1. finance
2. accounting and auditing

COVER SHEET
A 1 9 9 6 1 1 5 9 3
S.E.C. Registration Number
M A N I
L A
S U B S I
D I
W A T E R
A R I
C O M P A N Y
I
N C .
A N D
E S
(Company’s Full Name)
2 F
A D M .
B L D G .
4 8 9
K A T
I
P U N A N
R D .
(Business Address: No. Street City / Town / Province)
Atty. JHOEL P. RAQUEDAN
9267999 local 2021
Contact Person
1 2
3 1
Month
Day
Fiscal year
Company Telephone Number
SEC FORM 17- Q
S T O C K
0 4
FORM TYPE
Month
Day
Annual Meeting
Secondary License Type, If Applicable
A1996-11593
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
Total No. of Stockholders
Domestic
Foreign
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
To be accomplished by SEC Personnel concerned
File Number
____________________________________
LCU
Document I.D.
____________________________________
Cashier
STAMPS
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-Q
QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES
REGULATION CODE AND SRC RULE 17(2)(b) THEREUNDER
1. For the quarterly period ended September 30, 2009
2. Commission Identification No. A1996-11593
3. BIR Tax Identification No. 005-038-428
4. Exact name of issuer as specified in its charter MANILA WATER COMPANY, INC.
5. Province, country or other jurisdiction of incorporation or organization Quezon City, Philippines
6. Industry Classification Code:
(SEC Use Only)
7. Address of issuer's principal office: 2F MWSS Admin. Bldg., 489 Katipunan Road, Balara, Quezon City
Postal Code: 1105
8. Issuer's telephone number, including area code
(632) 926-7999 local 8131 / (632) 981-8130
9. Former name, former address and former fiscal year, if changed since last report: Not Applicable
10. Securities registered pursuant to Sections 8 and 12 of the Securities Regulation Code (SRC):
Title of each class
Authorized Capital Stock
Common Shares (P1.00 par value)
Participating Preferred Shares)P0.10 par value)
Number of Shares Outstanding
Common Shares (P1.00 par value)
Participating Preferred Shares)P0.10 par value)
Number of shares outstanding
3,100,000,000
4,000,000,000
2,030,906,4761
4,000,000,000
Amount of debt outstanding as of September 30, 2009 (Fixed Rate Bonds): Php 4 billion
The Company has no other registered securities either in the form of shares, debt or otherwise.
11. Are any of Registrant’s securities listed on a Stock Exchange? Yes [ X ]
No [ ]
12. Indicate by check mark whether the registrant:
(a) has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17 thereunder or
Sections 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of the
Corporation Code of the Philippines, during the preceding twelve (12) months (or for such shorter
period the registrant was required to file such reports)
Yes [X] No [ ]
(b) Has been subject to such filing requirements for the past ninety (90) days.
1
2,004,895,466 Outstanding Common Shares
568,500 Treasury Shares Listed in the Philippine Stock Exchange (PSE)
25,442,510 Shares Under the Stock Ownership Plans, the listing of which has been approved in principle by the
2,030,906,476 PSE
-1-
Yes [X]
No [ ]
PART I - FINANCIAL INFORMATION
Item I: FINANCIAL STATEMENTS
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As of September 30, 2009 and December 31, 2008
(In Thousands)
September 30, 2009
Unaudited
ASSETS
Current Assets
Cash and cash Equivalents
Short-term cash investments
Receivables-net
Materials and supplies-net
Other current assets
Total Current Assets
Non-Current Assets
Property, plant and equipment-net
Service concession assets-net
Deferred tax assets
Available-for-sale financial assets
Other non-current assets-net
Total Non-Current Assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts and other payables
Income tax payables
Current portion of service concession obligation
Payables to stockholders
Current portion of long-term debt
Total Current Liabilities
Non-current liabilities
Long-term debt-net of current portion
Service concession obligation-net of current portion
Customers guaranty and other deposits
Pension liabilities
Deferred credits
Total Non-current Liabilities
TOTAL LIABILITIES
Stockholders' Equity
Attributable to stockholders of Manila Water Co., Inc
Capital stock
Additional paid-in capital
Subscription receivable
Total paid-in capital
Common stock options outstanding
Retained earnings
Unrealized gain on available for sale
Treasury stock
Minority Interest
Total Stockholders' Equity
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY
P
P
P
P
-2-
Dec. 31, 2008
Audited
5,003,854 P
4,051,635
548,389
1,953
929,606
10,535,436
3,989,080
3,368,007
593,138
2,879
641,859
8,594,963
840,640
24,904,148
321,981
1,926,964
1,906,414
29,900,147
40,435,583 P
722,898
23,913,789
327,661
1,551,316
1,257,841
27,773,505
36,368,467
3,122,983 P
122,121
558,230
83,890
607,938
4,495,162
2,739,940
368,151
558,279
110,170
454,755
4,231,295
14,638,653
3,276,495
1,312,308
151,377
263,497
19,642,330
24,137,492
12,897,232
3,475,379
1,034,164
114,670
158,140
17,679,586
21,910,881
2,905,444
3,444,461
(145,381)
6,204,524
7,446
10,566,102
12,468
(500,000)
16,290,539
7,552
16,298,092
40,435,583 P
2,905,444
3,345,449
(90,825.82)
6,160,067
7,446
8,775,853
6,670
(500,000)
14,450,036
7,550
14,457,586
36,368,467
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months and Nine Months Ended September 30, 2009 and September 30, 2008
(In Thousands except earnings per share)
QUARTER
YEAR-TO-DATE
2009
2008
2009
2008
July - September
January - September
REVENUE
Water
Environmental charges
Sewer
Revenue from projects outside East Zone
Others
COSTS AND EXPENSES
Depreciation and amortization
Salaries, wages & employee benefits
Power, light and water
Management, technical & prof. fees
Repair and maintenance
Business meetings and representation
Regulatory
Collection fees
Taxes and licenses
Wastewater costs
Water treatment chemicals
Occupancy
Transportation and travel
Postage, telephone and telegram
Insurance
Advertising
Premium on performance bonds
Provision for probable losses
Cost associated from projects outside East Zone
Others
INCOME BEFORE OTHER INCOME(EXPENSES)
OTHER INCOME(EXPENSES)
Revenue from rehabilitation works
Cost of rehabilitation works
Foreign currency differentials
Foreign exchange gains(losses)
Interest income
Interest expense
Mark-to-market gain on derivatives
Other Charges
2,019,612
244,429
99,100
21,156
8,948
2,393,244
1,908,998
226,479
97,800
17,208
2,250,485
5,948,267
725,748
295,109
23,837
41,971
7,034,933
5,645,333
662,450
289,101
37,594
6,634,478
535,510
247,651
118,891
61,815
29,364
25,451
24,510
21,933
20,717
20,506
20,070
17,996
8,421
7,620
7,438
4,378
2,162
(35,815)
16,234
6,307
1,161,157
1,232,087
526,191
227,081
119,335
57,122
40,919
19,571
20,259
22,690
19,329
9,632
15,798
16,798
11,803
6,980
7,216
2,513
1,987
22,333
4,631
1,152,186
1,098,299
1,589,393
726,516
364,652
189,183
89,185
66,654
73,529
76,340
66,843
80,685
39,051
50,319
32,099
20,917
22,593
11,075
6,475
10,630
18,040
19,379
3,553,558
3,481,375
1,385,223
711,083
346,975
167,888
157,879
50,524
60,770
74,319
59,212
22,135
35,277
44,890
33,311
20,342
19,548
14,133
5,153
65,149
13,224
3,287,034
3,347,444
Provision for income tax
NET INCOME
P
OTHER COMPREHENSIVE INCOME
Changes in fair value of available-for-sale investment
TOTAL COMPREHENSIVE INCOME
P
Attributable to minority interest
Attributable to owners of the parent
EARNINGS PER SHARE(Annualized)
Basic
Diluted
-3-
939,020
(939,020)
321,001
(326,782)
86,664
(219,511)
(19,859)
5,232
(153,255)
269,239
809,594
372,524
(372,524)
407,390
(404,292)
41,632
(161,599)
(116,869)
250,422
731,008
2,392,881
(2,392,881)
172,612
(159,268)
264,141
(671,480)
(47,598)
4,871
(436,723)
771,556
2,273,096
1,797,951
(1,797,951)
1,038,007
(1,153,007)
111,324
(478,122)
(8,893)
(490,691)
866,597
1,990,155
1,457
811,051
(7)
811,058
731,008
5,797
2,278,893
(7)
2,278,900
(7,798)
1,982,357
1.23
1.23
1.08
1.08
731,008
1,982,357
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Nine Months Ended September 30, 2009 and 2008
(In Thousands)
At January 1, 2009
Additions to subscriptions receivable
Issuance/subscriptions of shares
Employee share options
Increase during the period
Dividends on common shares
Dividends on preferred shares
Unrealized gain(loss) on AFS
Balance as of September 30, 2009
At January 1, 2008
Additions to subscriptions receivable
Issuance/subscriptions of shares
Employee share options
Increase during the period
Dividends on common shares
Dividends on preferred shares
Unrealized gain(loss) on AFS
Balance as of September 30, 2008
Additional
Paid-in
Paid-up
Capital
Capital
2,922,879
3,345,449
Subscription
Receivable
(108,261)
(62,354)
Sharebased
Payments
7,446
Appropriated
Retained
Earnings
4,000,000
Unappropriated
Retained
Earnings
4,775,853
Unrealized
Gain/(Loss) on
Available for
Sale-Financial
Assets
6,670
Treasury
Stock
(500,000)
7,799
99,012
2,274,871
(484,621)
2,930,678
3,444,461
(170,615)
7,446
4,000,000
6,566,103
5,797
12,468
(500,000)
2,918,185
3,234,454
(55,940)
6,942
7,969
2,000,000
5,758,369
4,710
(503,761)
(6,124)
2,000,000
1,845
4,000,000
(7,798)
(3,088)
(503,761)
23,967
2,918,185
3,258,421
(48,999)
-4-
(972,013)
(845,619)
3,940,738
Total attributable to
owners of
parent
14,450,036
(62,354)
7,799
2,373,883
(484,621)
5,797
16,290,540
13,363,987
6,942
1,045,829
(845,619)
(7,798)
13,563,342
Minority
interest
7,550
2
7,552
-
Total Equity
14,457,586
(62,354)
7,799
2,373,883
(484,621)
5,799
16,298,092
13,363,987
6,942
1,045,829
(845,619)
(7,798)
13,563,342
MANILA WATER COMPANY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2009 and 2008
(In Thousands)
2009
2008
As of September 30
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income before income tax
Adjustments to reconcile net income to operating
income before changes in working capital
Depreciation and amortization
Provision for probable losses
Interest Expense-net of amount capitalized
Common stock options outstanding
Interest Income
Operating income before changes in working capital
Changes in operating assets and liabilities
Decrease(increase) in
Receivables
Materials and supplies
Other current assets
Increase(Decrease) in:
Accounts and other payables
Payables to stockholders
Net cash generated from operations
Income Taxes Paid
Net Cash provided by operating activities
CASH FLOW FROM INVESTING ACTIVITIES
Interest received
Proceeds from sale of:
Termination of available-for-sale financial assets
Additions to:
Property, plant and equipment-net
Concession Assets
Short-term cash investments
Available-for-sale financial assets
Other non current assets
Net cash used in investing activities
CASH FLOW FROM FINANCING ACTIVITIES
Customers guaranty & other deposits
Other non-current liabilities
Loan Payments
Loan Availments
Payments of Dividends
Service concession obligation
Interest Paid
Proceeds from issuance of shares
Net Cash provided by financing activities
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH & CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF PERIOD
3,044,652
2,856,752
1,589,393
10,630
671,480
31,707
(264,141)
5,083,720
1,385,223
65,149
478,122
17,842
111,262
4,914,351
40,317
926
(249,742)
(215,753)
36,499
(9,411)
786,998
(26,281)
5,635,939
(1,005,491)
4,630,447
(1,256,819)
(46,242)
3,422,626
(700,470)
2,722,156
268,369
112,021
(489,854)
(276,119)
(2,884,704)
(683,628)
(369,838)
(322,237)
(4,268,157)
(166,422)
198,234
(243,405)
1,984,294
(483,812)
(64,271)
(584,887)
12,751
652,483
1,014,773
3,989,080
5,003,854
-5-
(232,351)
(915,590)
399,563
(286,578)
(1,412,790)
246,460
(1,226,644)
1,522,864
(844,607)
(295,664)
(364,594)
6,942
(955,243)
354,123
1,536,621
1,890,744
NOTES TO THE INTERIM FINANCIAL STATEMENTS
A. The interim financial statements as of September 30, 2009 include all adjustments, normal and
recurring, which are necessary to present fairly the results for the period shown. The results for the
interim periods are not necessarily indicative of results for the full year.
B. The accompanying financial statements have been prepared under the historical cost convention
method and in accordance with accounting principles generally accepted in the Philippines.
Accounting principles and policies applied for the semester ended September 30, 2009 are the same
as those applied in the preceding calendar year, except as stated in the succeeding sections.
C. The Company does not have any significant seasonality or cyclicality in the interim operation, except
for the usually higher demand during the summer months of April and May.
D. Aside from the normal water and wastewater CAPEX disbursements, the Company did not acquire
assets or incur liabilities that are material in amount for the period ended September 30, 2009.
E. Future events may occur which may cause the assumptions used in arriving at the estimates to
change. The effect of any change in estimates will be recorded in the financial statements as they
become reasonably determinable.
F. The Company is not covered by segment reporting required under PFRS8, Although the Company has
several offices around the concession area (East Zone Service Area), the purpose of which is to bring
services (service applications, meter reading and billing) nearer to the customers, these business
offices do not maintain separate books of accounts. The Concession Agreement grants the Company
the right to manage, operate, repair, decommission, and refurbish the MWSS facilities in the East
Zone. Legal title to these facilities remains with the MWSS. New assets, on the other hand, acquired
by the Company during the term of the concession shall remain with the Company until the expiration
date of the Concession Agreement, at which time, all rights, title, and interest in such assets
automatically vest in MWSS.
G. There were no known material events subsequent to the end of the interim period that have not been
reflected in the financial statements for the interim period, or disclosed in the Notes to the Financial
Statements.
H. The Company has not been subjected and is not subject to any bankruptcy, receivership or similar
proceedings. It has not been subject of any material reclassification, purchase or sale of any
significant amount of assets not in the ordinary course of business.
I.
The Company is contingently liable for lawsuits or claims filed by third parties (substantially laborrelated) which are pending decision by the courts or are under negotiation, the outcomes of which are
not presently determinable. The Company has been advised by its legal counsel that it is possible, but
not probable, that the action will succeed and accordingly, no provisions for probable losses on these
cases were recognized.
BASIS OF PREPARATION
The consolidated financial statements of the Group have been prepared using the historical cost basis,
except for available-for-sale (AFS) financial assets and derivative financial instruments that have been
measured at fair value. Manila Water Company, Inc. (the “Company” or the “Parent Company”), and its
subsidiaries’, Northern Waterworks and Rivers of Cebu, Inc., Manila Water Total Solutions, Inc., and
Manila Water International Solutions, Inc and AAA Water Corporation.(collectively, the “Subsidiaries”), use
presentation and functional currency that are denominated in the Philippine Peso (P
= ).
Our consolidated financial statements include the financial statements of MWCI and the following
subsidiaries (collectively, the MWC Group).
-6-
Name of Subsidiary
Manila Water
International
Solutions Inc. (MWIS)
Manila Water Total
Solutions Corp.
(MWTS)
AAA Water
Corporation (AWC)
Northern Waterworks
and Rivers of Cebu
Inc. (NWRC)
Place of
Incorporation
Philippines
Philippines
Philippines
Philippines
Principal Activity
Management of waterworks, waste
waterworks and treatment facilities
Management and consultancy water,
wastewater and environmental projects
Concession services to water and
wastewater utilities
Construction and management of
waterworks, wastewater and treatment
facilities
2009
2008
Percentage of
Ownership
100
100
100
100
100
-
90
90
MWIS was registered with the Securities and Exchange Commission (SEC) on October 13, 2006. It
changed its registered name from West Zone Water Services Inc. on May 29, 2008.
MWC acquired 100% ownership of AWC from Asia Water Limited and All Asia Development Corporation
on July 20 and 24, 2009, respectively.
Minority interests represent the portion of the profit or loss and net assets in NWRC not wholly owned and
are represented separately in the consolidated statement of income and changes in equity and within the
equity section in the consolidated balance sheet, separately from the MWC Group’s equity. Transactions
with minority interests are handled in the same way as transactions with the external parties.
ACCOUNTING POLICIES AND DISCLOSURES
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that
are readily convertible to known amounts of cash with original maturities of three months or less from dates
of acquisition and that are subject to an insignificant risk of change in value. Other short-term cash
placements are classified as short-term cash investments.
Short-term Cash Investments
Short term cash investments are short-term placements with maturities of more than three months but less
than one (1) year from the date of acquisition. These investments earn interest at the respective shortterm investment rates.
Financial Assets and Financial Liabilities
Date of recognition
The Group recognizes a financial asset or a financial liability on the consolidated balance sheet when it
becomes a party to the contractual provisions of the instrument. Purchases or sales of financial assets that
require delivery of assets within the time frame established by regulation or convention in the marketplace
are recognized on the settlement date. Derivative instruments are recognized on trade date basis.
Initial recognition of financial instruments
All financial assets are initially recognized at fair value. Except for financial assets at fair value through
profit or loss (FVPL), the initial measurement of financial assets includes transaction costs.
The Group classifies its financial assets in the following categories: financial assets at FVPL, held-tomaturity (HTM) investments, available-for-sale (AFS) financial assets, and loans and receivables. The
Group classifies its financial liabilities as financial liabilities at FVPL and other liabilities. The classification
depends on the purpose for which the investments were acquired and whether these are quoted in an
active market. Management determines the classification of its investments at initial recognition and,
where allowed and appropriate, re-evaluates such designation at every reporting date.
-7-
Financial instruments are classified as liability or equity in accordance with the substance of the contractual
arrangement. Interest, dividends, gains and losses relating to a financial instrument or a component that is
a financial liability, are reported as expense or income. Distributions to holders of financial instruments
classified as equity are charged directly to equity net of any related income tax benefits.
Determination of fair value
The fair value for financial instruments traded in active markets at the balance sheet date is based on its
quoted market price or dealer price quotations (bid price for long positions and ask price for short
positions), without any deduction for transaction costs. When current bid and asking prices are not
available, the price of the most recent transaction provides evidence of the current fair value as long as
there has not been a significant change in economic circumstances since the time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by using
appropriate valuation methodologies. Valuation methodologies include net present value techniques,
comparison to similar instruments for which market observable prices exist, option pricing models, and
other relevant valuation models.
Day 1 profit
For transactions other than those related to customers’ guaranty and other deposits, where the transaction
price in a non-active market is different from the fair value from other observable current market
transactions in the same instruments or based on a valuation technique whose variables include only data
from observable market, the Group recognizes the difference between the transaction price and fair value
(a Day 1 profit) in the consolidated statement of income under “Other income” account unless it qualifies
for recognition as some other type of asset. In cases where use is made of data which 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 Group determines the appropriate method of recognizing the ‘Day 1’ profit amount.
Derivatives recorded at FVPL
The Group has certain derivatives that are embedded in the host financial (such as long-term debt) and
nonfinancial (such as purchase orders) contracts. The Group has recognized the value of the embedded
prepayment option in one of its long-term debt
Embedded derivative is separated from the host contract. Embedded derivatives are measured at fair
value with fair value changes being reported through profit or loss, and are carried as assets when the fair
value is positive and as liabilities when the fair value is negative.
Financial assets at FVPL
Financial assets at FVPL include financial assets held for trading and financial assets designated upon
initial recognition as at FVPL.
Financial assets are 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 profit or loss.
HTM investments
HTM investments are quoted non derivative financial assets with fixed or determinable payments and fixed
maturities for which the Group’s management has the positive intention and ability to hold to maturity.
Where the Group sells other than an insignificant amount of HTM investments, the entire category would
be tainted and reclassified as AFS financial assets.
After initial measurement, these investments are measured at amortized cost using the effective interest
rate method, less impairment in value. Amortized cost is calculated by taking into account any discount or
premium on acquisition and fees that are an integral part of the effective interest rate. The amortization is
included in “Interest” in the consolidated statement of income. Gains and losses are recognized in income
when the HTM investments are derecognized or impaired, as well as through the amortization process.
-8-
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments and fixed maturities that
are not quoted in an active market. These are not entered into with the intention of immediate or shortterm resale and are not designated as AFS financial assets or financial assets at FVPL. These are
included in current assets if maturity is within 12 months from the balance sheet date; otherwise, these are
classified as noncurrent assets. This accounting policy relates to the consolidated balance sheet captions
“Cash and cash equivalents”, “Short-term cash investments”, “Receivables”, and “Other noncurrent assets
- net”.
After initial measurement, loans and receivables are subsequently measured at amortized cost using the
effective interest rate method, less allowance for impairment. Amortized cost is calculated by taking into
account any discount or premium on acquisition and fees that are an integral part of the effective interest
rate. The amortization is included in “Interest” in the consolidated statement of income. The losses arising
from impairment of such loans and receivables are recognized in “Provision for probable losses” in the
consolidated statement of income.
AFS financial assets
AFS financial assets are those which are designated as such or do not qualify to be classified as financial
assets FVPL, HTM investments or loans and receivables. These are purchased and held indefinitely, and
may be sold in response to liquidity requirements or changes in market conditions. These include equity
investments, money market papers and other debt instruments.
After initial measurement, AFS financial assets are subsequently measured at fair value. The effective
yield component of AFS debt securities, as well as the impact of restatement on foreign currencydenominated AFS debt securities, is reported in earnings. The unrealized gains and losses arising from
the fair valuation of AFS financial assets are excluded net of tax from reported earnings and are reported
as ‘Unrealized gain on AFS financial assets’ in the equity section of the consolidated balance sheet.
When the investment is disposed of, the cumulative gain or loss previously recognized in equity is
recognized as other income in the consolidated statement of income. Where the Group holds more than
one investment in the same security, these are deemed to be disposed of on a first-in first-out basis.
Interest earned on holding AFS financial assets are reported as interest income using the effective interest
rate. Dividends earned on holding AFS financial assets are recognized in the consolidated statement of
income as other income when the right of the payment has been established. The losses arising from
impairment of such investments are recognized as provisions on impairment losses in the consolidated
statement of income.
Other financial liabilities
Other financial liabilities include short-term and long-term debts. All loans and borrowings are initially
recognized at the fair value of the consideration received less directly attributable transaction costs.
After initial recognition, short-term and long-term debts are subsequently measured at amortized cost using
the effective interest method.
Gains and losses are recognized under the “Other income” and “Other expense” accounts in the
consolidated statement of income when the liabilities are derecognized or impaired, as well as through the
amortization process under the “Interest expense” account.
Customers’ Guaranty and Other Deposits
Customers’ guaranty and other deposits are initially measured at fair value. After initial recognition, these
deposits are subsequently measured at amortized cost using the effective interest rate method.
Amortization of customers’ guaranty and other deposits are included under “Interest expense” in the
consolidated statement of income. The difference between the cash received and its fair value is
recognized as “Deferred credits”. Deferred credits are amortized over the remaining concession period
using the effective interest rate method. Amortization of deferred credits is included under “Other income
(expenses)” in the consolidated statement of income.
-9-
Derecognition of Financial Assets and Liabilities
Financial Assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of financial assets) is
derecognized where:
1. the rights to receive cash flows from the asset have expired;
2. the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay
them in full without material delay to a third party under a “pass-through” arrangement; or
3. The Group has transferred its rights to receive cash flows from the asset and either (a) has transferred
substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained the risk
and rewards of the asset but has transferred the control of the asset.
Where the Group has transferred its rights to receive cash flows from an asset or has entered into a passthrough arrangement, and has neither transferred nor retained substantially all the risks and rewards of the
asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing
involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred
asset is measured at the lower of the original carrying amount of the asset and the maximum amount of
consideration that the Group could be required to repay.
Financial Liabilities
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has
expired. Where an existing financial liability is replaced by another financial liability 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 amounts is recognized in profit or loss.
Impairment of Financial Assets
The Group assesses at each balance sheet date whether there is objective evidence that 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 (or events)
has an impact on the estimated future cash flows of the financial asset or the group of financial assets that
can be reliably estimated.
Loans and Receivables
For loans and receivables carried at amortized cost, the Group first assesses whether objective evidence
of impairment exists individually for financial assets that are individually significant, or collectively for
financial assets that are not individually significant. If the Group determines that no objective evidence of
impairment exists for individually assessed financial asset, whether significant or not, it includes the asset
in a group of financial assets with similar credit risk characteristics and collectively assesses for
impairment. Those characteristics are relevant to the estimation of future cash flows for groups of such
assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms
of the assets being evaluated. 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 for
impairment.
Evidence of impairment may include non-collection of the Group’s receivables, which remain unpaid for a
period of 60 days after its due date. The Group shall provide the customer with not less than seven days’
prior written notice before any disconnection.
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 the estimated
future cash flows (excluding future credit losses that have not been incurred). The carrying amount of the
asset is reduced through use of an allowance account and the amount of loss is charged to the
consolidated statement of income. Interest income continues to be recognized based on the original
effective interest rate of the asset. Receivables, together with the associated allowance accounts, are
written off when there is no realistic prospect of future recovery.
- 10 -
If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event
occurring after the impairment was recognized, the previously recognized impairment loss is reversed.
Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying
value of the asset does not exceed its amortized cost at the reversal date.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of such
credit risk characteristics as industry, customer type, customer location, past-due status and term. Future
cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the
basis of historical loss experience for assets with credit risk characteristics similar to those in the group.
Historical loss experience is adjusted on the basis of current observable data to reflect the effects of
current conditions that did not affect the period on which the historical loss experience is based and to
remove the effects of conditions in the historical period that do not exist currently. The methodology and
assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any
differences between loss estimates and actual loss experience.
AFS financial assets
For AFS financial assets, the Group assesses at each balance sheet date whether there is objective
evidence that a financial asset or group of financial assets is impaired.
In the case of equity investments classified as AFS financial assets, this would include a significant or
prolonged decline in the fair value of the investments below its cost. Where there is evidence of
impairment, the cumulative loss - measured as the difference between the acquisition cost and the current
fair value, less any impairment loss on that financial asset previously recognized in the consolidated
statement of income - is removed from equity and recognized in the consolidated statement of income.
Impairment losses on equity investments are not reversed through the consolidated statement of income.
Increases in fair value after impairment are recognized directly in equity.
In the case of debt instruments classified as AFS financial assets, impairment is assessed based on the
same criteria as financial assets carried at amortized cost. Future interest income is based on the reduced
carrying amount and is accrued based on the rate of interest used to discount future cash flows for the
purpose of measuring impairment loss. Such accrual is recorded as part of “Interest income” in the
statement of income. If, in subsequent year, the fair value of a debt instrument increased and the increase
can be objectively related to an event occurring after the impairment loss was recognized in the
consolidated statement of income, the impairment loss is reversed through the consolidated statement of
income.
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount 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.
Materials and Supplies
Materials and supplies are valued at the lower of cost or net realizable value (fair value less costs to sell).
Cost is determined using the moving average method.
Property and Equipment
Property and equipment, except land, are stated at cost less accumulated depreciation and amortization
and any impairment in value. Land is stated at cost less any impairment in value.
The initial cost of property and equipment comprises its purchase price, including import duties, taxes and
any directly attributable costs of bringing the property and equipment to its working condition and location
for its intended use, including capitalized borrowing costs incurred during the construction period.
Expenditures incurred after the property and equipment have been put into operation, such as repairs and
maintenance and overhaul costs, are normally charged to operations in the period in which the 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
- 11 -
equipment beyond its originally assessed standard of performance, the expenditures are capitalized as
additional cost of the related property and equipment.
Depreciation and amortization of property and equipment commences once the property and equipment
are available for use and are calculated on a straight-line basis over the estimated useful lives (EUL) of the
property and equipment or the remaining term of the concession, whichever is shorter, as follows:
Office furniture and equipment
Transportation equipment
Leasehold improvements
3 to 5 years
5 years
5 years
Leasehold improvements are amortized over the EUL of the improvements or the term of the lease,
whichever is shorter.
The EUL and depreciation and amortization method are reviewed periodically to ensure that the period and
method of depreciation and amortization are consistent with the expected pattern of economic benefits
from items of property and equipment.
When property and equipment is retired or otherwise disposed of, the cost and the related accumulated
depreciation and amortization and accumulated impairment, if any, are removed from the accounts and
any resulting gain or loss is credited to or charged against current operations.
Service Concession Arrangement with MWSS
The Group accounts for its concession arrangement with MWSS under the Intangible Asset model as it
receives the right (license) to charge users of public service. The Service Concession Asset (SCA) is
amortized using the straight-line method over the life of the concession.
The effect of the adoption of the IFRIC 12 Interpretation required the Group to recognize the fair value of its
right to charge its customers, which resulted in the following consequential effects:

Increase in total assets with a corresponding increase in total liabilities. The rehabilitation works
performed by the Group (previously recognized as property and equipment) and the present value of
the total estimated concession fee payments were recognized as intangible assets in accordance with
PAS 38, Intangible Assets. The intangible asset is amortized using the straight-line method over the
life of the Concession Agreement. Previously, the asset recognized under the concession agreement
was amortized based on the ratio of the nominal value of total estimated concession fee payments to
the remaining projected billable water volume over the remaining concession period.

As the related service concession obligation is now recognized, this resulted in additional finance cost
to the Group due to the accretion of the obligation. The increase in intangible assets, together with the
change in amortization method described above, also resulted in an increase in amortization expense.

In connection with the rehabilitation works performed, the Group also recognized revenue and costs in
accordance with PAS 11, Construction Contracts. It measures the revenue from rehabilitation works at
the fair value of the consideration received or receivable. Given that the Group has subcontracted the
rehabilitation works to outside contractors, the recognized revenue from rehabilitation works is equal to
the related cost.

As the service concession obligations are denominated in foreign currencies these were restated to
their peso equivalent using the exchange rate at balance sheet date. The related foreign currency
differential adjustment under the concession agreement provided for a reimbursement of an amount in
excess of the base rate agreed during the rate rebasing exercise with MWSS. Consequently, the
foreign exchange differential adjustment has been capitalized or credited as part of other noncurrent
assets or accounts and other payables, respectively.
- 12 -
Impairment of Nonfinancial Assets
An assessment is made at each balance sheet date to determine whether there is any indication of
impairment of any long-lived assets, or whether there is any indication that an impairment loss previously
recognized for an asset in prior years may no longer exist or may have decreased. If any such indication
exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the
higher of the asset’s value in use or its net selling price. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount.
An impairment loss is charged to operations in the year in which it arises.
A previously recognized impairment loss is reversed only if there has been a change in the estimates used
to determine the recoverable amount of an asset, however, not to an amount higher than the carrying
amount that would have been determined (net of any accumulated depreciation and amortization), had no
impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is credited
to current operations.
Revenue Recognition
Water and sewer revenue are recognized when the related water and sewerage services are rendered.
Water and sewerage are billed every month according to the bill cycles of the customers. As a result of bill
cycle cut-off, monthly service revenue earned but not yet billed at end of the month are estimated and
accrued. These estimates are based on historical consumption of the customers. Twelve percent of the
water revenue are recognized as environmental charges as provided for in the Agreement.
Interest income is recognized as it accrues, taking into account the effective yield of the assets.
When the Group provides construction or upgrade services, the consideration received or receivable is
recognized at its fair value. The Company accounts for revenue and costs relating to operation services in
accordance with PAS 18.
Consultancy fees are recognized when the related services are rendered. Other customer related fees
such as re-opening fees are recognized when re-opening services have been rendered.
Foreign Currency-Denominated Transactions
Foreign exchange differentials arising from foreign currency transactions are credited or charged to
operations. As approved by the MWSS Board of Trustees (BOT) under Amendment No. 1 of the
Concession Agreement, the following will be recovered through billings to customers:
a. Restatement of foreign currency-denominated loans;
b. Excess of actual Concession Fee payments over the amounts of Concession Fees translated using the
base exchange rate assumed in the business plan approved every rate rebasing exercise (P
= 44.00
starting January 1, 2008 and P
= 51.86 starting January 1, 2003
c.
Excess of actual interest payments translated at exchange spot rates on settlement dates over the
amounts of interest translated at drawdown rates; and
d. Excess of actual payments of other financing charges relating to foreign currency-denominated loans
translated at exchange spot rates on settlement dates over the amount of other financing charges
translated at drawdown rates.
In view of the automatic reimbursement mechanism, the Parent Company recognized a deferred FCDA
(included as part of “Other noncurrent assets” or “Accounts and other payables” account in the balance
sheet) with a corresponding credit (debit) to FCDA revenues for the unrealized foreign exchange losses
(net of foreign exchange gains) which have not been billed or which will be refunded to the customers.
The write-off of the deferred FCDA or reversal of deferred credits pertaining to concession fees will be
- 13 -
made upon determination of the rebased foreign exchange rate which is assumed in the business plan
approved by the RO during the latest Rate Rebasing exercise, unless indication of impairment of the
deferred FCDA would be evident at an earlier date.
Borrowing Costs
Borrowing costs are generally expensed as incurred. Borrowing costs that are directly attributable to the
acquisition, development, improvement and construction of fixed assets (including costs incurred in
connection with rehabilitation works) are capitalized as part of the cost of fixed asset. The Group uses the
general borrowings approach when capitalizing borrowing costs wherein the amount of borrowing costs
eligible for capitalization is determined by applying a capitalization rate to the expenditures on that asset.
The capitalization of those borrowing costs commences when the activities to prepare the asset are in
progress and expenditures and borrowing costs are being incurred. Capitalization of borrowing costs
ceases when substantially all activities necessary in preparing the related assets for their intended use are
complete. Borrowing costs include interest charges and other related financing charges incurred in
connection with the borrowing of funds. Premiums and/or discounts on long-term debt are included in the
“Long-term debt” account in the Group’s consolidated balance sheet and are amortized using the effective
interest rate method.
Retirement Cost
Retirement cost is actuarially determined using the projected unit credit method. The projected unit credit
method reflects the services rendered by the employees to the date of valuation and incorporates
assumptions concerning employees’ projected salaries. Actuarial valuations are conducted with sufficient
regularity, with option to accelerate when significant changes to underlying assumptions occur. Retirement
cost includes current service cost, interest cost, actuarial gains and losses and the effect of any curtailment
or settlement.
The liability recognized by the Group in respect of the defined benefit pension plan is the present value of
the defined benefit obligation at the balance sheet date together with adjustments for unrecognized
actuarial gains or losses and past service costs that shall be recognized in later periods. The defined
benefit obligation is calculated by independent actuaries using the projected unit credit method. The
present value of the defined benefit obligation is determined by discounting the estimated future cash
outflows using risk-free interest rates of government bonds that have terms to maturity approximating to
the terms of the related pension liabilities or applying a single weighted average discount rate that reflects
the estimated timing and amount of benefit payments.
Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized
actuarial gains and losses of 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 actuarial gains and
losses are recognized over the expected average remaining working lives of the employees participating in
the plan.
Share-based Payment Transactions
Certain employees and officers of the Group receive remuneration in the form of share-based payment
transactions, whereby they render services in exchange for shares or rights over shares (‘equity-settled
transactions’)
The cost of equity-settled transactions with employees is measured by reference to the fair value at the
date of grant. The fair value is determined by using the Black-Scholes model.
The cost of equity-settled transactions is recognized in the consolidated statement of income, together with
a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending
on the date on which the relevant employees become fully entitled to the award (‘vesting date’). The
cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date
reflects the extent to which the vesting period has expired and the number of awards that, in the opinion of
the directors of the Group at that date, will ultimately vest.
- 14 -
No expense is recognized for awards that do not ultimately vest, except for awards where vesting is
conditional upon a market condition, which are treated as vesting irrespective of whether or not the market
condition is satisfied, provided that all other performance conditions are satisfied.
Where the terms of an equity-settled award are modified, as a minimum, an expense is recognized as if the
terms had not been modified. An additional expense is recognized for any increase in the value of the
equity-settled award (measured at the date of modification). The total increase in value of the equitysettled award is amortized over the remaining vesting period.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and
any expense not yet recognized for the award is recognized immediately. However, if a new award is
substituted for the cancelled award, and designated as a replacement award on the date that it is granted,
the cancelled and new awards are treated as if it were a modification of the original award, as described in
the previous paragraph.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of
earnings per share
Treasury Stock
Treasury stock is recorded at cost and is presented as a deduction from equity. When these shares are reissued, the difference between the acquisition cost and the reissued price is charged/credited to additional
paid-in capital. When the shares are retired, the capital stock account is reduced by its par value and the
excess of cost over par value upon retirement is debited to additional paid-in capital to the extent of the
specific or average additional paid-in capital when the shares were issued and to retained earnings for the
remaining balance.
Income Tax
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 taxation authorities. The tax rates and tax laws used to compute the
amount are those that are enacted or substantially enacted by the balance sheet date.
Deferred tax
Deferred income tax is provided, using the balance sheet liability method, for all temporary differences,
with certain exceptions, at the balance sheet date between the tax bases of assets and liabilities and its
carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences with certain exceptions.
Deferred income tax assets are recognized for all deductible temporary differences to the extent that it is
probable that taxable income will be available against which the deferred income tax asset can be used or
when there are sufficient taxable temporary differences which are expected to reverse in the same period
as the expected reversal of the deductible temporary differences.
The carrying amount of deferred income 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 income tax assets to be utilized. Unrecognized deferred income 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 all or part of the deferred income tax assets to be recovered.
Deferred income tax assets and liabilities are measured at the tax rate that is expected to apply in the year
when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted
or substantially enacted as of the balance sheet date.
Deferred tax assets and liabilities are offset, if a legally enforceable right exists to set off current tax assets
against current income tax liabilities and the deferred income taxes relate to the same taxable entity and
the same taxation authority.
- 15 -
Earnings per Share (EPS)
Basic EPS is computed by dividing net income applicable to common and participating preferred stock by
the weighted average number of common and equivalent preferred shares outstanding during the year and
adjusted to give retroactive effect to any stock dividends declared and changes to preferred share
participation rate during the period. The participating preferred shares participate in the earnings at a rate
of 1/10 of the dividends paid to a common share.
Diluted EPS is computed by dividing earnings attributable to common and participating preferred shares by
the weighted average number of common shares outstanding during the period, after giving retroactive
effect of any stock dividends during the period and adjusted for the effect of dilutive options. Outstanding
stock options will have a dilutive effect under the treasury stock method only when the average market
price of the underlying common share during the period exceeds the exercise price of the option. Where
the effects of the assumed exercise of all outstanding options have anti-dilutive effect, basic and diluted
EPS are stated at the same amount.
Assets Held in Trust
Assets which are owned by MWSS but are operated by the Group under the Agreement are not reflected
in the consolidated balance sheet but are considered as Assets Held in Trust
The Group is granted the rights to operate, maintain in good working order, repair, decommission and
refurbish the movable property required to provide the water and sewerage services under the Concession
Agreement. The legal title to all movable property in existence at the Commencement Date, however, shall
be retained by MWSS and upon expiration of the useful life of any such movable property as may be
determined by the Group, such movable property shall be returned to MWSS in its then-current condition at
no charge to MWSS or the Group.
The Concession Agreement also provides for the Concessionaires to have equal access to MWSS facilities
involved in the provision of water supply and sewerage services in both East and West Zones including,
but not limited to, the MWSS management information system, billing system, telemetry system, central
control room and central records.
MWSS’ corporate headquarters is made available to the Concessionaires for a one-year period starting
August 1, 1997, subject to a yearly renewal by mutual agreement of the parties. As of December 31, 2008,
the Group has renewed the lease for another year. These are included in the “Occupancy Costs” account
in the consolidated statements of income.
Provisions
A provision is recognized when the Group has: (a) a present obligation (legal or constructive) as a result of
a past event; (b) it is probable (i.e. more likely than not) that an outflow of resources embodying economic
benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of
the obligation. If the effect of the time value of money is material, provisions are determined by discounting
the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of
money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in
the provision due to the passage of time is recognized as an interest expense. Where the Group expects a
provision to be reimbursed, the reimbursement is not recognized as a separate asset but only when the
reimbursement is virtually certain. Provisions are reviewed at each balance sheet date and adjusted to
reflect the current best estimate.
Events After Balance Sheet Date
Any post year-end event up to the date of the auditor’s report that provide additional information about the
Group’s position at the balance sheet date (adjusting events) is reflected in the consolidated financial
statements. Any post year-end event that is not an adjusting event is disclosed in the notes to the
consolidated financial statements when material.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. These are disclosed
unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent
- 16 -
assets are not recognized in the consolidated financial statements but disclosed when an inflow of
economic benefits is probable.
MANAGEMENT’S JUDGEMENTS AND USE OF ESTIMATES
The preparation of the accompanying consolidated financial statements in conformity with PFRS requires
management to make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. The estimates and assumptions used in the accompanying
consolidated financial statements are based upon management’s evaluation of relevant facts and
circumstances as of the date of the consolidated financial statements. Actual results could differ from such
estimates.
Management believes the following represent a summary of these significant estimates and judgments:
Service Concession Arrangement
In applying Philippine Interpretation IFRIC 12, the Group has made a judgment that the Concession
Agreement qualifies under the Intangible Asset model.
Impairment of AFS financial assets
The Group treats AFS financial assets as impaired when there has been a significant or prolonged decline
in the fair value below its cost or where other objective evidence of impairment exists. The determination
of what is ‘significant’ or ‘prolonged’ requires judgment. The Group treats ‘significant’ generally as 20% or
more and ‘prolonged’ as greater than six (6) months for quoted securities. In addition, the Group evaluates
other factors, including the future cash flows and the discount factors of these securities.
Use of Estimates
Key assumptions concerning the future and other sources of estimation and 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.
Estimating allowance for doubtful accounts
The Group maintains allowance for doubtful accounts based on the results of the individual and collective
assessments under PAS 39. Under the individual assessment, the Group is required to obtain the present
value of estimated cash flows using the receivable’s original effective interest rate. Impairment loss is
determined as the difference between the receivable’s carrying amount and the computed present value.
Factors considered in individual assessment are payment history, past due status and term. The collective
assessment would require the Group to group its receivables based on the credit risk characteristics
(industry, customer type, customer location, past-due status and term) of the customers. Impairment loss
is then determined based on historical loss experience of the receivables grouped per credit risk profile.
Historical loss experience is adjusted on the basis of current observable data to reflect the effects of
current conditions that did not affect the period on which the historical loss experience is based and to
remove the effects of conditions in the historical period that do not exist currently. The methodology and
assumptions used for the individual and collective assessments are based on management's judgment and
estimate. Therefore, the amount and timing of recorded expense for any period would differ depending on
the judgments and estimates made for the year.
Estimating useful lives of property and equipment
The Group estimates the useful lives of its property and equipment based on the period over which the
assets are expected to be available for use. The Group reviews annually the estimated useful lives of
property and equipment based on factors that include asset utilization, internal technical evaluation,
technological changes, environmental and anticipated use of the assets tempered by related industry
benchmark information. It is possible that future results of operations could be materially affected by
changes in the Group’s estimates brought about by changes in the factors mentioned. A reduction in the
- 17 -
estimated useful lives of property and equipment would increase depreciation and amortization and
decrease noncurrent assets.
Asset impairment
The Group assesses the impairment of assets whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The factors that the Group considers important
which could trigger an impairment review include the following:



significant underperformance relative to expected historical or projected future operating results;
significant changes in the manner of usage of the acquired assets or the strategy for the Group’s
overall business; and
significant negative industry or economic trends.
As described in the accounting policy, the Group estimates the recoverable amount as the higher of the net
selling price and value in use.
In determining the present value of estimated future cash flows expected to be generated from the
continued use of the assets, the Group is required to make estimates and assumptions regarding the
expected future cash generation of the assets (property and equipment, concession assets, and other
noncurrent assets), discount rates to be applied and the expected period of benefits.
Deferred tax assets
The Group reviews the carrying amounts of deferred income taxes at each balance sheet date and
reduces deferred tax assets 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. However, there is no assurance that
the Group will generate sufficient taxable income to allow all or part of the deferred tax assets to be
utilized.
Also, the Group does not recognize certain deferred taxes on deductible temporary differences where
doubt exists as to the tax benefits they will bring in the future.
Share-based payments
The expected life of the options is based on the expected exercise behavior of the stock option holders and
is not necessarily indicative of the exercise patterns that may occur. The expected volatility is based on
the average historical price volatility of several water utility companies within the Asian region which may
be different from the expected volatility of the shares of stock of the Group.
Pension and other retirement benefits
The determination of the obligation and cost of pension and other retirement benefits is dependent on the
selection of certain assumptions used by actuaries in calculating such amounts which include, among
others, discount rate, expected return on plan assets and salary increase rate. While the Group believes
that the assumptions are reasonable and appropriate, significant differences in actual experience or
significant changes in assumptions materially affect retirement obligations.
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded in the consolidated balance
sheets or disclosed in the rates cannot be derived from active markets, they are determined using internal
valuation techniques using generally accepted market valuation models. The inputs to these models are
taken from observable markets where possible, but where this is not feasible, estimates are used in
establishing fair values. These estimates may include considerations of liquidity, volatility, and correlation
- 18 -
Derivative asset on bond call option was valued using the Black’s option model. Valuation inputs such as
discount rate were based on credit adjusted spot rate as of value date while interest rate volatility was
computed based on historical rates or data.
Contingencies
The Group is currently involved in various legal proceedings. The estimate of the probable costs for the
resolution of these claims has been developed in consultation with internal and outside counsels handling
the defense in these matters and is based upon an analysis of potential results.
The Group is contingently liable for lawsuits or claims filed by third parties (substantially labor-related and
civil cases) which are either pending decision by the courts or are under negotiation, the outcomes of
which are not presently determinable. The Group has been advised by its internal and outside counsels
that it is possible, but not probable, the action will succeed and accordingly, no provision for probable
losses on these cases was recognized.
The Group currently does not believe these proceedings will have a material adverse affect on the Group’s
financial position. It is possible, however, that future results of operations could be materially affected by
changes in the estimates or in the effectiveness of the strategies relating to these proceedings.
COMMITMENTS
The significant commitments of the Group under the Concession Agreement are as follows:
a. To pay MWSS concession fees
b. To post a performance bond, bank guarantee or other security acceptable to MWSS amounting to
US$60.00 million in favor of MWSS as a bond for the full and prompt performance of the Group’s
obligations under the Concession Agreement. The aggregate amounts drawable in one or more
installments under such performance bond during the Rate Rebasing Period to which it relates are set
out below.
Aggregate Amount Drawable
under Performance Bond
(in US$ Millions)
Rate Rebasing Period
First (August 1, 1997-December 31, 2002)
Second(January 1, 2003-December 31, 2007)
Third (January 1, 2008 -December 31, 2012)
Fourth (January 1, 2013 -December 31, 2017)
Fifth (January 1, 2018 -May 6, 2022)
US$70
70
60
60
50
Within 30 days from the commencement of each renewal date, the Group shall cause the performance
bond to be reinstated in the full amount set forth above as applicable for that year.
Upon not less than 10 days written notice to the Group, MWSS may make one or more drawings under
the performance bond relating to a Rate Rebasing Period to cover amounts due to MWSS during that
period; provided, however, that no such drawing shall be made in respect of any claim that has been
submitted to the Appeals Panel for adjudication until the Appeals Panel has handed down its decision
on the matter.
In the event that any amount payable to MWSS by the Group is not paid when due, such amount shall
accrue interest at a rate equal to that of a 364-day Treasury Bill for each day it remains unpaid;
c.
To pay MWSS an annual amount (accounted for as regulatory costs in the consolidated statements of
income) equal to one-half of the annual MWSS budget, provided that such annual budget shall not, for
any year, exceed P
= 200.00 million, subject to annual CPI adjustments;
- 19 -
d. To meet certain specific commitments in respect of the provision of water and sewerage services in the
East Zone, unless deferred by the Regulatory Office due to unforeseen circumstances or modified as a
result of rate rebasing exercise;
e. To operate, maintain, renew and, as appropriate, decommission facilities in a manner consistent with
the National Building Standards and best industrial practices so that, at all times, the water and
sewerage system in the East Zone is capable of meeting the service obligations (as such obligations
may be revised from time to time by the Regulatory Office following consultation with the Group);
f.
To repair and correct, on a priority basis, any defect in the facilities that could adversely affect public
health or welfare, or cause damage to persons or third party property;
g. To ensure that at all times, the Group has sufficient financial, material and personnel resources
available to meet its obligations under this Agreement; and
h. To ensure that no debt or liability that would mature after the life of the Agreement will be incurred
unless with the approval of MWSS.
Failure of the Group to perform any of its obligations that is deemed material by the Regulatory Office may
cause the Agreement to be terminated.
The Agreement also provides a general rate setting policy for rates chargeable by the Group for water and
sewerage services as follows:
1. For the period through the second Rate Rebasing date (January 1, 2008), the maximum rates
chargeable by the Group (subject to interim adjustments) are set out in the Concession Agreement;
and
2. From and after the second Rate Rebasing date, the rates for water and sewerage services shall be set
at a level that will permit the Group to recover, over the 25-year term of the concession, its investment
including operating, capital maintenance and investment incurred, Philippine business taxes and
payments corresponding to debt service on the MWSS loans and the Group’s loans incurred to finance
such expenditures, and to earn a rate of return on these expenditures for the remaining term of the
concession in line with the rates of return being allowed from time to time to operators of long-term
infrastructure concession arrangements in other countries having a credit standing similar to that of the
Philippines.
The maximum rates chargeable for such water and sewerage services shall be subject to general
adjustment at five-year intervals commencing on the second Rate Rebasing date; provided that the
Regulatory Office may exercise its discretion to make a general adjustment of such rates on the first
Rate Rebasing date (January 1, 2003).
MWSS exercised its option to implement general Rate Rebasing starting January 1, 2003 through
Regulatory Office Resolution No. 02-007 and Board of Trustees Resolution No. 329-2002, both dated
December 13, 2002.
On December 14, 2007, MWSS Board of Trustees approved and confirmed, through MWSS Resolution No.
2007-278, a staggered implementation of the Rate Rebasing adjustment effective January 1, 2008.
On February 3, 2009, MWSS Board of Trustees approved, through MWSS Resolution No. 2009-025, the
implementation of the 12.2% Consumer Price Index-linked adjustment as applied to the Average Basic
Charge of Manila Water and a net adjustment of P0.04 per cubic meter through the FCDA mechanism.
On April 16, 2009, MWSS Board of Trustees approved, through MWSS Resolution No. 2009-072, that the
Concession Period of Manila Water be renewed/extended for an additional period of fifteen (15) years,
from 2022 to 2037, subject to the written consent of the Republic of the Philippines.
- 20 -
On October 19, 2009, the Department of Finance (DOF) has acknowledged and approved the extension of
the said Concession Agreement for another fifteen (15) years from its original term. The approval of the
DOF confirms the government’s guarantee of its contractual obligation relative to the extension. Manila
Water has officially received the signed copy and corresponding documents to this effect and shall now
proceed to complete its own contractual obligations. In view thereof, since all the contingent conditions
have been fulfilled and all legal requirements completed, the Concession Agreement renewal is now in full
force and effect.
- 21 -
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following management’s discussion and analysis (“MD&A”) of the Manila Water Company’s financial
condition and results of operations should be read in conjunction with the Company’s unaudited financial
statements, including related notes. This report may contain forward-looking statements that involve risks and
uncertainties. The actual results may differ materially from those discussed in the forward-looking statements
as a result of various factors, including but not limited to, economic, regulatory, socio-political, financial, and
other risk factors.
Any references in this MD&A to “our”, “us”, “we”, or the “Group” shall refer to Manila Water Company, Inc.,
including its subsidiaries. Any reference to “Manila Water Company”, “Manila Water” or the “Company” shall
refer to the parent company only.
Additional information about the Group, including recent disclosures of material events and annual/ quarterly
reports, are available at our corporate website at www.manilawater.com.
Overview of the Business
Manila Water Company is a Philippine company that holds exclusive rights to service the eastern side (“East
Zone”) of Metro Manila, under a 25-year Concession Agreement entered into between the Company and
Metropolitan Waterworks and Sewerage System (“MWSS”). Under the Concession Agreement, the Company
provides water treatment, water delivery, sewerage and sanitation services to an estimated five million people
in the East Zone, comprising a broad range of residential, commercial and industrial customers.
The Company, as a concessionaire of MWSS, covers a service area which encompasses 23 cities and
municipalities, including San Juan, Taguig, Pateros, Marikina, Pasig, Mandaluyong, most of Quezon City and
Makati, parts of Manila, and the province of Rizal, spanning approximately 1,400 square kilometers. As we
disclosed recently, Manila Water received an official notice from the MWSS Board of Trustees that our
proposal for the renewal of our Concession Agreement period for another 15 years has been approved and
confirmed by the Department of Finance of the Republic of the Philippines. The renewal of concession will
result in an extension of the period from 2022 to 2037.
The Company decided to pursue new projects outside of its current service area. We have an existing contract
with Saigon Water Company (“Sawaco”) for a non-revenue water reduction program that covers approximately
25% of Sawaco’s service area in Ho Chi Minh City. We entered into a management contract with Mahindra
Water Utilities Limited for the operation of a water and sewerage project located in Tiripur, India. We also
entered into joint venture agreement with Philippine Tourism Authority (“PTA”) for the management of the water
and wastewater systems in Boracay Island, a major tourist destination in the Philippines. In July, the company
acquired 100 percent ownership of AAA Water Corporation which is 70 percent ownership of the Laguna AAA
Water Corporation (LAC), a joint venture company that has 25-year concession to provide water supply
services to the city of Sta. Rosa and the municipalities of Biñan and Cabuyao in Laguna.
Over the past eleven years, the Company received numerous awards and recognitions from various local and
international bodies, for its management success, sustainable development and corporate governance. Just
recently, Manila Water garnered the top award in the CSR Leadership Challenge from the Management
Association of the Philippines (MAP). MAP also recognized the company’s 2007 Annual Report as the Best
Annual Report from more than 50 publicly listed companies. Earlier this year, the Company was also awarded
“Best in Corporate Governance” by The Asset magazine, as well as similar recognitions from Finance Asia
magazine, Corporate Governance Asia and from the Institute of Corporate Directors.
Key Performance Indicators
The Group’s key operational performance indicators are discussed below:
Billed volume
The billed volume, which is reported in terms of million cubic meters (mcm), indicates the volume of
water sold by the Company for the period. Year to date billed volume slightly increased by 1% from
- 22 -
291.4mcm to 294.5mcm . Average consumption per customer decreased from 54 to 50 cu.m. per
connection largely from our commercial and industrial accounts.
Collection efficiency
Year to date collection efficiency was at 100% (including past due accounts), while average accounts
receivable days was at 17days. This is better than the previous year’s collection efficiency of 99%.
Service connections
As a result of the completion of various expansion projects, new service connections increased by
41,328 and brought the total service connections to 725,222 as of September 2009, serving a total of
1,073,225 households.
Non-revenue water ratio
Non-revenue water (NRW) refers to system losses, or the volume of water lost in the network through
leakage or pilferage. It is computed by deducting total water billed (billed volume) from the total water
supplied (water supply) to the customers, while NRW ratio is derived by dividing the NRW by the water
supply. A lower level of NRW ratio means greater network efficiency. As of the end of September
2009, NRW ratio decreased to 15%, down by 5.0% points from the year-ago figure, mainly due to the
effective supply and pressure management.
Water quality
The Company continued to exceed the Department of Health (DOH) bacteriological compliance
standard of 95%. For a number of years now, our water quality compliance has been maintained at
100%. An average of 921 water samples per month were collected from the customers’ tap, schools,
hospitals, and public places. The water samples were bacteriologically examined to ensure safety and
potability and to detect the presence of chemical substance that may affect the quality for domestic
use.
We operate a testing laboratory that is accredited by the DOH and is ISO/IEC17025:2005 – certified
since 2006. This means that the laboratory meets the requirements for the competence to carry out
tests and/or calibration, including sampling.
The Group’s key financial performance indicators are discussed below:
Operating revenue growth
Operating revenues for the third quarter of 2009 amounted to P7,035 million, 6% higher from the same
period a year ago. This increase was driven by inflation-based adjustments in tariff..
EBITDA and EBITDA margin
Earnings before interest, tax, depreciation and amortization (EBITDA) grew by 7% to P5,071 million for
the nine-month period of 2009, resulting in an EBITDA margin of 72%. This was brought about by
effective management of operating costs (excluding depreciation) which grew by 3% year on year.
(See more detailed explanation in the succeeding section).
Net income and net income margin
Net income grew by 14% for the nine-month period in 2009, to P2,273 million. Net income margin was
at 32%, from only 30% in the prior year. The improvement in net income was a result of higher
EBITDA, higher interest income and lower income tax rate in 2009.
- 23 -
Results of Operations
Financial Highlights

Operating revenues as of September 30, 2009 registered at P7,035 million, P400 million higher than
the previous year. The increase was the result of inflation-based adjustments implemented in February
2009. However, the full impact of the tariff increase on the revenues was recorded only in the following
month.

Total operating costs increased by P266 million or 8%, to P3,553 million for the nine-month period
ending September. Depreciation, which accounts for 45% of total operating costs increased by 15%
with the amortization of completed project cost. Other operating cost drivers were power, insurance,
wastewater costs and premises cost which increased due to the expansion in service coverage, as
additional wastewater facilities and services were put in place.

EBITDA, which essentially measures the Group’s operating cash earnings for the period, improved by
7% to P5,071 million, from P4,733 million last year. EBITDA margin improved from 71 to 72% of
operating revenues.

The Group ended the third quarter of 2009 with P2,273 million in net income after tax,14% higher than
last year. The lower income tax rate for 2009 and higher interest income also contributed to the
earnings growth. Net income margin improved to 32% compared with the year-ago level of 30%..
Earnings per share was computed at P0.92.

Cash reserves and investments improved to P10,982 million, as at the close of the third quarter this
year. This was P2,074 million higher than the cash balance at the end of 2008. The Group’s cash
reserves and investments are composed of cash and cash equivalents, short term investments, and
financial assets classified as available for sale, which are mostly denominated in local currency.

Liquidity was bolstered by the sustained collection efficiency, averaging 100% for the nine-month
period of 2009, while days receivable was at 17 days. Total current assets exceeded total current
liabilities by a ratio of 2.3 times (current ratio). Total assets grew by P4.07 billion as of September
2009, due to the strong cash flows.
Service concession assets stood at P24.9 billion, approximately P990 million (net of amortization)
higher than the end of year level in 2008. Service concession assets were composed of direct capital
investments of the Company and the present value of future concession fee payments.


Long-term debts are composed of both peso and foreign-denominated term loans and the peso bonds.
Total long term debts at P15 billion, increased by P2.1 billion since December 2008. Net long term
debt-to-equity was at 1.2X, as in the prior year. The Group maintained a favorable level of total
liabilities/ equity ratio at 60:40 (or 1.5 times)

Stockholders’ equity increased by P1.8 billion since December 31, 2008, as a result of higher retained
earnings. Book value per share was computed at P8.03 per share. There were no new equity shares
issued from January to September this year, except for the exercise of stock options in relation to
Group’s employee benefits.

In its last meeting on September 24, 2009, the Group’s Board of Directors declared a P0.20 per
common share (and P0.02 per participating preferred share) in cash dividends, which totaled to P437
million. The cash dividends is to be paid on October 30, 2009 for all common and participating
preferred stockholders as of record date October 08, 2009.
- 24 -

The following table summarizes the income statement highlights of the Group:
Statement of Income
In million pesos
Total revenues
Total cost and expenses, excluding
depreciation/amortization
EBITDA
Margin
Depreciation and Amortization
Income before other income/ expenses
Interest expenses
Interest income
Net foreign currency gains/ (losses)
Mark-to-market gains/(losses)
Other charges/Loss from asset sale
Income before income tax
Provision for income tax
Net Income
Total comprehensive income
For the nine months ende
September 30,
2009
2008
7,035
6,634
1,964
5,071
1
1,589
3,481
(671)
264
13
(48)
5
3,045
772
2,273
6
Incr/(Decr)
Amount
%
400
6
1,902
4,733
1
1,385
3,347
(478)
111
(115)
(9)
2,857
867
1,990
(8)
62
338
0
204
134
(193)
153
128
(48)
5
188
(95)
283
14
3
7
1
15
4
40
137
-112
-55
7
-11
14
-174
Operational Highlights

Billed volume, which measures the total volume water billed to the customers, reached 294.5
million cubic meters for the nine-month period ending September 2009. This figure was at par with
last year’s level. While the number of connections increased by 10% year-on-year. Average
consumption per connection decreased by 8% to 51 cu.m., largely from domestic and commercial
accounts.

NRW ratio declined by 5 percentage points to 15%, as a result of pressure management and
effective supply management.

We continued to exceed service targets by achieving 100% compliance with water quality
standards, with 24-hour availability in more than 99% of its current service coverage, and a
manpower efficiency of 1.5 staff per 1000 connections, outperforming regulatory targets and most
of its regional counterparts.

The following table summarizes the operational performance of the Company:
September 30
2009
2008
Inc(Dec)
Amount
%
294
3.0
1.03
34199
4.9
Billed volume
(in million cubic meters)
Number of water connections('000)
725,222
291
691,023
Average consumption
(in cu.m per month)
51.1
55.4
-4.3
-7.8
358.7
370.1
-11.4
-3.1
15.4%
20.2%
99%
99%
-
-
1.5
1.5
-
-
100%
100%
-
-
Water supplied
(in million cubic meters)
Non-revenue water
(water losses ratio)
24-hour availability
Staff per 1000 connections
Water quality compliance
- 25 -
-4.8% pts
Analysis of operating revenues
The Group derived up to 85% of its operating revenues from water billings, 14.5% from environmental and
sewer charges, and 0.5% from other miscellaneous charges. The increase in operating revenue, driven by the
increase in tariff and billed volume, was 4% lower from plan brought about by the staggered implementation of
the tariff adjustment and the decrease in the average consumption per connection. Changes in average
consumption is broken down as follows:
Average consumption per
connection
In cubic meters per month
Residential
Semi-commercial
Commercial
Industrial
Overall
As of September 30, 2009
2009
2008
37.6
40.3
105.8
104.1
229.1
256.8
292.3
285.3
51.1
55.4
Incr/(Decr)
Volume
%
-3
-6.8
2
1.7
-28
-10.8
7
2.4
-4
-7.8
Income from from projects outside the East Zone comprised of revenues from project management fees in
Vietnam and India amounting to P14 million and subsidiaries at P10 million.
Analysis of operating costs
Below is a summary of the increases or decreases in operating costs:
Nine Months Ended September 30
COSTS AND EXPENSES
2009
1589
727
365
189
81
89
76
74
11
67
67
50
32
39
23
19
21
11
6
18
3554
Amount in millions
Depreciation/Amortization
Salaries, wages & employee benefits
Power, light and water
Management, technical & prof. fees
Wastewater costs
Repair and maintenance
Collection fees
Regulatory
Provision for doubtful accounts
Taxes and licenses
Business meetings and representation
Occupancy
Transportation and travel
Water treatment chemicals
Insurance
Others
Postage, telephone and telegram
Advertising
Premium on performance bonds
Cost Associated from Outside East Zone
Total Operating Costs (Php)
- 26 -
2008
1385
711
347
168
67
113
74
61
65
59
51
45
33
35
20
13
20
14
5
3287
Incr.(Dec) (%)
204
15
18
21
14
-24
2
13
-55
8
16
5
-1
4
3
6
1
-3
1
18
267
15 #
2 #
5
13
20
-21
3
21
-84
13
32
12
-4
11
16
47
3
-22
26
8
The increase in operating costs was accounted for mainly by the increases/decreases of the following
accounts:
Power, light and water
The increase was due to additional consumption for new water and wastewater facilities. Total consumption
increased by 3.3 million kwh or 6%, while effective cost/kwh decreased by P0.9 or 1% compared with last
year.
Management, technical & professional fee
The increase was due to the engagement of services of consultants on tax matters, rate rebasing, due
diligence and foreign currency differentials.
Provision for doubtful accounts
The bad debts provision for the year was reduced as a result of improved collection efficiency. As the balance
of provisions made in prior years proved to be enough to cover overdue accounts, allowance for the year was
limited to 1% of latest billing.
Regulatory cost
The increase was due to the annual CPI rate adjustment payable to MWSS Regulatory office as operating
expense budget.
Water Treatment Chemicals
The increase was a result of additional requirements in chemicals due to high turbidity of raw water and higher
volume of water treated.
Taxes and licenses
This was due to increase in local business taxes as a result of higher revenue base, and real property taxes.
Repair and maintenance
The decrease in the maintenance cost was due to the replacement of old equipments which were covered by
longer warranty period. The coverage and prices of existing preventive maintenance contracts were also
reviewed.
Occupancy cost
This was due to increase in building rental expenses and rate adjustments for janitors and security guards
deployed in various facilities.
Transportation and travel
The decrease was due to lower cost per liter of fuel
Insurance
The increase was due to the increase in the value of insured assets.
Wastewater costs
The increase was accounted for by the expansion in wastewater services and facilities, particularly septic tank
desludging services. This also covered the costs of maintaining the desludging trucks.
Premium on performance bonds
The increase was due to the posting of additional performance bonds, as required in the bidding procedures
and acquisition for new projects.
Advertising
2008 charges were higher than 2009, as the Company intensified its public awareness programs last
year.
Business meetings and representation
The increase was due to the increase in activities in support of the various business expansion programs of the
company.
- 27 -
Others
These covered the Increase in communication expenses, computer and office supplies and miscellaneous
expenses
Analysis of depreciation, other income and expenses, and income tax
Depreciation and amortization expenses increased from P1,385 million to P1,589 million year-on-year, due to
the increased capital investments. The Group uses a straight-line amortization method, (see Notes to the
Interim Financial Statements)
Interest income increased to P264 million versus P111 million last year due to the higher level of cash
investments for 2009. Interest expenses, on the other hand, increased to P671 million due to the additional
loans incurred towards the second half of 2008.
Mark-to-market losses on embedded derivatives amounted to P48 million, resulting from the effect of the
changes in risk free rate on the value of the prepayment option under the terms of the P4.0 billion peso bonds
issued last year.
The Group benefited from the lower nominal income tax rate this year, from 35% to 30%. Provision for income
tax thus declined to P772 million, from P867 million last year. Effective tax rate on taxable income is at 25%.
Liquidity and Capital Resources
Balance sheet
In million pesos
Total assets
Cash and cash equivalents, short-term
investments and other financial assets
Other current assets
September 30
2009
40,436
Dec 31
2008
36,368
Incr/Decr
Amount
4,067
10,982
930
8,841
642
2,142
288
25,745
2,779
24,137
15,052
3,276
5,809
16,298
24,637
2,249
21,911
12,897
3,475
5,538
14,458
1,108
530
2,227
2,155
-199
271
1,016
4,070
37,677
11%
25%
1.25x
2.58x
6.91
4,056
32,104
13%
28%
1.17x
2.03x
6.17
13
5,573
Service concession assets and PPE
Other non current assets
Total liabilities
MWC loans
Service concession loans
Others
Total shareholders' equity
Financial ratios
Net debt*
Market capitalization
Net debt to market capitalization
Net debt to equity
Net debt to EBITDA
Current ratio
Book value per share (Pesos)
* Long term debts minus cash and cash equivalents, short term investments and other financial assets
Sources and uses of cash
In Million Pesos
For the nine months
ended September 30
2009
2008
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by/(used in) financing activities
4,930,447
-4,568
652
- 28 -
2,722
-1412.79
-955
Incr/ Decr
Amount
4,927,725
-3,155
1,608
%
181023
223
-168
Assets and liquidity
Under the Intangible Asset Model of the Philippine standard-IFRIC 12, the Group records all capital
investments pertaining to the rehabilitation and construction works on the East Zone project, as well as
concession fee payments, as intangible assets or service concession assets, in recognition of the
concessionaire’s rights to the recovery of the value of these investments in accordance with the terms of the
Concession Agreement. (See more discussions on Philippine interpretation- IFRIC 12 under the Notes to the
Interim Financial Statements).
Service concession assets, together with property, plant and equipment, increased by P1,108 million as of
September 2009, due to additional investments in capital expenditure and concession fees amounting to
P3,158 million.
Cash and cash equivalents, short-term investments and available-for-sale financial assets totaled P10,682
million. This is P2,074 million higher than the 2008 year-end level. With this level of cash reserves, we have
already pre-funded our capital expenditure requirements for the whole year of 2009, up to the earlier part of
2010. In addition, we still have approximately $46 million in available loan facilities which we intend to fully
utilize up to next year.
Receivables were at P548 million, in spite of the higher revenues, as a result of better collection efficiency.
Average receivables were computed at 17 days.
Current ratio was computed at 2.6 times, while quick ratio was computed at 2.4 times.
Debts and other liabilities
Long-term debt amounted to P15.05 billion, P2,154 million higher than the 2008 year-end level as a result of
loan drawdown. Service concession obligations amounted to P3,276 million, P199 million lower than 2008
year-end level. These pertain to the present value of future concession fee obligations of the Company, and
unlike the long term debts, service concession obligations are not yet considered legal obligations of the
Company until they are officially billed to the Company by MWSS. However, the new accounting rules
Philippine interpretation- IFRIC 12 required the Company to recognize these future obligations as part of both
assets and liabilities.
Current liabilities decreased by P150 million (including the current portion of debt and service concession
obligations) due to payment of current portion of loan, dividends and income tax.
Stockholders’ equity
Capital stock and additional paid-in capital increased slightly as a result of the exercise of additional employee
stock options. The increase in our net worth of P1,841 million was mainly due to the higher retained earnings
for the last nine months of 2009.
Cash flows from operating activities
Net cash generated from operations increased by 70% year-on-year. This was mainly due to better working
capital management, as turn-over of receivables significantly improved, and at the same time, payment cycles
were extended.
Cash flows from investing activities
Net cash used in investing activities increased by 200% from the same period last year. A total of P3,161
million of the available cash was invested mostly in capital investments and concession fees. Money market
instruments are composed of time deposits, treasury bills and notes, special deposit accounts, and a small
portion in highly marketable corporate issues and bank notes.
- 29 -
Cash flows from financing activities
Net cash provided by financing activities amounted to P652 million as of September 30, 2009. Out of this
amount, debt servicing accounted for P243 million, while additional P1,984 million in loans were availed during
the period from existing facilities.
Summary of Appendices
A.
B.
C.
D.
E.
F.
Board of Directors and Senior Management Team
Financial Risk Management
Manila Water Stock and Dividends Information
Summary of corporate disclosures during the 3rd quarter 2009
Regulatory Key Performance Indicators and Business Efficiency Measures
Tariff table
- 30 -
APPENDIX A
BOARD OF DIRECTORS AND SENIOR MANAGEMENT TEAM
The Board has eleven (11) members elected by the Company’s stockholders entitled to vote at the annual
meeting. The directors hold office for one (1) year and until their successors are elected and qualified in
accordance with the Company’s By-Laws. The following are the members of the Board as of September 30,
2009:
Name
Fernando Zobel de Ayala
Jaime Augusto Zobel de Ayala
Charles Thomas Cornish
Jose Rene D. Almendras
Delfin L. Lazaro
Leslie Bell
Hiromu Nishimura
Antonino T. Aquino
Alberto L. Jugo
Cielito F. Habito
Oscar S. Reyes
Position
Chairman of the Board and Executive Committee
Vice Chairman
Co-Vice Chairman
President
Director
Director
Director
Director
Director
Independent Director
Independent Director
The following is a list of the Company’s key executive officers as of September 30, 2009:
Name
Jose Rene D. Almendras
Luis Juan B. Oreta
Virgilio C. Rivera, Jr.
Frank Beaumont
Ruel T. Maranan
Geodino V. Carpio
Position
President
Chief Finance Officer and Treasurer
Group Director, Regulation and Corporate Development
Group Director, Operations & Project Delivery
Group Director, Human Resources & Corporate Services
Group Director, Project Delivery
For more information about each of the members of the Board and management team, please visit our website
at www.manilawater.com.
- 32 -
APPENDIX B
FINANCIAL RISK MANAGEMENT
The Group’s principal financial instruments comprise of cash and cash equivalents, short term cash
investments, available for sale financial assets and long-term debt. These financial instruments are used to
fund its operations and capital expenditures.
Results of financial management activities are reported to the Board of Directors which reviews and approves
the policies for managing the risks arising from the use of financial instruments.
The Group’s financial risk management policies are follows:
INTEREST RATE RISK
The Group’s exposure to changes interest rate risks relates primarily to the Company’s long term obligations.
The Group’s policy is to manage its interest cost using a mix of fixed and variable rate debts. Approximately,
70.6% of the Group’s borrowings as of September 30, 2009 were drawn at fixed rates compared to 71% of last
year.
The following tables show information on the Group’s financial instruments that are exposed to interest rate
risks.
2009
(In thousand pesos)
Cash Equiv & Short Term
Investments
AFS Financial Assets
Corporate Bonds/ IMA
TOTAL
2008
(In thousand pesos)
Cash Equiv & Short Term
Investments
AFS Financial Assets
Corporate Bonds/ IMA
Time Deposits
TOTAL
2009
(In thousand pesos)
Fixed Rate Long Term Debt
(exposed to fair value risk)
Bonds Payable
(exposed to fair value risk)
Floating Rate Long Term Debt
( exposed to cash flow risk)
TOTAL
Within 1 year
Within 5 years
More than 5
yrs
9,052,797
9,052,797
Within 1 year
9,052,797
541,671
1,475,292
2,016,963
Within 5 years
60,000
60,000
More than 5
yrs
7,260,234
82,689
7,342,923
Within 1 year
753,218
702,221
1,455,439
Total
541,671
1,535,292
11,129,760
Total
7,260,234
182,811
900,000
1,644
1,084,455
Within 5 yrs
4,860,979
2,983,524
7,844,503
- 33 -
54,285
170,000
224,285
More than 5
years
319,785
1,070,000
1,644
8,651,663
Total
870,291
6,484,488
4,156,463
4,156,463
2,662,185
7,688,939
6,347,930
16,988,881
2008
(In thousand pesos)
Fixed Rate Long Term Debt
(exposed to fair value risk)
Bonds Payable
(exposed to fair value risk)
Floating Rate Long Term Debt
( exposed to cash flow risk)
TOTAL
Within 1 year
Within 5 yrs
840,897
More than 5
years
5,742,246
216,163
1,057,060
1,332,664
7,074,910
Total
1,736,671
8,319,814
4,156,463
4,156,463
1,421,809
7,314,943
2,970,636
15,446,913
The following table shows the sensitivity of the Group’s income before income tax to a possible change in
interest rates on September 2009 and 2008, with all variables held constant.
Effect on Income
Change in BPS
Cash Equivalents
Short term investments
Floating Rate borrowings
2009
44,445
-44,445
40,516
-40,516
-19,881
19,881
100
-100
100
-100
100
-100
2008
38,922
-38,922
33,680
-33,680
-14,931
14,931
FOREIGN EXCHANGE RISK
The Group’s foreign exchange risk results from movements of the Philippine peso (PHP) against the United
States Dollar (USD). Majority of revenues and expenditures are generated in PHP. Approximately, 53.1% of
debt, excluding concession loans, as of September 30, 2009 was denominated in foreign currency. Under
Amendment 1 of the Concession Agreement, however, the Group has a natural hedge on its foreign exchange
risks on loans and concession fee payments through a recovery mechanism in the tariff.
Information on the Group’s foreign currency denominated assets and liabilities and its Philippine peso
equivalents are as follows:
(In thousand pesos)
Assets
Cash and Cash Equivalents
Available for Sale Financial Assets
Liabilities
Long Term Debt
YEN Loans
USD Loans
Concession Loans
YEN Loans
USD Loans
FRF Loans
Net Foreign Currency
Denominated Liabilities
September 30, 2009
Original
Peso
Currency
Equivalent
$1,745
December 31, 2008
Original
Peso
Currency
Equivalent
82,696
-
-
$3,462
-
P 164,514
-
¥11,258,956
$78,948
5,921,470
3,741,326
¥ 6,572,797
$68,482
3,431,657
3,254,252
¥857,688
$66,016
FRF4,497
451,088
3,128,502
47,376
13,372,458
¥ 941,581
$73,561
FRF 4,531
491,600
3,495,621
46,438
P 10,555,054
The following table shows the sensitivity to a possible change in foreign exchange rates of the Group’s profit
before tax and equity as of September 30, 2009 and 2008.
- 34 -
Dollar
Yen
Increase(Decrease) in FX rates
2009
2008
P 0.50
P 1.00
(P 0.50)
(P 1.00)
P 0.02
P 0.02
(P 0.02)
(P 0.02)
Effect on profit before tax
2009
2008
( P 1,312 )
( P 65,020 )
P 1,312
P 65,020
( P 112,398)
( P 107,418)
P 112,398
P 107,418
CREDIT RISK
The Group trades only with recognized and creditworthy third parties. It is the Group’s policy that except for
connection fees and other highly meritorious cases, the Group does not offer terms to its customers.
The Group’s exposure to credit risk on other financial assets arises from default of the counterparty, with a
maximum exposure equal to the carrying value of these instruments. The Group transacts only with institutions
or banks which have demonstrated financial soundness for the past five years.
Credit risk from receivables from customers is managed through credit reviews and continuous analysis.
Customer payments are facilitated through various collection modes engaging the services of reputable banks
and collection agents.
The Group has no significant concentration on credit risk.
As of September 30, 2009 and December 31, 2008, the credit quality per class of financial assets is as follows:
2009
(in thousand pesos)
Cash & Cash Equivalents
Short Term Cash Investments
Neither past due nor impaired
High Grade
5,001,162
Standard
Impaired
4,051,635
4,051,635
Receivables From Customers
Residential
Semi Business
Commercial
Industrial
Interest
Other Receivables
488,238
69,972
180,198
738,408
30,659
7,821
20,654
59,134
122,397
43,799
58,496
224,692
20,636
1,179
4,316
26,131
50,119
27,539
87,343
51,403
51,403
9,685
AFS Fin. Assets
Quoted
Unquoted
TOTAL
Total
5,001,162
156,000
156,000
1,770,964
1,770,964
9,931,815
172,890
- 35 -
291,203
12,166,872
2008
Neither past due nor impaired
(in thousand pesos)
Cash & Cash Equivalents
Short Term Cash Investments
High Grade
Standard
3,989,064
Impaired
Total
3,989,064
3,368,007
3,368,007
Receivables From Customers
Residential
Semi Business
Commercial
Industrial
Interest
Other Receivables
442,123
111,542
177,158
730,823
18,558
11,186
14,936
44,680
120,069
93,716
53,407
267,192
29,610
2,550
2,888
35,048
7,119
72,121
43,389
12,917
5,982
59,020
56,306
AFS Fin. Assets
Quoted
Unquoted
TOTAL
469,035
469,035
1,082,281
1,082,281
9,568,118
290,931
255,508
10,114,557
Up to 6 months
Over 6 months
to one year
Trade Receivables
799
55
194
1048
Total
799
55
194
1048
Ageing of Accounts Receivable
2009
(in millions)
Past due
Total
The credit quality of the financial assets was determined as follows:
Cash and cash equivalents and short term cash investments are placed in various banks. Material amounts
are kept with the country’s top banks.
Customer’s receivables deemed collectible within 7 days from bill delivery are considered high grade while
those collectible from 11-30 days from bill delivery falls under the standard credit category.
The classes of the Group’s receivables from customers are as follows:




Residential - pertains to receivables arising from water and sewer service use for domestic sanitary
purposes only.
Commercial - pertains to receivables arising from water and sewer service use for commercial
purposes.
Semi-business - pertains to receivables arising from water and sewer service use for small businesses.
Industrial - pertains to receivables arising from water and sewer service use for industrial purposes,
including services for manufacturing.
AFS financial assets are investments in debt and equity instruments in companies with good financial capacity
and investments in government securities.
LIQUIDITY RISK
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of
bank overdrafts, bank loans, debentures, preference shares and hire purchase contracts.
The Group’s policy is to maintain a level of cash that is sufficient to fund its monthly cash requirements, at least
for the next 4-6 months. Capital expenditures are funded through long tern debt, while operating expenses and
working capital requirements are funded by cash collections of sales.
- 36 -
The following table shows the maturity profile of the Group’s financial liabilities based on contractual
undiscounted payments:
2009
(in Thousands)
Accounts & Other Payables
Payable to Stockholders
Long Term Debts
Service Concession Obligations
Customers Guaranty & Other
Deposits
TOTAL
2008
(in Thousands)
Accounts & Other Payables
Payable to Stockholders
Long Term Debts
Service Concession Obligations
Customers Guaranty & Other
Deposits
TOTAL
Within 1 Year 1-5 years
3,040,817
83,890
194,385
7,421,980
76,521
2,014,015
8,468
3,404,081
9,435,995
Within 1 Year 1-5 years
2,739,941
110,170
1,083,678
7,164,213
523,575
2,531,688
4,457,364
9,695,901
> 5 yrs
5,011,315
1,536,430
1,303,840
Total
3,040,817
83,890
12,627,679
3,626,966
1,312,308
7,851,585
20,691,660
> 5 yrs
7,341,509
1,735,867
1,192,304
Total
2,739,941
110,170
15,589,400
4,791,130
1,192,304
10,269,680
24,422,945
The methods and assumptions used by the Group in estimating the fair value of the financial instruments are:
Accounts and other payables and payable to stockholders - Carrying amounts approximate fair values due to
the relatively short-term maturities of these payables.
Customers’ guaranty and other deposits and long-term debt - The fair values are estimated using the
discounted cash flow methodology using the Group’s current incremental borrowing rates for similar
borrowings with maturities consistent with those remaining for the liability being valued.
- 37 -
APPENDIX C
MANILA WATER STOCK AND DIVIDENDS INFORMATION
Stock chart (Sept. 2008 – Sept. 2009)
Daily Manila Water Company, Inc.
9/30/2008 - 9/30/2009 (MNL)
Price
PHP
16
15.6
15.2
14.8
14.4
14
13.6
13.2
12.8
12.4
12
11.6
11.2
10.8
10.4
10
9.6
.123
06
13
20
27
03
Oct 08
10
17
Nov 08
24
02 08
15
22
12
Dec 08
19
26
02
Jan 09
09
16
Feb 09
23
02
09
16
23
Mar 09
30
07
20
27 04
Apr 09
11
18
25
May 09
01
08 15
22
29
Jun 09
06
13 20
27
Jul 09
03 10
17 24
01 08 14
Aug 09
22 28
[Delayed]
Sep 09
* Source: Reuters
The Company was listed in the Philippine Stock Exchange on March 18, 2005 and its listed shares have since
been actively traded therein. The high and low sale prices for each quarter that the Company’s shares have
been listed are as follows:
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
HIGH / LOW SALES
2008
2009
High
Low
High
Low
19.25
16
13.75
9.3
18.5
17.5
15.75
11
18.25
15.75
16.5
14.25
16.75
11.25
The price information as of the close of September 30, 2009, was P15.50.
Dividends Information
Annual Dividends per share
(in pesos)
0.40
0.35
0.30
0.21
0.13
0.16
0.08
2003
2004
2005
2006
- 38 -
2007
2008
2009
APPENDIX D
SUMMARY OF CORPORATE DISCLOSURES DURING THE 3RD QUARTER 2009
DATE
July 9, 2009
July 9, 2009
July 22, 2009
August 6, 2009
August 10, 2009
August 12, 2009
September 17, 2009
September 18, 2009
September 22, 2009
September 24, 2009
September 29, 2009
TOPIC
FCDA Tariff Adjustment
Results of Meeting of the Board of Directors
Acquisition of 100% Equity in AAA Water Corporation
Submission of Amended General Information Sheet
Manila Water reports higher earnings
Cebu Bulk Water Supply Project
FCDA Tariff Adjustment
Completion of acquisition of 100% equity in AAA Water Corporation
Update on Cebu Bulk Water Supply Project
Meeting of the Board of Directors
Clarification on the news article on Iloilo Project
For more details on these disclosures, please visit our website at www.manilawater.com
- 39 -
APPENDIX E
REGULATORY KEY PERFORMANCE INDICATORS AND BUSINESS EFFICIENCY MEASURES
As of September 30, 2009
Key Performance Indicators
Water Service Connections
Continuity of Water Supply
Pressure of Water Supply
Water Quality at Plant Outlet
Water Quality in Distribution
Sampling
Sewerage and Sanitation - Domestic Connections
(cumulative, separate system only)1
Sanitation - Total number of households served plus waivers
(cumulative)
Wastewater Effluent Quality (Average) - % Compliance with
DENR Standards
Response to Customer Service Complaints - % responded
within 10 days
Response to Customer Billing Complaints - % responded
within 10 days
Response to Request for New Connections - % responded
within 5 days
Installation of New Water Service Connections - No. of new
service connections installed within 7 days (cumulative)
Response to disruptive mains failure - % repaired within 24
hours
Business Efficiency Measures
Billed Volume, water (mcm)
Revenue Collection Rate
Labor – Total Cost (cumulative)
Power Consumption (in KwH)
Power – Total Cost (cumulative)
Total Controllable OPEX (cumulative)
Total Capex (cumulative)
Non-Revenue Water
1
Target
98% of
population with
24-hour supply
78% with at
least 7 psi
100%
100%
100%
18
178,599
95%
99.75%
95%
99.99%
90%
99.90%
100%
100%
26,397
41,328
95%
100%
Target
296.45
95%
735.12 – max
61.75-max
Actual
294.52
100%
724.4
57.32
376.28
682.64
3,161
15%
807.02-max
xxx
25%-max
Accomplishments on combined sewage-drainage system will be reported at year-end
- 40 -
Actual
725,222
100% of
Central
Distribution
System with
24-hour
supply
99% with at
least 7 psi
100%
100%
105%
132
APPENDIX F
AVERAGE TARIFF
Prev. Basic
CPI
Rate Rebasing
Total Basic Water
FCDA
12% EC
TOTAL
VAT
TOTAL w/ VAT
September 30,
2008
15.17
Dec. 31, 2008
4.47
19.64
-0.13
2.34
21.85
2.62
24.47
4.47
19.64
0.18
2.38
22.20
2.66
24.86
- 41 -
15.17
September 30,
2009
19.64
2.27
21.92
0.21
2.66
24.78
2.97
27.75