Metro Pacific Investments Corporation is a Philippines based, publicly listed, investment and management holding company with businesses in water utility, real estate development and hospital care. More information about MPIC can be accessed at www.mpic.com.ph Mission and Vision

To become one of the largest business conglomerates in the Philippines, accelerating national economic development by creating long-term value for our shareholders through prudent management of key assets in vibrant sectors of the economy.

Corporate Structure

METRO PACIFIC INVESTMENTS CORP.

DMCI-MPIC Water Co., Inc. Metro Pacific Corp. Landco Pacific Corp. Medical Doctor’s, Inc./ Makati Medical Center 50% 97% 51% 33%

Maynilad Water Services, Inc.

84%

Contents

2 Financial Highlights 4 Chairman’s Letter 6 President’s Message 10 Board of Directors and Officers 14 Maynilad Water Services, Inc. 18 Landco Pacific Corporation 24 Medical Doctor’s, Inc. (Makati Medical Center) 27 Corporate Governance 29 2007 Audited Financial Statements Financial Highlights

Growth in our overall investment portfolio, as well as the contribution from our existing operating companies, are expected to improve our core net income in 2008 compared with 2007.

2007 Significant Events

January May July Completed sale transaction of 83.97% of MPIC completed new investment in Makati Maynilad overhauled the entire 18-kilometer Maynilad Water Services Company to MPIC Medical through subscription of Pesos pipeline network of Paco and Pandacan and its partner, DMCI Holdings. 750 million in Convertible Subordinated for Pesos 147 million to benefit 18,336 Notes issued by Medical Doctors (Clinica households with clean and improved water March Hilario), Inc. with mandatory conversion into pressure. Landco formed a joint-venture with the direct ownership of 33% in Makati Medical Villalon Family of Cebu City to develop and Center. August sell a 210-hectare mountain-side property Maynilad signed agreements with its named Monterrazas de Cebu as an June lenders and the government to pave the ultimate residential and leisure estate. Landco formed a joint-venture with the way for early exit from rehabilitation. Lazatin Family of San Fernando, Pampanga Maynilad allotted P5 billion capital for the development of a 48-hectare Makati Med inaugurated Bone Marrow expenditure program for the improvement property named WoodGrove Park Transplant unit, the second facility of its of the west zone water system. kind in the Philippines. Maynilad appointed former Bases Conversion Development Authority chairman, Rogelio L. Singson as president.

2 Metro Pacific Investments Corporation 261

(13)

September October May 2008 Maynilad completed interconnection Maynilad launched Pesos 949 million MPIC signed share purchase agreements of the Binakayan 600-mm bridge pipe program to lay 120 kilometers of new with several shareholders of Davao crossing which linked Maynilad’s supply line pipelines in Quezon City to benefit 190,300 Doctors Hospital Inc. to acquire a total of from Bacoor, Cavite to the Kawit side of people. approximately 34% of the issued share Binakayan River to provide increased water capital of the corporation for Pesos 498 supply in 18 barangays in Kawit. February 2008 million. Maynilad exited from a court-administered rehabilitation and aggressively advanced Landco launched groundbreaking in a wide-ranging expansion and facilities Samal Island to develop Playa Azalea, a improvement in line with its strategic goals. 33-hectare leisure residential destination through a partnership with Anflocor headed by business magnate Antonio Floirendo, Sr.

Annual Report 2007 3 Chairman’s Letter

Presently, MPIC is looking at the areas of healthcare, natural resources – specifically mining, agriculture, and biofuels – and infrastructure. MPIC regards these sectors as offering significant potentials because they offer key advantages: considerable market size, acceptable competitive levels, and our ability to make management inputs that can drive profitability higher.

4 Metro Pacific Investments Corporation To my fellow shareholders,

I am gratified to report on the performance for the year together with other healthcare opportunities we are looking 2007 of Metro Pacific Investments Corporation (MPIC). to realize in the near-term, will put MPIC on its way MPIC has returned to profitability in the past year, after to building a nationwide system of first-rate healthcare having spent several years diligently laboring to recover its institutions. financial strength, following the difficulties caused by the Asian financial crisis of 1997. As MPIC regains its firm footing, your Company is now fully capable – and is in fact mandated – to identify and Landco Pacific Corporation (Landco) – the only surviving pursue opportunities which could be transformational for investment as Metro Pacific Corporation transitioned to both this country and your Company. Presently, MPIC MPIC – led this watershed year by recording an historic is looking at the areas of healthcare, natural resources high net income of Pesos 261.2 million, against a net loss of – specifically mining, agriculture, and biofuels – and Pesos 12.9 million in 2006. Its recent entry into the urban infrastructure. MPIC regards these sectors as offering community segment is expected to perform as well as its significant potentials because they offer key advantages: traditional leisure property projects. considerable market size, acceptable competitive levels, and our ability to make management inputs that can drive Our positive outlook on the investment made in Maynilad profitability higher. Water Services Inc. (Maynilad) in 2006 has been fully justified, given its significant contribution of Pesos 679.9 Growth in our overall investment portfolio, as well as million to MPIC’s core net earnings for 2007. Maynilad the contribution from our existing operating companies, officially exited from its court-administered rehabilitation are expected to improve our core net income in 2008 program in early 2008, and is now positioned to make compared with 2007. Maynilad’s contribution this year significant service improvement initiatives. The considerable will be free from the financing charges incurred during the capital expenditures that will be made in expanding investment. We expect the contribution from our healthcare and raising the service quality within its West Zone investments to show improvement, with the enhancements Concession is crucial in achieving the directive to Maynilad made at Makati Medical through its Facilities Improvement Management to transform the company into a profitable, Program, and Davao Doctors providing a new source of world-class, customer-oriented company. income for MPIC.

With respect to Medical Doctors Inc. (MDI) – owner and As we continue building MPIC into a transformed business, operator of Makati Medical Center (Makati Medical)—we I would like to extend our sincerest gratitude to our converted in full the Pesos 750.0 million in Subordinated shareholders for their continued patience and support, and Convertible Notes in it at the start of 2008, giving us to our Board of Directors for their guidance. a 33.45% ownership of MDI. As the single largest shareholder in our country’s premier healthcare institution, Sincerely we are actively engaged in the strategic direction and management of Makati Medical.

MPIC’s favorable experience in Makati Medical has laid the grounds for our optimism on the healthcare industry as a whole, an optimism which is reflected in our recent Manuel V. Pangilinan acquisition of a 34% interest in Davao Doctors Hospital Chairman (Clinica Hilario), Inc. (Davao Doctors). As with Makati Medical in Metro Manila, DDH is the leading hospital 30 June 2008 in the Southern Mindanao area. This recent investment,

Annual Report 2007 5 Letter from the President and Chief Executive Officer

To my fellow shareholders,

Metro Pacific Investments Corporation delivered its first Maynilad’s core net income contribution from operations, full year of robust business and financial results in 2007. net of financing charges and transaction expenses incurred We have met the challenge to return the Company to by DMCI-MPIC Water Company (DMCI-MPIC), the financial health, clearing its debt obligations, having made investment vehicle for Maynilad was Pesos 129.4 million, management adjustments that have produced improved representing 46.6% of MPIC’s total contribution from financial performance in our operating companies, and operations of Pesos 277.5 million. are now focused on producing consistent improvements in those companies, and growing our portfolio of investments. The exit of Maynilad from its court-administered rehabilitation will allow it to presently make significant FISCAL PERFORMANCE investments in its system improvement initiatives in the For 2007, I am pleased to report that your company short to medium term. Among these improvements is the generated core earnings of Pesos 194.9 million, compared reduction of non-revenue water (NRW). This reduction with a net loss of Pesos 25.4 million in the year 2006. in NRW is critical if Maynilad is to offer water at an Inclusive of non-recurring items, net income stood at Pesos improved pressure, over a greater part of the -- if not entire 167.9 million for this year, against a net loss of Pesos 685.9 -- day, to more customers. million in 2006. LANDCO The considerable improvement in net income for the year Landco’s net income for the year stood at Pesos 261.2 is largely attributed to the strong showing of MPIC’s two million versus last year’s net loss of Pesos 12.9 million as operating companies, Maynilad and Landco. Maynilad revenues jumped 191% to Pesos 2.08 billion from last reported net income of Pesos 1.25 billion for 2007 and year’s Pesos 712.4 million. The success of its residential contributed Pesos 679.9 million to MPIC’s core net income resort projects -- the Ponderosa Leisure Farms, Amara for the year. Landco’s results for the year showed a net en Terrazas, Playa Calatagan, Leisure Farms, Terrazas de income of Pesos 261.2 million compared with a loss of Punta Fuego and Montelago -- contributed significantly to Pesos 12.9 million last year, and provided Pesos 139.4 the increase in revenues. million in core net income contribution to MPIC. Medical Doctors Inc. (MDI) in turn contributed Pesos 10.8 million, With the launch and marketing of new projects in 2007, reflecting MPIC’s 7.5% equitized income in MDI as of end- Landco’s operating expenses rose to Pesos 884.2 million 2007. from last year’s Pesos 695.8 million, an increase of 27.1%. Net financing income in 2007 increased to Pesos 171.4 MAYNILAD million compared with Pesos 135.0 million in 2006, arising Maynilad reported net income of Pesos 1.25 billion for from significantly higher levels of installment receivables. 2007 compared with Pesos 1.00 billion last year, an improvement of 25.0%. The increase in net income for Landco’s core net income contribution was Pesos 139.4 the year can be attributed to improvements in Maynilad’s million representing 50.2% of MPIC’s total contribution key performance indicators across-the-board. Specifically, from operations for the year. non-revenue water has been reduced to an average of 66% for 2007, from 68% in 2006. Total volume of billed water MAKATI MEDICAL CENTER also improved significantly, rising 9% to 286 million cubic MDI, which owns and operates the Makati Medical Center, meters for 2007 from 262 million cubic meters last year. recorded net income of Pesos 268.5 million in 2007, up Total billed customers increased to 703,519 as of end this 20.3% from its 2006 net income of Pesos 223.1 million. year, compared with 677,985 as of end 2006, a growth of Both its hospital services and educational services posted 4%. significant increases in their gross revenue contribution.

6 Metro Pacific Investments Corporation For 2007, I am pleased to report that your company generated core earnings of Pesos 194.9 million, compared with a net loss of Pesos 25.4 million in the year 2006. Inclusive of non-recurring items, net income stood at Pesos 167.9 million for this year, against a net loss of Pesos 685.9 million in 2006.

Annual Report 2007 7 Letter from the President and Chief Executive Officer

We now have a track record of turning around large companies, with valuable learnings generated in the process. This now gives us the institutional confidence to pursue opportunities of scale, which we foresee will improve value in the short to medium term.

Among Landco’s series of Maynilad Pipe Expansion MMC Expansion Project project groundbreakings near completion

Hospital services raised its gross revenue contribution GRADING AGAINST OUR COMMITMENTS 10.9% to Pesos 2.94 billion in 2007 from Pesos 2.65 billion In my letter in the 2006 Annual Report, I had stated that in 2006. Educational services revenue increased 13.0% MPIC’s growth would derive from two areas: first, through to Pesos 83.5 million, from Pesos 73.9 million. As of the improvement of recurring revenues from our present January 17, 2008, MPIC equity interest in MDI increased operating investments, and, second, from the prospects to 33% with the exercise of its conversion right under the of potential acquisitions. As will be described in detail in Convertible Notes issued by MDI. this Annual Report, your company scored well on the first objective, with all three operating companies posting Makati Medical is currently in the final stages of its multi- significant improvement in core incomes. With respect year Facilities Improvement Program (FIP). The FIP involves to the second objective, your company devoted significant the construction of a new building to be inaugurated amounts of executive time and effort to identify, evaluate in August this year, that will house its treatment and and conclude potential acquisitions in the infrastructure diagnostic centers, thereby freeing up space in the existing and healthcare sectors. These efforts have started to bear building to provide additional patients’ room and doctors’ fruit in 2008 with the recent acquisition of a 34% equity offices, and involves as well the renovation of the existing interest in Davao Doctors Hospital. buildings. This redevelopment, renovation, expansion and upgrade program will further reinforce Makati Medical’s position as an international-standard healthcare facility and further enhance its ability to attract and retain the country’s most-respected medical practitioners and technicians.

8 Metro Pacific Investments Corporation Davao Doctors is MPIC’s first direct investment in Mindanao, and a fitting springboard for more investments from the Company into this region. As well, this investment is a momentous milestone in realizing our vision of 5 establishing a national healthcare network, and through that, help improve the delivery of health care services all over the Philippines.

Your Company is fully confident that it can meet the challenges of delivering consistently improving performance 4 from its operating companies and making new investments of substantial scale because of the sturdy underpinnings it has built into the operating companies and the extensive and thorough effort it is putting into acquiring new ventures. There is clarity in the industries we’ve targeted, 3 and your executive team fittingly aligned to pursue the areas which offer tremendous opportunities: Healthcare, Infrastructure, Utilities and Hospitality.

This single acquisition underscores the diligence with We now have a track record of turning around large which your company conducts these transactions. It is companies, with valuable learnings generated in the always among our primary considerations in deliberating process. This now gives us the institutional confidence an investment that: first, will allow us to contribute to pursue opportunities of scale, which we foresee will significant management inputs; second, is or will in turn be improve value in the short to medium term. a considerable contributor to the community in which it operates and to the country in general; third, is of sizeable We look forward to your continued support as we grow scale or growth potential; and fourth, be profitable in the your Company. short to medium term.

DAVAO DOCTORS HOSPITAL Sincerely Davao Doctors meets those criteria. Incorporated in 1966, Davao Doctors is one of the largest private hospitals in Davao City with 250 beds and considered the best medical facility in Mindanao. Davao Doctors has a wholly-owned subsidiary, Davao Doctors College Inc., which started in 1975 and is now a leading center of academic excellence Jose Ma. K. Lim among the Higher Educational Institutions in Davao President & Chief Executive Officer offering courses in nursing, radiologic technology, physical therapy, optometry, hotel & restaurant management and general education with an enrollment of approximately 4,000 students. Among its other affiliates is the Davao Doctors Oncology Center Inc. which is involved in radiation oncology. For the fiscal year ended June 30, 2007, DDH reported consolidated revenues of Pesos 1.01 billion and net profits of Pesos 134.0 million.

Annual Report 2007 9 Board of Directors

Manuel V. Pangilinan Jose Ma. K. Lim Randolph T. Estrellado Our Chairman, Mr. Manuel V. Pangilinan founded Our President & Chief Executive Officer, Jose Prior to joining Metro Pacific Investments First Pacific in 1981 and served as its Managing Ma. K. Lim joined Fort Bonifacio Development Corporation as Chief Finance Officer, Mr. Director until 1999. He was appointed as Corporation (FBDC) in 1995 as Treasury Vice Estrellado was Vice President and CFO for Executive Chairman until June 2003, when he President and was eventually appointed as its ABS-CBN Broadcasting Corporation. While at was named as CEO and Managing Director. Chief Finance Officer. To date, he continues to ABS-CBN, Mr. Estrellado managed all aspects Within the First Pacific Group, he holds the serve as a Director of Bonifacio Land Corporation, of the network’s financial operations, including positions of President Commissioner of P.T. the controlling shareholder of FBDC. With the financial planning, controllership, treasury, budget Indofood Sukses Makmur Tbk, the largest food divestment of controlling interest in FBDC, Mr. Lim and investor relations. Mr. Estrellado had served company in Indonesia. assumed the position of Group Vice President in various positions of senior responsibility with and Chief Finance Officer of FBDC’s parent the Lopez Group of Companies since 1996. He was named as Chairman of Philippine company, Metro Pacific Corporation, from 2001 He had formerly served in financial positions at Long Distance Telephone Company (PLDT), to 2003. He was elected President and CEO Phinma and P.T. Dwi Satrya Utama in Indonesia. the country’s dominant telecom company after of MPC in June 2003 where he also serves as Concurrently, he is the Chief Finance Officer of serving as its President and CEO until February Director to this day. Mr. Lim graduated from the Metro Pacific Corporation and Maynilad Water 2004. He also serves as Chairman of Metro Ateneo de Manila University, with a Bachelor Services, Inc. Mr. Estrellado has a Master’s Pacific Investments Corporation, Metro Pacific of Arts degree in Philosophy. He received his Degree in Business Administration from Harvard Corporation, Landco Pacific Corporation, MBA degree in 1978 from the Asian Institute of University and a Bachelor of Science in Business Pilipino Telephone Corporation, and Smart Management. Management, Honors Program cum laude, from Communications, Inc. the Ateneo de Manila University.

10 Metro Pacific Investments Corporation Augusto P. Palisoc, Jr. Antonio A. Picazo Amado R. Santiago III Alfred A. Xerez-Burgos, Jr. Mr. Palisoc has been with the Mr. Picazo is currently the Managing Mr. Santiago is the Managing Mr. Burgos assumed the position of First Pacific group of companies Partner of Picazo Buyco Tan Fider Partner of the Santiago & Santiago President and CEO and Chairman for over 20 years. He is currently & Santos Law Offices, a Director of Law Offices and is engaged in the of the Executive Committee of an Advisor of Metro Pacific 18, and Corporate Secretary of 38 general practice of law. He special- Landco Pacific Corporation in Investments Corporation. Prior Philippine corporations, inclusive izes in corporate litigation, which 1990 after previously working with to this appointment, he was the of 3 publicly listed companies. Mr. includes corporate rehabilitation major property companies for Executive Vice President of Berli Picazo was born in Manila in August proceedings under the Securities nearly 20 years. He is president Jucker Public Company Limited in of 1941 and obtained his Bachelor and Exchange Commission (SEC) of the Muntinlupa Development Thailand from 1998 to 2001. Mr. of Laws degree from the University Rules on Corporate Recovery and Foundation and Club Punta Palisoc earned his Bachelor of Arts of the Philippines. He passed the the Interim Rules of Procedure on Fuego, Inc., Chairman of Forest Degree, Major in Economics (with 1964 Philippine Bar Examinations Corporate Rehabilitation. He is also Lake Development Corporation Honors) from De La Salle University, with the 5th highest rating. He engaged in the practice of taxation and Director of the Red Cross and his Master’s Degree in Business obtained a Master of Laws degree, law. Mr. Santiago graduated from Philippines, Rizal Chapter. Mr. Management from the Asian Institute Major in Taxation from University of the Ateneo De Manila School of Law Burgos graduated with Distinction, of Management. Pennsylvania. in 1992 and passed the Philippine Master in Business Management at Bar Examinations given in the same the Asian Institute of Management year. in 1971.

Annual Report 2007 11 Board of Directors

(Spot for Chief Justice Panganiban)

Edward S. Go Amb. Albert F. Del Rosario Eric O. Recto Chief Justice Mr. Go retired in 2003 as Chair- The former Ambassador of the Mr. Recto has served in government Artemio V. Panganiban man & CEO of United Coconut Republic of the Philippines to the institutions such as the Philippine A consistent scholar, Chief Justice Planters Bank (UCPB). Currently, he United States of America from Octo- Deposit Insurance Corporation, Panganiban obtained his Associate serves as Chairman of the Board of ber 2001 to August 2006 earned his Philippine Export-Import Credit in Arts “With Highest Honors” and Hyundai Asia Resources, Inc. and Bachelor’s Degree in Economics at Agency, and the Central Bank Board later his Bachelor of Laws with “Cum of ASA Philippine Foundation. He is New York University. He is currently of Liquidators. In 2002, Mr. Recto Laude” and “Most Outstanding an Independent Director of Metro Chairman of Gotuaco, del Rosario served as Undersecretary of the Student” honors. He founded Pacific Investments Corporation, and Associates, Inc., BusinessWorld Department of Finance, International and headed the National Union of Metro Pacific Corporation, Pilipino Publishing Corporation, Makati Finance group, concurrent with Students of the Philippines. He is Telephone Corporation and Filipino Foundation for Education, Stratbase, serving as Undersecretary for also the recipient of several honorary Fund Inc. He is also a director of AB Inc. and is President of Philippine Privatization. Mr. Recto obtained doctoral degrees. He placed sixth Capital and Investment Corporation, Telecommunications Investment his Bachelor of Science degree among 4,200 candidates who took Vicsal Investment Corporation and Corporation. in Industrial Engineering at the the 1960 bar examinations. In 1995, Laperal Builders, Inc. He obtained University of the Philippines in 1985 he was appointed Justice of the his Bachelor of Arts Degree, magna and further earned his Masters Supreme Court, and in 2005 Chief cum laude, and did postgraduate in Business Administration at the Justice of the Philippines. studies at the Ateneo de Manila Uni- Cornell University, Johnson Graduate versity, where he currently serves as School of Management in Ithaca, member of the Board of Trustees. New York.

12 Metro Pacific Investments Corporation Senior Executives

Christopher Daniel C. Lizo Edward A. Tortorici presently the Assistant Vice President for Media Mr. Christopher Lizo started as an auditor for As an Executive Advisor for MPIC, Mr. Tortorici and Corporate Communications designated Metro Pacific Group in 1993 and has 15 years has contributed more than 30 years of experience to implement and execute the communication of work experience in the areas of financial in various capacities in senior and executive programs of the company. management and controllership. In the year management positions to guide the group’s 2000, he was appointed as Treasury Manager strategic planning, corporate restructuring and Jose Noel C. de la Paz and successfully handled the debt restructuring productivity improvement. Presently, he oversees As MPIC’s Director for Corporate Development, program of MPC. Mr. Lizo is currently the the corporate strategy and business undertaking Mr. de la Paz joined MPIC in 2007 to be Comptroller of Metro Pacific Investments of the companies under MPIC and holds responsible for the acquisition and investment Corporation and oversees the administration, directorship in First Pacific Company Limited, initiatives of the company beginning with the finance, credit risk management, budget and Metro Pacific Corporation, Landco Pacific identification of projects, preliminary evaluations, accounting departments of the company. Corporation and Maynilad Water Services, Inc. due diligence, investment structuring, negotiations and internal recommendations. He has over Denis R. G. Lucindo Melody M. del Rosario 20 years of investment banking experience, Joining MPIC in 2007 as Assistant Vice President Ms. Del Rosario has been in Metro Pacific arranging financings and rendering financial for Investor Relations, Mr. Lucindo is responsible Group’s service since 1993 with over 15 years advisory services for various corporate financial for the management of the current and of experience in the field of public relations and transactions, mergers, acquisitions, expansions, prospective shareholders and investor relations corporate communications. Starting as Marketing and management. He was the Philippine Deputy aspect of the company. Prior to joining MPIC, he Assistant for Metrovet, Inc., she then joined the Country Head for New York-based Bankers Trust was the Managing Director and founding partner public affairs group of Metro Pacific Corporation Company that originated and lead managed of Contract Publishing and Marketing, Inc. from and has held various positions in public relations global bond offerings and bank loan syndications, 2004 handling all aspects of the business. He dealing with media, business regulations, and worked on advisory engagements for major worked with Smart Communications, Inc. from corporate communications and corporate project financings in the country. 2002 to 2003 as Brand Manager for Addict events, including the activities and affairs of the Mobile to define and create the business and Metro Pacific Foundation. Ms. Del Rosario is marketing plan of the new product.

Denis Lucindo Christopher Daniel Lizo Edward Tortorici Melody del Rosario Noel de la Paz AVP-Investor Relations Comptroller Board Advisor AVP - Media and Director - Corporate Communications Corporate Development

Annual Report 2007 13 Maynilad Water Services, Inc. (Maynilad)

1.25

1.0

.75

.50

.25

0

2007 Highlights 2007 marked a year of revolutionary changes in Maynilad, UÊ Óx¯Êˆ˜VÀi>Ãiʈ˜Ê iÌʘVœ“iÊ̜Ê*iÜÃÊ£°ÓxÊvÀœ“Ê which sets in motion the roadmap to sustainable growth Pesos 1 billion geared to jump-start in 2008. After completing the UÊ œÀiʘiÌʈ˜Vœ“iÊVœ˜ÌÀˆLṎœ˜Ê>ÌÊ*ÈǙ°™Ê“ˆˆœ˜ÊÊÊ acquisition through a joint venture that formed DMCI- representing MPIC’s 42% attributable share MPIC Water Corporation in January 2007, Maynilad’s 25- UÊ /œÌ>ÊۜÕ“iʜvÊLˆi`ÊÜ>ÌiÀʈ“«ÀœÛi`ÊÈ}˜ˆwV>˜ÌÞ]ÊÊÊ year exclusive concession servicing 6.2 million population rising 9% to 286 million cubic meters for 2007 from of Metro Manila’s west zone is currently driven by key 262 million cubic meters last year. priority goals outlined to steer the company into increased UÊ /œÌ>ÊLˆi`ÊVÕÃ̜“iÀÃʈ˜VÀi>Ãi`Ê̜ÊÇäÎ]x£™Ê>ÃʜvÊi˜`ÊÊ profitability. this year, compared with 677,985 as of end 2006, a growth of 4%. Of primary importance is the improvement of its network UÊ ÝˆÌi`ÊVœÀ«œÀ>ÌiÊÀi >LˆˆÌ>̈œ˜Êˆ˜ÊiLÀÕ>ÀÞÊÓään operational efficiency by increasing Billed Volume (BV) UÊ *iÜÃÊ{{‡Lˆˆœ˜ÊV>«ˆÌ>ÊiÝ«i˜`ˆÌÕÀiÊ«Àœ}À>“ÊvÀœ“ÊÊÊ and reducing Non Revenue Water (NRW) levels. Thus, 2008 to 2012 improvements in major pipelines, rehabilitation of pumping UÊ œ“«iÌi`Ê*iÜÃÊxÊLˆˆœ˜ÊV>«iÝʈ˜ÊÓääÇÊvœÀÊ«ˆ«iÊÊÊ stations and installations of pressure regulating valves are network improvements; with an additional Pesos 8 all part of the continued operational upgrading expected billion earmarked for 2008. to bring down the NRW level to 62% from 68% when the UÊ 1˜`iÀÜi˜ÌÊiÝÌi˜ÃˆÛiÊVœÀ«œÀ>ÌiÊÀiœÀ}>˜ˆâ>̈œ˜Ê̜ÊÊÊ joint venture first acquired Maynilad. establish goals and strategic direction

14 Metro Pacific Investments Corporation Maynilad Water Service Area

Service Area : 540 SQ.KM Treatment Plants : 2 NRW : 66 % Population Served : 7.52 M Pump Stations : 11 07 Revenue : US$179M No.of Customers : 703,519 Distribution Lines : 5,424 KM Service Coverage : 72% No. Employees : 1,555 Production : 2282 MLD Ratio/1000 wsc : 2.2 Business Centers : 15 Billed Volume : 777 MLD Zones : 135 Hydraulic Areas : 36

Annual Report 2007 15 Maynilad Water Services, Inc.

2007 marked a year of revolutionary changes in Maynilad, which sets in motion the roadmap to sustainable growth set to jump-start in 2008. After completing the acquisition through a joint venture that formed DMCI-MPIC Water Corporation in January 2007, Maynilad’s 25-year exclusive concession servicing 6.2 million population of Metro Manila’s west zone is now driven by key priority goals outlined to steer the company into increased profitability.

Singalong Pipe Laying Project SSS Village Inauguration

Towards this goal, metering of 130 zones and sub-zoning A Commitment to Fulfill its CAPEX Programs is underway to closely monitor BV and NRW, while Maynilad has allocated Pesos 44 billion for the Capital adopting new collection and disconnection policies and Expenditure Program from 2008 to 2012, with Pesos 5 practices. billion already utilized in 2007 for project expansion and improvements. Maynilad also undertook administrative measures to enhance the organizational structure by right-sizing its More residents in the southern portion of Maynilad Water’s number of employees and maximizing operational efficiency West Zone concession are now enjoying increased water and service levels. Under the Right-sizing and Redundancy supply and pressure with the completion of several Capital Program (RRP), Maynilad secured the ideal number Expenditure Projects (CAPEX) worth around P8 billion. of highly-skilled and competent manpower required to reduce overlapping responsibilities and ensure increased Implementation of Pesos 298 million expansion project productivity. Special retirement packages for 771 employees in Paranaque, after 22 years of relying on water vendors enlisted in the program were extended health benefits and and deep wells for their water supply, is already paving entrepreneurship support to equip in their future endeavors the way for the provision of adequate and satisfactory while efforts for a culture change promoting a mindset for water services. About 2,750 households in 9 subdivisions excellence through a series of values formation programs and 201 commercial establishments in the areas of San were inculcated organizationally to transform Maynilad Dionisio, San Isidro, Better Living, Marcelo Green, San into a highly efficient, financially viable and consumer- Isidro, Moonwalk, Sun Valley and San Martin de Pores oriented water utility company. were finally connected to Maynilad Water’s pipe network.

16 Metro Pacific Investments Corporation Around Pesos 879 million of Maynilad’s total Pesos With continued operational improvements, Maynilad 33 billion 9-year Capital Investment plan for the West expects to bring down the NRW level by 62% the end of Zone has been allocated to install 173 km of pipeline in 2008 with its CAPEX investment cost of P8 billion. Apart Paranaque. from improving water service, the new pipelines will help address the problem of physical losses and bring down the These newly completed major CAPEX projects include 65 percent Non-Revenue Water. the 800-mm pipeline in the Binondo area, the filling up of the gaps of the LMAQ-3 pipeline in Sampaloc, Manila, World-Class Standards for Quality and Environmental the 1,200-mm extension pipe and 600-mm pipeline along Management Systems Roxas Boulevard in Pasay City, the MS-01 Gaps and 800- ISO certifications were awarded to Maynilad by an mm pipeline along Sucat Road, Parañaque City, and the independent auditing body in the Philippines, for having construction and rehabilitation of new pumping stations earned the distinction of being the only water treatment and reservoirs at various points in the West Zone. plants in Metro Manila to meet international standards for Quality Management Systems in its La Mesa Treatment Complementing the pipe improvement projects is the Plants 1 and 2. The first and only sewage and septage rehabilitation of pumping stations and reservoirs, treatment facility in the Philippines and Asia Pacific to which will push the water supply through the network meet world class standards for Quality and Environmental to Maynilad’s over six million customers. The upgrade Management Systems was conferred to Maynilad’s of pumping stations in Espiritu, Ermita, Caloocan Dagat-Dagatan Sewage and Septage Treatment Plant and Algeciras has been completed, while the new one for maintaining high standards of ensuring waste water Commonwealth is now operational. Rehabilitation coming out of its facility are controlled and safe to the of pumping stations in D. Tuazon and Tondo will be environment. completed within this month. Exit from Court Administered Rehabilitation Most recently, 127 pressure regulating valves (PRVs) in On 6th February 2008, Maynilad exited from a court- selected points of the West Zone such as Malabon, South administered rehabilitation and aggressively advanced Caloocan and North Caloocan were installed, thereby a wide-ranging expansion and facilities improvement in increasing water pressure and providing longer water line with its strategic goals. Considered one of the fastest availability. In line with the company’s initiative to utilize loan settlements by companies recovering from financial new technologies, PRVS will enable better water pressure crisis, Maynilad has prepaid the utility firm’s US$ 232 management in the mainlines by controlling the flow of million outstanding debt to local and foreign bank. With water along the pipelines so it can reach more customers restrictions lifted, and having been cleared of all debts, at the time of the day when they needed it most. Excessive Maynilad has stepped up its extensive capital expenditure pressure during low demand hours can be contained and projects designed to improve service levels as part of the used to fill-up existing reservoirs for peak hour supply company’s goal to provide safe, reliable 24-hour water requirements. supplies to businesses and households.

Annual Report 2007 17 Landco Pacific Corporation (Landco)

2007 Highlights due to strong economic growth, lower interest rates and UÊ -ÕLÃÌ>˜Ìˆ>Êˆ˜VÀi>Ãiʈ˜Ê iÌʘVœ“iÊ̜Ê*iÜÃÊÓÈ£°Óʓˆˆœ˜Ê sustained attraction from Filipinos abroad. Brisk sales from Pesos 12.9 million loss in 2006 driven by from its residential resort projects and representing 84% remarkable increase in revenues of Landco’s core business revenues were largely from UÊ œÀiʘiÌʈ˜Vœ“iÊVœ˜ÌÀˆLṎœ˜Ê>ÌÊ*iÜÃʣΙ°{ʙʓˆˆœ˜ÊÊ Ponderosa Leisure Farms, Amara en Terrazas, Playa representing MPIC’s 51.0% attributable share Calatagan, Leisure Farms, Terrazas de Punta Fuego and UÊ
œV>̈œ˜ÊœvÊ*iÜÃÊÓÊLˆˆœ˜Ê >«ˆÌ>Ê Ý«i˜`ˆÌÕÀiʈ˜ÊÊÊ Montelago Nature Estates. residential projects to address the huge unserved demand for housing units. As a result of these achievements that contributed to the UÊ >}}i`ÊvœÀÊiˆÃÕÀiÊ>À“ÃÊÌ iÊ*Àœv°Ê,>>˜>˜Ê7iˆÌâÊ
Ü>À`ÊÊ property boom and the rush of excitement into the leisure and the top slot in the Rehovot Approach Integrated market, Landco has lined-up several lifestyle products Development Projects competition from over one responsive to the needs of different property buyers. hundred entries in more than 80 countries worldwide UÊ >՘V i`Ê>ÊÀiLÀ>˜`ˆ˜}ÊV>“«>ˆ}˜Ê̜ÊVœ˜ÛiÞÊ>˜`VœÊÊÊ At the Cutting Edge of Every Segment in Real Estate as a name synonymous to leisure living and fulfilling its The first quarter of the year initiated the groundwork for commitment of delivering high-end, exclusive, first-class the development of 220-hectare hillside property in Cebu real estate developments. into a high-end residential community estimated to cost at least Pesos 5 billion. Considered one of Landco’s largest Landco, the leader in resort and leisure lifestyle concepts, and most ambitious mixed-use residential developments achieved substantial take-up from its projects in 2007 in the region, the project will be developed over a period

18 Metro Pacific Investments Corporation LPC is currently developing 17 projects and has sold approximately 6,800 units

Project Area (in ha) Total Units Un its Sold Remaining % completed Completion Inventory date (in Php bn) Amara en Terrazas 2 95 73 0.2 50% 2008 Hacienda Escudero (Phase 1) 29 315 166 0.7 7% 2009 Lakewood Golf Estates 178 1,127 666 1.2 16% 2010 Leisure Farms 124 471 452 0.8 100% 2005 Montelago Nature Estate (Phase 1) 34 906 316 0.4 42% 2010 Monterrazas de Cebu (Peaks) 89 112 6 10.1 13% 2009 Pacific Heights 32 287 278 0.1 95% 2008 Peninsula de Punta Fuego 88 650 650 2.0 100% 2004 Playa Calatagan 79 1,198 555 1.2 31% 2010 Ponderosa Leisure Farms 70 574 513 1.4 92% 2008 Ridgewood Park 12 300 294 0.1 100% 2000 Stonecrest 42 476 305 1.3 100% 2002 Terrazas de Punta Fuego 83 746 539 1.9 63% 2009 Tribeca (Cluster 1) 10 670 388 1.3 2% 2011 Waterwood Park 42 1,208 985 0.7 70% 2009 Woodside Garden 30 544 481 0.2 85% 2008 Woodside Park 30 1,369 167 0.5 14% 2010 Total 974 11,048 6,834 24.1

Annual Report 2007 19 Landco Pacific Corporation

Landco, the leader in resort and leisure lifestyle concepts, achieved substantial take-up from its projects in 2007 due to strong economic growth, lower interest rates and sustained attraction from Filipinos abroad.

TRIbeca Hacienda Escudero Waterwood

of up to 15 years. Named Monterrazas de Cebu, the In October 2006, Landco signed a joint venture agreement development is set in 8 contiguous hills with a ridge with ATR Kim Eng Land, Inc. for a Pesos 8 billion project spanning more than 3 kilometers that will offer premium investment over the next 10 years. This development, residential lots, townhouses and condominiums. known as TRIbeca, is a 15-building condominium development in a 9.7-hectare property strategically located In March, the The Peak’s Central Park was inaugurated in Sucat, Muntinlupa. The construction of the first 2 to mark the beginning of a new phase in Punta Fuego’s buildings that started in December 2007 has 216 units expansion. Its 6,500 square meter multi-purpose Pavillion per tower and current amenities featuring a 1,800 square affords prospective lot owners a glimpse into the infinite meter Aqua Park that boasts of an infinity pool and a possibilities within the Fuego community. The Peak is a multi-activity pool for floating pads, beach pool, massage 12-hectare mountain get-away nestled in the highest point cottages, kids water play and sunken bar. Inauguration of of Terrazas de Punta Fuego. the Clubhouse took place on December 2007 and the Aqua Park on March 2008. The 6,500 square-meter Central Park at The Peak located within Terrazas de Punta Fuego is developed into 2 phases. In May 2007, a breath to a new lifestyle has finally opened Its first phase was completed in December 2006 including in the progressing town of Calasiao, Pangasinan. Woodside the pavilion and pool deck. The second phase including Park is a 30-hectare joint venture residential project in the playground, barbeque area, pathways and parking was partnership with local based developer Arcinue-Acuna completed in May 2007. The Peak is a 12-hectare mountain get Construction Ventures, Inc. An inauguration and blessing away nestled in the highest point of Terrazas de Punta Fuego. ceremonies for its entrance complex to commence the

20 Metro Pacific Investments Corporation The commitment to deliver a leisurely lifestyle is now synonymous to Landco as it creates and develops premium landmarks for various communities nationwide.

formal opening of the initial phase in Barangay Buenlag Thus, the commitment to deliver a leisurely lifestyle is now provided a peek into the relaxed California-Mission synonymous to Landco as it creates and develops premium inspired architectural theme. landmarks for various communities nationwide. Playa Calatagan, in Batangas has already completed Phase 1 of San Fernando, Pampanga was not behind in the real estate its development in June of 2008 and sold 70 %. Phase growth as Landco sealed with the Lazatin family a joint 2 is 95% sold while Phase 3 is 40 % sold. Phase 4 was partnership agreement for the development of a 48-hectare launched in April of 2008. property named WoodGrove Park. Being Landco’s 7th development under its hometown communities division, Hacienda Escudero Sold out 80% of Aldea del Palmeral the province’s potential to become the metropolitan center Phase 1, featuring hacienda lots and launched Aldea del of Luzon with Clark Airport and the expressway to Subic Palmeral Phase 2 in December 2007. Completion of main is underway in transforming Pampanga as the next prime entrance, marketing office and great lawn in October countryside location. 2007, while the Phase 1 swimming pool and bath house in March 2008. Amara En Terrazas is 81% sold out as the Ensuring Continued Dominance in the completion and scheduled turnover of Casa del Mar Phase Leisure and Resort Sector 1A is scheduled to happen in May 2008, while the entire Landco is set to achieve rapid, transformative growth in complex will be completed by December 2008. 2008 by focusing on sectors that have long term growth prospects and large addressable markets in Metro Manila’s urban and primary residential and leisure second home segments.

Upcoming Projects

LEISURE COMMUNITIES HOMETOWN COMMUNITIES 1. Playa Laiya 3. Woodridge Zamboanga s,OCATION3AN*UAN "ATANGAS s,OCATION"ARANGAY,UNZARAN :AMBOANGA#ITY s0ARTNER!PLAYA,AIYA#ORPORATION s0ARTNER$-7ENCESLAO!SSOCIATES s4ARGET,AUNCHST(ALF s4ARGET,AUNCHST(ALF s$ESCRIPTION,INEDUPONA KILOMETERSTRETCHOFWHITE s$ESCRIPTIONA HECTARERESIDENTIALDEVELOPMENT sand, Playa Laiya is a 144-hectare project envisioned to CATERINGTO:AMBOANGASMOSTPROMINENTFAMILIESTHATWILL become the largest beach community and the hub of have a Southern Californian architectural theme. beach tourism in Southeastern Luzon.

2. Playa Azalea HOTELS & RESORTS s,OCATION"ARANGAY,IMAO 3AMAL)SLAND 4. Playa Calatagan Resort & Hotel s0ARTNER!NmOCOR s,OCATION7HEREIN0ALAYA#ALATAGAN s4ARGET,AUNCHND(ALFOF s0ARTNER0ALACIO6ILLAGE#OPORATION s$ESCRIPTION!CONTIGUOUSPROPERTYOFHECTARESOFGENTLY s4ARGET,AUNCH#OMPLETIONTARGETONLASTQUARTEROF sloping terrain, the ridge provides excellent views of Davao s$ESCRIPTION! HECTARE MIXED USEBEACHSIDELEISURE City and Davao Gulf, and on a clear day, a view of commercial tourism hotel with 68 rooms. Mt. Apo. The development will have an Asian-Tropical theme of architecture.

Annual Report 2007 21 Landco Pacific Corporation Roster of Revenues-Driven Projects

Leisure Communities Landco presents a multitude of avenues where one can truly enjoy unique leisure experiences to suit one’s lifestyle through premier seaside and non-seaside residential communities. Landco’s leisure philosophy is seamlessly woven in the development’s concept, architectural design, landscape plan and the actual customer experience.

Experience it at premiere developments like Peninsula de Punta Fuego, Terrazas de Punta Fuego, Playa Calatagan, Leisure Farms, Ponderosa Leisure Farms, and Hacienda Escudero.

Pensinsula de Punta Fuego Terrrazas de Punta Fuego Amara en Terrazas Leisure Farms Nasugbu, Batangas Nasugbu, Batangas Nasugbu, Batangas Lemery, Batangas

Ponderosa Leisure Farms Hacienda Escudero Playa Calatagan Silang, Cavite San Pablo, Laguna Calatagan, Batangas

Hometown Communities These are master planned developments that take into consideration the needs and demands of first-home buyers. Landco’s crebility is further heightened by building prime addresses outside of the city that buyers can be proud of owning. The leisure philosophy is apparent with the way the amenities are planned, architecture design, and the feel of the whole community. WoodGrove Park, Waterwood Park, Montelago Nature Estates,and The Courtyard at Lakewood Golf Estates are the superior developments under this division.

Lakewood Golf Estates Woodgrove Park Waterwood Park Cabanatuan City, Nueva Ecija San Fernando, Pampanga Baliuag, Bulacan

Woodside Garden Village MonteLago Nature Estates Urdaneta City, Pangasinan San Pablo City, Laguna

22 Metro Pacific Investments Corp.Corporation Urban Communities For city dwellers who do not have the luxury of time to take a trip out of town, Landco’s urban communities offer varied ways to unwind without going through the hassle of packing and driving. With an arm’s reach, one can encounter a resort-like experience just as quickly and easily as stepping out of one’s condo units.

Catch a sight of the resort expertise that Landco is best known for in their condominium and residential city developments. Developments such as TRIbeca, Stonecrest, and Monterrazas de Cebu are crafted with convenience and relaxation in mind.

Stonecrest TRIbeca Monterrazas de Cebu San Pedro, Laguna Barangay Sucat, Muntinlupa City Guadalupe, Cebu City

Malls & CBDs With modern amenities and exciting theme, Pacific Mall captivates everybody’s buying senses with its wide-array of shops to choose from. A showcase of exciting mall features and facilities worth exploring, Landco’s Pacific Malls are located in Legazpi City, Albay and Lucena City, Quezon; while NE Pacific Mall is located in Cabanatuan City, Nueva Ecija. Pacific Mall is an all-time leisure complex offering only fun and entertainment at its best.

Pacific Mall Legazpi Pacific Mall Lucena NE Pacific Mall Legazpi City, Albay Lucena City, Quezon Cabanatuan City, Nueva Ecija

Landco Corporate Center, Davao City

Memorial Parks Forest Lake memorial parks are nature themed perpetual care parks located in Iloilo, :AMBOANGA $AVAO 'ENERAL3ANTOSAND"I×ANBLESSEDWITHVERDANTSPRAWLINGLANDSCAPES and inherent natural features that are complemented with modern memorial park facilities. The concept of harmonizing natural beauty with value-generating amenities defines the Forest Lake standard.

"I×AN ,AGUNA )LOILO#ITY Davao City, Gen. Santos City :AMBOANGA#ITY %AST:AMBOANGA#ITY

Annual Report 2007 23 Medical Doctor’s, Inc. (Makati Medical Center)

2007 Highlights 2004, Makati Medical Center posted a record Pesos 223.0 UÊ -iVœ˜`ÊÃÌÀ>ˆ} ÌÊÞi>ÀʜvÊÀiVœÀ`ÊVœ˜Ãœˆ`>Ìi`Ê«ÀœwÌÃÊ>ÌÊÊ million in profits in 2006. In 2007, Makati Medical Center Pesos 268.0 million for 2007 surpassed that with Pesos 268.0 million in consolidated UÊ *iÜÃÊ£{È°äʓˆˆœ˜Êˆ˜ÊVœ˜Ãœˆ`>Ìi`ÊÀiÌ>ˆ˜i`Êi>À˜ˆ˜}Ã]ÊÌ iÊÊ net profits, a 20% improvement from the previous year. first time this has turned positive in so many years In addition, Makati Medical Center has achieved positive UÊ *iÜÃʙȣ°äʓˆˆœ˜ÊÀ>ˆÃi`Êۈ>ÊÌ iʈÃÃÕ>˜ViʜvÊVœ˜ÛiÀ̈LiÊÊ consolidated retained earnings of Pesos 146 million, after notes five years of negative retained earnings. Total stockholders’ UÊ *iÜÃÊ£°ÓÊLˆˆœ˜Êœ>˜ÊÀiÃÌÀÕVÌÕÀˆ˜}Ê>}Àii“i˜ÌÊÈ}˜i` equity increased by 63% to Pesos 3.3 billion from Pesos 1.9 UÊ *iÜÃÊÓÊLˆˆœ˜Êv>VˆˆÌˆiÃÊ>˜`ʈ“«ÀœÛi“i˜ÌÊ«Àœ}À>“ÊÊÊ billion. Cash at yearend was Pesos 1 billion, 133% higher launched. than Pesos 456 million in 2006, from Pesos 708 million UÊ
Ü>À`i`Ê,i>`iÀ½ÃÊ ˆ}iÃÌÊ œÃÌÊ/ÀÕÃÌi`Ê À>˜`Êœ`ʈ˜ÊÊ net cash from operations and Pesos 961 million from the the hospital category proceeds of the convertible notes. The hospital’s occupancy UÊ -iVÕÀi`Ê* ˆ i>Ì ÊÀi‡>VVÀi`ˆÌ>̈œ˜Ê>ÃÊ>ÊiÛiÊ6Ê rate improved to 66% from the previous year’s 63% Tertiary Hospital despite the ongoing construction and renovation projects.

Continuation of the Turnaround Story New Funding and Debt Management The dramatic turnaround of Makati Medical Center in In 18th May 2007, MPIC infused Pesos 750 million 2006 proved to be no fluke. After averaging only Pesos 7.0 into Makati Medical Center via a subscription into the million a year in consolidated net profits after tax in its 37- company’s convertible note issuance. With existing year history, with the highest at only Pesos 26.0 million in stockholders also subscribing an additional amount of

24 Metro Pacific Investments Corporation P211 million, the issue raised a total of P961 million, an operating rooms with a laminar flow system, and the latest oversubscription by P61 million. With its infusion, Metro technologies. The Annex will likewise showcase Makati Pacific gained a 33% interest in MDI on a fully diluted Medical’s Centers of Excellence: the Aesthetic Center, the basis. Bone Marrow Transplant Unit, the Oncology Ambulatory Infusion Unit, the Home Care and Hospice Center, the The cash infusion from shareholders facilitated the newly opened Dermatopathology unit (a first of its kind restructuring of P1.2 billion in loans to an 8 year in Southeast Asia that is manned by experts in both repayment term, inclusive of a 3-year grace period on dermatology and pathology to provide holistic treatment of principal payments. In so doing, MDI’s creditor banks skin diseases) and several others. affirmed the improved outlook for the company, granting MDI its support in terms of longer repayment terms and MDI also began its renovation of the old hospital building lower interest charges. beginning with the 4th and 5th floors.

Debt reduction initiatives for the year involved the take- Education and Formative Development out of two loans. With the support of the Development MDI remains committed to the education and formative Bank of the Philippines, MDI completed in May 2007 the development of the next generation of physicians. In 2007, purchase at a 17% discount, of a DEG loan of Euro 4.4 there were a total of 282 postgraduate fellows, residents million. Then in December 2007, MDI’s wholly-owned and interns undergoing comprehensive training among subsidiary RTRMS-MMC Nursing School purchased at a MDI’s 9 specialty-accredited training programs and 17 similar 17% discount its Pesos 92 million obligation with clinical departments. In the field of medical research, MDI Citibank Savings, Inc. conducted or participated in 9 onsite or multi-center Phase III clinical trials in Oncology, Psychiatry, Neurology and Facilities and Improvement Infectious Disease Medicine. MDI also initiated discussions After successfully cleaning up its house, MDI began with the University of California, San Francisco (UCSF) setting its sights on loftier visions for the future. As the that led to a formal Letter of Intent to Collaborate signed in first step in its Pesos 2 billion facilities and improvements April 2008 for mutually beneficial collaborative educational program, MDI broke ground in February 2007 to start relationships through post-graduate clinical exchange the construction of its new 14-level Annex building, programs. This is in addition to MDI’s decades-long robust scheduled for inauguration by August 2008. It promises relationship with Stanford University Medical Center to be unlike anything seen in the industry – marrying through educational “Updates on the State of Science” aesthetics with state-of-the-art medical facilities. It will seminars held yearly at MakatiMed. feature a completely new delivery room and 12 new

Annual Report 2007 25 Medical Doctor’s Inc. & Makati Medical Center

After averaging only Pesos 7 million a year in consolidated net profits after tax in its 37-year history, with the highest at only Pesos 26 million in 2004, Makati Medical Center posted a record Pesos 223 million in profits in 2006. In 2007, Makati Medical Center surpassed that with Pesos 268 million in consolidated net profits, a 20% improvement from the previous year.

Towards a Nationwide Hospital Strategy 498 million, likewise making Metro Pacific the single Following the exciting turnaround of MDI, Metro Pacific largest shareholder of DDH. announced in 2007 its plan of establishing the first nationwide chain of hospitals in the Philippines. Incorporated in 1966, DDH is one of the largest private hospitals in Davao City with 250 beds and is considered Borne out of a vision of upgrading the delivery of the best medical facility in Mindanao. DDH has a wholly- healthcare services throughout the country, this plan is also owned subsidiary, Davao Doctors College Inc., which a recognition of the attractive investment opportunities started in 1975 and is now a leading center of academic in a sector with a huge upside potential – whether in excellence among the Higher Educational Institutions in terms of funding for expansion and equipment upgrades, Davao offering courses in nursing, radiologic technology, improvements in operating performance with professional physical therapy, optometry, hotel & restaurant management, or access to the synergistic advantages of management and general education with an enrollment nationwide branding, group purchasing discounts, sharing of approximately 4,000 students. Its other affiliates/ of expensive equipment, an intra-group patient referral subsidiaries are the Davao Doctors Oncology Center system, or just key performance indicator benchmarking. Inc. (30%) and Allied Professional and Development Corporation (82.5%) involved in radiation oncology and in Davao Doctors Hospital (DDH) laundry services, respectively. The second step towards Metro Pacific’s expansion of its healthcare portfolio was announced in May 2008 when For the fiscal year ended June 30, 2007, DDH reported Metro Pacific signed a share purchase agreement to acquire consolidated revenues of Pesos 1.014 billion and net profits 34% of Davao Doctors Hospital for approximately Pesos of Pesos 134 million.

26 Metro Pacific Investments Corporation Corporate Governance

The Manual on Corporate Governance of MPIC details the standards by which it conducts sound corporate governance that are coherent and consistent with relevant laws and regulatory rules, and constantly strives to create value for its shareholders.

Evaluation Any Deviation from the Company’s Manual of Compliance with the Manual’s standard is delegated Corporate Governance to MPIC’s Corporate Governance Compliance Officer, The Company is committed to fostering good corporate a member of senior management who also holds vice governance practices including a clear understanding by president ranking. directors of the company’s strategic objectives, structures to ensure that the objectives are being met, systems to ensure Ultimate responsibility for MPIC’s adherence to its Manual the effective management of risks, and the mechanisms to rests with its Board of Directors, who also maintain three ensure that the company’s obligations are identified and (3) standing committees, each charged with oversight into discharged in all aspects of its business. specific areas of the Company’s business activities: Each January, a certification is issued to the SEC and UÊ / iÊ
Õ`ˆÌÊ œ““ˆÌÌiiʈÃÊV >À}i`ÊÜˆÌ Êˆ˜ÌiÀ˜>Ê>Õ`ˆÌÊÊÊ the PSE that the Company has fulfilled its corporate oversight over all of the Company’s transactions; governance obligations, with the most recent certification UÊ / iÊ œ“ˆ˜>̈œ˜Ê œ““ˆÌÌiiʈÃÊV >À}i`ÊÜˆÌ Êi˜ÃÕÀˆ˜}ÊÊ being filed on the 21ST day of January 2008. that membership to the Metro Pacific Board of Directors is fulfilled by qualified members; the Nomination Any Plan to Improve the Company’s Committee also ensures fair representation of Corporate Governance independent members on the Board of Directors; The Company continues to evaluate and review its UÊ / iÊ œ“«i˜Ã>̈œ˜Ê>˜`Ê,i“Õ˜iÀ>̈œ˜ÊVœ““ˆÌÌiiʈÃÊ Corporate Governance Manual to ensure that the leading tasked to ensure fair compensation practices are adhered practices on good corporate governance are being adopted. to throughout the organization.

Measures Taken to Comply with Adopted Leading Practices on Good Corporate Governance During 2007 MPIC held regular Board of Director’s meetings, each with a quorum. The Board committees also convene as needed to ensure fair corporate governance standards are being applied throughout the organization.

Annual Report 2007 27 Financial Review

Contents

29 Financial Review 33 Statement of Management’s Responsibility for Financial Statements 34 Independent Auditors’ Report 35 Consolidated Balance Sheets 36 Consolidated Statements of Income 37 Consolidated Statements of Changes of Equity 39 Consolidated Statements of Cash Flow 41 Notes to Consolidated Financial Statements Financial Review

THE YEAR ENDED 2007 COMPARED TO THE YEAR ENDED 2006

Executive Summary

1. REVENUE AND OTHER INCOME – increase of Php5.30 billion or 301%

Revenues increased by 74% to Php1.94 billion in 2007 from Php1.12 billion in 2006 mainly due to the accelerated development and the strong sales performance of Landco’s existing projects. Contributing significantly to the increase in revenues were Landco’s Leisure and Hometown Community projects which contributed Php1.14 billion and Php154.0 respectively. Other revenues in 2007 and 2006 were from the sale of the remaining units of PPT.

Additionally, share in net earnings of joint venture contributed Php1.81 billion in 2007 from a loss in 2006. The contribution came mainly from the net negative goodwill recognized in DMWC and the contribution of Maynilad. On the other hand, the increase in other income came from the reversal of the derivative loss in the Dollar Loans of the Parent Company.

2. COST AND OTHER EXPENSES – increase of Php4.06 billion or 178%

Cost of real estate sold grew in line with the increase in revenues in Landco. General and administrative expense also increased Php278.6 million to Php1.04 billion in 2007.

Interest expense increased Php3.50 billion to Php3.59 billion substantially due to the accretion of the Dollar Loans of the Parent Company. Net of these accretion and nominal interest, interest expense decreased 5% to Php85.1 million from Php90.2 million last year with the repayment of certain MPIC and MPC loans. The impact of the Dollar Loans to the Company’s accounts is discussed below including the loss on derivatives treated as part of other expense.

3. RETURN ON ASSETS – improved to 1.4% from -6.9%

The improvement in return on assets reflects the return to profitability of the Company from a net loss in 2006. Total assets increased to Php12.42 billion in 2007 from Php10.00 billion in 2006.

4. CURRENT RATIO - .67 in 2007 vs. .64 in 2006

Current Ratio slightly improved in 2007 principally from the increase in the Company’s current receivables from higher revenues in Landco.

5. DEBT-TO-EQUITY RATIO - 2.71 in 2007 vs. 7.29 in 2006

The Company’s debt-to-equity ratio improved in 2007 as the increase in the Company’s debts from the increased borrowings of Landco was offset by a bigger increase in the Company’s total equity. The increase in total equity came from the net income for the period and the other equity items recognized from the Dollar and Peso Loans of the Parent Company. These other equity items are further discussed below.

Revenue and Other Income

In 2007, consolidated revenues and other income posted a significant increase to Php7.06 billion from Php1.76 billion in 2006, an increase of 301%.

Primary driver of revenue growth is revenue from real estate which grew 74% to Php1.94 billion. The increase is mainly attributable to the revenue growth in Landco which increased 206% to Php1.92 billion from Php629.0 million last year due to the improved sales performance and the accelerated developments of its existing projects. Other revenues are from the sale of MPC’s remaining PPT units. Interest income increased 31% to Php316.0 million from Php240.9 last year. The increase is due to higher interest income recognized from higher installment receivables of Landco and interest income from the MDI Notes held by the Parent Company.

Annual Report 2007 29 Financial Review

Share in net earnings of associated and joint venture contributed Php1.86 billion this year from the first time consolidation of Maynilad in DMWC. The contribution mainly came from the negative goodwill recognized by DMWC from the acquisition of Maynilad offset by financing and transaction expenses and from the results of operations of Maynilad.

The negative goodwill amounting to Php2.12 billion from the acquisition of Maynilad represents the excess of fair value of the net assets and liabilities of Maynilad over the acquisition cost. This was partially offset by transaction expenses amounting to Php444.1 million. The amounts mentioned represent MPIC’s 50% derivative share in DMWC.

Maynilad contributed Php679.9 million from its net income of Php1.25 billion in 2007. This was partially offset by fair value adjustments related to recognition of negative goodwill, and financing charges from the Stand-By Letters of Credits (“SBLC”) in DMWC. These fair value adjustments and financing charges amounted to Php550.5 million.

Cost and Expenses

Cost and expenses grew by 178% to Php6.33 billion in 2007 from Php2.28 billion in 2006.

Cost of real estate sold increased by 54% to Php1.012 billion in 2007 from Php656.7 million in 2006. The increase is lower compared to the increase in revenues reflecting higher margins on Landco’s new projects. Comparative margin for the year is 52% compared with 50% in 2006.

General and administrative expenses increased 37% to Php1.04 billion from Php758.6 million. The significant increase is attributable to higher expenses in Landco related to the launching of several projects in 2007. These expenses include the administrative and marketing expenses.

Other expenses include provisions on MPC’s remaining investments in Costa De Madera (CDM) and other assets and the loss on derivatives on the Dollar Loans of the Parent Company.

The provisions reflect the unlikelihood that the remaining phases of the project will be completed. As a result, the remaining undeveloped portion of the project is now reflected at raw land values. As MPC no longer considers CDM a core investment and does not plan to contribute further capital to secure its development, it has given up board and management controls of CDM to its minority partner and no longer consolidates its performance in its accounts.

Losses from Discontinued Operations

On December 20, 2006 MPC sold 83.65% of its shareholdings in its shipping subsidiary, Negros Navigation Company (“Nenaco”). As a result, total assets and liabilities, as well as income and expense of Nenaco are presented under “Discontinued Operations” for the consolidated financial statements as of December 31, 2006 and December 31, 2005. Nenaco’s result of operations in 2007 is no longer reflected in the Company’s financial statements.

Impact of US and Peso Notes issued by the Parent Company

As previously discussed, the Company availed Dollar loans amounting to $61.9 million and $15.9 million from MPHI and Ashmore, respectively, or for an aggregate amount of Php3.60 billion to finance the Company’s investments in Maynilad and MDI. The Dollar loans carry a conversion option by written notice by the lenders to the Company to convert all or part of the principal amount of the loans to equity at Php1/share.

The conversion features on the Dollar Loans issued by the Parent Company on January 8, 2007 were accounted for as an embedded derivative. As a result, the Company recognized derivative liability and a Day 1 loss on derivatives. The derivative liability considered, among others, the difference of the market price of the shares vs. the conversion price. On the other hand, the Day 1 loss on derivatives represents the excess of the derivative liability over the cash proceeds of the Dollar Loans. The Day 1 loss on derivatives on the MPHI portion was recorded under equity in the consolidated balance sheet while the derivative loss related to Ashmore portion was recorded in the profit and loss account since the lender is not a related party. The fair value of the option is marked-to-market periodically which gave rise to a gain on mark-to-market for the Company. The Company also recognized interest expense from the accretion of the Dollar Loans to their face value.

30 Metro Pacific Investments Corporation During the year, Ashmore conveyed to Inframetro Holdings Pte. Ltd. (Inframetro) their rights, title, interests and obligations in and to the Dollar loans as if Inframetro was named a party in the Dollar loan agreement.

On December 31, 2007, the Company availed Peso-denominated loans (Peso Loans) from MPHI and Inframetro amounting to Php2.77 billion (Tranche 1) and Php691.0 million (Tranche 2) for purposes of meeting the Company’s maturing obligations under the loan agreement dated January 8 and May 16, 2007, respectively. The Peso Loans carry a conversion option by written notice by the lenders to the Company to convert all or part of the principal amount of the loans to equity at Php1.08236 (Tranche 1) and Php1.05286 (Tranche 2) per share.

Pursuant to an agreement, MPHI and Inframento, effective December 31, 2007, agreed on the following: (a) for Inframetro to waive its right to convert its portion of the Tranche 1 Peso Loans, and; (b) for MPHI to cancel its right to force Inframetro to convert should MPHI convert.

On both of the Dollar and Peso Loans, the Company may prepay the loans in full or in part, without premium or penalty, at anytime during the term of the loans. The Company may not prepay the loans in full or in part to defeat the conversion option of the lenders. In any case, the lender’s exercise of their option shall override any notice of prepayment by the Company.

The net effect of the exchange of the Peso Loans against the Dollar Loans, after considering the waiver of portion of the option, is a net gain of Php1.05 billion, representing the difference of the gain on extinguishment of the dollar loan of Php2.95 billion and the loss on recognition of Peso Loan of Php 1.89 billion. The value of the equity option of Php1.90 billion was recognized directly to equity and included under “Other reserves” account.

The table below summarizes the impact of the Dollar and Peso Loans to the Company’s financial statements.

PROFIT AND LOSS (P&L) IMPACT (Php Millions) Dollar Loans Peso Loans Net Impact Other Expense Derivative loss in P&L (305.1) - (305.1) Interest Expense Interest expense - Accretion (3,487.2) - (3,487.2) Interest expense - Nominal (297.3) - (297.3) Other Income FX gains 242.7 - 242.7 MTM gains 1,065.7 - 1,065.7 Gain on extinguishment 1,053.9 1,053.9 Net Impact to P&L 2781.2 1,053.9 1,727.2

EQUITY Derivative loss in equity (286.1) - (286.1) Other equity items - 1,903.6 1,903.6 Net impact to Balance Sheet (286.1) 1,903.6 1,617.5

On March 3, 2008, MPHI converted its Peso loans. As a result, other equity items of Php1.90 billion was reclassified as additional-paid-in- capital.

Net Income

Net income attributable to the holders of the Parent Company amounted to Php167.9 million in 2007 compared with a net loss of Php685.9 million in 2006. The considerable improvement in net income for the year is largely attributed to the strong showing of Landco and its two affiliates, DMWC and Makati Med. The accounting treatment on the Dollar and Peso Loans of the Parent Company also impacted the bottom line.

In contrast, 2006 was burdened by provisions made to more accurately reflect the asset values of MPC.

Annual Report 2007 31 Financial Review

Other Information

Debt Management

MPC is nearing the end of its debt settlement exercise. Net of debts with settlement agreements, remaining debt is down to Php161.8 million. MPC is looking at its remaining Bonifaco Land Corporation shares and other real estate assets to fully settle its remaining debt. On the other hand, Landco continues to source funding through the assignment of its contracts-to-sell (“CTS”). In 2007, Landco was able to raise approximately from their CTS lines and will continue to do so in 2008.

The Group’s debt profile improved further with the conversion of the Php1.89 billion Peso Notes held by the Parent Company in March 3, 2008.

Demands, Known Trends, or Uncertainties That May Affect Liquidity

The Company is not aware of any trend that may affect the Group’s liquidity. Please refer to Exhibit I or Note 32 of the 2007 Audited Financial Statements for the Company’s financial risk management objectives and policies.

Contingent Obligation

There are no events that will trigger direct or contingent financial obligation that is material to the company, including any default or acceleration of an obligation.

Off Balance Sheet Transactions

There are no (immaterial off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the company with unconsolidated entities or other persons created during the reporting period.

32 Metro Pacific Investments Corporation Statement of Management’s Responsibility for Financial Statements

The management of Metro Pacific Investments Corporation and Subsidiaries is responsible for all information and representations contained in the financial statements as of and for the years ended December 31, 2007, 2006 and 2005. The financial statements have been prepared in compliance with generally accepted accounting principles as set forth in Philippine Financial Reporting Standards and reflect amounts that are based on the best estimates and informed judgment of management with an appropriate consideration to materiality.

In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition and liabilities are recognized. The management likewise disposes to the company’s audit committee and to its external auditor: (i) all significant deficiencies in the design or operation of internal controls that could adversely affect its ability to record, process, and report financial data; (ii) material weaknesses in the internal controls; and (iii) any fraud that involves management or other employees who exercise significant roles in internal controls.

The Board of Directors reviews the financial statements before such statements are approved and submitted to the Stockholders of the Company.

Sycip Gorres Velayo & Co., the independent auditors and appointed by the Stockholders, have audited the financial statements of the Company as of and for the years ended December 31, 2007, 2006 and 2005 in accordance with auditing standards generally accepted in the Philippines and have expressed their opinion on the fairness of presentation upon completion of such audit, in their report to Stockholders.

Manuel V. Pangilinan Chairman of the Board

Jose Ma. K. Lim President and Chief Executive Officer

Christopher Daniel Lizo Comptroller

Annual Report 2007 33 Independent Auditors’ Report

The Stockholders and the Board of Directors Metro Pacific Investments Corporation 10th Floor, MGO Building Legaspi corner Dela Rosa Streets Legaspi Village, Makati City

We have audited the accompanying financial statements of Metro Pacific Investments Corporation and Subsidiaries, which comprise the consolidated balance sheets as at December 31, 2007 and 2006, and the consolidated statements of income, consolidated statements of changes in equity and consolidated statements of cash flows for each of the three years in the period ended December 31, 2007, and a summary of significant accounting policies and other explanatory notes. We did not audit the 2007, 2006 and 2005 financial statements of certain subsidiaries of Landco Pacific Corporation (a 51.0%-owned subsidiary), which statements show total assets of P687.6 million and P714.6 million as of December 31, 2007 and 2006, respectively, and total revenues of P169.8 million, P80.7 million and P345.3 million for the years ended December 31, 2007, 2006 and 2005, respectively, of the consolidated totals. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the said subsidiaries, is based solely on the reports of the other auditors.

Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained and the reports of the other auditors are sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, based on our audits and the reports of other auditors, the financial statements present fairly, in all material respects, the financial position of Metro Pacific Investments Corporation and Subsidiaries as of December 31, 2007 and 2006, and their financial performance and their cash flows for each of the three years in the period ended December 31, 2007 in accordance with Philippine Financial Reporting Standards.

SYCIP GORRES VELAYO & CO.

Marydith C. Miguel Partner CPA Certificate No. 65556 SEC Accreditation No. 0087-AR-1 Tax Identification No. 102-092-270 PTR No. 0017604, January 3, 2008, Makati City, March 25, 2008

34 Metro Pacific Investments Corporation Metro Pacific Investments Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (Amounts in Thousands)

December 31 2006 (As restated - 2007 Notes 2 and 12) ASSETS Current Assets Cash and cash equivalents (Notes 6 and 33) P248,081 P235,162 Receivables - net (Notes 7, 17 and 33) 2,642,714 942,014 Real estate for sale (Notes 8 and 17) 1,867,554 2,004,961 Due from related parties (Notes 21 and 33) 218,974 195,802 Available-for-sale financial assets (Notes 9 and 33) 402,964 403,001 Other current assets (Notes 10 and 33) 209,119 1,616,123 Total Current Assets 5,589,406 5,397,063

Noncurrent Assets Investments in associates - at equity (Note 11) 582,920 603,320 Investment in a joint venture (Note 12) 4,744,714 2,937,106 Available-for-sale financial assets (Notes 9 and 33) 154,028 184,150 Property and equipment - net (Note 13) 258,904 227,829 Investment properties - net (Note 14) 42,604 44,704 Long-term receivables (Notes 15 and 33) 722,707 358,802 Deferred tax assets (Note 28) 210,082 273,269 Other noncurrent assets 112,490 29,677 Total Noncurrent Assets 6,828,449 4,658,857 P12,417,855 P10,055,920

LIABILITIES AND EQUITY Current Liabilities Notes payable (Notes 16, 21 and 33) P635,108 P1,961,812 Accounts payable and other current liabilities (Notes 17 and 33) 2,973,138 2,691,007 Income tax payable 4,026 73,391 Due to related parties (Notes 21 and 33) 280,498 3,019,354 Provisions (Notes 18 and 31) 461,476 433,229 Current portion of long-term debt (Notes 19, 21 and 33) 3,938,212 268,905 Total Current Liabilities 8,292,458 8,447,698

Noncurrent Liabilities Long-term debt - net of current portion (Notes 19, 21 and 33) 409,025 267,973 Accrued retirement costs (Note 25) 43,124 18,463 Deferred tax liabilities (Note 28) 324,925 115,814 Total Noncurrent Liabilities 777,074 402,250

Equity Capital stock (Note 20) 1,342,918 1,198,952 Other reserves (Notes 19 and 20) 2,307,888 690,386 Change in fair value of available-for-sale financial assets (Note 9) 14,060 14,472 Loss on capital transaction (Note 20) (11,836) (11,836) Deficit (1,270,095) (1,437,982) Total equity attributable to equity holders of Parent Company 2,382,935 453,992 Minority interests (Note 22) 965,388 751,980 Total Equity 3,348,323 1,205,972 P12,417,855 P10,055,920

See accompanying Notes to Consolidated Financial Statements.

Annual Report 2007 35 Metro Pacific Investments Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (Amounts in Thousands)

Years Ended December 31 2006 (As restated - 2007 Notes 2 and 12) 2005 REVENUE AND OTHER INCOME Revenue from real estate sold P1,943,004 P1,116,024 P1,023,788 Interest income (Note 26) 316,629 240,888 201,700 Share in net earnings of associates (Note 11) – – 823 Share in net earnings of a joint venture (Note 12) 1,807,608 – – Other income (Note 27) 2,939,161 442,157 946,422 7,006,402 1,799,069 2,172,733 COSTS AND EXPENSES Cost of real estate sold (1,012,379) (656,741) (642,010) General and administrative expenses (Note 23) (1,042,939) (756,695) (579,270) Interest expense (Notes 19 and 26) (3,593,849) (90,239) (116,977) Share in net losses of associates (Note 11) (8,475) (403) – Share in net losses of a joint venture (Note 12) – (62,894) – Other expense (Notes 9 and 27) (627,706) (744,294) (401,003) (6,285,348) (2,311,266) (1,739,260) INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAX 721,054 (512,197) 433,473 PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 28) Current 46,195 109,116 96,247 Deferred 272,298 (47,531) (68,689) 318,493 61,585 27,558 INCOME (LOSS) FROM CONTINUING OPERATIONS AFTER INCOME TAX 402,561 (573,782) 405,915 LOSS FROM DISCONTINUED OPERATION AFTER INCOME TAX (Note 5) – (115,697) (196,764) NET INCOME (LOSS) P402,561 (P689,479) P209,151 Attributable to: Equity holders of Parent Company Income (loss) from continuing operations P167,887 (P570,246) P369,113 Loss from discontinued operation – (115,697) (196,764) 167,887 (685,943) 172,349 Minority interests (Note 22) 234,674 (3,536) 36,802 P402,561 (P689,479) P209,151 EARNINGS (LOSS) PER SHARE (Note 29) Basic Earnings Per Share Income (loss) from continuing operations P0.13 (P0.61) P0.40 Loss from discontinued operation – (0.12) (0.21) P0.13 (P0.73) P0.19 Diluted Earnings Per Share Income (loss) from continuing operations P0.06 (P0.60) P0.40 Loss from discontinued operation – (0.12) (0.21) P0.06 (P0.72) P0.19

See accompanying Notes to Consolidated Financial Statements.

36 Metro Pacific Investments Corporation – – – (35,958) 207,017 230,132 968,820 755,572 755,572 (725,437) (689,479) (230,132) P 1,205,972 Total Equity P

– – – – – – (3,536) (9,918) Interest Minority (20,977) (17,441) (11,760) 392,643 207,017 402,561 565,940 143,966 565,940 751,980 (Note 22) (286,122) P P 1,617,502 1,903,624 1,205,972 3,348,323 Total Equity P P

– – – – – – – – Total (9,506) Interest Minority (18,517) (11,760) 225,168 234,674 230,132 968,820 189,632 751,980 965,388 189,632 453,992 (Note 22) (704,460) (685,943) (230,132) P P P P

– – – – – – Total (412) Deficit 32,282 32,282 167,475 167,887 143,966 453,992 (685,943) (685,943) (286,122) (784,321) P 1,617,502 1,903,624 2,382,935 1,437,982) 26,760,558 P 27,544,879) P ( P (

– – – – – – – – – – – – – – – – – P Stock Deficit 167,887 167,887 Treasury 1,033,000 1,437,982) 1,270,095) 1,033,000) P P P ( ( (

– – – – – – – – – – – – – – – – – –

P Capital Capital 11,836) 11,836) 11,836) Loss on Loss on (11,836) (11,836) P P P (Note 20) (Note 20) ( ( ( Transaction Transaction

– – – – – – – – – – – – – – (412) (412) Assets Assets (6,681) (6,681) 21,153 14,472 14,060 21,153 14,472 for-sale for-sale Change Change P P P P Financial Financial in Fair Value in Fair Value of Available- of Available-

– – – – – – – – – – – – – – – P Other 690,386 690,386 690,386 690,386 Reserves (286,122) P P 1,617,502 1,903,624 2,307,888 P Other Reserves (Notes 19 and 20)

Attributed to Equity Holders of Parent Company

– – – – – – – – – – – – – – – – – – – – Attributed to Equity Holders of Parent Company P P Stock Deposit 143,966 (Note 20) for Future 1,198,952 1,342,918 P P Subscription Capital Stock

– – – – – – – – – – – P Capital Paid-in

Additional 9,690,384 (9,690,384) P

– – – –

(32,282) 230,132 968,820 952,800 (Note 20) (722,668) (920,518) 1,198,952 19,055,974 P (18,103,174) P Capital Stock

(MPC) shares:

exchanged to MPIC shares MPC shares MPIC shares recognized directly in equity during the year Remaining MPC shares not MPIC shares in exchange for MPC shares disposed in exchange Day 1 loss Pacific Corporation Equity component of a financial instrument At December 31, 2006 Total income and expense for the year Net loss during the year At December 31, 2007 Total income and expense for the year Total income and expense for the year Additional contribution of minority Net income during the year

Income and expense for the year recognized directly in equity

At December 31, 2006 Dividends paid to minority interests At December 31, 2005

Effect of MPIC acquisition Metro

Issuance of shares during the year

Other reserves:

Metro Pacific Investments Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Amounts in Thousands) Issuance of shares during the year Effect of recapitalization

Annual Report 2007 37 41,126 (19,963) 250,277 209,151 505,295 168,850 356,408 755,572 P P Total Equity

– 56,775 36,802 19,973 Interest Minority (19,963) 509,165 529,128 565,940 (Note 22) P P

– Total (3,870) 21,153 193,502 172,349 168,850 189,632 172,720) P P (

– – – Deficit 172,349 172,349 27,717,228) 27,544,879) (27,717,228) P P ( (

– – – – – Stock Treasury 1,033,000) 1,033,000) (1,033,000)

P P ( (

– – – – – – – – P P Capital Loss on (Note 20) Transaction

– – – – – P Assets 21,153 21,153 21,153 for-sale Change P Financial in Fair Value of Available-

– – – – – – – – P P Other Reserves Attributed to Equity Holders of Parent Company

– – – – – – P Stock Deposit

278,900 (278,900) for Future P Subscription

– – – – Capital (2,250) Paid-in Additional 9,690,384 9,692,634 9,690,384

P P

– – – – 450,000 (Note 20) 19,055,974 18,605,974 19,055,974

P P Capital Stock

recognized directly in equity and others At January 1, 2005 At December 31, 2005

Total income and expense for the year

Net income during the year

Total income and expense for the year

Dividends paid to outside interest Metro Pacific Investments Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Amounts in Thousands) Issuance of shares during the year See accompanying Notes to Consolidated Financial Statements.

38 Metro Pacific Investments Corporation Metro Pacific Investments Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands)

Years Ended December 31 2006 (As restated - 2007 Notes 2 and 12) 2005 CASH FLOWS FROM OPERATING ACTIVITIES Income (loss) from continuing operations before income tax P721,054 (P512,197) P433,473 Adjustments for: Interest expense (Note 26) 3,593,849 90,239 116,977 Share in net losses (earnings) in a joint venture (Note 12) (1,807,608) 62,894 – Mark to market gain on derivative (Note 27) (1,065,713) – – Gain on debt settlement – net (Note 27) (1,053,943) (7,573) (202,157) Foreign exchange gain – net (376,447) (1,427) – Interest income (Note 26) (316,629) (240,888) (201,700) Day 1 loss (Note 27) 305,056 – – Provision for decline in value of assets (Note 27) 200,854 659,543 364,435 Additional provisions (Notes 18 and 27) 85,232 52,697 16,200 Reversal of accruals (Note 27) (60,239) (257,887) (491,203) Depreciation and amortization (Note 23) 35,784 22,806 19,881 Gain on sale of available-for-sale financial assets (13,058) (5,545) – Share in net losses (earnings) of associates (Note 11) 8,475 403 (823) Reversal of provision for decline in value of assets (Note 27) (3,261) (6,131) (52,029) Loss on sale of property and equipment 19 – – Operating income (loss) before working capital changes 253,425 (143,066) 3,054 Decrease (increase) in: Receivables (1,509,060) 34,656 (174,289) Real estate for sale 74,895 158 274,449 Due from related parties 3,211 (129,825) 38,158 Other current assets 1,407,004 (1,422,097) 3,564 Increase (decrease) in: Accounts payable and other current liabilities 303,551 311,899 (290,721) Provision (7,700) (79,939) (18,450) Net cash generated from (used in) operations 525,326 (1,428,214) (164,235) Income tax paid (350,234) (68,483) (59,563) Interest received 9,232 76,201 70,542 Net cash provided by (used in) operating activities from continuing operations 184,324 (1,420,496) (153,256) Net cash provided by operating activities from discontinued operation – – 273,818 Net cash from (used in) operations 184,324 (1,420,496) 120,562

CASH FLOWS FROM INVESTING ACTIVITIES Decrease (increase) in: Long-term receivables (275,576) – – Available-for-sale financial assets 42,805 264,508 – Other noncurrent assets (81,861) 446 52,315 Proceeds from disposal/sale of: Investments in associates – 8,750 – Property and equipment 13,775 11,723 48,787 (Forward)

Annual Report 2007 39 -2- Years Ended December 31 2006 (As restated - 2007 Notes 2 and 12) 2005 Acquisitions of: Investments in associates (Note 11) (123,114) – – Investment in a joint venture – (2,999,597) – Property and equipment (Note 13) (72,133) (51,932) (50,837) Investment properties (Note 14) – (6,786) (9,815) Net cash provided by (used in) investing activities from continuing operations (496,104) (2,772,888) 40,450 Net cash used in investing activities from discontinued operation – – (270,359) Net cash used in investing activities (496,104) (2,772,888) (229,909)

CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in: Due to related parties (2,761,011) 1,814,121 – Minority interests 213,408 186,040 12,786 Proceeds from (payment of): Long-term debt – net 2,753,189 83,652 (56,285) Issuance of capital stock 143,966 968,820 171,100 Notes payable – net (15,526) 1,248,849 13,543 Interest paid (7,104) (69,649) (67,973) Net cash from financing activities 326,922 4,231,833 73,171

EFFECT OF CHANGE IN EXCHANGE RATES (2,223) – –

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Net increase (decrease) in cash and cash equivalents from continuin g operations 12,919 38,449 (39,635) Net increase (decrease) in cash and cash equivalents from discontinued operation – (42,526) 3,459 12,919 (4,077) (36,176)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR Cash and cash equivalents at beginning of year of continuing operations 235,162 196,713 236,348 Cash and cash equivalents at beginning of year of discontinued operation – 42,526 39,067 235,162 239,239 275,415

CASH AND CASH EQUIVALENTS AT END OF YEAR

CASH AND CASH EQUIVALENTS AT END OF YEAR OF CONTINUING OPERATIONS 248,081 235,162 196,713

CASH AND CASH EQUIVALENTS AT END OF YEAR OF DISCONTINUED OPERATION – – 42,526 P248,081 P235,162 P239,239

See accompanying Notes to Consolidated Financial Statements.

40 Metro Pacific Investments Corporation Metro Pacific Investments Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information

Metro Pacific Investments Corporation (the Parent Company or MPIC) was incorporated in the Philippines and registered with the Securities and Exchange Commission (SEC) on March 20, 2006 as an investment holding company.

The Parent Company is 85.6% owned by Metro Pacific Holdings, Inc. (MPHI). After the conversion discussed in Note 34, MPHI will own 94% of MPIC’s outstanding shares. MPHI is a Philippine corporation whose stockholders are Enterprise Investment Holdings, Inc. (EIH) (60.0%), Intalink B.V. (26.7%) and First Pacific International Limited (13.3%). First Pacific Company Limited (“FPC”), a company incorporated in Bermuda and listed in Hong Kong, through its subsidiaries, hold a direct 40% equity interest in EIH and investment financing, and which is under Hong Kong Generally Accepted Accounting Principles require FPC to account for the results and assets and liabilities of EIH and its subsidiaries as FPC group companies in Hong Kong. On such basis, FPC is referred as the ultimate parent company of EIH and the Parent Company.

On April 28, 2006, through a Deed of Absolute Sale of Shares, the Parent Company acquired Metro Pacific Corporation’s (MPC) 51.0% ownership interest in Landco Pacific Corporation (Landco) for the amount of P667.0 million. Thus, Landco became a subsidiary of MPIC.

Landco is primarily engaged in all aspects of real estate business which includes real estate consultancy encompassing project management and business planning services; dealing in and disposing of all kinds of real estate projects involving commercial, industrial, urban, residential or other kinds of real property; construction, management, operation and leasing tenements of the corporation or other persons; and acting as real estate broker on a commission basis.

In 2006, the Parent Company also acquired ownership in MPC from MPC’s shareholders through a share swap arrangement as further described in Note 20. After such transactions, MPC became a subsidiary of MPIC.

On November 17, 2006, MPIC, together with D.M. Consunji Inc. formed a joint-venture company called DMCI-MPIC Water Company, Inc. (DMCI-MPIC) (see Note 12).

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

As authorized by the Board of Directors (BOD), the Audit Committee approved the issuance of the consolidated financial statements as of December 31, 2007 and 2006 and for each of the three years in the period ended December 31, 2007 and 2006 on March 25, 2008.

2. Summary of Significant Accounting Policies

Basis of Preparation The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments and available-for-sale (AFS) financial assets that have been measured at fair value. The consolidated financial statements are presented in Philippine peso, which is MPIC and Subsidiaries’ (the Company) functional and presentation currency, and all values are rounded to the nearest thousands (000), except when otherwise indicated.

The Parent Company’s acquisition of Landco from MPC and MPC from its shareholders were considered as reorganization involving entities under common control thus, accounted for at historical cost in a manner similar to a pooling of interest method of accounting. As required by the accounting standards, prior year financial statements were restated to reflect the combination as if it had occurred from the beginning of the earliest year presented in the financial statements, regardless of the actual date of the combination.

Statement of Compliance The consolidated financial statements have been prepared in compliance with Philippine Financial Reporting Standards (PFRS).

Annual Report 2007 41 Change in Accounting Policy As further discussed in Note 12, the Company has 50.0% interest in DMCI-MPIC, a joint venture which was incorporated to acquire equity interest, purchase, negotiate or otherwise deal with or dispose of stocks and bonds of Maynilad Water Services, Inc. (Maynilad).

In 2006, the Company applied proportionate consolidation of accounting for the financial position and results of operations of its investment in DMCI-MPIC. The acquisition by DMCI-MPIC of 83.96% interest in Maynilad on January 10, 2007 led the Company to change its method of accounting for its investment in the joint venture from proportionate consolidation to equity method. While both methods are acceptable under PAS 31, Interests in Joint Venture, management believes that the use of equity method will provide a more reliable and relevant information and therefore will result to a better presentation as the Company will not recognize a proportion of assets and liabilities that it does not control or for which it has no obligation.

The effect of the change in accounting policy resulted to the derecognition of the Company’s proportionate share on the following assets and liabilities and profit and loss accounts of DMCI-MPIC that were recognized as of and for the year ended December 31, 2006:

Increase (Decrease) in: (In Thousands) Cash and cash equivalents (P2,959,925) Receivables (1,582) Due from related parties 35,907 Other current assets (64,195) Accounts payable and other current liabilities (17,408) Due to related parties (35,281) General and administrative expenses (29,872) Interest income (5,164) Other expense (37,692) Provision for current income tax (494)

Correspondingly, the following amounts were recognized in 2006: Amount (In Thousands) Investment in a joint venture P3,000,000 Share in net losses of a joint venture (62,894)

Adoption of New Accounting Standards The Company has adopted the following PFRS and amendment to Philippine Accounting Standards (PAS) which became effective on or after January 1, 2007. The accounting policies adopted are consistent with those of the previous financial year, except for the adoption of these new and amended standards below:

s 0&23 h&INANCIAL)NSTRUMENTS $ISCLOSURESvˆ4HISSTANDARDREQUIRESDISCLOSURESTHATENABLEUSERSTOEVALUATETHESIGNIlCANCE of the Company’s financial instruments and the nature and extent of risks arising from those financial instruments. Adoption of this standard resulted to the inclusion of additional disclosures such as market risk sensitivity analysis, contractual maturity of financial liabilities, credit quality of financial assets that are neither past due nor impaired and aging analysis of financial assets that are past due but not impaired.

On January 11, 2008, the SEC approved an amendment to the transition provision of PFRS 7 that gives transitional relief with respect to the presentation of comparative information for the new risk disclosures about the nature and extent of risks arising from financial instruments under paragraphs 31-42 of PFRS 7. The Company opted to present comparative risk disclosures for 2007, except for aging of past due but not impaired receivables and sensitivity analysis.

s !MENDMENTTO0!3 h0RESENTATIONOF&INANCIAL3TATEMENTSvˆ4HISAMENDMENTREQUIRESTHE#OMPANYTOMAKENEW disclosures to enable users of the financial statements to evaluate the Company’s objectives, policies and processes for managing capital.

42 Metro Pacific Investments Corporation The new disclosures are included throughout the consolidated financial statements. The Company’s qualitative and quantitative disclosures on risks and capital management are shown in Note 32. s 0HILIPPINE)NTERPRETATION)&2)# h2EASSESSMENTOF%MBEDDED$ERIVATIVESvˆ4HISINTERPRETATIONESTABLISHESTHATTHEDATETO assess the existence of an embedded derivative is the date an entity first becomes a party to the contract, with reassessment only if there is a change to the contract that significantly modifies the cash flows. This interpretation has no significant impact on the consolidated financial statements. s 0HILIPPINE)NTERPRETATION)&2)# h)NTERIM&INANCIAL2EPORTINGAND)MPAIRMENTvˆ4HISINTERPRETATIONPROHIBITSTHEREVERSALOF impairment loss on goodwill and AFS financial assets recognized in the interim financial reports even if impairment is no longer present at the annual balance sheet date. This interpretation has no significant impact on the consolidated financial statements.

The following Philippine Interpretations of the International Financial Reporting Interpretations Committee (IFRIC) are effective but are not relevant to the Company: s 0HILIPPINE)NTERPRETATION)&2)# !PPLYINGTHE2ESTATEMENT!PPROACHUNDER0!3 h&INANCIAL2EPORTINGIN(YPERINmATIONARY Economies” s 0HILIPPINE)NTERPRETATION)&2)# h3COPEOF0&23v

Standards and Interpretations Not Yet Effective The Company has not yet applied the following PFRS, amendments to PAS and Philippine Interpretations that have been approved but are not yet effective for the year ended December 31, 2007: s 0&23 h/PERATING3EGMENTSvEFFECTIVEON*ANUARY  ˆ4HIS0&23ADOPTSAMANAGEMENTAPPROACHTOREPORTING segment information. The information reported would be that which management uses internally for evaluating the performance of operating segments and allocating resources to those segments. Such information may be different from that reported in the consolidated balance sheet and consolidated statement of income, and companies will need to provide explanations and reconciliations of the differences. PFRS 8 will replace PAS 14, “Segment Reporting,” and is required to be adopted only by entities whose debt or equity instruments are publicly traded, or are in the process of filing with the SEC for purposes of issuing any class of instruments in a public market. The Company will asses the impact of the standard on its current manner of segment reporting. s !MENDMENTTO0!3 h!MENDMENTON3TATEMENTOF#OMPREHENSIVE)NCOMEvEFFECTIVEON*ANUARY  ˆ)NACCORDANCE with the amendment to PAS 1, the statements of changes in equity shall include only transactions with owners, while all non- owner changes will be presented in equity as a single line with details included in a separate statement. Owners are defined as holders if instruments classified as equity.

In addition, the amendment to PAS 1 provides for the introduction of a new statement of comprehensive income that combines all items of income and expense recognized in the statements of income together with “other comprehensive income.” The revisions specify what is included in other comprehensive income, such as gains and losses on AFS financial assets, actuarial gains and losses on defined benefit pension plans and changes in the asset revaluation reserve. Entities can choose to present all items in one statement, or to present two linked statements, a separate statement of income and a statement of comprehensive income. The Company will assess the impact of the standard on its current manner of reporting all items of income and expenses. s !MENDMENTTO0!3 h"ORROWING#OSTSvEFFECTIVE*ANUARY  ˆ4HISAMENDMENTREQUIRESCAPITALIZATIONOFBORROWING costs that relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. The Company capitalizes borrowing costs incurred during construction and thus, does not expect this amendment to have significant impact to the consolidated financial statements. s 0HILIPPINE)NTERPRETATION)&2)# h0&23 'ROUPAND4REASURY3HARE4RANSACTIONSvˆ4HISINTERPRETATIONREQUIRES arrangements whereby an employee is granted rights to an entity’s equity instruments to be accounted for as an equity-settled scheme by the entity even if: (a) the entity chooses or is required to buy those equity instruments (e.g., treasury shares) from

Annual Report 2007 43 Notes to Consolidated Financial Statements

another party, or (b) the shareholder(s) of the entity provide the equity instruments needed. It also provides guidance on how subsidiaries, in their separate financial statements, account for such schemes when their employees receive rights to the equity instruments of the parent company. This interpretation will have no impact on the consolidated financial statements.

s 0HILIPPINE)NTERPRETATION)&2)# h3ERVICE#ONCESSION!RRANGEMENTSvEFFECTIVEON*ANUARY  ˆ4HISINTERPRETATION covers contractual arrangements arising from public-to-private service concession arrangements if control of the assets remain in public hands but the private sector operator is responsible for construction activities as well as for operating and maintaining the public sector infrastructure. The Company will assess the impact of this interpretation in so far that it relates to its investment in joint venture.

s 0HILIPPINE)NTERPRETATION)&2)# h#USTOMER,OYALTY0ROGRAMMESvEFFECTIVE*ULY  ˆ4HISINTERPRETATIONAPPLIESTO customer loyalty award credits that an entity grants to its customers as part of a sales transaction and subject to meeting any further qualifying conditions, the customers can redeem in the future for free or discounted goods or services. This interpretation will have no impact on the consolidated financial statements.

s 0HILIPPINE)NTERPRETATION)&2)# h,IMITON$ElNED"ENElT!SSET -INIMUM&UNDING2EQUIREMENTANDTHEIR)NTERACTIONvEFFECTIVE ON*ANUARY  ˆ4HISINTERPRETATIONCOVERSALLPOST EMPLOYMENTDElNEDBENElTSANDOTHERLONG TERMEMPLOYEEDElNED benefits. This interpretation defines minimum funding requirements as “any requirement to fund a post-employment or other long-term defined benefit plan” and would therefore include both statutory and contractual requirements. The Company expects that this interpretation will have no impact on the Company’s consolidated financial statements as its defined benefit scheme is currently in deficit.

Basis of Consolidation The consolidated financial statements of the Company includes the Parent Company and the following subsidiaries as of December 31, 2007:

Name of Subsidiary Place of Incorporation Principal Activities Ownership Interest Operating subsidiaries: First Pacific Bancshares Philippines, Inc. (FPBPI) Philippines Investment Holding 100.00 Management Metro Pacific Management Services, Inc. (MPMSI) Philippines Consultancy 100.00 MPC Philippines Real Estate 96.60 Lucena Commercial Land Corporation Philippines Real Estate 83.00 Landco Pacific Centers, Inc. (LPCI) Philippines Real Estate 68.00 First Cebu Pacific Land Co., Inc. (FCPLCI) Philippines Real Estate 67.00 Landco and Subsidiaries Philippines Real Estate 51.00 First Pacific Realty Partners Corporation (FPRPC) Philippines Investment Holding 50.67 Preoperating subsidiaries: Metro Tagaytay Land Co., Inc. (MTLCI) Philippines Real Estate 100.00 Metro Capital Corporation Cayman Islands Investment Holding 100.00 Metro Pacific Capital, Limited Cayman Islands Investment Holding 100.00 Management Pacific Plaza Towers Management Services, Inc. Philippines Services 100.00 Philippine International Paper Corporation Philippines Investment Holding 100.00 Pollux Realty Development Corporation Philippines Investment Holding 100.00 Uptime Limited (Uptime) Cayman Islands Investment Holding 100.00 Metro Asia Link Holdings, Inc. (MALHI) Philippines Investment Holding 60.59

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases.

In 2005, the Company owns 99.0% of Negros Navigation Co. Inc. (Nenaco). In 2006, pursuant to a management buy-out, as further discussed in Note 5, the Company’s equity interest in Nenaco was reduced to 14.0% and therefore, was deconsolidated.

44 Metro Pacific Investments Corporation The Parent Company’s acquisition of Landco and MPC in 2006, being an exchange between enterprises under common control is considered as a reorganization and was accounted for at historical cost in a manner similar to pooling of interest method. Under the pooling of interest method of accounting, the results of operations and cash flows of the Parent Company and its subsidiaries are combined from the beginning of the financial period in which the merger occurred and their assets and liabilities are combined at the amounts at which they were previously recorded as if they had been part of the group for the whole of the current and preceding periods.

The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company using uniform accounting policies for like transactions and other events in similar circumstances. Intercompany balances and transactions, including intercompany profits and unrealized profits and losses are eliminated.

Minority Interests Minority interests represent the portion of profit or loss and the net assets not held by the Company and are presented separately in the consolidated statement of income and within equity in the consolidated balance sheet, separately from the parent shareholder’s equity. Any losses applicable to a minority shareholder of a consolidated subsidiary in excess of the minority shareholder’s equity in the subsidiary are charged against the minority interests to the extent that the minority shareholder has binding obligation to, and is able to, make good of the losses. Acquisitions of minority interests are accounted for using the entity concept method, whereby the difference between the consideration and the book value of the share of the net assets acquired is recognized as an equity transaction.

Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less at the dates of acquisition and that are subject to an insignificant risk of change in value.

Financial Instruments The Company recognizes a financial asset or a financial liability in the consolidated balance sheet when it becomes a party to the contractual provisions of the instrument. All regular way purchases and sales of financial assets are recognized on the settlement date. Regular way purchases and sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Financial instruments are recognized initially at fair value, which is the fair value of the consideration given (in case of an asset) or received (in case of a liability). The fair value of the consideration given or received is determined by reference to the transaction price or other market prices. If such market prices are not reliably determinable, the fair value of the consideration is estimated as the sum of all future cash payments or receipts, discounted using the prevailing market rates of interest for similar instruments with similar maturities. The initial measurement of financial instruments, except for financial instruments at fair value through profit or loss (FVPL), includes transaction costs.

Management determines the classification of its instruments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date.

The Company classifies its financial instruments in the following categories: financial assets at FVPL, held-to-maturity (HTM) investments, AFS financial assets, loans and receivables, financial liabilities at FVPL and other financial liabilities. The classification depends on the purpose for which the financial instruments were acquired and whether they are quoted in an active market.

Determination of Fair Value The fair value of financial instruments traded in active markets at the balance sheet date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and asking prices are not available, the price of the most recent transaction is used since it provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models, and other relevant valuation models.

Annual Report 2007 45 Notes to Consolidated Financial Statements

Day 1 Profit Where the transaction price in a non-active market is different from the fair value of other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Company recognizes the difference between the transaction price and fair value (a Day 1 profit) in the consolidated statement of income unless it qualifies for recognition as some other type of asset. In cases where the data is not observable, the difference between the transaction price and model value is only recognized in the consolidated statement of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Company determines the appropriate method of recognizing the “Day 1” profit amount.

Financial Assets Financial Assets at FVPL. Financial assets at FVPL include financial assets held for trading and financial assets designated upon initial recognition at FVPL. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Financial assets may be designated at initial recognition at FVPL if the following criteria are met: s THEDESIGNATIONELIMINATESORSIGNIlCANTLYREDUCESTHEINCONSISTENTTREATMENTTHATWOULDOTHERWISEARISEFROMMEASURINGTHE financial assets or recognizing gains or losses on them on a different basis; or

s THEASSETSAREPARTOFAGROUPOFlNANCIALASSETS lNANCIALLIABILITIESORBOTHWHICHAREMANAGEDANDTHEIRPERFORMANCEEVALUATED on a fair value basis, in accordance with a documented risk management or investment strategy; or

s THElNANCIALINSTRUMENTCONTAINSANEMBEDDEDDERIVATIVE UNLESSTHEEMBEDDEDDERIVATIVEDOESNOTSIGNIlCANTLYMODIFYTHECASH flows or it is clear, with little or no analysis, that it would not be separately recorded.

Financial assets at FVPL are recorded in the consolidated balance sheet at fair value. Changes in fair value are recognized directly in the consolidated statement of income. Interest earned or incurred is recorded as interest income or expense, respectively, while dividend income is recorded as part of other income according to the terms of the contract, or when the right of payment has been established.

The Company has not classified any financial asset as at FVPL.

Loans and Receivables. Loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as financial assets at FVPL, HTM investments or AFS financial assets.

After initial measurement, loans and receivables are subsequently measured at amortized cost using the effective interest method, less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the effective interest rate. The amortization is included as part of interest income in the consolidated statement of income. The losses arising from impairment are recognized in the consolidated statement of income. Loans and receivables are included in current assets if maturity is within 12 months after the balance sheet date, otherwise these are classified as noncurrent assets.

This category includes the Company’s receivables and due from related parties.

HTM Investments. HTM investments are quoted nonderivative financial assets with fixed or determinable payments and fixed maturities for which the Company’s management has the positive intention and ability to hold to maturity. When the Company sell other than an insignificant amount of HTM investments, the entire category would be tainted and reclassified as AFS financial assets. After initial measurement, these investments are subsequently measured at amortized cost using the effective interest method, less impairment in value. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The amortization is included as part of interest income in the consolidated statement of income. Gains and losses are recognized in the consolidated statement of income when the HTM investments are derecognized and impaired, as well as through the amortization process. The losses arising from impairment of such investments and the effects of restatement on foreign currency-denominated HTM investments are also recognized in the consolidated statement of income.

46 Metro Pacific Investments Corporation The Company has not classified any financial asset as HTM investments.

AFS Financial Assets. AFS financial assets are those which are designated as such or not classified in any of the other categories. They are purchased and held indefinitely and may be sold in response to liquidity requirements or changes in market conditions.

After initial measurement, AFS financial assets are subsequently measured at fair value. The effective yield component of AFS debt securities, as well as the impact of restatement on foreign currency-denominated AFS debt securities, is reported in the consolidated statement of income. The unrealized gains and losses arising from the fair valuation of AFS financial assets are excluded, net of tax, from the consolidated statement of income and are reported as net unrealized gain on AFS financial assets in the equity section of the consolidated balance sheet and in the consolidated statement of changes in equity. AFS financial asserts are included in current assets if to be realized within 12 months after the balance sheet date, otherwise these are classified as noncurrent assets.

When the financial asset is disposed of, the cumulative gain or loss previously recognized in equity is recognized in the consolidated statement of income. When the Company holds more than one investment in the same security, these are deemed to be disposed of on a first-in, first-out basis. Interest earned on holding AFS financial assets are reported as interest income using the effective interest rate. Dividends earned on holding AFS financial assets are recognized in the consolidated statement of income when the right of payment has been established. The losses arising from impairment of such financial assets are also recognized in the consolidated statement of income.

This category includes investments in shares of Bonifacio Land Corporation (BLC) and club shares.

Financial Liabilities Financial Liabilities at FVPL. Financial liabilities are classified in this category if these result from trading activities or derivative transactions that are not accounted for as accounting hedges, or when the Company elects to designate a financial liability under this category.

The Company has not classified any financial liability as at FVPL.

Other Financial Liabilities. This category pertains to financial liabilities that are not held for trading or not designated at FVPL upon the inception of the liability. These include liabilities arising from operations and borrowings.

Issued financial instruments or their components, which are not classified as financial liabilities at FVPL are classified as other financial liabilities, where the substance of the contractual arrangement results in the Company having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. The components of issued financial instruments that contain both liability and equity elements are accounted for separately, with the equity component being assigned the residual amount after deducting from the instrument as a whole the amount separately determined as the fair value of the liability component on the date of issue. After initial measurement, other financial liabilities are subsequently measured at amortized cost using the effective interest rate method. Amortized cost is calculated by taking into account any discount or premium on the issue and fees that are an integral part of the effective interest rate. Any effects of restatement of foreign currency-denominated liabilities are recognized in the consolidated statement of income.

Other financial liabilities are recognized initially at fair value and are subsequently carried at amortized cost, taking into account the impact of applying the effective interest method of amortization (or accretion) for any related premium, discount and any directly attributable transaction costs.

All of the Company’s financial liabilities are classified as other financial liabilities.

Derivative Financial Instruments An embedded derivative is separated from the host contract and accounted for as derivative if all the following conditions are met: s THEECONOMICCHARACTERISTICSANDRISKSOFTHEEMBEDDEDDERIVATIVEARENOTCLOSELYRELATEDTOTHEECONOMICCHARACTERISTICOFTHE host contract; s ASEPARATEINSTRUMENTWITHTHESAMETERMSASTHEEMBEDDEDDERIVATIVEWOULDMEETTHEDElNITIONOFTHEDERIVATIVEAND

Annual Report 2007 47 Notes to Consolidated Financial Statements

s THEHYBRIDORCOMBINEDINSTRUMENTISNOTRECOGNIZEDATFAIRVALUETHROUGHPROlTORLOSS

Freestanding and separated embedded derivatives are classified as financial assets or financial liabilities at FVPL unless they are designated as effective hedging instruments. Derivative instruments are initially recognized at fair value on the date in which a derivative transaction is entered into or bifurcated, and are subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Consequently, gains and losses from changes in fair value of these derivatives are recognized immediately in the statement of income.

The Company assesses whether embedded derivatives are required to be separated from host contracts when the Company first becomes party to the contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.

Offsetting of Financial Instruments Financial assets and liabilities are offset and the net amount reported in the consolidated balance sheet if, and only if, there is a currently enforceable right to offset the recognized amounts and there is intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented at gross amounts in the consolidated balance sheet.

Impairment of Financial Assets The Company assesses at each balance sheet date whether a financial asset or group of financial assets is impaired.

Assets Carried at Amortized Cost. The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss, is or continues to be recognized are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through the use of an allowance account. The amount of loss is charged to the consolidated statement of income.

If, in a subsequent year, the amount of the impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

Assets Carried at Cost. If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.

AFS Financial Assets. For AFS financial assets, the Company assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. In case of equity investments classified as AFS, this would include a significant or prolonged decline in the fair value of the investments below its cost. Where there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in the consolidated statement of income - is removed from equity and recognized in the consolidated statement of income. Impairment losses on equity investments are not reversed through the consolidated statement of income. Increases in fair value after impairment are recognized directly in equity.

In the case of debt instruments classified as AFS, impairment is assessed based on the same criteria as financial assets carried at amortized cost. Interest continues to be accrued at the original effective interest rate on the reduced carrying amount of the asset

48 Metro Pacific Investments Corporation and is recorded as part of interest income in the consolidated statement of income. If, in subsequent year, the fair value of a debt instrument increased and the increase can be objectively related to an event occurring after the impairment loss was recognized in the consolidated statement of income, the impairment loss is reversed through the consolidated statement of income.

Derecognition of Financial Assets and Liabilities Financial Asset. A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when: s THERIGHTSTORECEIVECASHmOWSFROMTHEASSETHAVEEXPIRED s THE#OMPANYRETAINSTHERIGHTTORECEIVECASHmOWSFROMTHEASSET BUTHASASSUMEDANOBLIGATIONTOPAYTHEMINFULLWITHOUT material delay to a third party under a “pass-through” arrangement; or s THE#OMPANYHASTRANSFERREDITSRIGHTSTORECEIVECASHmOWSFROMTHEASSETANDEITHERA HASTRANSFERREDSUBSTANTIALLYALLTHERISKS and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.

Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged, cancelled or has expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability. The recognition of a new liability and the difference in the respective carrying amounts is recognized in the consolidated statement of income.

Real Estate for Sale Real estate for sale is carried at the lower of cost and net realizable value. Cost includes the acquisition cost of the land plus all costs directly attributable to the acquisition for projects where the Company is the landowner, and includes actual development costs incurred up to balance sheet date for projects where the Company is both the landowner and developer. Where the Company is only a developer, the cost of real estate for sale pertains only to the actual development costs. Net realizable value is the selling price in the ordinary course of business less costs to complete and sell.

Condominium units for sale represent the cost of condominium units not yet sold or leased. Cost includes the cost of land plus actual development costs incurred up to the balance sheet date.

When a condominium unit is leased, the carrying amount of the unit is transferred to “Investment properties” account in the consolidated balance sheet.

Investments in Associates Investments in associates, where the Company has the ability to exercise significant influence since the date of acquisition, is accounted for under the equity method. The existence and effect of potential voting rights that are currently exercisable or convertible, including potential voting rights held by other companies, are considered when assessing whether a company has significant influence. If the conversion or the potential voting rights results to significant influence, equity accounting will be applied from the date on which it becomes an associate.

Under the equity method, investments are carried in the consolidated balance sheet at cost plus post-acquisition changes in the Company’s share in net assets of investees, less any dividends declared and impairment loss. The consolidated statement of income reflects the Company’s share in the results of operations of the associates. Unrealized gains arising from transactions with associates are eliminated to the extent of the Company’s interests in the associates, against the respective investment amount. When potential voting rights exist, the investor’s share of profit or loss of the investee and of changes in the investee’s equity is

Annual Report 2007 49 Notes to Consolidated Financial Statements

determined on the basis of present ownership interests and does not reflect the possible exercise or conversion of potential voting rights.

Unrealized losses are eliminated similarly but only to the extent that there is no evidence of impairment of the assets transferred.

When the Company’s share in the losses of associates equals or exceeds the carrying amount of an investment, the Company provides for additional losses to the extent that the Company has incurred obligations or made payments on behalf of the associate to satisfy the obligations of the associate that the Company has guaranteed or otherwise committed.

The financial statements of the associate are prepared for the same reporting period as the Parent Company. Where necessary, adjustments are made to bring the accounting policies in line with those of the Company.

Interest in a Joint Venture The Company recognized its interest in a joint venture using the equity method. Under the equity method, such interest is stated at cost plus post-acquisition changes in the Company’s proportionate share in the net assets of the joint venture, less any impairment in value. The consolidated statement of income reflects the Company’s proportionate share of the results of operation of the joint venture from the date of incorporation of the joint venture.

Investment Properties Investment properties are measured initially at cost, including transaction costs subsequent to initial recognition. Depreciable investment properties are carried at cost, less accumulated depreciation and any impairment loss. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred, if the recognition criteria are met; and excludes the costs of day-to-day servicing of investment properties.

Investment properties are derecognized when either they have been disposed of or when the investment properties are permanently withdrawn from use and no future economic benefit is expected from its disposal. Gain or loss on the retirement or disposal of an investment property are recognized in the consolidated statement of income in the year of retirement or disposal.

Transfers are made to investment properties when, and only when, there is a change in use, evidenced by ending of owner- occupation, commencement of an operating lease to another party or ending of construction or development. Transfers are made from investment properties when, and only when, there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sale.

Property and Equipment Property and equipment, except land, are carried at cost, excluding day-to-day servicing, less accumulated depreciation and amortization and any impairment loss. The initial cost of property and equipment comprises its purchase price, including import duties and non-refundable purchase taxes and any directly attributable costs of bringing the property and equipment to its working condition and location for its intended use. Such cost includes the cost of replacing part of such property and equipment when that cost incurred meets the recognition criteria. Land is stated at cost less any impairment loss.

The asset’s residual values, useful lives and depreciation and amortization method are reviewed, and adjusted if appropriate, at each financial year-end.

An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated statement of income in the year the asset is derecognized.

Construction-in-progress is stated at cost less any impairment in value. This includes cost of construction, plant and equipment and other direct costs. Construction-in-progress is not depreciated until such time that the relevant assets are completed and put into operational use.

Borrowing Costs Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are directly attributable to the acquisition or construction of a qualifying asset. Capitalization of borrowing costs commence when the activities to prepare the asset are in

50 Metro Pacific Investments Corporation progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the assets are substantially ready for their intended use. If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded.

Impairment of Non-Financial Assets The Company assesses at each reporting date whether there is an indication that a nonfinancial asset (which includes, among others, investments in shares of stock, property and equipment and investment properties) may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its market value and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses are recognized in the consolidated statement of income in those expense categories consistent with the function of the impaired asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statement of income unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation and amortization charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense.

Business Segments The Company’s operating businesses are organized and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products.

Segment Assets and Liabilities. Segment assets include all operating assets used by a segment and consist principally of operating cash, receivables, real estate for sale, and property and equipment, net of allowances and provision. Segment liabilities include all operating liabilities and consist principally of accounts payable and other liabilities. Segment assets and liabilities do not include deferred income taxes, investments and advances, and borrowings.

Inter-segment Transactions. Segment revenue, segment expenses and segment performance include transfers among business segments. The transfers, if any, are accounted for at competitive market prices charged to unaffiliated customers for similar products. Such transfers are eliminated in consolidation.

Revenue and Cost Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be measured reliably. The following specific criteria must also be met before revenue is recognized:

Real Estate. Real estate revenue and cost from the sale of completed projects are accounted for using the full accrual method. On the other hand, the percentage of completion method is used to recognize income from sales of projects where the Company has material obligations under the sales contract to complete the project after the property is sold. Under this method, revenue and cost is recognized as the related obligations are fulfilled, measured principally on the basis of the ratio of the actual costs incurred to date over the estimated total costs of the project. Any excess of collections over the recognized receivables are included in the “Accounts payable and other liabilities” account in the consolidated balance sheet.

Annual Report 2007 51 Notes to Consolidated Financial Statements

If none of the revenue recognition criteria are met, deposit method is applied until all the conditions for recording a sale are met. Pending recognition of sale, cash received from buyers is presented as part of “Customers’ deposits” included in “Accounts payable and other current liabilities” account in the consolidated balance sheet.

Sale of AFS Financial Assets. Gain or loss is recognized when risk and rewards of ownership has been transferred to the buyer.

Commission Income. Revenue is recognized upon receipt of full downpayment from real estate buyers and upon execution of the contract to sell or the deed of absolute sale. Commission is computed as a certain percentage of the net contract price of the real estate project sold.

Consultancy Fees. Revenue derived from property and project management and business planning services offered by the Company to real estate developers are recognized at the time the services are rendered.

Rental Income. Revenue, included in “Other income” account in the consolidated statement of income, is recognized on a straight- line basis over the terms of the lease.

Nomination Fee. Revenue, included in “Other income” account in the consolidated statement of income, is recognized net of related direct costs such as assignment and marketing fees, upon approval by the BOD of the lot buyers’ membership.

Interest Income. Interest income is recognized as it accrues, using the effective interest method. For income tax purposes, interest income is taxable as the interest accrues, computed based on the terms of the agreement.

Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies:

a. there is a change in contractual terms, other than a renewal or extension of the agreement; b. a renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term; c. there is a change in the determination of whether the fulfillment is dependent on a specified asset; or d. there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios a, c or d and the date of renewal or extension period for scenario b.

Leases where the lessor retains substantially all the risks and benefits of ownership of the assets are classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.

Operating lease payments are recognized as income in the consolidated company statement of income on a straight-line basis over the lease term. For income tax purposes, deductible operating lease payments are computed based on the terms of the lease agreements.

Stock Option Plan The Company has a stock option plan granting non-transferable options to management and employees of the Company to purchase a fixed number of shares of stock at a stated price during a specified period. Exercise of options is considered as a capital transaction and recorded at the option price. Options were granted prior to November 7, 2002 and expired in October 2007.

Retirement Costs The Company has a funded, noncontributory retirement benefit plan. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognized as income or expense immediately in the year when it is incurred.

52 Metro Pacific Investments Corporation The past service cost is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a retirement plan, past service cost is recognized immediately.

The defined benefit liability is the aggregate of the present value of the defined benefit obligation reduced by past service cost not yet recognized and the fair value of plan assets out of which the obligations are to be settled directly. If such aggregate is negative, the asset is measured at the lower of such aggregate or the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan.

Foreign Currency-denominated Transactions Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the consolidated statement of income. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value was determined.

Income Taxes Current Tax. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the tax authority. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the balance sheet date.

Deferred Tax. Deferred income tax is provided, using the balance sheet liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, with certain exceptions. Deferred tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax credits from excess minimum corporate income tax (MCIT) over the regular corporate income tax (RCIT) and unused net operating loss carryover (NOLCO), to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carryforward benefits of unused tax credits and NOLCO can be utilized. Deferred income tax, however, is not recognized when it arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

Deferred tax liabilities are not provided on non-taxable temporary differences associated with investments in domestic subsidiaries, associates and joint ventures. With respect to investments in other subsidiaries, associates and joint ventures, deferred tax liabilities are recognized except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to offset off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same tax authority.

Earnings (Loss) Per Share Basic earnings (loss) per share is calculated by dividing the net income (loss) for the year attributable to the equity holders of the Parent by the weighted average number of common shares outstanding during the year, after considering the retroactive effect of stock dividend declaration, if any.

Annual Report 2007 53 Notes to Consolidated Financial Statements

Diluted earnings (loss) per share is computed by dividing the net income (loss) for the year attributable to the equity holders of the Parent by the weighted average number of common shares outstanding during the period, adjusted for any subsequent stock dividends declared and potential common shares resulting from the assumed exercise of outstanding stock options. Outstanding stock options will have dilutive effect under the treasury stock method only when the average market price of the underlying common share during the period exceeds the exercise price of the option.

Contingencies Contingent liabilities are not recognized in the consolidated financial statements but are disclosed in the notes to the consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial statements but are disclosed in the notes to the consolidated financial statements when an inflow of economic benefits is probable.

Events After the Balance Sheet Date Post year-end events that provide additional information about the Company’s financial position at the date of the balance sheet (adjusting events), if any, are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to consolidated financial statements when material.

3. Management’s Use of Judgments, Estimates and Assumptions

The preparation of the consolidated financial statements in compliance with PFRS requires management to make judgments and estimates that affect certain reported amounts and disclosures. In preparing the consolidated financial statements, management has made its best judgments and estimates of certain amounts, giving due consideration to materiality. The judgments and estimates used in the accompanying consolidated financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the consolidated financial statements. Actual results could differ from those estimates, and such estimates will be adjusted accordingly.

The Company believes that the following represent a summary of these significant judgments and estimates and the related impact and associated risks in the consolidated financial statements.

Judgments In the process of applying the Company’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the consolidated financial statements.

Functional Currency. Based on the economic substance of the underlying circumstances relevant to the Company, the functional currency of the Company has been determined to be the Philippine peso. The Philippine peso is the currency of the primary economic environment in which the Company operates. It is the currency that mainly influences revenue and expenses.

Operating Lease Commitments. The Company has entered into a lease agreement as a lessor of condominium units and as a lessee for the use of office space. The Company has determined that the significant risks and rewards are retained by the lessor and so accounts the lease as operating lease.

Rental income amounted to P15.4 million, P20.1 million and P53.7 million in 2007, 2006 and 2005, respectively (see Note 27).

Rental expense amounted to P21.9 million, P8.8 million and P1.8 million for the years ended December 31, 2007, 2006 and 2005, respectively (see Note 23).

Estimates and Assumptions The key assumptions concerning future and other key sources of estimation at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

54 Metro Pacific Investments Corporation Fair value of Financial Assets and Financial Liabilities. PFRS requires that certain financial assets and financial liabilities be carried at fair value, which requires the use of accounting estimates and judgment. While significant components of fair value measurement are determined using verifiable objective evidence (i.e., foreign exchange rates, interest rates, volatility rates), the timing and amount of changes in fair value, would differ using a different valuation methodology. Any change in the fair values of financial assets and financial liabilities directly affect the consolidated statement of income and equity.

The fair value of financial assets and financial liabilities are set out in Note 33.

Financial Assets not Quoted in an Active Market. The Company classifies financial assets by evaluating, among others, whether the asset is quoted or not in an active market. Included in the evaluation on whether a financial asset is quoted in an active market is the determination on whether quoted prices are readily and regularly available, and whether those prices represent actual and regularly occurring market transactions on an arm’s length basis.

Revenue and Cost Recognition. The Company’s revenue and cost recognition policies require management to make use of estimates and assumptions that may affect the reported amounts of revenues and costs. The Company’s revenue and costs from sale of uncompleted projects recognized based on the percentage of completion are measured on the basis of the ratio of actual costs incurred to date over the estimated total costs of the project.

Revenues and costs from real estate sold amounted to P1,943.0 million and P1,012.4 million, respectively, in 2007; P1,116.0 million and P656.7 million, respectively, in 2006, and P1,023.8 million and P642.0 million, respectively, in 2005.

Estimated Development Costs. The accounting for real estate requires the use of estimates in determining costs and profit recognition. Costs of real estate sold is based on the percentage of completion which are measured on the basis of the ratio of actual cost incurred to date over the estimated total development cost of the project. The total development cost of the project is estimated by the Company’s engineers. At each balance sheet date, these estimates are reviewed and revised when necessary to reflect the current conditions.

Estimated Useful Lives of Property and Equipment and Investment Properties. The useful lives of each of the item of the Company’s property and equipment and investment properties are estimated based on the period over which the asset is expected to be available for use. Such estimation is based on a collective assessment of similar businesses, internal technical evaluation and experience with similar assets. The estimated useful life of each asset is reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the asset. It is possible, however, that future results of operations could be materially affected by changes in the amounts and timing of recorded expenses brought about by changes in the factors mentioned above. A reduction in the estimated useful life of any item of property and equipment and investment properties would increase the recorded depreciation and amortization expense and decrease the carrying values of property and equipment and investment properties.

There is no change in the estimated useful lives of property and equipment and investment properties during the year. The carrying value of property and equipment amounted to P258.9 million and P227.8 million as of December 31, 2007 and 2006, respectively (see Note 13). The carrying value of investment properties amounted to P42.6 million and P4.7 million as of December 31, 2007 and 2006, respectively (see Note 14).

Allowance for Impairment of Loans and Receivables. Allowance for doubtful accounts is maintained at a level considered adequate to provide for potentially uncollectible receivables. The Company assesses specifically at each balance sheet date whether there is objective evidence that a financial asset is impaired. The level of allowance is based on past collection experience and other factors that may affect collectibility such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments.

Where there is objective evidence of impairment, the amount and timing of collection is estimated based on historical loss experience. Provisions are made for accounts specifically identified to be impaired. Accounts are written off when management believes that the financial asset cannot be collected or realized after exhausting all efforts and courses of action. An evaluation of the receivables, designed to identify potential charges to the allowance, is performed on a continuous basis throughout the year. The amount and timing of recorded expenses for any period would therefore differ based on the judgments or estimates made.

Annual Report 2007 55 Notes to Consolidated Financial Statements

Carrying value of receivables (current and noncurrent), net of allowance for doubtful accounts, amounted to P3,365.4 million and P1,300.8 million as of December 31, 2007 and 2006, respectively (see Notes 7 and 15). Allowance for doubtful accounts amounted to P368.2 million and P366.2 million, respectively, as of December 31, 2007 and 2006 (see Note 7).

Impairment of AFS Financial Assets. The Company treats AFS financial assets as impaired when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires judgment. The Company treats “significant” generally as 20.0% or more and “prolonged” as greater than six (6) months for quoted equity securities. In addition, the Company evaluates other factors, including normal volatility in share price for quoted equities and the future cash flows and the discount factors for unquoted equities.

In 2005, impairment loss on certain AFS financial assets amounted to P135.9 million. No further impairment loss was recognized in 2007 and 2006 (see Note 27).

Creditable Withholding Taxes. The carrying amount of creditable withholding taxes is reviewed at each balance sheet date and reduced to the extent that it will not be realized as there will be no sufficient taxable profit that will be available to allow utilization of such creditable withholding taxes.

The carrying amount of the asset is reduced through the use of an allowance account. The allowance is established by charges to income in the form of provision for decline in value of asset. The amount and timing of recorded expenses for any period would therefore differ based on the judgment or estimates made. An increase in provision for decline in value of assets would increase the Company’s recorded expenses and decrease current assets.

Carrying value of creditable withholding taxes, net of allowance for decline in value (included under “Other current assets” account in the consolidated balance sheets) amounted to P49.6 million and P48.3 million, respectively, as of December 31, 2007 and 2006 (see Note 10). Allowance for doubtful accounts amounted to P347.6 million and P353.0 million, respectively, as of December 31, 2007 and 2006 (see Note 10).

Impairment of Nonfinancial Assets. Impairment review is performed when certain impairment indicators are present. Determining the fair value of assets requires the estimation of cash flows expected to be generated from the continued use and ultimate disposition of such assets.

While it is believed that the assumptions used in the estimation of fair values reflected in the consolidated financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse impact on the results of operations.

The carrying values of nonfinancial assets that are subjected to impairment testing when impairment indicators are present are as follows:

2006 (As restated - see 2007 Notes 2 and 12) (In Thousands) Investments in associates (see Note 11) P582,920 P603,320 Investment in a joint venture (see Note 12) 4,744,714 2,937,106 Property and equipment (see Note 13) 258,904 227,829 Investment properties (see Note 14) 42,604 44,704

Impairment losses on investments in associates amounted to P135.0 million, P441.4 million and P126.6 million, for the years ended December 31, 2007, 2006 and 2005, respectively (see Note 27).

Deferred Tax Assets. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized.

56 Metro Pacific Investments Corporation Deferred tax assets amounted to P210.1 million and P273.3 million, respectively, as of December 31, 2007 and 2006. Unrecognized deductible temporary differences and unused NOLCO and MCIT amounted to P5,406.8 million and P4,897.8 million, respectively, as of December 31, 2007 and 2006 (see Note 28).

Retirement Costs. The determination of the obligation and retirement benefits is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions are described in Note 25 and include, among others, discount rate and rate of increase in compensation. Actual results that differ from the Company’s assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods. While it is believed that the Company’s assumptions are reasonable and appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the Company’s retirement obligations.

Accrued retirement costs as of December 31, 2007 and 2006, amounted to P43.1 million and P18.5 million, respectively (see Note 25).

Contingencies. The Company is currently involved in various legal proceedings. The estimate of the probable costs for the resolution of these claims has been developed in consultation with outside counsel handling the defense in these matters and is based upon an analysis of potential results. The Company currently does not believe that these proceedings will have a material effect on the Company’s financial statements. It is possible, however, that future results of operations could be materially affected by changes in the estimates or in the effectiveness of the strategies relating to these proceedings (see Note 31).

4. Segment Information

In 2007, the Company is organized into three major business segments, namely real estate, water utilities, and others. In 2006 and 2005, major business segments include the Company’s transportation business which was sold by end of 2006. Such business segments are the bases upon which the Company reports its primary segment information.

Real Estate Real estate primarily relates to the operations of MPC and Landco and its subsidiaries which are involved in the business of real estate of all kinds.

Water Utilities Water utilities primarily relates to the Company’s investment in a joint venture company which in turn has investments in Maynilad.

Transportation Transportation relates to the operation of Nenaco, which provides inter-island passengers and freight transport services as further discussed in Note 5. In 2006, MPC’s BOD approved the sale, under a management buy out, of its 83.96% interest, equivalent to 2.53 billion common shares, in Nenaco to Negros Holdings and Management Corporation.

Total income and expense of Nenaco are presented under “Discontinued operation” column in the segment reporting.

Nenaco is under corporate rehabilitation since 2004.

Others Others represent operations of subsidiaries, associates and joint venture involved in provision of services and holding companies.

Annual Report 2007 57 Notes to Consolidated Financial Statements

The following table presents revenue and income information and certain assets and liabilities information regarding business segments for the year ended December 31, 2007:

Real Estate Water Utilities Other Businesses Eliminations Consolidated

Revenue External sales P1,943,004 P– P– P– P1,943,004 Inter-segment sales – – – – – Total revenue P1,943,004 P– P– P– P1,943,004

Results Segment results (P94,275) P– (P18,039) P– (P112,314) Other income (charges) – net (788,844) – 3,087,338 12,961 2,311,455 Interest income 283,114 – 33,515 – 316,629 Interest expense (123,092) – (3,514,818) 44,061 (3,593,849) Minority interests (92,759) – – (141,915) (234,674) Provision for income tax (164,751) – (138,320) (15,422) (318,493) Share in net losses of associates (46,113) – 37,638 – (8,475) Share in net earnings in a joint venture – 1,807,608 – – 1,807,608 Net income (loss) (P1,026,720) P1,807,608 (P512,686) (P100,315) P167,887

Assets and Liabilities Segment assets P6,509,721 P– (P331,457) P701,875 P6,880,139 Investments in associates - at equity 582,920 – – – 582,920 Investment in a joint venture – 4,744,714 – – 4,744,714 Consolidated total assets 7,092,641 4,744,714 (331,457) 701,875 12,207,773 Segment liabilities P3,290,929 P– P184,959 P5,876 P3,481,764

Other Segment Information Capital expenditures - Property and equipment P50,910 P– P21,223 P– P72,132 Depreciation and amortization 32,963 – 2,821 – 35,784 Provision for decline in value of assets 199,901 – – – 199,901 Noncash expenses (income), other than depreciation and amortization and provision for decline in value of assets 2,917,941 – (3,622,208) – (704,267)

58 Metro Pacific Investments Corporation – (403) 3,536 6,786 (12,735) (47,012) (62,894) 240,888 603,320 116,521 211,103 798,867 474,562) 685,943) (332,761) (307,620) P 2,880,386 2,880,386 6,242,225 2,937,106 9,782,651 3,216,090 P P ( (

P P P P Total Operations

– – – – – – – – – – – 53 P P 14,573 64,589 289,402 188,297 139,324 P 177,150) 115,697) (242,522) 1,764,362 1,764,362 P P ( ( P P Transportation

Discontinued Operations – (403) 3,536 6,786 51,932 22,806 (90,239) (61,585) (62,894) 240,888 603,320 659,543 P 297,412) 570,246) (302,137) (307,673) 1,116,024 1,116,024 6,242,225 2,937,106 9,782,651 3,216,090 P P ( ( P P P P Consolidated

– – – – – – – – – – – – – P P P 223 P (4,719) 35,500) P (341,575) ( 2,216,161 2,211,665 1,046,124)

(4,145,676) (5,191,800) P Eliminations P (

– – – – – – – – – – 8 P P 105 P 9,438 (5,164) 24,308 17,333 169,302 P P 1,587,595 4,035,959 5,623,554 7,389,342) (7,435,257) P P ( Other Businesses

Continuing Operations – – – – – – – – – – – – – – – – – – P P P P P P 62,894) (62,894) P ( 2,937,106 2,937,106 Water Utilities

– – – (403) 6,786 (1,183) 51,827 22,798 (90,239) (85,893) 246,052 713,037 P 314,968) (307,673) 4,916,959 1,116,024 1,116,024 4,670,325 5,700,754 6,413,791 3,082,288 1,001,118 P ( Real Estate P P P P P

Property and equipment Investment properties depreciation and provision for decline in value of assets Other income (charges) – net Interest income Interest expense Minority interests Benefit from (provision for) income tax Share in net losses of associates Share in net losses a joint venture Net income (loss) Assets and Liabilities Segment assets The following table presents revenue and income information certain assets liabilities regarding business segments for the year ended December 31, 2006: Revenue External sales Inter-segment sales Total revenue Results Segment results Investments in associates - at equity Investment in a joint venture Consolidated total assets Segment liabilities Other Segment Information Capital expenditures - Depreciation and amortization Provision for decline in value of assets Noncash expenses (income) other than

Annual Report 2007 59 Notes to Consolidated Financial Statements

– 823 9,815 (36,802) (19,488) 700,861 201,700 172,349 847,882 252,637 294,400 385,152 389,497) (285,248) (583,617) P P 3,213,579 3,213,579 7,242,163 8,090,045 7,444,397 P ( P P P P

Total Operations

– – – – – 8,070 9,815 20,717 155,442 201,800 274,519 247,318 192,005) 196,764) (168,271) P 2,189,791 2,189,791 2,054,720 2,054,720 2,002,454 P P ( ( P P P P Transportation Discontinued Operations – 823 9,815 50,837 19,881 (36,802) (27,558) 545,419 201,700 369,113 847,882 364,435 P 197,492) (116,977) (830,935) P 1,023,788 1,023,788 5,187,443 6,035,325 5,441,943 P ( P P P P Consolidated

– – – – – – – – – – – – P P P P 25,017) (25,017) (25,102) 775,609) P (906,911) ( P 3,360,555) ( (2,143,955) (5,504,510) Eliminations P (

– – – – – – – – – – – 2 84 P P P 9,366 3,222) 3,220) 78,902 P P ( ( 109,510 P 1,158,550 1,237,452 P Other Businesses Continuing Operations – 823 9,815 50,837 19,797 75,976 (11,785) (27,558) 545,417 201,700 397,350 380,171 P

194,270) (116,977) P 1,023,788 1,023,788 7,389,448 2,912,935 6,108,042 P ( Real Estate 10,302,383 P P P P

at equity Property and equipment Investment properties value of assets depreciation and amortization provision for decline in value of assets The following table presents revenue and income information certain assets liabilities regarding business segments for the year ended December 31, 2005: Revenue External sales Inter-segment sales Total revenue Results Segment results Other income (charges) – net Interest income Interest expense Minority interests Benefit from (provision for) income tax Share in net earnings of associates Net income (loss) Assets and Liabilities Segment assets Investments in associates - Consolidated total assets Segment liabilities Other Segment Information Capital expenditures - Depreciation and amortization Provision for decline in Noncash expenses (income) other than

60 Metro Pacific Investments Corporation 5. Discontinued Operation

On December 20, 2006, MPC’s BOD approved the sale of its 83.96% interest, equivalent to 2.53 billion common shares, in Nenaco to Negros Holdings and Management Corporation, a company which is owned by the then management of Nenaco.

The results of operations of Nenaco for all the period presented until discontinuance have been presented in the consolidated statement of income as “Loss from Discontinued Operation after Income Tax.”

Total assets and liabilities of the discontinued subsidiary are presented in the segment information in Note 4 under discontinued operation.

Assets and liabilities of discontinued operation are as follows:

2005 (In Thousands) Assets: Cash P42,526 Receivables – net 147,985 Other current assets 205,382 Property and equipment at cost - net 1,582,190 Other noncurrent assets 76,637 P2,054,720

Liabilities: Accounts payable and other current liabilities P457,451 Long-term debt 1,215,745 Other long-term liabilities 29,960 Deferred tax liabilities 299,298 P2,002,454

The results of discontinued operation are as follows:

2006 2005 (In Thousands) Revenues P1,764,362 P2,189,791 Costs and expenses: Cost of sales and services 1,803,166 2,224,644 General and administrative 138,346 157,152 1,941,512 2,381,796 (177,150) (192,005)

Other income (expenses) - net 46,880 (12,829) Loss before income tax (130,270) (204,834) Benefit from income tax (14,573) (8,070) Loss after income tax (P115,697) (P196,764)

Annual Report 2007 61 Notes to Consolidated Financial Statements

6. Cash and Cash Equivalents

This account consists of: 2006 (As restated - see 2007 Notes 2 and 12) (In Thousands) Cash on hand and in banks P134,221 P230,162 Short-term deposits 113,860 5,000 P248,081 P235,162

Cash in banks earns interest at the prevailing bank deposit rates. Short-term deposits are made for varying periods of up to three months depending on the immediate cash requirements of the Company, and earn interest at the prevailing short-term deposit rates.

7. Receivables

This account consists of:

2006 (As restated - see 2007 Notes 2 and 12) (In Thousands) Trade receivables (see Note 21) P1,001,062 P435,903 Notes receivable (see Notes 11 and 21) 780,000 193,124 Advances to suppliers 599,710 60,053 Advances to other affiliates (see Note 21) 106,398 103,857 Commission and management fee receivables 97,115 143,276 Receivable from landowners 73,550 94,048 Advances to stockholders 59,050 – Advances to officers and employees 56,012 41,323 Receivable from sale of AFS financial assets 22,418 27,052 Advances to sinking fund 7,129 – Accrued interest receivable (see Note 21) 4,286 59,359 Others 204,188 150,259 3,010,918 1,308,254 Less allowance for doubtful accounts 368,204 366,240 P2,642,714 P942,014

Trade receivables include: (a) installment contract receivables (ICR) from the sale of various real estates (e.g. residential lots, condominiums and others); (b) lease receivable of retail space and land; and (c) others which is mainly from sales of club shares and agrotourism.

ICRs are collectible in monthly installments over periods ranging from one year to five years and bear interest of up to 16.0% per annum computed daily on the diminishing balance of the principal.

The carrying values of the Company’s ICRs that were used to secure certain liabilities as of December 31 follow:

Secured Liabilities 2007 2006 (In Millions) Notes payable (see Note 16) P171.0 P20.6 Long-term debt (see Note 19) 532.0 189.6

62 Metro Pacific Investments Corporation Notes receivable include: (a) a five-year note with a face value of P150.0 million that was issued by Steniel (Netherlands) Holdings B.V. (Steniel Netherlands) on December 12, 2000 as part of the consideration for the Steniel Manufacturing Corporation (Steniel) shares of stock which was sold by MPC on October 30, 2000. The related allowance was increased to P150.0 million in 2006, when no payment was received from Steniel Netherlands on June 30, 2006, the maturity date of the note; and (b) the P630.0 million convertible notes issued by Medical Doctor’s, Inc. (MDI). These notes are convertible to MDI shares. On January 18, 2008, the Company exercised its option to convert, resulting to a 33.4% ownership in MDI (see Notes 11 and 34).

Advances to suppliers pertain to advance payments made by the Company to suppliers/contractors with whom the Company have an existing contract.

Receivable from landowners represent unremitted Company’s share on the sales proceeds of projects which have been collected by the landowners. Such collections should be remitted to the Company the month following the date of collection, and are therefore considered current.

All other receivables mainly represent advances to former subsidiaries and affiliates of the Company which were provided with allowance. In 2006, the Company has written off certain of these receivables amounting to P104.5 million against the allowance provided.

Movements in the allowance of individually assessed impaired receivables in 2007 and 2006 are as follows:

December 31, 2007

Charge for Balance at the period Balance at January 1, 2007 (see Note 27) Reversal December 31, 2007 (In Thousands) Trade receivables P2,842 P– (P357) P2,485 Notes receivable 150,000 – – 150,000 Advances to other affiliates 105,818 580 – 106,398 Advances to officers and employees 9,894 – – 9,894 Receivable from sale of AFS financial assets 4,160 – – 4,160 Others 93,526 1,741 – 95,267 P366,240 P2,321 (P357) P368,204

December 31, 2006 Charge for Balance at the period Amounts Balance at January 1, 2006 (see Note 27) written off Reversal December 31, 2006 (In Thousands) Trade receivables P2,842 P– P– P– P2,842 Notes receivable 100,000 50,000 – – 150,000 Advances to other affiliates 211,676 – (104,500) (1,358) 105,818 Advances to officers and employees 9,894 – – – 9,894 Receivable from sale of AFS financial assets 4,160 – – – 4,160 Others 92,146 2,125 – (745) 93,526 P420,718 P52,125 (P104,500) (P2,103) P366,240

Annual Report 2007 63 Notes to Consolidated Financial Statements

8. Real Estate for Sale

This account consists of: 2007 2006 (In Thousands) Land P537,153 P518,764 Development costs: Residential 561,869 478,452 Residential resort community and Central Business District 442,704 696,589 Memorial lots 164,168 158,434 Condominium units, including parking lots 161,660 152,722 P1,867,554 P2,004,961

Condominium units include units which are carried at net realizable values. Had it been carried at cost, the carrying values of such units should have been P199.7 million and P219.1 million as of December 31, 2007 and 2006, respectively. The Company’s property operations, specifically for MPC’s condominium properties, were affected by the then general decline in the real estate industry resulting in the Company recording the real estate for sale at its net realizable values in prior years. The Company recognized impairment loss on the condominium units and parking lots amounting to P62.5 million in 2007 and P81.5 million in 2005. No impairment loss was recognized in 2006 (see Note 27).

Details of the more significant property development, held by Landco and MPC over which they earned or contracted development rights in the real estate business as of December 31, 2007 are set out below:

Approximate Gross Economic Development Area Location Interest (sq. m.)* Type Status Landco Tiaong, Quezon (Hacienda Escudero) 30.60% 3,226,873 Farm, C Under construction Lemery, Batangas (Leisure Farms) 51.00% 1,465,024 Farm Completed Calatagan, Batangas (Playa Calatagan) 30.60% 981,598 R, RO Under construction Nasugbu, Batangas (Terrazas) 18.36% 897,440 RO Under construction Guadalupe, Cebu (Monterrazas de Cebu) 28.05% 721,000 R Under construction Nasugbu, Batangas (Punta Fuego) 28.05% 455,238 RO Completed Silang, Cavite (Ponderosa) 19.89% 366,627 Farm Under construction San Pablo, Laguna (Montelago) 30.60% 338,435 R Under construction Talisay, Cebu (Pacific Heights) 66.68% 332,000 R Completed Davao/Zamboanga/Iloilo (Forest Lake) 30.60% 311,200 MP Under construction San Pedro, Laguna (Stonecrest) 25.50% 297,986 R Completed Baliuag, Bulacan (Waterwood 1) 33.79% 264,574 R Completed Cabanatuan, Nueva Ecija (Courtyard) 35.29% 228,831 R Under construction Cagayan de Oro/San Fernando La Union (Forest Lake CDO) 21.42% 120,000 MP Under construction Muntinlupa City (Tibeca) 40.80% 97,000 R Under construction Baliuag, Bulacan (Waterwood 2) 36.72% 88,335 R Under construction Lucena City, Quezon (Ridgewood) 83.00% 40,076 R Completed Nasugbu, Batangas (Amara Condo) 30.60% 29,993 H Under construction Baliuag, Bulacan (Waterwood 3) 51.00% 17,382 R Completed Bajada, Davao (Landco Corporate Center) 51.00% 13,326 C Under construction Legaspi City, Albay (Landco Business Park) 25.00% 11,022 C Completed

64 Metro Pacific Investments Corporation Approximate Gross Economic Development Area Location Interest (sq. m.)* Type Status MPC Costa de Madera, San Juan, Batangas 62.00% 3,720,000 R,RO Planning Batulao, Batangas 100.00% 2,107,050 R Planning

C - Commercial, R - Residential, RO - Resort, H - Hotel, MP - Memorial Park *Represents total area for development and sale as subdivisions, including lots sold under installment terms where full payment has not been made, and land designated for parks and open spaces within the development.

The carrying values of the Company’s real estate for sale that were used to secure certain liabilities as of December 31 follow:

Secured Liabilities Description of Properties 2007 2006 (In Millions) Long-term debt - loans Land and land under (see Note 19) development P145.8 P168.9 Provisions (see Note 18) Condominium units 19.0 19.0 Notes payable Land and land (see Note 16) under development – 4.4

9. Available-for-sale Financial Assets

This account consists of:

2007 2006 (In Thousands) Shares of stock in: BLC P402,964 P403,001 Golf clubs 154,028 184,150 556,992 587,151 Less current portion 402,964 403,001 P154,028 P184,150

Investment in BLC consists of unquoted shares of stock totaling of 2,942,850 and 2,943,120 shares as of December 31, 2007 and 2006, respectively. Investments in golf club shares have no fixed maturity date or coupon rate.

The fair values of the listed golf club shares pertains to the quoted prices while for the unlisted shares, fair value was determined based on prevailing and recent selling prices.

The rollforward of unrealized gain on AFS financial assets (shown under “Change in fair values of AFS financial assets” in the consolidated balance sheets) is as follow: 2007 2006 Balance at beginning of year P14,472 P21,153 Change in fair values during the year 6,248 (3,674) Realized fair value adjustments recognized in profit and loss upon sale of AFS financial assets (6,660) (3,007) Balance at end of year P14,060 P14,472

In 2005, provision for decline in value of BLC and golf club shares amounting to P125.6 million and P10.3 million, respectively, were included in “Provision for decline in value of assets” under the “Other expense” account in the consolidated statements of income on the basis of sales price to a third party. No further provision for decline in value of AFS financial assets was recognized in 2007 and 2006 (see Note 27).

Annual Report 2007 65 Notes to Consolidated Financial Statements

The carrying values of the Company’s AFS financial assets that were used to secure certain liabilities as of December 31 follow:

Secured Liabilities Description of Properties 2007 2006 (In Millions) Provisions (see Note 18) BLC shares P403.0 P403.0 Long-term debt - loans (see Note 19) Golf club shares 12.0 12.0 Notes payable (see Note 16) Golf club shares – 7.2

10. Other Current Assets

Other current assets consist of: 2006 (As restated - see 2007 Notes 2 and 12) (In Thousands) Creditable withholding taxes (CWT) P397,217 P401,343 Input taxes 76,806 40,913 Landowner’s cash 49,508 6,449 Prepaid expenses 20,951 9,174 Cash deposits – 1,470,900 Others 31,231 47,607 575,713 1,976,386 Less allowance for decline in value 366,594 360,263 P209,119 P1,616,123

The cash deposits represent pledged deposit in relation to a P1,470.9 million bank loan, the proceeds of which were used as equity in DMCI-MPCI. The bank loan was settled and the cash deposits were released in 2007.

The allowance for decline in value mainly represents provision for impairment of CWT as management believes that it may not be able to utilize the same. Additional provision for decline in value of CWT amounted to P131.7 million in 2006. No further provision for decline in value of CWT was recognized in 2007 (see Note 27).

11. Investments in Associates

Investments in associates consist of: 2007 2006 (In Thousands) Acquisition costs: Balance at beginning of year P3,572,154 P3,366,120 Acquisitions during the year 123,114 282,281 Disposals during the year – (76,247) Balance at end of year 3,695,268 3,572,154 Accumulated equity in net losses: Balance at beginning of year (1,589,533) (1,518,854) Share in net losses during the year (8,475) (403) Reversal of share in accumulated losses in excess of the carrying value of the investment – (70,276) Balance at end of year (1,598,008) (1,589,533) 2,097,260 1,982,621 Less allowance for impairment loss 1,514,340 1,379,301 P582,920 P603,320

66 Metro Pacific Investments Corporation Details of investments in associates follow:

Place of Economic Interest Associate Incorporation Principal Activities 2007 2006 Costa De Madera Corporation (CDMC)* Philippines Real estate 62.00 62.00 Prime Media Holdings, Inc. (PMHI) Philippines Media holding company 49.00 49.00 Metro Pacific Land Holdings, Inc. (MPLHI) Philippines Real estate 49.00 49.00 Landco NE Resources Ventures, Inc. (LNERVI) Philippines Real estate 45.00 45.00 Metro Strategic Infrastructure Holdings, Inc. Philippines Investment holding 40.00 40.00 Pacific Mall Corporation (PMC) Philippines Real estate 33.00 33.00 NE Pacific Shopping Centers, Inc. (NPC) Philippines Real estate 19.30 19.30 Nueva Ecija Land Company, Inc. (NELCI) Philippines Real estate 18.00 18.00 Forest Lake San Pedro, Inc. Philippines Real estate 18.00 18.00 Landco Urdaneta Properties, Inc. (LUPI) Philippines Real estate 16.00 16.00 Waterwood Land, Inc. (WLI) Philippines Real estate 13.00 13.00 MDI Philippines Hospital 7.50 –

* Not consolidated as control rests with the minority shareholder.

The carrying values of investments in associates accounted for under the equity method follow:

2007 2006 (In Thousands) PMC P238,079 P206,612 MDI 158,481 – LNERVI 73,567 111,509 NE Pacific Shopping Centers Corporation 56,346 55,615 WLI 18,495 20,876 LUPI 14,714 13,385 CDMC – 134,085 Others 23,238 61,238 P582,920 P603,320

Condensed combined financial information of the associates follows:

2007 2006 (In Thousands) Current assets P16,279,501 P1,194,471 Noncurrent assets 41,955,866 1,408,149 Current liabilities 17,737,632 515,002 Noncurrent liabilities 25,467,715 745,365 Revenue 10,428,293 352,886 Costs and expenses 7,774,603 291,024 Net income (loss) 4,058,414 (26,734)

Unrecognized share in losses of associates amounted to P552.6 and P574.4 million as of December 31, 2007 and 2006, respectively.

Acquisitions during the year pertain mainly to acquisition of MDI. On May 9, 2007, the Company has subscribed for a total of P750.0 million worth of convertible notes (Notes) of MDI. The Notes are subject to 7.0% interest per annum, payable semi-annually up to the date of conversion

The Notes are convertible to common shares of MDI at the rate of P800.0 per share, but not lower than the value of the par value of the common shares. The Notes are convertible into shares anytime after the Note’s issue date and all outstanding convertible notes

Annual Report 2007 67 Notes to Consolidated Financial Statements

will be mandatorily converted into common shares on the 5th anniversary date. Full conversion of these notes will give the Company a total ownership interest of 33.4%.

As of December 31, 2007, P120.0 million convertible notes have already been converted into 150,000 common shares, making the Company a holder of 7.5% interest in MDI. The remaining unconverted portion of the Notes amounted to P630.0 million representing 787,500 common shares of MDI and is included as “Notes Receivable” under “Receivables” account in the consolidated balance sheets (see Note 7).

In relation to the allocation of purchase price related to the acquisition, excess of fair values over cost amounting to P27.7 million was recognized as part of share in net earnings in the consolidated statement of income.

On January 18, 2008, the remaining portion of the notes was converted into common shares (see Note 34).

12. Interest in a Joint Venture

As disclosed in Note 2, the Parent Company has 50.0% interest in DMCI-MPIC, a joint venture which was incorporated to acquire equity interest, purchase, negotiate or otherwise deal with or dispose of stocks, bonds of Maynilad.

DMCI-MPIC was incorporated in the Philippines and registered with the SEC on November 17, 2006. DMCI-MPIC was capitalized at P1.0 million where the Company initially subscribed to 125,000 shares or P0.1 million at P1.00 par. The amount represents 50.0% of the total amount subscribed.

On December 12, 2006, the Articles of Incorporation of DMCI-MPIC was amended increasing its authorized capital stock to P6.0 billion. MPIC subscribed for an additional 2,999,500,000 shares or P3.0 billion representing 50.0% of the total amount subscribed. The other 50.0% is held by DMCI Holdings, Inc. (DMCI).

The movement of the Company’s interest in DMCI-MPIC follows: 2006 (As restated - 2007 see Note 2) (In Thousands) Acquisition costs: Balance at beginning of year P3,000,000 P– Acquisitions during the year – 3,000,000 Balance at end of year 3,000,000 3,000,000 Accumulated equity in net earnings (losses): Balance at beginning of year (62,894) – Share in net earnings (losses) during the year 1,807,608 (62,894) Balance at end of year 1,744,714 (62,894) P4,744,714 P2,937,106

Condensed combined financial information of the joint venture follows: 2006 (As restated - 2007 see Note 2) (In Thousands) Current assets P6,850,959 P3,061,209 Noncurrent assets 17,845,486 – Current liabilities 7,825,233 52,689 Noncurrent liabilities 11,421,416 – Revenues 3,625,384 – Costs and expenses 2,565,349 67,564 Net income (loss) 1,807,608 (62,894)

68 Metro Pacific Investments Corporation 13. Property and Equipment

This account consists of:

December 31, 2007 December 31, Disposals/ December 31, 2006 Additions Reclassifications 2007 (In Thousands) Cost: Land P70,115 P– P– P70,115 Land improvements 16,471 – – 16,471 Leasehold improvements 3,979 2,717 (3,980) 2,716 Building and building improvements 115,753 3,769 223 119,745 Office and other equipment, furniture and fixtures 108,176 41,806 (2,360) 147,622 Transportation equipment 51,005 23,541 (8,661) 65,885 365,499 71,833 (14,778) 422,554 Accumulated depreciation and amortization: Land improvements 658 – – 658 Leasehold improvements 2,022 831 (2,022) 831 Building and building improvements 42,653 3,899 – 46,552 Office and other equipment, furniture and fixtures 54,639 24,165 (933) 77,871 Transportation equipment 41,965 4,789 (4,449) 42,305 141,937 33,684 (7,404) 168,217 223,562 38,149 (7,374) 254,337 Construction-in-progress 4,267 300 – 4,567 P227,829 P38,449 (P7,374) P258,904

December 31, 2006

December 31, Disposals/ December 31, 2005 Additions Reclassifications 2006 (In Thousands) Cost: Land P70,115 P– P– P70,115 Land improvements 19,753 – (3,282) 16,471 Leasehold improvements 3,973 6 – 3,979 Building and building improvements 121,910 2,686 (8,843) 115,753 Office and other equipment, furniture and fixtures 64,409 44,718 (951) 108,176 Transportation equipment 51,447 3,742 (4,184) 51,005 (Total Carried Forward) 331,607 51,152 (17,260) 365,499

Annual Report 2007 69 Notes to Consolidated Financial Statements

December 31, Disposals/ December 31, 2005 Additions Reclassifications 2006 (In Thousands)

(Total Brought Forward) P331,607 P51,152 (P17,260) P365,499 Accumulated depreciation and amortization: Land improvements 1,727 329 (1,398) 658 Leasehold improvements 1,232 790 – 2,022 Building and building improvements 36,707 4,858 1,088 42,653 Office and other equipment, furniture and fixtures 45,723 10,445 (1,529) 54,639 Transportation equipment 41,328 4,335 (3,698) 41,965 126,717 20,757 (5,537) 141,937 204,890 30,395 (11,723) 223,562 Construction-in-progress 3,487 780 – 4,267 P208,377 P31,175 (P11,723) P227,829

Depreciation and amortization is computed on a straight-line basis over the following estimated useful lives of property and equipment:

Land improvements 3–20 years Leasehold improvements 2–5 years Building and building improvements 5–25 years Office and other equipment, furniture and fixtures 3-5 years Transportation equipment 5 years

14. Investment Properties

Details of the account follows:

December 31, 2007

December 31, December 31, 2006 Additions 2007 (In Thousands) Cost of investment properties P53,939 P– P53,939 Accumulated depreciation 7,845 2,100 9,945 46,094 2,100 43,994 Allowance for impairment loss 1,390 – 1,390 P44,704 P2,100 P42,604

December 31, 2006

December 31, December 31, 2005 Additions 2006 (In Thousands) Cost of investment properties P47,153 P6,786 P53,939 Accumulated depreciation 5,796 2,049 7,845 41,357 4,737 46,094 Allowance for impairment loss 1,390 – 1,390 P39,967 P4,737 P44,704

70 Metro Pacific Investments Corporation Investment properties are composed of condominium units and parking lots being held by the Company under operating leases to earn rentals. Rental income amounted to P11.6 million, P6.4 million and P5.4 million for the years ended December 31, 2007, 2006 and 2005, respectively, which is shown as part of “Other income” account in the consolidated statement of income. Direct operating expenses related to the investment properties that earned rental income amounted to P2.9 million, P2.7 million and P2.4 million for the years ended December 31, 2007, 2006 and 2005, respectively. The estimated fair values of the condominium units and parking lots amounted to P155.9 million and P180.8 million as of December 31, 2007 and 2006, respectively, which were based on the value in use determined on the basis of discounted cash flows of future rental payments.

The investment properties are depreciated using the straight-line basis over the estimated useful life of 20 years.

15. Long-term Receivables

This account consists of:

2007 2006 (In Thousands) Noncurrent portion of trade receivables P448,537 P243,924 Notes receivable (see Note 21) 149,269 58,616 Accrued interest receivable (see Note 21) 124,901 56,262 P722,707 P358,802

Notes receivable pertains to receivables from certain landowner and related parties obtained for use in the projects. The receivable from landowner is a five-year term loan, subject to 11% interest per annum.

16. Notes Payable

This account consists of:

2007 2006 (In Thousands) Secured P255,584 P1,838,180 Unsecured 379,524 123,632 P635,108 P1,961,812

Secured short-term loans with local banks bear an average annual interest rates ranging from 7.9% to 15.5% and 7.0% to 15.0% for the years ended December 31, 2007 and 2006, respectively. These loans are secured by certain receivables, real estate for sale and golf club shares (see Notes 7, 8 and 9).

Unsecured short-term loans represent loans from local banks, a contractor and a related party. The loans bear an average annual interest rates of 13.6% and 9.0% to 15.0% for the years ended December 31, 2007 and 2006, respectively.

Annual Report 2007 71 Notes to Consolidated Financial Statements

17. Accounts Payable and Other Current Liabilities

This account consists of:

2006 (As restated - see 2007 Notes 2 and 12) (In Thousands) Accounts payable P832,052 P486,705 Customers’ deposits 580,457 943,589 Accrued expenses 619,414 493,152 Interest and other financing charges payable (see Notes 16 and 19) 322,413 156,398 Maintenance Care Fund (MCF) liability 94,313 75,877 Subscription payable 89,591 87,652 Output taxes payable 87,703 111,867 Retention payable 78,657 44,924 Dividends payable (see Note 21) 54,354 37,041 Withholding taxes payable 3,637 1,139 Unearned rental income and other deposits 3,561 4,815 Others 206,986 247,848 P2,973,138 P2,691,007

Accounts payable includes the excess of collections over the recognized receivables and billings of various contractors and other liabilities incurred in relation to project developments.

Customer’s deposits mainly include collections received from buyers which have not met the revenue recognition criteria.

The MCF liability pertains to amounts received from buyers of memorial lots. The MCF is a separate fund set up on behalf of the purchasers of the memorial lots for the care and maintenance of the lots.

Others include liabilities to certain local banks and financial institutions amounting to P151.8 million and P204.1 million as of December 31, 2007 and 2006, respectively, resulting from the assignment of the Company’s share in the net proceeds from the sale of certain lots in a real estate project in San Pedro, Laguna and certain ICRs. The balance is being reduced by the amount of collection from customers.

18. Provisions

Movements of provisions follow:

2007 2006 (In Thousands) Balance at beginning of year P433,229 P673,430 Additions (see Notes 27 and 31) 102,688 52,697 Payments (25,156) (79,939) Reversals (see Note 31) (49,285) (212,959) Balance at end of year P461,476 P433,229

Provisions mainly consist of estimated expenses related to the concluded and ongoing debt settlement negotiations and certain warranties and guarantees extended by the Company in relation to debt for asset swap arrangements entered in prior years (see Note 31). Certain warranties and guarantees are secured by PPT condominium units and BLC shares (see Notes 8 and 9). Some of these claims and warranties expired and were cancelled in 2007 and 2006 and therefore the related provisions were reversed by the Company.

72 Metro Pacific Investments Corporation 19. Long-term Debt

This account consists of:

2007 2006 (In Thousands) MPIC - convertible notes P3,444,739 P– MPC: Convertible preferred shares 57,267 57,267 Long-term bonds 12,797 15,208 Convertible notes 37,231 37,231 Loans – 1,000 Landco - loans 795,203 426,172 4,347,237 536,878 Less current portion 3,938,212 268,905 P409,025 P267,973

Repayment schedule of the long-term debts follow:

Year 2007 2006 (In Thousands) Current P3,938,212 P268,905 2009 213,932 124,836 2010 86,050 55,616 2011 and onwards 109,043 87,521 P4,347,237 P536,878

MPIC

Convertible Notes from MPHI and Inframetro Holdings Pte. Ltd. (Inframetro) On January 8 and May 16, 2007, the Company availed of US dollar-denominated loans (Dollar Loans) amounting to $61.9 million (Tranche 1) and $15.9 million (Tranche 2) from MPHI and Ashmore [Global Special Situations Fund Limited, Ashmore Global Special Situations Fund 2 Limited, Ashmore Global Special Situations Fund 3 Limited , Asset Holder PCC No. 2 Limited in Respect of Ashmore Asian Recovery Fund and EMDCD Ltd. (collectively referred to as Ashmore)], respectively, or for an aggregate amount of P3,765.2 million to finance the Company’s investments in Maynilad and MDI. The Dollar Loans carry a conversion option by written notice by the lenders to the Company to convert all or part of the principal amount of the loans to equity at P1/share.

Interest is floating (LIBOR plus 300 basis points), payable in 12 months from date of grant. The Company shall pay interest on the loans outstanding, unless the lenders convert the loans into shares of Company. The interest shall continue to accrue on any remaining balance on the loans after the conversion into shares and shall continue to apply until such time as all of the loans have been converted into shares. The Dollar loan principal and interest will mature January 8 and May 16, 2008 if no conversion happens.

The conversion option of the Dollar Loans was separately accounted for as an embedded derivative. The day 1 loss related to convertible note from MPHI amounting to P286.1 million was recognized directly under “Other reserves” account in the equity section of the consolidated balance sheet. The day 1 loss amounting to P305.1 million related to Ashmore loan was recognized in the consolidated statement of income. The Dollar loans were recorded at present value and interests were recognized using effective interest rate. Interest expense representing the accretion of the Dollar Loans amounted to P3,211.5 million in 2007.

Annual Report 2007 73 Notes to Consolidated Financial Statements

Interest payable and derivative liability amounted to P245.2 million and P3,222.8 million as of December 31, 2007. These were subsequently extinguished upon the issuance of the Peso-denominated loans as further discussed herein. Mark to market gains related to the derivative liability amounted to P1,065.7 million as of December 31, 2007.

During the year, Ashmore conveyed to Inframetro their rights, title, interests and obligations in and to the Dollar Loans as if Inframetro was named a party in the dollar loan agreement.

On December 31, 2007, the Company replaced the Dollar Loans wth Peso-denominated loans (Peso Loans) amounting to P2,766.4 million (Tranche 1) and P691.0 million (Tranche 2). Upon and conditional on such issuance, the dollar loans shall be surrendered to, and cancelled by the Company and all obligations of the Company under the dollar loans shall be discharged and become obligations under the Peso Loans, however, all accrued rights of MPHI and Inframetro against the Company is not discharged.

The Peso Loans pay interest based on Philippine Dealing System Treasury-Fixing (PDST-F) benchmark rate plus 3.0%. The interest shall continue to accrue on any remaining balance on the loans after the conversion into shares and shall continue to apply until such time as all of the loans have been converted into shares. The Peso Loans will mature February 28 and May 26, 2008.

The Peso Loans also carry a conversion option by written notice by the lenders to the Company to convert all or part of the principal amount of the loans to equity at P1.08236 (Tranche 1) and P1.05286 (Tranche 2) per share. However, throughout 2007, MPHI and Inframetro had already been in discussion to find resolution to the Dollar Loan Agreement that it had signed with the Company. As mentioned under the loan agreement, Company had granted MPHI and Inframetro the right to convert its loans to Company to common shares of the Company. Additionally, MPHI and Inframetro, gave each other the right to force the conversion of the other party’s loan into equity in the Company should one of them decide to convert its loan.

Pursuant to an agreement, MPHI and Inframento, effective December 31, 2007, agreed on the following: (a) for Inframetro to waive its right to convert its portion of the Tranche 1 Peso Loans, and; (b) for MPHI and Inframetro to waive each of their right to force conversion of the loans (see Note 34).

On both of the Dollar and Peso Loans, the Company may prepay the loans in full or in part, without premium or penalty, at anytime during the term of the loans. The Company may not prepay the loans in full or in part to defeat the conversion option of the lenders. In any case, the lender’s exercise of their option shall override any notice of prepayment by the Company. The net effect of the exchange of the Peso Loans against the Dollar Loans, after considering the waiver of portion of the option, is a net gain of P1,054.0 million, representing the difference of the gain on extinguishment of the Dollar Loan of P2,945.0 million and the loss on recognition of Peso Loan of P1,891.0 million. The value of the conversion option embedded in the Peso Loan of P1,903.6 million was recognized directly to equity and included under “Other reserves” account.

MPC

Convertible Preferred Shares Restructured into Term Loan On July 23, 1999, MPC issued convertible preferred shares at a subscription price of P1,000 per share or an aggregate subscription price of P720.0 million. The shares carried a dividend rate of 10.0% per annum, with a premium to be paid on redemption that will equate to a cumulative yield over the full term of 15.0% per annum. The shares were also redeemable after three years, with conversions permitted throughout the period based on a conversion price of P2.25 per share, representing a premium of 12.5% over the prevailing market price. MPC accrued and paid dividends of P72.0 million on the shares up to December 31, 2001, but was unable to meet obligations from January 1, 2002 onwards. Consequently, the preferred shareholders opted to exercise its put option and demanded redemption of the shares, thereby warranting the reclassification of the portion of the equity represented by the preferred shares into debt in July 2002.

On various dates in 2002 and 2006, a total of P462.8 million of shares due from redemption were settled via asset-for-debt exchange of PPT condominium units, CCEI shares and certain Landco properties. Out of the P720.0 million convertible preferred shares, P200.0 million were restructured into term loan.

As of December 31, 2007 and 2006 and P57.3 million, remains outstanding and forms part of “Current portion of long-term debt” account in the consolidated balance sheets.

74 Metro Pacific Investments Corporation Long-term Bonds These long-term bonds were issued by Metro Pacific Company Limited (MPCL), a subsidiary, on April 11, 1996. The bonds are guaranteed by MPC, are unsecured and bear a fixed interest rate of 2.5% per annum payable annually in arrears. The bonds can be converted into common shares of MPC from June 11, 1996 to March 28, 2003 at a conversion price of P5.08 per share adjusted for the stock dividend in 1997 of 33.0%, and based on a fixed rate of exchange of P26.19 = US$1.00.

The bondholders have the option to have the bonds redeemed in whole or in part at 128.9% of their principal amount, together with accrued interest, on April 11, 2001. Through January 2001, a subsidiary bought back from the market about US$12.2 million of the outstanding principal at an average unit price of 120.0% of the face value of the bond for a total purchase price of US$14.7 million including premium and accrued interest. As at the redemption date on April 28, 2001, bondholders of US$66.3 million of the total US$66.6 million outstanding bonds opted for redemption and were paid a total of US$87.1 million including interest and premium.

As the guarantor, the balance of US$310 thousand was accordingly assumed by MPC following MPCL’s default in payment. The balance as of December 31, 2007 remains at US$310,000 (P12.8 million in 2007 and P15.2 million in 2006).

Convertible Notes This represents the unsettled balance of three-year convertible notes issued by MPC at par in 1999 with an aggregate value of P1,514.0 million.

The notes bear interest at the rate of 9.5% per annum, payable semi-annually in arrears, with a premium on redemption to provide for a yield of 12.0% per annum. The notes are convertible into common shares of MPC at a price of P2.25 per share. The notes were issued to the creditors of Nenaco in order to refinance the latter’s obligations that matured on September 30, 2002.

Prior to their maturity dates in 2002, negotiations for settlement of the notes were initiated and resulted in the restructuring of P744.0 million into five to ten-year loan, bearing annual interest based on the 91-day Treasury Bill rate plus spread of 3.0%, and the settlement through dacion of property with carrying value of P193.0 million. Between 2003 and 2006, the debts were partially settled primarily via dacion of the Company and Landco’s assets.

As of December 31, 2007 and 2006, P37.2 million remains outstanding.

Loans Loan from United Coconut Planters Bank of P1.0 million as of December 31, 2006, payable in 41 monthly amortization and subject to 34.9% per annum. The loan is secured by a certain transportation equipment of MPC. In January 2007, the loan was fully settled and the security was released.

Landco Loans consist of the following: a. Loan from AB Holdings, Inc. with a balance of P101.8 million and P134.5 million as of December 31, 2007 and 2006, respectively, payable in seven years with a 24-month grace period on principal payments. Interest is equivalent to one year MART 1 (one year) plus 3.5%, plus applicable gross receipts tax reviewable every year and payable monthly in arrears, principal payable in 61 monthly amortizations starting August 7, 2006. This loan is collateralized by various farm lots with an area of 164,612 square meters located in Lemery, Batangas with a carrying value of P128.7 million and P131.5 million as of December 31, 2007 and 2006, respectively (see Note 8). The loan contains covenants concerning restrictions with respect to, among others, sale or transfer of the substantial portion of its assets, restricted payments, and the maximum debt-to-base equity ratio. As of December 31, 2007 and 2006, Landco is in compliance with the required covenants. b. Loan from Allied Bank with a balance of P26.7 million and P27.5 million as of December 31, 2007 and 2006, respectively, payable in two years and subject to interest of 9.5% per annum. The loan is secured by money market placement of associates with a carrying value of P26.7 million and P27.5 million as of December 31, 2007 and 2006, respectively. c. Loan from Wealth Development Bank with a balance of P4.4 million and P13.8 million as of December 31, 2007 and 2006, respectively, payable in 60 monthly equal amortizations until September 4, 2008 and subject to interest of 15.0% per annum.

Annual Report 2007 75 Notes to Consolidated Financial Statements

The loan is secured by certain lots in Legazpi City owned by Landco with a carrying value of P7.6 million as of December 31, 2007 and 2006 (see Note 8).

d. Loan from Landbank of the Philippines with a balance of P1.9 million and P7.7 million as of December 31, 2007 and 2006, respectively, payable in 48 monthly equal amortizations starting April 30, 2004 up to March 31, 2008. Interest rate is at 91-day Treasury bill rate plus spread of 4.0% per annum. The loan is secured by 100 Canyon Woods club shares with a carrying value of P12.0 million as of December 31, 2007 and 2006 (see Note 9).

e. Loan from Bank of Commerce with a balance of P3.4 million and P8.5 million as of December 31, 2007 and 2006 respectively, payable in 60 monthly equal amortization until 2009 and subject to interest rate of 17.3% per annum. The loan is secured by certain lots in Legazpi City owned by Landco with a carrying value of P9.4 million as of December 31, 2007 and 2006 (see Note 8).

f. Loans from Malayan Bank with a balance of P24.4 million and P36.9 million as of December 31, 2007 and 2006, respectively, which bear annual interest at a rate of 15.5% per annum. These loans, which are payable over two to three years, are secured by assignment of certain ICRs owned by WLI, Landco Bulacan Properties, Inc. and FCPLCI (see Note 7).

g. Loan from Union Bank with a balance of P539.5 million and P78.1 million as of December 31, 2007 and 2006, respectively, payable in 24 to 72 monthly equal amortizations until 2013 and subject to interest of 9.8% per annum. The loan is secured by certain lots in Cebu City owned by Genvi-Agro Industrial, a land owner, with a carrying value of P100.0 million as of December 31, 2007 and a deed of assignment on the Company’s ICR amounting to P439.5 million and P78.1 million as of December 31, 2007 and 2006, respectively (see Note 7).

h. Loan from Asiatrust Bank with a balance of P10.0 million and P20.4 million as of December 31, 2007 and 2006, respectively, payable in 60 monthly amortization until October 31, 2011 and subject to interest of 14.7% per annum. The loan is secured by certain lots in Baliuag, Bulacan which is owned by WLI and has a carrying value of P20.4 million (see Note 8).

i. Loans from China Bank with a balance of P58.1 million and P74.3 million as of December 31, 2007, and 2006, respectively, payable in 48 monthly amortization until 2011 and subject to 9.5% interest per annum with annual repricing based on the bank’s CTS rate. The loans are secured by assignment of certain ICRs owned by Landco Leisure Development, Inc. and Fuego Land Corporation.

j. Loan from MCF of certain related parties amounting to P25.0 million and P24.3 million as of December 31, 2007 and 2006, respectively. The loan, which bears an annual interest rate of 15.0%, is payable over a period of three years.

k. Loan of Landco from Chinatrust with a balance of P0.2 million as of December 31, 2006 which is payable in 45 monthly amortization until October 7, 2007 and subject to interest of 21% per annum.

20. Capital Stock

Details of authorized and issued capital stock follow:

Number of Shares 2007 2006 Authorized common shares - P1 par value 4,600,000,000 4,600,000,000

Issued: Balance at beginning of the year 1,198,952,522 – Original subscription of MPIC’s majority shareholders – 968,820,495 Issuance of shares to MPC majority owners in exchange for MPIC shares a – 181,290,038 Tendered shares of MPC minority shareholders in exchange for MPIC shares b 143,966,271 48,841,989 Balance at end of year 1,342,918,793 1,198,952,522

76 Metro Pacific Investments Corporation Capitalization of MPIC MPIC was incorporated with original authorized capital stock of 100,000 common shares with par value of P1 peso per share. On March 27, 2006, the Company’s BOD approved a resolution to increase the Company’s authorized capital stock to 4,600,000,000 common shares shares with a par value of P1 peso per share. Such increase in authorized capital stock was approved by the SEC on June 5, 2006.

On September 6, 2006, in line with the proposed migration of the shareholders of MPC to MPIC, the BOD approved the following:

a. Acquisition of the majority MPC shares through an MPIC share swap on the basis of one (1) MPIC shares for every four (4) MPC common shares on the par value of the MPIC shares against the book value of MPC shares as of June 30, 2006; and

b. A Tender Offer to acquire the remaining MPC common shares owned by minority shareholders in exchange for a new and unissued common shares in MPIC, on the same basis of one (1) MPIC shares for every four (4) MPC common shares. However, to enhance the value of the offer to the MPC minority shareholders, as well as to enable them to maintain their percentage of shareholding in the Company, MPIC will offer additional three (3) warrants for every four (4) MPC common shares.

On October 23, 2006, MPIC purchased from MPHI, Metro Pacific Resources Inc (MPRI), Intalink B.V., and FPIL (all related parties of MPIC and major shareholders of MPC) 725,160,154 MPC common shares or 76.1%. MPIC issued 181,290,038 shares in exchange for 725,160,154 MPC common shares.

On November 28, 2006, the closing date of the Tender Offer, a total of 195,367,956 MPC shares were tendered equivalent to 48,841,989 MPIC common shares and 146,525,967 MPIC warrants. Out of the total warrants available for conversion, a total of 143,976,804 warrants were converted into MPIC shares as of December 31, 2007, and 2,549,163 warrants expired on December 15, 2007.

As a result of the share swap discussed above, the difference between the par value of MPC shares exchanged for MPIC shares of P690.4 million are recorded under “Other reserves” account in the equity section of the consolidated balance sheet.

Loss on Capital Transaction In June 2006, Roxaco (a minority shareholder in Fuego Development Corporation - FDC) transferred properties (various lots) with an aggregate value of P129.2 million in exchange for 24,000,000 shares at a par value of P1 per share. The contribution of Roxaco increased its ownership interest in FDC to 52.0% and dilution by Landco from 70.0% to 48.0%. This resulted to a loss which was recorded as “Loss on capital transaction” under equity account in the consolidated balance sheet. Share of MPIC on the loss on this capital transaction amounted to P11.8 million as of December 31, 2006.

21. Related Party Transactions

Enterprises and individuals that directly, or indirectly through one or more intermediaries, control, or are controlled by, or under common control with the Company, including holding companies, subsidiaries and fellow subsidiaries are related parties of the Company.

Associates and individuals owning, directly or indirectly, an interest in the voting power of the Company that gives them significant influence over the enterprise, key management personnel, including directors and officers of the Company and close members of the family of these individuals and companies associated with these individuals also constitute related parties.

In considering each possible related entity relationship, attention is directed to the substance of the relationship, and not merely the legal form.

The Parent Company and its related parties, in the normal course of business, has transactions with related parties which consist mainly of availment of noninterest-bearing cash advances with no fix repayment terms.

Annual Report 2007 77 Notes to Consolidated Financial Statements

Outstanding balances of receivable from/payable to related parties are carried in the consolidated balance sheets under the following accounts: 2006 (As restated - see 2007 Notes 2 and 12) (In Thousands) Trade receivables* P54,315 P221,105 Notes receivable* 49,269 101,740 Advances to other affiliates* 106,398 103,857 Accrued interest receivable* 122,670 108,260 Due from related parties 218,974 195,802 Dividends payable** 27,000 27,000 Due to related parties 280,498 3,019,354 Notes payable (see Note 16) 50,221 49,508 Long-term debt (see Note 19) 10,184 134,530

* Included under “Receivables” and “Long-term receivables” accounts in the consolidated balance sheet (see Notes 7 and 15). ** Included under “Accounts payable and other current liabilities” account in the consolidated balance sheet (see Note 17).

Amounts due to/from related parties as of December 31 are as follows:

2006 (As restated - see 2007 Notes 2 and 12) (In Thousands) Due from related parties: NELCI P44,230 P35,970 LUPI 32,997 31,675 PMC 25,124 – WLI 19,607 – Forest Lake Manila 12,309 – DMCI-MPIC 10,574 35,907 Club Punta Fuego 9,149 35,315 Forest Lake San Pedro 7,815 – Forest Lake General 6,368 6,600 Maynilad 4,101 – FPC 3,768 3,269 LNERVI 2,247 10,256 BLC – 34,392 MPLHI – 102 Others 40,685 2,316 P218,974 P195,802

Due to related parties: Smart Communications, Inc. (Smart) P71,786 P71,786 NELCI 81,970 – WLI 60,135 – FBDC 32,808 32,808 Philippine Long Distance Telephone Company (PLDT) 6,686 5,931 LNERVI 5,263 – PMC 4,891 8,732 MPHI – 2,900,097 Others 16,959 – P280,498 P3,019,354

78 Metro Pacific Investments Corporation DMCI-MPIC The balance represents various advances to DMCI-MPIC for MPIC’s share in the Bidding requirements to acquire Maynilad.

Maynilad The balance represents various fees and expenses paid by the Company on behalf of Maynilad.

Smart The amount represents various advances incurred in prior years for the Company’s operations.

PLDT Represents fees payable to PLDT for various administrative assistance extended to the Company. It also includes unpaid rent expense from lease of office space.

MPHI The balance in 2006 represents advances by MPHI to MPIC to fund partly the Escrow Agreement with DMCI in relation to the public bid for the subscription of Maynilad’s shares (see Note 12). In 2007, MPIC was able to pay these advances using the proceeds of the convertible note obtained from MPHI and Ashmore (see Note 19).

Transactions with Bases Conversion Development Authority (BCDA), BLC and Fort Bonifacio Development Corporation (FBDC)

Project Agreement with BCDA. MPC entered into a Project Agreement with BCDA for the construction of a two-tower luxury residential condominium project known as PPT. MPC participates in the project both as landowner and developer.

Global Settlement Agreement (the “Agreement”). On April 16, 2003, MPC signed the agreement with BLC, FBDC, and BCDA (the Company, BLC, FBDC and BCDA are herein collectively referred to as the “Parties”), which aims at settling the intercompany balances and obligations among the Parties through the exchange of certain property and assets. As of December 31, 2003, MPC has partially taken up the transactions relating to the Global Settlement of intercompany balances. As per Agreement, MPC used its P579.5 million receivable from FBDC, which arose from the return of Lot 6-1 to offset a corresponding amount of payable to BCDA representing BCDA’s share in the net proceeds of the sale of PPT condominium units pursuant to the project agreement between MPC and BCDA. In addition, the Parties have agreed on the amount of the liabilities and the manner of settling them. Based on the Agreement, BCDA charged MPC a one-time interest on all proceeds that should have been remitted to BCDA as of March 31, 2003. The one-time interest amounted to P54.0 million. After recognizing the interest charged by BCDA and the carrying value of other assets and property agreed to be exchanged in accordance with the Agreement with BCDA, the estimated excess of P65.3 million liability was reversed in 2004.

Pursuant to the settlement agreement, full settlement of MPC payable has been effected through the assignment to BCDA of 74 Heritage Park Certificates (herein referred to as “Certificates”) valued at P40.4 million, as effected through the Implementing Deed of Conveyance between BLC and BCDA dated January 26, 2005, pursuant to which BLC assigned 125 Certificates to BCDA, 74 of which was effected for the account of MPC and FBDC in partial settlement of their respective obligations, both to the concurrent amount of P40.4 million and 51 Certificates of which was effected for the account of MPC to settle its liability from BCDA to the extent of P27.8 million. In addition, MPC assigned of all the rights and interest in and to the FBDC dividend payable, which BLC in turn had assigned to MPC pursuant to the Implementing Deed of Assignment among BLC, MPC and FBDC dated January 26, 2005 to the extent of P330.0 million.

Implementing Agreement. On October 10, 2003, MPC entered into an Implementing Agreement with BCDA which aims at settling the following: (i) P205.0 million payable representing BCDA’s share in the sale proceeds of certain PPT condominium units as of July 31, 2002 pursuant to the PPT Joint Venture; (ii) P54.0 million interest payable arising from the unremitted sale proceeds as of March 31, 2003; and (iii) delivery of 21 PPT condominium units (12 BCDA designated units and nine Company designated units) representing BCDA’s share in the remaining total unsold units as of July 31, 2002.

As settlement for items (i) and (ii), MPC allocated P259.0 million of installments contracts receivable to BCDA. As of that date, BCDA has confirmed to MPC the delivery and acceptance to 12 BCDA designated units by the MPC, as well as the condominium certificates of title of nine MPC designated units, free and clean of all liens and encumbrances and which are registered under the name of MPC. The adoption of PAS 39 in 2005 requires the derecognition of the liability and the related asset when substantially

Annual Report 2007 79 Notes to Consolidated Financial Statements

all the risk and rewards from the use of the property is transferred to the transferee. As a result, about P80.0 million of the liability to BCDA was reversed together with the similar amount of carrying values of four MPC designated units.

As of December 31, 2007 and 2006, liability to BCDA amounted to P7.0 million and P1.5 million, respectively.

Other Related Parties Transaction mainly relates to noninterest bearing advances with no fixed repayment terms.

Directors’ Remuneration Annual remuneration of the directors amounted to P1.4 million.

Non-executive directors are entitled to a per diem allowance of P20 thousand for each attendance in the Parent Company’s Board meetings. The Parent Company’s By-Laws provide that an amount equivalent to 1.0% of net profit after tax of the Parent Company shall be allocated and distributed among the directors of the Parent Company who are not officers of the Parent Company or its subsidiaries and affiliates, in such manner as the Board may deem proper. There are no other special arrangements pursuant to which any director will be compensated.

Compensation of Key Management Personnel Compensation of key management personnel of the Company are as follows:

2007 2006 2005 (In Thousands) Short-term employee benefits P77,274 P92,028 P99,903 Retirement costs 2,239 8,429 2,595 Other long-term benefits 920 767 456 P80,433 P101,224 P102,954

22. Minority Interests

Movements in outside interests as of December 31 follow:

2007 2006 (In Thousands) Beginning at beginning of year P751,980 P565,940 Share in net income (loss) during the year 234,674 (3,536) Dividends paid to minority interests (11,760) – Share in expenses recognized directly in equity (9,506) (17,441) Additional investments during the year – 207,017 P965,388 P751,980

23. General and Administrative Expenses

This account consists of:

2006 (As restated - see 2007 Notes 2 and 12) 2005 (In Thousands) Personnel costs (see Note 24) P250,604 P160,863 P125,833 Commissions 185,180 143,995 126,842 Advertising and promotion 99,431 86,315 42,322

(Forward)

80 Metro Pacific Investments Corporation 2006 (As restated - see 2007 Notes 2 and 12) 2005 (In Thousands) Professional fees P72,971 P43,997 P42,103 Transportation and travel 63,677 48,222 38,738 Taxes and licenses 48,514 22,095 43,858 Entertainment, amusement and representation 47,613 38,426 13,084 Depreciation and amortization (see Notes 13 and 14) 35,784 22,806 19,881 Outside services 28,307 4,543 31,497 Repairs and maintenance 25,849 23,742 6,132 Communication, light and water 22,995 22,677 15,898 Rental expense 21,852 8,826 1,829 Insurance 18,622 4,752 22,685 Association dues 13,573 3,046 8,704 Administrative supplies 9,005 12,632 635 Business development cost 30,784 65,449 526 Miscellaneous 68,178 44,309 38,703 P1,042,939 P756,695 P579,270

24. Personnel Costs

This account consists of: 2007 2006 2005 (In Thousands) Salaries and wages P154,211 P124,328 P107,773 Retirement costs (see Note 25) 30,456 4,658 6,461 Other employee benefits 65,937 31,877 11,599 P250,604 P160,863 P125,833

25. Retirement Costs

The Company has a funded, trusteed and noncontributory multi-employer retirement plan covering all its regular employees. The benefits provided in the plan are based on the years of credited service and compensation of employees.

The following tables summarize the components of the net retirement expense included in personnel cost under “General and administrative expenses” account in the consolidated statement of income and “Accrued retirement costs” account in the consolidated balance sheet for the plan.

2007 2006 2005 (In Thousands) Current service cost P6,287 P2,490 P2,329 Interest cost 1,450 2,137 1,709 Expected return on plan assets (193) (175) (164) Past service cost 206 206 206 Actuarial net loss 22,706 – 2,381 Retirement cost P30,456 P4,658 P6,461

Actual return on plan assets P303 P126 P253

Annual Report 2007 81 Notes to Consolidated Financial Statements

2007 2006 2005 (In Thousands) Accrued retirement costs: Balance at beginning of year P18,463 P13,805 P7,344 Provision during the year 30,456 4,658 6,461 Payment (5,795) – – Balance at end of year P43,124 P18,463 P13,805

The reconciliation of the present value of retirement obligation (PVRO) to the accrued retirement costs recognized in the consolidated balance sheets is as follows:

2007 2006 2005 (In Thousands) PVRO P53,724 P23,281 P18,654 Fair value of plan assets (2,118) (1,925) (1,750) Unfunded PVRO 51,606 21,356 16,904 Unamortized nonvested past service cost (2,687) (2,893) (3,099) Payment (5,795) – – Accrued retirement costs P43,124 P18,463 P13,805

Actuarial gains and losses are recognized in full in the year the gain or losses occurred.

Movements in the PVRO:

2007 2006 2005 (In Thousands) Balance at beginning of year P23,281 P18,654 P8,968 Interest cost 1,450 2,137 1,709 Service cost 6,287 2,490 2,329 Actuarial loss 22,706 – 2,381 Past service cost – – 3,267 Balance at end of year P53,724 P23,281 P18,654

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

2007 2006 (In Thousands) Fair value of plan assets at beginning of year P1,925 P1,750 Expected return on plan assets 193 175 Fair value of plan assets at end of year P2,118 P1,925

The Company expects to contribute P2.8 million to its defined benefit plan in 2008.

The composition of plan assets as a percentage of the fair value of total plan assets are as follows:

2007 2006 Deposits in banks 1.4% 2.1% Investment in bonds 98.6% 97.9% 100.0% 100.0%

82 Metro Pacific Investments Corporation The principal assumptions used to determine pension benefit obligations as of December 31,2007, 2006 and 2005 are as follows:

2007 2006 2005 Discount rates 8.3% - 8.5% 8.0% 11.0% - 14.5% Rates of increase in compensation 8.0% - 8.1% 8.0% 8.0% Expected rate of return on plan assets 10.0% 10.0% 10.0%

The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled.

26. Interest Income and Interest Expense

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

2006 (As restated - see 2007 Notes 2 and 12) 2005 (In Thousands) ICR P161,533 P148,876 P145,872 Notes receivable 116,173 62,495 39,054 Due from related parties 29,737 15,811 8,437 Cash and cash equivalents 9,186 13,706 8,337 P316,629 P240,888 P201,700

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

2007 2006 2005 (In Thousands) Long-term debt (see Note 19) P3,549,620 P32,763 P29,754 Accounts payable and other current liabilities 27,226 19,007 44,801 Due to related parties 15,735 1,583 7,117 Notes payable 1,268 36,886 35,305 P3,593,849 P90,239 P116,977

27. Other Income and Other Expense

Other income consists of: 2007 2006 2005 (In Thousands) Mark to market gain on derivative (see Note 19) P1,065,713 P– P– Gain on debt settlement - net (see Note 19) 1,053,943 7,573 202,157 Foreign exchange gain 386,455 1,427 – Commission income 77,846 82,142 90,408 Reversal of accruals a 60,239 257,887 491,203 Sales penalty and refund 40,745 1,549 – Gain on sale of AFS financial assets 13,058 5,545 – Rental income 15,446 20,062 53,727 Reversal of provision for decline in value of assets 3,261 6,131 52,029 Others 222,455 59,841 56,898 P2,939,161 P442,157 P946,422

Annual Report 2007 83 Notes to Consolidated Financial Statements

Others mainly include consultancy fees, agrotourism income and others.

Other expense consists of: 2006 (As restated - see Notes 2 2007 and 12) 2005 (In Thousands) Day 1 loss (see Note 19) P305,056 P– P– Provision for decline in value of assets b 200,854 659,543 364,435 Provisions (see Note 18) 102,688 52,697 16,200 Others 19,108 32,054 20,368 P627,706 P744,294 P401,003

a. Represents reversal of excess accruals for certain obligations, recognized in prior years, over actual settlements during the year. b. Provision for decline in value was provided for the following assets:

2007 2006 2005 (In Thousands) Investments in associates i P135,039 P441,397 P126,560 Receivables (see Note 7) ii 2,321 52,125 – Due from related parties 982 19,263 20,472 AFS financial assets iii – – 135,890 Real estate for sale iv 62,512 – 81,513 Others v – 146,758 – P200,854 P659,543 P364,435

i. Investments in associates were provided for impairment losses to record the investments to their recoverable amounts. ii. Provision on receivables in 2006 mainly pertains to the note receivable from Steniel amounting to P50.0 million (see Note 7). iii. The provision for decline in value of AFS financial assets mainly relates to additional provision for investments in shares of stock in BLC. In December 2005, the Company accepted the offer of the third party to purchase 539,020 shares at P136.9 per share. As it is the Company’s intention to sell the remaining shares to the same buyer to settle certain obligations, the carrying value of the remaining shares was reduced to its realizable value of P136.9 per share. iv. Provision for decline in value of real estate for sale represents write down of asset to its net realizable values. v. Others mainly pertain to the allowance provided on Company’s creditable withholding tax.

28. Income Tax

a. The components of the Company’s deferred tax assets and deferred tax liabilities are as follows:

Deferred Tax Assets 2007 2006 (In Thousands) Deferred tax assets on: Difference in gross profit on sale of real estate between financial and tax reporting bases P99,230 P162,303 Fair value adjustments on certain financial assets 36,946 94,478 NOLCO 35,052 2,458 Accrued retirement costs 15,215 4,434 MCIT 8,518 2,407 Provision 1,883 2,909 Others 13,238 4,280 P210,082 P273,269

84 Metro Pacific Investments Corporation Deferred Tax Liabilities 2007 2006 (In Thousands) Deferred tax liabilities on: Unrealized foreign exchange gain P131,465 P– Fair value adjustments on certain financial liabilities 97,033 81,461 Difference in gross profit on sale of real estate between financial and tax reporting bases 61,555 9,110 Capitalized interest 24,632 13,986 Others 10,240 11,257 P324,925 P115,814

As of December 31, 2007, NOLCO amounting to P641.9 million of the Parent Company and various subsidiaries can be carried forward and claimed as deduction from regular taxable income as follows:

Year Incurred Amount Application Expired Balance Expiry Year (In Thousands) 2007 P542,954 P– P– P542,954 2010 2006 89,476 – – 89,476 2009 2005 9,501 – – 9,501 2008 2004 10,855 (1,757) (9,098) – 2007 P652,786 (P1,757) (P9,098) P641,931

The carryforward benefit of MCIT of P32.2 million as of December 31, 2007 can be claimed as tax credit against the regular corporate income tax as follows:

Year Incurred Amount Expired Balance Expiry Year (In Thousands) 2007 P8,643 P– P8,643 2010 2006 544 – 544 2009 2005 23,052 – 23,052 2008 2004 9,561 (9,561) – 2007 P41,800 (P9,561) P32,239

Deferred tax assets relating to NOLCO and MCIT amounting to P224.7 million and P32.2 million, respectively, as of December 31, 2007 and P333.9 million and P36.4 million, respectively, as of December 31, 2006, were not recognized as deferred tax assets since it is not probable that taxable income will be available against which the deferred tax assets can be utilized.

b. Details of unrecognized deductible temporary differences and unused NOLCO and MCIT are as follows:

2007 2006 (In Thousands) Allowance for doubtful accounts P4,050,091 P4,071,012 NOLCO 541,781 102,810 Provisions and other accruals 408,950 373,002 Allowance for decline in value of land and land development cost 121,870 59,357 MCIT 23,721 30,750 Accrued retirement and others 260,361 260,861 P5,406,774 P4,897,792

Annual Report 2007 85 Notes to Consolidated Financial Statements

c. The current provision for income tax in 2007, 2006 and 2005 represents the following:

2007 2006 2005 (In Thousands) RCIT P36,189 P106,267 P66,180 MCIT 8,643 936 28,590 Final tax 1,363 1,913 1,477 P46,195 P109,116 P96,247

The reconciliation of provision for income tax computed at the statutory income tax rate to provision for income tax as shown in the consolidated statements of income is summarized as follows:

2006 (As restated - see Notes 2 2007 and 12) 2005 (In Thousands) Income (loss) from continuing operations before income tax P721,054 (P512,197) P433,473

Income tax at statutory tax rate of 35.0% in 2007 and 2006 and 32.5% in 2005 P252,369 (P179,269) P140,879 Fair value adjustment on a financial instrument 857,784 – – Equity in net losses (earnings) of associates (629,697) 1,560 (267) Nondeductible expenses (gain) – net (321,360) 9,538 87,989 Changes in unrecognized deferred tax assets and others 165,743 236,202 (183,737) Net capital gains on sale of CPFI shares (4,752) (3,138) – Income subjected to lower final tax rates – net (2,957) (5,221) – Final tax on interest income 1,363 1,913 1,477 Effect of change in tax rates – – (18,783) P318,493 P61,585 P27,558

Republic Act (RA) No. 9337 RA No. 9337 was enacted into law amending various provisions in the existing 1997 National Internal Revenue Code. Among the reforms introduced by the said RA, which became effective on November 1, 2005, are as follows:

s )NCREASEINTHECORPORATEINCOMETAXRATEFROMTOWITHAREDUCTIONTHEREOFTOBEGINNING*ANUARY  s )NCREASESINVALUE ADDEDTAX6!4 RATEFROMTOEFFECTIVE&EBRUARY ASAUTHORIZEDBYTHE0HILIPPINE President pursuant to the recommendation of the Secretary of Finance; s 2EVISEDINVOICINGANDREPORTINGREQUIREMENTSFOR6!4 s %XPANDEDSCOPEOFTRANSACTIONSSUBJECTTO6!4AND s 0ROVIDETHRESHOLDSANDLIMITATIONSONTHEAMOUNTSOF6!4CREDITSTHATCANBECLAIMED

On September 26, 2006 and October 9, 2006, the House of Representatives and the Senate, respectively, approved House Bill 5742 which lifted the 70.0% cap on input VAT, allowing companies to again charge 100.0% of input VAT to output VAT per quarter. Following the approval of the Congress, the President of the Philippines has signed RA No. 9361. The Secretary of Finance through the Bureau of Internal Revenue has promulgated the necessary rules and regulations to implement the new law.

86 Metro Pacific Investments Corporation 29. Earnings (Loss) per Share

The calculation of earnings (loss) per share for the years ended December 31 follows:

2007 2006 2005 (In Thousands, Except for Share Amounts) Income (loss) from: Continuing operations P167,887 (P570,246) P369,113 Discontinued operation – (115,697) (196,764) Income (loss) attributable to equity holders of the Parent Company (a) P167,887 (P685,943) P172,349 Weighted average number of common shares for basic earnings per share* (b) 1,250,920 939,466 930,174 Effect of dilution: Convertible options 1,522,368 – – Stock warrants – 13,396 – Weighted average number of common shares adjusted for the effect of dilution (c) 2,773,288 952,862 930,174

Basic earnings (loss) per share: Income (loss) from continuing operations P0.13 (P0.61) P0.40 Income (loss) from discontinued operation – (0.12) (0.21) (a/b) P0.13 (P0.73) P0.19 * Weighted average number of common shares for basic earnings per share was adjusted in 2005 and 2004 to effect the recapitalization in 2006 as discussed in Note 20.

2007 2006 2005 Diluted earnings (loss) per share: Income (loss) from continuing operations P0.06 (P0.60) P0.40 Income (loss) from discontinued operation – (0.12) (0.21) (a/c) P0.06 (P0.72) P0.19

Weighted average number of shares issued and outstanding is derived by multiplying the number of shares outstanding at the beginning of the year, adjusted by the number of shares issued during the year, with a time-weighting factor. The time-weighting factor is the number of days that the specific shares are outstanding as a proportion to the total number of days in the year. There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.

Basic earnings per share amounts are calculated by dividing net income for the year attributable to equity holders of the parent company by the weighted average number of common shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net income attributable to ordinary equity holders of the parent company by the weighted average number or ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all dilutive potential ordinary shares.

In 2006, the stock warrants discussed in Note 20 has a dilutive effect since the exercise price is lower than the average market price of the shares. In December 2007, such warrants expired hence, the remaining unconverted portion of the warrants were not considered in determining the average number of ordinary shares for purposes of computing diluted earnings per share. In addition, the option shares pursuant to the convertible loans as discussed in Note 19 has a dilutive effect since the exercise price is lower than the average market price of the shares.

Annual Report 2007 87 Notes to Consolidated Financial Statements

In 2005, the effect on earnings (loss) per share of the assumed conversion of the stock options is anti-dilutive since the exercise price of the option is higher than the average market price of the shares, the amounts reported for the basic and diluted earnings (loss) per share were the same.

30. Stock Plan

Certain directors and senior officers of MPC, and the executive and management committees of the subsidiaries, have options to purchase common shares of MPC under an Executive Stock Option Plan (ESOP). The purchase price for the shares is determined by reference to the market price in April each year and adjusted on an annual basis. The aggregate number of option exercised and cancelled, including those arising in respect of the 33.0% stock dividend in 1997, and the number of shares available under the ESOP as of December 31 are as follows:

Number of Shares 2007 2006 2005 (In Thousands) Beginning of year 2 316 9,333 Exercised – (46) – Cancelled (2) (268) (9,017) End of year – 2 316

31. Commitments and Contingencies

a. General Electric Capital Corporation (GECC)

On January 17, 2001, MPC executed a “Contract of Guaranty” with Transamerica Leasing Inc. (Transamerica) in connection with Nenaco’s “Equipment Lease Agreement” with Transamerica to lease 1000 dry cargo containers. GECC is a foreign corporation organized and existing under the laws of Delaware, USA who acquired Transamerica Leasing Inc. in 2003. On January 14, 2004, Transamerica assigned its rights, title, and interest in the Lease Agreement and Guaranty to GECC through a “Bill of Sale, Assignment and Assumption Agreement.” On February 17, 2004, GECC informed MPC of the assignment of the guaranty. Starting, March 2004, Nenaco failed to pay the monthly rental due under the lease agreement.

On August 8, 2006, GECC sent a letter to Nenaco: (a) declaring Nenaco in default; and (b) demanding, among others, the payment of all the outstanding rentals and late payment fees under the lease agreement. On August 9, 2006, GECC sent a demand letter to MPC: (a) declaring Nenaco in default; and (b) demanding, from MPC as solidary guarantor of Nenaco, the payment of all outstanding rentals, late payment fees, and other expenses under the lease agreement.

On April 17, 2007, both the Company and GECC jointly moved for the dismissal of the case as it was settled amicably between the parties. Consequently the Regional Trial Court in Makati ordered the case to be dismissed on April 20, 2007.

b. Ayala Land Inc. (ALI) and Greenfield Development Corp. (GDC)

Under the agreement signed between MPC, ALI and GDC on April 17, 2003 relating to the repayment of the Larouge loan, certain obligations/warranties by MPC will remain outstanding for certain period ranging from one and three years and covered by security arrangements. Under the agreement, MPC shall indemnify ALI and GDC to the extent of MPC’s derivative share in BLC/FBDC for certain secured indemnity obligations and other obligations resulting from any breach of warranties and representations.

The security offered for the above obligations includes: s 0LEDGEOFINTERESTOFTHE0ARENT#OMPANYIN",# s !DDITIONALPLEDGEOFINTERESTIN",#SUBJECTTOTHERELEASEOFCERTAIN",#SHARESFROMANEXISTINGPLEDGEEWHICHHASA prior lien; and s 3ECONDMORTGAGEONTHE0ARENT#OMPANYS.#"$PROPERTY SUBJECTTOTHEAPPROVALOFTHElRSTMORTGAGEE

88 Metro Pacific Investments Corporation ALI and GDC have formally advised MPC in their letter dated September 19, 2003 that they are allocating the first two pledges above for possible payment of secured indemnity obligations enumerated in their letter. Total estimated indemnity is P1.1 billion.

The Company has provided for P317.8 million in prior years, determined on the basis of certain possible taxes that will be claimed by ALI and GDC.

The above warranty has expired last April 17, 2007, however due to pending taxes that is included in the warranties, the provision of P317.8 million remained in the books and an additional provision of P85.0 million was recorded during the year.

c. Universal Rightfield Property Holdings, Inc. (URPHI)

In October 2003, a complaint was filed by URPHI against Landco, MPC and MTLCI (collectively as “defendants”) for alleged failure of Landco and MPC to deliver to URPHI certain property pursuant to a Memorandum of Agreement dated January 15, 2001 entered into by and among Landco, MPC, DMCI-Project Developers, Inc., URPHI and MTLCI. URPHI is seeking to recover from the defendants the amount of P237.0 million representing amount paid to MPC and Landco including damages and attorney’s fees.

URPHI was able to secure a writ of preliminary attachment covering certain MPC property and bank deposits of Landco. Certain bank accounts of Landco amounting to P10.2 million were also attached.

Landco, together with MPC, filed independent Motions to Discharge Attachment. Also, Landco and MPC filed their respective Motions to Dismiss. The Regional Trial Court has denied these motions and that the same were elevated to the Court of Appeals (CA).

In 2005, an agreement to settle the case involving dacion of the MPC property and MPC bank deposits and assignment of proceeds from the sale of the shares of MPC was entered by MPC and URPHI. Completion of such transaction is expected after the sale of Bonifacio Land Corporation shares by MPC in 2006.

On January 26, 2006, the Mandaluyong Regional Trial Court has ordered for the lifting of all attachments against the properties of the defendants (MPC, LPC and MTLCI) in resolution to the Plaintiff’s (URPHI) motion to withdraw. The petition was granted by the court effective January 23, 2006. The settlement was completed in 2006 after the Company paid to URPHI, the proceeds from the sale of BLC shares amounting to P150.0 million.

d. The Company is contingently liable for liabilities arising from lawsuits or claims (other than those discussed above), filed by third parties which are either pending decisions by the court or subject to settlement agreements. The outcome of these lawsuits or claims cannot be presently determined. In the opinion of management and its legal counsel, the eventual liability from these lawsuits or claims, if any, will not have material effect on the consolidated financial statements.

Total provision for the above commitments and contingencies amounted to P403.0 million, P366.6 million and P391.4 million, for the years ended December 31, 2007, 2006 and 2005, respectively (see Note 18).

32. Financial Risk Management Objectives and Policies

The Company’s principal financial instruments consist mainly of borrowings from a related party and third party investors and due from/to related parties, proceeds of which were used for acquisition of investments and financing operations. The Company has other financial assets and financial liabilities such as cash and cash equivalents, receivables and other related party transactions which arise directly from its operations.

The main risks arising from the Company’s financial instruments are credit risk, market interest rate risk, equity price risk, liquidity risk and foreign currency risk from its use of financial instruments. The BOD reviews and approves policies of managing each of the risks and they are summarized below.

Annual Report 2007 89 Notes to Consolidated Financial Statements

Credit Risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from Company’s receivables and due from related parties.

The Company trades only with recognized, creditworthy third parties. Customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis. In the Company’s real estate business, title to the property is transferred only upon full payment of the purchase price. There is also a provision in the sales contract which allows forfeiture of installments/deposits made by the customer in favor of the Company. These measures minimize credit risk exposure of any margin loss from possible default in the payment of installments.

The Company has adopted a no-business policy with the customers lacking inappropriate credit history where credit records are available.

With respect to credit risk arising from the other financial assets of the Company, which comprise of cash and cash equivalents, receivables and due from related parties, the Company’s exposure to credit risk arise from default of the counter party, with the maximum exposure equal to the carrying amount of these financial instruments (see Notes 6, 7, 9 and 21). The Company has no concentration of credit risk.

As of December 31, 2007, the credit quality per class of financial assets that are neither past due nor impaired is as follows:

Neither Past Due nor Impaired Sub- Past Due High grade Standard standard Total or Impaired Total Cash and cash equivalents P248,081 P– P– P248,081 P– P248,081 Receivables: Trade receivable 1,086 1,271,299 31 1,272,416 174,698 1,447,114 Notes receivable 630,000 51,794 – 681,794 97,475 779,269 Advances to suppliers – 10,918 – 10,918 588,792 599,710 Accrued interest receivable 3,091 16,113 – 19,204 109,983 129,187 Commission and management fee receivables – – – – 97,115 97,115 Receivable from landowners – – – – 73,550 73,550 Advances to stockholders – – – – 59,050 59,050 Advances to officers and employees – – – – 46,118 46,118 Receivable from sale of AFS – 15,632 – 15,632 2,626 18,258 Advances to sinking fund – – – – 7,129 7,129 Others – – – – 108,921 108,921 Due from related parties 39,999 – 39,999 178,974 218,973 Landowner’s cash* 49,508 – – 49,508 – 49,508 Restricted cash* 33,740 – – 33,740 – 33,740 MCF asset* – 24,846 – 24,846 – 24,846 Miscellaneous deposit* – 13,031 – 13,031 – 13,031 Total P965,506 P1,443,632 P31 P2,409,169 P1,544,431 P3,953,600 *Included under “Other current assets” and “Other noncurrent assets” account in the consolidated balance sheet.

High-grade receivables pertain to those receivables which are consistently collected before the maturity date. Standard includes receivables that are collected on their due dates even without an effort from the Company to follow them up while receivables which are collected on their due dates provided that the Company made a persistent effort to collect them are included under Sub- standard receivables. Past due receivables and advances include those that are past due but are still collectible.

90 Metro Pacific Investments Corporation Total 7,129 97,115 73,550 59,050 56,012 22,418 49,508 33,740 24,846 13,031 248,081 929,269 599,710 129,187 106,398 204,188 218,973 P 1,449,599 4,321,804 P

– – – – – – – – – – – – P 2,485 9,894 4,160 95,267 150,000 106,398 368,204 Impaired P

– Total 7,129 97,115 73,550 59,050 46,118 18,258 49,508 33,740 24,846 13,031 248,081 779,269 599,710 129,187 108,921 218,973 P 1,447,114 3,953,600 P

– – – – – – – – – P 4,726 1,529 7,129 58,852 28,684 59,050 31,634 418,347 176,376 786,327

P >120 days

– – – – – – – – – 79 P 556 7,643 3,678 13,945 18,735 97,115 37,035 15,636 194,422 P 90-120 days (In Thousands) Past Due but not Impaired – – – – – – – – – P 164 142 2,179 17,621 34,862 77,986 43,715 41,188 61,651 279,508 P 60-90 days

– – – – – – – – – – – P 163 400 2,178 20,002 41,835 90,682 44,910 200,170 P 30-60 days

– – – – – – – – – – – – P 691 6,833 1,777 2,623 1,500 70,580 84,004 P <30 days

– – – – – – – 10,918 19,204 15,632 39,999 49,508 33,740 24,846 13,031 Due nor 248,081 681,794 Impaired P 1,272,416 2,409,169 P Neither Past

receivable fee receivables landowners and employees As at December 31, 2007, the aging analysis of receivables gross allowance is as follows: Cash and cash equivalents Trade receivable Notes receivable Advances to suppliers Accrued interest Advances to other affiliates Commission and management Receivable from Advances to stockholders Advances to officers Receivable from sale of AFS Advances to sinking fund Others Due from related parties Landowner’s cash Restricted cash MCF asset Miscellaneous deposit Total

Annual Report 2007 91 Notes to Consolidated Financial Statements

Receivables and due from related parties that are neither past due nor impaired are due from creditworthy debtors with good payment records with the Company. Cash and cash equivalents are deposits and money market securities placed with reputable banks and financial institutions duly approved by the BOD.

Interest Rate Risk The Company’s exposure to interest rate risk relates primarily to the Company’s bank loans. Re-pricing of floating rate financial instruments is done annually.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Company’s consolidated income before income tax as of December 31, 2007. There is no other impact on the Company’s equity other than those already affecting the consolidated statement of income.

Increase/Decrease in Basis Points Effect on Income Before Tax +100 (P116,993) -100 116,973

The following table sets out the carrying amount, by maturity, of the Company’s liabilities that are exposed to interest rate risk:

December 31, 2007

Average Interest Within More than Rate 1 Year 1-2 years 2-3 years 3-4 Years 4 Years Total (In Thousands) PDST-F benchmark rate and various benchmark rates + certain Floating Rate credit spread P3,530,717 P36,591 P34,367 P15,545 P– P3,617,220 Fixed Rate 2.5% - 21.0% 1,042,602 177,341 51,683 36,099 57,400 1,365,125

December 31, 2006

Average Interest Within More than Rate 1 Year 1-2 Years 2-3 Years 3-4 Years 4 Years Total (In Thousands) Floating Rate 9% - 20% P251,558 P9,122 P1,552 P753 P– P262,985 Fixed Rate 9% - 15% 2,006,659 88,762 54,064 50,021 36,199 2,235,705

Interest on financial instruments classified as variable rate is repriced at intervals within one year. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument. The other financial instruments of the Company that are not included in the above table are noninterest-bearing and are therefore not subject to interest rate risk.

Equity Price Risk Equity price risk is the risk to earnings or capital arising from changes in market prices relating to its quoted equity securities. The Company’s exposure to equity price risk relates primarily to its AFS financial assets.

The Company’s policy is to maintain the risk to an acceptable level. Movement in share price is monitored regularly to determine the impact on its financial position. The Company believes that any possible change in equity price has no significant impact on the consolidated financial statements.

92 Metro Pacific Investments Corporation Liquidity Risk The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and advances from related parties.

The Company monitors its cash position by a system of cash forecasting. All expected collections, check disbursements and other payments are determined on a daily basis to arrive at the projected cash position to cover its obligations. The Company monitors its cash flow portion particularly the collections from receivables and the funding requirements of operations to ensure an adequate balance of inflows and outflows. The Company’s objective to manage its liquidity profile are: a) to ensure that adequate funding is available at all times; b) to meet commitments as they arise without incurring unnecessary costs; and c) to be able to access funding when needed at the least possible cost. The Company also has an online facility with its depository banks wherein bank balances are monitored daily to determine the actual Company cash balances.

The table below summarizes the maturity profile of the Company’s financial liabilities at December 31, 2007 based on contractual undiscounted payments.

Within 1 On Demand Year 1 - 2 Yrs 2 – 3 Yrs 3 – 4 Yrs 4 - 5 Yrs Total (In Thousands) Notes payable P343,719 P298,654 P– P– P– P– P642,373 Accounts payable 131,390 719,445 – – – – 850,835 Customers’ deposits – 580,457 – – – – 580,457 Accrued expenses 59,361 607,018 – – – – 666,379 Interest and other financing charges – 152,566 – – – – 152,566 Dividends payable – 27,000 – – – – 27,000 Withholding taxes – 341 – – – – 341 MCF liability 10,357 83,956 – – – – 94,313 Others 26,340 158,507 27,154 22,787 19,128 50,398 304,314 Due to related parties 280,498 – – – – – 280,498 Provisions – 461,476 – – – – 461,476 Long-term debt 201,793 4,163,899 253,979 109,046 64,341 58,108 4,851,166 P1,053,458 P7,253,319 P281,133 P131,833 P83,469 P108,506 P8,911,718

Foreign Currency Risk Foreign currency risk arises from the possibility that future cash flows of financial instruments will fluctuate because of changes in foreign currency exchange rates.

The Company’s exposure to foreign currency risk relates primarily to certain loans payable and long-term debts which are denominated in US dollar. These represent approximately 0.006% of the Company’s total liabilities as of December 31, 2007. As a result, the Company’s result of operations and financial position will not be significantly affected by movements of the Philippine peso against the US dollar. To manage future currency fluctuations, the Company considers the trend in the movement of US dollar in acquiring dollar denominated investments.

The following table demonstrates the sensitivity to a reasonably possible change in the US dollar exchange rates, with all other variables held constant, of the Company’s consolidated income before tax as of December 31, 2007. There is no other impact on the Company’s equity other than those already affecting the consolidated statement of income.

Increase Decrease Change in basis points +3% -3% Effect on income before income tax (P367) P367

The increase in US dollar rate means stronger US dollar against Philippine peso while the decrease into US dollar means stronger Philippine peso against the US dollar.

Annual Report 2007 93 Notes to Consolidated Financial Statements

Capital Management The primary objective of the Company’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value.

The Company manages capital and makes adjustments to it in light of changes in economic conditions. The Company manages its capital structure and makes adjustments to it, when necessary. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders, issue new shares or issue new debt or redemption of existing debt. No changes were made in the objectives, policies or processes during the years ended December 31, 2007 and 2006.

The Company monitors capital on the basis of debt-to-equity. Debt-to-equity is calculated as total liabilities over equity.

During 2007, the Company’s strategy, which was unchanged from 2006, was to maintain a sustainable debt ratio. The debt-to- equity ratio at December 31, 2007 and 2006 are as follows:

2007 2006 (In Thousands) Debt Ratio Long-term debt P409,025 P267,973 Equity 3,348,323 1,205,972 Existing debt ratio 12.2% 22.2%

33. Financial Assets and Financial Liabilities

The classification and comparisons by category of the carrying and fair values of all of the Company’s financial instruments as of December 31, 2007 and 2006 are as follows:

2007 2006 Carrying Carrying Value Fair Value Value Fair Value (In Thousands) Loans and Receivables Cash and cash equivalents P248,081 P248,081 P235,162 P235,162 Receivables (current and noncurrent) Trade receivables 1,447,114 1,481,743 672,825 678,167 Notes receivable 779,269 779,269 101,740 101,740 Advances to suppliers 599,710 599,710 60,053 60,053 Advances to other affiliates – – – – Commission and management fee receivables 97,115 97,115 143,276 143,276 Receivable from landowners 73,550 73,550 94,048 94,048 Advances to stockholders 59,050 59,050 – – Advances to officers and employees 46,118 46,118 41,323 41,323 Receivable from sale of AFS financial assets 18,258 18,731 27,052 27,052 Advances to sinking fund 7,129 7,129 – – Accrued interest receivable 129,187 129,187 115,621 115,621 Others 108,921 108,921 44,878 44,878 Due from related parties 218,974 240,257 195,802 509,015 Cash deposits* – – 1,532,433 1,532,433 Landowner’s cash* 49,508 49,508 6,449 6,449 Restricted cash* 33,740 33,740 – – MCF asset* 24,846 24,846 15,731 15,731 Miscellaneous deposit* 13,031 13,031 10,291 10,291 Total loans and receivables (Total carried forward) 3,953,601 4,009,986 3,296,684 3,615,239

94 Metro Pacific Investments Corporation 2007 2006 Carrying Carrying Value Fair Value Value Fair Value (In Thousands)

(Total brought forward) 3,953,601 4,009,986 3,296,684 3,615,239

AFS financial assets BLC 402,964 402,964 403,001 403,001 Golf clubs 154,028 154,028 184,150 184,150 Total AFS financial assets 556,992 556,992 587,151 587,151 Total financial assets P4,510,593 P4,566,978 P3,883,835 P4,202,390

Other Financial liabilities Notes payable Secured P255,584 P255,584 P1,838,180 P1,838,180 Unsecured 379,524 379,524 123,632 123,632 Accounts payable and other current liabilities Accounts payable 832,052 832,052 486,705 486,705 Customers’ deposits 580,457 580,457 943,589 943,589 Accrued expenses 619,414 619,414 493,152 493,152 Interest and other financing charges 322,413 322,413 156,398 156,398 MCF liability 94,313 94,313 75,877 75,877 Subscription payable 89,591 89,591 87,652 87,652 Output taxes 87,703 87,703 111,867 111,867 Retention payable 78,657 78,657 44,924 44,924 Dividends payable 54,354 54,354 37,041 37,041 Withholding taxes 3,637 3,637 1,139 1,139 Unearned rental income and other deposits 3,561 3,561 4,815 4,815 Others 206,986 283,077 247,848 321,233 Due to related parties 280,498 297,846 3,019,354 3,060,583 Provisions 461,476 461,476 433,229 433,229 Long-term debt (current and noncurrent) 4,347,237 4,220,167 536,878 536,741 Total other financial liabilities P8,697,457 P8,663,826 P8,642,280 P8,756,757 *Included in “Other current assets” and “Other noncurrent assets” accounts in the consolidated balance sheet.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate such value:

Cash and Cash Equivalents. Due to the short-term nature of transactions, the fair value of cash and cash equivalents approximate the carrying amounts at balance sheet date.

Receivables (except ICR), Cash Deposits, Notes Payable and Accounts Payable and Other Current Liabilities. Carrying values approximate the fair value at balance sheet date due to the short-term nature of the transactions.

ICR and Due to/from Related Parties. Fair value is based on the discounted value of future cash flows using the prevailing credit adjusted market rates that are specific to the tenor of the instruments’ cash flows as of the balance sheet date.

AFS Financial Assets. The fair values were determined by reference to market bid quote as of the balance sheet date.

Annual Report 2007 95 Notes to Consolidated Financial Statements

Long-term Debt. Fair value is based on the following:

a. Fixed rate loans: estimated fair value is based on the discounted value of future cash flows using the prevailing interest rates that are specific to the tenor of the instruments’ cash flows as of balance sheet date.

b. Floating rate loans: for variable rate loans that reprice every three months, the carrying value approximates the fair value because of recent and regular repricing based on current market rates. For variable rate loans that reprice every six months, the fair value is determined by discounting the principal amount plus the next interest payment using the prevailing market rate for the year up to the next repricing date.

c. For noninterest-bearing obligations, the fair value is estimated as the present value of all future cash flows discounted using the prevailing credit adjusted market rate of interest for a similar instrument.

34. Events after the Balance Sheet Date

Drawdown of Stand By Letter of Credit (SBLC) by Maynilad On January 8, 2008, Maynilad drew on the US$240.0 million Stand-By Letter of Credit (SBLC) issued by JP Morgan against the SBLCs issued by Banco De Oro (BDO) and Development Bank of the Philippines (DBP). The drawdown was treated as advances and deposit for future subscription in Maynilad by DMCI-MPIC and funded the repayment of Maynilad’s existing creditors. On the other hand, the SBLCs issued by BDO and DBP were against credit facilities extended to MPIC, DMCI and DMCI-MPIC. As a result of the drawdown, MPIC and DMCI each owed US$95.0 million to BDO and DBP, with DMCI-MPIC owing US$50.0 million.

Assignment of Inframetro’s Convertible Notes and subsequent conversion of MPHI On March 3, 2008, Inframetro and the Company entered into a new convertible loan agreement. The new loan agreement replaces Inframetro’s Tranche 1 of the Peso loan agreement and is convertible into 1,200,000,000 DMCI-MPIC common shares representing 40% of MPIC’s total shares in DMCI-MPIC (see Note 19).

Also on the same date, Inframetro assigned Tranche 2 of their Convertible Notes to MPHI in the amount of P258.4 million. MPHI subsequently converted all of its Convertible Notes in MPIC. As a result, MPHI will now own 94.0% of MPIC from 85.6% prior to the conversion. The other equity component of P1,903.6 million recognized from the recognition of the Peso loan will be reclassified to additional paid in capital after the conversion (see Note 19).

Conversion of Notes in MDI On January 18, 2008, the Company converted the remaining balance of P630.0 million of its Notes in MDI (see Notes 7 and 11). The Notes were converted at P800.0 per share or a total of 787,500 common shares. Together with 150,000 common shares from the initial conversion in May 2007, the Company now holds 937,500 common shares of MDI or 33.4% of MDI’s total outstanding common shares.

The conversion will be accounted for as a purchase, similar to the initial conversion made in 2007. The equivalent total conversion price will be allocated to the identifiable assets acquired and liabilities assumed based on their estimated fair values with the differences to be treated as goodwill. Based on the book values of MDI as of December 31, 2007, the estimated share of the Company in the net identifiable assets and liabilities of MDI exceed the cost of the conversion (negative goodwill) and will result in the recognition of income in MPIC of P200.3 million. This amount, however, will still be subject to change upon the completion of the valuation process.

35. Reclassification of Accounts

Landowner’s cash amounting to P6.4 million included in “Cash and cash equivalents” and “Notes payable” amounting to P27.5 million in the 2006 consolidated balance sheet have been reclassified to “Other Assets” and “Long-term debt”, respectively, to conform with the 2007 presentation. “Deferred tax assets” and “Deferred tax liabilities” have been grossed-up to conform with the 2007 presentation.

96 Metro Pacific Investments Corporation