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METRO PACIFIC TOLLWAYS CORPORATION April 16, 2012 PHILIPPINE STOCK EXCHANGE
Disclosure Department 3/F PSE Plaza Ayala Triangle, Ayala Avenue Makati City Attention: MS. JANET A. ENCARNACION
Head Disclosure Department
Re: SEC Form 17-C METRO PACIFIC TOLLWAYS CORPORATION (“MPTC”) (PSE: TOL)
Attached is the Company’s annual report for the year ended December 31, 2011. There is no other information known to management that needs to be disclosed as of the coverage date of this report. If any required information is not disclosed, it is not applicable to the Company. We hope you find everything in order. Thank you. Respectfully yours,
Christopher Daniel C. Lizo Chief Finance Officer and Treasurer
4 0 5 9 0
SEC Registration Number
M E T R O P A C I F I C T O L L W A Y S C O R P O R A T I O
N ( F o r m e r l y F i r s t P h i l i p p i n e I n f r
a s t r u c t u r e , I n c . ) A N D S U B S I D I A R I E
S
(Company’s 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 . D e l a R o s a S t s . , M a k a t i
C i t y
(Business Address: No. Street City/Town/Province)
Mr. Christopher Daniel C. Lizo (632) 888-0888 (Contract Person) (Company Telephone Numbers)
1 2 3 1 A A C F S 0 8 1 0
Month Day (Form Type) Month Day (Calendar Year) (Annual Meeting)
–
(Secondary License Type, If Applicable)
– VI
Dept. Requiring this Doc. Amended Articles Number/Section
Total Amount of Borrowings
253 P9,205.2 million NIL
Total No. of Stockholders Domestic Foreign
To be accomplished by SEC Personnel concerned0
File Number LCU
Document ID Cashier
S T A M P S
Remarks: Please use BLACK ink for scanning purposes.
SEC Number 40590
File Number
________________________________________________
METRO PACIFIC
TOLLWAYS CORPORATION
________________________________________________
(Company’s Full Name)
10th
Floor, MGO Building
Legazpi cor. Dela Rosa Streets, Makati City 1600
_________________________________________________
(Company’s Address)
(632) 888-0888
______________________________________
(Telephone Number)
December 31, 2011
______________________________________
(Fiscal Year Ending)
(month & day)
SEC Form 17-A
(Annual Report)
______________________________________
Form Type
Not Applicable
______________________________________
Amendment Designation (if applicable)
Not Applicable
______________________________________
Period Ended Date
Not Applicable
__________________________________________________
(Secondary License Type and File Number)
1
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-A
ANNUAL REPORT PURSUANT TO SECTION 17
OF THE SECURITIES REGULATION CODE AND SECTION 141
OF CORPORATION CODE OF THE PHILIPPINES 1. For the calendar year ended December 31, 2011
2. SEC Identification Number 40590
3. BIR Tax Identification No. 000-217-282
4. Exact name of registrant as specified in its charter
METRO PACIFIC TOLLWAYS CORPORATION
5, Metro Manila, Philippines 1600
Province, Country or other jurisdiction Postal Code
of incorporation or organization
7. 10/F MGO Bldg. Legaspi cor. Dela Rosa Sts. Makati City, Philippines
Address, including postal code, telephone number, FAX number including area code, of registrant’s
principal offices
8. (632)888-0888
Registrant’s telephone numbers, including area code
9. N/A
Former name, former address, and former fiscal year,
if changed since last report.
10. Securities registered pursuant to Sections 4 and 8 of the Revised Securities Act
Number of Shares of Common Stock
Title of Each Class Outstanding & Amount of Debt Outstanding
Number of Shares Issued and Subscribed 4,978,054,788
Amount of Debt Outstanding None
11. Are any or all of these securities listed on the Philippine Stock Exchange?
Yes [ x ] No [ ]
12. Check whether the registrant:
a) has filed all reports to be filed by Section 17 of the SRC and SRC Rule 17 thereunder or Section
11 of the RSA and RSA Rule 11 (1)-1 thereunder and Sections 26 and 141 of the Corporation Code
of the Philippines during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports);
Yes [ x ] No [ ]
b) has been subject to such filing requirements for the past 90 days.
Yes [ x ] No [ ]
2
13. Aggregate market value of the voting stock held by non-affiliates:
Php59,873,208 (7,484,151 shares @ Php8.00 per share as at March 31, 2012)
3
TABLE OF CONTENTS
Page No.
PART I – BUSINESS AND GENERAL INFORMATION
Item 1. Description of Business 4
Item 2. Description of Property 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II – OPERATIONAL AND FINANCIAL INFORMATION
Item 5. Market for the Company’s Common Shares and
Related Stockholders Matters 14
Item 6. Management’s Discussion and Analysis or Plan of Operation 16
Item 7. Financial Statements 41
PART III – CONTROL AND COMPENSATION INFORMATION
Item 8. Directors and Executive Officers 42
Item 9. Executive Compensation 46
Item 10. Security Ownership of Certain Beneficial Owners and Management 47
Item 11. Certain Relationships and Related Party Transactions 48
PART IV – CORPORATE GOVERNANCE
Item 12. Corporate Governance 49
Item 13. Information on Independent Auditors and Other Related Matters 57
PART V – EXHIBITS AND SCHEDULES
Item 14. Exhibits and Reports on SEC Form 17-C (Current Report) 59
SIGNATURES 61
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES 63
4
Part I -- BUSINESS AND GENERAL INFORMATION
Item 1. DESCRIPTION OF BUSINESS
Overview
Metro Pacific Tollways Corporation (“MPTC” or “the Company”) is a publicly listed infrastructure company
focusing on developing toll roads in the Philippines through public-private partnerships. With the North
Luzon Expressway and the Subic-Clark-Tarlac Expressway in its toll road portfolio, MPTC is currently the
biggest toll road developer in the country with more than 800 lane-kilometers of toll roads under its
management.
MPTC’s common shares are listed and traded on the Philippine Stock Exchange. The Company’s market
capitalization is approximately Php39,828 million (US$928 million) as at March 31, 2012. For the year
ended December 31, 2011, revenues totaled Php6,465 million and net income attributable to equity holders
of Php1,257 million.
MPTC’s subsidiary, Manila North Tollways Corporation (MNTC), operate under the jurisdiction of the
Supplemental Toll Operations Agreement between MNTC, Philippine National Construction Corporation
(“PNCC”) and the Republic of the Philippines through the Toll Regulatory Board (“TRB”), which
jurisdiction extends, among other things, to approving major services that we offer and toll rates that MNTC
charges.
The Company’s principal executive offices are located at the MGO Building, Legazpi corner Dela Rosa
Streets, Makati City, Philippines and our telephone number is +(632) 811-4809. Our website address is
www.mptc.com.ph. The contents of our website are not a part of this annual report.
Historical Background
MPTC was incorporated on February 24, 1970 originally under the corporate name, City Resources (Phil.)
Corporation (“CRC”), in the Philippines and registered with the Philippine Securities and Exchange
Commission (“SEC”). On January 31, 1994, MPTC sold, transferred and conveyed the mining rights over all
of its mineral properties located in the municipalities of Paracale and Labo, both in the Province of
Camarines Norte. On March 24, 1994, the Securities and Exchange Commission approved a change in its
primary purpose from mining company to that of a holding company. The primary purpose of MPTC is to
acquire by purchase, exchange, assignment, gift or otherwise, and to hold, own and use for investment or
otherwise operate, manage, enjoy and dispose of, any and all properties of every kind and description and
whenever situated, as and to the extent permitted by law.
In 1994, the Company had no operations and trading in its common shares was suspended. On November 17,
2004, SEC revoked the registration of securities and permit-to-sell securities to the public issued to CRC for
its failure to comply with reporting obligations under the Securities Regulation Code and the Implementing
Rules and Regulations.
CRC filed a petition for review where it stated that it will revive its operations. On September 17, 2007,
pursuant to a Deed of Assignment (“DOA”), First Philippine Holdings Corporation (“FPHC”) and Benpres
Holdings Corporation (“BHC”), then shareholders of CRC, assigned and conveyed to CRC, by way of
absolute ownership and free from all liens and encumbrance, their shares in First Philippine Infrastructure
Development Corporation (“FPIDC”) in exchange for 4,970,570,627 newly issued shares of CRC. FPHC
and BHC intend CRC to be a backdoor listing vehicle for their investments in the tollway business. After the
exchange, FPHC became the ultimate parent company of CRC and that FPIDC became a wholly owned
subsidiary of CRC. FPIDC owns 100% of Luzon Tollways Corporation (LTC), 67.1% of Manila North
Tollways Corporation (“MNTC”) and 46% of Tollways Management Corporation (“TMC”).
On December 26, 2007, the suspension of trading was lifted by the Philippine Stock Exchange (PSE) after
compliance by CRC of the requirements of the PSE and SEC. On January 11, 2007, SEC set aside its order
to revoke CRC's registration of securities and permit to sell securities to the public.
5
Prior to the execution of the DOA, the Board of Directors (“BOD”) and the then Stockholders of CRC
approved and authorized the following amendments to the Articles of Incorporation: (a) change in the
corporate name of the parent company from City Resources (Phil.) Corporation to First Philippine
Infrastructure, Inc. (“FPII”): (b) decrease in the number of directors from eleven (11) to seven (7); and (c)
increase in the authorized capital stock from Php335 million divided into 335,000,000 shares with a par
value of Php1 per share to P5,400 million divided into 5,400,000,000 shares with the same par value.
On September 17, 2007, the SEC approved the above amendments to the Articles of Incorporation.
On August 26, 2008, FPHC and BHC entered into a Share Purchase Agreement (“SPA”) with Metro Pacific
Investments Corporation (“MPIC”), a publicly-listed Philippine corporation, to sell, assign and transfer to
MPIC all of their respective rights, title and interest in and to their shares in FPII. On November 13, 2008,
FPHC and BHC sold their 2,534,991,020 and 2,435,579,607 shares, respectively, for a total purchase of
P12,263 million resulting in a 99.84% ownership interest of MPIC in FPII.
MPIC is 59.05% owned by Metro Pacific Holdings, Inc. (“MPHI”). MPHI is a Philippine corporation
whose stockholders are Enterprise Investment Holdings, Inc. (“EIH”) (60.0%), Intalink B.V. (26.7%) and
First Pacific International Limited (13.3%). First Pacific Company Limited (“FPC”), a company
incorporated in Bermuda and listed in Hong Kong, through its subsidiaries, holds 40.0% equity interest in
EIH and an investment financing which under Hong Kong Generally Accepted Accounting Principles
require FPC to account for the results and assets and liabilities of EIH and its subsidiaries as FPC group
companies in Hong Kong.
The BOD and stockholders of the Company approved the change in the corporate name from “First
Philippine Infrastructure, Inc.” to “Metro Pacific Tollways Corporation” on February 12, 2009 and the
change in number of directors from seven (7) to nine (9) on May 29, 2009, which was both approved by the
SEC.
On September 24, 2010, the BOD approved the following: (a) increase in the authorized capital stock from
5,400,000,000 common shares to 10,000,000,000 common shares. The approval of the SEC is still pending
as of March 31, 2012; (b) increase in the number of directors from nine (9) to (11) which was approved by
the SEC on January 11, 2011.
Recent Developments
NLEX Harbor Link
On June 5, 2010, MNTC completed and started commercial operations of NLEX Segment 8.1 or the NLEX
Mindanao Avenue Link, a 2.7-kilometer road designed to link Mindanao Avenue to the North Luzon
Expressway. This road forms part of the NLEX Harbor Link, which will connect NLEX to the port area in
Manila through Segment 9, a 2.4-kilometer from the end of Segment 8.1 extending westward to MacArthur
Highway in Valenzuela City, and Segment 10 a 5.5-kilometer partly at-grade partly elevated road from
MacArthur Highway in Valenzuela City to C-3 Road in Caloocan City using a modified alignment consistent
with the railway tracks managed by the Philippine National Railways and North Luzon Railways
Corporation. Acquisition of right of way for the NLEX Harbor Link is now ongoing in coordination with the
Department of Public Works and Highways.
SCTEX Concession
In November 2010, MNTC participated in a public bidding conducted by the BCDA for the right to manage,
operate and maintain the SCTEX on an “as is, where is” basis for a period until October 30, 2043. On June
9, 2010, BCDA formally awarded MNTC the right to enter into a concession agreement with BCDA for the
management, operation and maintenance of SCTEX. On November 8, 2010, the parties entered into a
Concession Agreement under which BCDA granted MNTC the usufructuary rights to and the right to
manage, maintain and operate the 94-km SCTEX for a period of 25 years, extendable by another 8 years. In
granting the concession, BCDA has also assigned to MNTC its rights under the TOA it signed with the TRB
including the right to collect toll fees. The assignment is subject to certain conditions including, among
others, the necessary Philippine Government approvals and the execution of a STOA.
6
On July 20, 2011, MNTC and BCDA signed a Business and Operating Agreement (BOA) covering the
assignment by BCDA to MNTC of its rights, interest and obligations under the TOA relating to the
management, operation and maintenance of the SCTEX (which shall include the exclusive right to possess
and use the SCTEX toll road and facilities and the right to collect toll). BCDA shall retain all rights,
interests and obligations under the TOA relating to the design, construction and financing of the SCTEX.
Nevertheless, the Parties hereby acknowledge that BCDA has, as of date of the Agreement, designed,
financed and constructed the SCTEX as an operable toll road in accordance with the TOA. The BOA was
the result of the amendments made to the previously signed Concession Agreement between BCDA and
MNTC last November 2010. The BOA must be approved by the President of the Republic of the Philippines
before MNTC could take over the management of SCTEX.
From and after the effective date, both BCDA and MNTC shall be entitled to a direct share in the Audited
Gross Toll Revenues from the SCTEX.
The term of the agreement shall be from effective date, until October 30, 2043. At the end of the contract
term or upon termination of the Agreement, the SCTEx shall be turned over to BCDA/successor-in-interest
conformably with law, and in all cases in accordance with and subject to the terms and conditions of the
STOA to be entered into by and among MNTC, BCDA and ROP, through TRB, in relation to SCTEX.
As of March 31, 2012, the parties are still in the process of obtaining certain consents and formalizing the
STOA and therefore the SCTEX had not been assigned and turned over to MNTC.
NLEX-SLEX Connector Road
On June 5, 2010 the Department of Public Works and Highways (“DPWH”) accepted MPTDC’s unsolicited
proposal for the North Luzon Expressway (NLEX) – South Luzon Espressway (SLEX) Connector Road
project (“the Connector Road Project”), subject to submission of requested additional documents and further
discussion with DPWH. MPTDC submitted the additional documents and continues to discuss with DPWH
and other Philippine government agencies regarding the Connector Road Project. Following the submission
and acceptance of the unsolicited proposal to DPWH, MPTDC was granted the ‘original proponent’ status
for the Connector Road Project. The Connector Road Project is a 13.5-kilometer elevated toll road which
will connect the north to south corridor. As of March 31, 2012, MPTDC continues to discuss with DPWH
and other government agencies.
Strategy
The key elements of our business strategy are:
Strengthen industry position as the country’s leading toll road developer. MPTC is the
industry’s leader in terms of customer service excellence, project management, technological
innovation, contribution to socio-economic development and commercial success. MPTC plans to
further improve and expand its services available to its customers necessary for them to enjoy
expressway travel in NLEX and SCTEX. This can be achieved through the following: (i)
integration of toll collection systems of NLEX and SCTEX to decrease number of stops in toll
plazas from five to two; (ii) use of technology to decrease transaction time in toll plazas, shorten
incident response lead times, maintain high quality and prolong service life of pavements, and
encourage a more dynamic interaction with customers in various concerns such as electronic toll
collection products, local tourism, traffic enforcement, and incident response; (iii) pursue
initiatives that would promote ecological conservation such as solar-powered lighting, stone
mastic asphalt pavements, air quality and noise level monitoring, re-vegetation, etc.
Expand current toll road portfolio. The Company’s expansion plan is a three-thronged approach
composed of: (1) design, construction, financing, operation and maintenance of new toll roads in
its existing concession such as the NLEX Harbor Link and NLEX Segment 8.2; (2) acquisition of
stake in other toll road concessionaires, and (3) obtaining new concessions for toll road projects
opened for public-private partnership bidding.
7
Maintain a robust financial position while enhancing shareholder returns. Cash flows
generated by the Company continue to improve through internal efforts to increase in traffic
volume and the approval of periodic toll rate adjustments, prudent management of capital and
operating expenditures, and capital restructuring in response to current economic conditions.
MPTC shall strive to generate more revenues other than toll fees and further improve operational
efficiency through synergies within the MPTC Group.
Subsidiaries and Associates
MPTDC
MPTDC, formerly First Philippine Infrastructure Development Corporation (FPIDC), is the assignee of
BHC and FPHC of all their rights, interests and privileges, in relation to the construction, operation and
maintenance of the Manila-Subic Expressways under a Memorandum of Understanding (MOU) signed on
February 8, 1994 by BHC and FPHC with Philippine National Construction Corporation (PNCC), Subic Bay
Metropolitan Authority (SBMA), Bases Conversion and Development Authority (BCDA), and several other
governmental and non-governmental entities. The Manila-Subic Expressways shall connect the Subic and
Clark Special Economic Zones to Metro Manila.
MNTC
MPTDC established MNTC jointly with PNCC for the sole purpose of implementing the rehabilitation of
the North Luzon Expressway (NLE) and the installation of appropriate collection system therein referred to
as the “North Luzon Tollway Project” or the “Project.”
The Project consists of three phases as follows:
Phase I Rehabilitation and expansion of approximately 84 kilometers (km) of the
existing NLE and an 8.8-km stretch of a Greenfield
expressway
Phase II Construction of the northern parts of the 17-km circumferential road
C-5 which connects the current C-5 expressway to the NLE and the 5.85-km
road from McArthur to Letre
Phase III Construction of the 57-km Subic arm of the NLE to Subic Expressway
In accordance with the Memorandum of Agreement (MOA) dated March 6, 1995 among MPTDC, SBMA
and BCDA, MPTDC undertook the immediate construction of the SBMA - Tipo Road (Segment 7) that
connects Tipo in Hermosa, Bataan to Subic. Under the MOA, SBMA authorized MPTDC to charge and
collect certain amount of entry fees from the motoring public for the use of Segment 7.
On April 5, 1997, a Provisional Operating and Maintenance Agreement (POMA) was signed to initiate the
collection process in Segment 7 under the terms and conditions of the Supplemental Toll Operation
Agreement (STOA) as discussed in Note 2 of the accompanying notes to the Audited Financial Statements
in Item 7.
Also pursuant to the MOA, Segment 7 was integrated to and formed part of the Joint Venture Agreement
(JVA) executed by PNCC and MPTDC. Accordingly, MPTDC executed a Deed of Assignment and
Conveyance on July 6, 2001 whereby MPTDC assigned, conveyed and transferred in favor of MNTC all its
rights, interests and privileges over Segment 7. On the same date, MPTDC and MNTC entered into an
Operation and Maintenance Agreement (S7 O&M) whereby MNTC appointed MPTDC as the Operator of
the Segment 7 toll road. On February 10, 2005, pursuant to the Operation and Maintenance Agreement
(O&M) between MNTC and TMC, an associate, TMC took over the operation and maintenance of Segment
7 from MPTDC. See Note 18 of the accompanying notes to the Audited Financial Statements in Item 7.
The construction of Phase I was substantially completed in January 2005. On January 27, 2005, the Toll
Regulatory Board (TRB) issued the Toll Operation Permit (TOP) for the operation and maintenance of
Phase I consisting of Segments 1, 2, 3 and including Segment 7 in favor of MNTC. Thereafter, MNTC took
over the NLE from PNCC and commenced its tollway operations on February 10, 2005.
8
On June 5, 2010, Segment 8.1, a portion of Phase II, which is a 2.7 km-road designed to link Mindanao
Avenue to the NLE, had officially commenced tollway operation. The remaining portion of Phase II is under
pre-construction works while Phase III of the Project has not yet been started as of February 23, 2011.
MNTC was incorporated in the Philippines on February 4, 1997. It is 67.1% owned by FPIDC, 16.5% by
Globalfund Holdings, Inc., 13.9% by Egis Projects SA and 2.5% by the Philippine National Construction
Corporation (“PNCC”).
TMC
TMC, incorporated in 2000, is the operator of the first phase of the NLEX Project under an Operations and
Maintenance Agreement (the “O&M Agreement”) with MNTC. In February 2005, pursuant to the O&M
Agreement, TMC took over the operations and maintenance of the first phase of the NLEX Project,
including Segment 7, from MPTDC. TMC operates the first phase of the NLEX Project using world class
tollway operations practices. Its scope of work includes toll collection and money handling, repairs and
maintenance, and safety and traffic management.
On March 2008, TMC, Egis Road Operation, FPHC entered into a joint venture agreement for the Subic-
Clark-Tarlac Expressway (SCTEX) Operation and Maintenance Project. The Project is for a period of six
months from the commencement of STCEX operation, March 16, 2008, and was renewed for another six
months ending March 16, 2009. This was further extended to April 27, 2010.
MSIHI
Metro Strategic Infrastructure Holdings, Inc. holds a 2.7% non-controlling interest in Citra Metro Manila
Tollways Corporation (CMMTC), the concessionaire for the Metro Manila Skyway (“Skyway”). The
Skyway system is composed of a 13.4-kilometer at-grade expressway from Makati City to Alabang,
Muntinlupa and a 16.4-kilometer elevated expressway from Makati City to Sucat, Paranaque.
Products and Services, Rates and Revenues
MPTC and MPTDC
MPTC and MPTDC’s main source of revenues include share in earnings and guarantee fees on loans of
operating and associates, while the principal sources of funds are derived from collection of dividends as
well as management and guarantee fees from MNTC and TMC.
Dividend Policy of MPTC
MPTC and MPTDC’s dividend is dependent on MNTC’s dividend policy. MNTC’s dividend policy is to
distribute unrestricted retained earnings distributable under Philippine law to its shareholders after making
reasonable provisions for prudent and proper reserves, including allowance for future capital expenditures,
working capital and taxes, and subject to the terms and conditions of the Omnibus Agreement and any other
provider of credit to MNTC.
As agreed upon by MNTC’s shareholders, any funds available for dividend distribution shall be applied as
follows:
50.0% as dividends among the shareholders in proportion to their respective ownership percentage; and
50.0% as pro rata repayment of any outstanding principal and interest under the shareholders’
subordinated loans to MNTC.
Under the Amended and Restated Shareholders’ Agreement, no amount shall be distributed as dividends or
repayment of subordinated loans unless the PNCC Franchise Fee is paid in full and all covenants under the
Omnibus Agreement have been complied with.
MNTC and TMC
MNTC and TMC are service companies engaged in the operation and maintenance of the NLEX. Revenues
arise from the collection of toll fees from motorists plying the NLEX. It caters to motorists coming from the
9
Central and North Luzon and vice-versa. It is allowed to collect access fees from prospective investors in
commercial facilities along the NLEX primarily for the benefit and convenience of motorists.
Percentage of sales contributed by foreign sales
MPTDC, MNTC and TMC have no foreign sales.
Distribution methods of the products or services
MNTC’s revenues are from manual toll fee payments which account for approximately 85% of toll revenues.
Electronic toll collection (ETC) products like EC tags and Easytrip for Class 1 vehicles (cars / vans) and
badges / cards for buses, trucks and jeepneys account for the balance of transactions in the NLEX.
Status of any publicly-announced new product or service
MNTC completed the construction and started commercial operations of Segment 8.1 of Phase 2, and has
completed the detailed engineering designs for Segments 9 and 10. Segment 8.1 is a 2.7-kilometer road that
will connect Mindanao Avenue to NLEX, south of the existing Valenzuela interchange. Total cost of the
project is about P2,100 million. Segments 9 & 10, collectively the NLEX Harbor Link, cover approximately
8 kilometers and will connect Segment 8.1 to C3 Road in Manila. Acquisition of right of way for the NLEX
Harbor Link is currently ongoing.
Competition
While there are no competing toll roads in the area covered by MNTC’s concession, the toll road industry
grew with the entry of new players such as Ayala Corporation, which was awarded the contract to build the
Daang Hari-SLEX Link, and San Miguel Corporation, which recently invested in the controlling
shareholders of Metro Manila Skyway, South Luzon Expressway and Southern Tagalog Arterial Road.
Sources and availability of raw materials and the names of principal
MNTC’s main supply contract consists of the Operation and Management Agreement (OMA) with Tollways
Management Corporation (TMC). TMC provides MNTC with the following operations and maintenance
services:
Collection of tolls from motorists at toll plazas, both in cash and electronic form, including the sale of
pre-paid toll cards and electronic toll collection subscription products at point of sale outlets;
Routine maintenance and repairs of the road and equipment; and
Management of the NLEX in order to, among other things, improve traffic flows, maintain road safety,
and enhance the facilities and services along the NLEX.
Disclose how dependent the business is upon a single customer or a few customers
A significant portion of revenues generated by TMC comes from MNTC for its operator’s fee for NLEX and
from BCDA for SCTEX.
Transactions with and/or dependence on related parties
Related Party Nature of Transactions
Tollways Management Corporation Toll collection; operation and maintenance of the toll road
Egis Projects Philippines, Inc. Supply of spare parts and technology of the Fixed
Operating Equipment Component
Easytrip Services Corporation Supply, sales and marketing of transponders
Philippine Long Distance Telephone
Company
Lease of fiber optic cable network
Refer to Note 18 – Related Party Transaction to the accompanying audited financial statements found in
Item 7 for other details.
10
Licenses and Regulation
Principal terms and expiration dates of all patents, trademarks, copyrights, licenses, franchises,
concessions and royalty agreements held
Toll Operation Franchise
Presidential Decree No. 1113, which was enacted on March 31 1977, granted the first tollway franchise to
Construction and Development Corporation of the Philippines (“CDCP”), now known and referred to as
Philippine National Construction Corporation (“PNCC”).
Under this franchise, CDCP (now PNCC) was granted the right and authority to construct, operate and
maintain toll facilities from Balintawak to Carmen, Rosales, Pangasinan and from Nichols, Pasay City to
Lucena, Quezon. The franchise includes the right of CDCP to collect toll fees as may be fixed and/or
authorized by the TRB, for a period of 30 years from May 1, 1977. Pursuant to the said decree, a Toll
Operation Agreement was executed between the Republic of the Philippines, acting through the TRB, and
PNCC in October 1977.
On December 22, 1983, Presidential Decree No. 1894 was enacted. It amended the PNCC franchise by,
among others, including therein the Metro Manila expressway which runs from Bicutan, Parañaque to
Meycauayan, Bulacan.
PNCC assigned its usufructuary rights to its existing franchise to MNTC, which was at that time referred to
as a joint venture company to be formed by PNCC and MPTDC. The assignment of the franchise was
approved by the President of the Republic of the Philippines on May 16, 1995, in accordance with
Presidential Decree Nos. 1894 and 1113.
On February 4, 1997, MNTC was incorporated and on April 30, 1998, the STOA between the Republic of
the Philippines (acting by and through the TRB), PNCC and MNTC was executed. The President of the
Republic of the Philippines approved the STOA on June 15, 1998, in accordance with Presidential Decree
Nos. 1894 and 1113.
Under the STOA, the Republic of the Philippines confirms its recognition and acceptance of the assignment
by PNCC of its usufructuary rights, interests and privileges under the PNCC franchise in favor of MNTC.
Consequently, unless otherwise qualified by the provisions of the STOA, MNTC shall be subject to the
terms, conditions and limitations of the PNCC franchise under Presidential Decree Nos. 1894 and 1113 as
fully and completely and to the same extent as if the franchise was granted to MNTC insofar as it relates to
the Project.
MNTC’s concession rights under the STOA shall be in effect for a period commencing on June 15, 1998
until December 31, 2030, or 30 years after the issuance of the corresponding Toll Operation Permit for the
last completed Phase, whichever is earlier, unless further extended pursuant to the provisions of the STOA.
The concession rights were subsequently extended to December 31, 2037 in lieu of the construction of
Segment 8.1 of Phase 2.
Need for government approval of principal products or services
MNTC is allowed to collect toll fees from the motorists based on the authorized toll rate formula specified in
the concession agreement. The initial toll rate charged by the company to the motorists at the start of its
commercial operations on February 10, 2005 was computed by applying the authorized toll rate formula and
the prescribed procedures in the concession agreement. MNTC is allowed to apply for toll rate adjustments
every two years, the approval of which is subject to certain terms and conditions set by TRB.
Amount spent on research and development activities and its percentage to revenues during each of the
last three fiscal years
Not applicable
11
Effect of Existing or Probable Government Regulations in the Business
(1) 12% Expanded Value Added Tax (EVAT) - the implementation of the 12% EVAT on the toll fees
was effected on October 1, 2011 and is expected to have a slight impact on traffic since it will make toll
fees more expensive which may slightly impact traffic into the NLEX.
(2) Anti-Overloading Law (RA 8794) - the implementation of RA 8794, Anti-Overloading Law, has
initially created numerous complaints from the trucking industry plying the expressway. This has led to
knowingly non-compliant Class 3 vehicles not to use NLEX.
Compliance with Environmental Laws
MNTC was issued the following five Environmental Compliance Certificates by the Department of
Environment and Natural Resources (“DENR”) for the various segments of Phase 1 and Segment 8.1 of
Phase 2 of the Project: (i) Balintawak, Caloocan to Meycauayan, Bulacan; (ii) Meycauayan, Bulacan to
Burol, Bulacan; (iii) Burol, Bulacan to San Fernando, Pampanga; (iv) San Fernando, Pampanga to Sta. Ines,
Mabalacat, Pampanga; and (v) the Subic-Tipo Road.
MNTC is fully compliant with the strict requirements of the DENR.
Employees and Labor Relations
Presently, MPTC has nine (9) employees handling finance and general administrative work.
MPTDC has twenty-six (26) employees, mainly performing internal audit and human resources functions.
MNTC employs one hundred nine (109) employees as of March 31, 2011, excluding seconded personnel,
individual consultants, and agency-hired staff. It utilizes project teams in pursuing its various corporate
initiatives. Project teams are usually composed of employees representing the various functional areas of
MNTC.
TMC has approximately eight hundred seventeen (817) regular and probationary employees and two
hundred eighty six (286) project and contractual employees with approximately nine hundred seventy (970)
employees assigned to toll operations and traffic management.
Item 2. DESCRIPTION OF PROPERTY
Operating company, MNTC, owns a head office in Balintawak, Caloocan City. Other equipment, which is
relatively insignificant, consists of transportation equipment and office equipment primarily located in the
head office. MNTC does not own the parcels of land over which the Project Roads have been built as these
are owned by the Republic of the Philippines.
Item 3. LEGAL PROCEEDINGS
Local Business Tax and Real Property Tax
In 2008, MNTC has received a Final Demand from the municipality of Guiguinto, Bulacan to pay the LBT
assessments for the years 2005 to 2007 amounting to P=67.4 million, inclusive of surcharges and penalties. The
Company, through its legal counsel, protested and subsequently, in 2009 filed a complaint for annulment of
assessment (with prayer for the issuance of temporary restraining order (TRO) and/or writ of preliminary
injunction) with the Regional Trial Court (RTC) of Malolos, Bulacan claiming, among others, that its
predecessor, PNCC has never been subjected to LBT and as such MNTC continued the customary practice of
obtaining the business permits solely from the local government unit where its principal office is located.
12
On November 19, 2009, TRB informed MNTC that TRB’s BOD has approved MNTC’s request to intervene in
the local business tax case for the purposes of protecting the interests of the government and the motoring public,
avoiding any disruption in the operation of the NLE as a limited access facility and resisting collateral attack in
the validity of the STOA. TRB also advised MNTC that on November 12, 2009, the Omnibus Motion (i) for
Intervention and (ii) to admit attached Manifestation and Motion in Intervention was filed by the Office of the
Solicitor General on behalf of TRB praying for the issuance of a TRO and a writ of preliminary injunction to
enjoin the municipality from closing MNTC’s business particularly with respect to its operations of the Burol-
Tabang and Burol-Sta. Rita toll exits and any facility that is indispensable in the operation of the tollway.
In March 2010, MNTC received a final demand letter from the municipality of Guiguinto, Bulcan to pay LBT,
permits, and regulatory fees. On March 12, 2010, the RTC of Malolos, Bulacan denied MNTC’s application for
the issuance of a temporary restraining order and/or writ of preliminary injunction. On March 15, 2010, MNTC
filed with the Court of Appeals a petition for certiorari (with application for the issuance of a TRO and/or a writ
of preliminary injunction) to annul or set aside the orders of the RTC of Malolos, Bulacan denying MNTC’s
application for the issuance of a writ of preliminary injunction. The Court of Appeals, in its decision dated July
23, 2010, dismissed the petition. On August 17, 2010, the Company filed a motion for reconsideration but the
motion was denied by the Court of Appeals on December 3, 2010.
On July 25, 2011, MNTC received a copy of the Decision of the RTC of Malolos dated July 7, 2011. The RTC
of Malolos dismissed MNTC’s complaints for lack of merit and upheld the imposition of taxes and further
ordered MNTC to settle the taxes upon finality of the decision. MNTC filed its Motion for Reconsideration on
August 9, 2011, which was denied again by the RTC of Malolos in an order dated October 6, 2011. A Proffer of
Excluded Evidence and a Petition for Review with the RTC of Malolos and Court of Tax Appeals (CTA),
respectively, were filed on November 9, 2011 by MNTC. As of February 24, 2012, the RTC of Malolos and
CTA have not yet acted on the Petition.
Meanwhile, on July 22, 2010, MNTC filed another complaint with the RTC of Malolos, Bulacan seeking to
annul and set aside the illegal assessment for unpaid LBT in the total amount of P=34.0 million, inclusive of
surcharges and penalties, for the years 2008 and 2009 issued against the Company by the Municipal Treasurer of
Guiguinto, Province of Bulacan in February 2010. The case is pending before the RTC of Malolos, Bulacan.
In the meantime, on April 23, 2010, the Bureau of Local Government Finance (BLGF) issued a ruling that the
toll fees collected by the toll booths of MNTC shall be recorded thereat and LBT based on 100% of the gross
receipts of the toll booths shall be payable to the local government units where such toll booths are located and
that such LBT allocation shall be applied prospectively. On September 23, 2010, MNTC requested for a partial
reconsideration and reiterated that MNTC’s gross receipts may be allocated among various LGUs. On March 4,
2011, BLGF reaffirmed its original position that taxes should be paid based on point of collection, thus no LBT
should be allocated to municipalities with no established toll plazas which is in contrary to MNTC’s position of
equitable distribution, that is, LBT should be allocated among various LGUs where the toll roads traverse.
On March 29, 2011, MNTC, through Puno and Puno, issued a letter to the Department of Finance (DOF)
proposing for DOF to issue a Local Finance Circular that will adopt the lane kilometrage method of computing
and allocating LBT to benefit all LGUs. DOF has not yet replied to date.
MNTC has not adopted BLGF opinion on the allocation of LBT in 2011 and continue to argue on an allocation
on the basis of kilometrage. However, during the first quarter of 2012, MNTC paid LBT to various
municipalities following BLGF opinion on the manner of allocation.
Real Property Taxes
In 2008, MNTC received real property tax assessments covering the toll roads located in the Municipality of
Guiguinto amounting to P=2.9 million for the years 2005 to 2008. MNTC appealed before the Local Board of
Assessment Appeals (LBAA) of Bulacan and prayed for the cancellation of the assessment. The case is still
pending before the LBAA of Bulacan.
In 2004, MPTDC has received real property tax assessments covering Segment 7 located in the province of
Bataan for the period from 1997 to June 2005 amounting to P=98.5 million for alleged delinquency property tax.
MPTDC appealed before the LBAA of Bataan and prayed for the cancellation of the assessment. In the said
13
appeal, MPTDC invoked that the property is owned by the ROP, hence, exempt from real property tax. The case
is still pending before the LBAA of Bataan.
The outcome of the claims on LBT and RPT cannot be presently determined. Management believes that these
claims will not have a significant impact on the Company’s consolidated financial statements. As with regards
to the RPT, management and its legal counsel believes that the STOA also provides MNTC with legal recourse
in order to protect its lawful interests in case there is a change in existing laws which makes the performance by
MNTC of its obligations materially more expensive.
Others
MNTC is a co-respondent (together with TRB, PNCC, other tollway operators, TMC, MPTDC (then
FPIDC) and BHC) in two Supreme Court cases, where, based on the following allegations, the petitioners’
claims that the STOA is null and void:
the negotiation and execution of the STOA failed to undergo public bidding in accordance with
applicable laws and regulations of the Philippines;
the STOA granted to MNTC a 30-year franchise for the construction, maintenance and operation of the
NLE in violation of the Presidential Decrees under which the PNCC’s franchise were granted and the
Philippine Constitution; and
the provisions of the STOA providing for the establishment and adjustment of toll rates violate the
statutory requirement for the TRB to conduct public hearings on the level of authorized toll rates.
The Supreme Court, in a decision dated October 19, 2010, among others, declared as valid and constitutional
the STOA. Petitioner Francisco filed a motion for reconsideration dated November 5, 2010 while some of
the petitioners in Marcos, et al. v. TRB et al. filed a partial motion for reconsideration dated October 8,
2010. On January 24, 2011, MNTC filed a consolidated comment to the aforementioned motions for
reconsideration.
In a resolution dated March 22, 2011, the SC resolved to among others, deny with finality the motion for
reconsideration filed by Petitioner Francisco and the Partial Motion for Reconsideration dated October 8,
2010 filed by the petitioners, as the basic issued raised therein have been passed upon by the court and no
substantial arguments were presented to warrant the reversal of the questioned decision. On August 31,
2011, MNTC received the entry of judgment in the consolidated cases.
The Company is also a party to other cases and claims arising from the ordinary course of business filed by
third parties which are either pending decisions by the courts or are subject to settlement agreements. The
outcome of these claims cannot be presently determined. In the opinion of management and the Company’s
legal counsel, the eventual liability from these lawsuits or claims, if any, will not have a material adverse
effect on the Company’s financial position and financial performance.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal
year covered by this annual report.
14
Part II -- OPERATIONAL AND FINANCIAL INFORMATION
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
Share price performance from 2010 to 2012 is summarized below:
High Low
2012
First Quarter 8.49 5.02
2011
First Quarter 9.88 7.30
Second Quarter 8.99 6.50
Third Quarter 9.60 7.00
Fourth Quarter 8.60 7.00
2010
First Quarter 9.20 5.30
Second Quarter 9.00 7.00
Third Quarter 8.80 5.50
Fourth Quarter 10.00 7.80
Holders
As at March 31, 2012, there were 254 holders of record of 4,978,054,788 common shares of MPTC. Listed
below were the top 20 common shareholders, including their nationalities, the number of shares held, the
amount of their holdings, and the approximate percentages of their respective shareholdings to MPTC’s total
outstanding common stocks:
Number of
Rank Name of Holder on Record Nationality Class Shares Percentage
1 Metro Pacific Investment Corporation Filipino A 4,970,570,627 99.850
2 PCD Nominee Corporation (Filipino) Filipino A 1,240,033 0.042
3 Ateneo Scholarship Foundation, Inc. Filipino A 914,667 0.018
4 First Omega Property, Inc. Filipino A 896,300 0.018
5 G.D. Tan & Company, Inc. Filipino A 225,100 0.005
6 PCD Nominee Corporation (Foreign) Various A 182,100 0.003
7 PVenture Securities, Inc. Filipino A 171,000 0.003
8 UBP Securities, Inc. Filipino A 155,500 0.003
9 James Uy Inc. Filipino A 144,500 0.003
10 Jose Sangalang Filipino A 135,500 0.003
11 Benjamin Co Ca & Company, Inc. Filipino A 129,600 0.003
15
12 Uy-Tioco & Co., Inc. Filipino A 129,500 0.003
13 Vicente Goquiolay & Co., Inc. Filipino A 121,800 0.002
14 R. Coyiuto Securities, Inc. Filipino A 107,000 0.002
15 E. Santamaria & Co., Inc. Filipino A 106,500 0.002
16 Squire Securities, Inc. Filipino A 98,000 0.002
17 L. M. Garcia & Asscociates Inc. Filipino A 86,000 0.002
18 Tiong Securities Corporation Filipino A 81,000 0.002
19 Prudential Sec. Corp. Filipino A 76,000 0.002
20 Island Securities, Inc. Filipino A 74,000 0.002
TOTAL TOP 20 4,975,644,727 99.952
OTHER STOCKHOLDERS 2,410,061 0.048
TOTAL OUTSTANDING 4,978,054,788 100.000
Dividends
The Company is authorized to pay dividends on the shares in cash, in additional shares, in kind, or in a
combination of the foregoing. Dividends paid in cash are subject to approval by the Board and no
stockholder approval is required. Dividends paid in the form of additional shares are subject to approval by
the Board and holders of at least two-thirds of the outstanding capital stock of the Company. Holders of
outstanding shares on a dividend record date for such Shares will be entitled to the full dividend declared
without regard to any subsequent transfer of such Shares.
There are no restrictions that limit the ability to pay dividends on common equity.
There were no sales of unregistered securities.
Cash Dividends
The following table shows the dividends declared to common shareholders from the earnings for the
years ended December 31, 2009, 2010 and 2011:
Date Amount
Earnings Approved Record Payable Per
Share
Total
( in millions)
2009 July 31, 2009 August 14, 2009 0.09 450
2009 February 17, 2010 March 5, 2010 March 22, 2010 0.15 747
2010 August 24, 2010 September 9, 2010 September 30, 2010 0.09 445
2010 February 23, 2011 March 11, 2011 April 8, 2011 0.15 755
2011 August 3, 2011 August 19, 2011 August 30, 2011 0.10 500
2011 February 24, 2012 March 12, 2012 April 10, 2012 0.17 846
16
Scrip Dividends
Under Section 8.04.02 of the Amended Shareholders’ Agreement with among others Leighton International
Limited (LIL), MPTC, through MPTDC, has the right to receive from LIL 50.0% of the difference of LIL’s
selling price for the sale of its 16.5% interest in MNTC and US$19.4 million, provided that any payment of
LIL to MPTDC shall not exceed US$4.4 million. Such MNTC shares held by LIL were previously
purchased from MPTDC.
On November 12, 2009, LIL sold the shares to a third party and thereby paid the amount of US$ 4.4 million
(P204 million) to MPTDC which the latter recognized as additional gain from the previous sale of MNTC
shares to LIL and was included as part of the “Other income” account in the consolidated statement of
income. In view of this, the Company recognized the scrip dividends declared in 2008 payable to all
stockholders of record as of October 30, 2008 giving the stockholders the right to receive a proportionate
share in the amounts that maybe received by MPTC, through MPTDC, from LIL pursuant to the Amended
Shareholders’ Agreement. The scrip dividends declared by MPTC amounted to US$3.9 million (P182
million), net of capital gains tax. As of December 31, 2011 and 2010, unpaid scrip dividends amounted to
P0.3 million and is included under the “Dividends payable” account.
Item 6. MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with our consolidated financial statements and the related notes as at and for the years ended
December 31, 2011, 2010 and 2009 included elsewhere in this Annual Report. This discussion contains
forward-looking statements that reflect our current views with respect to future events and our future
financial performance. These statements involve risks and uncertainties, and our actual results may differ
materially from those anticipated in these forward-looking statements.
Selected Financial Data and Key Performance Indicators
2011 2010 2009
(in millions)
Statement of Income Data:
Revenues 6,465 5,858 5,489
Cost of services 2,854 2,584 2,623
Equity in net earnings of an associate 246 163 174
General and administrative expenses 812 991 1,735
Interest expenses and other finance costs 1,277 1,111 960
Other income(expenses) 581 169 358
Net income attributable to equity holders of MPTC 1,257 996 582
Net income 1,779 1,427 666
Net income margin
Balance Sheet Data:
Cash and cash equivalents and short-term investments 1,654 1,874 1,520
Total assets 19,479 19,329 18,342
Long-term debt – net 9,051 7,178 7,788
Total equity attributable to equity holders of MPTC 5,919 5,907 6,084
Other Data:
Net cash provided by operating activities 3,444 3,198 2,608
Capital expenditures 146 1,289 361
Net cash used in investing activities (6) (1,133) 10
Net cash used in financing activities 3,658 1,711 2,254
17
Overview
Metro Pacific Tollways Corporation (MPTC) is a publicly listed infrastructure company owning 67.1% of
Manila North Tollways Corporation (MNTC) and 46% of Tollways Management Corporation (TMC). With
the North Luzon Expressway and the Subic-Clark-Tarlac Expressway in its toll road portfolio, MPTC is
currently the biggest toll road developer in the country with more than 800 lane-kilometers of toll roads
under its management.
The North Luzon Expressway (NLEX) is the main infrastructure backbone that connects Metro Manila to 15
million people in Central and Northern Luzon, especially its key cities of Angeles and San Fernando
Pampanga. It is the transport and travel lifeline of agri-industrial products and services to and from the
provinces of Bulacan, Pampanga and Tarlac and provides vital access to the two major Freeport zones of
Clark, which has a burgeoning international airport and Subic, which boasts of a leading domestic and
international seaport.
The Subic-Clark-Tarlac Expressway (SCTEX) is the country’s longest expressway at 93.77 kilometers.
Commercial operations started on April 28, 2008, with the opening of the Subic-Clark Segment and portion
of Clark-Tarlac Segment. The opening of the remaining Clark-Tarlac Segment on July 25, 2008 signaled the
full operations of the SCTEX. The SCTEX seeks to transform the Central Luzon region into a world-class
logistics hub in the Asia-Pacific region through the integration of economic activities in the Subic Bay
Freeport, the Clark Freeport Zone, and the Central Techno Park in Tarlac and by linking major
infrastructures such as the Seaport in Subic and the Diosdado Macapagal International Airport in Clark.
MNTC is the concessionaire of NLEX, while TMC holds the operations and maintenance contracts both for
NLEX and SCTEX.
Results of Operations
The table below shows the consolidated revenues, expenses, other income (expenses), income (loss) before
income tax, net income (loss) and net income (loss) attributable to equity holders of MPTC for the years
ended December 31, 2011, 2010, and 2009. All of MPTC’s revenues are derived from our operations within
the Philippines.
For the Year Ended December 31
2011 2010 2009
(in millions)
Revenues 6,465 5,858 5,489
Cost of services 2,854 2,584 2,623
General and administrative expenses 812 990 1,735
Equity in net earnings of an associate 246 163 174
Interest expenses and other finance costs 1,277 1,111 959
Other income(expenses) 581 169 358
Income before income tax 2,348 1,505 703
Net income 1,779 1,427 666
Net income attributable to equity holders of MPTC 1,257 996 582
18
2011 Compared to 2010
On a Consolidated Basis
Revenues
The following table shows the breakdown of consolidated revenues for the years ended December 31, 2011
and 2010 by revenue source:
Change
2011 % 2010 % Amount %
(in millions)
Toll fees Php6,465 100 Php5,857 100 Php607 10
Sales of transponders and magnetic cards 0 0 1 0 (1) (92)
Total revenues Php6,465 100 Php5,858 100 Php606 10
Net toll revenues amounted to P6,465 million, 10% higher year-on-year. Daily average toll revenues
correspondingly increased from P16.05 million last year to P17.71 million this year, as toll rates in NLEX
were adjusted by an average of 11% cushioning the slight decrease in traffic volume. Average daily traffic
along NLEX reached 158,342 vehicle entries in 2010, 1% lower than in 2010, mainly due to more volatile
fuel prices, less long-weekend holidays, and heavier rainfall.
Sales of transponders and magnetic cards declined 92% due to the outsourcing of the supply, sales and
marketing of transponders to Easytrip Services Corporation and migration of EC Tags to Easytrip tags.
Cost of Services
Cost of services grew by 10% amounting to P2,854 million from P2,584 million in 2010. The increase is
mainly attributable to.
The following table shows the breakdown of cost of services for the years ended December 31, 2011 and
2010:
Change
2011 % 2010 % Amount %
(in millions)
Operator’s fee Php1,566 55 Php1,340 52 Php226 17
Amortization of service concession assets 593 21 559 22 34 6
PNCC fee 385 14 348 13 37 11
Repairs and maintenance 128 5 203 8 (75) (37)
Provision for heavy maintenance 109 2 55 2 54 99
Insurance 49 2 44 2 5 13
Toll collection and medical services 21 1 21 1 0 (0)
TRB supervision fees 3 0 - 0 3 n/a
Cost of inventories 0 0 1 0 (1) (96)
Others - 0 13 0 (13) (100)
Total cost of services Php2,584 100 Php2,584 100 (Php270) (2)
Operator’s fee increased by P226 million or 17% from P1,340 million in 2010 to P1,566 million in 2011 due
to increases in economic parameters used in the escalation formula of the base fees and additional services
rendered by TMC to MNTC.
Amortization of service concession assets increased by P34 million or 6% from P559 million in 2010 to
P593 million in 2010 mainly due to the full-year operations of NLEX Segment 8.1 in 2011.
PNCC fees increased by P37 million or 11% from P348 million in 2010 to P385 million in 2011 because of
the increase in toll revenues mainly brought by the toll rate adjustment. PNCC fee is a function of gross toll
revenues in NLEX.
19
Repairs and maintenance decreased by P75 million or 37% from P203 million in 2010 to P128 million in
2011 as most expenditures were classified under heavy maintenance.
Provision for heavy maintenance increased by P54 million or 99% from P55 million in 2010 to P109 million
in 2011 due to the revised heavy maintenance program in 2010 resulting in a lower required provisioning for
that year.
Insurance increased by P5 million or 13% from P44 million in 2010 to P49 million in 2011 due to the full-
year insurance coverage for NLEX Segment 8.1 in 2011.
TRB supervision fees increased by P3 million from P0 in 2010 to P3 million in 2011 because of the
grantor’s project overhead expenses paid in 2011 for the construction of NLEX Segment 8.1.
Cost of inventories decreased by P0.55 million or 97% from P0.57 million in 2010 to P0.02 million in 2011
due to the outsourcing of the supply, sales and marketing of transponders to Easytrip Services Corporation
and migration of EC tags to Easytrip tags.
Other cost of services in 2010 pertains to professional fees incurred for bridge condition surveys conducted
by a third party.
General and Administrative Expenses
General and administrative expenses in 2011 were lower by Php178 million, or 18% at Php812 million from
Php990 million in 2010 primarily because of the decrease in provision for potential losses on input VAT,
outside services, management fees and miscellaneous expenses, partly offset by higher accruals for
employee benefits, taxes and licenses, advertising and marketing, outside services, provisions and
depreciation. As a percentage of consolidated revenues, consolidated general and administrative expenses
decreased to 13% in 2011 from 17% in 2010.
The following table shows the breakdown of consolidated general and administrative expenses for the years
ended December 31, 2011 and 2010:
Change
2011 % 2010 % Amount %
(in millions)
Salaries and employee benefits Php391 48 Php246 25 (Php145) (59)
Provision for potential losses on input VAT - 334 34 (334) (100)
Professional fees 74 9 73 7 1 1
Taxes and licenses 72 9 64 6 8 12
Advertising and marketing expenses 68 9 50 5 18 35
Outside services 51 6 39 4 12 30
Provisions 39 5 29 3 10 34
Representation and travel 31 4 33 3 (2) (6)
Depreciation 35 4 30 3 5 19
Management fees - - 21 2 (21) (100)
Other expenses 51 6 71 8 (20) (28)
Total general and administrative expenses Php812 100 Php990 100 (Php178) (18)
Salaries and employee benefits increased by P145 million or 59% from P246 million in 2010 to P391
million in 2011 primarily due to accruals for the long-term incentive plan which were first made in 2011.
Provisions for potential losses on input VAT decreased by P334 million or 100% from P334 million in 2010
to P0 in 2011 because of the effectivity of value added tax on gross receipts of tollway operators starting
October 1, 2011.
Taxes and licenses increased by P8 million or 12% from P64 million in 2010 to P72 million in 2011
primarily due to the increase in gross revenues in 2010, which is the tax base for local business taxes.
20
Advertising and marketing expenses climbed by P18 million or 35% from P50 million in 2010 to P68
million in 2011 because of intensified marketing and communication campaigns and participation in the
PBA Developmental League.
Outside services grew by P12 million or 30% from P39 million in 2010 to P51 million in 2011 mainly
because of higher fees paid to Easytrip Services Corporation for the supply, sales and marketing of
electronic toll collection products in NLEX.
Provisions were P10 million or 34% higher from P29 million in 2010 to P39 million in 2011 due to higher
provisions for probable tax liabilities in 2011.
Depreciation decreased by P5 million or 19% from P30 million in 2010 to P35 million in 2011 due to
purchase of additional property and equipment.
Management fees decreased by P21 million or 100% from P21 million in 2010 to P0 in 2010 because of the
decrease in management fees paid by MPTC.
Other expenses decreased by P20 million or 28% from P71 million in 2010 to P51 million in 2011 mainly
due to lower miscellaneous expenses.
Equity in Net Earnings of an Associate
For 2011, equity in net earnings of TMC grew by P83 million or 7% from Php163 million in 2010 to
Php246 million in 2011. The increase is attributable to TMC’s higher profits in 2011. As a percentage of
consolidated revenues, equity in net earnings of an associate climbed to 4% in 2011 from 3% in 2010.
Interest Expense and Other Finance Costs
Interest expense and other finance costs totaled P1,277 million in 2011, P166 million or 15% higher than in
2010. The increase is mainly due to the one-time fees paid in relation to the prepayment of all US dollar-
denominated loans on January 14, 2011 and the Fixed Rate Corporate Notes in December 2011. Interest
expenses on bank loans increased 7% to P885 million in 2010 from P826 million in 2009 due to the non-
capitalization of borrowing costs of the Philippine National Bank term loan in relation to the construction of
NLEX Segment 8.1, which started commercial operations in June 2010.
The following table shows the breakdown of consolidated interest expense and other finance costs for the
years ended December 31, 2011 and 2010:
Change
2011 % 2010 % Amount %
(in millions)
Interest expense on:
Bank loans Php794 62 Php885 80 Php89 (10)
Financial guarantee obligation 11 1 11 1 (0) (0)
Other finance costs:
Prepayment fees 330 26 - 330 100
Amortization of debt issue costs 135 11 206 18 (71) (35)
Lender’s fees 6 0 8 1 (2) (34)
Bank charges 1 0 1 0 0 33
Total interest expense and other finance
costs Php1,277 100 Php1,111 100 Php166 15
21
Other Income and Expenses
The following table shows the breakdown of consolidated other income for the years ended December 31,
2011 and 2010:
Change
2011 % 2010 % Amount %
(in millions)
Reversal of allowance for probable
loss on input VAT
Php288 50 Php- - Php288 100
Foreign exchange gain (loss) (11) (2) 102 61 (113) (110)
Marked-to-market valuation loss (95) (16) (36) (22) (58) 159
Interest income 161 28 109 65 52 47
Other income 237 40 175 4 62 35
Other expense - - (181) (108) 181 (100)
Total other (income) expenses Php580 100 Php169 100 Php412 244
Other income increased by 244% from P169 million in 2010 to P580 million in 2011. The increase was due
to the combined effects of the following: (i) reversal of allowance for probable loss on input VAT
amounting to P288 million; (ii) interest income grew by P52 million or 47% due to increased excess cash
invested in short-term time deposits and available for sale securities; (iii) other income increased by P62
million or 35% due to higher management fees and one-time gain on bargain purchase of shares in MSIHI;
(iv) foreign exchange losses in 2011 amounting to P11 million against a foreign exchange gain of P102
million mainly due to less exposure in fluctuations in foreign exchange with the prepayment of all US
dollar-denominated loans in January 2011; (v) marked-to-market valuation losses amounting to P95 million,
159% or P52 million higher than in 2010 because of the resulting ineffectiveness of the hedge in the PNB
Term Loan; and (vi) other expenses in 2010 arising from the loss on termination of swaps.
Provisions for Income Tax
Provisions for income tax increased by P491 million or 625% from P78 million in 2010 to P569 million in
2011 mainly due to the expiry of MNTC’s income tax holiday in 2011.
Net Income
Consolidated net income in 2010 amounted to P1,779 million, P352 million or 25% higher than P1,427
million in 2010, mainly due to higher toll revenues and higher other income offset in part by higher
provision for income taxes. Net income attributable to equity holders of MPTC likewise increased from
P996 million in 2010 to P1,257 million in 2011.
2010 Compared to 2009
On a Consolidated Basis
Revenues
The following table shows the breakdown of consolidated revenues for the years ended December 31, 2010
and 2009 by revenue source:
Change
2010 % 2009 % Amount %
(in millions)
Toll fees Php5,857 100 Php5,487 100 Php370 7
Sales of transponders and magnetic cards 1 0 2 0 (1) (70)
Total revenues Php5,858 100 Php5,489 100 Php369 7
Net toll revenues amounted to P5,858 million, 7% higher year-on-year. Daily average toll revenues
correspondingly increased from P15.03 million last year to P16.05 million this year, as the Company
recorded all-time highs in traffic volume in 2010. Average daily traffic along NLEX reached 159,882
22
vehicle entries in 2010, 6% higher than in 2009. Despite the increase in fuel prices, traffic volume improved
due to the traffic growth in Subic-Clark-Tarlac Expressway, the opening of Segment 8.1, the election-related
activities, the influx of tourists during the summer season and weekends, the continuous efforts to make
NLEX as a better and safer travel route than alternative free roads.
Sales of transponders and magnetic cards declined 70% due to the outsourcing of the supply, sales and
marketing of transponders to Easytrip Services Corporation.
Cost of Services
Cost of services diminished by 2% amounting to P2,584 million from P2,623 million in 2009. The decrease
is mainly attributable to lower provisions for heavy maintenance expenditures. The provisions are made in
accordance with IFRIC 12 (see Note 5 of the accompanying notes to Audited Financial Statements in Item
7).
The following table shows the breakdown of cost of services for the years ended December 31, 2010 and
2009:
Change
2010 % 2009 % Amount %
(in millions)
Operator’s fee Php1,340 52 Php1,338 51 Php2 0
Amortization of service concession assets 559 22 505 19 54 11
PNCC fee 348 13 292 11 56 19
Repairs and maintenance 203 8 219 8 (16) (7)
Provision for heavy maintenance 55 2 205 8 (150) (73)
Insurance 44 2 42 2 2 3
Toll collection and medical services 21 1 21 1 0 2
TRB supervision fees - 0 - 0 0 -
Cost of inventories 1 0 1 0 (1) (47)
Others 13 0 - 0 13 -
Total cost of services Php2,584 100 Php2,623 100 (Php40) (2)
Amortization of service concession assets increased by P54 million or 11% from P505 million in 2009 to
P559 million in 2010 due to the start of operations of NLEX Segment 8.1.
PNCC fees increased by P56 million or 19% from P292 million in 2009 to P348 million in 2010 because of
the increase in toll revenues. PNCC fee is a function of gross toll revenues in NLEX.
Repairs and maintenance decreased by P16 million or 7% from P219 million in 2009 to P203 million in
2010 as most expenditures were classified under heavy maintenance.
Provision for heavy maintenance significantly declined by P150 million or 73% from P205 million in 2009
to P55 million in 2010 due to the revised heavy maintenance program resulting in lower required
provisioning for 2010.
Cost of inventories decreased by P1 million or 47% from P1.1 million in 2009 to P0.6 million in 2010 due to
the outsourcing of the supply, sales and marketing of transponders to Easytrip Services Corporation.
Other cost of services pertains to professional fees incurred for bridge condition surveys conducted by a
third party during 2010.
General and Administrative Expenses
General and administrative expenses in 2010 were lower by Php745 million, or 43% at Php990 million from
Php1,735 million in 2009 primarily because of the decrease in provision for potential losses on input VAT,
outside services, depreciation, office supplies, donations and contributions, and input VAT write-off partly
offset by higher salaries and employee benefits, professional fees, taxes and licenses, advertising and
marketing, representation and travel, provisions and other operating expenses. As a percentage of
23
consolidated revenues, consolidated general and administrative expenses decreased to 17% in 2010 from
31% in 2009.
The following table shows the breakdown of consolidated general and administrative expenses for the years
ended December 31, 2010 and 2009:
Change
2010 % 2009 % Amount %
(in millions)
Provision for potential losses on input VAT Php334 34 Php1,105 64 (Php771) (70)
Salaries and employee benefits 243 25 211 12 32 15
Professional fees 73 7 49 3 24 49
Taxes and licenses 64 6 57 3 7 12
Advertising and marketing expenses 50 5 44 3 6 14
Outside services 39 4 42 2 (3) (7)
Representation and travel 33 3 26 1 7 27
Depreciation 30 3 34 2 (4) (12)
Provisions 29 3 10 1 19 190
Management fees 21 2 19 1 2 11
Write-off of input VAT - 0 94 5 (94) (10
0)
Other expenses 74 8 44 3 30 68
Total general and administrative expenses Php990 100 Php1,735 100 (Php745) (43)
Provisions for potential losses on input VAT decreased by P771 million or 70% from P1,105 million in 2009
to P334 million in 2010 because the 2009 provisions include accumulated input VAT from capital goods and
purchases from years 2006 to 2009.
Salaries and employee benefits increased by P32 million or 15% from P211 million in 2009 to P243 million
in 2010 due to increase in number of employees and the regular annual increase in basic salaries.
Professional fees were P24 million or 49% higher from P49 million in 2009 to P73 million in 2010 mainly
because of the engagement of a third party consultant to conduct pre-feasibility studies for the Connector
Road Project.
Taxes and licenses increased by P7 million or 12% from P57 million in 2009 to P64 million in 2010
primarily due to the increase in gross revenues in 2009, which is the tax base for local business taxes.
Advertising and marketing expenses climbed by P6 million or 14% from P44 million in 2009 to P50 million
in 2010 because of intensified marketing campaigns and information dissemination activities in relation to
the 2011 toll rate adjustment.
Outside services were reduced by P3 million or 7% from P42 million in 2010 to P39 million because of
continuous cost-saving measures being implemented.
Representation and travel were P7 million or 31% higher from P27 million in 2009 to P33 million due to
increase in travel expenses in relation to benchmarking and exposure trips for planned expansion projects.
Depreciation decreased by P4 million or 12% from P34 million in 2009 to P30 million in 2010 mainly due
to the full depreciation of a number of property and equipment.
Provisions increased by P19 million or 190% from P10 million in 2009 to P29 million in 2010 because of
the increase in estimated liabilities for withholding tax assessments.
Management fees increased by P2 million or 12% from P19 million in 2009 to P21 million in 2010 due to
increase in rates of management personnel rendering management services to subsidiaries and associates.
Write-off of input VAT decreased by P94 million or 100% from P94 million in 2009 to P0 in 2010 because
the write-off pertains to input VAT from 2005 and prior years related to operating expenses. All succeeding
input VAT on operating expenses has an equal provision recorded under Provision for probable losses on
input VAT.
24
Other expenses increased by P30 million or 68% from P44 million in 2009 to P74 million in 2010 mainly
due to increase in expenses for corporate initiatives.
Equity in Net Earnings of an Associate
For 2010, equity in net earnings of TMC declined 7% from Php174 million in 2009 to Php163 million in
2010. The decrease is due to some parent company adjustments made in 2010. As a percentage of
consolidated revenues, equity in net earnings of an associate was steady at 3% both in 2010 and 2009.
Interest Expense and Other Finance Costs
Interest expense and other finance costs totaled P1,111 million in 2010, 16% lower than in 2009. The
decline is mainly due to the acceleration of unamortized debt issue costs in 2010 resulting from the
prepayment notice submitted by MNTC to its long-term debt creditors informing the prepayment of all US
dollar-denominated loans on January 14, 2011. Interest expenses on bank loans increased 7% to P885
million in 2010 from P826 million in 2009 due to the non-capitalization of borrowing costs of the Philippine
National Bank term loan in relation to the construction of NLEX Segment 8.1, which started commercial
operations in June 2010.
The following table shows the breakdown of consolidated interest expense and other finance costs for the
years ended December 31, 2010 and 2009:
Change
2010 % 2009 % Amount %
(in millions)
Interest expense on:
Bank loans Php885 80 Php826 86 Php59 7
Provision for heavy maintenance - 0 16 2 (16) (10
0)
Financial guarantee obligation 11 1 12 1 (1) (8)
Other finance costs:
Amortization of debt issue costs 206 18 90 9 116 129
Lender’s fees 8 1 14 1 (6) (43)
Bank charges 1 0 1 0 0 0
Total interest expense and other finance
costs Php1,111 100 Php959 100 Php153 16
Other Income and Expenses
The following table shows the breakdown of consolidated other income for the years ended December 31,
2010 and 2009:
Change
2010 % 2009 % Amount %
(in millions)
Foreign exchange gain (loss) Php112 34 Php9 64 Php103 1,144
Interest income 109 25 86 12 23 27
Other income 175 11 292 5 (117) (40)
Other expense (227) 19 (29) 13 (198) 683
Total other (income) expenses Php169 100 Php358 100 (Php189) (53)
Other income decreased by 53% from P358 million in 2009 to P169 million in 2010. The decrease was due
to the combined effects of the following: (i) foreign exchange gains were higher in 2010 by P103 million or
1,144% due to the appreciation of the Philippine peso against the US dollar and recycling of foreign
exchange gain accumulated in equity to profit and loss resulting from the termination of cash flow hedge in
2010; (ii) interest income grew by P23 million or 27% due to increased excess cash invested in short-term
time deposits and available for sale securities; (iii) other income decreased by P117 million or 40%
25
primarily due to the one-time gain on sale of MNTC shares held by Leighton International, Ltd. to a third
party partly offset by income from lease of utility facilities, and (iv) other expenses rose by P198 million or
683% largely due to the recycling of mark-to-market loss accumulated in equity to profit and loss resulting
from the termination of hedging agreements related to the US dollar-denominated loans.
Provisions for Income Tax
Provisions for income tax increased by P40 million or 106% from P38 million in 2009 to P78 million in
2010 mainly due to the increase in regular corporate income tax and deferred tax liabilities resulting from
unrealized foreign exchange gains and differences in amortization method of service concession assets.
Net Income
Consolidated net income in 2010 amounted to P1,427 million, P761 million or 114% higher than P666
million in 2009, mainly due to higher toll revenues and lower provisions for probable losses on input VAT.
Net income attributable to equity holders of MPTC likewise increased from P582 million in 2009 to P996
million in 2010.
Financial Position
December 31, 2011 Compared to December 31, 2010
On a Consolidated Basis
Cash and cash equivalents decreased by P220 million or 12% from P1,874 million in 2010 to P1,654 million
in 2011 mainly because of higher cash used in financing activities in 2011.
Receivables were P36 million or 54% higher from P66 million in 2010 to P102 million in 2011 due to the
reclassification of receivables from affiliate, Easytrip Services Corporation, from Due from Affiliates to
Receivables in 2011.
Inventories increased by P17 million or 46% from P38 million in 2010 to P55 million in 2011 because of the
increase in inventory levels for spare parts in 2011.
Advances to contractors and consultants increased by P75 million or 927% from P8 million in 2010 to P83
million in 2011 mainly due to the increase in advances to contractors of MPTDC for the Connector Road
Project.
Due from related parties increased by P37 million or 7% from P523 million in 2010 to P560 million in 2011
because of the increase in amounts due from affiliate, Tollways Management Corporation in 2011.
Derivative assets decreased by P3 million or 100% from P3 million in 2010 to P0 in 2011 because of the
termination of derivative transactions related to the dollar-denominated loans which were paid in full in
2011.
Input value added tax increased by P47 million or 1,473% from P3 million in 2010 to P50 million in 2011
because of the implementation of value added tax on gross receipts of tollway operators effective October 1,
2011.
Available-for-sale financial assets (current) decreased by P52 million or 100% from P52 million in 2010 to
P0 in 2011 because of the maturity of such securities during 2011.
Other current assets increased by P30 million or 41% from P71 million in 2010 to P101 million in 2011
because of deferred input value added tax on purchased goods and services.
Investments in an associate increased by P6 million or 5% from P141 million in 2010 to P147 million in
2011 because cash dividends declared by TMC are lower than income earned both during 2011 and 2010.
26
Property and equipment grew by P20 million or 15% from P117 million in 2010 to P136 million in 2011 due
to additions in transportation equipment and computer software.
Available-for-sale financial assets (noncurrent) increased by P393 million or 77% to P906 million in 2011
from P513 million in 2010 because of the acquisition of additional investments in Retail Treasury Bonds in
2011.
Other noncurrent assets increased by P31 million or 84% from P37 million in 2010 to P68 million in 2011
because of additional expenditures made in relation to the SCTEX concession and increase in deferred input
value added taxes in 2011.
Accounts payable and other current liabilities increased by P482 million or 79% from P607 million in 2010
to P1,089 million in 2011 mainly due to the increase in trade payables.
Unearned toll revenues were P20 million or 66% lower from P31 million in 2010 to P11 million in 2011 due
to the lower floats in unused account balances of transponder accounts.
Dividends payable decreased by P142 million or 78% from P182 million in 2010 to P40 million because of
lower cash dividends declared but unpaid by MNTC.
Income tax payable is P13 million or 74% higher from P18 million in 2010 to P31 million in 2011 due to
higher regular corporate income tax in 2011 brought by the expiry of MNTC’s income tax holiday.
Provisions (current portion) increased by P131 million or 111% from P118 million in 2010 to P249 million
in 2011 due to the reclassification of a portion of the provision for heavy maintenance to current resulting
from the expected fulfillment of the obligations in accordance with the heavy maintenance program during
the succeeding year.
Current portion of long-term debt decreased by P2,031 million or 93% from P2,176 million in 2010 to P145
million in 2011 because of the prepayment of US dollar-denominated loans on January 2011.
Derivative liabilities (current) decreased from P212 million in 2010 to P0 in 2011 due to the termination of
the derivative transactions in relation to the prepayment of the US dollar-denominated loans in January
2011.
Long-term debt (net of current portion) grew by P1,727 million or 24% because of the refinancing of the
loans retired in 2011 and the additional P1,000 million term loan in December 2011.
Derivative liabilities (noncurrent) increased from P0 in 2010 to P130 million in 2011 because of the interest
rate swap entered into in March 2011 to hedge the interest rate fluctuations on the interest payments on the
PNB Term Loan.
Accrued retirement costs were P9 million or 1,119% higher from P1 million in 2010 to P11 million in 2011
because of the establishment of a retirement fund for MPTC and MPTDC employees in April 2011.
Provisions (noncurrent portion) decreased by P118 million or 38% from P308 million in 2010 to P190
million in 2011 mainly due to the reclassification of a portion of the provision for heavy maintenance to
current resulting from the expected fulfillment of the obligations in accordance with the heavy maintenance
program during the succeeding year.
Deferred tax liabilities (net) increased by P21 million or 7% from P322 million in 2010 to P343 million in
2011 mainly due to lower deferred tax assets on fair value changes on derivatives and loans in 2011.
Other comprehensive income (loss) decreased by P12 million or 133% from an income of P9 million in
2010 to a loss of P3 million in 2011 due to higher losses for cumulative translation adjustments in 2011.
Other reserves increased by P22 million or 1,135% to P24 million in 2011 from P2 million in 2010 due to
increase in recorded stock options expense in relation to the share-based payments to management
committee members of MPTC and its subsidiaries and reserves for payments to MPTC key management
personnel under the long-term incentive payable.
27
Key Performance Indicators
The following are the key performance indicators for MPTC:
For the Years Ended
December 31
2011 2010
Current ratio 1.65 0.78
Debt-to-equity (DE) ratio 1.10 1.39
Net profit margin 0.28 0.24
Return on assets 0.33 0.31
Return on stockholders’ equity 0.22 0.17
Current ratio increased from 0.78 in 2010 to 1.65 in 2011 mainly due to higher current liabilities in 2010
as a significant portion of the loans were classified as current because of the prepayment of the US
dollar-denominated loans in January 2011.
MPTC became less leveraged on debt in 2011 with a debt-to-equity ratio of 1.10 in 2011 compared to
1.39 in 2010. This is due to the decrease in total debt after the refinancing of the loans in 2011.
Net profit margin improved to 0.28 in 2011 from 0.24 in 2010 due to higher consolidated net income
brought by higher toll revenues and higher other income.
Return on assets slightly increased from 0.31 in 2010 to 0.33 in 2011 because revenue growth is larger
than asset growth.
Return on stockholders’ equity improved from 0.17 in 2010 to 0.22 in 2011 due to the increase in net
income in 2011.
December 31, 2010 Compared to December 31, 2009
On a Consolidated Basis
Cash and cash equivalents increased by P354 million or 23% from P1,520 million in 2009 to P1,874 million
in 2010 because of higher cash received as toll revenues in 2010.
Receivables were P27 million or 91% higher from P30 million in 2009 to P57 million in 2010 due to
increased receivables from utility facility lessees and corporate accounts.
Advances to contractors and consultants declined by P247 million or 97% from P256 million in 2009 to P8
million in 2010 mainly due to the completion of the civil works contract with Leighton Contractors Asia,
Ltd. for the construction of NLEX Segment 8.1.
Investments in an associate increased by P16 million or 13% from P125 million in 2009 to P141 million in
2010 because cash dividends declared by TMC are lower than income earned both during 2010 and 2009.
Service concession assets grew by P694 million or 5% from P15,124 million in 2009 to P15,818 million in
2010 mainly due to the capitalized construction costs of NLEX Segment 8.1.
Derivative assets (noncurrent) decreased by P39 million or 100% from P39 million in 2009 to P0 in 2010
because floating interest rates remained lower than the fixed interest rates in the hedging agreements.
Moreover, exchange rates throughout 2010 remained lower than those fixed in the hedging agreements.
These differences caused the fair values of derivative transactions to have negative balances.
Available-for-sale financial assets (noncurrent) increased to P513 million in 2010 from P0 in 2009 because
of the reclassification of the investments in Retail Treasury Bonds from held-to-maturity to available-for-
28
sale after a sale and purchase transaction and the investment in shares of CMMTC after the acquisition of
shares in MSIHI in 2010.
Investment in bonds decreased to P0 in 2010 from P401 million in 2009 due to the reclassification of a
portion of the investments in Retail Treasury Bonds to cash and cash equivalents and the remaining portion
to available-for-sale financial assets.
Other noncurrent assets increased by P18 million or 92% because of expenditures made in relation to the
SCTEX concession.
Unearned toll revenues were P10 million or 47% higher from P21 million in 2009 to P31 million in 2010
due to the increase in active transponder accounts resulting in higher floats in unused account balances.
Dividends payable increased by P38 million or 26% from P144 million in 2009 to P182 million because of
higher cash dividends declared but unpaid by MNTC.
Income tax payable is P7 million or 67% higher from P11 million in 2009 to P18 million in 2010 due to
higher regular corporate income tax in 2010.
Provisions (current portion) increased by P79 million or 201% from P39 million in 2009 to P118 million in
2010 due to the reclassification of a portion of the provision for heavy maintenance to current resulting from
the expected fulfillment of the obligations in accordance with the heavy maintenance program during the
succeeding year.
Current portion of long-term debt increased by P1,597 million or 276% from P580 million in 2009 to P2,176
million in 2010 because of the prepayment notice submitted by MNTC to its creditors informing its planned
prepayment of US dollar-denominated loans on January 14, 2011, rendering the entire amount of such loans
as current.
Derivative liabilities (current) increased to P212 million in 2010 from P0 in 2009 because floating interest
rates remained lower than the fixed interest rates in the hedging agreements. Moreover, exchange rates
throughout 2010 remained lower than those fixed in the hedging agreements. These differences caused the
fair values of derivative transactions to have negative balances. All derivatives were classified as current
after the submission of the prepayment notice for the underlying financial instruments. The derivatives shall
be terminated alongside the prepayment of the US dollar-denominated loans to be fully paid on January
2011.
Long-term debt (net of current portion) was reduced by P610 million or 8% because of the reclassification of
the US dollar-denominated loans as current after its planned prepayment on January 2011 offset by the
increase in drawdowns from the term loan for the construction of NLEX Segment 8.1.
Derivative liabilities (noncurrent) decreased to P0 in 2010 from P44 million in 2009 because of the
reclassification of all derivatives to current due to the prepayment of the US dollar-denominated loans, the
financial instruments that were hedged, on January 2011.
Accrued retirement costs were P9 million or 91% lower from P10 million in 2009 to P1 million in 2010
because of the increase in contributions made in the retirement fund during 2010.
Provisions (noncurrent portion) decreased by P107 million or 26% from P416 million in 2009 to P308
million in 2010 mainly due to the reclassification of a portion of the provision for heavy maintenance to
current resulting from the expected fulfillment of the obligations in accordance with the heavy maintenance
program during the succeeding year.
Deferred tax liabilities increased by P37 million or 13% from P285 million in 2009 to P322 million in 2010
mainly due to higher deferred tax liabilities in relation to the difference in amortization method of service
concession assets.
Retained earnings decreased by P195 million or 11% from P1,800 million in 2009 to P1,605 million in 2010
due to higher cash dividends declared against net income earned during 2010.
29
Other reserves increased to P2 million in 2010 from P0 in 2009 due to the recorded stock options expense in
relation to the share-based payments to management committee members of MPTC and its subsidiaries.
Key Performance Indicators
The following are the key performance indicators for MPTC:
For the Years Ended
December 31
2010 2009
Current ratio 0.78 1.74
Debt-to-equity (DE) ratio 1.39 1.20
Net profit margin 0.24 0.12
Return on assets 0.31 0.30
Return on stockholders’ equity 0.17 0.08
Current ratio decreased from 1.74 in 2009 to 0.78 in 2010 mainly due to the reclassification of all
outstanding US dollar-denominated loans to current in 2010. These, however, would be refinanced
through another loan.
MPTC became more leveraged on debt in 2010 with a debt-to-equity ratio of 1.39 in 2010 compared to
1.20 in 2009. This is due to the increase in cash dividends declared to stockholders in 2010. Despite the
increase in leverage in debt, all debt covenants are still complied with in 2010.
Net profit margin doubled to 0.24 in 2010 from 0.12 in 2009 due to the decrease in provisions for
probable losses on input VAT and the increase in toll revenues while controlling costs and expenses.
Return on assets slightly increased from 0.30 in 2009 to 0.31 in 2010 because revenue growth is larger
than asset growth.
Return on stockholders’ equity improved from 0.08 in 2009 to 0.17 in 2010 due to the increase in net
income coupled with higher cash dividends declared in 2010.
The Company’s audited consolidated financial statements as of December 31, 2010 and 2009 and for the
years ended December 31, 2010, 2009 and 2008 are provided for in the accompanying financial statements
in Item 7.
Formula
Current Ratio
indicator of company’s ability to pay short-term
obligations
__Current Assets__
Current Liabilities
Debt-to-Equity Ratio shows how much capital was infused by the stockholders
for every amount of debt that creditors have put in
___Total Liabilities___
Stockholders’ Equity
Profit Margin
indicator of company’s profitability
_Net Income_
Revenues
Return on Assets
measures how the company uses its total assets to
generate profits
____Net Income____
Average Total Assets
Return on Stockholders’ Equity
reflects how much the firm has earned on the funds
invested by the shareholders
_______Net Income_______
Average Stockholders’ Equity
30
Plans and Prospects
The Company shall continue its thrust to be the leading player in the tollways industry. With infrastructure
as an imperative component to continuous economic growth, MPTC is situated in a business milieu that is
both encouraging and competitive. The Company shall strive to provide high quality of service to motorists
plying NLEX, with Segment 8.1 opened in June 2010, and SCTEX, through its subsidiaries, Manila North
Tollways Corporation and Tollways Management Corporation. Continuous efforts shall also be directed to
achieve group-wide operating efficiency through cost-beneficial use of available technologies and system
improvements and optimization of the group’s organization structure that would effectively support business
growth. Aside from adding more toll service facilities, the Company shall also introduce new concepts to
leverage on the NLEX brand and augment non-toll revenues. Examples include, but not limited to,
advertising, sale of naming rights to landmark structures such as interchanges and toll plazas, and leasing of
assets such as the fiber optic network.
Expansion projects would be aggressively pursued in 2011, with the aim of commencing construction of
Segment 9 and closing the financing plan for Segments 9 & 10 and the NLEX-SLEX Connector Road.
Segments 9 & 10, which is part of the existing NLEX concession, spans 8.5 kilometers connecting the
existing NLEX westward and is expected to cut travel time to the port area. The NLEX-Skyway-SLEX
Connector Road is a 13.5-kilometer elevated toll road which will connect the north-south corridor and cut
travel time to only 15 minutes. MPTDC was granted the “original proponent” status for the said project
following the submission of an unsolicited proposal to the Department of Public Works and Highways.
Furthermore, the Company, through its subsidiary, MNTC, was recently awarded by the Bases Conversion
and Development Authority (BCDA) the right to enter into a concession agreement for the management,
operations and maintenance of SCTEX.
The Company shall continue to expand its toll road portfolio thru acquisition of shares of other toll road
concessionaires and participating in the bidding for new toll road projects under the government’s publib-
private partnership (PPP) program.
Liquidity and Capital Resources
The following table shows our consolidated cash flows for the years ended December 31, 2011, 2010 and
2009 as well as our consolidated capitalization and other selected financial data as at December 31, 2011
and 2010:
2011 2010 2009
(in millions)
Cash Flows
Net cash provided by operating activities Php3,444 Php3,198 Php2,608
Net cash provided by (used in) investing activities (6) (1,132) 11
Capital expenditures 146 1,289 361
Net cash used in financing activities 3,658 1,711 2,254
Net increase (decrease) in cash and cash equivalents (220) 354 364
2011 2010
(in millions)
Capitalization
Interest bearing financial liabilities:
Long-term financial liabilities:
Long-term debt Php8,905 Php7,178
Financial guarantee obligation 65 66
Derivative liabilities 130 -
Provision for heavy maintenance 190 308
Php9,290 7,552
Current portion of interest-bearing financial
liabilities:
Long-term debt maturing within one year 145 2,176
Derivative liabilities - 212
Provision for heavy maintenance 249 88
394 2,476
Total interest-bearing financial liabilities 9,684 10,028
31
Total equity 8,200 8,101
Php17,884 Php18,129
Other Selected Financial Data
Total assets Php19,479 Php19,329
Service concession assets – net 15,552 15,818
Cash and cash equivalents 1,654 1,874
Short-term investments - 856
As at December 31, 2011, consolidated cash and cash equivalents and short-term investments amounted to
P1,654 million. Principal sources of consolidated cash and cash equivalents in 2011 were cash flows from
operating activities amounting to P3,444 million, dividends received from an associate amounting to P182
million and drawings mainly from MNTC’s debt facilities, with gross proceeds amounting to P7,210
million. These funds were used principally for: (1) dividend payments of P1,893 million; (2) total debt
principal payments and financing costs of P7,499 million and P1,476 million, respectively; (2) capital
outlays of P146 million; and (4) investments in available-for-sale securities of P213 million.
As at December 31, 2010, consolidated cash and cash equivalents and short-term investments amounted to
P1,874 million. Principal sources of consolidated cash and cash equivalents in 2010 and 2009 were: (1) cash
flows from operating activities amounting to P3,198 million in 2010 and P2,608 in 2009; (2) dividends
received from an associate amounting to P147 million in 2010 and P140 million in 2009; (3) drawings
mainly from MNTC’s debt facilities, with net proceeds amounting to P1,523 million in 2010 and P577
million in 2009. In 2010, these funds were used principally for: (1) dividend payments of P1,697 million; (2)
capital outlays of P1,289 million; (3) total debt principal and interest payments of P630 million and P906
million, respectively; and (4) payments for investments in subsidiaries and associates of P79 million;and in
2009, the funds were used principally for: (1) dividend payments of P1,346 million; (2) capital outlays of
P361 million; (3) payments of long-term debt totaling P639 million; and (4) interest payments of P840
million.
Operating Activities
Consolidated net cash flows from operating activities in 2011 increased by P246 million, or 8%, to P3,443
million from P3,198 million in 2010 primarily due to increased toll revenue collection brought about by the
tariff adjustment in NLEX and decrease in working capital changes offset in part by the increase in income
taxes paid. Net cash flows from operating activities in 2010 increased by P590 million, or 23%, from P2,608
million in 2009, also due to the increase in toll revenue collections but driven by traffic volume growth
despite the downward toll rate adjustment in July 2008.
Investing Activities
Consolidated net cash used in investing activities amounted to P6 million in 2011, a decrease of P1,126
million, or 95%, as compared with P1,132 million in 2010. The significant decrease is mainly because of the
significant investment made in 2010 for the completion of the construction of NLEX Segment 8.1, which
was opened for operations during the same year. Net cash provided by investing activities amounted to
P1,132 million in 2010, a decrease of P1,143 million, or 104%, from P11 million in 2009. The shift from a
net cash inflow to a net cash outflow was primarily due to the higher capital expenditures for the
construction of NLEX Segment 8.1.
Our consolidated capital expenditures in 2011 totaled P146 million, an decrease of P1,143 million, or 89%,
as compared with P1,289 million in 2010, which is P928 million higher than the capital expenditures during
2008 at P361 million. The significant increase in 2010 is attributable to the construction costs incurred by
MNTC for NLEX Segment 8.1 during that year.
MPTC also made an acquisition of shares in Metro Strategic Infrastructure Holdings, Inc. (MSIHI). On July
2010, MPTC entered into a Share Purchase Agreement for the acquisition of 148,000 shares of MSIHI from
a third party, representing a 20% interest, for P51 million. On August 2010, an amendment to the agreement
was made reflecting the allocation of the purchase price as follows: (1) P14.8 million as consideration for
the MSIHI shares, and (2) P36.2 million as consideration for the assignment to MPTC of a third party’s total
deposit for future stock subscription in MSIHI.
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Additional 80,000 shares were acquired on December 2010 from another third party at a purchase price of
P80 million or P100 a share and deposit for future stock subscription amounting to P19.6 million at a
purchase price of equivalent amount. As a result, MPTC holds a 57% interest in MSIHI and a 1.54% indirect
equity interest in Citra Metro Manila Tollways Corporation, of which MSIHI is a shareholder. CMMTC
holds the concession for the South Metro Manila Skyway.
Financing Activities
On a consolidated basis, net cash used in financing activities amounted to P3,658 million in 2011, an
increase of P1,947 million, or 114%, as compared with P1,711 million in 2010. The increase in net cash
used in financing activities in 2011 resulted largely from higher financing costs related to the refinancing of
MNTC’s long-term loans during the year and higher dividends paid to shareholders. In 2010, net cash used
in financing activities decreased byP543 million or 24% from P2,254 million in 2009, due to higher
proceeds from loans for the construction of Segment 8.1offset in part by higher dividend and interest
payments.
Debt Financing
Consolidated long-term debt decreased by P304 million, or 3%, to P9,051 million in 2011, primarily due to
the prepayment of the US dollar-denominated loans and Fixed Rate Corporate Notes during 2011.
Consolidated long-term debt increased by P900 million, or 10%, to P9,354 million in 2010, largely due to
drawings from the term loan facility for the construction of Segment 8.1, partially offset by debt
amortizations and prepayments and the appreciation of the Philippine peso relative to the U.S. dollar to
P43.89 as at December 31, 2010 from P46.36 as at December 31, 2009 resulting in lower peso equivalents
of our U.S. dollar-denominated debts.
Payments in respect of principal and interest of our total debt amounted to P7,499 million and P1,117
million, respectively, in 2011 and P630 million and P906 million, respectively, in 2009.
On March 16, 2009, MNTC entered into a seven-year term loan agreement for a facility amount of P2,100
million with Philippine National Bank (PNB) to finance the project cost of NLEX Segment 8.1. The PNB
Loan qualified as senior debt which entitles the lender to share in the same security package as NLEX Phase
I lenders. On November 22, 2010, the interest rate of the PNB Loan was amended from fixed to floating rate
based on a six (6)-month PDSTF plus a spread of 0.50%. As at December 31, 2011 and 2010, loan
drawdowns on the facility amounted to P2,100 million. Interest rates range from 2.16% to 5.88% in 2011
and 2.16% to 9.61% in 2010.
On April 27, 2009, MNTC entered into a credit agreement with Security Bank for a standby letter of credit
(SBLC) facility of up to P100 million for a period of 24 months to secure MNTC’s Segment 8.1
construction obligation in favor of TRB. The letter of credit for an amount of P80.3 million was issued
effective April 27, 2009. The substantial completion of NLEX Segment 8.1triggered the reduction of the
face value of the SBLC to P3.75 million as of December 31, 2010. Upon TRB’s final acceptance of Segment
8.1, as certified by its independent engineer, MNTC arranged the cancellation of the SBLC effective April
11, 2011.
On December 7, 2010, MNTC issued an irrevocable prepayment notice indicating MNTC’s firm intention to
prepay in full all outstanding amounts under the U.S. Dollar loan facilities and ADB Direct loan on January
14, 2011. The costs and fees incurred for the prepayment of the U.S. Dollar loan facilities and ADB Direct
loan amounting to P104 million was included as part of the amortized cost of the loans.
On December 21, 2010, MNTC entered into a Notes Facility Agreement with local financing institutions for
a P2,700 million short-term unsecured and subordinated notes facility. Proceeds of the notes which were
fully drawn on January 11, 2011 were used for the prepayment of the US dollar loans and other corporate
purposes. The notes are payable every three months, up to a maximum term of one year from initial
drawdown date.
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On March 11, 2011, MNTC entered into an interest rate swap transaction with PNB to convert the floating-
rate PNB loan to fixed rate effective March 14, 2011. The interest rate swap effectively fixed the floating
rate of the said loan over the remaining tenor at 5.9% per annum.
On April 15, 2011, MNTC entered into a Corporate Notes Facility Agreement with various local financial
institutions for fixed-rate unsecured notes amounting to P6,210 million, with tenors ranging from 5 years, 7
years and 10 years (“Series A Notes”). Proceeds of the notes were used to prepay the P2,700 million short-
term loan in full and to partially prepay the 2006-issued FXCN on April 19, 2011. Weighted average fixed
interest rate on the Series A Notes is 7.22% per annum.
On April 15, 2011, MNTC entered into an Amended and Restated Loan Agreement with PNB to amend
certain commercial terms of the 2009 PNB Loan, incorporate the interest rate conversion from fixed to
floating rate, and align the loan covenants with that of the Series A Notes.
On November 29, 2011, MNTC issued a notice of prepayment to the remaining 2006 FXCN holders which
agreed to relax the loan covenants but did not accept MNTC’s initial prepayment offer. On December 15,
2011, these Noteholders, with outstanding notes of P2,266 million, were prepaid in full.
On December 12, 2011, MNTC entered into a Term Loan Facility Agreement for a P1,000 million fixed-rate
term loan facility from The Insular Life Assurance Company, Ltd. and the Philippine American Life and
General Insurance Company. The loan facility has a final maturity date of 15 years, with two bullet
repayment tranches of P500 million each after 10 and 15 years from availment date. Average fixed interest
rate on the loan facility is 7.10% per annum.
For further details on our long-term debt, see Note 17 – Long-Term Debt to the accompanying consolidated
financial statements in Item 7.
Debt Covenants
Consolidated debt instruments contain restrictive covenants, including covenants that require us to comply
with specified financial ratios and other financial tests, at relevant measurement dates, principally at semi-
annual interest payment dates. MPTC complied with all of maintenance financial ratios as required under
our loan covenants and other debt instruments.
Financing Requirements
Available cash, including cash flow from operations, will provide sufficient liquidity to fund projected
operating, investment, capital expenditures and debt service requirements for the next 12 months.
Consolidated cash dividend payments paid to MPTC shareholders in 2011, 2010, and 2009 amounted to
P1,255 million, P1,192 million, and P1,016 million, respectively.
On February 23 and August 3, 2011, MPTC’s BOD declared cash dividends of P=0.152 per share or a total
amount of P755 million and P0.10 per share or a total amount of P500 million to all stockholders of record
as of March 11 and August 19, 2011, respectively. As of December 31, 2011, the unpaid cash dividends
amounted to P3 million.
On February 17 and August 24, 2010, MPTC declared a regular cash dividend of P0.15 per share or a total
of P747 million and P0.089 or a total amount of P445 million to all stockholders of record as of March 5 and
September 9, 2010, respectively. As at December 31, 2010, the cash dividends have been fully paid.
On July 31, 2009, MPTC declared cash dividends of P0.09 per share or a total amount of P450 million to all
stockholders of record as of August 14, 2009. As at December 31, 2009, the cash dividends have been fully
paid.
See Item 5 – Market for Registrant’s Common Equity and Related Stockholder Matters – Dividends and
Note 19 – Equity to the accompanying consolidated financial statements in Item 7 for a detailed discussion
of our debt covenants.
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Off-Statement of Financial Position Arrangements
There are no off-statement of financial position arrangements that have or are reasonably likely to have any
current or future effect on our financial position, results of operations, cash flows, changes in stockholders’
equity, liquidity, capital expenditures or capital resources that are material to investors.
Equity Financing
The primary objective of the Company’s capital management is to ensure that it maintains healthy capital
ratios in order to support its business and maximize shareholder value while complying with the financial
covenants required by the lenders. The Company also ensures that its debt to equity ratio is in line with the
requirements of the Bangko Sentral ng Pilipinas (BSP) and the Board of Investments (BOI).
In 2010, the Company launched its capital restructuring plan which aims to maximize the Company’s
flexibility to pursue expansion opportunities within and outside the NLEX concession and, at the same time,
maintain a steady flow of dividends to shareholders.
See Note 30 – Financial Risk Management Objectives and Policies – Capital Management to the
accompanying financial statements in Item 7 for a detailed discussion of the Company’s capital
management.
Contractual Obligations and Commercial Commitments
Contractual Obligations
For a detailed discussion of our contractual obligations, see Note 28 – Significant Contracts and
Commitments to the accompanying consolidated financial statements in Item 7.
Commercial Commitments
SCTEX Concession Agreement. In November 2010, MNTC participated in a public bidding
conducted by the BCDA for the right to manage, operate and maintain the SCTEx on an “as is, where is”
basis for a period until October 30, 2043. On June 9, 2010, BCDA formally awarded MNTC the right to
enter into a concession agreement with BCDA for the management, operation and maintenance of SCTEx.
On November 8, 2010, the parties entered into a Concession Agreement under which BCDA granted MNTC
the usufructuary rights to and the right to manage, maintain and operate the 94-km SCTEx for a period of 25
years, extendable by another 8 years. In granting the concession, BCDA has also assigned to MNTC its
rights under the TOA it signed with the TRB including the right to collect toll fees. The assignment is
subject to certain conditions including, among others, the necessary Philippine Government approvals and
the execution of a STOA.
On July 20, 2011, MNTC and BCDA signed a Business and Operating Agreement (BOA) covering the
assignment by BCDA to MNTC of its rights, interest and obligations under the TOA relating to the
management, operation and maintenance of the SCTEx (which shall include the exclusive right to possess
and use the SCTEx toll road and facilities and the right to collect toll). BCDA shall retain all rights,
interests and obligations under the TOA relating to the design, construction and financing of the SCTEx.
Nevertheless, the Parties hereby acknowledge that BCDA has, as of date of the Agreement, designed,
financed and constructed the SCTEx as an operable toll road in accordance with the TOA. The BOA was
the result of the amendments made to the previously signed Concession Agreement between BCDA and
MNTC last November 2010. The BOA must be approved by the President of the Republic of the
Philippines before MNTC could take over the management of SCTEx.
From and after the effective date, each BCDA and MNTC shall be entitled to a direct share in the Audited
Gross Toll Revenues from the SCTEx.
The term of the agreement shall be from effective date, until October 30, 2043. At the end of the contract
term or upon termination of the Agreement, the SCTEx shall be turned over to BCDA/successor-in-interest
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conformably with law, and in all cases in accordance with and subject to the terms and conditions of the
STOA to be entered into by and among MNTC, BCDA and ROP, through TRB, in relation to SCTEx.
As of February 24, 2012, the parties are still in the process of obtaining certain consents and formalizing the
STOA and therefore the SCTEx had not been assigned and turned over to MNTC.
See Note 29 – Significant Contracts and Commitments to the accompanying consolidated financial
statements in Item 7.
Quantitative and Qualitative Disclosures about Market Risks
MPTDC’s principal financial instruments comprise of cash and short-term deposits and financial guarantee
issued to TMC under Operation and Maintenance Agreement (OMA). MPTDC has various other financial
instruments such as trade debtors and trade creditors, which arise directly from its operations. The main
risks arising from the Company’s financial instruments are credit risk and liquidity risk.
Credit risk. As a result of issued guarantee on obligations of TMC under the Operations and Maintenance
Agreement, the Company may incur potential financial losses in the event of default by TMC. Receivable
balances, however, are monitored on an on-going basis with the result that the Company’s exposure to bad
debts is insignificant.
Liquidity risk. Prudent liquidity risk management implies maintaining cash and cash equivalents to meet
operating capital requirements. The Company’s objective is to maintain a balance between continuity of
funding and flexibility through an efficient collection of receivables. Potential exposure to liquidity risk
would result from the execution of financial guarantee in the event of TMC’s failure to comply with O&M
Agreement.
The main risks arising from the Company’s financial instruments are interest rate risk and foreign currency
risk which were both mitigated when the Company entered into cross currency swap and interest rate swap
transactions between July 1, 2008 and April 1, 2009 (see Note 29 of the attached AFS).
Impact of Inflation and Changing Prices
Inflation can be a significant factor in the Philippine economy, and we are continually seeking ways to
minimize its impact. The average inflation rate in the Philippines in 2011 was 4.8% compared with 3.8% in
2010. Though inflation is expected to increase moving forward, the adverse impact of inflation on
operations could be offset by increase in toll revenues from periodic toll rate adjustments.
Risks and Uncertainties
Reliance on the Supplemental Toll Operation Agreement (STOA). Substantially all of MNTC’s assets and
revenues relate to the rights, obligations and privileges it holds under the Supplemental Toll Operation
Agreement dated April 30, 1998, among the Government (acting by and through the Toll Regulatory Board)
as the grantor (the ‘‘Toll Road Grantor’’), Philippine National Construction Corporation (‘‘PNCC’’) as
franchisee and MNTC (as the ‘‘Toll Road Concessionaire’’) (the ‘‘Toll Road Concession Agreement’’).
MNTC’s right to finance, design, construct, rehabilitate, expand, operate and maintain the NLEX derives
from the Toll Road Concession Agreement. Under the Toll Road Concession Agreement, MNTC was
granted the toll road concession, pursuant to which it has the exclusive right to finance, design, construct,
rehabilitate, expand, operate and maintain the project roads constituting the NLEX as toll roads and to install
and collect revenue through a tollway collection system (the ‘‘Toll Road Concession’’). MNTC has sub-
contracted many of its operational and maintenance obligations under the Toll Road Concession to TMC, an
associate of the Company.
Under the original terms of the Toll Road Concession Agreement, the Toll Road Concession was due to
expire on December 31, 2030 (the ‘‘Toll Road Concession Period’’). On October 16, 2008, the Board of
Directors of the Toll Regulatory Board approved the extension of the Toll Road Concession Period to
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December 31, 2037. However, there can be no assurance that the Toll Road Concession will be extended
beyond 2037.
The Toll Regulatory Board may unilaterally terminate the Toll Road Concession Agreement prior to the
expiry of the Toll Road Concession Period without compensation to MNTC if MNTC does not rectify
certain specified defaults by it within the applicable cure periods specified in the Toll Road Concession
Agreement. Accordingly, MNTC’s rights to operate and collect revenue from the NLEX depend upon its
compliance with, and the performance of its obligations under, the Toll Road Concession Agreement. For
example, under the terms of the Toll Road Concession Agreement, the concession granted to MNTC may be
terminated prior to the end of the Toll Road Concession Period if MNTC materially fails to perform the
operation and maintenance of the project roads in accordance with the standards approved by the Toll
Regulatory Board, or if MNTC is persistently or flagrantly in breach of any material obligation under the
Toll Road Concession Agreement. In addition, if MNTC’s rights under the Toll Road Concession
Agreement are terminated by the Toll Regulatory Board, there can be no assurance that the successor
concessionaire would sub-contract its operational and maintenance obligations under the Toll Road
Concession to TMC.
The business, financial condition and results of operations of the Company could be materially and
adversely affected if, for any reason, the Toll Road Concession Agreement or any part thereof is cancelled,
terminated, becomes invalid or unenforceable or otherwise ceases to have full force and effect.
Traffic Volume. Revenues from the Company’s toll road operations principally depend upon the number and
type of motor vehicles using the NLEX. Traffic volume is directly and indirectly affected by a number of
factors, including the availability, quality, proximity and cost of alternative roads and alternative modes of
transportation and Government economic and transportation policies. More generally, traffic volumes
depend to a large extent on the continued economic growth and development of the Philippines and, in
particular, Metro Manila and the special economic zones of Subic and Clark.
Traffic volume on the NLEX is also influenced by traffic volumes on expressways, highways and other
roads which are part of the regional highway system and network. There can be no assurance that changes in
this highway system and network, in particular in Metro Manila or the special economic zones of Subic and
Clark, will not adversely affect traffic volume on the NLEX. For example, significant construction projects
in Metro Manila, neighboring roads, highways or expressways could adversely impact traffic volume on the
NLEX. Additionally, substantial delays in the completion of, or cancellations of, any of the planned
expressways, highways and other roads that would offer access to or from the NLEX could lead to a
decrease in traffic volume.
Fuel shortages and increases in fuel prices may adversely affect traffic volumes on the NLEX. Fuel prices
are inherently volatile and have been high in recent years. If the cost of fuel in the Philippines remains high
or increases further, motorists in the Philippines may limit automobile usage or elect to use alternative
means of transportation in an attempt to offset high fuel costs. Furthermore, higher global oil prices and
increased demand for fuel may lead to fuel shortages and fuel rationing in the Philippines. If fuel shortages
or rationing occur in Luzon, motorists may be forced to drive less frequently, reducing traffic volumes on
the NLEX.
Traffic volumes on the NLEX are affected by competition from other routes and alternative modes of
transportation. The NLEX, unlike the non-toll MacArthur Highway, requires motorists to pay a toll for every
journey. For these motorists, the toll costs may outweigh the benefits of convenience or lower traffic
congestion. It is possible that the public may react adversely to any increase in toll tariffs in the future by
avoiding or limiting their use of the project roads. For example, the Company believes the Government’s
implementation of the Anti-Overloading Law, R.A. 8794, has resulted in lower traffic volumes on the
NLEX, particularly with regard to larger vehicles, such as trucks and buses. In addition, there can be no
assurance that existing roads or modes of transport will not significantly improve their services or that
alternative roads will not be built which may charge lower tolls or provide more direct routes to locations
served by the NLEX.
A significant or sustained decline in traffic volume on the NLEX as a result of the factors described above,
could have a material adverse effect on the Company’s business, results of operations and financial
condition.
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Toll Rate Adjustments. MNTC derives substantially all of its revenue from toll collections from the users of
the NLEX. The Toll Road Concession Agreement establishes a toll rate formula and adjustment procedure
for setting the ‘‘Authorized Toll Rate,’’ the maximum authorized amount that can be assessed upon toll
users. The Toll Road Concession Agreement also provides for both regular adjustments every two calendar
years and interim adjustments to the Authorized Toll Rate in certain circumstances, particularly changes in
the Philippines consumer price index. However, no assurance can be given that adjustments to the
Authorized Toll Rate will be made at the times or in the amounts contemplated by the Toll Road Concession
Agreement or will be favorable to MNTC or the Company.
The Toll Road Grantor under the Toll Road Concession Agreement has agreed to compensate MNTC for
certain losses of revenue resulting from failure to effect adjustments in the Authorized Toll Rate in
accordance with the Toll Road Concession Agreement. However, no assurance can be given that the Toll
Road Grantor will do so. If, for any reason, the Authorized Toll Rate is not adjusted in accordance with the
Toll Road Concession Agreement or is substantially decreased, the resulting effect on toll revenues could
have a material adverse effect on the Company’s business, financial condition and results of operations.
Funding Challenges. The Toll Road Concession Agreement contemplates a three-phase program for the
development of a regional highway network in the region north of Metro Manila. The first phase was
initiated in March 2001 and was completed in February 2005. Pursuant to the Toll Road Concession
Agreement, MNTC is, under certain specified conditions, obligated to participate in the further
expansion of the project roads, including Phases II and III. The obligation to commence construction on a
given Phase or Segment is subject to compliance with certain requirements, including the delivery by the
Toll Road Grantor of the land required and actual access and possession by MNTC of the land required,
ready for fencing and construction, and proof of availability of funds. Work on the first segment of Phase II,
an extension spanning a total of 2.7 kilometers, began in April 2009.
Any future construction obligations arising under the Toll Road Concession Agreement may require
significant capital expenditures for the funding of roadway construction costs, the development of toll
facilities and amenities, and related costs. The Company is obligated under the Toll Road Concession
Agreement to maintain the toll roads it operates including both routine and heavy maintenance and repairs.
There can be no assurance that MNTC will have sufficient cash flow or be able to obtain third party
financing necessary to finance MNTC’s construction and maintenance obligations. If MNTC were unable to
obtain financing for its future capital expenditures, it may have difficulty meeting its construction and
maintenance obligations under the Toll Road Concession Agreement. In certain cases, the inability of
MNTC to meet these obligations is a default under the Toll Road Concession Agreement, which could cause
the Company’s business, financial condition and results of operations to be materially adversely affected.
Toll Collection Accuracy. Substantially all of the Company’s toll revenue is derived from the collection of
tolls, the receipt of which is highly dependent upon the integrity of its toll collection system. Most of the toll
revenues collected on the NLEX are collected in cash, as opposed to through cashless electronic collection
systems. The level of revenues derived from the collection of tolls may be reduced by leakage through toll
evasion, fraud or technical faults in MNTC’s toll collection systems. MNTC has established policies and
procedures designed to prevent such leakage, including the prevention of toll-evasion, user fraud, employee
fraud and theft. However, there can be no assurance that these policies and procedures will be effective. A
failure to control leakage in the toll collection systems could have a material adverse effect upon the
Company’s business, financial condition and results of operations.
Capacity Limits. There are limits to the number of vehicles that can efficiently use the NLEX in any given
period. For example, at certain interchanges in the Metro Manila region, the need for a toll plaza at the
entrance to the expressway may, during periods of high congestion, create a bottleneck restricting traffic
flow onto the expressway and limiting traffic volumes of paying customers. High levels of traffic congestion
could result in customer dissatisfaction and reduce the volume of toll-paying motorists. As a result, MNTC
may be required to add additional facilities or undertake additional projects to expand or modify its
operations in particular areas in order to increase the efficiency and maintain customer satisfaction. In such a
case, MNTC would need to procure the necessary approvals, permits and licenses from the appropriate
Governmental bodies and obtain adequate financing.
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Toll Road Construction Risks. The construction of a toll road, which generally requires several years and
significant capital expenditures, is subject to numerous risks. MNTC has recently begun Phase II with the
construction of Segment 8.1. In addition, MNTC has conducted pre-feasibility studies for the
implementation of Segments 9 and 10.
These construction activities, including the activities of MNTC’s employees, partners and subcontractors,
expose MNTC to a number of risks, including the following:
MNTC relies on the government to acquire the land required for the toll roads. This process, which
can involve the expropriation of land and the resettlement of existing individuals and businesses, is
politically sensitive and can involve significant delays;
MNTC relies on third party subcontractors to carry out its construction projects, which can expose
it to increased labor costs, the failure of contractors to fulfill their obligations, contractual disputes
and claims of vicarious liability;
Construction projects are subject to significant interruptions, delays and unforeseen costs and
liabilities, including increased raw material and labor costs, unfavorable financing conditions,
damage or injury to third parties, and interruptions in construction due to bad weather,
environmental or engineering problems, site accidents, or delays in obtaining licenses and permits;
and
A failure to timely complete construction of its various projects could result in a default by MNTC
under the terms of the Toll Road Concession Agreement.
These risks, alone or in the aggregate, could have a material and adverse effect on the business, financial
condition and results of operations of the Company.
Inflation on Repairs and Maintenance Costs. Maintenance on the NLEX is generally divided into routine
maintenance, such as the cleaning of road surfaces, the dredging of drainage systems and landscaping, and
heavy maintenance, such as major repairs, repaving and rehabilitation. MNTC expects to incur capital
expenditure for periodic resurfacing of the pavement, improvement of connecting roads to the NLEX,
repairs to the buildings and facilities, upgrading of toll systems, and construction of ancillary facilities.
MNTC also maintains a heavy maintenance program that is reviewed periodically. There can be no
assurance that actual amounts spent on routine or heavy maintenance will not be substantially higher than
they have been in the past, due to unforeseen circumstances. In particular, higher than expected usage could
require additional repairs or may require a major overhaul of all or part of the NLEX to be undertaken earlier
or more frequently than anticipated. If actual maintenance expenses significantly exceed projected expenses,
the Company’s business, results of operations and financial condition could be materially adversely affected.
Concession Termination. MNTC’s concession rights under the STOA shall be in effect for a period
commencing on June 15, 1998 until December 31, 2030, or 30 years after the issuance of the corresponding
Toll Operation Permit for the last completed Phase, whichever is earlier, unless further extended pursuant to
the provision of the STOA. On October 16, 2008, the TRB approved the extension of the concession period
for another seven (7) years, thus, extending the concession period until December 31, 2037.
Prior to such expiration, and subject to the terms of the STOA, the Concession granted to MNTC may be
terminated by the Grantor if MNTC commits any of the following and fails to remedy the same within a
period of at least 3 months from receipt of the written notice of default from the Grantor:
▪ Materially fail to perform the operation and maintenance of the Project Roads in accordance with
the standards approved by the Grantor; or
▪ Fail to implement the Project; or
▪ Become subject to liquidation or dissolution proceedings; or
▪ Be declared insolvent or in default of its loans; or,
▪ Be persistently or flagrantly in breach of any material obligation under the STOA for causes solely
attributable to MNTC; or
▪ Abandon the construction of the operation and maintenance of the Project Roads.
As of December 31, 2011, MNTC has complied with and performed its obligations, and has not received
any notice of default under the STOA.
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Regulated Industry. The Company’s toll road operations are subject to substantial regulatory oversight, and
the business, operations and financial performance of the toll road assets may be significantly affected by
changes in the Government’s rules and regulations or the interpretation or application thereof. The Toll
Regulatory Board, which is also the counterparty to the Toll Road Concession Agreement, is the
Government agency authorized to regulate toll road operations in the Philippines. The Toll Regulatory
Board is the key regulatory body overseeing MNTC, and regularly inspects the NLEX to ensure that MNTC
meets Government standards for construction, maintenance and operation of the toll roads and facilities.
Considering that the rights, obligations and privileges of MNTC with respect to the NLEX are highly
dependent on Government requirements and regulations, there can be no assurance that future regulatory
rulings and legislations will not adversely affect MNTC’s business.
Any future regulatory rulings and legislations that has a material adverse effect on the rights and privileges
of MNTC or its ability to comply with its financial and/or other contractual obligations under the STOA
constitutes Material Adverse Grantor Action and could be a ground for default of the Grantor.
MNTC and its sub-contractors, including TMC, are required to comply with all applicable health,
operational and safety regulations in the operation of the toll road assets. Future regulatory changes may
result in increased costs and delays. In addition, licenses or permits obtained by MNTC and its
subcontractors under applicable Philippine laws and regulations may be subject to conditions, compliance
with which may be expensive, difficult or impossible. Governmental authorities could take enforcement
actions against MNTC or its sub-contractors for any failure to comply with the relevant regulations and meet
the relevant conditions. These enforcement actions could result in, among other things, the imposition of
fines or the revocation of licenses and permits granted to MNTC and its sub-contractors. Compliance with
these regulations could require MNTC to make substantial capital expenditures and divert funds from
planned construction projects or other uses.
MNTC is also required to comply with numerous laws and regulations relating to land use and the protection
of the environment, including the rules and regulations of the DENR and other relevant Government
authorities. MNTC may be required to incur significant costs and expenses in order to comply with these
rules and regulations. In addition, there can be no assurance that these rules and regulations will not become
more stringent in the future or that the costs of compliance will not increase. A failure by MNTC or its sub-
contractors to comply with environmental laws and regulations could result in the imposition of civil or
criminal liability, liens, fines, or increased expenditures in order to bring MNTC’s toll road assets and
facilities into compliance.
A failure to comply with applicable health, operational, safety, environmental or other rules and regulations
could have a material adverse effect on the Company’s business, financial condition and results of
operations.
Legal Proceedings. MNTC is a party to various pending legal proceedings. Any adverse rulings or
decisions in certain proceedings may have a material impact on MNTC’s business. MNTC intends to
diligently pursue and exhaust all legal remedies available to it in the event of any adverse ruling or decision
in any of these proceedings.
Political and Economic Factors. MNTC’s business can be influenced by the general political and economic
situation of the country. In the past, the Philippines experienced periods of slow or negative economic
growth, and has from time to time experienced political instability. While the political situation and the
Philippine economy have since improved, any political and/or economic instability in the future may have a
negative effect on the business and results of operations of MNTC.
Historically, traffic volume in NLEX has consistently increased despite the several crises that have hit the
country since 1982.
Occurrence of Unforeseen Events. The use of the NLEX may be interrupted or otherwise affected by a
variety of events, including force majeure, serious traffic accidents, natural disasters, defective design and
construction, labor disputes and other unforeseen circumstances and incidents. Nevertheless, MNTC
addresses these risks by providing motorists with smoother road pavement, visible reflectorized lane
markings, median concrete barriers to prevent head-on collisions, emergency parking areas, sufficient
lighting, as well as 24-hour emergency assistance, consisting of telephone operators, traffic patrol teams,
40
first aid emergency trucks, and tow trucks. In addition, MNTC procures, on an annual basis, a Material
Damage and Business Interruption Insurance from reputable insurance companies. This covers, subject to
policy terms and conditions, the full replacement value of the assets damaged, and the debt servicing and
fixed operating costs and expenses during an agreed period. In the event of a temporary system failure,
detailed procedures have been developed by Transroute, our FOE technology provider, for operating in a
“downgraded” mode. Sufficient supply of FOE replacement parts is maintained by TMC and the
maintenance personnel are always on stand-by 24 hours a day / 7 days a week, ready to repair any damage as
soon as possible. Due to the modular nature of the toll equipment, disruption caused by damage to any
isolated equipment should not, in the normal course of activities, cause any major disruption in service. Toll
plazas have also been dimensioned with a certain factor of redundancy built-in, in case any toll lane is down
due to accident or other reasons.
In addition, the STOA recognizes the occurrence of force majeure and affords relief to MNTC in case of
such occurrence. Except as otherwise discussed above, the other items under Part 1 (Item 1) are not
applicable to FPIDC and its material Subsidiaries.
41
Item 7. FINANCIAL STATEMENTS
Our consolidated financial statements and supplementary schedules (pages S-1 to S-10) listed in the
accompanying Index to Financial Statements and Supplementary Schedules on page 62 are filed as part of
this Annual Report.
42
PART III -- CONTROL AND COMPENSATION INFORMATION
Item 8. DIRECTORS AND EXECUTIVE OFFICERS
Board of Directors as of December 31, 2011
Name Position
Mr. Manuel V. Pangilinan Chairman
Mr. Jose Ma. K. Lim Director
Mr. David J. Nicol Director
Mr. Ramoncito S. Fernandez Director, President & Chief Executive Officer
Mr. Christopher Daniel C. Lizo Director and Chief Finance Officer
Mr. Rodrigo E. Franco Director
Mr. Albert F. Del Rosario Director
Mr. Artemio V. Panganiban Independent Director
Ms. Arlyn Sicangco-Villanueva Independent Director
Atty. Alex Erlito S. Fider Director and Corporate Secretary
Manuel V. Pangilinan Manuel V. Pangilinan, founded First Pacific in 1981 and served as its Managing
Director until 1999. He was appointed as Executive Chairman until June 2003,
when he was named CEO and Managing Director. Within the First Pacific
Group, he holds the positions of President Commissioner of P.T. Indofood
Sukses Makmur Tbk, the largest food company in Indonesia.
He was named Chairman of Philippine Long Distance Telephone Company
(PLDT), the country’s dominant telecom company after serving as its President
and CEO until February 2004. He also serves as Chairman of Maynilad Water
Services, Inc., Medical Doctors, Inc., Metro Pacific Investments Corporation
(MPIC), Landco Pacific Corporation, Pilipino Telephone Corporation, and Smart
Communications, Inc., the largest mobile phone operator in the Philippines. Mr.
Pangilinan concurrently serves as President and CEO of Manila Electric
Company, the largest electric distributor in the country, after being appointed last
July 2010.
Outside the First Pacific Group, Mr. Pangilinan is also Chairman of the Board of
Trustees of Ateneo de Manila University and Chairman of the Board of Trustees
of San Beda College. He was Chairman of the Hong Kong Bayanihan Trust, a
non-stock, non-profit foundation which provides vocational, social and cultural
activities for Hong Kong’s foreign domestic helpers and served as a member of
the Board of Overseers of the Wharton School, University of Pennyslvania. Mr.
Pangilinan is Chairman of the Philippine Business for Social Progress (PBSP), a
social action organization made up of the country’s largest corporations, Vice
Chairman of the Foundation for Crime Prevention, a private sector group
organized to assist the government with crime prevention, a member of the
Board of Trustees of Caritas Manila and Radio Veritas-Global Broadcasting
Systems, Inc., a former Commissioner of the Pasig River Rehabilitation
Commission, and a former Governor of the Philippine Stock Exchange. He
received his Master’s degree in Business Administration from Wharton School of
Finance and Commerce, University of Pennsylvania, Philadelphia.
43
Jose Ma. K. Lim Jose Ma. K. Lim joined Fort Bonifacio Development Corporation (FBDC) in
1995 as Treasury Vice President and was eventually appointed as its Chief
Finance Officer. With the divestment in FBDC, Mr. Lim assumed the position
of Group Vice President and Chief Finance Officer of FBDC’s then parent
company, Metro Pacific Corporation, from 2001 to 2003. He was appointed
President and CEO of MPC in June 2003 where he continues to serve as Director
to this day.
In 2006, Metro Pacific Investments Corporation (MPIC) was established and Mr.
Lim was appointed as President and CEO and he continues to serve as such to
date. He is also currently a Director in the following MPIC subsidiary and/or
affiliate companies: Metro Pacific Tollways Corporation, Manila North Tollways
Corporation, Tollways Management Corporation, Maynilad Water Services, Inc.,
Medical Doctors, Inc. (owner and operator of the Makati Medical Center), Davao
Doctors Hospital (Clinica Hilario) Inc., Landco Inc. and Costa de Madera. Mr.
Lim likewise serves as President of Metro Strategic Infrastructure Holdings, Inc.
which holds a minority ownership interest in Citra Metro Manila Tollways Corp.
(Skyway) where he also continues to serve as a Director.
He is active in the Management Association of the Philippines and has served as
Vice-Chair of the Corporate Governance Committee since 2007. Mr. Lim
graduated from the Ateneo de Manila University, with a Bachelor of Arts degree
in Philosophy. He received his MBA degree in 1978 from the Asian Institute of
Management.
Ramoncito S. Fernandez Mr. Ramoncito S. Fernandez, was recently appointed as the President & CEO of
Metro Pacific Tollways Corporation (formerly First Philippine Infrastructure,
Inc.) and Tollways Management Corporation under the Metro Pacific Investment
Corp.
He holds directorships in Metro Pacific Tollways Corporation, Tollways
Management Corporation, Manila North Tollways Corporation, SMART
Communications, Inc., Pilipino Telephone Corporation, Smart Broadband, Inc.,
PLDT Subic Telecom, Inc., PLDT Clark Telecom, Inc., PLDT Global
Corporation, Smart Money Holdings Corporation, Smart Money, Inc., Tahanan
Mutual Building & Loan Association, and Telecommunications Solutions, Inc. (a
Mauritus registered company).
Mr. Fernandez has almost 2 years of experience in International Carrier Business
and has over 16 years of experience in materials, management, industrial
marketing and sales. He was the Head of International and Carrier Business
(PLDT & SMART) and Global Access Group (Smart) from 2007 until December
31, 2008. He was the Administration and Materials Management Head of Smart
from 2000, and of PLDT from 2004, until December 31, 2007. He was the
Executive Vice President in charge of marketing, sales and logistics of Starpack
Philippines, Inc. until June 2000. He also worked for Union Carbide Philippines
in manufacturing and industrial engineering.
Mr. Fernandez obtained his Bachelor of Science Degree in Industrial
Management Engineering from the De La Salle University and Master's Degree
in Business Management from the Asian Institute of Management.
Christopher C. Lizo Christopher C. Lizo currently serves as the Chief Finance Officer of Metro
Pacific Tollways Corporation and manages the entire financial aspects across all
companies under MPTC. Concurrently, he is also the Treasurer of MPTC,
Manila North Tollways Corporation and Tollways Management Corporation. He
has 16 years of vast experience in finance and accounting for having worked
with the Metro Pacific Group. As Treasury Manager in 2000, Mr. Lizo has
successfully handled the retirement of its seven-year debt reduction program that
44
geared the company into reorganization and recapitalization. After Metro Pacific
Investments Corporation was established in 2006, Mr. Lizo was appointed
as Controller and Vice President for Treasury of MPIC to oversee its strategic
business and financial planning process. In addition, he also handled the
administration, finance, credit and risk management, budget and accounting
departments of the company. Mr. Lizo became a director of MPIC in 2007.
Rodrigo E. Franco
Rodrigo E. Franco is President and Chief Executive Officer of the Manila North
Tollways Corporation (MNTC). He was previously MNTC’s Executive Vice
President, Chief Operating Officer and Chief Finance Officer from 2003 until his
appointment as top executive of the firm in January 2009.
During his tenure as EVP/COO/CFO of MNTC, Mr. Franco was primarily
responsible in managing MNTC’s project finance facilities from multilateral and
commercial banking sources. He was also involved in identifying and mitigating
risk exposure of the company, managing relationship with the shareholders and
other stakeholders, and developing solutions for Finance-related issues.
Before joining MNTC in April 2003, Mr. Franco spent 20 years with JPMorgan
Chase Bank. He was Vice President for Investment Banking when he left the
Manila branch of JPMorgan Chase by the end of 2002. He assisted several
Philippine companies raise funds from the international loan and capital markets,
and had been involved in originating and executing a number of mergers and
acquisitions, equity capital markets and loan and bond restructuring transactions.
Mr. Franco graduated with honors from the Ateneo de Manila University with a
Bachelor of Science degree in Management Engineering. He obtained his
Masters in Business Administration degree from the Ateneo Graduate School of
Business in Manila.
David John Nicol David John Nicol is currently the Chief Finance Officer of Metro Pacific
Investments Corporation (MPIC). His expertise comes from a consistent record
of building shareholder value through operational improvement, restructuring,
M&A and entering new markets in a wide range of B2B sectors both
domestically and internationally, in listed and PE backed environments. His 10-
year appointment as Chief Finance Officer and eventually as Group Chief
Executive Officer of First Pacific Company Ltd affiliate Berli Jucker Plc, drove
shareholder’s value growth and steered the company past the Asian Financial
crisis.
Prior to joining MPIC, Mr. Nicol was the Director and CFO of Reconomy
(Holdings) Ltd where he led the acquisition of nine businesses in UK’s waste
management and recycling sector. He held positions as President and CEO of
Sirva, Inc for Europe and Asia Pacific and moved on to be the Interim CEO of
Pinnacle Regeneration Group, a leading privately owned social infrastructure
manager and refurbishment provider.
Arlyn Sicangco-
Villanueva (independent)
Dr. Arlyn Sicangco Villanueva, a respected educator and accountant, is senior
partner of the accounting firm Sicangco Menor Villanueva & Co. and member of
the Philippine Institute of Certified Public Accountants (PICPA), the Association
of Certified Public Accountants in Public Practice (ACPAPP), the Association of
Certified Public Accountants in Education (ACPAE), the Management
Association of the Philippines, the Philippine Marketing Association and the
International Council on Hotel, Restaurant and Institutional Education, Asia
Chapter. She sits in the Boards of the Association of Catholic Universities of the
Philippines (ACUP), the Philippine Association of Collegiate Schools of
Business (PACSB) and the Metro Pacific Tollways Corporation. She is an
accreditor for the Philippine Accrediting Association of Schools, Colleges and
Universities (PAASCU).
45
She won the PAASCU James J. Meany Award in 2009, the PICPA Leadership
Award in 2005 and the Outstanding PERAA Member (TOPM) of the Private
Education Retirement Annuity Association (Teaching Category, Level A) in
2004.
As President of Holy Angel University and concurrently Dean of its Graduate
School since 2006, as well as Dean of its College of Business and Accountancy
for 22 years, Dr. Villanueva played a key role in transforming the University into
the biggest and most prestigious private school in Central Luzon. Today, the
University is the only school in the Philippines accredited by the International
Assembly for Collegiate Business Education (IACBE), and one of very few
tertiary schools granted autonomous status by the Commission on Higher
Education (CHED) and Level III accredited status by the Philippine Association
of Accredited Schools, Colleges and Universities (PAASCU).
Married to Atty. Cesar L. Villanueva, dean of the Ateneo Law School, with
whom she has three children (Gabby, Tessa and Maria), Dr. Villanueva hails
from Angeles City, Pampanga. She obtained the degree Bachelor of Science in
Accounting at the then Holy Angel College, Master in Business Management at
the Ateneo de Manila University and Doctor in Business Administration at the
De La Salle University.
Chief Justice Artemio V.
Panganiban (Independent) A consistent scholar, Chief Justice Panganiban obtained his Associate in Arts
“With Highest Honors” and later his Bachelor of Laws with “Cum Laude” and
“Most Outstanding Student” honors. He founded and headed the National Union
of Students of the Philippines. He is also the recipient of several honorary
doctoral degrees and placed sixth among 4,200 candidates who took the 1960 bar
examinations.
In 1995, he was appointed Justice of the Supreme Court, and in 2005, Chief
Justice of the Supreme Court of the Philippines. On his retirement on December
7, 2006, his colleagues acclaimed him unanimously as the “Renaissance Jurist of
the 21st Century.” Aside from being a prodigious decision writer, he also
authored eleven books while serving on the highest court of the land. His judicial
philosophy is “Liberty and Prosperity Under the Rule of Law.” A much sought-
after independent director and adviser of business firms, he also writes a column
in the Philippine Daily Inquirer. Prior to entering public service, Chief Justice
Panganiban was a prominent practicing lawyer, law professor, business
entrepreneur, civic leader and Catholic lay worker. He was the only Filipino
appointed by the late Pope John Paul II to be a member of the Vatican-based
Pontifical Council for the Laity for the 199the 1996-2001 term
Mr. Panganiban and Ms. Villanueva are independent directors. The Company’s two independent directors
have one (1) share of the stock of the Company each in their respective names, are college graduates and
possess integrity, probity and assiduousness. They are persons who, apart from the fees as directors of the
Company, are independent of management and free from any business or other relationship which could, or
could reasonably, be perceived to materially interfere with their exercise of independent judgment in
carrying out their responsibilities as directors of the Company. Mr. Panganiban and Ms. Villanueva: (i) are
not directors or officers or substantial stockholders of the Company or its related companies or any of its
substantial shareholders (other than as independent directors of any of the foregoing); (ii) are not relatives
of any director, officer or substantial shareholder of the Company, or any of its related companies or any of
its substantial shareholders; (iii) are not acting as nominees or representatives of a substantial shareholder of
the Company, or any of its related companies or any of its substantial shareholders; (iv) have not been
employed in any executive capacity by the Company, or any of its related companies or by any of its
substantial shareholders within the last five (5) years; (v) are not retained as professional advisers by the
Company, any of its related companies or any of its substantial shareholders within the last five (5) years,
either personally or through their firms; and (vi) have not engaged and do not engage in any transaction
with the Company or with any of its related companies or with any of its substantial shareholders, whether
by themselves or with other persons or through a firm of which they are partners or companies of which they
are directors or substantial shareholders, other than transactions which are conducted at arms-length and are
46
immaterial or insignificant. They do not possess any of the disqualifications enumerated under Section II
(5) of the Code of Corporate Governance and Section II (D) of SEC Memorandum Circular No. 16, Series of
2002.
Terms of Office
The directors of MPTC are elected each year to serve until the next annual meeting of stockholders and until
their successors are elected and qualified. The term of office of all officers is coterminous with that of the
Board of Directors that elected or appointed them.
Family Relationships
There are no other family relationships among the directors listed above.
Involvement of Directors and Officers in Certain Legal Proceedings
There have been no bankruptcy petition filed by or against any business of which any of the directors or
executive officers was a general partner or executive officer either at the time of the bankruptcy or within
two years prior to that time. No director or officer have been convicted by final judgment in a criminal
proceeding, domestic or foreign, or have been subject to a pending criminal proceeding, domestic or foreign,
excluding traffic violations and other minor offenses. No director or officer has been subject to any order,
judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities, and commodities or banking activities. No
director or officer has been found by a domestic or foreign court of competent jurisdiction (in a civil action),
the SEC or comparable foreign body, or a domestic or foreign stock exchange or other organized trading
market or self-regulatory organization, to have violated a securities or commodities law or regulation, and
the judgment has not been reversed, suspended, or vacated.
Item 9. EXECUTIVE COMPENSATION
Standard Arrangements
Directors
Article II Section 7 of the Company’s By-Laws provides:
“Section 7. Compensation – Directors, as such, shall be entitled to receive such reasonable compensation as
may be fixed by the majority of the Board of Directors provided that in no case shall the total yearly
compensation of directors, as such directors, exceed ten percent (10%) of the unrestricted net income after
taxes of the Company of the preceding year.”
The directors receive standard per diems of P20,000 for each board meeting attended. There are no other
arrangements for compensation either by way of payments for committee participation or consulting
contracts. The directors do not have employment contracts. Their term of office is one year. The
stockholders elect the members of the Board of Directors during the Annual Stockholders’ Meeting.
Key Officers
The total annual compensation (salary and other variable pay) of the CEO and other key officers of the
Company amounted to P36 million in 2010 and P57 million in 2011. The projected total annual
compensation for 2012 is P60 million.
47
The following table below sets forth the aggregate amount of compensation paid in 2011 and 2010 and
estimated amount of compensation expected to be paid in 2012 to the President and CEO and other key
officers and all officers and directors, as a group:
Name and Principal Position Year Salary(1) Other Variable Pay(2)
(in P millions)
Ramoncito S. Fernandez President and Chief Executive Officer
Christopher Daniel C. Lizo
Chief Finance Officer
Rodrigo E. Franco
President and Chief Executive Officer (MNTC)
President and CEO and two most highly compensated key officers Actual 2010 P 24 P12
Actual 2011 44 13
Projected 2012 46 14
All key officers and directors as a group, unnamed Actual 2010 P24 P14
Actual 2011 44 15
Projected 2012 46 16
(1) Basic monthly salary
(2) Includes directors’ per diem, 13th month and variable pay. Variable pay is based on an annual incentive system that encourages and
rewards individual performance and is tied to the achievement of the company’s annual goals and objectives.
The executive officers are covered by standard employment contracts and employees’ retirement plan and
can be terminated upon appropriate notice. There are no other special arrangements pursuant to which any
director was compensated. There is no compensatory plan or arrangement for the termination, resignation, or
retirement of a member of the Board.
Other Arrangements
Stock Option Plans
MPIC, the majority shareholder of the Company, has granted on July 2, 2010 options in respect of
94,300,000 common shares of MPIC to new directors and senior management officers of MPIC and to
selected management committee members of MPIC subsidiaries (including the Company). The stock
options will expire on July 2, 2015. With respect to the stock options granted to MPIC subsidiaries, said
stock options will vest as follows: 30% on July 2, 2011; 35% on July 2, 2012; and 35% on July 2, 2013.
Carrying value of the ESOP, recognized under “Other reserves” in the equity section of the consolidated
balance sheet, amounted to P9 million and P2 million as of December 31, 2011 and 2010, respectively. See
Note 22 – Retirement Costs and Share-Based Payment to the accompanying consolidated financial
statements in Item 7.
There are no arrangements for compensation to be received from the Company in the event of a resignation,
retirement or termination of the executive officer’s employment or a change of control of the Company,
except for such benefits to which they may be entitled under the Company’s retirement and incentive plans.
There are no outstanding warrants or stock options held by any of the Company’s executives.
Item 10. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 2011, the Company knows of no beneficial owner or voting trust holder of 5% or more
among the stockholders, except as set forth below.
The Company is not aware of the existence of any voting trust arrangement among shareholders.
48
Security Ownership of Management as at 31 December 2011:
(1)
Type of
Stock
(2)
Name of record or
beneficial owner
(3)
Citizenship
(4)
Amount and nature
of record/beneficial
ownership
r or
b
(5)
Percent
owner of
class
Common Manuel V. Pangilinan Filipino 1 r 0%
Common Jose Ma. K. Lim Filipino 1 r 0%
Common David J. Nicol British 1 r 0%
Common Ramoncito S. Fernandez Filipino 1 r 0%
Common Christopher C. Lizo Filipino 1 r 0%
Common Rodrigo E. Franco Filipino 1 r 0%
Common Albert F. Del Rosario Filipino 1 r 0%
Common Artemio V. Panganiban Filipino 1 r 0%
Common Felipe M. Medalla Filipino 1 r 0%
Common Arlyn S. Villanueva Filipino 1 r 0%
Change in Control
There has been no change in control in respect of MPTC since the beginning of 2009. MPTC is not aware of
any existing or pending transaction which may result in such a change in control.
Item 11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Party Transactions
For a detailed discussion of our material related party transactions, see Note 18 –Related Party Transactions
to the accompanying consolidated financial statements in Item 7.
Except for the transactions discussed in Note 18 – Related Party Transactions to the accompanying
consolidated financial statements in Item 7, there were no other material related party transactions during the
last three financial years, nor are there any material transactions currently proposed between MPTC and any
(i) any director, officer, direct or indirect owner of 10% or more of the outstanding shares in MPTC; (ii) any
close family member of such director, officer or owner; (iii) associates of MPTC; (iv) enterprises
controlling, controlled by or under common control with MPTC; or (v) enterprises in which a substantial
interest in the voting power is owned, directly or indirectly, by any director, officer or owner of 10% or
more of the outstanding shares in MPTC or any close family member of such director, key officer or owner,
or collectively, the Related Parties.
There was no outstanding indebtedness at any time during the last three financial years that was owed to
MPTC and/or its subsidiaries by any Related Party.
No person who is not an executive officer is expected by MPTC to make a significant financial contribution
to the business.
No director has resigned or declined to stand for re-election to the Board of Directors since the date of the
last annual meeting of MPTC because of a disagreement with MPTC on matters relating to the Company’s
operations, policies and practices.
The company has engaged the services of the law firm of Picazo Fider Santos for legal services. The
Company’s Corporate Secretary, Erlito S. Fider, is a senior partner of Picazo.
49
Part IV – CORPORATE GOVERNANCE
Item 12. CORPORATE GOVERNANCE
MPTC recognizes the value of good corporate governance in building and sustaining its long-term growth
and profitability. The Company believes that the practice of corporate governance moves beyond mere
compliance with rules and legislation, through a process of developing the proper competencies in order to
establish an ethical corporate culture of principled business within the framework of its core values of
accountability, integrity, fairness and transparency.
At every level of an organization, from a director to an employee, is responsible for creating this desired
culture. Everyone must share in contributing to the adoption of appropriate policies and the latter’s firm, yet
even-handed enforcement. Furthermore, everyone is charged with the duty of promoting the proper attitudes
and mindsets to allow genuinely good corporate governance to take root and flourish in MPTC.
MPTC’s corporate governance program is made necessary by very weighty reasons. First, as an investee
company of Philippine and other affiliates of First Pacific, MPTC also endeavors to comply with certain
corporate governance guidelines of First Pacific which are based on the rules of the Hong Kong Stock
Exchange in which First Pacific’s shares are listed. Second, MPTC recognizes the reputational and
commercial benefits of good corporate governance, a fact that is supported by recent developments in the
world economy.
Ultimately however, the most important reason for embarking on a corporate governance program is that
MPTC considers it to be a duty that all corporate citizens should fulfill. It is a duty to be taken seriously, a
duty that a company owes to all of our stakeholders: shareholders, employees, customers, partners,
suppliers, contractors, and the community at large.
Policies
The Corporate Governance Manual or Governance Manual, which was adopted and approved by the Board
of Directors on September 2002, and was revised and amended on February 23, 2011, seeks to
institutionalize the principles of good governance that the Board of Directors and management believe to be
a necessary component of sound business management. It was adopted pursuant to the Code of Corporate
Governance, or the Philippine SEC Governance Code, that was promulgated by the Philippine SEC, under
SEC Memorandum Circular No. 2, Series of 2002, dated April 5, 2002.
In compliance with the Philippine SEC Governance Code and consistent with the relevant provisions of the
Securities Regulation Code and Corporation Code of the Philippines, the Governance Manual covers the
following key areas:
1. The qualifications and grounds for disqualification for directorship;
2. The requirement that at least two or 20% of the members of the Board of Directors, whichever
is lesser, must be independent directors and the standards/criteria for the determination of
independent directors;
3. The duties and responsibilities of the Board of Directors and the individual directors;
4. The Board committees, specifically, the nomination committee, audit committee and
compensation and remuneration committee, the composition and the principal duties and
responsibilities of such committees and grounds for permanent and temporary disqualification;
5. The role of our chairman in ensuring compliance with the corporate governance principles;
6. The role of our president/chief executive officer in ensuring that our organizational and
procedural controls are adequate and effective to ensure reliability and integrity of financial and
operational information, effectiveness and efficiency of operations, safeguarding of assets and
compliance with laws, rules, regulations and contracts;
7. The duties and responsibilities of the corporate secretary/assistant corporate secretary in terms
of the support services that they need to provide the Board in upholding sound corporate
governance;
8. The duties and responsibilities of the head of the internal audit organization that would provide
the board of directors, management and shareholders with reasonable assurance that the key
50
organizational and procedural controls are appropriate, adequate, effective and reasonably
complied with;
9. The functions of the independent auditors that would reasonably ensure an environment of
sound corporate governance as reflected in the financial records and reports; the requirement
that non-audit work of the independent auditors should not conflict with their function as
independent auditors; the requirement to rotate, at least once every five years, the independent
auditors or the lead partner assigned to handle the independent audit of the financial statements;
10. The commitment to respect and promote shareholders’ rights such as voting right, pre-emptive
right, inspection right, dividend right, appraisal right, and right to receive information about the
background, business experience, compensation and shareholdings of the directors and officers
and their transactions with us;
11. The requirement to appoint a compliance officer and the duties and responsibilities of such
compliance officer including the establishment of an evaluation system to determine and
measure compliance with the provisions of the Governance Manual; and
12. The penalties for violations of the Governance Manual.
The Code of Business Conduct and Ethics was adopted to strengthen the implementation of the Governance
Manual. Approved by the Board on February 23, 2011, the Code of Business Conduct and Ethics sets out
the business principles and values, which aim to promote a culture of good corporate governance in the
Company. It provides standards that govern and guide all business relationships of MPTC, its directors,
officers and employees, especially with respect to the following:
1. Compliance with applicable laws, rules and regulations;
2. Ethical handling of conflicts of interest, corporate opportunities and confidential information;
3. Protection and proper use of company assets;
4. Fair dealing with our employees, customers, service providers, suppliers and competitors;
5. Compliance with our reporting and disclosure obligations to the relevant regulators and to
investors;
6. Compliance with our disclosure and financial reporting controls and procedures;
7. Assessment and management of risks involved in our business endeavors; and
8. Adoption of international best practices of good corporate governance in the conduct of our
business.
In addition, the Conflict on Interest Policy was adopted by our Board of Directors to provide specific
guidelines on the provisions of the Code of Business Conduct and Ethics. Approved on February 23, 2011,
this Policy aims to ensure that work-related actions of the directors, officers, employees and consultants are
based on sound business principles and judgment devoid of bias or partiality. It enjoins all employees to be
aware of the possibility of such bias and partiality in dealings with various entities or individuals in the
course of or in relation to their work. The policy likewise mandates that employees who find themselves in a
possible conflict of interest situation should promptly disclose the matter to the relevant authorities, as stated
in the policy. If warranted, the employee concerned should also obtain appropriate approvals and inhibit
himself from any action, transaction or decision involving and existing or potential conflict of interest
All these policies and rules (collectively, the Corporate Governance or CG Rules) shall be periodically
reviewed to ensure that they are appropriate for MPTC and are compliant with the requirements of the
Philippine SEC and Hongkong Stock Exchange corporate governance rules, as may be applicable.
Enterprise Risk Management
Moreover, the Company plans to adopt an expanded corporate governance approach in managing business
risks. An Enterprise Risk Management Policy is being developed to provide a better understanding of the
different risks that could threaten the achievement of the Company’s vision, mission, strategies and goals.
The policy also highlights the vital role that each individual plays in the organization – from top
51
management to the staff including subsidiaries and affiliates –in managing risks and in ensuring that the
Company’s business objectives are attained.
In 2011, MPTC seeks to reinforce its commitment to strengthening its enterprise-wide risk management
mandate by institutionalizing the Group’s Enterprise Risk Management (ERM), with the approval by the
Board of Directors of the Enterprise-wide Risk Management Policy on August 3, 2011. The ERM shall
promulgate, encourage and practice an integrated risk management framework for the organization, focusing
on ensuring critical risks are identified, evaluated, treated and monitored across all functions and units
within the MPTC Group.
The Company’s vision for its ERM is to cultivate a risk-conscious culture within the organization that
recognizes not only the defensive nature of risk management but also the opportunity-creating value of risk.
New initiatives shall be pursued to develop and adopt corporate governance best practices, and to build the
right corporate culture across the organization. The Company plans to significantly improve its self-rating
on the Corporate Governance Scorecard spearheaded by the Institute of Corporate Directors and comply
with the Corporate Governance Guidelines set out by the Philippine Stock Exchange. The Board and top
management’s capability and expertise in corporate governance shall be strengthened through participation
in available external training and workshops so that more sound and informed decisions would be
formulated by the Board in enhancing the Company’s corporate governance.
Implementing Structures
Board of Directors
Key Roles
The Board of Directors is the highest authority in matters of governance. The Board establishes the vision,
mission, and strategic direction of the Company, monitors over-all corporate performance, and protects the
long-term interests of the various stakeholders by ensuring transparency, accountability, and fairness. The
Board exercises an oversight role over the risk management function while ensuring the adequacy of internal
control mechanisms, reliability of financial reporting, and compliance with applicable laws and regulations.
In addition, certain matters are reserved specifically for the Board’s disposition, including the approval of
corporate operating and capital budgets, major acquisitions and disposals of assets, major investments, and
changes in authority and approval limits.
Composition
The Board is composed of eleven (11) highly competent individuals with diverse yet complementary skills
and expertise, duly elected by stockholders during the Annual General Meeting of stockholders (AGM).
They bring together immense value in terms of experience in running and directing various businesses and
organizations. This expertise is applied in good measure to the pursuit of MPTC’s continued growth and
profitability. Such a commitment requires, as well, a keen observance of corporate governance principles
and policies adopted to ensure the objective performance of its oversight functions over management.
Chief among the requirements for the smooth performance of its oversight function is that of board
independence. MPTC has three (3) duly-screened and qualified independent directors, namely: Former Chief
Justice Artemio V. Panganiban, Dr. Felipe Medalla and Dr. Arlyn Sicangco-Villanueva. These three
independent directors comprise twenty seven percent (27%) of the entire membership of the MPTC Board.
This number surpasses the required number of independent directors under local regulations of at least two
(2) independent directors or twenty percent (20%) of the entire Board membership, whichever is lower.
To further enhance board independence, MPTC maintains the practice of keeping the posts of chairman of
the board and the president and CEO separate. Each position has been given distinct and separate duties and
responsibilities pursuant to the provisions of MPTC’s By-Laws and Governance Manual.
52
As of December 31, 2011, the Board is comprised of the following members:
Name Position Nature of Appointment
Mr. Manuel V. Pangilinan Chairman Non-executive
Mr. Jose Ma. K. Lim Director Non-executive
Mr. David J. Nicol Director Non-executive
Mr. Ramoncito S. Fernandez Director, President and Chief Executive
Executive Officer
Mr. Christopher Daniel C. Lizo Director and Chief Finance Officer Executive
Mr. Rodrigo E. Franco Director Executive
Mr. Albert F. Del Rosario Director Non-executive
Mr. Artemio V. Panganiban Independent Director Non-executive / Independent
Ms. Arlyn Sicangco-Villanueva Independent Director Non-executive / Independent
Atty. Alex Erlito S. Fider Director and Corporate Secretary Executive
Board Remuneration
In accordance with the Company’s By-Laws, the Board members receive remuneration in the form of a
specific sum for attendance at each regular or special meeting of the Board. A per diem of P20,000 per
Board or committee meeting was agreed and approved by the shareholders. The remuneration is intended to
provide a reasonable compensation to the directors in recognition of their responsibilities and the potential
liability they assume as a consequence of the high standard of best practices required of the Board as a body,
and of the directors individually, under the SEC-promulgated Code of Corporate Governance. Also, the
level of per diem is in line with standards currently practiced among publicly listed companies similar to
MPTC.
Board Performance
Directors attend regular meetings of the Board, which are normally held on a bi-monthly basis, as well as
special meetings of the Board, and the AGM. A director must have attended at least 50% of all meetings
held in a year in order to be qualified for re-election in the following year.
The Board met seven (7) times each in 2011 and in 2010, including the AGM. The attendance of the
individual directors at these meetings is duly recorded, as follows:
2011 2010
Regular and Special
Meetings
Annual General
Meeting of
Stockholders
Regular and Special
Meetings
Annual General
Meeting of
Stockholders
Present Absent Present Absent Present Absent Present Absent
Manuel V. Pangilinan 6 0 1 0 5 1 1 0
Jose Ma. K. Lim 6 0 1 0 4 2 0 1
Amb. Albert F. del Rosario2 1 0 n/a n/a 6 0 1 0
Ramoncito S. Fernandez 6 0 1 0 6 0 1 0
Christopher Daniel C. Lizo 6 0 1 0 6 0 1 0
Rodrigo E. Franco 6 0 1 0 6 0 1 0
Felipe M. Medalla3 4 0 n/a n/a 5 1 0 0
Arlyn Sicangco-Villanueva 6 0 1 0 5 1 1 0
Alex Erlito S. Fider 6 0 1 0 6 0 1 0
Artemio V. Panganiban1 6 0 1 0 2 0 1 n/a
David J. Nicol1 6 0 0 0 1 0 0 n/a 1Elected to the Board on September 24, 2010 during the annual stockholders’ meeting 2Resigned effective March 25, 2011 3Resigned effective July 5, 2011
The average attendance rate of members of the Board was at 91% for 2010 and 100% for 2011. All directors
have individually complied with the SEC’s minimum attendance requirement of 50%.
Prior to the Board meetings, all of the directors are provided with board papers which include reports on the
Company’s strategic, operational, and financial performance and other regulatory matters. The Board also
has access to the Corporate Secretary who, among other functions, oversees the flow of information to the
Board prior to the meetings and who serves as adviser to the directors on their responsibilities and
obligations. The members of the Board also have access to management should they need to clarify matters
concerning items submitted for their consideration.
53
Board Committees
The Board of Directors is authorized under our by-laws to create committees, as it may deem necessary.
There are currently three Board committees, namely, the audit, nomination, and compensation and
remuneration committees, the purpose of which is to assist our Board of Directors.
Audit Committee
Our audit committee is composed of three members, two of whom are independent directors.
As provided for in the audit committee charter, the purpose of the audit committee is to assist our Board of
Directors in fulfilling its oversight responsibility for: (i) MPTC’s accounting and financial reporting
principles
and policies and internal audit controls and procedures; (ii) the integrity of MPTC’s financial statements and
the independent audit thereof; (iii) MPTC’s compliance with legal and regulatory requirements; and (iv) the
performance of the internal audit organization and the external auditors.
To carry its direct responsibility for the appointment, setting of compensation, retention and removal of the
external auditors, the audit committee has the following duties and powers:
Assist the Board in the performance of its oversight responsibility for the financial reporting
process, system of internal control, audit process, and monitoring of compliance with applicable
laws, rules and regulations.
Check all financial reports against its compliance with both the internal financial management
handbook and pertinent accounting standards, including regulatory requirements.
Perform oversight financial management functions specifically in the areas of managing credit,
market, liquidity, operational, legal and other risks of the Company, and crisis management. This
function shall include the regular receipt from Management of information on risk exposures and
risk management activities.
Perform direct interface functions with the internal and external auditors. To ensure that the
internal and external auditors act independently from each other, and that both auditors are given
unrestricted access to all records, properties and personnel in the performance of their respective
audit functions.
Review of the annual audit plan to ensure its conformity with the objectives of the Company. The
plan includes the audit scope, resources and budget necessary to implement it.
Prior to the commencement of the audit, discuss with the external auditor the nature, scope and
expenses of the audit, and ensure proper coordination if more than one audit firm is involved in the
activity to secure proper coverage and minimize duplication of efforts.
Organize an internal audit department, and consider the appointment of an independent internal
auditor and the terms and conditions of its engagement and removal.
Monitor and evaluate the adequacy and effectiveness of the Company's internal control system,
including financial reporting control and information technology security.
Review the reports submitted by the internal and external auditors.
Review the quarterly, half-year and annual financial statements before its submission to the Board,
with particular focus on the following matters:
o Any change/s in accounting policies and practices
o Major judgment areas
o Significant adjustments resulting from the audit
o Going concern assumptions
o Compliance with accounting standards
o Compliance with tax, legal and regulatory requirements
Coordinate, monitor and facilitate compliance with laws, rules and regulations.
54
Elevate to international standards the accounting and auditing processes, practices and
methodologies, and develop the following in relation to this reform:
o A definitive timetable within which the accounting system of the Company will be 100%
Philippine Accounting Standard (PAS) compliant.
o An accountability statement that will specifically identify officers and/or personnel
directly responsible for the accomplishment of such task.
Develop a transparent financial management system that will ensure the integrity of internal control
activities throughout the Company through a step-by-step procedures and policies handbook that
will be used by the entire Company.
Coordinate, monitor and facilitate compliance with laws, rules and regulations.
Evaluate and determine non-audit work, if any, of the external auditor, and review periodically the
non-audit fees paid to the external auditor in relation to their significance to the total annual income
of the external auditor and to the Company's overall consultancy expenses. To disallow any non-
audit work that will conflict with external auditor's duties and poses a threat to his independence.
Non-audit works, if allowed, are disclosed in the Company's annual report.
Establish and identify reporting line of the Chief Audit Executive to properly enable him to fulfill
his duties and responsibilities. The Chief Audit Executive shall functionally report directly to the
Audit Committee.
To ensure that the performance of the work of Chief Audit Executive is free from interference by
outside parties.
The audit committee also has the authority to retain or obtain advice from special counsel or other experts or
consultants in the discharge of their responsibilities without the need for Board approval.
Audit Committee Report
The Audit Committee meets at least once every year and invites non-members, including the President &
CEO, Chief Finance Officer, independent and internal auditors, and other key persons involved in company
governance, to attend meetings where necessary. During these meetings:
The Committee reviews the financial statements and all related disclosures and reports certified by
the Chief Finance Officer, and released to the public and/or submitted to the Philippine SEC for
compliance with both the internal financial management handbook and pertinent accounting
standards, including regulatory requirements. The Committee, after its review of the annual audited
financial statements of MPTC and its subsidiaries, endorses these to the Board for approval;
The Committee meets with the internal and independent auditors, and discusses the results of their
audits, ensuring that management is taking appropriate corrective actions in a timely manner,
including addressing internal controls and compliance issues;
The Committee reviews the performance and recommends the appointment, retention or discharge
of the independent auditors, including the fixing of their remuneration, to the full Board. On an
annual basis, the Committee also assesses the independent auditor’s qualifications, skills, resources,
effectiveness and independence. The Committee also reviews and approves the proportion of audit
and non-audit work both in relation to their significance to the auditor and in relation to the
Company’s total expenditure on consultancy, to ensure that non-audit work will not be in conflict
with the audit functions of the independent auditor;
The Committee reviews the plans, activities, staffing and organizational structure and assesses the
effectiveness of the internal audit function, including conformance with international standards;
The Committee provides oversight of the financial reporting and operational risks, specifically on
financial statements, internal controls, legal or regulatory compliance, corporate governance, risk
management and fraud risks. The Committee also reviews the results of management’s annual risk
assessment exercise;
55
To ensure compliance with regulatory requirements and assess the appropriateness of the existing Charter
for enabling good corporate governance, the Committee also reviews and assesses the adequacy of its
Charter annually, seeking Board approval for any amendments.
Nomination Committee
The nomination committee is composed of three voting members, all of whom are regular members of our
Board of Directors and one of whom must be independent, and one non-voting member in the person of the
HR Director/Manager.
The principal functions and responsibilities of the nomination committee are:
to review and evaluate the qualifications of all persons nominated to the Board and other
appointments that require Board approval;
to assess the effectiveness of the Board’s processes and procedures in the election or replacement
of directors.
to pre-screen and shortlist all candidates nominated to become a member of the Board of Directors
in accordance with the qualifications and disqualifications set forth in the Company’s Manual on
Corporate Governance
Compensation and Remuneration Committee
The compensation and remuneration committee is composed of three voting members, all of whom are
regular members of our Board of Directors and one of whom must be independent.
The principal functions and responsibilities of the compensation and remuneration committee are:
to establish a formal and transparent procedure for developing a policy on executive remuneration
and for fixing the remuneration packages of Directors, and provide oversight over remuneration of
senior management and other key personnel ensuring that compensation is consistent with the
Company's culture, strategy and control environment;
to designate amount of remuneration, which shall be in a sufficient level to attract and retain
directors and officers who are needed to run the Company successfully;
to establish a formal and transparent procedure for developing a policy on executive remuneration
and for fixing the remuneration packages of individual directors, if any, and officers;
to develop a form on Full Business Interest Disclosure as part of the pre-employment requirements
for all incoming officers, which among others compel all officers to declare under the penalty of
perjury all their existing business interests or shareholdings that may directly or indirectly conflict
in their performance of duties once hired;
to disallow any director to decide his or her own remuneration;
to provide in the Company's annual reports, information and proxy statements a clear, concise and
understandable disclosure of all fixed and variable compensation paid, directly or indirectly, to its
executive officers, directors and management officers for the previous fiscal year and the ensuing
year;
to review the existing Human Resources Development Handbook, to strengthen provisions on
conflict of interest, salaries and benefits policies, promotion and career advancement directives and
compliance of personnel concerned with all statutory requirements that must be periodically met in
their respective posts;
56
The members of each Board committee are set forth below:
Compensation and Remuneration
Audit Committee Nomination Committee Committee Former CJ Artemio V. Panganiban Manuel V. Pangilinan Manuel V. Pangilinan (Chairman) (Chairman) (Chairman) Dr. Arlyn Sicangco-Villanueva Jose Ma. K. Lim Jose Ma. K. Lim
David J. Nicol Dr. Arlyn Sicangco-Villanueva Former CJ Artemio V. Panganiban (Members) (Members) (Members)
Management
The President and CEO, guided by the Company’s vision, mission, and values statements, is accountable to
the Board for the development and recommendation of strategies, and the execution of the defined strategic
imperatives. The President and CEO is assisted by the heads of each of the major business units and support
groups in the subsidiaries and affiliates.
The President and CEO, together with the Chief Finance Officer, oversees the Company’s strategy
management processes from strategy formulation, translation to executable plans, horizontal alignment of
business objectives across the organization, to execution and performance tracking linked to the Company’s
rewards system.
Every year, the Company reviews and formulates its strategic priorities which then guide the formulation of
the key business strategies and goals for the year. Each business group in subsidiaries and affiliates
identifies financial and non-financial objectives, and sets targets and initiatives to achieve them. This is
captured in what is called the groups’ Wildly Important Goals (WIGs). To ensure line of sight, the group
WIGs are cascaded to all employees, making sure that everyone understands and appreciates their
contribution to the group goals. This helps in developing individual performance plans that are aligned with
the key strategies. Rewards and incentives are given based on the achievement of the committed group and
individual targets.
Key programs, projects, and major organizational initiatives are taken up at the Management Committee
(Mancom), composed of the President and CEO, as well as the heads of each of the major business units and
support groups. All budgets and major capital expenditures must be approved by the Mancom prior to
endorsement to the Board for approval. The Mancom of subsidiaries and affiliates meets at least once a
week. A joint Mancom meeting is held once every quarter.
Management is mandated to provide complete and accurate information on the operations and affairs of the
Company in a timely manner. Management is also required to prepare financial statements for each
preceding financial year in accordance with Philippine Financial Reporting Standards (PFRS).
Management’s statement of responsibility with regards to the Company’s financial statements is included in
the annual report.
Internal Audit Organization
An internal audit organization was established to determine whether the Company’s risk management,
control and governance processes are adequate and functioning by ensuring that:
1. Risks are appropriately identified and managed;
2. Significant financial, managerial, and operating information are accurate, reliable and timely;
3. Employees’ actions are in compliance with policies, standards, procedures, and applicable laws
and regulations;
4. Resources are acquired economically, used efficiently and adequately protected;
5. Programs, plans and objectives are achieved;
6. Quality and continuous improvement are fostered in our control process;
7. Significant legislative or regulatory issues impacting us are recognized and addressed
appropriately; and
8. Interaction with various governance groups occurs as needed.
57
To ensure independence, the Chief Audit Executive, head of the internal audit organization, reports
functionally to our audit committee and administratively to our president and chief executive officer. He is
accountable to management and our audit committee in the discharge of his duties and is required to:
1. Provide annually an assessment on the adequacy and effectiveness of our processes for
controlling our activities and managing our risks;
2. Report significant issues related to the processes of controlling our activities, including potential
improvements to those processes, and provide information concerning such issues;
3. Periodically provide information on the status and results of the annual audit plan and the
sufficiency of our internal audit organization’s resources; and
4. Coordinate with and provide oversight of other control and monitoring functions (risk
management, compliance, security, legal, ethics, environmental, and external audit).
The internal audit organization has a charter that has been approved by the audit committee. It seeks to
comply with the Standards for the Professional Practice of Internal Auditing of The Institute of Internal
Auditors in the discharge of its scope of work and responsibilities.
Ownership Structure
MPTC regularly discloses the top 20 shareholders of the common and preferred equity securities of the
Company. Disclosure is also made of the security ownership of certain record and beneficial owners who
hold more than 5% of the Company’s common and preferred shares. Finally, the shareholdings and
percentage ownership of the directors and key officers are disclosed in the Definitive Information Statement
sent to the shareholders prior to the AGM.
Below is a breakdown of MPTC’s shareholding structure as of December 31, 2011:
Stockholder Common Shares %
Metro Pacific Investments Corporation 4,970,570,627 99.85
Public 7,484,161 0.15
TOTAL 4,978,054,788 100.00
Item 13. INFORMATION ON INDEPENDENT AUDITORS AND OTHER RELATED MATTERS
The Company engages the services of independent auditors to conduct an audit and obtain reasonable
assurance on whether the financial statements and relevant disclosures are free from material misstatements.
The independent auditors are directly responsible to the Audit Committee in helping ensure the integrity of
the Company’s financial statements and reporting process.
The appointment of the independent auditors is submitted to the shareholders for approval at the AGM. The
representatives of the independent auditors are expected to be present at the AGM and have the opportunity
to make a statement on the Company’s financial statements and results of operations if they desire to do so.
The auditors are also expected to be available to respond to appropriate questions during the meeting.
SyCip, Gorres, Velayo & Company (SGV & Co.) is the appointed principal accountant and external auditor
for MPTC in accordance with regulations issued by the SEC, the audit partner principally handling the
Company’s account is rotated every five (5) years or sooner.
There were no disagreements with the Company’s independent auditors on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or procedure.
Fees approved in connection with the audit and audit-related services rendered by SGV & Co., pursuant to
the regulatory and statutory requirements amounted to P6.3 million for the year ended 31 December 2011 as
compared to P1.3 million for 2010.
58
In addition to performing the audit MPTC’s financial statements, SGV & Co. was also selected, in
accordance with established procurement policies, to provide other services in 2011 and 2010.
The Audit Committee has an existing policy to review and to pre-approve the audit and non-audit services
rendered by the Company’s independent auditors. It does not allow MPTC to engage the independent
auditors for certain non-audit services expressly prohibited by SEC regulations to be performed by an
independent auditor for its audit clients. This is to ensure that the independent auditors maintain the highest
level of independence from the Company, both in fact and appearance.
The Audit Committee has reviewed the nature of non-audit services rendered by SGV & Co. and the
corresponding fees and concluded that these are not significant to impair the independence of the auditors.
Independent Auditor’s Fees and Services
The following table summarizes the fees paid or accrued for services rendered by our independent auditor
for the fiscal years ended December 31, 2010 and 2009:
2011 2010
(in thousands)
Audit Fees P1,600 P800
All Other Fees 4,700 476
Total P6,300 P1,276
Audit Fees. This category includes the audit of our annual financial statements, review of interim financial
statements and services that are normally provided by the independent auditor in connection with statutory
and regulatory filings or engagements for those fiscal years. This category also includes advice on audit and
accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.
All Other Fees. This category consists primarily of fees with respect to other services rendered for tax
planning and due diligence and preparation of standard reporting requirements in the First Pacific Group.
Our Audit Committee pre-approved all audit and non-audit services as these are proposed or endorsed before
these services are performed by our independent auditor.
Changes in and Disagreements with Independent Auditors on Accounting and Financial Disclosure
We have no disagreements with our independent auditor on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
59
Part IV -- EXHIBITS AND SCHEDULES
Item 14. EXHIBITS AND REPORTS ON SEC FORM 17-C (CURRENT REPORT)
Exhibits
Description of Exhibit Remarks/Attachment
Statement of Management’s Responsibility
Report of Auditors and Consolidated Financial Statements and Notes to
Consolidated Financial Statements
Independent Auditors’ Report on the Supplementary Schedules
Short Term Investments
Amounts Receivable from Directors, Officers, Employees, Related Parties
and Principal Stockholders Other Than Affiliates
Long-Term Investments in Securities (Non-current Marketable Securities,
Other Long Term Investments in Stocks and Other Investments)
Deferred Charges and Others
Long Term Debt
Indebtedness to Related Parties (Other Long term Liabilities)
Plan of Acquisition, Reorganization, Arrangements, Liquidation or
Succession *
Instruments Defining the Rights of Security Holders, Including Indentures *
Voting Trust Agreement *
Material Contracts *
Schedule of Unappropriated Retained Earnings as of 12/31/2011
Report Furnished to Security Holders *
Subsidiaries to Registrant *
Published Report Regarding Matters Submitted to a Vote of Security Holders *
Consent of Experts and Independent Counsel *
Power of Attorney *
Note: * The exhibits are either Not Applicable to the Company or require No Answer..
60
Reports on SEC Form 17-C
The Company regularly files various reports on SEC Form 17-C relative to various company disclosures. Of
these, the more significant ones are as follows:
Date Title
January 4, 2011 Disclosure on Acquisition of Shares in MSIHI
February 2, 2011 Certification of Independent Director (Artemio V. Panganiban)
February 28, 2011 Approval of 2010 Audited Financial Statements and Declaration of
Cash Dividends
April 18, 2011 Signing by MNTC of P6.211 Billion Corporate Notes Facility with
various financial institutions
June 21, 2011 Approval of Establishment of Retirement Plan of MPTC and MPTDC
July 1, 2011 Press Release: BCDA, MNTC Conclude SCTEX Negotiations
July 5, 2011 Resignation of Director
August 4, 2011 Press Release on 1st Half 2011 Results
August 10, 2011 Results of Annual Stockholders’ Meeting and Organizational
Meeting of Board of Directors
November 8, 2011 Approval of Consolidated Budget for 2012
61
SIGNATURES
Pursuant to the requirements of the Code, this amended registration statement is signed on behalf of
the registrant by the undersigned, thereunto duly authorized, in Makati City Metro Manila on April 11, 2012.
By:
_____________________________ _____________________________
MANUEL V. PANGILINAN RAMONCITO S. FERNANDEZ
Chairman President and Chief Executive Officer
_____________________________
CHRISTOPHER DANIEL C. LIZO
Chief Finance Officer
SUBSCRIBED AND SWORN to before me this _____ day of April, 2012, affiant(s) exhibiting to
me his/their Community Tax Certificates, as follows:
NAME PASSPORT NO. DATE OF ISSUE PLACE OF
ISSUE
Manuel V. Pangilinan EB0160000 4-28-10 Manila
Ramoncito S. Fernandez XX0260607 3-18-10 Manila
Christopher Daniel C. Lizo EB0160969 4-28-10 Manila
______________________
Notary Public
Doc. No. _____;
Page No. _____;
Book No. _____;
Series of 2012
1
[Statement of Management’s Responsibility]
62
METRO PACIFIC TOLLWAYS CORPORATION AND SUBSIDIARIES
INDEX TO SUPPLEMENTARY SCHEDULES
UNDER SRC RULE 68, AS AMENDED (2011)
DECEMBER 31, 2011
Schedule Title Page
I List of Philippine Financial Reporting Standards
(PFRSs) S-1
II Financial Soundness Indicators S-3
III Reconciliation of Retained Earnings Available for
Dividend Declaration S-4
IV Organization Structure S-5
V Supplementary Schedules Required by Paragraph
6D, Part II
A Financial Assets S-7
B Amounts Receivable from Directors, Officers,
Employees, Related Parties and Principal
Stockholders (Other than Related Parties)
Not Applicable
C Amounts Receivable from Related Parties which
are eliminated during the consolidation of financial
statements
S-8
D Intangible Assets - Other Assets S-9
E Long Term Debt S-10
F Indebtedness to Related Parties (Long-Term Loans
from Related Companies) Not Applicable
G Guarantee Securities of Other Issuers Not Applicable
H Capital Stock S-11
S-1
METRO PACIFIC TOLLWAYS CORPORATION
SUPPLEMENTARY SCHEDULE REQUIRED
UNDER SRC RULE 68, AS AMENDED (2011)
List of Philippine Financial Reporting Standards (PFRSs) effective as at December 31, 2011
PFRSs Adopted/Not adopted/
Not applicable
PFRS 1, First-time Adoption of Philippine Financial Reporting Standards Adopted
PFRS 2, Share-based Payment Adopted
PFRS 3, Business Combinations Adopted
PFRS 4, Insurance Contracts Not applicable
PFRS 5, Non-current Assets Held for Sale and Discontinued Operations Adopted/Not applicable
PFRS 6, Exploration for and Evaluation of Mineral Resources Not applicable
PFRS 7, Financial Instruments: Disclosures Adopted
PFRS 8, Operating Segments Adopted
PAS 1, Presentation of Financial Statements Adopted
PAS 2, Inventories Adopted
PAS 7, Statement of Cash Flows Adopted
PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors Adopted
PAS 10, Events after the Reporting Period Adopted
PAS 11, Construction Contracts Adopted
PAS 12, Income Taxes Adopted
PAS 16, Property, Plant and Equipment Adopted
PAS 17, Leases Adopted
PAS 18, Revenue Adopted
PAS 19, Employee Benefits Adopted
PAS 20, Accounting for Government Grants and Disclosure of Government
Assistance Adopted/Not applicable
PAS 21, The Effects of Changes in Foreign Exchange Rates Adopted
PAS 23, Borrowing Costs Adopted
PAS 24, Related Party Disclosures Adopted
PAS 26, Accounting and Reporting by Retirement Benefit Plans Not applicable
PAS 27, Consolidated and Separate Financial Statements Adopted
PAS 28, Investments in Associates Adopted
PAS 29, Financial Reporting in Hyperinflationary Economies Not applicable
PAS 31, Interests in Joint Ventures Adopted/Not applicable
PAS 32, Financial Instruments: Presentation Adopted
PAS 33, Earnings per Share Adopted
PAS 34, Interim Financial Reporting Adopted
PAS 36, Impairment of Assets Adopted
PAS 37, Provisions, Contingent Liabilities and Contingent Assets Adopted
PAS 38, Intangible Assets Adopted
PAS 39, Financial Instruments: Recognition and Measurement Adopted
PAS 40, Investment Property Adopted/Not applicable
PAS 41, Agriculture Not applicable
“Adopted/Not Applicable” – These standards have been adopted but the entity has no covered transactions
as at and for the years ended December 31, 2011 and 2010.
SCHEDULE I
Page 1 of 2
S-2
PFRSs Adopted/Not adopted/Not
applicable
Philippine Interpretation IFRIC–1, Changes in Existing Decommissioning,
Restoration and Similar Liabilities Adopted/Not applicable
Philippine Interpretation IFRIC–2, Members' Shares in Co-operative
Entities and Similar Instruments Not applicable
Philippine Interpretation IFRIC–4, Determining whether an Arrangement
contains a Lease Adopted
Philippine Interpretation IFRIC–5, Rights to Interests arising from
Decommissioning, Restoration and Environmental Rehabilitation Funds Not applicable
Philippine Interpretation IFRIC–6, Liabilities arising from Participating in
a Specific Market - Waste Electrical and Electronic Equipment Not applicable
Philippine Interpretation IFRIC–7, Applying the Restatement Approach
under PAS 29 Financial Reporting in Hyperinflationary Economies Not applicable
Philippine Interpretation IFRIC–9, Reassessment of Embedded Derivatives Adopted
Philippine Interpretation IFRIC–10, Interim Financial Reporting and
Impairment Adopted
Philippine Interpretation IFRIC–12, Service Concession Arrangements Adopted
Philippine Interpretation IFRIC–13, Customer Loyalty Programmes Adopted
Philippine Interpretation IFRIC–14, PAS 19 - The Limit on a Defined
Benefit Asset, Minimum Funding Requirements and their Interaction Adopted
Philippine Interpretation IFRIC–16, Hedges of a Net Investment in a
Foreign Operation Adopted/Not applicable
Philippine Interpretation IFRIC–17, Distributions of Non-cash Assets to
Owners Adopted/Not applicable
Philippine Interpretation IFRIC–18, Transfers of Assets from Customers Adopted/Not applicable
Philippine Interpretation IFRIC–19, Extinguishing Financial
Liabilities with Equity Instruments Adopted/Not applicable
Philippine Interpretation SIC–7, Introduction of the Euro Not applicable
Philippine Interpretation SIC–10, Government Assistance - No
Specific Relation to Operating Activities Adopted/Not applicable
Philippine Interpretation SIC–12, Consolidation - Special Purpose
Entities Adopted/Not applicable
Philippine Interpretation SIC–13, Jointly Controlled Entities - Non-
Monetary Contributions by Venturers Adopted/Not applicable
Philippine Interpretation SIC–15, Operating Leases – Incentives Adopted/Not applicable
Philippine Interpretation SIC–21, Income Taxes - Recovery of
Revalued Non-Depreciable Assets Adopted/Not applicable
Philippine Interpretation SIC–25, Income Taxes - Changes in the Tax
Status of an Entity or its Shareholders Adopted/Not applicable
Philippine Interpretation SIC–27, Evaluating the Substance of
Transactions Involving the Legal Form of a Lease Adopted
Philippine Interpretation SIC–29, Service Concession Arrangements:
Disclosures Adopted
Philippine Interpretation SIC–31, Revenue - Barter Transactions
Involving Advertising Services Adopted/Not applicable
Philippine Interpretation SIC–32, Intangible Assets - Web Site Costs Adopted/Not applicable “Adopted/Not Applicable” – These standards have been adopted but the entity has no covered transactions
as at and for the years ended December 31, 2011 and 2010.
SCHEDULE I
Page 2 of 2
S-3
METRO PACIFIC TOLLWAYS CORPORATION
SUPPLEMENTARY SCHEDULE REQUIRED
UNDER SRC RULE 68, AS AMENDED (2011)
Financial Soundness Indicators
Financial Ratios Formula December
31, 2011
December
31, 2010
a) Current Ratio Total Current Assets 1.65 0.79
Total Current Liabilities
b) Solvency Ratio Net Profit after Tax (or NPAT) +
Depreciation and amortization 0.21 0.18
Total Liabilities
c) Debt-to-Equity Ratio Total Debt 1.38 1.39
Total Stockholders' Equity
d) Asset to Equity Ratio Total Assets 2.38 2.39
Total Stockholders' Equity
e) Interest Rate Coverage Ratio Earnings before Interests and Taxes 4.65 2.91
Net Interest Expense
f) Net Profit margin NPAT 27.52% 24.35%
Net Revenues
g) Return on asset NPAT 9.17% 7.57%
Average Total Asset
h) Return on Equity NPAT 21.83% 17.37%
Average Total Stockholders' Equity
SCHEDULE II
Page 1 of 1
S-4
RECONCILIATION OF RETAINED EARNINGS
AVAILABLE FOR DIVIDEND DECLARATION As of December 31, 2011
Metro Pacific Tollways Corporation
10th Floor MGO Bldg. Legaspi cor. Dela Rosa Sts. Legaspi Village Makati City
Unappropriated Retained Earnings, as adjusted to available
for dividend distribution, beginning
Unappropriated Retained Earnings, beginning
(before adjustments to available for dividend
distribution) P=56,921,653
Less: Treasury shares (193,597,437) (P=136,675,784)
Add: Net income actually earned/realized during the period 1,198,485,825
1,061,810,041
Less: Dividend declarations during the period (1,255,000,000)
TOTAL RETAINED EARNINGS AVAILABLE FOR
DIVIDEND DISTRIBUTION, ENDING (P=193,189,959)
SCHEDULE III
Page 1 of 1
S-5
60%
60%
100%
33.33%
100%
100%
30%
100%
67.1%
100%
100%
96.6
%
100%
100%
34.85%
51%
100%
34.56%
100%
99.85%
55.41%
5.88%
50%
57%
46%
60%
100%
100%
24.43%
27.5%
91.91%
45.35%
50%
59.05%(2)
26.7%
13.3%
60%
Enterprise Investments Holdings, Inc.
(1)
First Pacific International Limited
Intalink B.V.
MPHI
MPIC
MetroPac Water Investments Corporation
Beacon Electric Asset Holdings, Inc.
Manila Electric Company
DMCI-MPIC Water Company, Inc.
Maynilad Water Services, Inc.
Medical Doctors, Inc. (4)
East Manila Hospital Managers Corporation
(3)
Colinas Verdes Hospital Managers Corporation
(5)
Riverside Medical Center, Inc.
Davao Doctors Hospital (Clinica Hilario), Inc.
Bumrungrad International Philippines, Inc.
Asian Hospital, Inc.(6)
Neptune-Stroika Holdings, Inc.
Metro Pacific Tollways Corporation
Notes: 1. First Pacific Company Limited holds 40% equity interest in EIH. 2. Effective economic interest as of December 31, 2011. 3. East Manila Hospital Managers Corp. is the operator of Our Lady of Lourdes
Hospital 4. Medical Doctors Inc is the operator of Makati Medical Center 5. Colinas Verdes Hospital Managers Corporation is the operator of Cardinal
Santos Medical Center. 6. Effective economic interest of MPIC in Asian Hospital, Inc. as of Dec. 31,
2011 is 51.9% (with the 4.57% subject to right of first refusal concluded in February 2012 and 43.5% subject to tender offer to be concluded by second week of April 2012). In MPIC’s 2011 consolidated financial statement, MPIC’s interest in AHI is accounted for as 100% (consideration of the 48.07% booked as contingent consideration to acquire AHI’s non-controlling shareholders, interest in AHI)East Manila Hospital Managers Corp. is the operator of Our Lady of Lourdes Hospital
Metro Pacific Tollways
Development Corporation
Makati Medical Center College of
Nursing, Inc.
Computerized Imaging Institute, Inc.
Riverside College Inc.
Davao Doctors College, Inc.
Tollways Management Corporation
Metro Strategic Infrastructure Holdings, Inc.
Metro Pacific Corporation See page 2 for MPC Org structure
Manila North Tollways
Corporation
Allied Professional Development Corp
Davao Doctors Oncology Center, Inc.
PLDT Communications and Energy Ventures, Inc.
Metro Pacific Light Rail Corporation
First Gen Northern Energy Corp
Metro Pacific Infrastructure Corporation
Metro Pacific Resources, Inc.
Two Rivers Pacific Holdings Corp.
Metro Pacific Tollways Corporation and Subsidiaries
December 31, 2011
Group Organizational Structure 2011
SCHEDULE IV
Page 1 of 2
S-6
100%
Costa De Madera Corporation
Prime Media Holdings Inc
Metro Pacific Land Holdings Inc
Metro Strategic Infrastructure Holdings Inc
Metro Pacific Corporation
First Pacific Bancshares Philippines, Inc
Metro Pacific Management Services Inc
First Pacific Realty Partners Corporation
Metro Tagaytay Land Co., Inc
Lucena Commercial Land Corp
Metro Capital Corporation
Metro Pacific Capital Limited
Pacific Plaza Towers Management Services, Inc
Philippine International Paper Corporation
Pollux Realty Development Corporation
Uptime Limited
Metro Asia Link Holdings Inc
100%
50%
% 66%
65%
100%
100%
100%
100%
100%
100%
65%
62%
49%
49%
40%
First Cebu Pacific Land Co., Inc.
Landco Pacific Centers, Inc.
Landco NE Resource Ventures, Inc.
38%
35%
25%
SCHEDULE IV
Page 2 of 2
S-7
METRO PACIFIC TOLLWAYS CORPORATION AND SUBSIDIARIES
Supplementary Schedules Required by Paragraph 6D, Part II
Under SRC Rule 68, As Amended (2011)
As of December 31, 2011
Schedule A. Financial Assets
Name of issuing entity and
association of each issue
Number of shares
or principal
amount of bonds
and notes
Amount shown
in the balance
sheet
Valued based on
market quotation
at end of reporting
period
Income
received and
accrued
Loans and receivables:
Cash and cash equivalents P=1,653,539,917 P=1,653,539,917 P=– P=115,148,599
Receivables:
Trade 84,086,210 84,086,210 – –
Interest receivables 3,513,967 3,513,967 – –
Other receivables 6,838,554 6,838,554 – 563,034
Due from related parties
(current and noncurrent
portion) 625,373,422 625,373,422 – 10,891,887
Refundable deposits and
other financial assets* 4,333,850 4,333,850 – –
Available-for-sale financial
assets:
Investments in shares of
stock:
Citra Metro Manila
Tollways Corporation 1,379,674 shares 315,746,526 – –
Pacific Global One
Aviation Company, Inc. 12,500,000 shares 12,500,000 – –
Investment in bonds P=550,600,000 577,721,750 577,721,750 34,658,167
P=3,283,654,196 P=577,721,750 P=161,261,687
*Included in “Other noncurrent assets” account in the consolidated balance sheet.
SCHEDULE V
Page 1 of 5
S-8
METRO PACIFIC TOLLWAYS CORPORATION AND SUBSIDIARIES
Supplementary Schedules Required by Paragraph 6D, Part II
Under SRC Rule 68, As Amended (2011)
As of December 31, 2011
Schedule C. Amounts Receivable from Related Parties which are eliminated during the
consolidation of financial statements
Deductions
Name and
Designation of debtor
Balance at
beginning of
beginning of
period
Additions Amounts
collected
Amounts
written-off
Current Not
Current
Balance at end
of period
Metro Pacific
Tollways
Corporation
(MPTC):
Due from Manila
North Tollways
Corporation (MNTC)
P=19,632,492 P=50,878,783 P=65,403,783 P=– P=5,107,492 P=– P=5,107,492
Metro Pacific
Tollways
Development
Corporation
(MPTDC):
Due from MPTC
182,539,942 135,329,688 100,816,708 – 217,052,922 – 217,052,922
MNTC:
Due from
MPTDC
28,599,788 3,658,507 26,936,345 – 5,321,950 – 5,321,950
P=230,772,222 P=
189,866,978
P=193,156,836 P=– P=227,482,364 P=– P=227,482,364
SCHEDULE V
Page 2 of 5
S-9
METRO PACIFIC TOLLWAYS CORPORATION AND SUBSIDIARIES
Supplementary Schedules Required by Paragraph 6D, Part II
Under SRC Rule 68, As Amended (2011)
As of December 31, 2011
Schedule D. Intangible Assets - Other Assets
Description Beginning balance
Additions at cost
Charged to cost and expenses
Charged to other accounts
Other changes additions
(deductions)
Ending balance
Service Concession Asset:
Cost P=19,481,963,315 P=99,077,443 P=– P=– P=228,124,150 P=19,809,164,908
Accumulated Amortization 3,664,103,452 – 592,987,123 – – 4,257,090,575
Carrying Value 15,817,859,863 99,077,443 592,987,123 – 228,124,150 15,552,074,333
Goodwill* 15,026,049 – – – (1,460,988) 13,565,061
TOTAL P=15,832,885,912 P=99,077,443 P=592,987,123 P=– P=226,663,162 P=15,565,639,394
*Included in “Other noncurrent assets” account in the consolidated balance sheet.
Description of Other Changes
a. In view of Revenue Memorandum Circular 39-2011 which provides, among others, that
accumulated input value-added tax (VAT) account of toll companies shall have zero balance
on October 1, 2011, Manila North Tollways Corporation (MNTC, subsidiary of the Company)
reclassified its accumulated input VAT incurred from 2006 to 2010 that relates to the
construction of toll roads to “Service concession asset”.
b. In 2011, upon finalization of purchase price allocation on the acquisition of interest in Metro
Strategic Infrastructure Holdings, Inc., the Company reversed the goodwill which was
provisionally recognized in December 2010 since the final purchase price allocation resulted
to a gain on bargain purchase.
SCHEDULE V
Page 3 of 5
S-10
METRO PACIFIC TOLLWAYS CORPORATION AND SUBSIDIARIES
Supplementary Schedules Required by Paragraph 6D, Part II
Under SRC Rule 68, As Amended (2011)
As of December 31, 2011
Schedule E. Long Term Debt
Title of Issue and type of obligation
Amount authorized by indenture
Amount shown under caption "Current portion
of long-term debt" in related balance sheet
Amount shown under caption "Long-Term
Debt" in related balance sheet
Interest rates, amounts or number of periodic installments, and maturity
dates.
Peso–denominated Loans:
Series A Notes
BDO Leasing & Finance Inc. and Bank of
Philippine Islands
P=1,000,000,000 P=7,894,519 P=982,132,067 Interest rate: 6.5346% Fixed Interest per annum
Payment terms:
5 years bullet-like repayment,
minimal annual amortizations
aggregating 4% between March 15, 2012 to March 15 2015 (maturity
date)
Bank of the Philippine Islands and other local
Banks
4,210,230,849 29,315,525 4,084,739,955 Interest rate: Subject to 7.2704% Fixed Interest per annum
Payment terms:
7 years bullet-like repayment,
minimal annual amortizations
aggregating 6% between March 15,
2012 to March 15, 2017 (maturity date)
BDO Capital & Investments Corporation;
The Insular Life Assurance Co Inc.; and
Security Bank
Corporation
1,000,000,000 8,020,452 967,493,949 Interest rate: 7.7038% Fixed Interest per annum
Payment terms:
10 years bullet-like repayment,
minimal annual amortizations
aggregating 9% between March 15, 2012 to March 15, 2020 (maturity
date)
Subtotal – Series A Notes 6,210,230,849 45,230,496 6,034,365,971
Philippine National
Bank Loan
2,100,000,000 99,944,164 1,879,216,739 Interest rate: Floating rate based on six-month PDST-F plus a margin
of 0.50%.
Payment terms:
7 years balloon-type semi-annual
repayment starting June 15, 2011,
85% payable on the last 4 semi-annual periods (June 15, 2014 to
December 15, 2015)
Maturity Date: December 15,
2015
Term Loan Facility 1,000,000,000 – 991,860,070 Interest rate: 7.10% per annum
Payment terms:
The loan facility has a final
maturity date of 15 years, with two bullet repayment tranches of
P=500.0 million December 15, 2021
and 2026 (maturity dates)
Total P=145,174,660 P=8,905,442,780
SCHEDULE V
Page 4 of 5
S-11
METRO PACIFIC TOLLWAYS CORPORATION AND SUBSIDIARIES
Supplementary Schedules Required by Paragraph 6D, Part II
Under SRC Rule 68, As Amended (2011)
As of December 31, 2011
Schedule H. Capital Stock
Title of
Issue
Number of
Shares
authorized
Number of shares
issued, subscribed
and outstanding as
shown under
related balance
sheet caption
Number of shares
reserved for
options, warrants,
conversion and
other rights
Number of
shares held
by related
parties
Directors,
officers and
employees
Others
Common 5,400,000,000 4,978,550,467 None None 11 None
SCHEDULE V
Page 5 of 5
*SGVMC215024*
INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTARY SCHEDULES The Stockholders and the Board of Directors Metro Pacific Tollways Corporation 10th Floor, MGO Building Legaspi corner, Dela Rosa Streets Legaspi Village, Makati City We have audited in accordance with Philippine Standards on Auditing, the consolidated financial statements of Metro Pacific Tollways Corporation (a subsidiary of Metro Pacific Investments Corporation) and Subsidiaries as at December 31, 2011 and 2010 and for each of the three years in the period ended December 31, 2011, included in this Form 17-A, and have issued our report thereon dated February 24, 2012. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the Index to the Consolidated Financial Statements and Supplementary Schedules are the responsibility of the Company’s management. These schedules are presented for purposes of complying with Securities Regulation Code Rule 68, As Amended (2011) and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state, in all material respects, the financial information required to be set forth therein in relation to the basic financial statements taken as a whole. SYCIP GORRES VELAYO & CO. Marydith C. Miguel Partner CPA Certificate No. 65556 SEC Accreditation No. 0087-AR-2 (Group A), March 4, 2010, valid until March 3, 2013 Tax Identification No. 102-092-270 BIR Accreditation No. 08-001998-55-2009, June 1, 2009, valid until May 31, 2012 PTR No. 3174812, January 2, 2012, Makati City February 24, 2012
SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines
Phone: (632) 891 0307 Fax: (632) 819 0872 www.sgv.com.ph BOA/PRC Reg. No. 0001, January 25, 2010, valid until December 31, 2012 SEC Accreditation No. 0012-FR-2 (Group A), February 4, 2010, valid until February 3, 2013
A member firm of Ernst & Young Global Limited
*SGVMC215024*
4 0 5 9 0 SEC Registration Number
M E T R O P A C I F I C T O L L W A Y S C O R P O R A T I O N ( A S u b s i d i a r y o f 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
(Company’s 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. Christopher Daniel C. Lizo (632) 888-0888 (Contract Person) (Company Telephone Number)
1 2 3 1 A A C F S 0 8 1 0 Month Day (Form Type) Month Day
(Fiscal Year) (Annual Meeting)
– (Secondary License Type, If Applicable)
– VI Dept. Requiring this Doc. Amended Articles Number/Section Total Amount of Borrowings
253 P=9,205.2 million – Total No. of Stockholders Domestic Foreign
To be accomplished by SEC Personnel concerned0
File Number LCU
Document ID Cashier
S T A M P S Remarks: Please use BLACK ink for scanning purposes.
COVER SHEET
*SGVMC215024*
INDEPENDENT AUDITORS’ REPORT The Stockholders and the Board of Directors Metro Pacific Tollways Corporation 10th Floor, MGO Building Legaspi corner, Dela Rosa Streets Legaspi Village, Makati City We have audited the accompanying consolidated financial statements of Metro Pacific Tollways Corporation (a subsidiary of Metro Pacific Investments Corporation) and its subsidiaries, which comprise the consolidated balance sheets as at December 31, 2011 and 2010, and the consolidated statements of income, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2011, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the 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 consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines
Phone: (632) 891 0307 Fax: (632) 819 0872 www.sgv.com.ph BOA/PRC Reg. No. 0001, January 25, 2010, valid until December 31, 2012 SEC Accreditation No. 0012-FR-2 (Group A), February 4, 2010, valid until February 3, 2013
A member firm of Ernst & Young Global Limited
*SGVMC215024*
- 2 -
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Metro Pacific Tollways Corporation and its subsidiaries as at December 31, 2011 and 2010, and their financial performance and their cash flows for each of the three years in the period ended December 31, 2011 in accordance with Philippine Financial Reporting Standards. SYCIP GORRES VELAYO & CO. Marydith C. Miguel Partner CPA Certificate No. 65556 SEC Accreditation No. 0087-AR-2 (Group A), March 4, 2010, valid until March 3, 2013 Tax Identification No. 102-092-270 BIR Accreditation No. 08-001998-55-2009, June 1, 2009, valid until May 31, 2012 PTR No. 3174812, January 2, 2012, Makati City February 24, 2012
*SGVMC215024*
METRO PACIFIC TOLLWAYS CORPORATION (A Subsidiary of Metro Pacific Investments Corporation) AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31 2011 2010
ASSETS
Current Assets Cash and cash equivalents (Notes 8, 17 and 31) P=1,653,539,917 P=1,874,116,857 Receivables - net (Notes 9, 18 and 31) 102,212,349 66,530,799 Inventories - at cost (Note 18) 55,260,432 37,890,029 Advances to contractors and consultants (Note 18) 82,757,480 8,061,415 Due from related parties (Notes 18 and 31) 560,141,362 522,897,726 Derivative assets (Note 31) – 2,901,514 Available-for-sale financial assets (Notes 13, 17 and 31) – 51,812,500 Input value-added tax (Notes 5 and 33) 49,855,787 3,168,601 Other current assets (Notes 17 and 31) 100,667,805 71,211,073 Total Current Assets 2,604,435,132 2,638,590,514
Noncurrent Assets Due from related parties (Notes 18 and 31) 65,232,060 65,413,467 Investment in an associate (Note 10) 147,231,019 140,711,492 Property and equipment - net (Notes 11 and 17) 136,364,033 116,513,288 Service concession asset - net (Notes 12 and 17) 15,552,074,333 15,817,859,863 Available-for-sale financial assets (Notes 13, 17 and 31) 905,968,276 513,233,509 Other noncurrent assets (Notes 14 and 31) 67,797,742 36,809,879 Total Noncurrent Assets 16,874,667,463 16,690,541,498
P=19,479,102,595 P=19,329,132,012
LIABILITIES AND EQUITY
Current Liabilities Accounts payable and other current liabilities (Notes 15, 18 and 31) P=1,089,444,206 P=607,112,127 Due to related parties (Notes 18 and 31) 8,178,596 8,426,075 Unearned toll revenue 10,584,590 30,985,896 Dividends payable (Notes 18, 19 and 31) 40,225,431 181,981,147 Income tax payable 31,355,828 18,054,662 Provisions (Note 16) 249,103,430 118,190,989 Current portion of long-term debt (Notes 8, 11, 12, 13, 17 and 31) 145,174,660 2,176,378,648 Derivative liabilities (Note 31) – 211,912,455 Total Current Liabilities 1,574,066,741 3,353,041,999
(Forward)
*SGVMC215024*
- 2 -
December 31 2011 2010
Noncurrent Liabilities Long-term debt - net of current portion (Notes 8, 11, 12, 13, 17 and 31) P=8,905,442,780 P=7,177,953,827 Accrued retirement costs (Note 23) 10,646,909 873,614 Long-term incentive plan payable (Note 23) 60,515,894 – Financial guarantee obligation (Notes 18 and 31) 65,232,060 65,413,467 Provisions (Note 16) 189,931,902 308,342,672 Deferred tax liabilities - net (Note 27) 343,315,408 322,154,388 Derivative liabilities (Note 31) 130,155,566 – Total Noncurrent Liabilities 9,705,240,519 7,874,737,968
Equity (Note 19) Capital stock 5,065,198,859 5,065,198,859 Equity adjustment on reverse acquisition (581,085,463) (581,085,463) Retained earnings 1,607,472,401 1,605,119,088 Treasury shares (193,597,437) (193,597,437) Other comprehensive income reserve (Notes 13 and 31) (3,103,035) 9,402,019 Other reserves (Notes 22 and 23) 24,074,498 1,949,447 Total Equity Attributable to Equity Holders of the Parent 5,918,959,823 5,906,986,513 Non-controlling interests 2,280,835,512 2,194,365,532 Total Equity 8,199,795,335 8,101,352,045
P=19,479,102,595 P=19,329,132,012 See accompanying Notes to Consolidated Financial Statements.
*SGVMC215024*
METRO PACIFIC TOLLWAYS CORPORATION (A Subsidiary of Metro Pacific Investments Corporation) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31 2011 2010 2009
OPERATING REVENUES Toll fees P=6,464,946,010 P=5,857,950,486 P=5,487,387,690 Sales of transponders and magnetic cards 42,071 543,900 1,802,698 6,464,988,081 5,858,494,386 5,489,190,388
COST OF SERVICES (Notes 16, 18 and 20) (2,854,496,993) (2,583,582,753) (2,622,865,636)
GROSS PROFIT 3,610,491,088 3,274,911,633 2,866,324,752
CONSTRUCTION REVENUE (Notes 5 and 12) 99,077,443 1,253,064,438 319,819,424
CONSTRUCTION COSTS (Notes 5 and 12) (99,077,443) (1,253,064,438) (319,819,424)
GENERAL AND ADMINISTRATIVE EXPENSES (Notes 16, 18 and 21) (811,860,835) (990,596,383) (1,734,691,890)
INTEREST EXPENSE AND OTHER FINANCE COSTS (Notes 16, 17, 18 and 25) (1,276,922,425) (1,110,673,453) (959,810,696)
EQUITY IN NET EARNINGS OF ASSOCIATES (Notes 6 and 10) 245,991,687 162,668,220 173,951,776
INTEREST INCOME (Notes 18 and 24) 161,261,687 109,499,696 86,252,406
FOREIGN EXCHANGE GAIN (LOSS) – Net (10,753,384) 111,910,835 8,895,157
OTHER INCOME (Notes 18, 19 and 26) 524,690,208 174,976,962 292,355,181
OTHER EXPENSE (Notes 17, 26 and 31) (94,636,391) (227,517,489) (29,115,085)
INCOME BEFORE INCOME TAX 2,348,261,635 1,505,180,021 704,161,601
PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 27)
Current 557,622,075 51,837,904 46,787,153 Deferred 11,673,716 26,642,331 (8,610,306) 569,295,791 78,480,235 38,176,847
NET INCOME P=1,778,965,844 P=1,426,699,786 P=665,984,754
Attributable to: Equity holders of the Parent P=1,257,353,313 P=996,491,029 P=581,651,736 Non-controlling interests 521,612,531 430,208,757 84,333,018
P=1,778,965,844 P=1,426,699,786 P=665,984,754
Basic/Diluted Earnings Per Share Attributable to Equity Holders of the Parent (Note 28) P=0.25 P=0.20 P=0.12
See accompanying Notes to Consolidated Financial Statements.
*SGVMC215024*
METRO PACIFIC TOLLWAYS CORPORATION (A Subsidiary of Metro Pacific Investments Corporation) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years ended December 31 2011 2010 2009
NET INCOME P=1,778,965,844 P=1,426,699,786 P=665,984,754
OTHER COMPREHENSIVE INCOME (LOSS)
Net gain (loss) on cash flow hedges (Note 31) (30,252,244) 11,278,639 36,104,824 Income tax effect 9,075,673 (3,383,592) (10,831,447) (21,176,571) 7,895,047 25,273,377 Gain on fair value change in available-for-sale
financial assets (Note 13) 3,628,750 23,493,000 – Income tax effect (1,088,625) (7,047,900) – 2,540,125 16,445,100 –
TOTAL OTHER COMPREHENSIVE INCOME (LOSS) (18,636,446) 24,340,147 25,273,377
TOTAL COMPREHENSIVE INCOME P=1,760,329,398 P=1,451,039,933 P=691,258,131
Attributable to: Equity holders of the Parent P=1,244,848,259 P=1,012,823,268 P=598,610,172 Non-controlling interests 515,481,139 438,216,665 92,647,959
P=1,760,329,398 P=1,451,039,933 P=691,258,131 See accompanying Notes to Consolidated Financial Statements.
*SGVMC215024*
METRO PACIFIC TOLLWAYS CORPORATION (A Subsidiary of Metro Pacific Investments Corporation) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
Capital Stock
Equity Adjustment on Reverse Acquisition
Retained Earnings Treasury Shares
Other Comprehensive Income Reserve Other Reserves
Total Equity Attributable to Equity Holders
of the Parent Non-controlling
Interests Total Equity At January 1, 2011 P=5,065,198,859 (P=581,085,463) P=1,605,119,088 (P=193,597,437) P=9,402,019 P=1,949,447 P=5,906,986,513 P=2,194,365,532 P=8,101,352,045 Cash dividends - P=0.25 per share (Note 19) – – (1,255,000,000) – – – (1,255,000,000) – (1,255,000,000) Cash dividends of a subsidiary - P=85 per share (Note 18) – – – – – – – (496,658,400) (496,658,400) Cost of share-based payment (Note 22) – – – – – 6,985,309 6,985,309 – 6,985,309 Long-term incentive plan reserves (Note 23) – – – – – 15,139,742 15,139,742 – 15,139,742 Non-controlling interest arising from business combination
(see Note 6) – – – – – – – 67,647,241 67,647,241 5,065,198,859 (581,085,463) 350,119,088 (193,597,437) 9,402,019 24,074,498 4,674,111,564 1,765,354,373 6,439,465,937 Net income – – 1,257,353,313 – – – 1,257,353,313 521,612,531 1,778,965,844 Other comprehensive income (Notes 13 and 31) – – – – (12,505,054) – (12,505,054) (6,131,392) (18,636,446) Total comprehensive income for the year – – 1,257,353,313 – (12,505,054) – 1,244,848,259 515,481,139 1,760,329,398 At December 31, 2011 P=5,065,198,859 (P=581,085,463) P=1,607,472,401 (P=193,597,437) (P=3,103,035) P=24,074,498 P=5,918,959,823 P=2,280,835,512 P=8,199,795,335
At January 1, 2010 P=5,065,198,859 (P=581,085,463) P=1,800,336,276 (P=193,597,437) (P=6,930,220) P=– P=6,083,922,015 P=2,241,328,116 P=8,325,250,131 Cash dividends - P=0.24 per share (Note 19) – – (1,191,708,217) – – – (1,191,708,217) – (1,191,708,217) Cash dividends of a subsidiary - P=93 per share (Note 18) – – – – – – – (543,402,720) (543,402,720) Cost of share-based payment (Note 22) – – – – – 1,949,447 1,949,447 – 1,949,447 Non-controlling interest arising from business combination
(see Note 6) – – – – – – – 58,223,471 58,223,471 5,065,198,859 (581,085,463) 608,628,059 (193,597,437) (6,930,220) 1,949,447 4,894,163,245 1,756,148,867 6,650,312,112 Net income – – 996,491,029 – – – 996,491,029 430,208,757 1,426,699,786 Other comprehensive income (Notes 13 and 31) – – – – 16,332,239 – 16,332,239 8,007,908 24,340,147 Total comprehensive income for the year – – 996,491,029 – 16,332,239 – 1,012,823,268 438,216,665 1,451,039,933 At December 31, 2010 P=5,065,198,859 (P=581,085,463) P=1,605,119,088 (P=193,597,437) P=9,402,019 P=1,949,447 P=5,906,986,513 P=2,194,365,532 P=8,101,352,045
At January 1, 2009 P=5,065,198,859 (P=581,085,463) P=1,850,210,105 (P=193,597,437) (P=23,888,656) P=– P=6,116,837,408 P=2,621,966,397 P=8,738,803,805 Cash dividends - P=0.09 per share (Note 19) – – (450,000,000) – – – (450,000,000) – (450,000,000) Scrip dividends (Note 19) – – (181,525,565) – – – (181,525,565) – (181,525,565) Cash dividends of a subsidiary - P=81 per share (Note 18) – – – – – – – (473,286,240) (473,286,240) 5,065,198,859 (581,085,463) 1,218,684,540 (193,597,437) (23,888,656) – 5,485,311,843 2,148,680,157 7,633,992,000 Net income – – 581,651,736 – – – 581,651,736 84,333,018 665,984,754 Other comprehensive income (Notes 13 and 31) – – – – 16,958,436 – 16,958,436 8,314,941 25,273,377 Total comprehensive income for the year – – 581,651,736 – 16,958,436 – 598,610,172 92,647,959 691,258,131 At December 31, 2009 P=5,065,198,859 (P=581,085,463) P=1,800,336,276 (P=193,597,437) (P=6,930,220) P=– P=6,083,922,015 P=2,241,328,116 P=8,325,250,131 See accompanying Notes to Consolidated Financial Statements.
*SGVMC215024*
METRO PACIFIC TOLLWAYS CORPORATION (A Subsidiary of Metro Pacific Investments Corporation) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31 2011 2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=2,348,261,635 P=1,505,180,021 P=704,161,601 Adjustments to reconcile income before tax to
net cash flows: Interest expense and other finance costs (Note 25) 1,276,922,425 1,110,673,453 959,810,696 Amortization of service concession asset
(Notes 12 and 20) 592,987,123 559,180,335 505,052,189 Reversal of allowance for potential losses on input
value-added tax (Notes 5 and 26) (288,052,966) – – Equity in net earnings of associates
(Notes 6 and 10) (245,991,687) (162,668,220) (173,951,776) Interest income (Note 24) (161,261,687) (109,499,696) (86,252,406) Mark-to-market loss on derivative assets
(Notes 26 and 31) 94,636,391 227,517,489 19,219,364 Long-term incentive plan (Note 23) 75,655,636 – – Depreciation of property and equipment
(Notes 11 and 21) 35,210,857 29,629,639 33,661,057 Deferred toll revenue realized (30,985,896) (21,134,973) (19,344,465) Gain on bargain purchase (Notes 6 and 26) (30,951,517) – – Reversal of accrued expenses (Note 26) (11,000,000) – – Movements in: Provisions 5,001,671 (28,610,745) 223,276,811 Accrued retirement costs 9,773,295 (8,739,377) (4,868,851) Provision for potential losses on claim for refund
(Note 21) 8,640,240 – – Executive stock option plan expense (Note 22) 6,985,309 1,949,447 – Gain on disposals of property and equipment
(Note 11) (457,363) (1,817,591) (770,138) Unrealized foreign exchange gain – net (152,552) (105,215,559) (10,397,342) Provision for potential losses on input value added
tax (Notes 5 and 21) – 334,069,949 1,104,632,613 Gain on sale of investment (Notes 19 and 26) – – (203,942,145) Write-off of input value-added tax (Notes 5 and 21) – – 94,271,475 Loss on extinguishment of debt (Notes 17 and 26) – – 9,895,721 Working capital changes: Decrease (increase) in: Receivables (35,979,526) (27,970,214) (11,474,700) Inventories (17,370,403) (1,142,511) 13,888,874 Due from related parties (29,743,636) 7,390,247 (51,549,604) Advances to contractors and consultants (74,696,065) 247,483,547 (245,423,358) Input value-added tax (Notes 5 and 12) (46,687,186) (334,069,949) (308,809,426) Other current assets (13,434,990) (24,022,657) (20,501,257)
(Forward)
*SGVMC215024*
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Years Ended December 31 2011 2010 2009 Increase (decrease) in: Accounts payable and other current liabilities P=484,751,051 P=11,471,668 P=69,940,337 Due to related parties (247,479) (2,682,964) 23,824,564 Unearned toll revenue 10,584,590 30,985,896 21,134,973 Income tax paid (538,884,814) (39,716,249) (37,053,325) Net cash provided by operating activities 3,423,512,456 3,198,240,986 2,608,431,482
CASH FLOWS FROM INVESTING ACTIVITIES Decrease (increase) in: Advances to an associate (Note 18) – – 258,396,433 Other noncurrent assets (12,099,004) (16,145,520) (3,234,940) Dividends received (Note 10) 182,212,741 146,740,000 139,840,000 Interest received 150,681,757 99,387,563 69,741,121 Acquisition of: Investment in bonds (Note 13) (200,000,000) (300,000,000) (300,000,000) Investment in shares of stock (Note 13) (12,500,000) – – Investment in subsidiary, net of cash acquired
(Note 6) – (78,614,048) – Additions to: Service concession asset (Note 12) (99,077,443) (1,253,064,438) (319,819,424) Property and equipment (Note 11) (46,883,149) (35,857,460) (41,007,923) Proceeds from: Sale of investment in bonds (Note 13) 50,000,000 300,000,000 – Sale of property and equipment (Note 11) 1,759,802 5,040,538 3,115,620 Sale of investment (Notes 19 and 26) – – 203,942,145 Net cash provided by (used in) investing activities 14,094,704 (1,132,513,365) 10,973,032
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from loans (Note 17) 7,210,230,849 1,523,000,000 577,000,000 Payments of: Dividends to stockholders (Note 19) (1,252,810,916) (1,191,708,217) (1,015,923,222) Dividends to non-controlling stockholders
(Note 18) (640,603,200) (505,304,584) (329,696,640) Loans (7,498,803,399) (630,365,169) (639,200,046) Interest (1,117,297,660) (906,488,023) (840,205,172) Swap termination costs (Notes 26 and 31) (209,010,941) – – Debt issue costs (Note 17) (150,032,833) – (6,472,318) Net cash used in financing activities (3,658,328,100) (1,710,865,993) (2,254,497,398)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 144,000 (801,346) (1,334,943)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (220,576,940) 354,060,282 363,572,173
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR (Note 8) 1,874,116,857 1,520,056,575 1,156,484,402
CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 8) P=1,653,539,917 P=1,874,116,857 P=1,520,056,575
See accompanying Notes to Consolidated Financial Statements.
*SGVMC215024*
METRO PACIFIC TOLLWAYS CORPORATION (A Subsidiary of Metro Pacific Investments Corporation) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Corporate Information
General Metro Pacific Tollways Corporation (MPTC or the Parent Company) and its subsidiaries (collectively referred to as “the Company”) were incorporated in the Philippines and registered with the Philippine Securities and Exchange Commission (SEC) on various dates. The primary purpose of MPTC is that of investment holding. MPTC’s shares of stock are listed in the Philippine Stock Exchange (PSE).
On November 13, 2008, First Philippine Holdings Corporation (FPHC) and Benpres Holdings Corporation (BHC), former shareholders of MPTC, then First Philippine Infrastructure, Inc. (FPII), sold their combined 99.8% ownership interest in MPTC to Metro Pacific Investments Corporation (MPIC). MPIC, a publicly-listed Philippine corporation, is 59.0% owned by Metro Pacific Holdings, Inc. (MPHI). MPHI is a Philippine corporation whose stockholders are Enterprise Investment Holdings, Inc. (EIH) (60.0%), Intalink B.V. (26.7%) and First Pacific International Limited (13.3%). First Pacific Company Limited (FPC), a company incorporated in Bermuda and listed in Hong Kong, through its subsidiaries, holds 40.0% equity interest in EIH and an investment financing, which under Hong Kong Generally Accepted Accounting Principles require FPC to account for the results and assets and liabilities of EIH and its subsidiaries as FPC group companies in Hong Kong.
The registered office address of MPTC is 10th Floor, MGO Building, Legaspi corner Dela Rosa Streets, Legaspi Village, Makati City.
On September 24, 2010, the Board of Directors (BOD) approved increase in the number of directors from nine (9) to eleven (11) which was approved by the SEC on January 11, 2011.
The consolidated financial statements were approved and authorized for issuance by the BOD on February 24, 2012, as reviewed and recommended for approval by the Audit Committee.
Toll Operations Metro Pacific Tollways Development Corporation (MPTDC) owns 100.0% of Luzon Tollways Corporation (LTC), 67.1% of Manila North Tollways Corporation (MNTC) and 46.0% of Tollways Management Corporation (TMC). MPTDC, then First Philippine Infrastructure Development Corporation (FPIDC), was the assignee of BHC and FPHC of all their rights, interests and privileges, in relation to the construction, operation and maintenance of the Manila-Subic Expressways under a Memorandum of Understanding (MOU) signed on February 8, 1994 by BHC and FPHC with Philippine National Construction Corporation (PNCC), Subic Bay Metropolitan Authority (SBMA), Bases Conversion and Development Authority (BCDA), and several other governmental and non-governmental entities. The Manila-Subic Expressways shall connect the Subic and Clark Special Economic Zones to Metro Manila.
MPTDC established MNTC jointly with PNCC for the purpose of implementing the rehabilitation of the North Luzon Expressway (NLE) and the installation of appropriate collection system therein referred to as the “Manila-North Expressway Project” or the “Project.”
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The Project consists of three phases as follows:
Phase I Rehabilitation and expansion of approximately 84 kilometers (km) of the existing NLE and an 8.8-km stretch of a Greenfield expressway
Phase II Construction of the northern parts of the 17-km circumferential road C-5 which connects the current C-5 expressway to the NLE and the 5.85-km road from McArthur to Letre
Phase III Construction of the 57-km Subic arm of the NLE to Subic Expressway
In accordance with the Memorandum of Agreement (MOA) dated March 6, 1995 among MPTDC, (then FPIDC), SBMA and BCDA, MPTDC undertook the immediate construction of the SBMA - Tipo Road (Segment 7) that connects Tipo in Hermosa, Bataan to Subic. Under the MOA, SBMA authorized MPTDC to charge and collect certain amount of entry fees from the motoring public for the use of Segment 7.
On April 5, 1997, a Provisional Operating and Maintenance Agreement was signed to initiate the collection process in Segment 7 under the terms and conditions of the Supplemental Toll Operation Agreement (STOA) as discussed in Note 2.
Also pursuant to the MOA, Segment 7 was integrated to and formed part of the Joint Venture Agreement (JVA) executed by PNCC and MPTDC (then FPIDC). Accordingly, MPTDC executed a Deed of Assignment and Conveyance on July 6, 2001 whereby MPTDC assigned, conveyed and transferred in favor of MNTC all its rights, interests and privileges over Segment 7. On the same date, MPTDC and MNTC entered into an Operation and Maintenance Agreement (S7 O&M) whereby MNTC appointed MPTDC as the Operator of the Segment 7 toll road. On February 10, 2005, pursuant to the Operation and Maintenance Agreement (O&M) between MNTC and TMC, a 46.0% owned associate of MPTDC, TMC took over the operation and maintenance of Segment 7 from MPTDC (see Note 18).
The construction of Phase I was substantially completed in January 2005. On January 27, 2005, the Toll Regulatory Board (TRB) issued the Toll Operation Permit (TOP) for the operation and maintenance of Phase I consisting of Segments 1, 2, 3 and including Segment 7 in favor of MNTC. Thereafter, MNTC took over the NLE from PNCC and commenced its tollway operations on February 10, 2005.
On June 5, 2010, Segment 8.1, a portion of Phase II, which is a 2.7 km-road designed to link Mindanao Avenue to the NLE, had officially commenced tollway operation. The remaining portion of Phase II is under pre-construction works while Phase III of the Project has not yet been started as at February 24, 2012.
On June 5, 2010, the Department of Public Works and Highways (DPWH) accepted MPTDC’s unsolicited proposal for the NLE to South Luzon Expressway (SLEx) Connector Road project (“the Connector Road Project”), subject to submission of requested additional documents and further discussion with DPWH. MPTDC submitted the additional documents and subsequently was granted the “original proponent” status for the Connector Road Project. The Connector Road Project is approximately 13 kilometer elevated toll road which will connect the NLE to the SLEx, and will traverse the Central Business District of Metro Manila primarily utilizing the existing Philippine National Railways right-of-way. As at February 24, 2012, MPTDC continues to discuss with DPWH and other government agencies on this Connector Road Project.
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As further discussed in Note 29, on July 20, 2011, MNTC and BCDA signed the Business and Operating Agreement (BOA) covering the assignment by BCDA to MNTC of its right, interests and obligations relating to the management operation and maintenance of the Subic-Clark-Tarlac Expressway (SCTEx). The BOA was the result of the amendments made to the previously signed Concession Agreement between BCDA and MNTC last November 2010.
2. The Supplemental Toll Operation Agreement (STOA) for the Manila-North Expressway
PNCC is the franchise holder for the construction, operation and maintenance of toll facilities in the North and South Luzon Tollways and the Metro Manila Expressway by virtue of Presidential Decree (PD) No. 1113 issued on March 31, 1977, as amended by PD No. 1894 issued on December 22, 1983. PNCC has an existing Toll Operation Agreement (TOA) with the Government of the Republic of the Philippines (ROP), by and through the TRB.
Pursuant to the JVA entered into by PNCC and MPTDC (then FPIDC) on August 29, 1995, PNCC assigned its rights, interests and privileges under its franchise to construct, operate and maintain toll facilities in the NLE in favor of MNTC, including the design, funding and rehabilitation of the NLE, and installation of the appropriate collection system therein. MPTDC (then FPIDC) in turn assigned all its rights, interests and privileges to the Binictican-Bo. Tipo road project, as defined in the MOU dated March 6, 1995, to MNTC, which assumed all the rights and obligations as a necessary and integral part of the Project. The assignment of PNCC’s usufructuary rights, interests and privileges under its franchise, to the extent of the portion pertaining to the NLE, was approved by the then President of the ROP. On October 10, 1995, the Department of Justice issued Opinion No. 102, Series of 1995, affirming the authority of the TRB to grant authority to operate a toll facility and to issue the necessary Toll Operation Certificate (TOC) in favor of PNCC and its joint venture partner, as reiterated and affirmed by the then Secretary of Justice in his letter to the Secretary of Public Works and Highways dated November 24, 1995, for the proper and orderly construction, operation and maintenance of the NLE as a toll road during the service concession period.
In April 1998, the ROP (Grantor), acting by and through the TRB, PNCC (Franchisee) and MNTC (Concessionaire) executed the STOA for the Manila-North Expressway, whereby the ROP granted MNTC the rights, obligations and privileges including the authority to finance, design, construct, operate and maintain the project roads as toll roads (the “Concession”) commencing upon the date the STOA comes into effect until December 31, 2030 or 30 years after the issuance of the TOP for the last completed phase, whichever is earlier, unless further extended pursuant to the STOA.
The PNCC franchise expired on May 1, 2007. Pursuant to the STOA, the TRB issued the necessary TOC for the NLE in order to allow the continuation of the Concession. As further discussed in Note 18, the Company pays a certain amount to PNCC.
Also, under the STOA, MNTC shall pay for the Grantor’s project overhead expenses based on certain percentages of total construction costs or of periodic maintenance works on the project roads. Fees billed by TRB amounted to P=3.1 million, P=8.2 million and P=6.0 million in 2011, 2010 and 2009, respectively.
Upon expiry of the service concession period, MNTC shall hand-over the project roads to the Grantor without cost, free from any and all liens and encumbrances and fully operational and in good working condition, including any and all existing land required, works, toll road facilities and equipment found therein directly related to and in connection with the operation of the toll road facilities.
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In October 2008, TRB approved MNTC’s proposal to extend the service concession term for Phase I and Segment 8.1 of the Project until December 31, 2037, subject to certain conditions.
In 2010, MNTC obtained TRB’s approval for certain amendments to the STOA which includes the integration of Segment 10 into Phase II; amendment of adjustment formula for the Authorized Toll Rate (ATR) by removing the foreign exchange factor; adoption of an integrated operations period for Phase I and Segment 8.1; extension of the Concession Period until December 31, 2037; modification of alignments of Phase II Segments 9 and 10; adoption of two open system tolling zones; and the extension of the effectivity of the toll rate formula.
3. Basis of Preparation and 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 which are measured at fair value. The consolidated financial statements are presented in Philippine peso, which is the Company’s functional and presentation currency.
Statement of Compliance The consolidated financial statements of the Company have been prepared in compliance with Philippine Financial Reporting Standards (PFRS).
Basis of Consolidation The consolidated financial statements comprise the financial statements of the Parent Company and its subsidiaries as at December 31, 2011 and 2010 and for each of the three years in the period ended December 31, 2011.
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 when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting year as the Parent Company, using consistent accounting policies. All intra-group balances, transactions, income and expenses, unrealized gains and losses and dividends resulting from intra-group transactions are eliminated in full.
Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if that results in a deficit balance.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Company loses control over a subsidiary, it:
§ Derecognizes the assets (including goodwill) and liabilities of the subsidiary § Derecognizes the carrying amount of any non-controlling interest § Derecognizes the cumulative translation differences recorded in equity § Recognizes the fair value of the consideration received § Recognizes the fair value of any investment retained § Recognizes any surplus or deficit in profit or loss § Reclassifies the Parent Company’s share of components previously recognized in other
comprehensive income to profit or loss or retained earnings, as appropriate.
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Non-controlling interests represent the interest in MNTC and Metro Strategic Infrastructure Holdings, Inc. (MSIHI) not held by the Parent Company, and are presented separately in the consolidated statement of income and within equity in the consolidated balance sheet, separately from equity attributable to equity holders of the parent.
The Parent Company’s subsidiaries are as follows:
Activity Percentage of Ownership 2011 2010 MPTDC (see Notes 1 and 2) Holding Company 100.0 100.0 LTC (dormant)* Tollway Operations 100.0 100.0 MNTC* (see Notes 1 and 2) Tollway Operations 67.1 67.1 MSIHI (see Note 6) Holding Company 57.0 57.0
*Owned through MPTDC.
MSIHI. MSIHI is primarily engaged to purchase, subscribe for, or otherwise acquire and own or dispose of real and personal properties including shares of stock, bonds, debentures, notes, other evidences of indebtedness, and any other securities, contracts or obligations. MSIHI’s main asset is its 2.7% interest in Citra Metro Manila Tollways Corporation (CMMTC) (see also Note 13). CMMTC is engaged primarily in the design, construction and financing of the Metro Manila Skyway (in three stages) and the proposed Metro Manila Tollways projects. On January 1, 1999, CMMTC started its regular commercial operations for its Phase 1 of Stage I Project (Bicutan to Magallanes), while Phase 2 of Stage I (Magallanes to Buendia) started its regular operations on July 11, 1999.
Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year except for the adoption of the following new and amended PFRS and Philippine Interpretations of the International Financial Reporting Interpretations Committee (IFRIC) which were effective beginning January 1, 2011.
§ Philippine Accounting Standard (PAS) 24, “Related Party Disclosures” (Amendment) § PAS 32, “Financial Instruments: Presentation” (Amendment) § Philippine Interpretation IFRIC 14, “Prepayments of a Minimum Funding Requirement”
(Amendment) § Improvements to PFRSs (May 2010)
The adoption of the standards or interpretations is described below:
§ PAS 24 — The amendment to PAS 24 clarifies the definitions of a related party. The new definitions emphasize a symmetrical view of related party relationships and clarify the circumstances in which persons and key management personnel affect related party relationships of an entity. In addition, the amendment introduces an exemption from the general related party disclosure requirements for transactions with government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity. The adoption of the amendment did not have significant impact on the financial statements of the Company.
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§ PAS 32 —The amendment alters the definition of a financial liability in PAS 32 to enable entities to classify rights issues and certain options or warrants as equity instruments. The amendment is applicable if the rights are given pro rata to all of the existing owners of the same class of an entity’s non-derivative equity instruments, to acquire a fixed number of the entity’s own equity instruments for a fixed amount in any currency. The amendment has no effect on the financial position or performance of the Company because the Company does not have these types of instruments.
§ Philippine Interpretation IFRIC 14 — The amendment removes an unintended consequence when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover such requirements. The amendment permits a prepayment of future service cost by the entity to be recognized as a pension asset. The Company is not subject to minimum funding requirements in the Philippines, therefore the amendment of the interpretation has no effect on the financial position nor performance of the Company.
Improvements to PFRSs. Improvements to PFRSs, an omnibus of amendments to standards, deal primarily with a view of removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. Except as indicated, the adoption of the following amendments resulted in changes to accounting policies but did not have significant impact on the financial position or performance of the Company.
§ PFRS 3, “Business Combinations” — The measurement options available for non-controlling interest (NCI) were amended. Only components of NCI that constitute a present ownership interest that entitles their holder to a proportionate share of the entity’s net assets in the event of liquidation should be measured at either fair value or at the present ownership interest’s proportionate share of the acquiree’s identifiable net assets. All other components are to be measured at their acquisition date fair value.
§ PFRS 7, “Financial Instruments: Disclosures” — The amendment was intended to simplify the disclosures provided by reducing the volume of disclosures around collateral held and improving disclosures by requiring qualitative information to put the quantitative information in context. The Company reflects the revised disclosure requirements in Note 30.
§ PAS 1, “Presentation of Financial Statements” — The amendment clarifies that an entity may present an analysis of each component of other comprehensive income maybe either in the statement of changes in equity or in the notes to the financial statements. The Company provides this analysis in the consolidated statement of comprehensive income.
§ Philippine Interpretation IFRIC 13, “Customer Loyalty Programmes - Determining the fair value of award credits” — The amendment clarifies the meaning of fair value in the context of measuring award credits under customer loyalty programmes.
The other improvements to the following standards and interpretations did not have any impact on the accounting policies, financial position or performance of the Company:
§ PFRS 3, “Business Combinations - Un-replaced and voluntarily replaced share-based payment awards”
§ PAS 27, “Consolidated and Separate Financial Statements” § PAS 34, “Interim Financial Reporting” § Philippine Interpretation IFRIC 19, “Extinguishing Financial Liabilities with Equity
Instruments”
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Business Combinations and Goodwill Business combinations are accounted for using the acquisition method of accounting. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value, the amount of any non-controlling interest in the acquire and the acquisition date fair value of previously held equity interest in the acquired. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in general and administrative expenses.
When the Company acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through the consolidated statement of income.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognized in accordance with PAS 39, “Financial Instruments: Recognition and Measurement”, either in profit or loss or as a charge to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity. In instances where the contingent consideration does not fall within the scope of PAS 39, it is measured in accordance with the appropriate PFRS.
Goodwill (included under “Other noncurrent assets”) is initially measured at cost being the excess of the aggregate of the consideration transferred, the amount recognized for non-controlling interest and the acquisition date fair value of previously held equity interest in the acquired over the net identifiable acquired assets and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statement of income.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Company’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.
If the initial accounting for business combination can be determined only provisionally by the end of the period by which the combination is effected because the fair values to be assigned to the acquiree’s identifiable assets and liabilities can be determined only provisionally, the Company accounts for the combination using provisional values. Adjustments to those provisional values as a result of completing the initial accounting shall be made within 12 months from the acquisition date. The carrying amount of an identifiable asset, liability or contingent liability that is recognized as a result of completing the initial accounting shall be calculated as if its fair value at
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the acquisition date had been recognized from that date and goodwill or any gain recognized shall be adjusted from the acquisition date by an amount equal to the adjustment to the fair value at the acquisition date of the identifiable asset, liability or contingent liability being recognized or adjusted.
Reverse Acquisition. A reverse acquisition occurs when the entity that issues securities (the legal acquirer) is identified as the acquiree for accounting purposes. The entity whose equity interests are acquired (the legal acquiree) must be the acquirer for accounting purposes for the transaction to be considered a reverse acquisition.
Investment in an Associate The Company’s investment in its associate is accounted for under the equity method. An associate is an entity in which the Company has significant influence.
Under the equity method, the investment in the associate is carried in the consolidated balance sheet at cost plus post-acquisition changes in the Company’s share in net assets of the associate, less any impairment in value. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortized nor individually tested for impairment.
The consolidated statement of income reflects the Company’s share in the results of operations of the associate. Where there has been a change recognized directly in the equity of the associate, the Company recognizes its share of any changes and discloses this, when applicable, in the consolidated statement of changes in equity. Unrealized gains and losses resulting from transactions between the Company and the associate are eliminated to the extent of the interest in the associate.
The Company’s share of profit of an associate is shown on the face of the consolidated statement of income. This is the profit attributable to equity holders of the associate and, therefore, is profit after tax and non-controlling interests in the subsidiaries of the associate.
The financial statements of the associate are prepared for the same reporting period as the Company. When necessary, adjustments are made to bring the accounting policies in line with those of the Company.
After the application of the equity method, the Company determines whether it is necessary to recognize an additional impairment loss on the Company’s investments in its associate. The Company determines at each balance sheet date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Company calculates the amount of impairment as the difference between the recoverable amount of the investment in associate and its carrying value and recognizes the amount in the consolidated statement of income.
Upon loss of significant influence over the associate, the Company measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss.
Cash and Cash Equivalents Cash and cash equivalents include cash on hand and in banks and short-term deposits with original maturities of three months or less from the date of acquisition and are subject to an insignificant risk of changes in value.
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Financial Assets and Liabilities
Initial Recognition and Measurement
The Company recognizes a financial asset or a financial liability when it becomes a party to the contractual provisions of the instrument. Financial assets are classified as financial assets at fair value through profit and loss (FVPL), loans and receivables, held-to-maturity (HTM) investments, and AFS financial assets or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial assets at initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year-end.
All financial assets are recognized initially at fair value plus transaction costs, except in the case of financial assets recorded at FVPL.
All regular way purchases and sales of financial assets are recognized on the trade date, which is the date that the Company commits to purchase the asset. Regular way purchases or 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 liabilities are classified as financial liabilities at FVPL, other financial liabilities, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. Financial liabilities are recognized initially at fair value and in the case of loans and borrowings, inclusive of directly attributable transaction costs. The Company determines the classification of its financial liabilities at initial recognition.
Subsequent Measurement
The subsequent measurement of financial assets and liabilities depends on their classification as described below:
a. Financial Assets and Liabilities at FVPL
Financial assets or liabilities at FVPL include financial assets or liabilities held for trading and those designated upon initial recognition as at FVPL.
A financial asset is classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments or a financial guarantee contract. Gains or losses on investments held for trading are recognized in the consolidated statement of income. Interest earned or incurred is recognized as the interest accrues and dividend income is recorded when the right of payment has been established.
Financial instruments may be designated as at FVPL by management on initial recognition when any of the following criteria are met:
§ The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on them on a different basis, or
§ The assets or liabilities are part of a group of financial assets or liabilities, or both financial assets and liabilities, which are managed and their performance is evaluated on a
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fair value basis, in accordance with a documented risk management or investment strategy, or
§ The financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.
Assets and liabilities classified under this category are carried at fair value in the consolidated balance sheet, with any gains or losses being recognized in the consolidated statement of income.
The Company accounts for its derivative transactions (including embedded derivatives) under this category with fair value changes being reported directly in the consolidated statement of income, except when the derivative is treated as an effective accounting hedge, in which case the fair value change is either reported in the consolidated statement of income with the corresponding adjustment from the hedged transaction (fair value hedge) or deferred in equity (cash flow hedge) under “Other comprehensive income reserve” account.
As at December 31, 2011 and 2010, the Company has outstanding cross currency and interest rate swaps classified as financial assets and liabilities at FVPL (see Note 31).
b. Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, loans and receivables are subsequently carried at amortized cost using the effective interest rate method less any allowance on impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and includes fees that are integral part of the effective interest rate and transaction costs. Gains and losses are recognized in the consolidated statement of income when the loans and receivables are derecognized or impaired, as well as through the amortization process. Assets under this category are classified as current assets if maturity is within 12 months as at the balance sheet date and noncurrent assets if maturity is more than a year from the balance sheet date.
Loans and receivables include cash and cash equivalents, receivables, due from related parties and refundable deposits (included in “Other noncurrent assets” account in the consolidated balance sheet) (see Notes 8, 9, 14, 18 and 31).
c. HTM Investments
HTM investments are quoted non-derivative financial assets with fixed or determinable payments and fixed maturities wherein the Company has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Where the Company sells other than an insignificant amount of HTM investments, the entire category would be tainted and reclassified as AFS financial assets. Other long-term investments that are intended to be HTM, such as bonds, are subsequently measured at amortized cost. This cost is computed as the amount initially recognized minus principal repayments, plus or minus the cumulative amortization using the effective interest rate method of any difference between the initially recognized amount and the maturity amount. This calculation includes fees paid or received between parties to the contract that are an integral part of the effective interest rate, issuance costs and all other premiums and discounts. Gains and losses are recognized in the consolidated statement of income when the
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investments are derecognized or impaired, as well as through the amortization process. Assets under this category are classified as current assets if maturity is within 12 months from the balance sheet date and as noncurrent assets if maturity is more than a year from the balance sheet date.
The Company has investments in fixed rate retail treasury bonds of the ROP that were previously classified as HTM investments. As further discussed in Note 13, in view of the pretermination of the HTM investments, the fixed rate retail treasury bonds were reclassified to AFS financial assets in 2010 and continues to be presented as such as at December 31, 2011 and 2010.
d. AFS Financial Assets
AFS financial assets are non-derivative financial assets that are designated as such or do not qualify to be classified in any of the three preceding categories. AFS financial assets include equity and debt securities. Equity investments classified as available-for-sale are those, which are neither classified as held for trading nor designated at FVPL. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions.
After initial measurement, AFS financial assets are measured at fair value with unrealized gains or losses being recognized as other comprehensive income in the “Other comprehensive income reserve” account, net of related deferred tax, until the investment is derecognized or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the consolidated statement of income. Interest earned on the investments is reported as interest income using the effective interest rate. These financial assets are classified as noncurrent assets unless the intention is to dispose such assets within 12 months from the balance sheet date.
Investments in unquoted equity shares are measured at cost, net of any impairment.
As at December 31, 2011 and 2010, AFS financial assets consist of investments in fixed rate retail treasury bonds of the ROP and investment in unquoted shares of CMMTC and Pacific Global One Aviation Company, Inc. (PGOACI) (see Note 13).
e. Other Financial Liabilities
This category pertains to financial liabilities that are not held for trading or not designated as at FVPL upon the inception of the liability. These include liabilities arising from operations or borrowings.
These financial liabilities are subsequently carried at amortized cost, taking into account the impact of applying the effective interest rate method of amortization (or accretion) for any related premium, discount and any directly attributable transaction costs.
This category includes accounts payable and other current liabilities, due to related parties, dividends payable, long-term debt and financial guarantee obligation.
Loans and Borrowings. All loans and borrowings are initially recognized at fair value of the consideration received less directly attributable transaction costs (referred to herein as “debt
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issue costs”). After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method.
Debt issue costs are amortized over the life of the debt instrument using the effective interest rate method. Debt issue costs are netted against the related loans and borrowings allocated correspondingly between the current and noncurrent portion.
Gains and losses are recognized in the consolidated statement of income when the liabilities are derecognized, as well as through the amortization process.
Financial Guarantee Contracts. Financial guarantee contracts issued by the Company are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognized initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the balance sheet date and the amount recognized less cumulative amortization.
Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated balance sheet, if and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.
‘Day 1’ Profit or Loss Where the transaction price in a non-active market is different from the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Company recognizes the difference between the transaction price and fair value (a ‘Day 1’ profit or loss) in the consolidated statement of income unless it qualifies for recognition as some other type of asset. In cases where the data used is not observable, the difference between the transaction price and model value is only recognized in the consolidated statement of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Company determines the appropriate method of recognizing the ‘Day 1’ profit or loss amount.
Fair Value of Financial Instruments The fair value of financial instruments that are traded in active markets at balance sheet date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid prices are not available, the price of the most recent transaction 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 financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include:
§ Using recent arm’s length market transactions; § Reference to the current fair value of another instrument that is substantially the same; and § A discounted cash flow analysis or other valuation models.
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Fair Value Hierarchy The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
Impairment of Financial Asset The Company assesses at each balance sheet date whether a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and when observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
a. 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 it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss 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 is reduced through the use of an allowance account and the amount of the loss is recognized in the consolidated statement of income. Interest income continues to be accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in the consolidated statement of income. The assets together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Company. If a write-off is later recovered, any amount formerly charged is credited to the consolidated statement of income.
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If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to 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.
b. Assets carried at cost
If there is objective evidence that an impairment loss has been incurred on an unquoted equity instruments that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is remeasured 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.
c. AFS financial assets
In the case of equity investments classified as AFS financial assets, objective evidence would include a significant or prolonged decline in the fair value of the investment 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 investment previously recognized in the consolidated statement of income) is removed from other comprehensive income and recognized in the consolidated statement of income. Impairment losses on equity investments are not reversed through the consolidated statement of income; increases in their fair value after impairment are recognized directly in other comprehensive income.
In the case of debt instruments classified as AFS financial assets, impairment is assessed based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated statement of income.
Future interest income continues to be accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount future cash flows for the purpose of measuring the impairment loss. Such accrual is recorded as part of “Interest income” in the consolidated statement of income. If, in subsequent year, the fair value of a debt instrument increases 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 A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when:
§ the rights to receive cash flows from the asset have expired;
§ the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
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When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of 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. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
A financial liability is derecognized when the obligation under the liability is discharged, cancelled or has expired.
When 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 and the recognition of a new liability, and the difference in the respective carrying amount of a financial liability (or part of a financial liability) extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, shall be recognized in the consolidated statement of income.
Derivatives and Hedge Accounting
Freestanding Derivatives. The Company uses derivative financial instruments, such as forward currency contracts and interest rate swaps, to hedge its foreign currency risks and interest rate risks, respectively. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
For the purpose of hedge accounting, hedges are classified primarily either as: (a) a hedge of the fair value of an asset, liability or a firm commitment (fair value hedge); or (b) a hedge of the exposure to variability in cash flows attributable to an asset or liability or a forecasted transaction (cash flow hedge); or (c) hedge of a net investment in a foreign operation. The Company designated and accounted for certain derivatives under cash flow hedges. The Company did not designate any of its derivatives as fair value hedges and hedges of a net investment in a foreign operation.
At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.
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In cash flow hedges, changes in the fair value of a hedging instrument that qualifies as a highly effective cash flow hedge are included in equity under “Other comprehensive income reserve” account, net of related deferred tax. The ineffective portion is immediately recognized in the consolidated statement of income.
If the hedged cash flow results in the recognition of an asset or a liability, gains and losses initially recognized in equity are transferred from equity to consolidated statement of income in the same period or periods during which the hedged forecasted transaction or recognized asset or liability affect the consolidated statement of income.
When the hedge ceases to be highly effective, hedge accounting is discontinued prospectively. In this case, the cumulative gain or loss on the hedging instrument that has been reported directly in equity is retained in equity until the forecasted transaction occurs. When the forecasted transaction is no longer expected to occur, any net cumulative gain or loss previously reported in equity is charged against the consolidated statement of income.
For derivatives that are not designated as effective accounting hedges, any gains or losses arising from changes in fair value of derivatives are recognized directly in the consolidated statement of income.
Embedded Derivatives. Embedded derivatives are bifurcated when the entire hybrid contracts (composed of the host contract and the embedded derivative) are not accounted for at FVPL, the economic risks of the embedded derivatives are not closely related to those of their respective host contracts, and a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative.
Only where the following conditions are met should an embedded derivative be separated from the host contract and accounted for separately:
a. the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract;
b. a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and
c. the hybrid (combined) instrument is not measured at fair value with changes in fair value recognized in profit or loss.
Embedded derivatives that are bifurcated from the host contracts are accounted for as financial assets at FVPL. Changes in fair values are recognized in the consolidated statement of income. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
The Company assesses whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the entity first becomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required. The Company determines whether a modification to cash flows is significant by considering the extent to which the expected future cash flows associated with the embedded derivative, the host contract or both have changed and whether the change is significant relative to the previously expected cash flows on the contract.
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Current Versus Noncurrent Classification. Derivative instruments that are not designated and effective hedging instrument are classified as current or noncurrent or separated into a current and noncurrent portion based on an assessment of the facts and circumstances (i.e., the underlying contracted cash flows):
§ When the Company will hold a derivative as an economic hedge (and does not apply hedge accounting) for a period beyond 12 months after the balance sheet date, the derivative is classified as noncurrent (or separated into current and noncurrent portions) consistent with the classification of the underlying item.
§ Embedded derivatives that are not closely related to the host contract are classified consistent with the cash flows of the host contract.
§ Derivative instruments that are designated as, and are effective hedging instruments, are classified consistent with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and noncurrent portion only if a reliable allocation can be made.
Inventories Inventories, which consist of magnetic cards and spare parts, are valued at the lower of cost and net realizable value (NRV). Cost includes purchase cost and import duties and is determined primarily on a first-in, first-out method. For magnetic cards, NRV is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale. NRV for spare parts is the current replacement cost.
Advances to Contractors and Consultants Advances to contractors and consultants represent the advance payments for mobilization of the contractors and consultants. These are stated at costs less any impairment in value. These are progressively reduced upon receipt of the equivalent amount of services rendered by the contractors and consultants.
Property and Equipment Property and equipment is stated at cost less accumulated depreciation and any impairment in value. The cost of property and equipment consists of its purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Cost also includes the cost of replacing the part of such property and equipment when the recognition criteria are met.
Expenditures incurred after the property and equipment have been put into operation, such as repairs and maintenance, are normally recognized as expense in the period such costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as additional cost of the property and equipment.
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 item is derecognized.
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Depreciation commences once the property and equipment are available for use and is calculated on a straight-line basis over the estimated useful life of the asset.
Fully depreciated property and equipment are retained in the accounts until they are no longer in use and no further depreciation is charged to the consolidated statement of income.
The assets’ residual values, useful lives and method of depreciation are reviewed at each financial year-end, and adjusted prospectively, if appropriate.
Service Concession Arrangement The Company accounts for its concession arrangement under the intangible asset model as it receives the right (license) to charge users of public service.
In addition, the Company recognizes and measures construction revenue in accordance with PAS 11, “Construction Contracts,” and PAS 18, “Revenue,” for the services it performs.
When the Company provides construction or upgrade services, the consideration received or receivable by the Company is recognized at its fair value.
The Company also recognizes its contractual obligations to restore the toll roads to a specified level of serviceability in accordance with PAS 37, “Provisions, Contingent Liabilities and Contingent Assets,” as the obligations arise which is as a consequence of the use of the toll roads and therefore it is proportional to the number of vehicles using the toll roads and increasing in measurable annual increments.
Service Concession Asset. The service concession asset is recognized initially at the fair value of the construction services. Following initial recognition, the service concession asset is carried at cost less accumulated amortization and any impairment losses.
Service concession asset is amortized using the straight-line method over the term of the service concession. The amortization period and method for an intangible asset with a finite useful life is reviewed at least each financial period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the service concession asset are accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense is recognized under the “Cost of services” account in the consolidated statement of income.
The service concession asset will be derecognized upon turnover to the Grantor. There will be no gain or loss upon derecognition as the service concession asset which is expected to be fully depreciated by then, will be handed over to the Grantor with no consideration.
Impairment of Investment in an Associate, Property and Equipment, Service Concession Asset and Goodwill (included in “Other noncurrent assets”) The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the 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 value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When 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
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assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples or other available fair value indicators. Impairment losses of continuing operations 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 or amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statement of income unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation (in case of property and equipment) and amortization (in case of service concession asset) charges are 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.
Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each cash-generating unit (or group of cash-generating units) to which the goodwill relates. When the recoverable amount of the cash-generating unit is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.
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. Where the Company expects some or all of a provision to be reimbursed the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the consolidated statement of income, net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as interest expense.
Equity Capital stock is measured at par value for all shares issued. Incremental costs incurred directly attributable to the issuance of new shares are shown in equity as deduction from proceeds, net of tax. Proceeds and/or fair value of considerations received in excess of par value, if any, are recognized as additional paid-in capital.
Retained earnings represent the accumulated earnings net of dividends declared.
Treasury shares are own equity instruments which are reacquired, recognized at cost and deducted from equity. No gain or loss is recognized in the consolidated statement of income on the purchase, sale, issue or cancellation of the Company’s own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognized in other capital reserves.
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Other comprehensive income reserve comprise items of income and expense, including recycling to profit and loss, that are not recognized in the consolidated statement of income as required or permitted by other PFRS.
Other reserves comprise the contribution from MPIC in relation to its executive stock option plan granted to MPTC employees accounted for as equity-settled share-based payment transactions and the 20% of Long-term Incentive Plan (LTIP) which grants cash incentives to eligible key executives of the Company which shall be shouldered by MPIC.
Non-controlling interests represent the equity interests in MNTC and MSIHI not held by the Parent Company.
Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the amount of the revenue can be measured reliably, regardless of when the payment is made. Revenue is measured at fair value of the consideration received or receivable, taking into account contractually defined terms of payment, excluding value-added tax, discounts and rebates. The Company assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Company has concluded that it is acting as principal in all of its revenue arrangements. The following specific criteria must also be met before revenue is recognized:
Revenue from toll fees is recognized upon the sale of toll tickets. Toll fees received in advance, through transponders or magnetic cards, is recognized as income upon the holders’ availment of the toll road services, net of sales discounts. The unused portion of toll fees received in advance is reflected as “Unearned toll revenue” in the consolidated balance sheet.
Revenue from sale of transponders and magnetic cards is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer normally upon delivery.
Construction revenue is recognized by reference to the stage of completion of the contract activity at the balance sheet date. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately.
Guarantee fees and income from utility facilities, toll service facilities (TSF) and advertising, included in “Other income” account in the consolidated statement of income, are recognized in accordance with the terms of the agreement.
Interest income is recognized as the interest accrues using the effective interest rate method.
Management fees, included in “Other income” account in the consolidated statement of income, are recognized when services are rendered.
Other income is recognized when there is an incidental economic benefits, other than the usual business operations, that will flow to the Company through an increase in asset or reduction in liability and that can be measured reliably. This includes refunds from lenders, reversal of accrued expenses and other income.
Cost and Expenses Recognition Cost and expenses are decreases in economic benefits during the accounting period in the form of outflows or decrease of assets or incurrence of liabilities that result in decrease in equity, other than those relating to distributions to equity participants. Cost of services, general and
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administrative expenses, construction costs and interest expense and other finance costs are recognized in the consolidated statement of income in the period these are incurred.
Operating Lease 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 or 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 arrangement; 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 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 at the date of renewal or extension period for scenario (b).
Company as Lessee. Operating lease payments are recognized as an expense in the consolidated statement of income on a straight-line basis over the term of the lease.
Foreign Currency-denominated Transactions and Translations The Parent Company and its subsidiaries determine their own functional currency and items included in the consolidated financial statements are measured using that functional currency. The Parent Company and its subsidiaries have determined its functional currency to be the Philippine peso. Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency closing exchange rate ruling at the balance sheet date. All differences are taken to the consolidated statement of income with the exception of differences on foreign currency borrowings that are regarded as adjustments to interest cost, and are capitalized as part of the cost of the service concession asset during the construction period.
Borrowing Costs Borrowing costs are capitalized as part of service concession asset if they are directly attributable to the acquisition and construction of the Project. Capitalization of borrowing costs commences when the activities to prepare for the construction of the Project are in progress and expenditures and borrowing costs are being incurred, until the assets are ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded.
Borrowing costs include interest charges, amortization of debt issue costs and other costs incurred in connection with the borrowing of funds, including exchange differences arising from foreign currency borrowings used to finance the Project, to the extent that they are regarded as adjustments to interest cost.
All other borrowing costs are expensed in the period they are incurred.
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Retirement Benefits
Defined Contribution Plan. Retirement benefits of the employees of the Parent Company and MPTDC are provided through a defined contribution scheme. The Parent Company and MPTDC operates a retirement plan which is a contributory plan wherein the Parent Company and MPTDC undertakes to contribute a predetermined amount to the individual account of each employee and the employee gets whatever is standing to his credit upon separation from the Company. The retirement plan is managed and administered by a Retirement Committee and a trustee bank had been appointed to hold and invest the assets of the retirement fund in accordance with the provisions of the retirement plan. The Parent Company and MPTDC record expenses for their contribution to the defined contribution plan when the employee renders service to the Company, essentially coinciding with their cash contributions to the retirement plan.
Defined Benefit Plan. MNTC has a defined benefit retirement plan. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method. Retirement cost includes current service cost, interest cost, expected return on plan assets, amortization of unrecognized past service costs, recognition of actuarial gains or losses and effect of any curtailments or settlements. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses for the plan at the end of the previous reporting year exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plan.
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 accrued retirement cost is the aggregate of the present value of the retirement obligation and unrecognized actuarial gains and losses 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. Plan assets are assets that are held by a long-term employee benefit fund. Plan assets are not available to the creditors of the Company, nor can they be paid directly to the Company. Fair value is based on market price information and, in the case of quoted securities, it is the published bid price.
If the asset is measured at 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, net actuarial losses of the current period and past service cost of the current period are recognized immediately to the extent that they exceed any reduction in the present value of those economic benefits. If there is no change or an increase in the present value of the economic benefits, the entire net actuarial losses of the current period and past service cost of the current period are recognized immediately. Similarly, net actuarial gains of the current period after the deduction of past service cost of the current period exceeding any increase in the present value of the economic benefits stated above are recognized immediately if the asset is measured at 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. If there is no change or decrease in the present value of the economic benefits, the entire net actuarial gains
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of the current period after the deduction of past service cost of the current period are recognized immediately.
A settlement occurs when an entity enters into a transaction that eliminates all further legal or constructive obligation for part or all of the benefits provided under a defined benefit plan, for example, when a lump sum cash payment is made to, or on behalf of, plan participants in exchange for their rights to receive specified post-employment benefits. Gains or losses on settlement of a defined benefit plan are recognized when the settlement occurs. The gains or losses on a settlement comprise: (a) any resulting change in the present value of the defined benefit obligation; (b) any resulting change in fair value of plan assets; and (c) any related actuarial gains and losses and past service cost that had not previously been recognized.
Share-based Payment MPIC has an Executive Stock Option Plan (ESOP) for eligible executives to receive remuneration in the form of share-based payment transactions, whereby executives render services in exchange for the share option.
Executives of the Company are granted rights to equity instruments of MPIC as consideration for the services provided to the Company.
The Company shall measure the services received from its employees in accordance with the requirements applicable to equity-settled share-based payment transactions, with a corresponding increase recognized in equity as a contribution from MPIC, provided that the share-based arrangement is accounted for as equity-settled in the consolidated financial statements of MPIC.
A parent grants rights to its equity instruments to the employees of its subsidiaries, conditional upon the completion of continuing service with the group for a specified period. An employee of one subsidiary may transfer employment to another subsidiary during the specified vesting period without the employee’s rights to equity instruments of the parent under the original share-based payment arrangement being affected. Each subsidiary shall measure the services received from the employee by reference to the fair value of the equity instruments at the date those rights to equity instruments were originally granted by the parent, and the proportion of the vesting period served by the employee with each subsidiary.
Such an employee may fail to satisfy a vesting condition other than a market condition after transferring between group entities. In this case, each subsidiary shall adjust the amount previously recognized in respect of the services received from the employee. Hence, no amount is recognized on a cumulative basis for the services received from that employee in the financial statements of any subsidiary if the rights to the equity instruments granted by the parent do not vest because of an employee’s failure to meet a vesting condition other than a market condition.
Where the terms of an equity-settled transaction award are modified, the minimum expense recognized is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification.
Other Long-term Employee Benefits MPIC has LTIP which grants cash incentives to eligible key executives of MPIC and certain subsidiaries, including the Company. Liability under the LTIP is determined using the projected unit credit method. Employee benefit costs include current service costs, interest cost, actuarial
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gains and loss and past service costs. Past service costs and actuarial gains and losses are recognized immediately.
The liability under LTIP comprise the present value of the defined benefit obligation (using discount rate based on government bonds) vested at the end of the reporting period.
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 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. Deferred tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax credits and unused tax losses, to the extent that it is probable that taxable income will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilized. Deferred 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 income nor taxable income or loss.
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 income will be available to allow all or part of the deferred tax assets 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 income will allow the deferred tax assets to be recovered.
Deferred tax assets and deferred tax 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 rate (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
Current and deferred tax assets and liabilities relating to items recognized directly in equity are recognized in equity and not in the consolidated statement of income.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
Value-added Tax (VAT) Revenues, expenses and assets are recognized net of the amount of VAT except:
§ Where the VAT incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the VAT is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable.
§ Receivables and payables that are stated with the amount of VAT included.
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The net amount of VAT recoverable from, or payable to, the taxation authority is included as input value-added tax or as part of payables in the consolidated balance sheet.
Earnings Per Share Basic earnings per share is computed by dividing net income for the year by the weighted average number of common shares issued and outstanding during the year, after giving retroactive effect to any stock dividend or stock splits, if any, declared during the year.
Dilutive earnings per share is computed by dividing net income for the year by the weighted average of common shares issued and outstanding during the year plus the weighted average number of common shares that would be issued for outstanding common stock equivalent. The Company does not have dilutive common stock equivalents.
Contingencies Contingent liabilities are not recognized in the consolidated financial statements but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial statements but disclosed 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 balance sheet date (adjusting events), if any, are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to consolidated financial statements when material.
4. Future Changes in Accounting Policies
The Company has not applied the following PFRS, Philippine Interpretations and amendments to existing standards which are not yet effective as at December 31, 2011:
§ PFRS 7, “Financial Instruments: Disclosures” – Enhanced Derecognition Disclosure Requirements (effective for annual periods beginning on or after July 1, 2011) — This amendment requires additional disclosure about financial assets that have been transferred but not derecognized to enable the user of the Company’s financial statements to understand the relationship with those assets that have not been derecognized and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognized assets to enable the user to evaluate the nature of, and risks associated with, the entity’s continuing involvement in those derecognized assets. The amendment affects disclosures only and will have no impact on its financial position or performance.
§ PFRS 7, “Financial instruments: Disclosures” — Offsetting Financial Assets and Financial Liabilities (retrospectively applied for annual periods beginning on or after January 1, 2013) — These amendments require an entity to disclose information about rights of set-off and related arrangements (such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set off in accordance with PAS 32. These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or ‘similar agreement’, irrespective of whether they are set-off in accordance with PAS 32. The amendments require entities to disclose, in a tabular format unless another format is more appropriate, the following minimum quantitative information. This is presented separately for financial assets and financial liabilities recognized at the end of the reporting period:
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a. The gross amounts of those recognized financial assets and recognized financial liabilities b. The amounts that are set off in accordance with the criteria in PAS 32 when determining
the net amounts presented in the statement of financial position c. The net amounts presented in the statement of financial position d. The amounts subject to an enforceable master netting arrangement or similar agreement
that are not otherwise included in (b) above, including:
i. Amounts related to recognized financial instruments that do not meet some or all of the offsetting criteria in PAS 32
ii. Amounts related to financial collateral (including cash collateral)
e. The net amount after deducting the amounts in (d) from the amounts in (c) above.
The amendment affects disclosures only and has no impact on its financial position or performance.
§ PFRS 9, “Financial Instruments: Classification and Measurement” (effective for annual periods beginning on or after January 1, 2015) — PFRS 9, as issued in 2010, reflects the first phase of the work on the replacement of PAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in PAS 39. In subsequent phases, hedge accounting and impairment of financial assets will be addressed with the completion of this project expected on the first half of 2012. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Company’s financial assets, but will potentially have no impact on classification and measurements of financial liabilities. The Company will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture.
§ PFRS 10, “Consolidated Financial Statements” (effective for annual periods beginning on or after January 1, 2013) — PFRS 10 replaces the portion of PAS 27, “Consolidated and Separate Financial Statements” that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC 12, “Consolidation - Special Purpose Entities”. PFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by PFRS 10 will require management to exercise significant judgement to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in PAS 27. The Company is currently assessing the impact of this standard.
§ PFRS 11, “Joint Arrangements” (effective for annual periods beginning on or after January 1, 2013) — PFRS 11 replaces PAS 31, “Interests in Joint Ventures” and SIC 13, “Jointly-controlled Entities - Non-monetary Contributions by Venturers”. PFRS 11 removes the option to account for jointly controlled entities using proportionate consolidation. Instead, jointly controlled entities that meet the definition of a joint venture must be accounted for using the equity method. The Company does not have joint arrangements and, therefore, does not expect this new standard to have an impact on the consolidated financial statements.
§ PFRS 12, “Disclosure of Involvement with Other Entities” (effective for annual periods beginning on or after January 1, 2013) — PFRS 12 includes all of the disclosures that were previously in PAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in PAS 31 and PAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required which will be disclosed by the Company in the consolidated financial statements upon adoption of the standard.
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§ PFRS 13, “Fair Value Measurement” (effective for annual periods beginning on or after January 1, 2013) — PFRS 13 establishes a single source of guidance under PFRS for all fair value measurements. PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS when fair value is required or permitted. The Company is currently assessing the impact that this standard will have on its financial position and performance.
§ PAS 1, “Financial Statement Presentation” – Presentation of Items of Other Comprehensive Income (effective for annual periods beginning on or after July 1, 2012) — The amendments to PAS 1 change the grouping of items presented in other comprehensive income. Items that could be reclassified (or ‘recycled’) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified. The amendment affects presentation only and there is no impact on the Company’s financial position or performance.
§ PAS 12, “Income Taxes” (Amendment) – Deferred Tax: Recovery of Underlying Assets (effective for annual periods beginning on or after January 1, 2012) — The amendment clarified the determination of deferred tax on investment property measured at fair value. The amendment introduces a rebuttable presumption that deferred tax on investment property measured using the fair value model in PAS 40, “Investment Property” should be determined on the basis that its carrying amount will be recovered through sale. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in PAS 16, “Property, Plant and Equipment” always be measured on a sale basis of the asset. The amendment will have no impact on the Company’s financial position or performance as the Company has no investment property.
§ PAS 19, “Employee Benefits” (Amendment) (effective for annual periods beginning on or after January 1, 2013) — The amended standard includes a number of amendments that range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The Company currently recognizes actuarial gains and losses under the corridor approach. Upon adoption of the amended PAS 19, unrecognized actuarial gains or losses will be recognized immediately as other comprehensive income.
§ PAS 27, “Separate Financial Statements” (as revised in 2011) (effective for annual periods beginning on or after January 1, 2013) — As a consequence of the new PFRS 10 and PFRS 12, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. The Company expects that this amendment will have no significant impact on the consolidated financial statements.
§ PAS 28, “Investments in Associates and Joint Ventures” (as revised in 2011) (effective for annual periods beginning on or after January 1, 2013) — As a consequence of the new PFRS 11 and PFRS 12, PAS 28 has been renamed PAS 28, “Investments in Associates and Joint Ventures”, and describes the application of the equity method to investments in joint ventures in addition to associates. This amendment will have no impact on the Company’s financial position or performance.
§ PAS 32, “Financial Instruments: Presentation” – Offsetting Financial Assets and Financial liabilities (retrospectively applied for annual periods beginning on or after January 1, 2014) — These amendments to PAS 32 clarify the meaning of “currently has a legally enforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms
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that are not simultaneous. While the amendment is expected not to have any impact on the net assets of the Company, any changes in offsetting is expected to impact leverage ratios and regulatory capital requirements. The Company is currently assessing impact of the amendments to PAS 32.
§ Philippine Interpretation IFRIC 15, “Agreements for the Construction of Real Estate” (effective for annual periods beginning on or after January 1, 2012) — This interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11, “Construction Contracts”, or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion. The SEC and the Financial Reporting Standards Council (FRSC) have deferred the effectivity of this interpretation until the final Revenue standard is issued by International Accounting Standards Board (IASB) and an evaluation of the requirements of the final Revenue standard against the practices of the Philippine real estate industry is completed. The Company does not conduct such activity and, therefore, does not expect this interpretation to have an impact on the consolidated financial statements.
§ Philippine Interpretation IFRIC 20, “Stripping Costs in the Production Phase of a Surface Mine” (effective for annual periods beginning on or after January 1, 2013) — This interpretation applies to waste removal costs that are incurred in surface mining activity during the production phase of the mine (“production stripping costs”) and provides guidance on the recognition of production stripping costs as an asset and measurement of the stripping activity asset. The Company does not conduct such activity and, therefore, does not expect this interpretation to have an impact on the consolidated financial statements.
5. Significant Accounting Judgments, Estimates and Assumptions
The preparation of the consolidated financial statements in compliance with PFRS requires management to make judgments, estimates and assumptions 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 at 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 has the most significant effect on the amounts recognized in the consolidated financial statements.
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Determination of Functional Currency. Based on the economic substance of the underlying circumstances relevant to the Company, the functional currency has been determined to be the Philippine peso. It is the currency that mainly influences the selling prices for the Company’s services and the currency that influences labor and other costs of providing services.
Service Concession Arrangement. Philippine Interpretation IFRIC 12, “Service Concession Arrangements,” outlines an approach to account for contractual arrangements arising from entities providing public services. It provides that the operator should not account for the infrastructure as property, plant and equipment, but recognize a financial asset and/or an intangible asset.
As discussed in Note 2, the ROP (Grantor), acting by and through the TRB, PNCC (Franchisee) and MNTC (Concessionaire) executed the STOA for the Manila-North Expressway, whereby the ROP granted MNTC the rights, obligations and privileges including the authority to finance, design, construct, operate and maintain the project roads as toll roads (the “Concession”). Upon expiry of the service concession period, MNTC shall hand-over the project roads to the Grantor without cost, free from any and all liens and encumbrances and fully operational and in good working condition, including any and all existing land required, works, toll road facilities and equipment found therein directly related to and in connection with the operation of the toll road facilities.
The Company has made a judgment that the STOA for the Manila-North Expressway qualifies under the intangible asset model, wherein the service concession asset is recognized as an intangible asset in accordance with PAS 38. This intangible asset is amortized using the straight-line method over the life of the concession agreement, as management believes that straight-line best reflect the pattern of consumption of the concession asset. The carrying value of service concession asset amounted to P=15,552.1 million and P=15,817.9 million as at December 31, 2011 and 2010, respectively (see Note 12).
The Company also recognizes construction revenues and costs in accordance with PAS 11. It measures contract revenue at the fair value of the consideration received or receivable. Given that MNTC has subcontracted the construction to outside contractors, the construction revenue recognized is equal to the construction costs. Construction revenue and costs recognized in the consolidated statements of income amounted to P=99.1 million, P=1,253.1 million and P=319.8 million for the years ended December 31, 2011, 2010 and 2009, respectively.
The Company also recognizes its contractual obligations to restore the toll roads to a specified level of serviceability starting January 1, 2008 following the final turnover of the Phase I of the Project from the contractor in October 2007. The Company recognizes a provision following PAS 37 as the obligation arises which is a consequence of the use of the toll roads and therefore it is proportional to the number of vehicles using the roads and increasing in measurable annual increments. Provision for heavy maintenance amounted to P=370.4 million and P=396.7 million as at December 31, 2011 and 2010, respectively (see Note 16).
Operating Lease Commitments - Company as Lessee. MPTC entered into a five-year lease agreement from August 13, 2009 to August 14, 2014 covering certain office units and parking spaces. MNTC also entered into lease agreements covering an office space and a storage room which are renewable annually. The Company has determined that the significant risks and rewards are retained by the lessor and accounts for the leases as operating lease.
Rental expense amounted to P=2.4 million, P=1.4 million and P=0.4 million for the years ended December 31, 2011, 2010 and 2009, respectively (see Note 21).
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Classifying HTM Investment. The classification to HTM investments requires significant judgment. In making this judgment, the Company evaluates its intention and ability to hold such investments to maturity. If the Company fails to keep these investments to maturity, it will be required to reclassify the entire portfolio as part of AFS financial assets. The investments would therefore be measured at fair value and not at amortized cost.
In 2009, the Company classified its investments in bonds as HTM investments. However, in 2010, the Company sold a significant portion of its investments in bonds before their maturity dates. Thus, the Company reclassified the remaining and newly acquired investment in bonds as AFS financial assets and remeasured the investments to fair value. The breach on the tainting rule precluded the Company from classifying any financial asset as HTM investments for two years and as such, its investments in bonds continues to be classified as AFS financial assets (see Note 13).
Fair Value of 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.
The fair values and carrying values of AFS financial assets not quoted in an active market amounted to P=328.2 million and P=141.0 million as at December 31, 2011 and 2010, respectively (see Note 13).
Estimates and Assumptions The key assumptions concerning the future and other key sources of estimation uncertainty 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.
Determination of Fair Value of Financial Instruments (including derivatives). The Company initially records all financial instruments at fair value and subsequently carries certain financial assets and liabilities at fair value, which requires extensive use of accounting estimates and judgment. Valuation techniques are used particularly for financial assets and financial liabilities (including derivatives) that are not quoted in an active market. Where valuation techniques are used to determine fair values (discounted cash flow analysis and option pricing models), they are periodically reviewed by qualified personnel who are independent of the trading function. All models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practicable, models use only observable data as valuation inputs. However, other inputs such as credit risk (whether that of the Company or the counterparties), forward prices, volatilities and correlations, require management to develop estimates or make adjustments to observable data of comparable instruments. The amount of changes in fair values would differ if the Company uses different valuation assumptions or other acceptable methodologies. Any change in fair value of these financial instruments (including derivatives) would affect either the consolidated statement of income or equity.
Fair values of financial assets and liabilities are presented in Note 31.
Allowance for Doubtful Accounts. Allowance for doubtful accounts is maintained at a level considered adequate to provide for potentially uncollectible receivables. The level of allowance is based on past collection experience and other factors that may affect collectibility. An evaluation of the receivables, which is designed to identify potential charges to the allowance, is performed on a continuous basis throughout the year.
There were no provisions under collective assessment in 2011, 2010 and 2009.
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Receivables (net of allowance for doubtful accounts of P=5.3 million as at December 31, 2011 and 2010) amounted to P=102.2 million and P=66.5 million as at December 31, 2011 and 2010, respectively (see Note 9).
Due from related parties (current and noncurrent) amounted to P=625.4 million and P=588.3 million as at December 31, 2011 and 2010, respectively (see Note 18).
Input/Output VAT. Upon the effectivity of Republic Act No. 9337 (RA 9337), the Bureau of Internal Revenue (BIR) issued Revenue Regulation (RR) No. 16-2005 on September 1, 2005, which, for the first time, expressly referred to toll road operations as being subject to VAT. This notwithstanding VAT Ruling 078-99 issued on August 9, 1999 where BIR categorically ruled that MNTC, as assignee of the PNCC franchise, is entitled to the tax exemption privileges of PNCC and is exempt from VAT on its gross receipts from the operation of the NLE.
As further discussed in Note 33, MNTC, together with other tollway operators, continued to discuss the issue of VAT with the concerned government agencies from 2005 to 2010. The BIR continuously upheld its position that the tollway operators are subject to VAT and issued several Revenue Memorandum Circulars (RMCs) for the imposition of the VAT. The BIR also continuously issued VAT assessments to MNTC. On the other hand, the TRB continued to direct the tollway companies (including MNTC) to defer the imposition of the VAT.
On July 19, 2010, the BIR issued RMC No. 63-2010 to fully implement the imposition of VAT on toll fees. Following the issuance of the RMC, MNTC applied for abatement of alleged VAT liabilities for taxable years 2006 and 2007. The BIR was not able to resolve the application for abatement of MNTC because on August 13, 2010, the Supreme Court (SC) issued a temporary restraining order (TRO) on the imposition of the 12% VAT on tollway operators.
In view of the foregoing, MNTC continued in 2010 the practice of not recognizing any VAT liability. However, MNTC continued to recognize input VAT but given the uncertainty as to whether input VAT will be allowed to be offset against future output VAT, MNTC continued to provide 100% allowance on the accumulated input VAT. Thus, as at December 31, 2010, the total accumulated input VAT amounted to P=1,438.7 million and allowance for potential losses on input VAT is for same amount. Provision for potential losses on input VAT amounted to P=334.1 million and P=1,104.6 million for the years ended December 31, 2010 and 2009 respectively (see Note 21). Also, certain input VAT incurred from 2004 to 2005 that relates to operating expenses were written off as expense in 2009 which amounted to P=94.3 million (see Note 21).
On July 21, 2011, the SC upheld the legality of RMC No. 63-2010 issued by the BIR on July 13, 2010, in line with Section 108 of the National Internal Revenue Code that allows the imposition of VAT on all services for a fee. In relation to the SC Decision dated July 21, 2011, the BIR issued RMC No. 39-2011 (dated August 31, 2011) to fully implement the imposition of VAT on the gross receipts of tollway operators from all types of vehicles starting October 1, 2011.
In view of RMC No. 39-2011, MNTC started imposing VAT on toll fees from motorists and correspondingly started recognizing VAT liability on October 1, 2011. As at December 31, 2011, total output VAT liability of MNTC amounted to P=76.6 million. With respect to input VAT, MNTC reversed the accumulated input VAT as at December 31, 2010 amounting to P=1,438.7 million of which P=1,150.6 million relates to input VAT on operating expenses and were written off against the related allowance. The remaining P=288.1 million input VAT was capitalized to service concession asset as this relates to the construction of service concession asset, property and equipment and other current and noncurrent assets (see Notes 11, 12 and 14). Management believes that had the input
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VAT not been previously recognized, the input VAT should have formed part of the cost of the assets. The related allowance of P=288.1 million on input VAT was reversed to income upon capitalization of the input VAT to service concession asset, property and equipment and other current and noncurrent assets (see Note 26). Starting October 1, 2011, as allowed under RMC No. 39-2011, MNTC recognized input VAT from its purchases of goods and services, portion of which had been applied against output VAT set up as discussed above. As at December 31, 2011, the unapplied input VAT of MNTC amounted to P=42.1 million.
Estimating NRV of Inventories. Inventories are presented at the lower of cost or NRV. Estimates of NRV are based on the most reliable evidence available at the time the estimates are made of the amount the inventories are expected to be realized. A review of the items of inventories is performed at each balance sheet date to reflect the accurate valuation of inventories in the consolidated financial statements.
There was no write-down of inventories recognized in the consolidated financial statements for the years ended December 31, 2011, 2010 and 2009. Inventories amounted to P=55.3 million and P=37.9 million as at December 31, 2011 and 2010, respectively.
Estimated Useful Lives. The useful life of each of the Company’s item of property and equipment and service concession asset are estimated based on the period over which the assets are expected to be available for use by the Company. 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. An increase in the estimated useful life of any item of property and equipment and service concession asset would decrease the recorded depreciation expense and amortization, respectively.
There were no changes in the estimated useful lives of property and equipment and service concession asset in 2011, 2010 and 2009.
The carrying value of property and equipment amounted to P=136.4 million and P=116.5 million as at December 31, 2011 and 2010, respectively (see Note 11). The carrying value of service concession asset amounted to P=15,552.1 million and P=15,817.9 million as at December 31, 2011 and 2010, respectively (see Note 12).
Impairment of AFS Financial Assets. The Company treats AFS financial assets as impaired where 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% or more and “prolonged” as greater than twelve months for quoted equity securities. In addition, the Company evaluates other factors, including normal volatility in share price for quoted equities and future cash flows and the discount factors for unquoted equities.
The carrying values of AFS financial assets amounted to P=906.0 million and P=565.0 million as at December 31, 2011 and 2010, respectively (see Note 13). No impairment loss was recognized in 2011, 2010 and 2009.
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Impairment of Nonfinancial Assets. Impairment review for nonfinancial assets (investment in an associate, property and equipment, and service concession asset) 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 and ultimate disposition of such assets.
The carrying values of nonfinancial assets reviewed for indicators of impairment follows:
2011 2010 Investment in an associate (see Note 10) P=147,231,019 P=140,711,492 Property and equipment (see Note 11) 136,364,033 116,513,288 Service concession asset (see Note 12) 15,552,074,333 15,817,859,863
No impairment loss was recognized in the consolidated financial statements for the years ended December 31, 2011, 2010 and 2009. There is no impairment testing performed for the years ended December 31, 2011, 2010 and 2009 as there were no indicators of impairment.
Impairment of Goodwill. Goodwill is subject to annual impairment test. The Company determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Company to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows.
No impairment of goodwill was recognized in 2011, 2010 and 2009. The carrying amount of goodwill (included under “Other noncurrent assets” account) amounted to P=13.6 million and P=15.0 million as at December 31, 2011 and 2010 (see Notes 6 and 14).
Deferred Tax Assets and Liabilities. Deferred tax assets are recognized on deductible temporary differences, net operating loss carry-over (NOLCO) and minimum corporate income tax (MCIT) to the extent that it is probable that taxable income will be available against which the deductible temporary differences, NOLCO and MCIT can be utilized. In the case of MNTC, only deferred tax assets and liabilities that are expected to reverse after the income tax holiday (ITH) period were recognized. The Company’s assessment on the recognition of deferred tax assets on deductible temporary differences is based on the expected future financial performance.
Deferred tax assets amounted to P=153.4 million and P=214.6 million as at December 31, 2011 and 2010, respectively. Deferred tax liabilities amounted to P=496.7 million and P=536.7 million as at December 31, 2011 and 2010, respectively (see Note 27).
Certain deferred tax assets were not recognized since management believes that it is more likely than not that these will not be realized in the future. Unrecognized deferred tax assets on deductible temporary differences amounted to P=40.3 million and P=13.5 million as at December 31, 2011 and 2010, respectively (see Note 27).
Share-based Payments. The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payments requires determining the most appropriate valuation model for a grant of equity instruments, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payments are disclosed in Note 22.
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Total cost arising from share-based payments recognized by the Company, included in “Salaries and employee benefits” account under General and administrative expenses, amounted to P=7.0 million and P=1.9 million in 2011 and 2010, respectively (see Note 22).
Retirement Benefits. The cost of defined benefit retirement plan and the present value of retirement obligation is determined based on actuarial valuations. The actuarial valuations involve making various assumptions about discount rates, expected return on assets, future salary increases, mortality rates, and future pension increases. Due to the complexity of the valuation, the underlying assumptions and long-term nature of the plan, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each balance sheet date. Further details about the assumptions used are given in Note 23.
Accrued retirement costs under the defined benefit plan amounted to P=10.6 million and P=0.9 million as at December 31, 2011 and 2010, respectively. Cumulative unrecognized actuarial loss amounted to P=36.6 and P=20.0 million in 2011 and 2010, respectively, while cumulative unrecognized actuarial gain amounted to P=9.7 million in 2009 (see Note 23).
Other Long Term Incentives Benefits. The LTIP for key executives of MPIC and certain subsidiaries, including the Company, was approved by the Executive Compensation Committee and the BOD of MPIC which is based on profit targets for the covered Performance Cycle. The cost of LTIP is determined using the projected unit credit method based on prevailing discount rates and profit targets. While management’s assumptions are believed to be reasonable and appropriate, significant differences in actual results or changes in assumptions may materially affect the Company’s other long term incentives benefits.
Carrying value of the LTIP, recognized under “Other reserves” in the equity section of the consolidated balance sheet, amounted to P=15.1 million as at December 31, 2011 (see Note 23). LTIP payable as at December 31, 2011 amounted to P=60.5 million (see Note 23).
Provisions. The Company recognizes provisions based on estimates of whether it is probable that an outflow of resources will be required to settle an obligation. Where the final outcome of these matters is different from the amounts that were initially recognized, such differences will impact the financial performance in the current period in which such determination is made.
The provision for the heavy maintenance requires an estimation of the periodic cost, generally estimated to be every five to seven years or the expected heavy maintenance dates, to restore the assets to a level of serviceability during the service concession term and in good condition before turnover to the Grantor. This is based on the best estimate of management to be the amount expected to be incurred to settle the obligation at every heavy maintenance date discounted using a pre-tax rate that reflects the current market assessment of the time value of money and the risk specific to the liability.
Provisions (current and noncurrent) amounted to P=439.0 million and P=426.5 million as at December 31, 2011 and 2010, respectively (see Note 16).
Contingencies. The Company is a party to certain lawsuits or claims arising from the ordinary course of business. However, the Company’s management and legal counsel believe that the eventual liabilities under these lawsuits or claims, if any, will not have a material effect on the consolidated financial statements. Accordingly, no provision for probable losses arising from contingencies was recognized in the consolidated financial statements as at December 31, 2011 and 2010 (see Note 33).
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6. Business Combination
On July 20, 2010, MPTC entered into a Share Purchase Agreement (SPA) with a third party for the acquisition of 148,000 common shares in MSIHI (representing 37% of the outstanding capital stock of MSIHI) for a purchase price of P=51.0 million. An amendment to the SPA was made on August 30, 2010, reflecting the allocation of the purchase price as follows:
§ P=14.8 million as consideration for the MSIHI shares; and
§ P=36.2 million as consideration for the assignment to MPTC of the third party’s deposit for future stock subscription in MSIHI.
On August 30, 2010, the parties signed the Deed of Absolute Sale of Shares and the Deed of Assignment of the deposit for future stock subscription. Gain on bargain purchase from the acquisition amounted to P=57.3 million and was included as income in the determination of the Company’s share of MSIHI’s profit or loss in August 2011.
On December 30, 2010, MPTC acquired from another third party an additional 20% interest in MSIHI. Through a Deed of Absolute Sale of Shares, MPTC agreed to buy the 80,000 MSIHI shares from the said third party for P=8.0 million. In addition, through a Deed of Assignment, the said third party also assigned to MPTC its deposit for stock subscription for P=19.6 million.
As at December 30, 2010, MPTC had acquired 57% of the outstanding capital stock of MSIHI. The Company elected to measure the non-controlling interest in the acquiree at the proportionate share of its interest in the acquiree’s identifiable net assets.
In 2010, the Company recorded its share in the identifiable assets of MSIHI, which comprise mainly of AFS financial assets, on the basis of provisional values which is allowed by PFRS 3. In 2011, the Company finalized the purchase price allocation and the purchase price consideration has been allocated to the assets and liabilities on the basis of fair values at the date of acquisition as follows:
Fair Values Recognized on
Acquisition Cash in bank P=26,890 AFS financial asset (see Note 13) 315,746,526 315,773,416 Accounts payable and accrued expenses 702,783 Due to a related party 1,445,519 Payable to stockholders 3,428,176 Deferred tax liability 17,474,352 23,050,830 Net assets 292,722,586 Non-controlling interests (43% of net assets fair value) (125,870,712) Total net assets acquired 166,851,874 Gain on bargain purchase (Note 26) (30,951,517) Consideration transferred P=135,900,357
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Total consideration transferred consists of the following:
Total cash paid on acquisition P=27,593,000 Fair value of previously held interest 108,307,357 P=135,900,357
The purchase price consideration was initially allocated to the identifiable assets and liabilities of MSIHI on the basis of provisional values in which a provisional goodwill of P=1.4 million was recognized. The purchase price completion resulted in a gain on bargain purchase of P=31.0 million which was presented as “Other income” in the consolidated statement of income and which gain arose from the increase in value of MSIHI’s AFS financial assets (see Note 26). MSIHI’s AFS financial assets relate to its investments in CMMTC who is into Skyway operation and CMMTC is projected to generate more cash flows from its periodic toll rate adjustments, expansion projects and repayment of long-term debts. The goodwill of P=1.4 million that was provisionally recognized was also reversed in 2011. There is also an increase in the deferred tax liability of P=17.5 million and an increase in non-controlling interest from the previously recognized amount of P=58.2 million to P=125.9 million. The effect of the adjustment is not material and as such, the previous year consolidated financial statements were no longer restated.
Net cash outflow on acquisition is as follows:
Total cash paid on acquisition P=78,640,938 Cash acquired with the subsidiary 26,890 Net cash outflow P=78,614,048
Transaction costs of P=0.1 million have been expensed and are included in “General and administrative expenses” in the consolidated statement of income for the year ended December 31, 2010.
From the date of acquisition to December 31, 2010, MSIHI contributed a loss of P=0.1 million to the consolidated net income of the Company. If the combination had taken place at the beginning of the year, revenue would still be the same since MSIHI has no revenue in 2010 while the consolidated net income of the Company would have decreased by P=0.2 million.
7. Operating Segment Information
The Company has only one operating segment which is the tollways business. The Company’s results of operations are reviewed by the chief operating decision maker to make decisions and to assess Company performance, and for which discrete financial information is available.
The Company’s performance is evaluated based on net income for the year; earnings before interest, taxes and depreciation and amortization (EBITDA); EBITDA margin; core income; and core income margin. Net income for the year is measured consistent with the consolidated net income in the consolidated financial statements.
EBITDA is measured as net income excluding amortization of service concession asset, depreciation of property and equipment, provision for heavy maintenance, asset impairment on noncurrent assets, interest expense and other finance costs, interest income, equity in net earnings of an associate, net foreign exchange gain (loss), gain (loss) on derivative financial instruments, provision for (benefit from) income tax and other nonrecurring income and expenses.
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Nonrecurring items represent income and expenses that, through occurrence or size, are not considered usual operating items. EBITDA margin pertains to EBITDA divided by net toll revenues.
Core income for the year is measured as net income attributable to equity holders of MPTC, excluding adjustments on equity in net earnings of an associate, foreign exchange (gain) loss - net, gain (loss) on derivative financial instruments, gain (loss) on prepayment or extinguishment of debt, asset impairment on noncurrent assets, net of tax effects of aforementioned adjustments and other nonrecurring income and expenses, as defined under the Company’s policy.
Core income margin pertains to core income divided by net toll revenues. Net income margin pertains to net income attributable to equity holders of MPTC divided by net toll revenues.
The revenues, net income, assets, liabilities, and other information of the Company’s operations as at and for the years ended December 31, 2011, 2010 and 2009 are as follows:
2011 2010 2009 Net toll revenues P=6,464,946,010 P=5,857,950,486 P=5,487,387,690 Other income 95,663,940 175,520,862 81,790,398 Total revenues 6,560,609,950 6,033,471,348 5,569,178,088 Operating and maintenance costs (2,022,314,753) (1,909,490,501) (1,913,275,375) Operating expenses (580,587,335) (584,506,050) (494,853,744) Equity in net earnings of an associate 185,626,761 152,209,826 152,167,611 EBITDA 4,143,334,623 3,691,684,623 3,313,216,580 Financing costs (679,351,213) (813,276,331) (800,693,288) Core income before depreciation, amortization
and provisions 3,463,983,410 2,878,408,292 2,512,523,292 Depreciation, amortization and provisions* (1,327,773,296) (765,775,394) (799,572,929) Core income before non-controlling interests 2,136,210,114 2,112,632,898 1,712,950,363 Non-controlling interest (657,375,770) (647,821,093) (492,999,528) Core income 1,478,834,344 1,464,811,805 1,219,950,835 Nonrecurring items (221,481,031) (468,320,776) (638,299,099) Net income attributable to equity holders of MPTC P=1,257,353,313 P=996,491,029 P=581,651,736
2011 2010 2009
EBITDA margin for the year 64% 63% 60% Core income margin for the year 23% 25% 22% Net income margin for the year 19% 17% 11%
Total assets P=19,479,102,595 P=19,329,132,012 P=18,341,834,547 Total liabilities 11,279,307,260 11,227,779,967 10,016,584,416 Total equity 8,199,795,335 8,101,352,045 8,325,250,131
Other disclosures: Investment in an associate P=147,231,019 P=140,711,492 P=124,783,272 Capital expenditure (consists of additions to
property and equipment and service concession asset) 145,960,592 1,288,921,898 360,827,347
* Includes provision for current and deferred income taxes.
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The following table shows the reconciliation of EBITDA to net income for the years ended December 31, 2011, 2010 and 2009.
2011 2010 2009 EBITDA P=4,143,334,623 P=3,691,684,623 P=3,313,216,580 Interest expense and other finance costs
(see Note 25) (1,276,922,425) (1,110,673,453) (959,810,696) Amortization of service concession asset
(see Notes 12 and 20) (592,987,123) (559,180,335) (505,052,189) Interest income (see Note 24) 161,261,687 109,499,696 86,252,406 Provision for heavy maintenance (see Note 20) (109,116,393) (54,911,915) (204,538,073) Depreciation of property and equipment
(see Notes 11 and 21) (35,210,857) (29,629,639) (33,661,057) Nonrecurring items: Reversal of allowance for potential losses on
input VAT (see Notes 5 and 26) 288,052,966 – – Reclassification of input VAT* (132,226,188) – – Mark-to-market gain (loss) on derivatives
(see Notes 26 and 31) (94,636,391) (227,517,489) (19,219,364) Gain on bargain purchase of MSIHI shares
(see Notes 6 and 26) 88,210,936 – – Refunds from lenders (see Note 26) 24,183,224 – – Foreign exchange gain (loss) - net (10,753,384) 111,910,835 8,895,157 Provision for potential losses on claim for
refund (see Note 21) (8,640,240) – – Share in nonrecurring items of an associate 3,105,507 10,458,394 21,784,165 Write-off of input VAT (see Notes 5 and 21) – – (94,271,475) Provision for potential losses on input VAT
(see Notes 5 and 21) – (334,069,949) (1,104,632,613) Gain on sale of investment
(see Notes 19 and 26) – – 203,942,145 Loss on extinguishment of debt
(see Notes 17 and 26) – – (9,895,721) Other nonrecurring items (99,394,307) (102,390,747) 1,152,336 Income before income tax 2,348,261,635 1,505,180,021 704,161,601 Provision for (benefit from) income tax
(see Note 27): Current 557,622,075 51,837,904 46,787,153 Deferred 11,673,716 26,642,331 (8,610,306) 569,295,791 78,480,235 38,176,847 Net income for the year P=1,778,965,844 P=1,426,699,786 P=665,984,754 * In 2011, as a result of the implementation of RMC No. 39-2011 as discussed in Note 5, MNTC reclassed certain input VAT incurred
in January 1 to September 30, 2011 to related expense accounts.
The following table shows the reconciliation of the consolidated core income to the consolidated net income for the years ended December 31, 2011, 2010 and 2009.
2011 2010 2009 Core income for the year P=1,478,834,344 P=1,464,811,805 P=1,219,950,835 Loan prepayment fees (see Note 25) (329,943,301) – – Reversal of allowance for potential losses on input
VAT (see Notes 5 and 26) 288,052,966 – – Share of non-controlling interests in nonrecurring
items 135,763,239 217,612,339 408,666,507 Reclassification of input VAT* (132,226,188) – – Accelerated amortization of debt issue costs
(see Note 25) (97,419,279) (144,324,159) (25,311,900) Mark-to-market loss on derivatives
(see Notes 26 and 31) (94,636,391) (227,517,489) (19,219,364)
(Forward)
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2011 2010 2009 Gain on bargain purchase of MSIHI shares
(see Notes 6 and 26) P=88,210,936 P=– P=– Refunds from lenders (see Note 26) 24,183,224 – – Foreign exchange gain (loss) - net (10,753,384) 111,910,835 8,895,157 Provision for potential losses on claim for refund
(see Note 21) (8,640,240) – – Share in nonrecurring items of an associate 3,105,507 10,458,394 21,784,165 Write-off of input VAT (see Notes 5 and 21) – – (94,271,475) Provision for potential losses on input VAT
(see Notes 5 and 21) – (334,069,949) (1,104,632,613) Gain on sale of investment, net of capital gains tax
(see Notes 19, 26 and 27) – – 182,959,145 Loss on extinguishment of debt
(see Notes 17 and 26) – – (9,895,721) Other nonrecurring items (87,178,120) (102,390,747) (7,273,000) Net income attributable to equity holders of MPTC 1,257,353,313 996,491,029 581,651,736 Net income attributable to non-controlling interests 521,612,531 430,208,757 84,333,018 Net income for the year P=1,778,965,844 P=1,426,699,786 P=665,984,754 * In 2011, as a result of the implementation of RMC No. 39-2011 as discussed in Note 5, MNTC reclassed certain input VAT incurred
in January 1 to September 30, 2011 to related expense accounts. 8. Cash and Cash Equivalents
This account consists of:
2011 2010 Cash on hand and in banks (see Note 17) P=124,803,273 P=1,017,806,740 Short-term deposits 1,528,736,644 856,310,117 P=1,653,539,917 P=1,874,116,857
Cash in banks earn 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 respective short-term deposit rates.
9. Receivables
This account consists of:
2011 2010 Trade receivables (see Note 18) P=89,345,710 P=40,179,766 Advances to officers and employees (see Note 18) 7,773,618 5,515,624 Interest receivables 3,513,967 3,807,630 Other receivables (see Note 18) 6,838,554 22,287,279 107,471,849 71,790,299 Less allowance for doubtful accounts 5,259,500 5,259,500 P=102,212,349 P=66,530,799
Trade receivables are noninterest-bearing and are generally collectible within a year.
Advances to officers and employees are normally collected or liquidated within a month.
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Interest and other receivables are collectible within three months. As at December 31 2010, other receivable includes MNTC’s receivable from Philippine Long Distance Telephone Company (PLDT) amounting to P=11.1 million (inclusive of VAT) in relation to the Fiber Cable Overlay Project along Segment 8.1 (see Note 18).
Receivables from Easytrip Services Corporation (ESC) amounting to P=9.6 million as at December 31, 2010 previously classified under “Due from related parties” account was reclassified to “Receivables” account to conform with the current year presentation. The reclassification is only within current assets and no third consolidated balance sheet is needed.
There were no movements in the allowance for individually assessed impaired trade receivables as at December 31, 2011 and 2010.
10. Investment in an Associate
Details of the Company’s investment in TMC, a 46.0% owned associate, are as follows:
2011 2010 Acquisition cost P=17,480,000 P=17,480,000 Accumulated equity in net earnings: Balance at beginning of year 123,231,492 107,303,272 Equity in net earnings for the year 188,732,268 162,668,220 Dividends received (182,212,741) (146,740,000) Balance at end of year 129,751,019 123,231,492 P=147,231,019 P=140,711,492
As further discussed in Note 18, TMC is primarily engaged in the operations and maintenance of tollways, tollways facilities, interchanges and related works. TMC is the operator of Phase I, including Segment 7, of the Project of MNTC under an O&M.
Also, TMC is a party to a joint venture that entered into an agreement with BCDA for the interim operation and maintenance of the SCTEx, a 94-km toll road (see Note 29).
Condensed financial information of TMC follows:
December 31,
2011 December 31,
2010 Total assets P=1,030,698,328 P=897,848,778 Total liabilities 706,671,123 591,954,229
Years Ended December 31 2011 2010 2009 Revenues P=1,852,250,735 P=1,744,767,539 P=1,732,844,321 Expenses 1,438,003,424 1,391,140,974 1,387,670,606 Net income 414,247,311 353,626,565 345,173,715
TMC’s BOD approved the declaration of cash dividends aggregating to P=396.1 million and P=319.0 million in 2011 and 2010, respectively.
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On February 23, 2012, TMC’s BOD approved the declaration of cash dividends amounting to P=209.3 million.
11. Property and Equipment
The movements in this account follow:
Building, Building
Improvements and Leasehold Improvements
Transportation Equipment
Office Equipment and Others Total
Cost: At January 1, 2010 P=73,040,976 P=57,583,813 P=119,093,496 P=249,718,285 Additions 2,910,671 16,690,029 16,256,760 35,857,460 Disposals (4,162,963) (10,973,050) (5,827,972) (20,963,985) At December 31, 2010 71,788,684 63,300,792 129,522,284 264,611,760 Additions 4,301,331 22,183,015 20,398,803 46,883,149 Reclassifications (Note 5) 7,200,251 1,326,214 954,427 9,480,892 Disposals – (9,319,183) (1,311,875) (10,631,058) At December 31, 2011 P=83,290,266 P=77,490,838 P=149,563,639 P=310,344,743
Accumulated depreciation: At January 1, 2010 P=14,228,878 P=30,912,018 P=91,068,975 P=136,209,871 Depreciation (see Note 21) 4,477,892 9,182,053 15,969,694 29,629,639 Disposals (4,162,962) (7,980,657) (5,597,419) (17,741,038) At December 31, 2010 14,543,808 32,113,414 101,441,250 148,098,472 Depreciation (see Note 21) 5,649,720 12,742,884 16,818,253 35,210,857
Disposals – (8,016,800) (1,311,819) (9,328,619) At December 31, 2011 P=20,193,528 P=36,839,498 P=116,947,684 P=173,980,710
Net book value: At December 31, 2011 P=63,096,738 P=40,651,340 P=32,615,955 P=136,364,033 At December 31, 2010 57,244,876 31,187,378 28,081,034 116,513,288 At January 1, 2010 58,812,098 26,671,795 28,024,521 113,508,414
The estimated useful lives of property and equipment are as follows: Building and building improvements 5–23 years Leasehold improvements 5 years Transportation equipment 5 years Office equipment and others 3–5 years
As discussed in Note 5, input VAT amounting to P=9.5 million relates to the purchase of property and equipment and therefore were reclassified to “Property and equipment” account in 2011 and are being depreciated over the remaining useful lives of the property and equipment using the straight line method. The depreciation of the capitalized input VAT amounted to P=2.3 million for the year ended December 31, 2011.
Proceeds from the sale of property and equipment amounted to P=1.8 million in 2011, P=5.0 million in 2010 and P=3.1 million in 2009. Gain on disposals of property and equipment amounted to P=0.5 million in 2011, P=1.8 million in 2010 and P=0.8 million in 2009.
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12. Service Concession Asset
The movements in the service concession asset follow:
2011 2010 Cost: Balance at beginning of year P=19,481,963,315 P=18,228,898,877 Additions 99,077,443 1,253,064,438 Reclassification (see Note 5) 228,124,150 – Balance at end of year P=19,809,164,908 P=19,481,963,315
Accumulated amortization: Balance at beginning of year P=3,664,103,452 P=3,104,923,117 Amortization (see Note 20) 592,987,123 559,180,335 Balance at end of year P=4,257,090,575 P=3,664,103,452
Carrying value: At December 31 P=15,552,074,333 P=15,817,859,863 At January 1 15,817,859,863 15,123,975,760
Additions during 2011 pertain mainly to pre-construction costs of Segments 8.2, 9 and 10 of Phase II of the Project while additions during 2010 pertain mainly to the construction of Segment 8.1. Borrowing costs capitalized amounted P=35.2 million for the year ended December 31, 2010. The interest rate used to determine the amount of borrowing costs eligible for capitalization was 9.6% in 2010. There are no borrowing costs capitalized in 2011 as Segment 8.1 already started tollway operation in June 2010.
As discussed in Note 5, input VAT amounting to P=228.1 million relates to the construction of the toll road and therefore were reclassified to “Service concession asset” account in 2011 and are being amortized over the remaining service concession term using the straight line method. The amortization of the capitalized input VAT amounted to P=8.2 million for the year ended December 31, 2011.
13. Available-for-Sale Financial Assets
This account consists of:
2011 2010 Current - Investment in bonds P=– P=51,812,500 Noncurrent: Investment in unquoted equity shares: CMMTC (see Note 6) 315,746,526 140,953,009 PGOACI 12,500,000 – Investment in bonds 577,721,750 372,280,500 905,968,276 513,233,509 P=905,968,276 P=565,046,009
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CMMTC Investment in CMMTC represents 2.7% interest in unquoted shares of stocks of CMMTC (see also Note 6).
PGOACI On June 14, 2011, MPTC entered into a Shareholders Agreement with PLDT, Meralco Powergen Corporation, Philex Mining Corporation, MPIC and Jubilee Sky Limited to establish PGOACI to carry on, by means of aircraft of every kind or description, the general business of common and/or private carrier. The Company subscribed and paid for 12,500,000 shares at a par value of P=1 per share which represents 5.0% interest in unquoted shares of stocks of PGOACI.
Investment in Bonds This consists of investments in fixed rate retail treasury bonds of the ROP. The quoted ROP treasury bonds which bear fixed interest rates ranging from 5.9% to 9.0% is payable quarterly and with the following maturities:
December 31, 2011 December 31, 2010
Maturity Date Fair Value Principal Amount Fair Value
Principal Amount
July 31, 2011 P=– P=– P=51,812,500 P=50,000,000 July 31, 2013 55,596,750 50,600,000 56,545,500 50,600,000 August 9, 2015 313,125,000 300,000,000 315,735,000 300,000,000 March 3, 2016 209,000,000 200,000,000 – – P=577,721,750 P=550,600,000 P=424,093,000 P=400,600,000
As discussed in Note 5, investments in bonds are previously classified as HTM investments and carried at amortized cost. In August 2010, prior to the bonds’ maturity, MNTC sold P=300.0 million of its investment in retail treasury bonds and invested the same for new retail treasury bonds with higher yield at 5.9% from 5.3%. The maturity date of the new retail treasury bonds is August 2015. In March 2011, MNTC acquired additional P=200.0 million of treasury bonds with interest rate of 6% maturing on March 3, 2016. The pretermination of the bonds precludes the Company from classifying any existing and new investments as HTM investments, hence the reclassification of investments in bonds from HTM investments to AFS financial assets.
Proceeds from the maturity of bonds on July 31, 2011 amounted to P=50.0 million. There were no disposals of investments in bonds in 2011.
The fair value of the investment in bonds is based on quoted market price of the ROP government bonds as at December 31, 2011 and 2010. Gain on fair value change in investment in bonds for the years ended December 31, 2011 and 2010 amounting to P=2.5 million (net of tax of P=1.1 million) and P=16.4 million (net of tax of P=7.0 million), respectively, are recognized as other comprehensive income.
14. Other Noncurrent Assets
This account consists of:
2011 2010 Goodwill (see Note 6) P=13,565,061 P=15,026,049 Refundable deposits and other noncurrent assets 54,232,681 21,783,830 P=67,797,742 P=36,809,879
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Goodwill is the difference between the cost of business combination and the fair values of assets and liabilities. This includes goodwill of P=13.6 million arising from the reverse acquisition in 2007 when FPHC and BHC transferred all their shares in MPTDC (then FPIDC, MPTDC regarded as the accounting acquirer) in exchange for shares of MPTC.
15. Accounts Payable and Other Current Liabilities
This account consists of:
2011 2010 Trade payables (see Note 18) P=303,300,725 P=281,704,119 Accrued expenses (see Note 18) 590,765,908 183,784,228 Output value-added tax (see Note 5) 77,456,599 20,773,758 Withholding taxes payable 37,876,295 58,545,728 Interest payable 32,472,965 23,879,072 Retention payable 29,112,003 25,829,577 Others 18,459,711 12,595,645 P=1,089,444,206 P=607,112,127
Trade payables and accrued expenses are noninterest-bearing and are normally settled within one year.
Accrued expenses consist of:
2011 2010 PNCC fees (see Note 18) P=417,553,845 P=32,366,834 Operator’s fees (see Note 18) 73,261,323 33,588,046 Salaries and employee benefits 37,444,908 36,929,816 Professional fees 31,572,780 22,811,301 Repairs and maintenance 10,862,490 21,386,083 Spare parts inventories 8,441,549 3,936,634 Outside services 1,861,343 7,750,310 Toll collection and medical services 1,646,400 1,810,828 Construction costs 831,690 9,766,486 Advertising and marketing 684,705 5,685,396 Communication, light and water 158,077 780,902 Others 6,446,798 6,971,592 P=590,765,908 P=183,784,228
Interest payable is settled within six months.
Trade and accrued payables to TMC, ESC, Egis Projects Philippines, Inc. (EPPI) and PNCC as at December 31, 2010 amounting to P=321.3 million, previously classified as “Due to related parties” account, were reclassified to “Accounts payable and other current liabilities” account to conform with the current year presentation. The reclassification is only within current liabilities and no third consolidated balance sheet is needed.
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16. Provisions
The movements in this account follows:
Heavy
Maintenance Others Total At January 1, 2010 P=415,827,304 P=39,317,102 P=455,144,406 Additions (see Notes 20 and 21) 61,501,345 21,551,247 83,052,592 Payments (80,636,409) (31,026,928) (111,663,337) At December 31, 2010 396,692,240 29,841,421 426,533,661 Additions (see Notes 20 and 21) 120,000,000 38,799,285 158,799,285 Payments (146,297,614) – (146,297,614) At December 31, 2011 P=370,394,626 P=68,640,706 P=439,035,332
At December 31, 2011: Current P=180,462,724 P=68,640,706 P=249,103,430 Noncurrent 189,931,902 – 189,931,902 P=370,394,626 P=68,640,706 P=439,035,332
At December 31, 2010: Current P=88,349,568 P=29,841,421 P=118,190,989 Noncurrent 308,342,672 – 308,342,672 P=396,692,240 P=29,841,421 P=426,533,661
As discussed in Note 5, provision for heavy maintenance pertains to the present value of the estimated contractual obligations of MNTC to restore the service concession asset to a specified level of serviceability during the service concession term and to maintain the same assets in good condition prior to turnover of the assets to the Grantor. The amount of provision is reduced by the actual obligations paid for heavy maintenance of the service concession asset.
Other provisions consist of estimated liabilities for losses on claims by a third party. The information usually required by PAS 37, “Provisions, Contingent Liabilities and Contingent Assets” is not disclosed as it may prejudice the Company’s negotiation with the third party.
17. Long-term Debt
This account consists of borrowings of MNTC:
2011 2010 Peso-denominated Notes and Loans: Series A Notes P=6,210,230,849 P=– Philippine National Bank Loan (PNB) 1,995,000,000 2,100,000,000 Term Loan Facility 1,000,000,000 – Fixed Rate Corporate Notes (FXCN) – 5,335,000,000 Asian Development Bank (ADB) Direct Loan
(ADB Direct) – 435,454,674 Total (Carried Forward) 9,205,230,849 7,870,454,674
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2011 2010 Total (Brought Forward) P=9,205,230,849 P=7,870,454,674 U.S. Dollar-denominated Loans: USD Bank Facility (USD) – 616,006,080 ADB Complementary Finance Scheme
(ADB-CFS) – 384,300,597 Credit Agricole Corporate and Investment Bank
(formerly Calyon S.A. Corporate and Investment Bank) (COFACE) – 314,945,870
Export Finance and Insurance Corporation (EFIC) – 308,096,178
– 1,623,348,725 9,205,230,849 9,493,803,399 Less unamortized debt issue costs 154,613,409 139,470,924 9,050,617,440 9,354,332,475 Less current portion of long-term debt - net of
unamortized debt issue costs of P=21,927,648 in 2011 and P=42,424,751 in 2010 145,174,660 2,176,378,648
P=8,905,442,780 P=7,177,953,827
The unamortized debt issue costs incurred in connection with the availment of long-term debt amounting to P=154.6 million and P=139.5 million as at December 31, 2011 and 2010, respectively, were deducted against the long-term debt. The movements in debt issue costs are as follows:
2011 2010 Balance at beginning of year P=139,470,924 P=226,995,394 Amortization during the year* (see Note 25) (134,890,348) (206,237,216) Debt issue costs incurred during the year 150,032,833 122,343,370 Foreign exchange adjustments – (3,630,624) Balance at end of year P=154,613,409 P=139,470,924 * Includes amortization of debt issue costs capitalized to service concession asset amounting to P=667,833 in 2010.
In 2001, MNTC entered into a Common Terms Agreement (CTA) with the lenders, the security trustee, the co-security trustee and inter-creditor agent. The CTA specifies the mechanics on the funding under the term facilities, payment and prepayments, as well as the conditions precedent to drawdown set forth by the secured lenders. The CTA also contains covenants concerning restrictions with respect to, among others, waiver, modification, amendment or assignment of the key project agreements, hedge agreements, restricted payments, and the maximum debt-to-base equity ratio and the level of the debt-service-coverage ratio. Total financing facility availed by MNTC under the original CTA amounted to US$252.2 million.
The loans were granted under a limited-recourse project finance structure. Substantially all existing and future assets of MNTC are mortgaged in favor of the lenders in line with the requirements of the Mortgage, Assignment and Pledge Agreement, known as the Master Security Agreement (MSA). In addition, MPTDC, then FPIDC, and Egis Projects S.A. (Egis) provided completion support as agreed under the Sponsor Support Agreement (SSA).
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On November 8, 2006, MNTC refinanced its outstanding loans through partial prepayment and restructuring of MNTC’s U.S. dollar-denominated long-term debt using the proceeds of a P=5.5 billion FXCN issue. The refinanced debt package consisted of a total of US$100.0 million in U.S. dollar term loan facilities participated in by majority of the original project lenders and a P=5.5 billion FXCN issue participated in by 16 qualified local institutional investors (Issuer).
The aggregate U.S. dollar term loan facilities consist of direct loan facilities from multi-lateral and bilateral institutions like ADB and EFIC and syndicated facilities, including a covered loan from COFACE, the French export credit agency, participated in by a mix of four foreign commercial banks. The loans are payable in 16 equal semi-annual installments starting December 15, 2006 up to June 15, 2014 which is the original maturity date. Interest rates on direct U.S. Dollar loan facilities, consisting of fixed rates, range from 8.03% to 8.25% in 2010. Interest rates on syndicated U.S. Dollar loan facilities, consisting of fixed and floating rates, range from 3.39% to 6.13% in 2010.
The FXCNs are payable within seven years from issue date under a bullet-like structure, i.e., 94% of the principal is payable on maturity date (November 17, 2013) while the balance of 6% is payable over the term of the notes in minimal annual installments. The simultaneous prepayment and drawdown on refinancing date (November 17, 2006) was facilitated through a US$96 million Conversion Bridge Facility (Bridge Loan) provided by Mizuho Corporate Bank, Ltd. (Singapore). This was a cash-secured temporary dollar facility backed by the FXCN proceeds that allowed MNTC to obtain the necessary dollars for the lump sum prepayment on refinancing date. The Bridge Loan was fully paid on December 5, 2006. Under the Notes Purchase Agreement covering the FXCN, the Issuer may at its option redeem the notes prior to the maturity date in whole but not in part subject to the terms and conditions of the agreement. The interest rate is fixed at 9.75% per annum.
In connection with the refinancing, the CTA, MSA and other loan agreements were amended to reflect the revised covenants and security package covering all of MNTC’s debt on a parri-passu basis. The major amendments are: (a) the removal of pledge of shares and other forms of sponsor support in the security package; (b) the release of trapped cash in the form of maintenance reserves, the principal portion of the debt reserve, and undrawn base equity contributions; (c) the reduction of assigned contracts; (d) the removal of assignment of operator assets and contracts as well as PNCC rights under certain contracts; and (e) the relaxation of the loan covenants. Certain agreements like the SSA were terminated and the sponsor guarantees along with other elements of the original security package were released effective November 17, 2006.
On November 13, 2008, MNTC entered into an amendment agreement to the CTA to reflect the replacement of FPHC by MPIC as project sponsor. On January 19, 2009, the CTA was further amended mainly to incorporate the option to convert the ADB Direct Loan from U.S. dollar to Philippine peso which took effect on March 11, 2009. As a result of the conversion, MNTC recognized a loss on extinguishment of debt amounting to P=9.9 million and is included in the “Other expense” account in the 2009 consolidated statement of income (see Note 26). Interest rate on ADB Direct is 4.66% in 2010.
On March 16, 2009, MNTC also entered into a seven-year term loan agreement for a facility amount of P=2.1 billion with PNB to finance the project cost of Segment 8.1. The PNB Loan qualified as senior debt which entitles the lender to share in the same security package as Phase I lenders. Interest rate on the PNB Loan is initially fixed at 9.61% per annum. On November 22, 2010, the interest rate of the PNB Loan was amended from fixed to floating rate based on a six-month Philippine Dealing System Treasury Fixing (PDSTF) plus a spread of 0.50%. As at
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December 31, 2011 and 2010, loan drawdowns on the facility amounted to P=2.1 billion. Interest rates range from 2.16% to 5.88% in 2011 and 2.16% to 9.61% in 2010.
On April 27, 2009, MNTC entered into a credit agreement with Security Bank for a standby letter of credit (SBLC) facility of up to P=100.0 million for a period of 24 months to secure MNTC’s Segment 8.1 construction obligation in favor of the TRB. The letter of credit for an amount of P=80.3 million was issued effective April 27, 2009. The substantial completion of Segment 8.1 triggered the reduction of the face value of the SBLC to P=3.8 million as at December 31, 2010. Upon TRB’s final acceptance of Segment 8.1, as certified by its independent engineer, MNTC arranged the cancellation of the SBLC effective April 11, 2011.
The security for the above loans, which were released in April 15, 2011, is embodied in the following agreements:
a. Trust and Retention Agreement (TRA) with the secured lenders’ designated trustees and the inter-creditor agent. The TRA provides for the establishment and regulation of the security accounts and the security account collateral where the inflows and outflows of project revenues may be monitored. The security accounts form part of “Cash and cash equivalents” account in the consolidated balance sheets.
b. The MSA which grants to the trustees, on behalf of the secured lenders, the security interest in MNTC’s various assets. The agreement provides for the establishment of real estate mortgage and chattel mortgage as well as the assignment of key project agreements, insurances, and bank accounts and investments in favor of the co-security trustee for the benefit of the secured lenders.
On December 7, 2010, MNTC issued an irrevocable prepayment notice indicating MNTC’s firm intention to prepay in full all outstanding amounts under the U.S. Dollar loan facilities and ADB Direct loan on January 14, 2011. The costs and fees incurred for the prepayment of the U.S. Dollar loan facilities and ADB Direct loan amounting to P=103.9 million was included as part of the amortized cost of the loans.
On December 21, 2010, MNTC entered into a Notes Facility Agreement with local financing institutions for a P=2.7 billion short-term unsecured and subordinated notes facility. Proceeds of the notes which were fully drawn on January 11, 2011 were used for the prepayment of the U.S. Dollar loans and other corporate purposes. The notes are payable every three months, up to a maximum term of one year from initial drawdown date.
On March 11, 2011, MNTC entered into an interest rate swap transaction with PNB to convert the floating-rate PNB loan to fixed rate effective March 14, 2011. The interest rate swap effectively fixed the floating rate of the said loan over the remaining tenor at 5.9% per annum.
On April 15, 2011, MNTC entered into a Corporate Notes Facility Agreement with various local financial institutions for fixed-rate unsecured notes amounting to P=6.2 billion, with tenors ranging from 5 years, 7 years and 10 years (“Series A Notes”). Proceeds of the notes were used to prepay the P=2.7 billion short-term loan in full and to partially prepay the 2006-issued FXCN, with outstanding amount of P=3.0 billion, on April 19, 2011. Weighted average fixed interest rate on the Series A Notes is 7.22% per annum. Debt issue costs incurred in the availment of the Series A notes amounted to P=141.9 million in 2011. Acceleration of the unamortized debt issue costs relating to the prepayment of the 2006-issued FXCN amounted to P=61.3 million in 2011.
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On April 15, 2011, MNTC entered into an Amended and Restated Loan Agreement with PNB to amend certain commercial terms of the 2009 PNB Loan, incorporate the interest rate conversion from fixed to floating rate, and align the loan covenants with that of the Series A Notes.
On November 29, 2011, MNTC issued a notice of prepayment to the remaining 2006-issued FXCN holders which agreed to relax the loan covenants but did not accept MNTC’s initial prepayment offer. On December 15, 2011, these Noteholders with outstanding notes of P=2.3 billion were prepaid in full. Acceleration of unamortized debt issue costs relating to the prepayment of the remaining 2006 - issued FXCN holders amounted to P=36.1 million.
The prepayment fees paid to Noteholders in relation to the prepayment of the 2006-issued FXCN amounting to P=329.9 million were recognized as part of “Interest expense and other finance costs” in the 2011 consolidated statement of income (see Note 25).
On December 12, 2011, MNTC entered into a Term Loan Facility Agreement for a P=1.0 billion fixed-rate term loan facility from The Insular Life Assurance Company, Ltd. and the Philippine American Life and General Insurance Company. The loan facility has a final maturity date of 15 years, with two bullet repayment tranches of P=500.0 million each after 10 and 15 years from availment date. Average fixed interest rate on the loan facility is 7.10% per annum. Debt issue cost incurred in the availment of the fixed-rate term loans amounted to P=8.2 million.
As at December 31, 2011 and 2010, MNTC is in compliance with the required financial ratios and other loan covenants.
18. 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 entities 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 entities.
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The following table provides the total amount (in thousands) of significant transactions with related parties for the relevant year:
Name Relationship
Management Income
(see Note 26)
Guarantee Income
(see Note 26)
Interest Income
(see Note 24)
Income from Utility
Facilities (see Note 26)
Income from advertising
(see Note 26)
Operator’s Fee
(see Note 20) PNCC Fee
(see Note 20)
Repairs and
Maintenance (see Note 20)
Outside Services
(see Note 21)
Management Fees
(see Note 21) Rentals
(see Note 21) TMC 2011 Associate P=84,700 P=23,152 P=10,892 P=– P=– P=1,566,118 P=– P=– P=– P=– P=– 2010 56,000 23,256 10,899 – – 1,339,567 – – – – – 2009 50,603 18,453 16,456 – – 1,338,522 – – – – –
PNCC 2011 Non-controlling Stockholder
– – – – – – 385,245 – – – – 2010 – – – – – – 348,358 – – – – 2009 – – – – – – 291,872 – – – –
EPPI 2011 Affiliate – – – – – – – 26,153 – – – 2010 – – – – – – – 24,280 – – – 2009 – – – – – – – 27,785 – – –
ESC 2011 Affiliate – – – – – – – – 32,835 – – 2010 – – – – – – – – 24,072 – –
2009 – – – – – – – – 19,152 – –
SMART Comunications, Inc. (SMART)
2011 Affiliate – – – 380 27,427 – – – – – –
2010 – – – 326 – – – – – 21,130 – 2009 – – – – – – – – – 18,840 –
PLDT 2011 Affiliate – – – 1,435 1,069 – – – – – 1,880 2010 – – – 63,422 – – – – – – 981 2009 – – – – – – – – – – 358
Total 2011 P=84,700 P=23,152 P=10,892 P=1,815 P=28,496 P=1,566,118 P=385,245 P=26,153 P=32,835 P=– P=1,880 2010 56,000 23,256 10,899 63,748 – 1,339,567 348,358 24,280 24,072 21,130 981 2009 50,603 18,453 16,456 – – 1,338,522 291,872 27,785 19,152 18,840 358
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Transactions with Stockholders
§ In 2011 and 2010, MPIC billed MPTC for various operating expenses paid in behalf of MPTC.
§ MPIC has assumed the obligation of BHC and FPHC to pay MPTDC (then FPIDC) advances amounting to P=237.2 million and P=225.4 million, respectively, pursuant to the Share Purchase Agreement (SPA) executed by BHC and FPHC with MPIC on August 26, 2008, in relation to the sale, assignment and transfer to MPIC of all of BHC’s and FPHC’s respective rights, title and interest in and to their shares in MPTC. As at December 31, 2011 and 2010, outstanding receivable from MPIC amounted to P=462.6 million.
Transactions with an Associate
§ TMC provides services to MNTC as operator to the NLE and Segment 7 under the O&M. The O&M contains the terms and conditions for the operation and maintenance by TMC of Phase I of the NLE and subsequently, of Segment 7, and sets forth the scope of its services. TMC is assisted by Egis Road Operation Philippines as service provider in accordance with the Technical Assistance Agreement (TAA). Under the O&M, MNTC pays TMC a minimum fixed annual amount of P=637.1 million for the NLE and P=40.6 million for Segment 7, to be escalated on a quarterly basis plus a variable component, which took effect upon start of commercial operations. The O&M, which also provides for certain bonuses and penalties as described in the O&M, shall be effective for the entire service concession period.
On May 7, 2010, MNTC and TMC agreed to reduce, effective on February 11, 2010, the minimum fixed annual amount from P=637.1 million to P=605.4 million for the NLE and from P=40.6 million to P=38.8 million for Segment 7 in view of the expiration of the TAA on February 10, 2010 and due to the reduction of six Point of Sales facilities being operated and maintained by TMC.
Moreover, on May 27, 2010, pursuant to the O&M and the TRB’s approval to integrate the operations period of Phase I and Segment 8.1, portion of Phase II of the Project, and to extend the concession term, MNTC and TMC agreed to extend the O&M to cover Segment 8.1 from June 1, 2010 until December 31, 2037. Consequently, MNTC agreed to pay TMC an annual base fee for the operations and maintenance of Segment 8.1 in the amount of P=33.6 million effective in June 2010.
§ On April 15, 2003, MNTC has agreed to make available to TMC a financing facility under the Operator Equipment Loan Agreement (OELA) with an aggregate principal amount not exceeding US$5.0 million for the acquisition of the equipment together with minor items of equipment or plant as may be reasonably required for the performance of the contracted services and for payment of deposits required for utilities. TMC has availed of the entire US$5.0 million from the facility. Interest is at London Inter-Bank Offered Rate (LIBOR) plus 1% per annum.
On June 17, 2004, the OELA was superseded whereby TMC agreed and undertook to repay, in a one lump-sum payment, the loan less the book value of any operator’s equipment returned to MNTC on the last day of the term of the O&M, which is at the end of the concession period. In 2009, TMC made full payment of the operator equipment loan.
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§ Two separate agreements on the shareholders’ corporate guarantee (collectively, “Corporate Guarantees”) were executed by MPTDC (then FPIDC) and Egis Road Operation (collectively known as “Guarantors”) with MNTC, whereby each has guaranteed the liability of TMC under the O&M in the following percentages: MPTDC – 66.0% and Egis Road Operation – 34.0%. As a consideration for the guarantee, TMC shall pay MPTDC and Egis Road Operation, annual guarantee fees equal to 2.5% of the gross value of the corporate guarantee. Any guarantee fee not paid within June 30 and December 31 of each year (“the Payment Dates”) shall earn interest computed from the relevant Payment Date up to the date of actual payment of guarantee fees. Interest is at 91-day Philippine Treasury Bill Rate plus 2% per annum as defined in the O&M.
The Company recognized a receivable from TMC equivalent to the financial guarantee obligation recorded as the present value of the guaranteed portion of the liability of TMC under the O&M. The guarantee is effective until December 31, 2037, which is the end of the service concession term. Receivable on financial guarantee from TMC, recorded under “Due from related parties (noncurrent),” and the financial guarantee obligation amounted to P=65.2 million and P=65.4 million as at December 31, 2011 and 2010, respectively. Interest income on receivable from TMC and interest expense on financial guarantee obligation amounted to P=10.9 million in 2011 and 2010 and P=12.4 million in 2009 (see Notes 24 and 25).
§ MPTC and MPTDC perform management, operational and financial advisory services for TMC. MPTC and MPTDC are in the process of formalizing their management agreements with TMC as at February 24, 2012. Total management fees amounted to P=84.7 million in 2011, P=56.0 million in 2010 and P=50.6 million in 2009 (see Note 26).
Transactions with Non-controlling Stockholders
§ In consideration of the assignment by PNCC of its usufructuary rights, interests and privileges under its franchise, PNCC is entitled to receive a payment equivalent to 6.0% and 2.0% of the toll revenue from the NLE and Segment 7, respectively. Any unpaid balance carried forward will accrue interest at the rate of the latest Philippine 91-day treasury bill rate plus 1% per annum. This entitlement, as affirmed in the Amended and Restated Shareholders’ Agreement (ARSA) dated September 30, 2004, shall be subordinated to operating expenses and the requirements of the financing agreements and shall be paid out subject to availability of funds. In December 2006, MNTC entered into a letter agreement with PNCC to set out the detailed procedure for the payment.
The PNCC franchise expired in May 2007. However, since the payment is a continuing obligation under the ARSA, the Company continues to accrue and pay the PNCC entitlement.
Prior to the letter of TRB, MNTC has been remitting payments directly to PNCC on a semi-annual basis. On December 2, 2010, MNTC received a letter from the TRB dated November 30, 2010, citing a decision of the SC dated October 19, 2010 directing MNTC to remit forthwith to the National Treasury, through TRB, all payments representing PNCC’s percentage share of the toll revenues and dividends, if any, arising out of PNCC’s participation in the NLE Project. In the said decision, the SC ruled, among others, that after the expiration of the franchise of PNCC, its share/participation in the JVAs and STOAs, inclusive of its percentage share in toll fees collected by joint venture companies currently operating the expressways, shall accrue to the Philippine Government.
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On the basis of the conflicting claims of PNCC and TRB to the revenue share and dividends, on December 8, 2010, MNTC filed a motion for clarification asking the SC to clarify the entity to which MNTC should remit its payments which was then due on December 20, 2010. Pending resolution by the SC of the motion for clarification, and pursuant to a BOD resolution dated December 23, 2010, MNTC filed a petition for consignation with the Regional Trial Court (RTC) of Caloocan for the latter to hold the payments in trust and deliver to the party ultimately adjudged by the SC to be entitled to it, unless PNCC and the TRB, in the meantime, resolve the matter between themselves, in which case the funds should be delivered and disposed of pursuant to their agreement and settlement.
On December 29, 2010, MNTC through a letter sent by its legal counsel, informed PNCC and TRB of the consignation made to the RTC of Caloocan. Moreover, in a resolution dated January 18, 2011, the SC directed MNTC to remit to the National Treasury PNCC’s percentage share of toll revenues and dividends arising out of PNCC’s participation in the NLE project. Subsequently, PNCC filed a motion for clarification with the SC to clarify whether only PNCC’s net income from the toll revenues, or PNCC’s gross share in the NLE tollway revenues, should be remitted to the National Government. On April 12, 2011, the SC issued a Resolution directing MNTC to remit PNCC’s share in the net income from toll revenues to the National Treasury and the TRB, with the assistance of the Commission on Audit (COA), was directed to prepare and finalize the implementing rules and guideline relative to the determination of the net income remittable by PNCC to the National Treasury.
In the meantime, while the guidelines have yet to be formulated, PNCC and TRB have agreed to remit the entire consigned amount to the National Treasury. Thus, PNCC, TRB and MNTC filed an urgent joint manifestation and motion with the RTC of Caloocan asking it to dismiss the Petition and remit the consigned amount to the National Treasury. MNTC subsequently filed a motion to dismiss PNCC’s counterclaims against MNTC. On August 10, 2011, the RTC of Caloocan issued an Order dismissing PNCC’s counterclaims against MNTC.
On September 19, 2011, Forum Holdings Corporation (FHC, an Intervenor) filed a Petition-in-Intervention with the RTC of Caloocan praying that MNTC be ordered to comply with its contractual commitment to PNCC under contract by releasing and delivering directly to PNCC the consigned amount. The Intervenor, however, does not pray for any damages against MNTC. PNCC has filed its opposition to the Motion for Intervention.
The SC, in a resolution dated November 15, 2011, ordered the RTC Judge to comply with the SC’s resolutions and immediately remit PNCC’s share in the net income from the toll revenues to the National Government. The RTC issued an Order dated November 24, 2011 that the consigned amount of P=337.9 million (includes the PNCC fees for the period from January 2010 to November 2010 amounting to P=310.4 million and dividends declared to PNCC in December 2010 amounting to P=27.5 million) be remitted to the National Government. The consigned amount was remitted to the National Treasury on December 23, 2011. The remittance was certified in a Sheriff’s return dated December 26, 2011 which was received by RTC of Caloocan on December 27, 2011.
On January 11, 2012, RTC of Caloocan, despite the fact that the consigned amount has already been remitted to the National Treasury, granted FHC’s petition filed on September 19, 2011. Following the grant made by the RTC of Caloocan, MNTC has not remitted to anyone the payments for the PNCC fees accruing for the month of December 2010 and the whole year of 2011 amounting to P=417.6 million and the dividends declared to PNCC in 2011 amounting to P=37.7 million. As at February 24, 2012, the case is still pending with the RTC of Caloocan.
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§ Dividends declared by MNTC to non-controlling stockholders in 2011, 2010 and 2009 amounted to P=496.7 million, P=543.4 million and P=473.3 million, respectively. In 2011, 2010 and 2009, MNTC paid cash dividends to non-controlling stockholders amounting to P=640.6 million, P=505.3 million and P=329.7 million, respectively. As at December 31, 2011 and 2010, MNTC has unpaid dividends to a non-controlling shareholder amounting to P=37.7 million and P=181.7 million, respectively.
Transactions with Other Related Parties
§ On March 27, 2009, MNTC entered into an agreement with EPPI, a wholly owned subsidiary of Egis, a non-controlling stockholder, for the Fixed Operating Equipment (FOE) Design, Supply and Installation for Segment 8.1 project. The contract on the said date set the terms and conditions for the delivery, installation and tests on completion of the FOE of Segment 8.1 project. The contract price amounted to P=148.4 million, a fixed lump sum price and valid for four hundred twenty-five (425) days from the Base Date.
The Construction Notice to Proceed was issued by MNTC to EPPI on March 30, 2009 and the front end design works commenced on April 6, 2009. The installation of the FOE was substantially completed as at June 2010. There were no unapplied mobilization advances as at December 31, 2011 and 2010.
§ In September 2007, MNTC entered into a contract with EPPI for FOE second line maintenance services. This contract pertains to services beyond the primary maintenance obligations of TMC under the O&M. The contract amount up to September 2010 is €1.2 million. On December 3, 2010, MNTC and EPPI entered into a Supplemental Agreement for NLE and Phase II Segment 8.1 FOE second line maintenance services to extend the term for another three years starting in September 2010. The contract amount up to September 2013 is €1.2 million. Total services paid amounted to €0.3 million (P=16.4 million) in 2011 and €0.4 million (P=26.4 million) in 2010.
§ In May 2009, MNTC entered into a Systems Upgrade contract with EPPI for modification and upgrade of computer systems and an account management system in respect of the toll control system of the NLE. The contract amount is €0.2 million (P=11.2 million). The installation and site acceptance test was completed in August 2010.
§ In October 2011, MNTC entered into an agreement with EPPI for the design, supply and installation of FOE at Dau, Mabalacat and Tipo Toll Plazas with the objective of having a single toll collection system for both the NLE and SCTEx. Total contract price amounted to €2.6 million, a fixed lump sum price, inclusive of VAT, and valid for 425 days from the Base Date. Unapplied mobilization advances to EPPI, included as part of “Advances to contractor and consultants” account in the consolidated balance sheet amounted to €0.2 million (P=9.0 million) as at December 31, 2011.
§ MNTC purchased spare parts inventories from EPPI. Total purchases amounted to P=9.9 million in 2011, P=15.7 million in 2010 and P=15.0 million in 2009.
§ On December 5, 2007, MNTC engaged the services of ESC, a wholly owned subsidiary of Egis, to assist MNTC in increasing the usage of the electronic toll collection (ETC) facility along the NLE which ended on April 30, 2010. On November 24, 2010, MNTC and ESC signed the Supplemental Agreement to the Service Agreement extending the services of ESC for another eight years effective on May 1, 2010 with a five year extension. In accordance with the Supplemental Agreement, MNTC will pay ESC an annual fixed fee of
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P=14.0 million for Class 1 vehicles and annual fixed fee of P=5.0 million for Class 2 and 3 vehicles, which are to be maintained and escalated every year for labor index and consumer price index (CPI). MNTC shall also pay for variable fees of P=0.75 and P=2.5 per transaction for Class 1 vehicles depending on the number of transactions achieved during the year compared with prior year; and P=3 and P=4 per transactions for Class 2 and 3, respectively.
§ In 2009, MPTC entered into a five-year lease agreement with PLDT, an associate of FPC, from August 13, 2009 to August 14, 2014 covering certain office units and parking spaces for a monthly payment of P=0.1 million, subject to annual escalation of 5%. The lease agreement may be terminated at the option of the parties. On October 31, 2010 the lease agreement was pre-terminated by the parties.
On November 1, 2010, a new lease agreement was executed between MPTC and PLDT covering certain office units and parking spaces for a period of five years from November 1, 2010 to October 31, 2015 for a monthly payment of P=0.1 million, subject to annual escalation of 5%. The lease agreement may be terminated at the option of the parties. As at December 31, 2011 and 2010, there is no outstanding liability to PLDT.
Future minimum operating lease payments are as follows: Period Covered 2011 2010 Not later than one year P=2,704,019 P=1,051,658 More than one year and not later than five years 5,382,366 3,024,586
§ SMART, an associate of FPC, billed MPTC for management fees amounting to P=21.1 million in 2010. The agreement on the billing of management fees was terminated effective on May 31, 2010. There is no outstanding payable to SMART as at December 31, 2011 and 2010.
§ In 2010, as part of MNTC’s commercial policy on sponsorship of NLE communication programs through co-branding, MNTC and SMART, together with PLDT, entered into joint sponsorship agreement for the “Northern Fiesta Campaign” which is collaborative tourism promotion of local fiestas and festivals in the North and of safety and traffic discipline along NLE through print media and through banners and traffic control gates stickers in the NLE toll plazas. Outstanding receivable from SMART for its share in the costs of the promotion amounted to P=12.4 million (inclusive of VAT) and P=1.0 million (inclusive of VAT) as at December 31, 2011 and 2010, respectively (see Note 9).
Also, on January 5, 2011, MNTC and SMART signed a Utility Facilities Contract where MNTC provides SMART an access for the construction, operation and maintenance of a cellsite inside the NLE right of way for an annual fee of P=0.3 million which shall then be escalated annually to 4.5% starting on the fourth year of the contract and every year thereafter. The contract is effective from April 26, 2010 for a period of five years which may be renewed or extended upon mutual agreement by MNTC and SMART.
Total income of P=27.8 million and P=1.2 million from advertising and utility facilities in 2011 and 2010, respectively, were recorded under “Other income” account in the consolidated statement of income (see Note 26).
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§ On March 17, 2010, MNTC and PLDT entered into an agreement with respect to the commercial aspect of the Utility Facilities Contract for the Fiber Optic Overlay along Phase I of the NLE, the contract of which is currently being negotiated between MNTC and PLDT. Pending the final contract, PLDT already paid P=1.3 million for annual fee for the years ended December 31, 2011 and 2010. PLDT also paid P=52.2 million for one-time exclusivity fee for the year ended December 31, 2010. There is no such transaction in 2011.
In December 2010, MNTC also billed PLDT P=9.8 million for one-time access fee and P=0.1 million for the annual access fee for the Fiber Optic Overlay along Phase II Segment 8.1 (see Notes 9). This was subsequently collected by MNTC together with the P=0.1 million annual access fee.
In relation to the joint sponsorship agreement discussed above, MNTC has outstanding receivable from PLDT for its share in the costs of the promotion amounting to P=1.7 million (inclusive of VAT) and P=1.0 million (inclusive of VAT) as at December 31, 2011 and 2010, respectively (see Note 9).
Total income from utility facilities and advertising amounting to P=2.5 million and P=64.3 million for the years ended December 31, 2011 and 2010, respectively, were recorded under “Other income” account in the consolidated statement of income (see Note 26).
§ Compensation of key management personnel of the Company are as follows:
2011 2010 2009 Short-term employee benefits P=140,710,748 P=111,746,162 P=94,013,308 Retirement costs (see Note 23) 23,616,367 6,237,236 3,285,893 Executive stock option expense
(see Note 22) 6,985,309 1,949,447 – Other long-term incentive plan
(see Note 23) 75,655,636 – – P=246,968,060 P=119,932,845 P=97,299,201
§ The Company acts as a surety or co-obligor with certain Company officers for the payment of valid corporate expenses through the use of corporate credit cards at specified approved amounts ranging from P=0.1 million to P=0.3 million.
§ The Company paid its directors amounting to P=2.6 million in 2011 and 2010 and P=0.9 million in 2009 recorded under “General and administrative expenses” account in the consolidated statements of income (see Note 21).
§ Total advances to officers and employees amounted to P=7.8 million and P=5.5 million as at December 31, 2011 and 2010, respectively (see Note 9).
In the normal course of business, the Company also grants and avails noninterest-bearing advances to/from subsidiaries, associates and affiliates.
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Outstanding balances of receivables from/payables to related parties are carried in the consolidated balance sheets under the following accounts:
Name Receivables (see Note 9)
Advances to Contractors and
Consultants
Accounts payable and
other current liabilities
(see Note 15) Due from
Related Parties Due to
Related Parties MPIC 2011 P=– P=– P=– P=462,638,616 P=2,033,507 2010 – – – 462,638,616 101,618 MPC 2011 – – – – 1,565,508 2010 – – – – 1,581,519 EPPI 2011 – 16,095,285 6,055,494 – – 2010 – – 15,282,073 – – PNCC 2011 – – 417,553,845 – – 2010 – – 32,366,834 – – TMC 2011 – – 293,149,123 162,734,806 924,343 2010 – – 257,198,618 125,672,577 3,223,700 ESC 2011 52,943,771 – 36,090,208 – – 2010 9,590,962 – 16,502,167 – – PLDT 2011 1,673,970 – – – – 2010 12,060,094 – – – – SMART 2011 12,421,535 – – – – 2010 976,483 – – – – Others 2011 – – – – 3,655,238 2010 – – – – 3,519,238
Total 2011 P=67,039,276 P=16,095,285 P=752,848,670 P=625,373,422 P=8,178,596 2010 22,627,539 – 321,349,692 588,311,193 8,426,075
At December 31, 2011: Current P=67,039,276 P=16,095,285 P=752,848,670 P=560,141,362 P=8,178,596 Noncurrent – – – 65,232,060 – P=67,039,276 P=16,095,285 P=752,848,670 P=625,373,422 P=8,178,596
At December 31, 2010: Current P=22,627,539 P=– P=321,349,692 P=522,897,726 P=8,426,075 Noncurrent – – – 65,413,467 – P=22,627,539 P=– P=321,349,692 P=588,311,193 P=8,426,075
Other than the operator equipment loan, all amounts receivable from/payable to related parties are noninterest-bearing. The operator equipment loan was fully paid by TMC in 2009.
Outstanding balances at year-end are unsecured and settlement occurs in cash for the outstanding receivables from/payables to related parties, while advances to contractors and consultants will be applied to future services rendered. As at December 31, 2011 and 2010, the Company has not made any provision for doubtful accounts relating to amounts owed by related parties.
Transactions with Subsidiaries
§ As at December 31, 2011and 2010, the Parent Company received noninterest-bearing advances from MPTDC amounting to P=217.1 million and P=182.5 million, respectively.
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§ As at December 31, 2011 and 2010, the Parent Company has an outstanding receivable from MNTC amounting to P=5.1 million and P=19.6 million, respectively, representing management fees, noninterest-bearing advances and various operating expenses paid in behalf of MNTC.
§ The Parent Company performed management and financial services for MNTC in 2011 and 2010. Total management fees amounted to P=58.5 million in 2011 and P=63.5 million in 2010.
§ In 2011 and 2010, MNTC charged MPTDC for various operating expenses paid in behalf of MPTDC amounting to P=5.3 million and P=28.6 million, respectively.
Outstanding receivables from/payables with/between subsidiaries are unsecured and settlement occurs in cash and are generally settled within a year. These balances are eliminated during consolidation.
19. Equity
Capital Stock As at December 31, 2011, 2010 and 2009, the capital stock of the Company consists of:
Issued capital stock P=5,065,074,937 Subscribed capital stock 495,690 Less subscriptions receivable 371,768 123,922 P=5,065,198,859
Details of shares of stock of MPTC follow:
Number of Shares December 31 2011 2010 2009 Authorized - P=1 par value 5,400,000,000 5,400,000,000 5,400,000,000
Issued and outstanding: Balance at beginning of year 5,065,074,937 5,065,074,937 5,065,074,937 Treasury shares (87,020,160) (87,020,160) (87,020,160) Balance at end of year 4,978,054,777 4,978,054,777 4,978,054,777
Subscribed 495,690 495,690 495,690
a. On July 23, 2008, the BOD of MPTC made a call for the payment of unpaid subscriptions and stockholders were given until August 29, 2008 to fully pay their subscriptions. As at December 31, 2011, the subscriptions were not yet paid in full.
b. The Company’s shares of stock are pledged in favor of a local bank as security for MPIC’s peso-denominated notes of P=6,750.0 million. As at December 31, 2011 and 2010, the notes are still outstanding.
c. On September 24, 2010, the BOD approved the increase in the authorized capital stock from 5,400,000,000 common shares to 10,000,000,000 common shares. The Company has not yet filed the application to the SEC as at February 24, 2012.
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Equity Adjustment on Reverse Acquisition Equity adjustment on reverse acquisition resulted from the transaction involving the transfer of
FPHC and BHC of all their shares in MPTDC (then FPIDC, regarded as the accounting acquirer) in exchange for the shares of MPTC (then FPII, regarded as the legal acquirer and accounting acquiree), which was accounted for as a reverse acquisition in the consolidated financial statements of MPTC in 2007.
Cash Dividends On February 23 and August 3, 2011, MPTC’s BOD declared cash dividends of P=0.152 per share or a total amount of P=755.0 million and P=0.10 per share or a total amount of P=500.0 million to all stockholders of record as at March 11 and August 19, 2011, respectively. As at December 31, 2011, the unpaid cash dividends amounted to P=2.2 million. On February 24, 2012, MPTC’s BOD declared cash dividends of P=0.17 per share or total amount of P=875.0 million to all stockholders of record as at March 12, 2012 payable on or before April 10, 2012.
On February 17 and August 24, 2010, MPTC’s BOD declared cash dividends of P=0.15 per share or a total amount of P=746.7 million and P=0.089 or a total amount of P=445.0 million to all stockholders of record as at March 5 and September 9, 2010, respectively. As at December 31, 2010, the cash dividends have been fully paid.
On July 31, 2009, MPTC’s BOD declared cash dividends of P=0.09 per share or a total amount of P=450.0 million to all stockholders of record as at August 14, 2009. As at December 31, 2009, the cash dividends have been fully paid.
Scrip Dividends Under Section 8.04.02 of the ARSA with among others Leighton International Limited (LIL), MPTC, through MPTDC, has the right to receive from LIL 50.0% of the difference of LIL’s selling price for the sale of its 16.5% interest in MNTC and US$19.4 million, provided that any payment of LIL to MPTDC shall not exceed US$4.4 million. Such MNTC shares held by LIL were previously purchased from MPTDC.
On November 12, 2009, LIL sold the shares to a third party and thereby paid the amount of US$4.4 million (P=203.9 million) to MPTDC which the latter recognized as additional gain from the previous sale of MNTC shares to LIL and was included as part of the “Other income” account in the 2009 consolidated statement of income (see Note 26). In view of this, the Company recognized the scrip dividends declared in 2008 payable to all stockholders of record as at October 30, 2008 giving the stockholders the right to receive a proportionate share in the amounts that maybe received by MPTC, through MPTDC, from LIL pursuant to the ARSA. The scrip dividends declared by MPTC amounted to US$3.9 million (P=181.5 million), net of capital gains tax. As at December 31, 2011 and 2010, unpaid scrip dividends amounted to P=0.3 million and is included under the “Dividends payable” account.
Pursuant to a BIR confirmation letter dated November 10, 2009, MPTDC paid capital gains tax of P=21.0 million for the US$4.4 million (P=203.9 million) received from LIL (see Note 27).
Retained Earnings Not Available for Dividend Distribution The Company’s retained earnings includes undistributed earnings of subsidiaries and an associate amounting to P=1,607.1 million and P=1,548.2 million as at December 31, 2011 and 2010, respectively, which are not currently available for dividend distribution.
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Track Record of Registration of Securities The following summarizes the information on the Parent Company’s registration of securities under the Securities Regulation Code:
Date of SEC Approval Authorized
Shares
Number of Shares Issued
(Repurchased) Issue/
Offer Price February 24, 1970 335,000,000 15,000,000 P=1.00
September 17, 2007 5,065,000,000 – 1.00 December 2007 – 79,504,310 1.00
January 26, 2008 – 4,970,570,627 1.00 October 16, 2008 – (87,020,160) 2.22
5,400,000,000 4,978,054,777
a. On May 11, 2007, the then Parent Company’s stockholders approved the increase in the authorized capital stock from P=335.0 million divided into 335,000,000 shares with a par value of P=1.00 per share to P=5,400.0 million divided into 5,400,000,000 shares with the same par value. On September 17, 2007, the SEC approved the increase in MPTC’s (then FPII’s) authorized capital stock, thereby, approving FPHC’s subscription to 2,534,991,020 shares and BHC’s subscription to 2,435,579,607. The shares were treated as subscription, pending issuance of Certificate Authorizing Registration (CAR) by the BIR on such date. The CAR was subsequently issued on January 26, 2008. Accordingly, the 4,970,570,627 shares were issued to FPHC and BHC.
b. In December 2007, 79,504,310 shares out of 80,000,000 subscribed shares have been fully paid.
c. On October 16, 2008, the then Parent Company’s BOD authorized the repurchase of 87,020,160 shares from Lopez, Inc. at the price of P=2.22 per share or a total amount of P=193.6 million. Consequently, a Deed of Absolute Sale was executed and an application for a special block sale was filed with the PSE on October 20, 2008. On October 22, 2008, the PSE approved the block sale.
d. The total number of shareholders of the Parent Company is 253 and 252 as at December 31, 2011 and 2010, respectively.
20. Cost of Services
This account consists of:
2011 2010 2009 Toll operation and maintenance costs P=2,261,491,237 P=2,023,834,358 P=2,116,737,193 Amortization of service concession
asset (see Note 12) 592,987,123 559,180,335 505,052,189 Cost of inventories 18,633 568,060 1,076,254 P=2,854,496,993 P=2,583,582,753 P=2,622,865,636
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Toll operation and maintenance costs consist of:
2011 2010 2009 Operator’s fee (see Note 18) P=1,566,118,059 P=1,339,566,588 P=1,338,521,926 PNCC fee (see Note 18) 385,244,775 348,358,026 291,871,747 Repairs and maintenance
(see Note 18) 127,680,969 202,939,397 218,726,899 Provision for heavy maintenance
(see Note 16) 109,116,393 54,911,915 204,538,073 Insurance 48,957,913 43,511,555 42,172,410 Toll collection and medical services 21,297,634 21,331,200 20,906,138 Others 3,075,494 13,215,677 – P=2,261,491,237 P=2,023,834,358 P=2,116,737,193
21. General and Administrative Expenses
This account consists of:
2011 2010 2009 Salaries and employee benefits
(see Notes 18, 22 and 23) P=388,778,586 P=243,448,382 P=210,558,831 Professional fees 73,648,571 72,813,068 48,984,438 Taxes and licenses 71,798,121 64,249,225 57,046,876 Advertising and marketing expenses 67,974,605 50,493,216 44,190,871 Outside services (see Note 18) 50,628,014 38,981,888 42,128,348 Provisions (see Note 16) 38,799,285 21,551,247 10,390,532 Depreciation (see Note 11) 35,210,857 29,629,639 33,661,057 Representation and travel 31,316,240 33,477,382 25,572,040 Communication, light and water 10,549,215 9,996,294 7,210,221 Repairs and maintenance 9,487,122 6,075,911 5,429,054 Provision for potential losses on
claim for refund 8,640,240 – – Collection charges 5,445,734 6,716,137 6,583,365 Training and development costs 4,370,998 2,600,075 1,472,011 Office supplies 3,748,465 4,708,858 6,364,831 Directors’ fees (see Note 18) 2,565,242 2,596,584 891,600 Rentals (see Notes 5 and 18) 2,397,583 1,357,533 423,684 Donations and contributions 722,667 22,111 2,000,000 Provision for potential losses on
input VAT (see Note 5) – 334,069,949 1,104,632,613 Management fees (see Note 18) – 21,129,665 18,839,501 Write-off of input VAT (see Note 5) – – 94,271,475 Miscellaneous 5,779,290 46,679,219 14,040,542 P=811,860,835 P=990,596,383 P=1,734,691,890
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22. Share-based Payment
On June 24, 2007, the stockholders of MPIC approved a share option scheme (the Plan) under which MPIC’s directors may, at their discretion, invite executives of MPIC upon the regularization of employment of eligible executives, to take up share option of MPIC to obtain an ownership interest in MPIC and for the purpose of long-term employment motivation. The scheme became effective on June 14, 2007 and is valid for ten (10) years. An amended plan was approved by the stockholders of MPIC on February 20, 2009.
As amended, the overall limit on the number of shares which may be issued upon exercise of all options to be granted and yet to be exercised under the Plan must not exceed 5% of the shares in issue from time to time. The maximum number of shares in respect of which options may be granted under the Plan shall not exceed 5% of the issued shares of MPIC on June 14, 2007 or the date when an event of any change in the corporate structure or capitalization affecting MPIC’s shares occurred, as the case may be.
The exercise price in relation to each option shall be determined by MPIC’s Compensation Committee, but shall not be lower than the highest of: (i) the closing price of the shares for one or more board lots of such shares on the PSE on the option offer date; (ii) the average closing price of the shares for one or more board lots of such shares on the PSE for the five (5) business days on which dealings in the shares are made immediately preceding the option offer date; and (iii) the par value of the shares.
MPIC has granted on July 2, 2010 options in respect of 94,300,000 common shares of MPIC to new directors and senior management officers of MPIC and to selected management committee members of MPIC subsidiaries (includes the Company). The stock options will expire on July 2, 2015. With respect to the stock options granted to MPIC subsidiaries, said stock options will vest as follows: 30% on July 2, 2011; 35% on July 2, 2012; and 35% on July 2, 2013.
A summary of the Company’s stock option activity received from MPIC and related information for the year ended December 31, 2011 and 2010 follows:
2011 2010
Number
of shares Exercise price Number
of shares Exercise price Outstanding at January 1 12,200,000 P=2.73 – P=– Granted during the year – – 12,200,000 2.73 Exercised during the year 1,200,000 2.73 – –
Outstanding at December 31 11,000,000 P=2.73 12,200,000 P=2.73
Exercisable at December 31 3,660,000 P=2.73 – P=–
No stock option activity was granted to the Company’s officers by MPIC in 2009.
The weighted average remaining contractual life for the share options outstanding as at December 31, 2011 and 2010 is 3.5 years and 4.5 years, respectively.
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The fair value of the options granted is estimated at the date of grant using Black-Scholes-Merton formula, taking into account the terms and conditions upon which the options were granted. The following tables list the inputs to the model used for the ESOP in 2010:
30% vesting on
July 2, 2011 35% vesting on
July 2, 2012 35% vesting on
July 2, 2013 Grant date July 2, 2010 Spot price P=2.65 P=2.65 P=2.65 Exercise price P=2.73 P=2.73 P=2.73 Risk-free rate 4.61% 5.21% 5.67% Expected volatility* 69.27% 67.52% 76.60% Term to vesting (in days) 365 731 1,096 Call price P=0.73 P=1.03 P=1.39 * The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is
indicative of future trends, which may also not necessarily be the actual outcome.
Stock options expense, recognized by the Company in “Salaries and employee benefits” account, under General and administrative expenses, amounted to P=7.0 million and P=1.9 million in 2011 and 2010, respectively.
Carrying value of the ESOP, recognized under “Other reserves” in the consolidated statement of changes in equity, amounted to P=8.9 million and P=1.9 million as at December 31, 2011 and 2010, respectively.
23. Employee Benefits
LTIP On December 16, 2010, MPIC’s BOD approved the broad outline of MPIC’s strategic plans for 2010 to 2012 focusing on the development of new revenue streams to drive future growth while protecting the existing core business. To ensure the proper execution of the three-year plan, particularly with respect to the manpower resources being committed to such plans, the 2010 to 2012 LTIP, upon endorsement of MPIC’s Compensation Committee, was approved by MPIC’s BOD to cover the period from January 1, 2010 to December 31, 2012, or the 2010 to 2012 Performance Cycle. The payment under the 2010 to 2012 LTIP was intended to be made at the end of the 2010 to 2012 Performance Cycle (without interim payments) and contingent upon the achievement of an approved target core income of the Company by the end of the 2010 to 2012 Performance Cycle.
Total amount of LTIP under this Plan is fixed upon achievement of the target Core Income and is not affected by changes in future salaries of the employees covered. The liability of the 2010 to 2012 LTIP was determined using the projected unit credit method. The long term employee benefit liability comprises the present value of the defined benefit obligation (using discount rate based on government bonds) at the end of the reporting period.
The total cost of the LTIP recognized by the Company in 2011 included in “Salaries and employee benefits” account under General and administrative expenses amounted to P=75.6 million (see Note 21), of which P=15.1 million was recognized under “Other reserves” in the equity section of the consolidated balance sheet representing MPIC’s share in the LTIP cost of the Company as per LTIP Plan and the balance of P=60.5 million was presented as LTIP payable in the noncurrent liability section of the consolidated balance sheet.
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Defined Contribution Retirement Plan Retirement benefits of the employees of the Parent Company and MPTDC are provided through a defined contribution scheme as approved by the BOD of the Company and MPTDC on June 21, 2011. The Parent Company and MPTDC operates a retirement Plan which is a contributory plan wherein the Company undertakes to contribute a predetermined amount to the individual account of each employee and employees gets whatever is standing to his credit upon separation from the Company. The Plan is managed and administered by a Retirement Committee and a trustee bank had been appointed to hold and invest the assets of the retirement fund in accordance with the provisions of the Plan.
The Parent Company’s and MPTDC’s contributions to the plan are made based on the employee’s monthly basic salary which is at 10.0%. Additionally, an employee has an option to make a personal contribution to the fund, at an amount not exceeding 40.0% of his monthly salary. The Parent Company and MPTDC then provide an additional contribution to the fund which aims to match the employee’s contribution but only up to a maximum of 5.0% of the employee’s monthly salary. Although the plan has a defined contribution format, the Company and MPTDC regularly monitors compliance with R.A. 7641, otherwise known as “The Retirement Pay Law.” As at December 31, 2011, the Parent Company and MPTDC are in compliance with the requirements of R.A. 7641.
The Parent Company and MPTDC recognize expenses for their contribution to the defined contribution plans when the employee renders service to the Parent Company and MPTDC, essentially coinciding with their cash contributions to the plans. During the year, the Parent Company and MPTDC recorded total retirement costs under this scheme amounting to P=14.5 million, which is included in “Salaries and employee benefits” account under General and administrative expenses (see Note 21). The Parent Company and MPTDC also initially set up a fund to a trustee bank in the amount of P=8.4 million and P=2.7 million, respectively. Accrued retirement costs under this scheme included in “Accrued expenses” account under Accounts payable and other current liabilities amounted to P=2.2 million as at December 31, 2011 (see Note 15).
Defined benefit retirement plan MNTC has a funded noncontributory defined benefit retirement plan covering all of its regular and full time employees. The plan provides for a lump sum benefit payment upon retirement. Contributions and costs are determined in accordance with the actuarial study made for the plan which is normally obtained every two years.
The following tables summarize the components of provision for retirement costs, included in “Salaries and employee benefits” under “General and administrative expenses” account in the consolidated statements of income and “Accrued retirement costs” account in the consolidated balance sheets.
2011 2010 2009 Components of provision for
retirement costs: Current service cost P=13,055,802 P=5,680,909 P=1,003,805 Interest cost 6,512,846 3,790,217 5,567,280 Expected return on plan assets (1,890,146) (1,778,791) (962,743) Past service cost - vested benefits 18,588,469 – –
(Forward)
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2011 2010 2009 Past service cost - non-vested
benefits P=231,907 P=– P=– Net actuarial loss (gain)
recognized during the year 657,333 (308,775) (1,066,060) P=37,156,211 P=7,383,560 P=4,542,282
Accrued retirement costs: Balance at beginning of year P=873,614 P=9,612,991 P=14,481,842 Provision for retirement costs
for the year 37,156,211 7,383,560 4,542,282 Contribution during the year (27,382,916) (16,122,937) (9,411,133) P=10,646,909 P=873,614 P=9,612,991
Movements in the present value of retirement obligation (PVRO) are as follows:
2011 2010 2009 Balance at beginning of year P=68,082,135 P=35,455,729 P=14,822,369 Current service cost 13,055,802 5,680,909 1,003,805 Interest cost 6,512,846 3,790,217 5,567,280 Past service cost - vested benefits 18,588,469 – – Past service cost - non-vested benefits 927,627 – – Benefits paid (3,271,234) (8,526,589) (4,450,710) Actuarial loss 21,510,124 31,681,869 18,512,985 Balance at end of year P=125,405,769 P=68,082,135 P=35,455,729
Changes in fair value of plan assets (FVPA) are as follows:
2011 2010 2009 Balance at beginning of year P=47,253,657 P=35,575,826 P=24,068,574 Expected return on plan assets 1,890,146 1,778,791 962,743 Contribution during the year 27,382,916 16,122,937 9,411,133 Benefits paid (3,271,234) (8,526,589) (4,450,710) Actuarial gain 4,217,070 2,302,692 5,584,086 Balance at end of year P=77,472,555 P=47,253,657 P=35,575,826
The actual return on plan assets amounted to P=6.1 million in 2011, P=4.1 million in 2010 and P=6.5 million in 2009. The Company expects to contribute P=23.7 million to its defined benefit retirement plan in 2012.
The major categories of plan assets as a percentage of the fair value of total plan assets follow:
2011 2010 2009 Investments in: Government securities 82.45% 71.39% 39.78% Perpetual preferred shares 8.12% 13.26% 16.85% Loans/notes receivable 4.71% 7.84% 22.36% Cash in banks 4.06% 7.13% 20.10% Receivables and others 0.66% 0.38% 0.91% 100.00% 100.00% 100.00%
The plan assets are maintained in a trust account with a local bank that was set up by MNTC in November 2006.
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The reconciliation of the PVRO to the accrued retirement costs recognized in the consolidated balance sheets follows:
2011 2010 2009 PVRO P=125,405,769 P=68,082,135 P=35,455,729 FVPA (77,472,555) (47,253,657) (35,575,826) Underfunded (Overfunded) PVRO 47,933,214 20,828,478 (120,097) Cumulative unrecognized actuarial
gain (loss) (36,590,585) (19,954,864) 9,733,088 Unrecognized past service cost –
non-vested benefits (695,720) – – Accrued retirement costs P=10,646,909 P=873,614 P=9,612,991
Actuarial gain (loss) in excess of corridor is amortized over the average expected working lives of its eligible employees as follows:
2011 2010 2009 Cumulative unrecognized actuarial
gain (loss) at beginning of year (P=19,954,864) P=9,733,088 P=23,728,047 Actuarial gain (loss) for the year on: PVRO (21,510,124) (31,681,869) (18,512,985) FVPA 4,217,070 2,302,692 5,584,086 (37,247,918) (19,646,089) 10,799,148 Less actuarial gain (loss) recognized
for the year (657,333) 308,775 1,066,060 Cumulative unrecognized actuarial
gain (loss) at end of year (P=36,590,585) (P=19,954,864) P=9,733,088
Cumulative unrecognized actuarial gain (loss) at beginning of year (P=19,954,864) 9,733,088 23,728,047
Limit of corridor (6,808,214) (3,557,583) (2,406,857) Actuarial gain (loss) outside corridor
to be amortized (13,146,650) 6,175,505 21,321,190 Divided by expected average
remaining service years of eligible employees 20 20 20
Amortization of actuarial gain (loss) to be recognized for the year (P=657,333) P=308,775 P=1,066,060
The principal assumptions used to determine accrued retirement costs as at December 31, 2011, 2010 and 2009 are as follows:
2011 2010 2009 Discount rate 5.54% 8.10% 10.69% Rate of increase in compensation 12.00% 12.00% 10.00% Expected rate of return 4.00% 4.00% 5.00%
The overall expected rate of return on plan assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled.
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The underfunded (overfunded) status and experience adjustments for the current and previous four years are as follows:
2011 2010 2009 2008 2007 PVRO P=125,405,769 P=68,082,135 P=35,455,729 P=14,822,369 P=32,833,064 FVPA (77,472,555) (47,253,657) (35,575,826) (24,068,574) (4,258,003) Underfunded (Overfunded)
PVRO 47,933,214 20,828,478 (120,097) (9,246,205) 28,575,061 Experience adjustments
on retirement obligation - loss (gain) (111,365) 6,097,300 700,476 (470,161) 247,229
Experience adjustments on plan assets - gain (loss) 4,217,070 2,302,692 5,584,086 1,121,903 (1,997)
24. Interest Income
Sources of interest income follow:
2011 2010 2009 Cash and cash equivalents P=115,148,599 P=71,602,940 P=54,751,615 Investment in bonds: AFS financial assets 34,658,167 9,625,315 – HTM investments – 15,290,641 13,004,000 Receivable on financial guarantee*
(see Note 18) 10,891,887 10,899,450 12,354,094 Loans to related parties (see Note 18) – – 4,101,846 Investment in treasury bills – HTM
investments – 799,731 1,961,429 Others 563,034 1,281,619 79,422 P=161,261,687 P=109,499,696 P=86,252,406 *Recorded in “Due from related parties” account under noncurrent assets.
25. Interest Expense and Other Finance Costs
Details of interest expense and other finance costs follow:
2011 2010 2009 Interest expense on: Bank loans (see Note 17) P=794,415,849 P=884,813,687 P=826,413,272 Financial guarantee obligation
and others (see Note 18) 10,891,887 10,899,450 28,823,577 Other finance costs: Loan prepayment fees
(see Note 17) 329,943,301 – – Amortization of debt issue costs
(see Note 17) 134,890,348 205,569,383 90,243,819 Lenders’ fees 5,602,677 8,502,273 13,585,347 Bank charges 1,178,363 888,660 744,681 P=1,276,922,425 P=1,110,673,453 P=959,810,696
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26. Other Income and Other Expense
Details of other income follow:
2011 2010 2009 Reversal of allowance for potential
losses on input value-added tax (see Note 5) P=288,052,966 P=– P=–
Management fee (see Note 18) 84,700,231 56,000,000 50,602,941 Income from advertising
(see Note 18) 32,697,931 – – Gain on bargain purchase
(see Note 6) 30,951,517 – – Refunds from lenders 24,183,224 – – Guarantee fees (see Note 18) 23,152,451 23,255,606 18,453,147 Income from toll service facilities 20,220,627 23,839,704 10,119,691 Reversal of accrued expenses 11,000,000 – – Income from utility facilities
(see Note 18) 1,814,636 63,747,748 – Gain on sale of investment
(see Note 19) – – 203,942,145 Others 7,916,625 8,133,904 9,237,257 P=524,690,208 P=174,976,962 P=292,355,181
Details of other expense follow:
2011 2010 2009 Mark-to-market loss on derivatives
(see Note 31) P=94,636,391 P=227,517,489 P=19,219,364 Loss on extinguishment of debt
(see Note 17) – – 9,895,721 P=94,636,391 P=227,517,489 P=29,115,085
As a result of the notice of prepayment issued by MNTC in December 2010 to Mizuho, as hedging counterparty, indicating MNTC’s intent to cancel the cross currency and interest rate swap transactions on January 14, 2011, the Company discontinued applying hedge accounting as the hedge no longer meets prospective effectiveness. This resulted to recycling of cumulative mark-to-market loss on derivatives accumulated in equity to consolidated statement of income amounting to P=158.3 million in 2010 (see Note 31).
27. Income Taxes
The provision for current income tax consists of:
2011 2010 2009 Regular corporate income tax (RCIT) P=526,617,703 P=31,725,648 P=11,229,495 Final tax on interest income 29,885,117 19,429,155 13,897,062 MCIT 1,119,255 683,101 677,596 Capital gains tax (see Note 19) – – 20,983,000 P=557,622,075 P=51,837,904 P=46,787,153
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RCIT in 2010 and 2009 is imposed on those taxable incomes of MNTC not covered by ITH. MNTC’s ITH expired on December 31, 2010 and RCIT is imposed on all taxable income in 2011 (see Note 32).
The components of the Company’s deferred tax assets and liabilities follow:
2011 2010 Deferred Tax Liabilities Difference in amortization of service concession asset P=447,928,145 P=406,391,156 Unrealized foreign exchange gains - net 49,603 99,258,691 Unamortized realized foreign exchange losses capitalized 23,155,245 24,045,831 Fair value changes on AFS financial assets 25,610,877 7,047,900 496,743,870 536,743,578 Deferred Tax Assets Provision for heavy maintenance 99,742,297 106,786,301 Fair value changes on derivatives charged to
consolidated statement of income 28,928,219 61,660,504 Fair value changes on derivatives deferred in equity 10,118,451 1,042,778 Unamortized past service cost 4,100,123 2,810,537 Accrued retirement costs 3,194,073 262,084 Unearned toll revenue 3,175,377 9,295,769 Provision for potential losses on claim for refund 2,592,072 – Allowance for doubtful accounts 1,577,850 1,577,850 Movement in present value of loans – 31,153,367 153,428,462 214,589,190 Deferred tax liabilities - net P=343,315,408 P=322,154,388
For tax purposes, MNTC used the units of production method of depreciation for service concession asset as approved by the BIR.
MPTC, MPTDC and MSIHI have the following temporary differences, NOLCO and MCIT for which no deferred tax assets have been recognized since management believes that it is more likely than not that these will not be realized in the future:
2011 2010 NOLCO P=65,592,698 P=23,958,935 Accrued expenses 60,515,894 13,525,292 MCIT 2,479,952 2,239,446 Unrealized foreign exchange loss 12,793 65,081 P=128,601,337 P=39,788,754
As at December 31, 2011, MPTDC and MSIHI have MCIT that can be applied as tax credit against future income tax due under RCIT and NOLCO that can be claimed as deduction from future taxable income as follows:
Year Paid/Incurred Expiration Date MCIT NOLCO 2009 December 31, 2012 P=677,596 P=218,298 2010 December 31, 2013 683,101 23,524,294 2011 December 31, 2014 1,119,255 41,850,106 P=2,479,952 P=65,592,698
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The movements in NOLCO are as follows:
2011 2010 Balance at beginning of year P=23,958,935 P=18,153,922 NOLCO from acquisition of subsidiary – 434,641 Additions 41,850,106 23,524,294 Expirations (216,343) (18,153,922) Balance at end of year P=65,592,698 P=23,958,935
The movements in MCIT are as follows:
2011 2010 Balance at beginning of year P=2,239,446 P=1,906,150 Additions 1,119,255 683,101 Expirations (878,749) (349,805) Balance at end of year P=2,479,952 P=2,239,446
The reconciliation of provision for (benefit from) income tax computed at the statutory income tax rate to provision for (benefit from) income tax as shown in the consolidated statements of income as follows:
2011 2010 2009 Income before income tax P=2,348,261,635 P=1,505,180,021 P=704,161,601
Income tax computed at statutory tax rate of 30% P=704,478,491 P=451,554,006 P=211,248,480
Add (deduct) tax effects of: Reversal of allowance for potential
losses on input VAT (see Note 5) (86,415,890) – – Provision for potential losses on input
VAT – 100,220,985 331,389,784 Equity in net earnings of an associate (73,797,506) (48,800,466) (52,185,533) Interest income subjected to final tax (44,947,518) (29,195,588) (20,915,113) Nondeductible expenses and others 32,407,640 47,865,677 42,880,773 Nontaxable gain arising from
business combination (see Note 6) (9,285,455) – – Amortization (reversal) of capitalized
input VAT (6,505,391) 6,505,392 – Reversal of accrued expenses (3,300,000) – – Net income under ITH (see Note 32) – (486,251,786) (461,326,568) Write-off of deferred tax assets – 13,769,057 – Write-off of input VAT – – 28,281,442 Income already subjected to
capital gains tax – – (61,182,644) Final tax on interest income 29,885,117 19,429,155 13,897,062 Change in unrecognized deferred
tax assets 25,657,048 7,517,732 (12,782,286) MCIT 1,119,255 – – Change in unrecognized deferred tax
covered within ITH period – (4,133,929) (2,111,550) Capital gains tax – – 20,983,000 P=569,295,791 P=78,480,235 P=38,176,847
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The reconciliation of net deferred tax liabilities is summarized as follows:
2011 2010 2009 Balance at beginning of year P=322,154,388 P=285,080,565 P=282,859,424 Provision for (benefit from) income
tax during the year recognized in the consolidated statements of income 11,673,716 26,642,331 (8,610,306)
Income tax effect during the year recognized in the consolidated statements of comprehensive income 9,487,304 10,431,492 10,831,447
Balance at end of year P=343,315,408 P=322,154,388 P=285,080,565 28. Basic/Diluted Earnings Per Share (EPS)
The basic/diluted EPS amount was computed as follows:
2011 2010 2009 Net income attributable to equity
holders of the Parent P=1,257,353,313 P=996,491,029 P=581,651,736 Divide by weighted average shares
outstanding 4,978,550,467 4,978,550,467 4,978,550,467 Basic/Diluted EPS P=0.25 P=0.20 P=0.12
The Company does not have dilutive common stock equivalents, thus, the basic and dilutive EPS are the same.
29. Subic-Clark-Tarlac Expressway (SCTEx) Agreement
In 2010, MNTC participated in a public bidding conducted by the BCDA for the right to manage, operate and maintain the SCTEx on an “as is, where is” basis for a period until October 30, 2043. On June 9, 2010, BCDA formally awarded MNTC the right to enter into a concession agreement with BCDA for the management, operation and maintenance of SCTEx. On November 8, 2010, the parties entered into a Concession Agreement under which BCDA granted MNTC the usufructuary rights to and the right to manage, maintain and operate the 94-km SCTEx for a period of 25 years, extendable by another eight years. In granting the concession, BCDA has also assigned to MNTC its rights under the TOA it signed with the TRB including the right to collect toll fees. The assignment is subject to certain conditions including, among others, the necessary Philippine Government approvals and the execution of a STOA.
On July 20, 2011, MNTC and BCDA signed a Business and Operating Agreement (BOA) covering the assignment by BCDA to MNTC of its rights, interest and obligations under the TOA relating to the management, operation and maintenance of the SCTEx (which shall include the exclusive right to possess and use the SCTEx toll road and facilities and the right to collect toll). BCDA shall retain all rights, interests and obligations under the TOA relating to the design, construction and financing of the SCTEx. Nevertheless, the Parties hereby acknowledge that BCDA has, as at date of the Agreement, designed, financed and constructed the SCTEx as an operable toll road in accordance with the TOA. The BOA was the result of the amendments made to the previously signed Concession Agreement between BCDA and MNTC last November 2010.
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The BOA must be approved by the President of the Republic of the Philippines before MNTC could take over the management of SCTEx.
From and after the effective date, each BCDA and MNTC shall be entitled to a direct share in the Audited Gross Toll Revenues from the SCTEx.
The term of the agreement shall be from effective date, until October 30, 2043. At the end of the contract term or upon termination of the Agreement, the SCTEx shall be turned over to BCDA/successor-in-interest conformably with law, and in all cases in accordance with and subject to the terms and conditions of the STOA to be entered into by and among MNTC, BCDA and ROP, through TRB, in relation to SCTEx.
As at February 24, 2012, the parties are still in the process of obtaining certain consents and formalizing the STOA and therefore the SCTEx had not been assigned and turned over to MNTC and has not been accounted for accordingly in the consolidated financial statements.
30. Financial Risk Management Objectives and Policies and Capital Management
The Company’s principal financial instruments comprise long-term loans, proceeds of which were used to finance the construction of the Project on a limited recourse basis. The Company has various other financial instruments such as cash and cash equivalents, receivables from trade debtors and payables to trade creditors, which arise directly from its operations. The Company also holds AFS financial assets.
The Company also enters into derivative transactions, particularly interest rate swaps and cross currency swaps, to manage the interest rate and foreign currency risks arising from its operations and sources of finances.
The main risks arising from the Company’s financial instruments are interest rate risk and foreign currency risk which were both mitigated when the Company entered into cross currency swap and interest rate swap transactions between July 1, 2008 and April 1, 2009 (see Note 31). As a result, the Company locked in the amount of its debt service obligations until maturity date. In line with its capital restructuring program, the Company terminated all its swap transactions on January 14, 2011 simultaneous with the prepayment of the underlying loans. However, in March 2011, the Company entered again into an interest rate swap transaction for its floating-rate PNB Loan.
Aside from the risks discussed above, the Company is also exposed to credit risk and liquidity risk. These risks are discussed in detail below.
Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to interest rate risk relates primarily to the Company’s long-term debt obligations with floating interest rates. In accordance with its interest rate management policy, the Company converted 60% of its outstanding loans into fixed-rate debt, effectively locking in the interest rate on majority of its loan obligations and reducing exposure to interest rate fluctuations. This was done through the exercise of embedded fixed-rate funding options under some of the loan facilities, namely: EFIC, ADB Direct and COFACE in 2005. With the refinancing in 2006, the percentage of fixed-rate debt has increased to 76% since the FXCN, which carry a fixed interest rate of 9.75% per annum, account for more than half of the outstanding debt.
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To further reduce its cash flow interest rate risk exposure, the Company entered into a series of derivative transactions, in particular, cross currency interest rate swaps, during 2008 and 2009 (see Note 31). Under these transactions, the counterparty shall pay semi-annual interest in U.S. dollar at floating rates equivalent to those of the long-term debt obligations every six months. In exchange, the Company shall pay its counterparty semi-annual interest in Philippine peso at an agreed-upon fixed rate every six months. These swaps are designated as cash flow hedges of the underlying debt obligations.
The following table summarizes the changes in interest rates after taking into account the result of the swap transactions:
Notional Amount December 31, December 31, Floating and Fixed Fixed Interest Loan Facility 2011 2010 Interest Rate Rate ADB-CFS A $– $7,437,500 LIBOR + 2.75% Margin 8.30% ADB-CFS B – 1,312,500 LIBOR + 2.75% Margin 8.88% USD Bank Facility – 14,021,875 LIBOR + 3.00% Margin 9.10% COFACE – 6,540,625 6.13% 7.60% EFIC – 6,562,500 8.03% 11.50% $– $35,875,000
ADB Direct P=– P=380,520,000 PHIREF + 4.66% Margin 9.40% PNB Loan 2,100,000,000 – PHIREF + 0.50% Margin 5.88% P=2,100,000,000 P=380,520,000
As more of the floating-rate loans were paid on scheduled repayment dates and the derivative transactions effectively converted the floating rates to fixed rates for two loan facilities in 2008 and another two loan facilities in 2009, the percentage of floating-rate debt to total outstanding debt as at December 31, 2011 and 2010 has been totally eliminated.
The cross currency swap on the COFACE Covered Loan features a shift from a fixed interest rate to floating interest rate (see Note 31). In February 2009, the Company entered into another interest rate swap transaction to fix the interest rate on the loan facility.
The following table sets out the principal amount, by maturity, of the Company’s long-term debt:
U.S. Dollar-denominated Loans
December 31, 2010
Interest Rate Within the
Year (’000) 2–3 Years
(’000) 4–5 Years
(’000)
More than 5 Years
(’000) Total
(’000) Fixed-rate loans EFIC 8.03% $7,021 $– $– $– $7,021 COFACE 6.13% 7,177 – – – 7,177 14,198 – – – 14,198 Floating-rate loans: ADB-CFS LIBOR + 2.75% Margin 8,756 – – – 8,756 USD Bank LIBOR + 3.00% Margin 14,037 – – – 14,037 22,793 – – – 22,793 $36,991 $– $– $– $36,991
As discussed in Note 17, the outstanding U.S. dollar denominated loans as at December 31, 2010 were fully paid on January 14, 2011.
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Peso-denominated Notes and Loans
December 31, 2011
Interest Rate Within the
Year (’000) 2–3 Years
(’000) 4–5 Years
(’000)
More than 5 Years
(’000) Total (’000)
Fixed-rate loans: Series A-5 6.535% P=10,000 P=20,000 P=970,000 P=– P=1,000,000 Series A-7 7.270% 42,102 84,205 84,205 3,999,719 4,210,231 Series A-10 7.704% 10,000 20,000 20,000 950,000 1,000,000 Term-loan facility 7.10% – – – 1,000,000 1,000,000
Floating-rate loan: PNB Loan PHIREF + 0.50% Margin 105,000 997,500 892,500 – 1,995,000 P=167,102 P=1,121,705 P=1,966,705 P=5,949,719 P=9,205,231
December 31, 2010
Interest Rate Within the
Year (’000) 2–3 Years
(’000) 4–5 Years
(’000)
More than 5 Years
(’000) Total
(’000) Fixed-rate loans - FXCN Noteholders 9.75% P=55,000 P=5,280,000 P=– P=– P=5,335,000
Floating-rate loans: ADB-Direct PHIREF + 4.66% Margin 435,455 – – – 435,455 PNB Loan 9.61%* 105,000 210,000 1,785,000 – 2,100,000 540,455 210,000 1,785,000 – 2,535,455 P=595,455 P=5,490,000 P=1,785,000 P=– P=7,870,455 *Converted to floating interest rate based on PHIREF plus a margin of 0.5% upon re-pricing on December 15, 2010.
Interest on financial instruments classified as floating rate is repriced semi-annually and quarterly on each interest payment date. 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 cash flow interest rate risk.
The cash flow interest rate exposure of the Company has changed with the prepayment of its foreign currency loans on January 14, 2011. With 100.0% of its financial instruments in local currency loans, around 22.0% of which is in floating interest rate, exposure is now limited to changes in six-month PHIREF and three-month PHIREF. In March 2011, the Company mitigated its exposure to interest-rate fluctuations by fixing the remaining floating-rate loan via an interest rate swap transaction.
The following table demonstrates the sensitivity of income to changes in interest rates with all other variables held constant. The management expects that interest rates will move by ±50 basis points within the next reporting period. 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 Income Tax 2011 +50 P=– -50 – 2010 +50 (P=306,636) -50 306,636
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With regard to the Company’s derivatives transactions, the following table demonstrates the sensitivity of fair value changes due to movements in interest rates with all other variables held constant. The management expects that interest rates will move by ±50 basis points within the next reporting period. 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
Income Tax 2011 +50 P=29,170,563 -50 (20,496,654)
2010 +50 P=16,745,077 -50 (16,982,452)
Foreign Currency Risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. As at December 31, 2011, the Company is not significantly exposed to foreign currency risk as MNTC fully paid its U.S. dollar denominated loans in January 2011 (see Note 17). The minimal exposure to foreign currency risk relates to the Company’s foreign currency denominated cash and cash equivalents as at December 31, 2011. As at December 31, 2010, the Company’s foreign currency risk arises mainly from its exposure to U.S. dollar-denominated long-term loans which constitute 25% of its outstanding loans as at such date. These long-term loans were translated using US$1 = P=43.89 as at December 31, 2010. Exposure to foreign currency risk was significantly reduced when the Company undertook a major risk management initiative in 2006 by refinancing around 50% of its outstanding U.S. dollar loans with peso loans. The exposure was further reduced when the Company entered into derivative transactions in 2008 and 2009, and subsequently converted the ADB Direct loan from U.S. dollar to Philippine peso in March 2009. This allowed the Company to fully hedge its exposure on variability in cash flows due to foreign currency exchange fluctuations through cross currency interest rate swaps. The following table summarizes the features of these hedging transactions:
Loan Facility Effective Date Principal Amount
Hedged Swap Rate Notional Amount ADB-CFS A September 23, 2008 $12,750,000 P=46.33 P=590,707,500 ADB-CFS B October 3, 2008 2,250,000 47.05 105,862,500 COFACE July 2, 2008 11,212,500 45.00 504,562,500 USD Bank Facility October 3, 2008 24,037,500 47.05 1,130,964,375 EFIC January 5, 2009 10,312,500 47.42 489,018,750 $60,562,500 P=2,821,115,625
In connection with the Company’s objective of reducing the exposure to foreign currency risk to zero, since revenues are 100% peso-denominated, the ATR adjustment formula was revised starting January 1, 2011. The revised formula removes the foreign exchange component factor, which passes on 50% of the foreign currency exposure on bi-annual adjustments following the initial toll rate adjustment.
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The foreign currency denominated balances and their Philippine peso equivalents as at December 31, 2011 and 2010 are as follows: 2011 2010
U.S. Dollar Philippine
Peso(a) U.S. Dollar Philippine Peso(a) Euro Philippine
Peso(b) Assets Cash and cash equivalents $411,404 P=18,072,978 $879,695 P=38,609,814 €– P=– Derivative assets – – 66,116 2,901,514 – – 411,404 18,072,978 945,811 41,511,328 – – Liabilities Accounts payable and other current
liabilities – – (163,731) (7,186,154) (147,134) (8,538,186) Derivative liabilities – – (4,828,813) (211,912,455) – – Long-term debt – – (37,517,996) (1,646,664,844) – – – – (42,510,540) (1,865,763,453) (147,134) (8,538,186) Net Foreign Currency-
Denominated Assets (Liabilities) $411,404 P=18,072,978 ($41,564,729) (P=1,824,252,125) (€147,134) (P=8,538,186)
(a) Exchange rate used to translate the U.S. dollar amounts into Philippine peso was P=43.93 to US$1.00 and P=43.89 to US$1.00 as at December 31, 2011 and 2010, respectively.
(b) Exchange rate used to translate the euro amounts into Philippine peso was P=58.03 to €1.00 as at December 31, 2010.
The following table demonstrates the sensitivity of income to changes in foreign exchange rates with all variables held constant. Management estimates that U.S. dollar and Euro exchange rates will change by ±5% within the next reporting period. Changes in income before income tax pertain to those financial obligations which are unhedged.
Increase/Decrease in Philippine Peso
to U.S. Dollar and Euro Exchange Rates
Effect on Income Before
Income Tax 2011 U.S. Dollar +5% P=903,608 U.S. Dollar –5% (903,608) 2010 U.S. Dollar +5% (P=89,319,189) Euro +5% (426,935) U.S. Dollar –5% 89,319,189 Euro –5% 426,935
With regard to the Company’s derivative activities, the following table demonstrates the sensitivity of fair value changes due to movements in foreign exchange rates with all variables held constant. Management estimates that U.S. dollar exchange rates will change by ±5% within the next reporting period. There is no other impact on the Company’s equity other than those already affecting the consolidated statement of income.
Increase/Decrease in Peso: U.S. Dollar
Exchange Rate
Effect on Income Before Income
Tax 2011 +5% P=– -5% –
2010 +5% P=98,064,611 -5% (98,064,611)
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On January 14, 2011, the Company’s exposure to foreign exchange currency risk in relation to its long-term loans was eliminated with the full prepayment of its outstanding U.S. Dollar and ADB Direct loans.
Credit Risk Credit risk is the risk that the Company will incur a loss arising from customers, clients or counterparties that fail to discharge their contracted obligations. The Company’s exposure to credit risk on trade receivables is indirect since the responsibility for account management and collection is part of the subscription account management function of its operator, TMC. The Company, through TMC, offers a credit card payment option called automatic debit via credit card (Credit Card ADA) which, to a certain extent, operates like a post-payment account that can have some collection backlog if not managed properly. The Company’s policy is to provide TMC a 30-day window within which to collect declined Credit Card ADA transactions for the annual period. Any uncollected Credit Card ADA top-ups after the 30-day grace period will be considered as part of the toll collection variance of TMC (ADA variance). In 2011 and 2010, the cut-off date for the determination of the ADA variance is on January 30, 2011 and 2010, respectively, following the 30-day policy. As at January 30, 2011 and 2010, the declined ADA reload transactions in 2011 and 2010 amounted only to P=0.03 million and P=0.20 million, respectively.
In prior years, there is also a credit risk on receivables from the Company’s hedging counterparty, Mizuho Corporate Bank (Mizuho). Under the hedge agreement, Mizuho shall pay the Company, in U.S. dollars and at specified dates, amounts equal to the semi-annual principal and interest payments for the Company’s U.S. dollar-denominated loans, namely ADB-CFS, USD Bank, EFIC and COFACE. In exchange, the Company pays Mizuho equivalent amounts in Philippine peso at agreed-upon swap rates and fixed interest rates. The Company manages its counterparty risk by transacting with counterparties of good financial condition and credit rating. Although limiting aggregate exposure on all outstanding derivatives to any individual counterparty would effectively manage settlement risk on derivatives, the CTA stipulated that hedge counterparties would not have voting rights and may not declare an event of default which other counterparties find difficult to accept. To mitigate this exposure, the Company monitors and assesses on a regular basis the counterparty’s credit rating in Moody’s, Standard & Poor’s (S&P) and Fitch to obtain reasonable assurance that the counterparty would be able to fulfill its financial obligations under the hedge agreements.
On December 13, 2010, the Company issued a notice of prepayment to Mizuho as hedging counterparty indicating the Company’s intent to cancel the cross currency and interest rate swap transactions with Mizuho on January 14, 2011, the same date as the prepayment of the loans. The cancellation proceeded in accordance with the notice.
With respect to credit risk arising from other financial assets, which comprise cash and cash equivalents, due from related parties and AFS financial assets, the Company’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to carrying amount of these financial assets. The Company does not require any collateral for its financial assets.
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The table below shows the maximum exposure to credit risk for the Company’s financial assets, without taking account of any collateral, credit enhancements and other credit risk mitigation techniques:
December 31,
2011 December 31,
2010 Cash and cash equivalents(a) P=1,601,536,099 P=1,848,255,875 Receivables: Trade receivables 84,086,210 34,920,266 Interest receivables 3,513,967 3,807,630 Other receivables 6,838,554 22,287,279 Derivative assets – 2,901,514 AFS financial assets 905,968,276 565,046,009 Due from related parties 625,373,422 588,311,193 Refundable deposits and other financial assets(b) 4,333,850 4,579,766 Total credit risk exposure P=3,231,650,378 P=3,070,109,532 (a) Excluding cash on hand. (b) Included under Other noncurrent assets.
Cash and cash equivalents are placed with reputable local and international banks which meet the credit rating criteria set under the loan agreements. Qualified banks in the Philippines are those with a bank deposit rating of at least equal to the sovereign rating, or if there is no bank deposit rating, bank financial strength rating of at least ‘D’ by Moody's, or whose credit rating given by Moody’s, S&P, or Fitch is equal to the Philippine government, or whose issuer or issue credit rating by Philratings is at least ‘Aa.’ Qualified banks outside the Philippines are those whose senior unsecured obligations are rated at least ‘BBB’ by S&P.
Receivables are the trade receivables related to Credit Card ADA transactions as described earlier and due from related parties mainly from MPIC and TMC. MPIC and TMC are considered as low-risk counterparties since the Company has payment obligations to MPIC and TMC which far exceed the aggregate amount of receivables and dues from MPIC and TMC. In addition, TMC’s performance under the O&M is guaranteed by MPTDC and Egis Road Operation. Some ADA receivables amounting to P=5.3 million that were incurred during the start-up period from February 10 to August 31, 2005 were carved out from TMC’s responsibility and are currently considered as direct receivables of the Company. While the Company is considering legal action against a certain bus company that is responsible for majority of the unpaid ADA transactions in 2005, it has already booked a provision for doubtful accounts corresponding to such amount.
The Company also generates non-toll revenues in the form of service fees collected from business locators, generally called TSF, along the stretch of the NLE. The collection of such fees is provided in the STOA and is based on the principle that these TSF derive benefit from offering goods and services to NLE motorists. The fees range from one-time access fees to recurring fees calculated as a percentage of sales. The arrangements are backed by a service facility contract between the Company and the various locators. The credit risk on these arrangements is minimal because the fees are collected on a monthly basis mostly from well-established companies. The exposure is also limited given that the recurring amounts are not significant and there are adequate safeguards in the contract against payment delinquency. Nevertheless, the Company closely monitors receivables from the TSF.
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As at December 31, 2011 and 2010, the aging analysis of past due but not impaired trade receivables follows. All other financial assets of the Company are neither past due nor impaired as at December 31, 2011 and 2010.
Neither Past Due nor
Impaired
Past Due but not Impaired
<31 Days 31–60 Days 61–90 Days 91–180 Days 181 days –
1 year Total Total 2011 P=63,742,079 P=– P=1,649,252 P=1,205,370 P=2,971,381 P=14,518,128 P=20,344,131 P=84,086,210 2010 29,593,333 – – 1,196,053 1,702,008 2,428,872 5,326,933 34,920,266
The table below shows the credit quality of the Company’s financial assets based on their historical experience with the corresponding third parties:
December 31, 2011
Neither Past Due
nor Impaired - High-grade Past Due Impaired Total Cash and cash equivalents(a) P=1,601,536,099 P=– P=– P=1,601,536,099 Receivables: Trade receivables 63,742,079 20,344,131 5,259,500 89,345,710 Interest receivables 3,513,967 – – 3,513,967 Other receivables 6,838,554 – – 6,838,554 Due from related parties 625,373,422 – – 625,373,422 AFS financial assets 905,968,276 – – 905,968,276 Refundable deposits and other
financial assets(b) 4,333,850 – – 4,333,850 P=3,211,306,247 P=20,344,131 P=5,259,500 P=3,236,909,878 (a) Excluding cash on hand. (b) Included under Other noncurrent assets.
December 31, 2010
Neither Past Due
nor Impaired - High-grade Past Due Impaired Total Cash and cash equivalents(a) P=1,848,255,875 P=– P=– P=1,848,255,875 Receivables: Trade receivables 29,593,333 5,326,933 5,259,500 40,179,766 Interest receivables 3,807,630 – – 3,807,630 Other receivables 22,287,279 – – 22,287,279 Derivative assets 2,901,514 – – 2,901,514 Due from related parties 588,311,193 – – 588,311,193 AFS financial assets 565,046,009 – – 565,046,009 Refundable deposits and other
financial assets(b) 4,579,766 – – 4,579,766 P=3,064,782,599 P=5,326,933 P=5,259,500 P=3,075,369,032 (a) Excluding cash on hand. (b) Included under Other noncurrent assets.
With the exception of the impaired portion and past due accounts, all of the Company’s financial assets are considered high-grade receivables since these are receivables from counterparties who are not expected to default in settling their obligations. These counterparties include reputable local and international banks and companies and the Philippine government. Other counterparties
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also have corresponding collectibles from the Company for certain contracted services. The first-layer of security comes from the Company’s ability to offset amounts receivable from these counterparties against payments due to them.
Liquidity Risk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company is not exposed to significant liquidity risk because of the nature of its operations which provides daily inflows of cash from toll collections. The Company is able to build up sufficient cash from operating revenues prior to the maturity of its payment obligations. In 2011, the Company arranged additional short-term lines to boost its ability to meet short-term liquidity needs. The Company has short-term credit lines amounting to P=1,300.0 million and P=900.0 million as at December 31, 2011 and 2010, respectively, and cash and cash equivalents amounting to P=1,653.5 million and P=1,874.1 million as at December 31, 2011 and 2010, respectively, that are allocated to meet the Company’s short-term liquidity needs.
The table below summarizes the maturity profile of the Company’s financial assets and financial liabilities as at December 31, 2011 and 2010 based on undiscounted payments:
December 31, 2011
Within
the Year 2–3 Years 4–5 Years More than
5 Years Total Financial Assets Cash and cash equivalents P=1,653,539,917 P=– P=– P=– P=1,653,539,917 Receivables(a) 99,698,231 – – – 99,698,231 Due from related parties 625,373,422 – – – 625,373,422 AFS financial assets(b) – 62,807,250 635,281,250 328,246,526 1,026,335,026 P=2,378,611,570 P=62,807,250 P=635,281,250 P=328,246,526 P=3,404,946,596
Financial Liabilities Accounts payable and other
current liabilities(c) P=982,125,075 P=– P=– P=– P=982,125,075 Due to related parties 8,178,596 – – – 8,178,596 Dividends payable 40,225,431 – – – 40,225,431 Long-term debt(d) 710,271,301 2,234,363,797 2,960,033,115 7,212,813,426 13,117,481,639 Financial guarantee obligation 11,055,000 22,110,000 22,110,000 232,155,000 287,430,000 1,751,855,403 2,256,473,797 2,982,143,115 7,444,968,426 14,435,440,741
Derivative Liabilities Derivative contracts - receipts (45,570,427) (130,888,718) (46,419,353) – (222,878,498) Derivative contracts - payments 112,382,630 204,446,940 39,762,734 – 356,592,304 66,812,203 73,558,222 (6,656,619) – 133,713,806 P=1,818,667,606 P=2,330,032,019 P=2,975,486,496 P=7,444,968,426 P=14,569,154,547 (a) Excluding advances to officers and employees. (b) Including interest to be received. (c) Excluding statutory liabilities. (d) Including interest to be paid.
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December 31, 2010
Within
the Year 2–3 Years 4–5 Years More than
5 Years Total Financial Assets Cash and cash equivalents P=1,874,116,857 P=– P=– P=– P=1,874,116,857 Receivables(a) 60,947,742 5,326,933 – – 66,274,675 Due from related parties 588,311,193 – – – 588,311,193 AFS financial assets(b) 54,291,667 68,310,000 396,516,250 140,953,009 660,070,926 P=2,577,667,459 P=73,636,933 P=396,516,250 P=140,953,009 P=3,188,773,651
Financial Liabilities Accounts payable and other
current liabilities(c) P=529,018,930 P=– P=– P=– P=529,018,930 Due to related parties 8,426,075 – – – 8,426,075 Dividends payable 181,981,147 – – – 181,981,147 Long-term debt(d) 2,651,334,355 6,532,295,666 2,022,426,834 – 11,206,056,855 Financial guarantee obligation 11,055,000 22,110,000 22,110,000 243,210,000 298,485,000 3,381,815,507 6,554,405,666 2,044,536,834 243,210,000 12,223,968,007
Derivative Liabilities Derivative contracts - receipts (1,453,761,476) – – – (1,453,761,476) Derivative contracts - payments 1,665,673,931 – – – 1,665,673,931 211,912,455 – – – 211,912,455 P=3,593,727,962 P=6,554,405,666 P=2,044,536,834 P=243,210,000 P=12,435,880,462 (a) Excluding advances to officers and employees. (b) Including interest to be received. (c) Excluding statutory liabilities. (d) Including interest to be paid.
Capital Management The primary objective of the Company’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximize shareholder value while complying with the financial covenants required by the lenders. These loan covenants were overhauled in April 2011. Under the new loan agreement, MNTC is required a Maintenance DSCR of not less than 1.15 times and maintain a Debt to Equity Ratio not exceeding 3.0 times for the first three years after the date of the loan agreement and not exceeding 2.5 times after such period. The loan agreement provides that MNTC may incur new loans or declare dividends as long as the Pro-forma DSCR for the relevant year is not less than 1.30 times.
The Company also ensures that its debt to equity ratio is in line with the requirements of the Bangko Sentral ng Pilipinas (BSP) and the Board of Investments (BOI). BSP requires the Company to maintain a long-term debt to equity ratio of at most 75:25 during the term of the foreign loans while BOI requires the Company to comply with a 75:25 debt to equity ratio as proof of capital build-up. The Company’s long-term debt to equity ratio stood at only 60:40 and 61:39 as at December 31, 2011 and 2010, respectively, indicating that the Company has the capacity to incur additional long-term debt to build up its capital.
2011 2010 Long-term debt P=9,050,617,440 P=9,354,332,475 Total equity attributable to equity holders of parent 5,918,959,823 5,906,986,513 Total capital P=14,969,577,263 P=15,261,318,988
Debt to equity ratio 60:40 61:39
The Company continuously evaluates whether its capital structure can support its business strategy.
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In 2010, the Company launched its capital restructuring plan which aims to maximize the Company’s flexibility to pursue expansion opportunities within and outside the NLE concession and, at the same time, maintain a steady flow of dividends to shareholders. In order to do this, the Company had to take certain steps to complete its transition away from its project-finance origins. First of these steps is the prepayment of the U.S. Dollar and ADB Direct loans. While the prepayment entailed costs related to the cancellation of several hedge transactions, the low interest environment and strong liquidity of the local market ensured the Company that the loan prepayment and swap termination can be done efficiently. To effect the prepayment, the Company obtained a short-term Philippine Peso bridge loan facility that will eventually be refinanced with a long-term Philippine Peso loan facility. Post prepayment, the weighted average interest rate on the Company’s long term loan facilities went down from 9.6% per annum to 6.6% per annum.
In 2011, the Company completed the implementation of its capital restructuring program through a series of transactions that also extended the maturity of its loan obligations amidst the low-interest rate environment. The Company also ended the year with an improved leverage ratio, boosting its debt capacity in preparation for the financing of expansion projects.
31. Financial Assets and Financial Liabilities
Fair Values A comparison of carrying and fair values of all of the Company’s financial instruments by category as at December 31, 2011 and 2010 follows:
2011 2010 Carrying Value Fair Value Carrying Value Fair Value Financial Assets FVPL - Derivative assets P=– P=– P=2,901,514 P=2,901,514 Loans and receivables: Cash and cash equivalents 1,653,539,917 1,653,539,917 1,874,116,857 1,874,116,857 Receivables: Trade 84,086,210 84,086,210 34,920,266 34,920,266 Interest receivables 3,513,967 3,513,967 3,807,630 3,807,630 Other receivables 6,838,554 6,838,554 22,287,279 22,287,279 Due from related parties 625,373,422 681,432,405 588,311,193 654,586,457 Refundable deposits and other
financial assets(a) 4,333,850 4,330,357 4,579,766 4,447,042 2,377,685,920 2,433,741,410 2,528,022,991 2,594,165,531 AFS financial assets: Investment in bonds 577,721,750 577,721,750 424,093,000 424,093,000 Investment in unquoted shares 328,246,526 328,246,526 140,953,009 140,953,009 905,968,276 905,968,276 565,046,009 565,046,009 P=3,283,654,196 P=3,339,709,686 P=3,095,970,514 P=3,162,113,054
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2011 2010 Carrying Value Fair Value Carrying Value Fair Value Financial Liabilities FVPL - Derivative liabilities P=130,155,566 P=130,155,566 P=211,912,455 P=211,912,455 130,155,566 130,155,566 211,912,455 211,912,455 Other financial liabilities: Accounts payable and other
current liabilities(b) 982,125,075 982,125,075 529,018,930 529,018,930 Due to related parties 8,178,596 8,178,596 8,426,075 8,426,075 Dividends payable 40,225,431 40,225,431 181,981,147 181,981,147 Long-term debt 9,050,617,440 9,616,868,839 9,354,332,475 9,845,181,364 Financial guarantee obligation 65,232,060 121,291,043 65,413,467 122,097,769 10,146,378,602 10,768,688,984 10,139,172,094 10,686,705,285 P=10,276,534,168 P=10,898,844,550 P=10,351,084,549 P=10,898,617,740 (a) Included under Other noncurrent assets. (b) Excluding statutory liabilities.
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:
Derivative Assets and Liabilities As at December 31, 2011, the fair values of the interest rate swap transactions is the net present value of estimated future cash flows using Philippine risk free rates ranging from 1.9% to 8.2%. The fair values of the cross currency swap transactions as at December 31, 2010 were based on the actual settlement amount in January 2011 provided by the counterparty.
Cash and Cash Equivalents, Receivables, Due from Related Parties (Current), Accounts Payable and Other Current Liabilities, Dividends Payable, and Due to Related Parties Carrying value approximates the fair value at balance sheet date due to the short-term nature of the transactions.
AFS Financial Assets The fair value of investment in bonds classified as AFS financial assets is based on the quoted market price of the financial instruments as at December 31, 2011 and 2010.
Unquoted AFS financial asset where the fair value is not reasonably determinable were carried and presented at cost.
Due from Related Parties (Noncurrent), Refundable Deposits and Other Financial Assets and Financial Guarantee Obligation Estimated fair value is based on the discounted value of future cash flows using the prevailing peso interest rates that are specific to the tenor of the instruments’ cash flows ranging from 1.8% to 10.2% in 2011 and 1.2% to 10.9% in 2010.
Long-term Debt For both fixed rate and floating rate (repriceable every six months) U.S. dollar-denominated debts and peso-denominated notes and loans, estimated fair value is based on the discounted value of future cash flows using the prevailing credit adjusted U.S. risk-free rates and prevailing peso interest rates. In 2011, the prevailing peso interest rates ranged from 2.2% to 7.1%. In 2010, the prevailing credit adjusted U.S. risk-free rates and prevailing peso interest rates ranged from 0.3% to 3.7% and 2.2% to 6.1%, respectively.
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Fair Value Hierarchy As at December 31, 2011 and 2010, the Company held the following financial instruments measured at fair value:
December 31,
2011 Level 1 Level 2 Financial Assets AFS financial assets - Investment in bonds P=577,721,750 P=577,721,750 P=–
Financial Liabilities Financial liabilities at FVPL - Derivative liabilities at FVPL P=130,155,566 P=– P=130,155,566
December 31,
2010 Level 1 Level 2 Financial Assets Financial Assets at FVPL - Derivative assets at FVPL P=2,901,514 P=– P=2,901,514 AFS financial assets - Investment in bonds 424,093,000 424,093,000 – P=426,994,514 P=424,093,000 P=2,901,514
Financial Liabilities Financial liabilities at FVPL - Derivative liabilities at FVPL P=211,912,455 P=– P=211,912,455
Derivative Instruments On various dates in 2011, 2009 and 2008, the Company entered into cross currency and interest rate swap transactions to hedge its foreign exchange and interest rate exposures on the following loans:
Outstanding Balance as at
Loan Facility Interest Rate December 31,
2011 December 31,
2010 ADB-CFS A LIBOR + 2.75% Margin $– $7,443,443 ADB-CFS B LIBOR + 2.75% Margin – 1,313,549 USD Bank Facility LIBOR + 3.00% Margin – 14,036,825 COFACE 6.13% – 7,176,618 EFIC 8.03% – 7,020,535 $– $36,990,970
ADB Direct PHIREF + 4.66% Margin P=– P=435,454,674 PNB Loan PHIREF + 0.50% Margin 1,995,000,000 2,100,000,000 P=1,995,000,000 P=2,535,454,674
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The following table provides the related fair values of the Company’s derivative financial instruments outstanding as at December 31, 2011 and 2010:
December 31, 2011 December 31, 2010 Asset Liability Asset Liability Cross currency swaps to hedge ADB-CFS A P=– P=– P=– (P=41,093,665) ADB-CFS B – – – (9,030,529) COFACE – – 2,901,514 – EFIC – – – (34,976,345) USD Bank Facility – – – (96,611,916) – – 2,901,514 (181,712,455) Interest rate swaps to hedge PNB Loan – (130,155,566) – – ADB Direct – – – (17,200,000) COFACE – – – (13,000,000) – (130,155,566) – (30,200,000) P=– (P=130,155,566) P=2,901,514 (P=211,912,455)
Derivatives Accounted for as Non-hedge Transactions.
COFACE
On July 1, 2008, MNTC entered into a cross currency swap to hedge its fair value exposure on the COFACE covered loan due to movements in foreign exchange and interest rates. Under the cross currency swap, MNTC will receive US$11.2 million in installments of US$0.9 million every six months starting December 15, 2008 until June 16, 2014 plus semi-annual interest at a fixed rate of 6.13% per annum on the outstanding U.S. dollar balance, and pay P=504.6 million, payable in equal semi-annual installments of P=42.0 million every six months starting December 15, 2008 until June 16, 2014, and semi-annual interest at six-month Philippine Reference Rates (PHIREF) plus 2.75% per annum on the outstanding peso balance. As at December 31, 2010, the outstanding notional amount of the swap amounted to US$6.5 million.
On February 26, 2009, MNTC entered into an interest rate swap where MNTC receives semi-annual interest based on six-month PHIREF plus 2.75% per annum spread and pays semi-annual fixed interest at 7.6% per annum, calculated based on an amortizing peso notional amount, starting June 15, 2009 until June 16, 2014. The outstanding notional amount of the swap amounted to P=294.3 million as at December 31, 2010.
The interest rate swap, together with the existing cross currency swap entered in 2008 for the COFACE loan, effectively transformed the dollar denominated floating rate loan into a fixed rate peso loan.
For the years ended December 31, 2010 and 2009, the fair value changes of the interest rate swap and cross currency swap (both hedging the COFACE loan) amounted to P=46.7 million loss and P=19.2 million loss, respectively.
As discussed in Note 26, MNTC cancelled the cross currency and interest rate swap transactions (including the COFACE covered loan) on January 14, 2011, the same date as the prepayment of the related loans. Thus, there is no outstanding notional amount for the COFACE swap as at December 31, 2011.
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Derivatives Accounted for Under Cash Flow Hedge Accounting.
ADB-CFS A On September 22, 2008, MNTC entered into across-currency swap transaction with Mizuho to hedge the cash flow variability on the ADB loan due to movements in foreign exchange and interest rates effective September 23, 2008. Under the cross currency swap, MNTC will receive US$12.8 million in installments of US$1.1 million every six months starting December 15, 2008 until June 16, 2014 plus semi-annual interest at a rate of six-month LIBOR plus 2.75% per annum spread on the outstanding U.S. dollar balance, and pay P=590.7 million, payable in equal semi-annual installments of P=49.2 million every six months starting December 15, 2008 until June 16, 2014, and semi-annual interest at fixed rate of 8.3% per annum on the outstanding peso balance. The cross-currency swap effectively transformed the floating rate U.S. dollar loan into a fixed rate peso-denominated loan.
As at December 31, 2010, the outstanding notional amount of the swap amounted to US$7.4 million. As discussed in Note 26, this swap was preterminated in 2011.
ADB-CFS B On September 30 2008, MNTC entered into a cross-currency swap transaction with Mizuho to hedge the cash flow variability on the ADB loans due to movements in foreign exchange and interest rates effective October 3, 2008. Under the cross currency swap, MNTC will receive US$2.2 million in installments of US$0.2 million every six months starting December 15, 2008 until June 16, 2014 plus semi-annual interest at a rate of six-month LIBOR plus 2.75% per annum spread on the outstanding U.S. dollar balance, and pay P=105.9 million, payable in equal semi-annual installments of P=8.8 million every six months starting December 15, 2008 until June 16, 2014, and semi-annual interest at fixed rate of 8.9% per annum on the outstanding peso balance. The cross-currency swap effectively transformed the floating rate U.S. dollar loan into a fixed rate peso-denominated loan.
As at December 31, 2010, the outstanding notional amount of the swap amounted to US$1.3 million. As discussed in Note 26, this swap was preterminated in 2011.
USD Bank Facility On September 30, 2008, MNTC entered into cross currency swap transaction with Mizuho to hedge the cash flow variability on the ADB loans due to movements in foreign exchange and interest rates effective October 3, 2008. Under the cross currency swap, MNTC will receive US$24.0 million in installments of US$2.0 million every six months starting December 15, 2008 until June 16, 2014 plus semi-annual interest at a rate of six-month LIBOR plus 3.0% per annum spread on the outstanding U.S. dollar balance, and pay P=1,131.0 million, payable in equal semi-annual installments of P=94.2 million every six months starting December 15, 2008 until June 16, 2014, and semi-annual interest at fixed rate of 9.1% per annum on the outstanding peso balance. The cross-currency swap effectively transformed the floating rate US dollar loan into a fixed rate peso-denominated loan.
As at December 31, 2010, the outstanding notional amount of the swap amounted to US$14.0 million. As discussed in Note 26, this swap was preterminated in 2011.
EFIC On December 24, 2008, MNTC entered into a cross currency swap to hedge its cash flow variability on the EFIC loan due to movements in foreign exchange rates effective January 5, 2009. MNTC entered into a cross currency swap to hedge its cash flow variability on the EFIC loan due to movements in foreign exchange rates effective January 5, 2009. Under the cross
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currency swap, MNTC will receive US$10.3 million in installments of US$0.9 million every six months starting June 15, 2009 until June 16, 2014, plus semi-annual fixed interest of 8.03% per annum based on the amortizing U.S. dollar notional amount, and pay P=498.0 million, payable in equal semi-annual installments of P=44.5 million every six months starting June 15, 2009 until June 16, 2014, plus semi-annual fixed interest at 11.5% per annum on the amortizing peso notional amount. The cross currency swap effectively transformed the fixed rate U.S. dollar loan into a fixed rate peso-denominated loan. The cross currency swap effectively transformed the fixed rate U.S. dollar loan into a fixed rate peso-denominated loan.
As at December 31, 2010, the outstanding notional amount of the swap amounted to US$6.6 million. As discussed in Note 26, this swap was preterminated in 2011.
ADB Direct On April 1, 2009, MNTC entered into a pay-fixed, receive-floating interest rate swap contract to hedge the variability of cash flows pertaining to the floating rate ADB Direct Loan. Under the swap, MNTC will receive semi-annual interest equal to six-month PHIREF plus 4.66% per annum spread and pay semi-annual fixed interest of 9.4% per annum, based on the amortizing principal balance of the ADB Direct Loan, starting from June 15, 2009 until June 16, 2014. The interest rate swap effectively fixed the floating rate of the said loan over the duration of the agreement at 9.4% per annum. The interest rate swap effectively fixed the floating rate of the said loan over the duration of the agreement at 9.4% per annum.
As at December 31, 2010 the outstanding notional amount of the interest rate swap amounted to P=380.5 million. As discussed in Note 26, this swap was preterminated in 2011.
PNB Term Loan
On March 11, 2011, MNTC entered into a pay-fixed, receive-floating interest rate swap contract to hedge the variability of cash flows pertaining to the floating rate PNB Term Loan effective March 14, 2011. Under the swap, MNTC will receive semi-annual interest equal to six-months PDST-F plus 0.50% per annum spread and pay semi-annual fixed interest of 5.9% per annum, based on the amortizing principal balance of the PNB Term Loan, starting from June 15, 2011 until December 15, 2015. The interest rate swap effectively fixed the floating rate of the said loan over the duration of the agreement at 5.9% per annum.
The swap was designated as cash flow hedge at trade date. As at June 30, 2011, however, the effectiveness ratio was only 58.05% and the hedging relationship failed to meet the 80% to 125% hedge effectiveness criterion of PAS 39. As a result, the hedge was dedesignated by MNTC. The P=39.0 million (gross of P=10.7 million tax) deferred in equity representing the negative fair value change of the swap up to March 31, 2011 (the last testing date when the hedge was still effective) is being amortized over the term of the hedged loan and recognized under “Interest expense and other finance costs” account. Fair value changes of the swap subsequent to March 31, 2011 is recognized in the “Mark-to-market loss” account included in “Other expenses” account in the consolidated statement of income. As at December 31, 2011, the outstanding notional amount of the interest rate swap amounted to P=1,995.0 million with a negative fair value of P=130.2 million. The unamortized amount deferred in equity amounted to P=33.7 million (gross of P=10.1 million tax) after amortization of P=5.3 million. The negative fair value change of the swap from April 1, 2011 to December 31, 2011 amounted to P=91.2 million.
Under cash flow hedge accounting, the effective portion of the change in fair values of the designated hedges are recognized directly in equity and recycled in earnings in the same periods during which the hedged transaction affects earnings.
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As at December 31, 2011 and 2010, there are no derivatives accounted for as cash flow hedges.
Hedge Effectiveness of Cash Flow Hedges. Movements of the Company’s cumulative translation adjustments on cash flow hedges under “Other comprehensive income reserve” account for the years ended December 31, 2011, 2010 and 2009 follow:
2011 2010 2009
Balance at beginning of year (P=3,475,927) (P=14,754,566) (P=50,859,390) Changes in fair value of cash flow hedges (59,250,968) (230,782,209) (92,696,079) (62,726,895) (245,536,775) (143,555,469) Transferred to consolidated statements
of income: Mark-to-market loss 3,475,927 158,275,562 – Interest expense* 25,522,797 91,808,514 84,082,556 Foreign exchange loss (gain) – (8,023,228) 44,718,347 28,998,724 242,060,848 128,800,903 (33,728,171) (3,475,927) (14,754,566) Tax effects of items taken directly to equity 10,118,451 1,042,778 4,426,370 Balance at end of year (P=23,609,720) (P=2,433,149) (P=10,328,196)
2011 2010 2009 Attributable To Equity holders of the Parent (P=15,842,122) (P=1,632,643) (P=6,930,220) Non-controlling interests (7,767,598) (800,506) (3,397,976) (P=23,609,720) (P=2,433,149) (P=10,328,196) * Included in “Interest expense on bank loans” under “Interest expense and other finance costs” account
(see Note 25).
No ineffectiveness was recognized in the consolidated statements of income.
Fair Value Changes on Derivatives. The net changes in the fair values of all derivative instruments for the years ended December 31, 2011, 2010 and 2009 follow:
2011 2010 2009
Balance at beginning of year (P=209,010,941) (P=5,255,601) P=23,180,957 Net changes in fair values of derivatives: Designated as accounting hedges (59,250,968) (230,782,209) (92,696,079) Not designated as accounting hedges*
(see Note 26) (112,777,098) (83,852,199) (19,219,364) (381,039,007) (319,890,009) (88,734,486) Fair value of settled instruments: Designated as accounting hedges 20,255,865 106,196,804 83,478,885 Not designated as accounting hedges 230,627,576 4,682,264 – Balance at end of year (P=130,155,566) (P=209,010,941) (P=5,255,601) * In 2011, these are recorded in the consolidated statement of income as follows: (a) P=91,160,464 is included in mark-
to-market loss under “Other expense” account and (b) P=21,616,634 is included in “Interest expense” account. In 2010, these are recorded in the consolidated statement of income as follows: (a) P=69,241,926 is included in mark-to-market loss under “Other expense” account; (b) P=23,459,767 is included in “Interest expense” account; and (c) P=8,849,494 foreign exchange gain is included in “Foreign exchange gain (loss) - net” account. In 2009, this is included in mark-to-market loss under “Other expense” account.
No ineffectiveness was recognized in the consolidated statements of income.
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32. Registration with the Board of Investments (BOI)
MNTC is registered with the BOI as a preferred pioneer enterprise as a new operator of the NLE under the Omnibus Investment Code of 1987, otherwise known as Executive Order No. 226.
Under the terms of the registration, MNTC is subject to certain requirements, principally that of maintaining at least 60.0% Filipino ownership or voting equity. As a registered enterprise, MNTC is entitled to certain tax and non-tax incentives, including ITH for six years from December 1999 or from actual start of commercial operations whichever comes first but not earlier than the date of registration subject to certain conditions.
On October 16, 2001, the BOI has granted MNTC’s request for an extension of the ITH reckoning date from December 1999 to first quarter of 2004. Thus, MNTC’s ITH will end at the end of the first quarter of 2010. ITH incentive amounted to P=486.3 million and P=461.3 million in 2010 and 2009, respectively (see Note 27).
On July 29, 2009, upon the request of MNTC and after filing the necessary application, the BOI has granted an extension of MNTC’s ITH up to December 31, 2010 subject to the following conditions:
§ At the time of the actual availment of the ITH incentive, the derived capital equipment to labor ratio shall not exceed US$10,000 to one worker; and
§ MNTC shall undertake Corporate Social Responsibility activities which shall be completed on the actual availment of the bonus year.
33. Contingencies and Others
a. Value Added Tax
When RA 9337 took effect, the BIR issued RR No. 16-2005 on September 1, 2005, which, for the first time, expressly referred to toll road operations as being subject to VAT. This notwithstanding VAT Ruling 078-99 issued in August 9, 1999 where BIR categorically ruled that MNTC, as assignee of PNCC franchise, is entitled to the tax exemption privileges of PNCC and is exempt from VAT on its gross receipts from the operation of the NLE.
However, the TRB, in its letter dated October 28, 2005, directed MNTC (and all Philippine toll expressway companies) to defer the imposition of VAT on toll fees. Due to the possibility that MNTC may eventually be subjected to VAT, MNTC, in 2005, carved out the input tax from its purchases of goods and services (includes input tax in relation to the Project construction cost) in 2004 which were previously recorded as part of service concession asset and recorded such input tax, together with the input tax on 2005 purchases and onwards, as a separate “Input value-added tax” account and accordingly reflected the input tax in the VAT returns.
In September 2005, MNTC also requested for confirmation from the BIR that MNTC can claim input VAT for the passed-on VAT on its purchases of goods and services for 2003 and prior years. The request has not been acted upon by the BIR as at February 24, 2012.
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On December 21, 2009, the BIR issued RMC No. 72-2009 as a reiteration of RMC No. 52-2005 imposing VAT on the tollway operators. However, on January 21, 2010, TAP issued a letter to tollway operators referring to a letter issued by TRB to TAP dated December 29, 2009 reiterating TRB’s previous instruction to all toll operators to defer the imposition of VAT on toll fees until further orders from their office. The TRB directive resulted from the Cabinet meeting held last December 29, 2009 at Baguio City where the deferment of the implementation of RMC No. 72-2009 was discussed.
On March 26, 2010, the BIR issued RMC No. 30-2010 directing the imposition of the 12% VAT starting April 1, 2010, with coverage initially limited to private vehicles. However, on March 30, 2010, the TAP issued a letter to tollway operators referring to a letter issued by TRB to TAP dated March 30, 2010 directing the deferment of collection of VAT on toll fees until further orders from their office.
To fully implement the imposition of the VAT on toll fees, the BIR issued RMC No. 63-2010 dated July 19, 2010, stating among others that the VAT shall be imposed on the gross receipts of tollway operators from all types of vehicles starting August 16, 2010 and that the accumulated input VAT account of the toll companies shall have a zero balance on August 16, 2010. Any input VAT that will thenceforth be reflected in the books of accounts and other accounting records of tollway operators will have to be for purchases of goods and services delivered/rendered and invoiced/receipted on or after August 16, 2010.
Meanwhile, on August 4, 2010, MNTC, in accordance with RMC No. 63-2010, applied for abatement of alleged VAT liabilities for taxable years 2006 and 2007.
The BIR was not able to resolve the application for abatement of MNTC because on August 13, 2010, the SC issued a temporary restraining order on the imposition of the 12% VAT on tollway operators. However, on July 19, 2011, the SC upheld the legality of RMC No. 63-2010 issued by the BIR on July 13, 2010, in line with Section 108 of the National Internal Revenue Code that allows the imposition of VAT on all services for a fee.
In relation to the SC Decision dated July 19, 2011, the BIR issued RMC No. 39-2011 dated August 31, 2011 to fully implement VAT on the gross receipts of tollway operators from all types of vehicles starting October 1, 2011. Other provisions of RMC No. 39-2011 follow:
i. Tollway operators who have been assessed for VAT liabilities on receipts from toll fees for prior periods can apply for Abatement of the tax liability, surcharge and interest under Section 204 of the National Internal Revenue Code (NIRC) and RR No. 13-2001.
ii. The accumulated input VAT account of the toll companies shall have a zero balance on October 1, 2011. Any input VAT that will thenceforth be reflected in the books of accounts and other accounting records of tollway operators will have to be for purchases of goods delivered and invoiced on or after October 1, 2011. Whereas, for services, it should be for purchases of services which will be rendered and receipted on or after October 1, 2011.
iii. No future claims for tax credit or refunds shall be allowed for any VAT passed-on to the Tollways operators on any of their purchases made prior to October 1, 2011.
iv. All tollway operators are required to comply with the invoice/receipt format prescribed under RMC No. 40-2005.
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In view of RMC No. 39-2011, MNTC started imposing VAT on toll fees from motorists and correspondingly started recognizing VAT liability on October 1, 2011. MNTC also reduced its accumulated input VAT to zero as at September 30, 2011. The input VAT were either charged to expense or capitalized to assets.
Through all the years that the issues of VAT are being discussed, MNTC continues to receive the following VAT assessments:
§ Formal Letter of Demand from the BIR on March 16, 2009 requesting MNTC to pay deficiency VAT plus penalties amounting to P=1,010.5 million for taxable year 2006.
§ Final Assessment Notice from the BIR dated November 15 2009, assessing MNTC for deficiency VAT plus penalties amounting to P=557.6 million for taxable year 2007.
§ Notice of Informal Assessment from the BIR dated October 5, 2009, assessing MNTC for deficiency VAT plus penalties amounting to P=470.9 million for taxable year 2008.
§ Notice of Informal Conference issued by the BIR on May 21, 2010 assessing MNTC for deficiency VAT plus penalties amounting to P=1,026.6 million for taxable year 2009. Included also in the Notice is the increase of the deficiency VAT for taxable year 2008 from P=470.9 million to P=1,209.2 million (including penalties).
Notwithstanding the foregoing, management believes, in consultation with its legal counsel, that in any event, the STOA amongst MNTC, ROP, acting by and through the TRB, and PNCC, provides MNTC with legal recourse in order to protect its lawful interests in case there is a change in existing laws which makes the performance by MNTC of its obligations materially more expensive.
b. The Company is also a party to certain claims and assessments relating to local business tax and real property taxes as follows:
Local Business Tax (LBT) In 2008, MNTC has received an assessment from the municipality of Guiguinto, Bulacan for alleged deficiency of its share of LBT for the years 2005 to 2007 amounting to P=67.4 million, inclusive of surcharges and penalties. The Company, through its legal counsel, protested and subsequently, in 2009, filed a complaint for annulment of assessment (with prayer for the issuance of temporary restraining order (TRO) and/or writ of preliminary injunction) with the Regional Trial Court (RTC) of Malolos, Bulacan claiming, among other things, that its predecessor, PNCC has never been subjected to LBT and nevertheless MNTC had regularly paid the LBT and obtained its business permits solely from Pasig City (and later Caloocan City) where its principal office is located continuing customary practice.
On November 19, 2009, TRB informed MNTC that TRB’s BOD has approved MNTC’s request to intervene in the LBT case for the purposes of protecting the interests of the government and the motoring public, avoiding any disruption in the operation of the NLE as a limited access facility and resisting collateral attack in the validity of the STOA. TRB also advised MNTC that on November 12, 2009, the omnibus motion (i) for intervention and (ii) to admit attached manifestation and motion in intervention was filed by the Office of the Solicitor General on behalf of TRB praying for the issuance of a TRO and a writ of preliminary injunction to enjoin the municipality from closing MNTC’s business particularly with respect to its operations of the Burol-Tabang and Burol-Sta. Rita toll exits and any facility that is indispensable in the operation of the tollway.
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In March 2010, MNTC received a final demand letter from the municipality to pay LBT, permits, and regulatory fees. On March 12, 2010, the RTC of Malolos, Bulacan denied MNTC’s application for the issuance of a temporary restraining order and/or writ of preliminary injunction. On March 15, 2010, MNTC filed with the Court of Appeals a petition for certiorari (with application for the issuance of a TRO and/or a writ of preliminary injunction) to annul or set aside the orders of the RTC of Malolos, Bulacan denying MNTC’s application for the issuance of a writ of preliminary injunction. The Court of Appeals, in its decision dated July 23, 2010, dismissed the petition. On August 17, 2010, the Company filed a motion for reconsideration but the motion was denied by the Court of Appeals on December 3, 2010.
On July 25, 2011, MNTC received a copy of the decision of the RTC of Malolos, Bulacan dated July 7, 2011. The RTC of Malolos dismissed MNTC’s complaint for lack of merit and upheld the imposition of taxes and further ordered MNTC to settle the taxes upon finality of the decision. MNTC filed its motion for reconsideration on August 9, 2011, which was denied by the RTC of Malolos, Bulacan in an order dated October 6, 2011. A proffer of excluded evidence and a petition for review with the RTC of Malolos, Bulacan and Court of Tax Appeals (CTA), respectively, were filed on November 9, 2011 by MNTC. As at February 24, 2012, the CTA has not yet acted on the petition.
Meanwhile, on July 22, 2010, MNTC filed another complaint with the RTC of Malolos, Bulacan seeking to annul and set aside the illegal assessment for unpaid LBT in the total amount of P=34.0 million, inclusive of surcharges and penalties, for the years 2008 and 2009 issued against MNTC by the Municipal Treasurer of Guiguinto, Province of Bulacan in February 2010. On May 20, 2011, MNTC filed a manifestation with the RTC that with the categorical withdrawal of the assessment by the Municipal Government, there is no longer any need to pursue this case. The RTC issued an order dated May 23, 2011 which deemed the case closed and terminated.
In the meantime, on April 23, 2010, the Bureau of Local Government Finance (BLGF) issued a ruling that the toll fees collected by the toll booths of MNTC shall be recorded thereat and LBT payable to LGUs shall be solely based on 100% of the gross receipts of the toll booths located in the same LGUs and that the ruling shall be applied prospectively. On September 23, 2010, MNTC requested for a partial reconsideration and reiterated that MNTC’s gross receipts may be allocated among all LGUs where the toll roads traverse. On March 4, 2011, BLGF reaffirmed its original position that MNTC shall be classified as a contractor for purposes of local taxation and that LBT should be paid only to LGUs that host the toll plazas, thus, no LBT should be due to municipalities with no established toll plazas.
During the first quarter of 2012, MNTC paid LBT to various LGUs following the above BLGF ruling.
Real Property Tax In 2008, MNTC received real property tax assessments covering the toll expressway traversing the Municipality of Guiguinto amounting to P=2.9 million for the years 2005 to 2008. MNTC appealed before the Local Board of Assessment Appeals (LBAA) of Bulacan and prayed for the cancellation of the assessment. The case is still pending before the LBAA of Bulacan.
In 2004, MPTDC has received real property tax assessments covering Segment 7 located in the province of Bataan for the period from 1997 to June 2005 amounting to P=98.5 million for alleged delinquency property tax. MPTDC appealed before the LBAA of Bataan and prayed for the
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cancellation of the assessment. In the said appeal, MPTDC invoked that the property is owned by the ROP, hence, exempt from real property tax. The case is still pending before the LBAA of Bataan.
The outcome of the claims on LBT and RPT cannot be presently determined. Management believes that these claims will not have a significant impact on the Company’s consolidated financial statements. With regards to the RPT, management and its legal counsel believes that the STOA also provides MNTC with legal recourse in order to protect its lawful interests in case there is a change in existing laws which makes the performance by MNTC of its obligations materially more expensive.
c. Others
MNTC is a co-respondent [together with TRB, PNCC, other tollways companies, TMC, MPTDC (then FPIDC) and BHC] in two SC cases, where, based on the following allegations, the petitioners’ claimed that the STOAs for the North Luzon Expressway, the South Luzon Expressway and the South Metro Manila Skyway are null and void:
§ the negotiation and execution of the STOAs failed to undergo public bidding in accordance with applicable laws and regulations of the Philippines;
§ the STOAs granted to MNTC a 30-year franchise for the construction, maintenance and operation of the NLE in violation of the PD under which the PNCC’s franchise was granted and the Philippine Constitution; and
§ the provisions of the STOAs providing for the establishment and adjustment of toll rates violate the statutory requirement for the TRB to conduct public hearings on the level of authorized toll rates.
The SC, in a decision dated October 19, 2010, among other things, declared as valid and constitutional the challenged STOAs. Petitioner Francisco filed a motion for reconsideration dated November 5, 2010 while some of the petitioners in Marcos, et al. v. TRB et al. filed a partial motion for reconsideration dated October 8, 2010. On January 24, 2011, MNTC filed a consolidated comment to the aforementioned motions for reconsideration.
In a resolution dated March 22, 2011, the SC resolved to among other things, deny with finality the motion for reconsideration filed by Petitioner Francisco and the partial motion for reconsideration dated October 8, 2010 filed by the petitioners, as the basic issues raised therein have been passed upon by the court and no substantial arguments were presented to warrant the reversal of the questioned decision. The SC issued an entry of judgment certifying that the October 19, 2010 decision declaring, among other things, the STOA as valid and constitutional has, on July 1, 2011, become final and executory and thereby recorded in the Book of Entries of Judgments.
MNTC is also a party to other cases and claims arising from the ordinary course of business filed by third parties which are either pending decisions by the courts or are subject to settlement agreements. The outcome of these claims cannot be presently determined. In the opinion of management and the Company’s legal counsel, the eventual liability from these lawsuits or claims, if any, will not have a material adverse effect on the Company’s financial position and financial performance.