M E G A W O R L D C O R P O R A T I O N

Transcription

1 M E G A W O R L D C O R P O R A T I O N (Company s Full Name) S.E.C. Registration Number 2 8 T H F L R. T H E W O R L D C E N T R E S E N. G I L J P U Y A T M A K A T I (Business Address: No. Street City/ Town/ Province) MONICA T. SALOMON to 40 Contact Person Company Telephone Number S E C F O R M Q rd Friday Month Day FORM TYPE Month Day Fiscal Year (QUARTERLY REPORT) Annual Meeting ended September 30, 2006 Secondary License Type, If Applicable 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 S T A M P S Remarks = pls. use black ink for scanning purposes

2 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 30 September Commission Identification Number: BIR Tax Identification No.: MEGAWORLD CORPORATION Exact name of issuer as specified in its charter 5. Metro Manila Province, Country or other jurisdiction of incorporation or organization 6. (SEC Use Only) Industry Classification Code th Floor, The World Centre 330 Sen. Gil J. Puyat Avenue Makati City, Philippines 1227 Address of issuer s principal office 8. (632) to 40 Issuer s telephone number, including area code 9. Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 of the RSA Title of Class Number of Shares of Common Stock Outstanding Common 14,744,033, Are any or all of the securities listed on a Stock Exchange? Yes [X] No [ ] If yes, state the name of such Stock Exchange and the class/es of securities listed therein: The shares of common stock of the Company are listed on the Philippine Stock Exchange. 11. 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 Section 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 [ ]

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4 Megaworld Corporation and Subsidiaries Consolidated Balance Sheets ( in thousands ) ASSETS Unaudited 30-Sep-06 EXHIBIT 1 Audited 31-Dec-05 CURRENT ASSETS Cash and cash equivalents P 12,906,941 P 2,850,312 Trade and other receivables - net 3,294,964 2,751,268 Marketable securities 2,265,516 3,599,632 Residential and condominium units for sale 2,928,380 3,552,320 Property development costs 2,963,264 1,606,181 Prepayments and other current assets - net 467, ,653 Total Current Assets 24,826,830 14,979,366 NON-CURRENT ASSETS Trade and other receivables 3,016,921 1,868,935 Land for future development 1,999,035 1,784,032 Investments in and advances to associates - net 9,192,503 7,602,178 Investment property - net 4,696,508 4,858,621 Other non-current assets - net 1,627,324 1,689,760 Total Non-current assets 20,532,291 17,803,526 TOTAL ASSETS P 45,359,121 P 32,782,892 LIABILITIES AND EQUITY CURRENT LIABILITIES Interest bearing-loans and borrowings P 317,638 P 963,578 Trade and other payables 1,907,749 1,691,285 Customers' deposit 2,118,632 1,791,570 Reserve for property development 650, ,436 Deferred income on real estate sales 592, ,779 Other current liabilities 718, ,766 Total Current Liabilities 6,305,017 6,395,414 NON-CURRENT LIABILITIES Interest bearing-loans and borrowings 7,068,446 2,132,386 Customers' deposit 3,183,355 2,448,762 Reserve for property development 1,332,241 1,243,213 Deferred income on real estate sales 259, ,525 Other non-current liabilities 2,548,733 2,400,890 Total Non-current liabilities 14,392,533 8,512,776 TOTAL LIABILITIES 20,697,550 14,908,190 EQUITY Equity attributable to parent company's shareholders 23,914,796 17,141,588 Minority interest 746, ,114 24,661,571 17,874,702 TOTAL LIABILITIES AND EQUITY P 45,359,121 P 32,782,892

5 Megaworld Corporation and Subsidiaries Consolidated Statements of Income ( in thousands ) EXHIBIT Unaudited 2006 Unaudited 2005 Unaudited 2005 Unaudited Jul 1 - Sept 30 Jan 1 - Sept 30 Jul 1 - Sept 30 Jan 1 - Sept 30 Revenue Real estate sales P 2,302,400 P 4,320,070 P 820,648 P 2,536,778 Interest income on real estate sales 24, ,728 28, ,416 Realized gross profit 215, ,655 81, ,177 Rental income 186, , , ,623 Hotel operations 59, ,547 56, ,024 Dividend income - 28,648 7,194 21,582 Equity in net earnings/(losses) of investees, interest and other income 335, , , ,059 3,123,391 6,445,778 1,251,642 3,969,659 Costs and Expenses Real estate sales 1,524,003 2,871, ,187 1,649,610 Deferred gross profit 196, ,650 78, ,549 Hotel operations 84, ,170 76, ,642 Operating expenses 266, , , ,820 Interest and other charges 145, , , ,954 Income tax expense 262, ,777 60, ,366 2,480,385 4,935,220 1,016,434 3,180,941 NET INCOME 643,006 1,510, , ,718 Attibutable to: Minority interest (13,857) (10,244) (470) 7,685 Parent company's shareholders 656,863 1,520, , ,033 P 643,006 P 1,510,558 P 235,208 P 788,718 Earnings Per Share Basic earnings (loss) per share P P Diluted earnings (loss) per share P P

6 EXHIBIT 3 Megaworld Corporation and Subsidiaries Statements of Changes in Equity ( in thousands ) Unaudited Unaudited CAPITAL STOCK P 14,744,034 P 8,879,633 ADDITIONAL PAID-IN CAPITAL 3,570,247 2,227,892 TREASURY SHARES (295,566) (295,566) ACCUMULATED TRANSLATION ADJUSTMENT/UNREALIZED GAIN/(LOSS) ON DECLINE IN MARKET VALUE (89,242) 87,639 RETAINED EARNINGS 5,985,323 6,071,401 MINORITY INTEREST 746, ,365 TOTAL EQUITY P 24,661,571 P 17,683,364

7 EXHIBIT 4 Megaworld Corporation and Subsidiaries Comparative Consolidated Statements of Cash Flows ( in thousands ) 2006 Unaudited 2005 Unaudited Jan 1 - Sept 30 Jan 1 - Sept 30 CASH FLOW FROM OPERATING ACTIVITIES NET INCOME P 1,520,802 P 781,033 Net Changes in Operating Assets and Liabilities Decrease (Increase) in: Other current assets (581,255) (895,003) Trade and other receivables (1,691,682) (478,481) Other non-current assets (224,129) 1,242,093 Increase (Decrease) in: Current Liabilities 546,640 (84,373) Non-current liabilities 854,669 1,405,860 Reserve for property development 97, ,599 NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (997,827) 1,491,695 CASH FLOW FROM INVESTING ACTIVITIES (22,534) (720,576) CASH FLOW FROM FINANCING ACTIVITIES 9,556,188 (2,279,936) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 10,056,629 (727,784) CASH AND CASH EQUIVALENTS - BEGINNING 2,850,312 2,688,989 CASH AND CASH EQUIVALENTS - END P 12,906,941 P 1,961,205

8 EXHIBIT 5 NOTES TO FINANCIAL STATEMENTS 1. CORPORATE INFORMATION Megaworld Corporation (the Company or parent company ) holds interests in the following subsidiaries and associates: Explanatory Percentage of Ownership Subsidiaries/Associates Notes Subsidiaries: Megaworld Land, Inc. (MLI) 100% 100% 100% Prestige Hotels and Resorts, Inc. (PHRI) (a) 100% 100% 100% Mactan Oceanview Properties and Holdings, Inc. (MOPHI) 100% 100% 100% Megaworld Cayman Islands, Inc. (MCII) 100% 100% 100% Richmonde Hotel Group International (RHGI) 100% 100% 100% Eastwood Cyber One Corporation (ECOC) 100% 100% 100% Forbes Town Properties and Holdings, Inc. (FTPHI) 100% 100% 100% Megaworld Newport Property Holdings, Inc. (MNPHI) (b) 100% 100% - Megaworld-Daewoo Corporation (MDC) 60% 60% 60% Megaworld Central Properties, Inc. (MCPI) ( c) 60% 60% - Megaworld Globus Asia, Inc. (MGAI) 50% 50% 50% Travellers International Hotel Group Inc. (TIHGI) 82% - - Associates: Empire East Land Holdings, Inc. (EELHI) 45.22% 45.22% 43% Fairmont Holdings, Inc % 35.29% 36.32% Palm Tree Holdings and Development Corporation (PTHDC) 40% 40% - (a) Wholly owned subsidiary of MLI (b) Subsidiary acquired in 2005 (c) Subsidiary incorporated in 2005, not yet in commercial operations as of December 31, 2005 Except for MCII and RHGI, the subsidiaries and associates were incorporated in the Philippines and operate within the country. MCII was incorporated and operates in the Cayman Islands. RHGI was incorporated and operates in the British Virgin Islands. The Company and its subsidiaries (the Group ), except for MCPI and PTHDC which are not yet in commercial operations as of December 31, 2005, are presently engaged in the real estate business, hotel operations and marketing services. The registered office of the Company is located at 28th Floor, The World Centre Building, Sen. Gil Puyat Avenue, Makati City.

9 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies that have been used in the preparation of these consolidated financial statements are summarized below. The policies have been consistently applied to all years presented, unless otherwise stated. 2.1 Basis o f Preparation The consolidated financial statements of Megaworld Corporation and subsidiaries have been prepared in accordance with generally accepted accounting principles in the Philippines as set forth in PFRSs. The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial assets. The measurement bases are more fully described in the accounting policies below. Accounting estimates and assumptions are used in preparing the financial statements. Although these estimates are based on management's best knowledge of current events and actions, actual results may ultimately differ from those estimates. The consolidated financial statements are presented in Philippine pesos, the Group s functional currency, and all values represent absolute amounts except when otherwise indicated. 2.2 Impact of New and Revised Accounting Standards Effective Subsequent to 2005 There are new and revised accounting standards, amendments and interpretations to existing standards that have been published by IASB and adopted by the ASC which are mandatory for accounting periods beginning on or after January 1, Of the new ASC pronouncements, the following standards are relevant to the Group, which the Group has not opted to adopt early: 2006 PAS 19 (Amendment) : Employee Benefits PAS 39 (Amendment) : The Fair Value Option 2007 PAS 1 (Amendment) : Presentation of Financial Statements PFRS 7 : Financial Instruments: Disclosures The Group will apply the relevant new accounting standards in 2006 and 2007 in accordance with their transitional provisions. It is currently evaluating the impact of those standards on its consolidated financial statements and has initially determined that the following new standards may have significant effects on the financial statements for 2006, as well as for prior and future periods

10 Consolidation, Investment in Associates and Interest in Joint Venture The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as of September 30, 2006 and December 31, 2005 and for the period ended September 30, 2006 and September 30, The financial statements of subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. 2.4 Cash and Cash Equivalents Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. 2.5 Financial Assets Financial assets include cash and financial instruments. Financial assets, other than hedging instruments, are classified into the following categories: marketable securities which represent financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the investments were acquired. The designation of financial assets is re-evaluated at every reporting date at which date a choice of classification or accounting treatment is available, subject to compliance with specific provisions of applicable accounting standards. All financial assets are recognized on their trade date. All financial assets that are not classified as at fair value through profit or loss are initially recognized at fair value, plus transaction costs. 2.6 Real Estate Transactions Acquisition costs of raw land intended for future development, including other costs and expenses incurred to effect the transfer of title of the property to the Group, are charged to the Land for Future Development account. These costs are reclassified to the Property Development Costs account when the development of the property starts. Related property development costs are then accumulated in this account. Borrowing costs on certain loans incurred during the development of the real estate properties are also capitalized by the Group as part of the Property Development Costs account. When portions of the property being developed are sold prior to the completion of the development, the accumulated costs of the project are transferred to the Residential and Condominium Units for Sale account. Cost of real estate property sold before completion of the development is determined based on the actual costs incurred to date plus estimated costs to complete the development of the property. The estimated expenditures for the development of sold real estate property, as determined by the project engineers, are charged to the cost of residential and condominium units sold with a corresponding credit to the Reserve for Property Development account. Residential and condominium units are valued at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less estimated

11 - 4 - costs of completion and the estimated costs necessary to make the sale. Considering the Group s pricing policy for real estate units for sale, cost is considerably lower than the net realizable value. The Group recognizes the effect of revisions in the total project cost estimates in the year in which these changes become known. Any impairment loss from a real estate project is charged to operations during the period in which the loss is determined. 2.7 Investment Property Properties held for lease under operating lease agreements, which comprise mainly of land, buildings and condominium units, are classified as Investment Property and carried at cost net of accumulated depreciation and any impairment in value. Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from 5 to 25 years. 2.8 Property and Equipment Buildings and improvements, a hotel building, hotel improvements, office furniture, fixtures and other equipment and transportation equipment are carried at acquisition or construction cost less subsequent depreciation and any impairment losses. The cost of an asset comprises its purchase price and directly attributable costs of bringing the asset to working condition for its intended use. Expenditures for additions, major improvements and renewals are capitalized; expenditures for repairs and maintenance are charged to income as incurred. When assets are sold, retired or otherwise disposed of, their cost and related accumulated depreciation and amortization and impairment losses are removed from the accounts and any resulting gain or loss is reflected in income for the period. Depreciation is computed on the straight-line basis over the estimated useful lives of the assets. Amortization of leasehold and office improvements is recognized over the estimated useful life of improvements or the term of the lease, whichever is shorter. The depreciation and amortization periods for property and equipment, based on the above policies, are as follows: Condominium units Office and land improvements Office furniture, fixtures and equipment Transportation equipment years 5-20 years 3-5 years 5 years An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. The residual values and estimated useful lives of property and equipment are reviewed, and adjusted if appropriate, at each balance sheet date. An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the statement of income in the year the item is derecognized.

12 Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group s share of the net identifiable assets of the acquired subsidiary or associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is presented under Other Non-current Assets. Goodwill on acquisitions of associates is included in the carrying value of investments in associates. Goodwill is tested annually for impairment. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arises Financial Liabilities Financial liabilities include bank loans and trade and other payables. Financial liabilities are recognized when the Group becomes a party to the contractual agreements of the instrument. All interest related charges are recognized as an expense in the statements of income under Finance Costs. Bank loans are raised for support of long-term funding of operations. These are recognized at proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to profit or loss on an accrual basis using the effective interest method and are added to the carrying amount of the instrument to the extent that these are not settled in the period in which they arise. Trade payables are recognized initially at their nominal value and subsequently measured at amortized cost less settlement payments. Dividend distributions to shareholders are recognized as financial liabilities when the shareholders approve the dividends. Financial liabilities are derecognized from the balance sheet only when the obligations are extinguished either through discharge, cancellation or expiration Provisions Provisions are recognized when present obligations will probably lead to an outflow of economic resources and they can be estimated reliably even if the timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive commitment that has resulted from past events, for example, legal disputes or onerous contracts. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the balance sheet date, including the risks and uncertainties associated with the present obligation. Any reimbursement expected to be received in the course of settlement of the present obligation is recognized, if virtually certain as a separate asset, not exceeding the amount of the related provision. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by

13 - 6 - considering the class of obligations as a whole. In addition, long-term provisions are discounted to their present values, where time value of money is material. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. In those cases where the possible outflow of economic resource as a result of present obligations is considered improbable or remote, or the amount to be provided for cannot be measured reliably, no liability is recognized in the financial statements. Probable inflows of economic benefits that do not yet meet the recognition criteria of an asset are considered contingent assets, hence, are not recognized in the financial statements Revenue and Cost Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized: Sale of residential and condominium units - For financial reporting purposes, revenues from transactions covering sales of residential and condominium units are recognized under the percentage of completion method. Under this method, realization of gross profit is recognized by reference to the stage of development of the properties, i.e., revenue is recognized in the period in which the work is performed. Advances made to contractors and suppliers are treated as actual cost incurred in determining the stage of development of the properties. For tax reporting purposes, a modified basis of computing the taxable income for the year based on collections from sales is used by the Company, MGAI, ECOC and EELHI, while MDC report revenues based on the percentage of completion method. Sale of undeveloped land - Revenues on sales of undeveloped land are recognized using the full accrual method. Under the full accrual method, revenue is recognized when the risks and rewards of ownership of the undeveloped land has passed to the buyer and the amount of revenue can be measured reliably. Rental and hotel income Revenue is recognized when the performance of contractually agreed tasks has been substantially rendered. Interest Revenue is recognized as the interest accrues (taking into account the effective yield on the asset). Dividends Revenue is recorded when the stockholders right to receive the payment is established. Costs of residential and condominium units sold before completion of the projects include the acquisition cost of the land, development costs incurred to date and estimated costs to complete the project, determined based on firm construction contracts and on estimates made by the project engineers (see Note 2.6).

14 Leases Group as lessee Leases, which do not transfer to the Group substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as expense in the statement of income on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred. Group as lessor Leases, which do not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as income in the statement of income on a straight-line basis over the lease term Functional Currency and Foreign Currency Transactions Functional and Presentation Currency Except for MCII and RHGI, which use the U.S. dollars as its functional currency, the accounting records of the Group are maintained in Philippine pesos. Items included in the financial statements of the Group are measured using the currency of the primary economic environment in which the entity operates (the functional currency ). The financial statements are presented in Philippine pesos. Transaction and Balances Foreign currency transactions during the year are translated into the functional currency at exchange rates, which approximate those prevailing on transaction dates. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated statement of income. Translation of Financial Statements of Foreign Subsidiaries The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and, All resulting exchange differences are recognized as a separate component of equity.

15 - 8 - On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken to equity. When a foreign operation is sold, such exchange differences are recognized in the consolidated statement of income as part of the gain or loss on sale. Goodwill arising on the acquisition of a foreign entity are treated as assets of the foreign entity and translated at the closing rate Impairment of Non-financial Assets The Group s investment in associates, goodwill, investment property, land for future development, and property and equipment are subject to impairment testing. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management controls the related cash flows. Note 2.9 provides further details on initial recognition of goodwill. Individual assets or cash-generating units that include goodwill and other intangible assets with an indefinite useful life or those not yet available for use are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset s or cash-generating unit s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell and value in use, based on an internal discounted cash flow evaluation. Impairment losses recognized for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist Employee Benefits Retirement Benefit Obligations Pension benefits are provided to employees through a defined benefit plan. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and salary. The legal obligation for any benefits from this kind of pension plan remains with the Group, even if plan assets for funding the defined benefit plan have been acquired. Plan assets may include assets specifically designated to a long-term benefit fund, as well as qualifying insurance policies. The Group s defined benefit pension plan covers all regular full-time employees. The pension plan is taxqualified, noncontributory and administered by a trustee.

16 - 9 - The liability recognized in the balance sheet for defined benefit pension plans is the present value of the defined benefit obligation (DBO) at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognized actuarial gains or losses and past service costs. The DBO is calculated annually by independent actuaries using the projected unit credit method. The present value of the DBO is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension liability. Actuarial gains and losses are not recognized as an expense unless the total unrecognized gain or loss exceeds 10% of the greater of the obligation and related plan assets. The amount exceeding this 10% corridor is charged or credited to profit or loss over the employees expected average remaining working lives. Actuarial gains and losses within the 10% corridor is disclosed separately. Past-service costs are recognized immediately in the income statement, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortized on a straight-line basis over the vesting period. Compensated Absences Compensated absences are recognized for the number of paid leave days (including holiday entitlement) remaining at the balance sheet date. They are included in Trade and Other Payables at the undiscounted amount that the Group expects to pay as a result of the unused entitlement Borrowing Costs For financial reporting purposes, borrowing costs are recognized as expenses in the period in which they are incurred, except to the extent that they are capitalized. Borrowing costs that are attributable to the acquisition, construction or production of a qualifying asset (i.e., an asset that takes a substantial period of time to get ready for its intended use or sale) are capitalized as part of cost of such asset. The capitalization of borrowing costs commences when expenditures for the asset are being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalization ceases when substantially all such activities are complete. For income tax purposes, interest and other borrowing costs are charged to expense when incurred Income Taxes Current income tax assets or liabilities comprise those claims from, or obligations to, fiscal authorities relating to the current or prior reporting period, that are uncollected or unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognized as a component of tax expense in the consolidated statement of income.

17 Deferred tax is provided, using the balance sheet liability method on temporary differences at the balance sheet date between the tax base of assets and liabilities and their carrying amounts for financial reporting purposes. Under the balance sheet liability method, with certain exceptions, deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized for all deductible temporary differences and the carryforward of unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the deferred income tax asset to be utilized. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. Most changes in deferred tax assets or liabilities are recognized as a component of tax expense in the consolidated statement of income. Only changes in deferred tax assets or liabilities that relate to a change in value of assets or liabilities that is charged directly to equity are charged or credited directly to equity Equity Capital stock is determined using the nominal value of shares that have been issued. Additional paid-in capital includes any premiums received on the initial issuing of capital stock. Any transaction costs associated with the issuing of shares are deducted from additional paid-in capital, net of any related income tax benefits. Treasury shares are stated at the cost of re-acquiring such shares. Retained earnings include all current and prior period results as disclosed in the income statement. 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgments are continually evaluated and are based on historical experience as adjusted for current market conditions and other factors. 3.1 Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions 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: (a) Revenue recognition

18 The Group uses the percentage-of-completion method in accounting for its realized gross profit on sales of real estate. The use of the percentage-of-completion method requires the Group to estimate the portion completed to date as a proportion of the total budgeted cost of the project. (b) Principal assumptions for management s estimation of fair value Investment property is measured using the cost model. The fair value disclosed in the financial statements is determined by the Group using discounted cash flows valuation technique since the information on current or recent prices of assumptions underlying the discounted cash flow approach of investment property is not available. The Group uses assumptions that are mainly based on market conditions existing at each balance sheet date. The principal assumptions underlying management s estimation of fair value are those related to: the receipt of contractual rentals; expected future market rentals; void periods; maintenance requirements; and appropriate discount rates. These valuations are regularly compared to actual to market yield data, and actual transactions by the Group and those reported by the market. The expected future market rentals are determined in the basis of current market rentals for similar properties in the same location and condition. 3.2 Critical judgments in applying the Group s accounting policies (a) Impairment of available-for sale financial assets The Group follows the guidance of PAS 39, Financial Instruments: Recognition and Measurement, on determining when an investment is other-than-temporarily impaired. This determination requires significant judgment. In making this judgment, the Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health of and near-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow. (b) Distinction between investment properties and owner-occupied properties The Group determines whether a property qualifies as investment property. In making its judgment, the Group considers whether the property generates cash flows largely independently of the other assets held by an entity. Owner-occupied properties generate cash flows that are attributable not only to property but also to other assets used in the production or supply process. 4. SEGMENT INFORMATION The Group s operating businesses are organized and managed separately according to the nature of products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. The Group is engaged in the development of residential and office developments including urban centers integrating office,

19 residential and commercial components. The Real Estate Sales segment pertains to the development and sale of residential and office developments. The Rental segment includes leasing of office and commercial spaces. The Hotel segment relates to the management of hotel business operations. The Corporate and Others segment includes marketing services, general and corporate income and expense items. Segment accounting policies are the same as the policies described in Note 3. The Group generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties at current market prices. The following tables present revenue and profit information regarding industry segments for the period ended September 30, 2006 and 2005 and certain asset and liability information regarding segments at September 30, 2006 and Segment Information: YTD-September 2006 Real Estate Corporate Sales Rental Hotel and Others Consolidated REVENUE Sales to external customers 5,029, , , ,209 5,827,418 RESULTS Segment results 1,180, ,896 1,378 65,573 1,586,517 Other Income/(Charges) 353,818 Income before tax 1,940,335 Tax expense (429,778) Income before minority interest 1,510,557 Minority interest - share in net income 10,244 Net Income 1,520,801 ASSETS AND LIABILITIES Segment Assets 33,987,036 4,502, ,584 5,319,737 44,003,281 Unallocated Assets 1,355,840 1,355,840 Total Assets 45,359,121 Segment Liabilities 19,799, , ,608 20,697,550

20 YTD-September 2005 Real Estate Corporate Sales Rental Hotel and Others Consolidated REVENUE Sales to external customers 3,026, , ,025 34,040 3,608,058 RESULTS Segment results 579, , , ,437 Other Income/(Charges) 107,648 Income before tax 965,085 Tax expense (176,366) Income before minority interest 788,719 Minority interest - share in net income (7,686) Net Income 781,033 ASSETS AND LIABILITIES Segment Assets 9,758,283 4,552, ,756 2,859,532 17,361,188 Unallocated Assets 1,158,614 1,158,614 Total Assets 18,519,802 Segment Liabilities 14,344, , ,527 14,959,286

21 EXHIBIT 6 Management s Discussion and Analysis of Results of Operations and Financial Condition Results of Operations (Based on Financial Statements adopted in accordance with the Philippine Financial Reporting Standard) Review of September 30, 2006 versus September 30, 2005 For the nine-month period of the year 2006, the consolidated net income (attributable to parent company s shareholders) amounted to Php1.52 billion, 95% higher than last year s net income of Php million. Consolidated total revenues composed of real estate sales, rental income, hotel revenue, interest income, dividend income and other revenues grew by 62% from Php3.97 billion to Php6.45 billion resulting from strong property sales and increase leasing and hotel operations. Development. Among product groupings, the bulk of generated consolidated revenues came from the sale of residential lots, condominium, office units and other related accounts (such as interest on real estate sales and realized gross profit) at 78% of total, amounting to Php5.03 billion in 2006 compared from Php3.03 billion of the same period last year, an increase of 66%. The Group s registered sales came from the following projects: One Orchard Road, Grand Eastwood Palazzo and Eastwood Parkview in Eastwood City; Forbeswood Heights in Fort Bonifacio; Greenbelt Radissons and Greenbelt Parkplace in Makati City; McKinley Hill; and Newport City. Leasing. Rental income contributed 8% to the consolidated revenue, amounted to Php million compared from Php million posted in the same period last year, a 30% increase. The growth was due to escalation and the completion of additional leasing property. Hotel Operations. The Group s hotel operations contributed Php million for the nine-month period of the year 2006 from Php million in the same period last year or an 11% increase. Other Revenues. Other revenues for the reported period increased by 85% amounting to Php million compared from Php million which consist most of interest income from cash, marketable deposits, dividend, miscellaneous and other income. In general, the growth in cost and expenses by 55% from Php3.18 billion to Php4.94 billion of the same period ended September 30, 2005 and 2006, was due mainly to the combine effect of increase in cost of real estate for sales and cost of hotel operations; marketing and selling expenses, particularly commission expenses resulting from aggressive marketing activities as well as other administrative and corporate overhead expenses. Income tax expense increased by 144% from Php million in 2005 to Php million in 2006 due to higher taxable income. Operating expenses as a percentage of consolidated total revenues were pegged at 11% and 16% for the same period in 2006 and 2005, respectively.

22 There were no trends, events or uncertainties that have had or that are reasonably expected to have a material impact on net sales or revenues or income from continuing operations. The Group is not aware of events that will cause material change in the relationship between costs and revenues. There are no significant elements of income or loss that did not arise from the Group s continuing operations. Financial Condition The Group maintains a prudent financial strategy as it faces a more competitive and challenging environment. The Group s balance sheet reflects stable financial growth. Total resources as of September 30, 2006 totaled Php45.36 billion compared from Php32.78 billion as of December 31, 2005, registering 38% increase. Cash and cash equivalents increase significantly by 353% from Php2.85 billion to Php12.91 billion due to proceeds from public offer last April 2006 and proceeds from issuance of bonds. Also, the Group remained liquid with Current Assets amounting to Php24.83 billion as of September 30, 2006, up from Php14.98 billion as of December 31, Its current obligations stood only at Php6.31 billion and Php6.40 billion as of September 30, 2006 and December 31, 2005, respectively. Current and noncurrent trade and other receivables increased by 37% from Php4.62 billion to Php6.31 billion due to higher sales. As of September 30, 2006, the residential and condominium units for sale decreased by 18% from Php3.55 billion in 2005 to Php2.93 billion and this was also due to higher sales recognized for the period. Property development cost increased by 84% from Php1.61 billion in 2005 to Php2.96 billion as of September 30, 2006 due to capital expenditures attributable to rental properties. Prepayments and other current and non-current assets total to Php2.10 billion as of September 30, 2006 and Php2.31 billion as of December 31, 2005, posting a 9% decrease due to redemption of preferred shares of an associate. Interest-bearing loans and borrowings current and non-current amounted to Php7.39 billion and Php3.10 billion as of September 30, 2006 and December 31, 2005 respectively, representing a 139% increase due to additional borrowings and proceeds from issuance of bonds. Current and non-current customers deposits as of September 30, 2006 amounted to Php5.3 billion compared from Php4.24 billion as of December 31, The 25% increase or Php1.06 billion was due largely to aggressive marketing and pre-selling of various projects. Total Equity (excluding minority interest) rose by 40% to Php23.91 billion as of September 30, 2006 from Php17.14 billion as of December 31, 2005 due to the Group s continuous profitability and increase in capital stock and additional paid-in capital through public offer. The top five (5) key performance indicators of the Group are shown below: 3 rd qtr rd qtr 2005 Current Ratio *1 3.94:1 3.04:1 Quick Ratio *2 2.05:1 0.42:1 Debt to Equity Ratio *3 0.31:1 0.13:1 Return on Assets *4 3.35% 2.39% Return on Equity *5 6.36% 4.60%

23 *1 Current Assets / Current Liabilities *2 Cash and cash equivalents / Current Liabilities *3 Interest-bearing loans and borrowings / Equity *4 Net Income / Total Assets (Computed using figures attributable only to parent company s shareholders) *5 Net Income / Equity (Computed using figures attributable only to parent company s shareholders) With its strong financial position, the Group will continue investing in and pursuing expansion activities as it focuses on identifying new markets, maintaining established markets and tapping business opportunities. Sustaining a high level of development activity, the Group believes that it has sufficient resources coming from internally generated funds and proceeds from public offer and issue of bonds to satisfy project and capital requirements for this year. Certain accounts in the financial statements for the nine months ended September 30, 2005 have been reclassified to conform to the presentation and classification of the financial statements for the nine months ending September 30, Material Changes in the Third Quarter of 2006 Financial Statements (Increase/decrease of 5% or more versus December 31, 2005) Balance Sheet 353% increase in Cash and cash equivalents Largely due to proceeds from public offer and issuance of bonds 37% increase in Trade and other receivables current and non-current Primarily due to higher sales 37% decrease in Marketable securities Due to conversion to cash and cash equivalents 18% decrease in Residential and condominium units for sale Due to recognition of sales 84% increase in Property development cost Mainly due to the cost attributable to rental properties 9% decrease in Prepayments and other current and non-current assets Due to redemption of investment on preferred shares 12% increase in Land for future development Due to acquisition of additional land areas for future construction of new projects 21% increase in Investment in and advances to associates Due to associates advances/investments for their working capital requirements 139% increase in Interest-bearing loans and borrowings - current and non-current Due to additional borrowings and issuance of bonds

24 13% increase in Trade and other payables Mainly due to additional cost to be paid to contractors and suppliers for various projects 25% increase in Customers deposit current and non-current Due to aggressive marketing and pre-selling of various projects 5% increase in Reserve for property development - current and non-current Primarily due to uncompleted portion of cost attributable to various on-going projects (Increase/decrease of 5% or more versus September 30, 2005) Income Statements 70% increase in Real estate sales Principally due to higher sales bookings, sales of new projects and additional sales 11% increase in Hotel revenue Due to high occupancy rates 80% increase in Realized gross profit Mainly due to revenue recognition on prior years sales 30% increase in Rental income Due to escalation and the completion of additional leasing property 33% increase in Dividend income Largely due to dividend income recognition on preferred shares 88% increase in Equity in net earnings/(losses) of investees, interest and other income Mainly due to improved income of investees, effective cash management and other investments 74% increase in Costs of real estate sales Primarily due to increase in real estate sales 10% increase in Operating expenses Due to marketing and selling expenses, particularly commission expenses resulting from aggressive marketing activities as well as other administrative and corporate overhead expenses 61% increase in Deferred gross profit Due to uncompleted portion of sales recognized for the period 11% increase in Cost of hotel operation Due to expenditures related to high occupancy rate 144% increase in Income tax expenses Mainly due to higher taxable income

25 There are no other material changes in the Group s financial position (5% or more) and condition that will warrant a more detailed discussion. Further, there are no material events and uncertainties known to management that would impact or change reported financial information and condition of the Group. There are no known trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in increasing or decreasing the Group s liquidity in any material way. The Group does not anticipate having any cash flow or liquidity problems. The Group is not in default or breach of any note, loan, lease or other indebtedness or financing arrangement requiring it to make payments. There are no material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Group with unconsolidated entities or other persons created during the reporting period. There are no material commitments for capital expenditures, events or uncertainties that have had or that are reasonably expected to have a material impact on the continuing operations of the Group. There were no seasonal aspects that had a material effect on the financial condition or results of operations of the Group.