1 Maynilad Water Services, Inc. 2012 Annual Report TIDES

MAYNILAD WATER SERVICES, INC. 2012 ANNUAL REPORT ANNUAL INC. 2012 SERVICES, WATER MAYNILAD

CHANGING

TIDES CHANGING Changing Tides 2 TIDESCHANGING CHANGING MAYNILAD WATER SERVICES, INC. 2012 ANNUAL REPORT ANNUAL 2012 INC. SERVICES, WATER MAYNILAD

TIDES Maynilad Water Service, Inc. 2012 Annual Report Annual 2012 Inc. Service, Water Maynilad 1 growth prospects. forward from apositionof strength and take advantage of these accomplishmentspast the now Company look enable to confidently successfully ride tides the of changing thechallenge—to industry. Its The organization Maynilad isgearingitself upfor this new concession area beckons. expansion, asthe opportunity to grow the business outside of its accomplished, the Company isnow moving toward dynamic more access people to potable water. With this transformation vital infrastructure, resulting inimproved service levels and giving West Zone. Investments were poured into the construction of focused ontransforming water and wastewater services inthe The five past years of after Maynilad re-privatization have been TidesChanging 3 Maynilad Water Services, Inc. 2012 Annual Report Year 2012 at a Glance 2012 Year Milestones Chairman the from Letter Report President’s Key Figures Growth for Strategies Highlights Operational Analysis and Financial Review Social Responsibility Corporate in 2012 Received Awards Ahead Road The Directors of Board Management Team Top Financial Statements 3 5 7 11 16 16 17 31 39 50 51 55 57 59 Changing Tides 1 THE COMPANY INBRIEF held at Malacañan Palace on January 24, 2007. Palace onJanuary held atMalacañan ceremony a in place taking Process Selection underdate MWSS the 2007, 19, with completion the January on control oftook Maynilad officially consortium MPIC-DMCI The (DMCI). Inc. Holdings, DMCI and (MPIC) Corporation venturebetween Investments Metro Pacific by ismanaged DMCI-MPICMaynilad Water Company, Inc.—ajoint Noveleta and inCavite Rosario—all Province. oftownsKawit, the and Imus, and Bacoor ofCavite, cities the Metro in Manila; NavotasMalabon—all and Valenzuela, Muntinlupa, Piñas, Las Parañaque, Pasay, Caloocan, Highway), Super ofSouth (west Makati Hills), Batasan and Spirit Holy ofthe Districts the from starting part Avenue,northern the Mindanao Congressional, EDSA, River, Juan ofSan WestAvenue, (west City Quezon Ana), Sta. and Andres ofSan portions but (all ofManila cities ofthe composed The West Zone concession covers 540square kilometers and is West Zone of the Greater Manila Area. the in water wastewaterand operations manage to right exclusive MetropolitanWaterworks given (MWSS) SewerageSystem and ofthe concessionaire a is It base. termsofcustomer in Philippines the in water private concessionaire largest the is Maynilad 2 Maynilad Water Services, Inc. 2012 Annual Report Love for Country for Love even provide can so that we public sector the actively with partner We spur national development solutions that will water with Filipinos more environment. the secure and Teamwork is why This own. as our success their consider people and our value We opportunities and responsibilities, support, the with them provide we company. the individually with and develop to them allow that will Commitment to Excellence to Commitment our maintain To end. an not and as a means excellence view We people to push our we leadership, industry and efficiency operational work. in their innovative and being diligent by excel Entrepreneurship expect We execution. deliberate and thinking creative encourage We sense of a strong with resources people manage company’s to our our needs of the balance to in order accountability and ownership, initiative, stakeholders. other our of those with customers our Customer Service Customer Only partners. providing by growth as our customers our consider We continue we solutions can high-quality water affordable, with them shareholders. and company our for value generating Honesty and Integrity Honesty and always will We integrity. honesty and with stakeholders our with deal We and shareholders customers, our of sake the for do what fair is right and environment. the Our Corporate Values Our Corporate Our Mission that solutions sustainable water and affordable, safe, provide We lives. comfortable more lead to healthier, serve enable we those Our Vision a with Philippines in the solutions company leading the water are We Asia. across presence strong Changing Tides 3 year 2012 at aglance Number of Billed Services Net Income Billed Volume 1,005,350 404.73 5.86

in billion pesos

in million cubicmeters 2011 2011 2011 2012 2012 2012 1,073,508 428.42 6.39 % Change % Change % Change 9 6 7 4 Maynilad Water Services, Inc. 2012 Annual Report (%) (%) (%)

100 96 43.4 2012 2012 2012 2011 2011 2011 24-hour water availability availability water 24-hour Water pressure over 7 psi over pressure Water 96 84 47.8 Average Non-Revenue Water Non-Revenue Average 4 14 10 % Change % Change % Change Changing Tides 5 • • • JANUARY • SEPTEMBER • • • MAY milestones after gapsare inthe network. filled The Marcos primarylinealong Alvarez inLasPiñasisenergized completed. The combined sewerage interceptor project inPaco, Manila, is marksits5thMaynilad year of re-privatization Maynilad startsMaynilad rehabilitation of IpoDam facility. interceptor system iscompleted. Construction of BaesaSewage Treatment Plant (STP) and energized. The Patindig Araw Pumping Station inImus,Cavite, is watershed restoration activitiesinMuntinlupa. andMaynilad the LLDA signan agreement to implement • • FEBRUARY • • • OCTOBER • • • JUNE during the Water Loss 2012 Conference. The programs NRW management of are Maynilad presented and programs implemented in2011. winsMaynilad five Anvil Awards for itscommunications tools Hydro, Inc.(PhilHydro). takes formally overMaynilad the operations of Philippine Project.Management subsidiary loan agreement for the Metro Manila Wastewater Land Bank of the Philippines, MWCI and signa Maynilad the Honour Global Award. Maynilad’s Water Service Transformation program isconferred audit of itsISO9001, ISO14001 and OHSAS 18001. North Business Caloocan Area passes the surveillance first inaugurated Quezon atSitioBakal, City. TubigA new Samahang (STM) Maynilad community is Paltok STP iscompleted. ofThe laying the combined sewerage interceptor system for 6 Maynilad Water Services, Inc. 2012 Annual Report The water distribution system of Maynilad is awarded ISO Maynilad is awarded of system distribution water The certifications. 18001 OHSAS and ISO 14001 9001, supply Angat from water raw turbidity of rainfall, heavy Due to 1,200 NTU. to increases Dam 40 public schools for stations wash-and-drink of Construction is completed. Zone West in the a receives 2011 year for Report first Sustainability Maynilad’s B. GRI check level audit certification the Division passes Resources Human The ISO 9001. for Distinction” to of Awards “Secretary’s three confers DOLE GKK Awards. 8th Maynilad the during Maynilad wins as overall champion of the MVP Olympics for the Olympics MVP the the for champion of as overall Maynilad wins year. straight second Highway a primary line along Tirona of installation The Cavite. in Bacoor, coverage increases AUGUST • • • DECEMBER • • • APRIL • • Safety Awards. Safety Two Maynilad communications initiatives are declared Finalists declared are initiatives Maynilad communications Two Awards. Quill Philippine 11th at the Purchase sign a Share Consortium Water Manila and MWIC Supply Water implement Carmen Bulk to the Agreement Project. Drinking Water in the Maynilad hailed is Winner as Overall Maynilad’s Water Service Transformation Program wins in the in the wins Program Transformation Service Water Maynilad’s (Asia Pacific). Awards Innovation Project City is at A. Samson in Quezon STP an of construction The completed. and Mission, Vision, Corporate its new Maynilad launches statements. Values at the Quirino Grandstand, Manila. Quirino Grandstand, at the and 18001 OHSAS its of audit recertification the passes DDSSTP ISO 14001. and 9001 ISO of audit surveillance discharge Station line is energized, Pagcor Pumping The south. in the levels service improving Maynilad and the DENR lead the World Water Day celebration Day Water lead World the DENR the Maynilad and • • • NOVEMBER • • J ULY • • • • MARCH Changing Tides 7 CHAIRMAN FROM THE LETTER Chairman Manuel V. Pangilinan 8 Maynilad Water Services, Inc. 2012 Annual Report impact of our Company, and ride ride and Company, our of impact can changing so we the tides, world-class delivering continue who need those to services water it most. Inertia Organizational Against a have companies Successful preserve to tendency natural current to on holding by gains rights exclusive Having routines. drive could area service a over corporate towards tendency this But Maynilad an is inertia. orthodoxy. this to exception our challenged we year, This their beyond go to people who redefining by zones comfort Company. a as are we what and that a change in believe We mindset and motivation our such enable resist us to will being From inertia. organizational now we provider, a basic service leading the as ourselves envision the in company solutions water presence strong a with Philippines, The rate of growth in new new in growth of rate The volume billed and connections as we down, slow to starting are point of saturation the approach service to begin and coverage our our segments of income lower the to need we light, that In market. that opportunities new identify social and value the drive will Whilst we take great pride in pride great take we Whilst accomplished, have we what the must also acknowledge we immense challenges that lie us. ahead of In a span of five years, we we years, five of In a span aggressive an implemented rehabilitation service water delivering now is that program improvements unprecedented also We customers. our to corporate dramatic a engineered in hasresulted that turnaround financial position. strong our The year 2012 marks the end of of end the marks 2012 year The phase. transformation our To all our Stakeholders, all our To 9 Changing Tides letter from the chairman Luzon. accounts in various areas in around 30,000 water service directly and indirectly serves a private water company that Philippine Hydro, Inc. (PhilHydro), We took over the operations of Manila. beyond the West Zone of Metro expanded our business coverage In the fourth quarter of 2012, we Beyond our Zone for Country. Excellence, Teamwork and Love Entrepreneurship, Commitment to and Integrity, Customer Service, to embody the values of Honesty stakeholders, we urgeour people lasting shared value among our more areas. And to create safe, sustainable water to even so that Maynilad can deliver wastewater management, water operations supply and non-revenue water management, on their newfound expertise in We want our to people capitalize in certain partsof Asia. in the Philippines and eventually, and MWIC. partnerships between Maynilad one of many other technical We believe that this will be just for another 25years. period of 30 years, and renewable operations whichwill for last a Water, the Cebu bulk water will jointly supervise, with Manila As technical partner, Maynilad Cebu Bulk Water Supply Project. willthat develop and the manage the Manila Water Consortium MWIC acquired a39% stake in consideration. ventures that are currently under in all Visayas-based water Water Investments Corp. (MWIC) technical partner of Metropac Maynilad will also serve as the unlocking itsfull potential. this company and lookforward to recognize the strategic value of to piped-in water supply. We Nueva Ecija can have access Legazpi City, Nueva Vizcaya and that more communities in Bulacan, be improved and expanded so the operations of PhilHydro can This early, we are studying how Maynilad Water Services, Inc. 2012 Annual Report 10 Manuel V. Pangilinan V. Manuel Chairman More than our modernized water water modernized our than More our really is it infrastructure, our remains which capital human most In the valuableinvestment. on relied Board the that way same Maynilad people transform to our to continue will past, we in the us people take rely to on our formidable of face the in forward challengesahead. will years coming the Though past, than the difficult be more people our that confident am I ride to Maynilad enable will of tides changing the successfully future. the Changing Tides Maynilad of women and men The job tremendous a done have foundation the fortifying of like would I Company. our of hard their for them thank to personal and dedication work, sacrifices. Taking over the position of Mr. Mr. of position the over Taking Marilyn Victorio- Palisoc is Atty. her She brings with Aquino. experience considerable banking, law, of in matters and finance infrastructure, Aquino Atty. investments. to asset an be definitely will especially Board, the at this facing is Maynilad when time and challenges regulatory opportunities investment pursuing Zone. West the outside Board Movements Board stepped Jr. Palisoc Augusto Mr. effective Director as Board down after leaves He 2012. 21, December than more for Maynilad serving the extend to like would I year. a Palisoc Mr. to gratitude Board’s our to contributions many his for Company. 11 Changing Tides PRESIDENT’SPRESIDENT’s REPORT Victorico P. Vargas President &CEO Maynilad Water Services, Inc. 2012 Annual Report 12 15.40 billion. Network Improvements Network reservoirs new two of A total pumping/booster three and in 2012, completed were stations service our which facilitated supply and reliability expansion also a total laid We efforts. pipelines of 234 kilometers of challenges despite in obtaining With improved water availability, availability, water improved With people who of number the at the water their receive 7 psi likewise of pressure average to 96% last year from increased in 2012. 99.8% level service these of As a result billed our volume improvements, 5.8% to by rose year the for This cubic meters. 428.42 million an despite sustained was growth in our 2.3% reduction effective billed improved The supply. water a 9.2% with together volume, effective in average increase its delayed of in spite tariff revenues pushed our application, P to Aside from delivering high delivering from Aside supply at water 24-hour quality, 7 pounds of pressure average an were (psi), we inch square per service water our able expand to to 94.6% compared to coverage in 2011. 92.5% Drivers Growth its pipe-laying Maynilad focused water expand activities to Las Piñas, Muntinlupa to services along This, Cavite. parts of and This, Cavite. of network with calibration network along with efforts, recovery water and billed our enabled increase us to 1,073,508 to 68,158 by services supply the to water improve and such area, concession our of rest areas several as in Malabon and City. in Quezon Despite the challenges the Despite that delivered we 2012, marked our to financial results positive sustainable and shareholders our to improvements service customers. Dear Stakeholders, 13 Changing Tides president’s report our expansion areas. forserved supply asadditional (MLD) of potable water, which around 120million liters per day In effect, we were to recover able 43% compared toyear’s last 48%. us to reduce our average NRW to These accomplishments enabled 160.5-kilometer pipe segments. 107,000than oldmeters and in the system and replaced more we repaired over 46,300leaks Simultaneous with this initiative, and control distribution. supply will usto better enable monitor West Zone, that amilestone Areas (DMA) coverage inthe completed 100%District Metered water recovery strategies. We implemented our relentlessly its downward trend aswe water (NRW) level maintained Meanwhile, our non-revenue customers. infrastructure projects for our these to implement still able in our project execution, we were resulted inconsiderable delays permits. these challenges While rights-of-way and construction automate these DMAs sodata DMAs, our next step isto With the completion of our new customers. efficient and connect 60,000 improve our network to bemore to 100%.We will continue to water with average 7psipressure and grow 24/7 availability of NRW levels to an average of 38%, In 2013, we aimto bringdown In the Pipeline concession area. and treat wastewater inour our enhance capacityto collect wastewater infrastructure, we will City. With these additional and Paltok catchments inQuezon Toro,Sora, Bahay San Antonio sewer lineswithin the Tandang We laid15kilometers also of of 23.8MLD. wastewater treatment capacity facilities have acombined Quezon City. These wastewater Treatment Plants (STPs) in the construction of sixSewage the West Zone, we completed waterin the systems in major to reduce the pollutionload In linewith our commitment Wastewater Management Maynilad Water Services, Inc. 2012 Annual Report 14 Victorico P. Vargas P. Victorico Officer Chief Executive and President As we face the challenges the face As we being more us of ahead of the efficient in light of operational and regulatory rely to continue will risks, we who have employees on our passionately courageously and through customers our served years. the people our than gratitude, More and admiration the have the and Board the of support We Management Team. Top with them providing to commit resources and opportunities the providing continue they need to to services water world-class customers. our 22 5 billion 5 billion Financially, we will look to look to will we Financially, P existing our refinancing acquisition becomes faster faster becomes acquisition is This accurate. more and “automation Maynilad’s part of all cover which will masterplan,” the with starting facilities, vital 14 pumping of local automation stations. billion debt, and raise P raise and debt, billion Suffice to say, these are exciting exciting are these say, to Suffice regulatory our despite times. And optimisticchallenges, remain we ahead. opportunities the of in long-term loans to fund our our fund to loans in long-term closelyalso work will We CAPEX. buttress to Bank World with specifically investments, our in STPs. building Challenges Ahead has process rebasing rate The to is foreseen and been delayed of quarter third the until extend delayed mean would This 2013. are adjustments. We tariff on ensuring a favorable focused as exercise, the from result service our of attainment the on the depend will targets tariff. new the of implementation 15 Changing Tides Maynilad Water Services, Inc. 2012 Annual Report 16 2.1 43 69 96 120 6.81 6.39 99.8 94.6 16.73 15.88 10.87 61.30 7,085 2012* 6,698 44.58 428.42 1,073,508 68 96 84 48 2.2 155 6.01 2011 92.5 9.39 5.86 13.77 55.21 12.33 6,851 42.88 9,035 404.73 1,005,350 71 53 86 66 2.4 7.91 268 87.7 7.94 4.78 4.84 2010 12.05 7,873 6,476 42.59 34.65 373.84 903,682 79 65 86 66 60 2.5 3.76 2.82 6.97 85.6 3.46 38.18 10.62 2009 34.42 6,020 4,504 350.23 814,645 67 58 64 60 2.4 1.99 2.32 (28) 8.24 82.0 4.98 0.94 33.81 5,579 2008 34.75 315.19 6,629 762,319 7 53 56 66 46 3.3 1.67 4.16 1.68 7.38 80.5 -3.24 27.70 2007 3,085 24.46 4,894 286.86 703,519 Continue Continue extending water pipes to the south where West Zone residents are still not connected to network Maynilad’s water Maynilad surface to well deep from large accounts Convert area. coverage PhilHydro’s to adjacent in provinces opportunities business for Look Olongapo City on Subic Water with Purchase Share Agreement for negotiations Facilitate on Leverage management Non-Revenue Water expertise to establish partnerships other Asian with countries stations such as pumping facilities in vital technologies energy-efficient Use of field data of acquisition speedier for Areas Metered District of Automation Maximize Information Technology for more streamlined business processes, units faster operating among collaboration access easier and data, to vital customers calls from incoming to response enhance Call Center that will technologies Tap Maynilad facilities in other Management System Integrated Establish Basin Area River Juan San the in Plants all Treatment Sewage Commission south in the plant septage treatment Construct 2016 by coverage sewerage 27% reach to Zone West in the plan Implement wastewater Continue enhancing technical competencies of Zone employees, West the outside in areas services which consultancy or will contracts be vital for securing water

*The 2012 numbers on the Key Figures table refer to consolidated numbers. consolidated to table refer Key Figures on the numbers 2012 *The Customer Service Improvements Service Customer (%) service water 24-hour Employees per ‘000 connections per Employees CAPEX spent (in Million Pesos) (in Million spent CAPEX Pipes laid to date (km.) date laid to Pipes Min. water pressure of 7 psi (%) of pressure Min. water Non-Revenue Water (% ave.) Water Non-Revenue No. of Billed Water Services Water Billed of No. (%) Coverage Service Water EO (mld) Recovered, Water of Volume Equity Highlights Operating (mcm) Volume Billed Core EBITDA Core (%) Margin EBITDA Core Liability Core Net Income Net Core Assets Expansion Operational Efficiencies Operational Management Wastewater People Financial Performance (in Billion Pesos) Billion (in Financial Performance Revenue Income Net For 2013 onwards, we intend to continue investing in the following key growth areas to to areas key growth following in the investing continue to intend we onwards, 2013 For services high-value make and future, Company’s the secure successes, of string our sustain people. more to available for Growth s for Strategie Management a implemented re-privatization, Maynilad after of years first five In the and mode rehabilitation from Company the that lifted successfully strategy five-pronged as Maynilad transition of a period was 2012 Year a viable it into enterprise. transformed to expected that are strategies and programs long-term in place on putting focused five-year previous the for indicators of evaluation on an momentum, based our preserve period. key figures key 17 Changing Tides enhance operationalenhance efficiencies. and waterreduce losses, south, willthe to extend water services that projects (CAPEX) expenditure implementedMaynilad the capital as 2012 in continued WestZone ofthe transformation positive The H Operatio IGHGHLI T nal S extends in to Imus,particularly The portion of the pipeline that Bacoor was done. Mambog, Molinoand Bayanan in primary distribution system at kilometers of the 7.04-kilometer Muntinlupa. Meanwhile, 3.87 Daangline along Hariin ofin the laying the 5.47-kilometer Substantial progress was made secondary and tertiary pipelines. 234 kilometers of new primary, done in2012 were of the laying infrastructure improvements year for CAPEX. Amongthe water Some P New Facilities Built 6.7 billion was spent this Maynilad Water Services, Inc. 2012 Annual Report 18 of water, giving Maynilad the giving Maynilad the water, of during water store to flexibility so it has hours supplyoff-peak to demand. during peak release Maynilad also commissioned pumping/booster three year this Araw C, Patindig (North stations support to Alvarez) Marcos and efforts. expansion service new of construction the Besides also Company the facilities, maximize to measures applied ones. The existing use of the Bagbag is a major Reservoir potable for facility impounding A, Central the that serves water Districts. South B and Central The Company has Company been looking The its water-holding increase to supply improve capacity to two end, this Towards reliability. in Caloocan built were reservoirs facilities new These year. this liters hold 7 million can combined Buhay na Tubig and Malagasang, and Buhay na Tubig due be completed not could and some right-of-way to delays These issues. permitting Maynilad still notwithstanding, its to managed add 68,158 to as increase as well billed services, 23.68 million by its billed volume the (MCM) from cubic meters year. previous 19 Changing Tides operational highlights reduction program. its Non-Revenue Water (NRW) pursued relentlessly Maynilad continued to godown as Water losses inthe West Zone Sustained Downtrend of NRW influence area improved. also Reservoir’slevel to Bagbag by 140million liters, and service storage capacitywas increased capacity. Ineffect, Maynilad’s fill upthe reservoir to itsfull This allowed the Company to production pattern. system and the dictated demand inthe distribution this facility basedonprojected to anticipate the behaviorof An operation tool was developed Maynilad Water Services, Inc. 2012 Annual Report 20 100% DMA coverage by third third by coverage 100% DMA 2012 of quarter been have 1,271 of 603 automated leaks on 231 underground primary lines detected leaks on underground 6,679 lines tertiary and secondary detected 320 primary line leaks repaired 45,988 leaks in secondary, and pipes service tertiary, repaired. verticals primary, km. of 160.5 Over lines tertiary and secondary replaced replaced small meters 106,000 replaced large meters 1,007 meters 464 electromagnetic installed metered hydrants 312 fire tested meters 175,000 Over valves pressure-regulating 195 installed monitoring 468 pressure points constructed NRW Reduction Reduction NRW 2012 Highlights in Establishment DMA • • Detection Leak • • Repair Leak • • Selective Replacement Pipe • Management Meter • • • • • Management Pressure • • 43 2012 2011 48 53 2010 of new ones, including the including the ones, new of for hydrants fire of metering enhanced supply measurement capabilities. average efforts, these to Owing at was Zone West the in NRW 48% from 2012—down 43.4% by reduction This year. prior in the about represents loss in water day per (MLD) liters 120 million which supply, recovered of for reallocated thereafter was areas. expansion 60 2009 64 2008 %

66 2007 68 2006 Average NRW Average Simultaneous with this initiative, initiative, this with Simultaneous than 160 more Maynilad replaced secondary primary, of kilometers these lines. Most of tertiary and activities were replacement pipe Parañaque. done in Malabon and leaks pipe were 46,000 over Also, to areas in different repaired Addressing losses. curb physical meanwhile, losses, commercial of replacement continued is the installation and meters defective A total of 441 District Metered Metered District 441 of A total established were (DMA) Areas to DMAs bringing total year, this 100% DMA provides This 1,271. concession entire in the coverage established, all DMAs With area. monitor better can Company the supply distribution, control and in each NRW as measure as well area. hydraulic 21 Changing Tides operational highlights for the San Juan River Basin of the 15STPs beingconstructed previous years—constitute eight Congressional completed inthe with those inBaesaand These newly built STPs—along Tandang Sora. Toro,Antonio, Bahay Paltok, and in 2012 are Grant, inLegal, San customers. The STPs completed treat wastewater generated by Maynilad’s capacitytoenhancing was completed this year, further the San Juan River BasinProject Treatment Plants (STP) under The construction of sixSewage Wastewater Management Ayala Alabang. located inCentral Manila and year. of Most these NSSCs are to Maynilad’s sewer network this 1,506 accounts were connected connections (NSSC). Atotal of installation of new sewer service systems, aswell asthe their accompanying conveyance these facilities of isthe laying Along with the construction of the PasigRiver and Manila Bay. tributaries into emptydirectly prioritizing this area becauseits City catchment. is Maynilad System under the Quezon Maynilad Water Services, Inc. 2012 Annual Report 22 - 419 3,306 4,648 10,413 72,479 55,597 342,563 (liner meter) (liner Sewer Line Length Sewer - 4,451 5,359 3,334 18,700 28,500 7,700** 587,000 Maynilad finally closed the US$137.5-million Bank- World funded loan, be which will used to support investments in wastewater collection and treatment, and septage management. Population Served Population Press) Sludge Reactor Reactor STM Aerotor STM Treatment Type Treatment Activated Sludge* Activated Sequencing Batch Sequencing Batch Sequencing Batch Sequencing Batch Primary Treatment Dewatering (Screw (Screw Dewatering Conventional Lagoon Conventional Conventional Activated Activated Conventional 410 570 390 450 10,000 26,000 40,000* 432,000 Capacity (cu.m./day) STPs in Valenzuela, Muntinlupa, Muntinlupa, Valenzuela, in STPs the of Pasay;and rehabilitation of construction and STP; Alabang the in Plant a Septage Treatment south. be that STPs will new four The a have will loan this by funded 197.5 about of capacity treatment a population serve will and MLD, in than one million more of Valenzuela Pasay, City, Quezon Muntinlupa. and Plant Plant Legal STP Baesa STP Ayala STP* Ayala Alabang STP Alabang Dagat-dagatan Dagat-dagatan Treatment Facility Treatment Congressional STP Congressional Septage Treatment Septage Treatment Dagat-dagatan STP Dagat-dagatan Tondo Sewage Pumping Pumping Sewage Tondo Basin System Alabang Central Manila Central San Juan River River Juan San Makati Isolated Isolated Makati Dagat-dagatan Sewerage System Sewerage *Ayala STP is not operated by Maynilad by operated is not STP *Ayala Magallanes inside Village served **Population Existing Wastewater Facilities by 2012 by Facilities Wastewater Existing Of the 15 STPs under Maynilad’s Maynilad’s under 15 STPs Of the Basin Project, River Juan San at be constructed one to the this by be funded will Talayan by funded are rest as the loan, funds. CAPEX Company’s the that would projects Other loan Bank World the benefit from new of construction the include Meanwhile, after nearly three nearly after three Meanwhile, Maynilad preparation, of years finally US$137.5- closed the loan, Bank-funded World million support be used to which will wastewater in investments and collection treatment, and septage management. 23 Changing Tides operational highlights application, the system isbeing ofstations. At phase itsinitial treatment plants and pumping automate operations in all adopting the technology to year, with the goal of eventually and Pasay Pumping Station this the Putatan Water Treatment Plant The SCADA system was piloted in operation.of supply be used for the central supervision a computer control system that will control facilities. Maynilad SCADA is Data Acquisition) to monitor and SCADA (Supervisory Control and program involving the adoption of implementation of asix-year Year 2012 saw the initial inthisplayed role initiative. akey streamline processes. Automation to further manage costs and operationalenhance efficiencies in place, Maynilad’s next step is to With ofmost the vital infrastructure through Automation Improved Efficiency effective operations. through more efficient and services can begiven to customers with reliable information, better By providing Maynilad employees templates for concerned personnel. Reports are generated in standard storage inacentralized database. locations and formats—and file its different sources—of varying for the gathering of data from innovative architecture allows distribution system. Telemetry’s facilities throughout Maynilad’s monitoring of the different field centralizes data acquisition and is the Telemetry system, which Complementing the SCADA system future expansion. efficiency, and prepare facilities for reduce operational costs, enhance Using SCADA is expected to used to control facilities remotely. data acquisition. Itwill later be utilized for remote monitoring and Maynilad Water Services, Inc. 2012 Annual Report 24 for monitoring operations data. data. operations monitoring for the viewing for Large LED monitors be pages will site web FieldMOUS offices different the in deployed of benefit the for Maynilad, of engaged employees in operations. vital all years, coming the In operations regarding information with integrated be will Maynilad in made and system Telemetry the FieldMOUS. viewable through equipped Maynilad Meanwhile, stations—such pumping its new Mesa La the inside C North as Pagcor Pumping and Compound Parañaque—with in Station (VFD) Drives Frequency Variable motors. electric high-efficiency and controllers electronic are VFDs electric an of speed the adjust that modulation the allowing motor, rate flow and speed pump of Aside demand. actual to according consumption, power cutting from and mechanical lessen VFDs which reduces stress, electrical costs. repair and maintenance All pumping stations will also also will stations pumping All site FieldMOUS own their have operations pump showing page Pasay The levels. reservoir and pilot as served Station Pumping Likewise, program. this for facility such as treatment facilities other gauging system hydraulic plants, deep and points, pressure points, pages site dedicated have will wells At the front end of the Telemetry Telemetry the of end front the At (Field “FieldMOUS” is the system program, System) User Monitoring for main technology which is the in a field data vital monitoring It is envisioned manner. compact operations up-to-date provide to levels production as such data, averages supply daily and thus Area, each Business for case in time response improving innovation This emergencies. of a employees provides likewise company of picture macro-level which enhances their operations, of appreciation and understanding business. the 25 Changing Tides operational highlights of its functions on the ground Business Areas, devolving some personnel to the different The department deployed information such as pipe locations. referenced geographically all which manages a database of System (GIS) department, of the Geographic Information toward improving the functions Resources were also channelled meter management. advancedbuild skills highly in personnel the opportunity to testing providing costswhile the Company to save onmeter reading. The investment enabled the meter with the registered volume of water flowing into accuracy by comparing the bench, whichdetermines meter with acutting-edge meter test 300 mminsize. Itisequipped of testing largemeters upto kind inSoutheast Asiacapable The facility isthe of first its and industrial water meters. testing of residential, commercial meter laboratory for the regular beganMaynilad operating a In the latter of 2012, half Technology Maynilad Water Services, Inc. 2012 Annual Report 26 The investment investment The enabled the Company to save on meter costs testing while providing the personnel opportunity highly build to advanced skills in meter management. These two sets of new technology technology new of sets two These field make to together work gathering, surveying, data management, NRW project management, right-of-way the and mapping, facilities and Maynilad all other of mapping and accurate more assets field personnel. efficient for information of area In the Maynilad improvements, system of services the contracted a gap analysis perform to Fujitsu practices best industry between current Company’s the and This processes. business SAP basis for the form analysis will of reconfigurations next the The years. five next the for SAP was configurations of first set Materials and Finance to applied Management last during the resulting the and 2012, of quarter of many streamline will design logistics and finance Maynilad’s processes. In the same year, Maynilad same year, In the of 12 units also acquired Satellite Global Navigation 10 units and (GNSS) System Station Total Electronic of more technology, GNSS (ETS). commonly as GPS or known System, Global Positioning signals receives and connects that systems satellite from and currently in operation are any to coordinates assigns The surface. earth’s point on the hand, is the other on the ETS, land of method traditional more complements the surveying. ETS especiallyGNSS, areas urban for GPS where Zone West the like has technology its limitations. use laser units ETS Maynilad’s distance, measure to technology record and observe as to as well asset. a particular of location the for better service efficiency. To To efficiency. service better for data the devolution, this support allow to used repository—which time—was a at access onlyone with users multiple to opened there Now, levels. access multiple who users 40 authorized over are in data the edit and access can time. real 27 Changing Tides operational highlights Increase services billed inMaynilad 703,519 2007 762,319 2008 814,645 2009 903.682 2010 1,005,350 2011 1,073,508 2012 of Luzon. treatment plants in several areas and of management four water effectively taking over operation Inc. (PhilHydro) 2012, inAugust water company Philippine Hydro, outstanding shares of the private Purchase Agreement for 100% of move when it signed the Share marked the Company’s first such outside the West Zone. Year 2012 establishment of businesses its sights on the possible began setting also Maynilad in the prior year to 1,073,508. services by 6.8%,from 1,005,350 in the increase of Maynilad’s billed These expansion efforts resulted the year’s volume. billed 2 million cubic meters (MCM) to closed in 2012, contributing some operated by establishments was water. A total of 128 deepwells to Maynilad piped-in surface establishments from groundwater well-using subdivisionsand and the conversion of deep pipelines in still-unserved areas expansion through the laying of Company is able to pursue Within the West Zone, the Development Business Expansion and Maynilad Water Services, Inc. 2012 Annual Report 28 The year also saw Maynilad Maynilad saw also year The and Visayas the entering Share a through areas Mindanao between Agreement Purchase Investments Water Metropac subsidiary of (MWIC)—a Corp. Corp.— Pacific Investments Metro Consortium Water Manila the and implement Carmen Bulk to the is Maynilad Project. Supply Water in this partner technical MWIC’s MLD 35 deliver will which venture, Water Cebu Metro to water of that localities the Among District. are project the from benefit will Lapu- and Mandaue of cities the of municipalities the and Lapu, Cordova. and Liloan Compostela, PhilHydro holds 25-year bulk bulk 25-year holds PhilHydro with supply contracts water in District Water City Legazpi District Norzagaray Water Albay, District Water Maria Santa and municipality the and Bulacan, in It Vizcaya. Nueva Bambang, of and supplier water is also the municipality the for distributor time the At Ecija. Rizal, Nueva of PhilHydro acquisition, the of and servicing—directly was 30,000 indirectly—over areas, in these customers of supplying cubic meters 29,000 daily. water potable 29 Changing Tides operational highlights qualities, all meant to encourage proficiency, and leadership values, job performance, technical holding of training sessions on The program also involved the impact to business growth. awareness of their individual enhancing consequently performance measures, investments, and financials about the Company’s goals, sought to inform employees launched the HR+Program. It Human Resources (HR) Division organization on board, the To get everyone inthe expertise or strategic partnerships. consultancy services, operations it, whether in the form of technical requirements of people who need addressesone that the water “total water solutionscompany”— from “basicservice provider” to the shiftincorporate direction statements in 2012 to support set of Vision, Mission and Values Maynilad officially adopted a new Human Resources infrastructure projects. on quality control of materials for Health toaccountability enhance Quality, Environment, Safety and transferred from PMto Corporate materials testing function was source to network. Likewise, the improving data traffic from water Telemetry were also rationalized, consolidated. The functions of planning and monitoring were responsible forroles project Management (PM) Group, the accountability. Under the Program efficiencies and enhance made realignments to promote review of the organization and HR continued this year the withaligned the business strategy. performance and evaluation are objectives. In this way, employee result areas support corporate that ensure each division’s key development of scorecards Meanwhile, HRfacilitated the toward growth and innovation. employees to lead the Company Maynilad Water Services, Inc. 2012 Annual Report 30 9,244 51,343 41,490 971,431 1,073,508 Number Customer Customer Classification Residential Commercial Industrial TOTAL Semi-Business To further make the receiving of of receiving the make further To Maynilad convenient, more bills of issuance the 2011 in initiated Accounts of Statement Electronic customers. requesting to (E-SOA) eliminates E-SOAs out Sending saving thus printing, for need the should Hence, cost. paper on opt eventually customers these bills, printed in lieu of E-SOAs for only the them issue will Maynilad copies. electronic the with along initiatives, These accredited more of inclusion boost helped payment facilities, collectionMaynilad’s efficiency 96% in 2012. to 94% last year from These initiatives, along the with accredited more inclusion of boost helped payment facilities, collection Maynilad’s efficiency in 2012 96% to last 94% year from The Company is now also also now is Company The full of year second its into “Read the of implementation involves which project, Bill” and the for technology use of the issuance and printing immediate is meter the after bills water of effectively project This read. delayed on complaints reduced deliveries. bill Service for Customers for Service has Maynilad years, past the In channels several been developing communicate can it which by 24/7 its besides customers with already those Among 1626. Hotline infoboard the are available for (initially Tubig” “Text service only)Smart subscribers and Helpdesk Service Customer the means, these Through email. water receive can customers other pull and advisories service service as such information useful They requirements. application feedback send directly also can Maynilad. to requests and 31 Changing Tides Financial Review and Analysis a hike inenvironmental charges increase of 1.3%,combined with temporarily reduced rebasing increase of 4.6%and a composed of an inflationary for 2012 was approximately 9.6% approved basictariff increase At the start of the year, the increase inaverage effective tariff. billed volume coupled with a 9.2% effect of the 5.8% increase in revenues was dueto the combined billion year. last The increase in 15.6% to P and sewer services for 2012 grew Combined revenues from water Revenues 15.40 billion from P 13.32 from consumption domestic of volume billed growth coming bybut also the higher proportion of the higher rate until August, by the deferred implementation the year was dampened, not only The effective rate increase for the year to around 13.3%. the total approved increase for raisingimplemented, effectively full rebasing increase was finally the general the public.InAugust, the impactof tariff increases to increase was meant to mitigate reduction inthe rebasing water tariff. The temporary from 16%to 20%of the basic Maynilad Water Services, Inc. 2012 Annual Report 32 13.77 billion billion 13.77 15.83 billion, a 15.83 billion, 4.63 billion versus versus billion 4.63 3.98 billion last year. The four four The last year. 3.98 billion largest cost elements accounting largest cost elements accounting cash total almost of 73% for be to continue expenditures power, cost, light and personnel and repairs and services, outside maintenance. P 15.0% increase from P from increase 15.0% last year. (OPEX) Expenses Operating OPEX A. Cash by cash OPEX increased Total P 16.5% to amounted to P to amounted Total revenues from operations, operations, from revenues Total services and fees including other fees, such as installation whose rates are subsidized by by subsidized are whose rates commercial non-domestic or As a accounts. industrial and domestic volume, of percentage 79.07% for accounted customers 78.49% to compared total of last year. same period in the Maynilad’s due to Furthermore, table, even tariff volumetric same customer the within average the lower the categories, customer, each of consumption per tariff average the lower the consumed. cubic meter 33 Changing Tides financial review and analysis to P Light and power grew 16.7% higher growth. incentives contributed to the and provisions for long-term benefits to industry standards, approximately 10%,leveling of an average increase salary of employees by the end of the year, grew by 2.2%to amarginal 2,251 a 23.0%. Although headcount costs would have grown by of year’s last SOP, personnel employees. Excluding the impact reduced headcount by 169 began operation this year. located only inPagcorcitythat pumping station and reservoir operation of anew 23-million liter in the south, the particularly deliver water to new customers pumping activitiesinorder to as aresult of increased network 7.5% increase inkilowatt-hour use average power rate of 8.6%and a combined effect of ahigher amounting to P Opportunity Program (SOP) impact of year’s last Special dampened by the was partially to P personnel costs,increased 15.4% The costelement, largest 691 million causedby the 1.78 billion. This growth rate 100 million that to P Outside services increased 29.9% to P business taxes whichgrew 17.5% were real estate primarily and growth inthese other expenses same period year. last Drivingthe 6.3%comparedby only to the operating expenses increased accounting for 27% of total cash items, other all costelements Excluding these four main pressure throughout the network. increased water availability and improved service levels, and repairsleak asthe Company to P and maintenance grew 49.4% Areas starting this year. Repairs services across the all Business implementation of “read-and-bill” 2011 andbeginning July the full Technology (IT)services to Indra the outsourcing of Information P which increased by 92.4% to business development activities professional fees related to new growth inconcession assets, and growth versus year. last otherall expenses showed flat two costelements, additional 102 million. Excluding these 421 million dueto increased dueto 482 million mainly 104 million asaresult of the Maynilad Water Services, Inc. 2012 Annual Report 34 469.5 million of deferred tax tax deferred of million 469.5 assets would have to be written be written to have would assets no longer would as these off lower the due to be realized within expense amortization holiday tax than income the projected. previously At the end of the year, the the year, the of end the At that the determined Company method (UOP) unit-of-production concession service amortizing of more the is now assets of instead method appropriate given basis straight-line using the the of benefit that economic the are assets concession service billed closely alignedmore with Company which the volume, reliably. estimate already can Company the Beginning 2013, apply thus UOP the would its service amortizing of method resulted This assets. concession of write-down in a non-recurring as discussed assets tax deferred section. next in the Income C. Non-Recurring Charges and the adoption of the Due to amortization of method UOP approximately above, discussed P 271 271 2.13 billion billion 2.13 1.82 billion from from 1.82 billion 1.86 billion last year. Due last year. 1.86 billion 1.43 billion in the prior year. year. prior in the 1.43 billion Total non-cash operating non-cash operating Total P by increased expenses B. Non-Cash OPEX plant IFRIC 12, all property Under defined equipment (PP&E) and are network the as parts of intangibleassets. considered depreciated longer no are These over amortized instead but are similar concession the of life the Service fees. concession to (composed assets concession network and fees concession of intangible considered are PP&E) using amortized are and assets instead method straight-line the as previously volume projected of practiced. Dampening the increase was was increase the Dampening doubtful for provision lower the assessed the due to accounts reserves existing of sufficiency actual collection to compared efficiency. to the Company’s continuing continuing Company’s the to program, expenditure capital service of amortization increased assets concession P to 27.3% P from P from million or 14.6% to P 14.6% to or million 35 Changing Tides financial review and analysis existing P costs related to the Company’s million incapitalized debt issue next section. core net income, asshown in the reported net income to get the which will beadded backto amounting to P419.8 million, reduction to reported net income isa these one-timecharges materialize. The net result of all Company believes will nolonger the disputed the claimsthat accrued interest related to representing the reversal of isothertime charges income offsettingPartially these one- the year’s interest expense. 2013. This amount isincluded in basis duringthe quarter first of it plans to refinance onaclean down of approximately P during the period isthe write- Another taken one-timecharge 22 billion debts that 328.5 improved by 14.3%to P Income from operations for 2012 Net Income from P when anew P for the year compared to 2011 result of the higher loan levels higher interest expense asa billion inthe prior year, dueto amounted to P Core net income for the period section. mentioned inthe previous well asthe non-recurring charges been drawn intwo tranches, as 17.0% to P and Depreciation (EBITDA) grew Earnings before Interest, Taxes, EBITDA income growth. inlinewithroughly operating core net income of P growth of 13.3%from year’s last P 9.0% to P income grew atalower rate of disputed claims. of the reversal of provisions for lower at11.2%dueto the impact of 68.4%.Core EBITDA growth is 9.25 billion year, last or amargin 7.94 billion year. last Net 6.39 billion from P 10.83 billion versus 7-billion loan had 6.81 billion, a 6.01 billion, 9.07 billion 5.86 Maynilad Water Services, Inc. 2012 Annual Report 36 37 Changing Tides financial review and analysis the P from of10.7% increase an at the end of 2011. amounted to P Total assets atyear-end 55.21 billion recorded the P capital expenditure program, and due to the Company’s continuing net increase inconcession assets P Total liabilities increased by next sectionfor further details.) and Sta. MariainBulacan (see Legazpi inAlbay, and Norzagaray to the water local districts of sellsbulk currently waterthat a bulk water company supply Philippine Hydro, Inc.(PhilHydro), the Company’s of purchase non-current assets representing the acquisition of PhilHydro, offset increase in concession assets and accounts related payable to the year 2011 was the P 2012 compared to the end of Maynilad’s asset accounts for movement in The major Balance Sheet 1.52 billion dueto increases in 517 million increase inother 61.13 billion, 5.79 billion A cashdividend of P and interest-bearing loans. ofby payments concession fees amounted to P Total assets atyear-end end of 2012. at the end of 2011 to 73:27 atthe continued to improve from 78:22 account, total debt-to-equity this reduction inthe equity billion, was paidinJune. Despite year’s core net income of P representing 33%of roughly last Vizcaya. The company owns also waterworks of Bambang, Nueva District inBulacan, and municipal District and Santa MariaWater in Albay, Water Norzagaray the Legazpi CityWater District treatedsupply bulk water to and operates three plants that by PhilHydro Maynilad. owns outstanding shares of PhilHydro the acquisition of 100%of the AgreementPurchase (SPA) for and PhilHydro signedthe Share 3,2012,On August Maynilad Acquisition of PhilHydro billion recorded at the end of 2011. increase of 10.7% from the P 61.13 billion, an 2.0 billion, 6.0 55.21 Maynilad Water Services, Inc. 2012 Annual Report 38 7.41 7.41 15.88 49 49 61.30 billion. 61.30 14 million. beginning August 2012. During beginning August 2012. covered period five-month the PhilHydro review, under P of revenues generated Similarly, accounting for for accounting Similarly, on a line- assets PhilHydro’s in basis also resulted by-line marginally assets, total higher assets consolidated with P to amounting million and net income of P of income net and million billion. PhilHydro’s impact on PhilHydro’s billion. net consolidated Maynilad’s marginal due to was income but increased eliminating entries, P by EBITDA million. Compared to its stand- its to Compared million. Maynilad’s alone performance, financials increased consolidated consolidated with marginally, P to amounting revenues 7.3 0.8 0.4 17.3 25.8 2012 24.3 24.3 07 5.7 0.4 15.2 21.9 2011 (mld) 107 million million 107 1.5 2.5 Full 25.0 53.0 24.0 Production Capacity Production 213 million has213 million been 526.9 million. As of December December As of million. 526.9 Plant/Site Legazpi, Albay Norzagaray, Bulacan Bambang, Vizcaya Nueva Rizal, Ecija Nueva In 2011, PhilHydro’s year-end year-end PhilHydro’s In 2011, salesgross P totaled and operates the treated water water treated the operates and of system supply distribution and Ecija. Rizal, Nueva 31, 2012, P 31, 2012, paid. The balance is payable balance paid. The of delivery on the contingent precedents conditions certain specified of delivery such as the government titles, and permits, rulings. PhilHydro, of acquisition the With the Maynilad consolidated its of financial performance wholly subsidiary owned Maynilad acquired PhilHydro for for PhilHydro Maynilad acquired P million. The company has a total has company a total The million. is MLD and 53 of capacity plant 26 at around currently operating table below: in the MLD as shown and net income was at P was income net and 39 Changing Tides to potable water from Maynilad. access provided afterbeing opportunities livelihood improved nowhave communities ofSTM Residents Maynilad Water Services, Inc. 2012 Annual Report 40 cial

economic progress. economic to contribute to social development and and social development to contribute to initiatives embody the Company’s resolve These CSR programs and sustainability sustainability and CSR programs These to the effort. employee-volunteers to lend their assistance watershed conservation activities, tapping agencies and other private companies in in companies private agencies other and likewise activelylikewise partners government with emissions minimized.are The Company is consumed and, consequently, carbon carbon consequently, and, is consumed vital facilities run efficiently so less power its operations. It constantly ensures that that sustainability is an integral part of impact in the country, Maynilad ensures Maynilad ensures country, impact in the Also in line with its effort to make a positive a positive make to its effort Also in line with awareness. awareness. opportunities and enhance environmental enhance environmental and opportunities sanitation services but also livelihood create not only improve accessibility to water and and water to accessibility onlynot improve Social Responsibility (CSR) programs that programs (CSR) Social Responsibility service to a higher level through Corporate Corporate through level a higher to service conditions. The Company brings this public itself toward the enhancement of living living enhancement of the itself toward the naturevery Maynilad’sof business lends As a company that provides a basic need, Corporate So Corporate sibility pon Res 41 Changing Tides corporate social responsibility 2,683 low-income families. there are now 12 STMs servicing the West concession. Asof 2012, implementation inother areas of Manila, STM has since seen 2009 at Barangay 123 in Tondo, Initially implemented in year system intheir area. the watermanage delivery supply trainings to enable them to organized and given competency urban poor communities are area. Under STM, residents of water useinMaynilad’s concession inaccessibility and irresponsible to address theof problems water This CSR program was developed Samahang Tubig Maynilad (STM). of water and sanitation services. designed to facilitate the provision schemes and methodologies sectors of the populace, and adopt attention to the needs of certain Several CSR programs give special to marginalized communities. thosebelong that especially access to services, Maynilad Every household should have to Water Services Improving Access students atatime. computer terminals shared by 50 schools made dowith six only donation, the studentsof both both inQuezon City. Prior to this Payatas School— BElementary School, and sixwere given to over to DoñaJuana Elementary computer units were turned beneficiary schools.Ten refurbished computers to is Maynilad’s donationof An offshoot of this program water and the environment. factsfeaturing on child-friendly each with an upgraded design in 40publicschoolswere built, 2012 drink-wash alone, stations internal plumbing system. In in the maintenance of campuses’ services and technical assistance providesalso septic tank cleaning Under the program, Maynilad Zone since itsinception in2008. beneficiary schoolsinthe West drink-and-wash stations for 126 program, whichprovided addresseddirectly by this inpublicschoolsweresupply of poor and inadequate water The problems Lingkod Eskwela. Maynilad Water Services, Inc. 2012 Annual Report 42 Valenzuela), which set up 142 which set Valenzuela), barangay the inside helpdesks halls selected communities. of Komunidad sa Maynilad the With just can customers helpdesks, halls barangay their go to with in-person transact to Specialist.a Maynilad Zone travel to have They no longer Business Company’s the to water their for offices Area inquiries, complaints service As a result, concerns. other and save customers low-income costs, time on transportation lessening thus, their effort, and burdens. physical financial and Alleviation Poverty livelihood its services, Through a in participation and assistance, Maynilad offers project, housing communities people in poor to opportunities and means the destitution and their of out move lives. their improve The program was piloted in six piloted was program The (South offices Area Business Tondo, Manila/Pasay-Makati, Caloocan, Sampaloc, North Novaliches- and Parañaque Maynilad sa Komunidad helpdesk helpdesk Komunidad sa Maynilad is a customer This program. aims that program outreach more Company the make to the to responsive accessible and the It involves poor. the needs of in helpdesks of establishment halls barangay nearby provide to in low-income Maynilad customers services office” “branch with areas cost- and effective in a convenient, efficient manner. Also in line with Lingkod Eskwela Eskwela Lingkod with line in Also in involvement active Maynilad’s is the of initiative Eskwela Brigada the which Education, of Department schools public prepare to seeks school season. In of start the for helped Maynilad2012, volunteers Elementary Mabini A. refurbish to School in Manila. marginalized communities. especially those that belong to access to Maynilad services, Maynilad services, to access Every householdEvery should have 43 Changing Tides corporate social responsibility done inpartnership with the Parañaque Foundation, Inc.— project of Rotary Homes Rotary Homes. This housing promoting the products. designsthe and packaging activity, aswell asby providing their training inthis livelihood the community by facilitating continuedMaynilad to support five new Kapwa homecare items. This year, STM-Tondo developed soaps and sanitizers. product line, whichincludes hand the manufacture of the Kapwa for itsmembers. Oneof these is to develop livelihood projects community inTondo was able system, the STM Maynilad pilot from operating their own water Kapwa. After generating savings the area to ensure the that new pipe-laying worksimplement in The to Company pledged also under this initiative. total of 1,500homeswill bebuilt painted the newly built houses. A its employee-volunteers who as well asthe assistance of project’s 14housing first units, will gointo the building of the a donationof P Maynilad’s participationinvolves Parañaque River. as to reduce pollutionatthe decent livingconditions, aswell the Parañaque River with more provide informal settlers along for ANCOP—aims Christ to Foundation Inc.,and Couples Save the Parañaque River Parañaque CityGovernment, 1.82 million that Maynilad Water Services, Inc. 2012 Annual Report 44 The Company also pledged to implement pipe- laying works in the area to ensure that the new community access have will water potable to supply. vital issues such as watershed such as watershed issues vital responsible management and great have will water use of future. country’s impact on the is an This Dunong. Daloy that education program on engageseeks to youth the to water of importance the the caring for of and health visiting It involves environment. so Zone West schools in the in fun participate students can puppet lectures, audio-visual games water-themed and shows that tackle use of responsible water, benefits of health water, that ills environmental the and supply. water affect also encourages program The “Water become students to respective their for Warriors” 1-million 1-million Bacoor Shellfish Farmers Farmers Shellfish Bacoor Mamamayan The Cooperative. at Dagat sa Lambat Para Cavite, Bacoor, of Cooperative a P of is a recipient community will have access to to access have will community supply. water potable Youth Advocacy Youth programs Maynilad developed public awareness that promote to water of importance on the environment. the and health the to is given focus Particular of whose understanding youth, donation from Maynilad in 2011. donation from cooperative the Maynilad guided such as micro- in projects store, a fishing supplies financing, shellfish culture, a four-hectare and mussel for training and farmers. oyster 45 Changing Tides corporate social responsibility hydration and hygiene to health. taught the value of proper area. Participants were also schools within itsconcession five different publicelementary clinicsin organized volleyball and teamwork, Maynilad building traits suchasdiscipline as well asdevelop character- health and well-being of students, Sports clinics. To promote the schools in2012. 10,000 studentsfrom 40public program benefited has over Maynilad’s Daloy Dunong 5th Handwashing Global Day), 15, 2012 (coinciding with the Since itssoft launch inOctober environment. and safe water to health and the promote the importance of clean communities—advocates who has 47has ISOcertifications by 2012. its vital facilities. Maynilad Inall, SystemsManagement (IMS)for and attainment of Integrated attested by the maintenance processes and procedures, as international standards inits The Company conforms to Integrated Management System. nature. backintoused and discharged watershed areas to the pointitis the momentwater iscollected at wise useof water resources, from adopts practices ensure that the into the itdoesbusiness. It way integratesMaynilad sustainability WaterSustainable Management Maynilad Water Services, Inc. 2012 Annual Report 46 TÜV SÜD TÜV Rheinland TÜV Rheinland TÜV Rheinland TÜV Rheinland TÜV Rheinland Certifying Body Certifying System System System System System System System System Reporting Environmental Environmental Environmental Environmental Environmental Environmental Environmental Environmental Quantification and and Quantification Greenhouse Gases Greenhouse Gases Greenhouse Occupational Safety Safety Occupational Occupational Safety Safety Occupational Occupational Safety Safety Occupational Occupational Safety Safety Occupational Quality Management Quality Management Quality Management Quality Management Management System Management System Management System Management System and Health Management Health and and Health Management Health and and Health Management Health and and Health Management Health and Validation and Verification and Validation ISO Standards ISO 9001:2008 ISO 9001:2008 ISO 9001:2008 ISO 9001:2008 ISO 14001:2004 ISO 14001:2004 ISO 14001:2004 ISO 14001:2004 ISO 14064-1:2006 ISO 14064-3:2006 OHSAS 18001:2007 OHSAS OHSAS 18001:2007 OHSAS OHSAS 18001:2007 OHSAS OHSAS 18001:2007 OHSAS Facility (10) Water Network (10) Water division’s the (covers maintenance Head Office, pumping seven shop and namely:stations, La D. Mesa, Commonwealth, Villamor, Algeciras, Tuazon, Noveleta) Caloocan and (9) Central Laboratory (9) Central (7) Corporate Quality, Quality, (7) Corporate and Safety Environment, Health Resources (8) Human Division (6) Carbon footprint (3) La Mesa Treatment (3) La Mesa Treatment 1 Plant (4) La Mesa Treatment 2 Plant Sewage (5) Tondo Plant Pumping (1) North Caloocan (1) North Area Business Sewage (2) Dagat-Dagatan Septage Treatment and Plant 47 Changing Tides corporate social responsibility the “Plant for Life” program, Watershed Management. Under Putatan Water Treatment Plant. DOH initiative, and to include the new WSP Guidelines of the WHO- updated itsWSP to reflect the Thiscalamities. year, Maynilad in the face of emergencies and the protection of consumers even (PNSDW), the Company ensures Standards for DrinkingWater still meets the Philippine National the ofensuring that quality water the of quality water supply. By an emergency or impairmentin to distribution—in casethere is undertaken—from production programs and procedures to be The WSP Maynilad contains the Western PacificRegion. a model inother countries inthe Health Organization (WHO) as likewise adopted by the World districts inthe country. Itwas other water providers and water as reference for the WSPs of the Departmentof Health (DOH) Philippines, whichwas usedby Safety Plan (WSP) inthe developed the Water first Water Safety Maynilad Plan. and itstributary rivers through siltation atthe Lake Laguna to minimize sedimentation and sa Putatan,” the activityseeks area. ang Putat Dubbed “Ibalik and lakeshores inthe Muntinlupa willthat helpstabilize riverbanks watershed restoration activities agreement to implement Authority (LLDA) signedan LakeLaguna Development watershed. and Maynilad the done for the Lake Laguna Similar efforts are being also of five years. denuded watershed over a period been planted inthe heavily 164,000 saplings have already watershed in2012. Prior to this, within 60hectares of the Ipo a total of 70,700 tree saplings and private entities,planted partner government agencies with along Maynilad, 16other logging. from illegal erosion and result floodingthat prevent suchasland calamities water resources, aswell as areas to protect the country’s planting activitiesinwatershed conductsMaynilad several tree- Maynilad Water Services, Inc. 2012 Annual Report 48 tools and sent volunteers to assist to sent volunteers and tools Tree Festival Kadawayan at the City, in Davao Activity Planting Tree District Water Bulacan the held at Biak-na-Bato Planting DENR the National and Park, Recovery Disaster Philippine and Planting Tree (PDRF) Foundation Marikina Watershed. held at the management watershed All these done in support are initiatives National government’s the of Maynilad Program. Greening actively to continued likewise in government-led participate activities such as environmental also Bay and Manila Clean-up, the the lead the of holding took the in along Day Water annual World DENR. with Relief Disaster Maynilad organization is an who individuals concerned of needs of the to responsive are was responsiveness This others. times in of a number tested the when Maynilad2012, heeded following relief disaster call for calamities. natural destructive Maynilad also participated in Maynilad also participated activities held in tree-planting The country. the of areas other and saplings donated Company Another related initiative is the is the initiative related Another Manila Save “Ibalik Bakawan/ ang Bay”, ongoing which is Maynilad’s mangrove plant to initiative Baypropagules Manila in the Las Piñas, of areas coastal Bacoor City, Cavite Parañaque, of municipalities the and City, in Cavite Noveleta and Rosario with In cooperation Province. the of City Office Cavite the Natural Department of Mayor, chairman and Resources–Cavite, City, in Cavite Cinco Barangay of propagulessome 5,000 were in 2012. planted the planting of Putat trees in trees Putat of planting the watershed. the of areas several that tree of is a type Putat in this be endemic used to Employee- Muntinlupa. of area Maynilad and of volunteers first in the participated LLDA this activity under tree-planting being 200 saplings with initiative, the of intake near the planted Plant. Treatment Water Putatan 49 Changing Tides corporate social responsibility typhoon victims. went straight to Employee Fund, and budget party Christmas Company’s the from jointly taken was which million, of over P donation cash A 2 every day. some 12,000 liters ofwater clean Negros Oriental, whichprovided watermobile treatment plant to In response, sentits Maynilad with itaseries of flashfloods. rocked de Oro, Cagayan bringing In September, an earthquake Laguna. andPampanga, Pasig, Rizal hit municipalities inBulacan, water was delivered also to badly total of 71,122 liters of drinking those outside the West Zone. A packs to affected areas, even hot portalets meals, and grocery employee-volunteers to deliver Manila. deployed Maynilad including somepartsof Metro to north and south Luzon, season brought of days flooding 2012,In August the typhoon donation of over P by Typhoon Pablo. Acash out families were that affected employees were to help able Meanwhile, and Maynilad its Oriental. Compostela and Valley Davao Surigao del Sur, Agusan, plant was deployed also to treatmentThe mobile Maynilad of potable water and groceries. withvictims, along 43,200liters Fund, went straight to typhoon party budget and Employee the Company’s Christmas which was from taken jointly 2 million, Maynilad Water Services, Inc. 2012 Annual Report 50 Category Publications Publications countries (LAMIC) countries Publication Design Customer Relations Customer Individual Category Individual Multimedia – Others Multimedia on a Sustained Basis on a Sustained Publications: External Publications: External Publications: External Publications: External Institutional Category Communications Tools Communications Low and middle-income and Low Operations/ Management Operations/ Public Relations Programs Programs Public Relations Finalist Finalist Distinction Recognition Merit Award Merit Honour Award Honour Overall Winner Overall Secretary’s Award of of Award Secretary’s Global Honour Award Global Honour Flyer Program Audio CD Audio Water Service Service Water Pumping Plant Pumping Tondo Sewage Tondo Program/Awardee Helpdesk Program Helpdesk “To the Beat of 6B” Beat of the “To “Laying the Road to “Laying to Road the Emissions Inventory Inventory Emissions Ripples, Official The Maynilad Newsletter Gas and Air Pollutant Air Pollutant Gas and Engr. Conrado Soriano Conrado Engr. Customer Service Rally Service Customer 2011 Maynilad2011 Calendar Sewer Connections: The The Connections: Sewer Transformation Program Transformation Maynilad Water Journey Maynilad Water Unfolding the Benefits of Benefits of the Unfolding “Maynilad sa Komunidad” “Maynilad Komunidad” sa La Mesa Treatment Plant 1 Plant La Mesa Treatment Sustainability” Greenhouse Greenhouse Sustainability” Maynilad Water Safety Plan Safety Maynilad Water Maynilad Sewerage System System Maynilad Sewerage Changing for the Better: The The Better: the Changing for eceived in 2012 Received ards Awards Awards (Asia Pacific)

47th Anvil Awards Anvil 47th Kalusugan Awards Kalusugan Award-Giving Body Award-Giving Drinking Water Safety Safety Drinking Water 8th Gawad Kaligtasan at Kaligtasan Gawad 8th Global Project Innovation Innovation Global Project Project Innovation Awards Awards Innovation Project

11th Philippine Quill Awards Quill Philippine 11th Aw 51 Changing Tides A The Road head beyond has beenallocatedbeyond for has its planned CAPEX for 2013 and portioncoverage. of Amajor on the increase of sewerage Company isnow turningitsfocus services already inplace, the With investments inwater are harder to secure. less dense and where work permits southern areas where population is with the needto extend pipes to proving difficult to reach, what still topeople beconnected are network. The remaining 1.4million already connected 8.2 million to its in the West Zone, Maynilad has Of the 9.6 million living people Its entry will reinforce the expertise insewage treatment. considerable DMCI. Marubenihas fromMaynilad both MPIC and interest to acquire astake in In 2012, Marubeniexpressed its treatment plant. construction of anew septage land for facilities, additional and treatment plants, acquisition of ofenhancement existing rehabilitation of liftstations, of new conveyance systems, West concession, installation STPs inseveral areas within the include the construction of new wastewater projects. These Maynilad Water Services, Inc. 2012 Annual Report 52 the necessary interventions can can interventions necessary the be promptly implemented. and stations pumping More at constructed be will reservoirs network. the of points strategic essential for are facilities These storage, and supply delivery capability Maynilad’s enhancing areas. elevated to water bring to is plans Also among mid-term pre-treatment of construction the Putatan and Mesa La in facilities address to Plants Treatment Water which water, high turbidity in raw series the during experienced was typhoons that country hit the of last year. Meanwhile, to sustain sustain to Meanwhile, services in water improvements water reduce further and to continue Mayniladloss, will implement Management its NRW end this to Efforts Program. allowing and automating include all of operability remote the for in acquired Technologies DMAs. to be utilized still past will the so leaky pipes detect accurately technical capability of Maynilad of capability technical as it implements its accelerated sanitation and sewerage provide to which aims program, the of coverage 100% sewerage 2037. by Zone West Program. implement Management its NRW loss, Maynilad continue will to services and further reduce water To sustain improvements in water in water improvements sustain To 53 Changing Tides the road ahead the correspond phonethat to toprompts press callers keys on the Maynilad hotline. This system contact with customers who call will serve as the first line of Response System (IVRS),which in 2013 an Interactive Voice customer services. It will deploy work toward further enhancing The Company also intends to real-time data for decision makers. inaccuracies, and provide access to remove redundancies and that will automate processes, investing inenablingtechnology to Hence, Maynilad. itwill keep Creating efficienciesisimportant meantime, managing PhilHydro will bid for other businesses. Inthe house expertise to support its Company isbanking onitsin- areas can be facilitated. The of PhilHydro, expansion to adjacent provinces through the acquisition presenceMaynilad established in West Zone will be pursued. With Growth opportunities outside the regular businesses hours. even questions simple outside of quick answers are provided to experience will be enhanced, as Through this technology, customer new application requirements. functions such as bill inquiries and Maynilad Water Services, Inc. 2012 Annual Report 54 Employees will continue to undergo undergo to continue will Employees to programs training various with aligned are they that ensure these All goals. business Maynilad’s prepare to meant are initiatives well perform to organization the the of tides changing the despite Company’s the With industry. water West the beyond expansion tremendous offering concession learn must it growth, for potential growth adapt so this adjustto and be attained. can allow Maynilad to gain experience experience gain to Maynilad allow environment new a in operating on regulatory a different under and framework. 55 Changing Tides Atty. A.Victorio-Aquino Marilyn Randolph T. Estrellado, Jorge A.Consunji, Augusto P. Jr. Palisoc Jose Ma.K.Lim,Victorico P. Vargas, Herbert M.Consunji, Manuel V. Pangilinan, Isidro A.Consunji, Fom top-left: BOARD OFDIRECTORS Maynilad Water Services, Inc. 2012 Annual Report 56 Augusto P. Palisoc Jr. P. Augusto Director Palisoc has position in Maynilad a board assumed He Mr. 2012. 21, December until 2011 12, August beginning companies of group Pacific First the with been has is He is currently Executive an 29 years. and over for Corp, Investments Pacific Metro of the Director of Officer Executive Chief and President the Medical of Director a is He Group. Hospital MPIC Makati the of operator and Inc. (owner Doctors, College of Medical Makati Center Medical Center), Managers Corp. Hospital Verdes Nursing Inc., Colinas Medical Center), Santos Cardinal the of (operator the of (operator Managers Corp. Inc., Hospital East Manila Hospital Asian Hospital), Lourdes of Lady Our College Riverside and Inc. Center Medical Riverside (Clinica Hospital Doctors Davao Bacolod, in Inc. College, Inc. Doctors Davao Inc., and Hilario) Marilyn A. Victorio-Aquino Atty. Director December on Board Maynilad the joined Aquino Atty. at First Pacific Director She is also21, 2012. Assistant 1, July on FPC joined She (FPC). Limited Company She at SyCipLaw. practice 31-year her following 2012 the from salutatorian) (class 1980 cum laude graduated in Law of College Philippines, the of University Examination Bar Philippine the in second advising is placed and Aquino Atty. Currently, year. same the in the in projects infrastructure various in expansion MPIC the of exercise the in including also is She Philippines, Project. III LRT the for Rail Metro of right Pacific Metro representing Rail, Metro of a Director Corp. Investments Randolph T. Estrellado T. Randolph Director Maynilad since of has been a Director Estrellado Mr. Company’s the concurrently is and 2007 Chief January and Director was He Officer. Finance Chief Investments Pacific Metro of Officer Finance Estrellado Pacific, Mr. joining Metro to Prior for Corp. Officer Finance Chief and President Vice was While at Corporation. ABS-CBN Broadcasting network’s the of aspects all managed he ABS-CBN, planning, financial including operations, financial investor and budget, treasury, controllership, various in served had Estrellado Mr. relations. Lopez the with responsibility senior positions of formerly had He 1996. since Companies of Group P.T. and Phinma at positions financial in served also in Indonesia. Utama Satrya Dwi A. Consunji Jorge Director since Maynilad of Director a been has Consunji Mr. President the presently also is He He 2007. Inc. January Consunji, D.M. of Officer Operating Chief and of Directors of Board the of member as a also serves DMCI Mining Corp., DMCI Holdings Inc., DMCI Power Inc., Company M&S Corp., Dacon DMCI-PDI, Corp., Corp., Power Sem-Calaca Corp., Mining Semirara Corp., Herbal Manila Co., Lumber & Plywood Sirawai Chairman as serves also He Corp. Electric Beta and Masbate DMCI and Corp. Rope Wire of Board the of Infrastructure Private of Director Corp.; Power Asean of Chairman past and Corp.; Development Federation. Constructors Herbert M. Consunji Herbert Director since Maynilad of Director a been has Consunji Mr. Company’s the concurrently is and 2007 of January Chairman the also is He Officer. Operating Chief Philippine and Corp., Sewerage and Water Subic Semirara Inc., Holdings, DMCI of Director Inc.; Hydro Mining DMCI Corp., Power DMCI Corp., Mining Sem-Calaca Corp., & Sewerage Subic Water Corp., Park Development, Sem-Cal Industrial Corp., Power Inc.; Luzon Southwest Inc., Sem Calaca Corp., Res Hydro, Philippine and Corp., Generation Power DMCI of Officer Finance Chief and President Vice DMCI of Treasurer and President Holdings, Inc.; Vice Sem-Calaca Corp. Res of Treasurer and Mining Corp.; Victorico P. Vargas P. Victorico Director CEO and President the concurrently is Vargas Mr. position the Maynilad. He formallyof over took Metro for He is alsolast a Director August 2010. Global PLDT the and Corp. Investments Pacific the of Committee Executive of the of member Corp., trustee and Academy, Leadership Pacific First IdeaSpace the Inc. and Foundation, MVP Sports the currently he sports, of field the In Inc. Foundation, Amateur the for President position of holds the He has (ABAP). Philippines the of Association Boxing Samahang the for Chairman Vice elected been national sports Inc., the ng Pilipinas, Basketbol is a member and Basketball, Philippine for association and (POC) Commission Olympic Philippine the of He holds (FIBA). Federation Basketball International Philippine the of Governor Alternate position of the professional nation’s the (PBA), Association Basketball title the Sportswriters league. Philippine basketball The with Vargas Mr. conferred (PSA) Association 2011. for Year” the of “Executive Mr. Lim has been a Director of Maynilad since of Lim has been a Director Mr. Metro of & CEO He is President Januarya 2007. currently also is and Corp., Investments Pacific and/or subsidiary MPIC following the in Director Holdings Asset Electric Beacon companies: Tollways affiliate Pacific Metro Company, Electric Manila Inc.; Tollways Corp., Tollways North Manila Corp.; and (owner Inc. Doctors, Medical Corp., Management Santos Cardinal Center), Medical Makati of operator Managers Hospital Verdes (Colinas Center Medical Asian and Hospital, Lourdes Our Lady of Corp.), Doctors Davao of Chairman as serves He Hospital. Medical Riverside Inc., and the Hilario) (Clinica of Hospital President also is Lim Mr. Bacolod. in Center Holdings, Inc. (MSIHI), Infrastructure Strategic Metro Metro Citra in ownership which holds a minority (Skyway). Corp. Tollways Manila Jose Ma. K. Lim Director Mr. Isidro A. Consunji, 64 years old, has been been has old, years 64 Consunji, A. Isidro Mr. 2007. January since Maynilad of Chairman D.M. Vice of Directors of Board the of Member a is He Corp., Mining Semirara (DMCI), Inc. Inc., Consunji, Equities, Crown Company, Water DMCI-MPIC Carmen Corp., Dev. and Mining Consolidated Atlas He holds Corp. Sem-Calaca Power and Corp., Copper DMCI Inc., Developers Project DMCI in chairmanship Corp. Electric Beta DMCI Homes, and Mining Corp., Corp., DMCI Holdings, Inc., Dacon of He is President Inc. Asia Industries, and of University the from graduated Consunji Mr. in he earned a degree where Philippines the took also He Engineering. in Science of Bachelor Center the from Economics Business of up Master of Master and Communication, & Research for of Institute Asian Management the Business from Management Management. up Advanced He took Spain. in Barcelona, at IESE School Program Constructors Philippine the of President became He Philippine the and 2000, 1999 to from Association May Coal Mines, Inc. from 1999 toChamber of the he is Chairman of January present, At 2002. (POCB), Board Construction Overseas Philippine Industry Construction the of Member a Board and Philippines. the of Authority Beta U.P. the of member active is an Consunji Mr. Management of Institute Asian Fraternity, Epsilon U.P. and Alumni Engineers, P. U. Alumni Association, Association. Alumni Aces Isidro A. Consunji Isidro Chairman Vice Manuel V. Pangilinan V. Manuel Chairman been has old, years 66 Pangilinan, V. Manuel He was January MayniladChairman since of 2007. Philippine of Board the of Chairman as appointed after (PLDT) Company Telephone Distance Long Officer Chief Executive and as its President serving became and 2004 February to 1998 November from Energy and Communications PLDT Chairman of 3, on November formerly Piltel) Inc. (PCEV, Ventures Pacific 2004. He also holds chairmanship in Metro Inc., Communications, Smart Corp., Corp., Investments Mining Philex Corp., Pacific Landco Inc., Tollways ePLDT, North Manila Corp., Tollways Pacific Metro Center), Medical (Makati Inc. Doctors, Medical Center) Corp., Medical Santos (Cardinal Inc. Verdes, Colinas and Inc. He is also a Director Doctors, Manila Davao and of Officer Executive Chief and President the First Pacific founded Pangilinan Mr. Company. Electric Managing its as served and 1981 in Ltd. Company, Executive as appointed was He 1999. until Director named CEO when he was 2003, June Chairman until position He also holds the Managing Director. and Sukses Indofood P.T. of Commissioner President of Makmur Tbk. Pangilinan Mr. First Pacific Group, the Outside the of Overseers of Board the of member a was University Commerce, & Finance of School Wharton of Board the He is Chairman of Pennsylvania. of as College. Beda San He also serves of Trustees the Inc. and Foundation, PLDT-Smart Chairman of also He Progress. Social for Business Philippine for Foundation the of Chairman Vice as of serves Board the of member a and Global Prevention, Crime Veritas Radio and Manila Caritas of was he Trustees 2007, February In Inc. Systems, Broadcasting ng Basketball Samahang the of President named January he assumed effective 2009, and Pilipinas, Association Boxing Amateur the of chairmanship the Philippines. the of 57 Changing Tides TOP MANAGEMENT TEAM 1 2 3 4 5 6 7 8 Head, Commercial and Marketing John Patrick C.Gregorio 3 Head, Technical Services Marcos D. de Jesus 1 Chief Operating Officer Herbert M.Consunji 7 Head, Corporate Logistics Eric H.Dumancas 5 President and ChiefExecutive Officer Victorico P. Vargas 8 Head, Business Area Operations Christopher J. Lichauco 6 Head, Program Management Yolanda C.Lucas 4 Safety and Health Management Head, Corporate Quality, Environment, Francisco A.Arellano 2 Maynilad Water Services, Inc. 2012 Annual Report 58 15 14 13 12 11 10 9 14 Ronaldo C. Padua Supply Operations Head, Water 10 Garcia F. Antonio Management Head, Wastewater 12 Irineo L. Dimaano Water Non-Revenue Head, Central 15 Diestro F. Levi Resources Head, Human Head, Information Technology Services Technology Head, Information 13 C. Castillo Francisco Head, Legal and Regulatory Affairs Regulatory Head, Legal and 11 Marivic P. Lourdes Atty. Espiritu 9 Estrellado T. Randolph Officer Chief Finance 59 Changing Tides audit opinion. Weevidenceandaudit appropriatethewebelievesufficient obtainedprovide foris tothat haveour basis a presentation of the consolidated statements. financial used and the reasonableness of accounting estimates made by as management, well as evaluating the overall accountingpolicies appropriatenessof the evaluating includes also audit An control.internal entity’s the of that are appropriate in the circumstances, but not for the purpose of expressing an opinionpreparation on and thefair presentationeffectiveness of the consolidated financial statements in order to design audit procedures fraud or error. In making thoseto risk assessments, the auditordue considerswhether internalstatements, control financial relevantconsolidated to the theentity’s of misstatement material of risks the of assessment consolidatedstatements. financial The procedures dependthe theselected auditor’sincluding on judgment, the in disclosuresandamounts the evidenceabout involvesaudit performingobtainproceduresaudit to An whether the consolidated statements financial are free from material misstatement. aboutassurance reasonable obtain to audit performthe andwithrequirements planethical and comply we Weconductedaccordance in audits our with Philippine Standards Thosestandards Auditing. on require that audits. our on based statements financial consolidated these on opinion anexpress to is responsibility Our Auditors’ Responsibility material misstatement, whether dueto fraud or error.from free are that statements financial consolidated of preparation the enable to necessary is determines management as controlinternal such for andStandards, Reporting Financial Philippinewith accordance in Management is responsible for the preparation and fair presentation of these consolidated financial Management’sstatements Responsibility for the Consolidated Financial Statements other and explanatorypolicies information. accounting significant of summary a and 2012, 31, December ended period the in years of comprehensive income, statements of in equity changes and statements of cash flows for each of the three of financial position as at December 31, 2012 and 2011, and the consolidated statements of income, statements DMCI-MPICofWater subsidiary (a consolidatedthestatementsSubsidiaries Company, comprise which Inc.), and WaterInc. Services, Maynilad ofstatements financial consolidatedaccompanying the audited haveWe WaterMaynilad Services, Inc. The Stockholders and the Board of Directors INDEPENDENT AUDITORS’ REPORT Financial Statement s Maynilad Water Services, Inc. 2012 Annual Report 60 February 14, 2013, valid until February 13, 2016 February until valid 14, 2013, February 2016 JanuaryJanuary 27, until valid 28, 2013, February 25, 2013 February Johnny F. Ang F. Johnny Partner 0108257 No. Certificate CPA A), (Group 1284-A No. SEC Accreditation 221-717-423 No. Identification Tax 08-001998-101-2013, No. Accreditation BIR January 3669659, City Makati 2, 2013, PTR No. SYCIP GORRES VELAYO & CO. GORRES VELAYO SYCIP Opinion In our opinion, the financial their and 2011, consolidated and 2012 31, financial December at as Subsidiaries statements and Inc. Services, present fairly, Water Maynilad of position in all material respects, the financial performance and their cash flows for each of the Standards. Financial Reporting Philippine three with years accordance in the period ended December 31, 2012 in 61 Changing Tides Financial Statements (Amounts in Thousands) CONSOLIDATED STATEMENTS OFFINANCIALPOSITION (A Subsidiary ofDMCI-MPIC W MAYNILAD WATER SERVICES, INC. AND SUBSIDIARIES Other noncurrent liabilities (Note 16) Customers’ deposits (Notes 2, 24 and 25) Deferred credits (Notes 1,2,24 and 25) Pension liability (Note 16) Service to concession MWSS -net obligationpayable of current portion (Notes 9, 12,24 and 25) Interest-bearing loans -net of current portion (Notes 10, 24 and 25) Noncurrent Liabilities Total Current Liabilities Deposits for future stocksubscription(Note 13) Current portion of service to concession MWSS (Notes obligationpayable 9, 12,24 and 25) Trade and other (Notes payables 11,14,23,24 and 25) Unappropriated Retained earnings(Note 13) Other (Note equityadjustments 13) Treasury shares (Note 13) Additional paid-incapital (Note 13) Capital stock(Notes 1, 10and 13) Equity Total Liabilities Total Noncurrent Liabilities Total Equity Appropriated for capital expenditures Appropriated for cashdividend Total Noncurrent Assets Other noncurrent assets Goodwill (Note 4) Property and equipment (Note 8) Total Current Assets Other current assets (Notes 7, 10, 22,24 and 25) Trade and other receivables (Notes 6,24 and 25) Short-term investments (Notes 5,24 and 25) Deferred tax assets -net (Notes 15and 20) Service concession assets (Notes 9, 12,14and 22) Noncurrent Assets Current portion of interest-bearing loans (Notes 10, 24 and 25) Current Liabilities LIABILITIES AND EQUITY Cash and cash equivalents (NotesCash and cashequivalents 5,24 and 25) Current Assets ASSETS See accompanying Notes to Consolidated Statements. Financial ater Company , Inc .) P P 10,200,000 P 20,623,579 2,000,000 61,301,090 61,301,090 44,575,719 P 53,215,779 3,906,336 (308,695) 13,244,163 31,331,556 4,010,893 16,725,371 7,974,985 51,015,751 2,532,914 1,632,705 1,031,600 2,129,354 8,085,311 11,166,531 1,012,526 1,631,976 230,434 206,278 367,332 166,926 731,088 (9,730) 107,745 33,506 92,246 101,815 14,085 2012 December 31 P P 30,764,858 44,587,539 2,000,000 46,882,103 42,884,291 55,212,884 55,212,884 12,328,593 P 6,544,826 9,477,049 (322,369) 4,010,893 21,551,777 2,034,815 7,739,593 8,330,781 12,119,433 2,120,529 4,175,437 1,656,413 P 1,861,273 335,202 139,040 985,971 1,115,185 139,742 (6,572) 98,089 101,815 79,521 2011 – – – – Maynilad Water Services, Inc. 2012 Annual Report 62 – – 2010 17,771 18,122 85,157 13,025 1,191.75 82,529 30,537 28,087 103,217 70,294 80,660 135,276 565,153 1,216,711 598,617 160,382 406,231 P 367,240 7,117,647 320,547 (232,717) 1,738,898 (1,271,411) 4,931,877 1,059,235 1,284,093 (214,946) 7,678,858 4,779,976 (478,670) 9,904,395 4,565,030 12,049,524 (2,552,617) P (2,162,845) P (7,605,554) – 2011 61,001 121,751 91,474 13,339 42,401 217,518 117,895 77,034 28,543 154,917 28,309 281,537 245,331 621,830 139,200 539,072 1,463.43 2,171,743 445,663 208,203 1,295,188 8,770,141 1,428,501 7,936,751 11,152,074 Years Ended December 31 December Ended Years (453,193) (188,587) P 1,549,963 (201,926) 5,832,729 5,676,263 5,864,850 P (1,337,601) 13,769,480 (2,051,722) P (2,260,488) (8,605,052) 2012 61,131 8,198 175,171 40,147 48,915 101,831 22,074 86,245 158,351 134,129 48,507 129,021 152,019 120,823 196,589 745,363 421,060 154,900 134,000 1,594.96 1,831,441 960,075 694,670 438,093 1,801,096 6,515,283 P 9,078,532 6,386,262 6,804,232 6,505,856 2,906,462 (345,890) (960,656) (6,383,121) 15,882,764 12,489,702 P (2,494,413) (2,563,249) P alue) .) , Inc , mpany Co ater See accompanying Notes to Consolidated Financial Statements. Consolidated to Notes See accompanying OPERATING REVENUE OPERATING services: Water zone West Basic/Diluted Earnings Per Share (Note 18) (Note Share Earnings Per Basic/Diluted Outside west zone west Outside Sewer services - services Sewer zone West Others COSTS AND EXPENSES AND COSTS 9) (Note assets concession service of Amortization Salaries, wages and benefits (Notes 13, 14 and 16) 13, 14 and benefits (Notes Salaries, wages and Utilities Contracted services services Contracted Repairs and maintenance and Repairs Materials and supplies and Materials Rental (Notes 21 and 22) 21 and (Notes Rental Depreciation and amortization (Note 8) (Note amortization and Depreciation Transportation and travel and Transportation Taxes and licenses and Taxes Provision for doubtful accounts (Note 6) (Note accounts doubtful for Provision Collection charges Business meetings and representations and meetings Business Regulatory costs Regulatory Insurance Advertising and promotion and Advertising Others Others INCOME BEFORE OTHER INCOME (EXPENSES) INCOME OTHER BEFORE INCOME OTHER INCOME (EXPENSES) INCOME OTHER 9) (Note works rehabilitation from Revenue Cost of rehabilitation works rehabilitation Cost of 17) (Note expense Interest Interest income (Notes 4 and 17) 4 and (Notes income Interest Foreign exchange gains - net (Note 1) (Note gains - net exchange Foreign Foreign currency differential adjustments (FCDA) (Note 1) (Note adjustments (FCDA) differential currency Foreign Others - net (Note 10) (Note - net Others INCOME BEFORE INCOME TAX INCOME BEFORE INCOME PROVISION FOR (BENEFIT FROM) INCOME TAX (Notes 15 and 20) 15 and (Notes TAX INCOME FROM) (BENEFIT FOR PROVISION Current Deferred NET INCOME NET CONSOLIDATED STATEMENTS OF INCOME STATEMENTS CONSOLIDATED V Ext Earnings Per Share cep sands, Thou (Amounts in MAYNILAD WATER SERVICES, INC. AND SUBSIDIARIES AND INC. SERVICES, WATER MAYNILAD W of DMCI-MPIC (A Subsidiary 63 Changing Tides Financial Statements (Amounts in Thousands) CONSOLIDATED STATEMENTS OFCOMPREHENSIVEINCOME (A Subsidiary ofDMCI-MPIC W MAYNILAD WATER SERVICES, INC. AND SUBSIDIARIES Net income for the year Total comprehensive income for the year Other comprehensive income See accompanying Notes to Consolidated Statements. Financial ater Company , Inc .) P P 6,386,262 6,386,262 2012 – Years Ended December 31 P P 5,864,850 5,864,850 2011 – P P 4,779,976 4,779,976 2010 – Maynilad Water Services, Inc. 2012 Annual Report 64 – – – Tota l 2,068 13,674 26,577 (3,158) (6,572) 3,761,694 7,943,738 7,943,738 16,725,371 12,328,593 12,328,593 4,779,976 6,386,262 5,864,850 P P P (600,000) P P P (1,500,000) (2,000,000) – – – – – – – – – – – – – – – P P P 2,000,000 2,000,000 12,200,000 2,000,000 10,200,000 P P P Appropriated – – – – – 673,981) 731,088 673,981 4,179,976 4,179,976 P 6,544,826 6,544,826 4,779,976 6,386,262 5,864,850 P P (P (600,000) P P Retained Earnings (Note 13) Earnings (Note Retained (1,500,000) (2,000,000) (2,000,000) (10,200,000) Unappropriated – – – – – – – – – – – 2,068 351,014) 13,674 26,577 322,369) 322,369) 308,695) 348,946) 348,946) (Note 13) (Note (P (P (P (P (P (P Adjustments Other Equity Other – – – – – – – – – – – – – – – P P P 6,572) 6,572) 9,730) (3,158) Shares (6,572) (P (P (P Treasury Treasury (Note 13) (Note .) , Inc , – – – – – – – – – – – – – 101,815 101,815 101,815 101,815 101,815 775,796 P P P P P P (Note 13) (Note (673,981) Additional Paid-in Capital mpany Co ater – – – – – – – – – – – – – – 4,010,893 4,010,893 4,010,893 4,010,893 4,010,893 4,010,893 P P P P P P Common Stock Common (Notes 1 and 13) 1 and (Notes At December 31, 2011 December At At December 31, 2009 December At At December 31, 2010 December At Total comprehensive comprehensive Total year the for income cash for Appropriation 13) (Note dividends Cost of share-based share-based Cost of 13) payments (Note Appropriation for for Appropriation expenditures capital 13) (Note Total comprehensive comprehensive Total year the for income equity of Effect 13) (Note restructuring comprehensive Total year the for income Cost of share-based share-based Cost of 13) payments (Note shares Treasury declared Dividends 13) (Note 31, 2012 December At Treasury shares Treasury Cost of share-based share-based Cost of 13) payments (Note declared Dividends At December 31, 2010 December At At December 31, 2011 December At Dividends declared declared Dividends 13) (Note See accompanying Notes to Consolidated Financial Statements. Consolidated to Notes See accompanying ) Thousands (Amounts in CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY OF CHANGES STATEMENTS CONSOLIDATED AND 2010 2011 2012, DECEMBER 31, YEARS ENDED THE FOR MAYNILAD WATER SERVICES, INC. AND SUBSIDIARIES AND INC. SERVICES, WATER MAYNILAD W of DMCI-MPIC (A Subsidiary 65 Changing Tides Financial Statements (Amounts in Thousands) CONSOLIDATED STATEMENTS FLOWS OFCASH (A Subsidiary ofDMCI-MPIC W MAYNILAD WATER SERVICES, INC. AND SUBSIDIARIES Acquisition of asset intangible Decrease (increase) inother noncurrent assets Acquisitions of property and equipment(Note 8) CASH FLOWS FROM INVESTING ACTIVITIES Cash generated from operations Increase intrade and other payables Additions to service concession assets (Note 9) Other current assets Trade and other receivables Short-term investments Decrease (increase) in: Operating income before working capital changes Unrealized foreign exchange losses (gains) -net Benefits paidfrom operating funds (Note 16) Proceeds of from property sale and equipment Net cash provided by operating activities Income taxes paid Interest received of property onsale Gain and equipment of Cost (Note share-based payments 13) Pension cost(income) (Note 16) Interest income (Note 17) Net contributions to pension fund (Note 16) Depreciation and amortization (Note 8) Reversal of accrued interest to MWSS (Note payable 12) Net cashusedininvesting activities Amortization of service concession assets (Note 9) Interest expense (Note 17) Adjustments for: Income before income tax CASH FLOWS FROM OPERATING ACTIVITIES ater Company , Inc .) (6,819,700) P 10,570,318 (503,692) (226,364) (154,900) (378,075) 5,273,333 2,494,413 (192,557) 1,396,251 1,831,441 (42,201) 488,553 (13,999) 6,515,283 160,493 5,117,731 90,692 (4,891) 158,351 13,674 5,843 (475) 2,551 2012 (86) – – Years Ended December 31 (8,793,388) P (585,496) (469,297) (264,729) 1,458,853 (281,338) 2,051,722 1,428,501 (35,049) 9,167,746 2,132,014 (74,899) 5,676,263 1,557,519 (50,761) (13,339) (121,751) 112,005 217,518 26,577 (3,771) 37,923 (1,136) 7,274 2011 – – – (7,844,436) P (1,024,155) (200,599) 2,407,465 7,882,402 3,262,358 1,934,038 (193,764) 1,059,235 (92,956) (30,000) 2,162,845 4,565,030 (70,294) 3,322,115 135,276 (17,771) (1,920) 77,528 10,347 15,942 2,068 19,815 7,223 2010 – – – Maynilad Water Services, Inc. 2012 Annual Report 66 – – – – 2010 55,167 31,855 1,306,935 1,886,923 (579,988) (1,220,146) P (600,000) (3,701,504) (1,968,380) – 2011 18,349 78,777 (6,572) 4,175,437 6,881,172 1,592,321 1,306,935 (1,166,512) (492,378) 2,868,502 P (2,220,515) (1,500,000) Years Ended December 31 December Ended Years – 2012 (3,158) 117,766 87,405 33,506 (269,101) 3,906,336 4,175,437 (1,116,019) (980,946) (5,316,070) (1,454,624) P (2,000,000) Net cash provided by (used in) financing activities (used in) financing by cash provided Net EQUIVALENTS CASH AND IN CASH (DECREASE) INCREASE NET CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR BEGINNING AT EQUIVALENTS CASH AND CASH 5) OF YEAR (Note END AT EQUIVALENTS CASH AND CASH Acquisition of treasury shares (Note 13) (Note shares treasury of Acquisition Interest paid Interest Proceeds from deposits for future stock subscription future for deposits from Proceeds Other noncurrent liabilities noncurrent Other Increase in: Increase deposits Customers’ Service concession obligation payable MWSS concession to Service Interest-bearing loans Interest-bearing Payments of: 12) (Note Dividends CASH FLOWS FROM FINANCING ACTIVITIES FINANCING FROM FLOWS CASH 10) (Note loans interest-bearing of availment from Proceeds See accompanying Notes to Consolidated Financial Statements. Consolidated to Notes See accompanying 67 Changing Tides Financial Statements (Amounts in Thousands, ExceptNumberof Shares, EarningsPeShe V NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (A Subsidiary ofDMCI-MPIC W MAYNILAD WATER SERVICES, INC. AND SUBSIDIARIES 1. BOD onFebruary 25,2013. The accompanying consolidated statements financial were approved and authorized for issue by the Quezon City. The registered office address of the Parent Company isMWSS Compound, Katipunan Road, Balara, and itssubsidiariesasFPCgroup companies inHongKong. Accepted Accounting require Principles FPCto account for the results and assets and liabilities of EIH holds 40.0% equityinterest inEIHand an investment financing which under HongKong Generally Limited (FPC),acompany incorporated inBermuda and listed inHongKong, through itssubsidiaries, (60.0%), Intalink B.V. (26.7%) and PacificInternational First Limited Pacific Company (13.3%).First MPHI isaPhilippine corporation whosestockholders are Enterprise Investment Holdings,Inc.(EIH) of 22,2013, MPHI’s equityplacing onJanuary ownership inMPIC was reduced to 55.9%interest. As atDecember 31,2012, MPIC is59.0% owned by Metro PacificHoldings,Inc.(MPHI). Asaresult DMCI will have a52.80% and 25.24% equityinterests, respectively, asatFebruary 13,2013. MCNK will have an effective ownership interest of 20.0% inthe Parent Company MPIC while and 154,992,852 common shares of stockof DMCI-MPIC from DMCIHoldings,Inc.(DMCI).Henceforth, to 508,853,045 an additional common shares of DMCI-MPIC. Onthe samedate, MPIC purchased 2013, MCNKand DMWC entered into another SubscriptionAgreement for the subscriptionby MCNK executed, wherein MCNKsubscribedto 169,617,682 common shares of DMCI-MPIC. OnFebruary 13, 28, 2012, aSubscriptionAgreement between MCNKJVCorporation (MCNK)and DMCI-MPIC was Company. MPIC owns effectively 56.80%of the Parent Company in2012 and 2011. OnDecember Metro Pacific Investments Corporation (MPIC). Inaddition,MPIC owns directly 5.88%of the Parent MPIC), acompany incorporated inthe Philippines. DMCI-MPIC isa55.41% owned subsidiaryof The Parent Company isa91.90%owned subsidiaryof DMCI-MPIC Water Company, Inc.(DMCI- October 26,2011, respectively. approved by the stockholders and the Securitiesand Exchange Commission 12,2011 onAugust and and undertaking suchother activitiesincidental to itssecondary purpose. The amendment was Incorporation to amend itsprimarypurposeto include the provision of and allied ancillary services 26,2011, the BoardOn July of Directors (BOD) approved the amendment of of the Articles Manila. sewerage services of the Metropolitan Waterworks and Sewerage System (MWSS) for Metropolitan in the Philippines to bidfor primarily the operation of the privatized system of waterworks and WaterMaynilad Services, or Inc.(Maynilad Parent Company) was incorporated 22,1997 onJanuary General Corporate Information and Status of Operations ater Company , Inc .) alue and UnlessO therwise Specified) Maynilad Water Services, Inc. 2012 Annual Report 68 000), except when otherwise indicated. when otherwise except Compliance of Statement with in accordance been prepared have financial statements consolidated Company’s The in PFRS. PFRS include forth as set Philippines in the principles generally accepted accounting issued including Interpretations (PAS), Standards Accounting Philippine named PFRS and statements (FRSC). Council Standards Financial Reporting the by Summary of Significant Accounting and Financial Reporting Policies Policies Financial Reporting and Accounting Significant Summary of Preparation Basis of cost on a historical been prepared have Company the of financial statements consolidated The The value. at fair measured which are available-for-sale (AFS) investments, for basis, except Company’s Parent which is the peso, in Philippine presented are financial statements consolidated (P thousand nearest the to rounded are all amounts and currency, presentation and functional Concession Agreement Agreement Concession a MWSS, the with Agreement a Concession into entered Company Parent the 21, 1997, On February (RA) Act Republic to pursuant existing and organized corporation controlled and government-owned The Area. Service West MWSS the to respect with amended, clarified and as Charter), 6234 (the No. the throughout Company Parent the of obligations and rights the forth sets Agreement Concession Concessionaires the body of regulatory acts as the Office Regulatory MWSS The period. concession Water)]. Inc. (Manila Company, Water - Manila East Concessionaire the and Company Parent [the perform to (as contractor Company Parent the grants MWSS Agreement, Concession the Under Charter), the under powers rights and certain of exercise as agent the and for functions certain movable and all fixed refurbish and decommission repair, solethe manage, right to operate, services sewerage and water provide to MWSS) of assets retained certain (except required assets (the on August 1, 1997 commencing 40 years of period extended an for Area Service West in the case may as the be. early date the or May to termination 6, 2037 Date) Commencement certain refurbish and decommission repair, manage, to operate, is also tasked Company Parent The MWSS. with remains Legal title assets these to Area. Service West in the facilities MWSS specified the by system MWSS existing the to contributed equipment and plant legalThe title all property, to Expiration the until Company Parent the with remains period concession the during Company Parent will assets in such all at which time, rights, titles interest and on early date) (or termination Date automatically MWSS. to vest Period Rebasing Rate Fourth the for Application the Agreement, Concession the of Section 9.4.1 under specified provisions the with In compliance Limit to Adjustment Rates the of determination the for Plan Business the submitted Company Parent Period. Rebasing Rate Fourth the or 2017 to 2013 period the for rates standard the to be applied plan. business Company’s Parent the reviewing is still Office Regulatory the 25, 2013, As at February 2. 69 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS • positionorpolicies, financial performance of the Company, except for disclosures. additional 1, 2012. The adoptionof the following amendments didnot have material effect onthe accounting Philippine Accounting Standards (PAS) and PFRSwhichwere adopted effective beginningJanuary consistent with those of the previous year, financial except for the adoption of the following amended The accounting policiesadopted inthe preparation of the consolidated statements financial are inAccountingChanges Policies and Disclosures the consolidation. income and expense and profits and losses from intercompany transactions are eliminated infull in Company usingconsistent accounting policies.Allsignificant intercompany balances, transactions, The statements financial of the subsidiariesare prepared for the samereporting year asthe Parent Company obtains control, and continue to beconsolidated until the date suchcontrol that ceases. The subsidiariesare consolidated from the date of acquisition, beingthe date onwhichthe Parent waterworks, sewerage and sanitation system and services outside the Concession Area. isincorporated Amayi Amayi. for the purposeof operating, maintaining managing, and rehabilitating for the construction and operation of water treatment facilities for water distribution services. outside the West Service Area and aMemorandum of Agreement with certain provincial municipality Phil Hydro existing has 25-year Bulk Water Agreements Supply with various provincial municipalities operate water local utilities and provide potable water to the public. Provincial Water Utilities Act of 1973, whichmandates the government local units to create and in linewith the thrusts of the government under Presidential Decree No. known 198,also asthe consulting services. Phil Hydro undertaking iscurrently water projects outside supply Metro Manila Phil Hydro. Phil Hydro inwaterworks isengaged construction, engineering and engineering All subsidiariesare and wholly-owned incorporated inthe Philippines. following referred subsidiaries(collectively to asthe “Company”) itcontrols: that The consolidated statements financial comprise of the statements financial of and Maynilad the Basis of Consolidation Amayi WaterAmayi Solutions,Inc.(Amayi)** Philippine Hydro, Inc,(Phil Hydro) * ** Incorporated 18,2012 onJuly * Acquired 3,2012 onAugust and risksassociated with, the entity’s continuing involvement inthose derecognized assets. continuing involvement inderecognized assets the user to to enable evaluate the nature of, and their associated liabilities. Inaddition,the amendment requires disclosures about statements to understand the relationship with those assets have not that beenderecognized transferred butnot derecognized the user to of enable the Company’s consolidated financial The amendment requires disclosure additional about assets financial have been that (effective for periods annual beginningonor after 1,2011) July PFRS 7, Financial Instruments: Disclosures -Enhanced Derecognition Disclosure Requirements Subsidiaries Water distribution (outside the West Service Area) Bulk water and water supply distribution (outside the West Service Area) Nature of Business Maynilad Water Services, Inc. 2012 Annual Report 70 Interim Financial Reporting – Interim financial reporting and segment information for total total for information segment and reporting financial Interim – Reporting Financial Interim PAS 1, Presentation of Financial Statement - Presentation of Items of Other Comprehensive Income Comprehensive Other of Items of - Presentation Financial Statement of 1, Presentation PAS July 1, 2012) after beginning on or annual periods for (effective comprehensive in other presented items of 1 change grouping the PAS to amendments The point in at a future loss or profit to ”recycled”) (or reclassified be that could Items income. separately from be presented would settlement) or upon derecognition example, time (for only has and presentation affects amendment The be reclassified. never that will items amendments The performance. financial position or Company’s no impact on the therefore upon its effectivity. retrospectively be applied will Income Taxes - Recovery of Underlying Assets Underlying of - Recovery Taxes 12, Income PAS January 1, 2012) after beginning on or annual periods for (effective measured property on investment tax deferred of determination clarified the amendment The on tax that deferred presumption a rebuttable introduces amendment The value. at fair Property, Investment 40, in PAS model value fair using the measured property investment sale. through recovered be will basis that its carrying amount on the be determined should that assets non-depreciable on tax that deferred requirement the it introduces Furthermore, Equipment, always be and Plant 16, Property, in PAS model revaluation using the measured are on a sale asset. the measured basis of First-time Adoption of PFRS – Borrowing Costs PFRS – Borrowing of Adoption PFRS 1, First-time 1, Presentation of Financial PAS – Statements Clarification ofrequirements the for information comparative equipment servicing of – Classification Equipment Plant and 16, Property, PAS instruments equity of holders to distribution of effect – Tax Presentation Instruments: 32, Financial PAS 34, PAS assets and liabilities and assets Annual Improvements to PFRS (2009-2011 cycle) PFRS (2009-2011 to Improvements Annual to a view primarily deal with standards, to amendments omnibus of PFRSs, an to Improvements each for provisions transitional separate are There clarifying wording. and inconsistencies removing on the impact significant any have did not amendments following the adoption of The standard. Company. the of performance policies, financial position or accounting Effective Yet Not Standards Existing to Amendments and Interpretations Standards, and standards existing to amendments early did not following Company adopt the The Except 31, 2012. as at December effective yet not but are that been approved have interpretations and amendments these adoption of the expect does not Company the indicated, as otherwise financial statements. impact on its consolidated an have to interpretations 2013 Effective • • • • • • • 71 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS • • • • (effective for periods annual beginning onor after 1,2013, with January retrospective application) PFRS 7, Financial instruments: Disclosures -Offsetting Financial Assets and Financial Liabilities of the equitymethod to investments injointventures inadditionto associates. renamed PAS 28,Investments inAssociates and Joint Ventures, and describes the application As aconsequence of the new PFRS11,JointArrangements, and PFRS12,PAS been 28has (effective for periods annual beginningonor after 1,2013) January PAS 28, Investments inAssociates and JointVentures (asrevised in2011) controlledsubsidiaries, jointly entities,and associates inseparate statements. financial Disclosure of Interests inOther remains Entities,what of PAS 27 islimited to accounting for As aconsequence of the new PFRS10, Consolidated Statements, Financial and PFRS12, (effective for periods annual beginningonor after 1,2013) January PAS 27, Separate Financial Statements (asrevised in2011) comprehensive income within equity. The effects are detailed below: on paragraph 122of PAS 19R,whichallows transfers of remeasurements recognized inother transition are adjustments closedto retained earningsonthe transition date. This isbased consolidated statements financial uponadoptionof the standard. The net effect of all The Company obtained the services of an external actuaryto compute the impactto the amended standard significant impact on itsaccounting has for employee benefits. re-wording. The Company reviewed itsexisting employee benefitsand determined the that andmechanism the concept of expected returns onplan assets clarificationsand to simple Amendments to PAS 19range from fundamental suchasremoving changes the corridor 1,2013) January PAS 19, Employee Benefits (Amendment) (effective for periods annual beginningonor after Benefit from deferred income tax Provision for deferred income tax Pension income Accrued retirement cost position: financial Increase (decrease) inconsolidated statements of Pension cost Other comprehensive income Deferred tax asset Retained earnings Other comprehensive income income: income and consolidated statements of comprehensive Increase (decrease) inconsolidated statements of As atDecember 31, (49,197) P 42,288 2,961 2012 9,870 As atDecember (P (73,230) P 31, 2011 55,231 9,956 2,987 49,197) 25,713 7,714 2012 – – As at January As atJanuary (P (P (48,956) (45,385) (13,616) 114,231 1, 2011 163,188) 73,230) 2011 – – – Maynilad Water Services, Inc. 2012 Annual Report 72 Amounts related to recognized financial instruments that do not meet some or all of the the all of some or that meet do not financial instruments recognized to related Amounts 32 in PAS criteria offsetting that are not otherwise included in (b) above, including: above, in (b) included otherwise not that are i. (including cash collateral) financial collateral to related ii. Amounts net amounts presented in the consolidated statement of financial position of statement consolidated in the presented amounts net e) The net amount after deducting the amounts in (d) from the amounts in (c) above in (c) amounts the from in (d) amounts the deducting after amount net The e) financial only has disclosures Company’s affects and the no impact on amendment The performance. position or Statements Financial Consolidated PFRS 10, January 1, 2013) after beginning on or annual periods for (effective that Financial Statements, Separate and Consolidated 27, PAS of portion the PFRS 10 replaces issues the It also includes financial statements. consolidated for accounting the addresses a single - Special Purpose Entities. PFRS 10 establishes Consolidation control in SIC-12, raised changes all entities including special that to purpose entities. The introduced model applies which determine judgment to significant management exercise to require PFRS 10 will by compared a parent, by be consolidated to required are therefore, and controlled, entities are 27. in PAS that were requirements the with January 1, 2013) after beginning on or annual periods for (effective PFRS 11, Joint Arrangements Entities - Jointly-controlled SIC-13, and in Joint Ventures, 31, Interests PAS PFRS 11 replaces jointly for account option to the PFRS 11 removes Venturers. by Contributions Non-monetary the JCEs that meet Instead, consolidation. using proportionate entities (JCEs) controlled equity method. the using for must be accounted a joint venture of definition c) The net amounts presented in the consolidated statement of financial position of statement consolidated in the presented amounts net The c) These amendments require an entity to disclose information about rights of set-off and and set-off rights of about disclose information entity to an require amendments These required are disclosures new The agreements). as collateral (such arrangements related 32. These PAS with in accordance off set that are financial instruments all recognized for enforceable an to subject that are financial instruments also apply recognized disclosures to set-off they are whether of irrespective agreement”, “similar or arrangement netting master format in a tabular disclose, entities to require amendments 32. The PAS with in accordance information. quantitative minimum following the appropriate, is more format unless another end at the recognized financial liabilities and financial assets for separately is presented This period: reporting the of financial liabilities recognized and financial assets recognized those of amounts gross a) The d) The amounts subject to an enforceable master netting arrangement or similar agreement agreement similar or arrangement netting master enforceable an subject to amounts d) The b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the the when determining 32 in PAS criteria the with in accordance off set that are amounts The b) • • 73 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS • Effective 2015 • Effective 2014 • • • amendments to PAS 32. and regulatory capital requirements. The Company assessing iscurrently impactof the net assets of the Company, inoffsetting any changes isexpected to impactleverage ratios arethat not simultaneous. the amendment While isexpected not to have any impactonthe systems (such ascentral house gross systems) settlement clearing whichapply mechanisms right to set-off” and clarifythe also application of the PAS 32offsetting criteria to settlement These amendments to enforceable PAS 32clarifythe meaning alegally of “currentlyhas retrospective application) Liabilities (effective for periods annual beginningonor after 1,2014, with January PAS Instruments: 32,Financial Presentation -Offsetting Assets Financial and Financial 9 requires assets financial all to bemeasured atfair recognition. value atinitial Adebt and hedgeaccounting isstill ongoing,with aview to replacing PAS 39 initsentirety. PFRS assets and liabilities asdefined inPAS 39. Work onimpairmentof instruments financial Recognition and Measurement and applies to the classification and measurement of financial onthePFRS 9, asissued, replacement reflects the phase first of PAS 39, Instruments: Financial (effective for periods annual beginningonor after 1,2015) January PFRS 9, Financial Instruments: Classification and Measurement activity asset. on the recognition of production stripping costsasan asset and measurement of the stripping during the of production thephase mine (“production stripping costs”) and provides guidance This interpretation applies to waste removal are coststhat incurred insurface miningactivity (effective for periods annual beginningonor after 1,2013) January Philippine Interpretation IFRIC20, Stripping Costs inthe Production Phase of aSurface Mine impact onthe positionand financial performance. The Company doesnot anticipate the that adoption of this standard will have asignificant guidance onhow to measure fair value under PFRSwhenfair value isrequired or permitted. whenan entityisrequiredPFRS 13doesnot change to usefair value, butrather provides sourcePFRS 13establishes asingle of guidance under PFRSfor fair all value measurements. (effective for periods annual beginningonor after 1,2013) January PFRS 13,Fair Value Measurement required. arrangements, associates and structured entities.Anumber of new disclosures are also PAS 31and PAS 28.These disclosures relate to an entity’s interests insubsidiaries,joint statements,financial aswell of asall the disclosures were that previously included in PFRS 12includes of all the disclosures were that previously inPAS 27 related to consolidated (effective for periods annual beginningonor after 1,2013) January PFRS 12,Disclosure of Involvement with Other Entities Maynilad Water Services, Inc. 2012 Annual Report 74 financial asset may, if the fair value option (FVO) is not invoked, be subsequently measured invoked, is not option (FVO) value fair if the may, financial asset assets hold the that to model has a business objective the if it is held within cost at amortized dates, on specified rise, give terms its contractual and cash flows collect contractual to the principal outstanding. on the solely that are flows cash interest to principal payments and of All loss. or profit through value subsequently at fair are measured instruments debt All other Equity loss. or profit or OCI through either value at fair measured are equity financialassets For loss. or profit through value at fair must be measured trading held for financial assets to that is attributable a liability of value change fair in the of amount the liabilities, FVO change value the in fair of remainder The in OCI. risk must be presented changes in credit the of change value fair in respect the of unless loss, presentation or in profit is presented loss. or in profit mismatch accounting an enlarge or create would risk in OCI credit liability’s have financial liabilities for requirements measurement and classification 39 PAS All other rules and separation derivative embedded the including PFRS 9, into been carried forward first phase 9 has the PFRS adoption of of not the impact of The FVO. using the for criteria the which has been undertaken. of not as evaluation Company the by been determined entities by expenses associated and revenue for accounting covers interpretation This The subcontractors. through directly or estate real of construction the that undertake only upon be recognized estate real of on construction that revenue requires interpretation for be accounted to contract qualifies as construction when such contract except completion, in which case revenue services of rendering involves or Contracts, 11, Construction PAS under with services of provision involving Contracts completion. based on stage of is recognized to transferred are ownership of reward risks and the where and materials construction the completion. based on stage of for also be accounted basis will on a continuous buyer the the until interpretation this of effectivity the deferred FRSC have the SEC and Philippine The and (IASB) Board Standards Accounting International the by is issued standard final Revenue the of against practices the standard final Revenue the of requirements the of evaluation an is completed. industry estate real Philippine Agreements for the Construction of Real Estate Real of Construction the for IFRIC 15, Agreements Interpretation Philippine standards and interpretations effective subsequent to December 31, 2012 on their consolidated financial financial consolidated their on 2012 accounting improved 31, and amended new, above the December impact of the assess to continues to Company The will subsequent amendments effective these by required interpretations and disclosures standards Additional application. initial of period the in statements adopted. are amendments when these financial statements consolidated in the be included Goodwill and Combinations Business an cost of The accounting. of method acquisition using the for accounted are combinations Business at acquisition measured transferred, consideration the of aggregate the as is measured acquisition each business For acquiree. in the interest non-controlling any of amount the and value fair date value at fair either acquiree in the interest non-controlling the measures acquirer the combination, are costs incurred Acquisition assets. identifiable net acquiree’s the of share proportionate at the or expenses. in costs and included and expensed assumed liabilities and financial assets the it assesses business, a acquires Company When the economic terms, contractual the with in accordance designation and classification appropriate for of separation the includes This date. acquisition as at the conditions pertinent and circumstances acquiree. the by in host contracts derivatives embedded • 75 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS derecognition, are asapplicable, doneusingtrade date accounting. of the instrument. Inthe caseof aregular of assets, financial or purchase sale way recognition and consolidated statement of positionwhen itbecomes financial a party to the contractual provisions Date of Recognition. The Company recognizes asset afinancial or liability afinancial inthe AssetsFinancial and Liabilities Financial Short-term investments are investments with maturitiesof more three than months to oneyear. Short-term Investments months from or acquisition less date and are that subjectto an insignificant riskof invalue. change investments are that readily convertible to known amounts of cashwith original maturitiesof three Cash includes and are cash onhand inbanks. Cashequivalents short-term, liquid highly Cash and CashEquivalents asset,identifiable liability or contingent liability beingrecognized or adjusted. acquisition date by an amount to equal the to adjustment the fair value atthe acquisition date of the been recognized from date that and goodwill or any gainrecognized beadjusted from the shall of completing the accounting initial becalculated shall asifitsfair value atthe acquisition date had carrying amount of asset, an identifiable liability or contingent liability isrecognized that asaresult of completing the accounting initial bemade within shall 12months from the acquisition date. The the combination usingprovisional fair values. Adjustments to those provisional fair values asaresult acquiree’s assets, identifiable liabilities can be determined provisionally, only the Company accounts of the period by whichthe combination iseffected becausethe fair values to beassigned to the If the accounting initial for business combination can bedetermined by provisionally the end only of and the portion of the cash-generating unit retained. disposed of inthis circumstance ismeasured basedonthe relative values of the operation disposed amount of the operation whendetermining the gainor of loss ondisposal the operation. Goodwill is disposedof, the goodwill associated with the operation disposedof isincluded inthe carrying Where goodwill forms part of acash-generating unit and partof the operation within unit that assigned to those units. benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are acquisition date, allocated to eachof the Company’s cash-generating units are that expected to For the purposeof impairmenttesting, goodwill acquired inabusiness combination is,from the After recognition, initial goodwill ismeasured any accumulated atcostless impairmentlosses. the subsidiaryacquired, the difference isrecognized inthe consolidated statement of income. acquired and liabilities assumed. Ifthis consideration islower the than fair value of the net assets of transferred and the amount recognized for non-controlling interest over the net assets identifiable Goodwill measured atcostbeingthe excess isinitially of the aggregate of the consideration equity, itisnot remeasured settled until within itisfinally equity. loss to or other asachange comprehensive income. Ifthe contingent consideration isclassified as is deemed to bean asset or liability, will berecognized inaccordance with PAS 39 either inprofit or the acquisition date. to the Subsequentchanges fair value of the contingent consideration which Any contingent consideration to betransferred by the acquirer will berecognized atfair value at Maynilad Water Services, Inc. 2012 Annual Report 76 The designation eliminates or significantly reduces the inconsistent treatment that would that would treatment inconsistent the significantly or reduces eliminates designation The on them losses gains or recognizing or liabilities or assets measuring the arise from otherwise basis; on a different both or financial liabilities financial assets, of a group part of are liabilities and assets The with basis, in accordance value on a fair evaluated performance their managed and which are or strategy; risk management investment or a documented derivative embedded unless the derivative, embedded an contains financial instrument The no analysis, or little that it with it is clear, or significantlydoes not cash flows modify the recorded. be separately not would Financial assets and financial liabilities are recognized initially value. at fair recognized are financial liabilities and Financial assets Recognition. Initial except liabilities, and all financial assets of initial measurement in the included costs are Transaction (FVPL). loss or profit through value at fair measured financial instruments for and loans at FVPL, financial assets categories: following the into classified are Financial assets are Financial liabilities AFS investments. and (HTM) investments, held-to-maturity receivables, the determines Company The financial liabilities. other at FVPL or as financial liabilities classified designation this re-evaluates appropriate, and allowed where and, at initialclassification recognition date. at each reporting in actively that traded are financial instruments of value fair The Value. Fair of Determination close at the bid prices market quoted to reference by is determined financial markets organized price the available, not are asking prices bid and When current date. reporting at the business of has not as long as there value fair current the of evidence provides transaction most recent the of financial For transaction. the time of the since changebeen a significant circumstances in economic techniques. using valuation is determined value fair market, is no active there where instruments prices observable which market for instrument a similar to using reference include Such techniques models. valuation relevant analysis other cash flow and discounted exist, value fair the from is different market in a non-active price transaction the Where ‘Day 1’ difference. based on a valuation or same instrument in the transactions market current observable other of recognizes Company the whose variables only market, observable include from technique data consolidated in the 1’ difference) (a ‘Day value fair and price transaction the between difference the In cases where asset. of type some other as recognition unless it qualifies income for of statement and price transaction the between difference the observable, which is not data of use is made inputs become the when income of statement consolidated in the is only value model recognized determines Company the each transaction, For is derecognized. instrument when the or observable amount. 1’ difference ‘Day the recognizing of method appropriate the is classified a financial liability or at FVPL. A financial asset Liabilities Financial and Assets Financial or near term in the repurchasing or selling principally purpose of the if acquired for category in this financial or management the as at FVPL. Financial assets by it is designated upon initial recognition, following the of when any management by on initial recognition designated at FVPL are liabilities met: are criteria • as effective designated derivatives those as at FVPL, except also categorized are Derivatives contract. a financial guarantee or hedging instruments • • 77 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS assets ifitismore ayear than from reporting financial date. the Company intends to hold the assets within 12 monthsare carriedatcost,net of impairment, ifany.from Assets underfinancial this category are classified ascurrent reporting assets if date and as noncurrent not have a quoted market price inan active market and whosefair values cannot measured bereliably in equity is included in the consolidated statement of income.investment isdetermined to beimpaired atwhichtimethe cumulativeInvestments gainor loss previously reported in equity instruments that do and presented asaseparate component of equityuntil the investment isderecognized or until the unrealized gainsor losses being recognized inthe consolidated statement of comprehensive income conditions. After recognition, initial assets financial available-for-sale are measured atfair value with and held indefinitely, and may be sold in response to liquidity oras available-for-sale are not classified inany of the three requirements preceding categories. These are purchased or changes in market AFS Investments. Available-for-sale assets financial are non-derivative assets financial are that designated The no HTMinvestments Company asatDecember has 31,2012 and 2011. reporting date. months from reporting date and asnoncurrent assets ifmaturitydate ismore ayear than from of income. Assets under this category are classified ascurrent assets ifmaturityiswithin twelve interest method. The losses arisingfrom impairmentare recognized inthe consolidated statement consolidated statement of position.Amortization financial isdetermined by usingthe effective and ability to holdto maturity. HTMinvestments are carriedatcostor amortized costinthe determinable and fixed payments maturitieswherein the the Company positive has intention Investments.HTM HTMinvestments are quoted non-derivative assets financial with fixed or noncurrent assets” account inthe consolidated statements of position(see financial Notes 5,6and 7). and other receivables, sinking fund, deposits and miscellaneous deposits shown as part of “Other This category includes the Company’s short-term cashand cashequivalents, investments, trade date. Otherwise, these are classified asnoncurrent assets. and receivables are included incurrent assets ifmaturityiswithin twelve months from the reporting receivables are derecognized and impaired, aswell asthrough the amortization process. Loans rate. and Gains losses are recognized inthe consolidated statement of income whenloans and any discount or premium onacquisition and are fees that an integral partof the effective interest interest method, allowance less for impairment.Amortization iscalculated by taking into account carried atamortized costinthe consolidated statement of positionusingthe financial effective assetsfinancial or assets financial atFVPL.After recognition, initial loans and receivables are with the intention of immediate or short-term and resale are not classified or designated asAFS or determinable are that not payments quoted inan active market. are They not entered into Loans and Receivables. Loans and receivables are non-derivative assets financial with fixed The assets nofinancial Company has or liabilities atFVPLasDecember 31,2012 and 2011. receive beenestablished. has payment interest income, dividend while income isrecorded inother operating income whenthe rightto assets are accounted for inthe consolidated statement of income. Interest earnedisrecorded in positionatfairfinancial value and are classified ascurrent assets. infair value of Changes such assetsFinancial and liabilities financial atFVPLare recorded inthe consolidated statement of Maynilad Water Services, Inc. 2012 Annual Report 78 10.5 million. 10.5 The Company has an unquoted AFS investment as at December 31, 2012 and 2011, shown as part shown 2011, and 31, 2012 as at December AFS investment has unquoted Company an The financial position. As at of statements consolidated in the account assets” noncurrent “Other of cost and total with has its AFS investment Company fully the 2011, impaired and 31, 2012 December P of impairment for allowance corresponding Financial liabilities are classified in this category if category in this classified are Cost. Financial liabilities at Amortized Liabilities Financial Other These liability. the of inception as at FVPL upon the designated not or trading held for not are these borrowings. or operations arising from liabilities include subsequently at are measured borrowings and loans interest-bearing initial recognition, After method. interest effective cost using the amortized are liabilities when the income of statement in consolidated recognized are losses Gains or process. amortization the as through as well derecognized debt unamortized The method. interest effective using the amortized costs are Debt issuance instrument. debt the of carrying value against related the netted costs are issuance concession service loans, payables, interest-bearing other and trade includes category This 12). 11 and 10, Notes (see deposits customers’ obligation payable and MWSS to Financial Assets Impairment of financial of group or a financial asset whether date at each reporting assesses Company The if, be impaired to is deemed financial assets of group or A financial asset is impaired. assets that has events more one or of impairment as a result of evidence is objective only there and if, that event loss and event) ‘loss’ incurred (an asset the of initial recognition the after occurred that be can financial assets the of cash flows future has estimated impact on the an events) (or of a group or that debtors impairment may indications the include of Evidence reliably measured. principal or in interest delinquency or default financial difficulty, significant is experiencing debtors when and financial reorganization other or bankruptcy enter that they will payments, probability the flows, cash future estimated the in decrease is a measureable that there indicate date observable defaults. with that correlate conditions economic or such as changes in arrears that on loans impairment loss an evidence is objective Cost. If there at Amortized Carried Assets is measured loss the of amount the cost has carried at amortized been incurred, receivables and future estimated of value present the and carrying amount asset’s the between difference as the financial at the discounted been incurred) that losses not have credit future (excluding cash flows at initial recognition). computed rate interest effective the (i.e., rate interest effective original asset’s allowance an use of through directly or either shall asset be reduced the of amount carrying The income. of statement consolidated in the shall loss the be recognized of amount The account. individually financial for impairment exists of evidence objective whether first assesses Company The individually individually that that and are collectively significant, are or assets financial assets for financial of group a in included is asset an the for impairment exists of not, evidence that no objective individuallyor not If it is determined significant. significant whether asset, financial assessed individually is collectively for financial assets assessed of that group and risk characteristics credit similar with assets is or impairment loss which an for individually impairment and that for are assessed impairment. Assets impairment. of a collective assessment in included not are be recognized to continues 79 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS in the respective carrying amounts isrecognized inthe consolidated statement of income. treated asaderecognition of the original liability and the recognition of anew liability, and the difference terms, or the terms of an existing liability modified, such an are exchange or substantially modification is When an existing liability financial isreplaced by another from different the samelender onsubstantially expired. or cancelled has discharged, Financial Liabilities. liability Afinancial is derecognized whenthe obligationunder the liability is the Company could berequired to repay. at the lower of original carryingamount of the asset and the maximum amount of consideration that Continuing involvement takes that the form of aguarantee over the transferred asset ismeasured the asset, the asset isrecognized to the extent of the Company’s continuing involvement inthe asset. transferred nor retained the all risksand rewards substantially of the asset nor transferred control of When the transferred Company has itsright to receive cashflows from an asset neither and has • • of similar assets) financial isderecognized when: Financial Assets. asset Afinancial (or, where apartof applicable, asset afinancial or partof agroup Derecognition of Assets Financial and Liabilities Financial comprehensive income. to an event occurring after the impairmentloss was recognized inthe consolidated statement of of comprehensive income, ifthe increase infair value of the instrument related can beobjectively Reversals of impairmentlosses onAFSinvestments are reversed through consolidated statement is transferred from other comprehensive income to the consolidated statement of income. impairment loss previously recognized in the consolidated statement of comprehensive income, its cost(net of and any amortization) payment principal and itscurrent fair any value, less AFS Investments. Ifan AFSinvestment isimpaired, an amount comprising the difference between current market rate of return for asimilar asset. financial asset’s carryingamount and the present value of estimated future cashflows discounted atthe instrument beenincurred, has the amount of the loss ismeasured asthe difference between the on aderivative asset islinked that to and besettled must by delivery of suchan unquoted equity instrument isnot carriedatfair that value becauseitsfair value cannot measured, bereliably or Assets Carried Ifthere atCost. isobjective evidence an impairmentloss that onan unquoted equity asset doesnot exceed itsamortized costatthe reversal date. recognized inthe consolidated statement of income, to the extent the that carryingvalue of the recognized impairmentloss isreversed. Any subsequentreversal of an impairmentloss is related to an event objectively occurring after the impairmentwas recognized, the previously If, inasubsequentperiod, the amount of the impairmentloss decreases and the decrease can be risks and rewards of the asset, transferred buthas control of the asset. risks and rewards of the asset, or neither (b) has transferred nor retained the all substantially “pass-through” arrangement; and either (a)the transferred Company has the all substantially theobligation to received pay cashflows infull without material to athird delay partyunder a the transferred Company has itsrightto receive cashflows from the asset assumed an or has the rightto receive cashflows from the asset expired; has or Maynilad Water Services, Inc. 2012 Annual Report 80 Offsetting Financial Instruments Offsetting in the is reported amount net the and offset are financial liabilities and Financial assets legal is a currently enforceable only there and if, financial position if, of statement consolidated to basis, or a net on settle to intention is an there and amounts recognized the offset right to simultaneously. liability the settle and asset the realize Supplies and Materials valued are account) assets” current “Other under others as part of (shown supplies and Materials average weighted using the Cost is determined realizable value. net cost and of lower at the cost. replacement current is the realizable value Net method. Assets Concession Service in MWSS with arrangement its concession for accounts Company Parent The Company. Parent as it model Intangible Asset the under Arrangement Concession IFRIC 12, Service with accordance Agreement, Concession the Under public service. charge to of users right (license) the receives concession during the discretion right and sole exclusive the and is granted Company Parent the identified the refurbish and decommission maintain, repair, operate, manage, to occupy, period legal shall The with services. title assets remain these to water provide to required facilities period. concession the of end at the MWSS with in accordance Supply Agreements Water its Bulk for accounts Hydro Phil Hydro. Phil charge to of users (license) right the as it receives model Intangible Asset the IFRIC 12 under public service. or a license receives Company that the extent the to recognized are assets concession Service pertain (SCA) Assets” Concession “Service The public service. the of chargeright to users the costs construction and date at drawdown obligations concession service the of value fair the to using the amortized are SCA The Company. the by performed works rehabilitation the to related arrangements. concession the of terms the over method straight-line percentage-of- using the works rehabilitation from revenue measures and recognizes Company The fulfilled, obligations are related as the is recognized revenue method, this Under method. completion work. contract the of completion physical principally estimated the measured basis of on the indirect those costs, and labor materials, all direct which includes works, rehabilitation Cost of recognition revenue the with consistent is recognized performance, contract to costs related immediately when it is probable recognized are on contracts losses Expected applied. method performance, Changes in contract revenue. contract total exceed costs will contract that total the penalty contract arising from including those profitability estimated and conditions contract costs and estimated to in revisions which may result settlements final contract and provisions determined. are revisions in which the year in the recognized margins are gross as recognized are agreement concession the to related expenditures Subsequent costs and cost of and date obligations at drawdown of value at fair assets concession service additions to works. rehabilitation 81 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS traded subsidiaries or other available fair value indicators. is used.These calculations are corroborated by valuation multiples, quoted share prices for publicly into account, ifavailable. Ifnosuchtransactions can beidentified, an appropriate valuation model specific to the asset. Indetermining coststo fair sell,recent value less market transactions are taken discount rate reflects current that market assessments of the timevalue of and the money risks value inuse, the estimated future cashflows are discounted to their present value usingapre-tax is calculated asthe higher of the asset’s value inuseor costto its fair sell.Inassessing value less such indication exists, the asset’s recoverable amount is estimated. Anasset’s recoverable amount previously recognized for an asset inprior nolonger years exist may have decreased. or may Ifany impairment of any assets, nonfinancial or whether there isany indicationan impairmentloss that An assessment ismade ateachreporting date to determine whether there isany indication of Impairment of Assets Nonfinancial (Property and Equipmentand Service Concession Assets) item isderecognized. carrying amount of the items) isincluded inthe consolidated statement of income inthe year the derecognition of the asset (calculated asthe difference between the net proceeds disposal and the benefits are expected to arisefrom the continued useof the asset. Any gainor loss arisingon An item of property and equipmentisderecognized or upondisposal whennofuture economic use and nofurther depreciation to current ischarged operations. Fully depreciated property and equipmentare retained inthe accounts until are they no longer in property and equipment. method of depreciation are consistent with the expected pattern of economic benefitsfrom items of The useful lives and depreciation method are reviewed to ensure the periodically that periods and The Company computes for depreciation based onthe significant component charges of the asset. a straight-line basisover the following estimated useful lives: Depreciation iscalculated for eachsignificant item or partof an item of property and equipmenton expenditures are capitalized costsof asadditional property and equipment. an item of property assessed and standard equipmentbeyond itsoriginally of performance, the resulted inan increase inthe future economic benefitsexpected to beobtained from the useof costs are incurred. demonstrated Insituationswhere itcan beclearly the that expenditures have operation, suchasrepairs and maintenance, to income inthe charged are period such normally for itsintended use. Expenditures incurred after the property and equipmenthave beenputinto taxes and any attributable directly costsinbringingthe asset to itsworking condition and location The costof initial property and equipmentcomprisesprice, itspurchase includingimport duties, impairment invalue (see policy on“Impairmentof Assets”). Nonfinancial Land isstated atcost. Property and equipment,except land, are stated accumulated atcostless depreciation and any Property and Equipment Transportation equipment Office furniture, fixtures and equipment Instrumentation, tools and other equipment Land improvements 5 years 5 years 5 years 5 years Maynilad Water Services, Inc. 2012 Annual Report 82 Restatement of foreign currency-denominated loans; currency-denominated foreign of Restatement translated Fees Concession of amounts the payments Fee over actualConcession of Excess rebasing rate every approved plan business in the assumed rate base exchange using the exercise; over dates on settlement rates spot at exchange payments translated actualinterest of Excess and rates; date drawdown at translated interest of amounts the currency- foreign to charges financing relating actual other payments of of Excess of amount the over dates on settlement rates spot at exchange translated loans denominated rates. date at drawdown charges financing translated other In view of the automatic reimbursement mechanism, the Parent Company recognized a deferred a deferred recognized Company mechanism, Parent the reimbursement automatic the of In view in the accounts credits” “Deferred or assets” noncurrent “Other as part of (included FCDA revenues FCDA to (debit) credit a corresponding financial position) with of statements consolidated been billed not or which have gains) exchange (foreign losses exchange foreign unrealized the for deferred of reversal or FCDA deferred the of write-off The customers. the to be refunded which will base foreign new the of upon determination be made will fees concession to pertaining credits during Office Regulatory the by approved plan business in the which is assumed rate, exchange be would FCDA deferred the impairment of of unless indication exercise, Rebasing Rate latest the date. earlier at an evident versus rate rebased or drawdown the between difference as the calculated are credits Deferred consolidated in the account credits” “Deferred as part of presented were These rate. closing the financial position. of statements Deposits Customers’ deposits these initial recognition, After initially value. at fair are deposits measured Customers’ Amortization method. interest effective cost using the subsequently at amortized are measured statement consolidated in the account expense” “Interest under is included deposits customers’ of remaining the over amortized and credits as deferred is recognized discount The income. of is included credits deferred of Amortization method. interest effective using the period concession income. of statement consolidated in the account income” “Other as part of An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable its recoverable exceeds asset an only of amount carrying if the recognized is An impairment loss in which it arises. year in the is charged An impairment loss operations to amount. has only change been a estimates in the if there is reversed loss impairment recognized A previously than the higher amount an to not however, asset, an of amount recoverable the determine used to had amortization) and depreciation any of (net been determined have that would carrying amount is impairment loss an of A reversal years. in prior asset the for recognized been no impairment loss operations. current to credited Transactions Currency-Denominated Foreign charged or credited are transactions currency foreign arising from differentials exchange Foreign the 1 of No. Amendment (BoT) under Trustees of Board MWSS the by As approved operations. to customers: to billings through be recovered will following the Agreement, Concession • • • • 83 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS • • the consolidated statements of position, amounted financial to P As atDecember 31,2012 and 2011, the discount, shown aspartof “Deferred credits” account in through profit or loss. previously heldequityinterest inthe acquiree isremeasured to fair value atthe acquisition date If the business combination is achieved the instages, acquisition date fair value of the acquirer’s controlledcommonly entitiesare accounted for under historical costaccounting. acquisition costof interest, that iscredited to directly income. Transfers of assets between Excess of the fair values of acquired assets identifiable and liabilities of subsidiariesover the values of the operation disposedand the portion of the cash-generating unit retained. ofdisposal the operation. Goodwill disposedof inthis circumstance ismeasured basedonthe relative disposed of isincluded inthe carrying amount of the operation when determining the gainor loss on unit and partof the operation within unit that isdisposed,the goodwill associated with the operation carrying amount, an impairmentloss isrecognized. Where goodwill forms partof acash-generating the goodwill relates. Where the recoverable amount of the cash-generating the than unit isless Impairment isdetermined by assessing the recoverable amount of the cash-generating unit, to which circumstances indicate thebeimpaired. that carryingvalue may Goodwill isreviewed or more for impairment,annually frequently, ifevents in or changes of and the portion of the cash-generating unit retained. disposed of inthis circumstance ismeasured basedonthe relative values of the operation disposed amount of the operation whendetermining the gainor of loss ondisposal the operation. Goodwill is disposedof, the goodwill associated with the operation disposedof isincluded inthe carrying Where goodwill forms part of acash-generating unit and partof the operation within unit that assigned to those units. Eachunit or group of units to whichthe goodwill issoallocated: to benefitfrom the combination, irrespective of whether other assets or liabilities of the acquiree are acquisition date, allocated to eachof the Parent Company’s cash-generating units are that expected For the purposeof impairmenttesting, goodwill acquired inabusiness combination is,from the After recognition, initial goodwill ismeasured any accumulated atcostless impairmentlosses. the subsidiaryacquired, the difference isrecognized inthe consolidated statement of income. acquired and liabilities assumed. Ifthis consideration islower the than fair value of the net assets of transferred and the amount recognized for controlling interest over the net assets identifiable Goodwill measured atcostbeingthe excess isinitially of the aggregate of the consideration Goodwill respectively. not larger an than operating segmentdetermined inaccordance with PFRS 8,Operating Segments. purposes; andmanagement represents the lowest level within the Group atwhichthe goodwill ismonitored for internal 453.5 million and P 403.0 million, Maynilad Water Services, Inc. 2012 Annual Report 84 Basic charges represent the basic tariff charged to consumers for the provision of water water of provision the for charged consumers basic tariff to the Basic charges represent of adjustment charged cubic meter is one peso per rate exchange Currency services. consumed. water exchange foreign recover to Company Parent mechanism the tariff that is the allows FCDA basis beginning January 1, gains on a current exchange foreign compensate to or losses Date. Expiration the until 2002 monthly a fixed The charge connection. per charge service represents Maintenance size. meter on the charge depending varies Environmental charge (included as part of revenue from sewer/sanitation services) represents represents services) sewer/sanitation from revenue charge as part of (included Environmental charge. maintenance for charges, except water the of 14% in 2010 and 2011 16% in 20% in 2012, service maintenance charges, excluding water the 20% of charge represents Sewerage January lines. Effective 1, 2012 sewer Company’s the to connected allcharge, consumers for charge only and applies commercial to sewerage 11-007-CA, No. Resolution RO to pursuant lines. sewer to connected customers industrial Water charges Water • • • Interest income is recognized as the interest accrues using the effective interest method. interest effective using the accrues interest as the is recognized income Interest When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative cumulative plus assets net the and selling price the between difference sold, the are When subsidiaries income. of statement consolidated in the is recognized goodwill adjustments and translation Held in Trust Assets under Company Parent the of operations used in the but are MWSS by owned which are Assets financial position of statement consolidated in the reflected not are Agreement Concession the as Company Parent the to transferred assets certain for except Held in Trust, but carried as Assets 23. mentioned in Note Subscription Stock Future Deposits for its from Company Parent the by cash received represent stock subscription future Deposits for until liabilities of part as presented is received Cash shares. additional to subscription for stockholder shares. of amount the cover to available stock becomes capital such time that sufficient authorized Recognition Revenue to flow that it is probable will benefits that economic the extent the to recognized is Revenue value fair at the is measured Revenue be reliably can measured. revenue the and Company the and Water (VAT). tax value-added and rebates discounts, excluding received, consideration of bill of As a result customers. the cycles of bill the to according month billed every are sewerage estimated are month the billed of at end yet earned but not monthly revenue service cycle cut-off, customers. the of consumption based on historical are estimates These accrued. and customers the to upon supply water of recognized are services sewerage and water from Revenue following: the consist of customers to Billings rendered. are services related when the and c. b. a. 85 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS shall not exceedshall the amount of borrowing costsincurred period. duringthat purpose of obtaining asset. aqualifying The amount of borrowing costscapitalized duringaperiod Company are that outstanding duringthe period, other borrowings than for the made specifically rate bethe weighted shall average of the borrowing to the costsapplicable borrowings of the be determined acapitalization by applying rate to the expenditures asset. onthat The capitalization purpose of obtaining asset, aqualifying the amount of borrowing for capitalization costseligible shall investment of those borrowings. To the extent funds that are borrowed and usedfor generally the costs incurred borrowing onthat duringthe any period investment less income onthe temporary borrowing for capitalization costseligible bedetermined asset onthat shall asthe borrowing actual funds are borrowed for the purposeof specifically obtaining asset, aqualifying the amount of directly attributable to the acquisition or construction of a qualifying asset. To the extent that Borrowing costsare expensed generally asincurred. Borrowing costsare capitalized are ifthey Borrowing Costs straight-line basisover term. the lease areOperating payments recognized lease asexpense inthe consolidated statement of income ona classified as an operating lease. whereA lease the retains lessor the all risksand benefitsof substantially ownership of the asset is renewal or extension period for scenario (b). incircumstanceschange gave riseto the reassessment scenarios (a),(c) or (d) and atthe date of Where reassessment accounting commence ismade, lease or cease shall from the date whenthe (d) (c) (b) (a) is made after ifoneof the the inception offollowing only the lease applies: use of a specific asset or assets or the arrangement conveys a right to use the asset. A reassessment the arrangement atinception date, whether the fulfillment of the arrangement isdependent onthe The determination of whether an arrangement is,or contains isbasedonthe substance alease, of Leases statement of income asthese are incurred. relating to distributions to equityparticipants. Expenses are recognized inthe consolidated or decrease of assets or incurrence of liabilities result that indecrease inequity, other those than Expenses are decreases ineconomic benefitsduringthe accounting period inthe form of outflows andCost Expense Recognition works” and of “Cost rehabilitation works” accounts inthe consolidated statement of income). operation services basedonthe percentage of completion (shows as“Revenue from rehabilitation receivable isrecognized atitsfair value. The Company accounts for revenue and costsrelating to When the Company provides construction or upgrade services, the consideration received or There to the isasubstantial change asset. There inthe determination isachange of whether fulfillment isdependent onaspecified asset; or extension term; included in the lease was initially A renewal optionisexercised or extension granted, the unless term of the renewal or There incontractual isachange terms, other arenewal than of or extension of the arrangement; Maynilad Water Services, Inc. 2012 Annual Report 86 Capitalization of borrowing costs commences when the activities to prepare the asset are in are asset the prepare activities to the when costs commences borrowing of Capitalization borrowing of Capitalization being incurred. are costs borrowing and expenditures and progress sale or use are intended its for asset the prepare to activities necessary when all the costs ceases amount, its recoverable exceeds asset the of carrying amount resulting If the substantially complete. is recognized. impairment loss an Equity directly costs incurred Incremental all issued. shares for at par value stock is measured Capital net proceeds, from as a deduction in equity shown are shares new of issuance the to attributable as recognized are par value of in excess received consideration of value fair and Proceeds tax. of additional paid-in capital. at cost and recognised are reacquired that are equity instruments own representing shares Treasury on the income of statement consolidated in the is recognized loss No gain or equity. from deducted equity instruments. own Company’s Parent the of cancellation the purchase, sale, or issuance declared. dividends of earnings, net accumulated Company’s the earnings represent Retained (VAT) Tax Value-Added VAT the where except: VAT of amount the of net recognized are assets and expenses Revenues, in which case authority, tax the from recoverable is not services or assets on a purchase of incurred expense the as part of or asset the of acquisition cost of the as part of salesthe recognized is tax included. VAT of amount the with payablesstated and that are receivables as applicable; and item part of as is included authority payable tax and the to from recoverable VAT of amount net The of statement consolidated in the payables” accounts other and “Trade and assets” current “Other financial position. Taxes Income measured are periods prior and current the for liabilities and assets tax Current Tax. Income Current and rates tax The authority. taxation the paid to or from be recovered to expected amount at the as at the substantively enacted or enacted that those are are amount the compute used to laws tax date. financial reporting on all temporary method, liability using the is provided, tax income Deferred Tax. Income Deferred carrying their and liabilities and assets bases of tax the between date reporting at the differences purposes. financial reporting for amounts are assets tax Deferred differences. temporary all taxable for recognized are liabilities tax Deferred that it is probable that taxable extent the to differences all deductible for temporary recognized Deferred be utilized. can differences against be available deductible which the temporary will profit arise differences temporary deductible taxable when the and recognized is not however, tax, income combination that a business is not in a transaction liability or asset of initial recognition the from loss. or profit taxable nor profit accounting the neither affects transaction, time of at the and, the to reduced and date at each reporting is reviewed assets tax deferred of amount carrying The part all or allow to be available will probable that profit that it is no longer sufficient taxable extent at each reassessed are assets tax deferred Unrecognized be utilized. to assets tax deferred the of that it has taxable probable become that extent future the to recognized are and date reporting be recovered. to assets tax deferred the part of all or allow will profit 87 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS for the services provided to the Parent Company. Employees of the Parent Company are granted rightsto equityinstruments of MPIC asconsideration the share option. the form of transactions, share-based payment whereby executives render services inexchange for MPIC an Executive has Stock executives OptionPlan (ESOP)for eligible to receive remuneration in Share-based Payment form of refunds from the plan or reductions inthe future contributions to the plan. losses andactuarial service past costand the present value of any economic benefits available inthe the asset ismeasured atthe lower of suchaggregate or the aggregate of cumulative unrecognized net value of plan assets out of whichthe obligations are to besettled directly. Ifsuchaggregate isnegative, gainsandactuarial losses not recognized, reduced by service past costnot yet recognized and the fair The defined benefitliability isthe aggregate of the present value of the defined benefit obligationand introduction of, to, or changes apension plan, service past cost is recognized immediately. until the benefitsbecome vested. Ifthe benefitsare already vested following immediately the servicePast costisrecognized asan expense onastraight-line basisover the average period over the expected average remaining working lives of the employees participatinginthe plan. benefit obligationand the fair value of plan assets date. atthat These gainsor losses are recognized losses for the plan atthe end of the previous reporting year exceeded 10%of the higher of the defined losses are recognized asincome or expense whenthe net cumulative unrecognized gainsand actuarial the defined benefitplan isdetermined usingthe projected unit credit method. Actuarial gainsand The Company has a funded, noncontributory defined benefit plan. The cost of providingPension Cost benefits under recognized asan interest expense. liability. Where discounting isused,the increase inthe provision dueto of the passage timeis market assessments of the timevalue of and, where money appropriate, the risksspecific to the are determined by discounting the expected future cashflows atapre-tax rate reflects current that of income, net of any reimbursement. Ifthe effect of the timevalue of ismaterial, money provisions certain. Thevirtually expense relating to any provision ispresented inthe consolidated statement contract, the reimbursement isrecognized asaseparate when the asset reimbursement butonly is obligation. Whenthe Company expects aprovision to bereimbursed, suchasunder an insurance will berequired to settle the obligationsand areliable estimate can bemade of the amount of the a result of event, apast an outflow that itisprobable of resources embodyingeconomic benefits Provisions are recognized whenthe or apresent Company constructive) has obligation(legal as Provisions taxable entityand the sametaxation authority. to offset current tax assetscurrent against tax liabilities and the deferred taxes relate to the same Deferred tax assets and deferred enforceable tax rightexists liabilities are offset ifalegally only (and tax laws) have beenenacted that or enacted substantively asatthe reporting date. to the periodapply whenthe assets are realized or the liabilities are settled, basedonthe tax rates Deferred tax assets and deferred tax liabilities are measured atthe tax rate isexpected that to Maynilad Water Services, Inc. 2012 Annual Report 88 The Parent Company measures the services received from its employees in accordance with the the with in accordance its employees from received services the measures Company Parent The a corresponding with payment share-based transactions, applicable equity-settled to requirements that share-based the provided MPIC, from in equity as a contribution recognized increase MPIC. of financial statements consolidated in the as equity-settled for accounted is arrangement conditional its subsidiaries, of employees the to its equity instruments rights to grants A parent of An employee period. a specified for group the with service continuing of completion upon the period vesting specified the subsidiary during employment another to one subsidiary may transfer share-based original the under parent the of equity instruments to rights employee’s the without the from received services Each subsidiary shall the being affected. measure payment arrangement equity rights to those date at the equity instruments the of value fair the to reference by employee served period vesting the of proportion the and parent, the by originally granted were instruments each subsidiary. with employee the by after condition than a market other condition a vesting satisfy to may employee Such an fail each subsidiary shall previously case, entities. In this amount adjust the group between transferring is recognized no amount Hence, employee. the from received services the of in respect recognized of financial statements that in the employee from received services the basis for on a cumulative of because vest do not parent the by granted equity instruments the rights to subsidiary if the any condition. than a market other condition a vesting meet to failure employee’s an Benefits Employee Long-term MPIC the of executives key eligible to incentives cash grants (LTIP) Plan Incentive Term Long MPIC’s method. credit unit projected using the is determined LTIP the under subsidiaries. Liability certain and past and losses, cost, actuarial gains and costs, interest service current benefit costs include Employee immediately. recognized are losses actuarial gains and costs and costs. Past service service obligation benefit defined the of value present the comprise liability benefit employee long-term The period. reporting the of end at the vested bonds) based on government rate (using discount Contingencies disclosed They are financial statements. consolidated in the recognized not are liabilities Contingent resources of outflow an of possibility unless the financial statements consolidated to notes in the consolidated in the recognized not are assets Contingent benefits is remote. embodying economic inflow an when statements financial consolidated to notes the in disclosed are but statements financial unless virtually recognized certain. not are benefits is probable. assets Contingent economic of Period Reporting the After Events position at the Company’s the about additional information that provide events Post year-end financial statements. consolidated in the reflected are (adjusting events) date financial reporting consolidated the to notes disclosed in the are adjusting events not that are events Post year-end when material. financial statements (EPS) share Earnings per Basic EPS is computed based on the average weighted number outstandingof shares and adjusted potential no dilutive are There year. during the stock split any to effect retroactive give to consolidated EPS in the diluted of disclosure require that would outstanding shares common income. of statements 89 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS 3. Company and MWSS oncertain claimsof MWSS, the disputed amount of P Transitional and Clarificatory Agreement (TCA). Pending resolution of the dispute between the Parent (see Note 9). Service concession assets, net of accumulated amortization of P amortizing itsconcession assets. in amortization method. Beginning2013, the Company would the UOP thus apply method of the Company can already estimate reliably. OnFebruary 13,2013, the BOD approved the change given the that economic benefitof these assets are with more aligned volume, closely billed which concession assets isnow the more appropriate method instead of usingthe straight-line basis In 2013, the Company determined the that unit of production (UOP) method of amortizing service life of the concession. service. The Service Concession Asset (SCA) isamortized usingthe straight-line method over the IFRIC 12under the Asset Intangible model asitreceives the right(license) users of to charge public arrangement with MWSS and Bulk water Agreements, Supply respectively, inaccordance with Service Concession Assets. The Parent Company and Phil Hydro accounts for itsconcession amounts recognized inthe consolidated statements: financial judgments, apartfrom those involving whichhave the estimations, significant effect most onthe In the process the of Company’s applying accounting made the following has policies,management Judgments circumstances. other factors, includingexpectations of future events are that believed to bereasonable under the Estimates and evaluated judgmentsare continually and are basedonhistorical experience and statementsfinancial becomedeterminable. asthey reasonably the estimates The to change. effects of inestimates any are change reflected inthe consolidated statements.financial Future events occur whichwill may causethe assumptions usedinarriving at evaluationmanagement’s of relevant facts and circumstances asatthe date of the consolidated assumptions usedinthe accompanying consolidated statements financial are basedupon and judgmentsof certain amounts, givingdueconsideration to materiality. The estimates and the Company’s consolidated madeestimates statements, financial itsbest has management income and expenses and disclosure of contingent liabilities atthe reporting date. Inpreparing Company to make estimates and affect assumptions the that reported amounts of assets, liabilities, The preparation of the consolidated statements financial inaccordance with PFRSrequires the Significant Accounting Judgments,Estimates and Assumptions the amount of accrued interest inexcess of the US$14.0 million settlement offer amounting to P and outstanding offer of US$14.0 million settle to fully the claimof MWSS, the Company reversed the dispute requirements of the TCA. However, inlightof the Parent Company’s current negotiation reversal of accrued interest was made pending payable resolution of the matter inaccordance with as atDecember 31,2012 and 2011, respectively, isconsidered ascontingent liability. Prior to 2012, no million to and other charged income in2012 (see Notes 9, 12and 19). to P 51.0 billion and P 44.6 billion asatDecember 31,2012 and 2011, respectively 13.3 billion and P 4.5 billion and P 11.5 billion, amounted 4.3 billion 378.1 Maynilad Water Services, Inc. 2012 Annual Report 90 160.4 million in 2012, 2011 and and 2011 in 2012, million 160.4 208.2 million and P and 208.2 million 175.2 million, P million, 175.2 - Company as Lessee. The Company has determined, based on the the based on has Company determined, The Lessee. as - Company Commitments Lease Operating rewards risks and that significant the arrangements, the of conditions and terms the of evaluation for accounts accordingly, lessors and the by retained parties are leased third from properties for leases. as operating leasethese contracts P to amounted expense rental Total 2010, respectively (see Note 22). Note (see respectively 2010, proceedings. legal administrative in various and is currently involved Company The Contingencies. claims has these been developed of resolution the probable for the costs of estimate Company’s The upon an is based and matters in these legal handling defense outside counsel with in consultation have will proceedings these believe currently does not Company The results. analysis potential of that future financial It is possible, position. however, Company’s on the effect adverse a material effectiveness in the or changes estimates by in the materially be affected could operations of results 19). 11 and Notes (see proceedings these to relating strategies of Assumptions and Estimates at the estimation uncertainty of key sources other and future the concerning key assumptions The carrying amounts adjustment the to causing a material that risk of a significant have date, reporting below. discussed are financial year next the within liabilities and assets of concession service of cost the of Payable. determination The Concession Service of Value Fair which to extent the determine to assumptions and estimates management make to payable requires In making those service. public the charge to of license users a right or receives Company the present the calculate to rate a suitable discount determine to management estimates, is required reasonable used are that assumptions the believes While Company the cash flows. these of value financial consolidated materially the can affect assumptions and estimates these appropriate, and statements. and financial assets that certain . PFRS requires Liabilities and Assets Financial of Values Fair judgments. and estimates accounting use of the which requires value, be carried at fair liabilities objective using verifiable determined are measurement value fair of While components significant of amount timing and the rates), volatility rates, interest rates, exchange foreign (i.e., evidence value change fair used. Any in the methodology valuation the with differ changes would value in fair equity. and directly income affect would liabilities and financial assets these of 25. in Note out set are liabilities and financial assets of values fair The consolidated Company’s The Goodwill. and Combinations in Business Allocation Price Purchase acquisition. respective the of completion the after businesses acquired reflect financial statements requires which method acquisition using the businesses acquired the for accounts Company The fair the to purchase price the allocate to estimates judgments and accounting use of extensive if any, liabilities, contingent and liabilities and identifiable assets acquiree’s the of values market net the of values market fair the purchase over price in the excess Any date. acquisition at the financial position. Thus, of statement consolidated in the as goodwill is recorded acquired assets acquiree’s the to be assigned to value market fair in estimating judgments made the numerous the performance. financial position and Company’s materially the can affect liabilities and assets 91 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS P judgments or estimates made. Provision for doubtful accounts amounted to P The amount and timingof recorded expenses for any period would therefore differ basedonthe terms. Impairmentassessment isperformed onacontinuous basisthroughout the year. write-off,assessment isbasedonhistorical collection, experience andincustomer payment change credit assessed risk characteristics for and impairment. The iscollectively provision under collective assessed receivable,an individually the receivable isincluded inagroup of receivables with similar amounts estimated. Second, ifitisdetermined noobjective that evidence of impairment exists for specific allowance are re-evaluated and adjusted information asadditional received affects the the receivables’ original effective interest rate and the carryingamount of the receivable. These between the present value of the receivables the that Company expects discounted to collect, at party credit reports and known market factors. The allowance provided isbasedonthe difference oflength its relationship with the customer and the customer’s current credit status basedonthird uses judgment,basedonthe available best facts and circumstances, includingbutnot limited to, the certainthat customers are to meet unable their obligations.Inthese financial cases,the Company evaluates specific accounts are that considered significant for any individually objective evidence these methods are combined to determine the total amount of allowance. the First, Company related to the trade receivables based ontwo methods. The amounts calculated usingeachof Allowance for Doubtful Accounts. The Company estimates the allowance for doubtful accounts related cost. contractors), the recognized revenue from rehabilitation approximates works substantially the the rehabilitation works to outside contractors (excluding the costof somematerials for some of aphysical proportion of the contract works. Given the subcontracted that Company has the percentage of completion are onthe basisof measured the estimated principally completion received or receivable. The Company’s revenue from rehabilitation works recognized basedon Company measures revenue from rehabilitation works atthe fair value of the consideration to make useof estimates affect the and reported may assumptions that amount of revenue. The Recognition of Revenue and The Cost. Company’s revenue recognition policiesrequire management consideration the probability of meeting eachperformance target and the discount factor. determination of the fair value isbasedondiscounted cashflows. The assumptions key take into thus, liability, afinancial remeasured itissubsequently to fair value ateachreporting date. The combination. Where the contingent consideration meets the definition of aderivative and, business combinations, isvalued atfair value atacquisition date aspartof the business Fair Value Measurement of Contingent Consideration. Contingent consideration, resulting from PFRS 3(see Note 4). be available for isbased on acollectiveassessment use. Suchestimation of practices of similar property and equipment isestimated basedon the period over whichthe asset isexpected to Estimated Useful Lives of Property and Equipment. The useful life of eachitem of the Company’s P receivables. Trade and other receivables, net of allowance for doubtful accounts, amounted to accounts would increase the Company’s recorded expenses and decrease trade and other as atDecember 31,2012 amounting to P The Company’s acquisitions have resulted inrecognition of goodwill. The carryingvalue of goodwill 2.5 billion and P 154.9 million and nil in2012, 2011 and 2010, respectively. Anincrease inallowance for doubtful 2.0 billion asatDecember 31,2012 and 2011, respectively (see Note 6). 107.7 million determined was provisionally asallowed by 134.0 million, Maynilad Water Services, Inc. 2012 Annual Report 92 2.3 billion as at 2.3 billion 469.5 million in 2012 in 2012 million 469.5 2.5 billion and P and 2.5 billion 1.9 billion as at December 31, 2012 and and 31, 2012 as at December 1.9 billion 1.6 billion and P and 1.6 billion 48.04 effective May 4, 2009. effective 48.04 712.2 million as at December 31, 2012 and 2011, respectively. 2011, and 31, 2012 as at December 712.2 million 335.2 million as at December 31, 2012 and 2011, respectively (see Note 8). Note (see respectively 2011, and 31, 2012 as at December million 335.2 51.86 to P 51.86 to 1,675.8 million and P and million 1,675.8 367.3 million and P and million 367.3 as these would no longer be realized due to the lower amortization expense within the income tax tax income the within expense amortization lower the due to be realized no longer would as these 15). Note (see holiday projected than previously the Agreement, Concession the of No.1 Amendment Under Credits. Deferred and FCDA Deferred loans MWSS arising from (gains) losses exchange foreign (refund) is entitled recover Company to recognized Company the losses, exchange foreign unrealized the For loans. concessionaire any and past events of as a result Company the by controlled is a resource this since asset as an FCDA deferred foreign Unrealized Company. the to flow to expected benefits are economic which future from and credits. as deferred presented are customers, the to be refunded which will gains, however, exchange was rate exchange base foreign new the 2009-069, No. Resolution MWSS-RO with In accordance changed P from December 31, 2012 and 2011, respectively (see Note 15). Note (see respectively 2011, and 31, 2012 December 2013 starting assets concession service Company’s Parent the of change method The in amortization P to amounting write-off asset tax in deferred resulted UOP to straight-line from businesses, internal technical evaluation and experience with similar assets. The estimated useful useful estimated The assets. similar with experience and evaluation technical internal businesses, estimates previous from differ if expectations periodically updated and is reviewed each asset of life on the limits legal obsolescence and other or commercial or technical tear, and wear physical due to be materially affected could operations of results that future It is possible, however, asset. the use of changes factors by in the about brought expenses recorded of timing and changes amounts by in the equipment and property of item any of life useful estimated the in A reduction mentioned above. equipment. and property decrease and expense depreciation recorded the increase would 2011. and in 2012 equipment and property of lives change no useful was in estimated There to amounted amortization, and depreciation accumulated of equipment, net and Property P The carrying amount of deferred tax assets is reviewed at each reporting date date at each reporting is reviewed assets tax deferred of carrying amount The Assets. Tax Deferred be available will probable that profit that it is no longer sufficient taxable extent the to reduced and that no assurance is there However, be utilized. to assets tax deferred the part of all or allow to be utilized. to assets tax deferred the of part all or allow to be generated will profit sufficient taxable to expected differences on deductible temporary assets tax deferred recognized Company The assets tax deferred recognize not did Company The 2015. holiday tax until income the after reverse holiday tax income during the reverse to expected that are differences on deductible temporary Net future. bring in the benefits they will tax the as to exists doubt where items to and period P to amounted recognized assets tax deferred Deferred credits representing the net effect of unrealized foreign exchange gains on service gains on service exchange foreign unrealized of effect net the representing credits Deferred interest- currency-denominated foreign of restatement obligation payable and MWSS, concession to to amounted customers the to refundable still that are interest related and bearing loans P 2011, respectively. Unrecognized deferred tax assets amounted to P to amounted assets tax deferred Unrecognized respectively. 2011, 93 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS respectively. Unrecognized loss amounted actuarial to P Pension liability amounted to P Company’s pension liability. differences experience inactual affect the materially orinassumptions may significant changes itisbelievedWhile the that Company’s assumptions are reasonable and appropriate, significant therefore, affect the recognized generally expense and recorded obligationinsuchfuture periods. differthat from the Company’s assumptions are accumulated and amortized over future periods and increase rate and expected rate of return onplan assets. Inaccordance with results PFRS,actual Those assumptions are described inNote 16and include, amongothers, discount rate, salary dependent of onthe certain selection assumptions usedby actuariesincalculating suchamounts. Computation of Pension. The Cost determination of the obligation and costfor pension are impairment (see Note 4). Phil Hydro of P No impairmentof goodwill was recognized in2012. Provisional goodwill related to the acquisition of present follow: Noncurrent assets nonfinancial subjectto impairmenttest whencertain impairmentindicators are any resulting impairmentloss could have amaterial adverse impactonthe results of operations. affect the materially inthese assessment assumptionschanges may of recoverable amounts and values reflected inthe consolidated statements financial are appropriate and reasonable, significant disposition of suchassets. itisbelieved While the that assumptions usedinthe of estimation fair the of estimation cashflows expected to begenerated from the continued useand ultimate generating unit to whichthe asset belongs. Determining the recoverable amount of assets requires Recoverable amounts are estimated for individual assets or, for ifitisnot possible, the cash- its recoverable amount. The recoverable amount iscomputed usingthe value inuseapproach. The Company recognizes an impairmentloss whenever the carryingamount of an asset exceeds following: thethat Company considers important whichcould trigger an impairmentreview include the circumstances indicate the that carryingamount of an asset not berecoverable. may The factors Asset Impairment. The Company assesses impairmentonassets whenever events in or changes 31, 2012 and 2011, respectively (see Note 16). Service concession assets (see Note 9) Goodwill Property and equipment (see Note 8) oal Tota • • • significant negative industry or economic trends. business; and inthesignificant manner changes of useof the acquired assets or the strategy for overall significant underperformance relative to expected historical or projected future operating results; 107.7 million was not tested for impairmentasthere were noidentified indicators of 230.4 million and P 139.7 million asatDecember 31,2012 and 2011, 9.9 million and P 25.7 million as atDecember P P 51,490,828 51,015,751 367,332 107,745 2012 P P 44,587,539 44,922,741 335,202 2011 – Maynilad Water Services, Inc. 2012 Annual Report 94 5.7 million million 5.7 7.5 million, million, 7.5 210.0 million on August 8, million 210.0 43.3 million was presented as presented was 43.3 million 17.1 million was presented as part of “Other “Other of as part presented was million 17.1 54.1 million, respectively, of which, P of respectively, million, 54.1 22.8 million and P and 22.8 million 2.1 million, respectively (see Note 13). Note (see respectively million, 2.1 10.8 million, respectively, was recognized under “Other equity adjustments” in the equity equity adjustments” in the “Other under recognized was respectively, million, 10.8 595.0 million payable in tranches upon fulfillment and completion of certain conditions precedent. precedent. conditions certain of completion and upon fulfillment payable million 595.0 in tranches 328.5 million (see Note 10). Note (see 328.5 million 15.7 million and P and million 15.7 and P and The Company measures the cost of equity- cost of the measures Company The Payment Share-based Transactions. of Computation at equity instruments the of value fair the to reference by employees with transactions settled payments share-based requires for Estimating value fair granted. at which they are date the which is equity instruments, of a grant for model valuation most appropriate the determining the determining also requires estimate This grant. the of conditions and terms on the dependent option, volatility the of life expected including the model valuation the inputs to most appropriate used for models and assumptions The them. about making assumptions yield and dividend and 13. disclosed in Note payments share-based are for estimating value fair in benefits” account “Salaries, wages and as part of presented expense Equity based compensation P to amounted income of statements consolidated 2010 and 2011 2012, the The Parent Company paid a portion of the consideration amounting to P to amounting consideration the of paid a portion Company Parent The Business Combination and Goodwill and Combination Business assets infrastructure of set a diverse develop to continue and maintain is to intention Company’s The through investing to committed is therefore Company The utilities. in water its investments through provide to potential the with assets in prime infrastructure partnerships strategic and acquisitions operations. its existing synergies with Purchase a Share through Company, Parent On August the 3, 2012, Hydro. Phil of Acquisition of a consideration for Hydro in Phil interest 100% ownership acquired party, a third with Agreement P section of the consolidated statements of financial position representing MPIC’s share in the LTIP LTIP in the share MPIC’s financial position representing of statements consolidated the section of P of balance the and Plan LTIP as per Company the cost of The LTIP for key executives of MPIC and certain certain and MPIC of key executives for LTIP The Benefits. Incentives Term Long Other of Determination and Committee Compensation Executive the by approved was Company, subsidiaries, including the cost of The Cycle. Performance covered the for targets which is based on profit MPIC of BOD the and rates discount based on prevailing method credit unit projected using the determined is LTIP appropriate, and be reasonable to believed While are management’s assumptions targets. profit changes may or in assumptions materially the affect in actual results differences significant benefits. incentive long-term other Company’s “Salaries, as part of presented 2011 and in 2012 Company the by recognized LTIP the cost of total The P to benefits” amounted wages and accrued expenses” under “Trade and other payables” account and P and payables” account other and “Trade under expenses” accrued part of “Other noncurrent liabilities” account in the consolidated statements of financial position as of statements consolidated in the account liabilities” noncurrent “Other part of 16) Note (see respectively 2011, and 2012 31, at December has Company on-going Parent the 31, 2012, December Cost. As of Issuance Debt of Amortization Management Notes. Corporate its outstanding on a clean basis of refinancing the for negotiation of first quarter during the be approved had will that assessed it is probable that refinancing the in 2012 accelerated cost was issuance debt capitalized of amortization the Consequently, 2013. to costs amounted issuance debt of amortization Related cash flows. expected revised based on the P P 4. 95 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS income from continuing operations in2012 would have beenP place atthe beginningof the year, Phil Hydro’s contribution to the Company’s consolidated net consolidated net income of the Company from continuing operations. taken Ifthe combination had Company’s consolidated revenues from continuing operations would have beenP The goodwill of P and goodwill arisingfrom the acquisition. Phil Hydro onthe basisof provisional fair values pending completion of valuation of assets intangible The price purchase consideration beenallocated to assets had the identifiable and liabilities of acquisition were asfollows: The provisional fair value of assets the identifiable and liabilities of Phil Hydro asatthe date of Details of the adjusted total consideration follow: fulfill certain conditions precedent. From the date of acquisition to December 31,2012, Phil Hydro contributed P Phil Hydro. of acquisition the from arising will obtain Company Parent the that benefits economic expected price amounting of P 2012. OnFebruary 5,2013, the Parent Company to negotiate was able adiscount onthe purchase Purchase considerationPurchase transferred Provisional goodwill Total net assets identifiable atprovisional fair value Deferred tax liability Notes payable Other current liabilities Accounts and other payable current liabilities Liabilities Other noncurrent assets Service concession assets Other current assets Receivables Cash and cashequivalents Assets Total consideration Contingent consideration liability Cash payment 107.7 million, whichwas determined provisionally, represents the fair value of 68.1 million to cover for Phil Hydro’s failure to deliver certain documentsand Carrying Value 338,470 292,616 167,799 170,671 34,655 92,358 66,272 P 12,041 2,908 5,739 2,552 – 10.7 million and itscontribution to the 7.4 million to the Recognized onAcquisition Provisional Fair Values P P Amount 316,950 526,950 210,000 48.5 million. P 419,205 278,416 651,767 697,621 107,745 107,745 526,950 34,655 92,358 66,272 P 12,041 2,908 5,739 2,552 Maynilad Water Services, Inc. 2012 Annual Report 96 – 2011 2011 377,611 22,852 186,241 1,776,173 4,175,437 570,293 104,860 P551,341 2,034,815 1,003,215 2,637,567 P 3,624,096 3,038,030 P P 154.9 million, 154.9 million, 1,333 208,781 210,000 (2,552) Amount P P 2012 2012 43,134 28,035 659,711 1,916,169 604,125 182,639 699,281 128,606 1,124,661 2,532,914 2,915,160 3,657,575 3,302,211 P P 3,906,336 P P 14.1 million with original maturities of more than three months months than three more maturities of original with million 14.1 1.3 million have been expensed and are included in “Cost and expenses” in the in the expenses” in “Cost and included are and been expensed have 1.3 million 68.1 million in 2012, 2011 and 2010, respectively (see Note 17). Note (see respectively 2010, and 2011 in 2012, million 68.1 118.6 million and P and 118.6 million Less allowance for doubtful accounts doubtful for allowance Less Others Employees Commercial supply water Bulk Industrial Cash equivalents Semi-business Cash on hand and in banks Cash on hand and Customers: Residential Total cash paid on acquisition cash paid on Total acquisition the costs of Transaction subsidiary the with cash acquired Net on acquisition cash outflow Net P Transaction costs of P costs of Transaction Net cash outflow on acquisition is as follows: on acquisition cash outflow Net Cash in banks earn interest at the respective bank deposit rates. Cash equivalents are made for for made Cash equivalents are rates. deposit bank respective at the earn interest Cash in banks cash requirements immediate on the depending months one day three and between periods varying rates. investment short-term respective at the earn interest and Company the of P to amounting investments Short-term Cash and Cash Equivalents Cash Cash and equivalents cash Cash and of: consist 2012 consolidated statement of income. of statement consolidated 2012 Trade and Other Receivables Other and Trade from: receivables consists of account This to one year are shown separately in the consolidated statements of financial position. of statements consolidated separately in the shown are one year to P to amounted investments short-term and cash in banks earned from income Interest 5. 6. 97 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS The movements inthe Company’s allowance for doubtful accounts follow: (see Notes 7and 10). the outstanding amount of loans obtained by Phil Hydro for the respective projects Water District (LCWD) and Water Norzagaray District (NWD). The secured not amount exceed shall private credit guarantee to institution, secure 85%of billing obligationsof the monthly Legazpi City Philippine Hydro entered into guarantee contracts with LGU Guarantee Corporation (LGUGC), a term.60-days Receivables from customers and bulk water are supply non-interest have bearingand generally The classes of the Company’s receivables from customers are asfollows: At January 1 At January Provision during the year Provision duringthe year Write-off duringthe year At December 31 Write-off duringthe year At January 1 At January At December 31 • • • • purposes, includingservices for manufacturing. Industrial -pertains to receivables arisingfrom water and sewer service usefor industrial commercial purposes. Commercial -pertains to receivables arisingfrom water and sewer service usefor businesses. Semi-business -pertains to receivables arisingfrom water and sewer service usefor small sanitary purposesonly. Residential -pertains to receivables arisingfrom water and sewer service usefor domestic Residential Residential P P P P (2,549) 102,103 347,680 (12,554) 447,234 498,333 63,653 447,234 Semi-business Semi-business Receivables from Customers Receivables from Customers P P P 34,966 P 114,765 16,806 79,799 114,765 131,571 – – Commercial Commercial P P P P 264,372 252,953 303,086 264,372 38,714 11,419 – – 2011 2012 Industrial Industrial P P P P 6,429 94,822 101,251 14,827 116,078 101,251 – – Receivables Receivables P P P P Other 75,593 75,593 Other 75,593 75,593 – – – – P P P P 1,003,215 134,000 (2,549) (12,554) 850,847 1,003,215 154,917 1,124,661 oal Tota oal Tota Maynilad Water Services, Inc. 2012 Annual Report 98 – Tota l 367,332 158,351 192,557 899,153 (22,179) 1,234,355 (20,103) 2011 1,037,401 P 1,404,733 P 79,061 67,549 44,552 2,120,529 220,923 1,707,044 P P – 47,286 27,331 170,106 21,327 (2,333) 145,742 126,748 193,028 (4,409) P P Equipment Transportation Transportation 2012 92,166 1,130,191 65,284 1,631,976 219,365 124,970 P P 116,422 507,125 53,532 23,228 48,063 561,383 (17,033) (17,033) 444,961 P P 408,462 Office Furniture, Furniture, Office Fixtures and Equipment and Fixtures December 31, 2012 December (737) (737) 194,661 547,887 83,342 116,549 640,471 445,810 363,205 P (23,228) P Equipment Tools and Other Other and Tools Instrumentation, Instrumentation, – – – 614 150 738 888 9,237 8,963 9,851 P P Improvements Land and Land Land and Land Accumulated Accumulated and Depreciation Amortization JanuaryAt 1 Depreciation and and Depreciation amortization Disposals At December 31 December At at Book Value Net 31 December Disposals 31 December At Sinking fund (see Note 10) Note (see Sinking fund Advances to contractors to Advances Reclassification Additions Cost JanuaryAt 1 Prepayments (see Note 10) Note (see Prepayments Deposits Others Property and Equipment and Property follows: account analysis this of rollforward The Sinking fund represents the amount set aside to cover semi-annual principal and interest payment of payment of interest semi-annual principal and cover to aside set amount the represents Sinking fund 10). Note (see loans billings. against a year progress normally within are applied contractors to Advances loan prepaid and licenses and taxes bond, premium insurance, mainly to Prepayments pertain in 2013. be drawn to loan Bank World to cost related transaction deposits. rental Deposits mainly refundable consist of Other Current Assets Current Other of: consists account This 7. 8. 99 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS 9. following: The aggregate Concession fee pursuant to the Concession Agreement to isequal the sumof the pursuant to the Concession Agreement and the costsof rehabilitation works incurred. Service concession assets consistof the present value of total estimated concession fee payments The movements inthis account are asfollows: Service Concession Assets As atDecember 31,2012 and 2011, there were nocapitalized borrowing costs. At January 1 At January Cost At December 31 Disposals amortization Depreciation and Balance atbeginningof year Cost: December 31 Net Book Value at 1 At January Amortization Depreciation and Accumulated At December 31 Disposals Additions Balance atend of year Amortization Balance atbeginningof year Accumulated amortization: Balance atend of year Business combination (see Note 4) Additions b. a. date set forth onthe pertinent of schedule the Concession Agreement; not beendisbursedprior towhich has the Commencement Date onthe relevant payment 90% of the aggregate dueunder peso equivalent any MWSS loan designated for the UATP datepayment set forth onthe pertinent of schedule the Concession Agreement; water conveyance component of the Umiray-Angat Transbasin Project (UATP), onthe relevant prior to the Commencement Date, includingMWSS loans for existing projects and the raw 90% of the aggregate dueunder peso equivalent any MWSSbeendisbursed loan whichhas Land and Land Improvements P P 9,237 8,499 594 738 8,721 144 516 – – Instrumentation, Tools and Other Equipment P P 363,205 (13,447) (13,467) 547,887 174,950 243,621 386,404 133,031 184,682 December 31,2011 Fixtures and Equipment Office Furniture, P 408,462 355,083 P 507,125 (3,575) 435,639 56,524 (3,145) 75,061 98,663 P 64,352,752 P 56,093,099 11,505,560 7,606,886 13,337,001 1,831,441 51,015,751 651,767 Transportation 2012 Equipment (33,455) (35,879) P P 132,384 126,748 170,106 14,202 27,819 43,358 191,783 P P 56,093,099 10,077,059 11,505,560 46,265,823 44,587,539 9,827,276 1,428,501 P P 1,234,355 (50,047) 264,729 1,022,547 (52,921) 2011 899,153 731,682 335,202 217,518 oal Tota – Maynilad Water Services, Inc. 2012 Annual Report 100 – 2011 985,971 21,551,777 403,904 10,516,452 5,425,200 22,941,652 22,537,748 7,000,000 P P 200.0 million million 200.0 2012 14,819 52,604 9,640,081 4,977,313 1,031,600 21,655,179 20,623,579 7,000,000 21,669,998 P P 152.6 million and and million 152.6 1,057.1 million in 2012 and 2011, respectively (see Note 12). These additional 12). These Note (see respectively 2011, and in 2012 million 1,057.1 (as at 1997), subject to annual CPI adjustment. subject to (as at 1997), 90% of the local component costs and cost overruns related to the UATP in accordance with with in accordance UATP the to related cost overruns and costs local component the 90% of Agreement; Concession the schedule of pertinent the existing for designated loan MWSS any equivalent peso due under aggregate the 100% of have and Date Commencement the to prior been disbursed not have which projects, for Company Parent the been elected by or party bidders third to awarded been either Agreement; Concession the of sections pertinent the with in accordance continuation in projects existing the to related cost overruns costs and localcomponent the 100% of and Agreement; Concession the schedule of relevant with accordance for annual one-half budget the of representing (MOE) expenditure operating and Maintenance P shall that exceed such annual budget not provided that year, for MWSS 7.0 billion Corporate Notes Corporate billion 7.0 US$365.0 million Corporate Notes: Corporate million US$365.0 1) (Series loan Peso-denominated Dollar-denominated loan (Series 2) (Series loan Dollar-denominated P Peso-denominated loan Peso-denominated Less unamortized debt issuance costs issuance debt unamortized Less Less current portion current Less f. c. e. d. 160.4 million as at December 31, 2012 and 2011, respectively, are used as collaterals for for used as collaterals are respectively, 2011, and 31, 2012 as at December million 160.4 1,101.3 million and P and million 1,101.3 Tranche B Concession Fees are additional concession fees being charged by MWSS to the Parent Parent the to charged being fees MWSS additional by concession are Fees B Concession Tranche 31, As at December 2004. at December as MWSS by borrowings cost of the representing Company US$36.9 million. of Fees B Concession Tranche has Company recognized Parent the 2011, and 2012 interest accrued related and Fees B Concession Tranche On January recognized 16, 2008, the Settlement and Prepayment the to pursuant Company Parent the by fully settled were thereon 12). Note (see (PSA) Agreement of MWSS being claimed by amount disputed the Receiver, the of recommendation the to Pursuant the of liability a contingent is considered million US$18.1 of Fees B Concession additional Tranche 19. in Note as discussed Company, Parent “Service as part of recognized fees additional concession recognized Company Parent The to financial position amounting of statements consolidated in the account assets” concession P Interest-Bearing Loans Interest-Bearing consists of: account This Phil Hydro’s interest-bearing loans (see Note 10). Note (see loans interest-bearing Hydro’s Phil concession fees mainly pertain to the drawn portion of MWSS loans relating to new projects. new to relating loans MWSS of portion drawn the mainly to fees concession pertain P of a carrying value with assets concession service of items Certain P 10. 101 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS P income (see Note 17). respectively, are presented aspartof “Interest expense” account inthe consolidated statements of P andDebt Issuance professional costs.Alllegal fees incurred inrelation to the debt, totaling per annum. The benchmarkrate bedetermined shall by reference to the PDST-F rate. toannum equal the higher of benchmark rate (i)the applicable plus 0.75% per annum, or (ii)6.5% commence atthe end of the 36th month after the issue date initial and bearsan interest rate per September installments within insemi-annual 30, bepayable 2011. The ten loan shall years to financing. The loan was made available intwo drawdowns, equal onMarch 30, 2011 and on Security Agreement from various for financing institutions the purposeof capital expenditure issuance costsamounted to P 2008. Debtissuance costsare amortized using the effective interest method. Amortization of debt of the US$365.0 million Corporate Notes, totaling P Debt Issuance Costs. professional Alllegal, and registration fees incurred inrelation to the availment withinpayable ten years to commence atthe end of the 36th month after the issue date. initial Series 2Floating Rate Note. Bearsinterest of and LIBOR CDS rate plus 2.0% spread per annum and is result to substantial modificationof the Notes thus, didnot result to derecognition. annum or 6-month PDSTF plus 2%spread. inthe The terms change of the loan contract didnot fromwas floatingbenchmarkrate changed plus 2.0% spread per annum to the higher of 4.75% per to orequivalent higher 8.2852% than per annum. For the Series 1Floater Rate Notes, the interest annum to 8.8173% per annum subjectto review and renegotiation should the 10-Y PDST-F be Corporate Notes. The interest rate onSeries 1Fixed Rate Notes was reduced from 11.8173% per In 2011, the Parent Company and the Noteholders agreed to reduce the interest rates of Series 1 ten years to commence atthe end of the 36th month after the issue date. initial Series 1Fixed and Floating Rate Note. Bearsinterest of fixed and floatingrate within and ispayable floating rate dollar-denominated note. a peso-denominated loan whichconsistsof afixed of peso equivalent US$120.0 million (P consolidated statements of income (see Note 17). method. Amortization of debt issue costsattributed to this loan, amounting to P On March 23,2011, the Parent Company entered into aP amounting to US$240.0 million (P capital expenditures of and payment advances from shareholders. The Notes comprise of Series 1 Philippines (Noteholders) for US$365.0 million notes (“the Notes”) for the purposeof financing the Agreement (the OmnibusAgreement) with Banco de Oro Unibank, Inc.and Development Bank of the On June 30, 2008,the Parent Company entered into an OmnibusNotes Facility and Security US$365.0 Million Corporate Notes fixed rate note and US$120.0 million (P P 118.8 million, were capitalized in2011. Debtissuance costs are amortized usingthe effective interest 7.0 Billion Corporate Notes 7.5 million in2012 and 2011, respectively, ispresented aspart of “Interest expense” account inthe 378.5 million, P 11.0 billion) and Series 2amounting to US$125.0 million. Series 1is 5.5 billion) floatingrate note. Series 2isaUS$125.0 million 51.1 million and P 451.8 million, were capitalized starting July 7.0 billion OmnibusNotes Facility and 80.8 million in2012, 2011 and 2010, 10.6 million and 5.5 billion) Maynilad Water Services, Inc. 2012 Annual Report 102 2011 343,722 118,828 403,904 (58,646) P P 979.00 21,617.39 1,237.93 1,426.87 1,426.87 P 16,546.72 P Total Peso Equivalent* Peso Total – 2012 14,819 P 403,904 P (389,085) 7.0 billion Corporate Corporate billion 7.0 876.37 981.37 1,016.37 1,016.37 P 16,640.08 12,749.60 P Peso Loans Peso 328.5 million (see Note 3). Note (see 328.5 million 41.05:US$1. In Original Currency 6.25 10.00 10.00 92.50 $2.50 $121.25 US Dollar-denominated* (In Millions) US Dollar-denominated* * Translated using the December 31, 2012 exchange rate of P of rate exchange 31, 2012 December using the * Translated Amortization during the year (see Note 17) Note (see year during the Amortization year during the Additions 2014 2015 2016 2017 onwards 2017 Balance at beginning of year at beginning of Balance Year 2013 As of December 31, 2012, the Parent Company has on-going negotiation for the refinancing on a on a refinancing the has for Company negotiation on-going Parent the 31, 2012, December As of Management had that Notes. assessed it is probable that Corporate outstanding clean its basis of of amortization the Consequently, 2013. of first quarter during the be approved will refinancing the flows. cash expected revised based on the 2012 in accelerated was cost issuance debt capitalized P to costs amounted issuance debt of amortization Related The Parent Company’s existing Noteholders are secured by a first ranking mortgage over all of the the all of mortgage over a first ranking by secured are Noteholders existing Company’s Parent The the of all rights, title interest of assignment an and and mortgageable assets Company’s Parent performance documents and project receivable, accounts accounts, its assigned to Company Parent further secured are agent. Noteholders The Inc. as collateral Unibank, De Oro Banco with guarantee outstanding the of 40.9% representing shares Company Parent the party mortgage of a third by Parent the of shares outstanding the of 31.0% over trust a voting and Company Parent the of shares shall shares Company cease, Parent the over trust voting party mortgage and third The Company. NRW or water nonrevenue Company’s at such time that Parent the void become and terminate, 45% the had breached Company already Parent the 31, 2011, 45%. As at December to is reduced mortgage discharge the and of cancellation release, the for condition the therefore, and threshold, parties. secured the of satisfaction hasshares mortgaged the the to been fulfilled lien over P and million US$365.0 the both for Omnibus Agreements . The Covenants The movements in the balance of unamortized debt issuance costs are as follows: costs are issuance debt unamortized of balance in the movements The Notes contain, among others, covenants regarding the maintenance of certain financial ratios such financial ratios certain of maintenance the regarding covenants among others, contain, Notes reserve service debt of maintenance and ratio, coverage service debt and ratio as debt-to-equity has with Company complied Parent the 2011, and 31, 2012 7). As at December Note (see account covenants. these without at its option and may, Company Parent the Omnibus Agreements, the of terms the Under conditions in whole the in part, subject to or Notes Corporate the redeem penalty, and premium clearly options are prepayment early and embedded The agreements. redemption in the stipulated or accounted and be bifurcated to require do not thus, host contract, debt the to closelyand related host contract. separately in the scheduled as follows: are terms existing based on loans of repayments The 103 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS 11. operations amounting to P Trade include liabilities relating payables to assets heldintrust (see Note 23)usedinthe Company’s Trade and other are non-interest payables bearingand settled are within normally oneyear. This account consistsof: Trade and Other Payables in favor of Phil Hydro (see Note 7). the loan obtained in2009issecured by acontinuing surety made by Phil stockholders Hydro’s major secured by certain property and equipmentlocated inLegazpi City(see Note 8).Onthe other hand, in 2009and 2007, respectively. Inadditionto the above guarantee, the loan obtained in2007 is quasi-judicial bodies. quasi-judicial prejudiceas these may the Company’s positionsinrelation to the casespending before the courts or services and interest to the banks. Details payable of provisions required by PAS 37 are not disclosed Other consistof accrued expenses provisions, and mainly wages salaries, benefits, contracted monthly billing obligationbutnot tomonthly exceed P The loans are secured by the assigned guarantee coverage of the Company at 85% of the customers’ position. financial P current ratio. Asaresult, the noncurrent portion of the loan obtained in2009amounting to As atDecember 31,2012 and 2011, Phil Hydro with to comply was able the covenants, except for the officers, and/or stockholders which, inthe aggregate, would exceed 10%of itsnet worth atany time. equity ratio not greater 2.5:1;and than (3)non-granting of loans or advances to any of itsdirectors, inarrearspayments dueto itslenders; (2)maintenance of current ratio1:1and of debt-to- atleast the Philnegatively Hydro’s condition. financial AsatDecember 31,2012 and 2011, Phil Hydro no has of itscapital of stock)ifpayment any sumdueto the lenders isinarrears or itifwould affect ofor payment dividends to Phil Hydro’s inshares stockholders (other solely dividends than payable Covenants. Amongthe significant covenants are asfollows: declaration (1)the prohibition against is subjectto repricing every quarter. Treasury -Fixing (PDST-F) rates plus acertain spread. Onthe other the hand, loan obtained in2007 availment. The loan obtained in2009issubjectto interest rate based onPhilippine System Dealing Both loans installments over inquarterly are payable seven years from the respective dates of 2007, respectively, to finance itscapital expenditures inLegazpi Cityand Norzagaray, Bulacan. Phil Hydro obtained loans from banks amounting local to P70.0 million and P105.0 million in2009and Peso-denominated Loan of Phil Hydro Other accrued expenses Due to related party(see Note 14) Accrued construction costs(see Note 14) Trade payables 40.8 million was presented aspart of current liabilities inthe 2012 consolidated statement of 97.3 million asatDecember 31,2012 and 2011. 75.0 million and P 150.0 million for the loans obtained P 4,996,260 4,029,282 P 2,025,738 11,166,531 115,251 2012 P P 3,693,936 3,249,822 9,477,049 1,769,898 763,393 2011 Maynilad Water Services, Inc. 2012 Annual Report 104 2011 8,410,714 985,292 7,739,593 1,656,413 P 9,396,006 P 2012 607,217 7,974,985 8,987,511 1,012,526 8,380,294 P P 985.3 million as at December 31, 2011 and have have and 31, 2011 as at December 985.3 million 4.3 billion as at December 31, 2012 and 2011, respectively. The The respectively. 2011, and 31, 2012 as at December 4.3 billion 4.5 billion and P and 4.5 billion 378.1 million and charged to other income in 2012. in income charged other and to million 378.1 Less current portion current Less Concession fees payable (see Note 9) payable fees Note Concession (see Accrued interest Accrued Disputes with MWSS with Disputes charges relating MWSS billed by has certain Company been contesting Parent the years, In prior additional (c) and borrowings; cost of MWSS (b) interest; of computation the basis of (a) the to: additional charges. these for These has provided Company not Parent the penalties. Consequently, Agreement Restructuring Capital Debt and the virtue of by charges been reflected disputed have additional these has Company recognized Parent the in 2005. Accordingly, into (DCRA) entered As million. US$30.1 to DCRA, amounting in the Fees B Concession as Tranche to charges, referred B Concession Tranche of additional an amount has determined Receiver the 9, in Note discussed has Company recognized Parent the 2011, and 31, 2012 As at December US$6.8 million. of Fees 9). Note (see US$36.9 million of Fees B Concession Tranche MWSS. of billings and confirmation the with MWSS to its liability reconciled Company Parent The Parent the by recognized amount the and MWSS by confirmed amount the between difference The P to amounted Company Service Concession Obligation Payable Obligation Concession MWSS to Service of: consists account This difference mainly pertains to disputed claims of MWSS consisting of additional Tranche B Concession B Concession additionalTranche consisting of MWSS claims of disputed mainly to pertains difference the to (prior Agreement Concession the penalty under interest cost and 9), borrowing Note (see Fees Receiver’s the with charges position on these is consistent Company’s Parent 19). The Note DCRA) (see 19). 9 and Notes (see Court Rehabilitation the upheld by which was recommendation the disallowing 2007 19, on December Order Court’s Rehabilitation the of issuance the Following the proceedings, rehabilitation Company’s the of termination the claims and disputed MWSS’ resolution dispute the with in accordance matter the resolve seeking to are MWSS and Company TCA. the of requirements on its payable based on MWSS to has interest Company accrued Parent DCRA, the the to Prior the before Company Parent the by disputed which was Agreement, Concession the of terms the P to amounted already These Court. Rehabilitation been charged to interest expense in prior years. The Parent Company maintains that the accrued that accrued the maintains Company Parent The years. in prior expense been charged interest to Fees B Concession Tranche the by on its payable has MWSS been adequately to replaced interest recommendation Receiver’s the with position is consistent Company’s Parent The above. discussed Company’s Parent the 19). In light of 9 and Notes (see Court Rehabilitation the upheld by which was the MWSS, claim of the fully to settle million US$14.0 of offer outstanding and negotiation current offer settlement million US$14.0 the of in excess interest accrued of amount the reversed Company P to amounting 12. 105 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS 12. Equity related concession projects. (see determinable Note 1)isonly uponloan drawdown of MWSS and the construction actual of the Additional concession fee liability relating to the extension of the Concession Agreement Concession Agreement, isasfollows: The of schedule undiscounted estimated future concession basedonthe term fee payments, of the remaining disputed claimsof MWSS. the Concession Agreement remained prior to DCRA,has inthe bookspending resolution of the P accrued interest thereon have beenpaidby virtueof the PSA. The remaining balance of 16,2008,TrancheOn January A2and recognized Tranche BConcession Fees and the related NoLoss”Gain, principle. Concession Agreement, taking into account of, and with dueregard to, the application of the “No Parent Company through consultation mutual and negotiation, asmandated under Clause 12.1 of the the issuance of the Rehabilitation Court’s ruling beresolved on the same, shall by MWSS and the The Parent Company and MWSS any agreed that remaining dispute onMWSS’ disputed claimsafter disputed claimsof MWSS. favor of the Parent Company initsOrder dated December 19, 2007, denying or disallowing the said of borrowings. The Rehabilitation Court upheldthe recommendations of the Receiver and in ruled stated shefollowed that of the principle NoLoss” “NoGain, inher recommendation onMWSS’ cost ruling onMWSS’ disputed claims.Asstated inareport dated September 14,2007, the Receiver In compliance with the PSA, the Parent Company and MWSS sought the Rehabilitation Court’s PSA * Translated usingthe December 31,2012 exchange rate of P 2015 2016 2017-2037 2014 2013 Year 607.2 million asatDecember 31,2012, whichpertains to the disputed interest under penalty a. value per share and number of shares) asatDecember 31,2012 and 2011: The composition of the Parent Company’s capital Stock (amounts inthousands, except par ESOP Class B Class A Common: Authorized and issued -P Foreign Currency Loans 1,000 parvalue (Translated to US$)* $165.4 $18.6 96.5 16.5 15.7 18.1 In Original CurrencyIn Original 41.05:US$1. Peso Loans/Project Local (In Millions) Support P 9,336.6 P 445.4 445.6 445.5 11,318.3 645.2 Number of Shares 3,686,393 4,010,893 236,000 88,500 Total Peso Equivalent* P P 13,297.9 1,089.9 1,188.6 18,107.9 1,122.8 1,408.7 P P 3,686,393 236,000 4,010,893 Amount 88,500 Maynilad Water Services, Inc. 2012 Annual Report 106 88.5 million and have have and 88.5 million 3.2 million were presented as presented were 3.2 million 1,000. The ESOP shares have no voting rights, except for those provided under under provided those for rights, except no voting have ESOP shares The 1,000. 88.5 million and such excess has been fully settled in cash in 2008. In April 2010, the the 2010, has April in cash in 2008. In been fully settled such excess and 88.5 million 1 to P 1 to 6.6 million, equivalent to 6,572,000 shares, was presented as “Treasury shares” in the in the shares” “Treasury as presented was shares, equivalent 6,572,000 6.6 million, to Class A shares, comprising sixty percent (60%) of the authorized common shares, may shares, common only authorized be the (60%) of percent sixty comprising A shares, Class the of laws the under organized associations or corporations or citizens Filipino subscribed by citizens. Filipino by owned capital the (60%) of at least sixty percent with Philippines may shares, common be authorized the (40%) of percent forty comprising B shares, Class aliens. by or citizens Filipino either by owned and to transferred subscribed by, ESOP six percent up to participation of equity allowed are Company Parent the of employees The effective the upon Company Parent the stock of capital outstanding and issued the (6%) of and to pursuant Company Parent the stock of capital in authorized increase the of date of a series purpose, this DCRA. For the 2.6 of Clause of provisions the with in accordance from created was (ESOP Shares) shares redeemable convertible nonvoting 88,500,000 Articles Incorporation. amended of Company’s Parent in the as reflected A shares Class common change due to shares 88,500 in par value to effectively reduced were ESOP shares In 2008, the P from consolidated statement of financial position (see Note 16). In 2012, ESOP shares reacquired by by reacquired ESOP shares 16). In 2012, Note financial position (see of statement consolidated P to amounting employees its resigned from Company Parent the BOD approved the issuance of the 88,500 shares of DMCI-MPIC to the employees. Said shares Said shares employees. the to DMCI-MPIC of shares 88,500 the of issuance the approved BOD 2010. subsequently 30, on December issued were Parent package the separation paid by in the included shares ESOP buyback of the In 2011, amounting Right-Sizing Program and Redundancy the who availed employees the to Company P to Section 6 of the Corporation Code and have no pre-emptive rights to purchase or subscribe to subscribe to purchase to or rights no pre-emptive have and Code Corporation the Section 6 of Company. Parent the of shares disposition of or additional issuances or future of creation the from year fifth the of end (i) the of earlier the (30) days after thirty Within Stock Philippine in a recognized shares common for listing date (ii) the and ESOP Shares, the equal to ratio at a redemption ESOP shares the may redeem Company Parent the Exchange, shall so exchanged shares common such held and ESOP share every for share one common shares. common privileges as all rights and same other the have time during the at any thereof, holder the option of at the be convertible, will Each ESOP Share ESOP the of creation the from year fifth the of end (i) the of earlier the commencing period Exchange Stock Philippine in a recognized shares common for listing date the (ii) or Shares; shall share Such common nonassessable the share. one fully-paid have common into and may ESOP Share the be of Conversion shares. common privileges as allsame rights and other Parent the to be converted to such shares representing certificates the surrendering by effected BOD as the offices or office other at such or principal office Company’s Parent at the Company as may in such form conversion of notice a duly completed and signed and may designate, with together Notice”), (a “Conversion Company Parent the by time be specified time to from person title the the of prove to may reasonably Company require Parent as the such evidence the without may be withdrawn given not once Notice such right. A Conversion exercising Company. Parent the in writing of consent P or at 88,500 shares fixed were ESOP shares DCRA, the the virtue of By treasury shares. treasury vested. As at that date, the Parent Company’s accrued annual stock purchase accrued bonus has Company’s Parent the As at that date, vested. P exceeded b. 107 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS d. g. e. c. f. set and approved the declaration of cashdividends of P On June 25,2012 and 24, August 2011, duringthe regular meeting, the Parent Company’s BOD Dividends amounting to P Paid-in Capital amounting to P P subscription were reclassified to equity. OnFebruary 13,2013, DMWC paidfor the balance of adjustments” accountadjustments” shown aspart of equity inthe consolidated statements of position. financial P On November 26,2012, the Parent Company’s BOD approved the appropriation of Appropriation of Retained Earnings paidonFebruary 27,to befully 2013. wereFebruary 4,2013. Payments made intranches beginningFebruary 13,2013, and expected P subscribed to 134,022 additional common shares of the Parent Company with parvalue of Pursuant to the SubscriptionAgreement between DMWC and the Parent Company, DMWC Deposits for Future Stock Subscription earnings amounting to P 24,On August 2011, the Parent Company’s BOD approved the appropriation of itsretained P On February 13,2013, Parent Company’s BOD set and approved the declaration of June 29, 2012 and September 23,2011, respectively. notice of redemption isissued, amounting to P 2008. Foreign exchange fluctuation from date of issuanceAs discussed initem (a),the Parent issued Company and has redeemed of preferred the shares in preferred shares to the date of Equity Adjustments its authorized capital from P 31,2013, the SECapprovedOn January the Parent Company’s application for the increase in under current liabilities inthe 2012 consolidated statement of position. financial cash dividends amounting to P P amountingpayment to P increase inauthorized capital stockwith the SECasatDecember 31,2012, the subscription BOD reversed the P out the deficit asatDecember 31,2009amounting to P On September 6,2010, the SEC approved the Parent Company’s equityrestructuring to wipe Equity Restructuring the Parent Company. 31,2013, saidESOPshares wereon January reissued employees of to qualified subsequently all by the Parent Company from separated employees. Uponapproval by the SECof the amendment Articles of Incorporation to allow for the reissuance of ESOP sharesIn 2012, the Board and shareholders that of the Parenthave Company approved been the amendment of bought its back 2,841.32 per common share amounting to P 25,533 per share, resulting paid-incapital inadditional of P 100.5 million and subscribedto 402,067 additional common shares atasubscriptionprice of 1,000 onDecember 28,2012. However, pending Parent Company’s application for the 10.2 billion for distribution of cashdividends to itsstockholders. OnFebruary 13,2013, the 2.0 billion and P 2.0 billion previously appropriated for capital expenditures and declared 2.0 billion for itscapital expenditures. 33.5 million was presented as“Depositsfor future stocksubscription” 4.01 billion to P 775.8 million. 11.4 billon. 1.5 billion, respectively. were Payments made on 5.31 billion. Consequently, the deposits for future 351.0 million, isrecognized aspartof “Other equity 11.4 billion to shareholders all of record asat 674.0 the Additional million against 499.5 and P 9.9 billion. 374.6 per common share Maynilad Water Services, Inc. 2012 Annual Report 108 2.73 2.65 1,096 P P 3.53 to to 3.53 5.67% 76.60% July 2, 2013 35.0% vesting on vesting 35.0% 2.73 2.65 731 P 5.21% P 2, 2012 67.52% July 2, 2010 35.0% vesting on July vesting 35.0% 3.50 on December 21, 2010 to officers officers to 21, 2010 3.50 on December 2.73 2.65 365 P P 4.61% 2, 2011 69.27% 30.0% vesting on July vesting 30.0% 2.73 per common share on July 2, 2010 and (b) another 10,000,000 10,000,000 another (b) on July share common and 2, 2010 per 2.73 Grant date Grant price Spot Exercise price Exercise rate Risk-free Expected volatility* Expected (in days) vesting to Term Share-based PaymentShare-based Plan) option scheme (the a share approved MPIC of shareholders the 2007, 24, On June upon the MPIC of executives invite discretion, at their may, directors which MPIC’s under obtain to MPIC option of up share take to eligible employment of executives, of regularization The employment motivation. long-term purpose of the for and in MPIC interest ownership an was plan An amended 10 years. for is valid and 14, 2007 on June scheme became effective 2009. 20, on February stockholders the by approved of that shares may upon exercise of be issued number on the limit overall the As amended, the of 5.0% exceed must Plan not the under be exercised to yet and be granted all options to time. time to from in issue shares Company’s Parent the by option shall each to be determined in relation price exercise The of closing price (i) the highest than of: the but shall be lower not Committee, Compensation (ii) date; option offer PSE on the on the shares such of lots board more one or for shares the PSE on the such shares of lots board more one or for shares the of price closing average the immediately made preceding are shares days in the business on which dealings five the for shares. the of par value the (iii) and date; option offer the common additional an 145,000,000 to stock options relating aside set and allocated MPIC senior and directors its new to granted were shares common which, (a) 94,300,000 of shares, MPIC certain of management the committee of as members as well management officers, Company) Parent the of officers to granted shares common 15,200,000 subsidiaries (includes P of price exercise at the common shares were granted at the exercise price of P of price exercise at the granted were shares common of the Parent Company. Parent the of P of price exercise at the granted were shares common 1,000,000 8, 2011, On March senior management of the Parent Company. Parent the managementsenior of in 2009. MPIC from received No stock option activity was as at options outstanding share the for life contractual remaining average weighted The respectively. years, 5.0 and is 4.6 years grants third and second the for 31, 2011 December using Black-Scholes- grant of date at the is estimated options granted the of value fair The options were upon which the conditions and terms the account into taking formula, Merton 2011: and ESOP in 2012 the used for model the tables inputs to list the following The granted. July 2, 2010 dated Grant 109 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS 14. influence. Parties are considered to berelated are ifthey subject to common control or common significant other partyor exercise influence over the other and partyinmakingfinancial operating decisions. Parties are considered to berelated the ability ifonepartyhas to control, or directly indirectly, the Related Party Transactions (see Note 11) Construction costs DM Consunji, Inc. Category P of the consolidated statements of positionamounted financial to P Carrying value of the ESOPrecognized under “Other inthe equityadjustments” equitysection respectively. account amounted to P Stock optionsexpense recognized by the Company under and wages “Salaries, benefits” stockoptionactivity wasIn 2012, noadditional received from MPIC. Grant dated March 8,2011 Grant dated December 21,2010 15.7 million asatDecember 31,2012 and 2011, respectively. * Theexpected * volatilitythevolatility historical thethat reflectsassumption over perioda similar to theoflife theoptions Theexpected * volatilitythevolatility historical thethat reflectsassumption over perioda similar to theoflife theoptions Spot price Grant date Spot price Grant date Expected volatility* Risk-free rate Exercise price Term to vesting (indays) Call priceCall Term to vesting (indays) Expected volatility* Risk-free rate Exercise price is indicative of future trends, notthe outcome. also necessarily actual whichmay is indicative of future trends, notthe outcome. also necessarily actual whichmay 2012 Year 2011 Amount/Volume of Transactions 7.5 million, P P 1.1 billion 1.1 billion 30.0% vesting onAugust 15.7 million and P 30.0% vesting onMarch 46.62% 39.32% 8, 2012 2.56% 1, 2011 P P P P P 1.62% 366 223 3.50 0.58 3.47 3.53 3.53 Outstanding Balance 763.0 million P 115.3 million 2.1 million in2012, 2011 and 2010, 35.0% vesting onAugust 35.0% vesting onMarch December 21,2010 March 8,2011 8, 2013 68.23% 61.39% 4.38% 1, 2012 2.83% P P P settlement incashand P P Non-interest bearing, 589 731 3.53 3.53 3.50 3.47 payable ondemand payable 1.28 25.3 million and Terms 35.0% vesting on 35.0% vesting on March 8,2014 August 1,2013August 64.42% 72.82% 3.73% 5.01% P P P 1,096 P P 954 3.50 3.53 3.53 3.47 Unsecured Conditions 1.62 Maynilad Water Services, Inc. 2012 Annual Report 110 2011 2011 2010 6,712 87,654 38,130 5,002 75,940 4,300 178,015 1,861,273 1,645,128 55,436 P 3,314,798 2,173,152 P 7,808,655 1,257,754 1,003,215 P P P P 2012 2011 (86) 2012 49,515 7,329 1,211,540 110,822 6,908 371,650 125,059 1,632,705 123,867 1,124,661 4,228,143 P P 8,215,680 1,176,856 P P 1,562,239 P P 2012 6,922 7,444 125,203 139,569 P P 469.5 million in 2012 (see Note 3). Note (see in 2012 million 469.5 Compensation Pension costs Pension benefits Short-term Accrued expenses Accrued cost past service unamortized and liability Pension financial liabilities of Accretion expenses Accrued accounts doubtful for Allowance costs past service Unamortized - net (gain) loss exchange foreign Unrealized Service concession assets - net - net assets concession Service Service concession assets - net assets concession Service Deferred tax asset written off due to the Company’s change in method of amortization of service service of amortization of change in method Company’s the due to off written asset tax Deferred P to amounted assets concession Income Taxes Income reverse to expected differences on deductible temporary taxes deferred recognized Company The tax deferred net the of components 20). The Note holiday (see tax (ITH) period income the after of statements consolidated in the shown 2011 and 31, 2012 as at December Company the of assets as follows: financial position are Terms and Conditions of Transactions with Related Parties Related with Transactions of Conditions and Terms Outstanding prices. market at normal made parties are related with transactions outstanding The payable in cash and occurs on settlement interest-free, unsecured, are at year-end balances demand. consist of: Company the of key management personnel benefits of and compensation Total For tax purposes, concession fees, presented as part of “Service concession assets” account in the in the account assets” concession “Service as part of presented fees, purposes, concession tax For the by as approved method using UOP amortized financial position, are of statements consolidated Revenue. Internal of Bureau tax income 6-year certifying Registration of Certificate the released BOI the 2009, 16, On December 20). Note (see 2015 up to holiday incentive on tax income corporate regular the represents 2011 and in 2012 tax income current for Provision 20). Note ITH (see the by covered not income miscellaneous The Company has the following temporary differences for which no deferred tax assets (liability) (liability) assets tax which no deferred for differences temporary has following Company the The management or ITH period during the reverse to expected are these since been recognized have near future. in the be realized that probable it is not that will these believes 15. 111 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS 14. P and Right-SizingProgram in2010 and 2011. The redundancy program offered aseparation package In linewith its strategic to goal improve operational efficiency, the Company offered a Redundancy during the year last of employment. of all itsemployees. The benefitsaresubstantially basedonyears of service and compensation The afunded, Company has noncontributory computed and pension plan actuarially covering Pension Plan December 31,2012 and 2011, respectively. as partof “Other noncurrent liabilities” inthe consolidated statements of positionasat financial Parent Company asper LTIP Plan and the balance of P of the consolidated statements of positionrepresenting financial MPIC’s share inthe LTIP costof the “Salaries, wages and wages “Salaries, benefits”amounted to P The total costof the LTIP recognized by the Parent Company in2012 and 2011 presented aspartof government bonds) atthe end of the reporting period. liability comprises the present value of the defined benefitobligation(usingdiscount rate basedon 2012 LTIP was determined usingthe projected unit credit method. The long term employee benefit not affected infuture by changes of salaries the employees covered. The liability of the 2010 to Total amount of LTIP under this plan isfixed uponachievement of the target Core Income and is Cycle. approved target core income of the Parent Company by the end of the 2010 to 2012 Performance 2012 Performance (without Cycle interim and payments) contingent uponthe achievement of an underCycle. The payment the 2010 to 2012 LTIP isintended to bemade atthe end of the 2010 to to cover the period 1,2010 to from December January 31,2012, or the 2010 to 2012 Performance 2010 to 2012 LTIP, upon endorsement of the Compensation Committee, was approved by the BOD withplan, particularly respect to the manpower resources beingcommitted to suchplans, the protectingwhile the existing core business. To ensure the proper execution of the three-year plans for 2010 to 2012 focusing onthe development of new revenue streams to drive future growth On December 16,2010, MPIC’s BOD approved, the inprinciple, broad outline of MPIC’s strategic LTIP Employee Benefits follows: for income (benefitfrom) tax asshown inthe consolidated statements of income issummarized as The reconciliation of provision for income tax computed atthe statutory income tax rate to provision Income tax atstatutory tax rate of 30% Change inunrecognizedChange deferred income tax Net income under ITH(see Note 20) Add (deduct) the tax effects of: Provision for (benefitfrom) income tax Interest income already subjected to tax final Other items nondeductible -net 5.7 million and P 10.8 million was recognized under “Other inthe equityadjustments” equitysection 22.8 million and P 17.1 million and P (1,889,863) P (46,470) P 1,954,585 (122,110) 232,879 129,021 2012 54.1 million, respectively, of which, 43.3 million was presented (1,569,419) (P P (239,825) (46,634) (35,588) 1,702,879 188,587) 2011 (P P (1,341,629) (492,101) 1,369,509 (21,088) 270,363 214,946) 2010 Maynilad Water Services, Inc. 2012 Annual Report 112 2011 2011 2011 2010 10,347 18,795 69,614 829,180 625,157 139,742 49,433 680,381 829,180 54,703 93,774 663,725 123,793 (8,082) 46,264 165,455 P (25,713) (10,768) P P (12,605) P P P (110,024) P (44,438) (39,662) (33,083) P (663,725) 100.2 million and and million 100.2 – 2012 2012 2012 2011 2,035 69,614 62,710 829,180 74,899) 663,725 53,897 44,832 53,099 768,443 (11,091) 89,894 (11,091) 230,434 (9,870) 54,703 1,008,747 1,008,747 (5,286) 240,304 P P P (93,774) P P (100,156) (768,443) P P (P – – 2012 90,692 89,894 53,897 P P (53,099) In 2011, benefits paid exclude payments for involuntary separation amounting to P3.8 million. to amounting separation involuntary payments for benefits paid exclude In 2011, 33.1 million in 2011 and 2010, respectively. No curtailment gain was recognized in 2012. recognized gain was No curtailment respectively. 2010, and in 2011 million 33.1 * Net pension cost (income) pension Net Expected return on plan assets on plan return Expected year during the actuarial gain recognized Net Curtailment gain Curtailment Current service cost service Current Fair value of plan assets plan of value Fair cost service Current Interest cost Interest Balance at beginning of year at beginning of Balance Balance at end of year of at end Balance Actuarial gain (loss) on plan assets on plan gain (loss) Actuarial Benefits paid Expected return on plan assets on plan return Expected Present value of defined benefit obligation defined of value Present Defined benefit obligation at beginning of year Defined benefit obligation at beginning of Unfunded present value of defined benefit obligation benefit defined of value present Unfunded cost Interest due to: loss Actuarial Change in assumptions Unrecognized actuarial loss Unrecognized Experience adjustments Experience Pension liability Pension Benefits paid* year of Defined benefit obligation at end Curtailment gain Curtailment P based on the number of years, or fractions thereof, on a pro rated basis, of service with the Company Company the with service basis, of rated on a pro thereof, fractions or years, of number based on the P gain of a curtailment to resulted This some benefits. equivalent of monetary plus The plan assets are maintained in a trust account with local banks that were set up by the Company Company the up by set local that banks were with account in a trust maintained are assets plan The in 2007. Changes in the fair value of plan assets as at December 31, 2012 and 2011 are as follows: are 2011 and 31, 2012 as at December assets plan of value Changes fair in the Changes in the present value of the defined benefit obligation as at December 31, 2012 and 2011 are are 2011 and 31, 2012 benefit obligation as at December defined the of value Changes present in the as follows: The funded status and amounts recognized in the consolidated statements of financial position for financial position for of statements consolidated in the recognized amounts and status funded The as follows: are 2011 and 31, 2012 as at December plan pension the The components of pension cost, included under “Salaries, wages and benefits” account in the in the benefits” account “Salaries, wages and under cost, included pension of components The as follows: are income of statements consolidated 113 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS As atDecember 31,2012, the plan assets consistof the following: marked-to-market. The plan asset’s carryingamount approximates itsfair value since these are short-term innature or The of allocation the fair value of plan assets asatDecember 31,2012 and 2011 isasfollows: as follows: As atDecember 31,2012, the carryingvalues and fair values of the plan assets of the Company are Unittrust funds Investment instocks Government securities Investments in: Loans and notes receivables Government securities Investments in: Equitysecurities Receivables and others Cash and cashequivalents Loans/notes receivable Unittrust funds Others Bank deposits • • • • • • at 5.25%. Receivables and others include certificate of deposit with a term of 7years and bearinterest ranging from 2.00% to 5.50%per annum. includeCash and regular cash equivalents savings and timedeposits, whichbearinterest interest ranging from 6.17% to 6.73%. notes of unaffiliated companies, dividend, interest and other receivables. The notes bear Loans and notes receivables include unsecured fixed-rate notes of arelated party, unsecured Unit trust funds include funds mutual invested inquoted shares. values since are they marked-to-market. entities. The carryingamounts of investments approximate inequitysecuritiesalso their fair Investments inequitysecuritiesare composed of investment inshares of various listed from 2013 to 2037. treasury bondsbearinterest that ranging from 4.00% to 8.13% per annum and have maturities Investments ingovernment of fixed-rate securitiesconsist primarily treasury notes and retail Carrying Value P P 768,443 20,294 356,151 366,831 2,000 17,525 5,642 100.00% 46.35% 47.74% 0.26% 2.64% 0.73% 2.28% 2012 Fair Value P P 768,443 20,294 356,151 366,831 2,000 17,525 5,642 100.00% 20.78% 69.25% 3.44% 4.56% 0.55% 1.42% 2011 Maynilad Water Services, Inc. 2012 Annual Report 114 2011 2011 2010 2,210 3,411 10,350 7.00% 2008 8.04% 25,713) 70,294 68,084 15.00% 163,188 235,588 59,990 490,485 80,840 P 1,258,753 763,262 2,162,845 (5,286) P P (18,795) P P (44,438) P (P (254,897) (123,793) P P – – 2012 27,065) 2009 53,597 2011 481,414 3,126 121,751 7.00% 6.07% 9.00% 2,835 9,870) 118,625 2012 25,713) P P 58,646 P 62,710 2,051,722 (P 749,834 P (508,479) 1,240,407 (2,035) (P (44,832) (P P P 2010 57,855 55,224 – 680,381 P P P (625,157) 2012 12,564 154,900 154,900 707,524 1,385,240 2,494,413 389,085 P P P P 2011 18,795 165,455 829,180 P P P (663,725) 2,035 2012 P 240,304 1,008,747 P (768,443) P MWSS (see Note 12) Note (see MWSS Interest income: Interest 5) Note (see investments short-term and Cash in banks Salary increase rate Salary increase assets on plan return of rate Expected Discount rate Discount Accretion on financial liabilities Accretion Interest expense: Interest 10) Note (see loans Bank Fair value of plan assets plan of value Fair Deficiency (excess) Deficiency adjustment on Experience assets plan Defined benefit obligation Accretion on miscellaneous deposits on miscellaneous Accretion obligation payable concession to on service Accretion Amortization of debt issuance costs (see Note 10) Note costs (see issuance debt of Amortization Net cumulative unrecognized actuarial gain (loss) actuarial gain (loss) unrecognized cumulative Net year at beginning of Actuarial loss due to: loss Actuarial adjustments Experience Change in assumptions assets on plan gain (loss) Actuarial Net actuarial recognized loss Net Effect of curtailment of Effect Net cumulative unrecognized actuarial loss at end of year of actuarial at end loss unrecognized cumulative Net Interest Income and Interest Expense Interest and Income Interest Amounts for the current and the previous periods are as follows: are periods previous the and current the for Amounts The principal assumptions used to determine pension benefit obligations for the Company’s plan as plan Company’s the benefit obligations for pension determine principal used to assumptions The as follows: are 2011 and 31, 2012 at December The overall expected rate of return on assets is determined based on the market prices prevailing on prevailing prices market based on the is determined assets on return of rate expected overall The be settled. is to obligation the which over period applicable the to that date, as follows: actuarial are loss in unrecognized Movements 17. 115 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS 19. 18. Following are the significant contingent liabilities of the Company asatDecember 31,2012 and 2011: Contingent Liabilities common shares from have noimpact. share-based payments The Company’s basicand diluted earningsper share are the sameasthe dilutive effect of potential Basic/Diluted EarningsPer Share * Basic/Diluted Earningsper share (a/b) Weighted average number of shares atend of year (b) Net income (a) Less weighted average number of treasury shares (see Note 13)* Weighted average number of shares atbeginningof year Substantially acquiredSubstantially by fourth quarter of in2012 and the middle year in2011. b. a. for the reception of MWSS’ evidence. 16, 2013. Formal offer of Maynilad’s Next evidence been filed. setting has isonMarch 13,2013 finished the11, 2012. Maynilad presentation of itssecond witness, Dr. Angel Lazaro, onJanuary offered itsevidence. concluded the has Maynilad presentation of witness itsfirst onOctober On February 29, 2012, Manila Water concluded the presentation of itsevidence and formally the common purposefacilities was conducted by the CBAA onDecember 14,2010. The given CBAA duecourse has to the Parent Company’s and appeal an ocular inspection of Board of Assessment (“CBAA”) Appeals by filing separate appeals. Norzagaray, Bulacan. The Concessionaires elevated the ruling of the LBAA to the Central The Board Local of Assessment (“LBAA”) Appeals infavor ruled of the Municipality of of 2%per month of P P (in additionto other miscellaneous claims) amounted to P of the amount recommended by the Receiver. SuchAdditional Tranche additional BConcession Fees and interest are penalty charges beingclaimedby MWSS inexcess being claimed by MWSS property tax, includinginterests, asatJune 30, 2007 amounted to P certain common purposefacilities duefrom purportedly 1998to 2005amounting to P Company and Manila Water Company, Inc.(the “Concessionaires”) for real property taxes on On October 13,2005,the Municipality of Norzagaray, assessed the Bulacan Parent jointly accordance with the dispute requirements of the TCA. proceedings (see Note 12),the Parent Company and MWSS are seekingto resolve this matter in of the Receiver onthe matter. Following the termination of the Parent Company’s rehabilitation said disputed claimsof MWSS initsDecember 19, 2007 Order, upholdingthe recommendations tax, whichincluded real property tax duefor purportedly 2006of P On February 2,2007, the Concessionaires received an updated assessment of real property owns these properties, and are therefore exempt from taxation. million. Itisthe positionof the Concessionaires itisthe that Republic of the Philippines that 4.3 billion asatDecember 31,2011. The Rehabilitation resolved Court has to deny and disallow the 93.6 million. The supposedjointliability of the Concessionaires for real P 4,004,032 4,010,893 P 6,386,262 1,594.96 6,861 2012 4.5 billion asatDecember 31,2012 and P 35.7 million and interest 4,007,607 4,010,893 P 554.2 million. 5,864,850 1,463.43 3,286 2011 P 4,010,893 4,010,893 4,779,976 P 1,191.75 2010 357.1 357.1 – Maynilad Water Services, Inc. 2012 Annual Report 116 29.4 million and a daily and penalty of million 29.4 249.5 million as computed and claimed by MWSA. This decision was reversed reversed was decision This MWSA. claimed by and as computed million 249.5 200,000 (the fine imposed by the PAB is reckoned from May 6, 2009, the date of effectivity effectivity of May date the from 6, 2009, is reckoned PAB the by fine imposed (the 200,000 On November 24, 2006, the Labor Arbiter issued a decision in favor of the Maynilad Water Maynilad Water the of in favor a decision issued Arbiter Labor 2006, the 24, On November Company’s Parent the to COLA payment the of ordering (“MWSA”), Association Supervisors Company Parent the by hired when they were date the to retroactive supervisor-employees, payment of full until decision the of promulgation of date the from legal interest with in 1997, P or award the of the CWA). the of the before Review for Petitions filed separate Concessionaires the each of and MWSS The Appeals. of Court Company’s Parent the Appeals dismissed of Court the 26, 2011, October dated In a decision decision. the from reconsideration filed for a motion Company Parent The Review. for Petition for motion our Appeals denying of Court the from a Resolution received we 2012, On July 27, reconsideration. Supreme the before on Certiorari Review for Maynilad 2012, filedOn August a Petition 24, Court. Supreme the with pending remains Petition The Court. contracts of breach to cases relating labor and civil various is a party to Company The benefits and damages, backwages, nonpayment illegal and of employees, dismissal of with bonus, among others. performance and set aside by the National Labor Relations Commission (“NLRC”) in 2007, but reinstated but reinstated (“NLRC”) in 2007, Commission Relations National Labor the by aside set and in 2007, decision Arbiter’s Labor the of issuance the After Appeals 2010. in of Court the by agreed Company the wherein MWSA, with agreement a compromise executed Company the August from 23 months, for COLA equivalent benefits its claim for to residual payto MWSA supervisor- the to limited was MWSA with dispute Company’s the Thus, 1999. June to 1997 Appeals of Court the In 2011, time. present July the from 1999 up to COLA claim for employees decision amended an issuing by Company the filed by reconsideration for motion the granted issued Appeals thereafter of Court NLRC. The the of resolutions affirming the and reinstating 16, 2011, On November MWSA. filed by reconsideration for motion the denying a resolution the annul seeking to Court, Supreme the before on Certiorari Review for filed a Petition MWSA 25, 2013, Appeals. As at February of Court the of resolution the and decision said amended Court. Supreme the before pending case is still the Clean Water the violation of with Concessionaires the charged and MWSS DENR The and houses of connection mandatory the having comply failed to for with (“CWA”) Act CWA. the 8 of Section by as prescribed line, sewerage existing the to establishments with its position that its compliance charges reiterated and DENR’s refuted Company Parent The MWSS. the with Agreement Concession petitioner’s of context in the be viewed should CWA the DENR the of Secretary the and (“PAB”) Board Adjudication Pollution the 3, 2009, On October the Section 8 of in violation of Concessionaires the and MWSS the finding Order an issued P solidary fine of imposing a joint and and CWA P c. e. d. 117 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS 20. 21. with the Concessionaire: East In relation to the Concession Agreement, the Parent Company entered into the following contracts Significant Contracts with Manila Water Concessionaire) (East Parent Company. ITHincentive by enjoyed the Company amounted to P generated from the operation of the three cover plants whichsubstantially the total capacityof the of the Project started 1,2011. The belimited ITHincentives onJanuary to shall the sales/revenue 2011 or start actual ofITH commencing onJanuary commercial operations. Commercial operations Certificates of Registration were issued in December the Project 2009. This entitles to also a six year Water and Distribution Supply Project (Putatan, Muntinlupa) was likewise approved by the BOI. The but innocaseearlier the than date of registration. Registration asnew operator of 200MLDBulk for sixyears 2010 or start from actual of January commercial operations, whichever isearlier, 2, respectively. The registrations the Parent entitle Company to incentives whichinclude an ITH MLD Bulk Water and Distribution Supply Projects pertaining to the LaMesaTreatment Plants 1and Nos. 2009-188 and 2009-189 asanew operator of the 1500million liters per(MLD) and day 900 On December 16,2009, the Parent Company was issued with BOI Registration Certificate Company’s application onDecember 22,2008. one (1)year or for the 1,2009to period December January 31,2009. The BOI approved the Parent application was for the extension of the availment of the ITHincentive by the Parent Company for On October 20, 2008,the Parent Company an application filed for an ITHbonusyear. The for the ITHavailment 2007 2003 from -December 2001 to August -July January 2008. On April 16,2008,the BOI granted the request of the Parent Company for the extension of the period operations, whichever comes first. for aperiod of six years beginningonCommencement Date or from start actual of commercial The registration the Parent entitles Company to incentives whichinclude, amongothers, an ITH new operator of water and sewerage supply system for the West Service Area onapioneer status. The Parent Company isregistered with the BOI under Executive Order No. 226,asamended, asa Registration with the Board of Investments (BOI) million and P b. a. may chooseto delegate tomay the JointVenture, subjectto the approval of MWSS. Concession of the Concessionaire) East as the Parent Company and the Concessionaire East Agreement and performance of suchother functions relating to the Concession (and the of other functions pursuant to and in accordance with the provisions of the Concession and, asappropriate, decommissioning of the Common Facilities, Purpose and performance Common Facilities Purpose Agreement provides that for the operation, maintenance, renewal, between zones; and, of the agreement provide, among others, the costand the volume of water to betransferred joint venture will that operate, manage, and maintain interconnection facilities. The terms Interconnection Agreement wherein the two Concessionaires form an unincorporated shall 1,341.6 million in2012, 2011 and 2010, respectively (see Note 15). 1,889.9 million, P 1,569.4 Maynilad Water Services, Inc. 2012 Annual Report 118 80.0 90.0 60.0 120.0 US$120.0 (In Millions) Aggregate Amount Drawable Under Performance Bond Performance Under Drawable Amount Aggregate The aggregate amount drawable in one or more installments under each performance each performance under installments more in one or drawable amount aggregate The US$30.0 has to been adjusted which it relates to Period Rebasing Rate the during bond Date; Expiration the until million the with DoF in connection the signed by Undertaking and Consent of Letter Based on the Undertaking government’s the of extension the Agreement, Concession the of extension present shall May in the to 2022 6, 2037 only increase upon the May be effective from 7, to million US$30.0 of level present the from Bond Performance the of minimum level Bond Performance 1). The Note (see Period Rebasing Rate Third the for million US$90.0 the of issuance the of date the from six (6) months within be posted to be required will shall 2037 to be 2013 covering period the for Bond Performance the of amount The letter. with consistent Company Parent the and mutually MWSS the upon in writing by agreed Agreement. Concession the of provisions the First (August 1, 1997–December 31, 2002) First (August 1, 1997–December 31, 2007) (January 2003–December 1, Second 31, 2012) (January 1, 2008–December Third 31, 2017) (January 1, 2013–December Fourth (JanuaryFifth 1, 2018–May 6, 2037) Rate Rebasing Period Rebasing Rate Within 30 days from the commencement of each renewal date, the Parent Company shall Company Parent the date, each renewal of commencement the 30 days from Within applicable for above forth set amount full the to be reinstated to bond performance cause the year. the the MWSS, by Selection the Process of implementation the with In connection on bond performance on the Agreement the executed MWSS and Company Parent BoT Resolution MWSS of conditions and terms the incorporating 15, 2006, December obligation adjustments the to certain 2006 which approved 17, November dated 2006-249 No. Concession the Section 6.9 of under bond performance post to the Company Parent the of as follows: summarized adjustments are These Agreement. • Payment of Concession Fees (see Note 9) Note (see Fees Concession Payment of 7) Note (see bond performance Posting of post to a is required Company Parent the Agreement, Concession the Section 6.9 of Under the of provisions certain its obligations under of performance the secure to bond performance under installments more in one or drawable amount aggregate The Agreement. Concession below. out is set which it relates to Period Rebasing Rate during the bond such performance a. b. Commitments Commitments Agreement Concession follow: Agreement Concession the under commitments Significant 22. 119 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS parties. Total rent expense for the above operating amounted leases to P and service renewable vehicles, under certain terms and conditions to beagreed uponby the The the Company office leases space and branches where service outlets are located, equipments Operating Lease Commitments and P g. d. h. e. c. f. 160.4 million in2012, 2011 and 2010, respectively. terminated. after 30days writtenleast notice from the MWSS-RO, causethe Concession may Agreement to an effective abandonment of the Concession Agreement and whichfailure continues for at Agreement of akind or to adegree which,inareasonable opinion of the MWSS-RO, amounts Failure of the Parent Company to perform any of itsobligationsunder the Concession Agreement, without the prior notice of MWSS. Non-incurrence of debt or liability would that mature beyond the term of the Concession resources available to meet itsobligationsunder the Concession Agreement. To ensure timesthe atall Parent that material sufficientfinancial, Company has and personnel affect public health or welfare, to orpersons causedamage or third-party property. To repair and correct, onapriority basis,any defect inthe facilities could that adversely following consultation with the Parent Company). service berevised obligations(assuchmay from timeto timeby the MWSS-RO times, the water and sewerage system inthe West Service Area of meeting iscapable the consistent with the Building National Standards and industrial best practices atall so that, To operate, maintain, renew and, asappropriate, decommission facilities inamanner circumstances. services inthe West Service Area, modifiedby unless the MWSS-RO dueto unforeseen To meet certain specific commitments inrespect to the provision of water and sewerage 2010 (see NotesJanuary 1and 9). budgetedannual expenditures increase by shall 100%,subjecttoeffective CPI adjustments, to Asaresult CPIadjustments. of the extension of the life of the Concession Agreement, the provided the aggregate budgeted annual expenditures donot exceed P of of MWSSPayment half and MWSS-RO’s budgeted expenditures for the subsequentyears, December 31,2016. by the Surety infavor of MWSS. The liability of the Surety under this bond will expire on the Parent Company renewed the Surety Bond for the amount of US$80.0 million issued under the Concession Agreement. OnDecember 6,2012, inconnection with the MOA, security for the Parent Company’s proper performance and timely of itsobligations issued by Prudential Guarantee and Assurance, Inc.(the Surety) infavor of MWSS, as MOA, the Parent Company posted the Surety Bond for the amount of US$90.0 million Concession Agreement for another 25,2010, 15years. inconnection OnMay with the Agreement and Confirmation (MOA) confirming the extension of the term of the On April 22,2010, the Parent Company and MWSS entered into aMemorandum of 175.2 million, P 200.0 million, subject 208.2 million Maynilad Water Services, Inc. 2012 Annual Report 120 2011 166.04 374.90 P (In Millions) 114.74 2012 184.77 P (In Millions) 35.7 million in 2012 and 2011, 2011, and in 2012 million 35.7 33.1 million and P and million 33.1 7.3 billion with a sound value of of value a sound with billion 7.3 13.8 billion. More than one year and not later than five years than five later not and than one year More Period Covered Period Not later than one year later Not MWSS’ corporate headquarters are made available to the Parent Company and the East the and Company Parent the to available made are headquarters corporate MWSS’ yearly subject to Date, Commencement beginning on the period a one-year for Concessionaire lease the 31, 2012, has December As at been parties concerned. the of consent the with renewal P to amounted expense Rent year. another for renewed Assets Held in Trust Assets Supplies and Materials its in carrying out MWSS by owned inventory of items has use any right to Company the Parent The the same at the return obligation to the subject to Agreement, Concession the under responsibility CPI adjustments. subject to rate, at its current in value or in kind period, concession the of end Facilities repair, order, working in good maintain operate, right to the has Company been granted Parent The sewerage and water the provide to required property movable the refurbish and decommission legal title shall all property MWSS movable to retain Agreement. Concession the under services such any of life useful the of upon expiration However, Date. Commencement at the in existence shall be property such movable Company, Parent the by as may be determined property movable (see Company Parent the or at no charge MWSS condition to in its then-current MWSS to returned 9). Note have to East Concessionaire the and Company Parent the also provides Agreement Concession The in services supply sewerage and water of provision in the involved facilities MWSS to equal access management information MWSS the to, limited including, but not Areas East Service and West both records. central and room control central system, telemetry system, billing system, Date on Commencement Company Parent the to transferred facilities the of book value net The P to amounted closing audit report based on MWSS’ Future minimum operating lease payments as at December 31, 2012 and 2011 are as follows: as follows: are lease 2011 and 31, 2012 payments operating minimum as at December Future P Financial Risk Management Objectives and Policies and Financial Risk Management Objectives Omnibus Notes local per banks the to its debts are principal financial instruments Company’s The Concession per MWSS to owing fees as concession as well Security Agreements, and Facility cash cash and purchase contracts, are Company the of financial instruments Other Agreement. is to financial instruments those of main purpose The investments. equivalents short-term and operations. Company’s the finance risk, rate interest are principal financial instruments Company’s the risks arising from main The risk. liquidity risk and risk, credit currency foreign respectively. 23. 24. 121 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS to cashflow and fair value interest rate risks. The following show tables information about the Company’s instruments financial are that exposed liabilitiesfinancial classified asfixed rate isfixed until the maturityof the instrument. Interest liabilities onfinancial classified asfloatingrate isrepriced semi-annually. Interest on flow interest rate risk: The following wshows table the Company’s significant instruments financial are that exposed to cash greater portion of the fixed rate interest-bearing loan will mature earlier the than floatingportion. Agreement. The floatingrate interest-bearing loans will increase to ahigher portion over timeasa 47% floatingand 53% fixed per abovementioned OmnibusNotes Facility and Security The Company maintains amixof floatingand fixed rate interest-bearing ataratio loans, currently of interest rates relates to the Company’s primarily interest-bearing loans. of inmarket the changes interest rates. The Company’s exposure to market riskfor in changes Interest rate riskisthe riskthat future cashflows of instruments financial will fluctuate because Interest Rate Risk activitiesandmanagement the results of these activitiesto the BOD. Company monitors risksarisingfrom instruments financial all and regularly reports financial The BOD reviews and approves the policiesfor the Company’s managing risks.The financial Current -foreign Cash and cash equivalents (1-90days)* Cashand cashequivalents Short-term cashinvestments - Series 1FloatingRate Notes Facility Series 2FloatingNotes Facility Interest rate Interest-bearing loans: Liabilities: Current -local Current -foreign Interest rate Service to concession MWSS: obligationpayable Noncurrent -foreign Noncurrent -foreign Noncurrent -local P Current -local Noncurrent -local * 7.0 Billion Fixed Rate Notes Facility Excludes amounting cashonhand to P 22,190. US$125.0 million P P 5.5 billion 7.0 billion Within 1Year P P $2,500 539,879 893,975 $11,514 3.00% 5.97% – – – – More 1Year than P P 15,787,392 Within 1Year 3,436,272 $110,565 $118,750 P 3,884,146 – – – – – – (6.63%, September 30, 2012 to March 25,2013) (2.81%, November 12,2012 to March 25,2013) (4.75%, July 11, 2012 to January 10,(4.75%, 2013) 11,2012 to January July Fixed rate benchmark+0.75% Total - Gross (In US$) Floating rate benchmark 2012 LIBOR+CDS+2% spread 2012 $110,565 $118,750 $2,500 $11,514 – – – – P 3,884,146 Total -Gross (In P oal Tota P P 30,642,690 15,787,392 3,436,272 P 4,538,713 P 4,871,187 21,655,179 539,879 893,975 472,647 8,987,511 102,625 ) Maynilad Water Services, Inc. 2012 Annual Report 122 ) 109,600 876,371 671,585 984,828 31,933,754 22,537,748 P 4,421,507 3,318,086 5,315,600 16,236,177 9,396,006 P P Tota l Total -Gross (In P -Gross Total 4,164,991 P 53,417 48,987 P (53,417) P (48,987) – – – – – Effect on Income Before Tax Before on Income Effect Effect on Income Before Tax Before on Income Effect $15,319 $2,500 $121,250 2011 2011 Total - Gross (In US$) (In Gross - Total 2011 2012 – – – – – – 4,164,991 P 3,318,086 $121,250 16,236,177 Within 1 Year Within $100,856 P P More than 1 Year More -50 -50 +50 +50 – – – – 876,371 6.09% 4.30% $15,319 984,828 $2,500 P P Within 1 Year Within Increase/Decrease in Basis Points Increase/Decrease Increase/Decrease in Basis Points Increase/Decrease 10,446. * Excludes cash on hand amounting to P to on hand cash amounting * Excludes * Noncurrent - local Noncurrent Noncurrent - local Noncurrent Service concession obligation payable MWSS: concession to Service rate Interest - foreign Current Current - foreign - foreign Current Liabilities: loans: Interest-bearing rate Interest Floating rate borrowings Floating rate Current - local Current Short-term cash investments - cash investments Short-term cash equivalents Cash and days)* (1-90 Floating rate borrowings Floating rate Noncurrent - foreign Noncurrent Noncurrent - foreign - foreign Noncurrent

Current - local Current Foreign Currency Risk Currency Foreign will financial instruments of value future or value risk that fair risk is the the currency Foreign rates. exchange changes in foreign because of fluctuate against Peso Philippine the of primarily movements from results risk currency foreign Company’s The currency foreign of servicing The Japanese the Yen. and Euro European Dollar, States United the Revenues Agreement. Concession the of requirements is among the MWSS of loans denominated Concession the as part of is a mechanism in place there However, Peso. in Philippine generated are fluctuations through currency recover can consumers) end the (or Company the wherein Agreement Office. Regulatory the by that is approved FCDA the The following table demonstrates the sensitivity of the Company’s profit before tax to a reasonably a to tax before profit Company’s the of sensitivity the table demonstrates following The all variables with 2011, and 31, 2012 December ended years the for rates possible change in interest based on the are estimates The borrowings). on floating rate impact the (through held constant than equity other Company’s is no impact on the There management’sannual financial forecast. income. affecting already those 123 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS financial forecast.financial estimates inthe movement of the foreign exchange rates were basedonthe annual management’s in the fair value of monetary assets and liabilities) and equityasatDecember 31,2012 and 2011. The exchange rates, with heldconstant, variables all of the Company’s profit before tax (due to changes The following demonstrates table inforeign change the sensitivitytopossible areasonably Philippine of Peso equivalent eachasatDecember 31,2012 and 2011 ispresented asfollows: Information onthe Company’s foreign currency-denominated monetary assets and liabilities and the JPY Euro U.S Dollar JPY Euro U.S Dollar 2012 short-term investments andCash and cashequivalents Asset short-term investments andCash and cashequivalents Asset Service to concession MWSS obligationpayable Interest-bearing loans Liabilities Interest-bearing loans Liabilities denominated liabilities Net foreign currency Service to concession MWSS obligationpayable denominated liabilities Net foreign currency The spot exchange rates usedwereP The spot exchange rates usedwere P and U.S Dollar, Euro and JPY Increase/Decrease inPeso 43.84:US$1, P 41.05:US$1, P Exchange Rates +1% +1% +1% -1% -1% -1% 54.53:EUR1, and P 56.84:EUR1, and P 0.48:JPY asatDecember 31,2012. 0.56:JPY1as atDecember 312011. Foreign Exchange Rate ($123,750) ($202,137) (202,540) ($218,016) ($121,250) US Dollar US Dollar (218,396) (78,790) (97,146) $403 $380 54.53 54.53 41.05 41.05 0.48 0.48 (In Thousands) (In Thousands) (€1,256) (€990) (1,256) (1,256) 2012 2012 (990) (990) Euro Euro €– €– €– €– Effect onIncome Before Income Tax (39,869) (9,705) 39,869 (540) 9,705 540 (¥2,027,420) (¥2,779,180) (2,027,420) (2,027,420) (2,779,180) (2,779,180) JPY JPY ¥– ¥– ¥– ¥– Maynilad Water Services, Inc. 2012 Annual Report 124 – 714 2011 (714) 15,675 88,617 98,089 4,164,991 (15,675) (88,617) 8,072,888 1,774,993 2,034,815 P P Income Tax Income 1.2 billion in 1.2 billion Effect on Income Before Before on Income Effect 1.3 billion, and P and 1.3 billion, 0.56 0.56 56.84 56.84 43.84 43.84 2012 14,085 92,247 7,745,749 3,884,146 1,222,357 2,532,914 P P 1.0 billion, P billion, 1.0 Foreign Exchange Rate Exchange Foreign 10,446 as at December 31, 2012 and 2011, respectively. 2011, and 31, 2012 as at December 10,446 -1% -1% -1% +1% +1% +1% Exchange Rates Exchange 22,190 and P and 22,190 Increase/Decrease in Peso in Peso Increase/Decrease and U.S Dollar, Euro and JPY JPY and Euro Dollar, U.S and Euro JPY JPY Dollar U.S Euro Deposits and sinking fund (see Note 7) Note (see sinking fund Deposits and deposits** Miscellaneous risk exposure credit Total Short-term investments Short-term 6) Note (see - net receivables other and Trade Cash and cash equivalents* (see Note 5) cash equivalents* Note Cash and (see 2011 Dollar U.S 2012, 2011, and 2010, respectively, mainly arising from the translation of the Company’s cash and cash and Company’s the of mainly translation the from arising respectively, 2010, and 2011, 2012, concession service and loans interest-bearing deposits, investments, cash equivalents, short-term and loans on interest-bearing loss exchange foreign net the obligation payable However, MWSS. to mechanisms recovery exchange foreign to subject is payable obligation MWSS concession to service Agreement. Concession the under Risk Credit or a financial instrument its obligations under meet not will risk that a counterparty risk is the Credit leading a financial loss. to contract, customer policy Company’s parties. It is the third creditworthy recognized, only with trades Company The to terms credit offer cases, it does not highly other meritorious and fees connection for that except high. relatively are Company the collections historical of Being a basic need service, its customers. ongoing basis with on an monitored are balances Receivable dispersed. is widely exposure Credit significant. is not bad debts to exposure that Company’s the result the cash consisting of Company, the of financial assets other the risk arising from credit to respect With miscellaneous and sinking fund and deposits cash investments, cash equivalents,and short-term a with counterparty, the of default risk arises from credit to exposure Company’s the deposits, only transacts Company The instruments. these of carrying amount the equal to exposure maximum past 5 years. the for financial soundness demonstrated which have banks institutions or with risk. credit of has concentrations Company no significant The consolidated the of components the risk for credit to exposure maximum the shows table below The 2011: and 31, 2012 financial position as at December of statements The Company recognized net foreign exchange gain of P gain of exchange foreign net recognized Company The *Excludes cash on hand amounting to P to cash on hand amounting *Excludes ** Included as part of noncurrent assets in the consolidated statements of financial position. of statements consolidated in the assets noncurrent as part of ** Included 125 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS purchase contracts.purchase through the useof bank drafts, bank loans, debentures, preference and shares, finance hire leases The Company’s objective isto maintain abalance between continuity of funding and flexibility other receivables, other assets) financial and projected cashflows from operations. planning considers the maturityof both investments itsfinancial and assets financial (e.g. trade and The Company monitors itsriskto ashortage of funds usingarecurring liquidityplanning. Cash inability to liquidate assets or obtain adequate funding. Liquidity riskisthe potential for not meeting the become obligationsasthey duebecauseof an Liquidity Risk refundable aredeposits that upon termination normally of service. through deduction. salary For miscellaneous deposits, standard grade consistsof meter and security Company to follow them up, or those advances from officers and are employees that collected beyond from 7days customers are bill that delivery collectible even without an effort from the the from 7days maturitydate, bill delivery. normally Standard grade include receivables from For trade and other receivables, highgrade relate to those whichare collected before consistently probability of insolvency. assesses the Management of quality these assets financial ashighgrade. various banks. These are held by large prime financial institutions that have good reputation and low short-termCash and cashequivalents, investments, and deposits and sinking fund are placed in The credit of quality the assets financial was determined asfollows: based onthe Company’s experience, these receivables collected are the following normally year. Past dueaccountsPast amounting to P duenorpast impaired are asfollows: As atDecember 31,2012 and 2011, the credit per quality class of assets financial were that neither

Cash and cashequivalents Miscellaneous deposits Deposits and sinkingfund Trade and other receivables Cash and cashequivalents Short term investment Miscellaneous deposits Deposits and sinkingfund Short term investments Trade and other receivables Neither Duenor Past Impaired Neither Duenor Past Impaired High Grade High Grade P P P P 1,054,090 1,774,993 3,906,336 1,222,357 6,994,074 6,325,542 1,182,764 4,164,991 14,085 0.7 billion asatDecember 31,2012 and 2011 are not impaired since – – – P Standard Standard 674,864 t92,247 327,419 98,089 425,508 P 767,111 P P – – – – – – not Impaired Past Duebut Past not Impaired Past Duebut Past P P 653,306 675,286 653,306 2012 2011 675,286 P P – – – – – – – – P Impaired 1,003,215 P Impaired 1,003,215 1,124,661 1,124,661 P P – – – – – – – – P P P 3,038,030 P 3,657,575 1,774,993 8,892,600 3,906,336 1,222,357 9,076,103 4,164,991 98,089 92,247 14,085 oal Tota oal Tota – Maynilad Water Services, Inc. 2012 Annual Report 126 – Tota l Tota l Tota l Tota l 14,085 617,712 92,247 98,089 41,815,124 4,164,991 542,055 7,767,939 8,987,511 42,181,738 8,072,888 1,222,357 3,906,336 1,774,993 2,532,914 2,034,815 23,036,977 22,085,570 9,396,006 8,840,086 P P P P 10,490,945 P P P P – – – – – – – – – – – – P P P P Months Months Months 617,712 542,055 21,551,777 31,792,222 1,958,797 Due after Due after 7,739,593 12 Months 32,051,877 7,974,985 Due after Due after 2,800,601 12 Months 12 Months P 20,658,579 P Due after 12 Due after Due after 12 Due after P P – – – – – – – – – – – P P P 2011 689,371 2012 14,085 691,060 2012 2011 558,415 675,286 6,578,486 P 1,656,413 4,231,013 P 7,463,743 1,012,526 P 5,892,802 P P Due Between Due Between Due Between and 12 Months and and 12 Months and Due Between 3 Due Between Due Between 3 Due Between 3 and 12 Months 3 and 3 and 12 Months 3 and – – – – – – – – – – P P 794,140 92,247 799,659 868,576 707,412 425,507 Months 98,089 327,418 Months 2,570,318 2,102,022 1,776,178 P P P P 1,233,446 P P Due Within 3 Due Within Due Within 3 Due Within Due Within 3 Months Due Within Due Within 3 Months Due Within – – – – – – – – – – P P 564,096 874,098 1,150,216 564,096 874,098 7,647,381 4,164,991 6,278,909 1,222,357 3,906,336 P P 1,707,397 1,774,993 P P P P On Demand On Demand On Demand On Demand - - **Principal plus interest payment interest **Principal plus payable taxes **Excludes **Principal plus interest payment interest **Principal plus payable taxes **Excludes Miscellaneous deposits Miscellaneous Customers’ deposits Customers’ Short term investment term Short receiv other and Trade ables sinking fund Deposits and deposits Miscellaneous Trade and other payables** other and Trade Service concession concession Service obligation payable to MWSS deposits Customers’ Short term investment term Short receiv other and Trade ables sinking fund Deposits and Cash and cash equivalentsCash and Interest-bearing loans* Interest-bearing Trade and other payables** other and Trade obliga- concession Service tion payable MWSS to Interest-bearing loans* Interest-bearing Cash and cash equivalentsCash and The table below shows the maturity profile of the Company’s financial assets based on contractual based on contractual financial assets Company’s the of maturity profile the shows table below The 2011: and 31, 2012 as at December cash flows undiscounted The tables below summarize the maturity profile of the Company’s financial liabilities as at financial liabilities Company’s the of maturity profile the summarize tables below The payments. undiscounted based on contractual 2011 and 31, 2012 December 127 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS 25. and liabilities financial asatDecember 31,2012 and 2011: The following summarizes table the carryingvalues and fair values of the Company’s assets financial AssetsFinancial and Liabilities Financial covenants into consideration. a capital expenditure program and dividend declaration keeps policy that the compliance of these bearing debt and total liabilities. monitors The Company itsdebt covenants closely and maintains For purposesof monitoring debt ratio covenants, the Company computes usingboth interest- sinking fund. To compute itscapital, the Company usesnet equity. the outstanding less short-term cashandpayables, cashequivalents, investments, deposits and term interest-bearing loans, service to concession MWSS and obligationpayable trade and other For purposesof computing itsnet debt, the Company includes the outstanding balance of itslong- dividend to shareholders. payments target isto bemaintained over the next 5years bythe Company’s managing level of borrowings and is net debt divided by total capital plus net debt. The Company’s target gearingratio is75%. This itscapital manages The structure Company closely vis-a-vis acertain target gearingratio, which shareholder value. a healthy capital structure inorder to maintain astrong credit standing itmaximizes while The primaryobjective of the Company’s capital strategy management isto ensure itmaintains that Capital Management Net equity and debt (b) Total Assets Financial Cashand cashequivalents Loans and receivables: AssetsFinancial Net equity Net debt (a) (see Notes 5and 7) Less short-term cashand cashequivalents, investments, deposits and sinkingfund (see Note 11) Trade and other payables (see Notes 10and 12) Interest-bearing loans and service to concession MWSS obligationpayable Gearing ratio (a/b) Miscellaneous deposits Deposits and sinking fund Trade and other receivables Short-term investments count) (included under “Other noncurrent assets” ac- account) (included under “Other current assets” Carrying Value P P 2,532,914 3,906,336 1,222,357 7,767,939 92,247 14,085 2012 P P Fair Value 2,532,914 3,906,336 1,222,357 7,757,945 82,253 14,085 P 36,666,443 P (5,142,778) 30,642,690 Carrying Value 16,725,371 53,391,814 11,166,531 P P 2012 69% 2,034,815 1,774,993 8,083,334 4,175,437 98,089 – 2011 P (5,950,430) P 35,520,373 12,328,593 47,848,966 9,477,049 31,933,754 P Fair Value P 2,034,815 1,774,993 8,085,271 4,175,437 97,326 74% 2011 – Maynilad Water Services, Inc. 2012 Annual Report 128 – 2011 539,704 270,145 23,359,871 9,339,315 40,338,510 7,099,620 Fair Value Fair P P P 2011 – 137,734 as at 31,December 137,734 139,040 2011 41,412,109 P 9,339,315 22,537,748 9,396,006 P P 1,033,888 P Carrying Value 245,196 and and 245,196 P 574,022 46,186,464 22,085,570 10,921,335 Fair Value Fair 12,605,537 P P 2012 316,950 1,080,802 P 2012 206,278 8,987,511 21,655,179 41,770,303 10,921,335 P P Carrying Value are not based on observable market data. market based on observable not are value are observable, either directly or indirectly. directly or either observable, are value Noncash operating activity - Noncash operating 12) 9 and Notes (see fees Unpaid concession Noncash investing activity - Noncash investing Hydro Phil of acquisition the to related Unpaid consideration 4) Note (see Service concession obligation payable to MWSS to payable obligation concession Service deposits Customers’ Trade and other payables* other and Trade Financial Liabilities financial liabilities: Other loans Interest-bearing Total Financial Liabilities Total Trade and other payables exclude taxes payable payables agencies taxes other and to to government amounting exclude Trade 2012 and 2011, respectively. 2011, and 2012 Level 3: techniques which use inputs which have a significant effect on the recorded fair value that value fair recorded on the effect a significant which use inputs which have 3: techniques Level Information Flow Cash of Supplemental Disclosure The following methods and assumptions were used to estimate the fair value of each class of of each class of value fair the estimate to used were assumptions and methods following The value: such which it is practicable estimate to for financial instrument Sinking and Deposits Receivables, Other and Trade Investments, Short-term Equivalents, Cash and Cash carrying the transactions, these of nature short-term the Payables. Due to Other and Trade and Fund, date. reporting as at the values fair the approximate values fair estimated the approximates carrying value the loans, floating rate For Loans. Interest-bearing the loans, rate fixed For rates. interest of quarterly repricing due to date reporting as at the value applicable using the rates cash flows future of value discounted is based on the value fair estimated financial instruments. of types similar for Deposits. Customers’ Obligation Payable and Concession MWSS to Service Deposits, Miscellaneous applicable using the rates cash flows future of value discounted is based on the value fair Estimated financial instruments. of types similar for Hierarchy Value Fair financial of value fair disclosing the and determining for hierarchy following uses the Company The technique: valuation by instruments liabilities. or assets identical for markets in active prices (unadjusted) 1: quoted Level fair recorded on the effect which all a significant inputs which have for techniques 2: other Level There value. at fair is measured AFS investment Company’s the 2011, and 31, 2012 As at December 2011. and 31, 2012 as at December value at fair recognized liabilities and financial assets no other are * 26. 129 Changing Tides Financial Statements NOTES TO CONSOLIDATED FINANCIALSTATEMENTS 26. purchase pricepurchase of P Parent Company issubjectto the rightof refusal first of the existing shareholders of SubicWater. of SubicWater and Sewerage Co., Inc.(SubicWater) for abidprice of P Olongapo City’s 915,580common “A” shares representing 10%of the outstanding capital stock 18,2013, the ParentOn January Company was declared asthe winning bidder of for the sale Event after the Reporting Period 210.6 million. The award of and OlongapoCity’s sale shares inSubicWater to the 230 per share, or atotal Maynilad Water Services, Inc. 2012 Annual Report 130 MWSS Compound, Katipunan Avenue, Balara, Quezon City, Philippines www.mayniladwater.com.ph Tel. No.: 981 3333