Metro Pacific Investments Corporation and …...Metro Pacific Investments Corporation and...

Metro Pacific InvestmentsCorporation and Subsidiaries

Consolidated Financial StatementsDecember 31, 2017 and 2016and Years Ended December 31, 2017, 2016and 2015

and

Independent Auditor’s Report

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INDEPENDENT AUDITOR’S REPORT

The Board of Directors and StockholdersMetro Pacific Investments Corporation

Opinion

We have audited the consolidated financial statements of Metro Pacific Investments Corporation and itssubsidiaries (the Company), which comprise the consolidated statements of financial position as atDecember 31, 2017 and 2016, and the consolidated statements of comprehensive income, consolidatedstatements of changes in equity and consolidated statements of cash flows for each of the three years inthe period ended December 31, 2017, and notes to the consolidated financial statements, including asummary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,the consolidated financial position of the Company as at December 31, 2017 and 2016, and itsconsolidated financial performance and its consolidated cash flows for each of the three years in theperiod ended December 31, 2017 in accordance with Philippine Financial Reporting Standards (PFRSs).

Basis for Opinion

We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Ourresponsibilities under those standards are further described in the Auditor’s Responsibilities for the Auditof the Consolidated Financial Statements section of our report. We are independent of the Company inaccordance with the Code of Ethics for Professional Accountants in the Philippines (Code of Ethics)together with the ethical requirements that are relevant to our audit of the consolidated financialstatements in the Philippines, and we have fulfilled our other ethical responsibilities in accordance withthese requirements and the Code of Ethics. We believe that the audit evidence we have obtained issufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in ouraudit of the consolidated financial statements of the current period. These matters were addressed in thecontext of our audit of the consolidated financial statements as a whole, and in forming our opinionthereon, and we do not provide a separate opinion on these matters. For each matter below, ourdescription of how our audit addressed the matter is provided in that context.

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, December 14, 2015, valid until December 31, 2018SEC Accreditation No. 0012-FR-4 (Group A), November 10, 2015, valid until November 9, 2018

A member firm of Ernst & Young Global Limited

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We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of theConsolidated Financial Statements section of our report, including in relation to these matters.Accordingly, our audit included the performance of procedures designed to respond to our assessment ofthe risks of material misstatement of the consolidated financial statements. The results of our auditprocedures, including the procedures performed to address the matters below, provide the basis for ouraudit opinion on the accompanying consolidated financial statements.

Recoverability of goodwill and service concession assets (SCAs) not yet available for use

The Company’s goodwill, mainly arising from its acquisition of long term investments in water andtollways business, amounted to P=25.4 billion and this is allocated to different cash generating units(CGUs). In addition, the Company has entered into several service concession agreements with thePhilippine Government and/or its agencies or instrumentalities, of which P=39.3 billion of these SCAs arenot yet available for use. Under Philippine Accounting Standard (PAS) 36, Impairment of Assets, theCompany is required to perform annual impairment test on the amount of goodwill and the SCAs not yetavailable for use. These annual impairment tests are significant to our audit because the amounts arematerial to the consolidated financial statements. In addition, the determination of the recoverableamounts of the CGUs to which the goodwill belong or as it relates to the SCAs , involves significantassumptions about the future results of business such as revenue growth and discount rates which areapplied to the cash flow forecasts. The assumptions on revenue growth mainly relates to the expectedvolume of traffic for the toll roads, ridership for the rail, and billed water volume for the waterconcession.

Refer to Note 14 to the consolidated financial statements for the details on goodwill and SCAs and theassumptions used in the forecasts.

Audit response

We obtained an understanding of the Company’s impairment assessment process and the related controls.We also involved our internal specialist in evaluating the methodologies and the assumptions used. Theseassumptions include the expected volume of traffic for the toll roads, ridership for the rail, billed watervolume for the water concession, growth rate and discount rates. We compared the forecast revenuegrowth against the historical data of the CGUs and inquired from management and operations personnelabout the plans to support the forecast revenues. We also compared the Company’s key assumptions suchas traffic volume, rail ridership and water volume against historical data and against available studies byindependent parties that were commissioned by the respective subsidiaries. We reviewed the weightedaverage cost of capital (WACC) used in the impairment test by comparing it with WACC of othercomparable companies in the regions. Furthermore, we reviewed the Company’s disclosures about thoseassumptions to which the outcome of the impairment test is most sensitive, specifically those that havethe most significant effect on determining the recoverable amounts of the goodwill and SCAs not yetavailable for use.


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Amortization of SCAs using the ‘units of production (UOP)’ method

The SCAs related to the toll roads and water concession agreements of the Company are being amortizedusing the UOP method. For the toll roads concession assets, amortization is based on the ratio of theactual traffic volume to the total expected traffic volume of the underlying toll expressways over theremaining period of the concession agreement. On the other hand, the Company amortizes the water-related concession asset based on the actual billed volume over the estimated billable water volume forremaining period of the concession agreement. The UOP amortization method is a key audit matter as themethod involves significant management judgment and estimates, particularly in determining the totalexpected traffic volume and the total estimated volume of billable water over the remaining periods of theconcession agreements. The Company reviews annually the total expected traffic volume with referenceto traffic projection reports and billable water volume with reference to water volume forecasts. Itconsiders different factors such as population growth, supply and consumption, and service coverageincluding ongoing and future expansions.

Refer to Note 12 to the consolidated financial statements for the details of SCAs and Note 3 for thediscussion of management estimate relating to amortization of SCAs.

Audit response

We obtained an understanding of management’s processes and controls in the estimation of billable waterand traffic volume. We reviewed the report of the management’s specialists and gained an understandingof the methodology and the basis of computing the forecasted volumes. We also evaluated thecompetence, capabilities, and objectivity of management’s specialists who estimated the forecastedvolumes. Furthermore, we compared the billable water volume and traffic volume during the year againstthe data generated from the billing system for water and from the toll collection system for tollways. Werecalculated the amortization expense for the year and the SCAs as of year-end based on the establishedbillable water volume and traffic volume.

Accounting for acquisitions of an associate and a subsidary

In 2017, the Company acquired additional 25% interest in Beacon Electric Assets Holdings, Inc. (BeaconElectric) for an aggregate purchase price of P=21.8 billion. As a result of the acquisition, the Companynow holds 100% of the common and preferred shares of Beacon Electric. Consequently, the Company’seffective ownership interest in Manila Electric Company (Meralco) increased to 45.5% and in GlobalBusiness Power Corporation (GBPC) to 62.4%. In addition, through its wholly-owned subsidiary PTMetro Pacific Tollways Indonesia, the Company acquired 49.5% interest in PT Nusantara InfrastructureTbk (PT Nusantara), a listed Indonesian company primarily engaged in the infrastructure developmentindustry, for P=6.9 billion. The Company accounted for these acquisitions as ‘business’ acquisitions. Thegoodwill arising from these acquisitions are subsumed under the investment accounts. These transactionsare significant to our audit as these are new and major acquisitions during the year and the amounts arematerial to the consolidated financial statements. In addition, accounting for these acquisitions requiredsignificant management judgment and estimates. These include allocating the purchase consideration tothe assets acquired and liabilities assumed based on fair values and the Company’s share in the net fairvalue of the investee’s identifiable assets and liabilities.

Refer to Notes 4 and 10 to the consolidated financial statements for details of the acquisitions and Note 3for the discussion of management estimate relating to the acquisitions.


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Audit response

We evaluated management’s judgment on whether these acquisitions qualify as businesses, and how theseshould be accounted for, by reference to the purchase agreements and documents related to theseacquisitions. In applying the acquisition method, we reviewed the identification of the underlying assetsand liabilities of the investees based on our understanding of the businesses. Where the Company used itsspecialists to perform the purchase price allocation and involved them in the valuation of the intangibleassets, or engaged independent appraisers to value the property and equipment, we assessed thecompetence, capabilities, and objectivity of such Company specialists and the independent appraisers.We also involved our internal specialists in reviewing the valuation methodology and key inputs, such asrevenue growth, margins and discount rates related to the valuation of the intangible assets. We comparedthe revenue growth and margins to the historical performance of the investees. We tested the parametersused in the determination of the discount rate against market data. We also reviewed the disclosures inthe notes to the consolidated financial statements.

Provisions and contingencies

The Company is involved in certain proceedings for which the Company has recognized provisions forprobable costs and/or expenses, which may be incurred, and/or has disclosed relevant information aboutsuch contingencies. This matter is significant to the audit because the assessment of potential outcome orliability involves significant management judgment and estimation. Notes 16 and 29 to the consolidatedfinancial statements provide the relevant disclosures related to this matter.

Audit response

Our audit procedures included understanding the Company's processes and controls over theidentification and evaluation of regulatory proceedings. We involved our internal specialist in evaluatingmanagement’s assessment on whether provisions on the contingencies should be recognized, and theestimation of such amount. We also discussed with management the status of the regulatory proceedingsand dispute arbitration. In addition, we obtained correspondences with the relevant government agencies,including tax authorities, replies from third party legal counsels, and any relevant historical and recentjudgments issued by the courts/tax authorities on similar matters.

West Service Area water and sewerage service revenue recognition

About 34% of the Company’s consolidated revenues comprises water and sewerage service revenuesfrom the Metropolitan Waterworks and Sewerage System (MWSS) West Service Area. The recognitionof water and sewerage service revenues involves processing large volumes of data from multiplelocations. Different rates apply to different customers that are classified as residential, semi-business,commercial or industrial. The billing rates for each class of customers depend on the customer type andare determined using the formula provided in the service concession agreement and regulated by theMWSS Regulatory Office. This matter is significant to our audit because water and sewerage servicerevenues depend on the completeness of data captured during monthly meter readings, which occur ondifferent billing cut-off dates for different customers; the propriety of the application of rates to billableconsumption; and the reliability of the systems involved in processing bills and recording revenues.

A member firm of Ernst & Young Global LimitedA member firm of Ernst & Young Global Limited

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Audit response

We obtained an understanding of the water and sewerage service revenue process, which includesmaintaining the customer database, capturing billable water consumption, uploading captured billablewater consumption to the billing system, calculating billable amounts based on MWSS approved rates,and uploading data from the billing system to the financial reporting system. We also evaluated thedesign of and tested the relevant controls over this process. In addition, we performed test recalculation ofthe billed amounts using the MWSS approved rates and formulae, and compared them with the amountsreflected in the billing statements. Moreover, we involved our internal specialist in performing theaforementioned procedures on the automated aspects of this process.

Investment in a significant associate

The Company has an investment in Meralco that is accounted for under the equity method. For the yearended December 31, 2017, the Company’s effective share in the net income of Meralco amounted toP=5.4 billion and accounts for 28% of the Company’s consolidated net income. The Company’s share inMeralco’s net income is significantly affected by Meralco’s revenue from the sale of electricity whicharise from its service contracts with a large number of customers who are classified as either commercial,industrial or residential customers. Note 29 provides relevant disclosures related to the rate-makingregulations and regulatory policies of the Energy Regulatory Commission (ERC). The revenue recognizeddepends on (a) the complete capture of electric consumption based on the meter readings over thefranchise area taken on various dates; (b) the propriety of rates computed and applied across customerclasses; and (c) the reliability of the information technology (IT) systems involved in processing thebilling transaction.

In addition, the Company’s share in Meralco’s net income is also significantly affected by Meralco’srecognition of provisions for probable costs and/or expenses. The assessment of the potential outcome orliability involves significant management judgment and estimation. Note 29 to the consolidated financialstatements provides the relevant disclosures related to this matter.

Audit response

We obtained the consolidated financial information of Meralco for the year ended December 31, 2017and performed recomputation of the Company’s equity in net earnings of Meralco. We obtained anunderstanding of and evaluated the design and tested the controls over the customer master filemaintenance, accumulation and processing of meter data, and interface of data from the billing system tothe financial reporting system. In addition, we performed test recalculation of the billed amounts usingthe ERC approved rates and formulae, actual costs incurred, and compared them with the amountsreflected in the billing statements. We involved our internal specialist in understanding the IT processesand in understanding and testing of the IT general controls over the IT systems supporting the revenueprocess.


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We evaluated management’s assessment of the possible outcomes and the related estimates of theprobable costs and/or expenses that are recognized. In addition, we evaluated the input data supportingthe assumptions used, such as tariffs, tax rates, historical experience, regulatory rulings and otherdevelopments, against Meralco’s internal and external data, and performed recalculations and inspectionof relevant supporting documents.

Other Information

Management is responsible for the other information. The other information comprises the informationincluded in the SEC Form 20-IS (Definitive Information Statement), SEC Form 17-A and Annual Reportfor the year ended December 31, 2017, but does not include the consolidated financial statements and ourauditor’s report thereon. The SEC Form 20-IS (Definitive Information Statement), SEC Form 17-A andAnnual Report for the year ended December 31, 2017 are expected to be made available to us after thedate of this auditor’s report.

Our opinion on the consolidated financial statements does not cover the other information and we will notexpress any form of assurance conclusion thereon.

In connection with our audits of the consolidated financial statements, our responsibility is to read theother information identified above when it becomes available and, in doing so, consider whether the otherinformation is materially inconsistent with the consolidated financial statements or our knowledgeobtained in the audits, or otherwise appears to be materially misstated.

Responsibilities of Management and Those Charged with Governance for the ConsolidatedFinancial Statements

Management is responsible for the preparation and fair presentation of the consolidated financialstatements in accordance with PFRSs, and for such internal control as management determines isnecessary to enable the preparation of consolidated financial statements that are free from materialmisstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing theCompany’s ability to continue as a going concern, disclosing, as applicable, matters related to goingconcern and using the going concern basis of accounting unless management either intends to liquidatethe Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as awhole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s reportthat includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that anaudit conducted in accordance with PSAs will always detect a material misstatement when it exists.Misstatements can arise from fraud or error and are considered material if, individually or in theaggregate, they could reasonably be expected to influence the economic decisions of users taken on thebasis of these consolidated financial statements.


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As part of an audit in accordance with PSAs, we exercise professional judgment and maintainprofessional skepticism throughout the audit. We also:

∂ Identify and assess the risks of material misstatement of the consolidated financial statements,whether due to fraud or error, design and perform audit procedures responsive to those risks, andobtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk ofnot detecting a material misstatement resulting from fraud is higher than for one resulting from error,as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override ofinternal control.

∂ Obtain an understanding of internal control relevant to the audit in order to design audit proceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control.

∂ Evaluate the appropriateness of accounting policies used and the reasonableness of accountingestimates and related disclosures made by management.

∂ Conclude on the appropriateness of management’s use of the going concern basis of accounting and,based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Company’s ability to continue as a going concern.If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’sreport to the related disclosures in the consolidated financial statements or, if such disclosures areinadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up tothe date of our auditor’s report. However, future events or conditions may cause the Company tocease to continue as a going concern.

∂ Evaluate the overall presentation, structure and content of the consolidated financial statements,including the disclosures, and whether the consolidated financial statements represent the underlyingtransactions and events in a manner that achieves fair presentation.

∂ Obtain sufficient appropriate audit evidence regarding the financial information of the entities orbusiness activities within the Company to express an opinion on the consolidated financialstatements. We are responsible for the direction, supervision and performance of the audit. Weremain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scopeand timing of the audit and significant audit findings, including any significant deficiencies in internalcontrol that we identify during our audit.


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We also provide those charged with governance with a statement that we have complied with relevantethical requirements regarding independence, and to communicate with them all relationships and othermatters that may reasonably be thought to bear on our independence, and where applicable, relatedsafeguards.

From the matters communicated with those charged with governance, we determine those matters thatwere of most significance in the audit of the consolidated financial statements of the current period andare therefore the key audit matters. We describe these matters in our auditor’s report unless law orregulation precludes public disclosure about the matter or when, in extremely rare circumstances, wedetermine that a matter should not be communicated in our report because the adverse consequences ofdoing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Marydith C. Miguel.

SYCIP GORRES VELAYO & CO.

Marydith C. MiguelPartnerCPA Certificate No. 65556SEC Accreditation No. 0087-AR-4 (Group A), May 1, 2016, valid until May 1, 2019Tax Identification No. 102-092-270BIR Accreditation No. 08-001998-55-2018, February 26, 2018, valid until February 25, 2021PTR No. 6621301, January 9, 2018, Makati City

March 1, 2018


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METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF FINANCIAL POSITION(Amounts in Millions)

December 312017 2016

ASSETS

Current AssetsCash and cash equivalents and short-term deposits (Notes 7, 32 and 33) P=49,317 P=19,469Restricted cash (Notes 7, 30, 32 and 33) 4,047 2,432Receivables (Notes 8, 32 and 33) 10,899 5,171Other current assets (Notes 9, 32 and 33) 10,432 4,728

74,695 31,800Assets held for sale (Note 30) 250 –

Total Current Assets 74,945 31,800

Noncurrent AssetsRestricted cash (Notes 7, 30, 32 and 33) – 889Investments and advances (Notes 10, 32 and 33) 150,971 126,556Service concession assets (Notes 1, 12 and 14) 168,783 152,693Property, plant and equipment (Note 13) 67,606 10,480Goodwill (Note 11) 25,384 21,004Intangible assets (Note 11) 4,637 1,934Deferred tax assets (Note 26) 1,045 467Other noncurrent assets (Notes 8, 9, 23, 32, 33 and 34) 10,380 5,779

Total Noncurrent Assets 428,806 319,802

P=503,751 P=351,602

LIABILITIES AND EQUITY

Current LiabilitiesAccounts payable and other current liabilities (Notes 15, 32 and 33) P=27,142 P=14,965Income tax payable 1,415 466Due to related parties (Notes 19, 32 and 33) 3,879 1,713Current portion of:

Provisions (Note 16) 5,997 5,229Long-term debt (Notes 18, 32 and 33) 15,573 3,797Service concession fees payable (Notes 17, 32 and 33) 871 874

Total Current Liabilities 54,877 27,044

(Forward)

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December 312017 2016

Noncurrent LiabilitiesNoncurrent portion of:

Provisions (Note 16) P=2,106 P=239Service concession fees payable (Notes 17, 32 and 33) 28,873 28,000Long-term debt (Notes 18, 32 and 33) 173,510 93,219

Due to related parties (Notes 19, 32 and 33) 11,767 6,726Deferred tax liabilities (Note 26) 6,836 3,925Other long-term liabilities (Notes 15, 23, 32, 33 and 34) 10,103 4,368

Total Noncurrent Liabilities 233,195 136,477Total Liabilities 288,072 163,521

Equity (Note 20)Owners of the Parent Company:

Capital stock 31,626 31,619Additional paid-in capital 68,465 68,438Treasury shares (167) (167)Equity reserves 5,742 6,282Retained earnings 53,894 43,889Other comprehensive income reserve 1,684 1,971

Total equity attributable to owners of the Parent Company 161,244 152,032Non-controlling interest 54,435 36,049

Total Equity 215,679 188,081

P=503,751 P=351,602

See accompanying Notes to Consolidated Financial Statements.

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METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Amounts in Millions, Except Earnings Per Share Figures)

Years Ended December 312017 2016 2015

OPERATING REVENUES (Notes 1 and 37)Water and sewerage services revenue P=20,926 P=20,280 P=19,098Toll fees 13,107 11,902 9,691Power and coal sales 13,042 – –Hospital revenue 10,737 8,967 7,553Rail revenue 3,155 3,016 897Logistics and other revenue 1,545 655 –

62,512 44,820 37,239COST OF SALES AND SERVICES (Note 21) (29,374) (18,370) (14,026)GROSS PROFIT 33,138 26,450 23,213General and administrative expenses (Note 22) (12,126) (9,062) (8,047)Interest expense (Note 24) (7,995) (5,328) (4,925)Share in net earnings of equity method investees (Note 10) 8,045 6,808 5,014Dividend income (Note 10) 2,631 1,353 580Interest income (Note 24) 623 417 460Construction revenue (Note 3) 19,344 16,799 12,130Construction costs (Note 3) (19,344) (16,799) (12,130)Others (Note 24) 360 299 604INCOME BEFORE INCOME TAX 24,676 20,937 16,899PROVISION FOR INCOME TAX (Note 26)Current 5,390 4,091 1,522Deferred 259 67 303

5,649 4,158 1,825NET INCOME 19,027 16,779 15,074OTHER COMPREHENSIVE INCOME (LOSS) - NET

(Note 25)To be reclassified to profit or loss in subsequent periods 482 444 (222)Not to be reclassified to profit or loss in subsequent periods (948) 1,024 (133)

(466) 1,468 (355)TOTAL COMPREHENSIVE INCOME P=18,561 P=18,247 P=14,719Net income attributable to:Owners of the Parent Company P=13,151 P=11,456 P=9,546Non-controlling interest 5,876 5,323 5,528

P=19,027 P=16,779 P=15,074Total comprehensive income attributable to:Owners of the Parent Company P=12,864 P=12,917 P=9,220Non-controlling interest 5,697 5,330 5,499

P=18,561 P=18,247 P=14,719EARNINGS PER SHARE (Note 27)Basic Earnings Per Common Share, Attributable

to Owners of the Parent Company P=0.4171 P=0.3810 P=0.3447Diluted Earnings Per Common Share, Attributable

to Owners of the Parent Company P=0.4167 P=0.3806 P=0.3445


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METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015(Amounts in Millions)

Year Ended December 31, 2017Attributable to Owners of the Parent Company

Capital Stock(Note 20)

AdditionalPaid-inCapital

(Note 20)

TreasuryShares

(Note 20)Equity

Reserves

RetainedEarnings(Note 20)

OtherComprehensive

IncomeReserve(Note 20) Total

Non-controlling

Interest(NCI)

TotalEquity

At January 1, 2017 P=31,619 P=68,438 (P=167) P=6,282 P=43,889 P=1,971 P=152,032 P=36,049 P=188,081Total comprehensive income for the year: Net income – – – – 13,151 – 13,151 5,876 19,027 Other comprehensive income (Note 25) – – – – – (287) (287) (179) (466)Executive Stock Option Plan (Note 28) 7 27 – (5) – – 29 – 29Restricted Stock Unit Plan (Note 28) – – – 67 – – 67 – 67Cash dividends declared (Note 20) – – – – (3,239) – (3,239) – (3,239)Business combinations and other movements in NCI (Note 4) – – – – 93 – 93 17,138 17,231Acquisition of non-controlling interest (Notes 4 and 39) – – – (360) – – (360) 48 (312)Deferred tax on equity transaction (Note 26) – – – (242) – – (242) – (242)Dividends declared to non-controlling stockholders (Note 6) – – – – – – – (4,497) (4,497)At December 31, 2017 P=31,626 P=68,465 (P=167) P=5,742 P=53,894 P=1,684 P=161,244 P=54,435 P=215,679

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(Note 20)

TreasuryShares

(Note 20)Equity

Reserves


OtherComprehensive

IncomeReserve

(Note 20) Total

Non-controlling

Interest (NCI)Total

EquityAt January 1, 2016 P=27,935 P=49,980 P=– P=6,248 P=35,149 P=510 P=119,822 P=30,955 P=150,777Total comprehensive income for the year: Net income – – – – 11,456 – 11,456 5,323 16,779 Other comprehensive income (Note 25) – – – – – 1,461 1,461 7 1,468Issuance of shares Common shares 3,600 18,360 – – – – 21,960 – 21,960 Preferred shares 41 – – – – – 41 – 41Transaction costs on issuance of shares – (84) – – – – (84) – (84)Executive Stock Option Plan (Note 28) 43 182 – (33) – – 192 – 192Restricted Stock Unit Plan (Note 28) – – – 67 – – 67 – 67Treasury shares – – (167) – – – (167) – (167)Cash dividends declared (Note 20) – – – – (2,716) – (2,716) – (2,716)Business combinations and other movements in NCI (Note 4) – – – – – – – 1,401 1,401Dividends declared to non-controlling stockholders (Note 6) – – – – – – – (1,637) (1,637)At December 31, 2016 P=31,619 P=68,438 (P=167) P=6,282 P=43,889 P=1,971 P=152,032 P=36,049 P=188,081

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(Note 20)Equity

Reserves


OtherComprehensive

IncomeReserve

(Note 20) TotalNon-controlling

Interest (NCI) Total EquityAt January 1, 2015 P=26,096 P=42,993 P=6,245 P=27,525 P=836 P=103,695 P=25,877 P=129,572Total comprehensive income for the year: Net income – – – 9,546 – 9,546 5,528 15,074 Other comprehensive income (Note 25) – – – – (326) (326) (29) (355)Executive Stock Option Plan (ESOP) (Note 38): Exercise of stock option 27 78 (30) – – 75 – 75 Cost of ESOP – – 21 – – 21 – 21 Expiration of ESOP – 10 (15) 5 – – – –Equity raising (Note 20) 1,812 6,899 – – – 8,711 – 8,711Cash dividends declared (Note 20) – – – (1,927) – (1,927) – (1,927)Additional investment from NCI – – – – – – 1,125 1,125Dividends declared to non-controlling stockholders (Note 6) – – – – – – (1,593) (1,593)Gain on acquisition of NCI and others (Note 4) – – 27 – – 27 47 74At December 31, 2015 P=27,935 P=49,980 P=6,248 P=35,149 P=510 P=119,822 P=30,955 P=150,777


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METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in Millions)


CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax 24,676 P=20,937 P=16,899Adjustments for:

Interest expense (Note 24) 7,995 5,328 4,925Amortization of service concession assets (Note 21) 3,909 3,679 3,317Depreciation and amortization (Notes 1, 13, 21 and 22) 3,379 1,334 1,076Impairment of goodwill and nonfinancial assets

(Notes 3, 10 and 11) 763 774 –Long Term Incentive Plan expense (Note 23) 629 533 568Unrealized foreign exchange loss – net 65 2 149Share in net earnings of equity method investees

(Note 10) (8,045) (6,808) (5,014)Dividend income (2,631) (1,353) (580)Gain on sale of investments (Note 10) (732) – –Interest income (Note 24) (623) (417) (460)Others 558 (165) 156

Operating income before working capital changes 29,943 23,844 21,036Increase in:

Restricted cash (775) (18) (47)Receivables (761) (694) (574)Due from related parties and other current assets (1,338) (604) (1,309)

Increase (decrease) in:Accounts payable and other current liabilities 2,884 729 699Provisions and accrued retirement cost 1,104 (726) (348)

Net cash generated from operations 31,057 22,531 19,457Income taxes paid (5,145) (4,042) (1,359)Interest received 596 429 446Net cash from operating activities 26,508 18,918 18,544

CASH FLOWS FROM INVESTING ACTIVITIESDividends received from:

Equity method investees (Note 10) 6,903 5,679 2,283Beacon Electric’s preferred shares (Note 10) 2,541 – 405Available-for-sale financial assets (Notes 32 and 33) 144 136 121

Collection of or proceeds from sale/disposal of:Available-for-sale financial assets (Notes 32 and 33) 14,968 14,679 21,618Investment in associate (net of transaction

cost; Note 10) 12,403 – –Redemption of preferred shares (Note 10) 3,500 – –Property, plant and equipment (Note 13) 22 21 7Notes receivable – – 118

Acquisition of subsidiaries, net of cash acquired (Note 4) (5,958) (4,812) –

(Forward)

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Additions to/issuance of:Available-for-sale financial assets (Note 11) (P=20,409) (P=13,823) (P=17,801)Service concession assets (Note 12) (18,707) (17,757) (21,448)Investments in equity method investees (Note 10) (12,652) (21,587) (28,194)Property, plant and equipment (Note 13) (3,689) (2,536) (1,568)

Decrease (increase) in short-term deposits 11,574 3,048 (3,095)Increase in other noncurrent assets (3,488) (163) (353)Net cash used in investing activities (12,848) (37,115) (47,907)

CASH FLOWS FROM FINANCING ACTIVITIESReceipt of or proceeds from:

Long-term debt (Note 18) 36,504 13,415 33,476Contribution from non-controlling stockholders and other movements (Notes 4, 6 and 30) 37 777 1,125Issuance of shares (Notes 20 and 28) 29 22,193 8,954

Payments of/for:Long-term debt (Note 18) (9,822) (4,030) (6,757)Interest and other financing charges (6,544) (4,155) (3,799)Dividends paid to owners of the Parent Company (Note 20) (3,239) (2,716) (1,927)Due to related parties (2,001) (4,243) –Dividends paid to non-controlling stockholders (Note 6) (1,999) (2,050) (1,468)Service concession fees payable (Note 17) (1,007) (1,209) (1,094)Debt issuance cost (Note 18) (238) (516) (178)Treasury shares (Note 20) – (167) –Transaction costs on issuance of shares – (84) (168)Acquisition of non-controlling interests (Note 4) – (32) (57)

Net cash from financing activities 11,720 17,183 28,107

NET INCREASE (DECREASE) IN CASHAND CASH EQUIVALENTS 25,380 (1,014) (1,256)

CASH AND CASH EQUIVALENTSAT BEGINNING OF YEAR (Note 7) 15,455 16,469 17,725

CASH AND CASH EQUIVALENTSAT END OF YEAR (Note 7) P=40,835 P=15,455 P=16,469


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METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information

GeneralMetro Pacific Investments Corporation (the Parent Company or MPIC) was incorporated in thePhilippines and registered with the Philippines Securities and Exchange Commission (SEC) onMarch 20, 2006 as an investment holding company. MPIC’s common shares of stock are listed inand traded through the Philippine Stock Exchange (PSE). On August 6, 2012, MPIC launchedSponsored Level 1 American Depositary Receipt (ADR) Program with Deutsche Bank as theappointed depositary bank in line with the Parent Company’s thrust to widen the availability of itsshares to investors in the United States.

The principal activities of the Parent Company’s subsidiaries and equity method investees aredescribed below (see Company’s Operating Segments) and in Notes 10 and 39. The Parent Companyand its subsidiaries are collectively referred to as “the Company”.

Metro Pacific Holdings, Inc. (MPHI) owns 41.9% of the total issued common shares (or 42.0% of thetotal outstanding common shares) of MPIC as at December 31, 2017 and 2016. As sole holder of thevoting Class A Preferred Shares, MPHI’s combined voting interest as a result of all of itsshareholdings is estimated at 55.0% as at December 31, 2017 and 2016 (see Note 20).

MPHI is a Philippine corporation whose stockholders are Enterprise Investment Holdings, Inc. (EIH;60.0% interest), Intalink B.V. (26.7% interest) and First Pacific International Limited (FPIL; 13.3%interest). First Pacific Company Limited (FPC), a company incorporated in Bermuda and listed inHong Kong, through its subsidiaries, Intalink B.V. and FPIL, holds 40.0% equity interest in EIH andinvestment financing which under Hong Kong Generally Accepted Accounting Principles, requireFPC to account for the results and assets and liabilities of EIH and its subsidiaries as part of FPCgroup of companies in Hong Kong.

The registered office address of the Parent Company is 10th Floor, MGO Building, Legaspi cornerDela Rosa Streets, Legaspi Village, Makati City.

The accompanying consolidated financial statements as at December 31, 2017 and 2016 and for eachof the three years in the period ended December 31, 2017 were approved and authorized for issuanceby the Board of Directors (BOD) on March 1, 2018.

Company’s Operating SegmentsFor management purposes, the Company is organized into the following segments based on servicesand products:

ƒ Power, which primarily relates to the operations of Manila Electric Company (MERALCO) inrelation to the distribution, supply and generation of electricity and Global Business PowerCorporation (GBPC) in relation to power generation. The investment in MERALCO is held bothdirectly and indirectly through Beacon Electric Asset Holdings, Inc. (Beacon Electric) while theinvestment in GBPC is held through Beacon Electric’s wholly-owned entity, Beacon PowerGenHoldings Inc. (BPHI) (see Notes 4 and 10).

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ƒ Toll operations, which primarily relate to operations and maintenance of toll facilities by MetroPacific Tollways Corporation (MPTC) and its subsidiaries NLEX Corporation (NLEX Corp;formerly Manila North Tollways Corporation), Cavitex Infrastructure Corporation (CIC),Tollways Management Corporation [TMC; a subsidiary beginning April 2017 (see Notes 4and 10)], and foreign investees, CII Bridges and Roads Investment Joint Stock Company (CIIB&R), Don Muang Tollway Public Ltd (DMT) and PT Nusantara Infrastructure Tbk (PTNusantara) (see Note 10). Certain toll projects are either under pre-construction or on-goingconstruction as at December 31, 2017 (see below Concession Arrangements).

ƒ Water, which relates to the provision of water and sewerage services by Maynilad Water HoldingCompany, Inc. (MWHC) and its subsidiaries, Maynilad Water Services, Inc. (Maynilad) andPhilippine Hydro, Inc. (PHI), and other water-related services by MetroPac Water InvestmentsCorporation (MPW) (see below Concession Arrangements).

ƒ Healthcare, which primarily relates to operations and management of hospitals and nursingcolleges and such other enterprises that have similar undertakings by Metro Pacific HospitalHoldings, Inc. (MPHHI) and subsidiaries.

ƒ Rail, which primarily relates to Metro Pacific Light Rail Corporation (MPLRC) and itssubsidiary, Light Rail Manila Corporation (LRMC), the concessionaire for the operations andmaintenance of the Light Rail Transit – Line 1 (LRT-1) and construction of the LRT-1 southextension (see below Concession Arrangements).

ƒ Logistics, which primarily relates to the Company’s logistics business through MetroPacLogistics Company, Inc. (MPLC) and its subsidiary, MetroPac Movers, Inc. (MMI).

ƒ Others, which represent holding companies and operations of subsidiaries and other investeesinvolved in real estate and provision of services.

See Note 39 for the complete list of the Company’s subsidiaries. The list of the Company’sassociates and joint ventures are disclosed in Note 10.

Concession ArrangementsMPIC’s subsidiaries have the following concession arrangements with the Philippine Government.Various concession agreements described below each include provision for periodic changes in thetariffs charged to the public in accordance with changes in consumer price index (CPI).

Concession Arrangements – Toll Operations

NLEX Corp – Supplemental Toll Operation Agreement (STOA) for the North Luzon Expressway(NLEX). In August 1995, First Philippine Infrastructure Development Corporation, the then parentcompany of NLEX Corp, entered into a joint venture agreement with Philippine NationalConstruction Corporation (PNCC), in which PNCC assigned its rights, interests and privileges underits franchise to construct, operate and maintain toll facilities in the NLEX and its extensions,stretches, linkages and diversions in favor of NLEX Corp, including the design, funding,construction, rehabilitation, refurbishing and modernization and selection and installation of anappropriate toll collection system therein during the concession period subject to prior approval bythe President of the Philippines. In April 1998, the Philippine government, acting by and through theToll Regulatory Board (TRB) as the grantor, PNCC as the franchisee and NLEX Corp as theconcessionaire, executed a STOA whereby the Philippine government recognized and accepted theassignment by PNCC of its usufructuary rights, interests and privileges under its franchise in favor ofNLEX Corp as approved by the President of the Philippines and granted NLEX Corp concession

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rights, obligations and privileges including the authority to finance, design, construct, operate andmaintain the NLEX project roads as toll roads commencing upon the date the STOA comes intoeffect until December 31, 2030 or 30 years after the issuance of the Toll Operation Permit for the lastcompleted phase, whichever is earlier. In October 2008, the concession agreement was extended foranother seven years to 2037.

The concession agreement establishes a toll rate formula and adjustment procedure for setting theappropriate toll rate. Pursuant to the STOA, NLEX Corp is required to pay franchise fees to PNCC(see Notes 21 and 30) and to pay for the Government’s project overhead expenses based on certainpercentages of construction costs and maintenance works on the project roads. Upon expiry of theconcession period, NLEX Corp shall hand over the project roads to the Philippine Governmentwithout cost, free from any and all liens and encumbrances and fully operational and in good workingcondition, including any and all existing land required, works, toll road facilities and equipmentfound therein directly related to and in connection with the operation of the toll road facilities.

The Manila-North Expressway Project (MNEP) consists of three (3) phases as follows:

Phase DescriptionStatus/Date of Operation

Phase I(Segments 1, 2, 3 and 7)

Expansion andrehabilitation

i. 84 kilometers (km) of the existing NLEXii. 8.8-km stretch of a Greenfield

expressway

February 5, 2005

Phase II(Segments 8.1, 8.2, 9 and 10)

Construction i. 17-km circumferential road C-5 whichconnects the current C-5 expressway tothe NLEX

Segment 8.1 –June 5, 2010

ii. 5.85-km road from McArthur to Letre Segments 9 –March 9, 2015Segment 10 –OngoingconstructionSegment 8.2 – Preconstruction

Phase III(Segments 4, 5 and 6)

Construction i. 57-km Subic arm of the NLEX to SubicExpressway

Not started

NLEX Corp – Toll Operation Agreement (TOA) for the Subic-Clark-Tarlac Expressway (SCTEX).On February 9, 2015, NLEX Corp received the Notice of Award from the Bases Conversion andDevelopment Authority (BCDA) for the management, operation and maintenance of the 94-kilometerSCTEX subject to compliance with specific conditions. On February 26, 2015, NLEX Corp andBCDA entered into a Business Agreement involving the assignment of BCDA’s rights andobligations relating to the management, operation and maintenance of SCTEX as provided in theSCTEX concession. The assignment includes the exclusive right to use the SCTEX toll road facilitiesand the right to collect tolls until October 30, 2043. On May 22, 2015, the TOA was executed by andamong the Philippine Government and BCDA and NLEX Corp. At the end of the contract term, theSCTEX, as well as the as-built plans, specification and operation/repair/ maintenance manualsrelating to the same shall be turned over to the BCDA or its successor-in-interest.

At a consideration of P=3.5 billion upfront cash payment, the operation and management of theSCTEX was officially turned over to NLEX Corp on October 27, 2015. NLEX Corp shall also payBCDA monthly concession fees amounting to 50% of the Audited Gross Toll Revenues of theSCTEX for the relevant month from effective date to October 30, 2043 (see Note 21).

NLEX Corp – Concession Agreement for the NLEX-SLEX Connector Road Project (Connector Road).The Connector Road is a four (4) lane toll expressway structure with a length of eight (8) kilometers allpassing through and above the right of way of the Philippine National Railways (PNR) starting NLEXSegment 10 in C3 Road Caloocan City and seamlessly connecting to South Luzon Expressway (SLEX)

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through Metro Manila Skyway Stage 3 Project. On November 23, 2016, NLEX Corp and the Republicof the Philippines (ROP) acting through the Department of Public Works and Highways (DPWH), signedthe Concession Agreement for the design, financing, construction, operation and maintenance of theNLEX-SLEX Connector Road. The concession period shall commence on the commencement date andshall end on its thirty-seventh (37th) anniversary, unless otherwise extended or terminated in accordancewith the Concession Agreement. The Connector Project, with an estimated project cost of P=23.3 billion,is expected to commence construction in 2018 and to complete by 2020.

Under the Concession Agreement, NLEX Corp will pay the DPWH periodic payments as considerationfor the grant of the Right of Way for the project (see Note 17). Other material commitments under theConnector Road’s concession agreement are disclosed in Note 30.

CIC – Toll Operation Agreement (TOA) for the Manila - Cavite Expressway (CAVITEX). CIC isexclusively responsible for the design, financing and construction of the CAVITEX, pursuant to aTOA dated July 26, 1996 entered into with the Philippine Reclamation Authority (PRA) and theGovernment, acting through the TRB. Responsibility for the supervision of the operation andmaintenance of the toll road, initially undertaken by the PRA, was also transferred to CIC pursuant toan Operations and Maintenance Agreement dated November 14, 2006 and a voting trust agreementdated November 16, 2006. The concession for CAVITEX extends to 2033 for the originally builtroad and to 2046 for a subsequent extension. Upon expiry of the concession period, CIC shall handover the project to the Philippine Government.

The concession agreement establishes a toll rate formula and adjustment procedure for setting theappropriate toll rate.

Pursuant to the TOA, PRA established PEA Tollways Corporation (PEATC), its wholly ownedsubsidiary, to undertake the O&M obligations of the PRA under the TOA (see Note 30).

Under the amended Joint Venture Agreement with PRA, each of the following expressways shall beconstructed in segments:

Phase DescriptionStatus/Date of Operation

Phase I Design and improvement i. 6.5 km R-1 Expressway which connectsthe Airport Road to Zapote

ii. Extension of the 7 km R-1 Expresswaywhich connects the existing R-1Expressway at Zapote to Noveleta

May 1998

May 2011

Phase II Design and construction i. Extension of the C-5 Link Expresswaywhich connects the R-1 Expressway tothe South Luzon Expressway (SLEX)

C-5 Link Expresswayjoining C-5 Road inTaguig to R-1Expressway- OngoingConstruction

MPCALA Holdings, Inc. (MPCALA) – Concession Agreement for the Cavite Laguna Expressway(CALAEX). On July 10, 2015, MPCALA signed the Concession Agreement for the CALAEX Projectwith the DPWH. Under the Concession Agreement, MPCALA is granted the concession to design,finance, construct, operate and maintain the CALAEX, including the right to collect toll fees, over a35-year concession period. The CALAEX is a closed-system tolled expressway connecting theCAVITEX and the SLEX. The CALAEX Project was awarded to MPCALA following a competitivepublic bidding process where MPCALA was declared as the highest complying bidder with its offerto pay the government concession fees amounting to P=27.3 billion payable over 9 years from signingof the Concession Agreement (see Note 17).

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On July 3, 2017, MPCALA issued the Notice to Proceed to D.M. Consunji, Inc. (Consunji) signifyingthe official commencement of construction works for the project (see Note 19). The project isexpected to be completed in 2020 and be fully operational by 2021.

Cebu Cordova Link Expressway Corporation’s (CCLEC) Cebu Cordova Link Expressway (CCLEX).On October 3, 2016, CCLEC, Cebu City and Municipality of Cordova (as grantors) signed theconcession agreement for the CCLEX. CCLEX, consists of the main alignment starting from theCebu South Coastal Road and ending at the Mactan Circumferential Road, inclusive of interchangeramps aligning the Guadalupe River, the main span bridge, approaches, viaducts, causeways, low-height bridges, at-grade road, toll plazas and toll operations center.

Under the concession agreement, CCLEC is granted the concession to design, finance, construct,operate and maintain the CCLEX, including the right to collect toll fees over a 35-year concessionperiod. CCLEX is estimated to cost P=26.3 billion. No upfront payments or concession fees are to bepaid but the grantors shall share 2% of the project’s revenue.

Construction is ongoing and expected to be completed by 2021.

Concession Arrangements - Water

Maynilad. In February 1997, Maynilad entered into a concession agreement with Metropolitan WaterSewerage System (MWSS), with respect to the MWSS West Service Area. Under the concessionagreement, MWSS grants Maynilad, the sole right to manage, operate, repair, decommission andrefurbish all fixed and movable assets required to provide water and sewerage services in the WestService Area for 25 years ending in 2022. In September 2009, MWSS approved an extension of itsconcession agreement with Maynilad for another 15 years to 2037 (the expiration date). The legaltitle to all property, plant and equipment contributed to the existing MWSS system by Mayniladduring the concession period remains with Maynilad until the expiration date at which time, all rights,titles and interests in such assets will automatically vest to MWSS. Under the concession agreement,Maynilad is entitled to charge its customers a Basic Standard tariff which is calculated to enableMaynilad to recover all expenditures efficiently and prudently incurred, including Philippinesbusiness taxes and concession fees while also providing Maynilad a real rate of return on the net cashsum invested in the concession from time to time. This tariff is subject to periodic changes dueprincipally to (a) an annual standard rate adjustment to compensate for changes in the CPI subject to arate adjustment limit; (b) an extraordinary price adjustment to account for the financial consequencesof the occurrence of certain unforeseen events subject to grounds stipulated in the concessionagreement; and (c) a rate rebasing mechanism which allows rates to be adjusted every five years. Therate rebasing adjustment allows for updates to estimates for expenditures and demand forecasts whilealso resetting the real rate of return awarded to Maynilad in light of changes to costs of funding.Under Maynilad’s concession agreement with the Philippine Government, any rate adjustmentrequires approval by MWSS and the Regulatory Office (RO).

The Republic of the Philippines (ROP) also issued in favor of Maynilad on July 31, 1997 andMarch 17, 2010 an undertaking which provides, among other things, that the ROP shall indemnifyMaynilad in respect of any loss that is occasioned by a delay caused by the ROP or anygovernment-owned agency in implementing any increase in the standard rates beyond the date for itsimplementation in accordance with the concession agreement (the “Undertaking”).

Other material commitments under Maynilad’s concession agreement are disclosed in Note 30.

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PHI. In August 2012, Maynilad acquired a 100% interest in PHI, which engages in water distributionbusiness in certain areas in central and southern Luzon. PHI is granted the sole right to distributewater in these areas under certain concession agreements granted by the Philippine government for 25years to 2035.

Metro Iloilo Bulk Water Supply Corporation (MIBWSC). On July 4, 2016, pursuant to a JointVenture Agreement between MetroPac Iloilo Holdings Corporation (MILO; a wholly ownedsubsidiary of MPW), and Metro Iloilo Water District (MIWD), created and established MIBWSC, toimplement the 170 Million Liters per Day (MLD) Bulk Water Supply Project (BWS Project). TheBWS Project covers the (i) rehabilitation and upgrading of MIWD’s existing 55 MLD water facilities,(ii) the expansion and construction of new water facilities to increase production to up to 115 MLD;and (iii) delivery of contracted water demand to MIWD in accordance with the bulk water supplyagreement. The BWS Project covers a period from the later of the Target Initial Delivery Date andthe Initial Delivery Date and ending on the 25th anniversary thereof and shall be extended for anadditional 25 years counted from completion of the agreed upon expansion obligation, but in no eventshall exceed an aggregate of 50 years. The Target Initial Delivery Date is expected to take place inAugust 2018.

MIWD retains ownership of the existing facilities subject to the right of MIBWSC to access and use.MIBWSC in turn retains ownership of the new facilities but is required to handback the Project,including transfer of the full ownership of the new facilities, at the end of the contract period.

On July 5, 2016, MIBWSC officially took over operations from the MIWD.

Concession Arrangements – Rail

LRMC’s LRT-1 Project. On October 2, 2014, LRMC signed together with the Department ofTransportation and Communications (DOTC, now Department of Transportation - DOTr) and the LightRail Transit Authority (LRTA) (together with DOTr as “Grantors”) the Concession Agreement for theLRT-1 Cavite Extension and Operations & Maintenance Project (LRT-1 Project). The DOTr and LRTAformally awarded the Project to LRMC on September 15, 2014. Under the Concession Agreement,LRMC will operate and maintain the existing LRT-1 and construct an 11.7-km extension from thepresent end-point at Baclaran to the Niog area in Bacoor, Cavite. A total of eight new stations will bebuilt along the extension, which traverses the cities of Parañaque and Las Piñas up to Bacoor, Cavite.The Concession Agreement is for a period of thirty-two (32) years commencing fromSeptember 12, 2015 (the Effective Date).

LRMC has the right to apply for an adjustment of the fare based on the specific fare adjustment formulaunder LRMC’s concession agreement with the Philippine Government. This formula specifies an initialboarding and per-kilometer fare with 10.25% increases over these initial fares every two years beginningin August 2016, subject to inflation rebasing if inflation falls outside an acceptable band. If the approvedfare is different from the formula specified on the concession agreement, both the Philippine Governmentand LRMC are obligated to substantially keep the other party whole, depending on whether the actualfares represent a deficit or a surplus.

Rehabilitation of the existing system is expected to be completed in 2020. Construction of the CaviteExtension is expected to commence once right of way is delivered by the Grantors and is targeted to becompleted four (4) years thereafter. The right of way was not fully delivered as at March 1, 2018.However, on May 30, 2017, LRMC received the Permit to Enter certificate from the Grantors allowingLRMC to enter the concerned properties and commence the construction of Cavite Extension. TheCavite Extension is on design phase as at March 1, 2018.

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Electric Power Purchase Agreements (EPPA)GBPC’s power generation facilities consist of: (i) 246 MW clean coal-fired power plant in Toledo City,Cebu, which is operated by Cebu Energy Development Corporation (CEDC); (ii) 164 MW and 150 MWclean coal-fired power plants in Iloilo City, which is operated by Panay Energy DevelopmentCorporation (PEDC); (iii) 60 MW coal facility, an 82 MW clean coal fired power plant and a 40 MWfuel oil facility operated by Toledo Power Co. (TPC); (iv) a 72 MW fuel oil facility, a 20 MW fuel oilfacility, a 7.5 MW fuel oil facility and a 5 MW fuel oil facility operated by Panay Power Corporation(PPC); and (v) 7.5 MW fuel oil facility operated by GBH Power Resources Inc.

GBPC, through its operating generation subsidiaries, entered into bilateral off-take arrangements withpower off-takers such as distribution utilities, electric cooperatives, retail electricity suppliers and directlyconnected industrial customers which together accounted for 92% and 95% of GBPC’s total electricitysales for the years ended December 31, 2017 and 2016, respectively.

HospitalsAs at December 31, 2017, the Company, through MPHHI and its subsidiaries (see Note 39), operatesthe following full service hospitals:

ƒ In Metro Manila: Cardinal Santos Medical Center (CSMC), Our Lady of Lourdes Hospital(OLLH), Asian Hospital (AHI), De Los Santos Medical Center (DLSMC), Marikina ValleyMedical Center (MVMC) and Dr. Jesus C. Delgado Memorial Hospital (JDMH); and

ƒ In other parts of the Philippines: Riverside Medical Center (RMCI) in Bacolod, Central LuzonDoctors Hospital (CLDH) in Tarlac, West Metro Medical Center (WMMC) in Zamboanga,Sacred Heart Hospital of Malolos Inc. (SHHM) in Bulacan and Saint Elizabeth Hospital Inc.(SEHI) in General Santos City.

The Company also has equity stake in the following hospitals: Makati Medical Center (MMC);Manila Doctors Hospital (MDH) and Davao Doctors Hospital (DDH) (see Note 10).

2. Basis of Preparation, Consolidation and Statement of Compliance

Basis of PreparationThe consolidated financial statements are prepared on a historical cost basis, except for certainavailable-for-sale (AFS) financial assets and derivative financial instruments that are measured at fairvalue. The consolidated financial statements are presented in Philippine Peso, which is MPIC’sfunctional and presentation currency, and all values are rounded to the nearest million peso(P=000,000), except when otherwise indicated.

The consolidated financial statements provide comparative information with respect to the previousperiods.

Basis of ConsolidationThe consolidated financial statements of the Company include the accounts of the Parent Companyand its subsidiaries.

Subsidiaries are all entities (including structured entities) over which the Company has control. TheCompany controls an entity when the Company is exposed to, or has rights to, variable returns fromits involvement with the entity and has the ability to affect those returns through its power to directthe activities of the entity. Subsidiaries are fully consolidated from the date on which control istransferred to the Company. They are deconsolidated from the date that control ceases.

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The acquisition method of accounting is used to account for business combinations by the Company.

Intercompany transactions, balances and unrealized gains on transactions between companies areeliminated. Unrealized losses are also eliminated unless the transaction provides evidence of animpairment of the transferred asset. Accounting policies of subsidiaries have been changed wherenecessary to ensure consistency with the policies adopted by the Company.

Non-controlling interests in the results and equity of subsidiaries are shown separately in theconsolidated statement of comprehensive income, consolidated statement of changes in equity andconsolidated statement of financial position respectively.

A complete list of the Company’s subsidiaries is provided for in Note 39.

Statement of ComplianceThe consolidated financial statements are prepared in compliance with Philippine Financial ReportingStandards (PFRS). The Company’s significant accounting policies are disclosed in Note 37.

3. Management’s Use of Judgments and Estimates

The preparation of the consolidated financial statements in compliance with PFRS requiresmanagement 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.Uncertainty about these assumptions and estimates could result in outcomes that require a materialadjustment to the carrying amount of assets or liabilities affected in future periods.

JudgmentsIn the process of applying the Company’s accounting policies, management has made the followingjudgments, apart from those involving estimations, which have the most significant effect on the amountsrecognized in the consolidated financial statements.

Consolidation of CIC. While presently not owning any of CIC’s common voting shares, theCompany, through MPTC, considers that it controls CIC by virtue of the Management LetterAgreement (MLA). Under the MLA, MPTC has the power to solely direct the entire operations,including the capital expenditure and expansion plans of CIC. MPTC shall then receive all thefinancial benefits from CIC’s operations and all losses incurred by CIC are to be borne by MPTC.

On June 28, 2017, MPTC, Cavitex Holdings, Inc. (CHI) and CIC, amended the Management Periodoriginally stated in the Management Letter Agreement dated December 27, 2012 effective on June 28,2017. Accordingly, the Management Period for the management of CIC by MPTC is amended to befrom January 2, 2013 and while MPTC holds the CHI Preferred Shares, or until MPTC becomes the100% direct or indirect shareholder of CIC, whichever comes later.

Dilution in Interest in a Subsidiary as Equity Transaction. On July 2, 2014, GIC Private Limited(GIC), through Arran Investment Private Limited, invested P=3.7 billion for a 14.4% stake in MPIC’ssubsidiary, MPHHI, and paid P=6.5 billion as consideration for an Exchangeable Bond which can beexchanged into a 25.5% stake in MPHHI in the future. The Exchangeable Bond is an instrument that,at a certain time in the future, converts into a fixed number of shares of MPHHI. Moreover, theprincipal of Exchangeable Bond is in Philippine Peso, the same currency as the functional currency ofMPIC as the issuing entity. Thus, the Exchangeable Bond qualifies as an equity instrument such thatthe proceeds from the Exchangeable Bond together with the share subscription of GIC in MPHHI,were considered as equity transactions with a non-controlling shareholder. Interest accruing on theExchangeable Bond is recorded as interest payable recognized at its present value.

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Majority Ownership Interest Without Control. Where the Company holds more than 50% of votingrights in an investee, there is a presumption that the Company has the power to exercise control andsuch investment is treated as a subsidiary. However, in applying the control provisions in relation tothe Company’s participation in the investee’s decision making and other relevant activities, theCompany has made certain judgment which determined the accounting and classification of thefollowing investments:

ƒ TMC. In December 2016, MPTC increased its ownership interest in TMC from 46% to 60%.Despite ownership interest of 60%, investment in TMC was accounted for as an associate as atDecember 31, 2016 because another significant shareholder held significant veto rights related tochanges to operating and dividend policies that affects investors’ returns (see Note 10).However, these veto rights ceased with the acquisition of another 7% interest in TMC increasingMPTC’s effective ownership in TMC from 60.0% to 67.0% beginning April 2017. The increasein effective ownership was accounted for as a business combination resulting in the consolidationof TMC (see Note 4).

ƒ Costa de Madera Corporation (Costa de Madera). Despite ownership interest of 62%, this isaccounted for as an associate because control and management rest with the other shareholders(see Note 10).

Investments in Beacon Electric. Prior to June 2017, the Company made the following judgments withrespect to its investments in Beacon Electric’s common shares and preferred shares:

ƒ Investments in Beacon Electric’s common shares. For all joint arrangements structured inseparate vehicles, the Company must assess the substance of the joint arrangement in determiningwhether it is classified as a joint venture or joint operation. This assessment requires theCompany to consider whether it has rights to the joint arrangement’s net assets (in which case itis classified as a joint venture), or rights to and obligations for specific assets, liabilities,expenses, and revenues (in which case it is classified as a joint operation). Factors the Companyconsiders include: structure, legal form, contractual agreement, and other facts and circumstances.Upon consideration of these factors, the Company has determined that its joint arrangement,structured through Beacon Electric as a separate vehicle, gives it rights to the net assets of BeaconElectric, and therefore classified its investment in Beacon Electric’s common shares, as a jointventure. Prior to June 2017, the Company had 75% ownership interest in Beacon Electricthrough the common shares. The other 25% as at December 31, 2016, was held by PLDTCommunications and Energy Ventures, Inc. (PCEV). Despite ownership of 75% of the commonshares of Beacon Electric, the Company accounted for its investment in Beacon Electric’scommon shares as investment in a joint venture because MPIC and PCEV retains 50/50 votingarrangement for as long as: (i) PCEV owns at least 20% of the outstanding capital stock ofBeacon Electric, or (ii) the purchase price for the Beacon Electric shares acquired in May 2016has not been fully paid by MPIC (see Note 10).

ƒ Investment in Beacon Electric’s preferred shares. In determining the appropriate accountingpolicy for the Company’s investment in financial instruments, factors that the Company considerinclude the following: contractual characteristics of the financial instrument; the purpose forwhich the instrument is held, for example, trading or long-term investment; and the accountingpolicy choice of the reporting entity. In applying the factors, the Company has made a judgmentthat PAS 39, Financial Instruments: Recognition and Measurement is the appropriate accountingfor its investment in preferred shares of Beacon Electric because: the preferred shares are non-voting and as such, would not provide the Company with control, joint control or significantinfluence over Beacon Electric; the Company intends to hold the investment indefinitely; and theCompany may decide to sell the instruments anytime at its discretion.

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However, in June 2017, MPIC entered into a Deed of Absolute Sale of Shares with PCEV toacquire the remaining 25% interest in Beacon Electric from PCEV. This acquisition wasaccounted for as a business combination resulting in the consolidation of Beacon Electricbeginning on the acquisition date (see Note 4).

Acquisition of a Group of Assets Qualified as a Business Combination. In applying the requirementsof PFRS 3, Business Combinations, an entity or an asset being acquired has to be assessed whether itconstitutes a business. In the assessment, it requires identification of inputs and processes applied tothese inputs to generate outputs or economic benefits. The group of logistics assets acquired asdiscussed in Note 4 is considered a business, hence, accounted for as a business combination.

Service Concession Arrangements. In applying Philippine Interpretation IFRIC 12, ServiceConcession Arrangements, the Company has made a judgment that the service concessionarrangements of the Company’s water, tollway and rail businesses (see Note 1) qualify under theintangible asset model as these companies receive the right to charge users of public service. Detailsof the Company’s accounting policy in respect of the service concession arrangements are set out inNote 37 to the consolidated financial statements. Other significant judgment and estimates made inrelation to concession arrangements are as follows:

ƒ Service Concession Assets. The methods of amortization that the Company uses depends onwhich method best reflects the pattern of consumption of the concession assets. The straight-linemethod is currently being used to amortize the rail concession asset while Unit of Production(UOP) method is being used for the toll and water concession assets (NLEX Corp, CIC andMaynilad). The Company annually reviews the billable water volume, in the case of the waterconcession, and the traffic volume/kilometers travelled, in the case of the toll concession, basedon factors that include market conditions such as population growth and consumption ofwater/usage of the toll facility, and the status of the Company’s projects. It is possible that futureresults of operations could be materially affected by changes in the Company’s estimates broughtabout by changes in the aforementioned factors.

The total carrying values of service concession assets amounted to P=168,783.2 million andP=152,693.3 million as at December 31, 2017 and 2016, respectively (see Note 12).

ƒ Service Concession Asset as Qualifying Assets and Capitalization of Borrowing Costs. TheCompany has made a judgment to apply PAS 23, Borrowing Costs, in classifying the serviceconcession assets’ components undergoing rehabilitation (in the case of the existing LRT-1) andpre/on-going construction (in the case of the construction of the LRT-1 extension, the ConnectorRoad, CALAEX and CCLEX) as qualifying assets. The existing LRT-1 is severely deterioratedwhen turned over to LRMC and the intention of management to bring it at par with the standardfor rail system played a key factor in the designation of the rehabilitation of the existing LRT-1system as a qualifying asset.

The Company capitalizes borrowing costs that are directly attributable to the acquisition orconstruction of the qualifying asset as part of the cost of that asset using the specific borrowingapproach, as the Company uses specific borrowings to finance its qualifying assets. Capitalizedborrowing costs for the years ended December 31, 2017 and 2016 amounted to P=2,906.7 millionand P=2,344.1 million, respectively (see Note 12). Capitalization of borrowing costs ceases whensubstantially all the activities necessary to prepare the components of the service concession assetfor its intended use or sale are complete.

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ƒ Construction revenue and costs. The Company recognizes construction revenues and costs inaccordance with PAS 11, Construction Contracts. Given that the rehabilitation and constructionworks have been subcontracted to outside contractors (excluding the cost of some materials forsome contractors), the recognized construction revenue substantially approximates the relatedconstruction cost. Construction revenue recognized in the consolidated statements ofcomprehensive income amounted to P=19,344.3 million, P=16,799.1 million and P=12,130.5 millionfor the years ended December 31, 2017, 2016 and 2015, respectively. Construction costsrecognized in the consolidated statements of comprehensive income amounted toP=19,344.3 million, P=16,799.1 million and P=12,130.5 million for the years endedDecember 31, 2017, 2016 and 2015, respectively.

ƒ Provision for heavy maintenance. The Company also recognizes its contractual obligations torestore the toll roads to a specified level of serviceability. NLEX Corp and CIC recognizeprovision following PAS 37, Provisions, Contingent Liabilities and Contingent Assets as theobligation arises which is a consequence of the use of the toll roads and therefore it isproportional to the number of vehicles using the roads and increasing in measurable annualincrements. Provision for heavy maintenance amounted to P=402.4 million and P=433.4 million asat December 31, 2017 and 2016, respectively (see Note 16).

Lease Agreement Qualifying as Business Combination. The Company has assessed that the hospitallease agreements entered into by Colinas Verdes Hospital Managers Corp. (CVHMC), East ManilaHospital Managers Corp. (EMHMC) and Metro Pacific Zamboanga Hospital Corp. (MPZHC) meetthe definition of a business combination, particularly since CVHMHC, EMHMC and MPZHC haveobtained control over the operations and management of hospitals; hence, these lease agreementsqualify as acquisitions of businesses and were accounted for in accordance with PFRS 3, resulting inthe recognition of property use rights (see Notes 11 and 30).

Claims from the Grantor/s. Sizeable pending claims have accumulated for the Company’s water, tolland rail businesses:

ƒ Maynilad. Maynilad wrote the Philippine Government through the Department of Finance (DOF),to call on the undertaking after the MWSS and the RO’s delayed implementation of the decision ofthe Arbitral Award. Maynilad demanded that it be paid P=3.4 billion (subsequently adjusted toP=3.18 billion) in revenue losses that it had sustained as a direct result of the MWSS and the RO’srefusal to implement the correct Rebasing Adjustment from January 1, 2013 (the commencement ofthe 4th Rate Rebasing Period) to February 28, 2015. Revenue losses as a result of the delayed tariffincreases since 2013 amounted to P=11.4 billion as of December 31, 2017.

ƒ NLEX Corp and CIC. In August 2015, for failure to implement toll rate adjustments, NLEX Corpand CIC filed notices with the TRB and DOTC demanding settlement of the past due tariff increasesamounting to P=2.4 billion and P=719.0 million based on the overdue toll rate adjustments as atJuly 31, 2015 for the NLEX and CAVITEX, respectively. As at December 31, 2017, revenue lossesdue to delayed tariff increases is estimated at P=6.4 billion (VAT-exclusive; net of Government’sshare at P=6.0 billion) for the NLEX. NLEX Corp also filed with the TRB petition for toll rateadjustment for the SCTEX. Revenue losses due to delayed tariff increase amounted to P=1.9 billion(VAT exclusive; net of Government share at P=1.0 billion) as at December 31, 2017. Revenuelosses for the the CAVITEX is estimated at P=1.3 billion (VAT-exclusive and net of PRA’s share) asat December 31, 2017 (see Note 29).

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ƒ LRMC. On various dates in 2015 through 2017, LRMC submitted letters to the DOTr representingits claim for costs incurred and estimated in relation to Existing System Requirement (ESR) andLight Rail Vehicle (LRV) shortfall on the premise of the Grantors’ obligation in relation to thecondition of the Existing System as at the Effective Date (September 12, 2015) fare deficit,Structural Defect Restoration (SDR) costs, and contractor and other additional costs incurred lessKey Performance Indicator (KPI) charges (see Notes 29 and 30).

As at December 31, 2017 and 2016, the consolidated financial statements do not include any adjustmentsfor the abovementioned claims pending outcome of the decision of the High Court of Singapore (forMaynilad’s claims) and the discussions with the Grantor/s (for claims of NLEX Corp, CIC and LRMC).

EstimatesThe key assumptions concerning the future and other key sources of estimation uncertainty at thereporting date, that have a significant risk of causing a material adjustment to the carrying amounts ofassets and liabilities within the next financial year, are described below. The Company based itsassumptions and estimates on parameters available when the consolidated financial statements wereprepared. Existing circumstances and assumptions about future developments, however, may change dueto market changes or circumstances arising beyond the control of the Company. Such changes arereflected in the assumptions when they occur.

Determination of Fair Value of Financial Instruments. The Company initially records all financialinstruments at fair value and subsequently carries certain financial assets and financial liabilities atfair value, which requires extensive use of accounting estimates and judgment. Valuation techniquesare used particularly for financial assets and financial liabilities that are not quoted in an activemarket. Where valuation techniques are used to determine fair values (e.g., discounted cash flow andoption pricing models), they are periodically reviewed by qualified personnel who are independent ofthe persons that initiated the transactions. All models are calibrated to ensure that outputs reflectactual data and comparative market prices. To the extent practicable, models use only observabledata as valuation inputs. However, other inputs such as credit risk (whether that of the Company orthe counterparties), forward prices, volatilities and correlations, require management to developestimates or make adjustments to observable data of comparable instruments. The amount of changesin fair values would differ if the Company uses different valuation assumptions or other acceptablemethodologies. Any change in fair value of these financial instruments would affect either theconsolidated statement of comprehensive income or consolidated statement of changes in equity.

Fair values of financial assets and financial liabilities are presented in Note 34.

Purchase Price Allocation in Business Combinations and Acquisition of Associate and Goodwill.The Company accounts for the acquired businesses, and in part in an acquisition of associates, usingthe acquisition method which requires extensive use of accounting judgments and estimates toallocate the purchase price to the fair market values of the acquiree’s identifiable assets and liabilitiesand contingent liabilities, if any, at the acquisition date. Any difference in the purchase price and thefair values of the net assets acquired is recorded as either goodwill, a separate account in theconsolidated statement of financial position (or subsumed in the investment for acquisition of anassociate), or gain on bargain purchase in profit or loss. Thus, the numerous judgments made inestimating the fair value to be assigned to the acquiree’s assets and liabilities can materially affect theCompany’s financial position and performance.

The Company’s acquisitions of certain subsidiaries have resulted in recognition of goodwill. Thecarrying value of goodwill amounted to P=25,384.3 million and P=21,003.6 million as at December 31,2017 and 2016, respectively (see Note 11).

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Impairment of Receivables. The Company estimates the allowance for doubtful accounts related toreceivables using a combination of specific and collective assessments. The amounts calculated in eachlevel of impairment assessment are combined to determine the total amount of allowance for doubtfulaccounts. First, the Company evaluates specific accounts that are considered individually significant forany objective evidence that certain customers are unable to meet their financial obligations. In thesecases, the Company uses judgment, based on the best available facts and circumstances, including but notlimited to, the length of its relationship with the customer and the customer’s current credit status basedon third party credit reports and known market factors.

The allowance provided is based on the difference between the present value of cash flows of thereceivable that the Company expects to collect, discounted at the receivables’ original effective interestrate, and the carrying amount of the receivable. These specific allowances are re-evaluated and adjustedas additional information received affects the amounts estimated. If no impairment loss is determined foran individually assessed receivable, the receivable is included in a group of receivables with similarcredit risk characteristics and is collectively assessed for impairment. The provision under collectiveassessment is based on historical collection and write-off experience and change in customer paymentterms. Impairment assessment is performed on a continuous basis throughout the year.

The carrying values of receivables, net of allowance for doubtful accounts, amounted toP=10,899.3 million and P=5,227.0 million as at December 31, 2017 and 2016, respectively. Allowancefor doubtful accounts amounted to P=958.0 million and P=854.0 million as at December 31, 2017and 2016, respectively (see Notes 8 and 32).

Recoverability of Goodwill and Service Concession Assets not yet Available for Use. Goodwill andservice concession assets not yet available for use are subject to annual impairment test. Thisrequires an estimation of the value in use of CGUs to which the goodwill is allocated or to which theservice concession assets belong. Estimating the value in use requires the Company to estimate theexpected future cash flows from the CGU and to choose an appropriate discount rate in order tocalculate the present value of those cash flows. Impairment of goodwill amounting to P=324.2 millionwas recognized for the year ended December 31, 2017 while none for the years endedDecember 31, 2016 and 2015. The carrying values of goodwill amounted to P=25,384.3 million andP=21,003.6 million as at December 31, 2017 and 2016, respectively (see Note 11). The aggregatecarrying value of service concession assets not yet available for use amounted to P=39,344.0 millionand P=34,466.9 million as at December 31, 2017 and 2016, respectively (see Note 14).

Impairment of Nonfinancial Assets. Impairment review is performed when certain impairment indicatorsare present. Determining the fair value of assets requires the estimation of cash flows expected to begenerated 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 theconsolidated financial statements are appropriate and reasonable, significant changes in theseassumptions may materially affect the assessment of recoverable values and any resulting impairmentloss could have a material adverse impact on the results of operations.

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The carrying values of non-financial assets subject to impairment review when impairment indicators arepresent are as follows:

2017 2016(In Millions)

Service concession assets (see Note 12) P=168,783 P=152,693Equity method investees (see Note 10) 148,263 104,814Property, plant and equipment (see Note 13) 67,606 10,480Intangible assets (see Note 11) 4,637 1,934Deferred project costs* 945 858*Included under “Other noncurrent assets”.

Impairment loss on certain equity method investments amounting P=439.0 million and P=774.0 millionwere recognized in 2017 and 2016, respectively (see Note 10).

Estimated Useful Lives of Property, Plant and Equipment and Intangible assets. The useful lives of eachof the item of the Company’s property, plant and equipment and intangible assets are estimated based onthe period over which the asset is expected to be available for use. Such estimation is based on acollective assessment of similar businesses, internal technical evaluation and experience with similarassets. The estimated useful life of each asset is reviewed at each financial year-end and updated ifexpectations differ from previous estimates due to physical wear and tear, technical or commercialobsolescence and legal or other limits on the use of the asset. It is possible, however, that future resultsof operations could be materially affected by changes in the amounts and timing of recorded expensesbrought about by changes in the factors mentioned above. A reduction in the estimated useful life of anythese items would increase the recorded depreciation and amortization expense and decrease the carryingvalues of these assets.

There were no changes in the estimated useful lives of these assets for all the periods presented.

Taxes. Uncertainties exist with respect to the interpretation of complex tax regulations, changes in taxlaws, and the amount and timing of future taxable income. Given the diversity of the Company’sbusinesses and the long-term nature and complexity of existing contractual agreements or the nature ofthe business itself, changes in differences arising between the actual results and the assumptions made, orfuture changes to such assumptions, could necessitate future adjustments to tax income and expensealready recorded. The Company establishes provisions, based on reasonable estimates, for possibleconsequences of audits by the tax authorities under which the Company operates. The amount of suchprovisions is based on various factors, such as experience of previous tax audits and differinginterpretations of tax regulations by the taxable entity and the responsible tax authority. Such differencesin interpretation may arise for a wide variety of issues depending on the conditions prevailing in therespective domicile or to the operations of the Company.

Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profitwill be available against which the losses can be utilized. Significant management judgement is requiredto determine the amount of deferred tax assets that can be recognized, based upon the likely timing andthe level of future taxable profits together with future tax planning strategies. The carrying amount ofdeferred tax assets is reviewed at each end of the reporting period and reduced to the extent that it is nolonger probable that sufficient taxable income will be available to allow all or part of the deferred taxassets to be utilized. The Company performs an annual evaluation of the realizability of deferred incometax assets in determining the portion of deferred tax assets which should be recognized. The Company’sassessment on the recognition of deferred income tax assets on deductible temporary differences is basedon the forecasted taxable income of the following periods. This forecast is based on the Company’s pastresults and future expectations on revenue and expenses.

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Certain of the Company’s subsidiaries are entitled to income tax holiday period. The Companyrecognized deferred tax assets on deductible temporary differences expected to reverse after the incometax holiday period, while deferred taxes on deductible temporary differences expected to reverse duringthe income tax holiday and to items where doubt exists as to the tax benefits they will bring in the future,are not recognized.

Deferred tax assets amounted to P=1,044.6 million and P=466.7 million as at December 31, 2017 and 2016,respectively. The Company’s deductible temporary difference, including unused NOLCO and MCIT,for which no deferred tax assets have been recognized amounted to P=9,527.0 million and P=7,552.0million as at December 31, 2017 and 2016, respectively (see Note 26).

Long-Term Incentives Plan (LTIP). The LTIP for key executives of MPIC and certain subsidiarieswas approved by the Compensation Committee and the BOD and is based on profit targets for thecovered performance cycle. The cost of LTIP is determined using the projected unit credit methodbased on prevailing discount rates and profit targets. While management’s assumptions are believedto be reasonable and appropriate, significant differences in actual results or changes in assumptionsmay materially affect the Company’s other long-term incentive benefits.

LTIP expense for the years ended December 31, 2017, 2016 and 2015 amounted to P=629.0 million,P=533.0 million and P=567.8 million, respectively, and presented as “Personnel costs and employeebenefits” under “General and administrative expenses” in the consolidated statements ofcomprehensive income. LTIP payable as at December 31, 2017 and 2016 amounted toP=1,405.2 million and P=703.2 million, respectively, and is presented under “Accounts payable andother current liabilities” for the current portion and “Other long-term liabilities” account for thenoncurrent portion in the consolidated statements of financial position (see Notes 15 and 23).

Provisions. The Company recognizes provisions based on estimates of whether it is probable that anoutflow of resources will be required to settle an obligation. Where the final outcome of thesematters is different from the amounts that were initially recognized, such differences will impact thefinancial performance in the current period in which such determination is made.

Provisions mainly consist of provision for estimated expenses related to the concluded and ongoingdebt settlement negotiations and certain warranties and guarantees, claims and potential claimsagainst the Company, provision for heavy maintenance and decommissioning liability.

ƒ Heavy maintenance. The provisions for the heavy maintenance requires an estimation of theperiodic cost, generally estimated to be every five to seven years or the expected heavy maintenancedates, to restore the assets to a level of serviceability during the concession term and in goodcondition before turnover to the Grantor. This is based on the best estimate of management to be theamount expected to be incurred to settle the obligation at every heavy maintenance dates discountedusing a pre-tax rate that reflects the current market assessment of the time value of money and therisk specific to the liability.

ƒ Decommissioning liability. Certain of GBPC’s subsidiaries have legal obligations to decommissionor dismantle the power plant assets at the end of their estimated useful lives. The Companyrecognizes the present value of the obligation to dismantle the power plant assets and capitalizes thepresent value of this cost as part of the balance of the related power plant assets, which are beingdepreciated and amortized on a straight-line basis over the useful lives of the related assets.

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Cost estimates expressed at the current price levels at the date of the estimate are discountedusing a rate of interest ranging from 1.99% to 3.71% in 2017 to take into account the timing ofpayments. Each year, the provision is increased to reflect accretion of discount and to accrue anestimate for the effects of inflation, with charges being recognized as accretion expense, includedunder “Interest expense” in the consolidated statements of comprehensive income. Changes inthe decommissioning liability that result from a change in the current best estimate of cash flowrequired to settle the obligation or a change in the discount rate are added to (or deducted from)the amount recognized as the related asset and the periodic unwinding of the discount on theliability is recognized in the statement of comprehensive income as it occurs.

While the Company has made its best estimate in establishing the decommissioning provisionbecause of potential changes in the technology as well as safety and environmental requirements,plus the actual time scale to complete decommissioning activities, the ultimate provisionrequirements could either increase or decrease significantly from the Company’s estimates. Theamounts and timing of recorded expenses for any period would be affected by the changes inthese factors and circumstances. Decommissioning liability amounted to P=536.2 million as ofDecember 31, 2017 (see Note 16).

Additional provisions including those arising from acquisitions, (see Note 4), for the years endedDecember 31, 2017 and 2016 amounted to P=3,061.0 million and P=513.0 million, respectively.Cumulative provisions amounted to P=8,103.4 million and P=5,467.7 million as at December 31, 2017 and2016, respectively (see Note 16).

Contingencies. Certain subsidiaries of the Parent Company are parties to certain lawsuits or claimsarising from the ordinary course of business. However, the Company’s management and legalcounsel believe that the eventual liabilities under these lawsuits or claims, if any, will not have amaterial effect on the consolidated financial statements (see Note 29).

4. Business Combinations and Acquisition of Non-controlling Interests

The Company’s intention is to maintain and continue to develop a diverse set of infrastructure assetsthrough its investments in water, toll roads, power distribution and generation, health care services,rail and other businesses that complement the current infrastructure business of the Company. TheCompany is therefore committed to investing through acquisitions and strategic partnerships in primeinfrastructure assets with the potential to provide synergies with its existing operations. Accordingly,the following acquisitions were made in 2017 and 2016.

Acquisitions in 2017

Power

Step acquisition of Beacon Electric. On June 27, 2017, MPIC entered into a Deed of Absolute Saleof Shares with PCEV to acquire the latter’s remaining 25% interest in Beacon Electric’s common andpreferred shares for an aggregate purchase price of P=21.8 billion.

The purchase consideration was settled as to P=12.0 billion in cash while the balance of P=9.8 billionshall be settled in four (4) equal annual installments amounting to P=2.45 billion per year, payablestarting June 2018.

In order to fund the investment, MPIC completed an overnight placing of 4.5% of its directly heldMERALCO shares for an aggregate consideration of P=12.7 billion (see Note 10).

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After the completion of the abovementioned transactions, MPIC owns a direct 10.5% interest inMERALCO and, through its 100% interest in Beacon Electric, a further 35.0%, thereby increasing itseffective ownership interest in MERALCO from 41.2% to 45.5% and in GBPC to 56% directly and6.4% indirectly (through MERALCO).

With MPIC acquiring control over Beacon Electric, this transaction was accounted for using theacquisition method under PFRS 3. In accordance with PFRS 3:

ƒ remeasurement loss of P=1,618.5 million was recognized in “Other expense” account in theconsolidated statement of comprehensive income in relation with the 75% previously heldinterest in Beacon Electric (see Note 24); and

ƒ Beacon Electric and GBPC were fully consolidated from June 27, 2017 while MERALCOcontinues to be accounted for under the equity method of accounting (see Note 10).

The final fair values of the identifiable assets and liabilities as at the date of acquisition:

FinalValues

(In Millions)AssetsCash P=17,156Receivables 4,176Investment in MERALCO 96,946Property, plant and equipment 56,949Intangible asset (see Note 11) 3,410Other noncurrent assets 4,905

183,542LiabilitiesAccounts payable and other current liabilities 5,674Loans payable 65,357Deferred tax liability 1,949Other noncurrent liabilities 5,731

78,711

Total identifiable net assets at fair value P=104,831Fair value of previously held interest (66,714)Fair value of non-controlling interest in GBPC (17,488)Consideration transferred P=20,629

Consideration transferred included the P=12.0 billion paid in cash on transaction date and P=8.6 billionrepresenting the present value of the P=9.8 billion payable on a deferred basis (see Note 19).

Net cash inflow on acquisition is as follows:

Cash acquired with the subsidiary(a) P=17,156Total cash paid on transaction date (12,000)Net cash inflow on transaction date P=5,156(a)Cash acquired with the subsidiary is included in cash flows from investing activities.

The fair value and gross amount of Beacon Electric’s trade receivables amounted to P=4,176 millionand P=4,473 million, respectively.

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From the date of acquisition, Beacon Electric (including GBPC) contributed P=13,042.2 million to theconsolidated revenues. If the consolidation had taken place at the beginning of the year, contributionto the consolidated revenues would have been P=23,794.0 million. Since this is a step-up acquisition,the incremental contribution to the net income attributable to MPIC (pertaining to the additional 25%ownership interest in Beacon Electric) amounted to P=769.1 million from date of acquisition andP=1,465.9 million had the transaction taken place at the beginning of the year.

Toll Operations

Step acquisition of TMC. TMC is responsible for the operation & maintenance (“O&M”) of theNLEX, Segment 7 and SCTEX. TMC oversees the day-to-day operations of the NLEX and SCTEX,including securing toll collection, depositing of funds to NLEX Corp’s accounts, facilitating smoothand uninterrupted flow of traffic, carrying out routine maintenance, ensuring effective and saferesponses to emergency situations. As at December 31, 2016, the Company had a 60% equity interestin TMC and was accounted for as an investment in an associate (see Note 10) as another significantshareholder held veto rights related to changes in operations and dividend policies that affectinvestors’ returns.

On April 4, 2017, Metro Pacific Tollways North Corporation (MPT North; a wholly-ownedsubsidiary of MPTC; see Note 39) completed the acquisition of 26,600 common shares of TMCrepresenting 7% of total issued and outstanding stock of TMC for a total purchase price ofP=442.4 million.

With the increase in MPT North’s effective ownership in TMC from 60% to 67%, the veto rightspreviously held by the other investors ceased. With MPT North acquiring control over TMC, thetransaction was accounted for using the acquisition method under PFRS 3. In accordance withPFRS 3:

ƒ gain of P=1,391.4 million was recognized under the “Other income” account in the consolidatedstatements of comprehensive income as a result of the remeasurement of the 60% previously heldinterest in TMC (see Note 24); and

ƒ the intercompany relationship under the O&M Agreement between NLEX Corp and TMC iseffectively settled with no gain or loss recognized as the intercompany accounts were settled atrecorded amounts.

The final fair values of the identifiable assets and liabilities of TMC as at the date of acquisition isshown below:

FinalValues

(In Millions)AssetsCash and cash equivalents P=154Receivables 300Inventories 11Other current assets 56Property, plant and equipment 71Other noncurrent assets 31

623

(Forward)

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FinalValues

(In Millions)LiabilitiesAccounts payable and other current liabilities P=441Income tax payable 76Provisions 175Other noncurrent liabilities 26

718Total identifiable net liabilities at fair value (95)Non-controlling interest (44)Fair value of previously held interest (2,757)Goodwill arising on acquisition 3,110Consideration transferred 214Intercompany accounts settled 228Total cash paid on acquisition P=442

Net cash outflow on acquisition is as follows:

Cash acquired with the subsidiary(a) P=154Total cash paid on acquisition (442)Net cash outflow (P=288)(a) Cash acquired with the subsidiary is included in cash flows from investing activities.

The fair value and gross amount of the receivables amounted to P=299.8 million. None of thereceivables have been impaired and it is expected that the full contractual amounts can be collected.

The non-controlling interests were recognized as a proportion of net assets acquired.

Goodwill of P=3,109.7 million is attributable to the synergies and other benefits from combining theassets and activities of TMC to the Company. None of the goodwill recognized is expected to bedeductible for income tax purposes.

TMC’s revenues relate mainly to its services to NLEX Corp and are therefore eliminated atconsolidated level. As this is a step-up acquisition, the incremental contribution to net incomeattributable to shareholders of MPIC (pertaining to the additional 7% ownership interest) amounted toP=11.9 million from date of acquisition and would have been P=27.4 million had the transaction takenplace at beginning of the year.

On April 27, 2017, Egis Road Operation S.A. (EROSA) and Egis Investment Partners Philippines,Inc. (EIPPI), entered into an SPA for EIPPI’s acquisition of TMC shares, representing 13.0% of theissued and outstanding shares of TMC, held by EROSA for a total consideration of P=821.47 million.The TMC shares purchase price will be paid by EIPPI to EROSA through the receipt of dividendsfrom TMC (pre-merger) and NLEX Corp (from and after merger); see Note 30.

EIPPI is jointly controlled by Egis Projects S.A. and MPT North with effective ownership of 54% and46%, respectively. The above transaction increased MPT North’s effective ownership in TMC from67.0% to 72.98% (representing an increase of 5.98%) and was accounted for as an equity transactionwith the net premium of P=388.4 million recognized in equity.

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The premium represents the difference between the carrying value of the additional interest acquiredand the total consideration paid.

MPT North’s share in the total purchase price P=378Less: Carrying value of the additional interest acquired in TMC (10)Difference recognized in “Equity reserves” account P=388

Step-up Acquisition of Easytrip Services Corporation (ESC). In 2014, MPT North acquired equityinterest equivalent to 50% plus one share of the capital stock of ESC for a total consideration ofP=103.0 million. ESC is primarily engaged in the business of providing services related to electronictoll collection (ETC) system to include among others, the implementation of inter-operability of thedifferent toll collection systems of tollways in the country, account management and funding andmanagement of all electronic pass issued. ESC is the exclusive tag issuer at the NLEX. As atDecember 31, 2016, at 50% equity ownership, investment in ESC was accounted for as an investmentin joint venture (see Note 10).

However, on October 10, 2017, MPTC completed the acquisition of 31,999 common shares of ESCrepresenting 16% minus one share of the total issued and outstanding stock of ESC for a totalpurchase price of P=84.8 million. With the increase in MPTC’s ownership interest in ESC from 50%to 66%, the transaction was accounted for using the acquisition method under PFRS 3. In accordancewith PFRS 3:

ƒ gain of P=198.1 million was recognized under the “Other income” account in the consolidatedstatements of comprehensive income as a result of the remeasurement of the 50% previously heldinterest in ESC (see Note 24); and

ƒ the intercompany relationships under the Service Agreements of ESC with NLEX Corp and CICare effectively settled with no gain or loss recognized as the intercompany accounts were settledat recorded amounts.

The final fair values of the identifiable assets and liabilities of ESC as at the date of acquisition isshown below:

Final Values(In Millions)

AssetsCash and cash equivalents P=258Receivables 118Other current assets 16Property, plant and equipment 32Other noncurrent assets 3

427LiabilitiesAccounts payable and other current liabilities 211Other noncurrent liabilities 43

254

(Forward)

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Final ValuesTotal identifiable net assets at fair value P=173Non-controlling interests (12)Fair value of previously held interest (328)Goodwill arising on acquisition 388Consideration transferred 221Intercompany accounts settled (136)Total cash paid on acquisition P=85

The fair value and gross amount of the receivables amounted to P=118.0 million. None of thereceivables have been impaired and it is expected that the full contractual amounts can be collected.


The goodwill of P=388.4 million that arose on the acquisition can be attributed to the expectedsynergies arising from the acquisition. None of the goodwill recognized is expected to be deductiblefor income tax purposes.

ESC contributed nil operating revenues as ESC revenues pertain mainly to its services to NLEX Corpand CIC and therefore eliminated at consolidated level. Since this is a step-up acquisition, theincremental contribution to net income attributable to shareholders of MPIC (pertaining to theadditional 16% ownership interest) amounted to P=0.2 million from date of acquisition andP=3.4 million had the transaction taken place at beginning of the year.

Dilution of Interest in NLEX Corp. and TMC. On December 29, 2017, Egis Projects S.A. subscribedto 37,560 new shares of EIPPI at a total amount of P=3.76 million by the conversion of its debt intoequity giving it 57.21% equity interest in EIPPI. As a result of this transaction, MPT North’seffective ownership in EIPPI decreased from 46.0% as at December 31, 2016 to 42.8% as atDecember 31, 2017. The transaction was accounted for as an equity transaction with the net discountof P=35.1 million recognized in equity. The dilution in MPT North’s interest in EIPPI decreased theeffective ownership in NLEX Corp. and TMC from 75.60% and 72.98%, respectively, as atDecember 31, 2016 to 75.28% and 72.56%, respectively, as at December 31, 2017.

Healthcare

Acquisition of Hospitals. On January 31, 2017, MPHHI completed agreement to infuseapproximately P=133.5 million of cash into Delgado Clinic Inc. (DCI), owner and operator of the Dr.Jesus C. Delgado Memorial Hospital (JDMH) via a subscription to preferred shares representingapproximately 65% of the total expanded capital stock of DCI. The cash infusion from MPHHI willenable JDMH to upgrade its equipment and facilities, and expand its capacity.

On October 5, 2017, MPHHI completed the acquisition of 108,350 shares, representingapproximately 54% stake in Saint Elizabeth Hospital Inc. (SEHI), a 248-bed tertiary level hospitallocated in General Santos City. Total acquisition cost amounted to P=178 million, 10% of which waspaid on October 5, 2017 while 90% was deposited in an Escrow Account that shall be released to thesellers in accordance with the Escrow Agreement.

MPHHI acquired DCI and SEHI as part of its strategy to grow its portfolio and increase theCompany’s total bed capacity and to be the largest private hospital group in the Philippines. Theacquisitions were accounted for using the acquisition method.

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The provisional fair value of the identifiable assets and liabilities of the acquired hospitals as at thedate of acquisition were:

DCI SEHI(In Millions)

AssetsCash and cash equivalents P=142 P=59Receivables 3 108Inventories and other current assets 9 38Property, plant and equipment 131 361Other noncurrent assets 11 13

296 579LiabilitiesAccounts payable and other current liabilities 37 222Loans payable 6 42Deferred tax liability 41 62Other noncurrent liabilities 7 35

91 361Total identifiable net assets at fair value 205 218Non-controlling interest (at MPHHI level) (72) (100)Goodwill arising on acquisition – 60Consideration transferred P=133 P=178


DCI SEHI(In Millions)

Cash acquired with the subsidiary(a) P=142 P=59Total cash paid on acquisition (133) (178)Net cash inflow (outflow) P=9 (P=119)(a)Cash acquired with the subsidiary is included in cash flows from investing activities.

The fair values of the property, plant and equipment are provisional pending receipt of the finalvaluations for those assets. The fair value and gross amount of DCI’s trade receivables amounted toP=3.0 million and P=11.0 million, respectively. The fair value and gross amount of SEHI’s tradereceivables amounted to P=108.0 million and P=161.0 million, respectively. The difference between thefair value and the gross amount of the receivables represents the portion expected to be uncollectible.

The goodwill arising from the acquisition of SEHI is primarily attributed to the expected synergiesand other benefits from combining the assets and activities of SEHI with those of the hospitals of theCompany. The goodwill is not deductible for income tax purposes.


From the date of acquisition, DCI and SEHI have contributed P=141.5 million and P=116.3 million,respectively, to the consolidated revenue and P=3.3 million and P=7.0 million, respectively, to theconsolidated net income. If the combination had taken place at the beginning of the year,contributions to the consolidated revenue and consolidated net income would have beenP=153.2 million of revenue and P=3.7 million of net loss for DCI and P=643.4 million of revenue andP=3.1 million of net profit for SEHI for the year ended December 31, 2017. Total combinedtransaction costs for these acquisitions, amounting to P=2.2 million, have been expensed and areincluded in the “General and administrative expenses” in the consolidated statement ofcomprehensive income and are part of operating cash flows for the year ended December 31, 2017.

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On December 8, 2017, MPHHI subscribed to 257,050 shares representing additional 26% ownershipinterest in SEHI, thereby increasing MPHHI’s ownership interest from 54% to 80%. The subscriptionamounting to P=422.1 million was accounted for as an equity transaction.

Logistics

PremierLogistic’s (Premier) acquisition of group of assets. On April 4, 2017, Premier, a subsidiaryof MMI, completed the purchase of the businesses and assets, including key customer contracts ofAce Logistics Inc. (Ace) for an aggregate purchase price of P=280.0 million.

Of the purchase price, P=190.0 million was settled on closing, of which P=30.0 million was withheld byPremier and applied towards the payment of the subscription price with respect to Ace’s 10% interestin Premier after the closing of the transaction. The balance of P=90.0 million shall be paid by way ofinstallments.

Ace is engaged in the business of logistics, including warehousing, parcel and e-commerce delivery,trucking, freight forwarding, customs brokerage and domestic shipping and also has strong presencein pre-delivery inspection in the automotive industry. The transaction involved the sale by Ace ofidentified logistics assets, the novation of certain key contracts of Ace with its clients and vendors,and the transfer of certain key officers and employees of Ace to Premier. Premier intends to use theassets purchased to expand the list of logistics services it offers and to widen its client base.

The acquisition of the assets has been accounted for using the acquisition method. The provisionalfair values of the assets acquired as at the date of acquisition:

ProvisionalValues

(In Millions)Property, plant and equipment P=17Total identifiable net assets at fair value 17Provisional goodwill (at Premier level) 263Total acquisition cost P=280

The purchase price allocation is still provisional and the company has yet to attribute value to thecustomer contracts.

The goodwill comprises the value of expected synergies arising from the acquisition and a customerlist, which is not separately recognized. Based on assessment, the customer list is not separable andtherefore, it does not meet the criteria for recognition as an intangible asset under PAS 38, IntangibleAssets. None of the goodwill recognized is expected to be deductible for income tax purposes.

Providing pro-forma information on the revenue and net income (as if the acquisition date was as atJanuary 1, 2017) was deemed impracticable considering that a group of assets was purchased and is,in any event, immaterial.

Total transaction costs, included as “General and administrative expenses” amounted toP=15.1 million.

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Acquisitions in 2016

Water

Acquisition of common shares of ESTII. On June 16, 2016, MPW completed the acquisition of 65%of the outstanding capital stock of Eco-System Technologies International, Inc. (ESTII). ESTII isengaged in the business of designing, supplying, constructing, installing, and operating andmaintaining wastewater and sewage treatment plant facilities. The transaction allows MPIC, throughMPW, to diversify its water sector investment holdings and invest in the high growth wastewater EPCand O&M markets.

ESTII has a leading market position in the Philippine wastewater industry and has a valuable clientbase comprised of major mall, office, commercial and residential property developers, hotels andresorts, hospitals and industrial facilities.

The acquisition comprises of the purchase of 12,000,000 Class A common shares from Eco-SystemTechnologies, Inc. (ESTI) representing 60% of total outstanding capital stock of ESTII, at aconsideration of P=141.67 per Class A common share, and subscription to 1,000,000 Class C commonshares representing 5% of total outstanding capital stock of ESTII, at a consideration ofP=100.00 per Class C common share.

The fair value of the identifiable assets and liabilities of ESTII as at the date of acquisition was:

FinalValues

(In Millions)AssetsCash P=99Inventories 33Intangible assets 560Other noncurrent assets 208

900LiabilitiesAccounts payable and other current liabilities 7Other noncurrent liabilities 11

18Total identifiable net assets at fair value 882Non-controlling interest (35% at MPIC level) (309)Goodwill arising on acquisition 1,227Consideration transferred P=1,800


Amount(In Millions)

Cash acquired with the subsidiary(a) P=99Total cash paid as of December 31, 2016 (1,800)Net cash outflow (P=1,701)(a)Cash acquired with the subsidiary is included in cash flows from investing activities.

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The net assets recognized in the December 31, 2016 consolidated financial statements were based ona provisional assessment of fair value while MPW sought an independent valuation for the assets ofthe acquired business. The valuation had not been completed by the date the 2016 consolidatedfinancial statements were approved for issue by the BOD. In June 2017, the valuation was completedand the acquisition date fair value of the intangible assets decreased from P=1,122 million toP=560 million, with the difference effectively subsumed in the adjusted goodwill. The 2016comparative information was no longer adjusted as the amount, including impact on profit or loss,was not material.

The intangible assets comprise of customer contracts and license to intellectual property rights overpatents and utility models. The goodwill comprises the value of expected synergies arising from theacquisition.

As ESTII was incorporated by ESTI only on May 12, 2016, the Company did not provide any pro-forma information on the revenue and net income as though the acquisition date was as atJanuary 1, 2016.

Total transaction costs, included as “General and administrative expenses” amounted toP=6.6 million.

Healthcare

Acquisition of Hospitals. On March 7, 2016, MPHHI completed the acquisition of 51% ownershipinterest in Sacred Heart Hospital of Malolos, Inc. (SHHM) by way of investing P=150.0 million inSHHM. Proceeds of the investment will fund the expansion of SHHM’s infrastructure to increasepatient beds and to acquire various medical equipment.

On July 29, 2016, MPHHI completed acquisition of 469,077 shares, representing approximately a93% stake in Marikina Valley Medical Center, Inc. (MVMC) for P=2,117.80 per share. MVMC is aprominent tertiary hospital along Sumulong Highway in Marikina. On the same date, MPHHI paidthe sellers the amount representing approximately 80% of the purchase price and the balance thereofwas deposited in an Escrow Account which shall be released to the sellers in accordance with theterms of the Escrow Agreement.

MPHHI acquired SHHM and MVMC as part of its strategy to grow its portfolio and increase theCompany’s total bed capacity and to be the largest private hospital group in the Philippines. Theacquisitions were accounted for using the acquisition method.

The final fair value of the identifiable assets and liabilities of the acquired hospitals as at the date ofacquisition were:

SHHM MVMC(In Millions)

AssetsCash and cash equivalents P=165 P=35Receivables 25 129Other current assets 14 21Property, plant and equipment 132 320Other noncurrent assets 2 7

338 512

(Forward)

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SHHM MVMCLiabilitiesAccounts payable and accrued expenses P=36 P=74Other current liabilities 3 78Other noncurrent liabilities 5 4

44 156Total identifiable net assets at fair value 294 356Non-controlling interest (144) (25)Goodwill arising on acquisition – 662Consideration transferred P=150 P=993


SHHM MVMC(In Millions)

Cash acquired with the subsidiary(a) P=165 P=35Total cash paid on acquisition (150) (993)Net cash inflow (outflow) P=15 (P=958)(a)Cash acquired with the subsidiary is included in cash flows from investing activities.

The net assets recognized in the December 31, 2016 consolidated financial statements were based ona provisional assessment of fair value while MPHHI sought an independent valuation for the assets ofthe acquired businesses. The valuation had not been completed by the date the 2016 consolidatedfinancial statements were approved for issue by the BOD.

In 2017, the valuation was completed and there were no material differences between the final andprovisional fair values of the total identifiable fair values of the hospitals acquired.

The fair value and gross amount of SHHM’s trade receivables amounted to P=25.0 million andP=36.0 million, respectively. The fair value and gross amount of MVMC’s trade receivables amountedto P=44.0 million and P=57.0 million, respectively. The difference between the fair value and the grossamount of the receivables represents the portion expected to be uncollectible.

The goodwill arising from the acquisition of MVMC is primarily attributed to the expected synergiesand other benefits from combining the assets and activities of MVMC with those of the hospitals ofthe Company. The goodwill is not deductible for income tax purposes.


From the date of acquisition to December 31, 2016, SHHM and MVMC have contributedP=196.7 million and P=260.3 million, respectively, to the consolidated revenue and P=11.4 million andP=43.9 million, respectively, to the consolidated net income. If the combination had taken place at thebeginning of the year, contributions to the consolidated revenue and consolidated net income wouldhave been P=232.1 million of revenue and P=16.4 million of net profit for SHHM and P=588.0 million ofrevenue and P=56.4 million of net profit for MVMC for the year ended December 31, 2016. Totalcombined transaction costs for these acquisitions, amounting to P=3.4 million, have been expensed andare included in the “General and administrative expenses” in the consolidated statement ofcomprehensive income and are part of operating cash flows for the year ended December 31, 2016.

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Logistics

MMI’s acquisition of group of assets. On May 19, 2016, MMI completed the purchase of thebusinesses and assets (including certain contracts) of Basic Logistics Inc., A1Move Logistics, Inc.,Philflash Logistics, Inc. and BasicLog Trade and Marketing Enterprises (collectively, the “Sellers”),all of which are involved in the logistics business.

The transaction involved the acquisition by MMI of the logistics businesses and assets (includingcertain contracts) of the Sellers for a total purchase price consideration of P=2,168.3 million, inclusiveof applicable value-added taxes. The transaction was carried out through an asset purchase agreementinvolving, among others: (a) the sale by the Sellers of identified logistics assets, (b) the novation ofcertain key contracts of the Sellers with their respective clients, (c) the execution of new contractsrequired to ensure continued operations of the business under MMI, and (d) the transfer of certain keyofficers and employees of the Sellers to MMI.

The fair value of the acquired assets as at the date of acquisition:

FinalValues

(In Millions)Property and equipment P=154Intangible assets 91Total identifiable net assets at fair value 245Goodwill (at MMI level) 1,691Total acquisition cost 1,936Applicable Input VAT 232Total purchase price consideration,

inclusive of Input VAT P=2,168

The net assets recognized in the December 31, 2016 consolidated financial statements were based ona provisional assessment of fair value while MMI sought an independent valuation for the assets ofthe acquired business. The valuation had not been completed by the date the 2016 consolidatedfinancial statements were approved for issue by the BOD. In May 2017, the valuation was completedand the acquisition date fair value of the property and equipment decreased from P=704 million toP=154 million, with the difference effectively subsumed in the adjusted goodwill. The 2016comparative information was no longer adjusted as the amount, including impact on profit or loss,was not material.

The goodwill comprises the value of expected synergies arising from the acquisition and a customerlist, which is not separately recognized. Based on assessment, the customer list is not separable andtherefore, it does not meet the criteria for recognition as an intangible asset under PAS 38. None ofthe goodwill recognized is expected to be deductible for income tax purposes.

Providing pro-forma information on the revenue and net income (as if the acquisition date was as atJanuary 1, 2016) was deemed impracticable considering that the group of assets was purchased fromvarious sellers.

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5. Operating Segment Information

An operating segment is a component of the Company that engages in business activities from whichit may earn revenue and incur expenses, whose operating results are regularly reviewed by theCompany’s chief operating decision maker who makes decisions about how resources are to beallocated to the segment and assesses its performance, and for which discrete financial information isavailable.

For management purposes, the Company is organized into the following segments based on servicesand products namely: power, toll operations, water, healthcare, rail, logistics and others (see Note 1).However, given that the logistics business does not yet meet the quantitative thresholds to qualify asan operating segment, the results of the logistics operations are included in the ‘other businesses’column.

Segment performance and monitoring. The Company’s chief operating decision maker is the BOD.The BOD monitors the operating results of each business unit separately for the purpose of makingdecisions about resource allocation and performance assessment. Segment performance is evaluatedbased on: consolidated net income for the year; earnings before interest, taxes and depreciation andamortization, or Core EBITDA; Core EBITDA margin; and core income (loss). Net income for theyear is measured consistent with consolidated net income in the consolidated financial statements.

Core EBITDA is measured as consolidated net income excluding depreciation and amortization ofproperty, plant and equipment and intangible assets, asset impairment on noncurrent assets, financingcosts, interest income, equity in net earnings (losses) of associates and joint ventures, net foreignexchange gains (losses), net gains (losses) on derivative financial instruments, provision for (benefitfrom) income tax and other non-recurring gains (losses). Core EBITDA margin pertains to CoreEBITDA divided by operating revenues.

Performance of the operating segments is also assessed based on a measure of recurring profit or coreincome. Core income is measured as net income attributable to owners of the Parent Companyexcluding the effects of foreign exchange and derivative gains or losses and non-recurring items(NRI), net of tax effect of the aforementioned. NRI represent gains or losses that, through occurrenceor size, are not considered usual operating items.

Segment expenses and segment results exclude transfers or charges between business segments.These transfers are also eliminated for purposes of the consolidated financial statements. For theyears ended December 31, 2017, 2016 and 2015, no revenue transactions with a single customeraccounted for 10% or more of the Company’s consolidated revenues. Except for the equity in netearnings recognized from the Company’s foreign investees DMT, CII B&R and PT Nusantara(see Note 10), all revenues of the Company were primarily derived from within the Philippines.

Segment capital expenditure is the total cost incurred during the period to acquire service concessionassets, property, plant and equipment and intangible assets other than goodwill. For the consolidatedstatements of financial position, difference between the combined segment assets and theconsolidated assets consist of adjustments and eliminations comprising of goodwill and deferred taxassets. Difference between the combined segment liabilities and the consolidated liabilities largelyconsist of deferred tax liabilities.

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The following table shows the reconciliations of the Company’s consolidated Core EBITDA toconsolidated net income for the years ended December 31, 2017, 2016 and 2015.

2017 2016 2015(In Millions)

Consolidated Core EBITDA P=32,570 P=24,723 P=21,198Depreciation and amortization (7,288) (5,013) (4,393)Consolidated EBIT 25,282 19,710 16,805Adjustments to reconcile with consolidated net income:

Interest income 619 415 460Share in net earnings of equity

method investees 7,905 7,168 5,204Interest expense (7,995) (5,328) (4,918)Non-recurring gains (losses) - net* (1,297) (355) (933)Provision for income tax (5,487) (4,831) (1,544)

Consolidated net income for the year P=19,027 P=16,779 P=15,074*Includes net foreign exchange gains (losses)

The following table shows the reconciliations of Company’s consolidated core income to theCompany’s consolidated net income for the years ended December 31, 2017, 2016 and 2015.

2017 2016 2015(In Millions)

Consolidated core income attributableto owners of the Parent Company P=14,104 P=12,106 P=10,346

Non-recurring expenses - net (953) (650) (800)Consolidated net income attributable

to owners of the Parent Company 13,151 11,456 9,546Consolidated net income attributable

to non-controlling interest 5,876 5,323 5,528Consolidated net income for the year P=19,027 P=16,779 P=15,074

The segment revenues, net income for the year, assets, liabilities, and other segment information ofthe Company’s reportable operating segments as at and for the years ended December 31, 2017, 2016and 2015 are detailed in the succeeding tables.

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The following table presents consolidated information on core income and certain assets and liabilities regarding business segments for the years endedDecember 31, 2017, 2016 and 2015:

Year Ended December 31, 2017 (In Millions)

Power Toll Operations Water Healthcare Rail Other BusinessesAdjustments/Eliminations Consolidated

Total revenue from external sales P=13,042 P=13,107 P=21,327 P=10,737 P=3,155 P=1,144 P=– P=62,512Cost of sales and services (8,645) (4,858) (6,968) (6,185) (1,773) (699) – (29,128)Gross Margin 4,397 8,249 14,359 4,552 1,382 445 – 33,384General and administrative expenses (1,440) (1,417) (3,110) (3,129) (583) (1,708) – (11,387)Other income (charges) – net 2,723 422 (251) 282 97 12 – 3,285Profit before Financing Charges 5,680 7,254 10,998 1,705 896 (1,251) – 25,282Interest expense – net (1,791) (1,399) (1,616) (94) (5) (2,470) – (7,375)Profit before NCI and Income Tax 3,889 5,855 9,382 1,611 891 (3,721) – 17,907Non-controlling interest (820) (1,175) (3,366) (641) (231) 12 – (6,221)Provision for income tax (702) (1,422) (2,308) (534) (377) (144) – (5,487)Contribution from Subsidiaries 2,367 3,258 3,708 436 283 (3,853) – 6,199Share in net earnings (losses) of equity method investees 7,011 643 25 249 - (23) – 7,905Contribution from Operations - Core Income (Loss) 9,378 3,901 3,733 685 283 (3,876) – 14,104Non-recurring charges 260 1,118 (428) 4 (3) (1,904) – (953)Segment Income (Loss) P=9,638 P=5,019 P=3,305 P=689 P=280 (P=5,780) P=– P=13,151

Core EBITDA P=7,417 P=8,408 P=14,290 P=2,634 P=962 (P=1,141) P=– P=32,570Core EBITDA Margin 57% 64% 67% 25% 30% –% –% 52%

Non-recurring Charges P=271 P=1,050 (P=486) P=10 (P=9) (P=1,971) P=– (P=1,135)Benefit from income tax (8) 41 (189) (2) 3 (7) – (162)Non-controlling interest (3) 27 247 (4) 3 74 – 344Net Non-recurring Charges P=260 P=1,118 (P=428) P=4 (P=3) (P=1,904) P=– (P=953)

Assets and LiabilitiesSegment assets P=88,066 P=80,251 P=109,110 P=15,229 P=13,988 P=19,707 P=26,429 P=352,780Investments and advances 127,458 17,948 399 3,381 – 1,785 – 150,971Consolidated Total Assets P=215,524 P=98,199 P=109,509 P=18,610 P=13,988 P=21,492 P=26,429 P=503,751

Segment Liabilities P=96,495 P=69,871 P=50,461 P=5,580 P=8,564 P=50,265 P=6,836 P=288,072

Other Segment InformationCapital expenditures - Service concession assets and property, plant and equipment P=97 P=4,788 P=12,133 P=1,530 P=2,784 P=1,064 P=– P=22,396Depreciation and amortization 1,736 1,155 3,293 929 64 111 – 7,288

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Total revenue from external sales P=– P=11,902 P=20,466 P=8,967 P=3,016 P=469 P=– P=44,820Cost of sales and services – (4,857) (6,458) (4,871) (1,850) (322) – (18,358)Gross Margin – 7,045 14,008 4,096 1,166 147 – 26,462General and administrative expenses – (1,416) (2,701) (2,882) (549) (1,025) – (8,573)Other income (charges) - net 1,215 336 (82) 242 75 35 – 1,821Profit before Financing Charges 1,215 5,965 11,225 1,456 692 (843) – 19,710Interest expense – net – (1,207) (1,612) (131) 19 (1,982) – (4,913)Profit before NCI and Income Tax 1,215 4,758 9,613 1,325 711 (2,825) – 14,797Non-controlling interest – (999) (3,239) (545) (227) (18) – (5,028)Provision for income tax – (1,237) (2,826) (423) (211) (134) – (4,831)Contribution from Subsidiaries 1,215 2,522 3,548 357 273 (2,977) – 4,938Share in net earnings (losses) of equity method investees 6,014 995 16 232 – (89) – 7,168Contribution from Operations - Core Income (Loss) 7,229 3,517 3,564 589 273 (3,066) – 12,106Non-recurring charges (209) (174) 198 (13) 2 (454) – (650)Segment Income (Loss) P=7,020 P=3,343 P=3,762 P=576 P=275 (P=3,520) P=– P=11,456

Core EBITDA P=1,215 P=6,853 P=14,400 P=2,262 P=729 (P=736) P=– P=24,723Core EBITDA Margin –% 58% 70% 25% 24% –% –% 55%

Non-recurring Charges (P=209) (P=127) (P=261) (P=21) P=6 (P=416) P=– (P=1,028)Benefit from income tax – (64) 739 – (2) – – 673Non-controlling interest – 17 (280) 8 (2) (38) – (295)Net Non-recurring Charges (P=209) (P=174) P=198 (P=13) P=2 (P=454) P=– (P=650)

Assets and LiabilitiesSegment assets P=– P=71,399 P=102,096 P=13,678 P=8,956 P=7,446 P=21,471 P=225,046Investments and advances 109,639 11,756 361 3,000 – 1,800 – 126,556Consolidated Total Assets P=109,639 P=83,155 P=102,457 P=16,678 P=8,956 P=9,246 P=21,471 P=351,602


Other Segment InformationCapital expenditures - Service concession assets and property, plant and equipment P=– P=10,125 P=10,589 P=1,359 P=943 P=132 P=– P=23,148Depreciation and amortization – 889 3,174 806 37 107 – 5,013

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Total revenue from external sales P=– P=9,691 P=19,098 P=7,553 P=897 P=– P=– P=37,239Cost of sales and services – (3,876) (5,452) (4,220) (478) – – (14,026)Gross Margin – 5,815 13,646 3,333 419 – – 23,213General and administrative expenses – (1,133) (2,401) (2,309) (337) (1,066) – (7,246)Other income (charges) – net 405 388 (220) 211 17 37 – 838Profit before Financing Charges 405 5,070 11,025 1,235 99 (1,029) – 16,805Interest expense – net – (1,384) (1,766) (121) 14 (1,201) – (4,458)Profit before NCI and Income Tax 405 3,686 9,259 1,114 113 (2,230) – 12,347Non-controlling interest – (810) (4,365) (456) (36) 6 – (5,661)Provision for income tax – (983) (95) (356) (36) (74) – (1,544)Contribution from Subsidiaries 405 1,893 4,799 302 41 (2,298) – 5,142Share in net earnings (losses) of equity method investees 4,138 935 20 171 – (60) – 5,204Contribution from Operations - Core Income (Loss) 4,543 2,828 4,819 473 41 (2,358) – 10,346Non-recurring charges (164) (295) (93) (22) (20) (206) – (800)Segment Income (Loss) P=4,379 P=2,533 P=4,726 P=451 P=21 (P=2,564) P=– P=9,546

Core EBITDA P=405 P=5,933 P=13,810 P=1,932 P=105 (P=987) P=– P=21,198Core EBITDA Margin –% 61% 72% 26% 12% –% –% 57%

Non-recurring Charges (P=164) (P=41) (P=129) (P=31) (P=26) (P=261) P=– (P=652)Benefit from income tax – (276) (1) (4) – – – (281)Non-controlling interest – 22 37 13 6 55 – 133Net Non-recurring Charges (P=164) (P=295) (P=93) (P=22) (P=20) (P=206) P=– (P=800)

Assets and LiabilitiesSegment assets P=– P=65,389 P=93,138 P=13,398 P=7,531 P=6,972 P=19,550 P=205,978Investments and advances 81,467 10,738 251 2,841 – 905 – 96,202Consolidated Total Assets P=81,467 P=76,127 P=93,389 P=16,239 P=7,531 P=7,877 P=19,550 P=302,180


Other Segment InformationCapital expenditures - Service concession assets and property, plant and equipment P=– P=27,641 P=7,903 P=1,219 P=5,692 P=30 P=– P=42,485Depreciation and amortization – 863 2,785 697 6 42 – 4,393

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The following table shows the analysis and allocation of the consolidated results of operations of the Company to core and NRI and is provided to reconcile the precedingconsolidated segment information, amounts and balances with the consolidated statements of comprehensive income:

2017 2016 2015Core NRI Reclassification Consolidated Core NRI Reclassification Consolidated Core NRI Reclassification Consolidated

(In Millions)

OPERATING REVENUESWater and sewerage services revenue P=20,926 P=– P=– P=20,926 P=20,280 P=– P=– P=20,280 P=19,098 P=– P=– P=19,098Toll fees 13,107 – – 13,107 11,902 – – 11,902 9,691 – – 9,691Power and coal sales 13,042 – – 13,042 – – – – – – – –Hospital revenue 10,737 – – 10,737 8,967 – – 8,967 7,553 – – 7,553Rail revenue 3,155 – – 3,155 3,016 – – 3,016 897 – – 897Logistics and other revenues 1,545 1,545 655 655 – – – –

62,512 – – 62,512 44,820 – – 44,820 37,239 – – 37,239

COST OF SALES AND SERVICES (29,128) (246) – (29,374) (18,358) (12) – (18,370) (14,026) – – (14,026)

GROSS PROFIT (LOSS) 33,384 (246) – 33,138 26,462 (12) – 26,450 23,213 – – 23,213General and administrative expenses (11,386) (740) – (12,126) (8,573) (489) – (9,062) (7,246) (801) – (8,047)Interest expense (7,995) – – (7,995) (5,328) – – (5,328) (4,918) (7) – (4,925)Share in net earnings (losses) of equity method investees 10,446 140 (2,541) 8,045 8,383 (360) (1,215) 6,808 5,609 (190) (405) 5,014Dividend income 90 – 2,541 2,631 138 – 1,215 1,353 175 – 405 580Interest income 619 4 – 623 415 2 – 417 460 – – 460Construction revenue 19,344 – – 19,344 16,799 – – 16,799 12,130 – – 12,130Construction costs (19,344) – – (19,344) (16,799) – – (16,799) (12,130) – – (12,130)Others 653 (293) – 360 468 (169) – 299 258 346 – 604

INCOME (LOSS) BEFORE INCOME TAX 25,811 (1,135) – 24,676 21,965 (1,028) – 20,937 17,551 (652) – 16,899

PROVISION FOR (BENEFIT FROM) INCOME TAXCurrent 5,375 15 – 5,390 4,089 2 – 4,091 1,518 4 – 1,522Deferred 112 147 – 259 742 (675) – 67 26 277 – 303

5,487 162 – 5,649 4,831 (673) – 4,158 1,544 281 – 1,825

NET INCOME (LOSS) P=20,324 (P=1,297) P=– P=19,027 P=17,134 (P=355) P=– P=16,779 P=16,007 (P=933) P=– P=15,074

Net Income Attributable to:Owners of the Parent Company P=14,104 (P=953) P=– P=13,151 P=12,106 (P=650) P=– P=11,456 P=10,346 (P=800) P=– P=9,546NCI 6,220 (344) – 5,876 5,028 295 – 5,323 5,661 (133) – 5,528

P=20,324 (P=1,297) P=– P=19,027 P=17,134 (P=355) P=– P=16,779 P=16,007 (P=933) P=– P=15,074

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6. Material Partly-owned Subsidiaries

In determining whether an NCI is material to the Company, management employs both quantitativeand qualitative factors to evaluate the nature of, and risks associated with, the Company’s interests inthese entities; and the effects of those interests on the Company’s financial position. Factorsconsidered include, but not limited to, carrying value of the subsidiary’s NCI relative to the NCIrecognized in the Company’s consolidated financial statements, the subsidiary’s contribution to theCompany’s consolidated revenues and net income, and other relevant qualitative risks associated withthe subsidiary’s nature, purpose and size of activities.

Based on management’s assessment, the Company has concluded that MWHC, NLEX Corp, MPHHI,Light Rail Manila Holdings Inc (LRMH, the intermediate holding company for LRMC) and GBPC(starting 2017; see Note 4) are the subsidiaries with NCI that are material to the Company.

The ability of these subsidiaries to pay dividends or make other distributions or payments to theirshareholders (including the Company) is subject to applicable laws and other restrictions contained infinancing agreements, shareholder agreements and other agreements that prohibit or limit thepayment of dividends or other transfers of funds. Such applicable restrictions are as follows:

ƒ Under the financing agreements as disclosed in Note 18, which include satisfying certainfinancial ratios and other covenants to be able to declare or pay cash dividends;

ƒ Under Philippine law, a corporation is permitted to declare dividends only to the extent that it hasunrestricted retained earnings that represent the undistributed earnings of the corporation whichhave not been allocated for any managerial, contractual or legal purposes and which are free fordistribution to the shareholders as dividends; and

ƒ Under NLEX Corp’s shareholders’ agreement, unless otherwise agreed upon by the shareholders,no amounts shall be distributed by way of dividends until PNCC’s share in the project revenuecollection has been repaid in full.

Retained earnings of P=15.0 billion and P=8.5 billion as at December 31, 2017 and 2016, respectively,have been appropriated by Maynilad’s BOD for various water and sewerage projects expected to beimplemented in the succeeding years.

As at December 31, 2017 and 2016, NLEX Corp has unpaid dividends to non-controllingshareholders amounting to P=449.0 million and nil, respectively (see Note 15).

For year ended December 31, 2015, equity infusion in LRMH and LRMC with an aggregate amountof P=1,847.5 million, are included in “Other changes in NCI” in the consolidated statements ofchanges in equity.

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The summarized financial information are presented before inter-company eliminations but after consolidation adjustments for goodwill, other fair value adjustments onacquisition and adjustments required to apply uniform accounting policies at group level.

December 31, 2017 December 31, 2016 December 31, 2015GBPC(a) MWHC NLEX Corp MPHHI(b) LRMC MWHC NLEX Corp MPHHI(b) LRMC MWHC NLEX Corp MPHHI(b) LRMC

Equity share held by NCI 37.6% 47.2% 24.8% 39.9% 45.0% 47.2% 24.5% 39.9% 45.0% 47.2% 24.5% 39.9% 45.0%Summarized statements of financial positionCurrent assets P=24,246 P=11,711 P=4,719 P=5,429 P=1,795 P=14,049 P=2,126 P=5,068 P=1,500 P=14,869 P=5,479 P=5,817 P=1,654Non-current assets(c) 63,025 100,516 42,252 14,846 12,049 91,716 40,037 13,273 7,366 85,305 32,321 11,358 5,839Current liabilities 11,464 16,383 10,212 3,868 743 14,330 4,082 3,351 537 14,726 5,165 3,019 531Non-current liabilities 43,419 35,349 19,601 1,770 7,948 34,135 21,932 1,587 3,684 33,587 17,935 1,924 2,827Total equity 32,388 60,495 17,158 14,637 5,153 57,300 16,149 13,403 4,645 51,861 14,700 12,232 4,135 Attributable to: Equity holders of MPIC 14,513 34,499 14,364 12,183 2,832 32,813 13,602 7,193 2,553 29,941 12,508 6,662 2,273 NCI 17,875 25,996 2,794 2,454 2,321 24,487 2,547 6,210 2,092 21,920 2,192 5,570 1,862

Summarized statements of comprehensive incomeRevenues 13,042 20,774 11,586 10,737 3,155 20,224 10,539 8,967 3,016 19,098 8,453 7,553 897Net income (loss) 1,489 6,501 4,610 1,334 508 7,442 4,058 1,114 511 9,169 2,961 894 78Total comprehensive income (loss) 1,432 6,162 4,610 1,339 508 7,449 4,048 1,104 510 9,150 2,895 890 78Net income (loss) attributable to NCI 1,185 3,068 1,129 645 229 3,513 994 538 230 4,329 725 443 35Dividends declared to NCI 2,027 1,467 878 53 – 953 634 48 – 936 592 51 –Dividends paid to NCI 1,915 1,467 429 45 – 953 982 58 – 936 536 46 –

Summarized statements of cash flowsOperating 1,101 14,408 6,632 2,139 666 12,056 5,867 1,953 370 13,656 4,164 1,745 267Investing (4,380) (10,490) (3,649) (1,734) (4,497) (6,802) (4,658) (2,501) (918) (11,217) (2,726) (1,733) (1,704)Financing 3,185 (5,428) (658) (384) 3,860 (3,345) (3,488) (635) 171 (3,531) (1,723) (486) 2,479Net increase (decrease) in cash and cash

equivalents (94) (1,510) 2,325 21 29 1,909 (2,279) (1,183) (377) (1,092) (285) (474) 1,042Cash and cash equivalents - beginning 13,508 5,044 390 2,970 1,172 3,135 2,669 4,153 1,549 4,227 2,954 4,627 507Cash and cash equivalents - end P=13,414 P=3,534 P=2,715 P=2,991 P=1,201 P=5,044 P=390 P=2,970 P=1,172 P=3,135 P=2,669 P=4,153 P=1,549(a) GBPC’s statement of comprehensive income reflects result from acquisition date to December 31, 2017 (see Note 4).(b) Includes the 25.51% equivalent shares of the Exchangeable bond (see Notes 30 and 39 )(c) Includes goodwill recognized as at acquisition date (see Note 11)

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7. Cash and Cash Equivalents, Short-term Deposits and Restricted Cash

Cash and Cash Equivalents and Short-term Deposits. This account consists of:


Cash and cash equivalents P=40,835 P=15,455Short-term deposits 8,482 4,014

P=49,317 P=19,469

Cash and cash equivalents include cash in banks and temporary placements that are made for varyingperiods of up to three months depending on the immediate cash requirements of the Company. Cashin banks and temporary placements earn interest at the prevailing bank and temporary placementsrates, respectively.

Short-term deposits are deposits with original maturities of more than three months to one year fromdates of acquisition and earn interest at the prevailing short-term deposits rates. Short-term depositsaccount also included investments in Unit Investment Trust Fund (UITF). While the UITF areclassified as AFS financial assets, the entire investment in UITF is presented under the short-termdeposits account as the fund comprises of short-term money market securities, time and specialdeposit accounts with average maturity of less than 30 days (see Note 34) and is part of theCompany’s cash management policy.

For the purpose of the consolidated statements of cash flows, cash and cash equivalents comprise ofthe following as at December 31:

2017 2016 2015(In Millions)

Cash on hand and in banks P=5,998 P=3,695 P=3,409Short-term deposits that qualify

as cash equivalents 34,837 11,760 13,060P=40,835 P=15,455 P=16,469

Restricted Cash. Restricted cash classified under current assets pertains to sinking fund or debtservice account (DSA) representing amounts set aside for semi-annual principal and interestpayments of certain long-term debt. This DSA is maintained and replenished in accordance with theprovision of the loan agreements.

Restricted cash also included cash held in escrow account in relation with the construction contractfor the NLEX Segment 10 (see Note 30).

Interest income from the restricted cash is for the account of the Company.

Interest earned from cash and cash equivalents, short-term deposits and restricted cash amounted toP=573.0 million, P=373.0 million and P=396.0 million for the years ended December 31, 2017, 2016 and2015, respectively (see Note 24).

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8. Receivables

This account consists of:


Trade:Power P=4,391 P=–Water 3,115 2,716Healthcare 1,592 1,139Others 1,202 816

Notes 150 150Nontrade 1,407 1,260

11,857 6,081Less allowance for doubtful accounts 958 854

10,899 5,227Less current portion 10,899 5,171Noncurrent portion P=– P=56

Trade receivables. Trade receivables which are non-interest bearing, included receivables arisingfrom the following:

ƒ Power. Outstanding billings for energy fees and pass-through fuel costs arising from the deliveryof electricity to customers and energy sales to the Wholesale Electricity Spot Market (WESM).Normal credit term is 15 to 30 days from the date of receipt of billing.

ƒ Water. Receivables from customers with generally a 45-day term.

ƒ Healthcare. Hospitals generally provide a 30-day credit term to its Health MaintenanceOrganizations (HMO), international insurance, PhilHealth and corporate accounts.

ƒ Others. Other trade receivables account included receivables arising from (i) operations andmaintenance (O&M) and construction services (with 30 to 60-day credit term) of water and wastetreatment facilities and (ii) logistics services (with settlement period of 30 to 90 days). Tradereceivables as at December 31, 2016 also included amount due from ESC (see Note 19).

Notes receivable. Notes receivable aggregating P=150.0 million comprising of defaulted loans arefully provided with allowance as at December 31, 2017 and 2016.

Nontrade receivables. Aside from the advances to DPWH covered by a Reimbursement Agreement(see Note 32), nontrade receivables also included (i) advances to customers, affiliates and officers andemployees that are generally collectible within a year and (ii) advances to former subsidiaries andrelated parties (see Note 19). Portion of advances to former subsidiaries and affiliates of theCompany are fully provided with allowance.

The noncurrent portion of the receivables are included under the “Other noncurrent assets” account inthe consolidated statements of financial position.

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Movements in the allowance of individually and collectively assessed impaired receivables are asfollows:

2017Balance atJanuary 1,

2017Provisions

(see Note 22)Write-off/

Reversal

Balance atDecember 31,

2017(In Millions)

Individually impaired:Trade P=3 P=38 P=– P=41Notes 150 150Nontrade 60 2 – 62

213 40 – 253Collectively impaired:

Trade 553 106 (42) 617Nontrade 88 – – 88

641 106 (42) 705P=854 P=146 (P=42) P=958

2016Balance atJanuary 1,

2016Provisions

(see Note 22)Write-off/

Reversal

Balance atDecember 31,

2016(In Millions)

Individually impaired:Trade P=2 P=1 P=– P=3Notes 150 – – 150Nontrade 50 10 – 60

202 11 – 213Collectively impaired:

Trade 558 72 (77) 553Nontrade 88 – – 88

646 72 (77) 641P=848 P=83 (P=77) P=854

9. Other Current Assets

This account consists of the following:


Inventories - at cost (see Note 21)Power plant spare parts and consumables (see Note 4) P=1,375 P=–Power plant coal and fuel (see Notes 4 and 30) 1,146 –Hospital supplies 653 536Rail engineering supplies 441 28Others 243 207

Input value-added tax (VAT) (a) 2,759 1,354Advances to contractors and consultants (b) 2,189 1,518

(Forward)

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Creditable withholding tax (CWT) (c) P=697 P=605Prepaid expenses (d) 554 337Due from related parties (see Note 19) 25 92Miscellaneous deposits and others 696 386

10,778 5,063Less allowance for decline in value (c) 346 335

P=10,432 P=4,728

a. Input VAT pertains to VAT imposed on purchases of goods and services. These are expected tobe offset against output VAT (see Note 15) arising from the Company’s revenue/income subjectto VAT in the future. Noncurrent portion as at December 31, 2017 and 2016 amounted toP=439.3 million and P=256.4 million, respectively, and is included under “Other noncurrent assets”.The noncurrent portion pertains to input VAT that can be offset against output VAT beyond oneyear and those that can be claimed as tax credits.

b. Advances to contractors and consultants mainly represent the advance payments for mobilizationof the contractors and consultants for various contracts. These are progressively reduced uponreceipt of the equivalent amount of services rendered by the contractors and consultants.Noncurrent portion included under “Other noncurrent assets” as at December 31, 2017 and 2016amounted to P=3,380.5 million and P=299.7 million, respectively.

c. This represents amount withheld by counterparty for services rendered by the Company whichcan be claimed as tax credits. Management provided allowance for decline in value representingCWT recognized in prior years that the Company may no longer be able to utilize.

d. Prepaid expenses mainly pertain to insurance, premium bond and taxes and licenses.

10. Investments and Advances

This account consists of the following:2017 2016

(In Millions)Equity method investees:

Associates:Material

MERALCO P=123,161 P=39,035DMT 7,038 6,409PT Nusantara 7,777 −CII B&R 3,133 3,869ATEC 2,418 −TMC − 1,353

Others 4,612 4,653Joint ventures:

Material – Beacon Electric − 49,370Others 124 125

148,263 104,814Investment in Beacon Electric’s preferred shares

classified as AFS investments − 20,622Advances to equity method investees 2,708 1,120

P=150,971 P=126,556

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In determining whether an equity method investee is material to the Company, management employsboth quantitative and qualitative factors to evaluate the nature of, and risks associated with, theCompany’s interests in these entities; and the effects of those interest on the Company’s financialposition. Factors considered include, but not limited to, carrying value of the investee relative to thetotal equity method investments recognized in the Company’s consolidated financial statements, theequity investee’s contribution to the Company’s consolidated net income, and other relevantqualitative risks associated with the equity investee’s nature, purpose and size of activities.

Equity Method InvesteesInvestments in equity method investees pertain to the Company’s investments in associates and jointventures.

Movements in this account:


Acquisition costsBalance at beginning of year P=100,852 P=79,419Additions during the year:

PT Nusantara 7,624 −Alsons Thermal Energy Corporation (ATEC) 2,404 −Beacon Electric − 19,582TMC − 885Others 375 192

Step-up acquisition (see Note 4)MERALCO 94,746 −Beacon Electric (45,506) −TMC (1,584) −ESC (103) −

Disposal - MERALCO (11,748) −Reclassification - Landco − 774Balance at end of year 147,060 100,852Accumulated equity in net earningsBalance at beginning of year 2,828 4,525Share in net earnings (losses) for the year:

Beacon Electric 1,854 3,053MERALCO 5,382 2,751DMT 537 559TMC 49 292CII B&R (50) (11)Others 273 164

Dividends:MERALCO (6,146) (4,240)DMT (449) (366)CII B&R (184) (224)TMC (40) (414)Beacon Electric − (3,173)Others (101) (88)

Step-up acquisition (3,697) −Disposal of MERALCO 170 −Balance at end of year (Carried Forward) 426 2,828

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Balance at end of year (Brought Forward) P=426 P=2,828Accumulated share in the investees’ other

comprehensive income (OCI)Balance at beginning of year 2,018 439Share in investees’ OCI during the year (199) 1,579Disposal and others 281 −Total 2,100 2,018Less allowance for impairment lossBalance at beginning of year 884 510Provision (see Note 24) 439 774Reversal − (400)Total 1,323 884

P=148,263 P=104,814

Material Associate and Joint Venture. The Company’s investments in material associates and jointventure substantially comprise of MPIC’s investments in:

Place of Ownership Interest in %Incorporation Principal Activities 2017 2016

Associates: MERALCO – Direct Philippines Power 10.5 15.0 MERALCO – Indirect a Philippines Power 35.0 26.2 GBPC Philippines Power − 42.0 ATEC Philippines Power 50.0 − DMT Thailand Tollways 29.4 29.4 CII B&R Vietnam Tollways 44.9 44.9 PT Nusantara Indonesia Tollways 48.3 − TMC Philippines Tollways − 60.0Joint Venture: Beacon Electric Philippines Holding Company/Power − 75.0

(a) Held through Beacon Electric.

Material investees – Power

Beacon Electric. Beacon Electric, a company incorporated in Philippines, was initially organizedwith the sole purpose of holding the respective shareholdings in MERALCO of PCEV and the ParentCompany and for subsequent acquisitions of MERALCO shares. As at December 31, 2016, theCompany has 75% ownership interest in Beacon Electric and was classified as an interest in jointventure, hence, accounted for using the equity method.

However, as disclosed in Note 4, MPIC and PCEV on June 27, 2017, entered into a Deed of AbsoluteSale of Shares to acquire the remaining 25% interest in Beacon Electric for an aggregate purchaseprice of P=21.8 billion. The acquisition was accounted for as a business combination resulting in theconsolidation of Beacon Electric and consequently:

ƒ the consolidation of BPHI and its subsidiary, GBPC; andƒ the accounting elimination of MPIC’s investment in Beacon Electric’s preferred shares (Class A

and Class B) previously classified as AFS investments (see disclosure below - Investment inBeacon Electric’s preferred shares).

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As the Company started consolidating Beacon Electric beginning June 2017, disclosures required byPFRS 12, Disclosure of Interests in Other Entities were therefore presented only for the year coveringDecember 31, 2016. Summarized financial information as at and for the year ended December 31,2016 was based on Beacon Electric’s financial statements using the equity method of accounting forinvestments in MERALCO and BPHI.

MERALCO. MERALCO is a Philippine corporation with its shares listed in the PSE. It is the largestdistributor of electricity in the Philippines with its franchise valid until June 2028.

As disclosed above and in Note 4, MPIC acquired the remaining 25% interest in Beacon Electric inJune 2017. As a result, MPIC’s effective interest in MERALCO held indirectly through BeaconElectric increased from 26.2% to 34.96% beginning June 27, 2017.

In June 2017, MPIC completed the sale of 50.7 million shares representing approximately 4.5% ofoutstanding capital stock of MERALCO through an overnight private placement for P=250.0 per shareor total proceeds of P=12.7 billion which resulted to a gain of P=731.9 million, net of P=272.6 milliontransaction costs included as part of “Other income” account in the consolidated statements ofcomprehensive income for the year ended December 31, 2017 (see Note 24). The proceeds from thistransaction were used by the Company to partially fund its acquisition of the remaining 25% interestof PCEV in Beacon Electric. After this transaction, MPIC’s direct interest in MERALCO decreasedfrom 15.0% to 10.5%.

Beginning June 27, 2017, after the transactions disclosed above, the Company’s combined effectiveinterest in MERALCO is at 45.5%. The Company continues to equity account its ownership interestin MERALCO. The fair value of the Company’s effective investment in MERALCO at 45.5%amounted to P=167.6 billion as at December 31, 2017 based on the quoted price of MERALCO as atthat date. The fair value of the Company’s effective interest in MERALCO as at December 31, 2016at 41.2% amounted to P=123.1 billion.

A pledge on Beacon Electric’s investments in MERALCO shares secures the Beacon Electric’s loanfacilities with a syndicate of various financial institutions (see Note 18).

The summarized financial information presented is based on MERALCO’s December 31, 2017 and2016 consolidated financial statements. For purposes of the information required under PFRS 12 asat and for the year ended December 31, 2016, reconciliation presented was only for the direct interestof 15% as the investment in MERALCO through Beacon Electric was already subsumed in theCompany’s reconciliation of its investment in Beacon Electric as at and for the year endedDecember 31, 2016.

GBPC. As at December 31, 2016, the MPIC’s ownership stake in GBPC is held indirectly at aneffective interest of 47.8% through BPHI (at 42.0% effective interest) and through MERALCO(at 5.8% effective interest). However, as disclosed in Note 4, MPIC on June 27, 2017, increased itsownership interest in Beacon Electric to 100% resulting to the consolidation of BPHI and GBPC.

ATEC. On November 27, 2017, GBPC completed the acquisition of a 50% less one share stake inATEC, the holding company for Alsons Consolidated Resources, Inc’s (ACR) baseload coal-firedpower plant assets for a total consideration of P=4.3 billion allocated as follows: (i) P=2.4 billion for thecommon shares and (ii) P=1.9 billion for the assignment of certain advances of ACR to ATEC.

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ATEC has ownership in the following companies: (i) 75% in Sarangani Energy Corporation whichowns a 105 MW baseload coal-fired plant already in operation and another 105 MW underconstruction in Maasim, Sarangani Province; (ii) 100% in San Ramon Power, Inc. (SRPI) which isdeveloping a 105 MW baseload coal-fired plant in Zamboanga City; and (iii) 100% in ACESTechnical Services Corporation.

The table presented provides summarized financial information of ATEC. The information disclosedreflects the amounts presented in the financial statements of ATEC and not the Company’s share ofthose amounts.

Material investees – Toll operations

DMT. DMT is a major toll road operator in Bangkok, Thailand. The concession for DMT runs until2034 for the operation of a 21.9-kilometer six-lane elevated toll road from central Bangkok to DonMuang International Airport and further to the National Monument, north of Bangkok.

CII B&R. CII B&R and its subsidiaries are primarily engaged in the construction, development andoperation in urban infrastructure sector under the BOT contracts and Built-Transfer contracts. CIIB&R is incorporated in Vietnam and listed in Ho Chi Minh City Stock Exchange.

The fair value of CII B&R shares held by the Company (including the equivalent shares of thepotential voting rights) based on quoted market price amounted to VND2,032.3 billion (P=4.5 billion)and VND2,106.0 billion (P=4.6 billion) as at December 31, 2017 and December 31, 2016, respectively.

PT Nusantara. On November 3, 2017, MPTC, through its Indonesian subsidiary, PT Metro PacificTollways Indonesia (PT MPTI), acquired a total of 6,600,000,000 shares of PT Nusantara at aconsideration of P=1.05 (Indonesian Rupiah; IDR 270) per share. The acquired shares representapproximately 42.25% of the total issued capital stock of PT Nusantara on a fully-diluted basis.Together with PT MPTI’s earlier acquisitions, PT MPTI holds a total of 48.3% of the total issuedcapital stock of PT Nusantara on a fully-diluted basis. The transaction was executed by way of across sale on the Indonesian Stock Exchange pursuant to definitive transaction documents enteredinto with PT Matahari and other related parties. PT Nusantara is a publicly listed limited liabilitycompany duly established and existing under the laws of the Republic of Indonesia. Its infrastructureportfolio in Indonesia includes toll roads, ports, energy, water and telecommunication towersalthough approximately 80% of its core income is attributable to the toll roads.

The fair value of PT Nusantara shares held by the Company based on quoted market price amountedto IDR1,588.6 billion (P=5.8 billion) as at December 31, 2017. Based on management’s assessment,the value in use of the investment in PT Nusantara exceeds the carrying value and hence, noimpairment loss as at December 31, 2017. For the impairment testing conducted, traffic growth ratesused were 2% to 9% and the pre-tax discount rate applied was 12.6%, which was based on theweighted average cost of capital with estimated premium of 4% over cost of equity. The forecastperiod used in the computation is 25 years. The forecast period is greater than five years asmanagement can reliably estimate the cash flow for the entire duration of the concession period.

TMC. Pursuant to the Operation and Maintenance Agreement with NLEX Corp, TMC is responsiblefor the operation and maintenance of both the NLEX Project and Segment 7. TMC also operates andmanages the SCTEX, pursuant to a letter agreement entered into by NLEX Corp and TMC in May2015 (see Note 19).

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On December 28, 2016, MPT North, acquired 53,200 TMC common shares from EROSA,representing 14% of the total issued and outstanding capital stock of TMC for a total purchase priceP=884.7 million. This transaction increased MPT North’s interest in TMC to 60%. Despite ownershipinterest of 60%, investment in TMC was accounted for as an associate as at December 31, 2016 asanother significant shareholder holds significant veto rights relating to changes to operating anddividend policies that affect investors returns. Subsequently, these veto rights ceased when MPTNorth completed the acquisition of an additional 7% in TMC on April 4, 2017 (see Note 4).

With the consolidation of TMC beginning April 2017, disclosures required under PFRS 12 werepresented only for the year covering December 31, 2016.

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Material Investees – Summarized Financial InformationThe tables below provide summarized financial information for the Company’s material investees. The information disclosed reflects the amounts presented in thefinancial statements of the relevant investees and not the Company’s share of those amounts.

2017Associates

MERALCO ATEC DMT CII B&R PT Nusantara(In Millions)

Statements of comprehensive incomeRevenues P=282,556 P=4,190 P=4,429 P=735 P=1,016Costs and expenses (256,178) (2,982) (1,854) (593) (683)Other income (expense) – net 826 6 (227) (218) (232)Interest expense (1,530) (731) – – –Interest income 2,188 – – – –Income before income tax 27,862 483 2,348 (76) 101Income tax expense (7,363) (36) (524) (34) (87)Net income 20,499 447 1,824 (110) 14Other comprehensive loss (846) – – – –Total comprehensive income 19,653 447 1,824 (110) 14Total comprehensive income attributable to commonshareholders of investee 19,532 339 1,824 (110) 14Dividends received 6,146 – 449 184 –

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2017Associates

MERALCO ATEC DMT CII B&R PT Nusantara(In Millions)

Statements of financial positionCurrent assets P=98,432 P=2,357 P=776 P=3,990 P=4,685Investments in associates 11,446 – – –Noncurrent assets 201,917 20,556 29,229 15,071 21,627Current liabilities 105,839 5,451 4,139 3,899 1,397Noncurrent liabilities 125,616 11,057 6,676 10,956 10,551Net assets 80,430 6,405 19,190 4,206 14,364Less: Equity attributable to NCI (822) (2,448) – – –Net assets attributable to common shareholders of investee 79,518 3,957 19,190 4,206 14,364Ownership interest in investee 45.5% 50% 29.4% 44.9% 48.3%MPIC’s share in net assets of investee 36,157 1,979 5,651 1,890 6,934Goodwill and fair value adjustments 87,004 439 1,387 1,243 843Carrying amount of the Company’s investment in investee P=123,161 P=2,418 P=7,038 P=3,133 P=7,777

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2016Joint Venture Associates

Beacon Electric** MERALCO DMT CII B&R TMC(In Millions)

Statements of comprehensive incomeRevenues P=– P=257,181 P=3,974 P=449 P=2,047Costs and expenses – (231,473) (1,420) (413) (1,324)Other income (expense) - net – 985 (176) 275 127Equity in net earnings in MERALCO 6,425 – – – –Equity in net earnings in BPHI 592 – – – –Interest expense (915) – – – –Interest income 223 – – – –Income before income tax 26,693 2,378 311 850Income tax expense – (7,353) (481) (12) (217)Net income 6,319 19,340 1,897 299 633Other comprehensive income (loss) – 3,233 – – (3)Total comprehensive income 7,458 22,573 1,897 135 630Total comprehensive income attributable to common shareholders of investee – 22,409 1,897 135 630Dividends received 3,173 – 366 224 414

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2016Joint Venture Associates

Beacon Electric** MERALCO DMT CII B&R TMC(In Millions)

Statements of financial positionCurrent assets P=3,118 P=88,008 P=475 P=4,505 P=692Investments in associates 97,308 – – – –Noncurrent assets – 236,835 25,647 12,750 828Current liabilities 1,292 104,602 2,846 2,495 706Noncurrent liabilities 10,664 124,931 6,129 8,917 4Net assets 88,470 95,310 17,147 5,843 810Less: Equity attributable to preferred shareholder (including dividends in arrears) 30,160 – – – –

Equity attributable to NCI – (729) – – –Net assets attributable to common shareholders of investee 58,310 94,581 17,147 5,843 810Ownership interest in investee 75% 15% 29.4% 44.9% 60.0%Company’s share in net assets of investee 43,733 14,188 5,050 2,626 486Goodwill and fair value adjustments 6,007 24,847 1,359 1,243 867Other adjustments (370) – – – –Carrying amount of the Company’s investment in investee P=49,370 P=39,035 P=6,409 P=3,869 P=1,353

Additional information required for Joint Ventures:Cash and cash equivalents P=3,107Current financial liabilities* 1,195Non-current financial liabilities* 9,981

*Excluding trade and other payables and provisions**Dividends received by MPIC pertains to Beacon Electric’s common shares

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Individually immaterial investees. The Company has interests in the following individuallyimmaterial investments in associates and joint ventures:

Place of Ownership Interest in %Incorporation Principal Activities 2017 2016

Associates: Manila Water Consortium Inc. (MWCI) (a) Philippines Investment holding/ Water 39.0 39.0 EquiPacific HoldCo Inc. (EHI) (b) Philippines Investment holding/ Water 30.0 30.0 Watergy Business Solutions, Inc. (WBSI) (c) Philippines Investment holding/ Water 49.0 49.0 Karayan Diliman Management, Inc. Philippines Engineering consultancy 40.0 40.0 Davao Doctors Hospital, Inc. (DDH) (d) Philippines Hospital operations 35.2 35.2 Medical Doctors Inc. (MDI) (d) Philippines Hospital operations 32.9 33.0 Manila Medical Services, Inc. (MMSI) (d) Philippines Hospital operations 20.0 20.0 Medi Linx Laboratory Inc.* Philippines Clinical laboratory services 40.0 –

AF Payments Inc. (AFPI) (e) PhilippinesOperator of contactless payment

system 20.0 20.0

Indra Philippines, Inc. (Indra Phils.) (f) PhilippinesManagement and IT

consultancy 25.0 25.0

First Gen Northern Energy Corp. (FGNEC) Philippines

Under liquidation (corporatelife ended December 31,2016) 33.3 33.3

Costa De Madera (g) Philippines Real estate 62.0 62.0 Metro Pacific Land Holdings, Inc. Philippines Real estate 49.0 49.0Joint Ventures: Easytrip Services Corporation (ESC) Philippines See Note 4. 66.0 50.0 Land Pacific Corporation (Landco) (h) Philippines Real estate 38.1 38.1 Metro Sanitas Corporation (Sanitas) (i) Philippines Clinical management 50.0 50.0 Lipa Medix Cancer Center Corporation Philippines Oncology treatment center 50.0 50.0

* Incorporated in 2017

a. MWCI has 70.6% effective economic interest in Cebu Manila Water Development, Inc.(CMWD). CMWD has a 20-year Water Purchase Agreement with the Metropolitan Cebu WaterDistrict for the supply of 18 million liters of water per day for the first year and 35 million litersof water per day for years two (2) up to twenty (20). CMWD made its initial delivery of water inJanuary 2015.

b. EHI and the Laguna Water District (LWD) entered into a Joint Venture Agreement (JVAgreement) on November 3, 2015. Pursuant to the JV Agreement, EHI and LWD, at ownershipinterest of 90% and 10%, respectively, established Laguna Water District Aquatech ResourcesCorp. (LARC) which shall be responsible for the financing, rehabilitation, improvement,expansion, operation and maintenance of LWD’s water supply system. The JV Agreement is fora term of twenty-five (25) years from January 1, 2016.

c. WBSI is a party to the Contractual Joint Venture Agreement (Contractual JVA) which purposewas to develop a bulk water supply project to be sourced from the Maragondon River. Theagreement shall be for a period of 25 years from the commencement date. Commencement datehas not taken place as at December 31, 2017.

d. DDH is a tertiary level and multi-specialty hospital located in Davao City. MDI is the owner andoperator of Makati Medical Center. MMSI is the owner and operator of Manila Doctors Hospital.Ownership interests in these entities reflected in the above table are at MPHHI level. On a fully-diluted basis, MPIC’s effective ownership interest in DDH is at 21.1% as at December 31, 2017and 2016; MDI at 19.7% and 19.8% as at December 31, 2017 and 2016, respectively; and MMSIat 12.0% as at December 31, 2017 and 2016.

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e. AFPI was granted the rights and obligations to design, finance, construct, operate, and maintainthe Automated Fare Collection System (AFCS) Project for LRT-1, LRT-2, and Metro RailwayTransit Line 3 (MRT-3). The AFCS Project accommodates a contactless smartcard technologyfor stored value ridership and contactless medium technology for single journey ridership. Thissystem shall be expandable to allow the inclusion of accepted participants and issuers into ageneric micropayment solution fulfilling other commercial functions. AFPI had its Full SystemAcceptance (FSA) on December 16, 2015. Unless otherwise extended or terminated inaccordance with the Service Concession Agreement, the concession period shall commence onFSA date and end 10 years from the FSA date. In 2017, due to the lower than expectedpenetration rate into the micropayments business, the Company recognized allowance for declinein value of investment amounting to P=439.2 million. The recoverable amount of the investmentin AFPI was measured using the estimate of the value in use of the investment. The valuationanalysis involved discounting estimates of free cash flows by the discount rate of 11.9%. Theestimates of cash flows were based on most recent financial budgets and forecasts representingbest estimate of ranges of economic conditions that will exist over the forecast period. Theforecast period covers the remaining concession term. The decline in value was recognized as“Other expense” in the consolidated statement of comprehensive income for the year endedDecember 31, 2017 (see Note 24).

f. Indra Phils. is a subsidiary of Indra Sistemas, S.A., which has international knowledge,experience and track record in the information technology business. Indra Phils. is one of theleading providers of information technology solutions to various businesses and industries in thePhilippines, with engagements in utilities and telecommunications, financial services and publicadministration.

g. Neo Oracle Holdings, Inc. (NOHI) has 62% interest in Costa de Madera but was accounted for asan investment in associate as control and management rests with the other shareholders of thecompany. Since December 31, 2012, the investment costs was partially provided with anallowance for decline in value amounting to P=400.0 million. In 2016, this allowance for declinein value was reversed due to improvement in realizable value and was recorded as “Otherincome” in the consolidated statement of comprehensive income (see Note 24).

h. On December 22, 2014, MPIC entered into an agreement with Landco and its controllingshareholder, AB Holdings Corporation (ABHC) to restructure and clean up the balance sheet ofLandco in preparation for an eventual sale to third parties. As a result of the planned divestmentof the interests in Landco, the carrying values of the notes receivable from Landco and ABHCand the investment in Landco’s common shares were reclassified to “Assets held for sale” as atDecember 31, 2014. However, the expected disposal did not happen in 2015 nor in 2016 and assuch, the investment no longer met the ‘held for sale’ criteria as at December 31, 2016. Theinvestment in Landco’s common shares ceased to be classified as ‘held of sale’ and startingDecember 31, 2016, has been classified as investment in joint venture and was fully provided foran allowance in decline in value. The decline in the value of MPIC’s interest in Landco was dueto changes in cash flow forecast attributable to Landco’s legacy projects. The recoverable amountof the investment in Landco was measured using the estimate of the value in use of theinvestment in joint venture. The valuation analysis involved discounting estimates of free cashflows by the appropriate discount rate that reflects the risk and return profile of Landco as oftesting. The estimates of cash flows comprise revenue projections, related costs and expenses, networking capital requirements and capital expenditures expected to be incurred from Landco'sprojects. These cash flows were discounted using weighted average cost of capital of 10.14% asthe discount rate as of testing date. The decline in value of the investment amounting toP=773.9 million was recorded as “Other expense” in the statement of comprehensive income forthe year ended December 31, 2016 (see Note 24). Aside from the investment in the common

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shares of Landco, the Company also has advances to Landco amounting P=828.1 million andP=508.1 million as at December 31, 2017 and 2016, respectively.

i. Sanitas was incorporated in 2016. On May 11, 2017, MPHHI sold its 51% stake in its subsidiary,The MegaClinic, Inc. (MegaClinic), to Sanitas for a total consideration of P=32.1 million.MPHHI’s transfer of its investment in MegaClinic resulted in a loss of control over the investeewith a loss on sale of P=1.5 million recognized as “Other expense” in the consolidated statement ofcomprehensive income for the year ended December 31, 2017 (see Note 24).

The following table analyzes, in aggregate, the Company’s share in the net income and OCI of theseinvestees for the years ended December 31:

2017 2016Joint Venture Associate Joint Venture Associate

(In Millions)Carrying amount of investment P=124 P=4,612 P=125 P=4,653Share in:

Net income 5 268 11 153OCI – – – –Total comprehensive income 5 268 11 153

The following table summarizes, in aggregate, the assets and liabilities of these investees:

2017 2016Joint Venture Associate Joint Venture Associate

(In Millions)Current assets P=150 P=5,969 P=469 P=5,574Noncurrent assets 142 15,766 41 14,355Current liabilities 84 3,743 441 3,426Noncurrent liabilities 4 3,563 5 3,487Dividend income 5 96 – 88

Other transactions with these investees are disclosed in Note 19.

Investment in Beacon Electric’s preferred sharesAs at December 31, 2016 and 2015, MPIC owned 75% and 50% of Beacon Electric’s issuedpreferred shares. The preferred shares of Beacon Electric, which were classified as AFS investmentsprior to MPIC’s acquisition of Beacon Electric (see Note 1), are non-voting, non-convertible tocommon shares or any shares of any class of Beacon Electric, have no pre-emptive rights to subscribeto any share or convertible debt securities or warrants issued or sold by Beacon Electric. Thepreference shareholder is entitled to liquidation preference and yearly cumulative dividend at the rateof 7% (for Class A) and 6% (for Class B) of the issue value subject to (a) availability of unrestrictedretained earnings and (b) dividend payment restrictions imposed by Beacon Electric’s bank creditors.Investment in Beacon Electric’s preferred shares are carried at cost as at December 31, 2016 and2015. For the years ended December 31, 2016 and 2015, the Company recognized dividend incomefrom Beacon Electric’s preferred shares amounting to P=1,215.0 million and P=405.1 million,respectively. However, as discussed in Note 4, MPIC started consolidating Beacon Electric in June2017 resulting to the accounting elimination of the investment in Beacon Electric’s preferred shares.In 2017 and prior to consolidation, MPIC recognized dividend income from preferred sharesamounting to P=2,540.9 million and received proceeds amounting to P=3,500.0 million from theredemption of preferred shares.

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11. Goodwill and Intangible Assets

Goodwill. The carrying amount of goodwill allocated to each of the CGU (determined to be at thesubsidiary level):


Toll operations:MPTC/TMC (see Note 4) P=8,859 P=5,749CIC 4,966 4,966ESC (see Note 4) 388 −

Water:MWHC/Maynilad 6,803 6,803ESTII (see Note 4) 1,227 894PHI 288 288

Healthcare:MVMC (see Note 4) 662 662CVHMC 234 234Asian Hospital Inc. (AHI) 192 192RMCI 69 69SEHI (see Note 4) 60 −De Los Santos Medical Center Inc. (DLSMC) 7 7

Logistics:MMI (see Note 4) 1,629 1,140

P=25,384 P=21,004

As discussed in Note 4, impairment charge of P=324.2 million was recognized in 2017 relating to thegoodwill arising from the logistics business acquired in 2016. Impairment analyses are provided inNote 14.

Intangible Assets. Movements in the intangible assets follow:

2017CustomerContracts

Property UseRights Others Total

(In Millions)Cost: Balance at beginning of year P=1,212 P=777 P=485 P=2,474 Additions (see Note 4) 3,410 − 90 3,500 Purchase price allocation adjustment

(see Note 4) (782) − 220 (562) Balance at end of year 3,840 777 795 5,412Accumulated amortization: Balance at beginning of year 41 223 276 540 Additions (see Note 21) 118 42 75 235 Balance at end of year 159 265 351 775

P=3,681 P=512 P=444 P=4,637

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2016CustomerContracts

Property UseRights Others Total

(In Millions)Cost: Balance at beginning of year P=− P=777 P=387 P=1,164 Additions (see Note 4) 1,212 − 97 1,309 Balance at end of year 1,212 777 484 2,473Accumulated amortization: Balance at beginning of year − 181 235 416 Additions (see Note 21) 41 42 40 123 Balance at end of year 41 223 275 539

P=1,171 P=554 P=209 P=1,934

Customer contracts. The customer contracts were acquired as part of a business combination(see Note 4). They are recognized at their fair value at the date of acquisition and are subsequentlyamortized on a straight-line based on the timing of projected cash flows of the contracts over theirestimated useful lives.

Property use rights. Certain subsidiaries entered into lease agreements for the operation andmanagement of hospitals (see Note 30). The lease agreements qualified as business combinationswhere the identifiable assets consist of property use rights for the use of existing land and buildingover the term of the lease.

Other intangible assets. Comprises of license and technology, software and basketball franchise.The basketball franchise amounting P=100.0 million represents cost of MPTC’s Philippine BasketballAssociation franchise named “NLEX Road Warriors” and is not amortized.

12. Service Concession Assets

This account consists of the following:


Water:Maynilad P=90,156 P=81,546PHI 591 579MIBWSC 775 703

91,522 82,828Toll operations:

NLEX Corp (NLEX, SCTEX and Connector) 34,744 31,791CIC (CAVITEX) 9,036 9,155MPCALA (CALAEX) 23,865 22,362CCLEC (CCLEX) 364 132

68,009 63,440Rail:

LRMC (LRT-1) 9,252 6,425P=168,783 P=152,693

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The movements in the service concession assets follow:

2017Water Toll Rail Total

(In Millions)Cost: Balance at beginning of year P=102,345 P=69,121 P=6,425 P=177,891 Additions 11,149 3,487 2,456 17,092 Capitalized borrowing cost 437 2,099 371 2,907 Balance at end of year 113,931 74,707 9,252 197,890Accumulated amortization: Balance at beginning of year 19,517 5,681 – 25,198 Additions (see Note 21) 2,892 1,017 – 3,909 Balance at end of year 22,409 6,698 – 29,107

P=91,522 P=68,009 P=9,252 P=168,783

2016Water Toll Rail Total

(In Millions)Cost: Balance at beginning of year P=92,484 P=59,165 P=5,630 P=157,279 Additions 9,662 8,054 552 18,268 Capitalized borrowing cost 199 1,902 243 2,344 Balance at end of year 102,345 69,121 6,425 177,891Accumulated amortization: Balance at beginning of year 16,668 4,851 – 21,519 Additions (see Note 21) 2,849 830 – 3,679 Balance at end of year 19,517 5,681 – 25,198

P=82,828 P=63,440 P=6,425 P=152,693

Service Concession Assets – Water. This represents the exclusive right granted to Maynilad, PHI andMIBWSC to provide water distribution, sewerage services, water production and charge users forthese services during the concession period (see Note 1).

Additions in 2017 included (i) Maynilad’s costs of rehabilitation works and additional construction;and (ii) Maynilad’s additional concession fees pertaining to the drawn portion of the MWSS loansrelating to new projects.

Additions in 2016 included (i) Maynilad’s costs of rehabilitation works and additional construction;(ii) Maynilad’s additional concession fees pertaining to the drawn portion of the MWSS loans relatingto new projects; and (iii) upfront payment in connection with MIBWSC’s bulk water agreement(see Note 1). As stipulated in the JV Agreement for the BWS Project, MIBWSC paid the MIWD,P=600.0 million as consideration for the exclusive use and possession of the existing facilities for aslong as JV Agreement and the Bulk Water Supply Agreement remain in effect.

Service Concession Assets – Toll Operations. This represents concessions comprising of the rights,interests and privileges to finance, design, construct, operate and maintain toll roads, toll facilities andother facilities generating toll-related and non-toll related income (see Note 1).

Additions in 2017 included: (i) approximately P=2.1 billion (excluding capitalized borrowing costs)pertaining to NLEX Corp’s ongoing construction of Segment 10, NLEX widening projects and toll plazaexpansion and P=783.2 million on the ongoing pavement rehabilitation of the SCTEX; (ii) P=711.4 millionfor the ongoing construction of CALAEX; (iii) P=2.7 million for the ongoing construction of C5 Link; and(iv) remaining additions pertain to preconstruction costs on various toll road projects.

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Additions in 2016 mainly included: (i) approximately P=5.0 billion (excluding capitalized borrowingcosts) pertaining to civil works construction on Segments 2 and 3, Segments 9 and 10, fixed operatingequipment (FOE) design, supply and installation of the toll collection system on Segment 8.1 Phase I ofthe NLEX; (ii) SCTEX rehabilitation cost amounting to about P=378.5 million; (iii) approximatelyP=2.3 billion representing the present value of periodic payment to be made to DPWH in relation to theConnector Project (see Notes 1 and 17); and (iv) pre-construction cost of P=114.7 million for theCALAEX.

Service Concession Assets – Rail. This represents the concession comprising of the exclusive rightduring the concession period to operate and maintain the current LRT-1 system, collect fareboxrevenue and construct the LRT-1 Extension (see Note 1).

Additions in 2017 pertain to costs of station and LRV rehabilitation works for the LRT-1 system,engineering, procurement and construction and other consultancy cost for LRT-1 Extension project.

Additions in 2016 pertain to costs of rehabilitation works, acquisition of rails for the existing LRT-1system, consultancy cost for LRT-1 Extension project.

13. Property, Plant and Equipment


December 31,2016 Additions(a)

Disposals/Reclassifications(b)

December 31,2017

(In Millions)CostLand and land improvements P=1,278 P=1,467 (P=41) P=2,704Generation assets – 55,508 (167) 55,341Building and building improvements 5,496 353 242 6,091Instruments, tools and other equipment 5,352 1,020 (613) 5,760Office and other equipment, furniture

and fixtures 1,947 722 (6) 2,663Transportation equipment 841 1,071 (62) 1,850Leasehold improvements 574 108 (74) 608

15,489 60,249 (721) 75,017Accumulated DepreciationGeneration assets – 1,618 – 1,618Building and building improvements 1,057 231 (5) 1,283Instruments, tools and other equipment 2,724 698 (176) 3,246Office and other equipment, furniture

and fixtures 1,092 339 (6) 1,425Transportation equipment 391 186 (46) 531Leasehold and land improvements 180 72 (3) 249

5,444 3,144 (236) 8,35210,045 57,105 (485) 66,665

Allowance for impairment loss (23) – – (23)Construction-in-progress 458 912 (406) 964

P=10,480 P=58,017 (P=891) P=67,606

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December 31,2015 Additions(a)

Disposals/Reclassifications(b)

December 31,2016

(In Millions)CostLand and land improvements P=1,152 P=126 P=– P=1,278Leasehold improvements 286 290 (2) 574Building and building improvements 4,595 708 193 5,496Office and other equipment, furniture

and fixtures 1,606 361 (20) 1,947Transportation equipment 544 390 (94) 841Instruments, tools and other equipment 4,031 1,325 (2) 5,352

12,214 3,200 75 15,489Accumulated DepreciationLeasehold and land improvements 120 60 – 180Building and building improvements 876 181 – 1,057Office and other equipment, furniture

and fixtures 879 235 (22) 1,092Transportation equipment 370 105 (84) 391Instruments, tools and other equipment 2,118 630 (24) 2,724

4,363 1,211 (130) 5,4447,851 829 205 10,045

Allowance for impairment loss (23) – – (23)Construction-in-progress 188 496 (226) 458

P=8,016 P=2,485 (P=21) P=10,480(a)Includes acquisitions through business combination (see Note 4).(b)Includes completion of purchase price allocation.

The power generating assets of GBPC’s subsidiaries (TPC, CEDC and PEDC) with aggregatecarrying value of P=53.7 billion as of December 31, 2017 have been mortgaged/pledged as security forthese subsidiaries long-term debt totaling P=39.8 billion (see Note 18). AHI’s property and equipment,with a carrying value of P=3,448 million as at December 31, 2016 were pledged as collateral for itslong-term loans which were all due and paid in 2017 (see Note 18).

14. Impairment of Goodwill and Intangible Assets not yet Available for Use

The Company performs its annual impairment test close to year-end, after finalizing the annualfinancial budgets and forecasts. The key assumptions used to determine the recoverable amount forthe different CGUs are discussed below.

Except for the impairment charge on goodwill allocated to MMI in 2017, management did notidentify impairment losses for the goodwill and the service concession assets not yet in use.Management also believes that no reasonably possible change in any of the key assumptions wouldcause the carrying values of the CGUs and the service concession assets not yet in use to materiallyexceed their respective recoverable amounts.

Goodwill acquired from certain acquisitions in 2017 are based on provisional values (see Note 4).Impairment testing will commence on the period the initial accounting will be finalized, which shouldnot be more than 12 months from date of acquisition. No impairment indicators exist as atDecember 31, 2017 for these acquisition.

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Goodwill

Growthrate

Occupancyrate

Averageforecast period

Discountrate

December 31, 2017:Toll 2.6% to 4.10% – 20 to 36 years 8.6%Water 1.4% to 2.7% – 18 to 20 years 9.1% to 10.0%Water (non-concession) See below – See below 9.9%Healthcare – 67% to 81% See below 11.5%Logistics See below – See below 11.0%

December 31, 2016:Toll 2.5% to 5.0% – 17 to 34 years 8.8%Water 1.1% to 3.3% – 19 to 21 years 9.4% to 10.3%Healthcare – 57% to 77% See below 10.4%

In assessing the impairment for goodwill, the Company compares the carrying amounts of theunderlying assets against their recoverable amounts (the higher of the assets’ fair value less costs ofdisposal and their value in use).

The recoverable amounts for the toll and water businesses have been determined based on value inuse calculations using cash flow projections covering the concession periods for the Company’s waterand toll road businesses. The discount rates applied to cash flow projections reflect the weightedaverage cost of capital of the relevant businesses. In the assessment of the recoverable amount of thewater and toll road businesses, their values in use were calculated based on their cash flowprojections as per the most recent financial budgets and forecasts, which management believes arereasonable and are management’s best estimates of the ranges of economic conditions that will existover the forecast period. The forecasted periods for the Company’s water and toll road businesses aremore than five years as management can reliably estimate the cash flows for their entire concessionperiods. The cash flows during the projection periods are derived using estimated average growthrates which do not exceed the long-term average growth rate of the industry in the Philippines wherethe businesses operate.

In the assessment of the recoverable amount of the water non-concession businesses (which basicallypertains to ESTII’s goodwill), healthcare businesses and logistics their values in use were calculatedbased on cash flow projections as per the most recent financial budgets and forecasts covering a five-year period, which management believes are reasonable and are management’s best estimates of theranges of economic conditions that will exist over the forecast period.

For the water non-concession businesses, cash flows beyond the five-year period were extrapolatedusing a 2.5% growth rate that is consistent with the average growth rate for the industry.

Assumed occupancy rates for the hospitals are consistent with the actual current occupancy rates.Average forecast period for purposes of goodwill impairment testing, except for CVHMC, is at five(5) years with terminal value computed based on a zero-growth assumption for forecasts beyond the5-year period. The length of the projection for CVHMC is consistent with the remaining lease term(see Note 30).

For the logistics business, cash flows beyond the five-year period were extrapolated using a 4%growth rate that is the same as long-term average growth rate for the industry. It was concluded thatthe fair value less costs of disposal did not exceed the value in use. As a result of the analysis, theCompany recognized impairment charge of P=324.2 million (see Note 24). The impairment charge isrecognized within “Other expenses” in the statement of comprehensive income for the year endedDecember 31, 2017.

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Service Concession Assets not yet Available for Use

CarryingValue

Net Carryingvalue

GrowthRate

Average ForecastPeriod

Discountrate

December 31, 2017:Toll – NLEX Corp P=10,417 P=5,833 10.1% to 10.21% 20 to 39 years 8.6%

Toll – CALAEX 23,865 6,389 9.9% 32.5 years 8.6%Toll – CCLEX 364 39 9.3% 35 years 8.6%Rail – LRMC 4,698 2,742 8.5% 30 years 8.5%

P=39,344 P=15,003

December 31, 2016:Toll – NLEX Corp P=8,774 P=5,714 6% to 12.4% 21 to 38 years 8.6%Toll – CALAEX 22,362 5,302 9.5% 34 years 8.6%Toll – CCLEX 132 93 8.4% 35 years 8.6%Rail – LRMC 3,199 1,566 8.9% 30 years 7.7%

P=34,467 P=12,675

Service concession assets pertain to projects which are either under pre or on-going construction(see Note 1) and hence, not yet being amortized. The aggregate carrying values are included in thecarrying values of the service concession assets as disclosed in Note 12. For purposes of impairmenttesting, the carrying values that were compared to the recoverable values are net of the present valueof future concession fees payments (see Note 17) that formed part of the initial cost of these serviceconcession assets. Average growth for the toll businesses represents expected growth in traffic whilefor the rail business, growth in the ridership for the LRT-1-Extension. The average forecast period isconsistent with the period covered by the concession agreements (see Note 1).

15. Accounts Payable and Other Current Liabilities


Trade and accounts payable (a) P=8,225 P=4,583Accrued construction costs (b) 5,484 4,279Accrued expenses (c) 2,647 1,858Dividends payable 2,509 11Output taxes payable (d) 2,182 476Interest and other financing charges (see Note 18) 1,688 876Accrued personnel costs 1,646 1,234Retention payable (e) 766 457Withholding taxes payable 483 348LTIP payable (see Note 23) 459 –Accrued PNCC and BCDA fees (see Note 1) 163 140Lease payable - current portion (f) 136 131Others 754 572

P=27,142 P=14,965

a. This account includes unpaid billings of creditors, suppliers and contractors. It also includesliabilities relating to assets held in trust used in Maynilad’s operations amounting to P=97.3 millionas at December 31, 2017 and 2016 (see Note 31). Trade and accounts payables are non-interestbearing and are normally settled on 30 to 60 day terms.

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As at December 31, 2016, trade payable included payable to ESC arising from the reloading ofthe Easytrip tags in the NLEX (see Notes 19 and 30).

b. This represents unbilled construction costs from contractors and normally settled upon receipt ofbillings. Beginning June 27, 2017, with the consolidation of Beacon Electric and GBPC, thisaccount included unbilled construction costs payable to the contractors of PEDC for theconstruction of the 1x150 MW (gross) CFB clean coal-fired expansion plant (PEDC 3;see Note 30). Unbilled construction costs relating to PEDC 3 amounted to $20.4 million(approximately P=1,018.6 million) as at December 31, 2017.

c. This account includes accrued outside services, professional fees, utilities and repairs andmaintenance charges.

d. Beginning June 27, 2017 with the consolidation of Beacon Electric and GBPC, output taxespayable included the power generating companies' deferred output VAT on trade receivables.Deferred output VAT pertains to output VAT on amount billed to bilateral customers and netsettlement with the Philippine Electricity Market Corporation, who in turn have not yet collectedfrom their ultimate customers.

e. Retention payable is the amount withheld (equal to 10% of the contract price) by the Companyuntil the completion of the construction of a specific project.

f. Lease payable represents present value of future minimum lease payments relating to the leaseagreements entered into by EMHMC, CVHMC and MPZHC (see Note 30), which leaseagreements qualify as business combinations. The lease payable was initially determined atacquisition date and subsequently adjusted for payments and accretion. The noncurrent portionof the lease payable amounting to P=1,043.7 million and P=1,025.0 million as at December 31, 2017and 2016, respectively, is included in the “Other long-term liabilities”.

16. Provisions

The table below present the movements in this account:

Warranties andGuarantees (a)

HeavyMaintenance (b)

DecommissioningLiability(c)

OtherProvisions (d) Total

Balance at December 31, 2015 P=489 P=354 P=– P=4,895 P=5,738Additions* and accretion – 171 – 342 513Reversal (489) – – (100) (589)Payments – (92) – (102) (194)Balance at December 31, 2016 – 433 – 5,035 5,468Additions* and accretion – 295 536 2,230 3,061Payments – (326) – (100) (426)Balance at December 31, 2017 P=– P=402 P=536 P=7,165 P=8,103*Included additions by way of acquisitions (see Note 4)

Warranties andGuarantees (a)

HeavyMaintenance (b)

DecommissioningLiability(c)

OtherProvisions (d) Total

At December 31, 2016:Current portion P=– P=229 P=– P=5,000 P=5,229Noncurrent portion – 204 – 35 239

At December 31, 2017:Current portion – 256 – 5,741 5,997Noncurrent portion – 146 536 1,424 2,106

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a. This includes certain warranties and guarantees extended by NOHI in relation to debt for assetswap arrangements entered in prior years. In August 2016, NOHI received release from theguarantee undertaking prompting reversal of the provision (see Note 30).

b. This pertains to the contractual obligations of NLEX Corp and CIC to restore the serviceconcession assets to a specified level of serviceability during the service concession term and tomaintain the same assets in good condition prior to turnover of the assets to the PhilippineGovernment.

c. Decommissioning liability pertains to GBPC’s estimated liability to decommission or dismantlethe power plants at the end of their useful lives.

d. These consist of estimated liabilities for losses on claims by third parties. The informationusually required by PAS 37 is not disclosed as it may prejudice the Company’s negotiation withthird parties.

17. Service Concession Fees Payable


2017Toll

Operations Water Rail Total(In Millions)

Balance at beginning of year P=18,551 P=7,318 P=3,005 P=28,874Interest accretion – capitalized (see Note 12) 1,094 – 169 1,263Interest accretion (see Note 24) – 575 ‒ 575Foreign exchange differential – 39 – 39Payment – (1,007) ‒ (1,007)

19,645 6,925 3,174 29,744Less current portion ‒ 871 ‒ 871

P=19,645 P=6,054 P=3,174 P=28,873

2016Toll

Operations Water Rail Total(In Millions)

Balance at beginning of year P=15,355 P=7,571 P=2,827 P=25,753Additions 2,319 – – 2,319Interest accretion – capitalized (see Note 12) 877 – 178 1,055Interest accretion (see Note 24) – 490 – 490Foreign exchange differential – 466 – 466Payment – (1,209) – (1,209)

18,551 7,318 3,005 28,874Less current portion – 874 – 874

P=18,551 P=6,444 P=3,005 P=28,000

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Water. Concession fees relating to Maynilad’s service concession agreement (see Note 1) aredenominated in various currencies. These are payable monthly following an amortization table up tothe end of the concession period and are non-interest bearing. Concession fee payments relating tothe extension of the concession agreement (see Note 1) are only determinable upon loan drawdown ofMWSS and their actual construction of the related concession projects. Accretion expense arepresented as “Interest expense” in the consolidated statements of comprehensive income(see Note 24). The schedule of undiscounted estimated future concession fee payments, based on theterm of the Concession Agreement, is as follows:

In Original Currency

Year

ForeignCurrency Loans

(Translated to US$)*

Peso Loans/Project Local

SupportTotal Peso

Equivalent*(In Millions)

2018 $14.4 P=568.2 P=1,288.12019 14.4 568.2 1,286.82020 13.8 568.2 1,259.52021 5.5 567.4 842.92022-2037 44.2 9,079.5 11,287.7

$92.3 P=11,351.5 P=15,965.0*Translated using the December 31, 2017 exchange rate of P=49.93: US$1.

Toll Operations. Concession fees relate to the CALAEX and the Connector Project:

ƒ CALAEX. In consideration for granting the concession, MPCALA shall pay DPWH a concession feetotaling P=27.3 billion, 20% or P=5.5 billion of which was settled upon signing of the concessionagreement (July 10, 2015). The balance of the concession fee (nominal amount of P=21.8 billion) ispayable in equal annual installments beginning on the 5th year (2020) over a period of 9 years fromthe signing of the concession agreement. Service concession fee payable was initially recognized atits present value as at signing date of the concession agreement. For failure to pay the concession feeon or before the agreed upon dates, MPCALA shall pay interest at the rate of one year PhilippineDealing System Treasury Reference Rate PM (PDST-R2) plus 1.75%. The interest at such rate shallcontinue to accrue until the remaining concession fee is paid, or until a notice of default andtermination is received by MPCALA.

ƒ Connector Project. Under the concession agreement, NLEX Corp shall pay periodic payments toDPWH representing the consideration for granting the concession and basic right of way in theConnector Road Project. Total payments to be made to DPWH amount to P=8.5 billion payable atP=243.2 million per annum. The payment shall commence on the first anniversary of the constructioncompletion deadline, as extended, until the expiry of the concession period and shall be subject to anagreed escalation every two years based on the prevailing CPI for the two-year period immediatelypreceding the adjustment or escalation. The addition to service concession fees payable for the yearended December 31, 2016 comprises of recognition of the present value of these annual paymentsamounting to P=2.3 billion.

Rail. Under LRMC’s concession agreement for the LRT-1 Project, LRMC is required to pay the bidpremium of P=9.35 billion (inclusive of VAT) as concession fee, 20% or P=1.87 billion of which wassettled as at Effective Date in accordance with the LRT-1 Concession Agreement. The balance of theconcession fee (nominal amount of P=7.5 billion, inclusive of VAT) is payable in equal quarterlyinstallments over the concession period with the first payment on the fifth anniversary of theEffective Date. Settlement of the concession fee is through the quarterly balancing paymentmechanism reflecting netting of payments due to Grantors against receivable from Grantors.

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18. Long-term Debt



Current portions P=15,573 P=3,797Noncurrent portions 173,510 93,219

P=189,083 P=97,016

Details of the long-term debt per company/segment are as follows:

December 31, 2017Long-term

Loans Bonds Total(In Millions)

MPIC P=46,993 P=– P=46,993Power 66,705 – 66,705Toll Operations 35,776 6,957 42,733Water 27,241 – 27,241Rail 4,651 – 4,651Healthcare 542 – 542Logistics 760 – 760

182,668 6,957 189,625Less unamortized debt issue cost 498 44 542

P=182,170 P=6,913 P=189,083

December 31, 2016Long-term

Loans Bonds Total(In Millions)

MPIC P=36,878 P=– P=36,878Toll Operations 25,586 6,957 32,543Water 26,792 – 26,792Rail 657 – 657Healthcare 588 – 588

90,501 6,957 97,458Less unamortized debt issue cost 389 53 442

P=90,112 P=6,904 P=97,016

The table below presents the movements in unamortized debt issue costs:


Balance at beginning of year P=442 P=449Amortization during the year charged to interest expense

(see Note 24) (66) (61)Derecognized (35) −Debt issue costs incurred during the year 216 66Amortization during the year capitalized to service

concession assets (see Note 12) (15) (12)Balance at end of year P=542 P=442

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The repayments of loans based on existing terms are provided in Note 32, Financial RiskManagement Objectives and Policies.

Interest rates and maturity of the loans per company/segment as follows:

Interest rate per annum Maturity2017 2016 2017 2016

Loans:MPIC 4.93% to 7.50% 4.93% to 7.50% 2023 to 2027 2023 to 2026Power 4.79% to 10.66% – 2021 to 2029 –Toll Operations 3.28% to 7.70% 5.03% to 12.00% 2018 to 2028 2018 to 2028Water 3.53% to 6.00% 3.12% to 6.00% 2023 to 2037 2023 to 2037Rail 7.14% to 7.46% 7.14% 2031 2031Healthcare 3.00% to 4.25% 3.00% to 9.01% 2018 to 2024 2017 to 2019Logistics 5.43% to 5.86% – 2022 –

Long-term bonds:Toll Operations 5.07% to 5.50% 5.07% to 5.50% 2021 to 2024 2021 to 2024

An analysis of the carrying amounts of borrowings into fixed and variable interest rates percompany/segment as follows:

Fixed Variable Total2017 2016 2017 2016 2017 2016

MPIC P=46,821 P=36,739 P=– P=– P=46,821 P=36,739Power 66,740 – – – 66,740 –Toll Operations 40,230 30,267 2,312 2,090 42,542 32,357Water 22,613 23,364 4,534 3,324 27,147 26,688Rail 4,566 645 – – 4,566 645Healthcare 507 581 – 6 507 587Logistics 760 – – – 760 –

P=182,237 P=91,596 P=6,846 P=5,420 P=189,083 P=97,016

The carrying amounts of the borrowings are denominated in the following currencies:

December 31, 2017Philippine Peso U.S. Dollars Thai Baht Total

MPIC P=46,821 P=– P=– P=46,821Power 66,740 – – 66,740Toll Operations 40,225 – 2,317 42,542Water 22,613 4,534 – 27,147Rail 4,566 – – 4,566Healthcare 507 – – 507Logistics 760 – – 760

P=182,232 P=4,534 P=2,317 P=189,083

December 31, 2016Philippine Peso U.S. Dollars Thai Baht Total

MPIC P=36,739 P=– P=– P=36,739Toll Operations 29,608 657 2,090 32,355Water 23,364 3,324 – 26,688Rail 645 – – 645Healthcare 539 50 – 589

P=90,895 P=4,031 P=2,090 P=97,016

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Other relevant information on the Company’s long-term borrowings are provided below:

ƒ The credit agreements provide for certain restrictions with respect to, among others, availingother loans or advances to any of the Company’s affiliates, subsidiaries, stockholders, directorsand officers except in compliance with formally established and existing fringe benefit programof the Company. These restrictions were complied with by the Company.

ƒ Certain loan facilitities were identified to have embedded derivatives such as prepayment optionsand interest rate floors. These embedded derivatives, however, are not required to be bifurcatedfrom the host loan since: (1) the exercise price of the prepayment option approximates thecarrying amount of the loan at each exercise date; and (2) interest rate floor is out of the money,hence, identified embedded derivatives are clearly and closely related to the host loan. Certainloans bear a fixed rate for the first five years but is subject to an interest rate repricing after five(5) years (see Note 32, Interest Rate Risk).

ƒ The loan agreements contain among others, covenants regarding the maintenance of certainfinancial ratios such as debt-to-equity ratio, debt service coverage ratio and maintenance of debtservice reserve account (see Note 32, Capital Management). As at December 31, 2017, MPICand its subsidiaries are in compliance with their respective debt covenants.

ƒ At December 31, 2017, certain bank borrowings were secured by the Company’s property, plantand equipment (see Note 13) and the Company’s interests in MERALCO (35%, held throughBeacon Electric), GBPC (56%, held through BPHI), AIF (100%), DMT (25.9%, held throughAIF) and LRMC (55%, held through MPLRC). CIC provided collateral security in connectionwith its local borrowing (with outstanding amount of P=5.7 billion as at December 31, 2017),which included a mortgage on certain debt instruments, equity investments of CIC, voting sharesin the structured entity owned by the third party stockholders amounting to P=0.2 million andassignment of revenue and debt service account.

ƒ In 2016, LRMC signed a 15-year Omnibus Loan and Security Agreement (OLSA) with variousfinancial institutions (collectively, as “Lenders”) amounting to P=24.0 billion, P=15.3 billion ofwhich is allocated for the Cavite Extension and P=8.7 billion for the rehabilitation of the existingLRT 1 system. Cumulative drawn amount from this facility as at December 31, 2017 and 2016amounted to P=3,993.9 million and P=657.0 million, respectively. The loan has a sponsors’ fundingcommitment wherein for each drawdown until end of the construction period, thesponsors/shareholders shall infuse additional equity or extend debt to LRMC in an amountnecessary to meet the debt-to-equity ratio. Additional equity investment of the sponsors shall notexceed P=15,346.0 million, of which P=8,440.0 million is effectively allocated to MPLRC. As atDecember 31, 2017, no additional equity nor debt from the sponsors was required.

ƒ The loans of certain subsidiaries of GBPC (CEDC, PEDC and TPC) are under project finance andare secured by the projects’ assets and cash flows. All revenues derived from the power plants gointo the Proceeds Account and are pushed down to (i) Operating and Tax Reserve accounts basedon agreed budgets, (ii) Debt Service Reserve Account and (iii) Debt Service Payment Account.The remaining cash flows, after satisfying the required reserve accounts, go into the BalanceAccount, from which the subsidiaries can draw funds for distribution to shareholders. As atDecember 31, 2017, the subsidiaries are in compliance with the covenants of the loan agreements.

ƒ All dividends in respect of the investment in DMT shall be applied to pay the Thai Baht-denominated loan.

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ƒ In 2017, the Toll Operations segment prepaid the U.S. Dollar-denominated loan and the ThaiBaht-denominated loan (with combined outstanding balance of P=2,819.5 million as atDecember 31, 2017). Unamortized debt issue costs of P=56.6 million and prepayment penaltiesand other related costs of P=184.7 million were recognized as expense in the statement ofcomprehensive income for the year ended December 31, 2017 (see Note 24).

The Company has access to the following undrawn borrowing facilities as at December 31, 2017:

Expiringwithin 2018

ExpriringBeyond 2018 Total

(In Millions)MPIC P=10,000 P=– P=10,000Toll Operations 2,000 – 2,000Water 77 12,941 13,018Rail – 23,344 23,344Healthcare 250 – 250Logistics 267 500 767

P=12,594 P=36,785 P=49,379

19. Related Party Transactions

Transactions with related parties are disclosed below. See tabular presentation for the recordedtransactions with these related parties.

Transactions with TMC. As disclosed in Note 4, TMC is responsible for the operation &maintenance (O&M) of the NLEX, Segment 7 and SCTEX. Beginning April 2017, TMC became asubsidiary of MPIC and all intercompany relationships between NLEX Corp and TMC wereeffectively settled in the process of consolidation. Disclosures provided below in relation to PAS 24,Related Party Disclosures apply to periods prior to TMC’s consolidation:

ƒ In exchange for performing its duties for the O&M of the NLEX, TMC receives a fixed O&M feesubject to CPI escalation as provided for under the agreement and a variable fee (for certainportions of the NLEX). The O&M also provides for certain bonuses and penalties as described inthe agreement.

ƒ For the SCTEX, O&M fee is based on a cost plus margin, which compensation shall not exceedP=26.3 million per month (inclusive of VAT). TMC commenced operations of the SCTEX onOctober 27, 2015.

Transaction with Landco. Refer to Note 10.

Transactions with PLDT, SMART and Digitel. The Company’s primary telecommunications carriersare PLDT (an associate of FPC) for its wireline and SMART (PLDT’s subsidiary) for its wirelessservices. The Company also has transactions with Digitel Mobile Philippines, Inc., (Digitel, asubsidiary of PLDT). Such services are covered by standard service contracts between thetelecommunications carriers and each entity within the Company. Other than these service contracts,the Company also has the following transactions with these telecommunication carriers:

ƒ Utilities Facilities Contract between NLEX Corp and PLDT for the Fiber Optic Overlay alongPhase I of the NLEX. PLDT pays an annual fee presented as “Others” in the consolidatedstatements of comprehensive income. Pursuant to the agreement, PLDT shall pay NLEX Corpfixed annual fee which shall then be escalated annually by a percentage indicated in theagreement. The contract shall be effective for a period of 20 years from April 15, 2010 and maybe renewed or extended upon mutual agreement by NLEX Corp and PLDT.

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ƒ Utilities Facilities Contract, between NLEX Corp and SMART whereby NLEX Corp providesSMART an access for the construction, operation and maintenance of a cellsite inside the NLEXright of way for a fixed annual fee which shall then be escalated annually starting on the fourthyear of the contract and every year thereafter. The contract is effective for a period of five yearsfrom April 26, 2010. In September 2016, the contract was renewed with effective date ofApril 27, 2015 for a period of five (5) years which may be renewed or extended upon mutualagreement by NLEX Corp and SMART.

ƒ Agreement for the naming rights of the SMART Connect Interchange, whereby NLEX Corpgrants SMART the exclusive rights to name the NLEX–Mindanao Avenue Cloverleaf as aSMART Connect Interchange and put up outdoor advertising structures near the interchange.The annual package is based on a predetermined timetable of when the official road signs areprogressively built. The base price is from P=175.0 million to P=228.2 million and may increasedepending on the final features and characteristics of the cloverleaf. The agreement is effectiveup to April 30, 2017.

ƒ Advertising arrangements between NLEX Corp and Digitel related to various advertisingmediums which include rental, material production, installation and maintenance at severallocations along NLEX. This advertising arrangement with Digitel ended in 2015.

Transactions with Consunji. Maynilad, entered into certain construction contracts with Consunji, asubsidiary of DMCI Holdings, Inc. (a non–controlling shareholder in MWHC), in relation to theprovision of engineering, procurement and construction services to Maynilad. Consunji also enteredinto a Construction Contract with MPCALA pursuant to which Consunji has agreed to construct andcomplete the civil works for the Laguna Segment of the CALAEX. The contract price for the projectis P=7.2 billion inclusive of taxes, subject to adjustments as provided for in the contract. The contractprice was determined after arm’s length negotiations between MPCALA and Consunji and was basedon normal commercial terms.

Transactions with MERALCO. MERALCO, sells electricity to the Company for the Company’sfacilities within MERALCO’s franchise area. The rates charged by MERALCO are the samemandated rates by the ERC applicable to customers within the franchise area. Aside from thistransaction, below are the Company’s transactions with MERALCO and its subsidiaries:

ƒ Colinas Healthcare, Inc. (CHI) (a wholly-owned subsidiary of CVHMC) operates and managesthe MERALCO Corporate Wellness Center (Wellness Center), an outpatient diagnostic andconsultation center for its employees and their dependents. Income, comprising of retainer’s fee,pharmacy handling and manpower and administrative reimbursement plus margin, that wasrecognized for this arrangement in 2017, 2016 and 2015 amounted to P=48.4 million,P=46.3 million and P=44.4 million, respectively, and is included as part of “Hospital revenue” in theconsolidated statements of comprehensive income.

ƒ As at December 31, 2017 and 2016, NLEX Corp has advances to MERALCO amounting toP=15.4 million and P=6.7 million, respectively, and is included as part of advances to contractorsand consultants. The advances relate to electric line applications for Segment 9 of the NLEX,and the Balintawak and Valenzuela drainage system. These advances are either refundable orconsumable upon activation of the electric lines in Segment 9 and Balintawak and Valenzueladrainage system.

ƒ As at December 31, 2017, Maynilad has outstanding receivable from Meralco IndustrialEngineering Services Corporation (MIESCOR, a subsidiary of MERALCO) amounting toP=16.4 million and has outstanding payable amounting to P=2.6 million as at December 31, 2016relating to construction costs on pipelaying.

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ƒ In 2016, GBPC’s subsidiaries PPC and TPC entered into Interim Power Supply Agreements(IPSAs) with MERALCO for the intermediate and peak power requirements of MERALCO withthe combined maximum capacity of 73MW covering the period February 2016 up to February2017. Both IPSAs were extended up to February 2018.

ƒ Also in 2016, GBPC’s subsidiary PEDC entered into a 20-year Power Supply Agreement (PSA)with MERALCO with a Contract Capacity of 70MW. The PSA was implemented in January2017 at a rate based on the provisional authority granted by the ERC in ERC Case No. 2016-114RC.

ƒ GBPC’s subsidiary Global Luzon Energy Development Corporation entered into a 20-year PSAwith MERALCO in 2016 for the purchase of up to 600MW of electrical output. The PSA ispending with the ERC.

ƒ In 2017, LRMC entered into a memorandum of agreement with MERALCO to pay in advance allcosts and expenses to be incurred for the relocation of its electrical sub-transmission anddistribution facilities affected by the construction works of the LRT-1 Cavite Extension. Theadvance payment shall be returned to LRMC by MERALCO upon payment of the applicablerelocation charges by LRTA to MERALCO, as stated in the LRTA-MERALCO memorandum ofagreement. As at December 31, 2017, receivable from MERALCO amounted to P=10.3 million.

Transactions with ATEC. Refer to Note 4.

Transactions with Beacon Electric. As disclosed in Note 4, beginning June 2017, Beacon Electricbecame a subsidiary of MPIC and all intercompany relationships between Beacon Electric and theCompany were effectively settled in the process of consolidation. Disclosures provided below inrelation to PAS 24 apply to periods prior to Beacon Electric’s consolidation:

ƒ As at December 31, 2016, the Company has no amount owed to Beacon Electric.

ƒ Dividend income from Beacon Electric preferred shares as reflected in the table and in thestatements of comprehensive income were earned and recognized prior to the step-up acquisition.

Transactions with PCEV. Due to PCEV represents the present value of the outstanding amount forthe purchase price of Beacon Electric shares acquired in May 2016 and June 2017:

ƒ On May 30, 2016, MPIC acquired from PCEV 645,756,250 common shares and 458,370,086preferred shares of Beacon Electric for the total consideration of P=26.2 billion. Of the totalconsideration of P=26.2 billion, P=17.0 billion was settled immediately while the remaining payableto PCEV shall be paid as follows: (a) P=2.0 billion in June 2017, (b) P=2.0 billion in June 2018,(c) P=2.0 billion in June 2019, and (d) P=3.2 billion in June 2020. The outstanding balance as atDecember 31, 2017 and 2016 amounted to P=7.2 billion and P=9.2 billion (nominal amounts),respectively.

ƒ On June 13, 2017, MPIC entered into a Share Purchase Agreement with PCEV for the purchaseof PCEV’s 25% remaining interest in Beacon Electric (see Note 4) for a total purchase price ofP=21.8 billion. Payable to PCEV as at December 31, 2017 amounting to P=9.8 billion (at nominalamount) shall be settled equally over the next four years beginning June 30, 2018.

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Transactions with ESC. As disclosed in Note 4, ESC is the exclusive tag issuer at the NLEX.Beginning October 2017, ESC became a subsidiary of MPIC and all intercompany relationshipsbetween NLEX Corp and ESC were effectively settled in the process of consolidation. Disclosuresprovided below in relation to PAS 24 apply to periods prior to ESC’s consolidation:

ƒ NLEX Corp engaged the services of ESC to assist NLEX Corp in increasing the usage of theelectronic toll collection (ETC) facility along the NLEX. The service agreement is effective up toMay 2018 with a five-year extension. In accordance with the agreement, NLEX Corp shall payESC an annual fixed fee, which are to be maintained and escalated every year for labor index andCPI. NLEX Corp shall also pay a certain fee (depending on the class of vehicle) per transaction,with such fee maintained and escalated every year for labor index and CPI. Pursuant to theService Agreement, amounts due to NLEX Corp arising from the use of Easytrip tags in theNLEX shall be remitted by ESC to the designated NLEX Corp bank accounts within seven (7)days immediately following the date when any vehicle using the Easytrip tags pass through theelectronic payment lane of the NLEX. Any amount due to ESC arising from the reloading of theEasytrip tags in the NLEX shall be remitted by NLEX Corp to the designated ESC bank accountswithin seven (7) days immediately following the date of reloading.

ƒ Under the Services Agreement between CIC and ESC, CIC engaged the services of ESC toexclusively promote and distribute radio frequency identification (RFID) sticker tags toCAVITEX users as well as the account management services for all ETC customers. The saidagreement is for five years effective on September 1, 2014 and with five year extension. Inaccordance with the Service Agreement, CIC shall pay ESC an annual fixed fee which is to beescalated every year for labor index and CPI. CIC shall also pay for variable fees (depending onthe class of vehicle) per transaction per transaction, which are also to be escalated every year forlabor index and CPI.

Transactions with Indra Phils. Indra Phils renders services to NLEX Corp and Maynilad for theimplementation of information systems and the conduct of business process analysis and other IT–related services.

Transactions with AFPI. As discussed in Note 10, AFPI was granted the rights and obligations todesign, finance, construct, operate and maintain the AFCS Project for LRT-1, LRT 2, and MRT 3.LRMC as the concessionaire for the LRT-1 Project uses the AFCS at no consideration. The balancepayable to AFPI represents amount payable by LRMC for the purchase of stored value cards andsettlement arising from the the rail revenue operations.

Other transactions with related parties. Metro Pacific Investments Foundation, Inc. (MPIFI),Ideaspace Foundation, Inc. (Ideaspace; Philippines’ largest privately–funded idea incubator supportedby FPC), Lucena Land Corporation (LLC; a subsidiary of Landco), FPC and others mainly relate toadvances to finance various projects as well as intercompany charges for share in certain operatingand administrative expenses.

Revenue from water and sewer services. In the ordinary course of business, Maynilad provides waterservices to its affiliates located within the West Zone of the Metropolitan Manila area at the sameapproved rates applicable to customers within the concession area.

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The following table provides the total amount of transactions with related parties, other than advances, for the years ended December 31, 2017, 2016 and 2015(amounts in millions):

Name RevenuesManagement

Fees*

Incomefrom

Utility Facilities*

Income from

Advertising*

Dividend Incomefrom Preferred

shares(see Note 10)

ConstructionCost

Operator’sFee

(see Note 21)

Contracted services

(see Note 21)

Utilities(see Notes 21

and 22)

Rentals(see Notes 21

and 22)Associates and Joint Venture (see Note 10):

TMC 2017 P=– P=14 P=– P=– P=– P=– (P=568) P=– P=– P=–2016 – 56 – – – – (2,001) – – –2015 – 56 – – – – (1,744) – – –

Beacon Electric 2017 – – – – 2,541 – – – – –2016 – – – – 1,215 – – – – –2015 – – – – 405 – – – – –

MERALCO (including MIESCOR) 2017 1,338 – – – – – – – (1,667) –2016 46 – – – – – – (37) (1,037) –2015 44 – – – – – – (196) (979) –

ESC 2017 – – – – – – – (54) – –2016 – – – 1 – – – (78) – –2015 – – – – – – – (71) – –

Indra 2017 – – – – – – – (258) – –2016 – – – – – – – (248) – –2015 – – – – – – – (335) – –

Other related parties:SMART 2017 – – – 18 – – – – (55) –

2016 – – – 43 – – – – (41) –2015 – – – 64 – – – – (33) –

PLDT 2017 – – 2 1 – – – – (57) (17)2016 – – 7 1 – – – – (34) (14)2015 – – 2 – – – – – (41) (12)

Digitel 2017 – – – – – – – – – –2016 – – – – – – – – – –2015 – – – 8 – – – – – –

Consunji 2017 – – – – – (2,519) – – – –2016 – – – – – (2,873) – – – –2015 – – – – – (952) – – – –

Total 2017 P=1,338 P=14 P=2 P=19 P=2,541 (P=2,519) (P=568) (P=312) (P=1,779) (P=17)2016 46 56 7 45 1,215 (2,873) (2,001) (363) (1,112) (14)2015 44 56 2 72 405 (952) (1,744) (602) (1,053) (12)

*Included as “Others” in the statements of comprehensive income.

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Outstanding balances of transactions with related parties are carried in the consolidated statements offinancial position under the following accounts provided below (amounts in millions). Tradereceivable, accounts payable and due to/from related parties are due and demandable, non-interestbearing, unsecured and requires cash settlement. Except for receivables from Landco, all receivablesfrom related parties are not impaired.

Trade Receivables(see Note 8) Due from related Parties

Accounts Payable and OtherCurrent Liabilities

(see Note 15) Due to related PartiesCompany 2017 2016 2017 2016 2017 2016 2017 2016Associates and Joint Venture

TMC P=– P=– P=– P=38 P=– P=395 P=– P=–AFPI – – – 29 2 – – –MERALCO (includingMIESOR) 543 1 – – 128 40 – –Beacon Electric – – – – – – – –ESC – 246 – – – 91 – –Indra Phils. 6 – – – 29 20 – –

Other related parties:PCEV – – – – – – 15,553 8,352Consunji – – – – 205 102FPC – – 2 1 – – – –LLC – – 7 7 – – – –MPIF – – 1 1 – – – –PLDT – 7 – – 15 5 – –Smart 36 45 – – 3 – 78 72Landco – – 44 44 – – – –Others – – 2 3 – – 15 15

585 299 56 123 382 653 15,646 8,439Less allowance for impairment – – 31 31 – – – –Total 585 299 25 92 382 653 15,646 8,439Less current portion 585 299 25 92 382 653 3,879 1,713

P=– P=– P=– P=– P=– P=– P=11,767 P=6,726

Directors’ RemunerationAnnual remuneration of the directors amounted to P=5.2 million, P=2.9 million and P=2.7 million in2017, 2016 and 2015, respectively. Directors were also allocated common shares under theCompany’s ESOP and RSUP (see Note 28).

Non–executive directors are entitled to a per diem allowance of P=100,000 (2016 and 2015: P=50,000)for each attendance in the Parent Company’s BOD meetings and P=50,000 (2016 and 2015: P=30,000)for each attendance in the Company’s Committee meetings. The Parent Company’s By-Laws providethat an amount equivalent to 1.0% of net profit after tax of the Parent Company shall be allocated anddistributed among the directors of the Parent Company who are not officers of the Parent Company orits subsidiaries and affiliates, in such manner as the BOD may deem proper. No accruals were madewith respect to this scheme for the years ended December 31, 2017, 2016 and 2015 in the absence ofresolution from the BOD. There are no other special arrangements pursuant to which any directorwill be compensated.

Compensation of Key Management PersonnelCompensation of key management personnel of the Company is as follows:

2017 2016 2015(In Millions)

Short–term employee benefits P=1,546 P=1,145 P=922Share–based payment (see Note 28) 67 67 21Post employment benefits - Retirement costs 101 46 62Other long–term benefits - LTIP expense

(see Note 23) 629 533 568P=2,343 P=1,791 P=1,573

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20. Equity

Details of authorized and issued capital stock are in the following tables:

2017 2016No. of Shares Amount No. of Shares Amount

(In Millions except for number of shares)

Authorized common shares - P=1.00 par value 38,500,000,000 P=38,500 38,500,000,000 P=38,500Authorized preferred shares: Class A - P=0.01 par value 20,000,000,000 200 20,000,000,000 200 Class B - P=1.00 par value 1,350,000,000 1,350 1,350,000,000 1,350Balance at December 31 59,850,000,000 P=40,050 59,850,000,000 P=40,050

Issued and Outstanding - common shares: Balance at beginning of year 31,527,848,752 P=31,528 27,885,373,752 P=27,885 Issuance of shares − − 3,600,000,000 3,600 Exercise of stock option plan (see Note 28) 6,700,000 7 42,475,000 43 Issued - common shares 31,534,548,752 31,535 31,527,848,752 31,528 Less: Treasury Shares (23,970,000) (24) (23,970,000) (24)Balance at end of the period 31,510,578,752 P=31,511 31,503,878,752 P=31,504

Treasury shares - common shares: Balance at beginning of year 23,970,000 P=167 − P=− Share buy-back (see Note 25) − − 23,970,000 167Balance at end of the period 23,970,000 P=167 23,970,000 P=167

Issued - preferred shares - Class A: Balance at beginning of year 9,128,105,319 P=91 5,000,000,000 P=50 Issuance of shares − − 4,128,105,319 41Balance at end of the period 9,128,105,319 P=91 9,128,105,319 P=91

Total number of stockholders 1,300 − 1,313 −

Authorized Capital StockAt the regular meeting of the BOD of MPIC held on May 12, 2015, the BOD approved the following:

ƒ The reclassification of a total of 150 million Class B preferred shares with par value of P=1.00 pershare into 15 billion Class A preferred shares with par value of P=0.01 per share, therebydecreasing the number of Class B preferred shares from 1.5 billion to 1.35 billion andcorrespondingly increasing the number of Class A preferred shares from 5 billion to 20 billion.

ƒ The increase of the authorized capital stock from P=30.05 billion up to P=40.05 billion divided into38.5 billion common shares with a par value of P=1.00 per share and 20 billion Class A preferredshares with a par value of P=0.01 per share and 1.35 billion Class B preferred shares with a parvalue of P=1.00 per share.

During the annual general meeting of the stockholders of MPIC held on May 29, 2015, the foregoingmatters were approved and ratified by the stockholders of MPIC.

The increase in authorized capital stock is for the purpose of enabling MPIC to carry out equity fundraising in a timely manner for MPIC’s investments. The purpose of the reclassification is to broadlymaintain the historical ratio of preference shares relative to each class and the common shares ofMPIC following recent capital raising exercises, as well as to reduce the number of outstandingpreferred shares that are convertible to the common shares.

The Amended Articles of Incorporation of MPIC reflecting the reclassification of portion of the ClassB preferred shares to Class A preferred shares was approved by the Philippine SEC onOctober 26, 2015.

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In 2016, MPIC applied for an increase in authorized common shares from 28.5 billion to38.5 billion shares. The SEC approved the increase in authorized capital stock on August 5, 2016.

Common SharesThe increase in common shares for the years ended 2017, 2016 and 2015 resulted from the followingtransactions:

ƒ At various dates in 2017, 2016 and 2015, a total of 6.7 million, 42.5 million and 27.1 millioncommon shares, respectively, were issued in connection with the Parent Company stock optionplan (see Note 28).

ƒ On February 9, 2015, MPIC, together with its principal shareholder MPHI, entered into aplacement agreement with UBS AG, Hong Kong Branch, in respect of the offer and sale(the “Offer”) by MPHI of 1,812,000,000 common shares of MPIC at the Offer Price of P=4.90 pershare. Closing of the Offer was conditioned, among others, on MPHI subscribing (or agreeing tosubscribe) to the same number of shares at the offer price or a total of approximately P=8.7 billion,net of transaction costs of P=0.2 billion. The proceeds from the placement and subscriptiontransaction were used by MPIC primarily for the reduction of relatively expensive debt at MPIC’saffiliate, Beacon Electric, investment in previously announced projects and general corporatepurposes. This transaction resulted to the reduction of MPHI’s economic interest in MPIC from55.8% as at December 31, 2014 to 52.1% as at December 31, 2015.

ƒ Pursuant to the approval of the BOD in its meeting held on May 27, 2016, MPIC entered into aShare Subscription Agreement with GT Capital Holdings, Inc. (GTCHI) on May 27, 2016,wherein MPIC agreed to issue in favour of GTCHI, and GTCHI agreed to subscribe to 3.6 billionnew common shares of MPIC (the “Subscription Shares”) from the increase in authorized capitalstock of MPIC, which application for increase was approved by the SEC on August 5, 2016.The Subscription Shares was issued at a subscription price of P=6.10 per share or a total ofP=21.96 billion. On the same date, GTCHI also acquired a further 1.3 billion common shares ofMPIC from MPHI. Following this transaction, GTCHI and MPHI approximately owned 15.55%and 41.97% of MPIC’s issued common shares.

Class A Preferred SharesHolders of Class A Preferred Shares are entitled to vote and shall receive preferential cash dividendsat the rate of 10.0% per annum based on share’s par value, upon declaration made at the sole optionof the BOD. Dividends on these preferred shares, which shall be paid out of the Parent Company’sunrestricted retained earnings, are cumulative whether or not in any period the amount is covered byavailable unrestricted retained earnings. No dividends or other distributions shall be paid or declaredand set apart for payment in respect of the common shares, unless the full accumulated dividends onall Class A Preferred Shares shall have been paid or declared. Holders of Class A Preferred Sharesdo not have right to participate in any additional dividends declared for common shareholders. MPHIholds all of the Parent Company’s Class A Preferred Shares.

On May 27, 2016, MPIC also entered into a Share Subscription Agreement with MPHI for thesubscription by MPHI of 4.1 billion newly issued Class A Preferred Shares at par value for a totalconsideration of P=41.3 million.

Following the GTCHI’s subscription and acquisition of common shares and MPHI’s subsctription ofClass A Preferred Shares, MPHI’s combined voting interest as a result of all of its shareholdings isestimated at 55.0%.

There are no undeclared dividends as at December 31, 2017.

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Class B Preferred SharesThe Parent Company may issue one or more series of Class B Preferred Shares, as the BOD maydetermine. The BOD shall also determine (a) cash dividend rate of such preferred share, which in nocase to exceed 10.0% per annum; and (b) period and manner of conversion to common shares orredemption. Dividends on these preferred shares, which shall be paid out of the Parent Company’sunrestricted retained earnings, are cumulative whether or not in any period the amount is covered byavailable unrestricted retained earnings. No dividends shall be paid or declared and set apart forpayment in respect of the common shares or Class A Preferred Shares, unless the full accumulateddividends on all Class B Preferred Shares shall have been paid or declared. Holders of Class BPreferred Shares do not have right to participate in any additional dividends declared for commonshareholders.

There were no Class B Preferred Shares issued in 2017, 2016 and 2015.

Treasury SharesOn September 1, 2016, MPIC acquired 23,970,000 MPIC common shares, at P=6.9822 per share fromthe open market. The treasury shares were acquired pursuant to the share buy-back that shall partiallycover the up to approximately 27.4 million shares to be granted to the directors and key officers of theCompany under the Company’s LTIP program, which includes the Restricted Stock Unit Plan(RSUP; see Note 28).

The RSUP and the implementation thereof which included the share buy-back, were approved byMPIC’s Compensation Committee on July 14, 2016, pursuant to the authority granted to it by theMPIC’s BOD on March 1, 2016.

Record of Registration of Securities with the SECIn accordance with SRC Rule 68, as Amended (2011), Annex 68–D, below is a summary of theCompany’s track record of registration of securities:

Issue Offer price Date of SEC approvalNumber of registered sharessecurities

Number of holders of securities as atDecember 31,

2017 2016 2015Tender offer to shareholders of Metro

Pacific Corporation (MPC)covering common shares andsubscription warrants relating tocommon shares of MPIC withpar value of P=1.0 per share

Four (4) MPC shares for one(1) MPIC share plusthree (3) warrants

October 25, 2006 Common shares of 56,878,766* 1,300 1,313 1,328

Subscription warrants of170,636,298

– – –

*Covered the 2006 registered shares only

The shares relating to the transaction above were exchanged in the PSE on December 15, 2006,effectively listing MPIC via listing by way of Introduction. Out of the total warrants available forconversion, 143,976,756 warrants were converted as at December 31, 2007 and 2,549,211 warrantsexpired on December 15, 2007.

Retained Earnings and Cash DividendsOf the Company’s consolidated retained earnings, P=20,003.0 million and P=19,022.4 million isavailable for dividend declaration as at December 31, 2017 and 2016, respectively. These amountsrepresent the Parent Company’s retained earnings available for dividend declaration calculated basedon the regulatory requirements of the Philippine SEC. The difference between the consolidatedretained earnings and the Parent Company’s retained earnings available for dividend declarationprimarily consist of undistributed earnings of subsidiaries and equity method investees. Stand–aloneearnings of the subsidiaries and share in net earnings of equity method investees are not available fordividend declaration by the Parent Company until declared by the subsidiaries and equity investees asdividends.

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Dividends decelared and paid are as follows:

2017 2016 2015(In Millions)

Declared and paid:Final dividend in respect of the previous financial

year approved and paid during the followinginterim period:Common shareholders (P=0.068, P=0.061 and P=0.037 per share in 2017, 2016 and 2015, respectively) P=2,142.3 P=1,701.6 P=1,031.1Class A preferred shareholders 4.6 2.5 1.3

Interim dividend declared and paid during theinterim period:Common shareholders (P=0.0345, P=0.032 and P=0.032 per share in 2017, 2016 and 2015, respectively) 1,087.1 1,008.8 892.3Class A preferred shareholders 4.6 2.9 2.5

P=3,238.6 P=2,715.8 P=1,927.2

Final dividend*:Common shareholders (P=0.076, P=0.061 and

P=0.061 per share declared in 2017, 2016 and2015, respectively) P=2,395.0 P=2,142.3 P=1,701.6

Class A preferred shareholders 4.6 4.6 2.5P=2,399.6 P=2,146.9 P=1,704.1

* The final dividends on both common and Class A preferred shares were declared after end of reporting date and as such, are notrecognized as liability at year–end.

On March 1, 2018, the BOD approved the declaration of the cash dividends of P=0.076 per commonshare in favor of the Company’s shareholders of record as of the record date at March 28, 2018 withpayment date of April 26, 2018. On the same date, the BOD also approved the declaration of cashdividends amounting to a total of P=4.6 million in favor of MPHI as the sole holder of Class APreferred shares.

Other Comprehensive Income ReserveOther comprehensive income reserve consists of the following, net of applicable income taxes:

2017 2016 2015Share in the OCI of equity method investees P=2,103 P=2,021 P=441Fair value changes on AFS financial assets 19 (4) (7)Actuarial losses (174) 1 (3)Cumulative translation adjustment (264) (47) 79

P=1,684 P=1,971 P=510

Refer to Note 25 for the movements and analysis of the other comprehensive income.

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21. Costs of Sales and Services


2017 2016 2015 (In Millions)

Fuel costs (a) P=5,033 P=– P=–Personnel cost and employee benefits

(see Note 23) (b) 4,597 2,854 2,111Cost of inventories (c) 3,921 3,251 2,567Amortization of service concession assets

(see Note 12) 3,909 3,679 3,317Depreciation and amortization

(see Notes 11 and 13) 2,369 506 358Contracted services and professional fees 1,973 1,500 937Utilities (see Note 19) 1,800 1,416 1,171Repairs and maintenance 1,512 777 536PNCC and BCDA fees (see Notes 1 and 30) 1,503 1,319 614Operator’s fees (see Notes 4 and 19) 585 2,161 1,898Purchased power (a) 560 – –Provision for heavy maintenance

(see Note 16) 251 141 151Warehouse rental 186 100 –Insurance 174 144 69Trucking costs 128 37 –Others 873 485 297

P=29,374 P=18,370 P=14,026

a. The Company started consolidating GBPC beginning June 27, 2017 (see Note 4). Fuel costsrelates to consumption of coal and other fuel related costs for the generation of electricity.Purchased power represents cost of replacement power from WESM.

b. In line with its strategic goal to improve operational efficiency, Maynilad in 2017 offered aSpecial Opportunity Program (SOP), a redundancy and right-sizing program. This programoffered a separation package based on the number of years, or fractions thereof, on a pro-ratedbasis, of service with Maynilad plus monetary equivalent of some benefits. Total severance paidout of the company funds for the separated employees amounted to P=276.9 million.

c. Includes cost of medical services, materials and supplies.

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22. General and Administrative Expenses


2017 2016 2015 (In Millions)

Personnel costs and employee benefits(see Note 23) P=4,792 P=3,349 P=3,002

Outside services (see Note 19) 1,071 777 665Taxes and licenses 1,020 451 519Depreciation and amortization

(see Notes 11 and 13) 1,010 828 718Professional fees 757 689 601Advertising and promotion 379 307 419Repairs and maintenance 333 293 187Rentals (see Note 30) 308 196 89Provision for corporate initiatives and others 281 257 139Transportation and travel 271 153 201Utilities (see Note 19) 249 215 180Administrative supplies 182 137 165Entertainment, amusement and representation 171 157 118Insurance 150 157 119Collection charges 145 136 137Provision for doubtful accounts (see Note 8) 146 83 102Miscellaneous* 861 877 686

P=12,126 P=9,062 P=8,047*Includes public relations, commissions and other various general and administrative expenses which areindividually insignificant.

23. Personnel Costs and Employee Benefits


2017 2016 2015(In Millions)

Salaries and wages P=6,506 P=4,405 P=3,607LTIP expense 629 533 568Retirement costs 298 233 196Provision for ESOP and RSUP

(see Note 28) 67 67 21Severance cost (see Note 21) 277 7 12Other employee benefits 1,612 958 709

P=9,389 P=6,203 P=5,113

Cost of sales and services (see Note 21) P=4,597 P=2,854 P=2,111General and administrative expenses

(see Note 22) 4,792 3,349 3,002P=9,389 P=6,203 P=5,113

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Long–Term Incentive Plan (LTIP)Certain of the Company’s employees are eligible for long–term employee benefits under along–term incentive plan. The liability recognized on the LTIP comprises the present value of thedefined benefit obligation and was determined using the projected unit credit method. Each LTIPperformance cycle generally covers 3 years with payment intended to be made at the end of eachcycle (without interim payments) and is contingent upon the achievement of an approved target coreincome of the Company by the end of the performance cycle. Each LTIP performance cycle isapproved by the respective boards of directors of the entities of the Company.

As at December 31, 2017, 2016 and 2015, the LTIP payable is as follows:

2017 2016 2015 (In Millions)

Balance at beginning of year P=703 P=1,184 P=850Current service cost 606 532 542Interest 17 2 26Actuarial gain 6 (2) –Step-up acquisition (see Note 4) 73 – –Payment – (1,013) (234)Balance at end of year P=1,405 P=703 P=1,184

2017 2016 2015(In Millions)

Current (see Note 15) P=459 P=– P=1,044Noncurrent 946 703 140

P=1,405 P=703 P=1,184

LTIP of MPIC, MPHHI and Maynilad covers cycle 2016 to 2018 with pay-out in 2019. LTIP ofMPTC covers cycle 2015 to 2017 with pay-out in 2018.

To fund the LTIP programs for each cycle, MPIC enters into Investment Management Agreement(IMA) with a Trustee Bank. The LTIP fund will continue to accumulate until the LTIP target payout.The investment portfolio of IMA is limited to the following: securities issued, directly or indirectly,or guaranteed by the government; and time deposit and money market placements issued by any ofthe top ten (10) banks in the Philippines.

Pension

Regulatory Environment. Republic Act (RA) No. 7641, The Philippine Retirement Law(RA 7641) requires a minimum benefit of equivalent to one–half month’s salary for every year ofservice, with six months or more of service considered as one year. Entities of the Companyoperating in the Philippines provide for either a defined contribution retirement plan or a definedbenefit plan that consider the minimum benefit guarantee mandated under RA 7641.

Defined Contribution Retirement Plan. Certain entities of the Company provide the retirementbenefits of employees under a defined contribution scheme. Each of these companies operates itsown retirement plan. The retirement plan is a contributory plan wherein the employer undertakes tocontribute a predetermined amount to the individual account of each employee and the employee getswhatever is standing to his credit, upon separation, from the company. The retirement plans are beingmanaged and administered by these companies’ respective compensation committee. Each entity hasan appointed trustee bank which holds and invests the assets of the retirement fund in accordancewith the provisions of the retirement plan.

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Contributions to the retirement plan are made based on the employee’s monthly basic salary.Additionally, an employee has an option to make a personal contribution to the fund, at an amount notexceeding a certain percentage of his monthly salary in accordance with the entity’s policy. Theemployer then provides an additional contribution to the fund which aims to match the employee’scontribution but only up to a maximum of 5.0% of the employees’ monthly salary. Although theretirement plans of these entities have a defined contribution format, these entities are covered underRA 7641, which provides a defined benefit minimum guarantee for its qualified employees. Thedefined minimum guarantee is equivalent to a certain percentage of the monthly salary payable to anemployee at normal retirement age with the required credited years of service based on the provisionsof RA 7641. Accordingly, these entities account for the retirement obligation under the higher ofdefined benefit obligation relating to the minimum guarantee and the obligation arising from thedefined contribution plan. Disclosures required for a defined benefit retirement plan apply to thesecompanies’ retirement plans and are provided together with the defined benefit retirement plans of theother subsidiaries of the Parent Company.

Each year, the compensation committee reviews compliance with RA 7641 to evaluate the level offunding that would ensure that the expected future value of the defined benefit contribution plan assetis sufficient to cover the future expected value of retirement benefits prescribed by RA 7641.

Defined Benefit Retirement Plan. These plans provide for a lump sum benefit payments uponretirement.

Certain entities of the Company have funded noncontributory defined benefit retirement plancovering all their eligible regular employees. For the entities with funded retirement benefit plans,plan assets are maintained in trust accounts with local banks. While there are no minimum fundingstandards in the Philippines, the companies annually engage the services of an actuary to conduct avaluation study to determine the retirement obligations and the level of funding to ensure that theassets currently in the fund would be sufficient to cover expected benefit payments.

The rest of the companies within the group each has an unfunded, noncontributory defined benefitretirement plan covering substantially all of their respective employees. While there are no minimumfunding standards in the Philippines, these entities also annually engage the services of an actuary toconduct a valuation study to determine the retirement obligations and ensure that should there bematuring obligations in the immediately succeeding periods, these are appropriately considered in thebudgeting process.

Retirement Costs. The following tables summarize the components of the retirement costs (gain)under the defined benefit plans and the defined contribution plans included in “Personnel costs andemployee benefits” under “Cost of sales and services” and “General and administrative expenses”account in the consolidated statement of comprehensive income.

2017 2016 2015(In Millions)

Current service cost P=271 P=212 P=177Net interest cost 58 21 19Curtailment gain (31) – –Retirement costs for the year P=298 P=233 P=196

Actual return on plan assets P=42 P=40 P=22

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Pension Assets and Accrued Retirement Costs. Reconciliation of net liability/(asset) recognized inthe consolidated statement of financial position as at December 31 follows:

2017 2016 2015(In Millions)

Present value of defined benefitobligation (PVDBO) P=3,290 P=1,994 P=1,758

Fair value of plan assets (FVPA) 1,578 1,511 1,237Net liability P=1,712 P=483 P=521

Pension asset(a) (P=60) (P=34) (P=46)Accrued retirement liability (b) 1,772 517 567Net liability P=1,712 P=483 P=521(a)Included under “Other noncurrent assets” account.(b)Included under “Other long–term liabilities”.

Changes in PVDBO are as follows:

2017 2016 2015(In Millions)

PVDBO at beginning of the year P=1,994 P=1,758 P=1,589PVDBO from acquisitions 1,010 7 –Interest cost 150 79 71Current service costs 271 212 177Benefits paid from:

Plan asset (437) (24) (29)Company funds (27) (14) (33)

Curtailment (31) – –Actuarial losses (gains) due to:

Changes in financial assumptions 271 (69) (101)Changes in demographics (3) 1 2Experience adjustments 92 44 82

PVDBO at end of the year 3,290 P=1,994 P=1,758

Changes in FVPA are as follows:

2017 2016 2015(In Millions)

FVPA at beginning of the year P=1,511 P=1,237 P=1,171FVPA from acquired subsidiaries 182 – –Interest income included in net

interest cost 92 58 52Benefits paid (437) (24) (78)Contributions by employer 270 257 122Remeasurement in OCI from return

on plan asset excluding amountincluded in net interest cost (40) (17) (30)

FVPA at end of the year P=1,578 P=1,511 P=1,237

The companies within the group expect to contribute a total of P=248.7 million to their respectiveretirement funds in 2018.

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The major categories of the plan assets are the following:


Philippine bonds and treasury notes P=757 P=629Philippine equity securities 323 379Cash in bank 263 292Unit trust funds 127 110Receivables and other assets 86 81Philippine life insurance plans 22 20

P=1,578 P=1,511

The plan assets’ carrying amount approximates fair value since these are short–term in nature ormark-to-market. Philippine bonds and treasury notes consist of government issued securities andcorporate bonds and subordinated notes. Government securities consist primarily of fixed–ratetreasury notes and retail treasury bonds that bear interest ranging from 2.1% to 11.7% (2017) and1.2% to 9.5% (2016) and have varying maturities of ranging from 2017 to 2032 as at December 31,2017 (2016: 2017 to 2037). Philippine equity securities pertain to investment in shares of variouslisted entities. As at December 31, 2017, the plan assets set out in the above table included listedshares of MPIC with fair value of P=4.1 million.

While the Company does not perform any Asset–Liability Matching Study, the risks arising from thenature of the assets comprising the fund are mitigated as follows:

ƒ Credit Risks. Exposure to credit risk arises from financial assets comprising of cash and cashequivalents, investments and receivables. The credit risk results from the possible default of theissuer of the financial instrument, with a maximum exposure equivalent to the carrying amount ofthe instruments. The risk is minimized by ensuring that the exposure is limited only to theinstruments as recommended by the trust managers.

ƒ Share Price Risk. Exposure arises from holdings of shares of stock being traded at the PSE. Theprice risk emanates from the volatility of the stock market. Policy is to limit investments inshares of stock to blue chip issues or issues with good fair values.

ƒ Liquidity Risk. This risk relates to the risk that the fund is unable to meet its payment obligationsassociated with its retirement liability when they fall due. To mitigate this risk, the entitiescontribute to their respective fund from time to time, based on the recommendations of theiractuaries with the objective of maintaining their respective fund in a sound condition.

Actuarial assumptions. Principal assumptions used as at December 31, 2017 and 2016 in determiningretirement obligations are shown below:

2017 2016(In Percentage)

Annual discount rate 5.09% to 6.12% 4.86% to 5.95%Future range of annual salary increases 1% to 10% 1% to 10%

The discount rate represents the range of single weighted average discount rate used by each of theentities within the group in arriving at the present value of defined benefit obligation, service andinterest cost components of the retirement cost. Assumptions regarding future mortality rate arebased on the 2017 Philippine Intercompany Mortality Table, which provides separate rates for malesand females.

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Sensitivity Analysis. The calculation of the defined benefit obligation is sensitive to the assumptionsset above. The following table summarizes how the present value of defined benefit obligation as atDecember 31 would have increased (decreased) as a result of change in the respective assumptionsby:

% Change 2017 2016(In Millions)

Annual discount rate + 1.0% (P=265) (P=133)– 1.0% 315 148

Future range of annual salary increases + 1.0% 323 154– 1.0% (276) (140)

The following table provides for the maturity analysis of the undiscounted benefit payments as atDecember 31:


Less than one year P=241 P=245More than one year to five years 1,224 872More than five to ten years 1,570 1,117Beyond ten years 15,783 7,274Total expected benefit payments P=18,818 P=9,508

The average duration of the defined benefit obligation is 16 years and 19 years as atDecember 31, 2017 and 2016, respectively.

24. Interest Income, Interest Expense and Others

The following are the sources of the Company’s interest income:

2017 2016 2015(In Millions)

Cash and cash equivalents, short–term depositsand restricted cash (see Note 7) P=573 P=373 P=396

AFS financial assets* 32 40 55Others 18 4 9

P=623 P=417 P=460*Includes investments in bonds and treasury notes

The following are the sources of the Company’s interest expense:

2017 2016 2015(In Millions)

Long–term debt (see Note 18) P=6,567 P=4,206 P=3,755Accretion on financial liabilities

(see Notes 19 and 30) 717 548 500Accretion on service concession fees

payable (see Note 17) 575 490 574Amortization of debt issue costs (see Note 18) 66 61 50Others 70 23 46

P=7,995 P=5,328 P=4,925

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Others recognized in the consolidated statements of comprehensive consists of the following:

2017 2016 2015(In Millions)

Remeasurement of previously held interest (see Note 4)

TMC P=1,391 P=– P=–ESC 198 – –Beacon Electric (1,618) – –

Gain on sale of investment (see Note 10) 732 – –Income from toll utility facilities, services

and advertising 253 166 158Provisions for decline in value of equity

investments (see Note 10) (439) (774) –Impairment of goodwill (see Notes 11 and 14) (324) – –Debt prepayment costs (see Note 18) (241) – (36)Reversal of contingent liabilities(a) – 153 762Reversal of warranties and

guarantees (see Note 16) – 489 –Reversal of indemnification asset(a) – – (555)Rental income 128 135 135Others(b) (see Note 10) 280 130 140

P=360 P=299 P=604

a. Contingent liability arising from probable claim from a third party at fair value of P=1,100 millionwas recognized in January 2013 in relation to the acquisition of CIC which was accounted forunder PFRS 3. An indemnification asset was recognized in relation to such probable claim. Suchindemnification asset expired second quarter of 2015. As at December 31, 2016, the relatedliability has expired and/or has been settled such that the balance is nil.

b. Others include other incidental income.

25. Other Comprehensive Income

Other comprehensive income recognized in the consolidated statements of comprehensive incomeconsists of the following:

2017 2016 2015(In Millions)

Items to be reclassified to profit or loss insubsequent periods:Share in the OCI of an equity method

investee coming from (see Note 10):Change in fair value of AFS financial

assets P=350 (P=154) (P=1)Exchange differences on translation

of foreign operations 326 718 (330)Fair value changes in cash flow

hedges – – 46Change in fair value of AFS financial

assets 21 4 (81)Exchange differences on translation of foreign operations (310) (179) 156Fair value changes of cash flow hedges – – 4Income tax 95 55 (16)

Total (Carried Forward) 482 444 (222)

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2017 2016 2015(In Millions)

Total (Brought Forward) P=482 P=444 (P=222)Items not to be reclassified to profit or loss

in subsequent periods:Share in the actuarial gains (losses) on

defined benefit plans of equity methodinvestees (see Note 10) (594) 1,015 (116)

Re–measurement gains (losses) on definedbenefit plans (see Note 23) (400) 13 (14)

Income tax 46 (4) (3)(948) 1,024 (133)

(P=466) P=1,468 (P=355)

26. Income Tax

a. The Company’s deferred tax components as at December 31 are as follows:


Provisions P=183 P=401Accrued retirement cost and other accrued expenses 532 150Lease payable 120 120MCIT 19 15Excess of fair values over book values resulting from

business combination (4,742) (2,734)Timing difference in depreciation method (978) (792)Equity transaction (see Note 30) (725) (483)Debt issue cost (217) (107)Unamortized past service cost (32) (33)Unamortized foreign exchange losses capitalized

as service concession assets (18) (19)Improvement of facilities (4) (3)Others 71 27Net deferred tax liabilities (P=5,791) (P=3,458)

Reflected in the consolidated statement of financial position:


Deferred tax assets P=1,045 P=467Deferred tax liabilities (6,836) (3,925)

(P=5,791) (P=3,458)

Net movement recognized in:2017 2016 2015

(In Millions)Profit or loss (P=259) (P=67) (P=303)Equity (OCI and Equity reserve) (187) (23) (1)Deferred taxes acquired in business

combinations (1,887) − −(P=2,333) (P=90) (P=304)

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The deferred tax liability relating to the equity transaction pertains to the applicable tax on thefuture conversion of the Exchangeable Bond to MPHHI shares (see Note 30). The increase in thedeferred tax liability resulted from the impact of RA No. 10963 or the Tax Reform forAcceleration and Inclusion Act (TRAIN) which was signed into law on December 19, 2017 andtook effect January 1, 2018, making the new tax law enacted as of the reporting date. TheTRAIN increased the capital gains tax on sale of shares not traded in the local stock exchangefrom 10% to a flat rate of 15%.

The Company has the following temporary differences for which no deferred tax assets have beenrecognized since management believes that it is not probable that these will be realized in the nearfuture.


NOLCO P=9,455 P=7,179Provisions and other accruals 54 354MCIT 18 19

P=9,527 P=7,552

b. The Company has accumulated temporary difference amounting to P=1,203.7 million andP=575.8 million as at December 31, 2017 and 2016, respectively, arising from accumulated equityin net earnings and share in the OCI from its investment in DMT (see Note 10) for which nodeferred tax liability have been recognized. The accumulated equity in net earnings if paid out asdividends, would be subject to tax if remitted to the Company. An assessable temporarydifference exists but no deferred tax liability has been recognized as the investment in DMT isheld through a wholly owned intermediate holding company, AIF. All dividend proceeds inrespect of the investment in DMT shall be applied to repay the loan (see Note 18) and thus, AIFis not expected to distribute these profits for so long as the loan is outstanding.

c. As at December 31, 2017 and 2016, NOLCO of the Parent Company and various subsidiaries canbe carried forward and claimed as deduction from regular taxable income as follows:

Year Incurred Amount Acquisition Addition Expired Application Balance Expiry Year(In Millions)

2017 P=– P=– P=3,977 P=– P=– P=3,977 20202016 3,326 3 – – – 3,329 20192015 2,214 8 – – – 2,222 20182014 1,639 – – (1,639) – – 2017

P=7,179 P=11 P=3,977 (P=1,639) P=– P=9,528

d. The following carryforward benefits of MCIT can be claimed as tax credits against future incometaxes payable:

Year Incurred Amount Acquisition Addition Expired Application Balance Expiry Year(In Millions)

2017 P=– P=– P=16 P=– P=– P=16 20202016 6 2 – – – 8 20192015 11 2 – – – 13 20182014 17 – – (17) – – 2017

P=34 P=4 P=16 (P=17) P=– P=37

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e. The current provision for income tax for year ended December 31 consists of the following:

2017 2016 2015(In Millions)

RCIT P=5,226 P=4,004 P=1,404MCIT 70 5 30Final tax 94 82 88

P=5,390 P=4,091 P=1,522

f. The reconciliation of provision for income tax computed at the statutory income tax rate toprovision for income tax as shown in the consolidated statements of comprehensive income issummarized as follows:

2017 2016 2015(In Millions)

Income before income tax P=24,676 P=20,937 P=16,899Income tax at statutory tax rate of

30.0% P=7,403 P=6,281 P=5,070Net income under ITH 111 (2) (2,406)Share in net earnings of equity

method investees (2,414) (2,042) (1,504)Changes in unrecognized deferred

tax assets and others 593 1,068 556Effect of optional standard deduction (1,112) (1,128) (228)Various income subjected to lower

final tax rates - net (141) (92) (133)Final tax on interest income 94 82 88Nondeductible (nontaxable) expenses

(income) - net 1,043 (29) 230MCIT 70 5 30Application of NOLCO − 27 120Others 2 (12) 2

P=5,649 P=4,158 P=1,825

Optional Standard Deduction (OSD)On December 18, 2008, the BIR issued Revenue Regulation (RR) No. 16–2008, which implementedthe provisions of RA 9504 on OSD, which allowed both individual and corporate tax payers to useOSD in computing their taxable income. For corporations, they may elect a standard deduction in anamount equivalent to 40% of gross income, as provided by law, in lieu of the itemized alloweddeductions.

NLEX Corp opted to avail of the OSD for the taxable years 2017, 2016 and 2015.

Maynilad, with the expiration of its income tax holiday in December 2015, opted to avail of the OSDfor the taxable year 2017 and 2016. Also, with the expiration of its income tax holiday, Mayniladassessed its deferred tax accounts and concluded that the applicable tax rate for the expected recoveryand settlement of the deferred taxes is at the effective tax rate of 18% using OSD. Theremeasurement resulted in reduction of both the acquisition accounting deferred tax liability andMaynilad’s deferred tax asset amounting to P=1,062.0 million and P=324.0 million, respectively,recognized in the profit or loss for the year ended December 31, 2016.

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Income Tax HolidayMaynilad is registered with the Board of Investments (BOI) as an operator of water supply andsewerage system for the West Service Area on a pioneer status. Under the terms of the registration,Maynilad is subject to certain requirements, principally that of maintaining at least 60.0% Filipinoownership or voting equity. As a registered enterprise, Maynilad is entitled to certain tax and non–taxincentives, including Income Tax Holiday (ITH). Maynilad’s ITH incentives for the sales generatedfrom the operation of its three plants which substantially cover its total capacity, ended inDecember 2015. ITH incentive enjoyed by Maynilad amounted to P=2,405.9 million in 2015.

In 2016, LRMC was registered with the BOI for the modernization of the Existing System and theconstruction of the Cavite Extension. Under the BOI registration agreement, LRMC is entitled toITH for a period of three years from the indicated completion of the rehabilitation of the existingsystem beginning January 2018 and start of commercial operations of the Cavite Extension beginningApril 2021.

PEDC has two BOI registrations for its Phase I (164 MW) and Phase II (150 MW or PEDC 3)projects. As BOI registered entity, PEDC is entitled to several incentives including an ITH as apioneer entity (for Phase I) for four years from March 26, 2011, the actual start date of commercialoperations. PEDC has availed of a two-year ITH extension for the Phase I project until March 25,2017. On the other hand, the Phase II project (PEDC 3) is also entitled to ITH incentive as anexpansion entity for 3 years from August 1, 2016 or on the actual start date of commercial operations,whichever is earlier, but in no case earlier than the date of registration. ITH incentive enjoyed byPEDC amounted to P=272.9 million in 2017.

27. Earnings Per Share

The calculation of earnings per share for the years ended December 31 follows:

2017 2016 2015(In Millions, Except for Per Share Amounts)

Net income attributable to owners of theParent Company (a) P=13,151 P=11,456 P=9,546

Effect of cumulative dividends on preferredshareholders of the Parent Company (see Note 20) (b) (9) (7) (5)

Net income attributable to common ownersof the Parent Company (c) P=13,142 P=11,449 P=9,541

2017 2016 2015(In Millions, Except for Per Share Amounts)

Outstanding common shares at the beginningof the year P=31,504 P=27,885 P=26,046

Effect of issuance of common shares during the year 3 2,171 1,631Effect of share buy-back (see Note 20) – (8) –Weighted average number of common shares

for basic earnings per share (d) 31,507 30,048 27,677Effects of potential dilution from: ESOP (see Note 28) 21 28 19 Effect of share award (see Note 28) 10 7 –Weighted average number of common shares adjusted

for the effects of potential dilution (e) 31,538 30,083 27,696

Basic earnings per share (c/d) P=0.4171 P=0.3810 P=0.3447

Diluted earnings per share (c/e) P=0.4167 P=0.3806 P=0.3445

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Weighted average number of shares issued and outstanding is derived by multiplying the number ofshares outstanding at the beginning of the year, adjusted by the number of shares issued during theyear, with a time–weighting factor. The time–weighting factor is the number of days that thecommon shares are outstanding as a proportion to the total number of days in the year.

28. Share–based Payment

Executive Stock Option Plan (ESOP)On June 24, 2007, the shareholders of MPIC approved a share option scheme (the Plan) under whichMPIC’s directors may, at their discretion, invite executives of MPIC upon the regularization ofemployment of eligible executives, to take up share option of MPIC to obtain an ownership interest inMPIC and for the purpose of long–term employment motivation. The scheme became effective onJune 14, 2007 and is valid for 10 years. An amended plan was approved by the stockholders onFebruary 20, 2009.

As amended, the overall limit on the number of shares that may be issued upon exercise of all optionsto be granted and yet to be exercised under the Plan must not exceed 5.0% of the shares in issue fromtime to time.

The exercise price in relation to each option shall be determined by the Company’s CompensationCommittee, but shall not be lower than the highest of: (i) the closing price of the shares for one ormore board lots of such shares on the PSE on the option offer date; (ii) the average closing price ofthe shares for one or more board lots of such shares on the PSE for the five business days on whichdealings in the shares are made immediately preceding the option offer date; and (iii) the par value ofthe shares.

Second and Third Grants. MPIC allocated and set aside stock options relating to 145,000,000common shares, of which (a) a total of 94,300,000 common shares was granted to its newdirectors and senior management officers, as well as, members of the management committees ofcertain MPIC subsidiaries at the exercise price of P=2.73 per common share on July 2, 2010(the Second Grant) and (b) another 10,000,000 common shares was granted at the exercise priceof P=3.50 on December 21, 2010 to officers of Maynilad (the Third Grant A).

On March 8, 2011, 1,000,000 common shares were granted at the exercise price of P=3.53 tosenior management of Maynilad (the Third Grant B) and on April 14, 2011, another 3,000,000common shares was granted at the exercise price of P=3.66 to an MPIC officer (the ThirdGrant C).

In 2015, total option cost of the expired ESOP shares from Second Grant amounting toP=5 million was reclassified from “Equity reserves” to “Retained earnings”. Outstanding optionsunder the Second and Third Grants as at December 31, 2016 is at nil.

Fourth Grant. On October 14, 2013, MPIC made an ESOP grant (the Fourth Grant) consisting of112.0 million common shares, to its directors and senior management officers, as well as,members of the senior management of certain MPIC subsidiaries. The grant was approved by thePhilippine SEC on March 4, 2014. For the years ended December 31, 2017 and 2016, theweighted average remaining term to expiry for the share options outstanding is 0.8 years and1.8 years, respectively.

For the years ended December 31, 2017 and 2016, the weighted average share price of MPIC’scommon share is P=6.64 and P=6.41 per share, respectively. Total ESOP expense recognized in“Personnel cost” and “Equity reserve” amounted to nil, nil and P=21.0 million for the years endedDecember 31, 2017, 2016 and 2015 respectively.

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The following table illustrates the number of, exercise prices of, and movements in share options in2017 and 2016:

Second GrantTranche A Tranche B

Numberof shares

ExercisePrice

Numberof shares

ExercisePrice

Outstanding at January 1, 2015 21,000,000 P=2.73 7,060,000 P=2.73Exercised during the year (see Note 22) (17,000,000) 2.73 (5,825,000) 2.73Expired during the year (4,000,000) – (1,235,000) –Outstanding at December 31, 2015 – P=– – P=–

Third GrantTranche A Tranche B Tranche C

Numberof shares

Exerciseprice

Numberof shares

Exerciseprice

Numberof shares

Exerciseprice

Outstanding at January 1, 2015 3,500,000 P=3.50 – P=– 778,000 P=3.66Exercised during the year (see Note 22) (3,500,000) 3.50 – – (778,000) 3.66Expired during the period – – – – – –Outstanding at December 31, 2015 – P=– – P=– – P=–

Fourth GrantTranche A Tranche B

Numberof shares

ExercisePrice

Numberof shares

ExercisePrice

Outstanding at January 1, 2015 55,000,000 P=4.60 56,000,000 P=4.60Exercised during the year (see Note 20) – – – –Outstanding at January 1, 2016 55,000,000 P=4.60 56,000,000 P=4.60Exercised during the year (see Note 20) 42,475,000 4.60 – –Outstanding at December 31, 2016 12,525,000 P=4.60 56,000,000 P=4.60Exercised during the year (see Note 20) 6,700,000 4.60 – –Outstanding at December 31, 2017 5,825,000 P=4.60 56,000,000 P=4.60

Exercisable at:December 31, 2015 55,000,000 P=4.60 56,000,000 P=4.60December 31, 2016 12,525,000 4.60 56,000,000 4.60December 31, 2017 5,825,000 4.60 56,000,000 4.60

The fair value of the options granted is estimated at the date of grant using Black–Scholes–Mertonformula, taking into account the terms and conditions at the time the options were granted. Thefollowing tables list the inputs to the model used for the ESOP:

Second GrantTranche A Tranche B

50.0%vesting onJanuary 1,

2011

50.0%vesting onJanuary 1,

2012

30.0%vesting on

July 2,2011

35.0%vesting on

July 2,2012

35.0%vesting on

July 2,2013

Spot Price P=2.65 P=2.65 P=2.65 P=2.65 P=2.65Exercise price P=2.73 P=2.73 P=2.73 P=2.73 P=2.73Risk–free rate 4.16% 4.92% 4.61% 5.21% 5.67%Expected volatility* 48.33% 69.83% 69.27% 67.52% 76.60%Term to vesting in days 183 548 365 731 1,096Call price P=0.35 P=0.91 P=0.73 P=1.03 P=1.39

Third Grant Fourth GrantTranche A Tranche B Tranche C Tranche A Tranche B

30.0%vesting onAugust 1,

2011


2012


2013

30.0%vesting on

March 8,2012

35.0%vesting on

March 8,2013

35.0%vesting on

March 8,2014

50.0%vesting on

April 14,2012

50.0%vesting on

April 14,2013

50.0%vesting on

October 14,2014

50.0%vesting on

October 14,2015

Spot Price P=3.47 P=3.47 P=3.47 P=3.53 P=3.53 P=3.53 P=3.66 P=3.66 P=4.59 P=4.59Exercise price P=3.50 P=3.50 P=3.50 P=3.53 P=3.53 P=3.53 P=3.66 P=3.66 P=4.60 P=4.60Risk–free rate 1.62% 2.83% 3.73% 2.56% 4.38% 5.01% 2.05% 3.83% 0.66% 2.40%Expected volatility* 46.62% 68.23% 72.82% 39.32% 61.39% 64.42% 39.13% 60.76% 35.23% 33.07%Term to vesting in days 223 589 954 366 731 1,096 366 731 365 730Call price P=0.46 P=1.20 P=1.62 P=0.58 P=1.28 P=1.62 P=0.60 P=1.30 P=0.63 P=0.89

* 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 bethe actual outcome.

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Restricted Stock Unit Plan (RSUP)On July 14, 2016, the Compensation Committee of MPIC approved the RSUP as part of MPIC’sLTIP. The RSUP, which has a validity period of ten (10) years, replaced the Parent Company’sESOP, which will expire in 2018.

The RSUP is designed, among others, to reward the Directors and certain key officers of MPIC whocontribute to its growth to stay with MPIC for the long term. Under the RSUP, which shall have acycle of three (3) years starting 2016, MPIC, at its cost will reacquire MPIC common shares to beheld as treasury shares and reserved to be transferred to the Directors and key officers determined bythe Committee to be eligible to participate under the RSUP. Vested shares will be transferred in thename of the eligible participants on full vesting date, at no cost as provided under the RSUP.

The RSUP also limits the aggregate number of shares that may be subject to award to no more thanthree percent (3%) of the outstanding common shares of MPIC. For the first 3-year cycle(i.e., 2016 to 2018), MPIC will acquire up to 27.4 million common shares at such time and undersuch terms and conditions as the Committee may determine.

A total of 27,400,000 shares (Share Award) under the RSUP were granted for the LTIP cycle 2016 to2018. Fair value of the Share Award was determined using the market closing price of P=7.15 pershare on date of grant. One third (or 33.33%) of the share award vests every 31st of Decemberbeginning 2016 until fully vested by December 31, 2018.

In September 2016, a total of 23,970,000 MPIC common shares were reacquired (see Note 20).

Total Share Award expense for the year ended December 31, 2017 and 2016 amounted toP=66.7 million and P=67.0 million included in “Personnel costs” under “General and administrativeexpenses” account in the consolidated statements of comprehensive income.

29. Contingencies

Water

Rate Rebasing: 2013-2017

ƒ 2013-2017 Rate Rebasing - Domestic Arbitration. Metropolitan Waterworks and Sewerage(MWSS) released Board of Trustees Resolution No. 2013-100-RO dated September 12, 2013 andRegulatory Office (RO) Resolution No. 13-010-CA dated September 10, 2013 on the raterebasing adjustment for the rate rebasing period 2013 to 2017 (Fourth Rate Rebasing Period)reducing Maynilad’s 2012 average all-in basic water charge by 4.82% or P=1.46 per cubic meter(cu.m.) or P=0.29 per cu.m. over the next five years.

On October 4, 2013, Maynilad filed its Dispute Notice before the Appeals Panel. This DisputeNotice is a referral to the Appeals Panel for Major Disputes of the dispute between Maynilad, onthe one hand, and MWSS and the RO, on the other. The Dispute relates to the determination bythe RO, in accordance with Section 9.4.2 of the Concession Agreement, of the RebasingAdjustment as embodied in Resolution No. 13-010-CA.

On December 17, 2013, the RO released Resolution No. 13-011-CA regarding theimplementation of a status quo for Maynilad’s Standard Rates and Foreign Currency DifferentialAdjustments (FCDA) for any and all its scheduled adjustments until such time that the AppealsPanel has issued its arbitral award.

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On January 5, 2015, Maynilad officially received the Appeals Panel’s award datedDecember 29, 2014 upholding Maynilad’s alternative Rebasing Adjustment for the Fourth RateRebasing Period of 13.41% or its equivalent of P=4.06 per cu.m. (the “First Award”). Thisincrease has effectively been reduced to P=3.06 per cu.m., following the integration of the P=1.00Currency Exchange Rate Adjustment (CERA) into the basic water charge. To mitigate theimpact of the tariff increase on its customers, Maynilad offered to stagger its implementation overa three-year period.

The First Award, being final and binding on the parties, Maynilad asked the MWSS to cause itsBoard of Trustees to approve the 2015 Tariffs Table so that the same can be published andimplemented 15 days after its publication.

However, the MWSS and the RO have chosen, over Maynilad’s repeated objections, to defer theimplementation of the First Award despite it being final and binding on the parties. In its letterdated February 9, 2015, the MWSS and RO, who received their copy of the First Award onJanuary 7, 2015, informed Maynilad that they have decided to await the final outcome of theirarbitration with the other concessionaire, Manila Water, before making any officialpronouncements on the applicable resulting water rates for the two concessionaires.

ƒ 2013-2017 Rate Rebasing - International Arbitration.

On February 20, 2015, Maynilad wrote the Philippine Government, through the Department ofFinance (DOF), to call on the Undertaking which the Republic of the Philippines (ROP) issued infavor of Maynilad on July 31, 1997 and March 17, 2010. On March 9, 2015, Maynilad againwrote the ROP, through the DOF, to reiterate its demand against the Undertaking. The lettersdated February 20 and March 9, 2015 are collectively referred to as the “Demand Letters”.

Maynilad demanded that it be paid, immediately and without further delay, the P=3.4 billion inrevenue losses that it had sustained as a direct result of the MWSS’s and the RO’s refusal toimplement its correct Rebasing Adjustment from January 1, 2013 (the commencement of theFourth Rate Rebasing Period) to February 28, 2015.

On March 27, 2015, Maynilad served a Notice of Arbitration and Statement of Claim upon theROP, through the DOF. Maynilad gave notice and demanded that the ROP’s failure or refusal topay the amounts required under the Demand Letters be, pursuant to the terms of the Undertaking,referred to arbitration before a three-member panel appointed and conduct proceedings inSingapore in accordance with the 1976 United Nations Commission on International Trade Law(UNCITRAL) Arbitration Rules.

On April 21, 2015, the MWSS Board of Trustees in its Resolution No. 2015-004-CA datedMarch 25, 2015 approved to partially implement the First Award of a tariff adjustment ofP=0.64 per cu.m. which, net of the P=1.00 CERA, actually translates to a tariff adjustment ofnegative P=0.36 per cu.m. as opposed to the First Award of P=3.06 per cu.m. tariff adjustment, netof CERA. For being contrary to the First Award as well as the provisions of the ConcessionAgreement, Maynilad did not implement this tariff adjustment.

On May 14, 2015, the MWSS Board of Trustees in its Resolution No. 2015-060-RO approved a7.52% increase in the prevailing average basic charge of P=31.25 per cu.m. or an upwardadjustment of P=2.35 per cu.m. as Consumer Price Index adjustment . With the discontinuance ofCERA, the net adjustment in average water charge is 4.32% or P=1.35 per cu.m.

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In the fourth quarter of 2015, the Arbitral Tribunal was constituted. On February 17, 2016,Maynilad again wrote the ROP, through the DOF, to reiterate its demand against the Undertakingand to update its claim. Evidentiary hearings were completed in December 2016.

On July 24, 2017, the Arbitral Tribunal unanimously upheld the validity of Maynilad’s claimagainst the Undertaking Letter issued by the ROP, through the DOF, to compensate Maynilad forthe delayed implementation of its relevant tariffs for the Fourth Rate Rebasing Period (“SecondAward”). The Tribunal ordered the ROP to reimburse Maynilad the amount of P=3.4 billion forlosses from March 11, 2015 to August 31, 2016, without prejudice to any rights that Mayniladmay have to seek recourse against MWSS for losses incurred from January 1, 2013 toMarch 10, 2015. Further, the Tribunal ruled that Maynilad is entitled to recover from theRepublic its losses from September 1, 2016 onwards. In case a disagreement on the amount ofsuch losses arises, Maynilad may revert to the Tribunal for further determination.

Subsequently, Maynilad agreed with the corrected computation by the ROP of Maynilad’srevenue losses from March 11, 2015 to August 31, 2016 in the amount of P=3.18 billion (with costof money as of August 31, 2016). As at December 31, 2017 and 2016, Maynilad’s accumulatedrevenue losses due to the delayed implementation of the First Award are estimated atP=11.4 billion and P=8.2 billion, respectively.

Starting April 22, 2017, adjusted water rates which included increase in the FCDA, as well as anadjustment to cover the 1.9% Consumer Price Index were implemented.

On February 13, 2018, Maynilad received an email from the ROP’s Singapore counsel advisingthat the Republic has filed an application with the High Court of Singapore to set aside theSecond Award dated July 24, 2017 (the “Setting Aside Application”).

An electronic copy of the Setting-Aside Application was served on Maynilad’s Singapore counselon February 15, 2018.

Maynilad filed its Reply Affidavits in respect of SUM 749 (Republic’s interlocutory applicationfor sealing) on March 1, 2018.

ƒ 2013-2017 Rate Rebasing - Domestic Court Actions. In a decision dated August 30, 2017, theRegional Trial Court, Branch 93 of Quezon City (“RTC”) granted the Petition for Confirmationand Enforcement of the First Award which petitioner, Maynilad, filed in July 2015 (the“Decision”) following the refusal of MWSS and the MWSS Regulatory Office to implement theFirst Award. As mentioned above, the First Award upheld the 13.41% Rebasing Adjustment thatMaynilad proposed for the Fourth Rate Rebasing Period.

The MWSS filed a Motion for Reconsideration of the Decision (“MR”). The RTC denied theMR in an Order dated November 23, 2017. Subsequently, MWSS filed a Petition for Reviewwith the Court of Appeals (“CA”) on December 27, 2017 asking for a reversal of the RTC’sDecision. Maynilad filed our Comment to the Petition for Review and in that Comment,Maynilad prayed for the dismissal of the Petition for Review and for the immediate enforcementof the Decision and the First Award.

As a consequence of the issuance of the Decision, Maynilad filed, on October 18, 2017, a Motionfor Execution of the First Award (“MotEx”). However, the RTC, on February 6, 2018, denied theMotEx.

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As at March 1, 2018, the management cannot determine with reasonable certainty the probableoutcome of the discussions with the Government with respect to the implementation of the SecondAward. As such, the consolidated financial statements do not include any adjustments that mightresult from arbitration proceeding.

Rate Rebasing: 2018-2022. On March 31, 2017, Maynilad submitted a five-year business plan to theRO for the new rate rebasing covering the years 2018 to 2022. As at March 1, 2018, Maynilad is inconstructive and collaborative dialogue with the RO.

Disputes with MWSS. In prior years, Maynilad has been contesting certain charges billed by MWSSrelating to: (a) the basis of the computation of interest; (b) MWSS cost of borrowings; and (c)additional penalties. Consequently, Maynilad has not provided for these additional charges. Thesedisputed charges were effectively reflected and recognized by Maynilad as Tranche B ConcessionFees amounting to US$30.1 million by virtue of the Debt and Capital Restructuring Agreement(DCRA) entered into in 2005. Maynilad also paid US$6.8 million in 2005 as an additional amount ofTranche B Concession Fees determined by the Receiver. As at December 31, 2015 and 2014,Maynilad had recognized Tranche B Concession Fees of US$36.9 million.

Maynilad reconciled its liability to MWSS with the confirmation and billings of MWSS. Thedifference between the amount confirmed by MWSS and the amount recognized by the Mayniladamounted to P=5.1 billion as at December 31, 2017 and 2016, respectively. The difference mainlypertains to disputed claims of MWSS consisting of additional Tranche B Concession Fees, borrowingcost and interest penalty under the Concession Agreement (prior to the DCRA). Maynilad’s positionon these charges is consistent with the Receiver’s recommendation which was upheld by theRehabilitation Court.

Following the issuance of the Rehabilitation Court’s Order on December 19, 2007 disallowing theMWSS’ disputed claims and the termination of Maynilad’s rehabilitation proceedings, Maynilad andMWSS sought to resolve the matter in accordance with the dispute resolution requirements of theTransitional and Clarificatory Agreement (TCA).

Prior to the DCRA, Maynilad has accrued interest on its payable to MWSS based on the terms of theConcession Agreement, which was disputed by MWSS before the Rehabilitation Court. Thesealready amounted to P=985.3 million as at December 31, 2011 and have been charged to interestexpense in prior years. Maynilad maintains that the accrued interest on its payable to MWSS hasbeen adequately replaced by the Tranche B Concession Fees discussed above. Maynilad’s position isconsistent with the Receiver’s recommendation which was upheld by the Rehabilitation Court. Withthe prescription of the TCA and in light of Maynilad’s outstanding offer of US$14.0 million to fullysettle the claim of MWSS, Maynilad reversed the amount of accrued interest in excess of the US$14.0million settlement offer. The remaining balance of P=607.2 million as at December 31, 2017 and2016, which pertains to the disputed interest penalty under the Concession Agreement prior toDCRA, has remained in the books pending resolution of the remaining disputed claims of MWSS.

Real Property Taxes Assessment. On October 13, 2005, Maynilad and Manila Water Company, Inc.(the Concessionaires) were jointly assessed by the Municipality of Norzagaray, Bulacan for realproperty taxes on certain common purpose facilities purportedly due from 1998 to 2005 amounting toP=357.1 million. It is the position of the Concessionaires that these properties are owned by the ROPand therefore, exempt from taxation.

The supposed joint liability of the Concessionaires for real property tax, including interests, as atDecember 31, 2017 and 2016 amounted to P=1.0 billion.

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After the Local Board of Assessment Appeals (LBAA) ruled in favor of the Municipality ofNorzagaray, Bulacan, the Concessionaires elevated the ruling of the LBAA to the Central Board ofAssessment Appeals (CBAA) by filing separate appeals. As at March 1, 2018, the case is stillpending.

Others. Maynilad is a party to various civil and labor cases relating to breach of contracts withdamages, illegal dismissal of employees, and nonpayment of backwages, benefits and performancebonus, among others. Other disclosures required by PAS 37 were not provided as it may prejudiceMaynilad’s position in on–going claims, litigations and assessments.

Toll Operations

Toll Rate Adjustments - NLEX Corp. NLEX Corp, as petitioner-applicant, filed the followingpetitions for the approval of Periodic Toll Rate Adjustment (PTRA) with the Toll Regulatory Board(TRB) praying for the adjustments of the toll rates:

ƒ In June 2012, for the NLEX PTRA effective January 1, 2013 (2012 Petition);ƒ In September 2014, for NLEX PTRA effective January 1, 2015 (2014 Petition); andƒ In September 2016, for the PTRA for the NLEX and SCTEX effective January 1, 2017 (2016

Petition).

In August 2015, NLEX Corp wrote the ROP, acting by and through the TRB, a Final Demand forCompensation based on overdue toll rate adjustments that should have been effective January 1, 2013and January 1, 2015 (Final Demand). However, the ROP/TRB failed to heed on the Final Demandand as such, NLEX Corp sent a Notice of Dispute to the ROP/TRB dated September 11, 2015invoking STOA Clause 19 (Settlement of Disputes). STOA Clause 19.1 states that the parties shallendeavor to amicably settle the dispute within sixty (60) calendar days. The TRB sent several lettersto NLEX Corp requesting the extension of the amicable settlement period. However, NLEX Corphas not received any feasible settlement offer from the ROP/TRB.

Accordingly, on April 4, 2016, NLEX Corp was compelled to issue a Notice of Arbitration andStatement of Claim (Notice of Arbitration) to the ROP, acting by and through the TRB, consistentwith STOA Clause 19 in order to preserve its rights under the STOA.

In May 2016, TRB through Office of the Solicitor General (OSG) nominated their arbitrator forNLEX and their preferred venue for arbitration. In a letter dated June 1, 2016, NLEX Corp proposedthat the arbitration be held in Singapore which is the seat of arbitration that the ROP has chosen forits various PPP projects, and proposed the Singapore International Arbitration Center as theAppointing Authority. In a letter dated July 13, 2016, the ROP, acting by and through the OSG,stated that it accepts Singapore as the venue of arbitration, but reiterated its previous proposal that aPhilippine-based institution/person be the Appointing Authority.

Under the SCTEX Toll Operations Agreement, toll rate adjustment petitions shall be filed with theTRB yearly. Prior to NLEX Corp’s take-over of the SCTEX operations, the Bases Conversion andDevelopment Authority (BCDA) filed petitions for toll rate adjustment that should have beeneffective in 2012, 2013, 2014, and 2016. Thereafter, in September 2016, NLEX Corp, as petitioner-applicant, filed a petition for toll rate adjustment effective January 1, 2017.

On June 27, 2017, the initial case management conference was held in Singapore. As ofDecember 31, 2017, total amount of compensation for TRB’s inaction on lawful toll rate adjustmentsfor NLEX and SCTEX, are approximately at P=6.4 billion (VAT exclusive; net of Government shareat P=6.0 billion) and P=1.9 billion (VAT exclusive; net of Government share at P=1.0 billion),respectively.

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NLEX is in constructive discussions with Government to resolve these tariff matters.

On October 18, 2017, The TRB provisionally approved the P=0.25/km Petition for Add-on Toll rateadjustment for the NLEX Closed System in relation with the Company’s investment on the NLEXLane Widening Project. The Company started collecting the add-on toll rate adjustment onNovember 6, 2017.

Toll Rate Adjustments - CIC. CIC filed the following petitions for the approval of the PTRA with theTRB:

ƒ On the R-1 Expressway:o In September 2011, for the PTRA effective January 1, 2012 (2011 Petition);o In September 2014, for the PTRA with an Application for Provisional Relief with toll rates

effective January 1, 2015 (2014 Petition); ando In November 2016, for the PTRA effective January 1, 2017 (2016 Petition).

ƒ On R-1 Extension:o In September 2013, for the PTRA effective January 1, 2014 (2013 Petition);o In September 2016, for the PTRA effective January 1, 2017 (2016 Petition).

In August 2015, for failure to implement toll rate adjustments, CIC filed notices with the TRBdemanding settlement of the past due tariff increases amounting to P=719.0 million based on theoverdue toll rate adjustments as at July 31, 2015 for the CAVITEX.

In April 2016, CIC issued a Notice of Arbitration and Statement of Claim to the ROP, acting by andthrough the TRB, consistent with the dispute resolution procedures under its Toll OperationAgreement (TOA) to obtain compensation in the amount of P=877 million (as of March 27, 2016) forTRB’s inaction on lawful toll rate adjustments which were due January 1, 2012, January 1, 2014, andJanuary 1, 2015. Singapore shall be the venue of arbitration. In February 2017, CIC received noticefrom the Permanent Court of Arbitration that the authority who will appoint the chairperson of theArbitration Panel has been designated.

As at March 1, 2018, CIC has yet to receive regulatory approval for all the petitions filed on thePTRA. CIC, however, is in constructive discussions with Government to resolve this.

As of December 31, 2017, total amount of compensation for TRB’s inaction on lawful toll rateadjustments which were due since January 1, 2012 for both R1 and R1-Extension is approximately atP=1.3 billion (VAT-exclusive and net of PRA share).

Value-Added Tax (VAT). In view of RMC 39-2011, NLEX Corp started imposing VAT on toll feesfrom motorists and correspondingly started recognizing VAT liability on October 1, 2011. Throughall the years that the issues of VAT are being discussed, NLEX Corp received the following VATassessments:

ƒ NLEX Corp received a Formal Letter of Demand from the BIR on March 16, 2009 requestingNLEX Corp to pay deficiency VAT plus penalties amounting to P=1,010.5 million for taxable year2006.

ƒ NLEX Corp received a Final Assessment Notice from the BIR dated November 15, 2009,assessing NLEX Corp for deficiency VAT plus penalties amounting to P=557.6 million for taxableyear 2007.

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ƒ NLEX Corp received a Notice of Informal Assessment from the BIR dated October 5, 2009,assessing NLEX Corp for deficiency VAT plus penalties amounting to P=470.9 million for taxableyear 2008.

ƒ On May 21, 2010, the BIR issued a Notice of Informal Conference assessing NLEX Corp fordeficiency VAT plus penalties amounting to P=1.0 billion for taxable year 2009.

ƒ On June 11, 2010, NLEX Corp filed its position paper with the BIR reiterating its claim that it isnot subject to VAT on toll fees.

On April 3, 2014, the BIR accepted and approved the NLEX Corp’s application for abatement andissued a Certificate of Approval for the cancellation of the basic output tax, interest and compromisepenalty amounting to P=1,010.5 million and P=584.6 million for taxable years 2006 and 2007,respectively.

Notwithstanding the foregoing, management believes, in consultation with its legal counsel, that inany event, the STOA among NLEX Corp, ROP, acting by and through the Toll Regulatory Board(TRB), and Philippine National Construction Corporation (PNCC), provides NLEX Corp with legalrecourse in order to protect its lawful interests in case there is a change in existing laws, which makesthe performance by NLEX Corp of its obligations materially more expensive.

Real Property Tax. NLEX Corp has filed several Petitions for Review under Section 226 of the LocalGovernment Code with the LBAA of the Province of Bulacan on July 15, 2008 and April 16, 2013,seeking to declare as null and void certain tax assessments and tax declarations issued by theProvincial Assessor of the Province of Bulacan. The said tax declarations were issued in the name ofNLEX Corp as owner of the NLEX and categorizing the NLEX as a commercial property, subject toreal property tax. As at September 18, 2013, the total amount of tax assessed by the Province ofBulacan against NLEX Corp was P=304.9 million. The LBAA has yet to determine whether saidproperties in fact covers portions of the NLEX, which NLEX Corp argues are part of the publicdomain and exempt from real property tax.

On September 27, 2013, the Bureau of Local Government Finance of the Department of Finance(DOF–BLGF) wrote a letter to the Province of Bulacan advising it to hold in abeyance any furthercourse of action pertaining to the alleged real property tax delinquency. On October 4, 2013, theProvincial Treasurer of Bulacan has respected the directive from the DOF–BLGF to hold theenforcement of any collection remedies in abeyance. In January 2017, the provincial treasurer ofBulacan issued a notice of realty tax delinquencies for the years 2006 to 2017 stating that it couldapply the remedies provided under the law for the collection of delinquent taxes.

The outcome of the claims on real property tax cannot be presently determined. The management ofNLEX Corp believes that these claims will not have a significant impact on the Company’sconsolidated financial statements and believes that the STOA also provides NLEX Corp with legalrecourse in order to protect its lawful interests in case there is a change in existing laws which makesthe performance by NLEX Corp of its obligations materially more expensive.

Others. The companies in the toll operations segment are also parties to other cases and claimsarising from the ordinary course of business filed by third parties, which are either pending decisionsby the courts or are subject to settlement agreements. The outcome of these claims cannot bepresently determined. In the opinion of management and its legal counsel, the eventual liability fromthese lawsuits or claims, if any, will not have a material adverse effect on the Company’sconsolidated financial statements.

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Power

4th Regulatory Period Reset Application. MERALCO was among the first entrants to thePerformance-Based Regulation (PBR). Rate setting under PBR is governed by the Rules for SettingDistribution Wheeling Rates (RDWR). The PBR scheme sets tariffs based on the regulated asset baseof the Distribution Utility (DU), and the required operating and capital expenditures once everyregulatory period (RP), to meet operational performance and service level requirements responsive tothe need for adequate, reliable and quality power, efficient service, growth of all customer classes inthe franchise area as approved by the Energy Regulatory Commission (ERC). PBR also employs amechanism that penalizes or rewards a DU depending on its network and service performance. Ratefilings and setting are done every RP where one RP consists of four regulatory years. A regulatoryyear (RY) begins on July 1st and ends on June 30th of the following year.

MERALCO’s 3rd RP ended on June 30, 2015. The 4th RP for Group “A” entrants commenced onJuly 1, 2015 and shall end on June 30, 2019. To initiate the reset process, the ERC posted in itswebsite on April 12, 2016, the following draft issuance for comments, to wit:

ƒ Draft “Rules for Setting Distribution Wheeling Rates for Privately Owned DistributionUtilities Operating under Performance Based Regulation, First Entry Group: FourthRegulatory Period”;

ƒ Draft “Position Paper: Regulatory Reset for the July 1, 2015 to June 30, 2019 FourthRegulatory Period for the First Entry Group of Privately Owned Distribution Utilities subjectto Performance Based Regulation”; and

ƒ Draft “Commission Resolution on the Issues on the Implementation of PBR for PrivatelyOwned DUs under the RDWR”.

Under ERC Resolution No. 25, Series of 2016 dated July 12, 2016, the ERC promulgated aResolution modifying the Rules for Setting Distribution Rates (“RDWR”) for Privately-OwnedDistribution Utilities Entering Performance Based Regulation (“PBR”).

An initial hearing was originally set by the ERC for January 9, 2017 and all interested parties were tofile their comments on the Petition by December 26, 2016.

Subsequently, however, the ERC reset the hearing to January 23, 2017 and deadline for filingcomments was January 23, 2017. MERALCO filed its Comment to the Petition on January 9, 2017.Hearings were scheduled on May 15 and June 21, 2017. The ERC Order for the date of the nextpublic consultation is pending.

In a Notice dated November 16, 2016, the ERC approved the draft “Regulatory Asset Base (“RAB”)Roll Forward Handbook for Privately Owned Electricity Distribution Utilities (DUs)” (RABHandbook) for posting in its website. All interested parties were given until December 19, 2016 tosubmit their respective comments to the draft RAB Handbook. Thereafter, during the publicconsultation on January 9, 2017, the parties were given until February 9, 2017 to file their commentsto the draft RAB Handbook. In an Omnibus Motion filed on February 9, 2017, MERALCOsubmitted its initial comments to the draft RAB Handbook but moved for the deferment of theproceedings until the consumer group Petition has been resolved. As at March 1, 2018, the ERC hasyet to resolve MERALCO’s Omnibus Motion.

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MERALCO also files with the ERC its applications for over/under-recoveries of pass-through costs.These consist mainly of differential generation, transmission and system loss charges technicallyreferred to as over/under-recoveries, which are refundable/recoverable from the customers, as allowedby law.

Interim Average Rate for RY 2016. On June 11, 2015, MERALCO filed its application for theapproval of a proposed Interim Average Rate of P=1.3939 per kWh and translation thereof into ratetariffs by customer category. On July 10, 2015, the ERC provisionally approved an Interim AverageRate of P=1.3810 per kWh and the rate translation per customer class, which was reflected in thecustomer bills starting July 2015. MERALCO has completed the presentation of its evidence and isset to file its Formal Offer of Evidence (FOE) after the ERC rules on pending motions. As atMarch 1, 2018, the ERC’s ruling on these motions is pending.

Capital Expenditures (“CAPEX”) for RY 2016. Absent the release by the ERC of the final rules togovern the filing of its 4th RP Reset, MERALCO filed on February 9, 2015 an application forapproval of authority to implement its CAPEX program for RY 2016 (July 1, 2015 to June 30, 2016)pursuant to Section 20(b) of Commonwealth Act No. 146, as amended, otherwise known as thePublic Service Act. On June 15, 2016, MERALCO received a copy of the ERC Decision datedApril 12, 2016 which partially approved MERALCO’s CAPEX program for RY 2016 amounting toP=15.5 billion out of the total RY 2016 CAPEX of P=17.7 billion, subject to certain conditions. Anintervenor has filed a Motion for Reconsideration (MR) of the Decision which is pending before theERC. On July 25, 2016, MERALCO has filed its opposition to the Motion for Reconsideration. As atMarch 1, 2018, the ERC ruling on the MRs is pending.

CAPEX for RY 2017. On March 8, 2016, MERALCO filed an application for approval of authority toimplement its CAPEX program for RY 2017 (July 1, 2016 to June 30, 2017) pursuant to the PublicService Act. On July 26, 2016, MERALCO received the Order dated May 5, 2016, which partiallyapproved MERALCO’s CAPEX program for RY 2017 amounting to P=8.8 billion out of the total RY2017 CAPEX of P=15.4 billion, subject to certain conditions. On August 16, 2016, MERALCO filed aMotion for Partial Reconsideration on the requirement to submit an accounting of the depreciationfund. Hearings on the application have been completed. On September 14, 2016, MERALCO filed aMotion for Resolution. Subsequently, on April 25, 2017, MERALCO filed a Very Urgent Motion forResolution of the application. Thereafter, on October 18, 2017, MERALCO filed a Manifestation andUrgent Motion for Resolution. On November 9, 2017, MERALCO filed a Manifestation with ThirdUrgent Motion to Resolve the Application. As at March 1, 2018, MERALCO is awaiting the finaldecision of the ERC.

CAPEX for RY 2018. On April 3, 2017, MERALCO filed an application for approval of authority toimplement its CAPEX program for RY 2018 (July 1, 2017 to June 30, 2018) pursuant to the PublicService Act. On May 26, 2017, MERALCO received the Order dated May 15, 2017, which set thecase for initial hearing. Hearings were conducted on June 22 and August 1, 2017, August 25, 2017and September 22, 2017. A conference was also conducted with the ERC technical staff and theintervenor on October 12, 2017. On November 9, 2017, MERALCO filed its FOE. As at March 1,2018, the case is submitted for decision.

Supreme Court (SC) Temporary Restraining Order (TRO) on December 2013 Increase in MERALCOBilling Rate. On December 9, 2013, the ERC gave clearance to the request of MERALCO toimplement a staggered collection over three (3) months covering the December 2013 billing monthfor the increase in generation charge and other bill components such as value added tax, localfranchise tax, transmission charge, and system loss charge. The generation costs for the November2013 supply month increased significantly because of the aberrant spike in the Wholesale ElectricitySpot Market (WESM) charges on account of the non-compliance with WESM Rules by certain plants

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resulting in significant power generation capacities not being offered and dispatched, and thescheduled and extended shutdowns, and the forced outages, of several base load power plants, and theuse of the more expensive liquid fuel or bio-diesel by the natural gas-fired power plants that wereaffected by the Malampaya Gas Field, shutdown from November 11 to December 10, 2013.

On December 19, 2013, several party-list representatives of the House of Representatives filed aPetition against MERALCO, ERC and the DOE before the SC, questioning the ERC clearancegranted to MERALCO to charge the resulting price increase, alleging the lack of hearing and dueprocess. It also sought for the declaration of the unconstitutionality of the Electric Power IndustryReform Act (EPIRA), which essentially declared the generation and supply sectors competitive andopen, and not considered public utilities. A similar petition was filed by a consumer group andseveral private homeowners associations challenging also the legality of the Automatic GenerationRate Adjustment (AGRA) that the ERC had promulgated. Both petitions prayed for the issuance ofTRO, and a Writ of Preliminary Injunction.

On December 23, 2013, the SC consolidated the two (2) Petitions and granted the application forTRO effective immediately and for a period of 60 days, which effectively enjoined the ERC andMERALCO from implementing the price increase. The SC also ordered MERALCO, ERC and DOEto file their respective comments to the Petitions. Oral Arguments were conducted on January 21,2014, February 4, 2014 and February 11, 2014. Thereafter, the SC ordered all the Parties to theconsolidated Petitions to file their respective Memorandum on or before February 26, 2014 afterwhich the Petitions will be deemed submitted for resolution of the SC. MERALCO complied withsaid directive and filed its Memorandum on said date.

On February 18, 2014, acting on the motion filed by the Petitioners, the SC extended for another 60days or until April 22, 2014, the TRO that it originally issued against MERALCO and ERC lastDecember 23, 2013. The TRO was also similarly applied to certain generating companies, theNGCP, and the Philippine Electricity Market Corporation (PEMC; the administrator of WESM andmarket operator) who were all enjoined from collecting from MERALCO the deferred amountsrepresenting the P=4.15 per kWh price increase for the November 2013 supply month.

In the meantime, on January 30, 2014, MERALCO filed an Omnibus Motion with Manifestation withthe ERC for the latter to direct PEMC to conduct a re-run or re-calculation of the WESM prices forthe supply months of November to December 2013. Subsequently, on February 17, 2014,MERALCO filed with the ERC an Application for the recovery of deferred generation costs for theDecember 2013 supply month praying that it be allowed to recover the same over a six (6)-monthperiod.

On March 3, 2014, the ERC issued an Order voiding the Luzon WESM prices during the Novemberand December 2013 supply months on the basis of the preliminary findings of its Investigating Unitthat these are not reasonable, rational and competitive, and imposing the use of regulated rates for thesaid period. PEMC was given seven (7) days upon receipt of the Order to calculate these regulatedprices and implement the same in the revised WESM bills of the concerned DUs in Luzon. PEMC’srecalculated power bills for the supply month of December 2013 resulted in a net reduction of theDecember 2013 supply month bill of the WESM by P=9.3 billion. Due to the pendency of the TRO, noadjustment was made to the WESM bill of MERALCO for the November 2013 supply month. Thetiming of amounts to be credited to MERALCO is dependent on the reimbursement of PEMC fromassociated generator companies. However, several generating companies have filed motions forreconsideration questioning the Order dated March 3, 2014. MERALCO has filed a consolidatedcomment to these motions for reconsideration. In an Order dated October 15, 2014, the ERC deniedthe motions for reconsideration. The generating companies have appealed the Orders with the CA

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where the petitions are pending. MERALCO has filed a motion to intervene and a comment inintervention in the petition filed by a generating company and shall file similar pleadings in the casesfiled by the other generators.

In view of the pendency of the various submissions before the ERC and mindful of the complexitiesin the implementation of ERC’s Order dated March 3, 2014, the ERC directed PEMC to provide themarket participants an additional period of 45 days to comply with the settlement of their respectiveadjusted WESM bills. In an Order dated May 9, 2014, the parties were then given an additional non-extendible period of 30 days from receipt of the Order within which to settle their WESM bills.However, in an Order dated June 6, 2014 and acting on an intervention filed by Angeles ElectricCorporation, the ERC deemed it appropriate to hold in abeyance the settlement of PEMC’s adjustedWESM bills by the market participants.

On April 22, 2014, the SC extended indefinitely the TRO issued on December 23, 2013 andFebruary 18, 2014 and directed generating companies, NGCP and PEMC not to collect fromMERALCO. As at March 1, 2018, the SC has yet to resolve the various petitions filed againstMERALCO, ERC, and DOE.

ERC and DOE Resolutions on Retail Competition and Open Access Prohibiting the Operations of theLocal Retail Electricity Supply business segment. On March 8, 2016, the ERC promulgatedResolution No. 05 Series of 2016 entitled “A Resolution Adopting the 2016 Rules Governing theIssuance of Licenses to Retail Electricity Suppliers (RES) and Prescribing the Requirements andConditions Therefor”. The Resolution removed the term Local RES as one of the entities that mayengage in the business of supplying electricity to the Contestable Market without need of obtaining alicense therefor from the ERC. Moreover, while an affiliate of a DU is allowed to become a RES, theallowance is “subject to restrictions imposed by the ERC on market share limits and the conduct ofbusiness activities”.

On May 12, 2016, the ERC issued Resolutions No. 10 and 11, Series of 2016, which:

ƒ Provided for Mandatory contestability. Failure of a Contestable Customer to switch to RESupon date of mandatory contestability (December 26, 2016 for those with average demand ofat least one (1) MW and June 26, 2017 for at least 750 MW) shall result in the physicaldisconnection from the DU system unless it is served by the Suppliers of Last Resort (SOLR,or, if applicable, procures power from the WESM);

ƒ Prohibits DUs from engaging in the Supply of electricity to the Contestable Market except inits capacity as a SOLR;

ƒ Mandates Local RESs to wind down their supply businesses within a period of three (3)years;

ƒ Imposes upon all RESs, including DU-affiliate RESs, a market-share cap of 30% of the totalaverage monthly peak demand of all contestable customers in the competitive retailelectricity market; and,

ƒ Prohibits RESs from transacting more than 50% of the total energy transactions of its Supplybusiness, with its affiliate Contestable Customers.

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On May 27, 2016, MERALCO filed a Petition before Pasig RTC, praying that : (a) a TRO andsubsequently a Writ of Preliminary Injunction (“WPI”) enjoining the DOE and ERC fromimplementing the Assailed Rules be issued; and the Assailed Rules be declared null and void forbeing contrary to the EPIRA and its IRR. In an Order dated July 13, 2016, RTC-Pasig granted aWPI, which became effective on July 14, 2016, and shall be effective for the duration of the pendencyof the Petition.

Meanwhile, ERC filed a Petition for Certiorari and Prohibition with prayer for TRO and/or WPIbefore the SC (“SC Petition”), which asserted that RTC-Pasig has no jurisdiction to take cognizanceof MERALCO’s Petition, citing Sec. 78 of the EPIRA. A similar petition was subsequently filed bythe DOE before the SC.

On October 10, 2016, the SC, in relation to the Petition filed by DOE, issued a TRO that restrained,MERALCO, the RTC Pasig, their representatives, agents or other persons acting on their behalf fromcontinuing the proceedings before the RTC Pasig, and from enforcing all orders, resolutions anddecisions rendered in Special Civil Action No. 4149 until the petition before the SC is finallyresolved. In a Resolution dated November 9, 2016, the SC denied MERALCO’s MR.

On November 2, 2016, in relation to the Petition filed by the ERC, the SC issued a Resolution datedSeptember 26, 2016, which partially granted the ERC Petition. While the SC allowed the RTC toproceed with the principal case of declaratory relief, it nonetheless issued a Preliminary MandatoryInjunction (“PMI”) against RTC Pasig to vacate the preliminary injunction it previously issued, andPreliminary Injunction (“PI”) ordering the RTC Pasig to refrain issuing further orders and resolutionstending to enjoin the implementation of EPIRA. On November 14, 2016, MERALCO filed a Motionfor Partial Reconsideration with Very Urgent Motion to lift PMI/ PI.

On November 24, 2016, the ERC promulgated a resolution moving the contestability date of endusers with an average monthly peak demand of at least one (1) MW from December 31, 2016 toFebruary 26, 2017.

On January 17, 2017, MERALCO, through counsel, received an SC Resolution dated December 5,2016, which consolidated the SC DOE Petition with the SC ERC Petition. The same resolution alsodenied the Motion for Partial Reconsideration filed by MERALCO.

In relation to the ERC and DOE Petitions, a separate Petition for Certiorari, Prohibition andInjunction was filed by Philippine Chamber of Commerce and Industry (“PCCI”), San Beda CollegeAlabang, Inc., Ateneo de Manila University and Riverbanks Development Corporation. In saidPetition PCCI et. al sought to declare as null and void, as well as to enjoin the DOE and ERC fromimplementing DOE Circular No. 2015-06- 0010, Series of 2015, ERC Resolution Nos. 5, 10, 11 and28, Series of 2016. Acting on the Petition, the Supreme Court en banc through a Resolution datedFebruary 21, 2017, issued a TRO enjoining the DOE and the ERC from implementing DOE CircularNo. 2015-06- 0010 Series of 2015, ERC Resolution Nos. 5, 10, 11 and 28 Series of 2016. Pursuant tothe foregoing, PEMC has taken the position that the TRO enjoined the voluntary contestability of 750kW to 999 kW customers and has not allowed them to switch to the contestable market. The DOE, ina press release, has advised that it is in the process, together with PEMC and ERC, of drafting ageneral advisory for the guidance of RCOA stakeholders. The PCCI petition was consolidated withtwo other separate petitions filed by Siliman University and several distribution utilities. The DOEand ERC have also filed a consolidated comment on these petitions.

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On November 29, 2017, the DOE issued two (2) DOE Circulars, namely, DC 2017-12-0013, entitled,Providing Policies on the Implementation of RCOA for Contestable Customers in the PhilippineElectric Power Industry and DC 2017-12-0014, entitled Providing Policies on the Implementation ofRCOA for RES in the Philippine Electric Power Industry. The DOE Circulars became effective onDecember 24, 2017.

Under the DOE Circular No. DC 2017-12-0013, it is provided that voluntary participation forcontestable customers under RCOA Phase 2 shall now be allowed upon effectivity of the saidCircular, while voluntary participation of contestable customers with a monthly average peak demandof 50 kW to 749 kW for preceding 12 months and demand aggregation for electricity end-userswithin a contiguous area with an aggregate average peak demand of not less than 500 kW for thepreceding 12-month period, will also be allowed by June 26, 2018 and December 26, 2018,respectively.

On December 22, 2017, MERALCO wrote ERC and DOE seeking guidance on the impact of theDOE Circulars in the light of the TRO issued by the SC. The DOE responded on January 18, 2018that there is no legal impediment to the implementation of the DOE Circulars but it defers to the OSGfor guidance on the legal aspect of the issuances. The ERC has yet to respond to MERALCO’s letter.

Others. MERALCO and its subsidiaries are subject to various pending or threatened legal actions inthe ordinary course of business which, if the conclusion is unfavorable to MERALCO andsubsidiaries, may result in the payout of substantial claims and/or the adjustment of electricitydistribution rates. These contingencies substantially represent the amounts of claims related to acommercial contract which remains unresolved and local taxes being contested. Other disclosuresrequired by PAS 37 were not provided as it may prejudice MERALCO’s position in on–going claims,litigations and assessments.

Rail

Claims with Grantors. In accordance with Schedule 5 of the LRT-1 Concession Agreement(see Note 30), LRMC is entitled to claim ESR costs and LRV shortfall, fare deficit, SDR costs andGrantor’s compensation payment. As at March 1, 2018, LRMC has submitted 10 letters (first to tenthBalancing Payments) to the DOTr representing its claims.

All claims are still undergoing discussion as at March 1, 2018.

Others

Donor’s Tax. NOHI received on January 14, 2011 a Final Assessment Notice (FAN) demanding thepayment of approximately P=170.2 million as deficiency donor’s tax (comprising of the basic tax dueand 25% surcharge) on the excess of the book value over the selling price of several shares of stock inBonifacio Land Corporation (BLC) which NOHI sold to a third party. The assessment was based onthe finding of the Bureau of Internal Revenue–Large Taxpayer Service (BIR–LTS) that thetransaction is subject to donor’s tax as a “deemed gift” transaction under Section 100 of the 1997National Internal Revenue Tax Code (the Tax Code).

On February 14, 2011, NOHI filed its formal protest to the FAN raising several factual and legalarguments. However, this was denied by the BIR through the letter it has delivered to NOHI statingits Final Decision on Disputed Assessment (FDDA). NOHI then filed a Petition for Review with theSecond Division of the Court of Tax Appeals (CTA) to challenge the FDDA.

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On May 4, 2016, the CTA En Banc promulgated its decision, which was received on May 13, 2016,denying the company’s Petition for Review dated October 21, 2014 and affirming the adversedecision of the Second Division of the Court dated June 11, 2014 and Resolution of the SecondDivision dated September 16, 2014 which denied NOHI's Motion for Reconsideration. OnOctober 28, 2016, NOHI received a copy of the Resolution of the CTA En Banc datedOctober 18, 2016 denying NOHI’s Motion for Reconsideration.

On December 12, 2016, NOHI filed with the SC the required Petition for Review as appeal from thedecision and resolution of the CTA En Banc. On March 14, 2017, NOHI received a copy of theResolution dated January 23, 2017 of the Supreme Court denying NOHI’s Petition for Review on thedecision of the Court of Tax Appeals en banc which affirmed the decision of the CTA SecondDivision ordering NOHI to pay donor’s tax. On March 28, 2017, NOHI filed a Motion forReconsideration on the aforesaid Resolution of the Supreme Court. On October 3, 2017, NOHIreceived the Resolution dated July 26, 2017 of the SC denying the Motion for Reconsideration.

Indemnity. Under the agreement relating to the repayment of a certain loan signed between NOHI,Ayala Land Inc. (ALI) and Greenfield Development Corp. (GDC) on April 17, 2003, certainobligations/warranties by NOHI will remain outstanding for certain periods ranging from one to threeyears and covered by security arrangements. Under the agreement, NOHI shall indemnify ALI andGDC to the extent of NOHI’s derivative share in BLC/ Fort Bonifacio Development Corporation(FBDC) for certain secured indemnity obligations and other obligations resulting from any breach ofwarranties and representations.

ALI and GDC have formally advised NOHI in their letter dated September 19, 2003 that they areallocating the pledge of 5.0% interest of NOHI in BLC and a condominium unit in Pacific PlazaTower for possible payment of secured indemnity obligations enumerated in their letter. Totalestimated indemnity amounts to P=434.1 million, determined based on certain possible taxes that wereactually claimed by ALI and GDC within the warranty period, which expired onApril 17, 2007.

In September 2009, NOHI sold 2,603,708 shares out of the 5% interest in BLC pledged to ColumbusHoldings, Inc. (Columbus), a company jointly owned by ALI and GDC, at an agreed purchase priceof P=158.0 per share for a total consideration of P=411.4 million. No gain was recognized on the salepending Supreme Court judgment on the ongoing documentary stamp tax claim against FBDC inwhich case and in the event of an unfavorable judgment against FBDC, the total proceeds from thesale will be returned to Columbus. Consequently, NOHI recognized an additional provisionamounting to P=54.8 million in 2009 for liability equivalent to the unrealized gain. Thus, totalprovision for warranties and guarantees amounted to P=488.9 million (see Note 16).

On June 26, 2013, NOHI was informed that the Supreme Court rendered judgment in favor of FBDC.On August 9, 2016, NOHI received release from the guarantee undertaking from Columbusprompting the reversal of the provision amounting to P=488.9 million (see Note 16).

30. Significant Contracts, Agreements and Commitments

Issuance of Exchangeable Bond to GIC Private Limited (GIC). On July 2, 2014, GIC, through ArranInvestment Private Limited, invested P=3.7 billion for a 14.4% stake in MPHHI and paidP=6.5 billion as consideration for an Exchangeable Bond which can be exchanged into a 25.5% stakein MPHHI in the future. The Exchangeable Bond was accounted for as an equity instrument with theinterest accruing on the Exchangeable Bond recorded at its present value.

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Interest payable as at December 31, 2017 and 2016 amounted to P=119.2 million and P=137.9 million,respectively. Deferred tax liability with respect to the future conversion of the Exchangeable Bond toMPHHI shares, amounting to P=725.0 million and P=483.3 million as at December 31, 2017 and 2016,respectively, was also recognized against equity (see Note 26).

Operating Lease Commitments - Company as Lessee. The Company leases various offices, land,warehouses, vehicles, equipment and others under non-cancellable operating leases. The leases havevarying terms, escalation clauses and are renewable under certain terms and conditions to be agreedupon by the parties.

Total rent expense (included in accounts “Cost of sales and services” and “General and administrativeexpenses”) for the above operating leases amounted to P=494 million, P=296 million andP=89 million in 2017, 2016 and 2015, respectively.

Future minimum operating lease payments as at December 31 are:

Period Covered 2017 2016(In Millions)

Not later than one year P=467 P=158More than one year and not later than five years 899 473More than five years 272 326

Project for the Rehabilitation, Operation, and Maintenance of the Ninoy Aquino International Airport(“NAIA”). On December 21, 2017, MPIC agreed to form a consortium with Aboitiz InfraCapitalInc., AC Infrastructure Holdings Corporation, Alliance Global Group Inc., AEDC, FilinvestDevelopment Corporation and JG Summit Holdings Inc. for the rehabilitation, operation, andmaintenance of the NAIA through an unsolicited proposal which was submitted to the Department ofTransportation on February 12, 2018.

The project is estimated to cost up to P=350 billion over the life of its concession. The project isdivided into two phases – Phase 1 includes improvements and expansion of terminals in the currentNAIA land area, while Phase 2 involves the development of an additional runway, taxiways,passenger terminals and associated support infrastructure.

Power

Long Term Coal Supply Agreements. In order to ensure that there is an adequate supply of coal tooperate the power plants, GBPC enters into long-term Coal Supply Agreements with selected localand foreign suppliers:

ƒ Semirara Mining Corporation, for a period of 10 years effective April 2010 and November 2010for the combined supply of 700,000 metric tons of coal per year to CEDC and PEDC’s powerplants, respectively. CEDC and PEDC guarantees to purchase from Semirara the said quantity ata base price that is subject to adjustments provided in the agreement.

ƒ PT Adaro Indonesia, for a period of 2 years effective January 1, 2017 (renewable only untilDecember 31, 2019) for the supply of coal to CEDC’s power plant which was later amended toinclude the power plant of TPC. The total quantity of coal to be delivered per year shall be300,000 metric tons with an option to call 50,000 metric tons per calendar year.

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ƒ Samsung C & T, for a period of 5 years effective February 2016 for the supply of 300,000 metrictons of coal on the first year, 500,000 metric tons in 2017 and 750,000 metric tons starting 2018onwards to PEDC, CEDC and with an option to supply TPC as the need arises.

ƒ PT Sakti Nusantara Bakti, for a period of 10 years effective April 2017 for the supply of 150,000metric tons of coal per year to PEDC 3 power plant.

Coal prices under the agreements are generally indexed to Global Newcastle Coal prices and areadjusted if the guaranteed coal qualities are not met but within the rejection limits. These coalqualities include calorific value, moisture, sulphur, ash and volatile matter.

Transfer of transmission facilities to the National Grid Corporation of the Philippines (NGCP). InFebruary 2017, a Deed of Sale was executed between the generating subsidiaries of GBPC, namelyPEDC, TPC and CEDC, and the NGCP on the transfer of transmission facilities based on the initiallist of assets as appraised by a third party appraiser. The transfer is expected to be completed upondetermination of the Final Appraisal Cost from the Final Appraisal Report by the same third partyappraiser within the first quarter of calendar year 2018. The carrying value of the assets to betransferred to NGCP was presented as “Assets held for sale” in the consolidated statement offinancial position as at December 31, 2017.

Final Acceptance of PEDC 3. In 2014, GBPC’s subsidiary, Panay Energy Development Corporationbegan the construction of PEDC 3 in its existing Panay Coal Plant Facility in Barangay Ingore, LaPaz, Iloilo City. PEDC 3 is registered with the Board of Investments (BOI) under BOI RegistrationNumber 2014-110 on July 22, 2014. PEDC declared commercial operations of its 150 MWExpansion Plant on January 26, 2017 in accordance with the terms and conditions of its PowerSupply Agreements. The Project Completion Date of PEDC 3 is expected to be achieved early 2018subject to completion of the rectification works by the EPC contractor.

Market Participation Agreement (MPA). GBPC, through its power generation companies, sellselectricity through its bilateral power supply agreements or the WESM. In 2011, GBPC’ssubsidiaries and the PEMC entered into an MPA setting forth the terms and conditions for theeligibility of the entities to participate in the WESM and which allows electricity to be injected into orwithdrawn from the Grid. For the year ended December 31, 2017, GBPC and subsidiaries have salesfrom WESM transactions that amounted to P=1,532.9 million while purchased power from the WESMamounted to P=1,113.6 million.

Integrated Solid Waste Management Facility Project (ISWM Project). In March 2017, theconsortium consisting of MPIC, Covanta Energy, LLC and Macquarie Group, Ltd. has been grantedOriginal Proponent Status (OPS) by The Quezon City Government to design, construct, finance, andoperate an ISWM Project. The ISWM facility will be capable of processing and converting up to3,000 metric tons per day of Quezon City’s municipal solid waste into 42MWe of renewable energy,enough to power between 60,000 to 90,000 homes. The ISWM Project will be undertaken through aJoint Venture between QC LGU and the consortium in accordance with QC LGU Ordinance: No. SP-2336, s. 2014 (QC PPP Code).

As the original proponent of the ISWM Project, the consortium will have the exclusive rights to enterinto detailed negotiations with the QC LGU. Upon successful completion of negotiations, the ISWMProject will be subjected to a competitive challenge consistent with government regulations. If andwhen the consortium is awarded the ISWM Project, development and construction would takeapproximately three (3) to four (4 years). It is expected that this project will be funded through acombination of debt and equity.

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Toll Operations

Concession Agreements. Aside from the payment of concession fees (see Note 17), other significantcommitments under or that are related to the concession agreements follow:

Commitments under the Connector Road Concession Agreement. During the concession period,NLEX Corp shall pay for the project overhead expenses to be incurred by the DPWH and the TRB inthe process of their monitoring, inspecting, evaluating and checking the progress and quality of theactivities and works undertaken by NLEX Corp. NLEX Corp’s liability for the payment of theproject overhead expenses due to TRB shall not exceed P=50.0 million and the liability for thepayment of the project overhead expenses due the DPWH shall not exceed P=200.0 million; provided,that these limits may be increased in case of inflation, or in case of additional work due to aconcessionaire variation that will result in an extension of the construction period or concessionperiod, upon mutual agreement of the parties in the concession agreement.

PNCC. PNCC is a non–controlling stockholder in NLEX Corp. In consideration of the assignmentby PNCC of its usufructuary rights, interests and privileges under its franchise, PNCC is entitled toreceive payment equivalent to 6% and 2% of the toll revenues from the NLEX and Segment 7,respectively. Any unpaid balance carried forward will accrue interest at the rate of the latestPhilippine 91-day Treasury bill rate plus 1% per annum. This entitlement, as affirmed in theAmended and Restated Shareholders’ Agreement (ARSA) dated September 30, 2004, shall besubordinated to operating expenses and the requirements of the financing agreements and shall bepaid out subject to availability of funds.

The PNCC franchise expired in May 2007. On April 12, 2011, the SC issued a resolution directingNLEX Corp to remit PNCC’s share in the net income from toll revenues to the National Treasury andthe TRB, with the assistance of the Commission on Audit (COA), was directed to prepare and finalizethe implementing rules and guidelines relative to the determination of the net income remittable byPNCC to the National Treasury.

In accordance with the TRB directive, 90% of the PNCC fee and dividends payable are to be remittedto the TRB, while the balance of 10% to PNCC.

O&M Agreement for the CAVITEX. Pursuant to the TOA covering the CAVITEX, PRA establishedPEATC, its wholly owned subsidiary, to undertake the O&M obligations of PRA under the TOA.PEATC shall collect the toll fees from the toll paying traffic and deposit such collections to the O&MAccount maintained with a local bank.

On November 14, 2006, CIC, PRA and TRB entered into an O&M Agreement to clarify and amendcertain rights and obligations under the JVA and TOA covering the CAVITEX. Included in thesalient provisions of the O&M Agreement is the revenue sharing provision between PRA and CIC.PRA shall receive 8.5% of gross toll revenue while CIC shall receive 91.5% of the gross toll revenueand will absorb all O&M costs and expenses. The share of PRA shall be increased by 0.5% everyperiodic toll rate adjustment under the TOA but not to exceed 10.0% of gross toll revenue at any onetime during the repayment period of the loan.

Upon repayment in full of the loans and interest costs, advances, capital investment and the return ofequity, CIC and PRA shall share at the ratio of 40.0% and 60.0%, respectively, as originally agreedupon under the JVA.

The current share of PRA based on gross revenue is 9.0% while CIC’s share is 91.0% which tookeffect on the last toll rate adjustment on January 1, 2009.

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Construction Contract for NLEX Segment 10. On April 28, 2014, NLEX Corp signed a target costconstruction contract with Leighton Contractors (Asia) Ltd. (LCAL) for the construction of NLEXSegment 10. The contract structure is collaborative in nature and provides a risk and reward sharingmechanism if the actual construction cost exceeds or falls below the agreed target. LCAL’s performanceobligations under the contract are backed up by: (i) a bank–issued irrevocable stand–by letter of credit,(ii) cash retention, and (iii) a guarantee issued by Leighton Asia Limited.

On May 8, 2014, NLEX Corp issued the notice to proceed to LCAL, signaling the start ofpre–construction activities. Pursuant to the contract, NLEX Corp placed a reserve amount ofP=889 million in an escrow account on July 28, 2014 to cover payment default leading to suspension ofworks. This reserve amount is included in the “Restricted cash” account presented as noncurrent assetsin the consolidated statements of financial position as at December 31, 2016. Pursuant to the EscrowAgreement, NLEX Corp exercised its option to reduce the escrow account. The new minimum balanceis the amount equal to the forecast of LCAL’s maximum committed costs over any given seven (7)weeks from the relevant Calculation Date until the forecast Completion Date plus a reasonablecontingency allowance as agreed upon by both parties.

As at December 31, 2017, construction of Segment 10 is expected to be completed by first half of 2018and as such, release of the reserve amount is expected within the same period. The restricted cashtherefore has been reclassified to current restricted cash as at December 31, 2017.

Merger between NLEX Corp and TMC. On October 19, 2016, the BOD of NLEX Corp approved theproposed merger between NLEX Corp and TMC, with NLEX Corp as the surviving corporation. OnNovember 17, 2016, majority of the stockholders of NLEX Corp confirmed and ratified the proposedmerger between MNTC and TMC, with MNTC as the surviving corporation. As the survivingcorporation, NLEX Corp’s corporate existence shall continue and shall: (a) acquire all respective rights,businesses, assets and other properties of TMC, and (b) assume all the debts and liabilities of TMC.

The execution of the merger shall be subject to regulatory approvals, including the PhilippineCompetition Commission, and shall take effect 15 days from and after the approval by the Securities andExchange Commission of the Articles of Merger and the issuance of Filing of the Articles of Merger.The merger is expected to be completed by the second half of 2018.

Water

Contracts. In relation to Maynilad’s Concession Agreement (see Note 1), Maynilad entered into thefollowing contracts with Manila Water (the “East Concessionaire”):

a. Interconnection Agreement wherein the two Concessionaires shall form an unincorporated jointventure that will manage, operate, and maintain interconnection facilities. The terms of theagreement provide, among others, the cost and the volume of water to be transferred betweenzones; and,

b. Common Purpose Facilities Agreement that provides for the operation, maintenance, renewal,and, as appropriate, decommissioning of the Common Purpose Facilities, and performance ofother functions pursuant to and in accordance with the provisions of the Concession Agreementand performance of such other functions relating to the concession (and the concession of theEast Concessionaire) as Maynilad and the East Concessionaire may choose to delegate to theJoint Venture, subject to the approval of MWSS.

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Commitments under the Concession Agreement. Significant commitments under the ConcessionAgreement follow:

a. Payment of concession fees (see Note 17)

b. Posting of performance bond

Under Section 6.9 of the Concession Agreement, Maynilad is required to post a performancebond to secure the performance of its obligations under certain provisions of the ConcessionAgreement.

The aggregate amount drawable in one or more installments under such performance bond duringthe Rate Rebasing Period to which it relates is set out below.

Rate Rebasing Period

Aggregate AmountDrawable Under

Performance Bond(In Millions)

First (August 1, 1997 – December 31, 2002) US$120.0Second (January 1, 2003 – December 31, 2007) 120.0Third (January 1, 2008 – December 31, 2012) 90.0Fourth (January 1, 2013 – December 31, 2017) 80.0Fifth (January 1, 2018 – May 6, 2022) 60.0

Within 30 days from the commencement of each renewal date, Maynilad shall cause theperformance bond to be reinstated to the full amount set forth above applicable for the year.

In connection with the extension of the term of Maynilad’s Concession Agreement(see Note 1), certain adjustments to the obligation of Maynilad to post the performance bondunder Section 6.9 of the Concession Agreement have been approved and summarized as follows:

ƒ The aggregate amount drawable in one or more installments under each performance bondduring the Rate Rebasing Period to which it relates has been adjusted to US$30.0 millionuntil the Expiration Date;

ƒ The amount of the Performance Bond for the period covering 2023 to 2037 shall be mutuallyagreed upon in writing by the MWSS and Maynilad consistent with the provisions of theConcession Agreement.

ƒ Maynilad posted the Surety Bond for the amount of US$90.0 million issued by PrudentialGuarantee and Assurance, Inc. (the Surety) in favor of MWSS, as security for Maynilad’sproper and timely performance of its obligations under the Concession Agreement. OnDecember 6, 2012, Maynilad renewed the Surety Bond for the amount of US$80.0 millionissued by the Surety in favor of MWSS. The liability of the Surety under this bond willexpire on December 31, 2017.

c. Payment of half of MWSS and MWSS–RO’s budgeted expenditures for the subsequent years,provided the aggregate annual budgeted expenditures do not exceed P=200.0 million, subject toCPI adjustments. Beginning 2010, the annual budgeted expenditures shall increase by 100.0%,subject to CPI adjustments, as a result of the extension of the life of the Maynilad’s concessionagreement.

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d. To meet certain specific commitments in respect to the provision of water and sewerage servicesin 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 consistentwith the National Building Standards and best industrial practices so that, at all times, the waterand sewerage system in the West Service Area is capable of meeting the service obligations (assuch obligations may be revised from time to time by the MWSS–RO following consultation withMaynilad).

f. To repair and correct, on a priority basis, any defect in the facilities that could adversely affectpublic 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 resourcesavailable to meet its obligations under the Concession Agreement.

h. Non–incurrence of debt or liability that would mature beyond the term of the ConcessionAgreement, without the prior notice of MWSS.

Failure of Maynilad to perform any of its obligations under the Concession Agreement of a kindor to a degree which, in a reasonable opinion of the MWSS–RO, amounts to an effectiveabandonment of the Concession Agreement and which failure continues for at least 30 days afterwritten notice from the MWSS–RO, may cause the Concession Agreement to be terminated.

Pampanga Bulk Water Supply Project. On August 31, 2017, MPW officially received the Certificateof Acceptance, and the conferment of the Original Proponent Status for the Pampanga Bulk WaterSupply Project from the Office of the Governor of Pampanga. MPW is currently in detailednegotiations with the Province for the Project. Upon successful completion of negotiations, theproject will be subjected to competitive challenge consistent with the Code.

Cagayan de Oro 100 MLD Bulk Water Supply Project (CDO BWS Project). On August 14, 2017,MPW signed a joint venture agreement with the Cagayan de Oro Water District (COWD) for theformation of a joint venture company to undertake the supply of bulk treated water to address therequirements Cagayan de Oro City. The CDO BWS Project covers the (i) the delivery of at least 40MLD of bulk treated water within the eastern sector of Cagayan De Oro, and (ii) the supply at least60 MLD of bulk treated water to service the requirements of the western sector in accordance withthe bulk water supply agreement. At COBI’s option, the CDO BWS Project may be implementedthrough (i) the design and construction of water production and transmission facilities with a capacityof approximately 100 MLD, (ii) the acquisition of ownership or leasehold rights to such productionand transmission facilities and water rights, or (iii) the purchase of bulk treated water for supply to thewestern sector. The project has a term of 30 years (renewable for another 20 years subject to certainconditions). Operations commenced on December 31, 2017.

Metro Iloilo Water District Water (MIWD) Concession Joint Venture Project. OnDecember 20, 2017, MPW officially received from Metro Iloilo Water District the Notice of Awardfor the rehabilitation, operation, maintenance, and expansion of MIWD’s existing water distributionsystem and construction of wastewater facilities. MPW and MIWD shall enter into a joint ventureagreement (JVA) upon completion of the post award activities. A joint venture corporation shall beorganized pursuant to the provisions set in the JVA. The joint venture corporation shall implement theproject including the right to bill and collect tariff for the water supply and wastewater servicesprovided to the customers in the service area of MIWD. The project cost for the duration of the25-year concession is estimated at P=12.35 billion, with an initial equity investment of P=600.00 millionin 2018.

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MIWD’s service area includes Iloilo City and seven municipalities specifically Pavia, Oton, Maasin,Cabatuan, Sta. Barbara, Leganes, and San Miguel. As at March 1, 2018, the incorporation of the jointventure corporation and the completion of conditions for the execution of Project Agreement areongoing.

Healthcare

Lease agreements. The following companies entered into the following lease agreements:

ƒ In 2009, CVHMC with the Roman Catholic Archbishop of Manila (RCAM) for the hospitalassets (consisting of land, building, improvements, machineries, equipment and trademark) ofCardinal Santos Medical Center (CSMC);

ƒ In 2010, EMHMC with Our Lady of Lourdes Hospital, Inc. (OLLHI) and Servants of the HolySpirit, Inc. (SSpS) covering Our Lady of Lourdes Hospital (OLLH) properties and improvementsand the operations and management of OLLH; and

ƒ In 2015, MPZHC with Western Mindanao Medical Center, Inc. covering the land and hospitalbuilding.

The leases of EMHMC and CVHMC are for periods of 20 years, renewable for successive periods of10 years upon the mutual consent of both parties. The lease of MPZHC is for a period of 20 yearsand may be renewed under terms and conditions mutually acceptable.

These leases were accounted for as acquisition of a business in accordance with PFRS 3(see Notes 11 and 15).

As consideration for the lease agreement, MPZHC pays fixed fees which shall escalate yearly asindicated in the lease agreement. As consideration for the lease agreement, EMHMC and CVHMCpay fixed and variable monthly rates, where the variable rate is based on the prior year’s net revenues.

Lease payments under the arrangements disclosed above are as follows:

2017 2016Fixed Variable Total Fixed Variable Total

(In Millions)Not later than one year P=58 P=78 P=136 P=57 P=74 P=131More than one year and not later

than five years 255 354 609 247 336 583More than five years 502 879 1,381 568 981 1,549Total lease payments 815 1,311 2,126 872 1,391 2,263Less amount representing interest 1,026 1,148Present value of lease obligation P=1,100 P=1,115

The lease agreement with OLLHI included a Capital Expenditure (CAPEX) program, whereinEMHMC commits to invest, by way of capital expenditures of at least P=350.0 million to improve anddevelop OLLH, no later than November 1, 2015. As at June 2015, the EMHMC has complied withits commitment of P=350.0 million capital expenditures.

CVHMC has a commitment to make a Capital Expenditure in CSMC amounting to at leastP=750.0 million (CAPEX Commitment) no later than the 10th anniversary of the Agreement, with atleast P=250.0 million of which shall be spent over a period of three years, and with majority spent asCAPEX for Expansion and Development no later than the 10th anniversary of the closing date of theagreement. In the event that CVHMC fails to make or infuse the commitment in the amounts andwithin the period stated, CVHMC shall deposit in escrow such deficiency in an account to bedetermined by both parties. CVHMC has infused P=1,983.1 million and P=1,630.7 million to theCapital Expenditure program as at December 31, 2017 and 2016, respectively.

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Rail

Project for the Rehabilitation, Operations and Maintenance of the Metro Rail Transit 3 (MRT-3Project). In September 2017, MPIC was granted the original proponent status for the rehabilitation,operations and maintenance of the MRT-3. The proposal consists of the full and comprehensiverehabilitation of MRT-3 and its operation and maintenance under a 30-year concession. Therehabilitation plan includes rail replacement, rehabilitation of signaling equipment, station upgrades,and the overhaul and eventual new replacement of existing LRVs. As original proponent of theProject, MPIC will have exclusive rights to enter negotiations with the Government in relation to theproposal. Detailed negotiations ongoing as at March 1, 2018. Upon successful completion ofnegotiations, the MRT-3 Project will be subjected to a swiss challenge consistent with therequirements of the Build-Operate-Transfer Law and its implementing rules.

Claims with Grantors. Aside from the payment of concession fees (see Note 17), other significantcommitments under or that are related to the concession agreement follow:

The Section 5 of the LRT-1 Concession Agreement provides for conditions and mechanisms that willensure and thereby compel the parties to fulfill their obligations in relation to LRT-1 Concession. Inthe event of failure to meet the conditions set forth therein, the parties to the agreement are accordedwith rights, including rights to compensation from the party/parties in breach. For the LRMC as theConcessionaire, the LRT-1 Concession Agreement provides for the following claims from theGrantors:

ƒ ESR costs. LRMC is entitled to be compensated for the unavoidable incremental cost that LRMCwill incur to restore the Existing System to the level necessary to meet all of the baseline ExistingSystem Requirements, taking into consideration any Emergency Upgrade Contract executed bythe Grantors for the same purpose, if the Existing System does not meet the ESR as certified bythe Independent Consultant (IC).

ƒ SDR costs. LRMC is entitled to compensation for the cost incurred for restoration of theStructural Defect as certified by an IC which shall be the aggregate of the approved RestorationCost in the Structural Defects Notice and any incremental cost approved by the IC.

ƒ LRV shortfall. If the Grantors do not make available a minimum of one hundred (100) light railvehicles or the system is not able to operate to a cycle time of no more than one hundred and six(106) minutes, or a combination of the two on the Effective Date, then LRMC is entitled toreceive a compensation from the Grantors based on the formula and procedures provided for inthe LRT-1 Concession Agreement.

ƒ Fare Deficit/Surplus. The fare deficit/surplus pertains to the difference between the Approvedand Notional Fare, as follows:

a) If Approved Fare is less than the Notional Fare, there is a deficit payment or a receivablefrom the Grantors;

b) If Approved Fare is more than the Notional Fare, there is a surplus payment or payable toGrantors.

The Approved Fare is the maximum fare that the Concessionaire is authorized to charge pursuantto Sections 20.3b and/or 30.4 of the LRT-1 Concession Agreement. Whereas, the Notional Fare isthe agreed base fare provided in the LRT-1 Concession Agreement that should have been ineffect upon turnover of the LRT-1 operation.

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ƒ Grantors’ Compensation Payment. The Grantors shall be liable to provide compensation toLRMC if LRMC is delayed in the completion of the Railway Infrastructure and Railway SystemWorks or is prevented from operating any part of the System or incurs additional cost or loss ofrevenue by reason of:a) Material Adverse Government Actionb) Grantors Delay Eventc) Subject to Sec. 5.3(b) Grantors Obligations, the failure of the Existing System to meet the

Existing System Requirement on the Effective Dated) Any other cause in respect of which the LRT-1 Concession Agreement provides for the

provision of Grantors compensation

Under Section 20.6 of the LRT-1 Concession Agreement, all these claims are expressed to be paidthrough the quarterly “Balancing Payments”.

IC for the Concession. In September 2015, DOTr and LRMC have engaged Egis Rail – EgisInternational – Getinsa Ingenieria SL – Infra Consultants of the Philippines – Heldig Teknik Inc. JointVenture as IC to carry out the duties and obligations ascribed in the Concession Agreement. Thisincludes, but not limited to, monitor, inspect and keep informed the state and progress of remedialworks, issue certification of compliance with the existing system requirements, and conduct annualaudit of the quality control documentation. The fees and expenses of the IC shall be paid 50% by theGrantors and 50% by the LRMC.

LRMC Non-Rail Activities. In November 2015, LRMC granted PHAR Singapore Pte. Ltd theexclusive right to generate ancillary revenue from all agreed commercial activities (i.e., advertising,partnerships, and sponsorships) within the existing LRT 1 system. The effectivity of granted rightscommenced on February 1, 2016 and will be in effect for a period of 10 years. LRMC earns a profitshare from these revenues in exchange for the rights granted.

LRMC also has operating lease agreements as a lessor with various companies for retail space rentaland interconnection services. These agreements cover periods ranging from two (2) months to 21years.

Rent income, interconnection and advertising fees earned relevant to these agreements amounted toP=96.9 million, P=75.5 million and P=17.4 million in 2017, 2016 and 2015, respectively, and areincluded under “Others” in the consolidated statements of comprehensive income (see Note 24).

Escrow Agreement. On October 20, 2014, pursuant to the requirements of the LRT-1 ConcessionAgreement, DOTr, LRTA, LRMC, the initial shareholders of LRMC (namely AC Infra, MPLRC andMIHPL) and Security Bank as Escrow Agent entered into a Share Escrow Agreement.

Under the Share Escrow Agreement, each of the initial shareholders delivers to the Share EscrowAgent original stock certificates representing all of their respective equity interests in LRMC. Suchshares would be held in escrow until the third anniversary of the Extension Completion Date asdefined under the LRT-1 Concession Agreement.

Consultancy and Advisory Fees. In October 2014, LRMC entered into offshore and onshore technicaladvisory service agreements with RATP Developpement SA and RATP Dev Manila, Inc. in relationto the LRT-1 Project. Scope of work includes providing regular reviews of the operation andmaintenance of the LRT 1 with respect to the overall performance of the system, operations andmaintenance budget, ridership data and Baseline System Plan.

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Rehabilitation of Existing System. On March 21, 2017, LRMC entered into a two-year agreementwith First Balfour, Inc. for its Structural Restoration Project which includes the parapets, faultyconcrete and repair of river bridges of the LRT-1 Existing System. The notice to proceed was signedand issued on March 17, 2017. In line with this project, LRMC also signed an IndependentContractor Agreement with ESCA Incorporated for the expertise and services necessary in managingthe Structural Restoration Project with First Balfour, Inc.

The structural restoration project is 26.49% complete as at December 31, 2017.

Construction of the LRT-1 Cavite Extension. On February 11, 2016, LRMC signed an EPCAgreement for the construction of LRT-1 Cavite Extension with Bouygues Travaux PublicsPhilippines Inc., Alstom Transport S.A. and Alstom Transport Construction Philippines Inc. whichcommenced upon the Grantors’ issuance of the Permit to Enter certificate.

The Existing System Works and Cavite Extension are on design phase as at March 1, 2018.

31. Assets Held in Trust

Materials and SuppliesMaynilad has the right to use any item of inventory owned by MWSS in carrying out itsresponsibility under the Maynilad Concession Agreement (see Note 1), subject to the obligation toreturn the same at the end of the concession period, in kind or in value at its current rate, subject toCPI adjustments.

FacilitiesMaynilad had been granted the right to operate, maintain in good working order, repair,decommission and refurbish the movable properties required to provide the water and sewerageservices under the Maynilad Concession Agreement (see Note 1). MWSS shall retain legal title to allmovable properties in existence at the commencement date on August 1, 1997. However, uponexpiration of the useful life of any such movable property as may be determined by Maynilad, suchmovable properties shall be returned to MWSS in its then–current condition at no charge to MWSS orMaynilad (see Note 13).

The concession agreement also provides Maynilad and the East Concessionaire to have equal accessto MWSS facilities involved in the provision of water supply and sewerage services in both West andEast Service Areas including, but not limited to, the MWSS management information system, billingsystem, 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 P=7.3 billion with a sound value of P=13.8 billion.

MWSS’ corporate headquarters are made available to Maynilad and the East Concessionaire for aone–year period beginning on the commencement date, subject to yearly renewal with the consent ofthe parties concerned. As at December 31, 2017, the lease has been renewed for another year. Rentexpense related to these properties amounted to P=41.0 million in 2017 and P=38.0 million in 2016 and2015.

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32. Financial Risk Management Objectives and Policies

The Company’s principal financial instruments consist mainly of borrowings from related parties andthird party creditors, proceeds of which were used for the acquisition of investments and in financingoperations. The Company has other financial assets and financial liabilities such as cash and cashequivalents, short–term deposits, receivables, accounts payable and other current liabilities, serviceconcession fees payable and other related party transactions which arise directly from the Company’soperations. The Company also holds AFS financial assets.

The main risks arising from the Company’s financial instruments are credit risk, liquidity risk,interest rate risk, and foreign currency risk. The BOD reviews and approves policies of managingeach of these risks and they are summarized below.

Credit RiskCredit risk is the risk that the Company will incur a loss arising from customers, clients orcounterparties that fail to discharge their contracted obligations. The Company manages and controlscredit risk by setting limits on the amount of risk that the Company is willing to accept for individualcounterparties and by monitoring exposures in relation to such limits. Specific risks are as follows:

ƒ Power. GBPC has established controls and procedures on its credit policy to determine andmonitor the credit worthiness of customers and counterparties. The power supply contracts withcustomers include inherent protection clauses, i.e., provisions for interest on unpaid billings, andchange in laws/circumstances, among others. GBPC group’s maximum credit risk is equal to thecarrying value of the GBPC’s financial assets. The credit quality of financial assets is beingmanaged by GBPC using internal credit ratings.

ƒ Toll Operations. Prior to the step-up acquisitions of ESC and TMC, receivables from tolloperations arose mainly from ESC when Easytrip tag–motorists ply in NLEX, while the amountdue from related parties were substantially from TMC. ESC and TMC are considered as low-riskcounterparties being related parties. As a result of the step-acquisitions, intercompanytransactions with ESC and TMC were effectively settled.

As at December 31, 2017, receivables included non–toll revenues in the form of advertisingservices particularly from SMART (see Note 19) and service fees collected from businesslocators, generally called TSF (toll service facilities), along the stretch of the NLEX. Thearrangements are backed by a service facility contract between NLEX Corp and the variouslocators. The credit risk on these arrangements is minimal because the fees are collected on amonthly basis mostly from well–established companies. The exposure is also limited given thatthe recurring amounts are not significant and there are adequate safeguards in the contractsagainst payment delinquency.

NLEX Corp also has advances made to DPWH, a Philippine government entity, which is coveredby a Reimbursement Agreement. Advances to DPWH is pursuant to the ReimbursementAgreement entered into by NLEX Corp. with DPWH in 2013 where DPWH requested theseadvances in order to fast track the acquisition of right-of-way for the construction of Segments 9and 10, portions of Phase II of NLEX. Advances to DPWH amounting to P=179.5 million andP=180.4 million as of December 31, 2017 and 2016, respectively are included in the nontradereceivable account (see Note 8).

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ƒ Water. Because of the basic need service that Maynilad provides, historical collections ofMaynilad are relatively high, thus, credit risk exposure is widely dispersed. Maynilad billings arepayable on the due date, which is normally 14 days from the billing date. However, customersare given 60 days to settle any unpaid bills before disconnection. Receivable balances aremonitored on an ongoing basis with the result that the Maynilad’s exposure to bad debts is notsignificant.

ƒ Healthcare. The hospitals of the Company manage risk by setting credit limits for all customersand by monitoring credit exposures and the creditworthiness of counterparties. Credit limits areset and a regular review of these limits is being done by management. Credit is extended only toreputable entities such as HMO and insurance companies.

ƒ Rail. Receivables included non–rail revenues from lease of commercial spaces located withinLRT-1 stations, on interconnection fees and advertising contracts. The arrangements are mostlywith well–established companies backed by contracts with provisions for payment delinquency.The exposure is also limited given that the recurring amounts are collected on a monthly basisand are not significant.

ƒ Logistics. Customers are subject to credit verification procedures and approval to ensurecreditworthiness. The logistics group has policies that limit the amount of credit exposure to anyparticular customers. The logistics group does not have any significant credit risk exposure toany single counterparty.

The table below shows the maximum exposure to credit risk of the Company without considering theeffects of collaterals, credit enhancements and other credit risk mitigation techniques and the netmaximum exposure to credit risk of the Company considering the effects of collaterals, creditenhancements and other credit risk mitigation techniques.

The credit enhancement relating to cash and cash equivalents pertains to insured deposits in banks asprescribed by Philippine Deposit Insurance Corporation.

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2017 2016

GrossMaximumExposure

(a)

Fair Value and Financial

Effect ofCollateral or

CreditEnhancement

(b)

NetExposure

(c) = (a) – (b)

GrossMaximumExposure

(a)

Fair Value and Financial

Effect ofCollateralor Credit

Enhancement(b)

Netexposure

(c) = (a) – (b)(In Millions)

Loans and receivables:Cash and cash equivalents(a) P=40,660 P=144 P=40,516 P=15,332 P=89 P=15,243Short–term deposits 8,482 – 8,482 4,014 – 4,014Restricted cash 4,047 – 4,047 3,321 – 3,321Receivables 10,899 – 10,899 5,227 – 5,227Due from related parties 25 – 25 92 – 92Deposits for LTIP(b) 228 – 228 46 – 46Long–term cash and miscellaneous deposits(b) 1,920 – 1,920 832 – 832

AFS financial assets (c) 1,254 – 1,254 1,354 – 1,354P=67,515 P=144 P=67,371 P=30,218 P=89 P=30,129

(a) Excludes cash on hand amounting to P=175.0 million and P=123.0 million as at December 31, 2017 and 2016, respectively.(b) Included under “Other current assets” and “Other noncurrent assets” accounts in the consolidated statements of financial position.(c) Included under “Other noncurrent assets”. Excludes shares of stocks.

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The aging analysis of past due but not impaired financial assets is as follows:

Neither Past Past Due but not ImpairedCollectively

andDue nor

Impaired <30 Days 30–60 Days 61–90 Days91–120

Days >120 Days Total TotalIndividually

Impaired Total(In Millions)

Cash and cash equivalents(a) P=40,660 P=– P=– P=– P=– P=– P=– P=40,660 P=– P=40,660Short–term deposits 8,482 – – – – – – 8,482 – 8,482Restricted cash 4,047 – – – – – – 4,047 – 4,047Receivables: Notes receivable – – – – – – – – 150 150 Trade receivables 7,603 763 311 504 – 361 1,939 9,542 758 10,300 Nontrade receivables 1,263 – – – – 94 94 1,357 50 1,407Due from related parties 25 – – – – – – 25 – 25AFS financial assets(b) 1,254 – – – – – – 1,254 – 1,254Deposits for LTIP(c) 228 – – – – – – 228 – 228Long–term cash and miscellaneous deposits(c) 1,920 – – – – – – 1,920 – 1,920December 31, 2017 P=65,482 P=763 P=311 P=504 P=– P=455 P=2,033 P=67,515 P=958 P=68,473

Cash and cash equivalents(a) P=15,332 P=– P=– P=– P=– P=– P=– P=15,332 P=– P=15,332Short–term deposits 4,014 – – – – – – 4,014 – 4,014Restricted cash 3,321 – – – – – – 3,321 – 3,321Receivables: Notes receivable – – – – – – – – 150 150 Trade receivables 2,987 371 220 283 – 177 1,051 4,038 633 4,671 Nontrade receivables 1,095 – – – – 94 94 1,189 71 1,260Due from related parties 92 – – – – – – 92 – 92AFS financial assets(b) 1,354 – – – – – – 1,354 – 1,354Deposits for LTIP(c) 46 – – – – – – 46 – 46Long–term cash and miscellaneous deposits(c) 832 – – – – – – 832 – 832December 31, 2016 P=29,073 P=371 P=220 P=283 P=– P=271 P=1,145 P=30,218 P=854 P=31,072*(a) Excluding cash on hand.(b) Included under Other current assets” and “Other noncurrent assets” accounts in the consolidated statement of financial position. Excluding shares of stocks.

(c) Included under “Other noncurrent assets” account in the consolidated statement of financial position..

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The Company also assesses each financial asset based on its credit quality.

The table below shows the credit quality per class of financial assets of the Company that are neitherpast due nor impaired.

High GradeStandard

GradeSub–standard

Grade Total(In Millions)

Loans and receivables: Cash and cash equivalents(a) P=40,660 P=– P=– P=40,660 Short–term deposits 8,482 – – 8,482 Restricted cash 4,047 – – 4,047 Receivables: Trade receivables 7,393 194 16 7,603 Nontrade receivables 1,263 – – 1,263 Deposits for LTIP 228 – – 228 Due from related parties 25 – – 25 Miscellaneous deposits 1,587 333 – 1,920AFS financial assets 1,254 – – 1,254December 31, 2017 P=64,939 P=527 P=16 P=65,482

Loans and receivables: Cash and cash equivalents(a) P=15,332 P=– P=– P=15,332 Short–term deposits 4,014 – – 4,014 Restricted cash 3,321 – – 3,321 Receivables: Trade receivables 2,663 153 171 2,987 Nontrade receivables 1,095 – – 1,095 Deposits for LTIP 46 – – 46 Due from related parties 92 – – 92 Miscellaneous deposits 512 320 – 832AFS financial assets 1,354 – – 1,354December 31, 2016 P=28,429 P=473 P=171 P=29,073(a) Excluding cash on hand.

Cash and cash equivalents and sinking fund are classified as high grade since these are placed withreputable local and international banks, which meet the standards set by the Company’s BOD.

For the Company’s other financial assets, high grade relates to those financial assets which areconsistently collected before the maturity date. In addition, these are financial assets fromcounterparties that also have corresponding collectibles from the Company for certain contractedservices. The first layer of security comes from the Company’s ability to offset amounts receivablefrom those counterparties against payments due to them. Standard grade includes financial assets thatare collected on their due dates even without an effort from the Company to follow them up. Sub–standard grade relates to financial assets that are collected on their due dates provided that theCompany made a persistent effort to collect them.

Liquidity RiskLiquidity risk is the risk that the Company will encounter difficulty in meeting obligations associatedwith financial liabilities. The Company’s objective is to maintain a balance between continuity offunding and flexibility through the use of bank loans and facilities.

The Company monitors its cash position using a cash forecasting system. All expected collections,check disbursements and other cash payments are determined daily to arrive at the projected cashposition to cover its obligations and to ensure that obligations are met as they fall due. The Companymonitors its cash flow position, particularly the collections from receivables, receipts of dividends

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and the funding requirements of operations, to ensure an adequate balance of inflows and outflows.The Company also has online facilities with its depository banks wherein bank balances aremonitored daily to determine the Company’s actual cash balances at any time.

The Company’s liquidity and funding management process include the following:

ƒ Managing the concentration and profile of debt maturities;ƒ Maintaining debt financing plans; andƒ Monitoring liquidity ratios against internal and regulatory requirements.

Liquidity risk concentrations arise when a number of economic features would cause the Company’sability to meet contractual obligations to be affected by changes in economic, political or otherconditions. The Company has a total cash and cash equivalents and short–term deposits, amountingto P=49,317.4 million and P=19,468.5 million as at December 31, 2017 and 2016, respectively that areallocated to meet the Company’s short–term liquidity needs.

The table below summarizes the maturity profile of the Company’s financial assets and liabilities asat December 31, 2017 and 2016 based on undiscounted contractual payments.

2017

On DemandWithin1 Year 1–2 Years 2–3 Years 3–4 Years

More than4 Years Total

(In Millions)

Financial AssetsCash and cash equivalents(a) P=5,823 P=34,837 P=– P=– P=– P=– P=40,660Short–term deposits – 8,482 – – – – 8,482Receivables 2,507 8,392 – – – – 10,899Due from related parties – 25 – – – – 25AFS financial assets (c) – 50 61 370 250 565 1,296Cash and miscellaneous deposits(d) – 375 1,773 – – – 2,148

8,330 52,161 1,834 370 250 565 63,510Financial LiabilitiesAccounts payable and other currentliabilities(e) – 22,079 – – – – 22,079Due to related parties – 15,646 – – – – 15,646Customers’ guaranty deposits(f) – – – – – 1,035 1,035Service concession fees payable – 1,288 1,354 5,895 10,332 34,926 53,795Financial liability – 45 55 – – – 100Long–term debts(g) – 24,862 22,666 29,960 38,357 135,407 251,252

– 63,920 24,075 35,855 48,689 171,368 343,907Liquidity gap P=8,330 (P=11,759) (P=22,241) (P=35,485) (P=48,439) (P=170,803) (P=280,397)

2016

On DemandWithin1 Year 1–2 Years 2–3 Years 3–4 Years


(In Millions)

Financial AssetsCash and cash equivalents(a) P=3,572 P=11,760 P=– P=– P=– P=– P=15,332Short–term deposits – 4,014 – – – – 4,014Receivables 2,311 2,916 – – – – 5,227Due from related parties – 92 – – – – 92Beacon Electric preferred shares (b) – – – – – 20,622 20,622AFS financial assets (c) – – 250 61 270 815 1,396Cash and miscellaneous deposits(d) – – 878 – – – 878

5,883 18,782 1,128 61 270 21,437 47,561Financial LiabilitiesAccounts payable and other currentliabilities(e) – 13,016 – – – – 13,016Due to related parties – 8,439 – – – – 8,439Customers’ guaranty deposits(f) – – – – – 938 938Service concession fees payable – 1,271 1,251 1,319 5,863 44,101 53,805Financial liability – 36 45 55 – – 136Long–term debts(g) – 9,462 13,196 10,085 11,721 85,891 130,355

– 32,224 14,492 11,459 17,584 130,930 206,689Liquidity gap P=5,883 (P=13,442) (P=13,364) (P=11,398) (P=17,314) (P=109,493) (P=158,128)(a) Excluding cash on hand.(b) Included in “Investments and advances” account in the consolidated statement of financial position.(c) Excluding shares of stocks but including interest to be received on investments in bonds.(d)Included under “Other Current assets” and “Other Noncurrent assets” accounts in the consolidated statement of financial position.(e)Excluding statutory payables.(f)Included under “Other long–term liabilities” account in the consolidated statement of financial position.(g)Including contractual interest payments.

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Interest Rate RiskInterest rate risk is the risk that the fair value or future cash flows of a financial instrument willfluctuate because of changes in market interest rates. As at December 31, 2017 and 2016, theCompany is subject to fair value and cash flow interest rate risks. Fixed rate financial instrumentsmeasured at fair value are subject to fair value interest rate risk while floating rate financialinstruments are subject to cash flow interest rate risk.

The Company’s exposure to interest rate risk relates primarily to long–term debt obligations that bearfloating interest rate. The Company generally mitigates risk of changes in market interest rates byconstantly monitoring fluctuations of interest rates and maintaining a mix of fixed and floatinginterest–bearing loans. Specific interest rate risk policies are as follows:

ƒ MPIC. The loans of the Parent Company are fixed–rate loans and are denominated in localcurrency. Certain of MPIC’s loans bear a fixed rate for the first five years and is subject to aninterest rate repricing on the fifth year. Should the interest rate on the repricing date besignificantly higher than the current fixed rate, the Company has an option to prepay or refinancethe loan starting on the fifth year at every interest payment date.

ƒ Power. The loans of the companies under the power segment are fixed-rate loans and aredenominated in local currency. Certain loans bear a fixed rate for the first five years and issubject to an interest rate repricing on the fifth year. Should the interest rate on the repricing datebe significantly higher than the current fixed rate, there is option to prepay or refinance the loanon date/s as per loan agreement.

ƒ Water. Maynilad’s exposure to interest rate risk relates primarily to its interest–bearing loans.Maynilad maintains a mix of floating and fixed rate loans, currently at a ratio of 17% floating and83% fixed in 2017. The floating rate interest–bearing loans will increase to a higher portion overtime because of future drawdowns in connection to the MWMP loan agreement.

ƒ Toll Operations. The debt of the entities in this group are significantly fixed–rate loans,effectively locking in the interest rate in order to reduce exposure to interest rate fluctuations.92% of the financial instruments are in local currency loans. Interest rate exposure is now limitedto changes in Thailand’s Minimum Lending Rate less 1.5% for the Thai Baht debt.

ƒ Rail. LRMC’s debt bears a fixed rate for the first five years and is subject to an interest raterepricing every five years thereafter. Should the interest rate on the repricing date be significantlyhigher than the current fixed rate, LRMC has an option to prepay or refinance the loan startingafter five years from March 6, 2016, the initial drawdown date.

The following tables set out the carrying amount, classified by maturity, of the Company’s interest–bearing financial assets and financial liabilities that are subject to interest rate risk. Interest onfinancial instruments classified as floating rate is repriced either semi–annually or quarterly on eachinterest payment date. Interest on financial instruments classified as fixed rate is fixed until thematurity of the instrument with an exception for the certain borrowings which are subject to repricingas discussed above. The other financial instruments of the Company that are not included in the tablebelow are non–interest bearing and are therefore not subject to interest rate risk.

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US Dollar–Denominated Financial Assets and Financial Liabilities

December 31, 2017

Interest Rate On DemandWithin1 Year 2–3 Years 4–5 Years


(In Millions)Cash and cash equivalents $56 $– $– $– $– $56Restricted cash 1 – – – – 1

$57 $– $– $– $– $57

Floating rate loans: MWMP Worldbank Loan International Finance Corporation–Subordinated Various $– $3 $10 $10 $68 $91

December 31, 2016



(In Millions)Cash and cash equivalents $2 $– $– $– $– $2Restricted cash 5 – – – – 5

$7 $– $– $– $– $7

Floating rate loans: MWMP Worldbank Loan International Finance Corporation–Subordinated Various $– $1 $2 $8 $58 $69

Thai Baht–Denominated Financial Assets and Financial Liabilities

December 31, 2017



(In Millions)Cash and cash equivalents THB7 THB– THB– THB– THB– THB7Restricted cash 217 – – – – 217

THB224 THB– THB– THB– THB– THB224

Floating rate loans BIBOR plus 1.65% THB– THB290 THB330 THB360 THB531 THB1,511

December 31, 2016



(In Millions)Cash and cash equivalents THB1 THB– THB– THB– THB– THB1Restricted cash 41 – – – – 41

THB42 THB– THB– THB– THB– THB42

Floating rate loans BIBOR plus 1.65% THB– THB231 THB666 THB614 THB– THB1,511

Peso–Denominated Financial Assets and Financial Liabilities

December 31, 2017



(In Millions)

Cash and cash equivalents 0.25%–6.0% P=5,823 P=43,319 P=– P=– P=– P=49,142Investment in bonds and

corporate notes 2.13%–6% – 50 62 369 773 1,254P=5,823 P=43,369 P=62 P=369 P=773 P=50,396

Floating rate loans 2% p.a +PDST–Frate; prevailingmarket interestrates P=– P=3 P=2 P=– P=– P=5

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December 31, 2016



(In Millions)

Cash and cash equivalents 0.25%–6.0% P=3,484 P=15,773 P=– P=– P=– P=19,257Investment in bonds and

corporate notes 2.13%–6% – – 307 523 523 1,353P=3,484 P=15,773 P=307 P=523 P=523 P=20,610

Floating rate loans 2% p.a +PDST–Frate ;prevailingmarket interestrates P=– P=2 P=3 P=2 P=– P=7

The following table demonstrates the sensitivity of income before income tax arising from changes ininterest cash flows of floating rate loans and fair values of AFS financial assets, respectively, due tochanges in Philippine Peso, US Dollar and Thai Baht interest rates with all other variables heldconstant. The estimates in the movement of interest rates were based on the management’s annualfinancial forecast. There is no other impact on equity other than those already affecting theconsolidated statement of comprehensive income.

Increase/Decreasein Basis Points

Effect on IncomeBefore Income Tax

(In Millions)

2017 +50 (P=34)–50 34

2016 +50 (P=28)–50 28

Foreign Currency RiskForeign currency risk is the risk that the fair value or future cash flows of a financial instrument willfluctuate because of changes in foreign exchange rates. As at December 31, 2017 and 2016, theCompany’s foreign currency risk results primarily from movements of the Philippine Peso against USDollar, Thai Baht, Euro and Japanese Yen.

In general, the Company’s exposure to foreign currency risk is minimal as significantly all of thetransactions are denominated in Philippine Peso. Exposure to foreign currency risk primarily resultsfrom the following foreign currency transactions:

ƒ Power. While an insignificant percentage of the GBPC’s assets and liabilities is denominated inUS Dollars, a substantial portion of the capital expenditure and operating expenses, mostly fueland coal purchases, is denominated in foreign currencies, primarily in US Dollars. GBPC followsa policy to manage its currency risk by closely monitoring its cash flow position and by providingforecast on all other exposures in non-Philippine peso currencies. Moreover, the majority of thepower sales of the GBPC’s operating subsidiaries are through long term Electric Power PurchaseAgreements which have provisions for passing on fuel costs, including foreign exchangefluctuations.

ƒ Water. The servicing of foreign currency–denominated loans of MWSS is among therequirements of Maynilad’s concession agreement. Majority of the revenues are generated inPhilippine Peso. However, there is a mechanism in place as part of the concession agreementwherein Maynilad (or the end consumers) can recover foreign currency fluctuations through theFCDA that is approved by the RO.

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ƒ Toll Operations. The segment’s exposure to foreign exchange currency risk relates mainly toCIC’s dollar denominated Series 2010–1 Notes amounting to $13.0 million (P=658.0 million) as atDecember 31, 2016. The Company however prepaid the Note in 2017. The segment’s practice isto refinance outstanding U.S. dollar loans with peso loans to reduce the exposure to foreigncurrency risk.

Payment for AIF’s loan which is denominated in Thai Baht is to be sourced from the dividends,also denominated in Thai Baht, to be declared by DMT (see Notes 10 and 18).

ƒ Healthcare. Of the entities in the healthcare segment, AHI has foreign currency risk arising fromits cash and cash equivalents, international insurance included under receivables and US dollardenominated loan exposure. AHI also has transactional currency exposures arising frompurchases of medical equipment or supplies in currencies other than the Philippine Peso. AHI isunable to take on any derivative transaction to hedge these exposures since its loan covenants donot allow it. AHI relies on its ability to generate dollar–based revenue from its foreign patients tomitigate this risk. AHI fully paid the dollar–denominated loans in 2017.

ƒ Rail. LRMC’s exposure to foreign currency risk is minimal and only limited to transactionalcurrency exposures arising from payments to suppliers and contractors. To reduce to foreigncurrency risk exposure, LRMC entered into series of derivative transactions, in particular,forward contracts. These are accounted for as derivatives not designated as accounting hedgeswith fair value of P=0.1 million and P=2.5 million as at December 31, 2017 and 2016.

The Company’s foreign currency–denominated financial assets and liabilities as at December 31:

2017 2016US Dollar Thai Baht JPY US Dollar Euro JPY

(In Millions)Assets:

Cash and cash equivalents $56 THB7 ¥– $2 THB1 ¥–Restricted cash 1 217 – 5 41 –

57 224 – 7 42 –Liabilities:

Service concession fees payable (76) – (290) (77) – (404)Long–term debts (91) (1,511) – (82) (1,511) –

(167) (1,511) (290) (159) (1,511) (404)Net foreign currency -denominated

liabilities ($110) (THB1,287) (¥290) ($152) (THB1,469) (¥404)

The following table demonstrates sensitivity of cash flows due to changes in foreign exchange rateswith all variables held constant. The estimates in the movement of the foreign exchange rates werebased on the management’s annual financial forecast.

Increase/Decreasein Foreign Exchange Rates

ForeignExchange Rate


(In Millions)2017US Dollar +5% 49.93 (P=275)THB +5% 1.53 (99)JPY +5% 0.44 (6)US Dollar –5% 49.93 275THB –5% 1.53 99JPY –5% 0.44 6

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Increase/Decreasein Foreign Exchange Rates

ForeignExchange Rate


2016US Dollar +5% 49.72 (P=378)THB +5% 1.38 (102)JPY +5% 0.43 (9)US Dollar –5% 49.72 378THB –5% 1.38 102JPY –5% 0.43 9

Capital ManagementCapital includes preferred shares and equity attributable to the equity holders of the Parent Company.The primary objective of the Company’s capital management policies is to ensure that the Companymaintains a strong statement of financial position and healthy capital ratios in order to support itsbusiness and maximize shareholder value. The Company ensures that it is compliant with all debtcovenants not only at the consolidated level but also at the level of Parent Company and each of itssubsidiaries.

In general, the Company closely monitors its debt covenants and maintains a capital expenditureprogram and dividend declaration policy that keeps the compliance of these covenants intoconsideration.

The following debt covenants are being complied with by the Company as part of maintaining astrong credit rating with its creditors:

ƒ MPIC. MPIC’s loan agreements require achievement of certain financial ratios (see Note 18).Moreover, under the loan agreements, MPIC needs to achieve a required DSCR per loanagreements to be able to declare dividends.

ƒ Power. GBPC’s subsidiaries (CEDC, PEDC and TPC) aim to maintain debt-to-equity ratio notexceeding 70:30 at all times until full payment of its loans. Certain subsidiaries shall likewiseensure that core capital must at least be 30% of the total project cost at project completion dateand shall at all times be equivalent to at least 30% of the sum of the aggregate indebtedness forborrowed money and the sum of its equity as of any date of determination.

ƒ Toll Operations. The loan agreements require maintenance of debt-to-equity ratio and DSCR asindicated in the agreements to be able to incur new loans or declare dividends.

ƒ Water. 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. Maynilad’s target gearing ratio is 75%.This target is to be maintained over the next five years by managing the level of borrowings anddividend payments to shareholders.

The Company manages its capital structure and adjust it in light of changes in economic conditions.To maintain or adjust the capital structure, the Company may obtain additional advances fromshareholders, return capital to shareholders, issue new shares or issue new debt or redemption ofexisting debt. No changes were made in the objectives, policies or processes during the years endedDecember 31, 2017 and 2016. The Company monitors capital on the basis of debt-to-equity ratio.

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Debt-to-equity ratio is calculated as long-term debt over equity. The Company’s goal is to maintain asustainable debt-to-equity ratio. The debt-to-equity ratios as at December 31, 2017 and 2016 are:


Long–term debt (a) P=189,083 P=97,016Equity (b) 215,679 188,081Debt–to–equity ratio (a/b) 88% 52%

33. Financial Instruments – Categories and Derivatives

Categories of Financial InstrumentsThe categories of the Company’s financial assets and financial liabilities as at December 31, 2017 and2016 are:

2017

Financial AssetsFinancialLiabilities

FVPLLoans and

Receivables

AFSFinancial

Assets

OtherFinancial

Liabilities Total(In Millions)

ASSETSCash and cash equivalents P=– P=40,660 P=– P=– P=40,660Short–term deposits – 1,946 – – 1,946Restricted cash – 4,047 – – 4,047Receivables - net – 10,899 – – 10,899Due from related parties – 25 – – 25AFS financial assets(a) – – 8,297 – 8,297Deposits for LTIP(a) – 228 – – 228Long term cash and miscellanoues deposits – 1,920 – – 1,920

P=– P=59,725 P=8,297 P=– P=68,022

LIABILITIESAccounts payable and other

current liabilities (b) P=– P=– P=– P=23,767 P=23,767Due to related parties – – – 15,646 15,646Service concession fees payable – – – 29,744 29,744Long–term debt – – – 189,083 189,083Other long–term liabilities – – – 1,209 1,209

P=– P=– P=– P=259,449 P=259,449(a) Included under“Other noncurrent assets” accounts in the consolidated statement of financial position.(b)Excludes statutory payables.

2016


FVPLLoans and

Receivables

AFSFinancial

Assets

OtherFinancial


ASSETSCash and cash equivalents P=– P=15,332 P=– P=– P=15,332Short–term deposits – 3,042 – – 3,042Restricted cash – 3,321 – – 3,321Receivables - net – 5,227 – – 5,227Due from related parties – 92 – – 92AFS financial assets (a) – – 2,835 – 2,835Deposits for LTIP (a) – 46 – – 46Investments and advances (b) – 612 20,622 – 21,234Other noncurrent assets – 832 – – 832

P=– P=28,504 P=23,457 P=– P=51,961

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2016


FVPLLoans and

Receivables

AFSFinancial

Assets

OtherFinancial


LIABILITIESAccounts payable and other

current liabilities (c) P=– P=– P=– P=13,892 P=13,892Due to related parties – – – 8,439 8,439Service concession fees payable – – – 28,874 28,874Long–term debt – – – 97,016 97,016Other long–term liabilities – – – 1,108 1,108

P=– P=– P=– P=149,329 P=149,329(a) Included under“Other noncurrent assets” accounts in the consolidated statement of financial position.(b) Includes advances to Beacon Electric and investment in preferred shares of Beacon Electric classified as AFS financial assets.(c) Excludes statutory payables

Derivative Financial InstrumentsThe Company has no freestanding derivatives and no derivatives accounted for as cash flow hedgesas at December 31, 2017 and 2016.

34. Fair Value Measurement

The fair value of the assets and liabilities is determined as the price that would be received to sell anasset or paid to transfer a liability in an orderly transaction between participants at the measurementdate. The following tables summarize the carrying amounts and fair values of the assets andliabilities, analyzed among those whose fair value is based on:

∂ Level 1 – Quoted market prices in active markets for identical assets or liabilities∂ Level 2 – Those involving inputs other than quoted prices included in Level 1 that are observable

for the asset or liability, either directly (as prices) or indirectly (derived from prices); and∂ Level 3 – Those with inputs for the asset or liability that are not based on observable market data

(unobservable input).

As at December 31, 2017 and 2016, there were no financial instruments carried at fair value that wereclassified under Level 3.

2017Carrying

Value Level 1 Level 2 Level 3Total Fair

Value(In Millions)

Assets measured at fair valueAFS Financial Assets:

Shares of stock (a) P=507 P=25 P=482 P=– P=507Unit Investment Trust Fund (see Note 7) 6,536 – 6,536 – 6,536Investment in bonds and treasury notes (a) 1,254 722 532 – 1,254

P=8,297 P=747 P=7,550 P=– P=8,297

Assets for which fair values are disclosedLoans and Receivables:

Notes receivable (see Note 8) P=– P=– P=– P=– P=–Miscellaneous deposits (a) 1,373 – – 1,320 1,320

P=1,373 P=– P=– P=1,320 P=1,320

Liabilities for which fair values are disclosedOther financial liabilities:

Service concession fees payable P=29,744 P=– P=– P=29,805 P=29,805Long–term debts 189,083 – – 186,957 186,957Due to related parties 15,646 – – 15,122 15,122Customer guaranty deposit (b) 1,035 – – 1,059 1,059

P=253,508 P=– P=– P=232,943 P=232,943(a) Included under “Other current assets” and “Other noncurrent assets” accounts in the consolidated statement of financial position.(b) Included under “Other long-term liabilities” account in the consolidated statement of financial position.

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2016Carrying

Value Level 1 Level 2 Level 3Total Fair

Value(In Millions)

Assets measured at fair valueAFS Financial Assets:

Shares of stock (a) P=510 P=19 P=491 P=– P=510Unit Investment Trust Fund (see Note 7) 972 – 972 – 972Investment in bonds and treasury notes (a) 1,353 818 536 – 1,353

P=2,835 P=837 P=1,999 P=– P=2,835

Assets for which fair values are disclosedLoans and Receivables:

Notes receivable (see Note 8) P=– P=– P=– P=– P=–Miscellaneous deposits (a) 832 – – 782 782

P=832 P=– P=– P=782 P=782

Liabilities for which fair values are disclosedOther financial liabilities:

Service concession fees payable P=28,874 P=– P=– P=30,265 P=30,265Long–term debts 97,016 – – 97,613 97,613Due to related parties 8,439 – – 8,380 8,380Customer guaranty deposit (b) 938 – – 971 971

P=135,267 P=– P=– P=137,229 P=137,229 (a) Included under “Other current assets” and “Other noncurrent assets” accounts in the consolidated statement of financial position.(b) Included under “Other long-term liabilities” account in the consolidated statement of financial position.

The following methods and assumptions were used to measure the fair value of each class of assetsand liabilites 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 andcash equivalents approximate the carrying amounts at the end of the reporting period.

Restricted Cash, Cash Deposits, and Accounts Payable and Other Current Liabilities. Carryingvalues approximate the fair values at the reporting date due to the short–term nature of thetransactions.

Investments in UITF. UITFs are ready-made investments that allow the pooling of funds fromdifferent investors with similar investment objectives. These UITFs are managed by professionalfund managers and may be invested in various financial instruments such as money market securities,bonds and equities, which are normally available to large investors only. A UITF uses the mark-to-market method in valuing the fund’s securities. A UITF uses the mark–to–market method in valuingthe fund’s securities. It is a valuation method which calculates the Net Asset Value (NAV) based onthe estimated fair market value of the assets of the fund based on prices supplied by independentsources.

Due from Related Parties. In 2017 and 2016, fair value of due from related parties approximatestheir carrying amounts as these are expected to be settled within a year from the reporting date.

Miscellaneous Deposits. The fair value of the refundable occupancy deposits is determined bydiscounting the deposit using the prevailing market rate of interest.

Service Concession Fees Payable and Customers’ Guaranty Deposits. Estimated fair value is basedon the discounted value of future cash flows using the applicable rates for similar types of financialinstruments.

Notes Receivable and Miscellaneous Deposits. Estimated fair value is based on the present value offuture cash flows discounted using the prevailing PDST-F rates that are specific to the tenor of theinstruments’ cash flows at the end of each reporting period with credit spread adjustment.

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Long-term Debt. For both fixed rate and floating rate (repriceable every six months)US dollar-denominated debts and Philippine Peso-denominated fixed rate corporate notes, estimatedfair value is based on the discounted value of future cash flows using the prevailing credit adjustedUS risk-free rates and Philippine risk free rates that are adjusted for credit spread ranging from 2.4%to 7.1% and 3.0% to 10.1% in 2017 and 2016, respectively.

35. Supplemental Cash Flow Information

Non–cash investing activitiesThe following table shows the Company’s significant non–cash investing activities and correspondingtransaction amounts:

2017 2016 2015(In Millions)

Additions to service concession assets pertaining toadditions to concession fees, capitalized interestaccretion, Maynilad rate-rebasing and others(see Notes 12 and 17) P=4,169 P=3,466 P=19,314

Acquisition of Beacon Electric preferred and commonshares on a deferred payment basis (unpaid portion;see Notes 4 and 19) 8,629 8,353 –

Acquisition of MERALCO shares on a deferredpayment basis (see Notes 10 and 19) – – 8,450

Non-cash financing activities:The following table shows significant changes in liabilities arising from financing activities,including changes arising from cash flows and non-cash changes:

Serviceconcession fee

payable(see Note 17)

Long-term debt(see Note 18)

Due to RelatedParties

(see Note 19)(In Millions)

Balance as at December 31, 2016 P=28,874 P=97,016 P=8,439

Cash flow (see statements of cash flows)Proceeds − 36,504Payments (1,007) (9,822) (2,001)Transaction cost − (238)

(1,007) 26,444 (2,001)Non-cash:

Acquisition of subsidiary − 65,399 −Acquisition of investments on a deferred payment basis − − 8,629Foreign exchange movements 39 243 −Interest accretion 1,838 (243) 579Amortization of debt issue costs − 60 −Others − 164 −

1,877 65,623 9,208Balance as at December 31, 2017 P=29,744 P=189,083 P=15,646

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36. Events after the Reporting Period

Aside from those disclosed in Note 29 (status of certain contingencies) and Note 20 (MPIC’sdividend declaration on March 1, 2018), events occurring after the reporting period include:

MERALCO’s Dividend Declaration. On February 26, 2018, the BOD of MERALCO approved thedeclaration of cash dividends of P=8.065 a share to all shareholders of record as at March 28, 2018,payable on April 25, 2018. This consists of a final regular cash dividend of P=4.478 per share and aspecial cash dividend of P=3.587 per share. Dividends receivable by MPIC on its 45.5% combinedinterest in MERALCO is estimated at P=4,132.7 million.

Maynilad’s Dividend Declaration. On February 26, 2018, the BOD of Maynilad approved thedeclaration of cash dividends amounting to P=3,000.0 million in favor of its common stockholdersof record as at February 28, 2018 with payment date on March 12, 2018.

MWHC’s Dividend Declaration. On March 1, 2018, the BOD of MWHC approved the declaration ofcash dividends amounting to P=2,790.0 million to all shareholders of record as at March 1, 2018 withpayment date on March 15, 2018.

MPIC Loan Facility Signing. On January 11, 2018 and January 12, 2018, MPIC signed anP=8.0 billion 10-year and 15-year and P=2.0 billion 15-year syndicated term loan facility, respectively.Proceeds of which will be used by MPIC to partially finance the redemption of the outstanding debtobligations of Beacon Electric and for other general corporate purposes. MPIC engaged a localcommercial bank as arranger and bookrunner.

LRMC’s loan drawdown. In January and February 2018, LRMC made loan drawdowns amounting toa total of P=843.0 million in connection with the rehabilitation of the existing LRT-1 and constructionof Cavite Extension.

Acquisition of a 45% of BOO Phu Ninh Water Treatment Plant Joint Stock Company (PNW). OnNovember 9, 2017, MPW signed a Share Purchase Agreement (SPA) for the acquisition of 45% ofthe outstanding capital stock of PNW. Under the SPA, MPW will purchase 9,900,000 shares from anexisting shareholder of PNW for 272.4 billion Vietnamese Dong (VND) (equivalent toP=615.0 million), subject to price adjustment through an escrow mechanism depending on thefulfillment of certain conditions. MPW will pay VND 181.6 billion (approximately P=410.0 million)on completion, while VND 90.8 billion (approximately P=205.0 million) shall be held in escrow. Theamounts in escrow shall be released in tranches upon the satisfaction of certain conditions untilJuly 20, 2018.

Pursuant to a 50-year Build-Own-Operate contract with the Chu Lai Open Economic Zone Authority,PNW is licensed to develop a water supply system that will meet clean water demand in the Chu LaiOpen Economic Zone, and urban areas, industrial zones and adjacent rural areas in Quang Namprovince. PNW is close to completing the construction of a water treatment plant with capacity of 25MLD, and has a potential to increase its capacity to 300 MLD.

The Company shall account for its stake in PNW as an investment in an associate using the equitymethod of accounting. As at March 1, 2018, the completion of closing conditions is ongoing.

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37. Significant Accounting Policies

Changes in Accounting Policies and DisclosuresOur accounting policies are consistent with those followed in the preparation of the Company’sannual consolidated financial statements for the year ended December 31, 2016, except for thefollowing adoption of new and amended PFRS effective January 1, 2017.

The Company applied the following PFRS and amendments to existing standards effectiveJanuary 1, 2017. Except for additional disclosure requirements, adoption of the following standardsdid not have any material impact on the Company’s financial position or performance:

ƒ Amendments to PFRS 12, Clarification of the Scope of the Standard (Part of AnnualImprovements to PFRSs 2014 - 2016 Cycle) – The amendments clarify that the disclosurerequirements in PFRS 12, other than those relating to summarized financial information, apply toan entity’s interest in a subsidiary, a joint venture or an associate (or a portion of its interest in ajoint venture or an associate) that is classified (or included in a disposal group that is classified)as held for sale.

ƒ Amendments to PAS 7, Statement of Cash Flows, Disclosure Initiative – The amendments toPAS 7 require an entity to provide disclosures that enable users of financial statements to evaluatechanges in liabilities arising from financing activities, including both changes arising from cashflows and non-cash changes (such as foreign exchange gains or losses). See Note 35 for therequired disclosures.

ƒ Amendments to PAS 12, Income Taxes, Recognition of Deferred Tax Assets for UnrealizedLosses – The amendments clarify that an entity needs to consider whether tax law restricts thesources of taxable profits against which it may make deductions on the reversal of that deductibletemporary difference. Furthermore, the amendments provide guidance on how an entity shoulddetermine future taxable profits and explain the circumstances in which taxable profit mayinclude the recovery of some assets for more than their carrying amount.

The Company has not early adopted any other standard, interpretation or amendment that has beenissued but is not yet effective (see Note 38).

The principal accounting and financial reporting policies adopted in preparing the Company’sconsolidated financial statements are as follows:

Business Combinations and GoodwillBusiness combinations are accounted for using the acquisition method. The cost of an acquisition ismeasured as the aggregate of the consideration transferred measured at acquisition date fair value andthe amount of any NCI in the acquiree. For each business combination, the Company elects whetherto measure the NCIs in the acquiree at fair value or at the proportionate share of the acquiree’sidentifiable net assets. Acquisition costs incurred are expensed and included in general andadministrative expenses.

When the Company acquires a business, it assesses the financial assets and liabilities assumed forappropriate classification and designation in accordance with the contractual terms, economiccircumstances and pertinent conditions as of the acquisition date. This includes the separation ofembedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, any previously held equity interest isre-measured at its acquisition date fair value and any resulting gain or loss is recognized in profit orloss. It is then considered in the determination of goodwill.

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Any contingent consideration to be transferred by the acquirer will be recognized at fair value at theacquisition date. Contingent consideration classified as an asset or liability that is a financialinstrument and within the scope of PAS 39, Financial Instruments: Recognition and Measurement, ismeasured at fair value with changes in fair value recognized either in profit or loss or as a change toOCI. If the contingent consideration is not within the scope of PAS 39, it is measured in accordancewith the appropriate PFRS. Contingent consideration that is classified as equity is not re-measuredand subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the considerationtransferred and the amount recognized for NCI, and any previous interest held, over the netidentifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is inexcess of the aggregate consideration transferred, the Company re-assesses whether it has correctlyidentified all of the assets acquired and all of the liabilities assumed and reviews the procedures usedto measure the amounts to be recognized at the acquisition date. If the re-assessment still results in anexcess of the fair value of net assets acquired over the aggregate consideration transferred, then thegain is recognized immediately in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Forthe purpose of impairment testing, goodwill acquired in a business combination is, from theacquisition date, allocated to each of the Company’s cash-generating units (CGUs) that are expectedto benefit from the combination, irrespective of whether other assets or liabilities of the acquiree areassigned to those units.

Where goodwill has been allocated to a CGU and part of the operation within that unit is disposed of,the goodwill associated with the disposed operation is included in the carrying amount of theoperation when determining the gain or loss on disposal. Goodwill disposed in these circumstances ismeasured based on the relative values of the disposed operation and the portion of the CGU retained.

If the initial accounting for business combination can be determined only provisionally by the end ofthe period by which the combination is effected because the fair values to be assigned to theacquiree’s identifiable assets and liabilities can be determined only provisionally, the Companyaccounts for the combination using provisional values. Adjustments to those provisional values as aresult of completing the initial accounting shall be made within twelve (12) months from theacquisition date. The carrying amount of an identifiable asset, liability or contingent liability that isrecognized as a result of completing the initial accounting shall be calculated as if its fair value at theacquisition date had been recognized from that date. Goodwill or any gain recognized shall beadjusted from the acquisition date by an amount equal to the adjustment to the fair value at theacquisition date of the identifiable asset, liability or contingent liability being recognized or adjusted.

Equity Method InvesteesEquity method investees consist of the Company’s investments in associates and joint ventures.

An associate is an entity over which the Company has significant influence. Significant influence isthe power to participate in the financial and operating policy decisions of the investee, but is notcontrol or joint control over those policies.

A joint venture is a type of joint arrangement whereby the parties that have joint control of thearrangement have rights to the net assets of the joint venture. Joint control is the contractually agreedsharing of control of an arrangement, which exists only when decisions about the relevant activitiesrequire unanimous consent of the parties sharing control.

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The considerations made in determining significant influence or joint control are similar to thosenecessary to determine control over subsidiaries.

The Company’s investments in its associate and joint ventures are accounted for using the equitymethod.

Under the equity method, the investment in an associate or a joint venture is initially recognized atcost. The carrying amount of the investment is adjusted to recognize changes in the Company’s shareof net assets of the associate or joint venture since the acquisition date. If the Company’s share oflosses of an associate or a joint venture equals or exceeds its interest in the associate or joint venture,the Company discontinues recognizing its share of further losses. After the entity’s interest isreduced to zero, additional losses are provided for, and a liability is recognized, only to the extent thatthe Company has incurred legal or constructive obligations or made payments on behalf of theassociate or joint venture. If the associate or joint venture subsequently reports profits, the Companyresumes recognizing its share of those profits only after its share of the profits equals the share oflosses not recognized.

Goodwill relating to the associate or joint venture is included in the carrying amount of theinvestment and is neither amortized nor individually tested for impairment.

The Company’s share of the results of operations of the associate or joint venture is included in profitor loss. Any change in OCI of those investees is presented as part of the Company’s OCI. Inaddition, when there has been a change recognized directly in the equity of the associate or jointventure, the Company recognizes its share of any changes, when applicable, in the consolidatedstatement of changes in equity. Unrealized gains and losses resulting from transactions between theCompany and the associate or joint venture are eliminated to the extent of the Company’s interest inthe associate or joint venture.

The aggregate of the Company’s share of profit or loss of an associate and a joint venture is shown onthe face of the consolidated statement of comprehensive income outside operating profit andrepresents profit or loss after tax and NCI in the subsidiaries of the associate or joint venture.

The financial statements of the associate or joint venture are prepared for the same reporting period asthe Company. When necessary, adjustments are made to bring the accounting policies in line withthose of the Company.

After application of the equity method, the Company determines whether it is necessary to recognizean impairment loss on its investment in its associate or joint venture. At each reporting date, theCompany determines whether there is objective evidence that the investment in the associate or jointventure is impaired. If there is such evidence, the Company calculates the amount of impairment asthe difference between the recoverable amount of the associate or joint venture and its carrying value,then recognizes the impairment loss as ‘Share in net earnings of equity method investees’ in theconsolidated statement of comprehensive income.

Upon loss of significant influence over the associate or joint control over the joint venture, theCompany measures and recognizes any retained investment at its fair value. Any difference betweenthe carrying amount of the associate or joint venture upon loss of significant influence or joint controland the fair value of the retained investment and proceeds from disposal is recognized in profit orloss.

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For purposes of disclosures required under PFRS 12 in determining whether an equity methodinvestee is material to the Company, management employs both quantitative and qualitative factors toevaluate the nature of, and risks associated with, the Company’s interests in these entities; and theeffects of those interest on the Company’s financial position. Factors considered include, but notlimited to, carrying value of the investee relative to the total equity method investments recognized inthe Company’s consolidated financial statements, the equity investee’s contribution to the Company’sconsolidated net income, and other relevant qualitative risks associated with the equity investee’snature, purpose and size of activities.

Current Versus Non-current ClassificationThe Company presents assets and liabilities in the consolidated statement of financial position basedon current/non-current classification.

An asset is current when it is:ƒ Expected to be realized or intended to be sold or consumed in the normal operating cycleƒ Held primarily for the purpose of tradingƒ Expected to be realized within twelve months after the reporting period, orƒ Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at

least twelve months after the reporting period.

All other assets are classified as non-current.

A liability is current when:ƒ It is expected to be settled in the normal operating cycleƒ It is held primarily for the purpose of tradingƒ It is due to be settled within twelve months after the reporting period, orƒ There is no unconditional right to defer the settlement of the liability for at least twelve months

after the reporting period.

The Company classifies all other liabilities as non-current. Deferred tax assets and liabilities areclassified as non-current assets and liabilities, respectively.

Fair Value MeasurementThe Company measures AFS financial assets and derivatives at fair value at each reporting date and,for purposes of impairment testing, uses fair value less costs of disposal or value in use to determinethe recoverable amount of some of its non-financial assets. Also, fair values of financial instrumentsmeasured at amortized cost are disclosed in Note 34.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date. The fair value measurement isbased on the presumption that the transaction to sell the asset or transfer the liability takes placeeither:

ƒ In the principal market for the asset or liability; orƒ In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible by the Company.

The fair value of an asset or a liability is measured using the assumptions that market participantswould use when pricing the asset or liability, assuming that market participants act in their economicbest interest. A fair value measurement of a non-financial asset takes into account a marketparticipant’s ability to generate economic benefits by using the asset in its highest and best use or byselling it to another market participant that would use the asset in its highest and best use.

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The fair value for financial instruments traded in active markets at the reporting date is based on theirquoted price or binding dealer price quotations (bid price for long positions and ask price for shortpositions), without any deduction for transaction costs. Securities defined in these accounts as ‘listed’are traded in an active market. Where the Company has financial assets and financial liabilities withoffsetting positions in market risks or counterparty credit risk, it has elected to use the measurementexception to measure the fair value of its net risk exposure by applying the bid or ask price to the netopen position as appropriate. For all other financial instruments not traded in an active market, thefair value is determined by using valuation techniques deemed to be appropriate in the circumstances.Valuation techniques include the market approach (i.e., using recent arm’s length market transactionsadjusted as necessary and reference to the current market value of another instrument that issubstantially the same) and the income approach (i.e., discounted cash flow analysis and optionpricing models making as much use of available and supportable market data as possible).

The Company uses valuation techniques that are appropriate in the circumstances and for whichsufficient data are available to measure fair value, maximizing the use of relevant observable inputsand minimizing the use of unobservable inputs. All assets and liabilities for which fair value ismeasured or disclosed in the consolidated financial statements are categorized within the fair valuehierarchy described as follows based on the lowest-level input that is significant to the fair valuemeasurement as a whole:

ƒ Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities

ƒ Level 2 — Valuation techniques for which the lowest-level input that is significant to the fair value measurement is directly or indirectly observable

ƒ Level 3 — Valuation techniques for which the lowest-level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognized in the consolidated financial statements on a recurringbasis, the Company determines whether transfers have occurred between levels in the hierarchy byreassessing categorization (based on the lowest-level input that is significant to the fair valuemeasurement as a whole) at the end of each reporting period.

The Company determines the policies and procedures for both recurring fair value measurement, suchas derivatives, and non-recurring measurement, such as impairment tests. At each reporting date, thefinance team, with the assistance of the respective finance teams of the Parent Company’ssubsidiaries, analyzes the movements in the values of assets and liabilities which are required to bere-measured or reassessed as per the Company’s accounting policies. For this analysis, the financeteam verifies the major inputs applied in the latest valuation by agreeing the information in thevaluation computation to contracts, counterparty assessment and other relevant documents.

The finance team also compares the changes in the fair value of each asset and liability with relevantexternal sources to determine whether the change is reasonable. On an interim basis, the finance teampresents the valuation results to the Company’s top management for review. This includes adiscussion of the major assumptions used in the valuations.

For the purpose of fair value disclosures, the Company has determined classes of assets and liabilitiesbased on the nature, characteristics and risks of the asset or liability and the level of the fair valuehierarchy as explained above (see Note 34).

Cash and Cash EquivalentsCash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investmentsthat are readily convertible to known amounts of cash with original maturities of three months or lessfrom acquisition date and that are subject to an insignificant risk of changes in value.

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Short-term DepositsShort-term deposits, other than those classified as AFS, are highly liquid money market placementswith maturities of more than three months but less than one year from dates of acquisition.

Restricted CashRestricted cash represents cash in banks earmarked for long-term debt principal and interestrepayment maintained in compliance with loan agreements or placed in an escrow account pursuantto a construction agreement.

Financial InstrumentsThe Company recognizes a financial asset or a financial liability in the consolidated statement offinancial position when it becomes a party to the contractual provisions of the instrument. All regularway purchases and sales of financial assets are recognized on the settlement date. Regular waypurchases and sales are purchases or sales of financial assets that require delivery of assets within theperiod generally established by regulation or convention in the marketplace. Derivatives arerecognized on a trade date basis.

Initial Recognition. Financial instruments are recognized initially at fair value, which is the fair valueof the consideration given (in case of an asset) or received (in case of a liability). The fair value ofthe consideration given or received is determined by reference to the transaction price or other marketprices. If such market prices are not reliably determinable, the fair value of the consideration isestimated as the sum of all future cash payments or receipts, discounted using the prevailing marketinterest rates for similar instruments with similar maturities. The initial measurement of financialinstruments, except for financial instruments at fair value through profit or loss (FVPL), includestransaction costs.

The Company classifies its financial instruments in the following categories: financial assets atFVPL, held-to-maturity (HTM) investments, loans and receivables, AFS financial assets, financialliabilities at FVPL and other financial liabilities.

The classification depends on the purpose for which the financial instruments were acquired orliabilities were incurred and whether they are quoted in an active market. Management determinesthe classification of its instruments at initial recognition and, where allowed and appropriate,re-evaluates such classification at every reporting date.

Financial instruments are classified as liabilities or equity in accordance with the substance of thecontractual arrangement. Interest, dividend, gains and losses relating to a financial liability or acomponent that is a financial liability, are reported as expense or income. Distributions to holders offinancial instruments classified as equity are charged directly to equity, net of related income taxbenefits.

‘Day 1’ Profit or LossWhere the transaction price in a non-active market is different from the fair value of other observablecurrent market transactions in the same instrument or based on a valuation technique whose variablesinclude only data from observable market, the Company recognizes the difference between thetransaction price and fair value (a ‘Day 1’ profit or loss) in profit or loss unless it qualifies forrecognition as some other type of asset or liability. In cases where the data is not observable, thedifference between the transaction price and model value is only recognized in profit or loss when theinputs become observable or when the instrument is derecognized. For each transaction, theCompany determines the appropriate method of recognizing the ‘Day 1’ profit or loss amount.

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Amortized CostAmortized cost is computed using the effective interest method less any allowance for impairmentand principal repayment or reduction. The calculation takes into account any premium or discount onacquisition and includes transaction costs and fees that are integral part of the effective interest rate.

Subsequent Measurement. The subsequent measurement of financial assets and financial liabilitiesdepends on their classification discussed as follows:

Financial Assets and Liabilities at FVPL. Financial assets and liabilities at FVPL include financialassets and liabilities held for trading and those designated upon initial recognition as at FVPL.Financial assets and liabilities are classified as held for trading if they are acquired for the purpose ofselling or repurchasing in the near term. Derivatives are also classified as held for trading unless theyare designated as effective hedging instruments. Financial assets and liabilities classified as at FPVLare carried at fair value in the consolidated statement of financial position, with any gains or lossesbeing recognized in the profit or loss. Interests earned on holding financial assets at FVPL arereported as interest income using the effective interest rate. Dividends earned on holding financialassets at FVPL are recognized in profit or loss when the right to payment had been established.

Financial assets and liabilities may be designated at initial recognition as at FVPL if any of thefollowing criteria are met:

ƒ The designation eliminates or significantly reduces the inconsistent treatment that wouldotherwise arise from measuring the financial assets or liabilities or recognizing gains or losses onthem on different bases; or

ƒ The assets are part of a group of financial assets, financial liabilities or both which are managedand their performance evaluated on a fair value basis, in accordance with a documented riskmanagement or investment strategy; or

ƒ The financial instrument contains an embedded derivative, unless the embedded derivative doesnot significantly modify the cash flows or it is clear, with little or no analysis, that it would not beseparately recorded.

The Company accounts for its derivatives (including embedded derivatives) under this category withfair value changes being reported directly in profit or loss, except when the derivative is designated inan effective hedging relationship. In that case, the fair value change is either reported in profit or losswith the corresponding adjustment to the hedged item (fair value hedge) or deferred in equity (cashflow hedge) presented as “Fair value changes on cash flow hedges” under “Other comprehensiveincome reserve” account.

The Company has no financial assets and liabilities at FVPL as at December 31, 2017 and 2016.

Loans and Receivables. Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. They are not entered into with theintention of immediate or short-term resale and are not classified as financial assets at FVPL, HTMinvestments or AFS financial assets. After initial measurement, loans and receivables aresubsequently measured at amortized cost using the effective interest rate method, less anyimpairment. The amortization is included as part of interest income in profit or loss. Losses arisingfrom impairment are recognized in profit or loss. Loans and receivables are included in current assetsif maturity is within 12 months after the end of reporting period, otherwise these are classified asnoncurrent assets.

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Loans and receivables include cash and cash equivalents, short-term deposits (excluding UnitInvestment Trust Fund presented as short-term deposits but classified as AFS financial assets) andreceivables, restricted cash, and due from related parties (see Note 33).

HTM Investments. HTM investments are quoted non-derivative financial assets with fixed ordeterminable payments and fixed maturities for which the Company’s management has the positiveintention and ability to hold to maturity. Investments intended to be held for an undefined period arenot included in this classification. When the Company sells or reclassifies other than an insignificantamount of HTM investments, the entire category would be tainted for 2 years and reclassified asAFS financial assets.

After initial measurement, these investments are subsequently measured at amortized cost. Theamortization is included as part of interest income in profit or loss. Gains and losses are recognizedin profit or loss when the HTM investments are derecognized and impaired, as well as through theamortization process. The losses arising from impairment of such investments and the effects ofrestatement on foreign currency denominated HTM investments are also recognized in profit or loss.Assets under this category are classified as current assets if maturity is within 12 months from thereporting date and as noncurrent assets if maturity is more than a year from the reporting date.

The Company has no HTM investments as at December 31, 2017 and 2016.

AFS Financial Assets. AFS financial assets are non-derivative financial assets that are designated assuch or not classified in any of the other categories. AFS financial assets include equity and debtsecurities. They are purchased and held indefinitely and may be sold in response to liquidityrequirements or changes in market conditions.

After initial measurement, AFS financial assets that are quoted are subsequently measured at fairvalue. The unrealized gains and losses arising from the change in fair value of AFS financial assetsare recognized and included in the “Fair value changes on AFS financial assets” under “Othercomprehensive income reserve” account until the investment is derecognized or determined to beimpaired, at which time the cumulative gains or losses are reclassified to profit or loss. When theCompany holds more than one investment in the same security, these are deemed to be disposed of onan average cost method basis. Interest earned on holding AFS debt financial assets are reported asinterest income using the effective interest rate method. Dividends earned on holding AFS equityfinancial assets are recognized in profit or loss when the right of payment has been established. AFSequity financial assets that are unquoted and for which fair values cannot be reliably determined arecarried at cost less any impairment in value.

This category includes investments in quoted and unquoted common shares and preferred shares, UnitInvestment Trust Fund, investments in golf club shares and investments in bonds (see Note 33).

Other Financial Liabilities. This category pertains to financial liabilities that are not held for tradingor not designated as at FVPL upon the inception of the liability. These include liabilities arising fromoperations and borrowings.

Other financial liabilities are recognized initially at fair value and are subsequently carried atamortized cost, taking into account the impact of applying the effective interest method ofamortization (or accretion) for any related premium, discount and any directly attributable transactioncost. Any effect of restatement of foreign currency-denominated liabilities are recognized in profit orloss.

All of the Company’s financial liabilities, except for derivative liabilities, are classified as otherfinancial liabilities which include loans and borrowings.

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All loans and borrowings are initially recognized at fair value of the consideration received lessdirectly attributable transaction costs (referred to as “debt issue costs”). Debt issue costs areamortized over the life of the debt instrument using the effective interest method. After initialrecognition, interest-bearing loans and borrowings are subsequently measured at amortized cost usingthe effective interest rate method. Gains and losses are recognized in profit or loss when theliabilities are derecognized, as well as through the amortization process. This category generallyincludes short-term and long-term debts.

Derivatives and Hedge AccountingFreestanding and separated embedded derivatives are classified as financial assets or financialliabilities at FVPL unless they are designated as effective hedging instruments. The Company usesderivative financial instruments, such as cross-currency swaps and interest rate swaps, to hedge itsforeign currency risks and interest rate risks, respectively. Derivative instruments are initiallyrecognized at fair value on the date in which a derivative transaction is entered into or bifurcated, andare subsequently remeasured at fair value. Derivatives are carried as assets when the fair value ispositive and as liabilities when the fair value is negative. Consequently, gains and losses fromchanges in fair value of derivatives not designated as effective accounting hedges are recognizedimmediately in profit or loss.

For the purpose of hedge accounting, hedges are classified primarily as: (a) a hedge of the fair valueof a recognized asset or liability or an unrecognized firm commitment except for foreign currencyrisk (fair value hedge); or (b) a hedge of the exposure to variability in cash flows attributable to arecognized asset or liability or a highly probable forecasted transaction or foreign currency risk in anunrecognized firm commitment (cash flow hedge); or (c) hedge of a net investment in a foreignoperation. The Company has no derivatives in 2017 and 2016 designated as fair value hedges orhedges of a net investment in a foreign operation.

At the inception of a hedge relationship, the Company formally designates and documents the hedgerelationship to which the Company wishes to apply hedge accounting and the risk managementobjective and strategy for undertaking the hedge. The documentation includes identifying thehedging instrument, the hedged item or transaction, the nature of the risk being hedged and how theentity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in thehedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are assessed on anongoing basis to determine that they actually have been highly effective throughout the financialreporting periods for which they were designated.

In cash flow hedges, changes in the fair value of a hedging instrument that qualifies as a highlyeffective cash flow hedge are included in equity, net of related deferred tax, and presented as “Fairvalue changes on cash flow hedges” under “Other comprehensive income reserve” account in theconsolidated statement of financial position. The ineffective portion is immediately recognized inprofit or loss.

If the hedged cash flow results in the recognition of an asset or a liability, gains and losses initiallyrecognized in equity are transferred from equity to net income in the same period during which thehedged forecasted transaction or recognized asset or liability affects profit or loss.

When the hedge ceases to be highly effective, hedge accounting is discontinued prospectively. In thiscase, the cumulative gain or loss on the hedging instrument that had been recognized in othercomprehensive income reserve is retained as such until the forecasted transaction occurs. When theforecasted transaction is no longer expected to occur, any net cumulative gain or loss previouslyreported in other comprehensive income reserve is credited or charged immediately to profit or loss.

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For derivatives that are not designated as effective accounting hedges, any gains or losses arisingfrom changes in fair value are recognized directly in profit or loss.

Embedded Derivatives. An embedded derivative is separated from the host contract and accountedfor as derivative if all the following conditions are met:

ƒ The economic characteristics and risks of the embedded derivative are not clearly and closelyrelated to the economic characteristics of the host contract;

ƒ A separate instrument with the same terms as the embedded derivative would meet the definitionof the derivative; and

ƒ The hybrid or combined instrument is not recognized as at FVPL.

Embedded derivatives that are bifurcated from the host contracts are accounted for as financial assetsor liabilities at FVPL. Changes in fair values are recognized in profit or loss. Derivatives are carriedas assets when the fair value is positive and as liabilities when the fair value is negative.

The Company assesses whether an embedded derivative is required to be separated from the hostcontract 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 thatsignificantly modifies the cash flows that otherwise would be required under the contract, in whichcase reassessment is required. The Company determines whether a modification to cash flows issignificant by considering the extent to which the expected future cash flows associated with theembedded derivative, the host contract or both have changed and whether the change is significantrelative to the previously expected cash flows on the contract.

Current Versus Noncurrent Classification of DerivativesDerivative instruments that are not designated and considered as effective hedging instruments areclassified as current or noncurrent or separated into a current and noncurrent portion based on anassessment of the facts and circumstances (i.e., the underlying contracted cash flows).

ƒ If the Company holds a derivative for trading purposes, irrespective of the timing of future cashflows, it is classified as current.

ƒ Where the Company holds a derivative as an economic hedge (and does not apply hedgeaccounting), for period beyond 12 months after the end of reporting period, the derivative isclassified as noncurrent (or separated into current and noncurrent portions) consistent with theclassification of the underlying item.

ƒ Embedded derivatives that are not closely related to the host contract are classified consistentwith the cash flows of the host contract.

Derivative instruments that are designated as, and are considered effective hedging instruments, areclassified consistent with the classification of the underlying hedged item. The derivative instrumentis separated into a current portion and noncurrent portion only if a reliable allocation can be made.

Classification of Financial Instruments Between Liability and EquityA financial instrument is classified as a liability if it provides for a contractual obligation to:

ƒ Deliver cash or another financial asset to another entity; orƒ Exchange financial assets or financial liabilities with another entity under conditions that are

potentially unfavorable to the Company; orƒ 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.

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If the Company does not have an unconditional right to avoid delivering cash or another financialasset to settle its contractual obligation, the obligation meets the definition of a financial liability.The components of issued financial instruments that contain both liability and equity elements areaccounted for separately, with the equity component being assigned the residual amount afterdeducting from the instrument as a whole the amount separately determined as the fair value of theliability component on the date of issue.

Impairment of Financial AssetsThe Company assesses at each end of reporting period whether a financial asset or group of financialassets is impaired. If any such evidence exists, the Company applies the relevant impairment policiesby measurement type of financial asset to determine the amount of any impairment loss. A financialasset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidenceof impairment as a result of one or more events that have occurred after the initial recognition of theasset (an incurred “loss event”) and that loss event (or events) has an impact on the estimated futurecash 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 borrowersis experiencing significant financial difficulty, default or delinquency in interest or principalpayments, the probability that they will enter bankruptcy or other financial reorganization, and whereobservable data indicate that there is measurable decrease in the estimated future cash flows, such aschanges in arrears or economic conditions that correlate with defaults.

Assets Carried at Amortized Cost. The Company first assesses whether objective evidence (such asthe probability of insolvency or significant financial difficulties of the debtor) of impairment existsindividually for financial assets that are individually significant, and individually or collectively forfinancial assets that are not individually significant. If it is determined that no objective evidence ofimpairment exists for an individually assessed financial asset, whether significant or not, the asset isincluded in a group of financial assets with similar credit risk characteristics and that group offinancial assets is collectively assessed for impairment. Assets that are individually assessed forimpairment and for which an impairment loss is or continues to be recognized are not included in acollective assessment of impairment.

If there is objective evidence that an impairment loss on assets carried at amortized cost had beenincurred, the amount of the loss is measured as the difference between the asset’s carrying amountand the present value of estimated future cash flows (excluding future credit losses that have not beenincurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interestrate computed at initial recognition). The carrying amount of the asset is reduced through the use ofan allowance account and the amount of the loss is recognized in profit or loss. The assets and theassociated allowance are written off when there is no realistic prospect of future recovery, and allcollateral had been realized or had been transferred to the Company. If a write-off is later recovered,the recovery is credited to profit or loss.

If, in a subsequent year, the amount of the impairment loss decreases because of an event occurringafter the impairment was recognized, the previously recognized impairment loss is reversed. Anysubsequent reversal of an impairment loss is recognized in profit or loss, to the extent that thecarrying value of the asset does not exceed what the amortized cost would have been had theimpairment not been recognized at the date impairment is reversed. The amount of the reversal shallbe recognized in profit or loss.

Assets Carried at Cost. If there is objective evidence that an impairment loss had been incurred on anunquoted equity instrument that is not carried at fair value because its fair value cannot be reliablymeasured, the amount of the loss is measured as the difference between the asset’s carrying amountand the present value of estimated future cash flows discounted at the current market rate of return fora similar financial asset.

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The carrying amount of the asset is reduced through the use of an allowance account and the amountof the loss is recognized in profit or loss. The asset together with the associated allowance are writtenoff when there is no realistic prospect of future recovery and all collateral had been realized or hadbeen transferred to the Company.

AFS Financial Assets. For AFS financial assets, the Company assesses at each end of reportingperiod whether there is objective evidence that a financial asset or group of financial assets isimpaired.

In the case of equity investments classified as AFS financial assets, this would include a significant orprolonged decline in the fair value of the investments below their cost. ‘Significant’ is evaluatedagainst the original cost of the investment and ‘prolonged’ against the period in which the fair valuehas been below its original cost. Where there is evidence of impairment, the cumulative loss –measured as the difference between the acquisition cost and the current fair value, less anyimpairment loss on that financial asset previously recognized in profit or loss – is removed from“Other comprehensive income reserve” account and recognized in profit or loss. Impairment losseson equity investments are not reversed through profit or loss. Increases in fair value after impairmentare recognized directly in “Other comprehensive income reserve” account.

In the case of debt instruments classified as AFS financial assets, impairment is assessed based on thesame criteria as financial assets carried at amortized cost. However, the amount recorded forimpairment is the cumulative loss measured as the difference between the amortized cost and thecurrent fair value, less any impairment loss on that investment previously recognized in profit or loss.Future interest income continues to be accrued based on the reduced carrying amount of the asset,using the rate of interest used to discount future cash flows for the purpose of measuring theimpairment loss. Such accrual is recorded as part of “Interest income” in profit or loss. If, insubsequent year, the fair value of a debt instrument increases and the increase can be objectivelyrelated to an event occurring after the impairment loss was recognized in profit or loss, theimpairment loss is reversed through profit or loss.

Derecognition of Financial Instruments

Financial Asset. A financial asset (or, where applicable, a part of a financial asset or part of a groupof similar financial assets) is derecognized when:

ƒ The Company’s rights to receive cash flows from the asset have expired;ƒ 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

ƒ The Company has transferred its rights to receive cash flows from the asset and either (a) hastransferred substantially all the risks and rewards of the asset, or (b) has neither transferred norretained substantially all the risks and rewards of the asset, but has transferred control of theasset.

Where the Company has transferred its rights to receive cash flows from an asset or has entered into apass-through arrangement, and has neither transferred nor retained substantially all the risks andrewards of the asset nor transferred control of the asset, the asset is recognized to the extent of theCompany’s continuing involvement in the asset. In that case, the Company also recognizes anassociated liability. The transferred asset and the associated liability are measured on a basis thatreflects the rights and obligations that the Company has retained. Continuing involvement that takesthe form of a guarantee over the transferred asset is measured at the lower of the original carryingamount of the asset and the maximum amount of consideration that the Company could be required torepay.

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Financial Liabilities. A financial liability is derecognized when the obligation under the liability isdischarged, cancelled or has expired. Where an existing financial liability is replaced by anotherfrom the same lender on substantially different terms, or the terms of an existing liability aresubstantially modified, such an exchange or modification is treated as a derecognition of the originalliability and the recognition of a new liability, and the difference in the respective carrying amountsand any costs or fees incurred are recognized in the profit or loss.

Offsetting of Financial InstrumentsFinancial assets and liabilities are offset and the net amount reported in the consolidated statement offinancial position if, and only if, there is a currently enforceable right to offset the recognizedamounts and there is intention to settle on a net basis, or to realize the asset and settle the liabilitysimultaneously. The Company assesses that it has a currently enforceable right of offset if the right isnot contingent on a future event, and is legally enforceable in the normal course of business, event ofdefault, and event of insolvency or bankruptcy of the Company and all of the counterparties.

InventoriesInventories, which are included as part of “Other current assets” in the consolidated statement offinancial position, are valued at the lower of cost and net realizable value (NRV).

Cost includes purchase price and import duties incurred in bringing each item of inventory to itspresent location and condition. Cost is determined using the moving average method for thehealthcare segment and weighted average method for the power, tollways and the water segment.Depending on the nature of the inventory, NRV is based either on current replacement cost orestimated selling price less estimated cost to sell.

Advances to Contractors and ConsultantsAdvances to contractors and consultants, represent advance payments for mobilization of thecontractors and consultants. These are stated at costs less any impairment in value. These amountsare reduced upon receipt of the equivalent amount of services rendered by the contractors andconsultants.

Service Concession ArrangementsThe Company accounts for its service concession arrangements in accordance with PhilippineInterpretation IFRIC 12 under the intangible asset model as it receives the right (license) to chargeusers of public service (see Notes 1 and 12).

Revenue and Cost Recognition. The Company recognizes and measures revenue and cost inaccordance 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 orreceivable by the Company is recognized at its fair value. The revenue and cost from these servicesare recognized based on the percentage of completion measured principally on the basis of estimatedcompletion of a physical proportion of the contract works, and by reference to the actual costsincurred to date over the estimated total cost of the project.

Contractual Obligations. The Company recognizes its contractual obligations to restore the toll roadsto a specified level of serviceability in accordance with PAS 37, Provisions, Contingent Liabilitiesand Contingent Assets, as the obligation arises which is as a consequence of the use of the toll roadsand is proportional to the number of vehicles using the toll roads and increasing in measurable annualincrements (see Note 16).

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Service Concession Assets. The service concession assets acquired through business combinationsare recognized initially at the fair value of the concession agreement using multi-period excessearnings method. Additions subsequent to business combinations are initially measured at presentvalue of any additional estimated future concession fee payments pursuant to the concessionagreement (see Notes 12 and 17) and/or the costs of rehabilitation works incurred or additionalconstructions.

Service concession assets acquired other than through business combinations include capitalizedupfront payments and expenditures directly attributable to the acquisition of the service concession.Payments to the Grantor/s over the concession period are capitalized at their present value using theincremental borrowing rate determined at inception date and is included as part of the initialrecognition of the service concession asset with a corresponding liability recognized as “Serviceconcession fees payable”. Borrowing cost in relation to service concession assets that are consideredas qualifying assets forms part of the cost of the service concession asset.

Following initial recognition, the service concession assets are carried at cost less accumulatedamortization and any impairment losses.

Following are the methods used to amortize the service concession assets:

Methods CompanyUnit of Production (UOP) Maynilad, CIC and NLEX CorpStraight-line LRMC, PHI

The amortization period and method for an intangible asset with a finite useful life is reviewed ateach financial year-end. Changes in the expected useful life or the expected pattern of consumptionof future economic benefits embodied in the service concession asset is accounted for by changingthe amortization period or method, as appropriate, and are treated as changes in accounting estimates.The amortization expense is recognized under the “Cost of sales and services” account in theconsolidated statement of comprehensive income.

The service concession assets will be derecognized upon turnover to the Grantor. There will be nogain or loss upon derecognition as the service concession assets, which are expected to be fullyamortized by then, will be handed over to the Grantor for no consideration.

Property, Plant and EquipmentProperty, plant and equipment, except land, are carried at cost, excluding day-to-day servicing, lessaccumulated depreciation and any impairment loss. The initial cost of property, plant and equipmentcomprises its purchase price, including import duties and non-refundable purchase taxes and anydirectly attributable costs of bringing the property, plant and equipment to its working condition andlocation for its intended use. Such cost includes the cost of replacing part of such property, plant andequipment and borrowing costs for long-term construction projects when the recognition criteria aremet. When significant parts of property, plant and equipment are required to be replaced at intervals,the Company recognizes such parts as individual assets with specific useful lives and depreciation.Likewise, when major repairs are performed, its cost is recognized in the carrying amount of theproperty, plant and equipment as a replacement if the recognition criteria are satisfied. Land is statedat cost less any impairment loss.

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Expenditures incurred after the property, plant and equipment have been put into operation, such asrepairs and maintenance, are normally recognized as expense in the period such costs are incurred. Insituations where it can be clearly demonstrated that the expenditures have resulted in an increase inthe future economic benefits expected to be obtained from the use of an item of property, plant andequipment beyond its originally assessed standard of performance, the expenditures are capitalized asadditional cost of the property, plant and equipment.

Depreciation commences once the property, plant and equipment are available for use and iscomputed on a straight-line basis over the estimated useful lives of the assets:

Leasehold improvements 2–5 years or lease termwhichever is shorter

Land improvements 5 yearsBuilding and building improvements 5–30 yearsGenerating assets 9–25 yearsOffice and other equipment, furniture and fixtures 2–5 yearsTransportation equipment 2–8 yearsInstruments, tools and other equipment 2–5 yearsLibrary books 3–5 years

The residual values, useful lives and depreciation method are reviewed, and adjusted prospectively ifappropriate, at each reporting date.

An item of property, plant and equipment is derecognized upon disposal or when no future economicbenefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset(calculated as the difference between the net disposal proceeds and the carrying amount of the item)is included in profit or loss in the year the asset is derecognized.

Construction in progress is stated at cost less any impairment in value. This includes cost ofconstruction and other direct costs. Construction in progress is not depreciated until such time thatthe relevant assets are completed and available for its intended use.

Intangible AssetsIntangible assets, other than service concession assets, acquired separately are measured on initialrecognition at cost. The costs of intangible assets acquired in a business combination are their fairvalue as at the date of acquisition. Following initial recognition, intangible assets are carried at costless any accumulated amortization and accumulated impairment losses. Internally generatedintangible assets, excluding capitalized development costs, are not capitalized and expenditure isreflected in profit or loss in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed as either finite or indefinite.

Intangible assets with finite lives are amortized over their estimated useful lives on a straight linebasis and assessed for impairment whenever there is an indication that an intangible asset may beimpaired. The amortization period and the amortization method for an intangible asset with a finiteuseful life are reviewed at least at the end of each reporting period. Changes in the expected usefullife or the expected pattern of consumption of future economic benefits embodied in the asset isaccounted for by changing the amortization period or method, as appropriate, and are treated aschanges in accounting estimates. The amortization expense on intangible assets with finite lives isrecognized in profit or loss in the expense category consistent with the function of the intangibleassets.

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Estimated useful lives of the intangible assets with finite lives:

Customer contracts and relationships 5–20 yearsProperty use rights 10–20 yearsLicenses and technology 20 yearsSoftware 5 years

Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually,either individually or at the CGU level (see Notes 11 and 14). The assessment of indefinite life isreviewed annually to determine whether the indefinite life continues to be supportable. If no longersupportable, the change in useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are measured as the differencebetween the net disposal proceeds and the carrying amount of the intangible asset and are recognizedin profit or loss when the intangible asset is derecognized.

Impairment of Nonfinancial AssetsThe Company assesses at each reporting date whether there is an indication that an asset may beimpaired. If any such indication exists, or when annual impairment testing for an asset is required,the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higherof an asset’s or CGU’s fair value less costs of disposal and its value in use (VIU) and is determinedfor an individual asset, unless the asset does not generate cash inflows that are largely independent ofthose from other assets or groups of assets. Where the carrying amount of an asset exceeds itsrecoverable amount, the asset is considered impaired and is written down to its recoverable amount.In assessing VIU, the estimated future cash flows are discounted to their present value using a pre-taxdiscount rate that reflects current market assessments of the time value of money and the risksspecific to the asset. In determining fair value less costs of disposal, recent market transactions aretaken into account, if available. If no such transactions can be identified, an appropriate valuationmodel is used. These calculations are corroborated by valuation multiples, quoted share prices forpublicly traded subsidiaries or other available fair value indicators. Impairment losses are recognizedin profit or loss.

The Company bases its impairment calculation on detailed budgets and forecast calculations whichare prepared separately for each of the Company’s CGUs to which the individual assets are allocated.These budgets and forecast calculations generally cover a period of five years. For longer periods, along-term growth rate is calculated and applied to project future cash flows after the fifth year.

Impairment losses, including impairment on inventories, are recognized in profit or loss in thoseexpense categories consistent with the function of the impaired asset.

For nonfinancial assets excluding goodwill, an assessment is made at each reporting date to determinewhether there is an indication that previously recognized impairment losses no longer exist or havedecreased. If such indication exists, the Company estimates the asset’s or CGU’s recoverableamount. A previously recognized impairment loss is reversed only if there has been a change in theassumptions used to determine the asset’s recoverable amount since the last impairment loss wasrecognized. The reversal is limited so that the carrying amount of the asset does not exceed itsrecoverable amount, nor exceed the carrying amount that would have been determined, net ofdepreciation, had no impairment loss been recognized for the asset in prior years. Such reversal isrecognized in profit or loss unless the asset is carried at a revalued amount, in which case, the reversalis treated as a revaluation increase. After such a reversal, the depreciation (in case of property, plantand equipment) and amortization (in case of property use rights, service concession assets andsoftware cost) charges are adjusted in future periods to allocate the asset’s revised carrying amount,less any residual value, on a systematic basis over their remaining useful lives.

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Goodwill. Goodwill is reviewed for impairment annually or more frequently if events or changes incircumstances indicate that the carrying amount may be impaired. Impairment is determined forgoodwill by assessing the recoverable amount of the CGU, or group of CGUs, to which the goodwillrelates. Where the recoverable amount of the CGU, or group of CGUs, is less than the carryingamount of the CGU or group of CGUs, to which goodwill had been allocated, an impairment loss isrecognized. Impairment losses relating to goodwill cannot be reversed in future periods.

Service Concession Assets not yet Available for Use. Service concession assets not yet available foruse are tested for impairment annually. Impairment is determined by comparing the carrying value ofthe asset with its recoverable value. Where the recoverable value of the service concession assets notyet available for use is less than the carrying value, an impairment is recognized.

Assets Held For SaleAssets are classified as assets held for sale when their carrying amount is to be recovered principallythrough a sale transaction and a sale is considered highly probable. Sale is determined to be highlyprobable, if management is committed to a plan to sell the asset (or disposal group), and an activeprogramme to locate a buyer and complete the plan have been initiated. Further, the asset (ordisposal group) is actively marketed for sale at a price that is reasonable in relation to its current fairvalue. In addition, the sale is expected to qualify for recognition as a completed sale within one yearfrom the date of classification, except as when the delay is caused by events or circumstances beyondthe Company’s control and there is sufficient evidence that the Company remains committed to itsplan to sell the asset (or disposal group).

Assets held for sale are stated at the lower of carrying amount and fair value less costs to sell and arepresented as current assets in the consolidated statement of financial position.

Assets Held in TrustAssets that are owned by Metropolitan Waterworks and Sewerage System (MWSS) but are used inthe operations of Maynilad under the Concession Agreement, are not reflected in the consolidatedstatement of financial position but treated as Assets Held in Trust, except for certain assets transferredto Maynilad as mentioned in Note 31.

Claims from the Grantors

Structural Defect Restoration (SDR) costs and Existing System Requirement (ESR) costs. LRMC’sclaims from the Grantors of the LRT-1 Concession, based on the actual costs incurred, are initiallyrecorded as deferred charges lodged under “Other noncurrent assets” pending approval from theGrantors. Subsequently, once the claims have been verified by the Independent Consultant andagreed to by the Grantors, they will be reclassified to claims receivable under “Receivables”. Claimsthat are not approved shall be reclassified to the “Service concession assets” account.

Light Rail Vehicle (LRV) Shortfall, Fare Deficits and Grantors Compensation Payment. LRMC shallrecognize these claims as revenue only when it is probable that the economic benefit associated withthese transactions will flow to LRMC; that is until the consideration is received or until an uncertaintyis removed. The uncertainty is removed when the claim is acknowledged or approved by theGrantors, whichever is earlier.

Equity Attributable to Owners of the Parent Company

Common Stocks. Common stocks are classified as equity and are measured at par value for all sharesissued. Proceeds and/or fair value of consideration received in excess of par value are recognized asadditional paid-in capital. Incremental costs directly attributable to the issue of ordinary shares andshare options are recognized as a deduction from equity, net of any tax effects.

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Preferred Shares. Preferred share is classified as equity if it is non-redeemable, or redeemable onlyat the Company’s option, and any dividends are discretionary. Dividends thereon are recognized asdistributions within equity upon approval by the Parent Company’s BOD.

Preferred share is classified as a liability if it is redeemable on a specific date or at the option of theshareholders, or if dividend payments are not discretionary. Dividends thereon are recognized asinterest expense in profit or loss as accrued.

Retained Earnings. Retained earnings represent accumulated earnings net of cumulative dividendsdeclared, adjusted for the effects of equity restructuring and transactions with NCI and the effects ofchanges in accounting policies as may be required by the standards’ transitional provisions.

Cash Dividend. The Company recognizes a liability to distribute cash to equity holders of the ParentCompany when the distribution is authorized and the distribution is no longer at the discretion of theCompany. As per the corporate laws in the Philippines, a distribution is authorized when it isapproved by the Board of Directors. A corresponding amount is recognized directly in retainedearnings.

Equity Reserves. Equity reserves are made up of equity transactions other than capital contributionssuch as equity component of a convertible financial instrument, transactions with NCI and share-based payment transactions or ESOP.

Other Comprehensive Income Reserve. OCI reserve comprises items of income and expenses that arerecognized directly in equity. OCI items are either reclassified to profit or loss or directly to equity insubsequent periods.

Borrowing CostsBorrowing costs are capitalized if they are directly attributable to the acquisition, construction orproduction of a qualifying asset. To the extent that funds are borrowed specifically for the purpose ofobtaining a qualifying asset, the amount of borrowing costs eligible for capitalization on that assetshall be determined as the actual borrowing costs incurred on that borrowing during the period lessany investment income on the temporary investment of those borrowings. To the extent that fundsare borrowed generally, the amount of borrowing costs eligible for capitalization shall be determinedby applying a capitalization rate to the expenditures on that asset. The capitalization rate shall be theweighted average of the borrowing costs applicable to the borrowings of the Company that areoutstanding during the period, other than borrowings made specifically for the purpose of obtaining aqualifying asset. The amount of borrowing costs capitalized during a period shall not exceed theactual amount of borrowing costs incurred during that period.

Capitalization of borrowing costs commences when the activities necessary to prepare the asset forintended use are in progress and expenditures and borrowing costs are being incurred. Borrowingcosts are capitalized until the asset is available for its intended use. If the resulting carrying amountof the asset exceeds its recoverable amount, an impairment loss is recognized. Borrowing costsinclude interest charges and other costs incurred in connection with the borrowing of funds, as well asexchange differences arising from foreign currency borrowings used to finance these projects, to theextent that they are regarded as an adjustment to interest costs.

All other borrowing costs are expensed as incurred.

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Provisions and ContingenciesProvisions are recognized when the Company has a present obligation (legal or constructive) as aresult of a past event, it is probable that an outflow of resources embodying economic benefits will berequired 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 the provision to be reimbursed, for example under aninsurance contract, the reimbursement is recognized as a separate asset but only when thereimbursement is virtually certain. The expense relating to any provision is presented in profit orloss, net of any reimbursement. If the effect of the time value of money is material, provisions arediscounted using a current pre-tax rate that reflects, where appropriate, the risks specific to theliability. Where discounting is used, the increase in the provision due to the passage of time isrecognized as an interest expense.

ƒ Warranties and Guarantees. Provision relates to estimated expenses of concluded and ongoingdebt settlement negotiations and certain warranties extended in relation to debt for asset swaparrangements entered in prior years. The amount of provision is recognized upon entering intosuch arrangement and is based on historical experience or best estimate as a result of ongoingnegotiations.

ƒ Provision for Heavy Maintenance. Provision for heavy maintenance pertains to the present valueof the estimated contractual obligations of the Company to restore the service concession assetsor toll roads to a specified level of serviceability during the service concession term and tomaintain the same assets in good condition prior to turnover of the assets to the PhilippineGovernment. The amount of provision is accrued every year and recognized in profit or loss andis reduced by the actual obligations paid for heavy maintenance of the service concession.

ƒ Decommissioning Liability. The decommissioning liability arising from generation companies’obligations, under their Environmental Compliance Certificate, to decommission or dismantletheir power plant complex at the end of its useful life. A corresponding asset is recognized as partof property, plant and equipment. Decommissioning costs are provided at the present value ofexpected costs to settle the obligation using estimated cash flows. The cash flows are discountedat a current pre-tax rate that reflects the risks specific to the decommissioning liability. Theunwinding of the discount is expensed as incurred and recognized in the consolidated statementof comprehensive income as an accretion of decommissioning liability under the “interestexpense” account. The estimated future costs of decommissioning are reviewed annually andadjusted prospectively. Changes in the estimated future costs or in the discount rate applied areadded or deducted from the cost of the power plant complex. The amount deducted from the costof the power plant complex shall not exceed its carrying amount.

If the decrease in the liability exceeds the carrying amount of the power plant complex, the excessshall be recognized immediately in the consolidated statements of comprehensive income.

Contingent Liabilities. Contingent liabilities are not recognized in the consolidated financialstatements but are disclosed in the notes to consolidated financial statements unless the possibility ofan outflow of resources embodying economic benefits is remote. Contingent assets are notrecognized in the consolidated financial statements but are disclosed in the notes to consolidatedfinancial statements when an inflow of economic benefits is probable.

Contingent Liabilities Recognized in a Business Combination. A contingent liability recognized in abusiness combination is initially measured at its fair value. Subsequently, it is measured at the higherof the amount that would be recognized in accordance with the requirements for provisions above orthe amount initially recognized less, when appropriate, cumulative amortization recognized inaccordance with the requirements for revenue recognition. This account is included in “Other long-term liabilities” in the statements of financial position.

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Related PartiesEnterprises and individuals that directly, or indirectly through one or more intermediaries, control orare controlled by or under common control with the Company, including holding companies,subsidiaries and fellow subsidiaries, are related parties of the Company. Associates, JVs andindividuals owning, directly or indirectly, an interest in the voting power of the Company that givesthem significant influence over the enterprise, key management personnel, including directors andofficers of the Company and close members of the family of these individuals, and companiesassociated with these individuals also constitute related parties. In considering each possible relatedentity relationship, attention is directed to the substance of the relationship and not merely the legalform.

Revenue and Income RecognitionRevenue is recognized to the extent that it is probable that the economic benefits will flow to theCompany 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 accountcontractually defined terms of payment, excluding discounts, rebates and sales taxes or duty. TheCompany assesses its revenue arrangements against specific criteria in order to determine if it isacting as principal or agent. The Company has concluded that it is acting as a principal in all of itsrevenue arrangements. The following specific recognition criteria must also be met before revenue isrecognized:

Revenue and income stream recognized under “Operating Revenues”:

ƒ Water and Sewerage Services Revenue. Revenues from water and sewerage services arerecognized upon supply of water to the customers. Billings to customers consist of water,environmental and sewerage charges.

ƒ Toll Fees. Revenue from toll fees is recognized upon sale of toll tickets. Toll fees received inadvance, 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 feesreceived in advance is reflected in “Unearned revenue and other deposits” under “Accountspayable and other current liabilities” account in the consolidated statement of financial position.

ƒ Power and Coal Sales. ‘Power revenue’ consist of energy fees for the energy and servicessupplied by the generation companies as provided for in their respective EPPAs with customers,after transmission and ancillary charges. Energy fee is recognized based on actual delivery ofenergy generated and made available to customers multiplied by the applicable tariff rate, net ofadjustments, as agreed upon between the parties. These adjustments consist of discounts whichdepend on the provisions in the respective EPPAs. Discounts may pertain to prompt paymentdiscount which is given upon payment within a specified period of time, volume discount whichis computed based on the delivery of energy generated and made available to the customersmultiplied by a specific rate agreed with the customer, or load factor discount computed based onthe difference of the adjusted tariff rate agreed with the customer for the purpose of the discount.Energy fees derived from trading operations and recognized based on actual delivery of suchelectricity at relevant trading prices. ‘Coal sales revenue’ is recognized when the significant risksand rewards of ownership of the goods have passed to the buyer and the amount of revenue canbe measured reliably. Revenue is measured at the fair value of consideration received based onactual quantity of coal delivered.

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ƒ Hospital Revenue. Hospital Revenue comprises of revenue from medical services and schoolrevenue. Revenue is recognized upon rendering of medical services and sale of medicines andother pharmaceutical products. School Revenue comprising of tuition and other school fees arerecognized as income over the corresponding school term. Tuition and other school fees relatedto the succeeding school term which are collected in advance are presented in “Unearned revenueand other deposits” under “Accounts payable and other current liabilities” in the consolidatedstatement of financial position.

ƒ Rail Revenue. Rail revenue is generally recognized in profit or loss when the journey iscompleted or provided.

ƒ Logistics Revenue. Revenue from logistics services is recognized as services are rendered.

Other revenue and income stream recognized under “Other income”:

ƒ Construction Revenue. See accounting policy under “Service Concession Arrangements:Revenue and cost recognition”.

ƒ Interest Income. Interest income is recognized as it accrues, using the effective interest ratemethod.

ƒ Dividend Income. Revenue is recognized when the right to receive the payment is establishedwhich is upon the declaration date.

ƒ Sale of Investments. Gain or loss is recognized when risk and rewards of ownership had beentransferred to the buyer.

ƒ Management Fees. Fees are recognized when services are rendered.

ƒ Rental Income. Rental income under operating leases is accounted for in accordance with theterms of the leases and generally on a straight-line basis.

ƒ Others. Other income is recognized when there are incidental economic benefits, other than theusual business operations, that will flow to the Company and can be measured reliably.

Cost and Expenses RecognitionCost and expenses are recognized in profit or loss when a decrease in future economic benefit relatedto a decrease of an asset or an increase of a liability has arisen that can be measured reliably. Costand expenses are recognized in profit or loss on the basis of systematic and rational allocationprocedures when economic benefits are expected to arise over several accounting periods and theassociation with income can only be broadly or indirectly determined; or immediately whenexpenditure produces no future economic benefits or when, and to the extent that, future economicbenefits do not qualify or cease to qualify, for recognition in the Company’s consolidated statementof financial position as an asset.

LeasesThe determination of whether an arrangement is or contains a lease is based on the substance of thearrangement at inception date of whether the fulfillment of the arrangement is dependent on the use ofa specific asset or assets and the arrangement conveys a right to use the asset. A reassessment ismade 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;

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b. A renewal option is exercised or extension granted, unless the term of the renewal or extensionwas initially included in the lease term;

c. There is a change in the determination of whether the fulfillment is dependent on a specifiedasset; 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 thechange in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and the date ofrenewal or extension period for scenario (b).

Leases where the lessor retains substantially all the risks and benefits of ownership of the assets areclassified as operating leases. Initial direct costs incurred in negotiating operating leases are added tothe carrying amount of the leased asset and recognized over the lease term on the same basis as rentalincome. Contingent rents are recognized as income in the period in which they are earned.

Operating lease payments, net of aggregate of benefit of lease incentives, are recognized as income inprofit or loss on a straight-line basis over the lease term.

Retirement and Other Benefits

Defined Contribution Plan. Certain subsidiaries of the group each maintain a defined contributionplan that covers all regular full-time employees. Under the defined contribution plan, fixedcontributions by the employer are based on the employees’ monthly salaries. However, entitiesoperating in the Philippines, are covered under Republic Act (RA) No. 7641, The PhilippineRetirement Law, which provides for qualified employees a defined benefit minimum guarantee. Thedefined benefit minimum guarantee is equivalent to a certain percentage of the monthly salarypayable to an employee at normal retirement age with the required credited years of service based onthe provisions of RA 7641.

Accordingly, these entities account for the retirement obligation under the higher of the definedbenefit obligation relating to the minimum guarantee and the obligation arising from the definedcontribution plan.

For the defined benefit minimum guarantee plan, the liability is determined based on the presentvalue of the excess of the projected defined benefit obligation over the projected defined contributionplan obligation at the end of the reporting period. The defined benefit obligation is calculatedannually by a qualified independent actuary using the projected unit credit method. The Companydetermines the net interest expense (income) on the net defined benefit liability (asset) for the periodby applying the discount rate used to measure the defined benefit obligation at the beginning of theannual period to the then net defined benefit liability (asset), taking into account any changes in thenet defined benefit liability (asset) during the period as a result of contributions and benefit payments.Net interest expense (income) and other expenses (income) related to the defined benefit plan arerecognized in profit or loss.

The defined contribution liability, on the other hand, is measured at the fair value of the definedcontribution assets upon which the defined contribution benefits depend, with an adjustment formargin on asset returns, if any, where this is reflected in the defined contribution benefits.

Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, thereturn on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest),are recognized immediately in other comprehensive income.

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When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefitthat relates to past service or the gain or loss on curtailment is recognized immediately in profit orloss. The Company recognizes gains or losses on the settlement of a defined benefit plan when thesettlement occurs.

Defined Benefit Plan. Certain subsidiaries have funded, noncontributory retirement benefit planscovering all their eligible regular employees. The net defined benefit liability or asset is theaggregate of the present value of the defined benefit obligation at the end of the reporting periodreduced by the fair value of plan assets (if any), adjusted for any effect of limiting a net definedbenefit asset to the asset ceiling. The asset ceiling is the present value of any economic benefitsavailable in the form of refunds from the plan or reductions in future contributions to the plan.

The cost of providing benefits under the defined benefit plans is actuarially determined using theprojected unit credit method.

Defined benefit costs comprise the following: (a) service cost; (b) net interest on the net definedbenefit liability or asset; and (c) remeasurements of net defined benefit liability or asset.

Service costs which include current service costs, past service costs and gains or losses onnon-routine settlements are recognized as expense in profit or loss. Past service costs are recognizedwhen plan amendment or curtailment occurs. These amounts are calculated periodically byindependent qualified actuaries.

Net interest on the net defined benefit liability or asset is the change during the period in the netdefined benefit liability or asset that arises from the passage of time which is determined by applyingthe discount rate based on government bonds to the net defined benefit liability or asset. Net intereston the net defined benefit liability or asset is recognized as expense or income in profit or loss.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change in theeffect of the asset ceiling (excluding net interest on defined benefit liability) are recognizedimmediately in other comprehensive income in the period in which they arise. These remeasurementsare not reclassified to profit or loss in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurancepolicies. Plan assets are not available to the creditors of the Company, nor can they be paid directlyto the Company. Fair value of plan assets is based on market price information. When no marketprice is available, the fair value of plan assets is estimated by discounting expected future cash flowsusing a discount rate that reflects both the risk associated with the plan assets and the maturity orexpected disposal date of those assets (or, if they have no maturity, the expected period until thesettlement of the related obligations). If the fair value of the plan assets is higher than the presentvalue of the defined benefit obligation, the measurement of the resulting defined benefit asset islimited to the present value of economic benefits available in the form of refunds from the plan orreductions in future contributions to the plan.

The Company’s right to be reimbursed of some or all of the expenditure required to settle a definedbenefit obligation is recognized as a separate asset at fair value when and only when reimbursement isvirtually certain.

Termination benefit. Termination benefits are employee benefits provided in exchange for thetermination of an employee’s employment as a result of either an entity’s decision to terminate anemployee’s employment before the normal retirement date or an employee’s decision to accept anoffer of benefits in exchange for the termination of employment.

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A liability and expense for a termination benefit is recognized at the earlier of when the entity can nolonger withdraw the offer of those benefits and when the entity recognizes related restructuring costs.Initial recognition and subsequent changes to termination benefits are measured in accordance withthe nature of the employee benefit, as either post-employment benefits, short-term employee benefits,or other long-term employee benefits.

Employee leave entitlement. Employee entitlements to annual leave are recognized as a liability whenthey are accrued to the employees. This is measured based on undiscounted amount of liability forleave expected to be settled wholly before twelve months after the end of the annual reporting periodin which the employees rendered the related services.

ESOPThe Company has an ESOP for eligible executives to receive remuneration in the form ofshare-based payment transactions, whereby executives render services in exchange for the shareoption.

The cost of equity-settled transactions with employees is measured by reference to the fair value ofthe 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 28. In valuing equity-settled transactions,no account is taken of any performance conditions, other than conditions linked to the share price ofthe 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 dateon which the relevant employees become fully entitled to the award (“vesting date”). The cumulativeexpense recognized for equity-settled transactions at each end of reporting period until the vestingdate reflects the extent to which the vesting period has expired and the Company’s best estimate atthat date of the number of awards that will ultimately vest. The profit or loss credit or expense for aperiod represents the movement in cumulative expense recognized as at the beginning and end of thatperiod and is recognized as employee benefits.

No expense is recognized for awards that do not ultimately vest, except for awards where vesting isconditional upon a market condition, which are treated as vesting irrespective of whether or not themarket condition is satisfied, provided that all other performance and/or service conditions aresatisfied.

When the terms of an equity-settled award are modified, the minimum expense recognized is theexpense as if the terms had not been modified, if the original terms of the award are met. If themodification increases the fair value of the equity instruments granted, as measured immediatelybefore and after the modification, the entity shall include the incremental fair value granted in themeasurement of the amount recognized for services received as consideration for the equityinstruments granted. The incremental fair value granted is the difference between the fair value of themodified equity instrument and that of the original equity instrument, both estimated as at the date ofthe modification. If the modification occurs during the vesting period, the incremental fair valuegranted is included in the measurement of the amount recognized for services received over theperiod from the modification date until the date when the modified equity instruments vest, inaddition to the amount based on the grant date fair value of the original equity instruments, which isrecognized over the remainder of the original vesting period. If the modification occurs after vestingdate, the incremental fair value granted is recognized immediately, or over the vesting period if theemployee is required to complete an additional period of service before becoming unconditionallyentitled to those modified equity instruments.

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Where an equity-settled award is cancelled, 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 anyaward where non-vesting conditions within the control of either the entity or the counterparty are notmet. However, if a new award is substituted for the cancelled award, and designated as a replacementaward on the date that it is granted, the cancelled and new awards are treated as if they weremodifications of the original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected as additional share dilution in the computationof earnings per share.

RSUPThe Company has an RSUP for eligible executives of the Company and subsidiaries to receiveremuneration in the form of share-based payment transactions, whereby executives render services inexchange for the share awards.

The cost of equity-settled transactions (cost of RSUP) with employees is measured by reference to thefair value of the shares at the date at which they are granted. Fair value is determined based on theprevailing closing market price of the shares, further details of which are set forth in Note 31.

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 dateon which the relevant employees become fully entitled to the award (“vesting date”). The cumulativecost of RSUP recognized for equity-settled transactions at each end of reporting period until thevesting date reflects the extent to which the vesting period has expired and the Company’s bestestimate at that date of the number of awards that will ultimately vest. The profit or loss credit orexpense for a period represents the movement in cumulative expense recognized as at the beginningand end of that period and is recognized as employee benefits.

No expense is recognized for awards that do not ultimately vest. The dilutive effect of outstandingoptions is reflected as additional share dilution in the computation of earnings per share(see Note 27).

Long-term Employee BenefitsThe Company’s Long-Term Incentives Plan (LTIP) grants cash incentives to eligible key executivesof the Parent Company and certain subsidiaries. Liability under the LTIP is determined using theprojected 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 arerecognized immediately in profit or loss.

Foreign Currency-Denominated Transactions and TranslationsThe consolidated financial statements are presented in Philippine Peso, which is the ParentCompany’s functional and presentation currency. All subsidiaries and associates evaluate theirprimary economic and operating environment and determine their functional currency. Itemsincluded in the consolidated financial statements of each entity are initially measured using thatfunctional currency.

Transactions and balances. Transactions in foreign currencies are initially recorded in the functionalcurrency rate of exchange ruling at the date of transaction. Monetary assets and liabilitiesdenominated in foreign currencies are translated at the functional currency rate of exchange ruling atthe end of reporting period. All differences are taken to profit or loss except when qualified asadjustment to borrowing costs, and as discussed below for Maynilad.

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Foreign exchange differentials relating to the restatement of concession fees payable are deferred inview of the automatic reimbursement mechanism as approved by the MWSS Board of Trustees underAmendment No. 1 of the Concession Agreement of Maynilad. Net foreign exchange losses arerecognized as deferred FCDA and net foreign exchange gains are recognized as “Deferred FCDAcharges” under “Other noncurrent assets” in the consolidated statements of financial position. Thewrite-off of the deferred FCDA or reversal of deferred credits will be made upon determination of thenew base foreign exchange rate as approved by the Regulatory Office (RO) during every RateRebasing exercise, unless indication of impairment of the deferred FCDA would be evident at anearlier date.

Foreign exchange differentials arising from other foreign currency-denominated transactions arecredited or charged to operations.

Group companies. On consolidation, the assets and liabilities of foreign operations are translated intoPhilippine Peso at the rate of exchange prevailing at the reporting date and their statements ofcomprehensive income are translated at exchange rates prevailing at the dates of the transactions.The exchange differences arising on translation for consolidation are recognized in OCI. On disposalof a foreign operation, the component of OCI relating to that particular foreign operation isrecognized in profit or loss.

Income Taxes

Current Tax. Current tax assets and liabilities for the current and prior periods are measured at theamount expected to be recovered from or paid to the tax authority. The tax rates and tax laws used tocompute the amount are those that are enacted or substantively enacted, at the reporting date wherethe Company operates and generates taxable income.

Current income tax relating to items recognized directly in equity is recognized in equity and not inprofit or loss. Management periodically evaluates positions taken in the tax returns with respect tosituations in which applicable tax regulations are subject to interpretation and establishes provisionswhere appropriate.

Deferred Tax. Deferred tax is provided using the liability method on temporary differences betweenthe tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at thereporting date.

Deferred tax liabilities are recognized for all taxable temporary differences, except (a) where thedeferred tax liability arises from the initial recognition of goodwill or of an asset or liability in atransaction that is not a business combination and, at the time of the transaction, affects neither theaccounting income nor taxable income; and (b) in respect of taxable temporary differences associatedwith investments in subsidiaries, associates and joint ventures, where the timing of the reversal of thetemporary differences can be controlled and it is probable that the temporary differences will notreverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, carryforward benefits ofunused tax credits from excess minimum corporate income tax (MCIT) over the regular corporateincome tax (RCIT) and unused net operating loss carryover (NOLCO), to the extent that it is probablethat taxable income will be available against which the deductible temporary differences andcarryforward 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 atransaction that is not a business combination and, at the time of the transaction, affects neither theaccounting income nor taxable income or loss; and (b) in respect of deductible temporary differences

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associated with investments in subsidiaries, associates and interest in joint ventures, deferred taxassets are recognized only to the extent that it is probable that the temporary differences will reversein the foreseeable future and taxable income will be available against which the temporary differencescan be utilized.

The carrying amount of deferred tax assets is reviewed at each end of reporting period and reduced tothe extent that it is no longer probable that sufficient taxable income will be available to allow all orpart of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at eachend of the reporting period and are recognized to the extent that it has become probable that futuretaxable 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 yearwhen the asset is realized or the liability is settled, based on tax rates and tax laws that have beenenacted or substantively enacted at the reporting date.

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 OCI or directlyin equity.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to offsetcurrent tax assets against current tax liabilities and the deferred taxes relate to the same taxable entityand the same tax authority.

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separaterecognition at that date, are recognized subsequently if new information about facts andcircumstances change. The adjustment is either treated as a reduction in goodwill (as long as it doesnot exceed goodwill) if it was incurred during the measurement period or recognized in profit or loss.

Sales TaxRevenues, expenses and assets are recognized net of the amount of sales tax (commonly referred to asvalue-added tax), except:

ƒ When the sales tax incurred on a purchase of assets or services is not recoverable from the taxauthority, in which case the sales tax is recognized as part of the cost of acquisition of the asset oras part of the expense item, as applicable

ƒ When receivables and payables 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 partof “Other current assets” or “Accounts payable and other current liabilities” in the consolidatedstatement of financial position.

Earnings Per ShareBasic earnings per share is calculated by dividing the net income for the year attributable to theowners of the Parent Company by the weighted average number of common shares outstandingduring the year, after considering the retroactive effect of stock dividend declaration, if any.

Diluted earnings per share attributable to owners of the Parent Company is calculated in the samemanner assuming that, the weighted average number of common shares outstanding is adjusted forpotential common shares from the assumed exercise of ESOP and other dilutive instruments.

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Events after the Reporting PeriodPost year-end events that provide additional information about the Company’s financial position atthe reporting date (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 financialstatements when material.

38. Future Changes in Accounting Policies

Pronouncements issued but not yet effective are listed below. Unless otherwise indicated, theCompany does not expect that the future adoption of the said pronouncements will have a significantimpact on its consolidated financial statements. The Company intends to adopt the followingpronouncements when they become effective.

Effective beginning on or after January 1, 2018

∂ Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-basedPayment Transactions

The amendments to PFRS 2 address three main areas: the effects of vesting conditions on themeasurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and theaccounting where a modification to the terms and conditions of a share-based paymenttransaction changes its classification from cash settled to equity settled.

∂ PFRS 9, Financial Instruments

PFRS 9 reflects all phases of the financial instruments project and replaces PAS 39, FinancialInstruments: Recognition and Measurement, and all previous versions of PFRS 9. The standardintroduces new requirements for classification and measurement, impairment, and hedgeaccounting. Retrospective application is required but providing comparative information is notcompulsory. For hedge accounting, the requirements are generally applied prospectively, withsome limited exceptions.

The Company plans to adopt the new standard on the mandatory effective date and will notrestate comparative information.

In 2017, the Company performed its initial impact assessment of all three phases of PFRS 9 andbased on assessment, adoption is not expected to have a significant impact on the consolidatedfinancial statements but will have an effect on the classification and measurement of theCompany’s financial assets and impairment methodology for financial assets, but will have noimpact on the classification and measurement of the Company’s financial liabilities.

∂ Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial Instruments, withPFRS 4

The amendments address concerns arising from implementing PFRS 9, the new financialinstruments standard before implementing the new insurance contracts standard. The amendmentsintroduce two options for entities issuing insurance contracts: a temporary exemption fromapplying PFRS 9 and an overlay approach. The temporary exemption is first applied for reportingperiods beginning on or after January 1, 2018. An entity may elect the overlay approach when itfirst applies PFRS 9 and apply that approach retrospectively to financial assets designated ontransition to PFRS 9. The entity restates comparative information reflecting the overlay approachif, and only if, the entity restates comparative information when applying PFRS 9.

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The amendments are not applicable to the Company since none of the entities within theCompany have activities that are predominantly connected with insurance or issue insurancecontracts.

∂ PFRS 15, Revenue from Contracts with Customers

PFRS 15 establishes a new five-step model that will apply to revenue arising from contracts withcustomers. Under PFRS 15, revenue is recognized at an amount that reflects the consideration towhich an entity expects to be entitled in exchange for transferring goods or services to acustomer. The principles in PFRS 15 provide a more structured approach to measuring andrecognizing revenue.

The new revenue standard is applicable to all entities and will supersede all current revenuerecognition requirements under PFRSs. Either a full retrospective application or a modifiedretrospective application is required for annual periods beginning on or after January 1, 2018.Early adoption is permitted. The Company plans to adopt the new standard on the requiredeffective date using the full retrospective method.

Based on its initial assessment, the requirements of PFRS 15 will not have a material impact onthe Company’s consolidated financial position and performance.

However, as the presentation and disclosure requirements in PFRS 15 are more detailed thanunder current PFRSs, the Company is currently assessing what necessary changes it needs to make onits current systems, internal controls, policies and procedures to enable the Company to collect anddisclose the required information.

The recognition and measurement requirements in PFRS 15 also apply to gains or losses ondisposal of nonfinancial assets (such as items of property and equipment and intangible assets),when that disposal is not in the ordinary course of business. However, on transition, the effect ofthese changes is not expected to be material for the Company.

∂ Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part of AnnualImprovements to PFRSs 2014 - 2016 Cycle)

The amendments clarify that an entity that is a venture capital organization, or other qualifyingentity, may elect, at initial recognition on an investment-by-investment basis, to measure itsinvestments in associates and joint ventures at fair value through profit or loss (FVPL). They alsoclarify that if an entity that is not itself an investment entity has an interest in an associate or jointventure that is an investment entity, the entity may, when applying the equity method, elect toretain the fair value measurement applied by that investment entity associate or joint venture tothe investment entity associate’s or joint venture’s interests in subsidiaries. This election is madeseparately for each investment entity associate or joint venture, at the later of the date on which(a) the investment entity associate or joint venture is initially recognized; (b) the associate or jointventure becomes an investment entity; and (c) the investment entity associate or joint venture firstbecomes a parent.

The amendments shall be applied retrospectively. The amendment is not applicable as theCompany is not a venture capital organization or any of the qualifying entities that can elect tomeasure investments in associates and joint ventures at FVPL.

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∂ Amendments to PAS 40, Investment Property, Transfers of Investment Property

The amendments clarify when an entity should transfer property, including property underconstruction or development into, or out of investment property. The amendments state that achange in use occurs when the property meets, or ceases to meet, the definition of investmentproperty and there is evidence of the change in use. A mere change in management’s intentionsfor the use of a property does not provide evidence of a change in use. The amendments shouldbe applied prospectively to changes in use that occur on or after the beginning of the annualreporting period in which the entity first applies the amendments. Retrospective application isonly permitted if this is possible without the use of hindsight.

Since the Company’s current practice is in line with the clarifications issued, the Company doesnot expect any effect on its consolidated financial statements upon adoption of theseamendments.

∂ Philippine Interpretation IFRIC-22, Foreign Currency Transactions and Advance Consideration

The interpretation clarifies that, in determining the spot exchange rate to use on initial recognitionof the related asset, expense or income (or part of it) on the derecognition of a non-monetary assetor non-monetary liability relating to advance consideration, the date of the transaction is the dateon which an entity initially recognizes the nonmonetary asset or non-monetary liability arisingfrom the advance consideration. If there are multiple payments or receipts in advance, then theentity must determine a date of the transactions for each payment or receipt of advanceconsideration. Entities may apply the amendments on a fully retrospective basis. Alternatively,an entity may apply the interpretation prospectively to all assets, expenses and income in itsscope that are initially recognized on or after the beginning of the reporting period in which theentity first applies the interpretation or the beginning of a prior reporting period presented ascomparative information in the financial statements of the reporting period in which the entityfirst applies the interpretation.

Since the Company’s current practice is in line with the clarifications issued, the Company doesnot expect any effect on its consolidated financial statements upon adoption of this interpretation.

Effective beginning on or after January 1, 2019

∂ Amendments to PFRS 9, Prepayment Features with Negative Compensation

The amendments to PFRS 9 allow debt instruments with negative compensation prepaymentfeatures to be measured at amortized cost or fair value through other comprehensive income.

∂ PFRS 16, Leases

PFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure ofleases and requires lessees to account for all leases under a single on-balance sheet model similarto the accounting for finance leases under PAS 17, Leases. The standard includes two recognitionexemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and short-termleases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease,a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an assetrepresenting the right to use the underlying asset during the lease term (i.e., the right-of-useasset). Lessees will be required to separately recognize the interest expense on the lease liabilityand the depreciation expense on the right-of-use asset.

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Lessees will be also required to remeasure the lease liability upon the occurrence of certain events(e.g., a change in the lease term, a change in future lease payments resulting from a change in anindex or rate used to determine those payments). The lessee will generally recognize the amountof the remeasurement of the lease liability as an adjustment to the right-of-use asset.

Lessor accounting under PFRS 16 is substantially unchanged from today’s accounting underPAS 17. Lessors will continue to classify all leases using the same classification principle as inPAS 17 and distinguish between two types of leases: operating and finance leases.

PFRS 16 also requires lessees and lessors to make more extensive disclosures than under PAS 17.

A lessee can choose to apply the standard using either a full retrospective or a modifiedretrospective approach. The standard’s transition provisions permit certain reliefs.

The Company is currently assessing the impact of adopting PFRS 16.

∂ Amendments to PAS 28, Long-term Interests in Associates and Joint Ventures

The amendments to PAS 28 clarify that entities should account for long-term interests in anassociate or joint venture to which the equity method is not applied using PFRS 9.

∂ Philippine Interpretation IFRIC-23, Uncertainty over Income Tax Treatments

The interpretation addresses the accounting for income taxes when tax treatments involveuncertainty that affects the application of PAS 12 and does not apply to taxes or levies outside thescope of PAS 12, nor does it specifically include requirements relating to interest and penaltiesassociated with uncertain tax treatments.

The interpretation specifically addresses the following:

• Whether an entity considers uncertain tax treatments separately

• The assumptions an entity makes about the examination of tax treatments by taxationauthorities

• How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused taxcredits and tax rates

• How an entity considers changes in facts and circumstances

An entity must determine whether to consider each uncertain tax treatment separately or togetherwith one or more other uncertain tax treatments. The approach that better predicts the resolutionof the uncertainty should be followed.

The Company is currently assessing the impact of adopting this interpretation.

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Deferred effectivity

∂ Amendments to PFRS 10 and PAS 28, Sale or Contribution of Assets between an Investor and itsAssociate or Joint Venture

The amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss ofcontrol of a subsidiary that is sold or contributed to an associate or joint venture. Theamendments clarify that a full gain or loss is recognized when a transfer to an associate or jointventure involves a business as defined in PFRS 3. Any gain or loss resulting from the sale orcontribution of assets that does not constitute a business, however, is recognized only to theextent of unrelated investors’ interests in the associate or joint venture.

On January 13, 2016, the Financial Reporting Standards Council deferred the original effectivedate of January 1, 2016 of the said amendments until the International Accounting StandardsBoard (IASB) completes its broader review of the research project on equity accounting that mayresult in the simplification of accounting for such transactions and of other aspects of accountingfor associates and joint ventures.

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39. Consolidated Subsidiaries

The consolidated subsidiaries of MPIC are as follows:December 31, 2017 December 31, 2016

Name of Subsidiary Place of Incorporation

MPICDirect

Interest

DirectInterest ofSubsidiary

MPICEffectiveInterest

MPICDirect

Interest


MPICEffective

Interest Principal Activity(In %) (In %)

MPIC SubsidiariesBeacon Electric Asset Holdings, Inc.

(Beacon Electric)Philippines 100.0 – 100.0 – – – Investment holding (see Note 4)

Metro Pacific Tollways Corporation (MPTC) Philippines 99.9 – 99.9 99.9 – 99.9 Investment holding

Maynilad Water Holding Company, Inc.(MWHC)

Philippines 51.3 – 51.3 51.3 – 51.3 Investment holding

MetroPac Water Investments Corporation(MPW)


Metro Pacific Hospital Holdings, Inc.(MPHHI)

Philippines 85.6 – 85.6 85.6 – 85.6 Investment holding; With the Exchangeable Bond, thenon-controlling shareholder is entitled to 39.89%effective ownership interest in MPHHI (see Note 30).

Metro Pacific Light Rail Corp. (MPLRC) Philippines 100.0 – 100.0 100.0 – 100.0 Investment holding

MetroPac Logistics Company, Inc. (MPLC) Philippines 100.0 – 100.0 100.0 – 100.0 Investment holding

MetroPac Clean Energy HoldingsCorporation (MCE)


MetPower Ventures Partners Holdings, Inc.(MVPHI)

Philippines 100.0 – 100.0 – – – Investment holding; Incorporated in March 10, 2017

Fragrant Cedar Holdings, Inc. (FCHI) Philippines 100.0 – 100.0 100.0 – 100.0 Property Lessor

Porrovia Corporation Philippines 50.0 50.0 100.0 50.0 50.0 100.0 Investment holding

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December 31, 2017 December 31, 2016


MPICDirect

Interest



MPICDirect

Interest


MPICEffective


Neo Oracle Holdings, Inc (NOHI) Philippines 96.6 – 96.6 96.6 – 96.6 Investment holding and Real estate; Formerly MetroPacific Corporation (MPC). NOHI’s corporate lifeended December 31, 2013 and is currently under theprocess of liquidation.

MPIC-JGS Airport Holdings, Inc.(MPIC-JGS)

Philippines 58.8 – 58.8 58.8 – 58.8 Investment holding; BOD of MPIC-JGS approved theshortening of the company’s corporate life to untilFebruary 15, 2016.

Metro Global Green Waste, Inc. (MGGW) Philippines 70.0 – 70.0 70.0 – 70.0 Investment holding; BOD of MGGW approved theshortening of the company’s corporate life to untilDecember 31, 2017.

MPIC Infrastructure Holdings Limited(MIHL)

BVI 100.0 – 100.0 100.0 – 100.0 Investment holding

Beacon Electric SubsidiaryBeacon PowerGen Holdings, Inc. (BPHI) Philippines – 100.0 100.0 – – – Investment holding (see Note 4)

BPHI SubsidiaryGlobal Business Power Corporation (GBPC) Philippines – 56.0 62.4 – – – Investment Holding (see Note 4)

GBPC SubsidiariesARB Power Ventures, Inc. (APVI) Philippines – 100.0 62.4 – – – Investment holdingGBH Power Resources, Inc. (GPRI) Philippines – 100.0 62.4 – – – Power GenerationGlobal Energy Supply Corporation (GESC) Philippines – 100.0 62.4 – – – Power DistributionGlobal Hydro Power Corporation (GHPC) Philippines – 100.0 62.4 – – – Power GenerationGlobal Renewables Power Corporation

(GRPC)Philippines – 100.0 62.4 – – – Power Generation

Mindanao Energy Development Corporation(MEDC)

Philippines – 100.0 62.4 – – – Power Generation

Toledo Cebu International TradingResources Corporation (TCITRC)

Philippines – 100.0 62.4 – – – Trading business

Toledo Holdings Corporation (THC) Philippines – 100.0 62.4 – – – Investment holdingToledo Power Company (TPC) Philippines – 100.0 62.4 – – – Power GenerationGlobal Formosa Power Holdings, Inc.

(GFPHI)Philippines – 93.2 58.2 – – – Investment holding

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MPICDirect

Interest



MPICDirect

Interest


MPICEffective


Panay Power Holdings Corporation (PPHC) Philippines – 89.3 55.7 – – – Investment holdingLunar Power Core, Inc. (LPCI) Philippines – 57.5 35.9 – – – Investment holding

GFPHI SubsidiaryCebu Energy Development Corporation

(CEDC)Philippines – 56.0 32.6 – – – Power Generation

LPCI SubsidiaryGlobal Luzon Energy Development

Corporation (GLEDC)Philippines – 100.0 35.9 – – – Power Generation

PPHC SubsidiariesPanay Power Company (PPC) Philippines – 100.0 55.7 – – – Power GenerationPanay Energy Development Corporation

(PEDC)Philippines – 100.0 55.7 – – – Power Generation

GRPC SubsidiaryCACI Power Corporation (CACI) Philippines – 100.0 62.4 – – – Power Generation

MVPHI Subsidiary

Surallah Biogas Ventures Corp. Philippines – 100.0 100.0 – – –Power Generation; Incorporated in November 11,2017

MPTC SubsidiariesMetro Pacific Tollways North Corporation

(MPT North; formerly Metro PacificTollways Development Corporation)

Philippines – 100.0 99.9 – 100.0 99.9 Investment holding

Cavitex Infrastructure Corporation (CIC) andsubsidiaries

Philippines – 100.0 99.9 – 100.0 99.9 Tollway operations; Interest in CIC is held through aManagement Letter Agreement. CIC holds theconcession agreement for the CAVITEX (see Note 1).

Metro Strategic InfrastructureHoldings, Inc. (MSIHI)

Philippines – 97.0 96.9 – 97.0 96.9 Investment holding

MPT Asia BVI – 100.0 99.9 – 100.0 99.9 Investment holding

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MPICDirect

Interest



MPICDirect

Interest


MPICEffective


Metro Pacific Tollways ManagementServices, Inc. (MPTMSI)

Philippines – 100.0 99.9 – 100.0 99.9 Formerly M+ Corporation. Incorporated on August 24,2016 with the primary purpose to carry on the tollcollection function of CAVITEX and CALAEX.

Metro Pacific Tollways South Corporation Philippines – 100.0 99.9 – 100.0 99.9 Holding company

MPT North SubsidiariesNLEX Corporation Philippines – 75.2 75.2 – 75.6 75.5 Tollway operations (see Note 1); Change in the

corporate name from Manila North TollwaysCorporation was approved by the SEC onFebruary 13, 2017.

Tollways Management Corporation (TMC) Philippines – 72.6 72.5 – – – Tollway management (see Note 4)Collared Wren Holdings, Inc. (CWHI) Philippines – 100.0 99.9 – 100.0 99.9 Investment holdingLarkwing Holdings, Inc. (LHI) Philippines – 100.0 99.9 – 100.0 99.9 Investment holding

MPCALA Holdings, Inc. (MPCALA) Philippines – 51.0 99.9 – 51.0 99.9 Tollway operations (see Note 1); MPCALA is ownedby MPTDC at 51% and the remaining 49% ownedequally by CWHI and LHI.; holds the concessionagreement for the CALAEX.

Cebu Cordova Link Expressway Corporation(CCLEC)

Philippines – 100.0 99.9 – 100.0 99.9 Tollway operations; CCLEC holds the concessionagreement for the CCLEX (see Note 1)

Metro Pacific Tollways Vizmin Philippines – 100.0 99.9 – 100.0 99.9 Investment holdingLuzon Tollways Corporation (LTC) Philippines – 100.0 99.9 – 100.0 99.9 Tollway operations; Dormant

NLEX Corp SubsidiaryNLEX Ventures Corporation Philippines – 100.0 75.5 – 100.0 75.5 Service facilities management

MPT Asia SubsidiariesMPT Thailand BVI – 100.0 99.9 – 100.0 99.9 Investment holding

FPM Tollway (Thailand) Limited Hong Kong – 100.0 99.9 – 100.0 99.9 Investment holding

AIF Toll Road Holdings (Thailand) Co., Ltd(AIF)

Thailand – 100.0 99.9 – 100.0 99.9 Investment holding; holds the investment in DMT (seeNote 10).

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MPICDirect

Interest



MPICDirect

Interest


MPICEffective


MPT Vietnam Corporation BVI – 100.0 99.9 – – – Investment holding; Holds the investment in CII B&R(see Note 10)

PT Metro Pacific Tollways Indonesia Indonesia – 100.0 99.9 – – – Investment holding; Holds the investment in PTNusantara; Incorporated in 2017 (see Note 10).

Metro Pacific Tollways SouthCorporation

Metro Pacific Tollways SouthManagement Corporation

Philippines – 100.0 99.9 – – – Tollway operations

MWHC SubsidiaryMaynilad Water Services, Inc. (Maynilad) Philippines 5.2 92.9 52.8 5.2 92.9 52.8 Water and sewerage services; Holds the concession

agreement for the water distribution in the WestConcession Area (see Note 1).

Maynilad SubsidiariesAmayi Water Solutions, Inc. (AWSI) Philippines – 100.0 52.8 – 100.0 52.8 Water and sewerage servicesPhilippine Hydro, Inc. (PHI) Philippines – 100.0 52.8 – 100.0 52.8 Water and sewerage services (see Note 1).

MPW SubsidiariesMetroPac Cagayan De Oro, Inc. (MCDO) Philippines – 100.0 100.0 – 100.0 100.0 Water servicesMetroPac Iloilo Holdings Corp.(MILO) Philippines – 100.0 100.0 – 100.0 100.0 Investment holding/ Water servicesMetro Iloilo Bulk Water Supply Corp. Philippines – 80.0 80.0 – 80.0 80.0 Bulk water services; Holds the joint venture agreement

for the bulk water supply in MIWD (see Note 1).

Eco-System Technologies International, Inc.(ESTII)(

Philippines – 65.0 65.0 – 65.0 65.0 EPC and O&M contractor; Acquired in 2016 (seeNote 4).

MetroPac Cagayan de Oro Holdings, Inc. Philippines – 100.0 100.0 – – – Investment holding; Incorporated in July 31, 2017Cagayan De Oro Bulk Water, Inc. – 95.0 95.0 – – – Bulk water services; Holds the joint venture agreement

for the bulk water supply in COWD; Incorporated inOctober 4, 2017 (see Note 30).

MetroPac Baguio Holdings Inc. Philippines – 100.0 100.0 – – – Investment holding; Incorporated in July 31, 2017

Metro Pacific Water International Limited BVI – 100.0 100.0 – – –Investment holding; Incorporated in October 25, 2017

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MPICDirect

Interest



MPICDirect

Interest


MPICEffective


MPHHI SubsidiariesRiverside Medical Center, Inc (RMCI) Philippines – 78.0 66.7 – 78.0 66.7 Hospital operations

East Manila Hospital Managers Corp.(EMHMC)

Philippines – 100.0 85.6 – 100.0 85.6 Hospital operations

Asian Hospital Inc. (AHI) Philippines – 85.6 73.3 – 85.6 73.3 Hospital operations

Colinas Verdes Hospital Managers Corp.(CVHMC)


AHI Hospital Holdings Corp. Philippines – 100.0 85.6 – 100.0 85.6 Investment holding, Formerly BumrungradInternational Philippines Inc.

De Los Santos Medical Center Inc.(DLSMC)


The Megaclinic, Inc. (Megaclinic) Philippines – – – – 51.0 43.7 Clinic managementCentral Luzon Doctors’ Hospital, Inc.

(CLDH)Philippines – 51.0 43.7 – 51.0 43.7 Hospital operations

Metro Pacific Zamboanga Hospital Corp.(MPZHC)


Medigo Corporation Philippines – 100.0 85.6 – 100.0 85.6 Telehealth operations

Sacred Heart Hospital of Malolos Inc.(SHHM)


Marikina Valley Medical Center, Inc.(MVMC)


Delgado Clinic Inc. (DCI) Philippines – 65.0 55.6 – – – Hospital operationsMetro RMCI Cancer Center Corporation Philippines – 51.0 43.7 – – – Hospital operations

St. Elizabeth Hospital, Inc. (SEHI) Philippines – 54.0 46.2 – – – Hospital operations

RMCI SubsidiaryRiverside College, Inc. (RCI) Philippines – 100.0 66.7 – 100.0 66.7 School operations

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MPICDirect

Interest



MPICDirect

Interest


MPICEffective


CVHMC SubsidiaryColinas Healthcare, Inc. Philippines – 100.0 85.6 – 100.0 85.6 Hospital operations

CLDH SubsidiaryMetro CLDH Cancer Center Corporation Philippines – 100.0 43.7 – 100.0 43.7 Clinic management

DCI Subsidiary

Caretech Medical Services, Inc. Philippines – 60.0 33.4 – – –

MPLRC SubsidiariesLight Rail Manila Holdings Inc.(LRMH) Philippines – 50.0 50.0 – 50.0 50.0 Investment holdingLight Rail Manila Corporation (LRMC) Philippines – 55.0 55.0 – 55.0 55.0 Rail operations; Holds the concession agreement for

the LRT-1. (see Note 1).Light Rail Manila Holdings 2, Inc. Philippines – 50.0 50.0 – 50.0 50.0 Investment holdingLight Rail Manila Holdings 6, Inc. Philippines – 50.0 50.0 – 50.0 50.0 Investment holding

MPLC SubsidiariesMetroPac Movers, Inc (MMI) Philippines – 76.0 76.0 76.0 76.0 Logistics (see Note 4).LogisticsPro, Inc. Philippines – 100.0 100.0 – 100.0 100.0 Logistics

–MMI SubsidiariesMetroPac Trucking Company, Inc. Philippines – 100.0 76.0 – 100.0 76.0 LogisticsTruckingPro, Inc Philippines – 100.0 76.0 – 100.0 76.0 LogisticsPremierLogistics, Inc. Philippines – 90.0 68.4 – 100.0 76.0 LogisticsPremierTrucking, Inc. Philippines – 100.0 76.0 – 100.0 76.0 LogisticsOneLogistics, Inc. Philippines – 100.0 76.0 – 100.0 76.0 Logistics

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MPICDirect

Interest



MPICDirect

Interest


MPICEffective


NOHI SubsidiariesFirst Pacific Bancshares Philippines, Inc. Philippines – 100.0 96.6 – 100.0 96.6 Investment holdingMetro Pacific Management Services, Inc. Philippines – 100.0 96.6 100.0 96.6 Management servicesFirst Pacific Realty Partners Corporation

(FPRPC)Philippines – 50.0 48.3 50.0 48.3 Investment holding; BOD of FPRPC approved the

shortening of the company’s corporate life to untilMay 31, 2018.

Metro Tagaytay Land Co., Inc. Philippines – 100.0 96.6 – 100.0 96.6 Real estate; Pre-operating.Pacific Plaza Towers Management Services,

Inc.Philippines – 100.0 96.6 – 100.0 96.6 Management services; Dormant.

Philippine International Paper Corporation Philippines – 100.0 96.6 – 100.0 96.6 Investment holding; Dormant.Pollux Realty Development Corporation Philippines – 100.0 96.6 – 100.0 96.6 Investment holding; Dormant.Metro Asia Link Holdings, Inc. Philippines – 60.0 58.0 – 60.0 58.0 Investment holding; Dormant.

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