financial statements - wpi

8/13/2019 Financial Statements - WPI

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COVER SHEET

A S 0 9 4 - 8 6 7 8

S.E.C. Registration Number

W A T E R F R O N T P H I L I P P I N E S ,

I N C O R P O R A T E D

(Company's Full Name)

I P T B u i l d i n g , P r e - D e p a r t u r e

A r e a , M a c t a n C e b u

I n t e r n a t i o n a l A i r p o r t

L a p u - l a p u C i t y , C e b u(Business Address : No. Street Company / Town / Province)

Ms. Connie Francisco (02) 687-0888

Contact Person Company Telephone Number

A M E N D E D

1 2 3 1 1 7 - Q 2 0 8 1 3

Month Day FORM TYPE Month Day

Annual Meeting

Secondary License Type, If Applicable

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

5 4 1

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.


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17Q2 form

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 June 30, 2011

2. Commission identification numberAS 094-8678

3. BIR Tax Identification NoD80-003-978-254-NV

4. Exact name of issuer as specified in its charter : WATERFRONT PHILIPPINES, INC.

5. PHILIPPINESProvince, country or other jurisdiction of incorporation or organization

6. Industry Classification Code: (SEC Use Only)

7. No.1 Waterfront Drive, Off Salinas Drive, Lahug, Cebu City 6000Address of issuer's principal office Postal Code

8. (032) 232- 6888Issuer's telephone number, including area code

9. NOT APPLICABLEFormer name, former address and former fiscal year, if changed since last report

10. Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 of the RSATitle of each Class Number of shares of common stock outstanding

and amount of debt outstanding

Common Shares- P 1.00 par value Issued- 2,498,991,753

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

Yes [ ] No [ ]

If yes, state the name of such Stock Exchange and the class/es of securities listed therein:

Philippine Stock Exchange Common

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 17thereunder or Sections 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26and 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 [ ] No [ ]

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

Yes [ ] No [ ]


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SEC/PSE 17Q 2nd quarter 2011

PART I--FINANCIAL INFORMATION

Item 1. Financial Statements.

Please refer to Annex A.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of

Operations.

Please refer to Annex B.

PART II--OTHER INFORMATION

NONE.

SIGNATURES

Pursuant to the requirements of the Securities Regulation Code, the issuer has duly caused

this report to be signed on its behalf by the undersigned thereunto duly authorized.

Registrant: Waterfront Philippines, Inc.

Issuer Atty. Arthur R. Ponsaran

Signature and Title __________________

Corporate Secretary

Date 08/09/11

Principal Financial/Accounting Officer/Controller Precilla O. Toriano

Signature and Title ___________________

Compliance Officer/ Director for Finance

Date 08/10/11


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WATERFRONT PHILIPPINES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION-UNAUDITED

CONSOLIDATED

Unaudited Unaudited Audited

June 30, 2011 June 30, 2010 December 31, 2010

CURRENT ASSETS

Cash and Cash Equivalents 76,045,153 60,998,248 92,439,449

Trade and Other Receivables- net 372,078,792 190,212,256 170,434,328

Inventories 31,586,850 28,736,596 33,337,638

Due from affiliated companies -current portion 409,039,525 484,159,079 417,814,459

Prepaid Expenses and Other Current Assets 11,976,774 34,548,066 22,811,864

Total Current Assets 900,727,094 798,654,244 736,837,738

Noncurrent Assets

Receivables from Acesite (BVI) 650,000,000 668,749,901 650,000,000

Due from affiliated companies -noncurrent portion 1,291,914,942 1,099,306,413 1,187,572,697

Property and equipment-net 6,510,520,991 6,774,117,232 6,644,429,682

Available-for-sale Investments 6,156,410 8,671,000 6,156,410

Deferred Tax Assets 99,384,671 52,222,829 219,095,886

Other noncurrent assets 71,591,826 41,041,733 147,066,660

Total Noncurrent Assets 8,629,568,841 8,644,109,109 8,854,321,335

Total Assets 9,530,295,935 9,442,763,353 9,591,159,073

Current Liabilities

Accounts payable and accrued expenses 1,690,057,089 1,150,830,944 1,192,141,009

Loans Payable 1,192,738,776 827,899,100 1,186,779,037

Income tax payable - - 24,837,109

Due to related parties - 3,183,788 -

Other current liabilities 84,905,863 353,313,700 72,647,915

Total Current Liabilities 2,967,701,727 2,335,227,532 2,476,405,070

Noncurrent Liabilities

Loans Payable-noncurrent portion 174,844,656

Deferred tax liabilities 1,163,640,533 1,438,527,935 1,236,820,490

Other noncurrent liabilities 470,697,122 706,015,421 852,849,791

Total Noncurrent Liabilites 1,634,337,655 2,144,543,356 2,264,514,937

Total Liabilites 4,602,039,382 4,479,770,889 4,740,920,007

Equity Attributable to equity Holders of the Parent Company

Capital Stock 2,498,991,753 2,498,991,753 2,498,991,753

APIC 706,364,357 706,364,357 706,364,357

Revaluation increment in property and equipment 1,419,221,018 2,237,373,260 2,157,127,747

Unrealized valuation loss on AFS investments (4,204,901) (2,469,834) (4,204,901)

Foreign currency translation adjustment 38,915,992 48,863,396 38,915,992Retained Earnings

Appropriated 130,000,000 130,000,000 130,000,000

Unappropriated (558,537,571) (1,361,090,326) (1,365,618,717)

Total Stockholders Equity 4,230,750,648 4,258,032,606 4,161,576,231

Non-controlling Interest 697,505,904 704,959,857 688,662,835

Total Liabilities & Stockholders Equity 9,530,295,935 9,442,763,353 9,591,159,073

Page 1

ASSETS

LIABILITIES AND CAPITAL DEFICIENCY


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CONSOLIDATED STATEMENT OF INCOME -UNAUDITED

For the Quarter Ended June 30

CONSOLIDATED


Aprl-Jun 2011 Aprl-Jun 2010 December 31, 2010

REVENUES

Hotel 436,029,426 424,966,880 1,281,610,908

Nonhotel 31,209,245 21,686,696 623,731,681

Interest and other income 6,474,402 2,451,949 25,351,235

Subtotal 473,713,073 449,105,525 1,930,693,824

OPERATING EXPENSES

Hotel 332,295,925 169,567,833 1,213,302,773

Nonhotel 31,779,199 4,193,745 328,373,877

Subtotal 364,075,124 173,761,578 1,541,676,650

INCOME (LOSS) BEFORE FIXED FINANCIAL AND OTHER CHARGES 109,637,949 275,343,947 389,017,174

FIXED, FINANCIAL AND OTHER CHARGES

Depreciation and amortization 63,364,143 59,515,664 314,016,049

Interest Expense 37,257,128 73,951,970 147,422,514

Interest Income 24,496 (74,055,144)

Others (825,976) (6,916,403.00) 67,274,751

Subtotal 99,819,791 126,551,231 454,658,170

INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN

ACCOUNTING POLICY AND INCOME TAX 9,818,158 148,792,716 (65,640,996)

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING POLICY - -

INCOME (LOSS) BEFORE INCOME TAX 9,818,158 148,792,716 (65,640,996)

PROVISION FOR INCOME TAX

Current 263,138 (1,452,453) (13,483,801)

Deferred-

INCOME (LOSS) BEFORE SHARE OF MINORITY INTEREST 9,555,020 150,245,169 (52,157,195)

SHARE OF MINORITY INTEREST 1,226,777 (160,278) (2,785,660)

NET INCOME(LOSS) 8,328,243 150,405,447 (49,371,535)

Other Comprehensive Income

Foreign currency translation differences for foreign operations (10,120,719)

Appraisal increase in property and equiptment for the year -

Net change in fair value of available-for-sale financial assets (2,514,590)

Income tax on other comprehensive income -

Total (12,635,309)

Total Comprehensive Income (Loss) (64,792,504)

EARNINGS (LOSS) PER SHARE 0.003 0.060 (0.020)

*There are no dilutive potential shares as of June 30, 2011 and 2010

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY-UNAUDITED

For thePeriod

Ended June 30



CAPITAL STOCK

Balance, beginning of the period 1,945,934,653 1,945,934,653 2,498,991,753

Issuance of shares 553,057,100 553,057,100 -

Balance, end of period 2,498,991,753 2,498,991,753 2,498,991,753

Additional Paid-in Capital 706,364,357 706,364,357 706,364,357

Revaluation Surplus in Property and Equipment

Balance, beginning of the period 1,419,221,018 2,237,373,260 2,237,373,260

Transfer of revaluation surplus absorbed through

depreciation for the year-net of income tax effect (80,245,513)

Balance. End of the period 1,419,221,018 2,237,373,260 2,157,127,747

Unrealized Valuation Gain (Loss) on AFS Investment

Balance, beginning of the period (4,204,901) (2,469,834) (2,469,834)

Valuation Loss taken into equity during the year (1,735,067)

Balance. End of the period (4,204,901) (2,469,834) (4,204,901)

Foreign Curreny Translation

Balance, beginning of the period 38,915,992 53,703,028 49,036,711

Translation adjustment during the year (4,839,632) (10,120,719)

Balance. End of the period 38,915,992 48,863,396 38,915,992

Deficit

Appropriation for renovation

and business expansion 130,000,000 130,000,000 130,000,000

Unappropriated (620,787,913) (251,016,756) (1,396,492,695)

Balance beginning of the year

Transfer of revaluation surplusabsorbed through depreciation for the year-

net of income tax effect (1,174,955,853) 80,245,513

Change in equity ownership of minority interest in a subsidiary

Net Income (Net Loss) 62,250,341 64,882,283 (49,371,535.00)

Balance, end of period (558,537,572) (1,361,090,326) (1,365,618,717)

Total deficit (428,537,572) (1,231,090,326) (1,235,618,717)

Total Equity Attributable to Equity

Holders of the Parent Company 4,230,750,648 4,258,032,606 4,161,576,231

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CONSOLIDATED


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CONSOLIDATED STATEMENT OF CASH FLOWS-UNAUDITED

For the PeriodEnded June 30



CASH FLOWS FROM OPERATING ACTIVITIES

Income (loss) before income tax 71,399,365 65,299,021 (65,640,996)

Adjustments for:

Depreciation and amortization 135,951,887 123,950,722 314,016,049

Interest expense 78,339,957 128,317,077 147,422,514

Retirement benefit costs 46,066,870Provision for impairment losses on receivable 39,750,916

Unrealized foreign exchange gain (38,915,992) (2,469,834) (38,432,056)

Impairment loss on PPE 216,936

Interest income 21,465 11,721,347 (74,055,144)

Operating income (loss) before working capital changes 246,796,682 326,818,333 369,345,089

Decrease (increase) in:

Receivables 181,866,536 23,176,886 (32,180,259)

Inventories 2,850,254 (7,941,098) 3,340,055

Prepaid expenses and other current assets (22,571,292) 21,130,813 (9,146,066)

Increase (decrease) in:

Accounts payable and accrued expenses 539,226,145 45,831,204 67,173,624

Other current liabilities (268,407,837) 273,579,649 173,628,545

Cash generated from (used in) operations 679,760,488 682,595,787 572,160,988

Interest received 21,465 (11,721,347) 427,993

Income taxes paid - 128,317,077 (28,978,265)

Retirement plan contributions paid (6,500,000) (22,000,000)

Interest paid (11,587,282) (140,694,435)

Net cash provided by (used in) operations 661,694,671 799,191,517 380,916,281

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisitions of property and equipment (81,739,968)

Decrease (increase) in other non-current assets 30,550,093 (217,338,378) (75,676,770)

Net cash provided by (used in) investing activities 30,550,093 (217,338,378) (157,416,738)

CASH FLOWS FROM FINANCING ACTIVITIES

Investments from incorporators

Increase(decrease) in loans payable 364,839,676 (479,969,296) (229,267,457)

Increase (decrease) in due from related parties 117,488,976 (23,176,389) 108,792,450

Increase (decrease) in other non-current liabilities (235,318,299) (38,090,616)

Payment of obligation under finance lease (1,500,000)

Net cash provided by (used in) financing activities 247,010,352 (503,145,685) (160,065,623)

Decrease in translation adjustment for the year (9,947,404) (10,120,719)

Net increase (decrease) in cash and cash equivalents 15,046,905 21,872,000 53,313,201

Cash and cash equivalents at beginning of year 60,998,248 39,126,248 39,126,248

Cash and cash equivalents at end of year 76,045,153 60,998,248 92,439,449

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CONSOLIDATED


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17Q-2nd quarter 2011

6

WATERFRONT PHILIPPINES, INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Organization and Status of the Business

Corporate InformationWaterfront Philippines, Incorporated (the Parent Company) was incorporated in the Philippines,

and registered with the Philippine Securities and Exchange Commission (SEC) on September 23, 1994.WPI is 46%-owned by The Wellex Group, Inc. (TWGI) and is listed in the Philippine StockExchange (PSE). It holds equity interest in hotels and resorts, a fitness gym, entities engaged in theinternational marketing and promotion of casinos, manufacturing of pastries, hotel management andoperations.

The Parent Company and the following subsidiaries were incorporated in the Philippines, except forWaterfront Promotion Ltd (WPL) and Club Waterfront Limited (CWIL), which were registered in theCayman Islands. The details of the equity interest of the Parent Company are shown below:

Percentage of Ownership

Direct Indirect

Hotels and resorts:

Waterfront Cebu City Casino Hotel, Inc. (WCCCHI) 100 -

Waterfront Mactan Casino Hotel, Inc. (WMCHI) 100 -

Davao Insular Hotel Company, Inc. (DIHCI) 98 -

Acesite (Philis.) Hotel Corporation (APHC) 69 -

Grand Ilocandia Resort and Development, Inc. (GIRDI) 54 -

Fitness gym:

W Citigyms & Wellness, Inc. (W Citigym) 100 -

International marketing and promotion of casinos:

Waterfront Promotion Ltd. (WPL) 100 -

Mayo Bonanza, Inc. (MBI) 100 -

Club Waterfront International Limited (CWIL) - 100

Pastries manufacturing:

Waterfront Food Concepts, Inc. (WFC) 100

Hotel management and operation:

Waterfront Management Corprotion (WMC) 100 -

Hotels

WCCCHI was incorporated on September 23, 1994 to manage and undertake the operations of

Waterfront Cebu City Hotel and Casino. WCCCHIs facilities include an international conventioncenter, an international casino building and a 561-room deluxe hotel at the former Lahug Airport,Cebu City. It started commercial operations in January 1998.

In 2005, WCCCHI renovated its Business Center and some of its restaurants to improve the deliveryof services to its customers.

In 2006, WCCHI completed Phase II of its renovation program of Bigger, Better, Newer Rooms. Newrooms categories were introduced in the process: 157 Superior Rooms, 165 Deluxe Rooms, 16 newJunior Suites, 29 new Executive Suites, 3 new Bridal Suites and 4 new Family Suites. Much of therenovation designs were executed by Antonio G. Mendoza , of J. Antonio Mendoza Architects Manila.


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The renovation program was undertaken in line with the Companys participation in the preparationsfor the recently concluded ASEAN Summit last January 2007 in Cebu City wherein WCCHC took careof the accommodations of the leaders and delegates from Brunei, East Timor, Republic of Korea andFrance. In addition, WCCH hotel food outlets were also upgraded for refurbished, the most recent ofwhich was the newly reopened restaurant bar and lounge, Treff. Previous to that were UNO, the hotelcoffee shop, and Mizu, its Japanese restaurant.

WMCHI was incorporated on September 23, 1994 to manage and undertake the operations ofWaterfront Mactan Island Hotel and Casino. Located right across the Mactan Cebu InternationalAirport, it features 164 rooms and suites, 4 food-and-beverage outlets and a Casino Filipino facility.WAHC has the advantage of proximity to the Mactan International Airport. It has the largest numberof rooms among airport hotels. WMIHC has made Cebu the only city in Southeast Asia that offerscasino facilities to transients while waiting for their flights.

It has recently improved its rooms by installing fax machines and Internet connections to cater to theneeds of its guests. Additionally, the company has acquired the newest hospitality software in theindustry, the OPERA Property Management System, which is designed to help run the hoteloperations at a greater level of productivity and profitability. This was installed last January 14, 2003.

DIHCIwas incorporated on July 3, 1959 and is currently operating under its trade name WaterfrontInsular Hotel Davao. In December 2000, DIHCI temporarily stopped its operations to undergo majorrehabilitation. It reopened in June 2001.

APHCwas incorporated on October 10, 1952 and commenced commercial operations in March 1968.On February 17, 2003, the Parent Company acquired 74,889,231 shares or 69% of the issued andoutstanding capital stock of APHC.

The principal property of the Company is a 22-storey building known as the Manila Pavilion Hotellocated at the corner of United Nations Avenue and Maria Y. Orosa Street in Ermita, Manila. TheHotel has 502 rooms and suites that have individually controlled central air conditioning, privatebathroom with bathtub and shower, multi-channel radio, color TV with cable channels andtelecommunications facilities. The hotel has 5 food and beverage outlets, such as Seasons Caf (coffeeshop), the Rotisserie (grill room), the Peony Garden (Chinese restaurant), the Boulvar (bar & lounge)and the Patisserie (bakeshop and deli items). Other guest services and facilities include a chapel,swimming pool, gym, business center and a valet-service basement carpark. Concessionaires andtenants include beauty salon, foot spa, photography services, transportation services, travel agency,

flower shop and boutiques. In addition, Casino Filipino Pavilion, owned and operated by PAGCOR,occupies part of the first, second, third, fourth and fifth floors (a total of 12,696.17 sq. m.) of thebuilding.

In 2005, APHC invested heavily in the renovations of its rooms and facilities and expects to increaseits occupancy rate and profit.

GIRDIwas incorporated on December 18, 1990 to engage in the hotel and resort business.

In November 2000, all of the property and equipment of GIRDI, including the hotel facilities andother operating assets, as well as its investment in marketable securities, were transferred to a thirdparty. With this transfer, GIRDI ceased its involvement in the hotel and resort business.Management is currently looking for new business opportunities for GIRDI and intends to continueoperating GIRDI as a going concern entity.

MBI,Mayo Bonanza, a wholly-owned subsidiary of Waterfront Philippines, Incorporated (WPI) wasregistered with the Securities and Exchange Commission on November 24, 1995. Its primary purposeis to establish, operate, and manage the business of amusement entertainment, and recreationfacilities for the use of the paying public. The Company entered into an agreement with thePhilippine Amusement and Gaming Corporation (PAGCOR) whereby the latter shall operate theformers slot machine outside of casinos in line with PAGCORs slot machine arcade project.

In 2003, the company has been temporarily laid inoperative in response to a general slow down in theeconomy, but restores its operations on February 12, 2008.


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WPL, CWIL On March 23, 1995, WPL became a wholly-owned subsidiary following its acquisition bythe Company from Waterfront Amusement and Gaming Limited. WPL and its wholly-ownedsubsidiary, CWIL were primarily established for the international marketing and promotion of hotelsand casinos. In 2003, these companies have been temporarily laid inoperative in response to a generalslow down in the economy. Management, however, commits to resume operations when betterbusiness opportunities present themselves in the future.

W Citigym & Wellness, Inc. was incorporated and registered with the Securities and ExchangeCommission on January 26, 2006, to engage in, conduct and carry on the general business of sportingand other recreational activities. The facilities of W Citigym include a fitness gym with the top-of-theline equipments and amenities. The Company also offers in-house massage for guests staying inWaterfront Cebu City Casino Hotel, Inc.

Waterfront Food Concepts was incorporated and registered with the Securities and ExchangeCommission on January 26, 2004, to engage in the operation of restaurants and food outlets,manufacture, baked and unbaked desserts, breads and pastries supplies to in-store bakeries, coffeeshops and food service channels. WFC supplies the pastries and desserts offered by WCCHI andWMCHI food outlets, as well as its local customers.

WMC was registered with the Securities and Exchange Commission on March 31, 2003 to engage inthe management and operation of hotels, except management of funds, portfolios, securities, andother similar assets of the managed entity. In November 2006, WMC started its commercialoperations by managing the hotel operations of G-hotel, a 50-room, 800 square boutique hotel in

Manila stylishly appointed in chic, modern minimalism that offers class and cozy comfort to the highend market. It is conveniently situated along bustling Roxas Boulevard.

WEC, was registered with the Securities and Exchange Commission on August 13, 2003 andsuccessfully established the countrys first ever integrated hotel reservations and booking systemfeaturing a full-service, round-the-clock, 7 days a week Central Reservation Office last October 2009.This service ranges from systems and solutions specializing in the operations hotel framework. Itoffers specialize hotel consultancy services to hotel owners, operators, brands, developers, lendersand investors with the support of hand-picked networks of experts covering all elements of the hotelor hospitality business within a global perspective.

Principles of ConsolidationThe consolidated financial statements include the accounts of the Parent Company, as well as those of

its subsidiaries enumerated in Note 1. Subsidiaries are those companies in which the Group, directlyor indirectly, has an interest of more than half of the voting rights or otherwise has the power toexercise control over the operations of these companies. All subsidiaries have been fully consolidated.Subsidiaries are consolidated from the date on which effective control is transferred to the Group andare no longer consolidated from the date of disposal. All significant inter-company balances andtransactions have been eliminated in the consolidated financial statements.

The consolidated financial statements are prepared using uniform accounting policies for liketransactions and other events in similar circumstances.

Segment ReportingAn operating segment is a component of the Group that engages in business activities from which itmay earn revenues and incur expenses, including revenues and expense that relate to transactions

with any of the Groups other components. All operating results are reviewed regularly by theGroups BOD, the chief operating decision maker (CODM) of the Group, to make decisions aboutresources to be allocated to the segment and to assess its performance, and for which discretefinancial information is available. Segment results that are reported to the Groups BOD include itemsdirectly attributable to a segment as well as those that can be allocated on a reasonable basis.Unallocated items comprise mainly corporate assets, head office expenses and income tax assts andliabilities.

Segment capital expenditure is the total cost incurred during the year to acquire property andequipment.


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The Groups businesses are operated and organized according to the nature of business provided,with each segment representing a strategic business unit, namely the Hotel and Marketing operationssegments.

The Groups only reportable geographical segment is the Philippines.

Revenue RecognitionRevenue is recognized to the extent that it is probable that the economic benefits will flow to theGroup and the revenue can be reliably measured. The following specific recognition criteria must bemet before revenue is recognized:

RoomsRoom revenue is recognized based on actual occupancy.

Food and BeverageFood and beverage revenue is recognized when orders are served.

Rent and Related IncomeRent and related income on leased areas of the Group is accounted for on a straight-line basis over theterm of the lease, except for cancellable leases which are recognized at amount collected or collectiblebased on the contract provision.

Other Operating Departments

Revenue from other operating departments is recognized upon execution of service or as contracted.

Interest IncomeInterest income is recognized as it accrues using the effective interest method.

Earnings (Loss) Per ShareEarnings (loss) per share (EPS) is determined by dividing net income or loss for the year by theweighted average number of common shares subscribed and issued during the year, after retroactiveadjustment for any stock dividend declared during the year. Diluted EPS is computed in the samemanner as the aforementioned, except that all outstanding convertible preferred shares were furtherassumed to have been converted to common stock at the beginning of the period or at the time ofissuance during the year.

1. Cash and Cash EquivalentsIncluded in cash and cash equivalents as of June 30, 2011 are composed mainly of cash deposited atvarious banks and short-term placements that earn an annual interest of 2% with an average maturitydate of 30 days.

2. ReceivablesThis account consists:

June 2011 June 2010

Trade 147,545,277 163,170,668Others 251,547,699 65.637,889

399,092,976 228,808,557

Less allowance for doubtful accounts(27,014,184) (38,596,301)Total 372,078,792 190,212,256

3. InventoriesThis account consists of:

June 2011 June 2010

Food and Beverage 15,980,033 15,092,687Operating Supplies 12,403,531 11,098,385Others 3,203,286 2,545,524Total 31,586,850 28,736,596


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4. Related Party TransactionsIn 2010, the Parent Company extended interest-bearing, collateral free advances to MAHEC, TWIGIand FORUM at a rate of two percent (2%) per annum.

In the ordinary course of business, companies with in the group extend/obtain non interest bearing,collateral free cash advances to/from one another and other related parties to finance working capitalrequirements, as well as to finance the construction of certain hotel projects except to TWGI, Forumand MAHEC, which bear interest at 2% per annum.

For this year the parent company accepted an offer from TWGI and FHC whereby the latter partieswould settle their obligation by a series of term payment from 2011-2015, and recorded as part of thenon-current portion of the due from related parties.

The receivables from TWGI, MAHEC and FHC are unconditionally recognized and will be paid bythe related parties as represented by the major stockholders of the said affiliates.

5. Accounts Payable and Accrued ExpensesThis account consists of:

June 2011 June 2010

Trade 319,337,187 219,590,802

Accrued Expenses 958,976,458 760,572,589Others 411,743,445 170,667,553Total 1,690,057,089 1,150,830,944

6. Loans PayableThis account consists of:

COSCO LoanOn February 11, 2010, the Parent Company paid the agreed amount of the partial payment amountingP400 million to COSCO. The balance of the principal in the sum of P 426,487,513 plus compensationfor the use of money and interest thereon, shall be paid in installments beginning March 19, 2010ending February 12, 2012 in accordance with the payment schedule agreed by the parties. Theborrowers shall issue and deliver postdated checks in payment of the installments. The borrowers

bind themselves that should the capital stock of WMCHI AND WCCHI be increased, so much of theincrease number shares shall be pledged to the Assignee as to maintain the latters security and proxyrights always at 60% of the outstanding capital stock as previously agreed.

As of June 30, 2011, the outstanding principal COSCO loan was fully paid.

SSS LoanOn October 28, 1999, the Parent Company also obtained a five-year term loan from SSS amounting toP375 million originally due on October 29, 2004. The SSS loan bears interest at the prevailing marketrate plus 3% or 14.5% per annum, whichever is higher. Interest is re-priced annually and is payablesemi-annually. Initial interest payments are due 180 days from the date of the release of the proceedsof the loan. The repayment of the principal shall be based on eight (8) semi-annual payments, after aone-year grace period.

The SSS loan was availed of to finance the completion of the facilities of WCCCHI. It was secured bya first mortgage over parcels of land owned by WII, a related party, and by the assignment of 200million common shares of the Parent Company owned by TWGI. The common shares assigned wereplaced in escrow in the possession of an independent custodian mutually agreed upon by both partiesof an independent custodian mutually agreed upon by both parties.

Presently, the Parent Company and SSS are locked in negotiations for the restructuring of the loan.However, with the change in management of SSS, The Parent Company plans to activate theproposed restructuring of the said loan which includes the condonation of interest and penalties. TheParent believes that it will be able to restructure the said loan.


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In the absence of a formal restructuring agreement, the entire outstanding principal loan balanceamounting to P375 million and accrued interest and penalties of P506.8 million and P447.6 million,respectively, have been classified as current liabilities as of December 31, 2010 and 2009 in theconsolidated statements of financial position.

ICBC LoanThe Company had committed an event of default with respect to the payment of its US$15 millionloan with the ICBC Singapore Branch, which matured on 31 March 1998. On 03 June 2003, the loanwas restructured by ICBC which stipulated six semi-annual installments payment of principal andinterest until April 2006. In July 2004, the new management of the Company requested for a reprieveon loan principal payments due for the period, which the Company suggested to be placed at the endof the term of the Amended Agreement. The outstanding principal balance as of 30 June 2010 isUS$8.430 million. On April 8, 2010, the company paid US$50,000 on the principal. As of the date ofthis report, management is still negotiating with ICBC for the rescheduling of payments of theCompanys overdue loan principal installments totaling US$8.38 million. In the absence of ICBCsformal agreement to the proposed restructuring, the entire balance of the loan has been classified as acurrent liability in the Companys statements of financial position as of December 31, 2010, 2009 and2008.

PBBIn February 10, 2010, the Hotel entered into a term loan agreement with Philippine Business Bank(PBB) amounting to P300 million for the purpose of securing additional working capital. The loan

matures in two (2) years, inclusive of three (3) month grace period on principal payments. The loanshall bear an interest at 12% per annum, net of gross receipts tax (GRT). The loan is secured by theassignment of rental payments from the Philippine Amusement and Gaming Corporation (PAGCOR)on the leases of the Hotel and Manila Pavillon Hotel, plus Real Estate Mortgage on the Hotel buildingand other improvements that comprise the Hotel. Subsequently, all the proceeds of the loan wereadvanced to WPI.

As of June 30, 2011, the outstanding balance of loan from PBB amounted to P151,428,571.42.

7. The earnings (loss) per share is computed as follows:

June 2011 June 2010

Net Income (Loss) 62,250,341 64,882,283Weighted Average Number of SharesOutstanding 2,498,991,753 2,498,991,753

Earnings (Loss) per share 0.025 0.026

There are no dilutive potential shares as of June 30, 2011 and 2010.

8. Lease Agreement with Philippine Amusement and Gaming Corporation (PAGCOR)

On December 1, 2010, PAGCOR and APHC amended the lease contract, otherwise known as theOmnibus Amended Lease Contract (OALC) extending the lease term and expanding the lease area.The OALC shall cover the Main Area (7,093.05 sq. m.), Expansion Area A (2,130.36 sq. m.), ExpansionArea B (3,069.92 sq. m.) and Air Handling Unit (AHU) Area (402.84 sq. m.) for a total lease area of

12,696.17 square meters. The lease agreement is until December 16, 2016.

The monthly rent to be applied on the leased areas are as follows: Main Area shall be P2,621.78 persquare meter, Expansion Area A shall be P1,248.47 per square meter, Expansion Area B shall beP1,600 per square meter and the AHU Area shall be free of rent. Annual escalation rate of 5% shall beapplied on the third and fourth year of the lease. The Amended Lease Contract is until December 30,2016, and may be renewed, in accordance with the law, at the option of the Lessee under such termsand conditions as may be agreed upon by the parties.

On March 21, 2011, WCCCHI and WMCHI renewed their respective Lease Contracts with PAGCOR,in order to consolidate, simplify, reconcile and update the terms and conditions of the contract of


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lease and its amendments. The Lease Contract shall cover a total area of 13,677.08 sq. m., forWCCCHI, particularly described as follows: Main Area 8,123 sq. m., Slot Machine Expansion Area883.38 sq. m., Mezzanine 2,335 sq. m., 5thFloor Junket Area 2,336 sq. m. The monthly rent for eacharea is P1, 772.96 per sq. m., and for the 5thFloor Junket Area the rent is free for a period of one (1)year from the execution of the Lease Contract. In the event that the lease over the 5 thFloor JunketArea is continued by the Lessee, the parties shall agree on the monthly rent and the duration of thelease for the said area.

For WMCHI the Lease Contract shall cover a total area of 5,152.24 sq. m consisting of Main CasinoArea of 4,076.24 sq. m., and a Chip Washing Area of 1,076 sq. m. The monthly rent for the MainCasino Area is P 1,772.96 per sq. m. and for the Chip Washing Area is P1,688.53 per sq. m.

The monthly rent for the Leased Premises is Value Added Tax (Vat) exclusive, zero-ratedtransactions. Starting on January 3, 2013 and every year thereafter, the monthly rent for the MainArea, Slot Machine Expansion Area, Mezzanine, Main Casino Area and the Chip Washing Area forboth WCCCHI and WMCHI, shall be adjusted by five (5%) on year after the lease thereon iscontinued by the Lessee and every year thereafter. The Lease Contracts for both WCCCHI andWMCHI is until August 2, 2016, and may be renewed, in accordance with the law, at the option of theLessee under such terms and conditions as may be agreed upon by the parties.

9. Other Lease Agreements

Land under Operating Lease

On September 15, 1994, Waterfront Hotel and Resort Sdn. Bhd. (WHR), a former related party,executed a lease contract with Mactan Cebu International Airport Authority (MCIAA) for the lease ofcertain parcels of land where the hotels were constructed. On October 14, 1994, WHR assigned itsrights and obligations on the MCIAA contracts to WCCCHI and WMCHI.

WCCCHI and WMCHI shall pay MCIAA fixed rentals per month plus a 2% variable rent based onthe annual gross revenues of WCCCHI and WMCHI, as defined in the agreements. The leases are fora period of 50 years, subject to automatic renewal for another 25 years, depending on the provisionsof the applicable Philippine laws at the time of renewal.

Land under Finance LeaseIn January 1989, APHC executed a Deed of Assignment with CIMAR assigning to the latter the rightto purchase the land on which APHCs hotel building is situated, from Government Service Insurance

System (GSIS) under certain conditions which will allow APHC to lease back the land. Subsequently,CIMAR acquired and paid the purchase price of the land to GSIS. Correspondingly, on January 17,1989, a contract of lease for the land was executed between APHC and CIMAR for a period of ten (10)years with an annual rental of about P1.3 million. Moreover, APHC has the unconditional andirrevocable right to purchase the land from CIMAR and assign its rights to repurchase the land to anythird party at any time during the term of the lease. In May 1989, the contract was amendedextending the period of the lease to twenty-five (25) years and increasing the annual rental to aboutP6.1 million.

In view of the nature of the lease and related contracts, the lease has been classified as a finance leaseas repurchase of the land can be exercised anytime during the period of the lease. Accordingly, theGroup recognized the capitalized asset and related liability of P25 million (equivalent to the purchaseoption price and also the minimum lease payment) in the Groups consolidated statements of

financial position under Land under finance lease and part of Other noncurrent liabilitiesaccounts, respectively. Accruals of interest expense to CIMAR until the purchase option is exercisedare recognized in profit or loss as part of Interest expense account.

On September 22, 2004, the legal counsel of CIMAR sent a demand letter to APHC enforcing paymentof unpaid rentals amounting to about P23.0 million as of the date and threatening to terminate thelease contract.

In September 2005, CIMAR formally filed a case in court ordering APHC to vacate the premiseswhere its hotel is situated and ordering APHC to pay the unpaid rentals and related interest. CIMARclaims that, as of the date of filing of the case, APHC failed to pay rentals and interest with an


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aggregate amount of P29.2 million.

In October 2005, APHC filed its answer in the court, claiming beneficial ownership over the landpursuant to an implied trust; i.e., the right to purchase the property was originally assigned toCIMAR, a corporation created by APHC. In January 2006, APHC filed a case for reconveyance of theland based on APHCs defense in its October 2005 filing. In December 2006, the Manila Regional TrialCourt denied CIMARs motion to dismiss APHCs claims.

The contract of lease between APHC and CIMAR stipulates that the said contract shall remain in fullforce and effect unless otherwise revoked or amended in writing by both parties, and, accordingly, inthe opinion of APHCs management and its legal counsel, the finance lease cannot be terminatedunilaterally. As of December 31, 2010 and 2009, total unpaid liabilities and penalty interests due toCIMAR amounted to P63.1 million and P57.3 million, respectively, shown as part of Other currentliabilities account in the consolidated statements of financial position. The Group continues to accruefor liabilities to CIMAR based on the existing contract pending the resolution of the reconveyancecase.

In 2009, the land under finance lease was determined by an independent appraiser to have a marketvalue of P585 million, which is taken up in the consolidated financial statements of the Group as partof appraisal increase.

As of the date of this report, APHC has filed a motion for issuance of temporary restraining orderand/or writ of preliminary injunction seeking to enjoin the Metropolitan Trial Court from continuingwith its hearing on the ejectment case filed by CIMAR. Moreover, APHC has initiated discussionswith CIMAR for the possible amicable settlement of this matter.

Equipment under Finance LeaseDIHCI leased a certain equipment for a monthly fee of P125,000 starting November 2005 for 10 yearsfrom Edward Marcs Philippines, Inc. (EMPI). At the end of the 10-year lease period, EMPI shalltransfer to DIHCI, free from any lien or encumbrance created by EMPI and without any payment ofany compensation, all its rights, title and interest in and to the equipment.

10. Commitments and Contingencies

The following are the significant commitments and contingencies involving the Group:

On April 10, 2007, the Parent Company received a demand letter with notice of assessment from theBIR for deficiency taxes for the taxable year 2003 totaling P18.67 million, inclusive of related interestand penalties. On May 9, 2007, the Parent Company sent a letter to the BIR contesting the saidassessment. Management and its legal counsel believe that the position of the Parent Company issustainable, and accordingly believe that the Parent Company does not have a present obligation(legal or constructive) with respect to such assessment. On May 22, 2007, BIR answered in anotherletter that it maintains its position that the Parent Company has tax deficiencies. On October 10, 2007,the Parent Company again sent a letter to the BIR contesting the assessment. On February 13, 2009,the BIR sent a final demand letter requesting payment for the deficiency taxes. As of April 6, 2009, thesaid assessment is pending final resolution by the Parent Company and BIR. Management and itslegal counsel also believe that the Parent Company does not have a present obligation (legal orconstructive) with respect to such assessment.

The information usually required of contingent liabilities by PAS 37, Provisions, Contingent Liabilities,and Contingent Assets, is not disclosed on the grounds that it can be expected to prejudice seriously theoutcome of the final assessment.

On November 10, 2008, the Parent Company received a preliminary assessment notice from the BIRfor deficiency taxes for the taxable year 2006 totaling P305.9 million, inclusive of interest andpenalties. On February 9, 2009, the Parent Company sent a protest letter to BIR contesting the saidassessment. Management and its legal counsel believe that the position of Parent Company issustainable, and accordingly, believe that the Parent Company does not have a present obligation(legal or constructive) with respect to such assessment. On February 18, 2009, the Regional Office ofthe BIR sent a letter to the Parent Company informing the latter that the docket was returned to


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Revenue District Office for reinvestigation and further verification

The information usually required of contingent liabilities by PAS 37, Provisions, ContingentLiabilities, and Contingent Assets, is not disclosed on the grounds that it can be expected to prejudiceseriously the outcome of the final assessment.

On July 13, 2007, APHC received a demand letter with notice of assessment from Manilas TreasurersOffice for deficiency business tax for the years 2004 to 2006 totaling P45.6 million, arising principallyfrom alleged under declaration of revenues. On September 7, 2007, APHC sent a letter to the ManilaCity Treasurer indicating that the under declaration of revenue represents income derived fromservices provided by Hotel in connection with the operation of PAGCOR, thereby, subject to taxexemption

On September 10, 2007, the Manila City Treasurer answered in another letter that it maintains itsposition that APHC has business tax deficiency on the basis that the tax exemption privilegesextended to APHC under PD 1869 have been withdrawn by the passage of the Local GovernmentCode. On October 15, 2007, APHC filed a new petition before the RTC of Manila contesting the localtax assessment.

On December 4, 2007, APHC received the Sheriffs Return dated November 23, 2007 that the originalcopy of the Summons was duly served.

On July 30, 2010, the parties were directed by the court to file their respective Memorandaconsidering that only questions of law were involved. On September 15, 2010, both parties filed theirrespective Memorandum.

On a court decision dated December 7, 2010, the appeal filed by APHC was dismissed for lack ofmerit. Subsequently, the Company filed a motion for reconsideration.

As of the date of the report, the said assessment is pending action of the court on the motion forreconsideration filed by APHC. The APHCs Management and its legal counsel also believe that theAPHC does not have a present obligation (legal or constructive) with respect to such assessment

In the normal course of business, the Group enters into commitments and encounters certaincontingencies, which include a case against a contractor of one of its hotels for specific performance.Management believes that the losses, if any, that may arise from these commitments and

contingencies would not be material to warrant additional adjustment or disclosure to theconsolidated financial statements.

Also, the Group is defendant in other legal cases which are still pending resolution. Management andlegal counsel believe that the outcome of these cases will not have any material effect on the Groupsfinancial position and operating results.


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MANAGEMENT DISCUSSION AND ANALYSISOF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

Below are the results of operations of the Parent Company and its subsidiaries, for the period endingJune 30, 2011 and 2010 together with its financial conditions as of the same period?

RESULTS OF OPERATIONS

June 2011 June 2010

Revenues 983,737,569.81 958,759,890

Less: Costs and Expenses 698,850,871.59 646,248,997

Net Income (Loss) Before Fixed Financial and OtherCharges

284,886,698.22 312,510,893

Fixed Financial and Other Charges (Depn andAmortn, and Interest)

213,487,333.25 247,211,872

Income (Loss) before Income Tax71,399,364.97 65,299,021

Income Tax Expense ( Benefit) 263,138 145,618Income (Loss) before Share in Minority Interest 71,136,226.97 65,153,403

Share of Minority Interest 8,885,885.51 271,120

Net Income (Loss) 62,250,341.46 64,882,283

Earnings (loss) Per share 0.025 0.026

FINANCIAL CONDITION

June 2011 June 2010

Assets

Current assets 900,727,094 798,654,244

Non-current Assets 8,629,568,841 8,644,109,109

Total Assets 9,530,295,935 9,442,763,353

Liabilities and Stockholders Equity

Current Liabilities 2,967,701,727 2,335,227,532

Non-current Liabilities 1,634,337,655 2,144,543,356

Total Stockholders Equity 4,230,750,648 4,258,032,606

Minority Interest 697,505,904 704,959,857

Total Liabilities and Stockholders Equity 9,530,295,935 9,442,763,353


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purchasing policy, the company was able to secure contracts and services and procure supplies onfavorable terms and prices.

Loans PayableThis account increase by 44%, the increase was due to the additional loan acquired from PhilippineBusiness Bank. This account represents loan from Social Security System, Philippine Business Bankand from Industrial Commercial Bank of China Singapore Branch.

Financial Risk Management

The Groups principal financial instruments comprise of cash and cash equivalents, receivables, duefrom related parties, AFS investments, receivables from Acesite Limited (BVI), accounts payable andaccrued expenses, other current liabilities, due to related parties, loans payable, and other noncurrentliabilities. The main purpose of these financial instruments is to raise finances for the Groupsoperations. The main risks arising from the financial instruments of the Group are credit risk,liquidity risk and market risk. The Groups management reviews and approves policies for managingeach of these risks and they are summarized as follows:

Credit RiskCredit risk is the risk of financial loss to the Group if a customer or counterparty to a financialinstrument fails to meet its contractual obligations, and arises principally from the Groups trade andnon-trade receivables. The Group trades only with recognized, creditworthy third parties. It is theGroups policy that all customers who wish to trade on credit terms are subject to credit verification

procedures. In addition, receivable balances are monitored on an ongoing basis with the result thatthe Groups exposure to bad debts is not significant.

With respect to credit risk from other financial assets of the Group, which mainly comprise of duefrom related parties and receivables from Acesite Limited (BVI), the exposure of the Group to creditrisk arises from the default of the counterparty, with a maximum exposure equal to the carryingamount of these instruments. Other than the receivables from Acesite Limited (BVI) and certainreceivables and due from related parties which were provided with an allowance for impairmentlosses, there is no other significant concentration of credit risk in the Group.

Liquidity RiskLiquidity risk is the risk that the Group will not be able to meet its financial obligations as they falldue. The Group monitors and maintains a level of cash deemed adequate by the management to

finance the Groups operation and mitigate the effects of fluctuations in cash flows. Additional shortterm funding is obtained thru related party advances and from bank loans, when necessary. Ultimateresponsibility for liquidity risk management rests with the BOD, which has established anappropriate liquidity risk management framework for the management of the Groups short, mediumand long-term funding and liquidity management requirements. The Group manages liquidity riskby maintaining adequate reserves, by continuously monitoring forecast and actual cash flows andmatching the maturity profiles of financial assets and liabilities. For the Groups short-term funding,the Groups policy is to ensure that there are sufficient working capital inflows to match repaymentsof short-term debt.

Market RiskMarket risk is the risk that the fair value or cash flows of a financial instrument of the Group willfluctuate due to change in market prices. Market risk reflects interest rate risk, currency risk and otherprice risks.

Interest Rate RiskCash flow interest rate risk is the risk that the future cash flow of the financial instruments willfluctuate because of the changes in market interest rates. Fair value interest rate risk is the risk thatthe fair value of a financial instrument will fluctuate due to changes in market interest rates.


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WATERFRONT PHILIPPINES, INCORPORATED & SUBSIDIARIES

SCHEDULE OF AGING OF ACCOUNTS RECEIVABLE

As of June 30, 2011

0-30 days 31-60 days 61-90 days 91-120 days 121 days over TOTAL

Trade Receivables

Waterfront Cebu City Hotel & Casino 11,332,834.70 4,656,731.92 843,174.01 125,069.73 6,049,396.75 23,007,207.11

Waterfront Airport Hotel & Casino 8,308,775.27 1,268,783.34 594,285.13 190,967.58 3,375,088.85 13,737,900.17

Waterfront Insular Hotel Davao 4,227,033.87 2,829,073.59 1,915,004.46 2,482,186.76 2,454,165.17 13,907,463.85

Manila Pavilion Hotel 20,916,578.96 4,171,479.21 778,699.87 530,686.23 10,605,317.45 37,002,761.72

G-Hotel 1,747,321.96 802,128.06 1,005,808.10 672,898.72 815,263.50 5,043,420.34

Total 46,532,544.76 13,728,196.12 5,136,971.57 4,001,809.02 23,299,231.72 92,698,753.19

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