Translation Of Financial Statements Originally Issued In .

Translation of financial statements originally issued in SpanishPanama Canal AuthorityIndependent Auditors’ ReportFinancial statementsSeptember 30, 2009Deloitte – Panama

Panama Canal AuthorityIndependent Auditors’ Report andFinancial Statements September 30, 2009ContentPagesIndependent Auditors’ Report1Balance sheet2Income statement3Statement of changes in equity4Statement of cash flows5Notes to financial statements6-38

Panama Canal AuthorityBalance sheetSeptember 30, 2009(In thousands of balboas)NotesAssetsNon-current assets:Properties, plant and equipment, netCurrent assets:Cash, cash equivalents, and bank depositsInvestment securities (held to maturity)Hedge instrumentAccounts receivableInventories, netAccrued interest receivable and other assets2,679,0672,438,71056, 55,334,7854,659,716Total assetsTotal equityCurrent liabilities:Accounts payableProvision for marine accident claimsAccrued salaries and vacation payableOther liabilities1213Total current liabilitiesTotal equity and liabilitiesThe accompanying notes are an integral part of these financial statements.-2-20084, 16Total current assetsEquity and liabilitiesEquity:Contributed capitalRetained earnings:ReservedUnappropriatedAdjustment for hedge instrument valuation2009

Panama Canal AuthorityIncome statementFor the year ended September 30, 2009(In thousands of balboas)NotesRevenues:Toll revenuesOther Canal transit servicesOther revenues:Electric power salesPotable water salesInterest incomeMiscellaneous17Total other revenuesTotal revenuesExpenses:Salaries and wagesEmployee benefitsMaterials and suppliesFuelTransportation and allowancesContracted services and feesInsuranceProvision for marine accidentsProvision for obsolete inventoryOther expenses139Capitalized labor and materials14Total expensesIncome before fees and 3,1721,426,6271,453,873Fees per net tonPanamanian Treasury (Tesoro Nacional) public service 0)(1,874)(68,503)Net income151,006,913The accompanying notes are an integral part of these financial statements.-3-1,028,462

Panama Canal AuthorityStatement of changes in equityFor the year ended September 30, 2009(In thousands of balboas)Retained EarningsNotesBalance as of September 30, 2007Transfer to Panamanian 904,9681,475,151----11Net incomeAdjustmentfor ons to the investment program10-579,032(579,032)--Increase in equity ,852-4,408,58111--(343,852)-(343,852)Net incomeCash flow hedge7--Contributions to the investment program10-507,868Increase in equity reserves10-64,9251,904,9682,732,554Balance as of September 30, 2008Transfer to Panamanian TreasuryBalance as of September 30, 2009The accompanying notes are an integral part of these financial 8)--(64,925)--6,4785,078,120434,120

Panama Canal AuthorityStatement of cash flowsFor the year ended September 30, 2009(In thousands of balboas)NotesCash flows from operating activities:Net incomeAdjustments for:DepreciationLoss on disposal of fixed assetProvision for obsolete inventoryProvision for marine accidentsSeverance payableChanges in operating assets and liabilities:Accounts receivableInventoriesAccrued interest receivable and other assetsCurrent liabilities20091,006,913491317Net cash provided by operating activities67Net cash used in investing activitiesCash flows from financing activities:Transfer to Panamanian 5)3,77247,1571,093,286Cash flows from investing activities:Net increase of fixed assetNet decrease (increase) in investmentsNet increase in time deposits, over 90 daysHedge 1)(343,852)(486,414)Net (decrease) increase in cash and cash equivalents(38,433)Cash and cash equivalents at beginning of the year250,658242,479212,225250,658(1,440)(2,323)Cash and cash equivalents at end of the year5Investing activities that did not represent cashoutflowsFixed assets - capitalized depreciation4, 14The accompanying notes are an integral part of these financial statements.-5-8,179

Panama Canal AuthorityNotes to financial statementsSeptember 30, 2009(In thousands of balboas)1.General InformationThe Panama Canal Authority (PCA) is an autonomous agency of the Government ofPanama, established in conformity with Article 316 of the Political Constitution of theRepublic of Panama. The PCA is responsible for the administration, operation,conservation, maintenance, modernization, and other related activities of the Panama Canal(the Canal), that are necessary to ensure the safe, uninterrupted, efficient and profitableoperation of the Canal in accordance with the constitutional and legal regulations in effect.The PCA has its own patrimony and the right to manage it. The PCA was organized onJune 11, 1997 under Law No.19 (Organic Law).The PCA, in coordination with government entities designated by law, is also responsiblefor the management, maintenance, use and conservation of the water resources of the Canalwatershed, including lakes and their tributary streams.With the expiration of the 1977 Torrijos-Carter Treaty at noon on December 31, 1999, thePanama Canal reverted to the Republic of Panama free of debts and liens, becoming aninalienable patrimony of the Republic of Panama, open to the peaceful and uninterruptedpassage of vessels of all nations and whose use will be subject to the requirements andconditions established by the Political Constitution of Panama, the Organic Law of thePCA, and its management.As of September 30, 2009, the PCA had a total of 9,671 (2008: 9,447) employees, of which8,147 (2008: 7,797) were permanent and 1,524 (2008: 1,650) were temporary.The main PCA offices are located at the Administration Building #101, Balboa, Republicof Panama.The financial statements of the Panama Canal Authority for the period ended as ofSeptember 30, 2009, were approved by the Board of Directors and authorized for theirissuance on December 17, 2009.-6-

Panama Canal AuthorityNotes to financial statementsSeptember 30, 2009(In thousands of balboas)2.Adoption of New and Revised International Financial Reporting StandardsAt the date of these financial statements, the following standards and interpretations wereissued but not yet in effect:Standard and InterpretationEffective DateIAS 1 (Revised) - Presentation ofFinancial StatementsJanuary 1, 2009IFRS 8 - Operating segments, replacesIAS 14, Segment reportingJanuary 1, 2009IAS 23 (Revised) - Borrowing costsJanuary 1, 2009IAS 32 (Amendment) FinancialInstrumentsJanuary 1, 2009IFRIC 14 - The limit on a defined benefitasset, minimum funding requirements andtheir interactionJanuary 1, 2009The Administration considers that the adoption of these standards and interpretationsapplicable to future periods, would not have an important effect in PCA’s financialstatements.-7-

Panama Canal AuthorityNotes to financial statementsSeptember 30, 2009(In thousands of balboas)3. Significant accounting policies3.1.Statement of compliancePCA’s financial statements, including the comparatives figures, have been prepared inaccordance with International Financial Reporting Standards, issued by theInternational Accounting Standard Board (“IASB”) and the interpretations issued bythe International Financial Reporting Interpretations Committee (IFRIC) of the IASB.3.2.Basis of presentationThe financial statements have been prepared under the historical cost basis, except forthe recognition of changes in foreign currency of hedge instruments. PCA appliedaccounting policies consistent with those applied in the prior year.3.3.Use of estimatesThese financial statements are prepared in conformity with IFRS which requiresmanagement to make estimates and assumptions. These assumptions affect thereported amounts of assets and liabilities, the disclosure of contingent assets andliabilities at the date of the financial statements, and the reported amounts of revenuesand expenses during the reporting period. Future actual results could differ from thoseestimates. Significant estimates for these financial statements include the provisionfor marine accident claims, provision for obsolete inventory of materials and supplies,and the determination of the useful life of fixed assets.3.4.Properties, plant, and equipmentItems of properties, plant, and equipment with a value of B/.5 or more are recorded atcost. The cost of items that are not capitalized or under B/.5 is expensed as incurred.Depreciation is calculated using the straight-line method over the following estimateduseful lives:BuildingsStructuresEquipment25 - 75 years5 - 100 years3 - 75 years-8-

Panama Canal AuthorityNotes to financial statementsSeptember 30, 2009(In thousands of balboas)The assets’ useful lives are reviewed periodically to ensure that the depreciation periodis consistent with the expected economic benefit of the components of properties,plant, and equipment.The gain or loss resulting from the retirement or disposal of an asset is the differencebetween the net proceeds and the net book value of the asset. The gain or loss isreflected in the statement of income when incurred, except for buildings and propertiesthat were received from the Government of Panama, which are charged against equitywhen they are demolished or returned to the Government of Panama once it isdetermined they have no operating use for the PCA.Maintenance and repairs are expensed as incurred, while major improvements arecapitalized. Dredging costs incurred for recurrent maintenance of the waterway, as aresult of landslides and erosion, are expensed. Dredging costs for substantialimprovements to the waterway are capitalized and depreciated over their estimateduseful lives.Construction in progress represents plant and properties under construction andincludes the cost construction and other direct costs. These assets are depreciatedwhen completed and placed in operation.3.5.Impairment of long term assetsAssets that are subject to amortization are reviewed annually to identify anyimpairment losses, whenever events or changes in circumstances indicate that thecarrying amounts may not be recoverable. An impairment loss is recognized for theamount by which an asset’s carrying amount exceeds its recoverable amount. Therecoverable amount is the higher of an asset’s net selling price and its value in use.3.6.Financial instrumentsThe financial assets and liabilities are recognized in the balance sheet of the PCAwhen they become a contractual obligation of the instrument. Cash, cash equivalents and bank deposits - Consist of cash on hand, deposits incurrent and saving accounts, and time deposits, free of liens and with originalmaturity dates of less than 90 days or over 90 days not exceeding one year.-9-