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METRO PACIFIC INVESTMENTS CORPORATION

8 April 2011

PHILIPPINE STOCK EXCHANGEDisclosure Department3/F PSE PlazaAyala Triangle, Ayala AvenueMakati City

Attention: MS. JANET A. ENCARNACION

HeadDisclosure Department

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

In compliance with the Revised Disclosure rules of the Exchange, Metro Pacific

Investments Corporation submits the attached SEC Form 17-A that covers the

Financial Report for the year 2010.

Very truly yours,

MELODY M. DEL ROSARIOVice PresidentMedia & Corporate Communication


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COVER SHEETC S 2 0 0 6 0 4 4 9 4

SEC Registration Number

M E T R O P A C I F I C I N V E S T M E N T S C O R P O R A

T I O N A N D S U B S I D I A R I E S

(Companys Full Name)

1 0 t h F l o o r , M G O B u i l d i n g , L e g a s p i

c o r n e r D e l a R o s a S t r e e t s , L e g a s p

i V i l l a g e , M a k a t i C i t y

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

Mr. David J. Nicol (632) 888-0888(Contact Person) (Company Telephone Number)

1 2 3 1 17 - A 0 5 2 7 Month Day Month Day

(Calendar Year) (Annual Meeting)

Not Applicable(Secondary License Type, If Applicable)

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

1,380 P=25,718 million $161 millionTotal No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

S T A M P S

Remarks: Please use BLACK ink for scanning purposes.


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SEC Form 17- A 2010 Page 2

SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A

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

OF THE CORPORATION CODE OF THE PHILIPPINES

1. For the fiscal year ended December 31, 2010

2. SEC identification number CS200604494

3. BIR Tax Identification No. 244-520-457-000

4. Exact name of issuer as specified in its charterMETRO PACIFIC INVESTMENTS CORPORATION

5. Province, country or other jurisdiction of incorporation or organizationMakati City, Philippines

6. Industry Classification Code: (SEC Use Only)

7. Address of issuer's principal office Postal Code10/F MGO Bldg., Legaspi cor. Dela Rosa Sts., Legazpi Village, 0721 Makati City

8. Issuer's telephone number, including area code(632) 888 0888

9. Former name, former address and former fiscal year, if changed since last reportN/A

10. Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 ofthe RSA

Title of each Class Number of shares of commonstock outstanding and amount

of debt outstanding

Common Shares 20,155,464,522*

*Reported by the stock transfer agent as of 31 December 2010

11. Are any or all of these securities listed on the Philippine Stock Exchange?

Yes [ x ] No [ ]


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12. Check whether the registrant:

a) has filed all reports to be filed by Section 17 of the SRC and SRC Rule 17 thereunderor Section 11 of the RSA and RSA Rule 11 (1)-1 thereunder and Sections 26 and 141of the Corporation Code of the Philippines during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports);

Yes [ x ] No [ ]

b) has been subject to such filing requirements for the past 90 days.

Yes [ x ] No [ ]

13. State the aggregate market value of the voting stock held by non-affiliates of theregistrant. The aggregate market value shall be computed by reference to the price atwhich the stock was sold; or the average bid and asked price of such stock, as of aspecified date within sixty (60) days prior to the date of filing. If a determination as towhether a particular person or entity is an affiliate cannot be made without involvingunreasonable effort and expense, the aggregate market value of the common stock heldby non-affiliates may be calculated on the basis of assumptions reasonable under thecircumstances, provided the assumptions are set forth in the Form.

The aggregate market value of voting stocks held by non-affiliates representing 24.1% ofoutstanding common shares is Pesos 15,827 million, computed on the basis of theclosing price as of 31 March 2011 of Pesos 3.26 per share.


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METRO PACIFICINVESTMENTS CORPORATION

SEC FORM 17-A

December 31, 2010


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TABLE OF CONTENTS

PART I Business and General Information

Item 1. Description of Business------------------------------------------------------------2Item 2. Description of Properties---------------------------------------------------------14Item 3. Legal Proceedings-----------------------------------------------------------------14Item 4. Submission of Matters to a Vote of Security Holders------------------------19

PART II Operational and Financial Information

Item 5. Market for Registrants Common Equity and RelatedStockholders Matters---------------------------------------------------- 20

Item 6. Management Discussion and Analysis of Financial Condition

and Results of Operations ----------------------------------------------23

Financial Highlights and Key Performance Indicators---- 23Operational Review2010 vs. 2009------------------------ 25MPIC Consolidated-------------------------------------------- 26Water Utilities--------------------------------------------------29Toll Roads-------------------------------------------------------31Power-------------------------------------------------------------34Healthcare-------------------------------------------------------35Balance Sheets--------------------------------------------------37Liquidity and Capital Resources----------------------------- 42Comparison of other financial years ------------------------ 44

Item 7. Consolidated Financial Statements ---------------------------------------------54Item 8. Changes in and Disagreements with Accountants on Accounting and

Financial Disclosures----------------------------------------------------54

PART III Control and Compensation InformationItem 9. Directors and Officers ------------------------------------------------------------55Item 10. Executive Compensation -------------------------------------------------------- 63Item 11. Security Ownership of Certain Record and

Beneficial Owners and Management------------------------------------- 66Item 12. Certain Relationships and Related Party Transactions-----------------------68

PART IV Corporate GovernanceItem 13. Corporate Governance------------------------------------------------------------69

PART V Exhibits and SchedulesItem 14. Reports on SEC Form 17-C -----------------------------------------------------71Item 15. Signatures-------------------------------------------------------------------------- 73Item 16. Index to Financial Statements and Supplementary Schedules-------------- 74

i. Exhibit I - 2010 Audited Financial Statementsii. Exhibit IISupplementary Schedules


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PART I BUSINESS AND GENERAL INFORMATION

Item 1. Business

(A) Description of Business

(1) Business Development

Metro Pacific Investments Corporation (individually, MPIC or "the Parent Company", and,together with its subsidiaries, affiliates and associates, "the Group" or the Company) wasincorporated and registered with the Securities and Exchange Commission (SEC) on March 20,2006 to serve as a holding company for investments in real estate and infrastructure projects.On December 15, 2006, the Parent Company listed with the Philippine Stock Exchange.

MPIC is 55.6% owned by Metro Pacific Holdings, Inc. (MPHI). MPHI is a Philippine corporationwhose 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), acompany incorporated in Bermuda and listed in Hong Kong, through its subsidiaries, holds adirect 40% equity interest in EIH and investment financing which under Hong Kong GenerallyAccepted Accounting Principles require FPC to account for the results and assets and liabilitiesof EIH and its subsidiaries as FPC group companies in Hong Kong. On such basis, FPC isreferred to as the ultimate parent company of EIH and of MPIC.

MPIC's major subsidiaries and their corresponding dates/years of organization / incorporation /registration with the SEC are as follows:

DMCIMPIC Water Company 17 November 2006Metro Pacific Tollways Corporation, formerly

First Philippine Infrastructure, Inc. 24 February 1970

Metro Pacific Corporation 13 October 1986Riverside Medical Center, Inc. 17 July 1964East Manila Hospital Managers Corporation 15 October 2010

Major developments in the Group for the past three years:

MPIC Parent

On June 30, 2008, the following issuances of shares to MPHI were approved by MPICs BOD:

a. 1,568,925,223 common shares at a price of Pesos 2.00 per share from the existingunissued capital of MPIC;

b. 1,893,282,845 shares pursuant to the conversion of Pesos 2.00 billion MPHIconvertible loans to (see Note 23); and

c. 2,222,600,000 additional common shares at a price of Pesos 2.00 per share, followingthe SECs approval of the increase in the authorized capital stock of MPIC.

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


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As of December 31, 2008, all of the above mentioned shares have been subscribed orconverted and issued. Transaction costs directly related to the issuances of new shares in theamount of Pesos 77.9 million were deducted from the additional paid-in capital.

On February 13, 2009, the SEC approved the increase in the authorized capital stock of MPICfrom Pesos 12.0 billion to up to Pesos 21.55 billion, divided into 20.0 billion common shareswith a par value of Peso 1.00 per share, 5.0 billion Class A preferred shares with a par value ofPesos 0.01 per share and 1.5 billion Class B preferred shares with a par value of Peso 1.00 pershare.

On March 26, 2009, MPHI subscribed to and was issued, an additional 2,389,040,000 sharesof MPIC common shares at Pesos 2.00 per share or a total of Pesos 4,778.1 million out of theaforesaid increase. Pending the increase in authorized capital stock, the subscription wasshown as Deposits for future stock subscription in the consolidated balance sheet.

During the same year, the issuance of 791,110,491 new common shares from the currentunissued capital stock of MPIC in favor of LAWL Pte. Ltd. (LAWL) at the price of

approximately Pesos 2.57 per share, to fund the acquisition by MPIC of additional interests inMaynilad Water Company, Inc. was ratified. This subscription of LAWL to 791,110,491common shares of MPIC for Pesos 2,029.2 million, as discussed in Note 4, was likewiseincluded under the Deposits for future stock subscription account in the 2008 consolidatedbalance sheet.

On May 28, 2009, both the Board of Directors and stockholders approved the increase inMPICs authorized capital stock from Pesos 21,550.0 million divided into 20,000.0 CommonShares with a par value of Peso 1.00 per share, 5,000.0 million Class A Preferred Shares witha par value of Pesos 0.01 per share and 1,500.0 million Class B Preferred Shares with a parvalue of Peso 1.00 per share to Pesos 31,550.0 million consisting of 28,500.0 million CommonShares with a par value of Peso 1.00 per share, 5,000.0 million Class A Preferred Shares witha par value of Pesos 0.01 per share and 3,000.0 million Class B Preferred Shares with a par

value of Peso 1.00 per share.

Further to the resolutions of the Board of Directors and stockholders passed on May 28, 2009authorizing the increase in the capital stock of MPIC, the Board of Directors of MPIC resolvedto implement the capitalization and/or conversion by MPHI of its advances to MPIC in theamount of Pesos 2,016,388,754. For this purpose, an application to increase the authorizedcapital stock of MPIC to Pesos 24,238,518,336 or an increase of Pesos 2,688,518,336common shares was filed as the first tranche of the aforesaid increase. On December 21,2009, upon the approval by the SEC of the first tranche increase, MPIC issued 672,129,584common shares in favor of MPHI at a price of Pesos 3.00 per share.

On September 19, 2009, a re-launch of MPIC shares was undertaken by MPIC. The aforesaidre-launch was structured in two concurrent stages. The first of such stages consisted in the

offer and sale by MPHI, MPICs principal shareholder, of a portion of its existing shares inMPIC: (a) primarily offshore by way of marketed placing to (i) investors outside the UnitedStates in reliance on Regulation S under the U.S. Securities Act of 1933, as amended (theSecurities Act), and (ii) qualified institutional buyers within the United States, as defined in,and in reliance on, Rule 144A under the Securities Act; and (b) to a limited extent, domesticallyto (i) qualified buyers pursuant to, and as defined in, Section 10.1(1) of the SecuritiesRegulation Code of the Philippines (the SRC); and (ii) not more than 19 persons who are notqualified buyers pursuant to Section 10.1 (k) of the SRC. A total of 4,770,000,000 MPIC shares(inclusive of 620,000,000 over-allotment shares) were distributed and sold at the price of Pesos3.00 per share.

The second of such stages consisted in the subscription by MPHI, and the issuance by MPIC toMPHI, of new common shares in the same number and at the same price as the shares sold

during the first stage, with such new common shares being listed as soon as practicablethereafter. Prior to re-launch, MPIC was 93.45% owned by MPHI. As a result of, andimmediately following the foregoing re-launch and other antecedent issuances during the year,


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MPHIs interest in MPIC was reduced to 54.12% of the outstanding common shares and 63.5%of the total outstanding capital stock. Public ownership, on the other hand, increased from2.02% prior to the re-launch to almost 26% immediately thereafter.

On December 17, 2009, the SEC approved the restructuring of MPIC s stockholders equity toapply or offset a portion of its additional paid-in capital in the amount of Pesos1,620.9 millionagainst the accumulated deficit as of December 31, 2008 to wipe out the same amount subjectto the condition that the remaining additional paid-in capital amounting to Pesos 4,132.9 millionfrom the additional paid-in capital as of January 1, 2009 shall not be used to wipe out futurelosses without prior approval of the SEC.

On July 2010, the SEC approved the equity restructuring of MPIC involving the application of itsadditional paid-in capital based on the audited financial statements as of 31 December 2009against its deficit of Pesos 403.6 million.

The total ESOP shares exercised in 2010 amounted to 27,310,000 shares.

On March 3, 2011, the management apprised MPICs BOD of the intention to file with the SECan application to increase MPICs authorized capital stock which shall consist of the remaining5,811,481,664 Common Shares with a par value of Pesos 1.00 included in the approvalsreceived last July 28, 2009.

DMCI-MPIC Water Company (DMWC)

On July 17, 2008, MPIC acquired convertible debts under a Facility Loan B Agreement withcarrying value of Pesos 1,935 million from a foreign affiliate for a total consideration of US$7.9million and Pesos 7,083 million, or a total value of Pesos 7,576 million. The convertible debtswere issued by DMWC and carried an option to convert the same to DMWC shares. Theacquisition of the convertible debts by the Parent Company resulted in potential voting rights

equivalent to approximately 12% interest in DMWC and control was thereby obtained by theParent Company. The transaction was accounted as a step up acquisition since control wasobtained over a former joint venture and thus, as at the date control was obtained, theCompany:

recognized the identifiable assets and liabilities of DMWC at 100% of their fair values;and

treated any adjustment to those fair values relating to previously held interests as arevaluation.

On October 17, 2008, DMCI infused US$20.0 million into DMWC, which was initially recognizedas advances but with intention to use the same to subscribe to additional DMWC shares.

Subsequently, in a Subscription Agreement dated November 27, 2008, DMCI Holdings, Inc.(DMCI), MPICs joint venture partner, and MPIC (collectively referred as Parties), subscribedto an additional 961,600,000 common shares and 1,932,200,000 common shares of DMWC,respectively.

On November 27, 2008, the following transactions took place:

a. The Parties entered into two separate Deeds of Assignment whereby DMCIs andMPICs advances to DMWC of US$20 million and US$40 million (representing theFacility Loan B), respectively, were applied against their liabilities to DMWC amountingto Pesos 380 million each, which was then fully settled.

b. Pursuant to the Subscription Agreement, MPIC was deemed to have exercised itsconversion rights under the Facility Loan B Agreement, and consequently, acquired an


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additional 1,923,200,000 DMWC shares for the total amount of Pesos 1,923 millionwhile DMCI subscribed to an additional 961,600,000 DMWC shares for a totalconsideration of Pesos 962 million. The balance of the US$20.0 million advances fromDMCI and the Facility Loan B, after application against DMWC and MPIC liabilities toDMWC were used to partially settle the subscription price of their respectivesubscriptions described above. Pending the issuance of DMWC shares, the amountsubscribed and paid up were recorded under Deposits for Future Stock Subscriptionin the consolidated balance sheet of DMWC.

c. Simultaneous with the execution of the above agreements, MPIC, DMCI and Mayniladentered into a Shareholders Agreement outlining the relationship of MPIC and DMCIas shareholders of DMWC. On the date of the said Shareholders Agreement, whichwas immediately executory, the parties confirmed that MPIC and DMCI each holdsequity interests in the form of shares and share entitlements in DMWC equal to 55.4%and 44.6% interest, respectively.

MPICs acquisition ofan additional 5.4% of the voting shares of DMWC (from 50.0% to 55.4%

interest) has been accounted for as an acquisition of minority interest which resulted in a netpositive goodwill of Pesos 5,513 million.

Pursuant to Subscription Agreements between DMWC and Maynilad on October 10, 2008 andNovember 28, 2008, DMWC subscribed to additional 633,980 and 1,901,913 common shares,respectively, or a total of 2,535,893 common shares with a par value of Pesos 1,000 per share,for a total cash consideration of Pesos 2,536 million. These acquisitions increased DMWCstotal ownership interest in Maynilad from 83.97% to 94.12%. As a result of the acquisition,DMWCs minority interest in Maynilad was diluted from 16.03% to 5.88%. The dilution ofminority interest resulted in the Companys recognition of a gain ofPesos 758 million, includedunder Other income account in the consolidated statement of income.

On October 29, 2010, DMWC and Maynilad entered into an Agreement for the transfer of the

88,500 ESOP shares to certain employees of Maynilad. Maynilad shall pay DMWC the amountof Pesos 88.5 million as reimbursement for DMWCs subscription payment for the ESOPshares. After the transfer, DMWCs ownership in Maynilad was reduced to 91.90% from94.11% and the MPICs ownership to 56.80% from 58.03%.

Metro Pacific Tollways Corporation (MPTC), formerly First Philippine Infrastructure Inc.(FPII)

On August 26, 2008, pursuant to a Sale and Purchase Agreement (SPA), the ParentCompany agreed to acquire a total of 4,970,570,627 FPII shares from Benpres HoldingsCorporation (Benpres) and First Philippine Holdings Corporation (FPHC) for Pesos 2.47 pershare or a total of Pesos 12,262.6 million, which was equivalent to a 99.8% equity interest in

FPII. The acquisition was completed on November 13, 2008. The acquisition also resulted inthe Parent Companys ownership of Metro Pacific Tollways Development Corporation(MPTDC), then First Pacific Infrastructure Development Corporation (FPIDC), a wholly-owned subsidiary of FPII, and consequently, through FPIDC, an indirect ownership of a 67.1%interest in Manila North Tollways Corporation (MNTC), the concession holder of the NorthLuzon Expressway (NLEX), and a 46.0% interest in Tollways Management Corporation(TMC).

Pursuant to the SPA, the Parent Company remitted Pesos 11,800 million in cash and assumedthe obligation to pay the advances received by Benpres and FPHC from FPIDC in the totalamount of Pesos 462 million or a total payment of Pesos 12,263 million constituting thepurchase price for the acquisition of MPTC.

In connection with the acquisition, the Parent Company also offered to purchase 7,484,150common shares from the minority shareholders of FPII for Pesos 18 million or Pesos 2.47 pershare, a price equal to that agreed upon under the SPA with FPHC and Benpres. The Tender


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Offer period was from October 8 to November 10, 2008. On November 10, 2008, the TenderOffer expired without any of the minority shareholders of FPII making a tender of their shares.

On June 5, 2010, Segment 8.1, a portion of Phase II, which is a 2.7 km-road designed to linkMindanao Avenue to the NLE, officially commenced tollway operation. The remaining portionof Phase II is under pre-construction works while Phase III of the Project has not yet beenstarted.

On same date, the Department of Public Works and Highways (DPWH) accepted MPTDCsunsolicited proposal for the NLE to South Luzon Expressway (SLEx) Connector Road project(the Connector Road Project), subject to submission of requested additional documents andfurther discussion with DPWH. MPTDC submitted the additional documents and continues todiscuss with DPWH and other Philippine government agencies regarding the Connector Roadproject. Following the submission and acceptance of the unsolicited proposal to DPWH,MPTDC was granted the original proponent status for the Connector Road project. TheConnector Road project is a 13.5-kilometer elevated toll road which will connect the north tosouth corridor. As of March 3, 2011, MPTDC continues to discuss with DPWH and othergovernment agencies.

In 2010, MNTC participated in a public bidding conducted by the Bases Conversion andDevelopment Authority (BCDA) for the right to manage, operate and maintain the 94-kilometerSubic-Clark-Tarlac Expressway Project (SCTEx) on an as is, where is basis for a period of 25years, extendable by another 8 years, or until October 30, 2043. On June 9, 2010, BCDAformally awarded to MNTC the right to enter into a concession agreement with them for themanagement, operation and maintenance of SCTEx. On November 8, 2010, the partiesentered into a Concession Agreement under which BCDA granted MNTC the usufructuaryrights to and the right to manage, maintain and operate SCTEx. BCDA has also assigned toMNTC its rights under the Toll Operations Agreement (TOA) it signed with the Toll RegulatoryBoard (TRB) including the right to collect toll fees. The assignment is subject to certainconditions including, among others, the necessary Philippine Government approvals and the

execution of a STOA.

In consideration of the assignment among others, MNTC will pay BCDA a semi-annualconcession fees amounting to the peso equivalent of BCDAs yen-denominated debt serviceobligation to Japan International Cooperation Agency (JICA) for the period from effective dateuntil year 2016. From 2017 to 2043, MNTC will pay, as concession fee, 20% of the grossrevenues from the SCTEx.

In order to secure its obligation to pay concession fees to BCDA and perform committedmaintenance, enhancement, and improvement works amounting to about Pesos 20.3 billion, aswell as emergency works estimated at approximately Pesos 231.0 million, MNTC has to issue astandby letter of credit (LC) effective for one (1) year which shall be automatically renewedevery year until the end of the concession. The LC amount shall be in the approximate amount

of Pesos 1.3 billion per annum from 2011 to 2016.

As of March 3, 2011, the parties are still in the process of formalizing the STOA and thereforethe SCTEx had not been assigned and turned over to MNTC.

MERALCO/Beacon

From July 2009 through October 2009, MPIC acquired a total of 163,602,961 common sharesof Manila Electric Company (Meralco) for an aggregate purchase price of Pesos 24,540.3million representing 14.67% of the issued and outstanding share capital of Meralco as ofDecember 31, 2009, through a series of negotiated transactions and open market purchases.

On March 1, 2010, PLDT Communications and Energy Ventures Inc. (PCEV), formerlyPilipino Telephone Corporation (Piltel), MPIC and Beacon Electric Asset Holdings, Inc.(Beacon), formerly known as Rightlight Holdings, Inc., entered into an Omnibus Agreement, or


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OA. Beacon was organized with the sole purpose of holding the respective shareholdings inMeralco of PCEV and MPIC. PCEV and MPIC are Philippine affiliates of First Pacific and bothheld equity shares in Meralco. Under the OA, PCEV and MPIC have agreed to set out theirmutual agreement in respect of, among other matters, the capitalization, organization, conductof business and the extent of their participation in the management of the affairs of Beacon.

On March 30, 2010, Beacon also entered into Pesos 18,000 million ten-year corporate notesfacility with First Metro Investment Corporation and PNB Capital and Investment Corporation asjoint lead arrangers and various local financial institutions as noteholders. The proceeds of thenotes facility partially financed the acquisition of Meralco shares by Beacon pursuant to itsexercise of the Call Option. As at December 31, 2010, the amount drawn under this facilityamounted to Pesos 16,200 million (Pesos 16,027 million, net of debt issuance cost of Pesos173 million); the remaining undrawn balance amounted to Pesos1,800 million.

On March 30, 2010, MPIC sold and transferred all its investments in Meralco representing163.6 million common shares to Beacon for a consideration of Pesos 24.5 billion.

As at December 31, 2010, the carrying value of Beacons investment in Meralco ofPesos 73,285.0 million includes: (a) consideration for the Transferred Shares from PCEV ofPesos 23,130.0 million and from MPIC of Pesos 24,540.0 million; (b) consideration for theOption Shares from FPHC of Pesos 24,783.0 million, which include contingent consideration ofPesos 2,373.0 million; (c) expenses of Pesos 942.0 million consisting of PSE crossing charges,expenses relating to the Option Shares, as well as professional and legal fees and other costassociated to the transferred Meralco shares all chargeable to Beacon pursuant to anagreement between PCEV and MPIC; and (d) equity share in net income of Meralco of Pesos2,618.0 million less (e) dividends received of Pesos 2,728.0 million from Meralco.

As at December 31, 2010, Beacon held 392.5 million Meralco common shares representingapproximately 35% equity interest in Meralco with market value of Pesos 89,490 million basedon a quoted price of Pesos 228 per share. As of December 31, 2010, MPICs interest in

Beacon, including its investments in Common and Preferred Shares and share in net earnings,amounted to Pesos 31.9 billion.

Metro Pacific Corporation (MPC)

On May 6, 2008, MPCs BOD approved the disposition of MPCs remaining 15.3% interest inNenaco. On May 26, 2008, the said investment, with carrying value of Pesos 122 million wassold for Pesos 174 million, resulting in a gain on sale of investment amounting to Pesos 51million.

Metro Strategic Investments Holdings, Inc. (MSIHI)

On July 20, 2010, MPTC entered into a Share Purchase Agreement (SPA) with a third party forthe acquisition of 148,000 common shares in MSIHI (representing 37% of the outstandingcapital stock of MSIHI) for a purchase price of Pesos 51.0 million. An amendment to the SPAwas made on August 30, 2010, reflecting the allocation of the purchase price as follows:

a. Pesos 14.8 million as consideration for the MSIHI shares; andb. Pesos 36.2 million as consideration for the assignment to MPTC of a third partys total

deposit for future stock subscription in MSIHI.

On August 30, 2010, the parties signed the Deed of Absolute Sale of Shares and the Deed ofAssignment of the deposit for future stock subscription.

Prior to this acquisition, MPIC, through MPC, has an existing 40% interest in MSIHI. Theacquisition by MPTC of the additional 37% in July 2010 effectively brings the Groups totalownership of MSIHI to 77%. Under the revised PFRS 3, Business Combination, if the acquirer


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holds a non-controlling equity investment in the acquiree immediately before obtaining control,the acquirer remeasures that previously held equity investment at its acquisition date fair valueand recognizes any resulting gain or loss in profit or loss. As a result the Company recognizeda gain on remeasurement of Pesos 54.4 million of the previously held 40% interest in MSIHI atacquisition date.

On December 30, 2010, MPTC acquired from another third party an additional 20% interest inMSIHI. Through a Deed of Absolute Sale of Shares, MPTC agreed to buy the 80,000 MSIHIshares from the said third party for Pesos 8.0 million. In addition, through a Deed ofAssignment, the third party assigned to MPTC deposit for stock subscription amounting toPesos 19.6 million.

As of December 30, 2010, MPTC had acquired 57% of the outstanding capital stock of MSIHI.At MPIC consolidated level, the Company effectively owns 95.6% of MSIHI.

Riverside Medical Center, Inc. (RMCI)

RMCIs main activity is the operations and management of hospitals and its subsidiary,Riverside College, Inc (RCI). RMCI was acquired on May 31, 2010.

East Manila Hospital Managers Corporation (EMHMC)

East Manila Hospital Managers Corp.(EMHMC), a wholly owned subsidiary of MPIC, wasincorporated on October 15, 2010 to operate and manage Our Lady of Lourdes Hospital, a non-tertiary hospital previously managed by the Missionary Sister Servants of the Holy Spiritcongregation (SSpS) through the Our Lady of Lourdes Hospital, Inc. (OLLHI). With thedecision of SSpS to turn over the operations and management to a professional group, OLLHIhas signed a 20-year lease of the hospital land and facilities in favor of EMHMC. The lease

agreement between EMHMC and lessors constitutes an acquisition of business.

Medical Doctors Inc. (MDI or Makati Med)

On January 18, 2008, MDI converted Pesos 630.0 million of its convertible notes in MDI atPesos 800.0 per share for a total of 787,500 common shares.

As of December 31, 2010 MPIC owns a total of 1,094,771 common shares representing 35%interest in MDI. MPICs carrying value of its investment in MDI, including its share in earningsof MDI, net of dividends, amounted to Pesos 1,552.8 million.

Davao Doctors Hospital Inc. (DDH)

On May 15, 2008, MPICs BOD approved the purchase and acquisition of up to 34% of theissued share capital (including treasury shares) of DDH for Pesos 1,600 per share.

In May 2009, MPIC acquired an additional 2,048 common shares representing 0.3% interest inDDH.

As of December 31, 2010, MPIC owns a total of 313,655 common shares representing 35%interest in DDH. MPICs carrying value of its investment in DDH, including its share in netearnings of DDH, net of dividends amounted to Pesos 599.6 million.


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Landco Pacific Corporation (Landco)

Following a strategic review of MPICs businesses, and its focus on infrastructure, MPICdecided to divest part of its interest in Landco. In an agreement entered into on September 9,2008 between MPIC and the minority shareholder of Landco, MPIC expressed its intention tosell its interest in Landco to the said minority shareholder. On the basis of the foregoing, theassets and liabilities of Landco, including that of its subsidiaries and associates, indirectly heldby MPIC through Landco and MPC, were classified as of December 31, 2008 as Assets ofdisposal group classified as held for sale and Liabilities directly associated with assetsclassified as held for sale in the consolidated balance sheets. The results of Landcosoperations for all the periods presented until discontinuance have been presented in theconsolidated statement of income as Income (loss) from discontinued operations, net of tax.

In June 2009, the Parent Company executed an agreement (the Agreement) with ABHoldings Corporation (ABHC) and Alfred Xerez-Burgos, Jr. (AXB), with the conformity ofLandco, for ABHC to (i) acquire from MPIC 17.0% of the total issued shares of Landco

(Landco Shares)and (ii) procure Landco to settle MPICs outstanding loan to Landco in theprincipal amount of Pesos 500.0 million plus accrued interest (the MPIC Loan).

Pursuant to the Agreement, ABHC agreed to pay MPIC the amount of Pesos 203.3 million(Share Purchase Price) as consideration for the Landco Shareswhich, together with theportion of the MPIC loan, was settled by end of 2009 through conveyance of certain assets,more particulary NE Pacific Shopping Center Corporation (NEPSCC) shares and certainproperties.

Upon signing of the Agreement, MPICs interest in Landco decreased from 51.0% to 34.0%.Notwithstanding the significant interest retained by MPIC, the sale of its 17.0% interest inLandco was accounted for as a disposal of a subsidiary. Consequently, all the assets, liabilities,reserves, minority interest and other accounts pertaining to Landco, which were previously

being consolidated by MPIC, were derecognized. For the year ended December 31, 2009, thegain on the said disposal was included under Income from discontinued operations - net ofincome tax in the 2009 consolidated statement of income.

As of December 31, 2009, the Parent Company reclassified its 34% investment in Landco as anoncurrent asset held for sale after meeting the criteria of an asset held for sale following theprovisions of PFRS 5 (Noncurrent Assets Held for Sale and Discontinued Operations). Thecarrying value of the investment in Landco recorded as a noncurrent asset held for sale as ofDecember 31, 2009 amounted to Pesos 329.6 million.

On August 24, 2010, the Parent Company sold another 15% of Landco, reducing MPICsinterest in Landco to 19%. The further reduction in interest resulted to a loss of significantinfluence over Landco, thus the remaining investment has been accounted as available-for-sale

(AFS) financial assets in accordance with PAS 39 (Financial Instruments: Recognition andMeasurement) as of December 31, 2010.

The carrying value of the investment in Landco recorded as available-for-sale financial assetsas of December 31, 2010 amounted to Pesos 211.8 million.

Please see Notes 6 and 10 of the accompanying Audited Financial Statements.


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(2) Business of Issuer

(a) Description of Registrant

As of December 31, 2010, the Parent Company holds interests in the following:(a) DMWC, the holding company that operates Maynilad, a water and sewerage utilitycompany, (b) toll roads through MPTC, the holding company of MNTC and TMC,(c) investments in power distribution through Beacon which holds the ParentCompanys investments in Meralco, (d) investments in healthcare through RMCI,EMHMC, MDI and DDH and (e) real estate through MPC.

(i) Principal products and services and contribution to revenues and netincome

In 2010, contribution came from consolidated results of the following operatingcompanies: (a) DMWC and its subsidiary, Maynilad, (b) MPTC and itssubsidiary, MNTC, and associate, TMC, (c) RMCI and subsidiary, RCI,(d) EMHMC which operates and manages OLLH (e) share in equity earnings ofjoint venture, Beacon which holds investments in Meralco and (f) share inequity earnings of MDI and DDH.

In 2009, contribution came from consolidated results of the following:(a) DMWC and its subsidiary, Maynilad, (b) MPTC and its subsidiary, MNTC,and associate, TMC, and (c) share in equity earnings of associates, MDI andDDH.

In 2008, contribution came from consolidated results of the following:(a) DMWC and its subsidiary, Maynilad, (b) MPTC and its subsidiary, MNTC,and associate, TMC, and (c) share in equity earnings of associates, MDI and

DDH. Results of the operation of Landco, net of the effect of certainprovisions, is classified and presented as part of discontinued operation.

(ii) Percentage of foreign sales or revenues

All revenues of the Group were derived from sales within the Philippines.

(iii) Distribution Methods

Not applicable.

(iv) Status of any publicly announced product or services

Not applicable

(v) Competition

Water Utilities

Under the Concession Agreement, MWSS grants Maynilad (as contractor toperform certain functions and as agent for the exercise of certain rights andpowers under the Charter), the sole right to manage, operate, repair,decommission and refurbish all fixed and movable assets required (exceptcertain retained assets of MWSS) to provide water and sewerage services inthe West Service Area for 25 years commencing on August 1, 1997 (theCommencement Date) to May 6, 2022 (the original Expiration Date) or the

early termination date as the case maybe. In 2009, Maynilad received theextension of the Concession by another 15 years to May 6, 2037 (newExpiration Date).


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Toll Operations

Pursuant to the Joint Venture Agreement entered into by Philippine NationalConstruction Corporation (PNCC) and FPIDC on August 29, 1995, PNCCassigned its rights, interests and privileges under its franchise to construct,operate and maintain toll facilities in the North Luzon Expressway (NLE) infavor of MNTC, including the design, funding and rehabilitation of the NLE, andinstallation of the appropriate collection system therein. The assignment ofPNCCs usufructuary rights, interests and privileges under its franchise, to theextent of the portion pertaining to the NLE, was approved by the then Presidentof the Republic of the Philippines (ROP). In April 1998, the ROP (Grantor),acting by and through the Toll Regulatory Board (TRB), PNCC (Franchisee)and MNTC (Concessionaire) executed the Supplemental Toll OperationAgreement (STOA) for the Manila-North Expressway, whereby the ROPgranted MNTC the rights, obligations and privileges including the authority tofinance, design, construct, operate and maintain the project roads as toll roads(Concession) commencing upon the date the STOA comes into effect untilDecember 31, 2030 or 30 years after the issuance of the Toll Operation Permit(TOP) for the last completed phase, whichever is earlier, unless furtherextended pursuant to the STOA. In October 2008, TRB approved MNTCsproposal to extend the service concession term for Phase 1 and Segment 8.1of the Project until December 31, 2037, subject to certain conditions.

However, while MNTC has the sole toll operation in the NLE, there is analternative road, Macarthur Highway, provided by the government, whichdilutes the prospective customers of MNTC, specifically the C3 class.

Healthcare

Major competitors in the healthcare business include tertiary hospitals locatedin major cities where RMCI, EMHMC, MDI and Cardinal Santos and DDHoperate. However, increased health awareness creates unsatisfied demand inthe industry.

Power Distribution

On May 23, 2008, Meralco, together with other industry players, filed aPetition with the ERC for the implementation of Interim Open Access (IOA) inthe Luzon and Visayas grids, in accordance with a proposed Terms ofReference of the Interim Implementation of Open Access. The Petition soughtto allow eligible customers with an average peak demand of 1 MW and up tocontract and purchase their electricity requirements from Eligible Generating

Companies through Retail Electric Suppliers. Eligible GenerationCompanies are those which meet the mandated generation market share capsof EPIRA.

In a decision dated November 10, 2008, the ERC renamed IOA as the PowerSupply Option Program (PSOP) and approved the Petition, subject to rules tobe promulgated by the ERC.

On September 14, 2009, the ERC released an Order stating that PSOP wouldcommence ninety (90) days after completion of either of the followingconditions, whichever comes earlier:

a) The transfer of the operation of the Calaca Generation Assets to the private

generation companies concerned or its equivalent in terms of capacity; or


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b) The privatization of at least 70% of the total capacity of generating assets ofNPC in Luzon and Visayas.

On December 3, 2009, the Power Sector Assets and LiabilitiesManagement Corporation (PSALM) turned over the 600-MW Calaca Coal-FiredPower Plant to Sem-Calaca Power Corp. Thus, the target commencement datefor PSOP became March 4, 2010.

On January 25, 2010, the ERC approved the Rules for the Power SupplyOption Program and, on January 27, 2010, the ERC directed the PSOPproponents to submit to ERC harmonized procedures for retail settlementunder PSOP by February 23, 2010.

On February 26, 2010, the PEMC filed a Manifestation with the ERC, taking theposition that it could not exercise a role beyond that of market operator underthe WESM Rules. PEMC, however, stated that it was willing to provide data tothe DU or Supplier to calculate the settlement amounts of PSOP customers.Meanwhile, on the same date, Meralco filed a Manifestation with the ERC,taking the position that the PEMC is best suited to take on the role of theSettlement Agent because it has the necessary infrastructure, systems,procedures and policies to fulfill the role. The ERC released an Order onMarch 8, 2010 directing other Petitioners to comment on the Manifestations.The matter is currently pending before the Commission.

With the onset of power privatization and deregulation, MERALCO hasventured in the non-regulated industries such as real estate, informationtechnology and infrastructures. In 2010, it entered the power generation marketthrough MERALCO PowerGen Corporation (formerly Asian Center for EnergyManagement).

(vi) Source and availability of raw materials

With the exception of Maynilad which sources almost all its water from theAngat Dam, the Group is not dependent on one or a limited number ofsuppliers.

(vii) Dependence on customers

The water business of the Company enjoys a sole concession of MetroManilas West Service Area. Further, the different business segments of theCompany, such as the water business, toll roads, power and hospital, etc., areall mass-based, such that the loss of a few customers would not have amaterial adverse effect on the registrant and its subsidiaries taken as a whole.

There is also no single customer that accounts for twenty percent (20%) ormore of the registrant groups sales.

(viii) Transactions with and/or dependence on related parties

Please refer to Note 21 of the accompanying Audited Financial Statements.

(ix) Patents, trademarks, copyrights, licenses, franchises, concessions androyalty agreements held by the Group

Maynilad and MNTC, the two main subsidiaries of the Company have existingconcession agreements.

Under the Concession Agreement, MWSS grants Maynilad (as contractor toperform certain functions and as agent for the exercise of certain rights andpowers under the Charter), the sole right to manage, operate, repair,


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decommission and refurbish all fixed and movable assets required (exceptcertain retained assets of MWSS) to provide water and sewerage services inthe West Service Area for 25 years commencing on August 1, 1997 (theCommencement Date) to May 6, 2022 (the Expiration Date) or the earlytermination date as the case maybe.

Extension of Maynilads Concession Agreement. On September 10, 2009, theMWSS Board of Trustees (BoT) approved the extension of the expiry of itsConcession Agreement with Maynilad by an additional (15) years or fromMay 6, 2022 to May 6, 2037. Subsequently, on September 16, 2009, theMWSS Administrator wrote the Department of Finance (DoF) to inform them ofthe BoTs decision and seek DoFs written consent to the extension, as well asits extension of the letter of undertaking covering the governments obligationunder the Concession Agreement. On March 17, 2010, the Department ofFinance transmitted to Maynilad the signed Letter of Consent and Undertakingon behalf of the Republic of the Philippines (the Republic or ROP), relativeto the extension of the Concession Agreement from May 6, 2022 to May 6,

2037. In this Letter, the Republic acknowledged and approved the extension ofthe Concession Agreement. It further extended the effectivity of the Republicsundertaking letter subject to the increase in the present minimum level of theperformance bond from US$30 million to US$90 million for the third raterebasing period.

Under the Supplemental Toll Operation Agreement (STOA) for the Manila-North Expressway, the ROP granted MNTC the rights, obligations andprivileges including the authority to finance, design, construct, operate andmaintain the project roads as toll roads (Concession) commencing upon thedate the STOA comes into effect until December 31, 2030 or 30 years after theissuance of the TOP for the last completed phase, whichever is earlier, unlessfurther extended pursuant to the STOA. In October 2008, TRB approved

MNTCs proposal to extend the service concession term for Phase 1 andSegment 8.1 of the Project until December 31, 2037, subject to certainconditions.

(x) Dependence on Licenses and Government Approval

Necessary government approvals in relation to the operation of the waterbusiness and toll roads have been secured and documented in the relatedconcession agreements.

(xi) Effect of existing or probable governmental regulations on the business

There are no anticipated changes to government regulations that will

significantly affect the business of the Group.

(xii) Research and development activities

The Group is not involved in any significant research and developmentactivities.

(xiii) Costs and effects of compliance with environmental laws

The Group adopts a proactive approach to environmental standards and itsfacilities are constructed to high standards. As a consequence, it is notfeasible to determine the incremental cost, if any, of compliance with localregulations.


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(xiv) Registrants present employees

As of December 31, 2010, the Parent Company has a total headcount of 40employees (Administrative: 32, Clerical: 8), who are neither unionized norcovered by special incentive arrangements. The Parent Company expects toincrease its headcount in the next twelve months to 46.

(xv) Major risks


(b) Additional Requirements of Certain Issues or Issuers

(i) Debt Issues

Not applicable.

(ii) Investment Company Securities

Not applicable.

Item 2. Description of Properties


Item 3. Legal Proceedings

The following is an update on the material legal proceedings which the Company and/or its subsidiariesor affiliates are party to:

MPTC

Value Added TaxWhen RA 9337 took effect, the BIR issued Revenue Regulation No. 16-2005 on September 1, 2005,which, for the first time, expressly referred to toll road operations as being subject to VAT. Thisnotwithstanding VAT Ruling 078-99 issued in August 9, 1999 where BIR categorically ruled that MNTC,as assignee of PNCC franchise, is entitled to the tax exemption privileges of PNCC and is exempt fromVAT on its gross receipts from the operation of the NLE.

However, the TRB, in its letter dated October 28, 2005, directed MNTC (and all Philippine tollexpressway companies) to defer the imposition of VAT on toll fees. Due to the possibility that MNTCmay eventually be subjected to VAT, MNTC, in 2005, carved out the input tax from its purchases of

goods and services (includes input tax in relation to the Project construction cost) in 2004 which werepreviously recorded as part of service concession assets and recorded such input tax, together with theinput tax on 2005 purchases and onwards, as a separate Input value added tax account andaccordingly reflected the input tax in the VAT returns.

In September 2005, MNTC also requested for confirmation from the BIR that MNTC can claim inputVAT for the passed-on VAT on its purchases of goods and services for 2003 and prior years. Therequest for confirmation is still pending as of March 3, 2011.

On December 21, 2009, BIR issued RMC No. 72-2009 as a reiteration of RMC No. 52-2005 imposingVAT on the tollway operators. However, on January 21, 2010, Tollway Association of the Philippines(TAP) issued a letter to tollway operators referring to a letter issued by TRB to TAP datedDecember 29, 2009 reiterating TRBs previous instruction to all toll operators to defer the imposition of

VAT on toll fees until further orders from their office. The TRB directive resulted from the Cabinetmeeting held last December 29, 2009 at Baguio City where the deferment of the implementation ofRMC No. 72-2009 was discussed.


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On March 2010, the BIR issued RMC 30-2010 directing the imposition of the 12% VAT startingApril 1, 2010, with coverage initially limited to private vehicles. However, on March 30, 2010, theTAP issued a letter to tollway operators referring to a letter issued by TRB to TAP dated March 30,2010 directing the deferment of collection of VAT on toll fees until further orders from their office.

To fully implement the imposition of the VAT on toll fees, the BIR issued RMC No. 63-2010 datedJuly 19, 2010 which states that:

1. The VAT shall be imposed on the gross receipts of tollway operators from all types of vehiclesstarting August 16, 2010.

2. Tollway operators who have been assessed for VAT liabilities on receipts from toll fees for priorperiods can apply for Abatement of the tax liability, surcharge and interest under Section 204 ofthe NIRC and RR No. 13-2001.

3. The accumulated input VAT account of the toll companies shall have a zero balance onAugust 16, 2010. Any input VAT that will thenceforth be reflected in the books of accounts andother accounting records of tollway operators will have to be for purchases of goods andservices delivered/rendered and invoiced/receipted on or after August 16, 2010.

4. All tollway operators are required to comply with the invoice/receipt format prescribed underRMC No. 40-2005.

Meanwhile, on August 4, 2010, MNTC, in accordance with RMC No. 63-2010, applied forabatement of alleged VAT liabilities for taxable years 2006, 2007, 2008 and 2009. The BIR has yetto resolve the application for abatement of MNTC.

On August 13, 2010, the Supreme Court issued a TRO on the imposition of the 12% VAT ontollway operators. The TRO has not been lifted as of March 3, 2011.

In view of the foregoing and in the light of the quick response of the Cabinet and the TRB on the BIRRMC No. 72-2009 and TRO issued by the Supreme Court on the imposition of VAT, MNTC continues

to defer the imposition of VAT on toll fees from motorists and correspondingly, with VAT being apassed-on tax, MNTC did not recognize any VAT liability.

MNTC, together with other toll road operators, continues to discuss the issue of VAT with concernedgovernment agencies.

At present, the BIR continuously upholds its position that MNTC is indeed subject to VAT on tollrevenues, stating that inasmuch as there is no concrete ruling yet on the exemption from VAT ontoll fees, MNTCs receipts from toll fees should be considered as subject to VAT. In relationthereto, the BIR has issued the following VAT assessments:

MNTC received a Formal Letter of Demand from the BIR on March 16, 2009 requesting MNTCto pay deficiency VAT plus penalties amounting to Pesos 1,010.5 millionfor taxable year 2006.

MNTC received a Final Assessment Notice from the BIR dated November 15 2009, assessingMNTC for deficiency VAT plus penalties amounting to Pesos 557.6 millionfor taxable year2007.

MNTC received a Notice of Informal Assessment from the BIR dated October 5, 2009,assessing MNTC for deficiency VAT plus penalties amounting to Pesos 470.9 millionfortaxable year 2008.

On May 21, 2010, the BIR issued a Notice of Informal Conference assessing MNTC fordeficiency VAT plus penalties amounting to Pesos 1.0 billion for taxable year 2009. Includedalso in the Notice is the increase of the deficiency VAT for taxable year 2008 from Pesos 470.9million to Pesos 1.2 billion (including penalties).

Notwithstanding the foregoing, management believes, in consultation with its legal counsel, that in anyevent, the STOA amongst MNTC, ROP, acting by and through the TRB, and PNCC, provides MNTC


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with legal recourse in order to protect its lawful interests in case there is a change in existing lawswhich makes the performance by MNTC of its obligations materially more expensive.

Local Business TaxIn 2008, MNTC has received a Final Demand from the municipality of Guiguinto, Bulacan to pay thelocal business tax assessments for the years 2005 to 2007 amounting to Pesos 67.4 million,inclusive of surcharges and penalties. MNTC, together, with its legal counsel protested claimingthat its predecessor, PNCC has never been subjected to local business tax and as such MNTCcontinued the customary practice of obtaining the business permits solely from the localgovernment unit where its principal office is located. The case is still pending before the RegionalTrial Court of Malolos, Bulacan.

On November 19, 2009, TRB informed MNTC that TRBs BOD has approved MNTCs request tointervene in the local business tax case for the purposes of protecting the interests of thegovernment and the motoring public, avoiding any disruption in the operation of the NLE as alimited access facility and resisting collateral attack in the validity of the STOA. TRB also advisedMNTC that on November 12, 2009, the Omnibus Motion (i) for Intervention and (ii) to admit

attached Manifestation and Motion in Intervention was filed by the Office of the Solicitor General onbehalf of TRB praying for the issuance of a Temporary Restraining Order and a Writ of PreliminaryInjunction to enjoin the municipality from closing MNTCs business particularly with respect t o itsoperations of the Burol-Tabang and Burol-Sta. Rita toll exits and any facility that is indispensable inthe operation of the tollway.

In March 2010, MNTC received a final demand letter from the municipality to pay LBT, permits, andregulatory fees. On March 12, 2010, the RTC denied MNTCs application for the issuance of atemporary restraining order and/or writ of preliminary injunction. On March 15, 2010, MNTC filedwith the Court of Appeals a petition for certiorari (with application for the issuance of a temporaryrestraining order and/or a writ of preliminary Injunction) to annul or set aside the orders of the RTCdenying MNTCs application for the issuance of a writ of preliminary injunction. The Court ofAppeals, in its decision dated July 23, 2010, dismissed the petition. On August 17, 2010, MNTC

filed a motion for reconsideration. On December 3, 2010, the Court of Appeals denied the motionfor reconsideration.

Meanwhile, on July 22, 2010, MNTC filed another complaint with the RTC of Malolos, Bulacanseeking to annul and set aside the illegal assessment for unpaid local business taxes in the totalamount of Pesos 34.0 million, inclusive of surcharges and penalties, for the years 2008 and 2009issued against MNTC by the Municipal Treasurer of Guiguinto, Province of Bulacan in February2010.

The cases are pending before the RTC.

As of March 3, 2011, MNTC is in the process of discussing the issue on the prospective allocationof the LBT with the Bureau of Local Government Finance.

Real Property TaxIn 2008, MNTC also received real property tax assessments covering the toll roads located in theMunicipality of Guiguinto amounting to Pesos 2.9 million for the years 2005 to 2008. MNTCappealed before the Local Board of Assessment Appeals (LBAA) of Bulacan and prayed for thecancellation of the assessment. The case is still pending before the LBAA of Bulacan.

In 2004, MPTDC received real property tax assessments covering Segment 7 located in the provinceof Bataan for the period from 1997 to June 2005 amounting to Pesos 98.5 million for allegeddelinquency property tax. MPTDC appealed before the LBAA of Bataan and prayed for thecancellation of the assessment. In the said appeal, MPTDC invoked that the property is owned by theROP, hence, exempt from real property tax. The case is still pending before the LBAA of Bataan.

The outcome of these claims cannot be presently determined. Management believes that these claimswill not have a significant impact on the Companys consolidated financial statements. As with regards


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to the real property tax, management and its legal counsel believes that the STOA also providesMNTC with legal recourse in order to protect its lawful interests in case there is a change in existinglaws which makes the performance by MNTC of its obligations materially more expensive.

OthersMNTC is a co-respondent [together with TRB, PNCC, other tollways operators, TMC, MPTDC (thenFPIDC) and BHC] in two Supreme Court cases, where, based on the following allegations, thepetitioners claims that the STOA is null and void:

the negotiation and execution of the STOA failed to undergo public bidding in accordance withapplicable laws and regulations of the Philippines;

the STOA granted to MNTC a 30-year franchise for the construction, maintenance andoperation of the NLE in violation of the Presidential Decrees under which the PNCCs franchisewere granted and the Philippine Constitution; and

the provisions of the STOA providing for the establishment and adjustment of toll rates violate

the statutory requirement for the TRB to conduct public hearings on the level of authorized tollrates.

The Supreme Court, in a decision dated October 19, 2010, among others, declared as valid andconstitutional the STOA. Petitioner Francisco filed a motion for reconsideration datedNovember 5, 2010 while some of the petitioners in Marcos, et al. v. TRB et al. filed a partial motionfor reconsideration dated October 8, 2010. On January 24, 2011, MNTC filed a consolidatedcomment to the aforementioned motions for reconsideration.

Management believes that the petitioners claims are without merit and is vigorously contesting thecase. As of March 3, 2011, the cases are still pending.

MNTC is also a party to other cases and claims arising from the ordinary course of business filed by

third parties which are either pending decisions by the courts or are subject to settlementagreements. The outcome of these claims cannot be presently determined. In the opinion ofmanagement and MNTCs legal counsel, the eventual liability from these lawsuits or claims, if any,will not have a material adverse effect on the Companys financial position and financialperformance.

Maynilad

a. Additional Tranche B Concession Fees and interest penalty are being claimed by MWSS inexcess of the amount recommended by the Receiver. Such additional charges being claimedby MWSS (in addition to other miscellaneous claims) amounted to Pesos 4.0 billion as of

December 31, 2010 and Pesos 3.8 billion as of December 31, 2009. The Rehabilitation Courthas resolved to deny and disallow the said disputed claims of MWSS in its December 19, 2007Order, upholding the recommendations of the Receiver on the matter. Following thetermination of Maynilads rehabilitation proceedings, Maynilad and MWSS are seeking toresolve this matter in accordance with the dispute resolution requirements of the Transitionaland Clarificatory Agreement (TCA).

b. On October 13, 2005, the Municipality of Norzagaray, Bulacan jointly assessed Maynilad andManila Water Company, Inc. (the Concessionaires) for real property taxes on certain commonpurpose facilities purportedly due from 1998 to 2005 amounting to Pesos 357.1 million. It is theposition of the Concessionaires that these properties are owned by the Republic of thePhilippines and that the same are exempt from taxation.

On February 2, 2007, the Concessionaires received an updated assessment of real propertytax, which included real property tax purportedly due for 2006 of Pesos 35.7 million and interest


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of 2% per month of Pesos 93.6 million. The supposed joint liability of the Concessionaires forreal property tax, including interests, as of June 30, 2007 amounted to Pesos 554.2 million.

The Local Board of Assessment Appeals (LBAA) ruled in favor of the Municipality ofNorzagaray, Bulacan. The Concessionaires elevated the ruling of the LBAA to the CentralBoard of Assessment Appeals (CBAA) by filing separate appeals.

The CBAA has given due course to Maynilads appeal and an ocular inspection of the commonpurpose facilities was conducted by the CBAA on December 14, 2010.

Although the case has been set for pre-trial by the CBAA, the pre-trial of the case is put on holdpending the resolution of two (2) motions filed by the Concessionaires. The case was originallyset for hearing on March 17, 2011 but was reset on May 13, 2011.

c. Two petitions for review on certiorari filed separately by Maynilad and MWSS, questioning thejurisdiction of the National Water Resources Board (NWRB) to hear and decide a complaintwith prayer for the issuance of a cease and desist order against Maynilad, MWSS and the

MWSS-RO initiated by certain civil society groups, are pending (in two consolidated cases)before the Supreme Court. Such complaint, which is yet to be decided upon by the NWRB,depending upon the final determination by the Supreme Court on the issue of the NWRBsjurisdiction on the matter, is contesting the approval by the MWSS BoT of the MWSS-ROresolution approving the rebased tariff of Pesos 30.19 per cubic meter (average all-in tariff)effective January 1, 2005 for Maynilad. The rulings of the Court of Appeals being assailed bythe petitions before the Supreme Court pronounced, among others, that the NWRB isempowered to review the subject average all-in tariff rate of Pesos 30.19 per cubic meter.

d. On November 24, 2006, the Labor Arbiter issued a decision dated, ordering the payment ofCOLA to the supervisor-employees of the Maynilad Water Supervisors Association (MWSA)retroactive to the date when they were hired by the respondent company in 1997, with legalinterest from the date of promulgation of [the] decision until full payment of the award as

computed and claimed by MWSA. On September 7, 2007, the National Labor RelationsCommission (NLRC) reversed and set aside the decision of the Labor Arbiter.

On December 10, 2007, in pursuance of its efforts to effect an early exit from corporaterehabilitation, Maynilad executed a Compromise Agreement with the MWSA for the settlementof certain claims of the MWSA, wherein Maynilad agreed to pay MWSA residual benefitsequivalent to its claim for COLA for 23 months, from August 1997 to June 1999.

Meanwhile, MWSA elevated the decision of the NLRC to the Court of Appeals and asked thatthe Labor Arbiters decision dated November10, 2006 be affirmed in toto, but only in relation tothe MWSAs claim for COLA from July 1999 up to the present time.

In a decision dated May 31, 2010, the Court of Appeals (i) granted the Petition for Certiorari

filed by MWSA and reinstated the Labor Arbiters Decision dated November 24, 2006; and, (ii)annulled and set aside the NLRC Decision dated September 7, 2007.

Maynilad filed its motion for reconsideration from the Court of Appeals decision.

On January 31, 2011, the Court of Appeals granted the motion for reconsideration filed byMaynilad reinstating and affirming the September 7, 2007 Decision and October 23, 2007Resolution of the NLRC.

e. Maynilad is a party to various civil and labor cases relating to breach of contracts withdamages, illegal dismissal of employees, and nonpayment of back wages, benefits andperformance bonus, among others.


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MPC

Donors TaxMetro Pacific Corporation received on January 14, 2011 a Final Assessment Notice (FAN)demanding the payment of approximately Pesos 199.74 Million as deficiency donors tax(including surcharge and interest as of January 31, 2011) on the excess of the book value overthe selling price of several shares of stock in Bonifacio Land Corporation (BLC) which MPCsold to a third party. The assessment was based on the finding of the Bureau of InternalRevenue-Large Taxpayer Service (BIR-LTS) that the transaction is subject to donors tax as adeemed gift transaction under Section 100 of the 1997 National Internal Revenue Tax Code(the Tax Code).

On February 14, 2011, MPC filed its formal protest to the FAN raising among others, thefollowing arguments: (1) The transaction subject to the FAN is covered by a validly existingruling from the BIR (BIR RULING [DA-(DT-065) 715-09]) stating that the transaction is notsubject to donors tax under Section 100 of the Tax Code; (2) The Supreme Court itselfrecognized that the deemed gift provision of the Tax Code admits of exceptions, particularlywhen the transaction is at an arms-length and made in good faith; and (3) BIR RR 6-2008,which the BIR is using as basis in assessing deficiency donors tax, cannot amend theSupreme Courts interpretation of Section 100 of the Tax Code.

Because of the above reasons, MPC believes that no provision for the assessment isnecessary as of December 31, 2010.

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

There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal yearcovered by this annual report.


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PART II OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Registrants Common Equity and Related Stockholder Matters

(A) Market Price of and Dividends on Registrants Common Equity and Related StockholderMatters

(1) Market information

The Registrants common shares are listed on the Philippine Stock Exchange (PSE). Thehigh and low sales prices of such shares for the last quarter of the fiscal year 2008, 2009, 2010and the 1

stquarter of 2011 are set out below. The share price as of the close of business on

March 31, 2011 was Pesos 3.26.

Quarter Low High

20081st 3.65 4.352n 3.00 4.50

3r 3.10 4.20

4t 2.02 3.50

20091st 2.50 3.10

2n 2.85 6.40

3rd 3.20 6.60

4th 2.55 3.75

20101st 2.22 3.10

2n 2.65 3.20

3r 2.60 3.88

4t 3.45 4.35

20111st 3.12 4.15

(2) Dividends

Apart from cash restrictions and retained deficit position of the Parent Company, it may notdeclare or pay cash dividends to its stockholders or retain, retire, purchase or otherwise acquireany claims of its capital stock or make any other capital or asset distribution to its stockholdersif, at the time of such declaration: (i) its Debt-to-Equity Ratio exceeds 70:30; (ii) its Debt ServiceCoverage Ratio is below 1.5x; and (iii) the funds in deposit in the Debt Service Account do notmeet the required DSA balance.

On August 4, 2010, the Parent Company declared Pesos 0.01 dividends per common share in2010 while there were no dividends declared in 2009 and 2008. On same date, the ParentCompany declared Pesos 5.7 million preferred dividends.

On March 3, 2011, the Parent Company declared additional Pesos 0.015 dividends per share

bringing total dividends declared to date to Pesos 0.0250 per common share. Also on March 3,2011, the Parent Company declared Pesos 3 million preferred dividends.


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(3) Recent Sales of Unregistered or exempt Securities

During the last three (3) fiscal years, MPIC issued the following shares (either via privateplacements and/or conversion of debt to equity) for which exemptions from registration wereclaimed and notices of exempt transactions were accordingly filed with the Securities andExchange Commission (SEC):

1. On July 1, 2008, MPIC issued, and MPHI subscribed to, 1,568,925,223 commonshares of MPIC at the price of Pesos 2.00 per share or a total consideration of Pesos3,137,850,446.00. Such consideration was fully paid by MPHI on July 10, 2008. ANotice of Exempt Transaction in respect of such issuance was filed with the SEC onJuly 10, 2008.

2. On March 3, 2008, MPHI advised MPIC of its intent to convert its loan amounting toPesos 2,029,853,351 into 1,893,282,845 common shares of MPIC at the issue price of:(i) Pesos 1.08236 per share (with respect to 1,237,002,525 common shares); and (ii)Pesos 1.05286 per share (with respect to 656,280,320 common shares), pursuant toexisting convertible loan agreements. This conversion was acknowledged by MPIC onJune 30, 2008. The said shares were issued to MPHI on August 12, 2008 from theincrease in MPICs authorized capital, following the approval by the SEC of saidincrease. A Notice of Exempt Transaction in respect of such issuance was filed withthe SEC on 19 August 2008.

3. On August 12, 2008, MPIC issued to MPHI 2,222,600,000 common shares of MPIC, onthe basis of a subscription made by MPHI on July 1, 2008 and its full payment for suchsubscription on July 15, 2008. Said shares were issued at the price of Pesos 2.00 pershare or a total consideration of Pesos 4,445,200,000, following the approval by theSEC of the increase in MPICs authorized capital stock. A Notice of ExemptTransaction in respect of such issuance was filed with the SEC on 19 August 2008.

4. On February 13, 2009, MPIC issued to MPHI a total of 2,389,040,000 common sharesof MPIC at the price of Pesos 2.00 per share or a total consideration of Pesos4,778,080,000, following the approval by the SEC of the increase in MPICs authorizedcapital stock. Proceeds were used to settle outstanding obligations and to partiallyfund MPICs acquisition of FPII. Two (2) Notices of Exempt Transactions were filedwith the SEC on February 19, 2009.

5. MPIC granted a total of 123,925,245 options to subscribe to common shares of MPIC,pursuant to its Executive Stock Option Plan. Said options relate to 123,925,245underlying common shares of MPIC issuable at the price of Pesos 2.12 per share (inrespect of 61,000,000 options) and Pesos 2.73 (in respect of 62,925,245 options). Two(2) Notices of Exempt Transactions were filed with the SEC on April 27, 2009. For the

year 2009, total ESOP shares exercised amounted to 13,945,000 common shares.

6. On July 29, 2009, MPIC issued to MPHI 5.0 billion Class A Preferred Shares with a parvalue of P=0.01 per share. The holders of the Class A Preferred Shares (the Class APreferred Shareholders) are entitled to vote and receive preferential cash dividends atthe rate of ten percent (10%) per annum, to be calculated based on the par value of theClass A Preferred Shares, upon declaration made at the sole option of the BOD.

7. On July 10, 2009 MPIC issued to LAWL 791,110,491 common shares of MPIC at theprice of Pesos 2.565 per share or a total consideration of Pesos 2,029,198,409. ANotice of Exempt Transaction was filed with the SEC on July 13, 2009.

8. On September 25, 2009, MPIC issued to MPHI 4,150,000,000 common shares

pursuant to the second stage of the MPIC re-launch discussed above. Said shareswere issued at the price of Pesos 3.00 per share or a total consideration of Pesos


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12,450,000,000. A Notice of Exempt Transaction was filed with the SEC onSeptember 29, 2009.

9. On October 6, 2009, MPIC issued a total of 4,464,202,634 common shares of MPIC infavor of BTF (to the extent of 3,159,162,338 common shares) and MPHI (to the extentof 1,305,040,296 common shares) at the price of Pesos 3.00 per share or a totalconsideration of Pesos 13,392,607,902. Proceeds were used to partially fund MPICsacquisition of Meralco shares. Two (2) Notices of Exempt Transactions were filed withthe SEC on October 15, 2009.

10. On October 27, 2009, MPIC issued an additional 620,000,000 common shares of MPICto MPHI in relation to the second stage of the MPIC re-launch discussed above and asa result of the exercise of an over-allotment option by the allotment agent. Said shareswere issued at the price of Pesos 3.00 per share or a total consideration of Pesos1,860,000,000. A Notice of Exempt Transaction was filed with the SEC on October 16,2009.

11. On December 21, 2009, following the approval by the SEC of an increase in itsauthorized capital stock, MPIC issued 672,129,584 common shares of MPIC to MPHI.Said shares were issued at the price of Pesos 3.00 per share or a total consideration ofPesos 2,016,388,752 and were paid for via the assignment by MPHI of its advances toMPIC. A Notice of Exempt Transaction was filed with the SEC on December 22, 2009.

12. In 2010, MPIC allotted a total of 145,000,0000 underlying common shares in respect ofan additional 145,000,0000 stock options to be granted pursuant to its Executive StockOption Plan. During the year 2010, MPIC granted a total of 104,300,000 options tosubscribe to common shares of MPIC. Said options relate to 104,300,000 underlyingcommon shares of MPIC issuable at the price of Pesos 2.73 per share (in respect of94,300,000 options) and Pesos 3.50 (in respect of 10,000,000 options). A request forexemption from registration under the Securities Regulations Code (SRC) was filed

with the SEC in respect of the 145,000,000 stock options to be granted, and wasapproved by the SEC on May 31, 2010. For the year 2010, total of 27,310,000common shares were issued out of ESOP.

The abovementioned notices of exempt transactions were made on the basis of:

1. Section 10.1(e) of the Securities Regulation Code The sale of capital stock of acorporation to its own stockholders exclusively, where no commission or otherremuneration is paid or given directly or indirectly in connection with the sale of suchcapital stock.

The abovementioned issuances were issued by MPIC to MPHI, its majoritystockholder, exclusively and no commission or other remuneration was paid or given

directly or indirectly in connection with such issuances.

2. Section 10.1 (k) of the SRC The sale of securities by an issuer to fewer than twenty(20) persons in the Philippines during any twelve-month period.

MPIC issued securities to fewer than twenty (20) persons in the Philippines during anytwelve-month period.

The above described request for exemption from registration (under Item 11 above) wasmade on the basis of Section 10.2 of the SRC. MPIC averred that by reason of the relativesmall amount and limited character of the aforesaid issuance, registration is not necessary forthe public interest and for the protection of prospective investors who are employees of MPICand/or its subsidiaries and affiliates and are in the position to know the present affairs of

MPIC and the risks of investing therein.


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Item 6. Managements Discussion and Analysis of Financial Condition and Results ofOperations (MD & A)

Financial Highlights and Key Performance Indicators

The following discussion and analysis of the Groups financial condition and results of operationsshould be read in conjunction with the accompanying audited consolidated financial statements and therelated notes for the years ended December 31, 2010, 2009, and 2008 and as of the years endedDecember 31, 2010 and 2009 included in this Report. Key performance indicators of the Group are asfollows:

2010 2009 Amount %

Consolidated Income Statements

Revenues 18,564 16,108 2,456 15.25

Expenses 10,491 10,071 420 4.17

Other expenses (income) 2,661 1,705 956 56.07Income before income tax 5,412 4,332 1,080 24.93

Net income attributable to owners of the Parent Company 2,871 2,300 571 24.83

EBITDA (Core) 12,705 10,103 2,602 25.75

Core income 3,856 2,047 1,809 88.37

Nonrecurring income (loss) (985) 252 (1,237) (490.87)

Net income margin 15% 14% 1% 7.14EBITDA margin 68% 63% 5% 7.94

Increase (Decrease)

(in PhP millions)

Overview

Year 2010 underscored another milestone for MPIC as it reaffirms its position as one of the countrys

leading infrastructure companies. Highlights for the year are as follows:

Combined Meralco holdings of MPIC and PCEV under Beacon. On March 30, 2010, Beaconagreed to purchase 154.2 million and 163.6 million Meralco shares from PCEV and MPIC,respectively, for a consideration of Pesos 150 per share or a total of Pesos 24,540 million forthe MPIC Meralco shares and Pesos 23,130 million for the PCEV Meralco shares. Theconsolidation of Meralco holdings into Beacon gave it a 28.2% interest in Meralco, making it thesingle, largest shareholder of Meralco. This also allowed Beacon to access debt financing forany additional purchases of Meralco shares, using its Meralco shares as security. Also, onsame date, Beacon purchased additional 74.7 million shares from First Philippine HoldingsCorporation in exercise of the Call Option assigned by MPIC, for the price of Pesos 300 pershare or the total purchase price of Pesos 22,410 million. This brought the total ownership ofBeacon in Meralco to 34.8%.

Term extension of Maynilads concession to additional 15 years to 2037. On March 17, 2010,the Department of Finance transmitted to Maynilad the signed Letter of Consent and Undertakingon behalf of the Republic of the Philippines, relative to the extension of the Concession Agreementfrom May 6, 2022 to May 6, 2037. The term extension is beneficial for both Maynilad and itsstakeholders because it will enable it to take full advantage of long-term strategies for betterwater supply reliability and continued expansion in unserved and under-served areas. It willalso address critical environmental issues through intensified sewerage and sanitation servicescustomers.

Divestment of Manila North Harbour Port Inc. MPIC divested in favor of Harbour Center PortTerminal, Inc. (HCPTI) all of its shares of common stock of Manila North Harbour Inc. (MNHPI)

representing 35% of the outstanding capital stock of MNHPI, with the prior approval of thePhilippine Ports Authority. The total amount of Pesos 350,000,000.00 received from HCPTI


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represents the 35% of the outstanding capital stock of MNHPI worth Pesos 245,000,000 and arepayment of a loan in the amount of Pesos 105,000,000.

Award of the Connector Road Project to MPTDC. The Department of Public Works andHighways (DPWH) acknowledged receipt of the unsolicited proposal submitted by MPTDC forthe Connector Road project. The Connector Road Project involves an estimated cost of Pesos17 billion for the construction of a 13.2-kilometer elevated road via the PNR tracks within theManila Central Business District, from the end of NLEX at C3 to the beginning of Skyway 1 atBuendia and is projected to start in 2012 after Segments 9 and 10 are completed.

Operations of the Maynilad Putatan Water Treatment Plant. Maynilad Water Services, Inc.announced on June 4, 2010 that it started operating its state-of-the-art Putatan WaterTreatment Plant to supply potable water to an initial 4,585 households in Muntinlupa. The WestZone concessionaires Putatan Plant is the first water treatment facility that taps into LagunaLake as an alternative water source to Angat Dam in Bulacan. The Putatan plant usesmicrofiltration and reverse osmosis to treat raw water from Laguna Lake. It has 14 units ofmicrofiltration assemblies and six reverse osmosis assemblies. The Putatan water treatment

facility came on-stream in July 2010 with an initial production capacity of 25MLD. This isexpected to be built up to 100MLD within the year. Communities in Muntinlupa, Las Pias andportions of Cavite are expected to benefit from the additional water supply. The treatment plantin Putatan is in line with Maynilads plan to develop alternative sources of water to ensure long-term water security for its customers.

Acquisition of Riverside Medical Center, Inc. MPIC acquired a 51% equity interest in RiversideMedical Center, Inc., the largest hospital in Bacolod City, Negros Occidental on May 31, 2010.RMCI is the 4th to join MPICs premier league of hospitals namely, Makati Medical Center andCardinal Santos Medical Center in Metro Manila, and Davao Doctors Hospital in Mindanao.

Acquisition of Our Lady of Lourdes Hospital through a Lease Agreement. East Manila HospitalManagers Corp., a wholly owned subsidiary of MPIC, was incorporated on October 15, 2010 to

operate and manage Our Lady of Lourdes Hospital, a non-tertiary hospital previously managedby the Missionary Sister Servants of the Holy Spirit congregation (SSpS) through the Our Ladyof Lourdes Hospital, Inc. (OLLHI). With the decision of SSpS to turn over the operations andmanagement to a professional group, OLLHI has signed a 20-year lease of the hospital landand facilities in favor of EMHMC. As discussed in Note 3 of the accompanying AuditedFinancial Statements, the lease agreement between EMHMC and OLLHI constitutes anacquisition of business.

Operating segment information

Operating segments are components of the Group that engage in business activities from whichthey may earn revenues and incur expenses, whose operating results are regularly reviewed by the

chief operating decision-maker to make decisions about how resources are to be allocated to thesegment and to assess their performances, and for which discrete financial information is available.

Management assesses the performance of the operating segments based on a measure ofrecurring profit or core income contribution. This measurement basis is determined as profitattributable to owners of the Parent Company excluding the effects of foreign exchange andderivative gains/losses, one-off provisions and other nonrecurring or non-core items. Nonrecurringitems represent certain items, through occurrence or size, that are not considered as part of theusual operating items of the businesses of the Group.

In 2010, the Group organized its businesses into five major business segments, namely waterutilities, toll operations, power, healthcare, and others as enumerated below:

Water Utilities The water utilities business segment primarily relates to the operations ofDMCI-MPIC Water Company and Maynilad as the largest water concessionaire in terms ofcustomer base.


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Toll Operations The toll operations business segment primarily relates to the operation andmaintenance of toll facilities by MPTC and its subsidiary, Manila North Tollways Corporationand associate, Tollways Management Corporation.

Healthcare The healthcare business segment primarily relates to the operation andmanagement of hospitals, medical and chemical clinics and/or laboratories and other similarundertakings provided for by MPICs associates, Medical Doctors, Inc. and Davao DoctorsHospital and the newly acquired subsidiaries Riverside Medical Center and East ManilaHospital Managers Corp.

Power- The power business segment primarily relates to the investment in Beacon.

Others This represents operations of subsidiaries involved in the provision of services and,primarily, holding companies. This includes the real estate segment which primarily relates tothe operations of Metro Pacific Corporation and Landco Pacific Corporation and itssubsidiaries, which are involved in the business of real estate of all kinds. Following the

decision of MPIC to divest its investment in Landco, MPICs share in its net assets is presentedunder Available for Sale Financial Assets as of December 31, 2010 and under Asset Held forSale as of December 31, 2009.


Adoption of New Standards and Interpretations

Our accounting policies are consistent with those followed in the preparation of the Companys mostrecent annual consolidated financial statements, taking into account the changes in accounting policiesand the adoption of the new and amended Philippine Accounting Standards (PAS) and PhilippineInterpretations of the International Financial Reporting Interpretations Committee (IFRIC), which

became effective on January 1, 2010. Please refer to Note 2 of the accompanying Audited FinancialStatements.

Operational Review

Management monitors the operating results of each business unit separately for purpose of makingdecisions about resource allocation and performance assessment. Segment performance is evaluatedbased on net income for the year; EBITDA; EBITDA margin; and core income.

EBITDA is measured as net income excluding depreciation and amortization of property and equipmentand intangible assets, asset impairment on noncurrent assets, financing costs, interest income, equityin net earnings (losses) of associates and joint ventures, net foreign exchange gains (losses), net gains

(losses) on derivative financial instruments, provision for (benefit from) income tax and othernonrecurring gains (losses). EBITDA margin pertains to EBITDA divided by service revenues.

Core income is measured as net income attributable to owners of the Parent Company excludingforeign exchange (gains) losses-net, gains (losses) on derivative financial instruments, assetimpairment on noncurrent assets, and other nonrecurring gains (losses), net of tax effect ofaforementioned adjustments. Nonrecurring items represent gains or losses that, through occurrence orsize, are not considered usual operating items.

The following section includes discussion of the Companys results of its operations as presented in itsconsolidated financial statements as well as managements assessments of the performance of theGroup which is translated to core (or recurring) profit and non-core (or nonrecurring) profit.


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