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METRO PACIFIC INVESTMENTS CORPORATION 8 April 2011

PHILIPPINE STOCK EXCHANGE Disclosure Department 3/F PSE Plaza Ayala Triangle, Ayala Avenue Makati City

Attention:

MS. JANET A. ENCARNACION Head Disclosure Department

RE: SEC FORM 17-A METRO PACIFIC INVESTMENTS CORPORATION (MPIC) (PSE:MPI)

In compliance with the Revised Disclosure rules of the Exchange, Metro Pacific Investments Corporation submits the attached SEC Form 17-A that covers the Financial Report for the year 2010.

Very truly yours,

MELODY M. DEL ROSARIO Vice President Media & Corporate Communication

COVER SHEET
C S 2 0 0 6 0 4 4 9 4
SEC Registration Number

ME T RO T I O N T

P A C I F I C A N D

I N V E S TME N T S

COR P OR A

S U B S I D I A R I E S

(Companys Full Name)

1 0 t h

F l o o r , D e l a

MG O

B u i l d i n g , S t r e e t s , C i t y

L e g a s p i L e g a s p

c o r n e r i

R o s a

V i l l a g e ,

M a k a t i

(Business Address: No. Street City/Town/Province)

Mr. David J. Nicol


(Contact Person)

(632) 888-0888
(Company Telephone Number)

1 2

3 1

17 - A

0 5
Month Day (Annual Meeting)

2 7

Month Day (Calendar Year)

Not Applicable
(Secondary License Type, If Applicable)

Dept. Requiring this Doc.

Amended Articles Number/Section Total Amount of Borrowings

1,380
Total No. of Stockholders To be accomplished by SEC Personnel concerned

P25,718 million =
Domestic

$161 million
Foreign

File Number

LCU

Document ID

Cashier

STAMPS Remarks: Please use BLACK ink for scanning purposes.

SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A


ANNUAL REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SECTION 141 OF THE CORPORATION CODE OF THE PHILIPPINES

1. For the fiscal year ended 2. SEC identification number 3. BIR Tax Identification No.

December 31, 2010 CS200604494 244-520-457-000

4. Exact name of issuer as specified in its charter METRO PACIFIC INVESTMENTS CORPORATION 5. Province, country or other jurisdiction of incorporation or organization Makati City, Philippines 6. Industry Classification Code: (SEC Use Only)

7. Address of issuer's principal office Postal Code 10/F MGO Bldg., Legaspi cor. Dela Rosa Sts., Legazpi Village, 0721 Makati City 8. Issuer's telephone number, including area code (632) 888 0888 9. Former name, former address and former fiscal year, if changed since last report N/A 10. Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 of the RSA Title of each Class Number of shares of common stock outstanding and amount of debt outstanding 20,155,464,522*

Common Shares
*

Reported by the stock transfer agent as of 31 December 2010

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

SEC Form 17- A 2010

Page 2

12. Check whether the registrant: a) has filed all reports to be filed by Section 17 of the SRC and SRC Rule 17 thereunder or Section 11 of the RSA and RSA Rule 11 (1)-1 thereunder and Sections 26 and 141 of the Corporation Code of the Philippines during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); Yes [ x ] No [ ] b) has been subject to such filing requirements for the past 90 days. Yes [ x ] No [ ] 13. State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold; or the average bid and asked price of such stock, as of a specified date within sixty (60) days prior to the date of filing. If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances, provided the assumptions are set forth in the Form. The aggregate market value of voting stocks held by non-affiliates representing 24.1% of outstanding common shares is Pesos 15,827 million, computed on the basis of the closing price as of 31 March 2011 of Pesos 3.26 per share.

METRO PACIFIC INVESTMENTS CORPORATION

SEC FORM 17-A

December 31, 2010

TABLE OF CONTENTS
PART I Business and General Information Item 1. Description of Business------------------------------------------------------------2 Item 2. Description of Properties--------------------------------------------------------- 14 Item 3. Legal Proceedings----------------------------------------------------------------- 14 Item 4. Submission of Matters to a Vote of Security Holders------------------------ 19 Operational and Financial Information Item 5. Market for Registrants Common Equity and Related Stockholders Matters---------------------------------------------------- 20 Item 6. Management Discussion and Analysis of Financial Condition and Results of Operations ---------------------------------------------- 23 Financial Highlights and Key Performance Indicators---- 23 Operational Review 2010 vs. 2009------------------------ 25 MPIC Consolidated-------------------------------------------- 26 Water Utilities-------------------------------------------------- 29 Toll Roads------------------------------------------------------- 31 Power------------------------------------------------------------- 34 Healthcare------------------------------------------------------- 35 Balance Sheets-------------------------------------------------- 37 Liquidity and Capital Resources----------------------------- 42 Comparison of other financial years ------------------------ 44 Item 7. Consolidated Financial Statements --------------------------------------------- 54 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures---------------------------------------------------- 54

PART II

PART III Control and Compensation Information Item 9. Directors and Officers ------------------------------------------------------------ 55 Item 10. Executive Compensation -------------------------------------------------------- 63 Item 11. Security Ownership of Certain Record and Beneficial Owners and Management------------------------------------- 66 Item 12. Certain Relationships and Related Party Transactions----------------------- 68 PART IV Corporate Governance Item 13. Corporate Governance------------------------------------------------------------ 69 PART V Exhibits and Schedules Item 14. Reports on SEC Form 17-C ----------------------------------------------------- 71 Item 15. Signatures-------------------------------------------------------------------------- 73 Item 16. Index to Financial Statements and Supplementary Schedules-------------- 74 i. ii. Exhibit I - 2010 Audited Financial Statements Exhibit II Supplementary Schedules

PART I BUSINESS AND GENERAL INFORMATION Item 1. Business (A) Description of Business (1) Business Development Metro Pacific Investments Corporation (individually, MPIC or "the Parent Company", and, together with its subsidiaries, affiliates and associates, "the Group" or the Company) was incorporated and registered with the Securities and Exchange Commission (SEC) on March 20, 2006 to serve as a holding company for investments in real estate and infrastructure projects. On December 15, 2006, the Parent Company listed with the Philippine Stock Exchange. MPIC is 55.6% owned by Metro Pacific Holdings, Inc. (MPHI). MPHI is a Philippine corporation whose stockholders are Enterprise Investment Holdings, Inc. (EIH) (60.0%), Intalink B.V. (26.7%) and First Pacific International Limited (13.3%). First Pacific Company Limited (FPC), a company incorporated in Bermuda and listed in Hong Kong, through its subsidiaries, holds a direct 40% equity interest in EIH and investment financing which under Hong Kong Generally Accepted Accounting Principles require FPC to account for the results and assets and liabilities of EIH and its subsidiaries as FPC group companies in Hong Kong. On such basis, FPC is referred to as the ultimate parent company of EIH and of MPIC. MPIC's major subsidiaries and their corresponding dates/years of organization / incorporation / registration with the SEC are as follows: DMCIMPIC Water Company Metro Pacific Tollways Corporation, formerly First Philippine Infrastructure, Inc. Metro Pacific Corporation Riverside Medical Center, Inc. East Manila Hospital Managers Corporation 17 November 2006 24 February 1970 13 October 1986 17 July 1964 15 October 2010

Major developments in the Group for the past three years:

MPIC Parent On June 30, 2008, the following issuances of shares to MPHI were approved by MPICs BOD: a. 1,568,925,223 common shares at a price of Pesos 2.00 per share from the existing unissued capital of MPIC; b. 1,893,282,845 shares pursuant to the conversion of Pesos 2.00 billion MPHI convertible loans to (see Note 23); and c. 2,222,600,000 additional common shares at a price of Pesos 2.00 per share, following the SECs approval of the increase in the authorized capital stock of MPIC.

In relation thereto, MPICs BOD approved the increase in the authorized capital stock of MPIC from 4.6 billion common shares with a par value of Peso 1.00 per share to Pesos 12.0 billion, divided into 11.95 billion common shares with a par value of Peso 1.00 per share and 5.0 billion preferred shares with a par value of Pesos 0.01 per share, out of which the shares under (b) and (c) above were to be issued. Such increase was approved by the SEC on August 12, 2008.
SEC Form 17- A 2010 Page 2

As of December 31, 2008, all of the above mentioned shares have been subscribed or converted and issued. Transaction costs directly related to the issuances of new shares in the amount of Pesos 77.9 million were deducted from the additional paid-in capital. On February 13, 2009, the SEC approved the increase in the authorized capital stock of MPIC from Pesos 12.0 billion to up to Pesos 21.55 billion, divided into 20.0 billion common shares with a par value of Peso 1.00 per share, 5.0 billion Class A preferred shares with a par value of Pesos 0.01 per share and 1.5 billion Class B preferred shares with a par value of Peso 1.00 per share. On March 26, 2009, MPHI subscribed to and was issued, an additional 2,389,040,000 shares of MPIC common shares at Pesos 2.00 per share or a total of Pesos 4,778.1 million out of the aforesaid increase. Pending the increase in authorized capital stock, the subscription was shown as Deposits for future stock subscription in the consolidated balance sheet. During the same year, the issuance of 791,110,491 new common shares from the current unissued capital stock of MPIC in favor of LAWL Pte. Ltd. (LAWL) at the price of approximately Pesos 2.57 per share, to fund the acquisition by MPIC of additional interests in Maynilad Water Company, Inc. was ratified. This subscription of LAWL to 791,110,491 common shares of MPIC for Pesos 2,029.2 million, as discussed in Note 4, was likewise included under the Deposits for future stock subscription account in the 2008 consolidated balance sheet. On May 28, 2009, both the Board of Directors and stockholders approved the increase in MPICs authorized capital stock from Pesos 21,550.0 million divided into 20,000.0 Common Shares with a par value of Peso 1.00 per share, 5,000.0 million Class A Preferred Shares with a par value of Pesos 0.01 per share and 1,500.0 million Class B Preferred Shares with a par value of Peso 1.00 per share to Pesos 31,550.0 million consisting of 28,500.0 million Common Shares with a par value of Peso 1.00 per share, 5,000.0 million Class A Preferred Shares with a par value of Pesos 0.01 per share and 3,000.0 million Class B Preferred Shares with a par value of Peso 1.00 per share. Further to the resolutions of the Board of Directors and stockholders passed on May 28, 2009 authorizing the increase in the capital stock of MPIC, the Board of Directors of MPIC resolved to implement the capitalization and/or conversion by MPHI of its advances to MPIC in the amount of Pesos 2,016,388,754. For this purpose, an application to increase the authorized capital stock of MPIC to Pesos 24,238,518,336 or an increase of Pesos 2,688,518,336 common shares was filed as the first tranche of the aforesaid increase. On December 21, 2009, upon the approval by the SEC of the first tranche increase, MPIC issued 672,129,584 common shares in favor of MPHI at a price of Pesos 3.00 per share. On September 19, 2009, a re-launch of MPIC shares was undertaken by MPIC. The aforesaid re-launch was structured in two concurrent stages. The first of such stages consisted in the offer and sale by MPHI, MPICs principal shareholder, of a portion of its existing shares in MPIC: (a) primarily offshore by way of marketed placing to (i) investors outside the United States in reliance on Regulation S under the U.S. Securities Act of 1933, as amended (the Securities Act), and (ii) qualified institutional buyers within the United States, as defined in, and in reliance on, Rule 144A under the Securities Act; and (b) to a limited extent, domestically to (i) qualified buyers pursuant to, and as defined in, Section 10.1(1) of the Securities Regulation Code of the Philippines (the SRC); and (ii) not more than 19 persons who are not qualified buyers pursuant to Section 10.1 (k) of the SRC. A total of 4,770,000,000 MPIC shares (inclusive of 620,000,000 over-allotment shares) were distributed and sold at the price of Pesos 3.00 per share. The second of such stages consisted in the subscription by MPHI, and the issuance by MPIC to MPHI, of new common shares in the same number and at the same price as the shares sold during the first stage, with such new common shares being listed as soon as practicable thereafter. Prior to re-launch, MPIC was 93.45% owned by MPHI. As a result of, and immediately following the foregoing re-launch and other antecedent issuances during the year,
SEC Form 17- A 2010 Page 3

MPHIs interest in MPIC was reduced to 54.12% of the outstanding common shares and 63.5% of the total outstanding capital stock. Public ownership, on the other hand, increased from 2.02% prior to the re-launch to almost 26% immediately thereafter. On December 17, 2009, the SEC approved the restructuring of MPICs stockholders equity to apply or offset a portion of its additional paid-in capital in the amount of Pesos1,620.9 million against the accumulated deficit as of December 31, 2008 to wipe out the same amount subject to the condition that the remaining additional paid-in capital amounting to Pesos 4,132.9 million from the additional paid-in capital as of January 1, 2009 shall not be used to wipe out future losses without prior approval of the SEC. On July 2010, the SEC approved the equity restructuring of MPIC involving the application of its additional paid-in capital based on the audited financial statements as of 31 December 2009 against its deficit of Pesos 403.6 million. The total ESOP shares exercised in 2010 amounted to 27,310,000 shares. On March 3, 2011, the management apprised MPICs BOD of the intention to file with the SEC an application to increase MPICs authorized capital stock which shall consist of the remaining 5,811,481,664 Common Shares with a par value of Pesos 1.00 included in the approvals received last July 28, 2009. DMCI-MPIC Water Company (DMWC) On July 17, 2008, MPIC acquired convertible debts under a Facility Loan B Agreement with carrying value of Pesos 1,935 million from a foreign affiliate for a total consideration of US$7.9 million and Pesos 7,083 million, or a total value of Pesos 7,576 million. The convertible debts were issued by DMWC and carried an option to convert the same to DMWC shares. The acquisition of the convertible debts by the Parent Company resulted in potential voting rights equivalent to approximately 12% interest in DMWC and control was thereby obtained by the Parent Company. The transaction was accounted as a step up acquisition since control was obtained over a former joint venture and thus, as at the date control was obtained, the Company: recognized the identifiable assets and liabilities of DMWC at 100% of their fair values; and treated any adjustment to those fair values relating to previously held interests as a revaluation.

On October 17, 2008, DMCI infused US$20.0 million into DMWC, which was initially recognized as advances but with intention to use the same to subscribe to additional DMWC shares. Subsequently, in a Subscription Agreement dated November 27, 2008, DMCI Holdings, Inc. (DMCI), MPICs joint venture partner, and MPIC (collectively referred as Parties), subscribed to an additional 961,600,000 common shares and 1,932,200,000 common shares of DMWC, respectively. On November 27, 2008, the following transactions took place: a. The Parties entered into two separate Deeds of Assignment whereby DMCIs and MPICs advances to DMWC of US$20 million and US$40 million (representing the Facility Loan B), respectively, were applied against their liabilities to DMWC amounting to Pesos 380 million each, which was then fully settled. b. Pursuant to the Subscription Agreement, MPIC was deemed to have exercised its conversion rights under the Facility Loan B Agreement, and consequently, acquired an
SEC Form 17- A 2010 Page 4

additional 1,923,200,000 DMWC shares for the total amount of Pesos 1,923 million while DMCI subscribed to an additional 961,600,000 DMWC shares for a total consideration of Pesos 962 million. The balance of the US$20.0 million advances from DMCI and the Facility Loan B, after application against DMWC and MPIC liabilities to DMWC were used to partially settle the subscription price of their respective subscriptions described above. Pending the issuance of DMWC shares, the amount subscribed and paid up were recorded under Deposits for Future Stock Subscription in the consolidated balance sheet of DMWC. c. Simultaneous with the execution of the above agreements, MPIC, DMCI and Maynilad entered into a Shareholders Agreement outlining the relationship of MPIC and DMCI as shareholders of DMWC. On the date of the said Shareholders Agreement, which was immediately executory, the parties confirmed that MPIC and DMCI each holds equity interests in the form of shares and share entitlements in DMWC equal to 55.4% and 44.6% interest, respectively.

MPICs acquisition of an additional 5.4% of the voting shares of DMWC (from 50.0% to 55.4% interest) has been accounted for as an acquisition of minority interest which resulted in a net positive goodwill of Pesos 5,513 million. Pursuant to Subscription Agreements between DMWC and Maynilad on October 10, 2008 and November 28, 2008, DMWC subscribed to additional 633,980 and 1,901,913 common shares, respectively, or a total of 2,535,893 common shares with a par value of Pesos 1,000 per share, for a total cash consideration of Pesos 2,536 million. These acquisitions increased DMWCs total ownership interest in Maynilad from 83.97% to 94.12%. As a result of the acquisition, DMWCs minority interest in Maynilad was diluted from 16.03% to 5.88%. The dilution of minority interest resulted in the Companys recognition of a gain of Pesos 758 million, included under Other income account in the consolidated statement of income. On October 29, 2010, DMWC and Maynilad entered into an Agreement for the transfer of the 88,500 ESOP shares to certain employees of Maynilad. Maynilad shall pay DMWC the amount of Pesos 88.5 million as reimbursement for DMWCs subscription payment for the ESOP shares. After the transfer, DMWCs ownership in Maynilad was reduced to 91.90% from 94.11% and the MPICs ownership to 56.80% from 58.03%.

Metro Pacific Tollways Corporation (MPTC), formerly First Philippine Infrastructure Inc. (FPII) On August 26, 2008, pursuant to a Sale and Purchase Agreement (SPA), the Parent Company agreed to acquire a total of 4,970,570,627 FPII shares from Benpres Holdings Corporation (Benpres) and First Philippine Holdings Corporation (FPHC) for Pesos 2.47 per share or a total of Pesos 12,262.6 million, which was equivalent to a 99.8% equity interest in FPII. The acquisition was completed on November 13, 2008. The acquisition also resulted in the Parent Companys ownership of Metro Pacific Tollways Development Corporation (MPTDC), then First Pacific Infrastructure Development Corporation (FPIDC), a whollyowned subsidiary of FPII, and consequently, through FPIDC, an indirect ownership of a 67.1% interest in Manila North Tollways Corporation (MNTC), the concession holder of the North Luzon Expressway (NLEX), and a 46.0% interest in Tollways Management Corporation (TMC). Pursuant to the SPA, the Parent Company remitted Pesos 11,800 million in cash and assumed the obligation to pay the advances received by Benpres and FPHC from FPIDC in the total amount of Pesos 462 million or a total payment of Pesos 12,263 million constituting the purchase price for the acquisition of MPTC. In connection with the acquisition, the Parent Company also offered to purchase 7,484,150 common shares from the minority shareholders of FPII for Pesos 18 million or Pesos 2.47 per share, a price equal to that agreed upon under the SPA with FPHC and Benpres. The Tender
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Offer period was from October 8 to November 10, 2008. On November 10, 2008, the Tender Offer expired without any of the minority shareholders of FPII making a tender of their shares. On June 5, 2010, Segment 8.1, a portion of Phase II, which is a 2.7 km-road designed to link Mindanao Avenue to the NLE, officially commenced tollway operation. The remaining portion of Phase II is under pre-construction works while Phase III of the Project has not yet been started. On same date, the Department of Public Works and Highways (DPWH) accepted MPTDCs unsolicited proposal for the NLE to South Luzon Expressway (SLEx) Connector Road project (the Connector Road Project), subject to submission of requested additional documents and further discussion with DPWH. MPTDC submitted the additional documents and continues to discuss with DPWH and other Philippine government agencies regarding the Connector Road project. Following the submission and acceptance of the unsolicited proposal to DPWH, MPTDC was granted the original proponent status for the Connector Road project. The Connector Road project is a 13.5-kilometer elevated toll road which will connect the north to south corridor. As of March 3, 2011, MPTDC continues to discuss with DPWH and other government agencies. In 2010, MNTC participated in a public bidding conducted by the Bases Conversion and Development Authority (BCDA) for the right to manage, operate and maintain the 94-kilometer Subic-Clark-Tarlac Expressway Project (SCTEx) on an as is, where is basis for a period of 25 years, extendable by another 8 years, or until October 30, 2043. On June 9, 2010, BCDA formally awarded to MNTC the right to enter into a concession agreement with them for the management, operation and maintenance of SCTEx. On November 8, 2010, the parties entered into a Concession Agreement under which BCDA granted MNTC the usufructuary rights to and the right to manage, maintain and operate SCTEx. BCDA has also assigned to MNTC its rights under the Toll Operations Agreement (TOA) it signed with the Toll Regulatory Board (TRB) including the right to collect toll fees. The assignment is subject to certain conditions including, among others, the necessary Philippine Government approvals and the execution of a STOA. In consideration of the assignment among others, MNTC will pay BCDA a semi-annual concession fees amounting to the peso equivalent of BCDAs yen-denominated debt service obligation to Japan International Cooperation Agency (JICA) for the period from effective date until year 2016. From 2017 to 2043, MNTC will pay, as concession fee, 20% of the gross revenues from the SCTEx. In order to secure its obligation to pay concession fees to BCDA and perform committed maintenance, enhancement, and improvement works amounting to about Pesos 20.3 billion, as well as emergency works estimated at approximately Pesos 231.0 million, MNTC has to issue a standby letter of credit (LC) effective for one (1) year which shall be automatically renewed every year until the end of the concession. The LC amount shall be in the approximate amount of Pesos 1.3 billion per annum from 2011 to 2016. As of March 3, 2011, the parties are still in the process of formalizing the STOA and therefore the SCTEx had not been assigned and turned over to MNTC.

MERALCO/Beacon From July 2009 through October 2009, MPIC acquired a total of 163,602,961 common shares of Manila Electric Company (Meralco) for an aggregate purchase price of Pesos 24,540.3 million representing 14.67% of the issued and outstanding share capital of Meralco as of December 31, 2009, through a series of negotiated transactions and open market purchases. On March 1, 2010, PLDT Communications and Energy Ventures Inc. (PCEV), formerly Pilipino Telephone Corporation (Piltel), MPIC and Beacon Electric Asset Holdings, Inc. (Beacon), formerly known as Rightlight Holdings, Inc., entered into an Omnibus Agreement, or
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OA. Beacon was organized with the sole purpose of holding the respective shareholdings in Meralco of PCEV and MPIC. PCEV and MPIC are Philippine affiliates of First Pacific and both held equity shares in Meralco. Under the OA, PCEV and MPIC have agreed to set out their mutual agreement in respect of, among other matters, the capitalization, organization, conduct of business and the extent of their participation in the management of the affairs of Beacon. On March 30, 2010, Beacon also entered into Pesos 18,000 million ten-year corporate notes facility with First Metro Investment Corporation and PNB Capital and Investment Corporation as joint lead arrangers and various local financial institutions as noteholders. The proceeds of the notes facility partially financed the acquisition of Meralco shares by Beacon pursuant to its exercise of the Call Option. As at December 31, 2010, the amount drawn under this facility amounted to Pesos 16,200 million (Pesos 16,027 million, net of debt issuance cost of Pesos 173 million); the remaining undrawn balance amounted to Pesos1,800 million. On March 30, 2010, MPIC sold and transferred all its investments in Meralco representing 163.6 million common shares to Beacon for a consideration of Pesos 24.5 billion. As at December 31, 2010, the carrying value of Beacons investment in Meralco of Pesos 73,285.0 million includes: (a) consideration for the Transferred Shares from PCEV of Pesos 23,130.0 million and from MPIC of Pesos 24,540.0 million; (b) consideration for the Option Shares from FPHC of Pesos 24,783.0 million, which include contingent consideration of Pesos 2,373.0 million; (c) expenses of Pesos 942.0 million consisting of PSE crossing charges, expenses relating to the Option Shares, as well as professional and legal fees and other cost associated to the transferred Meralco shares all chargeable to Beacon pursuant to an agreement between PCEV and MPIC; and (d) equity share in net income of Meralco of Pesos 2,618.0 million less (e) dividends received of Pesos 2,728.0 million from Meralco. As at December 31, 2010, Beacon held 392.5 million Meralco common shares representing approximately 35% equity interest in Meralco with market value of Pesos 89,490 million based on a quoted price of Pesos 228 per share. As of December 31, 2010, MPICs interest in Beacon, including its investments in Common and Preferred Shares and share in net earnings, amounted to Pesos 31.9 billion. Metro Pacific Corporation (MPC) On May 6, 2008, MPCs BOD approved the disposition of MPCs remaining 15.3% interest in Nenaco. On May 26, 2008, the said investment, with carrying value of Pesos 122 million was sold for Pesos 174 million, resulting in a gain on sale of investment amounting to Pesos 51 million. Metro Strategic Investments Holdings, Inc. (MSIHI) On July 20, 2010, MPTC entered into a Share Purchase Agreement (SPA) with a third party for the acquisition of 148,000 common shares in MSIHI (representing 37% of the outstanding capital stock of MSIHI) for a purchase price of Pesos 51.0 million. An amendment to the SPA was made on August 30, 2010, reflecting the allocation of the purchase price as follows: a. Pesos 14.8 million as consideration for the MSIHI shares; and b. Pesos 36.2 million as consideration for the assignment to MPTC of a third partys total deposit for future stock subscription in MSIHI. On August 30, 2010, the parties signed the Deed of Absolute Sale of Shares and the Deed of Assignment of the deposit for future stock subscription. Prior to this acquisition, MPIC, through MPC, has an existing 40% interest in MSIHI. The acquisition by MPTC of the additional 37% in July 2010 effectively brings the Groups total ownership of MSIHI to 77%. Under the revised PFRS 3, Business Combination, if the acquirer
SEC Form 17- A 2010 Page 7

holds a non-controlling equity investment in the acquiree immediately before obtaining control, the acquirer remeasures that previously held equity investment at its acquisition date fair value and recognizes any resulting gain or loss in profit or loss. As a result the Company recognized a gain on remeasurement of Pesos 54.4 million of the previously held 40% interest in MSIHI at acquisition date. On December 30, 2010, MPTC acquired from another third party an additional 20% interest in MSIHI. Through a Deed of Absolute Sale of Shares, MPTC agreed to buy the 80,000 MSIHI shares from the said third party for Pesos 8.0 million. In addition, through a Deed of Assignment, the third party assigned to MPTC deposit for stock subscription amounting to Pesos 19.6 million. As of December 30, 2010, MPTC had acquired 57% of the outstanding capital stock of MSIHI. At MPIC consolidated level, the Company effectively owns 95.6% of MSIHI. Riverside Medical Center, Inc. (RMCI) RMCIs main activity is the operations and management of hospitals and its subsidiary, Riverside College, Inc (RCI). RMCI was acquired on May 31, 2010. East Manila Hospital Managers Corporation (EMHMC) East Manila Hospital Managers Corp.(EMHMC), a wholly owned subsidiary of MPIC, was incorporated on October 15, 2010 to operate and manage Our Lady of Lourdes Hospital, a nontertiary hospital previously managed by the Missionary Sister Servants of the Holy Spirit congregation (SSpS) through the Our Lady of Lourdes Hospital, Inc. (OLLHI). With the decision of SSpS to turn over the operations and management to a professional group, OLLHI has signed a 20-year lease of the hospital land and facilities in favor of EMHMC. The lease agreement between EMHMC and lessors constitutes an acquisition of business. Medical Doctors Inc. (MDI or Makati Med) On January 18, 2008, MDI converted Pesos 630.0 million of its convertible notes in MDI at Pesos 800.0 per share for a total of 787,500 common shares. As of December 31, 2010 MPIC owns a total of 1,094,771 common shares representing 35% interest in MDI. MPICs carrying value of its investment in MDI, including its share in earnings of MDI, net of dividends, amounted to Pesos 1,552.8 million. Davao Doctors Hospital Inc. (DDH) On May 15, 2008, MPICs BOD approved the purchase and acquisition of up to 34% of the issued share capital (including treasury shares) of DDH for Pesos 1,600 per share. In May 2009, MPIC acquired an additional 2,048 common shares representing 0.3% interest in DDH. As of December 31, 2010, MPIC owns a total of 313,655 common shares representing 35% interest in DDH. MPICs carrying value of its investment in DDH, including its share in net earnings of DDH, net of dividends amounted to Pesos 599.6 million.

SEC Form 17- A 2010

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Landco Pacific Corporation (Landco) Following a strategic review of MPICs businesses, and its focus on infrastructure, MPIC decided to divest part of its interest in Landco. In an agreement entered into on September 9, 2008 between MPIC and the minority shareholder of Landco, MPIC expressed its intention to sell its interest in Landco to the said minority shareholder. On the basis of the foregoing, the assets and liabilities of Landco, including that of its subsidiaries and associates, indirectly held by MPIC through Landco and MPC, were classified as of December 31, 2008 as Assets of disposal group classified as held for sale and Liabilities directly associated with assets classified as held for sale in the consolidated balance sheets. The results of Landcos operations for all the periods presented until discontinuance have been presented in the consolidated statement of income as Income (loss) from discontinued operations, net of tax. In June 2009, the Parent Company executed an agreement (the Agreement) with AB Holdings Corporation (ABHC) and Alfred Xerez-Burgos, Jr. (AXB), with the conformity of Landco, for ABHC to (i) acquire from MPIC 17.0% of the total issued shares of Landco (Landco Shares) and (ii) procure Landco to settle MPICs outstanding loan to Landco in the principal amount of Pesos 500.0 million plus accrued interest (the MPIC Loan). Pursuant to the Agreement, ABHC agreed to pay MPIC the amount of Pesos 203.3 million (Share Purchase Price) as consideration for the Landco Shares which, together with the portion of the MPIC loan, was settled by end of 2009 through conveyance of certain assets, more particulary NE Pacific Shopping Center Corporation (NEPSCC) shares and certain properties. Upon signing of the Agreement, MPICs interest in Landco decreased from 51.0% to 34.0%. Notwithstanding the significant interest retained by MPIC, the sale of its 17.0% interest in Landco was accounted for as a disposal of a subsidiary. Consequently, all the assets, liabilities, reserves, minority interest and other accounts pertaining to Landco, which were previously being consolidated by MPIC, were derecognized. For the year ended December 31, 2009, the gain on the said disposal was included under Income from discontinued operations - net of income tax in the 2009 consolidated statement of income. As of December 31, 2009, the Parent Company reclassified its 34% investment in Landco as a noncurrent asset held for sale after meeting the criteria of an asset held for sale following the provisions of PFRS 5 (Noncurrent Assets Held for Sale and Discontinued Operations). The carrying value of the investment in Landco recorded as a noncurrent asset held for sale as of December 31, 2009 amounted to Pesos 329.6 million. On August 24, 2010, the Parent Company sold another 15% of Landco, reducing MPICs interest in Landco to 19%. The further reduction in interest resulted to a loss of significant influence over Landco, thus the remaining investment has been accounted as available-for-sale (AFS) financial assets in accordance with PAS 39 (Financial Instruments: Recognition and Measurement) as of December 31, 2010. The carrying value of the investment in Landco recorded as available-for-sale financial assets as of December 31, 2010 amounted to Pesos 211.8 million. Please see Notes 6 and 10 of the accompanying Audited Financial Statements.

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(2) Business of Issuer (a) Description of Registrant As of December 31, 2010, the Parent Company holds interests in the following: (a) DMWC, the holding company that operates Maynilad, a water and sewerage utility company, (b) toll roads through MPTC, the holding company of MNTC and TMC, (c) investments in power distribution through Beacon which holds the Parent Companys investments in Meralco, (d) investments in healthcare through RMCI, EMHMC, MDI and DDH and (e) real estate through MPC. (i) Principal products and services and contribution to revenues and net income In 2010, contribution came from consolidated results of the following operating companies: (a) DMWC and its subsidiary, Maynilad, (b) MPTC and its subsidiary, MNTC, and associate, TMC, (c) RMCI and subsidiary, RCI, (d) EMHMC which operates and manages OLLH (e) share in equity earnings of joint venture, Beacon which holds investments in Meralco and (f) share in equity earnings of MDI and DDH. In 2009, contribution came from consolidated results of the following: (a) DMWC and its subsidiary, Maynilad, (b) MPTC and its subsidiary, MNTC, and associate, TMC, and (c) share in equity earnings of associates, MDI and DDH. In 2008, contribution came from consolidated results of the following: (a) DMWC and its subsidiary, Maynilad, (b) MPTC and its subsidiary, MNTC, and associate, TMC, and (c) share in equity earnings of associates, MDI and DDH. Results of the operation of Landco, net of the effect of certain provisions, is classified and presented as part of discontinued operation. (ii) Percentage of foreign sales or revenues All revenues of the Group were derived from sales within the Philippines. (iii) Distribution Methods Not applicable. (iv) Status of any publicly announced product or services Not applicable (v) Competition Water Utilities Under the Concession Agreement, MWSS grants Maynilad (as contractor to perform certain functions and as agent for the exercise of certain rights and powers under the Charter), the sole right to manage, operate, repair, decommission and refurbish all fixed and movable assets required (except certain retained assets of MWSS) to provide water and sewerage services in the West Service Area for 25 years commencing on August 1, 1997 (the Commencement Date) to May 6, 2022 (the original Expiration Date) or the early termination date as the case maybe. In 2009, Maynilad received the extension of the Concession by another 15 years to May 6, 2037 (new Expiration Date).
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Toll Operations Pursuant to the Joint Venture Agreement entered into by Philippine National Construction Corporation (PNCC) and FPIDC on August 29, 1995, PNCC assigned its rights, interests and privileges under its franchise to construct, operate and maintain toll facilities in the North Luzon Expressway (NLE) in favor of MNTC, including the design, funding and rehabilitation of the NLE, and installation of the appropriate collection system therein. The assignment of PNCCs usufructuary rights, interests and privileges under its franchise, to the extent of the portion pertaining to the NLE, was approved by the then President of the Republic of the Philippines (ROP). In April 1998, the ROP (Grantor), acting by and through the Toll Regulatory Board (TRB), PNCC (Franchisee) and MNTC (Concessionaire) executed the Supplemental Toll Operation Agreement (STOA) for the Manila-North Expressway, whereby the ROP granted MNTC the rights, obligations and privileges including the authority to finance, design, construct, operate and maintain the project roads as toll roads (Concession) commencing upon the date the STOA comes into effect until December 31, 2030 or 30 years after the issuance of the Toll Operation Permit (TOP) for the last completed phase, whichever is earlier, unless further extended pursuant to the STOA. In October 2008, TRB approved MNTCs proposal to extend the service concession term for Phase 1 and Segment 8.1 of the Project until December 31, 2037, subject to certain conditions. However, while MNTC has the sole toll operation in the NLE, there is an alternative road, Macarthur Highway, provided by the government, which dilutes the prospective customers of MNTC, specifically the C3 class. Healthcare Major competitors in the healthcare business include tertiary hospitals located in major cities where RMCI, EMHMC, MDI and Cardinal Santos and DDH operate. However, increased health awareness creates unsatisfied demand in the industry. Power Distribution On May 23, 2008, Meralco, together with other industry players, filed a Petition with the ERC for the implementation of Interim Open Access (IOA) in the Luzon and Visayas grids, in accordance with a proposed Terms of Reference of the Interim Implementation of Open Access. The Petition sought to allow eligible customers with an average peak demand of 1 MW and up to contract and purchase their electricity requirements from Eligible Generating Companies through Retail Electric Suppliers. Eligible Generation Companies are those which meet the mandated generation market share caps of EPIRA. In a decision dated November 10, 2008, the ERC renamed IOA as the Power Supply Option Program (PSOP) and approved the Petition, subject to rules to be promulgated by the ERC. On September 14, 2009, the ERC released an Order stating that PSOP would commence ninety (90) days after completion of either of the following conditions, whichever comes earlier: a) The transfer of the operation of the Calaca Generation Assets to the private generation companies concerned or its equivalent in terms of capacity; or

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b) The privatization of at least 70% of the total capacity of generating assets of NPC in Luzon and Visayas. On December 3, 2009, the Power Sector Assets and Liabilities Management Corporation (PSALM) turned over the 600-MW Calaca Coal-Fired Power Plant to Sem-Calaca Power Corp. Thus, the target commencement date for PSOP became March 4, 2010. On January 25, 2010, the ERC approved the Rules for the Power Supply Option Program and, on January 27, 2010, the ERC directed the PSOP proponents to submit to ERC harmonized procedures for retail settlement under PSOP by February 23, 2010. On February 26, 2010, the PEMC filed a Manifestation with the ERC, taking the position that it could not exercise a role beyond that of market operator under the WESM Rules. PEMC, however, stated that it was willing to provide data to the DU or Supplier to calculate the settlement amounts of PSOP customers. Meanwhile, on the same date, Meralco filed a Manifestation with the ERC, taking the position that the PEMC is best suited to take on the role of the Settlement Agent because it has the necessary infrastructure, systems, procedures and policies to fulfill the role. The ERC released an Order on March 8, 2010 directing other Petitioners to comment on the Manifestations. The matter is currently pending before the Commission. With the onset of power privatization and deregulation, MERALCO has ventured in the non-regulated industries such as real estate, information technology and infrastructures. In 2010, it entered the power generation market through MERALCO PowerGen Corporation (formerly Asian Center for Energy Management). (vi) Source and availability of raw materials With the exception of Maynilad which sources almost all its water from the Angat Dam, the Group is not dependent on one or a limited number of suppliers. (vii) Dependence on customers The water business of the Company enjoys a sole concession of Metro Manilas West Service Area. Further, the different business segments of the Company, such as the water business, toll roads, power and hospital, etc., are all mass-based, such that the loss of a few customers would not have a material adverse effect on the registrant and its subsidiaries taken as a whole. There is also no single customer that accounts for twenty percent (20%) or more of the registrant groups sales. (viii) Transactions with and/or dependence on related parties Please refer to Note 21 of the accompanying Audited Financial Statements. (ix) Patents, trademarks, copyrights, licenses, franchises, concessions and royalty agreements held by the Group Maynilad and MNTC, the two main subsidiaries of the Company have existing concession agreements. Under the Concession Agreement, MWSS grants Maynilad (as contractor to perform certain functions and as agent for the exercise of certain rights and powers under the Charter), the sole right to manage, operate, repair,
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decommission and refurbish all fixed and movable assets required (except certain retained assets of MWSS) to provide water and sewerage services in the West Service Area for 25 years commencing on August 1, 1997 (the Commencement Date) to May 6, 2022 (the Expiration Date) or the early termination date as the case maybe. Extension of Maynilads Concession Agreement. On September 10, 2009, the MWSS Board of Trustees (BoT) approved the extension of the expiry of its Concession Agreement with Maynilad by an additional (15) years or from May 6, 2022 to May 6, 2037. Subsequently, on September 16, 2009, the MWSS Administrator wrote the Department of Finance (DoF) to inform them of the BoTs decision and seek DoFs written consent to the extension, as well as its extension of the letter of undertaking covering the governments obligation under the Concession Agreement. On March 17, 2010, the Department of Finance transmitted to Maynilad the signed Letter of Consent and Undertaking on behalf of the Republic of the Philippines (the Republic or ROP), relative to the extension of the Concession Agreement from May 6, 2022 to May 6, 2037. In this Letter, the Republic acknowledged and approved the extension of the Concession Agreement. It further extended the effectivity of the Republics undertaking letter subject to the increase in the present minimum level of the performance bond from US$30 million to US$90 million for the third rate rebasing period. Under the Supplemental Toll Operation Agreement (STOA) for the ManilaNorth Expressway, the ROP granted MNTC the rights, obligations and privileges including the authority to finance, design, construct, operate and maintain the project roads as toll roads (Concession) commencing upon the date the STOA comes into effect until December 31, 2030 or 30 years after the issuance of the TOP for the last completed phase, whichever is earlier, unless further extended pursuant to the STOA. In October 2008, TRB approved MNTCs proposal to extend the service concession term for Phase 1 and Segment 8.1 of the Project until December 31, 2037, subject to certain conditions. (x) Dependence on Licenses and Government Approval Necessary government approvals in relation to the operation of the water business and toll roads have been secured and documented in the related concession agreements. (xi) Effect of existing or probable governmental regulations on the business There are no anticipated changes to government regulations that will significantly affect the business of the Group. (xii) Research and development activities The Group is not involved in any significant research and development activities. (xiii) Costs and effects of compliance with environmental laws The Group adopts a proactive approach to environmental standards and its facilities are constructed to high standards. As a consequence, it is not feasible to determine the incremental cost, if any, of compliance with local regulations.

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(xiv)

Registrants present employees As of December 31, 2010, the Parent Company has a total headcount of 40 employees (Administrative: 32, Clerical: 8), who are neither unionized nor covered by special incentive arrangements. The Parent Company expects to increase its headcount in the next twelve months to 46.

(xv)

Major risks Please refer to Note 37 of the accompanying Audited Financial Statements.

(b)

Additional Requirements of Certain Issues or Issuers (i) Debt Issues Not applicable. (ii) Investment Company Securities Not applicable.

Item 2. Description of Properties Please refer to Note 14 of the accompanying Audited Financial Statements. Item 3. Legal Proceedings The following is an update on the material legal proceedings which the Company and/or its subsidiaries or affiliates are party to: MPTC Value Added Tax When RA 9337 took effect, the BIR issued Revenue Regulation No. 16-2005 on September 1, 2005, which, for the first time, expressly referred to toll road operations as being subject to VAT. This notwithstanding VAT Ruling 078-99 issued in August 9, 1999 where BIR categorically ruled that MNTC, as assignee of PNCC franchise, is entitled to the tax exemption privileges of PNCC and is exempt from VAT on its gross receipts from the operation of the NLE. However, the TRB, in its letter dated October 28, 2005, directed MNTC (and all Philippine toll expressway companies) to defer the imposition of VAT on toll fees. Due to the possibility that MNTC may eventually be subjected to VAT, MNTC, in 2005, carved out the input tax from its purchases of goods and services (includes input tax in relation to the Project construction cost) in 2004 which were previously recorded as part of service concession assets and recorded such input tax, together with the input tax on 2005 purchases and onwards, as a separate Input value added tax account and accordingly reflected the input tax in the VAT returns. In September 2005, MNTC also requested for confirmation from the BIR that MNTC can claim input VAT for the passed-on VAT on its purchases of goods and services for 2003 and prior years. The request for confirmation is still pending as of March 3, 2011. On December 21, 2009, BIR issued RMC No. 72-2009 as a reiteration of RMC No. 52-2005 imposing VAT on the tollway operators. However, on January 21, 2010, Tollway Association of the Philippines (TAP) issued a letter to tollway operators referring to a letter issued by TRB to TAP dated December 29, 2009 reiterating TRBs previous instruction to all toll operators to defer the imposition of VAT on toll fees until further orders from their office. The TRB directive resulted from the Cabinet meeting held last December 29, 2009 at Baguio City where the deferment of the implementation of RMC No. 72-2009 was discussed.
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On March 2010, the BIR issued RMC 30-2010 directing the imposition of the 12% VAT starting April 1, 2010, with coverage initially limited to private vehicles. However, on March 30, 2010, the TAP issued a letter to tollway operators referring to a letter issued by TRB to TAP dated March 30, 2010 directing the deferment of collection of VAT on toll fees until further orders from their office. To fully implement the imposition of the VAT on toll fees, the BIR issued RMC No. 63-2010 dated July 19, 2010 which states that: 1. The VAT shall be imposed on the gross receipts of tollway operators from all types of vehicles starting August 16, 2010. 2. Tollway operators who have been assessed for VAT liabilities on receipts from toll fees for prior periods can apply for Abatement of the tax liability, surcharge and interest under Section 204 of the NIRC and RR No. 13-2001. 3. The accumulated input VAT account of the toll companies shall have a zero balance on August 16, 2010. Any input VAT that will thenceforth be reflected in the books of accounts and other accounting records of tollway operators will have to be for purchases of goods and services delivered/rendered and invoiced/receipted on or after August 16, 2010. 4. All tollway operators are required to comply with the invoice/receipt format prescribed under RMC No. 40-2005. Meanwhile, on August 4, 2010, MNTC, in accordance with RMC No. 63-2010, applied for abatement of alleged VAT liabilities for taxable years 2006, 2007, 2008 and 2009. The BIR has yet to resolve the application for abatement of MNTC. On August 13, 2010, the Supreme Court issued a TRO on the imposition of the 12% VAT on tollway operators. The TRO has not been lifted as of March 3, 2011. In view of the foregoing and in the light of the quick response of the Cabinet and the TRB on the BIR RMC No. 72-2009 and TRO issued by the Supreme Court on the imposition of VAT, MNTC continues to defer the imposition of VAT on toll fees from motorists and correspondingly, with VAT being a passed-on tax, MNTC did not recognize any VAT liability. MNTC, together with other toll road operators, continues to discuss the issue of VAT with concerned government agencies. At present, the BIR continuously upholds its position that MNTC is indeed subject to VAT on toll revenues, stating that inasmuch as there is no concrete ruling yet on the exemption from VAT on toll fees, MNTCs receipts from toll fees should be considered as subject to VAT. In relation thereto, the BIR has issued the following VAT assessments: MNTC received a Formal Letter of Demand from the BIR on March 16, 2009 requesting MNTC to pay deficiency VAT plus penalties amounting to Pesos 1,010.5 million for taxable year 2006. MNTC received a Final Assessment Notice from the BIR dated November 15 2009, assessing MNTC for deficiency VAT plus penalties amounting to Pesos 557.6 million for taxable year 2007. MNTC received a Notice of Informal Assessment from the BIR dated October 5, 2009, assessing MNTC for deficiency VAT plus penalties amounting to Pesos 470.9 million for taxable year 2008. On May 21, 2010, the BIR issued a Notice of Informal Conference assessing MNTC for deficiency VAT plus penalties amounting to Pesos 1.0 billion for taxable year 2009. Included also in the Notice is the increase of the deficiency VAT for taxable year 2008 from Pesos 470.9 million to Pesos 1.2 billion (including penalties).

Notwithstanding the foregoing, management believes, in consultation with its legal counsel, that in any event, the STOA amongst MNTC, ROP, acting by and through the TRB, and PNCC, provides MNTC
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with legal recourse in order to protect its lawful interests in case there is a change in existing laws which makes the performance by MNTC of its obligations materially more expensive. Local Business Tax In 2008, MNTC has received a Final Demand from the municipality of Guiguinto, Bulacan to pay the local business tax assessments for the years 2005 to 2007 amounting to Pesos 67.4 million, inclusive of surcharges and penalties. MNTC, together, with its legal counsel protested claiming that its predecessor, PNCC has never been subjected to local business tax and as such MNTC continued the customary practice of obtaining the business permits solely from the local government unit where its principal office is located. The case is still pending before the Regional Trial Court of Malolos, Bulacan. On November 19, 2009, TRB informed MNTC that TRBs BOD has approved MNTCs request to intervene in the local business tax case for the purposes of protecting the interests of the government and the motoring public, avoiding any disruption in the operation of the NLE as a limited access facility and resisting collateral attack in the validity of the STOA. TRB also advised MNTC that on November 12, 2009, the Omnibus Motion (i) for Intervention and (ii) to admit attached Manifestation and Motion in Intervention was filed by the Office of the Solicitor General on behalf of TRB praying for the issuance of a Temporary Restraining Order and a Writ of Preliminary Injunction to enjoin the municipality from closing MNTCs business particularly with respect to its operations of the Burol-Tabang and Burol-Sta. Rita toll exits and any facility that is indispensable in the operation of the tollway. In March 2010, MNTC received a final demand letter from the municipality to pay LBT, permits, and regulatory fees. On March 12, 2010, the RTC denied MNTCs application for the issuance of a temporary restraining order and/or writ of preliminary injunction. On March 15, 2010, MNTC filed with the Court of Appeals a petition for certiorari (with application for the issuance of a temporary restraining order and/or a writ of preliminary Injunction) to annul or set aside the orders of the RTC denying MNTCs application for the issuance of a writ of preliminary injunction. The Court of Appeals, in its decision dated July 23, 2010, dismissed the petition. On August 17, 2010, MNTC filed a motion for reconsideration. On December 3, 2010, the Court of Appeals denied the motion for reconsideration. Meanwhile, on July 22, 2010, MNTC filed another complaint with the RTC of Malolos, Bulacan seeking to annul and set aside the illegal assessment for unpaid local business taxes in the total amount of Pesos 34.0 million, inclusive of surcharges and penalties, for the years 2008 and 2009 issued against MNTC by the Municipal Treasurer of Guiguinto, Province of Bulacan in February 2010. The cases are pending before the RTC. As of March 3, 2011, MNTC is in the process of discussing the issue on the prospective allocation of the LBT with the Bureau of Local Government Finance. Real Property Tax In 2008, MNTC also received real property tax assessments covering the toll roads located in the Municipality of Guiguinto amounting to Pesos 2.9 million for the years 2005 to 2008. MNTC appealed before the Local Board of Assessment Appeals (LBAA) of Bulacan and prayed for the cancellation of the assessment. The case is still pending before the LBAA of Bulacan. In 2004, MPTDC received real property tax assessments covering Segment 7 located in the province of Bataan for the period from 1997 to June 2005 amounting to Pesos 98.5 million for alleged delinquency property tax. MPTDC appealed before the LBAA of Bataan and prayed for the cancellation of the assessment. In the said appeal, MPTDC invoked that the property is owned by the ROP, hence, exempt from real property tax. The case is still pending before the LBAA of Bataan. The outcome of these claims cannot be presently determined. Management believes that these claims will not have a significant impact on the Companys consolidated financial statements. As with regards
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to the real property tax, management and its legal counsel believes that the STOA also provides MNTC with legal recourse in order to protect its lawful interests in case there is a change in existing laws which makes the performance by MNTC of its obligations materially more expensive. Others MNTC is a co-respondent [together with TRB, PNCC, other tollways operators, TMC, MPTDC (then FPIDC) and BHC] in two Supreme Court cases, where, based on the following allegations, the petitioners claims that the STOA is null and void: the negotiation and execution of the STOA failed to undergo public bidding in accordance with applicable laws and regulations of the Philippines; the STOA granted to MNTC a 30-year franchise for the construction, maintenance and operation of the NLE in violation of the Presidential Decrees under which the PNCCs franchise were granted and the Philippine Constitution; and the provisions of the STOA providing for the establishment and adjustment of toll rates violate the statutory requirement for the TRB to conduct public hearings on the level of authorized toll rates.

The Supreme Court, in a decision dated October 19, 2010, among others, declared as valid and constitutional the STOA. Petitioner Francisco filed a motion for reconsideration dated November 5, 2010 while some of the petitioners in Marcos, et al. v. TRB et al. filed a partial motion for reconsideration dated October 8, 2010. On January 24, 2011, MNTC filed a consolidated comment to the aforementioned motions for reconsideration. Management believes that the petitioners claims are without merit and is vigorously contesting the case. As of March 3, 2011, the cases are still pending. MNTC is also a party to other cases and claims arising from the ordinary course of business filed by third parties which are either pending decisions by the courts or are subject to settlement agreements. The outcome of these claims cannot be presently determined. In the opinion of management and MNTCs legal counsel, the eventual liability from these lawsuits or claims, if any, will not have a material adverse effect on the Companys financial position and financial performance.

Maynilad a. Additional Tranche B Concession Fees and interest penalty are being claimed by MWSS in excess of the amount recommended by the Receiver. Such additional charges being claimed by MWSS (in addition to other miscellaneous claims) amounted to Pesos 4.0 billion as of December 31, 2010 and Pesos 3.8 billion as of December 31, 2009. The Rehabilitation Court has resolved to deny and disallow the said disputed claims of MWSS in its December 19, 2007 Order, upholding the recommendations of the Receiver on the matter. Following the termination of Maynilads rehabilitation proceedings, Maynilad and MWSS are seeking to resolve this matter in accordance with the dispute resolution requirements of the Transitional and Clarificatory Agreement (TCA). b. On October 13, 2005, the Municipality of Norzagaray, Bulacan jointly assessed Maynilad and Manila Water Company, Inc. (the Concessionaires) for real property taxes on certain common purpose facilities purportedly due from 1998 to 2005 amounting to Pesos 357.1 million. It is the position of the Concessionaires that these properties are owned by the Republic of the Philippines and that the same are exempt from taxation. On February 2, 2007, the Concessionaires received an updated assessment of real property tax, which included real property tax purportedly due for 2006 of Pesos 35.7 million and interest
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of 2% per month of Pesos 93.6 million. The supposed joint liability of the Concessionaires for real property tax, including interests, as of June 30, 2007 amounted to Pesos 554.2 million. The Local Board of Assessment Appeals (LBAA) ruled in favor of the Municipality of Norzagaray, Bulacan. The Concessionaires elevated the ruling of the LBAA to the Central Board of Assessment Appeals (CBAA) by filing separate appeals. The CBAA has given due course to Maynilads appeal and an ocular inspection of the common purpose facilities was conducted by the CBAA on December 14, 2010. Although the case has been set for pre-trial by the CBAA, the pre-trial of the case is put on hold pending the resolution of two (2) motions filed by the Concessionaires. The case was originally set for hearing on March 17, 2011 but was reset on May 13, 2011. c. Two petitions for review on certiorari filed separately by Maynilad and MWSS, questioning the jurisdiction of the National Water Resources Board (NWRB) to hear and decide a complaint with prayer for the issuance of a cease and desist order against Maynilad, MWSS and the MWSS-RO initiated by certain civil society groups, are pending (in two consolidated cases) before the Supreme Court. Such complaint, which is yet to be decided upon by the NWRB, depending upon the final determination by the Supreme Court on the issue of the NWRBs jurisdiction on the matter, is contesting the approval by the MWSS BoT of the MWSS-RO resolution approving the rebased tariff of Pesos 30.19 per cubic meter (average all-in tariff) effective January 1, 2005 for Maynilad. The rulings of the Court of Appeals being assailed by the petitions before the Supreme Court pronounced, among others, that the NWRB is empowered to review the subject average all-in tariff rate of Pesos 30.19 per cubic meter.

d. On November 24, 2006, the Labor Arbiter issued a decision dated, ordering the payment of COLA to the supervisor-employees of the Maynilad Water Supervisors Association (MWSA) retroactive to the date when they were hired by the respondent company in 1997, with legal interest from the date of promulgation of [the] decision until full payment of the award as computed and claimed by MWSA. On September 7, 2007, the National Labor Relations Commission (NLRC) reversed and set aside the decision of the Labor Arbiter. On December 10, 2007, in pursuance of its efforts to effect an early exit from corporate rehabilitation, Maynilad executed a Compromise Agreement with the MWSA for the settlement of certain claims of the MWSA, wherein Maynilad agreed to pay MWSA residual benefits equivalent to its claim for COLA for 23 months, from August 1997 to June 1999. Meanwhile, MWSA elevated the decision of the NLRC to the Court of Appeals and asked that the Labor Arbiters decision dated November 10, 2006 be affirmed in toto, but only in relation to the MWSAs claim for COLA from July 1999 up to the present time. In a decision dated May 31, 2010, the Court of Appeals (i) granted the Petition for Certiorari filed by MWSA and reinstated the Labor Arbiters Decision dated November 24, 2006; and, (ii) annulled and set aside the NLRC Decision dated September 7, 2007. Maynilad filed its motion for reconsideration from the Court of Appeals decision. On January 31, 2011, the Court of Appeals granted the motion for reconsideration filed by Maynilad reinstating and affirming the September 7, 2007 Decision and October 23, 2007 Resolution of the NLRC. e. Maynilad is a party to various civil and labor cases relating to breach of contracts with damages, illegal dismissal of employees, and nonpayment of back wages, benefits and performance bonus, among others.

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MPC Donors Tax Metro Pacific Corporation received on January 14, 2011 a Final Assessment Notice (FAN) demanding the payment of approximately Pesos 199.74 Million as deficiency donors tax (including surcharge and interest as of January 31, 2011) on the excess of the book value over the selling price of several shares of stock in Bonifacio Land Corporation (BLC) which MPC sold to a third party. The assessment was based on the finding of the Bureau of Internal Revenue-Large Taxpayer Service (BIR-LTS) that the transaction is subject to donors tax as a deemed gift transaction under Section 100 of the 1997 National Internal Revenue Tax Code (the Tax Code). On February 14, 2011, MPC filed its formal protest to the FAN raising among others, the following arguments: (1) The transaction subject to the FAN is covered by a validly existing ruling from the BIR (BIR RULING [DA-(DT-065) 715-09]) stating that the transaction is not subject to donors tax under Section 100 of the Tax Code; (2) The Supreme Court itself recognized that the deemed gift provision of the Tax Code admits of exceptions, particularly when the transaction is at an arms-length and made in good faith; and (3) BIR RR 6-2008, which the BIR is using as basis in assessing deficiency donors tax, cannot amend the Supreme Courts interpretation of Section 100 of the Tax Code. Because of the above reasons, MPC believes that no provision for the assessment is necessary as of December 31, 2010.

Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this annual report.

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PART II OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Registrants Common Equity and Related Stockholder Matters (A) Market Price of and Dividends on Registrants Common Equity and Related Stockholder Matters (1) Market information The Registrants common shares are listed on the Philippine Stock Exchange (PSE). The high and low sales prices of such shares for the last quarter of the fiscal year 2008, 2009, 2010 st and the 1 quarter of 2011 are set out below. The share price as of the close of business on March 31, 2011 was Pesos 3.26.

Quarter 1st
2nd

Low 3.65 3.00 3.10 2.02 2.50 2.85 3.20 2.55 2.22 2.65 2.60 3.45 3.12

3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st
(2) Dividends

High 2008 4.35 4.50 4.20 3.50 2009 3.10 6.40 6.60 3.75 2010 3.10 3.20 3.88 4.35 2011 4.15

Apart from cash restrictions and retained deficit position of the Parent Company, it may not declare or pay cash dividends to its stockholders or retain, retire, purchase or otherwise acquire any claims of its capital stock or make any other capital or asset distribution to its stockholders if, at the time of such declaration: (i) its Debt-to-Equity Ratio exceeds 70:30; (ii) its Debt Service Coverage Ratio is below 1.5x; and (iii) the funds in deposit in the Debt Service Account do not meet the required DSA balance. On August 4, 2010, the Parent Company declared Pesos 0.01 dividends per common share in 2010 while there were no dividends declared in 2009 and 2008. On same date, the Parent Company declared Pesos 5.7 million preferred dividends. On March 3, 2011, the Parent Company declared additional Pesos 0.015 dividends per share bringing total dividends declared to date to Pesos 0.0250 per common share. Also on March 3, 2011, the Parent Company declared Pesos 3 million preferred dividends.

SEC Form 17- A 2010

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(3) Recent Sales of Unregistered or exempt Securities During the last three (3) fiscal years, MPIC issued the following shares (either via private placements and/or conversion of debt to equity) for which exemptions from registration were claimed and notices of exempt transactions were accordingly filed with the Securities and Exchange Commission (SEC): 1. On July 1, 2008, MPIC issued, and MPHI subscribed to, 1,568,925,223 common shares of MPIC at the price of Pesos 2.00 per share or a total consideration of Pesos 3,137,850,446.00. Such consideration was fully paid by MPHI on July 10, 2008. A Notice of Exempt Transaction in respect of such issuance was filed with the SEC on July 10, 2008. 2. On March 3, 2008, MPHI advised MPIC of its intent to convert its loan amounting to Pesos 2,029,853,351 into 1,893,282,845 common shares of MPIC at the issue price of: (i) Pesos 1.08236 per share (with respect to 1,237,002,525 common shares); and (ii) Pesos 1.05286 per share (with respect to 656,280,320 common shares), pursuant to existing convertible loan agreements. This conversion was acknowledged by MPIC on June 30, 2008. The said shares were issued to MPHI on August 12, 2008 from the increase in MPICs authorized capital, following the approval by the SEC of said increase. A Notice of Exempt Transaction in respect of such issuance was filed with the SEC on 19 August 2008. 3. On August 12, 2008, MPIC issued to MPHI 2,222,600,000 common shares of MPIC, on the basis of a subscription made by MPHI on July 1, 2008 and its full payment for such subscription on July 15, 2008. Said shares were issued at the price of Pesos 2.00 per share or a total consideration of Pesos 4,445,200,000, following the approval by the SEC of the increase in MPICs authorized capital stock. A Notice of Exempt Transaction in respect of such issuance was filed with the SEC on 19 August 2008. 4. On February 13, 2009, MPIC issued to MPHI a total of 2,389,040,000 common shares of MPIC at the price of Pesos 2.00 per share or a total consideration of Pesos 4,778,080,000, following the approval by the SEC of the increase in MPICs authorized capital stock. Proceeds were used to settle outstanding obligations and to partially fund MPICs acquisition of FPII. Two (2) Notices of Exempt Transactions were filed with the SEC on February 19, 2009. 5. MPIC granted a total of 123,925,245 options to subscribe to common shares of MPIC, pursuant to its Executive Stock Option Plan. Said options relate to 123,925,245 underlying common shares of MPIC issuable at the price of Pesos 2.12 per share (in respect of 61,000,000 options) and Pesos 2.73 (in respect of 62,925,245 options). Two (2) Notices of Exempt Transactions were filed with the SEC on April 27, 2009. For the year 2009, total ESOP shares exercised amounted to 13,945,000 common shares. 6. On July 29, 2009, MPIC issued to MPHI 5.0 billion Class A Preferred Shares with a par value of P0.01 per share. The holders of the Class A Preferred Shares (the Class A = Preferred Shareholders) are entitled to vote and receive preferential cash dividends at the rate of ten percent (10%) per annum, to be calculated based on the par value of the Class A Preferred Shares, upon declaration made at the sole option of the BOD. 7. On July 10, 2009 MPIC issued to LAWL 791,110,491 common shares of MPIC at the price of Pesos 2.565 per share or a total consideration of Pesos 2,029,198,409. A Notice of Exempt Transaction was filed with the SEC on July 13, 2009. 8. On September 25, 2009, MPIC issued to MPHI 4,150,000,000 common shares pursuant to the second stage of the MPIC re-launch discussed above. Said shares were issued at the price of Pesos 3.00 per share or a total consideration of Pesos

SEC Form 17- A 2010

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12,450,000,000. A Notice of Exempt Transaction was filed with the SEC on September 29, 2009. 9. On October 6, 2009, MPIC issued a total of 4,464,202,634 common shares of MPIC in favor of BTF (to the extent of 3,159,162,338 common shares) and MPHI (to the extent of 1,305,040,296 common shares) at the price of Pesos 3.00 per share or a total consideration of Pesos 13,392,607,902. Proceeds were used to partially fund MPICs acquisition of Meralco shares. Two (2) Notices of Exempt Transactions were filed with the SEC on October 15, 2009. 10. On October 27, 2009, MPIC issued an additional 620,000,000 common shares of MPIC to MPHI in relation to the second stage of the MPIC re-launch discussed above and as a result of the exercise of an over-allotment option by the allotment agent. Said shares were issued at the price of Pesos 3.00 per share or a total consideration of Pesos 1,860,000,000. A Notice of Exempt Transaction was filed with the SEC on October 16, 2009. 11. On December 21, 2009, following the approval by the SEC of an increase in its authorized capital stock, MPIC issued 672,129,584 common shares of MPIC to MPHI. Said shares were issued at the price of Pesos 3.00 per share or a total consideration of Pesos 2,016,388,752 and were paid for via the assignment by MPHI of its advances to MPIC. A Notice of Exempt Transaction was filed with the SEC on December 22, 2009. 12. In 2010, MPIC allotted a total of 145,000,0000 underlying common shares in respect of an additional 145,000,0000 stock options to be granted pursuant to its Executive Stock Option Plan. During the year 2010, MPIC granted a total of 104,300,000 options to subscribe to common shares of MPIC. Said options relate to 104,300,000 underlying common shares of MPIC issuable at the price of Pesos 2.73 per share (in respect of 94,300,000 options) and Pesos 3.50 (in respect of 10,000,000 options). A request for exemption from registration under the Securities Regulations Code (SRC) was filed with the SEC in respect of the 145,000,000 stock options to be granted, and was approved by the SEC on May 31, 2010. For the year 2010, total of 27,310,000 common shares were issued out of ESOP. The abovementioned notices of exempt transactions were made on the basis of: 1. Section 10.1(e) of the Securities Regulation Code The sale of capital stock of a corporation to its own stockholders exclusively, where no commission or other remuneration is paid or given directly or indirectly in connection with the sale of such capital stock. The abovementioned issuances were issued by MPIC to MPHI, its majority stockholder, exclusively and no commission or other remuneration was paid or given directly or indirectly in connection with such issuances. 2. Section 10.1 (k) of the SRC The sale of securities by an issuer to fewer than twenty (20) persons in the Philippines during any twelve-month period. MPIC issued securities to fewer than twenty (20) persons in the Philippines during any twelve-month period. The above described request for exemption from registration (under Item 11 above) was made on the basis of Section 10.2 of the SRC. MPIC averred that by reason of the relative small amount and limited character of the aforesaid issuance, registration is not necessary for the public interest and for the protection of prospective investors who are employees of MPIC and/or its subsidiaries and affiliates and are in the position to know the present affairs of MPIC and the risks of investing therein.

SEC Form 17- A 2010

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Item 6. Managements Discussion and Analysis of Financial Condition and Results of Operations (MD & A) Financial Highlights and Key Performance Indicators The following discussion and analysis of the Groups financial condition and results of operations should be read in conjunction with the accompanying audited consolidated financial statements and the related notes for the years ended December 31, 2010, 2009, and 2008 and as of the years ended December 31, 2010 and 2009 included in this Report. Key performance indicators of the Group are as follows:
Increase (Decrease) 2009 Amount % (in PhP millions) 16,108 10,071 1,705 4,332 2,300 10,103 2,047 252 14% 63% 2,456 420 956 1,080 571 2,602 1,809 (1,237) 1% 5% 15.25 4.17 56.07 24.93 24.83 25.75 88.37 (490.87) 7.14 7.94

2010 Consolidated Income Statements Revenues Expenses Other expenses (income) Income before income tax Net income attributable to owners of the Parent Company EBITDA (Core) Core income Nonrecurring income (loss) Net income margin EBITDA margin

18,564 10,491 2,661 5,412 2,871 12,705 3,856 (985) 15% 68%

Overview Year 2010 underscored another milestone for MPIC as it reaffirms its position as one of the countrys leading infrastructure companies. Highlights for the year are as follows: Combined Meralco holdings of MPIC and PCEV under Beacon. On March 30, 2010, Beacon agreed to purchase 154.2 million and 163.6 million Meralco shares from PCEV and MPIC, respectively, for a consideration of Pesos 150 per share or a total of Pesos 24,540 million for the MPIC Meralco shares and Pesos 23,130 million for the PCEV Meralco shares. The consolidation of Meralco holdings into Beacon gave it a 28.2% interest in Meralco, making it the single, largest shareholder of Meralco. This also allowed Beacon to access debt financing for any additional purchases of Meralco shares, using its Meralco shares as security. Also, on same date, Beacon purchased additional 74.7 million shares from First Philippine Holdings Corporation in exercise of the Call Option assigned by MPIC, for the price of Pesos 300 per share or the total purchase price of Pesos 22,410 million. This brought the total ownership of Beacon in Meralco to 34.8%. Term extension of Maynilads concession to additional 15 years to 2037. On March 17, 2010, the Department of Finance transmitted to Maynilad the signed Letter of Consent and Undertaking on behalf of the Republic of the Philippines, relative to the extension of the Concession Agreement from May 6, 2022 to May 6, 2037. The term extension is beneficial for both Maynilad and its stakeholders because it will enable it to take full advantage of long-term strategies for better water supply reliability and continued expansion in unserved and under-served areas. It will also address critical environmental issues through intensified sewerage and sanitation services customers. Divestment of Manila North Harbour Port Inc. MPIC divested in favor of Harbour Center Port Terminal, Inc. (HCPTI) all of its shares of common stock of Manila North Harbour Inc. (MNHPI) representing 35% of the outstanding capital stock of MNHPI, with the prior approval of the Philippine Ports Authority. The total amount of Pesos 350,000,000.00 received from HCPTI

SEC Form 17- A 2010

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represents the 35% of the outstanding capital stock of MNHPI worth Pesos 245,000,000 and a repayment of a loan in the amount of Pesos 105,000,000. Award of the Connector Road Project to MPTDC. The Department of Public Works and Highways (DPWH) acknowledged receipt of the unsolicited proposal submitted by MPTDC for the Connector Road project. The Connector Road Project involves an estimated cost of Pesos 17 billion for the construction of a 13.2-kilometer elevated road via the PNR tracks within the Manila Central Business District, from the end of NLEX at C3 to the beginning of Skyway 1 at Buendia and is projected to start in 2012 after Segments 9 and 10 are completed. Operations of the Maynilad Putatan Water Treatment Plant. Maynilad Water Services, Inc. announced on June 4, 2010 that it started operating its state-of-the-art Putatan Water Treatment Plant to supply potable water to an initial 4,585 households in Muntinlupa. The West Zone concessionaires Putatan Plant is the first water treatment facility that taps into Laguna Lake as an alternative water source to Angat Dam in Bulacan. The Putatan plant uses microfiltration and reverse osmosis to treat raw water from Laguna Lake. It has 14 units of microfiltration assemblies and six reverse osmosis assemblies. The Putatan water treatment facility came on-stream in July 2010 with an initial production capacity of 25MLD. This is expected to be built up to 100MLD within the year. Communities in Muntinlupa, Las Pias and portions of Cavite are expected to benefit from the additional water supply. The treatment plant in Putatan is in line with Maynilads plan to develop alternative sources of water to ensure longterm water security for its customers. Acquisition of Riverside Medical Center, Inc. MPIC acquired a 51% equity interest in Riverside Medical Center, Inc., the largest hospital in Bacolod City, Negros Occidental on May 31, 2010. RMCI is the 4th to join MPICs premier league of hospitals namely, Makati Medical Center and Cardinal Santos Medical Center in Metro Manila, and Davao Doctors Hospital in Mindanao. Acquisition of Our Lady of Lourdes Hospital through a Lease Agreement. East Manila Hospital Managers Corp., a wholly owned subsidiary of MPIC, was incorporated on October 15, 2010 to operate and manage Our Lady of Lourdes Hospital, a non-tertiary hospital previously managed by the Missionary Sister Servants of the Holy Spirit congregation (SSpS) through the Our Lady of Lourdes Hospital, Inc. (OLLHI). With the decision of SSpS to turn over the operations and management to a professional group, OLLHI has signed a 20-year lease of the hospital land and facilities in favor of EMHMC. As discussed in Note 3 of the accompanying Audited Financial Statements, the lease agreement between EMHMC and OLLHI constitutes an acquisition of business.

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 chief operating decision-maker to make decisions about how resources are to be allocated to the segment and to assess their performances, and for which discrete financial information is available. Management assesses the performance of the operating segments based on a measure of recurring profit or core income contribution. This measurement basis is determined as profit attributable to owners of the Parent Company excluding the effects of foreign exchange and derivative gains/losses, one-off provisions and other nonrecurring or non-core items. Nonrecurring items represent certain items, through occurrence or size, that are not considered as part of the usual operating items of the businesses of the Group. In 2010, the Group organized its businesses into five major business segments, namely water utilities, toll operations, power, healthcare, and others as enumerated below: Water Utilities The water utilities business segment primarily relates to the operations of DMCI-MPIC Water Company and Maynilad as the largest water concessionaire in terms of customer base.
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SEC Form 17- A 2010

Toll Operations The toll operations business segment primarily relates to the operation and maintenance of toll facilities by MPTC and its subsidiary, Manila North Tollways Corporation and associate, Tollways Management Corporation. Healthcare The healthcare business segment primarily relates to the operation and management of hospitals, medical and chemical clinics and/or laboratories and other similar undertakings provided for by MPICs associates, Medical Doctors, Inc. and Davao Doctors Hospital and the newly acquired subsidiaries Riverside Medical Center and East Manila Hospital Managers Corp. Power - The power business segment primarily relates to the investment in Beacon. Others This represents operations of subsidiaries involved in the provision of services and, primarily, holding companies. This includes the real estate segment which primarily relates to the operations of Metro Pacific Corporation and Landco Pacific Corporation and its subsidiaries, which are involved in the business of real estate of all kinds. Following the decision of MPIC to divest its investment in Landco, MPICs share in its net assets is presented under Available for Sale Financial Assets as of December 31, 2010 and under Asset Held for Sale as of December 31, 2009.

Please refer to Note 5 of the accompanying Audited Financial Statements.

Adoption of New Standards and Interpretations Our accounting policies are consistent with those followed in the preparation of the Companys most recent annual consolidated financial statements, taking into account the changes in accounting policies and the adoption of the new and amended Philippine Accounting Standards (PAS) and Philippine Interpretations of the International Financial Reporting Interpretations Committee (IFRIC), which became effective on January 1, 2010. Please refer to Note 2 of the accompanying Audited Financial Statements.

Operational Review Management monitors the operating results of each business unit separately for purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on net income for the year; EBITDA; EBITDA margin; and core income. EBITDA is measured as net income excluding depreciation and amortization of property and equipment and intangible assets, asset impairment on noncurrent assets, financing costs, interest income, equity in net earnings (losses) of associates and joint ventures, net foreign exchange gains (losses), net gains (losses) on derivative financial instruments, provision for (benefit from) income tax and other nonrecurring gains (losses). EBITDA margin pertains to EBITDA divided by service revenues. Core income is measured as net income attributable to owners of the Parent Company excluding foreign exchange (gains) losses-net, gains (losses) on derivative financial instruments, asset impairment on noncurrent assets, and other nonrecurring gains (losses), net of tax effect of aforementioned adjustments. Nonrecurring items represent gains or losses that, through occurrence or size, are not considered usual operating items. The following section includes discussion of the Companys results of its operations as presented in its consolidated financial statements as well as managements assessments of the performance of the Group which is translated to core (or recurring) profit and non-core (or nonrecurring) profit.

SEC Form 17- A 2010

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2010 versus 2009 MPIC CONSOLIDATED STATEMENTS OF INCOME


Audited Increase (Decrease) 2010 2009 Amount % (in Php millions) 18,564 16,108 2,456 15.25 6,846 7,121 (275) (3.86) 3,645 2,950 695 23.56 8,932 4,879 4,053 83.07 8,859 4,771 4,088 85.68 4,544 4,012 532 13.26 (1,440) 985 (2,425) (246.19) 574 499 75 15.03 499 432 67 15.51 375 375 1,434 2,829 (1,395) (49.31) 2,513 577 1,936 335.53 102 (70) 172 (245.71) (32) 32 (100.00) 2,871 2,300 571 24.83

Revenues Cost of services General and administrative expenses Construction revenue Construction costs Interest expense Foreign exchange losses (gains) - net Interest income Share in net earnings of associates and joint ventures - net Dividend income Other income Other expenses Provision for (benefit from) income tax Income (loss) from discontinued operations Net income attributable to owners of the Parent Company

Revenues The Companys revenues increased by 15% to Pesos 18,564 million in 2010, reflecting improved performance of the Companys major operating subsidiaries, Maynilad and MPTC. Maynilad posted a 13% increase in revenues brought about by 7% billed volume and average tariff growth. MPTC likewise posted 7% higher revenues in light of the 6% increase in traffic volume and contributions from Segment 8.1. Contributions from newly acquired hospitals Riverside Medical Center and East Manila Hospital Managers Corporation also contributed to the increase in revenues. Cost of Services Despite the increase in revenues, cost of services declined by 4% to Pesos 6,846 million in 2010. This is in line with the full year impact of the extension of the Concession term in Maynilad by an additional 15 years which lowered the amortization expense of the concession assets in 2010. The decline in MPTCs cost of services, which is attributable to lower provisions for heavy maintenance, also contributed to the decline in the consolidated cost of services. General and Administrative Expenses General and administrative expenses increased by 24% to Pesos 3,645 million in 2010. The increase came mainly from the following: (a) increased personnel costs; (b) increased administrative supplies; (c) increased depreciation and amortization in relation to additional capital expenditure made during the year; and, (d) increase in other expenses. Construction margin Construction margin (construction revenues less construction costs) decreased by Pesos 35 million in 2010 due mainly to Maynilads higher construction costs during the year.

SEC Form 17- A 2010

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Interest expense Interest expense increased by 13% in 2010 due to higher accretion of concession fees payable at Maynilad, additional interest on the convertible note to MPHI and the three-month amortization of debt issue cost related to the Pesos 11.2 billion loan. The higher accretion of concession fees payable is principally due to the new projects in 2010 in line with the extension of the Concession term obtained st from MWSS during the last quarter of 2009 and signed by DOF in 1 quarter of 2010. Foreign exchange (Forex) gains (losses) net From a loss of Pesos 985 million in 2009, the Company recognized Pesos 1,440 million of forex gains in 2010. This is mainly attributable to the decreased levels of both debt and other foreign currency denominated liabilities in light of the appreciation of the Philippine Peso against the US Dollar in 2010. The USD:PHP exchange rate closed at Pesos 43.84 in 2010, a Pesos 2.46 decrease from Pesos 46.20 in 2009. The majority of this forex gain is reversed through the consolidated statements of income as Other Expenses at Maynilad as dealt with below. Interest income Interest income increased by 15% this year due mainly to interest-bearing receivables issued end of 2009, partially offset by lower level of cash maintained at Maynilad resulting from higher capital expenditure. Share in net earnings of associates and joint ventures The 15% increase in MPICs share in the cumulative net earnings of associates and joint ventures in 2010 is mainly attributable to the full year contribution of Meralco through Beacon partly offset by decreased contribution from equity accounted hospitals. Dividend income In 2010, MPIC recognized dividend income from preferred shares held at Beacon. This represents dividend earned for the last eight months of 2010 at 7% coupon rate. Other income The 49% decline in other income in 2010 was brought about by the one-time recognition of the gain from the rate rebasing exercise at Maynilad in 2009. Other Expenses The 335% increase in other expenses is generally attributable to the Foreign Currency Differential Adjustment (FCDA) recorded at Maynilad. The FCDA is a mechanism to recover foreign exchange losses or gains by the operator, based on the Concession Agreement. Provision for (benefit from) income tax The increase in current provision for income tax mainly represents increased regular corporate income tax contributed by MPIC, RMCI and EMHMC and higher final taxes on interest income for the period. The decline in benefit from deferred income tax is mainly due to gain from reversal of deferred tax made in 2009 in light of the award of the six-year income tax holiday to Maynilad from 2010 to 2015. Both Maynilad and MNTC, the major subsidiaries of the Company, enjoyed income tax holidays during the year. MNTCs ITH status expired at end of 2010 and Maynilads will expire at end of 2015. Income from Discontinued Operations The Pesos 32 million loss from discontinued operations recorded in 2009 pertains to Landcos operations. Landco has been discontinued following managements decision to focus on its operations
SEC Form 17- A 2010 Page 27

in infrastructure and healthcare. See Note 6 of the accompanying Audited Financial Statements for more details.

Consolidated reported net income attributable to equity holders of the Parent Company The 25% increase from Pesos 2,300 million to Pesos 2,871 million for the period is attributable mainly to the generally higher profit contribution of the major businesses. In summary: the first full-year contribution from Meralco; increase in Maynilads contribution due mainly to increased in billed volume, partially offset by last years one-time gain from rate rebasing exercise; increased traffic volume in MPTC; all partly offset by the decrease in contribution of the Healthcare group due to lower nursing school enrollees.

Consolidated Core Income Consolidated core income increased by 88% from Pesos 2,047 million in 2009 to Pesos 3,856 million in 2010 mainly reflecting the following: 55% increase in contribution from Maynilad from Pesos 1,540 million in 2009 to Pesos 2,394 million in 2010 12% increase in contribution from MPTC from Pesos 1,279 million in 2009 to Pesos 1,433 million in 2010 Full year contribution from Meralco of Pesos 1,486 million in 2010 from the 3-month contribution of Pesos 212 million in 2009

The above was partly negated by Healthcare businesses contribution to core net income which declined by 1% to Pesos 172 million in 2010 from Pesos 174 million in 2009. These represent MPICs share in the stand-alone core income of the operating companies, net of consolidation adjustments. Maynilad, MPTC, Meralco and healthcare accounted for 44%, 26%, 27% and 3% respectively of MPICs core profit from operations. Nonrecurring items Nonrecurring expenses amounted to Pesos 985 million in 2010, a turnaround from the Pesos 252 million nonrecurring gains last year. Net foreign exchange gains declined from Pesos 105 million last year to a gain of Pesos 9 million this year. This was mainly due to Peso appreciation for the year of Pesos 2.36 from Pesos 46.20 in end-2009 to Pesos 43.84 which resulted to the recognition of forex gain from the restatement of foreign currency denominated liabilities. The lower foreign exchange gains this year was a result of lower level of foreign currency denominated debts from MPTC due to the refinancing agreement made in latter part of the year, partly offset by foreign exchange losses arising from the restatement of Maynilads US Dollar denominated cash and cash equivalents. The foreign exchange gains classified per consolidated statements of income is offset by Foreign Currency Differential Adjustment (FCDA) classified as other expenses. Foreign exchange differentials relating to the restatement of concession fees payable are deferred in view of the automatic reimbursement mechanism as approved by the MWSS Board of Trustees (BOT) under Amendment No. 1 of the Concession Agreement of Maynilad. Net foreign exchange losses are recognized as deferred FCDA and net foreign exchange gains are recognized as deferred credits in the consolidated balance sheet. The write-off of the deferred FCDA or reversal of deferred credits will be made upon determination of the new base foreign exchange rate as approved by the Regulatory Office during every Rate Rebasing exercise, unless indication of impairment of the deferred FCDA would be evident at an earlier date. For Maynilad, foreign exchange differentials arising from other foreign currency denominated transactions are credited or charged to operations.
SEC Form 17- A 2010 Page 28

Other nonrecurring losses of Pesos 994 million in 2010 consist principally of actuarial losses and provisions at Meralco, provision for unrecoverable input VAT and prepayment charges at MPTC.

Water utilities Operational highlights

Maynilad Water Services, Inc. Revenue EBITDA (Core) EBITDA margin (Core) Core income Net income Capital expenditure Volume of water supplied (MCM) Volume of water billed (MCM) Water billed to supply % Non-revenue water % (average) Non-revenue water % (year end) Billed customers (period end) Customer mix (% based on billed volume) Domestic (residential and semi business) Nondomestic (commercial and industrial)

Increase (Decrease) 2010 2009 Amount % (in Php Millions, unless otherwise stated) 12,050 10,619 1,431 13.48 7,907 6,970 937 13.44 66% 66% 0% 4,835 3,328 1,507 45.28 4,780 2,825 1,955 69.20 7,679 4,559 3,120 68.44 804 868 (64) (7.43) 374 350 24 6.78 47% 40% 7% 17.50 53% 60% -7% (11.67) 51% 57% -6% (10.53) 903,682 814,645 89,037 10.93 77% 23% 76% 24% 1% -1% 1.29 (4.08)

Maynilad was able to increase the volume of water billed to its customers by 7% in 2010 largely as a result of continuing success in reducing Non Revenue Water (NRW) resulting from leakage and theft even as the water level in the Angat Dam dipped to the critically-low level of 157.57 meters compared with 190.20 meters a year earlier. NRW declined to 51% at the end of last year from 57% at the end of 2009 as a result of aggressive leak repairs. Maynilad eliminated 40,392 leaks in 2010 compared with 18,149 leaks in 2009. The leak repair program, coupled with pipe rehabilitation and more efficient pressure and supply management resulted in the recovery of over 260 million liters per day (MLD) of water Maynilad continues to push forward with an ambitious NRW reduction program by allocating Pesos 2.6 billion this year for NRW diagnostics, leak repairs and establishment and maintenance of District Metered Areas. The Putatan water treatment facility came on-stream in July 2010 with an initial capacity of 25 MLD which has since been quadrupled to 100 MLD. It is the first water treatment facility to tap into Laguna Lake as an alternative water source to the Angat Dam and is the largest membrane-based water treatment plant in the Philippines. As the first water treatment plant in the country to use large-scale microfiltration and reverse osmosis, the facility is a vital part of Maynilads plan to develop alternative sources of water to ensure long-term water security for its customers. The improved performance of Maynilad as discussed above increased its core contribution to MPIC in 2010. The billed volume increase of 7% posted an all-time high of 373.8 million cubic meters (or MCM) from 350.1 MCM last year mainly coming from the increase in domestic consumption. The approval by Metropolitan Waterworks and Sewerage System of the 15 year-extension of Maynilad's Concession has also enhanced the Company's core results as the full year impact of the reduction in amortization of concession assets was reflected in 2010.

SEC Form 17- A 2010

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Revenues

Water Services Sewer Services Others Total Revenues

Audited Increase (Decrease) 2010 2009 Amount % (in Php Millions) 9,905 8,576 1,329 15.50 1,739 1,624 115 7.08 406 419 (13) (3.10) 12,050 10,619 1,431 13.48

Revenues for 2010 reached Pesos 12,050 million, representing 13.48% growth from last year, pushed by billed volume growth of 7% and higher average tariff of 7%. The number of serviced customers for the year increased by 11%. Percentage increases in the components of Maynilads revenues are set out below: Cost and expenses

Salaries, wages and benefits Amortization of service concession assets Contracted services Utilities Materials and supplies Provision for doubtful accounts Repairs and maintenance Depreciation and amortization Regulatory costs Collection charges Taxes and licenses Rental Business meetings and representations Transportation and travel Insurance Advertising and promotion Others Total cost and expenses

Audited Increase (Decrease) 2010 2009 Amount % (in Php Millions) 1,284 1,351 (67) (4.96) 1,059 1,323 (264) (19.95) 599 462 137 29.65 565 417 148 35.49 367 247 120 48.58 226 (226) (100.00) 321 221 100 45.25 135 119 16 13.45 13 98 (85) (86.73) 103 96 7 7.29 85 90 (5) (5.56) 160 77 83 107.79 31 64 (33) (51.56) 81 59 22 37.29 28 23 5 21.74 18 21 (3) (14.29) 85 80 5 6.25 4,934 4,974 (40) (0.80)

Cost and expenses in total went down by 0.8% due mainly to (a) 19.9% drop in amortization of concession assets in light of the extension; (b) drop in provision for doubtful accounts in light of the improvement in collections; (c) 86.7% drop in regulatory costs and 51.6% drop in representation expense. Cost and expenses would have increased by 6% disregarding the effect of the reduced amortization. Other income and expenses 2010 other expense (net of other income) versus other income (net of other expense) last year is due mainly to the recognition of income from rate rebasing in 2009.
SEC Form 17- A 2010 Page 30

Net income Net income increased by 69% in 2010 due to higher revenues and lower cost and expenses posted for the year. Core income Maynilads core income increased by 45% to Pesos 4,835 million in 2010 from Pesos 3,328 million in 2009 due to increased billed volume and higher average tariff as discussed above. Nonrecurring items Foreign exchange loss was recorded in 2010, representing net realized gain from US dollar transactions and holdings.

Toll Roads Operational highlights


Metro Pacific Tollways Corporation Increase (Decrease) 2010 2009 Amount % (In Php Millions unless otherwise stated) 5,858 5,489 369 6.72 3,692 3,313 379 11.44 63% 60% 3% 5.00 1,465 1,220 245 20.08 996 582 414 71.13 163 174 (11) (6.32) 1,281 968 313 32.33 159,882 120,003 7,669 128,732 38,819 3,115,475 65,189 150,395 117,527 7,049 117,527 39,917 2,945,750 59,914 9,488 2,477 621 11,205 (1,098) 169,725 5,276 6.31 2.11 8.81 9.53 (2.75) 5.76 8.81

Revenue EBITDA (Core) EBITDA margin (Core) Core income Net income attributable to equity holders of MPTC Share in net earnings of an associate Capital expenditure Average Daily Vehicle Entries - NLEX & Seg 8.1 Average Daily Vehicle Entries - NLEX Average Daily Vehicle Entries - Seg 7 Average Daily Vehicle Entries - NLEX Open System Average Daily Vehicle Entries - NLEX Closed System Average Kilometers Travelled - Closed System Average Kilometers Travelled - Seg 7

Expansion and improvement of MPTCs tollroad network continued apace, enabling increased and safer travel and trade in central Luzon. Segment 8.1, a 2.7-kilometer stretch of tollroad from Mindanao Avenue to the North Luzon Expressway (NLEX) at Valenzuela City, opened in June 2010 and is already recording an average of 8,729 entries a day, thereby helping to decongest the Balintawak entry point. Completion of a detailed engineering study in December 2010 for the building of Segments 9 and 10 collectively called the Harbour Link paves the way for connection of NLEX to the Port Area of Manila, which starts by the end of 2011 and expected to be completed in 2014. The Harbour Link will allow 24hour access to the Port Area to and from NLEX, thus promoting commercial traffic while reducing the travel time for motorists accessing NLEX from Western Metro Manila, and opening the possibility of eliminating the truck ban in northbound traffic. The Connector Road Project aims to connect the Northern and Southern toll road systems. Detailed engineering drawing and design are currently underway ahead of the beginning of construction next year. The Company expects the Connector Road to increase commercial traffic by enabling commercial
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vehicles to traverse Metro Manila without violating the truck ban. Equally important to private motorists, the project will improve convenience for all motorists by slashing the travel time between the Northern and Southern toll road systems to no more than 20 minutes from well over an hour today. In detail, the Connector Road is a 13-kilometer, four-lane elevated expressway using a new construction technology that will connect the Harbour Link to South Luzon Expressway/Skyway at Buendia Avenue, Makati City. The Harbour Link and Connector projects will see MPTC invest a total of Pesos 25 billion to complete construction, all of which MPTC and MPIC can fund from internal sources. For its part, the Government will invest a further Pesos 7.7 billion to secure the Right of Way access necessary to enable construction of each project to commence. The take-over of the Subic-Clark-Tarlac Expressway (SCTEX) concession is now expected to be completed before the end of April. Once SCTEX is integrated with NLEX, for an investment of Pesos 300 million motorists traveling between the two tollroads will enjoy seamless travel to Northern Luzon. Toll Roads' stand-alone operations improved from last year due mainly to the increase in traffic volume and the additional contribution from Segment 8.1. Average daily traffic rose 6% to 159,882 vehicle entries per day in 2010 from 150,395 a year earlier as a result of marketing initiatives and stable fuel prices leading to longer average journeys as well as increases in the number of vehicles entering the toll road system. Revenues

Toll fees Sale of transponders and magnetic cards Total Revenues

Audited Increase (Decrease) 2010 2009 Amount % (in Php Millions) 5,857 5,487 370 6.74 1 2 (1) (50.00) 5,858 5,489 369 6.72

Net toll revenues amounted to Pesos 5,858 million, 7% higher year-on-year. Daily average toll revenues correspondingly increased from Pesos 15.03 million last year to Pesos 16.05 million this year, as the Company recorded all-time highs in traffic volume in 2010. Average daily traffic along NLEX reached 159,882 vehicle entries in 2010, 6% higher than in 2009. Despite the increase in fuel prices, traffic volume improved due to the traffic growth in Subic-Clark-Tarlac Expressway, the opening of Segment 8.1, the election-related activities, the influx of tourists during the summer season and weekends, the continuous efforts to make NLEX a better and safer travel route than alternative free roads. Sales of transponders and magnetic cards declined 50% due to the outsourcing of the supply, sales and marketing of transponders to Easytrip Services Corporation.

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Cost and expenses

Cost of services Provision for potential losses on input VAT Salaries and employee benefits Write-off of input VAT Taxes and licenses Professional fees Advertising and marketing expenses Outside services Depreciation and amortization Representation and travel Management fees Provisions Communication, light and water Collection charges Office supplies Repairs and maintenance Donations and contributions Training and development costs Rentals Miscellaneous Total cost and expenses

Audited Increase (Decrease) 2010 2009 Amount % (in Php Millions) 2,584 2,623 (39) (1.49) 334 1,105 (771) (69.77) 243 211 32 15.17 94 (94) (100.00) 64 57 7 12.28 73 49 24 48.98 50 44 6 13.64 39 42 (3) (7.14) 30 34 (4) (11.76) 33 26 7 26.92 21 19 2 10.53 29 10 19 190.00 10 7 3 42.86 7 7 5 6 (1) (16.67) 6 5 1 20.00 2 (2) (100.00) 3 1 2 200.00 1 1 1 100.00 39 14 25 178.57 3,571 4,357 (785) (18.02)

Decline in cost of services is mainly attributable to: (a) lower provisions for heavy maintenance expenditures brought about by the revision of the program in 2010; (b) lower repairs and maintenance for the period; and, (c) lower cost of inventories in relation to outsourcing of the supply, sales and marketing of transponders to Easytrip Services Corporation. General and administrative expenses decreased primarily because of the decrease in provision for potential losses on input VAT, outside services, depreciation, office supplies, donations and contributions, and input VAT write-off partly offset by higher salaries and employee benefits, professional fees, taxes and licenses, advertising and marketing, representation and travel, provisions and other operating expenses. Other income and expense Increase in interest expense and other finance costs is mainly due to the acceleration of unamortized debt issue costs in 2010 resulting from the prepayment notice submitted by MNTC to its long-term debt creditors informing the prepayment of all US dollar-denominated loans on January 14, 2011. Other income decreased due to the combined effects of the following: (i) foreign exchange gains were higher in 2010 in light of the appreciation of the Philippine peso against the US dollar; (ii) interest income grew due to increased excess cash invested in short-term time deposits and available for sale securities; and, (iii) other expenses rose due to the loss on swap termination resulting from the termination of hedging agreements related to the US dollar-denominated loans. Net income Net income increased by 71% in 2010 due to higher revenues and lower costs and expenses posted during the year.

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Core income Increase in core net income for the year of Pesos 245 million is mainly due to the increase in traffic volume and the fresh contributions from Segment 8.1, higher non-toll revenues and prudent management of operating costs and expenses. Nonrecurring items Net income increased by Pesos 414 million due to the Pesos 638 million nonrecurring losses recognized last year compared to only Pesos 469 million nonrecurring losses recognized this year. The decline in nonrecurring losses is due to the higher provisions for probable losses on disallowance of input VAT recognized in 2009 (Pesos 741 million in 2009 compared to Pesos 224 million in 2010). 2009 provisions for input VAT disallowances included 2008 and prior years input VAT. The decline was partially offset by the termination fee incurred in the refinancing of some of its loans.

Power

Revenue EBITDA (Core) EBITDA margin (Core) Core income Net income Capital expenditure Volume Sold (in mln kwh) System Loss (12 month moving average) Average Distribution Revenue per kWh YTD Distribution Revenues Distribution EBITDA Distribution EBITDA Margin
Operational highlights

Increase (Decrease) 2010 2009 Amount % (in Php millions unless otherwise stated) 245,461 184,550 60,911 33.01 24,478 16,007 8,471 52.92 10% 9% 1% 11.11 12,155 7,003 5,152 73.57 9,685 6,005 3,680 61.28 10,096 8,889 1,207 13.58 30,247 7.94% 1.43 43,391 17,330 40% 27,516 8.61% 1.22 33,575 12,368 37% 2,731 -0.67% 0.21 9,816 4,962 3% 9.93 (7.78) 17.21 29.24 40.12 8.11

The volume of electricity sold by Meralco rose 10% to 30,247 kWh, driven by strong growth from all sectors led by the industrial sector. Revenues rose 33% in 2010 to Pesos 245.46 billion due mainly to the volume growth and higher power charges. The overall core net income for the full year increased 74% to Pesos 12.16 billion. System loss declined to a 36-year low of 7.94% from 8.61% last year, largely on the strength of energy sales to the industrial sector. Large industrial customers are served at the primary distribution voltagelevel, with the result that an increase in their share of electricity consumption reduces the possibility of technical losses, which account for the bulk of total system loss. Meralco continues to institutionalize loss-reduction initiatives through improving pilferage management and expanding its partnership with local government units as part of system loss management in high-density residential areas. Capital expenditures for the year amounted to Pesos 10.1 billion, with electric capital projects accounting for 51% of the total, consisting largely of increased volumes of new service applications, improvement of distribution facilities and major replacements of meters and transformers. Two significant measures of service reliability included a 21% improvement in Interruption Frequency Rate and a 21% improvement in Cumulative Interruption Time. Looking ahead, Meralco is focused on capturing a greater share of the electricity business and providing greater service efficiency to all consumers residential, commercial and industrial. This will
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be achieved through its relentless pursuit of efficiency as an electricity distributor and entry into power generation and retail electricity supply. Meralco has announced it is initially targeting 900MW-1,500MW of generating capacity in conjunction with various partners. The requisite investment for these projects can be funded without recourse to Meralco shareholders. Core income The Company recognized a full-year contribution from Meralco to MPIC's core income of Pesos 1,486 million in 2010 compared with Pesos 212 million in 2009 (partial year only). This represents MPICs 17.4% effective ownership in Meralco through Beacon compared with 14.67% share in net income of Meralco recognized for the quarter ended December 31, 2009. This is net of fair value amortization for the intangible asset recognized upon acquisition of Meralco. On a stand-alone basis, Meralco's core income for the year was Pesos 12.2 billion in 2010 compared with Pesos 7.0 billion in 2009 of which core income for the last quarter of 2009 was at Pesos 1.5 billion. Nonrecurring items Nonrecurring losses for the year include provisions for long outstanding items. At the MPIC consolidated level, actuarial losses related to Meralcos pension plan assets were recognized. Healthcare
Increase (Decrease) Amount % 1,030 208 (162) (54) 5 (74) (1,530) 17.28 18.31 (29.83) (10.23) 1.07 (100.00) (24.38)

2010 Revenue EBITDA (Core) Net Profit Core income Hospital's core income School's core (losses) Enrollment statistics 6,989 1,344 381 474 474 4,746

2009 5,959 1,136 543 528 469 74 6,276

(in Php Millions, unless otherwise stated)

The Pesos 172 million attributable profits for Healthcare came from its total core income of Pesos 474 million which is Pesos 54 million lower than last year. This was due mainly to the higher operating and maintenance expenses of MDI reflecting investments in personnel, security equipment and buildings combined with lower than planned for in and out-patient levels and the reduced earnings of the schools' operations. The decrease in core contributions of hospitals was partly offset by the contributions of newly acquired hospital companies Riverside Medical Center, Inc. (RMCI) and East Manila Hospital Managers Corporation (EMHMC). RMCIs core income contributions for 2010 amounted to Pesos 16 million representing 51% MPIC share in RMCIs seven-months core income in 2010. EMHMC, a 100%-owned subsidiary of MPIC, added Pesos 3 million core income contributions representing two months operations in 2010. EMHMC was incorporated on October 15, 2010. Medical Doctors, Inc. or MDI, a 35%-owned associate of MPIC, the operator of Makati Medical Center and Cardinal Santos, contributed Pesos 113 million to core income. This is 12% lower than previous years contribution due to higher operating costs and depreciation as a result of expansion projects and the underperformance of the schools. Net income of MDI however declined by 44% in 2010 due to nonrecurring losses incurred in relation to the impairment of some of its receivables. Davao Doctors Hospital or DDH, also a 35%-owned associate of MPIC, the operator of Davao Doctors Hospital, the biggest hospital in Davao, contributed Pesos 40 million in 2010. Net income decreased by

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23% compared with last year due to the weak performance of Davao Doctors College and higher operating costs. Manila North Harbour Port, Inc. Manila North Harbour Port, Inc. (MNHPI), a joint venture between MPIC and Harbour Centre Port Terminal, Inc. (HCPTI) was incorporated on November 5, 2009 for the purpose of developing, maintaining and operating the Manila North Harbor and other port facilities. In June 2010, as a result of inconclusive negotiation of agreements with the proposed partner, MPIC divested its entire 35% interest in Manila North Harbour Port, Inc., for a full recovery of its investment, from its joint venture partner Harbour Center Port Terminal, Inc.

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MPIC CONSOLIDATED BALANCE SHEETS The changes in the Companys financial position are explained below:
2010 ASSETS Current assets Cash and cash equivalents Short-term deposits Receivables - net Advances to contractors and consultants Inventories - at cost Real estate for sale Due from related parties - net Derivative assets Available-for-sale financial assets Noncurrent asset held for sale Other current assets Audited % 2009 % (in Php Millions) Increase (Decrease) Amount %

4,942 6 2,381 288 159 187 439 3 546 2,321 11,272

43.84 0.05 21.12 2.56 1.41 1.66 3.89 0.03 4.84 20.59 100.00

6,380 2,433 13,475 528 96 187 501 283 329 1,594 25,806

24.72 9.43 52.22 2.05 0.37 0.72 1.94 1.10 1.27 6.18 100.00

(1,438) (2,427) (11,094) (240) 63 (62) 3 263 (329) 727 (14,534)

(22.54) (99.75) (82.33) (45.45) 65.63 (12.38) 92.93 45.61 (56.32)

Noncurrent Assets Investments in associates and interest in joint ventures Investment in bonds Goodwill Receivables Due from related parties Service concession assets Property and equipment - net Derivative assets Available for sale financial assets Deferred tax assets Other noncurrent assets

34,872 12,751 675 65 69,348 1,423 32 513 275 149 120,103

29.04 10.62 0.56 0.05 57.74 1.18 0.03 0.43 0.23 0.12 100.00

27,370 401 12,552 65 62,185 634 39 215 132 103,593

26.42 0.39 12.12 0.06 60.03 0.61 0.04 0.21 0.13 100.00

7,502 27.41 (401) (100.00) 199 1.59 675 7,163 11.52 789 124.45 (7) (17.95) 513 60 27.91 17 12.88 16,510 15.94

Cash and cash equivalents and short-term deposits (Decrease) This is mainly the result of cash outlays for capital expenditures by Maynilad and MPTC, transaction costs by the Parent Company in relation to investment in Beacon, and the effect of Peso appreciation against the Dollar on Maynilad dollar holdings from Pesos 46.20 in December 31, 2009 to Pesos 43.84 in December 31, 2010. Receivables current portion (Decrease) This is mainly due to the collection of the Pesos 11.2 billion loan extended to First Philippine Utilities Corporation (FPUC). Advances to contractors and consultants (Decrease) This is mainly due to the application against progress billings received for the construction of Segment 8.1. Inventories (Increase) This is mainly due to the additional purchase of inventories, net of utilization/expense and the consolidation of inventories of RMCI and EMHMC. Real estate for sale (No movement) This is composed of condominium units pertaining to conveyed properties in settlement of ABHC Note. See discussion in Note 6 of the accompanying Audited Financial Statements. Noncurrent asset held for sale (Zeroed Out) This account represents investments in Landco previously classified as assets and liabilities of disposal group in 2008s Balance Sheet and
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was shown as a noncurrent asset held for sale as of December 31, 2009. A portion representing 15% of the equity in Landco was sold to AB Holdings Corp. in 2010 while the remaining 19% shareholding in Landco was reclassified to Available-for-Sale financial assets. See discussion in Note 6 of the accompanying Audited Financial Statements. Available-for-sale financial assets current portion (Increase) This is due to reclassification of the remaining investments in Landco to this account. Landco shares were previously reflected under Asset held for Sale and reclassified upon reduction of shareholding to 19% consistent with strategy of seeking to exit equity participation in Landco. The other components of this account represent shares of stock which are unquoted consisting of NE Pacific Shopping Center (NEPSCC) shares, and Bonifacio Land Corporation (BLC) shares. NEPSCC is the operator of a shopping mall while BLC and Landco are real estate companies. NEPSCC shares were conveyed to MPIC in 2009 as a settlement for the ABHC Note and partial settlement of the MPIC loan as discussed in Note 6 of the accompanying Audited Financial Statements. Derivative assets current portion (Increase) This is due to cross currency swap transactions at MPTC. Due from related parties- current portion (Decrease) This is due to payments of intercompany advances for the period. Other current assets (Increase) This represents additional sinking fund in Maynilad and Head Office to fund scheduled payments of interest on existing loans plus higher input VAT and prepayments at Maynilad and other deposits related to the Cooperation Agreement as discussed in Note 11 of the accompanying Audited Financial Statements. Investments in associates and joint ventures (Increase) This is mainly attributable to the following: (a) investment in Beacon to fund acquisition of additional Meralco shares; and (b) equity in net earnings of the associates and joint ventures for the year. This was partly offset by the sale of the investments in MNHPI on June 28, 2010. Investment in Bonds (Zeroed out) This pertains to MNTCs partial sale of its investments in retail treasury bonds prior to their maturity. As discussed in Note 10 of the accompanying Audited Financial Statements, the pre-termination of these bonds precludes the Company from classifying any existing and new investments as Investment in Bonds Held to Maturity, hence it was reclassified to Available-for-Sale Financial Assets as of December 31, 2010. Goodwill (Increase) Due to the provisional goodwill related to the acquisition of Riverside Medical Center Inc. (RMCI) which happened in May 31, 2010 and provisional goodwill related to OLLHI recorded upon acquisition by EMHMC which was incorporated in October 2010. See Note 4 of the accompanying Audited Financial Statements for further details. Due from related parties - noncurrent (Decrease) This reflects partial collection of the longterm receivable of MPTDC from a financial guarantee obligation of TMC. The receivable is equivalent to the financial guarantee obligation recorded as the present value of the guaranteed portion of the liability of TMC by MPTDC. Receivable noncurrent (Increase) This pertains to the noncurrent portion of receivables in relation to the term sheet executed between MPIC, ABHC and Landco. See Note 6 of the accompanying Audited Financial Statements for more details. Service concession assets (Increase) The increase is mainly due to the additional concession fees related to the extension of concession term and capital expenditures for the year, net of amortization.

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Property and equipment, net (Increase) This is mainly due to additional PPE from RMCI and EMHMC which were consolidated for the first time upon acquisition last May 31, 2010, and November 2010, respectively, net of depreciation for the period. Derivative Assets - noncurrent (Decrease) This represents MPICs option to convert the preferred shares of Landco to common shares. Such derivative asset will be carried at cost until such time the option will be exercised or has expired. See Note 6 of the accompanying Audited Financial Statements for further details. Deferred Tax Assets (Increase) This mainly represents the tax asset recorded in Maynilads books related to its pension movement for the period. Other noncurrent assets (Increase) This is due to MPTCs additional deferred financing charges, deferred charges for PNR project and miscellaneous deposits for the period.
Audited % 2009 % (in Php millions) 52.09 0.21 0.20 0.21 3.17 1.43 14.78 7.96 19.95 100.00 6,218 21 11 430 1,870 1,208 958 942 11,658 53.34 0.18 0.09 3.69 16.04 10.36 8.22 8.08 100.00 Increase (Decrease) Amount %

2010 Current Liabilities Accounts payable and other current liabilities Unearned toll revenues Unearned tuition and other school fees Income tax payable Due to related parties Derivative liabilities Current portion of: Provisions Service concession fees payable Long-term debts Deferred credits and other long-term liabilities

7,711 31 29 31 469 212 2,188 1,179 2,954 14,804

1,493 10 29 20 39 212

24.01 47.62 181.82 9.07 -

318 17.01 (29) (2.40) 1,996 208.35 (942) (100.00) 3,146 26.99

Noncurrent Liabilities Noncurrent portion of: Provisions Service concession fees payable Long-term debts Deferred credits and other long-term liabilities Due to related parties Derivative liabilities Accrued retirement costs Deferred tax liabilities

309 7,951 29,569 4,162 6,314 49 2,938 51,292

0.60 15.50 57.65 8.11 12.31 0.10 5.73 100.00

416 9,072 41,828 3,433 44 2,673 57,466

0.72 15.79 72.79 5.97 0.08 4.65 100.00

(107) (25.72) (1,121) (12.36) (12,259) (29.31) 729 21.24 6,314 (44) (100.00) 49 265 9.91 (6,174) (10.74)

Equity Capital stock Additional paid-in capital Deposit for future stock subscriptions Other reserves Retained earnings Other comprehensive income reserve Total equity attributable to owners of the Parent Company Non-controlling interest

20,205 37.27 27,508 50.74 12 0.02 629 1.16 5,954 10.98 (90) (0.17) 54,218 100.00 11,061

20,178 39.36 27,860 54.35 451 0.88 2,886 5.63 (110) (0.21) 51,265 100.00 9,010

27 (352) 12 178 3,068 20 2,953 2,051

0.13 (1.26) 39.47 106.31 (18.18) 5.76 22.76

Accounts payable and other current liabilities - (Increase) Net increase is a result of increases in trade payables, accounts payable and accrued expenses both for MPTC and Maynilad
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related to capital expenditures and operating expenses which was partially offset by decrease in MPTCs withholding taxes payable. Unearned toll revenues - (Increase) This came from MPTCs sale of magnetic cards and transponders (prepaid cards). Unearned tuition and other school fees - (Increase) This came from Riversides school operations consolidated for the first time since its acquisition on May 31, 2010. Income tax payable - (Increase) This is due to accrual of additional income taxes of the Group, net of payment for the period. Due to related parties - current portion (Increase) Due to intercompany advances for the period, net of payments. Derivative Liabilities (Increase) This is due to cross currency swap transactions at MPTC. Provisions - current portion (Increase) This pertains to MPTCs periodic provision for heavy maintenance related to construction costs for full blown construction of Phase 2 Segment 8 as well as claims and potential claims against a subsidiary and estimated liabilities for certain fees under the STOA and Operation and Maintenance Agreement entered into by MNTC. Service Concession Fees payable - current portion (Decrease) This is mainly due to actual payments made for the period, net of additional concession fees related to the extension of concession term. The appreciation of peso against the foreign denominated loans contributed to the decline in this account. Long-term debt - current portion (Increase) This came from the first time consolidation of RMCIs loans in 2010 and acceleration of some of MNTCs loans made payable during the first quarter of 2011. Deferred credits and other long-term liabilities - current portion (Zeroed Out) Relates to settlement of payables from rate rebasing exercise of Maynilad which was offset against customers accounts receivable. Provisions noncurrent portion (Decrease) This pertains to MPTCs periodic provision for heavy maintenance related to construction costs for full blown construction of Phase 2 Segment 8. Service concession fees payable - noncurrent portion (Decrease) This is due to actual payments made for the period by Maynilad and appreciation of peso for the period. Long-term debt - noncurrent portion (Decrease) Interest-bearing debt decreased as a result of the transfer to Beacon of the Pesos 11.2 billion loan taken on by MPIC in relation to acquiring shares in MERALCO and the effect of Peso appreciation in the restatement of foreign currency denominated long-term debts. Deferred credits and other long-term liabilities - noncurrent portion (Increase) The change principally reflects the effect of the restatement of Maynilads USD $125 million loan and foreign currency denominated concession fees payable charged to deferred credits account. Due to related parties - noncurrent portion (Increase) This is due to the issuance of a Pesos 6.6 billion convertible bond payable to Metro Pacific Holdings Inc. Derivative liabilities (Zeroed out) This represents the reclassification to current portion of the remaining MPTC cross currency swap (fair value of derivative payment) expected to be settled in 2011.

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Accrued retirement costs - noncurrent (Increase) Due to actuarial losses recognized in pension plan assets of Maynilad, MNTC and RMCI. Deferred tax liabilities (Increase) This represents MPTCs and Maynilads tax liabilities relating to the acceleration of project completion, net of capital expenditure for the year, as well as deferred tax on the convertible bond issued to MPHI. Capital stock (Increase) This reflects the 27.3 million ESOP shares exercised during the year. Additional paid-in capital (Decrease) This reflects the equity restructuring approved in July to apply deficit against additional paid-in capital, partially offset by the premium on the issuances from ESOP shares exercised for the year. Deposit for future stock subscription (Increase) This pertains to exercise of ESOP shares, the certificates for which were released in January 2011. Other reserves (Increase) This pertains to the value of the convertibility feature of the Pesos 6.6 billion loan due to MPHI and expenses related to new ESOP grant charged to equity. Retained earnings (Increase) The movement is attributable to the net income earned and equity restructuring, net of dividends declared in 2010. Other comprehensive income (Decrease) This represents the downward movement in the fair value of MPTC cross currency swap (fair value of derivative receipt) due to appreciation of the Peso during the period. Non-controlling interest (Increase) This is related to minoritys share in the net income for the year and the minority interest of RMCI which is consolidated for the first time upon acquisition in May 2010.

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Liquidity and Capital Resources During the year, MPIC invested a total of Pesos 7.1 billion (2009: Pesos 24.9 billion) to expand its core business portfolio mainly consisting of additional investments in Meralco through Beacon, RMCI and EMHMC. The following table shows a summary of the Groups audited statements of cash flows for the years ended December 31, 2010 and 2009 as well as our consolidated capitalization as of December 31, 2010 and 2009:

Audited Increase (Decrease) 2010 2009 Amount % (in Php Millions) Cash Flows Net cash provided by operating activities Net cash used in investing activities Capital expenditures Net cash (used in) provided by financing activities Net increase (decrease) in cash and cash equivalents Capitalization Long-term debt net of current portion Current portion of long-term debt Total Total equity attributable to owners of the Parent Company Cash and cash equivalents Short-term deposits

14,187 (5,066) 9,009 (10,558) (1,438)

12,678 (26,346) 4,942 17,844 4,174

1,509 21,280 4,067 (28,402) (5,612)

11.90 (80.77) 82.29 (159.17) (134.45)

29,569 2,954 32,523 54,218 4,942 6

41,828 958 42,786 51,265 6,380 2,433

(12,259) 1,996 (10,263) 2,953 (1,438) (2,427)

(29.31) 208.35 (23.99) 5.76 (22.54) (99.75)

As of December 31, 2010, MPICs consolidated cash and cash equivalents and short-term investments totaled Pesos 4,948 million. This declined by Pesos 3,865 million from Pesos 8,813 million in 2009. Principal sources of consolidated cash and cash equivalents in 2010 were cash flows before income taxes paid from operating activities amounting to Pesos 14,187 million compared to net cash used for operations of Pesos 12,678 million in 2009. The increase is mainly attributable to improved operational performance of subsidiaries as discussed previously. Cash flows used for financing activities contributed to the net decline in cash for 2010 consisting of settlement of loans and dividends paid for the year as well as cash used for additional investments in associates and joint ventures during the year. Operating Activities MPICs consolidated net operating cash flow in 2010 posted a 12% increase from Pesos 12.68 billion to Pesos 14.19 billion. This was primarily due to increased net income for the year and more prudent cash management. A large portion of the Groups cash flow from operating activities is generated by the water utility which accounted for 65% of the Groups total revenues in 2010 and 66% in 2009. Revenues from the toll roads business accounted for 32% in 2010 and 34% in 2009. Cash flow from operating activities of the water utility amounted to Pesos 11.61 billion in 2010, a Pesos 7.96 billion increase from net cash outflow of Pesos 3.65 billion in 2009. The increase is attributable to higher net income (increased billed volume and tariff) for the period. For the toll roads business, cash flow from operating activities increased by 13% to Pesos 3.01 billion in 2010 from Pesos 2.66 billion in 2009 due mainly to higher income for the year driven by increased traffic volume.

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Investing activities Net of dividends received, net cash used in investing activities amounted to Pesos 5.07 billion in 2010 which is summarized below: Meralco. From July 2009 through October 2009, MPIC acquired a total of 163,602,961 common shares of Meralco for an aggregate purchase price of Pesos 24.5 billion representing 14.67% of the issued and outstanding share capital of Meralco through series of transactions and open market purchases. In March 2010, MPIC and PCEV decided to consolidate their shareholdings in Meralco to Beacon, a 50%50% joint venture company of MPIC and PCEV. During the year, Beacon purchased additional shareholdings in Meralco reaching 34.8% by the first quarter of 2010. MPIC invested Pesos 6.6 billion in Beacon Preferred Shares to fund the acquisition of additional shares in Meralco. Riverside Medical Center Inc. In May 2010, MPIC acquired a 51% interest in RMCI, the biggest hospital in Bacolod with 272-bed capacity. East Manila Hospital Managers Corporation. On October 23, 2010, East Manila Hospital Managers Corporation entered into a lease agreement with Our Lady of Lourdes Hospital, Inc. and Servants of the Holy Spirit over Our Lady of Lourdes Hospital (OLLH). The intent of MPIC, similar to its previous investments in hospitals, is to operate, manage and improve the hospital. Capital expenditures of the Group amounted to Pesos 9,009 million in 2010, compared with Pesos 4,942 million in 2009. The increase is mainly attributable to increased construction costs at Maynilad. Collection of the Pesos 11.2 billion Notes Receivable from First Philippine Utilities Inc. in March 2010 also contributed to the significant decline in the investing activities outflow.

Financing Activities The Companys consolidated cash flows from financing activities turned around from a source of Pesos 17,844 million in 2009 to an outflow of Pesos 10,558 million in 2010. This is due mainly to capital and loans raised in 2009. The transfer of the investments in Meralco and related borrowings to Beacon contributed to lower debt level in 2010.

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Comparison of Other Financial Years 2009 versus 2008 MPIC CONSOLIDATED STATEMENTS OF INCOME
Audited Increase (Decrease) 2009 2008 Amount % (in Php millions) 16,108 5,041 11,067 219.54 7,121 2,371 4,750 200.34 2,950 1,443 1,507 104.44 4,879 4,159 720 17.31 4,771 4,092 679 16.59 4,012 1,161 2,851 245.56 985 500 485 97.00 499 279 220 78.85 432 144 288 200.00 2,829 1,659 1,170 70.52 577 789 (212) (26.87) (70) (63) (7) 11.11 (32) 42 (74) (176.19) 2,300 526 1,774 337.26

Revenues Cost of services General and administrative expenses Construction revenue Construction costs Interest expense Foreign exchange losses (gains) - net Interest income Share in net earnings of associates and joint ventures Other income Other expenses Provision for (benefit from) income tax Income (loss) from discontinued operations, net of tax Net income attributable to owners of the Parent Company

Revenues The Companys revenues increased 2.2 times from Pesos 5,041 million to Pesos 16,108 million. This reflects 11.3% increase in billed volume of Maynilad and the first full year contribution from MPTC which was acquired in November 2008. Cost of services The growth in cost of services is consistent with that of revenues as it increased 2 times from Pesos 2,371 million in 2008 to Pesos 7,121 million in 2009. This is mainly attributable to full year consolidation of MPTC as compared to its 1.5 months share in cost of services in 2008. Such increase, however, was offset by lower amortization of concession assets from the extension of MNTCs concession to 2037 from 2030. General and administrative expenses General and administrative expenses increased by 104% in 2009 from Pesos 1.442 million in 2008 to Pesos 2,950 million in 2009. The increase is mainly coming from the following: (a) increased personnel costs;(b) increased provision for doubtful accounts; (c) increased depreciation and amortization in relation to additional capital expenditure made during the year; (d) provision for corporate initiatives; (e) increased maintenance and operating expenses in light of the extension of the concession term of Maynilad; and, (f) increase in other expenses. Construction margin Construction margin increased by 62% in 2009 from 2008 due to higher construction revenue recognized at Maynilad. Interest expense Interest expense increased by 245% in 2009 due mainly to higher level of long-term debt in 2009 compared with 2008.

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Foreign exchange gains (losses) net Forex losses in 2009 posted a huge increase from 2008 due to significant forex losses incurred at Maynilad. Interest income The 79% increase in interest income in 2009 was brought about by the higher cash levels maintained at Maynilad as well as by the additional interest earned on the receivable from FPUC. Share in net earnings of associates and joint ventures net The 200% increase in MPICs cumulative share in net earnings of associates and joint ventures is due mainly to: (a) first time contribution of Meralco for the last quarter of 2009; and, (b) increased shareholdings in the hospital group. Other income Other income increased by 71% in 2009 due to the one-time recognition of income from the rate rebasing exercise and FCDA to offset forex losses at Maynilad. Other expenses Other expenses declined by 27% in 2009 due to lower provision for decline in value of assets versus 2008. Provision for (benefit from) income tax Increase in current income tax is due to higher final taxes for 2009 compared with 2008. The recognition of higher benefit from deferred income tax in 2009 was brought about by the reversal of deferred tax in light of the award of a five-year income tax holiday to Maynilad from 2011-2015. Income (loss) from discontinued operations The Pesos 32 million loss from discontinued operations recorded in 2009 pertains to Landcos operations. Landco has been discontinued following managements decision to focus on its operations in infrastructure and healthcare investments. Consolidated Reported Income Attributable to Parent Company The increase in reported income by 337% from Pesos 526 million restated income in 2008 to Pesos 2,300 million in 2009 is attributable to the increase in core net income referred to above and nonrecurring gain of Pesos 252 million, partly offset by higher interest expenses incurred by the Parent Company. Consolidated Core Income Consolidated core income increased 4.9 times more in 2009 than 2008 reflecting the following: Four times increase in contribution from Maynilad to Pesos 1,540 million from Pesos 308 million Meralcos 3-month contribution of Pesos 212 million MPTCs first full year contribution of Pesos 1,279 million in 2009 compared to 1.5 months core contribution in 2008 Healthcare businesses contribution to core net income increased 58% to Pesos 174 million

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Maynilad, MPTC, Meralco and healthcare accounted for 48%, 40%, 7% and 5% respectively of MPICs core profit from operations

Nonrecurring income Nonrecurring income increased to Pesos 252 million in 2009 from Pesos 179 million in 2008. Net foreign exchange and derivative items made a huge turnaround from a loss of Pesos 453 million in 2008 to a gain of 134 million in 2009. This was mainly due to Peso appreciation for the period of Pesos 1.32 from Pesos 47.52 in end-2008 to Pesos 46.20 in end-2009 which resulted to the recognition of forex gain from the restatement of foreign denominated concession fees payable and debts, partly offset by forex loss arising from the restatement of Maynilads US Dollar denominated cash and cash equivalents. Other nonrecurring gains of Pesos 118 million consist principally of Maynilad's income from rate rebasing of Pesos 806 million, excess of fair value over acquisition cost of additional stake of MPIC in MDI of Pesos 16 million and actuarial gains for Maynilad, MPTC and MDI amounting to a total of Pesos 122 million. This was partially offset by Pesos 610 million tax adjustments on Maynilad related to its income tax holiday from 2010 to 2015 and in part to the extension of its concession term from 2022 to 2037, MPTC's provision for Input VAT of Pesos 207 million not provided for in MPIC's financial statements at the point of acquisition, and Pesos 137 million nonrecurring loss from Meralco resulting from various provisions of customer accounts, net of write-off of refunds.

Water utilities
Increase (Decrease)

Maynilad Water Services, Inc. Revenue EBITDA (Core) EBITDA margin (Core) Core income Net income Capital expenditure Volume of water supplied (MCM) Volume of water billed (MCM) Water billed to supply % Non-revenue water % (average) Non-revenue water % (year end) Billed customers (period end) Customer mix (% based on billed volume) Domestic (residential and semi business) Nondomestic (commercial and industrial)

2009 2008 Amount % (in Php Millions, unless otherwise stated) 10,619 8,245 2,374 28.79 6,970 4,981 1,989 39.93 66% 60% 6% 10.00 3,328 2,323 1,005 43.27 2,825 1,994 831 41.68 4,559 6,375 (1,816) (28.49) 868 869 (1) (0.10) 350 315 35 11.14 40% 36% 4% 11.11 60% 64% -4% (6.25) 57% 60% -3% (5.00) 814,645 762,315 52,330 6.86 76% 24% 74% 26%
2% -2% 0.03 (0.08)

The Water Utilities business improved from 2008's contribution due mainly to improved performance of Maynilad and the higher effective tariff rate in 2009 as a result of the rate rebasing exercise. Billed volume increased to an all-time high of 350.1 million cubic meters from 315 MCM in 2008 mainly coming from the increase in domestic consumption. Non revenue water likewise continued to decline from 2008's average of 63.8% to 2009's 60%. The approval by Metropolitan Waterworks and Sewerage System of the 15 year-extension of Maynilad's Concession has also enhanced the Company's core results. At MPIC consolidated level, MPIC's increased ownership in water utilities from effective ownership of 42.0% to 58.0% likewise contributed substantially to the positive variance.

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Revenues

Water Services Sewer Services Others Total Revenues

Audited Increase (Decrease) 2009 2008 Amount % (in Php Millions) 8,576 6,420 2,156 33.58 1,624 1,387 237 17.09 419 438 (19) (4.34) 10,619 8,245 2,374 28.79

Water and sewer services combined grew 30.6% to Pesos 10.2 billion from Pesos 7.81 billion in the same period in 2008. The increase was due to the 11.3% increase in billed volume coupled with an average effective tariff increase of around 17.4%. The approved tariff increase for the year was composed of a 12.2% CPI or inflationary increase (Pesos 2.42 per cubic meter) implemented on February 20, 2009, and a rate rebasing increase of 22.6% (Pesos 7.44 per cubic meter) effective May 4, 2009. On a weighted average basis, such rate increases should have resulted in a price increase of approximately 25.5%. The effective increase, however, was dampened by higher billed volume growth coming from domestic consumption whose rates are subsidized. As a percentage of billed volume, domestic customers accounted for 76% of total compared to 74.4% in 2008. Also reducing the growth rate was the 20% discount to lifeline customers or those consuming less than 10 cubic meters per month that had been in place since the start of this year but only took effect in April 2008. Including other contracts and services, total revenue from operations grew at a slightly lower rate of 28.8% to Pesos 10.62 billion from Pesos 8.24 billion in 2008. The lower growth rate was due to the decline in other fees and services as Maynilad, on orders of the regulator, stopped collecting late payment penalty charges beginning April 2008.

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Cost and expenses

Salaries, wages and benefits Amortization of service concession assets Contracted services Utilities Materials and supplies Provision for doubtful accounts Repairs and maintenance Depreciation and amortization Regulatory costs Collection charges Taxes and licenses Rental Business meetings and representations Transportation and travel Insurance Advertising and promotion Others Total cost and expenses

Audited Increase (Decrease) 2009 2008 Amount % (in Php Millions) 1,351 1,234 117 9.48 1,323 1,283 40 3.12 462 489 (27) (5.52) 417 373 44 11.80 247 174 73 41.95 226 102 124 121.57 221 175 46 26.29 119 112 7 6.25 98 81 17 20.99 96 87 9 10.34 90 85 5 5.88 77 67 10 14.93 64 67 (3) (4.48) 59 106 (47) (44.34) 23 18 5 27.78 21 12 9 75.00 80 67 13 19.40 4,974 4,532 442 9.75

Cost and expenses in total went up in total by 9.7% due mainly to (a) increased provision for doubtful accounts; (b) increased repairs and maintenance; (c) increased cost of materials and supplies; and (d) increased advertising and promotions. Other income and expense On April 16, 2009, the MWSS Board of Trustees approved a rate rebasing increase for Maynilad of 22.6% of the average basic charge effective fifteen days from publication in a newspaper of general circulation or on May 4, 2009. Incorporated in the approval of the rebasing increase is the final determination on the treatment of certain collections that until recently had been classified as deferred credits pending their resolution. The net effect of the resolution of these issues is an extraordinary gain of Pesos 1.16 billion. (Note that the estimated tax effect has been eliminated compared to previous estimates as Maynilad obtained a BIR ruling that effectively clarified that gains related to the rate rebasing is covered by Maynilads ITH.) Net income Net income increased at a relatively slower pace of 41.7% to Pesos 2.82 billion from Pesos 1.99 billion last year, primarily due to the impact of the write-off of approximately Pesos 1.72 billion in deferred tax assets following the approval of Maynilads new 6-year income tax holiday. Core income Excluding the impact of extraordinary gains and charges, as well as nonrecurring foreign exchange gains or losses, Maynilads 2009 core income of Pesos 3,328 million is 37% higher than 2008s Pesos 2,433 million on account of the increase in billed volume by 11% and effective tariff rate by 7%.

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Nonrecurring items Nonrecurring items recognized for the year include a one-off loss of Pesos 1.72 billion mainly coming from tax write-offs related to the ITH extension. However, this was partially offset by Pesos 1.39 billion income from rate rebasing. Net foreign exchange loss of Pesos 83 million was also recorded for the year representing net realized loss from US dollar transactions and holdings.

Toll Roads
Metro Pacific Tollways Corporation
Increase (Decrease)

Revenue EBITDA (Core) EBITDA margin (Core) Core income Net income attributable to equity holders of MPTC Share in net earnings of an associate Capital expenditure Average Daily Vehicle Entries - NLEX & Seg 8.1 Average Daily Vehicle Entries - NLEX Average Daily Vehicle Entries - Seg 7 Average Daily Vehicle Entries - NLEX Open System Average Daily Vehicle Entries - NLEX Closed System Average Kilometers Travelled - Closed System Average Kilometers Travelled - Seg 7

2009 2008 Amount % (In Php Millions unless otherwise stated) 5,489 5,198 291 5.60 3,313 2,996 317 10.58 60% 58% 0 4.10 1,220 987 233 23.61 582 784 (202) (25.77) 174 113 61 53.98 968 81 887 1,095.06 150,395 117,527 7,049 117,527 39,917 2,945,750 59,914 141,846 113,204 5,948 113,204 34,589 2,662,845 50,556
8,549 4,323 1,101 4,323 5,328 282,905 9,358 6.03 3.82 18.50 3.82 15.40 10.62 18.51

MPTCs 2009 core income attributable to MPIC of Pesos 1,220 million was 23% higher than 2008s Pesos 990 million, mainly due to 6% increase in traffic volume brought about by lower average fuel prices as discussed above, marketing efforts promoting use by Class 1 and 3 vehicles, continued emphasis on customer service and the full opening of the Subic-Clark Tarlac expressway. Nonrecurring loss increased by 208% from Pesos 207 million in 2008 to Pesos 638 million in 2009. The increase is mainly coming from the provision for input VAT amounting to Pesos 1.10 billion. Revenues

Toll fees Sale of transponders and magnetic cards Total Revenues

Audited Increase (Decrease) 2009 2008 Amount % (in Php Millions) 5,487 5,198 289 5.56 2 2 5,489 5,198 291 5.60

MPTC posted consolidated revenues of Pesos 5,489 million during 2009, Pesos 291 million higher than 2008s Pesos 5,198 million, as the annual average daily traffic in the NLEX recorded an all-time high of 150,395 vehicle entries. This represents 6% traffic volume growth from 2008 attributable to lower average fuel prices (reduction of 23% and 33.6% for gas and diesel, respectively), opening of SCTEX which extended journeys within NLEX of Subic- and Clark-bound vehicles, marketing efforts promoting entry of roads by Class 1 and 3 vehicles , and continued emphasis on customer service. In addition, the ongoing bridge construction and rehabilitation works along EDSA-Balintawak and Maharlika Highways diverted some of the heavy vehicles to NLEX. Local tourism is continuously promoted
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through various initiatives and a high quality of customer service to NLEX motorists is consistently delivered. Cost and expenses

Cost of services Provision for potential losses on input VAT Salaries and employee benefits Write-off of input VAT Taxes and licenses Professional fees Advertising and marketing expenses Outside services Depreciation and amortization Representation and travel Management fees Provisions Communication, light and water Collection charges Office supplies Repairs and maintenance Donations and contributions Training and development costs Rentals Miscellaneous Total cost and expenses

Audited 2009 2008 (in Php Millions) 2,623 2,642 1,105 211 229 94 57 27 49 78 44 38 42 34 34 27 26 27 19 6 10 7 8 7 7 6 6 5 4 2 3 1 10 1 2 14 12 4,357 3,160

Increase (Decrease) Amount % (19) 1,105 (18) 94 30 (29) 6 8 7 (1) 13 10 (1) 1 (1) (9) (1) 2 1,197 (0.72) (7.86) 111.11 (37.18) 15.79 23.53 25.93 (3.70) 216.67 (12.50) 25.00 (33.33) (90.00) (66.67) 16.67 37.88

Cost of services went down by .7% to Pesos 2.62 billion in 2009 from Pesos 2.64 billion in 2008. The slight increase operating and maintenance costs was offset by the lower amortization of concession assets from the extension of MNTCs concession to 2037 from 2030. General and administrative expenses increased to Pesos 1.73 billion from Pesos 517.9 million as the Company recognized a one-time charge amounting to Pesos 1.20 billion for provision for a potential write-off of input VAT. MNTC accumulated such amount as input VAT for its purchases of goods and services. The provision is in light of the Bureau of Internal Revenues pending order to impose VAT on toll revenues. Excluding this one-time non-cash charge, the increase in general and administrative expenses was at a manageable 3.4%. Excluding the effect of expenses relating to VAT, MPTC was able to improve its cost and expenses through prudent cost management. A more thorough review of resource allocations to capital and operating expenditures was implemented to promote better fiscal discipline. Various initiatives were also pursued with aim of promoting operating efficiency. Existing policies and business processes were examined to determine opportunities to rationalize costs related to outsourced services, fuel, supplies and inventories. Share in net earnings of an affiliate Equity in net earnings of affiliate, Tollways Management Corporation increased its income contribution to MPTC to Pesos 174 million, 54% greater than 2008. The increase is mainly attributable to the incremental income derived by TMC from the interim O&M agreement with BCDA for SCTEX and NLEX while efficiently managing operating costs.

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Other income and expense Interest expense and other finance cost increased by 6% or Pesos 56 million due to higher nominal interest rate for hedged loans in 2009. MNTC hedged its US Dollar-denominated debts with the change in the toll rate formula to take out adjustments related to foreign currency fluctuations. The hedging transactions substantially eliminated the foreign exchange risk of MNTC. Net foreign exchange and derivative items made a huge turnaround from a loss of Pesos 399 million last year to a gain of Pesos 9 million in 2009. This was mainly due to Peso appreciation in 2009 of Pesos 1.32 from Pesos 47.52 in end-2008 to Pesos 46.20 which resulted to the recognition of forex gain in the restatement of long-term debts. Net income Net income attributable to equity holders of MPTC for 2009 reached Pesos 581.7 million, 25.8% lower than the same period of the previous year after a one-time charge amounting to Pesos 741.2 million for provision for write-off of input VAT. MNTC accumulated such amount as input VAT for its purchases of goods and services. The provision is a conservative approach with the Bureau of Internal Revenues pending order to impose VAT on toll revenues. Excluding this one-time non-cash charge, net income would have been Pesos 1.32 billion, 68.7% higher than 2008. Core income MPTCs 2009 core income attributable to MPIC of Pesos 1,220 million was 23% higher than 2008s Pesos 990 million, mainly due to 6% increase in traffic volume brought about by lower average fuel prices as discussed above, marketing efforts promoting use by Class 1 and 3 vehicles, continued emphasis on customer service and the full opening of the Subic-Clark Tarlac expressway. Nonrecurring items Nonrecurring loss increased by 208% from Pesos 207 million in 2008 to Pesos 638 million in 2009. The increase is mainly coming from the provision for input VAT amounting to Pesos 1.10 billion.

Power For the first time, the Company recognized its share in Meralco which contributed Pesos 212 million to the Company's core income. This represents the Company's 14.67% share in net income of Meralco for the quarter ended December 31, 2009. This is net of Pesos 25 million fair value amortization for the intangible asset recognized upon acquisition of Meralco. On a stand-alone basis, Meralco's core income for 2009 is at Pesos 7 bilion of which core income for the quarter was at Pesos 1.5 billion. The Company started to equitize Meralco in October 2009 upon completion of the additional block of shares acquisition that resulted to the Company's ownership in Meralco of 14.67%. Notwithstanding challenges and developments in its business and the industry, power distributor Manila Electric Company recorded significant gains in its financial results and achieved excellent performance in its operations. Consolidated revenues, where electricity accounted for 97% of the total, slightly dipped by 3.6% due to a Pesos 0.69 per kilowatthour (kWh) decrease in average generation and transmission charges, as well as adjustment to the estimated amount of electricity distributed but unbilled after scheduled meter readings of the various bill groups. Total energy sales for the year rose 1.7% to 27,516 GWh over the same period in 2008. The growth in residential consumption, the robust performance of the service sector and the return of self-generating customers to the grid were major factors in the energy sales growth. Meralco served 3.1% more customers in 2009 as their number increased to 4,715 from 4,572 in 2008. The Consolidated Reported Net Income was Pesos 6.0 billion, better by 114% from 2008. Basic earnings per share on reported net income amounted to Pesos 5.42 or 114% better than in 2008.
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Consolidated costs and expenses at Pesos 175.6 billion, 6% lower than 2008 due to lower generation and transmission costs Following the approval by the ERC, Meralco implemented its first rate adjustment under Performance Based Regulation (PBR) in 2009 at Pesos 1.227 per kWh, with a zero reduction for Corporate Income Tax (CIT) component. Meralcos last rate adjustment was in June 2003. In December 2009, the ERC approved Meralcos Maximum Average Price (MAP) and rate translation for Regulatory Year 2010, which was implemented in January 2010. However, on January 26, 2010, Meralco manifested that it was voluntarily suspending the adjustment effective immediately, until the regulator has resolved a Motion for Reconsideration filed by an intervenor and until all other issues raised by other intervenors have been addressed. Along with these significant financial results, Meralco showed excellent performance in its operations. Exceptional was its system loss performance recorded at 8.61% which, for the second consecutive year, is below the 9.5% cap imposed by the Energy Regulatory Commission (ERC). It was also the lowest since 1981 and as a result of this unprecedented achievement, Meralco had no unrecoverable purchased power in 2009. Likewise excellent was Meralcos performance in system reliability and efficiency as it established new highs during a year marked by natural catastrophes, economic and transmission grid instability. Complementing the excellence in operations was Meralcos performance in customer service delivery, either meeting or exceeding regulatory customer service performance standards and gaining a high level of satisfaction from its customers. Core income Consolidated Core Net Income for 2009, which excludes one-time, exceptional charges was at Pesos 7 billion, rising 169% from the Pesos 2.6 billion realized in 2008. Core earnings per share likewise rose at Pesos 6.33, 168% higher than in 2008. The slightly higher volume of energy sold and an adjustment in distribution rates effective May 2009 were the main reasons for the improvement. Nonrecurring items Nonrecurring items in 2009 included ERC approved recoveries, adjustments to unbilled electricity, provision for double payment of refund, other provisions and forex.

Healthcare The Pesos 174 million attributable profit for Healthcare came from its total core income of Pesos 528 million which is Pesos 191 million higher than 2008's core income. This was due mainly to the favorable hospitals operations of both MDI and DDH (Pesos 220 million higher core income than 2008) which was partly offset by the deterioration of the schools' operations (Pesos 29 million decline from 2008). The increase in core contributions of hospitals resulted from higher occupancy for the period brought about by the increase in bed capacity to 707 from 655 due to the completion and renovation of the new building of MDI this year. The increase in rates in both bed and ancillary services also contributed to the favorable variance. The move to the new building also contributed to the increase in outpatient services and higher mark up for supplies and medicines. On the schools core income, the decline is brought mainly by the decrease in number of enrollees for 2009 to 3,396 from 4,527. The shift in preferred courses of the general public from medical-related courses such as nursing to information technology and short-term courses contributed to the decline in revenues and core results in 2009 compared with 2008. On October 21, 2009, MPIC subscribed for an additional 139,983 shares of MDI

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for a total subscription of approximately Pesos 160 million, thereby raising MPICs ownership in MDI from 32.39% to 34.79%. The core net income of Davao Doctors Hospital, Inc. increased by 19% from Pesos 120 million in 2008 to Pesos 143 million in 2009. DDH contributed Pesos 46 million of core profitability to MPIC for the period compared with Pesos 37 million in 2008. The increase was due to the excellent results of its hospital operations as a result of new equipment, services and higher bed occupancy of 204 in 2009 compared with 192 in 2008. This more than made up for the reduced enrollment and profitability of its wholly-owned subsidiary, Davao Doctors College, Inc. MPIC equity accounted the results of DDH starting June 2008 and owns 34.85% of DDH as of December 31, 2009.

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Item 7. Consolidated Financial Statements Please see Exhibit I - 2010 Audited Financial Statements (2010 AFS).

Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

Information of Independent Accountant and Other Related Matters 1. External Audit Fees and Services

Type of Service

Aggregate 2008

Nature of Service

a) Audit and Audit related fees i. Asset of registrants annual financial statements Total External Audit Fees

10,800,000.00

Audit of registrants financials

10,800,000.00 2009

a) Audit and Audit related fees i. Asset of registrants annual financial statements Total External Audit Fees

10,144,000.00

Audit of registrants financial statements

10,144,000.00 2010 Audit of registrants financial statements 8,500,000.00

a) Audit and Audit related fees i. Asset of registrants annual financial statements

Total External Audit Fees

8,500,000.00

The individual audit committees of the registrant and subsidiaries review and approve the audit plan and scope of work for the above services and ensure that the rates are competitive as compared to the fees charged by other equally competent external auditors performing similar nature and volume of activities. 2. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure During the Companys recent fiscal years or any subsequent interim periods, there was no instance when the Companys public accountants have resigned or have indicated that they decline to stand for re-election or have been dismissed or where the Company had any disagreement with its public accountants or financial disclosure issue.

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PART III CONTROL AND COMPENSATION INFORMATION

Item 9. Directors and Executive Officers of the Issuer Directors The following are the names, ages, citizenship and periods of service of the incumbent directors/independent directors of the Company, all of whom have been nominated for re-election at the Annual Meeting: Name Manuel V. Pangilinan Jose Ma. K. Lim David J. Nicol Edward S. Go * Augusto P. Palisoc, Jr. Antonio A. Picazo Amado R. Santiago, III Alfred A. Xerez-Burgos Artemio V. Panganiban* Ramoncito S. Fernandez Lydia B. Echauz* Edward A Tortorici Ray C. Espinosa Robert C. Nicholson
* Independent Directors

Age 64 58 51 71 53 69 43 64 74 55 63 71 55 55

Citizenship Filipino Filipino Australian Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino American Filipino British

Period during which individual has served as such March 2006 up to present March 2006 up to present May 2010 up to present July 2006 up to present March 2006 up to present March 2006 up to present July 2006 up to present July 2006 up to present August 2007 up to present June 2009 up to present November 2009 up to present November 2009 up to present November 2009 up to present November 2009 up to present

The following were elected as directors of the Company for 2010 but has resigned as of the dates indicated below: Name Albert F. Del Rosario Rogelio T. Singson Officers and Advisors The following are the names, ages, positions, citizenship and periods of service of the incumbent officers and advisors of the Parent Company: Period during which Name Age Position Citizenship individual has served as such Manuel V. Pangilinan 64 Chairman Filipino March 2006 up to present Jose Ma. K. Lim 58 President & CEO Filipino March 2006 up to present David J. Nicol 51 Chief Finance Officer Australian May 2010 up to present Edward A. Tortorici 71 Executive Advisor American March 2006 up to present Augusto P. Palisoc, Jr. 53 Executive Director Filipino March 2006 up to present Antonio A. Picazo 69 Corporate Secretary Filipino March 2006 up to present Assistant Corporate Gemma M. Santos 49 Filipino March 2006 up to present Secretary Vice President Media Melody M. del Rosario 47 Filipino March 2006 up to present and Corporate Comm Jose Noel de la Paz Director for Corporate 55 Filipino July 2007 up to present Development Vice President Human Robin Velasco 40 Filipino July 2009 up to present Resources
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Age 71 62

Citizenship Filipino Filipino

Effective Date of Resignation March 25, 2011 June 30, 2010

Name Albert W. L. Pulido Maida B. Bruce Reymundo Cochangco Jose Jesus G. Laurel Ferdinand G. Inacay Noel E. Torres

Age 39 38 44 56 45 34

Position Vice PresidentInvestor Relations Vice President Group Controller Chief Finance Officer Hospital Group Vice President Legal Vice President Business Development Assistant Vice President Business Development

Citizenship Filipino Filipino Filipino Filipino Filipino Filipino

Period during which individual has served as such July 2009 up to present November 2009 up to present January 2010 up to present May 2010 up to present November 2009 up to present January 2011 up to present

The following were officers of the Company for 2010 but has resigned as of the dates indicated below: Name Andrew G. Shepherd Joy L. Fernandez Denis B. Lucindo Age 54 31 34 Position Chief Finance Officer Controller Vice President Business Development Citizenship British Filipino Filipino Effective Date of Resignation April 30 2010 January 31, 2010 January 31, 2010

Business Experience and Other Directorships The business experience of each of the directors of the Parent Company for the last five (5) years is as follows. Manuel V. Pangilinan Manuel V. Pangilinan, 64 years old, assumed chairmanship of the Board of Metro Pacific Investments Corporation from March 2006 up to the present. He was appointed as Chairman of the Board of Philippine Long Distance Telephone Company (PLDT) after serving as its President and Chief Executive Officer from November 1998 to February 2004 and became Chairman of the Board of PLDT rd Communications and Energy Ventures Inc. (PCEV, formerly Piltel) on 3 November 2004. He also holds chairmanship in Smart Communications, Inc., ePLDT, Inc., Landco Pacific Corporation, Maynilad Water Services Corporation, Philex Mining Corporation and Manila North Tollways Corporation, Medical Doctors, Inc. (Makati Medical Center), Colinas Verdes, Inc. (Cardinal Santos Medical Center), and Davao Doctors, Inc. He is also a director and the President and Chief Executive Officer of Manila Electric Company (Meralco). Mr. Pangilinan founded First Pacific Company, Limited in 1981 and served as Managing Director until 1999. He was appointed as Executive Chairman until June 2003, when he was named CEO and Managing Director. He also holds the position of President Commissioner of P.T. Indofood Sukses Makmur Tbk, the largest food company in Indonesia. Outside the First Pacific Group, Mr. Pangilinan was a member of the Board of Overseers of the Wharton School of Finance & Commerce, University of Pennsylvania. He is Chairman of the Board of Trustees of San Beda College. He also serves as Chairman of PLDT-Smart Foundation, Inc. and the Philippine Business for Social Progress. He also serves as Vice Chairman of the Foundation for Crime Prevention, a private sector group organized to assist the government with crime prevention, and a member of the Board of Trustees of Caritas Manila and Radio Veritas Global Broadcasting Systems, Inc. In February 2007, he was named the President of the Samahang Basketball ng Pilipinas (SBP), a newly formed national sport association for basketball, and effective January 2009, he assumed the chairmanship of the Amateur Boxing Association of the Philippines (ABAP), the governing body of the amateur boxers in the country.

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Mr. Pangilinan has received numerous prestigious awards including the Ten Outstanding Young Men of the Philippines (TOYM) Award for International Finance (1983), the Presidential Pamana ng Pilipino Award by the Office of the President of the Philippines (1996), Honorary Doctorate in Humanities by the San Beda College (2002), Best CEO in the Philippines by Institutional Investor (2004), CEO of the Year (Philippines) by Biz News Asia (2004), People of the Year by People Asia Magazine (2004), Distinguished World Class Businessman Award by the Association of Makati Industries, Inc. (2005), Management Man of the Year by the Management Association of the Philippines (2005), Order of Lakandula (Rank of a Komandante) by the Office of the President of the Philippines (2006), and Honorary Doctorate in Humanities by the Xavier University (2007). He was voted as Corporate Executive Officer of the Year (Philippines) and Best Executive (Philippines) at the 2007 and 2008 BestManaged Companies and Corporate Governance Polls conducted by Asia Money. Mr. Pangilinan graduated cum laude from the Ateneo de Manila University, with a Bachelor of Arts Degree in Economics. He received his Masters degree in Business Administration from Wharton School of Finance and Commerce, University of Pennsylvania, Philadelphia. Jose Ma. K. Lim Our President & Chief Executive Officer, Jose Ma. K. Lim joined Fort Bonifacio Development Corporation (FBDC) in 1995 as Treasury Vice President and was later on appointed as its Chief Finance Officer. With the divestment in FBDC, Mr. Lim assumed the position of Group Vice President and Chief Finance Officer of FBDCs then parent company, Metro Pacific Corporation, from 2001 to 2003. He was appointed President and CEO of MPC in June 2003 where he continues to serve as Director to this day. In 2006, Metro Pacific Investments Corporation (MPIC) was established and Mr. Lim was appointed as President and CEO, a position he continues to hold. He is also currently a Director in the following MPIC subsidiary and/or affiliate companies: Beacon Electric Asset Holdings, Inc., Metro Pacific Tollways Corporation, Manila North Tollways Corporation, Tollways Management Corporation, Maynilad Water Services, Inc., Medical Doctors, Inc. (owner and operator of the Makati Medical Center), Davao Doctors Hospital (Clinica Hilario) Inc., and Landco Inc. (including several Landco subsidiaries). Mr. Lim likewise serves as President of Metro Strategic Infrastructure Holdings, Inc., which holds a minority ownership interest in Citra Metro Manila Tollways Corp. (Skyway). He is active in the Management Association of the Philippines and has served as Vice-Chair of the Corporate Governance Committee from 2007 to 2009. Mr. Lim graduated from the Ateneo de Manila University, with a Bachelor of Arts degree in Philosophy. He received his MBA degree in 1978 from the Asian Institute of Management. David J. Nicol th Mr. Nicol joined MPIC as Chief Financial Officer on the 6 May 2010 and is responsible for leading and developing MPICs overall financial strategy, its systems and processes, and treasury function. Mr. Nicols expertise comes from a consistent record of building shareholder value through operational improvement, restructuring, mergers and acquisitions and entering new markets in a wide range of businesses in listed and PE backed environments. His 4 -year appointment as Chief Financial Officer and subsequent 4 years as Group Chief Executive Officer of Berli Jucker Plc., an affiliate of First Pacific Company Ltd., drove shareholder value growth and steered the company through the South-East Asian Financial crisis. Prior to joining MPIC, Mr. Nicol was Director and CFO of Reconomy (Holdings) Ltd. where he led the acquisition of nine businesses in UKs waste management and recycling sector. Prior to this, he held positions as President and CEO of Sirva, Inc. for Europe and Asia Pacific and Interim CEO of Pinnacle Regeneration Group, a leading privately owned social housing infrastructure manager and refurbishment provider.

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Edward A. Tortorici Age 71, born in the United States. Mr. Tortorici received a Bachelor of Science from New York University and a Master of Science from Fairfield University. Mr. Tortorici has served in a variety of senior and executive management positions, including Corporate Vice President for Crocker Bank and Managing Director positions at Olivetti Corporation of America and Fairchild Semiconductor Corporation. Mr. Tortorici subsequently founded EA Edwards Associates, an international management and consulting firm specializing in strategy formulation and productivity improvement with offices in USA, Europe and Middle East. In 1987 Mr. Tortorici joined First Pacific as an Executive Director for strategic planning and corporate restructuring, and launched the Group's entry into the telecommunications and technology sectors. Presently, he oversees corporate strategy for First Pacific and guides the Group's strategic planning and corporate development activities. Mr. Tortorici serves as a Commissioner of PT Indofood Sukses Makmur Tbk and as Director of Metro Pacific Investments Corporation, Philex Mining Corporation, Maynilad Water Services, Inc., Medical Doctors, Inc., Landco Pacific Corporation, FEC Resources Inc. of Canada and AIM-listed Forum Energy Plc. Mr. Tortorici serves as a Trustee of the Asia Society Philippines, is on the Board of Advisors of the Southeast Asia Division of the Center for Strategic and International Studies, a Washington D. C. non partisan think tank. He also serves as a Commissioner of the U.S. ASEAN Strategy Commission. Augusto P. Palisoc, Jr. Augusto P. Palisoc, Jr. has been with the First Pacific group of companies for over 27 years. He is currently an Executive Director of Metro Pacific Investments Corporation (MPIC) and is the Chief Executive Officer of the MPIC Hospital Group. He is a Director of Medical Doctors, Inc. (owner and operator of the Makati Medical Center), Makati Medical Center College of Nursing Inc., Colinas Verdes Hospital Managers Corporation (operator of the Cardinal Santos Medical Center), East Manila Hospital Managers Corporation (operator of Lourdes Hospital), Riverside Medical Center Inc. and Riverside College Inc. in Bacolod, Davao Doctors Hospital (Clinica Hilario) Inc., Davao Doctors College, Inc., Lepanto Consolidated Mining Company, and Pacific Plaza Towers Condominium Corporation. Prior to joining MPIC, he was the Executive Vice President of Berli Jucker Public Company Limited in Thailand from 1998 to 2001. Mr. Palisoc served as President and CEO of Steniel Manufacturing Corporation in the Philippines from 1997 to 1998. He has held various positions within First Pacific as Group Vice President for Corporate Development of First Pacific Company Limited in Hong Kong, and Group Managing Director of FP Marketing (Malaysia) Sdn. Bhd. in Malaysia. Before he joined First Pacific in 1983, he was Vice President of Monte Real Investors, Inc. in the Philippines. Mr. Palisoc earned his Bachelor of Arts Degree, Major in Economics (with Honors) from De La Salle University, and his Masters in Business Management (MBM) Degree from the Asian Institute of Management. Mr. Palisoc was born in January 1958. Antonio A. Picazo Antonio A. Picazo is currently the Managing Partner of Picazo Buyco Tan Fider & Santos Law Offices. He serves as a Director and/or Corporate Secretary of several large Philippine corporations, including Metro Pacific Investments Corporation, a position he has held since 2006. Mr. Picazo was born in Manila in August of 1941 and obtained his Bachelor of Laws degree from the University of the Philippines. He passed the 1964 Philippine Bar Examinations with the 5th highest rating. In 1967, he obtained a Master of Laws degree, Major in Taxation from the University of Pennsylvania. He is currently also a member of the Board of the PGH Medical Foundation and of the Haribon Foundation, as well as the Market Governance Board of the Philippine Dealing and Exchange Corporation (PDEX). Edward S. Go (Independent Director) Edward S. Go retired in 2003 as Chairman & CEO of United Coconut Planters Bank (UCPB). Currently, he serves as Chairman of the Board of Hyundai Asia Resources, Inc. and of ASA Philippine Foundation. He is an Independent Director of Metro Pacific Investments Corporation, Metro Pacific Corporation, Pilipino Telephone Corporation and Filipino Fund Inc. He is also a director of Laperal Builders, Inc. He has over 40 years of management experience in banking and finance, starting as Executive Trainee with Citibank N.A. and became President of Philippine Bank of Communications in 1974 and Chairman and Chief Executive Officer of Chinabank in 1985. Mr. Go is also Chairman of the
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Audit Committee of MPIC and PILTEL. He obtained his Bachelor of Arts Degree, magna cum laude, and underwent postgraduate studies at the Ateneo de Manila University, where he currently serves as member of the Board of Trustees. Alfred A. Xerez-Burgos, Jr. Alfred A. Xerez-Burgos, Jr. is presently Vice Chairman and Executive Director of Landco Pacific Corporation (position assumed as of March 2009). He assumed the position of President and CEO and Chairman of the Executive Committee of Landco Pacific Corporation in 1990 after previously working with a major property company for nearly 20 years. He is President of the Muntinlupa Development Foundation, a 20 year old Foundation helping the poor people of Muntinlupa. He is also the President of Club Punta Fuego, Inc., a world class development in Nasugbu, Batangas as well as Chairman and CEO of Forest Lake Development Inc. and Chairman of Philippine Red Cross, Rizal Chapter, the largest Red Cross chapter in the country. He graduated with Distinction, Master in Business Management, from the Asian Institute of Management in 1971. Prior to this, he graduated among the top 25% of his class (Bachelor of Science in Mechanical Engineering) from the De La Salle University in 1969. Chief Justice Artemio V. Panganiban (Independent Director) A consistent scholar, Chief Justice Panganiban obtained his Associate in Arts With Highest Honors and later his Bachelor of Laws with Cum Laude and Most Outstanding Student honors. He founded and headed the National Union of Students of the Philippines. He is also the recipient of several honorary doctoral degrees and placed sixth among 4,200 candidates who took the 1960 bar examinations. In 1995, he was appointed Justice of the Supreme Court, and in 2005, Chief Justice of the Philippines. On his retirement on December 7, 2006, his colleagues acclaimed him unanimously as the st Renaissance Jurist of the 21 Century. Aside from being a prodigious decision writer, he also authored eleven books while serving on the highest court of the land. His judicial philosophy is Liberty and Prosperity Under the Rule of Law. A much sought-after independent director and adviser of business firms, he also writes a column in the Philippine Daily Inquirer. Prior to entering public service, Chief Justice Panganiban was a prominent practicing lawyer, law professor, business entrepreneur, civic leader and Catholic lay worker. He was the only Filipino appointed by the late Pope John Paul II to be a member of the Vatican-based Pontifical Council for the Laity for the 1996-2001 term. Amado R. Santiago III Amado R. Santiago III is the Managing Partner of the Santiago & Santiago Law Offices and is engaged in the general practice of law. He specializes in corporate litigation, which includes corporate rehabilitation proceedings under the Securities and Exchange Commission Rules on Corporate Recovery, Interim Rules of Procedure on Corporate Rehabilitation and the Rules of Procedure on Corporate Rehabilitation. He is also engaged in the practice of taxation law. He acts as director, corporate secretary, and/or corporate counsel of various corporate clients. He graduated from the Ateneo de Manila School of Law in 1992 and passed the Philippines Bar Examinations given in the same year. He received his degree of Bachelor of Science in Legal Management in 1988 from the Ateneo de Manila University. Ramoncito S. Fernandez Mr. Ramoncito S. Fernandez was appointed as President & Chief Executive Officer of Metro Pacific Tollways Corp. (MPTC) and Tollways Management Corporation (TMC) under Metro Pacific Investments Corporation (MPIC) effective in January 2009. He holds directorships in Metro Pacific Investments Corporation (MPIC), Metro Pacific Tollways Corporation (MPTC), Tollways Management Corporation (TMC), Manila North Tollways Corporation (MNTC), Smart Communications, Inc. and some subsidiaries of PLDT including PLDT Subic Telecom, Inc., PLDT Clark Telecom, Inc., PLDT Global Corporation and TAHANAN. He is the 2009 PISM GAWAD SINOP Awardee, an award conferred by the Foundation of the Society of Fellows in Supply Management and the Philippine Institute for Supply Management to outstanding achievers in the field of supply management.

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Mr. Fernandez has varied experiences in international carrier business, administration and materials management, industrial marketing and sales. He was the Head of International and Carrier Business of PLDT and Smart and Global Access Group of Smart from 2007 until December 31, 2008. He was the Administration and Materials Management Head of Smart from 2000, and of PLDT from 2004, until December 31, 2007. He was the Executive Vice President in charge of marketing, sales and logistics of Starpack Philippines, Inc. until June 2000. Mr. Fernandez obtained his Bachelor of Science Degree in Industrial Management Engineering from the De La Salle University and Master's Degree in Business Management from the Asian Institute of Management. Ray C. Espinosa Mr. Ray C. Espinosa is a Director of PLDT since November 1998 and the Vice Chairman of the PLDT Beneficial Trust Fund. He is the head of PLDTs Regulatory Affairs and Policy Office and is a member of the PLDT Grroup Joint Executive Committee. He is also the President and CEO of ePLDT, Inc. and acts as chairman of all ePLDT subsidiaries and affiliate. Mr. Espinosa is also a director of Lepanto Consolidated Mining Company and serves as the Chairman if its Audit Committee. Mr. Espinosa was formerly named by Asia Law and Practice, Euromoney and the Asia Pacific Legal 500 as one of the leading capital market lawyers in the country. He ranked first in the 1982 Philippine Bar Examination. Lydia Balatbat-Echauz Ms Lydia Echauz is a distinguished member of the Academe. She is currently the President of Far Eastern University, FEU-East Asia College and FEU-FERN College. Prior to joining FEU in 2002, she served as the Dean of De La Salle University Graduate School of Business, Associate Director of the MBA program of the Ateneo Graduate School of Business (GSBAA) and also served as an Associate Professor of the University of the East, College of Business Administration. She is currently a member of the Board of Trustees of various Foundations and served as President of the Association of Southeast Asian Institutions of Higher Learning, RP Council from 2006 to 2008. She was awarded Most Outstanding Alumna of Ateneo GSBAA in 1992 and DLSU GSB in 2003. Robert C. Nicholson Age 55, born in Scotland. Mr. Nicholson is a graduate of the University of Kent, qualified as a solicitor in England and Wales and in Hong Kong. He is an Executive Chairman of Forum Energy Plc and an Independent Non-executive Director of India Capital Growth Fund Limited, both of which are listed on the AIM market of the London Stock Exchange. Mr. Nicholson is also an Independent Non-Executive Director of QPL International Holdings Limited and Pacific Basin Shipping Limited, serves as a Commissioner of PT Indofood Sukses Makmur Tbk, and is a Director of Metro Pacific Investments Corporation, Philex Mining Corporation and Pitkin Petroleum Plc. Previously, he was a senior partner of Richards Butler from 1985 to 2001 where he established the corporate and commercial department, and was also a senior advisor to the board of directors of PCCW Limited between August 2001 and September 2003. He has wide experience in corporate finance and cross-border transactions, including mergers and acquisitions, regional telecommunications, debt and equity capital markets, corporate reorganizations and privatization in China. Mr. Nicholson joined First Pacifics Board in 2003. All of the incumbent Directors named above have a one year term of office Officers The business experience of each of the officers and executives of the Parent Company for the last five (5) years is as follows. Jose Noel C. de la Paz As MPICs Director for Corporate Development, Jose Noel C. de la Paz joined MPIC in 2007 and is responsible for the acquisition and investment initiatives on the healthcare sector, beginning with the identification of projects, preliminary evaluation, due diligence, investment structuring, negotiations and execution, up to participation in management. In 2008, he deal managed the takeover of Cardinal Santos Medical Center, was a key member of its interim operating management, and has been serving as its board member in 2009. As part of the MPIC healthcare team, he helps oversee the management of the other hospitals, Makati Medical Center and Davao Doctors Hospital. He has over 20 years of investment banking experience, arranging debt and equity financings and rendering financial advisory services. He was the Philippine Deputy Country Head for New York-based Bankers Trust Company
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that originated and lead managed global bond offerings and bank loan syndications, and worked on advisory engagements for major project financings in the country. He brings this Corporate Finance experience to MPIC in arranging the bank loan syndication and equity rights offering of Makati Medical Center in 2009. Maida B. Bruce Maida B. Bruce joined MPIC in November 2009 as Group Controller. In this position, Maida is responsible for strengthening and overseeing MPICs Financial Reporting, Budgeting& Forecasting and System enhancements processes. Prior to joining MPIC, Maida held a Chief Financial Officer role with the top real estate company in the Philippines. She was responsible for overseeing the financials of Ayala Lands Strategic Landbank Management Group including its other subsidiaries. She also has more than thirteen years of extensive experience in the banking industry under Citigroup Australia and Manila. She was Vice President for Special Purpose Vehicles under the Financial Control Department of Citigroup Australia and has handled several roles and responsibilities also in Citibank Manila. She was part of a pioneer team that implemented, supported and continuously upgraded a proprietary global financial reporting system to multiple countries in the Asia-Pacific region. Robin Michael L. Velasco Robin L. Velasco joined MPIC in July 2009 as Vice President for Human Resources. In this role, he ensures that MPIC and all its subsidiaries and future acquisitions have the right People Strategies to support the growth required to achieve business plans. He has also strengthened the Performance Management and Rewards system of MPIC to ensure a culture of performance driven meritocracy. Mr. Velasco brings with him 19 years of management experience garnered from Global Multinationals such as Procter & Gamble, Johnson & Johnson and Synovate. He has been exposed to various facets of management which includes Finance, Supply Chain, Manufacturing, Research & Development, Technical Services, Market Research, Quality Assurance and Human Resources Management. He spent the last five years of his career in Singapore as HR Director for Asia Pacific, Talent Management for Johnson & Johnson, and then as HR Director for Asia for Synovate, leading 12 Asian countries in all HR aspects. Mr. Velasco has also spent 6 years of his career as a Professor of the Graduate School of Business (MBA) and the Business Management Dept. of La Salle where he taught Strategic Management, Ethics, Stock Market Trading, Production Management and HR Management. . Melody M. del Rosario Melody M. Del Rosario has been with the Metro Pacific Group since 1993, and has over 16 years of experience in the field of public and media relations, corporate communications, advertising and corporate social responsibility. Ms. del Rosario is in charge of strengthening the credibility and corporate public image of MPIC by planning and overseeing the implementation of strategic corporate communication programs, reputation and crisis management as well as working closely with the corporate communication team of the group. Ms. del Rosario is also the Corporate Information Officer of MPIC and Metro Pacific Tollways Corporation for the Philippine Stock Exchange and Executive Vice President of the MPIC Foundation. Albert W. L. Pulido Prior to joining MPIC in July of 2009 as the Head of Investor Relations, Albert Pulido spent his whole career in the field of finance. During the most recent 5 years, Albert was with the New York office of Lehman Brothers (now Barclays Capital US) in various capacities related to Relationship Management, Capital Budgeting, Financial Planning, Sales and Business Development. He also worked in the Philippines for a foreign bank with their business development group focusing on originating Corporate Clients. Atty. Jose Jesus G. Laurel Prior to joining MPIC, Atty. Laurel was Vice President, General Counsel and Corporate Secretary for Petron Corporation. Before working for Petron, he was Vice President for Corporate Services of Energy Development Corporation where he headed Legal, HR, Purchasing, Planning and Finance. He graduated from Ateneo de Manila with degrees in A.B. Economics and Law. He also has a Masters of Laws from Yale University.

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Reymundo S. Cochangco Reymundo S. Cochangco is the CFO for MPICs Hospital Group. He is also the CFO of Mabuhay Satellite Corporation, a subsidiary of PLDT. He has over 20 years of experience in finance, treasury, controllership, audit and business operations and held various senior positions within the Metro Pacific and PLDT Groups such as CFO of Colinas Verdes Hospital Managers Corporation, VP for Corporate Development of Fort Bonifacio Development Corporation, CFO of SPI Technologies, Inc., President and CFO of Stradcom Corporation, and Comptroller & Treasurer of Philippine Cocoa Corporation. He also worked at SGV & Co. He holds a Bachelor of Science degree in Business Administration from the Philippine School of Business Administration and is a Certified Public Accountant. Ferdinand G. Inacay Ferdinand G. Inacay joined MPIC in November 2009 as the Chief Operating Officer for Manila North Harbour Port, Incorporated until June of 2010. In this position, Mr. Inacay was responsible for overseeing the improvement of operations at the North Harbor and protecting MPICs interest in the JV company. In July 2010, he was absorbed by MPIC as head of business development and special projects. His assignment is to undertake operations evaluation and analysis, formulate operational takeover strategies that include management interface on the target companies. He has over 20 years experience in transport, logistics, ports and shipping industry. Prior to joining MPIC, he was with Asian Terminals, Incorporated for 14 years managing international ports and inter-island passenger terminals. He was responsible for developing and implementing turn-around strategies for various negative performing businesses of his previous company. Mr. Inacay was a Director of the Philippine Corn Board, an organization established under the office of the President of the Philippines, whose task was to develop a modern food logistics chain and transport network from Mindanao to Luzon. Noel E. Torres Noel Torres joined MPIC in January 2011. In his role, Noel is responsible for originating and executing business development projects at the MPIC level and among its respective subsidiaries and affiliates. Prior to MPIC, Noel worked in investment banking in San Francisco where he was involved in a variety of debt and equity financing transactions as well as M&A. Noel has an MBA in Finance from The Wharton School at the University of Pennsylvania and a bachelors degree in engineering from the University of the Philippines. Antonio A. Picazo (See business description above) Gemma M. Santos Gemma M. Santos has served as the Assistant Corporate Secretary of MPIC since 2006. Born in Bulacan in April 1962, Ms. Santos graduated cum laude with the degree of Bachelor of Arts, Major in History from the University of the Philippines in 1981, and with the degree of Bachelor of Laws also from the University of the Philippines in 1985. She is currently a Senior Partner of Picazo Buyco Tan Fider & Santos Law Offices and Corporate Secretary of various Philippine companies including listed companies Vista Land and Lifescapes, Inc. and ATR KimEng Financial Corporation. The Parent Company has no other significant employee other than its Executive Officers. None of the aforementioned Directors or Executive Officers or persons nominated or chosen by MPIC to become Directors or Executive Officers is related to the others by consanguinity or affinity within the fourth civil degree. Other than the sale of Landco shares to AB Holdings, Inc., a company where Alfred A. Xerex-Burgos is both a stockholder and Director, the Parent Company has not had any transaction during the last two (2) years in which any Director or Executive Officer or any of their immediate family members had a direct or indirect interest. In any case, Alfred A. Xerex-Burgos did not participate in any deliberation or voting in respect of the sale of said Landco shares. None of the aforementioned Directors or Executive Officers is or has been involved in any criminal or bankruptcy proceeding, or is or has been subject to any judgment of a competent court barring or otherwise limiting his involvement in any type of business, or has been found to have violated any securities laws during the past five (5) years and up to the latest date.

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Item 10. Executive Compensation The aggregate compensation paid in 2009 and 2010 and estimated to be paid in 2011, to the officers of the Parent Company is set out below: Names Manuel V. Pangilinan Jose Ma. K. Lim Edward A. Tortorici Augusto P. Palisoc Jr. David J. Nicol Antonio Picazo Gemma Santos Melody M. Del Rosario Jose Noel C. de la Paz Robin M. Velasco Albert W. Pulido Maida B. Bruce Reymundo S. Cochangco Aggregate for named officers above 2009 2010 2011 (est.) 2009 2010 2011 (est.) 16,120,200 59,751,675 91,737,305 20,210,500 72,798,985 112,320,195 10,297,370 30,191,200 52,442,817 12,656,402 36,400,854 60,520,380 364,608 364,608 Position Chairman President & CEO Executive Advisor Executive Advisor Chief Finance Officer Corporate Secretary Assistant Corporate Secretary Vice President Vice President Vice President Vice President Vice President Vice President Year Salary Bonus Others

All Directors and Officers as a group unnamed

The above executive officers are covered by standard employment contracts and employees retirement plan and can be terminated upon appropriate notice. Non-executive Directors are entitled to a per diem allowance of Pesos 50,000 for each attendance in MPICs Regular Board meetings. The Parent Companys By Laws provide that, additionally, an amount equivalent to 1 percent of net profit after tax shall be allocated and distributed amongst the directors of the Parent Company who are not officers of MPIC or its subsidiaries and affiliates, in such manner as the Board may deem proper. The amount paid to the directors in 2010 and estimated amount to be paid in the ensuing year are included in the above tabulation. There are no other special arrangements pursuant to which any director was compensated.

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The aggregate number of options awarded to the Directors and Executive Officers are set out below: Names Position Amount of Options Date of Grant of the Options Exercise Price Market Price on the Date of Grant Expiration Date

Manuel V. Pangilinan Jose Ma. K. Lim Albert F. Del Rosario Edward S. Go Augusto P. Palisoc, Jr. Artemio V. Panganiban Antonio A. Picazo Amado R. Santiago, III Alfred A. Xerez-Burgos Edward A. Tortorici Ramoncito S. Fernandez Robert C. Nicholson Ray C. Espinosa David J. Nicol Melody M. del Rosario Jose Noel C. dela Paz Raymundo S. Cochangco Robin L. Velasco Albert L. Pulido Jose Jesus G. Laurel Maida B. Bruce Aggregate for above named directors/officers Others

Chairman President/CEO Director Ind. Director Exec. Director Ind. Director Director/Corp. Sec. Director Director Executive Director Director Director Director CFO / Director Vice President Vice President Vice President Vice President Vice President Vice President Vice President 48,500,000 48,500,000 57,500,000 12,500,000 14,425,245 36,800,000 10,000,000 As of 12/09/08 As of 03/10/09 As of 07/02/10 As of 12/09/08 As of 03/10/09 As of 07/02/10 As of 12/21/10 Php 2.12 Php 2.73 Php 2.73 Php 2.12 Php 2.73 Php 2.73 Php 3.50 Php2.10 Php2.70 Php2.65 Php2.10 Php2.70 Php2.65 Php3.47 Jan. 2, 2013 March 10, 2013 July 2, 2015 Jan. 2, 2013 March 10, 2013 July 2, 2015 Dec. 21, 2015

Under the terms of the grant, fifty percent (50%) of the first tranche granted (61,000,000 option shares) vested on January 2, 2009 and the remaining fifty percent (50%) of said first tranche will vest on the st first (1 ) anniversary of the initial vesting date for such tranche or January 2, 2010. On the other hand, fifty percent (50%) of the second tranche granted (62,925,245 option shares) vested on March 10, 2009 st and the remaining fifty percent (50%) of said second tranche will likewise vest on the first (1 ) anniversary of the initial vesting date for such tranche or March 10, 2010. Grantees of said options may exercise in whole or in part their respective options at any time after vesting but prior to the expiration of three (3) years after all of the option shares for such tranche have vested. A third tranche was granted on July 2, 2010 covering a total of 94,300,000 options, of which 62,500,000 options were granted to MPIC directors and officers while 31,800,000 were granted to certain key personnel of MPICs subsidiaries and affiliates. Of the 62,500,000 options granted, 50% vested on January 1, 2011 and the remaining 50% will vest on January 1, 2012. Of the 31,800,000 granted, 30% will vest on July 2, 2011, 35% will vest on July 2, 2012 and the remaining 35% will vest on July 2, 2013. Options granted under this tranche may be exercised at any time after vesting but prior to expiration on July 2, 2015. Additionally, on December 21, 2010, 10,000,000 options were granted to an executive officer of an MPIC subsidiary, with the following vesting schedule: 30% on August 1, 2011, 35% on August 1, 2013, and 35% on August 1, 2014. These options may be exercised at any time after vesting but prior to December 21, 2015.

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The foregoing options were granted pursuant to, and subject to the terms and conditions provided in, the Executive Stock Option Plan of the Parent Company, as amended (the Plan). The procedure for the exercise of such options is as set forth in the Plan. No prices of stock options have been adjusted or amended by the Parent Company.

Long-term Incentive Plan (LTIP) On December 16, 2010, MPICs Board of Directors approved, in principle, the broad outline of MPICs strategic plans for 2010 to 2012 focusing on the development of new revenue streams to drive future growth while protecting the existing core business. To ensure the proper execution of the three-year plan, particularly with respect to the manpower resources being committed to such plans, the 2010 to 2012 LTIP, upon endorsement of the Compensation Committee, was approved by the Board of Directors to cover the period from January 1, 2010 to December 31, 2012, or the 2010 to 2012 Performance Cycle. The payment under the 2010 to 2012 LTIP is intended to be made at the end of the 2010 to 2012 Performance Cycle (without interim payments) and contingent upon the achievement of an approved target core income of the Company by the end of the 2010 to 2012 Performance Cycle. Total amount of LTIP under this Plan is fixed upon achievement of the target Core Income and is not affected by changes in future salaries of the employees covered. The liability of the 2010 to 2012 LTIP was determined using the projected unit credit method. The long term employee benefit liability comprises the present value of the defined benefit obligation (using discount rate based on government bonds) at the end of the reporting period. The total cost of the LTIP recognized as expense which was presented as part of Personnel cost amounted to Pesos 133.0 million. As of December 31, 2010, the accrued LTIP amounted to Pesos 133 million. Please see Notes 2, 26 and 27 of the accompanying Audited Financial Statements.

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Item 11. Security Ownership of Certain Record and Beneficial Owners and Management Security Ownership of Record and Beneficial Owners of at least 5% of the Parent Companys Securities as of 31 March 2011.

Type of Class

Name and address of record owner and relationship with Issuer

Citizenship

Name of Beneficial Owner & Relationship with Record Owner


Metro Pacific Holdings, Inc. is both record and beneficial owner. Mr. Manuel V. Pangilinan is usually designated as its representative, with authority to vote its shares, at meetings of shareholders. Public ownership Public ownership Metro Pacific Holdings, Inc. is both record and beneficial owner. Mr. Manuel V. Pangilinan is usually designated as its representative, with authority to vote its shares, at meetings of shareholders.

No. of Shares Held

Percent of class

Common Shares

Metro Pacific Holdings, Inc. 17/F Liberty Centre Bldg. 104 H.V. dela Costa, Salcedo Vill., Makati City

Filipino

11,201,067,940

55.6%

Common Common Preferred Shares

PCD Nominee Corporation PCD Nominee Corporation Metro Pacific Holdings, Inc. 17/F Liberty Centre Bldg. 104 H.V. dela Costa,

Foreign Filipino Filipino

6,875,792,144 2,029,298,949 5,000,000,000 Class A

34.1% 10.1% 100%

Salcedo Vill., Makati City

Other than the abovementioned, the Parent Company has no knowledge of any person who, as of 31 March 2010, was directly or indirectly the beneficial owner of, or who has voting power or investment power (pursuant to a voting trust or other similar agreement) with respect to, shares comprising more than five percent (5%) of the Parent Companys outstanding common shares of stock.

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Security Ownership of Management as of 31 March 2010


Type of Class Common Name and Address of Owner Manuel V. Pangilinan 7/F Ramon Cojuangco Bldg. Makati Avenue, Makati City Jose Ma. K. Lim 10/F MGO Bldg., Legazpi corner dela Rosa Streets, Legazpi Village, Makati David J. Nicol 10/F MGO Bldg., Legazpi corner dela Rosa Streets, Legazpi Village, Makati Augusto P. Palisoc, Jr. 10/F MGO Bldg., Legazpi corner dela Rosa Streets, Legazpi Village, Makati Edward A. Tortorici 10/F MGO Bldg., Legazpi corner dela Rosa Streets, Legazpi Village, Makati Alfred A. Xerez-Burgos, Jr. Landco Asset Management, Inc. 2/F Center Mall Building Presidents Avenue, BF Homes, Paranaque Edward S. Go Unit 16-A Pacific Plaza Tower Fort Bonifacio, Bonifacio Global City Taguig, Metro Manila Lydia B. Echauz Far Eastern University N. Reyes St., Sampaloc, Manila Artemio V. Panganiban 1203 Acacia, Dasmarinas Village, Makati City Ambassador Albert F. del Rosario** 15/F Chatham House, Rufino St. Cor Valero St., Makati Cirty Antonio A. Picazo 19/F Liberty Center 104 H.V. dela Costa Street Salcedo Village, Makati City Amado R. Santiago III Room 114 Ortigas Building Ortigas Avenue, Pasig City Ray Espinosa 5;F Locsin Building, Ayala Avenue Cor Makati Avenue, Makati City Rogelio L. Singson*** Ramoncito S. Fernandez 10/F MGO Bldg., Legazpi corner dela Rosa Streets, Legazpi Village, Makati Robert C. Nicholson 24/F Two Exchange Square, 8 Connaught Place Central, Hong Kong Aggregate for above named officers and directors Amount and nature of Beneficial ownership 21,242,405 Direct ownership Nil* 1,000,000 Direct Ownership Citizenship Percent of class 0.001%

Filipino

Common Common

Filipino Australian

0.0% 0.00%

Common Common

Nil* 10,729,596 Direct Ownership Nil*

Filipino

0.0% 0.001%

American

Common

Filipino

0.0%

Common

25,000 Direct Ownership 30,000 Direct Ownership Nil* 12,966,625 Direct Ownership

Filipino

0.0%

Common

Filipino

0.0%

Common

Filipino

0.0%

Common

Filipino

0.001%

Common

1,001

Filipino

0.0%

Common Common Common Common

Nil*

Filipino

0.0%

Nil* Nil* Nil*

Filipino Filipino Filipino

0.0% 0.0% 0.0%

Common

Nil* 45,994,627

British

0.0%

*Each of these directors is the registered owner of at least one (1) qualifying share. ** Resigned as of March 25, 2011 ***Resigned as of June 30, 2010

SEC Form 17- A 2010

Page 67

Changes in Control The Company is not aware of any voting trust agreements or any other similar agreements which may result in a change in control of the Company. No change in control of the Company has occurred since the beginning of its last fiscal year.

Item 12. Certain Relationships and Related Party Transactions Refer to Note 21 of the accompanying Audited Financial Statements.

SEC Form 17- A 2010

Page 68

PART IV CORPORATE GOVERNANCE Item 13. Compliance with Leading Practice on Corporate Governance The Manual on Corporate Governance of the Parent Company details the standards by which it conducts sound corporate governance that are coherent and consistent with relevant laws and regulatory rules, and constantly strives to create value for its shareholders.

(A)

Evaluation Compliance with the Manuals standard, evaluation is delegated to the Parent Companys Corporate Governance Compliance Officer, a member of senior management who also holds vice president ranking. The Compliance Officer is tasked with the monitoring of the Companys compliance with its Code of Corporate Governance and regulations of regulatory agencies. Atty. Jose Jesus G. Laurel, MPICs Vice-President for Legal, concurrently holds the position of Compliance Officer. Ultimate responsibility for the Companys adherence to its Manual rests with its Board of Directors, who also maintain four (4) committees, each charged with oversight into specific areas of the Companys business activities: The Audit Committee is charged with internal audit oversight over all of the Companys transactions; The Nominations Committee is charged with ensuring that membership to the Parent Companys Board of Directors is filled by qualified members. The Nomination Committee also ensures fair representation of independent members on the Board of Directors by formulating screening policies to effectively review the qualification of nominees for independent directors. For this purpose, the Board of Directors of the Corporation passed on September 6, 2006 a resolution authorizing the Corporation to adopt a fit and proper rule for the selection of corporate directors and officers; The Compensation and Remuneration committee is tasked to ensure fair compensation practices are adhered to throughout the organization. The Corporate Governance Committee, which is tasked to ensure that the Company conducts its business following sound corporate governance principles and in accordance with relevant laws and regulatory rules.

The Parent Companys Audit Committee has three (3) members, consisting of Mr. Edward S. Go, Ms. Lydia B. Echauz and Atty. Amado R. Santiago III. Mr. Edward S. Go, the Chairman of the Audit Committee, and Ms. Lydia B. Echauz, are independent directors. The Parent Companys Nominations Committee has three (3) voting members consisting of Mr. Edward S. Go (Chairperson), Ms. Lydia B. Echauz and Amb. Albert F. del Rosario (resigned as of March 2011). The Corporations President and Chief Executive Officer, Mr. Jose Ma. K. Lim, sits as a non-voting member of the Nominations Committee. The Parent Companys Compensation and Remuneration Committee has three (3) members consisting of Ms. Lydia B. Echauz (Chairperson), Mr. Edward S. Go and Amb. Albert F. del Rosario (resigned as of March 2011). Finally, our Corporate Governance Committee has three (3) members consisting of Justice Artemio V. Panganiban (Chairperson), Mr. Robert C. Nicholson and Mr. Edward S. Go.

SEC Form 17- A 2010

Page 69

(B)

Measures Taken to Comply with Adopted Leading Practices on Good Corporate Governance In 2010, the Board of Directors of the Parent Company held regular meetings, each with a quorum. The Board committees also met to ensure fair corporate governance standards were being applied throughout the organization. The Parent Companys Corporate Governance Manual, which was adopted by its Board of Directors on September 6, 2006, was revised and amended on March 3, 2011 taking into consideration the Revised Manual on Corporate Governance under SEC Memorandum Circular No. 6, Series of 2009. Any Deviation from the Companys Manual of Corporate Governance The Company is committed to fostering good corporate governance practices including a clear understanding by directors of the Companys strategic objectives, structures to ensure that the objectives are being met, systems to ensure the effective management of risks, and the mechanisms to ensure that the Companys obligations are identified and discharged in all aspects of its business. Each January, it certifies to the SEC and the PSE that the Company has fulfilled its corporate governance obligations, with the most recent certification being filed th on the 27 day of January 2011. Any Plan to Improve the Companys Corporate Governance The Company continues to evaluate and review its Corporate Governance Manual to ensure that the leading practices on good corporate governance are being adopted.

(C)

(D)

SEC Form 17- A 2010

Page 70

PART V EXHIBITS AND SCHEDULES Item 14. Exhibits and Reports on SEC Form 17-C (Current Reports) MPIC reported the following items on SEC Form 17-C for the year 2010:

Items Reported 1. Approval of MPICs application for the increase in its authorized capital stock and equity restructuring 2. Sworn Certification of attendance of Directors of BOD meetings held 2009 3. FPHC and MPIC have agreed to extend the deadline for the grant of the Call Option January 29, 2010 4. MPIC and Ayala participate in bidding process of Angat Hydroelectric Plant by PSALM through Michigan Power, Inc 5. FPHC and MPIC extend period for the grant of the Call Option to February 28 2010 6. Statement of Maynilad re: MWSA strike 7. Massive Leak Repair Program of Maynilad 8. Successful resolution of deadlock between Maynilad Management and MWSA 9. Acquisition of Beacon of 6.6% of Meralco shares held by FPHC 10. Maynilad steps up operations, projects for El Nio 11. MPIC and Piltel consolidate Meralco Holdings 12. MPICs 2009 Full Year Financial Results Announcement 13. Slight Tariff Reduction for Maynilad customers by April 14. Execution of a Subscription Agreement of MPIC with First Gen Northern Energy Corp 15. Beacon exercises its call option over Meralco common stock owned by FPHC upon the approval of FPC shareholders 16. Completion of acquisition of Beacon of common shares of Meralco 17. MWSS extends Maynilad concession term 18. MNPHI announces 10% reduced North Harbor port tariff 19. MPIC s participation, through FGNEC, in the bidding of PSALM for the privatization of the Angat Hydroelectric Power Plant and Mr. Nicol was appointed as CFO 20. MPIC Invests in Riverside Medical Center Inc 21. First Quarter Unaudited Financial Results

Date Filed January 4

January 8 January 22

January 27

January 29

February 5 February 5 February 5 February 8 February 19 March 1 March 3 March 16 March 17

March 23

March 30 April 22 April 27 April 28

May 4 May 5

SEC Form 17- A 2010

Page 71

22. Complete acquisition of 51% equity interest in RMCI 23. AGM disclosure: Election of Registrants Directors or Officers 24. MPICs divestment in favor of HCTPI all of its shares of common stock of MNPHI, representing 35% of the outstanding capital stock of MNPHI 25. Rogelio Singson resigns as member of BOD of MPIC and Pres and CEO of Maynilad 26. Certification of Qualification under oath of Lydia Echauz, Chief Justice Panganiban and Edward S. Go 27. Appointment of Mr. Victorico P. Vargas as Pres and CEO of Maynilad

May 31

June 9 June 28

July 1

July 8

August 2

28. First Half 2010 Financial Results 29. MPIC confirms press release of Landco Pacific Corporation/ AB Holdings Corporation 30. MPICs O&M of our Lady of Lourdes Hospital Manila starting Nov 1 2010 31. Third Quarter 2010 Financial Results 32. MPICs Cooperation Agreement with Fil-Estate Corp in MRT 3

August 4 August 26

October 26 November 10 November 15

SEC Form 17- A 2010

Page 72

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES

SEC Form 17- A 2010

Page 74

METRO PACIFIC INVESTMENTS CORPORATION


INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES FORM 17-A, Item 7
CONTENTS Exhibit I - Consolidated Financial Statements Statement of Management Responsibility for Financial Statements Report of independent Auditors Consolidated Balance Sheets as of December 31, 2010 and 2009 Consolidated Statements of Income for the years ended December 31, 2010, 2009, and 2008 Consolidated Statements of Equity for the years ended December 31, 2010, 2009, and 2008 Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009, and 2008 Notes to Consolidated Financial Statements

Exhibit II - Supplementary Schedules Report of Independent Auditors on Supplementary Schedules A. Marketable Securities (Current Marketable Equity Securities and Other Short-term Cash Investments) B. Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal stockholders (Other than Affiliates) C. Noncurrent Marketable Equity Securities, Other Long-term Investments in Stocks, and Other Investments D. Indebtedness of Unconsolidated Subsidiaries and Affiliates E. Intangible Assets F. Long-term Debt and Long-term Debt in default G. Indebtedness to Affiliates and Related Parties (Long-term Loans from Related Companies) H. Guarantees of Securities of Other Issuers I. Capital Stock J. Retained Earnings Available for Dividend Declaration *

*In compliance with SEC Memorandum Circular 11, Series of 2008

SEC Form 17- A 2010 Supplementary Schedules

EXHIBIT I 2010 CONSOLIDATED FINANCIAL STATEMENTS

SEC Form 17- A 2010 Supplementary Schedules

COVER SHEET

C S 2 0 0 6 0 4 4 9 4
SEC Registration Number

M E T R O T I O N T

P A C I F I C A N D

I N V E S T M E N T S

C O R P O R A

S U B S I D I A R I E S

(Companys Full Name)

1 0 t h

F l o o r , D e l a

MG O

B u i l d i n g , S t r e e t s , C i t y

L e g a s p i L e g a s p

c o r n e r i

R o s a

V i l l a g e ,

M a k a t i

(Business Address: No. Street City/Town/Province)

Mr. David J. Nicol


(Contact Person)

(632) 888-0888
(Company Telephone Number)

1 2

3 1

A A C F S
(Form Type)

0 5

2 7

Month Day (Fiscal Year)

Month Day (Annual Meeting)

Not Applicable
(Secondary License Type, If Applicable)

Dept. Requiring this Doc.

Amended Articles Number/Section Total Amount of Borrowings

1,380
Total No. of Stockholders To be accomplished by SEC Personnel concerned

P25,718 million =
Domestic

$161 million
Foreign

File Number

LCU

Document ID

Cashier

STAMPS Remarks: Please use BLACK ink for scanning purposes.

*SGVMC214233*

SyC ip Go rres Vel ayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines Phone: (632) 891 0307 Fax: (632) 819 0872 ww w.sgv.com.ph BOA/PR C R eg. N o. 0001 SEC Accreditation N o. 0012-FR-2

INDEPENDENT AUDITORS REPORT

The Stockholders and the Board of Directors Metro Pacific Investments Corporation 10th Floor, MGO Building Legaspi corner Dela Rosa Streets Legaspi Village, Makati City We have audited the accompanying consolidated financial statements of Metro Pacific Investments Corporation and Subsidiaries, which comprise the consolidated balance sheets as at December 31, 2010 and 2009, and the consolidated statements of income, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2010, and a summary of significant accounting policies and other explanatory information. Managements Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements 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 our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors 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 control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained and the reports of the other auditors are sufficient and appropriate to provide a basis for our audit opinion.

A member firm of Ernst & Young Global Limited

*SGVMC214233*

-2-

Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Metro Pacific Investments Corporation and Subsidiaries as at December 31, 2010 and 2009, and their financial performance and their cash flows for each of the three years in the period ended December 31, 2010, in accordance with Philippine Financial Reporting Standards. SYCIP GORRES VELAYO & CO.

Marydith C. Miguel Partner CPA Certificate No. 65556 SEC Accreditation No. 0087-AR-2 Tax Identification No. 102-092-270 BIR Accreditation No. 08-001998-55-2009, June 1, 2009, Valid until May 31, 2012 PTR No. 2641544, January 3, 2011, Makati City March 3, 2011

*SGVMC214233*

METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS


(Amounts in Thousands)

December 31 2010 ASSETS Current Assets Cash and cash equivalents (Notes 7 and 38) Short-term deposits (Notes 7 and 38) Receivables - net (Notes 8 and 38) Advances to contractors and consultants (Note 11) Inventories - at cost (Note 9) Real estate for sale (Notes 9 and 17) Due from related parties - net (Notes 21 and 38) Derivative assets (Note 38) Available-for-sale financial assets (Notes 6, 10, 17 and 38) Noncurrent asset held for sale (Note 6) Other current assets - net (Notes 11, 19 and 38) Total Current Assets Noncurrent Assets Investments in associates and interest in joint ventures (Notes 12, 19 and 38) Investment in bonds (Notes 10 and 38) Goodwill (Note 4) Receivables (Notes 8 and 38) Due from related parties (Notes 21 and 38) Service concession assets - net (Notes 13 and 19) Property and equipment - net (Notes 14 and 19) Derivative assets (Notes 6 and 38) Available-for-sale financial assets (Notes 6, 10, 17 and 38) Deferred tax assets - net (Note 31) Other noncurrent assets (Notes 15 and 38) Total Noncurrent Assets P4,941,693 = 6,138 2,380,660 288,285 158,817 187,010 439,427 2,902 546,424 2,320,904 11,272,260 = P6,379,731 2,433,418 13,475,300 527,571 96,012 187,010 501,080 282,787 329,570 1,593,832 25,806,311 2009

34,871,657 12,751,001 675,029 65,413 69,348,123 1,423,235 31,713 513,234 275,288 149,170 120,103,863 P131,376,123 =

27,370,023 400,600 12,551,750 65,569 62,185,407 634,405 39,212 214,992 131,566 103,593,524 = P129,399,835

LIABILITIES AND EQUITY Current Liabilities Accounts payable and other current liabilities (Notes 16, 17, 36 and 38) Unearned toll revenues Unearned tuition and other school fees Income tax payable Due to related parties (Notes 21 and 38) Derivative liabilities (Note 38) (Forward)

P7,711,053 = 30,986 29,306 30,940 469,495 211,912

= P6,217,967 21,135 10,818 429,718

*SGVMC214233*

-2December 31 2010 Current portion of: Provisions (Notes 16 and 17) Service concession fees payable (Notes 13, 18 and 38) Long-term debt (Notes 11, 12, 13, 14, 19 and 38) Deferred credits and other long-term liabilities (Notes 20, 27 and 38) Total Current Liabilities Noncurrent Liabilities Noncurrent portion of: Provisions (Notes 16 and 17) Service concession fees payable (Notes 13, 18 and 38) Long-term debt (Notes 11, 12, 13, 14, 19 and 38) Deferred credits and other long-term liabilities (Notes 20, 27 and 38) Due to related parties (Notes 21 and 38) Derivative liabilities (Note 38) Accrued retirement cost (Note 27) Deferred tax liabilities - net (Note 31) Total Noncurrent Liabilities Total Liabilities Equity (Note 22) Capital stock Additional paid-in capital Deposit for future stock subscriptions Other reserves Retained earnings Other comprehensive income reserve (Note 30) Total equity attributable to owners of the Parent Company Non-controlling interest (Note 23) Total Equity P2,188,156 = 1,179,026 2,953,944 14,804,818 2009 = P1,870,111 1,208,467 958,095 942,279 11,658,590

308,343 7,951,199 29,569,056 4,162,157 6,314,141 49,429 2,937,618 51,291,943 66,096,761 20,205,465 27,508,008 12,125 628,721 5,953,705 (89,691) 54,218,333 11,061,029 65,279,362 P131,376,123 =

415,827 9,071,673 41,828,305 3,432,643 44,467 2,672,692 57,465,607 69,124,197 20,178,155 27,860,033 451,091 2,885,936 (109,743) 51,265,472 9,010,166 60,275,638 = P129,399,835

See accompanying Notes to Consolidated Financial Statements.

*SGVMC214233*

METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME


(Amounts in Thousands)

Years Ended December 31 2009 2010 OPERATING REVENUES Water and sewerage services revenue Toll fees Hospital revenue School revenue COST OF SERVICES (Note 24) GROSS PROFIT GENERAL AND ADMINISTRATIVE EXPENSES (Note 25) OTHER INCOME AND EXPENSES Construction revenue (Note 13) Construction costs (Note 13) Interest expense (Notes 19 and 28) Foreign exchange gains (losses) - net Interest income (Note 28) Share in net earnings of associates and joint ventures (Note 12) Dividend income (Note 12) Other income (Note 29) Other expenses (Note 29) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 31) Current Deferred INCOME FROM CONTINUING OPERATIONS AFTER INCOME TAX INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX (Note 6) NET INCOME P12,049,524 = 5,858,494 577,075 79,385 18,564,478 (6,845,823) 11,718,655 (3,644,727) 8,931,922 (8,858,619) (4,543,584) 1,440,122 574,382 498,513 375,378 1,434,280 (2,513,493) (2,661,099) 5,412,829 = P10,618,544 5,489,190 16,107,734 (7,120,665) 8,987,069 (2,949,684) 4,879,072 (4,771,041) (4,012,258) (985,448) 499,221 432,239 2,829,423 (576,705) (1,705,497) 4,331,888

2008

= P4,326,071 715,079 5,041,150 (2,371,015) 2,670,135 (1,442,717) 4,158,922 (4,092,059) (1,161,430) (499,943) 278,833 143,934 1,659,277 (789,386) (301,852) 925,566

102,903 (749) 102,154 5,310,675 P5,310,675 =

35,559 (105,429) (69,870) 4,401,758 (31,895) = P4,369,863

7,420 (70,498) (63,078) 988,644 42,056 = P1,030,700

*SGVMC214233*

-2Years Ended December 31 2009 2010 Net Income (Loss) Attributable to Owners of the Parent Company from: Continuing operations (Note 5) Discontinued operations (Note 6) Non-controlling interest (Note 23) P2,871,152 = 2,871,152 2,439,523 P5,310,675 = = P2,306,253 (6,601) 2,299,652 2,070,211 = P4,369,863

2008

= P532,633 (7,088) 525,545 505,155 = P1,030,700

EARNINGS PER SHARE (Note 32) Basic Earnings Per Share, Attributable to Owners of the Parent Company Income from continuing operations Loss from discontinued operations

P0.142 = P0.142 =

= P0.194 (0.001) = P0.193

= P0.154 (0.002) = P0.152

Diluted Earnings Per Share, Attributable to Owners of the Parent Company Income from continuing operations Loss from discontinued operations

P0.142 = P0.142 =

= P0.181 (0.001) = P0.180

= P0.103 (0.002) = P0.101

See accompanying Notes to Consolidated Financial Statements.

*SGVMC214233*

METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)

Years Ended December 31 2009 2010 NET INCOME OTHER COMPREHENSIVE INCOME (LOSS) (Note 30) Transaction on cash flow hedges - net of tax (Note 38): Fair value changes of cash flow hedges Income tax Revaluation increment - net of tax: Revaluation increment Income tax Change in fair value of available-for-sale (AFS) financial assets - net of tax (Note 10): Change in fair value of AFS financial assets Income tax P5,310,675 = = P4,369,863

2008

= P1,030,700

19,199 (5,760) 13,439 23,493 (7,048) 16,445 29,884 P5,340,559 =

29,393 (8,818) 20,575 20,575 = P4,390,438

(52,069) 15,621 (36,448) (141,561) 42,468 (99,093) (14,060) (14,060) (149,601) = P881,099

TOTAL COMPREHENSIVE INCOME Total Comprehensive Income Attributable to Owners of the Parent Company from: Continuing operations Discontinued operations Non-controlling interest

P2,891,204 = 2,891,204 2,449,355 P5,340,559 =

= P2,320,060 (6,601) 2,313,459 2,076,979 = P4,390,438

= P395,023 (7,088) 387,935 493,164 = P881,099

See accompanying Notes to Consolidated Financial Statements.

*SGVMC214233*

METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in Thousands)

At January 1, 2010 Total comprehensive income for the period Executive Stock Option Plan (ESOP) (Note 33): Exercise of stock option Cost of ESOP Transaction costs Equity restructuring Equity component of a financial instrument net of tax (Note 21) Non-controlling interest arising from business combinations (Note 4) Loss on disposal of non-controlling interest (Note 4) Loss on acquisition of non-controlling interest (Note 4) Cash dividends declared Dividends paid to non-controlling stockholders At December 31, 2010

Capital Stock (Note 22) = P20,178,155 27,310 = P20,205,465

Additional Paid-in Capital (Note 22) P = 27,860,033 52,038 (482) (403,581) = P27,508,008

Year Ended December 31, 2010 Attributable to Owners of the Parent Company Deposit for Future Stock Other Retained Subscriptions Reserves Earnings (Note 22) (Note 22) (Note 22) = P = P451,091 = P2,885,936 2,871,152 12,125 = P12,125 (13,825) 33,465 280,612 (122,109) (513) = P628,721 403,581 (206,964) = P5,953,705

Other Comprehensive Income Reserve (Note 30) (P109,743) = 20,052 (P89,691) =

Total = P51,265,472 2,891,204 77,648 33,465 (482) 280,612 (122,109) (513) (206,964) = P54,218,333

Non-controlling Interest (Note 23) = P9,010,166 2,449,355 201,888 210,198 (810,578) = P11,061,029

Total Equity = P60,275,638 5,340,559 77,648 33,465 (482) 280,612 201,888 88,089 (513) (206,964) (810,578) = P65,279,362

*SGVMC214233*

-2Year Ended December 31, 2009 Attributable to Owners of the Parent Company Reserve of Deposit for Disposal Group Retained Other Future Stock Classified as Earnings Comprehensive Subscriptions Other Reserves Held for Sale (Deficit) Income Reserve (Note 22) (Note 22) (Note 6) (Note 6) (Note 30) = P6,807,293 = P404,264 = P16,881 (P1,034,645) = (P123,550) = 2,299,652 13,807 (6,807,293) = P (3,209) 50,036 = P451,091 (16,881) = P 1,620,929 = P2,885,936 (P109,743) =

At January 1, 2009 Total comprehensive income for the year Issuance of shares during the period: Common shares Preferred shares Transaction costs (Note 22) Executive Stock Option Plan (ESOP) (Note 33): Exercise of stock option Cost of ESOP Equity restructuring (Note 22) Disposal of Landco (Note 6) Dividends paid to non-controlling stockholders At December 31, 2009

Capital Stock (Note 22) = P7,027,727 13,086,483 50,000 13,945 = P20,178,155

Additional Paid-in Capital (Note 22) = P5,753,809 24,332,647 (628,395) 22,901 (1,620,929) = P27,860,033

Total = P18,851,779 2,313,459 30,611,837 50,000 (628,395) 33,637 50,036 (16,881) = P51,265,472

Non-controlling Interest (Note 23) = P7,854,107 2,076,979 (448,300) (472,620) = P9,010,166

Total Equity 26,705,886 4,390,438 30,611,837 50,000 (628,395) 33,637 50,036 (465,181) (472,620) = P60,275,638

*SGVMC214233*

-3Year Ended December 31, 2008 Attributable to Owners of the Parent Company Reserve of Deposit for Disposal Group Other Future Stock Classified as Comprehensive Subscriptions Other Reserves Held for Sale Deficit Income Reserve (Note 22) (Note 22) (Note 6) (Note 6) (Note 30) = P = P2,307,888 = P (P1,560,190) = = P14,060 525,545 (137,610) 6,807,293 = P6,807,293 (1,903,624) = P404,264 16,881 = P16,881 (P1,034,645) = (P123,550) =

At January 1, 2008 Total comprehensive income for the year Issuance of shares during the period Transaction costs Equity component of a financial instruments (Note 19) Non-controlling interest arising from business combinations (Note 4) Acquisition of non-controlling interest Dividends paid to non-controlling stockholders Other equity transactions At December 31, 2008

Capital Stock (Note 22) = P1,342,918 5,684,809 = P7,027,727

Additional Paid-in Capital (Note 22) = P 3,908,805 (58,620) 1,903,624 = P5,753,809

Non-controlling Interest Total (Note 23) = P2,104,676 = P965,388 387,935 493,164 16,400,907 (58,620) 16,881 = P18,851,779 7,886,593 (863,141) (181,134) (446,763) = P7,854,107

Total Equity 3,070,064 881,099 16,400,907 (58,620) 7,886,593 (863,141) (181,134) (429,882) = P26,705,886

See accompanying Notes to Consolidated Financial Statements.

*SGVMC214233*

METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Years Ended December 31 2009 2010 CASH FLOWS FROM OPERATING ACTIVITIES Income from continuing operations before income tax Loss from discontinued operations before income tax (Note 6) Adjustments for: Interest expense (Notes 6 and 28) Amortization of service concession assets (Notes 13 and 24) Interest income (Notes 6 and 28) Share in net earnings of associates and joint ventures (Note 12) Reversal of contingent liabilities (Note 29) Dividend income (Note 12) Unrealized foreign exchange loss (gain) - net Mark-to-market loss on derivatives (Note 29) Reversal of provision for ESOP (Note 29) Depreciation and amortization (Notes 13 and 14) Reversal of accruals (Note 29) Actuarial loss (gain) (Note 29) Gain on sale of investments (Notes 6 and 29) Long-term Incentive Plan expense (Notes 20 and 27) Gain on remeasurement from step up acquisition Retirement costs (Note 27) Provision for ESOP (Notes 26 and 33) Deferred toll revenue realized Day 1 loss (Notes 8 and 29) Deferred tuition fees realized Gain on sale of property and equipment (Note 29) Income from rate rebasing resolutions - net (Note 29) Provision for decline in value of assets (Note 29) Provision for contingencies (Note 29) Reversal of provision for decline in value of assets Loss (gain) on debt settlement - net (Note 29) Gain on dilution of non-controlling interest (Note 29) Gain on sale of available-for-sale financial assets Operating income before working capital changes Decrease (increase) in: Short-term deposits Receivables Advances to contractors and consultants Inventories Real estate for sale Due from related parties Other current assets (Forward) = P5,412,829 5,412,829 4,543,584 2,275,835 (574,382) (498,513) (496,935) (375,378) (309,535) 292,997 (259,336) 259,280 (204,888) 152,704 (147,073) 133,009 (54,400) 53,223 34,375 (21,135) 20,100 (3,056) (1,920) 10,231,385 2,427,280 191,453 239,286 (19,466) 43,706 (763,839) = P4,331,888 (77,623) 4,254,265 4,012,258 3,105,386 (499,221) (432,239) (115,264) 19,219 185,130 11,860 (25,202) 112,645 50,036 (19,344) (13) (1,404,059) 68,618 54,847 (57,086) 9,896 9,331,732 4,115,048 (705,819) (339,160) (11,607) (206,561) (976,302)

2008 = P925,566 52,023 977,589 1,297,978 1,286,456 (501,183) (152,296) 499,943 12,832 120,472 (19,898) (51,333) 59,603 183,440 (26,910) (409) 367,251 35,830 (262,461) (173,025) (757,591) (4,644) 2,891,644 (6,715,588) (592,435) (57,427) 280,404 503,803 321,102

*SGVMC214233*

-2Years Ended December 31 2009 2010 Increase (decrease) in: Accounts payable and other current liabilities Provisions Accrued retirement cost Net cash generated from (used for) operations Unearned toll revenue Unearned tuition fees Income tax paid Interest received Net cash provided by (used in) operating activities CASH FLOWS FROM INVESTING ACTIVITIES Dividends received from associates (Notes 8 and 12) Dividends received from investment in Beacon Electrics preferred shares (Note 12) Interest received Increase (decrease) in other noncurrent assets Collection of or proceeds from sale/disposal of: Notes receivables (Note 8) Investment in bonds (Note 10) Interest in a joint venture (Note 12) Noncurrent asset held for sale (Note 6) Property and equipment (Note 14) Available-for-sale financial assets (Note 10) Investment properties Acquisition/issuance of: Notes receivables (Note 8) Available-for-sale financial assets Investments in associates and interest in joint ventures (Notes 12 and 40) Service concession assets (Notes 13 and 40) Investment in bonds (Note 10) Property and equipment (Notes 14 and 40) Investments in subsidiaries, net of cash acquired (Note 4) Non-controlling interest (Note 4) Net cash used in investing activities (Forward) = P1,442,179 210,561 (108,497) 13,894,048 30,986 29,306 (84,881) 317,224 14,186,683 181,507 375,378 204,051 (25,471) 11,230,127 300,000 245,000 50,000 20,485 (725,000) (7,147,188) (8,931,922) (300,000) (270,932) (272,261) (5,066,226) = P1,021,183 223,277 (15,575) 12,436,216 21,135 (25,825) 246,535 12,678,061 403,104 49,607 17,424 411,286 (11,205,000) (10,677,166) (4,854,556) (300,000) (190,773) (26,346,074)

2008 = P33,600 48,538 (5,331) (3,291,690) 23,603 (16,769) 501,183 (2,783,673) 55,200 72,108 173,627 19,576 32,479 (31,356) (1,327,104) (2,809,838) (243,993)

(10,002,901) (7,575,700) (21,637,902)

*SGVMC214233*

-3Years Ended December 31 2009 2010 CASH FLOWS FROM FINANCING ACTIVITIES Decrease in deferred credits and other long-term liabilities Receipt of or proceeds from: Advances from related parties Short-term loan (Note 19) Long-term debt (Note 19) Issuance of shares (Notes 22 and 40) Deposit for future stock subscriptions Payments of/for: Advances from related parties Concession fees payable Short-term loan (Note 19) Long-term debt (Note 19) Transaction costs on issuance of shares Transaction costs on issuance of convertible bonds Dividends paid to non-controlling stockholders (Notes 16 and 23) Dividends paid to owners of the Parent Company (Note 22) Interest paid Net cash (used in) provided by financing activities EFFECT OF CHANGE IN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 7)
See accompanying Notes to Consolidated Financial Statements.

2008 (P622,725) = 2,377,134 30,392,376 3,791,525 6,807,293 (9,292,765) (3,744,386) (210,814) (1,837,123) (77,911) (181,134) (1,004,240) 26,397,230 (17,593) 1,958,062 248,081

= P 6,603,646 1,523,000 65,523 12,125 (42,436) (2,133,958) (11,924,459) (482) (33,000) (772,690) (206,967) (3,647,886) (10,557,584) (911) (1,438,038) 6,379,731 = P4,941,693

(P1,114,122) = 36,294 4,500,000 11,777,000 14,342,775 (445,158) (1,346,983) (4,500,000) (676,700) (627,532) (230,032) (330,731) (3,540,967) 17,843,844 (2,243) 4,173,588 2,206,143 = P6,379,731

= P2,206,143

*SGVMC214233*

METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information Metro Pacific Investments Corporation (the Parent Company or MPIC) was incorporated in the Philippines and registered with the Securities and Exchange Commission (SEC) on March 20, 2006 as an investment holding company. MPICs shares of stock are listed in and traded through the Philippine Stock Exchange (PSE). The principal activities of the subsidiaries and significant associates and joint ventures of the Parent Company are described in Notes 2 and 12, respectively. MPIC is 55.6% owned by Metro Pacific Holdings, Inc. (MPHI). MPHI is a Philippine corporation whose stockholders are Enterprise Investment Holdings, Inc. (EIH) (60.0%), Intalink B.V. (26.7%) and First Pacific International Limited (13.3%). First Pacific Company Limited (FPC), a company incorporated in Bermuda and listed in Hong Kong, through its subsidiaries, holds a direct 40.0% equity interest in EIH and investment financing which under Hong Kong Generally Accepted Accounting Principles require FPC to account for the results and assets and liabilities of EIH and its subsidiaries as FPC group companies in Hong Kong. On such basis, FPC is referred to as the ultimate parent company of EIH and of MPIC. The registered office address of the Parent Company is 10th Floor, MGO Building, Legaspi corner Dela Rosa Streets, Legaspi Village, Makati City. The accompanying consolidated financial statements as of December 31, 2010 and 2009 and for each of the three years in the period ended December 31, 2010 were approved and authorized for issue by the Board of Directors (BOD) on March 3, 2011.

2. Summary of Significant Accounting Policies Basis of Preparation The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments, available-for-sale (AFS) financial assets and investment properties that have been measured at fair value. The consolidated financial statements are presented in Philippine peso, which is MPIC and its Subsidiaries (the Company) functional and presentation currency, and all values are rounded to the nearest thousands (000), except when otherwise indicated. Statement of Compliance The consolidated financial statements have been prepared in compliance with Philippine Financial Reporting Standards (PFRS). Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year except for the voluntary change in accounting policy as discussed below and the adoption of the new and amended standards and Philippine Interpretations based on International Financial Reporting Interpretations Committee (IFRIC) as of January 1, 2010.

*SGVMC214233*

-2Voluntary Change in Accounting Policy Investment Properties. FPC, referred to as the ultimate parent company of MPIC, carries investment properties at fair value. As further discussed in Note 12, MPIC acquired investments in Beacon Electric Asset Holdings, Inc. (Beacon Electric) whose main asset is its investment in Manila Electric Company (Meralco). Similar to FPC, Beacon Electric accounts for its investment properties at fair value. As a standalone company, MPIC has no investment properties nor does its current subsidiaries have significant investment properties. Thus, in 2010, to align its policy with FPC and that of Beacon Electric, the Parent Company opted to adopt the fair value model accounting for investment properties. Subsequent to initial recognition, fair value model requires measurement of investment properties at fair value and any gain or loss arising from a change in the fair value of investment properties is recognized in the consolidated statement of income for the period in which it arises. Investment properties are previously accounted for using the cost model. The change in accounting policy to fair value model resulted in an additional share of =110.0 million in the 2010 P earnings of Beacon Electric, presented as part of Share in net earnings of associates and joint ventures in the consolidated statement of income, which additional share in earnings arose from remeasurement to fair value of the investment properties of Meralco. The Company had no significant investment properties in prior years, thus the change in policy did not have material impact on the Companys prior years consolidated financial statements. Adoption of New and Amended Standards and Interpretations PFRS 3 (Revised), Business Combinations and PAS 27 (Amended), Consolidated and Separate Financial Statements PFRS 3 (Revised) introduces significant changes in the accounting for business combinations occurring after becoming effective. Changes affect the valuation of non-controlling interest (previously known as minority interest), the accounting for transactions costs, the initial recognition and subsequent measurement of a contingent consideration and accounting for business combinations achieved in stages. These changes will impact the amount of goodwill recognized, the reported results in the period that an acquisition occurs and future reported results. PAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by PFRS 3 (Revised) and PAS 27 (Amended) will affect future acquisitions or loss of control of subsidiaries and transactions with non-controlling interests. PFRS 3 (Revised) was prospectively effective while Amended PAS 27 was applied retrospectively subject to certain exceptions. The adoption of revised PFRS 3 and amended PAS 27 affected the Companys accounting policies and procedures for business combinations and acquisition and disposal of noncontrolling interest during the year. Refer to the sections Basis of Consolidation and Policies on Business Combination and Goodwill for the detailed discussions of the changes as a result of adoption of these revised and amended standards. PFRS 2, Share-based Payment (Amendment) - Group Cash-settled Share-based Payment Transactions The amendment to PFRS 2 clarified the scope and the accounting for group cash-settled share-based payment transactions.

*SGVMC214233*

-3-

PAS 39, Financial Instruments: Recognition and Measurement (Amendment) - Eligible Hedged Items This amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as hedged item. This also covers the designation of inflation as a hedged risk or portion in particular situations. Philippine Interpretation IFRIC 17, Distributions of Non-cash Assets to Owners This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends.

The adoption of the amendments to PFRS 2 and PAS 39 and the Philippine Interpretation IFRIC 17 did not have any impact on the financial position or performance of the Company. Improvements to PFRS. Improvements to PFRS, an omnibus of amendments to standards, deal primarily with a view of removing inconsistencies and clarifying wordings. There are separate transitional provisions for each standard. The adoption of the following amendments resulted in changes to accounting policies but did not have any impact on the financial position or performance of the Company. PFRS 8, Operating Segments This clarifies that segment assets and liabilities need only be reported when those assets and liabilities are included in measures that are used by the chief operating decision maker. As the Companys chief operating decision maker does review segment assets and liabilities, the Company has continued to disclose this information in Note 5. PAS 7, Statement of Cash Flows The amendment stated that only expenditure that results in recognizing an asset can be classified as a cash flow from investing activities. PAS 39 clarifies the following: a. that a prepayment option is considered closely related to the host contract when the exercise price of a prepayment option reimburses the lender up to the approximate present value of lost interest for the remaining term of the host contract. b. that the scope exemption for contracts between an acquirer and a vendor in a business combination to buy or sell an acquiree at a future date applies only to binding forward contracts, and not derivative contracts where further actions by either party are still to be taken. c. that gains or losses on cash flow hedges of a forecast transaction that subsequently results in the recognition of a financial instrument or on cash flow hedges of recognized financial instruments should be reclassified in the period that the hedged forecast cash flows affect profit or loss. PAS 36, Impairment of Assets The amendment clarifies that the largest unit permitted for allocating goodwill, acquired in a business combination, is the operating segment as defined in PFRS 8 before aggregation for reporting purposes. The amendment has no impact on the Company as the annual impairment test is performed at the level of the operating segment.

*SGVMC214233*

-4The improvements to the following standards and interpretations did not have any impact on the accounting policies, financial position or performance of the Company: PFRS 2, Share-based Payment PFRS 5, Non-current Assets Held for Sale and Discontinued Operations PAS 1, Presentation of Financial Statements PAS 17, Leases PAS 34, Interim Financial Reporting PAS 38, Intangible Assets Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives Philippine Interpretation IFRIC 16, Hedge of Net Investment in a Foreign Operation

Future Changes in Accounting Policies The Company did not early adopt the following PFRS, Philippine Interpretations and amendments to existing standards which are not yet effective as of December 31, 2010: PFRS 7, Financial Instruments: Disclosures (Amendment) DisclosuresTransfers of Financial Assets (effective for annual periods beginning on or after July 1, 2011) The amendments will allow users of financial statements to improve their understanding of transfer transactions of financial assets (for example, securitizations), including understanding the possible effects of any risks that may remain with the entity that transferred the assets. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period. PFRS 9, Financial Instruments: Classification and Measurement (effective for annual periods beginning on or after January 1, 2013) PFRS 9, as issued in 2010, reflects the first phase of the work on the replacement of PAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in PAS 39. In subsequent phases, hedge accounting and derecognition will be addressed. The completion of this project is expected in the middle of 2011. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Companys financial assets. The Company will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture. PAS 12, Income Taxes (Amendment) Deferred Tax: Recovery of Underlying Assets (effective for annual periods beginning on or after January 1, 2012) The amendment provides a practical solution to the problem of assessing whether recovery of an asset will be through use or sale. It introduces a presumption that recovery of the carrying amount of an asset will, normally, be through sale. PAS 24 (Amended), Related Party Disclosures (effective for annual periods beginning on or after January 1, 2011) This amendment clarified the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirements for governmentrelated entities.

*SGVMC214233*

-5 PAS 32, Financial Instruments: Presentation (Amendment) Classification of Rights Issues (effective for annual periods beginning on or after February 1, 2010) This amended the definition of a financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights are given pro rata to all of the existing owners of the same class of an entitys non-derivative equity instruments, or to acquire a fixed number of the entitys own equity instruments for a fixed amount in any currency. Philippine Interpretation IFRIC 14 (Amendment), Prepayments of a Minimum Funding Requirement (effective for annual periods beginning on or after January 1, 2011) The amendment provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset. Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate (effective for annual periods beginning on or after January 1, 2012) This interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. This interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11 or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion. Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods beginning on or after July 1, 2010) This interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognized in profit and loss.

The Company is currently assessing and determining the impact of adopting the aforementioned new standards, amendments and interpretations in its future reporting and consolidated financial statements. Improvements to PFRS Improvements to PFRS is an omnibus of amendments to PFRS. The amendments have not been adopted as they become effective for annual periods on or after either July 1, 2010 or January 1, 2011. The Company is currently assessing the impact of applying in its future reporting the amendments listed below: PFRS 3, Business Combination PFRS 7, Financial Instruments: Disclosures PAS 1, Presentation of Financial Statements PAS 27, Consolidated and Separate Financial Statements PAS 31, Interests in Joint Ventures Philippine Interpretation IFRIC 13, Customer Loyalty Programmes

*SGVMC214233*

-6Basis of Consolidation Basis of Consolidation from January 1, 2010. The consolidated financial statements of the Company include the accounts of the Parent Company and its subsidiaries as of December 31, 2010 and 2009. Subsidiaries are entities over which the Parent Company has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date the Company obtains control and continue to be consolidated until the date that such control ceases or transferred out of the Company. The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company using consistent accounting policies for like transactions and other events in similar circumstances. All intra-company balances and transactions, including income, expenses, dividends and unrealized gains and losses arising from intra-company transactions are eliminated in full. Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Company loses control over a subsidiary, it:

Derecognizes the assets (including goodwill) and liabilities of the subsidiary Derecognizes the carrying amount of any non-controlling interest 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 Companys share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate.

Basis of Consolidation Prior to January 1, 2010. Certain of the above-mentioned requirements were applied on a prospective basis. The following differences, however, are carried forward in certain instances from the previous basis of consolidation: Acquisitions of non-controlling interest, prior to January 1, 2010, were accounted for using the parent entity extension method, whereby, the difference between the consideration and the book value of the share of the net assets acquired were recognized as goodwill or negative goodwill. Losses incurred by the Company were attributed to the non-controlling interest until the balance was reduced to nil. Any further excess losses were attributed to the parent, unless the non-controlling interest had a binding obligation to cover these losses. Losses prior to January 1, 2010 were not reallocated between non-controlling interest and the parent shareholders. Upon loss of control, the Company accounted for the investment retained at its proportionate share of net asset value at the date control was lost. The carrying value of such investments at January 1, 2010 have not been restated.

*SGVMC214233*

-7The consolidated subsidiaries of MPIC are as follows:


2010 MPIC Indirect Direct Interest of Interest Subsidiary 2009 Indirect Interest of Subsidiary

Name of Subsidiary MPIC Subsidiaries Metro Pacific Tollways Corporation (MPTC) Metro Pacific Corporation (MPC) DMCI-MPIC Water Company, Inc. (DMWC)(a) Riverside Medical Center, Inc (RMCI)(b) East Manila Hospital Managers Corp. (EMHMC) (c) MPTC Subsidiaries Operating Subsidiaries Metro Pacific Tollways Development Corporation (MPTDC) Manila North Tollways Corporation (MNTC) Metro Strategic Infrastructure Holdings, Inc. (MSIHI) (d) Dormant Subsidiary Luzon Tollways Corporation (LTC) MPC Subsidiaries Operating Subsidiaries First Pacific Bancshares Philippines, Inc. Metro Pacific Management Services, Inc. Metro Tagaytay Land Co., Inc. Lucena Commercial Land Corporation First Pacific Realty Partners Corporation (FPRPC)

Place of Incorporation

Principal Activity

MPIC Effective Interest

MPIC Direct Interest

MPIC Effective Interest

Philippines Philippines Philippines Philippines Philippines

Investment holding Investment holding and Real estate Investment holding Hospital operation Hospital operation

99.85 96.60 55.41 51.00 100.00

99.85 96.60 55.41 51.00 100.00

99.85 96.60 55.41

99.85 96.60 55.41

Philippines Philippines Philippines

Investment holding Tollway operations Investment holding

100.00 67.10 57.00

99.85 67.00 95.55

100.00 67.10

99.85 67.00

Philippines

Tollway operations

100.00

99.85

100.00

99.85

Philippines Philippines Philippines Philippines Philippines

Investment holding Management services Real estate Real estate Investment holding Investment holding Investment holding Management services Investment holding Investment holding Investment holding Investment holding

100.00 100.00 100.00 65.00 50.67 100.00 100.00 100.00 100.00 100.00 100.00 60.59

96.60 96.60 96.60 62.79 48.95 96.60 96.60 96.60 96.60 96.60 96.60 58.52

100.00 100.00 100.00 65.00 50.67 100.00 100.00 100.00 100.00 100.00 100.00 60.59

96.60 96.60 96.60 62.79 48.95 96.60 96.60 96.60 96.60 96.60 96.60 58.52

Dormant Subsidiaries Metro Capital Corporation Cayman Islands Metro Pacific Capital Ltd. Cayman Islands Pacific Plaza Towers Management Services, Inc. Philippines Philippine International Paper Corporation Philippines Pollux Realty Development Corporation Philippines Uptime Limited Cayman Islands Metro Asia Link Holdings, Inc. (MALHI) Philippines DMWC Subsidiary Maynilad Water Services, Inc. (Maynilad)(a) RMCI Subsidiary Riverside College, Inc. (RCI)
(a)

Philippines

Water and sewerage services

5.88

91.91

56.80

5.88

94.11

58.03

Philippines

School operations

100.00

51.00

100.00

51.00

(b) (c) (d)

In 2010, Maynilads BOD approved the transfer of 88.5 million Maynilad shares held by DMWC to employees. The transferred shares represent 2.2% of Maynilads total outstanding capital stock. Accordingly, DMWCs ownership interest in Maynilad was reduced to 91.91% as of December 31, 2010. Acquired on May 31, 2010 (see Note 4). Incorporated on October 26, 2010 to operate and manage Our Lady of Lourdes Hospital (see Note 4). Acquired on July 20, 2010; MPC also holds a 40.0% direct interest in MSIHI (see Note 4).

MPTC and Subsidiaries. MPTCs main activity is the holding of shares of MPTDC whose main activity likewise is the holding of shares in MNTC, LTC and Tollways Management Corporation (TMC), an associate. MPTC also holds investment in MSIHI.

*SGVMC214233*

-8MPTDC (then known as First Philippine Infrastructure Development Corporation, FPIDC) established MNTC jointly with Philippine National Construction Corporation (PNCC) for the sole purpose of implementing the rehabilitation of the North Luzon Expressway (NLE) and the installation of appropriate collection system therein referred to as the North Luzon Tollway Project or the Project (see also Note 13). The Project consists of three phases as follows: Phase I Phase II Rehabilitation and expansion of approximately 84 kilometers (km) of the existing NLE and an 8.8-km stretch of a Greenfield expressway Construction of the northern parts of the 17-km circumferential road C-5 which connects the current C-5 expressway to the NLE and the 5.85-km road from McArthur to Letre Construction of the 57-km Subic arm of the NLE to Subic Expressway

Phase III

The construction of Phase I was substantially completed in January 2005 and tollway operations commenced on February 10, 2005 following the issuance by the Toll Regulatory Board (TRB) of the Toll Operation Permit on January 27, 2005. On June 5, 2010, Segment 8.1, a portion of Phase II, which is a 2.7 km-road designed to link Mindanao Avenue to the NLE, had officially commenced tollway operation. The remaining portion of Phase II is under pre-construction works while Phase III of the Project has not yet been started. On June 5, 2010, the Department of Public Works and Highways (DPWH) accepted MPTDCs unsolicited proposal for the NLE to South Luzon Expressway (SLEx) Connector Road project (the Connector Road Project), which is a 13.5-kilometer elevated toll road which will connect the north to south corridor. Following the submission of the required documents, MPTDC was granted the original proponent status for the Connector Road project. As of March 3, 2011, 2011, MPTDC continues to discuss with DPWH and other government agencies the said Project. MNTC is also the assignee of all the rights, interests and privileges over Segment 7, known as the Tipo Road which connects Tipo in Hermosa, Bataan to Subic. As further discussed in Note 35, MNTC was awarded the right to enter into a concession agreement with the Philippine Government, through Bases Conversion and Development Authority (BCDA), for the operation and maintenance of the Subic-Clark-Tarlac Expressway (SCTEx). MSIHI, on the other hand, holds 2.7% interest in Citra Metro Manila Tollways Corporation (CMMTC) (see also Note 10). CMMTC is engaged primarily in the design, construction and financing of the Metro Manila Skyway (in three stages) and the proposed Metro Manila Tollways projects. On January 1, 1999, CMMTC started its regular commercial operations for its Phase 1 of Stage I Project (Bicutan to Magallanes), while Phase 2 of Stage I (Magallanes to Buendia) started its regular operations on July 11, 1999. MPC and Subsidiaries. MPC and its subsidiaries are engaged in the business of real estate investments and property development, investment holding and management services. MPC also once engaged in the shipping business through Negros Navigation Co., Inc. (Nenaco) of which interest in such Company was entirely disposed in 2008 (see Note 6).

*SGVMC214233*

-9DMWC and a Subsidiary. Prior to being consolidated in MPIC on July 17, 2008, MPIC was a joint venture partner in DMWC. DMWC was then established by MPIC and DMCI Holdings Inc. (DMCI) as a joint venture to acquire equity interest, purchase, negotiate or otherwise deal with or dispose of stocks, bonds of Maynilad. Currently, DMWCs main activity is the holding of controlling shares of Maynilad. Maynilad, in which MPIC has also a direct interest, holds the exclusive concession granted by the Metropolitan Waterworks and Sewerage System (MWSS), on behalf of the Philippine Government, to provide water and sewerage services in the area of West Metro Manila (see Note 13). Under the Concession Agreement, MWSS grants Maynilad (as contractor to perform certain functions and as agent for the exercise of certain rights and powers under the Charter), the sole right to manage, operate, repair, decommission and refurbish all fixed and movable assets required (except certain retained assets of MWSS) to provide water and sewerage services in the West Service Area for 25 years commencing on August 1, 1997 to May 6, 2022 (original Expiration Date) or the early termination date as the case may be. As discussed in Note 13, the Concession term was extended by another 15 years to May 6, 2037. Maynilad is also tasked to manage, operate, repair, decommission and refurbish certain specified MWSS facilities in the West Service Area. Legal title to these assets remains with MWSS. The legal title to all property, plant and equipment contributed to the existing MWSS system by Maynilad during the concession period remains with Maynilad until the Expiration Date (or on early termination date) at which time, all rights, titles and interest in such assets will automatically vest to MWSS. RMCI and a Subsidiary. RMCIs main activity is the operations and management of a hospital and its subsidiary, Riverside College, Inc (RCI), a nursing school. RMCI was acquired on May 31, 2010 in line with the Companys plan to expand its healthcare services (see Note 4). EMHMC. EMHMCs main activity is the operation and management of Our Lady of Lourdes Hospital (OLLH). As further discussed in Note 4, EMHMC entered into a Lease Agreement with the previous owner and operator of the OLLH. The lease agreement was assessed as, in substance, an acquisition of business qualified as business combination. OLLH is consolidated in MPIC starting October 23, 2010. Acquisition or Disposal of Non-controlling Interest in a Subsidiary Non-controlling interest represents the portion of profit or loss and the net assets not held by the Parent Company and are presented separately in the consolidated statement of income and within equity in the consolidated balance sheet, separately from total equity attributable to owners of the Parent Company. Starting January 1, 2010, any losses applicable to a non-controlling shareholder of a consolidated subsidiary are attributed to the non-controlling interest even if that results in a deficit balance. Prior to January 1, 2010, losses incurred by the subsidiary were attributed to the NCI until the balance was reduced to nil. Any further excess losses were attributed to the Parent Company, unless the NCI had a binding obligation to recognize the loss. Starting January 1, 2010, transactions involving non-controlling interest in a subsidiary without a change of control is accounted for as an equity transaction in accordance with PAS 27 (Amended). Any excess or deficit of consideration paid over the carrying amount of non-controlling interest is recognized in equity of the Parent Company. The Company has elected to recognize this effect as other reserves in equity.

*SGVMC214233*

- 10 Prior to January 1, 2010, acquisition of non-controlling interest is accounted for using the parent entity extension method, whereby the excess of the fair value of consideration given over the net book value of the share in the net assets acquired is recognized as goodwill. When the consideration paid is less than the carrying value acquired, the difference is recognized as a gain in the consolidated statement of income. In an acquisition without consideration involved, the difference between the share of the non-controlling interest in the net assets at book value before and after the acquisition is recognized either as goodwill or a gain from acquisition of noncontrolling interest. Business Combinations and Goodwill Business Combinations from January 1, 2010. Business combinations are accounted for using the acquisition method of accounting. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any noncontrolling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquirees identifiable net assets. Acquisition costs incurred are expensed and included in general and administrative expenses. When the Company acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, the acquisition date fair value of the acquirers previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through the consolidated statement of income. Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognized in accordance with PAS 39 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity. Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in the 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 the acquisition date, allocated to each of the Companys cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

*SGVMC214233*

- 11 If the initial accounting for business combination can be determined only provisionally by the end of the period by which the combination is effected because the fair values to be assigned to the acquirees identifiable assets, liabilities can be determined only provisionally, the Company accounts the combination using provisional fair values. Adjustments to those provisional fair values as a result of completing the initial accounting shall be made within 12 months from the acquisition date. The carrying amount of an identifiable asset, liability or contingent liability that is recognized as a result of completing the initial accounting shall be calculated as if its fair value at the acquisition date had been recognized from that date and goodwill or any gain recognized shall be adjusted from the acquisition date by an amount equal to the adjustment to the fair value at the acquisition date of the identifiable asset, liability or contingent liability being recognized or adjusted. Business Combination prior to January 1, 2010. In comparison to the above-mentioned requirements, the following differences applied: Business combinations were accounted for using the purchase method. Transaction costs directly attributable to the acquisition formed part of the acquisition costs. The non-controlling interest was measured at the proportionate share of the acquirees identifiable net assets. Business combinations achieved in stages were accounted for as separate steps. Any additional acquired share of interest did not affect previously recognized goodwill. When the Company acquired a business, embedded derivatives separated from the host contract by the acquiree were not reassessed on acquisition unless the business combination resulted in a change in the terms of the contract that significantly modified the cash flows that otherwise would have been required under the contract. Contingent consideration was recognized if, and only if, the Company had a present obligation, the economic outflow was more likely than not and a reliable estimate was determinable. Subsequent adjustments to the contingent consideration were recognized as part of goodwill. Noncurrent Assets Held for Sale and Discontinued Operations Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Immediately before classification as held for sale, the assets, or components of a disposal group, are remeasured in accordance with the Companys accounting policies. Thereafter, generally the assets, or disposal group, are measured at the lower of their carrying amount and fair value less cost to sell. Any impairment loss on a disposal group is first allocated to goodwill, and then to remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets and investment property, which continue to be measured in accordance with the Companys accounting policies. Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognized in the consolidated statement of income. Gains are not recognized in excess of any cumulative impairment loss.

*SGVMC214233*

- 12 A discontinued operation is a component of the Companys business that represents a separate major line of business or geographical area of operations that had been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative consolidated statement of income and consolidated statement of comprehensive income are represented as if the operation had been discontinued from the start of the comparative period. In the consolidated statement of income of the reporting period, and of the comparable period of the previous year, income and expenses from discontinued operations are reported separately from normal income and expenses down to the level of profit after taxes, even when the Company retains a non-controlling interest in the subsidiary after the sale. The resulting profit or loss (after taxes) is reported separately in the consolidated statement of income. Property and equipment and intangible assets once classified as held for sale are not depreciated or amortized. Investments in Associates Investments in associates, where the Company has the ability to exercise significant influence since date of acquisition even though the Company holds less than 20% interest, are accounted for using the equity method. The existence and effect of potential voting rights that are currently exercisable or convertible, including potential voting rights held by other companies, are considered when assessing whether a company has significant influence. If the conversion or the potential voting rights results to significant influence, equity accounting is applied from the date on which the investee becomes an associate. Under the equity method, investments are carried in the consolidated balance sheet at cost plus post-acquisition changes in the Companys share in net assets of investees, less any dividends declared and impairment loss. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The consolidated statement of income reflects the Companys share in the financial performance of the associates. Where there had been a change recognized directly in equity of the associate, the Company recognizes its share of any changes and discloses this in the consolidated statement of comprehensive income and changes in equity. Unrealized gains arising from transactions with associates are eliminated to the extent of the Companys interests in the associates, against the respective investment account. When potential voting rights exist, the investors share of profit or loss of the investee and of changes in the investees equity is determined on the basis of present ownership interests and does not reflect the possible exercise or conversion of potential voting rights. The share in net earnings of an associate is shown on the face of the consolidated statement of income. This is the profit attributable to equity holders of the associate and therefore is profit after tax and non-controlling interests in the subsidiaries of the associate. When the Companys share in the losses of associates equals or exceeds its interests in the associate, the Company provides for additional losses to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of the associate to satisfy the obligations of the associate that the Company has guaranteed or otherwise committed. If the associate subsequently reports profits, the Company resumes recognizing its share of those profits only after its share of the profits equals the share of losses not recognized.

*SGVMC214233*

- 13 After the application of the equity method, the Company determines whether it is necessary to recognize an additional impairment loss on the Companys investments in associates. The Company determines at each end of reporting period whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Company calculates the amount of impairment as the difference between the recoverable amount of the investment in associate and its carrying value and recognizes the same in the consolidated statement of income. The financial statements of all associates are prepared in the same reporting period as the financial statements of the Parent Company. In 2008, the end of reporting periods of the Parent Company and Davao Doctors Hospital, Inc. (DDH) are different. For purposes of applying the equity method, DDH prepared consolidated financial statements as of September 30, 2008. As allowed by PAS 28, Investments in Associates, the end of reporting periods of the Company and that of the associates shall be no more than three (3) months. Where necessary, adjustments are made to bring the accounting policies in line with those of the Company. In 2009, DDH has changed its end of reporting period to December 31 to align with the reporting period of the Parent Company. Interest in Joint Ventures The Company has an interest in a joint venture which is a jointly controlled entity, whereby the venturers have a contractual arrangement that establishes joint control over the economic activities of the entity. The Company recognizes its interest in a joint venture using the equity method. Under the equity method, such interest is stated at cost plus post-acquisition changes in the Companys proportionate share in the net assets of the joint venture, less any impairment in value. The consolidated statement of income reflects the Companys proportionate share of the results of operation of the joint venture from the date of incorporation of the joint venture to the end of reporting period. The financial statements of the joint venture are prepared for the same reporting period as the consolidated financial statements. Adjustments, if necessary, are made to bring the accounting policies in line with those of the Company and to eliminate share of unrealized gains and losses, if any, arising from intra-company transactions. Losses on transactions are recognized immediately if the loss provides evidence of a reduction in the net realizable value of current assets or an impairment loss. The joint venture is carried at equity method until the date on which the Company cease to have joint control over the joint venture. Upon loss of joint control, the Company measures and recognizes its remaining investment at its fair value. Any difference between the carrying amount of the former joint controlled entity upon loss of joint control and the fair value of the remaining investment and proceeds from disposal are recognized in the consolidated statement of income. When the remaining investment constitutes significant influence, it is accounted for as investment in an associate. Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less and that are subject to an insignificant risk of change in value. Short-term Deposits Short-term deposits are highly liquid money market placements with maturities of more than three months but less than one year from dates of acquisition.

*SGVMC214233*

- 14 Financial Instruments The Company recognizes a financial asset or a financial liability in the consolidated balance sheet when it becomes a party to the contractual provisions of the instrument. All regular way purchases and sales of financial assets are recognized on the settlement date. Regular way purchases and sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. Derivatives are also recognized on a trade date basis. Initial Recognition. Financial instruments are recognized initially at fair value, which is the fair value of the consideration given (in case of an asset) or received (in case of a liability). The fair value of the consideration given or received is determined by reference to the transaction price or other market prices. If such market prices are not reliably determinable, the fair value of the consideration is estimated as the sum of all future cash payments or receipts, discounted using the prevailing market interest rates for similar instruments with similar maturities. The initial measurement of financial instruments, except for financial instruments at fair value through profit or loss (FVPL), includes transaction costs. The Company classifies its financial instruments in the following categories: financial assets at FVPL, held-to-maturity (HTM) investments, loans and receivables, AFS financial assets, financial liabilities at FVPL and other financial liabilities. The classification depends on the purpose for which the instruments were acquired and whether they are quoted in an active market. Management determines the classification of its instruments at initial recognition and, where allowed and appropriate, re-evaluates such classification at every reporting date. Subsequent Measurement. The subsequent measurement of financial assets and financial liabilities depends on their classification as follows: Financial Assets Financial Assets at FVPL. Financial assets at FVPL include financial assets held for trading and financial assets designated upon initial recognition as at FVPL. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments or a financial guarantee contract. Gains or losses on investments held for trading are recognized in the consolidated statement of income. Interests earned on holding financial assets at FVPL are reported as interest income using the effective interest rate. Dividends earned on holding financial assets at FVPL are recognized in the consolidated statement of income when the right of payment had been established. Financial assets may be designated at initial recognition at FVPL if any of the following criteria are met: the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the financial assets or recognizing gains or losses on them on a different basis; or

*SGVMC214233*

- 15 the assets are part of a group of financial assets, financial liabilities or both which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or the financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.

Assets and liabilities classified under this category are carried at fair value in the consolidated balance sheet, with any gains or losses being recognized in the consolidated statement of income. The Company accounts for its derivative transactions (including embedded derivatives) under this category with fair value changes being reported directly in the consolidated statement of income, except when the derivative is treated as an effective accounting hedge, in which case the fair value change is either reported in the consolidated statement of income with the corresponding adjustment from the hedged transaction (fair value hedge) or deferred in equity (cash flow hedge) presented as Fair value changes on cash flow hedges under Other comprehensive income reserve account. As of December 31, 2010 and 2009, the Company has outstanding cross currency swaps and interest rate swaps classified as financial assets at FVPL (see Note 38). Loans and Receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as financial assets at FVPL, HTM investments or AFS financial assets. After initial measurement, loans and receivables are subsequently measured at amortized cost using the effective interest rate method, less impairment. The amortization is included as part of interest income in the consolidated statement of income. Losses arising from impairment are recognized in the consolidated statement of income. Loans and receivables are included in current assets if maturity is within 12 months after the end of reporting period, otherwise these are classified as noncurrent assets. Loans and receivables include cash and cash equivalents, short-term and long-term deposits, receivables, investments in preferred shares with mandatory redemption, sinking fund and other deposits, and advances to and due from related parties (see Notes 7, 8, 11, 12 and 21) HTM Investments. HTM investments are quoted nonderivative financial assets with fixed or determinable payments and fixed maturities for which the Companys management has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. When the Company sells other than an insignificant amount of HTM investments, the entire category would be tainted for 2 years and reclassified as AFS financial assets. After initial measurement, these investments are subsequently measured at amortized cost. The amortization is included as part of interest income in the consolidated statement of income. Gains and losses are recognized in the consolidated statement of income when the HTM investments are derecognized and impaired, as well as through the amortization process. The losses arising from impairment of such investments and the effects of restatement on foreign currency denominated HTM investments are also recognized in the consolidated statement of income. Assets under this category are classified as current assets if maturity is within 12 months from the balance sheet date and as noncurrent assets if maturity is more than a year from the balance sheet date.

*SGVMC214233*

- 16 As of December 31, 2009, HTM investments consist of investment in fixed rate retail treasury bonds of the Republic of the Philippines (ROP). As further discussed in Note 3, in view of the pretermination of the HTM investments, the fixed rate retail treasury bonds were reclassified as AFS financial assets in 2010. AFS Financial Assets. AFS financial assets are non-derivative financial assets that are designated as such or not classified in any of the other categories and these include equity and debt securities. They are purchased and held indefinitely and may be sold in response to liquidity requirements or changes in market conditions. After initial measurement, AFS financial assets that are quoted are subsequently measured at fair value. The unrealized gains and losses arising from the change in fair value of AFS financial assets are recognized as Other comprehensive income in the AFS financial assets reserve until the investment is derecognized, at which time the cumulative gain or loss is recognized in other income, or determined to be impaired, at which time the cumulative loss is reclassified to the consolidated statement of income and removed from the AFS financial assets reserve. When the Company holds more than one investment in the same security, these are deemed to be disposed of on a first-in, first-out basis. The losses arising from impairment of such financial assets are also recognized in the consolidated statement of income. Interest earned on holding AFS financial assets are reported as interest income using the effective interest rate. Dividends earned on holding AFS financial assets are recognized in the consolidated statement of income when the right of payment had been established. AFS financial assets that are unquoted are carried at cost less any impairment in value. This category includes investments in unlisted shares of CITRA Metro Manila Tollways Corporation (CMMTC), Landco Pacific Corporation (Landco), NE Pacific Shopping Center Corporation (NEPSCC), Bonifacio Land Corporation (BLC), investment in bonds previously classified as HTM investments and investment in preferred shares of Beacon Electric (see Notes 10 and 12). Financial Liabilities Financial Liabilities at FVPL. Financial liabilities are classified in this category if these result from trading activities or derivative transactions that are not accounted for as accounting hedges, or when the Company elects to designate a financial liability under this category. Gains and losses from fair value changes of financial liabilities at FVPL are recognized in the consolidated statement of income. As of December 31, 2010 and 2009, the Company has outstanding cross currency swaps and interest rate swaps classified as financial liabilities at FVPL (see Note 38). Other Financial Liabilities. This category pertains to financial liabilities that are not held for trading or not designated at FVPL upon the inception of the liability. These include liabilities arising from operations and borrowings.

*SGVMC214233*

- 17 Issued financial instruments or their components, which are not classified as financial liabilities at FVPL are classified as other financial liabilities, where the substance of the contractual arrangement results in the Company having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. The components of issued financial instruments that contain both liability and equity elements are accounted for separately, with the equity component being assigned the residual amount after deducting from the instrument as a whole the amount separately determined as the fair value of the liability component on the date of issue. Any effects of restatement of foreign currency denominated liabilities are recognized in the consolidated statement of income. Other financial liabilities are recognized initially at fair value and are subsequently carried at amortized cost, taking into account the impact of applying the effective interest method of amortization (or accretion) for any related premium, discount and any directly attributable transaction costs. All of the Companys financial liabilities, except for derivative liabilities, are classified as other financial liabilities which includes the following, among others: a. Loans and Borrowings All loans and borrowings are initially recognized at fair value of the consideration received less directly attributable transaction costs (referred to as debt issue costs). Debt issue costs are amortized over the life of the debt instrument using the effective interest method. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Gains and losses are recognized in the consolidated statement of income when the liabilities are derecognized, as well as through the amortization process. This category generally includes long-term debt. b. Financial Guarantee Contracts Financial guarantee contracts issued by the Company are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognized initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the end of reporting period and the amount recognized less cumulative amortization. This category generally includes financial guarantee obligation. Derivatives and Hedge Accounting Freestanding and separated embedded derivatives are classified as financial assets or financial liabilities at FVPL unless they are designated as effective hedging instruments. Derivative instruments are initially recognized at fair value on the date in which a derivative transaction is entered into or bifurcated, and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Consequently, gains and losses from changes in fair value of derivatives not designated as effective accounting hedges are recognized immediately in the consolidated statement of income.

*SGVMC214233*

- 18 For the purpose of hedge accounting, hedges are classified primarily either as: (a) a hedge of the fair value of a recognized asset or liability or an unrecognized firm commitment except for foreign currency risk (fair value hedge); or (b) a hedge of the exposure to variability in cash flows attributable to a recognized asset or liability or a highly probable forecasted transaction or foreign currency risk in an unrecognized firm commitment (cash flow hedge); or (c) hedge of a net investment in a foreign operation. The Company has designated certain derivatives as cash flow hedges. The Company did not designate any of its derivatives as fair value hedges and hedges of a net investment in a foreign operation. At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instruments effectiveness in offsetting the exposure to changes in the hedged items fair value or cash flows attributable to the hedged risk. Such hedges are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. In cash flow hedges, changes in the fair value of a hedging instrument that qualifies as a highly effective cash flow hedge are included in equity, net of related deferred tax, presented as Fair value changes on cash flow hedges under Other comprehensive income reserve account in the consolidated balance sheet. The ineffective portion is immediately recognized in the consolidated statement of income. If the hedged cash flow results in the recognition of an asset or a liability, gains and losses initially recognized in equity are transferred from equity to net income in the same period or periods during which the hedged forecasted transaction or recognized asset or liability affect the consolidated statement of income. When the hedge ceases to be highly effective, hedge accounting is discontinued prospectively. In this case, the cumulative gain or loss on the hedging instrument that had been recognized in other comprehensive income reserve is retained as such until the forecasted transaction occurs. When the forecasted transaction is no longer expected to occur, any net cumulative gain or loss previously reported in other comprehensive income reserve is charged in the consolidated statement of income. Embedded Derivatives. An embedded derivative is separated from the host contract and accounted for as derivative if all the following conditions are met: the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristic of the host contract; a separate instrument with the same terms as the embedded derivative would meet the definition of the derivative; and the hybrid or combined instrument is not recognized at fair value through profit or loss.

*SGVMC214233*

- 19 The Company assesses whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the entity first becomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required. The Company determines whether a modification to cash flows is significant by considering the extent to which the expected future cash flows associated with the embedded derivative, the host contract or both have changed and whether the change is significant relative to the previously expected cash flows on the contract. Current Versus Non-current Classification of Derivatives Derivative instruments that are not designated and considered as effective hedging instrument are classified as current or non-current or separated into a current and noncurrent portion based on an assessment of the facts and circumstances (i.e., the underlying contracted cash flows). Where the Company will hold a derivative as an economic hedge (and does not apply hedge accounting), for period beyond 12 months after the end of reporting period, the derivative is classified as non-current (or separated into current and non-current portions) consistent with the classification of the underlying item. Embedded derivatives that are not closely related to the host contract are classified consistent with the cash flows of the host contract.

Derivative instruments that are designated as, and are considered effective hedging instruments, are classified consistent with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and noncurrent portion only if a reliable allocation can be made. Classification of Financial Instruments Between Liability and Equity A financial instrument is classified as liability if it provides for a contractual obligation to: deliver cash or another financial asset to another entity; or exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the Company; or satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.

If the Company does not have an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation, the obligation meets the definition of a financial liability. Determination of Fair Value The fair value of financial instruments traded in active markets at the end of reporting period is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and asking prices are not available, the price of the most recent transaction is used since it provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models, and other relevant valuation models.

*SGVMC214233*

- 20 Amortized Cost Amortized cost is computed using the effective interest rate method less any allowance for impairment and principal reduction. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are integral part of the effective interest rate. Day 1 Profit or Loss Where the transaction price in a non-active market is different from the fair value of other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Company recognizes the difference between the transaction price and fair value (a Day 1 profit or loss) in the consolidated statement of income unless it qualifies for recognition as some other type of asset. In cases where the data is not observable, the difference between the transaction price and model value is only recognized in the consolidated statement of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Company determines the appropriate method of recognizing the Day 1 profit or loss amount. Offsetting of Financial Instruments Financial assets and liabilities are offset and the net amount reported in the consolidated balance sheet if and only if, there is a currently enforceable right to offset the recognized amounts and there is intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented at gross amounts in the consolidated balance sheet. Impairment of Financial Assets The Company assesses at each end of reporting period whether a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result 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 of the financial asset or the group of financial assets that can be reliably estimated. Objective evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Assets Carried at Amortized Cost. The Company first assesses whether objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.

*SGVMC214233*

- 21 If there is objective evidence that an impairment loss on loans and receivables and HTM carried at amortized cost had been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial assets original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the consolidated statement of income. The assets together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral had been realized or had been transferred to the Company. If a write-off is later recovered, any amount formerly charged is credited to the consolidated statement of income. If, in a subsequent year, the amount of the impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. Assets Carried at Cost. If there is objective evidence that an impairment loss had been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the consolidated statement of income. The asset together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Company. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to the consolidated statement of income. AFS Financial Assets. For AFS financial assets, the Company assesses at each end of reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity investments classified as AFS, this would include a significant or prolonged decline in the fair value of the investments below their cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in the consolidated statement of income is removed from other comprehensive income reserve and recognized in the consolidated statement of income. Impairment losses on equity investments are not reversed through the consolidated statement of income. Increases in fair value after impairment are recognized directly in other comprehensive income reserve.

*SGVMC214233*

- 22 Derecognition of Financial Instruments Financial Asset. A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when: the Companys rights to receive cash flows from the asset have expired; the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass-through arrangement; or the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Company 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 and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Companys continuing involvement in the asset. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay. Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged, cancelled or has expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability. The recognition of a new liability and the difference in the respective carrying amounts is recognized in the consolidated statement of income. Inventories For the tollways and water business, inventories consist of transponders, magnetic cards, materials and supplies and spare parts that are valued at the lower of cost and net realizable value (NRV). Cost includes purchase price and import duties, and is determined using a first-in, firstout method. For transponders and magnetic cards, NRV is the estimated selling price in the ordinary course of business less estimated costs necessary to make the sale. NRV for materials and supplies and spare parts is the current replacement cost. For the healthcare business, inventories includes medicines, hospital supplies, books and others. Medicine and hospital supplies inventory are stated at the lower of cost or NRV. NRV is the estimated selling price in the ordinary course of business less direct cost to sell. Cost is determined using the moving average method.

*SGVMC214233*

- 23 Real Estate for Sale Real estate for sale is carried at the lower of cost and NRV. Cost includes the acquisition cost of the land plus all costs directly attributable to the acquisition for projects where the Company is the landowner, and includes actual development costs incurred up to end of reporting period for projects where the Company is both the landowner and developer. Where the Company is only a developer, the cost of real estate for sale pertains only to the actual development costs. NRV is the selling price in the ordinary course of business less estimated costs to complete and make the sale. Advances to Contractors and Consultants Advances to contractors and consultants represent advance payments for mobilization of the contractors and consultants. These are stated at costs less any impairment in value. These are progressively reduced upon receipt of the equivalent amount of services rendered by the contractors and consultants. Service Concession Arrangements The Company accounts for its service concession arrangements under the intangible asset model as it receives the right (license) to charge users of public service. In addition, the Company recognizes and measures revenue and cost in accordance with PAS 11, Construction Contracts and PAS 18, Revenue for the services it performs. When the Company provides construction or upgrade services, the consideration received or receivable by the Company is recognized at its fair value. The revenue and cost from these services are recognized based on the percentage of completion measured principally on the basis of estimated completion of a physical proportion of the contract works, and by reference to the actual costs incurred to date over the estimated total cost of the project. The Company recognizes any contractual obligations in relation to the concession agreements in accordance with PAS 37, Provisions, Contingent Liabilities and Contingent Assets. The Company recognizes its contractual obligations to restore the toll roads to a specified level of serviceability in accordance with PAS 37, Provisions, Contingent Liabilities and Contingent Assets, as the obligations arises which is as a consequence of the use of the toll roads and therefore it is proportional to the number of vehicles using the toll roads and increasing in measurable annual increments. Service Concession Assets. The service concession assets acquired through business combinations are recognized initially at the fair value of the concession agreement using multi-period excess earnings method. Additions subsequent to business combinations are initially measured at present value of any additional estimated future concession fee payments pursuant to the Concession Agreement (see Notes 13 and 18) and/or the costs of rehabilitation works incurred. Following initial recognition, the service concession assets are carried at cost less accumulated amortization and any impairment losses. Service concession assets are amortized using the straight-line method over the term of the service concession. The amortization period and method for an intangible asset with a finite useful life is reviewed at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the service concession asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense is recognized under the Cost of services account in the consolidated statement of income.

*SGVMC214233*

- 24 The service concession assets will be derecognized upon turnover to the Grantor. There will be no gain or loss upon derecognition as the service concession assets, which is expected to be fully depreciated by then, will be handed over to the Grantor with no consideration. Property and Equipment Property and equipment, except land, are carried at cost, excluding day-to-day servicing, less accumulated depreciation and any impairment loss. The initial cost of property and equipment comprises its purchase price, including import duties and non-refundable purchase taxes and any directly attributable costs of bringing the property and equipment to its working condition and location for its intended use. Such cost includes the cost of replacing part of such property and equipment and borrowing costs for long-term construction projects when the recognition criteria are met. When significant parts of property and equipment are required to be replaced at intervals, the Company recognizes such parts as individual assets with specific useful lives and depreciation, respectively. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the property and equipment as a replacement if the recognition criteria are satisfied. Land is stated at cost less any impairment loss. Expenditures incurred after the property and equipment have been put into operation, such as repairs and maintenance, are normally recognized as expense in the period such costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as additional cost of the property and equipment. Depreciation commences once the property and equipment are available for use and is computed on a straight line basis over the estimated useful lives of the assets (see Note 14). The assets residual values, useful lives and depreciation method are reviewed, and adjusted if appropriate, at each financial year-end. An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated statement of income in the year the asset is derecognized. Construction in progress is stated at cost less any impairment in value. This includes cost of construction and other direct costs. Construction in progress is not depreciated until such time that the relevant assets are completed and available for its intended use. Investment Properties Investment properties are initially measured at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met and excludes the cost of day-to-day servicing of an investment property. Subsequent to initial recognition, investment properties are stated at fair value, which have been determined based on the latest valuations performed by an independent firm of appraisers. Gains or losses arising from changes in the fair values of investment properties are included in our consolidated statement of income in the year in which they arise. Where an entity is unable to determine the fair value of an investment property under construction, but expects to be able to determine its fair value on completion, the investment under construction will be measured at cost until such time that fair value can be determined or construction is completed.

*SGVMC214233*

- 25 Investment properties are derecognized when they have been disposed of or when the investment property is permanently withdrawn from use and no future benefit is expected from its disposal. Any gain or loss on the retirement or disposal of an investment property is recognized in the consolidated statement of income in the year of retirement or disposal. Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If an owner occupied property becomes an investment property, we account for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use. Software Cost Software cost (included as part of Other noncurrent assets account in the consolidated balance sheet) includes the cost of software purchased from a third party, and other direct costs incurred in the software configuration and interface, coding and installation to hardware, including parallel processing, and data conversion. Software cost is amortized on a straight-line basis over the estimated useful life of five years. The carrying cost is reviewed for impairment on an annual basis, whether there is an indication that software cost maybe impaired. Impairment of Nonfinancial Assets Property and Equipment, Service Concession Assets, Investments in Associates and Joint Venture, and Software Cost. The Company assesses at each end of reporting period whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the assets recoverable amount. An assets recoverable amount is the higher of an assets or cash-generating units fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. Impairment losses are recognized in the consolidated statement of income. The Company bases its impairment calculation on detailed budgets and forecast calculations which are prepared separately for each of the Companys cash-generating units to which the individual assets are allocated. These budgets and forecast calculations are generally covering a period of five years. For longer periods, a long term growth rate is calculated and applied to project future cash flows after the fifth year. Impairment losses of continuing operations, including impairment on inventories, are recognized in the consolidated statement of income in those expense categories consistent with the function of the impaired asset, except for a property previously revalued where the revaluation was taken to other comprehensive income. In this case, the impairment is also recognized in other comprehensive income up to the amount of any previous revaluation.

*SGVMC214233*

- 26 For nonfinancial assets excluding goodwill, an assessment is made at each end of reporting period as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there had been a change in the estimates used to determine the assets recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statement of income unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation (in case of property and equipment) and amortization (in case of service concession assets and software cost) charges are adjusted in future periods to allocate the assets revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Goodwill. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of the cash generating unit, or group of cash-generating units, to which the goodwill relates. Where the recoverable amount of the cash-generating unit, or group of cash-generating units, is less than the carrying amount of the cash generating unit, or group of cash-generating units, to which goodwill had been allocated, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. Customers Guaranty Deposits Customers guaranty deposits (included as part of Deferred credits and other noncurrent liabilities in the consolidated balance sheet) are initially measured at fair value. After initial recognition, these deposits are subsequently measured at amortized cost using the effective interest rate method. The discount is amortized over the remaining concession period using the effective interest rate method. Assets Held in Trust Assets which are owned by MWSS but are used in the operations of Maynilad under the Concession Agreement are not reflected in the consolidated balance sheet but carried as Assets Held in Trust, except for certain assets transferred to Maynilad as mentioned in Note 36. Convertible Bonds Convertible bonds are separated into liability and equity components based on the terms of the contract. On issuance of the convertible bonds, the fair value of the liability component is determined using a market rate for an equivalent non-convertible bond. This amount is classified as a financial liability measured at amortised cost (net of transaction costs) until it is extinguished on conversion or redemption. The remainder of the proceeds is allocated to the conversion option that is recognized and included in equity. Transaction costs are deducted from bonds, net of associated income tax. The carrying amount of the conversion option is not remeasured in subsequent years. Transaction costs are apportioned between the liability and equity components of the convertible bonds based on the allocation of proceeds to the liability and equity components when the instruments are initially recognized.

*SGVMC214233*

- 27 Equity Ordinary shares (common stock) are classified as equity and measured at par value for all shares issued. Incremental costs directly attributable to the issue of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects. Proceeds and/or fair value of consideration received in excess of par value are recognized as additional paid-in capital. Preference share capital (preferred share) is classified as equity if it is non-redeemable, or redeemable only at the Companys option, and any dividends are discretionary. Dividends thereon are recognized as distributions within equity upon approval by the Companys shareholders. Preference share capital is classified as a liability if it is redeemable on a specific date or at the option of the shareholders, or if dividend payments are not discretionary. Dividends thereon are recognized as interest expense in the consolidated statement of income as accrued. Retained earnings (deficit) represent accumulated earnings (losses) net of cumulative dividends declared, adjusted for the effects of equity restructuring and transactions with non-controlling interest. Other reserves comprise of equity transactions other than capital contributions such as equity component of a convertible financial instrument, transaction with non-controlling interest and share-based payment transactions or Executive Stock Option Plan (ESOP). Other comprehensive income reserve comprise items of income and expenses that are not recognized in statement of income as required or permitted by other PFRS. Non-controlling interest represents the equity interest in DMWC, Maynilad, MPTC, MPTDC, MNTC, RMCI, RCI, MSIHI, MPC, FPRPC and MALHI not held by the Parent Company. Borrowing Costs Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset. To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization on that asset shall be determined as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that funds are borrowed generally and used for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization shall be determined by applying a capitalization rate to the expenditures on that asset. The capitalization rate shall be the weighted average of the borrowing costs applicable to the borrowings of the Company that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs capitalized during a period shall not exceed the amount of borrowing costs incurred during that period. Capitalization of borrowing costs commences when the activities necessary to prepare the asset for intended use are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the asset is available for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognized. Borrowing costs include interest charges and other costs incurred in connection with the borrowing of funds, as well as exchange differences arising from foreign currency borrowings used to finance these projects, to the extent that they are regarded as an adjustment to interest costs. All other borrowing costs are expensed as incurred.

*SGVMC214233*

- 28 Provisions General. Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Company expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the consolidated statement of income, net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense. Warranties and Guarantees. Provision relates to estimated expenses of concluded and ongoing debt settlement negotiations and certain warranties extended in relation to debt for asset swap arrangements entered in prior years. The amount of provision is recognized upon entering into such arrangement and is based on historical experience or best estimate as a result of ongoing negotiations. Provision for Heavy Maintenance. Provision for heavy maintenance pertains to the present value of the estimated contractual obligations of the Company to restore the service concession assets or toll road to a specified level of serviceability during the service concession term and to maintain the same assets in good condition prior to turnover of the assets to the Grantor. The amount of provision is accrued every year and presented in the consolidated statement of income and is reduced by the actual obligations incurred for heavy maintenance of the service concession. Contingent Liabilities Recognized in a Business Combination. A contingent liability recognized in a business combination is initially measured at its fair value. Subsequently, it is measured at the higher of (a) the amount that would be recognized in accordance with the general guidance for provisions above (PAS 37) or (b) the amount initially recognized less, when appropriate, cumulative amortization recognized in accordance with the guidance for revenue recognition (PAS 18) Operating Segments An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Companys other components. An operating segments operating results are reviewed regularly by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to the chief operating decision maker include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly of corporate assets (primarily the Companys main office), main office expenses, and income tax assets and liabilities. Segment capital expenditure is the total cost incurred during the period to acquire property and equipment, and intangible assets other than goodwill.

*SGVMC214233*

- 29 Revenue and Income Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment, excluding discounts, rebates and sales taxes or duty. The Company assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Company has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognized: Water and Sewerage Services Revenue. Revenues from water and sewerage services are recognized upon supply of water to the customers. Billings to customers consist of water charges, environmental and sewerage charges. Toll Fees. Revenue from toll fees is recognized upon sale of toll tickets. Toll fees received in advance, through transponders or magnetic cards, is recognized as income upon the holders availment of the toll road services, net of sales discounts. The unused portion of toll fees received in advance is reflected as Unearned toll revenues account in the consolidated balance sheet. Hospital and School Revenues. Revenue is recognized upon rendering of medical and educational services. Tuition and Other School Fees. Tuition and other school fees are recognized as income over the corresponding school term. Tuition and other school fees related to the succeeding school term which are collected in advance are presented as Unearned tuition and other school fees in the consolidated balance sheet. Sale of Transponders and Magnetic Cards. Revenue is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, which is normally upon delivery. Construction Revenue. Revenue is recognized by reference to the stage of completion of the contract activity at the end of reporting period. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately. Interest Income. Interest income is recognized as it accrues, using the effective interest method. Dividends. Revenue is recognized when the right to receive the payment is established. The following revenue streams were included under Other income account in the consolidated statement of income: Guarantee Fees. Guarantee fees are recognized in accordance with the terms of the agreement. Sale of Investments. Gain or loss is recognized when risk and rewards of ownership had been transferred to the buyer. Rental Income. Revenue from rent is recognized on a straight-line basis over the terms of the lease. Management Fees. Fees are recognized when services are rendered.

*SGVMC214233*

- 30 Other Income. Recognized when there is an incidental economic benefits, other than the usual business operations, that will flow to the Company and that can be measured reliably. Cost and Expenses Recognition Costs and expenses are decreases in economic benefits during the accounting period in the form of outflows or decrease of assets or incurrence of liabilities that result in decrease in equity, other than those relating to distributions to equity participants. Cost and expenses other than the items mentioned below are recognized in the consolidated statement of income as incurred. Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. 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 agreement; b. a renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term; c. there is a change in the determination of whether the fulfillment is dependent on a specified asset; or d. there is a substantial change to the asset. Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and the date of renewal or extension period for scenario (b). Leases where the lessor retains substantially all the risks and benefits of ownership of the assets are classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned. Operating lease payments are recognized as income in the consolidated statement of income on a straight-line basis over the lease term. Retirement Benefits Defined Contribution Plan. Retirement benefits of the Parent Companys employees are provided through a defined contribution scheme. The Parent Company operates a Retirement Plan which is a contributory plan wherein the Parent Company undertakes to contribute a predetermined amount to the individual account of each employee and the employee gets whatever is standing to his credit upon separation from the Parent Company. The Plan is managed and administered by a Retirement Committee and a trustee bank had been appointed to hold and invest the assets of the retirement fund in accordance with the provisions of the Plan. The Parent Company records expense for its contribution to the defined contribution plans when the employee renders service to the Parent Company, essentially coinciding with their cash contributions to the plans.

*SGVMC214233*

- 31 Defined Benefit Plan. MPIC subsidiaries have funded, noncontributory retirement benefit plans covering all their eligible regular employees. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognized as income or expense immediately in the year when these are incurred. The past service cost is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a retirement plan, past service cost is recognized immediately. The defined benefit asset or liability is the aggregate of the present value of the defined benefit obligation (using a discount rate of government bonds) reduced by past service cost not yet recognized and the fair value of plan assets out of which the obligations are to be settled directly. If such aggregate is negative, the asset is measured at the lower of such aggregate or the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. Share-based Payment The Company has an ESOP for eligible executives to receive remuneration in the form of sharebased payment transactions, whereby executives render services in exchange for the share option. The cost of equity-settled transactions with employees is measured by reference to the fair value of the stock options at the date at which they are granted. Fair value is determined using an option-pricing model, further details of which are set forth in Note 33. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the share price of the Parent Company (market conditions). The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (vesting date). The cumulative expense recognized for equity-settled transactions at each end of reporting period until the vesting date reflects the extent to which the vesting period has expired and the Companys best estimate of the number of awards that will ultimately vest at that date. The consolidated statement of income credit or expense for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and is recognized as employee benefits. No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance and/or service conditions are satisfied. Where the terms of an equity-settled award are modified, the minimum expense recognized is the expense as if the terms had not been modified, if the original terms of the award are met. If the modification increases the fair value of the equity instruments granted, as measured immediately before and after the modification, the entity shall include the incremental fair value granted in the measurement of the amount recognized for services received as consideration for the equity instruments granted. The incremental fair value granted is the difference between the fair value of the modified equity instrument and that of the original equity instrument, both estimated as at the date of the modification. If the modification occurs during the vesting period, the incremental fair value granted is included in the measurement of the amount recognized for services received over the period from the modification date until the date when the modified equity instruments vest, in

*SGVMC214233*

- 32 addition to the amount based on the grant date fair value of the original equity instruments, which is recognized over the remainder of the original vesting period. If the modification occurs after vesting date, the incremental fair value granted is recognized immediately, or over the vesting period if the employee is required to complete an additional period of service before becoming unconditionally entitled to those modified equity instruments. Where an equity-settled award is cancelled with payment, it is treated as if it had vested on the date 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 the counterparty are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were modifications of the original award, as described in the previous paragraph. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share. Other Long-term Employee Benefits The Companys Long Term Incentive Plan (LTIP) grants cash incentives to eligible key executives of the Parent Company and certain subsidiaries. Liability under the LTIP is determined using the projected unit credit method. Employee benefit costs include current service costs, interest cost, actuarial gains and losses and past service costs. Past service costs and actuarial gains and losses are recognized immediately. The long term employee benefit liability comprises the present value of the defined benefit obligation (using discount rate based on government bonds) at the end of the reporting period. Foreign Currency Denominated Transactions and Translations The consolidated financial statements are presented in Philippine peso, which is the Parent Companys functional and presentation currency. All subsidiaries and associates evaluate their primary economic and operating environment and determine their functional currency. Items included in the consolidated financial statements of each entity are initially measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency rate of exchange ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the end of reporting period. All differences are taken to the consolidated statement of income except when qualified as adjustment to borrowing costs. Foreign exchange differentials relating to the restatement of concession fees payable are deferred in view of the automatic reimbursement mechanism as approved by the MWSS Board of Trustees (BOT) under Amendment No. 1 of the Concession Agreement of Maynilad. Net foreign exchange losses are recognized as deferred Foreign Currency Differential Adjustments (FCDA) and net foreign exchange gains are recognized as deferred credits in the consolidated balance sheet. The write-off of the deferred FCDA or reversal of deferred credits will be made upon determination of the new base foreign exchange rate as approved by the Regulatory Office during every Rate Rebasing exercise, unless indication of impairment of the deferred FCDA would be evident at an earlier date. Foreign exchange differentials arising from other foreign currency denominated transactions are credited or charged to operations.

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- 33 Income Taxes Current Tax. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the tax authority. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the end of reporting period where the Company operates and generates taxable income. Current income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statement of income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Deferred Tax. Deferred tax is provided, using the balance sheet liability method, on all temporary differences at the end of reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, except (a) where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income or loss; and (b) 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 temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax credits from excess minimum corporate income tax (MCIT) over the regular corporate income tax (RCIT) and unused net operating loss carryover (NOLCO), to the extent that it is probable that taxable income will be available against which the deductible temporary differences and carryforward benefits of unused tax credits from MCIT and NOLCO can be utilized. Deferred tax, however, is not recognized when (a) it arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income or loss; and (b) in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable income will be available against which the temporary differences can be utilized. The carrying amount of deferred tax assets is reviewed at each end of reporting period and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each end of reporting period and are recognized to the extent that it has become probable that future taxable income will allow the deferred tax assets to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to 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 at the end of reporting period. Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in other comprehensive income or directly in equity.

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- 34 Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to offset current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, would be recognized subsequently if new information about facts and circumstances changed. The adjustment would either be treated as a reduction to goodwill (as long as it does not exceed goodwill) if it incurred during the measurement period or in profit or loss. Sales Tax Revenues, expenses and assets are recognized net of the amount of sales tax (commonly referred to as Value Added Tax), except: Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable. Receivables and payables that are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated balance sheet. Earnings (Loss) Per Share Basic earnings (loss) per share is calculated by dividing the net income (loss) for the year attributable to the owners of the Parent Company by the weighted average number of common shares outstanding during the year, after considering the retroactive effect of stock dividend declaration, if any. Diluted earnings (loss) per share is computed by dividing the net income (loss) for the year attributable to the owners of the Parent Company by the weighted average number of common shares outstanding during the period, adjusted for any subsequent stock dividends declared and potential common shares resulting from the assumed exercise of outstanding stock options. Outstanding stock options will have dilutive effect under the treasury stock method only when the average market price of the underlying common share during the period exceeds the exercise price of the option. Contingencies Contingent liabilities are not recognized in the consolidated financial statements but are disclosed in the notes to consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial statements but are disclosed in the notes to consolidated financial statements when an inflow of economic benefits is probable. Events after the Reporting Period Post year-end events that provide additional information about the Companys financial position at the date of the balance sheet (adjusting events), if any, are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to consolidated financial statements when material.

*SGVMC214233*

- 35 -

3. Managements Use of Judgments, Estimates and Assumptions The preparation of the consolidated financial statements in compliance with PFRS requires management to make judgments and estimates that affect the reported amounts of revenues, expenses, assets and liabilities, the disclosure of contingent liabilities and other significant disclosures. In preparing the consolidated financial statements, management has made its best judgments and estimates of certain amounts, giving due consideration to materiality. The judgments, estimates and assumptions used in the accompanying consolidated financial statements are based upon managements evaluation of relevant facts and circumstances as of the date of the consolidated financial statements. Actual results could differ from those estimates, and such estimates will be adjusted accordingly. The Company believes that the following represent a summary of these significant judgments, estimates and assumptions, the related impact and associated risks in the consolidated financial statements. Judgments In the process of applying the Companys accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the consolidated financial statements. Determination of Functional Currency. Based on the economic substance of the underlying circumstances relevant to the Company, the functional currency of the Company had been determined to be the Philippine peso. The Philippine peso is the currency of the primary economic environment in which the Company operates. It is the currency that mainly influences revenue and expenses. Service Concession Arrangements. In applying Philippine Interpretation IFRIC 12, the Company has made a judgment that the service concession arrangements related to the Companys water and tollway businesses qualify under the intangible asset model as they receive the right to charge users of public service. The carrying values of service concession assets amounted to P69,348.1 million and = = P62,185.4 million as of December 31, 2010 and 2009, respectively (see Note 13). Classification as Investment in an Associate or Joint Venture. As provided in PAS 28, significant influence must be present and currently exercisable over an investee to account any interest in that investee as investment in an associate and under the equity accounting. Notwithstanding a less than 20.0% interest in the investee company, if significant influence can be clearly demonstrated, the investor cannot be precluded from accounting an interest in the investee company as investment in an associate, thus account for such investment under equity method. PAS 31 also provides that a joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control and that control shall be contractually agreed.

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- 36 In 2009, the Company classified and accounted for its 14.67% interest in Manila Electric Company (Meralco) as an investment in an associate by virtue of a Shareholders Agreement entered into by the Company with PLDT Communication and Energy Ventures, Inc. (PCEV, formerly Pilipino Telephone Corporation) which defines the basic principles governing their conduct as common shareholders of Meralco and the exercise of their respective voting rights therein. In 2010, in exchange for the Meraco shares, the Company subscribed for 50.0% in the common shares of Beacon Electric and by virtue of the joint control arrangement with PCEV, the interest in Beacon Electric was accounted for as investment in joint venture. The carrying value of the investment in Beacon Electric as of December 31, 2010 amounted to = P23,245.9 million and the carrying value of the investment in Meralco as of December 31, 2009 amounted =24,367.0 million (see Note 12). P Noncurrent Asset Held for Sale and AFS Financial Assets. On June 18, 2009, the Company sold 17.0% out of its 51.0% interest in Landco and consequently conceded control over Landco. Management intended to dispose the remaining 34.0% during 2010 and as of December 31, 2009, the investment in Landco was classified as a noncurrent asset held for sale after management had assessed that it met the criteria of an asset held for sale following the provisions of PFRS 5 which include, among others: Landco is available for immediate sale and can be sold to a potential buyer in its current condition. The BOD is committed to sell Landco and had entered into preliminary negotiations with a potential buyer as of December 31, 2009. Should negotiations with the party not lead to a sale, a number of potential buyers have been then identified. The BOD expects negotiations to be finalized and the sale to be substantially completed in 2010.

On August 24, 2010, the Company sold another 15.0% of Landco resulting in 19.0% remaining interest. The further reduction in interest resulted in a loss of significant influence over Landco, thus the investment is being accounted for as AFS financial assets in accordance with PAS 39. The Company intends to dispose the 19.0% remaining interest in Landco. The carrying value of the investment in Landco as AFS financial asset as of December 31, 2010 amounted to =211.8 million. The carrying value of the investment in Landco accounted for as P noncurrent asset held for sale as of December 31, 2009 amounted to P329.6 million = (see Notes 6 and 10). Classifying HTM Investment. The classification to HTM investments requires significant judgment. In making this judgment, the Company evaluates its intention and ability to hold such investments to maturity. If the Company fails to keep these investments to maturity, it will be required to reclassify the entire portfolio as part of AFS financial assets. The investments would therefore be measured at fair value and not at amortized cost.

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- 37 In 2009, the Company classified its investments in bonds as HTM investments. The total carrying value of the HTM investments amounted to =404.6 million as of December 31, 2009. However, in P 2010, the Company sold a significant portion of its investments in bonds before their maturity, thus, the Company reclassified the remaining and newly acquired investment in bonds as AFS financial assets and remeasured the investments to fair value (see Notes 10 and 38). Financial Assets not Quoted in an Active Market. Where fair value of financial assets recorded in the consolidated balance sheets cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk, and volatility. Change in assumptions about these factors could affect the reported fair value of financial instruments. Unquoted financial assets of the Company include investments in Beacon Electrics preferred shares and other unlisted shares classified as AFS financial assets. Aggregate carrying values of these unquoted financial assets amounted to =8,646.0 million and =282.8 million as of P P December 31, 2010 and 2009, respectively (see Notes 10 and 12). Lease Agreement Qualifies as Business Combination. On October 23, 2010, East Manila Hospital Managers Corporation (EMHMC or Lessee) entered into a lease agreement with Our Lady of Lourdes Hospital, Inc. (OLLHI) and Servants of the Holy Spirit (the Lessors) over OLLH. The intent of MPIC, similar to its previous investments in hospitals, is to operate and manage the hospital, through EMHMC. The terms of the agreement provides the following: EMHMC has the full and exclusive control of OLLH and OLLH properties and Improvements. PFRS 3 defines business combination as a transaction or other event in which an acquirer obtains control of one or more businesses. Aside from properties and improvements, the subject of the lease includes hospital and patient records and information. hospital employees, even though terminated by ollh, were hired by EMHMC. hence, the subject of the agreement included inputs, processes and even outputs, which are the elements of a business. Upon termination of the lease by EMHMC, it shall transition the operations of OLLH to the Lessors or third party, which implies the turnover of business and not just assets.

In accordance with Standing Interpretations Committee (SIC) 27, Evaluating the Substance of Transactions Involving the Legal Form of a Lease, the Company assessed the substance of the lease agreement. SIC 27 requires that when the arrangement involves the legal form of a lease, the accounting shall reflect the substance and economic reality of the arrangement, not merely the legal form. The Company has assessed that the agreement meets the definition of a business combination; particularly since the Company obtained control over the operations and management of OLLH. Hence, the lease agreement qualifies as an acquisition of a business and is accounted for in accordance with PFRS 3 (see Note 4).

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- 38 Operating Leases. The Company has entered into various lease agreements as a lessor and as a lessee. The Company has determined that the significant risks and rewards are retained by the lessor and accounts for these leases as operating lease. Rental income, included under the Other income account in the consolidated statements of income, amounted to =3.6 million, =2.9 million and =3.3 million for the years ended December 31, P P P 2010, 2009 and 2008, respectively (see Note 29). Rental expense, included under Cost of services andGeneral and administrative expenses accounts in the consolidated statements of income, amounted to =171.4 million, P84.4 million P = and P36.7 million for the years ended December 31, 2010, 2009 and 2008, respectively = (see Notes 24 and 25). Estimates and Assumptions The key assumptions concerning future and other key sources of estimation at the end of reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. The Company based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments however, may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when they occur. Determination of Fair Value of Financial Instruments (Including Derivatives). The Company initially records all financial instruments at fair value and subsequently carries certain financial assets and financial liabilities at fair value, which requires extensive use of accounting estimates and judgment. Valuation techniques are used particularly for financial assets and financial liabilities (including derivatives) that are not quoted in an active market. Where valuation techniques are used to determine fair values (e.g., discounted cash flow, option models), they are periodically reviewed by qualified personnel who are independent of the trading function. All models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practicable, models use only observable data as valuation inputs. However, other inputs such as credit risk (whether that of the Company or the counterparties), forward prices, volatilities and correlations, require management to develop estimates or make adjustments to observable data of comparable instruments. The amount of changes in fair values would differ if the Company uses different valuation assumptions or other acceptable methodologies. Any change in fair value of these financial instruments (including derivatives) would affect either the consolidated statement of income or consolidated statement of changes in equity. Fair values of financial assets and financial liabilities are presented in Note 38. Purchase Price Allocation in Business Combinations and Goodwill. The Companys consolidated financial statements and financial performance reflect acquired businesses after the completion of the respective acquisition. The Company accounts for the acquired businesses using the acquisition method starting January 1, 2010 and purchase method for prior year acquisitions, which both require extensive use of accounting judgments and estimates to allocate the purchase price to the fair market values of the acquirees identifiable assets and liabilities and contingent liabilities, if any, at the acquisition date. Any excess in the purchase price over the fair market values of the net assets acquired is recorded as goodwill in the consolidated balance sheet. Thus, the numerous judgments made in estimating the fair market value to be assigned to the acquirees assets and liabilities can materially affect the Companys financial position and performance.

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- 39 The Companys acquisitions have resulted in recognition of goodwill. The carrying values of goodwill as of December 31, 2010 and 2009 amounted to =12,751.0 million and P = P12,551.8 million, respectively. Total goodwill of =199.3 million arising from various P acquisitions in 2010 were provisionally determined as allowed by PFRS 3 (see Note 4). Fair Value Measurement of Contingent Consideration. Contingent consideration, resulting from business combinations, is valued at fair value at acquisition date as part of the business combination. Where the contingent consideration meets the definition of a derivative and, thus, a financial liability, it is subsequently remeasured to fair value at each reporting date. The determination of the fair value is based on discounted cash flows. The key assumptions take into consideration the probability of meeting each performance target and the discount factor. As part of the purchase price allocation for its acquisition of OLLH, the Company identified an element of contingent consideration with a fair value of P170.0 million at the acquisition date which = is classified as other financial liability. Such contingent consideration was not remeasured as of December 31, 2010 since it was determined provisionally as permitted by PFRS 3. Management, however, believes that the fair value of the contingent consideration determined at acquisition date approximates the fair value at year end as the acquisition of OLLH and valuation of the contingent consideration happened close to reporting date (see Notes 4 and 20). Revenue and Cost Recognition. The Companys revenue recognition policies require management to make use of estimate and assumptions that may affect the reported amounts of revenue. The Company measures revenue from construction services or rehabilitation works at the fair value of the consideration received or receivable with reference to the percentage of completion of the project. Given that the Company has subcontracted or subcontracts the construction services and rehabilitation works to outside contractors, the recognized revenue from the construction services or rehabilitation works equals or substantially approximates the related cost. Construction revenue for the years ended December 31, 2010, 2009 and 2008 amounted to = P8,931.9 million, =4,879.1million and =4,158.9 million, respectively, and construction costs for the P P years ended December 31, 2010, 2009 and 2008 amounted to P8,858.6 million, =4,771.0 million and = P = P4,092.1 million, respectively. Impairment of Loans and Receivables. The Company estimates the allowance for doubtful accounts related to receivables using a combination of specific and collective assessment. The amounts calculated in each level of impairment assessment are combined to determine the total amount of allowance. First, the Company evaluates specific accounts that are considered individually significant for any objective evidence that certain customers are unable to meet their financial obligations. In these cases, the Company uses judgment, based on the best available facts and circumstances, including but not limited to, the length of its relationship with the customer and the customers current credit status based on third party credit reports and known market factors. The allowance provided is based on the difference between the present value of the receivable that the Company expects to collect, discounted at the receivables original effective interest rate and the carrying amount of the receivable. These specific allowances are re-evaluated and adjusted as additional information received affects the amounts estimated. Second, if it is determined that no objective evidence of impairment exists for an individually assessed receivable, the receivable is included in a group of receivables with similar credit risk characteristics and is collectively assessed for impairment. The provision under collective assessment is based on historical collection, write-off, experience and change in customer payment terms. Impairment assessment is performed on a continuous basis throughout the year.

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- 40 The carrying values of receivables, net of allowance for doubtful accounts, amounted to = P3,055.7 million and =13,475.3 million as of December 31, 2010 and 2009, respectively P (see Notes 8 and 38). Allowance for doubtful accounts amounted to P487.9 million and = = P511.3 million as of December 31, 2010 and 2009, respectively (see Note 8). Impairment of AFS Financial Assets. The Company treats an AFS financial asset as impaired when there had been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is significant or prolonged requires judgment. The Company treats significant generally as 20.0% or more and prolonged as greater than six (6) months for quoted equity securities. In addition, the Company evaluates other factors, including normal volatility in share price for quoted equities and the future cash flows and the discount factors for unquoted equities. Impairment loss on AFS financial assets amounted to =55.8 million for the year ended P December 31, 2008 (see Note 29). No impairment loss was recognized for the years ended December 31, 2010 and 2009. The carrying value of AFS financial assets amounted to = P9,070.0 million and =282.8 million as of December 31, 2010 and 2009, respectively P (see Notes 6, 10, 12 and 38). Impairment of Goodwill. Goodwill is subject to annual impairment test. This requires an estimation of the value in use of cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Company to make an estimate of the expected future cash flows from the cash-generating unit and to choose a suitable discount rate in order to calculate the present value of those cash flows. No impairment of goodwill was recognized in 2010 and 2009. Provisional goodwill for 2010 acquisitions of P199.3 million were not tested for impairment as allowed by PAS 36. The carrying = value of goodwill amounted to P12,751.0 million and =12,551.8 million as of December 31, 2010 = P and 2009, respectively (see Note 4). Impairment of Nonfinancial Assets. Impairment review is performed when certain impairment indicators are present. Determining the fair value of assets requires the estimation of cash flows expected to be generated from the continued use and ultimate disposition of such assets. While it is believed that the assumptions used in the estimation of fair values reflected in the consolidated financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse impact on the results of operations. The carrying values of non-financial assets subject to impairment review when impairment indicators are present are as follows:
2010
(In Thousands)

2009 = P62,185,407 27,370,023 634,405 19,908 329,570

Service concession assets (see Note 13) Investments in associates and interest in joint ventures (see Note 12) Property and equipment (see Note 14) Software costs (see Note 15) Noncurrent asset held for sale (see Note 6)

P69,348,123 = 34,871,657 1,423,235 51,449

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- 41 As discussed in Note 13, the MWSS Regulatory Office (MWSS-RO or Regulatory Office) issued MWSS-RO resolution No. 209-069, where certain issues were resolved that had an impact on the new rate rebasing adjustment or R. Management noted that said resolution may have an impact on the expected cash flows from Maynilads operations. Consequently, management performed an impairment calculation of the Service Concession Assets of Maynilad as of December 31, 2009 using the new R under said resolution. Based on the impairment analysis, management believes that the carrying value of the Service Concession Assets would not exceed its recoverable amount. Other than the impairment losses on investments in associates, property and equipment and investment properties of P188.1 million, =120.2 million and =3.2 million, respectively, for the year = P P ended December 31, 2008, there were no impairment losses recognized on other non-financial assets for each of the three years in the period ended December 31, 2010 (see Note 29). Estimating NRV of Inventories and Real Estate for Sale. Inventories and real estate for sale are presented at the lower of cost or NRV. Estimates of NRV are based on the most reliable evidence available at the time the estimates are made of the amount the inventories and real estate for sale are expected to be realized. A review of the items of inventories and real estate for sale is performed at each end of reporting period to reflect the accurate valuation of inventories and real estate for sale in the consolidated financial statements. The carrying values of inventories amounted to =158.8 million and =96.0 million as of P P December 31, 2010 and 2009, respectively. The carrying value of real estate for sale amounted to = P187.0 million as of December 31, 2010 and 2009 (see Note 9). Estimated Useful Lives of Service Concession Assets, Property and Equipment and Software Costs. The useful lives of each of the item of the Companys service concession assets, property and equipment and software costs, are estimated based on the period over which the asset is expected to be available for use. Such estimation is based on a collective assessment of similar businesses, internal technical evaluation and experience with similar assets. The estimated useful life of each asset is reviewed at each financial year-end and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the asset. It is possible, however, that future results of operations could be materially affected by changes in the amounts and timing of recorded expenses brought about by changes in the factors mentioned above. A reduction in the estimated useful life of any item of service concession assets, property and equipment and software costs would increase the recorded depreciation and amortization expense and decrease the carrying values of service concession assets, property and equipment and software costs. As further discussed in Note 13, the estimated useful lives for the concession assets of MNTC were revised in 2008 and Maynilad in 2009 to effect the extension of the terms of the service concession arrangements. The effect of the change decreased amortization expense by P33.0 million in 2008 and = = P395.7 million in 2009, with expected decrease in amortization expense for 2010 and onwards . There was no change in the estimated useful lives of the service concession assets in 2010. The carrying values of the Companys service concession assets, property and equipment and software cost are as follows:
2010
(In Thousands)

2009 = P62,185,407 634,405 19,908

Service concession assets (see Note 13) Property and equipment (see Note 14) Software costs (see Note 15)

P69,348,123 = 1,423,235 51,449

*SGVMC214233*

- 42 Realizability of Creditable Withholding Taxes (CWTs). The carrying amount of CWTs is reviewed at each end of reporting period and reduced to the extent that it will not be realized as there will be no sufficient taxable income that will be available to allow utilization of such CWTs. The carrying amount of CWTs is reduced through the use of an allowance account. The allowance is established by charges to income in the form of provision for decline in value of the CWTs. The amount and timing of recorded expenses for any period would therefore differ based on the judgment or estimates made. An increase in provision for decline in value of CWTs would increase the Companys recorded expenses and decrease current assets. The carrying values of CWTs, included under Other current assets account in the consolidated balance sheets, amounted to P415.2 million and =380.2 million as of December 31, 2010 and 2009, = P respectively. Allowance for decline in value of CWTs amounted to P341.1 million and = = P347.6 million as of December 31, 2010 and 2009, respectively (see Note 11). Input/Output Value Added Tax (VAT). MNTC and other tollway operators continue to discuss the issue of VAT with concerned agencies. On one hand, BIR continues to send VAT assessments to MNTC. However, as further discussed in Note 34, in view of the issuance of Revenue Memorandum Circular (RMC) No.63-2010 on July 19, 2010, the Supremes Court issuance of the Temporary Restraining Order (TRO) on August 13, 2010 on the imposition of VAT which is not yet lifted as of March 3, 2011 and the quick response by the Cabinet and the TRB to defer the imposition of RMC No. 72-009 issued on December 21, 2009, MNTC continues to defer the imposition of VAT on toll fees from motorist and is of the position that VAT on tollway operators, if ever implemented, will be on a prospective basis. On this basis, the Company did not recognize any VAT liability, and while it continues to accumulate input VAT, it likewise continues to provide allowance for potential losses on input VAT. In addition, in response to the issuance RMC No. 63-2010 confirming the imposition of VAT on a prospective basis, and as further discussed in Note 20, the Company reversed the P418.0 million = contingent liability in relation to output VAT and deferred tax assets of P254.5 million relating to = input VAT which were set up at acquisition of MPTC. Thus, carrying balance of input VAT as of December 31, 2010 and 2009 is zero. Provision for potential losses on input VAT amounted to P334.1 million in 2010 and =308.8 million in 2009 = P (see Note 25). Recognition of Deferred Tax Assets. The carrying amount of deferred tax assets is reviewed at each end of reporting period and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax assets to be utilized. Maynilad and MNTC recognized deferred tax assets or deductible temporary differences expected to reverse after the income tax holiday period while deferred taxes on deductible temporary differences expected to reverse during the income tax holiday and to items where doubt exists as to the tax benefits they will bring in the future were not recognized. The Companys assessment on the recognition of deferred tax assets on deductible temporary differences is based on the expected future results of operations.

*SGVMC214233*

- 43 Net recognized deferred tax assets amounted to P275.3 million and =215.0 million as of = P December 31, 2010 and 2009, respectively. Unrecognized deferred tax assets amounted to = P1,976.9 million and =2,654.6 million relates to deductible temporary differences, unused P NOLCO and MCIT aggregating to P6,589.7 million and =8,848.7 million as of December 31, 2010 = P and 2009, respectively (see Note 31). On December 16, 2009, the Board of Investments (BOI) released the Certificate of Registration of Maynilad certifying 6-year income tax holiday incentive. As a result, Maynilad derecognized deferred tax assets that will reverse during the new income tax holiday period amounting to = P1.7 billion in 2009. Also, deferred tax assets amounting P254.5 million related to input VAT of = MPTC was written off in 2010 in view of the various developments that points to a prospective implementation of input VAT on toll fees. Deferred FCDA and Deferred Credits. Maynilad is entitled to recover (refund) foreign exchange losses (gains) arising from restatement and payments of concession fees payable. For the unrealized foreign exchange losses, Maynilad recognized deferred FCDA as an asset since this is a resource controlled by Maynilad as a result of past events and from which future economic benefits are expected to flow to Maynilad. Unrealized foreign exchange gains, however, which will be refunded to the customers are presented as deferred credits. As a result of the second rate rebasing, deferred credits that will no longer be subject to the FCDA mechanism were derecognized and presented as Other income from rate rebasing resolutions under Other income account in the 2009 consolidated statement of income (see Notes 20 and 29). Net deferred credits pertaining to these foreign exchange gains amounted to P1,450.9 million and = = P703.7 million as of December 31, 2010 and 2009, respectively (see Note 20). Retirement Costs. The cost of defined benefit plans and the present value of the retirement obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and its long term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. Those assumptions are described in Note 27. Actual results that differ from the Companys assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods. While it is believed that the Companys assumptions are reasonable and appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the Companys retirement obligations. Accrued retirement cost under the defined benefit plan amounted to =49.4 million as of P December 31, 2010. As of December 31, 2009, net pension assets under the defined benefit plan amounted to =18.1 million (see Notes 15 and 27). P

*SGVMC214233*

- 44 Share-based Payments. The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payments requires determining the most appropriate valuation model for a grant of equity instruments, which is dependent on the terms and conditions of the grant. This also requires determining the most appropriate inputs to the valuation model including the expected life of the option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for sharebased payments are disclosed in Note 33. The Company recognizes expenses based on the estimated number of grants that will ultimately vest and will require settlement. The Companys average turnover rate over the past few years is used to determine the attrition rate in computing the benefit expense and the estimated liability. Equity based compensation expense recognized in 2010 and 2009 amounted to =34.4 million and P = P50.0 million, respectively (see Notes 26 and 33). Other Long Term Incentives Benefits. The LTIP for key executives of MPIC and certain subsidiaries was approved by the Compensation Committee and the BOD and is based on profit targets for the covered Performance Cycle. The cost of LTIP is determined using the projected unit credit method based on prevailing discount rates and profit targets. While managements assumptions are believed to be reasonable and appropriate, significant differences in actual results or changes in assumptions may materially affect the Companys other long term incentive benefits. LTIP expense and liability for the year ended and as of December 31, 2010 amounted to = P133.0 million and presented as Personnel costs under General and administrative expenses and Deferred credits and other long-term liabilities accounts, respectively (see Notes 26 and 27). Provisions. The Company recognizes provisions based on estimates of whether it is probable that an outflow of resources will be required to settle an obligation. Where the final outcome of these matters is different from the amounts that were initially recognized, such differences will impact the financial performance in the current period in which such determination is made. Provisions mainly consist provision for estimated expenses related to the concluded and ongoing debt settlement negotiations and certain warranties and guarantees, claims and potential claims against the Company and provision for heavy maintenance. The provisions for the heavy maintenance requires an estimation of the periodic cost, generally estimated to be every five to seven years or the expected heavy maintenance dates, to restore the assets to a level of serviceability during the concession term and in good condition before turnover to the Grantor. This is based on the best estimate of management to be the amount expected to be incurred to settle the obligation at every heavy maintenance dates discounted using a pre-tax rate that reflects the current market assessment of the time value of money and the risk specific to the liability. Additional provisions for the years ended December 31, 2010, 2009 and 2008 amounted to = P322.2 million, =695.0 million and =233.5 million, respectively. Cumulative provisions amounted to P P = P2,496.5 million and =2,285.9 million as of December 31, 2010 and 2009, respectively (see Note 17). P Contingencies. The Company is a party to certain lawsuits or claims arising from the ordinary course of business. However, the Companys management and legal counsel believe that the eventual liabilities under these lawsuits or claims, if any, will not have a material effect on the consolidated financial statements (see Notes 20 and 34).

*SGVMC214233*

- 45 -

4. Business Combinations, Transactions with Non-controlling Interest and Goodwill The Companys intention is to maintain and continue to develop a diverse set of infrastructure assets through its investments in water utilities, toll roads, electricity distribution and health care services. The Company is therefore committed to investing through acquisitions and strategic partnerships in prime infrastructure assets with the potential to provide synergies with its existing operations. Accordingly, the following acquisitions in 2010 were made: Acquisition of RMCI. On May 31, 2010, the Company, through a Share Purchase Agreement (SPA) with a third party, completed the acquisition of 190,413 shares representing 51.0% of the total outstanding and issued voting shares of RMCI for a total consideration of =275.6 million. P The provisional fair value of the identifiable assets and liabilities of RMCI as of the date of acquisition were as follows:
Provisional Fair Values Recognized on Acquisition
(In Thousands)

Assets Cash and cash equivalents Receivables Inventories Other current assets Property and equipment Pension plan assets Long-term cash deposits Other noncurrent assets Liabilities Accounts payable and other current liabilities Unearned tuition and other school fees Income tax payable Other current liabilities Long-term debt Pension liabilities Deferred tax liabilities Deposits Total net identifiable assets at provisional fair value Non-controlling interest Provisional goodwill Purchase consideration transferred

= P56,974 112,376 43,339 6,000 712,399 32,917 6,985 3,245 974,235


224,641 3,056 2,110 13,061 240,431 9,235 69,096 13,002 574,632 399,603 (195,805) 71,823 = P275,621

*SGVMC214233*

- 46 The purchase price consideration had been allocated to the identifiable assets and liabilities of RMCI on the basis of provisional fair values pending finalization of appraisal of RMCI properties. As permitted by the revised PFRS 3, Business Combinations, the Company will recognize any adjustment to those provisional values as an adjustment to goodwill upon determining the final fair values of identifiable assets and liabilities within 12 months from the acquisition date. Non-controlling interest represents the interest not owned by MPIC in RMCI and its subsidiary RCI. The Company has elected to measure the amount of non-controlling interest at the proportionate share in provisional fair value of RMCIs net identifiable assets. The goodwill of P71.8 million, which was determined provisionally, represents the fair value of = expected economic benefit that the Company will obtain arising from the acquisition of RMCI. From the date of acquisition to December 31, 2010, RMCI contributed =30.9 million to the P consolidated net income of the Company from continuing operations. If the combination had taken place at the beginning of the year, RMCIs contribution to the Companys consolidated net income from continuing operations in 2010 would have been =27.9 million and its contribution to P the Companys consolidated revenues from continuing operations would have been = P967.5 million. Net cash outflow on acquisition is as follows: Amount Total cash paid on acquisition* Transaction costs of the acquisition Net cash acquired with the subsidiary Net cash outflow on acquisition
*

(In Thousands)

= P275,621 4,305 (56,974) = P275,621

Includes escrow deposits of =25.0 million presented under Other current assets account in the consolidated balance sheets P as of December 31, 2009.

Transaction costs of P4.3 million have been expensed and are included in General and = administrative expenses in the consolidated statement of income for the year ended December 31, 2010. Acquisition of OLLH through a Lease Agreement. EMHMC, a wholly owned subsidiary of MPIC, was incorporated on October 15, 2010 to operate and manage OLLH, a non-tertiary hospital previously managed by the Missionary Sister Servants of the Holy Spirit congregation (SSpS) through OLLHI (the Lessors). With the decision of SSpS to turn over the operations and management to a professional group, OLLHI has signed a 20-year lease of the hospital land and facilities in favor of EMHMC. The lease shall be for a period of twenty (20) years, renewable for successive periods of ten (10) years upon the mutual consent of both parties. Pursuant to the Lease Agreement, the lessors have decided to cease operation and management of OLLH effective October 31, 2010 wherein all the contracts with employees were terminated by OLLHI. EMHMC has the option to employ the employees under new terms and conditions. The existing inventories as of that date were bought by EMHMC from OLLHI for a separate consideration.

*SGVMC214233*

- 47 As consideration for the Lease Agreement, EMHMC will pay fixed and variable monthly rates, where the variable rate is based on the prior years net revenues. Below is the schedule of fixed and variable monthly rent: Annual variable rent Fixed monthly (% of prior years rent net revenues)
(In Thousands)

Period November 2010 to October 2015 November 2015 to October 2020 November 2020

= P1,000 1,250 1,500

2.00% 2.25% 2.50%

Also, as consideration for the mutual desire of OLLHI and EMHMC to improve and develop OLLH, EMHMC commits to improve and develop OLLH, by way of cumulative capital expenditures of at least =350.0 million no later than November 1, 2015. The commitment shall be P utilized in accordance with EMHMC Capital Expenditure (Capex) program as predetermined, without prejudice to EMHMCs right to amend/modify the Capex program. In the event that EMHMC fails to make or infuse the commitment in the amounts and within the period stated, EMHMC shall deposit in escrow such deficiency and use of which will be mutually determined by both parties. As discussed in Note 3, following the provisions of SIC 27, Evaluating the Substance of Transaction Involving the Legal Form of a Lease, EMHMC accounted for the Lease Agreement as an acquisition of a business in accordance with PFRS 3, since the subject of the Lease Agreement meet the definition of a business. The provisional fair value of the identifiable assets of OLLH, which are mostly property and equipments, as of the date of acquisition were: Provisional Fair Values Recognized on Acquisition
(In Thousands)

Assets Land improvements Buildings Machinery and equipment Medical equipment Transporation equipment Total identifiable net assets at provisional fair value Provisional goodwill Purchase consideration transferred

= P1,362 46,705 17,741 112,715 965 179,488 126,315 = P305,803

*SGVMC214233*

- 48 For purposes of purchase price allocation, the fair values of the identifiable assets of OLLH are provisional pending finalization of appraisal of the aforementioned properties and equipment. Based on provisional fair values, the goodwill arising from the acquisition of OLLH amounted to P126.3 = million. PFRS 3 allows a measurement period not to exceeding one year from the acquisition date, which is October 31, 2010. The measurement period provides EMHMC with a reasonable time to obtain the information necessary to identify and measure the following as of the acquisition date in accordance with the requirements of PFRS 3: the identifiable assets acquired and liabilities assumed; the consideration transferred for OLLH; and the resulting goodwill or gain on a bargain purchase.

EMHMC will recognize adjustments to the provisional amounts as if the accounting for the business combination was completed at the acquisition date. The total consideration is the present value of the fixed monthly rent and annual variable rent representing the contingent consideration for a period of 20 years discounted using discount rate of 11.0%. The present value of the lease payable amounted to P305.8 million, of which P135.8 million = = is attributable to fixed rent or consideration and P170.0 million is attributable to variable rent or = contingent consideration. The variable rental payments, which was considered as contingent consideration, were determined as a percentage of projected annual revenues for the next 20 years growing annually at an average of 9.0%. The total consideration is also considered provisional pending final computation by management . Any subsequent changes in the variable/contingent consideration after completion of the final purchase price allocation will be accounted for in the consolidated statement of income. From the date of acquisition to December 31, 2010, OLLH contributed =5.8 million to the P consolidated net income of the Company from continuing operations. If the combination had taken place at the beginning of the year, OLLHs contribution to the Companys consolidated net income from continuing operations in 2010 would have been =12.0 million and its P contribution to the Companys consolidated revenues from continuing operations would have been =458.0 million. P Transaction costs of P0.6 million, which is the only cash flow incurred in connection with the = acquisition, have been expensed and are included in General and administrative expenses in the consolidated statement of income for the year ended December 31, 2010. Acquisition of MSIHI. On July 20, 2010, MPTC entered into a Share Purchase Agreement (SPA) with a third party (the Seller) for the acquisition of 148,000 common shares in MSIHI (representing 37.0% of the outstanding voting capital stocks of MSIHI) for a purchase price of = P51.0 million. An amendment to the SPA was made on August 30, 2010, reflecting the allocation of the purchase price as follows: = P14.8 million as consideration for the MSIHI shares; and = P36.2 million as consideration for the assignment to MPTC of the Sellers total deposit for future stock subscription in MSIHI.

*SGVMC214233*

- 49 On August 30, 2010, the parties signed the Deed of Absolute Sale of Shares and the Deed of Assignment of the deposit for future stock subscription. Prior to this acquisition, MPIC, through MPC, has an existing 40.0% voting interest in MSIHI. The acquisition by MPTC of the additional 37.0% effectively brings the Companys total ownership of MSIHI to 77.0%. Under the revised PFRS 3, Business Combination, if the acquirer holds a non-controlling equity investment in the acquiree immediately before obtaining control, the acquirer remeasures that previously held equity investment at its acquisition-date fair value and recognizes any resulting gain or loss in profit or loss. As a result, the Company recognized a gain on remeasurement of =54.4 million of the previously held 40.0% interest in MSIHI at P acquisition date (see Note 29). The provisional fair value of the identifiable assets and liabilities of MSIHI as of the date of acquisition were: Provisional Fair Values Recognized on Acquisition
(In Thousands)

Assets Cash in bank AFS financial asset Liabilities Accounts payable and accrued expenses Due to a related party Payable to stockholders Total net identifiable assets Non-controlling interest Fair value of previously held interest Provisional goodwill Purchase consideration transferred

= P27 140,953 140,980 1,161 889 3,428 5,478 135,502 (31,166) (54,401) 1,113 = P51,048

The purchase price consideration was allocated to the identifiable assets and liabilities of MSIHI on the basis of provisional fair values. As permitted by the revised PFRS 3, Business Combinations, the Company will recognize any adjustment to those provisional values as an adjustment to goodwill upon determining the final fair values of identifiable assets and liabilities within 12 months from the acquisition date. Non-controlling interest represents the interest not owned by MPIC in MSIHI and its subsidiaries. The Company has elected to measure the non-controlling interest at the proportionate share in provisional fair value of MSIHIs net identifiable assets. The provisional goodwill of =1.1 million represents the fair value of expected economic benefit P that the Company will obtain arising from the acquisition of MSIHI.

*SGVMC214233*

- 50 From the date of acquisition to December 31, 2010, MSIHI contributed a loss of =0.1 million to P the consolidated net income of the Company from continuing operations. If the combination had taken place at the beginning of the year, MSIHIs contribution to the Companys consolidated net income from continuing operations in 2010 would have been a loss of =0.2 million. P Net cash outflow on acquisition is as follows: Amount
(In Thousands)

Total cash paid on acquisition Net cash acquired with the subsidiary Net cash outflow on acquisition

(P51,048) = 27 (P51,021) =

Transaction costs of P0.1 million have been expensed and are included in General and = administrative expenses in the consolidated statement of income for the year ended December 31, 2010. Acquisition of Non-controlling Interest in MSIHI. On December 30, 2010, MPTC acquired from another third party an additional 20.0% interest in MSIHI. Through a Deed of Absolute Sale of Shares, MPTC agreed to buy the 80,000 MSIHI shares from the said third party for =8.0 million. P In addition, through a Deed of Assignment, the third party assigned to MPTC its deposit for stock subscription in MSIHI for P19.6 million. = As of December 30, 2010, MPTC had acquired 57.0% of the outstanding capital stocks of MSIHI. At consolidated level, the Company effectively owns 95.6% of MSIHI. The increase in effective ownership interest to 95.6% was accounted for as an acquisition of noncontrolling interest and difference is recognized directly in equity. Based on the information below, the acquisition of effectively 19.97% non-controlling interest by the Parent Company in MSIHI resulted to equity reserve of =0.5 million and was reflected under Other reserves P account in equity attributable to the owners of the Parent Company (see Note 22). Carrying Value
(In Thousands)

Net assets of MSIHI as of December 30, 2010 Non-controlling interest acquired Equity reserve Total consideration transferred

= P135,403 27,081 (513) = P27,594

Disposal of Non-controlling Interest in Maynilad. On October 29, 2010, DMWC and Maynilad entered into an Agreement for the transfer of the 88,500 ESOP shares to certain employees of Maynilad. Maynilad shall pay the DMWC the amount of =88.5 million as reimbursement for the P DMWCs subscription payment for the ESOP shares. DMWC expects to collect the said amount within 60 days from the issuance of ESOP shares. After the transfer, the DMWCs interest ownership in Maynilad was reduced to 91.91% and the MPICs effective ownership to 56.80% from 58.03%.

*SGVMC214233*

- 51 The decrease in ownership interest was accounted for as disposal of non-controlling interest and the difference of the proceeds and the non-controlling interest sold is recognized directly in equity. Based on the information below, the transfer of effectively 1.23% of non-controlling interest in Maynilad resulted in an equity reserve of P122.1 million and was reflected under Other reserves = account in equity attributable to the owners of the Parent Company. Carrying Value
(In Thousands)

Net assets of Maynilad as of October 29, 2010 Non-controlling interest disposed Equity reserve Total consideration transferred

= P13,976,217 = P210,609 (122,109) = P88,500

Impairment Testing of Goodwill As of December 31, 2010 and 2009, goodwill from business combinations comprised of:
2010
(In Thousands)

2009 = P6,802,972 5,748,778 = P12,551,750

DMWC / Maynilad MPTC OLLH RMCI MSIHI

P6,802,972 = 5,748,778 126,315 71,823 1,113 P12,751,001 =

Goodwill is tested for impairment annually and when circumstances indicate the carrying value may be impaired. The Groups impairment test of goodwill is based on value in use (VIU) calculations that uses discounted cash flow model. The key assumptions used to determine the recoverable amount for the different cash generating units are discussed below: Goodwill Allocated to Maynilad. Goodwill as a result of the acquisition of Maynilad amounted to = P6,803.0 million. The following table sets out the assumptions used by management in performing impairment calculations as at December 31, 2010: December 31, 2010 2.5% 27 years 11.5%

Growth rate(a) Average forecast period(b) Discount rate(c)


(a) Projected cash flows were updated to reflect the new R(See Note 20). (b) Considers extension of concession term as discussed in Notes 3 and 13. (c) Based on weighted cost of capital.

*SGVMC214233*

- 52 As a result of the impairment test, management did not identify an impairment loss for this cashgenerating unit. Goodwill Allocated to MPTC. The goodwill related to the acquisition amounted to = P5,748.8 million. The test for recoverability of MPICs goodwill from the acquisition of MPTC was applied at the toll operations segment, which represents the lowest level for which identifiable cash flows are largely independent of the cash inflows and outflows of other groups assets and liabilities. The VIU was based on the cash flow projections on the most recent financial budgets and forecast of MPTC. For the impairment testing conducted for the year ended December 31, 2010, average traffic volume growth rate used was 1.7% for NLEX and 5.0% for SCTEX for the forecast period of 27 years. The discount rate applied was 10.9% which was based on the weighted cost of capital. As a result of the impairment test, management did not identify an impairment loss for this cashgenerating unit. Goodwill Allocated to RMCI, OLLH and MSIHI. Goodwill acquired from the Companys acquisition of RMCI, OLLH and MSIHI are based on provisional values as previously discussed and therefore the amount of goodwill has yet to be allocated to its particular cash-generating unit. Impairment testing will commence on the period the initial accounting will be finalized which should not be more than 12 months from date of acquisition. With regard to the assessment of VIU of the above cash-generating units, management believes that no reasonably possible change in any of the key assumptions would cause the carrying value of the units to materially exceed the recoverable amount.

5. Operating Segment Information As of December 31, 2010, for management purposes, the Company is organized into five major business segments based on services and products namely water utilities, toll operations, power distribution, healthcare, and others. The Companys business segment in power distribution started only in 2009. The Company also had business segment in real estate in 2008 which was discontinued in 2009. Water Utilities Water utilities primarily relate to the operations of DMWC and Maynilad in relation to the provision of water and sewerage services. Toll Operations Toll operations primarily relate to operations and maintenance of toll facilities by MPTC and its subsidiary MNTC and an associate, TMC. Power Distribution Power distribution primarily relate to the operations of Meralco in relation to the distribution and supply of electricity.

*SGVMC214233*

- 53 Healthcare Healthcare primarily relates to operations and management of hospitals, nursing and medical school and such other enterprises that have similar undertakings. Others Others represent operations of subsidiaries involved in real estate, provision of services and holding companies. Real estate primarily relates to the operations of MPC and Landco and its subsidiaries which are involved in the business of real estate of all kinds. The Companys management monitors the operating results of each business unit separately for purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on net income for the year; earnings before interest, taxes and depreciation and amortization, or EBITDA; EBITDA margin; and core income. Net income for the year is measured consistent with consolidated net income in the consolidated financial statements. EBITDA is measured as net income excluding depreciation and amortization of property and equipment and intangible assets, asset impairment on noncurrent assets, financing costs, interest income, equity in net earnings (losses) of associates and joint ventures, net foreign exchange gains (losses), net gains (losses) on derivative financial instruments, provision for (benefit from) income tax and other nonrecurring gains (losses). EBITDA margin pertains to EBITDA divided by service revenues. Management also assesses the performance of the operating segments based on a measure of recurring profit or core income contribution. This is measured as net income attributable to owners of the Company excluding core income adjustments from one-off transaction, foreign exchange gains or losses, asset impairment on noncurrent assets, net of tax effect of aforementioned adjustments and other nonrecurring gains or losses as defined by the Companys policy. Non-recurring items represent gains or losses that, through occurrence or size, are not considered usual operating items. Segment revenues, segment expenses and segment results include transfers between business segments. These transfers are eliminated upon full consolidation. The segment revenues, net income for the year, assets, liabilities, and other segment information of our reportable operating segments as at and for the years ended December 31, 2010, 2009 and 2008 are as follows:

*SGVMC214233*

- 54 The following table presents information on revenue and income and certain assets and liabilities regarding business segments for the years ended December 31, 2010, 2009 and 2008:
Water Utilities = P12,049,524 (3,982,963) 8,066,561 (1,618,902) (399,480) 6,048,179 (2,018,691) 4,029,488 (1,821,399) 185,986 2,394,075 2,394,075 71,234 P = 2,465,309 = P7,878,894 65% = P104,931 53,670 (87,367) = P71,234 = P57,819,830 = P57,819,830 = P36,770,566 Toll Operations = P5,858,494 (2,575,831) 3,282,663 (652,740) 174,977 2,804,900 (743,596) 2,061,304 (664,837) (95,114) 1,301,353 131,759 1,433,112 (273,644) P = 1,159,468 = P3,445,958 59% (P176,002) = (239,917) 142,275 (P273,644) = = P20,015,967 673,699 = P20,689,666 = P10,908,950 Year Ended December 31, 2010 Healthcare Power Distribution Other Businesses = P656,460 = P = P (227,028) 429,432 (367,624) (543,136) 2,621 24,000 64,429 (519,136) (13,702) (1,132,085) 50,727 (1,651,221) (15,199) (233) (16,818) 22,043 18,710 (1,629,411) 153,144 171,854 (19,823) P = 152,031 = P118,004 18% (P33,384) = 6,322 7,239 (P19,823) = = P1,199,036 2,152,427 = P3,351,463 = P829,047 1,486,164 1,486,164 (821,423) = P664,741 = P (P821,423) = (P821,423) = = P 32,012,741 P = 32,012,741 = P (1,629,411) 59,014 (P1,570,397) = (P509,369) = = P59,014 = P59,014 = P4,175,735 32,790 = P4,208,525 = P15,245,242 Eliminations = P P = = P = P = P (P833,646) = (P833,646) = (P833,339) = Consolidated = P18,564,478 (6,785,822) 11,778,656 (3,182,402) (197,882) 8,398,372 (3,908,074) 4,490,298 (2,501,668) 96,097 2,084,727 1,771,067 3,855,794 (984,642) P = 2,871,152 = P10,933,487 59% (P866,864) = (179,925) 62,147 (P984,642) = = P82,376,922 34,871,657 = P117,248,579 = P62,920,466

Total revenue from external sales Cost of sales Gross Margin Operating expenses Other income (charges) - net Profit before Financing Charges Interest expense - net Profit before Non-controlling and Income Tax Non-controlling interests Provision for (benefit from) income tax Contribution from Subsidiaries Equity in net income (losses) of associates and a joint venture Contribution from Operations - Core Non-recurring income (charges) Segment Income (Loss) EBITDA EBITDA Margin Non-recurring Income (Charges) Provision for (benefit from) income tax Non-controlling interests Net Assets and Liabilities Segment assets Investment in associates, at equity Consolidated Total Assets Segment Liabilities Other Segment Information Capital expenditures Service concession asset and propertyand equipment Depreciation and amortization

= P7,678,858 1,830,715

= P1,288,921 641,058

= P27,399 53,575

= P

= P13,909 9,767

= P

= P9,009,087 2,535,115

*SGVMC214233*

- 55 -

Total revenue from external sales Cost of sales Gross Margin Operating expenses Other income (charges) - net Profit before Financing Charges Interest expense - net Profit before Non-controlling and Income Tax Non-controlling interests Provision for (benefit from) income tax Contribution from Subsidiaries Equity in net income (losses) of associates and a joint venture Contribution from Operations - Core Non-recurring income (charges) Segment Income (Loss) EBITDA EBITDA Margin Non-recurring Income (Charges) Provision for (benefit from) income tax Non-controlling interests Net Assets and Liabilities Segment assets Investment in associates, at equity Consolidated Total Assets Segment Liabilities Other Segment Information Capital expenditures Service concession assets and property and equipment Depreciation and amortization Provision for decline in value of assets

Water Utilities = P10,618,544 (4,423,873) 6,194,671 (1,839,306) (130,331) 4,225,034 (1,848,799) 2,376,235 (1,113,257) 277,244 1,540,222 1,540,222 781,353 = P2,321,575 = P6,898,399 65% = P1,524,706 (181,437) (561,916) = P781,353 = P54,131,737 = P54,131,737 = P36,488,778

Toll Operations = P5,489,190 (2,696,792) 2,792,398 (528,515) 109,396 2,373,279 (657,189) 1,716,090 (531,653) (38,177) 1,146,260 132,428 1,278,688 (213,925) = P1,064,763 = P2,985,798 54% (P325,246) = 111,321 (P213,925) = = P19,627,043 677,510 = P20,304,553 = P10,506,002

Year Ended December 31, 2009 Healthcare Power Distribution Other Businesses = P = P = P (311,415) 4,852 (306,563) (851,660) (1,158,223) (1,158,223) 173,813 173,813 47,276 = P221,089 = P = P54,976 (7,700) = P47,276 = P 2,055,230 = P2,055,230 = P 211,877 211,877 (139,807) = P72,070 = P (P139,807) = (P139,807) = = P 24,366,978 = P24,366,978 = P (1,158,223) (222,437) (P1,380,660) = (P299,346) = (P247,730) = 25,293 (P222,437) = = P16,779,531 270,305 = P17,049,836 = P20,907,350

Eliminations = P (608) (608) (608) 353 1,070 815 815 = P815 (P608) = = P = P (P1,314,453) = (P1,314,453) = (P1,608,763) =

Consolidated = P16,107,734 (7,120,665) 8,987,069 (2,679,236) (16,691) 6,291,142 (3,357,648) 2,933,494 (1,644,557) 240,137 1,529,074 518,118 2,047,192 252,460 = P2,299,652 = P9,584,243 60% = P866,899 (189,137) (425,302) = P252,460 = P89,223,858 27,370,023 = P116,593,881 = P66,293,367

= P4,559,253 2,673,365

= P360,827 612,519

= P

= P

= P22,356 7,217 68,618

= P

= P4,942,436 3,293,101 68,618

*SGVMC214233*

- 56 -

Total revenue from external sales Cost of sales Gross Margin Operating expenses Other income (charges) - net Profit before Financing Charges Interest expense - net Profit before non-controlling and Income Tax Non-controlling interests Provision for (benefit from) income tax Contribution from Subsidiaries Equity in net income (losses) of associates and a joint venture Contribution from Operations - Core Non-recurring income (charges) Segment Income (Loss) EBITDA EBITDA Margin Non-recurring Income (Charges) Provision for (benefit from) income tax Non-controlling interests Net Assets and Liabilities Segment assets Investment in associates, at equity Consolidated Total Assets Segment Liabilities Other Segment Information Capital expenditures - Service concession assets and property and equipment Depreciation and amortization Provision for decline in value of assets Non-cash expenses, other than depreciation and amortization and provision for decline in value of assets

Water Utilities = P7,920,753 (5,556,509) 2,364,244 (1,018,323) (163,928) 1,181,993 (637,677) 544,316 (263,977) (53,970) 226,369 226,369 157,867 = P384,236 = P1,250,216 16% = P238,864 (103,543) 22,546 = P157,867 = P49,219,732 = P49,219,732 = P19,876,795

Toll Operations = P715,079 (305,875) 409,204 (155,360) 2,437 256,281 (55,838) 200,443 (71,261) 17,122 146,304 19,624 165,928 34,603 = P200,531 = P259,545 36% = P73,928 (22,607) (16,718) = P34,603 = P20,276,994 635,736 = P20,912,730 = P2,499,365

Year Ended December 31, 2008 Healthcare Power Distribution Other Businesses = P = P = P (160,830) 472,773 311,943 (80,940) 231,003 (1,732) 229,271 109,866 109,866 49,244 = P159,110 = P = P54,496 (5,252) = P49,244 = P 1,259,011 = P1,259,011 = P = P = P = P = P = P = P = P 229,271 298,951 = P528,222 = P360,568 = P186,728 112,223 = P298,951 = P7,797,008 244,383 = P8,041,391 = P7,191,809

Eliminations = P (466,468) (466,468) (466,468) 2,195 (464,273) 79,914 (384,359) (362,194) (746,553) (P466,468) = (P362,194) = (P362,194) = (P360,963) = 449,770 = P88,807 (P455,412) =

Consolidated = P8,635,832 (5,862,384) 2,773,448 (1,334,513) (155,186) 1,283,749 (774,455) 509,294 (333,043) (38,580) 137,671 209,404 347,075 178,471 = P525,546 = P1,403,861 16% = P191,822 (19,179) 5,828 = P178,471 = P76,932,771 2,588,900 = P79,521,671 = P29,112,557

= P7,209,890 68,223 51,205 139,278

= P 3,264

= P

= P

= P53,979 48,625 431,191

= P

= P7,263,869 120,112 482,396 139,278

*SGVMC214233*

- 57 The following table shows the reconciliations of the Companys consolidated EBITDA to consolidated net income for the years ended December 31, 2010, 2009 and 2008.
2010 Consolidated EBITDA Depreciation and amortization Consolidated operating profit for the year Interest income Foreign exchange losses - net Equity in net earnings (losses) of associates and joint ventures Interest expense Non-recurring gains (losses) - net Consolidated income before income tax Provision for (benefit from) income tax Consolidated net income = P10,933,487 (2,535,115) 8,398,372 531,666 (8,150) 1,771,067 (4,439,740) (1,038,637) 5,214,578 96,097 = P5,310,675 2009
(In Thousands)

2008 = P1,403,861 (120,112) 1,283,749 440,621 (499,943) 209,404 (1,215,076) 771,512 990,267 40,434 = P1,030,701

= P9,584,243 (3,293,101) 6,291,142 499,221 (986,882) 399,535 (4,012,258) 2,216,431 4,407,189 (37,326) = P4,369,863

The following table shows the reconciliations of Companys consolidated core income to the Companys consolidated net income for the years ended December 31, 2010, 2009 and 2008.
2010 Consolidated core income for the year Foreign exchange losses - net Other non-recurring gains (losses) Net tax effect of aforementioned adjustments Net income for the year attributable to owners of the Parent Company Net income for the year attributable to non-controlling interest Consolidated net income for the year = P3,855,795 (8,150) (1,038,637) 62,144 2,871,152 2,439,523 = P5,310,675 2009
(In Thousands)

2008 = P347,075 (499,943) 771,512 (93,099) 525,545 505,156 = P1,030,701

= P2,047,192 (986,882) 2,216,431 (977,089) 2,299,652 2,070,211 = P4,369,863

6. Noncurrent Asset Held for Sale and Discontinued Operations Landco Following a strategic review of the Companys businesses in 2008, and its focus on infrastructure, MPIC decided to divest its 51.0% interest in Landco. Landco is primarily engaged in all aspects of real estate business and was previously a separate reportable operating segment. Initially, the sale of 17.0% interest in Landco to AB Holdings Corporation (ABHC) was completed on June 18, 2009. On the basis of the foregoing, the results of Landcos operations for all the periods presented until discontinuance have been presented in the 2009 and 2008 consolidated statements of income as Income (loss) from discontinued operations, net of tax. Further, the Company recognized impairment loss amounting to P431.2 million for the year ended December 31, 2008, = allocated to Landcos noncurrent assets on the basis of their carrying amounts, in view of the requirement of PFRS 5 to measure noncurrent asset (disposal group) held for sale sale at fair value less cost to sell. The impairment was included under provision for decline in value of assets (see Note 29).

*SGVMC214233*

- 58 The results of operations of Landco in 2008 and until disposal on June 18, 2009 are as follows: For the period January 1 to June 18, 2009
(In Thousands)

2008 = P1,456,328 964,124 832,992 1,797,116 (340,788) 307,009 222,350 (136,548) 52,023 9,967 = P42,056

Revenue from sale of real estate Costs and expenses: Costs of real estate sold General and administrative expenses

= P436,242 253,463 553,255 806,718 (370,476) 203,960 117,044 (53,353) (102,825) (45,728) (P57,097) =

Other income - net Interest income Interest expense Income (loss) before income tax Provision for (benefit from) income tax Income (loss) after income tax The net cash flows of Landco prior to disposal are as follows:

For the period January 1 to June 18, 2009


(In Thousands)

2008 (P608,706) = (99,404) 739,798 = P31,688

Operating Investing Financing Net cash inflows Net loss per share attributable to the owners of Parent Company (see Note 32): Basic, from discontinued operations Diluted, from discontinued operations

= P290,808 135,032 (405,273) = P20,567

(P0.001) = (P0.001) =

(P0.002) = (P0.002) =

On June 18, 2009, the BOD approved resolutions for the execution of an agreement (the Agreement) with ABHC, with the conformity of Landco, for ABHC to (i) acquire from MPIC 33.3% of MPICs 51.0% shareholding in Landco representing 17.0% of the total issued shares of Landco and (ii) procure Landco to settle MPICs outstanding loan to Landco in the principal amount of P500.0 million plus accrued interest (the MPIC loan). = The Agreement was signed on June 19, 2009 and pursuant to the Agreement, ABHC shall pay to MPIC the amount of P203.3 million (Share Purchase Price) which, together with the portion of = the MPIC loan, was settled by end of 2009 through conveyance of certain assets, more particulary NE Pacific Shopping Center Corporation (NEPSCC) shares and certain properties.

*SGVMC214233*

- 59 With the sale, MPICs interest in Landco was reduced from 51.0% to 34.0%. Notwithstanding the significant interest retained by MPIC, the sale of the 17.0% interest in Landco was accounted for as a disposal of a subsidiary accordingly, Landco ceased to be a subsidiary of the Company. Consequently, all the assets, liabilities, reserves, non-controlling interest and other accounts pertaining and relating to Landco, which were previously being consolidated by MPIC, were derecognized. For the year ended December 31, 2009, the gain on disposal was included under Income (loss) from discontinued operations - net of tax in the 2009 consolidated statement of income. Total loss from discontinued operations in 2009 consists of: Amount
(In Thousands)

Loss from discontinued operations before tax Gain on disposal of Landco Benefit from income tax Loss from discontinued operations after income tax

(P102,825) = 25,202 45,728 (P31,895) =

MPICs remaining 34.0% interest in Landco is continued to be carried at the lower of carrying value and fair value less cost to sell and classified as Noncurrent asset held for sale in the 2009 consolidated balance sheet in accordance with PFRS 5 upon satisfying the criteria set forth therein. The carrying value of the said remaining interest amounted to P329.6 million as of December 31, = 2009. On August 4, 2010, the BOD signed an agreement with ABHC, Landco and a third party individual in relation to the following: a. Settlement of the MPIC Loan, including advances, totaling =554.7 million via cash of P = P225.0 million and the balance of =329.7 million applied against the Companys subscription P in preferred shares in Landco as further explained below; b. Sale of 1.17 million shares of common stock of Landco, representing 15.0% interest in Landco, owned by MPIC to ABHC at the price of =156.0 per share. The total consideration of P = P183.4 million was paid in cash of =50.0 million and an issuance of a promissory note P (ABHC Note) by ABHC with nominal amount of =133.4 million. The ABHC Note bears P interest of 10.0% per annum with the principal and cumulative interest payable on the fifth anniversary of the issuance of the ABHC Note. The sale resulted in a =38.0 million gain on P sale of investments (see Note 29). Payment of this loan is secured by a pledge over shares of ABHC in Landco; c. New loan grant by MPIC to Landco for P175.0 million at 12.0% interest, with the principal to = be repaid quarterly in equal amounts with the first principal repayment due on March 31, 2011 and the final principal repayment due on December 31, 2014;

*SGVMC214233*

- 60 d. Subscription of 379.7 million redeemable preferred shares of Landco at a subscription price of P1.0 per share, which is equal to par value, which total subscription price was paid = = P50.0 million in cash and the assignment of the MPIC loans and advances as described above in the amount of =329.7 million. These preferred shares shall have the following features: P
i. Preferential cash dividends at the rate of 10.0% per annum, to be calculated based on the

par value of such preferred shares;


ii. Non-voting except in those cases under the law or any one of the conditions set out in the

term sheet;
iii. Mandatory redemption period of 10 years unless Landco, at its option and upon notice to

MPIC, redeems all or a portion of the outstanding Landco preferred shares at a redemption price equal to the subscription price paid by MPIC therefore plus any accrued and unpaid dividends, at any time following the full settlement of all loans and advances granted to Landco by MPIC, its subsidiaries, affiliates and/or associates including, without limit, the new MPIC loan, plus any and all accrued interests and/or penalties thereon; and the ABHC Note (as defined above), plus all accrued interests and/or penalties thereon; and
iv. Convertible to Landco common shares at the option of MPIC at a conversion price of

= P156.27 per common share, if and only if, Landco undertakes an intial public offering, ABHC gives notice of its intention to sell or dispose all or a portion of its shares pursuant to its obligations, or Landco issues additional common shares. The Company accounted for the investment in Landcos preferred shares as loans and receivables in view of its mandatory redemption feature and assigned a value of =31.7 million for the P conversion option feature which is presented as Derivative asset in the consolidated balance sheet as of December 31, 2010. Such derivative asset will be carried at cost (since the underlying Landco preferred shares are unquoted and there is no reliable basis for its fair value) until such time the option will be exercised or has expired. The remaining interest of 19.0% with a carrying value of =184.2 million was reclassified to AFS P financial assets and remeasured to P211.8 million in light of the sale. The Company recognized a = gain on remeasurement of =27.7 million and was included in the Gain on sale of investments P presented under Other income in the consolidated statements of income (see Note 29). Nenaco On December 20, 2006, MPCs BOD approved the sale of the Companys 83.96% interest, equivalent to 2,531,843,830 common shares, in Nenaco to Negros Holdings and Management Corporation, a company owned by the management of Nenaco. Prior to 2008, investments in and advances to Nenaco were fully provided with impairment on the basis that Nenaco had been incurring significant losses, experiencing financial difficulties and already in a capital deficiency position. These factors are strong indicators of impairment, thus, an impairment test using value in use was made, since Nenaco is not quoted and there is no readily available fair value. Value in use yielded a negative result as Nenaco had negative forecasted cash flows hence the full impairment.

*SGVMC214233*

- 61 Early in 2008, an investor expressed interest to venture in the shipping services, more particularly in Nenaco and such investor offered to purchase the interest held by the Company. The same approach as for the identification of impaired assets, the Company assessed whether there is an indication that the impairment loss previously recognized may have decreased. By that offer, management calculated the recoverable amount of both investment and advances which was based on the lowest expected selling price of the remaining interest and the expected recoverable amount of the advances totaling P253.0 million. With the investments and advances reduced to = zero after recognition of impairment losses, the increase in recoverable amount of P253.0 million = resulted in the reversal of the impairment losses for the same amount (included under the = P262.5 million reversal of provision for decline of value of assets in Note 29). The impairment losses reversed did not exceed the original impairment loss recognized. On May 6, 2008, MPCs BOD finally approved the sale of the Companys remaining 15.3% interest in Nenaco for =173.6 million resulting in recognition of a net gain on sale of investment P amounting to =51.3 million (see Note 29). The proceeds of the sale of Nenaco were paid in cash. P

7. Cash and Cash Equivalents and Short-term Deposits This account consists of:
2010
(In Thousands)

2009 = P6,379,731 2,433,418 = P8,813,149

Cash and cash equivalents Short-term deposits

P4,941,693 = 6,138 P4,947,831 =

Cash and cash equivalents include cash in banks and temporary placements which are made for varying periods of up to three months depending on the immediate cash requirements of the Company. Cash in banks and temporary placements earn interest at the prevailing bank and temporary placements rates, respectively. Short-term deposits are deposits with original maturities of more than three months to one year from dates of acquisition and earn interest at the prevailing short-term deposits rates. Interest earned from cash and cash equivalents and short-term deposits amounted to = P238.2 million, P248.4 million and P89.4 million for the years ended December 31, 2010, 2009 = = and 2008, respectively (see Note 28). For the purpose of the consolidated statements of cash flows, cash and cash equivalents comprise of the following as at December 31:
2010 Cash on hand and in banks Short-term deposits that qualify as cash equivalents Cash on hand and in banks and short-term deposits attributable to discontinued operations = P1,622,174 3,319,519 4,941,693 = P4,941,693 2009
(In Thousands)

2008 = P1,934,855 93,978 2,028,833 177,310 = P2,206,143

= P508,597 5,871,134 6,379,731 = P6,379,731

*SGVMC214233*

- 62 -

8. Receivables This account consists of:


2010
(In Thousands)

2009 = P11,878,480 1,696,654 17,962 69,917 38,891 81,500 7,841 195,354 13,986,599 511,299 13,475,300 13,475,300 = P

Notes receivables (see Note 6) Trade receivables Advances to customers Advances to other affiliates Advances to officers and employees Accrued interest receivables Dividends receivable Others Less allowance for doubtful accounts Less current portion Noncurrent portion

P1,294,002 = 1,724,687 203,347 91,495 37,900 32,430 28,494 131,251 3,543,606 487,917 3,055,689 2,380,660 P675,029 =

a. Notes receivables as of December 31, 2010 include the new ABHC Note amounting to = P133.4 million subject to a 10.0% interest per annum and with maturity date of August 30, 2015, and a =175.0 million new loan to Landco subject to a 12% interest per annum and P principal repayment in equal quarterly installments until December 31, 2014. As of December 31, 2009, the Company has an existing 10.0% interest-bearing =493.5 million loan to Landco P which was settled in August 2010 as part of the agreement entered into with ABHC and Landco (see Note 6). Notes receivables also include investment in preferred shares of Landco with mandatory redemption features and with carrying value of P348.6 million as of December 31, 2010 = (see Note 6). Also during the year, MPC granted a third party a P500.0 million, 5% interest-bearing loan = due in five (5) years. The loan was discounted using market interest rate of 6.3%, and MPC recognized a Day-1 loss of P20.1 million included under Other expense in the consolidated = statement of income (see Note 29). The note was initially recognized at present value of = P479.9 million. Principal repayment and interest accretion for the year amounted to = P25.1 million and =2.2 million, respectively. As of December 31, 2010, the carrying value of P this loan amounted to =457.0 million. P Notes receivables as of December 31, 2009 mainly include an P11.2 billion short term note = receivable from First Philippine Utilities Corporation (FPUC). The Note bears interest of 5.0% per annum and was collected on March 30, 2010 together with the related interest of = P194.9 million.

*SGVMC214233*

- 63 Notes receivables in 2010 and 2009 also include the following which were fully provided with allowance:
i. A five-year note with a face value of P150.0 million that was issued by Steniel =

(Netherlands) Holdings B.V. on December 12, 2000 as part of the consideration for the Steniel Manufacturing Corporation shares of stock which was sold by MPC on October 30, 2000. The said note was impaired at full amount when no payment was received from Steniel Netherlands Holdings B.V. on June 30, 2006, the maturity date of the note; and
ii. A noninterest-bearing loan of =45.0 million made to a certain individual due on P

February 21, 2009 subject to a 12.0% interest per annum in case of default. On June 11, 2009, the Company collected P15.0 million reducing the balance to P30.0 million as of = = December 31, 2009. As of December 31, 2010, the remaining balance was impaired at full amount. b. Trade receivables mainly include receivables from customers arising from provision of water and sewerage services, further classified as residential, semi-business, commercial and industrial customers depending on the purpose of the provision of water and sewerage services. These receivables are generally collectible over a period of 60 days. c. Advances to other affiliates represent advances to former subsidiaries and affiliates of the Company which are fully provided with allowance. Certain advances amounting to = P57.9 million were written off in 2010. d. Other receivables mainly represent advances to former subsidiaries and related parties. e. Movements in the allowance of individually assessed impaired receivables in 2010 and 2009 are as follows:
Balance at January 1, 2010 Trade receivables Notes receivables Advances to other affiliates Advances to officers and employees Others = P278,004 150,000 69,917 9,894 3,484 = P511,299 2010 Charge for the year (see Note 25) = P2,902 30,000 6,405 = P39,307 Balance at December 31, 2010 = P280,906 180,000 12,012 5,110 9,889 = P487,917

Write-off = P (57,905) (4,784) (P62,689) =

(In Thousands)

*SGVMC214233*

- 64 2009 Charge for the year (see Note 25)


(In Thousands)

Balance at January 1, 2009 Trade receivables Notes receivable Advances to other affiliates Advances to officers and employees Others = P52,443 150,000 69,917 9,894 3,484 = P285,738

Write-off (P705) = (P705) =

Balance at December 31, 2009 = P278,004 150,000 69,917 9,894 3,484 = P511,299

= P226,266 = P226,266

No collective impairment was provided in 2010 and 2009.

9. Inventories and Real Estate for Sale Inventories. Inventories consist of transponders, magnetic cards, chemicals, medicines and hospital supplies, books, materials and supplies and spare parts. All inventories amounting to = P158.8 million and P96.0 million as of December 31, 2010 and 2009, respectively, are stated at = cost. Cost of inventories charged to Cost of services account in the consolidated statements of income amounted to =421.9 million, =229.2 million and =104.3 million for the years ended December 31, P P P 2010, 2009 and 2008, respectively (see Note 24). Real Estate For Sale. This account consists of the following as of December 31, 2010 and 2009:
Amount
(In Thousands)

Land Development costs: Residential resort community and Central Business District Condominium units, including parking lots

= P54,747 46,706 85,557 = P187,010

Condominium units include units amounting to =26.0 million which are carried at NRV. Had P these been carried at cost, the carrying values of such units would have been =88.5 million as of P December 31, 2010 and 2009. The Companys property operations, specifically for MPCs condominium properties, were affected by the then general decline in the real estate industry resulting in the Company recording the real estate for sale at its NRV since 2006. No further impairment loss was recognized in 2010, 2009 and 2008. Condominium units with a carrying value of =19.0 million as of December 31, 2010 and 2009 P were used to secure certain provisions (see Note 17). Cost of real estate sold included under Income (loss) from discontinued operations - net of tax account in the consolidated statements of income amounted to P253.5 million and P964.1 million = = for the years ended December 31, 2009 and 2008, respectively.

*SGVMC214233*

- 65 -

10. Available-for-sale Financial Assets This account consists of:


2010
(In Thousands)

2009 = P236,262 46,525 282,787 282,787 282,787 = P

Shares of stock in: NEPSCC (see Note 6) Landco (see Note 6) CMMTC (see Note 4) BLC Investment in bonds Less current portion Noncurrent portion

P236,262 = 211,825 140,953 46,525 635,565 424,093 1,059,658 546,424 P513,234 =

Shares of Stocks. As discussed in Note 6, the Companys remaining interest of 19.0% in Landco with a carrying value of =184.2 million was classified to AFS financial assets and remeasured at P fair value of =211.8 million, where a gain on remeasurement of =27.7 million was recognized as P P other income included under Gain on sale of investments (see Note 29). The fair value was determined using the discounted cash flow method with the following assumptions: December 31, 2010 13.9% 10.8% 30%

Discount rate Minority discount Marketability discount

NEPSCC shares, which are unquoted, were transferred to the Company in 2009 in settlement of the ABHC Note. NEPSCC is engaged in leasing properties, more particularly mall spaces. Investment in CMMTC represents 2.7% interest or 1,379,674 of unquoted investment in shares of stocks of CMMTC. The Company classifies the investment as noncurrent AFS financial asset. Investment in BLC consists of unquoted shares of stock totaling of 339,772 shares as of December 31, 2010 and 2009. All BLC shares were used to secure certain provisions as of December 31, 2010 and 2009 (see Note 17). Investment in Bonds. As of December 31, 2010, this account consists of investments in fixed rate retail treasury bonds of the ROP. The quoted ROP treasury bonds which bear fixed interest rates ranging from 5.9% to 9.0% is payable quarterly and with the following maturities:
Amount
(In Thousands)

Current Noncurrent

= P51,812 372,281 = P424,093

*SGVMC214233*

- 66 Maturity Date July 31, 2011 July 31, 2013 August 9, 2015 Fair value Principal Amount
(In Thousands)

= P51,813 56,545 315,735 = P424,093

= P50,000 50,600 300,000 = P400,600

As discussed in Note 3, investments in bonds are classified as HTM investments in 2009. As of December 31, 2009, HTM investments amounted to =400.6 million and stated at amortized cost. P In August 2010, prior to their maturity, MNTC sold =300.0 million of its investments in bonds and P invested the same for new bonds with higher yield of 5.9% from 5.3%. The pretermination of these bonds precludes the Company from classifying any existing and new investments as HTM, hence the reclassification of investments in bonds from HTM investments to AFS financial assets. As further discussed in Note 19, all existing and future assets of MNTC are mortgaged in favor of the lenders in line with the requirements of the Mortgage Assignment and Pledge Agreement known as the Master Security Agreement (MSA) and this include MNTCs investment in bonds as herein presented. The movements in the AFS financial assets are as follows: 2010
(In Thousands)

2009 = P402,964 236,262 (356,439) = P282,787

Balance at beginning of year Additions (see Note 6) Reclassification from HTM investments Disposals Change in fair value (see Note 30) Balance at end of year

P282,787 = 652,778 100,600 23,493 P1,059,658 =

11. Advances to Contractors and Consultants and Other Current Assets Advances to Contractors and Consultants. Advances to contractors and consultants mainly represent advanced payments for various contracts relating to Segment 8.1 Project and Maynilad operations. These are progressively reduced upon receipt of the equivalent amount of services rendered by the contractors and consultants. Carrying value of these advances amounted to = P288.3 million and P527.6 million as of December 31, 2010 and 2009, respectively. = Other Current Assets. This account consists of:
2010
(In Thousands)

2009 = P796,302 554,400 380,233 118,997 32,746 96,273 1,978,951 385,119 = P1,593,832

Sinking fund Deposits CWTs Input VAT Prepaid expenses Miscellaneous deposits and others Less allowance for decline in value

P843,590 = 988,575 415,228 278,263 15,471 133,465 2,674,592 353,688 P2,320,904 =

*SGVMC214233*

- 67 Sinking fund represents amount set aside to cover semi-annual principal and interest payments of certain long-term debt (see Note 19). Deposits relate to the following: On November 12, 2010, the Company entered into a Cooperation Agreement with Fil-Estate Corporation, Fil-Estate Properties, Inc. and Fil-Estate Management, Inc. (the Fil-Estate Companies) relating to the Fil-Estate Companies rights and interests in the MRT 3 companies consisting of Metro Rail Transit Holdings, Inc. (MRTH), Metro Rail Transit Holdings II, Inc. (MRTH-II), Metro Rail Transit Corporation (MRTC) and Monumento Rail Transit Corporation (MNRTC). MPIC entered into a Cooperation Agreement with the following objectives: (i) explore solutions that will enable the expansion of the MRT 3 system through financially and legally viable means, and (ii) acquire the interests of the Fil-Estate Companies in MRTH, MRTH-II, MRTC (MRT Companies) and MNRTC, subject to obtaining the necessary consents from the relevant parties. Under the Cooperation Agreement, the Fil-Estate Companies shall appoint MPIC as its attorney-in-fact in connection with the exercise of the rights and interests of the Fil-Estate Companies in the MRT Companies and MNRTC. MPIC also entered into binding term sheets with Anglo Philippines Holdings Corporation (APHC) and DBH Incorporated (DBH) in connection with all the interests of APHC and DBH in MRTH and MNRTC. The execution of definitive agreements for the acquisition of the aforementioned MRTH and MNRTC shares by MPIC shall be subject to the condition that the necessary consents and waivers from relevant parties are obtained. Total deposits made by the Company in 2010 in connection with the above agreements amounted to =462.5 million. Should the planned acquisitions push through, these deposits P will form part of the acquisition price, otherwise these will be forfeited and expensed outright. Deposits amounting to =526.1 million and =554.4 million as of December 31, 2010 and 2009, P P respectively, represent short-term pledged deposits to secure Maynilads US$12.0 million performance bond in compliance with the terms of its Concession Agreement with MWSS. With the submission of the US$90 million performance bond (see Notes 13 and 35), the US$12.0 million performance bond was allowed to expire on January 31, 2011.

The allowance for decline in value mainly represents provision for impairment of CWT recognized in prior years as management believes that it may not be able to utilize the same. No further provision was recognized in 2010 and 2009.

12. Investments in Associates and Interest in Joint Ventures The associates and joint ventures of the Company are as follows:
Place of Incorporation Principal Activities Associates: (a) Costa De Madera Corporation Prime Media Holdings, Inc. Metro Pacific Land Holdings, Inc. Tollways Management Corporation (TMC)
(a) (b)

Ownership Interest 2009 2010 62.00 49.00 49.00 46.00 62.00 49.00 47.33 45.93

Philippines Philippines Philippines Philippines

Real estate Media holding company Real estate Tollways

Not consolidated as control rests with the other shareholders Became a 95.55% owned subsidiary in 2010 (see Note 4) (c) Meralco was transferred to Beacon Electric in exchange for 50.0% equity interest in the latter (d) Disposed in June 2010

*SGVMC214233*

- 68 Place of Incorporation Philippines Philippines Philippines Philippines Philippines Philippines Philippines Philippines Ownership Interest 2009 2010 34.85 34.85 34.79 35.03 33.33 24.95 24.95 38.64 14.67 50.00 35.00

Davao Doctors Hospital, Inc. (DDH) Medical Doctors Inc. (MDI) First Gen Northern Energy Corp. (FGNEC) Landco NE Resources Ventures, Inc. (LNERVI) (b) Metro Strategic Infrastructure Holdings, Inc. (c) Manila Electric Company (Meralco) Joint Ventures: Beacon Electric Asset Holdings, Inc. (Beacon Electric.) (c) Manila North Harbour Port, Inc.(MNHPI)(d)
(a) (b)

Principal Activities Hospital Hospital Power generation Real estate Investment holding Power distribution Investment holding Port Operator

Not consolidated as control rests with the other shareholders Became a 95.55% owned subsidiary in 2010 (see Note 4) (c) Meralco was transferred to Beacon Electric in exchange for 50.0% equity interest in the latter (d) Disposed in June 2010

The carrying values of the Companys investments in associates and interest in joint ventures are as follows:
2010
(In Thousands)

2009

Carrying value of investments in associates: MDI TMC DDH Meralco Others Carrying value of interest in joint ventures: Beacon Electric MNHPI Investment in Beacon Electrics preferred shares Advances to Beacon Electric

P1,552,800 = 673,699 599,628 32,788 2,858,915 23,245,911 23,245,911 8,010,444 756,387 P34,871,657 =

= P1,475,210 677,511 580,020 24,366,978 32,539 27,132,258 237,765 237,765 = P27,370,023

Movements in the carrying values of investments in associates and interest in joint ventures accounted for under equity method for the years ended December 31, 2010 and 2009 are as follows:
2010
(In Thousands)

2009

Acquisition Costs Balance at beginning of year Acquisitions Transfer of investment in Meralco to Beacon Electric Acquisition of Beacon Electric Disposal of MNHPI Effect of consolidation of MSIHI (see Note 4) Balance at end of year (Carried Forward)

P30,112,985 = 12,484 (24,540,310) 23,223,230 (252,762) (55,427) 28,500,200

= P5,150,370 24,962,615 30,112,985

*SGVMC214233*

- 69 -

2010
(In Thousands)

2009 = P30,112,985 (1,252,878) 173,305 154,212 47,784 72,072 (14,526) (608) (139,840) (17,860) (245,404) (1,223,743) 28,889,242 1,519,219 1,519,219 27,370,023 = P27,370,023

Balance at end of year (Brought Forward) Accumulated Equity in Net Losses Balance at beginning of year Share in net earnings (losses): MDI TMC DDH Meralco Beacon Electric MNHPI Others Transfer of investment in Meralco to Beacon Electric Disposal of MNHPI Dividends: MDI TMC DDH Meralco Balance at end of year Less allowance for impairment loss: Balance at beginning of year Effect of consolidation of MSIHI (see Note 4)

P28,500,200 = (1,223,743) 100,859 142,928 39,995 266,683 22,681 (74,633) (93,351) 89,159 (35,032) (146,740) (20,388) (931,582) 27,568,618 1,519,219 (55,427) 1,463,792 26,104,826 8,010,444 756,387 P34,871,657 =

Investment in Beacon Electrics preferred shares Advances to Beacon Electric

Investments in Associates Meralco. Meralco is the largest electric power distribution company and the largest private sector utility in the Philippines. It is incorporated in the Philippines and is subject to the rate-making regulations and regulatory policies of the Philippine Energy Regulatory Commission. Its subsidiaries are mainly engaged in engineering, construction and consulting services, information systems and technology, real estate, insurance and other electricity-related services.

*SGVMC214233*

- 70 From July 2009 through October 2009, the Company acquired a total of 163,602,961 common shares of Meralco for an aggregate purchase price of =24,540.3 million representing 14.67% of the P issued and outstanding share capital of Meralco as of December 31, 2009, through a series of negotiated transactions and open market purchases. Details of acquisitions of Meralco shares are as follows: At various dates in July and August, 2009, MPIC acquired a total of 15,254,294 Meralco shares in open market for a total purchase price of =4,441.6 million, substantially all of which P was financed through the incurrence of indebtedness under the Parent Companys bridge financing facility (see Note 19). On October 2, 2009, MPIC entered into a Sale and Purchase Agreement to purchase 113,313,389 common shares of Meralco held directly by Philippine Long Distance Telephone Company (PLDT) Beneficial Trust Fund (BTF) and its wholly owned subsidiary New Gallant Limited (Gallant). MPIC purchased the shares at =126.0 per share or for a total consideration P of P14,277.5 million. = At the same time, MPIC entered into a Sale and Purchase Agreement with Crogan Limited (Crogan), a corporation organized and existing under the laws of the British Virgin Islands and a subsidiary of FPC, to purchase 31,072,388 common shares of Meralco held directly by Crogan. MPIC agreed to purchase the shares at P126.0 per share or for a total consideration = of P3,915.1 million. = The acquisition of Meralco shares from BTF and Crogan was partially funded by MPIC from proceeds of share issuances made by it as follows: (i) 3,159,162,337 MPIC common shares at = P3.0 per share or a total of P9,477.5 million, in favor of BTF. Fair value of MPIC share at = acquisition date was =3.2 per share and the total fair values of MPIC shares issued to BTF P amounted to =10,109.3 million; and (ii) 1,305,040,296 MPICs common shares at a P subscription price of =3.0 per share in favor of MPHI. P In addition, MPIC likewise entered into another agreement with Crogan to purchase additional 3,962,890 Meralco shares from the latter for =231.45 each and the purchase price amounting P to =917.2 million was paid in cash on October 7, 2009. P

The total consideration for the acquired interest in Meralco in 2009 amounted to P24,540.3 million as = follows: (a) cash consideration of P10,158.9 million; (b) fair value of MPIC shares issued of = = P14,285.4 million; and (c) transaction costs of P96.0 million. = On September 2, 2009, MPIC entered into a Shareholders Agreement (the Agreement) with PCEV and such Agreement defined the basic principles governing their conduct as common shareholders of Meralco and the exercise of their respective voting rights therein. PCEV directly held a 20.0% interest of Meralcos current outstanding capital stock at that date and both PCEV and MPIC are affiliates of First Pacific, thus, related parties. With the Agreement, MPIC believes that, upon consummation of the acquisition of Meralco common shares held by BTF which was eventually executed on October 2, 2009 as discussed above, it has the ability to exercise significant influence in Meralco and accordingly, MPIC accounted for its 14.67% interest in Meralco under the equity method.

*SGVMC214233*

- 71 The Company engaged the services of an independent appraiser to determine the fair value of Meralcos specific identifiable assets and liabilities and allocate the purchase price of the Companys investment in Meralco among the identified assets and liabilities based on fair values. Based on the final purchase price allocation, the difference of P16,163.0 million between the Companys share on = the total fair value of Meralcos specific identified assets and liabilities and the Companys total cost of investments was allocated as follows: (a) P874.0 million for utility, plant and others; = (b) P235.0 million for investment properties; (c) =23.0 million for investment in associates and joint = P ventures; (d) P961.0 million for intangible assets particularly for franchise; and (e) P14,070.0 million = = for goodwill. As of December 31, 2009, the carrying value of investment in Meralco amounted to = P24,367.0 million, after recording the share in net earnings of Meralco of P72.1 million (net of = amortization of intangible assets of =12.0 million and depreciation of fair value adjustment on P utility, plant and others of =13.0 million) and dividends declared of P245.4 million. The P = Companys shares in Meralco were pledged against the Companys P11.2 billion loan as of = December 31, 2009 (see Note 19). On March 30, 2010, the Company sold and transferred all its investments in Meralco representing 163.6 million common shares to Beacon Electric for a consideration of P24.5 billion (see = discussion under Interest in Joint Ventures). From January 1 to March 30, 2010, prior to the transfer, the Company recorded a share in net earnings of Meralco of =266.7 million, net of related P fair value amortization and adjustments. MDI. On May 9, 2007, the Company subscribed to a total of =750.0 million worth of convertible P notes (Notes) of MDI. The Notes are subject to 7.0% interest per annum, payable semi-annually up to the date of conversion. The Notes are convertible to common shares of MDI at the rate of =800.0 per share, but not lower P than the par value of the common shares. The Notes are convertible into shares anytime after the Notes issue date and all outstanding convertible notes will be mandatorily converted into common shares on the 5th anniversary date. On January 18, 2008, all the remaining portion of the convertible note were converted resulting in an additional 25.9% interest in MDI for the Company. On August 14, 2008, the Company purchased 5,284 additional shares from a stockholder of MDI at P980.0 per share or =5.2 million. = P On September 8, 2009, MDI offered to issue new common shares to existing stockholders by way of a pre-emptive rights offering. The offer shares amounted to 181,226 common shares at the offer price of =1,150.0 per share. Eligible shareholders shall be entitled to subscribe on the ratio P of one share for every sixteen shares held. On October 14, 2009, the Company subscribed to a total of P161.0 million or an equivalent of = 58,924 shares exercised from the pre-emptive rights offering and 81,059 additional subscription. The shares subscribed represent 2.6% additional interest, thus, resulting in a total of 1,082,767 MDI common shares or 34.79% ownership in MDI. From January through June 2010, the Company acquired a total of 12,004 additional shares of MDI at a purchase price of P980.0 per share or for a total purchase price of =11.8 million. This = P acquisition represents additional interest of 0.24%, bringing the Companys total ownership in MDI to 35.03%.

*SGVMC214233*

- 72 In relation to the purchase price allocation related to the acquisitions made in 2008, the excess of fair values of identifiable assets, liabilities and contingent liabilities of MDI over the acquisition cost, amounting to =16.0 million in 2009 and P224.8 million, was recognized as negative goodwill P = and is included under Share in net earnings of associates account in the 2009 and 2008 consolidated statements of income. In 2010, the additional acquisitions resulted in an additional positive goodwill which is not significant. The Companys equity share in net earnings of MDI amounted to =100.9 million, =173.3 million P P and P347.3 million for the years ended December 31, 2010, 2009 and 2008, respectively. The = Company received dividends from MDI of =35.0 million in 2010. P DDH. On May 15, 2008, the BOD approved the purchase and acquisition of up to 34.0% of the issued share capital (including treasury shares) of DDH for =1,600.0 per share. As of P December 31, 2008, MPIC had acquired a total of 311,612 common shares representing 34.6% interest in DDH. Upon finalization of the purchase price allocation in 2009, it was determined that the amount of final goodwill was =129.8 million and was included in the carrying value of the P investment. In May 2009, MPIC acquired an additional 2,048 common shares representing 0.3% interest in DDH, thereby increasing its percentage ownership to 34.9% as of December 31, 2009. The Companys shares in net earnings of DDH for the years ended December 31, 2010, 2009 and 2008 amounted to =40.0 million, =47.8 million and =36.6 million, respectively. The Company P P P recognized its share of dividends from DDH amounting to P20.4 million and P17.9 million for the = = years ended December 31, 2010 and 2009, respectively, of which =11.0 million and =7.8 million P P remain to be receivable as of December 31, 2010 and 2009, respectively. TMC. With MPICs acquisition of MPTC on November 13, 2008, TMC became an associate of the Company at 45.9% interest. TMC, pursuant to the Operation and Maintenance Agreement (O&M) between MNTC and TMC, is tasked for the operation and maintenance of both the NLEx Project and Segment 7. In addition, TMC continues to operate and manage SCTEx pursuant to its agreement with BCDA. The Companys share in net earnings of TMC amounted to P142.9 million, =154.2 million and = P = P18.9 million for the years ended December 31, 2010, 2009 and 2008, respectively. In 2010 and 2009, TMCs BOD approved the declaration of cash dividends of =319.0 million and P = P304.0 million, respectively, of which the Company recognized its share of the dividends amounting to =146.7 million and =139.8 million, respectively. P P First Gen Northern Energy Corp (FGNEC). MPIC subscribed for 250,000 common shares, representing 33.0% interest, at =1.0 per share of FGNEC on March 17, 2010. MPIC has P participated in the bidding for the proposed sale of the 246 MW Angat Hydroelectric Power Plant through FGNEC, hence, the initial investment of =0.25 million. The investment in FGNEC is P accounted for as an associate using equity accounting. The bidding was completed but issues have been raised against the highest bidder giving FGNEC an opportunity to be awarded of the same, being the next highest bidder. The sale of the Angat Power Plant has currently been put on hold with the Supreme Court en banc confirming the status quo ante order of the same.

*SGVMC214233*

- 73 Summarized Financial Information of Associates. The following tables present the summarized financial information of the Companys investments in associates in conformity with PFRS for equity investees in which the Company has significant influence as of December 31, 2010 and 2009 and for the years ended December 31, 2010, 2009 and 2008:
2010
(In Thousands)

2009 = P47,953,598 141,901,987 44,733,036 78,415,696


2008 = P4,538,234 3,808,451 436,590

Current assets Noncurrent assets Current liabilities Noncurrent liabilities


2010 Revenues Costs and expenses Net income

P2,185,574 = 7,273,116 2,184,361 1,609,668


2009
(In Thousands)

P68,722,256 = 64,890,448 2,684,336

= P192,158,578 181,766,480 7,241,759

The above information as of and for the years ended December 31, 2010 and 2009 includes the financial information of Meralco as shown below:
2010*
(In Millions)

2009 = P45,341 135,062 42,751 76,506 184,782 175,610 6,356

Current assets Noncurrent assets Current liabilities Noncurrent liabilities Revenues Costs and expenses Net income
*Results of operations of Meralco from January 1 to March 30, 2010.

P = 61,103 58,181 1,820

Unrecognized share in net losses of associates amounted to P0.1 million and P5.1 million for the = = years ended December 31, 2010 and 2009, respectively. Cumulative unrecognized share in net losses of associates amounted to P416.1 million and P416.0 million as of December 31, 2010 and = = 2009, respectively. Interest in Joint Ventures Transfer of MPIC Equity Interest in Meralco to Beacon Electric. On March 1, 2010, PCEV, MPIC and Beacon, entered into an Omnibus Agreement (OA). Beacon, formerly known as Rightlight Holdings, Inc., was organized with the sole purpose of holding the respective shareholdings in Meralco of PCEV and MPIC. PCEV and MPIC are Philippine affiliates of FPC and both held equity shares in Meralco. Under the OA, PCEV and MPIC have agreed to set out their mutual agreement in respect of, among other matters, the capitalization, organization, conduct of business and the extent of their participation in the management of the affairs of Beacon Electric. Investment in Beacon Electric. Prior to the transactions contemplated under the OA, MPIC beneficially owned the entire outstanding capital stock of Beacon Electric consisting of 25,000 common shares, with a total par value of =25,000. P

*SGVMC214233*

- 74 On April 29, 2010, the Philippine SEC approved Beacon Electrics application to increase its authorized capital stock to P5.0 billion consisting of 3.0 billion common shares with par value = of P1.0 per share and 2.0 billion preferred shares with par value of P1.0 per share. The = = preferred shares of Beacon Electric are non-voting, not convertible to common shares or any shares of any class of Beacon Electric, have no pre-emptive rights to subscribe to any share or convertible debt securities or warrants issued or sold by Beacon Electric. The preference shareholder is entitled to liquidation preference and yearly cumulative dividends at the rate of 7.0% of the issue value subject to: (a) availability of unrestricted retained earnings; and (b) dividend payment restrictions imposed by Beacon Electrics bank creditors. Under the OA, PCEV and MPIC each agreed to subscribe to 1,156.5 million common shares of Beacon Electric, for a subscription price of P20.0 per share or a total of P23,130.0 million. = = PCEV and MPIC also agreed that their resulting equity after such subscriptions and transfer from MPIC of 12,500 Beacon Electric common shares to PCEV will be 50.0% each of the outstanding common shares of Beacon Electric. MPIC additionally agreed to subscribe to 801.0 million shares of Beacon Electrics preferred stock for a subscription price of P10.0 per = share or a total of =8,010.0 million. P The completion of the subscription of MPIC to 1,156.5 million common shares and 801 million preferred shares of Beacon Electric was subject to the following conditions, all of which have been satisfied: (a) approval of MPICs BOD, which was obtained on March 1, 2010; (b) approval of the shareholders of FPC, which was obtained on March 30, 2010; and (c) full payment of the subscription price, which was made on March 30, 2010. Consequently, on March 30, 2010, MPIC completed its subscription to 1,156.5 million common shares of Beacon Electric and approximately 801.0 million preferred shares of Beacon Electric in consideration of: (1) the transfer of 163.6 million Meralco shares at a price of P150.0 per = share, or =24,540.0 million in the aggregate; and (2) =6,600.0 million in cash, as further P P described below in Transfer of Meralco Shares to Beacon Electric. The completion of the subscription of PCEV to 1,156.5 million common shares of Beacon Electric was subject also to certain conditions, all of which have been satisfied. The subscription price of PCEVs and MPICs subscription to Beacon Electric shares was offset in full (in the case of PCEV) and in part (in the case of MPIC) against the consideration for the transfer of Meralco shares held by PCEV and MPIC as described in Transfer of Meralco Shares to Beacon Electric section below. In addition, MPIC settled its remaining balance =6,600.0 million in cash. On May 12, 2010, MPIC also completed the transfer to P PCEV of 12,500 shares or 50.0% of the 25,000 Beacon Electric common shares originally owned by MPIC. Transfer of Meralco Shares to Beacon Electric. Alongside with the subscription to the Beacon Electric shares described above, Beacon Electric agreed to purchase 154.2 million and 163.6 million Meralco shares, or the Transferred Shares, from PCEV and MPIC, respectively, for a consideration of P150.0 per share or a total of =23,130.0 million for the PCEV Meralco = P shares and P24,540.0 million for the MPIC Meralco shares. = The completion of the sale of the MPIC Meralco shares to Beacon Electric was subject to the following conditions, all of which have been satisfied: (a) approval of MPICs BOD, which was obtained on March 1, 2010; (b) approval of the Board of Directors of FPC, which was obtained on March 1, 2010; (c) approval of the shareholders of FPC, which was obtained on March 30, 2010; and (d) release of the pledge over the MPIC Meralco shares, which was

*SGVMC214233*

- 75 completed on March 30, 2010. Consequently, on March 30, 2010, MPIC transferred 163.6 million Meralco shares to Beacon Electric at a price of =150.0 per share for a total P consideration of =24,540.0 million. P The completion of the sale of the PCEV Meralco shares to Beacon Electric was also subject to certain conditions, all of which have been satisfied. Consequently, on May 12, 2010, PCEV transferred 154.2 million Meralco shares to Beacon Electric at a price of P150.0 per share for = a total consideration of =23,130.0 million. P The transfer of legal title to the Meralco shares was implemented through a special block sale/cross sale in the PSE. Subject to rights over certain property dividends that may be declared or distributed in respect of the approximately 317.8 million Transferred Shares, which will be assigned to First Philippines Holding Corporation (FPHC) if the Call Option (as discussed below) is exercised, the rights, title and interest transferred to Beacon Electric by MPIC and PCEV in respect of the approximately 317.8 million Transferred Shares includes: (a) all shares issued by Meralco by way of stock dividends on the Transferred Shares from March 1, 2010; (b) all property or cash dividends declared or paid on the Transferred Shares from March 1, 2010; (c) all other rights accruing on the Transferred Shares from March 1, 2010; and (d) the proceeds of all of the foregoing. PCEV may, at some future time and under such terms and conditions as may be agreed by PCEV and Beacon Electric, transfer to Beacon Electric its remaining 68.8 million Meralco common shares. Call Option. Under the OA, MPIC assigned its right to acquire the call option, or the Call Option, over 74.7 million common shares of Meralco held by FPHC, or the Option Shares, to Beacon Electric. As a result of this assignment, Beacon Electric and FPHC executed an Option Agreement dated March 1, 2010 pursuant to which FPHC granted the Call Option over the Option Shares to Beacon Electric. The Call Option is exercisable at the option of Beacon Electric during the period from March 15, 2010 until midnight of May 15, 2010. The exercise price for the Option Shares is =300.0 per share or an aggregate exercise price of P22,410.0 million. Beacon Electric P = exercised the Call Option on March 30, 2010 and FPHC transferred the 74.7 million shares of Meralco common stock to Beacon Electric in consideration of the payment by Beacon Electric of P22,410.0 million in cash on March 30, 2010. Subject to rights over certain property = dividends that may be declared or payable in respect of the 74.7 million shares of Meralco common stock, which are retained by FPHC following the Call Option exercise, the rights, title and interest transferred to Beacon Electric by FPHC in respect of the Option Shares includes: (a) all shares issued by Meralco by way of stock dividends on the Option Shares from March 1, 2010; (b) all property or cash dividends declared or paid on the Transferred Shares from March 1, 2010; (c) all other rights accruing on the Transferred Shares from March 1, 2010; and (d) the proceeds of any sale or disposition of any of the foregoing. Property Dividends. With respect to the approximately 317.8 million Transferred Shares, the remaining 68.8 million Meralco common shares held by PCEV and the 74.7 million Option Shares transferred by FPHC to Beacon Electric pursuant to the Call Option, FPHC has the benefit of being assigned, or retaining in the case of the Option Shares, certain property dividends that may be declared on such shares.

*SGVMC214233*

- 76 Governance Arrangements. Beacon Electric, PCEV and MPIC have also agreed on certain corporate governance matters, including Board composition, election of officers, shareholders action, representation to the Meralco Board, nomination of the Meralco Board Committees, and nomination of Meralco officers. The corporate governance agreements and Beacon Electric equity structure resulted in a jointly-controlled entity.

On March 30, 2010, Beacon Electric also entered into an P18,000.0 million ten-year corporate = notes facility with First Metro Investment Corporation and PNB Capital and Investment Corporation as joint lead arrangers and various local financial institutions as noteholders. The proceeds of the notes facility partially financed the acquisition of Meralco shares by Beacon Electric pursuant to its exercise of the Call Option. As at December 31, 2010, the amount drawn under this facility amounted to =16,200.0 million (P16,027.0 million, net of debt issuance cost of P = = P173.0 million); the remaining undrawn balance amounted to P1,800.0 million. = In 2010, Beacon Electric engaged the services of an independent appraiser to provide the fair market values of the operating equity investments, fixed assets and intangible assets of Meralco at the time of Beacon Electrics acquisition of its Meralco shares. The fair valuation resulted in the recognition of Beacon Electrics proportionate share in fair value adjustment on fixed assets amounting to =2,376.0 million and intangible asset pertaining to the Meralco franchise amounting P to =1,814.0 million. The fair value adjustment on fixed assets, as well as the intangible asset are P amortized over their remaining useful life, and the amortization is charged against Beacon Electrics equity share in net income of Meralco. Beacon Electric also recognized in March 2010, a contingent liability amounting to = P2,372.0 million for certain property dividends that may be declared on its Meralco shares pursuant to the Option Agreement between Beacon Electric and FPHC. The contingent liability was remeasured based on the fair value of said property dividends as at December 31, 2010, and the resulting re-measurement loss of =331.0 million was P charged to consolidated statement of income. As at December 31, 2010, the carrying value of Beacon Electrics investment in Meralco of = P73,285.0 million includes: (a) consideration for the Transferred Shares from PCEV of = P23,130.0 million and from MPIC of P24,540.0 million; (b) consideration for the Option Shares = from FPHC of =24,783.0 million, which include contingent consideration of P2,373.0 million; P = (c) expenses of P942.0 million consisting of PSE crossing charges, expenses relating to the Option = Shares, as well as professional and legal fees and other cost associated to the transferred Meralco shares all chargeable to Beacon Electric pursuant to an agreement between PCEV and MPIC; and (d) equity share in net income of Meralco of =2,618.0 million less (e) dividends received of P = P2,728.0 million from Meralco. As at December 31, 2010, Beacon Electric held 392.5 million Meralco common shares representing approximately 35.0% equity interest in Meralco with market value of P89,490 = million based on a quoted price of P228.0 per share. = The Companys equity share in net earnings of Beacon Electric amounted to P22.7 million for the = period March 30 to December 31, 2010. For purposes of taking up its equity share in the net earnings of Beacon Electric, , the Company made a downward adjustment, representing actuarial loss, on the net income of Beacon Electric in the amount of =580.0 million to align with the policy P of the Company with respect to recognition of actuarial gain or loss on retirement benefit plan. The Companys policy is to recognize outright any actuarial gain or loss while that of Beacon Electric adopted the corridor approach. The Companys share in this adjustment amounted to = P290.2 million. As of December 31, 2010, the carrying value of investment in Beacon Electrics common shares amounted to =23,245.9 million. P

*SGVMC214233*

- 77 For the investment in Beacon Electrics preferred shares, the Company received dividends in the amount of P375.4 million in 2010. As of December 31, 2010, the carrying value of investment in = Beacon Electrics preferred shares amounted to P8,010.4 million. = Manila North Harbour Port, Inc. (MNHPI). Manila North Harbour Port, Inc. (MNHPI), a joint venture between MPIC and Harbour Centre Port Terminal, Inc. (HCPTI) was incorporated on November 5, 2009 for the purpose of developing, maintaining and operating the Manila North Harbor and other port facilities. The authorized capital stock of MNHPI is =700.0 million, P divided into 7,000,000 shares with the par value of =100.0 per share. On the basis of the P subscribed capital stock, MNHPI is 35.0% and 65.0% owned by MPIC and HCPTI, respectively. On August 14, 2009, MNHPI formally submitted its bid to be the sole and exclusive operator of the Manila North Harbor. In a letter dated October 8, 2009, the Notice of Award of the Contract for the Development, Management and Maintenance of the Manila North Harbor (the Contract) was made to MNHPI by the Philippine Ports Authority (PPA). The Contract, which was dated November 19, 2009, is effective for a period of 25 years, renewable for another 25 years under such terms and conditions as the parties may agree unless sooner modified, cancelled or terminated. Under the Contract, a fixed fee totaling P6,818.8 million shall be remitted to the PPA = based on a schedule of payments from year 1 to year 25, with the first payment to be made after the date of takeover of operations by MNHPI. On June 28, 2010, upon inconclusive negotiation over the consortium, MPIC divested all of its shares of common stock of MNHPI representing 35.0% of the outstanding capital stock of MNHPI with prior approval from the PPA. The Company recognized gain from the disposal in the amount of P81.4 million presented as Other income (see Note 29). = DMWC. Prior to July 17, 2008, MPIC has 50.0% interest in DMWC, a joint venture with DMCI. DMWC was incorporated to acquire equity interest, purchase, negotiate or otherwise deal with or dispose of stocks, bonds of Maynilad. MPIC acquired control over DMWC on July 17, 2008, and DMWC became a subsidiary of MPIC. Share in net losses from the joint venture before control was obtained amounted to P256.7 million = in 2008. Summarized Financial Information of Joint Ventures. The following table presents the summarized financial information of the joint venture companies and the aggregate amounts of each of the current assets, noncurrent assets, current liabilities, noncurrent liabilities, income and expenses related to the Companys interest in joint ventures as of December 31, 2010 and 2009 and for the years ended December 31, 2010, 2009 and 2008.
2010 Total Current assets Noncurrent assets Current liabilities Noncurrent liabilities P1,658,295 = 73,285,711 3,997,446 16,026,929 MPIC Interest
(In Thousands)

2009 Total = P4,247,727 6,216 178,208 3,529,787 MPIC Interest 2,123,864 3,108 89,104 1,764,894

829,148 32,259,440 1,998,723 8,013,465

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- 78 -

2010* Total MPIC Share Revenues Equity in net earnings in Meralco Costs and expenses Net income (loss) = P 2,618,344 1,578,234 1,040,110 = P101,949 1,309,172 928,956 (51,952)

2009 Total MPIC Share (In Thousands) = P = P 35,258 17,629 (29,053) (14,527)

2008* Total MPIC Share = P8,654,837 7,854,509 (397,040) = P4,327,419 3,927,255 (198,520)

** The amounts for 2010 comprise of Beacon Electrics nine months and MNHPIs six months results of operations. **The amounts for 2008 include balances of DMWC, which became a subsidiary of MPIC in July 2008.

The above information includes the financial information of Beacon Electric as at and for the year ended December 31, 2010 as shown below:
2010
(In Thousands)

Current assets Noncurrent assets Current liabilities Noncurrent liabilities Equity in net earnings of Meralco Costs and expenses Net income

= P1,658,295 73,285,711 3,997,446 16,026,929 2,618,344 1,578,234 1,040,110

13. Service Concession Assets The movements in the service concession assets follow:
MPTC Cost: Balance at beginning of year Additions Balance at end of year Accumulated amortization: Balance at beginning of year Additions (see Note 24) Balance at end of year 2010 DMWC
(In Thousands)

Total

= P17,240,867 1,253,064 18,493,931 654,124 611,430 1,265,554 = P17,228,377

= P49,336,382 8,185,487 57,521,869 3,737,718 1,664,405 5,402,123 = P52,119,746 2009 DMWC


(In Thousands)

= P66,577,249 9,438,551 76,015,800 4,391,842 2,275,835 6,667,677 = P69,348,123

MPTC Cost: Balance at beginning of year Additions Balance at end of year Accumulated amortization: Balance at beginning of year Additions (see Note 24) Balance at end of year

Total

= P16,921,047 319,820 17,240,867 75,146 578,978 654,124 = P16,586,743

= P41,029,537 8,306,845 49,336,382 1,211,310 2,526,408 3,737,718 = P45,598,664

= P57,950,584 8,626,665 66,577,249 1,286,456 3,105,386 4,391,842 = P62,185,407

*SGVMC214233*

- 79 The cost of service concession assets consists of fair value of the concession agreement at the date of business combination computed using multi-period excess earnings method, present value of additional estimated future concession fee payments as a result of extension or revised concession agreement or term and costs of rehabilitation works or additional constructions. Maynilads Service Concession Agreement with MWSS As discussed in Note 2, Maynilad entered into a Concession Agreement with MWSS, a government-owned and controlled corporation organized and existing pursuant to Republic Act (RA) No. 6234 (the Charter), as clarified and amended, with respect to the MWSS West Service Area. Under the Concession Agreement, Maynilad is entitled to the following rate adjustments: a. annual standard rates adjustment to compensate for increases in the Consumer Price Index (CPI) subject to rates adjustment limit; b. extraordinary price adjustment (EPA) to account for the financial consequences of the occurrence of certain unforeseen events subject to grounds stipulated in the Concession Agreement; and c. rate rebasing (Rate Rebasing) mechanism which allows rates to be adjusted every five (5) years to enable Maynilad to recover expenditures efficiently and prudently incurred, Philippine business taxes and payments corresponding to debt service on concession fees and concessionaires loans incurred to finance such expenditures. Extension of Maynilads Concession Agreement. On September 10, 2009, the MWSS Board of Trustees (BoT) approved the extension of the expiry of its Concession Agreement with the Company by an additional (15) years or from May 6, 2022 to May 6, 2037. Subsequently, on September 16, 2009, the MWSS Administrator wrote the Department of Finance (DoF) to inform them of the Boards decision and to seek DoFs written consent to the extension, as well as its extension of the letter of undertaking covering the governments obligation under the Concession Agreement. On April 22, 2010, the DoF (by authority from the Office of the President of the ROP) approved the extension of the expiry of Maynilads Concession Agreement. The significant commitments under the extension follow: a. to mitigate tariff increases; b. to increase the share in the current operating budget support to MWSS by 100% as part of the concession fees starting 2010; and c. to increase total investments. The DoF further clarified that the extension of the governments undertaking shall be effective only upon an increase in the Maynilads Performance Bond from US$30.0 million to US$90.0 million for the third rate Rebasing Period. Subsequently, Maynilad submitted a Performance Bond in the increased amount of US$90.0 million to MWSS on May 31, 2010. Maynilad revised the estimated useful life of its service concession assets from 15 years to 27 years effective September 10, 2009 and applied such change in estimate prospectively. In accordance with PAS 38, the useful life of the service concession agreement for the water business was revised, to include the renewal period approved by the MWSS. Though Maynilads extension is still subject to a written consent from the Department of Finance (DoF) as of December 31, 2009, Maynilad revised the estimated useful life of the service concession assets effective September 10, 2009 (MWSS approval date) due to the following: (1) there is evidence, based on a

*SGVMC214233*

- 80 precedent approval of the DoF, that the term of the Concession Agreement will be extended. Management believes that a similar approval will be granted to them by the DoF as the extension of both concessions is critical to the attainment of the objectives of the extension; and (2) the cost of renewal is not significant when compared with the future economic benefits expected to flow to Maynilad from the renewal of the Concession Agreement. The change in estimated useful life resulted in a reduction in amortization expense in 2009 by P395.7 million. = Maynilad recognized additional concession fees, which were capitalized to service concession assets, amounting to =410.5 million in 2010 and P3.8 billion in 2009. The additional concession P = fees in 2010 pertain to the drawn portion of MWSS loans relating to new project while additional concession fees in 2009 pertain to: a. Incremental MOE resulting from the extension of the life of the Concession Agreement to 2037; and b. Incremental concession fees pertaining to MWSS loans from ADB and BNP Paribas amounting to P1.0 billion at present value. = MNTCs Supplemental Toll Operation Agreement (STOA) PNCC is the franchise holder for the construction, operation and maintenance of toll facilities in the North and South Luzon Tollways and the Metro Manila Expressway by virtue of Presidential Decree (PD) No. 1113 issued on March 31, 1977, as amended by PD No. 1894 issued on December 22, 1983. PNCC has an existing Toll Operation Agreement (TOA) with the Government of the ROP, by and through the TRB. Pursuant to the Joint Venture Agreement (JVA) entered into by PNCC and MPTDC (then First Philippine Infrastructure Development Corp.) on August 29, 1995, PNCC assigned its rights, interests and privileges under its franchise to construct, operate and maintain toll facilities in the NLE in favor of MNTC, including the design, funding and rehabilitation of the NLE, and installation of the appropriate collection system therein. MPTDC, in turn, assigned all its rights, interests and privileges to the Binictican-Bo. Tipo road project, as defined in the Memorandum of Understanding dated March 6, 1995, to MNTC, which assumed all the rights and obligations as a necessary and integral part of the NLE project. The assignment of PNCCs usufructuary rights, interests and privileges under its franchise, to the extent of the portion pertaining to the NLE, was approved by the then President of the ROP. On October 10, 1995, the Department of Justice issued Opinion No. 102, Series of 1995, affirming the authority of the TRB to grant authority to operate a toll facility and to issue the necessary Toll Operation Certificate in favor of PNCC and its joint venture partner, as reiterated and affirmed by the Secretary of Justice in his letter to the Secretary of Public Works and Highways dated November 24, 1995, for the proper and orderly construction, operation and maintenance of the NLE as a toll road during the service concession period. In April 1998, the ROP (Grantor), acting by and through the TRB, PNCC (Franchisee) and MNTC (Concessionaire) executed the STOA for the Manila-North Expressway, whereby the ROP granted MNTC the rights, obligations and privileges including the authority to finance, design, construct, operate and maintain the project roads as toll roads (the Concession) commencing upon the date the STOA comes into effect until December 31, 2030 or 30 years after the issuance of the TOP for the last completed phase, whichever is earlier, unless further extended pursuant to the STOA.

*SGVMC214233*

- 81 The PNCC franchise expired on May 1, 2007. Pursuant to the STOA, the TRB issued the necessary TOC for the NLE in order to allow the continuation of the Concession. MPTC pays a certain amount to PNCC. Also, under the STOA, MNTC shall pay for Grantors project overhead expenses based on certain percentages of total construction costs or of periodic maintenance works on the project roads. Fees billed by TRB amounted to =8.2 million, =6.0 million and P11.7 million in 2010, 2009 and P P = 2008, respectively. Upon expiry of the service concession period, MNTC shall handover the project roads to the Grantor without cost, free from any and all liens and encumbrances and fully operational and in good working condition, including any and all existing land required, works, toll road facilities and equipment found therein directly related to and in connection with the operation of the toll road facilities. In 2010, MNTC signed the Amended STOA for the NLE which includes the integration of Segment 10 into Phase II; amendment of adjustment formula for the Authorized Toll Rate by removing the foreign exchange factor; adoption of an integrated operations period for Phase 1 and Segment 8.1; extension of the Concession Period until December 31, 2037; modification of alignments of Phase II Segments 9 and 10; adoption of two open system tolling zones; and the extension of the effectivity of the toll rate formula. Extension of MNTCs Concession Agreement. In October 2008, TRB approved the extension of the service concession term for Phase I and Segment 8.1 of the Project from the original term ending 2030 to December 2037, subject to the following conditions: (a) the immediate submission of an updated implementation schedule, including preparatory activities and studies for Phase II and III of the Project; and (b) TRB to conduct an audit in the determination of applicable toll rates. The first condition is a basic component of any project development while the fulfillment of the second condition depends on the initiative of TRB given that MNTCs books are always available for TRBs audit. On the basis of the foregoing, management believes that the conditions will be easily complied with no additional cost, thus, as allowed under PAS 38, starting October 2008, the revised life was used by MNTC for purposes of computing amortization. The change in estimated useful life resulted in a reduction in amortization expense in 2008 by P33.0 million. = Capitalization of Borrowing Costs. Additions to service concession assets in 2010 and 2009 pertain mainly to the construction costs of Segment 8.1 and pre-construction costs for Segments 9 and 10 of Phase II of the Project. Borrowing costs capitalized amounted to =35.2 million and P = P31.7 million for the years ended December 31, 2010 and 2009, respectively. There were no borrowing costs capitalized in 2008 as the actual construction of Segment 8.1 started only in April 2009. The interest rate used to determine the amount of borrowing costs eligible for capitalization was 9.6% in 2010 and 2009.

*SGVMC214233*

- 82 -

14. Property and Equipment This account consists of:


December 31, 2009 Cost Land Leasehold improvements Building and building improvements Office and other equipment, furniture and fixtures Transportation equipment Instruments, tools and other equipment Library books Accumulated Depreciation Leasehold improvements Building and building improvements Office and other equipment, furniture and fixtures Transportation equipment Instruments, tools and other equipment Library books Construction-in-progress Acquisition of Subsidiaries (Note 4) Disposals/ Additions Reclassifications (In Thousands) = P 4,938 3,450 72,709 61,084 128,056 695 270,932 1,106 24,340 77,560 72,609 81,350 2,315 259,280 11,652 14,527 = P26,179 (P20,000) = (100,307) (7,197) (22,915) 1,230 (149,189) (4,378) (5,152) (10,524) 101 (19,953) (129,236) (P129,236) = December 31, 2010

= P 6,739 168,086 414,259 249,200 316,239 1,154,523 2,553 4,789 243,091 99,962 169,723 520,118 634,405 = P634,405

= P271,902 294,165 15,587 168,540 130,456 11,237 891,887 891,887 = P891,887

P251,902 = 11,677 365,394 495,358 455,909 575,981 11,932 2,168,153 3,659 24,751 315,499 162,047 251,073 2,416 759,445 1,408,708 14,527 P1,423,235 = December 31, 2009 = P6,739 168,086 414,259 249,200 316,239 1,154,523 2,553 4,789 243,091 99,962 169,723 520,118 = P634,405

December 31, 2008 Cost Leasehold improvements Building and building improvements Office and other equipment, furniture and fixtures Transportation equipment Instruments, tools and other equipment Accumulated Depreciation Leasehold improvements Building and building improvements Office and other equipment, furniture and fixtures Transportation equipment Instruments, tools and other equipment = P2,716 95,920 203,178 199,887 219,776 721,477 1,770 843 26,714 24,133 25,420 78,880 = P642,597

Disposals/ Additions Reclassifications (In Thousands) = P4,023 73,767 48,087 29,822 35,074 190,773 783 4,761 74,254 44,026 61,306 185,130 = P5,643 = P (1,601) 162,994 19,491 61,389 242,273 (815) 142,123 31,803 82,997 256,108 (P13,835) =

Building and building improvements in the amount of P96.1 million was reclassified and formed = part as additional to service concession assets in 2010 (see Note 13).

*SGVMC214233*

- 83 Depreciation is computed on a straight-line basis over the following estimated useful lives of property and equipment: Leasehold improvements Building and building improvements Office and other equipment, furniture and fixtures Transportation equipment Instruments, tools and other equipment 25 years or lease term whichever is shorter 530 years 25 years 25 years 25 years

As further discussed in Note 19, all existing and future assets of MNTC are mortgaged in favor of the lenders in line with the requirements of the Mortgage Assignment and Pledge Agreement known as the Master Security Agreement (MSA). The land as presented here is used as colletaral for RMCIs long-term debt.

15. Other Noncurrent Assets This account consists of: 2010


(In Thousands)

2009

Software costs - net of accumulated amortization of P15,000 in 2010 and 2009 = Miscellaneous deposits Long-term cash deposits Pension assets (see Note 27) Others

P51,449 = 48,602 6,985 42,134 P149,170 =

= P19,908 71,734 18,095 21,829 = P131,566

Miscellaneous deposits mainly represent rental deposits and deposits for restoration works. Long-term cash deposits represent time deposits with maturities of more than one year and earn interest at the respective long-term cash deposit rates (see Note 4).

16. Accounts Payable and Other Current Liabilities This account consists of: 2010
(In Thousands)

2009 = P1,432,453 1,726,337 482,119 200,772

Trade payables Accrued construction costs (see Note 21) Accrued expenses: Personnel costs Outside services (Forward)

P1,755,673 = 3,109,514 387,516 215,823

*SGVMC214233*

- 84 2010
(In Thousands)

2009 = P122,192 43,305 60,455 368,676 1,035,659 85,355 170,477 39,216 2,441 7,350 16,901 259,336 164,923 = P6,217,967

Utilities and other related charges Repairs and maintenance Professional fees Others (see Note 27) Interest and other financing charges payable Output taxes payable Dividends payable (see Notes 21 and 23) Withholding taxes payable Unearned rental income and other deposits Accounts payable Retention payable Provision for ESOP (see Notes 4 and 29) Others

P196,061 = 69,267 58,852 132,708 848,296 265,837 208,365 73,701 42,546 26,611 25,864 294,419 P7,711,053 =

Trade payables includes unpaid billings of creditors, suppliers and contractors. It also includes liabilities relating to assets held in trust used in Maynilads operations amounting to =97.3 million P as of December 31, 2010 and 2009 (see Note 36). Trade payables are noninterest-bearing and are normally settled on 30 to 60 day terms. Accrued construction costs represent unbilled construction costs from contractors and normally settled upon receipt of billings and within a year (see Note 21). Accrued expenses representing certain claims or potential claims to the Company, amounting to = P1,314.1 million as of December 31, 2009, were reclassified to provisions to conform with 2010 presentation. The reclassification is only within current liabilities and no third consolidated balance sheet is needed. Interest payable mainly represents accrued interest on long-term debt and is generally settled semiannually. In 2009, provision for ESOP represents the excess of the carrying value of Maynilads shares held by DMWC that will be issued to Maynilads employees in compliance with Maynilads concession agreement over the amounts to be paid by Maynilad to DMWC. The transfer of the shares was completed in 2010 and as discussed in Note 4, the transaction was accounted as a sale of non-controlling interest and any gain or loss is recognized to equity, hence the provision was reversed in 2010 (see Notes 4 and 20). Retention payable is the amount withheld (equal to 10.0% of the contract price) by the Company until the completion of the construction of a specific project.

*SGVMC214233*

- 85 -

17. Provisions Movements in this account follow:


December 31, 2010 Warranties and Guarantees (see Note 34) Balance at the beginning of year Additions (see Notes 24 and 29) Payments Less current portion = P516,323 516,323 516,323 = P Heavy Maintenance = P415,827 61,502 (80,636) 396,693 88,350 = P308,343 Other Provisions = P1,353,788 260,722 (31,027) 1,583,483 1,583,483 = P Total = P2,285,938 322,224 (111,663) 2,496,499 2,188,156 = P308,343

(In Thousands)

Warranties and Guarantees Balance at the beginning of year Additions (see Notes 24 and 29) Accretion of interest (see Note 28) Payments Balance at end of year Less current portion = P461,476 54,847 516,323 516,323 = P

December 31, 2009 Heavy Maintenance Other and Others Provisions


(In Thousands)

Total =1,617,713 P 695,028 16,469 (43,272) 2,285,938 1,870,111 = P415,827

= P170,275 229,083 16,469 415,827 = P415,827

= P985,962 411,098 (43,272) 1,353,788 1,353,788 = P

Provisions include estimated expenses related to the concluded and ongoing debt settlement negotiations and certain warranties and guarantees extended by MPC in relation to debt for asset swap arrangements entered in prior years. Certain warranties and guarantees are secured by Pacific Plaza Tower (PPT) condominium units and BLC shares (see Notes 9 and 10). Provision for heavy maintenance pertains to the contractual obligations of MNTC to restore the service concession assets to a specified level of serviceability. MNTC recognizes provision as the obligation arises which is a consequence of the use of the roads and therefore it is proportional to the number of vehicles using the road and increasing in measurable annual increments. Other provisions consist of claims and potential claims against a subsidiary and estimated liabilities for certain fees under the STOA and Operation and Maintenance Agreement entered into by MNTC. Other provisions includes the accruals that were reclassified from accrued expenses to conform with 2010 presentation as discussed in Note 16.

*SGVMC214233*

- 86 -

18. Service Concession Fees Payable This account consists of:


2010
(In Thousands)

2009 = P10,280,140 1,208,467 = P9,071,673

Service concession fees payable Less current portion

= P9,130,225 1,179,026 = P7,951,199

Concession fees relate to and arise from Maynilads service concession agreement and are denominated in various currencies. These are payable monthly following an amortization table up to the end of concession period and are noninterest-bearing. The schedule of undiscounted estimated future concession fee payments, based on the original life of the Concession Agreement, is as follows:
In Original Currency Foreign Peso Loans/ Currency Loans (Translated to Project Local US$) Support
(In Millions)

Year 2011 2012 2013 2014 2015-2037

Total Peso Equivalent* = P2,104.5 1,282.6 1,133.2 1,150.8 11,987.2 = P17,658.3

$38.9 20.2 16.8 17.2 65.9 $159.0

= P399.1 397.0 396.7 396.8 9,098.1 = P10,687.7

* Translated using the December 31, 2010 exchange rate of =43.84:US$1. P

Concession fee payments relating to the extension of the Concession Agreement is only determinable upon loan drawdown of MWSS and their actual construction of the related concession projects. Additional concession fees relating to the extension amounted to = P410.5 million in 2010 and P3.8 billion in 2009. = 19. Long-term Debt This account consists of:
December 31, 2010 Convertible Preferred Long-term Convertible Shares Bonds Notes (In Thousands) P = 57,267 57,267 57,267 57,267 P = P = 13,590 13,590 13,590 13,590 P = P = 37,231 37,231 37,231 37,231 P =

Loans DMWC and a subsidiary, Maynilad MPTC and a subsidiary, MNTC MPIC RMCI and a subsidiary, RCI MPC Less unamortized debt issue cost Less current portion of long-term debt - net of unamortized debt issue cost of P14.0 million = P16,434,638 = 9,560,008 6,648,750 204,429 32,847,825 432,913 32,414,912 2,845,856 P29,569,056 =

Total P16,434,638 = 9,560,008 6,648,750 204,429 108,088 32,955,913 432,913 32,523,000 2,953,944 P29,569,056 =

*SGVMC214233*

- 87 December 31, 2009 Convertible Preferred Long-term Convertible Shares Bonds Notes (In Thousands) = P = P = P 57,267 14,322 37,231 57,267 14,322 37,231 57,267 14,322 37,231 57,267 = P 14,322 = P 37,231 = P

Loans MPIC DMWC and subsidiary (Maynilad) MPTC and subsidiary (MNTC) MPC Less unamortized debt issue cost Less current portion of long-term debt - net of unamortized debt issue cost of P32.1 million = = P17,916,250 16,729,638 8,759,838 43,405,726 728,146 42,677,580 849,275 = P41,828,305

Total = P17,916,250 16,729,638 8,759,838 108,820 43,514,546 728,146 42,786,400 958,095 = P41,828,305

The movements in unamortized debt issue cost are as follows:


2010
(In Thousands)

2009 = P522,751 (24,637) 230,032 = P728,146

Balance at beginning of year Amortization during the year charged to interest expense (see Note 28) Debt issue cost paid during the year Reversal of debt issue cost (see Note 12) Foreign exchange adjustments Balance at end of year

P728,146 = (201,092) 121,573 (221,694) 5,980 P432,913 =

The repayments of loans based on existing terms are scheduled as follows:


2010
(In Thousands)

2009 = P990,221 1,403,271 2,197,473 38,923,581 = P43,514,546

Current 2012 2013 2014 and onwards

P2,966,649 = 1,298,149 6,432,369 22,258,746 P32,955,913 =

DMWC and Subsidiary Maynilad Loans. On June 30, 2008, Maynilad entered into an Omnibus Notes Facility and Security Agreement (the Maynilad Omnibus Agreement) with certain local banks (Noteholders) for US$365.0 million notes (the Notes) for the purpose of financing the capital expenditures and payment of advances from shareholders. The Notes comprise Series 1 amounting to US$240.0 million and Series 2 amounting to US$125.0 million. Series 1 is a peso-denominated loan which consists of US$120.0 million fixed-rate note and US$120.0 million floating-rate note. Series 2 is a US$125.0 million floating-rate dollar-denominated note. The Notes are payable 10 years from the issue date.

*SGVMC214233*

- 88 Series 1 Fixed and Floating Rate Note. Bears interest of fixed benchmark rate plus 2.0% spread per annum and is payable within ten years to commence at the end of the 36th month after the initial issue date. Series 2 Floating Rate Note. Bears interest of LIBOR and CDS rate plus 2.0% spread per annum and is payable within ten years to commence at the end of the 36th month after the initial issue date. Maynilads existing Noteholders are secured by a first ranking mortgage over all of Maynilads mortgageable assets and an assignment of all rights, title and interest of Maynilad to its assigned accounts, accounts receivable, project documents and performance guarantee with Banco De Oro Unibank, Inc. as collateral agent. The Noteholders are secured further by a third party mortgage of Maynilads shares held by DMWC representing 40.9% of the outstanding shares of Maynilad and a voting trust over 31.0% of the outstanding shares of Maynilad. The third party mortgage and voting trust over the Maynilad shares shall cease, terminate, and become void at such time that Maynilads non-revenue water or NRW is reduced to 45.0%. Debt Issuance Costs. All legal, professional and registration fees incurred in relation to the availment of the Notes, totaling =451.8 million, were capitalized starting July 2008. Debt P issuance costs are amortized using the effective interest rate method. Amortization of debt issuance costs amounting to =80.8 million in 2010, P24.6 million in 2009 and P13.0 million in P = = 2008 is presented as part of Interest expense account in the consolidated statements of income. Covenants. The Omnibus Agreement contains provisions regarding the maintenance of certain financial ratios such as debt-to-equity ratio and debt-service-coverage ratio, and maintenance of debt service reserve account. As of December 31, 2010 and 2009, Maynilad has complied with these ratios. As of December 31, 2010 and 2009, outstanding balance of the Notes amounted to = P16,434.6 million and =16,729.6 million, respectively. P MPTC and Subsidiary MNTC Loans consist of:
2010
(In Thousands)

2009 = P5,485,651 577,000 1,016,532 845,702 421,806 413,147 = P8,759,838

Fixed Rate Corporate Notes (FXCN) Philippine National Bank Loan (PNB) Asian Development Bank Loan (ADB) - Direct and Complementary Finance Scheme (CFS) USD Bank Facility (USD) Credit Agricole Corporate and Investment Bank (formerly Calyon S.A. Corporate and Investment Bank) (COFACE) Export Finance and Insurance Corporation (EFIC)

P5,401,205 = 2,100,000 819,756 616,006 314,946 308,095 P9,560,008 =

*SGVMC214233*

- 89 In 2001, MNTC entered into a Common Terms Agreement (CTA) with the lenders, the security trustee, the co-security trustee and inter-creditor agent. The CTA specifies the mechanics on the funding under the term facilities, payment and prepayments, as well as the conditions precedent to drawdown set forth by the secured lenders. The CTA also contains covenants concerning restrictions with respect to, among others, waiver, modification, amendment or assignment of the key project agreements, hedge agreements, restricted payments, and the maximum debt-to-base equity ratio and the level of the debt-service-coverage ratio. Total financing facility availed by MNTC under the original CTA amounted to US$252.2 million. The loans were granted under a limited-recourse project finance structure. Substantially all existing and future assets of MNTC are mortgaged in favor of the lenders in line with the requirements of the Mortgage, Assignment and Pledge Agreement, known as the Master Security Agreement (MSA). In addition, MPTDC and Egis Projects S.A. (Egis) provided completion support as agreed under the Sponsor Support Agreement (SSA). On November 8, 2006, MNTC refinanced its outstanding loans through partial prepayment and restructuring of MNTCs U.S. dollar-denominated long-term debt using the proceeds of a = P5.5 billion FXCN issue. The refinanced debt package consisted of a total of US$100.0 million in U.S. dollar term loan facilities participated in by majority of the original project lenders and a = P5.5 billion FXCN issue participated in by sixteen (16) qualified local institutional investors (Issuer). The aggregate U.S. dollar term loan facilities consist of direct loan facilities from multi-lateral and bi-lateral institutions like ADB and EFIC and syndicated facilities, including a covered loan from COFACE, the French export credit agency, participated in by a mix of four (4) foreign commercial banks. The loans are payable in 16 equal semi-annual installments starting December 15, 2006 up to June 15, 2014 which is the original maturity date. The FXCNs are payable within seven years from issue date under a bullet-like structure, i.e., 94.0% of the principal is payable on maturity date (November 17, 2013) while the balance of 6.0% is payable over the term of the notes in minimal annual installments. The simultaneous prepayment and drawdown on refinancing date (November 17, 2006) was facilitated through a US$96.0 million Conversion Bridge Facility (Bridge Loan) provided by Mizuho Corporate Bank, Ltd. (Singapore). This was a cash-secured temporary dollar facility backed by the FXCN proceeds that allowed MNTC to obtain the necessary dollars for the lump sum prepayment on refinancing date. The Bridge Loan was fully paid on December 5, 2006. Under the Notes Purchase Agreement covering the FXCN, the Issuer may at its option redeem the notes prior to the maturity date in whole but not in part subject to the terms and conditions of the agreement. In connection with the refinancing, the CTA, MSA and other loan agreements were amended to reflect the revised covenants and security package covering all MNTCs debt on a parri-passu basis. The major amendments are: (a) the removal of pledge of shares and other forms of sponsor support in the security package; (b) the release of trapped cash in the form of maintenance reserves, the principal portion of the debt reserve, and undrawn base equity contributions; (c) the reduction of assigned contracts; (d) the removal of assignment of operator assets and contracts as well as PNCC rights under certain contracts; and (e) the relaxation of the loan covenants. Certain agreements like the SSA were terminated and the sponsor guarantees along with other elements of the original security package were released effective November 17, 2006.

*SGVMC214233*

- 90 On November 13, 2008, MNTC entered into an amendment agreement to the CTA to reflect the replacement of FPHC by MPIC as project sponsor. On January 19, 2009, the CTA was further amended mainly to incorporate the option to convert the ADB Direct Loan from U.S. dollar to Philippine peso which took effect on March 11, 2009. As a result of the conversion, MNTC recognized a loss on extinguishment of debt amounting to =9.9 million (see Note 29). P On March 16, 2009, MNTC also entered into a seven-year term loan agreement for a facility amount of P2.1 billion with PNB to finance the project cost of Segment 8.1. The PNB Loan = qualified as senior debt which entitles the lender to share in the same security package as Phase I lenders. As of December 31, 2010 and 2009, loan drawdowns on the facility amounted to = P2.1 billion and =577.0 million, respectively. P On April 27, 2009, MNTC entered into a credit agreement with Security Bank for a standby letter of credit facility of up to P100.0 million for a period of 24 months to secure MNTCs Segment 8.1 = construction obligation in favor of the TRB. The letter of credit for an amount of =80.3 million P was issued effective April 27, 2009. There were no availments on the letter of credit as of December 31, 2010 and 2009. Interest rates on direct US Dollar loan facilities, consisting of fixed rates, range from 8.03% to 8.25% in 2010 and 2009. Interest rates on syndicated US Dollar loan facilities, consisting of fixed and floating rates, range from 3.39% to 6.13% in 2010 and 4.0% to 6.13% in 2009. Interest rate on PNB Loan is fixed at 9.61% in 2009. This was converted to floating interest rate upon re-pricing on December 15, 2010. Interest rates range from 2.16%-9.61% per annum in 2010. Interest rate on ADB Direct is floating based on PHIREF plus a margin of 4.66% in 2010 and 2009. The security for the outstanding loans is embodied in the following agreements: Trust and Retention Agreement (TRA) with the secured lenders designated trustees and the inter-creditor agent. The TRA provides for the establishment and regulation of the security accounts and the security account collateral where the inflows and outflows of project revenues may be monitored. The security accounts form part of Cash and cash equivalents account in the consolidated balance sheets. The MSA which grants to the trustees, on behalf of the secured lenders, the security interest in MNTCs various assets. The agreement provides for the establishment of real estate mortgage and chattel mortgage as well as the assignment of key project agreements, insurances, and bank accounts and investments in favor of the co-security trustee for the benefit of the secured lenders.

On December 7, 2010, MNTC issued an irrevocable prepayment notice indicating its intention to prepay in full all outstanding amounts under the US Dollar loan facilities on January 14, 2011. The costs and fees incurred for the prepayment of the US Dollar loan facilities and ADB Direct amounting to =103.9 million was included as part of the amortized cost of the loans. P

*SGVMC214233*

- 91 On December 21, 2010, MNTC entered into a Notes Facility Agreement with local financing institutions for a P2.7 billion short-term unsecured and subordinated notes facility. Proceeds of = the notes which were fully drawn on January 11, 2011 were used for the prepayment of the US Dollar loans and other corporate purposes. The notes are payable every three months, up to a maximum term of one year from initial drawdown date. As of December 31, 2010 and 2009, MNTC is in compliance with the required financial ratios and other loan covenants. MPIC =12.0 Billion Loan. On November 6, 2009, the Company entered into a =12.0 billion Omnibus P P Agreement with various financing institutions for the purpose of partially financing the Companys series of acquisitions of Meralco common shares. The loan is available in two drawdowns, on which the first drawdown shall not be less than P11.0 billion while the second = drawdown shall not exceed the loan amount. The loan shall be payable in semi-annual installments and bears an interest rate based on a spread of 2.5% over the benchmark rate. The benchmark rate is the interpolated 9-year rate to be determined by referring to 7 to 10 year bids from PDST-F. On November 13, 2009, the Company made its first drawdown amounting to =11.2 billion. As of P December 31, 2009, outstanding balance of the current and noncurrent portion of this loan amounted to =120.0 million and =11,080.0 million, respectively. P P All legal and professional fees incurred in relation to the debt, totaling =230.0 million, were P capitalized. Debt issue costs are amortized using the effective interest method. Amortization of debt issue costs attributed to this loan, amounting to P2.8 million for the year ended December 31, = 2009, is presented as part of Interest expense account in the consolidated statement of income (see Note 28). The loan was secured by a pledge on Meralco shares owned by the Company or by any third party procured by the Company. The Company shall, from the date of the pledge over the Meralco shares maintain the loan to value ratio at 50.0%. As of December 31, 2009, the market value of the Companys investment in Meralco, based on quoted price of P204.0 per share, amounted to = = P33,375.0 million (see Note 12) and MPIC is in compliance with the required ratio. The Omnibus Agreement also provides for the maintenance of a Debt Service Account (DSA) to be used by the Company to service interest and principal payments. The Company shall fund the DSA no later than 15 days prior to the relevant payment dates for the principal and interest. On March 30, 2010, however, the Company preterminated the =11.2 billion loan to be able to P release its Meralco shareholdings from being pledged and transferred it to Beacon Electric in connection with the OA as discussed in Note 12. Unamortized debt issue cost of =221.7 million P was reversed and charged to Beacon Electric pursuant to a Letter of Agreement. Interest expense incurred in 2010, including amortization of debt issue cost of P5.4 million, amounted = to =310.2 million. P

*SGVMC214233*

- 92 =4.5 Billion Bridge Financing Facility. On August 3, 2009, MPIC incurred indebtedness of P = P4,500.0 million by drawing on the Bridge Financing (the Promissory Note) obtained from local banks, in order to consummate the purchase of common shares of Meralco in the open market amounting to =4,441.6 million (see Note 12). The principal amounts of these promissory notes P are payable in a single payment sixty days from the execution of the promissory notes or on October 3, 2009. Interest on the outstanding principal amount of the Promissory Note is payable monthly in arrears on each interest payment date for the interest period then ending at a fixed rate which shall be equal to the 30-day PDST-F rate prevailing on an Interest Rate Setting Date plus a spread of 3.5%. The Promissory Note is secured by a pledge of 48,385,278 shares of common stock of Meralco, of which 13,350,000 shares are owned by the MPHI and 35,035,278 shares are owned by Crogan, as a third party pledgor at that time. On September 28, 2009, the principal amount of the Promissory Note and any accrued interest therein were paid and the pledged shares of Meralco have been released. =6.8 Billion Loan. On November 4, 2008, MPIC entered into an Omnibus Notes Facility and P Security Agreement (the MPIC Omnibus Agreement) with a certain local bank for a =6.8 billion P note (the Note) for the purpose of partially financing its acquisition of MPTC common shares. The note bears a fixed interest rate equivalent to a 10-year Philippine Dealing System TreasuryFixing (PDST-F) interest prevailing on one banking day prior to November 13, 2008 (Issue Date) plus applicable margin of 1.75% or such rate not exceeding 2.25% per annum, as agreed between the parties, subject to a floor of nine percent (9.0%) per annum. Interest shall be paid semiannually commencing on the Issue Date. The Note is payable in twenty (20) consecutive semiannual installments to commence at the end of the 9th month after Issue Date. After four (4) years from the Issue Date, MPIC may redeem in whole or in part the Note on any interest payment date falling thereafter. All legal and professional fees incurred in relation to the debt totaling =85.0 million were P recognized as debt issue costs and amortized using the effective interest method over the term of the Note. Amortization of debt issuance costs, amounting to P8.3 million, P7.6 million and = = = P1.1 million is presented as part of Interest expense account in the consolidated statements of income for the years ended December 31, 2010, 2009 and 2008, respectively. As a continuing security for the due and punctual payment and performance of the Note, MPIC pledged the acquired MPTC shares. The MPIC Omnibus Agreement also provides for the maintenance of a DSA from the Issue Date until payment in full of all amounts due to the lenders for the purpose of holding funds on reserve to service MPICs payments of the Notes. The DSA amounting to P267.7 million and = = P270.2 million as of December 31, 2010 and 2009, respectively, is presented as part of Other current assets account in the consolidated balance sheets (see Note 11). Moreover, the MPIC Omnibus Agreement requires MPIC to ensure during the terms of the Notes that its debt-to-equity ratio does not exceed 70:30, and its debt-service-coverage ratio is at a minimum of 1.3x. As of December 31, 2010 and 2009, MPIC is in compliance with the required financial ratios. As of December 31, 2010 and 2009, outstanding balance of this loan amounted to = P6,648.8 million and =6,716.3 million, respectively. P Effective February 13, 2011, the interest rate on the Note was repriced to 9.2% from 10.7%.

*SGVMC214233*

- 93 RMCI In 2008, RMCI obtained a loan from a local bank in the amount of P300.0 million to pay off its = outstanding loan from two other local banks. The loan, which is payable quarterly, bears interest rates of 2.0% per annum over PDS Treasury Fixing rate. As of December 31, 2010, outstanding balance of this loan amounted to =171.4 million. P In 2010, RMCI obtained additional loan from the same local bank amounting to P36.0 million to = finance the purchase of one unit Magnetic Resonance Imaging equipment. The loan, which is payable quarterly, bears interest rate based on the prevailing market rates. As of December 31, 2010, outstanding balance of this loan amounted to =33.0 million. P Total interest expense relating to these loans amounted to =9.56 million from May 31 to P December 31, 2010. These loans are secured by continuing suretyship of some of the stockholders of RMCI and real mortgage constituted over various parcel land and improvements of RMCI and RCI with aggregate carrying amounts of =251.9 million (see Note 14). P The loan agreement provides for certain restrictions with respect to, among others, incurrence of any other loans, advances or other obligations. These restrictions were complied with by RMCI. MPC Convertible Preferred Shares Restructured into Term Loan. On July 23, 1999, MPC issued convertible preferred shares at a subscription price of P1,000.0 per share or an aggregate = subscription price of =720.0 million. The shares carried a dividend rate of 10.0% per annum, with P a premium to be paid on redemption that will equate to a cumulative yield over the full term of 15.0% per annum. The shares are also redeemable after three years, with conversions permitted throughout the period at a conversion price of =2.25 per share, representing a premium of 12.5% P over the prevailing market price. MPC accrued and paid dividends of P72.0 million on the shares = up to December 31, 2001, but was unable to meet obligations from January 1, 2002 onwards. Consequently, the preferred shareholders opted to exercise its put option and demanded redemption of the shares, thereby warranting the reclassification of the portion of the equity represented by the preferred shares into debt in July 2002. On various dates in 2009 and 2008, a total of =462.8 million of shares due from redemption were P settled via asset-for-debt exchange of PPT condominium units, Central Country Estate, Inc. shares and certain Landco properties. Out of the P720.0 million convertible preferred shares, = = P200.0 million were restructured into term loans of which as of December 31, 2010 and 2009, = P57.3 million, remains outstanding and forms part of Current portion of long-term debt account in the consolidated balance sheets. Long-term Bonds. These long-term bonds were issued by Metro Pacific Company Limited (MPCL), a subsidiary of MPC, on April 11, 1996. The bonds, which are all guaranteed by MPC, are unsecured and bear a fixed interest rate of 2.5% per annum payable annually in arrears. The bonds can be converted into common shares of MPC from June 11, 1996 to March 28, 2003 at a conversion price of =5.08 per share adjusted for the stock dividend in 1997 of 33.0%, and based P on a fixed rate of exchange of P26.19:US$1.00. =

*SGVMC214233*

- 94 The bondholders have the option to have the bonds redeemed in whole or in part on April 11, 2001 at 128.9% of their principal amount, together with accrued interest. Through January 2001, a subsidiary bought back from the market about US$12.2 million of the outstanding principal amount at an average unit price of 120.0% of the face value of the bond for a total purchase price of US$14.7 million including premium and accrued interest. As at the redemption date on April 28, 2001, bondholders of US$66.3 million of the total US$66.6 million outstanding bonds opted for redemption and were paid a total of US$87.1 million including interest and premium. As the guarantor, MPC assumed the balance of US$0.3 million following MPCLs default in payment. The balance as of December 31, 2010 and 2009 remains at US$0.3 million (P13.6 million and =14.3 million as of December 31, 2010 and 2009, respectively) and = P form part of Current portion of long-term debt account in the consolidated balance sheet. Convertible Notes. Convertible notes represent the unsettled balance of three-year convertible notes issued by MPC at par in 1999 with an aggregate value of =1,514.0 million. P The notes bear interest at the rate of 9.5% per annum, payable semi-annually in arrears, with a premium on redemption to provide for a yield of 12.0% per annum. The notes are convertible into common shares of MPC at a price of P2.25 per share. The notes were issued to the creditors of = Nenaco in order to refinance the latters obligations that matured on September 30, 2002. Prior to their maturity dates in 2002, negotiations for settlement of the notes were initiated and resulted in the restructuring of =744.0 million into a five-year to ten-year loan, bearing annual P interest based on the 91-day Treasury Bill rate plus spread of 3.0%, and the settlement through dacion of property with carrying value of =193.0 million. Between 2003 and 2006, the debts were P partially settled primarily via dacion of MPC and Landcos certain assets. As of December 31, 2010 and 2009, convertible notes amounting to =37.2 million remains P outstanding and forms part of the Current portion of long-term debt account in the consolidated balance sheets.

20. Deferred Credits and Other Long-term Liabilities


2010
(In Thousands)

2009 = P703,769 1,183,560 985,292 494,453 65,569 942,279 4,374,922 942,279 = P3,432,643

Deferred credits Contingent liabilities arising from business combinations Accrued interest payable to MWSS Customers guaranty deposits LTIP payable (see Note 27) Financial guarantee obligation (see Note 21) Payables arising from rate rebasing exercise Others Less current portion

P1,450,886 = 992,428 985,292 522,585 133,009 65,413 12,544 4,162,157 P4,162,157 =

*SGVMC214233*

- 95 Deferred Credits and Payables from Rate Rebasing Exercise Maynilads second Rebasing Adjustment was supposed to have taken effect and be implemented beginning January 1, 2009 pursuant to the Concession Agreement and the Transitional and Clarificatory Agreement (TCA) dated August 9, 2007. In a letter to MWSS and the Regulatory Office dated March 20, 2009, Maynilad submitted a tariff scheme proposal pending the full implementation of the rate rebasing adjustment or R. On April 16, 2009, after a careful evaluation of such proposal, the Regulatory Office issued MWSS-RO Resolution No. 209-069, which recommended that Maynilad be authorized to implement, on a staggered basis, the R equivalent to 22.60% of the then prevailing current basic charge or =5.02 per cubic meter in addition to the inflationary increase (C) equivalent to P = P2.42 per cubic meter, which was implemented effective February 20, 2009. The said recommendations of the Regulatory Office were approved and confirmed by the MWSS BOT. After completion of the required publication pursuant to Section 12 of the MWSS Charter, such approved tariff scheme was implemented by Maynilad pursuant to and in accordance with the said resolutions. The new R took effect on May 4, 2009. In addition, the new base foreign exchange rate was changed from =51.86 to =48.045, effective May 4, 2009. As a result of the change in the P P base foreign exchange rate, deferred credits pertaining to remaining unrealized foreign exchange gains were derecognized in 2009. Under this resolution, the MWSS resolved, among others, two pending issues that had an impact on the new R that took effect on May 4, 2009. These issues pertain to the excess collection of Accelerated Extraordinary Price Adjustment (AEPA) and realized foreign exchange gains arising from the prepayment of SBLC and Tranche B Concession fees. These were treated as part of the opening cash position, thus, were taken into consideration when the new R was set. Consequently, these deferred credits will no longer be subject to the FCDA mechanism that will be reflected in future billings. In addition, to further mitigate the impact of the rate increase, the Regulatory Office further required the simultaneous implementation of the following: (1) the Prepayment Adjustment (PA), and (2) the Payment Incentive Adjustment (PIA) within an accelerated period of two (2) years, resulting in a downward adjustment of 8.15% or -P2.22 per cubic = meter and 5.73% or -P1.56, respectively, based on the 2009 average basic charge which already = includes the staggered R and the C. Payables arising from rate rebasing, which are recorded at present value, consist of PA amounting to P1.0 billion and PIA amounting to P709.7 million. = = As of December 31, 2009, these payables arising from rate rebasing amounted to =942.3 million P (shown as current liabilities in the 2009 consolidated balance sheet). As of December 31, 2010, these payables were fully applied against billings. The above MWSS resolutions resulted in a derecognition of deferred credits of about P2.1 billion = and a recognition of a provision for PIA of about P709.7 million, with a net effect of about = = P1.4 billion recognized as Other income in the 2009 consolidated statement of income (see Note 29). Contingent Liabilities Arising from Business Combination In relation to various acquisitions made, the Company recognized several contingent liabilities relating to the acquired entities and therefore portion of the cost of business combination was allocated to these contingent liabilities.

*SGVMC214233*

- 96 In 2010, these contingent liabilities includes the ongoing disputes of Maynilad with MWSS as further discussed in Note 34 and the contingent liability of EMHMC in relation to the contingent consideration as discussed in Note 4. In 2009, these contingent liabilities also include contingent liability with respect to the Cost of Living Allowance (COLA) claims for the supervisoremployees of Maynilad Water Supervisors Associations (MWSA) and the estimated net input VAT that should be paid by the Companys tollway business should VAT be implemented on a retroactive basis as further discussed in Note 34. Following the decision of the Court of Appeals on January 31, 2011 and the issuance of RMC 63-2010 on July 19, 2010 confirming the imposition of VAT on a prospective basis, these contingent liabilities were reversed in 2010. Movements of the Companys contingent liabilities for the years ended December 31, 2010 and 2009 are as follows: 2010
(In Thousands)

2009 = P1,183,560 = P1,183,560

Balance at beginning of year Additions (see Note 4) Reversals (see Note 29) Balance at end of year

P1,183,560 = 305,803 (496,935) P992,428 =

Accrued Interest Payable to MWSS In connection with Maynilads disputes with MWSS over certain charges billed by MWSS relating to (a) the basis of the computation of interest; (b) MWSS cost of borrowings; and (c) additional penalties, and as further discussed in Note 34, Maynilad has accrued interest on its payable to MWSS based on the terms of the Concession Agreement, which was disputed by Maynilad before the Rehabilitation Court. These already amounted to =985.3 million as of P December 31, 2010 and 2009 and have been charged to interest expense in prior years. Maynilad maintains that the accrued interest on its payable to MWSS has been adequately replaced by the Tranche B Concession Fees discussed in Note 34. Maynilads position is consistent with the Receivers recommendation which was upheld by the Rehabilitation Court. However, Maynilad did not reverse this accrued interest pending final resolution of MWSS disputed claims pursuant to the procedures prescribed under the TCA.
Customers Guaranty Deposits Customers guaranty deposits serve to guarantee payment of bills by customers. These deposits are non-interest bearing and normally refunded upon termination of water service connection and are initially measured at fair value. After initial recognition, these deposits are subsequently measured at amortized cost using the effective interest rate method. The discount is amortized over the remaining concession period using the effective interest rate method.

Others These represent security and occupancy rights deposits in connection with occupancy agreements on Medical Arts Building of RMCI, of which occupancy rights deposits shall be retained for ten (10) to fifty (50) years and are non interest-bearing.

*SGVMC214233*

- 97 -

21. Related Party 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, subsidiaries and fellow subsidiaries are related parties 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 parties. In considering each possible related entity relationship, attention is directed to the substance of the relationship, and not merely the legal form. The following table provides the total amount of transactions with related parties for the relevant year:
Management Fees (see Note 29) TMC 2010 2009 2008 2010 2009 2008 2010 2009 2008 2010 2009 2008 2010 2009 2008 2010 2009 2008 P56,000 = 50,603 1,800 P56,000 = 50,603 1,800 Guarantee Fees (see Note 29) P23,256 = 18,453 2,299 P23,256 = 18,453 2,299 Operators Fees (see Note 24) P1,339,567 = 1,338,522 187,632 P1,339,567 = 1,338,522 187,632 Interest Income (see Note 28) P10,899 = 12,354 1,344 P10,899 = 12,354 1,344 Utilities PNCC Fee (see Notes 24 (see Note 24) and 25) P = 348,358 291,872 38,026 P348,358 = 291,872 38,026 P = 107,200 105,000 P107,200 = 105,000 Income from Utility Rentals Facilities (see Note 24) (see Note 29) P = 6,151 6,382 4,511 P6,151 = 6,382 4,511 P = 63,422 P63,422 = Interest Expense (see Note 28) P = 371,590 13,903 P371,590 = 13,903

PNCC

Meralco

PLDT

MPHI

In the normal course of business, the Company also has other transactions with related parties which consist mainly of availment of non-interest bearing cash advances with no fixed repayment terms. TMC Transactions with TMC, an associate, follow: TMC provides services as operator to the NLE under the O&M. The O&M contains the terms and conditions for the operation and maintenance by TMC of Phase I of the NLE and subsequently, of Segment 7, and sets forth the scope of its services. TMC is assisted by Transroute Philippines, Inc. as service provider in accordance with the Technical Assistance Agreement (TAA). Under the O&M, MNTC pays TMC a minimum fixed annual amount currently set at P637.1 million for the NLE and for Segment 7, to be escalated on a quarterly = basis plus a variable component. The O&M, which also provides for certain bonuses and penalties as described in the O&M, shall be effective for the entire service concession period. On May 7, 2010, MNTC and TMC agreed to reduce, effective on February 11, 2010, the minimum fixed annual amount from =637.1 million to P605.4 million for the NLE and from P = = P40.6 million to P38.8 million for the Segment 7 in view of the expiration of the TAA on = February 10, 2010 of the Project and due to the reduction of six Point of Sales facilities being operated and maintained by TMC.

*SGVMC214233*

- 98 Moreover, on May 27, 2010, pursuant to the O&M and the TRBs approval to integrate the operations period of Phase I and Segment 8.1, portion of Phase II of the Project, and to extend the concession term, MNTC and TMC agreed to extend the O&M to cover Segment 8.1 from June 1, 2010 until December 31, 2037. Consequently, MNTC agreed to pay TMC an annual base fee for the operations and maintenance of Segment 8.1 in the amount of =33.6 million P effective on June 5, 2010. The fee for Segment 8.1 is also subject to escalation on a quarterly basis plus a variable component. Total operators fee recognized in the 2010 and 2009 consolidated statements of income amounted to =1,339.6 million and P1,338.5 million, respectively. Total operators fee P = recognized in the 2008 consolidated statement of income amounted to P187.6 million which = corresponds to operators fee from November 13, 2008, acquisition date of MPTC, up to December 31, 2008 (see Note 24). TMC also pays annual guarantee fee to MPTDC equivalent to 2.5% of the gross value of the corporate guarantee issued by MPTDC. The guarantee was issued in favor of MNTC for the liability of TMC under the O&M. Total guarantee fees recognized by MPIC in the 2010 and 2009 consolidated statements of income (included under Other income account) amounted to =23.3 million and =18.5 million, respectively. Total guarantee fee recognized by MPIC in P P the 2008 consolidated statement of income amounted to =2.3 million which corresponds to P guarantee fee from November 13, 2008, acquisition date of MPTC up to December 31, 2008 (see Note 29). MPTC recognized a receivable from TMC equivalent to the financial guarantee obligation recorded as the present value of the guaranteed portion of the liability of TMC under the O&M. Receivable on financial guarantee obligation from TMC and the financial guarantee obligation amounted toP65.4 million and =65.6 million as of December 31, 2010 and 2009, = P respectively. Interest income on receivable from TMC and interest expense on financial guarantee obligation amounted to =10.9 million in 2010 and =12.4 million in 2009. Interest P P income and interest expense for 2008 which amounted to =1.3 million corresponds to interest P from November 13, 2008, acquisition date of MPTC, up to December 31, 2008 (see Note 28). In 2008, TMC appointed MPTDC to perform management and financial services for a fixed monthly fee of =1.2 million for a period of 12 months. The management contract between P TMC and MPTDC was not subsequently renewed. In 2009, MPTC replaced MPTDC to perform management and financial services for TMC for a fee amounting to P50.6 million. In = 2010, MPTC billed TMC for =56.0 million for managerial and financial advisory services. P MPTC and TMC are in the process of formalizing the management agreement. Total management fees amounted to =56.0 million in 2010 and =50.6 million in 2009. Income for P P 2008 which amounted to =1.8 million corresponds to fees from November 13, 2008, P acquisition date of MPTC, up to December 31, 2008. These income are included in Other income account in the 2010 and 2009 consolidated statements of income (see Note 29). Due from TMC amounted to =125.8 million and =142.7 million as of December 31, 2010 and P P 2009, respectively. Due to TMC amounted toP260.4 million and P281.7 million as of = = December 31, 2010 and 2009, respectively.

*SGVMC214233*

- 99 PNCC PNNC is a non-controlling stockholder in MNTC. In consideration of the assignment by PNCC of its usufructuary rights, interests and privileges under its franchise, PNCC is entitled to receive a payment equivalent to 6.0% and 2.0% of the toll revenue from the NLE and Segment 7, respectively. Any unpaid balance carried forward will accrue interest at the rate of the latest Philippine 91-day Treasury bill rate plus 1.0% per annum. This entitlement, as affirmed in the Shareholders Agreement (SA), shall be subordinated to operating expenses and the requirements of the financing agreements and shall be paid out subject to availability of funds. In December 2006, MNTC entered into a letter agreement with PNCC to set out the detailed procedure for the payment. The PNCC franchise expired in May 2007. However, since the payment is a continuing obligation under the SA, PNCC continues to receive the same payment. Prior to the letter of TRB, MNTC had been remitting payments directly to PNCC on a semi-annual basis. On December 2, 2010, MNTC received a letter from the TRB dated November 30, 2010, citing a decision of the Supreme Court dated October 19, 2010 directing MNTC to remit forthwith to the National Treasury, through TRB, all payments representing PNCCs percentage share of the toll revenues and dividends, if any, arising out of PNCCs participation in the NLE Project. In the said decision, the Supreme Court ruled, among others, that after the expiration of the franchise of PNCC, its share/participation in the JVAs and STOAs, inclusive of its percentage share in toll fees collected by JV companies currently operating the expressways, shall accrue to the Philippine Government. On the basis of the conflicting claims of PNCC and TRB to the revenue share and dividends, on December 8, 2010, MNTC filed a motion for clarification asking the Supreme Court to clarify the entity to which MNTC should remit its payments which was then due on December 20, 2010. Pending resolution by the Supreme Court of the motion for clarification, and pursuant to a BOD resolution dated December 23, 2010, MNTC filed a petition for consignation with the Regional Trial Court (RTC) of Caloocan for the latter to hold the payments in trust and deliver to the party ultimately adjudged by the Supreme Court sto be entitled to it, unless PNCC and the TRB, in the meantime, resolve the matter between themselves, in which the case the funds should be delivered and disposed of pursuant to their agreement and settlement. On December 29, 2010, MNTC through a letter sent by its legal counsel, informed PNCC and TRB of the consignation made to the RTC of Caloocan. Moreover, in a resolution dated January 18, 2011, the Supreme Court directed MNTC to remit to the National Treasury PNCCs percentage share of toll revenues and dividends arising out of PNCCs participation in the NLE Project. As of December 31, 2010 and 2009, MNTC has unpaid dividends to PNCC amounting to = P181.7 million and P143.6 million, respectively (see Note 16). = Meralco In 2009 and until March 31, 2010, Meralco is a significant associate of the Company. In the ordinary course of business, Meralco provides electricity to MPIC and certain subsidiaries offices within its franchise area. The rates charged by Meralco are the same as those with unrelated parties. Total electricity costs amounted to P105.0 million for the period October 2, 2009 to = December 31, 2009. Total electricity costs for the period January 1 to March 30, 2010 amounted to =107.2 million. As of December 31, 2009, outstanding utilities payable to Meralco amounted P to =33.4 million, which is included under Accounts payable and other current liabilities in the P consolidated balance sheets.

*SGVMC214233*

- 100 PLDT PLDT is an associate of FPC, thus a related party. The balance represents fees payable to PLDT for various administrative assistance extended to the Company. It also includes unpaid rentals from lease of office space. Rentals and other fees accruing to PLDT amounted to P6.2 million, = = P6.4 million and =4.5 million for the period December 31, 2010, 2009 and 2008, respectively. P On March 17, 2010, MNTC and PLDT entered into an agreement with respect to the commercial aspect of the Utility Facilities Contract for the Fiber Optic Overlay along Phase I of the NLE which is currently being negotiated between MNTC and PLDT. Pending the final contract, in March 2010, PLDT already paid =52.2 million for one-time exclusivity fee and one-time access P fee and =1.3 million for annual fee for the year ended December 31, 2010. P In December 2010, MNTC also billed PLDT =9.8 million for one-time access fee and one-time P exclusivity fee and P0.1 million for the annual fee for the Fiber Optic Overlay along Phase II = Segment 8.1. Total income amounting to =63.4 million for the year ended December 31, 2010 is P recorded under Income from utility facilities account in Other income(see Note 29). As of March 3, 2011, MNTC and PLDT are in the process of finalizing the Utility Facilities Contract. DMCI DMCI is a non-controlling stockholder in DMWC, thus a related party. Maynilad entered into construction contracts with DMCI totaling =1.6 billion in 2010 and =2.2 billion in 2009. Unpaid P P construction contracts amounted to =358.0 million and =370.2 million as of December 31, 2010 P P and 2009, respectively, and are presented as part of Accounts payable and other current liabilities account (see Note 16). In January 2009, DMWC extended non-interest bearing cash advances to DMCI amounting to = P243.7 million. As of December 31, 2010, unpaid amount is P234.6 million. = Smart Communications, Inc. (Smart) Smart is a wholly owned subsidiary of PLDT, thus a related party. The balance represents various non-interest bearing advances received in prior years for the Companys operations. MPHI The following are transactions with MPHI, a majority stockholder of MPIC, in 2010 and 2009: The Company entered into a Placement and Subscription Agreements with MPHI on September 19, 2009 in order to raise capital (see Note 22). Also, refer to Note 22 for other transactions with MPHI. Issuance of Convertible Bonds. On March 22, 2010, MPIC issued to MPHI Peso denominated bonds convertible to common shares of MPIC at =3.25 per share with total face value of P = P6.6 billion due after three years from date of issuance (the redemption date). The bonds pay fixed interest of 4.5%, payable semi-annually every March 31st and September 30th of each year commencing on September 30, 2010.

*SGVMC214233*

- 101 Call Option. MPIC has the right to early redeem the bonds, in whole or in part (except in the case described in item 2 below (in which case, MPIC must wholly redeem the bonds), anytime from the date immediately following the first anniversary of the issue date at the early redemption amount if 1) the volume weighted average price of MPICs common shares for thirty (30) trading days prior to the date of the giving of the notice is at least 140.0% of the conversion price in effect on the last such trading day or 2) at least 90.0% in principal amount of the convertible bonds has already been converted, redeemed or purchased and cancelled. The early redemption amount, with respect to each convertible bond unit, on the interest payment date immediately preceding the intended early redemption date is as follows: Interest Payment Date March 30, 2011 September 30, 2011 March 30, 2012 September 30, 2012 Early Redemption Amount = P101.01 101.54 102.08 102.64

Equity Conversion Option. MPHI, on other hand, has the option to convert the bonds for MPIC common shares based on the initial conversion price of P3.25 per share. Adjustments to = initial conversion price would be made on the following instances: Consolidation, subdivision or reclassification Capitalization of profits or reserves by way of stock dividends or otherwise Capital distribution Right issues of common shares or option over common shares Modification of rights and conversion Other offers to holders of common shares

This option is exercisable after March 30, 2011 up to and including the 10th business day immediately preceding the redemption date. The embedded call option is clearly and closely related to the bonds, therefore, was not bifurcated. On the other hand, the embedded equity conversion option is an equity instrument such that the initial carrying amount of the convertible bonds was allocated to its equity and liability components, where the equity component was assigned the residual amount after deducting from the initial fair value of the bonds the amount separately determined for the liability component. To separate the liability component from the equity component, the redemption amount of the bond as well as the future interest cash flows were discounted to arrive at its present value using MART 1 rate plus spread of 2.5%. The present value of the bonds at the date of issuance amounted to P6,166.1 million and the = assigned value to the equity component is P400.9 million, presented net of related tax of = = P120.3 million under Equity component of convertible notes account in the equity section of the 2010 consolidated balance sheet (see Note 22). Related interest (including amortization of discount) for 2010 amounted to =371.6 million, of which =74.2 million is unpaid as of P P December 31, 2010 and presented as current portion of Due to related parties account in the consolidated balance sheet (see Note 28). The carrying value of the bonds amounted to = P6,314.1 million as of December 31, 2010. On March 3, 2011, the BOD approved the amendment of the convertible bonds to allow allotment and issuance of MPIC common shares out of an increase in its authorized capital stock upon conversion by MPHI. The convertible bonds requires that MPIC common shares will be available for issuance on conversion date. Thus, MPIC common shares must be allotted and issued out of unissued capital.

*SGVMC214233*

- 102 SEC requires that at least 25.0% of the intended increase in authorized capital stock must be subscribed and 25.0% of the subscription must be paid up. Subscription to the proposed increase in the authorized capital stock will be made by MPHI and will be paid through conversion of debt to equity. Others Other transactions with related parties (MPIF, HCPTI, Landco, MNHPI, FPC and others) mainly relate to advances to finance various real estate projects as well as intercompany charges for share in certain operating and administrative advances. These intercompany accounts are non-interest bearing. Also refer to Note 12 for other related parties transactions with respect to the Companys acquisition of Meralco shares and investment in Beacon Electric. Outstanding balances of receivable from/payable to related parties are carried in the consolidated balance sheets under the following accounts:
2010
(In Thousands)

2009 = P566,649 429,718

Due from related parties Due to related parties

= P504,840 6,783,636

Composition of amounts due to/from related parties follows:


2010
(In Thousands)

2009

Due from related parties: DMCI TMC Metro Pacific Investments Foundation, Inc. (MPIF) FPC HCPTI Landco MNHPI Others Less allowance for impairment Less current portion

= P234,579 125,766 106,579 4,751 33,165 504,840 504,840 439,427 = P65,413

= P247,207 142,737 32,576 1,584 105,000 97,413 4,042 4,708 635,267 68,618 566,649 501,080 = P65,569

Due to related parties: MPHI TMC Smart Landco PLDT DMCI Others Less current portion

= P6,388,391 260,422 71,786 41,061 14,687 1,526 5,763 6,783,636 469,495 = P6,314,141

= P16,667 281,734 71,786 40,899 11,204 3,494 3,934 429,718 429,718

*SGVMC214233*

- 103 Directors Remuneration Annual remuneration of the directors amounted to =3.4 million, =4.4 million and =1.2 million in P P P 2010, 2009 and 2008, respectively. Non-executive directors are entitled to a per diem allowance of =50 thousand for each attendance P in the Parent Companys BOD meetings. The Parent Companys By-Laws provide that an amount equivalent to 1.0% of net profit after tax of the Parent Company shall be allocated and distributed among the directors of the Parent Company who are not officers of the Parent Company or its subsidiaries and affiliates, in such manner as the BOD may deem proper. There are no other special arrangements pursuant to which any director will be compensated. Compensation of Key Management Personnel Compensation of key management personnel of the Company are as follows:
2010 Short-term employee benefits LTIP expense (see Note 27) ESOP expense (see Note 33) Retirement costs Other long-term benefits = P330,994 133,009 34,376 37,990 6,712 = P543,081 2009
(In Thousands)

2008 = P97,195 1,225 338 = P98,758

= P146,294 50,036 8,924 2,641 = P207,895

22. Equity Details of authorized and issued capital stock follow:


2010 No. of Shares Amount (In Thousands) Authorized common shares = P1.0 par value Authorized preferred shares: Class A - P0.01 par value = Class B - =1.0 par value P 22,688,518,336 5,000,000,000 1,500,000,000 29,188,518,336 = P22,688,518 50,000 1,500,000 = P24,238,518 2009 No. of Shares Amount (In Thousands) 22,688,518,336 5,000,000,000 1,500,000,000 29,188,518,336 = P22,688,518 50,000 1,500,000 = P24,238,518 2008 No. of Shares Amount (In Thousands) 11,950,000,000 5,000,000,000 16,950,000,000 = P11,950,000 50,000 = P12,000,000

Issued - common shares: Balance at beginning of year Exercise of stock option plan (see Note 33) Issuance on existing subscriptions from MPHI Additional subscriptions of MPHI Conversion of advances/loan from MPHI to equity Issuance on existing subscriptions from LAWL Issuance in exchange for Meralco shares (see Notes 12 and 21) Balance at end of year Issued - preferred shares Conversion of advances from MPHI to equity (see Note 21) Total number of stockholders

20,128,154,522 27,310,000 20,155,464,522

= P20,128,155 27,310 = P 20,155,465

7,027,726,813 13,945,000 2,389,040,000 4,770,000,000 672,129,584 791,110,491 4,464,202,634 20,128,154,522

= P7,027,727 13,945 2,389,040 4,770,000 672,130 791,110 4,464,203 = P20,128,155

1,342,918,793 3,791,525,175 1,893,282,845

= P1,342,919 3,791,525 1,893,283

7,027,726,813

= P7,027,727

5,000,000,000 1,380

= P50,000

5,000,000,000 1,378

= P50,000

1,386

= P

*SGVMC214233*

- 104 Authorized Capital Stock MPIC was incorporated with original authorized capital stock of 100,000 common shares having par value of =1.0 per share. On March 27, 2006, the MPICs BOD approved a resolution to P increase its authorized capital stock to 4,600,000,000 common shares with a par value of =1.0 per P share. Such increase in authorized capital stock was approved by the SEC on June 5, 2006. On October 23, 2006, MPIC purchased from MPHI, MPRI, Intalink B.V., and FPIL (all related parties of MPIC and major shareholders of MPC) 725,160,154 MPC common shares or 76.1% interest. MPIC issued 181,290,038 common shares in exchange for 725,160,154 MPC common shares. On November 28, 2006, the closing date of the Tender Offer, and as result of a Tender Offer made by MPIC, a total of 195,367,956 MPC shares were tendered equivalent to 48,841,989 MPIC common shares and 146,525,967 MPIC warrants. Out of the total warrants available for conversion, 143,976,804 warrants were converted as of December 31, 2007 and 2,549,163 warrants expired on December 15, 2007. On August 12, 2008, the SEC approved the increased in MPICs authorized capital stock to = P12.0 billion divided into 11.95 billion common shares with a par value of P1 per share and = 5.0 billion preferred shares with par value of P0.01 per share from 4.6 billion common shares = at P1.0 par value. = Further on October 9, 2008, the MPICs BOD approved the increase in the authorized capital stock of MPIC from P12.0 billion to up to =21.6 billion divided into 20.0 billion common shares = P with a par value of =1.0 per share, 5.0 billion Class A preferred shares with a par value of P = P0.01 per share and 1.5 billion Class B preferred shares with a par value of =1.0 per share. On P February 13, 2009, the SEC approved such increase in the MPICs authorized capital stock. On May 28, 2009, MPIC stockholders and BOD approved the increase of the authorized capital stock from P21.6 billion to P31.6 billion, divided into 28.5 billion common shares with the par = = value of =1.0 per share, 5 billion Class A preferred shares with a par value of P0.01 per share and P = 3.0 billion Class B Preferred Shares at P1.0 par value per share. = On December 21, 2009, the SEC approved the increase of the authorized capital stock from = P21.6 billion to P24.2 billion, divided into 22.7 billion common shares with the par value of = = P1.0 per share, 5 billion Class A preferred shares with a par value of =0.01 per share and P 1.5 billion Class B Preferred Shares at P1.0 par value per share. = As of December 31, 2010, the application to increase the Companys authorized capital stock by an additional 5.8 billion common shares with par value of =1.0 per share and 1.5 billion Class B P Preferred Shares at =1.0 par value per share is yet to be filed with and approved by the SEC. P Issued Common Shares The following issuances of shares to MPHI were approved by the MPICs BOD on June 30, 2008: 3,791,525,175 common shares at a price of P2 per share; and = Conversion of =2.0 billion MPHI convertible loans to 1,893,282,845 common shares. P

*SGVMC214233*

- 105 Issuances to MPHI during 2009 are as follows: On February 13, MPHIs deposit for future stock subscriptions amounting to =4.8 billion have P been applied for payment of its subscription to 2,389,040,000 common shares from the increase in authorized capital stock as approved by SEC. On September 19, the Company undertook a re-launch of its shares and as a result, a total of 4,770,000,000 common shares were issued to MPHI. Information on the Re-launch of MPIC shares are provided below. On December 21, advances by MPHI to MPIC amounting to =2,016.4 million were also P converted into 672,129,584 common shares at P3.0 per share. Detailed information related to = the conversion are provided below.

Other issuances of the Company during 2009 are as follows: On July 9, the subscription of LAWL of 791,110,491 common shares of the Company for = P2,029.2 million was likewise issued. On December 19, 2008, a Memorandum of Agreement (MOA) was executed among MPIC, MPHI and LAWL, where LAWL agreed to subscribe to 791,110,491 new common shares of MPIC at approximately =2.56 per share or P = P2,029.2 million (subscription price) through execution of a Subscription Agreement and MPIC agreed to purchase and acquire from LAWL 236,000 Class B Maynilad shares at = P8,598.36 per share or P2,029.2 million (purchase price) thru execution of a Deed of Sale. = The above transaction resulted in MPICs acquisition of the 5.8% interest held by LAWL in Maynilad in exchange for a 7.7% interest in MPIC. On October 2, a total of 4,464,202,634 common shares were issued to BTF and Crogan/MPHI. The proceeds of which were used in the purchase of certain Meralco shares held by BTF and Crogan (see Notes 12 and 21).

Executive Stock Option Plan At various dates in 2010 and 2009, a total of 27.3 million and 13.9 million common shares, respectively, were issued in connection with the Parent Company stock option plan (see Note 33). Issued Class A Preferred Shares On July 29, 2009, the Company issued to MPHI 5.0 billion Class A Preferred Shares with a par value of =0.01 per share. The holders of the Class A Preferred Shares (the Class A Preferred P Shareholders) shall be entitled to vote and receive a preferential cash dividends at the rate of ten percent (10.0%) per annum, to be calculated based on the par value of the Class A Preferred Shares, upon declaration made at the sole option of the BOD. Dividends on the Class A Preferred Shares shall be paid out of the Companys unrestricted retained earnings. Such dividends shall be cumulative from and after the issue date of the Class A Preferred Shares, whether or not in any period the amount thereof is covered by available unrestricted retained earnings.

*SGVMC214233*

- 106 No dividends shall be paid or declared and set apart for payment, or other distribution made in respect of the common shares, unless the full accumulated dividends on all Class A Preferred Shares for all past dividend periods and for the then current dividend period shall have been paid or declared and set apart for payment by the Company. Class A Preferred Shareholders shall not be entitled to any participation or share in the retained earnings remaining after dividend payments shall have been made on the Class A Preferred Shares in accordance with the foregoing paragraphs. As of December 31, 2010 and 2009, unrecognized cumulative dividends on Class A Preferred Shares amounted to P1.9 million and =2.5 million, respectively. = P Class B Preferred Shares Class B Preferred Shares may be issued from time to time in one or more series as the BOD may determine. The BOD shall establish and designate each particular series of Class B Preferred Shares, to fix the number of shares to be included in each of such series, and to determine the cash dividend rate, which in no case to exceed 10.0% per annum, the amount and the price, and the rate, period and manner of conversion and redemption, of the Class B Preferred Shares for each of such series. To the extent not set forth in the Article Seventh of the Companys Articles of Incorporation, the specific terms and restrictions of each series of the Class B Preferred Shares shall be specified in the Enabling Resolutions as may be adopted by the BOD. Dividends shall be cumulative from and after the date of issue of the Class B Preferred Shares, whether or not in any period the amount thereof is covered by available unrestricted retained earnings. No dividends shall be declared or paid on the common shares or Class A Preferred A Shares unless the full accumulated dividends on all Class B Preferred Shares for all past dividend periods and for the then current dividend period shall have been declared and paid by the Company. The holders of Class B Preferred Shares shall not be entitled to any participation or share in the retained earnings remaining after dividend payments shall have been made on the Class B Preferred Shares. Holders of Class B Preferred Shares may be convertible to common shares of the Company at such rate, in such manner and within such period as may be fixed in the Enabling Resolutions for such series. Class B Preferred Shares shall be redeemable in such manner and within such period as may be fixed in the Enabling Resolutions for such series. Any and all Class B Preferred Shares redeemed, whether pursuant to a share conversion or otherwise, shall not be considered retired and may be re-issued by the Company. In the event of liquidation, dissolution, bankruptcy or winding up of the affairs of the Company, the holders of Class B Preferred Shares shall be entitled to be paid in full or ratably to the extent that the remaining assets of the Company will permit, an amount equivalent to the issue price of such Class B Preferred Shares plus all accumulated and unpaid dividends up to the then current dividend period, before any assets of the Company shall be paid or distributed to the holders of the common shares or Class A Preferred Shares. Deposit for Future Stock Subscriptions This represents subscriptions from exercise of ESOP of which the corresponding shares were not issued as of December 31, 2010. Those shares were issued in January 2011.

*SGVMC214233*

- 107 Equity Restructuring On July 14, 2010, the SEC approved the equity restructuring of MPIC to wipe out deficit amounting to =403.6 million as of December 31, 2009 subject to the condition that the remaining P additional paid-in capital amounting to =27,456.4 million shall not be used to wipe out future P losses without prior approval of the SEC. Also, on December 17, 2009, the SEC approved the equity restructuring of MPIC to wipe out the deficit amounting to =1,620.9 million as of December 31, 2008 subject to the condition that the P remaining additional paid-in capital amounting to P4,132.9 million shall not be used to wipe out = future losses without prior approval of the SEC. Cash Dividends On August 4, 2010, the BOD also approved the declaration of a cash dividend of =0.01 per share P to common shareholders on record as of August 19, 2010 which was paid on September 16, 2010. Total dividend declared and paid to common shareholders amounted to =201.3 million and the P dividend declaration was made on the basis of the Companys retained earnings as of the end of July 2010. As required by Articles of Incorporation of the Company, on the same date, the BOD also declared a cash dividend in the aggregate amount of P5.7 million to the outstanding Class A = Preferred Shares of the Company. The dividend was paid on September 16, 2010. Other Reserves This account consists of:
2010 Effect of MPIC acquisition of MPC shares(i) Day 1 loss on convertible notes(ii) Equity component of a financial instrument net of tax (see Note 21) Loss on sale of non-controlling interest (see Notes 4 and 23) Other reserve from ESOP (see Note 33) Loss on acquisition of non-controlling interest (see Note 4) = P690,386 (286,122) 280,612 (122,109) 66,467 (513) = P628,721 2009
(In Thousands)

2008 = P690,386 (286,122) = P404,264

= P690,386 (286,122) 46,827 = P451,091

i. This relates to the difference between the par value of MPC shares in exchanged for MPIC

shares in relation to the Companys acquisition of MPC shares through an MPIC share swap in 2006.
ii. Day 1 loss relates to the convertible note issued to MPHI in 2007 which were converted to

equity in 2008. Transactions Related to Issuances of Shares Conversion of Advances to Equity. Further to the resolutions of the BOD and stockholders passed on May 28, 2009 authorizing the increase in the capital stock of MPIC, the BOD of MPIC resolved to implement the capitalization and/or conversion by MPHI of its advances to MPIC in the amount of =2,016.4 million. On December 21, 2009, MPIC issued 672,129,584 common P shares in favor of MPHI at a subscription price of P3.0 per share. Also on July 1, 2009, MPIC = issued 5,000,000,000 shares of Class A Preferred Shares with par value of =0.01 per share to P

*SGVMC214233*

- 108 MPHI as payment of MPICs =50.0 million advances from MPHI. Holder of Class A Preferred P Shares shall be entitled to vote and receive preferential cash dividends at the rate of ten percent (10%) per annum, to be calculated based on the par value of the Class A Preferred Shares, upon declaration made at the sole option of the BOD. Re-launch of MPIC Shares. On September 19, 2009, MPIC undertook a Re-launch of its shares. A Re-Launch is a public offering or an old-for-new share placement that would result in an offering to public shareholders of a minimum of 15.0% of MPICs fully diluted equity or US$100.0 million worth of shares (valued at the Re-launch Issue Price), whichever is lower, in the PSE. The Re-launch Price is =3.0 per share. P Placement and Subscription Agreement. In connection with the Re-launch of MPIC shares, MPIC entered into a Placement Agreement and Subscription Agreement, both dated September 19, 2009, with MPHI in order to raise capital. As stated in the Placement Agreement, MPHI shall offer its 4.15 billion MPIC Common Shares (the Firm Shares) with a par value of =1.0 per share at P = P3.0 per share offer price to purchasers procured by CLSA Singapore Pte. Ltd. and UBS AG, the Lead Managers. In addition and by virtue of the Over-Allotment Option, the Lead Managers may require MPHI to sell an additional 620.0 million MPIC common shares (the Option Shares). The 4.15 billion and the 620.0 million MPIC common shares (aggregate total of 4.77 billion MPIC common shares) are referred to in the Placement Agreement as the Offer Shares. MPHI, pursuant to a Greenshoe Agreement dated September 19, 2009 (the Greenshoe Agreement), unconditionally and irrevocably granted the Lead Managers the Over-allotment Option to require MPHI to sell up to the number of Option Shares to the Lead Managers at the Offering Price (P3.0/share) to purchasers procured by the Lead Managers. = With the proceeds of the Offer and pursuant to the Subscription Agreement, MPHI conditionally agreed to subscribe for, and MPIC conditionally agreed to issue and sell, (i) new common shares in an amount equal to the aggregate number of Firm Shares sold by MPHI in the Offer and (ii) an additional number of new common shares in an amount agreed between MPIC and MPHI, each at a price equivalent to the Offering Price of =3.0 per share. P The Subscription Agreement provided that MPIC will not directly receive any proceeds from the Offer, but MPHI agreed to subscribe for, and MPIC agreed to issue, new common shares in an amount equal to the aggregate number of Firm Shares sold by MPHI in the Offer (the Subscription Shares) at a price equivalent to the Offering Price. Neither will MPIC receive any proceeds in the event that the Over-allotment Option is exercised. In the event, however, that the gross proceeds realized by MPIC from its issuance of the Subscription Shares is less than the Peso equivalent, as of the date of the Subscription Agreement, of US$300.0 million, MPHI has agreed to likewise subscribe for, and MPIC has agreed to issue, additional new common shares at the same Offering Price per Share (P3.0), the number of which shall be up to but shall not exceed the = aggregate number of Option Shares actually sold by MPHI as a result of the exercise by CLSA of its Over-allotment Option and the gross proceeds of which, when aggregated with the gross proceeds realized by MPIC from the Subscription Shares, shall not exceed the Peso equivalent, as of the date of the Agreement, of US$300.0 million (the Additional Subscription Shares). MPHI was able to sell through the Lead Managers the total Offer Shares of 4.77 billion MPIC common shares (4.15 billion Firm Shares and 620.0 million Option Shares). Likewise, failure to meet the condition as provided in the Subscription Agreement and as discussed above, MPHI subscribed for and MPIC issued to MPHI the same number of new MPIC common shares. The proceeds of P14,310.0 million, net of transaction costs of =561.2 million which were capitalized, = P add up to the capital of the Company. MPHI ownership interest in MPIC was reduced to 56.6% from 97.26% partly as a result of consummation of the aforementioned agreements.

*SGVMC214233*

- 109 Issuances in Relation to the Acquisition of Meralco Shares. In relation to the acquisition of the investment in Meralco, MPIC entered into separate subscription agreements with each of BTF and MPHI wherein they subscribed to 3,159,162,337 and 1,305,040,296 common shares of MPIC, respectively. Proceeds of said subscriptions were used to partially fund MPIC's acquisition of a certain number Meralco common shares held by BTF/New Gallant and Crogan. The agreed subscription price was =3.0 per share but the subscription was recorded at =3.2 per share or for a P P total subscription price of =14,285.4 million which represents the fair value of MPIC shares on P October 2, 2009, the acquisition date of the investment in Meralco (see Note 12).

23. Non-controlling Interest Movements in this account follow:


2010
(In Thousands)

2009 = P7,854,107 6,768 2,070,211 (472,620) (448,300) = P9,010,166

Balance at beginning of year Share in other comprehensive income (see Note 30) Share in net income Dividends paid to non-controlling stockholders Loss on disposal of a non-controlling interest (see Note 4) Non-controlling interest arising from business combinations (see Note 4) Disposal of a subsidiary (see Note 6) Balance at end of year

P9,010,166 = 9,832 2,439,523 (810,578) 210,198 201,888 P11,061,029 =

As of December 31, 2010 and 2009, the Company has unpaid dividends to non-controlling shareholders amounting to P208.4 million and P170.5 million, respectively, included under = = Accounts payable and other current liabilities account in the consolidated balance sheets (see Note 16). Other transactions relating to non-controlling interest include transfer of designated ESOP shares of Maynilad held by DMWC to intended recipients and acquisition of non-controlling interest in MSIHI. These resulted in equity transfer from equity attributable to owners of the Parent Company to non-controlling interest amounting to =210.2 million (see Note 4). P

24. Costs of Services This account consists of:


2010 Amortization of service concession assets (see Note 13) Operators fees (see Note 21) Personnel costs (see Notes 26 and 27) Utilities (see Note 21) Repairs and maintenance (Forward) 2009
(In Thousands)

2008

= P2,275,835 1,339,567 786,348 519,831 484,594

= P3,105,386 1,338,522 848,236 379,931 409,061

= P1,286,456 187,632 392,620 86,616 104,596

*SGVMC214233*

- 110 2010 Contracted services PNCC fees (see Note 21) Cost of medical services and supplies (see Note 9 ) Materials and supplies (see Note 9) Rentals (see Note 21) Provision for heavy maintenance (see Note 17) Insurance Toll collection and medical services Others P383,610 = 348,358 215,438 206,413 103,810 54,912 43,512 21,331 62,264 = P6,845,823 2009
(In Thousands)

2008 = P37,909 38,026


104,325 13,777

= P226,863 291,872
229,241 22,859

204,538 42,172 20,906 1,078 = P7,120,665

25,451 5,297 2,826 85,484 = P2,371,015

Cost of services relates to MNTC, Maynilad, RMCI and EMHMC operations.

25. General and Administrative Expenses This account consists of:


2010 Personnel costs (see Notes 26 and 27) Provision for input vat Outside services Depreciation and amortization (see Note 14) Professional fees Administrative supplies Taxes and licenses Commissions Transportation and travel Utilities (see Note 21) Provision for corporate initiatives Public relation Entertainment, amusement and representation Advertising and promotion Rentals (see Note 21) Insurance Repairs and maintenance Provision for doubtful accounts (see Note 8) Maintenance and operating expenses of MWSS Business development costs Association dues Miscellaneous = P1,276,110 334,070 284,669 259,182 178,106 175,341 158,162 109,933 106,932 86,101 78,458 73,454 68,727 68,615 67,593 56,890 54,134 39,307 13,025 8,267 1,101 146,550 = P3,644,727 2009
(In Thousands)

2008 = P384,151 146,572 30,323 157,531 1,202 149,359 45,173 78,379 114,557 40,310 14,420 22,911 25,175 69,348 115,145 82 121 47,958 = P1,442,717

= P673,031 308,809 257,637 185,130 201,780 26,375 181,728 102,727 69,779 49,156 98,180 15,962 95,097 65,647 61,583 65,180 36,830 226,266 98,038 5,537 634 124,578 = P2,949,684

*SGVMC214233*

- 111 -

26. Personnel Costs This account consists of:


2010 Salaries and wages LTIP expense Retirement costs (see Note 27) Provision for ESOP (see Note 33) Other employee benefits = P1,432,674 133,009 53,223 34,375 409,177 = P2,062,458 2009
(In Thousands)

2008 = P580,621 59,603 136,547 = P776,771

= P1,039,860 112,645 50,036 318,726 = P1,521,267

27. Employee Benefits Long-Term Incentive Plan (LTIP) On December 16, 2010, MPICs BOD approved, in principle, the broad outline of MPICs strategic plans for 2010 to 2012 focusing on the development of new revenue streams to drive future growth while protecting the existing core business. To ensure the proper execution of the three-year plan, particularly with respect to the manpower resources being committed to such plans, the 2010 to 2012 LTIP, upon endorsement of the Compensation Committee, was approved by the BOD to cover the period from January 1, 2010 to December 31, 2012, or the 2010 to 2012 Performance Cycle. The payment under the 2010 to 2012 LTIP is intended to be made at the end of the 2010 to 2012 Performance Cycle (without interim payments) and contingent upon the achievement of an approved target core income of the Company by the end of the 2010 to 2012 Performance Cycle. Total amount of LTIP under this plan is fixed upon achievement of the target Core Income and is not affected by changes in future salaries of the employees covered. The liability of the 2010 to 2012 LTIP were determined using the projected unit credit method. The long term employee benefit liability comprises the present value of the defined benefit obligation (using discount rate based on government bonds) at the end of the reporting period. The total cost of the LTIP recognized as expense which was presented as part of Personnel costs amounted to P133.0 million. As of December 31, 2010, the accrued LTIP is as follows: = Amount
(In Thousands)

Balance at beginning of year Current service cost Interest Actuarial loss Balance at end of year

= P 126,671 2,777 3,561 = P133,009

*SGVMC214233*

- 112 Pension Defined Contribution Retirement Plan. Retirement benefits of the Parent Companys employees are provided through a defined contribution scheme as approved by the BOD on August 4, 2010. The Parent Company operates a Retirement Plan (the Plan) which is a contributory plan wherein the Parent Company undertakes to contribute a predetermined amount to the individual account of each employee and the employee gets whatever is standing to his credit, upon separation, from the bank. The Plan is managed and administered by a Retirement Committee and a trustee bank had been appointed to hold and invest the assets of the retirement fund in accordance with the provisions of the Plan. MPIC contributions to the Plan are made based on the employees monthly basic salary which is at 10.0%. Additionally, an employee has an option to make a personal contribution to the fund, at an amount not exceeding 40.0% of his monthly salary. The employer then provides an additional contribution to the fund which aims to match the employees contribution but only up to a maximum of 5.0% of the employeess monthly salary. Although the plan has a defined contribution format, MPIC regularly monitors compliance with R.A. 7641, otherwise known as The Retirement Pay Law. As of December 31, 2010, MPIC was in compliance with the requirements of R.A. 7641. The Plans investment portfolio seeks to achieve regular income and long-term capital growth and consistent performance over its own portfolio benchmark. In order to attain this objective, the trustees mandate is to invest in a diversified portfolio of bonds and equities, both domestic and international. There are three portfolios which an employee can chose from (i) 100.0% fixed income securities; (ii) 80.0% for debt and fixed income securities while 20.0% is allotted to equity securities; (iii) 60.0% for debt and fixed income securities while 40.0% is allotted to equity securities. The allocation of the fair value of the beneficial trust funds assets for MPIC pension plan as of December 31, 2010 is as follows:
Aggressive Investments in: Government securities Unit trust funds Bonds Cash in banks Receivables and others 6.2% 23.6% 8.4% 61.7% 0.1% 100.0% Moderate 7.8% 13.4% 5.9% 72.8% 0.1% 100.0% Conservative 39.9% 0.6% 59.2% 0.3% 100.0%

The Company record expenses for their contribution to the defined contribution plans when the employee renders service to the Parent Company, essentially coinciding with their cash contributions to the Plan. During the year, the Company recorded retirement expense under this scheme amounting to P28.5 million, included included in Personnel costs under Cost of = services and General and administrative expenses account in the consolidated statement of income. The Company also initially set up a fund to a trustee bank in the amount of = P31.4 million. Unfunded accrued retirement liability under this scheme as of December 31, 2010 amounted to =6.2 million. P MPIC currently expects to make approximately =22.0 million of cash contributions to their P pension plan in 2011.

*SGVMC214233*

- 113 Defined Benefit Retirement Plan. DMWC, MPTC and RMCI have funded noncontributory retirement benefit plan covering all their eligible regular employees. Actuarial valuation study are being performed on annual basis to determine the retirement obligations of these companies. The following tables summarize the components of the retirement costs under the defined benefit plan included in Personnel costs under Cost of services and General and administrative expenses account in the consolidated statements of income and Pension assets under Other noncurrent assets account and Accrued retirement cost account in the consolidated balance sheets.
2010 Current service cost Interest cost Expected return on plan assets Curtailment gain Retirement costs for the year Actual return on plan assets P46,349 = 55,253 (43,804) (33,083) P24,715 = P960 = 2009
(In Thousands)

2008 = P35,899 30,267 (6,563) = P59,603 = P1,400

= P57,100 66,700 (11,155) = P112,645 = P75,592

Movements in the present value of defined benefit obligation (PVDBO) are as follows:
2010 Balance at beginning of year Interest cost Current service cost Actuarial loss (gain) Curtailment gain Benefits paid PVDBO from acquired subsidiaries Less discontinued operation Balance at end of year P537,821 = 55,253 60,010 340,101 (43,074) (47,991)* 92,138 994,258 P994,258 = 2009
(In Thousands)

2008 = P53,724 30,267 35,899 (95,336) (5,331) 551,122 570,345 52,315 = P518,030

= P518,030 66,700 57,100 (88,434) (15,575)* 537,821 = P537,821

*In 2010, benefits paid exclude payments for involuntary separation amounting to =20.3 million. In 2009, includes P benefits paid out of Maynilads operating fund amounting to =4.7 million. P

Movements in the fair value of plan assets (FVPA) are as follows:


2010 Balance at beginning of year FVPA from acquired subsidiaries Return on plan assets Contributions during the year Benefits paid Actuarial loss Less discontinued operation Balance at end of year = P544,056 115,820 43,804 46,123 (33,315) 75,637 792,125 = P792,125 2009
(In Thousands)

2008 = P2,118 315,474 (36,737) 140 280,995 2,118 = P278,877

= P278,877 70,055 200,411 (10,871) 5,584 544,056 = P544,056

*SGVMC214233*

- 114 DMWC, MPTC and RMCI expect to contribute P36.0 million, =26.2 million and =6.8 million to = P P their respective plan assets in 2010. The reconciliation of the PVDBO to the accrued retirement cost (pension assets) recognized in the consolidated balance sheets follows:
2010 PVDBO FVPA Unfunded (excess) PVDBO Actuarial (loss) gain* Payments Accrued retirement cost (pension assets) = P994,258 (792,125) 202,133 (152,704) 49,429 2009
(In Thousands)

2008 = P518,030 (278,877) 239,153 19,898 (5,331) 253,720

= P537,821 (544,056) (6,235) (11,860) (18,095)

*Included under Other income and Other expense accounts in the consolidated statements of income (see Note 29).

Actuarial gains and losses are recognized in full in the year the gains or losses occurred. Net actuarial losses amounted to =152.7 million in 2010 and P11.9 million in 2009 and net actuarial P = gain of P19.9 million in 2008. = The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:
RMCI Investments in: Government securities Unit trust funds Equity securities Perpetual preferred shares Cash in banks Receivables and others 57.0% 43.0% 100.0% 2010 DMWC 64.2% 13.0% 20.1% 1.7% 1.0% 100.0% 2009 DMWC Investments in: Government securities Unit trust funds Equity securities Perpetual preferred shares Cash in banks Receivables and others 55.8% 18.2% 15.2% 9.8% 1.0% 100.0% MPTC 39.8% 16.9% 20.1% 23.2% 100.0% MPTC 71.4% 13.3% 7.1% 8.2% 100.0%

*SGVMC214233*

- 115 The principal assumptions used to determine pension benefit obligations as of December 31, 2010, 2009 and 2008 are as follows:
Discount rates Rates of increase in compensation Expected rate of return on plan assets 2010 7.9%8.6% 2.0%10.0% 3.5%15.0% 2009 9.6%10.7% 7.0%10.0% 5.0%7.8% 2008 8.3%37.6% 4.0%8.0% 10.0%

The overall expected rates of return on assets were determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled. The unfunded status and experience adjustments for the current period and for preceding periods follow:
PVDBO FVPA Experience adjustments on retirement obligation Experience adjustments on plan assets - gain 2010 P994,258 = (792,125) P202,133 = P76,619 = P2,606 = 2009 = P537,821 (544,056) (P6,235) = = P54,297 = P5,584 2008 = P518,030 (278,877) = P239,153 = P11,001 = P 2007 = P53,724 (2,118) = P51,606 = P = P

28. Interest Income and Interest Expense The following are the sources of the Companys interest income:
2010 Cash and cash equivalents and short-term deposits (see Note 7) Notes receivable (see Note 8) Accretion on noncurrent financial assets Investments in bonds (see Note 10) Receivable on financial guarantee (see Note 21) Accretion on miscellaneous deposits Others 2009
(In Thousands)

2008

P238,242 = 200,857 97,379 24,916 10,899 2,089 P574,382 =

= P248,429 117,963 99,489 13,004 12,354 7,982 = P499,221

= P89,373 1,149 1,344 4,888 182,079 = P278,833

*SGVMC214233*

- 116 The following are the sources of the Companys interest expense:
2010 Long-term debt (see Note 19) Accretion on service concession fees payable Due to related parties (see Note 21) Amortization of debt issue costs (see Note 19) Discount on due to related parties (see Note 21) Accretion on financial liability (see Note 19) Financial guarantee obligation (see Note 21) Lenders fees and bank charges Notes payable (see Note 19) Provision for heavy maintenance (see Note 17) Others = P3,194,244 688,475 223,575 201,092 148,015 59,990 10,899 9,391 7,903 = P4,543,584 2009
(In Thousands)

2008 = P878,712 240,843 13,903 14,030 12,598 1,344 = P1,161,430

= P3,261,773 529,447 24,637 103,897 12,354 14,330 49,351 16,469 = P4,012,258

29. Other Income and Other Expense Other income consists of:
2010 Reversal of contingent liabilities (see Note 20) Reversal of provision for ESOP (see Note 16) Reversal of accruals(a) Gain on sale of investments (see Notes 6 and 12) Management fees (see Note 21) Income from utility facilities (see Note 21) Gain on remeasurement from step up acquisition (see Note 4) Income from toll service facilities Guarantee fees (see Note 21) Rental income Gain on sale of property and equipment FCDA (see Note 20) Other income from rate rebasing resolutions - net (see Note 20) Reversal of provision for decline in value of assets(b) Gain on dilution of non-controlling interest(c) Gain on debt settlement - net(d) Actuarial gain (see Note 27) Others 2009
(In Thousands)

2008

= P496,935 259,336 204,888 147,073 73,612 63,748 54,400 23,840 23,256 3,606 1,920 81,666 = P1,434,280

= P 68,551 10,120 18,453 2,896 13 1,243,286 1,404,059 57,086 24,959 = P2,829,423

= P 51,333 19,389 2,299 3,332 409 313,986 262,461 757,591 173,025 19,898 55,554 = P1,659,277

*SGVMC214233*

- 117 Other expense consists of:


2010 FCDA (see Note 20) Other provisions(e) Mark-to-market loss on derivatives (see Note 38) Actuarial loss (see Note 27) Day 1 loss (see Note 8) Provision for ESOP (see Note 16) Provision for decline in value of assets (f) Write-off of deposits from restoration works and materials on site Loss on extinguishment of loans (see Note 19) Commission expense Others = P1,271,411 366,947 292,997 152,704 20,100 409,334 = P2,513,493 2009
(In Thousands)

2008 = P 35,830 12,832 183,440 367,251 100,491 89,542 = P789,386

= P 341,873 19,219 11,860 75,896 68,618 37,908 9,896 11,435 = P576,705

a. Represents reversal of excess accruals for certain obligations and payables, recognized in prior years, over actual settlements during the year. b. Reversal of previous impairment provisions on investment in AFS financial assets (BLC shares) in 2009 and certain claims from Nenaco in 2008 which was based on the expected recoverable value or recovered amount. c. Represents gain on dilution of non-controlling interest due to DMWCs subscription of additional 10.15% ownership interest in Maynilad pursuant to the Subscription Agreement between DMWC and Maynilad entered into in 2008. Non-controlling interest in Maynilad was diluted from 16.03% to 5.88% which resulted in a gain of P757.6 million representing the = difference of the subscription price and net assets of Maynilad attributable to non-controlling interest acquired. d. Represents gain on settlement of unsecured notes payable through cash and various asset-fordebt exchanges in 2008. e. Represents provision for estimated claims and tax liabilities. f. Provision for decline in value was provided for the following assets to recognize these at recoverable amounts:
2009
(In Thousands)

2008 = P 188,093 120,153 55,760 3,245 = P367,251

Due from related parties (see Note 21) Investments in associates (see Note 12) Property and equipment (see Note 14) AFS financial assets (see Note 10) Investment properties

= P68,618 = P68,618

*SGVMC214233*

- 118 As discussed in Note 6, an impairment loss of P431.2 million was provided to recognize the = assets of disposal group at their realizable values. The impairment loss was allocated on the following accounts based on their carrying values as of December 31, 2008: 2008
(In Thousands)

Provision for decline in value of assets Provision for impairment of receivables (see Note 25)

= P367,251 63,940 = P431,191

30. Other Comprehensive Income Reserve


Income tax Cash flow related to cash hedge flow hedge Balance at January 1, 2010 Net movement in cash flow hedge Change in fair value of AFS Balance at December 31, 2010 Balance at January 1, 2009 Net movement in cash flow hedge Balance at December 31, 2009 Balance at January 1, 2008 Net movement in cash flow hedge Increase in revaluation increment Change in fair value of AFS Balance at December 31, 2008 (P22,676) = 19,199 (P3,477) = (P52,069) = 29,393 (P22,676) = = P (52,069) (P52,069) = = P6,803 (5,760) = P1,043 = P15,621 (8,818) = P6,803 = P 15,621 = P15,621 Revaluation increment (P141,561) = (P141,561) = (P141,561) = (P141,561) = = P (141,561) (P141,561) = Income tax Income tax related to related to AFS revaluation AFS financial financial increment assets asset (In Thousands) = P42,468 = P42,468 = P42,468 = P42,468 = P 42,468 = P42,468 = P 23,493 P = 23,493 = P = P (P14,060) = 14,060 = P = P (7,048) (P7,048) = = P = P = P = P Attributable to Parent Company Non-controlling owners Interest (P109,743) = 9,017 11,035 (P89,691) = (P123,550) = 13,807 (P109,743) = (P14,060) = (24,457) (99,093) 14,060 (P123,550) = (P5,223) = 4,422 5,410 P = 4,609 (P11,991) = 6,768 (P5,223) = = P (11,991) (P11,991) =

Total (P114,966) = 13,439 16,445 (P85,082) = (P135,541) = 20,575 (P114,966) = (P14,060) = (36,448) (99,093) 14,060 (P135,541) =

Cash Flow Hedge Reserve. This relates to the effective portion of the cash flow hedge. Revaluation Increment Reserve. The revaluation increment represents the increase in the value of net asset of DMWC relative to MPICs previously held interest when MPIC obtained control of DMWC in 2008, through potential voting rights and without increase in ownership interest at acquisition date. AFS Financial Assets Reserve . This relates to fair value changes on AFS financial assets (see Note 10).

*SGVMC214233*

- 119 -

31. Income Tax a. The components of the Companys deferred tax assets and deferred tax liabilities are as follows: Deferred Tax Assets
2010
(In Thousands)

2009 = P27,907 54,168 2,810 111,912 13,769 4,426 = P214,992

Excess of fair values over book values Accrued retirement cost and other accrued expenses Unamortized past service cost Provision for heavy maintenance Unamortized pre-operating expenses Cumulative translation adjustments

P183,614 = 86,603 5,071 P275,288 =

Deferred Tax Liabilities


2010
(In Thousands)

2009 = P2,247,328 318,309 68,954 24,046 9,573 4,482 = P2,672,692

Excess of fair values over book values Difference in depreciation method Unrealized foreign exchange gain - net Debt issue cost on convertible bonds Unamortized forex losses capitalized as service concession assets Improvement of facilities Fair value changes of derivative instruments Others

P2,278,761 = 406,391 99,258 93,123 24,045 10,729 5,760 19,551 P2,937,618 =

b. The Company has the following temporary differences for which no deferred tax assets have been recognized since management believes that it is not probable that these will be realized in the near future.
2010
(In Thousands)

2009 = P4,325,201 3,727,068 525,358 127,003 127,475 10,231 6,363 = P8,848,699

NOLCO Allowance for doubtful accounts Provisions and other accruals Allowance for decline in value of land and land development costs Accrued retirement cost and others Unrealized foreign exchange gain Unamortized pre-operating expenses Day 1 loss MCIT

P4,229,849 = 1,411,675 732,804 127,003 36,189 29,823 20,100 2,273 P6,589,716 =

*SGVMC214233*

- 120 c. As of December 31, 2010 and 2009, NOLCO of the Parent Company and various subsidiaries amounting to =4,452.3 million and P4,325.2 million, respectively, can be carried forward and P = claimed as deduction from regular taxable income as follows:
Year Incurred 2010 2009 2008 2007 Amount = P1,506,940 1,296,559 2,791,313 237,329 = P5,832,141 Applied Expired Balance Expiry Year 2013 2012 2011 2010
(In Thousands)

= P = P P1,506,940 = 1,296,559 (1,142,512) 1,648,801 (237,329) = P (P1,379,841) P4,452,300 = =

d. The carryforward benefits of MCIT amounting to =10.9 million and =6.4 million as of P P December 31, 2010 and 2009, respectively, can be claimed as tax credits against future income taxes payable as follows:
Year Incurred 2010 2009 2008 Amount = P4,856 5,423 940 = P11,219 Applied = P = P Expired = P (350) (P350) = Balance = P4,856 5,423 590 = P10,869 Expiry Year 2013 2012 2011
(In Thousands)

MCIT of discontinued operations as of December 31, 2008 amounting to =18.9 million is P excluded from the above table. e. The current provision for income tax in 2010, 2009 and 2008 comprises of the following:
2010 RCIT MCIT Final tax = P51,941 4,856 46,106 = P102,903 2009
(In Thousands)

2008 = P4,197 1,124 2,099 = P7,420

= P11,229 678 23,652 = P35,559

The reconciliation of provision for income tax computed at the statutory income tax rate to provision for income tax as shown in the consolidated statements of income is summarized as follows:
2010 Income from continuing operations before income tax Income tax at statutory tax rate of 30.0% in 2010 and 2009 and 35.0% in 2008 Net income under ITH Write-off of deferred tax asset Nondeductible (nontaxable) expenses (gain) - net (Forward) 2009
(In Thousands)

2008

= P5,412,829

= P4,331,888

= P925,566

= P1,623,849 (2,079,056) 368,510 (136,680)

= P1,299,566 (1,448,317) 228,870

= P323,948 (304,455) 126,016

*SGVMC214233*

- 121 2010 Share in net earnings of associates and joint ventures Changes in unrecognized deferred tax assets and others Various income subjected to lower final tax rates - net Final tax on interest income Application of NOLCO against RCIT Expiration of MCIT Fair value adjustment on certain financial instruments Effect of change in tax rates Others 2009
(In Thousands)

2008

(P149,554) = 490,597 (57,643) 46,106 (3,975) = P102,154

(P129,671) = 67,550 (35,224) 23,652 (76,296) (P69,870) =

(P50,262) = (100,980) (23,349) 2,099 7,673 (35,180) (8,588) (P63,078) =

On May 24, 2005, the Congress of the Philippines issued Republic Act 9337 (RA 9337) effective November 1, 2005. Pursuant to RA 9337, RCIT rate for domestic corporations and resident and non-resident foreign corporations increased to 35.0% from 32.0% beginning November 1, 2005 and the rate reduced to 30.0% beginning January 1, 2009. Registration with the Board of Investments (BOI) Maynilad and MNTC are both registered with the BOI as a new operator of water supply and sewerage system for the West Service Area on a pioneer status for Maynilad and as a preferred pioneer enterprise as a new operator of the NLE for MNTC under the Omnibus Investment Code of 1987, otherwise known as Executive Order No. 226. Under the terms of the registration, Maynilad and MNTC are subject to certain requirements, principally that of maintaining at least 60.0% Filipino ownership or voting equity. As registered enterprises, Maynilad and MNTC are entitled to certain tax and nontax incentives, including ITH for six years beginning on Commencement Date or from actual start of commercial operations whichever comes first but not earlier than the date of registration subject to certain conditions. On October 16, 2001, the BOI has granted MNTCs request for an extension of the ITH reckoning date from December 1999 to first quarter of 2004. On July 29, 2009, upon the request of MNTC and after filing the necessary application, the BOI has granted an extension of MNTCs ITH up to December 31, 2010. On April 16, 2008, the BOI granted the request of Maynilad for the extension of the period for the ITH availment from August 2001 - July 2007 to January 2003 - December 2008. On October 20, 2008, Maynilad filed an application for an ITH bonus year. The application was for the extension of the availment of the ITH incentive by Maynilad for one (1) year or for the period January 1, 2009 to December 31, 2009. The BOI approved Maynilads application on December 22, 2008.

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- 122 On December 16, 2009, Maynilad was issued with BOI Registration Certificate Nos. 2009-188 and 2009-189 as a new operator of the 1500 MLD and 900 MLD Bulk Water Supply and Distribution Projects pertaining to the La Mesa Treatment Plants 1 and 2, respectively. The registrations entitle Maynilad to incentives which include an Income Tax Holiday (ITH) for six years from January 2010 or actual start of commercial operations, whichever is earlier but in no case earlier than the date of registration. Registration as new operator of 200 MLD Bulk Water Supply and Distribution Project (Putatan, Muntinlupa) was likewise approved by the BOI. The Certificates of Registration were issued in December 2009. This also entitles the Project to a six year income tax holiday commencing on January 2011 or actual start of commercial operations. The ITH incentives shall be limited to the sales/revenue generated from the operation of the three plants which substantially cover total capacity of Maynilad. As one of the conditions of the BOI for the ITH bonus year, Maynilad and MNTC have to undertake Corporate Social Responsibilities (CSR) activities during the actual availment of the bonus year. There are other specific conditions that have to be complied also by Maynilad and MNTC. The granting of ITH to Maynilad and MNTC significantly impacted the determination of income tax provisions especially on deferred taxes such that temporary differences that will reverse in the ITH period have not been recognized. ITH incentive enjoyed by MNTC amounted to =486.3 million, =461.3 million and P405.0 million P P = in 2010, 2009 and 2008, respectively. As of December 31, 2010, commercial operations of the Project of Maynilad have not yet started. The ITH incentives shall be limited to the sales/revenue generated from the operation of the three plants which substantially cover the total capacity of Maynilad.

32. Earnings (Loss) per Share The calculation of earnings (loss) per share for the years ended December 31 follows:
2010 Net income (loss) attributable to owners of the Parent Company from: Continuing operations Discontinued operations Net income attributable to owners of the Parent Company Effect of dividends on preference equity holders of the Parent Company Effect of potentially dilutive instruments 2009 2008

(In Thousands, Except for Per Share Amounts)

(a) (b)

P2,871,152 = 2,871,152

= P2,306,253 (6,601) 2,299,652 2,299,652 = P2,299,652

= P532,633 (7,088) 525,545 525,545 8,188 = P533,733

(c) (d) (e) (f)

(5,000) 2,866,152 P2,866,152 =

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- 123 -

2010 Outstanding common shares at the beginning of the year Effect of issuance of common shares during the year Weighted average number of common shares for basic earnings per share Effects of potential dilution from: ESOP Convertible options (see Note 19) Deposit for future stock subscriptions (see Note 22): MPHI LAWL Weighted average number of common shares adjusted for the effects of potential dilution Basic earnings (loss) per share: Income from continuing operations after income tax Income (loss) from discontinued operations after income tax

2009

2008

(In Thousands, Except for Per Share Amounts)

P20,128,155 = 7,130 (g) 20,135,285 28,446 (h) P20,163,731 =

= P7,027,727 4,869,725 11,897,452 31,279 385,591 413,978 = P12,728,300

= P1,342,919 2,123,645 3,466,564 18,277 1,260,460 508,271 26,009 = P5,279,581

[(a+c)/g] (b/g) (d/g)

P0.142 = P0.142 =

= P0.194 (0.001) = P0.193

= P0.154 (0.002) = P0.152

Diluted earnings (loss) per share: Income from continuing operations after income tax Income (loss) from discontinued operations after income tax

[(a+e)/h] (b/h) (f/h)

P0.142 = P0.142 =

= P0.181 (0.001) = P0.180

= P0.103 (0.002) = P0.101

Weighted average number of shares issued and outstanding is derived by multiplying the number of shares outstanding at the beginning of the year, adjusted by the number of shares issued during the year, with a time-weighting factor. The time-weighting factor is the number of days that the common shares are outstanding as a proportion to the total number of days in the year. Basic earnings per share attributable to owners of the Parent Company amounts are calculated by dividing net income for the year attributable to owners of Parent Company by the weighted average number of common shares outstanding during the year. Diluted earnings per share attributable to owners of the Parent Company is calculated in the same manner assuming that, the weighted average number of common shares outstanding is adjusted for potential common shares from the assumed exercise of convertible options and stock warrants, and issuance of common shares representing deposit for future stock subscription and subscriptions receivable. Outstanding convertible options and stock warrants will have a dilutive effect only when the average market price of the underlying common shares during the year exceeds the exercise price of the option. Where the outstanding convertible options and stock warrants have no dilutive effect, diluted earnings per share is the same as basic earnings per share attributable to owners of the Parent Company.

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- 124 In 2010, 2009 and 2008, the ESOP are considered in the computation of the diluted earnings and certain grants were considered dilutive. Outstanding stock options have dilutive effect under the treasury stock method only when the average market price of the underlying common share during the period exceeds the exercise price of the option. In 2009 and 2008, deposits for future stock subscription from MPHI (see Note 22) and subscription receivable from LAWL (see Note 22) for purposes of identifying dilutive potential ordinary shares are deemed to have been converted into ordinary shares at the beginning of the period or if later, the date of the issue of the potential ordinary shares. These are considered dilutive since conversion to ordinary shares would decrease earnings per share. In 2008, the convertible options that were converted into ordinary shares during the year are included in the calculation of diluted earnings per share from the beginning of the year to the date of conversion; the resulting ordinary shares are included in both basic and diluted earnings per share.

33. Share-based Payment On June 24, 2007, the shareholders of MPIC approved a share option scheme (the Plan) under which MPICs directors may at their discretion, invite executives of MPIC upon the regularization of employment of eligible executives, to take up share option of MPIC to obtain an ownership interest in MPIC and for the purpose of long-term employment motivation. The scheme became effective on June 14, 2007 and is valid for ten (10) years. An amended plan was approved by the stockholders on February 20, 2009. As amended, the overall limit on the number of shares which may be issued upon exercise of all options to be granted and yet to be exercised under the Plan must not exceed 5.0% of the shares in issue from time to time. The maximum number of shares in respect of which options may be granted under the Plan shall not exceed 5.0% of the issued shares of MPIC on June 14, 2007 or the date when an event of any change in the corporate structure or capitalization affecting the Companys shares occurred, as the case may be. The exercise price in relation to each option shall be determined by the Companys Compensation Committee, but shall not be lower than the highest of: (i) the closing price of the shares for one or more board lots of such shares on the PSE on the option offer date; (ii) the average closing price of the shares for one or more board lots of such shares on the PSE for the five (5) business days on which dealings in the shares are made immediately preceding the option offer date; and (iii) the par value of the shares. First Grant. On December 9, 2008 and March 10, 2009, the Company has granted options in respect of 123,925,245 common shares to its senior management. Details of the said tranches follow: (a) Tranche A for 61,000,000 shares, 50.0% of which vested immediately on January 2, 2009 with an exercise price of =2.12 per share and (b) Tranche B for 62,925,245 shares, 50.0% of P which vested on March 10, 2009 with an exercise price of =2.73 per share. The remaining 50.0% P of each said tranche will vest on the first (1st) anniversary of the initial vesting date. The share options automatically vest on their respective vesting schedules. The grantees of the said option may exercise in whole or in part their respective options at any time after vesting but prior to the expiration of three (3) years after all of the options shares for such tranche have vested.

*SGVMC214233*

- 125 ESOP expense for the First Grant included in Personnel costs under General and administrative expenses account in the consolidated statements of income, amounted to P4.5 million and P50.0 = = million for the years ended December 31, 2010 and 2009, respectively (see Note 26). The following table illustrates the number of, exercise prices of, and movements in share options during the year:
Tranche A Number of shares Exercise price 61,000,000 = P2.12 7,365,000 2.12 53,635,000 2.12 17,310,000 2.12 10,250,000 2.12 26,075,000 = P2.12 23,135,000 26,075,000 = P2.12 = P2.12 Tranche B Number of shares Exercise price = P 62,925,245 2.73 6,580,000 2.73 56,345,245 2.73 15,000,000 2.73 11,845,245 2.73 29,500,000 = P2.73 24,882,623 29,500,000 = P2.73 = P2.73

Outstanding at January 1, 2009 Granted during the year Exercised during the year* Outstanding at December 31, 2009 Granted during the year Exercised during the year* Forfeited during the year Outstanding at December 31, 2010 Exercisable at December 31, 2009 Exercisable at December 31, 2010

* In 2010 and 2009, =13.7 million and =3.2 million, respectively, of the total ESOP expense recognized under Other reserves in the P P consolidated balance sheets pertaining to the options exercises were transferred to additional paid-in capital.

The weighted average remaining contractual life for the share options outstanding for the first grant as of December 31, 2010 and 2009 is 1.4 years and 2.4 years, respectively. The fair value of the options granted is estimated at the date of grant using Black-Scholes-Merton formula, taking into account the terms and conditions upon which the options were granted. The following tables list the inputs to the model used for the ESOP in 2009:
Tranche A Tranche B 50.0% 50.0% 50.0% 50.0% vesting on vesting on vesting on vesting on January 2, 2009 January 2, 2010 March 10, 2009 March 10, 2010 December 9, 2008 March 10, 2009 = P2.10 = P2.10 = P2.70 = P2.70 = P2.12 = P2.12 = P2.73 = P2.73 5.92% 6.60% 4.24% 4.82% 94.07% 58.10% 61.25% 66.43% 24 389 61 365

Grant date Spot price Exercise price Risk-free rate Expected volatility* Term to vesting (in days)

* The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily the actual outcome.

Second and Third Grant. In consideration of the SECs current policy to exclude the independent directors from ESOP grant and pending MPICs consequent position paper filed with the SEC maintaining the validity of the grant to independent directors, the Compensation Committee modified the resolution it adopted on July 2, 2010. The Compensation Committee approved a modified plan excluding the independent directors from ESOP grant, without prejudice to reinstatement, as approved by SEC on September 20, 2010.

*SGVMC214233*

- 126 In the modified plan, MPIC allocated and set aside stock options relating to an additional 145,000,000 common shares, of which (a) a total of 94,300,000 common shares was granted to its new directors and senior management officers, as well as, members of the management committees of certain MPIC subsidiaries at the exercise price of P2.73 per common share on = July 2, 2010 (the Second Grant) and (b) another 10,000,000 common shares was granted at the exercise price of P3.50 on December 21, 2010 to officers of MPIC subsidiary (the Third Grant). = ESOP expense for the second and third grants included in Personnel Costs under General and Administrative Expenses account in the consolidated statement of income amounted to = P29.9 million for the year ended December 31, 2010 (see Note 26). The second and third ESOP grants remain unvested and unexercisable as of December 31, 2010. The weighted average remaining contractual life for the share options outstanding as of December 31, 2010 for the second and third grant is 4.6 years and 5.0 years, respectively. The fair value of the options granted is estimated at the date of grant using Black-Scholes-Merton formula, taking into account the terms and conditions upon which the options were granted. The following tables list the inputs to the model used for the ESOP in July 2010 and December 2010: The Second Grant July 2, 2010
Tranche A 50.0% 50.0% Vesting Vesting on January 1, on January 1, 2011 2012 July 2, 2010 = P2.65 = P2.65 = P2.73 = P2.73 4.16% 4.92% 48.33% 69.83% 183 548 50.0% Vesting on July 2, 2011 = P2.65 = P2.73 4.61% 69.27% 365 Tranche B 35.0% Vesting on July 2, 2012 July 2, 2010 = P2.65 = P2.73 5.21% 67.52% 731 35.0% Vesting on July 2, 2013 = P2.65 = P2.73 5.67% 76.60% 1,096

Grant date Spot price Exercise price Risk-free rate Expected volatility* Term to vesting (in days)

The Third Grant December 21, 2010


30.0% vesting on August 1, 2011 Grant date Spot price Exercise price Risk-free rate Expected volatility* Term to vesting (in days) = P3.47 = P3.5 1.62% 46.62% 223 35.0% vesting on August 1, 2012 December 21, 2010 = P3.47 = P3.50 2.83% 68.23% 589 35.0% vesting on August 1, 2013 = P3.47 = P3.50 3.73% 72.82% 954

* The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily the actual outcome

Carrying value of the ESOP recognized under Other reserves in the equity section of the consolidated balance sheet for the second and third grants amounted to P66.5 million as of = December 31, 2010 (see Note 30). Total ESOP expense for 2010 and 2009 amounted to P34.4 million and P50.0 million, = = respectively, included in Personnel costs under General and administrative expenses account in the consolidated statements of income (see Note 26).

*SGVMC214233*

- 127 -

34. Contingencies Maynilad The following are the contingencies involving Maynilad: a. Additional Tranche B Concession Fees and interest penalty are being claimed by MWSS in excess of the amount recommended by the Receiver. Such additional charges being claimed by MWSS (in addition to other miscellaneous claims) amounted to =4.0 billion as of P December 31, 2010 and =3.8 billion as of December 31, 2009. The Rehabilitation Court has P resolved to deny and disallow the said disputed claims of MWSS in its December 19, 2007 Order, upholding the recommendations of the Receiver on the matter. Following the termination of the Maynilads rehabilitation proceedings, Maynilad and MWSS are seeking to resolve this matter in accordance with the dispute resolution requirements of the TCA. b. On October 13, 2005, the Municipality of Norzagaray, Bulacan jointly assessed Maynilad and Manila Water Company, Inc. (the Concessionaires) for real property taxes on certain common purpose facilities purportedly due from 1998 to 2005 amounting to =357.1 million. P It is the position of the Concessionaires that these properties are owned by the ROP and that the same are exempt from taxation. On February 2, 2007, the Concessionaires received an updated assessment of real property tax, which included real property tax purportedly due for 2006 of P35.7 million and interest of = 2.0% per month of =93.6 million. The supposed joint liability of the Concessionaires for real P property tax, including interests, as of June 30, 2007 amounted to P554.2 million. = The Local Board of Assessment Appeals (LBAA) ruled in favor of the Municipality of Norzagaray, Bulacan. The Concessionaires elevated the ruling of the LBAA to the Central Board of Assessment Appeals (CBAA) by filing separate appeals. The CBAA has given due course to Maynilads appeal and an ocular inspection of the common purpose facilities was conducted by the CBAA on December 14, 2010. Although the case had been set for pre-trial by the CBAA, the pre-trial of the case is put on hold pending the resolution of two (2) motions filed by the Concessionaires. The case is set for hearing on March 17, 2011. c. Two petitions for review on certiorari filed separately by Maynilad and MWSS, questioning the jurisdiction of the National Water Resources Board (NWRB) to hear and decide a complaint with prayer for the issuance of a cease and desist order against Maynilad, MWSS and the MWSS-RO initiated by certain civil society groups, are pending (in two consolidated cases) before the Supreme Court. Such complaint, which is yet to be decided upon by the NWRB, depending upon the final determination by the Supreme Court on the issue of the NWRBs jurisdiction on the matter, is contesting the approval by the MWSS BoT of the MWSS-RO resolution approving the rebased tariff of =30.19 per cubic meter (average all-in P tariff) effective January 1, 2005 for Maynilad. The rulings of the Court of Appeals being assailed by the petitions before the Supreme Court pronounced, among others, that the NWRB is empowered to review the subject average all-in tariff rate of =30.19 per cubic meter. P

*SGVMC214233*

- 128 d. On November 24, 2006, the Labor Arbiter issued a decision, ordering the payment of COLA to the supervisor-employees of MWSA retroactive to the date when they were hired by the respondent company in 1997, with legal interest from the date of promulgation of the decision until full payment of the award as computed and claimed by MWSA. On September 7, 2007, the National Labor Relations Commission (NLRC) reversed and set aside the decision of the Labor Arbiter. On December 10, 2007, in pursuance of its efforts to effect an early exit from corporate rehabilitation, Maynilad executed a Compromise Agreement with the MWSA for the settlement of certain claims of the MWSA, wherein Maynilad agreed to pay MWSA residual benefits equivalent to its claim for COLA for 23 months, from August 1997 to June 1999. Meanwhile, MWSA elevated the decision of the NLRC to the Court of Appeals and asked that the Labor Arbiters decision dated November 10, 2006 be affirmed in toto, but only in relation to the MWSAs claim for COLA from July 1999 up to the present time. In a decision dated May 31, 2010, the Court of Appeals (i) granted the Petition for Certiorari filed by MWSA and reinstated the Labor Arbiters Decision dated November 24, 2006; and, (ii) annulled and set aside the NLRC Decision dated September 7, 2007. Maynilad filed its motion for reconsideration from the Court of Appeals decision. On January 31, 2011, the Court of Appeals granted the motion for reconsideration filed by Maynilad reinstating and affirming the September 7, 2007 Decision and October 23, 2007 Resolution of the NLRC. e. Maynilad is a party to various civil and labor cases relating to breach of contracts with damages, illegal dismissal of employees, and nonpayment of backwages, benefits and performance bonus, among others. Maynilad and its legal counsel has assessed that, after considering certain provisions made, the eventual liability from these lawsuits or claims, if any, will not have a material effect on the consolidated financial statements. With respect to the COLA, Maynilad reversed the related provision in 2010 for Maynilads supervisors who are members of the MWSA amounting to = P78.0 million in light of the decision of the Court of Appeals. MPTC, MPTDC and MNTC Value Added Tax. When RA 9337 took effect, the BIR issued Revenue Regulation (RR) No. 16-2005 on September 1, 2005, which, for the first time, expressly referred to toll road operations as being subject to VAT. This notwithstanding VAT Ruling 078-99 issued in August 9, 1999 where BIR categorically ruled that MNTC, as assignee of PNCC franchise, is entitled to the tax exemption privileges of PNCC and is exempt from VAT on its gross receipts from the operation of the NLE. However, the TRB, in its letter dated October 28, 2005, directed MNTC (and all Philippine toll expressway companies) to defer the imposition of VAT on toll fees.

*SGVMC214233*

- 129 On December 21, 2009, BIR issued RMC No. 72-2009 as a reiteration of RMC No. 52-2005 imposing VAT on the tollway operators. However, on January 21, 2010, Tollways Association of the Philippines (TAP) issued a letter to tollway operators referring to a letter issued by TRB to TAP dated December 29, 2009 reiterating TRBs previous instruction to all toll operators to defer the imposition of VAT on toll fees until further orders from their office. The TRB directive resulted from the Cabinet meeting held last December 29, 2009 at Baguio City where the deferment of the implementation of RMC No. 72-2009 was discussed. On March 2010, the BIR issued RMC 30-2010 directing the imposition of the 12.0% VAT starting April 1, 2010, with coverage initially limited to private vehicles. However, on March 30, 2010, the TAP issued a letter to tollway operators referring to a letter issued by TRB to TAP dated March 30, 2010 directing the deferment of collection of VAT on toll fees until further orders from their office. To fully implement the imposition of the VAT on toll fees, the BIR issued RMC No. 63-2010 dated July 19, 2010 which states that: The VAT shall be imposed on the gross receipts of tollway operators from all types of vehicles starting August 16, 2010. Tollway operators who have been assessed for VAT liabilities on receipts from toll fees for prior periods can apply for Abatement of the tax liability, surcharge and interest under Section 204 of the National Internal Revenue Code (NIRC) and RR No. 13-2001. The accumulated input VAT account of the toll companies shall have a zero balance on August 16, 2010. Any input VAT that will thenceforth be reflected in the books of accounts and other accounting records of tollway operators will have to be for purchases of goods and services delivered/rendered and invoiced/receipted on or after August 16, 2010. All tollway operators are required to comply with the invoice/receipt format prescribed under RMC No. 40-2005.

Meanwhile, on August 4, 2010, MNTC, in accordance with RMC No. 63-2010, applied for abatement of alleged VAT liabilities for taxable years 2006 and 2007. The BIR has yet to resolve the application for abatement of MNTC. On August 13, 2010, the Supreme Court issued a TRO on the imposition of the 12.0% VAT on tollway operators. The TRO has not been lifted as of March 3, 2011. In view of the foregoing and in the light of the quick response of the Cabinet and the TRB on the BIR RMC No.72-2009 and TRO issued by the Supreme Court on the imposition of VAT, MNTC continues to defer the imposition of VAT on toll fees from motorists and correspondingly, with VAT being a passed-on tax, MNTC did not recognize any VAT liability. MNTC, together with other toll road operators, continues to discuss the issue of VAT with the concerned government agencies.

*SGVMC214233*

- 130 In relation to the issue on VAT, the BIR has issued the following VAT assessments: MNTC received a Formal Letter of Demand from the BIR on March 16, 2009 requesting MNTC to pay deficiency VAT plus penalties amounting to =1,010.5 million for taxable year P 2006. MNTC received a Final Assessment Notice from the BIR dated November 15, 2009, assessing MNTC for deficiency VAT plus penalties amounting to P557.6 million for taxable year 2007. = MNTC received a Notice of Informal Assessment from the BIR dated October 5, 2009, assessing MNTC for deficiency VAT plus penalties amounting to P470.9 million for taxable = year 2008. On May 21, 2010, the BIR issued a Notice of Informal Conference assessing MNTC for deficiency VAT plus penalties amounting to P1.0 billion for taxable year 2009. Included also = in the Notice is the increase of the deficiency VAT for taxable year 2008 from P470.9 million = to =1.2 billion (including penalties). P

Notwithstanding the foregoing, management believes, in consultation with its legal counsel, that in any event, the STOA amongst MNTC, ROP, acting by and through the TRB, and PNCC, provides MNTC with legal recourse in order to protect its lawful interests in case there is a change in existing laws which makes the performance by MNTC of its obligations materially more expensive. Local Business Tax. In 2008, MNTC has received a Final Demand from the municipality of Guiguinto, Bulacan to pay the local business tax assessments for the years 2005 to 2007 amounting to =67.4 million, inclusive of surcharges and penalties. MNTC, together, with its legal P counsel protested claiming that its predecessor, PNCC has never been subjected to LBT and as such MNTC continued the customary practice of obtaining the business permits solely from the local government unit where its principal office is located. The case is still pending before the RTC of Malolos, Bulacan. On November 19, 2009, TRB informed MNTC that TRBs BOD has approved MNTCs request to intervene in the LBT case for the purposes of protecting the interests of the government and the motoring public, avoiding any disruption in the operation of the NLE as a limited access facility and resisting collateral attack in the validity of the STOA. TRB also advised MNTC that on November 12, 2009, the Omnibus Motion (i) for Intervention and (ii) to admit attached Manifestation and Motion in Intervention was filed by the Office of the Solicitor General on behalf of TRB praying for the issuance of a TRO and a writ of preliminary injunction to enjoin the municipality from closing MNTCs business particularly with respect to its operations of the Burol-Tabang and Burol-Sta.Rita toll exits and any facility that is indispensable in the operation of the tollway. In March 2010, MNTC received a final demand letter from the municipality of Guiguinto, Bulacan to pay LBT, permits, and regulatory fees. On March 12, 2010, the RTC of Malolos, Bulacan denied MNTCs application for the issuance of a TRO and/or writ of preliminary injunction. On March 15, 2010, MNTC filed with the Court of Appeals a petition for certiorari (with application for the issuance of a TRO and/or a writ of preliminary injunction) to annul or set aside the orders of the RTC of Malolos, Bulacan denying MNTCs application for the issuance of a writ of preliminary injunction. The Court of Appeals, in its decision dated July 23, 2010, dismissed the petition. On August 17, 2010, MNTC filed a motion for reconsideration. On December 3, 2010, the Court of Appeals denied the motion for reconsideration.

*SGVMC214233*

- 131 Meanwhile, on July 22, 2010, MNTC filed another complaint with the RTC of Malolos, Bulacan seeking to annul and set aside the illegal assessment for unpaid local business taxes in the total amount of P34.0 million, inclusive of surcharges and penalties, for the years 2008 and 2009 issued = against MNTC by the Municipal Treasurer of Guiguinto, Province of Bulacan in February 2010. The cases are pending before the RTC of Malolos, Bulacan as of March 3, 2011. As of March 3, 2011, MNTC is in the process of discussing the issue on the prospective allocation of the LBT with the Bureau of Local Government Finance. Real Property Tax. In 2008, MNTC received real property tax assessments covering the toll roads located in the Municipality of Guiguinto amounting to =2.9 million for the years 2005 to 2008. P MNTC appealed before the Local Board of Assessment Appeals (LBAA) of Bulacan and prayed for the cancellation of the assessment. The case is still pending before the LBAA of Bulacan. In 2004, MPTDC (then FPIDC) has received real property tax assessments covering Segment 7 located in the province of Bataan for the period from 1997 to June 2005 amounting to P98.5 million = for alleged delinquency property tax. MPTDC appealed before the LBAA of Bataan and prayed for the cancellation of the assessment. In the said appeal, MPTDC invoked that the property is owned by the ROP, hence, exempt from real property tax. The case is still pending before the LBAA of Bataan. The outcome of these claims cannot be presently determined. Management believes that these claims will not have a significant impact on the Companys consolidated financial statements. As with regards to the real property tax, management and its legal counsel believes that the STOA also provides MNTC with legal recourse in order to protect its lawful interests in case there is a change in existing laws which makes the performance by MNTC of its obligations materially more expensive. Others. MNTC is a co-respondent [together with TRB, PNCC, other tollways operators, TMC, MPTDC and BHC] in two Supreme Court cases, where, based on the following allegations, the petitioners claims that the STOA is null and void: the negotiation and execution of the STOA failed to undergo public bidding in accordance with applicable laws and regulations of the Philippines; the STOA granted to MNTC a 30-year franchise for the construction, maintenance and operation of the NLE in violation of the Presidential Decrees under which the PNCCs franchise were granted and the Philippine Constitution; and the provisions of the STOA providing for the establishment and adjustment of toll rates violate the statutory requirement for the TRB to conduct public hearings on the level of authorized toll rates.

The Supreme Court, in a decision dated October 19, 2010, among others, declared as valid and constitutional the STOA. Petitioner Francisco filed a motion for reconsideration dated November 5, 2010 while some of the petitioners in Marcos, et al. v. TRB et al. filed a partial motion for reconsideration dated October 8, 2010. On January 24, 2011, MNTC filed a consolidated comment to the aforementioned motions for reconsideration. Management believes that the petitioners claims are without merit and is vigorously contesting the case. As of March 3, 2011, the cases are still pending. MNTC is also a party to other cases and claims arising from the ordinary course of business filed by third parties which are either pending decisions by the courts or are subject to settlement

*SGVMC214233*

- 132 agreements. The outcome of these claims cannot be presently determined. In the opinion of management and MPTCs legal counsel, the eventual liability from these lawsuits or claims, if any, will not have a material adverse effect on MPTCs financial position and financial performance, as well as in the consolidated financial statements. MPC Donors Tax. MPC received on January 14, 2011 a Final Assessment Notice (FAN) demanding the payment of approximately P199.7 million as deficiency donors tax (including surcharge and = interest as of January 31, 2011) on the excess of the book value over the selling price of several shares of stock in BLC which MPC sold to a third party. The assessment was based on the finding of the Bureau of Internal Revenue-Large Taxpayer Service (BIR-LTS) that the transaction is subject to donors tax as a deemed gift transaction under Section 100 of the 1997 National Internal Revenue Tax Code (the Tax Code). On February 14, 2011, MPC filed its formal protest to the FAN raising among others, the following arguments: (1) The transaction subject to the FAN is covered by a validly existing ruling from the BIR (BIR RULING [DA-(DT-065) 715-09]) stating that the transaction is not subject to donors tax under Section 100 of the Tax Code; (2) The Supreme Court itself recognized that the deemed gift provision of the Tax Code admits of exceptions, particularly when the transaction is at an arms-length and made in good faith; and (3) BIR RR 6-2008, which the BIR is using as basis in assessing deficiency donors tax, cannot amend the Supreme Courts interpretation of Section 100 of the Tax Code. Because of the above reasons, MPC believes that no provision for the assessment is necessary as of December 31, 2010. Others. Under the agreement relating to the repayment of the Larouge loan, signed between MPC, Ayala Land Inc. (ALI) and Greenfield Development Corp. (GDC) on April 17, 2003, certain obligations/warranties by MPC will remain outstanding for certain periods ranging from one to three years and covered by security arrangements. Under the agreement, MPC shall indemnify ALI and GDC to the extent of MPCs derivative share in BLC/FBDC for certain secured indemnity obligations and other obligations resulting from any breach of warranties and representations. The security offered for the above obligations includes: Pledge of 5.0% interest of MPC in BLC; Additional pledge of 1.6% interest in BLC subject to the release of certain BLC shares from an existing pledgee which has a prior lien; and Second mortgage on the parent companys NCBD property, subject to the approval of the first mortgagee.

ALI and GDC have formally advised MPC in their letter dated September 19, 2003 that they are allocating the first two pledges above for possible payment of secured indemnity obligations enumerated in their letter. Total estimated indemnity is P1.1 billion. = MPC has already provided for =317.8 million in prior years, determined on the basis of certain P possible taxes that will be claimed by ALI and GDC.

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- 133 The above warranty has expired last April 17, 2007. However, due to pending taxes included in the warranties, the provision amounting to P402.8 million has remained in the books. In 2009, = additional provision loss made amounting to =54.8 million, which represents the excess of the P proceeds from sale of certain BLC over its carrying value, as this may still be subject for refund in connection with the pending taxes and warranties as herein discussed (see Note 17). The outcome of these claims cannot be presently determined. In the opinion of management and MPCs legal counsel, the eventual liability from these lawsuits or claims, if any, will not have a material adverse effect on MPCs financial position and financial performance, as well as in the consolidated financial statements. Other disclosures required by PAS 37 were not provided as it may prejudice the Companys position in on-going claims, litigations and assessments.

35. Significant Contracts, Agreements and Commitments The significant contracts entered into by MPIC, Maynilad and MNTC are as follows: MPIC On November 20, 2009, MPIC entered into and became a party to the Amended, Consolidated and Restated Cooperation Agreement (the Agreement) covering certain shares of voting common stock in Meralco by the Lopez Group and PLDT Group (collectively referred to as the Parties). MPIC and PCEV are considered part of the PLDT Group for purposes of the Agreement. The Agreement provided among others a standstill arrangement, voting arrangement, right of first refusal and tag-along rights and governance provisions with respect to their shareholdings in Meralco. Also on November 20, 2009, MPIC granted FPUC, a subsidiary of FPHC, a short-term loan amounting to =11.2 billion. Such loan was interest bearing and matured on June 30, 2010, and P was included under Receivables in the consolidated balance sheet as of December 31, 2009. This loan was collected on March 30, 2010 prior to its maturity (see Note 8). On November 5, 2009, FPHC agreed to grant MPIC a call option (right to a call option) relating to approximately 74.6 million common shares of Meralco owned by FPHC (equivalent to 6.7% of the total outstanding common shares of Meralco). On March 1, 2010, MPIC assigned the right to a call option to Beacon Electric. Concurrently, FPHC granted the call option to Beacon Electric which then exercised the call to acquire the 74.6 million shares in Meralco on March 30, 2010. See also Note 12 for the Omnibus Agreement between MPIC, Piltel and Beacon Electric and the Assignment of the Right to Call Option to Beacon Electric. In 2010, MPIC also entered into contracts with various shareholders of MRT companies and MNRTC in connection with a possible acquisition of these companies. See also Note 11 for the agreements between MPIC and various shareholders of MRT 3 companies.

*SGVMC214233*

- 134 Maynilad In relation to the Concession Agreement, Maynilad entered into the following contracts with the East Concessionaire: a. Interconnection Agreement wherein the two Concessionaires shall form an unincorporated joint venture that will manage, operate, and maintain interconnection facilities. The terms of the agreement provide, among others, the cost and the volume of water to be transferred between zones; and b. Common Purpose Facilities Agreement that provides for the operation, maintenance, renewal, and as appropriate, decommissioning of the Common Purpose Facilities, and performance of other functions pursuant to and in accordance with the provisions of the Concession Agreement and performance of such other functions relating to the Concession (and the Concession of the East Concessionaire) as Maynilad and the East Concessionaire may choose to delegate to the Joint Venture, subject to the approval of MWSS. Significant commitments under the Concession Agreement follow: a. Payment of Concession Fees (see Note 18) b. Posting of performance bond (see Note 11) Under Section 6.9 of the Concession Agreement, Maynilad is required to post a performance bond to secure the performance of its obligations under certain provisions of the Concession Agreement. The aggregate amount drawable in one or more installments under such performance bond during the Rate Rebasing Period to which it relates is set out below.
Aggregate Amount Drawable Under Performance Bond
(In Millions)

Rate Rebasing Period First (August 1, 1997December 31, 2002) Second (January 1, 2003December 31, 2007) Third (January 1, 2008December 31, 2012) Fourth (January 1, 2013December 31, 2017) Fifth (January 1, 2018May 6, 2022)

US$120.0 120.0 90.0 80.0 60.0

Within 30 days from the commencement of each renewal date, Maynilad shall cause the performance bond to be reinstated to the full amount set forth above applicable for the year. In connection with the implementation of the Selection Process by MWSS, Maynilad and MWSS executed the Agreement on the performance bond on December 15, 2006, incorporating the terms and conditions of MWSS BOT Resolution No. 2006-249 dated November 17, 2006 which approved certain adjustments to the obligation of Maynilad to post the performance bond under Section 6.9 of the Concession Agreement. These adjustments are summarized as follows:
i. The aggregate amount drawable in one or more installments under each performance bond

during the Rate Rebasing Period to which it relates had been adjusted to US$30.0 million until the Expiration Date;

*SGVMC214233*

- 135 Based on the draft of the Letter of Consent and Undertaking to be signed by the DoF in connection with the extension of the Concession Agreement, the extension of the undertaking letter from May 7, 2022 to May 6, 2032 shall only be effective upon the increase in the present minimum level of the Performance Bond from the present level of US$30.0 million to US$90.0 million for the Third Rate Rebasing Period. The Performance Bond will be required to be posted within six (6) months from the date of the issuance of the letter. The amount of the Performance Bond for the period covering 2013 to 2037 shall be mutually agreed upon in writing by the MWSS and Maynilad consistent with the provisions of the Concession Agreement. On April 22, 2010, Maynilad and MWSS entered into a Memorandum of Agreement and Confirmation (MOA) confirming the extension of the term of the Concession Agreement for another 15 years. On May 25, 2010, in connection with the MOA, Maynilad posted the Surety Bond for the amount of US$90 million issued by Prudential Guarantee and Assurance, Inc. (the Surety) in favor of MWSS, as security for Maynilads proper and timely performance of its obligations under the Concession Agreement. The liability of the Surety under this bond will expire on December 31, 2012. c. Payment of half of MWSS and MWSS-ROs budgeted expenditures for the subsequent years, provided the aggregate annual budgeted expenditures do not exceed =200.0 million, subject to P CPI adjustments. As a result of the extension of the life of the Concession Agreement, the annual budgeted expenditures shall increase by 100.0%, subject to CPI adjustments, effective January 2010. d. To meet certain specific commitments in respect to the provision of water and sewerage services in the West Service Area, unless modified by the MWSS-RO due to unforeseen circumstances. e. To operate, maintain, renew and, as appropriate, decommission facilities in a manner consistent with the National Building Standards and best industrial practices so that, at all times, the water and sewerage system in the West Service Area is capable of meeting the service obligations (as such obligations may be revised from time to time by the MWSS-RO following consultation with Maynilad). f. To repair and correct, on a priority basis, any defect in the facilities that could adversely affect public health or welfare, or cause damage to persons or third-party property.

g. To ensure that at all times Maynilad has sufficient financial, material and personnel resources available to meet its obligations under the Concession Agreement. h. Non-incurrence of debt or liability that would mature beyond the term of the Concession Agreement, without the prior notice of MWSS. Failure of Maynilad to perform any of its obligations under the Concession Agreement of a kind or to a degree which, in a reasonable opinion of the MWSS-RO, amounts to an effective abandonment of the Concession Agreement and which failure continues for at least 30 days after written notice from the MWSS-RO, may cause the Concession Agreement terminated. Operating Lease Commitment. Maynilad leases the office space, branches and service vehicles, where service outlets are located for certain periods up to 2010, renewable under certain terms and conditions to be agreed upon by the parties. Total rent expense for the above operating leases amounted to =160.4 million in 2010, =77.2 million in 2009 and P66.7 million in 2008, P P = respectively.

*SGVMC214233*

- 136 Future minimum operating lease payments are as follows: Period Covered Not later than one year More than one year and not later than five years More than 5 years MPTC NLEx Concession Agreement. Obligations and commitments of MNTC under the NLEx Concession Agreement are discussed in Notes 2 and 13. SCTEx Concession Agreement. In 2010, MNTC participated in a public bidding conducted by the Bases Conversion and Development Authority (BCDA) for the right to manage, operate and maintain the SCTEx on an as is, where is basis for a period until October 30, 2043. MNTCs technical proposal met the requirements of BCDA but its financial proposal failed to meet the minimum financial requirements. However, MNTC was given the opportunity to improve its financial proposal and, as a result, BCDA formally awarded MNTC in June 9, 2010, the right to enter into a concession agreement with BCDA for the management, operation and maintenance of SCTEx. On November 8, 2010, the parties entered into a Concession Agreement under which BCDA granted MNTC the usufructuary rights to and the right to manage, maintain and operate the 94-kilometer SCTEx for a period of 25 years, extendable by another 8 years. In granting the concession, BCDA has also assigned to MNTC its rights under the Toll Operations Agreement (TOA) it signed with the Toll Regulatory Board (TRB) including the right to collect toll fees. The assignment is subject to certain conditions including, among others, the necessary Philippine Government approvals and the execution of a STOA. In consideration of the assignment, MNTC will pay BCDA a semi-annual concession fees amounting to the peso equivalent of BCDAs yen-denominated debt service obligation to Japan International Cooperation Agency (JICA) for the period from effective date until year 2016. From 2017 to 2043, MNTC will pay, as concession fee, 20.0% of the gross revenues from the SCTEx. In order to secure its obligation to pay concession fees to BCDA and perform committed maintenance, enhancement, and improvement works amounting to about =20.3 billion, as well as P emergency works estimated at approximately P231.0 million, MNTC has to issue a standby letter = of credit (LC) effective for one (1) year which shall be automatically renewed every year until the end of the concession. The LC amount shall be in the approximate amount of =1.3 billion per P annum from 2011 to 2016. As of March 3, 2011, the parties are still in the process of obtaining certain consents and formalizing the STOA and therefore the SCTEx had not been assigned and turned over to MNTC. Others. On April 14, 2009, MNTC, under a competitive bidding, has awarded the Civil Works contract to Leighton Contractors (Asia) Limited (LCAL), a construction unit of Leighton International Limited. The Civil Works Construction Agreement was executed by MNTC and LCAL in relation to the construction of the 2.7 kilometer Segment 8.1 stretching from Mindanao Avenue to NLE. Total civil works construction contract was set at P1,458.8 million, as may be = adjusted from time to time pursuant to the terms of the agreement. Amount
(In Millions)

= P70.6 247.3 9.7

*SGVMC214233*

- 137 The Construction Notice to Proceed was issued by the Company to LCAL on April 14, 2009, and mobilization works commenced on April 22, 2009. The construction of Segment 8.1 has already been substantially completed as of Juen 5, 2010. Unapplied mobilization advances to LCAL, included as part of Advances to contractors and consultants in the consolidated balance sheet, amounted to =219.8 million as of December 31, P 2009.

36. Assets Held in Trust Materials and Supplies Maynilad has the right to use any items of inventory owned by MWSS in carrying out its responsibility under the Concession Agreement, subject to the obligation to return the same at the end of the concession period, in kind or in value at its current rate, subject to CPI adjustments. Facilities Maynilad had been granted with the right to operate, maintain in good working order, repair, decommission and refurbish the movable property required to provide the water and sewerage services under the Concession Agreement. MWSS shall retain legal title to all movable property in existence at the Commencement Date. However, upon expiration of the useful life of any such movable property as may be determined by Maynilad, such movable property shall be returned to MWSS in its then-current condition at no charge to MWSS or Maynilad (see Note 13). The Concession Agreement also provides Maynilad and the East Concessionaire to have equal access to MWSS facilities involved in the provision of water supply and sewerage services in both West and East Service Areas including, but not limited to, the MWSS management information system, billing system, telemetry system, central control room and central records. The net book value of the facilities transferred to Maynilad on Commencement Date based on MWSS closing audit report amounted to P7.3 billion with a sound value of P13.8 billion. = = MWSS corporate headquarters are made available to Maynilad and the East Concessionaire for a one-year period beginning on the Commencement Date, subject to yearly renewal with the consent of the parties concerned. As of December 31, 2010, the lease had been renewed for another year.

37. Financial Risk Management Objectives and Policies The Companys principal financial instruments consist mainly of borrowings from a related party and third party lenders and creditors, proceeds of which were used for the acquisition of investments and in financing operations. The Company has other financial assets and financial liabilities such as cash and cash equivalents, short-term deposits, receivables, AFS financial assets, accounts payable and other current liabilities, concession fees payable and other related party transactions which arise directly from the Companys operations. The Company also enters into derivative transactions, particularly interest rate swaps and cross currency swaps to manage the interest rate and foreign currency risks arising from its long-term debts.

*SGVMC214233*

- 138 The main risks arising from the Companys financial instruments are interest rate risk, foreign currency risk, liquidity risk and credit risk. The BOD reviews and approves policies of managing each of these risks and they are summarized below. Interest Rate Risk Interest rate risk is the risk that the fair value or future cashflows of a financial instrument will fluctuate because of changes in market interest rates. As of December 31, 2010 and 2009, the Company is subject to fair value and cash flow interest rate risks. Fixed rate financial instruments are subject to fair value interest rate risk while floating rate financial instruments are subject to cash flow interest rate risk. MPIC. The Parent Company's interest rate risk relates primarily to its long-term debt, specifically to the MPIC Omnibus Agreement for a =6.8 billion note bearing a fixed interest rate. This fixed P Peso borrowing locks in the Parent Company's financing costs despite changes in market interest rates. In light of the decrease in market interest rates in 2010, the interest rate on the note was repriced to 9.2% from 10.7% effective February 13, 2011. This rate, however, is still subject to significant progressions of market interest rates and may be increased when deemed appropriate by the lender. MNTC. MNTCs exposure to interest rate risk relates primarily to its long-term debt obligations with floating interest rates. In accordance with its interest rate management policy, MNTC converted certain of its outstanding loans into fixed-rate debt, effectively locking in the interest rate on majority of its loan obligations and reducing exposure to interest rate fluctuations. This was done through the exercise of various fixed-rate funding options that were provided under some of the loan facilities - EFIC, ADB Direct and COFACE. During 2008 and 2009, to further reduce its interest rate risk exposure, MNTC entered into a series of derivative transactions, particularly, cross currency swaps and interest rate swaps (see Note 38). Under the cross currency swap transactions, the counterparty shall pay semi-annual interest in U.S. Dollar at floating rates equivalent to those of the long-term debt obligations every six months. In exchange, MNTC shall pay its counterparty semi-annual interest in Philippine peso at an agreed-upon fixed rate every six months. Under the interest rate swap transactions, the counterparty shall pay semi-annual interest in Philippine peso at floating rates every six months. In exchange, MNTC shall pay to the counterparty semi-annual interest in Philippine peso at an agreed fixed rate every six months. The following table summarizes the changes in interest rates taking into account the result of the swap transactions:
Notional Amount December 31, December 31, 2009 2010
(In Thousands)

Loan Facility ADB-CFS A ADB-CFS B USD Bank Facility COFACE EFIC ADB Direct

Floating and Fixed Interest Rate LIBOR + 2.75% Margin LIBOR + 2.75% Margin LIBOR + 3.00% Margin 6.13% 8.03% PHIREF + 4.66% Margin

Fixed Interest Rate 8.30% 8.88% 9.10% 7.60% 11.50% 9.40%

$7,438 1,312 14,022 6,541 6,562 $35,875 = P380,520

$9,563 1,687 18,028 8,409 8,438 $46,125 = P489,240

*SGVMC214233*

- 139 The floating rate loans were paid on scheduled repayment dates and the derivative transactions effectively converted the floating rates to fixed rates for two loan facilities in 2008 and another two loan facilities in 2009 resulting in lower percentage of floating rate debt of total outstanding debt. The cross currency swap on the COFACE Covered Loan features a shift from a fixed interest rate to floating interest rate (see Note 38). Effectively, the cross currency swap converted the COFACE Covered Loan into a floating rate Philippine peso loan. In February 2009, MNTC entered into an interest rate swap transaction to fix the interest rate on the loan facility. Maynilad. Maynilads exposure to market risk for changes in interest rates relates primarily to its interest-bearing loans. The following table shows Maynilads financial instruments that are exposed to interest rate risk: Series 1 Floating Rate Notes Facility = P5.5 billion Floating rate benchmark + 2% spread (3.75% July 10, 2010 to January 11, 2011) LIBOR+CDS+2% spread (2.89% November 10, 2010 to May 11, 2011)

Series 2 Corporate Notes Facility

US$125.0 million

Maynilad maintains a mix of floating and fixed rate interest-bearing loans, currently at a ratio of 68% floating and 32% fixed per abovementioned Omnibus Notes Facility and Security Agreement. The floating rate interest-bearing loans will increase to a higher portion over time as a greater portion of the fixed rate interest-bearing loan will mature earlier than the floating portion. RMCI. RMCIs interest rate risk policy focuses on reducing its overall interest expense and exposure to changes in interest rates. Changes in market interest rates relate primarily to its interest-bearing debt obligations with floating interest rate as it can cause a change in the amount of interest payments. RMCI manages its interest risk by having a balanced portfolio of fixed and variable rate loans and borrowings. MPIC Group. The following tables set out the carrying amount, classified by maturity, of the Companys interest-bearing financial assets and financial liabilities. Interest on financial instruments classified as floating rate is repriced semi-annually on each interest payment date. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument with an exception for the Parent Companys borrowing as discussed above. The other financial instruments of the Company that are not included in the table below are noninterest-bearing and are therefore not subject to interest rate risk. U.S. Dollar-Denominated Financial Assets and Financial Liabilities
December 31, 2010 Within 1 Year 23 Years (In Thousands) $ $ 31,587 6,562 6,541 44,690 More than 5 Years $ 93,741 93,741

Interest Rate Cash and cash equivalents Fixed rate loans: Service concession fees payable EFIC COFACE MPCL Total (Brought Forward) 3.00%-4.50% 4.28% 8.03% 6.13% 2.50%

On Demand $1,388 310 310

45 Years $

Total $1,388 125,328 6,562 6,541 310 138,741

*SGVMC214233*

- 140 December 31, 2010 Within 1 Year 23 Years = P44,690 = P

Interest Rate Total (Carried Forward) Floating rate loans: Maynilad Omnibus Agreeement LIBOR+CDS+ 2% spread (2.89% November 10 to May 11, 2010) LIBOR +3.00% Margin LIBOR +2.75% Margin

On Demand = P 310

45 Years = P

More than 5 Years = P93,741

Total = P138,741

USD Bank ADB-CFS

1,250 14,022 8,750 $24,022

123,750 $123,750

125,000 14,022 8,750 $147,772

Interest Rate Cash and cash equivalents Short-term deposits Fixed rate loans: Service concession fees payable EFIC COFACE MPCL Floating rate loans: Maynilad Omnibus Agreeement USD Bank ADB-CFS 3.00%-4.50% 3.00%-4.50%

On Demand $24,285 24,285 310 310

December 31, 2009 Within 1 Year 23 Years (In Thousands) $ $ 52,671 52,671 45,802 1,875 1,869 49,546 3,750 3,738 7,488

45 Years $ 2,813 2,803 5,616

More than 5 Years $

Total $24,285 52,671 76,956 45,802 8,438 8,410 310 62,960

4.61% 8.03% 6.13% 2.50%

LIBOR+CDS+ 2% spread (3.65% November 10 to May 11, 2010) LIBOR +3.00% Margin LIBOR +2.75% Margin

4,006 2,500 $6,506

8,012 5,000 $13,012

6,009 3,750 $9,759

121,829 $121,829

121,829 18,027 11,250 $151,106

Peso-Denominated Financial Assets and Financial Liabilities


December 31, 2010 Within More than 1 Year 23 Years 45 Years 5 Years (In Thousands) = P 1,238,379 67,500 86,708 1,392,587 = P 135,000 5,314,497 5,449,497 = P 424,093 424,093 1,721,250

Interest Rate On Demand Cash and cash equivalents Investment in bonds Fixed rate loans: Service concession fees payable BDO 6.8 B Loan FXCN Noteholders Convertible Bond Landbank Floating rate loans: Maynilad Omnibus Agreement 3.00%-4.50% 5.30%-9.00% = P4,737,035 4,737,035 37,231 37,231

Total = P4,737,035 424,093 5,161,128 4,242,972 6,648,750 5,401,205 6,811,860 37,231 23,142,018

= P 3,004,593 4,725,000 7,729,593

4.28% 10.72% 9.75% 4.5% 9.50%

6,811,860 8,533,110

ADB-Direct PNB Loan BDO Loan

Floating rate benchmark +2% spread (3.75% July 10, 2010 to January 11, 2011) PHIREF+4.66% Margin 9.61%* Floating Rate Note (2% + PDSTF)

438,186 380,520 105,000 48,857 972,563

210,000 97,715 307,715

1,785,000 54,857 1,839,857

10,172,730 3,000 10,175,730

10,610,916 380,520 2,100,000 204,429 13,295,865

*Converted to floating interest rate upon re-pricing on December 15, 2010. Interest rates range from 2.14%-2.23% per annum as of December 31, 2010.

*SGVMC214233*

- 141 December 31, 2009 Within More than 1 Year 23 Years 45 Years 5 Years (In Thousands) = P 4,000 4,000 94,766 = P 350,000 350,000 489,532 = P 50,600 50,600 1,599,532 = P 8,789,064

Interest Rate Cash and cash equivalents Investment in bonds Investment in treasury bills Fixed rate loans: BDO 11B Loan Maynilad Ominbus Agreement 3.00%-4.50% 5.30%-9.00% 4.13%

On Demand = P5,756,367 5,756,367

Total = P5,756,367 400,600 4,000 6,160,967 10,972,894

10.24% Floating rate benchmark +2% spread (3.65% November 10 to May 11, 2010) 4.61% 10.72% 9.75% 9.61% 9.50% 9.50%

37,231 37,231

59,159 55,000 108,720 317,645

115,928 110,000 57,700 217,440 990,600

585,059 5,225,000 274,075 163,080 7,846,746

5,338,282 8,576,461 5,879,625 245,225 28,828,657

5,338,282 8,576,461 6,639,771 5,390,000 577,000 489,240 37,231 38,020,879

Service concession fees payable BDO 6.8 B Loan FXCN Noteholders PNB Loan ADB-Direct Landbank Floating rate loans: Maynilad Ominbus Agreement

Floating rate benchmark +2% spread (3.65% November 10 to May 11, 2010)

= P

= P

= P

= P

= P5,338,282

= P5,338,282

The following table demonstrates the sensitivity of cash flows due to changes in interest rates with all other variables held constant. The estimates in the movement of interest rates were based on the managements annual financial forecast. There is no other effect on equity other than those affecting the consolidated statement of income: Increase/ Decrease in Basis Points 2010 2009 +50 50 +50 50 Effect on Income Before Income Tax
(In Thousands)

(P361,423) = 361,423 (56,262) 56,262

With regard to MNTCs derivatives transactions, the following table demonstrates the sensitivity of fair value changes due to simultaneous movements in Philippine peso and U.S. Dollar interest rates with all other variables held constant. The sensitivity to the consolidated statement of income pertains to derivatives at FVPL whereas the sensitivity to other comprehensive income pertains to those derivatives accounted for as cash flow hedges:
Increase/Decrease in Basis Points 2010 2009 +50 50 +50 50 Effect on Income Before Effect on Other Income Tax Comprehensive Income
(In Thousands)

(P16,745) = 16,982 (598) 612

= P 20,839 (21,189)

*SGVMC214233*

- 142 With regard to MNTCs derivative transactions, the following table demonstrates the sensitivity of fair value changes due to movements in foreign exchange rates with all variables held constant.
Increase/Decrease in Peso: U.S Dollar Exchange Rates 2010 2009 +5.0% 5.0% 21,372 (21,372) 94,061 (94,061) +5.0% 5.0% Effect on Income Before Income Tax = P98,064 (98,064) Effect on Other Comprehensive Income = P

(In Thousands)

Foreign Currency Risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Companys foreign currency risk in 2010 results primarily from movements of the Philippine peso against the U.S. Dollar, European Euro and the Japanese Yen. MPIC. As of December 31, 2010 and 2009, the Parent Companys exposure to foreign currency risk is minimal. MNTC. MNTCs foreign currency risk arises mainly from its U.S. dollar-denominated long-term loans which constitute 38.0% and 25.0% of its outstanding loans as of December 31, 2010 and 2009, respectively. These long-term loans were translated using US$1:P43.89 and US$1:P46.36 = = as of December 31, 2010 and 2009, respectively. Exposure to foreign currency risk was significantly reduced when MNTC undertook a major risk management initiative in 2006 by refinancing around 50.0% of its outstanding U.S. Dollar loans with Peso loans. The exposure was further reduced when MNTC entered into derivative transactions in 2008 and 2009, and subsequently converted the ADB Direct Loan from U.S. Dollar to Peso in March 2009. This allowed MNTC to fully hedge its exposure to variability in cash flows due to foreign currency exchange fluctuations through cross currency swaps. The following table summarizes the features of these hedging transactions:
Principal Amount Hedged $12,750 2,250 11,213 24,038 10,312 $60,563 Notional Amount = P590,708 105,863 504,563 1,130,964 489,019 = P2,821,117

Loan Facility ADB-CFS A ADB-CFS B COFACE USD Bank Facility EFIC

Effective Date September 23,2008 October 3, 2008 July 2, 2008 October 3, 2008 January 5, 2009

Swap Rate (In Thousands) = P46.33 47.05 45.00 47.05 47.42

In connection with MNTCs objective of reducing the exposure to foreign currency risk to zero, since revenues are 100.0% Philippine peso-denominated, the authorized toll rate (ATR) adjustment formula was revised with effect from the periodic toll rate adjustment on January 1, 2011. The revised formula removes the foreign exchange component factor, which passes on 50.0% of the foreign currency exposure on bi-annual adjustments following the initial toll rate adjustment.

*SGVMC214233*

- 143 On January 14, 2011, MNTCs exposure to foreign exchange currency risk in relation to its longterm loans was eliminated with the full prepayment of its outstanding US Dollar and ADB Direct loans. Maynilad. The servicing of foreign currency denominated loans of MWSS is among the requirements of the Concession Agreement. Majority of the revenues are generated in Philippine peso. However, there is a mechanism in place as part of the Concession Agreement wherein Maynilad (or the end consumers) can recover currency fluctuations through the FCDA that is approved by the Regulatory Office. RMCI. Majority of RMCIs transactions are denominated in Philippine peso. There are only minimal placements in foreign currencies and RMCI does not have any foreign currency denominated debt. As such, RMCIs foreign currency risk is minimal. MPIC Group. The Companys foreign currency denominated financial assets and liabilities as of December 31 are as follows:
U.S. Dollar Assets: Cash and cash equivalents Short-term investments Cash deposits Due from related parties Derivative assets Liabilities: Accounts payable Derivative liabilities Service concession fees payable Long-term debts Net foreign currency denominated liabilities $1,388 12,000 929 14,317 (164) (4,829) (75,494) (159,323) (239,810) ($225,493) 2009 Euro
(In Thousands)

2010 Euro
(In Thousands)

JPY (3,878,113) (3,878,113) (3,878,113)

(147) (1,515) (1,662) (1,662)

U.S. Dollar Assets: Cash and cash equivalents Short-term investments Due from related parties Derivative assets Liabilities: Accounts payable Derivative liabilities Service concession fees payable Long-term debts Net foreign currency denominated liabilities

JPY

SGD

$24,285 52,671 5,339 688 82,983 (117) (959) (82,163) (167,954) (251,193) ($168,210)

(19) (1,762) (1,781) (1,781)

(5,005,821) (5,005,821) (5,005,821)

(49) (49) (49)

*SGVMC214233*

- 144 The following table demonstrates sensitivity of cash flows due to changes in foreign exchange rates with all variables held constant. The estimates in the movement of the foreign exchange rates were based on the managements annual financial forecast. Changes in income before income tax pertain to those financial obligations which are unhedged.
Increase/Decrease in Peso to U.S. Dollar, Euro, JPY and SGD Exchange Rates 2010: U.S. Dollar Euro JPY U.S. Dollar Euro JPY 2009: U.S. Dollar Euro JPY Singapore Dollar U.S. Dollar Euro JPY Singapore Dollar +5% +5% +5% +5% -5% -5% -5% -5% 46.20 66.66 0.51 33.95 46.20 66.66 0.51 33.95 (388,565) (5,936) (127,648) (83) 388,565 5,936 127,648 83 +5% +5% +5% -5% -5% -5% 43.84 58.03 0.54 43.84 58.03 0.54 (494,281) (4,822) (104,709) 494,281 4,822 104,709

Foreign Exchange Rate

Effect on Income Before Income Tax


(In Thousands)

Liquidity Risk MPIC Group. Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Companys objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and facilities and advances from related parties. The Company monitors its cash position using a cash forecasting system. All expected collections, check disbursements and other cash payments are determined on a daily basis to arrive at the projected cash position to cover its obligations and ensuring that obligations are met as they fall due. The Company monitors its cash flow portion particularly the collections from receivables, receipts of dividends and the funding requirements of operations to ensure an adequate balance of inflows and outflows. The Company also has online facility with its depository banks wherein bank balances are monitored daily to determine the actual Company cash balances at any time. The Company has short-term credit lines amounting to P900.0 million = as of December 31, 2010 and 2009, and cash and cash equivalents and short-term deposits, amounting to P4,947.8 million and P8,813.1 million as of December 31, 2010 and 2009, = = respectively, that are allocated to meet the Companys short-term liquidity needs. The Companys liquidity and funding management process include the following: Managing the concentration and profile of debt maturities Maintaining debt financing plans Monitoring balance sheet liquidity ratios against internal and regulatory requirements

*SGVMC214233*

- 145 The table below summarizes the maturity profile of the Companys financial liabilities at December 31, 2010 and 2009 based on contractual undiscounted payments.
2010 On Demand Accrued expenses Accrued construction costs Trade payables Accounts payable Interest and other financing charges Dividends payable Retention payable Other current liabilities(a) Due to related parties Customers guaranty deposits(b) Financial guarantee obligation(c) Concession fees payable Long-term debts(c) LTIP payable(b) Derivative liabilities: Derivative contracts - receipts Derivative contracts - payments = P73,065 1,650,074 11,537 279,858 21,680 469,497 108,088 P = 2,613,799 = P2,613,799 Within 1 Year = P980,938 3,109,514 105,599 15,074 568,438 208,365 25,864 164,931 11,055 1,970,768 3,938,207 = P11,098,753 (1,453,761) 1,665,673 211,912 = P11,310,665 12 Years = P 1,022,506 1,791,321 = P2,813,827 = P2,813,827 23 Years
(In Thousands)

34 Years = P 1,717,616 4,506,281 P = 6,223,897 = P6,223,897

More than 4 Years = P 522,585 265,320 10,256,498 18,287,980 P = 29,332,383 = P29,332,383

Total = P1,054,003 3,109,514 1,755,673 26,611 848,296 208,365 25,864 186,611 7,281,357 522,585 298,485 15,878,118 38,533,677 133,009 = P69,862,168 (1,453,761) 1,665,673 211,912 = P70,074,080

= P 6,811,860 22,110 910,730 9,901,800 133,009 = P17,779,509 = P17,779,509

(a) (b) (c)

Excluding statutory payables. Included under Other long-term liabilities account in the consolidated balance sheet. Including contractual interest payments. 2009 On Demand Within 1 Year = P242,432 143,883 327,585 11,055 1,208,467 3,419,454 = P5,352,876 (460,421) 553,410 92,989 = P5,445,865 12 Years = P 11,055 1,462,278 3,546,083 = P5,019,416 = P5,019,416 23 Years
(In Thousands)

34 Years = P 11,055 619,947 2,621,236 = P3,252,238 = P3,252,238

More than 4 Years = P 494,453 265,320 6,267,204 40,904,255 = P47,931,232 (622,303) 646,545 24,242 = P47,955,474

Total = P1,277,519 1,726,337 1,432,453 7,350 1,035,659 170,477 16,901 106,328 429,718 494,453 309,540 10,280,140 58,798,938 = P76,085,813 (1,977,721) 2,194,551 216,830 = P76,302,643

Accrued expenses Accrued construction costs Trade payables Accounts payable Interest and other financing charges Dividends payable Retention payable Other current liabilities(a) Due to related parties Customers guaranty deposits(b) Financial guarantee obligation(c) Concession fees payable Long-term debts(c) Derivative liabilities: Derivative contracts - receipts Derivative contracts - payments

= P1,035,087 1,726,337 1,432,453 7,350 1,035,659 26,594 16,901 106,328 102,133 = P5,488,842 = P5,488,842

= P 11,055 722,244 8,307,910 = P9,041,209 (894,997) 994,596 99,599 = P9,140,808

(a) (b) (c)

Excluding statutory payables. Included under Other long-term liabilities account in the consolidated balance sheet. Including contractual interest payments.

Credit Risk Credit risk is the risk that the Company will incur a loss arising from customers, clients or counterparties that fail to discharge their contracted obligations. The Company manages and controls credit risk by setting limits on the amount of risk that the Company is willing to accept for individual counterparties and by monitoring exposures in relation to such limits.

*SGVMC214233*

- 146 MPIC. MPICs exposure to credit risk is equal to the carrying amount of its financial assets. MPIC has no concentration of credit risk. MNTC. MNTC has indirect exposure to credit risk on its trade receivables from tollway operations since the responsibility for account management and collection is part of the subscription account management function of its operator, TMC. MNTC, through TMC, offers a credit card payment option called automatic debit via credit card (Credit Card ADA) which, to a certain extent, operates like a post-payment account that can have some collection backlog if not managed properly. MNTCs policy is to provide TMC a 30-day window within which to collect declined Credit Card ADA transactions for the annual period. Any uncollected Credit Card ADA top-ups after the 30-day grace period will be considered as part of the toll collection variance of TMC (ADA variance). In 2010 and 2009, the cut-off date for the determination of the ADA variance is on January 30, 2010 and 2009, respectively, following the 30-day policy. As of January 30, 2010 and 2009, the declined ADA reload transactions in 2010 and 2009 amounted only to =0.2 million and =0.1 million, respectively. P P There is also credit risk on receivables from MNTCs hedging counterparty, Mizuho Corporate Bank (Mizuho). Under the hedge agreements, Mizuho shall pay MNTC, in U.S. dollar at specified dates, amounts equal to the semi-annual principal and interest payments for the MNTCs U.S. Dollar-denominated loans, namely ADB-CFS, USD Bank and COFACE. In exchange, MNTC pays Mizuho equivalent amounts in Philippine Peso at agreed-upon swap rates and fixed interest rates. MNTC manages its counterparty risk by transacting with counterparties of good financial condition and credit rating. Although limiting aggregate exposure on all outstanding derivatives to any individual counterparty would effectively manage settlement risk on derivatives, the CTA stipulated that hedge counterparties would not have voting rights and may not declare an event of default which other counterparties find difficult to accept. To mitigate this exposure, MNTC monitors and assesses on a regular basis the counterpartys credit rating in Moodys, S&P and Fitch to obtain reasonable assurance that the counterparty would be able to fulfill its financial obligations under the hedge agreements. On December 13, 2010, MNTC issued a notice of prepayment to Mizuho as hedging counterparty indicating MNTCs intent to cancel the cross currency and interest rate swap transactions on January 14, 2011, the same date as the prepayment of the loans. The cancellation proceeded in accordance with the notice. Maynilad. Being a basic need service company, historical collections of Maynilad are relatively high, thus, credit risk exposure is widely dispersed. Maynilad billings are payable on the due date, which is normally 14 days from the billing date. However, customers are given 60 days to settle any unpaid bills before disconnection. Receivable balances are monitored on an ongoing basis with the result that the Companys exposure to bad debts is not significant. RMCI. RMCI ensures that receivables are entered into with customers and students who have the ability to pay. RMCIs exposure to impairment losses is not significant since receivable balances are monitored on an ongoing basis.

*SGVMC214233*

- 147 MPIC Group. The table below shows the maximum exposure to credit risk of the Company without considering the effects of collaterals, credit enhancements and other credit risk mitigation techniques and the net maximum exposure to credit risk of the Company considering the effects of collaterals, credit enhancements and other credit risk mitigation techniques.
Maximum Exposure 2009 2010 (In Thousands) Financial assets at FVPL Derivative assets Derivative assets designated as accounting hedges Loans and receivables: Cash and cash equivalents(a) Short-term deposits Receivables - net Due from related parties (current and noncurrent)(d) Sinking fund(b) Cash deposits(b) Long-term cash deposits(c) Miscellaneous deposits(c) AFS financial assets(d) HTM investments: Investment in bonds Investment in treasury bills(c)
(a) (b) (c)

Net Maximum Exposure 2009 2010

P34,615 = 4,797,886 6,138 3,055,689 1,261,227 843,590 526,080 6,985 48,602 9,070,102 P19,650,914 =

= P31,911 7,301 6,370,480 2,433,418 13,475,300 566,649 796,302 554,400 71,734 282,787 400,600 4,000 = P24,994,882

P34,615 = 4,797,886 6,138 2,876,685 1,133,935 843,590 526,080 6,985 48,602 9,070,102 P19,344,618 =

= P31,911 7,301 6,370,480 2,433,418 13,475,300 420,418 796,302 554,400 71,734 282,787 400,600 4,000 = P24,848,651

Excludes cash on hand amounting to =143.8 million and =9.2 million as of December 31, 2010 and 2009, respectively. P P Included under Other current assets account in the consolidated balance sheets. Included under Other noncurrent assets account in the consolidated balance sheets. (d) Includes advances to and investment in preferred shares of Beacon Electric (see Note 12).

*SGVMC214233*

- 148 As at December 31, 2010, the aging analysis of past due but not impaired financial assets is as follows:
Neither Past Due nor Impaired Cash and cash equivalents Short-term deposits Receivables: Notes receivable Trade receivables Accrued interests receivable Advances to other affiliates Advances to officers and employees Others Sinking fund(a) Cash deposits(a) Due from related parties(c) AFS financial assets(c) Miscellaneous deposits(b) Long-term cash deposit(b) Derivative assets
*(a) (b) (c)

<30 Days P = 19,085 3,032 60 P22,177 =

3060 Days P = 48,253 4,233 331 2,020 P54,837 =

Past Due but not Impaired 6090 Days 90120 Days >120 Days (In Thousands) P = 7,349 5,485 191 2,026 P15,051 = P = 5,177 3,120 2,639 999 P11,935 = P = 18,924 2,573 1,665 198,247 P221,409 =

Total P =

Total P4,797,886 = 6,138

Individually Impaired P =

Total P4,797,886 = 6,138

P4,797,886 = 6,138 1,114,002 1,333,091 10,614 91,385 37,366 347,174 843,590 526,080 1,057,875 9,070,102 48,602 6,985 34,615 P19,325,505 =

1,114,002 98,788 1,431,879 15,411 26,025 91,385 37,366 7,858 355,032 843,590 526,080 203,352 1,261,227 9,070,102 48,602 6,985 34,615 P325,409 P19,650,914 = =

180,000 1,294,002 280,906 1,712,785 6,405 32,430 12,012 103,397 5,110 42,476 3,484 358,516 843,590 526,080 1,261,227 9,070,102 48,602 6,985 34,615 P487,917 P20,138,831 = =

Included under Other current assets account in the consolidated balance sheets. Included under Other noncurrent assets account in the consolidated balance sheets. Includes advances to and investment in preferred shares of Beacon Electric (see Note 12)

*SGVMC214233*

- 149 As at December 31, 2009, the aging analysis of past due but not impaired financial assets is as follows:
Neither Past Due nor Impaired Cash and cash equivalents Short-term deposits Receivables: Notes receivable Trade receivables Accrued interests receivable Advances to other affiliates Advances to officers and employees Others Sinking fund(a) Cash deposits(a) Due from related parties Investment in bonds Investment in treasury bills(b) AFS financial assets Miscellaneous deposits(b) Derivative assets
*(a) (b)

<30 Days = P

3060 Days = P 224,739 310 1,963 = P227,012

Past Due but not Impaired 6090 Days 90120 Days >120 Days (In Thousands) = P 158,056 300 259 = P158,615 = P 115,772 310 273 = P116,355 = P

Total = P

Total = P6,370,480 2,433,418

Individually Impaired = P

Total = P6,370,480 2,433,418

= P6,370,480 2,433,418

11,205,000 468,343 143,984 62,786 15,649 22,436 217,400 796,302 554,400 526,027 404 400,600 4,000 282,787 71,734 39,212 = P12,249,925 P11,365,037 =

523,480 11,728,480 11,728,480 307,756 950,307 1,418,650 2,145 18,714 81,500 6,561 6,561 28,997 273 217,673 796,302 554,400 37,996 40,622 566,649 400,600 4,000 282,787 71,734 39,212 = P877,938 P12,744,957 P24,994,882 = =

150,000 11,878,480 278,004 1,696,654 81,500 69,917 69,917 9,894 38,891 3,484 221,157 796,302 554,400 566,649 400,600 4,000 282,787 71,734 39,212 = P511,299 P25,506,181 =

Included under Other current assets account in the consolidated balance sheets. Included under Other noncurrent assets account in the consolidated balance sheets.

*SGVMC214233*

- 150 The Company also assesses each financial assets based on its credit quality. Cash and cash equivalents and sinking fund are classified as high grade since these are placed with reputable local and international banks which meet the credit rating criteria set under the loan agreements. Qualified banks in the Philippines are those with a bank deposit rating of at least equal to the sovereign rating, or if there is no bank deposit rating, bank financial strength rating of at least B by Moody's, or whose credit rating given by Moody's, Standard & Poors (S&P), or Fitch is equal to the Philippine government, or whose issuer or issue credit rating by Philratings is at least Aa. Qualified banks outside the Philippines are those whose senior unsecured obligations are rated at least BBB by S&P. In addition to this, the Company has investment in bonds issued by the Philippine government, rated as Aa by Philratings. For the Companys other financial assets, high-grade relate to those financial assets which are consistently collected before the maturity date. In addition, these are financial assets from counterparties that also have corresponding collectibles from the Company for certain contracted services. The first layer of security comes from the Companys ability to offset amounts receivable from those counterparties against payments due to them. Standard grade include financial assets that are collected on their due dates even without an effort from the Company to follow them up. Substandard grade relate to financial assets which are collected on their due dates provided that the Company made a persistent effort to collect them. Past due receivables and advances include those that are past due but are still collectible. The table below shows the credit quality per class of financial assets of the Company that were neither past due nor impaired.
Standard Grade 2010 Sub-standard Grade

High Grade Financial Assets at FVPL Derivative assets Loans and Receivables: Cash and cash equivalents Short-term deposits Receivables: Notes receivable Trade receivables Accrued interests receivable Advances to officers and employees Advances to other affiliates Others Sinking fund(a) Cash deposits(a) Long-term cash deposits(b) Due from related parties(c) Miscellaneous deposits(b) AFS financial assets(c)
*(a) (b)

Total

(In Thousands)

= P34,615 4,797,886 6,138 457,015 1,333,091 6,092 37,366 91,385 347,174 843,590 526,080 6,985 1,057,875 48,602 8,858,277 = P18,452,171

= P P =

= P 656,987 4,522 211,825 P =873,334

= P34,615 4,797,886 6,138 1,114,002 1,333,091 10,614 37,366 91,385 347,174 843,590 526,080 6,985 1,057,875 48,602 9,070,102 = P19,325,505

Included under Other current assets account in the consolidated balance sheets. Included under Other noncurrent assets account in the consolidated balance sheets. (c) Includes advances to and investment in preferred shares of Beacon Electric (see Note 12).

*SGVMC214233*

- 151 2009 Standard Sub-standard Grade Grade


(In Thousands)

High Grade Financial Assets at FVPL Derivative assets Derivative assets designated as accounting hedges Loans and Receivables: Cash and cash equivalents Short-term deposits Receivables: Notes receivable Trade receivables Accrued interests receivable Advances to officers and employees Others Sinking fund(a) Cash deposits(a) Due from related parties Miscellaneous deposits(b) AFS financial assets HTM Investments: Investment in bonds Investments in treasury bills(a)
(a) (b)

Total

= P31,911 7,301 6,370,480 2,433,418 468,343 4,170 21,740 115,337 796,302 554,400 526,027 71,734 282,787 400,600 4,000 = P12,088,550

= P 58,616 696 55,350 = P114,662

= P 46,713 = P46,713

= P31,911 7,301 6,370,480 2,433,418 468,343 62,786 22,436 217,400 796,302 554,400 526,027 71,734 282,787 400,600 4,000 = P12,249,925

Included under Other current assets account in the consolidated balance sheets. Included under Other noncurrent assets account in the consolidated balance sheets.

Capital Management The primary objective of the Companys capital management policies is to ensure that the Company maintains a strong balance sheet and healthy capital ratios in order to support its business and maximize shareholder value. The Company ensures that it is compliant with all debt covenants not only at the consolidated level but also at the Parent Company and each of its subsidiary. The following debt covenants are being complied with by the Company as part of maintaining a strong credit rating with its creditors: MPIC. MPIC Omnibus Agreement provides that MPIC shall ensure during the terms of the Notes that its Debt-to-equity ratio does not exceed 70:30, and its debt service coverage ratio (DSCR) is at a minimum of 1.3x. To be able to declare dividends, MPIC shall achieve a DSCR of 1.5x. As of December 31, 2010, MPIC is in compliance with the required financial ratios and other loan covenants. MNTC. Under the loan agreement, there is a limit to the amount of additional senior debt that it can incur, US$50 million (or its Peso equivalent, as escalated) for Phase II expansion and US$10 million (or its Peso equivalent, as escalated) for general corporate purposes within three years after November 8, 2006. After this three-year period, incurrence of additional senior debt is governed by certain cash flow tests such as forward debt-service coverage ratios (minimum of 1.3x) and Debt:EBITDA ratio (maximum of 3:1).

*SGVMC214233*

- 152 MNTC also ensures that its debt to equity ratio is in line with the requirements of the Bangko Sentral ng Pilipinas (BSP) and the BOI. BSP requires MNTC to maintain a long-term debt to equity ratio of at most 75:25 during the term of the foreign loans while BOI requires MNTC to comply with a 75:25 debt-equity ratio as proof of capital build-up. MNTCs long-term debt to equity ratio stood 59:41 and 55:45 as of December 31, 2010 and 2009, respectively, indicating that MNTC has the capacity to incur additional long-term debt to build up its capital. MNTC continuously evaluates whether its capital structure can support its business strategy. In 2010, MNTC launched its capital restructuring plan which aims to maximize its flexibility to pursue expansion opportunities within and outside the NLE concession and, at the same time, maintain a steady flow of dividends to shareholders. In order to do this, MNTC had to take certain steps to complete its transition away from its project-finance origins. First of these steps is the prepayment of the US Dollar and ADB Direct loans. While the prepayment entailed costs related to the cancellation of several hedge transactions, the low interest environment and strong liquidity of the local market ensured the Company that the loan prepayment and swap termination can be done efficiently. To effect the prepayment, MNTC obtained a short-term Peso bridge loan facility that will eventually be refinanced with a long-term Peso loan facility. Post prepayment, the weighted average interest rate on MNTCs long term loan facilities went down from 9.6% per annum to 6.6% per annum. Maynilad. Maynilad closely manages its capital structure vis-a-vis a certain target gearing ratio, which is net debt divided by total capital plus net debt. Its target gearing ratio is 75%. This target is to be achieved over the next 5 years by managing Maynilads level of borrowings and dividend payments to shareholders. For purposes of computing its net debt, Maynilad includes the outstanding balance of its long-term interest-bearing loans, service concession obligation payable to MWSS and trade and other payables, less the outstanding cash and cash equivalents, short-term investments, deposits and sinking fund. To compute its capital, Maynilad uses net equity. RMCI. RMCI considers the carrying amount of its equity in managing its capital structure. MPIC Group. The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Company may obtain additional advances from shareholders, return capital to shareholders, issue new shares or issue new debt or redemption of existing debt. No changes were made in the objectives, policies or processes during the years ended December 31, 2010 and 2009. The Company monitors capital on the basis of debt-to-equity ratio. Debt-to-equity ratio is calculated as long-term debts over equity. During 2010, the Companys strategy, which was unchanged from 2009, was to maintain a sustainable debt-to-equity ratio. The debt-to-equity ratio on December 31, 2010 and 2009 are as follows:
2010
(In Thousands)

2009 = P42,786,400 60,275,638 1:1.4

Long-term debts Equity Debt-to-equity ratio

P32,523,000 = 65,279,362 1:2

*SGVMC214233*

- 153 -

38. Financial Assets and Financial Liabilities Carrying Values The carrying values of the Companys financial assets and financial liabilities and reconciliations with the amounts in the consolidated balance sheets as of December 31, 2010 and 2009 are as follows:
Financial Assets Loans and FVPL Receivables ASSETS Cash and cash equivalents Short-term deposits Receivables - net Advances to contractors and consultants Inventories - at cost Real estate for sale Due from related parties - net Derivative assets AFS financial assets Other current assets - net Investments in associates and interest in joint ventures (a) Goodwill Service concession assets - net Property and equipment - net Deferred tax assets net Other noncurrent assets HTM 2010 Financial Liabilities AFS Other Financial Financial Assets FVPL Liabilities (In Thousands) = P 1,059,658 8,010,444 P =9,070,102 = P P = = P Nonfinancial Assets/ Liabilities

Total

Total

= P 34,615

= P4,797,886 6,138 3,055,689 504,840 1,369,670

= P P =

= P4,797,886 6,138 3,055,689 504,840 34,615 1,059,658 1,369,670

= P143,807 288,285 158,817 187,010 951,234

= P4,941,693 6,138 3,055,689 288,285 158,817 187,010 504,840 34,615 1,059,658 2,320,904

756,387 55,587 = P34,615 P10,546,197 =

8,766,831 26,104,826 34,871,657 12,751,001 12,751,001 69,348,123 69,348,123 1,423,235 1,423,235 275,288 275,288 55,587 93,583 149,170 P = = P19,650,914 P111,725,209 P131,376,123 = =

LIABILITIES Accounts payable and other current liabilities Unearned toll revenues Unearned tuition and other school fees Income tax payable Due to related parties Derivative liabilities Accrued retirement costs Provisions Service concession fees payable Long-term debt Deferred credits and other long-term liabilities Deferred tax liabilities - net

= P

= P

= P

= P

= P 211,912

= P7,214,937 6,783,636 9,130,225 32,523,000

= P7,214,937 6,783,636 211,912 9,130,225 32,523,000

= P489,892 30,986 29,306 30,940 55,653 2,496,499

= P7,704,829 30,986 29,306 30,940 6,783,636 211,912 55,653 2,496,499 9,130,225 32,523,000

721,007 721,007 3,441,150 4,162,157 2,937,618 2,937,618 P = = P = P = P = P211,912 P56,372,805 P56,584,717 P9,512,044 P66,096,761 = = = = (a) Includes advances to Beacon Electric classified as loans and receivables and investment in preferred shares of Beacon Electric classified as AFS financial assets. 2009 Financial Liabilities AFS Other Financial Financial Assets FVPL Liabilities (In Thousands) = P 282,787 = P282,787 = P = P = P

Financial Assets FVPL ASSETS Cash and cash equivalents Short-term deposits Receivables - net Advances to contractors and consultants Inventories - at cost Real estate for sale Due from related parties - net Derivative assets AFS financial assets Noncurrent asset held for sale Other current assets - net Investments in associates and interest in joint ventures Investment in bonds Goodwill Service concession assets - net Property and equipment - net Deferred tax assets - net Other noncurrent assets Loans and Receivables HTM

Total

Nonfinancial Assets/ Liabilities

Total

= P 39,212

= P6,370,480 2,433,418 13,475,300 566,649 1,350,702

= P 4,000 400,600 = P404,600

= P6,370,480 2,433,418 13,475,300 566,649 39,212 282,787 1,354,702

= P9,251 527,571 96,012 187,010 329,570 239,130

= P6,379,731 2,433,418 13,475,300 527,571 96,012 187,010 566,649 39,212 282,787 329,570 1,593,832

71,734 = P39,212 P24,268,283 =

27,370,023 27,370,023 400,600 400,600 12,551,750 12,551,750 62,185,407 62,185,407 634,405 634,405 214,992 214,992 71,734 59,832 131,566 = = P P24,994,882 P104,404,953 P129,399,835 = =

*SGVMC214233*

- 154 2009 Financial Liabilities AFS Other Financial Financial Assets FVPL Liabilities (In Thousands) = P = P = P 44,467 = P5,773,024 429,718 10,280,140 42,786,400

Financial Assets FVPL LIABILITIES Accounts payable and other current liabilities Unearned toll revenues Income tax payable Due to related parties Derivative liabilities Provisions Service concession fees payable Long-term debt Deferred credits and other long-term liabilities Deferred tax liabilities - net Loans and Receivables HTM

Total

Nonfinancial Assets/ Liabilities

Total

= P = P

= P = P

= P = P

= P5,773,024 429,718 44,467 10,280,140 42,786,400

= P444,943 21,135 10,818 2,285,938

= P6,217,967 21,135 10,818 429,718 44,467 2,285,938 10,280,140 42,786,400

560,022 560,022 = P44,467 P59,829,304 P59,873,771 = =

3,814,900 4,374,922 2,672,692 2,672,692 = P9,250,426 P69,124,197 =

Fair Values The classification and comparison by category of the carrying values and fair values of all of the Companys financial instruments as of December 31, 2010 and 2009 are as follows:
2010 Carrying Value Financial Assets Financial Assets at FVPL Derivative assets Designated as accounting hedges Derivative assets Loans and Receivables: Cash and cash equivalents Short-term deposits Receivables (current and noncurrent): Notes receivable Trade receivables Accrued interests receivable Advances to officers and employees Dividend receivable Others Total Receivables Due from related parties Advances to a joint venture(a) Sinking fund(b) Cash deposits(b) Long-term cash deposits(c) Miscellaneous deposits(c) Total loans and receivables AFS Financial assets: NEPSCC Landco CMMTC BLC Investment in bonds Investments in preferred shares(a) Total AFS financial assets HTM Investments Investment in bonds Investment in treasury bills(c) Total AFS financial assets Total financial assets Carrying Fair Value Value (In Thousands) 2009 Fair Value

P34,615 = 34,615 4,797,886 6,138 1,114,002 1,443,781 26,025 32,790 28,494 410,597 3,055,689 P504,840 = 756,387 843,590 526,080 6,985 48,602 10,546,197 236,262 211,825 140,953 46,525 424,093 8,010,444 9,070,102 P19,650,914 =

P34,615 = 34,615 4,797,886 6,138 1,195,590 1,431,879 26,025 37,366 28,494 417,923 3,137,277 P561,524 = 756,387 843,590 526,080 6,985 48,602 10,684,469 236,262 211,825 140,953 46,525 424,093 8,010,444 9,070,102 P19,789,186 =

= P31,911 7,301 39,212 6,370,480 2,433,418 11,728,480 1,418,650 81,500 28,997 7,841 209,832 13,475,300 = P566,649 796,302 554,400 71,734 24,268,283 236,262 46,525 282,787 400,600 4,000 404,600 = P24,994,882

= P31,911 7,301 39,212 6,370,480 2,433,418 11,728,480 1,418,650 81,500 28,997 7,841 209,832 13,475,300 = P609,242 796,302 554,400 74,843 24,313,985 236,262 46,525 282,787 405,948 3,929 409,877 = P25,045,861

*SGVMC214233*

- 155 2010 Carrying Value Financial Liabilities Designated as accounting hedges Derivative liabilities Other Financial Liabilities: Accounts payable and other current liabilities: Accrued expenses Accrued construction costs Trade payables Interest and other financing charges Dividends payable Retention payable Accounts payable Others Total accounts payable and other current liabilities Due to related parties Service concession fees payable (current and noncurrent) Long-term debts (current and noncurrent) Customers guaranty deposits(d) LTIP payable(d) Financial guarantee obligation(d) Total financial liabilities
(a) (b) (c)

2009 Fair Value Carrying Value Fair Value

P211,912 =

P211,912 =

= P44,467

= P44,467

1,054,003 3,109,514 1,755,673 848,296 208,365 25,864 26,611 186,611 7,214,937 6,783,636 9,130,225 32,523,000 522,585 133,009 65,413 P56,584,717 =

1,054,003 3,109,514 1,755,673 848,296 208,365 25,864 26,611 186,611 7,214,937 7,456,085 9,490,978 34,328,446 463,276 133,009 122,098 P59,420,741 =

1,277,519 1,726,337 1,432,453 1,035,659 170,477 16,901 7,350 106,328 5,773,024 429,718 10,280,140 42,786,400 494,453 65,569 = P59,873,771

1,277,519 1,726,337 1,432,453 1,035,659 170,477 16,901 7,350 106,328 5,773,024 429,718 10,692,524 44,698,741 408,110 108,162 = P62,154,746

Included in Investments in associates and interest in joint ventures account in the consolidated balance sheet. Included in Other current assets account in the consolidated balance sheets. Included in Other noncurrent assets account in the consolidated balance sheets. (d) Included in Other long-term liabilities account in the consolidated balance sheets.

The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate such value: Cash and Cash Equivalents. Due to the short-term nature of transactions, the fair value of cash and cash equivalents approximate the carrying amounts at end of reporting period. Receivables, Sinking fund, Cash Deposits, and Accounts Payable and Other Current Liabilities. Carrying values approximate the fair values at balance sheet date due to the short-term nature of the transactions. Due to/from Related Parties. Estimated fair value is based on the present value of all future cash flows discounted using the prevailing PDST-F rate of interest of a similar instrument. Service Concession Fees Payable and Customers Guaranty Deposits. Estimated fair value is based on the discounted value of future cash flows using using the applicable rates for similar types of financial instruments.

*SGVMC214233*

- 156 Financial Guarantee Obligation. Estimated fair value is based on the discounted value of future cash flows using the prevailing peso interest rates that are specific to the tenor of the instruments cash flows ranging from 1.2% to 10.9% in 2010 and 4.1% to 11.3% in 2009. AFS Financial Assets. Unquoted shares classified as AFS financial assets are carried at cost as there are no other reasonable basis for fair value. Investments in ROP bonds classified as AFS financial assets is carried at fair value based on its quoted market price (see Note 10). Investment in Bonds. These pertain to quoted ROP treasury bonds which bear fixed interest rates ranging from 5.3% to 9.0%, payable quarterly, and with the following maturities:
Maturity Date July 31, 2011 September 24, 2012 July 31, 2013 2009 = P50,000 300,000 50,600 = P400,600

Investment in treasury bills amounting to =4.0 million pertain to quoted zero-coupon ROP shortP term securities with a yield of 4.13% per annum maturing on June 2, 2010. The fair values are based on the quoted market prices of the financial instruments as of December 31, 2009. Miscellaneous Deposits and Other Financial Assets. Estimated fair value is based on the discounted value of future cash flows using the prevailing peso interest rates that are specific to the tenor of the instruments cash flows at end of each reporting period. Long-term Debt. For both fixed rate and floating rate (repriceable every six months) U.S. Dollardenominated debts and peso-denominated fixed rate corporate notes, estimated fair value is based on the discounted value of future cash flows using the prevailing credit adjusted US risk-free rates and prevailing Philippine risk free rates ranging from 1.3% to 6.1% and 0.61% to 6.1% in 2010 and 2009, respectively. Derivative Assets and Liabilities. The fair values of interest rate swaps and cross currency swaps are estimated based on the net present value of estimated future cash flows using US and Philippine risk free rates ranging from 0.2% to 4.0% in 2010 and 1.7% to 2.2% in 2009. The derivative asset from the conversion option bifurcated from the preferred shares of Landco are carried at cost since the underlying common shares are unquoted and there is no reliable basis for its fair value. Fair Value Hierarchy The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

*SGVMC214233*

- 157 Below are the set of financial instruments carried at fair value and their classification in the fair value hierarchy as of December 31, 2010 and 2009:
December 31, 2010 Financial Assets Financial Assets at FVPL Derivative assets AFS financial assets Investment in bonds Level 1
(In Thousands)

Level 2

Level 3

= P34,615 424,093 458,708

= P 424,093 424,093

= P34,615 34,615

= P

Financial Liabilities Derivative liabilities accounted as accounting hedges

= P211,912 December 31, 2009

= P

= P211,912

= P

Level 1 = P

Level 2 = P31,911 7,301 39,212

Level 3 = P

Financial Assets Financial Assets at FVPL Derivative assets Derivative assets designated as accounting hedges

= P31,911 7,301 39,212

Financial Liabilities Derivative liabilities accounted as accounting hedges

= P44,467

= P

= P44,467

= P

During the year ended December 31, 2010 and 2009, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements. Derivative Financial Instruments As of December 31, 2010 and 2009, the Company has freestanding derivatives used to hedge foreign exchange and interest rate risks on its long-term loans. In 2010, the Company bifurcated an embedded derivative from its investment in preferred shares of another entity. Embedded Derivative. As discussed in Note 6, the Company bifurcated the conversion option in its investment in Landcos preferred shares which are classified as liability instrument. The embedded derivative gives the Company the option to convert the preferred shares into common shares of Landco at a conversion price of =156.27 subject to the occurrence of certain contingent P events. At initial recognition, the Company assigned a value amounting to P31.7 million to the conversion = option. This amount is the residual after deducting from the value of the hybrid instrument the fair value of the host instrument (preferred shares without any embedded derivative) calculated as the present value of all future cash flows from the preferred shares discounted using credit adjusted interest rates ranging from 8.5% to 11.8%. The conversion option is carried at cost in the consolidated balance sheet since the underlying common shares of Landco are unquoted and there is no reliable basis for its fair value.

*SGVMC214233*

- 158 Freestanding Derivatives. In 2010 and 2009, MNTC entered into cross currency swap and interest rate swap transactions to hedge its foreign exchange and interest rate exposures on the following loans:
Outstanding Balance as of December 31, December 31, 2009 2010
(In Thousands)

Loan Facility ADB-CFS A ADB-CFS B USD Bank Facility COFACE EFIC

Interest Rate LIBOR + 2.75% LIBOR + 2.75% LIBOR + 3.00% 6.13% 8.03%

$7,438 1,312 14,022 6,541 6,562 $35,875 P380,520 =

$9,563 1,687 18,028 8,409 8,438 $46,125 = P489,240

ADB Direct

PHIREF + 4.66%

The following table provides information about MNTCs outstanding derivative financial instruments as of December 31, 2010 and 2009 and their related fair values:
2010 Asset Cross Currency Swaps to Hedge ADB-CFS A ADB-CFS B COFACE EFIC USD Bank Facility Interest Rate Swaps to Hedge ADB Direct COFACE Liability
(In Thousands)

2009 Asset Liability

= P 2,902 2,902 = P2,902

(P41,094) = (9,030) (34,976) (96,612) (181,712) (17,200) (13,000) (30,200) (P211,912) =

= P 27,223 27,223 7,301 4,688 11,989 = P39,212

(P3,493) = (2,968) (7,109) (30,897) (44,467) (P44,467) =

On December 7, 2010, an irrevocable prepayment notice was issued by MNTC to prepay in full the hedged loans on Janury 14, 2011. Subsequently, on December 13, 2010, MNTC issued a notice of prepayment to the hedging counterparty indicating its intent to preterminate the cross currency swap and interest rate swap transactions with the counterparty on January 14, 2011, the same date as the prepayment of the loans. The cancellation proceeded in accordance with the notice. Derivatives Accounted for as Non-hedge Transactions. On July 1, 2008, MNTC entered into a cross currency swap to hedge its fair value exposure on the COFACE covered loan due to movements in foreign exchange and interest rates. Under the cross currency swap, MNTC will receive US$11.2 million in installments of US$0.9 million every six months starting December 15, 2008 until June 16, 2014 plus semi-annual interest at a fixed rate of 6.13% per annum on the outstanding U.S. dollar balance, and pay P504.6 million, payable in equal semi= annual installments of =42.0 million every six months starting December 15, 2008 until June 16, P 2014, and semi-annual interest at six-months Philippine Reference Rates (PHIREF) plus 2.75% per annum on the outstanding peso balance. As of December 31, 2010 and 2009, the outstanding notional amount of the swap amounted to US$6.5 million and US$8.4 million, respectively.

*SGVMC214233*

- 159 On February 26, 2009, MNTC entered into an interest rate swap where MNTC receives semiannual interest based on six-months PHIREF plus 2.75% per annum spread and pays semi-annual fixed interest at 7.6% per annum, calculated based on an amortizing peso notional amount, starting June 15, 2009 until June 16, 2014. The outstanding notional amount of the swap as of December 31, 2010 and 2009 amounted to P294.3 million and P378.4 million, respectively. = = The interest rate swap, together with the existing cross currency swap entered in 2008 for the COFACE loan, effectively transformed the dollar denominated floating rate loan into a fixed rate peso loan. For the periods ended December 31, 2010 and 2009, the fair value changes of the interest rate swap and cross currency swap (both hedging the COFACE loan) amounted to =42.0 million loss P and P19.2 million loss, respectively. The loss and gain amounts were recognized as part of Other = expense account and Other income account, respectively, in the consolidated statements of income (see Note 29). Derivatives Accounted for Under Cash Flow Hedge Accounting. On September 23, 2008 and October 3, 2008, MNTC entered into cross currency swap transactions with Mizuho to hedge the cash flow variability on the ADB loans and USD Bank facility due to movements in foreign exchange and interest rates. In 2009, additional derivative transactions were entered to hedge the cash flow variability on the EFIC due to movements in foreign exchange rates and ADB Direct Loans due to movement in interest rates. ADB-CFS A Under the cross currency swap, MNTC will receive US$12.8 million in installments of US$1.1 million every six months starting December 15, 2008 until June 16, 2014 plus semi-annual interest at a rate of 6-month LIBOR plus 2.75% per annum spread on the outstanding U.S. Dollar balance, and pay =590.7 million, payable in equal semi-annual installments of P49.2 million every P = six months starting December 15, 2008 until June 16, 2014, and semi-annual interest at fixed rate of 8.3% per annum on the outstanding peso balance. As of December 31, 2010 and 2009, the outstanding notional amount of the swap amounted to $7.4 million and $9.6 million, respectively. ADB-CFS B Under the cross currency swap, MNTC will receive US$2.2 million in installments of US$0.2 million every six months starting December 15, 2008 until June 16, 2014 plus semi-annual interest at a rate of 6-month LIBOR plus 2.75% per annum spread on the outstanding U.S. Dollar balance, and pay =105.9 million, payable in equal semi-annual installments of P8.8 million every P = six months starting December 15, 2008 until June 16, 2014, and semi-annual interest at fixed rate of 8.9% per annum on the outstanding peso balance. As of December 31, 2010 and 2009, the outstanding notional amount of the swap amounted to $1.3 million and $1.7 million, respectively. USD Bank Facility Under the cross currency swap, MNTC will receive US$24.0 million in installments of US$2.0 million every six months starting December 15, 2008 until June 16, 2014 plus semi-annual interest at a rate of 6-months LIBOR plus 3.0% per annum spread on the outstanding U.S. Dollar balance, and pay =1,131.0 million, payable in equal semi-annual installments of =94.2 million P P every six months starting December 15, 2008 until June 16, 2014, and semi-annual interest at fixed rate of 9.1% per annum on the outstanding peso balance. As of December 31, 2010 and 2009, the outstanding notional amount of the swap amounted to $14.0 million and $18.0 million, respectively.

*SGVMC214233*

- 160 EFIC MNTC entered into a cross currency swap to hedge its cash flow variability on the EFIC loan due to movements in foreign exchange rates effective January 5, 2009. Under the cross currency swap, MNTC will receive US$10.3 million in installments of US$0.9 million every six months starting June 15, 2009 until June 16, 2014, plus semi-annual fixed interest of 8.03% per annum based on the amortizing US dollar notional amount, and pay =498.0 million, payable in equal P semi-annual installments of =44.5 million every six months starting June 15, 2009 until June 16, P 2014, plus semi-annual fixed interest at 11.5% per annum on the amortizing peso notional amount. The cross currency swap effectively transformed the fixed rate US dollar loan into a fixed rate peso denominated loan. As of December 31, 2010 and 2009, the outstanding notional amount of the swap amounted to US$6.6 million and US$8.4 million, respectively. ADB Direct On April 1, 2009, MNTC entered into a pay-fixed, receive-floating interest rate swap contract to hedge the variability of cash flows pertaining to the floating rate ADB Direct Loan. Under the swap, MNTC will receive semi-annual interest equal to 6-month PHIREF plus 4.66% per annum spread and pay semi-annual fixed interest of 9.4% per annum, based on the amortizing principal balance of the ADB Direct Loan, starting from June 15, 2009 until June 16, 2014. The interest rate swap effectively fixed the floating rate of the said loan over the duration of the agreement at 9.4% per annum. As of December 31, 2010 and 2009 the outstanding notional amount of the interest rate swap amounted to =380.5 million and =489.2 million, respectively. P P Under the cash flow hedge, the effective portion of the change in fair values of the designated hedges are recognized directly in equity and recycled in earnings in the same periods during which the hedged transaction affects earnings. As a result of MNTC issuing a notice to preterminate the cross currency swaps and interest rate swaps, it discontinued applying hedge accounting on those derivatives accounted for under cash flow hedge accounting as the hedges no longer meet prospective effectiveness. Hence, fair value changes of the derivatives for the last quarter of 2010 were taken to the consolidated statement of income. Hedge Effectiveness of Cash Flow Hedges. Movements of the Companys cumulative translation adjustments on cash flow hedges for the years ended December 31, 2010 and 2009 are as follows:
2010
(In Thousands)

2009 (P52,069) = (92,696) 122,089 (22,676) 6,803 (15,873) 5,223 (P10,650) =

Balance at beginning of year Changes in fair value of cash flow hedges Transferred to consolidated statement of income(a) Tax effects of items taken directly to equity Less share of non-controlling interests Balance at end of year
(a)

(P22,676) = (162,431) 181,630 (3,477) 1,043 (2,434) 801 (P1,633) =

In 2010,(P45.8) million,(P206.2) million and =70.4 million are included in Interest expense, Mark-to-market gain/(loss) = = P andForeign exchange gain (loss) account, respectively. In 2009, (P39.7)million and (P82.4) million are included in = = Foreign exchange gain (loss) and Interest expense account, respectively.

In 2010 and 2009, the ineffective portion of the changes in fair value of the cash flow hedges is not material.

*SGVMC214233*

- 161 Fair Value Changes on Derivatives. The net changes in the fair values of all derivative instruments for the years ended December 31, 2010 and 2009 follow:
2010
(In Thousands)

2009 = P23,181 (92,696) (19,219) (88,734) 83,479 (P5,255) =

Balance at beginning of year Embedded derivative bifurcated during the year Net changes in fair values of derivatives: Designated as accounting hedges Not designated as accounting hedges(a) Fair value of settled instruments Balance at end of year
(a)

(P5,255) = 31,713 (162,431) (142,987) (278,960) 101,663 (P177,297) =

In 2010, (P86.8) million and (P56.2) million are included under Mark-to-market gain (loss) and Interest expense account, = = respectively. In 2009, the amount is included under Mark-to-market gain (loss) account.

2010
(In Thousands)

2009

Presented as: Derivative Assets - current Derivative Assets - noncurrent Derivative Liabilities - current Derivative Liabilities - noncurrent

P2,902 = 31,713 211,912 (P177,297) =

= P 39,212 44,467 (P5,255) =

39. Events after the Reporting Period Cash Dividends On March 3, 2011, the BOD approved the declaration of cash dividends of P0.015 per common = share in favor of the Parent Companys stockholders of record as of the record date of March 17, 2011, with payment date of April 12, 2011. On the same date, the BOD also approved the declaration of cash dividends of 10.0% based on the par value of Class A Preferred Shares or the amount of P3.0 million in favor of MPHI, the sole = holder of Class A Preferred Shares.

40. Supplemental Cash Flow Information


2010 Noncash investing and financing activities: Transfer of investment in Meralco to Beacon Electric (see Note 12) Subscription of Beacon Electric shares (see Note 12) Additions to property and equipment through recognition of a contingent liability (see Note 4) (Forward)

2009
(In Thousands)

2008

= P24,540,310 (24,540,310) 179,488

= P

= P

*SGVMC214233*

- 162 2010 Acquision of Meralco shares through issuance of MPIC shares (see Notes 12, 21 and 22) Additions to service concession assets and concession fees payable resulting from extension of the concession term for Maynilad (see Notes 13 and 18) Conversion of advances from MPHI to equity (see Notes 21 and 22) Increase in AFS financial asset from an exchange of note receivable (see Notes 6 and 10) Acquisition of additional interest in DMWC through conversion of a convertible Note (see Note 4) Conversion of MPHI loan to equity (see Notes 19 and 22) Acquisition of additional interest in Maynilad through issuance of shares (see Notes 4 and 22)

2009
(In Thousands)

2008

= P

= P14,285,449

= P

3,772,109 2,066,389 236,262


7,575,700 2,029,853 2,029,200

*SGVMC214233*

EXHIBIT II SUPPLEMENTARY SCHEDULES

SEC Form 17- A 2010 Supplementary Schedules

SyC ip Go rres Vel ayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines Phone: (632) 891 0307 Fax: (632) 819 0872 ww w.sgv.com.ph BOA/PR C R eg. N o. 0001 SEC Accreditation N o. 0012-FR-2

INDEPENDENT AUDITORS REPORT ON SUPPLEMENTARY SCHEDULES

The Stockholders and the Board of Directors Metro Pacific Investments Corporation 10th Floor, MGO Building Legaspi corner Dela Rosa Streets Legaspi Village, Makati City We have audited in accordance with Philippine Standards on Auditing, the consolidated financial statements of Metro Pacific Investments Corporation and Subsidiaries, included in this Form 17-A and have issued our report thereon dated March 3, 2011. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the Index to Consolidated Financial Statements and Supplementary Schedules are the responsibility of the Companys management. These schedules are presented for purposes of complying with Securities Regulation Code Rule 68.1 and SEC Memorandum Circular No. 11, Series of 2008 and are not part of the basic financial statements. The accompanying schedules have been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, present fairly, in all material respects, the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. SYCIP GORRES VELAYO & CO.

Marydith C. Miguel Partner CPA Certificate No. 65556 SEC Accreditation No. 0087-AR-2 Tax Identification No. 102-092-270 BIR Accreditation No. 08-001998-55-2009, June 1, 2009, Valid until May 31, 2012 PTR No. 2641544, January 3, 2011, Makati City March 3, 2011

A member firm of Ernst & Young Global Limited

*SGVMC214233*

SCHEDULE A
Metro Pacific Investments Corporation and Subsidiaries December 31, 2010 Schedule A. Marketable Securities (Current Marketable Equity Securities and Other Short-Term Cash Investments)

Amounts in Php000's
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

Name of Issuing Entity and Description of Investment

Income Received and Accrued

Not Applicable

Note: Aggregate cost or aggregate market value of current marketable securities as of the balance sheet date constitutes less than 10 per cent of total assets.

SEC Form 17- A 2010 Supplementary Schedules

SCHEDULE B
Metro Pacific Investments Corporation and Subsidiaries December 31, 2010 Schedule B. Amount receivables from Directors, Officers, Employees, related Parties and Principal Stockholders (Other than Affiliates)

Name and Designation of Debtor

Deductions Beginning Balance Additions

Amount Collected

Amount WittenOff

Current

Non Current

Ending Balance

Not applicable

Note: Receivables from directors, officers, employees consist mainly of receivables from ordinary course of business subject to usual terms - reimbursements for travel and advances, and car and housing loans, hence excluded in this schedule

SEC Form 17- A 2010 Supplementary Schedules

SCHEDULE C
Metro Pacific Investments Corporation and Subsidiaries December 31, 2010 Schedule C. Noncurrent Marketable Equity Securities, Other Long-Term Investments in Stock, and Other Investments Amounts in Php000's
Beginning Balance Number of Shares or Principal amount of Bonds and Notes Additions Equity in Net Earnings of Additional (losses) of Investment investees for for the period the period Deductions Ending Balance Number of shares or principal amounts of bonds and Amount in notes Pesos Dividends received from investments not accounted for by the equity method

Name of Issuing Entity and Description of Investment

Amount in Pesos

Cumulative Post Acquisition Reserves

Distribution of Earnings by Investees

Others

In Thousands
Manila Electric Company (MERALCO) (Investment in Stocks at Equity) Medical Doctors, Inc. (MDI) (Investment in Stocks at Equity) Davao Doctors Hospital, Inc (Investment in Stocks at Equity) Tollways Manangement Corporation (TMC) (Investment in Stocks at Equity) Prime Media Holdings (First e- bank) (Investment in Stocks at Equity) Costa de Madera (Investment in Stocks at Equity) Metro Strategic Infrastructure Holdings, Inc (Investments in Stocks at Equity) Landco Pacific Center, Inc (Investments in Stocks at Equity) Others (LNERVI, FCLPCI, Salcedo) (Investment in Stocks at Equity) First Gen Northern Energy Corporation Subtotal 29,860,693

In Thousands

163,602,961

24,540,310

266,683

(173,332)

(24,633,661)

1,082,767

916,159

11,764

100,859

559,050

(35,032)

1,094,771

1,552,800

313,660

512,865

39,995

67,156

(20,388)

313,660

599,628

174,800

699,400

142,928

(21,889)

(146,740)

174,800

673,699

2,371,064

(1,640,338)

(730,726)

567,124

61

(567,185)

55,427 92,318 106,026 250 12,014 550,465 (1,209,217) 75

(55,427) (92,318) (73,563) 250,000 (202,160) (26,152,880)

32,538 250 2,858,915 -

Manila North Harbour Port, Inc. (Investment in Joint Venture) Beacon Electric Asset Holdings, Inc. (BEAHI) (Investment in Joint Venture - Common) Beacon Electric Asset Holdings, Inc. (BEAHI) (Investment in Joint Venture - Preferred) Subtotal

2,450,000

252,292

471

(74,633)

(14,526)

(163,604)

23,223,230

22,681

1,556,512,500

23,245,911

8,010,444 252,292 31,234,145 (51,952) (14,526) -

801,044,415 (163,604) 2,357,556,915

8,010,444 31,256,355

375,378 375,378

Citra Metro Manila Tollways Corp. (CMMTC) (Investment in Stocks - Available for Sale) Philippine Government (Investment in Treasury Bonds) Subtotal -

140,953 372,281 513,234 -

1,379,674

140,953 372,281

1,379,674

513,234

Total

30,112,985

31,759,393

498,513

(1,223,743)

(202,160) (26,316,484)

34,628,504

375,378

Description for Other Deductions: A. Meralco - Represents transfer to Beacon Electric Asset Holdings, Inc. in exchange for Beacon shares. Please see Note 12 of the accompanying Audited Financial Statements. B. Prime Media Holdings - Represents provision for impairment C. Costa de Madera - Represents provision for impairment D. Metro Strategic Infrastructure Holdings, Inc - Consolidated as of December 31, 2010. Please see Note 4 of the accompanying Audited Financial Statements. E. Landco Pacific Center - Represents provision for impairment F. Others - Represents provision for impairment G. Manila North Harbour Port, Inc. - Represents disposal of total shareholdings for the period. Cash received upon disposal amounted to Pesos 245 million. Please see Note 12 of the accompanying Audited Financial Statements.

SEC Form 17- A 2010 Supplementary Schedules

SCHEDULE D
Metro Pacific Investments Corporation and Subsidiaries December 31, 2010 Schedule D. Indebtedness of Unconsolidated Subsidiaries and Affiliates

Amounts in Php000's Name of Affiliate Balance at beginning of period Balance at end of period

Not Applicable -

Note: The Company has no unconsolidated subsidiaries and affiliates as of December 31, 2010.

SEC Form 17- A 2010 Supplementary Schedules

SCHEDULE E
Metro Pacific Investments Corporation and Subsidiaries December 31, 2010 Schedule E. Schedule of Intangible Assets

Amounts in Php000's
Description Beginning balance Additions at cost Charged to cost and expenses Charged to other accounts Other changes additions (deductions) Ending balance

Service Concession Assets Cost Accumulated Amortization Carrying Value Goodwill TOTAL 66,577,249 4,391,842 62,185,407 12,551,750 74,737,157 9,438,551 9,438,551 199,251 9,637,802 2,275,835 2,275,835 2,275,835 76,015,800 6,667,677 69,348,123 12,751,001 82,099,124

SEC Form 17- A 2010 Supplementary Schedules

SCHEDULE F
Metro Pacific Investments Corporation and Subsidiaries December 31, 2010 Schedule F. Schedule of Long-term Debt Amounts in Php000's
Title of Issue and type of obligation Amount authorized by indenture Amount shown under caption "Current portion of long-term debt" in related balance sheet MPTC US dollar fixed rate loans: Export Finance and Insurance Corporation $15,000,000 308,096 Interest rate: 8.03% Payment terms: Payable in 16 equal semi-annual installments starting December 15, 2006 up to June 15, 2014 (maturity date) - Prepaid in full on January 14, 2011 Calyon S.A. Corporate and Insurance Corporation $14,950,000 314,946 Interest rate: 6.13% Payment terms: Payable in 16 equal semi-annual installments starting December 15, 2006 up to June 15, 2014 (maturity date) - Prepaid in full on January 14, 2011 US dollar floating rate loans: Asian Development Bank Loan Complementary $20,000,000 384,301 Interest rate: LIBOR + 2.75% Margin Payment terms: Payable in 16 equal semi-annual installments starting December 15, 2006 up to June 15, 2014 (maturity date) - Prepaid in full on January 14, 2011 USD Bank Facility $32,050,000 616,006 Interest rate: LIBOR + 3.00% Margin Payment terms: Payable in 16 equal semi-annual installments starting December 15, 2006 up to June 15, 2014 (maturity date) - Prepaid in full on January 14, 2011 Peso floating rate loan Asian Development Bank Loan Direct 597,960,000 435,455 Interest rate: PHIREF + 4.66% Margin Payment terms: As of March 11, 2009 (Actual Conversion Effective Date), payable in 11 equal semi-annual installments starting June 15, 2009 up to June 15, 2014 (maturity date) Prepaid in full on January 14, 2011 Peso fixed rate notes and loans: Fixed Rate Corporate Notes 5,500,000,000 86,709 5,314,496 Interest rate: 9.75% per annum Payment terms: June 15, 2007 - 27,500,000 June 15, 2008 - 27,500,000 June 15, 2009 - 55,000,000 June 15, 2010 - 55,000,000 June 15, 2011 - 55,000,000 June 15, 2012 - 55,000,000 June 15, 2013 - 55,000,000 November 17, 2013 (maturity date) 5,170,000,000 PNB Bank Loan 2,100,000,000 100,110 1,978,836 Interest rate: 6-Month PDSTF + 0.50% Payment terms: Payable in 10 consecutive semiannual installments on each Repayment Date commencing on June 15, 2011 to December 15, 2015 (maturity date). Amount shown under caption "Long-Term Debt" in related balance sheet Interest rates, amounts or number of periodic installments, and maturity dates.

SEC Form 17- A 2010 Supplementary Schedules

SCHEDULE F
Contd
Title of Issue and type of obligation Amount authorized by indenture Amount shown under caption "Current portion of long-term debt" in related balance sheet MAYNILAD BDO and DBP Omnibus Notes Facility and Security Agreement (Series 1 - Peso-denominated) $120 million fixed rate note and $120 million floating rate note 438,186 10,289,705 Interest rate: 10Y PDSTF(Fixed) / 6M PDSTF(Floating) plus 2% spread Payment terms: Payable within ten years to commence at the end of the 36th month after the initial issue date BDO and DBP Omnibus Notes Facility and Security Agreement (Series 1 - Dollar-denominated) $125 million floating rate note 54,800 5,308,226 Interest rate: LIBOR and CDS rate plus 2% spread Payment terms: Payable within ten years to commence at the end of the 36th month after the initial issue date Riverside Medical Center, Inc. BDO Bank Loan 300,000,000 42,857 128,571 Interest rate: 3M PDSTF + 2% Payment terms: Payable on equal quarterly installments until December 17, 2014 BDO Bank Loan 36,000,000 6,000 27,000 Interest rate: 3M PDSTF + 2% Payment terms: Payable on equal quarterly installments until May 27, 2016 MPIC BDO and DBP Omnibus Notes Facility and Security Agreement (Series 1 - Dollar-denominated) 6,750,000,000 58,391 6,522,222 Interest rate: 10Y PDSTF + 1.75% spread Payment terms: Payable every 180 days; On 1st to 10th amortization - 0.5% of loan, on 11th to 12th -7.5% of loan, and on 13th to 20th - 10% of loan MPC Landbank convertible notes restructured loan 110,000,000 37,230 Interest rate: 9.5% Payment terms: Past due Convertible preferred shares CMG LIFE INSURANCE ING BANK TRUST ACCOUNT NO. 2-A-0002-2 ING BANK TRUST ACCOUNT NO. 2-A-0003-2 ING BANK, N.V. MANILA BRANCH TRUST DEPT. ING BANK N.V. MANILA BRANCH MPCL Dollar-denominated loan restructured loan 50,000,000 5,000,000 1,000,000 634,000 633,083 $310,000 50,000 5,000 1,000 634 633 13,590 Past due Past due Past due Past due Past due Interest rate: 2.5% Amount shown under caption "Long-Term Debt" in related balance sheet Interest rates, amounts or number of periodic installments, and maturity dates.

Payment terms: Past due Total 2,953,944 29,569,056 32,523,000

SEC Form 17- A 2010 Supplementary Schedules

SCHEDULE G
Metro Pacific Investments Corporation and Subsidiaries December 31, 2010 Schedule G. Indebtedness to Affiliates and Related Parties (Long-term Loans from Related Parties)

Name of Related Parties

Beginning Balance

Ending Balance

Metro Pacific Holdings, Inc.

6,314,141

6,314,141

SEC Form 17- A 2010 Supplementary Schedules

SCHEDULE H

Metro Pacific Investments Corporation and Subsidiaries December 31, 2010 Schedule H. Guarantees of Securities of Other Issuers
Name of Issuing Entity of Securities Guaranteed by the Company for which Statement is filed Title of Issue of Each Class of Securities Guaranteed Amount Owned by the Company for which Statement is Filed

Total Amount Guaranteed and Outstanding

Nature of Guarantee

Not applicable

Note: No securities are guaranteed by MPIC as of December 31, 2010.

SEC Form 17- A 2010 Supplementary Schedules

SCHEDULE I

Metro Pacific Investments Corporation and Subsidiaries December 31, 2010 Schedule I. Schedule of Capital Stock

Title of Issue

Number of Shares authorized

Number of shares issued, subscribed and outstanding as shown under related balance sheet caption 20,155,464,522

Number of shares reserved for options, warrants, conversion and other rights 159,875,000

Number of shares held by related parties

Directors, officers and employees

Others

Common Preferred Class A PhP 0.01 par value Class B PhP 1.00 par value

22,688,518,336

11,201,067,940

46,255,000

5,000,000,000

5,000,000,000

5,000,000,000

1,500,000,000

SEC Form 17- A 2010 Supplementary Schedules

SCHEDULE J
Metro Pacific Investments Corporation 10/F MGO Bldg., Legaspi cor. Dela Rosa Sts., Legazpi Village, 0721 Makati City As of December 31, 2010 Amounts in Php000s

Cash Dividends

Unappropriated Retained Earnings (Deficit) of Parent Company, beginning

(403,581)

Parent Company equity restructuring to wipe out beginning Deficit of Parent Company

403,581

Less: Treasury shares Unappropriated Retained Earnings, as adjusted to available dividend distribution, beginning Add: Net income (loss) actually earned (incurred) during the period

Net Income during the period (Less)/Add: Non-actual/unrealized income/losses Unrealized forex loss (gain)

318,946

(15,474)

Retained Earnings available for dividends, December 31, 2010

303,472

Less: Dividend declarations during the period TOTAL RETAINED EARNINGS (DEFICIT) OF PARENT COMPANY, END AVAILABLE FOR DIVIDENDS

(206,964)

96,508

SEC Form 17- A 2010 Supplementary Schedules