal Year)

~(Form Type)

[iliJ[ili]Month Day(Annual Meeting)

I I(Secondary License Type, If Applicable)

I~---:-:--::---Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

12,363 ITotal No. of Stockholders

F70,120 million F77,549 million

Domestic Foreign

._------------------------------------------------------------------------------To be accomplished by SEC Personnel concerned

LCU

Cashier

11111111111111111111111111111111111111111111111111111111111111111

/-.::--r c-~~,-:0-'-' -(,-,. ~.'f'! ..•• • l •.~,..,.. ,.) ¥

7;[~;~iylANNUAL REPORT PURSUANT TO SECTION 17 !:f·-kl-L;;:~.iTC.':'''vl''-::iOF C J

OF THE SECURITIES REGULATION CODE AND SECTION "'."A'OCUNTFmI-'-"~-'--~~",,--"---------j'OF CORPORATION CODE OF THE PHILIPPINES

SECURITIES AND EXCHANGE COMMISSIONSEC FORM 17· A

1. For the year ended December 31, 2013

2. SEC Identification Number 19073 3. BIR Tax Identification No. 350-000-288-698

4. Exact name of registrant as specified in its charter: FIRST PHILIPPINE HOLDINGS CORPORATION

5. Philippines 6. '-- 1 (SEC Use Only)Industry Classification Code:Province, Country or other jurisdiction

Of incorporation or organization

7. 4th Floor, Benpres BuildingExchange Road corner Meralco Avenue

Pasig City 1600Address of principal office Postal Code

8. (632) 631-024 to 30Issuer's telephone number, including area code

9. Not ApplicableFormer name, former address, and former fiscal year, if changed since last report

10. Securities registered pursuant to Section 8 and 12 of the SRC, or Section 4 and 8 of the RSA

Title of Each Class Number of Shares of Common StockOutstanding and Amount of Debt Outstanding (in millions)

Common shares 552,537,583

11. Are any or all of these securities listed on the Philippine Stock Exchange?Yes [x] No[]

12. Check whether the issuer:(a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17.1 thereunder

or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of theCorporation Code of the Philippines during the preceding twelve (12) months (or for such shorterperiod that the registrant was required to file such reports):[Note: Sec. 26 of the CCP deals with reporting of election of directors or officers to the SEC; Sec. 141 withthe submission of financial statements to the SEe.]Yes [x] No []

(b) has been subject to such filing requirements for the past ninety (90) days.Yes [x] No []

13. Aggregate market value of the voting stock held by non-affiliates:(as of December 31,2013)

1"l16.022billion

0

BUSINESS DISCUSSION

TABLE OF CONTENTS

Page No.

PART I - BUSINESS AND GENERAL INFORMATION

Item 1 Business ………………………………………………………………………………… 1-31

Item 2 Properties ………………………………………………………………………………. 31-34

Item 3 Legal Proceedings ……………………………………………………………………… 34-47

Item 4 Submission of Matters to a Vote of Security Holders …………………………………. 47

PART II - OPERATIONAL AND FINANCIAL INFORMATION

Item 5 Market for Issuer’s Common Equity

and Related Stockholders Matters ……………………………………………………… 47-49

Item 6 Management’s Discussion and Analysis or Plan of Operation ………………………… 49-82

Item 7 Financial Statements …………………………………………………………………… 82-89

Item 8 Changes in and Disagreements with Accountants on

Accounting and Financial Disclosure ………………………………………………….. 89

PART III - CONTROL AND COMPENSATION INFORMATION

Item 9 Directors and Executive Officers of the Issuer ………………………………………… 89-101

Item 10 Executive Compensation ……………………………………………………………….. 102-103

Item 11 Security Ownership of Certain Beneficial Owners

and Management ……………………………………………………………………….. 103-105

Item 12 Certain Relationships and Related Transactions ………………………………………. 105-106

PART IV – CORPORATE GOVERNANCE ……………………………………………………..

106-108

PART V – EXHIBITS AND SCHEDULES

Item 13 a. Exhibits ……………………………………………………………………………. 108

b. Reports on SEC Form 17-C (Current Report) …………………………………….. 108-111

SIGNATURES ………………………………………………………………………………………. 112

EXHIBIT “A” AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND

AUDITED PARENT COMPANY FINANCIAL STATEMENTS

STAMPED RECEIVED BY BIR AND SEC

EXHIBIT “B” SRC RULE 68, AS AMENDED (SCHEDULES)

EXHIBIT “C” AUDIT COMMITTEE REPORT

ANNEX “A” SUMMARY OF OWNERSHIP OF SHARES

1

PART I - BUSINESS AND GENERAL INFORMATION

Item 1. Business

(A) Description of Business of the Issuer and Selected Significant Subsidiaries

(1) Business Development

Describe the development of the business of the registrant and its significant subsidiaries during the past three

(3) years, or such shorter period as the registrant may have been engaged in business. If the registrant has not

been in business for three years, give the same information for predecessor (s) of the registrant, if there is any.

This business development description should include, for the registrant and its subsidiaries, the following:

(a) form and date of organization;

(b) any bankruptcy, receivership or similar proceeding; and,

(c) any material reclassification, merger, consolidation or purchase or sale of a significant amount of assets

not in the ordinary course of business.

First Philippine Holdings Corporation (the Parent Company or FPH) was incorporated and registered with the

Philippine Securities and Exchange Commission (SEC) on June 30, 1961. Extension of its corporate life was

approved by the SEC on June 29, 2007 for another 50 years from June 30, 2011. Under its amended articles of

incorporation, its principal activities consist of investments in real and personal properties including, but not

limited to, shares of stocks, notes, securities and entities in the power generation, real estate development, roads

and tollways operations, manufacturing and construction, financing and other service industries. The Parent

Company and its subsidiaries are collectively referred to as the “Group.” The common shares of the Parent

Company were listed on and traded in the Philippine Stock Exchange (PSE) beginning May 3, 1963. The

Parent Company is 46.01%-owned by Lopez Holdings Corporation [Lopez Holdings and formerly Benpres

Holdings Corporation (Benpres), a publicly-listed Philippine-based entity] as of December 31, 2013. Majority

of Lopez Holdings is owned by Lopez, Inc. The remaining shares are held by various shareholder groups and

individuals.

The consolidated net income for the year ended December 31, 2013 amounted to P=6.6 billion. Its net income

attributable to equity holders of the Parent amounted to P=2.4 billion. Consolidated revenues amounted to P=93.4

billion.

Significant transactions and information on certain investees:

Manila Electric Company (Meralco)

On March 12, 2009, the Group entered into an Investment and Cooperation Agreement (ICA) with Philippine

Long Distance Telephone (PLDT). The ICA, subject to certain conditions and approvals, contemplated the sale

for P=20,070 million of a total of 223 million common shares or approximately 20% of the outstanding capital

stock of Meralco in favor of PLDT or its affiliates. On the same date, the Group entered into an Exchangeable

Note Agreement (the Note) with Pilipino Telephone Corporation (Piltel), a subsidiary of PLDT, amounting to

P=2 billion, exchangeable into 22,222,222 shares of voting common stock of Meralco owned by the Group. The

Note, at the option of Piltel, may be exchanged into shares which will have a value equal to P=90 per share. The

Note had an underlying derivative and qualified for recognition under PAS 39.

On July 14, 2009, the Group completed the sale of 223 million Meralco common shares for P=20,070 million to

PILTEL and settled the Note and the corresponding derivative liability. The Note and the derivative liability

were deducted against the total proceeds, which resulted in a gain of P=8,957 million. The sale reduced the

Group’s ownership interest in Meralco to 13.23%.

On March 30, 2010, the Group completed the transactions relating to the sale of their 6.6% stake in Meralco to

2

Beacon Electric Asset Holdings, Inc. [Beacon Electric, formerly Rightlight Holdings, Inc. (RHI)]. This was

effected by means of a block sale coursed through the PSE and there has been delivery and receipt of payment

in the amount of P=300 per share or the total purchase price of P=22,410 million. As a result of the said

transaction, the Group recognized a gain on sale of P=23,560 million in the consolidated statement of income.

The sale reduced further the Group’s ownership in Meralco to 6.61%.

On January 20, 2012, the Group sold 30 million Meralco common shares to Beacon Electric by means of a

block sale coursed through the PSE in the amount of P=295 per share, or a total purchase price of P=8,850 million,

resulting in a gain on sale of P=3,338 million. Similar with the 2009 and 2010 sale of Meralco shares, Beacon

Electric will assign to the Lopez Group the Rockwell Land shares only if, and as and when, such Rockwell

Land shares are duly declared by Meralco as property dividends. The sale reduced the Group’s ownership

interest in Meralco to 3.95%.

The Group discontinued using the equity method of accounting for its investment in Meralco as a result of the

Group’s cessation of significant influence over Meralco effective as of the date of sale. The remaining

investment in Meralco is classified as available-for-sale (AFS) financial asset (under “investment in equity

securities” account) in accordance to PAS 39, Financial Instruments: Recognition and Measurement.

Accordingly, the remaining investment in Meralco is remeasured at fair value in the statement of financial

position and any fair value changes are recognized directly in equity.

Power Generation

First Gen Corporation (First Gen) is incorporated in the Philippines and registered with the Philippine SEC on

December 22, 1998. First Gen and its subsidiaries (collectively referred to as First Gen group) are involved in

the power generation business. The common shares of First Gen are currently listed and traded on the First

Board of the PSE.

On January 22, 2010, First Gen successfully completed the Stock Rights Offering (the Rights Offering) of

2,142,472,791 rights shares in the Philippines at the proportion of 1.756 rights shares for every one existing

common share held as of the record date December 29, 2009 at the offer price of P=7.00 per rights share. The

total proceeds from the Rights Offering amounted to P=15.0 billion (US$319.1 million).

On May 28, 2012, First Gen completed the Public Offering of 100,000,000 Series “G” Preferred Shares in the

Philippines at an issue price of P=100.00 per share. The Perpetual Preferred Shares are currently listed and

traded on the First Board of the PSE. The total proceeds from the issuance of the Perpetual Preferred shares

amounted to P=10.0 billion (US$234.4 million), net of transaction costs amounting to P=95.2 million (US$2.2

million).

As of December 31, 2013, the Parent Company directly and indirectly owns 66.24% of the common shares of

First Gen and 100% of First Gen’s voting preferred shares. FPH is the ultimate parent company of First Gen.

With the adoption of Philippine Financial Reporting Standard (PFRS) 10, Consolidated Financial Statements

effective January 1, 2013, Lopez Holdings Corporation (LHC) becomes an intermediate parent of First Gen

through FPH, while Lopez, Inc. becomes the ultimate parent of First Gen Group. Prior to the adoption of PFRS

10, FPH was the ultimate parent company of First Gen Group.

First Gen is the largest clean and renewable Independent Power Producer (IPP) in the Philippines, with installed

capacity of 2,763 MW as of December 31, 2013. All of First Gen’s power generation plants are operational and

are majority-owned and controlled by First Gen through its subsidiaries. Since 2005, First Gen’s consolidated

financial statements has been presented in U.S. Dollars (US$) being First Gen Group’s functional and

presentation currency under the Philippine Financial Reporting Standards (PFRS). First Gen’s consolidated net

income amounted to US$167.6 million for the year ended December 31, 2013, on revenues of US$1.9 billion.

Net income attributable to equity holders of the Parent amounted to US$118.1 million.

Below are descriptions of the different operating companies under First Gen:

First Gas Holdings Corporation (FGHC) was incorporated on February 3, 1995 as a holding company for

3

the development of gas-fired power plants and other non-power gas related businesses. The company was

60.0% owned by First Gen and 40.0% owned by Dualcore Holdings Inc. (Dualcore) [formerly BG

Consolidated Holdings (Philippines), Inc. (BG)] prior to the acquisition of the non-controlling stake of BG

in the natural gas projects. As a result of the transaction, First Gen now effectively owns 100.0% of FGHC.

FGHC wholly owns FGPC, the project company of the 1,000 MW Santa Rita Power Plant.

o FGPC is the project company of the Santa Rita Power Plant. The company was incorporated on

November 24, 1994 to develop the 1,000 MW gas fired cycle power plant located in Santa Rita,

Batangas City. The company started full commercial operations on August 17, 2000. FGPC generates

electricity for Meralco under a 25-year Power Purchase Agreement (PPA). In order to fulfill its

responsibility to operate and maintain the power plant, FGPC has an existing agreement with Siemens

Power Operations, Inc. (SPOI), a 100% subsidiary of Siemens AG, to act as the Operator under an

Operations & Maintenance Agreement. Net income and revenues from sale of electricity for the year

ended December 31, 2013 amounted to US$75.1 million and US$955.5 million, respectively.

Unified Holdings Corporation (UHC) was incorporated on March 30, 1999 as the holding company of First

Gen’s 60.0% equity share in FGP Corp. (FGP), the project company of the

500 MW San Lorenzo Power Plant. First Gen owns 100% of UHC.

o FGP is the project company of the San Lorenzo Power Plant. The company was established on July

23, 1997 to develop a 500 MW gas-fired combined cycle power plant in Santa Rita, Batangas, adjacent

to the 1000 MW Santa Rita Power Plant. FGP was owned 60.0% by UHC and 40.0% by BG

Philippines Holdings, Inc. The company started full commercial operations on October 1, 2002. Most

of the economic and structural features that made the Santa Rita project attractive were replicated in

the San Lorenzo project to preserve the innovative risk-mitigating structure. All major project

agreements were substantially similar to those used in the Santa Rita project. Also, the economic and

commercial advantages of being located adjacent to the Santa Rita project were optimized. The

project’s strategic location allows it to share common facilities such as the tank farm and jetty facilities

thus reducing the need to duplicate various operational facilities. Cost reductions associated with the

operations and maintenance of power plant were also achieved through the pooling of operations and

maintenance (O&M) personnel and other expenses. Net income and revenues from sale of electricity

for the year ended December 31, 2013 amounted to US$24.3 million and US$337.2 million,

respectively.

On May 30, 2012, First Gen, through its wholly-owned subsidiary Blue Vulcan Holdings Corporation

(Blue Vulcan), successfully acquired from BG Asia Pacific Holdings Pte. Limited (BGAPH) (a member of

the BG Group) the entire outstanding capital stock of Bluespark Management Limited (Bluespark)

[formerly Lisbon Star Management Limited (LSML)]. Bluespark’s wholly-owned subsidiaries, Goldsilk

Holdings Corp. (Goldsilk) [formerly Lisbon Star Philippines Holdings, Inc.], Dualcore Holdings Inc.

[formerly BG Consolidated Holdings (Philippines), Inc.] and Onecore Holdings Inc. (BG Philippines

Holdings, Inc.), owned 40.0% of the outstanding capital stock of FGHC, FGP, and First NatGas Power

Corporation (collectively referred to as the “First Gas Group”). Following the acquisition of Bluespark,

First Gen now beneficially owns 100.0% of the First Gas Group through its intermediate holding

companies. The net consideration paid by Blue Vulcan for the 40.0% equity interest amounted to $360.0

million. Following the acquisition of the non-controlling stake, LSML was subsequently renamed

Bluespark Management Limited, Inc.

First Gen Renewables, Inc. (FGRI), formerly known as First Philippine Energy Corporation, was

established on November 29, 1978. It is tasked to develop prospects in the renewable energy market.

FGRI is transforming itself from a mere supplier of products and systems to a service provider in the

countryside. FGRI is presently engaged in discussions with electric cooperatives for the possible supply of

energy in various provinces.

4

o FG Bukidnon Power Corporation (FG Bukidnon), a wholly-owned subsidiary of FGRI, was

incorporated on February 9, 2005. Upon conveyance of First Gen in October 2005, FG Bukidnon took

over the operations and maintenance of the FG Bukidnon Hydroelectric Power Plant (FGBHPP). FG

Bukidnon’s net income and revenues from sale of electricity for the year ended December 31, 2013

amounted to P17.8 million and P41.3 million, respectively.

Commissioned and constructed by National Power Corporation (NPC) in 1957, FGBHPP is located in

Damilag, Manolo Fortich, Bukidnon in Mindanao (Southern Philippines),

36 kilometers southeast of Cagayan de Oro City. The run-of-river plant consists of two 800-kW

turbine generators that use water from the Agusan River to generate electricity. It is connected to the

local distribution grid of the Cagayan Electric Power & Light Company, Inc. (CEPALCO) via the

distribution line of the National Grid Corporation of the Philippines (NGCP).

Prime Terracota Holdings Corp. (Prime Terracota) was incorporated on October 17, 2007 as the holding

company of Red Vulcan Holdings Corporation (Red Vulcan). Red Vulcan was incorporated on October 5,

2007 as the holding company for First Gen’s then 60% voting equity stake in Energy Development

Corporation (EDC). EDC is involved in geothermal steam production and power generation business, and

drilling and consultancy services.

On November 22, 2007, First Gen, through Red Vulcan, was declared the winning bidder for Philippine

National Oil Company and EDC Retirement Fund’s remaining shares in EDC, which then consisted of 6.0

billion common shares and 7.5 billion preferred shares. Such common shares represented a 40.0%

economic interest in EDC while the combined common and preferred shares represented 60.0% of the

voting rights in EDC. EDC is the Philippines’ largest producer of geothermal energy, operating 11

geothermal power plants in 5 geothermal service contract areas. EDC is principally involved in the

production of geothermal steam for sale to subsidiaries, and the generation and sale of electricity through

EDC-owned geothermal power plants to NPC and various offtakers. EDC’s consolidated net income and

revenues as of December 31, 2013 amounted to P5.6 billion and P25.7 billion, respectively, with net

income attributable to equity holders of the parent company of P4.7 billion.

On May 12, 2009, Prime Terracota issued Class “B” voting preferred shares at par value to the Lopez Inc.

Retirement Fund (LIRF) and Quialex Realty Corporation (QRC). Prime Terracota is the effective 60.0%

voting /40.0% economic owner of EDC through its subsidiary Red Vulcan. Prior to its issuance of

preferred shares to LIRF and QRC, Prime Terracota was a wholly-owned subsidiary of First Gen. With the

issuance of the preferred shares, First Gen’s voting interest in Prime Terracota was reduced to 45.0%, with

the balance taken up by LIRF (40.0%) and QRC (15.0%). This transaction triggered the deconsolidation of

the Prime Terracota Group in First Gen’s consolidated financial statements effective from May 2009 until

December 2012. During the said period, First Gen’s investment in Prime Terracota was accounted for

using the equity method in the consolidated financial statements of First Gen as it still retained influence

over Prime Terracota through its 45.0% voting interest. However, with the adoption of PFRS 10 effective

January 1, 2013, management was required to reassess the control over Prime Terracota based on the new

definition of control and the explicit guidance in PFRS 10. The reassessment has caused the retrospective

consolidation of Prime Terracota Group to First Gen effective January 1, 2013.

First Gen Hydro Power Corporation (FG Hydro) was incorporated on March 13, 2006 as a wholly-owned

subsidiary of First Gen. On September 8, 2006, FG Hydro emerged as the winning bidder for the 100 MW

Pantabangan and the 12 MW Masiway Hydroelectric Power Plants (PMHEPP) that was conducted by the

Power Sector Assets and Liabilities Management Corporation (PSALM). The 112 MW PMHEPP was

transferred to FG Hydro on November 18, 2006, representing the first major generating assets of NPC to be

successfully transferred to the private sector by PSALM. Subsequently, First Gen’s board of directors

approved the sale of 60% of FG Hydro to EDC. As a result of the divestment, First Gen’s direct voting

interest in FG Hydro was reduced to 40%. FG Hydro’s net income and revenues from the sale of electricity

for the year ended December 31, 2013 amounted to P1.5 billion and P2.5 billion, respectively.

o The 100 MW Pantabangan power plant commenced operations in 1977 and consists of two 50 MW

generating units. The 12 MW Masiway power plant commenced operations in 1981 and consists of

5

one 12 MW operating unit. Both facilities are located in Pantabangan, Nueva Ecija Province in

Central Luzon, 180 kilometers north of Metro Manila. Following FG Hydro’s completion of its

rehabilitation and upgrade project in December 2010, plant capacity of the Pantabangan plant was

increased by 20 MW. With this upgrade, the new plant capacity of PMHEPP is now 132 MW.

Power Distribution

The Parent Company has a 30% investment in Panay Electric Company, Inc. (PECO). PECO is a domestic

corporation registered with the SEC on October 11, 1951 and was extended for another fifty years as amended

on April 27, 2000. Its primary activities, among others, are to furnish electric current to any person, entity or

company for light, heat and power and to engage in the sale of the same in the various municipalities in the

island of Panay and the sale of fuel or each by-product derived from it and to use the same in each engine or

apparatus. PECO is subject to regulation by the Energy Regulatory Commission (ERC) and gives recognition

to the ratemaking policies of the ERC.

On December 2, 2009, the ERC directed PECO to refund P=0.1595 per kilowatt hour representing the over

recovery of its purchased power cost for the period February 1996 to July 2005. As at December 31, 2013 and

2012, the amount to be refunded totaled P=389 million and P=454 million, respectively.

The Group also has a 3.95% interest in Meralco, which is treated as investments in equity securities.

Real Estate Development

○ Rockwell Land Corporation (Rockwell Land) is originally a joint venture firm of Meralco, Lopez Holdings

and the Parent Company to develop a prime residential and commercial land located adjacent to the Makati

Central Business District. Rockwell Center, the flagship project, sits on a 15.5 hectare site in Makati City,

strategically located between Makati and Ortigas business districts. It has been developed into a self-

contained, mixed-use community consisting of residential towers, sports and leisure club, office buildings,

a shopping center and a graduate school of law, business and government. On August 20, 2009, the Parent

Company acquired Lopez Holdings’ 24.5% stake in Rockwell for P=1.5 billion.

On January 31, 2012, Rockwell Land fully redeemed its voting preferred shares of 2,750,000,000, at par

value of P=0.01 or for P=27.5 million, held by Meralco and the Parent Company at 51% and 49% interest,

respectively. On April 10, 2012, Rockwell Land issued to the Parent Company its entire 2,750,000,000

voting preferred shares at par value of P=0.01 a share or for P=27.5 million. The preferred shares earn 6%

cumulative dividend per annum.

On February 27, 2012, Meralco’s BOD approved the declaration of its investment in common shares in

Rockwell Land as property dividends. On April 25, 2012, the SEC approved the property dividends

declared by Meralco. On May 11, 2012, the Rockwell Land common shares were listed in the PSE.

By virtue of the property dividends declaration, the Parent Company and FPUC received 125,341,871

Rockwell Land shares at a price of P=2.01 a share or an aggregate value of P=252 million as property

dividends for its remaining 3.95% interest in Meralco (see Note 11 of Consolidated Financial Statement).

Likewise, the Parent Company and FPUC received additional 1,384,594,823 Rockwell Land shares at a

price of P=2.01 a share or an aggregate value of P=2,783 million from Beacon Electric Asset Holdings, Inc.

(Beacon Electric) as additional consideration for the previous sale by the Parent Company and FPUC of

Meralco shares (see Note 11 of Consolidated Financial Statements). The additional consideration of P=

2,746 million, net of taxes of P=37 million, is part of “Gain on sale of investments” account in the

consolidated statement of income in 2012.

In addition, the Parent Company purchased 52,787,367 shares of Rockwell Land at P=2.01 a share for P=106

million from Beacon Electric on June 28, 2012.

6

The Parent Company obtained control of Rockwell Land effective May 2, 2012, the date when the Parent

Company had majority representation in the Board of Directors of Rockwell Land. The previously held

interest in Rockwell Land was re-measured to fair value resulting in a gain on re-measurement of P=1,834

million which is presented as part of “Gain on business combination” account in the 2012 consolidated

statement of income.

On July 13, 2012, the Parent Company purchased from San Miguel Corporation (SMC) the latter’s

681,646,831 Rockwell shares. The shares were received as property dividends for its existing ownership in

Meralco. The consideration for the transfer was P=2.01/share or an aggregate consideration of

P=1,370 million. The shares were crossed after the approval of PSE of the special block sale on July 27,

2012. Thereafter, the Parent Company owned a controlling interest of 86.8% in Rockwell. For calendar

year ended December 31, 2013, Rockwell earned a net income of P=1.4 billion on revenues of P=7.8 billion.

o The Parent Company holds a 70% stake in First Philippine Industrial Park (FPIP), with the remaining 30%

owned by Sumitomo Corporation. FPIP was formed on November 28, 1996 primarily to purchase, acquire,

own, hold and subdivide industrial land. It is tasked to develop and manage an industrial estate for sale or

lease to various manufacturing or service-oriented entities. FPIP is registered with Philippine Economic

Zone Authority (PEZA) pursuant to RA 7916, as amended, as an Ecozone Developer/Operator. For

calendar year ended December 31, 2013, FPIP’s net income amounted to P= 520.3 million on revenues of

P=1.2 billion.

○ First Philippine Realty Corporation (FPRC), formerly Inaec Development Corporation, was incorporated

on January 9, 2002 primarily to lease, own, acquire, or sell real and personal properties. FPRC is a wholly-

owned subsidiary of the Parent Company. It started its commercial operations on March 1, 2003. For the

calendar year ending December 31, 2013, FPRC incurred a net income of P=6.2 million on total revenues of

P=112.5 million.

o Incorporated in May 2011, TerraPrime, Inc. (TI) is a co-venture between First Balfour and Estuar

Development Corporation (EsDc) with 80% and 20% ownership, respectively. The company is engaged in

real estate development, and has the facilities, personnel, and technical expertise required for the overall

management and development of condominiums, as well as for the sale and marketing of completed

condominium units. First Balfour and EsDC have jointly acquired a property along Quezon Avenue,

Quezon City for a three-tower mixed-use condominium building project, dubbed as “Prima Residences”. In

2012, First Balfour acquired the 20% ownership of EsDc and TI became a wholly owned subsidiary of First

Balfour.

Manufacturing

o On February 9, 2006, the BOD of the Parent Company approved the transfer of the Parent Company shares

in the following subsidiaries: Philippine Electric Corporation (Philec), First Electro Dynamics Corporation

(FEDCOR), First Sumiden Circuits, Inc. (FSCI) and First Sumiden Realty, Inc. (FSRI), under First

Philippine Electric Corporation (First Philec). Consolidated net loss of First Philec for the year ended

December 31, 2013 amounted to P=728 million on revenues of P=1.5 billion.

Established on October 2, 1991, FEDCOR is engaged in the manufacture of -current, dry-type and

small kilo-volt ampere distribution transformers, repairs of distribution and power transformers,

automatic voltage regulators (AVRs) and special line equipment (SLEs) and technical servicing.

Wholly-owned by First Philec, FEDCOR specializes in the production of 10 to 25 KVA distribution

transformers. For calendar year ended December 31, 2013, Fedcor’s revenues reached P=929 million

and a net income of P=149 million.

Established on November 24, 2005, First Philippine Power Systems, Inc. (FPPSI) is a manufacturer of

dry-type transformers for uninterrupted power supply units of American Power Conversion, a major

global original equipment manufacturer. It is a wholly-owned subsidiary of First Philec. FPPSI

earned P=26 million in net income on revenues of P=106 million for the year ended December 31, 2013.

7

On August 1, 2007, First Philec Manufacturing Technologies Corporation (FPMTC) was established to

serve as a vehicle for growth for the manufacturing group’s electrical businesses. FPMTC functions as

the central Sales and Marketing arm of the entire Electrical Utilities business sector. It houses the

power systems and solutions business which includes substations and switchgears up to 230 KV. It

also provides the balance of plant systems to the emerging renewable energy and power generation

market. For the year ended December 31, 2013, FPMTC earned P=1.1 billion on revenues; however, it

incurred a net loss of P=25 million.

On October 24, 2007, First Philec established First Philec Solar Corporation (FPSC), a joint venture

with SunPower Philippines Manufacturing Ltd. that is engaged in the production of solar-grade silicon

wafers that form the core in the production of high-efficiency solar cells and panels for solar energy

generation. Due to the temporary shutdown of its operation, FPSC earned P355 million of revenues

but incurred a net loss of P=514 million for the year ended December 31, 2013.

First PV Ventures Corporation (FPVVC) was incorporated in the Philippines on December 11, 2008.

Its primary purpose is to invest in, purchase or dispose of real and personal property, specifically in the

businesses of solar power and generation and other alternative sources of energy and manage the

general businesses of all its operating units. FPVVC incurred a net loss of P=209 million for the year

ended December 31, 2013.

Construction and Others

o First Philippine Balfour Beatty, Inc. (FPBB) is the construction joint venture firm between the Parent

Company and Balfour Beatty, Inc. In March 2004, the Parent Company bought back Balfour Beatty Group

Limited’s 40% stake in FPBB for US$3.5 million and later renamed the firm First Balfour Inc. (First

Balfour). Under First Balfour are First Balfour Management Technical Services, Inc. (FBMTSI),

ThermaPrime Well Services, Inc. (TWSI) and Terraprime, Inc. (TI). First Balfour is engaged into

construction of power plants, transmission lines, and electro-mechanical works for industrial plants and

related activities while TI is engaged in the development and sale of real estate. FBMTSI is engaged in the

business of providing management and/or manpower while TWSI is involved in providing services for the

drilling and workover of exploratory or development well and perform related services in the areas of well

planning and construction, drilling and other allied activities. For calendar year ended December 31, 2013,

the consolidated net income of First Balfour amounted to P=362.9 million on revenues of P=4.9 billion.

o Established on March 30, 1967 primarily to service the fuel transport needs of Meralco and the oil

refineries in Batangas, First Philippine Industrial Corporation (FPIC) operates the country’s largest

commercial petroleum pipeline. FPIC is 60% owned by the Parent Company with Shell Petroleum Co., Ltd

(UK) owning the remaining 40%. FPIC has a pipeline concession which was granted under Republic Act

(R.A.) 387, otherwise known as the Petroleum Act of 1949 as amended. The concession is for an extended

period of 50 years until July 23, 2017. Further, the Department of Energy granted a nonexclusive and non-

transferable permit to FPIC to construct and operate a liquid or gas pipeline from Batangas to Sucat and

from Sucat to Bataan. FPIC’s pipeline system consists of two main pipelines which started operation in

1969, one for refined petroleum products (the “white line”) and the other for heavier petroleum products

(the “black line”). The 14-inch diameter, 120 kilometer long white line transports products such as

gasoline, jet aviation fuel, diesel fuel and other refined petroleum products. The 16-inch diameter, 90

kilometer long black line moves fuel oil. In addition, FPIC has an 18-inch diameter, 14 kilometer long

pipeline built in 1978 which connects the Shell Refinery to the black line.

On July 12, 2010, FPIC promptly responded to a report regarding the seepage of fluid mixed with liquid

resembling petroleum in the basement of West Tower along Osmeña Highway, Brgy. Bangkal, Makati

City. FPIC then proceeded to excavate sections of the pipeline in front of the building to search for possible

leaks. On October 28, 2010, FPIC located the source of the petroleum leak on a specific portion of its

pipeline along Osmeña Highway. FPIC has since shutdown the pipeline’s operation to ensure public safety

and well-being. The repair was completed on November 10, 2010. For the calendar year, FPIC still

incurred a loss which amounted to P=495.0 million.

8

There was no bankruptcy, receivership or similar proceedings initiated during the past three (3) years.

(2) Business of Issuer and Selected Significant Subsidiaries

This section shall describe in detail what business the registrant does and proposes to do, including what

products or goods are or will be produced or services that are or will be rendered.

The Parent Company, formed in 1961 with the primary purpose of purchasing and acquiring shares of stocks,

bond issues, and notes of Meralco, has grown into a multi-billion company with diversified interests in power

generation and distribution, pipeline service, property development, manufacturing, construction and

engineering services.

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

the products and services, with each segment representing a strategic business unit that offers different products

and serves different markets. The Group’s major business segments are in Power Generation, Manufacturing

Operations and Real Estate Development. The Group’s other activities consist of pipeline service, construction,

drilling and sale of merchandise. The relative contribution of each product or service to total sales/revenues for

the year ended December 31, 2013 follows:

Amount in Millions % contribution

Sale of electricity P=80,389 86%

Real estate 6,434 7%

Contracts and services 5,093 5%

Sale of merchandise 1,392 2%

Equity in net earnings of associates 104 -%

Total P=93,412 100%

The Parent Company has no foreign sales.

In the course of its operations, it enters into transactions with affiliates and subsidiaries on an arms-length basis.

The Parent Company had a total of 81 employees as of December 31, 2013.

The main risks arising from the Parent Company’s financial instruments are interest rate risk, liquidity risk,

foreign currency risk, credit risk and equity price risk:

The Parent Company does not engage in any speculative derivative transactions.

Major Risks:

Interest Rate Risk. The Parent Company’s exposure to the risk for changes in market interest rates relates

primarily to the Parent Company’s long-term debt obligations with floating interest rates. The Parent

Company believes that prudent management of its interest cost will entail a balanced mix of fixed and

variable rate debt. On a regular basis, the Finance team of the Parent Company monitors the interest rate

exposure and presents it to management. To manage the exposure to floating interest rates in a cost-

efficient manner, prepayment, refinancing or entering into derivative instruments such as interest rate

swaps are undertaken as deemed necessary and feasible. As of December 31, 2013 and 2012,

approximately 47% and 59%, respectively, of the Parent Company’s borrowings are subject to floating

interest rate.

Liquidity Risk. The Parent Company’s exposure to liquidity risk refers to the lack of funding needed to

finance its capital expenditures, to service its maturing loan obligations on time, and to meet its working

capital requirements. To manage this exposure, the Parent Company maintains internally generated funds

and prudently manages the proceeds obtained from sale of assets and fund raising in both the debt and

equity markets. The Parent Company employs scenario analysis to actively manage its liquidity position

and ensure that all operating and financing needs are met. The Parent Company maintains a level of cash

9

and cash equivalents deemed sufficient to finance the operations and ensures the availability of short-term

credit lines with certain banking institutions.

Foreign Currency Risk. The Parent Company’s exposure to foreign exchange risk results from its business

transactions denominated in foreign currencies. It is the Parent Company’s policy to ensure that

capabilities exist for active and prudent management of its foreign exchange risk. To better manage the

foreign exchange risk, stabilize cash flows, and further improve the investment and cash flow planning, the

Parent Company may consider entering into derivative contracts and other hedging products as necessary.

However, these hedges do not cover all the exposure to foreign exchange risks.

Credit Risk. The Parent Company trades only with recognized, creditworthy third parties and/or transacts

only with institutions and/or banks which have demonstrated financial soundness. It is the Parent

Company’s policy that all customers who wish to trade on credit terms are subject to credit verification

procedures. In addition, receivable balances are monitored on an ongoing basis and level of allowance is

reviewed with the result that the Parent Company’s exposure to bad debts is not significant.

Equity Price Risk. The Parent Company’s quoted equity securities are susceptible to market price risk

arising from uncertainties about future values of the investment in equity securities. The Parent Company

manages the equity price risk through diversification and by placing limits on individual and total equity

instruments. The Parent Company’s BOD reviews and approves all equity investment decisions.

The following table demonstrates the sensitivity to a reasonably possible change in share price, with all

other variables held constant:

Quoted Equity

Securities Change in Equity Price Effect on Equity

(In Millions)

2013 + 5% P=558

- 5% (558)

2012 + 16% P=2,371

- 16% (2,371)

As of December 31, 2013 and 2012, the sensitivity analysis includes the Parent Company’s significant

quoted equity securities with amounts adjusted by the specific beta for these investments.

All other items required by Part I, SRC Rule 12 ("Annex C') are not applicable to the Parent Company.

Power Generation

FIRST GEN CORPORATION (First Gen)

First Gen Corporation (First Gen) is engaged in the business of power generation through the following

operating companies:

(i) FGPC which operates the 1,000 MW Santa Rita natural gas-fired power plant;

(ii) FGP which operates the 500 MW San Lorenzo natural gas-fired power plant;

(iii) FG Bukidnon, via FGRI, which operates the 1.6 MW FG Bukidnon mini-hydroelectric power plant;

(iv) EDC, with an aggregate installed capacity of approximately 1,129.4 MW of geothermal power; and

(v) FG Hydro which operates the 132 MW Pantabangan-Masiway hydroelectric power plants.

First Gen’s indirect 40.0% economic interest in EDC is held through Prime Terracota and Red Vulcan, while it

directly owns a 40.0% economic interest in FG Hydro. As of December 31, 2013, the Company also directly

and indirectly owns 1.86 billion common shares in EDC, of which 870.4 million common shares are held

10

through its wholly-owned subsidiary, Northern Terracotta Power Corp. (Northern Terracotta). The 1.86 billion

common shares are equivalent to a 9.93% direct economic interest in EDC.

The Philippine power industry is dominated by NPC, a government-owned and operated company. The

generation sector can be broken down into the following main groups: (i) NPC-owned and operated generation

facilities; (ii) NPC IPPs, which include plants operated by IPPs, as well as IPP-owned and operated plants, each

of which supplies electricity to NPC; and (iii) IPP-owned and operated plants that supply electricity to

customers other than NPC

FIRST GAS POWER CORPORATION (Santa Rita Power Plant)

Under a 25-year PPA executed by FGPC and Meralco (Santa Rita PPA), Meralco is contractually obligated to

take or pay for, and the Santa Rita power plant is obligated to generate and deliver, a minimum energy quantity

(MEQ) of net electrical output from the Santa Rita power plant.

The Santa Rita power plant’s turbines have been designed to run on a wide variety of fuels including natural

gas. In January 1998, FGPC entered into a 22-year Gas Sale and Purchase Agreement (GSPA) with the

consortium of Shell Philippines Exploration B.V., Chevron Malampaya, LLC and PNOC Exploration

Corporation (collectively referred to as Gas Sellers) for the purchase of natural gas from the Malampaya gas

field. Under the terms of the GSPA, FGPC is obligated to take or pay 43.0 PJ of natural gas per year, which is

consistent with the level of MEQ dispatch under the Santa Rita PPA. Although the Santa Rita power plant is

intended to operate on natural gas, if delivery of natural gas is delayed or interrupted for any reason, the plant

has the ability to run on liquid fuel for as long as necessary without any adverse impact to its operation or

revenues.

FGP CORP. (San Lorenzo Power Plant)

FGP, operator of the 500 MW San Lorenzo combined-cycle gas turbine power generating plant, executed a PPA

with Meralco whereby Meralco will purchase power generated by the San Lorenzo power plant for a period of

25 years or up to 2027.

FGP operates under the same business environment as other power generating companies in the country.

FIRST GEN HYDRO POWER CORPORATION (Pantabangan-Masiway Power Plants)

The commercial operations of FG Hydro commenced in November 2006 upon the transfer to it of PMHEPP’s

operations and maintenance. FG Hydro earns substantially all of its revenue from the Wholesale Electricity Spot

Market (WESM) and various electric companies. WESM and the various electric companies are committed to

pay for the energy generated by the PMHEPP facilities.

Under the current regulatory regime, the generation rate charged by FG Hydro to WESM is not regulated but

determined in accordance with the WESM Price Determination Methodology (PDM) approved by the Energy

Regulatory Commission (ERC) and are complete pass-through charges to WESM. Likewise, the generation

rate charged by FG Hydro to various electric companies is not subject to regulation and is complete pass-

through charges to various electric companies.

O&M Agreement

In 2006, FG Hydro entered into an O&M Agreement with the National Irrigation Administration (NIA),

with the conformity of the NPC. Under the O&M Agreement, NIA will manage, operate, maintain and

rehabilitate the non-power components of the PMHEPP in consideration of a service fee based on actual

cubic meter of water used by FG Hydro for power generation.

In addition, FG Hydro will provide for a Trust Fund amounting to $2.2 million (P100.0 million) within the

first 2 years of the O&M Agreement. The amortization for the Trust Fund is payable in 24 monthly

payments starting November 2006 and is billed by NIA in addition to the monthly service fee. The Trust

Fund has been fully funded as of October 2008. The O&M Agreement is effective for a period of 25 years

11

commencing on November 18, 2006 and renewable for another 25 years under terms and conditions as may

be mutually agreed upon by both parties.

Power Supply Contracts (PSC)

FG Hydro had contracts which were originally transferred by NPC to FG Hydro as part of the acquisition

of PMHEPP for the supply of electric energy with several customers within the vicinity of Nueva Ecija.

All these contracts had expired as of December 31, 2011. Upon renegotiation with the customers as

stipulated by the ERC, the expired contracts were renewed, except for the contract with Pantabangan

Municipal Electric System (PAMES). FG Hydro shall generate and deliver to these customers the

contracted energy on a monthly basis. FG Hydro is bound to service these customers for the remainder of

the stipulated terms, the range of which falls from December 2008 to December 2020. Upon expiration,

these contracts may be renewed upon renegotiation with the customers and approval by the ERC. As of

December 31, 2013, there are 4 remaining PSCs being serviced by FG Hydro.

Ancillary Services Procurement Agreement (ASPA)

FG Hydro entered into an agreement with NGCP on February 23, 2011 after being certified and accredited

by NGCP as capable of providing Contingency Reserve Service, Dispatchable Reserve Service, Reactive

Power Support Service and Black Start Service. Under the agreement, FG Hydro shall provide any of the

above-stated ancillary services to NGCP.

The ASPA is effective for a period of 3 years commencing on February 23, 2011 and shall be automatically

renewed for another 3 years after the end of the original term subject to certain conditions as provided in

the ASPA. The ASPA was provisionally approved by the ERC on June 6, 2011. However, ERC altered

the rates that FG Hydro can charge NGCP and likewise imposed caps and floors to the various ancillary

services that FG Hydro can provide to NGCP.

As provided for in the ASPA, the agreement was automatically renewed subject to the same terms of the

agreement.

Memorandum of Agreement with NGCP (MOA with NGCP)

FG Hydro entered into a MOA with NGCP for the performance of services on the operation of the PAHEP

230 kV switchyard and its related appurtenances (Switchyard) on

August 31, 2011.

NGCP shall pay FG Hydro a monthly fixed operating cost of P0.1 million and monthly variable charges

representing energy consumed at the switchyard. The MOA is effective for a period of 5 years and

renewable for another 3 years under such terms as may be agreed by both parties.

ENERGY DEVELOPMENT CORPORATION (EDC)

By virtue of Presidential Decree (P.D.) No. 1442, EDC entered into 7 Geothermal Service Contracts (GSCs)

with the Philippine Government through the Department of Energy (DOE), under which EDC was granted the

right to explore, develop, and utilize the country’s geothermal resource subject to sharing of net proceeds with

the Philippine Government. The net proceeds are what remains after deducting from the gross proceeds the

allowable recoverable costs, which include development, production and operating costs. The allowable

recoverable costs shall not exceed 90% of the gross proceeds. EDC pays 60% of the net proceeds as share of

the Philippine Government and retains the 40%. The 60% government share is comprised of royalty fees and

income taxes. The royalty fees are split between the DOE (60%) and the LGU (40%) where the project is

located.

R.A. 9513, “An Act Promoting the Development, Utilization and Commercialization of Renewable Energy

Resources and for Other Purposes,” otherwise known as the “Renewable Energy Act of 2008” or the “RE

Law”, mandates the conversion of existing service contracts under P.D. 1442 into Geothermal Renewable

Energy Service Contracts (GRESCs) to avail of the incentives under the RE Law.

12

On September 10, 2009, EDC was granted the Provisional Certificate of Registration as an RE Developer for

the following existing projects: (1) GSC No. 01- Tongonan, Leyte, (2) GSC

No. 02 - Palinpinon, Negros Oriental, (3) GSC No. 03 - Bacon-Manito, Sorsogon/Albay,

(4) GSC No. 04 - Mt. Apo, North Cotabato, and (5) GSC No. 06 - Northern Negros.

With the receipt of the certificates of provisional registration as geothermal RE Developer, the fiscal incentives

of the RE Law were availed of by EDC retroactive from the effective date of the RE Law on January 30, 2009.

The GSCs were fully converted to GRESCs upon signing by the parties on October 23, 2009; hence EDC is

now the holder of 5 GRESCs and the corresponding DOE Certificate of Registration as an RE Developer for the

following geothermal projects:

1) GRESC 2009-10-001 for Tongonan, Leyte;

2) GRESC 2009-10-002 for Palinpinon, Negros Oriental;

3) GRESC 2009-10-003 for Bacon-Manito, Sorsogon/Albay;

4) GRESC 2009-10-004 for Kidapawan, North Cotabato; and

5) GRESC 2009-10-005 for Northern Negros.

The DOE approved the application of EDC for the 20-year extension of the Tongonan, Palinpinon and Bacon-

Manito GSCs. The extension is embodied in the 4th

amendment to the GSCs dated October 30, 2003. The

amendment extended the Tongonan GSC from May 15, 2011 to May 16, 2031, while the Palinpinon and Bacon-

Manito GSCs were extended from October 16, 2011 to October 17, 2031.

The DOE conducted bidding on the geothermal energy resources located in Labo, Camarines Norte and the

contract area was won by EDC. The certificate of registration as RE Developer for this contract area was

granted by the DOE on February 19, 2010. On the same date, EDC’s GSC in Mt. Labo in Camarines Norte and

Sur was converted to GRESC 2010-02-020.

On March 24, 2010, the DOE issued to EDC a new GRESC of Mainit Geothermal Project under DOE

Certificate of Registration No. GRESC 2010-03-021.

The remaining service contract of EDC that is still covered by P.D. 1442 as of

December 31, 2013 is that of Mt. Cabalian in Southern Leyte which has a term of 25 years from the effective

date of the contract, January 31, 1997, and for an additional period of 25 years if EDC does not default on its

obligations under the GSC. In 2013, EDC assessed that its Cabalian geothermal project located in Southern

Leyte is impaired due to issues on productivity and sustainability of geothermal resources in the area.

EDC also holds geothermal resource service contracts for the following prospect areas:

1) Ampiro Geothermal Project (with a 5-year pre-development period expiring in 2017 and a 25-year

contract period expiring in 2037)

2) Mandalagan Geothermal Project (with a 5-year pre-development period expiring in 2017 and a 25-year


3) Mt. Zion Geothermal Project (with a 5-year pre-development period expiring in 2017 and a 25-year


4) Lakewood Geothermal Project (with a 5-year pre-development period expiring in 2017 and a 25-year


5) Balingasag Geothermal Project (with a 5-year pre-development period expiring in 2017 and a 25-year


The RE Law also provides that the exclusive right to operate geothermal power plants shall be granted through

a Renewable Energy Operating Contract with the Philippine Government through the DOE. Accordingly, on

May 8, 2012, EDC, through its subsidiaries Green Core Geothermal Inc. (GCGI) and Bac-Man Geothermal Inc.

(BGI) secured 3 Geothermal Operating Contracts (GOCs) covering the following power plant operations:

1) Tongonan Geothermal Power Plant under DOE Certificate of Registration No. GOC 2012-04-038

13

(with a 25-year contract period expiring in 2037, renewable for another 25 years)

2) Palinpinon Geothermal Power Plant under DOE Certificate of Registration No. GOC 2012-04-037


3) Bacon-Manito Geothermal Power Plant under DOE Certificate of Registration No. GOC No. 2012-04-

039 (with a 25-year contract period expiring in 2037, renewable for another 25 years)

Steam Sales Agreements and Geothermal Resource Sales Contracts (GRSCs) of EDC

Prior to the acquisition of GCGI and BGI by EDC in 2009 and 2010, respectively, EDC had Steam Supply

Agreements (SSAs) for the supply of the geothermal energy produced by its geothermal projects for the

power plants then owned and operated by NPC. Under the SSA, NPC agrees to pay EDC a base price per

kWh of gross generation, subject to inflation adjustments, and based on a guaranteed take-or-pay (TOP)

rate at certain percentage plant factor. The SSA is for a period of 20 to 25 years.

Details of the existing SSAs are as follows:

Contract Area Guaranteed TOP End of Contract

Palinpinon II (covers four

modular plants)

50% for the 1st year, 65% for the

2nd year, 75% for the 3rd

and subsequent years

December 2018 -

March 2020

BacMan I 75% plant factor November 2013

BacMan II (covers two 20 MW

modular plants, namely

Cawayan and Botong)

50% for the 1st year, 65% for the

2nd year, 75% for the 3rd


March 2019 and

December 2022

After the turnover of the power plants to GCGI on October 23, 2009, the SSAs of Tongonan I, Palinpinon I

and Palinpinon II were converted to GRSCs. Under the GRSCs which will terminate in 2031, GCGI agrees

to pay EDC remuneration for actual net electricity generation of the plant with steam prices in U.S. Dollars

per kWh tied to coal indices.

With the rehabilitation of BacMan, billing on the SSA shall resume on (a) the execution of the deed of

assignment of the SSA from NPC/PSALM to BGI; or (b) such time that the BacMan power plants resume

its operations. On July 25, 2012, EDC, BGI and PSALM executed a letter of agreement for the direct

billing and collection of the steam contracts between EDC and BGI. However, PSALM still remains a

party to the steam contracts.

PPAs of EDC

EDC has existing PPAs with NPC for the development, construction and operation of a geothermal power

plant by EDC in the service contract areas and the sale to NPC of the electrical energy generated from such

geothermal power plants. The PPA provides, among others, that NPC pays EDC a base price per kWh of

electricity delivered subject to inflation adjustments. The PPAs are for a period of 25 years of commercial

operations and may be extended upon the request of EDC by notice of not less than 12 months prior to the

end of contract period, under such terms and conditions as may be agreed by the parties.

Details of the existing PPAs are as follows:

Contract Area Contracted Annual Energy End of Contract

14

Contract Area Contracted Annual Energy End of Contract

Leyte-Cebu

Leyte-Luzon

1,370 gigawatt-hour (GWh)

3,000 GWh

July 2021

July 2022

52 MW Mindanao I 330 GWh for the first year and 390 GWh

for the succeeding years

March 2022

54 MW Mindanao II 398 GWh June 2024

The PPA for Leyte-Cebu and Leyte-Luzon service contract stipulates a nominated energy of not lower than

90% of the contracted annual energy.

Green Core Geothermal Inc. (GCGI)

With GCGI’s takeover of Palinpinon and Tongonan Power Plants effective October 23, 2009, Schedule X

of the Asset Purchase Agreement (APA) with PSALM provides for the assignment of 12 NPC Power

Supply Agreements (PSAs) to GCGI. As of December 31, 2013, the following Transition Supply Contract

(TSC’s) remained:

Customers Contract Expiration Negros

Dynasty Management Development Corp. (DMDC) March 25, 2016

Panay Philippine Foremost Milling Corp. (PFMC) March 25, 2016

Since GCGI’s takeover of the power plants, 24 new PSAs have been signed as follows:

Customers Contract Start

Contract

Expiration

Manila

First Gen Energy Solutions Inc. (FGES) June 26, 2013 June 25, 2023

Leyte

Don Orestes Romualdez Electric Cooperative, Inc.

(DORELCO)*

Dec. 26, 2010 Dec. 25, 2020

Leyte II Electric Cooperative, Inc. (LEYECO II)* Dec. 26, 2010 Dec. 25, 2020

LEYECO II* Dec. 26, 2011 Dec. 25, 2021

Leyte III Electric Cooperative, Inc. (LEYECO III)* Dec. 26, 2011 Dec. 25, 2021

Leyte IV Electric Cooperative, Inc. (LEYECO IV)* Dec. 26, 2012 Dec. 25, 2017

Leyte V Electric Cooperative, Inc. (LEYECO V)* Dec. 26, 2010 Dec. 25, 2020

Philippine Phosphate Fertilizer Corporation

(PHILPHOS)

Dec. 26, 2011 Dec. 25, 2016

Cebu

Visayan Electric Company, Inc. (VECO)* Dec. 26, 2010 Dec. 25, 2015

VECO* Dec. 26, 2011 Dec. 25, 2016

Balamban Enerzone Corporation (BEZ) Dec. 26, 2010 Dec. 25, 2015

Negros

Central Negros Electric Cooperative, Inc. (CENECO)* Dec. 26, 2011 June 25, 2014

Negros Occidental Electric Cooperative, Inc.

(NOCECO)*

Dec. 26, 2010 Dec. 25, 2020

Negros Oriental I Electric Cooperative, Inc.

(NORECO I)*

Dec. 26, 2010 Dec. 25, 2020

15

Negros Oriental II Electric Cooperative, Inc.

(NORECO II)*

Dec. 26, 2010 Dec. 25, 2020

V.M.C. Rural Electric Service Cooperative, Inc.

(VRESCO)*

Dec. 26, 2010 Dec. 25, 2020

Dumaguete Coconut Mills, Inc. (DUCOM) Oct. 26, 2010 Oct. 25, 2020

Bohol

Bohol II Electric Cooperative, Inc. (BOHECO II)* Jan. 26, 2013 Jan. 25, 2023

Panay

Aklan Electric Cooperative, Inc. (AKELCO)* March 26, 2010 Dec. 25, 2020

Capiz Electric Cooperative, Inc. (CAPELCO)* Jan. 27, 2010 Dec. 25, 2020

Iloilo I Electric Cooperative, Inc. (ILECO I)* March 26, 2010 Dec. 25, 2022

Iloilo II Electric Cooperative, Inc. (ILECO II)* Dec. 26, 2010 Dec. 25, 2020

Iloilo III Electric Cooperative, Inc. (ILECO III)* Dec. 26, 2012 Dec. 25, 2022

Guimaras Electric Cooperative, Inc. (GUIMELCO)* Dec. 26, 2012 Dec. 25, 2022 *with Provisional Authority from the ERC as of December 31, 2013

Coordination with ERC is on-going to secure the Final Authority for the filed applications for the approval

of the PSAs with distribution utility and electric cooperative customers.

BacMan Geothermal Inc. (BGI)

With BGI’s takeover of BacMan Geothermal Power Plants from NPC effective September 2010, BGI

entered into several PSAs with various companies and electric cooperative. As of December 31, 2013,

following are the outstanding PSAs of BGI:

Customers Contract Start Contract Expiration Linde Philippines, Inc. Dec. 26, 2011 Dec. 25, 2013

Philippine Associated and Refining Smelting

Corp. (PASAR)

Dec. 26, 2012 Dec. 25, 2015

Camarines Sur II Electric Cooperative, Inc.

(CASURECO II)*

Jan. 26, 2013 Jan. 25, 2018

First Philippine Industrial Corp. (FPIC) Jan. 26, 2013 Dec. 25, 2014

FGES Jun. 26, 2013 Jan. 25, 2016 *with Provisional Authority from the ERC as of December 31, 2013

Description of Registrant

Principal products or services.

Following is a summary of First Gen’s products/services and their markets:

Company

Principal

products/services

Market

Effective Contribution

to Consolidated

Revenues* of First

Gen

FGPC - Power generation MERALCO US$955.5 million

FGP - Power generation MERALCO US$337.2 million

FG Bukidnon - Power generation CEPALCO US$1.0 million (or

P41.3 million)

FG Hydro - Power generation WESM / NGCP/

various cooperatives

US$59.3 million (or

P2,501.2 million)

EDC EDC operates 12

geothermal steamfields

in the five geothermal

service contract areas.

NPC (for power

generation & steam

sales) and electric

cooperatives and

US$548.7 million

16

industrial customers

pursuant to the PPAs

and Power Supply

Agreements (PSAs)

* Pertains to revenues from sale of electricity only.

Note: The Philippine-peso balances of FG Bukidnon, FG Hydro and EDC were translated to U.S. Dollar using

the weighted average rate of P42.201:US$1.00 for the year 2013.

EDC has evolved into being the country’s premier pure renewable energy play, possessing interests in geothermal

energy and hydropower. For geothermal energy, EDC’s 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.

Distribution Methods.

FGPC’s Santa Rita power plant supplies electricity to Meralco pursuant to a 25-year PPA dated January 9, 1997.

Under the terms of the Santa Rita PPA, capacity and energy are delivered to Meralco at the delivery point (the high

voltage side of the step-up transformers) located at the perimeter fence of the Santa Rita plant site. Meralco is

responsible for contracting with the NGCP to wheel power from the delivery point to the Meralco grid system.

Like Santa Rita, FGP’s San Lorenzo power plant supplies electricity to Meralco pursuant to a 25-year PPA. The 25-

year term of the PPA commenced on October 1, 2002, the date of the plant’s commercial operations. The terms of

the San Lorenzo PPA are substantially similar to those of the Santa Rita PPA’s.

FG Bukidnon’s FGBHPP is connected to the local CEPALCO distribution grid via the distribution line of NGCP.

FG Bukidnon sells all electricity output from its mini-hydro plant to CEPALCO through a PSA effective until

March 2025. The PSA was approved by the ERC on November 16, 2009.

FG Hydro’s PMHEPP injects electricity into the Luzon grid to service the consumption of its customers which

include WESM and PSC clients. This power will be delivered to the distribution systems of these customers

through the Pantabangan and Cabanatuan substations which are owned, operated and maintained by NGCP.

EDC’s geothermal power plants sell electricity to electric cooperatives and industrial customers in the Visayas

region, and are transmitted to customers (i.e. distribution utilities, electric cooperatives or bulk power customers) by

NGCP through its high voltage backbone system.

New Product / Service.

First Gen also intends to expand into businesses that complement its power generation operations. In particular, the

company expects to play a major role in the development of downstream natural gas transmission and distribution

facilities, and other projects using renewable sources of energy, which are among the flagship projects of the DOE.

Natural gas pipeline. In January 2001, R. A. No. 8997 was enacted, granting FGHC, a subsidiary of First Gen, a 25-

year legislative franchise to construct, install, own, operate and maintain pipeline systems for the transportation and

distribution of natural gas throughout Luzon. The franchise is the only specific legislative franchise granted by the

Philippine Congress for Luzon and is an important part of First Gen’s strategy to enter the downstream natural gas

transmission and distribution business.

In September 2005, FGHC assigned, transferred, and conveyed its franchise and all rights, title, interest, privileges,

and obligations thereunder to First Gas Pipeline Corporation (FG Pipeline), which will be tasked to take the lead in

pursuing all gas pipeline-related projects of First Gen.

FGHC, through its subsidiary FG Pipeline, has an Environmental Compliance Certificate (ECC) for the Batangas to

Manila pipeline project and has undertaken substantial pre-engineering works and design and commenced

preparatory works for right-of-way acquisition activities, among others.

New Gas projects.

17

FNPC

On December 16, 2013, FNPC, the project company of the San Gabriel project, signed several project

agreements for the development of an approximately 450 MW (nominal) net capacity combined-cycle gas-fired

power plant to be located in Santa Rita, Batangas City and adjacent to the existing Santa Rita and San Lorenzo

plants. The San Gabriel project, which is intended to serve the mid-merit and, potentially, the base load

requirements of the Luzon Grid, is expected to be in commercial operations in March 2016. Construction of the

new gas-fired power plant is on-going.

Hydro Projects.

FG Bukidnon

On October 23, 2009, FG Bukidnon entered into a Hydropower Service Contract (HSC) with the DOE, which

grants FG Bukidnon the exclusive right to explore, develop, and utilize the hydropower resources within the

Agusan river mini-hydro contract area.

FG Bukidnon shall furnish the services, technology, and financing for the conduct of its hydropower operations

in the contract area in accordance with the terms and conditions of the HSC. The HSC is effective for a period of

25 years from the date of execution, or until October 2034. Pursuant to the RE Law and the HSC, the National

Government and Local Government Units shall receive the Government’s share equal to 1.0% of FG Bukidnon’s

preceding fiscal year’s gross income for the utilization of hydropower resources within the Agusan mini-hydro

contract area.

FG Mindanao

On October 23, 2009, FG Mindanao also signed 5 HSCs with the DOE in connection with the following projects:

Puyo River Hydropower Project in Jabonga, Agusan del Norte; Cabadbaran River Hydropower Project in

Cabadbaran, Agusan del Norte; Bubunawan River Hydropower Project in Baungon and Libona, Bukidnon;

Tumalaong River Hydropower Project in Baungon, Bukidnon; and Tagoloan River Hydropower Project in

Impasugong and Sumilao, Bukidnon. The HSCs give FG Mindanao the exclusive right to explore, develop, and

utilize renewable energy resources within their respective contract areas, and will enable FG Mindanao to avail

itself of both fiscal and non-fiscal incentives pursuant to the Act. The pre-development stage under each of the

HSCs is 2 years from the time of execution of said contracts (the Effective Date) and can be extended for another

year if FG Mindanao does not default on its exploration or work commitments and provides a work program for

the extension period upon confirmation by the DOE. On October 11, 2011, FG Mindanao requested the DOE for

confirmation of the 1-year extension of the pre-development stage pursuant to the HSCs for these 5 hydro

projects. Each of the HSCs also provides that upon submission of declaration of commercial viability, as

confirmed by the DOE, it is to remain in force during the remaining life of the of 25-year period from the

Effective Date.

FG Mindanao submitted its declaration of commerciality for each of the Puyo River Hydropower Project and the

Bubunawan River Hydropower Project on March 12, 2012, for Cabadbaran River Hydropower Project on August

16, 2012, and for each of the Tagoloan River Hydropower Project and the Tumalaong River Hydropower Project

on October 22, 2012.

FG Luzon

On March 10, 2011, a MOA covering the development of the proposed Balintingon Reservoir Multi-Purpose

Project (BRMPP) was signed by and among First Gen’s wholly owned subsidiary, FG Luzon, the Province of

Nueva Ecija, and the Municipality of General Tinio. The project will involve the development, construction and

operation of a new hydro reservoir and a new hydroelectric power plant in the Municipality of General Tinio,

Nueva Ecija for purposes of power generation, irrigation and domestic water supply.

A MOA was executed on November 16, 2011 between FG Luzon and NIA for the conduct of a comprehensive

study on the economic, financial and technical viability of the Project.

On March 29, 2012, the Project was awarded an HSC under the DOE Certificate of Registration No. HSC 2012-

01-194.

18

Wind Projects.

FGRI

First Gen continued its efforts in developing renewable energy projects particularly in wind power through its

wholly-owned subsidiary FGRI, which carries on the evaluation of several potential wind exploration and

development sites in the Philippines.

On July 2012, the Certificates of Registration were issued by the DOE to FGRI as RE Developer of Wind Energy

Resources located in the Municipalities of Mercedes-Daet, Camarines Norte and in the Municipality of Burgos,

Ilocos Norte.

FGRI had completed an almost 2-year wind measurement in Mercedes, Camarines Norte and is now on its way

to starting wind measurements in Burgos, Ilocos Norte.

Conducting wind measurements is one of the initial activities needed to assess the wind resource. It will be

followed by wind data analysis to further confirm the viability of wind power project.

EDC

On September 14, 2009, EDC entered into a Wind Energy Service Contract (WESC) with the DOE granting

EDC the right to explore and develop the Burgos wind project for a period of 25 years from effective date. The

pre-development stage under the WESC shall be 2 years which can be extended for another year if EDC does not

default in its exploration or work commitments and provides a work program for the extension period upon

confirmation by the DOE. The WESC also provides that upon submission of the declaration of commercial

viability, as confirmed by the DOE, the WESC shall remain in force for the balance of the 25-year period for the

development / commercial stage. The DOE shall approve the extension of the WESC for another 25 years under

the same terms and conditions, provided that EDC is not in default in any material obligations under the WESC,

and has submitted a written notice to the DOE for the extension of the contract not later than 1 year prior to the

expiration of the 25-year period. The WESC provides that all materials, equipment, plants and other installations

erected or placed on the contract area by EDC shall remain the property of EDC throughout the term of the

contract and after its termination.

On May 26, 2010, the board of directors of EDC approved the assignment and transfer to EDC Burgos Wind

Power Corporation (EBWPC) of all the contracts, assets, permits and licenses relating to the establishment and

operation of the Burgos Wind Power Project under DOE Certificate of Registration No. WESC 2009-09-004. In

April 2013, EDC commenced the construction of its 87 MW Burgos Wind Power Project which is situated in the

Municipality of Burgos, Ilocos Norte. The wind farm will consist of 29 units of the Class 1 V90-3.0 MW wind

turbine generator to be supplied by Vestas Wind Systems. The transmission line will span 42 kms. and will

connect the wind farm and substation in Burgos to the NGCP substation in Laoag City. The project has an

existing Interconnection Agreement with NGCP. EDC expects that the project will be commissioned in 2014

and intends to sell the project’s electrical output under the Feed-in-Tariff (FIT), pursuant to the RE Law. Given

the aforementioned key activities, EBWPC was granted a Certificate of Confirmation of Commerciality for its 87

MW Burgos Wind Project on May 16, 2013. The certificate converts the project’s WESC from exploration/pre-

development stage to the development/commercial stage.

In 2010, EDC entered into 5 WESCs with the DOE for the following contract areas:

Projects DOE Certificates 1) Pagudpud Wind Project Under DOE Certificate of Registration No. WESC

2010-02-040 (expiring in 2035)

2) Camiguin Wind Project Under DOE Certificate of Registration No. WESC

2010-02-041 (expiring in 2035)

3) Taytay Wind Project Under DOE Certificate of Registration No. WESC

2010-02-042 (expiring in 2035)

4) Dinagat Wind Project Under DOE Certificate of Registration No. WESC

2010-02-043 (expiring in 2035)

5) Siargao Wind Project Under DOE Certificate of Registration No. WESC

19

2010-02-044 (expiring in 2035)

In February 2013, EDC Pagudpud Wind Power Corporation (EPWPC) submitted its Declaration of Commerciality

to the DOE for the Pagudpud wind project, similarly seeking to convert the project from exploration/pre-

development stage to the development/commercial stage. As of March 19, 2014, EPWPC is awaiting the DOE’s

Confirmation of Commerciality of the Pagudpud wind project.

Meanwhile, on December 19, 2011, EDC submitted a letter of surrender covering the Taytay, Dinagat and Siargao

contract areas and will thus no longer pursue these project areas further. Per Section 4.2 of the WESC, the surrender

will take effect 30 days upon the RE Developer’s submission of a written notice to the DOE.

Retail Electricity Supply.

In May 2013, FGES entered into Retail Supply Contract (RSCs) with contestable customers namely, Alturas Group

of Companies and Taiheiyo Cement Philippines Inc. for the monthly supply of electric energy equivalent to 2 MW

and 6 MW, respectively, from June 26, 2013 to January 25, 2016. Under the RSCs, the basic energy charges for

each billing period are inclusive of the generation charge and retail supply charge.

Competition.

The implementation of the Electric Power Industry Reform Act of 2001 (EPIRA) by the Government paved the way

for a more independent and market-driven Philippine power industry. This has allowed for competition not limited

by location, and driven by market forces. As such, selling power and, consequently, the dispatch of power plants

depend on the ability to offer competitively-priced power to the market. As a group, First Gen has multiple power

plants and projects in Luzon, Visayas and Mindanao.

With the privatization of NPC-owned power generation facilities and IPP contracts, the establishment of the WESM,

the integration of the Luzon and Visayas grids under the WESM, and the initial commercial operations of the Retail

Competition and Open Access (RCOA) in June 2013, First Gen Group now faces competition from other power

generation companies, particularly in terms of acquiring offtakers for its existing power plants and future projects.

Various multinational companies that currently operate in the Philippines include Korea Electric Power Corporation,

Marubeni Energy Corporation, CalEnergy International Services, Inc., and AES Corporation. Domestic

corporations, such as San Miguel Corporation, GN Power Corporation of the Philippines, and Aboitiz Power

Corporation, compete with First Gen Group for the sale of electricity to different privately-owned distribution

utilities. Moving forward, First Gen Group continues to face competition both in the development of new power

generation facilities and the acquisition of existing power plants (if there are any), as well as in securing financing

for these capital-intensive projects.

First Gen Group believes that it will be able to compete because of its competitively-priced portfolio of power

generating assets, the reliability of the power plants, its use of clean and renewable fuels, and its expertise and

experience in power supply contracting and trading.

However, it is worth noting that all the existing power generating companies under First Gen have secured long

standing PPAs with its customers.

Company Nature of the Contract

FGPC / FGP

Corp.

Meralco is the sole off-taker of power output of FGPC and FGP Corp. under a 25-

year PPA.

20

FG Bukidnon On February 15, 2010, FG Bukidnon received the decision from the ERC dated

November 16, 2009 which modified some of the terms of the PSA. On March 2,

2010, FG Bukidnon filed a Motion for Reconsideration (MR) with the ERC. While

still awaiting the ERC’s reply to the MR, FG Bukidnon applied the ERC’s revised

rate for its sale to CEPALCO starting March 2010. On September 9, 2010, FG

Bukidnon received the ERC order dated August 16, 2010 partially approving FG

Bukidnon’s MR. This approved tariff was used starting September 2010. On

October 19, 2010, FG Bukidnon filed a motion for clarification on the effectivity of

the ERC Order dated August 16, 2010.

On May 5, 2011, FG Bukidnon received the ERC order dated April 4, 2011 which

clarified that the ERC order dated August 16, 2010 should be applied retroactively

from March 2010. FG Bukidnon was able to recover from CEPALCO P1.76

million of under-recoveries covering the period March 2010 to August 2010.

On June 14, 2012, FG Bukidnon signed a Transmission Service Agreement with

NGCP for the latter's provision of the necessary transmission services to FG

Bukidnon. The charges under this agreement are as provided in the Open Access

Transmission Service Rules and/or applicable ERC orders/issuances. Under the

PSA, these transmission-related charges shall be passed through to CEPALCO.

EDC EDC has existing PPAs with NPC for a period of 25 years of commercial

operations and may be extended upon the request of EDC by notice of not less than

12 months prior to the end of contract period, under terms and conditions as may be

agreed upon by the parties.

EDC’s subsidiaries GCGI and BGI have respective customers with long-term PSAs

which will expire in 2016 and 2022.

FG Hydro FG Hydro had contracts which were originally transferred by NPC to FG Hydro as

part of the acquisition of PMHEPP for the supply of electric energy with several

customers within the vicinity of Nueva Ecija. All these contracts expired as of

December 31, 2010. In 2010, upon renegotiation with the customers and due

process as stipulated by the ERC, the expired contracts were renewed except for the

contract with PAMES. FG Hydro shall generate and deliver to these customers the

contracted energy on a monthly basis. FG Hydro is bound to service these

customers for the remainder of the stipulated terms, the range of which falls

between December 2008 to December 2020. Upon expiration, these contracts may

be renewed upon renegotiation with the customers and due process as stipulated by

the ERC. As of December 31, 2013, there are 4 remaining long-term PSAs being

serviced by FG Hydro.

Details of the existing contracts are as follows:

Related Contract Expiry Date Other Development

21

Nueva Ecija II Electric

Cooperative, Inc., Area

1

(NEECO II –Area 1)

August 25, 2018 FG Hydro and NEECO II-Area 1

executed a 5-year new PSA, in

May 2013. The contract term is

for a minimum of 5 years,

commencing on August 26, 2013,

and may further continue and

remain effective up to August 25,

2023 subject to agreement by

both parties on the provisions of

Re-Pricing. The ERC granted a

provisional approval of the PSA

between FG Hydro and NEECO

II-Area 1 on January 14, 2014.

Nueva Ecija II Electric

Cooperative, Inc., Area

2 (NEECO II –Area 2)

December 25, 2016 The ERC granted a provisional

approval on the PSA between FG

Hydro and NEECO II-Area 2 on

August 2, 2010 with a pending

final resolution of the application

for the approval thereof.

PAMES December 25, 2008 There was no new agreement

signed between FG Hydro and

PAMES. However, FG Hydro

had continued to supply PAMES’

electricity requirements with

PAMES’ compliance to the

agreed restructured payment

terms.

Edong Cold Storage and

Ice Plant (ECOSIP)

December 25, 2020 A new agreement was signed by

FG Hydro and ECOSIP in

November 2010 for the supply of

power in the succeeding 10 years.

National Irrigation

Administration (NIA)-

Upper Pampanga River

Integrated Irrigation

System

October 25, 2020 FG Hydro and NIA-UPRIIS

signed a new agreement in

October 2010 for the supply of

power in the succeeding 10 years.

In addition to the above contracts, FG Hydro entered into a PSA with FPIC. The

contract was originally for a period of 8 months commencing on April 26, 2012,

and was extended for a month or until January 25, 2013.

FG Hydro’s PSA with BacMan, originally for a period of 3 months commencing on

December 26, 2011, was extended for a month or until April 25, 2012.

The following table sets out the DOE’s estimate of the breakdown of total installed capacity as of December 31,

2013 and electricity production by energy source for 2013.

22

Installed Capacity

Energy Source MW %

Coal 5,568 32.7%

Oil Based 3,074 18.1%

Geothermal 1,848 10.9%

Hydro 3,521 20.7%

Natural Gas 2,862 16.8%

Renewable/Others 153 0.8%

Total 17,026 100.0%

Raw Materials and Suppliers.

Company Sources of raw materials Supplier of raw materials

FGPC/FGP - natural gas/ liquid fuel Malampaya consortium composed of

Shell Philippine Exploration, B.V.,

Chevron Malampaya, LLC and

PNOC Exploration Corporation

FG Bukidnon - water The plant is a run-of-river facility

FG Hydro - water Water release generally determined

by NIA

EDC - steam Developed by EDC by virtue of PD

No. 1442. However, as stated above,

the GSCs of EDC (previously

governed by P.D. No. 1442) were

replaced by GRESCs effective

October 23, 2009.

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

There is dependence on customer by virtue of the respective PPAs of FGPC and FGP with Meralco, and of EDC

with NPC.

In the case of EDC, close to 47.9% of EDC’s electricity revenues are derived from existing long-term PPAs with

NPC.

Patents, Trademarks, Copyrights, Licenses, Franchises, Concessions, and Royalty Agreements.

a.) First Gas

Natural gas pipeline. In January 2001, R. A. No. 8997 was enacted, granting FGHC, where First Gen now

beneficially owns 100% effective May 31, 2012, a 25-year legislative franchise to construct, install, own,

operate and maintain pipeline systems for the transportation and distribution of natural gas throughout Luzon.

The franchise is the only specific legislative franchise granted by the Philippine Congress for Luzon and is an

important part of First Gen’s strategy to enter the downstream natural gas transmission and distribution

business.

b.) FG Mindanao

On October 23, 2009, FG Mindanao also signed 5 HSCs with the DOE in connection with the following

projects: Puyo River Hydropower Project in Jabonga, Agusan del Norte; Cabadbaran River Hydropower

Project in Cabadbaran, Agusan del Norte; Bubunawan River Hydropower Project in Baungon and Libona,

Bukidnon; Tumalaong River Hydropower Project in Baungon, Bukidnon; and Tagoloan River Hydropower

Project in Impasugong and Sumilao, Bukidnon.

23

FG Mindanao submitted its declaration of commerciality for each of the Puyo River Hydropower Project and

the Bubunawan River Hydropower Project on March 12, 2012, for Cabadbaran River Hydropower Project on

August 16, 2012, and for each of the Tagoloan River Hydropower Project and the Tumalaong River

Hydropower Project on October 22, 2012.

c.) FG Luzon

A MOA was executed on November 16, 2011 between FG Luzon and NIA for the conduct of a comprehensive

study on the economic, financial and technical viability of the BRMPP.

On March 29, 2012, the Project was awarded an HSC under the DOE Certificate of Registration No. HSC 2012-

01-194.

d.) EDC

The 5 geothermal service contract areas where EDC’s geothermal steamfields 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)*

These contract areas are located in 4 islands of the Philippines, namely: Luzon, Leyte, Negros and Mindanao. The

following table provides a summary of EDC’s geothermal projects, grouped by the contract areas in which they are

located:

Contract

Area Expiratio

n of

GRESC

Project Installed

Capacit

y

(in

MWe)

Product Expiration of

Offtake

Agreement

Minimum Take-or-

pay

Capacity 1

(in

GWh/year)

Plant

Owner

Tongonan

Geothermal

Project

2031 Tongonan 112.5 Steam and

Electricity 2009 (SSA)

2 2031 (GRSC)

4,288.0 GCGI5

Upper

Mahiao 125.0 Steam and

Electricity 2022 (PPA)

4 EDC

Malitbog 232.5 Steam and


4 EDC

Mahanagdong 180.0 Steam and


4 EDC

Optimization 50.9 Steam and


4 EDC

Northern

Negros

Geothermal

Project

20443 Northern

Negros 49.4 Steam and

Electricity 2012 (ESA) N/A EDC

Southern

Negros

Project

2031 Palinpinon I 112.5 Steam and

Electricity 2008 (SSA)

2 2031 (GRSC)

GCGI5

Palinpinon II 80.0 Steam and

Electricity 2018 (SSA) 2031 (GRSC)

GCGI5

Bacon-

Manito

Geothermal

Project

2031 BacMan I 110.0 Steam 2018 (SSA) 722.7 BGI6

BacMan II 40.0 Steam 2019/2023

(SSA) 262.8 BGI

6

Mt. Apo

Geothermal

20423 Mindanao I 52.0 Steam and

Electricity 2022 (PPA) 390.0 EDC

24

1 Refers to 1-year period, ending in July 2009. Minimum Take-or-pay capacity varies from year to year.

2The SSAs that govern the sale of steam for use at the NPC-owned Tongonan I and Palinpinon I power plants

expired in December 2008 but were extended to a date when these plants are sold or privatized, pursuant to the

privatization process under the EPIRA. 3

Includes a 25-year extension

period to GRESC 4 Unified Leyte PPA

5 On October 23, 2009, the Palinpinon and Tongonan geothermal power plants were turned over to GCGI, which

won the PSALM’s auction of the said plants last September 2, 2009. 6 On September 3, 2010, the Bacman 1 and Bacman II geothermal power plants were turned over to BGI, which won

the PSALM’s auction of the said plants last May 5, 2010.

EDC, through its subsidiaries GCGI and BGI, secured 3 Geothermal Operating Contracts covering the power plant

operations:

1) Tongonan Geothermal Power Plant under DOE Certificate of Registration No. GOC 2012-04-038 (with a

25-year contract period expiring in 2037, renewable for another 25 years);

2) Palinpinon Geothermal Power Plant under DOE Certificate of Registration No. GOC 2012-04-037 (with a

25-year contract period expiring in 2037, renewable for another 25 years); and,

3) Bacon-Manito Geothermal Power Plant under DOE Certificate of Registration No. GOC No. 2012-04-039



1) Mt. Cabalian Geothermal Project (expiring by 2034)

2) Mt. Labo Geothermal Project (with a 5-year pre-development period expiring in 2015 and a 25-year


3) Mt. Mainit Geothermal Project (with a 5-year pre-development period expiring in 2015 and a 25-year


4) Ampiro Geothermal Project (with a 5-year pre-development period expiring in 2017 and a 25-year contract

period expiring in 2037)

5) Mandalagan Geothermal Project (with a 5-year pre-development period expiring in 2017 and a 25-year


6) Mt. Zion Geothermal Project (with a 5-year pre-development period expiring in 2017 and a 25-year


7) Lakewood Geothermal Project (with a 5-year pre-development period expiring in 2017 and a 25-year


8) Balingasag Geothermal Project (with a 5-year pre-development period expiring in 2017 and a 25-year


The remaining service contract of EDC that is still covered by P.D. 1442 as of December 31, 2012 is that of Mt.

Cabalian in Southern Leyte, which has a term of 25 years from the effective date of the contract, January 31, 1997,

and for an additional period of 25 years if EDC does not default on its obligations under the GSC. In 2013, EDC

assessed that its Cabalian geothermal project located in Southern Leyte is impaired due to issues on productivity and

sustainability of geothermal resources in the area.

EDC has WESCs with the DOE for the following contract areas:

1) Burgos Wind Project (WESC assigned by

EDC to EBWPC) Under DOE Certificate of Registration No. WESC

2009-09-004 (25-year contract period expiring in

2034)

Project Mindanao II 54.0 Steam and

Electricity 2024 (PPA) 398.0 EDC

1,198.8 6,061.5

25

2) Pagudpud Wind Project Under DOE Certificate of Registration No. WESC

2010-02-040 (pre-development stage expiring in

2013, 25-year contract period expiring in 2035)

3) Camiguin Wind Project Under DOE Certificate of Registration No. WESC

2010-02-041 (pre-development stage expiring in

2013, 25-year contract period expiring in 2035)

In February 2013, EPWPC submitted its Declaration of Commerciality to the DOE for the Pagudpud wind project,

similarly seeking to convert the project from exploration/pre-development stage to the development/commercial

stage. EPWPC is still awaiting the DOE’s Confirmation of Commerciality of the Pagudpud wind project. Last

December 2013, EDC signed 2 WESCs covering the Burgos 1 and Burgos 2 Wind Projects in Burgos, Ilocos Norte.

EDC has yet to receive the copies of the WESCs from the DOE.

Government Approvals. FGPC and FGP have each procured accreditation from the Energy Industry Accreditation

Board (EIAB) for its operation as a private sector generation facility.

Pursuant to R.A. No. 9136, the EPIRA and its Implementing Rules and Regulations (IRR), FGPC, FGP and FG

Bukidnon have filed their applications for the issuance of a COC for the operations of their respective power plants.

FGP, FGPC, FG Hydro and FG Bukidnon have been granted COCs by the ERC for the operation of their respective

power plants on September 14, 2005, November 5, 2003, June 3, 2008 and February 16, 2005, respectively. The

COCs, which are valid for a period of 5 years, signify that the companies in relation to their respective generation

facilities have complied with all the requirements under relevant ERC guidelines, the Philippine Grid Code, the

Philippine Distribution Code, the WESM rules, and related laws, rules and regulations. Subsequently, FGP, FGPC,

FG Hydro and FG Bukidnon successfully renewed their relevant COCs on September 6, 2010, October 29, 2013,

December 1, 2010, and February 8, 2010, respectively. Such COCs are valid for a period of 5 years from the date of

issuance.

First Gen Energy Solutions, Inc. (FGES) has been granted the Wholesale Aggregator’s Certificate of Registration on

May 17, 2007, effective for a period of 5 years, and the Retail Electricity Supplier (RES) License on February 27,

2008, effective for a period of 3 years. Subsequently, FGES applied for the renewal of its RES License on May 9,

2011. The ERC approved the renewal which is effective for a period of 5 years.

The following have been issued to FGPC/FGP/FG Hydro:

Gov’t. Agency Documents Issued

BOI Certificate of Registration

DENR Environment Compliance Certificate

DENR Permit to Operate Water and Air Pollution Installation

Government Regulations.

ELECTRIC POWER INDUSTRY REFORM ACT of 2001 (EPIRA)

R.A. No. 9136, otherwise known as the EPIRA, and the covering IRR, provide for significant changes in the power

sector, which include, among others: the functional unbundling of the generation, transmission, distribution and

supply sectors; the privatization of the generating plants and other disposable assets of the NPC, including its

contracts with IPPs; the unbundling of electricity rates; the creation of a WESM; and the implementation of open

and nondiscriminatory access to transmission and distribution systems.

26

Wholesale Electricity Spot Market

WESM Luzon has already been commercially operating for almost 8 years since its commencement on June 26,

2006. Annual average Luzon spot prices ranged from approximately P3.86/kWh, P4.76/kWh, to P5.96/kWh for

2011, 2012, and 2013, respectively. The increase in 2013 WESM prices was a reflection of the supply deficiency

due to the simultaneous plant outages together with the Malampaya outage from November to December 2013.

On the other hand, WESM Visayas was operated and integrated with the Luzon grid on December 26, 2010. Annual

average Visayas spot prices ranged from approximately P3.49/kWh, P4.72/kWh, and P3.82/kWh for 2011, 2012,

and 2013.

Mindanao does not have a WESM yet. However, last September 26, 2013, the Interim Mindanao Electricity Spot

Market (IMEM) was commercially operated. In contrast to the WESM in Luzon and Visayas, IMEM will be a day-

ahead market intended to draw out uncontracted generation capacities and augment the supply, as well as attract the

voluntary curtailment of load customers to lower the demand. The IMEM is seen as a medium-term and interim

solution to address the supply deficiency in Mindanao, until the entry of new capacities in Mindanao by 2015. The

IMEM also serves as a transition towards WESM in Mindanao as the grid is expected to be ready for actual WESM

operations by 2015.

Retail Competition and Open Access

The EPIRA provides for a system of RCOA. With RCOA, the end users will be given the power to choose its energy

source. Prior to RCOA, distribution utilities procured power supply in behalf of its consumers. With RCOA, the

RES chosen by the consumer will do the buying and selling of power and the distribution utility shall deliver the

same.

RCOA shall be implemented in phases. During the 1st phase, only end users with an average monthly peak demand

of 1 MW for the 12 months immediately preceding the start of RCOA shall have a choice of power supplier, as a

contestable customer. Later, in the 2nd phase, the peak demand threshold will be lowered to 0.75 MW, and will

continue to be periodically lowered until the household demand level is reached.

In a joint statement issued by the DOE and ERC dated September 27, 2012, a new timeline for the 1st phase

implementation of RCOA was prescribed. December 26, 2012 was marked as the Open Access date. This signaled

the beginning of the 6-month transition period until June 25, 2013. The transition period shall involve the

contracting of the retail supply contracts, metering installations, registration and trainings, trial operations by March

2013, and supplier of last resort service or disconnection.

The initial commercial operations of the RCOA commenced on June 26, 2013. For this, ERC issued Resolution No.

11, Series of 2013 providing that a contestable customer can stay with its respective distribution utility until such

time that it is able to find a RES. In case a contestable customer decides to participate in the competitive retail

market, it should advise the distribution utility that it will be leaving the distribution utility's regulated service at

least 60 days prior to the effectivity of its Retail Supply Contract with a RES.

The current RCOA is governed by the Transitory Rules for the Implementation of Open Access and Retail

Competition (ERC Resolution No. 16, Series of 2012) that was established last December 17, 2012 to ensure the

smooth transition from the existing structure to a competitive market.

Proposed Amendments to the EPIRA

Below are proposed amendments to the EPIRA that, if enacted, may have a material effect on First Gen Group’s

electricity generation business, financial condition and results of operations.

In the Philippine Senate, pending for committee approval are:

1. Senate Bill (SB) No.2059: An Act Amending Republic Act No. 9136, Otherwise known as the 'Electric

Power Industry Reform Act of 2001'

2. Senate Bill (SB) No.207: Agus-Pulangui Privatization Exemption Act of 2013

27

The aforementioned bills passed their respective 1st readings and are currently being deliberated in the committees.

First Gen Group cannot provide any assurance whether these proposed amendments will be enacted in their current

form, or at all, or when any amendments to the EPIRA will be enacted. Proposed amendments to the EPIRA,

including the above bills, as well as other legislation or regulation could have a material impact on the First Gen

Group’s business, financial position and financial performance.

RENEWABLE ENERGY (RE) LAW OF 2008 (RE Law)

On January 30, 2009, RA No. 9513, “An Act Promoting the Development, Utilization and Commercialization of

Renewable Energy Resources and for Other Purposes,” otherwise known as the “RE Law of 2008” or the “RE

Law”, became effective. On May 25, 2009, DOE Circular No. DC2009-05-0008, otherwise known as the

“Implementing Rules and Regulations (IRR) of Republic Act No. 9513, was issued and became effective on June

12, 2009.

The RE Law aims to accelerate the exploration and development of RE resources, increase the utilization of

renewable energy resources, increase the utilization of renewable energy, encourage the development and utilization

of renewable energy resources as tools to effectively prevent or reduce harmful emissions, and establish the

necessary infrastructure and mechanism to carry out mandates specified in the RE Law.

The RE Law also provides various fiscal and non-fiscal incentives to RE developers and manufacturers, fabricators,

and suppliers of locally-produced RE equipment and components. The incentives to RE developers include, among

others, Income Tax Holiday (ITH) for the 1st 7 years of the RE developers’ commercial operations or, if there is a

failure to receive ITH, accelerated depreciation; duty free importation of RE machinery, equipment and materials;

special realty tax rates on civil works, equipment, machinery, and other improvements not to exceed 1.5% of the

original cost less accumulated normal depreciation or net book value; NOLCO during the 1st 3 years from the start

of commercial operations to be carried over as a deduction from gross income for the next 7 consecutive taxable

years; 10% corporate income tax after ITH; 0% percent VAT tax rate on sale of power and purchase of local supply

of goods, properties, and services; cash incentive for missionary electrification; tax exemption of proceeds from the

sale of carbon emission credits; and tax credit on domestic capital equipment and services.

On August 10, 2009, the DOE issued the “Guidelines Governing a Transparent and Competitive System of

Awarding Renewable Energy Service/Operating Contracts and Providing for the Registration Process of Renewable

Energy Developers” (DOE Circular No. DC2009-07-0011), and the “Guidelines for the Accreditation of

Manufactures, Fabricators and Suppliers of Locally-Produced Renewable Energy Development Equipment and

Components (DOE Circular No. DC2009-07-0010). The DOE had since then began executing various

service/operating contracts with RE developers.

Environmental Laws.

On November 25, 2000, the IRR of the Philippine Clean Air Act (PCAA) took effect. The IRR contain provisions

that have an impact on the industry as a whole, and on FGP and FGPC in particular, that need to be complied with

within 44 months (or July 2004) from the effectivity date, subject to approval by the Department of Environment

and Natural Resources (DENR). The power plants of FGP and FGPC use natural gas as fuel and have emissions

that are way below the limits set in the National Emission Standards for Sources Specific Air Pollution and Ambient

Air Quality Standards. Based on FGP’s and FGPC’s initial assessments of the power plants’ existing facilities, the

companies believe that both are in full compliance with the applicable provisions of the IRR of the PCAA.

EDC’s geothermal steam field and power generation operations are likewise subject to extensive, evolving and

increasingly stringent safety, health and environmental laws and regulations. These legal requirements address,

among other things, air emissions, wastewater discharges, handling of chemicals, generation and management of

hazardous wastes, workplace conditions within power plant facilities and employee exposure to hazardous

substances.

Company Cost of compliance with Environmental Laws

FGPC US$0.052 million

28

FGP US$0.035 million

EDC P169.0 million

Employees.

Company

Number of regular

employees

Union

Members

CBA

Expiration

First Gen 77 None NA

Expatriates 7

Vice President and up 11

Assistant Vice President 6

Senior Manager 8

Manager

Assistant Manager

7

8

Supervisor 14

Staff 16

FGHC 15 None NA

Vice President 2


Senior Manager 0

Manager 2

Assistant Manager 1

Supervisor 5

Staff 3

FGPC 73 None NA

Vice-President and up 11

Assistant Vice-President 10

Senior Manager 6

Manager 9

Assistant Manager 10

Supervisor 14

Staff 13

FGP 59 None NA

Vice President and up 3


Senior Manager 2

Manager 5

Assistant Manager 6

Supervisor 14

Staff 18

FGBPC 11 None NA

Supervisor 2

Staff 9

FGRI 4

Supervisor 2

Staff 2

FGMHPC 2

Manager 1

Staff 1

FGES 4


Assistant Manager 2

Supervisor 1

EDC 2,184*

EVP, Senior VP, and AVP 20

Sr. Manager, Manager 85

29

Asst. Mgr., Sr. Supervisor 68 9

Supervisor, P/T 1,239 298

Staff 772 614 *refer to table

below

* This includes the employees of GCGI (composed of 181 employees) and BGI (composed of 79

employees) as of December 31, 2013.

EDC has 13 labor unions, each of which represents a specific collective bargaining unit allowed by law,

within EDC. They are distributed in the different locations as follows:

Name of Union Location/Project No. of Members

1. PNOC Energy Group of Employees

Association (PEGEA) Head Office 49

2. Tongonan Workers’ Union (TWU) Tongonan Geothermal

Project 52

3. Leyte A Geothermal Project Employees’

Union (LAGPEU)

Tongonan Geothermal

Project

207

4. United Power Employees’ Union

(UPEU)

Tongonan Geothermal

Project 43

5. Leyte Geothermal Supervisory,

Professional and Technical Employees

Union (LEGSPTEU)

Tongonan Geothermal

Project

161

6. PNOC EDC NNGP Employees Rank

and File (PENERFU)

Northern Negros

Geothermal Project 20

7. Demokratikong Samahang Manggagawa

ng BGPF (DSM-BGPF)

Bacon-Manito Geothermal

Project 77

8. EDC-BGPF Supervisory Employees’

Union (EBSEU)


Project 20

9. BAC-MAN Professional and Technical

Employees Union (BAPTEU)


Project 32

10. Mt. Apo Workers Union (MAWU) Mt. Apo Geothermal Project 73

11. Mt. Apo Professional and Technical

Employees Union (MAPTEU) Mt. Apo Geothermal Project 38

12. PNOC EDC SNGP Rank and File Union Southern Negros


13. PNOC EDC SNGP Supervisory

Association (PESSA)

Southern Negros


TOTAL 927

These unions enter into regular collective bargaining agreements (CBAs) with EDC as regards number of

working hours, compensation, employee benefits, and other employee entitlements as provided under

Philippine labor laws. In 2013, 4 CBA negotiations were concluded in just 1 meeting each.

EDC’s management believes that its current relationship with its employees is generally good. Although

EDC had been involved in arbitrations with its labor unions, it has not experienced in the last 13 years any

strikes, lock-outs or work stoppages as a result of labor disagreements.

Major Risks.

First Gen Group’s principal financial liabilities comprise trade payables, bonds payable, loans payable, and long-

term debt, among others. The main purpose of these financial liabilities is to raise financing for First Gen Group’s

30

growth and operations. First Gen Group has other various financial assets and liabilities such as cash and cash

equivalents, trade receivables, and accounts payable and accrued expenses, and other liabilities, which arise directly

from its operations.

As a matter of policy, First Gen Group does not trade its financial instruments. However, First Gen Group enters

into derivative and hedging transactions, primarily interest rate swaps, cross-currency swap and foreign currency

forwards, as needed, for the sole purpose of managing the relevant financial risks that are associated with First Gen

Group’s borrowing activities and as required by the lenders in certain cases.

First Gen Group has an Enterprise-Wide Risk Management Program which is aimed to identify risks based on the

likelihood of occurrence and impact to the business, formulate risk management strategies, assess risk management

capabilities and continuously monitor the risk management efforts.

The main financial risks arising from First Gen Group’s financial instruments are interest rate risk, foreign currency

risk, credit risk and liquidity risk. The board of directors reviews and approves policies for managing each of these

risks as summarized below.

Interest Rate Risk

First Gen Group’s exposure to the risk of changes in market interest rate relates primarily to First Gen Group’s long-

term debt obligations that are subject to floating interest rates.

First Gen Group believes that prudent management of its interest cost will entail a balanced mix of fixed and

variable rate debt. On a regular basis, the finance team of First Gen Group monitors the interest rate exposure and

presents it to management by way of a compliance report. To manage the exposure to floating interest rates in a

cost-efficient manner, First Gen Group may consider prepayment, refinancing, or entering into derivative

instruments as deemed necessary and feasible.

In November 2008, FGPC entered into interest rate swap agreements to cover the interest payments for up to 91% of

its combined debt under the Covered and Uncovered Facilities. In 2013, FGP entered into 3 interest rate swap

agreements to cover interest payments up to 24.3% of its Term Loan Facility. Under the swap agreements, FGPC

and FGP agreed to exchange, at specific intervals, the difference between fixed and variable rate interest amounts

calculated by reference to the agreed-upon notional principal amounts.

As of December 31, 2013, approximately 70.4% of First Gen Group’s borrowings are subject to fixed interest rate

after considering the effect of its interest rate swap agreements.

Foreign Currency Risk

First Gen Group’s exposure to foreign currency risk arises as the functional currency of the Parent Company and

certain subsidiaries, the U.S. dollar, is not the local currency in its country of operations. Certain financial assets

and liabilities as well as some costs and expenses are denominated in various foreign currencies. To manage the

foreign currency risk, First Gen Group may consider entering into derivative transactions, as necessary.

In the case of EDC, its exposure to foreign currency risk is mitigated to some degree by some provisions of its

GRESC’s, SSA’s and PPA’s. The service contracts allow full cost recovery while its sales contracts include billing

adjustments covering the movements in Philippine peso and the U.S. dollar rates, U.S. Price and Consumer Indices,

and other inflation factors.

Credit Risk

First Gen Group trades only with recognized, reputable and creditworthy third parties and/or transacts only with

institutions and/or banks which have demonstrated financial soundness. It is First Gen Group’s policy that all

customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable

balances are monitored on an ongoing basis and the level of the allowance account is reviewed on an ongoing basis

to ensure that First Gen Group’s exposure to doubtful accounts is not significant.

31

In the case of EDC, the geothermal and power generation businesses trade with its majority customer, NPC, which is

a government-owned-and-controlled corporation. Any failure on the part of NPC to pay its obligations to EDC

would significantly affect EDC’s business operations. As a practice, EDC 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 EDC’s exposure to bad debts is not significant. The

maximum exposure of trade receivable is equal to the carrying amount.

With respect to credit risk arising from the other financial assets of First Gen Group, which comprise of cash and

cash equivalents, excluding cash on hand, and trade and other receivables, First Gen Group’s exposure to credit risk

arises from a possible default of the counterparties with a maximum exposure equal to the carrying amount of these

instruments.

Concentration of Credit Risk

First Gen, through its operating subsidiaries FGP and FGPC, earns substantially all of its revenue from Meralco.

Meralco is committed to pay for the capacity and energy generated by the San Lorenzo and Santa Rita power plants

under the existing long-term PPAs which are due to expire in September 2027 and August 2025, respectively.

While the PPAs provide for the mechanisms by which certain costs and obligations including fuel costs, among

others, are pass-through to Meralco or are otherwise recoverable from Meralco, it is the intention of the Parent

Company, FGP and FGPC to ensure that the pass-through mechanisms, as provided for in their respective PPAs, are

followed.

EDC’s geothermal and power generation businesses trade with NPC as its major customer. Any failure on the part

of NPC to pay its obligations to EDC would significantly affect EDC’s business operations.

First Gen Group’s exposure to credit risk arises from default of the counterparties, with a maximum exposure equal

to the carrying amounts of the receivables from Meralco, in the case of FGP and FGPC, and the receivables from

NPC, in the case of EDC.

Liquidity Risk

First Gen Group’s exposure to liquidity risk refers to the lack of funding needed to finance its growth and capital

expenditures, service its maturing loan obligations in a timely fashion, and meet its working capital requirements.

To manage this exposure, First Gen Group maintains its internally- generated funds and prudently manages the

proceeds obtained from fund-raising in the debt and equity markets. On a regular basis, First Gen Group’s treasury

department monitors the available cash balances by preparing cash position reports. First Gen Group maintains a

level of cash and cash equivalents deemed sufficient to finance the operations.

In addition, First Gen Group has short-term deposits and available credit lines with certain banking institutions.

FGP and FGPC, in particular, each maintain a Debt Service Reserve Account to sustain the debt service

requirements for the next payment period. As part of its liquidity risk management, First Gen Group regularly

evaluates its projected and actual cash flows. It also continuously assesses the financial market conditions for

opportunities to pursue fund raising activities.

Item 2. Properties

Property, plant and equipment consist of land, power plant complex, buildings and improvements, machinery and

other equipment in various locations:

First Gas Holdings Corporation / First Gas Power Corporation

FGHC’s wholly-owned subsidiary, FGPC, operates the 1,000 MW Santa Rita Power Plant located in Santa Rita,

Batangas City. The power plant consists of 4 units where each unit is composed of a gas turbine, a steam turbine,

and a generator connected to a common shaft and the corresponding heat recovery steam generator. The plant site

32

occupies a total land area of 33 hectares. Buildings and structures consists of a power island, switchyard, control

room and administration building, circulating water pump building, circulating water intake and outfall structure,

tank farm, liquid fuel unloading jetty, water treatment plant, liquid fuel forwarding and treatment building, gas

receiving station and other support structures. The power plant also includes a transmission line, which

interconnects the Santa Rita power plant to the Calaca substation.

The property, plant and equipment, with a net book value of US$312.8 million as of

December 31, 2013 has been pledged as security for long-term debt. FGPC has entered into a Mortgage,

Assignment and Pledge Agreement whereby a first priority lien on most of FGPC’s real and other properties,

including revenues from operations of the power plant, has been executed in favor of the lenders. In addition,

FGPC’s shares of stock were pledged as part of the security to lenders.

Unified Holdings Corporation / FGP Corp.

UHC’s 60%-owned subsidiary, FGP, operates the 500 MW San Lorenzo Power Plant located in Santa Rita,

Batangas City. The power plant consists of 2 units where each unit is composed of a gas turbine, a steam turbine,

and a generator connected to a common shaft and the corresponding heat recovery steam generator. The plant site

occupies a total land area of 24 hectares. Buildings and structures consists of a power island, which consists of 1

block with a capacity of 500 MW. It also shares some of the facilities being used by the Santa Rita plant (e.g.

control room and administration building, transmission line, circulating water pump building, tank farm, liquid fuel

unloading jetty, water treatment plant, gas receiving station, among others).

The net book value of FGP’s property, plant and equipment amounted to US$212.0 million as of

December 31, 2013. The covenants in the new term loan facility of FGP financing agreement are limited to

restrictions with respect to: change in corporate business; amendment of constituent documents; incurrence of other

loans; granting of guarantees or right of set-off; maintenance of good, legal and valid title to the critical assets of the

site free from all liens and encumbrances other than permitted liens; transactions with affiliates; and maintenance of

specified debt service coverage ratio and debt to equity ratio. FGP’s real and other properties and shares of stock are

no longer mortgaged and pledged as part of security to the lenders. Instead, FGP covenants to its lenders that it shall

not permit any indebtedness to be secured by or to benefit from any lien on the critical assets of the site except with

the consent of the lenders.

FG Bukidnon Power Corp.

The FGBHPP is located at Damilag, Manolo Fortich, Bukidnon, approximately 36 kms. southeast of Cagayan de

Oro City and 4 kms. from the pineapple plantations of Del Monte Philippines in Mindanao. The run-off-river plant

consists of 2 generating units each rated at 1,000 kVA, 0.8 pf. Power is generated by 2 identical Francis horizontal

shaft reaction turbines and generators with an effective head of 121.5 meters running at 900 rpm and 2.4 kV

generated voltage. The plant generates power through the use of water from Agusan River. The water from the dam

passes through a waterway open canal 5,545 meter along with a bottom width of 1 meter. The water is then

conveyed through the thrash rack located at the intake structure of the reservoir with a total storage capacity of

40,000 m3, covering 2.83 ha. The water flows to the penstock and is directed to 2 pipes leading to each generating

unit.

As of December 31, 2013, the net book value of FGBHPP’s property, plant and equipment amounted to P67.3

million.

Energy Development Corporation

EDC is the registered owner of land located in various parts of the Philippines. As of

December 30, 2013, these lands were valued by Cuervo Appraisers Inc. and Royal Asia Appraisal Corporation,

independent appraisers of EDC, at approximately P1.13 billion. EDC’s landholdings include lots in Bonifacio

Global City in Taguig with a total area of 5,794.5 square meters; in Baguio City with an area of 2,558 sq.m.; and

numerous lots used for geothermal operations in the cities of Ormoc, Bago, and Sorsogon and the municipalities of

Kananga, Valencia, and Manito with an aggregate area of 188 hectares.

33

EDC does not own any parcel of land in the Mindanao Geothermal Project as the area where EDC’s geothermal

facilities and power plants are located is classified as public land. In Northern Luzon, majority of lots that were

leased by EDC in Burgos, Ilocos Norte are now under the process of expropriation in preparation for the

construction of the Burgos Wind Project.

The following table sets out certain information regarding EDC’s landholdings:

Location / Project Parcel of

Land

Area

(hectares)

Under

Expropriation

Leased Acquired

w/ title to

EDC

Title for

Consolidation

Fort Bonifacio 4 0.58 None None 1 3

Baguio 1 0.26 None None 1 None

Bacon-Manito

Geothermal Project 32 12.23 None None 13 19

Northern Negros

Geothermal Project 151 105.16 19 119 12 1

Southern Negros

Geothermal Project 60 98.66 3 12 None 45

Leyte Geothermal

Project 92 192.93 11 9 23 49

Burgos Wind

Project 2,096 689 1,952 144 None None

Total 2,436 1,098.82 1,985 284 50.0 117

None of the properties owned by EDC is subject to any mortgage, lien, encumbrance, or limitation on ownership and

usage. For lots whose titles are still in the name of the registered/previous owners, the company outsourced the

services of a third party surveyor and local lawyers in Ormoc City and Dumaguete City for the judicial titling

applications with the Regional Trial Courts of Ormoc City and Valencia, Negros Oriental.

First Gen Hydro Power Corporation

The rehabilitated and upgraded Pantabangan Hydroelectric Power Plant (PHEP – now 120 MW) is located at the

foot of the Pantabangan dam and consists of 2 generators, each of which is now capable of generating full load

power of 60 MW at 90% power factor. Each generator is coupled to a vertical shaft Francis turbine that converts the

kinetic energy of the water from the dam to 70,000 mechanical horsepower.

The electric power output of PHEP is delivered to the Luzon Grid through a 13.8kV/230kV Ring Bus Switchyard,

composed of 2 64 MVA transformers, switching and protective equipments. The 2 transformers were eventually

replaced last May 2011 (the 3rd

phase of the rehabilitation and upgrade project) with a higher rating of 75 MVA to

match the increase in output.

The Masiway Hydroelectric Power Plant (MHEP) is located 7 kms. downstream of PHEP. It uses a 16,800 HP

Kaplan turbine to convert the energy of the low head but high flow release of water from the Masiway re-regulating

dam to a directly coupled generator that is capable of generating 12 MW of electric power at 90% power factor. The

power output of MHEP is delivered to the Luzon Grid through a switchyard mainly composed of a 15 MVA

transformer, switching and protective equipment all owned by FG Hydro.

For both PHEP and MHEP, all power components, including penstocks, generators, power houses, turbines and

transformers, are owned, maintained and operated by FG Hydro. The amount of water release in the Pantabangan

reservoir is based on the Irrigation Diversion Requirement dictated by NIA. NIA operates and maintains the non-

power components which include watershed, spillway, intake structure and Pantabangan and Masiway reservoirs.

34

The net book value of FG Hydro’s property, plant and equipment amounted to P4.1 billion as of December 31, 2013.

Green Core Geothermal, Inc.

Located in Valencia, Negros Oriental, the Palinpinon geothermal power plant consists of 2 power stations,

Palinpinon I and II, which are approximately 5 kilometers apart. Commissioned in 1983, Palinpinon I comprises

three 37.5–MW steam turbines for a total rated capacity of 112.5 MW. Palinpinon II, on the other hand, consists of 3

modular power plants: Nasuji, Okoy 5 and Sogongon. The 20-MW Nasuji was commissioned in 1993, while the 20-

MW Okoy 5 went on stream in 1994. Started in 1995, Sogongon consists of the 20-MW Sogongon 1 and 20-MW

Sogongon 2. Situated in Sitio Sambaloran, Barangay Lim-Ao, Kananga, Leyte province in Eastern Visayas, the

Tongonan geothermal power plant consists of three 37.5-MW units, which went into commercial operations in 1983.

Both plants use steam supplied by EDC.

Bac-Man Geothermal, Inc.

Located in Bacon, Sorsogon City and Manito, Albay in the Bicol region, the BacMan plant package consists of 2

steam plant complexes. The BacMan I geothermal facility comprises two 55-MW turbines, which were both

commissioned in 1993. BacMan II, on the other hand, consists of two 20-MW units namely, Cawayan located in

Barangay Basud and Botong in Osiao, Sorsogon City. The Cawayan unit was commissioned in 1994 and the Botong

unit in 1998. EDC supplies steam to these plants.

Item 3. Legal Proceedings

First Philippine Holdings Corporation

In the opinion of management and its legal counsel, First Philippine Holdings Corporation is not involved

in litigation which would have a material effect on its financial position and results of operations. FPHC

has sought to include below the cases it believes may have some impact.

First Philippine Holdings Corporation (FPHC) was allowed by the Supreme Court in FPHC vs.

Sandiganbayan, G.R. No. 88345, 253 SCRA 30, to intervene and litigate its claim of ownership over

6,299,177 sequestered PCIBank shares of stock in the case of the Republic of the Philippines vs. Benjamin

Romualdez, et al., Civil Case No. 0035, which is pending before the Sandiganbayan. The intervention was

filed on December 28, 1998 in connection with the complaint of the government for the reconveyance of

the aforesaid shares in the government’s favor on the ground that the shares form part of the “ill-gotten”

wealth of Benjamin Romualdez. FPHC anchors its claim on, among other facts, the nullity or voidability

of the contract transferring the shares from itself to Benjamin Romualdez, et al.

In a Resolution dated February 22, 2007, the Sandiganbayan dismissed FPHC’s Complaint-in-Intervention

as against Trans Middle East (Phil) Equities, Inc. (“TMEE”)on the ground that the complaint was filed

beyond the period provided by law. FPHC sought reconsideration of this decision and seasonably filed on

March 16, 2007 a Motion for Reconsideration of this decision asserting, among other things, that the

contract transferring the shares from itself to the registered owner, Trans Middle East Equities (Phils.), Inc.,

the alleged dummy corporation of Benjamin Romualdez, is alleged to be void, for which prescription

cannot be the basis for a dismissal.

In a Resolution dated 6 September 2007, the Sandiganbayan denied FPHC’s Motion for Reconsideration.

On October 19, 2007, FPHC filed a Petition for Review with the Supreme Court. The petition seeks a

reversal of the Sandiganbayan’s resolution. The Supreme Court denied the petition of FPHC. A motion for

leave to file a 2nd

Motion for Reconsideration and a 2nd

Motion for Reconsideration was filed before the

Supreme Court. This has been denied in an Order dated 19 April 2010.

In a related case, PCGG and FPHC separately filed petitions for review before the Supreme Court of the

dismissal of the Republic of the Philippines’s (“Republic”) Third Amended Complaint before the

Sandiganbayan case against TMEE. The petition of the Republic was dismissed with finality. FPHC’s

35

petition was likewise dismissed. FPHC filed a Motion for Reconsideration, but this was denied in a

Resolution dated 30 March, 2011.

Meanwhile, FPHC continues to pursue its interest in the Sandiganbayan against the other defendants. In a

Resolution dated 26 July 2012, the Sandiganbayan denied FPHC’s Second Complaint-in-Intervention.

FPHC filed a Motion for Reconsideration but this was likewise denied on January 8, 2013. On 30 January

2013, FPHC filed a Petition for Review on Certiorari with the Supreme Court against the Presidential

Commission on Good Government and other defendants, for the reversal of the 26 July 2012 Resolution

and for allowance of FPHC’s intervention. No resolution has been rendered by the Supreme Court yet on

this matter.

There are other pending incidents which are still for resolution of the Sandiganbayan.

On January 9, 2009, FPHC filed a case for tax refund of local business taxes imposed and collected for the

years 2007 and 2008 in the amount of P 33,173,544.62 against the City of Pasig. FPHC is seeking the

refund of local business taxes on the ground of, among other things, that as a holding company, it is not

subject to local business tax as provided in the Local Government Code and the Pasig Revenue

Code. FPHC included in its prayer the issuance of a writ of preliminary injunction which was granted by

the court. The case has been submitted for resolution by the Regional Trial Court of Pasig, Branch 167 in

view of the Joint Manifestation With Motion to Dismiss filed by the parties praying for the “crediting for

the account of Plaintiff the amount of P30,678,110.70” and “application…as tax/es due…as ‘Apartment

Rental’…and ‘Management’…in the total amount of P2,495,433.92”. In an Order dated March 23, 2012,

the complaint was dismissed.

First Gen Corporation

a. First Gen Deficiency Taxes

First Gen received a Final Assessment Notice (FAN) from Bureau of Internal Revenue (BIR)

Revenue Region Office No. 7 covering the taxable year 2007 amounting to P2,362.7 million

inclusive of penalties, for deficiency income tax, value-added tax (VAT), documentary stamp tax

and withholding tax. First Gen filed a Protest Letter on September 14, 2012 arguing, among

others, that the basis of the assessment is not in accordance with law and that the assessment lacks

factual basis. On April 30, 2013, First Gen settled its outstanding tax obligations based on the

revised FAN totaling P3.1 million, inclusive of penalties.

b. FGPC Deficiency Income Tax / Real Property Tax

Deficiency Income Tax

FGPC was assessed by the BIR on July 19, 2004 for deficiency income tax for taxable years 2001

and 2000. FGPC filed its Protest Letter with the BIR on October 5, 2004. On account of the

BIR’s failure to act on FGPC’s Protest within the prescribed period, FGPC filed with the Court of

Tax Appeals (CTA) on June 30, 2005 a Petition against the Final Assessment Notices and Formal

Letters of Demand issued by the BIR. On February 20, 2008, the CTA granted FGPC’s Motion

for Suspension of Collection of Tax until the final resolution of the case.

In a Decision dated September 25, 2012, the 3rd

Division of the CTA granted the Petition and

ordered the cancellation and withdrawal of the Final Assessment Notices and Formal Letters of

Demand. Subsequently, the BIR filed with the CTA en banc a Petition for Review dated January

16, 2013, to which FGPC filed its Comment in March 2013. The CTA en banc again requested

both parties to submit a Memorandum not later than July 6, 2013, which FGPC complied with

accordingly.

On August 14, 2013, the CTA en banc issued a resolution that the case is deemed submitted for

decision based on the respective Memorandums. The case remains pending to date.

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Real Property Tax

In June 2003, FGPC received various Notices of Assessment and Tax Bills from the Provincial

Government of Batangas, through the Office of the Provincial Assessor, imposing an annual real

property tax (RPT) on steel towers, cable/transmission lines and accessories (the T-Line)

amounting to $0.2 million (P12 million) per year. FGPC, claiming exemption from said RPT,

appealed the assessment to the Provincial Local Board of Assessment Appeals (LBAA) and filed a

Petition in August 2003 praying (1) that the Notices of Assessment and Tax Bills issued by the

Provincial Assessor be recalled and revoked; and (2) that the Provincial Assessor drop from the

Assessment Roll the 230 kV transmission lines from Sta. Rita to Calaca in accordance with

Section 206 of the Local Government Code (LGC). FGPC argued that the T-Line does not

constitute real property for RPT purposes, and even assuming that the T-Line is regarded as real

property, FGPC is still not liable for RPT as it is NPC/TransCo, a government-owned and

controlled corporation (GOCC) engaged in the generation and/or transmission of electric power,

which has actual, direct and exclusive use of the T-Line. Pursuant to Section 234 (c) of the LGC,

a GOCC engaged in the generation and/or transmission of electric power and which has actual,

direct and exclusive use thereof, is exempt from RPT.

FGPC sought, and was granted, a preliminary injunction by the Regional Trial Court

(Branch 7) of Batangas City (RTC) to enjoin the Provincial Treasurer of Batangas City from

collecting the RPT pending the decision of the LBAA. Despite the injunction, the LBAA issued

an Order requiring FGPC to pay the RPT within 15 days from receipt of the Order. FGPC filed an

appeal before the Central Board of Assessment Appeals (CBAA) assailing the validity of the

LBAA order. The CBAA in December 2006 set aside the LBAA Order and remanded the case to

the LBAA. The LBAA was directed to proceed with the case on the merits without requiring

FGPC to first pay the RPT on the questioned assessment. The LBAA case remains pending.

On May 23, 2007, the Province filed with the Court of Appeals (CA) a Petition for Review of the

CBAA Resolution. The CA dismissed the petition in June 2007; however, it issued another

Resolution in August 2007 reinstating the petition filed by the Province. In a decision dated

March 8, 2010, the CA dismissed the petition for lack of jurisdiction.

In connection with the prohibition case pending before the RTC which issued the preliminary

injunction, the Province filed in March 2006 an Urgent Manifestation and Motion requesting the

RTC to order the parties to submit memoranda on whether or not the Petition for Prohibition

pending before it is proper considering the availability of the remedy of appeal to the CBAA. The

RTC denied the Urgent Manifestation and Motion, and is presently awaiting the finality of the

issues on the validity of the RPT assessment on the T-Line.

The Province filed a Motion to Dismiss in May 2011, which was denied by the RTC in an Order

dated November 2011. The RTC directed FGPC to amend its petition to include the provincial

assessor as a party respondent. The Province filed a Motion for Reconsideration of this Order.

The RTC denied the motion and required FGPC to implead the provincial assessor in the petition.

On November 21, 2012, FGPC filed its Compliance with Amended Petition to implead the

Provincial Assessor of Batangas. The Province filed a Manifestation and Motion in July 2013,

which was denied by the court in an Order dated September 2013. In an Order dated November

19, 2013, the RTC gave notice that the seat of their Branch 7 will be transferred to the Regional

Trial Court of Tanauan City, Batangas, and that hearings on all cases pending before the RTC will

be held in abeyance until further notice. No further notices have been received from the court as of

this date.

c. FG Hydro

On December 16, 2013, FG Hydro received a Formal Letter of Demand and FAN from the BIR

covering the taxable year 2009 for the alleged deficiency income tax and expanded withholding

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tax, including interest and penalties, totaling to P123.6 million. On January 15, 2014 and March

14, 2014, FG Hydro submitted a protest to the FAN and supporting documents, respectively,

pursuant to Section 228 of the National Internal Revenue Code.

d. Non-operating subsidiaries

On January 30, 2014 and February 10, 2014, certain subsidiaries of First Gen received a Final

Decision on Disputed Assessment (FDDA) from the BIR covering the conglomerate audit for

taxable year 2009 for the alleged deficiency documentary stamp tax on intercompany advances

totaling to P0.6 million, including interest and penalties. In the said FDDAs, the companies were

given 30 days from date of receipt to appeal with the CTA or to the Commissioner of Internal

Revenue through request for reconsideration. Subsequently, on March 3, 2014, each subsidiary

filed their respective Petition for Review with the CTA in relation to the FDDAs issued by the

BIR against the various subsidiaries of First Gen.

e. BPPC Real Property and Franchise Taxes

On July 26, 2010, BPPC turned over the Bauang Plant to NPC/PSALM following the expiration of

the 15-year Cooperation Period covering the project. Prior to the turnover, there were cases filed

against BPPC involving the assessment of RPT and franchise tax by the local government. While

BPPC had recognized a “Provision for real property taxes” in accordance with PAS 37, such

provision for RPT and the related receivable from NPC were duly reversed as of December 31,

2010 on the ground that the transfer of the Bauang Plant constitutes full and complete satisfaction

of all RPT claims against NPC/PSALM and BPPC.

Real Property Tax

(i) The Bauang plant equipment were originally classified as tax-exempt under the individual tax

declarations until the Province of La Union (LGU) revoked exemption and issued RPT

assessments in 1998. This marked the inception of the first case which was presented and heard at

the LBAA, CBAA, CTA and the Supreme Court (SC). The petition to uphold the exemption of

NPC from RPT was subsequently denied in 2007 by the SC, though not with finality. To protect

the plant assets from any untoward action by local government, BPPC and NPC obtained in May

2001 a Writ of Preliminary Injunction against the collection of RPT by the LGU pending a

decision by the SC on the NPC Petition.

In total disregard of a valid injunction premised on a final SC decision in July 2007, the LGU

issued in December 2007 a Final Notice of Delinquency and a subsequent Warrant of Levy for the

unpaid RPT on the Bauang Plant equipment. Similarly, the LGU attempted to collect the arrears

on the RPT on buildings and improvements, which NPC stopped paying since 2003, and included

these assets in the levy. The inability of NPC to settle the amounts due within the grace period

resulted in the public auction of the assets on February 1, 2008.

Even before the public auction, BPPC filed on January 17, 2008 a Petition for Indirect Contempt

under Rule 71 of the 1997 Revised Rules of Civil Procedure on the ground that the LGU, through

the issuance of the Final Notice of Delinquency and Warrant of Levy and the subsequent auction

sale, effectively disobeyed the Writ of Injunction issued by the court.

In the absence of a bidder at auction proper, the alleged tax-delinquent assets were forfeited and

deemed sold to the LGU. Nevertheless, Section 263 of RA No. 7160 also known as the Local

Government Code of 1991, accords the taxpayer the right to redeem the property within 1 year

from date of sale/forfeiture. However, for failure to redeem the plant at the end of the redemption

period, the LGU on February 10, 2009 consolidated title to and ownership of the plant assets by

issuing new tax declarations in its name. Although NPC’s offer of a settlement package for the

P1.87 billion RPT was accepted by the LGU, negotiations were aborted in April 2009 in the

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absence of a clear directive from the Department of Finance and the Department of Budget and

Management for NPC to settle.

On December 22, 2009, the court dismissed BPPC’s Petition for Indirect Contempt. A Motion for

Reconsideration of this Order was subsequently denied by the Court. BPPC filed a Notice of

Appeal, and the records of this case were transmitted to the CA on October 4, 2010.

The NPC also filed a Notice of Appeal. On April 26, 2011, BPPC filed a Notice of Withdrawal of

Appeal. Thereafter, on May 31, 2011, the CA issued a Resolution considering BPPC’s Appeal as

withdrawn.

On June 23, 2011, BPPC received a copy of NPC’s Motion to Withdraw Notice of Appeal which

was granted by the CA in a Resolution dated August 5, 2011. Consequently, the CA considered

the case closed and terminated. On September 26, 2011, BPPC received the Entry of Judgment.

(ii) The second case was filed by NPC with the LBAA of the Province of La Union, for itself and on

behalf of BPPC, following issuance of a revised assessment of RPT on BPPC’s machinery and

equipment in July 2003 by the Municipal Assessor of the Municipality of Bauang, La Union.

Under the said revised Assessment, the maximum tax liability for the period 1995 to 2003 is about

$16.8 million (P775.1 million), based on the maximum 80% assessment level imposable on

privately-owned entities and a tax rate of 2%. In addition, interest on the unpaid amounts (2% per

month not exceeding 36 months) reached a total amount of $10.6 million (P489.0 million).

(iii) The third case was filed on October 19, 2005 by NPC with the LBAA of the Province of La

Union, for itself and on behalf of BPPC, following receipt of a Statement of Account from the

Municipal Treasurer dated August 5, 2005 for RPT on BPPC’s buildings and improvements from

2003 to August 2005 amounting to $0.09 million (P4.2 million). NPC paid all RPT on buildings

and improvements directly to the local government from 1995 until 2003, when it stopped

payment of the tax and claimed an exemption under the Local Government Code. These properties

were included in the February 1, 2008 auction by the LGU.

Franchise Tax

BPPC also filed with the RTC of Bauang, La Union a Petition for Certiorari and Prohibition in

September 2004 to contest an assessment for franchise tax for the period 2000 to 2003 amounting

to $0.7 million (P33.0 million), including surcharges and penalties. The case was filed on the

ground that BPPC is not a public utility which is required by law to obtain a legislative franchise

before operating, and is thus not subject to franchise taxes.

In December 2010, BPPC filed its Supplemental Formal Offer of Evidence. Thereafter, the Court

issued an Order admitting all Company’s Exhibits. On July 12, 2011, the Court issued another

Order with respect to BPPC’s Supplemental Offer of Evidence, excluding 4 of the already

admitted BPPC’s Exhibits. Respondent then filed a Motion for Reconsideration of the said Order,

to which BPPC filed its Comment and Opposition. In August 2011, BPPC filed a Motion for the

issuance of an order amending the July 12, 2011 Order.

On February 2, 2012, the RTC of Bauang, La Union issued an order denying the Respondent’s

Motion for Reconsideration and granting BPPC’s motion.

During a hearing held on April 17, 2012, the Respondents manifested that they will no longer be

presenting additional witnesses. The Court gave the Respondents 20 days from the receipt of the

order to file their formal offer of evidence and BPPC 10 days from receipt of formal offer to file

its comment, after which the matter shall be resolved. In the same order given in open court, the

parties were directed to file their respective memoranda within 30 days from the receipt of the

ruling on the formal offer of evidence.

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Respondents filed a Motion to Correct Markings on Exhibits (with Prayer for Extension to File

Formal Offer of Documentary Evidence) in June 2012, which was granted in an Order dated June

21, 2012.

Both NPC and BPPC believe that they are not subject to pay franchise tax to the local government.

In any case, BPPC believes that the Project Agreement with NPC allows BPPC to claim indemnity

from NPC for any imposition, including franchise tax, incurred by BPPC that was not originally

contemplated when it entered into said Project Agreement.

f. EDC

Expropriation Proceedings

Several expropriation proceedings filed by the Republic of the Philippines, through the DOE, and

PNOC to acquire lands needed by EDC for its power plants and projects are still pending before

various Philippine courts, in particular, with respect to the land requirements of the Leyte

Geothermal Project, the Southern Negros Geothermal Project, Northern Negros Geothermal

Project and the Burgos Wind Project. As of December 31, 2012, there were 299 such cases

pending and the aggregate amount claimed by the landowners as just compensation is

approximately P267.1 million. In 2013, 2 of these were settled but some 616 additional

expropriation proceedings were commenced for the Burgos Wind Project alone. To date, the

Republic of the Philippines and the PNOC’s authority to expropriate land for EDC’s use and

EDC’s possession of the land expropriated has not been questioned in the pending expropriation

proceedings. The common issue in these cases is the amount of compensation to be paid to the

owners of expropriated lands.

Tax Cases

a) Real Property Taxes

On May 22, 2009, EDC received a Notice of Assessment from the Provincial Assessor of Leyte

assessing the value of EDC’s geothermal and production wells at a value of P5,920.0 million which

facilities are located in Tongonan, Malitbog and Lim-ao. On August 7, 2009, EDC filed the

corresponding appeal before the LBAA of the Province of Leyte in a case entitled Energy

Development Corporation vs. Province of Leyte, LBAA Case No. 029, for the annulment of the

assessments made on the ground that the properties assessed are exempted from real property tax.

The appeal is still pending with the LBAA as of December 31, 2013.

On February 2, 2011, EDC paid under protest realty taxes accruing to the Special Education Fund

(SEF) on its transmission lines and other improvements located in Bago City for the taxable year

2010 amounting to P2.7 million. On March 4, 2011, EDC filed with the Treasurer its formal protest.

On May 27, 2011, due to the Treasurer’s inaction, EDC was constrained to appeal the same before the

LBAA – Bago City. EDC is not liable to pay SEF that is in excess of the preferential realty tax rate

of 1.5% under Section 15 (c) of R.A. 9513. The appeal is still pending with the LBAA as of

December 31, 2013.

On March 14, 2012, EDC received a Notice of Assessment for real properties located in the Mount

Apo Geothermal Project with an assessed value of P7.5 million. In May 2012, EDC filed an appeal

with the LBAA entitled Energy Development Corporation vs. The City of Kidapawan on the ground

that the properties are exempt from RPT. The appeal is still pending with the LBAA as of December

31, 2013.

On April 24, 2012, EDC filed an appeal with the LBAA of Bago City seeking to refund a portion of

the RPT payments made for the year 2010 representing the amount in excess of the preferential RPT

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rate of 1.5% under Section 15(c) of Republic Act No. 9513, amounting to P6.0 million. The appeal is

still pending with the LBAA as of December 31, 2013.

On July 30, 2012, EDC also filed an appeal with the LBAA of the Province of Leyte seeking to

refund a portion of RPT paid for properties located in Kananga, Leyte for the year 2010 in the sum of

P17.0 million. In August 2012, EDC also filed an appeal with the LBAA appealing the inaction of the

Leyte Provincial Treasurer on the payment under protest of the amount of P11.0 million for properties

located in Kananga, Leyte for the year 2012. The excess amounts pertain to the amounts in excess of

the 1.5% preferential RPT rate imposed by Section 15(c) of R.A. 9513. EDC also filed a similar

appeal with the LBAA of Kidapawan City on March 19, 2012, seeking to refund an amount of P2.8

million. In June 2012, EDC also filed an appeal to the LBAA of Ormoc City, appealing the denial of

the Ormoc City Treasurer of EDC’s protest of excess RPT payments in the amount of P39.5 million.

In December 2012, EDC filed an appeal with the Province of Negros Oriental seeking refund of

excess RPT payments made for fiscal year 2011 in the amount of P0.9 million on the ground of non-

use of the subject real properties. EDC also filed an appeal in April 2013 appealing the denial of the

request for reclassification of transmission towers from buildings to machineries, and consequently

from taxable to exempt. The foregoing appeals are still pending before the LBAA as of December 31,

2013.

For the year 2013, EDC filed similar appeals with Kidapawan City seeking refund of excess real

property payments for fiscal year 2011 in the amount of P2.8 million and for fiscal year 2013 in the

amount of P2.9 million. In the Province of Leyte, EDC filed similar appeals seeking refund of excess

RPT payments for fiscal year 2011 in the amount of P13.2 million and for fiscal year 2013 in the

amount of P8.9 million. EDC also filed an appeal of its protest of excess RPT payments in Bago City

in the amount of P5.6 million and in Ormoc City in the amount of P36.8 million, both for fiscal year

2013. EDC also filed an appeal with the City of Sorsogon requesting for the annulment of assessment

of realty tax from the 4th

quarter of 2010 to 2013. In July 2013, GCGI filed an appeal with the LBAA

of the Province of Negros Oriental to seek a reversal of the denial by the Provincial Treasurer of

GCGI’s protest of excess RPT payments for the year 2013 in the amount of P6.0 million. In August

2013, GCGI also appealed with the LBAA of the Province of Leyte the adverse decision of the

Provincial Treasurer on GCGI’s protest of excess RPT payments for the year 2013 in the amount of

P17.8 million. These appeals are pending before the LBAA as of December 31, 2013.

Franchise Taxes

The Province of Leyte assessed EDC an aggregate of P310.6 million in franchise taxes in respect of

the operations from 2000-2004, 2006 and 2007 of its geothermal power plants in the Province. EDC

seasonably filed the corresponding appeals before the RTC of Tacloban City, Leyte, for the

annulment of the assessments. The said cases have been docketed as Consolidated Civil Cases

No. 2006-07-77, 2006-05-49, 2006-05-48 and 2007-08-03, and 2008-05-537 captioned PNOC EDC

vs. province of Leyte, et al.

In December 2008, EDC received a Consolidated Notice of Assessment and Demand for Payment

from the Province of Leyte, demanding from EDC the payment of franchise tax in the amount of

P443.7 million. This assessment cancelled previous assessments since the new assessment covers the

period starting 1998 until 2006. In April 2009, EDC protested the said assessment and, since the

Province denied the said protest, the matter is currently under appeal before the RTC of Tacloban

City, Leyte, docketed as Civil Case No. 2009-04-46, captioned EDC vs. Province of Leyte, et al.

On July 17 and September 15, 2009, respectively, the Court issued 2 orders granting the Company’s

prayer for the issuance of a Preliminary Injunction restraining the Province from levying and

collecting franchise tax from the company. These orders are subject of a Petition for Certiorari with

Prayer for Issuance of Preliminary Injunction and/or Temporary Restraining Order docketed CA G.R.

CEB SP No. 04575 filed by the province seeking to annul the said orders. On August 3, 2012, the CA

41

issued a Resolution denying the Province of Leyte’s Motion for Reconsideration of the Resolution

dated September 21, 2011 dismissing the Petition for Certiorari.

In August 2010, EDC received a notice of assessment of franchise tax dated July 26, 2010 from the

OIC, City Treasurer of Sorsogon demanding payment of a franchise tax in the total amount of P3.7

million for the operations of the Geothermal Plant for the year 2009. EDC timely filed its protest on

October 8, 2010. As the City Treasurer of Sorsogon City failed to act on the protest with the

prescribed period, the Company filed the appropriate Petition with the RTC. In January 2012, EDC

received an adverse decision of the RTC which was appealed to the CTA. In May 2013, the CTA

rendered a Decision granting EDC’s Petition for Review and held that EDC is not liable for franchise

tax. Accordingly, the CTA reversed and set aside the decision of the RTC. The CTA set aside and

nullified the Notice of Assessment assessing the Company deficiency franchise tax in the amount of

P3.7 million. The Decision of the CTA became final and executory on August 21, 2013.

EDC believes that it is not liable for franchise taxes on the basis that it does not possess a legislative

franchise. This view is supported by an opinion of the Office of the Government Corporate Counsel.

In addition, under the EPIRA, power generation is not a public utility activity and does not require a

franchise. Furthermore, EDC is not engaged in a business that requires a franchise.

Input Value Added Tax

In April 2009, December 2009, and March 2011, EDC filed Petitions for Review with the CTA with

respect to its un-acted claim from the BIR for Tax Credit on Input VAT relating to EDC’s zero-rated

sales for 2007, 2008, and 2009, respectively. The aggregate claim amounts to P370.3 million. These

cases are entitled Energy Development Corporation (Formerly PNOC Energy Development

Corporation) vs. Commissioner of Internal Revenue and have been docketed as CTA Case No. 7926,

8019, and 8255, respectively. EDC believes that its sales are zero-rated pursuant to the provisions of

EPIRA and the provisions of the National Internal Revenue Code, as amended.

On May 9, 2011, the CTA dismissed EDC’s petition in CTA Case No. 7926. EDC filed a Motion for

Reconsideration which was denied by the CTA on July 15, 2011. In August 2011, a Petition for

Review was filed with the CTA en banc and was docketed as CTA EB No. 809. The CTA en banc

affirmed the dismissal of the petition. A Motion for Reconsideration filed in June 2012 was also

denied in a Resolution dated August 29, 2012. On October 29, 2012, EDC filed a Petition for Review

on Certiorari with the SC to seek the reversal of the Decision and Resolution of the CTA en banc.

The Petition for Review on Certiorari is still pending before the SC as of December 31, 2013.

On April 29, 2013, the CTA rendered a decision in CTA Case No. 8019 partially granting the Petition

for Review and directing the Commissioner of Internal Revenue to refund or issue a tax credit

certificate in favor of EDC the amount of P34.4 million. In May 2013, EDC filed a Motion for

Reconsideration which was denied by the CTA in its Resolution dated August 14, 2013. In

September 2013, EDC filed with the CTA en banc a Petition for Review to appeal the said Decision

and Resolution and was docketed as CTA EB No. 1067. The Petition for Review is pending with the

CTA en banc as of December 31, 2013.

On October 16, 2013, EDC filed a Motion to Withdraw its Petition for Review in CTA Case No. 8255

to claim for refund or tax credit for taxable year 2009. On October 22, 2013 the CTA granted the

motion and declared the case as closed and terminated.

Civil Cases

As of December 31, 2013, there are 21 civil cases to which EDC is a party. Although the aggregate

monetary claims in these cases amount to approximately P20.8 million, EDC does not believe that an

adverse result in any one case pose a material risk to EDC’s operations.

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Labor Cases

As of December 31, 2013, there were 10 pending labor cases against EDC, most of which deal with

plaintiffs’ claims of illegal dismissal and backwages. Although the aggregate monetary claims in these

cases amount to approximately P40.4 million, EDC does not believe that any one case poses a material

risk to EDC’s operations.

Other legal proceedings

(i) West Tower Condominium Corporation, et al. vs.

First Philippine Industrial Corporation, et al.

G.R. No. 194239, Supreme Court of the Philippines

On November 15, 2010, a Petition for the Issuance of a Writ of Kalikasan was filed before the SC

by the West Tower Condominium Corporation, et al., against respondents First Philippine

Industrial Corporation (FPIC), the Parent Company, their respective boards of directors and

officers, and John Does and Richard Roes. The petition was filed in connection with the oil leak

which is being attributed to a portion of FPIC’s while oil pipeline located in Bangkal, Makati City.

The oil leak was found in the basement of the West Tower Condominium.

The petition was brought by the West Tower Condominium Corporation purportedly on behalf of

its unit owners and in representation of the inhabitants of Barangay Bangkal, Makati City. The

petitioners sought the issuance of a Writ of Kalikasan to protect the constitutional rights of the

Filipino people to a balanced and healthful ecology, and prayed that the respondents permanently

cease and desist from committing acts of negligence in the performance of their functions as a

common carrier; continue to check the structural integrity of the entire 117-km white oil pipeline

and replace the same; make periodic reports on findings with regard to the said pipeline and their

replacement of the same; be prohibited from opening the white oil pipeline and allowing its use

until the same has been thoroughly checked and replaced; rehabilitate and restore the environment,

especially Barangay Bangkal and West Tower Condominium, at least to what it was before the

signs of the leak became manifest; open a special trust fund to answer for similar contingencies in

the future; and be temporarily restrained from operating the said pipeline until final resolution of

the case.

On November 19, 2010, the SC issued a Writ of Kalikasan with Temporary Environmental

Protection Order (TEPO) directing the respondents to: (i) make a verified return of the Writ within

a non-extendible period of ten days from receipt thereof; (ii) cease and desist from operating the

pipeline until further orders from the court; (iii) check the structural integrity of

the whole span of the pipeline, and in the process apply and implement sufficient measures to

prevent and avert any untoward incident that may result from any leak in the pipeline; and (iv)

make a report thereon within 60 days from receipt thereof.

First Gen and its impleaded directors and officers filed a verified Return in November 2010 and a

Compliance in January 2011, explaining that First Gen is not the owner and operator of the

pipeline, and are not involved in the management, day-to-day operations, maintenance and repair

of the pipeline. For this reason, neither First Gen nor any of its directors and officers has the

capability, control, power or responsibility to do anything in connection with the pipeline,

including to cease and desist from operating the same. On January 18, 2011, the SC noted and

accepted the Return filed by First Gen, and on January 25, 2011 similarly noted and accepted the

Compliance filed by First Gen.

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On January 3, 2011, FPIC asked the SC to temporarily lift the Writ for the conduct of a pressure-

controlled leak test for the entire 117-kilometer white oil pipeline, as recommended by the

international technical consultant of the DOE. On November 22, 2011, the SC issued a Resolution

ordering the temporary lifting of the TEPO for a period of 48 hours. The DOE and its

international technical consultant, SGS Philippines, Inc., supervised the leak test activities which

began in the morning of December 14, 2011. Representatives from the University of the

Philippines National Institute of Geological Sciences, UP Institute of Civil Engineering, and the

parties witnessed the activities.

For the purpose of expediting the proceedings and the resolution of all pending incidents, the SC

reiterated its order to remand the case to the CA to conduct subsequent hearings within a period of

60 days, and after trial, to render a report to be submitted to the SC, 30 days after the submission

of the parties’ respective memoranda. Further, in an earlier resolution dated May 31, 2011, the SC

clarified that the black oil pipeline is not included in the Writ with TEPO.

On December 21, 2012, the former 11th

Division of the CA rendered its Report and

Recommendation in which the following recommendations were made to the SC: (i) that certain

persons/organizations be allowed to be formally impleaded as petitioners subject to the

submission of the appropriate amended petition; (ii) that FPIC be ordered to submit a certification

from the DOE that the white oil pipeline is safe for commercial operation; (iii) that the

petitioners’ prayer for the creation of a special trust fund to answer for similar contingencies in the

future be denied for lack of sufficient basis; (iv) that respondent First Gen not be held solidarily

liable under the TEPO; and (v) that without prejudice to the outcome of the civil and criminal

cases filed against respondents, the individual directors and officers of FPIC and First Gen not be

held liable in their individual capacities.

Petitioners filed a Motion for Partial Reconsideration dated January 10, 2013, in which they

prayed, among others, that the Department of Science and Technology (DOST), specifically its

Metal Industry Research and Development Center, be tasked to chair the monitoring of FPIC’s

compliance with the directives of the court and issue the certification required to prove that the

pipeline is safe to operate before commercial operation is resumed; that stakeholders be consulted

before a certification is issued; that a trust fund be created to answer for future contingencies; and

that First Gen and its directors and officers and FPIC also be held liable under the Writ of

Kalikasan and the TEPO.

In a Compliance dated January 25, 2013, FPIC submitted to the SC a Certification signed by DOE

Secretary Carlos Jericho L. Petilla dated January 22, 2013 stating that the black oil pipeline is safe

for commercial operation. FPIC likewise submitted an Interim Periodic Report as of January 31,

2013. On February 13, 2013, FPIC filed its Comment (On the Court of Appeals’ Report and

Recommendation on the Merits of the Case) and Opposition (to Petitioners’ Motion for Partial

Reconsideration).

In a Resolution dated June 18, 2013, the SC noted FPIC’s periodic report on its efforts at checking

its white oil pipeline, implementing safety measures, and the remediation of the affected area, for

the months of March, April and May 2013 and accepted the Certification dated April 30, 2013

from the DENR.

In a Resolution dated July 30, 2013, the SC adopted the CA’s recommendation that FPIC secure a

DOE certification stating that the pipeline is already safe for commercial operation before the

white oil pipeline may resume its operations.

In a Resolution dated September 24, 2013, the SC noted FPIC’s periodic report on its efforts at

checking its white oil pipeline, implementing safety measures, and the remediation of the affected

area, for the month of August 2013.

44

In a Resolution dated October 8, 2013, the SC resolved to defer action on petitioners’ Motion for

Partial Reconsideration (of the Court of Appeals’ Report and Recommendation with Final

Resolution on Specific Pending Incidents dated December 21, 2012) until the Certification from

the DOE is submitted.

In a Resolution dated November 12, 2013, the SC deferred action on the Motion for

Reconsideration with Motion for Clarification dated September 12, 2013 filed by petitioners until

the Certification from the DOE is submitted, but noted the Opposition dated October 24, 2013

filed thereto by FPIC.

In a Resolution dated November 19, 2013, the SC noted FPIC’s submission of the Certification

dated October 25, 2013 signed by DOE Secretary Petilla and FPIC’s periodic report on its efforts

at checking its white oil pipeline, implementing safety measures, and the remediation of the

affected area, for the month of October 2013.

In a Compliance dated February 21, 2014, FPIC submitted to the SC its periodic report on its

efforts at checking its white oil pipeline, implementing safety measures, and the remediation of the

affected area, for the month of January 2014.

(ii) West Tower Condominium Corporation, et al. vs.

First Philippine Industrial Corporation, et al.

Civil Case No. 11-256, Regional Trial Court, Makati Branch 58

On March 24, 2011, a civil case for damages was filed by the West Tower Condominium

Corporation and some residents of the West Tower Condominium against FPIC, the FPIC

directors and officers, the Parent Company, Pilipinas Shell Petroleum Corporation, and Chevron

Philippines, Inc. before the Makati City RTC. In their complaint, the Plaintiffs alleged that FPIC,

its directors and officers, and the Parent Company violated Republic Act No. 6969 (Toxic

Substances and Hazardous and Nuclear Wastes Control Act of 1990), RA 8749 (Philippine Clean

Air Act of 1999) and Its Implementing Rules and Regulations, and RA 9275 (Philippine Clean

Water Act of 2004). The complaint sought payment by the Defendants of actual damages

comprising incurred rentals for alternative dwellings, incurred additional transportation and

gasoline expenses and deprived rental income; recompense for diminished or lost property values

to enable the buying of new homes; incurred expenses in dealing with the emergency; moral

damages; exemplary damages; a medical fund; and attorney’s fees.

First Gen filed its Answer in May 2011, in which it was argued that the case is not an

environmental case under the Rules of Procedure for Environmental Cases, but an ordinary civil

case for damages under the Rules of Court for which the appropriate filing fees should be paid

before the court can acquire jurisdiction thereof. In an Order dated August 22, 2011, Makati City

RTC (Branch 158) Judge Eugene Paras ruled that the complaint is an ordinary civil action for

damages and that the Plaintiff should pay the appropriate filing fees in accordance with the Rules

of Court within 10 days from receipt of the Order. The other individual plaintiffs were ordered

dropped as parties in the case. The Plaintiffs filed a Motion to Inhibit Judge Paras as well as a

Motion for Reconsideration of the Order. In an Order dated October 17, 2011, the court reiterated

that it has no jurisdiction over the case and ordered the referral of the case to the Executive Judge

for re-raffle.

In an Order dated December 1, 2011, Judge Elpidio Calis of the Makati City RTC (Branch 133)

declared that the records of the case have been transferred to his court. Subsequently, in an Order

dated January 18, 2012, Judge Calis declared that the Plaintiff’s Motion for Reconsideration of the

August 22, 2011 Order is deemed submitted for resolution.

45

In an Order dated September 13, 2013, the Makati City RTC (Branch 58) suspended the

proceedings of the case in light of the filing by the plaintiffs of a Petition for Certiorari (with

Prayer for Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction) dated

June 2012 with the Court of Appeals. On January 23, 2014, the court issued an Order archiving

the case without prejudice to its reopening.

(iii) West Tower Condominium Corporation vs. Leonides Garde, et al.

NPS No. XV-05-INQ-11J- 02709

Office of the City Prosecutor

Makati City

This is a criminal complaint for negligence under Article 365 of the Revised Penal Code against

FPIC directors and some of its officers, as well as directors of First Gen, Pilipinas Shell Petroleum

Corporation and Chevron Philippines, Inc.

On December 14, 2011, a Counter-Affidavit with Verified Manifestation was filed by Francis

Giles B. Puno, Director, President and Chief Operating Officer of First Gen and one of the

Respondents. The other Respondent-Directors of First Gen verified the Verified Manifestation and

adopted the factual allegations and defenses in the Counter-Affidavit of Respondent Puno.

Makati City Prosecutor Feliciano Aspi motu proprio (on his own) inhibited himself from the case

on the ground that he had previously worked for the counsel of First Gen. Complainant then filed

with the Department of Justice (DOJ) a petition for change of venue, which petition was granted

by way of Department Order No. 63 dated January 18, 2012, which designated Manila Senior

Assistant City Prosecutor Raymunda Apolo as special investigating prosecutor for the case.

In an Order dated February 3, 2012, Makati City Prosecutor Aspi ordered the consolidation of the

case with another case entitled Anthony M. Mabasa et al. vs. Roberto B Dimayuga et al. for

violation of Article 365 of the Revised Penal Code. The Order stated that the consolidation is

being made upon the recommendation of Makati City Assistant Prosecutor Ma. Agnes Alibanto.

On February 17, 2012, Respondent-Directors of First Gen filed a Motion for Reconsideration of

the Order dated January 18, 2012 which granted Complainant’s petition for a change of venue.

The case remains pending.

(iv) Bayan Muna Representatives, et al. vs. ERC and Meralco (G.R. No. 210245)

NASECORE, et al. vs. Meralco, ERC and DOE (G.R. No. 210255)

Meralco vs. Philippine Electricity Market Corporation (PEMC), et al (G.R. No. 210502)

Supreme Court

Manila

In these cases the Supreme Court (SC) issued separate Temporary Restraining Orders (TROs)

restraining Meralco from increasing the generation charge rate it charges to its consumers during

the November 2013 billing period, and similarly restraining PEMC and other generation

companies, including certain subsidiaries of First Gen, namely, FGPC, FGP, FG Hydro, BGI, and

BEDC, from demanding and collecting from Meralco the deferred amounts representing the costs

raised by the latter. The TROs will remain effective until April 22, 2014, unless renewed or lifted

ahead of such date.

On February 26, 2014, FGPC, FGP, FG Hydro, BGI and BEDC filed with the SC a Memorandum

with Motion to Lift TRO. It is First Gen Group’s position that its right to the payment of the

46

generation charges owed by Meralco is neither dependent nor conditional upon Meralco’s right to

collect the same from its consumers. In the case of FGPC and FGP, Meralco’s obligation to pay is

contractual and thus governed by the terms and conditions of their respective PPAs. Ultimately,

Meralco is bound to comply with its contractual obligations to FGPC and FGP, whether via the

pass-through mechanism or some other means.

i. Arbitration Proceedings

On March 22, 2012, the Parent Company’s subsidiaries, FPNC and First PV initiated joint

arbitration proceedings against Nexolon with the International Court of Arbitration of the

International Chamber of Commerce (the “ICC”). In this arbitration, FPNC has claimed payment

of sums owed by Nexolon, damages, and such other reliefs as the arbitral tribunal may deem

appropriate, on the basis of Nexolon's breaches of the Supply Agreement. For its part, First PV

has exercised its put option under its JV Agreement with Nexolon pursuant to which Nexolon is

required to purchase all of its shares in FPNC at their acquisition cost plus interest. Nexolon has

contested First PV's and FPNC's claims. Nexolon has alleged that FPNC breached the Supply

Agreement. Nexolon has further alleged that First PV breached the JV Agreement, and has also

purported to exercise its put option under the JV Agreement and to compel First PV to purchase

all of Nexolon’s shares in FPNC. FPNC and First PV contest these counterclaims by Nexolon.

While FPNC and First PV believe in the strength of their positions in the arbitration and that they

are entitled to the claims they have made, these claims were not recognized in their financial

statements pursuant to PAS 37, Provisions, Contingent Liabilities and Contingent Assets, which

requires the recognition of contingent assets only when the realization of income is virtually

certain.

In accordance with PAS 37 and the confidential nature of the arbitration proceedings, no further

information on this arbitration is disclosed in order not to impair the outcome of the proceeding.

As at December 31, 2013, First PV and FPNC are awaiting the outcome of the arbitration

proceedings.

On November 22, 2012, the Parent Company’s subsidiaries, FPSC and First Philec initiated joint

arbitration proceedings against SPML with the ICC. In this arbitration, FPSC has claimed

payment of sums owed by SPML, damages, and such other reliefs as the arbitral tribunal may

deem appropriate, on the basis of SPML's breaches of the Supply Agreement. For its part, First

Philec has exercised its put option under its JV Agreement with SPML pursuant to which SPML is

required to purchase all of its shares in FPSC at the amount prescribed in the JV Agreement.

SPML has contested FPSC’s and First Philec’s claims. SPML has purportedly terminated the

Supply Agreement on August 4, 2012 due to alleged breaches by FPSC. SPML has also accused

First Philec of alleged breaches of the JV Agreement, and has also sought to exercise its put option

under the JV Agreement and to compel First Philec to purchase all of SPML’s shares in FPSC.

FPSC and First Philec contest these counterclaims by SPML.

While FPSC and First Philec believe in the strength of their positions in the arbitration and that

they are entitled to the claims they have made, these claims were not recognized in their financial

statements pursuant to PAS 37, which requires the recognition of contingent assets only when the

realization of income is virtually certain.

47

In accordance with PAS 37 and the confidential nature of the arbitration proceedings, no further

information on this arbitration is disclosed in order not to impair the outcome of the proceeding.

As at December 31, 2013, First Philec and FPSC are awaiting the outcome of the arbitration

proceedings.

Certain subsidiaries and associates have contingent liabilities with respect to claims, lawsuits and

tax assessments. The respective management of the subsidiaries and associates, after consultations

with outside counsels, believes that the final resolution of these issues will not materially affect

their respective financial position and results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

The following matters will be subject to a vote of security holders:

Amendment of Article THIRD of the Articles of Incorporation to Reflect on the Complete Address of the

Principal Office of the Corporation

Amendment of Article SEVENTH of the Articles of Incorporation to Reflect on the Reduction of the

Authorized Capital Stock Resulting from the cancellation/ retirement of the redeemed Preferred Shares

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

(1) Market Information

(a) The registrant's common equity is being traded at the Philippine Stock Exchange.

(b) STOCK PRICES

Common

High Low

2013

First Quarter ............................. 113.80 89.10

Second Quarter ......................... 110.30 68.00

Third Quarter ........................... 88.50 74.50

Fourth Quarter .......................... 76.90 48.90

2012

First Quarter ............................. 65.80 58.50

Second Quarter ......................... 75.75 61.50

Third Quarter ........................... 79.95 75.00

Fourth Quarter .......................... 95.50 79.00

2011

First Quarter ............................. 69.50 51.00

Second Quarter ......................... 67.20 56.75

Third Quarter ........................... 63.50 51.50

Fourth Quarter .......................... 63.80 52.10

FPH was trading at P70.00 per share as of April 10, 2014

(c) DIVIDENDS PER SHARE – A total of P3.00 per share cash dividends on common shares and P2.1808 per

share cash dividends on perpetual preferred shares were declared and paid in the year 2013. In the years

2012 and 2011, cash dividends declared and paid were P2.00 per share on common shares and P8.7231 per

48

share on perpetual preferred shares.

The number of common and preferred shareholders of record as of December 31, 2013 was 12,363 and nil,

respectively. As of December 31, 2013, common and preferred shares issued and subscribed were 552,537,583 and

nil, respectively.

Top 20 Stockholders of Common Shares as of December 31, 2013:

Name No. of Shares Held % to Total

1. Lopez Holdings Corporation 254,179,231 46.0022%

2. PCD Nominee Corporation (Filipino) 151,672,195 27.4501%

3. PCD Nominee Corporation (Non-Filipino) 79,723,857 14.4287%

4. First Philippine Holdings Corp. Pension Fund 10,115,926 1.8308%

5. Oscar M. Lopez 7,222,970 1.3072%

6. Federico R. Lopez 3,983,575 0.7210%

7. Elpidio L. Ibañez 2,689,698 0.4868%

8. Francis Giles B. Puno 2,457,343 0.4447%

9. Ma. Consuelo R. Lopez 1,636,214 0.2961%

10. Manuel M. Lopez &/OR Ma. Teresa L. Lopez 1,150,773 0.2083%

11. Ma. Teresa L. Lopez 1,061,398 0.1921%

12. Sergio T. Ong 873,700 0.1581%

13. Arthur A. De Guia 808,040 0.1462%

14. William Go Kim Huy 761,930 0.1379%

15. Danilo C. Lachica 636,179 0.1151%

16. Peter D. Garrucho Jr. 463,123 0.0838%

17. Perla R. Catahan 438,200 0.0793%

18. Gregorio T. Asis 369,776 0.0669%

19. Francis Giles B. Puno &/OR Ma. Patricia D. Puno 333,500 0.0604%

20. Croslo Holdings Corporation 330,000 0.0597%

49

Recent Sales of Unregistered Securities

ISSUANCE OF SECURITIES AND RECENT SALES OF EXEMPT SECURITIES

Increase In Authorized Capital Stock and Issuance of Series A Preferred Shares

The Board and the shareholders approved on August 2, 2007 and October 10, 2007, respectively, the creation of

200,000,000 preferred shares with a par value of P100.00 per share. The Board has also approved on the same date

the increase of authorized common stock to P32,100,000,000.00 from P12,100,000,000.00. Of the

P20,000,000,000.00 increase in authorized capital stock, at least 25% of the increase has been actually subscribed

and at least 25% of this subscription has been fully paid in cash. These amendments to FPH’s articles of

incorporation were duly registered with the SEC on November 23, 2007.

The Company has issued Series A Preferred Shares as follows:

Subscriber No. of Shares Total Par Value

FGHC International 20,000,000 P2,000,000,000.00

First Philippine Electric Corporation (First Philec) 15,000,000 1,500,000,000.00

First Philippine Realty Corporation (FPRC) 15,000,000 1,500,000,000.00

P5,000,000,000.00

15,000,000 Series A Preferred Shares of First Philec and 15,000,000 Series A Preferred Shares of FPRC were

redeemed at par value by the Company last February 20 and 21, 2008, respectively.

Last April 2008, FPH made a public issuance of 43,000,000 Series B Preferred Shares with a par value of P100.00

per share. The shares are listed with the PSE. As and when declared by the board, cash dividends shall be at a fixed

rate of 8.7231 per cent per annum calculated in respect of each such share by reference to the offer price in respect

of the relevant dividend period.

Last April 30, 2013, the Company redeemed and cancelled or retired all its 20,000,000 Series A Preferred Shares of

FGHC International, and 43,000,000 Series B Perpetual Preferred Shares, at par value for a total redemption price of

P6.3 billion.

Exempt Transactions and Securities

FPH also issued the following securities:

On March 28, 2007, P5,000,000,000.00 worth of Fixed Rate Corporate Notes issued to primary

institutional lenders, as defined in the SRC Rule 9.2, payable in cash. A notice of exempt transaction was

filed with the SEC under Section 10.1(k) of the SRC on April 18, 2007. The outstanding Fixed Rate

Corporate Notes due 2014 and 2017 was redeemed on April 30, 2013

On October 28, 2011, P4,800,000,000 worth of Floating Rate Corporate Notes were issued to primary

institutional lenders. FPH is relying on the provisions on exempt securities as provided in SRC Rule 9.2.

On April 5, 2013, P5,000,000,000.00 worth of a Fixed Rate Promissory Note was issued to BDO Unibank,

Inc. as Lender pursuant to a Loan Agreement. FPH is relying on the provisions on exempt securities as

provided in SRC Rule 9.2.

Item 6. Management’s Discussion and Analysis or Plan of Operation

The following management’s discussion and analysis of the Group’s financial condition and results of operations

50

should be read in conjunction with the accompanying audited consolidated financial statements and the related

notes as at December 31, 2013 and 2012 and for each of the three years in the period ended December 31, 2013,

2012 and 2011. This discussion includes forward-looking statements, which may include statements regarding

future results of operations, financial condition or business prospects, which are subject to significant risks,

uncertainties and other factors and are based on the Group’s current expectations, some of which are beyond the

Company’s control and are difficult to predict. These statements involve risks and uncertainties and our actual

results may differ materially from those anticipated in these forward-looking statements.

OVERVIEW

The FPH Group’s (the Group) operating businesses are organized and managed separately according to the nature of

the products and services, with each segment representing a strategic business unit that offers different products and

serves different markets. The Group conducts the majority of its business activities in the following areas:

Power generation and related companies - power generation subsidiaries under First Gen Corporation

(First Gen)

Manufacturing - manufacturing subsidiaries under First Philippine Electric Corporation (First Philec)

Real estate – residential and commercial real estate development and leasing of Rockwell Land and

First Philippine Realty Corporation (FPRC), and sale of industrial lots and lease of ready-built

factories by First Philippine Industrial Park Corporation (FPIP). Real estate segment was not a

separate reportable segment in 2011.

Others – investment holdings, oil transporting company, construction, securities transfer services and

financing

Financial information about the business segments follows:

2013

Power

Generation Manufacturing

Real Estate

Development

Investment

Holdings,

Construction,

and Others Eliminations Consolidated

(In Millions)

Revenues:

External sales P=80,389 P=1,722 P=8,005 P=3,192 P=– P=93,308

Inter-segment sales – – – 2,050 (2,050) –

Equity in net earnings

of associates and a

joint venture – – 93 11 – 104

Total revenues 80,389 1,722 8,098 5,253 (2,050) 93,412

Costs and expenses (62,058) (2,431) (6,227) (6,506) 1,543 (75,679)

Finance income 385 86 1,011 146 – 1,628

Finance costs (6,303) (144) (345) (651) 205 (7,238)

Foreign exchange

gain (loss) (1,473) 33 3 22 – (1,415)

Other income (loss) (1,264) 141 9 4,494 (4,117) (737)

Income (loss) before

income tax 9,676 (593) 2,549 2,758 (4,419) 9,971

Provision for income

tax 2,605 75 624 125 (12) 3,417

Net income (loss)

P=7,071 (P=668) P=1,925 P=2,633 (P=4,407) P=6,554

51

2012 (As restated – see Note 2)

Power

Generation Manufacturing

Real Estate

Development

Investment

Holdings,

Construction,


(In Millions)

Revenues:

External sales P=87,430 P=3,614 P=6,709 P=1,916 P=– P=99,669

Inter-segment sales – – – 410 (410) -

Equity in net earnings

of associates and a

joint – – – 125 – 125

Total revenues 87,430 3,614 6,709 2,451 (410) 99,794

Costs and expenses (65,742) (4,791) (4,902) (4,980) 849 (79,566)

Finance income 588 9 518 422 – 1,537

Finance costs (7,373) (128) (196) (565) 200 (8,062)

Foreign exchange

gain (loss) 989 (63) 6 (10) – 922

Other income (loss) (141) (3,918) 249 9,442 (656) 4,976

Income (loss) before

income tax 15,751 (5,277) 2,384 6,760 (17) 19,601

Provision for income

tax 2,542 41 440 190 26 3,239

Net income (loss)

from continuing

operations

P=13,209 (P=5,318) P=1,944 P=6,570 (P=43) P=16,362

Net income from

discontinued

operations 98 – – – – 98


Power

Generation

Manufacturin

g

Investment

Holdings,

Construction


(In Millions)

Revenues:

External sales P=82,644 P=7,642 P=3,223 P=– P=93,509

Inter-segment sales – – 1,123 (1,123) –

Equity in net earnings of associates

and a joint venture – – 343 – 343

Total revenues 82,644 7,642 4,689 (1,123) 93,852

Costs and expenses (64,799) (7,523) (4,938) 1,057 (76,203)

Finance income 753 11 570 – 1,334

Finance costs (8,364) (164) (760) 39 (9,249)

Foreign exchange loss (424) (5) (34) – (463)

Other income (loss) (4,661) 62 2,541 (1,577) (3,635)

Income before income tax 5,149 23 2,068 (1,604) 5,636

Provision for (benefit from) income

tax

1,975 (8) (82)

– 1,885

Net income from continuing

operations

P=3,174 P=31 P=2,150 (P=1,604) P=3,751

52


Power

Generation

Manufacturin

g

Investment

Holdings,

Construction


(In Millions)

Net loss from discontinued

operations (81) – – – (81)

Results of Operations

For the period ended December 31, 2013 vs. December 31, 2012 Results

Consolidated Statements of Income

Revenues

The Group’s consolidated revenues totaled ₱93.4 billion for the year ended December 31, 2013. This is lower by

6% or ₱6.4 billion, compared to the previous year’s ₱99.8 billion due to the following:

Revenue from sale of electricity went down by ₱7.0 billion or 8% (from ₱87.4 billion to ₱80.4 billion) due to

the temporary shutdown of San Lorenzo’s Unit 60 and the lower gas prices (from an average of $13.4/MMBtu

in 2012 to an average of $12.8/MMBtu in 2013). This was further reduced by the lower revenues from capacity

charge and fixed O&M charges following the lower average NDC, lower sale of electricity by FG Hydro due to

the lower ancillary and lower sales from the spot market.

Sale of merchandise fell by ₱2.2 billion or 61% (from ₱3.6 billion to ₱1.4 billion) due to lower revenues

reported by First Philec Solar Corporation (FPSC) as a result of the weak market conditions and on-going

disputes with customers/joint venture partners.

The foregoing decreases were partially offset by higher revenues from contracts and services which went up by ₱1.8

billion or 85% (from ₱2.1 billion to ₱3.9 billion), mainly due to the increase in revenues of First Balfour on its

construction contracts.

Costs and Expenses

The Group’s consolidated costs and expenses totaled ₱75.7 billion for the year ended December 31, 2013. This is

lower by 5% or ₱3.9 billion, compared to the previous year’s ₱79.6 billion due to the following:

Cost of sale of electricity decreased by ₱4.4 billion or 7% (from ₱58.6 billion to ₱54.2 billion) due to, among

others, lower plant O&M costs incurred by EDC with the absence of civil works costs incurred in Palinpinon in

2012 and lower fixed O&M expense resulting from lower average NDC due to the May 28 incident and by the

lower O&M expense by FG Hydro due to lower generation.

Cost of merchandise sold decreased by ₱2.4 billion or 61% (from ₱4.0 billion to ₱1.6 billion) due to the

decrease in manufacturing costs of FPSC, in line with the decrease in its production output.

The above decreases were partially offset by the increase in cost of contracts and services which went up by ₱2.0

billion or 95% (from ₱2.1 billion to ₱4.1 billion) largely due to First Balfour’s construction contracts.

Net Income

Net income decreased by ₱9.9 billion or 60% (from ₱16.5 billion to ₱6.6 billion) primarily due to this year’s

absence of the gains on sale of investment in equity securities and related to business combination, aggravated by

higher foreign exchange losses this year and lower total revenues, in contrast to the prior period. Of the total net

53

income, the portion that is attributable to equity holders of the Parent amounted to ₱2.4 billion, in contrast to last

year’s net income attributable to the Parent of ₱9.2 billion.

Consolidated Statements of Financial Position

Assets

Major movements in the unaudited consolidated statements of financial position of the Group resulted in a net

increase in the Group’s total consolidated assets by ₱34.4 billion, or 13%, to ₱291.4 billion as of December 31, 2013

from ₱257.0 billion as of December 31, 2012. The increase was the result of the following movements in major

accounts:

Cash and cash equivalents increased by ₱14.7 billion or 38% (from ₱38.1 billion to ₱52.8 billion) primarily due

to higher cash balance generated from operations of First Gen group and loan drawdowns of EDC, First Gen

and Rockwell Land.

Short-term investments increased by ₱2.1 billion or 407% (from ₱528 million to ₱2.7 billion) was due to

additional placements by the Parent Company during the period ended December 31, 2013.

Trade and other receivables increased by ₱8.0 billion or 43% (from ₱18.6 billion to ₱26.6 billion) due to the

outstanding uncollected portion of the November and December billings of FGPC from Meralco and increased

receivables of Rockwell Land and First Balfour from its on-going projects.

Other current assets increased by ₱1.9 billion or 46% (from ₱4.2 billion to ₱6.1 billion) primarily due to the

accumulation of input VAT relating to expenses incurred for the San Gabriel project, the increase in prepaid

expense of EDC and the increase in AFS financial assets of EDC due to the reclassification from non-current to

current portion and proceeds from its redemption of ROP bonds. Moreover, Rockwell Land had higher prepaid

sales and marketing costs and deferred Input VAT arising from its construction projects.

Property, plant and equipment increased by ₱10.5 billion or 12% (from ₱85.7 billion to ₱96.2 billion) mainly

due to the capital expenditures of EDC for its geothermal projects and rehabilitation and maintenance in

Bacman, Unified Leyte and Tongonan plants, the expenditures related to the San Gabriel project and the

reclassification of the prepaid major spare parts and other project development costs of Rockwell Land.

Liabilities and Equity

Total liabilities increased by ₱39.0 billion, or 26%, to ₱186.7 billion as of December 31, 2013 from ₱147.7 billion

as of December 31, 2012 due to the following major movements:

Loans payable increased by ₱2.6 billion or 208% (from ₱1.2 billion to ₱3.8 billion) mainly due to the loans

availed of by FGP and FGPC for the importation of liquid fuel and the increase in unsecured, short-term

borrowing of FPIC during the period.

Trade payables and other current liabilities increased by ₱3.9 billion or 16% (from ₱24.7 billion to ₱28.6

billion) primarily due to the higher payables of First Balfour and Rockwell land. Both FGPC and FGP also

reported higher payables resulting from the purchase of liquid fuel in preparation for the 30-day scheduled

Malampaya outage, while EDC recorded higher provision for shortfall generation and higher accrued interest.

Long-term debt, including current portion, increased by ₱33.8 billion or 31% (from ₱110.0 billion to ₱143.9

billion), primarily due to the additional debts availed by Rockwell Land, EDC and First Gen, which was

partially offset by the scheduled principal payments of the existing outstanding loans of First Gen and the

Parent Company.

54

This was partially offset by lower bonds payable, including current portion, as it decreased by ₱3.0 billion or 100%.

Last year’s balance relates to First Gen’s Convertible Bonds which was fully redeemed on February 11, 2013.

Total equity decreased by ₱4.6 billion or 4% (from ₱109.2 billion to ₱104.7 billion). The decrease was mainly

attributable to the redemption and cancellation or retirement of the Parent Company preferred stock (Series “B”).

55


Horizontal and Vertical Analyses of Material Changes for the years ended December 31, 2013 vs. 2012

(Amounts in Millions) December 2013 December 2012 2013 vs. 2013 vs. December December

(Audited) (Audited) 2012 2012 2013 2012

(As Restated)

REVENUES

Sale of electricity 80,389 87,430 (7,041) -8% 86% 88%

Sale of real estate 7,636 6,545 1,091 17% 8% 7%

Contracts and services 3,891 2,106 1,785 85% 4% 2%

Sale of merchandise 1,392 3,588 (2,196) -61% 2% 3%


and a joint venture 104 125 (21) -17% 0% 0%

TOTAL REVENUES 93,412 99,794 (6,382) -6% 100% 100%

COSTS AND EXPENSES

Cost of sale of electricity (54,217) (58,587) 4,370 -7% -58% -59%

General and administrative expenses (11,308) (11,108) (200) 2% -12% -11%

Real estate sold (4,433) (3,714) (719) 19% -5% -4%

Contracts and services (4,143) (2,127) (2,016) 95% -4% -2%

Merchandise sold (1,578) (4,030) 2,452 -61% -2% -4%

TOTAL COSTS AND EXPENSES (75,679) (79,566) 3,887 -5% -81% -80%

OTHER INCOME (EXPENSES)

Finance costs (7,238) (8,062) (824) -10% -8% -8%

Finance income 1,628 1,537 91 6% 2% 2%

Foreign exchange gain (loss) (1,415) 922 2,337 -253% -2% 1%

Impairment loss - net (1,349) (4,012) (2,663) -66% -1% -4%

Dividend income 493 612 (119) -19% 1% 1%

Mark-to-market gain on derivatives 14 10 4 40% 0% 0%

Gain on sale of investments - 6,084 (6,084) -100% 0% 6%

Gain on business combination - 2,136 (2,136) -100% 0% 2%

Other income 105 146 (41) -28% 0% 0%

(7,762) (627) (7,135) 1138% -8% -1%

INCOME BEFORE INCOME TAX 9,971 19,601 (9,630) -49% 11% 20%

PROVISION FOR (BENEFIT FROM)

INCOME TAX

Current 3,345 3,047 298 10% 4% 3%

Deferred 72 192 (120) -63% 0% 0%

3,417 3,239 178 5% 4% 3%

NET INCOME FROM CONTINUING

OPERATIONS 6,554 16,362 (9,808) -60% 7% 16%

NET INCOME FROM

DISCONTINUED OPERATIONS- 98 (98) -100% 0% 0%

NET INCOME 6,554 16,460 (9,906) -60% 7% 16%

Attributable to:

Equity holders of the Parent 2,350 9,175 (6,825) -74% 36% 56%

Non-controlling interests 4,204 7,285 (3,081) -42% 64% 44%

6,554 16,460 (9,906) -60% 100% 100%

Earnings per Share for Net Income

Attributable to the Equity

Holders of the Parent

Basic 4.087 16.057 (12) -75%

Diluted 4.082 15.998 (12) -74%

VERTICAL ANALYSISHORIZONTAL ANALYSIS

56

Revenues

The Group’s consolidated revenues totaled ₱93.4 billion for the year ended December 31, 2013. This is lower by

6% or ₱6.4 billion, compared to the previous year’s ₱99.8 billion.

The following table sets out the contribution of each of the components of revenues as a percentage of the Group’s

total revenue for the years ended December 31, 2013 and 2012:

For the year ended December 31

(amounts in Millions)

2013

2012

(As Restated)

Increase (decrease)

Amount (%)

Sale of electricity ₱80,389 86% ₱87,430 88% (₱7,041) -8%

Sale of real estate 7,636 8% 6,545 7% 1,091 17%

Contracts and services 3,891 4% 2,106 2% 1,785 85%

Sale of merchandise 1,392 2% 3,588 3% (2,196) -61%

Equity in net earnings of associates and a

joint venture 104 –% 125 –% (21) -17%

Total

₱93,412

100%

₱99,794

100%

(₱6,382)

-6%

The Group’s revenues comprise of:

Sale of electricity

Sale of electricity accounts for 86% of total revenues during the year ended December 31, 2013 and 88% for the

same period in 2012. Revenue from sale of electricity went down by ₱7.0 billion or 8% (from ₱87.4 billion to ₱80.4

billion) due to the temporary shutdown of San Lorenzo’s Unit 60 following the fire that occurred at its main

transformer last May 28, 2013 (the “May 28 Incident”) and the lower gas prices (from an average of $13.4/MMBtu

in 2012 to an average of $12.8/MMBtu in 2013). The decline in revenues from capacity charge and fixed O&M

charges following the lower average NDC from the temporary shutdown of San Lorenzo’s Unit 60 also contributed

to the decline.

FG Hydro’s revenues also declined primarily due to the lower ancillary sales volume resulting from the tempered

demand of the National Grid Corporation of the Philippines (NGCP), lower sales from the spot market as a result of

lower average Wholesale Electricity Spot Market (WESM) prices and low Irrigation Diversion Requirement (IDR)

during the year.

Revenues from Energy Development Corporation (EDC), ex-FG Hydro, declined as a result of the lower revenues

from Unified Leyte and Tongonan plants due to the damages to its plant facilities caused by typhoon Yolanda. This

was partially offset by the increase in Green Core Geothermal, Inc.’s (GCGI) revenues due to higher sales volume

and higher average tariff, and the revenues from generated electricity of Bacon-Manito (Bacman) 2 Unit 3.

Sale of real estate

Sale of real estate amounted to ₱7.6 billion and ₱6.5 billion, in 2013 and 2012, respectively. This accounted for 8%

of consolidated revenues in 2013 and 7% of consolidated revenues in 2012. Sale of real estate in 2013 pertains to

the sale of condominium units by Rockwell Land and the sale of industrial lots of FPIP. The growth in the sale of

real estate was due to the consolidation of the sale of real estate of Rockwell Land of ₱5.6 billion for the year ended

December 31, 2013 in contrast to last year which includes only ₱4.1 billion pertaining to the eight-month sale of real

estate since Rockwell Land became a consolidated subsidiary of the Parent Company starting May 2012. The

increase in this account was partially tempered by FPIP’s lower industrial land sales (20 hectares this year vs. 53

hectares last year).

57

Contracts and services

Revenues from contracts and services account for 4% and 2% of consolidated revenues in 2013 and 2012,

respectively. This account went up by ₱1.8 billion or 85% (from ₱2.1 billion to ₱3.9 billion), mainly due to the

increase in revenues of First Balfour on its construction contracts.

Sale of merchandise

Sale of merchandise contributed 2% to total revenues during the period ended December 31, 2013, down from 3%

for the same period in 2012. Sale of merchandise fell by ₱2.2 billion or 61% (from ₱3.6 billion to ₱1.4 billion) due

to lower revenues reported by First Philec Solar Corporation (FPSC) as a result of the weak market conditions and

on-going disputes with customers/joint venture partners.

Equity in net earnings of associates and a joint venture

Equity in net earnings of associates decreased by ₱21 million or 17% (from ₱125 million to ₱104 million) because

of the consolidation of Rockwell Land. Rockwell Land ceased to be an associate of the Group starting May 2012,

hence, the Group’s equity in net earnings of Rockwell Land in 2012 covers the four months ended April 2012. This

was partially offset by the full year share in net earnings of joint venture of Rockwell Land in Rockwell Business

Center (RBC) for the year ended December 31, 2013 as against last year’s share for the eight-month period ended

December 31, 2012. RBC is an unincorporated joint venture of Rockwell Land with Meralco for the development

and operations of an office complex within the Meralco headquarters in Ortigas. Rockwell Land became a

consolidated subsidiary of the Parent Company starting May 2012.

Costs and expenses


lower by 5% or ₱3.9 billion compared to the ₱79.6 billion consolidated costs and expenses for the same period in

2012.

The following table sets out the contribution of each of the components of costs and expenses as a percentage of the

Group’s total costs and expenses for the years ended December 31, 2013 and 2012:

For the period ended December 31


2013

2012

(As Restated)

Increase (decrease)

Amount (%)

Cost of sale of electricity ₱54,217 72% ₱58,587 74% (₱4,370) -7%

General and administrative expenses 11,308 15% 11,108 14% 200 2%

Real estate sold 4,433 6% 3,714 5% 719 19%

Contracts and services 4,143 5% 2,127 3% 2,016 95%

Merchandise sold 1,578 2% 4,030 4% (2,452) -61%

Total

₱75,679

100%

₱79,566

100%

(₱3,887)

-5%

The major changes in the Group’s costs and expenses were due to the following:

Cost of sale of electricity

Cost of sale of electricity accounts for 72% and 74% of total costs and expenses for the years ended December 31,

2013 and 2012, respectively.

Cost of sale of electricity decreased by ₱4.4 billion or 7% (from ₱58.6 billion to ₱54.2 billion) due to, among others,

lower plant O&M costs incurred by EDC with the absence of civil works costs incurred in Palinpinon in 2012 to

repair the damages caused by typhoon Sendong. This was further reduced by lower fixed O&M expense resulting

58

from lower average NDC due to the May 28 incident and by the lower O&M expense by FG Hydro due to lower

generation. These decreases were almost entirely offset by higher variable O&M fees by the gas plants due to the

lower capitalized variable O&M fees following the completion of the scheduled major maintenance outage of Santa

Rita. Fuel costs of Santa Rita and San Lorenzo also decreased primarily due to lower average fuel prices in 2013

($12.8/MMBtu) as compared to the same period in 2012 ($13.4/MMBtu) and was further decreased by the lower

electricity generated during the year due to the scheduled major outages of Santa Rita and San Lorenzo and the May

28 Incident that likewise affected the San Lorenzo plant.

General and administrative expenses

General and administrative expenses accounts for 15% and 14% of consolidated costs and expenses for the years

ended December 31, 2013 and 2012, respectively. General and administrative expenses increased by ₱200 million

or 2% (from ₱11.1 billion to ₱11.3 billion), mainly attributed the consolidation of Rockwell Land. Rockwell Land

became a consolidated subsidiary of the Parent Company starting May 2012.

Real estate sold

Cost of real estate sold accounts for 6% of total costs and expenses in 2013 and 5% in 2012. Cost of real estate sold

went up by ₱719 million (from ₱3.7 billion to ₱4.4 billion) due to the consolidation of cost of real estate of

Rockwell Land totaling ₱4.2 billion. In 2012, cost of real estate sold refers to FPIP’s land sale and the eight-month

cost of real estate of Rockwell Land amounting to ₱3.3 billion as it became a consolidated subsidiary of the Parent

Company only on May 2012.


Cost of contracts and services accounts for 5% of total costs and expenses for the year ended December 31, 2013

and 3% for the same period in 2012. Cost of contracts and services went up, by ₱2.0 billion or 95% (from ₱2.1

billion to ₱4.1 billion), largely coming from First Balfour’s construction contracts.

Merchandise sold

Cost of merchandise sold accounts for 2% and 4% of total costs and expenses for the years ended December 31,

2013 and 2012, respectively. This account decreased by ₱2.4 billion or 61% (from ₱4.0 billion to ₱1.6 billion)

due to the decrease in manufacturing costs of FPSC, in line with the decrease in its production output.

Finance costs

Finance costs went down by ₱824 million or 10% (from ₱8.1 billion to ₱7.2 billion), largely as a result of the full

prepayment of First Gen’s Term Loan Facility (US$142.0 million) and Dual Currency Loan Facility (US$83.7

million) as well as the prepayment of Blue Vulcan loan (US$25.0 million), lower interest charges on the refinanced

loans of EDC and FG Hydro, the full redemption of the Convertible Bonds at maturity on February 11, 2013, and

the scheduled principal payments on the loans of FGPC, FG Hydro, EDC, and Red Vulcan. These were partially

offset by the increased interest expense following FGP’s $420.0 million refinancing of its loans in October 2012,

EDC’s ₱7.0 billion fixed rate bond issuance in May 2013 and First Gen’s $300.0 million bond issuance in October

2013.

Finance income

Finance income increased by ₱91 million or 6% mainly due to Rockwell Land’s higher interest income accretion

arising from existing projects. This was partially offset by the absence of interest income from the advances

previously made to BG following the purchase of BG’s non-controlling stake in the First Gas group by Blue Vulcan

in May 2012. The Parent Company, FPUC and EDC also booked lower interest income on its investments and

short-term placements due to lower interest rates and lower average investable funds in the market in 2013.

FGPC booked interest income from the advances it made to First Gen and to BG. Prior to the acquisition of the

BG’s non-controlling interest in the First Gas group, only the interest income from the advances made to First Gen

59

was eliminated during consolidation. However, with the acquisition last May 2012, the income from advances

previously made to BG is now also eliminated and has resulted in lower interest income on a consolidated basis.

Foreign exchange gain (loss)

Net foreign exchange loss amounted to ₱1.4 billion for the year ended December 31, 2013, a reversal from the net

foreign exchange gain of ₱922 million for the same period last year. The depreciation of the Philippine Peso in

2013 (from ₱41.05:$1.00 as of end-2012 to ₱44.40:$1.00 as of December 31, 2013), compared to the appreciation of

the Philippine Peso in 2012 (from ₱43.84:$1.00 as of end-2011 to ₱41.05:$1.00 as of December 31, 2012)

negatively impacted the translation of EDC’s long-term foreign loans.

Impairment loss - net

Impairment loss - net decreased by ₱2.7 billion or 66%. In 2013, this account consists of ₱1.2 billion and ₱149

million losses recognized by EDC and the Parent Company, respectively. EDC recognized impairment losses

amounting to ₱625 million primarily due to the damages caused by Typhoon Yolanda resulting in the derecognition

of PPE and impairment of inventories and ₱575 million pertaining to the provision for impairment of EDC’s

Cabalian Project recognized in December 2013. EDC has assessed that its Cabalian geothermal project located in

Southern Leyte is impaired due to issues on productivity and sustainability of geothermal resources in the area. The

Parent Company recorded impairment loss on its investment in Narra Venture Capital II, L.P. (Narra Venture).

Narra Venture is a limited partnership established for the purpose of making equity investments in private and public

companies. Narra Venture will terminate on March 31, 2017.

In 2012, impairment loss consists mainly of ₱3.9 billion and ₱156 million losses incurred by First Philec and the

Parent Company, respectively. As a result of the arbitration proceedings against Nexolon and SPML, the

termination of the Supply Agreement and the highly unfavorable conditions in the solar industry in 2012, First

Philec recognized an impairment loss of ₱3.9 billion. The Parent Company also recorded impairment loss on its

investment in Narra Venture amounting to ₱156 million.

Dividend income

This account consists mainly of dividend income from Meralco which amounted to ₱453 million in 2013 and ₱612

million in 2012. The rest pertains to dividend from other investment in equity securities.

Mark-to-market gain on derivatives

The variance of ₱4 million or 40% pertains to the realized gains arising from EDC’s foreign currency forward

contracts that it entered into with various banks.

Gain on sale of investments

Gain on sale of investments in 2012 pertains to the: (1) ₱3.3 billion gain from the sale by First Philippine Utilities

Corporation (FPUC) of its 2.66% interest in Meralco or equivalent to 30,000,000 shares to Beacon Electric; and (2)

the ₱2.8 billion worth of additional 1,384,594,823 Rockwell Land shares which the Parent Company received from

Beacon Electric pursuant to the Investment and Cooperation Agreement (ICA). The assignment of Rockwell Land

shares from Beacon Electric to the Group is part of the consideration which is covered in the ICA. Effectively, this

is an additional gain relating to the previous sale of Meralco shares.

Gain on business combination

This account comprises of: (1) ₱1.8 billion gain resulting from the Parent Company’s remeasurement of its

previously held equity interest in Rockwell Land at its acquisition-date fair value; and (2) ₱302 million gain arising

from the excess of fair values of net identifiable assets and liabilities over carrying amounts as at the date of

acquisition of Rockwell Land. The Parent Company obtained control of Rockwell Land effective May 2, 2012, the

date when the Parent Company had majority representation in the Board of Directors of Rockwell Land.

60

Other income

Other income pertains to gain on sale of property, rental income and management fees, among others. This account

decreased by ₱41 million or 28% (from ₱146 million to ₱105 million), mainly due to the decline in other income of

First Gen group.

Income before income tax

As a result of the foregoing, income before income tax for the period decreased by ₱9.6 billion or 49% (from ₱19.6

billion to ₱10.0 billion), for the year ended December 31, 2013.

Provision for (benefit from) income tax

Provision for income tax increased by ₱178 million or 5% as current income taxes increased while deferred income

taxes declined, in relation to prior-year balances. This is due to combined impact of the increase in taxable income

and movements in foreign exchange rates between the Philippine Peso and U.S. Dollar.

Net income from continuing operations

Net income from continuing operations decreased by ₱9.8 billion or 60% (from ₱16.4 billion to ₱6.6 billion)

primarily due to the absence this year of the gains on sale of investments and on business combination, aggravated

by higher foreign exchange losses and lower total revenues this year, in contrast to the prior period.

Net income from discontinued operations

The ₱98 million pertains to EDC’s income from its drilling services in Lihir, Papua New Guinea which were

discontinued in October 2012.

Net income attributable to equity holders of the Parent

Of the total net income, the portion that is attributable to equity holders of the Parent amounted to ₱2.4 billion,

against last year’s attributable net income of ₱9.2 billion.

Net income attributable to non-controlling interests

Net income attributable to non-controlling interests decreased by ₱3.1 billion or 42% to ₱4.2 billion, mainly due to

lower net income of the Group.

Earnings per share (EPS) for net income attributable to equity holders of the Parent

Basic EPS for 2013 is ₱4.087 while diluted EPS is ₱4.082. Last year’s basic EPS and diluted EPS were ₱16.057

and ₱15.998, respectively. The decrease was due to the lower net income available to common shareholders this

year compared to the previous year.

Total comprehensive income

Total comprehensive income decreased by ₱11.4 billion or 73% (from ₱15.6 billion to ₱4.2 billion). The year-on-

year movements in the comprehensive income of the Group were as follows:

(1) Net income went down by ₱9.9 billion or 60% (from ₱16.5 billion to ₱6.6 billion), primarily due to the

absence this period of the gain on sale of investment in shares of stock of Meralco and the gain on business

combination, aggravated by higher foreign exchange losses and lower total revenues this year;

(2) Exchange gains (losses) on foreign currency translation dropped by ₱2.1 billion or 354% (from gain of

₱601 million last year to loss of ₱1.5 billion). Such foreign exchange movements arose from translation of

First Gen’s U.S. dollar-denominated financial statements into Philippine peso for consolidation purposes;

and

61

(3) Net gains on cash flow hedge deferred in equity amounted to ₱858 million, a reversal from ₱71 million

losses last year. This pertains to the changes in MTM valuation of First Gen’s FGPC and FGP’s derivative

instruments, particularly its interest rate swap agreements for its Covered and Uncovered facilities;

(4) Unrealized losses on investment in equity securities, which largely pertains to the movements in fair value

of equity securities held by the Group, decreased by ₱911 million or 66% (from unrealized losses of ₱1.4

billion last year to ₱464 million this year). This is attributable to the lower MTM loss adjustments on the

valuation of the said remaining shares during the intervening period;

(5) Actuarial losses on retirement benefit asset/liability, net of tax, increased by ₱1.2 billion (from ₱24 million

to ₱1.3 billion) as a result of the recognized transition adjustments on the Group’s retirement benefit

asset/liability upon the adoption of the revised PAS 19 which became effective in January 2013 and the

additional retirement expense based on the updated actuarial valuation report.

Total comprehensive income for the year attributable to equity holders of the Parent

Total comprehensive income attributable to equity holders of the Parent decreased by ₱4.8 billion or 71% (from

₱6.8 billion to ₱2.0 billion), primarily due to the absence this period of the gain on sale of investment in shares of

stock of Meralco and the gain on business combination, aggravated by higher foreign exchange losses and lower

total revenues. The decrease was aggravated by the exchange losses on foreign currency translation and the impact

of the adoption of the revised PAS 19 for the year ended December 31, 2013.

Total comprehensive income for the year attributable to non-controlling interests

Total comprehensive income attributable to the non-controlling interests decreased by ₱6.6 billion or 76% (from

₱8.8 billion to ₱2.1 billion), mainly due to lower total comprehensive income.

62


Horizontal and Vertical Analyses of Material Changes as of December 31, 2013 and December 31, 2012

(Amounts in Millions) Dec 2013 Dec 2012 2013 vs. 2013 vs. December December

(Audited) (Audited) 2012 2012 2013 2012

(As Restated)

ASSETS

Current Assets

Cash and cash equivalents 52,755 38,106 14,649 38% 18% 15%

Short-term investments 2,675 528 2,147 407% 1% 0%

Trade and other receivables 26,610 18,616 7,994 43% 9% 7%

Inventories 13,405 13,967 (562) -4% 5% 5%

Other current assets 6,109 4,195 1,914 46% 2% 2%

Total Current Assets 101,554 75,412 26,142 35% 35% 29%

Noncurrent Assets

Investments in associates 52 41 11 27% 0% 0%

Investment in equity and debt securities 11,912 12,730 (818) -6% 4% 5%

Property, plant and equipment 96,236 85,726 10,510 12% 33% 33%

Investment in joint venture 2,774 2,681 93 3%

Investment properties 11,573 10,903 670 6% 4% 4%

Goodwill and intangible assets 54,338 55,316 (978) -2% 19% 22%

Retirement benefit asset - 829 (829) -100% 0% 0%

Deferred tax assets 2,126 2,126 - 0% 1% 1%

Other noncurrent assets 10,788 11,185 (397) -4% 4% 4%

Total Noncurrent Assets 189,799 181,537 8,262 5% 65% 71%

TOTAL ASSETS 291,353 256,949 34,404 13% 100% 100%

LIABILITIES AND EQUITY

Current Liabilities

Loans payable 3,784 1,229 2,555 208% 1% 0%

Trade payables and other current liabilities 28,630 24,689 3,941 16% 10% 10%

Income tax payable 217 353 (136) -39% 0% 0%

Current portion of:

Long-term debt 7,388 7,122 266 4% 3% 3%

Bonds payable - 2,979 (2,979) -100% 0% 1%

Total Current Liabilities 40,019 36,372 3,647 10% 14% 14%

Noncurrent Liabilities

Bonds payable - net of current portion - - - 100% 0% 0%

Long-term debt - net of current portion 136,497 102,921 33,576 33% 47% 40%

Derivative liabilities 1,535 2,510 (975) -39% 1% 1%

Deferred tax liabilities 2,770 2,466 304 12% 1% 1%

Retirement and other long-term employee benefits liability 3,091 2,166 925 43% 1% 1%

Asset retirement and preservation obligation 1,316 546 770 141% 0% 0%

Other noncurrent liabilities 1,451 739 712 96% 0% 0%

Total Noncurrent Liabilities 146,660 111,348 35,312 32% 50% 43%

Total Liabilities 186,679 147,720 38,959 26% 64% 57%

143,885 110,043 33,842 31%

Equity Attributable to Equity Holders of the Parent

Common stock 6,080 6,054 26 0% 2% 2%

Preferred stock - 6,300 (6,300) -100% 0% 2%

Subscription receivable - (4) 4 -100% 0% 0%

Capital in excess of par value 4,013 3,929 84 2% 1% 2%

Parent company preferred shares held by a consolidated subsidiary - (2,000) 2,000 -100% 0% -1%

Treasury stock (3,345) (3,345) - 0% -1% -1%

Unrealized fair value gains on investment in equity securities 3,116 3,557 (441) -12% 1% 1%

Cumulative translation adjustments (3,879) (5,203) (1,324) -25% -1% -2%

Other comprehensive income of associates - - - 0% 0% 0%

Equity reserve (12,537) (12,305) (232) 2% -4% -5%

Retained earnings - unappropriated 48,843 61,519 (12,676) -21% 17% 24%

Retained earnings - appropriated 19,003 6,955 12,048 173% 7% 3%

Equity Attributable to Equity Holders of the Parent 61,294 65,457 (4,163) -6% 21% 25%

Non-controlling Interests 43,380 43,772 (392) -1% 15% 17%

Total Equity 104,674 109,229 (4,555) -4% 36% 43%

TOTAL LIABILITIES AND EQUITY 291,353 256,949 34,404 13% 100% 100%

HORIZONTAL ANALYSIS VERTICAL ANALYSIS

63

Financial Condition

As of December 31, 2013, the Group’s unaudited consolidated assets totaled ₱291.4 billion, higher by 13% or ₱34.4

billion, compared to the December 31, 2012 consolidated balance of ₱257.0 billion.

Cash and cash equivalents increased by 38%

Cash and cash equivalents had a net increase of ₱14.7 billion or 38% (from ₱38.1 billion to ₱52.8 billion). The

increase was primarily due to higher cash balance generated from operations of First Gen group, loan proceeds of

EDC and First Gen and loan drawdowns of Rockwell Land. The increases were partially offset by the settlement by

First Gen of the remaining Convertible Bonds at maturity on February 11, 2013, scheduled principal and interest

payments on the loans, expenditures made in relation to the growth projects and purchase of additional fuel.

Short-term investments increased by 407%

This account consists of short-term placements with original maturities of more than three months but less than one

year. The increase in this account by ₱2.1 billion or 407% (from ₱528 million to ₱2.7 billion) was due to additional

placements by the Parent Company during the period ended December 31, 2013.

Trade and other receivables increased by 43%

Trade and other receivables increased by ₱8.0 billion or 43% (from ₱18.6 billion to ₱26.6 billion) due to the

outstanding uncollected portion of the November and December billings of FGPC from Meralco and increased

receivables of Rockwell Land from its on-going projects. Increase in the trade and other receivables of First Balfour

from construction contracts also contributed to the variance. These were partially offset by the lower trade

receivables of FGP following the May 28 Incident, and FG Hydro and EDC on account of lower revenues.

Inventories decreased by 4%

The decreased in inventories by ₱562 million or 4% (from ₱14.0 billion to ₱13.4 billion) was mainly due to the

consumption of liquid fuel by FGPC and FGP during the scheduled 30-day Malampaya outage in November and

December 2013 and the lower inventory of EDC due to withdrawals on various materials and supplies for plant

maintenance and the impairment loss recognized on inventories due to Typhoon Yolanda. Moreover, inventories of

First Philec also decreased due to weak solar market condition and on-going arbitration. This was partially tempered

by the completion of The Grove Phase 1 by Rockwell Land which resulted in reclassification from other current

assets to condominium inventory units for sale.

Other current assets increased by 46%

Other current assets increased by ₱1.9 billion or 46% (from ₱4.2 billion to ₱6.1 billion) primarily due to the

accumulation of input VAT relating to expenses incurred for the San Gabriel project, the increase in prepaid expense

of EDC and the increase in AFS financial assets of EDC due to the reclassification from non-current to current

portion and proceeds from its redemption of ROP bonds. Moreover, Rockwell Land had higher prepaid sales,

marketing costs and deferred Input VAT arising from its construction projects.

Investments in associates increased by 27%

Investments in associates increased by ₱11 million or 27% (from ₱41 million to ₱52 million), primarily due to the

share in net earnings from the remaining associates for the year ended December 31, 2013 and other movements.

Investments in equity and debt securities decreased by 6%

The net decrease of ₱818 million or 6% (from ₱12.7 billion to ₱11.9 billion) was mainly due to the revaluation of

the remaining 44,475,706 shares of Meralco held by the Group.

64

Property, plant and equipment increased by 12%

Property, plant and equipment increased by ₱10.5 billion or 12% (from ₱85.7 billion to ₱96.2 billion) mainly due to

expenditures of EDC for the Burgos Wind farm project and rehabilitation and maintenance in Bacman, as well as in

Unified Leyte and Tongonan plants, increase in construction-in-progress account resulting from the expenditures

related to the San Gabriel Project and the reclassification of the prepaid major spare parts from “Other noncurrent

assets” to this account following the completion of the scheduled major maintenance outage covering the 100,000

EOH of the Santa Rita and San Lorenzo power plants in 2013. This was further increased by the development costs

of Edades and The Grove serviced apartments of Rockwell Land. The depreciation during the intervening period, as

well as the impairment losses recognized on assets damaged by Typhoon Yolanda, moderated the increase in this

account.

Investments in a joint venture increased by 3%

The increase of ₱93 million or 3% (from ₱2.7 billion to ₱2.8 billion) in this account is due to the share in net income

of Rockwell Business Center (RBC), an unincorporated joint venture between Rockwell Land and Meralco.

Investment properties increased by 6%

Investment properties increased by ₱670 million or 6% (from ₱10.9 billion to ₱11.6 billion) mainly due to the

capitalized costs of Rockwell Land on its investment properties and additional RBFs of FPIP partially offset by the

depreciation for the year ended December 31, 2013.

Goodwill and intangible assets decreased by 2%

Goodwill and intangible assets decreased by ₱978 million or 2% (from ₱55.3 billion to ₱54.3 billion) largely due to

reclassification of EDC’s wind project development costs to “Property, plant and equipment” following the issuance

of the NTP by EDC to its wind farm contractor, Vestas, in June 2013. EDC’s wind project development costs were

previously booked under intangible assets prior to establishment of technical feasibility and commercial viability.

Retirement benefit asset decreased by 100%

Retirement benefit asset decreased by ₱829 million or 100% (from ₱829 million to nil), primarily due to the

recognized transition adjustments on the Group’s retirement benefit asset upon adoption of the revised PAS 19

which became effective in January 2013 and the additional retirement expense based on the updated actuarial

valuation report.

Other noncurrent assets decreased by 4%

This account decreased by ₱397 million or 4% (from ₱11.2 billion to ₱10.8 billion). This was primarily due to the

reclassification of prepaid spare parts into “Property, plant and equipment” following the completion of the 100,000

EOH scheduled maintenance outage of the Santa Rita and San Lorenzo power plants in May 2013. The account was

further reduced due to EDC’s Input VAT claims that were written off in 2013, the loss recognized on exploration

and evaluation assets of EDC for its Mt. Cabalian project and the reclassification of a portion of EDC’s noncurrent

AFS financial assets to the current portion. These decreases were partially offset by the increase in EDC’s

exploration and evaluation assets resulting from expenditures in the Mindanao III area.

Loans payable increased by 208%

Loans payable increased by ₱2.6 billion or 208% (from ₱1.2 billion to ₱3.8 billion) mainly due to the loan principal

availed of by FGP and FGPC for the importation of liquid fuel which was consumed during the scheduled 30-day

Malampaya outage in November and December 2013 and the increase in unsecured, short-term borrowing of FPIC

during the period.

Trade payables and other current liabilities increased by 16%

Trade payables and other current liabilities increased by ₱3.9 billion or 16% (from ₱24.7 billion to ₱28.6 billion)

primarily due to the higher payables of First Balfour to suppliers on account of increase in construction projects and

65

Rockwell land due to increase in accrued development costs and VAT payable for deferred sales. Both FGPC and

FGP also reported higher payables resulting from the purchase of liquid fuel in preparation for the 30-day scheduled

Malampaya outage, while EDC recorded higher provision for shortfall generation due to the damages sustained by

Unified Leyte and Tongonan plants and higher accrued interest following issuance of ₱7.0 billion fixed rate bond in

May 2013.

Income tax payable decreased by 39%

Income tax payable decreased by ₱136 million or 39% (from ₱353 million to ₱217 million). This can be attributed

to the lower payables of FGPC as a result of higher creditable withholding tax applied during the year and of FGP

due to lower taxable income for the year ended December 31, 2013 resulting from the May 28 Incident.

Bonds payable decreased by 100%

Bonds payable decreased by ₱3.0 billion or 100%. Last year’s balance relates to First Gen’s Convertible Bonds

with a face value of US$57.0 million (and carrying value of US$72.6 million) on December 31, 2012 which was

fully redeemed on the February 11, 2013 maturity date.

Long-term debt, including current portion, increased by 31%

Long-term debt, including current portion increased by ₱33.8 billion or 31% (from ₱110.0 billion to ₱143.9 billion),

primarily due to the drawdown of additional ₱6 billion corporate notes and the issuance of ₱5.0 billion fixed-rate

retail peso bonds by Rockwell Land, issuances of ₱7 billion fixed-rate bond and $80 million term loan by EDC and

proceeds from the $300 million bond of First Gen. These were partially offset by the scheduled principal payments

of the existing outstanding loans of First Gen and the Parent Company.

Derivative liabilities decreased by 39%

This account decreased by ₱975 million or 39% (from ₱2.5 billion to ₱1.5 billion) due to the decline in the fair

market valuation of EDC’s cross currency swaps and other derivatives designated as accounting hedges.

Deferred tax liabilities increased by 12%

The account increased by ₱304 million or 12% (from ₱2.5 billion to ₱2.8 billion). This was primarily due to the

higher tax liabilities of FGPC as a result of the reduction of its derivative liabilities. The favorable movements in

the fair value of its interest rate swaps reduced its derivative liabilities thereby increasing its deferred income tax

liabilities. This increase was partially offset by the lower tax liabilities of Blue Vulcan as a result of the depreciation

of the Philippine Peso to ₱44.395:$1.00 in December 2013 from ₱41.05:$1.00 in December 2012.

Retirement and other employee benefits liability increased by 43%

Retirement benefit liability increased by ₱925 million or 43% (from ₱2.2 billion to ₱3.1 billion) mainly due to the

recognized transition adjustments on Parent and First Gen’s retirement and other post-retirement liabilities upon

adoption of the revised PAS 19 which became effective in January 2013 and the additional retirement expense based

on the updated actuarial valuation report.

Asset retirement and preservation obligation increased by 141%

Asset retirement obligation increased by ₱770 million or 141% (from ₱546 million to ₱1.3 billion) primarily due to

FPIC’s asset preservation provision of ₱602 million this year.

Other noncurrent liabilities increased by 96%

Other noncurrent liabilities increased by ₱712 million or 96% (from ₱739 million to ₱1.5 billion) mainly due to

customers’ deposits from pre-selling of condominium units and retention payable from contractors and suppliers of

Rockwell Land, and EDC’s higher provision for rehabilitation and restoration costs during the period.

66

Total equity attributable to equity holders of the Parent decreased by 6%

Total equity attributable to equity holders of the Parent decreased by ₱4.2 billion or 6% (from ₱65.5 billion to ₱61.3

billion). The following major items brought about the net decrease in equity attributable to equity holders of the

Parent:

(1) Preferred stock outstanding decreased by ₱4.3 billion or 100% due to the redemption by the Parent

Company of its Series “A” Preferred Shares with a total par value of ₱2.0 billion and Series “B” Preferred

Shares with a total par value of ₱4.3 billion during the first half of 2013. The Series “A” Preferred Shares

were previously held by FGHC International (a subsidiary) and have been classified as “Parent company

preferred shares held by a consolidated subsidiary” in the consolidated statement of financial position prior

to the redemption and cancellation. The Series “B” Preferred Share were previously held by various

stockholders;

(2) Unrealized fair value gains on investments in equity securities decreased by ₱441 million or 12% (from

₱3.6 billion to ₱3.1 billion) mainly due to MTM losses on the revaluation of remaining Meralco shares

during the intervening period;

(3) Cumulative translation adjustments decreased by ₱1.3 billion or 25% (from ₱5.2 billion to ₱3.9 billion)

due to the translation adjustments from the foreign exchange movements during the period; and

(4) Unappropriated retained earnings decreased by ₱12.7 billion or 21% (from ₱61.5 billion to ₱48.8 billion)

as the net income for 2013 amounting to ₱2.4 billion was offset by the following: (1) other comprehensive

loss of ₱1.2 billion arising from the adoption of the revised PAS 19 which was closed to retained earnings;

(2) dividends declared of ₱1.8 billion during the said period and other adjustments; and (3) net

appropriations during the intervening period amounting to ₱14.3 billion

Non-controlling interests decreased by 1%

Non-controlling interests represent the portion of net assets not held by the Group. This includes, among others, the

equity interests in First Gen and subsidiaries, Rockwell Land, FPIC, FPHC Realty and FPIP and subsidiaries not

held by the Group. The decrease in this account by ₱392 million or 1% (from ₱43.8 billion to ₱43.4 billion) was

mainly due to non-controlling interests’ share in other comprehensive loss and dividends declared. This was

partially offset by of the Group’s net earnings attributable to the non-controlling interests.

Results of Operations

For the year ended December 31, 2012 vs. December 31, 2011 Results


Revenues

The Group’s consolidated revenues totaled P=99.8 billion for the year ended December 31, 2012. This is higher by

6% or P6.0 billion, compared to the previous year’s P93.8 billion due to the following:

higher sale of electricity by ₱4.8 billion or 6% (from ₱82.6 billion to ₱87.4 billion) mainly due to the increased

contribution of GCGI in 2012 and higher revenues of FG Hydro from its ancillary services and a greater amount

of electricity generated. This was also due to higher fuel charges resulting from higher fuel prices.

growth in the sale of real estate of P5.6 billion or 614% (from P917 million to P6.5 billion) because of the

increase in the sale of industrial lots and the consolidation of the sale of real estate of Rockwell Land for eight

67

months after acquisition (post-acquisition) by the Parent Company amounting to P4.1 billion.

The foregoing increases were partially offset by the lower sale of merchandise as it fell by P4.0 billion or 53% (from

P7.6 billion to P3.6 billion) due to lower revenues reported by First Philec Solar, First Philec’s wafer slicing unit.

Costs and Expenses

The Group’s consolidated costs and expenses totaled P=79.6 billion for the year ended December 31, 2012. This is

higher by 4% or P3.4 billion, compared to the previous year’s P76.2 billion due to the following:

higher cost of real estate by ₱3.3 billion or 756% (from ₱434 million to ₱3.7 billion), over that of last year

due to the consolidation of post-acquisition cost of real estate of Rockwell Land totaling ₱3.3 billion.

higher general and administrative expenses of ₱2.8 billion or 33% (from ₱8.3 billion to ₱11.1 billion), mainly

attributed to the consolidation of post-acquisition general and administrative expenses of Rockwell Land and

the higher taxes and licenses and professional fees incurred by First Gen.

These increases were partly tempered by lower cost of merchandise sold as it decreased by ₱2.9 billion or 42%

(from ₱6.9 billion to ₱4.0 billion), due to the decrease in the manufacturing costs of FPSC, in line with the

decrease in its production output and eventual shutdown.

Net Income

Net income increased by P12.8 billion or 349% (from P3.7 billion to P16.5 billion) primarily due to the gain on sale

of investment in shares of stock of Meralco, gain related to business combination of Rockwell Land, improved

earnings reported by EDC and FG Hydro and the consolidation of Rockwell Land starting May 2012. Of the total

net income, the portion that is attributable to equity holders of the Parent amounted to P9.2 billion, in contrast to last

year’s net income attributable to the Parent of P1.6 billion.


Assets

Major movements in the consolidated statements of financial position of the Group resulted in a net increase in the

Group’s total consolidated assets by P8.4 billion, or 3%, to P256.9 billion as of December 31, 2012 from P248.6

billion as of December 31, 2011. The increase was the result of the following movements in major accounts:

Cash and cash equivalents increased by ₱1.2 billion or 3% (from ₱36.9 billion to ₱38.1 billion). The increase

was mainly due to the loan refinancing of FGP totaling P17.8 billion ($420.0 million), the issuance of First

Gen’s Series G perpetual preferred shares, and the drawdown of the remaining P2.1 billion ($49.0 million)

Notes Facility of First Gen. This account also includes Rockwell Land’s cash and cash equivalents amounting

to P533 million as of December 31, 2012.

Trade and other receivables increased by ₱4.4 billion or 31% (from ₱14.2 billion to ₱18.6 billion). The increase

was mostly due to the consolidation of trade and other receivables of Rockwell Land, higher receivables of

EDC following higher revenues of FG Hydro and higher receivables of FGP and FGPC from Meralco. First

Balfour’s receivables likewise grew during the period for the drilling services rendered.

Inventories increased by ₱6.1 billion or 77% (from ₱7.9 billion to ₱14.0 billion) because of the consolidation of

the land and development costs and condominium units for sale of Rockwell Land amounting to P6.8 billion as

of December 31, 2012. This was partially tempered by the consumption of liquid fuel of the Santa Rita and San

Lorenzo gas plants, following the scheduled 8-day maintenance outage of the Malampaya platform in July

2012.

Investments in equity securities increased by ₱1.5 billion or 14% (from ₱11.2 billion to ₱12.7 billion) due to the

unrealized fair value gains recognized for the remaining shares of Meralco held by the Parent Company and

68

FPUC.

Investment in joint venture increased by ₱2.7 billion or 100% (from nil to ₱2.7 billion) in this account is

primarily due to the consolidation of Rockwell Land’s share in Rockwell Business Center (RBC), an

unincorporated joint venture between the Rockwell Land and Meralco.

Investment properties increased by P9.4 billion or 636% (from P1.5 billion to P10.9 billion), primarily due to

the consolidation of Rockwell Land’s investment properties at fair values amounting to P9.2 billion as of

December 31, 2012. The rest of the increase was attributed to the re-acquisition of industrial lot by FPIP from a

tenant to be used as a site for future ready-built factory (RBF).

The above increases in the total assets of the Group were partially offset by the following significant movements:

Other current assets decreased by ₱6.8 billion or 62% (from ₱11.0 billion to ₱4.2 billion) mainly due to the sale

by FPUC of its 30,000,000 Meralco shares to Beacon Electric, the elimination of the current portion of

intercompany receivables from BG and the reclassification of the TCCs and ROP bonds maturing beyond 2013

to Other noncurrent assets account.

Investment in associates decreased by ₱4.6 billion or 99% (from ₱4.7 billion to ₱41 million) following the

consolidation of Rockwell Land with the Group in May 2012. The Parent Company gained control over the

financial and reporting policies of Rockwell Land in May 2, 2012, when Rockwell Land reissued to the Parent

Company its entire preferred shares of 2,750,000,000 at par value of P0.01 per share or an aggregate cost of

P27.5 million. As of December 31, 2012, the Group’s consolidated statement of financial position excludes the

carrying value of the Parent Company’s investment in Rockwell Land, hence the reduction in “Investments in

associates”. As of the said date, Rockwell Land’s accounts have been consolidated line-by-line in the Group’s

consolidated financial statements.

Property, plant and equipment decreased by ₱3.4 billion or 4% (from ₱89.1 billion to ₱85.7 billion) mainly

because of the accelerated depreciation that were provided for the wire saw machines of FPNC and FPSC. As a

result of the arbitration proceedings against Nexolon and SunPower Manufacturing Ltd, (SPML), the

termination of the Supply Agreement and highly unfavorable conditions in the solar industry in 2012, the Group

recognized an impairment loss of P3.9 billion in 2012 in accordance with PAS 36, Impairment of Assets, which

requires an entity to estimate the recoverable amount of the asset when there is any indication that an asset may

be impaired.

Other noncurrent assets decreased by ₱2.2 billion or 16% (from ₱13.3 billion to ₱11.2 billion), due mainly to

the elimination of the intercompany receivables from BG amounting to P3.6 billion ($86.6 million) following

the acquisition of its non-controlling interest in the First Gas Group by Blue Vulcan in May 2012.

Liabilities and Equity

Total liabilities increased by P10.2 billion, or 7%, to P147.7 billion as of December 31, 2012 from P137.5 billion as

of December 31, 2011 due to the following major movements:

Loans payable increased by ₱1.1 billion or 924% (from ₱120 million to ₱1.2 billion). This pertains mainly to

the various unsecured, short-term Philippine-peso denominated loans availed by First Balfour, FPIC and First

Philec during 2012.

Trade payables and other current liabilities increased by ₱3.7 billion or 17% (from ₱21.0 billion to ₱24.7

billion). The increase was mainly attributable to the consolidation of Rockwell Land’s trade payables and other

current liabilities as of end-December 2012.

Long-term debt, including current portion increased by ₱3.2 billion or 3% (from ₱106.9 billion to ₱110.0

billion), primarily due to the consolidation of Rockwell Land’s long-term debt and the refinancing of FGP

loans, the drawdown of the remaining ₱2.1 billion ($49.0 million) of its $100 million Notes Facility as well as

69

the proceeds of the FXCN loan by EDC.

Deferred tax liabilities increased by ₱2.0 billion or 431% (from ₱464 million to ₱2.5 billion), primarily due to

the deferred tax effect of the adjustment in the fair value of Rockwell Land’s net assets when Rockwell Land

was consolidated beginning May 2012.

Total equity decreased by P1.8 billion or 2% (from P111.0 billion to P109.2 billion). The decrease was mainly

attributable to the increase in “Equity reserve”, a contra-equity account on account of First Gen’s acquisition of the

non-controlling interests of BG in First Gas Group. This was partially tempered by the increase in total retained

earnings by P8.0 billion or 13% (from P60.5 billion to P68.5 billion) due to the P9.2 billion net income during 2012,

reduced by the total dividends declared amounting to P1.3 billion for the said year.

70


Horizontal and Vertical Analyses of Material Changes for the years ended December, 2012 vs. 2011

(Amounts in Millions) December 2012 December 2011 2012 vs. 2012 vs. December December

(Audited) (Audited) 2011 2011 2012 2011

(As Restated) (As Restated)

REVENUES

Sale of electricity 87,430 82,644 4,786 6% 88% 88%

Sale of real estate 6,545 917 5,628 614% 7% 1%

Sale of merchandise 3,588 7,618 (4,030) -53% 4% 8%

Contracts and services 2,106 2,330 (224) -10% 2% 2%


and a joint venture 125 343 (218) -64% 0% 0%

TOTAL REVENUES 99,794 93,852 5,942 6% 100% 100%

COSTS AND EXPENSES

Cost of sale of electricity (58,587) (57,951) (636) 1% -59% -62%

General and administrative expenses (11,108) (8,353) (2,755) 33% -11% -9%

Merchandise sold (4,030) (6,889) 2,859 -42% -4% -7%

Real estate sold (3,714) (434) (3,280) 756% -4% 0%

Contracts and services (2,127) (2,576) 449 -17% -2% -3%

TOTAL COSTS AND EXPENSES (79,566) (76,203) (3,363) 4% -80% -81%

OTHER INCOME (EXPENSES)

Finance costs (8,062) (9,249) (1,187) -13% -8% -10%

Finance income 1,537 1,334 203 15% 2% 1%

Foreign exchange gain (loss) 922 (463) (1,385) 299% 1% 0%

Impairment loss - net (4,012) (4,999) (987) -20% -4% -5%

Dividend income 612 582 30 5% 1% 1%

Mark-to-market gain on derivatives 10 270 (260) -96% 0% 0%

Gain on sale of investments 6,084 42 6,042 14386% 6% 0%

Gain on business combination 2,136 - 2,136 100% 2% 0%

Other income 146 470 (324) -69% 0% 1%

(627) (12,013) 11,386 -95% -1% -13%

INCOME BEFORE INCOME TAX 19,601 5,636 13,965 248% 20% 6%

PROVISION FOR (BENEFIT FROM)

INCOME TAX

Current 3,047 2,702 345 13% 3% 3%

Deferred 192 (817) 1,009 -124% 0% -1%

3,239 1,885 1,354 72% 3% 2%

NET INCOME FROM CONTINUING

OPERATIONS16,362 3,751 12,611 336% 16% 4%

NET INCOME (LOSS) FROM

DISCONTINUED OPERATIONS98 (81) 179 -221% 0% 0%

NET INCOME 16,460 3,670 12,790 349% 16% 4%

Attributable to:

Equity holders of the Parent 9,175 1,638 7,537 460% 56% 45%

Non-controlling interests 7,285 2,032 5,253 259% 44% 55%

16,460 3,670 12,790 349% 100% 100%

Earnings per Share for Net Income

Attributable to the Equity

Holders of the Parent

Basic 16.057 2.247 14 615%

Diluted 15.998 2.228 14 618%


71

Revenues

The Group’s consolidated revenues totaled P99.8 billion for the year ended December 31, 2012. This is higher by

6% or P5.9 billion, compared to the previous year’s P93.9 billion.

The following table sets out the contribution of each of the components of revenues as a percentage of the Group’s

total revenue for the years ended December 31, 2012 and 2011:



2012

(As Restated)

2011

(As Restated)

Increase (decrease)

Amount (%)

Sale of electricity ₱87,430 88% ₱82,644 88% ₱4,786 6%

Real estate 6,545 7% 917 1% 5,628 614%

Sale of merchandise 3,588 3% 7,618 8% (4,030) (53%)

Contracts and services 2,106 2% 2,330 3% (224) 10%

Equity in net earnings of associates and a

joint venture 125 –% 343 –% (218) (64%)

Total

₱99,794

100%

₱93,852

100%

₱5,942

6%

The Group’s revenues comprise of:

Sale of electricity

Sale of electricity accounts for 88% of total revenues during the years ended December 2012 and 2011. Revenue

from sale of electricity went up by ₱4.8 billion or 6% (from ₱82.6 billion to ₱87.4 billion) mainly due to the

increased contribution of GCGI in 2012 following the re-pricing of its offtake contracts that became effective mid-

2011 and higher revenues of FG Hydro from its ancillary services and a greater amount of electricity generated. This

was also due to higher fuel charges resulting from higher fuel prices (from an average of $12.2/MMBtu in 2011 to

an average of $13.4/MMBtu in 2012). This was partially offset by the absence of supplemental payments in 2012

and lower variable O&M charges resulting from the lower dispatch (a combined average net capacity factor of

80.8% in 2012, compared to a combined 89.2% during 2011) mainly due to scheduled minor outages and gas

curtailments that were experienced by the Santa Rita and San Lorenzo power plants during the period.

Real estate

Revenue from sale of real estate is derived from sale of industrial lots and lease of ready-built factories (RBF) of

FPIP in Batangas and from the development, selling and property management of residential projects of Rockwell

Land. Sale of real estate amounted to ₱5.5 billion and ₱917 million in 2012 and 2011, respectively. This accounted

for 7% of consolidated revenues in 2012 and 1% of consolidated revenues in 2011. The growth in the sale of real

estate of ₱5.0 billion was due to the increase in sale of industrial lots of FPIP and the consolidation of the sale of real

estate of Rockwell Land for eight months amounting to ₱4.1 billion after acquisition by the Parent Company.

Sale of merchandise

Revenue from sale of merchandise is derived from the sale of power and distribution transformers and production of

silicon wafers. Sale of merchandise contributed 3% of the total revenues during the year ended December 2012,

down from 8% for the same period in 2011. Sale of merchandise fell by ₱4.0 billion or 53% (from ₱7.6 billion to

₱3.6 billion) due to lower revenues reported by FPSC, First Philec’s wafer slicing unit.


Revenue from contracts and services is primarily derived from drilling and construction contracts, engineering

projects, pipeline shipment of fuel and other petroleum products, water and waste-water treatment facility of the

72

industrial park and commercial leasing. Revenue from contracts and services accounts for 2% and 3% of total

revenues in 2012 and 2011, respectively.

Revenues from contracts and services went up by ₱224 million or 10% (from ₱2.3 billion to ₱2.1 billion), mainly

due to the lower revenues of First Balfour on its construction contracts partially tempered by higher revenues of

FPIP on its water and waste-water treatment facility.

Equity in net earnings of associates and a joint venture

Equity in net earnings of associates and a joint venture amounted to ₱125 million for the year ended December 31,

2012, as against ₱343 million for the same period last year. This represents the Group’s share in the consolidated

net income or loss of, among others, Rockwell Land and MHE Demag. In 2012, the Group’s equity in net earnings

of Rockwell Land covers the period January to April while share in joint venture recorded was equivalent to eight-

month period in which Rockwell Land was consolidated under the Parent Company. Rockwell Land has an

unincorporated joint venture, Rockwell Business Center (RBC), with Meralco for the development and operations of

an office complex within the Meralco headquarters in Ortigas. The Parent Company gained control over the


Company its entire preferred shares of 2,750,000,000 at par value of ₱0.01 per share or an aggregate cost of ₱27.5

million. The preferred shares are of equal rank, preference and priority with common shares and identical in all

respects regardless of series, except as to the issue value which may be specified by Rockwell Land’s Board of

Directors (BOD) from time to time. It has voting rights and non-participating in any or further beyond that specified

on such preferred shares. All preferred shares currently outstanding earn 6% cumulative dividend per annum.

Others

This account pertains to the share in project revenue of joint ventures of First Balfour amounting to ₱2 million in

2011.

Costs and expenses


higher by 4% or ₱3.4 billion compared to the ₱76.2 billion consolidated costs and expenses for the same period in

2011.

The following table sets out the contribution of each of the components of costs and expenses as a percentage of the

Group’s total costs and expenses for the periods ended December 31, 2012 and 2011:



2012

(As Restated)

2011

(As Restated)

Increase (decrease)

Amount (%)

Cost of sale of electricity ₱58,587 74% ₱57,951 76% ₱636 1%

General and administrative expenses 11,108 14% 8,353 11% 2,755 33%

Merchandise sold 4,030 5% 6,889 9% (2,859) (42%)

Real estate 3,714 5% 434 1% 3,280 756%

Contracts and services 2,127 2% 2,576 3% (449) (17%)

Total

₱79,566

100%

₱76,203

100%

(₱3,363)

4%

The major changes in the Group’s costs and expenses were due to the following:

Cost of sale of electricity

Cost of sale of electricity accounts for 74% and 76% of total costs and expenses for the years ended December 31,

2012 and 2011, respectively. This account increased by ₱636 million or 1% (from ₱58.0 billion to ₱58.6 billion)

73

primarily due to higher average fuel price of Sta. Rita and san Lorenzo in 2012 ($13.4/MMBtu) as compared to the

same period in 2011 ($12.2/MMBtu), partially offset by the lower generation for the year. The increase was

tempered by the decrease in repairs and maintenance of EDC resulting from lower purchased services and utilities.

This was further reduced by lower variable O&M costs for both Santa Rita and San Lorenzo plants due to scheduled

major and minor outages during the year. In addition, variable O&M costs for both Santa Rita and San Lorenzo

were further reduced in 2012 due to the cap on Chargeable Net Electrical Output (CNEO) that was reached in July

2012 (for Santa Rita) and in September 2012 (for San Lorenzo). Reaching the cap resulted in the non-charging of

variable O&M costs by Siemens Power Operations, Inc. (SPOI) from the date the cap was reached and extended

until the end of their respective relevant contract year.

General and administrative expenses

General and administrative expenses account for 14% and 11% of consolidated costs and expenses for the years

ended December 31, 2012 and 2011, respectively. General and administrative expenses increased by ₱2.8 billion

or 33% (from ₱8.4 billion to ₱11.1 billion), mainly attributed to the consolidation of post-acquisition general and

administrative expenses of Rockwell Land and the higher taxes and licenses and professional fees incurred by

First Gen from the acquisition of BG’s non-controlling interest in the First Gas group in May 2012.

Merchandise sold

Cost of merchandise sold accounts for 5% and 9% of total costs and expenses for the years ended December 31,

2012 and 2011, respectively. This account decreased by ₱2.9 billion or 42% (from ₱6.9 billion to ₱4.0 billion),

due to the decrease in the manufacturing costs of FPSC, in line with the decrease in its production output and

eventual shutdown.

Real estate

Cost of real estate sold accounts for 5% and 1% of total costs and expenses in 2012 and 2011, respectively. Cost

of real estate sold went up by ₱3.3 billion or 756% (from ₱434 million to ₱3.7 billion), over that of last year due

to the consolidation of post-acquisition cost of real estate of Rockwell Land totaling ₱3.3 billion.


Cost of contracts and services accounts for 2% and 3% of total costs and expenses for the years ended December 31,

2012 and 2011, respectively. Cost of contracts and services went down by ₱449 million or 17% (from ₱2.6 billion

to ₱2.1 billion), largely coming from pipeline costs of FPIC and drilling-related costs of ThermaPrime.

Others

This account pertains to the share in project costs of joint ventures of First Balfour amounting to ₱7 million in 2011.

Gain on sale of investments

Gain on sale of investments increased by ₱6.0 billion (from ₱42 million to ₱6.1 billion). In 2012 the gains consist

of: (1) ₱3.3 billion gain from the sale by First Philippine Utilities Corporation (FPUC) of its 2.66% interest in

Meralco or equivalent to 30,000,000 shares to Beacon Electric; and (2) ₱2.8 billion worth of additional

1,384,594,823 Rockwell Land shares which the Parent Company received from Beacon Electric pursuant to the

Investment and Cooperation Agreement (ICA). The assignment of Rockwell Land shares from Beacon Electric to

the Group is part of the consideration which is covered in the ICA. Effectively, this is an additional gain relating to

the previous sale of Meralco shares. In 2011, a gain of ₱42 million was recognized when the Group sold its 40%

stake in FSCI corresponding to 900,000 shares of common stock to Sumitomo Electric Industries.

Gain on business combination

This account comprises of: (1) ₱1.8 billion gain resulting from the Parent Company’s remeasurement of its

previously held equity interest in Rockwell Land at its acquisition-date fair value; and (2) ₱302 million gain arising

from the excess of fair values of net identifiable assets and liabilities over carrying amounts as at the date of

acquisition of Rockwell Land. The Parent Company obtained control of Rockwell Land effective May 2, 2012, the

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date when the Parent Company had majority representation in the Board of Directors of Rockwell Land.

Impairment loss - net

As a result of the arbitration proceedings against Nexolon and SPML, the termination of the Supply Agreement and

the highly unfavorable conditions in the solar industry in 2012, First Philec recognized an impairment loss of

₱3.9 billion in 2012 in accordance with PAS 36, Impairment of Assets, which requires an entity to estimate the

recoverable amount of the asset when there is any indication that an asset may be impaired. The recoverable amount

was based on the assets’ estimated fair value less costs to sell as of December 31, 2012. The fair value less cost to

sell was based on information available to management as of the date of assessment. Moreover, the Parent Company

also recognized a P=156 million impairment loss on its investment in Narra Venture Capital II, L.P. (Narra Venture).

Narra Venture is a limited partnership established for the purpose of making equity investments in private and public

companies. Narra Venture will terminate on March 31, 2017. There were no indicators for impairment as at

December 2011.

Finance costs

Finance costs went down by ₱1.2 billion or 13% (from ₱9.2 billion to ₱8.1 billion), largely as a result of lower

interest expense of EDC due to capitalization of the borrowing costs for Bacman rehabilitation, scheduled

amortization of long-term debt, lower accretion expense on the asset retirement obligation, the absence in 2012 of

the guarantee fee on the OECF 21th Yen loan which was settled in 2011, and the lower amortization of the gain on

royalty fee payable to DOE. This was further reduced by the lower debt level of the Parent Company and Unified

Holdings, the buyback of the Convertible Bonds, and the scheduled principal payments of FGPC’s and FGP’s loans.

These were partially offset by the increased interest expense of FGP following its loan refinancing in October 2012,

and by the interest expense on the short-term loans tapped by Blue Vulcan for the BG acquisition. This account

includes the post-acquisition finance costs of Rockwell Land amounting to ₱196 million.

Finance income

Finance income increased by ₱203 million or 15% (from ₱1.3 billion to ₱1.5 billion), due to higher average

investable funds and the consolidation of post-acquisition finance income of Rockwell Land which amounted to

₱458 million partially offset by the elimination of the interest income from the advances made to BG following the

purchase of their non-controlling stake in the First Gas group in May 2012.

Dividend income

Dividend income represents dividends received from the Group’s stake in Meralco. Dividend income increased by

₱30 million or 5% (from ₱582 million to ₱612 million) due to higher dividends earned in 2012. With the remaining

3.9% and 6.6% shares in Meralco in 2012 and 2011, respectively, the Group no longer used equity method of

accounting since March 30, 2010.

Mark-to-market gain on derivatives

The ₱260 million or 96% net decrease in MTM gain (from ₱270 million to ₱10 million) was due to the absence of

the gain on derivative transactions related to First Gen’s call option to purchase EDC shares and the absence of the

derivative gains recognized by EDC on its foreign currency forward contracts entered into with various banks in

2011.

Foreign exchange gain (loss)

For 2012, net foreign exchange gains amounted to ₱922 million, a reversal from ₱463 million foreign exchange

losses booked in 2011. The variance was brought about by the effect of the appreciation of the Philippine Peso in

2012 (from ₱43.84:$1.00 as of end-2011 to ₱41.05:$1.00 as of December 31, 2012) on the translation of EDC’s

long-term foreign loans.

Other income

75

Other income decreased by ₱324 million or 69% (from ₱470 million to ₱146 million) due to the absence of the gain

on partial buyback of convertible bonds (CBs) made last year and the gain that resulted from the purchase of

discounted Tax Credit Certificate (TCCs) from third parties, as well as the absence of the return of First Gen’s

investment in FPPC. This was partially tempered by the post-acquisition other income of Rockwell Land amounting

to ₱127 million.

Income before income tax

As a result of the foregoing, income before income tax for the period increased by ₱14.0 billion or 248% (from

₱5.6 billion to ₱19.6 billion) for the year ended December 31, 2012.

Provisions for (benefit from) income tax

Provision for income tax increased by ₱1.4 billion or 72% due to higher tax provision of EDC and movements in

foreign exchange rates between the Philippine peso and U.S. dollar. The increase in the income tax provisions for

EDC was due mainly from the absence in 2012 of the deferred tax asset on the provision for full impairment of

NNGP’s property, plant and equipment recognized in June 2011, and the higher taxable income of EDC. Rockwell

Land’s post-acquisition current and deferred income taxes amounted to ₱313 million and ₱65 million, respectively.

Net income from continuing operations

Net income from continuing operations increased by ₱12.6 billion or 336% (from ₱3.8 billion to ₱16.4 billion)

primarily due to the recognition of the gain on sale of investment in shares of stock of Meralco, gain on business

combination, improved earnings reported by EDC and FG Hydro and the consolidation of Rockwell Land starting

May 2012.

Net income from discontinued operations

The ₱98 million pertains to EDC’s income from its drilling services in Lihir, Papua New Guinea which were

discontinued in October 2012. This was ₱179 million, or 221%, higher than the ₱81 million loss in 2011 due to

higher revenues from the demobilization of Rig 11 in 2012, lower foreign contractor’s tax, and the decrease in the

amount of parts and supplies issued.

Net income attributable to equity holders of the Parent

Of the total net income, the portion that is attributable to equity holders of the Parent amounted to ₱9.2 billion,

against last year’s attributable net income of ₱1.6 billion.

Net income attributable to non-controlling interests

Non-controlling interests also increased by ₱5.3 billion or 259% mainly due to the higher income reported by EDC

and FPIP, tempered by the net losses incurred by FPIC.

Earnings per share (EPS) for net income attributable to equity holders of the Parent

Basic EPS for the current period is ₱16.057 while diluted EPS is ₱15.998. Last year’s basic EPS and diluted EPS

were ₱2.247 and ₱2.228, respectively. The increase was due to the significantly higher net income available to

common shareholders this period compared to the previous period.

Total comprehensive income for the period

Total comprehensive income increased by ₱7.4 billion or 90% (from ₱8.2 billion to ₱15.6 billion). The movements

in the comprehensive income of the Group were as follows:

(1) Net income went up by ₱12.8 billion or 349% (from ₱3.7 billion to ₱16.5 billion), primarily due to the gain

on sale of investment in shares of stock of Meralco and improved earnings reported by EDC and FG

Hydro;

76

(2) Exchange gains on foreign currency translation decreased by ₱3.9 billion or 87% (from ₱4.5 billion to

₱601 million). Such foreign exchange movements arose from translation of First Gen’s U.S. dollar-

denominated financial statements into Philippine peso for consolidation purposes;

(3) Net loss on cash flow hedge deferred in equity amounted to ₱71 million in 2012 as against a net loss ₱606

million in 2011. This pertains to the changes in MTM valuation of First Gen’s FGPC and FGP’s derivative

instruments, particularly its interest rate swap agreements for its Covered and Uncovered facilities;

(4) The changes in unrealized gains on investment in equity securities, which pertains to the movements in fair

value of Meralco shares held by the Group, declined by ₱2.8 billion or 197% (from unrealized gains of

₱1.4 billion to unrealized losses of ₱1.4 billion). The ₱1.4 billion unrealized fair value losses for the year

ended December 31, 2012 resulted from the derecognition of the ₱2.9 billion cumulative fair value gains

that have been realized upon the sale of 30,000,000 shares of Meralco by FPUC and the net unrealized

MTM gains on the valuation of the said shares aggregating to ₱1.5 billion. Last year’s movements in this

account pertain to the revaluation of Meralco shares from January 1, 2011 to December 31, 2011;

(5) Actuarial losses on retirement benefit asset/liability, including tax effect, decreased by ₱785 million (from

₱809 million to ₱24 million) as a result of the recognized transition adjustments on the Group’s retirement

benefit asset/liability upon the adoption of the revised PAS 19 which became effective in January 2013 and

the additional retirement expense based on the updated actuarial valuation report.

Total comprehensive income for the period attributable to equity holders of the Parent

Total comprehensive income attributable to equity holders of the Parent increased by ₱3.6 billion or 113% (from

₱3.2 billion to ₱6.8 billion), primarily due to the gain on sale of investment in shares of stock of Meralco and the

gain related to business combination, tempered by fair value adjustments on investment in equity securities this year.

Total comprehensive income for the period attributable to non-controlling interests

Total comprehensive income attributable to the non-controlling interests increased by ₱3.8 billion or 75% (from

₱5.0 billion to ₱8.8 billion), mainly due to the higher share in total comprehensive income during the period.

77


Horizontal and Vertical Analyses of Material Changes as of December 31, 2012 and 2011

(Amounts in Millions) Dec. 2012 Dec. 2011 2012 vs. 2012 vs. Dec. 2012 Dec. 2011

(Audited) (Audited) 2011 2011

(As restated) (As restated)

ASSETS

Current Assets

Cash and cash equivalents 38,106 36,946 1,160 3% 15% 15%

Short-term investments 528 528 - 0% 0% 0%

Trade and other receivables 18,616 14,235 4,381 31% 7% 6%

Inventories 13,967 7,909 6,058 77% 5% 3%

Other current assets 4,195 11,009 (6,814) -62% 2% 4%

Total Current Assets 75,412 70,627 4,785 7% 29% 28%

Noncurrent Assets

Investments in associates 41 4,669 (4,628) -99% 0% 2%

Investment in equity and debt securities 12,730 11,190 1,540 14% 5% 5%

Investment in joint ventures 2,681 - 2,681 100%

Property, plant and equipment 85,726 89,132 (3,406) -4% 33% 36%

Investment properties 10,903 1,482 9,421 636% 4% 1%

Goodwill and intangible assets 55,316 55,861 (545) -1% 22% 22%

Retirement benefit asset 829 234 595 254% 0% 0%

Deferred tax assets 2,126 2,030 96 5% 1% 1%

Other noncurrent assets 11,185 13,344 (2,159) -16% 4% 5%

Total Noncurrent Assets 181,537 177,942 3,595 2% 71% 72%

TOTAL ASSETS 256,949 248,569 8,380 3% 100% 100%


Current Liabilities

Loans payable 1,229 120 1,109 924% 0% 0%

Trade payables and other current liabilities 24,689 21,035 3,654 17% 10% 8%

Income tax payable 353 309 44 14% 0% 0%

Current portion of:

Long-term debt 7,122 7,862 (740) -9% 3% 3%

Bonds payable 2,979 - 2,979 100% 1% 0%

Total Current Liabilities 36,372 29,326 7,046 24% 14% 12%

3%

Noncurrent Liabilities

Bonds payable - net of current portion - 3,711 (3,711) -100% 0% 1%

Long-term debt - net of current portion 102,921 99,023 3,898 4% 40% 40%

Derivative liabilities 2,510 2,558 (48) -2% 1% 1%

Deferred tax liabilities 2,466 464 2,002 431% 1% 0%

Retirement benefit liability 2,166 1,509 657 44% 1% 1%

Asset retirement obligation 546 458 88 19% 0% 0%

Other noncurrent liabilities 739 460 279 61% 0% 0%

Total Noncurrent Liabilities 111,348 108,183 3,165 3% 43% 44%

Total Liabilities 147,720 137,509 10,211 7% 57% 55%

110,043 106,885 3,158 3%

Equity Attributable to Equity Holders of the Parent

Common stock 6,054 6,018 36 1% 2% 2%

Preferred stock 6,300 6,300 - 0% 2% 3%

Subscription receivable (4) (4) - 0% 0% 0%

Capital in excess of par value 3,929 3,847 82 2% 2% 2%

Parent company preferred shares held by a consolidated

subsidiary (2,000) (2,000) - 0% -1% -1%

Treasury stock (3,345) (3,345) - 0% -1% -1%

Unrealized fair value gains on investment in equity securities 3,557 4,916 (1,359) -28% 1% 2%

Cumulative translation adjustments (5,203) (4,084) 1,119 27% -2% -2%

Equity reserve (12,305) (4,355) (7,950) 183% -5% -2%

Retained earnings - unappropriated 61,519 60,475 1,044 2% 24% 24%

Retained earnings - appropriated 6,955 - 6,955 100% 3% 0%

Equity Attributable to Equity Holders of the Parent 65,457 67,768 (2,311) -3% 25% 27%

Non-controlling Interests 43,772 43,292 480 1% 17% 17%

Total Equity 109,229 111,060 (1,831) -2% 43% 45%

TOTAL LIABILITIES AND EQUITY 256,949 248,569 8,380 3% 100% 100%


78

Financial Condition

As of December 31, 2012, the Group’s consolidated assets totaled ₱256.9 billion, higher by 3% or ₱8.4 billion,

compared to the December 31, 2011 consolidated balance of ₱248.6 billion.

Cash and cash equivalents increased by 3%

Cash and cash equivalents increased by ₱1.2 billion or 3% (from ₱36.9 billion to ₱38.1 billion). The increase was

mainly due to the proceeds from the sale by FPUC of its 2.66% interest (equivalent to 30,000,000 shares) in Meralco

to Beacon Electric, the proceeds from the loan refinancing of FGP totaling ₱17.8 billion ($420.0 million), the

issuance of First Gen’s Series G perpetual preferred shares, and the drawdown of the remaining ₱2.1 billion ($49.0

million) Notes Facility of First Gen. The increase was partially offset by the loan repayments of the Parent

Company and First Gen group, the dividend payments by the Parent Company and EDC during the year, the

acquisition of the non-controlling interest of BG in the First Gas group, buyback of Convertible Bonds and the

purchase of additional PPE by EDC. This account includes Rockwell Land’s cash and cash equivalents amounting

to ₱533 million as of December 31, 2012.

Trade and other receivables increased by 31%

Trade and other receivables increased by ₱4.4 billion or 31% (from ₱14.2 billion to ₱18.6 billion). The increase was

mostly due to the consolidation of trade and other receivables of Rockwell Land amounting to ₱3.5 billion higher

trade receivables of EDC which resulted from higher revenues from GCGI and FG Hydro, as well as the higher

amount of outstanding VAT receivables of FGPC and FGP from Meralco. First Balfour’s receivables likewise grew

during the period for the construction services rendered.

Inventories increased by 77%

The increase in inventories by ₱6.1 billion or 77% (from ₱7.9 billion to ₱14.0 billion) was mainly due to the

consolidation of the land and development costs and condominium units for sale of Rockwell Land amounting to

₱6.8 billion as of December 31, 2012. This was partially tempered by the consumption of liquid fuel of the Santa

Rita and San Lorenzo gas plants, following the scheduled eight-day maintenance outage of the Malampaya platform

in July 2012.

Other current assets decreased by 62%

Other current assets decreased by ₱6.8 billion or 62% (from ₱11.0 billion to ₱4.2 billion) mainly due to the sale by

FPUC of its 30,000,000 Meralco shares to Beacon Electric, the elimination of the current portion of intercompany

receivables from BG following the acquisition of its non-controlling interest in the First Gas group by Blue Vulcan

and the reclassification of the TCCs and ROP bonds maturing beyond 2013 to Other noncurrent assets account. The

decrease was moderated by the effect of the consolidation of Rockwell Land’s other current assets as of December

31, 2012 amounting to ₱1.6 billion.

Investments in associates decreased by 99%

Investment in associates decreased by ₱4.6 billion or 99% (from ₱4.7 billion to ₱41 million) following the

consolidation of Rockwell Land with the Group in May 2012. The Parent Company gained control over the


Company its entire preferred shares of 2,750,000,000 at par value of P0.01 per share or an aggregate cost of P27.5

million. As of December 31, 2012, the Group’s consolidated statement of financial position excludes the carrying

value of the Parent Company’s investment in Rockwell Land, hence the reduction in “Investments in associates”.

As of the said date, Rockwell Land’s accounts have been consolidated line-by-line in the Group’s consolidated

financial statements.

Investments in equity and debt securities increased by 14%

Investments in equity and debt securities increased by ₱1.5 billion or 14% (from ₱11.2 billion to ₱12.7 billion). As

of December 31, 2011, investments in equity securities pertain mainly to the remaining shares of Meralco held by

the Parent Company and FPUC. In January 2012, FPUC sold 30,000,000 of its Meralco shares to Beacon Electric.

79

Net unrealized fair value gains increased this account.

Investments in a joint venture increased by 100%

The increase of ₱2.7 billion or 100% (from nil to ₱2.7 billion) in this account is primarily due to the consolidation of

Rockwell Land’s share in Rockwell Business Center (RBC), an unincorporated joint venture between the Rockwell

Land and Meralco.

Property, plant and equipment decreased by 4%

This account decreased by ₱3.4 billion or 4% (from ₱89.1 billion to ₱85.7 billion) mainly because of the impairment

that was provided for the wire saw machines of FPNC and FPSC. As a result of the arbitration proceedings against

Nexolon and SunPower Manufacturing Ltd, (SPML), the termination of the Supply Agreement and highly

unfavorable conditions in the solar industry in 2012, the Group recognized an impairment loss of ₱3.9 billion in

2012 in accordance with PAS 36, Impairment of Assets, which requires an entity to estimate the recoverable amount

of the asset when there is any indication that an asset may be impaired. The recoverable amount was based on the

assets’ estimated fair value less costs to sell as of December 31, 2012. The fair value less cost to sell was based on

information available to management as of the date of assessment. This was partially offset by additions to EDC’s

PPE resulting from the maintenance expenditures in Unified Leyte and the effect of the consolidation of Rockwell

Land’s property, plant and equipment as of December 31, 2012 amounting to ₱775 million.

Investment properties increased by 636%

Investment properties increased by ₱9.4 billion or 636% (from ₱1.5 billion to ₱10.9 billion), primarily due to the

consolidation of Rockwell Land’s investment properties at fair values amounting to ₱9.2 billion as of December 31,

2012. The rest of the increase was attributed to the re-acquisition of industrial lot by FPIP from a tenant to be used

as a site for future RBFs.

Goodwill and intangible assets decreased by 1%

Goodwill and intangible assets decreased by ₱545 million or 1% (from ₱55.9 billion to ₱55.3 billion), due mainly to

amortization and translation of First Gen and EDC’s U.S. dollar-denominated financial statements into Philippine

peso.

Retirement benefit asset increased by 254%

Retirement benefit asset increased by ₱595 million or 254% (from ₱234 million to ₱829 million), primarily due to

the recognized transition adjustments on the Group’s retirement benefit asset upon adoption of the revised PAS 19

and the additional retirement adjustment based on the updated actuarial valuation report.

Deferred tax assets - net increased by 5%

The increase in deferred tax assets of ₱96 million or 5% (from ₱2.0 billion to ₱2.1 billion) was mainly due to the

increase in FGP’s benefit from deferred income tax following the appreciation of the Philippine Peso from

₱43.84:$1.00 as of December 31, 2011 to ₱41.05:$1.00 as of December 31, 2012. This was supplemented by the

benefits from income taxes as a result of the higher taxable loss position of FPIC for 2012.

Other noncurrent assets decreased by 16%

This account decreased by ₱2.2 billion or 16% (from ₱13.3 billion to ₱11.2 billion), due mainly to the elimination of

the intercompany receivables from BG amounting to ₱3.6 billion ($86.6 million) following the acquisition of its

non-controlling interest in the First Gas Group by Blue Vulcan in May 2012. This was partially offset by the

reclassification of the TCCs and ROP Bonds from Other current assets account, and the increase in the exploration

and evaluation assets of EDC due to capitalization of expenditures related to the projects in the Mindanao III areas

and the consolidation of other noncurrent assets of Rockwell Land as of December 31, 2012 amounting to ₱409

million.

80

Loans payable increased by 924%

Loans payable increased by ₱1.1 billion or 924% (from ₱120 million to ₱1.2 billion). This pertains mainly to the

various unsecured, short-term Philippine-peso denominated loans availed by First Balfour, FPIC and First Philec

during 2012.

Trade payables and other current liabilities increased by 17%

Trade payables and other current liabilities increased by ₱3.7 billion or 17% (from ₱21.0 billion to ₱24.7 billion).

The increase was mainly attributable to the consolidation of Rockwell Land’s trade payables and other current

liabilities as of end-December 2012.

Income tax payable increased by 14%

The increase in income tax payable of ₱44 million or 14% (from ₱309 million to ₱353 million) can be attributed to

the increase in taxes of FGP and FGPC due to the higher taxable income for the year 2012 as well as to

consolidation of income tax payable of Rockwell Land as of December 31, 2012. This was partially offset by the

decrease in the income tax payable of EDC due to higher CWT.

Long-term debt, including current portion, increased by 3%

Long-term debt, including current portion increased by ₱3.2 billion or 3% (from ₱106.9 billion to ₱110.0 billion),

primarily due to the consolidation of Rockwell Land’s long-term debt and the refinancing of FGP loans, the

drawdown of the remaining ₱2.1 billion ($49.0 million) of its $100 million Notes Facility as well as the proceeds of

the FXCN loan by EDC. These were partly offset by the scheduled principal payments of the existing loans of the

Parent Company, First Philec, EDC and FGPC.

Bonds payable, including current portion, decreased by 20%

Bonds payable, including current portion, decreased by ₱732 million or 20% (from ₱3.7 billion to ₱3.0 billion).

This account pertains to the unredeemed Convertible Bonds (CBs) with a face value of P2.3 billion ($57.0 million)

[and carrying value of P3.0 billion ($72.6 million)]. The bonds matured last February 11, 2013. In 2012, the First

Gen bought back CBs with a face value of P552 million ($13.0 million) for a total settlement amount of P696

million ($16.4 million), inclusive of a premium amounting to P144 million ($3.4 million).

Derivative liabilities decreased by 2%

The balance at year-end 2012 is due to EDC’s cross currency swap designated as accounting hedges. This was offset

by the absence of the swap obligations by FGP and FGPC.

Deferred tax liabilities increased by 431%

The account increased by ₱2.0 billion or 431% (from ₱464 million to ₱2.5 billion), primarily due to the deferred tax

effect of the adjustment in the fair value of Rockwell Land’s net assets when Rockwell Land was consolidated

beginning May 2012.

Retirement and other employee benefits liability increased by 44%

Retirement and other employee benefits liability increased by ₱657 million or 44% (from ₱1.5 billion to ₱2.2

billion), primarily due to the recognized transition adjustments on the Group’s retirement benefit liability upon

adoption of the revised PAS 19 and the actuarial losses recognized in other comprehensive income.

Asset retirement and preservation obligation increased by 19%

Asset retirement and preservation obligation increased by ₱88 million or19% (from ₱458 million to ₱546 million),

mainly as a result of the accretion in the asset retirement obligations of EDC and the First Gas Group.

Other noncurrent liabilities increased by 61%

81

Other noncurrent liabilities increased by ₱279 million or 61% (from ₱460 million to ₱739 million), mainly due to

the consolidation of Rockwell Land and the loan availed by FPIC from Pilipinas Shell Petroleum Corporation, an

entity under common control. Said loan is unsecured, non-interest bearing and denominated in Philippine peso.

Total equity attributable to equity holders of the Parent decreased by 3%

Total equity attributable to equity holders of the Parent decreased by ₱2.3 billion or 3% (from ₱67.8 billion to ₱65.5

billion). The following major items brought about the net increase in equity attributable to equity holders of the

Parent:

(1) Unrealized fair value gains on investments in equity securities decreased by ₱1.4 billion or 28% (from

P4.9 billion to ₱3.6 billion), due to the derecognition of unrealized fair value gains on shares of Meralco

sold by FPUC and the revaluation of the remaining Meralco shares held by the Group;

(2) Cumulative translation adjustments increased by ₱1.1 billion or 27% (from ₱4.1 billion to ₱5.2 billion) due

to translation gains arising from the foreign exchange movements during the period (from ₱43.84:$1.00 in

December 2011 to ₱41.05:$1.00 in December 2012); and

(3) Equity reserve, a contra-equity account, increased by ₱8.0 billion or 183% (from ₱4.4 billion to ₱12.3

billion). On May 30, 2012, First Gen, through its wholly owned subsidiary, Blue Vulcan, acquired the

non-controlling interests of BG in First Gas group. Following the acquisition of the stake, First Gen now

beneficially owns 100% of First Gas group through its intermediate holding companies. First Gen’s

acquisition of non-controlling interests was accounted for as an equity transaction, whereby the carrying

amounts of the controlling and non-controlling interests were adjusted to reflect the changes in their

relative interests in First Gas group and any difference between the amount by which the non-controlling

interests were adjusted and the fair value of the consideration paid were recognized directly in equity and

attributed to the parent; while the acquisition of other assets and liabilities of BG was accounted for as an

asset acquisition.

As a result of this transaction, the total consideration was allocated to the other assets and liabilities of BG

based on the relative fair values of these assets and liabilities. The excess of the consideration paid over the

relative fair values of assets and liabilities were then allocated to the acquisition of the 40% equity interest

in First Gas Group, and the resulting difference was recognized directly in equity as “Equity reserve”

account in the 2012 consolidated statement of financial position and in the 2012 consolidated statement of

changes in equity.

(4) Unappropriated retained earnings increased by ₱1.0 billion or 2% (from ₱60.5 billion to ₱61.5 billion) due

to the net income during 2012, reduced by the total dividends declared for the said year.

(5) Appropriated retained earnings increased by ₱7.0 billion or 100% (from nil to ₱7.0 billion) due to the

appropriations made by the BOD in 2012, detailed as follows:

On June 21, 2012, the BOD approved the extension of the ₱6,000 million Share Buyback Program for

the unutilized balance of ₱2,655 million for another two years up to July 2014.

On November 8, 2012, the BOD approved an appropriation of ₱4,300 million for capital expenditures,

asset acquisitions, additional investments in subsidiaries and corporate social responsibility activities

over a period of three years.

Non-controlling interests increased by 1%

Non-controlling interests represent the portion of net assets not held by the Group. This includes, among others, the

equity interests in First Gen and subsidiaries, Rockwell Land, FPIC, FPHC Realty and FPIP and subsidiaries not

held by the Group. The increased in this account by P480 million or 1% (from ₱43.3 billion to ₱43.8 billion) was

mainly due to non-controlling interests’ share in the total comprehensive income of the Group and consolidation of

82

Rockwell Land. This was partially offset by First Gen’s acquisition of the 40% non-controlling interest in FGHC

and FGP of LSML in First Gas Group through Blue Vulcan, the Parent Company’s acquisition of non-controlling

interest of SMC in Rockwell Land (681,646,831 Rockwell Land shares for a total consideration of ₱1.4 billion).

Item 7. Financial Statements

The consolidated financial statements as of December 31, 2013 and 2012 and for each of the three years in the

period ended December 31, 2013 and the Supplementary Schedules required per SRC Rule 68.1-M are hereto

attached as Exhibit “A” and Exhibit “B”, respectively.

Summary of Significant Accounting Policies

Basis of Preparation

The consolidated financial statements are prepared on a historical cost convention, except for derivative financial

instruments, financial assets and financial liabilities at fair value through profit or loss (FVPL) and investments in

quoted equity shares which are measured at fair value. The consolidated financial statements are presented in

Philippine peso, FPH’s functional and presentation currency. All values are rounded to the nearest million peso,

except when otherwise indicated.

The consolidated financial statements provide comparative information in respect of the previous period. In

addition, the Group presents an additional consolidated statement of financial position at the beginning of the

earliest period presented when there is a retrospective application of an accounting policy, a retrospective

restatement, or a reclassification of items in financial statements. An additional consolidated statement of financial

position as at January 1, 2012 is presented in these consolidated financial statements due to retrospective application

of certain accounting policies.

Statement of Compliance

The consolidated financial statements are prepared in compliance with Philippine Financial Reporting Standards

(PFRS), as issued by the Financial Reporting Standards Council and adopted by the Philippine SEC.

Basis of Consolidation

The consolidated financial statements incorporate the financial statements of FPH and its subsidiaries (see Note 5)

as at December 31 each year. Control is achieved when the Group is exposed, or has rights, to variable returns from

its involvement with the investee and has the ability to affect those returns through its power over the investee.

Specifically, the Group controls an investee if and only if the Group has:

Power over an investee (i.e. existing rights that give it the current ability to direct the relevant activities of the

investee)

Exposure, or rights, to variable returns from its involvement with the investee; and

The ability to use its power over the investee to affect its returns.

When the Group has less than a majority of the voting rights of an investee, the Group considers all relevant

facts and circumstances in assessing whether it has power over the investee, including:

the contractual arrangements with the other vote holders of the investee

rights arising from other contractual arrangements

the Group’s voting rights and potential voting rights

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are

changes to one or more of the three elements of control listed above. Consolidation of a subsidiary begins

when the Group obtains control over the subsidiary and ceases when the Group loses control of the

subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year

are included in the consolidated statement of comprehensive income from the date the Group gains control

until the date when the Group ceases to control the subsidiary.

83

Profit or loss and each component of other comprehensive income are attributed to the owners of FPH and to

the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting

policies into line with the Group’s accounting policies.

All intra-group asset, liabilities, income, expenses and cash flows relating to transactions between members

of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity

transaction. Any excess or deficit of consideration paid over the carrying amount of the non-controlling

interest is recognized as part of “Equity reserve” account in the equity attributable to the equity holders of the

Parent.

If the Group loses control over a subsidiary, it:

Derecognizes the assets (including goodwill) and liabilities of the subsidiary

Derecognizes the carrying amount of any non-controlling interests

Derecognizes the cumulative translation differences recorded in equity

Recognizes the fair value of the consideration received

Recognizes the fair value of any investment retained

Recognizes any surplus or deficit in profit or loss

Reclassifies the parent’s share of components previously recognized in OCI to profit or loss or retained

earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or

liabilities

Changes in Accounting Policies

The accounting policies adopted are consistent with those of the previous financial year, except for the adoption of

the following new and amended accounting standards that became effective beginning January 1, 2013.

The Group applied for the first time, certain standards and amendments that require restatement of previous

consolidated financial statements. These include PFRS 10, PFRS 11, Joint Arrangements, PAS 19, Employee

Benefits (Revised 2011), PFRS 13, Fair Value Measurement and amendments to PAS 1, Presentation of Financial

Statements. In addition, the application of PFRS 12, Disclosure of Interests in Other Entities, resulted in additional

disclosures in the consolidated financial statements.

Several other amendments apply for the first time in 2013. However, they do not impact the annual consolidated

financial statements of the Group.

Annual Improvements to PFRSs

Annual Improvements to PFRSs (2009-2011 cycle)

The Annual Improvements to PFRSs (2009-2011 cycle) contain non-urgent but necessary amendments to PFRSs.

The Group adopted these amendments for the current year.

PFRS 1, First-time Adoption of PFRS – Borrowing Costs

PAS 1, Presentation of Financial Statements - Clarification of the requirements for comparative

information PAS 16, Property, Plant and Equipment - Classification of servicing equipment PAS 32, Financial Instruments: Presentation - Tax effect of distribution to holders of equity instruments PAS 34, Interim Financial Reporting - Interim financial reporting and segment information for total

assets and liabilities

84

Future Changes in Accounting Policies

The following are the new and revised accounting standards and interpretations that will become effective

subsequent to December 31, 2013. Except as otherwise indicated, the Group does not expect the adoption of these

new and amended PAS, PFRS and Philippine interpretations to have any significant impact on its consolidated

financial statements.

New and Amended Standards

PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets

Investment Entities (Amendments to PFRS 10, PFRS 12 and PAS 27)

Philippine Interpretation IFRIC 21, Levies (IFRIC 21)

PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives and

Continuation of Hedge Accounting (Amendments).

PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities

(Amendments).

PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions (Amendments).


The Annual Improvements to PFRSs (2010-2012 cycle) contain non-urgent but necessary amendments to the

following standards:

PFRS 2, Share-based Payment - Definition of Vesting Condition

PFRS 3, Business Combinations - Accounting for Contingent Consideration in a Business

Combination

PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation of the Total of

the Reportable Segments’ Assets to the Entity’s Assets.

PFRS 13, Fair Value Measurement - Short-term Receivables and Payables

PAS 16, Property, Plant and Equipment - Revaluation Method - Proportionate Restatement of

Accumulated Depreciation

PAS 24, Related Party Disclosures - Key Management Personnel

PAS 38, Intangible Assets - Revaluation Method - Proportionate Restatement of Accumulated

Amortization


The Annual Improvements to PFRSs (2011-2013 cycle) contain non-urgent but necessary amendments to

the following standards:

PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Meaning of

‘Effective PFRSs’

PFRS 3, Business Combinations - Scope Exceptions for Joint Arrangements.

PFRS 13, Fair Value Measurement - Portfolio Exception

PAS 40, Investment Property

PFRS 9, Financial Instruments.

Additional disclosures as required under such new and amended PFRS and Philippine Interpretations were included

in the consolidated financial statements and disclosed in Note 2 to the consolidated financial statements.

Significant Accounting Judgments and Estimates

The preparation of the consolidated financial statements requires the Group’s management to make judgments,

estimates and assumptions that affect the amounts reported of revenues, expenses, assets and liabilities, and the

disclosure of contingent assets and liabilities, at the financial reporting date. However, uncertainty about these

85

assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the

asset and liability affected in future years.

The summary of these significant judgments and estimates and related impact on and associated risks are disclosed

in Note 3 to the consolidated financial statements.

Operating Segment Information

Operating segments are components of the Group that engage in business activities from which they may earn

revenues and incur expenses, whose operating results are regularly reviewed by the Group to make decisions about

how resources are to be allocated to the segment and assess their performances, and for which discrete financial

information is available.

The Group’s operating businesses are organized and managed separately according to the nature of the products and

services, with each segment representing a strategic business unit that offers different products and serves different

markets.

The Group conducts majority of its business activities in the following areas:

Power generation and related companies - power generation subsidiaries under First Gen

Manufacturing - manufacturing subsidiaries under First Philec

Real estate Development – residential and commercial real estate development and leasing of Rockwell Land

and FPRC, and sale of industrial lots and ready-built factories by FPIP. Real estate segment was not a separate

reportable segment in 2011 and 2010.

Others - investment holdings, oil transporting company, construction, drilling, securities transfer services and

financing

The operations of these business segments are in the Philippines. Substantially, most of the revenues of First Gen

are derived from Meralco.

Segment revenue, segment expenses and segment performance include transfers between business segments. The

transfers are accounted for at competitive market prices charged to unrelated customers for similar products. Such

transfers are eliminated in consolidation.

Financial information on business segments is presented in Note 4 to the consolidated financial statements

Key Performance Indicators:

FPH Consolidated

The following are the key performance indicators for the Company:

December 31

2013 2012

(restated)

Financial ratios

Return on average stockholders’ equity * (%) 3.2% 12.0%

Interest coverage ratio 2.38 3.43

Earnings Per Share (diluted) P4.082 P15.998

Return on average equity dropped from 12.0% in 2012 to 3.2% this year as the Company’s net income

attributable to parent went down by P6.83 billion (-74%). The net income for the period decreased mainly

86

due to the absence of the P6.08 billion gain from sale of Meralco shares and the P2.14 billion gain on

business combination last year.

Interest coverage ratio decreased from 3.43:1.00 in 2012 to 2.38:1.00 this year due to the significant

decline in the earnings before interest and taxes from P27.66 billion in 2012 to P17.21 billion this year (-

38%) primarily due to the absence of the gain on sale of Meralco shares this year.

Earnings per common share (diluted) dipped from P16.00 to P4.08 as the Company’s net earnings

available to common shareholders significantly decreased from P8.80 billion last year to P2.26 billion (-

74%) this year as a result of the absence of the non-recurring gains from the sale of Meralco shares and

gain on business combination in 2012.

December December

2013 2012

(restated)

Financial ratios

Assets to total equity ratio * 4.14 3.39

Long-term debt (net)** to total equity ratio * 1.94 1.36

Current ratio 2.54 2.07

Quick ratio 2.05 1.57

Book value per share* (common) P127.54 P130.64

The ratio of Total Assets to Total Equity grew from 3.39:1.00 in 2012 to 4.14:1.00 this year. Total assets

went up by P34.40 billion (+13%) because of the increase in cash balance, growth in short-term

investments of the Parent Company, increase in receivables of Rockwell Land and First Gen group, and

the increase in property, plant and equipment mainly due to the capital expenditures of EDC for its

geothermal projects. The decrease in equity attributable to parent from P75.89 billion in 2012 to P70.41

billion this year contributed positively to this ratio.

The ratio of Long-term debt (excluding current portion but including Bonds) to Total Equity presented an

increase from 1.36:1.00 in 2012 to 1.94:1.00 in 2013 as long-term debt (excluding current portion)

increased by P33.58 billion (+33%) primarily due to the additional debts availed by Rockwell Land and

First Gen and the issuance of the P7.0 billion fixed-rate bond of EDC in May 2013, moderated by the

scheduled principal payments of the existing outstanding loans of First Gen during the year.

Current ratio showed an increase from 2.07:1.00 in 2012 to 2.54:1.00 this year because the growth in

current assets of P26.14 billion (+35%) exceeded the growth in current liabilities of P3.65 billion (+10%).

Current assets increased due to the rise in cash, short term investments and receivables. Current liabilities

grew due to higher short-term loans and trade payables and accruals, tempered by the full redemption of

the remaining principal balance of First Gen’s Convertible Bonds.

Quick ratio likewise increased, from 1.57:1.00 in 2012 to 2.05:1.00 this year, mainly due to the P14.65

billion (+38%) increase in cash and the P7.99 (+43%) increase in receivables.

Book value per common share is down from P130.64 in 2012 to P127.54 this year. The decrease was

brought about by the decline in stockholder’s equity attributable to parent excluding preferred shares from

P71.59 billion in 2012 to P70.41 billion this year.

Formula

Return on Average Stockholders’ Equity -

reflects how much the firm has earned on the Net Income__

funds invested by the shareholders Average Equity*

87

Assets to Equity Ratio -

measures the company’s financial leverage Total Assets

and expresses the relationship between the total assets Equity*

and the total capital contributed by the owners

Long-term Debt to Equity Ratio -

measures the company’s financial leverage Long-term Debt**

excluding current portion Equity*

Current Ratio -

indicator of company’s ability to pay short-term Current Assets__

obligations Current Liabilities

Quick Ratio -

indicator of company’s ability to pay short-term Current Assets excl. Inventories & Others

obligations with its most liquid assets (cash and Current Liabilities

cash equivalents, short-term investments and trade

and other receivables

Interest Coverage Ratio -

Indicator of company’s ability to meet its interest Earnings before Interest and Taxes

obligations Interest Expense

Earnings Per Share -

the portion of company’s profit allocated to each Net Income_____________

outstanding share of common stock Weighted Ave. No. of Shares Outstanding

Book Value Per Share -

measure used by owners of common shares in Equity*________________

a firm to determine the level of safety Weighted Ave. No. of Shares Outstanding

associated with each individual share

after all debts are paid

* - Equity pertains to equity attributable to equity holders of the parent and excludes cumulative translation

adjustments, share in other comprehensive income, effect of equity transaction of subsidiaries and excess of

acquisition cost over carrying value of minority interest.

** - Including bonds payable but excluding current portion

88

The following are the key performance indicators of the First Gen group:

First Gen Consolidated Dec. 2013 Dec. 2012

Current ratio 2.46x 1.88x

Asset-to-equity ratio 2.84x 2.59x

Debt-to-equity ratio 1.84x 1.59x

Quick ratio 2.16x 1.58x

Return on assets (%) 3.48% 6.86%

Return on equity (%) 9.44% 17.77%

Interest-bearing debt-to-equity ratio (times) 1.54x 1.29x

Key Performance Indicators Details

Current Ratio Calculated by dividing current assets over current liabilities. This ratio

measures the company's ability to pay short-term obligations.

Asset-to-equity ratio (times) Calculated by dividing total assets over total equity.

Debt-to-equity ratio (times) Calculated by dividing total liabilities over total equity. This ratio expresses the

relationship between capital contributed by the creditors and the owners.

Quick ratio Calculated by dividing Cash and cash equivalents plus Receivables over total

current liabilities. This ratio measures a company’s solvency.

Annualized Return on Assets

Calculated by dividing the numerator of the net income for the year, by the

denominator of the average of the total assets as of the end of the year and

the beginning of the year. This ratio measures how the company utilizes its

resources to generate profits.

Annualized Return on Equity

Calculated by dividing the numerator of the net income for the period, by the

denominator of the average of the total equity at the end of the year and the

beginning of the year. This ratio measures how much profit a company

earned in comparison to the amount of shareholder equity found on the

balance sheet.

Interest-bearing debt-to-equity ratio

(times)

Calculated by dividing total interest-bearing debt over total equity. This ratio

measures the percentage of funds provided by the lenders/creditors.

The following are the key performance indicators of the Rockwell Land Corp:

Key Performance Indicators 2013 2012 2011

EBITDA (P) 2.6 billion 2.1 billion 1.6 billion

Current Ratio (x) 4.06 2.88 2.78

89

Notes:

(1) EBITDA [Net Income + (Interest Expense, Provision for Income Tax, Depreciation & Amortization)]

(2) Current ratio [Current assets/Current liabilities]

(3) Net debt to equity ratio [(Total Interest bearing debt)-(Cash and cash equivalents) / Total Equity]

(4) Assets to Equity Ratio [Total Assets/Total Equity]

(5) Interest coverage ratio [EBITDA/ Total interest payments]

(6) ROA [Net Income/Average Total Assets]

(7) ROE [Net Income/ Average Total Equity]

(8) EPS [Net Income/number of common shares outstanding]

Item 8. Changes in and Disclosures with Accountants on Accounting and Financial Disclosures

Sycip, Gorres and Velayo & Co. (SGV) has been the external auditors of the Corporation since 1993. In compliance

with Rule 68, Paragraph (3) (b) (iv) of the Securities Regulation Code (SRC) the handling partner has been changed

every five (5) consecutive years.

For the years ended December 31, 2013 and 2012, the SGV handling partner for the auditors of the Corporation is

Ms. Vivian C. Ruiz. She replaced Mr. Gemilio J. San Pedro, who was the handling partner from 2009-2011.

For the last five (5) years, the Corporation has not had any disagreements with SGV with regard to any matter

relating to accounting principles or practices, financial statement disclosures or auditing scope or procedures.

Representatives of SGV are expected to be present at the Stockholders’ Meeting and will have the opportunity to

make a statement if they desire to do so and will be available to answer appropriate questions.

Item 9. Directors and Executive Officers of the Registrant

Board of Directors

AUGUSTO ALMEDA-LOPEZ

CESAR B. BAUTISTA

ARTHUR A. DE GUIA

PETER D. GARRUCHO, JR.

Net DE Ratio (x) 0.52 0.39 0.26

Asset to Equity Ratio (x) 3.03 2.05 1.97

Interest Coverage Ratio (x) 8.65 7.11 6.97

ROA 5.1% 5.8% 5.7%

ROE 13.1% 11.7% 10.5%

EPS (P) 0.23 0.18 0.15

90

OSCAR J. HILADO

ELPIDIO L. IBAÑEZ

EUGENIO L LOPEZ III

FEDERICO R. LOPEZ

MANUEL M. LOPEZ

OSCAR M. LOPEZ

ARTEMIO V. PANGANIBAN

FRANCIS GILES B. PUNO

ERNESTO B. RUFINO, JR.

JUAN B. SANTOS

WASHINGTON Z. SYCIP

Executive/Corporate Officers

Mr. Oscar M. Lopez - Chairman Emeritus & Chief Strategic Officer

Mr. Federico R. Lopez - Chairman of the Board & Chief Executive Officer

Mr. Manuel M. Lopez - Vice Chairman of the Board

Mr. Elpidio L. Ibañez - President & Chief Operating Officer

Mr. Francis Giles B. Puno - Chief Finance Officer, Treasurer and Executive Vice President

Mr. Arthur A. De Guia - Managing Director for Manufacturing &

Portfolio Investments Group

Mr. Richard B. Tantoco - Executive Vice President

Mr. Anthony M. Mabasa - Senior Vice President

Mr. Victor Emmanuel B. Santos, Jr. - Senior Vice President

Mr. Ferdinand Edwin S. CoSeteng - Senior Vice President

Mr. Nestor J. Padilla - Senior Vice President1

Mr. Fiorello R. Estuar - Head of Infrastructure Business Development

Mr. Ramon T. Pagdagdagan - Vice President & Comptroller2

Mr. Oscar R. Lopez, Jr. - Vice President

Mr. Benjamin R. Lopez - Vice President

Mr. Ariel C. Ong - Vice President

Mr. Anna Karina P. Gerochi - Vice President

Mr. Anthony L. Fernandez - Vice President3

Mr. Raul I. Macatangay - Vice President and Internal Auditor4

Ms. Emelita D. Sabella - Vice President5

Mr. Jonathan C. Tansengco - Vice President6

Mr. Enrique I. Quiason - Corporate Secretary & Compliance Officer

Mr. Rodolfo R. Waga, Jr. - Vice President, Asst. Corp. Secretary &

Asst. Compliance Officer

Mr. Jonathan C. Russell - Senior Adviser

Mr. Renato A. Castillo - Risk Management Officer

Independent Directors

Amb. Cesar B. Bautista

Mr. Oscar J. Hilado

Chief Justice Artemio V. Panganiban

Mr. Juan B. Santos

Mr. Washington Z. SyCip

1 Mr. Nestor J. Padilla was appointed as Senior Vice President on May 2, 2013.

2 Mr. Ramon T. Pagdagdagan was appointed as Group Comptroller on July 4, 2013.

3 Mr. Anthony L. Fernandez was appointed as Vice President on May 2, 2013.

4 Mr. Raul I. Macatangay was appointed Vice President on August 7, 2013

5 Ms. Emelita D. Sabella was appointed Vice President on August 7, 2013.

6 Mr. Jonathan C. Tansengco was appointed Vice President on February 6, 2014.

91

Directors and executive/corporate officers hold office for a period of one (1) year and until such time when their

successors are elected and have qualified.

BOARD OF DIRECTORS

OSCAR M. LOPEZ

84 Years Old, Filipino

Mr. Oscar M. Lopez was bestowed the title Chairman Emeritus on

May 31, 2010 which became effective on June 12, 2010. He is the

Corporation’s Chief Strategic Officer. Prior to this, he was the

Chairman and Chief Executive Officer of the Corporation from 1986 to

2010. Mr. Lopez is the Chairman of the Executive Committee and the

Nomination, Election & Governance Committee of the

Corporation. Mr. Lopez is also the Chairman Emeritus of Lopez

Holdings Corp., First Gen Corporation, Energy Development Corp.,

First Balfour, Inc., First Phil. Electric Corp., First Phil. Industrial

Corp., Rockwell Land Corporation, First Phil. Realty Corp., First Phil.

Realty & Dev’t. Corp., and Securities Transfer Services, Inc. He is

Chairman of the Board of Adtel, Inc., Inaec Aviation Corp., Infopro

Business Solutions, Inc., ABS-CBN Holdings Corp., Eugenio Lopez

Foundation, Inc., Lopez Group Foundation, Inc., Asian Eye Institute,

Inc., and First Phil. Industrial Park, Inc., among other companies. Mr.

Lopez is a board director of ABS-CBN Corp. He is also the President

of Lopez, Inc. Before joining the Corporation, he was the President of

Lopez Holdings Corp. (formerly Benpres Holdings Corp.) from 1973

to 1986. He studied at the Harvard College and graduated cum laude

(Bachelor of Arts) in 1951. He finished his Masters of Public

Administration at the Littauer School of Public Administration, also at

Harvard in 1955. He has been part of the Lopez group in a

directorship and/or executive capacity for more than 20 years.

FEDERICO R. LOPEZ


Mr. Federico R. Lopez was elected Chairman and Chief Executive

Officer on May 31, 2010 which became effective on June 12, 2010. He

has been a Director of the Corporation since February 2006 and held

the position of Senior Vice President in December 2007. He was

appointed Managing Director for Energy in February 2008. He is a

member of the Executive Committee and the Nomination, Election &

Governance Committee and Chairman of the Finance and Investment

Committee. He is also the Chairman & CEO of First Gen Corp. and

Energy Development Corp. and the Vice Chairman of Rockwell Land

Corp. He likewise chairs the Board of First Balfour, Inc., First Gas

Power Corp., First Phil. Electric Corp., First Phil. Industrial Corp.,

First Phil. Industrial Park, Inc., First Phil. Realty Corp., and Securities

Transfer Services, Inc. He graduated with a Bachelor of Arts Degree

with a Double Major in Economics & International Relations (Cum

Laude) from the University of Pennsylvania in 1983.

MANUEL M. LOPEZ


Mr. Manuel M. Lopez was sworn in as the Philippine Ambassador to

Japan last December 2, 2010. Ambassador Lopez served as the

Chairman of the Board of the Manila Electric Company (Meralco)

from July 2010 to June 2012. He was its Chairman and Chief

Executive Officer from 2001 to May 2010. He also serves as the

Chairman & CEO of Lopez Holdings Corporation. Concurrently, he is

the Chairman of the Board of Rockwell Land Corporation, Indra

Philippines Inc. and Rockwell Leisure Club. He is the Vice Chairman

of First Philippine Holdings Corporation and Lopez Inc. He is a

Director of ABS-CBN Corp., ABS-CBN Holdings Corp., Manila

Electric Company, Sky Cable Corp., Sky Vision Corp., First Philippine

92

Realty Corp. and a Trustee of the Lopez Group Foundation, Inc. He

remains as the President of the Eugenio Lopez Foundation Inc. He is a

member of the Executive Committee, the Nomination, Election &

Governance Committee, the Audit Committee and the Risk

Management Committee. He obtained his Bachelor of Science degree

in Business Administration and pursued advanced studies in financial

and management development from the Harvard Business School. He

has been part of the Lopez group in a directorship capacity for the last

five (5) years. He has been a Director of First Philippine Holdings

Corp. starting 1992.

AUGUSTO ALMEDA-LOPEZ


Mr. Augusto Almeda-Lopez has been a Director of the Corporation

since 1986. He was Vice Chairman from 1993 to 2010. Mr. Almeda-

Lopez is a member of the Executive Committee, the Compensation and

Remuneration Committee and the Audit Committee. Mr. Almeda-

Lopez is also the Chairman of the Board of ACRIS Corporation, Vice

Chairman of ABS-CBN Corp. and a Director of First Phil. Industrial

Corp., Bayantel, Skyvision Corp. and a Trustee of ABS-CBN

Foundation. He graduated with an Associate in Arts degree from

Ateneo de Manila and a Bachelor of Laws degree from the University

of the Philippines class ’52, and is an AMP graduate of the Harvard

Business School class’55. He has been part of the Lopez group in a

directorship capacity for the last five (5) years.

CESAR B. BAUTISTA

Independent Director


Mr. Cesar B. Bautista is a member of the Risk Management

Committee and the Compensation & Remuneration Committee. He

was an Ambassador Extraordinary & Plenipotentiary to the United

Kingdom of Great Britain and Northern Ireland, Republic of Ireland

and Republic of Iceland. He was the Permanent Representative to the

United Nations International Maritime Organization and a Special

Presidential Envoy to Europe. Ambassador Bautista served as

Secretary of the Department of Trade and Industry for five years. He

served as Chairman of the Board of Investments, Export Development

Council, Industry and Development Council, WTO/AFTA Advisory

Commission, the National Development Corp., the Presidential

Committee on National Museum Development and Cabinet Committee

on Tariff and Related Matters, Economic Growth Areas/Zones. He was

a Monetary Board Member of the Bangko Sentral ng Pilipinas. He was

President and Chairman of Philippine Refining Company Inc.-Unilever

for eight years. He graduated with a degree in Bachelor of Science in

Chemical Engineering from the University of the Philippines and

pursued his Master’s Degree in Chemical Engineering at the Ohio

State University. His business experience for the last five (5) years

includes the positions held above. Mr. Bautista is likewise an

independent director of Philratings Corp., Pilipinas Shell, Bayantel,

Phinma Inc., Maxicare Corp. Chemrez Technologies Inc., D &L Corp.

and Chartis Insurance Corp. He is also the Chairman of CIBI Inc. and

St. James Ventures, Inc. He is country eminent person to the ASEAN

Connectivity Task Force and ASEAN-ROK EPG. He assumed office

as a Director of FPH last June 29, 2007 and has been part of the Group

within the last five (5) years. He is an advocate for good governance

as Chairman of Fellows of the Institute of Corporate Development. He

was the past Chairman of the National Competitiveness Council and

continues this advocacy as chairman of competitiveness committee of

the Management Association of the Philippines.

93

ARTHUR A. DE GUIA


Arthur A. De Guia was elected Director of the Corporation on August

5, 2010. He is a member of the Risk Management Committee and the

Board of Trustees of the FPH Pension Fund. He has been the

Managing Director, Manufacturing and Portfolio Investments since he

joined the Corporation in June 1997. He is currently the President of

First Phil. Electric Corp., First Philec Solar Corp., First Philec Nexolon

Corp. and First PV Ventures Corp. He is also a member of the Board

of Directors of various FPH subsidiaries and affiliates. He worked for

Colgate Palmolive Company in a senior executive position in overseas

assignments in New York, New Zealand and Malaysia. He graduated

Gold Medalist/Cum Laude from the Mapua Institute of Technology

with a Bachelor of Science Degree in Electrical Engineering. He

completed his Masters of Engineering Degree in Industrial

Management from the Asian Institute of Technology and received the

Alumni Award for Academic Excellence. He pursued his Doctor of

Engineering Degree at the University of California (Berkeley) under

the Fulbright Hayes Fellowship Program. He has been part of the

Lopez group in an executive capacity for the last five (5) years.

PETER D. GARRUCHO, JR.


Mr. Peter D. Garrucho, Jr. was a Managing Director of the Corporation

from 1994 to January 2008. He has been a member of the Board for

the same period and up to the present. He is a member of the Audit

Committee, Finance and Investment Committee and Risk Management

Committee. Mr. Garrucho was formerly the Vice Chairman & Chief

Executive Officer of First Gen and the First Gas companies. He is also

a Board Member of First Gen and Energy Development Corp. He is

Vice Chairman of Franklin Baker Company of the Philippines and

Chairman of Strategic Equities Corporation and has significant share

holdings in both companies. He was also formerly Secretary of the

Department of Trade & Industry (1991-1992) and of the Department of

Tourism (1989-1990). He has likewise served as Executive Secretary

& Adviser on Energy Affairs in the Office of the President of the

Philippines in 1992. Prior to joining government in June 1989, he was

President of C.C. Unson Co., Inc., which he joined in 1981 after

serving as a Full Professor at the Asian Institute of Management. He

has an AB-BSBA degree from De La Salle University (1966) and an

MBA degree from Stanford University (1971). He has been part of the

Lopez group in a directorship capacity for the last five (5) years.

OSCAR J. HILADO



Mr. Oscar J. Hilado has been a Director of the Corporation since

1996. Mr. Hilado sits as Chairman of the Audit Committee and is a

member of the Nomination, Election and Governance Committee. Mr.

Hilado is the Chairman of the Philippine Investment Management

(PHINMA), Inc. He is also the Chairman of Holcim Phils., Inc. He is

currently Chairman of the Board and Chairman of the Executive

Committee of Phinma Corporation, Vice Chairman of Trans Asia

Power Generation Corp.; Chairman of Trans Asia Oil & Energy

Development Corp. and Chairman of Union Galvasteel Corp. He

graduated with Highest Honors and with a Gold Medal for General

Excellence and a Bachelor of Science in Commerce Degree from De

La Salle College (Bacolod). He pursued his Degree of Masters in

Business Administration at the Harvard Graduate School of Business

Administration from 1960-1962. Mr. Hilado is a Certified Public

Accountant. He has been part of the Lopez Group in a directorship

capacity within the last five (5) years. Mr. Hilado is likewise an

independent director of A. Soriano Corporation and Philex Mining

94

Corporation. He is also a Director of Manila Cordage Company,

Seven Seas Resorts & Leisure, Inc.; and Beacon Property Ventures,

Inc.

ELPIDIO L. IBAÑEZ


Mr. Elpidio L. Ibañez has been a Director of the Corporation since

1988 and became President & Chief Operating Officer in May 1994, a

position which he holds up to the present. Prior to this, Mr. Ibañez was

an Executive Vice President from 1987 to 1994 and a Vice President

from 1985 to 1987. He is a member of the Executive Committee and

the Chairman of the Board of Trustees of the Pension Fund and the

Employee Stock Purchase Plan Board of Administrators. He is

Chairman of the Board of First Batangas Hotel Corp., Vice Chairman

of First Phil. Electric Corp., Terraprime, Inc., First Phil. Power

Systems, Inc. and First Philec Manufacturing Technologies Corp. He

is the President of First Phil. Utilities Corp. and FPH Capital

Resources, Inc. He is also a Director of various FPH subsidiaries and

affiliates such as First Gen Corp. and Energy Development

Corporation. He is a member of the Board of Trustees of the Philippine

Business for the Environment and Philippine Business for Social

Progress, as well as a member of the Management Association of the

Philippines and the Makati Business Club. He graduated with an AB

Economics Degree from Ateneo de Manila University. He obtained his

MBA at the University of the Philippines in 1972. He has been part of

the Lopez group in an executive and directorship capacity for the last

five (5) years.

EUGENIO L. LOPEZ III


Eugenio “Gabby” Lopez III is one of the most influential and

pioneering leaders in the country by revolutionizing the media and

communications industry. Currently the Chairman of the Board of

ABS-CBN Corporation, he is known for steadily transforming ABS-

CBN from being the Philippines’ widest radio and TV network to

being the largest and leading multimedia conglomerate. Mr. Lopez was

elected Chairman in 1997. A visionary, he aggressively pursued ABS-

CBN’s diversification into various successful ventures that include

interactive media, sound recording, post-production, international

cable and satellite distribution, sports programming, licensing and

merchandising, digital TV, education and entertainment theme park,

and telecommunications. Very early on, Mr. Lopez saw the need to

explore technologies to best serve its Filipino audiences worldwide,

and led ABS-CBN in the adoption of new media platforms to deliver

information and entertainment. Aside from leading ABS-CBN, Mr.

Lopez currently sits as Vice Chairman and Director of Lopez Holdings

Corporation, the flagship company of the Lopez Group. He is also the

Chairman of Bayan Telecommunications, President of Sky Vision

Corporation, and Director of First Gen Corporation. In 2012, Lopez

retired as CEO of ABS-CBN, while remaining as Chairman of its

Board of Directors. He earned a Bachelor of Arts degree in Political

Science from Bowdoin College in 1974 in Brunswick, Maine and a

Master’s degree in Business Administration from the Harvard Business

School in 1980 in Boston, Massachusetts.

95

ARTEMIO V. PANGANIBAN



Hon. Artemio V. Panganiban was the Chief Justice of the Supreme

Court of the Philippines from 2005 to 2006. He was Justice of the

Supreme Court from 1995 to 2005. At present, he is a columnist of the

Philippine Daily Inquirer, and an Adviser, Consultant or Independent

Director of several business, civic, non-government and religious

groups. He graduated with an Associate in Arts with Highest Honors

from the Far Eastern University in 1956 as well as a Bachelor of Laws

degree, cum laude and as the Most Outstanding Student in 1960. He

placed 6th in the 1960 Bar Examinations with a grade of 89.55 percent.

Aside from FPH, Chief Justice Panganiban is also an independent

director of the following listed companies or organizations: GMA

Network, Inc., Metro Pacific Investments Corporation, Meralco,

Robinsons Land Corporation, GMA Holdings, Inc., Petron

Corporation, Bank of the Philippine Islands, Asian Terminals

Incorporated, PLDT, and is a Non-executive Director of Jollibee

Foods Corporation. He is also Senior Adviser to Metropolitan Bank

and Trust Company and Adviser of Doubledragon Properties Corp. (to

be listed soon). He assumed office as an Independent Director of FPH

last July 5, 2007 and is Chairman of the Risk Management Committee.

He has been part of the Lopez group in a directorship capacity for the

last six (6) years.

FRANCIS GILES B. PUNO


Mr. Francis Giles B. Puno was elected Director of the Corporation on

March 3, 2011. He is a member of the Finance & Investment

Committee. He was appointed Chief Finance Officer and Treasurer of

FPH in October 2007, and was promoted to Executive Vice President

in September 2011. He was Vice President since he joined the

Corporation in June 1997. He is currently the President & Chief

Operating Officer of First Gen. He is also a director and officer of

First Gen, its subsidiaries and affiliates, and of First Balfour, Inc., First

Phil. Electric Corp., First Phil. Industrial Park, Inc., First Phil. Realty

Corp., First Phil. Realty & Dev’t. Corp., First Phil. Utilities Corp. and

Energy Development Corp. He is also President of First Phil. Dev’t.

Corp. Before joining FPH, he worked with The Chase Manhattan

Bank as Vice President for its Global Power and Environmental

Group. He has a Bachelor of Science degree in Business Management

from the Ateneo de Manila University and a Master in Business

Administration degree from Northwestern University’s Kellogg

Graduate School of Management in Chicago, Illinois. He has been

part of the Lopez group in an executive capacity for the last five (5)

years.

ERNESTO B. RUFINO, JR.


Mr. Ernesto B. Rufino, Jr. became a Director of the Corporation from

1986 to 2001. He was re-elected to the board in January 2003 and has

remained a director since then. He was the Chief Finance Officer,

Treasurer, and a Senior Vice President of the Corporation until his

retirement in 2007. He sits as member of the Finance & Investment

Committee and the Risk Management Committee. He is also the

Chairman & Chief Executive Officer of Health Maintenance, Inc. and

the President of Securities Transfer Services, Inc. He is also the

Chairman & President of Xyloid Management, Inc. Before joining the

Corporation, he served as the President of Merchants Investments

Corp. and Chairman & CEO of Mever Films, Inc. He has AB and

BSBA degrees (Cum Laude) from the De La Salle University and an

MBA degree from Harvard University. He is currently active with the

Knights of Malta and General Lim’s Division Bataan, Inc. He has

96

been part of the Lopez group in a directorship capacity for the last five

(5) years.

JUAN B. SANTOS



Mr. Juan B. Santos has been a Director of the Corporation since

2009. He is a member of the Audit Committee and the Nomination,

Election and Governance Committee. He is currently the Chairman of

the Social Security Commission, the top-policy making body of the

Social Security System. He is also currently a Director of PLDT, Sun

Life Grepa Financials, Inc., Alaska Milk Corporation, Zuellig Group,

Inc. and Philex Mining Corporation; a Consultant for Marsman-

Drysdale Group of Companies, a Trustee of the St. Luke’s Medical

Center, and a Member of the Board of Advisers of Coca Cola Bottlers

Phils, Inc., and East-West Seeds Co., Inc. Mr. Santos was the Chief

Executive Officer of Nestle Philippines, Inc. (NPI) up to end March

2003 and continued to serve as Chairman of NPI until 2005. Prior to

his appointment as President of NPI in 1987, he served as CEO of the

Nestle Group of Companies in Thailand. From 1989 to 1995, he acted

on concurrent capacity as CEO of Nestle Singapore Pte. Ltd and

NPI. In addition to his post at NPI, he served as Director of San

Miguel Corp., Manila Electric Company, Malayan Insurance

Company, Inc., Equitable Savings Bank, Inc., PCI Leasing and

Finance, Inc., inter-Milling Holdings Limited and PT Indofood Sukses

Makmur Tbk. He also served as Secretary of Trade and Industry from

14 February to 8 July 2005. Mr. Santos obtained his BSBA degree

from the Ateneo de Manila University and pursued post-graduate

studies at the Thunderbird Graduate School of Management in

Arizona, U.S.A. He completed the Advanced Management Course at

IMD in Lausanne, Switzerland. He has been part of the Lopez group in

a directorship capacity for the last four (4) years.

WASHINGTON Z. SYCIP


92 Years Old, American

Mr. Washington Z. Sycip has been a Director since 1997. Mr. Sycip

also sits as member of the Audit Committee, Nomination, Election and

Governance Committee and the Compensation and Remuneration

Committee. Mr. Sycip is the Founder of the SGV group, auditors and

management consultants, with operations throughout East Asia. He is

the Chairman Emeritus of the Board of Trustees and Board of

Governors of the Asian Institute of Management. He was Chairman of

the Euro-Asia Centre, INSEAD Fountainbleau from 1981 to 1988 and

President of the International Federation of Accountants from 1982 to

1985. He graduated with a Bachelor of Science in Commerce degree

(Summa Cum Laude) and a Master of Science in Commerce degree

(Meritissimus) from the University of Santo Tomas, Philippines. He

pursued his Master of Science in Commerce at Columbia University,

New York and was admitted to the Beta Gamma Sigma, Honorary

Business Society. He has been part of the Lopez group in a

directorship capacity within the last five (5) years. Mr. Sycip is

likewise Chairman of MacroAsia Corporation, Cityland Development

Corp., Lufthansa Technik Philippines, Inc., State Properties Corp. and

Steag State Power, Inc. and an independent director of Lopez Holdings

Corp., Belle Corporation, Highlands Prime, Inc., Metro Pacific

Investment Corp., Asian Eye Institute, Century Properties,

Commonwealth Foods, Inc., Phil. Equity Management, Inc., Philippine

Hotelier, Inc., Philamlife, Inc., The PHINMA Group, Realty

Investment, Inc. and Stateland, Inc. Mr. Sycip is also an Adviser to the

Board of Asian Terminals, Inc., Banco de Oro and PLDT; as well as a

Director of Philippine Airlines, Inc. and Philippine National Bank. He

97

was the third person to receive the lifetime achievement award from

the Columbia Business School.

EXECUTIVE/CORPORATE OFFICERS

RICHARD B. TANTOCO


Richard B. Tantoco was promoted to Executive Vice President last

September 2011. He has been a Vice President of the Corporation

since May 1997. He is currently Executive Vice President of First Gen.

He is also President and Chief Operating Officer of EDC. He is also a

director and officer of First Gen subsidiaries and affiliates. Prior to

joining FPH, he worked as a Brand Manager with Procter and Gamble

Philippines and as a member of the consulting firm Booz Allen and

Hamilton, Inc. based in New York. He has a BS in Business

Management degree from the Ateneo de Manila University where he

graduated with honors and an MBA in Finance from the Wharton

School of Business of the University of Pennsylvania. He has been


years.

ANTHONY M. MABASA


Anthony M. Mabasa was promoted to Senior Vice President last

September 2011. He has been a Vice President of the Corporation

since 1994. He is currently the President of First Phil. Industrial Corp.

and of ThermaPrime Well Services, Inc. He is also a Director of First

Balfour, Inc. He was President of Tollways Management Corporation

from 2003 to 2008, President of FPIC from 2000 to 2003, an Executive

Vice President of First Balfour from 1998 to 1999 and President &

Chief Operating Officer of ECCO-Asia from August 1994 to October

1999. He earned a Bachelor of Science in Commerce degree, Major in

Management of Financial Institutions, from the De La Salle University

in 1979. He pursued his Master in Business Administration degree at

the University of the Philippines in 1994. He has been part of the


VICTOR EMMANUEL B. SANTOS, JR.


Victor Emmanuel B. Santos, Jr. was promoted to Senior Vice President

last September 2011. He has been Vice President since March 30,

2001. He is currently Senior Vice President and Compliance Officer

of First Gen and Senior Vice President of FGP. Before joining FPH,

he worked as Director for Global Markets at Enron Singapore. He

earned his MBA in Finance at Fordham University, New York in 1995.

He has been part of the Lopez group in an executive capacity for the

past eleven (11) years.

FERDINAND EDWIN S. COSETENG


Ferdinand Edwin S. CoSeteng was appointed Senior Vice President

last November 2011. He is a BS Electrical Engineering graduate from

the University of the Philippines and holds a Master of Business

Administration with Distinction from the Johnson Graduate School of

Management, Cornell University, New York USA. His professional

experience includes being a Tax Consultant at Arthur Andersen &

Company, New York USA from 1988-1990; Engagement Manager at

McKinsey & Company, HongKong from 1990-1993; President of

Marisawa Manufacturing, Inc. from 1993-2006 and Chairman of the

Board & President of Mariwasa Siam Ceramics, Inc. from 1996-2006.

In 2007, Mr. Co Seteng joined LF Logistics in HongKong as Executive

98

Vice President and headed the international logistics and freight

forwarding business.

NESTOR J. PADILLA


Nestor J. Padilla was appointed Senior Vice President last May 2013.

He is the President of Rockwell Land Corporation (RLC), a subsidiary

of FPH, since October 1995. He has been a Director of RLC since

1997, and has been its President and Chief Executive Officer since

1995. During a stint in Indonesia, he held the position of Chief

Executive Officer in Lippo Land and was the Executive Director of

Indo Ayala Leasing. Mr. Padilla holds a Bachelor of Science degree in

Business Management from the Ateneo de Manila University.

FIORELLO R. ESTUAR


Fiorello R. Estuar became the Head of the Infrastructure Business

Development of the Corporation in August 2007. He has been the

Vice Chairman and Chief Executive Officer of First Balfour since

November 2006. He is currently the Chairman of Thermaprime Well

Services, Inc. He was President of Maynilad Water Services from 2004

up to June 2007. He also served as President of First Balfour from

2001 to 2004, and as a Board Member of Security Land Corporation

from 2004 to 2006. He was Head of Agency of four major government

agencies, namely, NIA, PNCC, ESF and DPWH from 1980 to 1991.

He earned his PhD degree in Civil Engineering at the age of 27 while

serving as a faculty and research staff at Lehigh University USA from

1960 to 1965. He was also a faculty member at the U.P. Graduate

School of Engineering from 1968 to 1970. He has been part of the

Lopez group in an executive capacity within the last five (5) years.

RAMON T. PAGDAGDAGAN


Ramon T. Pagdagdagan is a Vice President & Comptroller of the

Corporation. He was formerly the Head of Internal Audit since 2007

up to June 2013. He has been with FPH since October 1994. He

graduated with a Bachelor of Science degree in Commerce-Accounting

from the Polytechnic University of the Philippines in 1980. He

pursued his Executive Masters in Business Administration degree at

the Asian Institute of Management from 1999 to 2000. He has been


years.

OSCAR R. LOPEZ, JR.


Oscar R. Lopez, Jr. has been Vice President of the Corporation since

May 2001. He is currently the Head of the Administration Group of

FPH. He is currently the President of First Philippine Realty Corp. He

also serves as a Director in First Phil. Electric Corp. and FPH Capital

Resources, Inc. He has been with the Corporation since October 1996.

He went to college at the De La Salle University and has attended the

Executive Masters in Business Administration Program of the Asian

Institute of Management. He has been part of the Lopez group in an

executive capacity for the last five (5) years.

BENJAMIN R. LOPEZ


Benjamin R. Lopez has been Vice President of the Corporation since

November 2006. He has been with FPH since October 1993. He was

assigned to Rockwell in May 1995 where he held various posts in

Business Development, Sales and Marketing. Prior to his recall to

FPH in June 2004, he was a Vice President for Project Development of

Rockwell. He is also a member of the Board of Directors of various

subsidiaries such as First Balfour, Inc., First Philec and First Philippine

Utilities Corp. He graduated with a Bachelor of Arts degree in

99

International Affairs in 1992 from the George Washington University.

He pursued his Executive Masters in Business Administration degree

at the Asian Institute of Management in 2001. He has been part of the


ARIEL C. ONG


Ariel C. Ong was elected as Vice President of FPH last September 6,

2007 and is seconded to First Philec as a Managing Director. He is

currently the President of First Electro Dynamics Corp., First Philec

Manufacturing Technologies Corp. and First Phil. Power Systems, Inc.

He has over twenty years of experience in plant general management

and end-to-end supply chain leadership as well as project management

and business process engineering. Prior to joining First Philec, he was

Regional Vice President / General Manager and Supply Chain Head

for Southeast Asia of Avon Products - Asia Pacific Supply Chain. He

is a Mechanical Engineer and obtained his Master of Science in

Engineering (Energy) from the University of the Philippines in 1990.

ANNA KARINA P. GEROCHI


Anna Karina P. Gerochi was appointed Vice President on March 1,

2012. She has been Vice President & Head of the Human Resource

Management Group of FPH since 2013 and of First Gen since

2012. Ms. Gerochi graduated with a Bachelor of Arts Degree in

Mathematics from Cornell University in 1988 and a Master of

Engineering Degree in Operations Research and Industrial Engineering

from the same university in 1989. She completed her Executive

Master in Business Administration (with distinction) at the Asian

Institute of Management (AIM) in 2006. Before her assignment at

First Gen, she was assigned as Vice President and General Manager of

Asian Eye Institute. Prior to joining FPH, she was a Project

Development Officer at Ayala Land, Inc. and a Planning Analyst

at Pacific Gas and Electric Company in California. She has been part

of the Lopez Group in an executive capacity for the last five (5) years.

ANTHONY L. FERNANDEZ


Anthony L. Fernandez was appointed Vice President last May 2013.

He is the President of First Balfour, Inc. (FBI), a wholly-owned

subsidiary of FPH, since January 2007. He was Executive Vice

President of FBI from January 2004 until December 2006. He was a

Director & Treasurer of Private Infra Development Corp. from October

2007 until September 2009. Mr. Fernandez holds a Bachelor of

Science degree in Mechanical Engineering from the De La Salle

University.

RAUL I. MACATANGAY

53 Years Old

Raul I. Macatangay was appointed Vice President last August 2013.

Mr. Macatangay is the Head of the Audit Group of FPH. Before his

current position, he held various Finance, Comptrollership and Internal

Audit positions in the company as well as in its subsidiaries. He holds

an MBA degree from the University of the Philippines and is a

Certified Public Accountant.

100

EMELITA D. SABELLA

51 Years Old

Emelita D. Sabella was appointed Vice President last August 2013.

She handles finance and treasury matters with FPH’s Treasury Group

and is currently also the Chief Finance Officer of Thermaprime Well

Services, Inc., a subsidiary of FPH. She is also a Treasurer or Assistant

Treasurer of other FPH subsidiaries. She holds an EMBA degree from

the Asian Institute of Management and is a Certified Public

Accountant.

JONATHAN C. TANSENGCO

47 Years Old

Jonathan C. Tansengco was appointed Vice President last February

2014. He has served as Chief Financial Officer of First Philippine

Electric Corporation (First Philec), the manufacturing subsidiary of

FPH, from 2009 up to the present. Prior to joining the FPH Group, he

was Senior Vice President and head of the Financial Advisory and

Project Development Group of the Investment & Capital Corporation

of the Philippines (ICCP). He is a B.S. Industrial Engineering

graduate of the University of the Philippines and holds a Master of

Business Administration (Finance & Marketing) from the Columbia

University Graduate School of Business, New York, USA.

ENRIQUE I. QUIASON


Enrique I. Quiason has been the Corporate Secretary of the

Corporation since 1993. He is a Senior Partner of the Quiason

Makalintal Barot Torres Ibarra & Sison Law Firm. He is also the

Corporate Secretary of Lopez Holdings and Rockwell Land

Corporation and Assistant Corporate Secretary of ABS-CBN. He is

also the Corporate Secretary and Assistant Corporate Secretary of

various subsidiaries or affiliates of FPH and Lopez Holdings. He

graduated with a B.S. Business Economics (cum laude) degree in

1981 and with a Bachelor of Laws degree in 1985 from the University

of the Philippines. He received his LL.M. in Securities Regulation

from Georgetown University in 1991. His law firm has acted as legal

counsel to the Lopez group for the last five (5) years.

RODOLFO R. WAGA, JR. 54 Years Old, Filipino

Rodolfo R. Waga, Jr. has been a Vice President of the Corporation

since May 2001 and is the Asst. Corporate Secretary of the

Corporation. He is also the Corporate Secretary and Asst. Corporate

Secretary of various FPH subsidiaries and affiliates. He graduated

Magna Cum Laude with a Bachelor of Arts degree Major in

Economics from the Xavier University (Ateneo de Cagayan) in 1979

and a Bachelor of Laws degree from the University of the Philippines

in 1983. He completed the academic requirements for his EMBA at

the Asian Institute of Management. He has been part of the Lopez

group in an executive capacity for the last five (5) years.

Senior Adviser

JONATHAN C. RUSSELL

49 Years Old, British

Mr. Jonathan C. Russell was engaged as Senior Adviser of FPH on

August 2, 2012. He has been a Director of Energy Development

Corporation since November 2007. He is also an Executive Vice

President of First Gen Corporation. He was Vice President of

Generation Ventures Associates (GVA), an international developer of

independent power projects based in Boston, USA, responsible for the

development of 1,720MW of IPP projects in Asia. Prior to joining

GVA, he worked for BG plc based in London and Boston, responsible

for the development of power and natural gas distribution projects.

101

Mr. Russell has a Bachelor of Science degree in Chemical and

Administrative Sciences (with Honours) (1987) and a Master of

Business Administration in International Business and Export

Management degree (with Distinction) (1989), both from City

University Business School in London, England.

Risk Management Officer

RENATO A. CASTILLO


Renato A. Castillo was appointed Risk Management Officer of the

Company last May 27, 2013. He is currently Senior Vice President of

First Gen. Prior to joining First Gen, Mr. Castillo served as President

and Chief Executive Officer of Manila North Harbour Port, and

Executive Vice President and Chief Credit Officer of the Philippine

National Bank. He was also previously connected with the

Development Bank of the Philippines, JP Morgan Chase, and Bank of

America. Mr. Castillo has a Bachelor of Science in Commerce degree

major in Accounting from De La Salle University (1974).

Significant Employees

The Corporation considers all its employees to be significant partners and contributors to the business.

Family Relationships

a) Oscar M. Lopez and Manuel M. Lopez are brothers.

b) Ernesto B. Rufino, Jr. is the brother-in-law of Oscar M. Lopez. His sister, Mrs. Consuelo Rufino-Lopez, is the

wife of Oscar M. Lopez.

c) Federico R. Lopez, Oscar R. Lopez, Jr. and Benjamin R. Lopez are the sons of Oscar M. Lopez.

d) Francis Giles B. Puno is the brother-in-law of Federico R. Lopez.

e) Eugenio L. Lopez III is the nephew of Oscar M. Lopez and Manuel M. Lopez.

Involvement in certain legal proceedings

With respect to the last five (5) years and up to the date of this report:

(i) The Corporation is not aware of any bankruptcy proceedings filed by or against any business of which a

director, person nominated to become a director, or executive officer or control person of the Corporation is a party

or of which any of their property is subject.

(ii) The Corporation is not aware of any conviction by final judgment in a criminal proceeding, domestic or

foreign, or being subject to a pending criminal proceeding, domestic or foreign, of any of its directors, or executive

officer or control person nominated to become a director, executive officers or control person.

(iii) The Corporation is not aware of any order, judgment or decree not subsequently reversed, superseded or

vacated, by any court of competent jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring,

suspending or otherwise limiting the involvement of a director, person nominated to become a director, executive

officer or control person in any type of business, securities, commodities or banking activities.

(iv) The Corporation is not aware of any findings by a domestic or foreign court of competent jurisdiction (in a

civil action), the Commission or comparable foreign body, or a domestic or foreign exchange or electronic

marketplace or self-regulatory organization, that any of its directors, person nominated to become a director,

executive officer, or control person has violated a securities or commodities law.

102

Item 10. Compensation of Directors and Executive Officers

Name and Principal Position Year Salary

Bonus

Other

Compensation

*Oscar M. Lopez – Chairman Emeritus

*Federico R. Lopez – Chairman & CEO

*Elpidio L. Ibañez – President & COO

*Arthur A. De Guia – Managing Director, MPIG

*Perla R. Catahan – Senior Vice President & Comptroller7

TOTAL8

(Estimated) 2014 121,731,115 95,296,905 0

(Actual) 2013 121,985,755 113,096,227 0

(Actual) 2012 112,585,415 99,471,610 0

All other directors

(Estimated) 2014 0 17,161,620

(Actual) 2013 0 47,058,824 0

(Actual) 2012 0 41,176,472 0

All other officers

(Estimated) 2014 41,837,736 26,401,154

As a Group unnamed (Actual) 2013 56,363,798 38,008,638 0

(Actual) 2012 60,035,887 47,249,785 0

*Top Five

Compensation of Directors

(A) Standard Arrangements. Directors receive a per diem of P=20,000 for every board meeting. Under the

Corporation’s By-Laws, directors may receive up to a maximum of Three Fourths (3/4) of One Percent

(1%) of the Corporation’s annual profits or net earnings as may be determined by the Chairman of the

Board and the President.

(B) Other Arrangements. The Corporation does not have any other arrangements pursuant to which any

director is compensated directly or indirectly for any service provided as a director.

Employment Contracts and Termination of Employment and Change-in-Control Arrangements

(A) All employees of the Corporation, including officers, sign a standard engagement contract which states

their compensation, benefits and privileges. Under the Corporation’s By-Laws, officers and employees

may receive not more than Two and Three Fourths (2 ¾ %) Percent of the Corporation’s annual profits or

net earnings as may be determined by the Chairman of the Board and the President. The Corporation

maintains a qualified, non-contributory trusteed pension plan covering substantially all employees.

(B) The Corporation does not have any compensatory plan or arrangement resulting from the resignation,

retirement, or any other termination of an executive officer’s employment with the Corporation or its

subsidiaries or from a change in control of the Corporation or a change in an executive officer’s

responsibilities following a change-in-control except for such rights as may have already vested under the

7 Ms. Perla R. Catahan has retired from the company on June 30, 2013. 8 Includes projected movements of personnel who would qualify.

103

Corporation’s Retirement Plan or as may be provided for under its standard benefits.

Options Outstanding

The Corporation has an existing Executive Stock Option Plan (ESOP) which is based on compensation. The ESOP

entitles the directors and senior officers to purchase up to 10% of the Corporation’s authorized capital stock on the

offering years at a pre-set purchase price with payment and other terms to be defined at the time of the offering.

Non-executive and independent directors are not granted ESOP shares. The outstanding options are held as follows:

2013

Name No. of Shares Date of

Grant

Exercise

Price

Market Price

at

Date of Grant

*Federico R. Lopez Various Various Various

*Francis Giles B Puno Various Various Various

*Arthur A. De Guia Various Various Various

*Anthony Mabasa Various Various Various

*Benjamin Lopez Various Various Various

Sub-Total 859,707

All Other Officers 1,049,258

Total 1,908,965

*Top Five

Item 11. Security Ownership of Certain Beneficial Owners and Management

The equity securities of the company consist of common shares. All preferred shares of the company are

redeemed and cancelled or retired on April 30, 2013, which was also disclosed in February 7, 2013 to the SEC.

FPH Security Owners of Certain Record and Beneficial Owners of more than 5%

As of December 31, 2013

(a) Security Ownership of Certain Record and Beneficial

Owner/s of more than 5%

Title of Class

Name and Address of Record Owner and

Relationship with Issuer

Name of

Beneficial

Owner &

Relationship

with Record

Owner

Citizenship

No. of Shares

Held

Percent to

Total Issued

and

Outstanding

Common Lopez Holdings Corporation (LHC)

5/F Benpres Building Exchange Road cor.

Meralco Avenue, Ortigas Ctr.

Pasig City

LHC is the parent of the Corporation.9

Lopez Holdings

Corporation

Filipino

254,179,231

46.0022%

Common PCD Nominee Corporation

G/F Makati Stock Exchange

6767 Ayala Avenue, Makati City

Various Filipino

Non-Filipino

151,672,195

79,723,857

27.4501%

14.4287%

Apart from the foregoing, there are no other persons holding more than 5% of FPH’s outstanding capital stock.

9 The Chairman Emeritus of Lopez Holdings Corp. (“LHC”), Mr. Oscar M. Lopez, is also the Chairman Emeritus of

the Corporation.

104

LHC has disclosed the execution of a Voting Trust Agreement dated 4 December 2008 in favor of Lopez, Inc. as

voting trustee over 254,121,720 shares of common stock in the Corporation. This is for a period of five (5)

years. The voting trustee is entitled to exercise all voting rights and powers over the said shares. As of 31 December

2013, the Agreement expired and was not renewed.

(2) Security Ownership of Management as of December 31, 2013.

To the best of the knowledge of FPH, the following are the shareholdings of the directors and officers:

COMMON SHARES

Title of Class Name of Beneficial Owner Amount & Nature of

Beneficial Ownership Citizenship Percent of Class

Common Oscar M. Lopez 8,919,184–D/I Filipino 1.6142%

Common Augusto Almeda Lopez 172,001-D Filipino 0.0311%

Common Peter D. Garrucho, Jr. 475,123-D Filipino 0.0860%

Common Elpidio L. Ibañez 2,689,698–D Filipino 0.4868%

Common Oscar J. Hilado 1–D Filipino 0.0000%

Common Manuel M. Lopez 2,283,929–D/I Filipino 0.4134%

Common Ernesto B. Rufino, Jr. 971,379–D/I Filipino 0.1758%

Common Juan B. Santos 1–D Filipino 0.0000%

Common Federico R. Lopez 3,985,595–D Filipino 0.7213%

Common Francis Giles B. Puno 2,790,843-D Filipino 0.5051%

Common Washington Z. Sycip 1–D American 0.0000%

Common Arthur A. De Guia 808,040–D Filipino 0.1462%

Common Eugenio L. Lopez III 14,335–D Filipino 0.0026%

Common Artemio V. Panganiban 4,651–D Filipino 0.0008%

Common Cesar B. Bautista 1–D Filipino 0.0000%

Common Anthony M. Mabasa 227,312–D Filipino 0.0411%

Common Richard B. Tantoco 556,824–D Filipino 0.1008%

Common Ferdinand Edwin Sy Co

Seteng

6,950–D Filipino 0.0013%

Common Anna Karina P. Gerochi 63,682-D Filipino 0.0115%

Common Victor Emmanuel B. Santos - Filipino 0.0000%

Common Oscar R. Lopez Jr. 27,958–D/I Filipino 0.0033%

Common Benjamin Ernesto R. Lopez 333,651-D/I Filipino 0.0604%

Common Ramon T. Pagdagdagan

-

Filipino 0.0000%

Common Fiorello R. Estuar 12,148-D Filipino 0.0022%

Common Ariel C. Ong 9,000-D Filipino 0.0016%

Common Nestor J. Padilla 190,000-D Filipino 0.0344%

Common Anthony L. Fernandez 261,193-D Filipino 0.0473%

Common Raul I. Macatangay 309,997-D Filipino 0.0561%

Common Emelita D. Sabella 327,744-D Filipino 0.0593%

Common Enrique I. Quiason - Filipino 0.0000%

Common Rodolfo R. Waga Jr. 51,553-D Filipino 0.0093%

Sub-total 25,492,794 4.6138%

Common Lopez Holdings Corp. 254,179,231-D Filipino 46.0022%

Common Other Stockholders 272,865,558 Filipino &

Non-Filipino

49.3841%

TOTAL 552,537,583 100.0000%

105

There has been no change of control of the Corporation since the beginning of its last fiscal year.

Item 12. Certain Relationships and Related Transactions

Enterprises and individuals that directly, or indirectly through one or more intermediaries, control, or are controlled

by, or under common control with the Company, including holding companies, and fellow subsidiaries are related

entities of the Company. Associates and individuals owning, directly or indirectly, an interest in the voting power of

the Company that gives them significant influence over the enterprise, key management personnel, including

directors and officers of the Company and close members of the family of these individuals and companies

associated with these individuals also constitute related entities. Transactions between related parties are accounted

for at arm’s-length prices or on terms similar to those offered to non-related entities in an economically comparable

market.

In considering each possible related entity relationship, attention is directed to the substance of the relationship, and

not merely the legal form.

The significant transactions with associates and other related parties at market prices in the normal course of

business, and the related outstanding balances are disclosed below and in Note 30 to the consolidated financial

statements.

The following are the significant transactions with related parties:

a. IFC is a shareholder of EDC that has approximately 5% ownership interest in EDC. On May 20, 2011,

EDC signed a 15-year $75.0 million loan facility with IFC. The loan amounting P=3,262.5 million was

drawn in Peso on September 30, 2011.

On November 27, 2008, EDC entered into a loan agreement with IFC for $100.0 million or its Peso

equivalent of P=4.1 billion. On January 7, 2009, EDC opted to draw the loan in Peso and received the

proceeds amounting to P=4,048.8 million, net of P=51.3 million front-end fee. This loan is included under

the “Long-term debts” account in the consolidated statements of financial position (see Note 20).

b. Intercompany Guarantees

EDC’s subsidiary in Chile is participating in the bids for geothermal concession areas by the Chilean

government. The bid rules call for the provision of proof of EDC Chile Limitada’s financial capability to

participate in said bids or evidence of financial support from EDC. Letters of credit amounting to $80.0

million were issued by EDC in favor of EDC Chile Limitada as evidence of its financial support.

c. FPIC has an existing technical service agreement with Shell Global Solutions International B.V. (Shell) for

a period of 3 years expiring on February 28, 2011, which was further extended until February 28, 2012.

The agreement provides, among others, that Shell will provide FPIC a package of supporting advice and

services, and training services relative to the FPIC’s day-to-day pipeline operations, at specified fee.

d. FGPC has advances to non-controlling shareholder which bear interest of 5.8% per annum. Interest income

in 2012 and 2011 amounted to P=122 million and P=241 million, respectively. As at December 31, 2012, the

“Advances to non-controlling shareholder” was eliminated with the consolidation of Goldsilk effective

May 30, 2012 (see Note 5).

e. As of December 31, 2013 and 2012, advances to officers and employees amounted to

P=17 million and P=119 million, respectively. Advances to officers and employees are non-interest bearing

and normally settled through salary deduction (see Note 18).

106

Terms and Conditions of Transactions with Related Parties

Sales to and purchases from related parties are made at normal market prices. Outstanding balances at year-end are

unsecured, interest-free and settlement occurs in cash. For the years ended December 31, 2013, 2012 and 2011, the

Group has not recorded impairment of receivables relating to amounts owed by related parties. This assessment is

undertaken each year through the examination of the financial position of the related party and the market in which

the related party operates.

PART IV – CORPORATE GOVERNANCE

Corporate Governance

FPH adopted its Manual on Corporate Governance (the “Manual”) on January 1, 2003. Its most recent iteration was

just last March 20, 2013 when the company filed an amended Manual enhancing and clarifying its provisions. As

part of its governance initiatives, FPH continues to participate in the programs of the Institute of Corporate Directors

(“ICD”) where some of its officers are accredited as fellows of the ICD. FPH likewise supports the Good

Governance Advocates and Practitioners of the Philippines (“GGAPP”) and is a member of the Philippine

Association of Publicly-Listed Companies.

FPH continues to abide by all governance regulatory requirements. FPH will submit to the Philippine Stock

Exchange its responses to the Disclosure Template on Corporate Governance Guidelines for Listed Companies on or

before March 31, 2014.

Apart from mandated Manual, FPH has also adopted a Corporate Code of Conduct. The Code embodies the

principles and guidelines for the conduct of the business of the company and in dealing with its stakeholders.

Further, FPH, through its Board of Directors, annually reviews and updates, as necessary, the vision and mission of

FPH. The latest amended vision and mission was disseminated in the 2012 Annual Report.

FPH’s current board composition serves to insure independent, impartial and fair discussions having five

independents, five non-executive and five executive members. The board meetings are scheduled at the beginning

of the year and are set for every first Thursday of the month. A separate meeting involving non-executive directors

is also being scheduled at the beginning of the year. The company conducts annual strategic sessions with

management and members of the board. Last year, the same was held on Nov. 7, 2013 and Dec. 10, 2013.

The Company uses professional search firms or other external sources of candidates (such as director databases set

up by the ICD) when searching for candidates to the board. Each director is furnished a director's kit, which

contains, among other things, the relevant PSE Rules, Manual for Corporate Governance, Code of Conduct and

Committee Charters. The Company encourages directors/commissioners to attend on-going or continuous

professional education programmes.

Pursuant to the Manual for Corporate Governance, the Board has formed chartered standing committees: a

Nomination, Election and Governance Committee, a Compensation and Remuneration Committee; an Audit

Committee; a Finance and Investment committee; and a Risk Management Committee.

FPH also has an Internal Audit Group (“IAG”) composed of Certified Public Accountants (CPA), Certified Internal

Auditors (CIA), Certified Information Systems Auditor (CISA), among others. The IAG reports to the Board

through the Audit Committee. The IAG provides assurance and consulting functions for FPH and its subsidiaries in

the areas of internal control, corporate governance and risk management. It conducts its internal audit activities in

accordance with the International Standards for the Professional Practice of Internal Auditing (ISPPIA) under the

International Professional Practices Framework (IPPF). There are two board committees looking into compliance

requirements – Audit Committee and Risk Management Committee. There is a documented process that monitors

regulatory compliance through the IMS (Integrated management system).

107

It bears mention that the audit and risk management committees are chaired by independent directors. FPH

continues to have five (5) independent directors over and above the legal requirement for two (2) such directors.

The Chairman of the Compensation and Remuneration Committee is effectively an independent director by virtue

of his not having been employed by the Company in an executive capacity within the last five (5) years and is not a

beneficial owner of more than ten percent (10%) of any class of the Company’s equity, among other things,

pursuant to the qualifications for independent director provided by the Securities and Exchange Commission and

Company’s Manual for Corporate Governance. FPH appointed Mr. Renato A. Castillo as Risk Management Officer

in connection with the committee’s functions. Mr. Castillo is in charge of the FPH group’s risk management

concerns.

A Governance Self-Assessment Form is given to the Board annually. This is intended to assess the performance of

the Board as a whole, the Chairman, the individual members of the Board, Board meetings, Board committees and

Board matters. The directors are given full discretion to express their personal views of the degree of the

company’s compliance to certain corporate governance mechanisms. The results are then tallied and presented to

the Board for evaluation and discussion.

FPH has always sought to keep communications open with its stockholders and encourages them to participate in

the meeting of shareholders either in person or by proxy. Shareholders are free to write to the Nomination

Committee should they have recommendations and/or nominations for board directorship. FPH undertakes specific

activities to listen and learn from stakeholders regarding their requirements, needs and changing expectations. FPH

takes the effort to meet its stakeholders and communicates person-to-person with shareholders through one-on-one

meetings, investors’ conferences, annual stockholders’ meetings, disclosures and press releases.

As testimony of its efforts, FPH has been favored with the gold award for three consecutive years in the 2010, 2009

and 2008 Corporate Governance Scorecard of the ICD. In 2011, FPH received the platinum award, which is the

highest award given by the ICD.

FPH likewise implements corporate excellence initiatives both at the parent and subsidiary levels. At the start

of the year, FPH successfully hurdled the surveillance audit conducted by Certification International (CI). The

independent audit is requirement for the continued registration of the Company’s Integrated Management

System under ISO 9001:2008 (Quality Management System), ISO 14001:2004 (Environmental Management

System), and OHSAS18001:2007 (Health and Safety Management System).

Corporate Social Responsibility (CSR)

OML Center

The OML Center is a non-profit foundation working to generate science-based solutions in the area of climate

change adaptation and disaster risk reduction. Established by FPH, it aims to be a leading catalyst for generating

science-based solutions to climate-related risks and disasters in the developing world by supporting applied research

with practical outcomes to help the most vulnerable deal with the impacts of climate change and natural disasters. Its

key partners include the Climate Change Commission, PAGASA, NAST, USAID, PTFCF, UP, Ateneo, La Salle,

among others.

In 2013, the OML Center started work in building climate-resilient communities through five key activities:

1. Enabling solution deployment and national/local government liaison

2. Awarding of research grants

3. Conducting in-house research and scientific activities

4. Recognizing scientists’ achievements

5. Building network and raising awareness.

With the onslaught of Typhoon Yolanda, the OML Center also focused on providing scientific inputs to the national

and local government agencies in the restoration and improvement of settlements, facilities, livelihood and

ecosystems in local communities affected by the typhoon.

108

Orchestra of the Filipino Youth (OFY)

Inspired by the Venezuelan visionary Jose Antonio Abreu’s El Sistema, FPH and ABS-CBN Corporation

established the Orchestra of the Filipino Youth (OFY), an ensemble of young musicians from underprivileged

families, handpicked from existing ensembles throughout the Philippines.

The OFY scholars, whose ages range from nine to 21 years old, receive free music education, rehearsal allowances,

transportation assistance, meals, uniforms and use of instruments for their rehearsals and performances. The number

of scholars has increased from 40 to 52 under OFY and from 35 to 43 under the Prep club. OFY’s satellite centers

have also grown from six to 10, with a total of 270 beneficiaries receiving free lessons, meals, transportation, and

support for instruments.

Over time, the OFY is envisioned to become a community-led activity, to be supported eventually by countrymen

who have learned to love orchestral music.

PART V - EXHIBITS AND SCHEDULES

Item 13. Exhibits and Reports on SEC Form 17-C

(a) Exhibits

The following exhibit is filed as a separate section of this report:

Exhibit “A” - Audited Consolidated Financial Statements

for the Years Ended December 31, 2013 and 2012

Exhibit “B” - SRC Rule 68, As Amended (Schedules)

The other exhibits, as indicated in the Index to Exhibits are either not applicable to the Company or require

no answer.

(b) Reports on SEC Form 17-C

The corporation disclosed the following matters on the dates indicated:

January 2, 2013 The retirement of Mr. Leonides U. Garde and Ms. Elizabeth M. Canlas, both Vice

Presidents of FPH effective December 31, 2012.

February 7, 2013 The Board approval of the following matters;

1. The exercise by FPH of the option to redeem all its outstanding 43,000,000

Series B Preferred Shares. Under the terms of the issuance, FPH has the

option to redeem all of the outstanding Series B Preferred Shares starting on

the fifth anniversary of the issue date.

2. The payment of a cash dividend on the Series B Preferred Shares as shall be

consistent with FPH’s contractual obligations.

3. The prepayment of the remaining Fixed Rate Corporate Notes or FXCN

(consisting of 7- and 10-year notes) in the amount of Php3.18 billion.

The retirement of Mr. Ricardo B. Yatco and Mr. Danilo C. Lachica, Vice President and

Senior Vice President, respectively of FPH effective March 1, 2013.

March 7, 2013 In connection with the redemption of all the Company’s outstanding 43,000,000 Series B

Preferred Shares, the payment of Php2.180775 per share on the Series B Preferred as cash

dividends as of April 3, 2013, payable on April 30, 2013. The Company hence requested

109

the PSE to suspend trading of the Series B Preferreds on March 27, 2013, the ex-date.

Also, the Board approved the following matters:

1. The setting of the Annual Stockholders’ Meeting on May 27, 2013 at 10:00

A.M. at the Rockwell Tent.

2. The setting of March 22, 2013 as the record date for stockholders who are

entitled to attend and vote at the Annual Stockholders’ Meeting.

3. The recommendation of the Nomination, Election and Governance

Committee which passed upon the qualifications of the nominees of Lopez

Holdings Corp. (formerly Benpres Holdings Corp.) through Lopez, Inc.,

and Mr. Federico L. De Manzana, an individual stockholder, to the Board of

Directors for the ensuing year 2013-2014, namely:

Nominated by Lopez Holdings Corp. through Lopez, Inc. as directors:

1. Mr. Augusto Almeda-Lopez

2. Mr. Peter D. Garrucho, Jr.

3. Mr. Arthur A. De Guia

4. Mr. Elpidio L. Ibanez

5. Mr. Eugenio L. Lopez III

6. Mr. Federico R. Lopez

7. Amb. Manuel M. Lopez

8. Mr. Oscar M. Lopez

9. Mr. Francis Giles B. Puno

10. Mr. Ernesto B. Rufino, Jr.

Nominated by Mr. Federico L. De Manzana as independent directors:

11. Amb. Cesar B. Bautista

12. Mr. Oscar J. Hilado

13. Chief Justice Artemio V. Panganiban

14. Mr. Juan B. Santos

15. Mr. Washington Z. Sycip.

4. The following agenda for the Annual Stockholders’ Meeting:

1. Call to Order

2. Proof of Required Notice

3. Determination of Quorum

4. Approval of the Minutes of the May 28, 2012 Stockholders’

Meeting

5. Reports of the Chairman & the President

6. Approval/Ratification of the December 31, 2012 Reports and the

Audited Financial Statements

7. Ratification of the Acts of the Board, of the Executive Committee

and of Management

8. Election of Directors

9. Appointment of External Auditors

10. Other Matters

11. Adjournment.

April 4, 2013 The Board approval of the following matters:

1. The audited consolidated financial statements for the calendar year ended

December 31, 2012.

2. The participation of FPH, through a consortium, in the pre-qualification and

bidding for the financing, design, construction, operation and maintenance

of the Mactan-Cebu International Airport Passenger Terminal rehabilitation

and expansion project.

110

April 5, 2013 The disclosure of the execution of a Loan Agreement with BDO Unibank, Inc. for Php5

billon. The proceeds will be used to partially or wholly (i) finance the prepayment of the

Borrower’s outstanding Fixed Rate Notes Due 2014 and 2017, and/or (ii) redeem the

outstanding Php 4.3 billion Series B Perpetual Preferred Shares callable on April 30,

2013, and/or (iii) fund other general corporate purposes.

May 2, 2013 The Board approval of the following matters:

1. The declaration of Php1.00 per share regular cash dividend to common

shareholders of record as of May 20, 2013 payable on or before June 11,

2013, in accordance with the Company’s dividend policy.

2. The declaration of an additional Php1.00 per share special cash dividend to

common shareholders of record as of May 20, 2013 payable on or before

June 11, 2013.

3. The appointment of Messrs. Nestor J. Padilla as Senior Vice President and

Anthony L. Fernandez as Vice President of the Corporation.

May 17, 2013 The disclosure that the consortium of which FPH is the lead member has been qualified

by the Department of Transportation and Communication in connection with the bidding

for the Mactan-Cebu International Airport Project.

May 27, 2013 The Reports of the Chairman and the President to the FPH Stockholders during the

Annual Stockholders Meeting.

The election of the following persons as members of the Board of Directors of FPH:

Mr. Augusto Almeda-Lopez

Amb. Cesar B. Bautista

Mr. Arthur A. De Guia

Mr. Peter D. Garrucho, Jr.

Mr. Oscar J. Hilado

Mr. Elpidio L. Ibañez

Mr. Eugenio L. Lopez III

Mr. Federico R. Lopez

Amb. Manuel M. Lopez

Mr. Oscar M. Lopez

Chief Justice Artemio V. Panganiban

Mr. Francis Giles B. Puno

Mr. Ernesto B. Rufino, Jr.

Mr. Juan B. Santos

Mr. Washington Z. Sycip

The election of the following persons as officers of FPH:

Name Position

Mr. Oscar M. Lopez Chairman Emeritus &

Chief Strategic Officer

Mr. Federico R. Lopez Chairman &

Chief Executive Officer

Mr. Manuel M. Lopez Vice Chairman

Mr. Elpidio L. Ibañez President &

Chief Operating Officer

Mr. Francis Giles B. Puno Executive Vice President,

Treasurer & Chief Finance Officer

Mr. Arthur A. De Guia Managing Director for

Mfg. & Portfolio Investments

Mr. Richard B. Tantoco Executive Vice President

111

Mr. Fiorello R. Estuar Head of Infrastructure Business

Development

Ms. Perla R. Catahan Senior Vice President/Comptroller

Mr. Anthony M. Mabasa Senior Vice President

Mr. Victor Emmanuel B. Santos, Jr. Senior Vice President

Mr. Ferdinand Edwin Sy CoSeteng Senior Vice President

Mr. Nestor J. Padilla Senior Vice President

Mr. Ramon T. Pagdagdagan Vice President/Internal Auditor

Mr. Oscar R. Lopez, Jr. Vice President

Mr. Benjamin R. Lopez Vice President

Mr. Ariel C. Ong Vice President

Ms. Anna Karina P. Gerochi Vice President

Mr. Anthony L. Fernandez Vice President

Mr. Enrique I. Quiason Corporate Secretary &

Compliance Officer

Mr. Rodolfo R. Waga, Jr. Vice President, Asst. Corp. Secretary,

& Asst. Compliance Officer

Mr. Jonathan C. Russell Senior Adviser

Mr. Renato A. Castillo Risk Management Officer

The appointment of the chairman and members of the Executive Committee, the

Audit Committee, Compensation and Remuneration Committee, the Nomination,

Election and Governance Committee, the Finance and Investment Committee, and

the Risk Management Committee.

May 28, 2013 The disclosure of the fire at one of the transformers of the San Lorenzo power plant of

FGP Corp. FGP Corp. is First Gen’s operating company for San Lorenzo that is FPH’s

power generation subsidiary. The fire has been put out less than twenty minutes after it

was first detected. The incident is being investigated.

June 24, 2013 The retirement of Ms. Perla R. Catahan, Senior Vice President & Comptroller of FPH,

effective July 1, 2013.

July 4, 2013 The Board’s appointment of Messrs. Ramon T. Pagdagdagan and Raul I. Macatangay, as

Comptroller and Internal Auditor, respectively.

August 7, 2013 The Board’s approval of the promotion of Mr. Raul I. Macatangay and Ms. Emelita D.

Sabella, from Asst. Vice President to Vice President.

November 7, 2013 The declaration of cash dividends of Php1.00 per common share in favor of the

Company’s common shareholders of record as of November 21, 2013, payable on or

before December 12, 2013.

SIGNATURES

Pursuant to the requirements of Section 17 of the Code and Section 141 of the Corporation Code, thisreport is signed on behalf of the issuer by the undersigned, thereunto duly authorized, in the City ofPasig on the 3rd of April 2014.

FmST PHILIPPINE HOLDINGS CORPORATIONIssuer

By:

\.JZ--L--- 1-'bFEDERICO R. LOPEZ

Chairman & Chief Executive Offi er/

Cv--lELPIDIO L. IBANEZ

President & Chief Operating Officer

~,ENRIQUE I. QUIASONCorporate Secretary

FRANCIS GILES B. PUNOExecutive Vice President, Treasurer & Chief Finance Officer

8UB8CRIBED AND 8WORN to before me4f~ 0 !td~ll1\pril, 2014, affiants exhibited to metheir Competent Evidence of Identity (CEI) and Community Tax Certificates (CTC), as follows:

NamesFederico R. LopezElpidio L. IbanezFrancis Giles B. PunoRamon T. PagdagdaganEnrique I. Quiason

Details o[CEIICTC888#03-7278902-0/06298929888#03-2569048-3/06312251888#33-5536302-1/06298930888#03-5488395-7/06314251888#03-8352363-1/27950272

Date/Place Issued1-29-20 14IPasig City2-06-20 14IPasig City1-29-2014IPasig City2-06-20 14IPasig City1-10-20 14IPasig City

Doc.No.~;Page No. _4_;BookNo.~;Series of2014.

I,IAI'I' ••.M. BACORRONOTARY PUBUC

FOR AND IN ntE OTIES OF PASIG, TAGUIGAND SANJUANAND IN ntE MUNIOPAUTY Of PAT!ROS, METROMANILA

UNTIL DECEMBER 31, 2014FTR NO. 8<439473; 1/11/13; PASIG OTY

I8P NO. 08770; RSM CHAPTER; LIFETIME MEMBeR~fOll NO. $5914/ APPOINTMENT NO. 208 (2013-2014)

4F BENPRfS BLDG. .f,.t:XCHANGE ROAD. PASIG OTY

EXHIBIT “A”

AUDITED CONSOLIDATED FINANCIAL

STATEMENTS AND AUDITED PARENT COMPANY

FINANCIAL STATEMENTS STAMPED RECEIVED

BY BIR AND SEC

First Philippine Holdings Corporation and Subsidiaries

Consolidated Financial Statements

December 31, 2013 and 2012

And Years Ended December 31, 2013, 2012 and 2011

and

Independent Auditors’ Report

COVER SHEET

(Contact Person)499 - 6046Mr. Ramon T. Pagdagdagan

(Company Telephone Number)

~~Month Day

(Fiscal Year)

~(Form Type)

[iliJ[ili]Month Day(Annual Meeting)

I I(Secondary License Type, If Applicable)

I~---:-:--::---Dept. Requiring this Doc. Amended Articles Number/Section


12,363 ITotal No. of Stockholders

F70,120 million F77,549 million

Domestic Foreign

._------------------------------------------------------------------------------To be accomplished by SEC Personnel concerned

LCU

Cashier

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SGV SyCip Gorres Vela yo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.comfph

BOA/PRC Reg. No. 0001,December 28,2012, valid until December 31,2015

SEC Accreditation No. 0012-FR-3 (Group A),November 15, 2012. valid until November 16, 2015Building a better

working world

---""INDEPENDENT AUDITORS' REPORT ~\:-;:>\ ",'v \___-.-:., \ \ "~:' \ ('V. . ,____»->: ,. ",',' ,-;y~.\,> \,\\\S\():;' \

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The Sto~kholders and the Board OfDirect~;'" ~\ \~: ~~-,::e-:;;~\~ ~ \FIrst Philipp me HoldI~gs. Corporation \, . \ ~?~1 _~~-... '\6th Floor, Benpres Building \.\ ,,\ '.' \_-"'-----:~_:;o; '£-,0Exchange Road comer Meralco Avenue, Pasig CIty \.----'1 '(~, w... 1)' . V~\:\,\ ~

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We have audited the accompanying consolidat~,g.fihaITC'j'ar;tatements of First Philippine HoldingsCorporation and Subsidiaries, which comprise the consolidated statements of financial position as atDecember 31,2013 and 2012, and the consolidated statements of income, statements ofcomprehensive income, statements of changes in equity and statements of cash flows for each ofthethree years in the period ended December 31, 2013, and a summary of significant accounting policiesand other explanatory information. \

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financialstatements in accordance with Philippine Financial Reporting Standards, and for such internal controlas management determines is necessary to enable the preparation of the consolidated financialstatements that are free from material misstatement, whether due to fraud or error.

Auditors'Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on ouraudits. We conducted our audits in accordance with Philippine Standards on Auditing, Thosestandards require that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements are free of materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the consolidated financial statements. The procedures selected depend on the auditor's judgment,including the assessment of the risks of material misstatement of the consolidated financial statements,whether due to fraud or error. In making those risk assessments, the auditor considers internal controlrelevant to the entity's preparation and fair presentation of the consolidated financial statements inorder to design audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the entity's internal control. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of accountingestimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. ~\"

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We beli~ve ~h~tthe audit evidence ::!.-~~~;.~~!jjU~efis\s'itff~ci~~tl~d ap ropriate to provide a basis forour audit Opl11IOn. '\'- '-<\Ji'<.\ . , ,,',I _r ..:.:::-\ \

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A member firm of Ernst & Young Global Umited

SGVBuilding a betterworking world

- 2 -

Opinion

In our opinion, the consolidated financial statements present fairly, in all materials respects, thefinancial position of First Philippine Holdings Corporation and Subsidiaries as at December 31,2013and 2012, and their financial performance and their cash flows for each of the three years in the periodended December 31, 2013 in accordance with Philippine Financial Reporting Standards.

SYCIP GORRES VELA YO & CO.

/1!m /JtP:u (!, /ku./Maria Vivian C. Ruiz 0/ (jPartnerCPA Certificate No. 83687SEC Accreditation No. 0073-AR-3 (Group A),

January 18,2013, valid until January 17,2016Tax Identification No.1 02-084-744BIR Accreditation No. 08-001998-47-2012,

April 11, 2012, valid until April 10, 2015PTR No. 4225211, January 2,2014, Makati City

April 3, 2014

11111111111111111111111111111111111111111111111111111111111111111

A member firm of Ernst & Young Global Limited

--"'". - C","",

, IeCGT.D. ~ 1FIRST PHILIPPINE HOLDINGS CORPORATION A, 0 :PMD;f'.A.:l(:t~" o:iI "",

CONSOLIDATED STATEMENTS OF FINANCIAL P SITI I PR 11 2014 E i

(Amounts in Millions) "W.1 I I iL.. . ----' r, oj

t.I, ....•••....

December 31,2013

. January I,2012

(As Restated -Note 2)

ASSETS

Current AssetsCash and cash equivalents (Notes 6, 20, 32 and 33) ¥52,755 P38,106 P36,946Short-term investments (Notes 6, 32 and 33) 2,675 528 528Trade and other receivables (Notes 7, 20, 30, 32 and 33) 26,610 18,616 14,235,Inventories (Notes 8 and 18) 13,405 13,967 7,909Other current assets (Notes 9, 11,13, 32 and 33) 6,109 4,195 11,009

Total Current Assets 101,554 75,412 70,627

Noncurrent AssetsInvestments in associates (Notes 10 and 30) 52 41 4,669Investments in equity and debt securities

(Notes 9,11,32 and 33) 11,912 12,730 11,190Property, plant and equipment (Notes 12 and 20) 96,236 85,726 89,132Investment in a joint venture (Note 13) 2,774 2,681Investment properties (Notes 14 and 20) 11,573 10,903 1,482Goodwill and intangible assets (Note 15) 54,338 55,316 55,861Retirement benefit asset (Note 27) 829 234Deferred tax assets - net (Note 28) 2,126 2,126 2,030Other noncurrent assets (Notes 16, 32 and 33) 10,788 11,185 13,344

Total Noncurrent Assets 189,799 181,537 177,942

TOT AL ASSETS ¥291,353 P256,949 P248,569


Current LiabilitiesTrade payables and other current liabilities

(Notes 13, 18,30,32,33 and 35) ¥28,630Loans payable (Notes 17,32 and 33) 3.,784Income tax payable (Note 28) -~::::{~';.2~7Bonds payable (Notes 19,32 and 33) ~~ \ \\ 0\, "(",,,-:Current portion of long-term debts ~_<~'"' \ 0\" \ ,\' ~\,:o.\:\ \)\\ \~\ 0 \

(Notes 20,32 and 33) ~'oi \(\', \\ \ 0.,.. ....:.>---. \ 7,388 \

~ \ \V ..\ I -- L ' \Noncurrent Liabilities \ o· \ ~.~R"\.l \ - 0

Bonds payable (Notes 19,32and3~),\,\\\ i\ 1"\ ._.~--:-1'"-.,~.):''f')- \Long-term debts - net of current po~!On .. _. -r, .o.''-~"''' 01'-':/ :".-'-.''.'i ,\

(Notes 20, 32 and 33) \ 0 \~"" ",j ~, 0 .~ 1) ,'N~1~~1--Derivative liabilities (Note 33) \ ~4.;l..,.1. ,: \' \:,':'::.":-.:.: 1,535Deferred tax liabilities - net (Note 28Y\i'Y (j :~:_:,':.:-' :0'- 2,770Retirement and other long-term employ~~l)eneiits liability(Note 27)

Asset retirement and preservation obligations (Note 21)Other noncurrent liabilities (Notes 18,22,32 and 33)

3,0911,3161,451

P24,689 P21,0351,229 120353 309

2,979

7,122 7,86236,372 29,326

3,711

\99,023102,921

2,510 2,5582,466 464

2,166 1,509546 458739 460

111,348 108,183147,720 137,509

Total Current Liabilities, \\' ,i '~.--- 40,019 \.

Total Noncurrent Liabilities 146,660Total Liabilities 186,679

(Forward)

IIIIIIIIIII~IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII

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December 31,2013

December 31, 2012


January 1,2012


EquityCommon stock (Note 23a) P=6,080 P=6,050 P=6,014Preferred stock (Note 23b) − 6,300 6,300Capital in excess of par value (Note 23a) 4,013 3,929 3,847Parent company preferred shares held by a consolidated

subsidiary (Note 23b) − (2,000) (2,000)Treasury stock (Note 23a) (3,345) (3,345) (3,345)Unrealized fair value gains on investment in equity

securities (Note 11) 3,116 3,557 4,916Cumulative translation adjustments (Note 33) (3,879) (5,203) (4,084)Equity reserve (Notes 5 and 23c) (12,537) (12,305) (4,355)Retained earnings (Note 23d)

Unappropriated 48,843 61,519 60,475Appropriated 19,003 6,955 −

Equity Attributable to Equity Holders of the Parent 61,294 65,457 67,768

Non-controlling Interests (Notes 5 and 23e) 43,380 43,772 43,292Total Equity 104,674 109,229 111,060

TOTAL LIABILITIES AND EQUITY P=291,353 P=256,949 P=248,569

See accompanying Notes to Consolidated Financial Statements.

*SGVFS003010*

FIRST PHILIPPINE HOLDINGS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(Amounts in Millions, Except Per Share Data)

Years Ended December 31

2013

2012(As Restated -

Note 2)

2011(As Restated -

Note 2)REVENUESSale of electricity (Notes 12 and 34) P=80,389 P=87,430 P=82,644Real estate 7,636 6,545 917Contracts and services 3,891 2,106 2,330Sale of merchandise 1,392 3,588 7,618Equity in net earnings of associates and a joint venture

(Notes 10 and 13) 104 125 34393,412 99,794 93,852

COSTS AND EXPENSES (Notes 24, 25, 26 and 27)Cost of sale of electricity 54,217 58,587 57,951Real estate (Note 8) 4,433 3,714 434Contracts and services 4,143 2,127 2,576Merchandise sold (Note 8) 1,578 4,030 6,889General and administrative expenses 11,308 11,108 8,353

75,679 79,566 76,203OTHER INCOME (EXPENSES)Finance costs (Note 26) (7,238) (8,062) (9,249)Finance income (Note 26) 1,628 1,537 1,334Foreign exchange gain (loss) - net (1,415) 922 (463)Impairment loss - net (Notes 8, 11,12 and 16) (1,349) (4,012) (4,999)Dividend income (Notes 10 and 11) 493 612 582Mark-to-market gain on derivatives (Note 33) 14 10 270Gain on sale of investments (Notes 5, 10 and 11) − 6,084 42Gain on business combination (Note 5) − 2,136 −Other income - net (Notes 26 and 30) 105 146 470

(7,762) (627) (12,013)INCOME BEFORE INCOME TAX 9,971 19,601 5,636PROVISION FOR (BENEFIT FROM)

INCOME TAX (Note 28)Current 3,345 3,047 2,702Deferred 72 192 (817)

3,417 3,239 1,885NET INCOME FROM CONTINUING OPERATIONS 6,554 16,362 3,751NET INCOME (LOSS) FROM DISCONTINUED

OPERATIONS (Note 5) − 98 (81)NET INCOME P=6,554 P=16,460 P=3,670Attributable toEquity holders of the Parent P=2,350 P=9,175 P=1,638Non-controlling Interests 4,204 7,285 2,032

P=6,554 P=16,460 P=3,670Earnings per Share for Net Income Attributable

to the Equity Holders of the Parent (Note 29)Basic P=4.087 P=16.057 P=2.247Diluted 4.082 15.998 2.228


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FIRST PHILIPPINE HOLDINGS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Amounts in Millions)


2013

2012(As Restated -

Note 2)

2011(As Restated -

Note 2)

NET INCOME P=6,554 P=16,460 P=3,670

OTHER COMPREHENSIVE INCOME (LOSS)Other comprehensive income to be reclassified to profit or

loss in subsequent periods:Exchange gains (losses) on foreign currency

translation (1,526) 601 4,536Net gains (losses) on cash flow hedge deferred in equity - net of tax (Note 33) 858 (71) (606)Unrealized fair value gains (losses) on investment in equity securities (Note 11) (464) (1,375) 1,418

(1,132) (845) 5,348Other comprehensive income not to be reclassified to

profit or loss in subsequent periods:Actuarial losses on retirement benefits liability - net of

tax of P=77 million, P=169 million and P=347 millionin 2013, 2012 and 2011, respectively (Note 27) (1,268) (24) (809)

TOTAL COMPREHENSIVE INCOME P=4,154 P=15,591 P=8,209

Attributable toEquity holders of the Parent P=2,007 P=6,805 P=3,197Non-controlling Interests 2,147 8,786 5,012

P=4,154 P=15,591 P=8,209


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FIRST PHILIPPINE HOLDINGS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011(Amounts in Millions)

Attributable to Equity Holders of the Parent

Common Stock(Note 23a)

Preferred Stock(Note 23b)

Capital inExcess of

Par Value

ParentCompanyPreferred

SharesHeld by a

ConsolidatedSubsidiary

TreasuryStock

(Note 23a)

UnrealizedFair Value

Gains onInvestment

in EquitySecurities

(Note 11)

CumulativeTranslation

Adjustments

Share inOther

ComprehensiveIncome (Losses)

of Associates(Note 10)

EquityReserve

(Notes 5 and 23c)

UnappropriatedRetainedEarnings

(Note 23d)

AppropriatedRetainedEarnings

(Note 23d) Total

Non- controllingInterests

(Notes 5 and 23e)Total

EquityBalance at January 1, 2013,

as previously reported P=6,050 P=6,300 P=3,929 (P=2,000) (P=3,345) P=3,533 (P=12,475) P=6,078 (P=9,812) P=62,327 P=6,955 P=67,540 P=26,786 P=94,326Impact of adoption of PFRS 10 and

PAS 19 (Revised) (Note 2) – – – – – 24 7,272 (6,078) (2,493) (808) – (2,083) 16,986 14,903Balance at January 1, 2013, as restated 6,050 6,300 3,929 (2,000) (3,345) 3,557 (5,203) – (12,305) 61,519 6,955 65,457 43,772 109,229Net income – – – – – – – – – 2,350 – 2,350 4,204 6,554Other comprehensive income (loss) – – – – – (441) 1,324 – – (1,226) – (343) (2,057) (2,400)Total comprehensive income – – – – – (441) 1,324 – – 1,124 – 2,007 2,147 4,154Issuances of shares 30 – 61 – – – – – – – – 91 – 91Share-based payment expense – – 23 – – – – – – – – 23 – 23Cash dividends (Note 23) – – – – – – – – – (1,752) – (1,752) (2,243) (3,995)Appropriations (Note 23d) – – – – – – – – – (12,048) 12,048 – – –Redemption and cancellation or retirement

of preferred shares (Note 23b) – (6,300) – 2,000 – – – – – – – (4,300) – (4,300)Acquisition of non-controlling interests

(Notes 5 and 23e) – – – – – – – – (232) – – (232) (296) (528)Balance at December 31, 2013 P=6,080 P=– P=4,013 P=– (P=3,345) P=3,116 (P=3,879) P=– (P=12,537) P=48,843 P=19,003 P=61,294 P=43,380 P=104,674

Balance at January 1, 2012,as previously reported P=6,014 P=6,300 P=3,847 (P=2,000) (P=3,345) P=4,892 (P=15,338) P=5,287 (P=2,557) P=61,014 P=– P=64,114 P=33,703 P=97,817

Impact of adoption of PFRS 10 andPAS 19 (Revised) (Note 2) – – – – – 24 11,254 (5,287) (1,798) (539) – 3,654 9,589 13,243

Balance at January 1, 2012, as restated 6,014 6,300 3,847 (2,000) (3,345) 4,916 (4,084) – (4,355) 60,475 – 67,768 43,292 111,060Net income – – – – – – – – – 9,175 – 9,175 7,285 16,460Other comprehensive income (loss) – – – – – (1,359) (1,119) – – 108 – (2,370) 1,501 (869)Total comprehensive income – – – – – (1,359) (1,119) – – 9,283 – 6,805 8,786 15,591Issuances of shares 36 – 82 – – – – – – – – 118 – 118Cash dividends (Note 23) – – – – – – – – – (1,284) – (1,284) (1,399) (2,683)Appropriations (Note 23d) – – – – – – – – – (6,955) 6,955 – – –Effect of business combination (Note 5) – – – – – – – – – – – – 3,086 3,086Acquisition of non-controlling interests

(Notes 5 and 23e) – – – – – – – – (7,950) – – (7,950) (9,993) (17,943)Balance at December 31, 2012, as restated P=6,050 P=6,300 P=3,929 (P=2,000) (P=3,345) P=3,557 (P=5,203) P=– (P=12,305) P=61,519 P=6,955 P=65,457 P=43,772 P=109,229

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Attributable to Equity Holders of the Parent

Common Stock(Note 23a)

Preferred Stock(Note 23b)

Capital inExcess of

Par Value

ParentCompanyPreferred

SharesHeld by a

ConsolidatedSubsidiary

TreasuryStock

(Note 23a)


Gains onInvestment

in EquitySecurities

(Note 11)

CumulativeTranslation

Adjustments

Share inOther

ComprehensiveIncome (Losses)

of Associates(Note 10)

EquityReserve

(Notes 5 and 23c)

UnappropriatedRetainedEarnings

(Note 23d)

AppropriatedRetainedEarnings

(Note 23d) Total

Non- controllingInterests

(Notes 5 and 23e)Total

EquityBalance at January 1, 2011,

as previously reported P=5,995 P=6,300 P=3,826 (P=2,000) (P=1,625) P=3,470 (P=15,791) P=5,675 (P=2,557) P=60,386 P=– P=63,679 P=27,701 P=91,380Impact of adoption of PFRS 10 and

PAS 19 (Revised) (Note 2) – – – – – 7 10,920 (5,675) 272 607 – 6,131 15,809 21,940Balance at January 1, 2011, as restated 5,995 6,300 3,826 (2,000) (1,625) 3,477 (4,871) – (2,285) 60,993 – 69,810 43,510 113,320Net income – – – – – – – – – 1,638 – 1,638 2,032 3,670Other comprehensive income (loss) – – – – – 1,439 787 – – (667) – 1,559 2,980 4,539Total comprehensive income – – – – – 1,439 787 – – 971 – 3,197 5,012 8,209Issuances of shares 19 – 21 – – – – – – – – 40 17 57Acquisition of treasury stocks (Note 23a) – – – – (1,720) – – – – – – (1,720) – (1,720)Cash dividends (Note 23) – – – – – – – – – (1,489) – (1,489) (2,755) (4,244)Acquisition of non-controlling interests

(Notes 5 and 23e) – – – – – – – – (2,070) – – (2,070) (2,492) (4,562)Balance at December 31, 2011, as restated P=6,014 P=6,300 P=3,847 (P=2,000) (P=3,345) P=4,916 (P=4,084) P=– (P=4,355) P=60,475 – P=67,768 P=43,292 P=111,060


*SGVFS003010*

FIRST PHILIPPINE HOLDINGS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in Millions)


2013

2012(As Restated -

Note 2)

2011(As Restated -

Note 2)CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax from continuing operations P=9,971 P=19,601 P=5,636Income before income (loss) tax from discontinued

operations (Note 5) – 140 (89)Income before income tax 9,971 19,741 5,547Adjustments for:

Depreciation and amortization (Note 26) 7,934 7,583 7,500Finance costs (Note 26) 7,238 8,062 9,249Finance income (Note 26) (1,628) (1,537) (1,334)Unrealized foreign exchange loss (gain) - net 1,415 (922) 463Provision for impairment loss - net

(Notes 11, 12, 16 and 25) 1,349 4,012 4,999Retirement benefit expense (income) (Note 27) 545 (188) 184Dividend income (Notes 10 and 11) (493) (612) (582)Equity in net earnings of associates and a joint venture

(Notes 10 and 13) (104) (125) (343)Loss on extinguishment and pretermination of long-term

debts (Note 26) 93 207 293Gain on sale of property and equipment and investment

properties (Note 26) (39) (72) (118)Mark-to-market gain on derivatives (Note 33) (14) (10) (270)Unrealized fair value loss (gain) on fair value through

profit or loss investments (Notes 9 and 26) (1) (7) 7Gain on sale of equity securities (Notes 5 and 11) – (6,084) (42)Gain on business combination (Note 5) – (2,136) –

Operating income before working capital changes 26,266 27,912 25,553Decrease (increase) in:

Trade and other receivables (7,994) (4,381) (8,982)Inventories 457 (6,058) (4,198)Other current assets (1,914) 6,814 (8,328)

Increase in trade payables and other current liabilities 3,941 3,384 12,137Cash generated from operations 20,756 27,671 16,182Income taxes paid (3,481) (3,003) (2,660)Interest received 1,628 1,537 1,334Contributions to the retirement fund (Note 27) (247) (728) (219)Net cash from operating activities 18,656 25,477 14,637CASH FLOWS FROM INVESTING ACTIVITIESAdditions to:

Property, plant and equipment (Note 12) (16,087) (7,752) (9,316)Investment properties (Note 14) (2,047) (735) (269)Exploration and evaluation assets (Note 16) (1,352) (1,359) (188)Goodwill and intangible assets (Note 15) (172) (210) –Investment in equity and debt securities (66) (85) –Acquisition of a subsidiary - inclusive of cash acquired

(Note 5) – 1,497 –Deposits for future stock subscriptions (Note 10) – (112) (242)

(Forward)

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2013

2012(As Restated -

Note 2)

2011(As Restated -

Note 2)Decrease (increase) in:

Short-term investments (P=2,147) P=– P=4,430Other noncurrent assets (Note 16) (2,555) (5,532) (4,643)

Dividends received from associates (Note 10) 40 56 512Dividends received from investments

in equity securities (Note 11) 453 612 582Proceeds from incidental income of testing property, plant

and equipment (Note 12) 1,401 520 38Proceeds from:

Sale of property and equipmentand investment properties (Notes 12 and 14) 449 870 189

Sale of investments in equity securities (Note 11) – 8,798 204Net cash used in investing activities (22,083) (3,432) (8,703)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from:

Availment of long-term debts - net of debt issuance costs(Note 20) 43,514 49,867 26,006

Availment of short-term loans 2,930 – –Issuances of common shares - net of transaction costs

(Note 23) 114 118 40Issuances of preferred shares by a subsidiary to

non-controlling shareholders (Note 23) – 11,972 10,161Payments of:

Long-term debts (Notes 19 and 20) (9,361) (47,309) (15,348)Interest (7,596) (6,992) (8,196)Redemption and cancellation or retirement

of preferred shares (Note 23) (4,300) – –Cash dividends (Note 23) (1,921) (1,154) (884)

Redemption and buy-back of convertible bonds(Note 19) (2,996) (693) (6,028)

Dividends to non-controlling interests (2,243) (1,399) (2,755)Acquisition of non-controlling interests (Notes 5 and 23) (528) (17,943) (4,562)Acquisition of treasury stock (Note 23) – – (1,720)

Decrease (increase) in:Restricted cash deposit 63 (50) –Advances to a non-controlling shareholder

of First Gen – – 458Increase in other noncurrent liabilities 297 (7,190) 1,967Net cash from (used in) financing activities 17,973 (20,773) (861)NET INCREASE IN CASH AND CASH EQUIVALENTS 14,546 1,272 5,073EFFECT OF FOREIGN EXCHANGE RATE CHANGES

ON CASH AND CASH EQUIVALENTS 103 (112) (120)CASH AND CASH EQUIVALENTS

AT BEGINNING OF YEAR 38,106 36,946 31,993CASH AND CASH EQUIVALENTS

AT END OF YEAR (Note 6) P=52,755 P=38,106 P=36,946


*SGVFS003010*

FIRST PHILIPPINE HOLDINGS CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information

First Philippine Holdings Corporation (FPH or the Parent Company) is incorporated and registeredwith the Philippine Securities and Exchange Commission (SEC) on June 30, 1961. On June 29,2007, the Philippine SEC approved the extension of the Company’s corporate life for another 50years from June 30, 2011. Under its amended Articles of Incorporation, its principal activitiesconsist of investments in real and personal properties including, but not limited to, shares ofstocks, notes, securities and entities in the power generation, real estate development,manufacturing and construction, financing and other service industries. FPH and its subsidiariesare collectively referred to as the “Group”. All subsidiaries, except for FGHC InternationalLimited (FGHC International), FPH Fund Corporation (FPH Fund), FPH Ventures Corporation(FPH Ventures), Bluespark Management Limited (Bluespark) [formerly Lisbon Star ManagementLimited] and certain subsidiaries of Energy Development Corporation (EDC), are incorporated inthe Philippines. FGHC International, FPH Fund and FPH Ventures are registered in the CaymanIslands. Bluespark is incorporated in British Virgin Islands while certain subsidiaries of EDC areincorporated in Hong Kong, Peru, Chile and Indonesia (see Note 5).

FPH is 46.01% and 46.21%-owned by Lopez Holdings Corporation (Lopez Holdings), a publicly-listed Philippine-based entity, as at December 31, 2013 and 2012, respectively. With the adoptionof Philippine Financial Reporting Standard (PFRS) 10, Consolidated Financial Statementseffective January 1, 2013, Lopez, Inc. became the ultimate parent of FPH through LopezHoldings. Majority of Lopez Holdings is owned by Lopez, Inc., a Philippine entity and theultimate Parent Company. The remaining shares are held by various shareholder groups andindividuals.

The common shares of FPH were listed beginning May 3, 1963 and have since been traded in thePhilippine Stock Exchange (PSE). FPH is considered a public company under Section 17.2 of theSecurities Regulation Code.

The registered office address of FPH is 6th Floor, Benpres Building, Exchange Road cornerMeralco Avenue, Pasig City.

The consolidated financial statements as at December 31, 2013 and 2012 and for each of the threeyears in the period ended December 31, 2013 were reviewed and recommended for approval bythe Audit Committee on April 3, 2014. On the same date, the Board of Directors (BOD) alsoapproved and authorized the consolidated financial statements for issuance.

2. Summary of Significant Accounting Policies

Basis of PreparationThe consolidated financial statements are prepared on a historical cost convention, except forderivative financial instruments, financial assets and financial liabilities at fair value through profitor loss (FVPL) and investments in quoted equity shares which are measured at fair value. Theconsolidated financial statements are presented in Philippine peso, FPH’s functional andpresentation currency. All values are rounded to the nearest million peso, except when otherwiseindicated.

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*SGVFS003010*

The consolidated financial statements provide comparative information in respect of the previousperiod. In addition, the Group presents an additional consolidated statement of financial positionat the beginning of the earliest period presented when there is a retrospective application of anaccounting policy, a retrospective restatement, or a reclassification of items in financialstatements. An additional consolidated statement of financial position as at January 1, 2012 ispresented in these consolidated financial statements due to retrospective application of certainaccounting policies.

Statement of ComplianceThe consolidated financial statements are prepared in compliance with PFRS, as issued by theFinancial Reporting Standards Council (FRSC) and adopted by the Philippine SEC.

Basis of ConsolidationThe consolidated financial statements incorporate the financial statements of FPH and itssubsidiaries (see Note 5) as at December 31 each year. Control is achieved when the Group isexposed, or has rights, to variable returns from its involvement with the investee and has theability to affect those returns through its power over the investee. Specifically, the Group controlsan investee if and only if the Group has:

§ Power over an investee (i.e. existing rights that give it the current ability to direct the relevantactivities of the investee)

§ Exposure, or rights, to variable returns from its involvement with the investee; and§ The ability to use its power over the investee to affect its returns.

When the Group has less than a majority of the voting rights of an investee, the Group considersall relevant facts and circumstances in assessing whether it has power over the investee, including:

§ the contractual arrangements with the other vote holders of the investee§ rights arising from other contractual arrangements§ the Group’s voting rights and potential voting rights

The Group reassesses whether or not it controls an investee if facts and circumstances indicate thatthere are changes to one or more of the three elements of control listed above. Consolidation of asubsidiary begins when the Group obtains control over the subsidiary and ceases when the Grouploses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired ordisposed of during the year are included in the consolidated statement of comprehensive incomefrom the date the Group gains control until the date when the Group ceases to control thesubsidiary.

Profit or loss and each component of other comprehensive income are attributed to the owners ofFPH and to the non-controlling interests even if this results in the non-controlling interests havinga deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring theiraccounting policies into line with the Group’s accounting policies.

All intra-group asset, liabilities, income, expenses and cash flows relating to transactions betweenmembers of the Group are eliminated in full on consolidation.

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*SGVFS003010*

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as anequity transaction. Any excess or deficit of consideration paid over the carrying amount of thenon-controlling interest is recognized as part of “Equity reserve” account in the equity attributableto the equity holders of the Parent.

If the Group loses control over a subsidiary, it:

§ Derecognizes the assets (including goodwill) and liabilities of the subsidiary§ Derecognizes the carrying amount of any non-controlling interests§ Derecognizes the cumulative translation differences recorded in equity§ Recognizes the fair value of the consideration received§ Recognizes the fair value of any investment retained§ Recognizes any surplus or deficit in profit or loss§ Reclassifies the parent’s share of components previously recognized in OCI to profit or loss or

retained earnings, as appropriate, as would be required if the Group had directly disposed ofthe related assets or liabilities

Changes in Accounting PoliciesThe accounting policies adopted are consistent with those of the previous financial year, except forthe adoption of new and amended accounting standards.

The Group applied beginning January 1, 2013 certain standards and amendments that requirerestatement of previous consolidated financial statements. These include PFRS 10, PFRS 11,Joint Arrangements, and PAS 19, Employee Benefits (Revised 2011) . In addition, the applicationof PFRS 12, Disclosure of Interests in Other Entities and PFRS 13, Fair Value Measurementresulted in additional disclosures in the consolidated financial statements. Several otheramendments apply in 2013. However, they do not have impact on the consolidated financialstatements of the Group.

The Group also early adopted PAS 36, Impairment of Assets - Recoverable Amount Disclosuresfor Non-Financial Assets (Amendments). These amendments remove the unintendedconsequences of PFRS 13 on the disclosures required under PAS 36. In addition, theseamendments require disclosure of the recoverable amounts for the assets or CGUs for whichimpairment loss has been recognized or reversed during the period. These amendments areeffective retrospectively for annual periods beginning on or after January 1, 2014 with earlierapplication permitted, provided PFRS 13 is also applied. The Group has early adopted theseamendments to PAS 36 in the current period since the amended/additional disclosures provideuseful information. Accordingly, these amendments have been considered while makingdisclosures for impairment of non-financial assets. These amendments would continue to beconsidered for future disclosures.

The nature and the impact of each new standard and amendment that became effective beginningJanuary 1, 2013 are described below.

§ PFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and FinancialLiabilities (Amendments)These amendments require an entity to disclose information about rights of set-off andrelated arrangements (such as collateral agreements). The new disclosures are required for allrecognized financial instruments that are set off in accordance with PAS 32, FinancialInstruments: Presentation. These disclosures also apply to recognized financial instrumentsthat are subject to an enforceable master netting arrangement or ‘similar agreement’,irrespective of whether they are set-off in accordance with PAS 32. The amendments require

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entities to disclose, in a tabular format, unless another format is more appropriate, thefollowing minimum quantitative information. This is presented separately for financial assetsand financial liabilities recognized at the end of the reporting period:a. The gross amounts of those recognized financial assets and recognized financial liabilities;b. The amounts that are set-off in accordance with the criteria in PAS 32 when determining

the net amounts presented in the statement of financial position;c. The net amounts presented in the statement of financial position;d. The amounts subject to an enforceable master netting arrangement or similar agreement

that are not otherwise included in (b) above, including:i. Amounts related to recognized financial instruments that do not meet some or all of

the offsetting criteria in PAS 32; andii. Amounts related to financial collateral (including cash collateral); and

e. The net amount after deducting the amounts in (d) from the amounts in (c) above.

The amendments affect disclosures only and have no impact on the Group’s financial positionor performance.

§ PFRS 10, Consolidated Financial StatementsThe Group adopted PFRS 10 in the current year. PFRS 10 replaced the portion of PAS 27,Consolidated and Separate Financial Statements that addresses the accounting forconsolidated financial statements. It also included the issues raised in Standing InterpretationsCommittee (SIC) 12, Consolidation - Special Purpose Entities. PFRS 10 established a singlecontrol model that applies to all entities including special purpose entities. The changesintroduced by PFRS 10 require management to exercise significant judgment to determinewhich entities are controlled, and therefore, are required to be consolidated by a parent,compared with the requirements that were in PAS 27.

Consolidation of Prime Terracota Holdings Corporation (Prime Terracota)As a result of management’s reassessment of control of Prime Terracota based on the newdefinition of control and explicit guidance in PFRS 10, the Group retrospectively consolidatedthe financials statements of Prime Terracota, Red Vulcan Holdings Corporation (Red Vulcan)and Energy Development Corporation (EDC) and Subsidiaries (collectively referred to as“Prime Terracota Group”) in its consolidated financial statements. Prior to the adoption ofPFRS 10, the investment in Prime Terracota Group was accounted for by the Group as aninvestment in an associate. Prime Terracota Group includes Red Vulcan, which owns 40% ofthe common stock and 20% voting and nonparticipating preferred stock of EDC. Thecombined common and preferred stocks represent 60% voting interest in EDC.

Consolidation of Rockwell Leisure Club, Inc. (RLCI)As a result of management’s reassessment of control of RLCI based on the new definition ofcontrol and explicit guidance in PFRS 10, the Group retrospectively consolidated RLCIthrough Rockwell Land Corporation (Rockwell Land). The Group controls RLCI through itsownership of RLCI’s ordinary and proprietary shares. Prior to the adoption of PFRS 10, theinvestment in RLCI was accounted for as an available-for-sale investments carried at fairmarket value, with the mark-to-market changes recognized in other comprehensive incomeand any gain or loss arising from sale of proprietary shares recognized in profit or loss. UnderPFRS 10, RLCI became a subsidiary and accordingly, its accounts were consolidated to theGroup. The sale of proprietary shares is treated as a transaction with non-controlling interests,and, any gain or loss arising from sale is recognized as an equity adjustment.

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The quantitative impact on the consolidated financial statements is provided below:

Increase (decrease) in consolidated statements of financial position:

December 31,2012

January 1,2012

(In Millions)

Current AssetsCash and cash equivalents P=11,754 P=12,645Trade and other receivables 3,765 3,023Inventories 3,155 3,223Other current assets 197 1,427Total current assets 18,871 20,318

Noncurrent AssetsInvestment in associates (60,182) (56,651)Investments in equity and debt securities 496 (369)Property, plant and equipment 59,173 56,272Goodwill and intangible assets 54,780 55,253Retirement benefit asset − 78Deferred tax assets 1,209 1,324Other noncurrent assets 7,765 5,993Total noncurrent assets 63,241 61,900

Current LiabilitiesLoans payable − (434)Trade payables and other current liabilities 7,830 7,463Current portion of long-term debts 2,906 2,762Income tax payable 5 19Total current liabilities 10,741 9,810

Noncurrent LiabilitiesLong-term debts - net of current portion 53,147 56,241Retirement liability 1,145 765Deferred tax liabilities - net 435 529Derivative liabilities - net of current portion 153 −Asset retirement and preservation obligations 494 407Other noncurrent liabilities 14 148Total noncurrent liabilities 55,388 58,090Net impact on equity P=15,983 P=14,318

Attributable to:Equity holders of the Parent (P=1,580) P=4,307Non-controlling Interest 17,563 10,011

P=15,983 P=14,318

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Increase (decrease) in consolidated statements of income:

Years Ended December 312012 2011

(In Millions)REVENUESSale of electricity P=28,368 P=24,550Equity in net earnings of associates

and a joint venture (5,286) (219)Contracts and services (1,109) (794)

21,973 23,537COSTS AND EXPENSESCost of sale of electricity 10,616 10,971General and administrative expenses 4,568 4,539Contracts and services (575) (425)

14,609 15,085OTHER INCOME (EXPENSES)Finance costs (4,082) (4,682)Finance income 379 399Foreign exchange gain (loss) 1,064 (174)Reversal of (provision for) impairment loss 63 (4,999)Other expenses (514) (117)

(3,090) (9,573)INCOME (LOSS) BEFORE INCOME TAX 4,274 (1,121)PROVISION FOR (BENEFIT FROM)

INCOME TAXCurrent 434 426Deferred 209 (650)

643 (224)NET INCOME (LOSS) FROM CONTINUING

OPERATIONS 3,631 (897)NET INCOME (LOSS) FROM DISCONTINUED

OPERATIONS 98 (81)NET INCOME(LOSS) P=3,729 (P=978)

Attributable to:Equity holders of the Parent P=− P=−Non-controlling Interests 3,729 (978)

P=3,729 (P=978)

Increase (decrease) in consolidated statements of comprehensive income:


(In Millions)OTHER COMPREHENSIVE INCOME (LOSS)Other comprehensive income not to be reclassified to

profit or loss in subsequent periods:Exchange gains on foreign currency translation P=7,925 P=13,036Share in other comprehensive loss of associates (6,078) (5,287)Unrealized fair value gains on investment in

equity securities 31 14P=1,878 P=7,763

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(In Millions)Attributable to:

Equity holders of the Parent P=1,219 P=4,633Non-controlling Interest 659 3,130

P=1,878 P=7,763

Increase (decrease) in consolidated statements of cash flows:

Years ended December 312012 2011(In Millions)

Operating P=12,407 P=3,917Investing (16,059) (4,408)Financing 2,769 6,914Net increase (decrease) in cash and cash

equivalents (P=883) P=6,423

The adoption of PFRS 10 had no impact on the basic and diluted earnings per share in2012 and 2011.

§ PFRS 11, Joint Arrangements

PFRS 11 replaced PAS 31, Interests in Joint Ventures, and SIC 13, Jointly-ControlledEntities - Non-Monetary Contributions by Venturers. PFRS 11 removed the option to accountfor jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs thatmeet the definition of a joint venture must be accounted for using the equity method.

The application of PFRS 11 impacted the Group’s accounting for its interest in RockwellBusiness Center (RBC) (see Note 13). The Group has a 70% interest in RBC which becameits joint arrangement upon consolidation of Rockwell Land in 2012 (see Note 5). Prior to thetransition to PFRS 11, RBC was classified as a jointly controlled entity and the Group’s shareof the assets, liabilities, revenue, income and expenses were proportionately consolidated inthe consolidated financial statements. Upon adoption of PFRS 11, the Group determined thatits interest in RBC should be classified as a joint venture which must be accounted for usingthe equity method. The transition was applied retrospectively to 2012.

The effect of applying PFRS 11 on the Group’s consolidated financial statements is asfollows:

Increase (decrease) in consolidated statement of financial position:

December 31,2012

(In Millions)

Other current assets (P=493)Other noncurrent assets (2,302)Trade payables and other current liabilities (41)Other noncurrent liabilities (73)Investment in a joint venture 2,681

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Increase (decrease) in consolidated statement of income:

Year EndedDecember 31,

2012(In Millions)

Project revenues (P=202)Project costs (131)Equity in net earnings of associates and a joint venture 71

The adoption of PFRS 11 had no impact on the consolidated statements of cash flows andbasic and diluted earnings per share in 2012 and 2011.

§ PFRS 12, Disclosure of Interests in Other EntitiesPFRS 12 sets out the requirements for disclosures relating to an entity’s interests insubsidiaries, joint arrangements, associates and structured entities. The requirements inPFRS 12 are more comprehensive than the previously existing disclosure requirements forsubsidiaries (for example, where a subsidiary is controlled with less than a majority of votingrights). While the Group has subsidiaries with material non-controlling interests, there are nounconsolidated structured entities. The required disclosures of PFRS 12 are provided inNotes 5, 10 and 13 to the consolidated financial statements.

§ PFRS 13, Fair Value MeasurementPFRS 13 establishes a single source of guidance under PFRSs for all fair value measurements.PFRS 13 does not change when an entity is required to use fair value, but rather providesguidance on how to measure fair value under PFRS. PFRS 13 defines fair value as an exitprice. PFRS 13 also requires additional disclosures.

As a result of the guidance in PFRS 13, the Group re-assessed its policies for measuring fairvalues, in particular, its valuation inputs such as non-performance risk for fair valuemeasurement of liabilities. The Group has assessed that the application of PFRS 13 has notmaterially impacted the fair value measurements of the Group. Additional disclosures, whererequired, are provided in the individual notes relating to the assets and liabilities whose fairvalues were determined. Fair value hierarchy disclosures are provided in Notes 11, 12, 14and 33.

§ PAS 1, Presentation of Financial Statements - Presentation of Items of Other ComprehensiveIncome or OCI (Amendments)The amendments to PAS 1 introduced a grouping of items presented in OCI. Items that willbe reclassified (or “recycled”) to profit or loss at a future point in time (for example, uponderecognition or settlement) will be presented separately from items that will never berecycled. The amendments affect presentation only and have no impact on the Group’sfinancial position or performance.

§ PAS 19, Employee Benefits (Revised), requires for defined benefit plans to recognize allactuarial gains and losses in OCI and unvested past service costs previously recognized overthe average vesting period to be recognized immediately in profit or loss when incurred. Priorto adoption of the Revised PAS 19, the Group recognized actuarial gains and losses as incomeor expense when the net cumulative unrecognized gains and losses for each individual plan atthe end of the previous period exceeded 10% of the higher of the defined benefit obligationand the fair value of the plan assets. Upon adoption of the Revised PAS 19, the Groupchanged its accounting policy to recognize all actuarial gains and losses in OCI and pastservice costs, if any, in profit or loss in the period they occur.

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The Revised PAS 19 replaced the interest cost and expected return on plan assets with theconcept of net interest on defined benefit liability or asset which is calculated by multiplyingthe net balance sheet defined benefit liability or asset by the discount rate used to measure theemployee benefit obligation, each as at the beginning of the annual period. The RevisedPAS 19 also amended the definition of short-term employee benefits and requires employeebenefits to be classified as short-term based on expected timing of settlement rather than theemployee’s entitlement to the benefits. In addition, the Revised PAS 19 modifies the timingof recognition for termination benefits. The modification requires the termination benefits tobe recognized at the earlier of when the offer cannot be withdrawn or when the relatedrestructuring costs are recognized.

The Group reviewed its existing employee benefits and determined that the amended standardhas impact on its accounting for retirement and other employee benefits. The Group obtainedthe services of external actuaries to compute the impact on the consolidated financialstatements upon adoption of the standard. The transition adjustment as at January 1, 2011 wasclosed to retained earnings as of January 1, 2011. Other comprehensive income changes havebeen closed to retained earnings.

The quantitative impact on the consolidated financial statements is provided below:

Increase (decrease) in consolidated statements of financial position:

December 31,2013

December 31,2012

January 1,2012

(In Millions)Noncurrent AssetsRetirement benefit asset P=– (P=119) (P=791)Deferred tax assets – 100 139Total noncurrent assets – (19) (652)Current LiabilityTrade payables and other current

liabilities – (118) (120)Noncurrent LiabilitiesRetirement liability 2,193 1,183 794Deferred tax liabilities (9) (4) (251)Total noncurrent liabilities 2,184 1,179 543Net impact on equity (P=2,184) (P=1,080) (P=1,075)

Attributable to:Equity holders of the Parent (P=1,565) (P=503) (P=653)Non-controlling Interests (619) (577) (422)

(P=2,184) (P=1,080) (P=1,075)

Increase (decrease) in consolidated statements of income and other comprehensiveincome:

For the years ended December 312013 2012 2011

(In Millions)

COSTS AND EXPENSESGeneral and administrative expenses (P=80) (P=22) P=152Income tax effect (9) 3 (24)

P=89 P=19 (P=128)

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(In Millions)

Attributable to:Equity holders of the Parent P=28 P=6 (P=132)Non-controlling Interests 61 13 4

P=89 P=19 (P=128)

Earnings per shareBasic P=0.051 P=0.011 (P=0.235)Diluted 0.051 0.011 (0.233)


(In Millions)

OTHER COMPREHENSIVEINCOME (LOSS)

Other comprehensive income not to bereclassified to profit or loss insubsequent periods:Actuarial losses on retirement benefit

liability - net of tax (P=1,268) (P=24) (P=809)

Attributable to:Equity holders of the Parent (P=1,226) P=150 (P=667)Non-controlling Interest (42) (155) (270)

(P=1,268) (P=5) (P=809)

The adoption of Revised PAS 19 had no impact on the consolidated statements of cashflows. The effect on basic and diluted earnings per share was immaterial.

§ PAS 27, Separate Financial Statements (as revised in 2011)

As a consequence of the issuance of the new PFRS 10, Consolidated Financial Statements,and PFRS 12, Disclosure of Interests in Other Entities, what remains of PAS 27 is limited toaccounting for subsidiaries, jointly controlled entities, and associates in the separate financialstatements. The adoption of the amended PAS 27 did not have a significant impact on theseparate financial statements of the entities in the Group.

§ PAS 28, Investments in Associates and Joint Ventures (as revised in 2011)

As a consequence of the issuance of the new PFRS 11, Joint Arrangements, and PFRS 12,Disclosure of Interests in Other Entities, PAS 28 has been renamed PAS 28, Investments inAssociates and Joint Ventures, and describes the application of the equity method toinvestments in joint ventures in addition to associates. The adoption of the amended PAS 28did not have a significant impact on the financial statements of the Group.

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§ Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine

This interpretation applies to waste removal costs (“stripping costs”) that are incurred insurface mining activity during the production phase of the mine (“production stripping costs”).If the benefit from the stripping activity will be realized in the current period, an entity isrequired to account for the stripping activity costs as part of the cost of inventory. When thebenefit is the improved access to ore, the entity should recognize these costs as a non-currentasset, only if certain criteria are met (“stripping activity asset”). The stripping activity asset isaccounted for as an addition to, or as an enhancement of, an existing asset. After initialrecognition, the stripping activity asset is carried at its cost or revalued amount lessdepreciation or amortization and less impairment losses, in the same way as the existing assetof which it is a part. The new interpretation is not relevant to the Group.

§ PFRS 1, First-time Adoption of International Financial Reporting Standards – GovernmentLoans (Amendments)

The amendments to PFRS 1 require first-time adopters to apply the requirements of PAS 20,Accounting for Government Grants and Disclosure of Government Assistance, prospectivelyto government loans existing at the date of transition to PFRS. However, entities may chooseto apply the requirements of PAS 39, Financial Instruments: Recognition and Measurement,and PAS 20 to government loans retrospectively if the information needed to do so had beenobtained at the time of initially accounting for those loans. These amendments are notrelevant to the Group.

Annual Improvements to PFRSs (2009-2011 cycle)The Annual Improvements to PFRSs (2009-2011 cycle) contain non-urgent but necessaryamendments to PFRSs. The Group adopted these amendments for the current year.

§ PFRS 1, First-time Adoption of PFRS – Borrowing Costs

The amendment clarifies that, upon adoption of PFRS, an entity that capitalized borrowingcosts in accordance with its previous generally accepted accounting principles, may carryforward, without any adjustment, the amount previously capitalized in its opening statement offinancial position at the date of transition. Subsequent to the adoption of PFRS, borrowingcosts are recognized in accordance with PAS 23, Borrowing Costs. The amendment does notapply to the Group as it is not a first-time adopter of PFRS.

§ PAS 1, Presentation of Financial Statements - Clarification of the requirements forcomparative information

These amendments clarify the requirements for comparative information that are disclosedvoluntarily and those that are mandatory due to retrospective application of an accountingpolicy, or retrospective restatement or reclassification of items in the financial statements. Anentity must include comparative information in the related notes to the financial statementswhen it voluntarily provides comparative information beyond the minimum requiredcomparative period. The additional comparative period does not need to contain a completeset of financial statements. On the other hand, supporting notes for the third balance sheet(mandatory when there is a retrospective application of an accounting policy, or retrospectiverestatement or reclassification of items in the financial statements) are not required. As aresult, the Group has not included comparative information in respect of the openingconsolidated statement of financial position as at January 1, 2012.

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§ PAS 16, Property, Plant and Equipment - Classification of servicing equipment

The amendment clarifies that spare parts, stand-by equipment and servicing equipment shouldbe recognized as property, plant and equipment when they meet the definition of property,plant and equipment and should be recognized as inventory if otherwise. The amendmentdoes not have any significant impact on the Group’s financial position or performance.

§ PAS 32, Financial Instruments: Presentation - Tax effect of distribution to holders of equityinstruments

The amendment clarifies that income taxes relating to distributions to equity holders and totransaction costs of an equity transaction are accounted for in accordance with PAS 12,Income Taxes. The amendment does not have any significant impact on the Group’s financialposition or performance.

§ PAS 34, Interim Financial Reporting - Interim financial reporting and segment informationfor total assets and liabilities

The amendment clarifies that the total assets and liabilities for a particular reportable segmentneed to be disclosed only when the amounts are regularly provided to the chief operatingdecision maker and there has been a material change from the amount disclosed in the entity’sprevious annual financial statements for that reportable segment. The amendment affectsdisclosures only and has no impact on the Group’s financial position or performance.

Business Combination and GoodwillBusiness combinations are accounted for using the acquisition method. The cost of an acquisitionis measured as the aggregate of the consideration transferred, measured at acquisition date fairvalue and the amount of any non-controlling interest in the acquiree. For each businesscombination, the Group elects whether it measures the non-controlling interest in the acquireeeither at fair value or at the proportionate share of the fair value of the acquiree’s identifiable netassets. Acquisition costs incurred are expensed and included in general and administrativeexpenses.

When the Group acquires a business, it assesses the financial assets and financial liabilitiesassumed for appropriate classification and designation in accordance with the contractual terms,economic circumstances and pertinent conditions as at the acquisition date. This includes theseparation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’spreviously held equity interest in the acquiree is re-measured to fair value at the acquisition datethrough profit or loss.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value atthe acquisition date. Subsequent changes to the fair value of the contingent consideration that isdeemed to be an asset or liability will be recognized in accordance with PAS 39, FinancialInstruments: Recognition and Measurement, either in profit or loss or as a change to othercomprehensive income. If the contingent consideration is classified as equity, it will not be re-measured. Subsequent settlement is accounted for within equity. In instances where the contingentconsideration does not fall within the scope of PAS 39, it is measured in accordance with theappropriate PFRS.

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Goodwill is initially measured at cost being the excess of the aggregate of the considerationtransferred, the amount recognized for non-controlling interest over the net identifiable assetsacquired and liabilities assumed. If this consideration is lower than the fair value of the net assetsof the subsidiary acquired, the difference is recognized in consolidated statement of income.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses.For the purpose of impairment testing, goodwill acquired in a business combination is, from theacquisition date, allocated to each of the Group’s cash-generating units that are expected to benefitfrom the combination, irrespective of whether other assets or liabilities of the acquiree areassigned to those units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit isdisposed of, the goodwill associated with the operation disposed of is included in the carryingamount of the operation when determining the gain or loss on disposal of the operation. Goodwilldisposed of in this circumstance is measured based on the relative values of the operation disposedof and the portion of the cash-generating unit retained.

Investment in Associates and Joint VenturesAn associate is an entity in which the Group has significant influence. Significant influence is thepower to participate in the financial and operating policy decisions of the investee, but is notcontrol or joint control over those policies.

A joint venture is a type of joint arrangement whereby the parties that have joint control of thearrangement have rights to the net assets of the joint venture. Joint control is the contractuallyagreed sharing of control of an arrangement, which exists only when decisions about the relevantactivities require unanimous consent of the parties sharing control.

The considerations made in determining significant influence or joint control are similar to thosenecessary to determine control over subsidiaries.

The Group’s investments in its associate and joint venture are accounted for using the equitymethod.

Under the equity method, the investment is initially recognized at cost. The carrying amount of theinvestment is adjusted to recognize changes in the Group’s share of net assets of the associate orjoint venture since the acquisition date. Goodwill relating to the associate or joint venture isincluded in the carrying amount of the investment and is neither amortized nor individually testedfor impairment.

The consolidated statement of income reflects the Group’s share of the results of operations of theassociate or joint venture. Any change in OCI of those investees is presented as part of theGroup’s OCI. In addition, when there has been a change recognized directly in the equity of theassociate or joint venture, the Group recognizes its share of any changes, when applicable, in theconsolidated statement of changes in equity. Unrealized gains and losses resulting fromtransactions between the Group and the associate or joint venture are eliminated to the extent ofthe interest in the associate or joint venture.

The aggregate of the Group’s share of profit or loss of an associate and a joint venture is shown onthe face of the consolidated statement of income outside operating profit and represents profit orloss after tax and non-controlling interests in the subsidiaries of the associate or joint venture.

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The financial statements of the associate or joint venture are prepared for the same reportingperiod as the Group. When necessary, adjustments are made to bring the accounting policies inline with those of the Group.

After application of the equity method, the Group determines whether it is necessary to recognizean impairment loss on its investment in the associate or joint venture. At each reporting date, theGroup determines whether there is objective evidence that the investment in the associate or jointventure is impaired. If there is such evidence, the Group calculates the amount of impairment asthe difference between the recoverable amount of the associate or joint venture and its carryingvalue, then recognizes the impairment loss in the consolidated statement of income.

Upon loss of significant influence over the associate or joint control over the joint venture, theGroup measures and recognizes any retained investment at its fair value. Any difference betweenthe carrying amount of the associate or joint venture upon loss of significant influence or jointcontrol and the fair value of the retained investment and proceeds from disposal is recognized inprofit or loss.

Interest in Joint OperationsA joint arrangement is classified as a joint operation if the parties with joint control have rights tothe assets and obligations for the liabilities of the arrangement. For interest in joint operations, theGroup recognizes:§ assets, including its share of any assets held jointly;§ liabilities, including its share of any liabilities incurred jointly;§ revenue from the sale of its share of the output arising from the joint operation;§ share of the revenue from the sale of the output by the joint operation; and§ expenses, including its share of any expenses incurred jointly.

The accounting and measurement for each of these items is in accordance with the PFRSsapplicable. The assets and liabilities are presented as “Current Assets of Joint Operation” and“Current Liabilities of Joint Operation”, respectively, as these consist of individually immaterialitems.

Cash and Cash EquivalentsCash includes cash on hand and in banks. Cash equivalents are short-term, highly liquidinvestments that are readily convertible with remaining maturities of three months or less and thatare subject to an insignificant risk of change in value.

Short-term InvestmentsShort-term investments are short-term, highly liquid investments that are convertible to knownamounts of cash with original remaining of more than three months but less than one year fromdates of acquisition.

Financial Instruments

Date of Recognition. Financial instruments within the scope of PAS 39 are recognized in theconsolidated statement of financial position when the Group becomes a party to the contractualprovisions of the instrument. Purchases or sales of financial assets that require delivery of assetswithin the time frame established by regulation or convention in the marketplace are recognizedusing the trade date accounting. Derivatives are also recognized on trade date basis.

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Initial Recognition of Financial Instruments. All financial instruments are initially recognized atfair value. The initial measurement of financial instruments includes transaction costs, except forfinancial assets and financial liabilities at FVPL. The Group classifies its financial assets in thefollowing categories: financial assets at FVPL, held-to-maturity (HTM) investments, loans andreceivables, and available-for-sale (AFS) financial assets. Financial liabilities are classified aseither financial liabilities at FVPL or other financial liabilities. The classification depends on thepurpose for which the investments were acquired and whether they are quoted in an active market.The Group determines the classification of financial assets on initial recognition and, whereallowed and appropriate, re-evaluates this designation at every financial reporting date.

Determination of Fair Value. The Group measures financial instruments, such as, derivatives, andnon-financial assets such as investment properties, at fair value at each balance sheet date. Also,fair values of financial instruments measured at amortized cost are disclosed in Note 33.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date. The fair valuemeasurement is based on the presumption that the transaction to sell the asset or transfer theliability takes place either:

§ In the principal market for the asset or liability, or§ In the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible to by the Group.

The fair value of an asset or a liability is measured using the assumptions that market participantswould use when pricing the asset or liability, assuming that market participants act in theireconomic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's abilityto generate economic benefits by using the asset in its highest and best use or by selling it toanother market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for whichsufficient data are available to measure fair value, maximizing the use of relevant observableinputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statementsare categorized within the fair value hierarchy, described as follows, based on the lowest levelinput that is significant to the fair value measurement as a whole:

§ Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities

§ Level 2 - Valuation techniques for which the lowest level input that is significant to the fairvalue measurement is directly or indirectly observable

§ Level 3 - Valuation techniques for which the lowest level input that is significant to the fairvalue measurement is unobservable.

For assets and liabilities that are recognized in the consolidated financial statements on a recurringbasis, the Group determines whether transfers have occurred between Levels in the hierarchy byre-assessing categorization (based on the lowest level input that is significant to the fair valuemeasurement as a whole) at the end of each reporting period.

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External valuers are involved for valuation of significant assets and significant liabilities.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilitieson the basis of the nature, characteristics and risks of the asset or liability and the level of the fairvalue hierarchy as explained above.

“Day 1” Difference. Where the transaction in a non-active market is different from the fair valueof other observable current market transactions in the same instrument or based on a valuationtechnique whose variables include only data from observable market, the Group recognizes thedifference between the transaction price and fair value (“Day 1” difference) in the consolidatedstatement of income unless it qualifies for recognition as some other type of asset. In cases wheredata used are not observable, the difference between the transaction price and model value is onlyrecognized in the consolidated statement of income when the inputs become observable or whenthe instrument is derecognized. For each transaction, the Group determines the appropriatemethod of recognizing the “Day 1” difference amount.

Financial Assets and Liabilities at FVPL. Financial assets and liabilities at FVPL includefinancial assets and liabilities held for trading purposes and financial assets and liabilitiesdesignated upon initial recognition as at FVPL.

Financial assets and liabilities are classified as held for trading if they are acquired for the purposeof selling and repurchasing in the near term.

Derivatives are also classified under financial assets and liabilities at FVPL including embeddedderivatives.

Financial assets or liabilities may be designated by management on initial recognition as at FVPLwhen the following criteria are met:

§ The designation eliminates or significantly reduces the inconsistent treatment that wouldotherwise arise from measuring the assets or liabilities or recognizing gains or losses on themon a different basis;

§ The assets or liabilities are part of a group of financial assets, liabilities or both which aremanaged and their performance evaluated on a fair value basis, in accordance with adocumented risk management or investment strategy; or

§ The financial instrument contains an embedded derivative, unless the embedded derivativedoes not significantly modify the cash flows or it is clear, with little or no analysis, that itwould not be separately recorded.

Financial assets and liabilities at FVPL are recorded in the consolidated statement of financialposition at fair value. Subsequent changes in fair value are recognized in the consolidatedstatement of income except for derivative designated in an effective hedging relationship. Interestearned or incurred is recorded in interest income or expense, respectively, while dividend incomeis recorded when the right to receive payment has been established.

FPH’s investment in quoted shares of stock of Cambridge Silicon Radio plc (CSR, a U.K.-basedcorporation) presented under “Other current assets” is classified as financial assets at FVPL as atDecember 31, 2013 and 2012 (see Note 9).

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Classified under financial liabilities at FVPL are EDC’s foreign currency forward contracts andforeign currency swap contracts as at December 31, 2013 and 2012 (see Notes 32 and 33).

These derivatives were not designated as hedging instruments by the Group.

HTM Investments. HTM investments are quoted non-derivative financial assets with fixed ordeterminable payments and fixed maturities for which the Group’s management has the positiveintention and ability to hold to maturity. Where the Group sells other than an insignificant amountof HTM investments, the entire category is deemed tainted and reclassified as AFS financialassets.

After initial measurement, these investments are subsequently measured at amortized cost usingthe effective interest method, less impairment in value. Amortized cost is calculated by takinginto account any discount or premium on acquisition and fees that are integral part of the effectiveinterest rate. Gains and losses are recognized in the consolidated statement of income when theHTM investments are derecognized and impaired, as well as through the amortization process.The effects of restatement on foreign currency-denominated HTM investments are also recognizedin the consolidated statement of income.

The Group has no HTM investments as at December 31, 2013 and 2012.

Loans and Receivables. Loans and receivables are financial assets with fixed or determinablepayments and fixed maturities and that are not quoted in an active market. They are not enteredinto with the intention of immediate or short-term resale and are not classified or designated asAFS financial assets or financial assets at FVPL. Loans and receivables are included in currentassets if maturity is within 12 months from financial reporting date. Otherwise, these areclassified as noncurrent assets.

After initial measurement, the loans and receivables are subsequently measured at amortized costusing the effective interest method, less allowance for impairment. Amortized cost is calculatedby taking into account any discount or premium on acquisition and fees that are integral part of theeffective interest rate. Gains and losses are recognized in the consolidated statement of incomewhen the loans and receivables are derecognized and impaired as well as through the amortizationprocess.

Classified under loans and receivables are cash and cash equivalents, short-term investments, tradeand other receivables and restricted cash deposits (see Notes 6, 7 and 16).

AFS Financial Assets. AFS financial assets are those non-derivative financial assets which aredesignated as such or do not qualify to be classified in any of the three preceding categories.These are purchased and held indefinitely, and may be sold in response to liquidity requirementsor changes in market conditions. AFS financial assets are classified as current assets ifmanagement intends to sell these financial assets within 12 months from financial reporting date.Otherwise, these are classified as noncurrent assets.

After initial measurement, AFS financial assets are subsequently measured at fair value, withunrealized gains and losses being recognized as other comprehensive income (losses) until theinvestments are derecognized or until the investments are determined to be impaired, at whichtime the cumulative gain or loss previously reported as other comprehensive income (losses) isincluded in the consolidated statement of income.

AFS financial assets that do not have quoted market prices in an active market and whose fairvalues cannot be measured reliably are measured at cost.

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Classified under AFS financial assets are quoted and unquoted investments in governmentsecurities, proprietary membership shares and equity shares as at December 31, 2013 and 2012(see Notes 9 and 11).

Other Financial Liabilities. Financial liabilities are classified in this category if these are not heldfor trading or not designated as at FVPL upon the inception of the liability. These includeliabilities arising from operations or borrowings. Other financial liabilities are classified ascurrent liabilities if maturity is within 12 months from financial reporting date. Otherwise, theseare classified as noncurrent liabilities.

Other financial liabilities are initially recognized at fair value of the consideration received, lessdirectly attributable transaction costs. After initial recognition, other financial liabilities aresubsequently measured at amortized cost using the effective interest method. Amortized cost iscalculated by taking into account any related issue costs, discount or premium. Gains and lossesare recognized in the consolidated statement of income when the liabilities are derecognized, aswell as through the amortization process.

Debt issuance costs incurred in connection with availment of long-term debt and issuances ofbonds are deferred and amortized using the effective interest method over the term of the loansand bonds. Debt issuance costs are included in the measurement of the related long-term debt andbonds payable and are allocated accordingly to respective current and noncurrent portions.

Classified under other financial liabilities are loans payable, trade payables and othercurrent liabilities, bonds payable and long-term debts as at December 31, 2013 and 2012(see Notes 17, 18, 19 and 20).

Derivative Financial Instruments and Hedge AccountingThe Group enters into derivative and hedging transactions, primarily interest rate swaps, crosscurrency swap and foreign currency forwards, as needed, for the sole purpose of managing therisks that are associated with the Group’s borrowing activities or as required by the lenders incertain cases.

Derivative financial instruments (including bifurcated embedded derivatives) are initiallyrecognized at fair value on the date on when the derivative contract is entered into and aresubsequently re-measured at fair value. Derivatives are carried as assets when the fair value ispositive and as liabilities when the fair value is negative. Any gain or loss arising from changes infair value of derivatives that do not qualify for hedge accounting is taken directly to theconsolidated statement of income for the current year under “Mark-to-market gain (loss) onderivatives” account.

For purposes of hedge accounting, derivatives can be designated either as cash flow hedges or fairvalue hedges depending on the type of risk exposure it hedges.

At the inception of a hedge relationship, the Group formally designates and documents the hedgerelationship to which the Group opts to apply hedge accounting and the risk managementobjective and strategy for undertaking the hedge. The documentation includes identification of thehedging instrument, the hedged item or transaction, the nature of the risk being hedged and howthe entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changesin the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges areexpected to be highly effective in achieving offsetting changes in fair value or cash flows and areassessed on an ongoing basis that they actually have been highly effective throughout the financialreporting periods for which they were designated.

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The Group accounts for its interest rate swap agreements as cash flow hedges of the floating rateexposure of its long-term debts. The Group also entered into cross currency swap and foreigncurrency forwards accounted for as cash flow hedges for its Philippine peso-denominated loansand Euro-denominated liabilities, respectively (see Notes 32 and 33).

The Group has no derivatives that are designated as fair value hedges as at December 31, 2013and 2012.

Cash Flow Hedges. Cash flow hedges are hedges of the exposure to variability of cash flows thatare attributable to a particular risk associated with a recognized asset, liability or a highly probableforecast transaction and could affect profit or loss. The effective portion of the gain or loss on thehedging instrument is recognized directly as other comprehensive income (loss) under the“Cumulative translation adjustments” account in the consolidated statement of financial positionwhile the ineffective portion is recognized in the consolidated statement of income.

Amounts recognized as other comprehensive income (loss) are transferred to the consolidatedstatement of income when the hedged transaction affects profit or loss, such as when hedgedfinancial income or expense is recognized or when a forecast sale or purchase occurs. Where thehedged item is the cost of a non-financial asset or liability, the amounts recognized as othercomprehensive income (loss) are transferred to the initial carrying amount of the non-financialasset or liability.

If the forecast transaction is no longer expected to occur, amounts previously recognized in othercomprehensive income (loss) are transferred to the consolidated statement of income. If thehedging instrument expires or is sold, terminated or exercised without replacement or rollover, orif its designation as a hedge is revoked, amounts previously recognized in other comprehensiveincome (loss) remain in equity until the forecast transaction occurs. If the related transaction isnot expected to occur, the amount is recognized in the consolidated statement of income.

In the case of EDC, it has existing cross currency swaps to partially hedge its exposure to foreigncurrency and interest rate risks on its floating rate loan that is benchmarked against US LIBOR(see Notes 20 and 33).

Embedded Derivatives. An embedded derivative is a component of a hybrid (combined)instrument that also includes a non-derivative host contract with the effect that some of the cashflows of the combined instrument vary in a way similar to a stand-alone derivatives.

The Group assesses whether embedded derivatives are required to be separated from hostcontracts when the Group first becomes a party to the contract. Reassessment only occurs if thereis a change in the terms of the contract that significantly modifies the cash flows that wouldotherwise be required.

Embedded derivatives are bifurcated from their host contracts, when the following conditions aremet: (a) the entire hybrid contracts (composed of both the host contract and the embeddedderivative) are not accounted at FVPL; (b) when their economic risks and characteristics are notclosely related to those of their respective host contracts; and (c) a separate instrument with thesame terms as the embedded derivative would meet the definition of a derivative.

Embedded derivatives that are bifurcated from the host contracts are accounted for either asfinancial assets or financial liabilities at FVPL. Changes in fair values are included in theconsolidated statement of income.

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Current Versus Noncurrent ClassificationDerivative instruments that are not designated as effective hedging instruments are classified ascurrent or non-current or separated into a current and non-current portion based on an assessmentof the facts and circumstances (i.e., the underlying contracted cash flows):

§ When the Group will hold a derivative as an economic hedge (and does not apply hedgeaccounting) for a period beyond 12 months after the reporting date, the derivative is classifiedas non-current (or separated into current and non-current portions) consistent with theclassification of the underlying item.

§ Embedded derivatives that are not closely related to the host contract are classified consistentwith the cash flows of the host contract.

§ Derivative instruments that are designated as, and are effective hedging instruments, areclassified consistently with the classification of the underlying hedged item. The derivativeinstrument is separated into current portion and non-current portion only if a reliableallocation can be made.

Derecognition of Financial Assets and Liabilities

Financial Asset. A financial asset (or, where applicable, a part of a financial asset or part of agroup of financial assets) is derecognized when:

§ the rights to receive cash flows from the asset expire;

§ The Group retains the right to receive cash flows from the asset, but has assumed anobligation to pay them in full without material delay to a third party under a “pass-through”arrangement; or

§ The Group has transferred its rights to receive cash flows from the asset and either (a) hastransferred substantially all the risks and rewards of the asset, or (b) has neither transferred norretained the risk and rewards of the asset but has transferred the control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset or has entered into a“pass-through” arrangement, and has neither transferred nor retained substantially all the risks andrewards of the asset nor transferred control of the asset, the asset is recognized to the extent of theGroup’s continuing involvement in the asset. Continuing involvement that takes the form of aguarantee over the transferred asset is measured at the lower of the original carrying amount of theasset and the maximum amount of consideration that the Group could be required to repay.

Financial Liability. A financial liability is derecognized when the obligation under the liability isdischarged, cancelled or has expired.

Where an existing financial liability is replaced by another from the same lender on substantiallydifferent terms, or the terms of an existing liability are substantially modified, such exchange ormodification is treated as a derecognition of the original liability and the recognition of a newliability, and the difference in the respective carrying amounts is recognized in the consolidatedstatement of income.

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Impairment of Financial AssetsThe Group assesses at each financial reporting date whether there is objective evidence that afinancial asset or group of financial assets is impaired. A financial asset or a group of financialassets is deemed to be impaired if, and only if, there is objective evidence of impairment as aresult of one or more events that has occurred after the initial recognition of the asset (an incurred“loss event”) and that loss event (or events) has an impact on the estimated future cash flows ofthe financial asset or the group of financial assets that can be reliably estimated. Objectiveevidence of impairment may include indications that the borrower or a group of borrowers isexperiencing significant financial difficulty, default or delinquency in interest or principalpayments, the probability that they will enter bankruptcy or other financial reorganization andwhere observable data indicate that there is measurable decrease in the estimated future cashflows, such as changes in arrears or economic conditions that correlate with defaults.

Financial Assets Carried at Amortized Cost. For loans and receivables carried at amortized cost,the Group first assesses whether an objective evidence of impairment (such as the probability ofinsolvency or significant financial difficulties of the borrower) exists individually for financialassets that are individually significant, or collectively for financial assets that are not individuallysignificant.

If there is objective evidence that an impairment loss on assets carried at amortized cost has beenincurred, the amount of the loss is measured as the difference between the asset’s carrying amountand the present value of estimated future cash flows (excluding future expected credit losses thathave not yet been incurred) discounted using the financial asset’s original effective interest rate. Ifthere is no objective evidence that impairment exists for individually assessed financial asset, itincludes the asset in a group of financial assets with similar credit risk characteristics andcollectively assesses for impairment. Those characteristics are relevant to the estimation of futurecash flows for groups of such assets by being indicative of the debtors’ ability to pay all amountsdue according to the contractual terms of the assets being evaluated. Assets that are individuallyassessed for impairment and for which an impairment loss is, or continues to be, recognized arenot included in a collective assessment for impairment.

The carrying amount of the assets is reduced through the use of allowance account and the amountof loss is recognized in the consolidated statement of income. Interest income continues to berecognized based on the original effective interest rate of the asset. If in case the receivable isproven to have no realistic prospect of future recovery, any allowance provided for suchreceivable is written off against the carrying value of the impaired receivable.

If, in a subsequent year, the amount of the estimated impairment loss decreases because of anevent occurring after the impairment was recognized, the previously recognized impairment loss isreduced by adjusting the allowance account. Any subsequent reversal of an impairment loss isrecognized in the consolidated statement of income, to the extent that the carrying value of theasset does not exceed its amortized cost at reversal date.

AFS Financial Assets. For AFS financial assets, the Group assesses at each financial reportingdate whether there is objective evidence that a financial asset or group of financial assets isimpaired.

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In the case of equity investments classified as AFS financial assets, this would include asignificant or prolonged decline in fair value of the investments below its cost. “Significant” is tobe evaluated against the original cost of the investment and “prolonged” against the period inwhich the fair value has been below its original cost. When there is evidence of impairment, thecumulative loss (measured as the difference between the acquisition cost and the current fairvalue, less any impairment loss on that financial asset previously recognized in consolidatedstatement of income) is removed from other comprehensive income and recognized in theconsolidated statement of income. Impairment losses on equity investments are not reversed inthe consolidated statement of income. Increases in fair value after impairment are recognizeddirectly in other comprehensive income.

In the case of debt instruments classified as AFS financial assets, impairment is assessed based onthe same criteria as financial assets carried at amortized cost. Future interest income is based onthe reduced carrying amount and is accrued based on the rate of interest used to discount futurecash flows for the purpose of measuring impairment loss. If, in a subsequent year, the fair valueof a debt instrument increases and that increase can be objectively related to an event occurringafter the impairment loss was recognized in the consolidated statement of income, the impairmentloss is reversed through the consolidated statement of income.

Offsetting Financial InstrumentsFinancial assets and liabilities are offset and the net amount reported in the consolidated statementof financial position if, and only if, there is a currently enforceable legal right to offset therecognized amounts and there is an intention to settle on a net basis, or to realize the asset andsettle the liability simultaneously. This is not generally the case with master netting arrangements,and the related assets and liabilities are presented at gross amounts in the consolidated statementof financial position.

InventoriesInventories are valued at the lower of cost and net realizable value. Costs incurred in bringingeach item of inventory to its present location and conditions are accounted for as follows:

Land and development costs – Property acquired or being constructed for salein the ordinary course of business, rather than tobe held for rental or capital appreciation, is heldas inventory.

Cost includes land cost, amounts paid tocontractors for construction and borrowingcosts, planning and design costs, costs of sitepreparation, professional fees, property transfertaxes, construction overheads and other relatedcosts.

Fuel inventories – Cost includes the invoice amount, net of tradeand cash discounts. Costs is calculated using theweighted average method.

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Finished goods and work in-process - Determined on the weighted average basis; costincludes materials and labor and a proportion ofmanufacturing overhead costs based on normaloperating capacity but excluding borrowingcosts

Raw materials and spare parts andsupplies

– Purchase cost based on moving average method

The net realizable value is determined as follows:

Finished goods – Estimated selling price in the ordinary course ofbusiness, less estimated costs necessary to makethe sale

Land development costs and work- in-process

– Selling price in the ordinary course of thebusiness, based on market prices at thereporting date, less estimated specificallyidentifiable costs of completion and theestimated costs of sale

Fuel inventories – Fuel cost charged to Meralco, under therespective Power Purchase Agreements (PPAs)of FGPC and FGP with Meralco (see Note 34a),which is based on weighted average cost ofactual fuel consumed

− Invoice amount, net of trade and cash discountsfor EDC

Raw materials, spare parts and supplies – Current replacement cost

Other Current Assets

Advances to Contractors and Suppliers. Advances to contractors and suppliers represent advancepayments on services to be incurred in connection with the Group’s operations and suppliers.These are capitalized to projects under “Land and development costs” account in the consolidatedstatement of financial position, upon actual receipt of services, which is normally within 12months or within the normal operating cycle. These are considered as nonfinancial instruments asthese will be applied against future billings from contractors normally within one year.

Prepayments. Prepayments are expenses paid in advance and recorded as asset before these areutilized. The prepaid expenses are apportioned over the period covered by the payment andcharged to the appropriate accounts in the consolidated statement of income when incurred.Prepayments that are expected to be realized for a period of no more than 12 months after thefinancial reporting period are classified as current asset; otherwise, these are classified as othernoncurrent asset.

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Prepaid Taxes. Prepaid taxes are carried at cost less any impairment in value. Prepaid taxesconsist mainly of tax credits that can be used by the Group in the future. Tax credits representunapplied certificates for claims from input value-added tax (VAT) credits received from theBureau of Internal Revenue (BIR) and the Bureau of Customs (BOC). Such tax credits may beused for payment of internal revenue taxes or customs duties. Tax credits expected to be appliedbeyond 12 months is recognized under “Other noncurrent assets” account in the consolidatedstatement of financial position.

Input Value-Added Tax (VAT). Input VAT represents VAT imposed on the Group by its suppliersand contractors for the acquisition of goods and services required under Philippine taxation lawsand regulations. Input VAT is recognized as an asset and will be used to offset against theGroup’s current output VAT liabilities and any excess will be claimed as tax credits. Input VATis stated at its recoverable amount.

Deferred input VAT related to the unpaid portion of the acquisition cost of the asset expected to besettled beyond the succeeding year is recognized under “Other noncurrent assets” account in theconsolidated statement of financial position.

Creditable Withholding Taxes (CWT). CWT represents the amount withheld by the Group’scustomers in relation to its rent income. These are recognized upon collection of the relatedbillings and are utilized as tax credits against income tax due as allowed by the Philippine taxationlaws and regulations. CWT is stated at its estimated NRV. CWT that will not be realized within12 months is classified as non-current.

Property, Plant and EquipmentProperty, plant and equipment, except land, are carried at cost less accumulated depreciation,amortization and any impairment in value. Land is carried at cost less any impairment in value.

The initial cost of property, plant and equipment, consist of its purchase price including importduties, borrowing costs (during the construction period) and other costs directly attributable inbringing the asset to its working condition and location for its intended use. Cost also includes thecost of replacing the part of such property, plant and equipment when the recognition criteria aremet and the present value of dismantling and removing the asset and restoring the site.

The income generated wholly and necessarily as a result of the process of bringing the asset intothe location and condition for its intended use (e.g., net proceeds from selling any items producedwhile testing whether the asset is functioning properly) is credited to the cost of the asset. Whenthe incidental operations are not necessary to bring an item to the location and condition necessaryfor it to be capable of operating in the manner intended by management, the income and relatedexpenses of incidental operations are not offset against the cost of the asset but are recognized inprofit or loss and included in their respective classifications of income and expense.

Expenditures incurred after the property, plant and equipment have been put into operation, suchas repairs and maintenance, are normally charged to current operations in the period the costs areincurred. In situations where it can be clearly demonstrated that the expenditures have resulted inan increase in the future economic benefits expected to be obtained from the use of an item ofproperty, plant and equipment beyond its originally assessed standard of performance, theexpenditures are capitalized as additional costs of property, plant and equipment.

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The Group divided the power plants into significant parts. Each part of an item of property, plantand equipment with a cost that is significant in relation to the total cost of the item is depreciatedseparately. Depreciation and amortization are computed using the straight-line method over thefollowing estimated useful lives of the assets:

Asset Type Number of YearsPower plants, buildings, other structures and

leasehold improvements5 to 30 years or lease term,

whichever is shorterProduction wells 10-40Fluid collection and recycling system (FCRS) 13-20Transportation equipment 3 to 20 yearsExploration, machinery and equipment 2 to 25 years

The useful lives and depreciation and amortization method are reviewed at each financialreporting date to ensure that the useful lives and method of depreciation and amortization areconsistent with the expected pattern of economic benefits from items of property, plant andequipment.

Depreciation of an item of property, plant and equipment begins when it becomes available foruse, i.e. when it is in the location and condition necessary for it to be capable of operating in themanner intended by management. Depreciation ceases at the earlier of the date that the item isclassified as held for sale (or included in a disposal group that is classified as held for sale) inaccordance with PFRS 5, Non-current Assets Held for Sale and Discontinued Operations, and thedate the asset is derecognized. Leasehold improvements are amortized over the lease term or theeconomic life of the related asset, whichever is shorter.

An item of property, plant and equipment is derecognized upon disposal or when no futureeconomic benefits are expected from its use. Any gain or loss arising on derecognition of theassets (calculated as the difference between the net disposal proceeds and carrying amount of theasset) is included in the consolidated statement of income in the year the asset is derecognized.

Property, plant and equipment also include the estimated rehabilitation and restoration costs of theEDC’s steam fields and power plants located in the contract areas for which EDC is constructivelyliable. These costs are included under “FCRS and production wells” account (see Note 12). Italso includes the asset preservation obligation of FPIC under “Machinery and equipment account”.The asset preservation obligations recognized represent the best estimate of the expendituresrequired to preserve the pipeline at the end of their useful lives and to preserve the property andequipment of FPIC.

Construction in-progress represents properties under construction and includes cost ofconstruction, equipment and other direct costs. Construction in-progress and major spares andsurplus assets available for use are stated at cost and is not depreciated until such time that theassets are put into operational use.

Investment PropertiesInvestment properties are measured initially at cost, including transaction costs. Subsequent toinitial recognition, investment properties, except land, are stated at cost less accumulateddepreciation and any impairment losses. Land is carried at cost less any impairment in value.Cost also includes the cost of replacing part of an existing investment property if the recognitioncriteria are met and excludes the costs of day-to-day servicing of an investment property.

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Depreciation is computed using the straight-line method over the estimated useful lives of5 to 20 years. The investment properties’ estimated useful lives and depreciation method arereviewed and adjusted, as appropriate, at each financial reporting date.

Investment properties are derecognized when either they have been disposed of or when theinvestment is permanently withdrawn from use and no future economic benefit is expected fromits disposal. The difference between the net disposal proceeds and the carrying amount of theasset is recognized in the consolidated statement of income in the year of de-recognition.

Transfers are made to or from investment property only when there is a change in use. Transfersinto and from investment property do not change the carrying amount of the property transferred.

Intangible Assets (Concession Rights for Contracts Acquired, Water Rights, Pipeline Rights,and Other Intangible Assets)Intangible assets acquired separately are measured on initial recognition at cost. The cost ofintangible assets acquired in a business combination is the fair value as of the date of acquisition.Following initial recognition, intangible assets are carried at cost less accumulated amortizationand any impairment losses. Internally generated intangible assets, excluding capitalizeddevelopment costs, are not capitalized. Instead, related expenditures are reflected in theconsolidated statement of income in the year the expenditure is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assetswith finite lives are amortized using the straight-line method over the estimated useful economiclife and assessed for impairment whenever there is an indication that the intangible asset may beimpaired. The amortization period and method for an intangible asset with a finite useful life isreviewed at least each financial reporting date.

Changes in the expected useful life or the expected pattern of consumption of future economicbenefits embodied in the said intangible asset are accounted for by changing the amortizationperiod or method, as appropriate, and are treated as changes in accounting estimates. Theamortization expense on intangible assets with finite lives is recognized in the consolidatedstatement of income in the expense category consistent with the function of the intangible asset.

Intangible assets with indefinite useful lives are tested for impairment annually, either individuallyor at the cash generating unit level. Such intangibles are not amortized. The useful life of anintangible asset with an indefinite life is reviewed annually to determine whether the indefinite lifeassessment continues to be supportable. If not, the change in the useful life assessment fromindefinite to finite is made prospectively.

Gains or losses arising from de-recognition of an intangible asset are measured as the differencebetween the net disposal proceeds, if any, and the carrying amount of the asset and are recognizedin the consolidated statement of income in the year the asset is derecognized.

Concession Rights for Contracts AcquiredThe concession rights for contracts acquired have been valued based on the expected future cashflows using the Multiple Excess Earnings Method (MEEM) as of the date of acquisition. MEEMis the most commonly used approach in valuing customer-related assets, although it may be usedto value other intangible assets as well. The asset value is estimated as the sum of the discountedfuture excess earnings attributable to the asset over the remaining project period.

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Water RightsThe cost of water rights of FG Hydro is measured on initial recognition at cost.

Following initial recognition of the water rights, the cost model is applied requiring the asset to becarried at cost less any accumulated amortization and accumulated impairment losses, if any.Water rights are amortized using the straight-line method over 25 years, which is the term of theagreement with the National Irrigation Administration (NIA).

Pipeline RightsPipeline rights represent the construction cost of the natural gas pipeline facility connecting thenatural gas supplier’s refinery to FGP’s power plant including incidental transfer costs incurred inconnection with the transfer of ownership of the pipeline facility to the natural gas supplier. Thecost of pipeline rights is amortized using the straight-line method over 22 years, which is the termof the Gas Sale and Purchase Agreements (GSPA).

Wind Energy Project Development CostsProject development costs are expensed as incurred until management determines that the projectis technically, commercially and financially viable, at which time, project development costs arecapitalized. Project viability generally occurs in tandem with management’s determination that aproject should be classified as an advanced project, such as when favorable results of a systemimpact study are received, interconnected agreements are obtained and project financing is inplace. Following the initial recognition of the project development cost as an asset, the cost modelis applied requiring the asset to be carried at cost less accumulated amortization and anyaccumulated impairment losses. Amortization of the asset begins when the development of windfarm assets is complete and the wind farm asset is available for use. It is amortized using thestraight-line method over the period of expected future benefit. During the period in which theasset is not-yet-available-for-use, the project development costs are tested for impairmentannually, irrespective of whether there is any indication of impairment.

Exploration and Evaluation Assets (included under “Other noncurrent assets” account)EDC follows the full cost method of accounting for its exploration costs determined on the basisof each service contract area. Under this method, all exploration costs relating to each servicecontract are accumulated and deferred under the “Exploration and evaluation assets” account inthe consolidated statement of financial position pending the determination of whether the wellshas proved reserves. Capitalized expenditures include costs of license acquisition, technicalservices and studies, exploration drilling and testing, and appropriate technical and administrativeexpenses. General overhead or costs incurred prior to having obtained the legal rights to explorean area are recognized as expense in the consolidated statement of income when incurred.

If tests conducted on the drilled exploratory wells reveal that these wells cannot produce provedreserves, the capitalized costs are charged to expense except when management decides to use theunproductive wells, for recycling or waste disposal. Once the technical feasibility and commercialviability of the project to produce proved reserves are established, the exploration and evaluationassets shall be reclassified to property, plant and equipment.

Prepaid Major Spare PartsPrepaid major spare parts (included in the “Other noncurrent assets” account in the consolidatedstatement of financial position) is stated at cost less any impairment in value. Prepaid major spareparts pertain to advance payments made to Siemens Power Operations, Inc. (SPOI) for majorspare parts that will be replaced during the schedule maintenance outage of power plants.

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Impairment of Nonfinancial Assets

Property, Plant and Equipment, Investment Properties, Concession Rights for Contracts Acquired,Water Rights, Pipeline Rights, Other Intangible Assets, Exploration and Evaluation Assets,Prepaid Major Spare Parts and Input VAT claims for refund/tax credits. At each financialreporting date, the Group assesses whether there is any indication that its non-financial assets maybe impaired. When an indicator of impairment exists or when an annual impairment testing for anasset is required, the Group makes a formal estimate of an asset’s recoverable amount.Recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. Therecoverable amount is determined for an individual asset, unless the asset does not generate cashinflows that are largely independent from other assets or groups of assets, in which case therecoverable amount is assessed as part of the cash-generating unit to which it belongs. Where thecarrying amount of an asset (or cash-generating unit) exceeds its recoverable amount, the asset (orcash-generating unit) is considered impaired and is written down to its recoverable amount. Inassessing value in use, the estimated future cash flows are discounted to their present value using apre-tax discount rate that reflects current market assessment of the time value of money and therisks specific to the asset (or cash-generating unit). An impairment loss is recognized in theconsolidated statement of income in the year in which it arises.

An assessment is made at each financial reporting date as to whether there is any indication thatpreviously recognized impairment losses may no longer exist or may have decreased. If suchindication exists, the assets or cash-generating unit’s recoverable amount is estimated. Apreviously recognized impairment loss is reversed only if there has been a change in theassumptions used to determine the asset’s recoverable amount since the last impairment loss wasrecognized. The reversal is limited so that the carrying amount of the asset does not exceed itsrecoverable amount, nor exceed the carrying amount that would have been determined, net ofdepreciation or amortization, had no impairment loss been recognized for the asset in prior years.Such reversal is recognized in the consolidated statement of income.

Goodwill. Goodwill is reviewed for impairment at least annually regardless whether impairmentindicators are present or more frequently if events or changes in circumstances indicate that thecarrying value may be impaired.

Impairment is determined for goodwill by assessing the recoverable amount of the cash-generatingunit (or group of cash-generating units) to which the goodwill relates. Where the recoverableamount of the cash-generating unit (or group of cash-generating units) is less than the carryingamount of the cash-generating unit (or group of cash-generating units) to which goodwill has beenallocated, an impairment loss is recognized immediately in the consolidated statement of income.

Impairment loss relating to goodwill cannot be reversed for subsequent increases in its recoverableamount in future periods. The Group performs its annual impairment test of goodwill atDecember 31 of each year.

Investments in Associates and a Joint Venture. The Group determines whether it is necessary torecognize an impairment loss on its investments in associates and a joint venture. The Groupdetermines at each financial reporting date whether there is any objective evidence that theinvestments are impaired. If this is the case, the Group calculates the amount of impairment asbeing the difference between the recoverable value of the associate or joint venture and thecarrying amount of investment and recognizes the amount of impairment loss in the consolidatedstatement of income.

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Borrowing CostsBorrowing costs are capitalized if they are directly attributable to the acquisition, construction orproduction of qualifying assets until such time that the assets are substantially ready for theirintended use or sale, which necessarily takes a substantial period of time. Capitalization ofborrowing costs commences when the activities to prepare the asset are in progress andexpenditures and borrowing costs are being incurred. Borrowing costs are capitalized until theasset is substantially ready for its intended use. If the resulting carrying amount of the assetexceeds its recoverable amount, an impairment loss is recognized in the consolidated statement ofincome. All other borrowing costs are expensed in the year they occur.

ProvisionsProvisions are recognized when the Group has a present obligation (legal or constructive): (a) as aresult of a past event, (b) it is probable that an outflow of resources embodying economic benefitswill be required to settle the obligation, and (c) a reliable estimate can be made of the amount ofthe obligation. Where the Group expects some or all of the provision to be reimbursed, forexample, under an insurance contract, the reimbursement is recognized as a separate asset but onlywhen the reimbursement is virtually certain. The expense relating to any provision is recognizedin the consolidated statement of income, net of any reimbursement. If the effect of the time valueof money is material, provisions are determined by discounting the expected future cash flows at apre-tax rate that reflects current market assessment of the time value of money and, whereappropriate, the risks specific to the liability. Where discounting is used, the increase in theprovision due to the passage of time is recognized under the “Finance costs” account in theconsolidated statement of income.

The Group recognized provisions arising from legal and/or constructive obligation associated withthe cost of dismantling and removing an item of property, plant and equipment and restoring thesite where it is located. The obligation occurs either when the asset is acquired or as aconsequence of using the asset for the purpose of generating electricity during a particular year.Dismantling costs are provided at the present value of expected costs to settle the obligation usingestimated cash flows. The cash flows are discounted at a current pre-tax rate that reflects the risksspecific to the dismantling liability. The unwinding of the discount is expensed as incurred andrecognized in the consolidated statement of income under the “Finance costs” account. Theestimated future costs of dismantling are reviewed annually and adjusted, as appropriate. Changesin the estimated future costs or in the discount rate applied are added to or deducted from the costof the asset.

ContingenciesContingent liabilities are not recognized in the consolidated financial statements but are disclosedin the notes to consolidated financial statements unless the possibility of an outflow of resourcesembodying economic benefits is remote. Contingent assets are not recognized but are disclosed inthe notes to consolidated financial statements when an inflow of economic benefits is probable.

Capital Stock and Capital in Excess of Par ValueCapital stock is measured at par value for all shares issued. When the Group issues more than oneclass of stock, a separate class of stock is maintained for each class of stock and the number ofshares issued. Incremental costs incurred directly attributable to the issuance of new shares areshown in equity as deduction, net of tax, from proceeds when the stocks are sold at premium,otherwise such are expensed as incurred. Proceeds and/or fair value of considerations received inexcess of par value, if any, are recognized as capital in excess of par value.

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Treasury StockShares of FPH that are acquired by any of the Group entities are recorded at cost in the equitysection of the consolidated statement of financial position. No gain or loss is recognized on thepurchase, sale, re-issue or cancellation of the treasury stocks. Upon reissuance of treasury stocks,the excess of proceeds from reissuance over the cost of treasury stocks is credited to “Capital inexcess of par value.” However, if the cost of treasury stocks exceeds the proceeds fromreissuance, such excess is charged to “Capital in excess of par value” account but only to theextent of previously set up capital in excess of par for the same class of stock. Otherwise, this isdebited against the “Retained earnings” account.

Retained EarningsThe amount included in retained earnings includes net income attributable to the Group’s equityholders and reduced by dividends on capital stock. Dividends are recognized as a liability anddeducted from retained earnings when they are declared. Dividends for the year that are approvedafter the financial reporting date are dealt with as an event after the financial reporting date.

Dividends on Preferred and Common StocksThe Group may pay dividends in cash, property or by the issuance of shares of stock. Cashdividends are subject to the approval of the BOD, while property and stock dividends are subjectto approval by the BOD, at least two-thirds of the outstanding capital stock of the shareholders at ashareholders’ meeting called for such purpose (for stock dividends only), and by the PhilippineSEC. The Group may declare dividends only out of its unrestricted retained earnings.

Cash and property dividends on preferred and common stocks are recognized as liability anddeducted from retained earnings when declared.

Revenue RecognitionRevenue is recognized to the extent that it is probable that the economic benefits associated withthe transaction will flow to the Group and the amount of revenue can be measured reliably,regardless of when the payment is being made. Revenue is measured at the fair value of theconsideration received or receivable, taking into account contractually defined terms of paymentand excluding taxes or duty. The Group has concluded that it is the principal in all of its revenuearrangements since it is the primary obligor in all the revenue arrangements, has pricing latitudeand is also exposed to inventory and credit risks.

The following specific recognition criteria must also be met before revenue is recognized:

Sale of ElectricityRevenue from sale of electricity (in the case FGP and FGPC) is based on the respective PPAs ofFGP and FGPC. The PPAs qualify as leases on the basis that FGP and FGPC sell all of its outputto Meralco. These agreements call for a take-or-pay arrangement where payment is madeprincipally on the basis of the availability of the power plants and not on actual deliveries ofelectricity generated. These arrangements are determined to be operating leases as the significantportion of the risks and benefits of ownership of the assets are retained by FGP and FGPC.

Revenue from sale of electricity is composed of fixed capacity fees, fixed and variable operatingand maintenance fees, fuel, wheeling and pipeline charges, and supplemental fees. The portionrelated to the fixed capacity fees is considered as operating lease component and the same fees arerecognized on a straight-line basis, based on the actual Net Dependable Capacity (NDC) tested orproven, over the terms of the respective PPAs. Variable operating and maintenance fees, fuel,wheeling and pipeline charges and supplemental fees are recognized monthly based on the actualenergy delivered.

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In the case of EDC, GCGI and BGI, revenues from sale of electricity using geothermal energy isconsummated whenever the electricity generated by these companies is transmitted through thetransmission line designated by the buyer, for a consideration. Revenue from sale of electricity isbased on sales price. Sale of electricity using hydroelectric (in the case of FG Hydro) andgeothermal power (in the case of GCGI and BGI) is composed of generation fees from spot salesto the Wholesale Electricity Spot Market (WESM) and the Power Supply Agreement (PSA) withvarious electric companies and is recognized monthly based on the actual energy delivered.

Meanwhile, revenue from sale of electricity through ancillary services to the National GridCorporation of the Philippines (NGCP) is recognized monthly based on the capacity scheduledand/or dispatched and provided.

Real Estate

Sale of Condominium Units. The Group assesses whether it is probable that the economic benefitswill flow to the Group when the sales prices are collectible. Collectibility of the sales price isdemonstrated by the buyer’s commitment to pay, which in turn is supported by substantial initialand continuing investments that give the buyer a stake in the property sufficient that the risk ofloss through default motivates the buyer to honor its obligation to the seller. Collectibility is alsoassessed by considering factors such as the credit standing of the buyer, age and location of theproperty.

Revenue from sales of completed real estate projects is accounted for using the full accrualmethod. In accordance with Philippine Interpretation Committee Q&A No. 2006-01, thepercentage-of-completion method is used to recognize income from sales of projects where theGroup has material obligations under the sales contract to complete the project after the property issold, the equitable interest has been transferred to the buyer, construction is beyond preliminarystage (i.e., engineering and design work, execution of construction contracts, site clearance andpreparation, excavation, and completion of the building foundation are finished), and the costsincurred or to be incurred can be reliably measured. Under this method, revenue is recognized asthe related obligations are fulfilled, measured principally on the basis of the estimated completionof a physical proportion of the contract work.

If any of the criteria under the full accrual or percentage-of-completion method is not met, thedeposit method is applied until all the conditions for recording a sale are met. Pending recognitionof sale, cash received from buyers is recognized as deposits from pre-selling of condominiumunits.

Any excess of collections over the recognized receivables are presented as part of “Trade andother payables” account in the consolidated statement of financial position.

Cost of real estate sold is recognized consistent with the revenue recognition method applied.Cost of condominium units sold before completion of the development is determined on the basisof the acquisition cost of the land plus its full development costs, which include estimated costsfor future development works, as determined by in-house technical staff.

The cost of inventory recognized in profit or loss on disposal is determined with reference to thespecific costs incurred on the property, allocated to saleable area based on relative size and takesinto account the percentage of completion used for revenue recognition purposes.

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Contract costs include all direct materials and labor costs and those direct costs related to contractperformance. Expected losses on contracts are recognized immediately when it is probable that thetotal contract costs will exceed total contract revenue. Changes in contract performance, contractconditions and estimated profitability, including those arising from contract penalty provisions,and final contract settlements which may result in revisions to estimated costs and gross marginsare recognized in the year in which the changes are determined.

Other costs incurred during the pre-selling stage to sell real estate are capitalized as prepaid costs,and shown as part of prepaid expenses under “Other current assets” account in the consolidatedstatement of financial position, if they are directly associated with and their recovery is reasonablyexpected from the sale of real estate that are initially being accounted for as deposits. Capitalizedselling costs shall be charged to expense in the period in which the related revenue is recognizedas earned.

Lease. Lease income arising from operating leases on investment properties is accounted for on astraight-line basis over the lease terms or based on the terms of the lease, as applicable.

Cinema, Mall and Other Revenues. Revenue is recognized when services are rendered.

Sale of MerchandiseRevenue from the sale of merchandise is recognized when the significant risks and rewards ofownership of the goods have passed to the buyer, usually on delivery of the goods.

Contracts and Services

Revenue from Construction Contracts. Revenue is recognized based on the percentage ofcompletion method of accounting using surveys of work performed by professionally-qualifiedsurveyors to measure the stage of completion.

Contract costs include all direct materials, labor costs and indirect costs related to contractperformance. Changes in job performance, job conditions and estimated profitability includingthose arising from contract penalty provisions and final contract settlements, which may result inrevisions to estimated costs and gross margins, are recognized in the year in which the revisionsare determined.

Claims for additional contract revenues are recognized when negotiations have reached anadvanced stage such that it is probable that the customer will accept the claim; and the amount thatwill be accepted by the customer can be measured reliably. Variation orders are included incontract revenue when it is probable that the customer will approve the variation and the amountof revenue arising from the variation can be measured reliably.

Costs and estimated earnings in excess of amounts billed on uncompleted contracts accounted forunder the percentage of completion method are classified as “Costs and estimated earnings inexcess of billings on uncompleted contracts” in the consolidated statement of financial position.

Pipeline Services. Revenues from pipeline services are recognized when services are renderedusing base charges. Adjustments of billings for pipeline services over and above the base chargesare recorded at the time of settlement with shippers.

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Equity in Net Earnings (Losses) of Associates and Joint VenturesThe Group recognizes its share in the net income of associates and joint ventures proportionate tothe equity in the economic shares of such associates, in accordance with the equity method. If anassociate or a joint venture has outstanding cumulative preferred shares that are held by partiesother than the investor and are classified as equity, the Group computes its share in profits orlosses after adjusting for the dividends on such shares, whether or not the dividends have beendeclared.

Interest IncomeInterest income is recognized as the interest accrues (using the effective interest rate, which is therate that exactly discounts estimated future cash receipts through the expected life of the financialinstrument to the net carrying amount of the financial asset), taking into account the effective yieldon the asset.

DividendsDividend income is recognized when the Group’s right to receive the payment is established.

Expense RecognitionExpenses are decreases in economic benefits during the accounting period in the form of outflowsor decrease of assets or incurrence of liabilities that result in decrease in equity, other than thoserelating to distributions to equity participants, and are recognized when these are incurred.

Cost of Sale of ElectricityThese include expenses incurred by the departments directly responsible for the generation ofrevenues from steam, electricity and performance of drilling services (i.e., Plant Operations,Production, Maintenance, Transmission and Dispatch, Wells Drilling and MaintenanceDepartment) at operating project locations in the case of EDC. This account also includes thecosts incurred by FGPC and FGP, particularly fuel cost, power plant operations and maintenance,and depreciation and amortization, which are necessary expenses incurred to generate the revenuesfrom sale of electricity. These are expensed when incurred.

Foreign Currency TranslationsThe consolidated financial statements are presented in Philippine peso, which is FPH’s functionaland presentation currency. All subsidiaries and associates evaluate their primary economic andoperating environment and, determine their functional currency and items included in the financialstatements of each entity are initially measured using that functional currency.

Transactions and Balances. Transactions in foreign currencies are initially recorded in thefunctional currency rate prevailing on the period of the transaction. Monetary assets and liabilitiesdenominated in foreign currency are re-translated at the functional currency spot rate of exchangeprevailing at the financial reporting date.

All differences are recognized in the consolidated statement of income. Nonmonetary items thatare measured in terms of historical cost in a foreign currency are translated using the exchangerates as at the dates of the initial transactions. Nonmonetary items measured at fair value in aforeign currency are translated using the exchange rates at the date when the fair value wasdetermined.

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Group Companies. The financial statements of the consolidated subsidiaries and associates withfunctional currency other than the Philippine peso are translated to Philippine peso as follows:

§ Assets and liabilities using the spot rate of exchange prevailing at the financial reporting date;§ Components of equity using historical exchange rates; and§ Income and expenses using the monthly weighted average exchange rate.

The exchange differences arising on the translation are recognized as other comprehensive income(loss). Upon disposal of any of these subsidiaries and associates, the deferred cumulative amountrecognized in other comprehensive income (loss) relating to that particular subsidiary or associatewill be recognized in the consolidated statement of income.

LeasesThe determination of whether an arrangement is, or contains, a lease is based on the substance ofthe arrangement and requires an assessment of whether the fulfillment of the arrangement isdependent on the use of a specific asset or assets and the arrangement conveys a right to use theasset.

A reassessment is made after inception of the lease only if one of the following applies:

a. there is a change in contractual terms, other than a renewal or extension of the arrangement;b. a renewal option is exercised or extension granted, unless that term of the renewal or

extension was initially included in the lease term;c. there is a change in the determination of whether fulfillment is dependent on a specified

asset; ord. there is a substantial change to the asset.

Where a reassessment is made, lease accounting will commence or cease from the date when thechange in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) above, and at thedate of renewal or extension period for scenario (b).

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset areclassified as operating leases. In cases where the Group acts as a lessee, operating lease paymentsare recognized as expense in the consolidated statement of income on a straight-line basis over thelease term. In cases where the Group is a lessor, the initial direct costs incurred in negotiating anoperating lease are added to the carrying amount of the leased asset and recognized over the leaseterm on the same bases as rental income. Contingent rents are recognized as revenue in the year inwhich they are earned.

Retirement CostsFPH and certain of its subsidiaries have distinct funded, noncontributory defined benefitretirement plans. The plans cover all permanent employees, each administered by their respectiveretirement committee.

The net defined benefit liability or asset is the aggregate of the present value of the defined benefitobligation at the end of the reporting period reduced by the fair value of plan assets (if any),adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceilingis the present value of any economic benefits available in the form of refunds from the plan orreductions in future contributions to the plan.

The cost of providing benefits under the defined benefit plans is actuarially determined using theprojected unit credit method.

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Defined benefit costs comprise the following:

a. Service costb. Net interest on the net defined benefit liability or asset

Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in profit or loss. Past service costs are recognizedwhen plan amendment or curtailment occurs. These amounts are calculated periodically byindependent qualified actuaries.

Net interest on the net defined benefit liability or asset is the change during the period in the netdefined benefit liability or asset that arises from the passage of time which is determined byapplying the discount rate based on government bonds to the net defined benefit liability or asset.Net interest on the net defined benefit liability or asset is recognized as expense or income inprofit or loss.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change inthe effect of the asset ceiling (excluding net interest on defined benefit liability) are recognizedimmediately in other comprehensive income in the period in which they arise. Remeasurementsare not reclassified to profit or loss in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurancepolicies. Plan assets are not available to the creditors of the Group, nor can they be paid directlyto the Group. Fair value of plan assets is based on market price information. When no marketprice is available, the fair value of plan assets is estimated by discounting expected future cashflows using a discount rate that reflects both the risk associated with the plan assets and thematurity or expected disposal date of those assets (or, if they have no maturity, the expectedperiod until the settlement of the related obligations). If the fair value of the plan assets is higherthan the present value of the defined benefit obligation, the measurement of the resulting definedbenefit asset is limited to the present value of economic benefits available in the form of refundsfrom the plan or reductions in future contributions to the plan.

The Group’s right to be reimbursed of some or all of the expenditure required to settle a definedbenefit obligation is recognized as a separate asset at fair value when and only whenreimbursement is virtually certain.

Termination BenefitTermination benefits are employee benefits provided in exchange for the termination of anemployee’s employment as a result of either an entity’s decision to terminate an employee’semployment before the normal retirement date or an employee’s decision to accept an offer ofbenefits in exchange for the termination of employment.

A liability and expense for a termination benefit is recognized at the earlier of when the entity canno longer withdraw the offer of those benefits and when the entity recognizes related restructuringcosts. Initial recognition and subsequent changes to termination benefits are measured inaccordance with the nature of the employee benefit, as either post-employment benefits, short-term employee benefits, or other long-term employee benefits.

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Employee Leave EntitlementEmployee entitlements to annual leave are recognized as a liability when they are accrued to theemployees. The undiscounted liability for leave expected to be settled wholly before twelvemonths after the end of the annual reporting period is recognized for services rendered byemployees up to the end of the reporting period.

Share-based Payment TransactionsCertain employees (including senior executives) of FPH, First Gen group, Rockwell and FirstBalfour, Inc. receive remuneration in the form of share-based payment transactions. Under suchcircumstance, the employees render services in exchange for shares or rights over shares (“equity-settled transactions”).

The cost of equity-settled transactions with employees is measured by reference to the fair valueof the stock options at the date the option is granted. The fair value is determined using the Black-Scholes-Merton Option Pricing Model. In valuing equity-settled transactions, no account is takenof any performance conditions, other than conditions linked to the price of the shares of FPH(“market conditions”), if applicable.

The cost of equity-settled transactions is recognized, together with a corresponding increase inequity, over the period in which the performance and/or service conditions are fulfilled, ending onthe date on which the relevant employees become fully entitled to the award (“the vesting date”).

The cumulative expense recognized for equity-settled transactions at each financial reporting dateuntil the vesting date reflects the extent to which the vesting period has expired and the Group’sbest estimate of the number of equity instruments that will ultimately vest at that date. The chargeor credit to the consolidated statement of income for a period represents the movement incumulative expense recognized as of the beginning and end of that year.

No expense is recognized for awards that do not ultimately vest, except for awards where vestingis conditional upon a market condition, which are treated as vesting irrespective of whether or notthe market condition is satisfied, provided that all other performance conditions are satisfied.

Where the terms of an equity-settled award are modified, the minimum expense recognized is theexpense as if the terms had not been modified, if the original terms of the award are met. Anadditional expense is recognized for any modification that increases the total fair value of theshare-based payment transaction, or is otherwise beneficial to the employee as measured at thedate of modification.

Where an equity-settled award is cancelled with payment, it is treated as if it had vested on thedate of cancellation, and any expense not yet recognized for the award is recognized immediately.This includes any award where non-vesting conditions within the control of either the entity or thecounterparty not met. However, if a new award is substituted for the cancelled award, anddesignated as a replacement award on the date that it is granted, the cancelled and new awards aretreated as if they were modifications of the original award, as described in the foregoing.

Income Tax

Current Income Tax. Current income tax assets and liabilities for the current year are measured atthe amount expected to be recovered from or paid to the taxation authority. The tax rates and taxlaws used to compute the amount are those that are enacted or substantially enacted as at thefinancial reporting date.

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Deferred Tax. Deferred tax is provided using the balance sheet liability method on temporarydifferences as at the financial reporting date between the tax bases of assets and liabilities andtheir carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

§ Where the deferred tax liability arises from the initial recognition of goodwill or of an asset orliability in a transaction that is not a business combination and, at the time of the transaction,affects neither the accounting profit nor taxable profit or loss; and

§ In respect of taxable temporary differences associated with investments in subsidiaries,associates and interests in joint ventures, where the timing of the reversal of the temporarydifferences can be controlled and it is probable that the temporary differences will not reversein the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, carry-forward ofunused tax credits from excess minimum corporate income tax (MCIT) over the regular incometax and unused net operating loss carryover (NOLCO), to the extent that it is probable that taxableprofit will be available against which the deductible temporary differences, the carry-forward ofunused tax credits from MCIT and unused NOLCO can be utilized. Deferred income tax,however, is not recognized:

§ where the deferred tax asset relating to the deductible temporary difference arises from theinitial recognition of an asset or liability in a transaction that is not a business combinationand, at the time of the transaction, affects neither the accounting profit nor taxable profit orloss; and

§ in respect of deductible temporary differences associated with investments in subsidiaries andassociates, deferred tax assets are recognized only to the extent that it is probable that thetemporary differences will reverse in the foreseeable future and taxable profit will be availableagainst which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each financial reporting date andreduced to the extent that it is no longer probable that sufficient taxable profit will be available toallow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets arereassessed at each financial reporting date and are recognized to the extent that it has becomeprobable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax relating to items recognized outside profit or loss is recognized outside of profit orloss. Deferred tax items are recognized in correlation to the underlying transaction either in othercomprehensive income or directly in equity.

Deferred tax assets and liabilities are offset, if a legally enforceable right exists to set off currenttax assets against current tax liabilities and the deferred taxes relate to the same taxable entity andthe same taxation authority.

Earnings per Share (EPS)Basic EPS is calculated by dividing the net income (less preferred dividends, if any) for the yearattributable to common shareholders by the weighted average number of common sharesoutstanding during the year, with retroactive adjustment for any stock dividends or stock splitsdeclared during the year.

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Diluted EPS is calculated in the same manner, adjusted for the effects of the outstanding stockoptions under FPH’s Executive Stock Option Plan (ESOP). Outstanding stock options will havedilutive effect under the treasury stock method only when the average market price of theunderlying common share during the period exceeds the exercise price of the option.

Where the EPS effect of the assumed exercise of outstanding options has anti-dilutive effect,diluted EPS is presented the same as basic EPS with a disclosure that the effect of the exercise ofthe instruments is anti-dilutive.

Segment ReportingFor purposes of management reporting, the Group is organized and managed separately accordingto the nature of the products and services provided, with each segment representing a strategicbusiness unit. Such business segments are the bases upon which the Group reports its primarysegment information.

Financial information on business segments is presented in Note 4 to the consolidated financialstatements. The Group has one geographical segment and derives principally all its revenues fromdomestic operations.

Discontinued OperationsDiscontinued operations are excluded from the results of continuing operations and are presentedas a single amount as net income (loss) from discontinued operations in the consolidatedstatement of income.

Events After the Financial Reporting DatePost year-end events that provide additional information about the Group’s financial position atthe financial reporting date (adjusting events) are reflected in the consolidated financialstatements. Post year-end events that are not adjusting events are disclosed in the notes toconsolidated financial statements when material.

Future Changes in Accounting PoliciesThe following are the new and revised accounting standards and interpretations that will becomeeffective subsequent to December 31, 2013. Except as otherwise indicated, the Group does notexpect the adoption of these new and amended PAS, PFRS and Philippine interpretations to haveany significant impact on its consolidated financial statements.

New and Amended Standards

§ Investment Entities (Amendments to PFRS 10, PFRS 12 and PAS 27). These amendments areeffective for annual periods beginning on or after January 1, 2014. They provide an exceptionto the consolidation requirement for entities that meet the definition of an investment entityunder PFRS 10. The exception to consolidation requires investment entities to account forsubsidiaries at fair value through profit or loss. It is not expected that this amendment wouldbe relevant to the Group since none of the entities in the Group would qualify to be aninvestment entity under PFRS 10.

§ Philippine Interpretation IFRIC 21, Levies (IFRIC 21). IFRIC 21 clarifies that an entityrecognizes a liability for a levy when the activity that triggers payment, as identified by therelevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold,the interpretation clarifies that no liability should be anticipated before the specified minimumthreshold is reached. IFRIC 21 is effective for annual periods beginning on or after January 1,2014. The Group does not expect that IFRIC 21 will have material financial impact in futurefinancial statements.

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§ PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives andContinuation of Hedge Accounting (Amendments). These amendments provide relief fromdiscontinuing hedge accounting when novation of a derivative designated as a hedginginstrument meets certain criteria. These amendments are effective for annual periodsbeginning on or after January 1, 2014. The Group has not novated its derivatives during thecurrent period. However, these amendments would be considered for future novations.

§ PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and FinancialLiabilities (Amendments). The amendments clarify the meaning of “currently has a legallyenforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria tosettlement systems (such as central clearing house systems) which apply gross settlementmechanisms that are not simultaneous. The amendments affect presentation only and have noimpact on the Group’s financial position or performance. The amendments to PAS 32 are tobe retrospectively applied for annual periods beginning on or after January 1, 2014.

§ PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions (Amendments).The amendments apply to contributions from employees or third parties to defined benefitplans. Contributions that are set out in the formal terms of the plan shall be accounted for asreductions to current service costs if they are linked to service or as part of theremeasurements of the net defined benefit asset or liability if they are not linked to service.Contributions that are discretionary shall be accounted for as reductions of current service costupon payment of these contributions to the plans. The amendments to PAS 19 are to beretrospectively applied for annual periods beginning on or after July 1, 2014.

§ Annual Improvements to PFRSs (2010-2012 cycle)The Annual Improvements to PFRSs (2010-2012 cycle) contain non-urgent but necessaryamendments to the following standards:

− PFRS 2, Share-based Payment - Definition of Vesting Condition. The amendment revisedthe definitions of vesting condition and market condition and added the definitions ofperformance condition and service condition to clarify various issues. This amendmentshall be prospectively applied to share-based payment transactions for which the grantdate is on or after July 1, 2014.

− PFRS 3, Business Combinations - Accounting for Contingent Consideration in a BusinessCombination. The amendment clarifies that a contingent consideration that meets thedefinition of a financial instrument should be classified as a financial liability or as equityin accordance with PAS 32. Contingent consideration that is not classified as equity issubsequently measured at fair value through profit or loss whether or not it falls within thescope of PFRS 9 (or PAS 39, if PFRS 9 is not yet adopted). The amendment shall beprospectively applied to business combinations for which the acquisition date is on orafter July 1, 2014. The Group shall consider this amendment for future businesscombinations.

− PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation ofthe Total of the Reportable Segments’ Assets to the Entity’s Assets. The amendmentsrequire entities to disclose the judgment made by management in aggregating two or moreoperating segments. This disclosure should include a brief description of the operatingsegments that have been aggregated in this way and the economic indicators that havebeen assessed in determining that the aggregated operating segments share similareconomic characteristics. The amendments also clarify that an entity shall providereconciliations of the total of the reportable segments’ assets to the entity’s assets if such

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amounts are regularly provided to the chief operating decision maker. These amendmentsare effective for annual periods beginning on or after July 1, 2014 and are appliedretrospectively. The amendments affect disclosures only and have no impact on theGroup’s financial position or performance.

− PFRS 13, Fair Value Measurement - Short-term Receivables and Payables. Theamendment clarifies that short-term receivables and payables with no stated interest ratescan be held at invoice amounts when the effect of discounting is immaterial.

− PAS 16, Property, Plant and Equipment - Revaluation Method - ProportionateRestatement of Accumulated Depreciation. The amendment clarifies that, uponrevaluation of an item of property, plant and equipment, the carrying amount of the assetshall be adjusted to the revalued amount, and the asset shall be treated in one of thefollowing ways:

a. The gross carrying amount is adjusted in a manner that is consistent with therevaluation of the carrying amount of the asset. The accumulated depreciation at thedate of revaluation is adjusted to equal the difference between the gross carryingamount and the carrying amount of the asset after taking into account anyaccumulated impairment losses.

b. The accumulated depreciation is eliminated against the gross carrying amount of theasset.

The amendment is effective for annual periods beginning on or after July 1, 2014. Theamendment shall apply to all revaluations recognized in annual periods beginning on orafter the date of initial application of this amendment and in the immediately precedingannual period. The amendment has no impact on the Group’s financial position orperformance.

− PAS 24, Related Party Disclosures - Key Management Personnel. The amendmentsclarify that an entity is a related party of the reporting entity if the said entity, or anymember of a group for which it is a part of, provides key management personnel servicesto the reporting entity or to the parent company of the reporting entity. The amendmentsalso clarify that a reporting entity that obtains management personnel services fromanother entity (also referred to as management entity) is not required to disclose thecompensation paid or payable by the management entity to its employees or directors.The reporting entity is required to disclose the amounts incurred for the key managementpersonnel services provided by a separate management entity. The amendments areeffective for annual periods beginning on or after July 1, 2014 and are appliedretrospectively. The amendments affect disclosures only and have no impact on theGroup’s financial position or performance.

− PAS 38, Intangible Assets - Revaluation Method - Proportionate Restatement ofAccumulated Amortization. The amendments clarify that, upon revaluation of anintangible asset, the carrying amount of the asset shall be adjusted to the revalued amount,and the asset shall be treated in one of the following ways:

a. The gross carrying amount is adjusted in a manner that is consistent with therevaluation of the carrying amount of the asset. The accumulated amortization at thedate of revaluation is adjusted to equal the difference between the gross carryingamount and the carrying amount of the asset after taking into account anyaccumulated impairment losses.

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b. The accumulated amortization is eliminated against the gross carrying amount of theasset.

The amendments also clarify that the amount of the adjustment of the accumulatedamortization should form part of the increase or decrease in the carrying amountaccounted for in accordance with the standard.

The amendments are effective for annual periods beginning on or after July 1, 2014. Theamendments shall apply to all revaluations recognized in annual periods beginning on orafter the date of initial application of this amendment and in the immediately precedingannual period. The amendments have no impact on the Group’s financial position orperformance.


− PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Meaning of‘Effective PFRSs’. The amendment clarifies that an entity may choose to apply either acurrent standard or a new standard that is not yet mandatory, but that permits earlyapplication, provided either standard is applied consistently throughout the periodspresented in the entity’s first PFRS financial statements. This amendment is notapplicable to the Group as it is not a first-time adopter of PFRS.

− PFRS 3, Business Combinations - Scope Exceptions for Joint Arrangements. Theamendment clarifies that PFRS 3 does not apply to the accounting for the formation of ajoint arrangement in the financial statements of the joint arrangement itself. Theamendment is effective for annual periods beginning on or after July 1, 2014 and isapplied prospectively. The amendment has no significant impact on the Group’s financialposition or performance.

− PFRS 13, Fair Value Measurement - Portfolio Exception. The amendment clarifies thatthe portfolio exception in PFRS 13 can be applied to financial assets, financial liabilitiesand other contracts. The amendment is effective for annual periods beginning on or afterJuly 1, 2014 and is applied prospectively. The amendment has no significant impact onthe Group’s financial position or performance.

− PAS 40, Investment Property. The amendment clarifies the interrelationship betweenPFRS 3 and PAS 40 when classifying property as investment property or owner-occupiedproperty. The amendment stated that judgment is needed when determining whether theacquisition of investment property is the acquisition of an asset or a group of assets or abusiness combination within the scope of PFRS 3. This judgment is based on theguidance of PFRS 3. This amendment is effective for annual periods beginning on orafter July 1, 2014 and is applied prospectively. The amendment has no significant impacton the Group’s financial position or performance.

− PFRS 9, Financial Instruments. PFRS 9, as issued, reflects the first and third phases ofthe project to replace PAS 39 and applies to the classification and measurement offinancial assets and liabilities and hedge accounting, respectively. Work on the secondphase, which relate to impairment of financial instruments, and the limited amendments tothe classification and measurement model is still ongoing, with a view to replace PAS 39in its entirety. PFRS 9 requires all financial assets to be measured at fair value at initial

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recognition. A debt financial asset may, if the fair value option (FVO) is not invoked, besubsequently measured at amortized cost if it is held within a business model that has theobjective to hold the assets to collect the contractual cash flows and its contractual termsgive rise, on specified dates, to cash flows that are solely payments of principal andinterest on the principal outstanding. All other debt instruments are subsequentlymeasured at fair value through profit or loss. All equity financial assets are measured atfair value either through OCI or profit or loss. Equity financial assets held for tradingmust be measured at fair value through profit or loss. For liabilities designated as atFVPL using the fair value option, the amount of change in the fair value of a liability thatis attributable to changes in credit risk must be presented in OCI. The remainder of thechange in fair value is presented in profit or loss, unless presentation of the fair valuechange relating to the entity’s own credit risk in OCI would create or enlarge anaccounting mismatch in profit or loss. All other PAS 39 classification and measurementrequirements for financial liabilities have been carried forward to PFRS 9, including theembedded derivative bifurcation rules and the criteria for using the FVO. The adoption ofthe first phase of PFRS 9 will have an effect on the classification and measurement of theCompany’s financial assets, but will potentially have no impact on the classification andmeasurement of financial liabilities.

On hedge accounting, PFRS 9 replaces the rules-based hedge accounting model ofPAS 39 with a more principles-based approach. Changes include replacing the rules-based hedge effectiveness test with an objectives-based test that focuses on the economicrelationship between the hedged item and the hedging instrument, and the effect of creditrisk on that economic relationship; allowing risk components to be designated as thehedged item, not only for financial items, but also for non-financial items, provided thatthe risk component is separately identifiable and reliably measurable; and allowing thetime value of an option, the forward element of a forward contract and any foreigncurrency basis spread to be excluded from the designation of a financial instrument as thehedging instrument and accounted for as costs of hedging. PFRS 9 also requires moreextensive disclosures for hedge accounting.

PFRS 9 currently has no mandatory effective date. PFRS 9 may be applied before thecompletion of the limited amendments to the classification and measurement model andimpairment methodology. The Group will not adopt the standard before the completion ofthe limited amendments and the second phase of the project.

− Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate. Thisinterpretation covers accounting for revenue and associated expenses by entities thatundertake the construction of real estate directly or through subcontractors. The SEC andthe Financial Reporting Standards Council (FRSC) have deferred the effectivity of thisinterpretation until the final Revenue standard is issued by the International AccountingStandards Board (IASB) and an evaluation of the requirements of the final Revenuestandard against the practices of the Philippine real estate industry is completed.Adoption of the interpretation will result in a change in the revenue and cost recognitionof the Company on sale of condominium units and accounting for certain pre-sellingcosts.

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3. Significant Accounting Judgments and Estimates

The preparation of the consolidated financial statements requires the Group’s management tomake judgments, estimates and assumptions that affect the amounts reported of revenues,expenses, assets and liabilities, and the disclosure of contingent assets and liabilities, at thefinancial reporting date. However, uncertainty about these assumptions and estimates could resultin outcomes that require a material adjustment to the carrying amount of the asset and liabilityaffected in future years.

In the process of applying the Group’s accounting policies, management has made the followingjudgments, which have the most significant effect on the amounts recognized in the consolidatedfinancial statements.

Judgments

Determination of Functional Currency. The consolidated financial statements are presented inPhilippine Peso, which is the Parent Company’s functional currency. Each entity or subsidiary inthe Company determines its own functional currency and measures items included in theirfinancial statements using that functional currency. Transactions in foreign currencies are initiallyrecorded at the functional currency prevailing at the date of transaction. Monetary assets andmonetary liabilities denominated in foreign currencies are translated at the closing rate ofexchange prevailing at financial reporting date. Non-monetary items that are measured in terms ofhistorical cost in a foreign currency are translated using the exchange rates as at the dates of theinitial transactions.

Non-monetary items measured at fair value in a foreign currency are translated using the exchangerates at the date when the fair value was determined. Foreign exchange differences between therate at transaction date and the rate at settlement date or financial reporting date are recognized inthe consolidated statement of income.

The Philippine peso is the currency of the primary economic environment in which FPH and allother subsidiaries and associates, except for the following:

Subsidiary Functional CurrencyFirst Gen Corporation United States dollarFirst Sumiden Realty Inc. - do -BPPC - do -First Philippine Solar Corp. - do -FGHC International - do -FPH Fund - do -First PV - do -First Philippine Nexolon Corp. - do -EHIL - do -EDC HKL Hong Kong dollarEDC Chile Holdings SPA Chilean pesoEDC Geotermica Chile - do -EDC Chile Limitada - do -EDC Peru Holdings S.A.C. Peruvian nuevo solEDC Geotermica Peru S.A.C. - do -EDC Quellaapacheta - do -PT EDC Indonesia Indonesian rupiahPT EDC Panas Bumi Indonesia - do -

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For subsidiaries whose functional currency is different from the presentation currency, the Grouptranslates the results of their operations and financial position into the presentation currency. Asat the financial reporting date, the assets and liabilities presented (including comparatives) aretranslated into the presentation currency at the closing rate of exchange prevailing at the financialreporting date while the capital stock and other equity balances are translated at historical rates ofexchange. The income and expenses for the consolidated statement of income presented(including comparatives) are translated at the exchange rates at the dates of the transactions, wheredeterminable, or at the weighted average rate of exchange during the year. The exchangedifferences arising on the translation to the presentation currency are recognized as a separatecomponent of equity under the “Cumulative translation adjustment” account in the consolidatedstatement of financial position.

Deferred Revenue on Stored Energy. Under its addendum agreements with National PowerCorporation (NPC), the EDC has a commitment to NPC with respect to certain volume of storedenergy that NPC may lift for a specified period, provided that EDC is able to generate such energyover and above the nominated energy for each given year in accordance with the related PPAs.EDC has made a judgment based on historical information that the probability of future liftings byNPC from the stored energy is remote and accordingly has not deferred any portion of thecollected revenues. The stored energy commitments are, however, disclosed in Note 34 to theconsolidated financial statements.

Operating Lease Commitments - the Group as Lessor. The respective PPAs of FGP and FGPCqualify as leases on the basis that FGP and FGPC sell all of their output to Meralco. Theseagreements call for a take-or-pay arrangement where payment is made principally on the basis ofthe availability of the power plants and not on actual deliveries of electricity generated. Theselease arrangements are determined to be operating leases as the significant portion of the risks andbenefits of ownership of the assets are retained by FGP and FGPC. Accordingly, the power plantassets are recorded as part of property, plant and equipment and the fixed capacity fees billed toMeralco are recorded as operating revenues on straight-line basis over the applicable terms of thePPAs (see Note 34).

In the case of EDC, its PPAs and SSAs qualify as a lease on the basis that EDC sells all its outputsto NPC/PSALM and, in the case of the SSAs, the agreement calls for a take-or-pay arrangementwhere payment is made principally on the basis of the availability of the steam field facilities andnot on actual steam deliveries. This type of arrangement is determined to be an operating leasewhere a significant portion of the risks and rewards of ownership of the assets are retained byEDC since it does not include transfer of EDC’s assets.

Accordingly, the steam field facilities and power plant assets are recorded as part of the cost ofproperty, plant and equipment and the capacity fees billed to NPC/PSALM are recorded asoperating revenue based on the terms of the PPAs and SSAs.

The Group has also entered into commercial property leases on its investment property portfolio.The Group has determined, based on an evaluation of the terms and conditions of thearrangements, that it retains all significant risks and rewards of ownership of these properties,which are leased out under operating lease arrangements (see Note 34).

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Consolidation of Entities in which the Group Holds Less than Majority of Voting Rights. Uponadoption of PFRS 10, management reassessed control of Prime Terracota and retrospectivelyconsolidated the financial statements of Prime Terracota Group, through First Gen, in theconsolidated financial statements. First Gen has control over Prime Terracota due to its ability todirect the relevant activities of Prime Terracota and Red Vulcan and to its exposure to variabilityin returns.

Interest in a Joint Arrangements. The Group has assessed that it has joint control in its jointarrangements and has assessed whether parties have rights to the net assets of the arrangement orto the specific assets. Under the Joint Venture Agreement, each party’s share in any proceeds,profits, losses, and other economic value derived under the Venture as well as any economicbenefits and losses derived from the utilization of the access ways and open spaces of the jointventure property shall be proportional to the respective financial contributions made by each party(see Notes 9, 13 and 18).

Transfers of Investment Properties. The Group has made transfers to investment properties afterdetermining that there is a change in use, evidenced by ending of owner-occupation,commencement of an operating lease to another party or ending of construction or development.Transfers are also made from investment properties when, and only when, there is a change in use,evidenced by commencement of owner-occupation or commencement of development with a viewto sale. These transfers are recorded using the carrying amount of the investment properties at thedate of change in use.

Transfers from investment properties to property, plant and equipment and inventories amounted toP=786 million and P=6 million in 2013 and 2012, respectively (see Notes 8, 12 and 14).

Discontinued Operations. In October 2012, EDC has completed its contract with Lihir Gold Ltd.(Lihir) in Papua New Guinea for the provision of drilling services. In line with its currentstrategy, EDC will no longer engage in drilling activities but will maintain its major business ofselling electricity. The management of EDC had considered that the drilling operations met thedefinition of discontinued operations, and as such, the operations and cash flows that can beclearly distinguished operationally and for financial reporting purposes from the rest of the Grouphas been terminated (see Note 5).

Classification of Financial Instruments. The Group exercises judgment in classifying a financialinstrument, or its component parts, on initial recognition as either a financial asset, a financialliability or an equity instrument in accordance with the substance of the contractual arrangementand the definition of a financial asset, a financial liability or an equity instrument. The substanceof a financial instrument, rather than its legal form, governs its classification in the consolidatedstatement of financial position (see Note 33).

Contingencies. The Group has possible claims from or obligation to other parties from past eventsand whose existence may only be confirmed by the occurrence or non-occurrence of one or moreuncertain future events not wholly within its control. Management has determined that the presentobligations with respect to contingent liabilities and claims with respect to contingent assets do notmeet the recognition criteria, and therefore has not recorded any such amounts (see Note 35).

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EstimatesThe key assumptions concerning the future and other key sources of estimation uncertainty at thereporting date, that have a significant risk of causing a material adjustment to the carryingamounts of assets and liabilities within the next financial year, are described below. The Groupbased its assumptions and estimates on parameters available when the consolidated financialstatements were prepared. Existing circumstances and assumptions about future developmentshowever, may change due to market changes or circumstances arising beyond the control of theGroup. Such changes are reflected in the assumptions when they occur.

Purchase Price Allocation in Business Combination. The acquisition method requires extensiveuse of accounting estimates and judgments to allocate the purchase price to the fair market valuesof the acquiree’s identifiable assets and liabilities at acquisition date.

The fair values of the net identifiable assets and liabilities and of previously held interest inRockwell Land as at acquisition date amounted to P=12,691 million and P=6,134 million,respectively. The total gain on business combination amounted to P=2,136 million(see Note 5).

Impairment of Non-financial Assets (i.e., Investments in Associates and a Joint Venture, Property,Plant and Equipment, Investment Properties, Concession Rights for Contracts Acquired, WaterRights, Pipeline Rights, Other Intangible Assets, Prepaid Major Spare Parts and Input VATclaims/tax credits). The Group assesses impairment of these non-financial assets whenever eventsor changes in circumstances indicate that the carrying amount of an asset may not be recoverable.The factors that the Group consider important, which could trigger an impairment review includethe following:

§ Significant under-performance relative to expected historical or projected future operatingresults;

§ Significant changes in the manner of use of the acquired assets or the strategy for overallbusiness; and

§ Significant negative industry and economic trends.

The Group recognizes an impairment loss whenever the carrying amount of an asset exceeds itsrecoverable amount, which is the higher of fair value less cost to sell and value-in-use. The fairvalue less cost to sell calculation is based on available data from binding sales transactions in anarm’s length transaction of similar assets or observable market prices less incremental costs fordisposing of the asset. The value in use calculation is based on a discounted cash flow modelwhich requires use of estimates of a suitable discount rate and expected future cash inflows.Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit to which the assets belong. In the case of Input VAT, where the collection of taxclaims is uncertain, the Group provides an allowance for impairment based on the assessment ofmanagement and the Group’s legal counsel.

The significant impairment losses on property, plant and equipment of the Group come from thefollowing subsidiaries.

a. FPNC and FPSC

As a result of the arbitration proceedings of FPNC against Nexolon Co. Ltd. (Nexolon) and ofFPSC against SunPower Manufacturing Ltd. (SPML), and the termination of their respectivesupply agreements, the consequences of which were exacerbated by the highly unfavorableconditions in the solar industry in 2012, the Group recognized an impairment loss of

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P=3,919 million in accordance with PAS 36, Impairment of Assets, which requires an entity toestimate the recoverable amount of the asset when there is any indication that an asset may beimpaired (see Notes 12 and 35). There were no indicators for impairment as at December2011.

b. EDC

In 2011, EDC’s NNGP assets were fully impaired. The recoverable amount of NNGP wasdetermined based on a value-in-use calculation using the expected cash flow projections. Thefive-year cash flow projections of EDC used for impairment testing were based on the budgetapproved by the senior management. EDC used the Perpetuity Growth Model to determinethe terminal value, which accounts for the value of free cash flows that continue in perpetuitybeyond the five-year period projection, growing at an assumed constant rate. The assumedgrowth rate was 4% in 2011, which did not exceed the average annual demand growth of 6%in 2011 for the Visayas power industry market where the unit operates. The pre-tax discountrate used was 10.1% computed based on the CGU’s weighted average cost of capital.

Based on the foregoing, the Group recorded an impairment loss of P=4,999 million in 2011included as part of “Impairment loss” account in the consolidated statements of income.

In February 2012, EDC transferred the vacuum pumps from NNGP to the Palinpinon PowerPlant owned by GCGI. Since these transferred assets were utilized and included in the CGUof the Palinpinon Power Plant, EDC recognized a corresponding reversal of impairment lossamounting to P=64 million representing the net book value of the assets transferred had noimpairment loss been previously recognized.

To utilize the remaining facilities and fixed assets of NNGP, the BOD of EDC approved inSeptember 2012 the transfer of the components of the power plant to Nasulo site in SouthernNegros. This project is expected to generate an incremental 20-25MW. The target date forthe start of commercial operations of the power plant in Nasulo is in 2014. As atDecember 31, 2013, certain NNGP assets have already been transferred from Northern Negrosto Nasulo. Management has assessed that the increase in the estimated service potential ofthese assets has not yet been established as the construction is still on-going and necessarytesting activities are yet to be conducted to determine whether the assets would function in thenew location as intended by management.

In addition to the above, EDC recorded a provision for impairment of input VAT ofP=36.2 million, net of reversal of P=78.7 million, P=196.1 million, and P=282.9 million in 2013,2012 and 2011, respectively (see Note 9).

The carrying amounts of the non-financial assets as at December 31, 2013 and 2012 are asfollows:

2013

2012(As Restated -

Note 2)(In Millions)

Property, plant and equipment (Note 12) P=96,236 P=85,726Investment properties (Note 14) 11,573 10,903Concession rights for contracts acquired

(Note 15) 4,158 4,745Investments in a joint venture (Note 13) 2,774 2,681

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2013

2012(As Restated -


Exploration and evaluation assets (Note 16) P=2,381 P=1,604Tax credit certificates (Notes 9 and 16) 2,316 2,185Water rights (Note 15) 1,719 1,816Prepaid major spare parts (Note 16) 741 2,808Pipeline rights (Note 15) 288 290Investments in associates (Note 10) 52 41Other intangible assets (Note 15) 145 468

Fair value of the investment properties amounted to P=13,438 million and P=11,834 million as atDecember 31, 2013 and 2012, respectively (see Note 14).

Impairment of Goodwill. The Group performs impairment review on goodwill on an annualbasis or more frequently if events or changes in circumstances indicate that the carrying valuemay be impaired. This requires an estimation of the value in use of the cash-generating unitsto which goodwill is allocated. Estimating the value in use requires us to make an estimate ofthe expected future cash flows from the cash-generating unit and also to choose a suitablediscount rate in order to calculate the present value of those cash flows.

No impairment loss on goodwill was recognized in the consolidated financial statements foreach of the three years in the period ended December 31, 2013. The carrying value ofgoodwill as at December 31, 2013 and 2012 amounted to P=48,028 million andP=47,997 million, respectively (see Note 15).

Impairment of Intangible Asset not-yet-Available-for-Use. EDC’s intangible asset not-yet-available-for-use as at December 31, 2012 pertains to its Burgos wind energy developmentcosts. EDC performs impairment review on this asset annually irrespective of whether there isany indication of impairment by comparing its carrying amount with its recoverable amount.This impairment review requires an estimation of the value-in-use of the CGUs to which theintangible asset would provide future cash flow. Estimating value-in-use requires EDC toestimate the expected future cash flows from the CGUs and discounts such cash flows usingweighted average cost of capital to calculate the present value of those future cash flows.

The recoverable amounts have been determined based on value-in-use calculation using cashflow projections based on financial projections by the Business Development Group of EDCcovering a 20-year period, which is based on the lower of the expected useful life of theturbines of 20 year and the existing 25-year service contract of the project (see Note 34). Thepre-tax discount rate applied to cash flow projections was 8.4% in 2012.

Following are the key assumptions used:

§ Feed-in Tariff (FIT) Rate

On July 27, 2012, the Energy Regulatory Commission approved the initial FIT rates thatshall apply to generation of electricity from renewable energy sources. Particularly, forwind energy, the approved FIT rate amounted to P=8.5 per kwh. Accordingly, this new FITrate was used in the impairment assessment of First Gen Group’s wind energy projectdevelopment costs. Prior to the issuance of the FIT rate, First Gen Group used a FIT rateof P=10.4 per kwh in its 2011 value-in-use estimates.

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§ Discount Rate

Discount rate reflects the current market assessment of the risk specific to each CGU. Thediscount rate is based on the average percentage of the weighted average cost of capitalfor the industry. This rate is further adjusted to reflect the market assessment of any riskspecific to the CGU for which future estimates of cash flows have not been adjusted.

§ Growth Rate

First Gen Group used a 40% growth rate based on the Philippine Consumer Price Index(CPI) and 60% growth rate based on the change in dollar to Peso exchange rate. This isconsistent with the Natural Resources and Environment Board’s proposed annual FITescalation rate. An annual 4% increase of CPI based on Philippine average inflationfactor as of 2012 and a steady dollar to Peso exchange rate for conservatism was assumed.

No impairment loss on intangible asset not-yet-available-for-use was recognized in theconsolidated financial statements. The carrying value of the intangible asset not-yet-availablefor-use amounted to P=468 million as at December 31, 2012 (see Note 15). In 2013, such assetwas reclassified to “Construction in progress” under “Property, plant and equipment” accountin the consolidated statement of financial position (see Note 12).

Impairment of Exploration and Evaluation Assets. Exploration and evaluation costs arerecognized as assets in accordance with PFRS 6, Exploration for and Evaluation of MineralResources. Capitalization of these costs is based, to a certain extent, on management’sjudgment of the degree to which the expenditure may be associated with finding specificgeothermal reserve. EDC determines impairment of projects based on the technicalassessment of its resident scientists in various disciplines or based on management’s decisionnot to pursue any further commercial development of its exploration projects. In 2013, EDChas assessed that its Cabalian geothermal project located in Southern Leyte is impaired due toissues on productivity and sustainability of geothermal resources in the area and hasrecognized an impairment loss of P=575 million. No impairment loss was recognized in 2012and 2011. As at December 31, 2013 and 2012, the carrying amount of capitalized explorationand evaluation costs amounted to P=2,381 million and P=1,604 million, respectively(see Note 16).

Estimating Useful Lives of Property, Plant and Equipment (except Land), InvestmentProperties, Concession Rights for Contracts Acquired, Water Rights and Pipeline Rights. TheGroup estimated the useful lives based on the periods over which the assets are expected to beavailable for use and on the collective assessment of industry practices, internal technicalevaluation and experience with similar assets and arrangements.

The estimated useful lives are reviewed at each financial reporting date and updated, ifexpectations differ from previous estimates due to physical wear and tear, technical orcommercial obsolescence and legal or other limits in the use of these assets. However, it ispossible that future results of operations could be materially affected by changes in theestimates brought about by changes in the aforementioned factors.

The amounts and timing of recording the depreciation and amortization for any year would beaffected by changes in these factors and circumstances. A reduction in the estimated usefullives would increase the depreciation and amortization and decrease the carrying value of theassets.

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There has been no change in the estimated useful lives of the assets in the years presented.The carrying values of the assets as at December 31, 2013 and December 31, 2012 are asfollows:

2013

2012(As Restated -


Property, plant and equipment (Note 12) P=96,236 P=85,726Investment properties (Note 14) 11,573 10,903Concession rights for contracts acquired

(Note 15) 4,158 4,745Water rights (Note 15) 1,719 1,816Pipeline rights (Note 15) 288 290

Impairment of Investments in Equity Securities. The Group considers investments in equitysecurities as impaired when there has been a significant or prolonged decline in the fair valueof such investments below their cost or where other objective evidence of impairment exists.The determination of what is “significant” or “prolonged” requires judgment. The Grouptreats “significant” generally as 20% or more and “prolonged” as greater than 12 months. Inaddition, the Group evaluates other factors, including normal volatility in share price forquoted equities and the future cash flows and the discount factors for unquoted equities.

The Group recognized impairment losses of P=149 and P=156 million on its investment in NarraVenture Capital II, L.P. (Narra Venture) in 2013 and 2012, respectively. No impairment losswas recognized in the consolidated financial statements for the years ended December 31,2011.

Investments in equity and debt securities are carried at P=12,255 million and P=12,862 millionas at December 31, 2013 and 2012, respectively (see Note 11).

Impairment of Loans and Receivables. The Group reviews its loans and receivables at eachfinancial reporting date to assess whether an allowance for impairment should be recorded inthe consolidated statement of income. In particular, judgment by management is required inthe estimation of the amount and timing of future cash flows when determining the level ofallowance required. Such estimates are based on assumptions about a number of factors andactual results may differ, resulting in future changes in the allowance.

The Group maintains an allowance for impairment of receivables at a level that managementconsiders adequate to provide for potential uncollectibility of its trade and other receivables.The Group evaluates specific balances where management has information that certainamounts may not be collectible. In these cases, the Group uses judgment, based on availablefacts and circumstances, and a review of the factors that affect the collectibility of theaccounts including, but not limited to, the age and status of the receivables, collectionexperience, and past loss experience.

The review is made by management on a continuing basis to identify accounts to be providedwith allowance. These specific reserves are re-evaluated and adjusted as additionalinformation received affects the amount estimated.

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In addition to specific allowance against individually significant receivables, the Group alsomakes a collective impairment allowance against exposures which, although not specificallyidentified as requiring a specific allowance, have a greater risk of default than when originallygranted. Collective assessment of impairment is made on a portfolio or group basis afterperforming a regular review of age and status of the portfolio/group of accounts relative tohistorical collections, changes in payment terms, and other factors that may affect ability tocollect payments.

Allowance for impairment loss on receivables amounted to P=283 million and P=279 million asat December 31, 2013 and 2012, respectively. The carrying amount of receivables amountedto P=26,610 million and P=18,616 million as at December 31, 2013 and 2012, respectively(see Note 7).

Estimating Net Realizable Value of Inventories. Inventories are presented at the lower of costor net realizable value. Estimates of net realizable value are based on the most reliableevidence available at the time the estimates are made, of the amount the inventories areexpected to realize. A review of the items of inventories is performed at each financialreporting date to reflect the accurate valuation of inventories in the consolidated financialstatements.

Inventories amounted to P=13,405 million and P=13,967 million as at December 31, 2013 and2012, respectively. Write down of inventories amounted to P=74 million and P=82 million in2013 and 2012, respectively (see Note 8).

Estimation of Retirement Benefit Liability. The cost of defined benefit pension plans andother post-employment medical benefits as well as the present value of the pension obligationare determined using actuarial valuations. The actuarial valuation involves making variousassumptions. These include the determination of the discount rates, future salary increases,mortality rates and future pension increases. Due to the complexity of the valuation, theunderlying assumptions and its long-term nature, defined benefit obligations are highlysensitive to changes in these assumptions. All assumptions are reviewed at each reportingdate.

In determining the appropriate discount rate, management considers the interest rates ofgovernment bonds that are denominated in the currency in which the benefits will be paid,with extrapolated maturities corresponding to the expected duration of the defined benefitobligation.

The mortality rate is based on publicly available mortality tables for the specific country andis modified accordingly with estimates of mortality improvements. Future salary increasesand pension increases are based on expected future inflation rates for the specific country.

See Note 27 to the consolidated financial statements for details of the assumptions used in thecalculation.

As at December 31, 2013 and 2012, the present value of retirement benefit liability of theGroup amounted to P=8,113 million and P=7,060 million, respectively. Carrying value ofretirement benefit asset as at December 31, 2013 and 2012 amounted to nil andP=829 million, respectively. Carrying value of retirement and other employee benefit liabilityas at December 31, 2013 and 2012 amounted to P=3,091 million and P=2,166 million,respectively (see Note 27).

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Estimation of Asset Retirement and Preservation Obligations. The asset retirement andpreservation obligations of the Group pertain to the following subsidiaries.

a. FGP, FGPC and FG Bukidnon

Under their respective Environmental Compliance Certificate (ECC) issued by theDepartment of Environmental and Natural Resources (DENR), FGP and FGPC have legalobligations to dismantle their power plant assets at the end of their useful lives. FGBukidnon, on the other hand, has a contractual obligation under the lease agreement withPower Sector Assets and Liabilities Management (PSALM) to dismantle its power plantassets at the end of the useful lives.

b. EDC

In 2009, with the conversion of its Geothermal Service Contracts (GSCs) to GeothermalRenewable Energy Service Contracts (GRESCs), EDC has made a judgment that theGRESCs are subject to the provision for restoration costs. In determining the amount ofprovisions for rehabilitation and restoration costs, assumptions and estimates are requiredin relation to the expected cost to rehabilitate and restore sites and infrastructure whensuch obligation exists.

c. FPIC

Asset preservation obligation of FPIC represents the net present value of obligationsassociated with the preservation of property and equipment that resulted from acquisition,construction or development and the normal operation of property and equipment. TheCompany commissions an independent party, as deemed appropriate, to initially estimateAPO. The provision recognized represents the best estimate of the expenditures requiredto preserve the assets similar with the requirement of asset retirement obligation. Suchcost estimates are discounted using a pre-tax rate of 6.0% which management assessed asreflective of current market assessments of the time value of money and the risks specificto the liability.

The asset retirement and preservation obligations recognized represent the best estimate of theexpenditures required to dismantle the power plants at the end of their useful lives and topreserve the property and equipment of FPIC. Such cost estimates are discounted using a pre-tax rate that reflects the current market assessment of the time value of money and the risksspecific to the liability. Each year, the asset retirement obligations are increased to reflect theaccretion of discount and to accrue an estimate for the effects of inflation, with the chargesbeing recognized under the “Interest expense and financing charges” account in theconsolidated statement of income. While it is believed that the assumptions used in theestimation of such costs are reasonable, significant changes in these assumptions maymaterially affect the recorded expense or obligations in future years.

Asset retirement and preservation obligations amounted to P=1,316 million and P=546 million asat December 31, 2013 and 2012, respectively (see Note 21).

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Recognition of Deferred Tax Assets. The carrying amounts of deferred tax assets at eachfinancial reporting date are reviewed and reduced to the extent that there are no longersufficient taxable profits available to allow all or part of the deferred tax assets to be utilized.The Group’s assessment of the recognition of deferred tax assets on deductible temporarydifferences, carry-forward benefits of MCIT and NOLCO is based on the forecasted taxableincome of the following reporting period. This forecast is based on the Group’s past resultsand future expectations on revenues and expenses.

As at December 31, 2013 and 2012, the amount of gross deferred tax assets recognized in theconsolidated statements of financial position amounted to P=2,126 million. Deductibletemporary differences and carry-forward benefits of NOLCO and MCIT for which no deferredtax asset has been recognized as at December 31, 2013 and 2012 amounted to P=14,168 millionand P=13,101 million, respectively (see Note 28).

Estimating Revenue and Cost of Real Estate Sales. Rockwell Land’s revenue and costrecognition policies require management to make use of estimates and assumptions that mayaffect the reported amounts of revenues and costs. Rockwell Land’s revenue from real estatecontracts recognized based on the percentage of completion method is measured principallyon the basis of the estimated completion of a physical proportion of the contract work. Cost ofreal estate sold is recognized consistent with the revenue recognition method applied. Cost ofcondominium units sold before completion of the project is determined based on actual costsand project estimates of building contractors and technical staff. At each financial reportingdate, these estimates are reviewed and revised to reflect the current conditions, whennecessary.

Revenues and costs from sale of condominium units of Rockwell Land amounted toP=6,844 and P=4,183 million in 2013 and P=4,653 million and P=3,096 million for the eightmonths ended December 31, 2012. Rockwell Land was accounted for under the equitymethod in 2011 (see Notes 5 and 10).

Fair Value of Financial Instruments. Certain financial assets and financial liabilities arerequired to be carried at fair value, which requires the use of accounting estimates andjudgment. While significant components of fair value measurement are determined usingverifiable objective evidence (i.e., foreign exchange rates, interest rates and volatility rates),the timing and amount of changes in fair value would differ with the valuation methodologyused. Any changes in the fair value of these financial assets and financial liabilities woulddirectly affect consolidated profit and loss and consolidated equity.

When the fair values of financial assets and financial liabilities recorded in the consolidatedstatement of financial position cannot be derived from active markets, they are determinedusing a variety of valuation techniques that include the use of mathematical models. Theinputs to these models are taken from observable markets where possible, but when this is notfeasible, a degree of judgment is required in establishing fair values. The judgments includeconsiderations of liquidity and model inputs such as correlation and volatility for longer datedfinancial instruments.

Fair values of the Group’s financial assets and liabilities are set out in Note 33 of theconsolidated financial statements.

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Legal Contingencies and Regulatory Assessments. The Group is involved in various legalproceedings and regulatory assessments as discussed in Note 35. The Group has developedestimates of probable costs for the resolution of possible claims in consultation with theexternal counsels handling the Group’s defense for various legal proceedings and regulatoryassessments and is based upon an analysis of potential results.

The Group, in consultation with its external legal counsel, does not believe that theseproceedings will have a material adverse effect on the consolidated financial statements.However, it is possible that future results of operations could be materially affected bychanges in the estimates or the effectiveness of management’s strategies relating to theseproceedings.

As at December 31, 2013 and 2012, provisions for these liabilities amounting to P=654 millionand P=505 million, respectively, are recorded under “Trade and other payables” account(specifically under “Other payables”) (see Note 18) and “Noncurrent liabilities” account(presented as “Provisions” (see Note 22).

Shortfall GenerationEDC’s PPA with NPC requires the annual nomination of capacity that EDC shall deliver toNPC. EDC bills NPC based on the nominated capacity. At the end of the contract year,EDC’s fulfillment of the nominated capacity shall be determined and any shortfall would bereimbursed to NPC. The contract year for the Unified Leyte PPA is for fiscal period endingJuly 25 while the contract year for the Mindanao I and II PPAs is for fiscal period endingDecember 25 (see Note 34). Assessment is made at every reporting date whether thenominated capacity would be met based on management’s projection of electricity generationcovering the entire contract year. If the occurrence of shortfall generation is determined to beprobable, the amount of estimated reimbursement to NPC is accounted for as a deduction torevenue for the period and a corresponding liability is recognized. As at December 31, 2013and 2012, the Company’s estimated liability arising from shortfall generation amounted toP=263 million and P=431 million, respectively, shown under the “Trade and other payables”account (see Note 18).

4. Operating Segment Information

Operating segments are components of the Group that engage in business activities from whichthey may earn revenues and incur expenses, whose operating results are regularly reviewed by theGroup’s chief operating decision-maker (the BOD) to make decisions about how resources are tobe allocated to the segment and assess their performances, and for which discrete financialinformation is available.

The Group’s operating businesses are organized and managed separately according to the natureof the products and services, with each segment representing a strategic business unit that offersdifferent products and serves different markets.

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The Group conducts majority of its business activities in the following areas:

§ Power generation – power generation subsidiaries under First Gen§ Real estate development – residential and commercial real estate development and leasing of

Rockwell Land and FPRC, and sale of industrial lots and ready-built factories by FPIP. Realestate segment was not a separate reportable segment in 2011.

§ Manufacturing – manufacturing subsidiaries under First Philec§ Others – investment holdings, oil transporting company, construction, securities transfer

services and financing

Segment income is evaluated based on net income and is measured consistently with net income inthe consolidated statements of income. Segment revenue, segment expenses and segmentperformance include transfers between business segments. The transfers are accounted for atcompetitive market prices charged to unrelated customers for similar products. Such transfers areeliminated in consolidation.

The operations of these business segments are substantially in the Philippines. First Gen’srevenues are substantially generated from sale of electricity to Meralco, the sole customer of FGPand FGPC; while close to 47.9% of EDC’s total revenues are derived from existing long-termPPAs with NPC. Total revenues from sale of electricity to Meralco amounted to P=54,848 million,P=56,845 million and P=58,040 million in 2013, 2012 and 2011, respectively, which account formore than 10% of the Group’s consolidated revenues.

Financial information about the business segments follows:

2013

PowerGeneration Manufacturing

Real EstateDevelopment

InvestmentHoldings,

Construction,and Others Eliminations Consolidated

(In Millions)

Revenues: External sales P=80,389 P=1,722 P=8,005 P=3,192 P=– P=93,308 Inter-segment sales – – – 2,050 (2,050) –Equity in net earnings of

associates and a jointventure – – 93 11 – 104

Total revenues 80,389 1,722 8,098 5,253 (2,050) 93,412Costs and expenses (62,058) (2,431) (6,227) (6,506) 1,543 (75,679)Finance income 385 86 1,011 146 – 1,628Finance costs (6,303) (144) (345) (651) 205 (7,238)Foreign exchange gain

(loss) (1,473) 33 3 22 – (1,415)Other income (loss) (1,264) 141 9 4,494 (4,117) (737)Income (loss) before

income tax 9,676 (593) 2,549 2,758 (4,419) 9,971Provision for income tax 2,605 75 624 125 (12) 3,417Net income (loss) P=7,071 (P=668) P=1,925 P=2,633 (P=4,407) P=6,554

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Real EstateDevelopment

InvestmentHoldings,

Construction,and Others Eliminations Consolidated

(In Millions)

Revenues: External sales P=87,430 P=3,614 P=6,709 P=1,916 P=– P=99,669 Inter-segment sales – – – 410 (410) -Equity in net earnings of

associates and a jointventure – – – 125 – 125

Total revenues 87,430 3,614 6,709 2,451 (410) 99,794Costs and expenses (65,742) (4,791) (4,902) (4,980) 849 (79,566)Finance income 588 9 518 422 – 1,537Finance costs (7,373) (128) (196) (565) 200 (8,062)Foreign exchange gain

(loss) 989 (63) 6 (10) – 922Other income (loss) (141) (3,918) 249 9,442 (656) 4,976Income (loss) before

income tax 15,751 (5,277) 2,384 6,760 (17) 19,601Provision for income tax 2,542 41 440 190 26 3,239Net income (loss) from

continuingoperations P=13,209 (P=5,318) P=1,944 P=6,570 (P=43) P=16,362

Net income fromdiscontinuedoperations 98 – – – – 98



InvestmentHoldings,

Constructionand Others Eliminations Consolidated

(In Millions)

Revenues: External sales P=82,644 P=7,642 P=3,223 P=– P=93,509 Inter-segment sales – – 1,123 (1,123) –Equity in net earnings of associates and a

joint venture – – 343 – 343Total revenues 82,644 7,642 4,689 (1,123) 93,852Costs and expenses (64,799) (7,523) (4,938) 1,057 (76,203)Finance income 753 11 570 – 1,334Finance costs (8,364) (164) (760) 39 (9,249)Foreign exchange loss (424) (5) (34) – (463)Other income (loss) (4,661) 62 2,541 (1,577) (3,635)Income before income tax 5,149 23 2,068 (1,604) 5,636Provision for (benefit from) income tax 1,975 (8) (82) – 1,885Net income from continuing operations P=3,174 P=31 P=2,150 (P=1,604) P=3,751Net loss from discontinued operations (81) – – – (81)

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5. Subsidiaries, Significant Acquisitions and Discontinued Operations

The accompanying consolidated financial statements comprise the financial statements of FPH and the following subsidiaries.

Details of the Group’s subsidiaries as at December 31, 2013 and 2012 are set out below.2013 2012

Place of incorporation Percentage of ownership held by the GroupSubsidiaries and operation Direct Indirect Direct IndirectPower GenerationFirst Gen Corporation (First Gen) Philippines 66.24 – 66.20 –First Gen Renewables, Inc. Philippines – 100.00 – 100.00Unified Holdings Corporation (Unified) Philippines – 100.00 – 100.00AlliedGen Power Corporation Philippines – 100.00 – 100.00First Gen Luzon Power Corporation. Philippines – 100.00 – 100.00First Gen Visayas Hydro Power Corporation (FG Visayas) Philippines – 100.00 – 100.00First Gen Mindanao Hydro Power Corporation (FG Mindanao) Philippines – 100.00 – 100.00First Gen Ecopower Solutions, Inc. (formerly First Gen Geothermal Power Corporation) Philippines – 100.00 – 100.00First Gen Energy Solutions, Inc. Philippines – 100.00 – 100.00First Gen Premier Energy Corporation Philippines – 100.00 – 100.00First Gen Prime Energy Corporation Philippines – 100.00 – 100.00First Gen Visayas Energy Corporation Philippines – 100.00 – 100.00FG Bukidnon Power Corp. (FG Bukidnon) 1 Philippines – 100.00 – 100.00Northern Terracotta Power Corporation (Northern Terracotta) Philippines – 100.00 – 100.00Blue Vulcan Holdings Corporation2 Philippines – 100.00 – 100.00Prime Meridian Powergen Corporation3 Philippines – 100.00 – 100.00Bluespark Management Limited (Bluespark) [formerly Lisbon Star Management Limited]7 British Virgin Islands – 100.00 – 100.00Goldsilk Holdings Corporation (Goldsilk) [formerly Lisbon Star Philippines Holdings, Inc.]7 Philippines – 100.00 – 100.00Dualcore Holdings, Inc. (Dualcore) [formerly BG Consolidated Holdings (Philippines), Inc.]7 Philippines – 100.00 – 100.00Onecore Holdings, Inc. (Onecore) [formerly BG Philippines Holdings, Inc.]7 Philippines – 100.00 – 100.00FG Mindanao Renewables Corp. (FMRC)8, 15 Philippines – 100.00 – 100.00FGen Northern Mindanao Holdings, Inc. (FNMHI)9, 15 Philippines – 100.00 – 100.00First Gas Holdings Corporation (FGHC) 7 Philippines – 100.00 – 100.00FGP Corp. (FGP) 4, 7 Philippines – 100.00 – 100.00First NatGas Power Corporation (FNPC) 5, 7 Philippines – 100.00 – 100.00First Gas Power Corporation (FGPC) 6, 7 Philippines – 100.00 – 100.00First Gas Pipeline Corporation6, 7 Philippines – 100.00 – 100.00FG Land Corporation6, 7 Philippines – 100.00 – 100.00FGen Tagoloan Hydro Corporation (FG Tagoloan)10, 16 Philippines – 100.00 – –

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2013 2012Place of incorporation Percentage of ownership held by the Group

Subsidiaries and operation Direct Indirect Direct IndirectFGen Tumalaong Hydro Corporation (FG Tumalaong)11, 16 Philippines – 100.00 – –FGen Puyo Hydro Corporation (FG Puyo)12, 17 Philippines – 100.00 – –FGen Bubunawan Hydro Corporation (FG Bubunawan)13, 17 Philippines – 100.00 – –FGen Cabadbaran Hydro Corporation (FG Cabadbaran)14, 17 Philippines – 100.00 – –FGEN LNG Corporation (FGEN LNG) 18 Philippines – 100.00 – –First Gen LNG Holdings Corporation (LNG Holdings) 19 Philippines – 100.00 – –First Gen Meridian Holdings, Inc. (FGEN Meridian) 19 Philippines – 100.00 – –Prime Terracota Holdings Corporation (Prime Terracota) 20 Philippines – 45.00 – 45.00First Gen Hydro Power Corporation (FG Hydro) 20,21 Philippines – 100.00 – 100.00Red Vulcan Philippines – 100.00 – 100.00Energy Development Corporation (EDC) Philippines – 60.00 – 60.00EDC Drillco Corporation Philippines – 100.00 – 100.00EDC Geothermal Corp (EGC) Philippines – 100.00 – 100.00Green Core Geothermal Inc. (GCGI) Philippines – 100.00 – 100.00Bac-Man Geothermal Inc. (BGI) Philippines – 100.00 – 100.00Unified Leyte Geothermal Energy Inc. (ULGEI) Philippines – 100.00 – 100.00Southern Negros Geothermal, Inc. (SNGI) Philippines – 100.00 – 100.00EDC Mindanao Geothermal, Inc. (EMGI) Philippines – 100.00 – 100.00Bac-Man Energy Development Corporation (BEDC) Philippines – 100.00 – 100.00Kayabon Geothermal Inc. (KGI) Philippines – 100.00 – 100.00EDC Wind Energy Holdings, Inc. Philippines – 100.00 – 100.00EDC Burgos Wind Power Corporation (EBWPC) Philippines – 100.00 – 100.00EDC Chile Limitada Santiago, Chile – 100.00 – 100.00EDC Holdings International Limited (EHIL) 22 British Virgin Islands – 100.00 – 100.00Energy Development Corporation Hong Kong Limited (EDC HKL) 23 Hong Kong – 100.00 – 100.00EDC Pagudpud Wind Power Corporation (EPWPC) Philippines – 100.00 – 100.00EDC Chile Holdings SPA 24,29 Santiago, Chile – 100.00 – 100.00EDC Geotermica Chile24,29 Santiago, Chile – 100.00 – 100.00EDC Peru Holdings S.A.C.25,29 Lima, Peru – 100.00 – 100.00EDC Geotermica Peru S.A.C.25,29 Lima, Peru – 100.00 – 100.00EDC Quellaapacheta26,29 Lima, Peru – 70.00 – 70.00PT EDC Indonesia27,29 Jakarta Pusat, Indonesia – 100.00 – 100.00PT EDC Panas Bumi Indonesia27,29 Jakarta Pusat, Indonesia – 100.00 – 100.00EDC Geotermica Del Sur S.A.C. 28,29 Lima, Peru – 100.00 – –EDC Energia Azul S.A.C. 28,29 Lima, Peru – 100.00 – –EDC Energía Perú S.A.C. 28,29 Lima, Peru – 100.00 – –

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Subsidiaries and operation Direct Indirect Direct IndirectGeothermica Crucero Peru S.A.C.28,29 Lima, Peru – 42.00 – –Geothermica Tutupaca Norte Peru S.A.C.28,29 Lima, Peru – 42.00 – –Geothermica Loriscota Peru S.A.C.28,29 Lima, Peru – 42.00 – –EDC Energía Geotérmica S.A.C. 28,29 Lima, Peru – 100.00 – –EDC Progreso Geotérmico Perú S.A.C. 28,29 Lima, Peru – 100.00 – –EDC Energía Renovable Perú S.A.C. 28,29 Lima, Peru – 100.00 – –Batangas Cogeneration Corporation (Batangas Cogen)30 Philippines 60.00 – 60.00 –ManufacturingFirst Philippine Electric Corporation (First Philec) Philippines 100.00 – 100.00 –First Electro Dynamics Corporation (FEDCOR) Philippines – 100.00 – 100.00First Philippine Power Systems, Inc. (FPPSI) Philippines – 100.00 – 100.00First Philec Manufacturing Technologies Corporation (FPMTC) Philippines – 100.00 – 100.00First PV Ventures Corporation Philippines – 100.00 – 100.00First Philec Solar Solutions Corporation31 Philippines – 100.00 – 100.00Cleantech Energy Holdings PTE, Ltd. Philippines – 100.00 – 100.00Philippine Electric Corporation (PHILEC) Philippines – 99.20 – 99.20First Philec Solar Corporation Philippines – 74.54 – 74.54First Philec Nexolon Corporation 32 Philippines – 70.00 – 70.00Real Estate DevelopmentFirst Philippine Realty Development Corporation (FPRDC) Philippines 100.00 – 100.00 –First Philippine Realty Corporation (FPRC) Philippines 100.00 – 100.00 –First Philippine Properties Corporation (FPPC) Philippines 100.00 – 100.00 –First Philippine Development Corp. (FPDC) Philippines – 100.00 – 100.00FPH Land Venture, Inc. 36 Philippines – 100.00 – –First Philippine Properties Corp. Philippines 100.00 – 100.00 –FPHC Realty and Development Corporation (FPHC Realty) Philippines 98.00 – 98.00 –Rockwell Land Corporation (Rockwell Land) (see Note 10) Philippines 86.80 – 86.80 –Rockwell Integrated Property Services, Inc. Philippines – 100.00 – 100.00Rockwell Development Corporation33 Philippines 100.00 – –Primaries Development Corporation (formerly, Rockwell Homes, Inc.) Philippines – 100.00 – 100.00Rockwell Hotels & Leisure Management Corporation33 Philippines – 100.00 – –Stonewell Property Development Corporation Philippines – 100.00 – 100.00Primaries Properties Sales Specialist Inc. Philippines – 100.00 – 100.00Rockwell Leisure Club, Inc. (RLCI) (see Note 2) 34 Philippines – 69.00 – 69.00First Philippine Industrial Park, Inc. (FPIP) Philippines 70.00 – 70.00 –FPIP Property Developers and Management Corporation Philippines – 100.00 – 100.00

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Subsidiaries and operation Direct Indirect Direct IndirectFPIP Utilities, Inc Philippines – 100.00 – 100.00Terraprime, Inc. (Terraprime) 35 Philippines – 100.00 – 100.00Grand Batangas Resort Development, Inc.37 Philippines – 85.00 – 85.00First Sumiden Realty, Inc. (FSRI)38 Philippines – 60.00 – 60.00ConstructionFirst Balfour, Inc. (First Balfour) Philippines 100.00 – 100.00 –Therma Prime Wells Services, Inc. (Therma Prime) Philippines – 100.00 – 100.00OthersFirst Philippine Utilities Corporation (FPUC, formerly First Philippine Union Fenosa, Inc.) Philippines 100.00 – 100.00 –Securities Transfer Services, Inc. Philippines 100.00 – 100.00 –FPH Capital Resources, Inc. (FCRI, formerly First Philippine Lending Corporation39 Philippines 100.00 – 100.00 –FGHC International40 Cayman, Island 100.00 – 100.00 –FPH Fund40 Cayman, Island 100.00 – 100.00 –FPH Ventures40 Cayman, Island – 100.00 – 100.00First Philippine Industrial Corporation (FPIC) Philippines 60.00 – 60.00 –

1 Through FGRI2 On April 6, 2011, Blue Vulcan was incorporated and registered with the Philippine SEC.3 On August 8, 2011, Prime Meridian was incorporated and registered with the Philippine SEC.4 Through Unified5 Through AlliedGen6 Through FGHC7 On May 30, 2012, First Gen, through its wholly owned subsidiary, Blue Vulcan, acquired from BGAPH the entire outstanding capital stock of Bluespark. Bluespark’s wholly owned subsidiaries, namely: Goldsilk, Dualcore and

Onecore own 40% of the outstanding capital stock of FGHC and subsidiaries (collectively referred to as First Gas Group). Following the acquisition of Bluespark, FGEN now beneficially owns 100% of First Gas Groupthrough its intermediate holding companies.

8 On April 27, 2012, FMRC was incorporated and registered with the Philippine SEC.9 On April 11, 2012, FNMHI was incorporated and registered with the Philippine SEC.10 On August 23, 2012, FG Tagoloan was incorporated and registered with the Philippine SEC.11 On August 17, 2012, FG Tumalaong was incorporated and registered with the Philippine SEC.12 On August 17, 2012, FG Puyo was incorporated and registered with the Philippine SEC.13 On August 17, 2012, FG Bubunawan was incorporated and registered with the Philippine SEC.14 On August 23, 2012, FG Cabadbaran was incorporated and registered with the Philippine SEC.15 Through FG Mindanao16 Through FMRC17 Through FNMHI

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18 On May 22, 2013, FGEN LNG was incorporated and registered with the Philippine SEC.19 On December 27, 2013, LNG Holdings and FGEN Meridian was incorporated and registered with the Philippine SEC20 As a result of the adoption of PFRS 10 effective January 1, 2013 (see Note 2)21 As a result of the adoption of PFRS 10 effective January 1, 2013 (see Note 2); As of December 31, 2013, direct voting interest by First Gen in FG Hydro is 40% while its effective economic interest is 69.96% through Prime

Terracota.22 Incorporated on August 17, 2011 in British Virgin Islands23 Incorporated on November 22, 2011 in Hong Kong24 Through EHIL and was incorporated on January 13, 2012 in Santiago,Chile25 Through EHIL and was incorporated on January 19, 2012 in Lima, Peru26 Through EHIL and was incorporated on July 17, 2012 in Lima, Peru27 Through EHIL and was incorporated on July 9, 2012 in Jakarta Pusat, Indonesia28 Through EHIL and was incorporated on 2013 in Lima, Peru29 Subsidiary of EDC HKL30 Under liquidation.31 On June 24, 2010, First Philec Solar Solutions Corporation was incorporated and registered with the Philippine SEC.32 On January 26, 2011, FPNC was incorporated and registered with the Philippine SEC. It is a subsidiary of First PV.33 On June 20, 2013, Rockwell Development Corporation and Rockwell Hotels & Leisure Management Corporation were incorporated and registered with the Philippine SEC. These are subsidiaries of Rockwell Land.

34 As a result of the adoption of PFRS 10 effective January 1, 2013 (see Note 2), RLCI was consolidated with RLC.35 On May 5, 2011, Terraprime was incorporated and registered with the Philippine SEC. It is a subsidiary of First Balfour.36 On March 22, 2013, FPH Land Venture was incorporated and registered with Philippine SEC. It is a subsidiary of FPDC.37 On March 9, 2011, Grand Batangas Resort Development, Inc. was incorporated and registered with the Philippine SEC.38 Through First Philec.39 Lending company.40 Special-purpose entities of FPH

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The financial information of subsidiaries that have material non-controlling interests is provided below.

As at December 31 As at December 31 For the years ended December 312013 2012 2013 2012 2013* 2012 2011

Proportion of ownership interest and voting rights heldby non-controlling interest

Non-controlling interest Profit allocated to non-controlling interestSubsidiaries Economic Voting Economic Voting(In Percentages) (In Millions)

First Gen:Common shares 33.76 33.76 33.80 33.80 P=20,681 P=20,382 P=3,175 P=7,283 P=945Series “G” Preferred shares 62.40 – 62.40 – 9,643 8,994 649 447 –Series “F” Preferred shares 47.55 – 47.55 – 5,895 5,515 380 380 190

Rockwell Land 13.20 13.20 13.20 13.20 1,852 1,664 185 120 –

*From May 2, 2012 to December 31, 2012

The summarized financial information of materials subsidiaries are provided below. This information is based on amounts before inter-company eliminations.

Summarized statements of financial position:

As at December 312013 2012

First Gen Rockwell Land First Gen Rockwell Land(In Millions)

Current assets P=61,095 P=24,540 P=45,073 P=12,366Non-current assets 157,066 12,569 148,441 10,841Current liabilities 24,801 6,054 24,025 4,324Non-current liabilities 116,562 17,025 94,677 6,277Total equity P=76,798 P=14,030 P=74,812 P=12,606

Attributable to:Equity holders of the Parent P=40,579 P=9,510 P=39,921 P=8,457Non-controlling interest 36,219 1,852 34,891 1,664

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Summarized statements of comprehensive income:

For the Years Ended December 312013 2012 2011

First Gen Rockwell Land Total First GenRockwell

Land* Total First Gen(In Millions)

Revenues P=80,389 P=7,827 P=88,216 P=87,430 P=4,855 P=92,285 P=82,644Expenses (70,712) (5,841) (76,553) (71,678) (3,587) (75,265) (77,495)Net income 9,677 1,986 11,663 15,752 1,268 17,020 5,149Provision for income tax (2,605) (582) (3,187) (2,541) (358) (2,899) (1,974)Income from continuing operations 7,072 1,404 8,476 13,211 910 14,121 3,175Income (loss) from discontinued operations – – – 98 – 98 (81)

P=7,072 P=1,404 P=8,476 P=13,309 P=910 P=14,219 P=3,094

Attributable to:Equity holders of the Parent P=2,868 P=1,219 P=4,087 P=5,119 P=790 P=5,989 P=1,120Non-controlling interest 4,204 185 4,389 8,110 120 8,230 1,974

*From May 2, 2012 to December 31, 2012

Summarized statements of cash flows:


First Gen Rockwell Land Total First GenRockwell

Land Total First Gen(In Millions)

Operating activities P=20,650 (P=760) P=19,890 P=26,742 (P=413) P=26,329 P=20,499Investing activities (15,553) (958) (16,511) (9,966) (412) (10,378) (11,939)Financing activities 4,895 10,157 15,052 (13,491) 884 (12,607) 621Net increase in cash and cash equivalents P=9,992 P=8,439 P=18,431 P=3,285 P=59 P=3,344 P=9,181

Dividends paid to non-controlling interest P=1,598 P=30 P=1,628 P=828 P=– P=828 P=1,074

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Parent Company’s Acquisition of Rockwell LandAs at December 31, 2011, FPH has a 49% voting and economic interest in common shares ofRockwell Land, an associate. As a result of the following linked transactions, FPH’s votingand economic interest in common shares increased to 82.03% and 75.63%, respectively, in2012.

a. On January 31, 2012, Rockwell Land fully redeemed its voting preferred shares of2,750,000,000, at par value of P=0.01 or for P=27.5 million, held by Manila ElectricCompany (Meralco) and FPH at 51% and 49% interest, respectively. On April 10, 2012,Rockwell Land issued to FPH its entire 2,750,000,000 voting preferred shares at par valueof P=0.01 a share or for P=27.5 million. The preferred shares earn 6% cumulative dividendper annum.

b. On February 27, 2012, Meralco’s BOD approved the declaration of its investment incommon shares in Rockwell Land as property dividends. On April 25, 2012, the SECapproved the property dividends declared by Meralco. On May 11, 2012, the RockwellLand common shares were listed in the PSE.

By virtue of the property dividends declaration, FPH and FPUC received 125,341,871Rockwell Land shares at a price of P=2.01 a share or an aggregate value of P=252 million asproperty dividends for its remaining 3.94% interest in Meralco (see Note 11).

Likewise, FPH and FPUC received additional 1,384,594,823 Rockwell Land shares at aprice of P=2.01 a share or an aggregate value of P=2,783 million from Beacon Electric AssetHoldings, Inc. (Beacon Electric) as additional consideration for the previous sale by FPHand FPUC of Meralco shares (see Note 11). The additional consideration ofP=2,746 million, net of taxes of P=37 million, is part of “Gain on sale of investments”account in the consolidated statement of income in 2012.

c. In addition, FPH purchased 52,787,367 shares of Rockwell Land at P=2.01 a sharefor P=106 million from Beacon Electric on June 28, 2012.

FPH obtained control of Rockwell Land effective May 2, 2012, the date when FPH hadmajority representation in the Board of Directors of Rockwell Land. The previously heldinterest in Rockwell Land was re-measured to fair value resulting in a gain on re-measurementof P=1,834 million which is presented as part of “Gain on business combination” account in the2012 consolidated statement of income.

The fair values of the identifiable assets and liabilities as at the date of acquisition were asfollows:

Fair ValueRecognized on

Acquisition(In Millions)

AssetsCash and cash equivalents P=1,631Trade and other receivables 1,920Land and development costs (see Note 8) 5,654Advances to contractors 1,064

(Forward)

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Fair ValueRecognized on

Acquisition(In Millions)

Other current assets P=529Condominium units for sale 110Available-for-sale investments 278Investment properties (see Note 14) 8,991Investment in a joint venture (see Note 13) 2,622Property and equipment (see Note 12) 378Pension asset 24Other noncurrent assets 516

23,717LiabilitiesTrade and other payables 1,925Interest-bearing loans and borrowings 4,357Installment payable 3,164Deferred tax liabilities (see Note 28) 1,510Deposit and other liabilities 70

(11,026)Total identifiable net assets at fair value 12,691Non-controlling interest measured at proportionate share of the

fair value of the net identifiable assets acquired (3,086)Fair value of Parent Company’s previously held interest in

Rockwell Land (6,134)Gain on business combination (included under “Gain on business

combination” account) (302)Purchase consideration transferred P=3,169

The fair value of the trade receivables amounted to P=1,920 million. The gross amount of tradereceivables is P=2,953 million. None of the trade receivables have been impaired and it isexpected that the full contractual amounts can be collected.

The deferred tax liability mainly comprises the tax effect of the fair value adjustment oninvestment properties. Depreciation of investment properties for tax purposes is based onhistorical cost.

The gain on business combination of P=302 million arose mainly from the fair valueadjustments of assets.

From the date of acquisition, Rockwell Land has contributed P=4,886 million of revenue andP=1,270 million to the income before income tax of the Group. If the combination had takenplace at the beginning of the year, revenue would have been higher by P=1,437 million and theincome before income tax for the Group would have been higher by P=293 million.

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The details of the purchase consideration are as follows:

Amount(In Millions)

Property dividends from Meralco P=252Rockwell Land shares received as additional consideration on sale

of Meralco shares 2,783Cash 134Total consideration P=3,169

The analysis of cash flows on acquisition is as follows:

Amount(In Millions)

Net cash acquired with Rockwell Land (included in cash flowsfrom investing activities P=1,497

Transaction costs on the acquisition (included in cash fromoperating activities (39)

Net cash flow on acquisition P=1,458

On July 13, 2012, FPH purchased additional 681,646,831 Rockwell Land shares at P=2.01 ashare for P=1,370 million from San Miguel Corporation. The excess of consideration paid overthe carrying amount of non-controlling interest acquired amounting to P=86 million wasrecognized directly in equity under the “Equity reserve” account in the consolidated statementof financial position as at December 31, 2012 (see Note 23). As a result of this transaction,FPH’s voting and economic interest in common shares increased to 89.62% and 86.8%,respectively.

First Gen’s Acquisition of 40% stake in the First Gas GroupOn May 30, 2012, First Gen, through its wholly owned subsidiary, Blue Vulcan, acquiredfrom BG Asia Pacific Holdings Pte Limited (“BGAPH”) [a member of the BG Group] theentire outstanding capital stock of Bluespark. Bluespark’s wholly owned subsidiaries,namely: Goldsilk; Dualcore; and Onecore own 40% of the outstanding capital stock of FGHCand subsidiaries (collectively referred to First Gas Group). Following the acquisition ofBluespark, the Group now beneficially owns 100% of First Gas Group through itsintermediate holding companies.

The total consideration was allocated to the other assets and liabilities of Bluespark based onthe relative fair values of these assets and liabilities. The excess of the consideration paid overthe relative fair values of assets and liabilities were then allocated to the acquisition of the40% equity interest in First Gas Group. As a result of transaction, First Gen recognized anadjustment to equity reserve of P=10,788 million (US$248 million) in 2012. The amountattributable to FPH is P=7,170 million (see Note 23).

Discontinued Drilling Operations of EDCIn October 2012, EDC discontinued its drilling services to Lihir in Papua New Guinea. As atDecember 31, 2012, the remaining assets of the drilling component pertain to tradereceivables only amounting to P=133.8 million (see Note 7). Equipment and other tools used indrilling operations were then being leased from third parties by EDC.

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Following are the results of the drilling component’s operations for the years endedDecember 31:

2012 2011Revenue P=661 P=713Cost of drilling services:

Purchased services and utilities (243) (369)Rental, insurances and taxes (150) (227)Repairs and maintenance (65) (55)Parts and supplies issued (34) (66)Business and related expenses (3) (36)Depreciation (see Note 25) (1) (1)Personnel costs (see Note 25) – (18)

(496) (772)General and administrative expenses:

Depreciation (see Note 3) (18) (18)Purchased services and utilities (3) (5)Parts and supplies issued (2) (3)Personnel costs (see Note 25) (1) (3)Rental, insurances and taxes (1) (1)Business related expenses (1) (1)Repairs and maintenance – (1)

Other income -Foreign exchange gains 1 2

Income (loss) before income tax 140 (89)Benefit from (provision for) deferred income tax (42) 8Net income (loss) from discontinued operations P=98 (P=81)

6. Cash and Cash Equivalents and Short-term Investments

2013

2012(As restated -

see Note 2)(In Millions)

Cash on hand and in banks P=9,590 P=8,178Cash equivalents (see Note 20) 43,165 29,928

P=52,755 P=38,106

Cash in banks earns interest at the prevailing bank deposit rates. Cash equivalents consist ofshort-term placements, which are made for varying periods of up to three months dependingon the immediate cash requirements of the Group and earn interest at the prevailing short-termplacement rates.

Cash deposits amounting to P=2,675 million and P=528 million as at December 31, 2013 and2012, respectively, and with maturities of more than three months but less than one year areclassified as short-term investments in the consolidated statements of financial position.

Interest earned on cash and cash equivalents and short-term investments of P=681 million,P=734 million and P=560 million in 2013, 2012 and 2011, respectively, is recorded under“Finance income” account in the consolidated statements of income (see Note 26).

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7. Trade and Other Receivables

2013

2012 (As restated -


Trade receivables from:Sale of electricity P=14,345 P=11,785Real estate - net of noncurrent portion of P=51.6 million in 2013 and P=44.6 million in 2012 (see Note 16) 6,766 3,513Sale of merchandise 893 750Contracts and services 848 852Others 514 159

Costs and estimated earnings in excess of billingson uncompleted contracts 2,079 914

Due from related parties (see Note 30) 120 93Advances to officers and employees (see Note 30) 17 119Others 1,311 710

26,893 18,895Less allowance for impairment loss 283 279

P=26,610 P=18,616

Sale of ElectricityTrade receivables from sale of electricity are noninterest-bearing and are generally on 30-daycredit term (in the case of FGPC and FGP), while the trade receivables of EDC are generallycollectible in 30 to 60 days.

Real EstateTrade receivables from real estate are noninterest-bearing short-term and long-term receivableswith terms ranging from 1–5 years.

Contracts and Services and Sale of Merchandise and Other Trade ReceivablesTrade receivables, consisting of contracts, retention and other trade receivables, are non-interestbearing and are generally on 30–90 days’ term.

Costs and Estimated Earnings in Excess of Billings on Uncompleted ContractsInformation on costs and estimated earnings in excess of actual billings on uncompleted contractsis shown below:

2013 2012(In Millions)

Costs and estimated earnings on uncompletedcontracts P=5,669 P=2,804

Less billings to date 3,590 1,890P=2,079 P=914

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Information about the Group’s contracts in-progress follows:


Total costs incurred to date on uncompletedcontracts P=4,011 P=1,035

Retention receivable 242 74Advances received 572 178Recognized profit to date 836 248

OthersOther receivables comprise mainly of installment receivables, interest and other receivables andare generally on 30-day credit term.

Allowance for Impairment LossThe roll forward analysis of allowance for impairment loss on trade receivables follows:


Balance at beginning of year P=279 P=279Provisions (see Note 25) 27 85Write-offs (23) (86)Recovery – 1Balance at end of year P=283 P=279

The allowance for impairment loss on receivables relates to individually significant accounts thatwere assessed as impaired.

8. Inventories

2013

2012(As restated -


At cost:Land and development costs P=8,222 P=8,105Spare parts and supplies 2,865 3,161Fuel inventories 2,036 2,030

Condominium units held for sale 39 49At net realizable values:

Raw materials 124 324Finished goods 79 123Spare parts and supplies 27 31Work in-process 9 94

In transit 4 50P=13,405 P=13,967

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Land and Development CostsLand and development costs consist of projects of Rockwell Land such as Proscenium, The GrovePhases 1, 2 and 3, 53 Benitez, Edades, Alvendia and other projects. These projects will becompleted from 2014 until 2019. These also include land and development costs of FPIP.

Other land acquisitions expected to be launched after 2014 are presented as “Land held for futuredevelopment” under “Other Noncurrent Assets” account in the consolidated statements offinancial position (see Note 16).

A summary of the movements in land and development costs is set out below:


Balance at beginning of year P=8,105 P=846Costs of real estate sold (shown as part of costs of

real estate) (4,275) (3,591)Construction/development costs incurred 3,972 3,486Land acquired during the year 591 1,641Borrowing costs capitalized 246 207Disposals during the year (209) –Transfer to property and equipment (see Note 12) (180) (95)Reclassification to condominium units for sale (28) (49)Effect of business combination (see Note 5) – 5,654Transfer from investment properties (see Note 14) – 6Balance at end of year P=8,222 P=8,105

Specific and general borrowing costs capitalized as part of development costs amounted toP=446 million and P=291 million in 2013 and 2012, respectively. Capitalization rates used are 4.9%and 6.3% in 2013 and 2012, respectively. Amortization of discount on retention payablecapitalized as part of development costs amounted to P=15 million and P=8 million in 2013 and2012, respectively.

As at December 31, 2013 and 2012, total cash received from pre-selling activities amounted toP=1,507 million and P=3 million, respectively (see Notes 18 and 22).

Spare parts and SuppliesFirst Gen Group, First Philec and First Balfour have spare parts and supplies valued at cost whileFPIC have spare parts valued at NRV.

In addition, First Gen Group recognized loss on damaged inventories due to Typhoon Yolandaamounting to P=105 million in 2013 included under “Impairment loss” account in the consolidatedstatement of income.

Fuel inventoriesFuel inventories of First Gen are valued at cost.

The amounts of fuel inventories recognized as fuel cost under “Cost of sale of electricity” accountamounted to P=5,706 million, P=2,283 million and P=2,353 million in 2013, 2012 and 2011,respectively (see Note 25).

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The costs of inventories carried at net realizable values as at December 31are as follows:


Raw materials P=127 P=363Finished goods 93 153Work in-process 61 101Spare parts and supplies 32 36

P=313 P=653

Write-down of inventories, net of reversals, amounting to P=74 million, P=82 million andP=34 million in 2013, 2012, and 2011, respectively, is recognized under “Merchandise sold”account in the consolidated statements of income.

The Group has no inventories pledged as security for liabilities as at December 31, 2013 and2012.

9. Other Current Assets

2013

2012(As restated -


Advances to contractors and suppliers P=1,509 P=1,111Prepaid expenses 1,271 901Input value-added tax (VAT) - net 1,045 458Creditable withholding tax 749 589Current portion of tax credit certificates

(see Note 16) 677 515Current portion of quoted government debt

securities (see Note 11) 343 132Current assets of joint operations 255 266Refundable deposits (see Note 33) 35 25FVPL investments (see Note 33) 2 1Others 223 197

P=6,109 P=4,195

Advances to contractors and suppliers pertain mainly to advances related to the developmentof Rockwell Land and FPIP’s projects.

Prepaid expenses consist mainly of capitalized selling costs and prepaid insurance.Capitalized selling costs are costs incurred during the pre-selling stage to sell real estate.Capitalized selling costs shall be charged to expense in the period in which the related revenueis recognized as earned.

Input VAT is applied against output VAT. Any remaining balance will be applied againstfuture output VAT.

Current assets of joint operations pertain to the right of First Balfour in the specific assets ofits completed projects.

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The fair value of FVPL investments is based on the quoted price as traded in the stockexchange. Unrealized fair value gain on this investment amounted to P=1 million andP=7 million in 2013 and 2012, respectively, while unrealized fair value loss amounted toP=7 million in 2011 (see Note 26).

10. Investments in Associates

2013

2012(As restated -


Investments in shares of stock - at equity P=48 P=37Deposits for future stock subscriptions 4 4

P=52 P=41

The details of the investments in shares of stock follow:


Cost:Balance at beginning of year P=466 P=3,503Effect of business combination (see Note 5) – (3,037)Balance at end of year 466 466

Accumulated equity in net losses:Balance at beginning of year (429) 836Equity in net earnings for the year 11 54Effect of business combination (see Note 5) – (1,263)Dividends received – (56)Balance at end of year (418) (429)

P=48 P=37

The Group’s associates, all incorporated in the Philippines, consist of the following:

Percentage of OwnershipAssociate Principal Activity 2013 2012First Batangas Hotel Corp (First Batangas) Real estate developer 40.52 40.52MHE-Demag (P), Inc. (MHE Demag) Manufacturer of materials

and handling equipment25.00 25.00

Panay Electric Company (Panay Electric) Power distribution 30.00 30.00First Gen Northern Energy Corp. (FGNEC) Power generation 33.00 33.00Bauang Private Power Corporation (BPPC) Power generation 37.00 37.00

The carrying values of the Group’s investments in Panay Electric, FGNEC and BPPC amounted tonil as at December 31, 2013 and 2012. The carrying amount of the investments in associates as atDecember 31, 2013 and 2012 represents the aggregate carrying values of individually immaterialassociates.

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The Group’s share in the aggregate financial information of individually immaterial associatesfollows:

As at December2013 2012

(In Millions)

Current assets P=2,422 P=2,386Noncurrent assets 564 483Current liabilities 1,197 1,120Noncurrent liabilities 472 498


(In Millions)

Revenue P=4,645 P=4,784 3,821Expenses (4,178) (4,649) (3,586)Income before tax 467 135 235Provision for income tax (98) (37) (85)Other comprehensive income – 1 –Net income 369 P=99 P=150

The dividends received from the associates follow:


(In Millions)

Panay Electric P=40 P=47 P=51Others – 9 –

P=40 P=56 P=51

On December 2, 2009, the ERC directed Panay Electric to refund P=631 million representing overrecovery of its purchased power cost for the period February 1996 to July 2005. As atDecember 31, 2013, the amount to be refunded amounted to P=389 million.

The carrying amount of the investment of P=51 million has been reduced to zero in 2012. Dividendreceived from Panay Electric in 2013 is shown as part of “Dividend income” account in theconsolidated statement of income. Future share in net income of Panay Electric will not berecorded until the P=117 million and P=136 million share in unrecorded liability of Panay Electric asat December 31, 2013 and 2012, respectively, is fully taken up.

The unrecognized share in losses of Panay Electric as at December 31 follows:


Unrecognized share in losses P=19 P=40

Cumulative share in losses P=59 P=40

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11. Investments in Equity and Debt Securities

2013

2012(As restated -


Quoted equity securities P=11,490 P=11,703Quoted government debt securities 343 605Unquoted equity securities 337 460Proprietary membership 85 94

12,255 12,862Less current portion of quoted government debt

securities (see Note 9) 343 132P=11,912 P=12,730

Quoted Equity SecuritiesOn March 12, 2009, FPH, Lopez, Inc. and FPUC (collectively as “Lopez Group”) entered into anInvestment and Cooperation Agreement (“ICA” and as subsequently amended on November 20,2009 and March 30, 2010) with Philippine Long Distance Telephone Company, PLDTCommunications and Energy Ventures, Inc., Metro Pacific Investments Corporation and BeaconElectric (collectively as “PLDT Group”). The ICA contemplates the sale of certain Meralcoshares owned by the Lopez Group in favor of the PLDT Group.

On July 14, 2009, the Lopez Group (through FPH and FPUC) completed the sale of 223 millionMeralco common shares for P=20,070 million to PLDT Group. On March 30, 2010, the LopezGroup (through FPH and FPUC) sold another 75 million Meralco common shares for a totalselling price of P=22,410 million. Both sales of Meralco common shares in 2009 and 2010included a provision for contingent consideration where the PLDT Group will assign to LopezGroup’s Rockwell Land common shares as and when such Rockwell Land shares are declared byMeralco as property dividends (see Note 5).

On January 20, 2012, the Lopez Group (through FPUC) sold additional 30 million Meralcocommon shares to Beacon Electric for a total selling price of P=8,850 million, resulting in a gain onsale of P=3,338 million, net of brokerage fee of P=52 million which is presented as part of “Gain onsale of investments” in the 2012 consolidated statement of income. The investment in suchMeralco common shares was classified as current as at December 31, 2011. The sale containedthe same provision for contingent consideration for the assignment of Rockwell Land commonshares as and when declared by Meralco. As discussed in Note 5, the Rockwell Land shares havebeen declared as property dividends by Meralco.

The Group’s remaining interest in Meralco was 3.95% as at December 31, 2013 and 2012.As at December 31, 2013 and 2012, the carrying amount of the Group’s investment in Meralcoamounted to P=11,163 million (valued at P=251.0 a share) and P=11,590 million (valued at P=260.6 ashare), respectively.

Dividend income from Meralco amounted to P=453 million, P=612 million and P=582 million in2013, 2012 and 2011, respectively.

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Quoted Government Debt SecuritiesQuoted government debt securities consist of investments in Republic of the Philippines (ROP)bonds with maturities between 2013 and 2016 and interest rates ranging from 8.00% to 9.00% perannum. Such bonds were acquired at a discount. The current portion of the quoted governmentdebt securities is presented under “Other current assets” account (see Note 9).

Unquoted Equity SecuritiesAs at December 31, 2013 and 2012, unquoted equity shares are carried at cost in the consolidatedstatements of financial position as their fair values cannot be measured reliably.

FPH Fund, through FPH Ventures, has an investment in Narra Venture amounting to P=459 million(US$10 million). Narra Venture is a limited partnership established for the purpose of makingequity investments in private and public companies, expected to be terminated on March 31, 2017.

For the years ended December 31, 2013 and 2012, FPH Ventures recognized an impairment lossof P=149 million and P=156 million, respectively, on its investment in Narra Venture due tosignificant or prolonged decline in fair value. The impairment loss is included as part of“Impairment loss” account in the consolidated statements of income.

Set out below are the movements in the accumulated unrealized fair value gains on all investmentsin equity securities recognized as part of equity as at December 31:


Balance at beginning of year P=3,570 P=4,945Unrealized fair value gain (loss) recognized in other

comprehensive income (464) 1,559Realized gain on sale of AFS financial assets

recycled to profit or loss – (2,934)Balance at end of year P=3,106 P=3,570

Attributable to:Equity holders of the Parent P=3,116 P=3,557Non-controlling Interests (10) 13

P=3,106 P=3,570

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12. Property, Plant and Equipment

2013

Land

Power plants,Buildings,

OtherStructures

and LeaseholdImprovements

FCRS andProduction

WellsTransportation

Equipment

Exploration,Machinery and

EquipmentConstruction

in Progress Total(In Millions)

CostBalance at beginning of year, as restated (Note 2) P=3,442 P=53,240 P=20,707 P=562 P=41,744 P=14,943 P=134,638Additions 616 386 134 285 3,257 12,113 16,791Write off during the year – (687) – (99) (182) – (968)Disposals (239) (20) – (43) (30) – (332)Reclassifications and adjustments (see Notes 8, 14,

15 and 16) – 1,114 2,788 787 4,838 (6,655) 2,872Foreign currency translation adjustment (28) 1,348 – (521) 2,945 (1,728) 2,016Balance at end of year 3,791 55,381 23,629 971 52,572 18,673 155,017Accumulated Depreciation, Amortization and

Impairment LossesBalance at beginning of year, as restated (Note 2) 17 15,693 4,819 321 26,347 1,715 48,912Depreciation and amortization (see Note 26) – 2,694 622 95 3,388 – 6,799Write off during the year – (172) – (10) (207) – (389)Disposals during the year – (75) – (28) (24) – (127)Reclassifications and adjustments 70 702 134 202 (591) 517Foreign currency translation adjustment – 501 – (6) 3,698 (1,124) 3,069Balance at end of year 17 18,711 6,143 506 33,404 – 58,781

P=3,774 P=36,670 P=17,486 P=465 P=19,168 P=18,673 P=96,236

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2012 (As restated - see Note 2)

Land

Power plants,Buildings,

OtherStructures

and LeaseholdImprovements

FCRS andProduction Wells

TransportationEquipment

Exploration,Machinery and

EquipmentConstruction

in Progress Total(In Millions)

CostBalance at beginning of year, as restated (Note 2) P=3,170 P=53,965 P=18,813 P=463 P=41,482 P=11,703 P=129,596Effect of business combination (see Note 5) 22 149 − 25 182 – 378Additions 319 464 55 156 793 6,022 7,809Disposals – (58) − (36) (439) (346) (879)Reclassifications and adjustments (see Notes 8, 14 and 16) – 40 1,839 1 1,433 (2,285) 1,028Foreign currency translation adjustment (69) (1,320) − (47) (1,707) (151) (3,294)Balance at end of year 3,442 53,240 20,707 562 41,744 14,943 134,638Accumulated Depreciation, Amortization

and Impairment LossesBalance at beginning of year, as restated (Note 2) 17 13,557 4,093 259 21,947 591 40,464Depreciation and amortization (see Note 26) – 2,665 726 98 3,104 – 6,593Impairment for the year – – – – 2,795 1,124 3,919Reversal of impairment − (64) – – – – (64)Disposals – (21) – (25) (39) – (85)Reclassifications and adjustments − (49) – – (295) – (344)Foreign currency translation – (395) – (11) (1,165) – (1,571)Balance at end of year 17 15,693 4,819 321 26,347 1,715 48,912

P=3,425 P=37,547 P=15,888 P=241 P=15,397 P=13,228 P=85,726

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The significant transactions and events affecting the Company’s property and equipment are asfollows:

EDC

Impact of Typhoon YolandaIn November 2013, certain assets of EDC located in Leyte sustained damage due to TyphoonYolanda. As a result, EDC recognized losses amounting to P=625 million representing the carryingamount of the damaged property, plant and equipment and the value of damaged inventoriesamounting to P=520 million and P=105 million, respectively (see Note 8). The loss is included under“Impairment loss” account in the 2013 consolidated statement of income.

In 2013, total rehabilitation costs capitalized as part of property, plant and equipment amounted toP=304 million, while the costs of repairs and minor construction activities charged to expenseamounted to P=3 million.

As at December 31, 2013, EDC is in the process of claiming compensation from its insurancecompanies for losses incurred due to Typhoon Yolanda.

Rehabilitation of BMGPPOn May 5, 2010, BGI acquired the 150 MW BMGPP in an auction conducted by PSALM whereBGI submitted the highest offer price of $28.3 million.

Located in Bacon, Sorsogon City and Manito, Albay in the Bicol region, the BMGPP packageconsists of two steam plant complexes. The Bac-Man I power plant has two 55 MW generatingunits (Unit 1 and Unit 2) while Bac-Man II power plant has two 20 MW generating units(Cawayan or Unit 3, and Botong). EDC supplies the steam that fuels these power plants.

Problems with the equipment at both the Bac-Man I and Bac-Man II power plants required EDCto conduct a series of rehabilitation works since the acquisition of the plants in 2010. As atDecember 31, 2013, Unit 1 and Unit 2 were still under rehabilitation while Unit 3 commencedcommercial operations on October 1, 2013.

Capitalization of Borrowing CostIn 2013 and 2012, EDC capitalized borrowing cost amounting to P=144 million and P=214 millionfrom general borrowings using a capitalization rate of 6.43% and 6.15%, respectively.

Since 2011, testing procedures had been performed in preparation for planned commercialoperations of the power plants. For the years ended December 31, 2013 and December 31, 2012,the revenue from electricity generated during the testing period amounting to $33.2 million(P=1,401 million) and $12.3 million (P=520 million), respectively, were offset against the cost ofproperty, plant and equipment.

Meanwhile, revenue generated by Unit 3 from October 1, 2013 to December 31, 2013 during itscommercial operations amounting to $4.5 million (P=189 million) was presented as part of the“Revenue from sale of electricity” account in the 2013 consolidated statement of income.

Impairment Assessment of NNGPIn 2011, after the five-month shutdown of NNGP starting November 22, 2010, NNGP operatedfrom April to June 2011 to complete its geothermal resource testing. Based on the subsequenttechnical assessment, EDC had come to a conclusion that the sustainable operation of NNGP isonly at 5 to10 MW only.

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EDC evaluates the assets on a CGU basis for any indication of impairment at each financialreporting date. EDC assessed that there continues to be an indication of impairment for NNGPand, based on its impairment testing, recognized an impairment loss of P=4,999 million in 2011which is included under “Impairment loss” account in the consolidated statement of income.

In February 2012, EDC transferred vacuum pumps from NNGP to the Palinpinon Power Plantowned by GCGI. Since these transferred assets can still be utilized and were included in the CGUof the Palinpinon Power Plant, EDC recognized a corresponding reversal of impairment lossamounting to P=63 million, representing the net book value of the assets transferred had noimpairment loss been previously recognized. As at December 31, 2013, certain NNGP assets havealready been transferred from Northern Negros to Nasulo.

Estimated Rehabilitation and Restoration CostsFCRS and production wells include the estimated rehabilitation and restoration costs of the EDC’ssteam fields and power plants’ contract areas at the end of the contract period. These were basedon technical estimates of probable costs, which may be incurred by EDC in the rehabilitation andrestoration of the said steam fields and power plants’ contract areas from 2031 up to 2044,discounted using the EDC’s risk-adjusted rate. These costs, net of accumulated amortization,amounted to P=446 million and P=346 million as at December 31, 2013 and December 31, 2012,respectively. As at December 31, 2013 and 2012, the asset retirement obligation amounted toP=654 million and P=493 million, respectively (see Note 21).

Burgos Wind Energy ProjectIn March 2013, EDC entered into an agreement with Vestas of Denmark for the construction ofthe 87-MW wind farm in Burgos, Ilocos Norte. The project is comprised of three components:(i) the establishment of a wind farm facility; (ii) a 115kV transmission line; and (iii) a substationadjacent to the wind farm. Under the EPC (turnkey) contract, Vestas is responsible for the design,manufacture, delivery of the works from the place of manufacture to the project site, erection,testing and commissioning for a complete and operational wind farm. The agreement covers theinstallation of 29 units of V90-3.0MW turbine together with associated on-site civil and electricalworks. EDC issued notice to proceed to Vestas Wind Systems in June 2013 for the constructionof wind energy assets.

On May 16, 2013, EBWPC was granted a Certificate of Confirmation of Commerciality by theDOE for its 87 MW Burgos wind project. The certificate converts the project’s Wind EnergyService Contract (WESC) from exploration/pre-development stage to the development /commercial stage. Consequently, the wind energy project development costs amounting toP=468 million ($11.1 million) were reclassified to Property, plant and equipment under the“Construction in progress” account.

On May 3, 2013, to partially finance the construction of Burgos wind energy project, EDC issuedfixed-rate peso bonds amounting to P=7.0 billion ($162.0 million). As the proceeds of the bondsare being used specifically for the construction of the Burgos wind project, EDC capitalized theactual borrowing costs incurred on the bonds amounting to P=139 million ($3.3 million) in 2013,net of investment income on temporary investment of the proceeds of the bonds.

FPNC and FPSCAs a result of the arbitration proceedings of FPNC against Nexolon and of FPSC against SPML,and the termination of their respective supply agreements, the consequences of which wereexacerbated by the highly unfavorable conditions in the solar industry in 2012, the Grouprecognized an impairment loss of P=3,919 million in 2012 presented as part of “Impairment loss”

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account in 2012 consolidated statement of income. These assets are under the manufacturingsegment in the “Operating segment information” (see Note 4).

The share in the impairment loss attributable to FPH amounted to P=2,852 million in 2012. For asubstantial portion of the machinery and equipment, the recoverable amount was based on theassets’ estimated fair value less costs to sell as at December 31, 2012. The fair value less cost tosell was based on information available to management as of the date of assessment.

In 2013, FPNC and FPSC obtained appraisal reports on the machineries and equipment anddetermined that the remaining carrying value is recoverable based on a fair value less cost to sellcomputation.

In 2013 and 2012, the fair values in the recoverable amounts used in the impairment assessmentare categorized under level 3 as there is no active market for identical or similar assets.

FPSCProperty and equipment include building and wire saw equipment acquired under finance leasearrangements with carrying amounts of P=44 million and P=242 million as at December 31, 2013and 2012, respectively.

FPICFollowing the issuance by the Court of Appeals (CA) of a Resolution containing its Report andRecommendations to the Supreme Court (SC) in December 2012 about the conduct of hearingsand the structural integrity of the white oil pipeline (WOPL), FPIC recognized an AssetPreservation Obligation (APO) of P=567 million in 2013 in relation with the end-of-use of itspipelines. This is based on the results of engineering study and calculated using prices in 2005 to2006 adjusted for inflation and discounted at 6%. Depreciation on the APO asset amounted toP=124 million and accretion on the APO liability amounted to P=35 million (see Note 21) in 2013.

Pledged AssetsProperty, plant and equipment with net book values of P=13,867 million and P=12,684 million as ofDecember 31, 2013 and 2012, respectively, have been pledged as security for long-term debt(see Note 20).

In addition, a parcel of land amounting to P=7 million is pledged as security for a long-term debt ofPHILEC (see Note 20).

Reclassifications and AdjustmentsThe reclassifications and adjustments to the cost of property plant and equipment mainly includethe following:a. Transfers to property, plant and equipment§ First Gen’s prepaid major spare parts amounting to P=3,376 million in 2013 and

P=1,702 million in 2012§ Rockwell Land’s investment property amounting to P=724 million in 2013§ EDC’s intangible asset not yet available for use amounting to P=468 million in 2013;§ Rockwell Land’s land and development costs amounting to P=180 million in 2013 and

P=95 million in 2012b. Other adjustments for EDC’s revenue from electricity generated during the testing period

amounting to P=1,401 million in 2013 and P=520 in 2012c. Reduction to the EDC’s capitalized depreciation charges pertaining to the on-going drilling of

wells amounting to P=163 million in 2013 and P=58 million in 2012

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13. Investments in a Joint Venture

On March 25, 2008, the Parent Company entered into a 25-year JV Agreement with Meralco toform an unincorporated and registered JV (70% for the Rockwell Land and 30% for Meralco),referred to as “unincorporated JV.” Under the JV Agreement, the parties agreed to pool theirallocated areas in the first two towers of the BPO Building, including the right to use the land,and to operate and manage the combined properties for lease or any similar arrangements to thirdparties under a common property management and administration. Consequently, the ParentCompany’s contribution to the unincorporated JV is presented as “Investment in a joint venture”account in the consolidated statements of financial position. The unincorporated JV startedcommercial operations in July 2009.

In accordance with the terms of the JV Agreement, Rockwell Land acts as the Property Managerof the unincorporated JV. Management fees recognized by the Parent Company, which is shownas part of “Other revenue” account in the consolidated statements of income, amounted toP=1.2 million, P=1.1 million and P=0.9 million in 2013, 2012 and 2011, respectively. Theunincorporated JV will be managed and operated in accordance with the terms of the JVAgreement and with the Property Management Plan provided for in the JV Agreement. Theprincipal place of business of the unincorporated JV is at Meralco Compound, Ortigas Center,Pasig City.

On November 25, 2009, Meralco and Rockwell Land agreed to revise the sharing of earningsbefore depreciation and amortization to 80% for Rockwell Land and 20% for Meralco until 2014or until certain operational indicators are reached, whichever comes first. Sharing of depreciationand amortization is proportionate to their contribution.

On December 6, 2013, Meralco and the Rockwell Land entered into a Supplemental Agreement tothe JV Agreement to include their respective additional rights and obligations, including thedevelopment and construction of the third tower of the BPO Building. Under the SupplementalAgreement, Meralco shall contribute the corresponding use of the land where the third BPOBuilding will be constructed while the Rockwell Land shall provide the additional funds necessaryto cover the construction costs.

The carrying value of the Group’s investment in RBC as at December 31 consists of:

2013 2012Investment cost P=2,622 P=2,622Accumulated share in net income:

Balance at beginning of year 59 –Share in net income 93 71Dividends received – (12)Balance at end of year 152 59

Carrying value P=2,774 P=2,681

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The summarized financial information below represents amounts shown in RBC’s financialstatements prepared in accordance with PFRS.

Summarized statements of financial position:


(In Millions)

Current assets P=767 P=618Noncurrent assets 2,588 2,579Current liabilities 105 51Noncurrent liabilities 94 92

The above amounts of assets and liabilities include the following:


(In Millions)

Cash and cash equivalents P=468 P=412Current financial liabilities (excluding trade and

other payables and provisions) 6 5Non-current financial liabilities (excluding trade and

other payables and provisions) 72 70

Summarized statements of comprehensive income:


(In millions)

Revenue P=293 P=290 P=258General and administrative expenses (74) (64) (55)Depreciation and amortization expense (117) (117) (117)Interest income 8 11 6Interest expense (–) (4) (3)Provision for income tax (58) (59) (51)Net income 52 57 38Other comprehensive income 50 51 47Total comprehensive income P=102 P=108 P=85

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The reconciliation of the above summarized financial information to the carrying amount ofthe interest in RBC recognized in the consolidated statements of financial position follows:


Net assets of RBC P=3,156 P=3,054Proportion of the Group’s ownership interest 70% 70%

2,209 2,138Fair value adjustments arising from business

combination 492 492Effect of the difference between Group’s

percentage share in net income as previouslydiscussed 73 51

Carrying amount of the investment in RBC P=2,774 P=2,681

14. Investment Properties

2013 2012 (As restated - see Note 2)

LandBuildings

and Others Total LandBuildings

and Others Total(In Millions)

CostBalance at beginning of year, as

restated (Note 2) P=4,326 P=7,376 P=11,702 P=708 P=1,298 P=2,006Effect of business combination

(see Note 5) – – – 3,607 5,384 8,991Additions 372 1,675 2,047 15 720 735Disposals (76) (229) (305) (4) – (4)Reclassification to inventories and

property, plant and equipment(see Notes 8 and 12) – (786) (786) – (6) (6)

Foreign currency translationadjustment – – – – (20) (20)

Balance at end of year 4,622 8,036 12,658 4,326 7,376 11,702

Accumulated DepreciationBalance at beginning of year, as restated (Note 2) – 799 799 – 524 524Depreciation for the year (see Note 26) – 393 393 – 283 283Disposals – (100) (100) – – –Foreign currency translation adjustment – (7) (7) – (8) (8)Balance at end of year – 1,085 1,085 – 799 799Net Book Value P=4,622 P=6,951 P=11,573 P=4,326 P=6,577 P=10,903

Investment properties are valued at cost. These are real properties held for capital appreciationand for lease which consist mainly of FPH’s real properties, Rockwell’s “Power Plant” Mall andother investment properties within the Rockwell Center, and FPIP’s parcels of land located in Sto.Tomas, Batangas.

Costs incurred for the construction of Lopez Tower classified as investment properties in progressrespectively, is included under “Buildings and others” account.

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Specific borrowing costs capitalized as part of investment properties amounted to P=21.4 millionand P=0.1 million in 2013 and 2012, respectively. As at December 31, 2013 and 2012, theunamortized borrowing costs capitalized as part of investment properties of P=264 million andP=243 million, respectively, pertains to Rockwell Land.

The aggregate fair value of the Group’s investment properties amounted to P=13,438 million andP=11,834 million as at December 31, 2013 and 2012, respectively. Fair values have beendetermined based on valuations performed by independent professional appraisers Fair value isdefined as the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date.

The fair value disclosures of the investment properties are categorized under level 3 as these werebased on unobserved inputs except for Rockwell Land’s investment properties held for leasewithin the Rockwell Center and land held for appreciation which are categorized under level 2 asthese were arrived at based on sales and listings, which are adjusted for time of sale, location, andgeneral characteristics of comparable lots in the neighborhood where the subject lot is situated.

In conducting the appraisal, the independent professional appraisers used any of the followingapproaches:

a. Market Data or Comparative Approach

Under this approach, the value of the property is based on sales and listings of comparableproperty registered within the vicinity. This approach requires the establishment of acomparable property by reducing comparative sales and listings to a common denominatorwith the subject. This is done by adjusting the differences between the subject property andthose actual sales and listings regarded as comparables. The properties used are either situatedwithin the immediate vicinity or at different floor levels of the same building, whichever ismost appropriate to the property being valued. Comparison was premised on the factors oflocation, size and physical attributes, selling terms, facilities offered and time element.

b. Income Capitalization Approach

The premise of such approach is that the value of a property is directly related to the income itgenerates. This approach converts anticipated future gains to present worth by projectingreasonable income and expense for the subject property.

c. Cost Approach

Method of valuation which considers the cost to reproduce or replace in new condition theassets appraised in accordance with current market prices for similar assets, with allowancefor accrued depreciation based on physical wear and tear and obsolescence.

The aggregate rental income from investment properties of Rockwell Land for the year endedDecember 31, 2013 and for the eight months ended December 31, 2012, FPIP and FPRC for theyears ended December 31, 2013, 2012 and 2011 amounting to P=880 million, P=840 million andP=130 million, respectively, is presented as part of ‘Real estate revenue” account, while the relatedaggregate direct operating expenses of P=347 million, P=352 million and P=80 million in 2013, 2012and 2011, respectively, is presented as part of “Cost of real estate” account in the consolidatedstatements of income.

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The aggregate rental income from investment properties of FPH, FPPC, and First Philec for theyears ended December 31, 2013, 2012 and 2011 amounting to P=39 million, P=37 million andP=46 million, net of direct operating expenses, is presented as part of ‘Other income” account in theconsolidated statements of income (see Note 26).

Direct operating expenses of investment properties that did not generate rental income amountedto P=9 million, P=6 million, and P=5 million in 2013, 2012 and 2011, respectively.

As at December 31, 2013 and 2012, land with a carrying value of P=332 million and the “PowerPlant” Mall with a carrying value of P=2,260 million, are pledged as collateral for Rockwell Land’sinterest-bearing loans (see Note 20).

15. Goodwill and Intangible Assets

2013

Goodwill

ConcessionRights forContractsAcquired Water Rights

PipelineRights

OtherIntangible

Assets Total(In Millions)

CostBalance at beginning of year, as restated

(Note 2) P=47,997 P=8,337 P=2,405 P=544 P=468 P=59,751Addition – – – – 172 172Reclassification – – – – (468) (468)Foreign currency translation adjustment 31 – – 44 – 75Balance at end of year 48,028 8,337 2,405 588 172 59,530Accumulated AmortizationBalance at beginning of year, as restated

(Note 2) – 3,592 589 254 – 4,435Amortization (see Note 26) – 587 97 31 27 742Foreign currency translation adjustment – – 15 – 15Balance at end of year – 4,179 686 300 27 5,192Net Book Value P=48,028 P=4,158 P=1,719 P=288 P=145 P=54,338


Goodwill

ConcessionRights forContractsAcquired Water Rights Pipeline Rights

OtherIntangible

Assets Total(In Millions)

CostsBalance at beginning of year, as restated

(Note 2) P=48,023 P=8,337 P=2,405 P=581 P=258 P=59,604Additions – – – – 210 210Foreign currency translation adjustment (26) – – (37) – (63)Balance at end of year 47,997 8,337 2,405 544 468 59,751Accumulated AmortizationBalance at beginning of year, as restated

(Note 2) – 3,006 493 244 – 3,743Amortization (see Note 26) – 586 96 25 – 707Foreign currency translation adjustment – – – (15) – (15)Balance at end of year – 3,592 589 254 – 4,435Net Book Value P=47,997 P=4,745 P=1,816 P=290 P=468 P=55,316

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GoodwillAs at December 31, 2013 and 2012, the Group’s goodwill is allocated to the following CGUs:

Entity Cash-generating Unit 2013 2012(In Millions)

Red Vulcan EDC and subsidiaries P=45,222 P=45,191GCGI Palinpinon and Tongonan power

plant complex 2,242 2,242FGHC Sta. Rita power plant complex 271 271FG Hydro Pantabangan/Masiway hydroelectric

power plants 293 293Total P=48,028 P=47,997

Goodwill is tested for impairment annually as at December 31 for Red Vulcan, FGHC andFG Hydro and September 30 for GCGI or more frequently, if events or changes in circumstancesindicate that the carrying value may be impaired.

The recoverable amounts have been determined based on value-in-use calculation using cash flowprojections based on financial budgets approved by senior management covering a five-yearperiod. The pre-tax discount rates applied in cash flow projections, and the growth rates used toextrapolate the cash flows beyond the remaining term of the existing agreements for the yearsended December 31, 2013 and 2012 are summarized as follows:

2013 2012

EntityPre-tax

discount rateGrowth

ratePre-tax

discount rateGrowth

rateRed Vulcan 8.1% 3.7% 8.4% 4.4%GCGI 6.1% for

Tongonan;7.8% for

Palinpinon 4.0%

8.8% for bothTongonan and

Palinpinon 4.0%FGHC 11.6% 2.5% 11.5% 2.6%FG Hydro 9.1% 4.0% 11.5% 4.4%

Key assumptions with respect to the calculation of value-in-use of the cash-generating units as atDecember 31, 2013 and 2012 on which management had based its cash flow projections toundertake impairment testing of goodwill are as follows:

· Budgeted Gross MarginsThe basis used to determine the value assigned to the budgeted gross margins is the averagegross margins achieved in the year immediately before the budgeted year, increased forexpected efficiency improvements.

· Discount RateDiscount rate reflects the current market assessment of the risk specific to each CGU. Thediscount rate is based on the average percentage of the Group’s weighted average cost ofcapital. This rate is further adjusted to reflect the market assessment of any risk specific to theCGU for which future estimates of cash flows have not been adjusted.

No impairment loss on goodwill was recognized in the consolidated financial statements in 2013,2012 and 2011.

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Concession rights for contracts acquiredAs a result of the purchase price allocation of Red Vulcan, an intangible asset was recognizedpertaining to concession rights originating from contracts of EDC amounting to P=8,337 million.Such intangible asset pertains to the Steam Sales Agreements and PPAs of EDC. The identifiedintangible asset is amortized using the straight-line method over the remaining term of the existingcontracts ranging from 1 to 17 years. The concession rights for contracts acquired have beenvalued based on the expected future cash flows using the Multiple Excess Earnings Method(MEEM) as of the date of acquisition. MEEM is the most commonly used approach in valuingcustomer-related assets, although it may be used to value other intangible assets as well. The assetvalue is estimated as the sum of the discounted future excess earnings attributable to the asset overthe remaining project period. The average remaining amortization period of the intangible assetpertaining to the concession rights originating from contracts is 7.0 years as at December 31,2013.

Water rightsWater rights pertain to FG Hydro’s right to use water from the Pantabangan reservoir for thegeneration of electricity. NPC, through a Certification issued to FG Hydro dated July 27, 2006,has given its consent to the transfer to FG Hydro, as the winning bidder of the PAHEP/MAHEP,of the water permit for Pantabangan river issued by the National Water Resources Council onMarch 15, 1977.

Water rights are amortized using the straight-line method over 25 years, which is the term ofFG Hydro’s agreement with the National Irrigation Administration (NIA). The remainingamortization period of water rights is 17.9 years as at December 31, 2013.

Pipeline RightsPipeline rights represent the construction cost of the natural gas pipeline facility connecting thenatural gas supplier’s refinery to FGP’s power plant including incidental transfer costs incurred inconnection with the transfer of ownership of the pipeline facility to the natural gas supplier. Thecost of pipeline rights is amortized using the straight-line method over 22 years, which is the termof the Gas Sale and Purchase Agreements (GSPA). The remaining amortization period of pipelinerights is 10.75 years as at December 31, 2013.

Other Intangible AssetsOther intangible assets pertain to computer software and licenses of EDC in 2013 and wind energyproject development costs in 2012.

In 2013, wind energy project development costs amounting to P=468 million were reclassified in“Property, plant and equipment” account. Management believes that the technical feasibility andcommercial viability of the project has already been established following the issuance of thenotice to proceed to Vestas, the wind farm contractor, by EDC (see Note 12).

Goodwill, concession rights for contracts acquired, water rights, pipeline rights and otherintangible assets were not impaired as at December 31, 2013 and 2012 based on the assessmentsperformed by management.

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16. Other Noncurrent Assets

2013

2012(As restated -


Deferred input VAT - net of allowance ofP=428 million in 2013 and P=625 million in 2012 P=3,841 P=3,940

Exploration and evaluation assets 2,381 1,604Tax credit certificates - net of current portion of

P=677 million in 2013 and P=515 million in 2012(see Note 9) 1,639 1,670

Prepaid major spare parts (see Notes 12 and 34) 741 2,808Long-term receivables (see Notes 7, 32 and 33) 383 283Land held for future development (see Note 8) 358 –Advances to contractors 295 67Special deposits and funds 251 313Prepaid expenses 245 94Derivative assets (see Note 33) 185 –Others 469 406

P=10,788 P=11,185

Deferred Input VAT

EDCAs at December 31, 2013 and 2012, deferred input VAT amounted to P=3,679 million andP=3,684 million, respectively. This includes outstanding input VAT claims of P=1,724 millionand P=1,246 million as at December 31, 2013 and 2012, respectively.

Input VAT claims for 2011 (P=1,137 million), 2010 (P=583 million), 2009 (P=149 million),2008 (P=132 million), 2007 (P=89 million) and 2006 (P=293 million) are still pending with theBureau of Internal Revenue (BIR)/Court of Tax Appeals as at December 31, 2013.

Rockwell LandDeferred input VAT amounting to P=156 million and P=242 million as at December 31, 2013 and2012, respectively, will be claimed against output VAT upon payment of its installment payable.

OthersAs at December 31, 2013 and 2012, deferred input VAT of the Parent Company and First Genamounted to P=6 million and P=14 million, respectively.

Exploration and Evaluation AssetsDetails of exploration and evaluation assets per project as at December 31 are as follows:


Rangas/Kayabon P=1,294 P=56Mindanao III 981 486Dauin/Bacong 60 575Cabalian – 480Others 46 7

P=2,381 P=1,604

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In 2013, the Group recognized full impairment loss amounting to P=575 million on the explorationand evaluation assets relating to Southern Leyte (Cabalian) Project due to productivity andsustainability issues. Except for the Cabalian Project, management has assessed that there are noindicators of impairment related to EDC’s exploration and evaluation assets as at December 31,2013.

Tax Credit Certificates (TCCs)In April and June 2010, P=1,639 million TCCs were issued by the BIR to EDC with respect to itsinput VAT claims on Build-Operate-Transfer (BOT) fees from 1998 and 1999 amounting toP=1,895 million. Such TCCs shall be utilized over a period of five years starting in 2011 to 2015with a cap of P=300 million per year, except in 2015 where the remaining balance may be fullyapplied.

On August 17, 2012, BIR issued TCC to EDC amounting to P=26.5 million for the input VATclaims covering the period from January 1 to March 31, 2010. In 2013, BIR issued TCC to theEDC amounting to P=212.0 million and P=152.3 million representing input VAT claims for 2009and 2010, respectively. GCGI likewise received in 2013 TCC amounting to P=27.6 millionpertaining to its 2010 input VAT refund.

In 2012, P=35.0 million worth of TCCs were utilized for the payment of documentary stamp taxarising from the issuance of fixed rate note (see Note 17). In 2013, EDC utilizedP=58.0 million of TCCs for payment of various taxes.

Prepaid Major Spare PartsAs at December 31, 2013 and 2012, prepaid major spare parts amounting to P=3,376 million andP=1,702 million were reclassified to the “Property, plant and equipment” account as a result of thescheduled major maintenance outage of the Santa Rita and San Lorenzo power plants(see Note 12).

Special Deposits and FundsThe special deposits and funds mainly consist of EDC’s security deposits for various operatinglease agreements covering office spaces and certain equipment, escrow accounts in favor ofterminated employees, and escrow accounts in favor of specified counterparties in certaintransactions, the release of which is subject to certain conditions.

17. Loans Payable

This account consists of:


First Gen P=2,390 P=–FPIC 673 345First Balfour 450 767First Philec 271 117

P=3,784 P=1,229

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First GenOn November 22, 2013, FGP and FGPC each obtained a short-term loan amounting toP=2,200 million (US$50 million) and P=190 million (US$3.8 million), respectively, from Bank ofTokyo-Mitsubishi UFJ, Ltd. Manila Branch (BTMU). The short-term loans will mature onMarch 21, 2014 and has an interest rate of 1.21% per annum. The proceeds were used to pay theliquid fuel purchased last September 2013.

On May 24, 2012, Blue Vulcan obtained an unsecured short-term loan amounting toP=1,026 million (US$25 million) from Rizal Commercial Banking Corp (RCBC), which willmature within 180 days and with an interest rate of 3.5% per annum. On May 25, 2012, BlueVulcan obtained another unsecured short-term loan amounting to P=1,026 million (US$25 million)from BDO Unibank Inc. (BDO), which will mature within 360 days and with an interest rate of3.5% per annum. The proceeds were used in the acquisition of the non-controlling interests onMay 30, 2012. On September 11, 2012 and November 13, 2012, Blue Vulcan fully paid theP=2,052 million (US$50 million) short-term loans from RCBC and BDO, respectively.

On June 28, 2012, FGP and FGPC each obtained an unsecured short-term loan amounting toP=402 million (US$9.8 million) and P=780 million (US$19.0 million), respectively, from Bank ofTokyo-Mitsubishi UFJ, Ltd. Manila Branch (BTMU). The short-term loans had an interest rate of1.61% per annum and the proceeds were used to augment the working capital requirements ofFGP and FGPC. On October 5, 2012, FGP and FGPC fully settled their respective short-termloans including interest thereon.

FPICFPIC has various unsecured, short-term, Philippine-peso denominated loans amounting toP=673 million and P=345 million as at December 31, 2013 and 2012, respectively, drawn from localfinancing companies to finance its working capital requirements. These loans carry an annualinterest of 5.73% and 5.94% in 2013 and 2012, respectively.

The outstanding loan as of December 31, 2013 include the P=100 million unsecured, non-interestbearing peso-denominated loan obtained from Pilipinas Shell Petroleum Corporation reclassifiedas current liability in 2013 (see Note 30).

First BalfourThese include peso-denominated, unsecured short-term loans which First Balfour availed fromvarious financial institutions, such as, Philippine Bank of Commerce, Security Bank, PhilippineCommercial Capital, Inc., UnionBank and Chinatrust totaling P=450 million and P=767 million as atDecember 31, 2013 and 2012. First Balfour loans bear interests ranging from 6.25% to 7.50% in2013 and 2012.

First PhilecThese pertain to various unsecured, short-term borrowings amounting to P=271 million andP=117 million as at December 31, 2013 and 2012, respectively, which bear annual interest rangingfrom 3.0% to 4.5% in 2013 and from 2.7% to 6.0% in 2012.

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18. Trade Payables and Other Current Liabilities

2013

2012(As restated -


Trade payables P=16,469 P=16,177Accruals for:

Construction costs 3,119 1,665Interest and financing costs 1,366 1,040Other taxes and licenses 1,165 589Salaries and bonuses 985 735Others 597 193

Deposits from pre-selling of condominium units -net of noncurrent portion of P=512 million in2013 (see Notes 8 and 22) 995 3

Output VAT 771 1,445Dividends payable (see Note 23) 670 839Advances from customers 579 131Current portion of retention payable (see Note 22) 296 221Advances from contractors, consultants and

suppliers 289 61Shortfall generation liability (see Note 3) 263 431Current portion of security deposits (see Note 22) 213 188Current liabilities of joint operations 182 233Provision for pipeline-related costs 168 229Provision for liabilities on regulatory assessments

(see Note 35) 161 186Due to related parties (see Note 30) 145 143Others 197 180

P=28,630 P=24,689

Trade PayablesTrade payables are generally non-interest bearing and are settled on 30 to 60-day payment terms.

Accrued ExpensesAccruals for construction costs pertain to projects and maintenance of various constructioncontracts of First Balfour and Rockwell Land. Accrued interest represents interest accrued on theoutstanding loans. Accrued expenses are settled within 12 months from end of reporting period.

Deposits from Pre-selling of Condominium UnitsDeposits from pre-selling of condominium units represent cash received from buyers of“Proscenium” and “53 Benitez” in 2013, and “The Grove Phase 2” in 2012 pending recognition ofrevenue expected to be applied against receivables from real estate the following year. Portionexpected to be applied beyond 12 months is presented as part of “Customers’ deposits” accountunder “Other noncurrent liabilities” (see Note 22).

Advances from customersAdvances from customers pertain to customer deposits for construction contracts. Such advancesare applied against progress billings when work is completed. Thereafter, the net amount is billedto the customers.

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Current Liabilities of Joint OperationsCurrent liabilities of joint operations pertain to First Balfour’s obligations for the current liabilitiesof its completed projects.

Provision for Pipeline-related CostsProvision for pipeline-related costs pertains to FPIC’s accruals for easements and titling, squatterrelocation and pipeline repairs, and right-of-way improvements and for estimated engineering andrehabilitation works and contingency compensation for any damages relative to the petroleumseepage detected at a certain area (see Note 35).

The roll forward analysis of the provision for pipeline-related costs is as follows:

PipelineRelated Costs

(In Millions)Balance at January 1, 2012 P=376Provisions 4Settlements (139)Reversals (12)Balance at December 31, 2012 229Provisions 7Settlements (33)Reversals (35)Balance at December 31, 2013 P=168

Other PayablesOther payables include guarantee fees of P=84 million due to the Philippine Government(Government) arising from previous loans availed by EDC, PNOC (the then parent company ofEDC) and NPC (as primary borrower with sub-lending arrangements with EDC) from variousinternational financial institutions.

19. Bonds Payable

On February 11, 2008, First Gen issued P=11,398 million (US$260.0 million), U.S. dollar-denominated CBs due on February 11, 2013 with a coupon rate of 2.50%. The CBs are listed onthe Singapore Exchange Securities Trading Limited. The CBs are traded in a minimum board lotsize of US$0.5 million. The CBs constitute the direct, unsubordinated and unsecured obligationsof First Gen, ranking pari passu in right of payment with all other unsecured and unsubordinateddebt of First Gen.

The CBs include equity conversion option, whereby each bond will be convertible, at the option ofthe holder, into fully-paid shares of common stock of First Gen. The initial conversion price wasP=63.72 a share with a fixed exchange rate of US$1.00 to P=40.55, subject to adjustments undercircumstances described in the Terms and Conditions of the CBs. The conversion price has sincebeen adjusted to P=26.94 a share to consider the effect of the stock dividend and the RightsOffering. The conversion right attached to the CBs may be exercised, at the option of the holder,at any time on and after March 22, 2008 up to 3:00 pm on January 31, 2013. The CBs (and thestocks that would have been issued upon conversion of the CBs) were not registered under theU.S. Securities Act of 1933, as amended, and subject to certain exceptions, were not offered orsold within U.S. In addition, the conversion right was subject to a cash settlement option,whereby the Parent Company could elect to make a cash settlement payment in respect of all orany portion of a holder’s bonds deposited for conversion.

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First Gen also has a call option where it may redeem the CBs on or after February 11, 2010, inwhole but not in part, at the early redemption amount, if the closing price of the shares for any 20trading days out of the 30 consecutive trading days prior to the date upon which the notice of suchredemption is given, was at least 130% of the conversion price in effect of such trading period, orat any time prior to maturity, in whole but not in part, at the early redemption amount, if less than10% of the aggregate principal amount of the CBs originally issued are then outstanding. TheBondholders had a put option which gave them the right to require First Gen to redeem the CBs atthe early redemption amount on February 11, 2011. The early redemption amount is determinedso that it represents 7.25% gross yield to the Bondholder on a semi-annual basis. The equityconversion, call and put option features of the CBs were identified as embedded derivatives andwere separated from the host contract (see Note 33). As at December 31, 2013 and 2012, FirstGen is in compliance with the bond covenants.

On February 11, 2011, the holders of the CBs amounting to P=2,979 million ($72.5 million)exercised their put option to require First Gen to redeem all or some of the CBs at a price of115.6% of the face value. The total put value which equaled the carrying amount of the CBsamounting to P=3,444 million ($83.8 million) was paid on February 11, 2011. In 2011, in additionto the redeemed CBs, First Gen bought back CBs with a face value of P=1,885 million($43.5 million) for a total settlement amount of P=2,327 million ($53.7 million), inclusive of apremium amounting to P=442 million ($10.2 million). In 2012, First Gen bought back CBs with aface value of P=552 million ($13.0 million) for a total settlement amount of P=696 million ($16.4million), inclusive of a premium amounting to P=144 million ($3.4 million).

On February 11, 2013, First Gen fully redeemed the remaining balance of the CBs for a totalsettlement amount of P=2,996 million ($73.0 million), inclusive of a premium amounting toP=675 million ($16.0 million).

First Gen recorded a loss on the buyback of the CBs amounting to P=21 million ($0.5 million) andP=95 million ($2.2 million) recorded under finance cost in the consolidated statements of incomefor the years ended December 31, 2012 and 2011, respectively.

As at December 31, 2013 and 2012, the carrying amount of the host contract was nil andP=2,979 million ($72.6 million), respectively.

The movements in the account are as follows:


Balance at beginning of year P=2,979 P=3,711Redemption and buy-back of convertible bonds (2,996) (696)Accretion charged to finance costs (see Note 26) 17 183Foreign exchange adjustments – (219)Balance at end of year P=– P=2,979

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20. Long-term Debt

2013

2012(As restated -


Gross P=145,434 P=111,233Less unamortized debt issuance costs 1,549 1,190

143,885 110,043Less current portion 7,388 7,122

P=136,497 P=102,921

Details of the Group’s long-term debt, net of debt issuance costs, follow:

20132012

(As restated - see Note 2)

Description Interest Rates US$

BalancesPhp

Equivalent US$

BalancesPhp

Equivalent(In Millions)

Parent CompanyP=4,800 million Floating Rate Corporate

Notes (FRCNs)1.5% + 6 monthPDST-F or BSP

overnight ratewhichever is higher

$– P=4,300 $– P=4,533

P=5,000 million Fixed 5.00% – 4,825 – –P=5,000 million Fixed 7.15%–8.37% – – – 3,162

Power Generation CompaniesFirst Gen’s US$50 million

6-year Note Facility (Tranche A)5.091% 48 2,122 50 2,014

First Gen’s US$507-year Note Facility (Tranche B)

5.091% 49 2,184 50 2,014

First Gen's $300 million 10-year Notes 6.50% 297 13,163 – –FGPC’s US$312 million Covered Facility 6 month LIBOR

+ 3.25% margin+ political risk

insurance premium

251 11,125 265 10,897

FGPC’s US$188 million UncoveredFacility

6 month LIBOR+ 3.50%-3.90% margin

115 5,124 142 5,825

FGP’s new term loan facility with variouslocal banks and with interest at six-month London Inter-Bank Offered

Rate (LIBOR) PLUS 2.25%

6 month LIBORfloating benchmark rate

+ 225 basis points

398 17,663 $415 17,043

EDC’s US$300 Million Notes 6.5% 297 13,194 297 12,187EDC’s Peso Public Bonds§ P=8.5 billion 8.6418% 8,462 8,438§ P=3.5 billion 9.3327% 3,475 3,468EDC’s International Finance Corp (IFC)§ IFC - P=4.1 billion

7.4% per annum for thefirst five years subject

to reprising for another5 to 10 years

$– P=3,202 $– P=3,538

§ IFC - P=3.3 billion 6.6570% 2,960 3,203EDC’s Fixed Rate Note Facility§ P=3.0 billion 6.6173% 2,918 2,944§ P=4.0 billion 6.6108% 3,891 3,928EDC’s US$175.0 million Refinanced

Syndicated Term LoanLIBOR plus a margin

of 175 basis points138 6,147 173 7,095

EDC’s Peso Fixed Rate Bond (FXR)§ P=4.0 billion 4.7312% 3,951 – –§ P=3.0 billion 4.1583% 2,964 – –

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20132012

(As restated - see Note 2)

Description Interest Rates US$

BalancesPhp

Equivalent US$

BalancesPhp


EDC’s US$80 Million Term Loan 1.8% marginplus LIBOR

$78 P=3,474 $– P=–

FG Hydro’s Restructured PhilippineNational Bank (PNB) and AlliedBank Peso Loan

1.5% + PDST-F rateor 1.0% + BSPovernight rate

3,910 – 4,250

Red Vulcan’s Philippine peso-denominated staple financingagreement

PDST- F) benchmarkrate plus the applicable

interest margin, whichever is higher

6,234 7,002

Manufacturing CompaniesFirst Philec’s $20.6 million Philippine

National Bank (PNB) Loan3 months LIBOR

+ 3.50%963 21 847

FPSC’s BDO Sales and Leaseback 10% 256 – 281PHILEC’s P=300 million Maybank

5-year loanFloating rate (3%

+ 3 months PDST-F)213 – 212

Real Estate DevelopmentRockwell Lands’s Peso Bonds 5.0932% – 4,952Rockwell Land’s Corporate Notes 4.9%, 4.6%, 4.5%

fixed rates– 9,752 – 4,000

Rockwell Land’s installment payable foran acquisition of land

Discounted at 8% – 1,856 – 2,500

Rockwell Land’s loans from banks andfinancial institutions

4.0% - 7.5% fixed rate – – – 478

OthersFirst Balfour’s Various Term Loans 7.41%–12.375% 600 – 129FPSC’s lease liability - 5 55

P=143,885 P=110,043

The current and noncurrent portions of the consolidated long-term debt (net of debt issuance costs)of the Group follow:

20132012

(As restated - see Note 2)CurrentPortion

NoncurrentPortion Total

CurrentPortion

NoncurrentPortion Total

Parent Company P=475 P=8,650 P=9,125 P=258 P=7,437 P=7,695Power Generation Companies 5,526 110,637 116,163 5,013 88,833 93,846Manufacturing Companies 306 1,126 1,432 701 639 1,340Real Estate Development 1,081 15,479 16,560 1,052 5,926 6,978Others – 605 605 98 86 184

P=7,388 P=136,497 P=143,885 P=7,122 P=102,921 P=110,043

The roll forward analysis of unamortized debt issuance costs is as follows:

2013 2012 (In Millions)

Balance at beginning of year P=1,190 P=1,384Additions 713 368Accretion charged to finance costs (see Note 26) (289) (290)Pre-termination of long-term debts (see Note 26) (19) (229)Foreign exchange adjustments (46) (76)Effect of business combination (see Note 5) – 33Balance at end of year P=1,549 P=1,190

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The scheduled maturities of the consolidated long-term debt (excluding debt issue costs) of theGroup as at December 31, 2013 are as follows:

U.S. Dollar Debt PhilippineYear In US$ In Php Peso Debt Total

(In Millions)

2014 $140 P=6,204 P=2,624 P=8,8282015 137 6,063 4,487 10,5502016 141 6,240 3,732 9,9722017 185 8,215 10,008 18,2232018 and onwards 1,091 48,438 49,423 97,861

$1,694 P=75,160 P=70,274 P=145,434

a. Parent Company

FRCN. On October 25, 2011, the Parent Company entered into a Facility Agreement withBDO Capital and Investment Corporation (as Sole Arranger) and several financial institutions,consisting of, Banco De Oro Unibank, Inc., Maybank Philippines, Inc., Rizal CommercialBanking Corporation and Union Bank of the Philippines. The Facility Agreement covers theissuance of floating rate corporate notes in the principal amount of up to P=4,800 million andwhich will mature in 2018.

The Parent Company effectively borrowed P=4,800 million under the new facility to repay infull the P=1,596 million (US$37 million) and the P=3,228 million outstanding principal of the2007 dual currency floating rate notes. This refinancing reduced the Parent Company’s spreadon its over six-months PDST-F interest from 210 basis points for the dollar tranche notes and235 basis points for the peso tranche notes to 150 basis points, while extending the maturity ofthe principal from 2012 and 2014, respectively, to 2018. The interest rate is subject to thefloor rate of the BSP overnight borrowing rate.

The Parent Company may, at its option, and without premium or penalty, redeem the notes inwhole or in part on any interest payment date provided each partial prepayment shall be inminimum amounts equivalent to 5% of the notes and in excess thereof, integral multiples of1% thereof outstanding. Interest payment date pertains to the last day of each interest period,provided, that if any interest payment date would otherwise fall on a day that is not a bankingday, such interest payment date shall be on the immediately succeeding banking day.

In 2013, payments made for the principal value of the loan amounted to P=240 million whileinterest payment amounted to P=157 million. Total finance costs, including amortization ofdebt issue cost, amounted to P=166 million.

In 2012, payments made for the principal value of the loan amounted to P=240 million whileinterest payment amounted to P=172 million. Total finance costs, including amortization ofdebt issue cost amounted to P=203 million.

FXCN. On April 11, 2007, the Parent Company issued P=5,000 million FXCN in threetranches consisting of 5-year, 7-year and 10-year notes to various financial institutionsmaturing in 2012, 2014 and 2017, respectively. The FXCN bear fixed interest rates rangingfrom 7.15% to 8.37% per annum depending on the terms of the notes.

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As at December 31, 2012, the Parent Company fully paid the first tranche (5-year note).In 2012, total payments made for the principal value of the loan amounted to P=1,667 millionand interest payments amounted to P=319 million. Finance cost, including amortization of debtissue costs amounted to P=305 million.

On February 7, 2013, the BOD approved the prepayment of the remaining tranches (consistingof 7 and 10-year notes).

On April 5, 2013, the Parent Company entered into a loan agreement with BDO Capital andInvestment Corporation (as Sole Arranger) and BDO Unibank, Inc., as lender, for anaggregate principal amount of P=5,000 with a fixed coupon interest rate of 5.00% per annum.The loan will mature in 2020. Debt issue cost of P=57 million was capitalized as part of theloan and is amortized using the effective interest rate method.

The Parent Company effectively borrowed the P=5,000 million to repay in full the remainingtranches, consisting of the 7 and 10- year notes. As at April 11, 2013, the carrying amount ofthe principal value paid amounted to P=3,182 million and interest payment amounted toP=250 million. Total finance costs, including debt issue cost amortized during the yearamounted to P=207 million, which is included under “Finance cost” account in the consolidatedstatements of income. No gain or loss on extinguishment of this loan was recognized.

The Parent Company may prepay on any interest payment date commencing on, and includingthe fourth year anniversary from the date of drawdown, in whole or in part, subject to thefulfillment of all the following conditions:

i. The Parent Company shall give the Lender not less than 30 days prior written notice ofits intention to prepay the whole or portion of the loan, which notice shall be irrevocableand binding upon the Parent Company to effect such prepayment of the loan on theinterest payment date stated in such notice;

ii. The amount payable to the Lender in respect of any prepayment shall include accruedand unpaid interest up to the prepayment date, a prepayment fee of 2% of the principalamount of the note to be prepaid and GRT adjustments, if any;

iii. The note may not be re-issued; and

iv. Prepayment on the loan shall be in minimum amounts of P=500 million and inincrements of P=100 million, to be applied in the inverse of maturity.

Prepayment option embedded in the host debt instrument is closely related as the option’sexercise price is approximately equal to the loan’s amortized cost.

The terms of the FXCN and FRCN Facility Agreements require the Parent Company tocomply with certain restrictions and covenants, which include among others: (i) maintenanceof certain debt service coverage ratio at given periods provided based on core group financialstatements; (ii) maintenance of certain levels of financial ratio; (iii) maintenance of its listingon the PSE; (iv) no material changes in the nature of business; (v) incurrence of indebtednesssecured by liens, unless evaluated to be necessary; (vi) granting of loans to third parties exceptto subsidiaries or others in the ordinary course of business; (vii) sale or lease of assets; (viii)mergers or consolidations; and (ix) declaration or payment of dividends other than stockdividends during an Event of Default (as defined in the Agreement) or if such payments willresult in an Event of Default.

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As at December 31, 2013 and 2012, these restrictions and covenants were complied by theParent Company.

For the year ended December 31, 2013, payments made for the principal value of the new loanamounted to P=125 million, while interest payments amounted to P=127 million. Total financecosts, including amortization of debt issue cost, amounted to P=189 million.

As at December 31, 2013, the Parent Company has the following undrawn short-term creditline facilities:

Lending Institution Type of facility Contract Date Maturity Date Credit Line(In Millions)

BDO Omnibus September 14, 2014 October 24, 2014 P=650RCBC Omnibus October 31, 2013 June 30, 2014 200

BP Line October 31, 2013 June 30, 2014 50Forex October 31, 2013 June 30, 2014 105

Union Bank Omnibus October 31, 2013 October 31, 2014 500DBP Line October 31, 2013 October 31, 2014 5Forex October 31, 2013 October 31, 2014 50

BPI BP Line March 31, 2013 May 31, 2014 150

b. Power Generation Companies

First Gen’s US$100 Million Notes Facility. On December 17, 2010 (the “Effective Date”),First Gen, BDO Unibank, and BDO Capital & Investment Corporation executed the unsecuredNotes Facility Agreement granting First Gen a facility to borrow an aggregate principalamount of US$100 million. The Notes Facility is equally divided into two tranches: (i)Tranche A with a term of six years from drawdown date and (ii) Tranche B with a term ofseven years from drawdown date.

On March 29, 2011, First Gen availed US$25.5 million of Tranche A and US$25.5 million ofTranche B. First Gen paid a commitment fee of 0.25% per annum on the undrawn amount.As at December 31, 2011, total deferred debt issuance cost, pertaining to undrawn portion ofthe Notes Facility amounts to P=44 million (US$1.0 million). On January 2, 2012, theremaining US$24.5 million of Tranche A and US$24.5 million of Tranche B were drawn. Thematurity of Tranche A and Tranche B will mature on March 29, 2017 and March 29, 2018,respectively.

The Notes Facility offers First Gen the option of pricing the loan at a fixed or floating rateequivalent to the sum of the applicable benchmark rate and a margin of 2.625% per annum.First Gen elected to avail the loans at a fixed interest rate of 6.4979% and 6.8052% forTranche A and Tranche B, respectively. The interest on the Notes Facility is payable on asemi-annual basis.

On October 11, 2012, First Gen and BDO executed Amendment No. 2 to the Notes FacilityAgreement to amend the interest rate to 5.09091% for both Tranche A and Tranche Beffective October 16, 2012 until the respective maturity dates.

In addition, the Notes Facility imposes standard loan covenants to First Gen and requires it tomaintain a debt service coverage ratio of at least 1.2:1 and a debt-to-equity ratio of at most2.5:1. The obligations of First Gen under the Notes Facility are unsecured. As atDecember 31, 2013 and 2012, First Gen is in compliance with the terms of the Notes FacilityAgreement.

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As at December 31, 2013 and 2012, the unamortized debt issuance costs incurred amounted toP=67 million (US$1.5 million) and P=78 million (US$1.9 million), respectively. The movementof the account is as follows:


Balance at beginning of year P=78 P=44Accretion of finance costs (see Note 26) (16) (15)Foreign currency translation adjustment 5 (1)Additions – 50Balance at end of year P=67 P=78

First Gen’s $300.0 Million 10-year NotesOn October 9, 2013, First Gen issued a $250.0 million, U.S. Dollar denominated SeniorUnsecured Notes (the “Notes”) due on October 9, 2023 at the rate of 6.50% per annum,payable semi-annually in arrears on April 9 and October 9 of each year. On October 31, 2013,additional Notes of $50.0 million were issued and consolidated to form a single series with theNotes. The $50.0 million Notes are identical in all respects to the original Notes, other thanwith respect to the date of issuance and issue price. The Notes are issued in registered form inthe amounts of US$200,000 and integral multiples of US$1,000 in excess thereof. The Notesare represented by a permanent global certificate (“Global Certificate”) in fully registeredform that has been deposited with the custodian for and registered in the name of a nomineefor a common depositary for Euroclear bank SA/NV and Clearstream Banking, societeanonyme. The Notes are listed on the SGX and are traded in a minimum board lot size of $0.2million.

First Gen may, at its option, redeem all, (but not part) of the Notes at any time at par, plusaccrued interest, in the event of certain tax changes. Upon the occurrence of a Change ofControl, the Noteholders shall have the right, at its option, to require First Gen to repurchaseall, (but not part) of the outstanding Notes at a redemption price equal to 101.0% of theprincipal amount plus accrued and unpaid interest, no earlier than 30 days and no later than 60days following notice given to Noteholders of a Change of Control. First Gen may at any timeand from time to time prior to October 9, 2018 redeem all or a portion of the Notes at aredemption price equal to 100.0% of the principal amount of the Notes redeemed, plus theApplicable Premium, accrued and unpaid interest, if any, to (but not including) the date ofredemption. In addition, at any time prior to October 9, 2018, First Gen may on any one ormore occasions redeem up to 35% of the aggregate principal amount of the Notes, at aredemption price equal to 106.5% of the principal amount of notes redeemed plus accrued andunpaid interest, with the net cash proceeds of certain equity offerings. Finally, at any time andfrom time to time after October 9, 2018, First Gen may on any one or more occasions redeemall or a part of the Notes at a specified redemption price (expressed in percentages of theprincipal amount) plus accrued and unpaid interest, if any, to (but not including) the date ofredemption.

The Notes are direct, unconditional and unsecured obligations of First Gen, ranking pari passuamong themselves and at least pari passu with all other present and future unsecured andunsubordinated obligations of First Gen, save for such as may be preferred by mandatoryprovisions of applicable law.

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At inception, the loan was recorded net of debt issuance cost amounting to P=147 million. Themovement of the unamortized debt issue costs account is 2013 is as follows:

Amount(In Millions)

Balance at inception of the loan P=150Accretion of finance cost (3)Balance at end of year P=147

First Gen’s US$142.0 Million Term Loan Facility (Prepaid as at December 31, 2012). OnSeptember 3, 2010, First Gen, Allied Banking Corporation, BDO Unibank, Bank of thePhilippine Islands, Maybank Group, Mizuho Corporate Bank, Ltd., RCBC, Robinsons BankCorporation, Security Bank Corporation, and Union Bank of the Philippines, (collectivelyreferred to as “Term Loan Lenders”), and BDO Trust and Investments Group (as the facilityagent) executed the Term Loan Facility Agreement granting First Gen a facility to borrow anaggregate principal amount of up to US$142.0 million. The Term Loan Facility is equallydivided into two tranches, (i) Tranche A facility with a term of six years from initialdrawdown date, and (ii) Tranche B facility with a term of seven years from initial drawdowndate.

On January 21, 2011 (the “Initial Drawdown Date”), First Gen fully availed of the Term LoanFacility. The maturity dates of Tranche A and B were on January 23, 2017 and January 22,2018, respectively. The loans bear interest equivalent to the six-month LIBOR plus a marginof 3.375% per annum and are re-priced semi-annually. The Term Loan Facility imposesstandard loan covenants of First Gen and requires First Gen to maintain a debt servicecoverage ratio of at least 1.2:1 and a debt-to-equity ratio of at most 2.5:1. The obligations ofFirst Gen under the Term Loan Facility are unsecured.

On November 15, 2012, First Gen fully prepaid the loan for the total amount ofP=5,907 million (US$143.9 million) inclusive of interests amounting to P=78 million(US$1.9 million) from the proceeds of the upstreamed advances of FGP. Until theprepayment of the Term Loan Facility on November 15, 2012 and as at December 31, 2011,First Gen was in compliance with the Term Loan Facility.

At inception, the loan is recorded net of debt issuance cost amounting to P=88 million(US$2.0 million). As at December 31, 2012, the unamortized debt issuance costs incurredamounted to nil. The movement of the account in 2012 is as follows:

Amount(In Millions)

Balance at beginning of year P=76Accretion of finance cost (11)Unamortized debt issuance costs charged to finance cost (61)Foreign currency translation adjustment (4)Balance at end of year P=–

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First Gen’s BDO Loan Facility (Prepaid as at December 31, 2012). On May 11, 2010(the Effective Date), First Gen signed a new Facility Agreement (BDO Facility) with BDOUnibank, BDO Leasing & Finance, Inc. (BDO Leasing) and BDO Private Bank, Inc. (BDO),collectively referred to as “Lenders”, amounting to P=3,750 million to partially refinance itsoutstanding indebtedness and other general corporate requirements. The loan had a term of5 years and 1 day from the date of the initial advance to First Gen. However, onNovember 21, 2012 the BDO Facility was fully prepaid from the proceeds of the upstreamedadvances of FGP. Under the Facility, First Gen is allowed to borrow up to P=3,750 millionfrom the effective date of the Facility Agreement, with further availability of 90 days fromsuch date.

The total facility amount could be drawn either in pesos or in U.S. dollars or a combination ofboth currencies at the option of First Gen; provided, that the aggregate amount of advances inU.S. dollars that may be availed under the Facility shall be P=3,138 million (US$72 million).The total facility amount was converted from pesos using the PDS closing rate on theEffective Date, which was P=45.005 per $1.00. Principal repayments started onNovember 12, 2012, with an amortization schedule until May 22, 2015. The BDO Facilityoffered First Gen the option of pricing the loan at a fixed or floating rate equivalent to the sumof the applicable benchmark rate and a margin of 2% per annum. While it was outstandingFirst Gen elected to avail the loans at a fixed rate.

In 2011, First Gen entered into a cross-currency swap agreement to mitigate foreign currencyrisk exposure from the funding of the principal and interest payments of its P=500 million pesoloan facility (see Note 33). On October 15, 2012, First Gen and Australia and New ZealandBanking Group Limited-Manila Branch (ANZ) agreed to terminate the cross-currency swap.This was in preparation for the intended prepayment of the BDO Facility onNovember 21, 2012. As a result of the early termination, First Gen received a paymentamounting to P=33.2 million (US$0.8 million) from ANZ.

On November 21, 2012, the loan was fully prepaid for the total amount of P=3,567 million(US$86.9 million), inclusive of interests and taxes amounting to P=106.7 million(US$2.6 million).

As at December 31, 2012, unamortized debt issuance costs incurred amounted to nil. Themovement of the account is as follows:

Amount(In Millions)

Balance at beginning of year P=26Accretion of finance costs (6)Unamortized debt issuance costs charged to finance costs (18)Foreign exchange translation adjustment (2)Balance at end of year P=–

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FGPC’s Term Loans. The long-term debts of FGPC consists of U.S. dollar-denominatedborrowings availed from various lenders to finance the operations of its power plant complex.

Facility Outstanding BalancesNature Repayment Schedule Amount 2013 2012Covered foreign currency-denominated

loans payable to foreign financinginstitutions with annual interest atsix months LIBOR plus 3.25%margin and political risk insurance(PRI) premium

Repayment to be made invarious semi-annualinstallments from2009 up to 2021

P=13,851 P=11,125 P=10,897

Uncovered foreign currency-denominated loans payable toforeign financing institutions withannual interest at six months LIBORplus margin of 3.50% on the 1st to5th year, 3.75% on the 6th to 7th yearand 3.90% on the succeeding years

Repayment to be made invarious semi-annualinstallments from2009 up to 2018

P=8,346 P=5,124 P=5,825

Total 16,249 16,722Less current portion 1,606 1,343Noncurrent portion P=14,643 P=15,379

On November 14, 2008 (the “Refinancing Date”), FGPC entered into a Bank FacilityAgreement covering a US$544 million term loan facility with nine foreign banks to refinancethe Santa Rita project.

The term loan is broken down into three separate facilities namely:

§ US$312 million Covered Facility with a tenor of 12½ years maturing on May 10, 2021.Interest is payable semi-annually based on LIBOR plus 325 basis points. This facility iscovered by a Political Risk Insurance (PRI) premium.

§ US$188 million Uncovered Facility with a ten-year tenor maturing onNovember 10, 2018. Interest is payable semi-annually based on LIBOR plus: (i) 3.50%per annum from the financial close until the 5th anniversary of the Refinancing Date,(ii) 3.75% per annum from the 6th until the 7th anniversary of the Refinancing Date, and(iii) 3.9% per annum from the 8th anniversary of the Refinancing Date until the finalmaturity date, which is on November 10, 2018.

§ US$44 million KfW Loan with a term until November 2012. This loan has fixed interestrate of 7.20% and interest is payable semi-annually.

A portion of the proceeds of the term loans was used to repay outstanding loans of FGPCamounting to US$132.0 million and the remaining was upstreamed to FGPC’s othershareholders as advances which are interest bearing. Such advances are subject to interest rateof 175 basis points over the average of the rate for the six months U.S. dollar deposits quotedby three reputable reference banks in the Philippines, provided however, that such interest rateshall in no case exceed 5.80%.

With respect to the Covered Facility, the interest is payable semi-annually, every May andNovember, based on LIBOR plus 325 basis points. This facility is covered by a PRI, andpremiums payable on the PRI are in addition to the margins payable by FGPC. The CoveredFacility will mature on May 10, 2021.

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As to the Uncovered Facility, the interest is also payable semi-annually, every May andNovember, based on LIBOR plus: (i) 3.50% per annum from the financial close until the5th anniversary of the Refinancing Date, (ii) 3.75% per annum from the 6th until the 7th

anniversary of the Refinancing Date, and (iii) 3.90% per annum from the 8th anniversary of theRefinancing Date until the final maturity date, which is on November 10, 2018.

Bayerische Hypo-Und Vereinsbank AG (Hong Kong Branch) and Société Générale(Singapore Branch) assigned all of their rights and obligations under the common terms of theproject financing facility agreement (Common Terms Agreement or CTA) and the BankFacility Agreement up to a total amount of US$10.0 million (which is comprised of US$5.0million principal amount of the Covered Facility and US$5.0 million principal amount of theUncovered Facility) to GE Capital Corporation, and the US$5.5 million principal amount ofUncovered Facility to Banco De Oro Unibank, Inc. (BDO Unibank), respectively. In 2012,Société Générale (Singapore Branch) assigned all of its rights and obligations under the CTAand the Bank Facility Agreement up to a total amount of P=840 million (US$19.9 million) ofprincipal amount of the Covered Facility to Allied Banking Corporation.

However, the existing swap contracts (see Note 33) with Bayerische Hypo-Und VereinsbankAG (Hong Kong Branch) and Société Générale (Singapore Branch) were not assigned.

As at December 31, 2013 and 2012, the unamortized debt issuance costs incurred inconnection with FGPC’s long-term debts amounting to P=289 million (US$6.5 million) andP=337 million (US$8.2 million), respectively, were deducted against the long-term debts forfinancial reporting purposes.

The movement of the account is as follows:


Balance at beginning of year P=337 P=440Accretion for the year charged to finance costs

(see Note 26) (48) (75)Foreign exchange adjustments – (28)Balance at end of year P=289 P=337

The CTA of the FGPC financing facility contain covenants concerning restrictions withrespect to, among others: maintenance of specified debt service coverage ratio; acquisition ordisposition of major assets; pledging of present and future assets; change in ownership; anyacts that would result in a material adverse effect on the operations of the Santa Rita powerplant; and maintenance of good, legal and valid title to the site free from all liens andencumbrances other than permitted liens. As at December 31, 2013 and 2012, FGPC is incompliance with the terms of the said agreement.

FGPC has also entered into separate agreements in connection with its financing facilities asfollows:

§ Mortgage, Assignment and Pledge Agreement whereby a first priority lien on mostFGPC’s real and other properties, including revenues from the operations of the SantaRita power plant, has been executed in favor of the lenders. In addition, the shares ofstock of FGPC were pledged as part of security to the lenders.

§ Inter-Creditor Agreements, which describe the administration of the loans.

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§ Trust and Retention Agreement (TRA) with the lenders’ designated trustees. Pursuant tothe terms and conditions of the TRA, FGPC has established various security accounts withdesignated account banks, where inflows and outflows of proceeds from loans, equitycontributions and project revenues are monitored. FGPC may withdraw or transfermoneys from these security accounts, subject to and in accordance with the terms andconditions of the TRA.

FGP. The long-term debts of FGP consist of the following U.S. dollar-denominatedborrowings availed from various lenders to partly finance the construction and operations ofits power plant complex.

Facility Outstanding BalancesNature Repayment Schedule Amount 2013 2012New term loan facility with

various local banks and withinterest at six-month LIBORplus 2.25%

Repayment to be made invarious semi-annualinstallments from 2013 upto 2022

P=18,646 P=17,663 P=17,043

Total 17,663 17,043Less current portion 770 712Noncurrent portion P=16,893 P=16,331

§ US$133 million HERMES Covered Facility with a 12-year tenor maturing onDecember 10, 2014. Interest is computed annually at commercial interest reference rateof 7.48%;

§ US$115 million ECGD Facility with a 12-year tenor maturing on December 10, 2014.Interest is computed semi-annually computed at three to six months LIBOR plus 2.15%.

§ US$77 million GKA Covered Facility with a 13.5-year tenor maturing onDecember 10, 2016. Interest is computed annually at six months LIBOR plus 1.4% withoption to convert into fixed rate loan.

On October 3, 2012 (the “Refinancing Date”), FGP entered into a Facility Agreementcovering a P=17,241 million (US$420 million) term loan facility with seven local banksnamely: BDO Unibank, Inc., Bank of the Philippine Islands, Philippine National Bank, RizalCommercial Banking Corporation, Union Bank of the Philippines, The Hong Kong andShanghai Banking Corporation Limited and Security Bank Corporation. The proceeds will beused to repay in full the aggregate principal, accrued interests and fees outstanding under theexisting facilities, to fund the debt service reserve amount in the debt reserve account, to fundFGP’s general and corporate working capital requirements, and to upstream the remainingbalance to fund investments in other power projects.

On October 22, 2012, FGP availed the P=17,241 million (US$420 million) term loan facilitywith a 10-year tenor until October 2022. As a result of the refinancing, a portion of theproceeds of the term loan facility was used to pay the outstanding loans amounting toP=3,178 million (US$77.4 million), and the remaining balance after funding of the debt reserveaccount and payment of other fees and expenses was upstreamed to First Gen as advances onNovember 5, 2012.

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With respect to the term loan facility, the interest rate is computed semi-annually, every Juneand December, using the six-month LIBOR floating benchmark rate plus 225 basis points.Except for the first and the last interest periods wherein the benchmark rate will be the LIBORrate for such period nearest to the duration of the first and the last interest periods,respectively. The term loan facility offers FGP the one-time option to reset the floatinginterest rate to a fixed interest rate to be applicable to all or a portion of the outstanding loanson December 10, 2015 or on December 10, 2017 by informing the facility agent five (5)banking days prior to the effective date of the resetting of the interest rate.

As at December 31, 2013 and 2012, the unamortized debt issuance costs incurred inconnection with FGP’s long-term debts amounting to P=182 million (US$4.1 million) andP=197 million (US$4.8 million), respectively, were deducted against the long-term debts forfinancial reporting purposes.

The movement of the account is as follows:


Balance at beginning of year P=197 P=82Additions – 203Accretion of finance costs (15) (34)Unamortized debt issuance costs charged to

finance costs – (48)Foreign exchange adjustment – (6)Balance at end of year P=182 P=197

The covenants in the new term loan facility of FGP’s financing agreement entered onOctober 22, 2012, are limited to restrictions with respect to: change in corporate business;amendment of constituent documents; incurrence of other loans; granting of guarantees orright of set-off; maintenance of good, legal and valid title to the critical assets of the site freefrom all liens and encumbrances other than permitted liens; transactions with affiliates; andmaintenance of specified debt service coverage ratio and debt to equity ratio. FGP’s real andother properties and shares of stock are no longer mortgaged and pledged as part of security tothe lenders. Instead, FGP covenants to its lenders that it shall not permit any indebtedness tobe secured by or to benefit from any lien on the critical assets of the site, except with theconsent of the lenders. As at December 31, 2012, FGP is in compliance with the terms of thesaid agreement.

The balance of FGP’s and FGPC’s unrestricted security accounts, included as part of the“Cash and cash equivalents” account in the consolidated statements of financial position as atDecember 31, 2013 and 2012, amounted to P=5,314 million (US$119.7 million) andP=4,327 million (US$105.3 million), respectively (see Note 6).

EDC’s US$ 300.0 Million NotesOn January 20, 2011, EDC issued a 10-year US$300.0 million notes (P=13,350 million) at6.50% interest per annum which will mature in January 2021. The notes are intended to beused by EDC to support the business expansion plans, finance capital expenditures, servicedebt obligations and for general corporate purposes. Such notes were listed and quoted on theSingapore Exchange Securities Trading Limited (SGX-ST).

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EDC’s Peso Public Bonds (P=12.0 billion)On December 4, 2009, EDC received P=12.0 billion proceeds from the issuance of fixed ratePeso public bonds - split into two tranches - P=8.5 billion, due after five years and six monthsand P=3.5 billion, due after seven years, paying a coupon of 8.6418% and 9.3327%,respectively, and P=3.5 billion, due after seven years, paying a coupon of 8.6418% and9.3327%, respectively. The peso public bonds are also listed on PDEx.

Effective November 14, 2013, certain covenants of the peso public bonds have been alignedwith the 2013 peso fixed-rate bonds through consent solicitation exercise held by EDC.Upon securing the required consents, a Supplemental Indenture embodying the parties’agreement on the proposed amendments was signed on November 7, 2013 between EDC andRizal Commercial Banking Corporation – Trust and Investments Group in its capacity astrustee for the bondholders.

EDC’s loan agreement with IFC (P=7.4 billion)EDC entered into a loan agreement with IFC, a shareholder of the EDC, on November 27,2008 for US$100.0 million or its Peso equivalent of P=4,100 million. On January 7, 2009, EDCopted to draw the loan in Peso and received the proceeds amounting to P=4,048.8 million, netof P=51.5 million front-end fee. The loan is payable in 24 equal semi-annual instalments after athree-year grace period at an interest rate of 7.4% per annum for the first five years subject torepricing for another five to 10 years. Under the loan agreement, EDC is restricted fromcreating liens and is subject to certain financial covenants.

On May 20, 2011, EDC signed a 15-year US$75.0 million loan facility with the IFC to fundits 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 instalmentsafter a three-year grace period at an interest rate of 6.657% per annum. The loan includesprepayment option which allows EDC to prepay all or part of the loan anytime starting fromthe date of the loan agreement until maturity. The prepayment amount is equivalent to the sumof the principal amount of the loan to be prepaid, redeployment cost and prepaymentpremium.

EDC’s Issuance of FXCN (P=7.0 billion) and Prepayment of FRCNOn July 3, 2009, EDC received P=7,500.0 million proceeds from the issuance of FRCN splitinto two tranches. The first tranche of P=2,644.0 million will mature after 5 years and thesecond tranche of P=4,856.0 million will mature after 7 years with a coupon rate of 8.3729%and 9.4042% respectively. On September 3, 2009, EDC received P=1,500.0 million proceedsfrom the additional issuance of FRCN, a 5-year series paying a coupon of 8.4321%.

On April 4, 2012, EDC signed a 10-year FXCN facility agreement amounting toP=7,000.0 million which is divided into two tranches. The proceeds from the first trancheamounting to P=3,000.0 million were used to prepay in full its FRCN Series One and SeriesThree for P=1,774.3 million and P=1,007.1 million, respectively. Subsequently, on May 3, 2012,the FRCN Series Two was also prepaid in full for P=4,211.1 million using the proceeds fromthe second FXCN tranche amounting to P=4,000.0 million. The FXCN tranches 1 and 2 bear acoupon rate of 6.6173% and 6.6108% per annum, respectively. FRCN Series One and SeriesThree were originally scheduled to mature in July 2014 while FRCN Series Two wasoriginally scheduled to mature in July 2016.

EDC recognized loss amounting to P=114.7 million arising from early extinguishment ofFRCN in 2012. Debt issuance costs amounting to P=100.2 million was capitalized as part of thenew FXCN (see Note 26).

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EDC’s Refinanced Syndicated Term Loan ($175 million)On June 17, 2011, EDC had entered into a credit agreement for the US$175.0 million(P=7,630.0 million) transferable syndicated term loan facility with ANZ, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Chinatrust (Philippines) Commercial Banking Corporation, ING BankN.V., Manila Branch, Maybank Group, Mizuho Corporate Bank, Ltd. and Standard CharteredBank as Mandated Lead Arrangers and Bookrunners. The purpose of the new loan is torefinance the old US$175.0 million syndicated term loan availed on June 30, 2010 withscheduled maturity of June 30, 2013. The new loan carries an interest of LIBOR plus a marginof 175 basis points and has instalment repayment scheme to commence on June 27, 2013 untilJune 27, 2017. The extinguished syndicated term loan had an interest rate of LIBOR plus amargin of 325 basis points. Loss on debt extinguishment amounting to P=198 millionrecognized as a result of the loan extinguishment is presented under finance cost in the 2011consolidated statement of income (see Note 26).

EDC’s Peso Fixed-Rate Bonds (P=7,000 million)On May 3, 2013, EDC issued fixed-rate peso bonds in an aggregate principal amount ofP=7,000 million. The bonds, which have been listed on the Philippine Dealing & ExchangeCorp. (PDEx), are comprised of P=3,000 million seven-year bonds at 4.1583% andP=4,000 million 10-year bonds at 4.7312% due on May 3, 2020 and May 3, 2023, respectively.Interest is payable semiannually starting November 3, 2013. Transaction costs incurred inconnection with the issuance of the seven-year bonds and 10-year bonds amounted toP=39.1 million and P=52.1 million, respectively.

The net proceeds were used by EDC to partially fund the 87 MW Burgos wind project locatedin the municipality of Burgos, Ilocos Norte with estimated project cost of US$300.0 million.Any difference between the total construction costs and the net proceeds of the bonds will besourced from internally generated cash, existing credit lines, and other potential borrowings.Pending disbursement for the construction, EDC invests the net proceeds in short-term liquidinvestments including, but not limited to, short-term government securities, bank deposits andmoney market placements which are expected to earn prevailing market rates.

EDC undertakes that it will not use the net proceeds from the bonds for any other purpose,other than as discussed above. In the event of any deviation or adjustment in the planned useof proceeds, EDC shall inform the bondholders and the SEC within 30 days prior to itsimplementation.

Loan CovenantsThe loan covenants covering EDC’s outstanding debts include, among others, maintenance ofcertain level of current, debt-to-equity and debt-service ratios. As at December 31, 2013 and2012, EDC is in compliance with the loan covenants of all their respective outstanding debts.

EDC’s US$80 Million Term LoanOn March 21, 2013, EDC entered into a credit agreement with certain banks to avail of a termloan facility of up to $80 million with availability period of 12 months from the date of theagreement.

On December 6, 2013, EDC availed of the full amount of the term loan with maturity date ofJune 21, 2018. The proceeds are intended to be used by EDC for business expansion, capitalexpenditures, debt servicing and for general corporate purposes. The term loan carries aninterest rate of 1.8% margin plus LIBOR. Debt issuance costs related to the term loanamounted to $1.9 million, including front-end fees and commitment fee.

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The repayment of the term loan shall be made based on the following schedule: 4.0% and5.0% of the principal amount on the 15th and 39th month from the date of the credit agreement,respectively; and 91.0% of the principal amount on maturity date.

FG Hydro Loan (P=4.3 billion)On May 7, 2010, FG Hydro signed a loan agreement for a 10-year P=5,000.0 million loan withPNB and Allied Bank, maturing on May 7, 2020. The loan is secured by a real estate andchattel mortgages on all present and future mortgageable assets of FG Hydro. The loan carriesan interest rate of 9.025% subject to re-pricing after five years. Loan repayment is semi-annualbased on increasing percentages yearly with the first payment made on November 8, 2010.The loan proceeds were used to finance the full payment of the Deferred Payment Facility andthe PRUP, and fund general corporate and working capital requirements of FG Hydro.

On November 7, 2012, FG Hydro’s outstanding loan amounting to P=4.3 billion wasrestructured by way of an amendment to the loan agreement. The amended agreementprovided for a change in the determination of the applicable interest rates and extended thematurity date of the loan by two years with the last repayment to be made on November 7,2022. FG Hydro has the option to select its new applicable interest rate between a fixed or afloating interest rate. FG Hydro opted to avail of the loan at the floating rate which is thehigher of the 6-month PDST-F rate plus a margin of 1.50% per annum or the BSP overnightrate plus a margin of 1% per annum as determined on the interest rate setting date. For the firstinterest period, the applicable rate was determined as the BSP overnight rate of 3.5% plus 1%margin. The principal and interest on the loan are payable on a semi-annual basis. Interestrates are determined at the beginning of every interest period. FG Hydro has a one-time optionto convert to a fixed interest rate any time after the amendment effectivity date.

FG Hydro has assessed that the loan restructuring resulted to substantial modification of theterms of the original loan; hence, the original loan was considered extinguished. Amortizationof the remaining transaction cost of the old loan amounting to P=49.0 million was acceleratedand the transaction cost incurred for the restructured loan amounting to P=24.5 million wasrecognized as part of the loss on extinguishment of debt (see Note 26).

FG Hydro has been compliant to the covenants of its existing loans as at December 31, 2013and 2012.

Red Vulcan (P=7.0 billion)On November 26, 2007 (the “Drawdown Date”), Red Vulcan availed of a Philippine peso-denominated staple financing amounting to P=29,200.0 million (the “Secured Indebtedness”)that was arranged by the Philippine Government’s financial advisor for EDC’s stake saleunder an Omnibus Loan and Security Agreement (the “Staple Financing Agreement”). TheStaple Financing was made available by a group of local lenders, namely Development Bankof the Philippines (DBP), Banco de Oro-EPCI, Inc. (BDO) and Land Bank of the Philippines(Land Bank) (collectively referred to as the “Staple Financing Lenders”) in relation to the saleof 60% of EDC’s issued and outstanding capital stock. The interest rate of the SecuredIndebtedness is computed either using monthly, quarterly, or semi-annually at Red Vulcan’soption, using the Philippine Dealing System Treasury Fixing (PDST-F) benchmark rate plusthe applicable interest margin, whichever is higher. Red Vulcan opted to use semi-annual ratebased on PDST-F. The staple financing was for a maximum term of 18 months fromDrawdown Date.

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As was set forth in the Staple Financing Agreement, Red Vulcan was obligated to complywith certain covenants with respect to, among others: maintenance of a specified debt-to-equity ratio; not make or permit any material change in the character of its or EDC’s businessnor engage or allow EDC to engage in any business operation or activity other than those forwhich it is presently authorized by law; not dispose of all or substantially all of its and EDC’sassets and no material changes in the corporate structure or in the composition of its top-levelmanagement. In addition, Red Vulcan is restricted to declare or pay dividends (other thanstock dividend) to its stockholders or partners without the consent of all Staple FinancingLenders. Red Vulcan was also restricted, except for permitted borrowings, to incur any long-term debts, increase its borrowings, or re-avail of existing facilities with other banks orfinancial institutions.

In addition, all of the shares of stock held by Red Vulcan in EDC, which represented 60% ofEDC’s issued and outstanding capital stock, consisting of 6,000.0 million common stocks and7,500.0 million preferred stocks (collectively, the “Pledged Shares”), were pledged as primarysecurity for the due and prompt payment of the Secured Indebtedness. The Pledged Shareswere adjusted to effect the 25% stock dividend to the shareholders of EDC declared in 2009.

On November 28, 2008, DBP and Land Bank assigned to BDO Unibank, Inc.-Trust andInvestments Group (BDO Trust) their corresponding portion of the staple financing loanamounting to P=5,310.0 million.

On May 14, 2009 (the “Closing Date”), Red Vulcan signed an amended and restated OmnibusLoan and Security Agreement with BDO and BDO Trust (the “Lenders”) to extend the term ofthe loan for a maximum of five years and one day from the Closing Date, inclusive of two-year grace period on the principal. Interest is payable every May and November of each yearat six-month PDST-F benchmark rate plus 2.5% interest margin per annum.

On August 13, 2009, BDO Trust executed a Deed of Assignment with respect to itscorresponding share on the outstanding balance of the loan wherein it assigned, set over,transferred and conveyed without recourse, all its rights, title and interest to Prime Terracota.Prime Terracota then became one of the creditors of Red Vulcan.

On February 5, 2010, with the conformity of the Lenders, Red Vulcan has effected a partialprepayment of its outstanding loan payable to Prime Terracota, amounting toP=5,296.2 million (gross of debt issuance cost of P=48.0 million) plus accrued interestamounting to P=80.3 million by way of converting such loan payable into deposits for futurestock subscriptions. On April 20, 2010, Red Vulcan made an additional cash prepayment toBDO amounting to P=260.0 million.

On April 11, 2011, Red Vulcan made a partial prepayment of its outstanding loan payable toBDO amounting to P=713.7 million plus accrued interest amounting to P=199.4 million.Dividend received from EDC was used to partially prepay the loan.

Discharged Shares

I. On July 11, 2011, pursuant to the amended and restated Omnibus Loan and SecurityAgreement, the Lenders agreed to a partial release of the Pledged Assets and PledgedShares ("Pledged Securities"). The Lenders instructed the Security Trustee to release anddischarge the pledge and any and all liens in favor of the Lenders on 5,045,508,270common stock in EDC (the “Discharged Shares”), and the Security Trustee thereafterreleased and discharged the pledge and any and all liens over the Discharged Shares.

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After the release of the Discharged Shares, the Pledged Securities now consisted of thePledged Assets on 209,913,000 common stock and preferred stock of Red Vulcan and thePledged Shares on 2,454,491,730 common stock and 9,375,000,000 preferred stock ofEDC.

II. On February 21, 2013, pursuant to amendment and restated Omnibus Loan and SecurityAgreement (Amendment No. 4), the Lenders agreed to a release of the Pledged Assets anda partial release of the Pledged Shares. The Lenders instructed the Security Trustee torelease and discharge the pledge and any and all liens in favor of the Lenders on209,913,000 common stock and preferred stock of Red Vulcan and on 9,375,000,000preferred stock of EDC. After the release of the Discharged Shares, the PledgedSecurities now only consists of the Pledged Shares on 2,454,491,730 common stock ofEDC.

Also pursuant to Amendment No. 4 of the Staple Financing Agreement, the Lenders agreed toextend the term of the loan for another three years and six months from the original maturitydate of May 15, 2014. The loan will mature on November 14, 2017.

The unamortized debt issuance costs incurred in connection with the availment of long-termdebt by Red Vulcan are deducted against the long-term debt. Movement of debt issuance costsare as follows:


Balance at beginning of year P=23 P=38Additions during the year 37 –Accretion during the year charged to “Interest

expense and financing charges” account (seeNote 26) (17) (17)

Foreign exchange difference (3) 2Noncurrent portion P=40 P=23

c. Manufacturing Companies

First Philec’s US$20.6 million Secured loan. On December 17, 2012, First Philec entered intoa loan agreement with PNB with the following terms:

i. The interest is equal to the applicable base rate of the loan plus the interest margin, wherethe base rate applicable shall be the floating rate interest (3.5% + 90 days LIBOR).

ii. The term is ten years.

iii. First Philec is required to maintain a maximum debt to equity ratio of 3:1. First Philec isin compliance with the debt covenant as at December 31, 2013 and 2012.

Interest expense recognized for the long-term loans included under “Finance costs” account inthe consolidated statements of income amounted to P=1.26 million and P=41.15 million in 2013and 2012, respectively (see Note 26).

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FPSC’s BDO Sale and Leaseback. On February 1, 2010, FPSC entered into a sale andleaseback agreement with BDO Leasing and Finance Corporation (BDOLFC). FPSC sold15 wiresaw equipment with BDOLFC. These equipment were subsequently leased back by thelatter to FPSC under a finance lease agreement with the following terms:

i. FPSC shall sell and BDOLFC shall buy and lease back the equipment to FPSC for a totalcost of P=500 million (US$10.6 million);

ii. A guarantee fee equivalent to 5% of the principal shall be deducted from the saleproceeds;

iii. The principal amount of less the 5% guarantee fee shall be paid by FPSC over the leaseterm plus a fixed interest. The interest rate is within prevailing market rates;

iv. The term of the lease shall be five years, commencing on the first month after date of sale;

v. The ownership of the leased equipment shall be transferred to FPSC upon completion ofall payments as stipulated in the side agreement relative to the lease agreement; and,

vi. FPSC is required to maintain a maximum debt to equity ratio of 2.5:1.0. FPSC isincompliance with the debt covenant as at December 31, 2011.

On October 22, 2013, BDO Leasing and Finance, Inc. and First Philec entered into a Deed ofAssignment with conformity of FPSC. Under the agreement, BDO assigned and transferredthe lease extended to FPSC with outstanding balance of $5.72 million, its rights, title andinterests in and over the lease, schedules and the equipment and further agrees that theguarantee is extinguished. The remaining term of the lease as at December 31, 2013 is 1.4years.

As at December 31, 2013 and 2012, the debt to equity ratio of FPSC was affected by therecognition of an impairment loss on machinery and equipment in 2012 (see Note 12). FPSCis currently exploring various options to address this. However, this matter has no effect onthe consolidated financial statements as at December 31, 2013 and 2012.

The carrying amount of the assets held under finance lease as at December 31 are as follows(see Note 12):


Building and equipment held under finance lease P=472 P=572Less accumulated depreciation 408 432

P=64 P=140

PHILEC’s P=300 million Maybank Secured Loan. On February 7, 2011, PHILEC entered into aloan agreement with Maybank Philippines, Inc. amounting to P=300 million for permanentworking capital and other corporate requirements.

The loan is secured by a parcel of land owned by PHILEC and includes provision for negativecovenants. The loan bears interests at a floating rate based on the three (3)-month PDST-F + 3%or a fixed rate based on the five (5)-year PDST-F + 2.5% and is payable in five years.

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Interest expense charged to the “Finance costs” account in the consolidated statements ofincome amounted to P=8 million, P=12 million and P=16 million in 2013, 2012 and 2011,respectively (see Note 26).

d. Real Estate Companies

Rockwell Land

Peso Bonds. On November 15, 2013, Rockwell Land issued P=5.0 billion unsecured fixed-rateretail peso bonds. The bonds have a term of seven (7) years and one (1) quarter from the issuedate, with fixed interest rate equivalent to 5.0932% per annum. Interest on the bonds will bepayable quarterly in arrears commencing on February 15, 2014.

The bonds were offered to the public at face value through its underwriters First MetroInvestment Corporation and SB Capital and Investment Corporation. The bonds were issuedin scripless form, with the Philippine Depository & Trust Corporation maintaining theElectronic Registry of Bondholders, as the Registrar of the Bonds. On issue date, the bondswere listed in Philippine Dealing & Exchange Corporation to facilitate secondary trading.

The bonds shall be redeemed at par (or 100% of face value) on February 15, 2021, its maturitydate, unless Rockwell Land exercises its early redemption option in accordance with certainconditions. The embedded early redemption is clearly and closely related to the host debtcontract; thus, not required to be bifurcated and accounted for separately from the hostcontract.

The movement in debt issuance costs pertaining to Rockwell’s bonds is as follows:

Amount(In Millions)

Balance at inception of Bonds Payable P=49Accretion charged to finance costs (see Note 26) (1)Balance at end of year P=48

The loan contains, among others, covenants regarding incurring additional long-term debt andpaying-out dividends, to the extent that such will result in a breach of the required debt-to-equity ratio and current ratio. As at December 31, 2013, Rockwell Land has complied withthese covenants.

Corporate Notes. In April 2011, Rockwell Land entered into a new Fixed Rate CorporateNotes Facility Agreement with First Metro Investment Corporation, PNB Capital andInvestment Corporation (Joint Lead Arrangers), MBTC - Trust Banking Group (Facility Agentand Collateral Trustee), and Philippine National Bank - Trust Banking Group (Paying Agent)for a P=4,000 million, unsecured, fixed rate corporate notes (“the Notes”) for the purpose offinancing the acquisition of properties for development and to refinance certain obligations ofRockwell Land. The Notes are comprised of Tranche 1 and Tranche 2, amounting toP=2,500 million and P=1,500 million, respectively. Tranche 1 has been availed of in April 2011.Tranche 2 was availed in April 2012. The Corporate Note is payable in 22 quarterly paymentsstarting January 2013 until April 2018. Under the terms of the Corporate Notes, RockwellLand may, at its option and without premium and penalty, redeem the Corporate Notes inwhole or in part, subject to the conditions stipulated in the agreement. The embedded earlyredemption and prepayment options are clearly and closely related to the host debt contract;thus, do not require to be bifurcated and accounted for separately in the host contract.

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Interest is fixed up to maturity at a rate per annum equal to the Benchmark Rate plus 0.65%plus Gross Receipts Tax (GRT).

As at December 31, 2012, Rockwell Land negotiated for the pre-termination of the CorporateNotes. On January 7, 2013, Rockwell Land pre-terminated the entire outstanding principalamount of the Corporate Notes which was then financed by the new corporate note discussedbelow.

On November 27, 2012, Rockwell Land entered into a Fixed Rate Corporate Notes FacilityAgreement (“the Agreement”) with the same creditors for a P=10,000 million fixed ratecorporate notes (“the Notes”) for the purpose of refinancing the existing P=4,000 million fixed-rate corporate notes and to finance Rockwell Land’s capital expenditures and landacquisitions. The Notes are comprised of Tranche 1, Tranche 2 and Tranche 3, amounting toP=4,000 million, P=2,000 million and P=4,000 million, respectively. Tranches 1 and 2 wereavailed on January 7, 2013 and March 7, 2013, respectively. Tranche 3 was availed in threedrawdowns amounting to P=1,000 million, P=1,500 million and P=1,500 million on May 27,2013, July 26, 2013 and August 27, 2013, respectively. The Notes amounting to10,000 million is payable in 22 quarterly payments starting October 2014.

As at December 31, 2012, the P=4,000 million Notes are secured by a parcel of land andMortgage Participation Certificates amounting to P=4,000 million on a Mortgage TrustIndenture (MTI) and its amendments and supplements over the Power Plant Mall(see Note 14). As at December 31, 2012, the MTI collateral has increased from P=3,000million to P=4,400 million. However, the MTI collateral was subsequently released onJanuary 7, 2013 as the P=10,000 million Corporate Notes are only secured by a negativepledge.

Interest is fixed up to maturity at 75 to 90 bps over the seven-year PDST-F, grossed-up forGRT.

The repayments of loans based on existing terms are scheduled as follows:

Amount(In Millions)

2014 P=4002015 1,6002016 1,6002017 onwards 6,400Total P=10,000

The loan contains, among others, covenants regarding incurring additional debt and dividend,to the extent that such will result in a breach of the required debt-to-equity ratio and currentratio. As at December 31, 2013 and 2012, the Rockwell Land has complied with thesecovenants.

Installment Payable. In November 2011, Rockwell Land entered into a Deed of Sale withFutura Realty, Inc. for the purchase of land for development adjacent to the Rockwell Center.This will house the latest condominium project of Rockwell Land called “Proscenium” Project(see Note 8).

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Under the Deed of Sale, Rockwell Land will pay for the cost of the property in installmentuntil year 2015 and a one-time payment in year 2020. Schedule of payments of the remaininginstallment payable based on undiscounted amounts are as follows:

Amount(In Millions)

June 2013 P=800June 2014 800June 2015 800June 2020 655Total P=3,055

The installment payable and the corresponding land held for development were recorded atpresent value using the discount rate of 8%. Accretion of interest expense amounted toP=153 million and P=195 million in 2013 and 2012, respectively, and was capitalized as part ofland and development costs (see Note 8).

As at December 31, 2013 and 2012, the carrying value of the installment payable amounted toP=1,856 million and P=2,500 million, respectively.

Installment payable is secured by Stand-By Letters of Credit (SBLC) from MBTC and FMICtotaling P=2.400 million. These SBLC provides for a cross default provision wherein theSBLC shall automatically be due and payable in the event Rockwell Land’s other obligation isnot paid when due or a default in any other agreement shall have occurred, entitling the holderof the obligation to cause such obligation to become due prior to its stated maturity.

The related deferred input VAT amounting to P=156.0 million and P=241.6 million, net ofcurrent portion of P=85.7 million, in 2013 and 2012, respectively (see Note 16), is recognizedas part of “Other noncurrent assets” account in the consolidated statements of financialposition. This deferred input VAT will be claimed against output VAT upon payment of therelated installment payable.

Loans from Various Local Banks and Financial Institutions. In 2012, the Rockwell Landobtained bridge facilities totaling P=400.0 million. These loans earn interest fixed at 4.5% perannum. These loans have been fully settled as at December 31, 2013.

Interest expense on interest-bearing loans and borrowings amounted to P=298.1 million,P=232.5 million and P=171.3 million in 2013, 2012 and 2011, respectively (see Note 26).Interest expense capitalized as part of land and development costs amounted to P=107.9 millionand P=18.3 million in 2013 and 2012, respectively (see Note 8).

Loan Transaction Costs. As at December 31, 2013 and 2012, loan transaction costs consistingof documentary stamp tax and underwriting fees on the corporate notes and bonds werecapitalized and presented as a deduction from the related loan balance.

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The movements in the balance of the capitalized loan transaction costs as are as follows:

2013 2012

Balance at beginning of year P=27 P=21Additions during the year 138 14Amortization during the year (32) (8)Balance at end of year P=133 P=27

e. Others

First Balfour has the following long-term debts as at December 31, 2013 and 2012:

PNB Loan Agreement. This represents a loan agreement for an aggregate principal amount ofP=1,000 million with an initial drawdown P=600 million in October 2013. The interest rate is afloating interest rate. This is secured by a chattel mortgage over the First Balfour's existingequipment and equipment to be acquired out of the proceeds of the loan.

BDO Finance Leases. This represents two unsecured term loans from BDO amounting toP=50 million each signed in September 2010. The term loan will end in 2015 with principalpayable in semi-annual installments.

ORIX Long-term Notes. This represents various equipment financing loans availed on variousperiods from ORIX Metro Leasing and Finance Corporation with interests ranging from10.50% to 12.0% and terms of 36 to 48 months. This is secured by a chattel mortgage over theequipment purchased out of the proceeds of the loan.

As at December 31, 2013 and 2012, the First Balfour is in compliance with all therequirements of its debt covenants.

21. Asset Retirement and Preservations Obligation

The Group’s asset retirement and preservation obligations consist of the following:

First GenThis account consists of the asset retirement obligations of FGP, FGPC and FG Bukidnon. Undertheir respective ECCs, FGP, FGPC and FG Bukidnon have legal obligation to dismantle theirrespective power plant assets at the end of their useful lives. FG Bukidnon, on the other hand, hasa contractual obligation under the lease agreement with PSALM to dismantle its power plant assetat the end of its useful life. FGP, FGPC and FG Bukidnon have established provisions torecognize the estimated liability for the dismantlement of the power plant assets.

EDCIn the case of EDC, the asset retirement obligation pertain to the present value of estimated costsof legal and constructive obligations required to restore all the existing sites upon termination ofthe cooperation period. The nature of these restoration activities includes dismantling andremoving structures, rehabilitating wells, dismantling operating facilities, closure of plant andwaste sites, and restoration, reclamation and re-vegetation of affected areas. The obligationgenerally arises when the asset is constructed or the ground or environment at the site is disturbed.

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When the liability is initially recognized, the present value of the estimated costs is capitalized aspart of the carrying amount of the related FCRS and production wells (see Note 12).

FPICAsset preservation obligation (APO) recognized by FPIC in 2013 represents the net present valueof obligations associated with the preservation of property and equipment that resulted fromacquisition, construction or development and the normal operation of property and equipment.The Company commissions an independent party, as deemed appropriate, to initially estimateAPO. APO is capitalized as part of property and equipment and amortized on a straight-line basisover the estimated life of the related asset or lease term, whichever is shorter (see Note 12).

Movements of the asset retirement and preservation obligations follow:


Balance at beginning of year P=546 P=458Addition (see Note 12) 567 –Effect of revision of estimate 137 57Accretion of finance costs (see Note 26) 63 32Unwinding of discount of NNGP 24 28Foreign exchange adjustment (21) (29)Balance at end of year P=1,316 P=546

22. Other Noncurrent Liabilities

2013

2012(As restated -


Customers’ deposits (see Note 18) P=585 P=110Provisions (see Note 35) 493 319Retention payable - net of current portion

(see Note 18) 283 122Unearned revenue 51 81Due to related party (see Note 30) – 100Others 39 7

P=1,451 P=739

Customers’ deposits pertain to cash received from pre-selling activities and security deposits ofRockwell Land and advance rental payments received by FPIP (see Notes 8 and 18).

Provisions pertain to EDC’s liabilities on regulatory assessments and other contingencies (seeNote 35).

Retention payable is the portion of the amount billed by contractors that is being withheld assecurity in case Rockwell Land incurs costs during the defects and liability period, which is oneyear after a project’s completion. This is subsequently released to the contractors after the saidperiod.

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Unearned revenue consist of Rockwell Land’s deferred lease income pertaining to two monthsadvance rent included in the initial billing to mall tenants, which shall be applied to the monthlyrental at the end of the lease term, and to FPIC’s advances from Pilipinas Shell PetroleumCorporation (PSPC) which will be applied against future billings.

Due to related party amounting to P=100 million pertains to unsecured, non-interest bearing andPeso denominated loan obtained from Pilipinas Shell Petroleum Corporation. In 2013, this wasreclassified as a current liability as part of the “Loans payable” account (see Notes 19 and 30).

23. Equity

a. Common Stock

Number of Shares2013 2012 2011

Authorized - P=10 par value per share 1,210,000,000 1,210,000,000 1,210,000,000

Issued:Balance at beginning of year 605,116,867 601,301,243 599,406,397Issuances 2,863,786 3,815,624 1,894,846Balance at end of year 607,980,653 605,116,867 601,301,243

Subscribed:Balance at beginning of year 311,965 477,091 477,091Issuances (311,965) (165,126) –

Balance at end of year – 311,965 477,091Issued and subscribed 607,980,653 605,428,832 601,778,334

As at December 31, 2013 and 2012, subscriptions receivable amounted to nil and P=4 million,respectively. Additional paid-in capital increased by P=84 million, P=82 million and P=21 millionin 2013, 2012 and 2011, respectively, due to issuances of shares of common stock and share-based payment expense.

On May 3, 1963, the PSE approved FPH’s application to list 601,859,558 common shares atan offer price of P=15.75 a share. There are 12,363 and 12,453 shareholders of FPH’s commonshare as at December 31, 2013 and 2012, respectively.

Share BuybackOn July 8, 2010, the BOD of FPH approved a two-year Share Buyback Program of up toP=6.0 billion worth of the Company’s common shares. The Program has been extended foranother two years up to July 2014.

In 2013 and 2012, FPH did not buy back additional shares. As at December 31, 2013 and2012, the Company has bought back a total of 55,443,070 shares at an average cost per shareof P=60.33 or equivalent to P=3,345 million of treasury shares.

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The BOD of the Parent Company declared cash dividends of P=1.00 per outstanding commonshare in 2013 and 2012 as follows:

Declaration Date Record Date Payment DateNovember 7, 2013 (regular) November 21, 2013 December 12, 2013May 2, 2013 (regular) May 20, 2013 June 11, 2013May 2, 2013 (special) May 20, 2013 June 11, 2013November 8, 2012 (regular) November 22, 2012 December 12, 2012May 3, 2012 (regular) May 18, 2012 June 6, 2012

In 2013 and 2012, total dividends declared amounted to P=1,658 million and P=1,098 million,respectively. As at December 31, 2013 and 2012, dividends payable on common sharesamounted to P=151 million and P=132 million, respectively (see Note 18).

b. Preferred Stock

Number of Shares2013 2012

Authorized - P=100 par value per share 200,000,000 200,000,000

Issued and subscribed:Balance at beginning of year 63,000,000 63,000,000Redemption and cancellation or retirement (63,000,000) –Balance at end of year – 63,000,000

Series A – 20,000,000

Series B – 43,000,000

There are 93,000,000 shares and 30,000,000 shares that have been redeemed and cancelled orretired by the Parent Company as at December 31, 2013 and 2012, respectively.

Series “A” Preferred SharesThe Series “A” Perpetual Preferred shares are non-voting, cumulative in payment of dividendsequal to 1% of the par value per annum, non-participating, non-convertible and redeemable atthe option of the Parent Company at a redemption price equal to the aggregate of the issuevalue of the shares plus accrued but unpaid dividends.

On April 30, 2013, the Parent Company redeemed all its Series “A” Preferred Shares held byits subsidiary FGHC International at issue value of P=100 a share, for a total redemption priceof P=2,000 million.

Series “B” Perpetual Preferred SharesOn March 12, 2008, the PSE approved the Parent Company’s application to list 43,000,000Series “B” Perpetual Preferred shares at an offer price of P=100 a share. There are 107shareholders of the Parent Company’s Series “B” Perpetual Preferred Shares as atDecember 31, 2012.

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The Series “B” Perpetual Preferred shares are non-voting, cumulative, non-participating andnon-convertible. As and when declared by the BOD, cash dividends on the Series “B”Perpetual Preferred Shares shall be at a fixed rate of 8.7231% per annum. Unless these areredeemed by the Parent Company on the fifth anniversary from the Issue Date (the “Dividendrate Step Up date”), the Dividend Rate shall be adjusted on the Dividend Rate Step Up Date tothe higher of: (a) the Dividend Rate on Issue Date, or (b) the prevailing PDST-F 10-yeartreasury securities benchmark rate plus a margin of 175 basis points.

On April 30, 2013, the Parent Company redeemed all its Series “B” Preferred Shares at issuevalue of P=100 per share, for a total redemption price of P=4,300 million. The right of holdersof such shares to receive dividends thereon has ceased to accrue and all rights with respect tosuch series “B” shares has ceased and terminated, except for the right to receive theRedemption Price, but without interest thereon.

The BOD of the Parent Company declared cash dividends of P=2.18 and P=4.36 per share onoutstanding Series “B” Perpetual Preferred Shares in 2013 and 2012, respectively.

Declaration Date Record Date Payment DateMarch 7, 2013 April 3, 2013 April 30, 2013December 6, 2012 January 9, 2013 January 31, 2013

Total dividends declared amounted to P=94 million and P=186 million in 2013 and 2012,respectively. As at December 31, 2013 and 2012, dividends payable on preferred sharesamounted to P=1 million and P=189 million, respectively (see Note 18).

c. Equity Reserve

The share attributable to the Parent Company consists of:


First Gen’s acquisition of 40% stake in the First GasGroup (see Note 5) (P=7,170) (P=7,170)

First Gen and Northern Terracota’s acquisition ofEDC shares (4,431) (4,199)

Parent Company’s acquisition of 40% stake inFPUC from Union Fenosa Internacional, S.Aand Dilution of Interest in First Gen (2,581) (2,581)

EDC’s acquisition of FG Hydro 1,286 1,286Rockwell Land’s equity adjustment 249 249Parent Company’s purchase of Rockwell Land

shares from San Miguel Corporation(see Note 5) 86 86

First Philec’s transactions with non-controllingshareholders in First Philec Solar 24 24

(P=12,537) (P=12,305)

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§ First Gen and Northern Terracota’s acquisition of EDC shares

On March 2, 2011, First Gen and Northern Terracotta executed a Deed of Assignment toassign and sell First Gen’s full rights and obligations over the first tranche of an aggregate585 million EDC common shares covered by the Call Option Agreements. Theassignment gives Northern Terracotta the right to exercise the call option over 195 millionEDC shares on or before April 19, 2011, which is the expiration of the first exerciseperiod, at an exercise price of P=5.67 per share with a total cost amounting toP=1,106 million (US$25.3 million). The option was exercised by Northern Terracotta onMarch 8, 2011. The remaining option assets covering the 390 million shares wereexercised by First Gen on April 5, 2011 at an exercise price of P=5.51 per share for a totalcost of P=2,149 million (US$49.4 million). The transaction resulted in an equity reserveamounting to P=4,199 million.

In 2013, First Gen acquired additional shares of EDC resulting in an equity reserve ofP=528 million, of which P=232 million is attributable to the Parent Company.

§ Parent Company’s Acquisition of 40% stake in FPUC from Union Fenosa Internacional,S.A and Dilution of Interest in First Gen

The amount of P=2,581 million represents the net effect of FPH’s acquisition of 40% FPUCfrom Union Fenosa Internacional, S.A.’s on January 23, 2008 and of the dilution of FPH’sinterest in First Gen as a result of the latter’s public offering of common shares in 2007.

§ EDC’s acquisition of FG Hydro

On October 16, 2008, EDC, First Gen and FG Hydro entered into a Share Purchase andInvestment Agreement (SPIA), whereby EDC shall own 60% of the outstanding equity ofFG Hydro, which was then a wholly owned subsidiary of First Gen prior to the SPIA. FGHydro and EDC were subsidiaries of First Gen at that time and were, therefore, undercommon control of First Gen. The acquisition was accounted for similar to a pooling-of-interests method since First Gen controlled FG Hydro and EDC before and after theexecution of the SPIA. EDC recognized equity reserve pertaining to the differencebetween the acquisition cost and EDC’s proportionate share in the paid-in capital of FGHydro.

§ Rockwell Land’s equity adjustment

This account represents the difference between the consideration received from the sale ofthe proprietary shares and the carrying value of the related interest.

§ First Philec’s transactions with non-controlling shareholders in First Philec Solar

First Philec subscribed to additional shares in First Philec Solar in 2010. These resulted inincreased in First Philec’s interest to 74.54% which resulted in equity adjustment ofP=24 million in 2010.

d. Parent Company’s Retained Earnings Account Available for Dividend Declaration

The unappropriated retained earnings as at December 31, 2013 and 2012, includeundistributed net earnings of subsidiaries and associates. Such undistributed net earnings arenot currently available for dividend distribution unless declared by the subsidiaries andassociates to FPH.

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FPH’s retained earnings available for dividend declaration amounted toP=6,147 million and P=20,210 million as at December 31, 2013 and 2012, respectively.

FPH’s BOD made the following appropriations:

i. On June 21, 2012, the BOD approved the extension of the P=6,000 million ShareBuyback Program for the unutilized balance of P=2,655 million for another two yearsup to July 2014.

ii. On November 8, 2012, the BOD approved an appropriation of P=4,300 million forcapital expenditures, asset acquisitions, additional investments in subsidiaries andcorporate social responsibility activities over a period of three years. In 2013,P=2,218 million was released for such purposes.

iii. In February 2013, the BOD approved the appropriation of P=4,400 million for theredemption and cancellation or retirement of Series “B” preferred shares includingdividends in arrears. On April, 30, 2013, the Parent Company redeemed andcancelled or retired its preferred shares.

iv. On December 10, 2013, the BOD approved an additional appropriation ofP=5,786 million for debt service coverage requirements, capital expenditures, assetacquisitions, additional investments in subsidiaries and corporate social responsibilityactivities over a period of 3 years. For the year ended December 31, 2013,P=745 million was released for such purposes.On April 3, 2014, the BOD amended the appropriations made last December 10, 2013to include additional appropriations of P=561 million for debt service coveragerequirement, P=399 million for retirement fund, P=1,465 million for dividends andP=6,800 million for capital expenditures, assets acquisition, additional investment insubsidiaries and corporate social responsibility.

e. Non-controlling interests

i. First Gen’s issuance of Series “G” Perpetual Preferred Shares

On March 13, 2012, First Gen issued P=10.0 billion (Series “G”) Perpetual PreferredShares with issue price of P=100.0 a share, par value of P=10.0 a share and dividend rateof 7.8% on the issue price. The Series “G” Preferred Shares are peso-denominated,cumulative, non-voting, non-participating, non-convertible and redeemable at theoption of First Gen. P=8,345 million worth of the said shares is held by non-controlling shareholders (see Note 5).

ii. First Gen’s issuance of Series “F” Perpetual Preferred Shares

On July 25, 2011, First Gen issued P=10.0 billion Series “F” Perpetual Preferred Shareswith issue price of P=100.0 a share, par value of P=10.0 a share and dividend rate of8.0% on issue price. The Series “F” Perpetual Preferred Shares are peso-denominated, non-voting, cumulative, non-participating, non-convertible andredeemable at the option of First Gen. P=4,755 million worth of said shares is held bynon-controlling shareholders (see Note 5).

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iii. In 2013, the Group’s subsidiaries declared cash dividends to non-controllingshareholders amounting to P=2,243 million of which P=518 million is unpaid as atDecember 31, 2013 (see Note 18).

In 2012, the Group’s subsidiaries declared cash dividends to non-controllingshareholders amounting to P=1,399 million of which P=518 million is unpaid as atDecember 31, 2012 (see Note 18).

24. Executive Stock Option Plan and Employee Stock Purchase Plan

Parent Company’s Executive Stock Option PlanFPH has an Executive Stock Option Plan (ESOP) that entitles the directors, and senior officers topurchase up to 10% of FPH’s authorized capital stock on the offering years at a preset purchaseprice with payment and other terms to be defined at the time of the offering. The purchase priceper share shall not be less than the average of the last dealt price per share of FPH’s share of stock.

The terms of the Plan include, among others, a limit as to the number of shares an executive andemployee may purchase and the manner of payment based on equal semi-monthly installmentsover a period of 5 or 10 years through salary deductions.

The primary terms of the grants follow:

Option 1 Option 2 Option 3 Option 4 Option 5 Option 6Grant date March 2003 September 2003 March 2004 September 2004 March 2005 March 2006Offer price per share 10.00 17.7 23.55 27.10 58.6 41.65Number of shares subscribed 18,043,622 1,811,944 4,771,238 198,203 1,801,816 3,002,307Option value per share 4.77 9.83 11.84 14.78 32.68 8.83

The option grants are offered within 30 days upon receipt of the agreement for new entitledofficers. The said officers are given until the 10th year of the grant date to exercise the option.These options vest annually at a rate of 20%, making it fully vested after 5 years from the grantdate. The fair value of equity-settled share options granted under the ESOP is estimated at thedates of grant using the Black-Scholes Option Pricing Model, taking into account the terms andconditions upon which the options were granted.

The following table lists the inputs to the models used for each of the grants:

Option 1 Option 2 Option 3 Option 4 Option 5 Option 6Expected volatility (%) 38.2 38.2 38.2 38.2 38.2 21.7Weighted average share price (P=) 8.40 18.25 21.75 26.00 60.00 41Risk-free interest rate (%) 12.38 10.55 10.88 12.23 10.88 8.50Expected life of option (years) 5.5 5.5 5.5 5.5 5.5 5.5Dividend yield (%) nil nil nil nil nil 5

The expected life of the options is based on historical data and is not necessarily indicative ofexercise patterns that may occur. The expected volatility reflects the assumption that the historicalvolatility is indicative of future trends, which likewise, may not necessarily be the actual outcome.

No other features of options grant were incorporated into the measurement of the fair value of theoptions.

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Movements in the number of stock options outstanding are as follows:

2013 2012Total shares allocated 40,570,714 40,570,714

Options exercisable:Balance at beginning of year 4,460,786 8,111,284Exercised (2,551,821) (3,650,498)Balance at end of year 1,908,965 4,460,786

There were no additional grants since 2006.

In 2013 and 2012, the average exercise price of the stock option per share under the ESOP isP=33.69 and P=32.52, respectively. In 2012 and 2013, no expense is recognized for share-basedpayment as the employee’s rights to receive the benefits from the ESOP have fully vested in 2011.

Rockwell Land’s Employee Stock Option Plan (ESOP)Rockwell Land has an Executive Stock Option Plan (ESOP) that was approved by the BOD andstockholders on May 2, 2012 and August 3, 2012, respectively. The ESOP is offered to all regularemployees of Rockwell Land including employees seconded to other affiliates or other individualsthat the Board of Administrators may decide to include. The aggregate number of ESOP sharesthat may be issued shall not at any time exceed 3% of the issued capital stock or 192,630,881common shares of Rockwell Land on a fully diluted basis and may be issued upon the exercise bythe eligible participants of the stock option plans. The maximum numbers of shares a participantis entitled to shall be determined as a multiple of the gross basic monthly salary based on rank andperformance for the year preceding the award. The option is exercisable anytime within theOption Term once vested. The ESOP was approved by the SEC on December 6, 2012 and wascommunicated to the employees on January 3, 2013.

The terms of the ESOP include, among others, a limit as to the number of shares a qualifiedregular employee of Rockwell Land including employees seconded to other affiliates or otherindividuals that the Board of Administrators may decide to include may purchase. Options areexpected to be granted annually over a period of 5 years. Options granted are vested after oneyear. All qualified participants are given until 10th year of the grant date to exercise the stockoption.


Grant date January 3, 2013Number of options granted 63,740,000Offer price per share P=1.46Option value per share P=1.43

The fair value of equity-settled share options granted is estimated as at the date of grant using thebinomial option pricing model, taking into account the terms and conditions upon which theoptions were granted.

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The following table lists the inputs to the model used for the option grants:

Expected volatility 36.94%Exercise price P=1.46Spot price P=2.52Risk-free interest rate 4.19%Term to maturity 10 yearsDividend yield 1.91%

The expected volatility reflects the average historical volatility of peer companies based on alookback period consistent with the term to maturity of the option. This may likewise notnecessarily be the actual volatility outcome. The effects of expected early exercise, including theimpact of the vesting period and blackout periods, are captured in the binomial model. No otherfeatures of the options grant were incorporated into the measurement of the fair value of theoptions.


2013Total shares allocated 192,630,881

Options exercisable:Balance at beginning of year –Granted 63,700,000Exercised (15,000,000)Balance at end of year 48,700,000

Share-based payment expense amounted to P=91.1 million is presented as part of “Personnelexpenses” under “General and Administrative Expenses” account in the consolidated statement ofcomprehensive income for the year ended December 31, 2013.

Lopez Holdings’ Employee Stock Purchase Plan (ESPP)On February 29, 2011, the BOD and stockholders of Lopez Holdings approved theimplementation of an Employee Stock Purchase Plan (ESPP). The terms of ESPP, include amongothers, a limit as to the number of shares a qualified regular employee, officer or qualified directorof Lopez Holdings and Lopez, Inc. or a qualified officer of Lopez Holdings’ subsidiaries andassociates, may purchase and the manner of payment based on equal semi-monthly installmentsover a period of two years through salary deductions.

The primary terms of the grant are as follow:

Grant date May 2011Offer price per share P=4.573Option value per share P=1.65

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The fair value of equity-settled share options granted is estimated as at the date of grant using theBlack-Scholes Option Model, taking into account the terms and conditions upon which the optionswere granted. The following table lists the inputs to the model used for the option grants:

Expected volatility 42.6%Weighted average share price P=4.573Risk-free interest rate 4.3%Expected life of option 2 yearsDividend yield 2.5%

The expected volatility reflects the assumption that the historical volatility is indicative of futuretrends, which likewise, may not necessarily be the actual outcome. The expected life of theoptions is based on historical data and is not necessarily indicative of exercise patterns that mayoccur. No other features of options grant were incorporated into the measurement of the fair valueof the options.

The total number of options under ESPP allocated to the Group is 14,050,000 shares. In 2013, theGroup did not exercise any of the options. The total number of exercisable options as atDecember 31, 2013 is 14,050,000 shares.

In 2013, share-based payment in profit or loss amounted to P=23 million. A correspondingadjustment to additional paid-in capital, net of applicable tax, was also recognized in theconsolidated statements of financial position. The share-based payment expense in 2012 was notmaterial.

25. Costs and Expenses

Costs of Sale of Electricity

2012 2011

2013(As restated -

see Note 2)(As restated -

see Note 2)

Fuel costs P=40,926 P=44,301 P=42,815Depreciation and amortization 6,300 6,283 6,287Power plant operations and

maintenance (see Note 8) 5,694 6,445 7,345Others 1,297 1,558 1,504

P=54,217 P=58,587 P=57,951

Real Estate

2013 2012 2011Cost of real estate P=4,275 P=3,591 P=406Depreciation 158 123 28

P=4,433 P=3,714 P=434

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Contracts and Services

2012 2011

2013(As restated -


se Note 2)Outside services P=1,417 P=563 P=719Materials, supplies and facilities 1,331 686 882Salaries and employee benefits 926 528 639Mobilization and demobilization

costs 190 154 134Depreciation 148 73 85Permits, insurances and licenses 70 25 41Rental 45 90 70Utilities 16 8 6

P=4,143 P=2,127 P=2,576

Merchandise Sold

2013 2012 2011Manufacturing overhead costs P=1,167 P=1,841 P=1,673Materials 243 1,870 4,872Labor 168 319 344

P=1,578 P=4,030 P=6,889

General and Administrative Expenses

2012 2011

2013(As restated -


see Note 2)Personnel expenses P=4,230 P=4,199 P=2,871Professional fees 2,451 1,807 1,512Insurance, taxes and licenses 1,675 2,362 1,712Depreciation and amortization 1,328 1,104 1,100Parts and supplies issued 191 62 83Property repairs and maintenance 140 159 202Provision for doubtful accounts -

net of recovery 27 85 34Others 1,266 1,330 839

P=11,308 P=11,108 P=8,353

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26. Finance Costs, Finance Income, Depreciation and Amortization, and Other Income(Charges)

Finance Costs

2013

2012(As restated -

see Note 2)

2011(As restated -


Interest on loans and bonds(see Notes 17 and 20) P=6,124 P=6,659 P=7,684

Interest on swap fees 629 630 742Amortization of debt issuance costs

(see Note 20) 289 290 383Loss on extinguishment/pretermination

of long-term debts (see Note 20) 93 207 293Accretion on asset retirement /

preservation obligations(see Note 21) 63 32 65

Accretion of bonds payable (see Note 19) 17 183 33Interest on liability from litigation

(see Note 18) 8 9 8Others 15 52 41

P=7,238 P=8,062 P=9,249

Finance Income

2013

2012(As restated -

see Note 2)

2011(As restated -


Interest income on trade receivables(see Note 7) P=933 P=615 P=493

Cash and cash equivalents and short-terminvestments (see Note 6) 681 734 560

Advances to a non-controllingshareholder (see Note 30) P=− P=122 P=241

Others 14 66 40P=1,628 P=1,537 P=1,334

Depreciation and Amortization

2013

2012(As restated -

see Note 2)

2011(As restated -


Property, plant and equipment(see Note 12) P=6,799 P=6,593 P=6,724

Investment properties (see Note 14) 393 283 69Intangible assets (see Note 15) 742 707 707

P=7,934 P=7,583 P=7,500

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Other Income (Charges)

2013

2012(As restated -

see Note 2)

2011(As restated -


Gain on sale of property, plant andequipment and investment properties(see Notes 12 and 14) P=39 P=72 P=118

Rental income from investmentproperties (see Note 14) 39 37 46

Unrealized fair value gain (loss) onFVPL investments (see Note 9) 1 7 (7)

Management and consultancy fees(see Note 30) – 157 155

Return of investment in FPPC(see Note 10) – 12 65

Reversal of long-outstanding payables – – 190Others 26 (139) (97)

P=105 P=146 P=470

27. Retirement Benefits

FPH and certain subsidiaries maintain qualified, noncontributory, defined benefit retirement planscovering substantially all their regular employees. The following tables summarize thecomponents of net retirement benefit expense recognized in the consolidated statements of incomeand the funded status and amounts recognized in the consolidated statements of financial position.

The net retirement assets and liabilities and other employee benefits liabilities are presented in theconsolidated statements of financial position as follows:

2013

2012(As restated -


Net retirement benefit liabilities P=2,406 P=1,599Other employee benefits - net of current portion of

P=25 million in 2013 and P=35 million in 2012(see Note 18) 685 567

Net retirement benefit assets – (829)

As discussed in Note 2 to the consolidated financial statements, effective January 1, 2013, theGroup adopted the revised PAS 19 in respect of accounting for its employee benefits.Accordingly, the related disclosures on retirement and other post-employment benefits for 2012have been revised to reflect the requirements of the revised accounting standard.

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Retirement BenefitsThe amounts recognized in the consolidated statements of financial position are as follows:

As at December 31, 2013:

Parent First Gen Rockwell Others TotalPresent value of defined benefit

obligation P=2,565 P=4,727 P=311 P=510 P=8,113Fair value of plan assets (2,166) (2,933) (223) (390) (5,712)

399 1,794 88 120 2,401Benefits paid from operating fund − 2 − − 2Foreign exchange and other adjustments − 2 − 1 3Net retirement liabilities P=399 P=1,798 P=88 P=121 P=2,406


Parent First Gen Rockwell Others TotalPresent value of defined benefit

obligation P=2,176 P=4,142 P=260 P=482 P=7,060Fair value of plan assets (2,944) (2,730) (258) (370) (6,302)

(768) 1,412 2 112 758Benefits paid from operating fund − − − 12 12

(P=768) P=1,412 P=2 P=124 P=770Presented as:

Net retirement benefit asset P=768 P=− P=13 P=48 P=829Net retirement benefit liability − 1,412 15 172 1,599

The amounts recognized in the consolidated statements of income are as follows:

For the year ended December 31, 2013:

Parent First Gen Rockwell Others TotalCurrent service cost P=116 P=328 P=28 P=26 P=498Net interest cost (income) (35) 69 − 13 47Retirement benefits expense P=81 P=397 P=28 P=39 P=545


Parent First Gen Rockwell Others TotalCurrent service cost P=130 P=302 P=27 P=31 P=490Net interest cost (income) (7) 96 1 7 97Settlement gain − (769) − (6) (775)Retirement benefits expense (income) P=123 (P=371) P=28 P=32 (P=188)


Parent First Gen Rockwell Others TotalCurrent service cost P=89 P=261 P=− P=12 P=362Net interest cost (income) (47) 103 − 32 88Settlement gain − (266) − − (266)Retirement benefits expense P=42 P=98 P=− P=44 P=184

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Movements in the present value of the defined benefit obligation are as follows:

For the year ended December 31, 2013:Parent First Gen Rockwell Others Total

Balance at beginning of year P=2,176 P=4,142 P=260 P=482 P=7,060Current service cost 116 328 28 26 498Interest cost 94 209 14 27 344Benefits paid (176) (22) (8) (40) (246)Actuarial losses (gains) due to: Experience adjustments 430 291 8 (28) 701 Changes in demographic

assumptions – 7 9 (9) 7 Changes in financial assumptions (75) (228) – 52 (251)Balance at end of year P=2,565 P=4,727 P=311 P=510 P=8,113


Balance at beginning of year P=2,395 P=4,265 P=232 P=597 P=7,489Current service cost 130 302 27 31 490Interest cost 115 259 14 22 410Benefits paid (187) (64) – (189) (440)Settlement payment – (696) – – (696)Curtailment gain – (769) – (6) (775)Actuarial losses (gains) due to: Experience adjustments (121) 375 (22) – 232 Changes in demographic

assumptions – (1) – 1 – Changes in financial assumptions (156) 468 9 26 347Foreign exchange adjustment – 3 – – 3Balance at end of year P=2,176 P=4,142 P=260 P=482 P=7,060

Movements in the fair value of plan assets are as follows:


Parent First Gen Rockwell Others TotalBalance at beginning of year P=2,944 P=2,730 P=258 P=370 P=6,302Interest income 129 140 14 14 297Return on plan assets, excluding

interest income (731) (117) (41) 1 (888)Contributions paid – 202 – 45 247Benefits paid (176) (22) (8) (40) (246)Balance at end of year P=2,166 P=2,933 P=223 P=390 P=5,712

Actual return on plan assets (P=602) P=23 (P=27) P=15 (P=591)


Balance at beginning of year P=2,539 P=2,471 P=212 P=402 P=5,624Interest income 122 163 13 15 313Return on plan assets, excluding

interest income 470 248 33 24 775Contributions paid – 610 – 118 728Benefits paid (187) (64) – (189) (440)Settlement benefits payments – (696) – – (696)Foreign exchange adjustments – (2) – – (2)Balance at end of year P=2,944 P=2,730 P=258 P=370 P=6,302

Actual return on plan assets P=592 P=411 P=46 P=39 P=1,088

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The principal actuarial assumptions at the financial reporting dates used for FPH and subsidiaries’actuarial valuations are as follows:

2013 2012Discount rate 4-7% 5–8%Future salary increases 5-12% 2-14%

The major categories of plan assets as a percentage of the fair value of total plan assets are asfollows:

2013 2012Cash and cash equivalents 10% 15%Investment in shares of stock 69% 73%Investments in government securities and

corporate bonds 16% 11%Others 5% 1%

100% 100%

The Group expects to contribute P=523 million to its pension plans in 2014.

Information about the Group’s retirement plans are as follows:

FPHThe Board of Trustees (BOT), which manages the retirement fund of FPH, is comprised of 5executives of FPH. They are beneficiaries also of the retirement fund. The investing decisions ofthe retirement fund are exercised by the BOT.

The retirement fund consists of the following:

§ Cash and cash equivalents and short-term investments which includes regular savings andtime deposits amounting to P=419 million and P=611 million as at December 31, 2013 and 2012,respectively.

§ Available-for-sale investments which is composed of investments in equity securities.Investments in equity securities as at December 31 consist of the following:

Relationship 2013 2012(In Millions)

First Philippine Holdings: Reporting entityCommon shares P=545 P=910Preferred shares – 32

Lopez Holdings - ParentCommon shares 400 628

Rockwell Land - SubsidiaryCommon shares 241 542

First Gen: SubsidiaryPreferred shares - Series F and G 90 85

P=1,276 P=2,197

The voting rights over these equity securities are exercised by the BOT of the Plan.

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The fair value of these investments that are actively traded in organized financial markets isdetermined by reference to quoted market bid prices at the close of business on the financialreporting dates.

§ For the years ended December 31, 2013 and 2012, the Plan recognized unrealized mark-to-market losses and gains arising from investments in equity securities amounting toP=768 million and P=504 million, respectively.

§ Held-to-maturity (HTM) investments amounting to P=466 million and P=210 million as atDecember 31, 2013 and 2012, respectively, are composed of investments in bonds with certainfinancial institutions with fixed coupon rates and maturing in 5 to 10 years from the issuedates. HTM investments are carried based on its ultimate redemption value.

§ Receivables amounting to P=5 million and P=6 million as at December 31, 2013 and 2012,respectively, include accrued interest receivable on cash and cash equivalents, short-terminvestments and HTM investments and dividends receivable from equity securities.

§ Liabilities of the plan amounting to nil and P=80 million as at December 31, 2013 and 2012,respectively, pertain to retirement benefits payable and other accruals for general andadministrative expenses.

First GenThe retirement funds of First Gen, FGHC and FGP are maintained and managed by BDO Trustwhile the retirement fund of FGPC is maintained and managed by the BPI Asset Management. Inaddition, EDC’s retirement fund is maintained by the BPI Asset Management and BDO Trust,while GCGI’s and BGI’s retirement funds are maintained by BDO Trust. These trustee banks arealso responsible for investment of the plan assets. The investing decisions of the Plan are made byits retirement committee.

The plan assets’ carrying amount approximates its fair value, since these are either short-term innature or marked-to-market.

The plans’ assets and investments by each class as at December 31 are as follows:


Investments quoted in active market:Quoted equity investments:

Industrial - electricity, energy, power and water P=580 P=603Holding firms 264 42Financials - banks 154 81Property 89 403Industrial - food, beverage, and tobacco 51 4Services - telecommunications 38 13Transportation services 28 7Retail 17 3Industrial - construction, infrastructure allied

services 15 4Services - casinos and gaming 3 4

Total (Carried Forward) 1,239 1,164

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Total (Brought Forward) 1,239 1,164Investments in debt instruments

Government securities 457 1,145Investments in corporate bonds 651 260

1,108 1,405Investment in mutual funds 9 24

1,117 1,429Unquoted investments

Cash and cash equivalents 539 107Receivables and other assets 39 35

Liabilities (1) (5)577 137

Fair value of plan assets P=2,933 P=2,730

The retirement funds consist of the following:

§ Cash and cash equivalents, which includes regular savings and time deposits;

§ Investments in corporate debt instruments, consisting of both short-term and long-termcorporate loans, notes and bonds, which bear interest ranging from 4.6% to 7.25% and havematurities from 2013 to 2032.

§ Investments in government securities, consisting of retail treasury bonds that bear interestranging from 2.62% to 11.70% and have maturities from 2013 to 2037;

§ Investment in equity securities consist of investments in the following securities:


LHC Intermediate Parent Company P=80 P=-FPH: Immediate Parent Company Voting common shares 68 P=97 Non-voting preferred shares – 25First Gen: Subsidiary of FPH Voting common shares 147 182 Non-voting preferred shares 310 284ABS-CBN Holdings Corporation

(ABS-CBN) Affiliate 11Rockwell Land Corp. (Rockwell) Subsidiary of FPH – 391

P=616 P=979

For the year ended December 31, 2013, unrealized gains arising from investments inLopez Holdings, FPH, First Gen, and ABS-CBN amounted to P=72 million, P=29 million,P=17 million and P=4 million, respectively.

For the year ended December 31, 2012, unrealized gains arising from investments in FPH,First Gen and Rockwell amounted to P=25 million, P=72 million and P=68 million, respectively.

The voting rights over these equity securities are exercised by the trustee banks.

· Other financial assets held by these plans are primarily accrued interest income on cashdeposits and debt securities held by the Plan; and dividend receivable from equity securities.

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· Liabilities of the plan pertain to trust fee payable and retirement benefits payable.

Rockwell LandThe plan assets of Rockwell Land are maintained by the trustee banks, Banco de Oro (BDO)and MBTC, under the supervision of the Board of Trustees of the plan. The Board of Trusteesis responsible for investment strategy of the plan.

The carrying values and fair values of the plan are as follows:


Cash in banks P=8 P=7Receivables - net of payables 1 2Investments held for trading 214 249

P=223 P=258

Cash in banks are composed of current account, savings deposits and special savings deposits.

Receivables – net of payables are composed of loans receivables, interest receivables andaccrued trust fees.

Investments held for trading are investments in government securities, corporate bonds andstocks.

i. Government securities’ maturities range from 5 to 25 years with interest rates rangingfrom 5.68% to 7.89%.

ii. The Corporate bonds are certificates of indebtedness issued by top and usually listedcorporations exhibiting sound financial performance and enjoying good credit fromreputable/accredited agencies. Maturity dates range from 5 to 7 years with interest ratesranging from 7.75% to 8.85%.

iii. Investment in stocks represents equity securities of companies listed in the PhilippineStock Exchange.

The Retirement Plan has investment in shares of stock of the Parent Company amounting toP=59.6 million, P=97.2 million as at December 31, 2013 and 2012, respectively.

Rockwell Land’s retirement fund is exposed to a short term risk since 50% of it is in equities.On the long term, should there be any major corrections in the local equities market, thecorrection should have a positive impact of the fund since historically the equities market havealways out-performed the fixed income market in the long term.

There are no outstanding balances arising from transactions between the Retirement Plan andRockwell Land as at December 31, 2013 and 2012. Except as stated above, there were noother transactions entered into during the year by the Retirement Plan relating Rockwell Land.

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Sensitivity AnalysisThe sensitivity analysis below has been determined based on reasonably possible changes ofeach significant assumption on the defined benefit obligation as at December 31, 2013,assuming if all other assumptions were held constant:

Increase(Decrease) FPH

First GenGroup Rockwell Others

Discount rates +1% (P=271) (P=1,275) (P=271) (P=418)-1% 324 1,466 323 492

Future salary increases +1% 122 1,441 273 464-1% (113) (1,271) (320) (436)

Maturity AnalysisShown below is the maturity analysis of the undiscounted benefit payments.


FPH First Gen Rockwell Others Total(In Millions)

Less than 1 year P=191 P=213 P=– P=9 P=413More than 1 year to 5 years 655 1,101 160 206 2,122More than 5 years to 10 years 1,207 2,585 44 88 3,924More than 10 years to 15 years 1,551 4,475 171 108 6,305More than 15 years to 20 years 1,427 4,066 169 151 5,813More than 20 years 3,775 1,487 587 721 6,570


FPH First Gen Rockwell Others Total(In Millions)

Less than 1 year P=176 P=18 P=8 P=29 P=231More than 1 year to 5 years 846 1,214 160 215 2,435More than 5 years to 10 years 1,207 2,585 44 88 3,924More than 10 years to 15 years 1,551 4,475 171 108 6,305More than 15 years to 20 years 1,427 4,066 169 151 5,813More than 20 years 3,775 1,487 587 721 6,570

The average duration of the defined benefit obligation at the end of the reporting period is19.5 years. The estimated weighted average duration of benefit payment for First Gen,FGHC, FGP, FGPC and others is 10 to 24 years in 2013.

Other Employee BenefitsOther employee benefits consist of accumulated employee sick and vacation leaveentitlements of FPH, First Gen Group and Rockwell Land.

The amounts recognized in the consolidated statements of income are as follows:

2013

2012(As restated -

see Note 2)

2011(As restated -

see Note 2)Current service cost P=91 P=106 P=27Interest cost 28 10 10Net benefit expense P=119 P=116 P=37

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Movements in the present value of the other employee benefit obligation are as follows:


Balance at beginning of year P=567 P=454Current service cost 91 106Interest cost 28 10Benefits paid (1) (3)Balance at end of year P=685 P=567

The principal assumptions used in determining the other employee benefit obligation areshown below:

2013 2012Discount rate 4-7% 5–8%Future salary rate increase 5-12% 2-14%

The sensitivity analysis below has been determined based on reasonably possible changes ofdiscount rate on the other employee benefit obligation as at December 31, 2013, assuming allother assumptions were held constant:

2013 2012Increase (Decrease) in

Employee benefit obligationDiscount rate:

Increase by 1% (16) (14)Decrease by 1% 17 16

28. Income Taxes

The deferred tax assets and liabilities of the Group are presented in the consolidatedstatements of financial position as follows:

2013

2012(As Restated -


Deferred tax assets - net P=2,126 P=2,126Deferred tax liabilities - net (2,770) (2,466)

(P=644) (P=340)

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The components of these deferred tax assets and liabilities as at December 31, 2013 and 2012are as follows:

2013

2012(As Restated -


Deferred income tax items recognized in theconsolidated statements of income:Deferred tax assets on:

Provisions P=1,091 P=1,040Unrealized foreign exchange loss 808 914Unused NOLCO 182 311Revenue generated during testing period of BGI

power plant 153 53Capitalized costs in service contracts between

EDC and First Balfour group 117 89Asset retirement and preservation obligations 128 63Allowance for doubtful accounts 60 73Unamortized past service cost 35 34Advances from customers 32 30Retirement benefit liability 32 62Excess amortization of debt issuance costs

under effective interest 29 37Accrual of employee bonuses and other

employee benefits 29 8Difference between the carrying amounts of

nonmonetary assets and their relatedtax bases – 33

Others 57 95Deferred tax liabilities on:

Effect of business combination (see Note 5) (1,809) (1,845)Excess of the carrying amounts of non-monetary

assets over the tax base (1,318) (751)Unrealized gain on real estate (392) (148)Unrealized foreign exchange gains (310) (868)Capitalized asset retirement, duties, taxes and

interest (123) (117)Prepaid major spare parts (86) (86)Capitalized costs and losses during

commissioning period of the power plants (22) (24)Net retirement asset – (235)Others (4) (7)

Total (1,311) (1,239)Changes recognized directly in other

comprehensive income (loss) -Deferred tax asset on remeasurement of

retirement benefit liability 253 176Deferred tax asset on derivative liability 414 723

Total 667 899(P=644) (P=340)

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The deductible temporary differences of certain items in the consolidated statement offinancial position and the carry-forward benefits of NOLCO and MCIT for which no deferredtax assets has been recognized in the consolidated statements of financial position are asfollows:

2013

2012(As restated -


NOLCO P=8,706 P=7,726Allowance for impairment of investment 2,593 2,593Accrual of employee bonuses, vacation leaves

and others 1,199 804Allowance for impairment of other investments 770 1,353Retirement benefit asset 399 –Unamortized past service cost 362 450MCIT 82 35Allowance for impairment of receivables 6 6Unrealized foreign exchange loss – 94Others 51 40

P=14,168 P=13,101

The balances of NOLCO and MCIT, with their corresponding years of expiration, are as follows:

Incurred for the Year EndedDecember 31 Available Until December 31 NOLCO MCIT

(In Millions)

2011 2014 P=3,524 P=52012 2015 4,875 162013 2016 914 62

P=9,313 P=83

NOLCO and MCIT amounting to P=1,487 million and P=14 million, respectively, expired in 2013.

NOLCO and MCIT amounting to P=2,504 million and P=24 million, respectively, expired in 2012.As at December 31, 2012, NOLCO incurred in 2009 and 2010 amounting to P=1,804 million andP=1,654 million has been applied.

As at December 31, 2013 and 2012, the taxable temporary differences representing the excess ofthe carrying amount of the investments in associates over the tax base amounted to P=2,886 million(US$65 million) and P=4,023 million (US$98 million), respectively. There is no correspondingdeferred income tax liability recognized since these temporary differences pertain to investment indomestic companies which the First Gen intends to hold for the long term and, accordingly, thereversals of these temporary differences are through regular dividend distribution not subject toincome tax.

As at December 31, 2013 and 2012, deferred tax liability on undistributed earnings of FGHCInternational, a foreign subsidiary, amounting to P=17.8 million and P=1,558 million, respectivelyhas not been recognized since the Parent Company is able to control the reversal of the temporarydifference and there is no regular dividend distribution.

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The reconciliation between the statutory income tax rate and effective income tax rates as shownin the consolidated statements of income follows:

2013

2012(As restated -

see Note 2)

2011(As restated -

see Note 2)Statutory income tax rate 30% 30% 30%Income tax effects of:

Nondeductible expenses 15% 6% 22%Effect of RE law (9%) (8%) –Expenses not deducted for MCIT 5% 2% –Income Tax Holiday incentives (5%) (5%) (6%)Nontaxable income (4%) (6%) (7%)Others 2% (2%) (5%)

Effective income tax rates 34% 17% 34%

The effective income tax rate in 2012 is lower because of the gains that were exempt from incometax.

The BIR issued Revenue Regulation (RR) No. 16-2008 which implemented the provisions ofRepublic Act 9504, or R.A. 9504 on OSD. This regulation allowed both individual and corporatetax payers to use OSD in computing their taxable income. For corporations, they may elect astandard deduction in an amount equivalent to 40% of gross income, as provided by law, in lieu ofthe itemized allowed deductions. The provisions of R.A. No. 9504 and RR No. 16-2008 becameeffective on July 1, 2008.

29. EPS Computation

2013

2012(As restated -

see Note 2)

2011(As restated -

see Note 2)(In Millions, Except Number of Shares and Per Share Data)

Net income attributable to equity holders of the Parent P=2,350 P=9,175 P=1,638Less dividends on preferred shares (see Note 23) 94 375 375(a) Net income available to common shares P=2,256 P=8,800 P=1,263

Number of shares:Common shares outstanding at beginning

of year (see Note 23) 549,985,762 546,335,264 574,194,048Effect of common share issuances

and buyback during the year 2,058,212 1,709,179 (12,006,267)(b) Adjusted weighted average number

of common shares outstanding - basic 552,043,974 548,044,443 562,187,781Effect of dilutive potential common shares under the ESOP 662,336 2,017,415 4,651,758

(c) Adjusted weighted average number of common shares outstanding - diluted 552,706,310 550,061,858 566,839,539

EPS:Basic (a/b) P=4.087 P=16.057 P=2.247Diluted (a/c) 4.082 15.998 2.228

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The conversion of First Gen’s CBs have an anti-dilutive effect in 2012 and 2011, while theconversion of the stock options of First Gen and Rockwell Land did not have significant impact onthe diluted earnings per share calculation of the Group for each of the years endedDecember 31, 2013.

30. Related Party Disclosures

Enterprises and individuals that directly, or indirectly through one or more intermediaries, control,or are controlled by, or under common control with the Group, including holding companies, andfellow subsidiaries are related entities of the Group. Associates and individuals owning, directlyor indirectly, an interest in the voting power of the Group that gives them significant influenceover the enterprise, key management personnel, including directors and officers of the Group andclose members of the family of these individuals and companies associated with these individualsalso constitute related entities.

The following are the significant transactions with related parties:

a. IFC is a shareholder of EDC that has approximately 5% ownership interest in EDC. OnMay 20, 2011, EDC signed a 15-year $75.0 million loan facility with IFC. The loanamounting P=3,262.5 million was drawn in Peso on September 30, 2011.

On November 27, 2008, EDC entered into a loan agreement with IFC for$100.0 million or its Peso equivalent of P=4.1 billion. On January 7, 2009, EDC opted to drawthe loan in Peso and received the proceeds amounting to P=4,048.8 million, net ofP=51.3 million front-end fee. This loan is included under the “Long-term debts” account in theconsolidated statements of financial position (see Note 20).

b. Intercompany Guarantees

EDC’s subsidiary in Chile is participating in the bids for geothermal concession areas by theChilean government. The bid rules call for the provision of proof of EDC Chile Limitada’sfinancial capability to participate in said bids or evidence of financial support from EDC.Letters of credit amounting to $80.0 million were issued by EDC in favor of EDC ChileLimitada as evidence of its financial support.

β− FPIC has an existing technical service agreement with Shell Global Solutions InternationalB.V. (Shell) for a period of 3 years expiring on February 28, 2011, which was furtherextended until February 28, 2012. The agreement provides, among others, that Shell willprovide FPIC a package of supporting advice and services, and training services relative to theFPIC’s day-to-day pipeline operations, at specified fee.

d. FGPC has advances to non-controlling shareholder which bear interest of 5.8% per annum.Interest income in 2012 and 2011 amounted to P=122 million and P=241 million, respectively.As at December 31, 2012, the “Advances to non-controlling shareholder” was eliminated withthe consolidation of Goldsilk effective May 30, 2012 (see Note 5).

e. As of December 31, 2013 and 2012, advances to officers and employees amounted toP=17 million and P=119 million, respectively. Advances to officers and employees are non-interest bearing and normally settled through salary deduction (see Note 18).

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The following table provides the total amount of transactions that have been entered into withrelated parties for the relevant years that are shown in the consolidated financial statements:

Nature 2013

2012(As restated -

see Note 2)

2011(As restated -

see Note 2)(Amounts in Millions)

Significant investors of subsidiaries:Pilipinas Shell Petroleum Throughput fees on pipeline shipment P=112 P=111 P=66Lopez Inc. Construction contracts 23 – –Shell Global Solutions International B.V. Service fees – 2 10

Trade related receivables from and payables to related parties, presented under “Trade and otherreceivables,” “Trade payables and other current liabilities”, “Loans payable” and “Othernoncurrent liabilities” accounts in the consolidated statements of financial position, are as follows:

Relationship Terms Conditions 2013 2012(Amounts in Millions)

Due from: Lopez Inc. Retirement Fund

(LIRF) Investor of subsidiary30 days upon receipt of billings;

noninterest-bearing Unsecured, no impairment P=20 P=15 Quialex Realty Corporation

(QRC) Investor of subsidiary30 days upon receipt of billings;

noninterest-bearing Unsecured, no impairment 8 7

SKI Joint venture partner30 days upon receipt of billings;

noninterest-bearing Unsecured, no impairment 1 –

Others Affiliates*30 days upon receipt of billings;

noninterest-bearing Unsecured, no impairment 91 71P=120 P=93

Due to:Rockwell-Meralco BPO Joint venture partner 30 days upon receipt of billings;

noninterest-bearing Unsecured P=120 P=120Lopez Holdings Investor 30 days upon receipt of billings;

noninterest-bearing Unsecured 25 –Others Affiliates* 30 days upon receipt of billings;

noninterest-bearing Unsecured – 23P=145 P=143

*Entities with common shareholders

Relationship Terms Conditions 2013 2012(Amounts in Millions)

Loans Payable/Other noncurrentliabilityPilipinas Shell Petroleum

(see Note 17) Investor of subsidiary Noninterest-bearing Unsecured P=100 P=100

Compensation of key management personnel are as follows:

2013

2012(As restated -


Short-term employee benefits P=1,051 P=934Retirement benefits expense 267 197Share-based payments 12 25

P=1,330 P=1,156

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31. Registrations with the Board of Investments (BOI) and Philippine EconomicZone Authority (PEZA)

Fedcor, FGP and FGPC are registered with the BOI under the Omnibus Investments Code of1987. Under the terms of registrations, these subsidiaries, among others, should maintain a baseequity of at least 25%.

BGI On February 14, 2013, BGI was granted with an ITH incentive by the BOI covering its 130 MWBMGPP complex. Subject to certain conditions, BGI is entitled to ITH for seven years from July2013 or date of commissioning of the power plants, whichever is earlier. BGI does not recognizedeferred tax assets and deferred tax liabilities on temporary differences that are expected toreverse during the ITH period.

Rockwell LandOn June 6, 2013, the BOI approved Rockwell Land’s registration as new operator of TouristAccommodation Facility for its Edades Serviced Apartments in accordance with the provisions ofOmnibus Investments Code of 1987 with entitlement to Income Tax Holiday. On June 20, 2013,Rockwell Land incorporated Rockwell Hotels & Leisure Management Corp. for Rockwell Land’sfuture hotel operations. Accordingly, Rockwell Land reclassified the costs related to thedevelopment of the Edades and The Grove Service Apartments that will be used for their hotelbusiness, from investment properties and land and development cost accounts to property andequipment effective June 2013.

FNPC On November 22, 2013, FNPC received its Certificate of Registration with the BOI under theOmnibus Investments Code of 1987 as the new operator of a 450 MW Combined Cycle NaturalGas Power Plant (the “San Gabriel” power plant). Subject to certain conditions, FNPC is entitledto certain tax and non-tax incentives, which include, among others, ITH for four (4) years fromApril 2016 or actual start of commercial operations, whichever is earlier. The ITH shall be limitedonly to the revenues generated from the sales of electricity of the San Gabriel power plant. As ofMarch 19, 2014, the construction of the San Gabriel power plant is still on-going.

FPIPFPIP, FPDMC and FUI are registered as Ecozone Developer/Operator, Ecozone FacilitiesEnterprise and Ecozone Utilities Enterprise, respectively, with the PEZA pursuant to Republic ActNo. 7916, the Philippine Special Economic Zone Act of 1995, as amended. As a registeredenterprise, the Group is entitled to certain incentives which include, among others, a special taxrate of 5% on gross income (less allowable deductions and additional deduction for trainingexpenses) in lieu of all national and local taxes. GBRDI, on the other hand, is not a PEZA-registered entity and taxable under the regular corporate income tax rate of 30%.

FSRIOn May 30, 1996, FSRI was registered with the PEZA pursuant to the provisions of RA No. 7916as an Ecozone Facilities Enterprise.

FPPSIOn January 2, 2006, the PEZA, pursuant to the provisions of RA No. 7916, approved FPPSI’sregistration as an Ecozone Export Enterprise at the Cavite Economic Zone to engage in themanufacture of transformers.

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FPSCOn November 9, 2007, the BOD of PEZA, under Resolution No. 07-530, approved the registrationof FPSC as an Ecozone Export Enterprise. Its PEZA registration entitles FPSC to conduct andoperate its business inside First Philippine Industrial Park - Special Economic Zone (FPIP-SEZ),with registered activity limited to wafer slicing services and the importation of raw materials,machinery, equipment, tools or merchandise to be used directly in its registered operations.

FPNCOn February 17, 2011, the BOD of PEZA, under Resolution No. 11-070, approved the applicationof FPNC for registration as an Ecozone Export Enterprise. The PEZA registration entitles FPNCto conduct and operate its business inside First Philippine Industrial Park – Special EconomicZone (FPIP-SEZ), with registered activity limited to wafer sawing services and the importation ofraw materials, machinery, equipment, tools, goods, wares, articles, or merchandise to be useddirectly in its registered operations.

As registered enterprises, these subsidiaries are entitled to certain tax and nontax incentives whichinclude, among others, ITH. Income from non-registered operations of these subsidiaries is notcovered by ITH incentives.

32. Financial Risk Management Objectives and Policies

The Group’s principal financial liabilities consist of loans payable, bonds payable and long-termdebt. The main purpose of these financial liabilities is to raise financing for the Group’s growthand operations. The Group has other various financial instruments such as cash equivalents, short-term investments, trade and other receivables, investments in equity securities, trade payables andother current liabilities which arise directly from its operations. The Group also enters intoderivative and hedging transactions, primarily interest rate swaps, cross-currency swap and foreigncurrency forwards, as needed, for the sole purpose of managing the relevant financial risks that areassociated with the Group’s borrowing activities and as required by the lenders in certain cases.

The Group has an Enterprise-wide Risk Management Program which aims to identify risks basedon the likelihood of occurrence and impact to the business, formulate risk management strategies,assess risk management capabilities and continuously monitor the risk management efforts. Themain financial risks arising from the Group’s financial instruments are interest rate risk, foreigncurrency risk, credit risk, liquidity risk, credit concentration risk, and equity price risk. The BODreviews and approves policies for managing each of these risks as summarized below. TheGroup’s accounting policies in relation to derivative financial instruments are set out in Note 2 tothe consolidated financial statements.

Interest Rate RiskInterest rate risk is the risk that the fair value or future cash flows of a financial instrument willfluctuate because of changes in market interest rates.

The Group’s exposure to the risk of changes in market interest rates relates primarily to theGroup’s long-term debts with floating interest rates. The Group policy is to manage interest costthrough a mix of fixed and variable rate debt. On a regular basis, the Finance team of the Groupmonitors the interest rate exposure and presents it to management by way of a compliance report.To manage the exposure to floating interest rates in a cost-efficient manner, the Group mayconsider prepayment, refinancing, or entering into derivative instruments as deemed necessary andfeasible.

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As at December 31, 2013 and 2012, approximately 57% and 48% of the Group’s borrowings aresubject to fixed interest rate.

Interest Rate Risk Table. The following table set out the carrying amounts, by maturity, of theGroup’s financial instruments that are subject to interest rate risk as at December 31, 2013 and2012:

2013

Interest RatesWithin1 Year

More than1 Year

up to3 Years

More than3 Years

up to5 Years

More than5 Years Total

(In Millions)

Floating RateParent CompanyP=4,800 million FRCNs 1.5% + 6 months PDST F rate

or BSP overnight rate,whichever is higher P=240 P=2,016 P=2,064 P=– P=4,320

Power Generation CompaniesUncovered Facility 3.61% 246 558 494 – 1,298Term Loan Facility 2.59% 605 2,016 2,553 8,331 13,505Staple Financing 2.95% 1,200 3,000 2,075 - 6,275PNB and Allied Bank Loan 4.50% 340 1,190 892 1,488 3,910US$80.0 million 2.04% 142 178 3,232 – 3,552US$175M Refinanced Syndicated

Term Loan 2.00% - 2.06% 777 1,554 3,884 – 6,215

Manufacturing CompaniesP=300 million Maybank 5-year loan 3% + 3 months PDST F 50 100 13 – 163First Philec’s $20.6 million Philippine

National Bank (PNB) Loan 3 months LIBOR + 3.50% – – – 963 963

2012 (As restated - see Note 2)

Interest RatesWithin1 Year

More than1 Year

up to3 Years

More than3 Years

up to5 Years


(In Millions)

Floating RateParent CompanyP=4,800 million FRCNs 1.5% + 6 months PDST F rate

or BSP overnight rate,whichever is higher P=240 P=1,248 P=2,016 P=1,056 P=4,560

Power Generation CompaniesUncovered Facility 4.02% 190 475 581 235 1,481Term Loan Facility 2.77% 739 1,806 2,791 11,905 17,241Staple Financing 3.21% 529 6,497 – – 7,026PNB and Allied Bank Loan 4.50% 340 722 807 2,381 4,250US$175M Refinanced Syndicated

Term Loan 2.06% 1,437 1,437 4,310 – 7,184

Manufacturing CompaniesP=300 million Maybank 5-year loan 3% + 3 months PDST F 50 100 50 12 212First Philec’s $20.6 million Philippine

National Bank (PNB) Loan 3 months LIBOR + 3.50% – – – 847 847

Floating interest rates on financial instruments are repriced semi-annually on each interestpayment date. Interest on financial instruments classified as fixed rate is fixed until the maturity ofthe instrument.

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The following table demonstrates the sensitivity to a reasonably possible change in interest ratesfor the years ended December 31, 2013 and 2012, with all other variables held constant, of theGroup’s income before income tax and equity (through the impact of floating rate borrowings, andderivative assets and liabilities):

Increase/Decrease

in Basis Points

Effecton Income

BeforeIncome Tax

Effecton Equity

(In Millions)2013Parent Company - floating rate borrowings +100 (P=43) P=–

-100 43 –Subsidiaries - floating rate borrowings -

U.S. Dollar +100 (170) (120)-100 170 266

Philippine Peso +100 (148) –-100 148 –

2012Parent Company - floating rate borrowings +100 (46) –

-100 46 –Subsidiaries - floating rate borrowings -

U.S. Dollar +100 (75) 600-100 75 (481)

Philippine Peso +100 (122) –-100 122 –

The effect of changes in interest rates in equity pertains to the fair valuation of derivativesdesignated as cash flow hedges and is exclusive of the impact of changes affecting the Group’sconsolidated statements of income.

The Group determined the +/- 1% reasonably possible change based on linear estimates of thefuture foreign exchange rate based on the previous 12-month average monthly foreign exchangerates.

Foreign Currency RiskForeign currency risk is the risk that the fair value or future cash flows of a financial instrumentwill fluctuate because of changes in foreign exchange rates.

Foreign Currency Risk with Respect to U.S. Dollar. The Group, except First Gen group, FSRI,BPPC, FPSC, First PV, FPNC, FGHC International and FPH Fund, is exposed to foreign currencyrisk through cash and cash equivalents and short-term investments denominated in U.S. dollar.Any depreciation of the U.S. dollar against the Philippine peso posts foreign exchange lossesrelating to cash and cash equivalents and short-term investments.

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To better manage the foreign exchange risk, stabilize cash flows, and further improve theinvestment and cash flow planning, the Group may consider derivative contracts and otherhedging products as necessary. The U.S.dollar denominated monetary assets are translated toPhilippine peso using the exchange rate of P=44.395 to US$1.00 and P=41.05 to US$1.00 as atDecember 31, 2013 and 2012, respectively.

The table below summarizes the Group’s exposure to foreign exchange risk with respect to U.S.dollar as at December 31:

2013 2012U.S. Dollar-

denominatedBalances

PhilippinePeso

Equivalent

U.S. Dollar-denominated

Balances

PhilippinePeso


Cash and cash equivalents $109 P=4,839 $0.5 P=21Short-term investments - - 1 41Foreign Currency Denominated Assets $109 P=4,839 $1.5 P=62

The following table sets out the impact of the range of reasonably possible movement in the U.S.dollar exchange rates with all other variables held constant on the Group’s income before incometax and equity for the years ended December 31, 2013 and 2012.

Change in Exchange Rate Effect on Incomein U.S. dollar against Philippine peso Before Income Tax

(In Millions)2013

+ 6% P=289- 6% (289)

2013+ 6% P=4- 6% (4)

Foreign Currency Risk with Respect to Philippine Peso and Euro. First Gen group’s exposure toforeign currency risk arises as the functional currency of First Gen and certain subsidiaries, theU.S. dollar, is not the local currency in its country of operations. Certain financial assets andliabilities as well as some costs and expenses are denominated in Philippine peso or in EuropeanUnion euro. To manage the foreign currency risk, First Gen group may consider entering intoderivative transactions, as necessary.

In the case of EDC, its exposure to foreign currency risk is mitigated to some degree by someprovisions of its GRESC’s, SSA’s and PPA’s. The service contracts allow full cost recovery whileits sales contracts include billing adjustments covering the movements in Philippine peso and theU.S. dollar rates, U.S. Price and Consumer Indices, and other inflation factors.

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The following table sets out the foreign currency-denominated monetary assets and liabilities(translated into U.S. dollar) as at December 31, 2013 and 2012 that may affect the auditedconsolidated financial statements of First Gen Group:

2013Original Currency

PhilippinePeso-

denominatedBalances

Euro-denominated

Balance

JapaneseYen-

denominatedBalance

ChileanPeso

denominatedBalance

New Zealanddollar

denominatedBalance

Swedenkroner

denominatedBalance

Great BritainPound-

denominatedBalance

EquivalentU.S. Dollar

Balances1

(In Millions)Financial AssetsLoans and receivables:

Cash and cash equivalents P=16,609.2 €– ¥– CHP=96.0 NZ$– SEK– £– $399.7Receivables 4,826.0 – – – – – – 108.7Long-term receivables 15.1 – – – – – – 0.3

21,450.3 – – – – – – 508.7AFS financial assets 347.8 – – – – – – 7.8

Total financial assets 21,798.1 – – CHP=96.0 – – – 516.5Financial LiabilitiesLiabilities at amortized cost:

Accounts payable and accrued expenses 6,445.7 6.5 13.8 – 0.6 1.3 0.1 155.1

Dividends payable 896.9 – – – – – – 20.2Royalty fee payable 39.7 – – – – – – 0.9Long-term debts 41,973.7 – – – – – – 945.5

Total financial liabilities 49,356.0 6.5 13.8 – 0.6 1.3 0.1 1,121.7Net financial liabilities P=27,557.9 €6.5 ¥13.8 (CHP=96.0) NZ$0.6 SEK1.3 £0.1 $605.21US$1=P=44.395, US$1=€0.73, US$1=¥104.73, US$1=CHP=3.75, US$1= NZ1.226, US$1= SEK6.538 and US$1= £0.61 as of December 31, 2013

2012 (As restated - see Note 2)Original Currency

PhilippinePeso-

denominatedBalances

Euro-denominated

Balance

JapaneseYen-

denominatedBalance

SingaporeanDollar-

denominatedBalance

New Zealanddollar

denominatedBalance

EquivalentU.S. Dollar

Balances1

(In Millions)Financial AssetsLoans and receivable:

Cash and cash equivalents P=12,684.4 €– ¥– SG$– NZ$– $309.0Receivables 2,939.3 – – – – 71.6Long-term receivables 79.5 – – – – 1.9

15,703.2 – – – – 382.5AFS financial assets 49.9 – – – – 1.2

Total financial assets 15,753.1 – – – – 383.7Financial LiabilitiesLiabilities at amortized cost:

Accounts payable and accrued expenses 7,017.1 11.0 68.3 0.2 0.3 186.6Dividends payable 896.9 – – – – 21.9Royalty fee payable 20.6 – – – – 0.5Long-term debts 36,678.6 – – – – 893.5

Total financial liabilities 44,613.2 11.0 68.3 0.2 0.3 1,102.5Net financial liabilities P=28,860.1 €11.0 ¥68.3 SG$0.2 NZ$0.3 $718.81US$1=P=41.05, US$1=€0.76, US$1=¥86.06, US$1=SG$1.218, and US$1=NZ$1.22 as of December 31, 2012

The following table sets out, for the years ended December 31, 2013 and 2012, the impact of thereasonably possible movement in the U.S. dollar, European Euro, Japanese Yen, Great BritainPound, Sweden Kroner, Chilean Peso, New Zealand Dollars and Philippine Peso exchange rateswith all other variables held constant, First Gen Group’s income before income tax and equity:

2013

Foreign CurrencyAppreciates (Depreciates) By

Increase (Decrease)on Income Before

Income TaxIncrease (Decrease)

on Equity(Amounts in Millions)

Philippine Peso 2% P=38 (P=579)(2%) (38) 604

European Euro 3% (16) –(3%) 16 –

Japanese Yen 10% (0.42) –(10%) 0.42 –

Sweden Kroner 10% (0.84) –(10%) 0.84 –

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2013

Foreign CurrencyAppreciates (Depreciates) By


Income TaxIncrease (Decrease)

on Equity(Amounts in Millions)

New Zealand Dollar 10% (P=2.1) P=–(10%) 2.5 –

Chilean Peso 10% (98) –(10%) 120 –

Great Britain Pound 10% (0.84) –(10%) 1.3 –

2012 (As Restated – Note 2)Foreign Currency

Appreciates(Depreciates) By


Income TaxIncrease (Decrease) on

Equity(Amounts in Millions)

Philippine Peso 3% P=50 (P=945)(3%) (54) 890

European Euro 10% (37) –(10%) 37 –

Japanese Yen 10% (3) –(10%) 3 –

Singapore dollar 10% (0.85) –(10%) 0.85 –

New Zealand dollar 10% (0.85) –(10%) 0.85 –

The effect of changes in foreign currency rates in equity pertains to the fair valuation of thederivatives designated as cash flow hedges and is exclusive of the impact of changes affecting theGroup’s consolidated statements of income.

Credit RiskCredit risk is the risk that the Group will incur losses from customers, clients or counterparties thatfail to discharge their contracted obligations. The Group manages credit risk by setting limits onthe amount of risk the Group is willing to accept for individual counterparties and by monitoringexposures in relation to such limits.

As a policy, the Group trades only with recognized, creditworthy third parties and/or transactsonly with institutions and/or banks which have demonstrated financial soundness. Creditverification procedures for customers on credit terms are done. In addition, receivable balances aremonitored on an ongoing basis and the level of the allowance account is reviewed on an ongoingbasis to ensure that the Group’s exposure to credit risk is not significant. With respect to creditrisk arising from the other financial assets of the Group, which comprise mostly of cash and cashequivalents, short-term investments and trade and other receivables, the Group’s exposure tocredit risk arises from default of the counterparty, with a maximum exposure equal to the carryingamount of these instruments.

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Credit Risk Exposure. The table below shows the gross maximum exposure to credit risk of theGroup as at December 31:


Loans and receivables:Cash and cash equivalents* P=52,754 P=38,104Short-term investments 2,675 528Trade and other receivables:

Trade 23,366 17,059Others 3,244 1,557

Special deposits and funds 251 313Other current assets 35 25

Total credit exposure P=82,325 P=57,586*Excluding the Group’s cash on hand amounting to P=1 million in 2013 and P=2 million in 2012. The Group’sdeposit accounts in certain banks are covered by the Philippine Deposit Insurance Corporation insurancecoverage.

Aging Analysis of Financial Assets. The following tables show the Group’s aging analysis of pastdue but not impaired financial assets as at December 31:

2013Neither

Past Due Past Due but not Impairednor

Impaired< 30

Days30–60Days

61–90Days

91–120Days

> 120Days Total Impaired Total

(In Millions)Loans and ReceivablesCash and cash equivalents P=52,754 P=– P=– P=– P=– P=– P=– P=– P=52,754Short-term investments 2,675 – – – – – – – 2,675Trade and other

receivables 24,259 343 203 49 14 1,742 2,351 283 26,893Special deposits and

funds 251 – – – – – – – 251Other current assets 35 – – – – – – – 35Financial asset at FVPL -

Derivative asset 8 – – – – – – – 8Financial asset accounted

for as cash flow hedge– Derivative asset 192 – – – – – – – 192

P=80,174 P=343 P=203 P=49 P=14 P=1,742 P=2,351 P=283 P=82,808

2012Neither

Past Due Past Due but not Impairednor

Impaired< 30Days

30–60Days

61–90Days

91–120Days

> 120Days Total Impaired Total

(In Millions)Loans and ReceivablesCash and cash equivalents P=38,104 P=– P=– P=– P=– P=– P=– P=– P=38,104Short-term investments 528 – – – – – – – 528Trade and other

receivables 17,087 562 102 72 56 737 1,529 279 18,895Special deposits and

funds 313 – – – – – – – 313Other current assets 25 – – – – – – – 25

P=56,057 P=562 P=102 P=72 P=56 P=737 P=1,529 P=279 P=57,865

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Credit Quality of Neither Past Due Nor Impaired Financial Assets. The payment history of thecounter parties and their ability to settle their obligations are considered in evaluating creditquality. Financial assets are classified as high grade if the counterparties are not expected todefault in settling their obligations, thus, credit exposure is minimal. These counterpartiesnormally include banks, related parties and customers who pay on or before due date. Financialassets are classified as standard grade if the counterparties settle their obligations to the Groupwith tolerable delays. Low grade accounts are accounts which have probability of impairmentbased on historical trend. These accounts show propensity of default in payment despite regularfollow-up actions and extended payment terms.

As at December 31, 2013 and 2012, the financial assets categorized as neither past due norimpaired are viewed by management as high grade.

Concentration of Credit RiskThe Group, through First Gen’s operating subsidiaries namely, FGP and FGPC, earns a substantialportion of its revenues from Meralco. Meralco is committed to pay for the capacity and energygenerated by the San Lorenzo and Santa Rita power plants under the existing long-term PPAswhich are due to expire in September 2027 and August 2025, respectively. While the PPAsprovide for the mechanisms by which certain costs and obligations including fuel costs, amongothers, are passed-through to Meralco or are otherwise recoverable from Meralco, it is theintention of First Gen, FGP and FGPC to ensure that the pass-through mechanisms, as providedfor in their respective PPAs, are followed.

EDC’s geothermal and power generation businesses trade with NPC as its major customer. Anyfailure on the part of NPC to pay its obligations to EDC would significantly affect EDC’s businessoperations.

Under the current regulatory regime, the generation rates charged by FGP and FGPC to Meralcoare not subject to regulations and are complete pass-through charges to Meralco’s customers.

The Group’s exposure to credit risk arises from default of the counterparties, with a maximumexposure equal to the carrying amounts of the receivables from Meralco, in the case of FGP andFGPC, and the receivables from NPC, in the case of EDC.

The table below shows the risk exposure in respect to credit concentration of the Group as atDecember 31, 2013 and 2012:

2013

2012(As restated –

see Note 2)Trade receivables from Meralco P=10,967 P=7,767Trade receivables from NPC 1,856 1,600

Total receivables P=26,610 P=18,616

Credit concentration percentage 48,19% 50.32%

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Liquidity RiskThe Group’s exposure to liquidity risk refers to lack of funding needed to finance its growth andcapital expenditures, service its maturing loan obligations in a timely fashion, and meet itsworking capital requirements. To manage this exposure, the Group maintains internally generatedfunds and prudently manages the proceeds obtained from fundraising in the debt and equitymarkets. On a regular basis, the Group’s Treasury Department monitors the available cashbalances. The Group maintains a level of cash and cash equivalents deemed sufficient to financethe operations.

In addition, the Group has short-term investments and has available credit lines with certainbanking institutions. FGP and FGPC, in particular, maintain a Debt Service Revenue Account tosustain the debt service requirements for the next payment period. As part of its liquidity riskmanagement, the Group regularly evaluates its projected and actual cash flows. It alsocontinuously assesses the financial market conditions for opportunities to pursue fund raisingactivities.

As at December 31, 2013 and 2012, 19% and 22%, respectively, of the Group’s debts will maturein less than one year, based on the carrying value of borrowings reflected in the consolidatedfinancial statements.

The tables summarize the maturity profile of the Group’s financial assets used for liquiditymanagement and liabilities as at December 31 based on contractual undiscounted receipts andpayments.

2013On

DemandLess than3 Months

3 to 12 Months

> 1 to5 Years


(In Millions)Financial AssetsCash and cash equivalents 52,755 – – – – 52,755Short-term investments – – 2,675 – – 2,675Trade receivables 24,628 852 1,130 – – 26,610Special deposits and funds – – – 251 – 251AFS financial assets 12,255 – – – – 12,255Other current assets – – 35 – – 35

89,638 852 3,840 251 – 94,581

Financial Assets Designated asCash Flow Hedges

Derivative contract receipts – – 13 297 154 464Derivative contract payments – – (61) (202) (52) (315)

– – (48) 95 102 149P=89,638 P=852 P=3,792 P=346 P=102 P=94,730

Financial Liabilities Carriedat Amortized Cost

Loans payable P=– P=2,390 P=1,394 P=– P=– P=3,784Trade payables and other current

liabilities 1,847 9,968 7,952 6,927 – 26,694Long-term debt, including current

portion 256 255 6,877 65,296 71,201 143,8852,103 12,613 16,223 72,223 71,201 174,363

Financial Liabilities Designated asCash Flow Hedges

Derivative contract receipts – – (44) (787) (415) (1,246)Derivative contract payments – – 641 1,810 448 2,899

– – 597 1,023 33 1,653P=2,103 P=12,613 P=16,820 P=73,246 P=71,234 P=176,016

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2012On

DemandLess than3 Months

3 to 12 Months

> 1 to5 Years


(In Millions)Financial AssetsCash and cash equivalents P=38,106 P=– P=– P=– P=– P=38,106Short-term investments – – 528 – – 528Trade receivables 17,223 599 794 – – 18,616Special deposits and funds – – – 313 – 313AFS financial assets 12,730 – – – – 12,730Other current assets – – 25 – – 25

P=68,059 P=599 P=1,347 P=313 P=– P=70,318

Financial Liabilities Carriedat Amortized Cost

Loans payable P=– P=145 P=1,084 – P=– P=1,229Trade payables and other current

liabilities 1,565 7,657 7,561 5,872 – 22,655Bonds payable – 2,979 – – – 2,979Long-term debt, including current

portion – 276 6,846 56,342 46,579 110,0431,565 11,057 15,491 62,214 46,579 136,906

Financial Liabilities Designated asCash Flow Hedges

Derivative contract receipts – – (228) (206) (187) (621)Derivative contract payments – – 729 2,223 760 3,712

– – 501 2,017 573 3,091P=1,565 P=11,057 P=15,992 P=64,231 P=47,152 P=139,997

Equity Price RiskThe Group’s quoted equity securities are susceptible to market price risk arising from uncertaintiesabout future values of the investment in equity securities. The Group manages the equity price riskthrough diversification and by placing limits on individual and total equity instruments. TheGroup’s BOD reviews and approves all equity investment decisions.

The following table demonstrates the sensitivity to a reasonably possible change in share price,with all other variables held constant:

Change inEquity Price*

Effect onEquity

Investment in equity securities2013 5% P=558

(5%) (558)

2012 16% P=2,371(16%) (2,371)

*Average percentage change in share price during the year

Capital ManagementThe primary objective of the Group’s capital management is to ensure that it maintains a strongcredit rating and healthy capital ratios in order to support its business, comply with its financialloan covenants and maximize shareholder value.

The Group manages its capital structure and makes adjustments to it, in light of changes inbusiness and economic conditions. To maintain or adjust the capital structure, the Group mayadjust the dividend payment to shareholders, return capital to shareholders or issue new shares. Nochanges were made in the objectives, policies or processes during the years ended December 31,2013 and 2012.

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The Group monitors capital using a debt-to-equity ratio, which is total debt divided by equityattributable to equity holders of the Parent (excluding unrealized fair value gains on investment inequity securities, cumulative translation adjustments, and equity reserve). The Group’s practice isto keep the debt-to-equity ratio not more than 2.50:1.

2013 2012 (In Millions)

Bonds payable P=– P=2,979Long-term debt 143,885 110,043Total debt P=143,885 P=113,022

Equity attributable to the equity holders of the Parent 74,594 79,408

Debt-to-equity ratio 1.93:1 1.42:1

The Parent Company and certain of its subsidiaries are obligated to perform certain covenantswith respect to maintaining specified debt-to-equity and minimum debt-service-coverage ratios, asset forth in their respective agreements with the creditors (see Note 20)

33. Financial Instruments

Set out below is a comparison by category of carrying amounts and fair values of all of theGroup’s financial instruments that are carried in the consolidated financial statements as atDecember 31, 2013 and 2012.

20132012

(As restated - see Note 2)Carrying Value Fair Value Carrying Value Fair Value

(In Millions)Financial AssetsDerivative assets accounted for as cash flow

hedges P=192 P=192 P=– P=–Financial assets at FVPL:

Derivative assets 8 8 – – Equity securities 2 2 1 1

10 10 1 1AFS Financial assets: Equity securities 11,827 11,827 12,163 12,163 Debt securities 343 343 605 605 Proprietary membership 85 85 94 94

12,275 12,275 12,864 12,864Total Financial Assets P=12,477 P=12,477 P=12,865 P=12,865

Financial LiabilitiesFinancial liabilities carried at amortized cost: Bonds payable, including current portion P=– P=– P=2,979 P=2,979 Long-term debt, including current portion 143,885 145,513 110,043 111,573

143,885 145,513 113,022 114,552Derivative liabilities accounted for as

cash flow hedges 1,535 1,535 2,596 2,596Total Financial Liabilities P=145,420 P=147,048 P=115,618 P=117,148

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The fair values of cash and cash equivalents, short-term investments, trade and other receivables,restricted cash deposits, loans payable, trade payables, and other current liabilities approximate thecarrying amounts at financial reporting date due to the short-term nature of the accounts.

The fair values of investments in equity securities and FVPL financial assets are based on quotedmarket prices as at financial reporting date. For equity instruments that are not quoted, theinvestments are carried at cost less allowance for impairment losses due to the unpredictablenature of future cash flows and the lack of suitable methods of arriving at a reliable fair value.

FGP and FGPC long-term debtsThe fair values of long-term debts were computed by discounting the instruments’ expected futurecash flows using the prevailing credit adjusted U.S. dollar interest rates ranging from 0.2543% to2.9280% and 0.0890% to 2.6130% as at December 31, 2013 and 2012, respectively.

First Gen’s long-term debtsThe fair values of the First Gen U.S. dollar-denominated long-term debts were computed bydiscounting the instruments’ expected future cash flows using the prevailing credit adjusted U.S.dollar interest rates on December 31, 2013 and 2012 ranging from 0.066% to 3.291% and 0.052%to 0.978%, respectively.

Long-term debts of Red Vulcan, EDC and FG HydroThe fair values for EDC’s and FG Hydro’s long-term debts are estimated using the discountedcash flow methodology with the applicable rates ranging from 1.76% to 7.40% in 2013 and 1.75%to 8.56% in 2012. The fair value of Red Vulcan’s Staple Financing was computed by discountingthe instrument’s expected future cash flows using the prevailing credit-adjusted PDST-F interestrates ranging from 0.42% to 7.40% and 0.13% to 2.48% on December 31, 2013 and 2012.

Interest-bearing Loans and Borrowings of Rockwell Land

§ Fixed RateThe fair values of fixed rate loans were calculated by discounting the expected future cashflows at prevailing credit adjusted PDEx interest rates ranging from 4.2% to 5.3% as atDecember 31, 2013 and 1.9% to 6.9% as at December 31, 2012.

§ Floating RateThe fair values of floating rate loans approximate the carrying values as of financial reportingdate due to the monthly and quarterly repricing of interest rates.

Installment Payable of Rockwell Land. The fair value of installment payable were calculated bydiscounting the expected cash flows at prevailing credit adjusted PDEx interest rates ranging from1.2% to 4.4% as at December 31, 2013 and 1.6% to 4.9% as at December 31, 2012.

Fair Value Hierarchy of Financial Assets and LiabilitiesThe Group uses the following hierarchy for determining and disclosing the fair value of financialinstruments by valuation technique:§ Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

§ Level 2: valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and

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§ Level 3: valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

2013Level 1 Level 2 Level 3 Total

(In Millions)Financial Assets Long-term receivables P=– P=– P=383 P=383 AFS financial assets: Equity securities 11,490 – – 11,490 Debt securities 343 – – 343 Derivative assets accounted for as cash flow hedges – 192 – 192 Financial assets at FVPL: Derivative assets – 8 – 8 Equity securities 2 – – 2Total Financial Assets P=11,835 P=200 P=383 P=12,418

Financial LiabilitiesDerivative liabilities accounted for as

cash flow hedges P= P=1,536 P=– P=1,536


(In Millions)Financial Assets Long-term receivables P=– P=– P=283 P=283 AFS financial assets: Equity securities 11,703 – – 11,703 Debt securities 605 – – 605 Financial assets at FVPL: Equity securities 1 – – 1Total Financial Assets P=12,309 P=– P=283 P=12,592

Financial Liabilities Designated as cash flow hedges – Derivative liabilities P=– P=2,596 P=– P=2,596

As at December 31, 2013 and 2012, there were no transfers between Level 1 and Level 2 fairvalue measurements and there were no transfers into and out of Level 3 fair value measurements.

Derivative Financial InstrumentsThe Group, through First Gen group, enters into derivative transactions such as interest rate swapsto hedge its interest rate risks arising from its floating rate borrowings, cross currency swap andforeign currency forwards to hedge the foreign exchange risk arising from its loans and payables.These derivatives (including embedded derivatives) are accounted for either as Derivatives notdesignated as accounting hedges or Derivatives designated as accounting hedges.

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The table below shows the fair value of First Gen group’s outstanding derivative financialinstruments, reported as assets or liabilities, together with their notional amounts as atDecember 31, 2013 and 2012. The notional amount is the basis upon which changes in the valueof derivatives are measured.

2013 2012 (As restated - see Note 2)Derivative

AssetsDerivativeLiabilities

NotionalAmount

DerivativeAssets

DerivativeLiabilities

NotionalAmount

Derivatives Designated asAccounting Hedges

Freestanding derivatives - Interest rate swaps P=138 P=1,532 $441.03 P=– P=2,357 $390.60 Cross-currency swaps 54 4 65.00 – 239 65.00

192 1,536 2,596Derivatives not Designated as

Accounting HedgesFreestanding derivatives - Foreign currency forwards 8 – 105.60 – – –Total derivatives P=200 P=1,536 P=– P=2,596Presented as: Current P=14 P=1 P=– P=86 – Noncurrent 186 1,535 – 2,510 –Total derivatives P=200 P=1,536 P=– P=2,596

Derivatives not Designated as Accounting HedgesThe Group’s (through First Gen group) derivatives not designated as accounting hedges includeembedded derivatives in First Gen’s CBs and freestanding derivatives used to economically hedgecertain exposures but were not designated by management as accounting hedges. Such derivativesare classified as at FVPL with changes in fair value directly taken to consolidated statements ofincome.

Foreign Currency Swap ContractsA foreign currency swap is an agreement to exchange amounts in different currencies based on thespot rate at trade date and to re-exchange the same currencies at a future date based on an agreedrate.

As of December 31, 2013 and 2012, EDC has entered into a total of 22 and 6 foreign currencyswap contracts respectively, with terms as follows:

2013 2012 (As restated - see Note 2)

Position

Aggregatenotionalamount

(in million)Average

forward rate

Aggregatenotional amount

(in million)Average

forward rateSell US$ - buy PHP= $105.60 P=44.00 $44.50 P=41.42

For the years ended December 31, 2013 and 2012, EDC recognized $0.3 million (P=12.9 million)gain and $0.1 million (P=4.1 million) loss, respectively, from the fair value changes of the currencyswap contracts. These are recorded under “Mark-to-market gain (loss) on derivative - net” in theconsolidated statement of income.

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Foreign Currency Forward ContractsThese are contractual agreements to buy or sell a foreign currency at an agreed rate on a futuredate.

In 2013, EDC entered into a total of 45 currency forward contracts with various counterpartybanks. These contracts include one deliverable and 44 non-deliverable forward contracts. Thedeliverable buy JP¥ - sell US$ forward contract has notional amount and forward rate ofUS$3.0 million and JP¥91.0 million, respectively. As for the non-deliverable forward contracts,EDC entered into sell US$ - buy PHP= transactions with onshore banks and simultaneously enteredinto buy US$ - sell PHP= transactions with offshore banks as an offsetting position. The aggregatenotional amount of these sell PHP= - buy US$ forward contracts was $130.0 million while theaverage forward rate was P=43.61.

For the year ended December 31, 2013, EDC recognized $0.1 million gain from fair value changesof these foreign currency forwards contracts. Such amount is recorded under “Mark-to-marketgain on derivatives - net” account in the consolidated statements of income. EDC did not enterinto any foreign currency forward transaction in 2012.

Foreign Currency ForwardsOn August 25, 2011, First Gen entered into deliverable buy PHP-sell US$ foreign currencyforwards to purchase P=400 million from both Deutsche Bank AG, Manila Branch (Deutsche Bank)and Australia and New Zealand Banking Group Limited-Manila Branch (ANZ) at P=42.585 to$1.00 on January 24, 2012 and at P=42.706 to $1.00 July 24, 2012, respectively.

For the year ended December 31, 2012, the net gains from changes in fair value of the foreigncurrency forwards recorded under “Mark-to-market gain (loss) on derivatives” account in theconsolidated statements of income amounted to P=12.7 million ($0.3 million).

Embedded Derivatives in CBsAs discussed in Note 19, at inception, multiple embedded derivatives in the CBs were bifurcated.The fair value of the embedded equity conversion, call and put options in the CBs issued by FirstGen was computed using the indirect method of valuing multiple embedded derivatives. Thisvaluation method compares the fair value of the option-free bond against the fair value of the bondas quoted in the market. The difference in the fair values is assigned as the fair value of theembedded derivatives.

On February 11, 2011, the holders of a portion of the CBs exercised their put option.Consequently, all unexercised put options expired on the same date (see Note 9). As ofDecember 31, 2012, the multiple embedded derivatives have nil fair value. The CBs matured onFebruary 11, 2013.

Derivatives Designated as Accounting HedgesThe Group (through First Gen Group) has entered into interest rate swaps accounted for as cashflow hedges for its floating rate loans and cross-currency swaps and foreign currency forwardsaccounted for as cash flow hedges of its Philippine peso and U.S. dollar denominated borrowingsand Euro denominated payables, respectively. Under a cash flow hedge, the effective portion ofchanges in fair value of the hedging instrument is recognized as cumulative translationadjustments in other comprehensive income (loss) until the hedged item affects earnings.

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Interest Rate Swaps – FGPC. On November 14, 2008, FGPC entered into 8 interest rate swapagreements with the following hedge providers namely: Société Générale (Singapore Branch),Bayerische Hypo-und Vereinsbank AG (Hong Kong Branch), Calyon and Standard CharteredBank. On the same date, FGPC designated the interest rate swaps as hedges of the cash flowvariability in the Covered and Uncovered Facilities, attributable to the movements in the 6-monthU.S. LIBOR (see Note 20).

Under the four interest rate swap agreements that hedge 100% of the Covered Facility, FGPC paysa fixed rate of 4.4025% and receives a 6-month U.S. LIBOR on the aggregate amortizing notionalamount of $312.0 million, simultaneous with the interest payments every May and November onthe hedged loan. The notional amounts of the interest rate swaps are amortizing based on therepayment schedule of the hedged loan. The interest rate swap agreements have a term of 12 ½years and will mature on May 10, 2021 (coinciding with the maturity of the hedged loan).

Under the four interest rate swap agreements that hedge 75% of the Uncovered Facility, FGPCpays a fixed rate of 4.0625% and receives a 6-month U.S. LIBOR on the aggregate amortizingnotional amount of $141.0 million, simultaneous with the interest payments every May andNovember on the hedged loan. The notional amounts of the interest rate swaps are amortizingbased on the repayment schedule of the hedged loan. The interest rate swaps have a term of 8 ½years and will mature on May 10, 2017 (coinciding with the maturity of the hedged loan).

As at December 31, 2013 and 2012, the aggregate negative fair value of the interest rate swapsthat was deferred to “Cumulative translation adjustments” account in the consolidated statementsof financial position amounted to P=1,070 million, net of related deferred tax effect of P=457 million($24.1 million, net of related deferred tax effect of $10.3 million) and P=1,646 million, net ofrelated deferred tax effect of P=706 million ($40.1 million, net of related deferred tax effect of$17.2 million), respectively.

Interest Rate Swaps - FGPIn 2002, FGP entered into an interest rate swap agreement with a foreign bank to hedge half of itsfloating rate exposure on its ECGD Facility Agreement (see Note 20). Under the interest rateswap agreement, FGP pays a fixed rate of 7.475% and receives a floating rate of U.S. LIBOR plusspread of 215 basis points, on a semi-annual basis, simultaneous with the interest payments everyJune and December on the hedged loan. The notional amount of interest rate swap is amortizingbased on the repayment schedule of the hedged loan. The interest rate swap agreement willmature in December 2014 (coinciding with the maturity of the hedged loan).

On October 22, 2012, FGP terminated the interest rate swap agreement in the amount ofP=37 million (US$0.9 million). As the hedged loan was also terminated, the negative fair valuechange of the interest rate swap that was deferred to the “Cumulative translation adjustments”account amounting to P=37 million ($0.9 million) as of termination date was taken to the 2012consolidated statement of income.

In April 2013, FGP entered into two interest rate swap agreements with ING Bank and StandardChartered Bank to hedge its floating rate exposure on $80.0 million of its $420.0 million term loanfacility. Under the interest rate swap agreements, FGP pays a fixed rate of 1.425% and receives afloating rate of U.S. LIBOR, on a semi-annual basis, simultaneous with the interest paymentsevery June and December on the hedged loan.

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In May 2013, FGP entered into another interest rate swap agreement with RCBC to hedge itsfloating rate exposure on another $20.0 million of the $420.0 million term loan facility. Under theinterest rate swap agreement, FGP pays a fixed rate of 1.28% and receives a floating rate of U.S.LIBOR, on a semi-annual basis, simultaneous with the interest payment every June and Decemberon the hedged loan. The notional amounts of interest rate swap is amortizing based on therepayment schedule of the hedged loan. The interest rate swaps were designated as cash flowhedges and will mature on June 10, 2020.

As at December 31, 2013 and 2012, the positive fair value of the interest rate swaps that wasdeferred to “Cumulative translation adjustments” account in the consolidated statements offinancial position amounted P=98 million, net of related deferred income tax effect of P=40 million($2.2 million, net of related deferred income tax effect of $0.9 million) and nil, respectively.

There was no ineffective portion recognized in the consolidated statements of income for the yearsended December 31, 2013 and 2012.

The outstanding aggregate notional amount and the related cumulative mark-to-market gains andlosses of the interest rate swaps designated as cash flow hedges as of December 31 are as follows:

2013 2012Notional amount $441,027 $390,600Cumulative mark-to-market losses (P=1,532) (P=2,357)Cumulative mark-to-market gains 107 –

The net movements in the fair value of interest rate swaps of FGPC and FGP are as follows:

2013 2012Fair value at beginning of year (P=2,357) (P=2,558)Fair value changes taken into equity during the year 473 (626)Fair value changes realized during the year 625 666Foreign exchange differences (135) 161Fair value at end of year (1,394) (2,357)Deferred tax effect on cash flow hedges 418 706Fair value deferred into equity (P=976) (P=1,651)

Fair value changes during the year, net of deferred income tax, are recorded in the consolidatedstatements of comprehensive income and under the “Cumulative translation adjustments” accountin the consolidated statements of financial position. The fair value change realized during the yearwas taken into “Finance costs” account in the consolidated statements of income. This pertains tothe net difference between the fixed interest paid/accrued and the floating interestreceived/accrued on the interest rate swap agreements as at financial reporting date.

For the years ended December 31, 2013 and 2012, fair value changes taken to the consolidatedstatements of income amounted to P=625 million ($14.8 million) and P=666 million($15.7 million), respectively.

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Foreign Currency Forwards – FGPC and FGPOn September 7, 2011 and July 23, 2012, FGPC and FGP both entered into a several currencyforward with ING Bank N.V. Manila Branch (ING) to purchase European Euro at fixed Euro toU.S. dollar exchange rates. FGPC and FGP designated these derivatives as effective hedginginstruments that will address the risk on variability of cash flows due to foreign exchangefluctuations in Euro to U.S. dollar exchange rates related to its Euro denominated liabilities arisingfrom the monthly operations and maintenance fees to Siemens Power Operations Inc. (SPOI).

For the year ended December 31, 2012, net fair value changes taken to equity amounted toP=17 million ($0.4 million) gain and net fair value changes realized during the year taken to“Foreign exchange gain (loss)” account in the consolidated statements of income amounted toP=68 million ($1.6 million) loss.

Cross Currency Swap – First GenOn May 18, 2011, First Gen entered into a cross currency swap agreement (CCS) with ANZ tofully hedge its foreign currency risk exposure from the funding of the principal and interestpayments of its Philippine peso denominated loan with BDO amounting to P=500.0 million.

Under the agreement, First Gen, every April and October, receives from ANZ fixed peso interestof 8.4804% per annum (based on the outstanding Peso notional amount) and the amortization ofthe Peso notional amount, and pays to ANZ fixed U.S. dollar interest of 6.5% per annum (basedon the outstanding U.S. dollar notional amount) and the amortization of the equivalent U.S. dollarnotional amount using the exchange rate of P=43.19 /US$, simultaneous with the funding of thedebt servicing account of the hedged loan. The notional amount of the CCS is amortizing basedon the repayment schedule of the hedged loan. The CCS has a term of four years and will matureon April 20, 2015.

As of December 31, 2012, the fair value changes deferred to equity amounted to P=25.5 million($0.6 million) gain relating to mark-to-market movement of the CCS and P=21.2 million($0.5 million) gain relating to foreign exchange revaluation of the hedged loan. Net change in fairvalue amounting to P=8.5 million ($0.2 million) gain as taken to “Foreign exchange gain (loss) -net” account in the consolidated statement of income.

On October 15, 2012, First Gen terminated the CCS with ANZ. As the hedged loan was alsoterminated, the positive fair value of the cross-currency swap that was deferred to “Cumulativetranslation adjustments” in the consolidated statement of financial position amounting toP=46.7 million ($1.1 million) as of termination date was taken to the 2012 consolidated statementof income as part of “Others” account in the Other income (charges) account (see note 26).

The net movements in the fair value of CCS for the year ended December 31, 2012 are as follows:

Amount(In Millions)

Fair value at beginning of year P=16Fair value change taken into equity during the year 26Fair value change realized during the year (46)Amount of gain taken to consolidated statement of

comprehensive income 4Fair value at end of year deferred into equity P=–

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Cross Currency Swaps - EDCIn 2012, EDC entered into 6 non-deliverable cross-currency swap (NDCCS) agreements with anaggregate notional amount of US$65.0 million to partially hedge the foreign currency and interestrate risks on its Refinanced Syndicated Term Loan that is benchmarked against US LIBOR andwith flexible interest reset feature that allows EDC to select what interest reset frequency to apply(i.e., monthly, quarterly or semi-annually). As it is EDC’s intention to reprice the interest rate onthe hedged loan quarterly, EDC utilizes NDCCS with quarterly interest payments and receipts.

Under the NDCCS agreements, EDC receives floating interest based on 3-month US LIBOR plus175 basis points and pays fixed peso interest. On specified dates, EDC also receives specifiedUSD amounts in exchange for specified peso amounts based on the agreed swap rates. TheseUSD receipts correspond with the expected interest and fixed principal amounts due on the hedgedloan. Effectively, the 6 NDCCS converted 37.14% of hedged USD loan into a fixed rate pesoloan.

Pertinent details of the NDCCS are as follows:

Notionalamount(in million)

TradeDate

EffectiveDate

MaturityDate

Swaprate

Fixed rate Variable rate

US$15.0 03/26/12 03/27/12 06/17/17 P43.05 4.87% 3-month LIBOR + 175 bpsUS$10.0 04/18/12 06/27/12 06/17/17 42.60 4.92% 3-month LIBOR + 175 bpsUS$10.0 05/03/12 06/27/12 06/17/17 42.10 4.76% 3-month LIBOR + 175 bpsUS$10.0 06/15/12 06/27/12 06/17/17 42.10 4.73% 3-month LIBOR + 175 bpsUS$10.0 07/17/12 09/27/12 06/17/17 41.25 4.58% 3-month LIBOR + 175 bpsUS$10.0 10/29/12 12/27/12 06/17/17 41.19 3.44% 3-month LIBOR + 175 bps

The maturity date of the six NDCCS coincides with the maturity date of the hedged loan.

As at December 31, 2013 and 2012, the outstanding aggregate notional amount of EDC’s NDCCSamounted to US$65.00 million. The aggregate fair value changes on these NDCCS amounting toP=55.6 million ($1.3 million) loss and P=144.4 million ($3.4 million) loss as at December 31, 2013and 2012, respectively, were recognized by EDC under “Cumulative translation adjustments”account in the consolidated statement of financial position.

Hedge Effectiveness ResultsSince the critical terms of the hedged loan and the NDCCS match, except for one to two daystiming difference on the interest reset dates, the hedges were assessed to be highly effective. Assuch, the aggregate fair value changes on these NDCCS amounting to P=244.6 million($5.8 million) gain in 2013 and P=272.4 million ($6.4 million) loss in 2012 were recognized byEDC under “Cumulative translation adjustments” account in the consolidated statement offinancial position.

No ineffectiveness was recognized in the consolidated statement of income for the years endedDecember 31, 2013 and 2012.

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As at December 31, 2013 and 2012, the net movement of changes made to “Cumulativetranslation adjustment” account for EDC’s cash flow hedges are as follows:

2013

2012(As restated -

see Note 2)Balances at beginning of year (P=144) P=–Fair value change taken into equity during the year 245 (272)Fair value change realized during the year (147) 112

(46) (160)Deferred income tax effect on cash flow hedges (10) 16Balances at end of year (P=56) (P=144)

Reconciliation of Net Fair Value Changes on DerivativesThe table below summarizes the mark-to-market gain (loss) on the Group’s derivative instrumentsrecognized under the “Mark-to-market gain on derivatives” account in the consolidated statementsof income:

2013 2012 2011Freestanding derivatives:

Forward contracts P=14 P=10 P=87Option assets – – 183

P=14 P=10 P=270

34. Significant Contracts, Franchise and Commitments

a. Power Purchase Agreements (PPA)

FGP and FGPCFGP and FGPC each have an existing PPA with Meralco, the largest power distributioncompany operating in the island of Luzon and the Philippines and the sole customer of bothcompanies. Under the PPA, Meralco will purchase in each Contract Year from the start ofcommercial operations, a minimum number of kWh of the net electrical output of FGP andFGPC for a period of 25 years. Billings to Meralco under the PPA are substantially inU.S. dollar and a small portion is billed in Philippine peso.

On January 7, 2004, Meralco, FGP and FGPC signed the Amendment to their respectivePPAs. The negotiations resulted in a package of concessions including the assumption of FGPand FGPC of community taxes at current tax rate, while conditional concessions includeincreasing the discounts on excess generation, payment of higher penalties fornon-performance up to a capped amount, recovery of accumulated deemed delivered energyuntil 2011 resulting in the non-charging of Meralco of excess generation charge for suchenergy delivered beyond the contracted amount but within a 90% capacity quota. Theamended terms under the respective PPAs of FGP and FGPC were approved by the EnergyRegulatory Commission (ERC) on May 31, 2006.

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Under the respective PPAs of FGP and FGPC, the fixed capacity fees and fixed operating andmaintenance fees are recognized monthly based on the actual NDC tested and proven, whichis usually conducted on a semi-annual basis. Total fixed capacity fees and fixed operating andmaintenance fees amounted to P=11,424 million (US$270.7 million) in 2013, P=12,328 million(US$290.5 million) in 2012, and P=12,583 million (US$290.4 million) in 2011 and. Totalvalue of power sold to Meralco by FGP and FGPC (which already includes the fixed capacityfees and fixed operating and maintenance fees mentioned above) amounted to P=54,553 million(US$1,292.7 million) in 2013, P=59,021 million (US$1,390.8 million) in 2012, andP=58,041 million (US$1,339.5 million) in 2011.

FG BukidnonOn January 9, 2008, FG Bukidnon and Cagayan Electric Power and Light Co., Inc.(CEPALCO), an electric distribution utility operating in the City of Cagayan de Oro, signed aPower Supply Agreement (PSA) for the FG Bukidnon plant. Under the PSA, FG Bukidnonshall generate and deliver to CEPALCO and CEPALCO shall take, or pay for even if nottaken, the Available Energy for a period commencing on the date of ERC approval untilMarch 28, 2025.

On February 15, 2010, FG Bukidnon received the decision from ERC datedNovember 16, 2009 which modified some of the terms of the PSA. On March 2, 2010, FGBukidnon filed a Motion for Reconsideration (MR) with the ERC. While still awaiting for theERC’s reply to the MR, FG Bukidnon applied the ERC’s revised rate for its sale toCEPALCO starting March 2010. On September 9, 2010, FG Bukidnon received the ERCorder dated August 16, 2010 partially approving FG Bukidnon’s MR. This approved tariffwas used starting September 2010. On October 19, 2010, FG Bukidnon filed a motion forclarification on the effectivity of the ERC order dated August 16, 2010.

On May 5, 2011, FG Bukidnon received the ERC order dated April 4, 2011 which clarifiedthat the ERC order dated August 16, 2010 should be applied retroactively from March 2010.Pursuant to the ERC order dated April 4, 2011, FG Bukidnon was able to recover fromCEPALCO P=1.76 million of under-recoveries from period March 2010 to August 2010.

On June 14, 2012, FG Bukidnon signed a Transmission Service Agreement with the NationalGrid Corporation of the Philippines (NGCP) for the latter’s provision of the necessarytransmission services to FG Bukidnon. The charges under this agreement are as provided inthe Open Access Transmission Service Rules and/or applicable ERC orders/issuances. Underthe PSA, these transmission-related charges shall be passed through to CEPALCO.

FG HydroFG Hydro had contracts which were originally transferred by NPC to FG Hydro as part of theacquisition of PAHEP/MAHEP for the supply of electric energy with several customers withinthe vicinity of Nueva Ecija. All of these contracts had expired as of December 31, 2010.

In 2010, upon renegotiation with the customers and due process as stipulated by the ERC, theexpired contracts were renewed, except for the contract with Pantabangan Municipal ElectricSystem (PAMES). FG Hydro shall generate and deliver to these customers the contractedenergy on a monthly basis. FG Hydro is bound to service these customers for the remainderof the stipulated terms, the range of which falls between December 2008 to December 2020.

Upon expiration, these contracts may be renewed upon renegotiation with the customers anddue process as stipulated by the ERC. As at December 31, 2013, there are four remaininglong-term power supply agreements being serviced by FG Hydro.

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Details of the existing contracts are as follows:

Related Contract Expiry Date Other DevelopmentNueva Ecija II Electric Cooperative,Inc., Area 1 (NEECO II –Area 1)

August 25, 2018 FG Hydro and NEECO II-Area 1 have executeda five-year new PSA, signed in May 2013. Thecontract term is for a minimum of five years,commencing on August 26, 2013, and mayfurther continue and remain effective up toAugust 25, 2023 subject to agreement by bothparties on the provisions of Re-Pricing. The ERCgranted a provisional approval of the PSAbetween FG Hydro and NEECO II-Area 1 onJanuary 14, 2014.

Nueva Ecija II Electric Cooperative,Inc., Area 2 (NEECO II –Area 2)

December 25, 2016 The ERC granted a provisional approval on thePSA between FG Hydro and NEECO II-Area 2on August 2, 2010 with a pending finalresolution of the application for the approvalthereof.

PAMES December 25, 2008 There was no new agreement signed between FGHydro and PAMES. However, FG Hydro hadcontinued to supply PAMES’ electricityrequirements with PAMES’ compliance to theagreed restructured payment terms.

Edong Cold Storage and Ice Plant(ECOSIP)

December 25, 2020 A new agreement was signed by FG Hydro andECOSIP in November 2010 for the supply ofpower in the succeeding 10 years.

National Irrigation Administration(NIA)-Upper Pampanga RiverIntegrated Irrigation System

October 25, 2020 FG Hydro and NIA-UPRIIS signed a newagreement in October 2010 for the supply ofpower in the succeeding 10 years.

EDCEDC has existing PPAs with NPC for the development, construction and operation of ageothermal power plant by EDC in the service contract areas and the sale to NPC of theelectrical energy generated from such geothermal power plants. The PPA provides, amongothers, that NPC pays EDC a base price per kWh of electricity delivered subject to inflationadjustments. The PPAs are for a period of 25 years of commercial operations and may beextended upon the request of EDC by notice of not less than 12 months prior to the end ofcontract period, the terms and conditions of any such extension to be agreed upon by theparties.

Details of the existing PPAs are as follows:

Contract Area Contracted Annual Energy End of ContractLeyte-CebuLeyte-Luzon

1,370 gigawatt-hour (GWh)3,000 GWh

July 2021July 2022

52 MW Mindanao I 330 GWh for the first year and 390 GWhfor the succeeding years

March 2022

54 MW Mindanao II 398 GWh June 2024

The PPA for Leyte-Cebu-Luzon service contract stipulates a nominated energy of not lowerthan 90% of the contracted annual energy.

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On November 12, 1999, NPC agreed to accept from EDC a combined average annualnominated energy of 4,455 GWh for the period July 25, 1999 to July 25, 2000 for Leyte-Cebuand Leyte-Luzon PPAs. However, the combined annual nominated energy startingJuly 25, 2000 is currently under negotiation with NPC. The contracts are for a period of25 years commencing in July 1996 for Leyte-Cebu and July 1997 for Leyte-Luzon.

Green Core Geothermal Inc. (GCGI)With GCGI’s takeover of Palinpinon and Tongonan Power Plants effective October 23, 2009,Schedule X of the Asset Purchase Agreement (APA) with PSALM provides for theassignment of 12 NPC Power Supply Agreements (PSAs) to GCGI. As at December 31,2013, the following Transition Supply Contract (TSC’s) remained:

Customers Contract ExpirationNegros

Dynasty Management Development Corp. (DMDC) March 25, 2016Panay

Philippine Foremost Milling Corp. (PFMC) March 25, 2016

Since GCGI’s takeover of the power plants, 26 new PSAs have been signed as follows:

Customers Contract Start Contract ExpirationManila:

First Gen Energy Solutions Inc. (FGES) June 26, 2013 June 25, 2023Leyte:

Don Orestes Romualdez Electric Cooperative, Inc. (DORELCO)* Dec. 26, 2010 Dec. 25, 2020Leyte II Electric Cooperative, Inc. (LEYECO II)* Dec. 26, 2010 Dec. 25, 2020LEYECO II* Dec. 26, 2011 Dec. 25, 2021Leyte III Electric Cooperative, Inc. (LEYECO III)* Dec. 26, 2011 Dec. 25, 2021Leyte IV Electric Cooperative, Inc. (LEYECO IV)* Dec. 26, 2012 Dec. 25, 2017Leyte V Electric Cooperative, Inc. (LEYECO V)* Dec. 26, 2010 Dec. 25, 2020

Philippine Phosphate Fertilizer Corporation (PHILPHOS) Dec. 26, 2011 Dec. 25, 2016Cebu:

Visayan Electric Company, Inc. (VECO)* Dec. 26, 2010 Dec. 25, 2015VECO* Dec. 26, 2011 Dec. 25, 2016Balamban Enerzone Corporation (BEZ) Dec. 26, 2010 Dec. 25, 2015

Negros:Central Negros Electric Cooperative, Inc. (CENECO)* Dec. 26, 2011 June 25, 2014Negros Occidental Electric Cooperative, Inc. (NOCECO)* Dec. 26, 2010 Dec. 25, 2020Negros Oriental I Electric Cooperative, Inc. (NORECO I)* Dec. 26, 2010 Dec. 25, 2020Negros Oriental II Electric Cooperative, Inc. (NORECO II)* Dec. 26, 2010 Dec. 25, 2020V.M.C. Rural Electric Service Cooperative, Inc. (VRESCO)* Dec. 26, 2010 Dec. 25, 2020Don Orestes Romualdez Electric Cooperative, Inc. (DORELCO)* Dec. 26, 2010 Dec. 25, 2020Dumaguete Coconut Mills, Inc. (DUCOM) Oct. 26, 2010 Oct. 25, 2020Customers Contract Start Contract Expiration

Bohol:Bohol II Electric Cooperative, Inc. (BOHECO II)* Jan. 26, 2013 Jan. 25, 2023

Panay:Aklan Electric Cooperative, Inc. (AKELCO)* March 26, 2010 Dec. 25, 2020Capiz Electric Cooperative, Inc. (CAPELCO)* Jan. 27, 2010 Dec. 25, 2020Iloilo I Electric Cooperative, Inc. (ILECO I)* March 26, 2010 Dec. 25, 2022Iloilo II Electric Cooperative, Inc. (ILECO II)* Dec. 26, 2010 Dec. 25, 2020Iloilo III Electric Cooperative, Inc. (ILECO III)* Dec. 26, 2012 Dec. 25, 2022Guimaras Electric Cooperative, Inc. (GUIMELCO)* Dec. 26, 2012 Dec. 25, 2022

*with Provisional Authority from the ERC as of December 31, 2013

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Coordination with ERC is on-going to secure the Final Authority for the filed applications forthe approval of the PSAs with distribution utility and electric cooperative customers.

BacMan Geothermal Inc. (BGI)With BGI’s takeover of BacMan Geothermal Power Plants from NPC effective September2010, BGI has entered into several PSAs with various companies and electric cooperative. Asat December 31, 2013, following are the outstanding PSAs of BGI:

Customers Contract Start Contract ExpirationLinde Philippines, Inc. Dec. 26, 2011 Dec. 25, 2013Philippine Associated and Refining Smelting Corp. (PASAR) Dec. 26, 2012 Dec. 25, 2015Camarines Sur II Electric Cooperative, Inc. (CASURECO II)* Jan. 26, 2013 Jan. 25, 2018FPIC Jan. 26, 2013 Dec. 25, 2014First Gen Energy Solutions Inc. (FGES) Jun. 26, 2013 Jan. 25, 2016

b. Stored Energy Commitment of EDC

On various dates, EDC entered into Addendum Agreements to the PPA related to the UnifiedLeyte power plants, whereby any excess generation above the nominated energy or take-or-pay volume will be credited against payments made by NPC for the periods it was not able totake electricity. As at December 31, 2013 and 2012, the commitment for stored energy isequivalent to 4,326.6 GWh.

c. Geothermal Service Contracts (GSC)/Geothermal Renewable Energy Service Contracts(GRESC) of EDC

By virtue of Presidential Decree (P.D.) No. 1442, EDC entered into seven GSCs with thePhilippine Government through the DOE granting EDC the right to explore, develop, andutilize the country’s geothermal resource subject to sharing of net proceeds with the PhilippineGovernment. The net proceeds is what remains after deducting from the gross proceeds theallowable recoverable costs, which include development, production and operating costs. Theallowable recoverable costs shall not exceed 90% of the gross proceeds. EDC pays 60% ofthe net proceeds as share of the Philippine Government and retains the 40%.

R.A. 9513, “An Act Promoting the Development, Utilization and Commercialization ofRenewable Energy Resources and for Other Purposes,” otherwise known as the “RenewableEnergy Act of 2008” or the “RE Act”, mandates the conversion of existing service contractsunder P.D. 1442 into RE Service Contracts to avail of the incentives under the RE Act. EDCsubmitted its letter of intent to register with the DOE as an RE Developer on May 20, 2009and the conversion contracts negotiation with the DOE started in August 2009.

On September 10, 2009, EDC was granted the Provisional Certificate of Registration as an REDeveloper for the following existing projects: (1) GSC No. 01- Tongonan, Leyte, (2) GSCNo. 02 - Palinpinon, Negros Oriental, (3) GSC No. 03 - Bacon-Manito, Sorsogon/Albay,(4) GSC No. 04 - Mt. Apo, North Cotabato, and (5) GSC No. 06 - Northern Negros.

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With the receipt of the certificates of provisional registration as geothermal RE Developer, thefiscal incentives of the RE Act was implemented by EDC retroactive from the effective dateof the RE Act. Thus, the incentives provided by P.D. 1442 are effective until January 2009.The GSCs were fully converted to GRESCs upon signing of the parties on October 23, 2009;thereby EDC is now the holder of five (5) GRESCs and the corresponding DOE Certificate ofRegistration as an RE Developer for the following geothermal projects:

1) GRESC 2009-10-001 for Tongonan Geothermal Project;2) GRESC 2009-10-002 for Southern Negros Geothermal Project;3) GRESC 2009-10-003 for Bacon-Manito Geothermal Project;4) GRESC 2009-10-004 for Mt. Apo Geothermal Project; and5) GRESC 2009-10-005 for Northern Negros Geothermal Project

The DOE approved the application of EDC for the 20-year extension of the Tongonan,Palinpinon and Bacon-Manito GSCs. The extension is embodied in the fourth amendment tothe GSCs dated October 30, 2003. The amendment extended the Tongonan GSC fromMay 15, 2011 to May 16, 2031, while the Palinpinon and Bacon-Manito GSCs are extendedfrom October 16, 2011 to October 17, 2031.

d. Steam Sales Agreements (SSA) and GRSC of EDC

EDC has existing SSAs for the supply of the geothermal energy currently produced by itsgeothermal projects to the power plants owned and operated by NPC and GCGI. Under theSSA, NPC agrees to pay EDC a base price per kWh of gross generation for all the servicecontract areas, except for Tongonan I Project, subject to inflation adjustments, and based on aguaranteed take-or-pay (TOP) rate at certain percentage plant factor. NPC pays EDC a baseprice per kWh of net generation for Tongonan I Project. The SSA is for a period of 20 to 25years.

Details of the existing SSAs are as follows:

Contract Area Guaranteed TOP End of ContractPalinpinon II (covers four

modular plants)50% for the 1st year, 65% for the2nd year, 75% for the 3rd


December 2018 -March 2020

BacMan I 75% plant factor November 2013BacMan II (covers two 20 MW modular plants)

50% for the 1st year, 65% for the2nd year, 75% for the 3rdand subsequent years

March 2019 andDecember 2022

After the turnover of the power plants to GCGI on October 23, 2009, the SSAs of Tongonan I,Palinpinon I and Palinpinon II were converted to GRSCs. Under the GRSCs which willterminate in 2031, GCGI agrees to pay EDC remuneration for actual net electricity generationof the plant with steam prices in U.S. Dollars per kWh tied to coal indices.

With the rehabilitation of BacMan, billing on the SSA shall resume on (a) the execution of thedeed of assignment of the SSA from NPC/PSALM to BGI; or (b) such time that the BacManpower plants resume its operations. On July 25, 2012, EDC, BGI and PSALM executed aletter of agreement for the direct billing and collection of the steam contracts between EDCand BGI. However, PSALM still remains a party to the steam contracts.

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e. Gas Sale and Purchase Agreements (GSPA)

FGP and FGPC each have an existing GSPA with the consortium of Shell PhilippinesExploration B.V., Chevron Malampaya, LLC and PNOC Exploration Corporation(collectively referred to as Gas Sellers), for the supply of natural gas in connection with theoperations of the power plants. The GSPAs, now on their eleventh Contract Year, are for atotal period of approximately 22 years.

Total cost of natural gas purchased amounted to P=10,170 million (US$241.0 million) in 2013,P=14,573 million (US$343.4 million) in 2012, and P=13,207 million (US$304.8 million) in 2011for FGP, and P=25,143 million (US$595.8 million) in 2013, P=27,614 million (US$650.7million) in 2012, and P=26,284 million (US$606.6 million) in 2011 for FGPC.

Under the GSPA, FGP and FGPC are obligated to consume (or pay for, if not consumed)a minimum quantity of gas for each Contract Year (which runs from December 26 of aparticular year up to December 25 of the immediately succeeding year), called theTake-Or-Pay Quantity (TOPQ). Thus, if the TOPQ is not consumed within a particularContract Year, FGP and FGPC will incur an “Annual Deficiency” for that Contract Yearequivalent to the total volume of unused gas (i.e., the TOPQ less the actual quantity of gasconsumed). FGP and FGPC are required to make payments to the Gas Sellers for suchAnnual Deficiency after the end of the Contract Year. After paying for Annual Deficiencygas, FGP and FGPC can, subject to the terms of the GSPA, “make-up” such AnnualDeficiency by consuming the unused-but-paid-for gas (without further charge) within10-Contract Year after the Contract Year for which the Annual Deficiency was incurred, inthe order that it arose.

Included in the June 9, 2010 Settlement Agreement is the GSPA amendment in which FGP,FGPC and the Gas Sellers agreed that where the Gas Sellers reschedule, reduce or cancelScheduled Maintenance and fail to provide a rescheduling notice within the period requiredunder clause 17.1.2 of the respective GSPAs of FGP and FGPC, Gas Sellers shall bepermitted, subject to clause 17.5, to carry forward to succeeding Contract Years the number ofDays within the originally scheduled period where no actual maintenance is carried out by theGas Sellers provided that Gas Sellers tender for delivery, and FGP and FGPC actually take,gas equivalent to at least 61.429 Terajoules (TJ) and 122.9 TJ for San Lorenzo and Santa Rita,respectively. FGP and the Gas Sellers likewise agreed that references to “the Base TOPQdivided by 350” in certain clauses of the San Lorenzo GSPA shall be replaced by “61.429 TJ”.

On December 27, 2013, FGP received an invoice from the Gas Sellers for an AnnualDeficiency amount of US$38.3 million for the Contract Year ending on December 25, 2013(“CY 2013”). The alleged Annual Deficiency in the Gas Sellers’ invoice is based on the GasSellers’ calculation of the TOPQ.

FGP is disputing the Gas Sellers’ calculation of the TOPQ for CY 2013 on the grounds that,among others, the Gas Sellers failed to reduce the TOPQ by the quantity of gas not taken byFGP due to the force majeure event that affected Unit 60 of the San Lorenzo power plant lastMay 28, 2013. Under clause 9.1.2 of the GSPA, the TOPQ is calculated using a Base TOPQand reduced by, among others, quantity of gas not taken by FGP due to a force majeureevent. FGP is of the position that there should be no Annual Deficiency payable to the GasSellers based on FGP’s calculation of the TOPQ in accordance with the provisions of theGSPA. FGP has written the Gas Sellers to correct their calculation of the TOPQ which should

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eliminate the Annual Deficiency amount in their invoice. FGP intends to take furtherappropriate dispute resolution measures as necessary. Accordingly, FGP has not recognizedthe said invoice for the CY 2013 Annual Deficiency in the consolidated financial statementsas of December 31, 2013.

Under clause 13.5.1 of the GSPA, amounts that are subject of a bona fide dispute with the GasSellers shall be paid after settlement of the dispute pursuant to the dispute settlementprovisions, which require mutual discussions between parties, referral to an expert forresolution and arbitration proceedings. If the parties go through the dispute resolutionproceedings, such proceedings would likely last for more than one (1) year. FGP has advisedMeralco that FGP is currently disputing such Annual Deficiency amount as discussed above.Under the PPA between FGP and Meralco, all fuel and fuel-related costs, including suchAnnual Deficiency, are borne by Meralco and are billed on a full pass-through basis, subjectto true-up adjustments (if there are any). Any payments that may be due from Meralco shallbe made upon resolution of such dispute with the Gas Sellers.

f. Wind Energy Service Contract (WESC) of EDC

On September 14, 2009, EDC has entered into a WESC with the DOE granting EDC the rightto explore and develop the Burgos wind project for a period of 25 years from effective date.The pre-development stage under the WESC shall be two years which can be extended foranother one year if EDC has not been in default in its exploration or work commitments andhas provided a work program for the extension period upon confirmation by the DOE. TheWESC also provides that upon submission of the declaration of commercial viability, asconfirmed by the DOE, the WESC shall remain in force for the balance of the 25-year periodfor the development/commercial stage. The DOE shall approve the extension of the WESCfor another 25 years under the same terms and conditions, provided that EDC is not in defaultin any material obligations under the WESC, and has submitted a written notice to the DOEfor the extension of the contract not later than one (1) year prior to the expiration of the 25-year period. The WESC provides that all materials, equipment, plants and other installationserected or placed on the contract area by EDC shall remain the property of EDC throughoutthe term of the contract and after its termination.

On May 26, 2010, the BOD of EDC approved the assignment and transfer to EBWPC of allthe contracts, assets, permits and licenses relating to the establishment and operation of theBurgos Wind Power Project under DOE Certificate of Registration No. WESC 2009-09-004.In April 2013, EDC commenced the construction of its 87 MW Burgos Wind Power Projectwhich is situated in the Municipality of Burgos, Ilocos Norte. The wind farm will consist of29 units of the Class 1 V90-3.0 MW wind turbine generator to be supplied by Vestas WindSystems. The transmission line will span 42 kms. and will connect the wind farm andsubstation in Burgos to the NGCP substation in Laoag City and the project has an existingInterconnection Agreement with NGCP. EDC expects that the project will be commissionedin 2014 and intends to sell the project’s electrical output under the Feed-in-Tariff, pursuant tothe RE Law. Given the aforementioned key activities, EBWPC was granted a Certificate ofConfirmation of Commerciality for its 87 MW Burgos Wind Project on May 16, 2013. Thecertificate converts the project’s WESC from exploration/pre-development stage to thedevelopment/commercial stage.

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In 2010, EDC has entered into five WESCs with the DOE for the following contract areas:

Projects DOE Certificates1) Pagudpud Wind Project Under DOE Certificate of Registration No.

WESC 2010-02-040 (expiring in 2035)2) Camiguin Wind Project Under DOE Certificate of Registration No.

WESC 2010-02-041 (expiring in 2035)3) Taytay Wind Project Under DOE Certificate of Registration No.

WESC 2010-02-042 (expiring in 2035)4) Dinagat Wind Project Under DOE Certificate of Registration No.

WESC 2010-02-043 (expiring in 2035)5) Siargao Wind Project Under DOE Certificate of Registration No.

WESC 2010-02-044 (expiring in 2035)

In February 2013, EPWPC submitted its Declaration of Commerciality to the DOE for thePagudpud wind project, similarly seeking to convert the project from exploration/pre-development stage to the development/commercial stage. As of March 19, 2014, EPWPC isawaiting the DOE’s Confirmation of Commerciality of the Pagudpud wind project.

Meanwhile, on December 19, 2011, EDC has submitted a letter of surrender covering theTaytay, Dinagat and Siargao contract areas and thus, will not pursue these project areasfurther. Per Section 4.2 of the WESC, the surrender will take effect 30 days upon the REDeveloper’s submission of a written notice to the DOE.

g. Operating and Maintenance (O&M) Agreements

FGP and FGPCFGP and FGPC have separate O&M Agreements with Siemens Power Operations, Inc. (SPOI)mainly for the operation, maintenance, management and repair services of their respectivepower plants. As stated in the respective O&M Agreements of FGP and FGPC, SPOI isresponsible for maintaining adequate inventory of spare parts, accessories and consumables.SPO is also responsible for replacing and repairing the necessary parts and equipment of thepower plants to ensure the proper operation and maintenance of the power plants to meet thecontractual commitments of FGP and FGPC under their respective PPAs and in accordancewith the Good Utility Practice.

FGP and FGPC each signed a new full scope O&M agreement with SPOI. Each signed newcontract took effect on August 1, 2010 (the Commencement Date) and will expire on theearlier of (i) the 20th anniversary of the Commencement Date, or (ii) the satisfactorycompletion of the major inspections of all units of the San Lorenzo and Santa Rita powerplants, in each case nominally scheduled at 200,000 equivalent operating hours, as stipulatedin their respective O&M Agreements.

O&M charges include Euro, U.S. dollar and Philippine peso components. The Eurodenominated charge is hedged using foreign currency forwards to minimize the risk of foreignexchange fluctuations (see Note 33). Total O&M costs charged to the consolidated statementsof income amounted to P=1,312million (US$31.1 million) in 2013, P=1,112 million(US$26.2 million) in 2012, and P=1,469 million (US$33.9 million) in 2011.

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In 2013 and 2012, prepaid major spare parts totaling to P=3,376 million (US$80.0 million) andP=1,702 million (US$40.1 million), respectively, were reclassified to the “Property, plant andequipment” account as a result of the scheduled major maintenance outages of Santa Rita andSan Lorenzo power plants (see Note 12). As at December 31, 2013 and 2012, certain O&Mfees amounting to P=705 million (US$16.7 million) and P=2,903 million (US$68.4 million),respectively, which relate to major spare parts that will be replaced during the scheduledmaintenance outage, were presented as part of the “Other noncurrent assets” account in theconsolidated statements of financial position (see Note 16).

FG HydroIn 2006, FG Hydro entered into an O&M Agreement with the NIA, with the conformity ofNPC. Under the O&M Agreement, NIA will manage, operate, maintain and rehabilitate theNon-Power Components of the PAHEP/MAHEP in consideration for a service fee based onactual cubic meter of water used by FG Hydro for power generation.

In addition, FG Hydro will provide for a Trust Fund amounting to $2.2 million(P=100.0 million) within the first two years of the O&M Agreement. The amortization for theTrust Fund is payable in 24 monthly payments starting November 2006 and is billed by NIAin addition to the monthly service fee. The Trust Fund has been fully funded as ofOctober 2008.

The O&M Agreement is effective for a period of 25 years commencing onNovember 18, 2006 and renewable for another 25 years under the terms and conditions as maybe mutually agreed upon by both parties.

h. Ancillary Services Procurement Agreement (ASPA)

FG Hydro entered into an agreement with the NGCP on February 23, 2011 after beingcertified and accredited by NGCP as capable of providing Contingency Reserve Service,Dispatchable Reserve Service, Reactive Power Support Service and Black Start Service.Under the agreement, FG Hydro through the PAHEP facility shall provide any of the above-stated ancillary services to NGCP.

The ASPA is effective for a period of three (3) years, commencing on February 23, 2011 andshall be automatically renewed for another three (3) years after the end of the original termsubject to certain conditions as provided in the ASPA.

The ERC has provisionally approved the ASPA on June 6, 2011. However, ERC altered therates that FG Hydro can charge NGCP, and likewise imposed caps and floors to the variousancillary services that FG Hydro can provide to NGCP.

As provided for in the ASPA, the agreement was automatically renewed subject to the sameterms of the agreement.

i. Memorandum of Agreement with NGCP (MOA with NGCP)

FG Hydro entered into a MOA with NGCP on August 31, 2011 for the performance ofservices on the operation of the PAHEP 230 kV switchyard and its related appurtenances(Switchyard).

NGCP shall pay FG Hydro a monthly fixed operating cost of P0.1 million and monthlyvariable charges representing energy consumed at the Switchyard.

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The MOA is effective for a period of five (5) years and renewable for another three (3) yearsunder such terms as maybe agreed by both parties.

j. Hydropower Service Contract (HSC)

FG BukidnonOn October 23, 2009, FG Bukidnon entered into a Hydropower Service Contract (HSC) withthe DOE, which grants FG Bukidnon the exclusive right to explore, develop, and utilize thehydropower resources within the Agusan river mini-hydro contract area.

FG Bukidnon shall furnish the services, technology, and financing for the conduct of itshydropower operations in the contract area in accordance with the terms and conditions of theHSC. The HSC is effective for a period of 25 years from the date of execution, or untilOctober 2034. Pursuant to the RE Law and the HSC, the National Government and LocalGovernment Units shall receive the Government’s share equal to 1.0% of FG Bukidnon’spreceding fiscal year’s gross income for the utilization of hydropower resources within theAgusan mini-hydro contract area.

FG MindanaoOn October 23, 2009, FG Mindanao also signed five HSCs with the DOE in connection withthe following projects: Puyo River Hydropower Project in Jabonga, Agusan del Norte;Cabadbaran River Hydropower Project in Cabadbaran, Agusan del Norte; Bubunawan RiverHydropower Project in Baungon and Libona, Bukidnon; Tumalaong River HydropowerProject in Baungon, Bukidnon; and Tagoloan River Hydropower Project in Impasugong andSumilao, Bukidnon. The HSCs give FG Mindanao the exclusive right to explore, develop,and utilize renewable energy resources within their respective contract areas, and will enableFG Mindanao to avail itself of both fiscal and non-fiscal incentives pursuant to the Act. Thepre-development stage under each of the HSCs is two years from the time of execution of saidcontracts (the “Effective Date”) and can be extended for another one year if FG Mindanao hasnot been in default of its exploration or work commitments and has provided a work programfor the extension period upon confirmation by the DOE. On October 11, 2011, FG Mindanaorequested the DOE for its confirmation of the one (1) year extension of the pre-developmentstage pursuant to the HSCs for these 5 hydro projects. Each of the HSCs also provides thatupon submission of declaration of commercial viability, as confirmed by the DOE, it is toremain in force during the remaining life of the of 25-year period from the Effective Date.

FG Mindanao submitted its declaration of commerciality for each of the Puyo RiverHydropower Project and the Bubunawan River Hydropower Project on March 12, 2012, forCabadbaran River Hydropower Project on August 16, 2012, and for each of the TagoloanRiver Hydropower Project and the Tumalaong River Hydropower Project on October 22,2012.

FG LuzonOn March 10, 2011, a Memorandum of Agreement (“MOA”) covering the development of theproposed Balintingon Reservoir Multi-Purpose Project (“BRMPP”) was signed among theFirst Gen’s wholly owned subsidiary, FG Luzon, the Province of Nueva Ecija and theMunicipality of General Tinio. The project will involve the development construction andoperation of a new hydro reservoir and a new hydroelectric power plant in the Municipality ofGeneral Tinio, Nueva Ecija for purposes of power generation, irrigation and domestic watersupply.

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A MOA was executed on November 16, 2011 between FG Luzon and NIA for the conduct ofa comprehensive study on the economic, financial and technical viability of the Project.

On March 29, 2012, the Project was awarded an HSC under the Department of EnergyCertificate of Registration No. HSC 2012-01-194.

k. Substation Interconnection Agreement

FGPC has an agreement with Meralco and NPC for: (a) the construction of substationupgrades at the NPC substation in Calaca and the donation of such substation upgrades toNPC; (b) the construction of a 35-kilometer transmission line from the power plant to the NPCsubstation in Calaca and subsequent donation of such transmission line to NPC; (c) theinterconnection of the power plant to the NPC Grid System; and (d) the receipt and delivery ofenergy and capacity from the power plant to Meralco’s point of receipt.

As at April 4, 2014, FGPC is still in the process of transferring the substation upgrades inCalaca, as well as the 230 kilovolts (kV) Santa Rita to Calaca transmission line, to NPC.

l. Maintenance services related to the transmission line are rendered by Meralco IndustrialEngineering Services Corporation (MIESCOR), a subsidiary of Meralco, on the 230 kVtransmission line from the Santa Rita plant to the Calaca Substation in Batangas under theTransmission Line Maintenance Agreement. This involves the monthly payment ofP=0.8 million (US$0.02 million) as retainer fee and P=3.4 million (US$0.08 million) for everysix-month period as service fee, with both fees subject to periodic adjustment as set forth inthe agreement. The amount of compensation for additional services requested by FGPCoutside the scope of the agreement is subject to mutual agreement between FGPC andMIESCOR. Total O&M expense (shown as part of the “Operations and maintenance” accountin the consolidated statements of income) amounted to P=21 million (US$0.5 million),P=30 million (US$0.7 million) and P=22 million (US$0.5 million) in 2013, 2012 and 2011,repectively.

m. Interim Interconnection Agreement

FGP has an agreement with NPC and Meralco whereby NPC will be responsible for thedelivery and transmission of all energy and capacity from FGP’s power plant to Meralco’spoint of receipt.

n. Service Concession Arrangements

EDC operates 12 geothermal projects in five geothermal service contract areas, namely LeyteGeothermal Production Field (LGPF), Southern Negros Geothermal Production Field(SNGPF), BacMan Geothermal Production Field (BGPF), Mindanao Geothermal ProductionField (MGPF) and Northern Negros Geothermal Production Field (NNGPF) under the GSCs[(see Note 27(c)] entered into with DOE pursuant to the provisions of P.D. 1442. These GSCswere replaced by GRESCs on October 23, 2009. Geothermal steam produced is partly sold toNPC, while the remainder are fed to EDC’s and GCGI’s power plants to produce electricity.EDC sells steam and power to NPC under the SSAs and PPAs, respectively. EDC also sellselectricity to ILECO I under the Electricity Sales Agreement.

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EDC has entered into the following service contracts with the Philippine Government(represented by the Ministry/Department of Energy) for the exploration, development andproduction of geothermal fluid for commercial utilization:

a. Tongonan, Leyte, dated May 14, 1981b. Southern Negros, dated October 16, 1981c. Bacman, Sorsogon, dated October 16, 1981d. Mt. Apo, Kidapawan, Cotabato, dated March 24, 1992e. Mt. Labo, Camarines Norte and Sur, dated March 19, 1994f. Northern Negros, dated March 24, 1994g. Mt. Cabalian, Southern Leyte, dated January 13, 1997

The exploration period under the service contracts shall be five years from the effective date,renewable for another two years, if EDC has not been in default in its exploration, financialand other work commitments and obligations and has provided a work program for theextension period acceptable to the Philippine Government. Where geothermal resource incommercial quantity is discovered during the exploration period, the service contracts shallremain in force for the remainder of the exploration period or any extension thereof and for anadditional period of 25 years thereafter, provided that, if EDC has not been in default in itsobligations under the contracts, the Philippine Government may grant an additional extensionof 15 to 20 years.

EDC shall acquire for the geothermal operations materials, equipment, plants and otherinstallations as are required and necessary to carry out the geothermal operations. Allmaterials, equipment, plants and other installations erected or placed on the contract areas of amovable nature by EDC shall remain the property of EDC unless not removed therefromwithin one year after the expiration and/or termination of the related service contract in whichcase, ownership shall be vested in the Philippine Government.

The service contracts provide that, among other privileges, EDC shall have the right to enterinto agreements for the disposition of the geothermal resources produced from the contractareas, subject to the approval of the Philippine Government.

Pursuant to such right, EDC has entered into agreements for the sale of the geothermalresources produced from the service contract areas principally with the NPC, a government-owned and controlled corporation. These agreements are for 25 years and may berenegotiated by either party after five years from the date of commercial operations.

Pursuant to such right also, EDC has also entered into agreements with NPC for thedevelopment, construction and operation of a geothermal power plant by EDC in its GSCareas and the sale to NPC of the electrical energy generated from such geothermal powerplants. These agreements are for 25 years of commercial operations and may be extendedupon the request of EDC by notice of not less than 12 months prior to the end of the contractperiod, the terms and conditions of any such extension to be agreed upon by the parties.

EDC’s agreements with NPC for the sale of the geothermal resources produced from theservice contract areas and the sale of the electrical energy generated from the geothermalpower plants contain certain provisions relating to pricing control in the form of a cap inEDC’s internal rate of return for specific contracts; as well as for payment by NPC ofminimum guaranteed monthly remuneration and nominated capacity.

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For the Northern Negros service contract, EDC does not have agreements with NPC for thesale of the geothermal resources and electrical energy produced from the service contract area.EDC instead enters into contracts with distribution utilities, electric cooperatives and otherthird party buyers of electricity for the sale of the electrical energy generated from the servicecontract area.

On October 23, 2009, the GSCs for the following contract areas were replaced by GRESCspursuant to R.A. 9513 as discussed in Note 27(c): Leyte, Southern Negros, Bacman,Mindanao, and Northern Negros. Aside from the tax incentives arising from the conversion toGRESCs, the significant terms of the service concessions under the GRESCs are similar to theGSCs except for EDC having control over any significant residual interest over the steamfield, power plants and related facilities throughout the concession period and even after theconcession period. As a result of abovementioned changes in the service concessionarrangements, EDC has made a judgment that its service concession contracts are no longerwithin the scope of Philippine Interpretation IFRIC 12 starting October 23, 2009.

The DOE conducted bidding on the geothermal energy resources located in Labo, CamarinesNorte and the contract area was won by EDC. The certificate of registration as RE Developerfor this contract area was granted by the DOE on February 19, 2010. On the same date,EDC’s GSC in Mt. Labo in Camarines Norte and Sur was converted to GRESC 2010-02-020.

On March 24, 2010, the DOE issued to EDC a new GRESC of Mainit Geothermal Projectunder DOE Certificate of Registration No. GRESC 2010-03-021.

The remaining service contract of EDC that is still covered by P.D. 1442 as atDecember 31, 2013 is the Mt. Cabalian in Southern Leyte, which has a term of 25 years fromthe effective date of the contract, January 31, 1997, and for an additional period of 25 years ifEDC has not been in default in its obligations under the GSC.


1) Ampiro Geothermal Project (with a five-year pre-development period expiring in2017 and a 25-year contract period expiring in 2037)

2) Mandalagan Geothermal Project (with a five-year pre-development period expiring in2017 and a 25-year contract period expiring in 2037)

3) Mt. Zion Geothermal Project (with a five-year pre-development period expiring in2017 and a 25-year contract period expiring in 2037)

4) Lakewood Geothermal Project (with a five-year pre-development period expiring in2017 and a 25-year contract period expiring in 2037)

5) Balingasag Geothermal Project (with a five-year pre-development period expiring in2017 and a 25-year contract period expiring in 2037)

The RE Law also provides that the exclusive right to operate geothermal power plants shall begranted through a Renewable Energy Operating Contract with the Philippine Governmentthrough the DOE. Accordingly, on May 8, 2012, EDC, through its subsidiaries GCGI andBGI secured three (3) Geothermal Operating Contracts (GOCs) covering the following powerplant operations:

1) Tongonan Geothermal Power Plant under DOE Certificate of Registration No. GOC2012-04-038 [with a twenty-five (25) year contract period expiring in 2037, renewable foranother twenty-five (25) years]

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2) Palinpinon Geothermal Power Plant under DOE Certificate of Registration No. GOC2012-04-037 [with a twenty-five (25) year contract period expiring in 2037, renewable foranother twenty-five (25) years]

3) Bacon-Manito Geothermal Power Plant under DOE Certificate of Registration No. GOCNo. 2012-04-039 [with a twenty-five (25) year contract period expiring in 2037,renewable for another twenty-five (25) years]

o. FNPC’s Contracts

On December 16, 2013, FNPC, the project company of the San Gabriel project, signed thefollowing contracts for the development of an approximately 450 MW (nominal) net capacitycombined-cycle gas-fired power plant to be located in Santa Rita, Batangas City and adjacentto the existing Santa Rita and San Lorenzo plants. The San Gabriel project, which is intendedto serve the mid-merit and, potentially, the base load requirements of the Luzon Grid, isexpected to be in commercial operations in March 2016.

Salient points of the FNPC contracts are as follows:

Contract Counterparty Salient pointsEquipment Supply Contract Siemens Aktiengesellschaft This contract pertains to the

engineering, design and supply ofequipment composed mainly of theSiemens 8000H gas turbine, steamturbine, Heat Recovery SteamGenerator, generator, controlsystems, high voltage equipment,condenser and auxiliaries.

Construction Services Contract Siemens, Inc. This contract pertains to the design,installation, testing andcommissioning of the San Gabrielpower plant.

Operation and MaintenanceAgreement

Siemens Power Operations, Inc.(SPOI)

This agreement pertains to the10-year operation, maintenance,management and repair services ofSan Gabriel I power plant. SPOI isresponsible for the day-to-dayadministration of the power plant,maintaining adequate inventory ofspare parts, accessories andconsumables, and shall operate,maintain and repair the plant inaccordance with Good UtilityPractice.

Service Agreement with theEmployer’s Representative

Parsons BrinckerhoffPhilippines, Inc.

PB Philippines, Inc. will act as theEmployer’s Representative forFNPC in the implementation of theEquipment Supply and ConstructionServices Contracts with Siemens.The Employer’s Representativemanages the two contracts for FNPCsuch that San Gabriel power plant isbuilt according the specificationsand guarantees in the contracts.

p. Franchise

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First Gen, through FGHC, has a franchise granted by the 11th Congress of the Philippinesthrough R.A. No. 8997 to construct, install, own, operate and maintain a natural gas pipelinesystem for the transportation and distribution of the natural gas throughout the island of Luzon(the “Franchise”). The Franchise is for a term of 25 years until February 25, 2026. As atApril 4, 2014, FGHC, through its subsidiary FG Pipeline, has an Environmental ComplianceCertificate (ECC) for the Batangas to Manila pipeline project and has undertaken substantialpre-engineering works and design and commenced preparatory works for the right-of-wayacquisition activities, among others.

q. Capital Commitments

i. Rockwell Land entered into a contract with Hilmarc’s Construction Corporation in2011 covering superstructure works related to “Edades” Project. The contractamounted to a fixed fee of P=1.9 billion, inclusive of all pertinent local and nationaltaxes, overhead and cost of labor and materials and all cost necessary for the properexecution of the works. Superstructure works commenced in 2011 and is currentlynearing completion. As at December 31, 2013, P=1.4 billion has been incurred andpaid.

ii. Rockwell Land entered into contract covering superstructure works related to “TheGrove” project with Hilmarc’s Construction Corporation. The contract sum for thework amounted to P=1.9 billion, inclusive of all pertinent local and national taxes,overhead and cost of labor and materials and all cost necessary for the properexecution of the work. Superstructure works commenced in 2010 and is completed asat December 31, 2013. As at December 31, 2013, total amount paid related to thiscontract amounted to P=1.8 billion.

iii. Rockwell Land entered into contract covering substructure works related to “TheGrove Phases 2 and 3” with Hilmarc’s Construction Corporation. The contract sumfor the work is P=249.0 million, inclusive of all pertinent local and national taxes,overhead and cost of labor and materials and all cost necessary for the properexecution of works.

Superstructure works commenced in 2012 and is currently ongoing. As at December31, 2013, P=234.1 million has been incurred and paid.

iv. Rockwell Land entered into various contracts covering superstructure works related to“205 Santolan” project with Pacific Summit Construction Group Inc., OmicronConstruction, Hi Integra Incorporated and Interfield Construction Corporation. Thecontract sum for the work amounted to P=450.0 million, inclusive of all pertinent localand national taxes, overhead and cost of labor and materials and all cost necessary forthe proper execution of the work. Superstructure works commenced in July 2012 andis currently nearing completion. As of December 31, 2013, total amount paid relatedto this contract amounted to P=331.9 million.

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v. Rockwell Land entered into various contracts covering superstructure works related to“Alvendia” project with Pacific Summit Construction Group Inc. The contract sum forthe work amounted to P=125.0 million, inclusive of all pertinent local and nationaltaxes, overhead and cost of labor and materials and all cost necessary for the properexecution of the work. Superstructure works commenced in July 2013 and is currentlyongoing. As at December 31, 2013, total amount paid related to this contractamounted to P=49.5 million.

vi. Rockwell Land entered into various contracts covering superstructure works related to“53 Benitez” project with HM Sanchez Builders. The contract sum for the workamounted to P=106.0 million, inclusive of all pertinent local and national taxes,overhead and cost of labor and materials and all cost necessary for the properexecution of the work. Superstructure works commenced in September 2013 and iscurrently ongoing. As at December 31, 2013, total amount paid related to this contractamounted to P=5.3 million.

vii. Rockwell Land entered into contract covering excavation works related to “LopezTower” with WE Enterprises & Contractors, Inc. The contract sum awarded for thework amounted to P=26.0 million, inclusive of all pertinent local and national taxes,overhead and cost of labor and materials and all cost necessary for the properexecution of works. Excavation works commenced in June 2012. As at December 31,2013, P=23.6 million has been incurred and paid.

viii. Rockwell Land entered into contract covering substructure works related to“Proscenium” with IPM Construction and Development Corp. The contract sumawarded for the work amounted to P=235.0 million, inclusive of all pertinent local andnational taxes, overhead and cost of labor and materials and all costs necessary for theproper execution of works. Substructure works commenced in June 2013. As ofDecember 31, 2013, P=99.8 million has been incurred and paid.

r. Lease Commitments

FGPC and FG Bukidnon

FGPC has a non-cancelable annual offshore lease agreement with the DENR for the lease of aparcel of land in Sta. Rita, Batangas where the power plant complex is located. The term ofthe lease is for a period of 25 years starting May 26, 1999 for a yearly rental of P=3 million(US$0.05 million) and renewable for another 25 years at the end of the term. The land will beappraised every ten years and the annual rental after every appraisal shall not be less than 3%of the appraised value of the land plus 1% of the value of the improvements, provided thatsuch annual rental cannot be less than P=3 million (US$0.05 million).

FG Bukidnon has a non-cancelable lease agreement with PSALM on the land occupied by itspower plant. The term of the lease is for a period of 20 years commencing on March 29,2005, renewable for another period of 10 years or the remaining corporate life of PSALM,whichever is shorter. The rental paid in advance by FG Bukidnon for the entire term isP=1 million (US$0.02 million).

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As at December 31, 2013 and 2012, future minimum rental payments under thenon-cancellable operating leases with DENR and PSALM are as follows:


Within one year P=15 P=14After one year but not more than five years 12 11After five years 15 16

P=42 P=41

EDCEDC’s future minimum lease payments under the operating leases as of December 31, 2013and 2012 are as follows:


Within one year P=99 P=87After one year but not more than five years 204 271After five years – –Total P=303 P=358

EDC’s lease commitments pertain to the drilling rigs and various office space and warehouserentals.

On October 1, 2010, the lease contract for the use of the new office buildings at OrtigasCenter was entered into between the Company and Amberland Corporation with the rentalrate of P=6.05 million per month, inclusive of VAT, subject to a five percent yearly increasebeginning July 13, 2013. The lease covers the use of office space from 36th to 42nd floors ofthe One Corporate Centre Office Condominium with a total area of 11,598.2 sq.m and 176parking spaces located at the basement level of the Building. This contract commenced onDecember 1, 2011 and will expire on December 1, 2016, subject to pre-termination in case ofviolation by either party of the terms of the lease and renewal upon mutual agreement by bothparties.

The lease contract for the use of the office buildings at Fort Bonifacio was entered intobetween the EDC and PNOC with the rental rate of P=4.18 million per month, inclusive ofVAT. The lease contract covers the use of office space of Building 2, Building 3, Building4A, Building 4B, Computer Center, Laboratory, Wellness Center/PEGEA Office, andMotorpool/Storage, with a total area of 11,824.24 sq.m. This contract commenced on June 1,2009 and was set to expire on November 30, 2011. The lease contract covering theLaboratory is extended up to April 30, 2013.

Other lease contracts pertain to various office space and warehouse being rented bysteam/electricity projects in Leyte, Northern Negros, Bacman, Southern Negros andMindanao.

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Rockwell LandRockwell Land has entered into commercial property leases on its investment propertyportfolio. These noncancellable leases have remaining terms of between two and five years.All leases include a clause to enable upward revision of the rental charge on an annual basisaccording to prevailing market conditions. Future minimum lease revenue is as follows:

Amount(In Millions)

2014 P=4062015 1082016 472017 392018 and after 38

P=638

s. Collective Bargaining Agreement

FPIC has Collective Bargaining Agreements (CBA) with its duly recognized labor unions,Batangas-Manila Pipeliners Labor Organization (BATMANPILO) and FPIC SupervisoryLabor Organization (FSLO). The agreements were in effect for a period of 5 years up toJune 30, 2011 and December 31, 2010 for BATMANPILO and FSLO, respectively. None ofthe CBAs have been renegotiated since the shutdown of the pipelines due to the Writ ofKalikasan.

35. Contingencies

a. First PV and FPNC

On March 22, 2012, FPH’s subsidiaries, FPNC and First PV initiated joint arbitrationproceedings against Nexolon with the International Court of Arbitration of the InternationalChamber of Commerce (the “ICC”). In this arbitration, FPNC has claimed payment of sumsowed by Nexolon, damages, and such other reliefs as the arbitral tribunal may deemappropriate, on the basis of Nexolon’s breaches of the Supply Agreement. For its part, FirstPV has exercised its put option under its JV Agreement with Nexolon pursuant to whichNexolon is required to purchase all of its shares in FPNC at their acquisition cost plus interest.Nexolon has contested First PV’s and FPNC’s claims. Nexolon has alleged that FPNCbreached the Supply Agreement. Nexolon has further alleged that First PV breached the JVAgreement, and has also purported to exercise its put option under the JV Agreement and tocompel First PV to purchase all of Nexolon’s shares in FPNC. FPNC and First PV contestthese counterclaims by Nexolon.

While FPNC and First PV believe in the strength of their positions in the arbitration and thatthey are entitled to the claims they have made, these claims were not recognized in theirfinancial statements pursuant to PAS 37, Provisions, Contingent Liabilities and ContingentAssets, which requires the recognition of contingent assets only when the realization ofincome is virtually certain.

In accordance with PAS 37 and the confidential nature of the arbitration proceedings, nofurther information on this arbitration is disclosed in order not to impair the outcome of theproceeding.

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b. FPSC and First Philec

On November 22, 2012, FPH’s subsidiaries, FPSC and First Philec initiated joint arbitrationproceedings against SPML with the ICC. In this arbitration, FPSC has claimed payment ofsums owed by SPML, damages, and such other reliefs as the arbitral tribunal may deemappropriate, on the basis of SPML’s breaches of the Supply Agreement. For its part, FirstPhilec has exercised its put option under its JV Agreement with SPML pursuant to whichSPML is required to purchase all of its shares in FPSC at the amount prescribed in the JVAgreement. SPML has contested FPSC’s and First Philec’s claims. SPML has purportedlyterminated the Supply Agreement on August 4, 2012 due to alleged breaches by FPSC.SPML has also accused First Philec of alleged breaches of the JV Agreement, and has alsosought to exercise its put option under the JV Agreement and to compel First Philec topurchase all of SPML’s shares in FPSC. FPSC and First Philec contest these counterclaims bySPML.

While FPSC and First Philec believe in the strength of their positions in the arbitration andthat they are entitled to the claims they have made, these claims were not recognized in theconsolidated financial statements pursuant to PAS 37, which requires the recognition ofcontingent assets only when the realization of income is virtually certain.

In accordance with PAS 37 and the confidential nature of the arbitration proceedings, nofurther information on this arbitration is disclosed in order not to impair the outcome of theproceeding.

c. Tax Contingencies

First Gen

First Gen received a Final Assessment Notice (FAN) from Revenue Region Office No. 7covering the taxable year 2007 amounting to P=2,362.7 million inclusive of penalties, fordeficiency income tax, VAT, documentary stamp tax and withholding tax. First Gen, throughits legal counsel, filed a protest letter on September 14, 2012 arguing, among others, that thebasis of the assessment is not in accordance with law and that the assessment lacks factualbasis.

On April 30, 2013, First Gen settled its outstanding tax obligations based on the revised FANtotaling P=3.1 million, inclusive of penalties.

FGPC

Deficiency Income TaxFGPC was assessed by the BIR on July 19, 2004 for deficiency income tax for taxable years2001 and 2000. FGPC filed its Protest Letter to the BIR on October 5, 2004. On account ofthe BIR’s failure to act on FGPC’s Protest within the prescribed period, FGPC filed with theCourt of Tax Appeals (CTA) on June 30, 2005 a Petition against the Final Assessment Noticesand Formal Letters of Demand issued by the BIR. On February 20, 2008, the CTA grantedFGPC’s Motion for Suspension of Collection of Tax until the final resolution of the case.In a Decision dated September 25, 2012, the 3rd Division of the CTA granted the Petition andordered the cancellation and withdrawal of the Final Assessment Notices and Formal Lettersof Demand. Subsequently, the BIR filed with the CTA en banc a Petition for Review datedJanuary 16, 2013. to which FGPC filed its Comment in March 2013. The CTA en banc againrequested both parties to submit a Memorandum not later than July 6, 2013, which FGPCcomplied with accordingly.

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On August 14, 2013, the CTA en banc issued a resolution that the case is deemed submittedfor decision based on the respective Memorandums. The case remains pending as ofApril 3, 2014.

Management believes that the resolution of this assessment will not materially affect First GenGroup’s consolidated financial statements.

Real Property TaxIn June 2003, FGPC received various Notices of Assessment and Tax Bills from theProvincial Government of Batangas, through the Office of the Provincial Assessor, imposingan annual real property tax (RPT) on steel towers, cable/transmission lines and accessories(the T-Line) amounting to US$0.2 million (P=12 million) per year. FGPC, claiming exemptionfrom said RPT, appealed the assessment to the Provincial Local Board of Assessment Appeals(LBAA) and filed a Petition in August 2003 praying for the following: (1) that the Notices ofAssessment and Tax Bills issued by the Provincial Assessor be recalled and revoked; and(2) that the Provincial Assessor drop from the Assessment Roll the 230 kV transmission linesfrom Sta. Rita to Calaca in accordance with Section 206 of the Local Government Code(LGC). FGPC argued that the T-Line does not constitute real property for RPT purposes, andeven assuming that the T-Line is regarded as real property, FGPC is still not liable for RPT asit is NPC/TransCo, a government-owned and controlled corporation (GOCC) engaged in thegeneration and/or transmission of electric power, which has actual, direct and exclusive use ofthe T-Line. Pursuant to Section 234 (c) of the LGC, a GOCC engaged in the generationand/or transmission of electric power and which has actual, direct and exclusive use thereof, isexempt from RPT.

FGPC sought, and was granted, a preliminary injunction by the Regional Trial Court(Branch 7) of Batangas City (RTC) to enjoin the Provincial Treasurer of Batangas City fromcollecting the RPT pending the decision of the LBAA. Despite the injunction, the LBAAissued an Order requiring FGPC to pay the RPT within 15 days from receipt of the Order.FGPC filed an appeal before the Central Board of Assessment Appeals (CBAA) assailing thevalidity of the LBAA order. The CBAA in December 2006 set aside the LBAA Order andremanded the case to the LBAA. The LBAA was directed to proceed with the case on themerits without requiring FGPC to first pay the RPT on the questioned assessment. The LBAAcase remains pending.

On May 23, 2007, the Province filed with the Court of Appeals (CA) a Petition for Review ofthe CBAA Resolution. The CA dismissed the petition in June 2007; however, it issuedanother Resolution in August 2007 reinstating the petition filed by the Province. In a decisiondated March 8, 2010, the CA dismissed the petition for lack of jurisdiction.

In connection with the prohibition case pending before the RTC which issued the preliminaryinjunction, the Province filed in March 2006 an Urgent Manifestation and Motion requestingthe RTC to order the parties to submit memoranda on whether or not the Petition forProhibition pending before it is proper considering the availability of the remedy of appeal tothe CBAA. The RTC denied the Urgent Manifestation and Motion, and is presently awaitingthe finality of the issues on the validity of the RPT assessment on the T-Line.

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The Province filed a Motion to Dismiss in May 2011, which was denied by the RTC in anOrder dated November 2011. The RTC directed FGPC to amend its petition to include theprovincial assessor as a party respondent. The Province filed a Motion for Reconsideration ofthis Order. The RTC denied the motion and required FGPC to implead the provincial assessorin the petition. On November 21, 2012, FGPC filed its Compliance with Amended Petition toimplead the Provincial Assessor of Batangas. The Province filed a Manifestation and Motionin July 2013, which was denied by the court in an Order dated September 2013. In an Orderdated November 19, 2013, the RTC gave notice that the seat of their Branch 7 will betransferred to the Regional Trial Court of Tanauan City, Batangas, and that hearings on allcases pending before the RTC will be held in abeyance until further notice. No further noticeshave been received from the Court as of April 3, 2014.

FG HydroOn December 16, 2013, FG Hydro received a Formal Letter of Demand and FAN from BIRcovering the taxable year 2009 for the alleged deficiency income tax and expandedwithholding tax, including interest and penalties, totaling to P=123.6 million. On January 15,2014 and March 14, 2014, FG Hydro submitted a protest to the FAN and supportingdocuments, respectively, pursuant to Section 228 of the National Internal Revenue Code.

d. Petition for the Issuance of a Writ of Kalikasan

On November 15, 2010, a Petition for the Issuance of a Writ of Kalikasan was filed before theSupreme Court (SC) by the West Tower Condominium Corporation, et al., againstrespondents FPIC, First Gen, their respective BODs and officers and John Does and RichardRoes. The petition was filed in connection with the oil leak which is being attributed to aportion of FPIC’s pipeline located in Bangkal, Makati City. The oil leak was found in thebasement of the West Tower Condominium.

The petition was brought by the West Tower Condominium Corporation on behalf of its unitowners and in representation of the inhabitants of Barangay Bangkal, Makati City, “includingminors or generations yet unborn, whose constitutional right to a balanced and healthfulecology is violated or threatened with violation” by the respondents. The petitioners seek theissuance of a Writ of Kalikasan to protect the constitutional right of the Filipino people to abalanced and healthful ecology. The writ issued by the SC last November 19, 2010 orders theimmediate cease and desist of pipeline operations until further orders from the Court and tocheck the structural integrity of the entire 117-km pipeline and in the process, to apply andimplement sufficient measures to prevent and avert any untoward incidents such as fire,explosion or other destructive effects that may result from any leak in the pipeline.

FPIC has been complying with the directives and reported to the SC on January 21, 2011 that,by way of such structural integrity checking, it has, in coordination with various governmentagencies, undertaken borehole and leak repair tests and intends to do segment pressure and in-line inspection tests. It has also continued to carry out its preventive maintenance measures,commenced remediation of adversely affected environments, and continues to address healthand humanitarian issues. On December 14, 2011, it started the engineering and rehabilitationworks.

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For the purpose of expediting the proceedings and the resolution of all pending incidents, theSC reiterated its order to remand the case to the Court of Appeals to conduct subsequenthearings within a period of 60 days, and after trial, to render a report to be submitted to theSC, 30 days after the submission of the parties’ respective memoranda. Further, in an earlierresolution dated May 31, 2011, the SC clarified that the black oil pipeline is not included inthe Writ with TEPO.

On December 21, 2012, the former 11th Division of the Court of Appeals rendered its Reportand Recommendation in which the following recommendations were made to the SC: (i) thatcertain persons/organizations be allowed to be formally impleaded as petitioners subject tothe submission of the appropriate amended petition; (ii) that FPIC be ordered to submit acertification from the DOE that the white oil pipeline is safe for commercial operation; (iii)that the petitioners’ prayer for the creation of a special trust find to answer for similarcontingencies in the future be denied for lack of sufficient basis; (iv) that respondent FPIC notbe held solidarily liable under the TEPO; and (v) that without prejudice to the outcome of thecivil and criminal cases filed against respondents, the individual directors and officers of FPICand Parent Company not be held liable in their individual capacities.

Petitioners filed a Motion for Partial Reconsideration dated January 10, 2013, in which theyprayed, among others, that the Department of Science and Technology (DOST), specificallyits Metal Industry Research and Development Center, be tasked to chair the monitoring ofFPIC’s compliance with the directives of the court and issue the certification required to provethat the pipeline is safe to operate before commercial operation is resumed; that stakeholdersbe consulted before a certification is issued; that a trust fund be created to answer for futurecontingencies; and that Parent Company and the directors and officers of Parent Company andFPIC also be held liable under the Writ of Kalikasan and the TEPO.

In a Compliance dated January 25, 2013, FPIC submitted to the SC a Certification signed byDOE Secretary Carlos Jericho L. Petilla dated January 22, 2013 stating that the black oilpipeline is safe for commercial operation. FPIC likewise submitted an Interim PeriodicReport as at January 31, 2013. On February 13, 2013, FPIC filed its Comment (On the Courtof Appeals’ Report and Recommendation on the Merits of the Case) and Opposition (toPetitioners’ Motion for Partial Reconsideration).

Operation of the pipeline cannot resume until the Writ is lifted, thus, financial losses due tocessation of operations will be incurred. Formal written demands for payments of claims ofdamages by residents, who have threatened to file suits, have not progressed to the actualfiling of cases as at financial reporting date.

As at December 31, 2013 and 2012, the FPIC has outstanding provisions totaling P=113 millionand P=125 million, respectively, representing the estimated cost of engineering andrehabilitation works and by way of contingency compensation for any damages (see Note 18).

e. Pollution Adjudication Board (PAB)

FPIC was ordered on November 19, 2010 by the PAB, a quasi-judicial body under the DENR,to, among other things, undertake a rehabilitation and clean-up of the area affected bypetroleum contamination and to show cause why a fine of P=200,000 per day of violation(i.e., from the time of the discovery of the leak until it was plugged) should not be imposed.

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FPIC has advanced the following as bases for its position that it is not liable for fines(as assessed by the PAB) or which should, alternatively, be equitably diminished: (1) FPIC’sdue process rights have been transgressed; (ii) Whether or not FPIC should be held liable forviolating of Section 27 (b) of RA No. 9275 is dependent on a determination of whether itacted intentionally and deliberately in “discharging, injecting or allowing” productstransported through its pipeline into the soil or sub-soil, thus polluting groundwater. FPICsubmits that the law punishes only active, willful and deliberate acts of pollution, which it hasnot done; (iii) Should the PAB still decide to impose a fine against FPIC, the same should beequitably reduced both in terms of the rate-per-day of fine to be used and to cover only thetime from the finding of the source of the leak on October 28, 2010 up to the time the leak wasrepaired on November 10, 2010.

On June 16, 2011, the PAB issued a resolution ordering FPIC to pay a total fine ofP=24 million within fifteen (15) days from receipt of said resolution. FPIC filed a Motion forReconsideration of the said resolution. The DENR EMB Regional Director filed a commentthereto in which FPIC has filed its reply.

On January 8, 2013, the PAB issued an order affirming the June 16, 2011 resolution anddenying the FPIC’s Motion for Reconsideration. FPIC, on February 7, 2013, made a paymentad Cautela of the PAB fine. With this payment, FPIC brought a close to these proceedingwithout admitting any liability for fault or negligence or that the PAB decision and findingswere correct.

f. Provision for Liabilities on Regulatory Assessments and Other Contingencies

EDC has pending assessments from various regulatory agencies and pending legal cases.

EDC’s estimate of the probable costs for the resolution of these assessments and legal caseshas been developed in consultation with in-house and outside legal counsels and is based uponthe analysis of the potential outcomes. It is possible, however, that future results of operationscould be materially affected by changes in the estimates or in the effectiveness of strategiesrelating to these proceedings. As at December 31, 2013, provisions for these liabilitiesamounting to P=161.3 million and P=493.5 million are recorded under “Trade payables and othercurrent liabilities” account (see Note 18) and “Other noncurrent liabilities” account (see Note22), respectively. Meanwhile, provisions for these liabilities as at December 31, 2012amounted to P=185.6 million recorded under “Trade payables and other current liabilities”account (see Note 18) and P=319.3 million presented under “Other noncurrent liabilities”account (see Note 22).

g. Guarantees for performance and surety bonds

First Balfour is contingently liable for guarantees arising from the ordinary course of business,including letters of guarantee for performance and surety bonds for various constructionprojects amounting to P=853 million and P=571 million as at December 31, 2013 and 2012,respectively.

h. Legal claims

The Group is contingently liable for other lawsuits or claims filed by third parties, includinglabor related cases, which are pending decision by the courts, the outcomes of which are notpresently determinable. In the opinion of management and its legal counsel, the eventual totalliability from these lawsuits or claims, if any, will not have a material effect on theconsolidated financial statements.

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36. Other Matters

a. EDC’s Acquisition of Palinpinon and Tongonan Geothermal Power Plants (PTGPP)

On September 16, 2009, PSALM issued the Notice of Award and Certificate of Effectivity toGCGI, a wholly-owned subsidiary of FL Geothermal. FL Geothermal is a wholly-ownedsubsidiary of EDC. The Notice of Award officially declares GCGI as the winning bidder ofthe 192.5 MW Palinpinon Geothermal Power Plant located in Dumaguete, Negros Occidentaland 112.5 MW Tongonan Geothermal Power Plant located in Leyte.

b. EDC’s Acquisition of Bacon-Manito Geothermal Power Plants (BMGPP)

On May 5, 2010, BGI submitted the highest offer price of $28.25 million for the 150MWBacMan Geothermal Power Plants in a competitive bidding conducted by PSALM.

Located in the towns of Bacon, Sorsogon and Manito, Albay in the Bicol region, the BacManplant package consists of two steam plant complexes. The BacMan I geothermal facilitycomprises two (2) 55-MW turbines, which were both commissioned in 1993. BacMan II, onthe other hand, consists of two (2) 20-MW units namely, the Cawayan located in BarangayBasud and the Botong in Osiao, Sorsogon City. The Cawayan unit was commissioned in 1994and the Botong unit was commissioned in 1998. EDC supplies the steam requirements ofthese plants. On September 3, 2010, BGI remitted to PSALM the amount of P=1,279.7 millionrepresenting the full payment of the BacMan power plants acquisition. BMGPP started itscommercial operations on February 25, 2013, however, on March 1, 2013, BMGPP suspendedits operations due to vibration issues that damaged the second unit of its power plant.

c. Electric Power Industry Reform Act (EPIRA)

ReformsRA No. 9136, otherwise known as the EPIRA, and the covering Implementing Rules andRegulations (IRR) provide for significant changes in the power sector, which include amongothers: the functional unbundling of the generation, transmission, distribution and supplysectors; the privatization of the generating plants and other disposable assets of the NPC,including its contracts with IPP; the unbundling of electricity rates; the creation of aWholesale Electricity Spot Market (WESM); and the implementation of open andnondiscriminatory access to transmission and distribution systems.

Retail Competition and Open AccessThe EPIRA provides for a system of Retail Competition and Open Access (RCOA). WithRCOA, the end users will be given the power to choose its energy source. Prior to RCOA,Distribution Utilities procures power supply in behalf of its consumers. With RCOA, theRetail Electricity Supplier (RES) chosen by the consumer will do the buying and selling ofpower and the DU shall deliver the same.

RCOA shall be implemented in phases. During the 1st phase, only end users with an averagemonthly peak demand of 1 MW for the 12 months immediately preceding the start of RCOA,shall have a choice of power supplier, as a contestable customer. In the 2nd phase, the peakdemand threshold will be lowered to 0.75 MW, and it will continue to be periodically lowereduntil the household demand level is reached.

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In a joint statement between DOE and ERC, dated September 27, 2012, a new timeline for the1st phase implementation of RCOA was prescribed. December 26, 2012 was marked as theOpen Access date and it signaled the beginning of the six-month transition period untilJune 25, 2013. The transition period shall involve the contracting of the retail supplycontracts, metering installations, registration and trainings, trial operations by March 2013,and supplier of last resort service or disconnection. After the six-month transition period, theinitial commercial operations are set to run on June 26, 2013 until December 25, 2013.However, customer switching shall only commence by December 26, 2013, onwards.

The Transitory Rules for the Implementation of Open Access and Retail Competition (ERCResolution No. 16, Series of 2012) was established last December 17, 2012 to ensure thesmooth transition from the existing structure to a competitive market.

Proposed Amendments to the EPIRABelow are proposed amendments to the EPIRA that, if enacted, may have a material effect onFirst Gen’s electricity generation business, financial condition and results of operations.

In the Philippine Senate, pending for committee approval are:

i. Senate Bill (SB) No.3250: An Act Extending The Life Of, Strengthening AndReorganizing The Power Sector Assets And Liabilities Management Corporation,Amending For The Purpose Republic Act No. 9136, And For Other Purposes,

ii. SB No. 3182: Agus-Pulangui Privatization Exemption Act Of 2012, andiii. SB No. 3167: An Act Prescribing Urgent Related Measures Necessary And Proper To

Effectively Address The Electric Power Crisis And For Other Purposes.

All aforementioned bills passed their respective first readings and are currently beingdeliberated in the committees.

First Gen cannot provide any assurance whether this proposed amendment will be enacted inits current form, or at all, or when any amendment to the EPIRA will be enacted. Proposedamendments to the EPIRA, including the one discussed above, as well as other legislation orregulation could have material impact on the First Gen’s business, financial position andfinancial performance.

d. Certificates of Compliance

FGP, FGPC, FG Hydro and FG Bukidnon have been granted Certificates of Compliance(COCs) by the ERC for the operation of their respective power plants on September 14, 2005,November 5, 2003, June 3, 2008 and February 16, 2005, respectively. The COCs, which arevalid for a period of 5 years, signify that the companies in relation to their respectivegeneration facilities have complied with all the requirements under relevant ERC guidelines,the Philippine Grid Code, the Philippine Distribution Code, the WESM rules, and relatedlaws, rules and regulations. Subsequently, FGP, FGPC and FG Bukidnon have successfullyrenewed their relevant COCs on September 6, 2010, November 6, 2008 and February 8, 2010,respectively. Such COCs are valid for a period of 5 years from the date of issuance.

FG Energy has been granted the Wholesale Aggregator’s Certificate of Registration onMay 17, 2007, effective for a period of five years, and the RES License on February 27, 2008effective for a period of three years. Subsequently, FG Energy applied and the ERC hasapproved the renewal of FG Energy’s RES License on May 9, 2011 and is effective for aperiod of five years.

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Pursuant to the provisions of Section 36 of the EPIRA, Electric Power Industry Participantsprepare and submit for approval of the ERC their respective Business Separation andUnbundling Plan (BSUP) which requires them to maintain separate accounts for, or otherwisestructurally and functionally unbundle, their business activities.

Since each of FGP, FGPC, FG Bukidnon and FG Hydro is engaged solely in the business ofpower generation, to the exclusion of the other business segments of transmission,distribution, supply and other related business activities, compliance with the BSUPrequirement on maintaining separate accounts is not reasonably practicable. Based onassessments of FGP, FGPC, FG Bukidnon, FG Hydro and FG Energy, they are in the processof complying with the provisions of the EPIRA and its IRR.

e. Wholesale Electricity Spot Market

WESM Luzon has already been commercially operating for almost 8 years since itscommencement on June 26, 2006. Annual average Luzon spot prices ranged fromapproximately P3.86/kWh, P4.76/kWh, to P5.96/kWh for 2011, 2012, and 2013, respectively.The increase in 2013 WESM prices was a reflection of the supply deficiency due to thesimultaneous plant outages together with the Malampaya outage from November to December2013.

On the other hand, WESM Visayas was operated and integrated with the Luzon grid onDecember 26, 2010. Annual average Visayas spot prices ranged from approximatelyP3.49/kWh, P4.72/kWh, and P3.82/kWh for 2011, 2012, and 2013, respectively.

Mindanao does not have a WESM yet. However, last September 26, 2013, the InterimMindanao Electricity Spot Market (IMEM) was commercially operated. In contrast to theWESM in Luzon and Visayas, IMEM will be a day-ahead market intended to draw outuncontracted generation capacities and augment the supply, as well as attract the voluntarycurtailment of load customers to lower the demand. The IMEM is seen as a medium-term andinterim solution to address the supply deficiency in Mindanao, until the entry of newcapacities in Mindanao by 2015. The IMEM also serves as a transition towards WESM inMindanao as the grid is expected to be ready for actual WESM operations by 2015.

f. Clean Air Act

On November 25, 2000, the IRR of the Philippine Clean Air Act (PCAA) took effect. TheIRR contain provisions that have an impact on the industry as a whole, and on FGP, FGPCand BPPC in particular, that need to be complied with within 44 months (or July 2004) fromthe effectivity date, subject to approval by the DENR. The power plants of FGP and FGPCuse natural gas as fuel and have emissions that are way below the limits set in the NationalEmission Standards for Sources Specific Air Pollution and Ambient Air Quality Standards.Based on FGP’s and FGPC’s initial assessments of the power plants’ existing facilities, thecompanies believe that both are in full compliance with the applicable provisions of the IRRof the PCAA.

- 189 -

*SGVFS003010*

37. Notes to Statements of Cash Flows

The non-cash investing and financing activities pertain to the following:

a. Set up of additional asset retirement/preservation obligation amounting to P=704 million andP=57 million in 2013 and 2012, respectively.

b. Conversion of deposits for future stock subscription amounting to P=43,024 million in 2012(see Note 10).

c. Effect of business combination of Rockwell Land amounting to P=11,194 million in 2012(see Note 5).

d. Receipt of Rockwell Land shares as property dividends and additional consideration for thesale of Meralco shares totaling P=3,035 million in 2012 (see Note 5).

e. Unrealized gains/losses on investment in equity securities amounting to P=464 million,P=1,375 million and P=1,418 million in 2013, 2012 and 2011, respectively.

38. Events after the Reporting Date

Acquisition of Hot Rock EntitiesOn December 19, 2013, EDC HKL, an indirect wholly-owned subsidiary of EDC, entered into aShare Sale Agreement (SSA), as amended, with Hot Rock Holding Ltd (“HRH”), an indirectwholly-owned subsidiary of Hot Rock Limited (“HRL”). HRL is a listed company in AustralianStock Exchange. As provided under the SSA, EDC HKL should acquire the shares of Hot RockChile Ltd and Hot Rock Peru Ltd held by HRH, subject to certain pre-completion conditions.

The total purchase price for the acquisition of Hot Rock entities amounted to US$3 million.

The completion/closing date and also the date on which EDC has obtained control over Hot Rockentities, as established by management, was on January 3, 2014. As of March 19, 2014, thedetermination of the accounting for the transaction is not yet complete. Based on the assessmentof the management, the acquisition of Hot Rock entities will not have a significant impact oncurrent financial position and results of operations of EDC as Hot Rock entities are still underdevelopment stage with minimal assets and liabilities.

Dividend DeclarationsOn January 29, 2014, FG Hydro declared cash dividends to its common shareholders amounting to$15.6 million (P=700.0 million) paid on February 4, 2014.

On February 28, 2014, EDC declared cash dividends amounting to $41.7 million (P=1.88 billion) toits common shareholders and $0.2 million (P=7.5 million) to its preferred shareholders of record asof March 17, 2014, payable on or before April 10, 2014.

Reduction of Authorized Capital StockOn February 6, 2014, the FPH Board of Directors approved the amendment of Article Seventh ofFPH’s Articles of Incorporation reducing its authorized capital stock with respect to PreferredShares from P=20.0 billion to P=10.7 billion. This is to reflect the redemption and cancellation ofP=9.3 billion Series A and B Preferred Shares in 2013. The amendment will be submitted forratification by Stockholders at the Annual Stockholder Meeting on May 26, 2014.

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*SGVFS003010*

Conversion of Common Shares to Preferred SharesOn February 28, 2014, EDC amended the company’s Articles of Incorporation, to reclassify3,000,000,000 common shares with a par value of P=1.00 or aggregate par value of P=3 billion out ofthe unissued authorized capital stock, to 300,000,000 preferred shares with a par value of P=10.00per share or aggregate par value of P=3 billion, thereby creating a new class of preferred shares.The said preferred shares shall be non-voting, cumulative and non-participating.

April 3, 2014

SECURITIES AND EXCHANGE COMMISSIONSEC Building, EDSA GreenhillsMandaluyong City, Metro Manila

The management of First Philippine Holdings Corporation (the Company) is responsible for thepreparation and fair presentation of the parent company financial statements as at December 31, 2013and 2012 and January 1,2012, and for the years ended December 31,2013 and 2012, in accordancewith the Philippine Financial Reporting Standards, including the additional components attachedtherein. This responsibility includes designing and implementing internal controls relevant to thepreparation and fair presentation of parent company financial statements that are free from materialmisstatement, whether due to fraud or error, selecting and applying appropriate accounting policies,and making accounting estimates that are reasonable in the circumstances.

The Board of Directors reviews and approves the parent company financial statements and submitsthe same to the stockholders of the Company.

SyCip Gorres Velayo & Co., the independent auditors, appointed by the stockholders, has examinedthe parent company financial statements of the Company in accordance with Philippine Standards onAuditing, and in its report to the stockholders, has expressed its opinion on the fairness of presentationupon completion of such examination.

Signed under oath by the following:

~rkOP~EZChairman of the Board& Chief Executive Officer

~ELPIDIO L. IBANEZ

President &Chief Operating Officer

FRANCIS GILES B. PUNOExecutive Vice President, Treasurer

& Chief Finance Officer

SUBSCRIBED AND SWORN to before me tAPR..D. ~~1hril, 2014, affiants exhibited to metheir Competent Evidence ofIdentity (CEI) and Community Tax Certificate (CTC) Nos. as follows:

NameFederico R. LopezElpidio L. IbanezFrancis Giles B. Puno : .'t""\-,,'\' C: . "

. \ ,.\. . .' . .~--<'- ~~- .~.\

Doc. No. 0\5\' \!~\"\',.' .•• - .'- \%.Page No. If \;;\f'\)' r'O A 1Q\~. \BookNo.~; . > \ ~?R11-Seriesof2014. \D<l'i.C \" .-- L' NEM.BACORRO

, I ..~.. '. .' NOTARY PUBlIC

\\ ~i-~~:\....;. '~6~D:E~N~~6~~~~~~~<;'~o~~~~'\: \:,'.\.~(i~~.}.:~'. UNTIL DECeMBER 31,201'1

.' PTR NO. 8439473; 1/11/13; PASIG emIBP NO. 08770; RSM CHAPTER; LIFETIME MEMBER

ROLL NO. 55914/ APPOINTMENT NO. 208 (2013-2014)4F BENPRES BLDG.

EXCHANGE ROAD. PASIG CITY

Details o[CEI/CTCSSS#03-7278202-0/06298929_SSS#03:2569048-3/06312251SSS#33-5536302-1/06298930

Issued On/Issued At1-29-2014/Pasig City2-06-20 14IPasig City1-29-2014IPasig City

First Philippine Holdings Corporation4th Floor. Benpres Building. Exchange Road corner Meralco Avenue. Pasig City 1600. Philippines

tel +63 2 631-8024 • fax +63 2 631-4089 • www.fphc.com

*SGVFS003009*

1 9 7 0 3SEC Registration Number

F I R S T P H I L I P P I N E H O L D I N G S C O R P O R A

T I O N

(Company’s Full Name)

6 t h F l o o r , B e n p r e s B u i l d i n g , E x c h

a n g e R o a d c o r n e r M e r a l c o A v e n u e ,

P a s i g C i t y

(Business Address: No. Street City/Town/Province)

Mr. Ramon T. Pagdagdagan 449 - 6046(Contact Person) (Company Telephone Number)

1 2 3 1 A A P F S 0 5 2 6Month Day (Form Type) Month Day

(Fiscal Year) (Annual Meeting)

(Secondary License Type, If Applicable)

Dept. Requiring this Doc. Amended Articles Number/Section


12,363 P=9,124million –Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

S T A M P S

Remarks: Please use BLACK ink for scanning purposes.

COVER SHEET

SGV SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makaii CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001.December 28.2012. valid until December 31.2015

SEC Accreditation No. 0012-FR-3 (Group A).November 15. 2012. valid until November 16, 2015Building a better

working world

INDEPENDENT AUDITORS' REPORT11"'(" .' -.-~\ ' , • ".\ ~ I) I: i'" 1 i Y \ ..\! '.' I,' \. i:\' l . I.' I) Lr\j·((, l."]\\!),. \'I>:!< .~ [.: ;~\., (: ,.: ' J

1.,\RGf. ~\.\ f.\ \' 1:/,,': .\:;~ L"T:\ \, (')-, lJ j \" IS! 0;\ ,

Date I APR 11 20;4 Ij i{~E(51~'I'\Y-E if) I~fQ;"iIC~:::}:L)FN_~:...~-}L[~\IC!LI

Report on the Parent Company Financial Statements

The Stockholders and the Board of DirectorsFirst Philippine Holdings Corporation6th Floor, Benpres BuildingExchange Road corner Meralco AvenuePasig City

We have audited the accompanying parent company financial statements of First Philippine HoldingsCorporation, which comprise the parent company statements of financial position as at December 31,2013 and 2012, and the parent company statements of income, statements of comprehensive income,statements of changes in equity and statements of cash flows for the years then ended, and a summaryof significant accounting policies and other explanatory information.

Management's Responsibility for the Parent Company Financial Statements

Management is responsible for the preparation and fair presentation of these parent company financialstatements in accordance with Philippine Financial Reporting Standards, and for such internal controlas management determines is necessary to enable the preparation of parent company financialstatements that are free from material misstatement, whether due to fraud or error.

Auditors 'Responsibility

Our responsibility is to express an opinion on these parent company financial statements based on ouraudits. We conducted our audits in accordance with Philippine Standards on Auditing. Thosestandards require that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether the parent company financial statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the parent company financial statements. The procedures selected depend on the auditor'sjudgment, including the assessment of the risks of material misstatement of the parent companyfinancial statements, whether due to fraud or error. In making those risk assessments, the auditorconsiders internal control relevant to the entity's preparation and fair presentation of the parentcompany financial statements in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness ofthe entity'sinternal control. An audit also includes evaluating the appropriateness of accounting policies used andthe reasonableness of accounting estimates made by management, as well as evaluating the overallpresentation of the parent company financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.

11111111111111111111111111111111111111111111111111111111111111111


SGVBuilding a betterworking world

Opinion

- 2 -

In our opinion, the parent company financial statements present fairly, in all materials respects, thefinancial position of First Philippine Holdings Corporation as at December 31,2013 and 2012, and itsfinancial performance and its cash flows for the years then ended in accordance with PhilippineFinancial Reporting Standards.

Report on the Supplementary Information Required Under Revenue Regulations 15-2010

Our audits were conducted for the purpose of forming an opinion on the basic financial statementstaken as a whole. The supplementary information under Revenue Regulations 15-2010 in Note 26 tothe parent company financial statements is presented for purposes of filing with the Bureau of InternalRevenue and is not a required part of the basic financial statements. Such information is theresponsibility of the management of First Philippine Holdings Corporation. The information has beensubjected to the auditing procedures applied in our audit of the basic financial statements. In ouropinion, the information is fairly stated in all material respects in relation to the basic financialstatements taken as a whole.

SYClP GORRES VELA YO & CO.

AaM~ IIrM~ ~. i!.d~/Maria Vivian C. Ruiz /0PartnerCPA Certificate No. 83687SEC Accreditation No. 0073-AR-3 (Group A),

January 18,2013, valid until January 17,2016Tax Identification No.1 02-084-744BlR Accreditation No. 08-001998-47-2012,

April 11, 2012, valid until April 10, 2015PTR No. 4225211, January 2, 2014, Makati City

April 3, 2014


11111111111111111111111111111111111111111111111111111111111111111

FIRST PHILIPPINE HOLDINGS CORPORATION'v\

PARENT COMPANY STATEMENTS OF FINANCIAL POSI(Amounts in Millions)

Total Current Assets

December 31, January 1,2012 2012

December 31, (As restated - (As restated -2013 Note 2) Note 2)

P2,030 P3,961 P9, III2,675 528 528438 382 310 ,2 1 7

430 181 1785,575 5,053 10,134

28,533 29,186 28,14925,917 25,916 23,180

216 228 255235 269 288

769 144108 164 147

55,009 56,532 52,163P60,584 P61,585 P62,297

ASSETSCurrent AssetsCash and cash equivalents (Notes 4,23 and 24)Short-term investments (Notes 4, 23 and 24)Dividends receivable (Notes 8,23 and 24)Investment held for trading (Notes 5, 23 and 24)Other current assets (Notes 6, 22, 23 and 24)

Noncurrent AssetsInvestments in and deposits to subsidiaries and associates

(Notes 7, 22, and 25)Investments in equity securities (Notes 8,23,24, and 25)Property and equipment (Note 9)Investment properties (Note 10)Retirement benefit asset (Note 19)Other noncurrent assets (Note 11)

Total Noncurrent AssetsTOTAL ASSETS

LIABILITIES AND EQUITYCurrent LiabilitiesAccounts payable and other current liabilities

(Notes 12,14,15,22,23 and 24)Current portion of long-term debts (Notes 13,23 and 24)

Total Current Liabilities 1,823

Pl,409 P861258 1,890

1,667 2,751

7,436 7,694234 200230

7,900 7,894

6,050 6,0146,300 6,3003,842 3,760

8,701 7,630(3,345) (3,345)

6,95523,515 31,29352,018 51,652

P61,585 P62,297

Pl,349474

Noncurrent LiabilitiesLong-term debts - net of current portion

(Notes 13,23 and 24)Retirement and other employee benefits liability (Note 19)Deferred tax liability (Note 21)

8,650654

Total Noncurrent Liabilities 9,304EquityCommon stock (Note 14)Preferred stock (Note 15)Capital in excess of par valueUnrealized fair value gain on investments in equity

securities (Note 8)Treasury stock (Note 14)Retained earnings

Appropriated (see Note 14) 19,003Unappropriated 14,871

6,080

3,926

8,922(3,345)

Total Equity 49,457TOTAL LIABILITIES AND EQllt-T-y'7.~·- ;-'." . ii P60;584'

11111111111111111111111111111111111111111111111111111111111111111

*SGVFS003009*

FIRST PHILIPPINE HOLDINGS CORPORATIONPARENT COMPANY STATEMENTS OF INCOME(Amounts in Millions)


2013

2012(As restated -

Note 2)

REVENUESDividend income (Notes 7 and 8) P=7,967 P=2,419Finance income (Notes 4 and 8) 96 232Rental income (Note 10) 39 41Management fees (Note 22) 31 –Gain on sale of investments (Note 7) – 2,575Other income - net (Note 20) 2 6

8,135 5,273

GENERAL AND ADMINISTRATIVE EXPENSES (Note 17) (1,383) (1,584)

FINANCE COSTS (Notes 13 and 23) (562) (508)

IMPAIRMENT LOSS ON INVESTMENTS IN AND DEPOSITSTO SUBSIDIARIES AND ASSOCIATES (Note 7) (149) (653)

FOREIGN EXCHANGE GAIN (LOSS) - Net 3 (6)

UNREALIZED FAIR VALUE GAIN ON AN INVESTMENTHELD FOR TRADING (Note 5) 1 7

IMPAIRMENT LOSS ON INVESTMENTSIN EQUITY SECURITIES (Note 8) – (2,593)

INCOME (LOSS) BEFORE INCOME TAX 6,045 (64)

PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 21)Current 32 1Deferred (24) 213

8 214

NET INCOME (LOSS) P=6,037 (P=278)

See accompanying Notes to Parent Company Financial Statements.

*SGVFS003009*

FIRST PHILIPPINE HOLDINGS CORPORATIONPARENT COMPANY STATEMENTS OF COMPREHENSIVE INCOME(Amounts in Millions)


2013

2012As restated -

Note 2)

NET INCOME (LOSS) P=6,037 (P=278)

OTHER COMPREHENSIVE INCOME (LOSS)Other comprehensive income to be reclassified to profit or loss in

subsequent years -Unrealized fair value gains on investments in equity

securities (Note 8) 221 1,071Other comprehensive income not to be reclassified to

profit or loss in subsequent years -Actuarial gain (loss) on retirement benefit liability, net of tax of

P=206 million and P=223 million in 2013 and 2012, respectively(Note 19) (881) 524

(660) 1,595

TOTAL COMPREHENSIVE INCOME P=5,377 P=1,317


*SGVFS003009*

FIRST PHILIPPINE HOLDINGS CORPORATIONPARENT COMPANY STATEMENTS OF CHANGES IN EQUITYFOR THE YEARS ENDED DECEMBER 31, 2013 and 2012(Amounts in Millions)


Gains onCapital in Investments inExcess of Equity Retained Earnings

Common Stock Preferred Stock Par Value Securities Treasury Stock (Notes 14 and 15)(Note 14) (Note 15) (Note 16) (Note 8) (Note 14) Appropriated Unappropriated Total

Balance at January 1, 2013, as previously reported P=6,050 P=6,300 P=3,842 P=8,701 (P=3,345) P=6,955 P=23,555 P=52,058Effect of adoption of PAS 19 (Revised) (Note 2) – – – – – – (40) (40)

Balance at January 1, 2013, as restated 6,050 6,300 3,842 8,701 (3,345) 6,955 23,515 52,018

Net income – – – – – – 6,037 6,037Other comprehensive income – – – 221 – – (881) (660)

Total comprehensive income – – – 221 – – 5,156 5,377

Issuances of shares 30 – 61 – – – – 91Share-based payment expense – – 23 – – – – 23Redemption and cancellation or retirement of

preferred shares – (6,300) – – – – – (6,300)Cash dividends - Preferred - P=2.18 per share – – – – – – (94) (94)Cash dividends - Common - P=1.00 per share – – – – – – (1,658) (1,658)Appropriation – – – – – 12,048 (12,048) –

Balance at December 31, 2013 P=6,080 P=– P=3,926 P=8,922 (P=3,345) P=19,003 P=14,871 P=49,457

*SGVFS003009*

- 2 -


Gains onCapital in Investments inExcess of Equity Retained Earnings

Common Stock Preferred Stock Par Value Securities Treasury Stock (Notes 14 and 15)(Note 14) (Note 15) (Note 16) (Note 8) (Note 14) Appropriated Unappropriated Total

Balance at January 1, 2012, as previously reported P=6,014 P=6,300 P=3,760 P=7,630 (P=3,345) P=– P=32,064 P=52,423

Effect of adoption of PAS 19 (Revised) (Note 2) – – – – – – (554) (554)

Balance at January 1, 2012, as restated 6,014 6,300 3,760 7,630 (3,345) – 31,510 51,869

Net loss – – – – – – (278) (278)

Other comprehensive income – – – 1,071 – – 524 1,595

Total comprehensive income – – – 1,071 – – 246 1,317

Issuances of shares 36 – 82 – – – – 118

Cash dividends - Preferred - P=4.36 per share – – – – – – (188) (188)

Cash dividends - Common - P=1.00 per share – – – – – – (1,098) (1,098)

Appropriation – – – – – 6,955 (6,955) –

Balance at December 31, 2012 P=6,050 P=6,300 P=3,842 P=8,701 (P=3,345) P=6,955 P=23,515 P=52,018


*SGVFS003009*

FIRST PHILIPPINE HOLDINGS CORPORATIONPARENT COMPANY STATEMENTS OF CASH FLOWS(Amounts in Millions)


CASH FLOWS FROM OPERATING ACTIVITIESIncome (loss) before income tax P=6,044 (P=64)Adjustments for:

Dividend income (Notes 7 and 8) (7,967) (2,419)Finance costs (Notes 13 and 23) 562 508Impairment loss on investments in and deposits

to subsidiaries and associates (Note 7) 149 653Retirement benefit and other employee benefits expense (Note 19) 103 159Finance income (Notes 4 and 8) (96) (232)Depreciation and amortization (Notes 9, 10 and 17) 48 49Share-based payment expense (Note 16) 23 –Unrealized foreign exchange losses 3 11Loss on sale of an investment property (Note 20) 2 –Unrealized fair value gain on an investment

held for trading (Note 5) (1) (7)Impairment loss on investments in equity securities (Note 8) – 2,593Gain on sale of investments (Notes 7 and 8) – (2,575)

Operating loss before working capital changes (1,130) (1,323)Increase in:

Other current assets (31) (13)Accounts payable and other current liabilities 152 571

Net cash used in operations (1,009) (766)Dividends received (Note 25) 7,911 2,095Income and other taxes paid (32) (38)Net cash from operating activities 6,870 1,291

CASH FLOWS FROM INVESTING ACTIVITIESAdditions to:

Investments in equity securities (Note 8) (1,227) (4,120)Investments in and deposits to subsidiaries

and associates (Notes 7 and 25) (46) (1,938)Property and equipment (Note 9) (22) (5)Investment property (Note 10) (4) –

Decrease (increase) in:Short-term investments (2,147) –Other noncurrent assets 56 (10)

Interest received 63 243Proceeds from:

Redemption of preferred shares and return of deposits for futurestock subscription (see Notes 7, 8 and 25) 1,779 3,143

Disposal of investment properties (Note 10) 18 –Disposal of property and equipment (Note 9) 4 2Disposal of investment held for trading – 13

Net cash used in investing activities (1,526) (2,672)

(Forward)

*SGVFS003009*

- 2 -


2013

2012(As Restated -

Note 2)

CASH FLOWS FROM FINANCING ACTIVITIESRedemption and cancellation or retirement of preferred shares

(Note 15) (P=6,300) P=–Proceeds from availment of loans (Note 13) 5,000 –Proceeds from subscriptions and issuances of shares 91 118Payments of:

Long-term debts (Note 13) (3,547) (1,907)Dividends (Notes 14 and 15) (1,921) (1,481)Interest (Note 13) (534) (491)Debt issue costs (Note 13) (57) –

Net cash used in financing activities (7,268) (3,761)

NET DECREASE IN CASH AND CASH EQUIVALENTS (1,924) (5,142)

EFFECT OF FOREIGN EXCHANGE RATE CHANGESON CASH AND CASH EQUIVALENTS (7) (8)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,961 9,111

CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 4) P=2,030 P=3,961


*SGVFS003009*

FIRST PHILIPPINE HOLDINGS CORPORATIONNOTES TO PARENT COMPANY FINANCIAL STATEMENTS

1. Corporate Information

First Philippine Holdings Corporation (the Company or the Parent Company) was incorporatedand registered with the Philippine Securities and Exchange Commission (SEC) on June 30, 1961.On June 29, 2007, the Philippine SEC approved the extension of the Company’s corporate life foranother 50 years from June 30, 2011. The Parent Company’s principal activity is to holdinvestments in subsidiaries and associates. The subsidiaries and associates of the Parent Companyare engaged in, but not limited to, power generation and power distribution, pipeline services, realestate development, manufacturing, construction, securities transfer services and financing.

The Parent Company is 46.01% and 46.21%-owned by Lopez Holdings Corporation (LopezHoldings), a publicly-listed Philippine-based entity, as at December 31, 2013 and 2012,respectively. With the adoption of Philippine Financial Reporting Standard (PFRS) 10,Consolidated Financial Statements effective January 1, 2013, Lopez, Inc. became the ultimateparent of the Company through Lopez Holdings. Majority of Lopez Holdings is owned by Lopez,Inc., a Philippine entity and the ultimate Parent Company. The remaining shares are held byvarious shareholder groups and individuals.

The common shares of the Parent Company were listed beginning May 3, 1963 and have sincebeen traded on the Philippine Stock Exchange (PSE). The Parent Company is considered a publiccompany under Section 17.2 of the Securities Regulation Code.

The registered office address of the Parent Company is 6th Floor, Benpres Building, ExchangeRoad corner Meralco Avenue, Pasig City.

The parent company financial statements as at and for the years ended December 31, 2013 and2012 were reviewed and recommended for approval by the Audit Committee on April 3, 2014.On the same date, the Board of Directors (BOD) also approved and authorized the parent companyfinancial statements for issuance.

2. Summary of Significant Accounting Policies

Basis of PreparationThe parent company financial statements have been prepared on a historical cost basis, except forfinancial assets at fair value through profit or loss (FVPL) and quoted investments in equitysecurities that have been measured at fair value.

The parent company financial statements are presented in Philippine peso, which is the ParentCompany’s functional currency. All values are rounded to the nearest million pesos, except whenotherwise indicated.

The parent financial statements provide comparative information in respect of the previous period.In addition, the Company presents an additional parent company statement of financial position atthe beginning of the earliest period presented when there is a retrospective application of anaccounting policy, a retrospective restatement, or a reclassification of items in parent companyfinancial statements. An additional parent company statement of financial position as atJanuary 1, 2012 is presented in these parent company financial statements due to retrospectiveapplication of certain accounting policies.

- 2 -

*SGVFS003009*

Statement of ComplianceThe parent company financial statements have been prepared in compliance with PFRS, as issuedby the Financial Reporting Standards Council (FRSC) and adopted by the Philippine SEC.

The Parent Company also prepares and issues consolidated financial statements in compliancewith PFRS and for the same period as the parent company financial statements. These are filedwith and may be obtained from the Philippine SEC and PSE.

Changes in Accounting PoliciesThe accounting policies are consistent with those of the previous financial year, except for theadoption of the following new and amended accounting standards that became effective beginningJanuary 1, 2013.

The Parent Company applied for the first time, certain standards and amendments that requirerestatement of the parent company financial statements. These include PAS 19, EmployeeBenefits (Revised), PFRS 13, Fair Value Measurement and amendments to PAS 1, Presentation ofFinancial Statements.

The nature and the impact of each new standard and amendment are described below.

§ PFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and FinancialLiabilities (Amendments)

These amendments require an entity to disclose information about rights of set-off andrelated arrangements (such as collateral agreements). The new disclosures are required for allrecognized financial instruments that are set off in accordance with PAS 32, FinancialInstruments: Presentation. These disclosures also apply to recognized financial instrumentsthat are subject to an enforceable master netting arrangement or ‘similar agreement’,irrespective of whether they are set-off in accordance with PAS 32. The amendments requireentities to disclose, in a tabular format, unless another format is more appropriate, thefollowing minimum quantitative information. This is presented separately for financial assetsand financial liabilities recognized at the end of the reporting period:

a. The gross amounts of those recognized financial assets and recognized financial liabilities;b. The amounts that are set-off in accordance with the criteria in PAS 32 when determining

the net amounts presented in the statement of financial position;c. The net amounts presented in the statement of financial position;d. The amounts subject to an enforceable master netting arrangement or similar agreement

that are not otherwise included in (b) above, including:i. amounts related to recognized financial instruments that do not meet some or all of the

offsetting criteria in PAS 32; andii. amounts related to financial collateral (including cash collateral); and

e. The net amount after deducting the amounts in (d) from the amounts in (c) above.

The amendments affect disclosures only and have no impact on the Parent Company’sfinancial position or performance.

- 3 -

*SGVFS003009*

§ PFRS 10, Consolidated Financial Statements

PFRS 10 replaced the portion of PAS 27, Consolidated and Separate Financial Statementsthat addresses the accounting for consolidated financial statements. It also included the issuesraised in Standing Interpretations Committee (SIC) 12, Consolidation - Special PurposeEntities. PFRS 10 established a single control model that applies to all entities includingspecial purpose entities. The changes introduced by PFRS 10 require management to exercisesignificant judgment to determine which entities are controlled, and therefore, are required tobe consolidated by a parent, compared with the requirements that were in PAS 27. Theamendments have no impact on the Parent Company’s financial position or performance.PFRS 10 disclosures are provided in the consolidated financial statements of theParent Company.

§ PFRS 11, Joint Arrangements

PFRS 11 replaced PAS 31, Interests in Joint Ventures, and SIC 13, Jointly-ControlledEntities - Non-Monetary Contributions by Venturers. PFRS 11 removed the option to accountfor jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs thatmeet the definition of a joint venture must be accounted for using the equity method. Theamendments have no impact on the Parent Company’s financial position or performance.PFRS 11 disclosures are provided in the consolidated financial statements of theParent Company.

§ PFRS 12, Disclosure of Interests in Other Entities

PFRS 12 sets out the requirements for disclosures relating to an entity’s interests insubsidiaries, joint arrangements, associates and structured entities. The requirements inPFRS 12 are more comprehensive than the previously existing disclosure requirements forsubsidiaries (for example, where a subsidiary is controlled with less than a majority of votingrights). While the Parent Company has subsidiaries with material non-controlling interests,there are no unconsolidated structured entities. The amendments have no impact on the ParentCompany’s financial position or performance. PFRS 12 disclosures are provided in theconsolidated financial statements of the Parent Company.

§ PFRS 13, Fair Value Measurement

PFRS 13 establishes a single source of guidance under PFRSs for all fair value measurements.PFRS 13 does not change when an entity is required to use fair value, but rather providesguidance on how to measure fair value under PFRS. PFRS 13 defines fair value as an exitprice. PFRS 13 also requires additional disclosures.

As a result of the guidance in PFRS 13, the Parent Company re-assessed its policies formeasuring fair values, in particular, its valuation inputs such as non-performance risk for fairvalue measurement of liabilities. The Parent Company has assessed that the application ofPFRS 13 has not materially impacted the fair value measurements of the Parent Company.Additional disclosures, where required, are provided in the individual notes relating to theassets and liabilities whose fair values were determined. Fair value hierarchy is provided inNote 24.

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§ PAS 1, Presentation of Financial Statements - Presentation of Items of Other ComprehensiveIncome or OCI (Amendments)

The amendments to PAS 1 introduced a grouping of items presented in OCI. Items that willbe reclassified (or “recycled”) to profit or loss at a future point in time (for example, uponderecognition or settlement) will be presented separately from items that will never berecycled. The amendments affect presentation only and have no impact on the ParentCompany’s financial position or performance.

§ PAS 19, Employees Benefits (Revised)

Revised PAS 19 requires for defined benefit plans to recognize all actuarial gains and losses inOCI and unvested past service costs previously recognized over the average vesting period tobe recognized immediately in profit or loss when incurred. Prior to adoption of the RevisedPAS 19, the Parent Company recognized actuarial gains and losses as income or expensewhen the net cumulative unrecognized gains and losses for each individual plan at the end ofthe previous period exceeded 10% of the higher of the defined benefit obligation and the fairvalue of the plan assets. Upon adoption of the Revised PAS 19, the Parent Company changedits accounting policy to recognize all actuarial gains and losses in OCI and past service costs,if any, in profit or loss in the period they occur. The Revised PAS 19 replaced the interestcost and expected return on plan assets with the concept of net interest on defined benefitliability or asset which is calculated by multiplying the net balance sheet defined benefitliability or asset by the discount rate used to measure the employee benefit obligation, each asat the beginning of the annual period. The Revised PAS 19 also amended the definition ofshort-term employee benefits and requires employee benefits to be classified as short-termbased on expected timing of settlement rather than the employee’s entitlement to the benefits.In addition, the Revised PAS 19 modifies the timing of recognition for termination benefits.The modification requires the termination benefits to be recognized at the earlier of when theoffer cannot be withdrawn or when the related restructuring costs are recognized.

On January 1, 2013, the Parent Company adopted the Revised PAS 19. Changes to thedefinition of short-term employee benefits and timing of recognition for termination benefitsdo not have impact to the Parent Company’s financial position and performance.

The changes in accounting policies have been applied retrospectively. The effects of adoptionon the parent company financial statements are as follows:

As atDecember 31,

2013

As atDecember 31,

2012

As at January 1,

2012(In millions)

Parent company statements of financialposition:

Increase (decrease) in:Retirement benefit asset (P=716) P=100 (P=691)Deferred tax liability (215) 30 (207)Retirement and other employee benefits

liability 440 (110) 70Retained earnings (941) (40) (554)

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For the Years Ended December 312013 2012

(In millions)Parent company statements of income:Increase (decrease) in:

Retirement benefit expense P=28 (P=3)Provision for (benefit from) income tax (8) 13Net income (20) (10)

Parent company statements of comprehensive income:Increase (decrease) in actuarial gain (loss) on retirement

benefit liability, net of tax (P=881) P=524

The adoption of Revised PAS 19 had no impact on the parent company statements of cashflows.

§ PAS 27, Separate Financial Statements (as revised in 2011)

As a consequence of the issuance of the new PFRS 10, and PFRS 12, what remains of PAS 27is limited to accounting for subsidiaries, jointly controlled entities, and associates in theseparate financial statements. The amendments have no impact on the Parent Company’sfinancial position or performance.

§ PAS 28, Investments in Associates and Joint Ventures (as revised in 2011)

As a consequence of the issuance of the new PFRS 11 and PFRS 12, PAS 28 has beenrenamed PAS 28, Investments in Associates and Joint Ventures, and describes the applicationof the equity method to investments in joint ventures in addition to associates. The adoptionof this standard has no impact on the Parent Company’s financial position or performance.

§ Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine

This interpretation applies to waste removal costs (“stripping costs”) that are incurred insurface mining activity during the production phase of the mine (“production stripping costs”).If the benefit from the stripping activity will be realized in the current period, an entity isrequired to account for the stripping activity costs as part of the cost of inventory. When thebenefit is the improved access to ore, the entity should recognize these costs as a non-currentasset, only if certain criteria are met (“stripping activity asset”). The stripping activity asset isaccounted for as an addition to, or as an enhancement of, an existing asset. After initialrecognition, the stripping activity asset is carried at its cost or revalued amount lessdepreciation or amortization and less impairment losses, in the same way as the existing assetof which it is a part. The new interpretation is not relevant to the Parent Company.

§ PFRS 1, First-time Adoption of International Financial Reporting Standards – GovernmentLoans (Amendments)

The amendments to PFRS 1 require first-time adopters to apply the requirements of PAS 20,Accounting for Government Grants and Disclosure of Government Assistance, prospectivelyto government loans existing at the date of transition to PFRS. However, entities may chooseto apply the requirements of PAS 39, Financial Instruments: Recognition and Measurement,and PAS 20 to government loans retrospectively if the information needed to do so had beenobtained at the time of initially accounting for those loans. These amendments are notrelevant to the Parent Company.

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Annual Improvements to PFRSs (2009-2011 cycle)The Annual Improvements to PFRSs (2009-2011 cycle) contain non-urgent but necessaryamendments to PFRSs. The Parent Company adopted these amendments for the current year.

§ PFRS 1, First-time Adoption of PFRS – Borrowing Costs

The amendment clarifies that, upon adoption of PFRS, an entity that capitalized borrowingcosts in accordance with its previous generally accepted accounting principles, may carryforward, without any adjustment, the amount previously capitalized in its opening statement offinancial position at the date of transition. Subsequent to the adoption of PFRS, borrowingcosts are recognized in accordance with PAS 23, Borrowing Costs. The amendment does notapply to the Parent Company as it is not a first-time adopter of PFRS.

§ PAS 1, Presentation of Financial Statements - Clarification of the requirements forcomparative information

These amendments clarify the requirements for comparative information that are disclosedvoluntarily and those that are mandatory due to retrospective application of an accountingpolicy, or retrospective restatement or reclassification of items in the financial statements. Anentity must include comparative information in the related notes to the financial statementswhen it voluntarily provides comparative information beyond the minimum requiredcomparative period. The additional comparative period does not need to contain a completeset of financial statements. On the other hand, supporting notes for the third balance sheet(mandatory when there is a retrospective application of an accounting policy, or retrospectiverestatement or reclassification of items in the financial statements) are not required. As aresult, the Parent Company has not included comparative information in respect of theopening statement of financial position as at January 1, 2012. The amendments affectdisclosures only and have no impact on the Parent Company’s financial position orperformance.

§ PAS 16, Property, Plant and Equipment - Classification of servicing equipment

The amendment clarifies that spare parts, stand-by equipment and servicing equipment shouldbe recognized as property, plant and equipment when they meet the definition of property,plant and equipment and should be recognized as inventory if otherwise. The amendmentdoes not have any significant impact on the Parent Company’s financial position orperformance.

§ PAS 32, Financial Instruments: Presentation - Tax effect of distribution to holders of equityinstruments

The amendment clarifies that income taxes relating to distributions to equity holders and totransaction costs of an equity transaction are accounted for in accordance with PAS 12,Income Taxes. The amendment does not have any significant impact on the ParentCompany’s financial position or performance.

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§ PAS 34, Interim Financial Reporting - Interim financial reporting and segment informationfor total assets and liabilities

The amendment clarifies that the total assets and liabilities for a particular reportable segmentneed to be disclosed only when the amounts are regularly provided to the chief operatingdecision maker and there has been a material change from the amount disclosed in the entity’sprevious annual financial statements for that reportable segment. The amendment affectsdisclosures only and has no impact on the Parent Company’s financial position orperformance.

Standards, Interpretations and Amendments to Existing Standards Not Yet EffectiveThe Parent Company did not early adopt the following amendments to existing standards andinterpretations that have been approved but are not yet effective as at January 1, 2013. Except asotherwise indicated, the Parent Company does not expect the adoption of these amendments andinterpretations to have an impact on its Parent Company financial statements.

§ PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets(Amendments). These amendments remove the unintended consequences of PFRS 13 on thedisclosures required under PAS 36. In addition, these amendments require disclosure of therecoverable amounts for the assets or cash-generating units (CGUs) for which impairment losshas been recognized or reversed during the period. These amendments are effectiveretrospectively for annual periods beginning on or after January 1, 2014 with earlierapplication permitted, provided PFRS 13 is also applied. The amendments affect disclosuresonly and have no impact on the Parent Company’s financial position or performance.

§ Investment Entities (Amendments to PFRS 10, PFRS 12 and PAS 27). These amendments areeffective for annual periods beginning on or after January 1, 2014. They provide an exceptionto the consolidation requirement for entities that meet the definition of an investment entityunder PFRS 10. The exception to consolidation requires investment entities to account forsubsidiaries at fair value through profit or loss. It is not expected that this amendment wouldbe relevant to the Parent Company since none of the entities in the Parent Company wouldqualify to be an investment entity under PFRS 10.

§ Philippine Interpretation IFRIC 21, Levies (IFRIC 21). IFRIC 21 clarifies that an entityrecognizes a liability for a levy when the activity that triggers payment, as identified by therelevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold,the interpretation clarifies that no liability should be anticipated before the specified minimumthreshold is reached. IFRIC 21 is effective for annual periods beginning on or after January 1,2014. The Parent Company does not expect that IFRIC 21 will have material financial impactin Parent Company’s future financial statements.

§ PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives andContinuation of Hedge Accounting (Amendments). These amendments provide relief fromdiscontinuing hedge accounting when novation of a derivative designated as a hedginginstrument meets certain criteria. These amendments are effective for annual periodsbeginning on or after January 1, 2014. The Parent Company has not novated its derivativesduring the current period. However, these amendments would be considered for futurenovations.

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§ PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and FinancialLiabilities (Amendments). The amendments clarify the meaning of “currently has a legallyenforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria tosettlement systems (such as central clearing house systems) which apply gross settlementmechanisms that are not simultaneous. The amendments affect presentation only and have noimpact on the Parent Company’s financial position or performance. The amendments toPAS 32 are to be retrospectively applied for annual periods beginning on or afterJanuary 1, 2014.

§ PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions (Amendments).The amendments apply to contributions from employees or third parties to defined benefitplans. Contributions that are set out in the formal terms of the plan shall be accounted for asreductions to current service costs if they are linked to service or as part of theremeasurements of the net defined benefit asset or liability if they are not linked to service.Contributions that are discretionary shall be accounted for as reductions of current service costupon payment of these contributions to the plans. The amendments to PAS 19 are to beretrospectively applied for annual periods beginning on or after July 1, 2014.


− PFRS 2, Share-based Payment - Definition of Vesting Condition. The amendment revisedthe definitions of vesting condition and market condition and added the definitions ofperformance condition and service condition to clarify various issues. This amendmentshall be prospectively applied to share-based payment transactions for which the grantdate is on or after July 1, 2014.

− PFRS 3, Business Combinations - Accounting for Contingent Consideration in a BusinessCombination. The amendment clarifies that a contingent consideration that meets thedefinition of a financial instrument should be classified as a financial liability or as equityin accordance with PAS 32. Contingent consideration that is not classified as equity issubsequently measured at fair value through profit or loss whether or not it falls within thescope of PFRS 9 (or PAS 39, if PFRS 9 is not yet adopted). The amendment shall beprospectively applied to business combinations for which the acquisition date is on orafter July 1, 2014. The Parent Company shall consider this amendment for futurebusiness combinations.

− PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation ofthe Total of the Reportable Segments’ Assets to the Entity’s Assets. The amendmentsrequire entities to disclose the judgment made by management in aggregating two or moreoperating segments. This disclosure should include a brief description of the operatingsegments that have been aggregated in this way and the economic indicators that havebeen assessed in determining that the aggregated operating segments share similareconomic characteristics. The amendments also clarify that an entity shall providereconciliations of the total of the reportable segments’ assets to the entity’s assets if suchamounts are regularly provided to the chief operating decision maker. These amendmentsare effective for annual periods beginning on or after July 1, 2014 and are appliedretrospectively. The amendments affect disclosures only and have no impact on theParent Company’s financial position or performance.

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− PFRS 13, Fair Value Measurement - Short-term Receivables and Payables. Theamendment clarifies that short-term receivables and payables with no stated interest ratescan be held at invoice amounts when the effect of discounting is immaterial.

− PAS 16, Property, Plant and Equipment - Revaluation Method - ProportionateRestatement of Accumulated Depreciation. The amendment clarifies that, uponrevaluation of an item of property, plant and equipment, the carrying amount of the assetshall be adjusted to the revalued amount, and the asset shall be treated in one of thefollowing ways:

a. The gross carrying amount is adjusted in a manner that is consistent with therevaluation of the carrying amount of the asset. The accumulated depreciation at thedate of revaluation is adjusted to equal the difference between the gross carryingamount and the carrying amount of the asset after taking into account anyaccumulated impairment losses.

b. The accumulated depreciation is eliminated against the gross carrying amount of theasset.

The amendment is effective for annual periods beginning on or after July 1, 2014. Theamendment shall apply to all revaluations recognized in annual periods beginning on orafter the date of initial application of this amendment and in the immediately precedingannual period. The amendment has no impact on the Parent Company’s financial positionor performance.

− PAS 24, Related Party Disclosures - Key Management Personnel. The amendmentsclarify that an entity is a related party of the reporting entity if the said entity, or anymember of a group for which it is a part of, provides key management personnel servicesto the reporting entity or to the parent company of the reporting entity. The amendmentsalso clarify that a reporting entity that obtains management personnel services fromanother entity (also referred to as management entity) is not required to disclose thecompensation paid or payable by the management entity to its employees or directors.The reporting entity is required to disclose the amounts incurred for the key managementpersonnel services provided by a separate management entity. The amendments areeffective for annual periods beginning on or after July 1, 2014 and are appliedretrospectively. The amendments affect disclosures only and have no impact on theParent Company’s financial position or performance.

− PAS 38, Intangible Assets - Revaluation Method - Proportionate Restatement ofAccumulated Amortization. The amendments clarify that, upon revaluation of anintangible asset, the carrying amount of the asset shall be adjusted to the revalued amount,and the asset shall be treated in one of the following ways:

a. The gross carrying amount is adjusted in a manner that is consistent with therevaluation of the carrying amount of the asset. The accumulated amortization at thedate of revaluation is adjusted to equal the difference between the gross carryingamount and the carrying amount of the asset after taking into account anyaccumulated impairment losses.

b. The accumulated amortization is eliminated against the gross carrying amount ofthe asset.

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The amendments also clarify that the amount of the adjustment of the accumulatedamortization should form part of the increase or decrease in the carrying amountaccounted for in accordance with the standard.

The amendments are effective for annual periods beginning on or after July 1, 2014. Theamendments shall apply to all revaluations recognized in annual periods beginning on orafter the date of initial application of this amendment and in the immediately precedingannual period. The amendments have no impact on the Parent Company’s financialposition or performance.


− PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Meaning of‘Effective PFRSs’. The amendment clarifies that an entity may choose to apply either acurrent standard or a new standard that is not yet mandatory, but that permits earlyapplication, provided either standard is applied consistently throughout the periodspresented in the entity’s first PFRS financial statements. This amendment is notapplicable to the Parent Company as it is not a first-time adopter of PFRS.

− PFRS 3, Business Combinations - Scope Exceptions for Joint Arrangements. Theamendment clarifies that PFRS 3 does not apply to the accounting for the formation of ajoint arrangement in the financial statements of the joint arrangement itself. Theamendment is effective for annual periods beginning on or after July 1 2014 and is appliedprospectively.

− PFRS 13, Fair Value Measurement - Portfolio Exception. The amendment clarifies thatthe portfolio exception in PFRS 13 can be applied to financial assets, financial liabilitiesand other contracts. The amendment is effective for annual periods beginning on or afterJuly 1 2014 and is applied prospectively. The amendment has no significant impact onthe Parent Company’s financial position or performance.

− PAS 40, Investment Property. The amendment clarifies the interrelationship betweenPFRS 3 and PAS 40 when classifying property as investment property or owner-occupiedproperty. The amendment stated that judgment is needed when determining whether theacquisition of investment property is the acquisition of an asset or a group of assets or abusiness combination within the scope of PFRS 3. This judgment is based on theguidance of PFRS 3. This amendment is effective for annual periods beginning on orafter July 1, 2014 and is applied prospectively. The amendment has no significant impacton the Parent Company’s financial position or performance.

§ PFRS 9, Financial Instruments. PFRS 9, as issued, reflects the first and third phases of theproject to replace PAS 39 and applies to the classification and measurement of financial assetsand liabilities and hedge accounting, respectively. Work on the second phase, which relate toimpairment of financial instruments, and the limited amendments to the classification andmeasurement model is still ongoing, with a view to replace PAS 39 in its entirety. PFRS 9requires all financial assets to be measured at fair value at initial recognition. A debt financialasset may, if the fair value option (FVO) is not invoked, be subsequently measured atamortized cost if it is held within a business model that has the objective to hold the assets tocollect the contractual cash flows and its contractual terms give rise, on specified dates, tocash flows that are solely payments of principal and interest on the principal outstanding.

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All other debt instruments are subsequently measured at fair value through profit or loss. Allequity financial assets are measured at fair value either through OCI or profit or loss. Equityfinancial assets held for trading must be measured at fair value through profit or loss. Forliabilities designated as at FVPL using the fair value option, the amount of change in the fairvalue of a liability that is attributable to changes in credit risk must be presented in OCI. Theremainder of the change in fair value is presented in profit or loss, unless presentation of thefair value change relating to the entity’s own credit risk in OCI would create or enlarge anaccounting mismatch in profit or loss. All other PAS 39 classification and measurementrequirements for financial liabilities have been carried forward to PFRS 9, including theembedded derivative bifurcation rules and the criteria for using the FVO. The adoption of thefirst phase of PFRS 9 will have an effect on the classification and measurement of the ParentCompany’s financial assets, but will potentially have no impact on the classification andmeasurement of financial liabilities.

On hedge accounting, PFRS 9 replaces the rules-based hedge accounting model ofPAS 39 with a more principles-based approach. Changes include replacing the rules-basedhedge effectiveness test with an objectives-based test that focuses on the economicrelationship between the hedged item and the hedging instrument, and the effect of credit riskon that economic relationship; allowing risk components to be designated as the hedged item,not only for financial items, but also for non-financial items, provided that the risk componentis separately identifiable and reliably measurable; and allowing the time value of an option,the forward element of a forward contract and any foreign currency basis spread to beexcluded from the designation of a financial instrument as the hedging instrument andaccounted for as costs of hedging. PFRS 9 also requires more extensive disclosures for hedgeaccounting.

PFRS 9 currently has no mandatory effective date. PFRS 9 may be applied before thecompletion of the limited amendments to the classification and measurement model andimpairment methodology. The Parent Company will not adopt the standard before thecompletion of the limited amendments and the second phase of the project.

§ Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate. Thisinterpretation covers accounting for revenue and associated expenses by entities thatundertake the construction of real estate directly or through subcontractors. The SEC and theFRSC have deferred the effectivity of this interpretation until the final Revenue standard isissued by the International Accounting Standards Board and an evaluation of the requirementsof the final Revenue standard against the practices of the Philippine real estate industry iscompleted. The amendment has no significant impact on the Parent Company’s financialposition or performance.

The Parent Company continues to assess the impact of the above new, amended and improvedaccounting standards and interpretations effective subsequent to December 31, 2013. Additionaldisclosures required by these amendments will be included in the parent company financialstatements when these are adopted.

Cash and Cash EquivalentsCash includes cash on hand and in banks. Cash equivalents are short-term, highly liquidinvestments that are readily convertible with remaining maturities of three months or less and thatare subject to an insignificant risk of change in value.

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Short-term InvestmentsShort-term investments are short-term, highly liquid investments that are convertible to knownamounts of cash with original remaining of more than three months but less than one year fromdates of acquisition.

Financial AssetsInitial Recognition and Measurement. Financial assets within the scope of PAS 39 are classifiedas financial assets at FVPL, loans and receivables, held-to-maturity (HTM) investments, available-for-sale (AFS) financial assets or as derivatives designated as hedging instruments in an effectivehedge, as appropriate. The Parent Company determines the classification of its financial assets atinitial recognition.

All financial assets are recognized initially at fair value plus transaction costs, except for financialinstruments measured at FVPL.

Purchases or sales of financial assets that require delivery of assets within a time frame establishedby regulation or convention in the market place (regular way trades) are recognized on the tradedate, i.e, the date the Parent Company commits to purchase or sell the asset.

Subsequent Measurement. The subsequent measurement of financial assets depends on theirclassification as described below.

Financial Assets at FVPL. Financial assets at FVPL include financial assets held for trading andfinancial assets designated upon initial recognition as at FVPL. Financial assets are classified asheld for trading if they are acquired for the purpose of selling or repurchasing in the near term.Derivatives, including separated embedded derivatives, are also classified under this categoryunless they are designated as effective hedging instruments.

Financial assets at FVPL are carried in the parent company statement of financial position at fairvalue with changes in fair value recognized as fair value gain or loss on investment held fortrading in the parent company statement of income.

Financial assets designated upon initial recognition at FVPL are designated at their initialrecognition date and only if the criteria under PAS 39 are satisfied.

The Parent Company’s investment in shares of stock of CSR plc (CSR) is classified as a financialasset at FVPL (see Note 5).

The Parent Company evaluates its financial assets held for trading, other than derivative, todetermine whether the intention to sell them in the near term is appropriate. When in rarecircumstances the Parent Company is unable to trade these financial assets due to inactive marketsand management’s intention to sell them in the foreseeable future significantly changes, the ParentCompany may elect to reclassify these financial assets. The reclassification to loans andreceivables, AFS or held to maturity depends on the nature of the asset. This evaluation does notaffect any financial assets designated at FVPL using fair value option at designation. Theseinstruments cannot be reclassified after initial recognition.

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Loans and Receivables. Loans and receivables are nonderivative financial assets with fixed ordeterminable payments that are not quoted in an active market. After initial measurement, suchfinancial assets are subsequently measured at amortized cost using the effective interest rate (EIR)method, less impairment. Amortized cost is calculated by taking into account any discount orpremium on acquisition and fees or costs that are an integral part of the EIR. The EIRamortization is included in finance income in the parent company statement of income. The lossesarising from impairment are recognized in the parent company statement of income as impairmentloss.

Loans and receivables are included in current assets if maturity is within 12 months from thereporting date. Otherwise, these are classified as noncurrent assets.

This category includes cash and cash equivalents, short-term investments, dividends receivable,due from related parties, nontrade receivables, interest receivables and advances to officers andemployees. (see Notes 4 and 6).

Held-to-maturity (HTM) Investments. Non-derivative financial assets with fixed and determinablepayments and fixed maturities are classified as HTM investments when the Parent Company haspositive intention and ability to hold them to maturity. After initial measurement, HTMinvestments are measured at amortized cost using the EIR, less impairment. Amortized cost iscalculated by taking into account any discount or premium on acquisition and fees or costs that arean integral part of the EIR. The EIR amortization is included in finance income in the parentcompany statement of income. The losses arising from impairment are recognized in the parentcompany statement of income as impairment loss.

The Parent Company does not have HTM investments as at December 31, 2013 and 2012.

AFS Investments. AFS investments include equity investments and debt securities. Equityinvestments classified as AFS are those that are neither classified as held for trading nordesignated at FVPL. Debt securities in this category are those that are intended to be held for anindefinite period of time and that may be sold in response to needs for liquidity or in response tochanges in the market conditions.

After initial measurement, AFS investments are subsequently measured at fair value withunrealized gains or losses recognized as other comprehensive income in the “Unrealized fair valuegain or loss on investment in equity securities” account in the parent company statement offinancial position until the investment is derecognized, or until the investment is determined to beimpaired, at which time the cumulative gain or loss is recognized in the parent company statementof income. Interest earned while holding AFS investments is reported as finance income using theEIR method.

AFS investments also include unquoted equity investments, which are carried at cost, less anyaccumulated impairment in value. The fair value of these instruments is not reasonablydeterminable due to the unpredictable nature of future cash flows and the lack of other suitablemethods for arriving at a fair value.

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The Parent Company evaluates whether the ability and intention to sell its AFS investments in thenear term is still appropriate. When, in rare circumstances, the Parent Company is unable to tradethese investments due to inactive markets and management’s intention to do so significantlychanges in the foreseeable future, the Parent Company may elect to reclassify these investments.Reclassification to loans and receivables is permitted when the investments meet the definition ofloans and receivables and the Parent Company has the intent and ability to hold these assets for theforeseeable future or until maturity. Reclassification to the HTM category is permitted only whenthe Parent Company has the ability and intention to hold the investments accordingly.

For a financial asset reclassified from AFS category, the fair value carrying amount at the date ofreclassification becomes its new amortized cost and any previous gain or loss on the asset that hasbeen recognized in equity is amortized to profit or loss over the remaining life of the investmentusing the EIR. Any difference between the new amortized cost and the maturity amount is alsoamortized over the remaining life of the asset using the EIR. If the asset is subsequentlydetermined to be impaired, then the amount recorded in equity is reclassified to the parentcompany statement of income.

The Parent Company’s investment in equity securities are classified as AFS investments(see Note 8).

DerecognitionA financial asset (or, where applicable, a part of a financial asset or part of a group of similarfinancial assets) is derecognized when:

§ the rights to receive cash flows from the asset have expired;

§ the Parent Company has transferred its right to receive cash flows from the asset or hasassumed an obligation to pay the received cash flows in full without material delay to a thirdparty under a “pass-through” arrangement; and either the Parent Company (a) has transferredsubstantially all the risks and rewards of the asset, or (b) has neither transferred nor retainedsubstantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Parent Company has transferred its rights to receive cash flows from an asset or hasentered into a pass-through arrangement, it evaluates if and to what extent it has retained the risksand rewards of ownership. When it has neither transferred nor retained substantially all the risksand rewards of the asset nor transferred control of the asset, the asset is recognized to the extent ofthe Parent Company’s continuing involvement in the asset. In that case, the Parent Company alsorecognizes an associated liability. The transferred asset and the associated liability are measuredon a basis that reflects the rights and obligations that the Parent Company has retained.

Continuing involvement that takes the form of a guarantee over the transferred assets is measuredat the lower of the original carrying amount of the asset and the maximum amount ofconsideration that the Parent Company could be required to repay.

Impairment of Financial AssetsThe Parent Company assesses, at each reporting date, whether there is any objective evidence thata financial asset or group of financial assets is impaired. A financial asset or a group of financialassets is deemed to be impaired if, and only if, there is objective evidence of impairment as aresult of one or more events that has occurred after the initial recognition of the asset (an incurred“loss event”) and that loss event has an impact on the estimated future cash flows of the financialasset or the group of financial assets that can be reliably estimated. Evidence of impairment mayinclude indications that the debtors or a group of debtors is experiencing significant financialdifficulty, default or delinquency in interest or principal payments, the probability that they will

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enter bankruptcy or other financial reorganization and where observable data indicate that there isa measurable decrease in the estimated future cash flows, such as changes in arrears or economicconditions that correlate with defaults.

Financial Assets Carried at Amortized Cost. For financial assets carried at amortized cost, theParent Company first assesses whether objective evidence of impairment exists individually forfinancial assets that are individually significant, or collectively for financial assets that are notindividually significant. If the Parent Company determines that no objective evidence ofimpairment exists for an individually assessed financial asset, whether significant or not, itincludes the asset in a group of financial assets with similar credit risk characteristics andcollectively assesses them for impairment. Assets that are individually assessed for impairmentand for which an impairment loss is, or continues to be, recognized are not included in a collectiveassessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss ismeasured as the difference between the asset’s carrying amount and the present value of estimatedfuture cash flows (excluding future credit losses that have not been incurred). The present valueof the estimated future cash flows is discounted at the financial assets original EIR. If a loan has avariable interest rate, the discount rate for measuring any impairment loss is the current EIR.

The carrying amount of the asset is reduced through the use of an allowance account and theamount of the loss shall be recognized in the parent company statement of income. Financeincome continues to be accrued on the reduced carrying amount and is accrued using the rate ofinterest used to discount the future cash flows for the purpose of measuring the impairment loss.Loans together with associated allowance are written off when there is no realistic prospect offuture recovery and all collateral has been realized or has been transferred to the Parent Company.If, in a subsequent year, the amount of the estimated impairment loss increases or decreasesbecause of an event occurring after the impairment was recognized, the previously recognizedimpairment loss is increased or reduced by adjusting the allowance account. If a future write-offis later recovered, the recovery is recognized in the parent company statement of income.

AFS Investments. For AFS investments, the Parent Company assesses at each reporting datewhether there is objective evidence that an investment or a group of investments is impaired.

In the case of equity investments classified as AFS, objective evidence would include a significantor prolonged decline in fair value of the investments below its cost. “Significant” is evaluatedagainst the original cost of the investment and “prolonged” against the period in which the fairvalue has been below its original cost. Where there is evidence of impairment, the cumulative loss(measured as the difference between the acquisition cost and the current fair value, less anyimpairment loss on that financial asset previously recognized in the parent company statement ofincome) is removed from other comprehensive income and recognized in the parent companystatement of income. Impairment losses on equity investments are not reversed in the parentcompany statement of income. Increases in fair value after impairment are recognized directly inother comprehensive income.

In the case unquoted equity instrument carried at cost, impairment is assessed based on the samecriteria as financial assets carried at amortized cost. The amount of loss is measured as thedifference between the asset’s carrying amount and the present value of estimated future cashflows discounted at the current market rate of return for a similar financial asset.

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In the case of investment in debt instruments, impairment is assessed based on the same criteria asfinancial assets carried at amortized cost. However, the amount recorded for impairment is thecumulative loss measured as the difference between the amortized cost and the current fair value,less any impairment loss on that investment previously recognized in the parent companystatement of income.

Future finance income continues to be accrued based on the reduced carrying amount of the asset,using the rate of interest used to discount future cash flows for the purpose of measuringimpairment loss. If, in subsequent period, the fair value of a debt instrument increases and theincrease can be objectively related to an event occurring after the impairment loss was recognizedin the parent company statement of income, the impairment loss is reversed through the parentcompany statement of income.

Financial LiabilitiesInitial Recognition and Measurement. Financial liabilities within the scope of PAS 39 areclassified as financial liabilities at FVPL, loans and borrowings or as derivatives designated ashedging instruments in an effective hedge, as appropriate. The Parent Company determines theclassification of its financial liabilities at initial recognition.

All financial liabilities are recognized initially at fair value plus, in case of loans and borrowings,directly attributable transaction costs.

Subsequent Measurement. The subsequent measurement of financial liabilities depends on theirclassification as described below.

Financial Liabilities at FVPL. Financial liabilities at FVPL include the financial liabilities heldfor trading and financial liabilities designated upon initial recognition as at FVPL.

Financial liabilities are classified as held for trading if they are acquired for purposes of selling inthe near term. This category includes derivative financial instruments entered into by the ParentCompany that are not designated as hedging instruments in hedge relationship in PAS 39.Separated embedded derivatives are also classified as held for trading unless they are designatedas effective hedging instruments.

Gains and losses on liabilities held for trading are recognized in the parent company statement ofincome.

Financial liabilities at fair value through profit or loss include financial liabilities held for tradingand financial liabilities designated upon initial recognition as at fair value through profit or loss.The Parent Company has not designated any liability as at FVPL.

Loans and Borrowings. After initial recognition, interest bearing loans and borrowings aresubsequently measured at amortized costs using the EIR method. Gains and losses are recognizedin the parent company statement of income when the liabilities are derecognized as well asthrough the EIR amortization process.

Amortized costs is calculated by taking into account any discount and premium on acquisition andfees or costs that are integral part of the EIR. The EIR amortization is included in finance costs inthe parent company statement of income.

This category includes accounts payable and other current liabilities and long-term debts(see Notes 12 and 13).

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DerecognitionA financial liability is derecognized when the obligation under the liability is discharged orcancelled or expires.

Where an existing financial liability is replaced by another from the same lender on substantiallydifferent terms, or the terms of an existing liability are substantially modified, such an exchange ormodification is treated as a derecognition of the original liability and the recognition of a newliability, and the difference in the respective carrying amounts is recognized in the parent companystatement of income.

Offsetting of Financial InstrumentsFinancial assets and financial liabilities are offset and the net amount reported in the parentcompany statement of financial position if, and only if, there is a currently enforceable legal rightto offset the recognized amounts and there is an intention to settle on a net basis, or to realize theasset and settle the liability simultaneously.

Fair Value MeasurementThe Parent Company measures financial instruments at fair value at each financial reporting date.Also, fair values of financial instruments measured at amortized cost are disclosed in Note 24.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date. The fair valuemeasurement is based on the presumption that the transaction to sell the asset or transfer theliability takes place either:

§ In the principal market for the asset or liability, or§ In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible to the Parent Company.

The fair value of an asset or a liability is measured using the assumptions that market participantswould use when pricing the asset or liability, assuming that market participants act in theireconomic best interest.

A fair value measurement of a nonfinancial asset takes into account a market participant’s abilityto generate economic benefits by using the asset in its highest and best use or by selling it toanother market participant that would use the asset in its highest and best use.

The Parent Company uses valuation techniques that are appropriate in the circumstances and forwhich sufficient data are available to measure fair value, maximizing the use of relevantobservable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the parent companyfinancial statements are categorized within the fair value hierarchy, described as follows, based onthe lowest level input that is significant to the fair value measurement as a whole:

§ Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities

§ Level 2: Valuation techniques for which the lowest level input that is significant to the fairvalue measurement is directly or indirectly observable

§ Level 3: Valuation techniques for which the lowest level input that is significant to the fairvalue measurement is unobservable

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For assets and liabilities that are recognized in the financial statements on a recurring basis, theParent Company determines whether transfers have occurred between levels in the hierarchy byre-assessing categorization (based on the lowest level input that is significant to the fair valuemeasurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Parent Company has determined classes of assets andliabilities on the basis of the nature, characteristics and risks of the asset or liability and the levelof the fair value hierarchy as explained above.

“Day 1” DifferenceWhere the transaction price in a non-active market is different from the fair value of otherobservable current market transactions in the same instrument or based on a valuation techniquewhose variables include only data from observable market, the Parent Company recognizes thedifference between the transaction price and fair value (a “Day 1” difference) in the parentcompany statement of income, unless it qualifies for recognition as some other type of asset.

In cases where data which are not observable are used, the difference between the transactionprice and model value is only recognized in the parent company statement of income when theinputs become observable or when the instrument is derecognized. For each transaction, theParent Company determines the appropriate method of recognizing the “Day 1” differenceamount.

Other Current AssetsInput Value-added Taxes (VAT). Input VAT represents VAT imposed on the Parent Company byits suppliers and contractors for the acquisition of goods and services required under Philippinetaxation laws and regulations. Input VAT is stated at its estimated net realizable value (NRV).The portion of excess input VAT that will be used to offset the Parent Company’s output VAT isincluded under the “Other current assets” account in the parent company statement of financialposition.

Investments in and Deposits to Subsidiaries and AssociatesThe Parent Company’s investments in and deposits to subsidiaries (entities which the ParentCompany controls) and associates (entities which the Parent Company has significant influenceand are neither subsidiaries nor joint ventures) are carried in the parent company statement offinancial position at cost less any accumulated impairment in value.

Deposits for future stock subscriptions represent payments made by the Parent Company to itssubsidiaries for future additional investment.

Property and EquipmentProperty and equipment, except land, are carried at cost less accumulated depreciation andamortization, and any accumulated impairment in value.

Land is carried at cost less any accumulated impairment in value.

The initial cost of property and equipment comprises its purchase price and any directlyattributable costs in bringing the asset to its working condition and location for its intended use.Cost also includes the cost of replacing part of such property and equipment if the recognitioncriteria are met.

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Expenditures incurred after the property and equipment have been put into operation, such asrepairs and maintenance costs, are normally recognized in the parent company statement ofincome in the period in which the costs are incurred. In situations where it can be clearlydemonstrated that the expenditures have resulted in an increase in the future economic benefitsexpected to be obtained from the use of an item of property and equipment beyond its originallyassessed standard of performance, the expenditures are capitalized as additional costs of the asset.

Depreciation is computed on a straight-line basis over the estimated useful lives of the assets asfollows:

Account Type Number of YearsFurniture and equipment 5Transportation equipment 5 to 20Buildings and leasehold improvements 5 to 20

Leasehold improvements are amortized over their estimated useful life or the term of the lease,whichever is shorter.

An item of property and equipment is derecognized upon disposal or when no future economicbenefits are expected from its use or disposal. Any gain or loss arising on derecognition of theasset (calculated as the difference between the net disposal proceeds and the carrying amount ofthe asset) is included in the parent company statement of income in the year the asset isderecognized.

The asset’s residual values, useful lives and depreciation and amortization methods are reviewedat each financial year-end and adjusted prospectively, if appropriate.

Investment PropertiesInvestment properties consist of real properties and offices in excess of the Parent Company’srequirements that are leased to related and third parties. These assets, except for land, are stated atcost, including transaction costs, less accumulated depreciation and any accumulated impairmentin value. Land is carried at cost (initial purchase price and other cost directly attributable to suchproperty) less any accumulated impairment in value.

Depreciation is computed using the straight-line method over the estimated useful lives of 5 to20 years. The investment properties’ residual values, useful lives and depreciation methods arereviewed at each financial year-end and adjusted prospectively, if appropriate.

Investment properties are derecognized when either they have been disposed of or when theinvestment properties are permanently withdrawn from use and no future economic benefit isexpected from its disposal. The difference between the net disposal proceeds and the carryingamount of the asset is recognized in the parent company statement of income in the period ofderecognition.

Transfers are made to and from investment property when, and only when, there is a change inuse. Transfers into and from investment property do not change the carrying amount of theproperty being transferred.

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Other Noncurrent AssetsCreditable Withholding Taxes (CWT). CWT represents the amount withheld by the ParentCompany’s customers in relation to its rental income. These are recognized upon collection of therelated billings and are utilized as tax credits against income tax due as allowed by the Philippinetaxation laws and regulations. CWT is stated at their estimated NRV. CWT is recognized underthe “Other noncurrent assets” account in the parent company statement of financial position.

Impairment of Nonfinancial AssetsInvestments in and Deposits to Subsidiaries and Associates, Property and Equipment, InvestmentProperties and Other Noncurrent Assets. The Parent Company assesses at each financialreporting date whether there is an indication that an asset may be impaired. If any such indicationexists, or when annual impairment testing for an asset is required, the Parent Company makes anestimate of the asset’s recoverable amount. An asset’s estimated recoverable amount is the higherof an asset’s or CGUs fair value less costs to sell and its value in use and is determined for anindividual asset, unless the asset does not generate cash inflows that are largely independent ofthose from other assets or group of assets. When the carrying amount of an asset or CGU exceedsits recoverable amount, the asset is considered impaired and is written down to its recoverableamount. In assessing value in use, the estimated future cash flows are discounted to their presentvalue using a pre-tax discount rate that reflects current market assessments of the time value ofmoney and the risks specific to the asset. In determining fair value less costs to sell, recent markettransactions are taken into account, if available. If no such transactions can be identified, anappropriate valuation model is used. These calculations are corroborated by valuation multiples,quoted share prices for publicly traded subsidiaries or other available fair value indicators.

An assessment is made at each financial reporting date as to whether there is any indication thatpreviously recognized impairment losses may no longer exist or may have decreased. If suchindication exists, the Parent Company estimates the asset’s or CGUs recoverable amount. Apreviously recognized impairment loss is reversed only if there has been a change in theassumptions used to determine the asset’s recoverable amount since the last impairment loss wasrecognized. The reversal is limited so that the carrying amount of the asset does not exceed itsrecoverable amount, nor exceed the carrying amount that would have been determined, net ofdepreciation and amortization, had no impairment loss been recognized for the asset in prior years.Such reversal is recognized in the parent company statement of income.

Employee BenefitsRetirement Benefits. The Parent Company has a funded, noncontributory defined benefit pensionplan covering all of its regular employees, administered by a Board of Trustees.

The net defined benefit liability or asset is the aggregate of the present value of the defined benefitobligation at the end of the reporting period reduced by the fair value of plan assets (if any),adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceilingis the present value of any economic benefits available in the form of refunds from the plan orreductions in future contributions to the plan.

The cost of providing benefits under the defined benefit plans is actuarially determined using theprojected unit credit method.

Defined benefit costs comprise the following:- Service cost- Net interest on the net defined benefit liability or asset- Remeasurements of net defined benefit liability or asset

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Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in profit or loss. Past service costs are recognizedwhen plan amendment or curtailment occurs. These amounts are calculated periodically byindependent qualified actuaries.

Net interest on the net defined benefit liability or asset is the change during the period in the netdefined benefit liability or asset that arises from the passage of time which is determined byapplying the discount rate based on government bonds to the net defined benefit liability or asset.Net interest on the net defined benefit liability or asset is recognized as expense or income inprofit or loss.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change inthe effect of the asset ceiling (excluding net interest on defined benefit liability) are recognizedimmediately in other comprehensive income in the period in which they arise. Remeasurementsare not reclassified to profit or loss in subsequent periods. These are closed to retained earnings.

Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurancepolicies. Plan assets are not available to the creditors of the Parent Company, nor can they be paiddirectly to the Parent Company. Fair value of plan assets is based on market price information.When no market price is available, the fair value of plan assets is estimated by discountingexpected future cash flows using a discount rate that reflects both the risk associated with the planassets and the maturity or expected disposal date of those assets (or, if they have no maturity, theexpected period until the settlement of the related obligations). If the fair value of the plan assetsis higher than the present value of the defined benefit obligation, the measurement of the resultingdefined benefit asset is limited to the present value of economic benefits available in the form ofrefunds from the plan or reductions in future contributions to the plan.

Share-based Payment Transactions. The Parent Company has a stock purchase plan for itsemployees and retirees to purchase fixed number of shares of stock at a stated price. When thegrants vest, the capital stock transactions are recorded at the fair value of the options on grant date.The terms of the plan include, among others, two to four-year holding periods of the purchasedshares and authorized cancellation of the purchase prior to full payment of the purchase price.

The cost of equity-settled transactions with employees is measured by reference to the fair value atthe date on which they are granted. The fair value is determined using the Black Scholes OptionPricing Model. In valuing equity-settled transactions, no account is taken for any performanceconditions.

The cost of equity-settled transactions is recognized, together with a corresponding increase inequity, over the period in which the performance and/or service conditions are fulfilled, ending onthe date on which the relevant employees become fully entitled to the award (the vesting date).The cumulative expense recognized for equity-settled transactions at each reporting date until thevesting date reflects the extent to which the vesting period has expired and the Parent Company’sbest estimate of the number of equity instruments that will ultimately vest. The charge or credit inthe parent company statement of income for a period represents the movement in cumulativeexpense recognized as the beginning and end of that period and is recognized as personnelexpense.

No expense is recognized for awards that do not ultimately vest.

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Employee Leave Entitlement. Employee entitlements to annual leave are recognized as a liabilitywhen they are accrued to the employees. The undiscounted liability for leave expected to besettled wholly before twelve months after the end of the annual reporting period is recognized forservices rendered by employees up to the end of the reporting period.

Common and Preferred Stocks and Capital in Excess of Par ValueThe Parent Company has issued capital stock that is classified as equity. Incremental costsdirectly attributable to the issue of new capital stock are shown as a deduction, net of tax, from theproceeds. Capital in excess of par value represents the excess of the net proceeds over the statedpar value of shares.

Treasury StockShares of the Parent Company that are acquired by the Parent Company are recorded at cost anddeducted from equity in the parent company statement of financial position. No gain or loss isrecognized in the parent company statement of income on the purchase, sale, re-issue orcancellation of treasury shares. Any difference between the carrying amount and theconsideration, if re-issued, is recognized in capital in excess of par value.

Retained EarningsThe amount included in retained earnings includes profit attributable to the Parent Company’sstockholders and reduced by dividends. Dividends are recognized as a liability and deducted fromretained earnings when they are declared. Dividends for the year that are approved after thereporting date are dealt with as an event after the financial reporting date. Retained earnings mayalso include effect of changes in accounting policy as may be required by the standard’stransitional provisions.

Revenue RecognitionRevenue is recognized to the extent that it is probable that the economic benefits will flow to theParent Company and the amount of the revenue can be measured reliably, regardless of when thepayment is being made. Revenue is measured at the fair value of the consideration received orreceivable, taking into account contractually defined terms of payment. The Parent Companyassesses its revenue arrangements against specific criteria in order to determine if it is acting asprincipal or agent. The Parent Company has concluded that it is acting as a principal in all of itsrevenue arrangements. The following specific recognition criteria must also be met beforerevenue is recognized:

Dividend Income. Revenue is recognized when the Parent Company’s right to receive thepayment is established.

Finance Income. Finance income is recognized using the EIR, which is the rate that exactlydiscounts estimated future cash receipts through the expected life of the financial instrument or ashorter period, where appropriate, to the net carrying amount of the financial asset.

Rental Income. Rental income is recognized on a straight-line basis over the lease term.

Management Fees. Revenue is recognized as services are rendered.

Other Income. Revenue is recognized when earned.

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Costs and ExpensesCosts and expenses are decreases in economic benefits during the accounting period in the form ofoutflows or decrease of assets or incurrence of liabilities that result in decreases in equity, otherthan those relating to distributions to equity participants. Costs and expenses are generallyrecognized when the services are used or the expenses arise.

Income TaxesCurrent Income Tax. Current income tax assets and liabilities for the current period are measuredat the amount expected to be recovered from or paid to the taxation authorities. The tax rates andtax laws used to compute the amount are those that are enacted or substantively enacted as at thereporting date.

Deferred Tax. Deferred tax is provided using the liability method on temporary differencesbetween the tax bases of assets and liabilities and their carrying amounts for financial reportingpurposes at the reporting date.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

§ where the deferred tax liability arises from the initial recognition of goodwill or of an asset orliability in a transaction that is not a business combination and, at the time of the transaction,affects neither the accounting profit nor taxable profit or loss; and

§ in respect of taxable temporary differences associated with investments in subsidiaries andassociates where the timing of the reversal of the temporary differences can be controlled andit is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, carry-forward ofunused tax credits from excess minimum corporate income tax (MCIT) and net operating losscarryover (NOLCO), to the extent that it is probable that taxable profit will be available againstwhich the deductible temporary differences, and the carry-forward of MCIT and NOLCO can beutilized except:

§ where the deferred tax asset relating to the deductible temporary difference arises from theinitial recognition of an asset or liability in a transaction that is not a business combinationand, at the time of the transaction, affects neither the accounting income nor taxable income orloss; and

§ in respect of deductible temporary differences associated with investments in subsidiaries andassociates, deferred tax assets are recognized only to the extent that it is probable that thetemporary differences will reverse in the foreseeable future and taxable income will beavailable against which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to theextent that it is no longer probable that sufficient future taxable profit will be available to allow allor part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed ateach financial reporting date and are recognized to the extent that it has become probable thatsufficient future taxable income will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to applyto the year when the asset is realized or the liability is settled, based on tax rates (and tax laws)that have been enacted or substantively enacted as at the financial reporting date.

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Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to setoff current tax assets against current tax liabilities and the deferred taxes relate to the same taxableentity and the same taxation authority.

LeasesThe determination whether an arrangement is, or contains, a lease is based on the substance of thearrangement at inception date, whether the fulfillment of the arrangement is dependent on the useof a specific asset or assets or the arrangement conveys a right to use the asset, even if that right isnot explicitly specified in an arrangement.

Parent Company as Lessee. Leases where the Parent Company does not acquire substantially allthe risks and benefits of ownership of the asset are classified as operating leases. Operating leasepayments are recognized as expense in the parent company statement of income on a straight-linebasis over the lease term.

Parent Company as Lessor. Leases where the Parent Company does not transfer substantially allthe risk and benefits of ownership of the asset are classified as operating lease. Initial direct costincurred in negotiating an operating lease are added to the carrying amount of the leased asset andrecognized over the lease term on the same bases as rental income. Contingent rents arerecognized as revenue in the period in which they are earned.

Foreign Currency TransactionsThe Parent Company’s financial statements are presented in Philippine peso, which is the ParentCompany’s functional and presentation currency. Transactions in foreign currencies are initiallyrecorded using the exchange rate at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies are translated at the functional currency spot rate of exchangeruling at reporting date. All exchange differences are taken to the parent company statement ofincome. Nonmonetary items that are measured in terms of historical cost in a foreign currency aretranslated using the exchange rates as at the dates of initial transactions. Nonmonetary itemsmeasured at fair value in a foreign currency are translated using the exchange rates at the datewhen the fair value was determined.

Segment ReportingFor purposes of financial reporting, the Parent Company has only one reportable segment, whichis investment holding.

For management purposes, the Parent Company is organized and managed under a single businesssegment which is the basis upon which the Parent Company reports its segment information. TheParent Company’s investment holding segment is principally the management of investments insubsidiaries and associates.

The Parent Company’s performance is not measured as a standalone entity but on a consolidatedbasis and evaluated based on segment income which is measured consistently with theconsolidated statement of income.

The Parent Company’s operating businesses are organized and managed separately according tothe nature of the products and services, with each segment representing a strategic business unitthat offers different products and serves different markets. The Parent Company conductsmajority of its business activities in the following areas – power generation, real estatedevelopment, manufacturing and others (investment holdings, construction and securities transferservices).

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Provisions and ContingenciesProvisions are recognized when the Parent Company has a present obligation (legal orconstructive) as a result of a past event, it is probable that an outflow of resources embodyingeconomic benefits will be required to settle the obligation and a reliable estimate can be made ofthe amount of the obligation. Where the Parent Company expects a provision to be reimbursed,the reimbursement is recognized as a separate asset but only when the receipt of thereimbursement is virtually certain. The expense relating to any provision is presented in theparent company statement of income net of any reimbursement.

If the effect of the time value of money is material, provisions are determined by discounting theexpected future cash flows at a pre-tax rate that reflects, where appropriate, the risks specific tothe liability. Where discounting is used, the increase in the provision due to the passage of time isrecognized as finance cost in the parent company statement of income.

Contingent liabilities are not recognized in the parent company financial statements but aredisclosed in the notes to the parent company financial statements unless the possibility of anoutflow of resources embodying economic benefits is remote. Contingent assets are notrecognized but are disclosed in the notes to the parent company financial statements when aninflow of economic benefits is probable.

Events after the Reporting DatePost year-end events that provide additional information about the Parent Company’s position atthe reporting date (adjusting events) are reflected in the parent company financial statements. Postyear-end events that are not adjusting events are disclosed in the notes to the parent companyfinancial statements when material.

3. Significant Accounting Judgments, Estimates and Assumptions

The preparation of the parent company financial statements requires management to makejudgments, estimates and assumptions that affect the reported amounts of revenues, expenses,assets and liabilities and the disclosure of contingent liabilities, at the end of the reporting period.However, uncertainty about these judgments, estimates and assumptions could result in outcomesthat would require a material adjustment to the carrying amount of the asset or liability affected infuture periods.

JudgmentsIn the process of applying the Parent Company’s accounting policies, management has made thefollowing judgments, which have the most significant effect on the amounts recognized in theparent company financial statements.

Determination of Functional Currency. The Parent Company has determined that its functionalcurrency is the Philippine peso. It is the currency of the primary economic environment in whichthe Parent Company operates. It is the currency that mainly influences the sources of its revenuesand costs.

Operating Lease Commitments - Company as Lessor. The Parent Company has entered into leaseagreements of its office spaces, parking lots and investment properties portfolio. The ParentCompany has determined that it retains all the significant risks and rewards of ownership of theseproperties which are leased out on operating leases.

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Operating Lease Commitments - Company as Lessee. The Parent Company has entered into alease agreement of office space from a related party. The Parent Company has determined that ithas not acquired all the significant risks and rewards of ownership of the leased property andaccordingly, accounts for the lease as an operating lease.

Estimates and AssumptionsThe key assumptions concerning the future and other key sources of estimation uncertainty at thereporting date, that have a significant risk of causing a material adjustment to the carryingamounts of assets and liabilities within the next financial year are discussed below. The ParentCompany based its assumptions and estimates on parameters available when the parent companyfinancial statements were prepared. Existing circumstances and assumptions about futuredevelopment however, may change due to market changes or circumstances arising beyond thecontrol of the Parent Company. Such changes are reflected in the assumptions when they occur.

Impairment of Loans and Receivables. The Parent Company maintains allowances for impairmentlosses on receivables at a level considered adequate to provide for potential uncollectiblereceivables. The level of this allowance is evaluated by the Parent Company on the basis offactors that affect the collectibility of the accounts. These factors include, but are not limited to,the length of the Parent Company’s relationship with debtors, their payment behavior and knownmarket factors. The Parent Company reviews the age and status of the receivables, and identifiesaccounts that are to be provided with allowance on a continuous basis. The Parent Company alsoevaluates its receivables from a portfolio perspective, to determine whether there are collectiveindicators of incurred loss. The amount and timing of recorded expenses for any period woulddiffer if the Parent Company made different judgment or utilized different estimates. An increasein the Parent Company’s allowance for impairment losses on receivables would increase theParent Company’s recorded expenses and decrease current assets.

As at December 31, 2013 and 2012, the aggregate carrying values of loans and receivablesamounted to P=5,493 million and P=4,997 million, respectively (see Notes 23 and 24). As atDecember 31, 2013 and 2012, allowance for impairment losses amounted to P=56 million whichpertains to trade and nontrade receivables (see Note 6).

Impairment of Investments in Equity Securities. The Parent Company considers investment inequity securities as impaired when there has been a significant or prolonged decline in the fairvalue of such investments below their cost or where other objective evidence of impairment exists.The determination of what is “significant” or “prolonged” requires judgment. The ParentCompany treats “significant” generally as 20% or more and “prolonged” as greater than 12months. In addition, the Parent Company evaluates other factors, including normal volatility inshare price for quoted equities and the future cash flows and the discount factors for unquotedequities.

For the years ended December 31, 2013 and 2012, the Parent Company recognized an impairmentloss on its investments in equity securities amounting to nil and P=2,593 million, respectively. Asat December 31, 2013 and 2012, investment in equity securities amounted to P=25,917 million andP=25,916 million, respectively (see Note 8).

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Estimating Useful Lives of Property and Equipment and Investment Properties. The ParentCompany estimates the useful lives of its property and equipment and investment properties basedon collective assessment of the industry practice, internal evaluation and experience with similarassets. The estimated useful lives of property and equipment and investment properties arereviewed at each financial reporting date and updated if expectations differ from previousestimates due to physical wear and tear, technical or commercial obsolescence and legal or otherlimits in the use of the property and equipment and investment properties. A reduction in theestimated useful lives of the property and equipment and investment properties would increasedepreciation expense and decrease noncurrent assets.

As at December 31, 2013 and 2012, the carrying values of property and equipment amounted toP=216 million and P=228 million, respectively (see Note 9).

As at December 31, 2013 and 2012, the carrying values of investment properties amounted toP=235 million and P=269 million, respectively (see Note 10).

Impairment of Investments in and Deposits to Subsidiaries and Associates, Property andEquipment, Investment Properties and Other Noncurrent Assets. The Parent Company’smanagement conducts an impairment review of its nonfinancial assets when certain indicators arepresent. This requires the Parent Company’s management to make estimates and assumptions ofthe future cash flows expected to be generated from the continued use and ultimate disposition ofsuch assets and the appropriate discount rate to determine the recoverable value of the assets.Future events could cause the Parent Company to conclude that the investments in and deposits tosubsidiaries and associates, property and equipment, investment properties and other noncurrentassets are impaired. Any resulting impairment loss could have a material adverse impact on theParent Company’s financial condition and results of operations.

For the years ended December 31, 2013 and 2012, the Parent Company recognized an impairmentloss on its investments in and deposits to subsidiaries and associates amounting to P=149 millionand P=653 million, respectively (see Note 7). As at December 31, 2013 and 2012, the carryingvalues of the Parent Company’s investments in and deposits to subsidiaries and associates,property and equipment, investment properties and other noncurrent assets are as follows:


Investments in and deposits to subsidiaries andassociates (see Note 7) P=28,533 P=29,186

Property and equipment (see Note 9) 216 228Investment properties (see Note 10) 235 269Other noncurrent assets (see Note 11) 108 164

Calculation of Retirement and Other Employee Benefits Liability. The present value of theretirement and other employee benefit obligations depends on a number of factors that aredetermined on an actuarial basis using a number of assumptions. The assumptions used indetermining the net cost for retirement benefits include the discount rate and future salary rateincrease. Any changes in these assumptions will impact the carrying amount of retirement andother employee benefit obligations.

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The Parent Company determines the appropriate discount rate at each financial reporting date.This is the interest rate used to determine the present value of estimated future cash outflowsexpected to be required to settle the retirement and other employee benefit obligations. Indetermining the appropriate discount rate, the Parent Company considers the interest rates ongovernment bonds that are denominated in the currency in which the benefits will be paid, and thathave terms to maturity approximating the terms of the related retirement and other employeebenefit obligations.

Other key assumptions for retirement and other employee benefit obligations are based in part oncurrent market conditions. Further details about the assumptions used are given in Note 19.

Retirement and other employee benefits liability amounted to P=669 million and P=256 million as atDecember 31, 2013 and 2012, respectively and retirement benefit asset amounted to P=769 millionas at December 31, 2012 (see Notes 12 and 19).

Employees leave entitlement that is expected to be settled within one year from reporting date isclassified as a current liability in the parent company statement of financial position. Otherwise,this is classified as part of the noncurrent portion of other employee benefits liability. As atDecember 31, 2013 and 2012, the current portion of employee leave entitlement presented in the“Accounts payable and other current liabilities” account amounted to P=15 million and P=22 million,respectively (see Notes 12 and 19).

Estimation of Share-based Payments. The Parent Company measures the cost of equity-settledtransactions with employees by reference to the fair value of the equity instruments at the date atwhich they are granted. Estimating fair value for share-based payments requires determining the mostappropriate valuation model for a grant of equity instruments, which is dependent on the terms andconditions of the grant. This also requires determining the most appropriate inputs to the valuationmodel including the share price, the expected life of the option, volatility and dividend yield andmaking assumptions about them. The assumptions and models used for estimating fair value forshare-based payments are disclosed in Note 16.

For the years ended December 31, 2013 and 2012, there were no share-based payments recognizedas expense as the share-based payments of the Parent Company have fully vested in 2011(see Note 16).

For the year ended December 31, 2013, the Parent Company recognized share-based paymentexpense amounting to P=23 million related to Lopez Holding’s Employee Stock Purchase Plan(ESPP) (see Note 16).

Recognition of Deferred Income Tax Assets. The Parent Company’s assessment on therecognition of deferred income tax assets on deductible temporary differences is based on theforecasted taxable income of the following reporting period. This forecast is based on the ParentCompany’s past results and future expectations on revenues and expenses.

As at December 31, 2013 and 2012, deferred tax assets amounting to P=1,846 million andP=1,642 million, respectively, were not recognized in the parent company financial statements,since management believes that it is not probable that future taxable income will be sufficientagainst which these deferred income tax assets can be utilized (see Note 21).

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Fair Value of Financial Instruments. Certain financial assets and financial liabilities are requiredto be carried at fair value, which requires the use of accounting estimates and judgment. Whilesignificant components of fair value measurement are determined using verifiable objectiveevidence (i.e., foreign exchange rates, interest rates and volatility rates), the timing and amount ofchanges in fair value would differ with the valuation methodology used. Any change in the fairvalue of these financial assets and financial liabilities would directly affect profit and loss andequity. Fair values of the Parent Company’s financial assets and liabilities are set out in Note 24of the parent company financial statements.

Legal Contingencies. The Parent Company is involved in various legal proceedings. The ParentCompany has developed estimates of probable costs for the resolution of possible claims inconsultation with the external counsels handling the Parent Company’s defense for various legalproceedings and regulatory assessments and is based upon an analysis of potential results.

The Parent Company, in consultation with its external legal counsel, does not believe that theseproceedings will have a material adverse effect on the parent company financial statements.However, it is possible that future results of operations could be materially affected by changes inthe estimates or the effectiveness of management’s strategies relating to these proceedings.

4. Cash and Cash Equivalents and Short-term Investments


Cash on hand and in banks P=42 P=34Cash equivalents 1,988 3,927

P=2,030 P=3,961

Cash in banks earns interest at the prevailing bank deposit rates. Cash equivalents consist ofshort-term placements, which are made for varying periods of up to three months depending onthe immediate cash requirements of the Parent Company and earn interest at the prevailing short-term placement rates.

Cash deposits with maturities of more than three months but less than one year are classified asshort-term investments in the Parent Company statements of financial position amounting toP=2,675 million and P=528 million as at December 31 2013 and 2012, respectively.

Total interest income earned from cash and cash equivalents and short-term investments ofP=95 million and P=231 million in 2013 and 2012, respectively, is included in “Finance income”account in the parent company statements of income.

5. Investment Held for Trading

This account consists of the Parent Company’s investment in shares of stock of CSR, a leadingprovider of multifunction connectivity and location platforms based in Cambridge, UnitedKingdom. The investment in CSR shares is intended to be sold in the near term.

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On November 29, 2012, the Parent Company sold 52,682 CSR shares for P=236 a share or a totalprice of P=13 million, resulting in a loss on sale amounting to P=0.2 million.

In 2013 and 2012, unrealized fair value gain on investment held for trading amounting toP=1 million and P=7 million, respectively, is presented as “Unrealized fair value gain on aninvestment held for trading” in the parent company statements of income.

6. Other Current Assets


Due from related parties (see Notes 22, 23 and 24) P=337 P=100Input VAT - net of output VAT 62 46Nontrade receivables (see Notes 23 and 24) 60 70Interest receivable (see Notes 23 and 24) 7 7Advances to officers and employees 3 3Others 17 11

486 237Less allowance for impairment losses on

individually impaired nontrade receivables(see Note 22) 56 56

P=430 P=181

The terms and conditions of the above are as follows:

a. Nontrade receivables are non-interest bearing and are collectible within 12 months.b. Interest receivable is normally collectible within 12 months.c. Advances to officers and employees are settled through salary deduction and liquidation.d. Others pertain to refundable deposits and advances to contractors which are collected within

12 months.

The terms and conditions of due from related parties are disclosed in Note 22.

7. Investments in and Deposits to Subsidiaries and Associates


Investment at costs - net of accumulated impairmentloss of P=764 million in 2013 and 2012 P=26,396 P=26,350

Deposits for future stock subscription - net ofaccumulated impairment loss of P=419 millionand P=270 million in 2013 and 2012, respectively 2,137 2,836

P=28,533 P=29,186

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The investments in shares of stock of subsidiaries and associates carried at cost consist of thefollowing:

Percentageof Ownership

Principal Activity 2013 2012SubsidiariesFirst Gen Corporation (First Gen) Independent power producer 66.24 66.20First Philippine Industrial Corporation (FPIC) Supplier of commercial petroleum products 60.00 60.00First Philippine Utilities Corporation (FPUC,

formerly First Philippine Union Fenosa, Inc.) Investment holdings 100.00 100.00First Philippine Electric Corporation (First Philec) Manufacturer of electrical and electronic

components 100.00 100.00First Philippine Realty Development Corporationa Real property owner and developer 100.00 100.00First Philippine Realty Corporation (FPRC) Real property holdings and lessor 100.00 100.00First Balfour, Inc.(First Balfour) Construction and project management 100.00 100.00FPH Capital Resources, Inc.

(FCRI, formerly First Philippine Lending Corporation)Lending company 100.00 100.00Securities Transfer Services, Inc. (STSI) Stock transfer services 100.00 100.00FPH Fund Special-purpose entity of the Parent Company 100.00 100.00FGHC International Special-purpose entity of the Parent Company 100.00 100.00First Philippine Properties Corporation (FPPC) Real property owner and developer 100.00 100.00FPHC Realty and Development Corporation (Realty)b Real property lessor 98.00 98.00Rockwell Land Corporation (Rockwell Land) Real estate developer 86.80 86.80First Philippine Industrial Park, Inc. (FPIP) Real estate developer 70.00 70.00Batangas Cogeneration Corporation (Batangas Cogen)c Power distribution 60.00 60.00AssociatesFirst Batangas Hotel Corporation (First Batangas) Real estate developer 40.52 40.52Panay Electric Company (Panay Electric) Power distribution 30.00 30.00MHE-Demag (P), Inc. (MHE Demag) Manufacturer of materials and handling

equipment25.00 25.00

a Non-operatingb Has not started operationsc Under liquidation

FGHC International and FPH Fund are incorporated in the Cayman Islands. All other subsidiariesand associates are incorporated and registered with the Philippine SEC.

Details of the investments at cost as at December 31, 2013 and 2012 are as follows:


Investments at cost:First Gen P=14,703 P=14,657Rockwell Land (Note 8) 7,562 7,562FPUC 1,898 1,898FPIP 810 810FPPC 666 666First Philec 497 497Panay Electric 459 459First Balfour 116 116FPRC 100 100FPH Fund 53 53FCRI 20 20STSI 17 17FPIC 8 8Realty 7 7

(Forward)

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MHE Demag P=4 P=4Others 240 240

27,160 27,114Allowance for impairment loss:

First Philec 497 497FPH Fund 53 53Others 214 214

764 764P=26,396 P=26,350

Movements in the investments at cost in 2013 and 2012 are as follows:


Balance at beginning of year P=26,350 P=21,943Additions 46 4,970Provision for impairment loss − (550)Redemption − (13)Balance at end of year P=26,396 P=26,350

Details of the deposits for future stock subscription as at December 31, 2013 and 2012 are asfollows:


FPH Fund P=2,389 P=2,389Batangas Cogen 149 149FGHC International − 460Others 18 108

2,556 3,106Allowance for impairment loss:

FPH Fund 252 103Batangas Cogen 149 149Others 18 18

419 270P=2,137 P=2,836

Movements in the deposits for future stock subscription in 2013 and 2012 are as follows:


Balance at beginning of year P=2,836 P=6,206Return of deposit (460) −Provision for impairment loss (149) (103)Reclassification to due from related parties

(see Note 6) (90) −Additions – 2Reclassification to deposits for non-voting preferred

stock subscription (see Note 8) − (3,269)Balance at end of year P=2,137 P=2,836

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The following are significant transactions and information of certain subsidiaries in 2013 and2012:

First GenIn 2013 and 2012, the Parent Company bought First Gen common shares from the marketamounting to P=46 million and P=15 million, respectively.

Rockwell LandThe Parent Company obtained control of Rockwell Land effective May 2, 2012, the date when theParent Company had majority representation in the BOD of Rockwell Land. As a result of thefollowing linked transactions, the Parent Company’s voting and economic interest in commonshares increased to 83% and 76%, respectively:

a. On January 31, 2012, Rockwell Land fully redeemed its voting preferred shares of2,750,000,000, at par value of P=0.01 or for P=27.5 million, held by Manila Electric Company(Meralco) and the Parent Company at 51% and 49% interest, respectively. On April 10, 2012,Rockwell Land issued to the Parent Company its entire 2,750,000,000 voting preferred sharesat par value of P=0.01 a share or for P=28 million. The preferred shares earn 6% cumulativedividend per annum.

b. On February 27, 2012, Meralco’s BOD approved the declaration of its investment in commonshares in Rockwell Land as property dividends. On April 25, 2012, the Philippine SECapproved the property dividends declared by Meralco. On May 11, 2012, the Rockwell Landcommon shares were listed in the PSE.

By virtue of the property dividends declaration, the Parent Company received 125,079,016Rockwell Land shares at a price of P=2.01 a share or an aggregate value of P=252 million asproperty dividends for its remaining 3.94% interest in Meralco. This is recorded under“Dividend income” account in the 2012 parent company statement of income.

Likewise, the Parent Company received additional 1,300,048,529 Rockwell Land shares at aprice of P=2.01 a share or an aggregate value of P=2,613 million from Beacon Electric AssetHoldings, Inc. (Beacon Electric) as additional consideration for the previous sale by the ParentCompany of Meralco shares (see Note 8). The additional consideration is presented as “Gainon sale of investments” account in the 2012 parent company statement of income amountingto P=2,575 million, net of taxes of P=38 million.

On the same date, pursuant to the letter of instruction dated January 27, 2012, FPUC assignedits rights to receive 84,546,294 Rockwell Land shares for P=170 million to the ParentCompany. The liability to FPUC is shown as part of “Accounts payable and other currentliabilities” account in the 2012 parent company statements of financial position as atDecember 31, 2012 (see Notes 12 and 22). The Parent Company fully paid such amount in2013.

c. In addition, the Parent Company purchased 52,787,367 shares of Rockwell Land at P=2.01 ashare for P=106 million from Beacon Electric on June 28, 2012.

d. On July 13, 2012, the Parent Company purchased 681,646,831 shares of Rockwell Land atP=2.01 a share for P=1,370 million from San Miguel Corporation (SMC).

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First PhilecIn 2012, the Parent Company’s deposits for future stock subscription to First Philec ofP=3,149 million was reclassified to non-voting preferred stock subscription under “Investments inequity securities account” (see Note 8).

First Philec and its subsidiaries have on-going arbitration cases as follows:

a. First Philec Nexolon Corporation (FPNC) and First PV Ventures (First PV)

On March 22, 2012, FPNC and First PV initiated joint arbitration proceedings againstNexolon Co., Ltd. (“Nexolon”) with the International Court of Arbitration of the InternationalChamber of Commerce (the “ICC”). In this arbitration, FPNC has claimed payment of sumsowed by Nexolon, damages, and such other reliefs as the arbitral tribunal may deemappropriate, on the basis of Nexolon’s breaches of the Supply Agreement. For its part, FirstPV has exercised its put option under its JV Agreement with Nexolon pursuant to whichNexolon is required to purchase all of its shares in FPNC at their acquisition cost plus interestNexolon has contested First PV’s and FPNC’s claims. Nexolon has alleged that FPNCbreached the Supply Agreement. Nexolon has further alleged that First PV breached the JVAgreement, and has also purported to exercise its put option under the JV Agreement and tocompel First PV to purchase all of Nexolon’s shares in FPNC. FPNC and First PV contestthese counterclaims by Nexolon.

b. First Philec Solar Corporation (FPSC)

On November 22, 2012, FPSC and First Philec initiated joint arbitration proceedings againstSunPower Manufacturing Ltd. (“SPML”) with the International Court of Arbitration of theICC. In this arbitration, FPSC has claimed payment of sums owed by SPML, damages, andsuch other reliefs as the arbitral tribunal may deem appropriate, on the basis of SPML’sbreaches of the Supply Agreement. For its part, First Philec has exercised its put option underits JV Agreement with SPML pursuant to which SPML is required to purchase all of its sharesin FPSC at the amount prescribed in the JV Agreement. SPML has contested First Philec’sand FPSC’s claims. SPML has purportedly terminated the Supply Agreement on August 4,2012 due to alleged breaches by FPSC. SPML has also accused the Parent Company ofalleged breaches of the JV Agreement, and has also sought to exercise its put option under theJV Agreement and to compel the Parent Company to purchase all of SPML’s shares in FPSC.FPSC and First Philec contest these counterclaims by SPML.

As a result of the above arbitration proceedings, termination of Supply Agreements with Nexolonand SPML and the highly unfavorable market conditions in the solar industry in 2012, the ParentCompany recognized impairment loss on its investment in First Philec in 2012 amounting toP=3,090 million. This impairment loss is broken down into impairment of investment in FirstPhilec’s common shares of P=497 million (presented as part of “Impairment loss on investments inand deposits to subsidiaries and associates” account) and non-voting preferred shares ofP=2,593 million (presented as “Impairment loss on investments in equity securities” account)(see Note 8).

While FPNC, First PV and FPNC believe in the strength of their positions in the arbitration andthat they are entitled to the claims they have made, these claims were not recognized in theirfinancial statements pursuant to PAS 37, Provisions, Contingent Liabilities and Contingent Assets,which requires the recognition of contingent assets only when the realization of income is virtuallycertain. In accordance with PAS 37 and the confidential nature of the arbitration proceedings, nofurther information on this arbitration is disclosed in order not to impair the outcome of theproceeding. As at April 3, 2014, the arbitration is still on-going.

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FPPCOn December 21, 2012, the Parent Company entered into a subscription agreement with FPPCwhereby the Parent Company subscribed 500,000 common shares, with a par value of P=100 pershare, for a total subscription price of P=416 million or P=833 per share.

First BalfourAs at December 31, 2012, the Parent Company’s deposit for future stock subscription ofP=100 million was reclassified to non-voting preferred stock subscription under “Investments inequity securities” account (see Note 8).

FPH FundThe Parent Company, through its special-purpose entities, FPH Fund and FPH Ventures, has aninvestment in Narra Venture Capital II, L.P. (the Fund) amounting to P=459 million (US$10million). The Fund was established on March 13, 2007, as a limited partnership, pursuant to theDelaware Revised Uniform Limited Partnership Act, for the purpose of making equity investmentsin private and public companies, primarily in the technology and growth sectors of the economy,with focus on communications, semiconductors, health sciences, system and subsystem andrelated manufacturing services companies.

The Fund consists of a General Partner and six Limited Partners. With the exception of earlytermination or extended duration (not to exceed two years), as specified in the Limited PartnershipAgreement (Agreement), the Fund will terminate on March 31, 2017.

For the years ended December 31, 2013 and 2012, the Parent Company recognized impairmentloss on its investment in FPH Fund amounting to P=149 million and P=156 million, respectively,included as part of “Impairment loss on investments in and deposits to subsidiaries and associates”account in the parent company statements of income. The impairment resulted from thesignificant and prolonged decline in fair values of the Fund’s investments.

STSIAs at December 31, 2012, the Parent Company’s deposits for future stock subscription amountedto P=2 million. As at December 31, 2012, the total amount of P=20 million was reclassified to non-voting preferred stock subscription under “Investments in equity securities” account (see Note 8).

FPICOn October 27, 2010, FPIC’s white oil pipeline (WOPL) operation was shut down on orders of theMakati City Government after the latter suspected that the pipeline was found to be the source of apetroleum seepage detected at a certain condominium located in Barangay Bangkal, Makati City.

On November 19, 2010, the Supreme Court (SC or the Court) issued a Writ of Kalikasan with aTemporary Environmental Protection Order (TEPO) against FPIC. FPIC was ordered toimmediately cease and desist from operating its pipeline until further orders from the Court and tocheck the structural integrity of the whole span of the 117-kilometer pipeline, and in the process toapply and implement sufficient measures to prevent and avert any untoward incidents such as fire,explosion or other destructive effects that may result from any leak in the pipeline.

On November 22, 2011, the SC issued a Resolution which ordered the Court of Appeals (CA) toconduct hearings of the case and resolve specific pending incidents.

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On December 31, 2012, the CA issued a Resolution where it recognized the expertise ofgovernment regulatory agencies, such as, Department of Energy (DOE), Department ofEnvironmental and Natural Resources and Inter-Agency Committee for Environmental Health tocertify and monitor FPIC’s various activities. Hence, the CA recommended to the SC that FPIC isrequired to obtain a Certification from the DOE about the structural integrity of the WOPL and itssafe return to commercial operation. The DOE Certification should be submitted to the SC within60 days from the FPIC’s receipt of notice of confirmation by the SC of the CA’s recommendation.Failure to do so will result in the permanent enjoining of the operations of the WOPL.

On July 30, 2013, the SC resolved to adopt the recommendations of the CA in its December 21,2012 resolution. Specifically, the SC ordered FPIC to secure a certification from the DOE that theWOPL is safe to resume commercial operations, as well as consider FPIC’s adoption of anappropriate leak detection system used in monitoring the entire pipeline’s mass input versus massoutput and the necessity of replacing pipes with existing patches and sleeves. FPIC promptly filedan application for DOE’s issuance of the required certification of the WOPL. Thereafter, the DOEconducted consultation meetings with the Department of Science and Technology (DOST) and onOctober 25, 2013 it issued a certification that the WOPL is safe to return to commercialoperations. FPIC submitted the DOE certification to the SC on October 29, 2013. As ofApril 3, 2014, the final resolution of the Writ of Kalikasan remains pending with the SC.

FPIC continues to comply with the orders of the SC by continuing to undertake projects tomaintain the structural integrity of its transmission pipelines and support its safe commercialoperations. In its monthly report to the SC, FPIC enumerates activities that it regularlyaccomplishes as part of its effective pipeline integrity management system. FPIC has alsocompleted the realignment of segments of its WOPL, in Pandacan and in Bangkal.

Aside from the Writ of Kalikasan, a number of unit owners and residents of the affectedcondominium have filed a civil case for damage suits against FPIC, its directors and officers, FirstGen, Pilipinas Shell Petroleum Corporation and Chevron Philippines, Inc. for a total approximateamount of P=2.5 billion representing actual, moral, exemplary damages, medical fund and lawyers’fees. The case was originally filed as an “environmental case” before Branch 58, Regional TrialCourt Makati. However, in an order dated August 22, 2011, said court ruled that the case is not an“environmental case” but an ordinary civil action for damages, where the plaintiffs were orderedto pay the appropriate filing fees and for the case to be re-raffled. Plaintiffs filed a Motion toInhibit the Presiding Judge and a Motion for Reconsideration of the Order. In the meantime, thecase was re-raffled to Branch 133, RTC Makati.

On March 29, 2012, Branch 133 of RTC Makati agreed with the ruling of Branch 58 that the civilcase should be treated as an ordinary civil case and ordered the complainants to pay theappropriate filing fees (estimated at P=4.5 million) within ten (10) days from receipt of a copy ofthe decision; otherwise, the case will be dismissed. Instead of paying the filing fee, complainantsfiled a Petition for Certiorari with the CA to nullify the order of Branch 133. As at April 3, 2014this petition is still pending resolution.

As at December 31, 2013 and 2012, the carrying amount of investment in FPIC amounted toP=8 million.

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FGHC InternationalIn 2013, the Parent Company received a return of its deposit for future stock subscription fromFGHC International amounting to P=460 million.

Dividend income from subsidiaries and associates are as follows:


FGHC International P=1,540 P=−First Gen 1,114 −FPUC 406 −Rockwell Land 195 −FPIP 140 140Panay Electric 41 47Others 1 12

P=3,437 P=199

8. Investments in Equity Securities


Quoted equity securities:Meralco shares P=11,140 P=11,566First Gen preferred shares 10,020 9,374Proprietary membership shares 52 51

Unquoted equity securities -Investments in and deposits for preferred shares 4,705 4,925

P=25,917 P=25,916

Quoted Equity Securities

MeralcoOn March 12, 2009, the Parent Company, Lopez, Inc. and FPUC (collectively as “Lopez Group”)entered into an Investment and Cooperation Agreement (“ICA” and as subsequently amended onNovember 20, 2009 and March 30, 2010) with Philippine Long Distance Telephone Company,PLDT Communications and Energy Ventures, Inc., Metro Pacific Investments Corporation andBeacon Electric (collectively as “PLDT Group”). The ICA contemplates the sale of certainMeralco shares owned by the Lopez Group in favor of the PLDT Group.

On July 14, 2009, the Lopez Group (through the Parent Company and FPUC) completed the saleof 223 million Meralco common shares for P=20,070 million to PLDT Group. On March 30, 2010,the Lopez Group (through the Parent Company and FPUC) sold another 75 million Meralcocommon shares for a total selling price of P=22,410 million, resulting in a gain on sale ofP=23,560 million in 2010. Both sales of Meralco common shares in 2009 and 2010 included aprovision for contingent consideration where the PLDT Group will assign to Lopez GroupRockwell Land common shares as and when such Rockwell Land shares are declared by Meralcoas property dividends (see Note 7).

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The Parent Company’s remaining interest in Meralco was 3.94% as at December 31, 2013 and2012. As at December 31, 2013 and 2012, the carrying amount of the Parent Company’sinvestment in Meralco amounted to P=11,140 million valued at P=251.0 a share and P=11,566 million(valued at P=260.6 a share), respectively. Unrealized fair value loss amounted to P=426 million in2013 and unrealized fair value gain of P=595 million in 2012.

First Gen

Series “G” Perpetual Preferred SharesIn 2012, the Parent Company subscribed to 36,546,450 shares with an issue price of P=100.0 ashare and 13,750,000 shares at par value of P=10.0 a share or an aggregate of P=3,792 million ofFirst Gen’s (Series “G”) Perpetual Preferred Shares. The par value of Series “G” is P=10.0 a shareand the dividend rate is 7.7808% on issue price. The Preferred Shares are peso-denominated, non-voting, cumulative, non-participating, non-convertible and redeemable at the option of First Gen.As at December 31, 2013 and 2012, the quoted price of the Preferred Shares was at P=112.0 andP=101.5 a share, respectively. Unrealized fair value gain amounted to P=384 million andP=55 million in 2013 and 2012, respectively.

Series “F” Perpetual Preferred SharesOn July 25, 2011, the Parent Company subscribed to 52,450,000 with an issue price of P=100.0 ashare or an aggregate of P=5,245 million of First Gen’s (Series “F”) Perpetual Preferred Shareswith a par value of P=10.0 a share and dividend rate of 8.0% on issue price. The Preferred Sharesare peso-denominated, non-voting, cumulative, non-participating, non-convertible and redeemableat the option of First Gen. As at December 31, 2013 and 2012, the quoted prices of the PreferredShares were at P=113.0 a share and P=108.0 a share, respectively. Unrealized fair value gainamounted to P=262 million and P=420 million in 2013 and 2012, respectively.

Dividend income from investments in quoted equity securities (including the Rockwell Landshares received as property dividend) is as follows:


First Gen P=739 P=647Meralco 453 611

P=1,192 P=1,258

Dividends receivable from First Gen for dividends on preferred shares amounted to P=382 millionas at December 31, 2013 and 2012, presented as “Dividends receivable” account in the parentcompany statement of financial position. There were no dividends receivable from Meralco as atDecember 31, 2013 and 2012.

Below are the movements in the accumulated unrealized fair value gain on all investments inquoted equity securities recognized as part of equity as at December 31, 2013 and 2012:


Balance at beginning of year P=8,701 P=7,630Changes in fair value recognized in other

comprehensive income 221 1,071Balance at end of year P=8,922 P=8,701

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Unquoted Equity Securities. The Parent Company’s investments in unquoted equity securities asat December 31, 2013 and 2012 follow:

Investee 2013 2012(In Millions)

First Philec P=3,825 P=3,765FPRC 1,639 1,639FPPC 1,167 −First Balfour 504 504First Gen 138 138FPUC − 1,447Others 25 25

7,298 7,518Allowance for impairment loss -

First Philec 2,593 2,593P=4,705 P=4,925

Details of the movements in investments in and deposits for unquoted equity securities in 2013and 2012 are as follows:


Balance at beginning of year P=4,925 P=7,051Redemption (1,447) (3,130)Additions 1,227 328Reclassification from deposits for future stock

subscription (see Note 7) – 3,269Provision for impairment loss (see Note 7) – (2,593)Balance at end of year P=4,705 P=4,925

First PhilecOn December 21, 2012, the Parent Company entered into a subscription agreement with FirstPhilec whereby the Parent Company subscribed 500,000 Series “C” Preferred shares, with a parvalue of P=100 per share, for a total subscription price of P=123 million. The preferred shares arenon-voting, with a coupon rate of 8% of the par value per annum, cumulative in the payment ofdividends, non-convertible into common shares, non-participating, redeemable at the option ofFirst Philec at a redemption price equal to or the aggregate of the issue value or subscription priceof the shares plus accumulated but unpaid dividends. The shares once redeemed can no longer bere-issued.

In 2013, the Parent Company made an additional investment to First Philec amounting toP=60 million.

FPPCOn November 4, 2013, the Parent Company entered into a subscription agreement with FPPCwhereby the Parent Company subscribed 3,400,000 preferred shares, with a par value of P=100 pershare, for a total subscription price of P=1,020 million. The preferred shares are non-voting, withcoupon rate of 8% of the par value per annum, non-cumulative in the payment of dividends, non-convertible into common shares, non-participating and redeemable at the option of FPPC at aredemption price equal to the aggregate of the issue value or subscription price. The shares, onceredeemed, shall be considered retired and/or cancelled and may not be re-issued by FPPC.

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On December 10, 2013, the Parent Company made a partial deposit for stock subscription in FPPCamounting to P=147 million for 600,000 preferred shares with a par value of P=100 a share.

First BalfourOn December 21, 2012, the Parent Company entered into a subscription agreement with FirstBalfour whereby the Parent Company subscribed 300,000 redeemable Preferred B shares, with apar value P=100 per share, for a total subscription price of P=305 million, of which portion of thisinvestment amounting to P=100 million was reclassified from “Investments in and deposits tosubsidiaries and associates” account (see Note 7).

FPUCOn April 23, 2012, FPUC redeemed its 8,500,000 non-voting preferred shares held by the ParentCompany at a redemption price equivalent to the issue price of P=3,130 million.

On March 12, 2013, the BOD of FPUC approved the redemption of 3,926,000 shares for a totalredemption price of P=1,447 million. On May 14, 2013, the Parent Company received theredemption price amounting to P=1,319 million. The remaining balance of P=128 million isincluded in “Due from related parties” under “Other current assets” account in the statement offinancial position (see Notes 6 and 22).

First BatangasIn 2011, First Batangas redeemed its preferred shares owned by the Parent Company in exchangefor a note receivable amounting to P=15 million which is interest bearing at 8.5% per annum untilfully paid and with maturity on May 25, 2021. Interest is payable quarterly, subject to re-pricingon the 6th year based on the five-year PDST prevailing at that time plus 3% spread.

In 2013 and 2012, interest income from the note issued by First Batangas amounted to P=1 million.This is included as part of “Finance income” account in the parent company statements of income.

As at December 31, 2013 and 2012, the note receivable is presented as part of “Other noncurrentassets” account in the parent company statements of financial position (see Note 11).

Dividend income from unquoted equity securities follows:


FPUC P=3,337 P=961First Batangas 1 1

P=3,338 P=962

9. Property and Equipment

2013

Land

Furnitureand

EquipmentTransportation

Equipment

Buildings andLeasehold

Improvements Total(In Millions)

Cost: Balance at beginning of year P=7 P=67 P=295 P=103 P=472 Additions – 9 13 – 22 Disposals – – (9) – (9) Balance at end of year

(Carried Forward) 7 76 299 103 485

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2013

Land

Furnitureand


Equipment



Balance at end of year (Brought Forward) P=7 P=76 P=299 P=103 P=485

Accumulated depreciation andamortization:

Balance at beginning of year – 62 106 76 244 Depreciation and amortization

(see Note 17) – 3 23 4 30 Disposals – – (5) – (5) Balance at end of year – 65 124 80 269Net book value P=7 P=11 P=175 P=23 P=216

2012

Land

Furnitureand


Equipment



Cost: Balance at beginning of year P=7 P=66 P=300 P=102 P=475 Additions – 1 3 1 5 Disposals – – (8) – (8) Balance at end of year 7 67 295 103 472Accumulated depreciation and

amortization: Balance at beginning of year – 61 87 72 220 Depreciation and amortization

(see Note 17) – 1 25 4 30 Disposals – – (6) – (6) Balance at end of year – 62 106 76 244Net book value P=7 P=5 P=189 P=27 P=228

As at December 31, 2013 and 2012, the cost of fully depreciated property and equipment still usedby the Parent Company amounted to P=111 million and P=101 million, respectively.

No property and equipment are pledged as security for the Parent Company’s long-term debts as atDecember 31, 2013 and 2012, respectively.

10. Investment Properties

2013 2012

Land

Buildingsand LeaseholdImprovements Total Land

Buildingsand LeaseholdImprovements Total

(In Millions)Cost: Balance at beginning of year P=72 P=368 P=440 P=72 P=368 P=440 Additions – 4 4 – – – Disposal (20) – (20) – – – Balance at end of year 52 372 424 72 368 440Accumulated depreciation and

amortization: Balance at beginning of year – 171 171 – 152 152 Depreciation and amortization

(see Note 17) – 18 18 – 19 19 Balance at end of year – 189 189 – 171 171Net book value P=52 P=183 P=235 P=72 P=197 P=269

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Investment properties consist of real properties and offices in excess of the Parent Company’srequirements which are being leased to related and third parties. The fair values of investmentproperties amounted to P=515 million as at December 31, 2013 and 2012. The fair values weredetermined by independent professional appraisers. Fair value is defined as the price that wouldbe received to sell an asset or paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date.

The fair value disclosures of the investment properties are categorized under level 3 as the marketfor the identical or similar properties is not active.

In conducting the appraisal, the accredited independent appraisers used the following approaches:

a. Market Data or Comparative Approach

Under this approach, the value of the property is based on sales and listings of comparableproperty registered within the vicinity. This approach requires the establishment of acomparable property by reducing comparative sales and listings to a common denominatorwith the subject. This is done by adjusting the differences between the subject property andthose actual sales and listings regarded as comparables. The properties used are either situatedwithin the immediate vicinity or at different floor levels of the same building, whichever ismost appropriate to the property being valued. Comparison was premised on the factors oflocation, size and physical attributes, selling terms, facilities offered and time element.

b. Income Capitalization Approach

The premise of such approach is that the value of a property is directly related to the income itgenerates. This approach converts anticipated future gains to present worth by projectingreasonable income and expense for the subject property.

c. Cost Approach

Method of valuation which considers the cost to reproduce or replace in new condition theassets appraised in accordance with current market prices for similar assets, with allowancefor accrued depreciation based on wear and tear and obsolescence.

Rental income from investment properties amounting to P=39 million and P=41 million for the yearsended December 31, 2013 and 2012, respectively, is presented as “Rental income” in the parentcompany statements of income. Direct operating expenses of P=27 million and P=24 million in 2013and 2012, respectively, is recorded as part of other expenses in the “General and administrativeexpenses” account of the parent company statements of income.

11. Other Noncurrent Assets


Creditable withholding taxes P=77 P=104Note receivable (see Notes 8 and 22) 15 15Others 16 45

P=108 P=164

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12. Accounts Payable and Other Current Liabilities


Accounts payable P=25 P=50Accruals for:

Salaries, bonuses and other employee benefits 860 659Interest 82 88Short-term employee benefits (see Note 19) 15 22Others 53 8

Dividends payable (see Notes 14 and 15) 152 321Due to related parties (see Note 22) 88 190Withholding taxes payable 35 34Final taxes payable 31 30Others 8 7

P=1,349 P=1,409

The terms and conditions of the above liabilities are as follows:

a. Accounts payable are unsecured, non-interest bearing and are normally settled on a 30-days’term.

b. Accrued expenses are normally settled within twelve months.c. Dividends payable is normally settled on the dividend payment date as determined during the

date of declaration.d. Other liabilities consist of other government dues which are normally settled within twelve

months.

The terms and conditions of due to related parties are disclosed in Note 22.

13. Long-term Debts

Description Interest Rates 2013 2012 (In Millions)

P=5,000 million Fixed Rate Corporate Note (FXCN) 5.00% P=4,875 P=–P=4,800 million Floating Rate Corporate Notes (FRCN) 1.50% + 6 months PDST-F (subject

to floor rate of the BSP overnightborrowing rate) 4,320 4,560

P=5,000 million Fixed Rate Corporate Note (FXCN) 7.15% - 8.37% – 3,1829,195 7,742

Less unamortized debt issue costs 71 489,124 7,694

Less current portion - net of unamortized debt issuecosts of P=16 million in 2013 and 2012 474 258

P=8,650 P=7,436

All credit facilities of the Parent Company are unsecured.

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The movements in debt issue costs follow:


Balance at beginning of year P=48 P=65Addition 57 –Amortization (34) (17)Balance at end of year P=71 P=48

The scheduled maturities of the long-term debts at nominal values (excluding debt issue costs) asat December 31, 2013 are as follows:

Amount(In Millions)

2014 P=4902015 1,2582016 1,2582017 1,2582018 and onwards 4,931

P=9,195

FXCNOn April 11, 2007, the Parent Company issued P=5,000 million FXCN in three tranches consistingof 5-year, 7-year and 10-year notes to various financial institutions maturing in 2012, 2014 and2017, respectively. The FXCN bear fixed interest rates ranging from 7.15% to 8.37% per annumdepending on the terms of the notes.

As at December 31, 2012, the Parent Company fully paid the first tranche (5-year note).In 2012, total payments made for the principal value of the loan amounted to P=1,667 million andinterest payments amounted to P=319 million. Finance cost, including amortization of debt issuecosts, amounted to P=305 million.

On February 7, 2013, the BOD approved the prepayment of the remaining tranches(consisting of 7 and 10-year notes).

On April 5, 2013, the Parent Company entered into a loan agreement with BDO Capital andInvestment Corporation (as Sole Arranger) and BDO Unibank, Inc. (as lender), for an aggregateprincipal amount of P=5,000 million with a fixed coupon interest rate of 5.00% per annum. Theloan will mature in 2020. Debt issue cost of P=57 million was capitalized as part of the loan and isamortized using the EIR method.

The Parent Company effectively borrowed the P=5,000 million to repay in full the remainingtranches, consisting of the 7 and 10- year notes. As at April 11, 2013, the carrying amount of theprincipal value paid amounted to P=3,182 million and interest payment amounted to P=250 million.Total finance costs, including debt issue cost amortized, from January 1 to April 11, 2013amounted to P=207 million, which is included under “Finance cost” account in the parent companystatements of income. No gain or loss was recognized on the extinguishment of the loan.

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The Parent Company may prepay on any interest payment date commencing on, and including thefourth year anniversary from the date of drawdown, in whole or in part, subject to the fulfillmentof all the following conditions:

a. The Parent Company shall give the Lender not less than 30 days prior written notice of itsintention to prepay the whole or portion of the loan, which notice shall be irrevocable andbinding upon the Parent Company to effect such prepayment of the loan on the interestpayment date stated in such notice;

b. The amount payable to the Lender in respect of any prepayment shall include accrued andunpaid interest up to the prepayment date, a prepayment fee of 2% of the principal amount ofthe note to be prepaid and GRT adjustments, if any;

c. The note may not be re-issued; and

d. Prepayment on the loan shall be in minimum amounts of P=500 million and in increments ofP=100 million, to be applied in the inverse of maturity.

The prepayment option embedded in the host debt instrument is closely related as the option’sexercise price is approximately equal to the loan’s amortized cost.

For the year ended December 31, 2013, payments made for the principal value of the new loanamounted to P=125 million, while interest payments amounted to P=127 million. Total financecosts, including amortization of debt issue cost amounted to P=189 million.

FRCNOn October 25, 2011, the Parent Company entered into a Facility Agreement with BDO Capitaland Investment Corporation (as Sole Arranger) and several financial institutions, consisting of,Banco De Oro Unibank, Inc., Maybank Philippines, Inc., Rizal Commercial Banking Corporationand Union Bank of the Philippines. The Facility Agreement covers the issuance of floating ratecorporate notes in the principal amount of up to P=4,800 million which will mature in 2018.

The Parent Company effectively borrowed P=4,800 million under the new facility to repay in fullthe P=1,596 million (US$37 million) and the P=3,228 million outstanding principal of the 2007 dualcurrency floating rate notes. This refinancing reduced the Parent Company’s spread on its oversix-months PDST-F interest from 210 basis points for the dollar tranche notes and 235 basis pointsfor the peso tranche notes to 150 basis points, while extending the maturity of the principal from2012 and 2014, respectively, to 2018. The interest rate is subject to the floor rate of the BSPovernight borrowing rate.

The Parent Company may, at its option, and without premium or penalty, redeem the notes inwhole or in part on any interest payment date provided each partial prepayment shall be inminimum amounts equivalent to 5% of the notes and in excess thereof, integral multiples of 1%thereof outstanding. Interest payment date pertains to the last day of each interest period,provided, that if any interest payment date would otherwise fall on a day that is not a banking day,such interest payment date shall be on the immediately succeeding banking day.

In 2013, payments made for the principal value of the loan amounted to P=240 million whileinterest payment amounted to P=157 million. Total finance costs, including amortization of debtissue cost, amounted to P=166 million.

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In 2012, payments made for the principal value of the loan amounted to P=240 million whileinterest payment amounted to P=172 million. Total finance costs, including amortization of debtissue cost, amounted to P=203 million.

The terms of the FXCN and FRCN Facility Agreements require the Parent Company to complywith certain restrictions and covenants, which include among others: (i) maintenance of certaindebt service coverage ratio at given periods provided based on core group financial statements;(ii) maintenance of certain levels of financial ratio; (iii) maintenance of its listing on the PSE;(iv) no material changes in the nature of business; (v) incurrence of indebtedness secured by liens,unless evaluated to be necessary; (vi) granting of loans to third parties except to subsidiaries orothers in the ordinary course of business; (vii) sale or lease of assets; (viii) mergers orconsolidations; and (ix) declaration or payment of dividends other than stock dividends during anEvent of Default (as defined in the Agreement) or if such payments will result in an Event ofDefault.

As at December 31, 2013 and 2012, the Parent Company is in compliance with the restrictions andcovenants.

As at December 31, 2013, the Parent Company has the following undrawn short-term credit linefacilities:

Lending Institution Type of facility Contract Date Maturity Date Credit Line(In Millions)

BDO Omnibus September 14, 2014 October 24, 2014 P=650RCBC Omnibus October 31, 2013 June 30, 2014 200

BP Line October 31, 2013 June 30, 2014 50Forex October 31, 2013 June 30, 2014 105

Union Bank Omnibus October 31, 2013 October 31, 2014 500DBP Line October 31, 2013 October 31, 2014 5Forex October 31, 2013 October 31, 2014 50

BPI BP Line March 31, 2013 May 31, 2014 150

14. Common Stock


Authorized - P=10 par value per share 1,210,000,000 1,210,000,000

Issued:Balance at beginning of year 605,116,867 601,301,243Issuances 2,863,786 3,815,624Balance at end of year 607,980,653 605,116,867

Subscribed:Balance at beginning of year 311,965 477,091Issuances (311,965) (165,126)Balance at end of year – 311,965

Issued and subscribed 607,980,653 605,428,832

As at December 31, 2013 and 2012, subscriptions receivable amounted to nil and P=4 million,respectively. Additional paid-in capital increased by P=84 million and P=82 million in 2013 and2012, respectively, due to issuances of shares of common stock and share-based payment expense.

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On May 3, 1963, the PSE approved the Parent Company’s application to list 601,859,558 commonshares at an offer price of P=15.75 a share. There are 12,363 and 12,453 shareholders of the ParentCompany’s common share as at December 31, 2013 and 2012, respectively.

The BOD of the Parent Company declared cash dividends of P=1.00 per outstanding common sharein 2013 and 2012 as follows:

Declaration Date Record Date Payment DateNovember 7, 2013 (regular) November 21, 2013 December 12, 2013

May 2, 2013 (regular) May 20, 2013 June 11, 2013May 2, 2013 (special) May 20, 2013 June 11, 2013

November 8, 2012 (regular) November 22, 2012 December 12, 2012May 3, 2012 (regular) May 18, 2012 June 6, 2012

In 2013 and 2012, total dividends declared amounted to P=1,658 million and P=1,098 million,respectively. As at December 31, 2013 and 2012, dividends payable on common shares amountedto P=151 million and P=132 million, respectively (see Note 12).

Share BuybackOn July 8, 2010, the BOD of FPH approved a two-year Share Buyback Program of up toP=6.0 billion worth of the Company’s common shares. The Program has been extended for anothertwo years up to July 2014.

In 2013 and 2012, FPH did not buy back additional shares. As at December 31, 2013 and 2012,the Company has bought back a total of 55,443,070 shares at an average cost per share of P=60.33or equivalent to P=3,345 million of treasury shares.

Retained Earnings Account Available for Dividend DeclarationFPH’s retained earnings available for dividend declaration amounted to P=6,147 million andP=20,210 million as at December 31, 2013 and 2012, respectively.

FPH’s BOD made the following appropriations:

i. On June 21, 2012, the BOD approved the extension of the P=6,000 million Share BuybackProgram for the unutilized balance of P=2,655 million for another two years up to July2014.

ii. On November 8, 2012, the BOD approved an appropriation of P=4,300 million for capitalexpenditures, asset acquisitions, additional investments in subsidiaries and corporatesocial responsibility activities over a period of three years. In 2013, P=2,218 million wasreleased for such purposes.

iii. In February 2013, the BOD approved the appropriation of P=4,400 million for theredemption and cancellation or retirement of Series “B” preferred shares includingdividends in arrears. On April, 30, 2013, the Parent Company redeemed and cancelled orretired its preferred shares (see Note 15).

iv. On December 10, 2013, the BOD approved an additional appropriation ofP=5,786 million for debt service coverage requirements, capital expenditures, assetacquisitions, additional investments in subsidiaries and corporate social responsibilityactivities over a period of 3 years. For the year ended December 31, 2013, P=745 millionwas released for such purposes.

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On April 3, 2014, the BOD amended the appropriations made last December 10, 2013 toinclude additional appropriations of P=561 million for debt service coverage requirement,P=399 million for retirement fund, P=1,465 million for dividends and P=6,800 million forcapital expenditures, assets acquisition, additional investment in subsidiaries andcorporate social responsibility.

15. Preferred Stock


Authorized - P=100 par value per share 200,000,000 200,000,000

Issued and subscribed:Balance at beginning of year 63,000,000 63,000,000Redemption and cancellation or retirement (63,000,000) –Balance at end of year – 63,000,000

Series A – 20,000,000

Series B – 43,000,000

There are 93,000,000 shares and 30,000,000 shares that have been redeemed and cancelled orretired by the Parent Company as at December 31, 2013 and 2012, respectively.

Series “A” Preferred SharesThe Series “A” Perpetual Preferred shares are non-voting, cumulative in payment of dividendsequal to 1% of the par value per annum, non-participating, non-convertible and redeemable at theoption of the Parent Company at a redemption price equal to the aggregate of the issue value ofthe shares plus accrued but unpaid dividends.

On April 30, 2013, the Parent Company redeemed all its Series “A” Preferred Shares held by itssubsidiary FGHC International at issue value of P=100 a share for a total redemption price ofP=2,000 million.

Series “B” Perpetual Preferred SharesOn March 12, 2008, the PSE approved the Parent Company’s application to list 43,000,000 Series“B” Perpetual Preferred shares at an offer price of P=100 a share. There are 107 shareholders of theParent Company’s Series “B” Perpetual Preferred Shares as at December 31, 2012.

The Series “B” Perpetual Preferred shares are non-voting, cumulative, non-participating and non-convertible. As and when declared by the BOD, cash dividends on the Series “B” PerpetualPreferred Shares shall be at a fixed rate of 8.7231% per annum. Unless these are redeemed by theParent Company on the fifth anniversary from the Issue Date (the “Dividend rate Step Up date”),the Dividend Rate shall be adjusted on the Dividend Rate Step Up Date to the higher of: (a) theDividend Rate on Issue Date, or (b) the prevailing PDST-F 10-year treasury securities benchmarkrate plus a margin of 175 basis points.

On April 30, 2013, the Parent Company redeemed and cancelled or retired all its Series “B”Preferred Shares at issue value of P=100 per share for a total redemption price of P=4,300 million.The right of holders of such shares to receive dividends thereon has ceased to accrue and all rightswith respect to such Series “B” shares has ceased and terminated, except for the right to receivethe Redemption Price, but without interest thereon.

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The BOD of the Parent Company declared cash dividends of P=2.18 and P=4.36 per share onoutstanding Series “B” Perpetual Preferred Shares in 2013 and 2012, respectively.

Declaration Date Record Date Payment DateMarch 7, 2013 April 3, 2013 April 30, 2013

December 6, 2012 January 9, 2013 January 31, 2013

Total dividends declared amounted to P=94 million and P=188 million in 2013 and 2012,respectively. As at December 31, 2013 and 2012, dividends payable on preferred shares amountedto P=1 million and P=189 million, respectively (see Note 12).

16. Share-Based Payment Plans

Parent Company’s Executive Stock Option PlanFPH has an Executive Stock Option Plan (ESOP) that entitles the directors, and senior officers topurchase up to 10% of FPH’s authorized capital stock on the offering years at a preset purchaseprice with payment and other terms to be defined at the time of the offering. The purchase priceper share shall not be less than the average of the last dealt price per share of FPH’s share of stock.

The terms of the Plan include, among others, a limit as to the number of shares an executive andemployee may purchase and the manner of payment based on equal semi-monthly installmentsover a period of 5 or 10 years through salary deductions.


Option 1 Option 2 Option 3 Option 4 Option 5 Option 6Grant date March 2003 September 2003 March 2004 September 2004 March 2005 March 2006Offer price per share 10.00 17.7 23.55 27.10 58.6 41.65Number of shares subscribed 18,043,622 1,811,944 4,771,238 198,203 1,801,816 3,002,307Option value per share 4.77 9.83 11.84 14.78 32.68 8.83

The option grants are offered within 30 days upon receipt of the agreement for new entitledofficers. The said officers are given until the 10th year of the grant date to exercise the option.These options vest annually at a rate of 20%, making it fully vested after 5 years from the grantdate. The fair value of equity-settled share options granted under the ESOP is estimated at thedates of grant using the Black-Scholes Option Pricing Model, taking into account the terms andconditions upon which the options were granted.

The following table lists the inputs to the models used for each of the grants:

Option 1 Option 2 Option 3 Option 4 Option 5 Option 6Expected volatility (%) 38.2 38.2 38.2 38.2 38.2 21.7Weighted average share price (P=) 8.40 18.25 21.75 26.00 60.00 41Risk-free interest rate (%) 12.38 10.55 10.88 12.23 10.88 8.50Expected life of option (years) 5.5 5.5 5.5 5.5 5.5 5.5Dividend yield (%) nil nil nil nil nil 5

The expected life of the options is based on historical data and is not necessarily indicative ofexercise patterns that may occur. The expected volatility reflects the assumption that the historicalvolatility is indicative of future trends, which likewise, may not necessarily be the actual outcome.

No other features of options grant were incorporated into the measurement of the fair value of theoptions.

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2013 2012Total shares allocated 40,570,714 40,570,714

Options exercisable:Balance at beginning of year 4,460,786 8,111,284Exercised (2,551,821) (3,650,498)Balance at end of year 1,908,965 4,460,786

There were no additional grants since 2006.

In 2013 and 2012, the average exercise price of the stock option per share under the ESOP isP=33.69 and P=32.52, respectively. In 2012 and 2013, no expense is recognized for share-basedpayment as the employee’s rights to receive the benefits from the ESOP have fully vested in 2011.

Lopez Holdings’ Employee Stock Purchase Plan (ESPP)On February 29, 2011, the BOD and stockholders of Lopez Holdings approved theimplementation of an Employee Stock Purchase Plan (ESPP). The terms of ESPP, include amongothers, a limit as to the number of shares a qualified regular employee, officer or qualified directorof Lopez Holdings and Lopez, Inc. or a qualified officer of Lopez Holdings’ subsidiaries andassociates, may purchase and the manner of payment based on equal semi-monthly installmentsover a period of two years through salary deductions.

The primary terms of the grant are as follow:

Grant date May 2011Offer price per share P=4.573Option value per share P=1.65

The fair value of equity-settled share options granted is estimated as at the date of grant using theBlack-Scholes Option Model, taking into account the terms and conditions upon which the optionswere granted. The following table lists the inputs to the model used for the option grants:

Expected volatility 42.6%Weighted average share price P=4.573Risk-free interest rate 4.3%Expected life of option 2 yearsDividend yield 2.5%

The expected volatility reflects the assumption that the historical volatility is indicative of futuretrends, which likewise, may not necessarily be the actual outcome. The expected life of theoptions is based on historical data and is not necessarily indicative of exercise patterns that mayoccur. No other features of options grant were incorporated into the measurement of the fair valueof the options.

The total number of options under ESPP allocated to the Parent Company is 14,050,000 shares. In2013, the Parent Company did not exercise any of the options. The total number of exercisableoptions as at December 31, 2013 is 14,050,000 shares.

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In 2013, share-based payment expense amounted to P=23 million. A corresponding adjustment tocapital in excess of par value, net of applicable tax, was also recognized in the parent companystatements of financial position. The share-based payment expense in 2012 was not material.

17. General and Administrative Expenses

2013

2012(As restated -


Personnel expenses (see Note 18) P=905 P=1,313Outside services 162 11Professional fees 96 75Depreciation and amortization (see Notes 9 and 10) 48 49Donations 46 15Rental (see Note 22) 20 18Security and janitorial expenses 16 22Advertising and promotion 12 6Taxes and licenses 11 8Insurance 8 7Transportation and travel 7 7Entertainment, amusement and recreation – 1Others 52 52

P=1,383 P=1,584

18. Personnel Expenses

2013

2012(As restated -


Salaries and employee benefits P=756 P=1,129Retirement benefit and other employee benefit

expense (see Note 19) 103 159Training and others 46 25

P=905 P=1,313

19. Retirement Benefits

Pension PlanThe Parent Company maintains a qualified, noncontributory defined benefit plan (the Plan) toprovide a retirement program for all its regular employees.

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The net retirement assets and liabilities and other employee benefits liabilities are presented in theparent company statements of financial position as follows:

December 31,2013

December 31,2012

(As restated -see Note 2)

(In Millions)

Net retirement benefit liabilities P=399 P=–Other employee benefits - net of current portion of

P=15 million in 2013 and P=22 million in 2012(see Note 12) 255 234

Net retirement benefit assets – (769)

The following tables summarize the components of net retirement benefit expense (income)recognized in the parent company statements of income and the funded status and amountsrecognized in the parent company statements of financial position for the plan.

Retirement Benefit Expense

2013

2012(As restated -


Current service cost P=116 P=130Net interest income (36) (8)

P=80 P=122

Retirement Benefit Liability (Asset)

2013

2012(As restated -


Present value of benefit obligation P=2,565 P=2,176Less fair value of plan assets 2,166 2,945

P=399 (P=769)


2013

2012(As restated -


Balance at beginning of year P=2,176 P=2,395Actuarial (gain) loss 356 (277)Benefits paid (176) (187)Current service cost 116 130Interest cost 93 115Balance at end of year P=2,565 P=2,176

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Movements in the fair value of plan assets are as follows:

2013

2012(As restated -


Balance at beginning of year P=2,944 P=2,539Benefits paid (176) (187)Interest income included in net interest cost 129 122Actual return excluding amount included in net

interest cost (731) 471Balance at end of year P=2,166 P=2,945

Actual return on plan assets (P=602) P=592

The principal actuarial assumptions at the reporting dates are as follows:

2013 2012Discount rate 5.0% 4.5%Future salary rate increases 6.0% 6.0%

The major categories of plan assets as a percentage of the fair value of total plan assets are asfollows:

2013 2012Cash and cash equivalents 20% 20%AFS investments 59% 73%HTM investments 21% 7%

The Parent Company plan to contribute a total of P=187 million to its defined benefit retirementfund in 2014.

Information about the Parent Company’s retirement plan are as follows:

The Board of Trustees (BOT), which manages the retirement fund of the Parent Company, iscomprised of 5 executives of the Parent Company. They are beneficiaries also of the retirementfund. The investing decisions of the retirement fund are exercised by the BOT.The retirement fund assets and investments consist of the following:

§ Cash and cash equivalents which includes regular savings and time deposits amounting toP=419 million and P=611 million as at December 31, 2013 and 2012, respectively.

§ AFS investments which is composed of investments in equity securities. Investments in equitysecurities as at December 31 consist of the following:


First Philippine Holdings: Reporting entityCommon shares P=545 P=910Preferred shares – 32

(Forward)

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Lopez Holdings - ParentCommon shares P=400 P=628

Rockwell Land - SubsidiaryCommon shares 241 542

First Gen: SubsidiaryPreferred shares - Series F and G 90 85

P=1,276 P=2,197

The voting rights over these equity securities are exercised by the BOT of the Plan.

The fair value of these investments that are actively traded in organized financial markets isdetermined by reference to quoted market bid prices at the close of business on the financialreporting dates.

§ For the years ended December 31, 2013 and 2012, the Plan recognized unrealized mark-to-market losses and gains arising from investments in equity securities amounting toP=768 million and P=504 million, respectively.

§ HTM investments amounting to P=466 million and P=210 million as at December 31, 2013 and2012, respectively, are composed of investments in bonds with certain financial institutionswith fixed coupon rates and maturing in 5 to 10 years from the issue dates. HTM investmentsare carried based on its ultimate redemption value.

§ Receivables amounting to P=5 million and P=6 million as at December 31, 2013 and 2012,respectively, include accrued interest receivable on cash and cash equivalents, short-terminvestments and HTM investments and dividends receivable from equity securities.

§ Liabilities of the plan amounting to nil and P=80 million as at December 31, 2013 and 2012,respectively, pertain to retirement benefits payable and other accruals for general andadministrative expenses.

There are no outstanding balances arising from transactions between the Plan and the ParentCompany as at December 31, 2013 and 2012. Except as stated above, there were no othertransactions entered into during the year by the Plan with the Parent Company.

As at December 31, 2013, the Plan is currently underfunded by P=322 million based on the latestfunding valuation. While there are no minimum funding standards in the Philippines, the size ofthe underfunding may pose a cash flow risk in about 10 to 15 years’ time when the total expectedbenefit payments would have exhausted the assets currently in the fund.

Sensitivity AnalysisThe sensitivity analysis below has been determined based on reasonably possible changes of eachsignificant assumption on the defined benefit obligation as of the end of the reporting period,assuming if all other assumptions were held constant:

Increase(Decrease) 2013

(In Millions)Discount rates +1.00% (P=271)

-1.00% 324

Future salary increases +1.00% P=122-1.00% (113)

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Maturity AnalysisShown below is the maturity analysis of the undiscounted benefit payments:


Less than 1 year P=191 P=176More than 1 year to 5 years 655 846More than 5 years to 10 years 1,207 1,207More than 10 years to 15 years 1,551 1,551More than 15 years to 20 years 1,427 1,427More than 20 years 3,775 3,775

The average duration of the defined benefit obligation at the end of the reporting period is19.5 years.

Other Employee BenefitsOther employee benefits consists of accumulated employee sick and vacation leave entitlements.

Other Employee Benefit Expense

2013

2012(As restated -

see Note 2)Current service cost P=12 P=27Interest cost 11 10

P=23 P=37


2013

2012(As restated -

see Note 2)Balance at beginning of year P=256 P=222Current service cost 12 27Interest cost 11 10Benefits paid (9) (3)Balance at end of year P=270 P=256

The principal assumptions used in determining other employee benefits liability are shown below:

2013 2012Discount rate 5.00% 4.50%Future salary rate increase 6.00% 6.00%

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The sensitivity analysis below has been determined based on reasonably possible changes of eachsignificant assumption on the other employee benefits as at December 31, 2013, assuming allother assumptions were held constant:

Increase (Decrease) inDefined Benefit Obligation

2013 2012Discount rate:

Increase by 1% (P=16) (P=14)Decrease by 1% 17 16

20. Other Income - net


Loss on sale of an investment property (see Note 10) (P=2) P=–Commission – 6Others 4 –

P=2 P=6

21. Income Taxes

The provision for current income tax represents MCIT. Provision for current income taxamounted to P=32 million and P=1 million for the years ended December 31, 2013 and 2012,respectively.

A reconciliation between the Parent Company’s statutory income tax rate and effective income taxrate as shown in the parent company statements of income follows:

2013

2012(As restated -

see Note 2) (In Millions)

Statutory income tax P=1,814 (P=19)Income tax effects of:

Dividend income (1,928) (726)Interest income subject to final tax (27) (69)Interest expense 13 30Gain on sale of Meralco shares – (773)Others 136 1,771

P=8 P=214

As at December 31, 2012, the deferred tax liability amounting P=230 million pertains to theretirement benefit asset.

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As at December 31, 2013 and 2012, deferred tax assets of P=1,846 million and P=1,642 million,respectively, on the following temporary differences and carry-forward tax credits have not beenrecognized in the parent company financial statements:

2013

2012(As restated -


Allowance for impairment loss on investments inequity securities (see Note 8) P=2,593 P=2,593

NOLCO 2,466 2,609Allowance for impairment loss on investments in

and deposits to subsidiaries and associates(see Note 7) 1,477 1,328

Accrual of employee bonuses, vacation leavesand others (see Note 12) 1,155 893

Retirement benefits liability 399 –Unamortized past service cost 362 450Excess MCIT credits 35 3Allowance for impairment losses on trade

receivables (see Note 6) 6 6Unrealized foreign exchange loss 90 93

P=8,583 P=7,975

Details of NOLCO as at December 31, 2013 follow:

Year Incurred AmountApplied to

Current Year Expired BalanceCarryforward

Benefit Up To(In Millions)

2013 P=– P=– P=– P=– December 31, 20162012 1,232 – – 1,232 December 31, 20152011 1,377 143 – 1,234 December 31, 2014

P=2,609 P=143 P=– P=2,466

Details of MCIT as at December 31, 2013 follow:

Year Incurred Amount

Excess MCITApplied this

Year Expired BalanceCarryforward

Benefit Up To(In Millions)

2013 P=32 P=– P=– P=32 December 31, 20162012 1 – – 1 December 31, 20152011 2 – – 2 December 31, 20142010 – – – – December 31, 2013

P=35 P=– P=– P=35

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22. Related Party Disclosures

Enterprises and individuals that directly, or indirectly through one or more intermediaries, control,or are controlled by, or under common control with the Parent Company, including holdingcompanies, and fellow subsidiaries are related entities of the Parent Company. Associates andindividuals owning, directly or indirectly, an interest in the voting power of the Parent Companythat gives them significant influence over the enterprise, key management personnel, includingdirectors and officers of the Parent Company and close members of the family of these individualsand companies associated with these individuals also constitute related entities.

The following table provides the total amount of transactions and balances that have been enteredinto with related parties for the relevant years:

Nature 2013 2012(In Millions)

Subsidiaries: FPRC Rental expense (see Note 17) P=20 P=18 FPIP Management fees 31 –

Sales commission – 6Rental income – 1

First Electrodynamics Corporation* Rental income 4 4 First Batangas Interest income 1 1Others - Asian Eye Institute Rental income 18 18

*Through First Philec

Receivables from and payables to related parties are as follows (see Notes 6, 7, 8 and 12):

Relationship Terms Conditions 2013 2012Due from: (In Millions) FPUC Subsidiary 30 days upon receipt

of billings; non-interest bearingUnsecured,

no impairment P=128 P=– FPIC Subsidiary 30 days upon receipt


no impairment 87 6 First Electrodynamics

Corporation*Subsidiary 30 days upon receipt


no impairment 35 – Rockwell Land Subsidiary 30 days upon receipt of billings;

non-interest bearingUnsecured,

no impairment 18 – First Balfour Subsidiary 30 days upon receipt of billings;


no impairment 17 18 FPIP Subsidiary 30 days upon receipt of billings; non-interest

bearingUnsecured,

no impairment 15 15 Asian Eye Institute Affiliate 30 days upon receipt


no impairment 12 7 First Philec Subsidiary 30 days upon receipt of billings; non-interest

bearingUnsecured,

no impairment 3 33 First Gen Subsidiary 30 days upon receipt of billings;


no impairment – 2 FSCI Associate 30 days upon receipt


no impairment 3 – Others Affiliates** 30 days upon receipt

of billings; non-interest bearingUnsecured, with

impairment 19 19337 100

Other noncurrent asset -Note receivable Subsidiary Interest bearing at 8.5% until May 25, 2021.

Interest is payable quarterly, subject torepricing on the 6th year based on the 5-year PDST prevailing + 3.0% spread

Unsecured, withimpairment

15 15P=352 P=115

*Through First Philec**Entities with common shareholders

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*SGVFS003009*

Relationship Terms Conditions 2013 2012Due to: (In Millions) First Philec Subsidiary 30 days upon receipt

of billings; non-interest bearingUnsecured

P=68 P=– First Gen Subsidiary 30 days upon receipt


20 20 FPUC Subsidiary 30 days upon receipt


– 170P=88 P=190

In 2013 and 2012, the Parent Company has not made a provision for impairment loss relating toamounts owed by related parties. As at December 31, 2013 and 2012, the allowance forimpairment loss on receivable from related parties amounted to P=6 million (see Note 6). TheParent Company undertakes an assessment each financial year by examining the financial positionof the related party and the market in which the related party operates.

Compensation of key management personnel are as follows:

2013

2012(As restated -


Short-term employee benefits P=252 P=228Retirement benefits 41 54

P=293 P=282

23. Financial Risk Management Objectives and Policies

The Parent Company’s principal financial instruments include nonderivative instruments such ascash and cash equivalents. The main purpose of these financial instruments is to raise finances forthe Parent Company’s operations. The Parent Company has various other financial assets andliabilities, such as, investment held for trading, short-term investments, dividends receivable, othercurrent assets (excluding input VAT and others), investment in equity securities accounted for asAFS investments, accounts payable and other current liabilities (excluding local and other taxesand payable to government agencies), advances from related parties and long-term debts.

The Parent Company does not engage in any speculative derivative transactions.

The Parent Company has an Enterprise-wide Risk Management Program which aims to identifyrisks based on the likelihood of occurrence and impact to the business, formulate risk managementstrategies, assess risk management capabilities and continuously monitor the risk managementefforts. The main risks arising from the use of financial instruments are interest rate risk, foreigncurrency risk, credit risk, equity price risk and liquidity risk.

Interest Rate RiskThe Parent Company’s exposure to the risk for changes in market interest rates relates primarily tothe Parent Company’s long-term debt obligations with floating interest rates. The ParentCompany believes that prudent management of its interest cost will entail a balanced mix of fixedand variable rate debt. On a regular basis, the Treasury Department of the Parent Companymonitors the interest rate exposure and presents it to management. To manage the exposure tofloating interest rates in a cost-efficient manner, prepayment, or refinancing are undertaken asdeemed necessary and feasible.

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*SGVFS003009*

As at December 31, 2013 and 2012, approximately 47% and 59%, respectively, of the ParentCompany’s borrowings are subject to floating interest rate.

The following table demonstrates the sensitivity of the Parent Company’s income before tax to areasonably possible change in interest rates of FRCNs as at December 31, 2013 and December 31,2012, with all other variables held constant.

Changein Basis Points 2013 2012

(In Millions)Effect on income before income tax +100 (P=43) (P=46)

-100 43 46

There is no effect in equity other than the effect on income before income tax.

The following table sets out the maturity profile of the Parent Company’s FRCNs and the amountsthat are exposed to interest rate risk (exclusive of debt issue costs):

Within1 Year 1-5 Years > 5 Years Total

(In Millions)2013

FRCN P=240 P=4,080 P=– P=4,320

2012FRCN P=240 P=3,264 P=1,056 P=4,560

Interest on financial instruments classified as floating interest rates are repriced semi-annually oneach interest payment date. Interest on financial instruments classified as fixed rate is fixed untilthe maturity of the instruments. Financial liabilities of the Parent Company that are not includedin the foregoing table are the long-term debt with fixed interest rate and noninterest-bearingfinancial instruments which are not subject to cash flow interest rate risk.

The tables below show the finance income and costs:

2013FinanceIncome

FinanceCosts

Net InterestIncome (Cost)

(In Millions)Financial instruments:

Cash in banks and cash equivalents andshort-term investments (Note 4) P=95 P=– P=95

Long-term debts (Note 13) – 562 (562)P=95 P=562 (P=467)

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*SGVFS003009*

2012FinanceIncome

FinanceCosts

Net InterestIncome (Cost)

(In Millions)Financial instruments:

Cash in banks and cash equivalents andshort-term investments (Note 4) P=231 P=– P=231

Long-term debts (Note 13) – 508 (508)P=231 P=508 (P=277)

Foreign Currency RiskThe Parent Company’s exposure to foreign currency exchange risk results from its businesstransactions denominated in foreign currencies. It is the Parent Company’s policy to ensure activeand prudent management of its foreign exchange risk. To better manage foreign exchange risk,stabilize cash flows, and further improve the investment and cash flow planning, the ParentCompany considers derivative contracts and other hedging products as necessary. However, thesehedges do not cover all the exposure to foreign exchange risks.

The foreign-currency denominated assets and liabilities, which pertain to the U.S. dollar, aretranslated to Philippine peso being the functional and presentation currency of the ParentCompany. In translating these foreign currency-denominated monetary assets and liabilities intoPhilippine peso, the exchange rates used were P=44.40 and P=41.05 to US$1.00 which is thePhilippine peso-U.S. dollar exchange rates as at December 31, 2013 and 2012, respectively.

The table below summarizes the Parent Company’s exposure to foreign currency exchange risk asat December 31, 2013 and 2012.

2013 2012

U.S. DollarPhilippine

Peso U.S. DollarPhilippine

Peso(In Millions)

Financial assets:Cash in banks and cash

equivalents $2.70 P=120 $0.5 P=21Short-term investments 0.02 1 1 41

Net financial assets $2.72 P=121 $1.5 P=62

The following table demonstrates the sensitivity to a reasonably possible change in the Philippinepeso to U.S. dollar exchange rate, with all other variables held constant, of the Parent Company’sincome before tax (due to changes in the fair value of foreign currency-denominated financialassets and liabilities) as at December 31, 2013 and 2012.

Change in Exchange Ratein U.S. Dollar Against Philippine Peso

Effect on IncomeBefore Income Tax

(In Millions)2013 + 8% P=10

- 8% (10)2012 + 6% P=4

- 6% (4)

There is no effect in equity other than the effect on income before income tax.

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*SGVFS003009*

Credit RiskThe Parent Company trades only with recognized, creditworthy third parties and/or transacts onlywith institutions and/or banks which have demonstrated financial soundness. It is the ParentCompany’s policy that all customers who wish to trade on credit terms are subject to creditverification procedures. In addition, receivable balances are monitored on an on-going basis andlevel of allowance is reviewed with the result that the Parent Company’s exposure to bad debts isnot significant.

With respect to credit risk arising from other financial assets which comprise mostly of cash inbanks and cash equivalents, short-term investments, dividends receivable, nontrade receivables,interest receivable and investment in equity securities accounted for as AFS investments, theParent Company’s exposure to credit risk arises from default of the counterparty, with a maximumexposure equal to the carrying amount of these instruments. The carrying values representmaximum exposure to credit risk except for cash in banks and cash equivalents of which the grossmaximum exposure to credit risk amounts to P=3,401 million and P=1,019 million as atDecember 31, 2013 and 2012, respectively.

Aging Analysis. Set out below is the aging of financial assets as at December 31, 2013 and 2012.

2013Neither

Past Duenor Impaired

Past Duebut not

Impaired* Impaired Total(In Millions)

Loans and receivables:Cash in banks and cash equivalents P=2,030 P=– P=– P=2,030Short-term investments 2,675 – – 2,675Dividends receivable 438 – – 438Due from related party 331 – 6 337Nontrade receivables 10 – 50 60Interest receivables 7 – – 7Other assets** 2 – – 2

P=5,493 P=– P=56 P=5,549**Past due but not impaired are more than 120 days.**Excluding advances to contractors and prepaid expenses amounting to P=15 million.

2012Neither

Past Duenor Impaired

Past Duebut not

Impaired* Impaired Total(In Millions)

Loans and receivables:Cash in banks and cash equivalents P=3,961 P=– P=– P=3,961Short-term investments 528 – – 528Dividends receivable 382 – – 382Due from related party 94 – 6 100Nontrade receivables 20 50 70Interest receivables 7 – – 7Other assets** 5 – – 5

P=4,997 P=– P=56 P=5,053**Past due but not impaired are more than 120 days.**Excluding advances to contractors and prepaid expenses amounting to P=6 million.

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*SGVFS003009*

Credit Quality of Neither Past Due Nor Impaired Financial Assets. The payment history of thecounterparties and their ability to settle their obligations are considered in evaluating creditquality.

Financial assets are classified as high grade if the counterparties are not expected to default insettling their obligations. These counterparties normally include banks, related parties andcustomers who pay on or before due date. Financial assets are classified as standard grade if thecounterparties settle their obligations to the Parent Company with tolerable delays. Low gradeaccounts are accounts which have probability of impairment based on historical trend. Theseaccounts show propensity of default in payment despite regular follow-up actions and extendedpayment terms.

As at December 31, 2013 and 2012, the financial assets categorized as neither past due norimpaired are viewed by management as high grade.

Equity Price RiskThe Parent Company’s quoted equity securities are susceptible to market price risk arising fromuncertainties about future values of the investment in equity securities. The Parent Companymanages the equity price risk through diversification and by placing limits on individual and totalequity instruments. The Parent Company’s BOD reviews and approves all equity investmentdecisions.

The following table demonstrates the sensitivity to a reasonably possible change in share price,with all other variables held constant:

Quoted EquitySecurities Change in Equity Price*

Effect on OtherComprehensive Income

(In Millions)2013 + 5% P=100

- 5% (100)

2012 + 16% P=2,696- 16% (2,696)

*Average percentage change in share price during the period December 31, 2012 to December 31, 2013

As at December 31, 2013 and 2012, the sensitivity analysis includes the Parent Company’ssignificant quoted equity securities with amounts adjusted by the specific beta for theseinvestments.

Liquidity RiskThe Parent Company’s exposure to liquidity risk refers to the lack of funding needed to finance itsinvestments, service its maturing loan obligations on time and meet its working capitalrequirements. To manage this exposure, the Parent Company maintains internally generated fundsand prudently manages the proceeds obtained from sale of assets. The Parent Company employsscenario analysis to actively manage its liquidity position and ensure that all operating andfinancing needs are met. The Parent Company maintains a level of cash and cash equivalentsdeemed sufficient to finance the operations and ensures the availability of short-term credit lineswith certain banking institutions.

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*SGVFS003009*

The table summarizes the maturity profile of the Parent Company’s financial liabilities as atDecember 31, 2013 and 2012 based on contractual undiscounted payments.

2013

3 to 12Months

More than1 Year to

5 YearsMore than

5 Years Total(In Millions)

Accounts payable and other current liabilities* P=1,135 P=– P=– P=1,135Long-term debts, including current portion** 883 8,656 1410 10,949

P=2,018 P=8,656 P=1,410 P=12,084**Excluding local and other taxes and payable to government agencies**Including interest payments and excluding debt issue costs

2012

3 to 12Months

More than1 Year to

5 YearsMore than

5 Years Total(In Millions)

Accounts payable and other current liabilities* P=1,339 P=– P=– P=1,339Long-term debts, including current portion** 776 7,910 1,110 9,796

P=2,115 P=7,910 P=1,110 P=11,135**Excluding local and other taxes and payable to government agencies**Including interest payments and excluding debt issue costs

Capital ManagementThe primary objective of the Parent Company’s capital management is to ensure that it maintains ahealthy capital ratio in order to comply with its loan covenants and support its business operations.

The Parent Company manages and makes adjustments to its capital structure which pertains to itsequity as shown in the parent company statements of financial position, and makes adjustments toit in light of changes in economic conditions. To maintain or adjust its capital structure, the ParentCompany may increase the levels of capital contributions from its creditors and shareholdersthrough debt and new shares issuance, respectively. No changes were made in the objectives,policies or processes during the years ended December 31, 2013 and 2012.

The Parent Company monitors capital using a debt-to-equity ratio, which is total debt divided bytotal equity. The Parent Company’s practice is to keep the debt-to-equity ratio not more than 2:1.


Long-term debt P=9,124 P=7,694Total equity 49,457 52,018Debt-to-equity ratio 0.18:1 0.15:1

The Parent Company is obligated to perform certain covenants with respect to maintainingspecified debt-to-equity and minimum debt-service-coverage ratios, as set forth in their respectiveagreements with the creditors. As at December 31, 2013 and 2012, the Parent Company is incompliance with those covenants.

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24. Fair Values

Set out below is a comparison of carrying amounts and fair values of all the Parent Company’sassets and liabilities that are carried or disclosed in fair value in the parent company financialstatements as at December 31, 2013 and 2012.

2013 2012CarryingAmount

FairValue

CarryingAmount

FairValue

(In Millions)AssetsFinancial assets at FVPL -

Investment held for trading P=2 P=2 P=1 P=1AFS financial assets -

Investment in equity securities 21,212 21,212 20,991 20,991Investment properties 235 515 269 515

P=21,449 P=21,729 P=21,261 P=21,507

LiabilitiesLong-term debts including current portion:

FXCN 4,875 5,180 3,182 3,645FRCN 4,320 4,485 4,560 5,332

P=9,195 P=9,665 P=7,742 P=8,977

Cash and Cash Equivalents, Short-term Investments, Due from Related Parties, DividendsReceivable, Trade Receivables, Nontrade Receivables, Interest Receivable and Accounts Payableand Other Current Liabilities (excluding local and other taxes and payable to governmentagencies). The carrying amounts approximate fair values primarily due to the relatively short-term maturity of these financial instruments.

Investments in Equity Securities (Meralco shares, First Gen shares and proprietary membershipshares). Investments in equity securities which have no fixed maturity date are classified as AFSinvestments. The fair value of such investments that are actively traded in organized financialmarkets are categorized under level 1 as these determined by reference to quoted market bid pricesat the close of business on the financial reporting dates.

Investment Held for Trading. Investment held for trading consists of investment in shares of stockwhich the Parent Company intends to sell in the near future. The fair value of such investment isare categorized under level 1 as these were determined by reference to quoted market bid prices atthe close of business on the financial reporting date.

Investment Properties. The fair values were determined by independent professional appraisers.Fair value is defined as the price that would be received to sell an asset or paid to transfer aliability in an orderly transaction between market participants at the measurement date. The fairvalue disclosures of the investment properties are categorized under level 3 as the market for theidentical or similar properties is not active.

Long-term Debts. Fair values of long-term debt are categorized under level 3 as these werecomputed by discounting the instruments’ expected future cash flows using the prevailing credit-adjusted PDST-F rates ranging from 1.74% to 3.80% and 2.0% to 3.25% in 2013 and 2012,respectively.

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*SGVFS003009*

Fair Value HierarchyThe Parent Company uses the following hierarchy for determining and disclosing the fair value byvaluation technique:

§ Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

§ Level 2: valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and

§ Level 3: valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

As at December 31, 2013 and 2012, the Parent Company held the following assets and liabilitiesat fair value:


(In Millions)AssetsInvestment in Meralco shares P=11,140 P=– P=– P=11,140Investment in First Gen preferred shares 10,020 – – 10,020Investments in proprietary

membership shares 52 – – 52Investment held for trading 2 – – 2Investment properties – – 515 515

P=21,214 P=– P=515 P=21,729


FXCN P=– P=– P=5,180 P=5,180FRCN – – 4,485 4,485

P=– P=– P=9,665 P=9,665


(In Millions)AssetsInvestment in Meralco shares P=11,566 P=– P=– P=11,566Investment in First Gen preferred shares 9,374 – – 9,374Investments in proprietary

membership shares 51 – – 51Investment held for trading 1 – – 1Investment properties – – 515 515

P=20,992 P=– P=515 P=20,507


FXCN P=– P=– P=3,645 P=3,645FRCN – – 5,332 5,332

P=– P=– P=8,977 P=8,977

During the years ended December 31, 2013 and 2012, there were no transfers between Level 1 andLevel 2 fair value measurements, and no transfers into and out of Level 3 fair valuemeasurements.

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25. Notes to Parent Company Statements of Cash Flows

The non-cash investing and financing activities pertain to the following:

a. Redemption of investment in FPUC preferred shares amounting to P=128 million in 2013(see Notes 8 and 30).

b. Shared-based payment expense amounting to P=23 million recognized in 2013 (see Note 16).

c. Conversion of advances to subsidiaries to deposits for future stock subscription amounting toP=2 million in 2012 (see Note 7).

d. Receipt of Rockwell Land shares amounting to P=252 million from Meralco as propertydividends in 2012 (see Note 7).

e. Receipt of Rockwell Land shares amounting to P=2,613 million from Beacon in 2012 asadditional consideration for previous sales of Meralco shares (see Note 7).

f. Assignment by FPUC of Rockwell shares amounting to P=170 million on account in 2012(see Note 7).

26. Supplementary Information Required by RR No. 15-2010

In compliance with the requirements set forth by Revenue Regulations 15-2010, hereunder are theinformation on taxes, duties and license fees paid or accrued during the taxable year endedDecember 31, 2013.

Output Value added tax (VAT)Net Sales/Receipts and Output VAT declared in the Parent Company’s VAT returns

Net Sales Output Vat(In Millions)

Taxable sales (subject to 12% VAT):Rental income P=23 P=3Sale of equipment 3 –

Zero-rated sales 8 –P=34 P=3

The Parent Company has zero-rated sales amounting to P=8 million pursuant to Section 108(B) ofthe National Internal Revenue Code (NIRC), as amended.

Output VAT on the Parent Company’s sales of services is based in actual collections; hence, maynot be equivalent to 12% of amounts accrued in the parent company statement of income. TheParent Company’s sales/receipts were lodged under the following accounts:

§ “Gain on sale of property” for sale of investment property and equipment§ “Rental income” for rental income

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Input VAT

Amount(In Millions)

Beginning balance P=46Current year’s domestic purchases/payments for:

Services lodged under other accounts 12Capital goods subject to amortization 8Goods other than resale or manufacture 1

Adjustments:Applied against output VAT (3)Increase in the amount of deferred input VAT on capital goods purchases exceeding P=1 million (5)

Ending balance P=59

Withholding Taxes

Amount(In Millions)

Withholding tax on compensation and benefits P=148Final withholding tax 102Expanded withholding tax 74

P=324

Taxes and Licenses

Amount(In Millions)

Real estate taxes P=8Annual listing maintenance fee in PSE 2Others 1

P=11

Status of Tax Assessment and Court CasesThere were no deficiency final tax assessments issued by the BIR to the Parent Company duringthe calendar year ended December 31, 2013. There were also no pending tax cases nor litigationand/or prosecution in courts or bodies outside the BIR as at December 2013.

In January 2014, the Parent Company paid deficiency taxes related to taxable year 2007.

EXHIBIT “B”

SRC RULE 68, AS AMENDED (SCHEDULES)

*SGVFS003010*

INDEPENDENT AUDITORS’ REPORTON SUPPLEMENTARY SCHEDULES

The Stockholders and the Board of DirectorsFirst Philippine Holdings Corporation6th Floor, Benpres BuildingExchange Road corner Meralco Avenue, Pasig City

We have audited in accordance with Philippine Standards on Auditing, the consolidated financialstatements of First Philippine Holdings Corporation and Subsidiaries as at December 31, 2013 and2012 for each of the three years in the period ended December 31, 2013, included in this Form 17-Aand have issued our report thereon dated April 3, 2014. Our audits were made for the purpose offorming an opinion on the basic financial statements taken as a whole. The schedules listed in theIndex to Consolidated Financial Statements and Supplementary Schedules are the responsibility of theCompany’s management. These schedules are presented for purposes of complying with SecuritiesRegulation Code Rule 68, As Amended (2011) and are not part of the basic financial statements.These schedules have been subjected to the auditing procedures applied in the audit of theconsolidated financial statements and, in our opinion, fairly state, in all material respects, theinformation required to be set forth therein in relation to the consolidated financial statements taken asa whole.

SYCIP GORRES VELAYO & CO.

Maria Vivian C. RuizPartnerCPA Certificate No. 83687SEC Accreditation No. 0073-AR-3 (Group A), January 18, 2013, valid until January 17, 2016Tax Identification No. 102-084-744BIR Accreditation No. 08-001998-47-2012, April 11, 2012, valid until April 10, 2015PTR No. 4225211, January 2, 2014, Makati City

April 3, 2014

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, December 28, 2012, valid until December 31, 2015SEC Accreditation No. 0012-FR-3 (Group A), November 15, 2012, valid until November 16, 2015


i

FIRST PHILIPPINE HOLDINGS CORPORATION AND SUBSIDIARIES

INDEX TO SRC RULE 68, AS AMENDED (SCHEDULES)

FORM 17-A, Item 7

SRC Rule 68, As Amended (Schedules)

Page No.

Report for Independent Public Accountants on Supplementary Schedules…………. i

A. Financial Assets …………………………………………………………….. ii

B. Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal

Stockholders (Other than Related Parties) …………………… *

C. Amounts Receivable from Related Parties which are Eliminated during

Consolidation of Financial Statements ……………………………………… iii

D. Intangible Assets – Other Assets ……………………………………………. iv

E. Long-term Debt ……………………………………………………………... v-vi

F. Indebtedness to Related Parties (Long-term Loans from Related Companies)

…………………………………………………………………. *

G. Guarantees of Securities of Other Issuers …………………………………... *

H. Capital Stock ………………………………………………………………... vii

I. Reconciliation of Retained Earnings for Dividend Declaration ……………. viii

J. Key Performance Indicator …………………………………………………. ix-x

K. Corporate Structure …………………………………………………………. xi-xiv

L. List of Standards and Interpretations under PFRS effective

as of December 31, 2013 ……………...…………………………………….. xv-xx

______________

* These schedules, which are required by SRC Rule 68, As Amended have been omitted because they are either not required, not

applicable or the information required to be presented is included in the Company’s consolidated financial statements or notes

thereto.

Receivables from certain officers and employees were made in the ordinary course of business.

Total indebtedness to Related Parties of P245 million does not exceed five per cent of total assets as shown in the balance

sheet at either the beginning (P291 billion) or end of the period (P257 billion).

The Company is not a financial guarantor of obligations of any unconsolidated entity.

ii


SCHEDULE A – FINANCIAL ASSETS

DECEMBER 31, 2013

(Amounts are presented in Php millions)

Financial Assets

Name of Issuing Entity

and Description of

Each Issue

Number of

Shares or

Principal

Amount of

Bonds and

Notes

Amount Shown in

the Balance Sheet

Value Based on

Market Quotations

at Balance Sheet

Date

Income

Received

and

Accrued

Loans and receivables

Cash and cash equivalents N/A N/A 52,755 N/A P=681

Short-term investments N/A 2,675 N/A

Trade and other receivables N/A N/A 26,610 N/A 933

Long-term receivables N/A N/A 383 N/A

Special deposits and funds N/A N/A 286 N/A

Financial assets at FVPL

FVPL investments Cambridge Silicon Pardio

plc (CSR, a U.K.-

corporation)

6,598 P=2 P=2

AFS investments

Investment in equity securities

Quoted equity securities Meralco and others 44,475,706 11,490 11,490 453

Quoted government debt securities Republic of the

Philippines (ROP) bonds N/A 343 343

Unquoted equity securities Narra ventures and others N/A 337 N/A

Proprietary membership Various N/A 85 N/A

Derivative assets N/A N/A 200 N/A

P=95,166 P=2,067

iii


SCHEDULE C – AMOUNTS RECEIVABLE FROM RELATED PARTIES

WHICH ARE ELIMINATED DURING CONSOLIDATION OF FINANCIAL STATEMENTS

DECEMBER 31, 2013

(Amounts in millions)

Receivable to

Name of Subsidiary/

Counterparty

Beginning

Balance

Additions

Deductions

Reclassifications

Ending Balance

Amount

Eliminated

Collections

Write-off

Current

Non-

Current

First Philippine Utilities Corp. P=– P=128 P=– P=– P=– P=128 P=– P=128

First Philippine Industrial Corp. 7 81 (1) – – 87 – 87

First Philec Group 33 6 (1) – – 38 – 38

Rockwell Land Corp. P=– 18 – – – 18 – 18

First Balfour, Inc. 17 – – – – 17 – 17

First Philippine Industrial Park 15 186 (186) – – 15 – 15

First Gen Group (18) 8 (7) – – (17) – (17)

P=54 P=427 (P=195) P=– P=– P=286 P=– P=286

iv


SCHEDULE D – INTANGIBLE ASSETS AND OTHERS

DECEMBER 31, 2013


Description

Beginning

Balance

Additions

at Cost

DEDUCTIONS

Other

Changes-

Additions

(Deductions)

Ending

Balance

Charged to

Costs and

Expenses

Charged to

Other

Accounts

A) Goodwill and Intangible

assets

Goodwill P=47,997 P=– P=– P=– P=31 P=48,028

Concession Rights for Contracts

acquired-net of amortization

4,745

–

(587)

–

–

4,158

Water Rights 1,816 – (97) – – 1,719

Pipeline rights-net of amortization 290 – (31) – 29 288

Other Intangible Assets 468 172 (27) (468) – 145

P=55,316 P=172 (P=742) (P=468) P=60 P=54,338

B) Other Assets

Deferred Input Vat P=3,940 P=– P=– P= P=(99) P=3,841

Exploration and evaluation assets 1,604 777 – – – 2,381

Creditable withholding tax 1,670 – – – (31) 1,639

Prepaid major spare parts 2,808 1,309 – (3,376) – 741

Long-term receivables 283 100 – – – 383

Land Held for Future Development – 358 – – – 358

Advances to contractors 67 228 – – – 295

Special deposit and funds 313 – – – (62) 251

Prepaid expenses 94 151 – – – 245

Derivative assets – 185 – – – 185

Others 406 63 – – – 469

P=11,185 P=3,171 P=– (P=3,376) (P=192) P=10,788

v


SCHEDULE E- LONG-TERM DEBT

DECEMBER 31, 2013


Name of Issuer and Type of Obligation

Total Loans

Amount Shown as

Current

Amount Shown as

Long-term

Parent Company

Floating Rate Corporate Notes (FRCNs) P=4,300 P= 234 P=4,066

Fixed Rate Corporate Notes (FXRNs) 4,825 241 4,584

9,125 475 8,650

Power Generation and Power-Related Companies

EDC

US$300 Million Notes 13,194 – 13,194

Peso Public Bonds

P=8.5 billion

P=3.5 billion

8,462

3,475

–

–

8,462

3,475

International Finance Corp (IFC)

IFC - P=4.1 billion

IFC - P=3.3 billion

3,202

2,960

335

244

2,867

2,716

Fixed Rate Note Facility (FXCN)

P=3.0 billion

P=4.0 billion

2,918

3,891

26

35

2,892

3,856

US$175 million Refinanced Syndicated Term Loan 6,147 763 5,384

Peso Fixed Rate Bonds (FXR)

P=3.0 billion

P=4.0 billion

2,964

3,951

–

–

2,964

3,951

FG Hydro’s Restructured Philippine National Bank

(PNB) and Allied Bank Peso Loan

3,910

340

3,570

US$80 Million Term Loan 3,474 129 3,345

Red Vulcan’s Philippine peso-

denominated staple financing

agreement

6,234

1,184

5,050

First Gen Corporation

US Dollar 6-year Note Facility 2,122 57 2,065

US Dollar 7-year Note Facility 2,184 36 2,148

$300 million 10-year Notes 13,163 – 13,163

FGPC

Foreign currency denominated Uncovered Facility 5,124 948 4,176

Foreign currency denominated Covered Facility 11,125 658 10,467

FGP

New term loan facility with various local banks and

with interest at six-month London Inter-Bank

Offered Rate (LIBOR) PLUS 2.25%

17,663

771

16,892

116,163 5,526 110,637

Manufacturing Companies

FPEC

Philippine National Bank (PNB) Loan 963 – 963

FPSC

BDO Sale Leaseback 256 256 –

Philec

Maybank 5-year loan

213

50

163

1,432 306 1,126

vi

Real Estate Development

Rockwell Land Corporate Notes 9,752 404 9,348

Rockwell Land’s installment payable for and

acquisition of Land

1,856 677 1,179

Rockwell Land’s Peso Bonds 4,952 – 4,952

16,560 1,081 15,479

Others

First Balfour’s various loans 600 – 600

FPSC’s Lease Liability 5 – 5

605 – 605

TOTAL P=143,885 P=7,388 P=136,497

Note: Balances shown are already net of the unamortized portion of debt issuance costs as of December 31, 2013 in

compliance with PAS 32, “Financial Instruments: Presentation.” Please refer to Note 20 to the consolidated

financial statements for additional information.

vii


SCHEDULE H – CAPITAL STOCK

DECEMBER 31, 2013


Title of Issue

Number of Shares

Authorized

Number of Shares

Issued and

Outstanding

Number of Shares

Reserved for Options,

Warrants, Conversions,

and Other Rights

Number of Shares Held By

Related Parties

(a)

Directors, Officers and

Employees

(b)

Others

Common Shares 1,210,000,000 552,537,583 40,570,714 254,179,231 25,492,794 272,865,558

viii


SCHEDULE I – RECONCILIATION OF PARENT COMPANY’S

RETAINED EARNINGS FOR DIVIDEND DECLARATION

DECEMBER 31, 2013


The SEC issued Memorandum Circular No. 11 Series of 2008 on December 5, 2008, which provides guidance on the

determination of Parent Company’s retained earnings available for dividend declaration.

The table below presents the Parent Company’s retained earnings available for dividend declaration as of

December 31, 2013:

Capital Stock

December 31, 2013

Amount

(In Millions)

Common stock 6,080

Capital in excess of par value 3,926

Treasury (3,345)

Capital stock 6,661

Excess of Capital Stock Over Parent Company’s Retained Earnings

Available for Dividend Declaration Over Capital Stock (514)

Parent Company’s Retained Earnings Available for Dividend

Declaration As a Percentage of Capital Stock 92%

Amount

(In Millions)

Parent Company’s Retained Earnings, Beginning P=30,510

Adjustments

Treasury stock (3,345)

Parent Company’s retained earnings available for

dividend declaration, Beginning

27,165

Add: Net income actually earned during the year:

Net income during the year closed to retained earnings 6,037

Less :

Dividend declarations during the year

(1,752)

Redemption of preferred shares (6,300)

Appropriations for 2012 (6,955)

Usage 2,218 (4,737)

Appropriations for 2013 (19,411)

Usage 5,145 (14,266)

Total Parent Company’s retained earnings available for

dividend declaration, Ending

P=6,147

ix


SCHEDULE J – KEY PERFORMANCE INDICATORS

DECEMBER 31, 2013


FPH Consolidated

The following are the key performance indicators for the Company:

December 31

2013 2012

(restated)

Financial ratios

Return on average stockholders’ equity * (%) 3.2% 12.0%

Interest coverage ratio 2.38 3.43

Earnings Per Share (diluted) P4.082 P15.998

Return on average equity dropped from 12.0% in 2012 to 3.2% this year as the Company’s net income attributable

to parent went down by P6.83 billion (-74%). The net income for the period decreased mainly due to the absence of

the P6.08 billion gain from sale of Meralco shares and the P2.14 billion gain on business combination last year.

Interest coverage ratio decreased from 3.43:1.00 in 2012 to 2.38:1.00 this year due to the significant decline in the

earnings before interest and taxes from P27.66 billion in 2012 to P17.21 billion this year (-38%) primarily due to

the absence of the gain on sale of Meralco shares this year.

Earnings per common share (diluted) dipped from P16.00 to P4.08 as the Company’s net earnings available to

common shareholders significantly decreased from P8.80 billion last year to P2.26 billion (-74%) this year as a

result of the absence of the non-recurring gains from the sale of Meralco shares and gain on business combination

in 2012.

December December

2013 2012

(restated)

Financial ratios

Assets to total equity ratio * 4.14 3.39

Long-term debt (net)** to total equity ratio * 1.94 1.36

Current ratio 2.54 2.07

Quick ratio 2.05 1.57

Book value per share* (common) P127.54 P130.64

The ratio of Total Assets to Total Equity grew from 3.39:1.00 in 2012 to 4.14:1.00 this year. Total assets went up

by P34.40 billion (+13%) because of the increase in cash balance, growth in short-term investments of the Parent

Company, increase in receivables of Rockwell Land and First Gen group, and the increase in property, plant and

equipment mainly due to the capital expenditures of EDC for its geothermal projects. The decrease in equity

attributable to parent from P75.89 billion in 2012 to P70.41 billion this year contributed positively to this ratio.

The ratio of Long-term debt (excluding current portion but including Bonds) to Total Equity presented an increase

from 1.36:1.00 in 2012 to 1.94:1.00 in 2013 as long-term debt (excluding current portion) increased by P33.58

billion (+33%) primarily due to the additional debts availed by Rockwell Land and First Gen and the issuance of

the P7.0 billion fixed-rate bond of EDC in May 2013, moderated by the scheduled principal payments of the

existing outstanding loans of First Gen during the year.

x

Current ratio showed an increase from 2.07:1.00 in 2012 to 2.54:1.00 this year because the growth in current assets

of P26.14 billion (+35%) exceeded the growth in current liabilities of P3.65 billion (+10%). Current assets

increased due to the rise in cash, short term investments and receivables. Current liabilities grew due to higher

short-term loans and trade payables and accruals, tempered by the full redemption of the remaining principal

balance of First Gen’s Convertible Bonds.

Quick ratio likewise increased, from 1.57:1.00 in 2012 to 2.05:1.00 this year, mainly due to the P14.65 billion

(+38%) increase in cash and the P7.99 (+43%) increase in receivables.

Book value per common share is down from P130.64 in 2012 to P127.54 this year. The decrease was brought

about by the decline in stockholder’s equity attributable to parent excluding preferred shares from P71.59 billion in

2012 to P70.41 billion this year.

Formula

Return on Average Stockholders’ Equity -

reflects how much the firm has earned on the Net Income__

funds invested by the shareholders Average Equity*

Assets to Equity Ratio -

measures the company’s financial leverage Total Assets

and expresses the relationship between the total assets Equity*

and the total capital contributed by the owners

Long-term Debt to Equity Ratio -

measures the company’s financial leverage Long-term Debt**

excluding current portion Equity*

Current Ratio -

indicator of company’s ability to pay short-term Current Assets__

obligations Current Liabilities

Quick Ratio -

indicator of company’s ability to pay short-term Current Assets excl. Inventories and Others

obligations with its most liquid assets (cash and Current Liabilities

cash equivalents, short-term investments and trade

and other receivables

Interest Coverage Ratio -

Indicator of company’s ability to meet its interest Earnings before Interest and Taxes

obligations Interest Expense

Earnings Per Share -

the portion of company’s profit allocated to each Net Income_____________

outstanding share of common stock Weighted Ave. No. of Shares Outstanding

Book Value Per Share -

measure used by owners of common shares in Equity*________________

a firm to determine the level of safety Weighted Ave. No. of Shares Outstanding

associated with each individual share

after all debts are paid

* - Equity pertains to equity attributable to equity holders of the parent and excludes cumulative translation

adjustments, share in other comprehensive income, effect of equity transaction of subsidiaries and excess of

acquisition cost over carrying value of minority interest.

** - Including bonds payable but excluding current portion

xi


SCHEDULE K – CORPORATE STRUCTURE

DECEMBER 31, 2013

xii



DECEMBER 31, 2013

xiii



DECEMBER 31, 2013

xiv



DECEMBER 31, 2013

Prime Terracotta Holdings

Corporation

Red Vulcan Holdings Corporation

xv

FIRST PHILIPPINE HOLDINGS CORPORATION

SUPPLEMENTARY SCHEDULE REQUIRED

UNDER SRC RULE 68, AS AMENDED (2011)

SCHEDULE L. LIST OF STANDARDS AND INTERPRETATIONS UNDER PFRS

DECEMBER 31, 2013

PHILIPPINE FINANCIAL REPORTING STANDARDS AND

INTERPRETATIONS

Effective as of December 31, 2013

Adopted Not

Adopted

Not

Applicable

Framework for the Preparation and Presentation of Financial

Statements

Conceptual Framework Phase A: Objectives and qualitative

characteristics

PFRSs Practice Statement Management Commentary

Philippine Financial Reporting Standards

PFRS 1

(Revised)

First-time Adoption of Philippine Financial Reporting

Standards

Amendments to PFRS 1 and PAS 27: Cost of an

Investment in a Subsidiary, Jointly Controlled Entity or

Associate

Amendments to PFRS 1: Additional Exemptions for

First-time Adopters

Amendment to PFRS 1: Limited Exemption from

Comparative PFRS 7 Disclosures for First-time

Adopters

Amendments to PFRS 1: Severe Hyperinflation and

Removal of Fixed Date for First-time Adopters

Amendments to PFRS 1: Government Loans

Amendments to PFRS 1: Borrowing Costs

Amendments to PFRS 1: Meaning of Effective PFRS

Not early

adopted

PFRS 2 Share-based Payment

Amendments to PFRS 2: Vesting Conditions and

Cancellations

Amendments to PFRS 2: Group Cash-settled Share-

based Payment Transactions

Amendments to PFRS 2: Definition of Vesting

Conditions

Not early

adopted

PFRS 3

(Revised)

Business Combinations

Amendments to PFRS 3: Accounting for Contingent

Consideration in a Business Combination

Not early

adopted

Amendments to PFRS 3: Scope Exceptions for Joint

Arrangements

Not Early

Adopted

xvi


INTERPRETATIONS


Adopted Not

Adopted

Not

Applicable

PFRS 4 Insurance Contracts

Amendments to PAS 39 and PFRS 4: Financial

Guarantee Contracts

PFRS 5 Non-current Assets Held for Sale and Discontinued

Operations

PFRS 6 Exploration for and Evaluation of Mineral Resources

PFRS 7 Financial Instruments: Disclosures

Amendments to PAS 39 and PFRS 7: Reclassification

of Financial Assets


of Financial Assets - Effective Date and Transition

Amendments to PFRS 7: Improving Disclosures about

Financial Instruments

Amendments to PFRS 7: Disclosures - Transfers of

Financial Assets

Amendments to PFRS 7: Disclosures - Offsetting

Financial Assets and Financial Liabilities

Amendments to PFRS 7: Mandatory Effective Date of

PFRS 7 and Transition Disclosures

Not Early

Adopted

PFRS 8 Operating Segments

Amendments to PFRS 8: Aggregation of Operating

Segments and Reconciliation of the Total of the

Reportable Segments’ Assets to the Entity’s Assets

Not Early

Adopted

PFRS 9 Financial Instruments

Not Early

Adopted

Amendments to PFRS 9: Mandatory Effective Date of

PFRS 9 and Transition Disclosures

Not Early

Adopted

PFRS 10 Consolidated Financial Statements

Amendments to PFRS 10: Investment Entities

Not Early

Adopted

PFRS 11 Joint Arrangements

Amendments to PFRS 11: Investment Entities

Not Early

Adopted

PFRS 12 Disclosure of Interests in Other Entities

PFRS 13 Fair Value Measurement

Amendments to PFRS 13: Short-term Receivables and

Payables

Not Early

Adopted

Amendments to PFRS 13: Portfolio Exception

Not Early

Adopted

Philippine Accounting Standards

xvii


INTERPRETATIONS


Adopted Not

Adopted

Not

Applicable

PAS 1

(Revised)

Presentation of Financial Statements

Amendment to PAS 1: Capital Disclosures

Amendments to PAS 32 and PAS 1: Puttable Financial

Instruments and Obligations Arising on Liquidation

Amendments to PAS 1: Presentation of Items of Other

Comprehensive Income

Amendments to PAS 1: Clarification of the

Requirements for Comparative Presentation

PAS 2 Inventories

PAS 7 Statement of Cash Flows

PAS 8 Accounting Policies, Changes in Accounting Estimates

and Errors

PAS 10 Events after the Reporting Date

PAS 11 Construction Contracts

PAS 12 Income Taxes

Amendment to PAS 12 - Deferred Tax: Recovery of

Underlying Assets

PAS 16 Property, Plant and Equipment

Amendment to PAS 16: Classification of Servicing

Equipment

Amendment to PAS 16: Revaluation Method –

Proportionate Restatement of Accumulated

Depreciation

Not Early

Adopted

PAS 17 Leases

PAS 18 Revenue

PAS 19

(Amended)

Employee Benefits

Amendments to PAS 19: Actuarial Gains and Losses,

Group Plans and Disclosures

Amendments to PAS 19: Defined Benefit Plans:

Employee Contributions

Not Early

Adopted

PAS 20 Accounting for Government Grants and Disclosure of

Government Assistance

PAS 21 The Effects of Changes in Foreign Exchange Rates

Amendment: Net Investment in a Foreign Operation

PAS 23

(Revised)

Borrowing Costs

PAS 24

(Revised)

Related Party Disclosures

Amendments to PAS 24: Key Management Personnel Not Early

xviii


INTERPRETATIONS


Adopted Not

Adopted

Not

Applicable

Adopted

PAS 26 Accounting and Reporting by Retirement Benefit Plans

PAS 27

(Revised)

Separate Financial Statements

Amendments to PAS 27: Investment Entities

Not Early

Adopted

PAS 28

(Amended)

Investments in Associates and Joint Ventures

PAS 29 Financial Reporting in Hyperinflationary Economies

PAS 31 Interests in Joint Ventures

PAS 32 Financial Instruments: Disclosure and Presentation

Amendments to PAS 32 and PAS 1: Puttable Financial

Instruments and Obligations Arising on Liquidation

Amendment to PAS 32: Classification of Rights Issues

Amendment to PAS 32: Tax Effect of Distribution to

Holders of Equity Instruments

Amendments to PAS 32: Offsetting Financial Assets

and Financial Liabilities

Not Early

Adopted

PAS 33 Earnings per Share

PAS 34 Interim Financial Reporting

Amendment to PAS 34: Interim Financial Reporting

and Segment Information for Total Assets and

Liabilities

Not Early

Adopted

PAS 36 Impairment of Assets

Amendments to PAS 36: Recoverable Amount

Disclosures for Non-Financial Assets

Not Early

Adopted

PAS 37 Provisions, Contingent Liabilities and Contingent

Assets

PAS 38 Intangible Assets

Amendments to PAS 38: Revaluation Method –

Proportionate Restatement of Accumulated

Amortization

Not Early

Adopted

PAS 39 Financial Instruments: Recognition and Measurement

Amendments to PAS 39: Transition and Initial

Recognition of Financial Assets and Financial

Liabilities

Amendments to PAS 39: Cash Flow Hedge Accounting

of Forecast Intragroup Transactions

Amendments to PAS 39: The Fair Value Option

xix


INTERPRETATIONS


Adopted Not

Adopted

Not

Applicable

Amendments to PAS 39 and PFRS 4: Financial

Guarantee Contracts


of Financial Assets


of Financial Assets - Effective Date and Transition

Amendments to Philippine Interpretation IFRIC-9 and

PAS 39: Embedded Derivatives

Amendment to PAS 39: Eligible Hedged Items

Amendment to PAS 39: Novation of Derivatives and

Continuation of Hedge Accounting

Not Early

Adopted

PAS 40 Investment Property

Amendment to PAS 40: Investment Property

Not Early

Adopted

PAS 41 Agriculture

Philippine Interpretations

IFRIC 1 Changes in Existing Decommissioning, Restoration and

Similar Liabilities

IFRIC 2 Members’ Share in Co-operative Entities and Similar

Instruments

IFRIC 4 Determining Whether an Arrangement Contains a Lease

IFRIC 5 Rights to Interests arising from Decommissioning,

Restoration and Environmental Rehabilitation Funds

IFRIC 6 Liabilities arising from Participating in a Specific

Market - Waste Electrical and Electronic Equipment

IFRIC 7 Applying the Restatement Approach under PAS 29

Financial Reporting in Hyperinflationary Economies

IFRIC 8 Scope of PFRS 2

IFRIC 9 Reassessment of Embedded Derivatives

Amendments to Philippine Interpretation

IFRIC - 9 and PAS 39: Embedded Derivatives

IFRIC 10 Interim Financial Reporting and Impairment

IFRIC 11 PFRS 2- Group and Treasury Share Transactions

IFRIC 12 Service Concession Arrangements

IFRIC 13 Customer Loyalty Programmes

IFRIC 14 The Limit on a Defined Benefit Asset, Minimum

Funding Requirements and their Interaction

xx


INTERPRETATIONS


Adopted Not

Adopted

Not

Applicable

Amendments to Philippine Interpretations

IFRIC- 14, Prepayments of a Minimum Funding

Requirement

IFRIC 15 Agreements for the Construction of Real Estate

Not Early

Adopted;

deferred

effectivity

IFRIC 16 Hedges of a Net Investment in a Foreign Operation

IFRIC 17 Distributions of Non-cash Assets to Owners

IFRIC 18 Transfers of Assets from Customers

IFRIC 19 Extinguishing Financial Liabilities with Equity

Instruments

IFRIC 20 Stripping Costs in the Production Phase of a Surface

Mine

IFRIC 21 Levies

Not Early

Adopted

SIC-7 Introduction of the Euro

SIC-10 Government Assistance - No Specific Relation to

Operating Activities

SIC-12 Consolidation - Special Purpose Entities

Amendment to SIC - 12: Scope of SIC 12

SIC-13 Jointly Controlled Entities - Non-Monetary

Contributions by Venturers

SIC-15 Operating Leases - Incentives

SIC-25 Income Taxes - Changes in the Tax Status of an Entity

or its Shareholders

SIC-27 Evaluating the Substance of Transactions Involving the

Legal Form of a Lease

SIC-29 Service Concession Arrangements: Disclosures

SIC-31 Revenue - Barter Transactions Involving Advertising

Services

SIC-32 Intangible Assets - Web Site Costs

EXHIBIT “C”

AUDIT COMMITTEE REPORT

FOR THE YEAR 2013

ANNEX “A”

SUMMARY OF OWNERSHIP OF SHARES

SECURITIES TRANSFER SERVICES, INC.FIRST PHILIPPINE HOLDINGS CORP.SECURITY OWNERSHIP OF MANAGEMENTDecember 31,2013

DIRECTORSOUTSTANDING PERCENTAGE

SHARESOscar M. Lopez 7,222,970 1.30723596%Oscar M. Lopez &/or Felipe Tolentino 60,000 0.01085899%Ma. Consuelo R. Lopez 1,636,214 0.29612719% 8,919,184Augusto Almeda Lopez 172,001 0.03112929%Peter D. Garrucho, Jr. 463,123 0.08381747%Peter D. Garrucho, Jr. ITF Jennifer Victoria B. Garrucho 6,000 0.00108590%Peter D. Garrucho, Jr. &/or Maria Clara Ysabel B. Garrucho 6,000 0.00108590% 475,123Elpidio L. Ibanez 2,689,698 0.48679005%Oscar Hilado 1 0.00000018%Manuel M. Lopez 71,758 0.01298699%Manuel M. Lopez &/or Ma. Teresa L. Lopez 1,150,773 0.20827054%Ma. Teresa L. Lopez 1,061,398 0.19209517% 2,283,929Ernesto B. Rufino, Jr. 957,217 0.17324016%Ernesto B. Rufino, Jr. ITF Ambrosio Daniel Rufino 574 0.00010388%Ernesto B. Rufino, Jr. ITF Ma. Lourdes Elvira Rufino Maceda 728 0.00013176%Josefina Rufino 12,860 0.00232744% 971,379Juan B. Santos 1 0.00000018%Federico R. Lopez 3,983,575 0.72096001%Federico R. Lopez ITF: Roberto Daniel R. Lopez 2,020 0.00036559% 3,985,595Francis Giles D. Puno 2,457,343 0.44473771 %Francis Giles D. Puno & or Ma. Patricia D. Patricia 333,500 0.06035789% 2,790,843Washington Sycip 1 0.00000018%Arthur A. de Guia 8Q8,040 0.14624164%Eugenio Lopez III 14,335 0.00259439%Artemio Villasenor Panganiban 4,651 0.00084175%Cesar B. Bautista 1 0.00000018%

OFFICERSAnthony M. Mabasa 227,312 0.04113964%Richard B. Tantoco 555,844 0.10059841 %Lilia B. Tantoco &/or Richard B. Tantoco 980 0.00017736%Edwin Sy Co Seteng 6,950 0.00125783%Anna Karina P. Gerochi 63,682 0.01152537%Victor Emmanuel B. Santos, Jr. - 0.00000000%Oscar R. Lopez, Jr. 10,000 0.00180983%Oscar R. Lopez, Jr. ITF: Carlos Roberto L. Lopez .5,488 0.00099324%Oscar R. Lopez, Jr. ITF: Jaime Lorenzo Lopez 1,900 0.00034387%Oscar R. Lopez, Jr. ITF: Javier Luis Lopez 1,900 0.00034387%Oscar R. Lopez, Jr. ITF: Josef Leandro Lopez 4,540 0.00082166%Oscar R. Lopez, Jr. ITF: Oscar Dionisio Martin Lopez 3,588 0.00064937%

Oscar R. Lopez, Jr. FAO Elvira R. Lopez 542 0.00009809% 27,958Benjamin Ernesto R. Lopez 326.151 0.05902784%Benjamin Ernesto R. Lopez ITF: Alexandra Maria Beatrice Lopez 1,900 0.00034387%Benjamin Ernesto R. Lopez ITF: Joaquin Jose A. Lopez 1,900 0.00034387%Benjamin Ernesto R. Lopez ITF: Mariana Ines A. Lopez 1,800 0.00032577%Benjamin Ernesto R. Lopez ITF: Maria Sophia Carmela A. Lopez 1,900 0.00034387% 333,651Ramon T. Pagdagdagan - 0.00000000%Fiorello R. Estuar 12,148 0.00219858%

Ariel C. Ong 9,000 0.00162885%

Ground Floor, Benpres Building, Meralco Avenue cor. Exchange Road, Ortigas Center, Pasig City, PhilippinesTelephone Nos. 490-0060, 477-3080 Fax No. 631-7148, P.O. Box No. 13951 Ortigas Center Post Office, Pasig City

FIRST PHILIPPINE HOLDINGS CORP.SECURITY OWNERSHIP OF MANAGEMENTDecember 31, 2013

Nestor J. Padilla 190,000 0.03438680%Anthony L. Fernandez 261,193 0.04727154%Raul I. Macatangay 309,997 0.05610424%Emelita D. Sabella 327.744 0.05931615%Enrique I. Quiason - 0.00000000%Rodolfo R. Waga, Jr. 51,553 0.00933023%TOTAL 25,492,794 4.61376652%Lopez Holdings Corporation 254,179,231 46.00216145%Other Stockholders 272,865,558 49.38407203%TOTAL ISSUED & SUBSCRIBED 552,537,583 100.00000000%

Certified Correct By:<,

VI~Rj-Head of Operations'\Securities Transfer Services, Inc.

FPH - First Philippine Holdings Corporation

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