ayala corporation

PROSPECTUS
AYALA CORPORATION
P
= 10,000,000,000
7.20% FIXED RATE PUTABLE BONDS, DUE 2017
Issue Manager
Co-Issue Manager
FIRST METRO INVESTMENT CAPITAL CORPORATION
Joint Lead Underwriters
BDO CAPITAL & INVESTMENT CORPORATION
BPI CAPITAL CORPORATION
CITICORP CAPITAL PHILIPPINES, INC.
FIRST METRO INVESTMENT CORPORATION
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED
ING BANK, N.V., MANILA BRANCH
RCBC CAPITAL CORPORATION
STANDARD CHARTERED BANK
The date of this Prospectus is April 16, 2010
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS
IS
ACCURATE
OR
COMPLETE,
ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE
AND SHOULD BE REPORTED IMMEDIATELY TO THE SECURITIES
AND EXCHANGE COMMISSION.
AYALA CORPORATION
33/F, TOWER ONE
AYALA AVENUE CORNER PASEO DE ROXAS
MAKATI CITY 1200
PHILIPPINES
TELEPHONE NUMBER: (632) 848-5643
Ayala Corporation is offering Bonds due 2017 (the “Bonds”) with an aggregate principal amount of
P
= 10,000,000,000.00 (the “Offer”).
The Bonds shall have a term of seven (7) years from the Issue Date, with a fixed interest rate equivalent to 7.20%
p.a. Interest on the Bonds shall be payable quarterly in arrears on April 30, July 30, October 30 and January 30 of
each year (each of which is an “Interest Payment Date”) commencing on July 30, 2010 or the subsequent Business
Day without adjustment if such Interest Payment Date is not a Business Day. The last interest payment date shall fall
on the Maturity Date (as defined below) while the Bonds are outstanding (see “Description of the Bonds” – “Interest”).
The Bondholders shall have a one time Put Option (see “Description of the Bonds” – “Put Option”) five (5)
years from Issue Date. Unless previously purchased or cancelled, the Bonds will be redeemed at par (or
100% of face value) on April 30, 2017 (the “Maturity Date”) or as otherwise set out in “Description of the
Bonds” – “Redemption and Purchase” and “Payment in the Event of Default” sections of this Prospectus
unless the Bondholders exercise the Put Option.
The Bonds shall constitute the direct, unconditional, unsubordinated, and unsecured obligations of Ayala and shall at
all times rank pari passu and rateably without any preference or priority amongst themselves and at least pari passu
with all other present and future unsubordinated and unsecured obligations of Ayala, other than obligations preferred
by law. The Bonds will effectively be subordinated in right of payment to all of Ayala’s secured debts to the extent of
the value of the assets securing such debt and all of its debt that is evidenced by a public instrument under Article
2244(14) of the Civil Code of the Philippines.
The Bonds have been rated PRS Aaa by the Philippine Rating Services Corporation (“PhilRatings”) as of March 25,
2010. The rating denotes Ayala’s extremely strong capacity to meet its financial commitment on the obligations. The
rating is not a recommendation to buy, sell, or hold securities and may be subject to revision, suspension, or
withdrawal at any time by the rating agency concerned.
The Bonds shall be offered to the public at face value through the Joint Lead Underwriters and Participating
Underwriters. The Philippine Depository and Trust Corporation (“PDTC”) will act as the Registrar and BPI Stock
Transfer Office as Paying Agent of the Bonds. It is intended that upon issuance, the Bonds will be lodged with the
PDTC. On the Issue Date, the Bonds will be issued in scripless form and in denominations of P
= 50,000 each, as a
minimum, and in integral multiples of P
= 10,000 thereafter. The Bonds will be eligible for trading under the Scripless
Book Entry System of the PDTC. Transfers of the Bonds should be coursed through a PDTC Participant in the PDTC
system. (See “Description of the Bonds” – “Transfer of Bonds”)
Ayala intends to cause the listing of the Bonds on a securities exchange licensed with the SEC and has initiated
discussions with the Philippine Dealing and Exchange Corp ("PDEx") for this purpose. However, there can be no
assurance that such a listing will actually be achieved either before or after the Issue Date or whether such a listing
will materially affect the liquidity of the Bond on the secondary market. Such a listing would be subject to the
Company's execution of a listing agreement with PDEx that may require the Company to make certain disclosures,
undertakings and payments on an ongoing basis.
Ayala expects to raise gross proceeds amounting to P
= 10,000,000,000. The net proceeds are estimated to be
P
= 9,898,161,875 after deducting expenses relating to the issuance of the Bonds. Proceeds of the Offer will be used by
Ayala for general working capital (see “Use of Proceeds”). The Joint Lead Underwriters will receive a fee of 0.40%,
gross up for gross receipts tax, on the underwritten principal amount of the Bonds issued. Such fee shall be inclusive
of underwriting, and participation commissions. (see “Plan of Distribution”)
Unless otherwise stated, the information contained in this Prospectus relating to Ayala and its operations has been
supplied by Ayala, which hereby accepts full responsibility for the accuracy of the same, and confirms, having made
all reasonable inquiries, that to the best of its knowledge and belief, there are no other material facts, the omission of
which would make any statement in this Prospectus misleading in any material respect. As to the other information
which are made on the basis of, or in connection with, information, data or analyses which were either provided to
ii
Ayala by its advisers and consultants or otherwise available in the market and from any public source, Ayala confirms
that it has made all reasonable inquiries in respect of the same and have used or adopted such information, data or
analyses in good faith. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstance, create any implication that the information contained herein is correct as of any time subsequent to the
date hereof. The Joint Lead Underwriters do not make any representation, express or implied, as to the accuracy or
completeness of the materials contained herein.
No dealer, salesperson or other person has been authorized by Ayala or the Joint Lead Underwriters to issue any
advertisement or to give any information or make any representation in connection with the Offer or sale of the Bonds
other than those contained in this Prospectus and, if issued, given or made, such advertisement, information or
representation must not be relied upon as having been authorized by Ayala or the Joint Lead Underwriters.
The contents of this Prospectus are not to be considered as legal, business, or tax advice. The Joint Lead
Underwriters do not make any representation or warranty, express or implied, as to the accuracy or completeness of
the information in this Prospectus. Each person receiving this Prospectus acknowledges that such person has not
relied on the Joint Lead Underwriters or any other person in his investigation of the accuracy of such information or
his investment decision.
Each person contemplating an investment in the Bonds must make his own investigation and analysis of the
creditworthiness of Ayala and his own determination of the suitability of any such investment. Investing in the Bonds
involves certain risks. For a discussion of certain factors to be considered in respect of an investment in the Bonds,
see the section entitled “Risk Factors”.
Ayala is organized under the laws of the Philippines. Its principal office is at the 33rd Floor Tower One and Exchange
Plaza, Ayala Avenue corner Paseo de Roxas, Ayala Triangle, Makati City, with telephone number (632) 848-5643.
ALL REGISTRATION REQUIREMENTS HAVE BEEN MET AND ALL INFORMATION
CONTAINED HEREIN IS TRUE AND CURRENT.
AYALA CORPORATION
By:
Fernando Zobel de Ayala
President and Chief Operating Officer
iii
TABLE OF CONTENTS
TABLE OF CONTENTS
iv
FORWARD LOOKING STATEMENTS
1
DEFINITION OF TERMS
2
EXECUTIVE SUMMARY
5
RISK FACTORS
14
USE OF PROCEEDS
23
PLAN OF DISTRIBUTION
25
DESCRIPTION OF THE BONDS
30
THE COMPANY
52
BUSINESS
I. Real Estate and Hotels
II. Financial Services
III. Telecommunications
IV. AC Capital
61
61
74
77
99
LEGAL PROCEEDINGS
121
OWNERSHIP
122
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
123
MANAGEMENT
139
MATTERS AFFECTING LIQUIDITY AND CAPITAL EXPENDITURE
152
NAMED EXPERTS AND COUNSEL
153
TAXATION
154
FINANCIAL INFORMATION
157
FORWARD LOOKING STATEMENTS
This Prospectus contains certain “forward-looking statements”. These forward-looking statements
generally can be identified by use of statements that include words or phrases such as “believes”,
“expects”, “anticipates”, “intends”, “plans”, “foresees”, or other words or phrases of similar import.
Similarly, statements that describe Ayala’s objectives, plans or goals are also forward-looking
statements. All such forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those contemplated by the relevant forward-looking
statement. Important factors that could cause actual results to differ materially from the expectations of
Ayala include, among others:
General economic and business conditions in the Philippines;
Holding company structure;
Intensive capital requirements of subsidiaries and affiliates of Ayala in the course of business;
Increasing competition in the industries in which Ayala’s subsidiaries and affiliates operate;
Industry risk in the areas in which Ayala’s subsidiaries and affiliates operate;
Changes in laws and regulations that apply to the segments or industries in which Ayala, its
subsidiaries and affiliates operate;
Changes in political conditions in the Philippines;
Changes in foreign exchange control regulations in the Philippines; and
Changes in the value of the Philippine Peso.
For further discussion of such risks, uncertainties and assumptions, see “Risk Factors”. Prospective
purchasers of the Bonds are urged to consider these factors carefully in evaluating the forward-looking
statements. The forward-looking statements included herein are made only as of the date of this
Prospectus, and Ayala undertakes no obligation to update such forward-looking statements publicly to
reflect subsequent events or circumstances.
1
DEFINITION OF TERMS
Unless otherwise indicated, the following terms shall have the meanings set forth below:
3G
AAHC
ACC
ACIFL
AHI
Affiliates
Affinity
AG Holdings, Ltd.
AIHC
AIPL
ALI
APMC
Application to Purchase
Asiacom
ASTI
Avida
Ayala
Ayala Group
Ayala Greenfield
Azalea Technology
Azalea International
Banking Day
BayanTrade
Bayantel
BCDA
BMA
Board
Bonds
Bondholders
BPI
BPI Capital
BPI Group
BPO
BSP
Business Day
CAGR
CAR
CHI
CII
Class “A” shares
Class “AA” shares
Third generation radio frequency spectra
Ayala Automotive Holdings Corporation
Alabang Commercial Corporation
AC International Finance Ltd.
Ayala Hotels, Inc.
Associates and Jointly Controlled Entities
Affinity Express, Inc.
AG Holdings Limited
Ayala Insurance Holdings Corporation
Ayala International Pte Ltd.
Ayala Land, Inc.
Ayala Property Management Corporation
Document to be accomplished by applicants for the application to
purchase the Bonds
Asiacom Philippines, Inc.
Ayala Systems Technology, Inc.
Avida Land Corporation, whose former corporate name was Laguna
Property Holdings, Inc.
Ayala Corporation (also the “Company” or the “Issuer”)
Ayala Corporation and its subsidiaries
Ayala Greenfield Development Corporation
Azalea Technology Investments, Inc.
Azalea International Venture Partners Ltd.
A day, excluding Saturdays, Sundays and holidays, when banks are not
allowed to close for business in Metro Manila, Philippines
BayanTrade Dotcom, Inc.
Bayan Telecommunications Philippines, Inc.
Bases Conversion Development Authority
Bridge Mobile Alliance
The Board of directors of Ayala
Ayala’s 7.20% p.a. Fixed Rate Putable Bonds due 2017
Holders of the Bond
Bank of the Philippine Islands
BPI Capital Corporation
BPI and its subsidiaries
Business Processing Outsourcing
Bangko Sentral ng Pilipinas
A day, except Sunday, Saturday or legal holidays, in which Philippine
banks are required to open for business in the cities of Makati, Manila
and Mandaluyong
Compounded Annual Growth Rate
Capital Adequacy Ratio
Cebu Holdings, Inc.
Community Innovations, Inc.
Ayala’s Class “A” preferred shares
Ayala’s Class “AA” preferred shares
2
Definition of Terms
Common shares
CPI
CPVDC
Digitel
Director
DOSRI
DBS
EBITDA
EMS
eTelecare
FBDC
FCDA
G&A Expense
Globe
IAS
IDD
IFC
ILD
Interest Payment Dates
Interest Rate
IMI
Innove
Integreon
IPO
Issue Manager
Issuer
Joint Lead Underwriters
LiveIt
LSI
Maturity Date
Majority Bondholders
MDC
Mitsubishi
MMS
MWC
MWSS
NDD
NPL
NRW
NTC
OEM
Offer
Offer Period
OFW
Underwriters
PAS
Ayala’s common shares
Philippine Consumer Price Index
Cebu Property Ventures Development Corporation
Digitel Communications Philippines, Inc.
A director of Ayala
Directors, Officers, Stockholders and other Related Interests
Development Bank of Singapore
Earnings Before Interests, Taxes, Depreciation and Amortization
Electronics Manufacturing Services
eTelecare Global Solutions, Inc.
Fort Bonifacio Development Corporation
Foreign Currency Differential Adjustment
General and Administrative expense
Globe Telecom, Inc.
International Accounting Standards
International Direct Dialing
International Finance Corporation
International Long Distance
April 30, July 30, October 30 and January 30 of each year until the
Maturity Date
7.20% per annum
Integrated Microelectronics, Inc.
Innove Communications, Inc.
Integreon Managed Solutions, Inc.
Initial Public Offering
BPI Capital
Ayala Corporation
BDO Capital & Investment Corporation, BPI Capital, Citicorp Capital
Philippines, Inc., First Metro Investment Capital Corporation, The
Hongkong and Shanghai Banking Corporation Limited, ING Bank, N.V.,
Manila Branch, RCBC Capital Corporation, and Standard Chartered
LiveIt Investments Limited
LiveIt Solutions, Inc.
April 30, 2017
Bondholders holding more than fifty percent (50%) of the principal
amount of the Bonds then outstanding.
Makati Development Corporation
Mitsubishi Corporation
Multimedia Messaging Service
Manila Water Company, Inc.
Metropolitan Waterworks and Sewerage System
National Direct Dialing
Non-performing Loans
Non-revenue Water
National Telecommunications Commission
Original Equipment Manufacturers
Offer for subscription to P
= 10,000,000,000.00 7.20% p.a. Fixed Rate
Putable Bonds of Ayala, due 2017
The Offer shall commence on April 20, 2010 and end on April 26, 2010.
Overseas Filipino Workers
Shall refer collectively to the Joint Lead Underwriters
Philippine Accounting Standards
3
Definition of Terms
Paying Agent
PCBA
PDEx
PDTC
PFRS
PhilRatings
PLDT
PSE
Put Option
Put Option Date
Put Exercise Period
Put Option Payment
Record Date
Registrar
SEC
SGV & Co.
Smart
SMS
Speedy-Tech
STI
TM
Trustee
Unrestricted Period
VAT
WAP
WiFi
BPI Stock Transfer Office
Printed Circuit Board Assembly
Philippine Dealing and Exchange Corporation
Philippine Depository and Trust Corporation
Philippine Financial Reporting Standards
Philippine Rating Services Corporation
Philippine Long Distance Telephone Company
Philippine Stock Exchange
The Bondholder’s option to require the Issuer to redeem the outstanding
Bonds registered in such Bondholder’s name in denominations of
P50,000 each, as a minimum and in integral multiples of P10,000
thereafter.
April 30, 2015 or immediately succeeding Business Day if such date is
th
not a Business Day, which is the Twentieth (20 ) Interest Payment Date
Anytime during business hours on a date no earlier than sixty (60) days
and no later than thirty (30) days prior to the Put Option Date
Aggregate of; (i) par or one hundred percent (100%) of face value of the
outstanding principal amount; and (ii) accrued interest
Cut-off date in determining Bondholders entitled to receive interest or
principal amount due
Philippine Depository and Trust Corporation
Securities and Exchange Commission
SyCip Gorres Velayo & Co.
Smart Communications, Inc.
Short Message Service
Speedy-Tech Electronics Ltd.
Singapore Telecom International
Touch Mobile
Metropolitan Bank and Trust Company – Trust Banking Group
The period from the Issue Date, until and including ten (10) days prior to
the first Interest Payment Date
Value-added Tax
Wireless Application Protocol
Wireless Fidelity
4
EXECUTIVE SUMMARY
The following summary is qualified in its entirety by the more detailed information and financial
statements and notes thereto appearing elsewhere in this Prospectus. Because it is a summary, it does
not contain all of the information that a prospective purchaser should consider before investing.
Prospective investors should read the entire Prospectus carefully, including the section entitled “Risk
Factors and Other Considerations” and the financial statements and the related notes to those statements
included in this Prospectus.
The Company
The Company was incorporated in the Philippines on January 23, 1968 as a limited liability corporation
having a renewable term of 50 years. It is organized as a holding company holding equity interests in the
Ayala Group (the “Ayala Group”), one of the most significant business groups in the Philippines. Ayala’s
business activities are divided into: (a) real estate and hotels, (b) financial services, (c)
telecommunications, (d) water distribution and wastewater services, (e) electronics manufacturing
solutions services, (f) automotive dealerships, (g) business process outsourcing (BPO), and (h)
investments in overseas real estate projects and technology-related ventures.
Ayala’s real estate and hotels business is primarily conducted through its subsidiary, Ayala Land, Inc.
(“ALI”), a diversified real estate company in the Philippines (see “Business - Real Estate and Hotels”). Its
involvement in financial services and insurance businesses is done through an affiliate, the Bank of the
Philippine Islands (“BPI”), which, together with its subsidiaries (together, the “BPI Group”), form a
universal banking group in the Philippines (see “Business - Financial Services”). Ayala’s
telecommunications business is carried out through an affiliate, Globe Telecom, Inc. (“Globe”), one of the
leading telecommunications companies in the Philippines (see “Business - Telecommunications”).
Ayala’s investments in water distribution under Manila Water Co., Inc. (“Manila Water” or “MWC”),
electronics manufacturing services under Integrated Microelectronics, Inc. (IMI), business process
outsourcing (“BPO”) under its holding company LiveIt, automotive dealerships under Ayala Automotive
Holdings, Corp., joint ventures in international real estate assets through AG Holdings, and information
technology-related ventures and various non-core assets and investments through a variety of subsidiary
and affiliated companies are overseen by an internal division under AC Capital (see “Business - AC
Capital”).
Ayala became a publicly listed corporation in 1976 when it listed its common shares with the then Makati
Stock Exchange. As of December 31, 2009, Ayala had a market capitalization of P
= 150.7 billion based on
its closing price of P
= 302.50 per share. In addition, certain members of the Ayala Group, namely ALI, BPI,
Globe, MWC, Cebu Holdings, Inc. (“CHI”), and Cebu Property Ventures Development Corporation
(“CPVDC”), and IMI are likewise publicly listed corporations. Some of Ayala’s subsidiaries and affiliates
have holdings in the equity of other subsidiaries and affiliates.
Members of the Zobel de Ayala family, individually and through their control of Mermac, Inc., a private
holding company incorporated in the Philippines (which held 50.78% of Ayala as of December 31, 2009),
are the dominant shareholders of, and effectively control, Ayala. Ayala’s other current principal
shareholders are Mitsubishi Corporation (“Mitsubishi”) (which held 10.55% of Ayala as of December 31,
2009), and SM Group (which held 3.85% of Ayala as of December 31, 2009).
Financial Highlights
Ayala Corporation’s 2009 consolidated net income attributable to equity holders of the parent reached
P
= 8.2 billion at par with prior year’s earnings with substantially lower capital gains from share sales in
2009. Excluding capital gains, consolidated net income attributable to equity holders of the parent grew
by 34%. The growth was driven by the strong performance of its major business units, even amidst a
5
Executive Summary
sluggish economic environment. Ayala’s total equity share in the earnings of its business units rose by
18% to P
= 9.2 billion.
In real estate, ALI’s residential sales recovered beginning the second quarter with take-up rates improving
through the fourth quarter. Its leasing revenues from shopping centers and office/BPO spaces grew by
20% with the expansion in gross leasable area and generally steady occupancy rates. ALI posted
P
= 4 billion in net income attributable to equity holders of ALI in 2009, 16% lower than prior year which
included gains from a lot sale. Excluding the impact of the lot sale, net income attributable to equity
holders of ALI was down by only 2%.
The recovery in the residential sector was reaffirmed by two very successful residential project launches
in January 2010. ALI is embarking on its most aggressive launch this year as it expands its presence in
key cities and areas in the Philippines. The company recently sealed several lease and joint venture
agreements with strategic partners for the construction of regional malls in the Subic Bay Freeport Area
and Cagayan de Oro. It has opened MarQuee Mall in Pampanga in September last year and will also
unveil Abreeza Mall in Davao City by next year.
Its banking unit, Bank of the Philippine Islands (BPI) registered strong business volume, revenue, and
earnings growth. Net income was up 33% to P
= 8.5 billion. Net interest income increased by 10% on
account of the expansion in asset base and improvement in spreads. Noninterest income grew at an even
faster rate of 25%. While corporate lending slowed, challenged by the high level of liquidity and the
availability of funding through the capital markets, loans to SME, consumer market, and credit card
customers remained robust, expanding at double-digit levels. The bank’s remittance business outpaced
industry growth which resulted in BPI capturing over 20% of the overseas Filipino remittance business.
Globe registered 11% earnings growth to P
= 12.6 billion. While its core mobile business was weighed down
by intense competition and subscribers’ increasing preference for value offers on the back of weaker
consumption, Globe made significant gains in its broadband business. Globe’s broadband subscribers
expanded three-fold to over 715,000, while mobile subscribers reached 23.2 million by year-end following
a deliberate churn out of marginal subscribers. Globe continues to invest in its broadband business to
augment existing capacity, expand coverage, and improve the availability of 3G, WiMax, and DSL
broadband services. Globe recently increased its dividend payout to a range of 75% to 90% of prior
year’s earnings as it remains committed to optimizing its capital structure and delivering superior value to
its shareholders. In line with this, Globe declared its first semi-annual cash dividend of P
= 40 per common
share payable on March 15, 2010.
AC Capital contributed positively in 2009, reversing the loss in 2008. This was driven by the strong
earnings growth of water distribution unit, Manila Water Co., Inc., the turnaround of the electronics
manufacturing business, Integrated Micro-Electronics, Inc. (IMI), and the significantly improved
performance of Ayala’s holding company for its BPO investments.
Manila Water posted a net income attributable to equity holders of MWC of P
= 3.2 billion, 16% higher than
in 2008 as it expanded customer base, increased billed volume, and improved operating efficiency.
Manila Water continued to expand its businesses in wastewater management and concessions outside of
the east zone. In 2009 the company commissioned the 4–million liter per day Pineda Sewage Treatment
Plant, in addition to the five additional sewage treatment facilities currently being constructed in the cities
of Makati, Marikina, Quezon, and Taguig. These plants put the company on track to achieve 30%
sewerage coverage by 2010. Beyond the east zone, Manila Water commenced the concessions in
Laguna and Boracay with plans to improve the system, upgrade the existing network, reduce system
losses, and improve reliability of water and wastewater services. Manila Water is also exploring water
projects overseas and signed joint venture agreements with REE Corporation in Vietnam and Jindal
Water Infrastructure Ltd. of India to explore water and wastewater-related projects in these countries.
6
Executive Summary
IMI posted a turnaround in 2009 with US$10 million in net income attributable to equity holders of IMI, a
reversal of the net loss in 2008. However, with the electronics sector weighed down by the global
economic downturn, full year revenues fell by 10% to US$396M. Revenue trends began to improve in the
third quarter, with increased volumes for a leading Chinese OEM in the IMI has a strong financial position
with consolidated cash of US$54M, strong liquidity, and zero net debt position which gives it sufficient
flexibility to support its growth initiatives. IMI is well positioned to capture opportunities as the electronics
industry recovers given its solid track record with its OEM customers, global footprint, and robust financial
position. It recently completed its listing by way of introduction at the Philippine Stock Exchange in
January 2010.
Ayala’s BPO businesses held through LiveIt made considerable gains in achieving both scale and
profitability. The merger of eTelecare with Stream in October 2009 created a top 7 global call center
company, while Integreon’s acquisitions positioned it as the top global knowledge process outsourcing
company. In the fourth quarter of 2009, the BPO companies attained combined annualized run rate
revenues of US$911 million and EBITDA of US$77 million, of which LiveIt’s share was US$300 million
and US$25 million respectively. LiveIt achieved positive operating net income before deal related charges
and interest expense starting in the third quarter, which contributed to a significant reduction in its
consolidated net loss to US$12 million in 2009. The loss was largely due to acquisition driven expenses
and leverage.
1
Ayala ended 2009 with cash of P
= 30 billion and parent net debt-to-equity ratio of 0.04 to 1.00. It recently
announced its intent to bid for the Angat Hydroelectric Plant in early 2010.
Strategy
Ayala seeks to ensure that the Ayala Group maintains its commitment to its business activities in the
Philippines and to explore possible international initiatives on a selective and opportunistic basis. Ayala
intends to build on its leadership position in the Ayala Group's existing core businesses in real estate,
financial services and telecommunications, and actively manage its portfolio of other investments and
assets under AC Capital with a view toward maximum value creation and realization. Ayala expects its
real estate, financial services and telecommunications businesses to remain its principal sources of
dividend income, but contributions from its water distribution, electronics manufacturing and auto
dealership operations are increasing. Ayala is presented from time to time with opportunities to invest in
new business areas and will continue to consider such opportunities to the extent that such businesses
would contribute to the overall strategic objectives of the Ayala Group.
Recent Developments
In 2009 Ayala Corporation entered into an agreement to acquire United Utilities’ 81.9 million common
shares and economic interest in 2 billion preferred shares in Manila Water for a total consideration of P
= 3.5
billion. The proposed acquisition increases Ayala’s economic interest in Manila Water to 43.3% from the
previously 31.7%. This transaction is expected to be value accretive for Ayala given the growth potential
of Manila Water as it continues to explore opportunities beyond its concession area. This is part of
Ayala’s broader strategy to re-invest in its current businesses to enhance and optimize values from its
current portfolio.
In 2009 Ayala made investments of roughly P
= 2.2 billion (US$46M). This included investments in its BPO
businesses and in Arch Capital, a real estate fund under AG Holdings, which has live real estate
development projects in China, Thailand, and India. Ayala also pursued its share buyback program,
repurchasing a total of 466,360 Ayala Corp shares in 2009. As of March 31, 2010 total shares purchased
amounted to P
= 1.9 million, bringing total shares bought back since 2007 to P
= 3.7 million.
1
Total of short-term debt and long-term debt less total of cash and cash equivalents and short-term investments divided by equity attributable to the
parent.
7
Executive Summary
Future Plans and Prospects
Ayala is confident that its financial prospects remain sound and are expected to strengthen further in the
coming years as the Philippine economy gathers momentum and external global uncertainties subside.
Ayala’s earnings are expected to remain stable in the near-term underpinned by the sustained recovery of
the real estate industry, strong fundamentals of the banking sector, and the increasing demand for
telecommunications services, particularly in broadband services. In the long-term, improved earnings
prospects are expected from these key business units, given these are well-positioned in their respective
industries and are expected to benefit from sectoral growth.
Ayala is committed to strengthening its financial position further. Dividend flows to the Company have
increased significantly over the past few years and this is a trend that is expected to be sustained as the
operating cash flow at the subsidiary and affiliate level continues to improve. The increase in dividend
flows to Ayala, in addition to any additional liquidity arising from possible capital reallocation and value
realization in Ayala’s investment portfolio, are expected to facilitate Ayala’s plans to build new businesses
and establish new growth platforms. As a holding company, Ayala is committed to explore new
investment opportunities that will be the source of company growth and value moving forward.
8
Executive Summary
SUMMARY FINANCIAL INFORMATION
The following tables set forth financial and operating information on Ayala. Prospective purchasers of the Bonds
should read the summary financial data below together with the financial statements, including the notes thereto,
presented as an Annex and the “Management’s Discussion and Analysis of Financial Condition and Results of
Operation” section of this Prospectus. The summary financial data as of December 31 2009 and 2008 and for each
of the three years in the period ended December 31, 2009 are derived from Ayala’s audited financial statements,
including the notes thereto, which are found elsewhere in this Prospectus.
This section includes financial and operating data with respect to Ayala’s subsidiaries (Ayala Land, Inc., Integrated
Micro-Electronics, Inc., AG Holdings, Ltd., Azalea Technology Investments, Inc., Azalea International Venture
Partners, Ltd. and Ayala Automotive Holdings Corporation), associates (Bank of the Philippine Islands) and jointly
controlled entities (Globe Telecom, Inc. and Manila Water Company, Inc.). This section should be read in conjunction
with the financial statements of these subsidiaries, associates and jointly controlled entities. The financial statements
of these subsidiaries, associates and jointly controlled entities as of December 31, 2009 and 2008 and for each of the
three years in the period ended December 31, 2009 are available for viewing at the office of the Philippine Securities
and Exchange Commission located at the SEC Building, EDSA, Greenhills, Mandaluyong City, or at these
companies’ respective principal places of business.
The following table summarizes the financial highlights of Ayala’s consolidated financial performance:
Years Ended December 31
(Amounts in Thousands, Except Earnings Per Share
Figures)
REVENUE
Sales and services
Equity in net income of associates and jointly controlled
entities
Interest income
Other income
COSTS AND EXPENSES
Costs of sales and services
General and administrative
Interest expense and other financing charges
Other charges
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX
Current
Deferred
INCOME BEFORE INCOME ASSOCIATED WITH
NONCURRENT ASSETS HELD FOR SALE
INCOME ASSOCIATED WITH NONCURRENT
ASSETS HELD FOR SALE - net of tax
NET INCOME
Net Income Attributable to:
Equity holders of Ayala Corporation
Noncontrolling interests
2009
2008
2007
P
= 62,627,206
P
= 64,052,828
P
= 56,578,214
7,361,015
2,497,077
3,808,517
76,293,815
7,396,180
2,242,895
5,416,750
79,108,653
9,767,222
1,693,045
10,728,375
78,766,856
49,318,294
9,214,570
3,822,342
1,435,038
63,790,244
12,503,571
50,014,366
9,485,514
4,937,108
1,595,422
66,032,410
13,076,243
43,169,110
9,498,306
4,120,160
1,569,944
58,357,520
20,409,336
2,010,214
(311,530)
1,698,684
2,442,789
(25,234)
2,417,555
1,979,820
(7,825)
1,971,995
10,804,887
10,658,688
18,437,341
–
P
= 10,804,887
–
P
= 10,658,688
624,788
P
= 19,062,129
P
= 8,154,345
2,650,542
P
= 10,804,887
P
= 8,108,597
2,550,091
P
= 10,658,688
P
= 16,256,601
2,805,528
P
= 19,062,129
9
Executive Summary
Years Ended December 31
2009
2008
EARNINGS PER SHARE
Basic
Income before income associated with noncurrent
assets held for sale attributable to equity holders
of Ayala Corporation
Net income attributable to equity holders of
Ayala Corporation
Diluted
Income before income associated with noncurrent
assets held for sale attributable to equity holders
of Ayala Corporation
Net income attributable to equity holders of
Ayala Corporation
(Amounts in Thousands)
2007
P
= 14.23
P
= 15.22
P
= 30.64
14.23
15.22
31.62
P
= 14.19
P
= 15.17
P
= 30.50
14.19
15.17
31.47
2009
December 31
2008
P
= 45,656,889
4,560,976
25,232,799
10,797,048
6,547,004
92,794,716
P
= 42,885,792
1,008,924
23,284,010
10,011,355
7,090,394
84,280,475
2,657,623
17,582,562
71,556,952
3,543,458
29,089,730
7,771,863
1,395,992
132,419
4,611,884
1,341,836
139,684,319
P
= 232,479,035
6,694,021
15,756,894
68,140,394
3,064,502
21,344,980
13,884,817
1,132,847
117,388
3,865,397
1,906,172
135,907,412
P
= 220,187,887
P
= 27,664,537
2,638,658
506,114
2,453,144
2,821,932
36,084,385
P
= 27,483,536
2,755,447
214,697
1,478,871
1,553,530
33,486,081
ASSETS
Current Assets
Cash and cash equivalents
Short-term investments
Accounts and notes receivable - net
Inventories
Other current assets
Total Current Assets
Noncurrent Assets
Noncurrent accounts and notes receivable
Land and improvements
Investments in associates and jointly controlled entities - net
Investments in bonds and other securities
Investment properties - net
Property, plant and equipment - net
Deferred tax assets - net
Pension assets
Intangible assets - net
Other noncurrent assets
Total Noncurrent Assets
Total Assets
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued expenses
Short-term debt
Income tax payable
Current portion of long-term debt
Other current liabilities
Total Current Liabilities
10
Executive Summary
(Amounts in Thousands)
Noncurrent Liabilities
Long-term debt - net of current portion
Deferred tax liabilities - net
Pension liabilities
Other noncurrent liabilities
Total Noncurrent Liabilities
Total Liabilities
Equity
Equity attributable to equity holders of Ayala Corporation
Paid-up capital
Share-based payments
Retained earnings
Cumulative translation adjustments
Net unrealized gain (loss) on available-for-sale financial assets
Parent Company preferred shares held by a subsidiary
Treasury stock
Noncontrolling interests
Total Equity
Total Liabilities and Equity
2009
December 31
2008
51,431,583
207,425
228,312
9,109,180
60,976,500
97,060,885
50,250,151
185,536
490,744
7,588,080
58,514,511
92,000,592
P
= 37,477,875
P
= 37,251,714
1,059,588
705,457
65,739,096
61,604,466
(1,351,334)
(968,778)
123,916
(631,127)
(100,000)
(100,000)
(688,714)
(550,540)
102,260,427
97,311,192
33,157,723
30,876,103
135,418,150
128,187,295
P
= 232,479,035
P
= 220,187,887
CAPITALIZATION
The following table sets forth Ayala’s consolidated short-term and long-term debt and capitalization as of December
31, 2009. This table should be read in conjunction with Note 2 of the Company’s consolidated financial statements
the notes thereto located elsewhere in this Prospectus.
2009
Short-term debt
Long-term debt
Total debt
Less:
Cash and cash equivalents
Short-term investments
Net debt
Equity attributable to equity holders of the
Company
Debt to equity
Net debt to equity
2008
(In Thousands)
P
= 2,638,658
P
= 2,755,447
53,884,727
51,729,022
56,523,385
54,484,469
45,656,889
4,560,976
P
= 6,305,520
42,885,792
1,008,924
P
= 10,589,753
P
= 102,260,427
55%
P
= 97,311,192
56%
6%
11%
11
Executive Summary
SUMMARY OF THE OFFER
Issuer
Ayala Corporation
Instrument
Seven (7) year fixed rate bonds (the “Bonds”) in the aggregate principal
amount of up to Ten billion pesos (=
P10,000,000,000).
Form and
Denomination
The Bonds shall be issued in scripless form in minimum denominations of P
=
50,000 each and in integral multiples of P
= 10,000 thereafter.
Issue Price
At par (or 100% of face value).
Offering
The Bonds shall be offered to the public by Ayala through the Underwriters
(see “Plan of Distribution”).
Offer Period
The Offer shall commence on April 20, 2010 and end on April 26, 2010.
Issue Date
The Bonds are expected to be issued on April 30, 2010.
Bondholder Put
Option
The Bondholders shall have a one time option five (5) years from Issue Date
to require the Issuer to redeem in whole or in part the outstanding Bonds
registered in such Bondholder’s name (see “Description of the Bonds”)
Maturity Date
Unless the Bonds shall be redeemed by Ayala or the Bondholders exercise
their Put Option, the Bonds shall mature on April 30, 2017.
Interest
Interest Rate
The Bonds shall bear interest at a fixed rate of 7.20% p.a. (the “Interest
Rate”) accruing from Issue Date until the Maturity Date or when the Bonds
are otherwise redeemed in accordance with the Trust Indenture (see
“Description of the Bonds”).
Interest Payment
Interest on the Bonds shall be calculated on a 30/360-day count basis and
shall be paid quarterly in arrears starting on July 30, 2010 and on April 30,
July 30, October 30, and January 30 of each year thereafter.
Final Redemption
Unless previously purchased and cancelled, the Bonds shall be redeemed at
100% of face value on their respective Maturity Dates.
Status of the Bonds
The Bonds shall constitute the direct, unconditional, unsubordinated, and
unsecured obligations of Ayala and shall at all times rank pari passu and
rateable without any preference or priority amongst themselves and at least
pari passu with all other present and future unsubordinated obligations of
Ayala other than obligations preferred by law.
12
Executive Summary
USE OF PROCEEDS
Ayala expects to raise gross proceeds amounting to approximately up to P
= 10,000,000,000 from the Offer.
The net proceeds from the Offer is estimated to be P
= 9,898,161,875 after deducting expenses related to
the Offer. The principal purpose for the offering is to be used by Ayala for general working capital account
for its operations as a holding company.
As a holding company, Ayala is consistently seeking opportunities for expansion both through organic
growth of the existing lines of businesses as well as through transactions and acquisitions that would add
value to the company and to the Ayala Group as a whole. Although there can be no assurance regarding
what and when opportunities may arise, Ayala evaluates such opportunities on an ongoing basis. Ayala is
presented from time to time with opportunities to invest in new business areas and it will continue to
consider such opportunities to the extent that such businesses would contribute to the overall strategic
objectives of the Group.
RISKS OF INVESTING
An investment in the Bonds involves a certain degree of risk. A prospective purchaser of the Bonds
should carefully consider the following factors, in addition to the other information contained in this
Prospectus, in deciding whether or not to invest in the Bonds.
Risks Related to the Business
• Industry Risks
• Competition
• Foreign Exchange Risk
• Intensive Capital Requirements
• Government Regulation
• Litigation
• Data Management Systems
• Holding Company Structure
Risks Related to the Country
• Political and Social Instability
• Slowdown in the Economic Growth
• Depreciation in the Value of the Peso Against the US Dollar.
Risks Related to the Bonds
• Liquidity Risk
• Pricing Risk
• Retention of Ratings Risk
• Bonds have no Preference under Article 2244(14) of the Civil Code
This Prospectus contains forward-looking statements that involve risks and uncertainties. Ayala
Corporation adopts what it considers conservative financial and operational controls and policies to
manage its business risks. Ayala Corporation’s actual results may differ significantly from the results
discussed in the forward-looking statements. See section “Forward-Looking Statements” of this
Prospectus. Factors that might cause such differences, thereby making the offering speculative or risky,
may be summarized into those that pertain to the business and operations of Ayala Corporation, in
particular, and those that pertain to the over-all political, economic, and business environment, in general.
13
RISK FACTORS
The price of securities can and does fluctuate, and any individual security may experience upward or downward
movements, and may even become valueless. There is an inherent risk that losses may be incurred rather than profit
made as a result of buying and selling securities. Past performance is not a guide to future performance and there
may be a large difference between the buying price and selling price of these securities. Investors deal with a range
of investments, each of which may carry different levels of risk. Investors should carefully consider all the information
contained in this Prospectus, including the risk factors described below before deciding to invest in the Bonds.
PRUDENCE REQUIRED
The risk disclosure does not purport to disclose all the risks and other significant aspects of investing in
these securities. An investor should undertake its, his or her own research and study on the trading of
securities before commencing any trading activity. Investors may request information on the securities
and Issuer thereof from the SEC which are available to the public.
PROFESSIONAL ADVICE
An investor should seek professional advice if he or she is uncertain of, or has not understood, any
aspect of the securities to invest in or the nature of risks involved in trading of securities especially high
risk securities.
RISK FACTORS
An investment in the Bonds described in this Prospectus involves a certain degree of risk. A prospective
purchaser of the Bonds should carefully consider the following factors, in addition to the other information
contained in this Prospectus, in deciding whether or not to invest in the Bonds. This Prospectus contains
forward-looking statements that involve risks and uncertainties. Ayala Corporation adopts what it
considers conservative financial and operational controls and policies to manage its business risks.
Ayala Corporation’s actual results may differ significantly from the results discussed in the forwardlooking statements. See section “Forward-Looking Statements” of this Prospectus. Factors that might
cause such differences, thereby making the offering speculative or risky, may be summarized into those
that pertain to the business and operations of Ayala Corporation, in particular, and those that pertain to
the over-all political, economic, and business environment, in general. These risk factors and the manner
by which these risks shall be managed are presented below.
Investors should carefully consider all the information contained in this Prospectus including the risk
factors described below, before deciding to invest in the Bonds. The risks discussed below are believed
to be listed in the order of their importance. The Company's business, financial condition and results of
operations could be materially adversely affected by any of these risk factors.
The Company regularly reviews the risks detailed below and provides, whenever possible, risk mitigation
and business strategies to address such risks, however, note that there are certain risks that are beyond
the control of the Company and are inherent to running a business.
RISKS RELATED TO THE BUSINESS
Industry Risks
Ayala operates in four key areas: real estate and hotels, financial services, telecommunications and a
portfolio of other investments which includes water utilities, electronics and information technology, as
well as automotive and international operations. These areas have inherent risks, to wit:
14
Risk Factors
Real Estate and Hotels
The Philippine property market has, in recent years, shown remarkable year-on-year growth, in terms of
the number of development projects being undertaken. The steady rise in the Philippine economy over
the past several years, coupled with massive interest from Overseas Filipino Workers wanting to establish
permanent or temporary residence in the Philippines, is expected to support this growth. Construction is
widespread not only in Metro Manila but also in outlying provinces and other major cities as well. The
current property boom indicates that the industry is now recovering from the effects of the Asian Financial
Crisis. Any changes in demand, however, may result in a glut, which may again depress prices, similar to
what happened in 1997.
Adoption of Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate
This Philippine Interpretation requires that revenue on construction of real estate be recognized only upon
completion, except when such contract qualifies as construction contract to be accounted for under
PAS 11, Construction Contracts, or involves rendering of services in which case revenue is recognized
based on stage of completion. Contracts involving provision of services with the construction materials,
and where the risks and reward of ownership are transferred to the buyer on a continuous basis, will also
be accounted for based on stage of completion. The adoption of this Philippine Interpretation will be
accounted for retrospectively, and will result to restatement of prior period financial statements.
The adoption of this Philippine Interpretation may significantly affect the determination of the revenue
from real estate sales and the corresponding costs, and the related trade receivables, deferred tax
liabilities and retained earnings accounts. The Group is in the process of quantifying the impact of
adoption of this Interpretation and will disclose the impact when it becomes effective in 2012.
Financial Services
The Philippine banking industry has seen a significant increase in the number of commercial banks,
especially since the liberalization of operations by foreign banks. The number of commercial banks
increased from approximately 30 prior to liberalization to more than 50. However, as of end 2007, the
number of universal and commercial banks had declined to 36 as a result of mergers and closures.
Competition has remained intense despite the industry consolidation.
Corporate lending remained very competitive resulting in even narrower spreads. Pockets of growth were
seen in the middle corporate market segment; yields in this segment were wider but continued to be highly
vulnerable to economic shocks.
Telecommunications
The Philippine telecommunications industry, particularly wireless communications, has been notably
competitive as competitors have sought to increase market share by attracting new subscribers. The
principal players in Philippine telecommunications are Globe, Philippine Long Distance Telephone
Company (“PLDT”) and its wireless subsidiary Smart Communications, Inc. (“Smart”) and Digitel
Communications Philippines, Inc. (“Digitel”) which launched its wireless “Sun Cellular” mobile service in
2003. Other players include Bayan Telecommunications Philippines, Inc. (“Bayantel”) and Express
Telecommunications Company (“Extelcom”), which are both licensed to provide wireless mobile services,
and Infocom Communications Network, Inc. a licensed wireless trunked radio service operator.
While wireless subscriber growth is expected to continue, it may not continue to grow at the same rate as
in the past. Further reductions in rates, wider penetration into lower-usage subscriber segments, and
intense competition may also result in declining average revenues per subscriber.
15
Risk Factors
Other industry considerations include the capital-intensive nature of the business, the rapid pace of
change in telecommunications technology, and the regulated nature of the industry.
Others
Ayala’s portfolio of investments includes an investment in a water utility business, MWC. MWC operates
in a highly regulated environment under the terms of the Concession Agreement entered into with the
Government. Among others, the operations of this business will be materially affected by MWC’s ability
to implement rate increases, meet capital expenditure requirements and concession fee payments (to the
Government), comply with operating and performance targets specified under the Concession
Agreement, and the availability of adequate raw water supply.
Ayala is also involved in electronics contract manufacturing through the Integrated Microelectronics, Inc.
(“IMI”), which is engaged in electronics assembly and product and engineering design. IMI’s principal
products comprise printed circuit board assemblies (“PCBAs”), computer peripherals and storage devices
and other electronic sub-assemblies for export to various consumer and industrial applications. IMI’s
principal customers operate in a highly competitive global environment dominated by several large
participants. Global downturns in industry demand and increasing competition from countries such as
China could also materially impact IMI’s operating performance moving forward.
Azalea Technology Investments, Inc. (“Azalea Technology”) is Ayala’s investment vehicle in mobile and
e-commerce opportunities, communications, technologies and other IT-enabled services. The industries
in which Azalea Technology’s investment companies operate are emerging industries which, while
offering significant growth opportunities, are also exposed to significant technology risks and competition.
There can be no assurance that these investments will deliver Ayala with adequate returns.
Ayala also maintains investments in the automotive industry through its ownership of car dealerships for
Honda passenger cars and Isuzu Asian utility vehicles, commercial vehicles and trucks. These operations
depend largely on the market demand for commercial vehicles and passenger cars, as well as the market
acceptance of new product offerings.
Recently, Ayala made investments in business process outsourcing to take advantage of the growth
potential of the sector. The country’s supply of skilled personnel for BPO may not be sufficient to fill the
sector’s growing demand for labor, which can pose challenges in recruitment and employee retention,
and provide pressure on training and wage cost for BPO companies.
Through AG Holdings Ltd., Ayala also makes overseas real estate investments within the Asia-Pacific
region and the United States. Global downturns in the property market will materially affect the ability of
these investments to deliver their anticipated returns.
Competition
All of Ayala’s main operating subsidiaries and affiliates operate in highly competitive industries. Changes
in Philippine laws such as increased liberalization and tariff reductions may result in lowering the barriers
to entry in industries where Ayala’s subsidiaries and affiliates operate resulting in increased competition.
No assurance can be given that increased competition in the various industry segments will not adversely
affect Ayala’s financial condition and results of operations.
16
Risk Factors
Foreign Exchange Risk
Ayala incurs foreign exchange risk as part of its business as it may elect to finance its investments in
foreign currency. To manage this exposure, Ayala may utilize short- to medium-term hedges. In addition,
the Company maintains part of its liquid assets in short-term foreign currency denominated investments.
Intensive Capital Requirements
A number of Ayala’s principal operating companies operate in highly capital intensive industries where it
is critical to be able to keep up considerable levels of capital investments in order to maintain market
position and sustain growth. These industries include property development, telecommunications and
water utilities. Ayala believes however that its principal operating companies will be able to meet their
respective future capital expenditure requirements from their own internally generated cash flows and
borrowing capacity with minimal or no additional funding support from Ayala.
Government Regulation
A material part of Ayala’s businesses including real estate, banking, telecommunications and water
utilities, operate in an environment with various degrees of Government regulation. The introduction of
inconsistent or unpredictable application of, or changes in, Government regulations may from time to time
materially affect the operations of Ayala’s businesses.
Litigation
Being one of the largest and most diverse companies in the Philippines, Ayala is exposed to the risk of
legal proceedings against it.
Data Management Systems
Ayala relies on the latest information communication technologies for its operations and the management
of data. There is a risk that these systems may fail for reasons such as natural calamity.
Holding Company Structure
As a holding company, Ayala operates principally through its subsidiaries and affiliates. Claims of
creditors of Ayala’s subsidiaries and affiliates, including trade creditors, bank lenders and other creditors,
will have priority over any claims of Ayala and holders of the Bonds with respect to the assets of such
subsidiaries and affiliates.
Substantially all of Ayala’s cash flow is dependent on cash distributions from, or the proceeds of the
realization of, its investments in subsidiaries and affiliates. The ability of Ayala’s subsidiaries and affiliates
to pay dividends to stockholders is subject to applicable law and restrictions contained in debt instruments
of such subsidiaries and affiliates and may also be subject to deduction for taxes. In addition, the
declaration of dividends by Philippine banks is subject to approval by the BSP, thereby affecting the
payment of dividends from Ayala’s banking affiliate, the BPI Group, to Ayala. To the extent possible,
Ayala monitors and supervises the performance of its subsidiaries and affiliates to help generate or
improve such cash distributions and proceeds. There is no assurance, however, that Ayala can generate
sufficient cash flow from dividends or other payments to allow it to meet its obligations under the Bonds.
Any shortfall would have to be made up from other available sources of cash, such as a sale of
investments or proceeds from other refinancing activities available to Ayala.
Ayala, its subsidiaries and affiliates have a substantial number of contractual and working arrangements
with each other. While Ayala believes that all contractual arrangements between and among itself, its
subsidiaries and affiliates, are entered into on an arms-length basis, there can be no assurance that any
17
Risk Factors
such contract is on terms as favorable as could have been obtained in a transaction with an unrelated
third party. There is also no assurance that future working arrangements between related parties will not
involve conflicts of interest.
The Company depends significantly on the services of members of its management team, and the
departure of any of these persons is not expected to cause any significant effect on its operating
results.
The Company's success depends significantly on the continued individual and collective contributions of
each member of its management team. Most of its managers have acquired a high level of technical
expertise through many years of experience working with the Company. The loss of the services of any
member of the Company's senior management, and the inability to immediately hire and retain
experienced management personnel, while it could have an adverse effect on its business and results of
operations, is not expected to be material.
Unauthorized, negligent or fraudulent acts of any of the Company’s employees may result in
financial or economic losses for the company.
As part of its overall strategy, the Company has empowered its managers to perform and/or engage in
certain transactions with third parties. The Company tries to maintain an appropriate balance between
internal controls and organizational empowerment. While the Company has put in place internal controls
(such as limits in approval authority, regular audits, system controls and appropriate penalties for
violations), certain employees may act negligently or in bad faith, commit certain acts which may be
detrimental to the interests of the Company.
Management of Risks Related to the Business
While Ayala is sometimes portrayed in the media as a family corporation, it must be stressed that its
Board of Directors represents a mix of business, legal and finance competencies, with each director
capable of adding value and rendering independent judgment in relation to the formulation of sound
corporate policies. Directors are committed to the collective decision making processes of the Board.
Decision-making at the Board level adheres to an objective process that does not undermine the
independence and integrity of judgment of each individual director.
Good corporate governance is the cornerstone of Ayala’s sustained success over the past 174 years.
The Company’s primary mission and mandate is to create long-term value for its business and
stakeholders. In pursuit of this, Ayala has committed to the highest level of governance throughout the
organization as well as fostering a corporate culture of integrity and empowering leadership.
Ayala constantly reviews and revises its human resource policies and employee benefits structures to
ensure that its employees, whether rank-and-file or management, experience the best possible working
environment, thereby reducing employee turn-over. The Company also has processes in place for the
identification and hiring of the best available talent, whether inside or outside Ayala.
As part of its succession planning initiatives, the Company has instituted various employee development
programs, including cross-posting, foreign immersions, educational assistance, mentoring and leadership
development training. These programs equip the middle-managers with the right tools needed not only for
their present responsibilities, but also those required for them to assume higher positions in the
organization. These programs minimize the risks associated with the turn-over of experienced
management, as Ayala would be able to find competent people to take their place.
In terms of internal control risks, control mechanisms, systems and policies had been put in place in order
to address any control lapses. The Audit and Risk Committee sees to it that these internal control risks
are properly addressed through strict compliance with these system controls, policies and procedures.
18
Risk Factors
Moreover, Ayala has a culture and systems for transparency, corporate governance, disclosure and
checks-and-balances between various decision-making personnel that minimize the risks described
above.
Ayala applies conservative financial and operational controls in the management of its business risks.
Organizationally, it is the lead directors/company presidents/chief risk officers who have ultimate
accountability and responsibility to ensure risk management initiatives at subsidiaries are aligned with
Ayala and are responsible for submission of risk reports to ensure key risks are well-understood,
assessed/measured and reported. Providing support are the internal audit units who regularly process
audits and process improvements.
The Audit and Risk Committee of the Board meets regularly and performs its oversight role in managing
the risks involved in the operations of Ayala. In addition, a Chief Risk Officer oversees the entire risk
management function and is responsible for overall continuity.
In terms of internal control risks, control mechanisms, systems and policies had been put in place in order
to address any control lapses. The Audit and Risk Committee sees to it that these internal control risks
are properly addressed through strict compliance with these system controls, policies and procedures.
Moreover, Ayala has a culture and systems for transparency, corporate governance, disclosure and
checks-and-balances between various decision-making personnel that minimize the risks described
above.
With respect to legal proceedings, Ayala’s Senior Counsel, General Counsel and Corporate Governance
& Legal Affairs group analyze its transactions and activities to ensure compliance with law, regulation,
and contractual obligations. In the event that material litigation against it does arise, Ayala assesses the
merits of the case and its impact on company operations. If needed, Ayala retains external counsel to
help in the analysis or handle the actual litigation of the case.
Ayala has a Business Continuity Plan composed of, among other components, the ICT Systems
Continuity Plan and the Disaster Recovery Plan. The Company backs-up data in its servers on a daily
basis. It has a back-up site which is production-ready, meaning that all productions systems in its
principal office may be recovered in the event said office becomes unavailable due to a disaster. Critical
systems are recoverable within one to two hours; regular systems can be recovered within 24 hours.
Ayala continually invests in business continuity technology in order to reduce the recovery time of servers
at the back-up site, maximize the reliability, efficiency and manageability of the back-up system, and
ensure the automatic back-up of all data stored in Company desktops and laptops.
RISKS RELATED TO THE COUNTRY
Ayala’s businesses will be influenced by the general political and economic situation of the Philippines.
Any political and/or economic instability in the future may have a negative effect on Ayala’s financial
condition and result of operations.
Any political or social instability in the future may have an effect on the financial results of the
Company.
The Philippines has from time to time experienced political, social and military instability. In February
1986, a peaceful civilian and military uprising ended the 21-year rule of President Ferdinand Marcos and
installed Corazon Aquino as President of the Philippines. Between 1986 and 1989, there were a number
of attempted coups d’état against the Aquino administration, none of which was successful.
Political conditions in the Philippines were generally stable during the mid to late 1990s following the
election of Fidel Ramos as President in 1992. However, during 2000, his successor, Joseph Estrada,
was subject to allegations of corruption. This led to impeachment proceedings, mass public protests in
19
Risk Factors
Manila, the withdrawal of support of the military and Estrada’s eventual resignation from office. Following
Estrada’s resignation, the then Vice President, Gloria Macapagal-Arroyo, was sworn in as President on
January 20, 2001.
In 2005, the country again experienced political tension following President Macapagal-Arroyo's
admission that she called a high ranking official of the Commission on Elections during the May 2004
election campaign. This was followed by the resignation of the Administration’s key Cabinet officials as
well as the filing of three impeachment complaints alleging that she rigged the 2004 elections, none of
which prospered.
A new impeachment complaint was filed on October 5, 2007 against President Arroyo in connection with
bribery allegations involving a government contract awarded to a Chinese telecommunications company.
Thus far, no substantial evidence has been found directly linking President Arroyo to the alleged bribery.
On November 29, 2007, a Philippine Senator and former lieutenant, Antonio Trillanes IV led a group of
military officers in walking out of a trial for the occupation of the Oakwood Premier Ayala Center and
seizing a hotel in Makati to demand President Arroyo to step down. The group peacefully surrendered
after a 6-hour standoff with government forces.
The next presidential elections will be held in May 10, 2010 and the Filipino people are hoping for political
stability given the change in the administration. Overall, any future economic, political or social instability
in the Philippines may affect Ayala’s business, financial condition or results of operations.
A slowdown in the economic growth, coupled with high inflation and interest rates in the
Philippines, could materially adversely affect the Company’s business.
In the past, the Philippines has experienced periods of slow or negative growth, high inflation, significant
depreciation of the Philippine peso and electricity shortages. The regional Asian financial crisis in 1997
also affected the Philippine economy resulting in, among others, the depreciation of the Philippine peso,
higher interest rates, slower growth and a reduction in the country’s credit ratings. These affected the
ability of a number of Philippine companies to meet their debt servicing obligations. While the Philippine
economy registered economic growth since the Asian financial crisis, the economy faced significant
challenges such as a ballooning budget deficit, inflation, commodity and oil price hikes, volatile exchange
rates and a relatively weak banking sector. Overall public sector performance also remained mixed, with
the government encumbered with sizable guaranteed and non-guaranteed contingent liabilities that
complicate fiscal prospects.
Despite entrenched special interests, Government managed to address certain challenges. In November
2005, a new VAT law took effect, expanding VAT coverage to previously exempt products and services;
and in February 2006, the Government increased the VAT rate to 12% from 10%.
Gross domestic product (“GDP”) growth in the fourth quarter of 2009 was 1.8%, bringing the 2009 full
year GDP growth to 0.9% versus a 3.8% growth registered in 2008. While the Philippine economy
performed relatively well in 2008, macroeconomic conditions significantly changed in 2009 with the onset
of the financial crisis and global economic downturn. In 2009, global developments also affected the
Philippine financial markets. The United States (US) is a major trading partner of the Philippines, and a
slowdown in the US economy adversely affected the Philippine economy as well. Recent global events
also affected the Philippine stock market, as well as the debt capital market. It is not certain how the
global events will impact the Philippines in the long run.
While a new VAT law is in place and the Government has achieved lower budget deficits, there is no
assurance that the Government’s fiscal position will continue to improve. Should economic conditions of
the Philippines deteriorate, such deterioration could affect Ayala’s financial condition and results of
operations.
20
Risk Factors
Depreciation in the value of the Peso against the U.S. dollar and other currencies may affect the
Company's business.
Ayala’s revenues are predominantly denominated in Pesos, while some investment initiatives and certain
expenses including debt obligations, are denominated in currencies other than Pesos (principally U.S.
Dollars). To fund its foreign currency requirements, Ayala taps the international market to raise needed
funds and capitalize on the offshore’s flexibility in volume and in pricing. To hedge against this minimal
foreign currency exposure, Ayala utilizes short to medium term hedges to protect itself from any Peso
depreciation. Furthermore, Ayala also keeps short term U.S. Dollar investments as part of its liquid
assets.
During the last decade, the Philippines, from time to time, has experienced devaluations of the Peso and
limited foreign exchange. From 1996 to 2004, the Peso depreciated at a rate of 10% per annum from P
=
26.288 per U.S. Dollar at end-1996 to P
= 56.341 at end-2004. Owing to the implementation of the new VAT
law as well as strong inflows of OFW remittances, the Peso strengthened to P
= 49.03 per U.S. Dollar at
end-2006, and further rose to P
= 41.28 per U.S. Dollar by end-2007. The peso managed to appreciate to
an 8-year high during the first quarter of 2008, reaching P
= 40.330 on February 27, 2008. However, the
local currency's momentum stalled during the height of the Senate's inquiry on the corruption charges
leveled by whistleblower Jun Lozada on key members of the Arroyo Administration regarding the NBNZTE Broadband deal. The peso made a slight recovery afterwards, but the unexpected rise in global fuel
and food prices early in the second quarter of 2008 as investors channeled their liquidity towards
commodities drove importation costs higher, undermining the peso's interest rate differential advantage
versus the U.S. dollar. Subsequent risk aversion following the collapse of several financial institutions in
the U.S. and Europe in late 2008 has pushed the currency pair back to the P
= 47.000 level. However, with
the robust and continued growth of foreign currency remittances primarily from the overseas Filipino
workers in 2009 and in early 2010 and the generally weaker US dollar, the Peso has been able to
strengthen further closing at P
= 45.170 as of March 31, 2010.
There can be no assurance that future Peso devaluations will not occur or that the availability of foreign
exchange will not be limited. Recurrence of these conditions may affect Ayala’s financial condition and
results of operations.
Management of Risks Related to the Country
The Company has been able to overcome major crises brought about by economic and political factors
affecting the country. The strong corporate governance structure of the Company and its prudent
management team are the foundations for its continued success. Ayala also constantly monitors its
macroeconomic risk exposure, identifies unwanted risk concentrations and modifies its business policies
and activities to navigate such risks. Severe macroeconomic contractions may conceivably lead Ayala to
tweak its investment decisions to meet the downturn. As a holding company, Ayala will affirm the
principles of fiscal prudence and efficiency in operations to the companies in which it has a stake in.
RISKS RELATED TO THE BONDS
Liquidity Risk
The Philippine securities markets are substantially smaller, less liquid and more concentrated than major
securities markets. The Company cannot guarantee that the market for the Bonds will always be active or
liquid. Even if the Bonds are listed on the PDEx, trading in securities such as the Bonds may be subject to
extreme volatility at times, in response to fluctuating interest rates, developments in local and
international capital markets and the overall market for debt securities among other factors. There is no
assurance that the Bonds may be easily disposed at prices and volumes at instances best deemed
appropriate by their holders.
21
Risk Factors
Pricing Risk
The Bond’s market value moves (either up or down) depending on the change in interest rates. The
Bonds when sold in the secondary market are worth more if interest rates decrease since the Bonds have
a higher interest rate relative to the market. Likewise, if the prevailing interest rate increases, the Bonds
are worth less when sold in the secondary market. Therefore, an investor faces possible loss if he
decides to sell.
Retention of Ratings Risk
There is no assurance that the rating of the Bonds will be retained throughout the life of the Bonds. The
rating is not a recommendation to buy, sell, or hold securities and may be subject to revision, suspension,
or withdrawal at any time by the assigning rating organization.
Bonds have no Preference under Article 2244(14) of the Civil Code
No other loan or other debt facility currently or to be entered into by the Issuer is notarized, such that no
other loan or debt facility to which the Issuer is a party shall have preference of priority over the Bonds as
accorded to public instruments under Article 2244(14) of the Civil Code of the Philippines, and all banks
and lenders under any such loans or facilities have waived the right to the benefit of any such preference
or priority. However, should any bank or bondholder hereinafter have a preference or priority over the
Bonds as a result of notarization, then the Issuer shall at the Issuer’s option, either procure a waiver of
the preference created by such notarization or equally and ratably extend such preference to the Bonds.
22
USE OF PROCEEDS
Ayala expects to raise gross proceeds amounting to approximately up to Ten Billion Pesos (=
P
10,000,000,000) from the Offer.
The following are the estimated expenses to be incurred in relation to the Offer:
SEC Registration and Legal Research Fee
Publication Fee
Documentary Stamp Taxes
Underwriting Fees
Ratings Fees
Estimated Professional Expenses
Listing Fees
Trustee Fees
Registry Fees
Other related expenses
P
=
P
=
P
=
P
=
P
=
P
=
P
=
P
=
P
=
P
=
3,598,125
100,000
50,000,000
40,000,000
4,500,000
3,300,000
50,000
15,000
75,000
200,000
Total
P
=
101,838,125
Aside from the fees enumerated above, the Company will be paying the following estimated annual fees
related the Bonds:
1. PhilRatings annual monitoring fee of P
= 500,000
2. Metropolitan Bank and Trust Company – Trust Banking Group as trustee to the Bondholders
annual retainer fee of P
= 100,000 net of tax, in semi-annual payments.
3. PDTC registry maintenance annual fee of P
= 250,000
4. BPI Stock Transfer Office as paying agent annual fee of P
= 60,000
5. PDTC annual listing maintenance fee of P
= 150,000
The net proceeds from the Offer is estimated to be P
= 9,898,161,875 after deducting expenses related to
the Offer. The net proceeds of P
= 9,898,161,875 shall be used by the company to fund its general working
capital account to be used for its operations as a holding company.
As a holding company, Ayala is consistently seeking opportunities for expansion both through organic
growth of the existing lines of businesses as well as through transactions and acquisitions that would add
value to the company and to the Ayala Group as a whole. Although there can be no assurance regarding
what and when opportunities may arise, Ayala evaluates such opportunities on an ongoing basis. Ayala is
presented from time to time with opportunities to invest in new business areas and it will continue to
consider such opportunities to the extent that such businesses would contribute to the overall strategic
objectives of the Group.
Ayala seeks to ensure that the Ayala Group maintains its commitment to its business activities in the
Philippines and to explore possible international initiatives on a selective and opportunistic basis. Ayala
intends to build on its leadership position in the Ayala Group's existing core businesses in real estate,
financial services and telecommunications, and actively manage its portfolio of other investments and
assets under AC Capital with a view toward maximum value creation and realization.
Ayala is presented from time to time with opportunities to invest in new business areas, such as but not
limited to the power generation and service (e.g. BPO) industries, and will continue to consider such
opportunities to the extent that such businesses would contribute to the overall strategic objectives of the
Ayala Group.
23
Use of Proceeds
Other disclosures
The Company intends neither to use any material amount of the proceeds to reimburse any officer,
director, employee or shareholder for service rendered, assets previously transferred, money loaned or
advanced.
In the event of any substantial deviation / adjustment in the planned uses of proceeds, the Company shall
inform the Securities and Exchange Commission and the stockholders within thirty (30) days prior to its
implementation.
24
PLAN OF DISTRIBUTION
Ayala plans to issue the Bonds on a lump-sum basis through designated Joint Lead Underwriters.
UNDERWRITING OBLIGATIONS OF THE JOINT LEAD UNDERWRITERS AND BOOKRUNNERS
BDO Capital & Investment Corporation (“BDO Capital”), BPI Capital Corporation (“BPI Capital”), Citicorp
Capital Philippines, Inc. (“Citicorp Capital”), First Metro Investment Capital Corporation (“FMIC”), The
Hongkong and Shanghai Banking Corporation Limited (“HSBC”), ING Bank, N.V., Manila Branch (“ING”),
RCBC Capital Corporation (“RCBC Capital”) and Standard Chartered Bank (“SCB”) (collectively referred
to as the “Joint Lead Underwriters”), pursuant to an Underwriting Agreement with Ayala (the “Underwriting
Agreement”) executed on April 16, 2010, have agreed to act as the Joint Lead Underwriters for the Offer
and as such, distribute and sell the Bonds at the Issue Price, and have also committed to underwrite up to
Ten Billion Pesos (=
P10,000,000,000) on a firm basis, in either case subject to the satisfaction of certain
conditions and in consideration for certain fees and expenses.
BPI Capital is the sole Issue Manager for this transaction.
The Joint Lead Underwriters will receive a fee of 0.40%, grossed up for gross receipts tax, on the
underwritten principal amount of the Bonds issued. Such fee shall be inclusive of underwriting, and
participation commissions.
The amount of the commitments of the Joint Lead Underwriters is as follows:
BDO Capital & Investment Corporation
BPI Capital Corporation
Citicorp Capital Philippines, Inc,
First Metro Investment Corporation
The Hongkong and Shanghai Banking Corporation Limited
ING Bank N.V., Manila Branch
RCBC Capital Corporation
Standard Chartered Bank
TOTAL
P
= 2,250,000,000
2,400,000,000
850,000,000
1,500,000,000
1,000,000,000
500,000,000
1,000,000,000
500,000,000
P
= 10,000,000,000
There is no arrangement for the Joint Lead Underwriters to put back to Ayala any unsold Bonds. The
Underwriting Agreement may be terminated in certain circumstances prior to payment being made to
Ayala of the net proceeds of the Bonds.
The Joint Lead Underwriters are duly licensed by the SEC to engage in underwriting or distribution of the
Bonds. The Joint Lead Underwriters may, from time to time, engage in transactions with and perform
services in the ordinary course of its business for Ayala or other members of the Ayala Group of which
Ayala forms a part.
BPI Capital Corporation is the wholly-owned investment bank subsidiary of Bank of the Philippine Islands.
BPI Capital is an investment house focused on corporate finance and the securities distribution business.
It began operations as an investment house in December 1994. BPI Capital Corporation has an
investment house license. Except for BPI Capital, the Joint Lead Underwriters have no direct relations
with Ayala in terms of ownership by either of their respective major stockholder/s. BPI Capital is a wholly
owned subsidiary of BPI, an affiliate of Ayala, which has an effective ownership of 33.5% in BPI as of
December 31, 2009.
None of the Joint Lead Underwriters has the right to designate or nominate a member of the Board of
Ayala.
25
Plan of Distribution
SALE AND DISTRIBUTION
(a) The distribution and sale of the Bonds shall be undertaken by the Joint Lead Underwriters who shall
sell and distribute the Bonds to third party buyers/investors. Nothing herein shall limit the rights of the
Joint Lead Underwriters from purchasing the Bonds for their own respective accounts.
(b) The obligations of each of the Joint Lead Underwriters will be several, and not joint and solidary, and
nothing in the Underwriting Agreement shall be deemed to create a partnership or joint venture
between and among any of the Joint Lead Underwriters. Unless otherwise expressly provided in the
Underwriting Agreement, the failure by any of the Joint Lead Underwriters to carry out its obligations
thereunder shall not relieve any other Joint Lead Underwriter of its obligations thereunder, nor shall
any Joint Lead Underwriter be responsible for the obligations of any other Joint Lead Underwriter
thereunder.
DESIGNATED SHARES AND ALLOCATIONS
Each Joint Lead Underwriter may take on any portion up to the full amount of the Issue, as determined by
Ayala.
TERM OF APPOINTMENT
The engagements of the Joint Lead Underwriters, as well as the Issue Manager shall subsist so long as
the SEC Permit remains valid, unless otherwise terminated by Ayala, the Issue Manager or the Joint Lead
Underwriters.
MANNER OF DISTRIBUTION
The Joint Lead Underwriters shall, at their discretion, determine the manner by which proposals for
subscriptions to, and issuances of, Bonds shall be solicited, with the primary sale of Bonds to be effected
only through the Joint Lead Underwriters.
OFFER PERIOD
The Offer Period shall commence on April 20, 2010 and end on April 26, 2010.
APPLICATION TO PURCHASE
Applicants may purchase the Bonds during the Offer Period by submitting to the Joint Lead Underwriters
a properly completed Application to Purchase, together with two (2) signature cards, and the full payment
of the purchase price of the Bonds in the manner provided therein. Corporate and institutional applicants
must also submit, in addition to the foregoing, a copy of their SEC Certificate of Registration of Articles of
Incorporation and By-Laws, Articles of Incorporation, By-Laws, and the appropriate authorization by their
respective boards of directors and/or committees or bodies authorizing the purchase of the Bonds and
designating the authorized signatory(ies) thereof. Individual applicants must also submit, in addition to the
foregoing, a photocopy of any one of the following identification cards (“ID”): passport/driver’s
license/postal ID, company ID, SSS/GSIS ID and/or Senior Citizen’s ID.
A corporate and institutional investor who is exempt from or is not subject to the aforesaid withholding tax
shall be required to submit the following requirements to the Registrar, subject to acceptance by the
Issuer as being sufficient in form and substance: (i) certified true copy of the tax exemption certificate,
ruling or opinion issued by the Bureau of Internal Revenue; (ii) a duly notarized undertaking, in the
prescribed from, declaring and warranting its tax exempt status, undertaking to immediately notify the
Issuer of any suspension or revocation of the tax exemption certificates and agreeing to indemnify and
hold the Issuer free and harmless against any claims, actions, suits, and liabilities resulting from the non26
Plan of Distribution
withholding of the required tax; and (iii) such other documentary requirements as may be required under
the applicable regulations of the relevant taxing or other authorities, provided further, that all sums
payable by the Issuer to tax exempt entities shall be paid in full without deductions for taxes, duties
assessments or government charges subject to the submission by the Bondholder claiming the benefit of
any exemption of reasonable evidence of such exemption to the Registrar.
Completed Applications to Purchase and corresponding payments must reach the Joint Lead
Underwriters prior to the end of the Offer Period, or such earlier date as may be specified by the Joint
Lead Underwriters. Acceptance by the Joint Lead Underwriters of the completed Application to Purchase
shall be subject to the availability of the Bonds and the acceptance by Ayala. In the event that any check
payment is returned by the drawee bank for any reason whatsoever, the Application to Purchase shall be
automatically canceled and any prior acceptance of the Application to Purchase is deemed revoked.
MINIMUM PURCHASE
A minimum purchase of Fifty Thousand Pesos (=
P50,000) shall be considered for acceptance. Purchases
in excess of the minimum shall be in integral multiples of Ten Thousand Pesos (=
P10,000).
ALLOTMENT OF THE BONDS
If the Bonds are insufficient to satisfy all Applications to Purchase, the available Bonds shall be allotted in
accordance with the chronological order of submission of properly completed Applications to Purchase on
a first-come, first-served basis, subject to Ayala’s right of rejection.
REFUNDS
If any application is rejected or accepted in part only, the application money or the appropriate portion
thereof will be returned without interest to such applicant through the relevant Joint Lead Underwriter from
whom such application to purchase the Bonds was made.
UNCLAIMED PAYMENTS
Any payment of interest on, or the principal of the Bonds which remain unclaimed after the same shall
have become due and payable, shall be held in trust by the Paying Agent for the Bondholders at the
latter’s risk.
PURCHASE AND CANCELLATION
The Issuer may purchase the Bonds at any time in the open market or by tender or by contract at any
price without any obligation to make pro-rata purchases from all Bondholders. Bonds, which have been
redeemed, may be re-issued by Ayala under such terms and conditions as may be approved by Ayala’s
Board of Directors.
REGISTRY OF BONDHOLDERS
The Bonds shall be issued in scripless form and will be eligible for trading under the Scripless book-entry
system of the PDTC. A Master Certificate of Indebtedness representing the Bonds sold in the Offer shall
be issued to and registered in the name of the Trustee, on behalf of the Bondholders.
Legal title to the Bonds shall be shown in the Register of Holders to be maintained by the designated
registrar for the Bonds. Initial placement of the Bonds and subsequent transfers of interests in the Bonds
shall be subject to applicable Philippine selling restrictions prevailing from time to time. Ayala will cause
the Register of Bondholders to be kept at the specified office of the Registrar. The names and addresses
27
Plan of Distribution
of the Bondholders and the particulars of the Bonds held by them and of all transfers of Bonds shall be
entered into the Register of Bondholders.
EXPENSES
All out-of-pocket expenses, including but not limited to, registration with the SEC, credit rating, printing,
publicity, communication and signing expenses incurred by the Issue Manager and the Joint Lead
Underwriters in the negotiation and execution of the transaction will be for Ayala’s account irrespective of
whether the transaction contemplated herein is completed. Such expenses are to be reimbursed upon
presentation of a composite statement of account.
28
DETERMINATION OF OFFER PRICE
The Bonds shall be issued on a fully-paid basis and at an issue price that is at par.
29
DESCRIPTION OF THE BONDS
The following does not purport to be a complete listing of all the rights, obligations, or privileges of the Bonds. Some
rights, obligations, or privileges may be further limited or restricted by other documents. Prospective investors are
enjoined to carefully review the Articles of Incorporation, By-Laws and resolutions of the Board of Directors and
Shareholders of Ayala, the information contained in this Prospectus, the Trust Indenture, Underwriting Agreement,
and other agreements relevant to the Offer.
The issue of up to P
= 10,000,000,000 aggregate principal amount of 7.20% p.a. fixed rate bonds (the
“Bonds”) was authorized by a resolution of the Board of Directors of Ayala Corporation (“Ayala” or the
“Issuer”) in a meeting held on March 15, 2010. The Bonds shall be constituted by a Trust Indenture
Agreement (the “Trust Indenture”) to be executed on April 16, 2010 between Ayala and Metropolitan Bank
and Trust Company – Trust Banking Group (the “Trustee” which expression shall wherever the context
permits, include all other persons or companies for the time being acting as trustee or trustees under the
Trust Indenture). The description of the terms and conditions of the Bonds set out below includes
summaries of, and is subject to, the detailed provisions of the Trust Indenture. A registry and paying
agency agreement shall be executed on April 16, 2010 (the “Registry and Paying Agency Agreement”) in
relation to the Bonds between Ayala and Bank of the Philippine Islands – Stock Transfer Office (the
“Paying Agent”), and Philippine Depository and Trust Corporation as registrar (the “Registrar”) and Ayala
respectively.
The Bonds will mature on April 30, 2017, unless earlier redeemed by Ayala pursuant to the terms thereof
and subject to the provisions on exercise of the Bondholder’s (as defined below) Put Option, redemption
and payment below.
Copies of the Trust Indenture, the Registry and Paying Agency Agreement are available for inspection
during normal business hours at the specified offices of the Trustee. The holders of the Bonds (the
“Bondholders”) are entitled to the benefit of, are bound by, and are deemed to have notice of, all the
provisions of the Trust Indenture and are deemed to have notice of those provisions of the Registry and
Paying Agency Agreement applicable to them.
1. FORM, DENOMINATION AND TITLE
(a) Form and Denomination
The Bonds are in scripless form, and will be issued and traded or redeemed in accordance with
the Bondholder’s Put Option (as defined below), in denominations of P
= 50,000, as a minimum, and
in integral multiples of P
= 10,000 thereafter.
(b) Title
Legal title to the Bonds will be shown in the register of Bondholders (the “Register of
Bondholders”) maintained by the Registrar. A notice confirming the principal amount of the Bonds
purchased by each applicant in the Offering will be issued by the Registrar to all Bondholders
following the Issue Date. Upon any assignment, title to the Bonds will pass by recording of the
transfer from the transferor to the transferee in the electronic Register of Bondholders maintained
by the Registrar. Settlement in respect of such transfer or change of title to the Bonds, including
the settlement of any cost arising from such transfers, including but not limited to documentary
stamps taxes, if any, arising from subsequent transfers, shall be for the account of the relevant
Bondholder.
30
Description of the Bonds
(c) Bond Rating
The Bonds have been rated PRS Aaa by Philippine Ratings Services Corporation (“PhilRatings”)
on 25 March 2010. According to PhilRatings, obligations rated PRS Aaa are of the highest quality
with minimal credit risk. In coming with the rating, PhilRatings considered the following factors
present in the Company: (i) highly diversified and generally self-sustaining investments portfolio,
(ii) more than adequate liquidity, (iii) well managed debt profile, (iv) lowered profitability although
favorable growth prospects and ample debt cover will continue over the long-term, (v) multiple
layers of financial flexibility, (vi) strong and well respected brand equity, (vii) conservative but
anticipatory management stance, and (vii) flexible management team.
The rating was based on available information at the time it was given and is subject to regular
annual reviews, or more frequently as market developments may dictate, for as long as the
Bonds are outstanding. The rating may be changed at any time should PhilRatings determine that
circumstances warrant a change.
2. TRANSFER OF BONDS
(a) Register of Bondholders
Ayala will cause the Register of Bondholders to be kept by the Registrar, in electronic form. The
names and addresses of the Bondholders and the particulars of the Bonds held by them and of
all transfers of Bonds shall be entered into the Register of Bondholders. As required by Circular
No. 428-04 issued by the Bangko Sentral ng Pilipinas (“BSP”), the Registrar shall send each
Bondholder a written statement of registry holdings at least every quarter (at the cost of Ayala)
and a written advice confirming every receipt or transfer of the Bonds that is effected in the
Registrar’s system (at the cost of the relevant Bondholder). Such statement of registry holdings
shall serve as the confirmation of ownership of the relevant Bondholder as of the date thereof.
Any requests of Bondholders for certifications, reports or other documents from the Registrar,
except as provided herein, shall be for the account of the requesting Bondholder. No transfers of
the Bonds may be made during the period commencing on a Record Date (as defined in 4(a)
below) until the next Interest Payment Date.
(b) Transfers; Tax Status
Bondholders may transfer their Bonds at anytime, regardless of tax status of the transferor vis-avis the transferee. Should a transfer between Bondholders of different tax status occurs on a day
which is not an Interest Payment Date, tax exempt entities trading with non tax exempt entities
shall be treated as non-tax exempt entities for the Interest Period within which such transfer
occurred. A Bondholder claiming tax-exempt status is required to submit a written notification of
the sale or purchase to the Trustee, including the tax status of the transferor or transferee, as
appropriate, together with the supporting documents specified under “Payment of Additional
Amounts; Taxation”, below, within three (3) days from the settlement date for such transfer.
Transfers taking place in the Register of Bondholders after the Bonds are listed on PDEx may be
allowed between taxable and tax-exempt entities without restriction provided the same are in
accordance with the relevant rules, conventions and guidelines of PDEx and the depository.
(c) Secondary Trading of the Bonds
Ayala intends to list the Bonds in PDEx for secondary market trading or such other securities
exchange licensed as such by the SEC on which the trading of debt securities in significant
volumes occurs. Secondary market trading and settlement in PDEx shall follow the applicable
PDEx rules, conventions and guidelines, including rules, conventions and guidelines governing
trading and settlement between bondholders of different tax status.
31
Description of the Bonds
3. RANKING
The Bonds constitute direct, unconditional, unsecured and unsubordinated Peso-denominated obligations
of Ayala and will rank pari passu and rateably without any preference or priority amongst themselves and
at least pari passu with all other present and future unsecured and unsubordinated obligations of the
Ayala, other than obligations preferred by law.
4. INTEREST
(a) Interest Payment Dates
Each Bond bears interest on its principal amount from and including Issue Date at the rate of
7.20% per annum, payable quarterly in arrears on April 30, July 30, October 30 and January 30 in
each year (each of which, for purposes of this clause is an “Interest Payment Date”) commencing
on July 30, 2010 or the subsequent Business Day without adjustment if such Interest Payment
Date is not a Business Day. The last Interest Payment Date shall fall on the Maturity Date.
The cut-off date in determining the existing Bondholders entitled to receive interest or principal
amount due shall be the day ten (10) Business Days prior to the relevant Interest Payment Date
(the “Record Date”), which shall be the reckoning day in determining the Bondholders entitled to
receive interest, principal or any other amount due under the Bonds. No transfers of the Bonds
may be made during this period intervening between and commencing on the Record Date and
the relevant Interest Payment Date.
(b) Interest Accrual
Each Bond will cease to bear interest from and including the Maturity Date, as defined in the
discussion on “Final Redemption”, below, unless, upon due presentation, payment of the principal
in respect of the Bond then outstanding is not made, is improperly withheld or refused, in which
case the Penalty Interest (see “Penalty Interest”), below, will apply.
(c) Determination of Rate of Interest
The interest shall be calculated on the basis of a 360-day year consisting of 12 months of 30 days
each and, in the case of an incomplete month, the number of days elapsed on the basis of a
month of 30 days.
5. BONDHOLDERS’ PUT OPTION
(a) Put Option
th
On the twentieth (20 ) Interest Payment Date (the “Put Option Date”), each Bondholder shall
have the option (but not the obligation) to require the Issuer to redeem the outstanding Bonds
registered in such Bondholder’s name in whole or in part, in denominations of P
= 50,000 each, as a
minimum and in integral multiples of P
= 10,000 thereafter (the “Put Option”) at a strike price
computed as the aggregate of: (i) par or one hundred percent (100%) of face value of the
outstanding principal amount of the Bonds being redeemed; and (ii) accrued interest computed
up to the Put Option Date (collectively, the “Put Option Payment”) in respect of the Bonds
covered by an exercised Put Option.
32
Description of the Bonds
(b) Exercise of the Put Option
During business hours on a date no earlier than sixty (60) days and no later than thirty (30) days
prior to the Put Option Date (the “Put Exercise Period”), any Bondholder that elects to exercise
the Put Option shall do so by delivery of an original and four copies of a notice of such exercise to
the Trustee (the “Put Option Notice”) in the form set out in paragraph c., below, of this Condition
5. Upon receipt of a Put Option Notice fully complying with these Terms and Conditions, the
Trustee shall transmit copies thereof to the Issuer, the Registrar and the Paying Agent.
Payment of the Put Option Payment on the Put Option Date to Bondholders that had delivered
complete and verified Put Option Notice during the Put Exercise Period shall be in the same
manner as all payments to the relevant Bondholder under Condition 7 (Payments), below.
Once executed, completed and delivered to the Trustee, a Put Option Notice is irrevocable. From
such time until the redemption and payment by Ayala of the Put Option Payment, the Bonds may
not be transferred in the books of the Registry by a Bondholder that has exercised a Put Option
over such Bonds.
(c) Information Required in the Put Option Notice
A Put Option shall be exercised by due execution and delivery of the form provided at the end of
this section during the Put Exercise Period, submitted together with the required attachments.
6. REDEMPTION AND PURCHASE
(a) Final Redemption
Unless previously purchased and cancelled, the Bonds will be redeemed at par or one hundred
percent (100%) of face value on April 30, 2017 (the “Maturity Date”). However, payment of all
amounts due on such date may be made by Ayala through the Paying Agent, without adjustment,
on the succeeding Business Day if the Maturity Date is not a Business Day.
(b) Redemption for Taxation Reasons
If payments under the Bonds become subject to additional or increased taxes other than the
taxes and rates of such taxes prevailing on the Issue Date as a result of certain changes in law,
rule or regulation, or in the interpretation thereof, and such additional or increased rate of such
tax cannot be avoided by use of reasonable measures available to Ayala, Ayala may redeem the
Bonds in whole, but not in part, on any Interest Payment Date (having given not more than 60 nor
less than 30 days’ notice to the Trustee) at par plus accrued interest.
(c) Change in Law or Circumstance
The following events shall be considered as changes in law or circumstances (“Change of Law”)
as it refers to the obligations of Ayala and to the rights and interests of the Bondholders under the
Trust Indenture and the Bonds:
i.
Any government and/or non-government consent, license, authorization, registration
or approval now or hereafter necessary to enable Ayala to comply with its obligations
under the Trust Indenture or the Bonds shall be modified in a manner which, in the
reasonable opinion of the Trustee, while not constituting an Event of Default, will
materially and adversely affect the ability of Ayala to comply with such obligations, or
shall be withdrawn or withheld; and
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Description of the Bonds
ii.
Any provision of the Trust Indenture or any of the related documents is or becomes,
for any reason, invalid, illegal or unenforceable to the extent that it becomes for any
reason unlawful for Ayala to give effect to its rights or obligations hereunder, or to
enforce any provisions of the Trust Indenture or any of the related documents in
whole or in part, or any law is introduced to prevent or restrain the performance by
the parties hereto of their obligations under the Trust Indenture or any other related
documents.
In the event that Ayala should invoke any of the events described in this Condition 6(c), Ayala
shall provide the Trustee an opinion of legal counsel confirming the occurrence of the relevant
event and the consequences thereof as consistent herewith, such legal counsel being from an
internationally recognized law firm reasonably acceptable to the Trustee. Thereupon the Trustee
shall confirm that Ayala may redeem the Bonds in whole, but not in part, on any Interest Payment
Date (having given not more than sixty (60) nor less than thirty (30) days’ notice to the Trustee) at
par plus accrued interest.
(d) Purchase and Cancellation
Ayala may at any time purchase any of the Bonds at any price in the open market or by tender or
by contract at any price, without any obligation to purchase Bonds pro-rata from all Bondholders
and the Bondholders shall not be obliged to sell. Any Bonds so purchased shall be redeemed and
cancelled and may not be re-issued.
7. PAYMENTS
The principal of, interest on, and all other amounts payable on the Bonds will be payable to the
Bondholders through checks issued by the Paying Agent and, at the option of the Bondholder, either: (a)
made available for pick-up by such Bondholder or its duly authorized representative at the office of the
Paying Agent at 16th Floor BPI Building, Ayala Avenue corner Paseo de Roxas, Makati City; or (b)
delivered via registered mail, at the Bondholder’s risk, to the addresses of the Bondholders appearing in
the Register of Bondholders. Bondholders claiming checks from the Paying Agent will be required to
present proof of identification documents and Bondholder representatives will be required to present
written authority from the relevant Bondholder, in form and substance acceptable to the Paying Agent.
The principal of, and interest on, the Bonds will be payable in Philippine Pesos.
Ayala will ensure that so long as any of the Bonds remains outstanding, there shall at all times be a
Paying Agent for the purposes of the Bonds and Ayala may terminate the appointment of the Paying
Agent, subject as provided in the Registry and Paying Agency Agreement. In the event of the appointed
office of any bank being unable or unwilling to continue to act as the Paying Agent, Ayala shall appoint
the Makati City office of such other leading bank in the Philippines to act in its place. The Paying Agent
may not resign its duties or be removed without a successor having been appointed.
8. PAYMENT OF ADDITIONAL AMOUNTS; TAXATION
Interest income on the Bonds is subject to a final withholding tax at rates of between 20% and 35%
depending on the tax status of the relevant Bondholder under relevant law, regulation or tax treaty.
Except for such final withholding tax and as otherwise provided, all payments of principal and interest
shall be made free and clear of any deductions or withholding for or on account of any present or future
taxes or duties imposed by or on behalf of Republic of the Philippines, including but not limited to, issue,
registration or any similar tax or other taxes and duties, including interest and penalties. If such taxes or
duties are imposed, the same shall be for the account of Ayala. Provided, however, that Ayala shall not
be liable for:
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Description of the Bonds
(a)
the applicable final withholding tax applicable on interest earned on the Bonds prescribed under
the National Internal Revenue Code of 1997, as amended and its implementing rules and
regulations as may be in effect from time to time, (the “Tax Code”). An investor who is exempt
from the aforesaid withholding tax, or is subject to a preferential withholding tax rate shall be
required to submit the following requirements to the Registrar, subject to acceptance by Ayala as
being sufficient in form and substance: (i) certified true copy of the tax exemption certificate,
ruling or opinion issued by the Bureau of Internal Revenue confirming the exemption or
preferential rate; (ii) a duly notarized undertaking, in the prescribed form, declaring and
warranting its tax exempt status or preferential rate entitlement, undertaking to immediately notify
Ayala of any suspension or revocation of the tax exemption certificates or preferential rate
entitlement, and agreeing to indemnify and hold Ayala and the Registrar free and harmless
against any claims, actions, suits, and liabilities resulting from the non-withholding of the required
tax; and (iii) such other documentary requirements as may be required under the applicable
regulations of the relevant taxing or other authorities which for purposes of claiming tax treaty
withholding rate benefits, shall include evidence of the applicability of a tax treaty and
consularized proof of the Bondholder’s legal domicile in the relevant treaty state, and confirmation
acceptable to Ayala that the Bondholder is not doing business in the Philippines, provided further,
that all sums payable by Ayala to tax exempt entities shall be paid in full without deductions for
taxes, duties assessments or government charges subject to the submission by the Bondholder
claiming the benefit of any exemption of reasonable evidence of such exemption to the Registrar;
(b)
Gross Receipts Tax under Section 121 of the Tax Code;
(c)
taxes on the overall income of any securities dealer or Bondholder, whether or not subject to
withholding; and
(d)
Value Added Tax (“VAT”) under Sections 106 to 108 of the Tax Code, and as amended by
Republic Act (R.A.) No. 9337.
Documentary stamp tax for the primary issue of the Bonds and the execution of the Bond Agreements, if
any, shall be for Ayala’s account.
9. MAINTENANCE OF FINANCIAL RATIOS
For as long as any of the Bonds remain outstanding, the Issuer hereby covenants that it shall:
(a)
Maintain a maximum Debt to Equity Ratio of 3.0 : 1.0
(b)
Maintain a minimum Current Ratio of 0.5 : 1.0;
10. NEGATIVE PLEDGE
For as long as any of the Bonds remains outstanding, Ayala covenants that Ayala shall not, without the
prior written consent of the Bondholders holding more than fifty percent (50%) of the principal amount of
the Bonds then outstanding (the “Majority Bondholders”), permit any indebtedness for borrowed money to
be secured by or to benefit from Security in favor of any creditor or class of creditors without providing the
Bondholders with the same kind or class of Security, the benefit of which is extended equally and ratably
among them to secure the Bonds; provided however that, this restriction shall not prohibit:
(a)
Any Security over any asset to secure: (i) payment of the purchase price or cost of leasehold
rights of such asset; or (ii) the payment of the cost and expenses for the development of such
asset pursuant to any development made or being made by Ayala in the ordinary course of
business; or (iii) the payment of any indebtedness in respect of borrowed money (including
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Description of the Bonds
extensions and renewals thereof and replacements thereof) incurred for the purpose of financing
the purchase, lease or development of such asset;
(b)
Any Security constituted for any obligation or credit facility incurred for the purpose of pursuing
any infrastructure project or investment therein, whether such infrastructure project is undertaken
by Ayala itself, by its Affiliates, and/or by Ayala or its Affiliates with third parties, and whether the
same is carried on separately from or integrated with any of Ayala’s real estate development, or
any Security constituted by Ayala on its right to receive income or revenues (whether in the form
of dividends or otherwise) from infrastructure projects or related investments therein;
(c)
Any Security created for the purpose of paying current Taxes, assessments or other
governmental charges which are not delinquent or remain payable without any penalty; or the
validity of which is contested in good faith by appropriate proceedings upon stay of execution of
the enforcement thereof and adequate reserves having been provided for the payment thereof;
(d)
Any Security to secure, in the normal course of the business of Ayala or its Affiliates: (i) statutory
or regulatory obligations; (ii) surety or appeal bonds; (iii) bonds for release of attachment, stay of
execution or injunction; or (iv) performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases;
(e)
Any Security: (i) imposed by law, such as carrier’s, warehousemen’s and mechanics’ liens and
other similar liens arising in the ordinary course of business and not material in amount; (ii)
arising out of pledge or deposits under the workmen’s compensation laws, unemployment
insurance, old age pensions or other social security or retirement benefits or similar legislation;
and (iii) arising out of set-off provisions in the normal course of its financing arrangements;
provided that the Bondholders hereunder shall also have to the extent permitted by applicable
Law, and upon notice to Ayala, a similar right of set- off;
(f)
Any Security in favor of banks, insurance companies, other financial institutions and Philippine
Government agencies, departments, authorities, corporations or other juridical entities, which
secure a preferential financing obtained by Ayala under a governmental program, and which
cover assets of the Issuer which have an aggregate appraised value, determined in accordance
with generally accepted appraisal principles and practices consistently applied not exceeding
Eight Billion Philippine Pesos (=
P8,000,000,000.00);
(g)
Any Security existing on the date of the Trust Indenture which is disclosed in writing by Ayala to
the Trustee prior to the execution of the Trust Indenture;
(h)
Any Security established in favor of insurance companies and other financial institutions in
compliance with the applicable requirements of the Office of the Insurance Commission on
admitted assets or the requirements of the Bangko Sentral ng Pilipinas on loans and financial
accommodations extended to directors, officers, stockholders and related interest (DOSRI);
(i)
Any Security to be constituted on the assets of Ayala after the date of the Trust Indenture which is
disclosed in writing by Ayala to the Trustee prior to the execution of the Trust Indenture or any
Security for an aggregate loan accommodation not exceeding the equivalent of ten percent (10%)
of the market value of the consolidated assets of Ayala as reflected in the latest appraisal report
submitted by an independent and reputable appraiser;
(j)
Any Security constituted over the investment of Ayala in any of its Affiliates, to guarantee or
secure the obligations of said Affiliates whether such investment is in the form of shares, deposits
or advances, to guarantee or secure the obligations of said Affiliates;
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Description of the Bonds
(k)
Any Security constituted for the purpose of guaranteeing an Affiliate’s obligation in connection
with any contract or agreement (other than for borrowed money);
(l)
Any title transfer or retention of title arrangement entered into by Ayala in the normal course of its
trading activities on the counterparty’s standard or usual terms; or
(m)
Any Security created over (i) deposits made by Ayala with the proceeds of any loan facility made
to it by any bank or financial institution denominated in a currency (“foreign currency”) other than
Philippine Pesos; or (ii) financial instruments denominated in a foreign currency owned by Ayala,
in each case solely for the purpose of securing loan facilities denominated in Philippine Pesos
granted to Ayala in an aggregate equivalent principal amount not exceeding the amount of the
deposit or the face amount (or value) of that financial instrument; or
(n)
Any Security created over cash deposits or marketable investment securities in favor of a bank or
financial institution to secure any borrowed money in connection with a treasury transaction,
provided that the aggregate amount of security does not at any time exceed US$30,000,000 or its
equivalent. For this purpose, a “treasury transaction” means any currency, commodity, or interest
rate purchase, cap or collar agreement, forward rate agreement, future or option contract, swap
or other similar agreement, in relation to Ayala’s treasury management.
11. EVENTS OF DEFAULT
Ayala shall be considered in default under the Bonds and the Trust Indenture in case any of the following
events (each an “Event of Default”) shall occur and is continuing:
(a)
Payment Default
Ayala fails to pay when due and payable any amount which Ayala is obliged to pay to the
Bondholders under the Trust Indenture and the Bonds.
(b)
Representation/Warranty Default
Any representation and warranty of Ayala hereof or any certificate or opinion submitted pursuant
hereto proves to have been untrue, incorrect or misleading in any material respect as and when
made and the circumstances which cause such representation or warranty to be incorrect or
misleading continue for not less than fourteen (14) days (or such longer period as the Majority
Bondholders shall approve) after receipt of written notice from the Bondholders to that effect.
(c)
Other Default
Ayala fails to perform or violates any other provisions of the Trust Indenture and the Bonds, and
such failure or violation is not remediable or, if remediable, continues to be unremedied after the
applicable grace period, or in the absence of such grace period, after thirty (30) days from the
date of occurrence of the said violation with respect to the covenant to maintain the prescribed
financial ratios, (particularly a maximum debt to equity ratio of 3.0 : 1.0; and a minimum current
ratio of 0.5 : 1.0); provided that the Events of Default constituting a payment default or closure
default shall not be remediable.
(d)
Cross Default
Ayala violates any term or condition of any contract executed by Ayala with any bank, financial
institution or other person, corporation or entity for the payment of borrowed money which
constitutes an event of default under said contract, or in general, violation of any, law or
regulation which violation, if remediable, is not remedied by Ayala within ten (10) Business Days
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Description of the Bonds
from receipt of notice by the Trustee to Ayala, or which violation is otherwise not contested by
Ayala, and the effect of such violation results in the acceleration or declaration of the whole
financial obligation to be due and payable prior to the stated normal date of maturity; and which
violation will, further, in the reasonable opinion of the Trustee, adversely and materially affect the
performance by Ayala of its obligations under the Trust Indenture and the Bonds. Provided,
however, that no event of default will occur under this paragraph unless the aggregate amount of
indebtedness in respect of which one or more of the events above mentioned has/have occurred
equals or exceeds US$10 Million ($10,000,000.00) or its Peso equivalent.
(e)
Expropriation Default
The Republic of the Philippines or any competent authority thereof takes any action to suspend
the whole or the substantial portion of the operations of Ayala and to condemn, seize, nationalize
or appropriate (either with or without compensation) Ayala or any material portion of its properties
or assets, unless such act, deed or proceedings are contested in good faith by Ayala.
(f)
Insolvency Default
There is an act of Bankruptcy vis-a-vis Ayala and the relevant proceedings, to the extent not
initiated by Ayala, shall not have been reversed or stayed within a period of sixty (60) days or
such longer period as Ayala satisfies the Bondholders is appropriate under the circumstances.
(g)
Judgment Default
Any final judgment, decree or arbitral award for the sum of money, damages or for a fine or
penalty in excess of Five Hundred Million Pesos (=
P500,000,000.00) or its equivalent in any other
currency is entered against Ayala and the enforcement of which is not stayed, and is not paid,
discharged or duly bonded within thirty (30) calendar days after the date when payment of such
judgment, decree or award is due under the applicable law or agreement.
(h)
Writ and Similar Process Default
Any judgment, writ, warrant of attachment, injunction, stay order, execution or similar process
shall be issued or levied against any material part of Ayala’s assets, business or operations and
such judgment, writ, warrant or similar process shall not be released, vacated or fully bonded
within thirty calendar (30) days after its issue or levy.
(i)
Closure Default
Ayala voluntarily suspends or ceases operations of a substantial portion of its business for a
continuous period of thirty (30) calendar days except in the case of strikes or lockouts or when
necessary to prevent business losses or when due to fortuitous events or force majeure.
(j)
Material Adverse Change
There occurs any event or circumstance which, in the reasonable opinion of the Majority
Bondholders, would result in a material adverse change or have a material adverse effect on:
(i) the business, operations, financial condition or business prospects of Ayala taken as a whole;
(ii) the ability of Ayala to perform any of its obligations under the Trust Indenture and the Bonds;
or
(iii) the validity, legality or enforceability of the Trust Indenture or the Bonds.
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Description of the Bonds
12. CONSEQUENCES OF DEFAULT
(a)
If any one or more of the Events of Default shall have occurred and be continuing, the Trustee
upon the written direction of the Majority Bondholders, by notice in writing delivered to Ayala, or if
by the Majority Bondholders, by notice in writing delivered to Ayala and the Trustee, may declare
the principal of the Bonds, all accrued interest, fees and other charges thereon, if any, to be
immediately due and payable.
(b)
This provision, however, is subject to the condition that, except in the case of a Writ and Similar
Process Default (as described in Condition 11(h) above), the Majority Bondholders, by written
notice to Ayala and the Trustee may, during the prescribed curing period, if any, rescind and
annul such declaration made by the Trustee pursuant to a consequence of default (see
“Consequences of Default”), and the consequences of such declaration, upon such terms,
conditions and agreement, if any, as they may determine; provided that, no such rescission and
annulment shall extend to or shall affect any subsequent default or shall impair any right
consequent thereon.
(c)
At any time after any Event of Default shall have occurred, the Trustee may:
i.
ii.
by notice in writing to Ayala, the Paying Agent and the Registrar, require the Paying Agent
and the Registrar to:
(aa)
act thereafter as agents of the Bondholders represented by the Trustee on the terms
provided in the Registry and Paying Agency Agreement (with consequential
amendments as necessary and save that the Trustee’s liability under any provisions
thereof for the indemnification, remuneration and payment of out-of-pocket expenses
of the Paying Agent and the Registrar shall be limited to amounts for the time being
held by the Trustee on the trusts of the Trust Indenture in relation to the Bonds and
available to the Trustee for such purpose) and thereafter to hold all sums, documents
and records held by them in respect of the Bonds on behalf of the Trustee; and/or
(bb)
deliver all evidence of the Bonds and all sums, documents and records held by them
in respect of the Bonds to the Trustee or as the Trustee shall direct in such notice;
provided, that, such notice shall be deemed not to apply to any document or record
which the Paying Agent or Registrar is not obliged to release by any law or
regulation; and
by notice in writing to Ayala require Ayala to make all subsequent payments in respect of the
Bonds to the order of the Trustee and-- with effect from the issue of any such notice until
such notice is withdrawn-- proviso (aa) above and Ayala’s positive covenant to pay principal
and interest on the Bonds, more particularly set forth in Section 4.1(a) of the Trust Indenture,
shall cease to have effect.
In case any amount payable by Ayala under the Bonds, whether for principal, interest or
otherwise, is not paid on due date, Ayala shall, without prejudice to its obligations to pay the
said principal, interest and other amounts, pay Penalty Interest on the defaulted amount(s)
from the time the amount falls due until it is fully paid.
(d)
If any one or more of the events enumerated as a Change of Law in the discussion on “Change in
Law or Circumstance” above, shall occur and be continuing for a period of fifteen (15) Business
Days with respect to the events contemplated in (i) or (ii) of Condition 6(c), above, the Majority
Bondholders, by notice in writing delivered to Ayala through the Trustee, after the lapse of the
said fifteen (15) Business Day period, may declare the principal of the Bonds, including all
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Description of the Bonds
accrued interest and other charges thereon, if any, to be immediately due and payable, and upon
such declaration the same shall be immediately due and payable without any pre-payment
penalty under an optional redemption, anything in the Trust Indenture or in the Bonds contained
to the contrary notwithstanding, subject to the notice requirements under the discussion on
“Notice of Default”, below. Provided that such notice shall not be deemed either caused by a
default under the discussion on “Events of Default”, above; or a notice of default under the
discussion on “Notice of Default”, below.
13. NOTICE OF DEFAULT
The Trustee shall, within five (5) days after the occurrence of any Event of Default, give to the
Bondholders written notice of such default known to it, via publication in a newspaper of general
circulation in Metro Manila for two (2) consecutive days as soon as practicable, indicating in the published
notice that an Event of Default has occurred, unless the same shall have been cured before the giving of
such notice.
14. PENALTY INTEREST
Upon the occurrence and during the continuance of any Event of Default, Ayala shall pay interest on all
amounts then due under and owing to the Bondholder under the Trust Indenture and the Bonds, including
but not limited to the unpaid principal amount and any interest thereon, at a rate equal at all times to six
percent (6%) per annum above, and in addition to, the Interest Rate, computed on the actual number of
days from and including the date on which the said amount/s became due until full payment thereof on a
year of 360 days.
15. PAYMENT IN THE EVENT OF DEFAULT
Ayala covenants that upon the occurrence of any Event of Default, Ayala will pay to the Bondholders,
through the Paying Agent, the whole amount which shall then have become due and payable on all such
outstanding Bonds with interest at the rate borne by the Bonds on the overdue principal and with Penalty
Interest as described above, and in addition thereto, Ayala will pay to the Trustee such further amounts
as shall be determined by the Trustee to be sufficient to cover the cost and expenses of collection,
including reasonable compensation to the Trustee, its agents, attorneys and counsel, and any reasonable
expenses or liabilities incurred without negligence or bad faith by the Trustee hereunder.
Upon the occurrence of an Event of Default under as discussed in “Events of Default”, above,
Bondholders shall have the right, but not the obligation, to require Ayala to redeem the Bonds in full, by
payment of the amounts stated above, plus the principal amount, by delivery of the relevant evidence of
the Bonds to the Trustee.
16. APPLICATION OF PAYMENTS
Any money collected or delivered to the Paying Agent as a Consequence of Default, and any other funds
held by it, subject to any other provision of the Trust Indenture and the Registry and Paying Agency
Agreement relating to the disposition of such money and funds, shall be applied by the Paying Agent in
the order of preference as follows: first, to the payment to the Trustee, the Paying Agent and the
Registrar, of the costs, expenses, fees and other charges of collection, including reasonable
compensation to them, their agents, attorneys and counsel, and all reasonable expenses and liabilities
incurred or disbursements made by them, without negligence or bad faith; second, to the payment of the
Penalty Interest; third, to the payment of the whole amount then due and unpaid upon the Bonds for
interest; fourth , to the payment of the whole amount then due and unpaid upon the Bonds for principal;
and fifth, the remainder, if any shall be paid to Ayala, its successors or assigns, or to whoever may be
lawfully entitled to receive the same, or as a court of competent jurisdiction may direct.
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Description of the Bonds
17. PRESCRIPTION
Claims in respect of principal and interest or other sums payable hereunder will be prescribed unless
made within ten (10) years (in the case of principal or other sums) or five (5) years (in the case of interest)
from the date on which payment becomes due.
18. REMEDIES
All remedies conferred by the Trust Indenture to the Trustee and the Bondholders shall be cumulative and
not exclusive and shall not be so construed as to deprive the Trustee or the Bondholders of any legal
remedy by judicial or extra judicial proceedings appropriate to enforce the conditions and covenants of
the Trust Indenture, subject to the discussion below on “Ability to File Suit”.
No delay or omission by the Trustee or the Bondholders to exercise any right or power arising from or on
account of any default hereunder shall impair any such right or power, or shall be construed to be a
waiver of any such default or an acquiescence thereto; and every power and remedy given by the Trust
Indenture to the Trustee or the Bondholders may be exercised from time to time and as often as may be
necessary or expedient.
19. ABILITY TO FILE SUIT
No Bondholder shall have any right by virtue of or by availing of any provision of the Trust Indenture to
institute any suit, action or proceeding for the collection of any sum due from Ayala hereunder on account
of principal, interest and other charges, or for the appointment of a receiver or trustee, or for any other
remedy hereunder unless (i) such Bondholder previously shall have given to the Trustee written notice of
an Event of Default and of the continuance thereof and the related request for the Trustee to convene a
meeting of the Bondholders to take up matters related to their rights and interests under the Bonds; (ii)
the Majority Bondholders shall have decided and made the written request upon the Trustee to institute
such action, suit or proceeding in its own name; (iii) the Trustee for sixty (60) days after the receipt of
such notice and request shall have neglected or refused to institute any such action, suit or proceeding
and (iv) no directions inconsistent with such written request shall have been given under a waiver of
default by the Bondholders, it being understood and intended, and being expressly covenanted by every
Bondholder with every other Bondholder and the Trustee, that no one or more Bondholders shall have
any right in any manner whatever by virtue of or by availing of any provision of the Trust Indenture to
affect, disturb or prejudice the rights of the holders of any other such Bonds or to obtain or seek to obtain
priority over or preference to any other such holder or to enforce any right under the Trust Indenture,
except in the manner herein provided and for the equal, ratable and common benefit of all the
Bondholders.
20. WAIVER OF DEFAULT BY THE BONDHOLDERS
The Majority Bondholders may direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred upon the Trustee, or may on
behalf of the Bondholders waive any past default except the events of default defined as a payment
default, breach of representation or warranty default, expropriation default, insolvency default, or closure
default, and its consequences. In case of any such waiver, Ayala, the Trustee and the Bondholders shall
be restored to their former positions and rights hereunder; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereto. Any such waiver by the Majority
Bondholders shall be conclusive and binding upon all Bondholders and upon all future holders and
owners thereof, irrespective of whether or not any notation of such waiver is made upon the certificate
representing the Bonds.
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Description of the Bonds
21. TRUSTEE, NOTICES
(a) Notice to the Trustee
All documents required to be submitted to the Trustee pursuant to the Trust Indenture and this
Prospectus and all correspondence addressed to the Trustee shall be delivered to:
To the Trustee:
Attention:
Subject:
Address:
Facsimile:
Metropolitan Bank and Trust Company– Trust Banking Group
Adrelina V. Hife
Ayala Corporation Fixed Rate Putable Bonds Due 2017
18th Floor, GT Tower International, Ayala Avenue corner H.V. Dela Costa Street,
Makati City
858-8010
All documents and correspondence not sent to the above-mentioned address shall be considered as not
to have been sent at all.
(b) Notice to the Bondholders
The Trustee shall send all notices to Bondholders to their mailing address as set forth in the Register of
Bondholders. Except where a specific mode of notification is provided for herein, notices to Bondholders
shall be sufficient when made in writing and transmitted in any one of the following modes: (i) registered
mail; (ii) surface mail; (iii) by one-time publication in a newspaper of general circulation in the Philippines;
or (iv) personal delivery to the address of record in the Register of Bondholders. The Trustee shall rely
on the Register of Bondholders in determining the Bondholders entitled to notice.
The publication in a newspaper of general circulation in the Philippines of a press release or a news item
about a communication or disclosure made by the Issuer to the Securities and Exchange Commission on
a matter relating to the Bonds shall be deemed a notice to the Bondholders of said matter on the date of
the first publication.
All other notices shall be deemed to have been received (i) ten (10) days from posting if transmitted by
registered mail; (ii) fifteen (15) days from mailing, if transmitted by surface mail; (iii) on date of publication
or (iv) on date of delivery, for personal delivery.
(c)
Binding and Conclusive Nature
Except as provided in the Trust Indenture, all notifications, opinions, determinations, certificates,
calculations, quotations and decisions given, expressed, made or obtained by the Trustee for the
purposes of the provisions of the Trust Indenture, shall (in the absence of willful default, bad faith or
manifest error) be deemed received by and shall be binding on Ayala and all Bondholders, as relevant.
No liability to the Issuer, the Paying Agent or the Bondholders shall attach to the Trustee in connection
with the exercise or non-exercise by it of its powers, duties and discretions under the Trust Indenture
resulting from the Trustee’s reliance on the foregoing.
22. DUTIES AND RESPONSIBILITIES OF THE TRUSTEE
(a) The Trustee is appointed as trustee for and on behalf of the Bondholders and accordingly shall
perform such duties and shall have such responsibilities as provided in the Trust Indenture. The
Trustee shall, in accordance with the terms and conditions of the Trust Indenture, monitor the
compliance or non-compliance by Ayala with all its representations and warranties, and the
observance by Ayala of all its covenants and performance of all its obligations, under and pursuant to
the Trust Indenture. The Trustee shall observe due diligence required by applicable law and
regulation in the performance of its duties and obligations under the Trust Indenture. For the
42
Description of the Bonds
avoidance of doubt, notwithstanding any actions that the Trustee may take, the Trustee shall remain
to be the party responsible to the Bondholders, and to whom the Bondholders shall communicate with
in respect to any matters that must be taken up with Ayala.
(b) The Trustee shall, prior to the occurrence of an Event of Default or after the curing of all such defaults
which may have occurred, perform only such duties as are specifically set forth in the Trust Indenture.
In case of default, the Trustee shall exercise such rights and powers vested in it by the Trust
Indenture, and use such judgment and care under the circumstances then prevailing that individuals
of prudence, discretion and intelligence, and familiar with such matters, exercise in the management
of their own affairs.
(c) None of the provisions contained in these Terms and Conditions or the Prospectus shall require or be
interpreted to require the Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of its rights or powers.
23. RESIGNATION AND CHANGE OF TRUSTEE
(a) The Trustee may at any time resign by giving ninety (90) days’ prior written notice to Ayala and to the
Bondholders of such resignation.
(b) Upon receiving such notice of resignation of the Trustee, the Issuer shall immediately appoint a
successor trustee by written instrument in duplicate, executed by its authorized officers, one (1) copy
of which instrument shall be delivered to the resigning Trustee and one (1) copy to the successor
trustee. If no successor shall have been so appointed and have accepted appointment within thirty
(30) days after the giving of such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor, or any Bondholder who has been a bona
fide holder for at least six months (the “bona fide Bondholder”) may, for and on behalf of the
Bondholders, petition any such court for the appointment of a successor. Such court may thereupon
after notice, if any, as it may deem proper, appoint a successor trustee.
(c) A successor trustee should possess all the qualifications required under pertinent laws, otherwise, the
incumbent trustee shall continue to act as such.
(d) In case at any time the Trustee shall become incapable of acting, or has acquired conflicting interest,
or shall be adjudged as bankrupt or insolvent, or a receiver for the Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Trustee or of its properties or affairs
for the purpose of rehabilitation, conservation or liquidation, then Ayala may remove the Trustee
concerned, and appoint a successor trustee, by written instrument in duplicate, executed by its
authorized officers, one (1) copy of which instrument shall be delivered to the Trustee so removed
and one (1) copy to the successor trustee. If Ayala fails to remove the Trustee concerned and
appoint a successor trustee, any Bona Fide Bondholder may petition any court of competent
jurisdiction for the removal of the Trustee concerned and the appointment of a successor trustee.
Such court may thereupon after such notice, if any, as it may deem proper, remove the Trustee and
appoint a successor trustee. Such successor trustee should possess all the qualifications required
under pertinent laws.
(e) The Majority Bondholders may at any time remove the Trustee for cause, and appoint a successor
trustee, by the delivery to the Trustee so removed, to the successor trustee and to Ayala of the
required evidence of the action in that regard taken by the Majority Bondholders.
(f) Any resignation or removal of the Trustee and the appointment of a successor trustee pursuant to any
of the provisions the Trust Indenture shall become effective upon the earlier of: (i) acceptance of
appointment by the successor trustee as provided in the Trust Indenture; or (ii) the effectivity of the
resignation notice sent by the Trustee under the Trust Indenture (the “Resignation Effective Date”)
43
Description of the Bonds
provided, however, that after the Resignation Effective Date and, as relevant, until such successor
trustee is qualified and appointed (the “Holdover Period”), the resigning Trustee shall discharge duties
and responsibilities solely as a custodian of records for turnover to the successor Trustee promptly
upon the appointment thereof by Ayala.
24. SUCCESSOR TRUSTEE
(a) Any successor trustee appointed shall execute, acknowledge and deliver to Ayala and to its
predecessor Trustee an instrument accepting such appointment, and thereupon the resignation or
removal of the predecessor Trustee shall become effective and such successor trustee, without
further act, deed or conveyance, shall become vested with all the rights, powers, trusts, duties and
obligations of its predecessor in the trusteeship with like effect as if originally named as trustee in the
Trust Indenture. The foregoing notwithstanding, on the written request of Ayala or of the successor
trustee, the Trustee ceasing to act as such shall execute and deliver an instrument transferring to the
successor trustee, all the rights, powers and duties of the Trustee so ceasing to act as such. Upon
request of any such successor trustee, Ayala shall execute any and all instruments in writing as may
be necessary to fully vest in and confer to such successor trustee all such rights, powers and duties.
(b) Upon acceptance of the appointment by a successor trustee, Ayala shall notify the Bondholders in
writing of the succession of such trustee to the trusteeship. If Ayala fails to notify the Bondholders
within 10 days after the acceptance of appointment by the trustee, the latter shall cause the
Bondholders to be notified at the expense of Ayala.
25. REPORTS TO BONDHOLDERS
(a) The Trustee shall submit to the Bondholders on or before February 28 of each year from the relevant
Issue Date until full payment of the Bonds a brief report dated as of December 31 of the immediately
preceding year with respect to:
(i)
The property and funds, if any, physically in the possession of the Paying Agent held in trust
for the Bondholders on the date of such report; and
(ii)
Any action taken by the Trustee in the performance of its duties under the Trust Indenture
which it has not previously reported and which in its opinion materially affects the Bonds,
except action in respect of a default, notice of which has been or is to be withheld by it.
(b) The Trustee shall submit to the Bondholders a brief report within 90 days from the making of any
advance for the reimbursement of which it claims or may claim a lien or charge which is prior to that
of the Bondholders on the property or funds held or collected by the Paying Agent with respect to the
character, amount and the circumstances surrounding the making of such advance; provided that,
such advance remaining unpaid amounts to at least ten percent (10%) of the aggregate outstanding
principal amount of the Bonds at such time.
(c) The following pertinent documents may be inspected during regular business hours on any Business
Day at the principal office of the Trustee:
(i)
(ii)
(iii)
(iv)
Trust Indenture
Registry and Paying Agency Agreement
Articles of Incorporation and By-Laws of the Company
Registration Statement of the Company with respect to the Bonds
44
Description of the Bonds
26. MEETINGS OF THE BONDHOLDERS
A meeting of the Bondholders may be called at any time and from time to time for the purpose of taking
any actions authorized to be taken by or on behalf of the Bondholders of any specified aggregate
principal amount of Bonds under any other provisions of the Trust Indenture or under the law and such
other matters related to the rights and interests of the Bondholders under the Bonds.
(a) Notice of Meetings
The Trustee may at any time call a meeting of the Bondholders, or the holders of at least twenty- five
percent (25.0%) of the aggregate outstanding principal amount of Bonds may direct the Trustee to
call a meeting of the Bondholders, to take up any allowed action, to be held at such time and at such
place as the Trustee shall determine. Notice of every meeting of the Bondholders, setting forth the
time and the place of such meeting and the purpose of such meeting in reasonable detail, shall be
sent by the Trustee to the Issuer and to each of the registered Bondholders not earlier than fifteen
(15) days nor later than forty five (45) days prior to the date fixed for the meeting. All reasonable costs
and expenses incurred by the Trustee for the proper dissemination of the requested meeting shall be
reimbursed by Ayala within ten (10) days from receipt of the duly supported billing statement.
(b) Failure of the Trustee to Call a Meeting
In case at any time Ayala, pursuant to a resolution of its board of directors or executive committee, or
the holders of at least twenty-five percent (25.0%) of the aggregate outstanding principal amount of
the Bonds, shall have requested the Trustee to call a meeting of the Bondholders by written request
setting forth in reasonable detail the purpose of the meeting, and the Trustee shall not have mailed
and published, in accordance with the notice requirements, the notice of such meeting within twenty
(20) days after receipt of such request, then Ayala or the Bondholders in the percentage above
specified may determine the time and place for such meeting and may call such meeting by mailing
and publishing notice thereof.
(c) Quorum
The presence of the Majority Bondholders, personally or by proxy, shall be necessary to constitute a
quorum to do business at any meeting of the Bondholders.
(d) Procedure for Meetings
(i) The Trustee shall preside at all the meetings of the Bondholders unless the meeting shall have
been called by Ayala or by the Bondholders, in which case Ayala or the Bondholders calling the
meeting, as the case may be, shall in like manner move for the election of the chairman and
secretary of the meeting.
(ii) Any meeting of the Bondholders duly called may be adjourned from time to time for a period or
periods not to exceed in the aggregate of one (1) year from the date for which the meeting shall
originally have been called and the meeting as so adjourned may be held without further notice.
Any such adjournment may be ordered by persons representing a majority of the aggregate
principal amount of the Bonds represented at the meeting and entitled to vote, whether or not a
quorum shall be present at the meeting.
(e) Voting Rights
To be entitled to vote at any meeting of the Bondholders, a person shall be a registered holder of one
or more Bonds or a person appointed by an instrument in writing as proxy by any such holder as of
the date of the said meeting. The only persons who shall be entitled to be present or to speak at any
45
Description of the Bonds
meeting of the Bondholders shall be the persons entitled to vote at such meeting and any
representatives of the Issuer and its legal counsel.
(f) Voting Requirement
All matters presented for resolution by the Bondholders in a meeting duly called for the purpose shall
be decided or approved by the affirmative vote of the Majority Bondholders present or represented in
a meeting at which there is a quorum except as otherwise provided in the Trust Indenture. Any
resolution of the Bondholders which has been duly approved with the required number of votes of the
Bondholders as herein provided shall be binding upon all the Bondholders and Ayala as if the votes
were unanimous.
(g) Role of the Trustee in Meetings of the Bondholders
Notwithstanding any other provisions of the Trust Indenture, the Trustee may make such reasonable
regulations as it may deem advisable for any meeting of the Bondholders, in regard to proof of
ownership of the Bonds, the appointment of proxies by registered holders of the Bonds, the election
of the chairman and the secretary, the appointment and duties of inspectors of votes, the submission
and examination of proxies, certificates and other evidences of the right to vote and such other
matters concerning the conduct of the meeting as it shall deem fit.
27. AMENDMENTS
Ayala and the Trustee may amend or waive any provisions of the Bond Agreements if such
amendment or waiver is of a formal, minor, or technical nature or to correct a manifest error or
inconsistency, without prior notice to or the consent of the Bondholders or other parties, provided in
all cases that such amendment or waiver does not adversely affect the interests of the Bondholders
and provided further that all Bondholders are notified of such amendment or waiver.
Ayala and the Trustee may amend the Terms and Conditions of the Bonds without notice to every
Bondholder but with the written consent of the Majority Bondholders or a vote of the Majority
Bondholders at a meeting called for the purpose (including consents obtained in connection with a
tender offer or exchange offer for the Bonds) and with notice of any amendment to all Bondholders.
However, without the consent of each Bondholder affected thereby, an amendment may not:
(a) reduce the percentage of principal amount of Bonds outstanding that must consent to an
amendment or waiver;
(b) reduce the rate of or extend the time for payment of interest on any Bond;
(c) reduce the principal of or extend the Maturity Date or vary the Put Option Date of any Bond;
(d) impair the right of any Bondholder to receive payment of principal of and interest on such Holder’s
Bonds on or after the due dates therefore or to institute suit for the enforcement of any payment
on or with respect to such Bondholders;
(e) reduce the amount payable upon the redemption or repurchase of any Bond under the Terms and
Conditions or change the time at which any Bond may be redeemed;
(f) make any Bond payable in money other than that stated in the Bond;
(g) subordinate the Bonds to any other obligation of Ayala;
(h) release any security interest that may have been granted in favor of the Bondholders;
46
Description of the Bonds
(i) amend or modify the Payment of Additional Amounts, Taxation, the Events of Default of the
Terms and Conditions or the Waiver of Default by the Bondholders; or
(j) Make any change or waiver of this Condition.
It shall not be necessary for the consent of the Bondholders under this Condition to approve the particular
form of any proposed amendment, but it shall be sufficient if such consent approves the substance
thereof. After an amendment under this Condition becomes effective, Ayala shall send a notice briefly
describing such amendment to the Bondholders in the manner provided in paragraph (b) entitled “Notices
to the Bondholders” in Condition 21.
28. EVIDENCE SUPPORTING THE ACTION OF THE BONDHOLDERS
Wherever in the Trust Indenture it is provided that the holders of a specified percentage of the aggregate
outstanding principal amount of the Bonds may take any action (including the making of any demand or
requests, the giving of any notice or consent or the taking of any other action), the fact that at the time of
taking any such action the holders of such specified percentage have joined therein may be evidenced
by: (i) any instrument executed by the Bondholders in person or by the agent or proxy appointed in writing
or (ii) the duly authenticated record of voting in favor thereof at the meeting of the Bondholders duly called
and held in accordance herewith or (iii) a combination of such instrument and any such record of meeting
of the Bondholders.
29. NOTICES TO THE BONDHOLDERS
Notices to Bondholders shall be sent to their mailing address as set forth in the Register of Bondholders
when required to be made through registered mail, surface mail or personal delivery. Except where a
specific mode of notification is provided for herein, notices to Bondholders shall be sufficient when made
in writing and transmitted in any one of the following modes: (i) registered mail; (ii) surface mail; (iii) by
one-time publication in a newspaper of general circulation in the Philippines; (iv) personal delivery to the
address of record in the Register of Bondholders or (v) disclosure through the Online Disclosure System
of the Philippine Dealing and Exchange Corp. (PDEx) or the Philippine Stock Exchange (PSE). The
Trustee shall rely on the Register of Bondholders in determining the Bondholders entitled to notice. All
notices shall be deemed to have been received (i) ten (10) days from posting if transmitted by registered
mail; (ii) fifteen (15) days from mailing, if transmitted by surface mail; (iii) on date of publication; (iv) on
date of delivery, by personal delivery; or (v) on the date that the disclosure is uploaded on the website of
the PDEx or the PSE.
A notice to the Trustee is notice to the Bondholders. The publication in a newspaper of general circulation
in the Philippines of a press release or news item about a communication or disclosure made by Ayala to
the Securities and Exchange Commission or the PDEx or the PSE on a matter relating to the Bonds shall
be deemed a notice to the Bondholders of said matter on the date of the first publication.
30. NON-RELIANCE
Each Bondholder also represents and warrants to the Trustee that it has independently and, without
reliance on the Trustee, made its own credit investigation and appraisal of the financial condition and
affairs of Ayala on the basis of such documents and information as it has deemed appropriate and that he
has subscribed to the Issue on the basis of such independent appraisal, and each Bondholder represents
and warrants that it shall continue to make its own credit appraisal without reliance on the Trustee. The
Bondholders agree to indemnify and hold the Trustee harmless from and against any and all liabilities,
damages, penalties, judgments, suits, expenses and other costs of any kind or nature with respect to its
obligations under the Trust Indenture, except for its gross negligence or wilful misconduct.
47
Description of the Bonds
GOVERNING LAW
The Bond Agreements are governed by and are construed in accordance with Philippine law.
CERTAIN DEFINED TERMS
The following sets forth the respective definitions of certain terms used in this section “Description of the
Bonds” as such terms are defined in the Trust Indenture. Except as otherwise provided and where
context indicates otherwise, capitalized terms in this Description of the Bonds have the meanings
ascribed to them in the Trust Indenture.
(a) Affiliate means any corporation, directly or indirectly controlled by Ayala, whether by way of
ownership of at least twenty percent (20%) of the total issued and outstanding capital stock of such
corporation, or the right to elect at least twenty percent (20%) of the number of directors in such
corporation, or the right to control the operation and management of such corporation by reason of
contract or authority granted by said corporation to Ayala.
(b) Bankruptcy means, with respect to a Person, (a) that such Person has (i) made an assignment for
the benefit of creditors; (ii) filed a voluntary petition in bankruptcy; (iii) been adjudged bankrupt, or
insolvent; or had entered against such Person an order of relief in any bankruptcy or insolvency
proceeding; (iv) filed a petition or an answer seeking for such Person any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute,
law or regulation or filed an answer or other pleading admitting or failing to contest the material
allegations of a petition filed against such Person in any proceeding of such nature; or (v) sought,
consented to, or acquiesced in the appointment of a trustee, receiver or liquidator of such Person or
of all or any substantial part of such Person’s properties; (b) 60 days have elapsed after the
commencement of any proceeding against such Person seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation
and such proceeding has not been dismissed; or (c) 60 days have elapsed since the appointment
without such Person’s consent or acquiescence of a trustee, receiver or liquidator of such Person or
of all or any substantial part of such Person’s properties and such appointment has not been vacated
or stayed or the appointment is not vacated within 60 days after the expiration of such stay.
(c) Current Ratio means the ratio which Current Assets bear to Current Liabilities.
(d) Debt to Equity Ratio means the ratio which Total Liabilities bears to Total Stockholders’ Equity
(e) Majority Bondholders means the holders of more than fifty percent (50%) in principal amount, of the
Bonds then outstanding.
(f) Security means any mortgage, pledge, lien or encumbrance constituted on any of Ayala’s properties,
for the purpose of securing its or its Affiliates’ obligation.
48
Description of the Bonds
FORM OF PUT OPTION NOTICE
[LETTERHEAD OF THE BONDHOLDER]
[Date]
Ayala Corporation
Through: Metropolitan Bank and Trust Company – Trust Banking Group
18th Floor, GT Tower International,
Ayala Avenue corner H.V. Dela Costa Street
Makati City, Metro Manila
Philippines
Re:
Put Option Notice in respect of the P
= 10 Billion 7.20% Fixed Rate Putable Bonds
issued by Ayala Corporation (“Ayala”) under a Trust Indenture dated April 16 2010 (the
“Bonds”).
Dear Sir/Madam:
Reference is made to the Terms and Conditions of the Bonds. Unless otherwise defined herein, capitalized
terms in this letter shall have the meaning ascribed to them in the Terms and Conditions.
This is an irrevocable Put Option Notice by the undersigned Bondholder (the “Holder”). Being the holder of
P
= _________ in aggregate principal amount of the Bonds (being in denominations of P
= 50,000 each, as a
minimum, and in integral multiples of P
= 10,000 thereafter) duly recorded and registered in my/our name with
the Registrar, I/we hereby exercise my/our Put Option in the amount of Pesos: ____________ (=
P________)
in accordance with Condition 5 (Bondholders’ Put Option) of the Terms and Conditions and attach the
required documents with and in support of this notice.
I/We hereby authorize you, Ayala and the Registrar to verify the foregoing with the Registry and agree that
the records of the Registry shall be conclusive insofar as this Put Option Notice is concerned.
I/We acknowledge and understand that from and after the delivery of this Put Option Notice until the
redemption and payment of the relevant Bonds by Ayala on the Put Option Date, I/We will not be able to
amend or withdraw (although subsequent Put Option Notices may be submitted for Bonds not covered by a
previously delivered Put Option Notice) this Put Option Notice and will not be able to transfer any Bonds
covered thereby to any other Person.
I/We represent and warrant that:
(a)
(b)
(b)
the Holder has good, complete and unencumbered title to the Bonds or is entitled to such title and
has not sold or otherwise dealt with those Bonds.
the Holder has obtained all consents which may be required by law or contract in respect of the
Holder or the Bonds to enable the Holder to deliver the relevant Bonds to Ayala for redemption as
provided under the Terms and Conditions;
the redemption of the relevant Bonds by Ayala will not result in the Holder contravening any law or
agreement to which the Holder or the relevant Bonds is subject or (as relevant) any provisions of its
constitutive documents;
49
Description of the Bonds
(c)
(d)
at the date of this notice and at all times until the time of payment of the Put Option Payment by
Ayala, the Holder will have good legal and beneficial title to the relevant Bonds free from any lien,
encumbrance, third party interest or any other restriction on sale or transfer; and
the undersigned is duly authorized to execute and deliver this Put Option Notice and it is legal,
binding and may be fully relied upon by Ayala, the Trustee, the Registrar and the Paying Agent,
who shall each be held free and harmless from any liability, loss or damage that may arise from
their reliance on this Put Option Notice.
If the Put Option Notice is accomplished by a dealer/broker on behalf of a client, the undersigned broker
hereby does declare that all the information given in connection with this Put Option Notice is true, legal and
valid pursuant to the authority duly granted by the beneficial owner of the Bonds, and may be fully and
unconditionally relied upon by Ayala, the Trustee, the Registrar and the Paying Agent. The dealer/broker
thus agrees to hold PDTC free and harmless from any liability, loss or damage that may arise from the
execution of this instruction. We recognize and agree that the transfer is subject to the PDTC Registry Rules
that are in force and effect.
This notice is irrevocable.
Name and Signature of Holder/Dealer/Broker:
Address:
Contact Phone Number:
Principal Amount of Bonds Subject to the Put Option Notice:
Tax Identification Number:
Registry Account Number:
Registry Confirmation Number:
Required Attachments
FOR INDIVIDUAL INVESTORS:
Identification documents of the Bondholder;
Two (2) duly accomplished signature cards containing the specimen signature of the Bondholder,
validated / signed by the Broker’s authorized signatory/ies, whose authority/ies and specimen signatures
have been submitted to PDTC; and
Authorization Letter, if applicable, for the payment and delivery of the Put Option Payment.
Such other documents as may be reasonably required by the Broker(s) / Registrar in implementation of
its internal policies regarding “knowing your customer” and anti-money laundering.
FOR CORPORATE AND OTHER JURIDICAL ENTITY INVESTORS:
An original notarized Certificate of the Corporate Secretary of the Bondholder setting forth resolutions of
the Bondholder’s Board of Directors authorizing the exercise of the Put Option and designating the
signatories, with their specimen signatures, for the said purposes;
Copies of its Articles of Incorporation and By-laws and latest amendments thereof, together with the
Certificate of Incorporation issued by the SEC or equivalent government institution, stamped and signed as
certified as true copies by the SEC or by the Bondholder’s Corporate Secretary, or by an equivalent officer/s
who is/are authorized signatory/ies;
Ownership structure of the Bondholder;
A list of the natural persons who are the beneficial owners of the parent company of the Bondholder;
Two (2) duly accomplished signature cards containing the specimen signatures of the Bondholder’s
authorized signatories, validated by its Corporate Secretary or by an equivalent officer/s who is/are
authorized signatory/ies, and further validated/signed by the Broker’s authorized signatory/ies whose
authority/ies and specimen signatures have been submitted to PDTC;
Identification document(s) of Bondholder’s authorized signatories;
Identification document(s) of at least two (2) of the Bondholder’s Directors, including the managing
director, if any; identification documents of beneficial owners who own at least 10% of the capital stock of
the Bondholder; identification document of the Corporate Secretary or of the signing equivalent officer/s; and
50
Description of the Bonds
Such other documents as may be reasonably required by the Broker(s) / Registrar in implementation of
its internal policies regarding “knowing your customer” and anti-money laundering.
Authorization Letter, if applicable, for the payment and delivery of the Put Option Payment.
Identification Documents Shall Consist Of: Any one (1) of the following valid identification documents
bearing a recent photo, and which is not expired: Passport, Driver’s License, Professional Regulation
Commission (PRC) ID, National Bureau of Investigation (NBI) Clearance, Police Clearance, Postal ID,
Voter’s ID, Barangay Certification, Government Service Insurance System (GSIS) e-Card, Social Security
System (SSS) Card, Senior Citizen Card, Overseas Workers Welfare Administration (OWWA) ID, OFW ID,
Seaman’s Book, Alien Certification of Registration/Immigrant Certificate of Registration, Government Office
and GOCC ID, e.g. Armed Forces of the Philippines (AFP ID), Home Development Mutual Fund (HDMF ID),
Certification from the National Council for the Welfare of Disabled Persons (NCWDP), Department of Social
Welfare and Development (DSWD) Certification, Integrated Bar of the Philippines ID, Company IDs issued
by private entities or institutions registered with or supervised or regulated either by the BSP, SEC OR IC,
or school ID duly signed by the principal or head of the school (for students who are beneficiaries of
REMITTANCES/FUND TRANSFERS who are not yet of voting age)
51
THE COMPANY
OVERVIEW
Ayala Corporation (“Ayala”, “AC” or the “Company”) was incorporated in the Philippines on January 23,
1968 as a limited liability corporation having a renewable term of 50 years. The Company is organized as
a holding company holding equity interests in the Ayala Group (the “Group”), one of the most significant
business groups in the Philippines. Ayala’s business activities are divided into: (a) real estate and hotels,
(b) financial services, (c) telecommunications and (d) a portfolio of other investments held under an
internal development division called AC Capital. AC Capital’s current holdings include investments in
water distribution, electronics manufacturing services, automotive dealerships, business process
outsourcing, international real estate investments, IT-related ventures, and various other non-core realestate assets. Ayala’s operating companies are widely recognized as among the dominant companies in
their respective industry sectors. Ayala became a public corporation in 1976 and its common shares are
currently listed at the Philippine Stock Exchange (“PSE”). As of December 31, 2009, Ayala had a market
capitalization of P
= 150.7 billion.
The following table shows Ayala’s direct and effective ownership in its major subsidiaries and affiliates
within business sectors as of December 31, 2009:
Direct ownership
(%)
Real Estate and Hotels:
Ayala Land, Inc.
Ayala Hotels, Inc.
Financial services
Bank of the Philippine Islands
Telecommunications
Globe Telecom, Inc.
Effective ownership
(%)
53.3
50.0
53.3
76.7
21.8
33.5
30.5
30.5
AC Capital
Ayala Automotive Holdings Corp.
Ayala Aviation Corp.
Azalea International Venture Partners Ltd.
Azalea Technology Investments, Inc.
Bestful Holdings Ltd.
Integrated Microelectronics, Inc.
Manila Water Company, Inc.
Philwater Holdings
100.0
100.0
97.8
100.0
100.0
0.1
27.9
60.0
100.0
100.0
100.0
100.0
100.0
67.8
31.5
60.0
Others
AC International Finance Ltd.
AYC Finance Ltd.
100.0
100.0
100.0
100.0
Strategy
Ayala seeks to ensure that the Group maintains its commitment to its business activities in the Philippines
and to explore possible international initiatives on a selective and opportunistic basis. Ayala intends to
build on its leadership position in the Group's existing core businesses in real estate, financial services
and telecommunications, and actively manage its portfolio of other investments and assets under AC
Capital with a view toward maximum value creation and realization. Ayala expects its real estate, financial
services and telecommunications businesses to remain its principal sources of dividend income, but
contributions from its water distribution, electronics manufacturing and auto dealership operations are
increasing. Ayala is presented from time to time with opportunities to invest in new business areas and
52
The Company
will continue to consider such opportunities to the extent that such businesses would contribute to the
overall strategic objectives of the Group.
Geographical Segments
Ayala generates foreign sales through its subsidiaries IMI, AG Holdings, Azalea Technology Investments,
Inc. and LiveIt Solutions, Inc. For the full year of 2009, total foreign revenues amounted to P
= 16.0 billion
out of the total revenues of P
= 76.3 billion, from P
= 16.0 billion in 2008. The table below lists the contribution
of each geographical market to Ayala’s foreign sales.
Location
Japan
USA
Europe
Others (Mostly Asia)
Contribution to foreign sales
2009
2008
2007
6%
7%
59%
39%
42%
38%
35%
28%
22%
20%
23%
18%
MARKET FOR ISSUER’S COMMON EQUITY
Ayala Dividend Policy
Following are the dividends declared and paid by Ayala:
Stock Dividends
PERCENT
20%
20%
Cash dividends – 2008
CLASS
On common shares
Cash dividends – 2009
CLASS
On common shares
RECORD DATE
PAYMENT DATE
May 22, 2007
April 24, 2008
June 18, 2007
May 21, 2008
PAYMENT DATE
July 21, 2008
February 3, 2009
RATE
2.00/share
2.00/share
TERM / RECORD DATE
July 2, 2008
January 9, 2009
PAYMENT DATE
July 10, 2009
February 2, 2010
RATE
2.00/share
2.00/share
TERM / RECORD DATE
June 23, 2009
January 8, 2010
Dividend Policy
Dividends declared by the Company on its shares of stocks are payable in cash or in additional shares of
stock. The Company does not have a minimum dividend policy: the payment of dividends in the future will
depend upon the earnings, cash flow and financial condition of the Company and other factors.
Stock Prices
Ayala’s common shares are listed at the PSE. The closing prices of Ayala’s common shares for 2009,
2008 and 2007, adjusted for stock dividends, are as follows:
53
The Company
2009
(in P
=)
2008
(in P
=)
2007*
(in P
=)
High
Low
High
Low
High
Low
st
1 quarter
233.00
186.00
454.17
322.92
455.14
358.60
nd
2 quarter
312.50
202.00
352.50
257.50
479.97
386.18
rd
3 quarter
320.00
265.00
320.00
250.00
485.89
334.31
th
4 quarter
317.50
285.00
295.00
174.00
537.50
412.50
* adjusted to reflect the 20% stock dividend declared in January 2008 Source: Bloomberg
The market capitalization of the Company’s common shares as of end-2009, based on the closing price
of P
= 302.50/share, was approximately P
= 150.75 billion.
The price of Ayala’s Common, Preferred “A” and Preferred “B” shares was P
= 292.50, P
= 520.00 and
P
= 107.00, respectively as of March 31, 2010.
Recent Sale of Unregistered Securities
The Company has stock option plans for key officers (Executive Stock Option Plan - ESOP) and
employees (Employee Stock Ownership Plan - ESOWN) covering 3.0% of the Company’s authorized
capital stock. The grantees are selected based on certain criteria like outstanding performance over a
defined period of time.
The ESOP grantees may exercise in whole or in part the vested allocation in accordance with the vesting
percentage and vesting schedule stated in the ESOP. Also, the grantee must be an employee of the
Company or any of its subsidiaries during the 10-year option period. In case the grantee retires, he is
given 3 years to exercise his vested and unvested options. In case the grantee resigns, he is given 90
days to exercise his vested options.
The Company also has ESOWN granted to qualified officers and employees wherein grantees may
subscribe in whole or in part to the shares awarded to them based on the 10% discounted market price
as offer price set at grant date. To subscribe, the grantee must be an employee of the Group during the
10-year payment period. In case the grantee resigns, unsubscribed shares are cancelled, while the
subscription may be paid up to the percent of holding period completed and payments may be converted
into the equivalent number of shares. In case the grantee is separated, not for cause, but through
retrenchment and redundancy, subscribed shares may be paid in full, unsubscribed shares may be
subscribed, or payments may be converted into the equivalent number of shares. In case the grantee
retires, the grantee may subscribe to the unsubscribed shares anytime within the 10-year period. The
plan does not allow sale or assignment of the shares. All shares acquired through the plan are subject to
the Company’s right to repurchase.
The following shares were issued to/subscribed by the Company’s executives as a result of the exercise
of stock options (ESOP) and the subscription to the stock ownership (ESOWN) plans:
No. of Shares
ESOP*
ESOWN**
Year
2007
131,072
619,912
2008
43,885
898,260
2009
6,365
1,813,994
2010
1,010
0
* Net of shares as payment (cashless exercise)
** Net of cancelled subscriptions
54
The Company
The above shares formed part of the 8,864,000 ESOP and ESOWN shares subject of the Commission’s
resolution dated January 12, 2006 confirming the issuance of such shares as exempt transactions
pursuant to Section 10.2 of the Securities Regulation Code.
Issuance and Exchange of Securities
On March 15, 2010, the Board of Directors approved amendments to Article Seventh of the Articles of
Incorporation of the Company providing for: (1) the reclassification of four million unissued common
shares, par value P
= 50 per share, to a new series of preferred shares: 200,000,000 voting preferred
shares, par value P
= 1 per share; and (2) the denial of pre-emptive rights to issues of common shares in
exchange for properties needed for corporate purposes and to issues or re-issues of treasury or
redeemed shares (the “Proposed Amendments”). The Board of Directors recommended the approval of
the Proposed Amendments by the stockholders at their 2010 annual meeting.
The voting preferred shares shall have the following features, rights and privileges:
a)
Issue value to be determined by the Board of Directors at the time of issuance of the shares;
b)
Dividend rate to be determined by the Board of Directors at the time of issuance of the shares and
declaration thereof to be determined by the Board;
c)
Cumulative in payment of current dividends as well as any unpaid back dividends;
d)
Non-convertible into common shares;
e)
Preference over holders of common stock in the distribution of corporate assets in the event of
dissolution and liquidation of the Corporation and in the payment of the dividend at the rate
specified at the time of issuance;
f)
Non-participating in any other or further dividends beyond that specifically payable on the shares;
g)
Voting;
h)
With pre-emptive rights only in respect of any issue of voting preferred shares as provided in the
Article Seventh of the Articles of Incorporation; and
i)
Redeemable at the option of the Corporation under such terms that the Board of Directors may
approve at the time of the issuance of shares.
The creation of the voting preferred shares is proposed to allow more foreign ownership in common
shares. This will give the Company greater flexibility in the use of its common shares to acquire assets
wholly or partially owned by foreigners without impairing its ability to engage in nationalized activities.
The denial of pre-emptive rights to issues of common shares in exchange for properties needed for
corporate purposes will give the Company greater flexibility in the use of its common shares to acquire
properties. The denial of pre-emptive rights to issues and re-issues of treasury or redeemed shares will
give the Company greater flexibility in raising capital through the issuance or re-issuance of treasury or
redeemed shares which are non-dilutive.
DESCRIPTION OF PROPERTY
Ayala owns four floors of the Tower One Building located in Ayala Triangle, Ayala Avenue, Makati City.
These condominium units were purchased in 1995 and are used as Ayala's corporate headquarters.
Other properties of Ayala include various provincial lots relating to its business operations totaling about
860 hectares and Metro Manila lots totaling 2.6 hectares. Out of the 860 hectares, only a 3-hectare
portion has a mortgage lien but with a pending petition for cancellation. The Honda Cars Makati, Honda
Cars Pasig, Honda Cars Alabang and Isuzu Alabang dealership buildings are located on its Metro Manila
lots which are leased to these dealerships. These properties do not have any mortgage, lien or
encumbrance. Other than as described above, Ayala, as a holding company does not hold significant
properties apart from its investments in its subsidiaries. A discussion on the assets, prospects and
challenge of each subsidiary of Ayala is set forth in the "Business" section of the Prospectus.
55
The Company
MATERIAL CONTRACTS
Ayala has not entered into any contract or agreement within the past two (2) years immediately preceding
this filing, which contract or agreement is of material importance or outside the ordinary course of
business, aside from the following:
a) In 2007, Ayala issued, through a public offering registered with the SEC, 6.825% fixed rate bonds
with an aggregate size of P
= 6.0 billion. The bonds are unsecured. Under the terms of the bond, Ayala
will redeem the bonds, at par on the final redemption date, which is in 2012 (five years and one day
from issue date).
b) In 2008, Ayala issued, through a public offer P
= 6.0 billion of its Preferred A shares at an offer price of
P
= 500 per share. The shares were listed in the Philippine Stock Exchange. The Preferred A shares
are cumulative, non-voting, and redeemable at the option of the Company and with a dividend rate of
8.88% per annum. The Preferred A shares may be redeemed at the option of the Company starting
on the fifth anniversary of the listing date.
MATERIAL PATENTS, TRADEMARKS, AND INTELLECTUAL PROPERTIES
Ayala has no patent, trademark or intellectual property right to products which would be material to the
operating companies.
CHANGES IN CONTROL
Ayala is not aware of the existence of any agreement that may result in a change in control of Ayala.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Intra-Group Transactions
Ayala, its subsidiaries and certain of its affiliates have a substantial number of contractual arrangements
with each other. Ayala’s subsidiaries and affiliates are independent entities and accordingly Ayala’s
contractual arrangements with such corporations are entered into on an arm’s-length basis. The Group
has, in the ordinary course of its business, entered into transactions with associates, joint ventures and
other related parties principally consisting mainly of advances and reimbursement of expenses, various
guarantees, construction contracts and management, marketing and administrative service agreements.
Sales and purchases of goods and services to and from related parties are made at current market
prices.
In addition, Ayala obtains borrowings from banks and other financial institutions, including BPI, an
affiliated commercial bank. Ayala’s borrowings are governed by existing BSP regulations, including in
particular in respect of its borrowings from BPI, regulations on loans to Directors, Officers, Stockholders
and other Related Interests. Other than Ayala’s borrowings from BPI, Ayala had no other transaction in
which any of its Directors or Executive Officers was involved or had a direct or indirect material interest.
There can be no assurance, however, that future arrangements between related parties will not involve
conflicts of interest.
Related Party Transactions
There has not been any material transaction during the last two years, or proposed transaction, to which
Ayala was or is to be a party, in which any of its Directors or Executive Officers, any nominee for election
as a Director or any security holder identified in this Prospectus had or is to have a direct or indirect
material interest.
56
The Company
The Group, in its regular conduct of business, has entered into transactions with associates, jointly
controlled entities and other related parties principally consisting of advances and reimbursement of
expenses, purchase and sale of real estate properties, various guarantees, construction contracts, and
development, management, underwriting, marketing and administrative service agreements. Sales and
purchases of goods and services to and from related parties are made at normal market prices.
The effects of the foregoing are shown under the appropriate accounts in the consolidated financial
statements as follows (in thousands):
Receivable from related parties
Associates:
Interest in limited partnerships of AINA
CHI
NTDCC
Naraya Development Co. Ltd.
Lagoon Development Corporation
Arch Capital
MD Express
Accendo Commercial Corp.
Jointly controlled entities:
MWCI
Globe
Alabang Commercial Corporation (ACC)
EGS Acquisition Corp.
EGS Corp.
Other related parties:
Glory High
Columbus Holdings, Inc. (Columbus)
Key management personnel
Fort Bonifacio Development Corporation
(FBDC)
Ayala Systems Technology, Inc. (ASTI)
PPI Prime Ventures, Inc.
Innove Communications, Inc. (Innove)
Honda Cars Philippines, Inc. (HCP)
MyAyala
2009
2008
(In Thousands)
P
= 1,559,312
P
= 948,629
120,791
85,587
25,383
19
17,863
16,628
15,337
25,626
908
611
144
19
–
63,510
1,739,738
1,140,629
48,113
38,827
15,929
–
–
102,869
3,840
92,640
7,457
2,130,844
2,855,215
5,089,996
571,467
520,066
280,488
642,308
520,061
220,877
87,296
76,747
5,946
4,890
603
51
1,547,554
P
= 3,390,161
247,428
–
–
4,806
–
3,038
1,638,518
P
= 7,869,143
57
The Company
Payable to related parties
2009
(In Thousands)
P
= 78,829
509
427
79,765
Associates:
BLC
CHI
Arch Capital
Jointly controlled entities:
Asiacom
Globe
Other related parties:
Columbus
Cebu Property Ventures and Development
Corporation
HCP
Green Horizons
Innove
Others
2008
P
=–
1,341
–
1,341
94
13
107
–
116
116
484,888
–
149,204
69,665
13,455
110
33,225
750,547
P
= 830,419
4,937
121,447
6,371
1,196
331
134,282
P
= 135,739
Income
2009
Associates
Jointly controlled entities
Other related parties
P
= 956,704
140,652
15,062
P
= 1,112,418
2008
2007
(In Thousands)
P
= 109,277
P
= 164,666
229,954
71,895
669,162
918,140
P
= 1,008,393
P
= 1,154,701
Cost and expenses
2009
Jointly controlled entities
Other related parties
P
= 47,732
7,294
P
= 55,026
2008
(In Thousands)
P
= 54,339
12,983
P
= 67,322
2007
P
= 46,201
1,938
P
= 48,139
Receivable from related parties include the following:
a. Receivables from AINA’s interest in limited partnerships are nontrade in nature and bear interests
ranging from 12% to 15%.
b. In 2008, AYC Holdings, Inc. issued promissory notes and advances to EGS Corp. and EGS
Acquisition Corp. amounting to P
= 4,986.1 million. The advances amounting to P
= 665.3 million is
payable in one year and bear interest at the rate of 12% per annum. The promissory notes
amounting to P
= 4,320.8 million is payable over a period of five years and bear interest at the rate of
12% to 18% per annum. The notes and advances were partially collected in October 1, 2009. The
balance amounting to P
= 1,655.8 million owed by EGS Corp. was assigned to NewBridge in 2009.
58
The Company
c.
Promissory notes issued by BLC, which were assigned by MPC to ALI and Evergreen Holdings Inc.
(EHI) and the advances subsequently made by ALI to FBDC to fund the completion of the Bonifacio
Ridge project and to BLC to finance the costs to be incurred in relation to its restructuring program
are due and demandable and bear interest at the rates of 12% to 14% per annum.
d. Any other outstanding balances at the year-end are unsecured, interest free and will be settled in
cash.
Allowance for doubtful accounts on amounts due from related parties amounted to P
= 5.2 million and P
= 8.0
million as of December 31, 2009 and 2008, respectively. Reversal of provision for doubtful accounts in
2009 amounted to P
= 2.8 million and provision for doubtful accounts amounted to P
= 6.0 million in 2008, P
= 1.7
million in 2007.
Compensation of key management personnel by benefit type follows:
2009
Short-term employee benefits
Share-based payments
Post-employment benefits
P
= 864,014
167,886
103,979
P
= 1,135,879
2008
(In Thousands)
P
= 675,164
184,521
48,256
P
= 907,941
2007
P
= 503,101
144,767
78,110
P
= 725,978
COSTS OF ENVIRONMENTAL COMPLIANCE
As Ayala Corporation is a holding company, costs related to environmental compliance have been
minimal and have not been material.
GENERAL CORPORATE INFORMATION
Corporate Governance
Ayala has always been committed to best practices of corporate governance. It has endured for 175
years due in large part to the integrity it has earned, the performance it has achieved and the governance
standards it has upheld these many years. The Company’s corporate governance principles were
formalized in its Manual of Corporate Governance (the “Manual”), which the Company adopted on
September 2, 2002 and has since complied with. The Manual establishes corporate governance practices
that are founded on rigorous systems and processes designed to ensure the Company’s progress and
stability, that an effective system of check and balance is in place and that a high standard of
accountability and transparency to all stakeholders is enforced.
The Manual conforms to the SEC’s requirements for manuals of corporate governance. It defines
primarily the roles and responsibilities of the Board, Management and the Executive Officers. More
importantly, it includes a statement of their respective liabilities in the event of non-compliance or
violations of any of the provisions of the Manual. It also establishes, among others, policies on (a)
independent directors, (b) Board committees, (c) conflicts of interest, (d) internal and external audit
procedures and practices, (e) stockholders’ rights and interests and (f) management’s responsibility to
communicate and inform stakeholders matters related to the Company’s affairs. The principles embodied
in the Manual lay the foundation for the appropriate supervision and good management of the Company
to safeguard shareholders’ interests and sustain the Company’s long-term growth.
•
The evaluation system which was established to measure or determine the level of compliance of the
Board of Directors and top level management with its Manual of Corporate Governance consists of a
59
The Company
•
•
Board Performance Assessment which is accomplished by the Board of Directors indicating the
compliance ratings. The above is submitted to the Compliance Officer who issues the required
certificate of compliance with the Company’s Corporate Governance Manual to the Securities and
Exchange Commission.
To ensure good governance, the Board establishes the vision, strategic objectives, key policies, and
procedures for the management of the company, as well as the mechanism for monitoring and
evaluating Management’s performance. The Board also ensures the presence and adequacy of
internal control mechanisms for good governance.
The Company is taking further steps to enhance adherence to principles and practices of good
corporate governance
The Board regularly meets at least on a quarterly basis. It ensures the presence and adequacy of internal
control mechanisms for good governance in accordance with the Manual. The minimum internal control
mechanisms for the Board’s oversight responsibility include, but are not limited to:
•
•
•
•
•
•
•
Ensuring the presence of organizational and procedural controls, supported by an effective
management information system and risk management reporting system;
Reviewing conflict-of-interest situations and providing appropriate remedial measures for the same;
Appointing a Chief Executive Officer (“CEO”) with the appropriate ability, integrity and experience to
fill the role, as well as defining the CEO’s duties and responsibilities;
Reviewing proposed senior management appointments;
Ensuring the selection, appointment and retention of qualified and competent management; reviewing
the Company’s personnel and human resources policies, compensation plan and the management
succession plan;
Institutionalizing the internal audit function; and
Ensuring the presence of, and regularly reviewing, the performance and quality of external audit.
There were no deviations from the Company’s Manual of Corporate Governance. The Company has
adopted in the Manual of Corporate Governance the leading practices and principles of good corporate
governance and full compliance therewith has been made since the adoption of the Manual.
Shareholder and Investor Relations
The Company believes that open and transparent communications are requisite for sustained growth and
building investor confidence. Our investor communications program seeks to promote greater
understanding of the company’s long-term value creation proposition.
The Company, through its Investor Relations Unit reporting directly to the Head of Corporate Strategy,
addresses the various information requirements of the investing public and communicates with minority
shareholders through timely and full disclosures to the Philippine Stock Exchange, regular quarterly
briefings, Annual General Meetings, one-on-one meetings, conference calls, road shows and investor
conferences, and web site, e-mails, and telephone calls.
The Company holds regular briefings and meetings with buy-side and sell-side analysts and financial
analysts from the banking community. Access to senior management is also provided to analysts and
fund managers. In addition to the year-round meetings with the Head of Corporate Strategy and Chief
Finance Officer, analysts are given an opportunity to meet the Management Committee members, the
President, and Chairman and CEO upon request.
The Company maintains a web site which includes a section on Investor Relations that details the
company’s organization structure, financial and operating performance, ownership, and governance
practices. This is updated on a regular basis when and as disclosures to regulatory agencies are made.
Presentations made during analysts briefings and investor conferences are likewise made available on
the web site for public access.
60
BUSINESS
I.
Real Estate and Hotels
Ayala conducts its real estate and hotels business through its subsidiaries Ayala Land, Inc. (“ALI”) and
Ayala Hotels. Inc. (“AHI”). As of December 31, 2009, Ayala effectively owned 53.3% of ALI common
shares and 76.6% of AHI.
AYALA LAND, INC.
ALI, one of the largest and most diversified real estate conglomerates in the Philippines, is principally
engaged in the planning, development and marketing of large-scale communities having a mix of
residential, commercial and other uses. Its principal businesses include planning and development of
mixed-use properties, particularly, the subdivision and sale of residential and commercial lots in planned
communities and the development and leasing of retail space and land in these communities. ALI also
builds and sells residential condominium and office buildings, develops industrial and business parks and
develops and sells middle income and affordable housing units. ALI also owns hotels and movie
theaters, and provides property management and construction services to government infrastructure and
other projects. As of December 31, 2009, ALI’s land bank comprised a total of 3,929 hectares of fully
converted properties in various locations nationwide.
ALI was spun-off by Ayala in 1988 to enhance management focus on its existing real estate business and
to highlight the value of the assets, management and capital structure of the real estate business. ALI
has a market capitalization of P
= 146 billion as of December 31, 2009 based on its shares’ closing price as
of that date.
In 1991, ALI shares were offered to the public in a P
= 2.5 billion initial public offering (“IPO”) of primary and
secondary shares, and subsequently listed on the Makati and Manila Stock Exchanges (the predecessors
of the PSE). The IPO diluted Ayala’s effective interest in ALI to 88.2%. Since then, there were further
dilutions and sales of shares and so as of December 31, 2009, Ayala’s effective interest in ALI stood at
53.3%.
ALI’s subsidiaries and affiliates as of December 31, 2009 were as follows:
Date of
Incorporation
Ownership (%)
By Ayala
By Subsidiary
Land
/ Affiliate
CORE BUSINESS
Strategic Landbank Management
Aurora Properties, Inc.
Vesta Property Holdings, Inc.
Ceci Realty, Inc.
Emerging City Holdings, Inc.
Columbus Holdings, Inc.
(a)
Bonifacio Land Corporation
(b)
Fort Bonifacio Development Corp.
Berkshires Holdings, Inc.
Columbus Holdings, Inc.
(a)
Bonifacio Land Corporation
December 3, 1992
October 22,1993
August 22, 1974
July 19, 2002
July 19, 2002
October 20, 1994
February 7, 1995
December 4, 2002
July 19, 2002
October 20, 1994
70.0
70.0
60.0
50.0
5.3
70.0
70.1
55.0
50.0
5.3
30.0
70.1
61
Business – Real Estate and Hotels
(b)
Fort Bonifacio Development Corp.
Regent Time International Limited
(a)
Bonifacio Land Corporation
(b)
Fort Bonifacio Development Corp
Buendia Landholdings, Inc.
Red Creek Properties, Inc.
Crimson Field Enterprises, Inc.
Crans Montana Property Holdings Corp
Amorsedia Development Corporation
HLC Development Corporation
Ecoholdings Company, Inc.
Residential Development
Avida Land Corp.
Buklod Bahayan Realty and Development Corp.
First Communities Realty, Inc.
Avida Sales Corp.
Amicassa Process Solutions, Inc.
Alveo Land Corp. (formerly Community Innovations,
Inc.
Serendra, Inc.
Roxas Land Corporation
Amorsedia Development Corporation
OLC Development Corporation
Ayala Greenfield Development Corp.
Ayala Land Sales, Inc.
Ayala Land International Sales, Inc.
Date of
Incorporation
February 7, 1995
March 28, 2003
October 20, 1994
February 7, 1995
October 27, 1995
October 17, 1994
October 26, 1995
December 28, 2004
March 6, 1996
June 28, 1996
September 25, 2008
October 30, 1990
November 5, 1996
May 29, 2000
December 22, 2008
June 2, 2008
September 29, 1995
June 7, 1994
March 16, 1996
March 6, 1996
June 28, 1996
July 17, 1997
March 6, 2002
March 29, 2005
Shopping Centers
Northbeacon Commercial Corporation
Station Square East Commercial Corporation
Accendo Commercial Corp.
ALI-CII Development Corporation
Alabang Commercial Corporation
South Innovative Theatre Management, Inc.
North Triangle Depot Commercial Corporation
Lagoon Development Corporation
Primavera Town Centre, Inc.
Ayala Theatres Management, Inc.
Five Star Cinema, Inc.
Food Court Company, Inc.
Leisure and Allied Industries Phils., Inc.
August 13, 1970
March 17, 1989
December 17, 2007
August 6, 1997
June 28, 1978
February 2, 2001
March 20, 2001
August 30, 1996
December 18, 2009
August 10, 1984
December 18, 2000
November 14, 1997
October 10, 1997
Corporate Business
Laguna Technopark, Inc.
Asian I-Office Properties, Inc
(c)
ALI Property Partners Holdings Corp.
(c)
ALI Property Partners Corp.
One Dela Rosa Property Development Inc.
November 15, 1990
September 24, 2007
July 25, 2006
July 26, 2006
September 4, 2006
Ownership (%)
By Ayala
By Subsidiary
Land
/ Affiliate
55.0
100.0
5.3
4.8
55.0
100.0
100.0
100.0
100.0
100.0
100.0
100.00
100.0
100.0
100.0
100.0
100.0
100.0
67.0
50.0
100.0
100.0
50.0
100.0
100.0
100.0
69.0
56.7
50.0
50.0
100.0
49.3
30.0
100.0
100.0
100.0
100.0
50.0
75.0
60.0
80.0
20.0
60.0
100.0
62
Business – Real Estate and Hotels
First Gateway Real Estate Corp.
UP North Property Holdings, Inc
Glensworth Development, Inc.
Gisborne Property Holdings, Inc.
Sunnyfield E-Office Corporation
Asterion Technopod, Inc.
Crestview E-Office Corporation
Summerhill E-Office Corporation
Hillsford Property Corp.
Construction
Makati Development Corporation
Date of
Incorporation
September 4, 2006
March 26, 2007
August 23, 2007
August 24, 2007
July 7, 2008
July 8, 2008
July 8, 2008
July 7, 2008
August 24, 2007
Ownership (%)
By Ayala
By Subsidiary
Land
/ Affiliate
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
August 15, 1974
100.0
December 9, 1988
August 2, 1990
September 24, 2007
January 31, 1994
February 1, 1994
April 6, 1995
47.3
7.8
October 23, 2006
October 25, 2006
May 6, 2006
April 19, 2007
100.0
Property Management
Ayala Property Management Corporation
August 8, 1977
100.0
Hotels
Ayala Hotels, Inc.
Enjay Hotels, Inc.
Cebu Insular Hotel Company, Inc.
Greenhaven Property Venture, Inc.
April 11, 1991
July 12, 1990
April 6, 1995
July 9, 2008
50.0
Visayas Mindanao
Cebu Holdings, Inc.
Cebu Property Ventures & Development Corp.
Asian I-Office Properties, Inc.
Cebu Leisure Company, Inc.
CBP Theatre Management Inc.
Cebu Insular Hotel Company, Inc.
International
First Longfield Investments Limited
Green Horizons Holdings Limited
ARCH Capital Management Co. Ltd.
ARCH Capital Partners L.P.
76.3
40.0
100.0
100.0
37.1
100.0
17.0
8.0
SUPPORT BUSINESS
OTHERS
KHI-ALI Manila, Inc.
January 30, 2007
KHI Manila Property, Inc.
August 13, 2007
(d)
Astoria Investment Ventures, Inc.
February 29, 1996
ALInet.com, Inc.
May 5, 2000
CMPI Holdings, Inc.
May 30, 1997
CMPI Land, Inc.
March 27, 1998
(a)
ALI’s effective ownership in Bonifacio Land Corporation is 45.05%
(b)
ALI’s effective ownership in Fort Bonifacio Development Corporation is 24.78%
(c)
ALI’s effective ownership in APPHC is 80% and in APPCO is 68%
(d)
Pertains to common shares
100.0
62.9
100.0
60.0
20.0
100.0
100.0
60.0
60.0
63
Business – Real Estate and Hotels
ALI has long enjoyed leadership in the traditional markets it serves, leveraging on long term relationships
with customers, landowners, tenants, its employees, the local government and NGO communities, and
providers of capital. ALI shares values and a common long-term orientation that allows all parties
concerned to prosper over time. Many of the best names in local and international retailing anchor its
shopping centers while top multinationals either set up base in its headquarter-type offices or locate in its
business process outsourcing (BPO) facilities. ALI is also the partner of choice for strategic new partners,
such as the Shangri-La and Kingdom Hotels groups, which want to make significant new investments in
the country and help prime ALI’s strategic growth centers.
ALI plans to maintain and enhance its position as the leading property developer in the Philippines by
continuing to develop large-scale, mixed-use integrated communities while diversifying its revenue base
across its wide portfolio of businesses. To achieve this, ALI will embark on an aggressive strategy
anchored on four main pillars that will lay the ground work for the Company’s long-term sustainable
growth:
• Growth. ALI will actively strengthen and slowly establish its presence in several identified growth
centers across the country to effectively expand its footprint into new geographies. It will also
introduce new formats within its existing business models to diversify its portfolio of highly
differentiated product offerings and tap into previously unserved markets and consumer
segments to broaden its reach.
• Margin Improvement. ALI will continue to implement various spend management and cost control
measures and pursue operational efficiencies further across the organization, without sacrificing
quality and with strict adherence to the principles of sustainability, to bring overall costs down and
drive profitability.
• Capital Efficiency. The ALI will also make more efficient use of resources and capital to improve
asset turnover and returns on capital. To this end, ALI will pursue an asset-light approach to
development and optimize land use by maximizing synergies within the organization, moving with
scale to maximize utilization and value-capture.
• Organizational Development. ALI will continue to strengthen its risk management program to
effectively contain strategic, operational, financial and supply-chain risks associated with the
much increased business activity levels and enhance its internal talent pool and support systems
ensure that these are supportive of ALI’s growth objectives.
Business Lines
ALI’s projects are segregated into various business lines, based on their operations. These business
lines, categorized into core businesses and support businesses, are described below.
Core Businesses
1.
Residential Developments
Sale of high-end and upper middle-income residential lots and units, affordable housing units and
lots, and leisure community developments; lease of residential developments under joint venture;
2.
Shopping Centers
Development of shopping centers and lease to third parties of retail space and land therein;
operation of movie theaters, food courts, entertainment facilities and carparks in these commercial
centers; management and operations of malls which are co-owned with partners;
3.
Corporate Business
Development and lease or sale of office buildings; sale of industrial lots and lease of factory
buildings;
64
Business – Real Estate and Hotels
4.
Strategic Landbank Management
Acquisition, development and sale of large-scale, mixed-use, master-planned communities; sale of
override units or ALI’s share in properties made available to subsidiaries for development; lease of
gas station sites and carparks outside Ayala Center.
5.
Construction
Land development and construction of ALI and third party projects;
6.
Geographic Businesses:
Visayas-Mindanao
Development, sale and lease of ALI’s and subsidiaries' product offerings in key cities in the Visayas
and Mindanao regions. This consists of shopping centers and residential developments;
International
Investment in an Asian real estate private equity fund and a fund management company.
Support Businesses
1.
Hotels
Development and management of hotels/serviced apartments; lease of land to hotel tenants;
2.
Property Management
Facilities management of ALI and third-party projects;
In addition to the above business lines, ALI also derives other income from its investment activities and
sale of non-core assets.
COMPETITION
ALI is subject to significant competition in each of its principal businesses. Competitive pressure is
expected to remain as large property developers focus on the value-conscious middle market. Sustained
demand growth is not likely to occur without real improvement in employment and real incomes.
However, ALI believes that, at present, there is no single property company that has a significant
presence in all sectors of the property market.
ALI competes with other developers and developments to attract purchasers of land and residential units,
office and retail tenants as well as other construction and property management firms, and hotel
operators.
Land and Residential Sales
With respect to land and condominium sales, ALI competes for purchasers primarily on the basis of
reputation, reliability, price and the quality and location of the community in which the relevant site is
located. With respect to its horizontal residential housing developments, ALI competes for buyers based
on quality of projects and reasonable pricing of units.
65
Business – Real Estate and Hotels
(a) High-end residential
ALI continues to be the leader in the high-end residential market. It competes with a price premium over
other high-end developers but justifies it with superior locations, workmanship quality, timely project
completions, and overall reputation in the real estate industry. Through these, it has been able to keep
well ahead of other high-end players.
Real estate has always been a major investment vehicle for the affluent. However, in a volatile
environment, such as the recent financial crisis and the subsequent global economic downturn, the highend market tends to “wait and see,” or they simply choose to place their money in other investment
instruments. With confidence returning as market risks abated in 2Q09, sales of high-end lots like
Westgrove Heights, Abrio and Montecito in NUVALI have recovered from 1Q09 and stabilized since 2Q09
with the absence of new residential projects launched in the second half of the year.
ALI has mitigated the market risks it faces through carefully planned project launches, clear product
differentiation, product innovation, and increased market expansion through overseas sales and new
segments.
(b) Middle-income residential
In the middle-income market segment, the environment remains challenging due to the number and
aggressive moves of competitors. ALI’s middle-income residential business (through its subsidiary, Alveo
Land Corp.) was affected as booked units declined in 2008 from 2007. However, Alveo’s performance
began to improve in 1Q09 which was generally sustained for the remainder of 2009. Demand is expected
to remain strong this year for several reasons: (a) more upbeat economic outlook, (b) strong buying
interest from the domestic market and overseas based Filipinos, and (c) emerging preference for
condominium living. ALI remains confident that it can compete effectively in this segment because of its
superior product offering in terms of location, amenities, features, after-sales service, and very
competitive pricing and payment terms.
(c) Affordable residential
ALI offers affordable residential projects through its wholly-owned subsidiary, Avida Land Corporation. In
this segment, there is an increase in activities and marketing efforts of major developers to reach their
desired target market.
Positive factors, on the other hand are spurring interest because of their long-term effects in the real
estate industry:
•
•
•
•
Increased developments north of Manila due to the North Luzon Expressway and the opening of
the Subic-Clark-Tarlac toll expressway;
Rehabilitation of the South Luzon Expressway to spur growth in the Cavite, Laguna, Batangas
area south of Metro Manila;
Increasing purchases by the overseas-based Filipino market due to marketing and promotions by
various developers; and
Availability of financing from the Home Development Mutual Fund (Pag-IBIG).
Office Space and Retail Rental
With respect to its office rental properties, ALI competes for tenants primarily based upon the quality and
location of the relevant building, the reputation of the building owner, the quality of support services
provided by the property manager, and rental and other charges. Under the current environment, lease
66
Business – Real Estate and Hotels
rates and occupancy levels however are under pressure in the Makati Central Business District where ALI
office buildings are located. According to research data provided by Colliers International Philippines,
vacancy rate for all grades as of end-December 2009 is estimated at 7.3%, up from end-September
2009’s 6.9% level, while average lease rates have gone off by an average of 4% for all office grades
during the same comparative periods.
With respect to its retail properties for lease, ALI competes for tenants primarily based upon the ability of
the relevant retail center to attract customers, which generally depends on the quality and location of, and
mix of tenants in, the relevant retail center and the reputation of the owner and/or operator of the retail
center, as well as rental and other charges. The market for shopping centers has become especially
competitive and the number of competing properties is expected to grow. Some competing shopping
centers are located within relatively close proximity of each of ALI’s commercial centers.
ALI, nonetheless, has maintained healthy occupancy levels and registered favorable lease rates.
Industrial Property Business
The industrial property business is affected by oversupply as well as limited industrial expansion and
declining foreign investments. Overall, the industrial property segment is not likely to show significant
demand improvement in the medium term.
ALI, through Laguna Technopark, Inc. (LTI), remains the preferred location for locators and has been
successfully expanding its offerings at a time when industrial parks in the Calabarzon area have been
experiencing the effects of an oversupply of manufacturing and processing facilities. Despite the
slowdown in export market last year, LTI was able to sell a considerable number of lots when other
players in the industry were having difficulties moving their inventory.
Hotel Operations
Although the hotel industry has seen increasing visitor arrivals in the past several years, it is generally
subject to the slowdown in business activity due to global financial and local political turmoil and security
concerns. Nonetheless, according to the Department of Tourism, the 3.95 million foreign tourists who
visited the Philippines from January-August 2009 was a shade higher than the 3.94 million tourists
recorded in the same period last year.
Infrastructure, Construction and Property Development
ALI’s construction business is exposed to any potential sector-wide slowdown in construction activities.
Notwithstanding stiff competition in the industry, ALI intends to maintain and enhance its position as the
leading property developer in the Philippines by continuing its over-all business strategy of developing
large-scale, mixed-use integrated communities within growth centers that perpetuate its strong market
presence while ensuring a steady revenue growth for the Company. Furthermore, the Company has
started to venture into stand-alone opportunities like the TriNoma, The Columns and BPO buildings in
various locations within and outside Makati and Bonifacio Global City business districts. ALI further
intends to diversify its revenue base by expanding its real estate business into different markets,
specifically the economic housing segment, and geographic areas and growth centers across the country
where there are significant growth opportunities or where its proposed developments complement its
existing real estate business.
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Business – Real Estate and Hotels
DIVIDEND POLICY
Dividends declared by ALI on its shares of stock are payable in cash or in additional shares of stock. The
payment of dividends in the future will depend upon the earnings, cash flow and financial condition of ALI
and other factors.
Special cash dividends are declared depending on the availability of cash, taking into account ALI’s
project and capital expenditures and the progress of its ongoing asset rationalization program.
Cash dividends are subject to approval by ALI’s Board of Directors but no stockholder approval is
required. Property dividends which may come in the form of additional shares of stock are subject to
approval by both ALI’s Board of Directors and ALI’s stockholders. In addition, the payment of stock
dividends is likewise subject to the approval of the SEC and PSE.
Other than the restrictions imposed by the Corporation Code of the Philippines, there is no other
restriction that limits ALI’s ability to pay dividends on common equity.
DESCRIPTION OF PROPERTY
The following table provides summary information on ALI’s landbank as of December 31, 2009.
Properties are wholly owned and free of liens unless noted.
Location
1
Makati
2
Taguig
Makati (outside CBD)
3
Alabang
Las Piñas
4
Quezon City
5
Manila / Pasay
6
Pasig
Metro Manila
Hectares
50
43
5
18
130
56
3
4
309
7
1,434
642
289
123
2,488
11
22
3
71
289
385
Canlubang
8
Laguna (ex-Canlubang)
9
Cavite
10
Batangas/Rizal/Quezon
Calabarzon
Pampanga
Naga
Cabanatuan/ Baguio
12
Bataan
Other Luzon Area
13
Bacolod/Iloilo
14
Cebu
Davao
Cagayan De Oro
Visayas/Mindanao
TOTAL
290
234
70
153
747
3,929
Primary land use
Commercial/ Residential
Commercial/ Residential
Residential
Commercial
Residential
Commercial/ Residential
Commercial/ Residential
Residential
Residential/ Industrial/ Commercial
Residential/ Industrial
Residential
Residential
Residential
Residential
Residential
Leisure/ Residential
Residential
Commercial/ Residential
Residential
Residential
68
Business – Real Estate and Hotels
1
Makati includes sites of Mandarin Hotel (1.6 has.) and Peninsula Hotel (2.0 has.) which are 50% owned through
Ayala Hotels, Inc., and remaining area at Roxas Triangle (0.5 ha.) which is 50% owned..
2
Taguig includes 9.8-ha. site of Market! Market! under lease arrangement with BCDA; 2-ha. in Serendra which is
under joint development agreement with BCDA; 33 has. in Taguig is owned through Fort Bonifacio Development
Corporation.
For Market! Market!, the lease agreement with the BCDA covers a period of 25 years (renewable for another 25
years) and involves an upfront cash payment of P
= 700 million and annual lease payments with fixed and variable
components.
For Serendra, the joint development agreement with BCDA involves an upfront cash payment of P
= 700 million plus a
guaranteed revenue stream totaling P
= 1.1 billion over an 8-year period.
3
Alabang pertains to the 17.6-ha. Alabang Town Center which is 50% owned through Alabang Commercial Corp.
(ACC), 3.7 has. of which is subject of a Mortgage Trust Indenture as security for ACC’s short-term loans with Bank of
the Philippine Islands.
4
Quezon City mainly includes 38 has. under lease arrangement with University of the Philippines and the 13-ha. site
of TriNoma which is under lease arrangement with the Department of Transportation and Communication. TriNoma is
49% owned by ALI through North Triangle Depot Commercial Corp.
5
Manila/Pasay includes 2.1 has. (under development) which are under joint venture with Manila Jockey Club, Inc.
and 0.3-ha. site of Metro Point which is 50% owned through ALI-CII Development Corp.
6
Pasig pertains to Alveo’s new project – Ametta Place.
7
Canlubang includes 1,216 has. which are 70% owned through Aurora Properties, Inc. and Vesta Holdings, Inc.; also
includes 304 has. which are 60% owned through Ceci Realty, Inc.
8
Laguna (excluding Canlubang) includes 100 has. which are under a 50-50% joint venture with Greenfield
Development Corp.; 19 has. in Laguna Technopark, Inc. which is 75% owned by ALI; and 3-ha. site of Pavilion Mall
which is under 27-year lease arrangement with Extra Ordinary Group, with an option to renew every 5 years
thereafter (lease payment is based on a certain percentage of gross income).
9
Cavite includes 20 has. in Riego de Dios Village which is under joint venture with the Armed Forces of the
Philippines.
10
Batangas includes 17 has. in Sto. Tomas project which is under an override arrangement, while Quezon includes a
39-ha. property.
11
Pampanga pertains to the site of Avida and Alveo projects, and the newly-opened Marquee Mall.
12
Bataan pertains to the site of Anvaya Cove which is under joint development agreement with SUDECO.
13
Bacolod includes 69 has. in Ayala Northpoint which is under override arrangement. Iloilo includes a 21-ha.
property.
14
Cebu includes about 10 has. in Cebu Business Park (including Ayala Center Cebu) which is 47% owned through
Cebu Holdings, Inc. (CHI); 0.62-ha. hotel site owned by Ayala Hotels, Inc. and Cebu Holdings, Inc.; 8 has. in
Asiatown IT Park which is owned by Cebu Property Ventures and Development Corporation which in turn is 76%
owned by CHI; and 22 has. in Amara project, (66% owned by CHI) which is under joint venture with Coastal
Highpoint Ventures, Inc. A 9.46-ha. Property (within the Cebu Business Park) which houses the Ayala Center Cebu
is subject of a mortgage trust indenture securing term loan with Bank of the Philippine Islands; 0.62 has. is subject of
a mortgage trust indenture securing Cebu Insular Hotel Company Inc.’s term loan with Bank of the Philippine Islands.
Property Acquisitions
With 3,929 hectares in its landbank as of December 31, 2009, ALI believes that it has sufficient properties
for development in next twenty-five (25) years.
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Business – Real Estate and Hotels
Nevertheless, the Company continues to seek new opportunities for additional, large-scale,
masterplanned developments in order to replenish its inventory and provide investors with an entry point
into attractive long-term value propositions. The focus is on acquiring key sites in the Mega Manila area
and other geographies with progressive economies that offer attractive potential and where projected
value appreciation will be fastest.
In a disclosure to the Securities and Exchange Commission dated August 27, 2009, ALI and the National
Housing Authority (NHA) signed a Joint Venture Agreement to develop the 29.1-hectare North Triangle
Property in Quezon City as a priming project of the government and the private sector. The joint venture
represents the conclusion of a public bidding process conducted by the NHA which began last October 3,
2008.
ALI’s proposal, which has been approved and declared by the NHA as compliant with the Terms of
Reference of the public bidding and the NEDA Joint Venture Guidelines, features the development of a
new Central Business District (CBD) in Quezon City. The CBD will be developed as the Philippines’ first
transit-oriented mixed-use central business district that will be a new nexus of commercial activity. The
proposal also aims to benefit the NHA in achieving its mandate of providing housing for informal settlers
and transforming a non-performing asset into a model for urban renewal. The development will also
generate jobs and revenues both for both local and national governments.
ALI’s vision for the North Triangle Property is consistent with the mandate of the Urban Triangle
Development (TriDev) Commission to rationalize and speed up the development of the East and North
Triangles of Quezon City into well-planned, integrated and environmentally balanced, mixed-use
communities. The joint venture also conforms with the NHA’s vision of a private sector-led and managed
model for the development of the property, similar to the development experience in Fort Bonifacio.
ALI’s track record, strong branding, and ability to attract top locators will ensure that the development will
achieve its highest potential value. In the development and management of CBDs, ALI’s signature
projects include the master-planned Makati CBD, Bonifacio Global City, Cebu Business Park, and
Madrigal Business Park in Alabang.
The total project cost is estimated at P
= 22 billion, inclusive of future development costs and the current
value of the property, which ALI and the NHA will contribute as their respective equity share in the joint
venture. ALI expects to start development within two years.
Environmental Compliance
ALI incurs no material costs in relation to compliance with environmental laws and regulations. Each of
ALI and its subsidiaries, as a matter of corporate policy, either has secured or seeks to secure all relevant
and applicable Government approvals such as environmental compliance certificates or certificates of
non-coverage, development permits, and licenses to sell, as part of the normal course of their business.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2009
Revenues
ALI posted a strong financial performance for the full year 2009 despite a challenging macroeconomic
environment, especially in the first quarter of last year. Net income attributable to equity holders of ALI
reached P
= 4.04 billion in 2009, nearly matching the record P
= 4.13 billion in earnings (excluding large
transactions) generated the previous year. The Company’s quarterly financial performance also improved
steadily, with the P
= 1.12 billion in net income attributable to equity holders of ALI generated in the fourth
quarter of 2009 up 7% quarter-on-quarter and 16% year-on-year, respectively. This was achieved through
70
Business – Real Estate and Hotels
a combination of relatively stable operating revenues from key business segments and effective cost
control measures.
Consolidated revenues of P
= 30.46 billion in 2009 were 10% lower than the P
= 33.75 billion recorded the
previous year. The decline was accounted for mostly by the 8% drop in revenues from Real Estate and
Hotel operations and the absence of capital gains from a large transaction, specifically the sale of the
Valero lots in March 2008. Real Estate and Hotel operations revenues were lower, mostly on the
Company’s decision to reduce its external third-party construction contracts while aggregate consolidated
revenues from the company’s core residential and leasing operations remained flat.
2
= 9.03 billion
Despite the lower consolidated revenues, consolidated net operating income (NOI) reached P
in 2009, declining by only 3% from the P
= 9.33 billion posted the previous year. This reflected the overall
3
improvement in blended NOI margins to 32% in 2009 from 31% the previous year. Shopping Centers
and Corporate Business margins stabilized as leased-out rates in new malls and business process
outsourcing (BPO) office buildings steadily moved up, while an improvement in Strategic Landbank
Management margins offset the decline in Residential and Support Businesses margins which were
hampered by high input costs at the start of the year. The improvement in NOI margins and a 16%
reduction in General and Administrative Expenses (GAE) contributed to narrowing the gap between the
after-tax Net Income attributable to equity holders of ALI (NIAT) of P
= 4.04 billion in 2009 compared with
the P
= 4.81 billion (including large transactions) recorded in 2008.
Business Segments
The details of the individual performance of each business segment are discussed as follows:
Residential Development
Residential Development revenues amounted to P
= 14.23 billion in 2009, 6% lower than the P
= 15.22 billion
posted the previous year, as the combined value of bookings for the three brands due to uncertain market
conditions in the first quarter and a limited supply of new product launches in 2009. Ayala Land Premier
revenues registered a decline of 15% to P
= 6.53 billion as the gradual recovery in demand was not met with
adequate inventory. Meanwhile, Alveo Land and Avida Land both posted growth rates of 2% year-onyear. Alveo’s revenues reached P
= 4.03 billion while Avida’s reached P
= 3.67 billion as advancing
percentages of completion on projects under construction offset the decline in new bookings. The
Residential Business remained the biggest contributor to the Company’s NOI, accounting for 43% of total
at P
= 3.85 billion. NOI margins dropped to 27% from 29% largely because the completion mix was
weighted towards the lower-margin products. For 2010, the Company is anticipating a strong turn-around
in market conditions and will be launching its most aggressive campaign ever, with over 9,200 units to be
launched from 28 projects across all residential brands. 2010 will also be noteworthy for the Company’s
initial foray into the economic housing segment through a newly established fourth brand known as Amaia
Land Corporation, with a maiden project to be launched in Laguna within the first quarter.
Shopping Centers
Total revenues for Shopping Centers rose by 4% to P
= 4.44 billion in 2009 as its gross leasable area (GLA)
portfolio increased with the opening of MarQuee Mall in Angeles, Pampanga last September 2009.
Blended occupancy rates remained at 92% despite the Ayala Center redevelopmental-related closures in
Glorietta 1 as well as the start-up operations of MarQuee Mall. Average building rent for all malls dropped
by 5% to P
= 1,019 per square meter per month, mostly due to the lower average lease rates in MarQuee
Mall. NOI for Shopping Centers meanwhile improved by 9% to P
= 2.34 billion and accounted for 26% of the
Company’s total NOI. NOI margins also improved to 53% from 50% with the continued ramp-up of new
2
3
Revenue from real estate and hotel operations less costs related to real estate and hotel operations
NOI divided by revenue from real estate and hotel operations
71
Business – Real Estate and Hotels
malls. For 2010, the Company will continue with the construction of its Abreeza Mall in Davao, which is
expected to open in 2011. It is also expected to launch the Phase 2 development of Ayala Center Cebu,
while breaking ground in several other provincial locations for both regional malls as well as its
community and neighborhood center products.
Corporate Business
Revenues from Corporate Business nearly doubled to P
= 1.99 billion in 2009 from P
= 1.09 billion the
previous year. The growth was derived largely from the expansion of the BPO office portfolio that reached
a total of 178,160 square meters of leased-out GLA as of year-end 2009, compared with 82,224 square
meters as of year-end 2008. Revenues were also boosted by higher average BPO lease rates that went
up by 22% to an average of P
= 582 per square meter per month with the start of operations of two higheryielding BPO office buildings in Makati in 2009 (Solaris One and Glorietta 5 BPO). Meanwhile, the
performance of the headquarter-type (HQ) office buildings continued to be positive. Average lease rates
for the HQ buildings increased by 4% to P
= 806 per square meter per month on programmed rental
escalations as well as above-average renewal rental rates, with occupancy rates remaining high at 96%.
NOI meanwhile increased by 86% to P
= 1.08 billion in 2009, accounting for 12% of the Company’s total.
NOI margins also improved to 54% from 53% as a result of improving occupancy rates in the recently
opened buildings. For 2010, the Company continues to see positive prospects for expansion in select
locations and will begin construction on Two Evotech in Nuvali as well as several other BPO buildings in
Luzon and the Visayas region.
Strategic Landbank Management
Revenues from Strategic Landbank Management Group (SLMG) amounted to P
= 2.26 billion in 2009, 24%
higher than the previous year, largely due to the significant construction completion of its share in booked
NUVALI residential and commercial lot sales. The strong revenue growth also led to an increase in NOI
by 32% to P
= 832 million from P
= 632 million in 2008 (and contributed 9% to total NOI). NOI margins likewise
improved to 37% from 35% with a greater percentage of construction accomplishment in higher-margin
lots in NUVALI.
Visayas-Mindanao
Revenues from Visayas-Mindanao improved by 20% to P
= 194 million in 2009 from P
= 161 million the
previous year. Most of the revenue growth came from increasing percentage completion at Alegria Hills in
Cagayan de Oro and from higher bookings in new phases of Plantazionne Verdana Homes in Negros
Occidental. NOI contribution was P
= 17 million, or less than 1% of total.
Support Businesses
The Support Businesses, namely Construction, Property Management and Hotels, generated revenues
(net of inter-company eliminations) of P
= 4.96 billion in 2009, 38% lower than the P
= 8.05 billion posted the
previous year. The decline was a result of the winding down and subsequent lower contribution from
external construction projects as the Company deliberately adopted a strategy of focusing more on
internal construction. Consequently, NOI for the Support Businesses in aggregate also dropped by 44%
to P
= 909 million, or 10% of total. Overall margins were likewise lower at 18% compared with 20% the
previous year, although these stabilized in the second half of 2009, compared with a larger average yearon-year drop in the first two quarters of last year.
Equity in Net Earnings of Investees, Interest, Fees, Investment and Other Income
Equity in Net Earnings of Investees grew by 9% to P
= 968 million from P
= 885 million, mostly from the
contribution of Fort Bonifacio Development Corporation (in which the Company holds an effective stake of
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Business – Real Estate and Hotels
24.8%) and the improved performance of shopping center joint ventures accounted for under the equity
method (particularly TriNoma and Alabang Town Center). Meanwhile, Interest, and Other Income
decreased by 37% to P
= 1.41 billion in 2009 compared with the P
= 2.25 billion the previous year. Higher
management fees and interest income on higher average cash balances in 2009 were not enough to
compensate for the absence of capital gains derived from the sale of shares in wholly-owned subsidiaries
Piedmont Property Ventures, Inc., Stonehaven Land, Inc. and Streamwood Property, Inc. in March 2008.
Expenses
Total expenses dropped to P
= 26.42 billion in 2009, 9% lower than the P
= 28.94 billion recorded in 2008.
Cost of Sales from Real Estate and Hotels, which accounted for the bulk at P
= 19.02 billion, declined by
11%, reflecting the strong project cost control initiatives. GAE was also contained at P
= 2.79 billion,
dropping by 12% from the previous year with savings from a corporate restructuring program in 2008 as
well as strong cost control initiatives implemented in 2009. Meanwhile, Interest Expense, Financing and
Other Charges went up by 52% to P
= 2.80 billion, mostly due to the increase in average loan balances for
2009 as the Company ramped up its borrowing program.
Project and Capital Expenditures
ALI spent a total of P
= 16.24 billion for project and capital expenditures in 2009, 14% less that the record P
=
18.89 billion spent in 2008. Residential Development accounted for 60% of the total, followed by Strategic
Landbank Management with 17% and Shopping Centers and Corporate Business each accounting for
8% of total. For 2010, the Company has earmarked a new record high of P
= 27.17 billion for capex as it
expects its most aggressive year ever with record product launches and activity levels across all product
segments. The capex allocation is expected to cover expenses related to the launch of new residential
and leasing projects, the ongoing construction completion of existing projects under development, as well
some possible land acquisition as the Company seeks to expand its presence in more growth centers
across the country.
Financial Condition
The Company’s financial position continues to be robust with a close to zero net-debt position and
significant capacity to take on additional borrowings to support its aggressive growth plans for the next
4
few years. Cash and Cash Equivalents stood at P
= 10.53 billion with a Current Ratio of 1.95:1. Total
Borrowings as of year-end 2009 stood at P
= 18.81 billion, compared with P
= 16.75 billion as of December
5
6
2008, translating to Debt-to-Equity Ratio of 0.36:1 and a Net Debt-to-Equity Ratio of 0.05:1. The
Company has been managing its debt profile effectively, with 91% in long-term debt (with 84% of total
carrying a fixed-rate) and an average borrowing rate of 7.9% down from 8.0% the previous year. The
Company’s borrowings carry an average maturity tenor of 4.4 years. In order to support its expansion
plans, the Company intends to continue ramping-up its borrowing program in 2010.
4
5
Current assets divided by current liabilities
Total of short-term debt and long-term debt divided by equity attributable to equity holders of AL
6
Total debt less total of cash and cash equivalents, short-term investments, financial assets at fair value through profit or loss and current portion of
available-for-sale investments divided by equity attributable to equity holders of ALI
73
II.
Financial Services
Ayala is engaged in banking through its affiliate, Bank of the Philippine Islands (“BPI”). As of December
31, 2009, Ayala effectively owned 33.5% of BPI common shares.
Bank of the Philippine Islands
Description of Business
As of the date of this Prospectus, BPI is the third largest commercial bank in the Philippines in terms of
total assets, and second overall in deposits, loans and capital. It has the second biggest market share in
trust banking. It is the largest consumer lender and the top commercial bank in OFW remittances. The
bank also enjoys a significant presence in corporate finance, securities distribution and insurance
business.
BPI provides a wide range of corporate and commercial banking products and services such as credit,
trade-related services, cash management services and financial advice to large- and medium-sized
corporations and institutions in the Philippines. It provides traditional short- and long-term financing as
well as products and services such as trade acceptances and bills of exchange for such customers.
BPI is among the leading banks in the consumer banking business in the Philippines. Its services include
mortgage lending, automobile financing, deposit taking, electronic banking, remittance and foreign
exchange, credit card operations and private banking. BPI has a network of 831 branches, including 177
kiosks that are typically located in shopping malls, supermarkets and transport stations. BPI is a
recognized leader in electronic banking, having introduced most of the firsts in the industry, such as
automated teller machines (“ATMs”), a point-of-sale debit system, kiosk banking, phone banking, Internet
banking and mobile banking. BPI has 1,484 ATMs and accounts for the biggest share in the BPI
ExpressNet consortium of 3,503 ATMs.
Other major shareholders of BPI as of December 31, 2009 are Development Bank of Singapore (“DBS”)
(20.3%) and the Roman Catholic Archdiocese of Manila Group (8.5%).
Principal Subsidiaries
The bank’s principal subsidiaries are listed below.
1. BPI Family Savings Bank, Inc. serves as BPI’s primary vehicle for retail deposits, housing loans and
auto finance. It has been in business since 1985. It acquired Shenton Realty Corporation in December
2004.
2. BPI Capital Corporation is an investment house concentrating in corporate finance and the securities
distribution business. It began operations as an investment house in December 1994. It wholly owns BPI
Securities Corporation, a stock brokerage company with a seat in the PSE.
3. BPI Leasing Corporation is a quasi-bank concentrating in lease finance. It was originally established
as Makati Leasing and Finance Corporation in 1970. Its quasi-banking license was inherited from the
merger with Citytrust Investment Phils., Inc. in May 1998.
4. BPI Direct Savings Bank is a savings bank focused on providing internet and mobile banking services
to its customers. It started operating as such on February 17, 2000 upon approval of the BSP.
5. BPI International Finance Limited, Hong Kong is a deposit taking company in Hong Kong. It was
originally established in August 1974.
74
Business – Financial Services
6. Bank of the Philippine Islands (Europe) Plc is a wholly owned subsidiary of BPI, which was granted
a UK banking license by the Financial Services Authority on April 26, 2007. It was officially opened to the
public on October 01, 2007.
7. BPI Express Remittance Corp. (U.S.A.) is a remittance center for overseas Filipino workers
incorporated on September 24, 1990.
8. Ayala Life Assurance Inc. is a life insurance company acquired by BPI through its merger with Ayala
Insurance Holdings Corp. (“AIHC”) in April 2000. It was originally established in 1933 as Filipinas Life
Assurance Co. and has a 100% owned pre-need subsidiary called Ayala Plans.
9. BPI/MS Insurance Corporation is a non-life insurance company formed through a de facto merger of
FGU Insurance Corporation and FEB Mitsui Marine Insurance Company on January 7, 2002.
BPI merged with Far East Bank and Trust Co., Inc. and AIHC in 2000.
In September 2005, BPI acquired 92% of the share capital of Prudential Bank, Inc. (“Prudential Bank”).
BPI merged with Prudential Bank on December 29, 2005, wherein approximately ten million BPI shares
were issued to the 8% Prudential Bank minority shareholders.
In October 2005, the stockholders of Universal Malayan Reinsurance (“UMRe”), the reinsurance company
formed thru the merger of Universal Reinsurance Corporation (“UNIRE”), a BPI subsidiary with Malayan
Reinsurance Corporation, a subsidiary of the Yuchengco Group of Companies, and National Reinsurance
Corporation of the Philippines (“NRCP”) approved the plan of merger of UMRe and NRCP, with NRCP as
the surviving entity.
Competition
The Philippine banking industry has seen a significant increase in the number of commercial banks,
especially since the liberalization of operations by foreign banks. The number of commercial banks
increased from approximately 30 prior to liberalization to more than 50. However, as of June 30, 2008,
the number of universal and commercial banks had declined to 36 as a result of mergers and closures.
Competition has remained intense despite the industry consolidation.
Loan requirements, especially from the top tier corporate sector, while still predominantly for working
capital, have slightly recovered on stronger credit demand from power, real estate, business process
outsourcing, as well as tourism related sectors. The top corporations though have been the focus of
foreign banks, resulting in narrower margins for this market segment. It is in the buoyant SME and middle
market where lending opportunities are better, and where most of the domestic banks’ emphasis has
been directed. A number of foreign banks though as well as most domestic banks, have entered the
growing consumer market where BPI is a major player. BPI believes that its competitive advantages
include, aside from the extensive delivery infrastructure, its experience in efficient management of
operations such as loan origination, credit approval, collection and asset recovery activities.
Financial Condition as of December 31, 2009
The Bank of the Philippine Islands (BPI) registered strong business volume and revenue growth in 2009.
Full year unaudited net income rose to P
= 8.5 billion, 33% higher than 2008, and equivalent to a 13%
Return on Average Equity and a 1.3% Return on Average Assets. Correspondingly, net income for the
fourth quarter of 2009 was 7% better than 2008.
Unaudited total resources ended at P
= 724 billion, 9% higher than previous year. Total funds managed by
the Bank increased by P
= 187 billion or 22% and now stands at over P
= 1 trillion. Deposits expanded by 7%
to P
= 579 billion and assets under management increased by a hefty 50% to P
= 435 billion.
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Business – Financial Services
Overall net loans grew only 2%, primarily due to multinationals paying down their loans by 22%. However,
Credit Cards receivables grew 16%, SME loans 11%, consumer loans grew 10%, and local middle market
names 9%. Clearly, multinational and top tier domestic lending were challenged by high liquidity and
availability of funding through the capital markets.
Total remittances grew 15%, as against projections of an industry growth of 5%. BPI continued to capture
over 20% of the overseas Filipino remittance business.
BPI also launched a Bank Anywhere capability by which a client can transact at any BPI branch and not
be confined to their home branch. This, together with superior availability and reliability during Typhoons
Ondoy and Pepeng, resulted in low cost deposit funds growing 20% during the year.
To extend market reach and refine its product suite, BPI implemented two joint ventures with strategic
partners - BPI Globe BanKO, a mobile microfinance bank with Ayala Corporation and Globe; and BPIPhilam Life Assurance, Inc., a bancassurance platform with Philippine American Life Insurance Company.
Total revenues improved by 15% with increments contributed by both net interest and non-interest
income. Net interest income was ahead by 10% on account of the 9% expansion in average asset base
and a slight improvement in net spreads.
Non-interest income recorded a higher 25% largely on account of securities trading gain of P
= 1.4 billion as
against losses the previous year. Other income also exhibited positive gains from income from asset
sales, rental income, income from insurance operations and various fees and commissions.
BPI set aside P
= 2.5 billion in impairment losses, P
= 605 million higher than a year ago. The BSP net 30-day
non-performing loan ratio though fell to 2.8% and reserve cover further improved to 87.3%.
Operating expenses were 7% ahead of previous year due to manpower and premises-related expenses.
Income taxes was P
= 463 million higher than the previous year in view of the higher level of write-offs of
deferred income tax on net operating loss carry-over (NOLCO).
BPI issued its first Sustainability Report for 2008 along the Global Reporting Initiatives (GRI)
Sustainability Reporting Guidelines, the first in the banking industry. BPI was also recognized as the
‘Most Sustainable Bank, Philippines’ in the New Economy Sustainability Banking Awards 2009.
76
III.
Telecommunications
Ayala conducts its telecommunications business through its business affiliate, Globe Telecom. Inc.
(“Globe”). As of December 31, 2009, Ayala effectively owned 30.5% of Globe common shares.
Globe Telecom, Inc.
Overview
Globe is a major provider of telecommunications services in the Philippines, supported by over 5,000
employees and over 740,000 retailers, distributors, suppliers, and business partners nationwide. Globe
operates one of the largest and most technologically-advanced mobile, fixed line and broadband
networks in the country, providing reliable, superior communications services to individual customers,
small and medium-sized businesses, and corporate and enterprise clients. Globe currently has over 23
million mobile subscribers, over 700,000 broadband customers, and almost 600,000 landline subscribers.
Globe is also one of the largest and most profitable companies in the country, and has been consistently
recognized both locally and internationally for its corporate governance practices. It is listed on the
Philippine Stock Exchange under the ticker symbol GLO and had a market capitalization of US$2.6 billion
as of the end of 2009.
Globe’s principal shareholders are Ayala Corporation and Singapore Telecom, both industry leaders in
the country and in the region. Aside from providing financial support, this partnership has created various
synergies and has enabled the sharing of best practices in the areas of purchasing, technical operations,
and marketing, among others. As of December 31, 2009, Ayala owned 30.6% of Globe’s outstanding
common shares while Singapore Telecom International (“STI”), a wholly owned subsidiary of Singapore
Telecom, owned 47.6%. Asiacom Philippines, Inc., a holding company that currently owns all of Globe’s
outstanding preferred shares, is 60% owned by Ayala and 40% by STI.
Globe is committed to being a responsible corporate citizen. Globe BridgeCom, Globe’s umbrella
corporate social responsibility program, leads and supports various initiatives that (1) promote education
and raise the level of computer literacy in the country, (2) support entrepreneurship and micro-enterprise
development particularly in the countryside, and (3) ensures sustainable development through protection
of the environment and excellence in operations. Since its inception in 2003, Globe BridgeCom has made
a positive impact on the lives of thousands of public elementary and high school students, teachers,
community leaders, and micro-entrepreneurs throughout the country.
The Globe Group is composed of the following companies:
a) Globe Telecom, Inc. (Globe) provides mobile telecommunications services;
b) Innove, Communications Inc. (Innove), a wholly-owned subsidiary, which provides fixed line
telecommunications and consumer broadband services, high-speed internet and private data
networks for enterprise clients, services for internal applications, internet protocol-based solutions
and multimedia content delivery;
c) G-Xchange, Inc. (GXI), a wholly-owned subsidiary, provides mobile commerce services under the
GCash brand;
d) Entertainment Gateway Group Corp. and EGGstreme (Hong Kong) Limited (EHL) (collectively
referred here as EGG Group), a wholly-owned subsidiary provides digital media content and
applications; and
e) GTI Business Holdings, Inc. (GTI), a wholly-owned subsidiary is primarily an investing company. It
has a wholly owned subsidiary, GTI Corporation which is organized under the General Corporation
Law of the State of Delaware and has not yet started commercial operations as of December 31,
2009.
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Business - Telecommunications
Globe is a grantee of various authorizations and licenses from the National Telecommunications
Commission (NTC) as follows: (1) license to offer and operate facsimile, other traditional voice and data
services and domestic line service using Very Small Aperture Terminal (VSAT) technology; (2) license for
inter-exchange services; and (3) Certificate of Public Convenience and Necessity (CPCN) for: (a)
international digital gateway facility (IGF) in Metro Manila, (b) nationwide digital cellular mobile telephone
system under the GSM standard (CMTS-GSM), and (c) nationwide local exchange carrier (LEC) services
after being granted a provisional authority in June 2005.
Business Segments
Mobile Business
Globe provides digital mobile communication services nationwide using a fully digital network based on
the Global System for Mobile Communication (GSM) technology. It provides voice, data and value-added
services to its mobile subscribers through three major brands: Globe Postpaid, Globe Prepaid and TM.
Globe Postpaid includes all postpaid plans such as regular G-Plans, consumable G-Flex Plans, Load
Allowance Plans, Time Plans, Apple™ iPhone 3G plans and high-end Platinum Plans. To serve the
needs of specific market segments and promote loyalty, Globe introduced various innovative postpaid
plans including the Load Tipid Plans which allow subscribers to control their spend and set their plan
limits based on their usage profiles. The subscriber can reload their account just like any prepaid
subscriber if their actual consumption exceeds their fixed credits. Meanwhile, for those subscribers who
want to upgrade their mobile internet browsing experience, Globe introduced Personal Blackberry and
Mobile Surfing add-on plans which entails additional monthly fees on top of their regular monthly postpaid
subscription fees.
Globe Prepaid, Globe Tattoo, and TM are the prepaid brands of Globe. The Globe Tattoo brand is
targeted towards the youth segment with its convergent mobile and broadband offerings, while the TM
brand caters to the value-conscious segment of the market. Globe Prepaid is targeted towards the adult,
mainstream market. Its unique brand proposition revolves around its innovative product and service
offerings, superior customer service, and Globe’s “worldwidest” services and global network reach.
Globe offers various top-up or reloading options and facilities for prepaid subscribers including prepaid
call and text cards, bank channels such as ATMs, credit cards and through internet banking. Subscribers
can also top-up at over 740,000 AutoLoad Max retailers nationwide, all at affordable denominations and
increments. A consumer-to-consumer top-up facility, Share-A-Load, is also available to enable
subscribers to share prepaid load credits via SMS. Globe’s AutoLoad Max and Share-A-Load services
are also available in selected OFW hubs all over the world.
Mobile Voice
Globe’s voice services include local, national and international long distance call services. It has one of
the most extensive local calling options designed for multiple calling profiles. In addition to its standard,
pay-per-use rates, subscribers can choose from bulk and unlimited voice offerings for all-day or off-peak
use, and in several denominations to suit different budgets.
Globe pioneered international roaming in 1995 and now has one of the widest networks with over 500
roaming partners in more than 200 calling destinations worldwide. Globe also offers roaming coverage
on-board selected shipping lines, airlines and via satellite. Through its Globe Kababayan program, Globe
also provides an extensive range of international call and text services to allow OFWs (Overseas Filipino
Workers) to stay connected with their friends and families in the Philippines. This includes prepaid and
reloadable call cards and electronic PINs available in popular OFW destinations worldwide.
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Business - Telecommunications
Mobile Data and Value-Added Services
Globe’s data services include local and international SMS offerings, mobile browsing and content
downloads. Globe has introduced various bucket and unlimited SMS packages to cater to the different
needs and lifestyles of its postpaid and prepaid subscribers. Additionally, Globe subscribers can send
and receive Multimedia Messaging Service (MMS) pictures and video, or do local and international 3G
video calling.
Globe’s mobile browsing services allow subscribers to access the internet using their internet-capable
handsets or laptops with USB modems. Data access can be made using various technologies including
3G with HSDPA, EDGE and GPRS. Browsing subscribers now have multiple charging options with
Globe’s Flexible Mobile Internet Browsing rates which allow subscribers to choose between time or
usage-based rates. They can also choose between daily or monthly browsing plans.
Globe also offers a full range of downloadable content covering multiple topics including news,
information, and entertainment through its web portal. Subscribers can purchase or download free music,
movie pictures and wallpapers, games, mobile advertising, applications or watch clips of popular TV
shows and documentaries as well as participate in interactive TV, mobile chat and play games, among
others.
Through Globe’s partnership with major banks and remittance companies, and using Globe’s pioneering
GCash platform, subscribers can perform mobile banking and mobile commerce transactions. Globe
subscribers can complete international and domestic remittance transactions, pay fees, utility bills and
income taxes, avail of micro-finance transactions, donate to charitable institutions, and buy Globe prepaid
load credits using its GCash-activated SIM.
Fixed Line and Broadband Business
Globe offers a full range of fixed line communications services, wired and wireless broadband access,
and end-to-end connectivity solutions customized for consumers, SMEs (Small & Medium Enterprises)
and large enterprises and businesses.
To better serve the various needs of its customers, Globe organized dedicated customer facing units
(CFUs) within the company to focus on the integrated mobile and fixed line needs of specific market
segments. There are consumer marketing and sales groups to address the needs of retail customers, and
a business CFU focused on the needs of big and small businesses. Globe Business was created and
organized along two main segments – Corporate and SME (CSME) and Enterprise Businesses. These
groups provide end-to-end mobile and fixed line solutions and are equipped with their own technical and
customer relationship teams to cater to the requirements of their specific client base.
Fixed Line Voice
Globe’s fixed line voice services include local, national and international long distance calling services in
postpaid and prepaid packages through its Globelines brand. Subscribers get to enjoy toll-free rates for
national long distance calls with other Globelines subscribers nationwide. Additionally, postpaid fixed line
voice consumers enjoy free unlimited dial-up internet from their Globelines subscriptions. Low-MSF and
fixed line bundled with internet plans are available nationwide and can be customized with value-added
services including multi-calling, call waiting and forwarding, special numbers and voice mail. For
corporate and enterprise customers, Globe offers voice solutions that include regular and premium
conferencing, enhanced voice mail, IP-PBX solutions and domestic or international toll free services.
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Business - Telecommunications
Fixed Line Data
Fixed line data services include end-to-end data solutions customized according to the needs of
businesses. Globe’s product offering includes international and domestic data services, wholesale and
corporate internet access, data center services and segment-specific solutions customized to the needs
of targeted industries.
Globe’s international data services provide its corporate and enterprise customers with the most diverse
international connectivity solutions through a variety of dedicated communications services that allow
customers to manage their own virtual private networks (VPN), subscribe to wholesale internet access via
managed international private leased lines (IPL), run various applications and access networks with
integrated voice services over high-speed, redundant and reliable connections. In addition to bandwidth
access from multiple international submarine cable operators, Globe also has two international cable
landing stations situated in different locales to ensure redundancy and network resiliency.
Its domestic data services include data center solutions such as business continuity and data recovery
services, 24x7 monitoring and management, dedicated server hosting, maintenance for applicationhosting, managed space and carrier-class facilities for co-location requirements and dedicated hardware
from leading partner vendors for off-site deployment.
Other fixed line data services include access services that deliver premium-grade access solutions
combining voice, broadband and video offerings designed to address specific connectivity requirements.
These include Broadband Internet Zones (BIZ) for broadband-to-room internet access for hotels or
Internet Exchange (GiX) services for bandwidth-on-demand access packages based on average usage.
Broadband
Globe offers wired, fixed wireless, and fully mobile internet-on-the-go services across various
technologies and connectivity speeds for its residential and corporate customers. Wired or DSL
broadband packages bundled with voice or broadband data-only services are available at download
speeds ranging from 256 kbps up to 3 mbps. In selected areas where DSL is not yet available, Globe
offers a fixed wireless broadband service using its WiMax network as a cost-effective alternative to wired
broadband. For consumers who require a fully mobile internet-on-the-go broadband connection, Globe
Broadband Tattoo service allows subscribers to access the internet via 3G with HSDPA, EDGE, GPRS or
Wi-Fi at hotspots nationwide using a plug-and-play USB modem at speeds of up to 2 mbps. This service
is available in both postpaid and prepaid packages. In addition, consumers who require faster
connections have the option to subscribe to Globe’s Hyper Speed broadband plans using leading edge
GPON technology with speeds of up to 100 mbps.
Distribution Methods of Products and Services
Wireless Business
Independent Dealers
Globe utilizes a number of independent dealers who have their own networks throughout the Philippines
to sell its prepaid wireless services to customers. These dealers include major distributors of wireless
phone handsets who usually have their own retail networks, direct sales force and sub-dealers in the
Philippines. Globe compensates its dealers based on the type, volume and value of reload denominations
for a period. This takes the form of fixed discounts for prepaid airtime cards and SIM packs, and
discounted selling price for phone kits.
Additionally, Globe has dealers who offer prepaid reloading services to Globe and TM subscribers
nationwide. In 2003, Globe launched its Globe AutoLoadMAX service and established a distribution
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Business - Telecommunications
network of dealers and institutions to offer prepaid reloading services. As at December 31, 2009, Globe
AutoLoadMAX was available in over 672,000 active retailers nationwide.
Business Centers
In addition to independent dealers, Globe has wireless business centers in major cities across the
country. Through the business centers, customers are able to subscribe to wireless services, reload
prepaid credits, make GCash transactions, purchase handsets, accessories, request handset repairs, try
out the communications devices, ask questions about Globe’s services and pay bills. Globe’s business
centers are also registered with the Bangko Sentral ng Pilipinas (“BSP”) as remittance outlets.
Direct Sales
Globe also distributes prepaid products (phone kits, SIM kits and prepaid air time cards and credits)
through consumer distribution channels such as convenience stores, gas stations, drugstores,
bookstores, photoshops and fastfood outlets. Globe also has a dedicated direct sales force to manage its
corporate accounts and high-end customers – Corporate Managed Accounts, SME for Corporate NonManaged Accounts, Direct Sales, VIP Sales and OFW Sales teams. Globe’s retail business centers and
internal corporate sales staff act as direct sales channels.
Overall, Globe plans to continue developing direct sales capabilities through retail business centers and
internal corporate sales staff. This strategy enables Globe to better control product pricing, ensure the
quality of staffing and service and integrate store marketing with media advertising.
Wireline Business
Globelines Payments and Services (”GPS”) Centers
To better serve its wireline subscribers from various service areas such as Metro Manila, the Visayas
area and the fast growing provinces of Cavite, Batangas and Central Mindanao, Innove has set up GPS
centers in strategic locations in its service areas nationwide.
Innove’s GPS centers enable subscribers to subscribe for wireline services, make GCash transactions,
ask questions about services, and pay bills.
Corporate Sales Team
Globe also sells its wireline data services through its internal corporate sales team composed of account
managers based in key cities nationwide. Sales to large businesses are managed by specialized account
managers who are each dedicated to managing large business customers based on identified target
segments. They are the appointed single points of contact (“SPOC”) for any service or concern the
corporate customer may have, backed up by a strong team of pre-sales engineers, segment marketing
managers and project managers. Sales to small and medium-sized enterprises are handled by Globe
Bizworks while two business groups under the Enterprise Business Group serve markets for integrated
wireless and wireline communications solutions. The Customer Support Group and Fault Management
Control Center handles after-sales support for non-technical and technical concerns, respectively.
Reseller Network
Innove has its Channels program to manage its network of resellers. A Premium Business Partner
program was also developed to oversee a network of system integrators (“SI”) to support its sales team
and its overall value proposition.
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Business - Telecommunications
Service Areas
Armed with a nationwide local exchange franchise from the NTC, Innove will roll-out additional lines over
the next three-year period where it sees demand from business and residential subscribers, in addition to
its current service areas in Metro Manila, Cavite, Batangas, the Visayas and Central Mindanao.
Market Coverage
Network Buildup
Globe continues to invest in expanding and enhancing the resiliency of its mobile network. Globe has
widened its nationwide reach, with cumulative 2G cell sites at 6,446 as of December 31, 2008, bringing
geographic coverage to 97% and population coverage to 99%.
Regional Expansion
Globe generates a significant portion of its service revenues from international long distance (ILD) voice
services, covering calls between the Philippines and more than 200 countries worldwide. Globe also has
over 500 roaming partners. In 2004, Globe joined the Bridge Alliance to enable it to offer a suite of mobile
services and benefits to its subscribers while roaming in the Bridge Alliance countries. Globe continues to
seek tie-ups in the overseas markets and introducing relevant offers to the OFW communities to further
grow its ILD business.
Broadband Deployment
Globe is expediting the roll-out of its broadband network to support an intensified push into the at-home
broadband and broadband-on-the-go markets. Globe is expanding its broadband network nationwide
using both wired and wireless technologies. Its DSL and 3G with HSDPA service is now available in key
broadband markets nationwide, with its network footprint still expanding.
To provide resiliency and geographic diversity to Globe’s existing cable systems, Globe is also
participating in the TGN-Intra Asia Cable System, an international submarine cable project spearheaded
by Tata Communications of India. This cable system will link the country to Japan, Hong Kong, and
Singapore with onward connectivity to the US. The Philippine leg will terminate in Globe’s second landing
station located in Northern Luzon. Globe will be the exclusive landing party in the Philippines for this
cable system.
Competition
Wireless Market
The Philippine wireless market has experienced rapid growth in recent years. Accordingly, the number of
wireless subscribers increased from 1.6 million as of December 31, 1998 to 50.5 million as of December
31, 2007. Wireless penetration rates have surged from 1.4% in 1996 to 63.8% as total wireless
subscribers reached 57.9 million by September 30, 2008.
Over the past years, the great majority of cellular growth has taken place specifically within the digital
GSM segment.
Six wireless operators in the Philippines, including Globe, have been granted licenses to provide
nationwide wireless service. Wireless operators are free to choose the network technology that they wish
to deploy.
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Business - Telecommunications
Since 2000, the wireless communications industry has experienced consolidation. PLDT completed its
acquisition and consolidation of Smart and Piltel and Globe acquired Islacom (now named Innove
Communications, Inc.). Currently, Smart and Globe are the two leading wireless operators in the
Philippines in terms of subscribers and revenues. Digitel began its network in 2000 and formally launched
its wireless service under the brand name Sun Cellular in February 2003.
Wireless subscriber growth in the Philippines has been driven by the unique topography and
demographics of the Philippines. It is comprised of more than 7,100 islands and over 50% of its
population is below the age of 25. This young and technologically-adept population coupled with the wide
geographic expanse of the country has favored wireless, rather than wireline communication systems.
With mass market appeal, the increasing affordability of wireless handsets and services, and the wide
coverage of wireless networks have been key drivers in the growth of wireless subscribers in the
Philippines. The popularity of wireless voice and data services have also been driven in part by the
continued growth of the prepaid service which permits customers who do not meet the credit standards
for postpaid service or who have different needs from that of postpaid subscribers, to avail of wireless
service.
SMS, pioneered by Globe in 1994, continues to be the most popular form of wireless data service for the
mass market. The past several years have seen industry SIM growth rates go back to double-digit levels,
although still below the exponential growth it witnessed in the years before. This moderate growth can be
attributed to efforts by major wireless players to cater to a wider range of wireless users in lower income
groups. The entry of new players has also brought on increased competition in the industry, characterized
by aggressive price-based offers and subscriber acquisition programs.
Wireline Voice Market
The Philippine wireline voice market is relatively fragmented with eight (8) major local exchange carriers
(LEC) and eleven (11) international gateway facility providers. The major LEC operators are PLDT,
Digitel, Bayantel, and Globe (through Innove). PLDT (as incumbent operator) continues to hold a
dominant market share even after the telecom industry was opened up to competition and liberalized in
1994.
PLDT and Globe are authorized to provide wireline voice services nationwide, while all the other major
providers are assigned regional service areas. The NTC has defined fifteen (15) service areas with up to
two competitors to PLDT in most service areas.
With respect to tariffs, rates for local exchange and domestic long distance services have been
deregulated and operators are allowed to have metered as well as flat monthly fee tariff plans for the
services provided.
Over the past three years, several industry players, including Globe, Bayantel, and PLDT, have
introduced fixed wireless voice services that provided some mobile phone capabilities but had the tariff
structure of a wireline voice service. Subscribers to this fixed wireless voice service were able to enjoy
limited mobility while being charged fixed monthly fees.
Industry size has been relatively flat, with the number of lines in service remaining in the 3 million mark
over the past few years. Fixed line revenue growth has likewise been flat to declining, given the steady
shift in voice traffic to mobile.
Wireline Data Market
The corporate wireline data service business is a growing segment of the wireline industry. As the
Philippine economy grows, businesses are increasingly utilizing new networking technologies and the
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Business - Telecommunications
internet for critical business needs such as sales and marketing, intercompany communications,
database management and data storage. The potential of corporate data is becoming more visible as it
serves the promising IT Enabled Service industry which includes call centers and Business Process
Outsourcing companies.
Dedicated business units have been created and organized within Globe to focus on the wireless and
wireline needs of specific market segments and customers – be they residential subscribers, wholesalers
and other large corporate clients or smaller scale industries. This reorganization has also been driven by
Globe’s corporate clients’ preferences for integrated mobile and fixed line communications solutions.
Globe’s dedicated business units include complete and dedicated technical and customer relationship
teams to serve its various markets.
International Long Distance Market
International long distance (“ILD”) traffic in the Philippines has significantly increased over the years due
to the growing overseas Filipino communities. ILD providers in the Philippines generate revenues from
both inbound and outbound international call traffic whereby the pricing of calls is based on agreed
international settlement rates.
Both Globe and Innove offer ILD services, which cover international calls between the Philippines and
over 200 countries.
Settlement rates for international long distance traffic are based on bilateral negotiations. Commercial
negotiations for these settlement rates are settled using a termination rate system where the termination
rate is determined by the terminating carrier (e.g. Philippines) in negotiation with the originating foreign
correspondent.
Licenses, Patents and Trademarks
Globe currently holds the following major licenses:
Service
Globe
Wireless
Local Exchange Carrier
International Long Distance
Interexchange Carrier
VSAT
International Cable Landing
Station & Submarine Cable
System (Nasugbu, Batangas)
International Cable Landing
Station & Submarine Cable
System (Ballesteros Cagayan)
Innove
Wireless
Local Wireline
International Long Distance
Interexchange Carrier
1
Type of
License
(1)
Date Issued or Last
Extended
Expiration Date
CPCN
(1)
CPCN
(1)
CPCN
(1)
CPCN
(1)
CPCN
(1)
CPCN
July 22, 2002
July 22, 2002
July 22, 2002
February 14, 2003
February 6, 1996
October 19, 2007
December 24, 2030
December 24, 2030
December 24, 2030
December 24, 2030
February 6, 2021
December 24, 2030
Provisional
Authority
September 11, 2008
March 10, 2010
Type of
License
(1)
CPCN
(1)
CPCN
(1)
CPCN
(1)
CPCN
Date Issued or Last
Extended
July 22, 2002
July 22, 2002
July 22, 2002
April 30, 2004
Expiration Date
April 10, 2017
April 10, 2017
April 10, 2017
April 10, 2017
Certificate of Public Convenience and Necessity. The term of a CPCN is co-terminus with the franchise term.
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Business - Telecommunications
In July 2002, the NTC issued CPCNs to Globe and Innove which allow Globe to operate respective
services for a term that will be predicated upon and co-terminus with Globe’s congressional franchise
under RA 7229 (Globe) and RA 7372 (Innove). Globe was granted permanent licenses after having
demonstrated legal, financial and technical capabilities in operating and maintaining wireless
telecommunications systems, local exchange carrier services and international gateway facilities.
Additionally, Globe and Innove have exceeded the 80% minimum roll-out compliance requirement for
coverage of all provincial capitals, including all chartered cities within a period of seven years.
Globe also registered the following brand names with the Intellectual Property Office, the independent
regulatory agency responsible for registration of patents, trademarks and technology transfers in the
Philippines: Globe Telecom, Touch Mobile, Globelines, Globe Handyphone, Innove Communications,
Globe Link, GlobeQuest, Globe Xchange, Globelines Broadband, Globe G-Cash, Globe AutoLoad,
GlobeQuestDSL Broadband Internet, Broadband Mobility and “Hub and Circular Device” among others
for the wireless and wireline services Globe offers. Globe has also secured certificates of registration for
Globe Telecom, Globe Handyphone, Globe AutoLoad, GlobeQuest DSL Broadband Internet, Broadband
Mobility, “Hub and Other Circular Device” and Innove Communications.
Government Approvals/ Regulations
The Globe Group is regulated by the NTC under the provisions of the Public Service Act (CA 146),
Executive Order (EO) 59, EO 109, and RA 7925. Under these laws, Globe is required to do the following:
a) To secure a CPCN/PA from the NTC for those services it offers which are deemed regulated
services, as well as for those rates which are still deemed regulated, under RA 7925.
b) To observe the regulations of the NTC on interconnection of public telecommunications networks.
c) To observe (and has complied with) the provisions of EO 109 and RA 7925 which impose an
obligation to rollout 700,000 fixed lines as a condition to the grant of its provisional authorities for the
cellular and international gateway services.
d) Globe remains under the supervision of the NTC for other matters stated in CA 146 and RA 7925 and
pays annual supervision fees and permit fees to the NTC.
On October 19, 2007, the NTC granted Globe a CPCN to operate and maintain an International
Cable Landing Station and submarine cable system in Nasugbu, Batangas
On May 19, 2008, Globe announced that the NTC has approved the assignment by its wholly-owned
subsidiary Innove of its Touch Mobile (TM) consumer prepaid subscriber contracts in favor of Globe.
Globe would be managing all migrated consumer mobile subscribers of TM, in addition to existing Globe
subscribers in its integrated cellular network.
On September 11, 2008, the NTC granted Globe a PA to establish, install, operate and maintain an
International Cable Landing Station in Ballesteros, Cagayan Province.
Compliance with Environmental Laws
The Globe Group complies with the Environmental Impact Statement (‘EIS’) system of the Department of
Environment and Natural Resources (‘DENR’) and pays nominal filing fees required for the submission of
applications for Environmental Clearance Certificates (‘ECC’) or Certificates of Non-Coverage (‘CNC’) for
its cell sites and certain other facilities, as well as miscellaneous expenses incurred in the preparation of
applications and the related environmental impact studies. The Globe Group does not consider these
amounts material.
Globe has not been subject to any significant legal or regulatory action regarding non-compliance to
relevant environmental regulations.
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Business - Telecommunications
Key Performance Indicators
Globe is committed to enhancing shareholder value and to efficiently manage Globe’s resources. Globe
regularly reviews its performance against its operating and financial plans and strategies, and use key
performance indicators to monitor its progress.
Some of its key performance indicators are set out below. Except for Net Income, these key performance
indicators are not measurements in accordance with Philippine Financial Reporting Standards (“PFRS”)
and should not be considered as an alternative to net income or any other measure of performance which
are in accordance with PFRS.
Gross Average Revenue Per Unit (Gross ARPU)
Gross ARPU measures the average monthly gross revenue generated for each subscriber. This is
computed by dividing recurring gross service revenues for a business segment for the period by the
average number of the segment’s subscribers and then dividing the quotient by the number of months in
the period.
Net Average Revenue Per Unit (Net ARPU)
Net ARPU measures the average monthly net revenue generated for each subscriber. This is computed
by dividing recurring net service revenues of the segment for the period (net of discounts and
interconnection charges to external carriers and content provider revenue share) by the average number
of the segment’s subscribers and then dividing the quotient by the number of months in the period.
Subscriber Acquisition Cost (SAC)
7
SAC is computed by totaling marketing costs (including commissions and handset/SIM/device subsidies )
for the segment for the period divided by the gross incremental subscribers.
Average Monthly Churn Rate
The average monthly churn rate is computed by dividing total disconnections (net of reconnections) for
the segment by the average number of the segment’s subscribers, and then divided by the number of
months in the period. This is a measure of the average number of customers who leave/switch/change to
another type of service or to another service provider and is usually stated as a percentage.
EBITDA
EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) is calculated as net service
1
8
revenues less subsidy , operating expenses and other income and expenses . This measure provides
useful information regarding a company’s ability to generate cash flows, incur and service debt, finance
capital expenditures and working capital changes. As Globe’s method of calculating EBITDA may differ
from other companies, it may not be comparable to similarly titled measures presented by other
companies.
EBITDA Margin
EBITDA margin is calculated as EBITDA divided by total net service revenues. Total net service revenues
are equal to total net operating revenues less non-service revenues. This is useful in measuring the
7
Handset/SIM subsidies represent the difference between the sales price collected from the subscriber and the original cost of the
handset or SIM.
8
Operating expenses and other income and expenses do not include any property and equipment-related gains and losses and
financing costs.
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Business - Telecommunications
extent to which subsidies, operating expenses (excluding property and equipment-related gains and
losses and financing costs) and other income and expenses, use up revenue.
EBIT
EBIT is defined as earnings before interest, property and equipment-related gains and losses and income
taxes. This measure is calculated by deducting depreciation and amortization from EBITDA. Globe
Group’s method of calculating EBIT may differ from other companies, hence, may not be comparable to
similar measures presented by other companies. EBIT margin calculated as EBIT divided by total net
service revenues.
Net Income
As presented in the consolidated financial statements for the full year ended 31 December 2009 and
2008, net income provides an indication of how well the company performed after all costs of the
business have been factored in.
Dividend Policy
The dividend policy of Globe as approved by the Board of Directors is to declare cash dividends to its
common stockholders on a regular basis as may be determined by the Board. The dividend payout rate
starting 2006 is approximately 75% of prior year’s net income payable semi-annually in March and
September of each year. This is reviewed annually, taking into account Globe’s operating results, cash
flows, debt covenants, capital expenditure levels and liquidity.
On November 6, 2009, the Board of Directors amended the dividend payment rate from 75% to a range
of 75% - 90% and declared a special dividend of P
= 50.00 per common share based on shareholders on
record as of November 20, 2009 with the payment date of December 15, 2009.
On February 4, 2010, the Board of Directors approved the declaration of the first semi-annual cash
dividend of P
= 40.00 per common share, payable to shareholders on record as of February 19, 2010. Total
dividends of P
= 5,293.84 million were paid on March 15, 2010. The following are the cash dividends
declared and paid by Globe over the past three years.
AMOUNT
(Php)
33.00
33.00
50.00
37.50
37.50
50.00
32.00
32.00
50.00
CASH DIVIDEND (Per Share)
DECLARATION DATE
RECORD DATE
February 5, 2007
August 10, 2007
November 6, 2007
February 4, 2008
August 5, 2008
August 5, 2008
February 3, 2009
August 4, 2009
November 6, 2009
February 19, 2007
August 29, 2007
November 20, 2007
February 18, 2008
August 21, 2008
August 21, 2008
February 17, 2009
August 19, 2009
November 20, 2009
PAYMENT DATE
March 15, 2007
September 14, 2007
December 17, 2007
March 13, 2008
September 15, 2008
September 15, 2008
March 10, 2009
September 15, 2009
December 15, 2009
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Business - Telecommunications
Group Financial Highlights for the Year 2009
Globe Group
For the Year Ended
Results of Operations (Php Million)
1
Net Operating Revenues ……………………………………………
Service Revenues ……………………………………………….
Mobile………………………………………………………….
Fixed line Voice………………………………………………
Fixed line Data…………………………………………………
Broadband…………………………………………………….
Non-Service Revenues………………………………………….
Costs and Expenses …………………………………………………
Cost of Sales………………………………………………………..
Operating Expenses ………………………………………………
EBITDA …………………………………………………………………
EBITDA Margin……………………………………………………….
Depreciation and Amortization……………………………………
EBIT ……………………………………………………………………
EBIT Margin……………………………………………………………
Financing………………………………………………………………
Interest Income………………………………………………………
Others - net……………………………………………………………
Provision for Income Tax……………………………………………
Net Income After Tax (NIAT)………………………………………..
2
Core Net Income ……………………………………………………
1
2
31 Dec
2009
63,862
62,443
53,321
2,795
3,038
3,289
1,419
27,399
2,948
24,451
36,463
57%
17,388
19,074
30%
(2,183)
272
810
(5,404)
12,569
12,003
31 Dec
2008
64,818
62,894
55,436
3,088
2,478
1,892
1,924
27,420
3,117
24,303
37,398
58%
17,028
20,370
31%
(3,000)
420
56
(6,570)
11,276
11,765
YoY
Change
(%)
-1%
-1%
-4%
-9%
23%
74%
-26%
-5%
1%
-3%
2%
-6%
-27%
-35%
1346%
-18%
11%
2%
Consists of service and non-service revenues
Net income after tax (NIAT) excluding foreign exchange and mark-to-market gains (losses), and non-recurring items.
•
Consolidated service revenues for 2009 was at P
= 62.4 billion from P
= 62.9 billion in 2008. Mobile
revenues were down 4% due to intense competition and increasing preference of subscribers for
value offers on the back of weak consumer economy. This was partially offset by a 74% improvement
in broadband revenues driven by robust subscriber growth, and 23% growth in fixed line data
revenues for the corporate and enterprise sectors. Mobile revenues accounted for 85% of total
service revenues, down from 88% in 2008. Meanwhile fixed line and broadband increased its share of
consolidated revenues from 12% to 15% in 2009.
•
Operating expenses and subsidy increased by 2% year on year to P
= 26.0 billion from P
= 25.5 billion in
2008 driven by higher subsidies, rent and services partially offset by lower marketing costs and
provisions. Network-related charges such as rent, electricity and fuel charges were higher compared
to last year as a result of expanded 2G, 3G and broadband networks. Higher services costs were due
to increases in costs for outsourced customer service and logistics functions. Marketing effectiveness
ratio improved however with total marketing and subsidy expenses at 8% of service revenues
compared to prior year’s 9%.
•
Consolidated EBITDA and EBIT posted declines of 3% and 6% year on year on the back of softer
revenues coupled with higher operating expenses. EBITDA and EBIT margins for 2009 were at 57%
and 30%, respectively, from 58% and 31% in 2008 given the growing contribution of the lower-margin
fixed line business to consolidated results. On a per-segment basis, Mobile EBITDA margins
remained healthy at 65% of service revenues, while broadband and fixed line margins improved to
22% from 17% last year.
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Business - Telecommunications
•
Globe closed the year with net income after tax of P
= 12.6 billion, 11% higher than 2008. Excluding
foreign exchange, and mark-to-market gains and losses and non-recurring items, Globe’s core net
income closed at P
= 12.0 billion or 2% higher than the previous year.
•
Capital expenditures amounted to P
= 24.7 billion for the year, a 21% increase from last year’s P
= 20.4
billion. This included carry-over spend related to Globe’s participation in the TGN-IA international
cable system, FOBN2 or Globe’s second fiber optic backbone network, domestic transmission loops,
as well as the expansion and upgrades of Globe’s broadband and mobile networks. As of end 2009,
Globe increased its base stations by 22% to 10,333 and cell sites by 7% to 6,226 to support its 2G,
3G and WiMax services. Geographical coverage stood at 97% while population coverage was at
99%. Total capex as a percentage of service revenues registered at 40% compared to last year’s
32%. Excluding the one-time investments, mobile capex as a percentage of mobile revenues was at
13%, within regional benchmarks for similarly mature markets.
•
For 2010, Globe is allocating about US$500 million in capital expenditures. This includes US$170
million for the mobile telephony business, and another US$230 million for the broadband business to
augment existing capacities and expand the coverage and footprint of Globe’s DSL, WiMax, and 3G
broadband services. The 2010 capex plan also includes about US$50 million for Globe’s fixed line
data networks which primarily caters to the corporate and enterprise sector. Finally, the investment
plan also includes about US$50 million in additional one-time investments. This includes costs related
to Globe’s participation in the new Southeast Asia Japan Cable (SJC) System which will link
Singapore, Hong Kong, Indonesia, Philippines and Japan, and which will further increase the capacity
and boost the resiliency of Globe’s international network. The SJC system is expected to be
operational by 2012.
•
Regular and special cash dividends paid out in 2009 amounted to P
= 15.1 billion. Total dividend payout
of P
= 114 per share translates to a dividend yield of 14% based on beginning of year share prices.
9
Total shareholder return for 2009 was at 30%. Return on equity was at 26%, up from 2008 level of
21% given the higher net profits and as a result of Globe’s capital management efforts.
Mobile Business
For the Year Ended
Mobile Service Revenues (Php Millions)
Service
1
Voice ….……………………………………………………………………
2
Data ..………………………………………………………………………
Mobile Service Revenues…………………..……...................................
1
31 Dec
2009
26,497
26,824
53,321
31 Dec
2008
26,971
28,465
55,436
YoY
Change
(%)
-2%
-6%
-4%
Mobile voice service revenues include the following:
a) Monthly service fees on postpaid plans;
b) Charges for intra-network and outbound calls in excess of the consumable minutes for various Globe Postpaid plans,
including currency exchange rate adjustments, or CERA, net of loyalty discounts credited to subscriber billings.
c) Airtime fees for intra network and outbound calls recognized upon the earlier of actual usage of the airtime value or
expiration of the unused value of the prepaid reload denomination (for Globe Prepaid and TM) which occurs between 3 and
120 days after activation depending on the prepaid value reloaded by the subscriber net of (i) bonus credits and (ii) prepaid
reload discounts; and revenues generated from inbound international and national long distance calls and international
roaming calls;
9
Net income divided by average equity
89
Business - Telecommunications
Revenues from (b) and (c) are net of any interconnection or settlement payouts to international and local carriers and content
providers.
2
Mobile data service revenues consist of revenues from value-added services such as inbound and outbound SMS and MMS,
content downloading and infotext, subscription fees on unlimited and bucket prepaid SMS services net of any interconnection or
settlement payouts to international and local carriers and content providers.
Mobile Voice
For 2009, Globe’s mobile voice service revenues accounted for 50% of total mobile service revenues
compared to 49% in 2008. Mobile voice revenues of P
= 26.5 billion were 2% lower compared to 2008 as
the growth in bulk and unlimited voice subscriptions were unable to fully offset the lower regular and IDD
voice usage.
During the year, Globe and TM sustained their bulk and unlimited voice offerings such as Tawag236 for a
20-minute call for P
= 20, Globe’s P
= 10 for a 3-minute call, and TM’s TodoTawag P
= 15 for a 15-minute call.
Globe also sustained its per-second charging promo which allows subscribers to make on-net voice calls
for only P
= 0.10 per second.
To further drive adoption and encourage usage, Globe launched its “Walang Metro” campaign which
includes a slew of unlimited product offers to provide subscribers more value services to suit their budget
and needs. Globe launched the revolutionary DUO and SUPERDUO service, a two-in-one mobile and
landline service, which enables subscribers to make unlimited landline-to-landline and mobile-to-mobile
calls to any Globe and TM subscriber for only P
= 499 per month for postpaid, and P
= 35/day or P
= 599/month
for prepaid subscribers. In addition, Globe introduced SUPER UNLI which allows 24x7 unlimited call and
text to any Globe/TM subscriber nationwide for only P
= 150 for 5 days for both postpaid and prepaid
subscribers. UNLIcall is also available in selected areas, providing subscribers with unlimited intranetwork voice service for only P
= 30/day or P
= 100/5 days. Following the launch of its youth-oriented prepaid
brand Globe Tattoo, Globe also introduced IMMORTALCALL+ - a unique bucket call and text service
which includes a 5 minute call and 50 intra-network SMS with no expiry for only P
= 15.
Mobile Data
Globe’s mobile data business contributed 50% to total mobile net service revenues. Service revenues for
the year totaled to P
= 26,824 million compared to P
= 28,465 million in 2008. While revenues from bucket,
unlimited SMS subscriptions, and mobile browsing improved year on year, lower regular SMS and core
value-added services usage declined, resulting in mobile data revenues that were 6% lower compared to
2008.
To cater to the growing preference for bucket and unlimited SMS offers, Globe sustained its popular
offerings such as Sulitxt, Everybodytxt, Astigtxt, UnliTxt, UnliTxt Dayshift and Nightshift and TodoText
promotions. In addition, Globe introduced pioneering offerings such as ImmortalTxt, the first and only
SMS offer in the industry with no expiry period. Globe also introduced Immortal Load – a prepaid load
option with no expiry which can be used for voice, SMS or mobile browsing. The SMS allocations and
prepaid load will not expire as long as the subscriber maintains at least P
= 1 in his prepaid wallet.
To keep up with the needs of the growing youth segment, Globe introduced UnliChat+ which provides
subscribers with unlimited intra-SMS and unlimited chat via Yahoo Messenger (YM). In addition,
subscribers can enjoy unlimited intra-SMS, a 15-minute call and 10 off-net SMS with Globe’s UnliTxt Trio.
To further encourage mobile browsing usage, Globe introduced mobile internet add-on plans to provide
postpaid subscribers access to the internet using their Blackberry (starting at Plan700) or using regular
handsets in tiered and affordable plans (starting at Plan149). Subscribers can also enjoy unlimited
surfing through Super Surf which is an unlimited browsing add-on plan for an additional fee of P
= 1,200 per
month, P
= 220 for 5 days or P
= 50 per day for postpaid subscribers. For prepaid users, subscribers can
choose to do unlimited browsing with Surf All Day for only P
= 20 per day per site (including popular sites
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Business - Telecommunications
such as Facebook, Wikipedia, Plurk, Friendster, Twitter). Globe also launched entry-level iPhone plans
starting at Plan399 following the launch of the new iPhone 3GS.
Key Drivers for the mobile business are set out in the table below:
For the Year Ended
31 Dec
31 Dec
YoY
2009
2008 *
Change (%)
Cumulative Subscribers (or SIMs) Net (End of period)……
Globe Postpaid . …………………………………………………
23,245,006
851,368
24,646,600
795,695
-6%
7%
Prepaid .……………………………………………………………
Globe Prepaid ………………………………………………
TM ……………………………………………………………
22,393,638
13,048,861
9,344,777
23,850,905
13,293,232
10,557,673
-6%
-2%
-11%
Net Subscriber (or SIM) Additions…………………………….
Globe Postpaid . …………………………………………………
(1,401,594)
55,673
4,338,251
95,125
-132%
-41%
Prepaid .……………………………………………………………
Globe Prepaid ………………………………………………
TM ……………………………………………………………
(1,457,267)
(244,371)
(1,212,896)
4,243,126
1,175,157
3,067,969
-134%
-121%
-140%
1,822
1,967
-7%
241
279
-14%
124
135
-8%
1,283
1,394
-8%
182
98
209
103
-13%
-5%
5,382
4,968
8%
-8%
-
Average Revenue Per Subscriber (ARPU)
Gross ARPU
Globe Postpaid . …………………………………………………
Prepaid
Globe Prepaid …………………………………………………
TM ……………………………………………………………
Net ARPU
Globe Postpaid . …………………………………………………
Prepaid
Globe Prepaid …………………………………………………
TM ……………………………………………………………
Subscriber Acquisition Cost (SAC)
Globe Postpaid . …………………………………………………
Prepaid
Globe Prepaid …………………………………………………
TM ……………………………………………………………
Average Monthly Churn Rate (%)
Globe Postpaid . …………………………………………………
37
34
40
34
1.95%
1.64%
Prepaid
Globe Prepaid …………………………………………………
TM ……………………………………………………………
6.75%
8.35%
5.74%
6.73%
* Prior period figures have been restated to reflect adjustments for mobile broadband and hybrid postpaid plans.
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Business - Telecommunications
Globe ended the year with a cumulative mobile subscriber base of 23.2 million, 6% lower than last year’s
24.6 million SIMs. Globe recalibrated its subscriber acquisition efforts beginning in the second quarter to
focus on better quality subscribers, while deliberately churning out its marginal users. As a result, full year
mobile gross additions were lower by 5% at 19.4 million SIMs from 20.5 million SIMs in 2008. Blended
churn rates were also elevated at 7.2% compared to 6.0% last year, resulting in a 1.4 million net
reduction in Globe’s SIM base. Subscriber growth resumed in the fourth quarter as Globe closed the
period with net additions of about 117,000 SIMs. Fourth quarter gross additions were up 30% compared
to the prior quarter while churn rates were lower, with the adjustments in Globe’s acquisition and
subscriber retention programs, and the continued clean-up of its SIM base.
The succeeding sections cover the key segments and brands of the mobile business – Globe Postpaid,
Globe Prepaid and TM.
Globe Postpaid
Globe’s postpaid segment comprised about 4% of its total subscriber base. Total postpaid gross and net
subscriber additions for the period were 224,354 and 55,673, respectively compared to the 242,587 and
95,125 registered for the same period last year. Cumulative subscribers as of end 2009 grew 7% to more
than 851,000 on the back of higher subscriptions particularly from hybrid plans.
Postpaid gross and net ARPUs of P
= 1,822 and P
= 1,283, were lower than last year’s P
= 1,967 and P
= 1,394 on
account of lower average voice usage offset by higher take up of SMS and mobile browsing services.
Postpaid SAC increased 8% year on year to P
= 5,382 from P
= 4,968 due to increased handset subsidies for
new postpaid offers, as well as higher advertising and promotion charges.
Prepaid
Globe’s prepaid segment, which includes the Globe Prepaid and TM brands, comprised 96% of its total
subscriber base.
A prepaid subscriber is recognized upon the activation and use of a new SIM card. The subscriber is
provided with 60 days (first expiry) to utilize the preloaded SMS value. If the subscriber does not reload
prepaid credits within the first expiry period, the subscriber retains the use of the mobile number but is
only entitled to receive incoming voice calls and text messages for another 120 days (second expiry). The
second expiry is 120 days from the date of the first expiry. However, if the subscriber does not reload
prepaid credits within the second expiry period, the account is permanently disconnected and considered
part of churn. The first expiry periods of reloads vary depending on the denominations, ranging from 3
days to 120 days after activation. The first expiry is reset based on the longest expiry period among
current and previous reloads. Under this policy, subscribers are included in the subscriber count until
churned.
In 2009, the National Telecommunications Commission (NTC) published Memorandum Circular 03-072009 which promulgates the extension of the validity periods of prepaid reloads effective July 19, 2009.
Under the new pronouncement, the first expiry periods now range from 3 days for P
= 10 or below to 120
days for reloads amounting to P
= 300 and above. The second expiry remains at 120 days from the date of
the new first expiry periods.
The succeeding sections discuss the performance of the Globe Prepaid and TM brands in more detail.
Globe Prepaid
Globe Prepaid currently accounts for 56% of the total mobile SIM base compared to 54% in 2008. The
brand posted a 2% decline in its SIM base and closed the year with 13.0 million SIMs from 13.3 million in
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Business - Telecommunications
2008. Gross additions of 10.4 million were 5% higher compared to last year’s 9.9 million. However, higher
churn resulting from intense market competition and deliberate churn out of marginal subscribers resulted
in net reductions of about 244,000 against last year’s net additions of 1.2 million SIMs.
Gross and net ARPUs for Globe Prepaid declined by 14% and 13%, respectively, as revenues continue
to be impacted by intense competition, declining yields, and multi-SIM usage.
Globe re-launched Globe Tattoo as a convergent brand in 2009 to serve both the internet and telephony
needs of today’s digitally-attuned youth. With hip and new SIM card designs, Globe Tattoo SIMs can be
used for both mobile phone use, and through the Globe broadband Tattoo USB stick for internet browsing
using a laptop.
Following the recalibration of its acquisition drives to focus on better-quality subscribers, Globe Prepaid
SAC declined 8% year on year from P
= 40 to P
= 37. SAC continues to be recoverable within a month’s net
ARPU.
TM
Globe’s mass market brand TM ended the year with 9.3 million subscribers, 11% lower than last year’s
10.6 million SIMs. TM registered gross additions of 8.8 million, down by 16% from last year as Globe
scaled back on some of its aggressive SIM pack promotions and recalibrated its sales drives to focus on
better quality subscribers. Globe also churned out some of its marginal, lower-quality subscribers,
resulting in a net reduction of 1.2 million SIMs in TM’s subscriber base. TM subscribers now comprise
40% of Globe’s cumulative subscriber base compared to 43% in 2008.
TM’s net ARPU for 2009 was 5% lower compared to prior year, but showed improvements particularly
during the last two quarters of the year. Total TM revenues also grew by 5% year on year despite the
11% contraction in its SIM base. The “Republika ng TM” brand refresh campaign, the distinct positioning
of the brand, and the sustained efforts to drive usage through affordable voice and text offerings all
contributed to the continued top-line growth of the TM brand.
TM’s SAC remained at P
= 34 and remains recoverable within half a month’s net ARPU.
GCash
GCash continues to establish its presence in the mobile commerce industry. GCash’s initial thrust
towards money-transfers, purchase of goods and services from retail outlets, and sending and receiving
domestic and international remittances has spurred alliances in the field of mobile commerce.
Today,
phone:
•
•
•
•
•
•
•
•
•
•
•
GCash allows Globe and TM subscribers to pay or transact for the following using their mobile
domestic and international remittances
utility bills
interest and amortization of loans
insurance premiums
donations to various institutions and organizations
sales commissions and payroll disbursements
school tuition fees
micro tax payments and business registration
electronic loads and pins
online purchases
airline tickets
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Business - Telecommunications
In addition to the above transactions, GCash is also used as a wholesale payment facility. Net registered
GCash user base at the end of 2009 totaled 1.04 million.
To enable further linkages of GCash’s platform and mobile technology with microfinance activities, Globe,
the Bank of the Philippine Islands (BPI) and Ayala Corporation (AC) signed a memorandum of agreement
in 2008 to form a joint venture that would allow rural and low-income customers’ access to financial
products and services beyond remittances. Opportunities include access to deposits and withdrawals,
salary and fund disbursements, donations, online purchases and bills payment facilitated by texting. Last
October 2009, the Bangko Sentral ng Pilipinas (BSP) approved the sale and transfer by BPI of its shares
of stock in Pilipinas Savings Bank, Inc. (PSBI), formalizing the creation of the venture. Globe’s and BPI’s
ownership stakes in the company is at 40% each, while AC’s shareholding is at 20%. The partners plan
to transform PSBI (now called BPI GLOBE BANKO INC.) into the country’s first mobile microfinance
bank.
Fixed Line and Broadband Business
For the Year Ended
31-Dec
2009
Service
1
Fixed line Voice ….…………………………………………………
2
Fixed line Data ………………………………………………………
3
Broadband ..…………………………………………………………
Fixed line and Broadband Net Service Revenues……...................
1
31-Dec
2008
YoY
Change (%)
2,795
3,038
3,088
2,478
-9%
23%
3,289
1,892
74%
9,122
7,458
22%
Fixed line voice nnet service revenues consist of the following:
a)
b)
c)
d)
e)
f)
Monthly service fees including CERA of voice-only subscriptions;
Revenues from local, international and national long distance calls made by postpaid, prepaid fixed line voice subscribers,
and payphone customers, as well as broadband customers who have subscribed to data packages bundled with a voice
service. Revenues are net of prepaid and payphone call card discounts;
Revenues from inbound local, international and national long distance calls from other carriers terminating on Globe’s
network;
Revenues from additional landline features such as caller ID, call waiting, call forwarding, multi-calling, voice mail, duplex
and hotline numbers and other value-added features; and
Installation charges and other one-time fees associated with the establishment of the service.
Revenues from DUO service consisting of monthly service fees for postpaid and subscription fees for prepaid
Revenues from (a) to (c) are net of any interconnection or settlement payments to domestic and international carriers.
2
Fixed line data net service revenues consist of the following:
a)
b)
c)
d)
3
Monthly service fees from international and domestic leased lines;
Other wholesale transport services;
Revenues from value-added services; and
One-time connection charges associated with the establishment of service.
Broadband net service revenues consist of the following:
a)
Monthly service fees of wired, fixed mobile, and fully mobile broadband data only and bundled voice and data
subscriptions;
b) Browsing revenues from all postpaid and prepaid wired, fixed mobile and fully mobile broadband packages in excess of
allocated free browsing minutes and expiration of unused value of prepaid load credits;
c) Value-added services such as games; and
Installation charges and other one-time fees associated with the service.
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Business - Telecommunications
Fixed Line Voice
Globe Group
For the Year Ended
1
Cumulative Voice Subscribers – Net (End of period) ……………
Average Revenue Per Subscriber (ARPU)
Gross ARPU……………………………………………………………
Net ARPU………………………………………………………………
Average Monthly Churn Rate ..………………………………………
31 Dec
2009
31 Dec
2008
589,331
420,270
YoY
Change
(%)
40%
543
699
476
613
3.39%
2.21%
1
Includes DUO and SuperDUO subscribers; Prior period figures have been restated for comparability.
-22%
-22%
Cumulative fixed line voice subscribers grew 40% year on year driven mainly by higher subscriptions to
bundled voice and broadband plans, as well as the DUO and SUPERDUO service. Despite the expansion
in subscriber base, fixed line voice revenues decline of 9% from last year given the higher proportion of
bundled voice and data subscriptions compared to stand-alone, voice-only plans (please note that the
monthly service fees for bundled services are included in “Broadband”).
During the year, Globe launched the DUO service - an innovative product that combines a mobile and
wireless landline service into one handset. For an incremental monthly service fee of P
= 399 on top of the
regular MSF of postpaid plans, DUO subscribers are provided a landline number linked to their current
mobile number which they can use to make unlimited calls to any landline within the same area code and
to other DUO subscribers. Later in the year, Globe also introduced SUPERDUO, an improvement over
the original DUO service to include unlimited mobile-to-mobile calls to any Globe and TM subscriber (refer
to mobile section for more details).
Fixed Line Data
Globe Group
For the Year Ended
Service Revenues (Php Millions)
Fixed line Data
International …..……………………………………………………
Domestic …… ………………………………………………………
1
Others ……………………………………………………………
Total Fixed line Data Service Revenues…………………………………
1
31 Dec
2009
944
1,362
732
3,038
31 Dec
2008
719
1,130
629
2,478
YoY
Change
(%)
31%
21%
16%
23%
Includes revenues from value-added services such as internet, data centers and bundled services.
The fixed line data segment continued to post strong revenue gains, ending the year with P
= 3.0 billion in
revenues, up 23% year on year. Growth has been fueled by the company’s expansion of its network of
high-speed data nodes, transmission links, and international bandwidth capacity to serve the
requirements of business and enterprise clients, including those in the offshoring and outsourcing
industries.
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Business - Telecommunications
Broadband
For the Year Ended
Cumulative Broadband Subscribers
1
Wireless …………………………………………………….
Wired…………………………………………………………..
Total (end of period)…………………………………………….
1
31 Dec
31 Dec
2009
2008
499,383
216,089
715,472
81,293
149,675
230,968
YoY
Change
(%)
514%
44%
210%
Includes fixed wireless and fully mobile broadband subscribers.
Globe’s broadband business sustained strong growth in both revenues and subscribers. Broadband
subscribers grew three-fold from 2008 to close the year with more than 715,000 subscribers, exceeding
full year guidance of half a million subscribers. The business delivered P
= 3.3 billion in service revenues in
2009, up a robust 74% from prior year. The broadband segment comprises 5% of consolidated revenues
compared to 3% last year.
A key contributor to the growth in Globe’s broadband business is its fully mobile broadband service sold
under the Globe Broadband Tattoo brand. The brand is targeted towards the fast-growing youth
segment, particularly those who require affordable, on-the-go broadband connections. This mobile
internet service is available in prepaid and postpaid variants with download speeds of up to 2 Mbps. New
postpaid Tattoo plans starting from Plan 799 up to Plan 1499 were launched which include free browsing
hours with low per hour charges for usage in excess of the monthly limit.
For the prepaid variant, Globe lowered entry costs for the service by reducing the price of its Globe
Broadband Tattoo prepaid kit from P
= 2,500 to P
= 895. The package comes with a USB modem stick and
free P
= 200 prepaid credit so subscribers can immediately use the service. Tattoo SIMs are also voice,
SMS, international roaming and VAS capable. Reloads can be made through the usual prepaid top-up
channels including over-the-air reload facility through any of its Globe AutoLoad Max retailers.
Globe’s primary fixed wireless broadband offering is based on the WiMax technology, complementing the
company’s existing 3G with HSDPA service which is used for mobile, on-the-go broadband. Following its
commercial launch in 2008, Globe’s WiMax service is now available in over 190 towns and cities
nationwide. The service has gained good traction with customer satisfaction ratings remaining high.
Globe’s WiMax service is available in data-only plans at 512kbps and 1mbps for P
= 795 and P
= 995 per
month, respectively. WiMax bundled voice and data plans are also offered at 512kbps and 1 mbps for P
=
995 and P
= 1,295 per month.
Wireless subscribers now account for 70% of cumulative broadband subscribers, up from 35% at the end
of 2008.
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Business - Telecommunications
Other Globe Group Revenues
International Long Distance (ILD) Services
Globe Group
For the Year Ended
ILD Revenues and Minutes
31 Dec
2009
31 Dec
2008
YoY
Change
(%)
Total ILD Revenues (Php Millions)
……………………………………………………
14,317
14,915
-4%
Average Exchange rates for the period (Php to US$1)…………………………
47.777
43.946
9%
Total ILD Revenues as a percentage of net service revenues…………………
23%
24%
2,388
2,019
369
5.47
2,457
2,131
326
6.54
1
Total ILD Minutes (in million minutes) …………………………………………
Inbound……………………………………………………………………………
Outbound.…………………………………………………………………………
ILD Inbound / Outbound Ratio (x) ……………………………………………
1
-3%
-5%
13%
ILD minutes originating from and terminating to Globe and Innove networks.
Both Globe and Innove offer ILD voice services which cover international call services between the
Philippines to more than 200 destinations with over 500 roaming partners. Globe’s service generates
revenues from both inbound and outbound international call traffic with pricing based on agreed
international termination rates for inbound traffic revenues and NTC-approved ILD rates for outbound
traffic revenues.
On a consolidated basis, ILD voice revenues from the mobile and fixed line businesses decreased by 4%
to P
= 14,317 million compared to last year’s P
= 14,915 million following a 3% decline in total ILD traffic.
While outbound traffic grew 13% year on year, inbound traffic declined, driving the net reduction in ILD
minutes.
To grow its international service revenues, Globe sustained its popular TipIDD offers, as well as OFW
SIM packs. Globe also launched IDD Suki – the first and only IDD load (prepaid credit) that can be
purchased from AMAX retailers nationwide. The load is available in P
= 20 and P
= 30 denominations and
which can be used for calls to popular OFW destinations worldwide. Globe also launched its
“Worldwidest” campaign in the last quarter, highlighting the multitude of international services available to
its subscribers. This includes promotional call rates to popular OFW destinations worldwide, low calling
rates via its TipIDD card, and affordable IDD Suki load credits that can be purchased from its extensive
and nationwide AMAX retailer network.
To spur additional outbound IDD voice traffic during the holidays, Globe also announced a P
= 5 per minute
calling rate to selected Bridge Mobile operators, using a specific dialing prefix. Globe also extended its
affordable iTxt rates to selected operators and lowered rates for international SMS to P
= 5, from P
= 15.
Interconnection
Domestically, the Globe Group pays interconnection access charges to other carriers for calls originating
from its network terminating to other carriers’ networks, and hauling charges for calls that pass through
Globe’s network terminating in another network.
Internationally, the Globe Group also incurs payouts for outbound international calls which are based on a
negotiated price per minute, and collects termination fees from foreign carriers for calls terminating in its
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Business - Telecommunications
network. The Globe Group also collects interconnection access charges from local carriers whose calls
and SMS terminate in Globe Group’s network.
98
IV.
AC Capital
Ayala holds a portfolio of other investments - which include operations in water distribution, electronics
and information technology, automotive dealership and international businesses - under an internal
development division called AC Capital.
Water Distribution
MANILA WATER COMPANY, INC.
Background
Manila Water Company, Inc. (“Manila Water” or “MWC”) is a Philippine company which is involved in
providing water, sewerage and sanitation services. Manila Water is a concessionaire of the Metropolitan
Waterworks and Sewerage System (“MWSS”) since 1997. It currently serves a total estimated population
of over 6 million people in the East Zone, which encompasses 23 cities and municipalities, including
Makati, Mandaluyong, San Juan, Taguig, Pateros, Marikina, Pasig, most of Quezon City and Rizal
Province, as well as some parts of Manila.
Under the Concession Agreement (CA) entered into on February 21, 1997 with MWSS, Manila Water was
granted exclusive rights to service the East Zone as an agent and contractor of MWSS, to manage,
operate, repair, decommission and refurbish the facilities, including the right to bill and collect for water
and sewerage services in the East Zone.
On October 22, 2009, Manila Water’s application for the 15-year renewal of the CA was acknowledged
and approved by the Department of Finance following the special authority granted by the Office of the
President. With the CA renewal, the term of the concession was extended for 15 years or from the
original 2008-2022 to 2008-2037. Under the said agreement, Manila Water is entitled to recover the
operating and capital expenditures, business taxes, concession fee payments and other eligible costs,
and to earn a reasonable rate of return on these expenditures for the remaining term of the concession or
until 2037.
Manila Water has also expanded its services outside of the East Zone of Metro Manila. In July 2008,
Manila Water won a contract for leakage reduction in Ho Chi Minh City, Vietnam. Prior to this, Manila
Water already has an existing management contract in Tirupur, India. Through new joint venture
companies, Manila Water acquired two (2) new concessions outside of the East Zone, namely, Laguna
and Boracay.
Manila Water’s principal shareholders include Ayala, Mitsubishi Corporation, and the International
Finance Corporation (“IFC”).
Operations and Performance
Over the past 12 years, Manila Water has improved the delivery of basic water services to its customers
within the East Zone by upgrading the quality of its network and services to world class standards. With
these efforts, Manila Water managed to maintain and further improve its service level to its existing
customers despite its aggressive expansion. As a result, Manila Water got an overall 100% “Very Good”
rating from the customer’s evaluation in the Public Assessment of Water Services (PAWS) survey
conducted by the MWSS Regulatory Office.
Another significant accomplishment for the year was the reduction in its level of system losses, as
measured by its non-revenue water ratio (“NRW”). NRW was further reduced by 3.8 percentage points to
15.8% by the end of 2009, from 19.6% in 2008. This was attained largely through more efficient
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Business - AC Capital
management of the network flows and pressure, as the water saved from the NRW reduction efforts was
re-channeled towards the expansion areas in the Rizal province. At this current NRW level, Manila Water
compares favorably with the water systems of its regional counterparts.
Manila Water’s operational performance displayed positive results as water sales volume registered slight
improvement despite the challenges brought about by the global economic slowdown and the impact of
the recent calamities. The volume of water sales for the year reached 396 million cubic meters (“mcm”),
an increase of 2% or 8 mcm as compared to last year’s level of 387 mcm. The increase was brought
about by new service connections that reached 52,410 for 2009, which largely came from the expansion
areas in the Rizal towns. Manila Water served a total of 1,086,296 households through 736,305 water
service connections as of December 31, 2009, as compared to last year’s level of 1,031,895 households
and 683,894 water service connections.
With respect to water availability, approximately 99% of Manila Water’s customers, who are currently
connected to the network, enjoy 24-hour water availability at a level of quality that exceeds the national
standards for water quality. Manila Water has consistently complied with the Philippine National
Standards for Drinking Water (“PNSDW”), and thus, has provided potable drinking water to its customers.
Through the company’s ISO accredited laboratory together with its technical capability, Manila Water has
consistently delivered valid test results acceptable to regulating offices such as the Department of Health.
As part of the 2008 Rate Rebasing and CA renewal commitment with MWSS, Manila Water focused on
the implementation of its wastewater master plan which increased sewer coverage within the East Zone.
This entailed the construction of various sewerage and septage treatment facilities and the laying of new
separate and combined drainage sewer lines. The total number of sewer connections increased to
50,800 in 2009. Sanitation services were also intensified which resulted in a total of 65,355 septic tanks
desludged and benefited 291,469 households. In addition, Manila Water has remained 100% compliant
with regulatory standards and parameters for wastewater effluent.
Manila Water’s capital expenditures commitment for the year 2009 includes the implementation of major
water system projects involving construction of facilities such as treatment plants, pumping stations,
reservoirs and transmission pipelines. As a result, capital expenditures and concession fee payments for
2009 reached P
= 5.3 billion. Aside from its wastewater expansion, the other capital investment projects
were geared towards improving water services, ensuring the reliability of water supply, reducing water
losses, maintaining water quality, implementing sustainable development programs and expansion
projects in growth areas, in the Taguig and Rizal province.
Significant developments were also realized in Manila Water’s key projects outside the East Zone.
During the year, Manila Water was able to acquire concessions for two new businesses, Laguna Water
Company (“LWC”) and Boracay Island Water Corporation (“BIWC”). LWC, a joint venture company with
the Provincial Government of Laguna, has a 25-year water service concession for the municipalities of
Cabuyao, Biñan and the City of Sta. Rosa. On the other hand, BIWC, a joint venture company between
Philippine Tourism Authority, has a 25-year water and wastewater service concession for Boracay Island.
Tariff Structure and Rate Regulation
MWC is entitled to recover over the Concession period its operating, capital maintenance and investment
expenditures, business taxes and Concession Fee payments, and to earn a rate of return on these
expenditures for the remaining term of the concession. The rate of return is then adjusted during the
Rate Rebasing exercise, which is conducted every five (5) years. This return is market-based and may
change after each Rate Rebasing exercise.
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Business - AC Capital
During the exercise, MWC submits a business plan including all its investment and expenditures
requirements in the concession area to the MWSS Regulatory Office for evaluation and approval. Taking
into consideration some agreed assumptions, the regulator then determines the appropriate return and
the tariffs required for MWC to recover all its investments plus the guaranteed return over the remaining
life of the concession. Prior to the implementation, the approved business plan and corresponding tariff
hikes will be subjected to public consultations.
In December 2007, the second Rate Rebasing exercise was completed. MWC’s current real rate of
return, which will be applicable for all investments made by MWC for the East Zone within the period
starting January 1, 2008 up to December 31, 2012, was pegged at 9.3%.
Different water tariff schedules apply to different categories of customers. In addition, higher
consumption levels result in a higher water rate on a per cubic meter basis. Adjustments to the water
tariff, mostly in the form of the Basic Water Charge, are implemented on January 1 of the year following
each Rate Rebasing exercise. These rates are further broken down to cover the different customer
types and consumption brackets. After the recently completed Rate Rebasing exercise, Manila Water
was granted a onetime tariff rate which will be implemented on a staggered basis over a period of 5
years. The rate adjustment will cover for MWC’s P
= 187-billion capital investment and operational
expenditure program to be implemented in the next 15 years. With the recent approval of the Concession
Agreement Renewal, Manila Water’s committed Regulatory Office approved a tariff increase of P
= 1 per
year effective 2010 until 2016.
Aside from the determination of the Basic Water Charge, water tariffs are also adjusted annually to
account for inflation (as measured by the Philippine Consumer Price Index (“CPI”)). In addition, certain
events beyond the control of Manila Water are considered and an extraordinary price adjustment is
implemented to cover factors such as El Nino occurrence and other unforeseen calamities.
The Concession Agreement also allows MWC to recover through tariff adjustments all past foreign
exchange losses and at the same time adopt a foreign currency differential adjustment (“FCDA”) for
estimated foreign exchange gains or losses for the year. These gains and losses are in relation to
impact of foreign currency fluctuations on the foreign denominated loans and Concession Fee payments
to MWSS. The FCDA is evaluated quarterly, the latest of which was implemented on January 2010.
Corporate Governance
Manila Water continues to take steps to strengthen its corporate governance practices. To illustrate the
high priority put on corporate governance, the Audit and Governance Committee of MWC’s Board of
Directors ensures the adoption of policies on transparency and disclosures. At the same time, Manila
Water has continually sought ways to improve internal controls and has instituted the integration of risk
planning and management in its planning and budgeting process.
As Manila Water continues to expand its services within and outside of its existing concession area,
Manila Water saw a need to create a Risk Management Department (RMD) to be in charge of identifying
major risks in Manila Water’s business operations and development projects. Manila Water launched the
Enterprise Risk Management (ERM) Project which will take the existing risk management process to a
higher level and develop a common risk language and framework that is easily understandable. It aligns
the Manila Water’s strategy, processes, people, technology and knowledge and manages its identified top
risks to ensure attainment of its business objectives. Manila Water aims to make ERM a way of life where
managing risks becomes the responsibility of every individual in the organization with end view of
increasing shareholder value and enhancing the existing risk management programs of Manila Water. A
The Chief Risk Officer (CRO) was appointed to head the RMD and champion the ERM Framework across
the entire organization.
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Business - AC Capital
In the past, Corporate Governance Asia and Asiamoney and the Institute of Corporate Directors have
recognized MWC with various awards on corporate governance.
Sustainable Development
Manila Water takes pride in the fact that it embodies what genuine corporate social responsibility (CSR)
is – that social and environmental objectives are perfectly aligned with business goals and integrated in
Manila Water’s day-to-day operations. As such, it is recognized as one of the CSR leaders and pioneers
in the Philippines.
Water Supply Provision to the Urban Poor
Manila Water sees it important to make potable water available to everyone, especially the urban poor, as
it is a basic human need. The ‘Tubig Para Sa Barangay’ (“TPSB”) or Water for the Community program
was set up in 1998 to help build communities by way of improving the quality of their life. Through the
TPSB program, more than 1.6 million people now enjoy 24-hour supply of clean, safe-to-drink and
affordable water, as well as improved overall health and sanitation conditions.
Manila Water also undertakes ‘Lingap’ programs to improve water supply and sanitation facilities in public
service institutions such as schools, hospitals, city jails, markets and orphanages which largely serve
poor families. Manila Water has rehabilitated the water reticulation system and installed wash facilities
and drinking fountains in over 300 institutions.
Water Education
Manila Water’s ‘Lakbayan’ or Water Trail program aims to promote stakeholder awareness on the value
of water and the need for wise use of water and proper wastewater management. For better
understanding and deeper appreciation of the intricacies of treating and delivering potable water supply
and wastewater services, stakeholders are exposed to the entire water cycle – from the raw water source,
the treatment process, distribution, up to wastewater treatment process.
To date, more than 400 groups and 15,000 individuals from communities, local and national government
offices, schools, non-government organizations, private companies and other special groups have
participated in the ‘Lakbayan’ program.
Environmental Protection
Manila Water has taken a more active stance in protecting the environment. In fact, Manila Water has
embedded important environmental initiatives in every level of the water supply cycle to ensure
sustainability and reliability of services to customers.
After ratifying a formal Climate Change Policy in late 2007, Manila Water began quantifying its baseline
carbon footprint and monitoring its impact on the environment. From the calculated figures, Manila Water
set carbon footprint reduction targets.
Manila Water also intensified its sewerage programs by laying sewer lines that link to the existing
municipal drainage network and treating the collected sewage through the constructed treatment plants
before discharging to Metro Manila’s major river systems.
Awards
Manila Water’s accomplishments in the field of sustainable development have been affirmed several
times. In 2007, IFC conferred to MWC its annual Client Leadership Award in recognition of MWC’s
comprehensive approach in promoting sustainable development in the East Zone of Metro Manila and in
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Business - AC Capital
the water and wastewater industry. In 2008, Manila Water was recognized as one of the top ten
Greenest Companies in Asia by Finance Asia. Recently, Manila Water has once again proven that it is
one of the most respected CSR practitioners in the region after winning the Intel – Asian Institute of
Management (AIM) Corporate Responsibility Award (IACRA) at the 2009 Asian Forum on Corporate
Social Responsibility (AFCSR).
Expansion and Investment Programs
From 2008 to 2012, MWC expects to spend P
= 36.6 billion on capital expenditures and Concession Fee
payments. MWC’s investment program plans to continue to develop new water sources, rehabilitate and
expand its water distribution network, improve existing facilities and ensure its reliability, expand
sanitation services and adopt a low-cost decentralized sewerage strategy.
In addition, Manila Water is now seeking new growth opportunities outside of the East Zone concession
area. To this end MWC is forming two subsidiaries to propel its foray into the international and local water
and environmental sectors.
Water Network Expansion
Over the next five years, Manila Water will be connecting an additional 1 million people to its customer
base through the expansion of its water network to reach more areas and improve service levels in Rizal
Province such as San Mateo, Angono and Taytay. The network expansion will involve the laying of new
primary and distribution mains, pumping stations and reservoirs.
New Water Sources
Complementing the expansion programs would be the development of new water sources to ensure the
continuity and reliability of water supply in MWC’s concession area.
Network Reliability
Manila Water will also be carrying out measures to further improve the reliability of the water network
against natural calamities like earthquakes through the laying of additional pipelines, retrofitting of critical
mains, and construction of reservoirs at strategic locations.
Wastewater Expansion
A major part of the expansion program of Manila Water is on wastewater. MWC will increase the current
coverage of 12% level to 30% in 2010. Included in the approved rate rebasing plan is the construction of
more sewerage and septage treatment plants and expand sewer network possibly through a combine
sewer-drainage system. It will also improve existing facilities, and implement more stringent safety
elements. The new tariff adjustment already considered the proposed capital investments in wastewater.
The Marikina River Project will be one of the major wastewater initiatives of MWC. This will entail cleanup of the river through the development of several treatment plants along the riverbanks, to be able to
treat collected wastewater before being discharged to the river.
New Business Development
To support its growth strategy, MWC is also pursuing local and regional new business opportunities. Just
recently, Manila Water was awarded a US$ 15 million contract in Ho Chi Minh City, Vietnam. MWC
bested 4 other foreign companies in this 5 year Performance-Based Leakage Reduction and
Management Services to Saigon Water Corporation (SAWACO). MWC currently has an ongoing
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Business - AC Capital
operations and management contract in Tirupur, India, and is providing consultancy services for the water
and wastewater operations in Boracay Island.
Dividend Policy
Under Manila Water’s cash dividend policy, common shares shall be entitled to annual cash dividends
equivalent to 35% of the prior year’s net income, payable semi-annually. Any change in Manila Water’s
Cash dividend policy is always subject to Board of Directors’ approval. In addition, Manila Water’s Board
of Directors is also authorized to declare cash dividends. A cash dividend declaration does not require
any further approval from the stockholders. A stock dividend declaration, however, requires further
approval of stockholders representing not less than two-thirds of Manila Water’s outstanding capital stock.
Financial Highlights for the Year 2009
Manila Water’s solid operational performance resulted in favorable results during the year. It posted a net
income attributable to equity holders of MWC of P
= 3,231 million for 2009, a 16% improvement compared
to P
= 2,788 million last year. The figure was also higher than plan for the year, as a result of lower effective
income tax rates and lower depreciation expense resulting from the approval of the CA renewal. The
aforementioned factors, together with the effective management of operating costs, sustained its net
income growth.
Total revenues for the year ended December 31, 2009 increased by P
= 619 million or 7% to P
= 9,533 million
from P
= 8,913 million in 2008. The increase in revenues is due to the 2% growth in water sales volume and
the CPI increase in tariff implemented beginning February 2009. Core revenues (composed of water,
environmental and sewer revenues) amounted to P
= 9,442 million, 7% higher than the 2008 level. Manila
Water registered around P
= 24 million of revenues from its business outside of the East Zone, coming
largely from its venture in Ho Chi Minh City, Vietnam. For the first time, Manila Water recognized around
P
= 20 million as its share in the water revenue from its Laguna venture.
Total cost and expenses (before depreciation and amortization) amounted to P
= 2,730 million in 2009,
compared to P
= 2,505 million in 2008. As a result of various cost management programs, Manila Water
realized significant savings in manpower, power and maintenance costs, effectively increasing its overall
cost efficiency. These initiatives include the rehabilitation of Manila Water’s existing facilities, construction
of new reservoirs, the laying of new pipes and application of new systems, processes and technologies.
As a result, increase in operating cost was managed despite the expansion in water and wastewater
services.
Earnings before interests, taxes, depreciation and amortization (“EBITDA”) was recorded at
10
P
= 6,803 million in 2009, 6% higher than the 2008 level while EBITDA margin was maintained at 71% as
a result of cost efficiency gains. Interest income amounted to P
= 362 million in 2009, coming from
investments in money market instruments. Interest expenses amounted to P
= 812 million in 2009, 18%
higher than the previous year’s levels, given the full year impact of the P
= 4.0 billion bonds issued in late
2008.
Total assets as of December 31, 2009 grew by P
= 7,390 million to P
= 43,758 million from the December
2008 level of P
= 36,368 million. Growth in total assets was driven by the capital investments which focused
on water and wastewater expansion and the capitalization of additional regulatory cost as a result of the
CA renewal.
Collection efficiency averaged 100% and accounts receivable days improved to 18 days. The improved
collection performance was a result of Manila Water’s aggressive collection strategies, alongside the
initiative to make bill payments more convenient to customers.
10
EBITDA divided by total revenue
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Business - AC Capital
By the end of 2009, total cash reserves (including short term cash investments and investments in
marketable securities held as available-for-sale financial assets) amounted to P
= 9,729 million. This was
the result of improved collection efficiency and P
= 2.1 billion proceeds from loan drawdown. This cash
balance is intended to finance Manila Water’s P
= 10 billion capital investments in 2010. Current ratio for
2009 was computed at 1.69 times.
Long-term debt in 2009 increased to P
= 14,361 million. This includes the P
= 4.0 billion peso bond and
additional availments from loan facilities. As of end of 2009, around 47% of the Manila Water’s total long
term debts were denominated in Philippine currency, while the rest were denominated in either US dollars
or Japanese yen. Approximately 70% of Manila Water’s direct borrowings were fixed rate loans. Net bank
debt-to-equity ratio was computed at 0.27 times.
As of December 31, 2009, net cashflows from operating activities totaled P
= 5,850 million. A total of P
= 5,331
million was used to finance Manila Water’s capital investments and concession obligations. A total of P
=
2,140 million in loan proceeds were received in 2009, while Manila Water also paid P
= 720 million in
maturing loan amortizations and interest payments. Manila Water also declared cash dividends
amounting to P
= 969 million, 9% higher than the prior year’s cash dividend payments.
FINANCIAL HIGHLIGHTS (in million Pesos)
Operating Revenues
Operating Costs & Expenses*
EBITDA
Net Income attributable to equity holders of MWC
OPERATIONAL HIGHLIGHTS
Billed water volume (in million cu.m.)
NRW (%)
Households served (in thousands)
*Costs and expenses excluding depreciation and amortization
2009
2008
9,533
2,730
6,803
8,914
2,505
6,408
3,231
2,788
396
15.8
1,086
387
19.7
1,032
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Electronics and Information Technology
Ayala is involved in electronics and information technology through Integrated Micro-Electronics, Inc.
(“IMI”) and Azalea Technology. As of December 31, 2009, IMI’s major shareholders were Ayala through
its wholly owned subsidiary AYC Holdings Ltd. and Resins Inc.. Azalea Technology, which is wholly
owned by Ayala, was established in January 2000 to be a holding company for Ayala’s technology related
investments.
INTEGRATED MICROELECTRONICS, INC.
BACKGROUND
Established in 1980, IMI has progressed into a company offering core manufacturing capabilities as well
as higher value competencies in design, engineering, prototyping, and supply chain management. IMI is a
vertically integrated electronics manufacturing services (EMS) provider to leading global original
equipment manufacturers (OEMs) in the computing, communications, consumer, automotive, industrial,
and medical electronics markets.
In January 2010, IMI completed its listing by way of introduction of One Billion Two Hundred Sixty Eight
Million Four Hundred Ninety Seven Thousand Two Hundred Fifty Two (1,268,497,252) common shares
with a par value of P
= 1.00 per share or an aggregate amount of One Billion Two Hundred Sixty Eight
Million Four Hundred Ninety Seven Thousand Two Hundred Fifty Two Pesos (=
P1,268,497,252) (the
Subject Shares). The Subject Shares were listed by way of introduction with the PSE under Section 1(e)
of Part H of Article III of the Revised Listing Rules. The opening price (“Opening Price”) of the shares was
P
= 6.20 per share which was based on IMI’s September 30, 2009 book value per share of US$0.130 at the
BSP’s reference rate of USD/Php exchange rate of P
= 47.63.
IMI is a stock corporation organized under the laws of the Republic of the Philippines and registered with
the Philippine Securities and Exchange Commission on 08 August 1980. IMI proved that a Filipino-owned
company can go global, transforming its local operations into a global network. IMI has three (3) whollyowned subsidiaries, namely: IMI International (Singapore) Pte. Ltd. (“IMI Singapore”), IMI USA, Inc. (“IMI
USA”) and IMI Japan, Inc. (“IMI Japan”).
IMI Singapore was incorporated and domiciled in Singapore having a wholly-owned subsidiary
incorporated and domiciled also in Singapore, Speedy-Tech Electronics Ltd. (STEL). STEL on its own
has subsidiaries located in Hong Kong, China, Singapore and Philippines. IMI Singapore is engaged in
the procurement of raw materials, supplies and provision of customer services while STEL and its
subsidiaries are principally engaged in the provision of Electronics Manufacturing Services and Power
Electronics solutions to OEM customers in the consumer electronics, computer peripherals/IT, industrial
equipment, telecommunications and medical device sectors.
IMI USA acts as direct support to IMI’s customers by providing Program Management, Customer Service,
Engineering Development and prototype manufacturing services to both North American and European
customers, especially for processes using direct die attach to various electronics substrates. It specializes
in prototyping low to medium PCBA and sub-assembly and is at the forefront of technology with regard to
precision assembly capabilities including, but not limited to, Surface Mount Technology (SMT), Chip on
Flex (COF), Chip on Board (COB) and Flip Chip on Flex. IMI USA is also engaged in engineering, design
for manufacturing (DFM) technology, advanced manufacturing process development, new product
introduction (NPI), direct chip attach and small precision assemblies.
IMI Japan was established to attract more Japanese OEMs to outsource product development to IMI. IMI
Japan was registered and is domiciled in Japan to serve as IMI’s front-end design and product
development and sales support center.
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Upon its incorporation in 1980, IMI registered its operations with the Board of Investment (BOI). As such,
IMI is qualified for fiscal and non-fiscal incentives provided by Executive Order 226 as amended.
In 1994, IMI relocated its manufacturing operations in the Laguna Technopark Special Economic Zone in
Biñan, Laguna. Upon its transfer, IMI sought registration with Export Processing Zone Authority (EPZA
now known as PEZA). On September 12, 1994, through Board Resolution No. 94-177, EPZA approved
IMI’s application for registration. At that time, IMI’s registered activity was to manufacture thin film head
and gimbal assembly for hard disk drive. Through the years, IMI increased its operations at the Laguna
Technopark facilities and has registered more projects and activities with PEZA, all related to production
and manufacture of any and all types of electronic products, and in providing services related thereto.
These registrations, entitle IMI to certain incentives, which include but are not limited to a four-year
income tax holiday (ITH) and an option to apply for ITH extension for a maximum of three (3) years
subject to various PEZA requirements wherein projects and activities are qualified and tax and duty free
importation of inventories and capital equipment. Upon the expiration of the ITH on these projects and
activities, IMI will be subject to a five percent (5%) final tax on gross income earned after certain allowable
deductions provided under Republic Act (R.A.) No. 7916 (otherwise known as the “Special Economic
Zone Act of 1995”) in lieu of payment of national and local taxes.
Fundamental to IMI’s performance excellence is the integration of a Total Quality Management system in
its business processes. IMI has various international standard certifications for its Philippine sites – ISO
9001 Quality Management Systems; ISO 14001 Environmental Management Systems; OHSAS 18001
Occupational Health and Safety Assessment Series; ISO/TS 16949 Quality Management Systems for
Automotive production; ISO 13485 Quality Management Systems for medical devices; and a newly
acquired accreditation for the General Competence of its Calibration Laboratory, ISO 17025:2005
version.
SUBSIDIARIES
The following are subsidiaries of IMI, none of which is listed in any stock exchanges:
IMI Subsidiaries
1. IMI USA, Inc.
2. IMI Japan, Inc.
3. IMI International (Singapore) Pte. Ltd.
Speedy-Tech Electronics Ltd. and
Subsidiaries (“STEL and Subsidiaries’)
Speedy-Tech Technologies Pte. Ltd.
Speedy-Tech Electronics (HK) Limited
Speedy-Tech (Philippines), Inc.
Shenzhen Speedy-Tech
Electronics Co., Ltd.
Speedy-Tech Electronics, Inc. (Dormant)
Speedy-Tech Electronics
(Jiaxing) Co., Ltd.
Speedy-Tech Electronics
(Chong Qing) Co. Ltd.
% of
Ownership
Place of
Incorporation
100.00
100.00
100.00
100.00
USA
Japan
Singapore
Singapore
100.00
100.00
100.00
99.443
Singapore
Hong Kong
Philippines
China
100.00
100.00
USA
China
100.00
China
LOCATION AND PROPERTIES
IMI has production facilities in the Philippines (Laguna and Cavite), China (Shenzhen, Jiaxing, and
Chongqing), and Singapore. It also has a prototyping and NPI facility located in Tustin, California.
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Engineering and design centers, on the other hand, are located in the Philippines, Singapore, China,
United States, and Japan. IMI’s logistics bases are located in Asia, including China, Singapore, Hong
Kong, and Philippines. Also, IMI’s global network of sales agents and representatives are managed by its
sales offices in Germany, United States, Japan, Philippines, Singapore and China.
IMI does not own land. As a result, it leases the land on which its manufacturing plants, office buildings
and sales offices are located. The head office and main plant of IMI are located at North Science Avenue,
Laguna Technopark, Biñan, Laguna, 4024 Philippines. The premises are leased from Technopark Land,
Inc. On December 23, 2008, IMI renewed the lease for 3 years, to expire on December 31, 2011 and
renewable at the option of the parties for such number of years agreed upon by them. IMI is liable to pay
a monthly rent specified in the lease contract, exclusive of value added tax, which increases over the
years. In the event of sale, transfer or disposition of the leased premises, the lessor shall ensure that the
lease will be honored by the buyer.
IMI’s subsidiaries, except for IMI-USA, IMI-Japan and Speedy-Tech Electronics (HK) Limited in Hong
Kong, lease the land on which their respective manufacturing and office buildings are located.
OPERATIONS
Design and Engineering Services
Partnering with IMI allows a complete and successful product development. This is made possible by
IMI’s capability to design and develop complete products and subsystems, analyze product design and
materials for costs reduction through value and profit engineering, and develop solutions for cost-effective
production and fast time-to-market while safeguarding intellectual property. IMI’s product development
and engineering service offerings include Custom Design Manufacturing (CDM) Solutions, Advanced
Manufacturing Technology (AMT) Services, Engineering and Test Development, and Reliability/Failure
Analysis and Calibration Quality Test solutions.
Manufacturing Solutions
IMI’s comprehensive manufacturing experience allows a prospective client to leverage its strength in
RoHS-compliant and cleanroom manufacturing process, complex manufacturing using consigned
equipment and materials, complete turnkey manufacturing with multiple materials sourcing sites, ERPbased planning, purchasing, and manufacturing process, and strategic partnerships with leading
materials distributors and manufacturers. IMI has the essential infrastructure equipment, manpower and
quality systems to assure quick start of operations and turnaround time. These include: materials
management, PCBA and FCPA Assembly, Automated Through-Hole Assembly, Complete Box build
Solutions, Sub Assembly services, Component Assembly and Manufacture of Enclosure Systems.
Business Models
IMI recognizes the uniqueness of each customer’s requirements. To satisfy specific requests, IMI offers
flexible business models that allow it to build the perfect assembly for its client’s manufacturing
requirements.
The “Standard” and “Semi-custom” business models pertain to IMI’s Printed Circuit Board Assembly
(PCBA) processes. IMI invests in Surface Mount Technology (SMT) lines which support multiple customer
requirements. Back-end and box build processes are also set-up depending on customer requirements.
The “Custom” Business Model gives the client a free hand in designing the systems by offering a
dedicated facility manned by an independent and exclusive organization that will build the system from
ground up. With quality structures and operational procedures compatible with the client’s systems, IMI’s
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line serves as the client’s extension plant, assuring that all the parts and processes are customized to the
client’s particular needs.
Capabilities and Solutions
IMI’s capabilities allow it to take on the specific outsourcing needs of its customers, providing them with
flexible solutions that encompass design, manufacturing, and order fulfilment. It develops platforms to
customize solutions in response to its customers’ unique requirements. Its platforms in areas like shortrange wireless systems, embedded systems, and sensors and imaging technology represent capabilities
to manufacture products. New manufacturing capabilities are developed by IMI’s Advanced
Manufacturing Engineering (AME) group. Its expertise includes immersion silver process, pre-flow
underfill process, thermally enhanced flip chip technology, traceless flip chip technology, and flip chip on
flex assembly, among others. IMI has a complete range of manufacturing solutions-- from printed circuit
board assembly to complete box build. Through its flexible, efficient, and cost–effective end-to-end EMS
solutions, IMI gives OEMs the luxury of focusing on their core competencies of technology R&D and
brand marketing.
INTELLECTUAL PROPERTY
The table below summarizes the intellectual properties registered with the United States Patent and
Trademark Office out of the Company’s California and Singapore facilities, competency centers for
Advanced Manufacturing Technology:
Name
Anisotropic Bonding System and Method Using
Dynamic Feedback
Traceless Flip Chip assembly and method
Manufacturing Method for Attaching Components to
a Substrate
Passive circuitry for harmonic current regulation in a
power supply by energy efficient input current
shaping
Filing Date
Expiration
27 November 2000
26 February 2001
26 November 2020
25 February 2021
05 March 2001
04 March 2021
16 September 2001
17 September 2020
COMPETITION
IMI is an electronics manufacturing services (EMS) provider to original equipment manufacturers (OEMs)
in the computing, communications, consumer, automotive, industrial, and medical electronics segments.
The global financial crisis badly hit the electronics industry across the globe. The electronics end-markets
generally experienced weak demand as corporate and individual consumers reined in spending. This
weak end-market demand coupled with a tight credit situation strained the production of OEMs.
Consequently, the EMS industry experienced lower volume requirements from the OEMs. The EMS
revenue is expected to increase by 4 percent in 2010. First of all, the end-market electronics demand has
generally bottomed out by the end of the second quarter of 2009. Second, there is no question that the
economy of the future will be driven by electronics. Third, OEMs still do in-house more than 60 percent of
electronics assembly operations.
IMI competes worldwide, with focus on Asia (including Japan and China), North America, and Europe.
There are two methods of competition: a) price competitiveness, b) robustness of total solution (service,
price, quality, special capabilities or technology). IMI competes with EMS companies and original design
manufacturers (ODMs) all over the world. Some of its fierce EMS provider competitors include Hon Hai,
Flextronics, Kimball, and Hana.
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Hon Hai is a Taiwanese company with annual revenues of US$62 billion; its cost structure is very
competitive because it is vertically integrated. Flextronics is a Singapore-headquartered company with
annual revenues of US$33 billion; its cost structure is very competitive it is vertically integrated. Kimball is
a US company with annual revenues of US$722 million; it is a leading EMS player in the automotive field.
Hana is a Thai company with annual revenues of US$303 million; it has a semiconductor manufacturing
arm.
IMI is focused on delivering customized solutions of highest quality at reasonable prices. It collaborates
with the customers in finding the right solutions to their problems. IMI even challenges its own systems
and processes if needed. It has a distinct advantage in serving customers who value quality over price
and require complex non-standard solutions. Living up to the flexible expertise brand, IMI is adaptable to
the needs and conditions of its customers. This expertise has propelled IMI onto the current list of the top
50 EMS providers in the world and earned for IMI several accolades from its customers.
RESEARCH AND DEVELOPMENT ACTIVITIES
IMI designs and develops complete products and subsystems to assist original equipment manufacturers
in product realization. IMI’s design and development capabilities encompass short-range wireless
technologies, embedded systems, and power electronics. It engineers work in close coordination with
customers during the early stages of product development to ensure a seamless transition from design
conceptualization to volume manufacturing. In addition, IMI USA (acquired from Tustin) is home to IMI’s
advanced manufacturing technology R&D activities, with focus on areas including flip chip, substrate and
interconnect technologies.
ENVIRONMENTAL COMPLIANCE
IMI complies with ISO 14001, international standard for Environment Management Systems as certified
by SGS since year 2000. Moreover, IMI has converted some of its SMT lines to RoHS (Restriction on
Hazardous Substances) compliant lines. This environmental compliance enables IMI to qualify as a
contract manufacturer for various OEMs.
IMI DIVIDEND POLICY
1) A cash dividend of thirty percent (30%) shall be declared and annually paid from previous year
earnings to all stockholders. The target dividend rate should be increased if the earnings appear
clearly sustainable and relatively permanent.
2) Dividend shall not be paid from capital.
3) The preferred share dividend shall take precedent over the distribution of dividends for common
shares.
4) All cash dividend declaration to stockholders as of record date shall be approved by the Board of
Directors.
5) Dividend payment shall be made after the annual stockholders meeting or at year-end.
IMI FINANCIAL HIGHLIGHTS FOR THE YEAR 2009
IMI posted a turnaround with US$10 million in net income attributable to equity holders of IMI after tax in
2009, a reversal of the net loss incurred in the previous year due to a gradual increase in revenues
starting in the second half of 2009 and effective cost management.
The year 2009 was a very challenging one for the entire electronics industry. The effects of the global
economic downturn on the market, which began in the second half of 2008, ensued in 2009. The
electronics manufacturing services (EMS) industry contracted in 2009. In addition to reduced volume
requirements of the original equipment manufacturers (OEMs), the EMS industry was besieged by a
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severe supply shortage of electronics components, as suppliers were cautious of excess inventory
brought about by the market’s uncertain outlook and the tight credit situation.
With the electronics sector under severe stress in 2009, IMI’s revenues for the year declined by 10
percent from 2008 to US$395.5 million. It was only in the second half of the year that the industry
environment began to improve, with market trends either bottoming out or posting growth, albeit at a
slower pace. IMI’s revenues rebounded accordingly which, coupled with effective cost control and
operational streamlining measures, resulted in IMI achieving a net income attributable to equity holders of
IMI after tax of US$10 million.
IMI’s net income attributable to equity holders of IMI after tax rose by 160% year-on-year. The increase
can be attributed to several factors:
• Sales rebounded in the third quarter of the year due to an improved operating environment. This
improved production capacity utilization.
• Operations in the Philippines, particularly in the Cebu and Laguna LIIP plants, were consolidated
into Laguna LTI.
• Effective cost reduction measures were implemented which greatly reduced general and
administrative expenses.
• IMI obtained additional non-recurring income from recovery of insurance losses.
IMI continued to maintain a solid financial position securing comfortable liquidity and debt levels. Cash
generation from operations stayed robust resulting in a consolidated cash balance of US$53.9M at the
end of 2009 about same level as in the previous year despite making US$22.8M in bank debt
repayments. IMI is still at a zero net debt position with the ending cash level sufficient to cover bank debt
balance of US$48.3M. Current ratio stood better at 1.89:1 from 1.70 as at end of 2008. Debt-to-equity
ratio likewise improved to 0.29:1 from 0.45 of the previous year.
The China and Singapore operations of IMI contributed 51 percent to total IMI revenues in 2009. The
main revenue contributor was the increase in volume for a leading Chinese OEM in telecommunications
driven by the 3G network deployments in emerging markets. In the Philippines, IMI remained strong in the
storage device, automotive, and consumer electronics markets.
The following market trends are expected to positively impact IMI’s performance in 2010.
• Global PC shipments are expected to grow in 2010 with the notebook sector as one of the drivers.
Global mobile phone sales are expected to rise this year on the back of expansion in emerging
markets. These trends could have a positive effect on IMI’s business in the storage device and
telecommunication network infrastructure device sectors.
• The automotive electronics systems are likewise expected to grow steadily between 2010 and 2017.
IMI is identifying lucrative product niches that will grow its business in this segment.
OEMs will increasingly look to supplying China. As OEMs need more capacity in China to supply a
domestic market that continues to grow at a healthy rate, IMI can aggressively offer its China facilities that
are capable of both low-volume high-mix and high-volume low-mix production.
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AZALEA TECHNOLOGY INVESTMENTS, INC. AND AZALEA INTERNATIONAL VENTURE
PARTNERS, LTD.
Ayala’s wholly owned subsidiary, Azalea Technology Investments, Inc. (“Azalea Technology”), was
established in January 2000 to be a holding company for Ayala’s technology-related investments.
Azalea Technology is an investor in technology-related companies in the Philippines. Azalea
Technology’s focus is to identify good opportunities in technology-driven businesses and to invest and
nurture those businesses.
For the year ended December 31, 2009, Azalea Technology generated a net loss of P
= 28 million, P
= 35
million of which was Azalea Technology’s equity share in net losses of Ayala Systems Technology, Inc.
(“ASTI”).
ASTI is a systems integrator and IT services provider to the domestic and international markets. As a
systems integrator, it combines its skills in supporting different products and platforms with its experience
in managing large projects. As an IT services provider, ASTI offers a wide range of products and services
such as hardware, network and communications infrastructure, software tools, business software
applications, applications software design, development and quality assurance, project management and
business process outsourcing.
For the year ended December 31, 2009, ASTI’s revenues were P
= 305 million with net loss of P
= 67 million
which included P
= 38 million provision for doubtful accounts and decline in value of an investment.
In October 2009, Azalea Technology sold part of its investment in ASTI to SCS Computer Systems Pte.
Ltd. diluting Azalea Technology’s interest in ASTI from 58.72% to 49.00%.
Azalea Technology has a Game Development Division which focuses on developing mobile services
available on mobile telephone companies both in the Philippines and overseas. The division was spun off
in early 2006 as Glyph Studios, Inc. and was incorporated as a wholly-owned subsidiary of Azalea
International. In August 2009, ownership of Glyph Studios was transferred to Azalea Technology.
Azalea International was previously a wholly-owned subsidiary of Azalea Technology. In 2008, Ayala
converted its deposits on future subscriptions in Azalea International into equity, increasing Ayala’s direct
ownership from 68.71% to 97.78%. Consequently, Azalea Technology’s ownership in Azalea International
was diluted from 31.29% to 2.22%.
Azalea International has made several key investments in companies based inside and outside the
Philippines. Azalea International holds 100% of LiveIt Investments, Ltd. (“LiveIt Investments”), the
company that carries Ayala’s businesses in the BPO sector. It also wholly owned HRMall, another BPO
company from December 2007 until it was transferred to LiveIt Investments in November 2009.
Azalea International continues to invest in technology companies through venture capital funds, Narra
Venture Capital LP (“Narra I”) and Narra Venture Capital II LP (“Narra II”) and Tech Ventures III, L. P.
(“TV-III”). Narra I is a joint undertaking by Azalea and Tallwood Partners LLC, a leading investor in
emerging technologies based in Silicon Valley. Narra I and Narra II have made several investments in
companies developing semiconductors and semiconductor-related products, converged communication
systems, computing platforms, and software and related services. Azalea International recently invested
in Pacific Synergies IV LP. TV-III and Pacific Synergies are both managed by the ICCP Group.
Azalea International also has invested in The Rohatyn Group Special Opportunity Fund and General
Opportunity Fund. In January 2007, Azalea International bought a minority stake in Milestone, a software
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company based in Australia.
For the year ended December 31, 2009, Azalea International generated a net loss of P
= 650 million.
Excluding LiveIt Investments and its subsidiaries, the net loss of Azalea International was P
= 84 million. P
=
121 million of the loss pertains to Azalea International’s equity share in net losses of Narra but partially
offset by the equity share in net earnings of Milestone amounting to P
= 28 million.
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Business Process Outsourcing
LiveIt Investments Limited (“LiveIt”) is a wholly-owned subsidiary of Azalea International. Incorporated in
the British Virgin Islands in June 2006, LiveIt is the investment arm of the Ayala Group in the BPO sector.
LiveIt was previously a wholly-owned subsidiary of LiveIt Solutions, Inc. (“LSI”), a Philippine company
incorporated in June 2006. In 2008, Azalea International converted US$123.9 million deposits on future
subscription in LiveIt diluting LSI’s interest to 0.01%. In December 2009, LiveIt repurchased its shares
from LSI giving Azalea International 100% ownership interest in LiveIt.
LIVEIT INVESTMENTS LTD.
LiveIt’s strategy is to acquire or invest in existing global BPO companies that have the potential to
become a Global Top 5 leader in attractive sectors, and can leverage the Philippines.
As of December 31, 2009, LiveIt has made cumulative investments of P
= 10.9 billion, or approximately
US$228.8 million in four (4) investee companies in the Voice (through Stream Global Services, Inc.),
Knowledge (through Integreon Managed Solutions, Inc.), Graphics (through Affinity Express Holdings
Limited) and HR (through HRMall Holdings Limited) spaces.
Stream Global Services, Inc.
LiveIt started investing in voice BPO by using its wholly-owned subsidiary Newbridge International
Investments, Inc. (“Newbridge”) to accumulate shares of eTelecare Global Solutions (“eTelecare”) in
2006. In December 2008, LiveIt together with Providence Equity Partners made a tender offer for
eTelecare’s common shares and American Depositary Shares. After the successful tender offer,
eTelecare was delisted from the NASDAQ and the Philippine Stock Exchange in January 2009 and
August, respectively. In October 2009, eTelecare was merged with Stream Global Services, Inc.
(“Stream”) , creating an approximately US$800 million revenue customer relationship management
services company with approximately 30,000 employees in 50+solution centers in 22 countries. The
combination positions Stream as a premium business process outsource service provider specializing in
customer relationship management services including sales, customer care and technical support for
Fortune 1000 companies. Post-merger, LiveIt’s ownership stake was 25.76% as of December 31, 2009.
Integreon Managed Solutions, Inc.
Integreon is the leading global provider of legal support, research and business services to law firms,
financial institutions and corporations. Integreon completed several M&A initiatives in 2009 which
included the carve-out of Osborne Clarke (a top 50 U.K. law firm)’s middle-office operations, creating the
first onshore shared-services center for the U.K. legal sector, in March 2009; the asset acquisition of
3(TM)
ONSITE
, a leading global provider of electronic evidence solutions for law firms and corporations,
based in Arlington, Virginia, in April 2009; and the acquisition of Grail Research, the Cambridge,
Massachusetts based captive strategic research and decision support unit of the Monitor Group, in
October 2009. As of December 31, 2009, LiveIt had an 86.16% ownership in Integreon.
Affinity Express Holdings Ltd.
Affinity Express is the leading global provider of high volume advertising and marketing design services to
the newspaper, direct marketer, retail, corporate, advertising and promotional products industries. It has
recently expanded its services to include new high growth markets (e.g., digital interactive services,
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yellow pages and corporate marketing communications services). Affinity Express serves more than 150
publications in North America, including numerous publications from the Sun Times Media Group,
Canwest and Hearst Publications. As of December 31, 2009, LiveIt owned a 99.84% interest in Affinity
Express.
HRMall Holdings Ltd.
HRMall was initially formed as the HR shared-services company for the Ayala group’s HR (administrative
and strategic) and Payroll needs. HRMall is a BPO specialist focused on providing Human Resourcerelated services to organizations across multiple industry sectors in the Asia Pacific region. It currently
services more than 20,000 employee-users. HRMall is the only Filipino company that has transitioned
from HR Shared Services to HR BPO. HRMall Holdings is a wholly-owned subsidiary of LiveIt.
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Automotive Dealership
AYALA AUTOMOTIVE HOLDINGS CORPORATION
Ayala, through Ayala Automotive Holdings Corp. (“AAHC”) has eight Honda dealerships and five Isuzu
dealerships nationwide. Through its strong dealership network AAHC will continue to pursue quality
leadership and service excellence, affirming its commitment to total customer satisfaction.
Honda Cars Philippines, Inc.
Honda Cars, Philippines, Inc. is a joint venture between Ayala (50%), Honda Motors. Co. Ltd and RCBC.
Honda Cars assembles and manufactures Honda automobiles for the Philippine market in Laguna
Technopark.
Isuzu Philippines Corporation
Ayala has a 31% share in Isuzu Philippines Corporation a joint venture Isuzu Motors, Ltd., Mitsubishi and
RCBC to produce Asian Utility Vehicles, pick-up tricks, small and medium-sized tricks and buses. Isuzu
Philippines commenced production of commercial vehicles in June 1996.
Research and Development Activities
Amounts spent by AAHC on development with environmental laws are not material.
Environmental Compliance
Amounts spent by AAHC on compliance with environmental laws are not material.
Customer Satisfaction Risk
The operations of AAHC’s subsidiaries create risk of customers being dissatisfied with faulty or nonperforming products or services. If not properly managed, this can adversely affect the company’s
reputation which may result in decline in revenues and loss of market share. In response to this risk,
AAHC has launched and enhanced several customer-focused programs that promote quality and service
excellence. Regular and constant customer surveys/studies are conducted in assessing the effectives of
these projects and identifying customer concerns and rising customer expectations. AAHC remains
committed to its pursuit of total customer satisfaction to ensure its long-term growth.
2009 Highlights
Key Products
Honda passenger cars and Isuzu commercial vehicles
Market Position
One of the country’s largest vehicle retail company with 9% share of
industry sales
2009 Highlights
•
•
•
Registered net income of P
= 219 million from dealership operations,
significantly above 2008 earnings
HCPI held a strong position at second in the passenger car segment
while IPC ranked third in commercial vehicle segment. HCPI and IPC
had a combined market share of 20%
HCMI cornered 50% of total Honda network sales while IADI captured
31% of total Isuzu sales
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Strategic Initiatives
•
•
•
•
•
•
Sustain market leadership and profitability through service excellence
and operating efficiencies
Strengthen marketing and quality programs responsive to customer
needs
Expand network and operations for wider reach and better access to
customers
Enhance people-development programs for continuous skills-upgrading
that will create competitive advantage.
Collaborate closely with principals on the delivery of high quality
products and services
Venture into new allied businesses to complement traditional products
and services as well as expand market reach
2009 turned out to be a better year for the Philippine automotive industry despite the economic downturn.
The industry recorded car sales of 132,444 units, 6% higher than prior year’s 124,450 units. The strong
growth was attributed to the aggressiveness of automotive players in introducing new models and various
promotional offers as well as more affordable financing options within reach of consumers.
Commercial vehicles (CV) accounted for the lion’s share of the market, comprising 65% of industry sales.
For the entire year, 86,346 CV were sold, 8% better than last year’s 80,159 units. Introduction of new
models and growth in all CV categories contributed to the increase in unit sales for the entire segment.
Asian Utility Vehicles and Sports Utility Vehicles (SUV) dominated the CV segment accounting for 37%
and 33%, respectively. Passenger cars (PC) accounted for 35% of total auto sales, with 46,098 units
sold in 2009. This year’s PC sales were higher by 4% compared to the level a year ago. The subcompact
cars took the biggest share in PC sales with a 62% market share.
CV Segment
PC Segment
2.4 to 3.5L,
3%
Luxury,
2%
1.0-liter,
7%
Van, 11%
Trucks &
Buses, 4%
AUV, 37%
Pick-up,
15%
1.6 to 2.0L,
26%
1.3 to 1.5 liter,
SUV, 33%
62%
Honda Cars Philippines, Inc. (HCPI) remained at third spot in the local automotive market and ranked
second in the PC segment. Its market share improved from 11% last year to 14% this year and
culminated with 17,168 units, garnering a 20% increase from last year’s level. Honda’s growth was
primarily driven by the remarkable performance of Honda's sleek and modern-designed compact sedan the all new City 2009. The City accounted for more than half of Honda sales. The Ayala Honda
dealerships accounted for 50% of total HCPI network sales and captured three out of the top five slots,
with its dealership in Alabang as the leading dealer in the network.
This year was challenging for Isuzu Philippines Corporation as competitors became aggressive in
introducing new models especially in the SUV segment. As a result, Isuzu registered a 9% decline in
2009 and its share in total automotive sales slipped to 7% from 8% the prior year. The Ayala Isuzu
117
Business - AC Capital
dealerships remained on top position and improved its market share to 31%. Isuzu Alabang was the top
selling dealer in the Isuzu network while Isuzu Cebu, Inc. was the leading provincial dealer.
The Ayala group of dealerships remains to be one of the largest vehicle retail groups in the country
accounting for 9% of total industry sales. Ayala Automotive Holdings Corporation net income attributable
to dealership operations reached P
= 219 million, higher than last year’s level due to higher vehicle sales.
The automotive industry projects sustained growth in 2010. Factors that will affect sales include the
improved economic condition, low interest rate environment, and strong overseas remittances from
Filipinos working abroad.
A key challenge the industry may face is the impact of the full implementation of Asean Free Trade
Agreement (AFTA) and continued trade liberalization under various free trade agreements. This involves
the elimination of tariffs which challenges the competitiveness of local assembly operations.
However, the government, in support of the local automotive industry players, is finalizing a new Motor
Vehicle Development Program that aims to push the Philippines towards global competitiveness in a
liberalized intraregional trade arena. In addition, HCPI and IPC can capitalize on their strong brand
image and optimize opportunities in this liberalized environment.
2009 Key Financial Highlights
(in million pesos)
Revenues
Net income attributable to dealership
operations
Consolidated net income
Car unit sales
Return on equity (%)
2005
7,421
207
2006
8,751
250
2007
11,427
304
2008
10,078
178
2009
10,817
219
223
7,769
10.5%
262
9,664
12.0%
387
12,247
17.5%
275
10,324
12.8%
229
11,394
8.6%
118
Business - AC Capital
International
Ayala's international operations are conducted primarily through AG Holdings Ltd.
AG Holdings Ltd
Asia
ARCH Capital Management, our regional property fund management business, approached 2009 with a
clear focus on risk given the effects of the global financial crisis and the severe impact of the ensuing
liquidity crunch. Despite the turbulence and uncertainties, ARCH succeeded in accessing bank financing
in the form of new loans, refinancing or loan upsizing for all portfolio investments. The speed of recovery
in Asia surprised many, with market participants vying for distressed opportunities which failed to
materialize. ARCH completed one investment in Foshan, China- a 1,211-unit residential development in
one of the most affluent cities in Guangdong province. This project represents ARCH’s largest investment
to date, with strong sales results recorded over the July-December period. ARCH’s Thailand and India
portfolio continued to record steady sales, reflecting the emergence of market recovery for residential
product offerings suited to local tastes and preferences. The Concordia joint venture in Macau obtained
all requisite government approvals to proceed, facilitating planning for the development’s marketing
launch in early 2010 to take advantage of the significant turnaround in the real estate market on the
strength of recovery in the Macau gaming industry and visitor arrivals. The imminent launch of this project
is an exciting prospect for ARCH’s fund investors as well as the management team.
In August 2009, AG Holdings established a small office in Shanghai to assist ARCH in business
development and provide a solid underwriting base to review the Fund’s investment opportunities there.
Given the large allocation of capital by ARCH to China, this dedication of resources to investment review
is an appropriate commitment to further support ARCH's activities in its key Asian market. ARCH is
presently reviewing a number of substantial transactions in China which are targeted for completion this
year.
In the latter half of 2009, a decision was made to tighten the regional focus of AG by directing its efforts in
a more focused manner through ARCH. As such, in 2010 the priority will be to reallocate resources in AG
in selected markets and wind down its direct presence in others.
North America
In 2009, AG experienced significant losses in its US portfolio. The entire US real estate market suffered
from a variety of financial and fundamental factors working against any kind of recovery. All of our
residential projects were adversely impacted by slow sales and lower rents. Retail projects were hurt by
credit contraction and higher unemployment in almost all geographic markets. The modest economic
recovery that appeared to take hold at year’s end was not flowing through to sales and rentals. Absent
stronger economic growth fundamentals, 2010 may deliver more disappointing news in the US real estate
sector.
The approach being taken to remaining investments in the US portfolio is to carefully consider those
assets that may be worth sustaining and to maintain a minimum management and support structure until
some modest market recovery occurs. Regrettably, some further losses may be expected from the US
portfolio in the absence of a dramatic recovery in key factors underpinning its real estate markets.
119
EMPLOYEES AND LABOR RELATIONS
Ayala is committed to promoting the safety and welfare of the 114 employees, 66 of which are managers
and 48 are staff as of March 31, 2010. It believes in inspiring the employees, developing their talents, and
recognizing their needs as business partners. Strong and open lines of communication are maintained to
relay Ayala’s concern for their and safety, and deepen their understanding of Ayala’s value-creating
proposition.
All regular staff are covered by a new Collective Bargaining Agreement for the period January 1, 2010 to
December 31, 2011. The Collective Bargaining Agreement generally provides for annual salary
increment, and health and insurance benefits. Ayala has no record of strike or threat of a strike.
Ayala intends to maintain its current headcount for the next 12 months.
120
LEGAL PROCEEDINGS
Except as disclosed herein or in the Information Statements of the Ayala’s subsidiaries or affiliates which
are themselves public companies or as has been otherwise publicly disclosed, there are no material
pending legal proceedings for the past five years and the preceding years until March 16, 2010 to which
the Company or any of its subsidiaries or affiliates or its Directors or executive officers is a party or of
which any of its material properties are subject in any court or administrative government agency.
121
OWNERSHIP
Shareholders
Members of the Zobel de Ayala family, individually and through their control of Mermac, Inc., a private
holding company incorporated in the Philippines, are the majority shareholders of and effectively control
Ayala. Mermac, Inc. held 50.92% of Ayala as of February 28, 2010. Members of the Zobel de Ayala
family have been involved in Ayala’s business since its establishment in 1834. As of February 28, 2010,
Ayala’s other principal shareholders were PCD Nominee Corporation (24.35%) and Mitsubishi
Corporation (10.55%).
Ayala’s 20 largest common shareholders as of February 28, 2010 were as follows:
Stockholder name
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Mermac, Inc.
PCD Nominee Corporation (Non-Filipino)
Mitsubishi Corporation
PCD Nominee Corporation (Filipino)
Shoemart, Inc.
ESOWN Administrator 2009
Henry Sy, Sr.
SM Investment Corporation
ESOWN Administrator 2008
ESOWN Administrator 2007
Philippine Remnants Co., Inc.
ESOWN Administrator 2006
Sysmart Corporation
ESOWN Administrator 2005
BPI TA 14105123
Mitsubishi Logistics Corporation
Aristón Estrada, Jr.
Eduardo O. Olbes
Insular Life Assurance Co. Ltd.
AC ESOP/ESOWN Account
No. of common
shares
253,074,330
121,335,907
52,564,617
36,394,098
16,282,542
1,813,994
1,296,636
1,067,175
893,795
694,289
685,872
633,157
515,760
463,297
379,657
300,427
209,472
163,328
142,549
129,692
Percentage
(of common
shares)
50.92%
24.35%
10.55%
7.30%
3.27%
0.36%
0.26%
0.21%
0.18%
0.14%
0.14%
0.13%
0.10%
0.09%
0.08%
0.06%
0.04%
0.03%
0.03%
0.03%
As of February 28, 2010, 54.52% of the total outstanding shares of the Company or 240,041,414
common shares, 11,915,770 preferred “A” Shares and 57,890,950 preferred “B” shares are owned by the
public.
122
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
This section, Management’s Discussion and Analysis of Operations and Financial Condition should be read in
conjunction with the Company’s consolidated financial statements and related notes. See the cautionary statement
regarding forward-looking statements on page 1 of this Prospectus for a description of important factors that could
cause actual results to differ from expected results.
This section includes financial and operating data with respect to Ayala’s subsidiaries (Ayala Land, Inc., Integrated
Micro-Electronics, Inc., AG Holdings, Ltd., Azalea Technology Investments, Inc., Azalea International Venture
Partners, Ltd. and Ayala Automotive Holdings Corporation), associates (Bank of the Philippine Islands) and jointly
controlled entities (Globe Telecom, Inc. and Manila Water Company, Inc.). This section should be read in conjunction
with the financial statements of these subsidiaries, associates and jointly controlled entities. The financial statements
of these subsidiaries, associates and jointly controlled entities as of December 31, 2009 and 2008 and for each of the
three years in the period ended December 31, 2009 are available for viewing at the office of the Philippine Securities
and Exchange Commission located at the SEC Building, EDSA, Greenhills, Mandaluyong City, or at these
companies’ respective principal places of business.
This section also includes discussion of financial ratios. These financial ratios are unaudited and are not
measurements of profitability in accordance with Philippine Financial Reporting Standards (“PFRS”) and should not
be considered as an alternative to net income or any other measure of performance which are in accordance with
PFRS.
FOR TWELVE MONTHS ENDED DECEMBER 31, 2009
Ayala Corporation generated consolidated revenues of P
= 76.3 billion in 2009, P
= 2.8 billion or 4% lower than
prior year’s P
= 79.1 billion. The decline was attributed to the slight drop in consolidated sales and services
and a P
= 1.6 billion decline in other income as 2008 included gains from the sale of certain assets at the
holding company level as well as from Ayala Land’s land sales. Consolidated sales and services, which
comprised 82% of consolidated revenues, dropped by 2% as a result of lower sales from the real estate
(Ayala Land, Inc.) and electronics manufacturing units (Integrated Micro-Electronics, Inc. - IMI).
ALI recorded lower revenues in 2009 mainly due to a decline in its construction and support businesses
as it wound down external projects. Residential revenues dipped by 6% to P
= 14.2 billion versus prior year
due to lower bookings. With GDP growth slowing in 2009, residential launches were deliberately held
back during the year. This was, however, partly offset by construction accomplishment in its existing
projects as well as a significant improvement in its leasing business in both commercial centers and office
spaces. In all, ALI’s revenues declined by 10% to P
= 30.5 billion in 2009 from P
= 33.7 billion in 2008.
Impacted by the slowdown in the global electronics industry as a result of the financial crisis, IMI’s
revenues dipped by 7% to $18.9 billion due to the slowdown in operations of major customers of IMI
Philippines and IMI Singapore. Revenues from several other customers dropped due to reduced
customer demand and material shortages. In particular, revenues from a key Japanese original
equipment manufacturer (OEM) in the optical disc drive (ODD) industry decreased significantly as market
demand softened. Also, IMI’s decision to set aside its planned volume expansion for a key European
automotive electronics OEM also impacted revenues in the short-term.
The decline in consolidated revenues was partly mitigated by higher sales of the automotive unit (Ayala
Automotive) and the business process outsourcing (BPO) units (Integreon and Affinity Express) which
scaled up operations with several add on acquisitions.
Ayala Automotive recorded higher car sales in 2009 (11,394 units in 2009 vs. 10,324 units in 2008) due to
the strong sales of the new Honda City. Honda Cars sold 4,516 Honda City units which is 53% of the total
dealership sales. This was, however, partly offset by the decrease in sales of Isuzu Automotive
Dealerships.
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MD&A
Revenues from BPO units also increased mainly due to Integreon’s acquisition of Onsite, although this
was partly offset by the decrease in graphics revenue of Affinity Express given the generally weak US
economic conditions.
The decline in consolidated sales and services was partly compensated for by the stable equity earnings
from associates and jointly controlled entities, which reached P
= 7.4 billion, the same level as the prior
year. Higher net income from the telecom (Globe Telecom), banking (Bank of the Philippine Islands), and
water distribution units (Manila Water Co., Inc.) despite the economic slowdown resulted in strong equity
earnings.
Globe Telecom posted 11% increase in net income to P
= 12.6 billion in 2009 with core net income of
P
= 12.0 billion slightly higher than the P
= 11.8 billion posted in 2008. Service revenues were flat at P
= 62.4
billion. The 4% decline in the consumer wireless business was offset by gains in the broadband business,
which rose by 74% to P
= 3.3 billion and fixed line data business, which increased by 23% to P
= 3.0 billion. As
competition in the wireless industry intensified, Globe stepped up efforts to maintain its proportional share
of revenues by focusing on continued expansion of its broadband business. Actual EBITDA was 3% lower
than 2008 due to the overall decline in service revenues and higher subsidies as it ramped up its
broadband business. EBITDA margin, however, remains high at 57% while return on equity improved to
25.7% from 21.4% in 2008. In 2009, Globe increased its target dividend yield from 70% to between 75%
and 90% of prior year’s net income as it remains committed to achieving its optimal capital structure.
Bank of the Philippine Islands (BPI) posted significantly higher net income for the year, up 33% to P
= 8.5
billion on the back of good revenue and business volume growth. Higher securities trading gains of P
= 1.4
billion versus a P
= 478 million loss in 2008 also contributed to earnings growth. Net interest income
increased by P
= 1.94 billion. While overall net loans grew by only 2% as multinationals and top tier
corporations paid down loans and took advantage of the liquidity and availability of funding in the capital
markets, consumer and middle market loan growth was robust. Credit card receivables increased by
16%, SME loans by 11%, consumer loans by 10%, and local middle market names by 9%. While loans
grew, BPI managed to improve its asset quality to a year-low non-performing loan ratio of 2.8%. BPI also
retained its strength in the remittance business which increased by 15%, outpacing the industry’s 5%
growth. This allowed BPI to capture 20% of the overseas Filipino remittance market. With improved
earnings, BPI’s return on average equity likewise increased to 13%.
Manila Water continued its strong performance by posting 16% growth in net income attributable to equity
holders of MWC to P
= 3.2 billion on the back of higher revenue and continued improvement in operating
efficiency. Revenues increased by 7% to P
= 9.5 billion due to higher tariff and water volume sales. The
water utility reduced non-revenue water to 15.8%, a remarkable accomplishment from over 25% system
losses in 2007, and posted collection efficiency of 100%. It also ramped up its wastewater initiatives,
increasing sewer connections from 68,000 to 177,000 households, stepping up desludging services from
188,000 households to 291,000, and completing one sewage treatment plant while beginning
construction of two more. Total cost and expenses were well managed, growing only by 8% despite water
and wastewater expansion activities. Return on equity remained stable at 18%. The year 2009 was
marked by Typhoon Ondoy and the damage it inflicted. Manila Water played a vital role in effective
disaster management with 100% water supply restoration after a week of round-the clock operations
following the calamity. Ondoy created additional expenses but had no major impact on the water utility’s
bottomline. Collection was staggered in affected areas but comprised only 10% of the revenue base.
Consolidated costs and expenses declined in line with the contraction in consolidated revenues.
Consolidated cost and expenses fell by 3% to P
= 63.8 billion from P
= 66.0 billion the prior year. Costs of
sales and services, which accounted for 77% of consolidated costs and expenses dipped by 1% to P
= 49.3
billion from P
= 50.0 billion the prior year. This was mainly a result of the decline in cost of sales and
services at ALI, which was in line with the fall in revenues, and IMI’s lower manpower costs due to the
redundancy program implemented in 2009 as well as lower sub-contracting and inventory costs. General
and administrative (G&A) expenses on a consolidated basis also declined by 3% to P
= 9.2 billion with lower
expenses from ALI and IMI.
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MD&A
Consolidated interest expense and other financing charges declined by 23% to P
= 3.8 billion from nearly P
=5
billion the prior year. This was mainly due to the currency-hedging related losses at IMI booked in 2008,
which negated the impact of higher loan levels at ALI and the parent company level.
At the holding company level, interest and financing charges were flat despite the increase in loan levels
as the company actively reduced lowered financing cost over the last few years. Average cost of debt at
the parent level in 2009 has decreased to 5.9% compared to 9.5% three years ago. In 2009 the company
continued to prepay P
= 7.2 billion in debt, replacing these with newly raised funds at lower cost. The parent
company’s net debt has declined substantially to P
= 4.3 billion from P
= 8.7 billion in 2008 and a high of P
= 36.2
billion in 2004, allowing it to maintain a very comfortable net debt to equity ratio of 0.04 to 1. Likewise, on
a consolidated basis, the company is in a very comfortable financial position with consolidated net debt to
equity at 0.06 to 1.
Consolidated net income attributable to equity holders of the parent for the full year 2009 reached P
= 8.2
billion at par with prior year’s level despite a much more challenging economic environment.
ALI recorded 16% lower net income attributable to equity holders of ALI of P
= 4.0 billion from P
= 4.8 billion
last year, which includes gains from the sale of an asset in 2008. Excluding the one-off gain, however, net
income attributable to equity holders of ALI contracted only 2% year-on-year. IMI managed to post 160%
growth in net income attributable to equity holders of IMI to US$10.1 million. The jump in income can be
primarily attributed to non-recurring items--fire insurance gain of US$5.0 million in 2009 coupled with
hedging losses of US$33.4 million in 2008. Net income attributable to equity holders of IMI without nonrecurring items in 2009 was US$5.0 million.
Significant improvement in Ayala’s BPO units also underpinned the stability in consolidated earnings this
year. While LiveIt recorded net loss of P
= 565 million for 2009, this was better than the P
= 948 million loss in
2008. Income from an US$8.8 million gain on the eTelecare share exchange and a US$4.9 million gain
from the Integreon-Onsite bargain purchase more than offset the unbudgeted acquisition expenses for
Stream and Integreon. Affinity’s significant improvement in financial results also contributed to LiveIt’s
improved bottomline.
International real estate arm, AG Holdings, recorded a net loss of P
= 433 million, as the U.S. economic
meltdown continued to impose provisions for assets in North America. Asian operations remained solid
with ARCH Capital Management posting profit in 2009. Projects in Thailand, China and Macau did better
than or as expected. Take-up for three Thai projects ranged between 61% and 86%. In China, Phase I
take-up was 44% for apartments and 58% for villas. The Macau project’s master layout secured
government approval.
In summary, while net earnings were flat in 2009, impacted by various factors both external and internal,
the company maintains a healthy financial and liquidity position across the group. Debt and debt to equity
ratios are at very comfortable levels, cash resources are sufficient to pursue the respective growth
agenda of each of the operating units, and solvency and liquidity ratios are well within comfortable limits.
As recovery presumably commenced in the second half of 2009, a gradual recovery is expected in 2010.
While there remain uncertainties in the economic environment, it is expected that each of the operating
units will bounce back in strong fashion given their strong financial and market positions and growth
initiatives set in place.
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MD&A
Key performance indicators of the Company and its significant subsidiaries
The table sets forth the comparative key performance indicators of the Company and its significant
subsidiaries.
Ayala Corporation (Consolidated)
(In million pesos, except ratios)
Revenue
Net Income Attributable to Equity Holders of the Parent
Total Assets
Total Debt
Equity Attributable to Equity Holders of the Parent
1
Current Ratio
2
Debt to Equity Ratio
2009
76,293
8,154
232,479
56,523
102,260
2.57
0.55
2008
79,108
8,109
220,188
54,484
97,311
2.52
0.56
2007
78,767
16,257
196,131
50,032
86,887
1.92
0.58
Ayala Land, Inc. (Consolidated)
(In million pesos, except ratios)
Revenue
Net Income Attributable to Equity Holders of ALI
Total Assets
Total Debt
Equity Attributable to Equity Holders of ALI
1
Current Ratio
2
Debt to Equity Ratio
2009
30,455
4,039
108,071
18,812
52,392
1.95
0.36
2008
33,749
4,812
100,589
16,752
49,028
1.88
0.34
2007
25,707
4,386
82,981
10,139
45,705
1.65
0.22
Integrated Micro-Electronics, Inc. (Consolidated)*
2009
2008
(In thousand US dollars, except ratios)
Revenue
395,502
441,145
Net Income Attributable to Equity Holders of IMI
10,066
(16,830)
Total Assets
302,082
306,958
Total Debt
48,302
71,110
Equity Attributable to Equity Holders of IMI
166,690
159,631
1
1.89
1.70
Current Ratio
2
Debt to Equity Ratio
0.29
0.45
* IMI’s functional currency is US dollars
1
Current Assets divided by Current Liabilities
2
Total of short-term debt and long-term debt divided by the equity attributable to the parent.
2007
422,107
35,693
305,772
71,008
158,152
1.70
0.45
In general, the Company posted strong results with the improvements in most of the performance
indicators. Despite the overall economic slowdown, the above key indicators were within targeted levels.
Net income to equity holders remained stable even with the expected declines in revenues.
The marked improvements in financial position items (total assets, stockholders’ equity and current and
debt to equity ratios) were all result of focused financial management. The Company will continue to
adopt the following benchmarks: a) current ratio of not lower than 0.5:1.0; and b) debt to equity ratio not
to exceed 3.0:1.0, both supported by prudent debt management policies.
There are no known trends, events or uncertainties that will result in the Company’s liquidity increasing or
decreasing in a material way.
There were no events that will trigger direct or contingent financial obligation that is material to the
Company, including any default or acceleration of an obligation.
Likewise, there were no material off-balance sheet transactions, arrangements, obligations (including
contingent obligations), and other relationships of the Company with unconsolidated entities or other
persons created during the reporting period.
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MD&A
In 2008, AYC Holdings, Inc. issued promissory notes and advances to EGS Corp. and EGS Acquisition
Corp. amounting to P4,986.1 million. The advances amounting to P
= 665.3 million is payable in one year
and bear interest at the rate of 12% per annum. The promissory notes amounting to P
= 4,320.8 million is
payable over a period of five years and bear interest at the rate of 12% to 18% per annum. The notes
and advances were partially collected on October 1, 2009. The balance amounting to P
= 1,655.8 million
owed by EGS Corp. was assigned to NewBridge in 2009. As discussed in Note 10 to the consolidated
financial statements, in a stock-for-stock exchange between NewBridge and Stream in 2009, the
advances assigned to NewBridge were effectively converted to Stream shares. The advances of AYC
Holdings to New Bridge are non-interest bearing with a term of one-year.
As of December 31, 2009, the receivables from related parties are generally short-term in nature. The
guarantees provided by Ayala Corp to AYC Finance and Ayala International North America (AINA) to its
subsidiary have been disclosed in Note 34 to consolidated financial statements.
As of December 31, 2009, the payables to related parties are non-interest bearing. P
= 105 million of the
payables to related parties are current and classified under Accounts Payable and Accrued Expenses.
The majority of the non-current payables to related parties are payable within 1 – 2 years. The maturity
profile of the Group’s financial liabilities are presented in Note 30 to the consolidated financial statements.
At the holding company level, Ayala Corp. has allocated P
= 7 billion for identified capital expenditure
projects in 2010. The Company is prepared to increase this should there be strategic opportunities to
expand. The Company has sufficient internal cash, which amounted to P
= 26 billion as of year-end 2009.
There are no seasonal aspects that may have a material effect on the financial condition of the Company.
Causes for any material changes
(Increase or decrease of 5% or more in the financial statements)
Balance Sheet items
(December 31, 2009 Vs December 31, 2008)
Cash and cash equivalents – 6% increase from P
= 42,886mln to P
= 45,657mln
Dividends received net of dividends paid, proceeds from new loans availed and disbursements to fund
various investments by the parent company partly offset by the placements by the real estate group in
short-term investments. As a percentage to total assets, cash and cash equivalents slightly increased
from 19% to 20% as of December 31, 2008 and December 31, 2009, respectively.
Short-term investments – 352% increase from P
= 1,009mln to P
= 4,561mln
Higher money market placements with maturity of more than 3 months up to 6 months by the real estate
group. As a percentage to total assets, short-term investments is at 2% as of December 31, 2009 and
0.5% as of December 31, 2008.
Current accounts and notes receivable – 8% increase from P
= 23,284mln to P
= 25,233mln
Higher trade receivables by the real estate, automotive, international and electronics, information
technology and business process outsourcing services groups. As of December 31, 2009 and December
31, 2008, current accounts and notes receivable remained at 11% of the total assets.
Inventories – 8% increase from P
= 10,011mln to P
= 10,797mln
Increase due to new developments and projects of the real estate group and higher vehicles inventory of
the automotive group partly offset by lower inventory of the electronics, information technology and
business process outsourcing services groups. This account remained at 5% of the total assets as of
December 31, 2009 and December 31, 2008, respectively.
127
MD&A
Other current assets – 8% decrease from P
= 7,090mln to P
= 6,547mln
Largely due to matured government securities and lower prepaid expenses partly offset by investment in
fixed income securities of the real estate group. This account remained at 3% of the total assets as of
December 31, 2009 and December 31, 2008.
Noncurrent accounts and notes receivable – 60% decrease from P
= 6,694mln to P
= 2,658mln
Payment of advances by an associate of the electronics, information technology and business process
outsourcing services group partly offset by higher receivables of the real estate group. Noncurrent
accounts and notes receivable is at 1% and 3% of the total assets as of December 31, 2009 and
December 31, 2008.
Land and improvements – 12% increase from P
= 15,757mln to P
= 17,583mln
Attributable to land acquisitions and incidental costs related to site preparation and clearing of various
properties of the real estate group. This account is at 8% of the total assets as of December 31, 2009 and
7% as of December 31, 2008.
Investments in associates and jointly controlled entities – 5% increase from P
= 68,140mln to P
= 71,557mln
Investments in associates and jointly controlled entities account includes the Company’s and its
subsidiaries’ investments in various associates which are being accounted for under the equity method.
These associates are Bank of the Philippine Islands, Globe Telecom and Manila Water Corporation,
among others.
The increase is due to the equity share in net earnings of the associates and joint ventures and additional
investments in 2009. This account is at 31% of the total assets as of December 31, 2009 and December
31, 2008.
Investment in bonds and other securities – 16% increase from P
= 3,065mln to P
= 3,543mln
Primarily due to improved market prices of securities held by the group, new investments in fixed income
securities of the real estate group and new investments of the international group. This account is at 2%
of the total assets as of December 31, 2009 and 1% as of December 31, 2008.
Investment in real properties – 36% increase from P
= 21,345mln to P
= 29,090mln
Primarily due to the completion of malls and buildings owned by the real estate group. As a percentage
to total assets, investment in real properties is at 13% and 10% as of December 31, 2009 and December
31, 2008, respectively.
Property, plant and equipment – 44% decrease from P
= 13,885mln to P
= 7,772mln
Reclassification of the real estate group’s operational and completed buildings to investment in real
properties account and 2009 depreciation expense of the electronics, information technology and
business process outsourcing services group. As of December 31, 2009 and December 31, 2008, the
group’s property, plant and equipment account is at 3% and 6% of the total assets, respectively.
Deferred tax assets – 23% increase from P
= 1,133mln to P
= 1,396mln
Due to higher unrealized sales collection by the real estate group. As of December 31, 2009 and
December 31, 2008, this account remained at 1% of the total assets.
Pension assets – 13% increase from P
= 117mln to P
= 132mln
Increase in pension assets of the electronics, information technology, business process outsourcing
services group. This account is at 0.06% and 0.05% of the total assets as of December 31, 2009 and
December 31, 2008, respectively.
Intangible assets – 19% increase from P
= 3,865mln to P
= 4,612mln
Excess of the acquisition cost over the fair value of the identifiable assets and liabilities of companies
acquired by the electronics, information technology and business process outsourcing services group in
2009. As of December 31, 2009 and December 31, 2008, this account remained at 2% of the total assets.
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MD&A
Other noncurrent assets – 30% decrease from P
= 1,906mln to P
= 1,342mln
Partly caused by amortization of project development cost of the electronics information technology and
business process outsourcing services group. Other noncurrent assets remained at 1% of the total
assets as of December 31, 2009 and December 31, 2008.
Income tax payable – 136% increase from P
= 215mln to P
= 506mln
Higher taxable income of the real estate and electronics, information technology and business process
outsourcing services groups. As a percentage to total liabilities, this account is at 1% and 0.2% as of
December 31, 2009 and December 31, 2008, respectively.
Current portion of long-term debt – 66% increase from P
= 1,479mln to P
= 2,453mln
Largely due to the reclassification of the parent company’s and real estate group’s current maturing loans
from long-term debt. As of December 31, 2009 and December 31, 2008, current portion of long-term debt
is at 3% and 2% of the total liabilities, respectively.
Other current liabilities – 82% increase from P
= 1,554mln to P
= 2,822mln
Increase in customers’ deposits by the real estate group. Other current liabilities account is at 3% and
2% of the total liabilities as of December 31, 2009 and December 31, 2008, respectively.
= 186mln to P
= 207mln
Deferred tax liabilities – 12% increase from P
Decrease in corporate tax rate from 35% to 30% beginning January 1, 2009. As a percentage to total
liabilities, this account is at 0.2% as of December 31, 2009 and December 31, 2008.
Pension liabilities – 53% decrease from P
= 491mln to P
= 228mln
Largely due to the adjustment made to reflect the latest actuarial valuation of the parent company and
real estate group. This account is at 0.2% and 0.5% of the total liabilities as of December 31, 2009 and
December 31, 2008, respectively.
Other noncurrent liabilities – 20% increase from P
= 7,588mln to P
= 9,109mln
Largely due to increase in construction and security deposits of the real estate group. As a percentage
to total liabilities, this account slightly increased from 8% to 9% as of December 31, 2008 and December
31, 2009, respectively.
= 705mln to P
= 1,060mln
Share-based payments – 50% increase from P
Increase in share-based payments of the electronics, information technology and business process
outsourcing services group.
Retained earnings – 7% increase from P
= 61,604mln to P
= 65,739mln
Increase is due to the 2009 net income net of dividends declared for the year.
Cumulative translation adjustment – 39% decrease from (=
P969mln) to (=
P1,351mln)
Mainly due to forex rate changes.
Net unrealized gain on available-for-sale financial assets – 120% increase from (=
P613mln) to P
= 124mln
Mainly due to improvement in the market prices of securities held by the group.
Noncontrolling interest – 7% increase from P
= 30,876mln to P
= 33,158mln
Increase is due to the Noncontrolling interests’ share in 2009 net income.
Income Statement items
(YTD December 31, 2009 Vs YTD December 31, 2008)
Interest income – 11% increase from P
= 2,243mln to P
= 2,497mln
Due to higher investible funds in 2009 by the parent company. This account remained at 3% of the total
revenue in 2009 and 2008.
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MD&A
Other income – 30% decrease from P
= 5,417mln to P
= 3,809mln
Substantially lower capital gains from share sales in 2009 as compared to 2008. Last year also includes
the real estate group’s capital gain on sale of 3 subsidiaries namely, Piedmont Property Ventures, Inc.,
Stonehaven Land, Inc. and Streamwood Property, Inc.
Decrease is partly offset by the gain on
exchange of shares by the electronics, information technology, business process outsourcing services
group. This account is 5% and 7% of the total revenue in 2009 and in 2008, respectively.
Interest and other financing charges – 23% decrease from P
= 4,937mln to P
= 3,822mln
Largely due to cost of unwinding the hedge contract of the electronics, information technology, business
process outsourcing services group in 2008 offset partially by higher debt level of the real estate group in
2009. This account is 6% of the costs and expenses in 2009 and 7% in 2008.
= 1,595mln- to P
= 1,435mln
Other charges – 10% decrease from P
Mainly due to the provisions for various assets of the real estate group. This account is 2% of the costs
and expenses in both 2009 and 2008.
Provision for income tax – 30% decrease from P
= 2,418mln to P
= 1,699mln
Primarily due to lower taxable income of the real estate group and reduction of income tax rate from 35%
to 30% beginning January 1, 2009.
FOR TWELVE MONTHS ENDED DECEMBER 31, 2008
Ayala Corporation generated consolidated revenues of P
= 79.1 billion in 2008, P
= 341.8 million higher
compared to prior year’s consolidated revenues of P
= 78.8 billion. While consolidated sales and services
posted healthy growth and rose by 13% to P
= 64.1 billion, this was partly offset by lower equity earnings
from associates and jointly controlled entities as well as lower capital gains realized during the year.
Consolidated sales and services mainly contributed 81% of Ayala’s consolidated revenues. Revenues of
the real estate, electronics, and business process outsourcing (BPO) businesses continued to post
healthy growth during the year.
Despite the global economic crisis that continue to threaten appetite for real estate products, ALI posted
good top-line growth across its major business segments, with residential revenues up 18%, revenues
from its commercial centers up 3%, and corporate business revenues up by 10%. Its support business in
construction also posted very strong growth with the completion of several new projects. ALI posted
record earnings of P
= 4.8 billion in 2008, 10% higher than the prior year.
The electronics business under Integrated Microelectronics, Inc. (IMI) posted a 5% growth in revenues in
US dollar terms with half of the revenues contributed by its operations in Singapore and China which rose
by 13% versus last year. This offset the 3% decline in Philippine and US operations. IMI’s expansion of
business with a leading Chinese telecommunications company and the generation of ten new customer
programs helped cushion the slowdown in the global electronics sector. IMI’s operating income remained
positive at US$17 million, however, a non-recurring loss from currency hedging contracts as well as a
one-time provision for manpower expenses and inventory obsolescence expenses resulted to a US$17
million loss in 2008. Excluding these non-recurring items, IMI’s net income would have reached US$32
million.
On a combined basis, the investee companies of LiveIt, Ayala’s BPO investment arm, recorded revenue
growth in US dollar terms of 15%, and achieved revenues of US$344.1 million and EBITDA of US$30.2
million in 2008, LiveIt’s second full year of operations. The BPO units further diversified their client base in
2008 with eTelecare winning 11 new clients and 31 new programs, Integreon adding 14 new customers
across the corporate, legal and financial services sectors, and Affinity Express now serving over 140
publications of seven of the top 25 newspaper companies in the US. However, they posted a combined
net loss, of which LiveIt’s share was P
= 874 million, due primarily to factors such as one-time non-recurring
expenses related to the eTelecare tender offer, non-cash accounting charges, such as stock
compensation expenses and the amortization of intangibles related to the investments in investee
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MD&A
companies, and unfavorable foreign exchange forward contracts that eTelecare entered into. LiveIt,
together with Providence Equity Partners, completed the tender offer for eTelecare’s common shares and
American Depositary Shares last December resulting in the acquisition of 98.7% of eTelecare’s shares.
Overall, the company remains positive about the growth trajectory of the BPO sector. Ayala expects that,
as in past recessions, outsourcing will continue to grow in the short term but at a slower pace, and then
will experience accelerating growth in the medium to long term, as companies intensify their cost-cutting.
Lower equity earnings from associates and jointly controlled entities as well as lower capital gains during
the year altogether capped growth of consolidated revenues. Equity earnings from associates declined by
24% to P
= 7.4 billion from P
= 9.8 billion due to lower net income of its telecom and banking units as well as a
net loss recorded by its international real estate operations under AG Holdings.
Telecom unit under Globe Telecom posted a 15% decline in net income in 2008 to P
= 11.3 billion. While it
continued to experience strong wireless subscriber growth as well as ramping up of broadband
subscribers, capital investments to support the broadband technology platform and a more intensely
competitive market environment impeded margin expansion. Globe Telecom’s revenues, however,
remained steady even amidst slowing domestic consumption. Consolidated service revenues reached P
=
62.9 billion from P
= 63.2 billion the prior year. Wireless revenues were flat amidst a 22% growth in its
subscriber base while revenues from its wireline business increased by 7%, driven by its corporate data
and broadband businesses. Globe’s broadband subscriber base grew by 84% in 2008 with the highest
net adds noted in the fourth quarter. Higher operating expenses capped EBITDA but EBITDA margin
remained high at 58% as costs arising from broadband investments lowered margins. Wireless EBITDA
margin continues to be robust at 65% while wireline EBITDA margins have been under pressure given
the dynamics of the start-up broadband business. Despite lower earnings this year, Globe’s free cash
flow remains strong. It recently declared its first semi-annual cash dividend of P
= 32 per share, which puts
Globe among the highest in dividend yields in the Philippine Stock Exchange.
Banking unit under Bank of the Philippine Islands, also posted lower net income which fell by 36% to P
= 6.4
billion as revenues fell due to a decline in securities trading income and a decline in the contribution of the
insurance company due largely to non-recurring investment income. BPI, achieved good business volume
growth. Net loans expanded by an unprecedented 17%, driven by strong demand from corporate and
retail consumers. This was the second straight year BPI posted double-digit loan growth. Despite the
growth in loans, asset quality continued to improve with net 30-day non-performing loans ratio down to
3.0%. BPI’s deposit base expanded by 5% to hit P
= 540 billion by year-end, with total customer funds and
assets held in trust up by 8.9%. The bank’s remittance business also saw strong growth, up 35%, with
volume reaching US$4.4 billion, significantly outpacing the industry’s 15%. BPI’s capital adequacy ratio of
14.2% remains well above the 10% regulatory minimum. Last December, the bank successfully issued P
=5
billion in 10-year subordinated debt eligible as Lower Tier 2 capital in anticipation of possible acquisition
opportunities.
International real estate arm, AG Holdings, recorded a net loss of US$7.1 million mainly due to an
extraordinary loss for provisions arising from a deemed impairment on a trading security. In addition, last
year’s earnings also included a gain from the sale of The Forum in Singapore.
Altogether, these offset the higher equity earnings from its water distribution business, Manila Water,
which posted a 7% growth in net income to P
= 2.8 billion on the back of higher water sales volume
complemented by further improvements in the company’s operating efficiency. Manila Water pursued an
intensive capex program, spending a total of P
= 4.2 billion in 2008 as it accelerated the implementation of
expansion projects and invested in new systems and processes. Billed volume went up by 4% to 387
million cubic meters as Manila Water expanded its customer base by 46,765 new household connections.
In addition, the company managed to further reduce system losses by 6 percentage points to 19.6% from
over 25% last year and from a high of 63% in 1997. This is the first time that Manila Water has brought its
level of water losses to below 20%, which is significantly better than most of the company’s regional
counterparts. The company also began construction on a number of sewerage treatment plants in 2008,
with the aim of bringing sewerage coverage to 30% by 2012 from the present level of 16% for the East
Zone.
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MD&A
Lower capital gains realized during the period pushed Other Income on a consolidated basis 50% lower
to P
= 5.4 billion from P
= 10.7 billion in 2007. Significantly higher capital gains were realized in 2007 as the
company took advantage of the much higher market prices prevailing at that time to realize values from
some of its investments.
Consolidated costs and expenses outpaced revenue growth and rose by 13% to P
= 66.0 billion. Costs of
sales and services, which accounted for 76% of consolidated costs and expenses, rose by 16% to P
= 50.0
billion from P
= 43.2 billion the prior year. This was broadly in step with the increase in consolidated sales
and services and also a result of higher cost of sales, particularly at the electronics unit with higher cost of
inventories.
General and administrative (G&A) expenses on a consolidated basis was flat relative to last year at P
= 9.5
billion. Higher G&A expenses in ALI was offset by lower G&A expenses at the parent company level and
in the electronics unit.
Consolidated interest expense and other financing charges increased by 20% to P
= 4.9 billion in 2008 from
P
= 4.1 billion in 2007. This was mainly due to currency-hedging related losses at IMI. Excluding this,
consolidated interest and financing charges decreased by 16% to P
= 3.5 billion.
At the holding company level, however, interest and financing charges continued to decline and has
consistently declined over the past few years as the company actively reduced debt levels and lowered
financing cost. Average cost of debt at the parent level in 2008 has decreased by over 200 basis points to
7.4% compared to 9.5% two years ago. In 2008 the company also prepaid debt and replaced these with
newly raised funds at lower cost. The parent company’s net debt has declined substantially to P
= 8.7 billion
from a high of P
= 36 billion in 2004, allowing it to maintain a very comfortable net debt to equity ratio of 0.09
to 1. Likewise, on a consolidated basis, the company is in a very comfortable financial position with
consolidated net debt to equity at 0.11 to 1.
While net earnings were impacted this year by various factors both external and internal, the company
maintains a healthy financial and liquidity position across the group. Debt and debt to equity ratios are at
very comfortable levels, cash resources are sufficient to pursue the respective growth agenda of each of
the operating units, and solvency and liquidity ratios are well within comfortable limits.
Amidst the height of the credit crisis last year, all of Ayala’s business units combined were able to raise P
=
23 billion in funds in the second half of last year, from August to December, effectively securing funding
requirements for 2009. This began with ALI’s P
= 4 billion five-year fixed rate bond in August, IMI’s P
= 1.3
billion preferred share offering to its shareholders, Manila Water’s P
= 4 billion five-year fixed rate bond in
October, Ayala Corp.’s issuance of perpetual preferred shares in November and BPI’s tier-2 capital
raising in December. Globe also recently announced that it will also be issuing P
= 3 billion retail bonds in
the first quarter of 2009.
No doubt 2009 will be more challenging across all fronts as the full extent of the global financial crisis
unfolds. While the company maintains a generally cautious stance given the current environment, it is
expected that each of the operating units will remain resilient, achieve steady top-line performance and
continue to contribute positive earnings in the coming year.
Material Changes in the 2008 Financial Statements
(Increase/Decrease of 5% or more in the Financial Statements)
Balance Sheet items
(December 31, 2008 Vs December 31, 2007)
Cash and cash equivalents – 16% increase from P
= 36,836mln to P
= 42,886mln
Dividends received net of dividends paid, proceeds from sale of shares and issuance of preferred shares
partly offset by loan repayments and disbursements to fund various investments by the parent company,
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MD&A
issuance of bond and proceeds from sale of shares in Piedmont Property Ventures, Inc., Stonehaven
Land, Inc. and Streamwood Property, Inc. by the real estate group and proceeds from the issuance of
preferred shares by the electronics, information technology and business process outsourcing services
group. As a percentage to total assets, cash and cash equivalents remained 19% as of December 31,
2007 and December 31, 2008, respectively.
Short-term investments – 73% decrease from P
= 3,688mln to P
= 1,009mln
Parent company’s money market placements were converted to cash and cash equivalents and lower
investment management account by the real estate group. As a percentage to total assets, short-term
investments are at 2% of the total assets as of December 31, 2007 and 0.5% as of December 31, 2008.
Accounts and notes receivable-current – 38% increase from P
= 16,823mln to P
= 23,284mln
Increase in advances to contractors and suppliers and reclassification of a subsidiary’s receivables from
non-current receivables by the real estate group, advances to fund new investments by the international
group and parent company, higher receivables by the electronics, information technology and business
process outsourcing services group. As of December 31, 2008 and December 31, 2007, accounts and
note receivable is at 11% and 9% of the total assets, respectively.
Inventories – 13% increase from P
= 8,843mln to P
= 10,011mln
Development costs for new and existing real estate projects by the real estate group. The automotive
group however, has a lower inventory level in 2008 due to lower demand. As a percentage to total assets,
inventories remained at 5% as of December 31, 2007 and December 31, 2008.
Other current assets – 99% increase from P
= 3,571mln to P
= 7,090mln
Largely due to increase in FVPL financial assets, higher prepaid expenses, inventory of supplies and
creditable withholding tax by the real estate group. This account is at 2% and 3% of the total assets as
December 31, 2007 and December 31, 2008, respectively.
Noncurrent accounts and notes receivable – 67% increase from P
= 4,010mln to P
= 6,694mln
Largely due to advances for investments by the parent company. Noncurrent accounts and notes
receivable slightly increased from 2% of the total assets as of December 31, 2007 to 3% as of December
31, 2008.
= 2,493mln to P
= 3,065mln
Investment in bonds and other securities – 23% increase from P
New investments by the parent company and increase in value of investments owned by the international
group partly offset by the sale of investments and decrease in marked to market valuation of investments
by the electronics, information technology and business process outsourcing services group. This
account is 1% of the total assets as of December 31, 2007 and December 31, 2008.
Investment in real properties – 23% increase from P
= 17,416mln to P
= 21,345mln
Primarily due to disbursements related to construction of buildings owned by the real estate group. As a
percentage to total assets, investment in real properties is at 9% and 10% as of December 31, 2007 and
December 31, 2008, respectively.
Property, plant and equipment – 63% increase from P
= 8,493mln to P
= 13,885mln
Real estate group’s disbursements for on-going projects and acquisition of an aircraft by a subsidiary. As
of December 31, 2007 and December 31, 2008, the group’s property, plant and equipment account is at
4% and 6% of the total assets, respectively.
Deferred tax assets – 15% increase from P
= 984mln to P
= 1,133mln
Due to higher recognized sales by the real estate group. As of December 31, 2008 and December 31,
2007, the group’s deferred tax asset remained at 0.5%of the total assets, respectively.
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MD&A
Pension assets – 16% decrease from P
= 141mln to P
= 117mln
Decrease in pension assets of the electronics, information technology, business process outsourcing
services group. This account remained at 0.1% of the total assets as of December 31, 2007 and
December 31, 2008.
Intangible assets – 18% increase from P
= 3,276mln to P
= 3,866mln
Additional intangible assets, higher peso exchange rate partly offset by amortization of intangible assets
in 2008 by the electronics, information technology and business process outsourcing services group and
goodwill arising from the acquisition of new subsidiaries by the real estate group. As a percentage to total
assets, this account remained 2% as of December 31, 2007 and December 31, 2008.
Other noncurrent assets – 9% decrease from P
= 2,087mln to P
= 1,906mln
Mainly due to prepaid items charged to various projects by the real estate group. As a percentage to total
assets, this account remained at 1% as of December 31, 2007 and December 31, 2008.
Accounts payable and accrued expenses – 23% increase from P
= 22,261mln to P
= 27,484mln
Increase in accrual of salaries, equipment rental and cost of materials by the real estate group and trade
payables and accrual of personnel related expenses by the electronics, information technology, business
process outsourcing services group partly offset by lower inventory pull-outs by the automotive group. As
of December 31, 2007 and December 31, 2008, this account is at 27% and 30% of the total liabilities,
respectively.
Short-term debt –5% increase from P
= 2,634mln to P
= 2,755mln
Loans availed by the international and electronics, information technology, business process outsourcing
services groups partly offset by partial payments of loans by the real estate and automotive groups. As of
December 31, 2007 and December 31, 2008, this account remained at 3% of the total liabilities.
= 286mln to P
= 215mln
Income tax payable – 25% decrease from P
Higher creditable withholding tax recognized by the real estate group. As a percentage to total liabilities,
this account is at 0.35% and 0.23% as of December 31, 2007 and December 31, 2008, respectively.
Current portion of long-term debt – 84% decrease from P
= 9,513mln to P
= 1,479mln
Decrease is due to the partial payment of loans by the parent company and the real estate group. As of
December 31, 2007 and December 31, 2008, this account is at 12% and 2% of the total liabilities,
respectively.
Long-term debt – 33% increase from P
= 37,885mln to P
= 50,250mln
Issuance of fixed rate bonds by the real estate group and new loans availed by the parent company net of
repayments. As a percentage to total liabilities, this account is at 46% as of December 31, 2007 and 55%
as of December 31, 2008.
Deferred tax liabilities – 19% increase from P
= 156mln to P
= 186mln
Mainly from operations of the real estate group. As a percentage to total liabilities, this account remained
at 0.2% as of December 31, 2007 and December 31, 2008.
Pension liabilities – 8% decrease from P
= 532mln to P
= 491mln
Largely due to adjustment made to reflect latest actuarial valuation of the real estate group. This account
remained at 1% of the total liabilities as of December 31, 2007 and December 31, 2008.
Other noncurrent liabilities – 11% increase from P
= 6,818mln to P
= 7,588mln
Mainly due to increase in customer and security deposits, deferred interest income on advances and
unearned management fees of the real estate group. This account remained constant at 8% of the total
liabilities as of December 31, 2007 and December 31, 2008.
Paid-up capital – 39% increase from P
= 26,855mln to P
= 37,252mln
Largely due to the 20% stock dividend and issuance of preferred shares in 2008.
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MD&A
Share-based payments – 17% increase from P
= 604mln to P
= 705mln
Increase in stock options granted.
P2,297mln) to (=
P969mln)
Cumulative translation adjustment – 58% decrease from (=
Mainly due to forex rate changes.
Retained earnings – 2% increase from P
= 60,173mln to P
= 61,604mln
Attributable to 2008 net income net of cash and stock dividends declared.
= 1,712mln to (=
P631mln)
Net unrealized gain on available-for-sale financial assets – 137% decrease from P
Due to lower revaluation of investments in securities.
Parent company preferred shares held by a subsidiary – 100% increase from -0- to P
= 100mln
Parent company preferred shares held by the real estate group
= 160mln to P
= 551mln
Treasury shares – 245% increase from P
Due to buy-back of shares.
= 27,609mln to P
= 30,876mln
Noncontrolling interest – 12% increase from P
Largely due to share of minority holders in 2008 net income.
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MD&A
Income Statement items
(YTD December 31, 2008 Vs YTD December 31, 2007)
Sales and services – 13% increase from P
= 56,578mln to P
= 64,053mln
Primarily due to higher revenues from residential, strategic landbank, construction, shopping centers and
corporate businesses of the real estate group, higher sales by the electronics, information technology and
business process outsourcing services group partly offset by lower revenue from the automotive group.
Sales and services contributed 72% of the total revenue in 2007 and 81% in 2008.
Equity in net earnings of associates and joint ventures – 24% decrease from P
= 9,767mln to P
= 7,396mln
Largely due to lower equity earnings generated from the associates of the parent company and the
international group.
This account is 12% and 9% of the total revenue in 2007 and in 2008, respectively.
Interest income – 32% increase from P
= 1,693mln to P
= 2,243mln
Due to higher investible funds in 2008.
This account is 2% of the total revenue in 2007 and 3% in 2008.
= 10,728mln to P
= 5,417mln
Other income – 50% decrease from P
Largely due to lower capital gains and forex gain in 2008 by the parent company. This account is 7% and
14% of the total revenue in 2008 and in 2007, respectively.
Cost of sales and services – 16% increase from P
= 43,169mln to P
= 50,014mln
Relative to higher sales.
Cost of sales and services is 76% and 74% of the total costs and expenses for the period ending
December 31, 2008 and 2007, respectively.
Interest expense and other financing charges – 20% increase from P
= 4,120mln to P
= 4,937mln
Charges on unwinding of hedge contracts by the electronics, information technology and business
process and outsourcing group, increase in loan level by the real estate group, partly offset by lower
interest expense due to lower loan levels and prudent debt management by the parent company. This
account is 7% of the total costs and expenses for the periods December 31, 2008 and 2007, respectively.
Provision for income tax – 23% increase from P
= 1,972mln to P
= 2,418mln
Due mainly to higher taxes paid by the real estate group and the parent company.
FOR TWELVE MONTHS ENDED DECEMBER 31, 2007
Ayala Corporation posted record consolidated revenues and net income in 2007. Despite the
uncertainties looming in global financial markets in the latter part of the year, the domestic operating
environment remained generally positive with economic fundamentals largely remaining intact. The main
drivers of domestic consumption, particularly the robust overseas workers’ remittances, low domestic
interest rate, revival of sectors like power and infrastructure as well as greater activity across several
industries continued to underpin the growth of the Ayala group’s major businesses, particularly in
property, telecom, banking, water, and automotive. However, the peso’s continued strength has also
impacted the export-oriented businesses in the portfolio, particularly in the electronics and business
process outsourcing services. But overall, the company’s growth momentum remained solid this year as
the company also realized values from its portfolio and as operating units achieved generally higher
earnings.
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MD&A
Consolidated revenues reached P
= 78.8 billion, up 12% versus the prior year driven by a healthy growth in
consolidated sales and services, higher equity in net earnings, interest income, and gains from the sale of
shares particularly at the parent level.
Consolidated sales and services increased by 6% to P
= 56.6 billion due mainly to higher unit sales of Ayala
Automotive, higher contribution from the newly acquired companies of the electronics business as well as
the new investments in business process outsourcing (BPO) under LiveIt. Growth, however, was partly
weighed by the marginal revenue growth of the real estate group. While underlying demand across all of
the company’s real estate products remained strong as reflected in strong residential unit sales and high
occupancy rates of its commercial centers and business office portfolio, ALI recorded only a slight
revenue expansion as a result of the standardization of revenue recognition policy, which had the effect of
accelerating its revenues in 2006. Sales and services accounted for 72% of total consolidated revenues
in 2007.
Equity in net earnings of associates and joint ventures reflected an 18% increase to P
= 9.8 billion from P
= 8.2
billion in 2006. The strong earnings growth of the parent company’s key affiliates, particularly Globe
Telecom, which posted a 13% growth in net income, banking unit, Bank of the Philippine Islands (BPI),
which posted an 11% increase in net income, as well as the higher earnings of the associates of ALI
altogether resulted in higher equity earnings for the group. Equity earnings accounted for 12% of the
company’s total revenues in 2007.
Consolidated revenues were further boosted by capital gains which pushed the Other Income account up
by 53% to P
= 10.7 billion. A substantial part of this was generated through value realization initiatives at the
parent level as it recognized P
= 7.3 billion in gains from the sale of shares in ALI, BPI, and Globe as market
values during the year reached attractive levels for value realization.
On the cost side, consolidated cost and expenses increased by 8% to P
= 58.4 billion. A substantial part of
this was due to a 6% increase of consolidated cost of sales and services to P
= 43.2 billion, which was very
much in line with the growth of consolidated sales and services.
General and administrative expenses (GAE), on the other hand, rose by 23% to P
= 9.5 billion stemming
from expenses related to capacity expansion initiatives and amortization expense of the new BPO
businesses, higher manpower and technology integration-related expenses of the electronics group.
Other charges increased by 306% to P
= 1.6 billion as a result of non-cash, non-operating charges from the
impairment loss on goodwill of the electronics, information technology and business process outsourcing
services group, particularly Affinity Express and partly Integreon.
Consolidated interest expense and other financing charges declined by 18% to P
= 4.1 billion from P
= 5 billion
the prior year. This was due to a substantial reduction in average funding costs. At the holding company
level in particular, the continued decline in domestic interest rates has helped reduce financing expense
significantly. Financing expense at the holding company level reached P
= 3 billion in 2007, 26% lower than
the prior year. In 2007 the parent company pre-paid a total of P
= 14 billion worth of debt that had an
average cost of 11.8%. Refinancing with lower cost debt has brought down the average cost of parent
company’s outstanding debt in 2007 to 7.4% from 9.5% the prior year. Net debt at the parent level has
also been substantially reduced and is now down to P
= 13.3 billion, putting parent level net debt-to-equity
ratio even lower at 0.15 to 1 from 0.26 to 1 at the beginning of the year. Even on a consolidated basis,
consolidated debt by year-end 2007 was lower at P
= 50 billion. With cash, cash equivalents and short-term
investments of P
= 40.5 billion, consolidated net debt declined to P
= 9.5 billion from P
= 27.3 billion and
consolidated net debt to equity ratio at 0.11 to 1 from 0.36 to 1. Equity attributable to equity holders of the
parent by year-end reached P
= 86.9 billion, up 13% from the prior year.
Altogether, these put consolidated net income in 2007 at P
= 16.3 billion, which was a 34% increase from
the P
= 12.2 billion consolidated net income attributable to equity holders of the parent recorded in 2006 and
the highest ever recorded by the company.
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MD&A
The healthy earnings growth and strong cash position of the parent company enabled it to further
increase its dividend payout in 2007 with a total of P
= 7.3 billion paid out to shareholders, more than double
the amount the prior year. This is equivalent to 60% of prior year’s net income, inclusive of the 20% stock
dividend, and a dividend yield of 1.4% based on an average price of P
= 558.50 per share. This combined
with the 15.5% gain in the company’ stock price during the year put total return to shareholders at 17% in
2007.
The company’s total market capitalization by year end reached P
= 234 billion and was ranked the second
largest among companies listed in the Philippine Stock Exchange. However, collectively, the market
capitalization of the five listed companies of the group accounted for about 27% of the Philippine Stock
Exchange’s composite index’s total market capitalization.
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MANAGEMENT
Board of Directors
Ayala’s Board has seven members, all of whom are elected by Ayala’s common stockholders at the
stockholders’ annual meeting. The Directors hold office for one year and until their successors are
elected and qualified in accordance with Ayala’s By-Laws.
The Board regularly meets at least on a quarterly basis. It ensures the presence and adequacy of internal
control mechanisms for good governance in accordance with the Company’s Manual of Corporate
Governance. The minimum internal control mechanisms for the Board’s oversight responsibility include,
but are not limited to:
(a) Ensuring the presence of organizational and procedural controls, supported by an effective
management information system and risk management reporting system;
(b) Reviewing conflict-of-interest situations and providing appropriate remedial measures for the same;
(c) Appointing a CEO with the appropriate ability, integrity and experience to fill the role, as well as
defining the CEO’s duties and responsibilities;
(d) Reviewing proposed senior management appointments;
(e) Ensuring the selection, appointment and retention of qualified and competent management; reviewing
the Company’s personnel and human resources policies, compensation plan and the management
succession plan;
(f) Institutionalizing the internal audit function; and
(g) Ensuring the presence of, and regularly reviewing, the performance and quality of external audit.
On May 18, 2009, the Securities and Exchange Commission (SEC) approved the amendment of the bylaws of the Company on the adoption of the SRC Rule 38 (Requirements on Nomination and Election of
Independent Directors). The Company always undertakes to abide by SRC Rule 38 on the required
number of independent directors subject to any revision that may be prescribed by the SEC.
As of December 31, 2009 the composition of the Board was as follows:
Board of Directors
Jaime Augusto Zobel de Ayala
Fernando Zobel de Ayala
Meneleo J. Carlos, Jr.
Nobuya Ichiki
Delfin L. Lazaro
Xavier P. Loinaz
Mercedita S. Nolledo
Chairman and Chief Executive Officer
President and Chief Operating Officer
Independent Director
Director
Director
Independent Director
Director
The write-ups below include positions currently held by the directors and executive officers, as well as
positions held during the past five years.
Jaime Augusto Zobel de Ayala, Filipino, 51, has served as Director of Ayala Corporation since 1987. He
also holds the following positions: Chairman and CEO and Chairman of the Nomination Committee of
Ayala Corporation; Chairman of the Board of Directors of Globe Telecom, Inc., Bank of the Philippine
Islands and Integrated Micro-Electronics, Inc., Azalea Technology Investment, Inc., World Wildlife Fund
Philippine Advisory Council, and AI North America; Vice Chairman of Ayala Land, Inc., Manila Water Co.,
Inc. and Asia Society Philippines Foundation, Inc.; Co-Vice Chairman of Mermac, Inc., Ayala Foundation,
Inc. and Makati Business Club; Director of BPI PHILAM Life Assurance Corporation, Alabang Commercial
Corporation, Ayala Hotels, Inc. He is a member of various international and local business and socio139
Management
civic organizations including the Children’s Hour Philippines, Inc., Asian Institute of Management, Asia
Business Council, JP Morgan International Council, Mitsubishi Corporation International Advisory
Committee, Toshiba International Advisory Group, Harvard Business School Asia-Pacific Advisory Board,
Harvard University Asia Center Advisory Committee, The Asia Society, The Singapore Management
University, the Conference Board, Pacific Basin Economic Council and Philippine Economic Society;
Trustee of the Ramon Magsaysay Awards Foundation and the International Business Council of the
World Economic Forum. He was a TOYM (Ten Outstanding Young Men) Awardee in 1999 and was
named Management Man of the Year in 2006 by the Management Association of the Philippines for his
important role in the transformation of Ayala Corporation into a highly diversified forward-looking
conglomerate. He was also awarded the prestigious Harvard Business School Alumni Achievement
Award in 2007. He graduated with B.A. in Economics (Cum Laude) at Harvard College in 1981 and took
his MBA at the Harvard Graduate School of Business Administration in 1987.
Fernando Zobel de Ayala, Filipino, 50, has served as Director of Ayala Corporation since 1994. He also
holds the following positions: President and Chief Operating Officer of Ayala Corporation; Chairman of
Ayala Land, Inc., Manila Water Company, Inc., Ayala Automotive Holdings Corp., Ayala DBS Holdings,
Inc., Alabang Commercial Corp.; Vice Chairman of Aurora Properties, Inc., Azalea Technology
Investments, Inc., Ceci Realty, Inc. and Vesta Property Holdings, Inc.; Co-Vice Chairman of Ayala
Foundation, Inc. and Mermac, Inc.; Director of the Bank of the Philippine Islands, Globe Telecom, Inc.,
Integrated Micro-Electronics Inc., Asiacom Philippines, Inc., Ayala Hotels, Inc., AC International Finance
Limited, Ayala International Pte. Ltd., and Caritas Manila; and Member of INSEAD, East Asia Council
World Economic Forum, Habitat for Humanity International Asia-Pacific Steering Committee and Trustee
of International Council of Shopping Centers. He graduated with B.A. Liberal Arts at Harvard College in
1982.
Meneleo J. Carlos, Jr., Filipino, 80, served as the Independent Director of Ayala Corporation since
September 2002. He is the Chairman of Ayala Corporation’s Audit and Compensation Committees and a
member of the Nomination Committee. He is the Chairman and President of Riverbanks Development
Corporation; Chairman of Chem Insurance Brokers, Inc, AVC Chemicals, Inc., Philippine Iron
Construction & Marine Works, Inc., and Vacphil Rubber Philppines, Inc.; President of Resins, Inc., RI
Chemical Corporation, and Maja Development Corporation; and Director of Polymer Product, Inc.,
Philippine Iron Construction and Marine Works, Cagayan Electric Power and Light Co. and Philippine
Technology Development Ventures, Inc. He graduated with a B.S. Chemical Engineering degree and a
Certificate of Advanced Studies at Cornell University in 1952.
Nobuya Ichiki, Japanese, 53, has served as Director of Ayala Corporation since June 2009. His other
positions include: General Manager of Mitsubishi Corporation - Manila Branch; Chairman of International
Elevator & Equipment Inc.; Chairman and President of MCPL (Philippines) Inc.; Director of Japanese
Chamber of Commerce & Industry of the Philippines, The Japanese Association Manila, Inc., Isuzu
Philippines Corporation, Imasen Philippines Manufacturing Corp., Kepco Ilijan Corporation, Team
Diamond Holdings, UniCharm Philippines Inc., Robinsons Convenience Stores, Inc., Trans World AgroProducts Corp., Laguna Technopark Inc., West of Laguna Development Corporation and Seneca
Holdings, Inc. He graduated with a B.S. Engineering degree in Urban Design at The University of Tokyo
in 1979.
Delfin L. Lazaro, Filipino, 64, has served as Director of Ayala Corporation since January 2007. He has
served as a member of the Management Committee of Ayala Corporation (Ayala Group) since 1996. He
also holds the following positions: Chairman of Philwater Holdings Co., Inc. and Atlas Fertilizer &
Chemicals, Inc.; Chairman and President of Michigan Power, Inc., Purefoods International, Ltd., and
A.C.S. T. Business Holdings, Inc.; Vice Chairman and President of Asiacom Philippines, Inc.; President of
Azalea Technology Investments, Inc.; Director of Ayala Land, Inc., Globe Telecom, Inc., Integrated MicroElectronics, Inc., Manila Water Co., Inc., AYC Holdings, Ltd., AI North America, Inc., AC International
Holdings, Ltd., Ayala DBS Holdings, Inc., Ayala Automotive Holdings Corp., Probe Productions, Inc. and
Empire Insurance Company. Formerly, Mr. Lazaro was the President and CEO of Benguet Corporation
and Secretary of the Department of Energy of the Philippine government. He was named Management
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Management
Man of the Year 1999 by the Management Association of the Philippines for his contribution to the
conceptualization and implementation of the Philippine Energy Development Plan and to the passage of
the law creating the Department of Energy. He was also cited for stabilizing the power situation that
helped the country achieve successively high growth levels up to the Asian crisis in 1997. He graduated
with BS Metallurgical Engineering at the University of the Philippines in 1967 and took his MBA (with
Distinction) at Harvard Graduate School of Business in 1971.
Xavier P. Loinaz, Filipino, 66, has served as the Independent Director of Ayala Corporation since April
2009. He was a member of the Management Committee of Ayala Corporation (Ayala Group) from 1989
to 2004. He was formerly the President of Bank of the Philippine Islands (BPI) from 1982 to 2004. His
other significant positions include: Chairman of the Alay Kapwa Kilusan Pangkalusugan; Vice-Chairman
of FGU Insurance Corporation; Independent Director of Bank of the Philippine Islands, BPI Capital
Corporation, BPI Direct Savings Bank, Inc., BPI/MS Insurance Corporation, BPI Family Savings Bank,
Inc. and Globe Telecom, Inc.; and Member of the Board of Trustees of BPI Foundation, Inc. and E. Zobel
Foundation. He graduated with an AB Economics degree at Ateneo de Manila University in 1963 and
took his MBA-Finance at Wharton School, University of Pennsylvania in 1965.
Mercedita S. Nolledo, Filipino, 68, has served as Director of Ayala Corporation since 2004 and is also a
Senior Managing Director and Corporate Secretary of Ayala Corporation, and a Senior Counsel of the
Ayala Group of Companies. Her other significant positions include: Chairman of BPI Investment
Management, Inc. and FEB Management, Inc., Director and Corporate Secretary of Ayala Land, Inc.;
Director of Honda Cars Cebu, Inc., Honda Cars Makati, Inc., Isuzu Automotive Dealership, Inc., Isuzu
Cebu, Inc., Ayala Automotive Holdings Corp., HCMI Insurance Agency, Inc.; Bank of the Philippine
Islands, BPI Family Savings Bank, BPI Capital Corp., and Anvaya Cove Beach and Nature Club, Inc.;
Member of the Board of Trustees of Ayala Foundation, Inc. and BPI Foundation, Inc.; Treasurer of Phil.
Tuberculosis Society, Inc., Sonoma Properties, Inc. and JMY Realty Development Corp. She had her
education at the University of the Philippines and graduated Magna Cum Laude and Class Valedictorian
in Bachelor of Science in Business Administration and Cum Laude and Class Valedictorian in Bachelor of
Laws.
Nominees to the Board of Directors for election at the stockholders’ meeting on April 16, 2010:
All the above incumbent directors, except Mr. Meneleo J. Carlos, Jr. The nominees were formally
nominated to the Nominations Committee of the Board (composed of Meneleo J. Carlos, Jr., Chairman,
Jaime Augusto Zobel de Ayala and Fernando Zobel de Ayala) by a shareholder of the Company, Ms.
Asuncion Lourdes de Jesus. Messrs. Ramon R. del Rosario, Jr. and Xavier P. Loinaz, an incumbent
director, are being nominated as independent directors. Ms. de Jesus is not related to any of the
nominees including Messrs. del Rosario and Loinaz. The nominees have served as directors of the
Company for more than five years except for Messrs. Xavier P. Loinaz, Delfin L. Lazaro and Nobuya
Ichiki who were elected to the Board in April 2006, January 2007 and June 2009, respectively. The
nominees are expected to attend the scheduled annual stockholders’ meeting.
Mr. Meneleo J. Carlos Jr., Filipino, 80, has served as independent director of the Company for eight
years. In 2008, he agreed to serve for two final terms up to the 2010 annual stockholders meeting of the
Company. For eight years, Mr. Carlos served the Company with exemplary dedication and the Company
benefited from his insights and experience.
Ramon R. del Rosario, Jr., Filipino, has been nominated as independent director for election at the 2010
annual stockholders’ meeting of the Company. Mr. del Rosario is a distinguished business and civic
leader known for his probity, independence and clear and critical thinking.
Ramon R. del Rosario, Jr., Filipino, 65, is the President and Chief Executive Officer of Philippine
Investment Management (PHINMA), Inc. He served as an Independent Director of Ayala Land, Inc. from
1994 to April 2009. His other significant positions are: President of Bacnotan Consolidated Industries, Inc.
and Microtel Development Corp.; Chairman and CEO of AB Capital and Investment Corporation;
Chairman of Paramount Building Management, United Pulp and Paper Co., Inc., Microtel Inns and Suites
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Management
(Pilipinas), Inc., CIP II Power Corp., Trans-Asia Gold and Minerals Development Corp., Stock Transfer
Services, Inc., Araullo University and Cagayan de Oro College; and Director of Trans-Asia Oil & Energy
Development Corporation, Trans-Asia Power Generation Corp., PHINMA Property Holdings Corp., Roxas
Holdings, Inc., Holcim (Phils.), Inc., Bacnotan Industrial Park Corp., PHINMA Foundation, Inc. and Union
Galvasteel Corp. He served as the Philippines’ Secretary of Finance in 1992-1993. He is the current
chairman of the Makati Business Club. He graduated with degrees in BSC-Accounting and AB-Social
Sciences (Magna cum Laude) at De La Salle University, Manila in 1967 and earned his Masters in
Business Administration at Harvard Business School in 1969.
Executive Officers
Ayala Group Management Committee Members / Senior Leadership Team
Chairman & Chief Executive Officer
President & Chief Operating Officer
Senior Managing Director, Chief Executive Officer of AC Capital
until December 31, 2009
* Mercedita S. Nolledo
Senior Corporate Counsel & Corporate Secretary
Senior Managing Director, Chief Executive Officer of AC Capital
** Gerardo C. Ablaza, Jr.
effective January 1, 2010
** Antonino T. Aquino
Senior Managing Director, President of Ayala Land, Inc.
*** Jaime I. Ayala
Senior Managing Director
** Charles H. Cosgrove
President of AG Holdings, Ltd.
** Rufino Luis T. Manotok
Senior Managing Director, Corporate Information Officer, Chief
Finance Officer & President of Ayala Automotive Holdings, Inc.
** Arthur R. Tan
Senior Managing Director, President of Integrated MicroElectronics, Inc.
Managing Director, President of Manila Water Company, Inc.
** Jose Rene D. Almendras
** Alfredo I. Ayala
Managing Director, Chief Executive Officer of LiveIt Investments,
Ltd.
** Ernest Lawrence L. Cu
President, Globe Telecom, Inc.
** John Eric T. Francia
Managing Director, Group Head of Corporate Strategy
** Victoria P. Garchitorena
Managing Director, President of Ayala Foundation, Inc.
** Solomon M. Hermosura
Managing Director, General Counsel, Assistant Corporate
Secretary & Compliance Officer
Ricardo N. Jacinto
Managing Director
Rufino F. Melo III
Managing Director
** Aurelio R. Montinola III
President, Bank of the Philippine Islands
Ramon G. Opulencia
Managing Director & Treasurer
** John Philip S. Orbeta
Managing Director, Group Head of Corporate Resources
* Members of the Board of Directors
** Management Committee members
*** Retired effective December 31, 2009
*
*
*
Jaime Augusto Zobel de Ayala
Fernando Zobel de Ayala
Delfin L. Lazaro
The write-ups below include positions currently held by the executive officers as well as positions held
during the past five years.
Gerardo C. Ablaza, Jr., Filipino, 56 has served as a member of the Management Committee of Ayala
Corporation (Ayala Group) since 1998. He also holds the following positions: Senior Managing Director of
Ayala Corporation; Co-Vice Chairman of Globe Telecom, Inc.; Director of Bank of the Philippine Islands,
BPI Family Savings Bank, Inc., BPI Card Finance Corporation, Azalea Technology Investment, Inc.,
Asiacom Philippines, Inc., Manila Water Company, Inc., and Integrated Micro-Electronics, Inc. He is also
the Chief Executive Officer of AC Capital with directorship position in HRMall Holdings Limited, LiveIT
Investments Limited, Integreon, Inc., Affinity Express Holdings Limited, NewBridge International
Investments Ltd., Stream Global Services., RETC (Renewable Energy Test Center). He was the
President and Chief Executive Officer of Globe Telecom, Inc. from 1998 to April 2009. He was previously
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Management
Vice President and Country Business Manager for the Philippines and Guam of Citibank, N.A. for its
Global Consumer Banking business. Prior to this position, he was Vice President of Citibank, N.A.
Singapore for Consumer Banking. Attendant to his last position in Citibank, N.A., he was the bank’s
representative to the Board of Directors of CityTrust Banking Corporation and its various subsidiaries. He
graduated Summa Cum Laude at De La Salle University in 1974 with a degree in AB Major in
Mathematics (Honors Program). In 2004, he was recognized by CNBC as the Asia Business Leader of
the Year, making him first Filipino CEO to win the award. In the same year, he was awarded by Telecom
Asia as the Best Asian Telecom CEO.
Antonino T. Aquino, Filipino, 62, has served as a member of the Management Committee of Ayala
Corporation (Ayala Group) since August 1998. He also holds the following positions: Senior Managing
Director of Ayala Corporation and President of Ayala Land, Inc. He also previously served as President of
Manila Water Company, Inc., and Ayala Property Management Corporation, Senior Vice President of
Ayala Land, Inc., and a Business Unit Manager in IBM Philippines, Inc. Currently, he is the Chairman of
the Board of Trustees of the Hero Foundation; Member of the board of Manila Water Co., Inc. and of
various corporate social responsibility foundations such as Ayala Foundation, Manila Water Foundation,
Habitat for Humanities Philippines, La Mesa Watershed Foundation and Makati Environment Foundation.
He also served as President of Manila Water Company, Inc, and Ayala Property Management
Corporation; Senior Vice President of Ayala Land, Inc., and a Business Unit Manager of IBM Philippines,
Inc. He was named “Co-Management Man of the Year 2009” by the Management Association of the
Philippines for his leadership role in a very successful waterworks privatization and public-private sector
partnership. He graduated with Bachelor of Science Major in Management at the Ateneo de Manila
University in 1968 and has completed academic units for the Masteral Degree in Business Management
at the Ateneo Graduate School of Business in 1975.
Jaime I. Ayala, Filipino, 46, has served as a member of the Management Committee of Ayala
Corporation (Ayala Group) from 2004 to December 2009. He was a Senior Managing Director of Ayala
Corporation and President and CEO of Ayala Land, Inc from 2004 to March 2009. His other significant
positions were: Chairman and President of Makati Property Ventures, Inc.; Chairman of Ayala Property
Management Corp., Cebu Holdings, Inc., Cebu Insular Hotel Co., Inc., Cebu Property Ventures & Dev't.
Corp., Alveo Land Corp., Avida Land Corp., Laguna Technopark, Inc., Makati Development Corp., and
Station Square East Commercial Corp; Director and President of Aurora Properties, Inc, Ayala Hotels,
Inc., Enjay Hotels, Inc., Roxas Land Corp. and Vesta Property Holdings, Inc.; Director of Alabang
Commercial Corp., Ayala Greenfield Development Corp., Ayala Infrastructure Ventures, Inc., Ayala Land
Sales, Inc., Berkshire Holdings, Inc., Bonifacio Arts Foundation, Inc., Bonifacio Land Corp., Emerging City
Holdings, Inc. and Fort Bonifacio Development Corp. He earned his M.B.A. from Harvard School,
graduating with honors in 1988. He completed his undergraduate work in 1984 at Princeton University,
where he graduated Magna Cum Laude in Economics, with a minor in Engineering.
Charles H. Cosgrove, American, 54, has served as a member of the Management Committee of Ayala
Corporation (Ayala Group) since 1998. He is the CEO of AG Holdings Ltd. Prior to joining Ayala
Corporation, he was a Managing Director of Singapore Telecom International Pte. Ltd. He graduated
from Stanford University with an AB in 1977. He obtained a JD from Georgetown University School of
Law in 1980.
Rufino Luis T. Manotok, Filipino, 59, has served as a member of the Management Committee of Ayala
Corporation (Ayala Group) since 1999. He also holds the following positions: Senior Managing Director,
Corporate Information Officer and Chief Finance Officer of Ayala Corporation; President and Chairman of
Honda Cars Makati, Inc., Isuzu Automotive Dealership, Inc., Isuzu Iloilo Corp., Prime Initiatives, Inc. and
Water Capital Works, Inc.; Chairman of Honda Cars Cebu, Inc., Isuzu Cebu, Inc., Ayala Aviation
Corporation, Darong Agricultural Development Corporation, and AYC Finance Ltd.; Vice Chairman of
Michigan Power, Inc.; President and Director of Ayala Automotive Holdings Corp. and Philwater Holdings
Company; and Director of AC International Finance Ltd., AG Holdings Limited, AI North America, Inc.,
Asiacom Philippines, Inc., AYC Holdings Ltd., Azalea International Venture Partners Ltd., Ayala Systems
Technology, Inc., BPI Family Savings Bank, Inc., Bestfull Holdings Limited, Fine State Group Limited, IMA
Landholdings, Inc. and Michigan Holdings, Inc. He graduated with Bachelor of Arts in Economics at the
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Management
Ateneo de Manila University in 1971 and had his Masters Degree in Business Management at the Asian
Institute of Management in 1973. He also took the Advance Management Program at Harvard Business
School in 1994.
Arthur R. Tan, Filipino, 50, has served as a member of the Management Committee of Ayala Corporation
(Ayala Group) for more than 5 years. He holds the position of Senior Managing Director of Ayala
Corporation. He is also the President and CEO of Integrated Micro-Electronics, Inc. and Speedy-Tech
Electronics, Ltd.; Chairman of Speedy-Tech Philippines, Inc. and Advanced Research and Competency
Development Institute (ARCDI); and Vice Chairman of Semiconductor and Electronics Industries in the
Philippines, Inc. (SEIPI). He is also the President of IMI USA, Inc. and IMI International Singapore Pte.
Ltd. Prior to joining Ayala Corporation, he was a Managing Director of American Microsystems, Inc. (Asia
Pacific Region/Japan). He graduated with a degree of BS in Electronics and Communication Engineering
at the Mapua Institute of Technology in 1982. He has taken post graduate classes in MSEE from the
University of Idaho and business courses from Harvard University.
Jose Rene D. Almendras, Filipino, 49, is a Managing Director of Ayala Corporation since January 2007.
He is the Chief Executive Officer of Manila Water Co., Inc. He was previously connected with Ayala
Land, Inc. as a member of the Management Committee and concurrently Head of the Visayas Mindanao
Business and Operations Transformation Group. He was President and CEO of Cebu Holdings, Inc. and
Cebu Property Ventures and Development Corp., both publicly listed companies managed by the Ayala
Land Group. He served as Chairman of the Ayala Land Group Bidding Committee and head of its
Strategic Procurement Division. Prior to joining the Ayala Group, Mr. Almendras served as Treasurer for
both Aboitiz & Company, and the publicly listed Aboitiz Equity Ventures. While at the Aboitiz Group, he
was appointed President and CEO of City Savings Bank, also owned by the Aboitiz Group. He also
worked in various capacities with Citytrust Banking Corporation, Citibank, and the Bank of the Philippine
Islands. He obtained his Business Management degree from the Ateneo de Manila University and
completed the Strategic Business Economics Program at the University of Asia and the Pacific.
Alfredo I. Ayala, Filipino, 48, is a Managing Director of Ayala Corporation since June 2006. He is the
Chief Executive Officer of LiveIt Investments, Ltd., the holding company of Ayala Corporation for its
investments in the BPO sector. Currently, he holds the following positions: Chairman of the Business
Processing Association of the Philippines (BPA/P) and Stream Global Solutions, Inc. Director of
NewBridge International Investment Limited, Affinity Express Holdings Limited and HRMall Holdings
Limited. Previously, he was a Chairman of SPi, one of the leading non-voice BPO companies in Asia and
Partner at Crimson Investment, an international private equity firm. Prior to that, he was a Managing
Director and co-Founder of MBO Partners. He has an MBA from the Harvard Graduate School of
Business Administration and BA in Development Studies and Economics, graduated with Honors, from
Brown University.
Ernest Lawrence L. Cu, Filipino, 49, is a member of the Management Committee of Ayala Corporation
(Ayala Group) since January 2009. He is the President and Chief Executive Officer of Globe Telecom,
Inc. He is also a Director of Systems Technology Institute, Inc., Prople BPO, Inc., ATR KimEng Capital
Partners, Inc., ATR KimEng Financial Corporation, Game Services Group. He is a Trustee of Ayala
Foundation, Inc. and De La Salle College of St. Benilde. He brings with him over two decades of general
management and business development experience spanning multi country operations. Prior to joining
Globe, he was the President and CEO of SPI Technologies, Inc. He also served as Director of Digital
Media Exchange, Inc. and a Trustee of the International School Manila. He has a Bachelor of Science
degree in Industrial Management Engineering from De La Salle University in Manila and an M.B.A. from
the J.L. Kellogg Graduate School of Management, Northwestern University.
John Eric T. Francia, Filipino, 38, is a Managing Director and a member of the Management Committee
of Ayala Corporation since January 2009. Mr. Francia is the Head of Ayala’s Corporate Strategy Group,
which is responsible for overseeing Ayala’s portfolio strategy, providing analytic support for resource
allocation decisions, and aligning and monitoring key performance metrics within the group. He is also a
director of Integreon, and Michigan Power, Inc. Prior to joining Ayala, he was the Head of the Global
Business Planning and Operations of the Monitor Group, a strategy consulting firm based in Cambridge,
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Management
MA. He spent 12 years in the management consulting sector both as a senior consultant and member of
the management team. Prior to consulting, he spent a few years in the field of academe and media. He
received his undergraduate degree in Humanities and Political Economy from the University of Asia & the
Pacific, graduating Magna Cum Laude. He then completed his Masters Degree in Management Studies
at the University of Cambridge in the UK, graduating with First Class Honors.
Victoria P. Garchitorena, Filipino, 65, has served as a member of the Management Committee of Ayala
Corporation (Ayala Group) since 2006. She is currently a Managing Director of Ayala Corporation since
1996, President and Board member of Ayala Foundation, Inc. and Ayala Foundation USA. Her other
significant positions include: Trustee of the International Center on Innovation, Transformation and
Excellence in Governance and Pinoy Me Foundation; member of the Asia Pacific Advisory Council
Against Corruption-World Bank, League of Corporate Foundations and Makati Business Club; and
member of the National Committee of Bishops-Businessmen’s Council for Human Development.
Previously, she was a Senior Consultant on Poverty Alleviation and Good Governance and the Head of
the Presidential Management Staff and Secretary to the Cabinet under the Office of the President of the
Republic of the Philippines; a Director of Philippine Charity Sweepstakes Office; Executive Assistant to
the Chairman and President of the Meralco Foundation, Inc.; a Trustee of the Ramon Magsaysay Awards
Foundation; and Co-Chairperson of EDSA People Power Commission; a Board member of the US based
Council of Foundations; Member of the Global Foundation Leaders Advisory Group of World Economic
Forum and Governor of Management Association of the Philippines. She graduated with a B.S. Physics
degree (Summa Cum Laude) at the College of the Holy Spirit in 1964 and was an SGV scholar at the
Asian Institute of Management.
Solomon M. Hermosura, Filipino, 47, has served as Managing Director of Ayala Corporation since
January 1999 and a member of the Management Committee of Ayala Corporation (Holding Company)
since January 2009. He is also the General Counsel, Compliance Officer, and Assistant Corporate
Secretary of Ayala Corporation. He serves as Corporate Secretary or Assistant Corporate Secretary of
various companies in the Ayala Group, including the following: Corporate Secretary: Manila Water
Company, Inc.; Integrated Micro-Electronics, Inc.; Ayala Foundation, Inc.; Ayala DBS Holdings, Inc.;
Asiacom Phils., Inc.; Philwater Holdings Company, Inc.; AC International Finance Ltd.; AYC Finance Ltd.;
Affinity Express Holdings, Inc.; and Integreon, Inc.; Assistant Corporate Secretary: Ayala Land Inc. He
also serves as a member of the Board of Directors of a number of companies in the Ayala Group. He
rd
earned his Bachelor of Laws degree from San Beda College in 1986 and placed 3 in the 1986 Bar
Examination.
Ricardo N. Jacinto, Filipino, 49, has served as a Managing Director of Ayala Corporation since May
2000. He is the Head of AC Capital Portfolio B. His other significant positions are: President of Nicanor P.
Jacinto, Jr. Foundation and a Director of UP School of Economics Alumni Association, Ayala Automotive
Holdings Corporation, Ayala Hotels, Inc., Technopark Land, Inc., PFC Properties, Inc., PFN Holdings
Corporation, Ayala Aviation Corp., and Michigan Holdings, Inc. He was a Director of Integreon, Inc.,
Integreon Managed Solutions (Philippines), Inc., Integreon Managed Solutions (India), Private Limited
and LiveIt Solutions, Inc.. He completed his Masters in Business Administration at the Harvard University
in 1986.
Rufino F. Melo III, Filipino, 56, has served as a Managing Director of Ayala Corporation since 2006. He is
the Head of the Strategic Management Control of Ayala. He is a Director of Darong Agricultural
Corporation and Pameka Holdings, Inc. Prior to joining Ayala, he was the Group Financial Comptroller of
Jardine Davies, Inc. He graduated with a BS Accountancy degree at the University of the East in 1975.
Aurelio R. Montinola III, Filipino, 58, has served as a member of the Management Committee of Ayala
Corporation (Ayala Group) since 2005. He also holds the following positions: President and Chief
Executive Officer of the Bank of the Philippine Islands; Chairman of Board of Directors of BPI Direct
Savings Bank, Inc., BPI Computer Systems Corporation, BPI/MS Insurance Corporation, BPI Europe Plc.,
East Asia Computer Center, Inc., LGU Guarantee Corp., Monti-Rey, Inc., Desrey, Inc., Seyrel Investment
& Realty Corp., Armon Realty, Dercc, Inc., and Amon Trading Corp.; Co-Chairman of the PhilippineFrance Business Council; Vice-Chairman and President of BPI Foundation, Inc.; Vice Chairman of the
145
Management
Board of Directors of Republic Cement Corporation; Vice Chairman of the Board of Trustees of Far
Eastern University and Philippine Business for Education, Inc.; Regional Vice Chairman of MasterCard
Incorporated; Director of BPI-Philam Life Assurance Corporation, BPI Bancassurance, Inc., BPI Capital
Corporation, BPI Family Savings Bank, Mere, Inc., and Western Resources Corp. He is the Chairman of
the Board of Trustee of East Asia Computer Educational Foundation; Trustee of the Ayala Foundation,
Inc., International School Manila and Pres. Manuel A. Roxas Foundation. He is the President of the
Bankers Association of the Philippines and Member of the Makati Business Club and Management
Association of the Philippines. He graduated with a degree in BS Management Engineering at the
Ateneo de Manila University in 1973 and received his MBA at Harvard Business School in 1977.
Ramon G. Opulencia, Filipino, 53, has served as Treasurer of Ayala Corporation since September 2005
and has previously served as the Senior Assistant Treasurer from November 1992 to September 2005.
He is also a Managing Director of Ayala Corporation. He is currently a member of the Board of Directors
of BPI Family Savings Bank, Inc., AYC Holdings Limited and AYC Finance Limited. Prior to joining Ayala
Corporation, he was a Senior Manager of the Bank of the Philippine Islands’ Treasury Group. He
graduated with a BS in Mechanical Engineering degree at the De La Salle University in 1978 and took his
Masteral in Business Management at the Asian Institute of Management graduating with Distinction in
1983. He completed the Advanced Management Program at the Harvard Business School in May 2005.
John Philip S. Orbeta, Filipino, 48, has served as a member of the Ayala Corporation Management
Committee since 2005 and the Group Management Committee since 2009. He is currently the Managing
Director and Group Head for Corporate Resources, covering Strategic Human Resources, Corporate
Communications and Information & Communications Technology at Ayala Corporation. He is the
President of HRMall, Inc., the Ayala group’s HR Business Process Outsourcing company. He is
concurrently the Chairman of the following councils at the Ayala Group: Human Resources Council,
Corporate Security Council, the Ayala Business Clubs and is the Program Director of the Ayala Young
Leaders Congress. Prior to joining Ayala Corporation, he spent 19 years at Watson Wyatt Worldwide
(NYSE:WW), the global management consulting firm where he was the Vice President and Global
Practice Director for the firm's Human Capital Consulting Group, overseeing the firm's practices in
executive compensation, strategic rewards, data services and organization effectiveness around the
world. He was also a member of Watson Wyatt's Board of Directors. He received his undergraduate
degree in Economics from the Ateneo de Manila University where he also attended graduate studies in
Industrial Psychology. He completed a Leadership Development Program at the Harvard Business
School.
Change in Management Roles effective April 16, 2010
Its deep bench of senior executives allows Ayala to constantly provide its executives with new challenges
and opportunities while enabling its operating companies to continue on their trajectory of performance.
Consistent with this, Mr. Rufino Luis T. Manotok will end his 4-year tenure as Chief Finance Officer (CFO)
to focus on the automotive dealership business of the Company where Mr. Manotok has also played a
lead role for years. Mr. Manotok will take on the role of Chairman & CEO of the Ayala Automotive
Holdings Corporation concurrently with his positions as President & Chairman of Honda Cars Makati, Inc.,
Isuzu Automotive Dealership Inc. and Isuzu Iloilo Corporation and Chairman of Honda Cars Cebu Inc.
and Isuzu Cebu Inc.
To take the place of Mr. Manotok as CFO is Mr. Delfin Gonzalez Jr., who has been Managing Director of
the Company since November 2000. Mr. Gonzalez, Filipino, 60, will return to the Company from his
secondment to Globe, where he is presently the Chief Finance Officer & Treasurer. Mr. Gonzalez will
retire from his positions in Globe effective April 13, 2010 and will be elected as CFO of the Company at
the organizational meeting of the Board of Directors on April 16, 2010. Before joining the Ayala Group,
Mr. Gonzalez worked with San Miguel Corporation, first with the Strategic Planning and Finance Group
and then as Executive Vice President, CFO and Treasurer until 1999.
146
Management
Significant Employees
The Company considers all its employees together as one work force as significant.
expected to work as part of one team to achieve the Company’s goals and objectives.
Everyone is
Family Relationship
Jaime Augusto Zobel de Ayala, Chairman/Chief Executive Officer, and Fernando Zobel de Ayala,
President/Chief Operating Officer, are brothers.
Jaime I. Ayala, Senior Managing Director until his resignation effective December 31, 2009, and Alfredo I.
Ayala, Managing Director, are also brothers.
There are no known family relationships between the current members of the Board and key officers
other than the above.
Involvement in Certain Legal Proceedings
To the best of Ayala's knowledge, there has been no occurrence of any of the following events since its
incorporation which are material to an evaluation of the ability or integrity of any director, person
nominated to become a director, executive officer, or control person of Ayala:
(a) Any insolvency or bankruptcy petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the insolvency or within two years prior to that
time;
(b) Any conviction by final judgment in a criminal proceeding, domestic or foreign, or any pending
criminal proceeding, domestic or foreign, excluding traffic violations and other minor offenses;
(c) Any final and executory order, judgment, or decree of any court of competent jurisdiction, domestic or
foreign, permanently or temporarily enjoining, barring, suspending, or otherwise limiting involvement
in any type of business, securities, commodities, or banking activities; and
(d) Any final and executory judgment by a domestic or foreign court of competent jurisdiction (in a civil
action), the SEC, or comparable foreign body, or a domestic or foreign exchange or electronic
marketplace or self-regulatory organization, for violation of a securities or commodities law.
Compensation of Directors and Officers
Directors
Article IV, Section 21 of Ayala’s By-Laws provides:
“Section 21 - The members of the Board of Directors of the Corporation who are neither officers nor
consultants of the Corporation shall be entitled to a director’s fee in an amount to be fixed by the
stockholders at a regular or special meeting duly called for the purpose.”
During the Annual Stockholders’ Meeting held on April 4, 2003, the stockholders ratified the resolution
fixing the remuneration of non-executive directors at P
= 1,000,000.00 per year, consisting of the following
components:
Retainer Fee:
Per diem per Board meeting attended:
P
= 500,000.00
P
= 100,000.00
In addition, a non-executive Director is entitled to a per diem of P
= 20,000.00 per Board committee meeting
147
Management
actually attended.
Name and principal position
Jaime Augusto Zobel de Ayala
Chairman and CEO
Fernando Zobel de Ayala
President and COO
Gerardo C. Ablaza, Jr.
Senior Managing Director
Jaime I. Ayala
Senior Managing Director
Delfin L. Lazaro
Senior Managing Director
Rufino Luis T. Manotok
Senior Managing Director,
Corporate Information Officer &
Chief Finance Officer
Ramon G. Opulencia
Managing Director & Treasurer
Alfredo I. Ayala
Managing Director
John Eric T. Francia
Managing Director
Solomon M. Hermosura
Managing Director
Ricardo N. Jacinto
Managing Director
Rufino F. Melo III
Managing Director
John Philip S. Orbeta
Managing Director
CEO & 12 most highly
compensated executive officers
Year
Salary
Other income*
Actual 2008
(restated)
Actual 2009
Projected 2010
P
= 197.8 M
P
= 72.6 M
P
= 202.9 M
P
= 226.8 M
P
= 80.4 M
P
= 99.0 M
Actual 2008
P
= 285.6 M
(restated)
Actual 2009
P
= 305.3 M
Projected 2010
P
= 330.8 M
* Composed of guaranteed and performance bonus provision
** Managers and up (including all above-named officers)
P
= 109.3 M
All other officers** as a group
unnamed
P
= 133.8 M
P
= 145.3 M
The total annual compensation includes basic pay and other taxable income (guaranteed bonus,
performance-based incentive and exercise of stock options).
The Company has no other arrangement with regard to the remuneration of its existing directors and
officers aside from the compensation received as herein stated.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Pursuant to Ayala’s By-Laws, each Director has a term of office of one year from date of election or until
his successor shall have been named, qualified, and elected. Each Executive Officer has an employment
148
Management
contract with Ayala for an indefinite period, the terms and conditions of which are in accordance with
existing laws.
The executive officers are entitled to receive retirement benefits in accordance with the terms and
conditions of Ayala’s Bureau of Internal Revenue (“BIR”)-registered employees’ retirement plan. There is
no plan or arrangement by which the Executive Officers will receive from Ayala any form of compensation
in case of a change-in-control of Ayala or a change in the officers’ responsibilities following such changein-control.
WARRANTS AND OPTIONS OUTSTANDING
The Company offered the Executive Stock Option Plan (ESOP) to the Company’s officers since 1995.
The following are the outstanding options held by the above named officers:
Name
All abovenamed
officers
Options
granted
Options
outstanding
640,965
103,466
588,561
197,654
937,164
423,520
767,016
529,629
45,403
45,403
* Grossed up exercise price for the 10% discount
Grant date
Exercise
price
May 8, 2001
June 18, 2002
June 6, 2003
June 10, 2004
May 1, 2005
171.88
140.97
107.29
152.78
204.86
Market Price
on date of
grant*
190.98
156.63
119.21
169.76
227.62
The options expire ten years from grant date. Of the above named officers, no one exercised any option
in 2009.
The Company has adjusted the exercise price and market price of the options awarded to the above
named officers due to the stock dividend declared by the Company in May 2004, June 2007 and May
2008 and to the reverse stock split in May 2005.
149
Management
Management and Certain Security Holders
Security Ownership of Certain Record and Beneficial Owners and Management
Security Ownership of Certain Record and Beneficial Owners (of more than 5%) as of February 28, 2010.
Title of
class
Name and address of record owner
and relationship with Issuer
Common
Mermac, Inc.
35/F Tower One, Ayala Triangle,
Ayala Ave., Makati City
Stockholder
PCD Nominee Corporation
3
(Non-Filipino)
G/F MSE Bldg.
Ayala Ave., Makati City
Common
Common
Common
1
5
Mitsubishi Corporation
52/F PBCom Tower, 6794 Ayala Ave.
cor. VA Rufino St., Makati City
Stockholder
PCD Nominee Corporation
3
(Filipino)
G/F MSE Bldg.
Ayala Ave., Makati City
Name of beneficial
owner and
relationship with
record owner
Citizenship
No. of
shares
held
Filipino
253,074,330
Percent
(of the
outstanding
common
shares)
50.92%
Hongkong and
Shanghai Banking
Corporation (HSBC)
and Standard
Chartered Bank
4
(SCB)
Mitsubishi
6
Corporation
Various
116,887,599
23.52%
Japanese
52,564,617
10.58%
Hongkong and
Shanghai Banking
Corporation (HSBC)
and Standard
Chartered Bank
4
(SCB)
Filipino
39,717,926
7.99%
Mermac, Inc.
2
1
The Co-Vice Chairmen of Mermac, Inc. (“Mermac”), Jaime Augusto Zobel de Ayala and Fernando Zobel de Ayala,
are the Chairman/CEO and President/COO of the Company, respectively.
2
The Board of Directors of Mermac has the power to decide how Mermac shares in Ayala are to be voted.
3
The PCD is not related to the Company.
4
HSBC and SCB are participants of PCD. The 46,282,607 and 42,223,627 shares owned by HSBC and SCB,
respectively, form part of the 156,605,525 shares registered in the name of PCD Non-Filipino and Filipino. The
clients of HSBC and SCB have the power to decide how their shares are to be voted. There are no holders of more
than 5% of the Company’s shares under HSBC and SCB.
5
Mitsubishi Corporation (“Mitsubishi”) is not related to the Company.
6
The Board of Directors of Mitsubishi has the power to decide how Mitsubishi’s shares in Ayala are to be voted.
150
Management
Security Ownership of Directors and Management as of February 28, 2010
Name of beneficial owner
Amount and nature of beneficial
ownership
Directors
Common
Jaime Augusto Zobel de Ayala
858,933
Common
Fernando Zobel de Ayala
872,804
Common
Meneleo J. Carlos, Jr.
1
Common
Nobuya Ichiki
1
Common
Delfin L. Lazaro
427,308
Common
Xavier P. Loinaz
105,513
Common
136,907
Mercedita S. Nolledo
Preferred “A”
20,000
Nominee to the Board of Directors
Common
Ramon R. del Rosario, Jr.
1
CEO and most highly compensated officers
Common
Jaime Augusto Zobel de Ayala
858,933
Common
Fernando Zobel de Ayala
872,804
Common
234,906
Gerardo C. Ablaza, Jr.
Preferred “A”
4,000
Common
Jaime I. Ayala
20,512
Common
Delfin L. Lazaro
427,308
Common
224,533
Rufino Luis T. Manotok
Preferred “A”
8,030
Preferred “B”
50,000
Common
203,166
Ramon G. Opulencia
Preferred “A”
16,000
Common
Alfredo I. Ayala
91,300
Common
John Eric T. Francia
30,534
Common
Solomon M. Hermosura
145,807
Common
28,629
Ricardo N. Jacinto
Preferred “B”
59,050
Common
90,730
Rufino F. Melo III
Preferred “A”
12,000
Common
John Philip S. Orbeta
254,067
Other executive officers (Ayala group ManCom members)
Common
Jose Rene D. Almendras
9,000
Common
113,908
Antonino T. Aquino
Preferred “A”
24,200
Common
Charles H. Cosgrove
0
Common
Ernest Lawrence L. Cu
0
Common
Victoria P. Garchitorena
112,652
Common
Aurelio R. Montinola III
0
Common
Arthur R. Tan
217,802
All Directors and Officers as a group
4,372,294
Citizenship
Percent of
all class
(direct & indirect)
(direct & indirect)
(direct)
(direct)
(direct & indirect)
(direct)
(direct & indirect)
(direct)
Filipino
Filipino
Filipino
Japanese
Filipino
Filipino
(direct)
Filipino
0.00000%
(direct & indirect)
(direct & indirect)
(direct & indirect)
(direct)
(indirect)
(direct & indirect)
(direct & indirect)
(indirect)
(indirect)
(direct & indirect)
(direct)
(direct & indirect)
(indirect)
(direct & indirect)
(direct & indirect)
(direct)
(direct & indirect)
(direct)
(direct & indirect)
Filipino
Filipino
0.15113%
0.15357%
0.04133%
0.00070%
0.00361%
0.07519%
0.03951%
0.00141%
0.00880%
0.03575%
0.00282%
0.01606%
0.00537%
0.02566%
0.00504%
0.01039%
0.01596%
0.00211%
0.04470%
(indirect)
(direct & indirect)
(direct)
(direct & indirect)
(direct & indirect)
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
American
Filipino
Filipino
Filipino
Filipino
0.15113%
0.15357%
0.00000%
0.00000%
0.07519%
0.01853%
0.02409%
0.00352%
0.00159%
0.02004%
0.00426%
0.00000%
0.00000%
0.01982%
0.00000%
0.03832%
0.76774%
None of the members of Ayala’s directors and management owns 2% or more of Ayala’s outstanding
capital stock.
VOTING TRUST HOLDERS OF 5% OR MORE
Ayala knows of no person holding more than 5% of common shares under a voting trust or similar
agreement.
151
MATTERS AFFECTING LIQUIDITY AND CAPITAL EXPENDITURE
As regards internal and external sources of liquidity, funding will be sourced from internally generated
cash flows, and also from borrowings or available credit facilities from other local and international
commercial banks, including an affiliated bank.
There is no material commitment for capital expenditures other than those performed in the ordinary
course of trade or business.
There is no significant element of income not arising from continuing operations.
There have not been any seasonal aspects that had a material effect on the financial condition or results
of Ayala’s operations.
Changes in, and Disagreements with, Accountants on Accounting and Financial Disclosure
The Company has engaged the services of SGV & Co. during the two most recent fiscal years. There are
no disagreements with SGV & Co. on accounting and financial disclosure.
152
NAMED EXPERTS AND COUNSEL
INDEPENDENT AUDITORS
The Company’s independent auditors are SyCip Gorres Velayo & Co. (“SGV & Co.”), a member firm of
Ernst & Young Global Limited. The Company’s consolidated financial statements as of December 31,
2009 and 2008 and for each of the three years in the period ended December 31, 2009, included in this
Prospectus, is audited by SGV & Co. in accordance with Philippine Standards on Auditing as set forth in
their report thereon.
In 2009, Ayala Corporation paid SGV & Co. audit and audit-related fees of approximately P
= 3.02 million
and other fees amounting to approximately P
= 1.95 million. In 2008, Ayala Corporation paid SGV & Co.
audit and audit-related fees of approximately P
= 3.02 million and other fees amounting to approximately P
=
5.29 million.
In 2009, SGV & Co. billed the Company for an aggregate fee of P
= 1.95 M for the following services: (i)
Completion of the Enterprise-Wide Risk Management study, (ii) Performance of due diligence work
related to possible investment and (iii) Conduct of seminar on major differences between International
Financial Reporting Standards and US Generally Accepted Accounting Principles
In 2008, SGV & Co. billed the Company for an aggregate fee of P
= 5.29 M for the following services: (i)
Review of the Company’s consolidated financial statements for the period ended June 30, 2008 and
issuance of a comfort letter in connection with the Company’s issuance of preferred shares, (ii) Conduct
of an Enterprise-Wide Risk Management study and (iii) Conduct of a seminar on new accounting
standards
The Company’s Audit and Risk Committee recommended the appointment of SGV & Co. as the
Company’s external auditor and its engagement for the other services described above to the Ayala
Board. The Board approved the recommendation. Ayala’s stockholders subsequently ratified the Board’s
approval.
SGV & Co. has no shareholdings in the Company nor any right, whether legally enforceable or not, to
nominate persons or to subscribe for the securities in the Company. SGV & Co. will not receive any
direct or indirect interest in the Company or in any securities thereof (including options, warrants or rights
thereto) pursuant to or in connection with the Offer. The foregoing is in accordance with the Code of
Ethics for the Professional Accountants in the Philippines (which is based on the International Code of
Ethics for Professional Accountants developed by the International Federation of Accountants) set by the
Board of Accountancy and approved by the Professional Regulation Commission.
LEGAL MATTERS
Ayala Group Legal reviewed certain legal and tax matters in respect of the Offer for the Company.
Romulo Mabanta Buenaventura Sayoc & De Los Angeles provided advise upon certain legal matters in
respect of the Offer for the Joint Lead Underwriters.
None of SGV & Co. or Romulo Mabanta Buenaventura Sayoc & De Los Angeles has any direct or indirect
interest in the Company arising from the Offer.
153
TAXATION
The following is a discussion of certain Philippine tax consequences of the acquisition, ownership and
disposition of the Bonds. This does not purport to be a comprehensive description of the Philippine tax
aspects in respect of the Bonds and no information is provided regarding the tax aspects of acquiring,
owning, holding or disposing of the Bonds under tax laws of other jurisdictions and any specific resulting
Philippine tax consequences thereof. The tax treatment of a holder of Bonds may vary depending upon
such holder’s particular situation, and certain holders may be subject to special rules not discussed
below. This discussion is based upon Philippine laws, regulations, rulings, and tax treaties in effect at the
date of this Prospectus.
PROSPECTIVE PURCHASERS OF THE BONDS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE OWNERSHIP AND
DISPOSITION OF A BOND, INCLUDING THE APPLICABILITY AND EFFECT OF ANY LOCAL OR
FOREIGN TAX LAWS.
As used in this section, the term “resident alien” refers to an individual whose residence is within the
Philippines and who is not a citizen thereof; a “non-resident alien” is an individual whose residence is not
within the Philippines and who is not a citizen of the Philippines. A non-resident alien who is actually
within the Philippines for an aggregate period of more than 180 days during any calendar year is
considered a “non-resident alien doing business in the Philippines,” otherwise, such non-resident alien
who is actually within the Philippines for an aggregate period of 180 days or less during any calendar year
is considered a “non-resident alien not doing business in the Philippines.” A “resident foreign corporation”
is a non-Philippine corporation engaged in trade or business within the Philippines; and a “non-resident
foreign corporation” is a non-Philippine corporation not engaged in trade or business within the
Philippines.
TAXATION OF INTEREST
The Tax Code provides that interest-bearing obligations of Philippine residents are Philippine-sourced
income subject to Philippine income tax. Interest income derived by Philippine resident individuals from
the Bonds is thus subject to income tax, which is withheld at source, generally at the rate of 20%. In
addition, interest on the Bonds received by non-resident foreign individuals engaged in trade or business
in the Philippines is also generally subject to a 20% withholding tax while such interest received by nonresident foreign individuals not engaged in trade or business is taxed at the rate of 25%. Interest income
received by domestic corporations and resident foreign corporations is taxed at the rate of 20%. Interest
income received by non-resident foreign corporations is subject to a 30% final withholding tax. The tax
withheld constitutes a final settlement of Philippine income tax liability with respect to such interest.
The foregoing rates are subject to further reduction by any applicable tax treaties in force between the
Philippines and the country of residence of the non-resident Bondholder. Most tax treaties to which the
Philippines is a party generally provide for a reduced tax rate of 15% in cases where the interest arises in
the Philippines and is paid to a resident of the other contracting state. However, most tax treaties also
provide that reduced withholding tax rates shall not apply if, among others, the recipient of the interest,
who is a resident of the other contracting state, carries on business in the Philippines through a
permanent establishment and the holding of the relevant interest-bearing instrument is effectively
connected with such permanent establishment. Availing of such reduced tax treaty rates will require a
confirmation of entitlement thereto from the BIR, as discussed below.
TAX-EXEMPT OR TAX-REDUCED STATUS
Bondholders who are exempt from or are not subject to final withholding tax on interest income may claim
such exemption by submitting the prescribed proof thereof to the Registrar, or to the Underwriters or
selling agents (together with their completed Application to Purchase) who shall then forward the same to
154
Taxation
the Registrar. These include: (i) certified true copy of the tax exemption certificate issued by the Bureau of
Internal Revenue; (ii) a duly notarized undertaking, in the prescribed form, declaring and warranting its
tax-exempt status, undertaking to immediately notify Ayala and its agents of any suspension or revocation
of the tax exemption certificate and agreeing to indemnify and hold Ayala and its agents free and
harmless against any claims, actions, suits, and liabilities resulting from the non-withholding of the
required tax based on the representation of the Bondholder; and (iii) such other documentary
requirements as may be required under the applicable regulations of the relevant taxing or other
authorities.
Bondholders may transfer their Bonds at anytime, regardless of tax status of the transferor vis-à-vis the
transferee. Should a transfer between Bondholders of different tax status occur on a day which is not an
Interest Payment Date, tax exempt entities trading with non tax exempt entities shall be treated as nontax exempt entities for the interest period within which such transfer occurred. A selling or purchasing
Bondholder claiming tax-exempt status is required to submit the following documents to Ayala no later
than three (3) Business Days from Record Date: (i) a written notification of the sale or purchase, including
the tax status of the selling or buying party, and (ii) an indemnity agreement wherein the new Bondholder
undertakes to indemnify Ayala for any tax or change in tax status that may later on be assessed from
Ayala on account of such transfer or change in tax status.
VALUE-ADDED TAX
Gross receipts arising from the sale of the Bonds in the Philippines by Philippine-registered dealers in
securities and lending investors are subject to 12% value-added tax. The term “gross receipt” means
gross selling price less the acquisition cost of the Bonds sold.
GROSS RECEIPTS TAX
Bank and non-bank financial intermediaries are subject to gross receipts tax on gross receipts derived
from sources within the Philippines in accordance with the following schedule: On interest, commissions
and discounts from lending activities as well as income from financial leasing, on the basis of remaining
maturities of instruments from which such receipts are derived:
Maturity period is five years or less
Maturity period is more than five years
5%
1%
In case the maturity period in respect of the Bonds referred above is shortened as a result of the exercise
of the Put Option, or if the Bonds are otherwise redeemed by Ayala pursuant to the Terms and
Conditions, then the maturity period shall be reckoned to end as of the date of the Put Option or the
redemption as applicable for purposes of classifying the transaction and the correct rate shall be applied
accordingly. Insofar as exercise of the Put Option is concerned, the remaining maturity of the Bonds on
the Put Option Date would be less than five years and thus the 5% rate would be applicable from after the
second year following the Issue Date.
Net trading gains realized within the taxable year on the sale or disposition of the Bonds shall be taxed at
7%.
DOCUMENTARY STAMP TAX
A documentary stamp tax is imposed upon the issuance of debentures and certificates of indebtedness
issued by Philippine companies, such as the Bonds, at the rate of P
= 1.00 for each P
= 200, or fractional part
thereof, of the offer price of such debt instruments; provided that, for debt instruments with terms of less
than one year, the documentary stamp tax to be collected shall be of a proportional amount in
accordance with the ratio of its term in number of days to 365 days.
The documentary stamp tax is collectible wherever the document is made, signed, issued, accepted, or
transferred, when the obligation or right arises from Philippine sources, or the property is situated in the
155
Taxation
Philippines. Ayala has agreed to pay all documentary stamp taxes on the original issue of the Bonds
within the period prescribed by law.
No documentary stamp tax is imposed on the subsequent sale or disposition of the Bonds.
TAXATION ON SALE OR OTHER DISPOSITION OF THE BONDS
Income Tax
A Bondholder will recognize a gain or loss on the sale or other disposition (including the exercise of the
Put Option or upon a redemption by Ayala as allowed under the Terms and Conditions) of the Bonds in
an amount equal to the difference between the amount realized from such disposition and such
Bondholder’s acquisition cost. Such gain or loss is likely to be deemed a capital gain or loss assuming
that the Bondholder has recorded its Bonds as a capital asset.
Under the Tax Code, any gain realized from the sale, exchange or retirement of securities, debentures
and other certificates of indebtedness with an original maturity date of more than five years (as measured
from the date of issuance of such securities, debentures or other certificates of indebtedness) shall not be
subject to income tax. As the Bonds have a maturity of seven years, any gains realized by a Bondholder
on the trading of the Bonds shall be exempt from income tax.
An exercise by a Bondholder of the Put Option in 2015 or a redemption by Ayala as allowed under the
Terms and Conditions would be each considered a sale for purposes of such tax. However, given that
the amount to be received by the Bondholder in each case is limited to par value plus accrued but unpaid
interest, there should be no income tax due on exercise of the Put Option or such redemption, provided
that the Bondholder’s acquisition cost is not lower than par value of the Bonds.
In case of an individual taxpayer, only 50% of the capital gain or loss is recognized upon the sale or
exchange of a capital asset if it has been held for more than 12 months.
Estate and Donor’s Tax
The transfer by a deceased person, whether a Philippine resident or non-Philippine resident, to his heirs
of the Bonds shall be subject to an estate tax which is levied on the net estate of the deceased at
progressive rates ranging from 5% to 20%, if the net estate is over P
= 200,000. A Bondholder shall be
subject to donor’s tax on the transfer of the Bonds by gift at either (i) 30%, where the donee or beneficiary
is a stranger, or (ii) at progressive rates ranging from 2% to 15% if the net gifts made during the calendar
year exceed P
= 100,000 and where the donee or beneficiary is other than a stranger. For this purpose, a
“stranger” is a person who is not a: (a) brother, sister (whether by whole or half-blood), spouse, ancestor
and lineal descendant; or (b) relative by consanguinity in the collateral line within the fourth degree of
relationship.
The estate tax and the donor’s tax, in respect of the Bonds, shall not be collected (a) if the deceased, at
the time of death, or the donor, at the time of the donation, was a citizen and resident of a foreign country
which, at the time of his death or donation, did not impose a transfer tax of any character in respect of
intangible personal property of citizens of the Philippines not residing in that foreign country; or (b) if the
laws of the foreign country of which the deceased or donor was a citizen and resident, at the time of his
death or donation, allows a similar exemption from transfer or death taxes of every character or
description in respect of intangible personal property owned by citizens of the Philippines not residing in
the foreign country.
156
FINANCIAL INFORMATION
The following pages set forth Ayala Corporation’s audited consolidated financial statements as of
December 31, 2009 and 2008 and for each of the three years in the period ended December 31, 2009.
Statement of Management’s Responsibility
for Financial Statements
The management of Ayala Corporation is responsible for all information and representations contained in the consolidated
statements of financial position as at December 31, 2009 and 2008, and the consolidated statements of income, consolidated
statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows
for each of the three years in the period ended December 31, 2009, and the summary of significant accounting policies and
other explanatory notes. The consolidated financial statements have been prepared in accordance with Philippine Financial
Reporting Standards and reflect amounts that are based on the best estimates and informed judgment of management with an
appropriate consideration to materiality.
In this regard, management maintains a system of accounting and reporting which provides for the necessary internal
controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use
or disposition and liabilities are recognized. The management likewise discloses to the Company’s Audit Committee and to
its external auditor: (i) all significant deficiencies in the design or operation of internal controls that could adversely affect its
ability to record, process, and report financial data; (ii) material weaknesses in the internal controls, and (iii) any fraud that
involves management or other employees who exercise significant roles in internal controls.
The Board of Directors reviews the consolidated financial statements before such statements are approved and submitted to
the stockholders of the Company.
SyCip Gorres Velayo & Co., the independent auditors appointed by the Board of Directors and stockholders, has audited the
consolidated financial statements of the Company and its Subsidiaries in accordance with Philippine Standards on Auditing and
has expressed their opinion on the fairness of presentation upon completion of such audit, in their report to the stockholders
and Board of Directors dated March 10, 2010.
JAIME AUGUSTO ZOBEL DE AYALA
Chairman, Board of Directors and Chief Executive Officer
FERNANDO ZOBEL DE AYALA
President and Chief Operating Officer
RUFINO LUIS T. MANOTOK
Chief Finance Officer
72
72 Ayala
AYALACorporation
CORPORATION
Independent Auditors’ Report
The Stockholders and the Board of Directors
Ayala Corporation
Tower One, Ayala Triangle
Ayala Avenue, Makati City
We have audited the accompanying consolidated financial statements of Ayala Corporation and Subsidiaries, which
comprise the consolidated statements of financial position as at December 31, 2009 and 2008, and the consolidated
statements of income, the consolidated statements of comprehensive income, consolidated statements of changes in
equity and consolidated statements of cash flows for each of the three years in the period ended December 31, 2009, and
a summary of significant accounting policies and other explanatory notes. In the consolidated financial statements, the
Group’s investment in the Bank of the Philippine Islands and Subsidiaries is stated at P29,406 million and P28,533 million
as of December 31, 2009 and 2008, respectively, and the Group’s equity in the net income of the Bank of the Philippine
Islands and Subsidiaries is stated at P2,707 million in 2009, P2,145 million in 2008 and P3,291 million in 2007. The
financial statements of the Bank of the Philippine Islands and Subsidiaries, in which the Group has a 33.5% interest in
2009 and 2008, were audited by other auditors whose report has been furnished to us, and our opinion on the
consolidated financial statements, insofar as it relates to the amounts included for the Bank of the Philippine Islands and
Subsidiaries, is based solely on the report of the other auditors.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with Philippine Financial Reporting Standards. This responsibility includes: designing, implementing and
maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and
making accounting estimates that are reasonable in the circumstances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted
our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free
from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors
consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained and the report of other auditors are sufficient and appropriate to
provide a basis for our audit opinion.
Opinion
In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements present fairly,
in all material respects, the financial position of Ayala Corporation and Subsidiaries as of December 31, 2009 and 2008,
and its financial performance and its cash flows for each of the three years in the period ended December 31, 2009 in
accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Lucy L. Chan
Partner
CPA Certificate No. 88118
SEC Accreditation No. 0114-AR-2
Tax Identification No. 152-884-511
PTR No. 2087400, January 4, 2010, Makati City
March 10, 2010
1
2009 ANNUAL REPORT 73
Ayala Corporation and Subsidiaries
Consolidated Statements of Financial Position
(Amounts in Thousands)
ASSETS
Current Assets
Cash and cash equivalents (Notes 4 and 30)
Short-term investments (Notes 5 and 30)
Accounts and notes receivable - net (Notes 6, 29 and 30)
Inventories (Note 7)
Other current assets (Notes 8 and 30)
Total Current Assets
Noncurrent Assets
Noncurrent accounts and notes receivable (Notes 6 and 30)
Land and improvements (Note 9)
Investments in associates and jointly controlled entities - net (Note 10)
Investments in bonds and other securities (Notes 11 and 30)
Investment properties - net (Note 12)
Property, plant and equipment - net (Note 13)
Deferred tax assets - net (Note 23)
Pension assets (Note 25)
Intangible assets - net (Note 14)
Other noncurrent assets
Total Noncurrent Assets
Total Assets
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued expenses (Notes 16, 28 and 29)
Short-term debt (Notes 18 and 30)
Income tax payable
Current portion of long-term debt (Notes 18 and 30)
Other current liabilities (Note 17)
Total Current Liabilities
Noncurrent Liabilities
Long-term debt - net of current portion (Notes 18 and 30)
Deferred tax liabilities - net (Note 23)
Pension liabilities (Note 25)
Other noncurrent liabilities (Note 19)
Total Noncurrent Liabilities
Total Liabilities
Equity
Equity attributable to equity holders of Ayala Corporation
Paid-up capital (Note 20)
Share-based payments (Note 26)
Retained earnings (Note 20)
Cumulative translation adjustments
Net unrealized gain (loss) on available-for-sale financial assets (Note 11)
Parent Company preferred shares held by a subsidiary (Note 20)
Treasury stock (Note 20)
Noncontrolling interests
Total Equity
Total Liabilities and Equity
See accompanying Notes to Consolidated Financial Statements.
74 AYALA CORPORATION
2
2009
December 31
2008
P
= 45,656,889
4,560,976
25,232,799
10,797,048
6,547,004
92,794,716
P
= 42,885,792
1,008,924
23,284,010
10,011,355
7,090,394
84,280,475
2,657,623
17,582,562
71,556,952
3,543,458
29,089,730
7,771,863
1,395,992
132,419
4,611,884
1,341,836
139,684,319
P
= 232,479,035
6,694,021
15,756,894
68,140,394
3,064,502
21,344,980
13,884,817
1,132,847
117,388
3,865,397
1,906,172
135,907,412
P
= 220,187,887
P
= 27,664,537
2,638,658
506,114
2,453,144
2,821,932
36,084,385
P
= 27,483,536
2,755,447
214,697
1,478,871
1,553,530
33,486,081
51,431,583
207,425
228,312
9,109,180
60,976,500
97,060,885
50,250,151
185,536
490,744
7,588,080
58,514,511
92,000,592
37,477,875
1,059,588
65,739,096
(1,351,334)
123,916
(100,000)
(688,714)
102,260,427
33,157,723
135,418,150
P
= 232,479,035
37,251,714
705,457
61,604,466
(968,778)
(631,127)
(100,000)
(550,540)
97,311,192
30,876,103
128,187,295
P
= 220,187,887
Ayala Corporation and Subsidiaries
Consolidated Statements of Income
(Amounts in Thousands, Except Earnings Per Share Figures)
Years Ended December 31
2009
2008
REVENUE
Sales and services (Notes 12 and 29)
Equity in net income of associates and jointly controlled entities
Interest income
Other income (Note 21)
COSTS AND EXPENSES
Costs of sales and services (Notes 7, 12, 21 and 29)
General and administrative (Notes 21, 25 and 29)
Interest expense and other financing charges (Notes 18 and 21)
Other charges (Note 21)
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX (Note 23)
Current
Deferred
P
= 62,627,206
7,361,015
2,497,077
3,808,517
76,293,815
P
= 64,052,828
7,396,180
2,242,895
5,416,750
79,108,653
P
= 56,578,214
9,767,222
1,693,045
10,728,375
78,766,856
49,318,294
9,214,570
3,822,342
1,435,038
63,790,244
12,503,571
50,014,366
9,485,514
4,937,108
1,595,422
66,032,410
13,076,243
43,169,110
9,498,306
4,120,160
1,569,944
58,357,520
20,409,336
2,010,214
(311,530)
1,698,684
INCOME BEFORE INCOME ASSOCIATED WITH NONCURRENT
ASSETS HELD FOR SALE
INCOME ASSOCIATED WITH NONCURRENT ASSETS HELD
FOR SALE - net of tax (Note 15)
NET INCOME
Net Income Attributable to:
Equity holders of Ayala Corporation
Noncontrolling interests
EARNINGS PER SHARE (Note 24)
Basic
Income before income associated with noncurrent assets held
for sale attributable to equity holders of Ayala Corporation
2007
2,442,789
(25,234)
2,417,555
1,979,820
(7,825)
1,971,995
10,804,887
10,658,688
18,437,341
–
P
= 10,804,887
–
P
= 10,658,688
624,788
P
= 19,062,129
P
= 8,154,345
2,650,542
P
= 10,804,887
P
= 8,108,597
2,550,091
P
= 10,658,688
P
= 16,256,601
2,805,528
P
= 19,062,129
P
= 14.23
P
= 15.22
P
= 30.64
Net income attributable to equity holders of Ayala Corporation
Diluted
Income before income associated with noncurrent assets held
for sale attributable to equity holders of Ayala Corporation
14.23
15.22
31.62
P
= 14.19
P
= 15.17
P
= 30.50
Net income attributable to equity holders of Ayala Corporation
14.19
15.17
31.47
See accompanying Notes to Consolidated Financial Statements.
3
2009 ANNUAL REPORT 75
Ayala Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(Amounts in Thousands)
Years Ended December 31
2009
2008
2007
P
= 10,804,887
P
= 10,658,688
P
= 19,062,129
NET INCOME
OTHER COMPREHENSIVE INCOME
Exchange differences arising from translations of foreign
investments
Change in fair value of available-for-sale financial assets
SHARE OF OTHER COMPREHENSIVE INCOME OF
ASSOCIATES AND JOINTLY CONTROLLED ENTITIES
Exchange differences arising from translations of foreign
investments
Change in fair value of available-for-sale financial assets
TOTAL COMPREHENSIVE INCOME
Total Comprehensive Income Attributable To:
Equity holders of Ayala Corporation
Noncontrolling interests
See accompanying Notes to Consolidated Financial Statements.
76 AYALA CORPORATION
4
(260,419)
431,329
170,910
1,805,405
(751,054)
1,054,351
(2,274,022)
97,688
(2,176,334)
(226,115)
322,448
96,333
P
= 11,072,130
(203,276)
(1,586,875)
(1,790,151)
P
= 9,922,888
(83,389)
(435,029)
(518,418)
P
= 16,367,377
P
= 8,526,832
2,545,298
P
= 11,072,130
P
= 7,093,753
2,829,135
P
= 9,922,888
P
= 13,891,328
2,476,049
P
= 16,367,377
5
2009 ANNUAL REPORT 77
At January 1, 2009
Net income
Other comprehensive income
Total comprehensive income
Issuance/subscription of shares
Cost of share-based payments of Ayala Corporation
Cost of share-based payments of investees
Acquisition of treasury stock
Cash dividends
Increase in noncontrolling interests
At December 31, 2009
(Amounts in Thousands)
P
= 37,251,714
–
–
–
226,161
–
–
–
–
–
P
= 37,477,875
Paid-up Capital
(Note 20)
P
= 705,457
–
–
–
(1,708)
4,429
351,410
–
–
–
P
= 1,059,588
(P
= 968,778)
–
(382,556)
(382,556)
–
–
–
–
–
–
(P
= 1,351,334)
Share-based Cumulative
Payments Translation
(Note 26) Adjustments
Consolidated Statements of Changes in Equity
Ayala Corporation and Subsidiaries
Net Unrealized
Gain (Loss) on Parent Company
Available-for- Preferred Shares
Held by a
Retained Sale Financial
Subsidiary Treasury Stock Noncontrolling
Assets
Earnings
(Note 20)
(Note 20)
Interests
(Note 11)
(Note 20)
For the year ended December 31, 2009
P
= 61,604,466
(P
= 631,127)
(P
= 100,000)
(P
= 550,540)
P
= 30,876,103
8,154,345
–
–
–
2,650,542
–
755,043
–
–
(105,244)
8,154,345
755,043
–
–
2,545,298
–
–
–
–
–
–
–
–
–
–
–
–
–
–
63,398
–
–
–
(138,174)
–
(4,019,715)
–
–
–
(537,017)
–
–
–
–
209,941
P
= 65,739,096
P
= 123,916
(P
= 100,000)
(P
= 688,714)
P
= 33,157,723
P
= 128,187,295
10,804,887
267,243
11,072,130
224,453
4,429
414,808
(138,174)
(4,556,732)
209,941
P
= 135,418,150
Total
Equity
78 AYALA CORPORATION
6
At January 1, 2008
Net income
Other comprehensive income
Total comprehensive income
Issuance/subscription of shares
Additions to subscriptions receivable
Cost of share-based payments of Ayala
Corporation
Cost of share-based payments of investees
Parent Company preferred shares held by a
subsidiary
Acquisition of treasury stock
Cash dividends
Stock dividends
Increase in noncontrolling interests
At December 31, 2008
4,018
118,291
–
–
–
–
–
P
= 705,457
–
–
–
–
–
4,138,716
–
P
= 37,251,714
P
= 26,855,394
–
–
–
6,322,349
(64,745)
Paid-up Capital
(Note 20)
–
–
–
–
–
–
–
(2,538,036)
–
(4,138,716)
–
–
(P
= 968,778) P
= 61,604,466
–
–
–
–
–
–
–
(P
= 631,127)
–
–
(100,000)
–
–
–
–
(P
= 100,000)
–
–
–
(390,847)
–
–
–
(P
= 550,540)
–
–
–
–
(552,592)
–
962,727
P
= 30,876,103
–
27,446
Net Unrealized
Gain (Loss) on Parent Company
Available-for- Preferred Shares
Held by a
Retained Sale Financial
Share-based Cumulative
Subsidiary Treasury Stock Noncontrolling
Assets
Earnings
Payments Translation
(Note 20)
(Note 20)
Interests
(Note 11)
(Note 20)
(Note 26) Adjustments
For the year ended December 31, 2008
P
= 603,949 (P
= 2,297,077) P
= 60,172,621
P
= 1,712,016
P
=–
(P
= 159,693)
P
= 27,609,387
–
–
8,108,597
–
–
–
2,550,091
–
1,328,299
–
(2,343,143)
–
–
279,044
–
1,328,299
8,108,597
(2,343,143)
–
–
2,829,135
(20,801)
–
–
–
–
–
–
–
–
–
–
–
–
–
(100,000)
(390,847)
(3,090,628)
–
962,727
P
= 128,187,295
4,018
145,737
P
= 114,496,597
10,658,688
(735,800)
9,922,888
6,301,548
(64,745)
Total
Equity
7
2009 ANNUAL REPORT 79
–
–
–
–
3,449,584
–
P
= 26,855,394
P
= 23,137,948
–
–
–
364,129
(96,267)
Paid-up Capital
(Note 20)
See accompanying Notes to Consolidated Financial Statements.
At January 1, 2007
Net income
Other comprehensive income
Total comprehensive income
Issuance/subscription of shares
Additions to subscriptions receivable
Cost of share-based payments of Ayala
Corporation
Cost of share-based payments of investees
Acquisition of treasury stock
Cash dividends
Stock dividends
Increase in noncontrolling interests
At December 31, 2007
(Amounts in Thousands)
10,718
34,815
–
–
–
–
P
= 603,949
–
–
–
–
–
–
(P
= 2,297,077)
–
–
–
(3,860,978)
(3,449,584)
–
P
= 60,172,621
–
–
–
–
–
–
P
= 1,712,016
–
–
(159,383)
–
–
–
(P
= 159,693)
–
201
–
(533,625)
–
968,027
P
= 27,609,387
Net Unrealized
Gain (Loss) on
Available-forSale Financial
Retained
Cumulative
Share-based
Assets Treasury Stock Noncontrolling
Earnings
Translation
Payments
(Note 11)
(Note 20)
Interests
(Note 20)
Adjustments
(Note 26)
For the year ended December 31, 2007
P
= 558,416
(P
= 298,310)
P
= 51,226,582
P
= 2,078,522
(P
= 310)
P
= 24,698,735
–
16,256,601
2,805,528
–
(1,998,767)
(366,506)
(329,479)
–
(1,998,767)
16,256,601
(366,506)
–
2,476,049
–
–
–
–
–
–
–
–
–
–
–
–
Consolidated Statements of Changes in Equity
Ayala Corporation and Subsidiaries
10,718
35,016
(159,383)
(4,394,603)
–
968,027
P
= 114,496,597
P
= 101,401,583
19,062,129
(2,694,752)
16,367,377
364,129
(96,267)
Total
Equity
Ayala Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Amounts in Thousands)
2009
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Interest and other financing charges - net of amount
capitalized (Note 21)
Depreciation and amortization (Note 21)
Provision for impairment loss (Note 21)
Cost of share-based payments (Note 26)
Equity in net income of associates and jointly controlled entities
Interest income
Gain on sale of investments (Note 21)
Bargain purchase gain (Note 21)
Other investment income (Note 21)
Gain on sale of other assets (Note 21)
Impairment loss on goodwill (Note 21)
Operating income before changes in working capital
Decrease (increase) in:
Accounts and notes receivable (Note 32)
Inventories
Other current assets
Increase (decrease) in:
Accounts payable and accrued expenses
Other current liabilities
Net pension liabilities
Cash generated from operations
Interest received
Interest paid
Income tax paid
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Sale of investments
Sale of available-for-sale financial assets
Disposals of property, plant and equipment
Maturities of (additions to) short-term investments
Additions to:
Investments
Available-for-sale financial assets
Land and improvements (Note 9)
Investment properties (Note 12)
Property, plant and equipment (Note 13)
Dividends received from associates and jointly controlled entities
Acquisitions through business combinations by subsidiaries - net
of cash acquired (Note 22)
Decrease (increase) in other noncurrent assets
Net cash provided by (used in) investing activities before cash
items associated with noncurrent assets held for sale
Net cash provided by investing activities associated with noncurrent
assets held for sale, including cash balance
Net cash provided by (used in) investing activities
(Forward)
80 AYALA CORPORATION
8
P
= 12,503,571
Years Ended December 31
2008
2007
P
= 13,076,243
P
= 20,409,336
3,822,342
3,345,985
1,435,038
471,572
(7,361,015)
(2,497,077)
(1,698,820)
(235,851)
(227,015)
(168,063)
–
9,390,667
3,481,156
2,940,216
1,259,085
342,919
(7,396,180)
(2,242,895)
(3,554,679)
–
(264,495)
(45,409)
–
7,595,961
4,120,160
2,988,879
–
288,050
(9,767,222)
(1,693,045)
(8,844,822)
–
(73,500)
(54,064)
662,591
8,036,363
559,913
(863,784)
394,741
(8,896,301)
(1,248,050)
(1,197,782)
(2,254,055)
1,981,833
863,696
(538,698)
977,356
(277,463)
9,642,732
2,363,205
(3,921,315)
(1,407,267)
6,677,355
4,169,567
(38,164)
(17,620)
367,611
2,183,379
(3,655,908)
(2,514,143)
(3,619,061)
4,239,429
97,469
105,848
13,070,583
1,469,236
(3,837,504)
(1,989,616)
8,712,699
3,280,322
775,353
853,945
(3,552,052)
9,777,713
139,095
176,166
2,678,683
7,930,635
7,221,574
1,060,647
(759,678)
(1,872,563)
(926,982)
(3,396,777)
(3,512,819)
(2,488,770)
7,679,137
(6,117,884)
(2,220,736)
(145,544)
(773,616)
(5,965,432)
8,326,390
(2,851,887)
(2,993,868)
(548,392)
(929,835)
(3,302,179)
8,050,049
(800,312)
583,436
(891,935)
292,557
(326,030)
(631,428)
(3,378,082)
5,275,457
11,919,608
–
(3,378,082)
–
5,275,457
624,788
12,544,396
2009
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Short-term and long-term debt
Issuance of preferred shares
Issuance of common shares
Collections of (additions to) subscriptions receivable
Payments of short-term and long-term debt
Dividends paid
Acquisition of treasury shares (Note 20)
Redemption of preferred shares
Increase in:
Other noncurrent liabilities
Noncontrolling interests in consolidated subsidiaries
Net cash provided by (used in) financing activities
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 4)
Years Ended December 31
2008
2007
P
= 13,303,049
–
–
31,198
(11,826,486)
(3,626,165)
(138,173)
–
P
= 13,045,651
5,958,307
–
(64,745)
(12,025,905)
(2,925,409)
(390,848)
–
P
= 21,742,528
–
209,687
(96,267)
(21,392,701)
(4,255,580)
(159,383)
(2,500,000)
1,518,460
209,941
(528,176)
2,771,097
42,885,792
P
= 45,656,889
396,915
399,881
4,393,847
6,050,243
36,835,549
P
= 42,885,792
676,578
962,291
(4,812,847)
16,444,248
20,391,301
P
= 36,835,549
See accompanying Notes to Consolidated Financial Statements.
9
2009 ANNUAL REPORT 81
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1.
Corporate Information
Ayala Corporation (the Company) is incorporated in the Republic of the Philippines. The Company’s registered office
address and principal place of business is Tower One, Ayala Triangle, Ayala Avenue, Makati City. The Company is a
publicly listed company which is 50.78% owned by Mermac, Inc., 10.55% owned by Mitsubishi Corporation and the
rest by the public.
The Company is the holding company of the Ayala Group of Companies, with principal business interests in real
estate and hotels, financial services and bancassurance, telecommunications, electronics, information technology and
business process outsourcing services, utilities, automotives, international and others.
The consolidated financial statements of Ayala Corporation and Subsidiaries (the Group) as of December 31, 2009
and 2008 and for each of the three years in the period ended December 31, 2009 were endorsed for approval by the
Audit Committee on March 5, 2010 and authorized for issue by the Executive Committee of the Board of Directors
(BOD) on March 10, 2010.
2.
Summary of Significant Accounting Policies
Basis of Preparation
The accompanying consolidated financial statements of the Group have been prepared on a historical cost basis,
except for financial assets at fair value through profit or loss (FVPL), available-for-sale (AFS) financial assets and
derivative financial instruments that have been measured at fair value. The consolidated financial statements are
presented in Philippine Peso (P
= ) and all values are rounded to the nearest thousand pesos (P
= 000) unless otherwise
indicated.
Statement of Compliance
The consolidated financial statements of the Group have been prepared in compliance with Philippine Financial
Reporting Standards (PFRS).
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Group as of December 31, 2009 and
2008 and for each of the three years in the period ended December 31, 2009. The financial statements of the
subsidiaries are prepared for the same reporting year as the Company.
The consolidated financial statements are prepared using uniform accounting policies for like transactions and other
events in similar circumstances. All significant intercompany transactions and balances, including intercompany
profits and unrealized profits and losses, are eliminated in consolidation.
Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and
continue to be consolidated until the date that such control ceases.
The consolidated financial statements comprise the financial statements of the Company and the following wholly and
majority-owned domestic and foreign subsidiaries:
Effective Percentages
of Ownership
2009
2008
Real Estate and Hotels:
Ayala Land, Inc. (ALI) and subsidiaries (ALI Group)
Ayala Hotels, Inc. (AHI) and subsidiaries
Electronics, Information Technology and Business
Process Outsourcing Services:
Azalea Technology Investments, Inc. and
subsidiaries (Azalea Technology)
(Forward)
82 AYALA CORPORATION
10
53.3*
76.7
100.0
53.5*
76.8
100.0
Effective Percentages
of Ownership
2009
2008
Azalea International Venture Partners, Limited
(AIVPL) (British Virgin Islands Company)
and subsidiaries
LiveIt Solutions, Inc. (LSI) and subsidiaries
Technopark Land, Inc.
Integrated Microelectronics, Inc. (IMI) and
subsidiaries**
Automotive:
Ayala Automotive Holdings Corporation (AAHC)
and subsidiaries
International and Others:
Bestfull Holdings Limited (incorporated in Hong Kong)
and subsidiaries (BHL Group)
AC International Finance Limited (ACIFL)
(Cayman Island Company) and subsidiary
AYC Finance Ltd. (Cayman Island Company)
Michigan Holdings, Inc. (MHI) and subsidiary
Ayala Aviation Corporation
Darong Agricultural and Development Corporation
100.0
100.0
78.8
100.0
100.0
78.8
67.8
67.8
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
*The Company owns 75.33% and 75.46% of the total common and preferred shares of ALI as of December 31, 2009 and 2008, respectively.
** A subsidiary of AYC Holdings, Ltd. which is a subsidiary of ACIFL.
On various dates in 2008, the Company converted US$171.88 million of its deposits for future stock subscription in
AIVPL into equity, increasing the Company’s ownership from 68.71% to 97.78%. Consequently, Azalea Technology’s
ownership in AIVPL was diluted from 31.29% to 2.22%.
On May 1, 2008, AIVPL converted its US$124 million deposits for future stock subscription in LiveIt Investments Ltd.
(LIL) giving it 99.99% ownership interest in LIL. LSI, which previously held 100% of LIL, now holds 0.01% stake in
LIL. LIL carries the Group’s investments in Integreon Managed Solutions Inc. (Integreon), Affinity Express Inc. and
Newbridge International Investments (Newbridge).
On March 1, 2008, the Company entered into a Deed of Assignment with AIVPL to transfer the Company’s shares of
Bayantrade in exchange for AIVPL’s shares of stocks.
Noncontrolling interests represent the portion of profit or loss and net assets in subsidiaries not wholly owned and are
presented separately in the consolidated statements of income and changes in equity and within the equity section in
the consolidated statements of financial position, separately from the Company’s equity. Acquisitions of
noncontrolling interests are accounted for using the parent entity extension method, whereby, the difference between
the consideration and the book value of the share of the nets assets acquired is recognized as goodwill.
Changes in Accounting Policies
The accounting policies adopted are consistent with those of the previous financial years except for the adoption of
the following new and amended PFRS and Philippine Interpretations of International Financial Reporting
Interpretation Committee (IFRIC) which became effective beginning January 1, 2009.
PAS 1, Presentation of Financial Statements
The revised standard introduces a new statement of comprehensive income that combines all items of income and
expenses recognized in the profit or loss together with ‘other comprehensive income’. Entities may choose to present
all items in one statement, or to present two linked statements, a separate statement of income and a statement of
comprehensive income. This Standard also requires additional requirements in the presentation of the statements of
financial position and owner’s equity as well as additional disclosures to be included in the financial statements. The
Group elected to present two statements, a consolidated statement of income and a consolidated statement of
comprehensive income. The consolidated financial statements have been prepared following the revised disclosure
requirements.
PAS 23, Borrowing Costs
The Standard has been revised to require capitalization of borrowing costs when such costs relate to a qualifying
asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended
use or sale. It has been the Group’s policy to capitalize borrowing costs, and as such, adoption of this revised
standard did not have any impact on the consolidated financial statements.
11
2009 ANNUAL REPORT 83
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
PFRS 8, Operating Segments
PFRS 8 replaced PAS 14, Segment Reporting, and adopts a full management approach to identifying, measuring and
disclosing the results of an entity’s operating segments. The information reported would be that which management
uses internally for evaluating the performance of operating segments and allocating resources to those segments.
Such information may be different from that reported in the consolidated statements of financial position and
consolidated statement of income and the Group will provide explanations and reconciliations of the differences. This
Standard is only applicable to an entity that has debt or equity instruments that are traded in a public market or that
files (or is in the process of filing) its financial statements with a securities commission or similar party. The Group
has enhanced its current manner of reporting segment information to include additional information used by
management internally. Segment information from prior years was restated to include additional information
(see Note 27).
Philippine Interpretation IFRIC 13, Customer Loyalty Programmes
This Interpretation requires customer loyalty award credits to be accounted for as a separate component of the sales
transaction in which they are granted and therefore part of the fair value of the consideration received is allocated to
the award credits and realized in income over the period that the award credits are redeemed or expire. The Group
does not grant loyalty award credits to customers. As such, adoption of this Interpretation did not have any impact on
the consolidated financial statements.
Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation
This Interpretation provides guidance on identifying foreign currency risks that qualify for hedge accounting in the
hedge of a net investment; where within the group the hedging instrument can be held in the hedge of a net
investment; and how an entity should determine the amount of foreign currency gains or losses, relating to both the
net investment and the hedging instrument, to be recycled on disposal of the net investment. Adoption of this
Interpretation did not have any impact on the consolidated financial statements.
Amendment to PAS 32, Financial Instruments: Presentation and PAS 1, Presentation of Financial Statements Puttable Financial Instruments and Obligations Arising on Liquidation
These amendments specify, among others, that puttable financial instruments will be classified as equity if they have
all of the following specified features: (a) Instrument entitles the holder to require the entity to repurchase or redeem
the instrument (either on an ongoing basis or on liquidation) for a pro rata share of the entity’s net assets,
(b) Instrument is in the most subordinate class of instruments, with no priority over other claims to the assets of the
entity on liquidation, (c) Instruments in the subordinate class have identical features; (d) The instrument does not
include any contractual obligation to pay cash or financial assets other than the holder’s right to a pro rata share of the
entity’s net assets; and (e) Total expected cash flows attributable to the instrument over its life are based substantially
on the profit or loss, a change in recognized net assets, or a change in the fair value of the recognized and
unrecognized net assets of the entity over the life of the instrument. Adoption of these amendments did not have any
impact on the consolidated financial statements.
Amendments to PFRS 1, First-time Adoption of Philippine Financial Reporting Standards and PAS 27, Consolidated
and Separate Financial Statements - Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate
The amended PFRS 1 allows an entity, in its separate financial statements, to determine the cost of investments in
subsidiaries, jointly controlled entities or associates (in its opening PFRS financial statements) as one of the following
amounts: a) cost determined in accordance with PAS 27; b) at the fair value of the investment at the date of transition
to PFRS, determined in accordance with PAS 39; or c) previous carrying amount (as determined under generally
accepted accounting principles) of the investment at the date of transition to PFRS. The Amendments to PAS 27 has
changes in respect of the holding companies’ separate financial statements including (a) the deletion of ‘cost method’,
making the distinction between pre- and post-acquisition profits no longer required; and (b) in cases of
reorganizations where a new parent is inserted above an existing parent of the group (subject to meeting specific
requirements), the cost of the subsidiary is the previous carrying amount of its share of equity items in the subsidiary
rather than its fair value. All dividends will be recognized in profit or loss. However, the payment of such dividends
requires the entity to consider whether there is any indicator of impairment. The new requirement does not have an
impact on the consolidated financial statements.
Amendments to PFRS 2, Share-based Payment - Vesting Condition and Cancellations
This Standard has been revised to clarify the definition of a vesting condition and prescribes the treatment for an
award that is effectively cancelled. It defines a vesting condition as a condition that includes an explicit or implicit
requirement to provide services. It further requires nonvesting conditions to be treated in a similar fashion to market
conditions. Failure to satisfy a nonvesting condition that is within the control of either the entity or the counterparty is
accounted for as a cancellation. However, failure to satisfy a nonvesting condition that is beyond the control of either
party does not give rise to a cancellation. Adoption of this revised standard did not have any impact on the
consolidated financial statements.
84 AYALA CORPORATION
12
Amendment to PFRS 7, Financial Instruments: Disclosures
The amended PFRS 7 requires additional disclosure about fair value measurement and liquidity risk. Fair value
measurements related to items recorded at fair value are to be disclosed by source of inputs using a three level
hierarchy for each class of financial instrument. In addition, a reconciliation between the beginning and ending
balance for Level 3 fair value measurements is now required, as well as significant transfers between Level 1 and
Level 2 fair value measurements. The amendments also clarify the requirements for liquidity risk disclosures as
follows: (a) exclusion of derivative liabilities from maturity analysis unless the contractual maturities are essential for
an understanding of the timing of the cash flows; and (b) inclusion of financial guarantee contracts in the contractual
maturity analysis based on the maximum amount guaranteed. The fair value measurement disclosures are presented
in Note 30 to the consolidated financial statements while the current liquidity risk disclosures are not significantly
impacted by the amendments.
Amendment to Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives and PAS 39, Financial
Instruments: Recognition and Measurement
These amendments require an entity to assess whether an embedded derivative must be separated from a host
contract when the entity reclassifies a hybrid financial asset out of the fair value through profit or loss category. This
assessment is to be made based on circumstances that existed on the later of the date the entity first became a party
to the contract and the date of any contract amendments that significantly change the cash flows of the contract.
PAS 39 now states that if an embedded derivative cannot be reliably measured, the entire hybrid instrument must
remain classified as fair value through profit or loss. Adoption of these amendments did not have any impact on the
consolidated financial statements.
Improvements to PFRS
In May 2008 and April 2009, the International Accounting Standards Board issued its first omnibus of amendments to
certain standards, primarily with a view to removing inconsistencies and clarifying wordings. There are separate
transitional provisions for each Standard. These amendments are effective beginning January 1, 2009. The adoption
of the following amendments resulted in changes to accounting policies but did not have any impact on the
consolidated financial statements.
PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations
When a subsidiary is held for sale, all of its assets and liabilities will be classified as held for sale under PFRS 5,
even when the entity retains a noncontrolling interests in the subsidiary after the sale.
PAS 1, Presentation of Financial Statements
Assets and liabilities classified as held for trading are not automatically classified as current in the consolidated
statement of financial position.
PAS 16, Property, Plant and Equipment
This amendment replaces the term ‘net selling price’ with ‘fair value less costs to sell’, to be consistent with
PFRS 5 and PAS 36, Impairment of Assets.
Items of property, plant and equipment held for rental that are routinely sold in the ordinary course of business
after rental, are transferred to inventory when rental ceases and they are held for sale. Proceeds of such sales
are subsequently shown as revenue. Cash payments on initial recognition of such items, the cash receipts from
rents and subsequent sales are all shown as cash flows from operating activities.
PAS 18, Revenue
The amendment adds guidance (which accompanies the Standard) to determine whether an entity is acting as a
principal or as an agent. The features to consider are whether the entity:
a.
b.
c.
d.
has primary responsibility for providing the goods or service;
has inventory risk;
has discretion in establishing prices; and,
bears the credit risk
The Group assessed its revenue arrangements against these criteria and concluded that it is acting as principal
in all arrangements.
PAS 19, Employee Benefits
Revises the definition of ‘past service cost’ to include reduction in benefits related to past services (‘negative past
service cost’) and to exclude reduction in benefits related to future services that arise from plan amendments.
Amendments to plans that result in a reduction in benefits related to future services are accounted for as a
curtailment.
13
2009 ANNUAL REPORT 85
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
It revises the definition of ‘return on plan assets’ to exclude plan administration costs if they have already been
included in the actuarial assumptions used to measure the defined benefit obligation.
Revises the definition of ‘short-term’ and ‘other long-term’ employee benefits to focus on the point in time at
which the liability is due to be settled and it deletes the reference to the recognition of contingent liabilities to
ensure consistency with PAS 37, Provisions, Contingent Liabilities and Contingent Assets.
PAS 23, Borrowing Costs
Revises the definition of borrowing costs to consolidate the types of items that are considered components of
‘borrowing costs’, i.e., components of the interest expense calculated using the effective interest rate method.
PAS 28, Investments in Associates
If an associate is accounted for at fair value in accordance with PAS 39, only the requirement of PAS 28 to
disclose the nature and extent of any significant restrictions on the ability of the associate to transfer funds to the
entity in the form of cash or repayment of loans applies.
An investment in an associate is a single asset for the purpose of conducting the impairment test. Therefore, any
impairment test is not separately allocated to the goodwill included in the investment balance.
PAS 29, Financial Reporting in Hyperinflationary Economies
Revises the reference to the exception that assets and liabilities should be measured at historical cost, such that
it notes property, plant and equipment as being an example, rather than implying that it is a definitive list.
PAS 31, Interests in Joint Ventures
If a joint venture is accounted for at fair value in accordance with PAS 39, only the requirements of PAS 31 to
disclose the commitments of the venturer and the joint venture, as well as summary financial information about
the assets, liabilities, income and expense will apply.
PAS 36, Impairment of Assets
When discounted cash flows are used to estimate ‘fair value less costs to sell’, additional disclosure is required
about the discount rate, consistent with disclosures required when the discounted cash flows are used to
estimate ‘value in use’.
PAS 38, Intangible Assets
Expenditure on advertising and promotional activities is recognized as an expense when the Group either has the
right to access the goods or has received the services. Advertising and promotional activities now specifically
include mail order catalogues.
It deletes references to there being rarely, if ever, persuasive evidence to support an amortization method for
finite life intangible assets that results in a lower amount of accumulated amortization than under the straight-line
method, thereby effectively allowing the use of the unit-of-production method.
PAS 39, Financial Instruments: Recognition and Measurement
Changes in circumstances relating to derivatives, specifically derivatives designated or de-designated as hedging
instruments after initial recognition are not reclassifications.
When financial assets are reclassified as a result of an insurance company changing its accounting policy in
accordance with paragraph 45 of PFRS 4, Insurance Contracts, this is a change in circumstance, not a
reclassification.
It removes the reference to a ‘segment’ when determining whether an instrument qualifies as a hedge.
It requires use of the revised effective interest rate (rather than the original effective interest rate) when
re-measuring a debt instrument on the cessation of fair value hedge accounting.
PAS 40, Investment Property
It revises the scope (and the scope of PAS 16) to include property that is being constructed or developed for
future use as an investment property. Where an entity is unable to determine the fair value of an investment
property under construction, but expects to be able to determine its fair value on completion, the investment
under construction will be measured at cost until such time as fair value can be determined or construction is
complete.
86 AYALA CORPORATION
14
PAS 41, Agriculture
It removes the reference to the use of a pre-tax discount rate to determine fair value, thereby allowing use of
either a pre-tax or post-tax discount rate depending on the valuation methodology used.
It removes the prohibition to take into account cash flows resulting from any additional transformations when
estimating fair value. Instead, cash flows that are expected to be generated in the ‘most relevant market’ are
taken into account.
Future Changes in Accounting Policies
The Group will adopt the following standards and interpretations enumerated below when these become effective.
Except as otherwise indicated, the Group does not expect the adoption of these new and amended PFRS and
Philippine Interpretations to have significant impact on the consolidated financial statements.
Effective in 2010
Revised PFRS 3, Business Combinations and PAS 27, Consolidated and Separate Financial Statements
The revised PFRS 3 and revised PAS 27 will be effective for annual periods beginning on or after July 1, 2009.
Revised PFRS 3 introduces a number of changes in the accounting for business combinations that will impact the
amount of goodwill recognized, the reported results in the period that an acquisition occurs, and future reported
results. Revised PAS 27 requires, among others, that (a) change in ownership interests of a subsidiary (that do not
result in loss of control) will be accounted for as an equity transaction and will have no impact on goodwill nor will it
give rise to a gain or loss; (b) losses incurred by the subsidiary will be allocated between the controlling and
noncontrolling interests (previously referred to as ‘minority interests’); even if the losses exceed the noncontrolling
equity investment in the subsidiary; and (c) on loss of control of a subsidiary, any retained interest will be remeasured
to fair value and this will impact the gain or loss recognized on disposal. The changes introduced by the revised
PFRS 3 must be applied prospectively, while changes introduced by revised PAS 27 must be applied retrospectively
with a few exceptions. The changes will affect future acquisitions and transactions with noncontrolling interest.
Amendment to PAS 39, Financial Instruments: Recognition and Measurement - Eligible hedged items
The Amendment to PAS 39 will be effective for annual periods beginning on or after July 1, 2009. This Amendment
addresses only the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk
or portion in particular situations. This amendment clarifies that an entity is permitted to designate a portion of the fair
value changes or cash flow variability of a financial instrument as a hedged item.
Philippine Interpretation IFRIC 17, Distributions of Non-Cash Assets to Owners
IFRIC 17 will be effective for annual periods beginning on or after July 1, 2009. This Interpretation provides guidance
on the following types of non-reciprocal distributions of assets by an entity to its owners acting in their capacity as
owners: (a) distributions of non-cash assets (e.g. items of property, plant and equipment, businesses as defined in
PFRS 3, ownership interests in another entity or disposal groups as defined in PFRS 5; and (b) distributions that give
owners a choice of receiving either non-cash assets or a cash alternative. The Group does not expect the
Interpretation to have an impact on the consolidated financial statements.
Philippine Interpretation IFRIC 18, Transfers of Assets from Customers
This Interpretation will be effective for annual periods beginning on or after July 1, 2009. This Interpretation is to be
applied prospectively to transfers of assets from customers received on or after July 1, 2009. The Interpretation
provides guidance on how to account for items of property, plant and equipment received from customers or cash that
is received and used to acquire or construct assets that are used to connect the customer to a network or to provide
ongoing access to a supply of goods or services or both. When the transferred item meets the definition of an asset,
the asset is measured at fair value on initial recognition as part of an exchange transaction. The service(s) delivered
are identified and the consideration received (the fair value of the asset) allocated to each identifiable service.
Revenue is recognized as each service is delivered by the entity.
Amendments to PFRS 2, Group Cash-settled Share-based Payment Transactions
The amendments to PFRS 2, Share-based Payments is effective for annual periods beginning on or after January 1,
2010, clarify the scope and the accounting for group cash-settled share-based payment transactions. The Group has
concluded that the amendment will have no impact on the financial position or performance of the Group as the Group
has not entered into any such share-based payment transactions.
15
2009 ANNUAL REPORT 87
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Improvements to PFRS
The omnibus amendments to PFRSs issued in 2009 were issued primarily with a view to removing inconsistencies
and clarifying wording. The amendments are effective for annual periods beginning January 1, 2010 except as
otherwise stated. The Group has not yet adopted the following amendments and anticipates that these changes will
have no material effect on the consolidated financial statements.
PFRS 2, Share-based Payment
The Amendment clarifies that the contribution of a business on formation of a joint venture and combinations
under common control are not within the scope of PFRS 2 even though they are out of scope of PFRS 3. The
amendment is effective for financial years on or after July 1, 2009.
PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations
The Amendment clarifies that the disclosures required in respect of noncurrent assets and disposal groups
classified as held for sale or discontinued operations are only those set out in PFRS 5. The disclosure
requirements of other PFRSs only apply if specifically required for such non-current assets or discontinued
operations.
PFRS 8, Operating Segment Information
The Amendment clarifies that segment assets and liabilities need only be reported when those assets and
liabilities are included in measures that are used by the chief operating decision maker.
PAS 1, Presentation of Financial Statements
The Amendment clarifies that the terms of a liability that could result, at anytime, in its settlement by the issuance
of equity instruments at the option of the counterparty do not affect its classification.
PAS 7, Statement of Cash Flows
The Amendment explicitly states that only expenditure that results in a recognized asset can be classified as a
cash flow from investing activities.
PAS 17, Leases
The Amendment removes the specific guidance on classifying land as a lease. Prior to the amendment, leases of
land were classified as operating leases. The amendment now requires that leases of land are classified as either
‘finance’ or ‘operating’ in accordance with the general principles of PAS 17. The amendments will be applied
retrospectively.
PAS 36, Impairment of Assets
The Amendment clarifies that the largest unit permitted for allocating goodwill, acquired in a business
combination, is the operating segment as defined in PFRS 8 before aggregation for reporting purposes.
PAS 38, Intangible Assets
The Amendment clarifies that if an intangible asset acquired in a business combination is identifiable only with
another intangible asset, the acquirer may recognize the group of intangible assets as a single asset provided the
individual assets have similar useful lives. Also clarifies that the valuation techniques presented for determining
the fair value of intangible assets acquired in a business combination that are not traded in active markets are
only examples and are not restrictive on the methods that can be used.
PAS 39, Financial Instruments: Recognition and Measurement
The Amendment clarifies the following:
i.
that a prepayment option is considered closely related to the host contract when the exercise price of a
prepayment option reimburses the lender up to the approximate present value of lost interest for the
remaining term of the host contract.
ii.
that the scope exemption for contracts between an acquirer and a vendor in a business combination to
buy or sell an acquiree at a future date applies only to binding forward contracts, and not derivative
contracts where further actions by either party are still to be taken.
iii.
that gains or losses on cash flow hedges of a forecast transaction that subsequently results in the
recognition of a financial instrument or on cash flow hedges of recognized financial instruments should
be reclassified in the period that the hedged forecast cash flows affect profit or loss.
Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives
The Amendment clarifies that it does not apply to possible reassessment at the date of acquisition, to embedded
derivatives in contracts acquired in a business combination between entities or businesses under common
control or the formation of joint venture.
88 AYALA CORPORATION
16
Philippine Interpretation IFRIC 16, Hedge of a Net Investment in a Foreign Operation
The Amendment states that, in a hedge of a net investment in a foreign operation, qualifying hedging instruments
may be held by any entity or entities within the group, including the foreign operation itself, as long as the
designation, documentation and effectiveness requirements of PAS 39 that relate to a net investment hedge are
satisfied.
Effective in 2012
Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate
This Interpretation covers accounting for revenue and associated expenses by entities that undertake the construction
of real estate directly or through subcontractors. This Interpretation requires that revenue on construction of real
estate be recognized only upon completion, except when such contract qualifies as a construction contract to be
accounted for under PAS 11, Construction Contracts, or involves rendering of services, in which case revenue is
recognized based on stage of completion. Contracts involving provision of services with the construction materials
and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be
accounted for based on stage of completion. The adoption of this Interpretation will be accounted for retrospectively,
and will result to restatement of prior period financial statements. The adoption of this Interpretation may significantly
affect the determination of revenue for real estate sales and the corresponding cost, and the related trade
receivables, deferred tax liabilities and retained earnings accounts. The Group is in the process of quantifying the
impact of adoption of this Interpretation when it becomes effective in 2012.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash with original maturities of three months or less from dates of acquisition and
which are subject to an insignificant risk of change in value.
Financial Instruments
Date of recognition
The Group recognizes a financial asset or a financial liability in the consolidated statement of financial position when it
becomes a party to the contractual provisions of the instrument. Purchases or sales of financial assets that require
delivery of assets within the time frame established by regulation or convention in the marketplace are recognized on
the settlement date.
Initial recognition of financial instruments
All financial assets and financial liabilities are recognized initially at fair value. Except for securities at FVPL, the initial
measurement of financial assets includes transaction costs. The Group classifies its financial assets in the following
categories: financial assets at FVPL, loans and receivables, held-to-maturity (HTM) investments, and AFS financial
assets. The Group also classifies its financial liabilities into financial liabilities at FVPL and other financial liabilities.
The classification depends on the purpose for which the investments were acquired and whether they are quoted in
an active market.
The Group determines the classification of its financial assets and financial liabilities at initial recognition and, where
allowed and appropriate, re-evaluates such designation at every reporting date.
Financial instruments are classified as liability or equity in accordance with the substance of the contractual
arrangement. Interest, dividends, gains and losses relating to a financial instrument or a component that is a financial
liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are
charged directly to equity net of any related income tax benefits.
Determination of fair value
The fair value for financial instruments traded in active markets at the reporting date is based on their quoted market
price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction
for transaction costs. When current bid and ask prices are not available, the price of the most recent transaction
provides evidence of the current fair value as long as there has not been a significant change in economic
circumstances since the time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by using appropriate
valuation methodologies. Valuation methodologies include net present value techniques, comparison to similar
instruments for which market observable prices exist, option pricing models, and other relevant valuation models.
17
2009 ANNUAL REPORT 89
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Day 1 profit
Where the transaction price in a non-active market is different from the fair value from other observable current
market transactions in the same instrument or based on a valuation technique whose variables include only data from
observable market, the Group recognizes the difference between the transaction price and fair value (a ‘Day 1’ profit)
in the consolidated statement of income under “Interest income” or “Interest expense and other financing charges”
unless it qualifies for recognition as some other type of asset or liability. In cases where use is made of data which is
not observable, the difference between the transaction price and model value is only recognized in the consolidated
statement of income when the inputs become observable or when the instrument is derecognized. For each
transaction, the Group determines the appropriate method of recognizing the ‘Day 1’ profit amount.
Financial assets at FVPL
Financial assets at FVPL include financial assets held for trading and financial assets designated upon initial
recognition as at FVPL.
Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term.
Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are
designated as effective hedging instruments or a financial guarantee contract. Fair value gains or losses on
investments held for trading, net of interest income accrued on these assets, are recognized in the consolidated
statement of income under “Other income” or “Other charges”. Interest earned or incurred is recorded in “Interest
income” or “Interest expense and other financing charges” while dividend income is recorded when the right of
payments has been established.
Where a contract contains one or more embedded derivatives, the hybrid contract may be designated as financial
asset at FVPL, except where the embedded derivative does not significantly modify the cash flows or it is clear that
separation of the embedded derivative is prohibited.
Financial assets may be designated at initial recognition as at FVPL if any of the following criteria are met: (i) the
designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring
the assets or recognizing gains or losses on them on a different basis; or (ii) the assets are part of a group of financial
assets which are managed and their performance evaluated on a fair value basis, in accordance with a documented
risk management or investment strategy; or (iii) the financial instrument contains an embedded derivative that would
need to be separately recorded.
The Group’s financial assets at FVPL pertain to government securities and other investment securities and derivatives
not designated as hedges.
Derivative financial instruments
Derivative instruments (including bifurcated embedded derivatives) are initially recognized at fair value on the date in
which a derivative transaction is entered into or bifurcated, and are subsequently remeasured at fair value. Any gains
or losses arising from changes in fair value of derivatives that do not qualify for hedge accounting are taken directly to
the consolidated statement of income. Derivatives are carried as assets when the fair value is positive and as
liabilities when the fair value is negative.
Derivative financial instruments also include bifurcated embedded derivatives. An embedded derivative is separated
from the host contract and accounted for as a derivative if all of the following conditions are met: a) the economic
characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks
of the host contract; b) a separate instrument with the same terms as the embedded derivative would meet the
definition of a derivative; and c) the hybrid or combined instrument is not recognized at FVPL.
The Group assesses whether embedded derivatives are required to be separated from the host contracts when the
Group first becomes a party to the contract. Reassessment of embedded derivatives is only done when there are
changes in the contract that significantly modifies the contractual cash flows.
For bifurcated embedded derivatives in financial contracts that are not designated or do not qualify as hedges,
changes in the fair values of such transactions are recognized in the consolidated statement of income.
Contracts that are entered into and continue to be held for the purpose of the receipt of the raw materials in
accordance with the Group’s expected usage requirements are considered normal purchase agreements.
90 AYALA CORPORATION
18
HTM investments
HTM investments are quoted nonderivative financial assets with fixed or determinable payments and fixed maturities
that the Group has the positive intention and ability to hold to maturity. Where the Group sell other than an
insignificant amount of HTM investments, the entire category would be tainted and reclassified as AFS financial
assets. After initial measurement, these investments are measured at amortized cost using the effective interest rate
method, less impairment in value. Amortized cost is calculated by taking into account any discount or premium on
acquisition and fees that are an integral part of the effective interest rate. The amortization is included in “Interest
income” in the consolidated statement of income. Gains and losses are recognized in the consolidated statement of
income when the HTM investments are derecognized or impaired, as well as through the amortization process. The
losses arising from impairment of such investments are recognized in the consolidated statement of income under
“Other charges” account. HTM investments are included in current assets if expected to be realized within 12 months
from reporting date. HTM investments that are not due in the next 12 months are presented under “Investments in
bonds and other securities” account in the consolidated statement of financial position.
The Group’s HTM investments pertain to bonds included under “Other current assets” account in 2008.
Loans and receivables
Loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in
an active market. They are not entered into with the intention of immediate or short-term resale and are not
designated as AFS financial assets or financial asset at FVPL. This accounting policy relates both to the statements
of financial position captions “Short-term investments” and “Accounts and notes receivable” (except for Advances to
contractors).
After initial measurement, loans and receivables are subsequently measured at amortized cost using the effective
interest rate method, less any allowance for impairment losses. Amortized cost is calculated by taking into account
any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The
amortization is included in the “Interest income” account in the consolidated statement of income. The losses arising
from impairment of such loans and receivables are recognized under “Provision for doubtful accounts” in the
consolidated statement of income.
Loans and receivables are included in current assets if maturity is within 12 months from the reporting date.
AFS financial assets
AFS financial assets are those which are designated as such or do not qualify to be classified as designated at FVPL,
HTM, or loans and receivables.
Financial assets may be designated at initial recognition as AFS if they are purchased and held indefinitely, and may
be sold in response to liquidity requirements or changes in market conditions.
After initial measurement, AFS financial assets are measured at fair value. The unrealized gains or losses arising
from the fair valuation of AFS financial assets are recognized in the consolidated statement of comprehensive income
and are reported as “Net unrealized gain (loss) on available-for-sale financial assets” (net of tax where applicable) in
equity. The Group’s share in its associates’ net unrealized gain (loss) on AFS is likewise included in this account.
When the security is disposed of, the cumulative gain or loss previously recognized in equity is recognized in the
consolidated statement of income under “Other income” or “Other charges”. Where the Group holds more than one
investment in the same security, the cost is determined using the weighted average method. Interest earned on AFS
financial assets is reported as interest income using the effective interest rate. Dividends earned are recognized
under “Other income” in the consolidated statement of income when the right to receive payment is established. The
losses arising from impairment of such investments are recognized under “Provision for impairment losses” in the
consolidated statement of income (see Note 21).
When the fair value of AFS financial assets cannot be measured reliably because of lack of reliable estimates of
future cash flows and discount rates necessary to calculate the fair value of unquoted equity instruments, these
investments are carried at cost, less any allowance for impairment losses.
The Group’s AFS financial assets pertain to investments in quoted and unquoted equity securities included under
“Investments in bonds and other securities” in the consolidated statement of financial position. AFS financial assets
are included in current assets if expected to be realized within 12 months from reporting date.
19
2009 ANNUAL REPORT 91
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Other financial liabilities
Issued financial instruments or their components, which are not designated at FVPL are classified as other financial
liabilities where the substance of the contractual arrangement results in the Group having an obligation either to
deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed
amount of cash or another financial asset for a fixed number of its own equity shares. The components of issued
financial instruments that contain both liability and equity elements are accounted for separately, with the equity
component being assigned the residual amount, after deducting from the instrument as a whole the amount
separately determined as the fair value of the liability component on the date of issue. After initial measurement,
other financial liabilities are subsequently measured at amortized cost using the effective interest rate method.
Amortized cost is calculated by taking into account any discount or premium on the issue and fees that are an integral
part of the effective interest rate. Any effects of restatement of foreign currency-denominated liabilities are recognized
in the consolidated statement of income.
This accounting policy applies primarily to the Group’s short-term and long-term debt, accounts payable and accrued
expenses, and other obligations that meet the above definition (other than liabilities covered by other accounting
standards, such as income tax payable).
Deposits and Retentions Payable
Deposits and retentions payable are initially measured at fair value. After initial recognition, deposits and retentions
payable are subsequently measured at amortized cost using effective interest rate method.
For deposits, the difference between the cash received and its fair value is deferred (included in the “Deferred credits”
account in the consolidated statement of financial position) and amortized using the straight-line method with the
amortization included under the “Sales and services” account in the consolidated statement of income.
Derecognition of Financial Assets and Liabilities
Financial asset
A financial asset (or, where applicable, a part of a financial asset or part of a group of financial assets) is
derecognized where:
the rights to receive cash flows from the assets have expired;
the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full
without material delay to a third-party under a “pass-through” arrangement; or
the Group has transferred its right to receive cash flows from the asset and either (a) has transferred substantially
all the risks and rewards of the asset, or (b) has neither transferred nor retained the risks and rewards of the
asset but has transferred control of the asset.
Where the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through
arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor
transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the
asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower
of the original carrying amount of the asset and the maximum amount of consideration that the Group could be
92 AYALA CORPORATION
Loans and receivables and HTM investments
For loans and receivables and HTM investments carried at amortized cost, the Group first assesses whether objective
evidence of impairment exists individually for financial assets that are individually significant, or collectively for
financial assets that are not individually significant. If the Group determines that no objective evidence of impairment
exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of
financial assets with similar credit risk characteristics and collectively assesses for impairment. Those characteristics
are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability
to pay all amounts due according to the contractual terms of the assets being evaluated. Assets that are individually
assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a
collective assessment for impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the
difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future
credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the
effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through the use of
an allowance account and the amount of the loss is charged to the consolidated statement of income under “Provision
for doubtful accounts” (see Note 21). Interest income continues to be recognized based on the original effective
interest rate of the asset. Loans and receivables, together with the associated allowance accounts, are written off
when there is no realistic prospect of future recovery and all collateral has been realized. If, in a subsequent period,
the amount of the estimated impairment loss decreases because of an event occurring after the impairment was
recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is
recognized in profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost at the
reversal date.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of such credit risk
characteristics such as customer type, payment history, past-due status and term.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the
basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical
loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did
not affect the period on which the historical loss experience is based and to remove the effects of conditions in the
historical period that do not exist currently. The methodology and assumptions used for estimating future cash flows
are reviewed regularly by the Group to reduce any differences between loss estimates and actual loss experience.
Financial assets carried at cost
If there is an objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is
not carried at fair value because its fair value cannot be reliably measured, or on derivative asset that is linked to and
must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the
difference between the carrying amount and the present value of estimated future cash flows discounted at the
current market rate of return for a similar financial asset.
AFS financial assets
In the case of equity investments classified as AFS financial assets, impairment would include a significant or
prolonged decline in the fair value of the investments below its cost. “Significant” is to be evaluated against the
original cost of the investment and “prolonged” against the period in which the fair value has been below its original
cost. Where there is evidence of impairment loss, the cumulative loss - measured as the difference between the
acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in
the consolidated statement of income - is removed from other comprehensive income and recognized in the
consolidated statement of income under “Other charges”. Impairment losses on equity investments are not reversed
through the consolidated statement of income. Increases in fair value after impairment are recognized directly in the
consolidated statement of comprehensive income.
In the case of debt instruments classified as AFS, impairment is assessed based on the same criteria as financial
assets carried at amortized cost. Future interest income is based on the reduced carrying amount and is accrued
using the rate of interest used to discount future cash flows for the purpose of measuring impairment loss and is
recorded as part of “Interest income” account in the consolidated statement of income. If, in a subsequent year, the
fair value of a debt instrument increased and the increase can be objectively related to an event occurring after the
impairment loss was recognized in the consolidated statement of income, the impairment loss is reversed through the
consolidated statement of income.
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2009 ANNUAL REPORT 93
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of
financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there
is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Inventories
Inventories are carried at the lower of cost and net realizable value (NRV). Costs incurred in bringing each product to
its present location and conditions are generally accounted for as follows:
Real estate inventories - cost includes those costs incurred for the development and improvement of properties,
including capitalized borrowing costs.
Vehicles - purchase cost on specific identification basis.
Finished goods and work-in-process - determined on a moving average basis; cost includes direct materials and
labor and a proportion of manufacturing overhead costs based on normal operating capacity.
Parts and accessories, materials, supplies and others - purchase cost on a moving average basis.
NRV for real estate inventories, vehicles, finished goods and work-in-process and parts and accessories is the
estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs
necessary to make the sale, while NRV for materials, supplies and others represents the related replacement costs.
Noncurrent Assets Held for Sale
Noncurrent assets held for sale are carried at the lower of its carrying amount and fair value less costs to sell. At
each reporting date, the Group classifies assets as held for sale (disposal group) when their carrying amount will be
recovered principally through a sale transaction rather than through continuing use. For this to be the case, the asset
must be available for immediate sale in its present condition subject only to terms that are usual and customary for
sales of such assets and its sale must be highly probable. For the sale to be highly probable the appropriate level of
management must be committed to a plan to sell the asset and an active program to locate a buyer and complete the
plan must have been initiated. Further, the asset must be actively marketed for sale at a price that is reasonable in
relation to its current fair value. In addition, the sale should be expected to qualify for recognition as a completed sale
within one year from the date of classification.
The related results of operations and cash flows of the disposal group that qualified as discontinued operation are
separated from the results of those that would be recovered principally through continuing use, and prior years’
consolidated statement of income and cash flows are re-presented. Results of operations and cash flows of the
disposal group that qualified as discontinued operation are presented in the consolidated statement of income and
consolidated statement of cash flows as items associated with noncurrent assets held for sale.
Land and Improvements
Land and improvements consist of properties for future development and are carried at the lower of cost or NRV.
NRV is the estimated selling price in the ordinary course of business, less estimated cost of completion and estimated
costs necessary to make the sale. Cost includes cost of purchase and those costs incurred for improvement of the
properties.
Investments in Associates and Jointly Controlled Entities
Investments in associates and jointly controlled entities (investee companies) are accounted for under the equity
method, except for an interest in a joint venture, which is accounted for using proportionate consolidation. An
associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture.
A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is
subject to joint control, and a jointly controlled entity is a joint venture that involves the establishment of a separate
entity in which each venturer has an interest.
An investment in a associate or joint venture is accounted for using the equity method from the day it becomes an
associate or joint venture. On acquisition of investment, the excess of the cost of investment over the investor’s share
in the net fair value of the investee’s identifiable assets, liabilities and contingent liabilities is accounted for as goodwill
and included in the carrying amount of the investment and neither amortized nor individually tested for impairment.
Any excess of the investor’s share of the net fair value of the associate’s identifiable assets, liabilities and contingent
liabilities over the cost of the investment is excluded from the carrying amount of the investment, and is instead
included as income in the determination of the share in the earnings of the investees.
94 AYALA CORPORATION
22
Under the equity method, investments in associates and jointly controlled entities are carried in the consolidated
statement of financial position at cost plus post-acquisition changes in the Group’s share in the net assets of the
investees, less any impairment in value. The Group’s share in the investee’s post-acquisition profits or losses is
recognized in the consolidated statement of income, and its share of post-acquisition movements in the investee’s
equity reserves is recognized directly in equity. Profits and losses resulting from transactions between the Group and
the investee companies are eliminated to the extent of the interest in the investee companies and to the extent that for
unrealized losses, there is no evidence of impairment of the asset transferred. Dividends received are treated as a
reduction of the carrying value of the investment. Under the proportionate consolidation method for the Group’s
interest in a joint venture through Makati Development Corporation (MDC), an ALI subsidiary, the Group combines its
share of each of the assets, liabilities, income and expenses of the joint venture with similar items, line by line, in its
financial statements. The financial statements of the joint venture are prepared for the same reporting period as the
Group. Adjustments are made where necessary to bring the accounting policies into line with those of MDC.
Adjustments are made in the consolidated financial statements to eliminate the Group’s share of unrealized gains and
losses on transactions between the Group and the joint venture. Losses on transactions are recognized immediately
if the loss provides evidence of a reduction in the NRV of current assets or an impairment loss. The joint venture is
proportionately consolidated until the date on which the Group ceases to have joint control over the joint venture.
The Group discontinues applying the equity method when its investment in an investee company is reduced to zero.
Accordingly, additional losses are not recognized unless the Group has guaranteed certain obligations of the investee
company. When the investee company subsequently reports profits, the Group resumes recognizing its share of the
profits only after its share of the profits equals the share of net losses not recognized during the period the equity
method was suspended. The reporting dates of the investee companies and the Group are identical and the investee
companies’ accounting policies conform to those used by the Group for like transactions and events in similar
circumstances.
Investment Properties
Investment properties consist of properties that are held to earn rentals, and are not occupied by the companies in the
Group. Investment properties, except for land, are carried at cost less accumulated depreciation and amortization
and any impairment in value. Land is carried at cost less any impairment in value.
Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the
assets, regardless of utilization. The estimated useful lives of investment properties follow:
Land improvements
Buildings
5 years
20-40 years
Investment properties are derecognized when either they have been disposed of or when the investment property is
permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gain or loss on
the retirement or disposal of an investment property is recognized in the consolidated statement of income in the year
of retirement or disposal.
Transfers are made to investment property when there is a change in use, evidenced by ending of owner-occupation,
commencement of an operating lease to another party or ending of construction or development. Transfers are made
from investment property when, and only when, there is a change in use, evidenced by commencement of owneroccupation or commencement of development with a view to sale. Transfers between investment property,
owner-occupied property and inventories do not change the carrying amount of the property transferred and they do
not change the cost of the property for measurement or for disclosure purposes.
Property, Plant and Equipment
Property, plant and equipment, except for land, are carried at cost less accumulated depreciation and amortization
and any impairment in value. Land is carried at cost less any impairment in value. The initial cost of property, plant
and equipment consists of its construction cost or purchase price and any directly attributable costs of bringing the
property, plant and equipment to its working condition and location for its intended use.
Construction-in-progress is stated at cost. This includes cost of construction and other direct costs. Construction-inprogress is not depreciated until such time that the relevant assets are completed and put into operational use.
Major repairs are capitalized as part of property, plant and equipment only when it is probable that future economic
benefits associated with the item will flow to the Group and the cost of the items can be measured reliably. All other
repairs and maintenance are charged against current operations as incurred.
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2009 ANNUAL REPORT 95
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Depreciation and amortization of property, plant and equipment commences once the property, plant and equipment
are available for use and computed on a straight-line basis over the estimated useful lives of the property, plant and
equipment as follows:
Buildings and improvements
Machinery and equipment
Furniture, fixtures and equipment
Transportation equipment
3-40 years
3-10 years
2-10 years
3-5 years
Hotel property and equipment includes the following types of assets and their corresponding estimated useful lives:
Hotel buildings and improvements
Land improvements
Leasehold improvements
Furniture, furnishing and equipment
Machinery and equipment
Transportation equipment
30-50 years
30 years
5-20 years
5 years
5 years
5 years
The assets residual values, useful lives and depreciation and amortization method are reviewed periodically to ensure
that the amounts, periods and method of depreciation and amortization are consistent with the expected pattern of
economic benefits from items of property, plant and equipment.
When property, plant and equipment are retired or otherwise disposed of, the cost and the related accumulated
depreciation and amortization and accumulated provision for impairment losses, if any, are removed from the
accounts and any resulting gain or loss is credited or charged against current operations.
Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets
acquired in a business combination is the fair value as at the date of acquisition. Subsequently, intangible assets are
measured at cost less accumulated amortization and provision for impairment loss, if any. The useful lives of
intangible assets with finite lives are assessed at the individual asset level. Intangible assets with finite lives are
amortized over their useful lives on a straight line basis. Periods and method of amortization for intangible assets with
finite useful lives are reviewed annually or earlier when an indicator of impairment exists.
The estimated useful lives of intangible assets follow:
Customer relationships
Order backlog
Unpatented technology
Developed software
Licenses
2-5 years
6 months
5 years
2 years
3 years
A gain or loss arising from derecognition of an intangible asset is measured as the difference between the net
disposal proceeds and the carrying amount of the intangible assets and is recognized in the consolidated statement of
income when the intangible asset is derecognized.
Business Combinations and Goodwill
Business combinations are accounted for using the purchase method. The cost of an acquisition is measured as the
fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange,
plus costs directly attributable to the acquisition. Identifiable assets (including previously unrecognized intangible
assets) acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at
their fair values at the date of acquisition, irrespective of the extent of any noncontrolling interest.
Goodwill is initially measured at cost being the excess of the cost of the business combination over the Group’s share
in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. If the cost of the
acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly
in the consolidated statement of income.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of the
impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the
Group’s cash-generating units (CGU) that are expected to benefit from the synergies of the combination, irrespective of
whether other assets or liabilities of the acquiree are assigned to those units.
96 AYALA CORPORATION
24
Goodwill allocated to a CGU is included in the carrying amount of the CGU being disposed when determining the gain
or loss on disposal. For partial disposal of operation within the CGU, the goodwill associated with the disposed
operation is included in the carrying amount of the operation when determining gain or loss on disposal and measured
on the basis of the relative values of the operation disposed of and the portion of the CGU retained, unless another
method better reflects the goodwill associated with the operation disposed of.
Impairment of Nonfinancial Assets
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such
indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the
asset’s recoverable amount. An asset’s recoverable amount is calculated as the higher of the asset’s or CGU’s fair
value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not
generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying
amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its
recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific
to the asset. In determining fair value less cost to sell, an appropriate valuation model is used. These calculations
are corroborated by valuation multiples or other fair value indicators. Impairment losses of continuing operations are
recognized in the consolidated statement of income in those expense categories consistent with the function of the
impaired asset.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication
that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists,
the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a
change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was
recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That
increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and
amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the
consolidated statement of income unless the asset is carried at revalued amount, in which case the reversal is treated
as revaluation increase. After such a reversal, the depreciation and amortization charge is adjusted in future periods
to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining
useful life.
Investments in associates and jointly controlled entities
After application of the equity method, the Group determines whether it is necessary to recognize any additional
impairment loss with respect to the Group’s net investment in the investee company. The Group determines at each
reporting date whether there is any objective evidence that the investment in the investee company is impaired. If this
is the case, the Group calculates the amount of impairment as being the difference between the recoverable amount
of the investee company and the carrying cost and recognizes the amount in the consolidated statement of income.
Impairment of goodwill
For assessing impairment of goodwill, a test for impairment is performed annually and when circumstances indicate
that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount
of each CGU (or group of CGUs) to which the goodwill relates. Where the recoverable amount of the CGU is less
than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed
in future periods.
Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event,
it is probable that an outflow of resources embodying economic benefits will be required to settle the obligations and a
reliable estimate can be made of the amount of the obligation.
Where the Group expects a provision to be reimbursed, the reimbursement is recognized as a separate asset but only
when the reimbursement is virtually certain. If the effect of the time value of money is material, provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments
of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the
increase in the provision due to the passage of time is recognized as interest expense. Provisions are reviewed at
each reporting date and adjusted to reflect the current best estimate.
Treasury Stock
Own equity instruments which are reacquired and held by the Company or by other companies of the consolidated
group are carried at cost and are deducted from equity. No gain or loss is recognized in profit or loss on the
purchase, sale, issue or cancellation of the Group’s own equity instruments. When the shares are retired, the capital
25
2009 ANNUAL REPORT 97
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
stock account is reduced by its par value and the excess of cost over par value upon retirement is debited to
additional paid-in capital to the extent of the specific or average additional paid-in capital when the shares were
issued and to retained earnings for the remaining balance.
Revenue and Cost Recognition
Revenue and cost from sales of completed projects by real estate subsidiaries are accounted for using the full accrual
method. The percentage of completion method is used to recognize income from sales of projects where the
subsidiaries have material obligations under the sales contracts to complete the project after the property is sold.
Under this method, gain is recognized as the related obligations are fulfilled, measured principally on the basis of the
estimated completion of a physical proportion of the contract work. Any excess of collections over the recognized
receivables are included under “Other current liabilities” in the liabilities section of the consolidated statement of
financial position.
Revenue from construction contracts are recognized using the percentage of completion method, measured
principally on the basis of the estimated physical completion of the contract work.
Contract costs include all direct materials and labor costs and those indirect costs related to contract performance.
Expected losses on contracts are recognized immediately when it is probable that the total contract costs will exceed
total contract revenue. Changes in contract performance, contract conditions and estimated profitability, including
those arising from contract penalty provisions, and final contract settlements which may result in revisions to
estimated costs and gross margins are recognized in the year in which the changes are determined.
Rental income under noncancellable and cancellable leases on Investment properties is recognized in the
consolidated statement of income on a straight-line basis over the lease term and the terms of the lease, respectively,
or based on a certain percentage of the gross revenue of the tenants, as provided under the terms of the lease
contract.
Marketing fees, management fees from administrative and property management are recognized when services are
rendered.
Revenue from hotel operations are recognized when services are rendered. Revenue from banquets and other
special events are recognized when the events take place.
Revenue from sales of electronic products and vehicles are recognized when the significant risks and rewards of
ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably. Revenue is
measured at the fair value of the consideration received excluding discounts, returns, rebates and sales taxes.
Revenue from business process outsourcing services is recognized based on per employee, per transaction or per
hour basis and when services are rendered.
Interest income is recognized as it accrues using the effective interest method.
Dividend income is recognized when the Group’s right to receive payment is established.
Gain or loss is recognized in the consolidated statement of income if the Company disposes some of its investment in
a subsidiary or associate. Gain or loss is computed as the difference between the proceeds of the disposal and its
carrying amount, including the carrying amount of goodwill, if any.
Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at
inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or
the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of
the following applies: (a) there is a change in contractual terms, other than a renewal or extension of the arrangement;
(b) a renewal option is exercised or extension granted, unless the term of the renewal or extension was initially
included in the lease term; (c) there is a change in the determination of whether fulfillment is dependent on a specified
asset; or (d) there is a substantial change to the asset.
Where a reassessment is made, lease accounting shall commence or cease from the date when the change in
circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and at the date of renewal or extension
period for scenario (b).
98 AYALA CORPORATION
26
Group as lessee
Leases where the lessor retains substantially all the risks and benefits of ownership of the consolidated asset are
classified as operating leases. Fixed lease payments are recognized as an expense in the consolidated statement of
income on a straight-line basis while the variable rent is recognized as an expense based on terms of the lease
contract.
Finance leases, which transfer substantially all the risks and benefits incidental to ownership of the leased item, are
capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the
minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease
liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are
charged directly against income.
Capitalized leased assets are depreciated over the shorter of the estimated useful lives of the assets or the respective
lease terms.
Group as lessor
Leases where the Group does not transfer substantially all the risk and benefits of ownership of the assets are
classified as operating leases. Lease payments received are recognized as income in the consolidated statement of
income on a straight-line basis over the lease term. Initial direct costs incurred in negotiating operating leases are
added to the carrying amount of the leased asset and recognized over the lease term on the same basis as the rental
income. Contingent rent is recognized as revenue in the period in which it is earned.
Commission Expense
Commissions paid to sales or marketing agents on the sale of pre-completed real estate units are deferred when
recovery is reasonably expected and are charged to expense in the period in which the related revenue is recognized
as earned. Accordingly, when the percentage of completion method is used, commissions are likewise charged to
expense in the period the related revenue is recognized. Commission expense is included under “Cost of sales and
services” in the consolidated statement of income.
Borrowing Costs
Interest and other financing costs incurred during the construction period on borrowings used to finance property
development are capitalized as part of development cost (included in real estate inventories, investment properties
and property, plant and equipment). Capitalization of borrowing costs commences when the activities to prepare the
asset are in progress and expenditures and borrowing costs are being incurred. The capitalization of these borrowing
costs ceases when substantially all the activities necessary to prepare the asset for its intended use or sale are
complete. If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded.
Capitalized borrowing cost is based on the applicable weighted average borrowing rate from general borrowings and
the actual borrowing costs eligible for capitalization for funds borrowed specifically. All other borrowing costs are
expensed in the period they occur.
Pension Cost
Pension cost is actuarially determined using the projected unit credit method. This method reflects services rendered
by employees up to the date of valuation and incorporates assumptions concerning employees’ projected salaries.
Actuarial valuations are conducted with sufficient regularity, with option to accelerate when significant changes to
underlying assumptions occur. Pension cost includes current service cost, interest cost, expected return on any plan
assets, actuarial gains and losses and the effect of any curtailments or settlements.
The net pension liability recognized in the consolidated statement of financial position in respect of the defined benefit
pension plans is the present value of the defined benefit obligation at the reporting date less the fair value of the plan
assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit
method. The present value of the defined benefit obligation is determined by using risk-free interest rates of
government bonds that have terms to maturity approximating the terms of the related pension liabilities or applying a
single weighted average discount rate that reflects the estimated timing and amount of benefit payments.
The net pension asset is the lower of the fair value of the plan assets less the present value of the defined benefit
obligation at the reporting date, together with adjustments for unrecognized actuarial gains or losses and past service
costs that shall be recognized in future periods, or the total of any cumulative unrecognized net actuarial losses and
past service cost and the present value of any economic benefits available in the form of refunds from the plan or
reductions in the future contributions to the plan.
27
2009 ANNUAL REPORT 99
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Actuarial gains and losses are recognized as income or expense if the cumulative unrecognized actuarial gains and
losses at the end of the previous reporting period exceeded the greater of 10% of the present value of defined benefit
obligation or 10% of the fair value of plan assets. These gains or losses are recognized over the expected average
remaining working lives of the employees participating in the plans.
Income Tax
Current tax
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be
recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those
that are enacted or substantively enacted by the statement of financial position date.
Deferred tax
Deferred income tax is provided, using the liability method, on all temporary differences, with certain exceptions, at
the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting
purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, with certain exceptions. Deferred tax
assets are recognized for all deductible temporary differences, carryforward benefit of unused tax credits from excess
of minimum corporate income tax (MCIT) over the regular corporate income tax and unused net operating loss
carryover (NOLCO), to the extent that it is probable that taxable income will be available against which the deductible
temporary differences and carryforward benefits of MCIT and NOLCO can be utilized.
Deferred tax liabilities are not provided on nontaxable temporary differences associated with investments in domestic
subsidiaries, associates and interests in jointly controlled entities. With respect to investments in foreign subsidiaries,
associates and interests in jointly controlled entities, deferred tax liabilities are recognized except where the timing of
the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not
reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no
longer probable that sufficient taxable income will be available to allow all as part of the deferred tax assets to be
utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent
that it has become probable that future taxable income will allow all as part of the deferred tax assets to be recovered.
Deferred tax assets and liabilities are measured at the tax rate that is 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
reporting date. Movements in the deferred income tax assets and liabilities arising from changes in tax rates are
charged or credited to income for the period.
Income tax relating to items recognized directly in equity is recognized in equity.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax
assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation
authority.
Foreign Currency Transactions
The functional and presentation currency of Ayala Corporation and its Philippine subsidiaries (except for BHL, AIVPL
and IMI), is the Philippine Peso (P
= ). Each entity in the Group determines its own functional currency and items
included in the financial statements of each entity are measured using that functional currency. Transactions in
foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange
ruling at the reporting date. All differences are taken to the consolidated statement of income with the exception of
differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These
are recognized in the consolidated statement of comprehensive income until the disposal of the net investment, at
which time they are recognized in the consolidated statement of income. Tax charges and credits attributable to
exchange differences on those borrowings are also dealt with in equity. Nonmonetary items that are measured in
terms of historical cost in a foreign currency are translated using the exchange rate as at the date of initial transaction.
Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rate at the date
when the fair value was determined.
100 AYALA CORPORATION
28
The functional currency of BHL, AIVPL and IMI is the US Dollar ($). As at the reporting date, the assets and liabilities
of these subsidiaries are translated into the presentation currency of the Group at the rate of exchange ruling at
thereporting date and their statement of income accounts are translated at the weighted average exchange rates for
the year. The exchange differences arising on the translation are recognized in the consolidated statement of
comprehensive income and reported as a separate component of equity. On disposal of a foreign entity, the deferred
cumulative amount recognized in the consolidated statement of comprehensive income relating to that particular
foreign operation shall be recognized in the consolidated statement of income.
The Group’s share in the associates’ translation adjustments are likewise included under the cumulative translation
adjustments account in the consolidated statement of comprehensive income.
Share-based Payments
The Group have equity-settled, share-based compensation plans with its employees.
PFRS 2 Options
For options granted after November 7, 2002 that have not vested on or before January 1, 2005, the cost of equitysettled transactions with employees is measured by reference to the fair value at the date on which they are granted.
In valuing equity-settled transactions, vesting conditions, including performance conditions, other than market
conditions (conditions linked to share prices), shall not be taken into account when estimating the fair value of the
shares or share options at the measurement date. Instead, vesting conditions are taken into account in estimating the
number of equity instruments that will ultimately vest. Fair value is determined by using the Black-Scholes model,
further details of which are provided in Note 26 to the consolidated financial statements.
The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period
in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully
entitled to the awards (‘vesting date’). The cumulative expense recognized for equity-settled transactions at each
reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best
estimate of the number of equity instruments that will ultimately vest. The income or expense for a period represents
the movement in cumulative expense recognized as at the beginning and end of that period.
No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon
a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied,
provided that all other performance conditions are satisfied.
Where the terms of an equity-settled award are modified, as a minimum, an expense is recognized as if the terms had
not been modified. In addition, an expense is recognized for any increase in the value of the transaction as a result of
the modification, as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any
expense not yet recognized for the award is recognized immediately.
However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date
that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as
described in the previous paragraph.
Pre-PFRS 2 Options
For options granted before November 7, 2002 that have vested before January 1, 2005, the intrinsic value of stock
options determined as of grant date is recognized as expense over the vesting period.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings
per share (see Note 24).
Employee share purchase plans
The Company and some of its subsidiaries have employee share purchase plans (ESOWN) which allow the grantees
to purchase the Company’s and its respective subsidiaries’ shares at a discounted price. The Group recognizes the
difference between the market price at the time of subscription and the subscription price as stock compensation
expense over the holding period.
Where the subscription receivable is payable over more than one year, the subscription price is adjusted for the time
value and treated as additional stock compensation expense. For the unsubscribed shares where the employees still
have the option to subscribe in the future, these are accounted for as options.
29
2009 ANNUAL REPORT 101
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Earnings Per Share
Basic earnings per share (EPS) is computed by dividing net income attributable to common equity holders by the
weighted average number of common shares issued and outstanding during the year and adjusted to give retroactive
effect to any stock dividends declared during the period. Diluted EPS is computed by dividing net income attributable
to common equity holders by the weighted average number of common shares issued and outstanding during the
year plus the weighted average number of common shares that would be issued on conversion of all the dilutive
potential common shares. The calculation of diluted earnings per share does not assume conversion, exercise or
other issue of potential common shares that would have an antidilutive effect on earnings per share.
Operating Segments
The Group’s operating businesses are organized and managed separately according to the nature of the products
and services provided, with each segment representing a strategic business unit that offers different products and
serves different markets. Financial information on operating segments is presented in Note 27 to the consolidated
financial statements.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. These are disclosed unless the
possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized
in the consolidated financial statements but disclosed when an inflow of economic benefits is probable.
Events after the Reporting Period
Post year-end events that provide additional information about the Group’s position at the reporting date (adjusting
events) are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are
disclosed in the consolidated financial statements when material.
3.
Significant Accounting Judgments and Estimates
The preparation of the accompanying consolidated financial statements in conformity with PFRS requires
management to make estimates and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. The estimates and assumptions used in the accompanying consolidated
financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of
the consolidated financial statements. Actual results could differ from such estimates.
Judgments
In the process of applying the Group’s accounting policies, management has made the following judgments, apart
from those involving estimations, which have the most significant effect on the amounts recognized in the
consolidated financial statements:
Operating lease commitments - Group as lessor
The Group has entered into commercial property leases on its investment property portfolio. The Group has
determined that it retains all significant risks and rewards of ownership of these properties as the Group considered
among others the length of the lease term is compared with the estimated useful life of the assets.
A number of the Group’s operating lease contracts are accounted for as noncancellable operating leases and the rest
are cancellable. In determining whether a lease contract is cancellable or not, the Company considers among others,
the significance of the penalty, including the economic consequence to the lessee.
Operating lease commitments - Group as lessee
The Group has entered into a contract with Bases Conversion Development Authority (BCDA) to develop, under a
lease agreement, a mall on a 9.8-hectare lot inside Fort Bonifacio. The Group has determined that all significant risks
and rewards of ownership of these properties are retained by the lessor.
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 independent of the other assets held by an entity.
Owner-occupied properties generate cash flows that are attributable not only to property but also to the other assets
used in the production or supply process.
Some properties comprise a portion that is held to earn rentals or for capital appreciations and another portion that is
held for use in the production or supply of goods or services or for administrative purposes. If these portions cannot
102 AYALA CORPORATION
30
be sold separately as of reporting date, the property is accounted for as investment property only if an insignificant
portion is held for use in the production or supply of goods or services or for administrative purposes. Judgment is
applied in determining whether ancillary services are so significant that a property does not qualify as investment
property. The Group considers each property separately in making its judgment.
Distinction between real estate inventories and land and improvements
The Group determines whether a property will be classified as real estate inventories or land and improvements. In
making this judgment, the Group considers whether the property will be sold in the normal operating cycle (Real
estate inventories) or whether it will be retained as part of the Group’s strategic landbanking activities for development
or sale in the medium or long-term (Land and improvements).
HTM investments
The classification of HTM investments requires significant judgment. In making this judgment, the Group evaluates its
intention and ability to hold such investments to maturity. If the Group fails to keep these investments to maturity
other than in certain specific circumstances, it will be required to reclassify the entire portfolio as AFS financial asset.
The investments would therefore be measured at fair value and not at amortized cost.
Impairment of AFS equity investments
The Group treats AFS equity investments as impaired when there has been a significant or prolonged decline in the
fair value below its cost or where other objective evidence of impairment exists. The determination of what is
‘significant’ or ‘prolonged’ requires judgment. The Group treats ‘significant’ generally as 20% or more and ‘prolonged’
as greater than 6 months for quoted equity securities. In addition, the Group evaluates other factors, including normal
volatility in share price for quoted equities and the future cash flows and the discount factors for unquoted equities.
Financial assets not quoted in an active market
The Group classifies financial assets by evaluating, among others, whether the asset is quoted or not in an active
market. Included in the evaluation on whether a financial asset is quoted in an active market is the determination on
whether quoted prices are readily and regularly available, and whether those prices represent actual and regularly
occurring market transactions on an arm’s length basis.
Contingencies
The Group is currently involved in various legal proceedings. The estimate of the probable costs for the resolution of
these claims has been developed in consultation with outside counsel handling the defense in these matters and is
based upon an analysis of potential results. The Group currently does not believe that these proceedings will have a
material effect on the Group’s financial position (see Note 34).
Management’s Use of Estimates
The key assumptions concerning the future and other sources of estimation uncertainty at the reporting date that have
a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year are discussed below.
Revenue and cost recognition
ALI Group’s revenue recognition policies require management to make use of estimates and assumptions that may
affect the reported amounts of revenue and costs. ALI Group’s revenue from real estate and construction contracts
are recognized based on the percentage of completion measured principally on the basis of the estimated completion
of a physical proportion of the contract work, and by reference to the actual costs incurred to date over the estimated
total costs of the project.
Estimating allowance for impairment losses
The Group maintains allowance for doubtful accounts based on the result of the individual and collective assessment
under PAS 39. Under the individual assessment, the Group is required to obtain the present value of estimated cash
flows using the receivable’s original effective interest rate. Impairment loss is determined as the difference between
the receivable’s carrying balance and the computed present value. Factors considered in individual assessment are
payment history, past due status and term. The collective assessment would require the Group to group its
receivables based on the credit risk characteristics (customer type, payment history, past-due status and term) of the
customers. Impairment loss is then determined based on historical loss experience of the receivables grouped per
credit risk profile. Historical loss experience is adjusted on the basis of current observable data to reflect the effects
of current conditions that did not affect the period on which the historical loss experience is based and to remove the
effects of conditions in the historical period that do not exist currently. The methodology and assumptions used for
the individual and collective assessments are based on management's judgment and estimate. Therefore, the
amount and timing of recorded expense for any period would differ depending on the judgments and estimates made
for the year.
31
2009 ANNUAL REPORT 103
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
As of December 31, 2009 and 2008, allowance for impairment losses amounted to P
= 373.0 million and
P
= 357.8 million, respectively. Accounts and notes receivable, net of allowance for doubtful accounts, amounted to
P
= 27.9 billion and P
= 30.0 billion as of December 31, 2009 and 2008, respectively (see Note 6).
Evaluation of net realizable value of inventories
Inventories are valued at the lower of cost or NRV. This requires the Group to make an estimate of the inventories’
estimated selling price in the ordinary course of business, cost of completion and costs necessary to make a sale to
determine the NRV. For real estate inventories, the Group adjusts the cost of its real estate inventories to net
realizable value based on its assessment of the recoverability of the inventories. In determining the recoverability of
the inventories, management considers whether those inventories are damaged or if their selling prices have
declined. Likewise, management also considers whether the estimated costs of completion or the estimated costs to
be incurred to make the sale have increased. In the event that NRV is lower than the cost, the decline is recognized
as an expense. The amount and timing of recorded expenses for any period would differ if different judgments were
made or different estimates were utilized. Inventories carried at cost amounted to P
= 9.0 billion and P
= 8.2 billion as of
December 31, 2009 and 2008, respectively. Inventories carried at NRV amounted to P
= 1.8 billion as of December 31,
2009 and 2008 (see Note 7).
Evaluation of impairment of nonfinancial assets
The Group reviews investments in associates and jointly controlled entities, investment properties, property, plant and
equipment and intangible assets for impairment of value. Impairment for goodwill is assessed at least annually. This
includes considering certain indications of impairment such as significant changes in asset usage, significant decline
in assets’ market value, obsolescence or physical damage of an asset, plans in the real estate projects, significant
underperformance relative to expected historical or projected future operating results and significant negative industry
or economic trends.
The Group estimates the recoverable amount as the higher of the net selling price and value in use. In determining
the present value of estimated future cash flows expected to be generated from the continued use of the assets, the
Group is required to make estimates and assumptions that may affect investments in associates and jointly controlled
entities, investment properties, property, plant and equipment and intangible assets.
For goodwill, this requires an estimation of the recoverable amount which is the net selling price or value in use of the
cash-generating units to which the goodwill is allocated. Estimating a value in use amount requires management to
make an estimate of the expected future cash flows for the cash generating unit and also to choose a suitable
discount rate in order to calculate the present value of cash flows.
The Group’s impairment tests for goodwill are based on value in use and fair value less cost to sell calculations. The
value in use calculations in 2009 and 2008 used a discounted cash flow model. The cash flows are derived from the
budget for the next five years and assume a steady growth rate. The recoverable amount is most sensitive to
discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate
used for extrapolation purposes. The fair value less cost to sell calculation in 2009 considered the enterprise value of
the CGU based on a recent tender offer to which the goodwill is allocated.
In determining the amount of impaired goodwill in 2007, the Group determined the recoverable amount of the
investment in a subsidiary based on the estimated net selling price of the cash generating unit to which the goodwill is
allocated. The excess of the carrying amount of the investment over the estimated net selling price is allocated first to
the goodwill, resulting in an impairment loss of P
= 662.6 million (see Note 14).
Investments in associates and jointly controlled entities, investment properties, property, plant and equipment and
intangible assets amounted to P
= 113.0 billion and P
= 107.2 billion as of December 31, 2009 and 2008, respectively
(see Notes 10, 12, 13 and 14).
Estimating useful lives of investment properties, property, plant and equipment, and intangible assets
The Group estimated the useful lives of its investment properties, property, plant and equipment and intangible assets
with finite useful lives based on the period over which the assets are expected to be available for use. The estimated
useful lives of investment properties, property, plant and equipment and intangible assets are reviewed at least
annually and are updated if expectations differ from previous estimates due to physical wear and tear and technical or
commercial obsolescence on the use of these assets. It is possible that future results of operations could be
materially affected by changes in these estimates brought about by changes in factors mentioned above. A reduction
in the estimated useful lives would increase depreciation and amortization expense and decrease noncurrent assets.
Investment properties, property, plant and equipment and intangible assets with finite useful lives amounted to
P
= 37.5 billion and P
= 35.8 billion as of December 31, 2009 and 2008, respectively (see Notes 12, 13 and 14).
104 AYALA CORPORATION
32
Deferred tax assets
The Group reviews the carrying amounts of deferred income taxes at each reporting date and reduces deferred tax
assets to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of
the deferred tax assets to be utilized. However, there is no assurance that the Group will generate sufficient taxable
income to allow all or part of deferred tax assets to be utilized. The Group looks at its projected performance in
assessing the sufficiency of future taxable income.
As of December 31, 2009 and 2008, the Group has net deferred tax assets amounting to P
= 1,396.0 million and
P
= 1,132.8 million, respectively and net deferred tax liabilities amounting to P
=207.4 million and P
= 185.5 million,
respectively (see Note 23).
Share-based payments
The expected life of the options is based on the expected exercise behavior of the stock option holders and is not
necessarily indicative of the exercise patterns that may occur. The volatility is based on the average historical price
volatility which may be different from the expected volatility of the shares of stock of the Group.
Total expense arising from share-based payments recognized by the Group amounted to P
= 471.6 million in 2009,
P
= 342.9 million in 2008 and P
= 288.0 million in 2007.
Estimating pension obligation and other retirement benefits
The determination of the Group’s obligation and cost of pension and other retirement benefits is dependent on the
selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions are described in
Note 25 to the consolidated financial statements and include among others, discount rates, expected returns on plan
assets and rates of salary increase. While the Group believes that the assumptions are reasonable and appropriate,
significant differences in the actual experience or significant changes in the assumptions materially affect retirement
obligations. See Note 25 to the consolidated financial statements for the related balances.
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded in the consolidated statement of financial
position or disclosed in the notes to the consolidated financial statements cannot be derived from active markets, they
are determined using internal valuation techniques using generally accepted market valuation models. The inputs to
these models are taken from observable markets where possible, but where this is not feasible, estimates are used in
establishing fair values. These estimates may include considerations of liquidity, volatility, and correlation. Certain
financial assets and liabilities were initially recorded at fair values by using the discounted cash flow method. See
Notes 6, 8, 11, 19 and 30 for the related balances.
Purchase price allocation
2009 Acquisition
As of December 31, 2009, the purchase price allocation relating to the Group’s acquisition of Grail Research, Inc.
(Grail) has been prepared on a preliminary basis. The provisional fair values of the assets acquired and liabilities
assumed as of date of acquisition were based on the net book values of the identifiable assets and liabilities since
these approximate the fair values. The difference between the total consideration and the net assets amounting to
P
= 550.5 million was initially allocated to goodwill as of December 31, 2009.
2008 Acquisition
As of December 31, 2008, the purchase price allocation relating to the Group’s acquisition of Datum Legal, Inc.
(Datum) has been prepared on a preliminary basis. In 2009, purchased price allocation of Datum was finalized and
there were no significant changes to the fair values of the assets acquired and liabilities assumed.
As of December 31, 2008, the purchase price allocation relating to the Group’s acquisition of ALI Property Partners
Holdings Company (APPHC) and ALI Property Partners Corporation (APPCo.) has been prepared on a preliminary
basis. In 2009, the Group finalized its purchased price allocation and the 2008 comparative information has been
restated to reflect adjustments to the fair values of investment properties and property, plant and equipment.
33
2009 ANNUAL REPORT 105
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
4.
Cash and Cash Equivalents
This account consists of the following:
2009
2008
(In Thousands)
P
= 3,960,792
P
= 3,772,560
41,696,097
39,113,232
P
= 45,656,889
P
= 42,885,792
Cash on hand and in banks
Cash equivalents
Cash in banks earns interest at the prevailing bank deposit rates. Cash equivalents are short-term, highly liquid
investments that are made for varying periods of up to three months depending on the immediate cash requirements
of the Group and earn interest at the prevailing short-term rates.
5.
Short-term Investments
Short-term investments pertain to money market placements made for varying periods of more than three months and
up to six months and earn interest at the respective short-term investment rates.
The ranges of interest rates of the short-term investments follow:
2009
4.0% to 4.8%
1.9% to 4.8%
PHP
US$
6.
2008
5.3% to 7.1%
3.5% to 4.8%
Accounts and Notes Receivable
This account consists of the following:
Trade:
Real estate
Electronics manufacturing
Information technology and business process
outsourcing (BPO)
Automotive
International and others
Related parties (Note 29)
Advances to other companies
Advances to contractors and suppliers
Investment in bonds classified as loans and
receivables
Others
Less allowance for doubtful accounts
Less noncurrent portion
2009
2008
(In Thousands)
P
= 13,011,442
3,881,439
P
= 10,565,254
3,152,168
877,188
849,301
3,803
3,390,161
2,888,665
2,604,816
352,084
665,670
64,074
7,869,143
3,643,843
2,496,665
200,000
556,589
28,263,404
372,982
27,890,422
2,657,623
P
= 25,232,799
–
1,526,961
30,335,862
357,831
29,978,031
6,694,021
P
= 23,284,010
The classes of trade receivables of the Group follow:
Real estate
Real estate receivables are receivables relating to residential development which pertain to receivables from the sale
of high-end; upper middle-income and affordable residential lots and units and leisure community developments;
construction contracts which pertain to receivables from third party construction projects; shopping centers which
pertain to lease receivables of retail space; corporate business which pertain to lease receivables of office and factory
buildings and receivables from the sale of office buildings and industrial lots; and management fees which pertain to
facility management fees receivable.
106 AYALA CORPORATION
34
The sales contracts receivable, included in real estate receivables, are collectible in monthly installments over a
period of one to ten years and bear annual interest rates ranging from 2.5% to 18.0% computed on the diminishing
balance of the principal. Titles to real estate properties are not transferred to the buyers until full payment has been
made.
Electronics manufacturing
Electronics manufacturing receivables pertain to receivables arising from manufacturing and other related services for
electronic products and components and collectible within 30 to 60 days from invoice date.
Information technology and BPO
Information technology and BPO receivables arose from venture capital for technology businesses; provision of valueadded content for wireless services, online business-to-business and business-to-consumer services; electronic
commerce; technology infrastructure sales and technology services; and onshore- and offshore-BPO services and are
normally collected within 30 to 60 days of invoice date.
Automotive
Automotive receivables are receivables relating to manufacture and sale of passenger cars and commercial vehicles
and are collectible within 30- to 90- days from date of sale.
International and others
International and other receivables arose from investments in overseas property companies and projects, charter
services, agri-business and others and are generally on 30 to 60 day terms.
The nature of the Group’s other receivables follows:
Receivables from related parties and advances to other companies
Receivables from related parties include notes receivable issued to related parties which are interest- bearing and
payable based on the terms of the notes. Advances to other companies are due and demandable.
Advances to contractors and suppliers
Advances to contractors and suppliers are recouped every progress billing payment date depending on the
percentage of accomplishment.
Investment in bonds classified as loans and receivables
Investment in bonds classified as loans and receivables pertain to ALI’s investment in Land Bank of the Philippines’s
(LBP’s) 7.25% unsecured subordinated notes due 2019, callable with step-up interest in 2014. Fitch Ratings
assigned a National Long-term rating of AA (phl) to LBP.
Others
Other receivables include accrued interest receivable, receivable from employees and other nontrade receivables.
Movements in the allowance for doubtful accounts follow (in thousands):
At January 1
Provisions during the year (Note 21)
Write-offs
Reversals
At December 31
Real Estate
P
= 136,729
84,492
(5,878)
(12,533)
P
= 202,810
2009
Information
Technology International
Electronics
and BPO
and Others
Manufacturing Automotive
P
= 36,277
P
= 26,324
P
= 19,120
P
= 61,160
7,625
4,127
58,886
25,491
(18,323)
–
(85)
(58,322)
(11,143)
–
(516)
(28,226)
P
= 14,436
P
= 30,451
P
= 77,405
P
= 103
Others
P
= 78,221
36,587
(9,778)
(57,253)
P
= 47,777
Total
P
= 357,831
217,208
(92,386)
(109,671)
P
= 372,982
Individually impaired
Collectively impaired
Total
P
= 178,618
24,192
P
= 202,810
P
= 14,436
–
P
= 14,436
P
= 30,451
–
P
= 30,451
P
= 77,405
–
P
= 77,405
P
= 103
–
P
= 103
P
= 36,033
11,744
P
= 47,777
P
= 337,046
35,936
P
= 372,982
Gross amount of loans and
receivables individually
determined to be impaired
P
= 178,618
P
= 14,436
P
= 30,451
P
= 77,405
P
= 103
P
= 36,033
P
= 337,046
35
2009 ANNUAL REPORT 107
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
At January 1
Provisions during the year (Note 21)
Write-offs
Reversals
At December 31
Individually impaired
Collectively impaired
Total
Gross amount of loans and
receivables individually
determined to be impaired
Real Estate
P
= 119,508
61,526
(44,305)
–
P
= 136,729
P
= 82,628
54,101
P
= 136,729
P
= 83,124
Electronics
Manufacturing
P
= 31,180
7,256
–
(2,159)
P
= 36,277
P
= 36,277
–
P
= 36,277
Automotive
P
= 26,107
217
–
–
P
= 26,324
P
= 217
26,107
P
= 26,324
P
= 36,277
P
= 217
2008
Information
Technology
and BPO
P
= 18,261
5,866
–
(5,007)
P
= 19,120
P
= 19,120
–
P
= 19,120
P
= 19,120
International
and Others
P
= 61,160
–
–
–
P
= 61,160
P
= 60,134
1,026
P
= 61,160
P
= 60,134
Others
P
= 83,130
14,006
–
(18,915)
P
= 78,221
P
= 75,160
3,061
P
= 78,221
P
= 122,221
Total
P
= 339,346
88,871
(44,305)
(26,081)
P
= 357,831
P
= 273,536
84,295
P
= 357,831
P
= 321,093
As of December 31, 2009 and 2008, certain receivables with a nominal amount of P
= 12,502.9 million and
P
= 14,720.2 million, respectively, were recorded initially at fair value. The fair value of the receivables was obtained by
discounting future cash flows using the applicable rates of similar types of instruments. The unamortized discount
amounted to P
= 1,766.0 million and P
= 843.4 million as of December 31, 2009 and 2008, respectively.
In April 2009 and November 2008, ALI Group entered into agreements with certain financial institutions for the sale of
real estate receivables without recourse amounting to P
= 1,193.9 million and P
= 1,537.0 million at average discount rates
ranging from 8.3% to 9.8% and 6.4%, respectively. The discount on these receivables amounting to P
= 40.6 million
and P
= 103.8 million as of December 31, 2009 and 2008, respectively, has been included under “Other charges” in the
consolidated statement of income.
Other receivables include IMI’s insurance claim amounting to US$5.6 million (P
= 258.7 million) for damages to
equipment and inventories caused by a fire incident in IMI’s plant in Cebu, Philippines in May 2009. The gain from
the insurance claim is included under “Other income” in the consolidated statement of income (see Note 21).
7.
Inventories
This account consists of the following:
Real estate inventories:
Subdivision land for sale
At cost
At NRV
Condominium, residential and commercial units for
sale - at cost
Club shares - at cost
Materials, supplies and others - at NRV (cost of
P
= 1,473,369 in 2009 and P
= 1,650,194 in 2008)
Work-in-process - at cost
Vehicles - at cost
Finished goods - at cost
Parts and accessories - at NRV (cost of P
= 124,925 in 2009
and P
= 135,296 in 2008)
Construction materials - at cost
2009
2008
(In Thousands)
P
= 4,230,063
524,158
P
= 3,156,622
608,955
3,521,952
242,320
3,681,273
281,022
1,215,129
253,622
398,849
222,446
1,122,616
344,240
265,478
268,958
96,691
91,818
P
= 10,797,048
108,576
173,615
P
= 10,011,355
Inventories recognized as cost of sales amounted to P
=34.3 billion, P
= 34.4 billion and P
= 30.2 billion in 2009, 2008 and
2007, respectively, and were included under costs of sales and services in the consolidated statement of income
(see Note 21).
The Group recorded a provision for impairment amounting to P
= 78.1 million and P
= 136.6 million in 2009 and 2008. The
provision is included under “Other charges” in the consolidated statement of income (see Note 21).
In May 2009, IMI lost inventories amounting to US$0.6 million (P
= 27.7 million), due to a fire incident in its plant in
Cebu, Philippines. The loss is included under “General and administrative expenses” in the consolidated statement of
income (see Note 21).
108 AYALA CORPORATION
36
8.
Other Current Assets
This account consists of the following:
2009
Prepaid expenses
Value-added input tax
Financial assets at FVPL
Treasury bills (Note 11)
Creditable withholding tax
HTM investments
Others
P
= 1,808,813
1,426,839
926,860
925,694
914,243
–
544,555
P
= 6,547,004
2008
(In Thousands)
P
= 1,845,997
1,102,560
2,233,201
–
1,209,148
65,405
634,083
P
= 7,090,394
Financial assets at FVPL consist of:
Held for trading:
Government securities
Designated as at FVPL:
Investment securities
2009
2008
(In Thousands)
P
= 433,821
P
= 1,778,720
493,039
P
= 926,860
454,481
P
= 2,233,201
Government securities pertain to treasury bonds that have yields to maturity of 4.2% to 4.8% in 2009 and 5.5% to
6.4% in 2008. The Group recognized unrealized loss on these government securities amounting to P
= 0.7 million in
2009, P
=3.9 million in 2008 and unrealized gain of P
= 18.0 million in 2007 (see Note 21). The Group recognized
realized gains on disposal amounting to P
=25.2 million and P
= 1.1 million in 2009 and 2008, respectively (see Note 21).
Investment securities pertain mostly to the Group’s investment in The Rohatyn Group (TRG) Allocation LLC, which
has a fair value of US$9.4 million (P
= 448.2 million) as of December 31, 2008. Unrealized gains on this investment
amounted to US$0.3 million (P
= 14.7 million) and US$2.9 million (P
= 119.5 million) in 2009 and 2008, respectively (see
Note 21). In 2009, management evaluated the continued application of prior year’s valuation technique on the TRG
investment. It was concluded that there is no reliable measure of fair value for the TRG investments as of December
31, 2009 and it should be stated at cost with its last obtainable fair value as the new cost basis.
Prepaid expenses mainly include prepayments for commissions, marketing fees, advertising and promotion, taxes
and licenses, rentals and insurance.
The value-added input tax is applied against value-added output tax. The remaining balance is recoverable in future
periods.
HTM investments in 2008 pertain to fixed rate treasury notes that bear an effective interest rate of 11.4% which
matured on February 25, 2009.
Freestanding derivatives
In 2009, IMI entered into various short-term currency forwards with aggregate nominal amount of $27.64 million. In
2008, IMI entered into structured currency options for economic hedges which it unwound in the second quarter of
2008 (see Note 21). The remaining outstanding structured currency options after the unwinding program have
maturity dates of up to November 2008.
As of December 31, 2009 and 2008, IMI has no outstanding derivative transactions.
37
2009 ANNUAL REPORT 109
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Fair Value Changes on Derivatives
The net movements in fair values of the Group’s freestanding derivative instruments as of December 31 follow
(amounts in thousands):
Balance at beginning of year
Net changes in fair value of derivatives
not designated as accounting hedges
Fair value of settled instruments
Balance at end of year
2009
P
=–
2008
P
= 143,322
7,665
7,665
(7,665)
P
=–
(1,448,978)
(1,305,656)
1,305,656
P
=–
The net changes in fair value of derivatives not designated as accounting hedges include hedging losses amounting
to P
= 1,456 million in 2008 included under “Interest expense and other financing charges” and fair value gain amounting
to P
= 7.7 million and P
= 7.0 million in 2009 and 2008, respectively, included as part of “Marked-to-market gain” under
“Other income” account in the consolidated statement of income (see Note 21).
9.
Land and Improvements
This account consists of:
2009
2008
(In Thousands)
Cost
Balance at beginning of the year
Additions
Transfers*
Write-offs (Note 21)
Disposals
Balance at end of the year
Allowance for decline in value
Balance at beginning of the year
Additions
Transfers*
Balance at end of the year
P
= 15,974,474
3,396,777
(804,954)
(202,983)
–
18,363,314
P
= 16,418,181
145,544
(588,841)
–
(410)
15,974,474
217,580
568,672
(5,500)
780,752
P
= 17,582,562
217,580
–
–
217,580
P
= 15,756,894
*Transfers pertain to developed land for sale and included under “Real estate inventories” account.
On August 27, 2009, ALI and the National Housing Authority (NHA) signed a Joint Venture Agreement to develop a
29.1-hectare North Triangle Property in Quezon City as a priming project of the government and the private sector.
The joint venture represents the conclusion of a public bidding process conducted by the NHA which began last
October 3, 2008.
ALI’s proposal, which has been approved and declared by the NHA as compliant with the Terms of Reference of the
public bidding and the National Economic Development Authority (NEDA) Joint Venture Guidelines, features the
development of a new Central Business District (CBD) in Quezon City. The CBD will be developed as the Philippines’
first transit-oriented mixed-use central business district that will be a new nexus of commercial activity. The proposal
also aims to benefit the NHA in achieving its mandate of providing housing for informal settlers and transforming a
non-performing asset in a model for urban renewal. The development will also generate jobs and revenues both for
the local and national governments.
ALI's vision for the property is consistent with the mandate of the Urban Triangle Development (TriDev) Commission
to rationalize and speed up the development of the East and North Triangles of Quezon City into well-planned,
integrated and environmentally balanced, mixed-use communities. The joint venture also conforms to NHA's vision of
a private sector-led and managed model for the development of the property, similar to the development experience
in Fort Bonifacio.
The total project cost is estimated at P
= 22 billion, inclusive of future development costs and the current value of the
property, which ALI and the NHA will contribute as their respective equity share in the joint venture. ALI expects to
start the development within the next two years.
110 AYALA CORPORATION
38
In 2009, the Group recorded provision for impairment amounting P
= 568.7 million. The amount of impairment has been
included under “Other charges” in the consolidated statement of income (see Note 21).
10. Investments in Associates and Jointly Controlled Entities
This account consists of the following:
2009
2008
(In Thousands)
P
= 54,906,614
P
= 52,426,662
15,991,568
15,488,891
Acquisition cost
Accumulated equity in earnings
Cumulative translation adjustments and equity
reserves
658,770
P
= 71,556,952
224,841
P
= 68,140,394
The Group’s equity in the net assets of its associates and jointly controlled entities and the related percentages of
ownership are shown below:
Percentage of Ownership
2009
2008
Domestic:
Bank of the Philippine Islands and subsidiaries
(BPI)
Globe Telecom, Inc. and subsidiaries (Globe)*
Stream Global Services, Inc. (Stream)
Manila Water Company, Inc. and subsidiaries
(MWCI)*
Emerging City Holdings, Inc. (ECHI)*
Cebu Holdings, Inc. and subsidiaries (CHI)
Bonifacio Land Corporation (BLC)
Berkshires Holdings, Inc. (BHI)*
Philwater Holdings Company, Inc. (Philwater)*
North Triangle Depot Commercial Corporation
(NTDCC)
Asiacom Philippines, Inc. (Asiacom)*
Alabang Commercial Corporation (ACC)*
EGS Corporation (EGS Corp.)*
Foreign:
ARCH Asian Partners L.P.
Others
Carrying Amounts
2009
2008
(In Millions)
33.5**
30.5
25.7
33.5**
30.5
–
P
= 29,406
17,313
4,879
P
= 28,533
18,000
–
31.5**
50.0
47.2
5.0
50.0
60.0
29.9**
50.0
47.2
5.0
50.0
60.0
4,308
3,371
1,972
1,465
1,445
1,430
3,188
2,823
1,940
1,118
1,210
1,193
49.0
60.0
50.0
–
49.0
60.0
50.0
50.0
1,417
887
609
–
1,555
843
595
3,346
1,437
1,618
P
= 71,557
959
2,837
P
= 68,140
19.2**
Various
19.2**
Various
* Jointly controlled entities.
** Effective ownership interest of the Company.
The fair value of investments in listed associates and jointly controlled entities for which there are published price
quotations amounted to P
= 104,803.2 million and P
= 79,767.2 million as of December 31, 2009 and 2008, respectively.
Financial information on significant associates and jointly controlled entities (amounts in millions, except earnings per
share figures) follows:
BPI
Total resources
Total liabilities
Noncontrolling interest
Net interest income
Other income
Other expenses
Net income attributable to:
Equity holders of the bank
Noncontrolling interests
Earnings per share
Basic
Diluted
39
2009
P
= 724,420
656,655
967
21,402
12,993
19,676
2008
P
= 666,612
602,740
938
19,463
10,321
18,312
8,516
149
6,423
134
2.62
2.62
1.98
1.98
2009 ANNUAL REPORT 111
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Globe
Current assets
Noncurrent assets
Total assets
Current liabilities
Noncurrent liabilities
Total liabilities
Net operating revenue
Costs and expenses
Net income
Earnings per share:
Basic
Diluted
MWCI
Current assets
Noncurrent assets
Total assets
Current liabilities
Noncurrent liabilities
Total liabilities
Revenue
Costs and expenses
Net income
Earnings per share:
Basic
Diluted
Stream
Current assets
Noncurrent assets
Total assets
Current liabilities
Noncurrent liabilities
Total liabilities
Revenue
Costs and expenses
Net income
Loss per share:
Basic
Diluted
2009
P
= 18,415
109,228
127,643
33,576
46,359
79,935
65,807
47,834
12,569
2008
P
= 17,541
102,202
119,743
33,728
35,923
69,651
65,964
48,118
11,276
94.59
94.31
84.75
84.61
2009
P
= 9,178
34,580
43,758
5,427
21,361
26,788
9,533
4,686
3,231
2008
P
= 8,595
27,774
36,369
4,231
17,680
21,911
8,914
4,396
2,788
1.31
1.31
1.13
1.13
2009
In US$
US$227
453
680
115
262
377
585
590
(28)
In Php*
P
= 10,505
20,949
31,454
5,329
12,108
17,437
27,016
27,273
(1,320)
(3.46)
(3.46)
(159.85)
(159.85)
*Translated using the closing exchange rate at the reporting date (US$1:P
= 46.20)
The financial information of Stream is based on US Generally Accepted Accounting Principles which is different in
some aspects from PFRS. Stream’s long-lived assets, goodwill and intangible assets (included as part of noncurrent
assets) have been reviewed for impairment in accordance with these standards.
The following significant transactions affected the Group’s investments in its associates and jointly controlled entities:
Investment in Globe
In June 2008, the Company sold 3.8 million shares to Singapore Telecom, Inc. (SingTel) decreasing its ownership
interest in Globe’s common shares from 33.3% to 30.5%. The Company’s gain arising from the sale of investments in
Globe shares amounted to P
= 2.7 billion (see Note 21). The Company also holds 60% of Asiacom Philippines, Inc.,
which owns 158.5 million Globe preferred shares. The Company does not exercise control over Asiacom since it is a
joint venture with SingTel.
Investment in eTelecare and Stream
On September 19, 2008, NewBridge, a subsidiary of the Company through LIL, together with Providence Equity
Partners (Providence), entered into a Definitive Agreement to acquire up to all of the outstanding shares of eTelecare
common shares and American Depository Shares (ADS) for US$9.00 per share. New Bridge and Providence formed
a 50-50 joint venture company, EGS Corp. to own 100% of EGS Acquisition Corp. (EGS Acquisition).
On December 12, 2008, EGS Acquisition acquired through a tender offer, 98.7% of the outstanding eTelecare
common shares and ADS for a total consideration of US$285.3 million plus US$9.4 million in transactions costs. The
22.2% eTelecare shares owned by Newbridge were tendered and included in the purchase.
112 AYALA CORPORATION
40
On August 14, 2009, a Share Exchange Agreement (the Agreement) was entered into by Stream, EGS Corp., EGS
Dutchco B.V. (EGS Dutchco), and NewBridge to combine in a stock-for-stock exchange. Under the Agreement:
NewBridge shall contribute all its rights with respect to the US$35.8 million advances to EGS Corp.
(see Note 29). These advances were originally borrowed by EGS Corp. from AYC Holdings. AYC Holdings
assigned the advances to NewBridge.
NewBridge shall transfer to Stream all the shares of EGS Corp. that it owns including shares that would result
from the conversion of the US$35.8 million advances; and,
Stream shall issue and deliver to NewBridge an aggregate of 20,192,068 common shares with $0.001 par value
per share provided that at the election of Stream, Stream may pay an aggregate of US$5,994 in cash for an
aggregate of 1,131 shares (at $5.30 per share) of Stream Common Stock otherwise issuable to NewBridge.
On October 1, 2009 (the Closing Date), NewBridge received a total of 20,190,937 shares of Stream’s capital stock
representing 25.5% interest in Stream and cash amounting to $5,994 in lieu of 1,131 shares. As a result of the
transaction, NewBridge:
derecognized its Investment in and Loan Receivable from EGS Corp. amounting to US$61.5 million and
US$35.8 million, respectively;
recognized an Investment in Stream amounting to US$107.0 million; and,
recognized a gain from the transaction amounting to US$8.8 million.
After the Closing Date, Newbridge acquired additional 320,146 common shares Stream at a total cost of
US$1.9 million.
As of December 31, 2009, Newbridge’s effective ownership in Stream is 25.76%.
Investment in MWCI
In various dates in 2009, the Company acquired 40.8 million common shares of MWCI for a total consideration of
P
= 572.4 million. This increased the Company’s ownership interest in MWCI from 29.9% to 31.5%.
Investment in NTDCC
In 2007, a series of capital calls were made by NTDCC amounting to P
= 484.8 million, increasing ALI’s overall invested
capital to P
=1,450.0 million or a 49.29% stake.
NTDCC was assigned development rights over certain areas of the MRT Depot in Quezon City by MRT Development
Co. to construct and operate a commercial center under certain terms and conditions until the end of a 50-year
development period renewable for another 25 years. NTDCC was primarily organized to own and operate the
commercial center atop the MRT Depot. NTDCC officially started the construction of the shopping center, now known
as TriNoma, in 2005 and became operational on May 16, 2007.
Investment in ECHI, BHI and BLC
ALI Group’s investment in BLC is accounted for using the equity method because the ALI Group has significant
influence over BLC. ECHI and BHI are joint venture companies established by ALI to indirectly hold its equity interest
in BLC.
On July 31, 2008, the ALI Group acquired additional 4,360,178 shares of BLC from Fort Bonifacio Development
Corporation amounting to P
=689.0 million, equivalent to 7.66% ownership in BLC. This resulted in an increase in ALI
Group’s effective interest in BLC from 37.23% to 41.10%.
In January and October 2009, ALI Group acquired additional 2,295,207 shares of BLC from the Development Bank of
the Philippines and Metro Pacific Corporation (MPC) amounting to P
= 362.6 million. This resulted in an increase in the
ALI Group’s effective interest in BLC from 41.10% as of December 31, 2008 to 45.05% as of December 31, 2009.
Investment in Philwater
The Company does not exercise control over Philwater since it is a joint venture with United Utilities Pacific Holdings
BV.
41
2009 ANNUAL REPORT 113
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Investment in ARCH Fund
In 2006, the Company and ALI entered into a Shareholders’ Agreement with ARCH Capital Management Co. Ltd.
(ARCH Capital) and Great ARCH Co. Limited, wherein the Company and ALI committed to invest a total of
US$75.0 million in a private equity fund that will explore property markets in Asia, excluding Japan and the
Philippines. In the same year, an Amendment and Adherence Agreement was entered into by the same parties,
together with Fine State Group Limited (Fine State) and Green Horizons Holdings Limited (Green Horizons),
transferring the interests of the Company and ALI in ARCH Capital into Fine State and Green Horizons, respectively.
Fine State and Green Horizons are effectively 100% owned Hong Kong based subsidiaries of the Company and ALI,
respectively.
The Company (through Fine State) and ALI (through Green Horizons) both have interests in the fund management
company, ARCH Capital, which is tasked to raise third party capital and pursue investments for the Fund. As of
December 31, 2009 and 2008, the Company (through Fine State) and ALI (through Green Horizon) owned a
combined interest in ARCH Capital of 50%.
In 2007, the private equity fund, called ARCH Asian Partners, L.P. (Fund) was established. As of December 31,
2007, the Fund achieved its final closing, resulting in a total investor commitment of US$330.0 million. As a result, a
portion of the funds disbursed by the Company and ALI which were invested into the Fund has been returned in 2007,
reducing the Company and ALI’s overall invested capital to P
= 580.3 million as of December 31, 2007. In 2008, the
Fund issued a capital call where the Company and ALI’s share amounted to US$3.9 million. In 2009, the Fund issued
another capital call where the Company and ALI’s share amounted US$6.4 million.
As of December 31, 2009, the Company and ALI’s remaining capital commitment with the Fund amounted to
US$31.8 million.
The Company and ALI exercise significant influence over the Fund by virtue of their interest in the general partner and
in ARCH Capital. Accordingly, the Company and ALI account for their investments in the Fund using the equity
method of accounting.
Interest in Limited Partnerships of Ayala International North America (AINA)
Other investments include AINA’s interest in various Limited Partnerships with a carrying value of P
= 1,164.4 million
and P
= 1,950.7 million as of December 31, 2009 and 2008, respectively. These investments are all incorporated in the
United States of America (USA) and are mainly involved in developing properties in different states in the USA.
Although the interest of AINA in certain limited partnerships exceeds 50%, these limited partnerships are accounted
for under the equity method of accounting because AINA does not have control over the financial and operating
policies of these partnerships.
In 2009, impairment loss amounting to P
= 574.0 million were provided for property development projects of certain
limited partnerships with projected negligible residual values after deducting amount of repayment on loans drawn for
the support and costs incurred for the projects and those that have been served with notices of default by banks. The
impairment loss is netted against the equity in net income of associates and jointly controlled entities in the
consolidated statements of income.
The excess of cost of investments over the Group’s equity in the net assets of its associates and jointly controlled
entities accounted for under the equity method amounted to P
= 12.2 billion and P
= 10.5 billion and as of December 31,
2009 and 2008, respectively.
As of December 31, 2009 and 2008, the Group has no capital commitments with its jointly controlled entities.
11. Investments in Bonds and Other Securities
This account consists of investments in:
AFS financial assets
Quoted equity investments
Unquoted equity investments
Quoted debt investments
Less current portion (Note 8)
114 AYALA CORPORATION
42
2009
2008
(In Thousands)
P
= 877,509
2,392,489
3,269,998
1,199,154
4,469,152
925,694
P
= 3,543,458
P
= 1,449,982
1,614,520
3,064,502
–
3,064,502
–
P
= 3,064,502
The unquoted equity investments include investments in TRG Global Opportunity Fund (GOF) and TRG Special
Opportunity Fund (SOF). The GOF is a multi-strategy hedge fund which invests primarily in emerging markets
securities. The SOF focuses on less liquid assets in emerging markets (Latin America, Asia, Emerging Europe,
Middle East and Africa) such as distressed debt, NPLs, corporate high yield, mid and small cap stocks, real estate
(debt and equity) and private equity. It also includes the Group’s investment in Red River Holding in 2008. The Red
River Holding is a fund that seeks to achieve a balanced and diversified portfolio of Vietnamese companies. In 2009,
capital calls amounting to US$4.6 million were made, bringing the total investment in Red River Holdings to
US$8.1 million as of December 31, 2009. As of December 31, 2009, the remaining capital commitment of the Group
relating to its investment in Red River Holding amounted to US$2.0 million.
Unquoted equity investments also include unlisted preferred shares in a public utility company which the Group will
continue to carry as part of the infrastructure that it provides for its real estate development projects. These are
carried at cost less impairment, if any.
As of December 31, 2009 and 2008, the Net Unrealized Gain (Loss) on AFS financial assets as reflected in the equity
section is broken down as follows:
2009
(In Thousands)
Net unrealized gain on AFS financial assets of
the Company and its consolidated subsidiaries
Share in the net unrealized loss on AFS financial
assets of associates
2008
P
= 463,852
P
= 78,320
(339,936)
P
= 123,916
(709,447)
(P
= 631,127)
The rollforward of unrealized gain (loss) on AFS financial assets of the Company and its consolidated subsidiaries is
as follows:
2009
2008
(In Thousands)
P
= 78,320
P
= 834,589
(1,862,720)
409,245
(23,713)
1,106,451
P
= 463,852
P
= 78,320
Balance at beginning of year
Changes in fair value recognized in equity
Recognized in profit and loss
Balance at end of year
12. Investment Properties
The movements in investment properties follow:
2009
Land
Cost
Balance at beginning of the year
Additions
Transfers
Retirements
Balance at end of the year
Accumulated Depreciation and Amortization
Balance at beginning of the year
Depreciation and amortization (Note 21)
Reversals of impairment loss
Transfers
Retirements
Balance at end of the year
Net Book Value
Building
(In Thousands)
Total
P
= 5,772,835
273,744
–
(247)
6,046,332
P
= 21,406,904
3,239,075
5,944,985
(686,555)
29,904,409
P
= 27,179,739
3,512,819
5,944,985
(686,802)
35,950,741
152,589
–
(125,973)
–
–
26,616
P
= 6,019,716
5,682,170
982,125
–
191,426
(21,326)
6,834,395
P
= 23,070,014
5,834,759
982,125
(125,973)
191,426
(21,326)
6,861,011
P
= 29,089,730
43
2009 ANNUAL REPORT 115
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
2008
Land
Cost
Balance at beginning of the year
Additions
Additions through business
combination (Note 22)
Retirements
Balance at end of the year
Accumulated Depreciation and Amortization
Balance at beginning of the year
Depreciation and amortization (Note 21)
Additions through business
combination (Note 22)
Retirements
Balance at end of the year
Net Book Value
P
= 5,798,283
3,932
Building
(In Thousands)
P
= 16,898,156
769,684
Total
P
= 22,696,439
773,616
–
(29,380)
5,772,835
4,017,955
(278,891)
21,406,904
4,017,955
(308,271)
27,179,739
152,589
–
5,127,677
730,845
5,280,266
730,845
–
–
152,589
P
= 5,620,246
73,828
(250,180)
5,682,170
P
= 15,724,734
73,828
(250,180)
5,834,759
P
= 21,344,980
Certain parcels of land are leased to several individuals and corporations. Some of the lease contracts provide,
among others, that within a certain period from the expiration of the contracts, the lessee will have to demolish and
remove all improvements (such as buildings) introduced or built within the leased properties. Otherwise, the lessor
will cause the demolition and removal thereof and charge the cost to the lessee unless the lessor occupies and
appropriates the same for its own use and benefit.
The aggregate fair value of the Group’s investment properties amounted to P
= 168.9 billion in 2009 and P
= 131.91 billion
in 2008. The fair values of the investment properties were determined based on valuations performed by independent
professional qualified appraisers.
Consolidated rental income from investment properties amounted to P
= 7.4 billion in 2009, P
= 5.9 billion in 2008 and
P
= 5.5 billion in 2007. Consolidated direct operating expenses arising from the investment properties amounted to
P
= 2.5 billion in 2009, P
= 3.1 billion in 2008 and P
= 2.4 billion in 2007.
13. Property, Plant and Equipment
The movements in property, plant and equipment follow:
Land,
Buildings and
Improvements
(Note 18)
Cost
At January 1
Additions
Additions through business
combination (Note 22)
Disposals
Transfers
Exchange differences
At December 31
Accumulated depreciation
and amortization and
impairment loss
At January 1
Depreciation and amortization
for the year (Note 21)
Disposals
Transfers
Exchange differences
At December 31
Net book value
116 AYALA CORPORATION
P
= 3,817,895
715,796
2009
Hotel
Machinery
Furniture,
and Property and
Equipment Fixtures and Transportation ConstructionEquipment
Equipment
Equipment
in-Progress
(Note 18)
(Note 28)
(In Thousands)
P
= 7,641,215
473,065
P
= 2,927,132
90,058
P
= 1,999,690
587,372
P
= 1,409,698
545,770
65,576
(31,375)
140,500
(69,903)
4,638,489
136,376
(688,579)
–
(106,771)
7,455,306
–
(94,750)
–
–
2,922,440
–
(41,855)
–
(26,953)
2,518,254
–
(431,027)
–
(1,769)
1,522,672
1,980,551
4,065,995
1,499,952
1,594,811
735,350
347,132
(1,622)
101,567
(44,189)
2,383,439
P
= 2,255,050
1,205,873
(333,996)
–
(57,188)
4,880,684
P
= 2,574,622
125,105
(86,792)
–
–
1,538,265
P
= 1,384,175
306,969
(33,975)
–
(21,538)
1,846,267
P
= 671,987
142,894
(147,907)
–
(978)
729,359
P
= 793,313
44
P
= 5,965,846
76,709
–
(2,588)
(5,963,123)
15,872
92,716
–
–
–
–
–
–
P
= 92,716
Total
P
= 23,761,476
2,488,770
201,952
(1,290,174)
(5,822,623)
(189,524)
19,149,877
9,876,659
2,127,973
(604,292)
101,567
(123,893)
11,378,014
P
= 7,771,863
2008
Land,
Buildings and
Improvements
(Note 18)
Cost
At January 1
Additions
Additions through business
combination (Note 22)
Disposals
Transfers
Exchange differences
At December 31
Accumulated depreciation
and amortization and
impairment loss
At January 1
Depreciation and amortization
for the year (Note 21)
Impairment loss for the year
(Note 21)
Additions through business
combination (Note 22)
Disposals
Transfers
Exchange differences
At December 31
Net book value
Machinery
and
Equipment
(Note 28)
P
= 3,407,607
376,720
P
= 6,675,439
1,269,742
227
(317,916)
29,829
321,428
3,817,895
70,046
(235,628)
(705,809)
567,425
7,641,215
Hotel
Property and
Equipment
(Note 18)
P
= 2,693,069
236,064
–
(2,001)
–
–
2,927,132
Furniture,
Fixtures and Transportation
Equipment
Equipment
(In Thousands)
P
= 1,985,808
276,505
23,698
(59,994)
(300,200)
73,873
1,999,690
P
= 1,040,022
477,798
1,640
(118,428)
–
8,666
1,409,698
Constructionin-Progress
Total
P
= 1,354,449
3,328,603
P
= 17,156,394
5,965,432
1,287,009
(4,215)
–
–
5,965,846
1,382,620
(738,182)
(976,180)
971,392
23,761,476
P
= 1,760,130
P
= 3,372,359
P
= 1,399,430
P
= 1,515,742
P
= 615,888
P
=–
P
= 8,663,549
325,341
938,985
102,523
260,529
205,204
–
1,832,582
36,003
–
–
37,400
–
–
73,403
26
(283,376)
–
142,427
1,980,551
P
= 1,837,344
65,557
(187,297)
(395,901)
272,292
4,065,995
P
= 3,575,220
–
(2,001)
–
–
1,499,952
P
= 1,427,180
8,632
(44,063)
(206,512)
23,083
1,594,811
P
= 404,879
1,439
(90,688)
–
3,507
735,350
P
= 674,348
–
–
–
–
–
P
= 5,965,846
75,654
(607,425)
(602,413)
441,309
9,876,659
P
= 13,884,817
Consolidated depreciation and amortization expense on property, plant and equipment amounted to P
= 2,128.0 million
in 2009, P
= 1,832.6 million in 2008 and P
= 1,819.2 million in 2007 (see Note 21).
In 2008, IMI recognized an impairment loss amounting to P
= 73.4 million representing the carrying amount of the
production assets dedicated to EPSON Imaging Devices, Panasonic Communication of the Philippines and Panac
Co. Ltd., net of reimbursements received, following the pre-termination of the existing manufacturing agreements with
said companies (see Note 21).
Part of the property, plant and equipment derecognized by IMI pertains to facilities damaged by fire with book value
amounting to US$0.1 million (P
= 4.6 million). The loss from the damaged facilities is included under “General and
administrative” in the consolidated statement of income.
Starting January 2009, IMI extended the estimated useful life of Surface Mount Technology and other production
equipment from five to seven years due to factors which demonstrated that the equipment can be used for more than
five years. The change in estimated useful life reduced depreciation expense for the year by US$2.07 million
(P
= 95.6 million).
14. Intangible Assets
The movements in intangible assets follow:
Customer
Goodwill Relationships
Cost
At January 1
Additions through business
combination (Note 22)
Additions during the year
Exchange differences
At December 31
Accumulated amortization
and impairment loss
At January 1
Amortization (Note 21)
Exchange differences
At December 31
Net book value
P
= 3,982,256
2009
Unpatented
Technology
(In Thousands)
Developed
Software
Licenses
Total
P
= 4,128
P
= 4,752
P
= 20,312
P
= 161,582
P
= 5,399,499
P
= 1,226,469
550,506
221,931
(86,999)
4,667,694
280,430
–
(44,856)
1,462,043
662,591
–
795,908
191,711
(28,305)
959,314
P
= 502,729
662,591
P
= 4,005,103
Order
Backlog
–
–
4,128
4,128
–
4,128
P
=–
45
–
–
(132)
4,620
14,505
–
(645)
34,172
–
19,722
(959)
180,345
845,441
241,653
(133,591)
6,353,002
2,727
957
(114)
3,570
P
= 1,050
20,312
7,938
(238)
28,012
P
= 6,160
48,436
1,534,102
35,281
235,887
(214)
(28,871)
83,503
1,741,118
P
= 96,842 P
= 4,611,884
2009 ANNUAL REPORT 117
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Cost
At January 1
Additions through business
combination (Note 22)
Exchange differences
At December 31
Accumulated amortization
and impairment loss
At January 1
Amortization (Note 21)
Exchange differences
At December 31
Net book value
Goodwill
Customer
Relationships
Order
Backlog
2008
Unpatented
Technology
(In Thousands)
Developed
Software
Licenses
Total
P
= 3,264,238
P
= 936,354
P
= 4,128
P
= 4,128
P
= 20,312
P
= 140,946
P
= 4,370,106
343,743
374,275
3,982,256
153,680
136,435
1,226,469
–
–
4,128
–
624
4,752
–
–
20,312
–
20,636
161,582
497,423
531,970
5,399,499
662,591
–
–
662,591
P
= 3,319,665
414,487
318,766
62,655
795,908
P
= 430,561
4,128
–
–
4,128
P
=–
1,652
826
249
2,727
P
= 2,025
11,551
8,761
–
20,312
P
=–
–
48,436
–
48,436
P
= 113,146
1,094,409
376,789
62,904
1,534,102
P
= 3,865,397
Goodwill mainly comprises the excess of the acquisition cost over the fair value of the identifiable assets and liabilities
of companies acquired by IMI and Integreon, Inc (Integreon).
Impairment testing of goodwill for IMI
Goodwill acquired through business combinations have been allocated to three individual CGUs of IMI for impairment
testing as follows:
2009
In US$
Speedy Tech Electronics, Ltd.
Saturn
M. Hansson Consulting, Inc.
US$45,128
657
441
US$46,226
2008
In Php*
In US$
In Php**
(In Thousands)
P
= 2,084,916
US$45,128
P
= 2,144,483
30,353
657
31,221
441
20,956
20,374
P
= 2,135,643
US$46,226
P
= 2,196,660
*Translated using the closing exchange rate at the statements of financial position date (US$1:P
= 46.20)
**Translated using the closing exchange rate at the statements of financial position date (US$1:P
= 47.52)
The recoverable amounts of the CGUs have been determined based on value-in-use calculations using cash flow
projections from financial budgets approved by management covering a five-year period. The pre-tax discount rate
applied to cash flow projections is 12% and 10% in 2009 and 2008, respectively, and cash flows beyond the five-year
period are extrapolated using a steady growth rate of 1% which does not exceed the compounded annual growth rate
for the global EMS industry.
Key assumptions used in value-in-use calculations
The calculations of value-in-use for the CGUs are most sensitive to assumptions on budgeted gross margins, growth
rates and pre-tax discount rates.
Gross margins are based on the mix of business model arrangements with the customers whether consigned or
turnkey. The forecasted growth rate is based on a steady growth rate which does not exceed the compounded
annual growth rate for the global EMS industry. Discount rates reflect management’s estimate of the risks specific to
each CGU. This is the benchmark used by management to assess operating performance.
Based on the value-in-use calculations, the carrying values of the CGUs did not exceed their recoverable amounts.
Therefore, IMI did not recognize any impairment loss in 2009 and 2008.
With regard to the assessment of value-in-use of the three CGUs, IMI management believes that a reasonably
possible change in any of the above key assumptions will not cause the carrying value of the CGU to materially
exceed its recoverable amount.
118 AYALA CORPORATION
46
Impairment testing of goodwill for Integreon
The Goodwill of Integreon arose from the acquisition of the following companies:
2009
In US$
Grail
CBF Group, Inc.
Integreon Managed Solutions, Inc.
Datum Legal, Inc.
Contentscape
US$11,557
10,153
8,770
5,374
370
US$36,224
2008
In Php*
In US$
In Php**
(In Thousands)
P
= 533,933
US$–
P
=–
469,069
10,153
482,471
8,770
416,750
405,174
248,279
3,678
174,779
370
17,582
17,094
P
= 1,673,549
US$22,971
P
= 1,091,582
*Translated using the closing exchange rate at the reporting date (US$1:P
= 46.20)
**Translated using the closing exchange rate at the reporting date (US$1:P
=47.52)
Goodwill has been allocated to the Integreon CGU for purposes of impairment testing.
In 2009, the recoverable amount of the CGU has been determined based on fair value less cost to sell. The fair value
less cost to sell calculation considered the enterprise value of the CGU based on a recent tender offer to which the
goodwill is allocated.
In 2008, the recoverable amount of the CGU has been determined based on value-in-use calculation using cash flow
projections from financial budgets approved by management covering a five-year period. The pre-tax discount rate
applied to cash flow projections is 22% and cash flows beyond the five-year period are extrapolated using a steady
growth rate of 5%.
Key assumptions used in value-in-use calculation
The calculations of value-in-use for the CGU are most sensitive to the following assumptions: revenue growth for the
five-year projection period, growth rate beyond the five-year period and the pre-tax discount rate. The assumptions
are based on management’s estimate after considering industry outlook.
Based on the value-in-use calculation, the carrying value of the CGU did not exceed its recoverable amount.
Therefore, Integreon did not recognize any impairment loss in 2008.
With regard to the assessment of value-in-use of the CGU, Integreon management believes that a reasonably
possible change in any of the above key assumptions will not cause the carrying value of the CGU to materially
exceed its recoverable amount.
15. Noncurrent Assets Held for Sale
In 2006, the Group had negotiations to sell its equity interests in Makati Property Ventures, Inc. (MVPI) and Hermill
Investments Pte. Ltd. (Hermill).
In 2007, the Group recognized a gain amounting to P
= 598.8 million as a result of the consummation of the sale of
MPVI and P
= 26.0 million as a result of the Hermill sale (included in “Income associated with noncurrent assets held for
sale” in the consolidated statement of income).
EPS on income associated with noncurrent assets held for sale attributable to equity holders of the Company follows
(amounts in thousands, except for EPS figures):
Income associated with noncurrent assets held for sale
Less: Income associated with noncurrent assets held for sale attributable to
noncontrolling interests
Weighted average number of common shares for basic EPS
Dilutive shares arising from stock options
Adjusted weighted average number of common shares for diluted EPS
Basic EPS
Diluted EPS
47
2007
P
= 624,788
139,982
484,806
496,787
2,374
499,161
P
= 0.98
P
= 0.97
2009 ANNUAL REPORT 119
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
16. Accounts Payable and Accrued Expenses
This account consists of the following:
2009
Accounts payable
Accrued expenses
Dividends payable
Accrued project costs
Taxes payable
Accrued personnel costs
Interest payable
Retentions payable
Related parties (Note 29)
P
= 14,584,321
6,152,842
2,264,306
2,136,700
1,470,295
427,502
402,278
120,938
105,355
P
= 27,664,537
2008
(In Thousands)
P
= 13,922,547
6,821,712
1,333,740
2,022,903
1,659,597
823,717
501,251
262,330
135,739
P
= 27,483,536
Accounts payable and accrued expenses are noninterest-bearing and are normally settled on 15- to 60-day terms.
Other payables are noninterest-bearing and are normally settled within one year.
Accrued expenses consist mainly of accruals for light and power, marketing costs, film share, professional fees,
postal and communication, supplies, repairs and maintenance, transportation and travel, security, insurance, and
representation.
17. Other Current Liabilities
This account consists of:
2009
2008
(In Thousands)
P
= 2,374,457
P
= 1,246,593
306,937
447,475
P
= 2,821,932
P
= 1,553,530
Customers’ deposits
Other liabilities
18. Short-term and Long-term Debt
Short-term debt consists of:
Philippine peso debt - with interest rates ranging from
5.0% to 9.5% per annum in 2009 and 7.0% to 9.6%
per annum in 2008
Foreign currency debt - with interest rates ranging from
1.9% to 3.9% per annum in 2009 and 2.5% to 6.4%
per annum in 2008
2009
2008
(In Thousands)
P
= 1,669,875
P
= 1,501,000
968,783
P
= 2,638,658
1,254,447
P
= 2,755,447
The Philippine peso debt consists mainly of ALI’s and its subsidiaries’ bank loans of P
=1,423.0 million and
P
= 1,279.5 million as of December 31, 2009 and 2008, respectively. These are unsecured peso-denominated
short-term borrowings with interest rates of 5.0%per annum in 2009 and 7.0% to 8.5% per annum in 2008.
The foreign currency debt consists mainly of BHL’s and IMI’s loans from various banks.
120 AYALA CORPORATION
48
Long-term debt consists of:
The Company:
Bank loans - with interest rates ranging from 4.7% to
4.8% per annum in 2009 and 6.3% to 6.6% per
annum in 2008 and varying maturity dates up to
2013
Fixed Rate Corporate Notes (FXCNs) with interest
rates ranging from 6.7% to 8.4% per annum and
varying maturity dates up to 2016
Bonds due 2012
Syndicated term loan
Subsidiaries:
Loans from banks and other institutions:
Foreign currency - with interest rates ranging from
3.3% to 15.0% per annum in 2009 and 2.7% to
15.0% per annum in 2008
Philippine peso - with interest rates ranging from
7.0% to 9.7% per annum in 2009 and 9.5% to
20.0% per annum in 2008
Bonds:
Due 2009
Due 2012
Due 2013
Due 2016
FXCNs
Less current portion
2009
2008
(In Thousands)
P
= 6,985,000
P
= 6,990,000
11,485,000
6,000,000
1,498,333
25,968,333
10,662,500
6,000,000
1,584,907
25,237,407
10,724,816
10,985,557
7,759,743
7,819,128
–
41,835
4,000,000
10,000
5,380,000
27,916,394
53,884,727
2,453,144
P
= 51,431,583
106,930
–
4,000,000
–
3,580,000
26,491,615
51,729,022
1,478,871
P
= 50,250,151
The Company
Generally, the Company’s long-term loans are unsecured. Due to certain regulatory constraints in the local banking
system regarding loans to directors, officers, stockholders and related interest, some of the Company’s credit facilities
with a local bank are secured by shares of stock of a consolidated subsidiary with fair value of P
= 6,712.9 million as of
December 31, 2009 and P
= 2,844.0 million as of December 31, 2008 in accordance with BSP regulations.
All credit facilities of the Company outside of this local bank are unsecured, and their respective credit agreements
provide for this exception. The Company positions its deals across various currencies, maturities and product types
to provide utmost flexibility in its financing transactions.
In 2007, the Company issued P
= 3.5 billion FXCNs consisting of 5- and 7-year notes to a local bank with fixed interest
rates of 6.73% and 6.70% per annum, respectively.
In 2005, the Company issued P
= 7.2 billion FXCNs consisting of 5- and 7-year notes to various institutions with fixed
interest rates of 10.00% and 10.38% per annum, respectively.
In 2007, the Company issued 6.83% Fixed Rate Bonds with an aggregate principal amount of P
= 6.0 billion to mature in
2012. Prior to maturity, the Company may redeem in whole the outstanding bonds on the twelfth and sixteenth
coupon payment date. The bonds have been rated “PRS Aaa” by the Philippine Ratings Services Corporation
(PhilRatings).
In the first quarter of 2008, the Company availed of a syndicated term loan amounting to P
= 1.5 billion which bears fixed
interest rate of 6.75% per annum and will mature in 2018.
In February 2009, the Company issued P
= 4.0 billion FXCNs consisting of two 5-year notes and a 6-year note to
various financial institutions with fixed interest rates of 7.75% and 7.95% per annum for the 5-year notes and 8.15%
per annum for the 6-year note.
In March 2009, the Company issued P
= 1.0 billion FXCNs consisting of 7-year note to a local financial institution with
fixed interest rate of 8.40% per annum.
49
2009 ANNUAL REPORT 121
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
In August 2009, the Company issued P
= 3.0 billion FXCNs consisting of a 5-year note to various institutions with fixed
interest rate of 7.45% per annum.
Subsidiaries
Foreign Currency Debt
In 2008, the Company, through a wholly owned subsidiary, entered into a 5-year syndicated term loan with a foreign
bank, with the Company as guarantor, for US$50.0 million at a rate of 52 points over the 1-, 3- or 6- month LIBOR at
the Company’s option.
In 2007, the Company, through a wholly owned subsidiary, entered into a 5-year syndicated loan for US$150.0 million
at a rate of 71.4 basis points over the 1-month, 3-month or 6-month LIBOR at the Company’s option.
In 2006, IMI obtained a US$40.0 million 5-year term clean loan from a local bank payable in a single balloon payment
at the end of the loan term. IMI may, at its option, prepay the loan in part or in full, together with the accrued interest
without penalty. The interest is repriced quarterly at the rate of 3-months LIBOR plus margin of 0.80% and is payable
quarterly. In 2007, IMI prepaid a portion of the loan amounting to US$10.0 million.
In 2006, IMI Singapore, a wholly owned subsidiary of IMI, obtained a US$40.0 million variable rate 5-year loan,
repayable in 10 equal semi-annual installments of US$4.0 million commencing on May 29, 2007 and maturing on
November 29, 2011. The interest is repriced semi-annually at the LIBOR rate plus 0.75% quoted by the bank and is
payable semi-annually. As of December 31, 2009 and 2008, the outstanding balance of the loan amounted to
US$16.0 million and US$24.0 million, respectively.
Philippine Peso Debt
The Philippine Peso loans pertain to ALI subsidiaries’ loans that will mature on various dates up to 2015 with floating
interest rates at 100 basis points to 200 basis points spread over benchmark 91-day PDST-R1/R2 and fixed interest
rates of 6.97% to 9.72% per annum. The term loan facility of a subsidiary is secured by a Mortgage Trust Indenture
over land and building with a total carrying value of P
=811.2 million and P
=612.4 million as of December 31, 2009 and
2008, respectively.
Home Starter Bonds due 2009
ALI launched in March 2006 its Homestarter Bonds of up to P
= 169.2 million with fixed interest rate of 5% per annum.
The Homestarter Bonds are being issued monthly in a series for a period of thirty six (36) months with final maturity in
March 2009. On maturity date, the principal amount of the bond is redeemable with the accrued interest. Should the
bondholder decide to purchase an Ayala Land property, he is entitled to an additional 10% of the aggregate face
value of the bond as bonus credit which together with the principal and accrued interest can be applied as
downpayment towards the purchase of an Ayala Land Premier, Alveo or Avida property. As of December 31, 2008,
the outstanding Homestarter Bonds amounted to P
= 106.9 million. Bonds that were not applied as downpayment for
property and remained outstanding were fully redeemed on March 16, 2009, the final maturity date.
Homestarter Bond due 2012
ALI launched a new issue of the Homestarter Bond in October 2009. The bond is to be issued over a series of 36
issues, once every month which commenced on October 16, 2009, up to P
= 14.0 million per series or up to an
aggregate issue amount of P
= 504.0 million over a 3-year period. The bond carries an interest rate of 5% per annum,
payable on the final maturity date or upon the bondholder’s exercise of the option to apply the bond to partial or full
payment for a residential property offered for sale by ALI or its affiliates. In the event of application of the bond to
partial or full payment for property, the bondholder shall be entitled to, in addition to interest, a notional credit
equivalent to 10% of the aggregate face value of the bond (the “bonus credit”). The bonus credit is subject to a
maximum of 5% of the net selling price of the property selected. The bond is alternatively redeemable at par plus
accrued interest on the third anniversary of the initial issue date.
5-Year Bonds due 2013
In 2008, ALI issued P
= 4.0 billion bonds due 2013 with fixed rate equivalent to 8.75% per annum. The PhilRatings
assigned a PRS Aaa rating on the bonds indicating that it has the smallest degree of investment risk. Interest
payments are protected by a large or by an exceptionally stable margin and principal is assured. While the various
protective elements are likely to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. PRS Aaa is the highest credit rating possible on PhilRatings’ rating
scales for long-term issuances.
5-,7- and 10-year FXCNs due in 2011, 2013 and 2016
In 2006, ALI issued P
= 3.0 billion FXCNs consisting of 5-, 7- and 10-year notes issued to various financial institutions
and will mature on various dates up to 2016. The FXCNs bear fixed interest rates ranging from 7.3% to 7.8% per
annum depending on the term of the notes.
122 AYALA CORPORATION
50
10-year FXCNs due 2012
ALI also has outstanding P
= 580.0 million 10-year FXCNs with fixed interest rate of 14.9% per annum issued in 2002
and due 2012. In February 2009, ALI prepaid in full such FXCNs.
5-, 7- and 10-year FXCN due 2014, 2016 and 2019
In 2009, ALI issued an aggregate P
= 2.38 billion in 5-, 7- and 10-year notes to various financial institutions and retail
investors. The notes will mature on various dates up to 2019. The FXCNs bear fixed interest rates ranging from
7.76% to 8.90%.
7-year FXCN due 2016
In 2009, ALI executed a P
=1.0 billion committed FXCN facility with a local bank, of which an initial P
= 10 million was
drawn on October 12, 2009. The FXCN bears a floating interest rate based on the 3-month PDST-R1 plus a spread
of 0.96%, repriceable quarterly. The initial note drawn, together with any future drawings, will mature on the seventh
anniversary of the initial drawdown date.
The loan agreements on long-term debt of the Company and certain subsidiaries provide for certain restrictions and
requirements with respect to, among others, payment of dividends, incurrence of additional liabilities, investments and
guaranties, mergers or consolidations or other material changes in their ownership, corporate set-up or management,
acquisition of treasury stock, disposition and mortgage of assets and maintenance of financial ratios at certain levels.
These restrictions and requirements were complied with by the Group as of December 31, 2009 and 2008.
Total interest paid amounted to P
= 3.9 billion in 2009, P
=3.7 billion in 2008 and P
= 3.8 billion in 2007.
Interest capitalized by subsidiaries amounted to P
= 76.3 million in 2009 and P
= 151.0 million in 2008. The average
capitalization rate is 7.15% and 6.27% in 2009 and 2008, respectively.
19. Other Noncurrent Liabilities
This account consists of the following:
2009
Deposits and deferred credits
Retentions payable
Other liabilities
P
= 5,479,797
1,967,042
1,662,341
P
= 9,109,180
2008
(In Thousands)
P
= 4,880,443
1,766,831
940,806
P
= 7,588,080
Deposits are initially recorded at fair value, which was obtained by discounting future cash flows using the applicable
rates of similar types of instruments. The difference between the cash received and its fair value is recorded as
deferred credits.
Other liabilities mainly include amounts due to related parties, nontrade payables, subscription payable and others
(see Note 29).
20. Equity
The details of the Company’s common and equity preferred shares follow:
Authorized shares
Par value per share
Issued and subscribed
shares
Treasury shares
Common shares
Preferred A shares
Preferred B shares
2009
2008
2007
2009
2008
2009
2008
2007
(In Thousands, except par value figures)
600,000 600,000 600,000
12,000
12,000
58,000
58,000
58,000
P
= 50
P
= 50
P
= 50
P
= 100
P
= 100
P
= 100
P
= 100
P
= 100
500,176
1,844
498,362
1,378
414,687
324
51
12,000
–
12,000
–
58,000
–
58,000
–
58,000
–
2009 ANNUAL REPORT 123
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Preferred shares
In February 2006, the BOD approved the reclassification of the unissued preferred shares and redeemed preferred
shares of the Company into 58 million new class of Preferred B shares with a par value of P
= 100 per share or an
aggregate par value of P
= 5,800 million. The Preferred B shares have the following features: (a) optional redemption by
the Company; (b) issue value, dividend rate and declaration thereof to be determined by the BOD; (c) cumulative in
payment of current dividends as well as any unpaid back dividends and non-participating in any other further
dividends; (d) nonconvertible into common shares; (e) preference over holders of common stock in the distribution of
corporate assets in the event of dissolution and liquidation of the Company and in the payment of the dividend at the
rate specified at the time of issuance; (f) nonvoting except in those cases specifically provided by law; (g) no preemptive rights to any issue of shares, common or preferred; and; (h) reissuable when fully redeemed.
In July 2006, the Company filed a primary offer in the Philippines of its Preferred B shares at an offer price of P
= 100
per share to be listed and traded on the Philippine Stock Exchange (PSE). The Preferred B shares are cumulative,
nonvoting and redeemable at the option of the Company under such terms that the BOD may approve at the time of
the issuance of shares and with a dividend rate of 9.4578% per annum. The Preferred B shares may be redeemed at
the option of the Company starting in the fifth year.
On January 31, 2008, the BOD approved the re-issuance and reclassification of 1.2 billion redeemed Preferred A and
AA shares with a par value of P
= 1.00 per share into 12.0 million new Preferred A shares with a par value of P
=100 per
share with the same features as the existing Preferred B shares, except on the issue price and dividend rate and the
amendment of the Company’s amended Articles of Incorporation to reflect the reclassification of the redeemed
Preferred shares into new Preferred A shares. On April 4, 2008, the Company’s stockholders ratified the reissuance
and reclassification.
On July 9, 2008, the SEC approved the amendments to the Company’s Articles of Incorporation embodying the
reclassification of the redeemed Preferred shares.
In November 2008, the Company filed a primary offer in the Philippines of its Preferred A shares at an offer price of
P
= 500 per share to be listed and traded on the PSE. The Preferred A shares are cumulative, nonvoting and
redeemable at the option of the Company under such terms that the BOD may approve at the time of the issuance of
shares and with a dividend rate of 8.88% per annum. The Preferred A shares may be redeemed at the option of the
Company starting in the fifth year.
Common shares
On December 7, 2006, the BOD approved the increase of the authorized common stock from P
= 19.0 billion divided
into 380,000,000 shares to P
= 30.0 billion divided into 600,000,000 shares with a par value of P
= 50 per share. The BOD
likewise approved the declaration of a 20% stock dividend to all common stockholders to be issued from the
increased authorized capital stock.
On April 30, 2007, the Company’s application for increase in authorized common stock and stock dividends were
approved by the SEC.
The common shares may be owned or subscribed by or transferred to any person, partnership, association or
corporation regardless of nationality, provided that at anytime at least 60% of the outstanding capital stock shall be
owned by citizens of the Philippines or by partnerships, associations or corporations 60% of the voting stock or voting
power of which is owned and controlled by citizens of the Philippines.
The details of the Company’s paid-up capital follow:
2009
Total
Additional
Paid-up
Paid-in Subscriptions
Common
Capital
Capital
Receivable
Stock Subscribed
(In Thousands)
As of January 1, 2009
P
= 1,200,000 P
= 5,800,000 P
= 24,772,493
P
= 145,598 P
= 5,734,748
(P
= 401,125) P
= 37,251,714
Exercise of ESOP/ESOWN
–
–
1,047
89,653
346,007
(210,546)
226,161
As of December 31, 2009
P
= 1,200,000 P
= 5,800,000 P
= 24,773,540
P
= 235,251 P
= 6,080,755
(P
= 611,671) P
= 37,477,875
Preferred
Stock - A
124 AYALA CORPORATION
Preferred
Stock - B
52
2008
Preferred
Stock - A
Preferred
Stock - B
As of January 1, 2008
P
=– P
= 5,800,000
Exercise of ESOP/ESOWN
–
–
Issuance of shares
1,200,000
–
Stock dividends
–
–
As of December 31, 2008
P
= 1,200,000 P
= 5,800,000
Additional
Common
Paid-in
Stock Subscribed
Capital
(In Thousands)
P
= 20,633,667
P
= 100,685
P
= 657,422
–
44,913
319,151
110
–
4,758,175
4,138,716
–
–
P
= 24,772,493
P
= 145,598 P
= 5,734,748
Total
Paid-up
Capital
Subscriptions
Receivable
(P
= 336,380) P
= 26,855,394
(64,745)
299,319
–
5,958,285
–
4,138,716
(P
= 401,125) P
= 37,251,714
2007
As of January 1, 2007
Exercise of ESOP/ESOWN
Stock dividends
As of December 31, 2007
Preferred
Stock - B
Common
Stock
P
= 5,800,000
–
–
P
= 5,800,000
P
= 17,166,964
17,119
3,449,584
P
= 20,633,667
Additional
Total
Paid-in Subscriptions
Paid-up
Subscribed
Capital
Receivable
Capital
(In Thousands)
P
= 75,754
P
= 335,343
(P
= 240,113) P
= 23,137,948
24,931
322,079
(96,267)
267,862
–
–
–
3,449,584
P
= 100,685
P
= 657,422
(P
= 336,380) P
= 26,855,394
The movements in the Company’s outstanding number of common shares follow:
2009
At January 1
Stock dividends
Exercise of options ESOP/ESOWN
Issuance of shares
Treasury stock
At December 31
496,984
–
1,814
–
(466)
498,332
2008
(In Thousands)
414,363
82,774
898
3
(1,054)
496,984
2007
344,850
68,991
841
–
(319)
414,363
On September 10, 2007, the BOD approved the creation of a share buyback program involving P
= 2.5 billion worth of
common capital stock. In 2009 and 2008, the Company acquired 466,360 and 1,054,422 common shares,
respectively, at a total cost of P
= 138.2 million and P
= 390.8 million, respectively. As of December 31, 2009 and 2008,
treasury stock amounted to P
= 688.7 million and P
= 550.5 million, respectively.
In addition, P
= 100.0 million Preferred A shares of the Company have been acquired by ALI. This has been accounted
for as “Parent Company Preferred shares held by a subsidiary” and presented as a reduction in equity.
Retained Earnings
Retained earnings include the accumulated equity in undistributed net earnings of consolidated subsidiaries,
associates and jointly controlled entities accounted for under the equity method amounting to P
= 33,990.7 million,
P
= 30,308.0 million and P
= 29,824.0 million as of December 31, 2009, 2008 and 2007, respectively.
Retained earnings are further restricted for the payment of dividends to the extent of the cost of the common shares
held in treasury.
In accordance with SEC Memorandum Circular No. 11 issued in December 2008, the Company’s retained earnings
available for dividend declaration as of December 31, 2009 and 2008 amounted to P
= 31,060.0 million and
P
= 30,745.9 million, respectively.
Dividends consist of the following:
2009
2008
2007
(In Thousands, except dividends per share)
Dividends to common shares
Cash dividends declared during the year
Cash dividends per share
Stock dividends
Dividends to equity preferred shares declared
during the year
53
P
= 1,994,148
P
= 4.00
P
=–
P
= 1,989,484
P
= 4.00
P
= 4,138,716
P
= 3,312,426
P
= 8.00
P
= 3,449,584
P
= 2,025,567
P
= 548,552
P
= 548,552
2009 ANNUAL REPORT 125
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
On December 10, 2009, the BOD approved the declaration and payment of cash dividends out of the unappropriated
retained earnings of the Company amounting to P
=498.3 million or P
= 2 per share, payable to all common shares
shareholders of record as of January 8, 2010. The said dividends are payable on February 2, 2010. Also on the
same date, the BOD approved the declaration and payment of the quarterly dividends to all shareholders of the
Company’s Preferred A and Preferred B shares for calendar year 2010.
On January 31, 2008, the BOD approved the declaration of a 20% stock dividend to all common share holders of the
Company as of April 24, 2008. On April 4, 2008, the Company’s stockholders ratified the declaration of the 20% stock
dividends to all stockholders.
Capital Management
The primary objective of the Company’s capital management policy is to ensure that it maintains a strong credit rating
and healthy capital ratios in order to support its business and maximize shareholder value.
The Company manages its capital structure and makes adjustments to it, in light of changes in economic conditions.
To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders or issue
new shares. No changes were made in the objectives, policies or processes for the years ended December 31, 2009
and 2008.
The Company is not subject to externally imposed capital requirements.
The Company monitors capital using a gearing ratio of debt to equity and net debt to equity. Debt consists of shortterm and long-term debt. Net debt includes short-term and long-term debt less cash and cash equivalents and shortterm investments. The Company considers as capital the equity attributable to equity holders of the Company.
2009
2008
(In Thousands)
P
= 2,638,658
P
= 2,755,447
53,884,727
51,729,022
56,523,385
54,484,469
Short-term debt
Long-term debt
Total debt
Less:
Cash and cash equivalents
Short-term investments
Net debt
Equity attributable to equity holders of the
Company
Debt to equity
Net debt to equity
45,656,889
4,560,976
P
= 6,305,520
42,885,792
1,008,924
P
= 10,589,753
P
= 102,260,427
55%
6%
P
= 97,311,192
56%
11%
21. Other Income and Costs and Expenses
Other income consists of:
2009
Gain on sale of investments
Management and marketing fees
Insurance claim (Note 6)
Bargain purchase gain (Note 22)
Dividend income
Gain on sale of other assets
Rental income
Marked-to-market gain (Note 8)
Foreign exchange gain (loss)
Others
P
= 1,698,820
680,244
280,100
235,851
204,691
168,063
66,795
22,324
(64,974)
516,603
P
= 3,808,517
2008
2007
(In Thousands)
P
= 3,554,679
P
= 8,844,822
626,350
485,802
–
–
–
–
148,914
73,500
45,409
54,064
40,442
39,351
119,229
320,610
181,858
626,766
699,869
283,460
P
= 5,416,750
P
= 10,728,375
Gain on sale of investments consists mostly of gain arising from the sale of the Company’s investments in a listed
subsidiary, an associate and jointly controlled entities. Marked-to-market gain pertains to fair value gains on financial
assets at FVPL and freestanding derivatives.
126 AYALA CORPORATION
54
In March 2008, ALI sold its shares of stock in Streamwood Property, Inc., Piedmont Property Ventures, Inc. and
Stonehaven Land, Inc. Total consideration received from the sale amounted to P
= 902.0 million. Gain on sale
amounted to P
= 762.0 million included under “Gain on sale of investments”.
In December 2007, ALI entered into a joint venture with Kingdom Hotel Investments, Inc. to develop a 7,377-square
meter property along Makati Avenue corner Arnaiz Avenue (formerly Pasay Road) into a luxury hotel complex
comprising a 300-room Fairmont Hotel, a 30-suite Raffles Hotel and 189 Raffles branded private residences. The
total project cost is approximately US$153.0 million.
The 7,377-square meter property to be developed was conveyed by ALI to KHI-ALI Manila, Inc. (KAMI) in exchange
for 37,250 common shares, 38,250 redeemable preferred shares A and 16,758 preferred shares of KAMI. On
December 13, 2007, ALI sold 16,758 of its preferred shares in KAMI to Kingdom Manila B.V., which resulted in a gain
of P
= 1,004.0 million, reported under “Gain on sale of investments”.
Other income includes income derived from ancillary services of consolidated subsidiaries.
Cost of sales and services included in the consolidated statement of income are as follows:
2009
Inventory
Personnel costs (Notes 25, 26 and 29)
Depreciation and amortization
Rental and utilities
Professional and management fees
Taxes and licenses
Repairs and maintenance
Transportation and travel
Insurance
Contract labor
Others
P
= 34,281,857
5,279,394
2,474,988
2,339,382
1,037,461
770,138
614,205
531,087
163,801
101,587
1,724,394
P
= 49,318,294
2008
2007
(In Thousands)
P
= 34,440,421
P
= 30,196,530
6,782,659
5,215,984
1,821,069
1,971,932
2,725,843
2,127,910
961,649
826,035
588,714
569,666
555,272
383,451
118,911
67,161
172,498
61,909
423,156
412,743
1,424,174
1,335,789
P
= 50,014,366
P
= 43,169,110
General and administrative expenses included in the consolidated statement of income are as follows:
2009
Personnel costs (Notes 25, 26 and 29)
Depreciation and amortization
Professional fees
Taxes and licenses
Rental and utilities
Transportation and travel
Provision for doubtful accounts (Note 6)
Advertising and promotions
Postal and communication
Repairs and maintenance
Contract labor
Entertainment, amusement and recreation
Insurance
Supplies
Donations and contributions
Dues and fees
Research and development
Others
P
= 4,661,710
870,997
817,167
428,525
384,790
264,030
217,208
182,492
179,638
128,511
125,750
124,712
106,841
89,420
67,129
55,041
29,339
481,270
P
= 9,214,570
55
2008
(In Thousands)
P
= 4,753,473
1,119,147
616,969
454,387
298,472
338,855
88,871
420,620
157,226
116,317
39,677
129,273
73,342
137,599
123,312
66,365
48,685
502,924
P
= 9,485,514
2007
P
= 4,168,554
1,016,947
796,979
530,583
357,666
376,087
127,701
234,330
153,649
132,257
36,952
141,782
59,703
161,459
126,541
61,033
189,693
826,390
P
= 9,498,306
2009 ANNUAL REPORT 127
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Depreciation and amortization expense included in the consolidated statement of income follows:
2009
Included in:
Cost of sales and services
General and administrative expenses
2008
(In Thousands)
P
= 2,474,988
870,997
P
= 3,345,985
P
= 1,821,069
1,119,147
P
= 2,940,216
2007
P
= 1,971,932
1,016,947
P
= 2,988,879
Personnel costs included in the consolidated statements of income follow:
2009
Included in:
Cost of sales and services
General and administrative expenses
P
= 5,279,394
4,661,710
P
= 9,941,104
2008
(In Thousands)
P
= 6,782,659
4,753,473
P
= 11,536,132
2007
P
= 5,215,984
4,168,554
P
= 9,384,538
Interest expense and other financing charges consist of:
2009
Interest expense on:
Short-term debt
Long-term debt
Hedging losses (Note 8)
Dividends on preferred shares
Others
P
= 271,057
3,475,297
–
–
75,988
P
= 3,822,342
2008
(In Thousands)
P
= 244,466
3,216,017
1,455,952
–
20,673
P
= 4,937,108
2007
P
= 321,891
3,544,488
–
154,335
99,446
P
= 4,120,160
During the first half of 2008, IMI entered into additional structured currency options for economic hedges. The
economic turn-around during the second quarter of 2008 led to a weaker peso which resulted in an unfavorable
position on IMI’s derivative transactions. In May 2008, the BOD of IMI approved the unwinding of four major
derivative contracts and IMI incurred unwinding costs amounting to $33.36 million or P
= 1.46 billion. The net changes
in fair value of settled derivative instruments not designated as accounting hedges are included as part of “Interest
expense and other financing charges”. The fair value of settled instruments includes the unwinding costs of
US$33.36 million for the year ended December 31, 2008.
Other charges consist of:
2009
Provision for impairment losses
Land and improvements (Note 9)
Inventories (Note 7)
AFS financial assets (Note 11)
Property, plant and equipment (Note 13)
Write-offs and other charges
Impairment loss on goodwill
Others
P
= 568,672
78,091
–
–
350,265
–
438,010
P
= 1,435,038
2008
(In Thousands)
P
=–
136,630
1,106,451
73,403
–
–
278,938
P
= 1,595,422
2007
P
=–
–
–
–
669,949
662,591
237,404
P
= 1,569,944
In 2009, write-offs and other charges include the write-down of ALI’s inventory from purchase of steel bars which
amounted to P
= 350.3 million. In 2007, write-offs and other charges include the write-down of investment properties
damaged by the Glorietta 2 explosion and related expenses incurred, and demolition and relocation costs as part of
the ALI’s Ayala Center redevelopment program amounting to a total of P
=213.7 million in 2007 (see Note 12).
128 AYALA CORPORATION
56
22. Business Combinations
PFRS 3 provides that if the initial accounting for a business combination can be determined only provisionally by the
end of the period in which the combination is effected because either the fair values to be assigned to the acquiree’s
identifiable assets, liabilities or contingent liabilities or the cost of the combination can be determined only
provisionally, the acquirer shall account for the combination using those provisional values. The acquirer shall
recognize any adjustments to those provisional values as a result of completing the initial accounting within twelve
months of the acquisition date as follows: (i) the carrying amount of the identifiable asset, liability or contingent liability
that is recognized or adjusted as a result of completing the initial accounting shall be calculated as if its fair value at
the acquisition date had been recognized from that date; (ii) goodwill or any gain recognized shall be adjusted by an
amount equal to the adjustment to the fair value at the acquisition date of the identifiable asset, liability or contingent
liability being recognized or adjusted; and (iii) comparative information presented for the periods before the initial
accounting for the combination is complete shall be presented as if the initial accounting has been completed from the
acquisition date.
2009 Acquisitions
On-Site Sourcing, Inc.
On April 30, 2009, Integreon acquired On-Site Sourcing, Inc. (Onsite) for a total consideration of US$6.8 million.
Following is a summary of the fair values of the assets acquired and liabilities assumed of Onsite as of the date of the
acquisition:
Fair Value
Recognized on Acquisition
In US$
In Php*
(In Thousands)
US$282
P
= 13,635
284,395
5,882
175,994
3,640
9,804
474,024
1,875
90,656
2,396
115,847
4,271
206,503
5,533
267,521
Cash and cash equivalents
Current assets
Property and equipment - net
Current liabilities
Deferred tax liability
Net assets
Intangible assets arising on acquisition:
Customer relationships
Software
Bargain purchase gain (Note 21)
Total consideration paid in cash
5,800
300
(4,878)
US$6,755
280,340
14,505
(235,851)
P
= 326,515
*Translated using the exchange rate at the transaction date (US$1:P
= 48.35)
Cash flow on acquisition follows:
In US$
In Php*
(In Thousands)
US$282
P
= 13,635
326,515
6,755
US$6,473
P
= 312,880
Net cash acquired with the subsidiary
Cash paid
Net cash outflow
*Translated using the exchange rate at the transaction date (US$1:P
= 48.35)
From the date of acquisition, Onsite has contributed US$6.29 million (P
= 299.58 million) to the net income of the Group.
If the contribution had taken place at the beginning of the year, the net income of the Group would have increased by
US$0.67 million (P
=31.91 million) and revenue would have increased by US$7.84 million (P
= 373.40 million) in 2009.
In accordance with PFRS 3, the bargain purchase gain is recognized in the consolidated statement of income
(see Note 21).
57
2009 ANNUAL REPORT 129
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Grail
On October 30, 2009, Integreon acquired the assets of Grail, along with the share capital of its subsidiaries, from the
Monitor Group for a total consideration of US$11.8 million.
The following is a summary of the provisional fair values of the assets acquired and liabilities assumed as of the date
of the acquisition. The purchase price allocation has been prepared on a preliminary basis and reasonable changes
are expected as additional information becomes available.
Fair Value
Recognized on Acquisition
In US$
In Php*
(In Thousands)
US$155
P
= 7,396
798
38,012
273
13,008
545
25,958
401
19,100
2,172
103,474
1,850
88,106
8
390
55
2,640
1,913
91,136
259
12,338
11,558
550,506
US$11,817
P
= 562,844
Cash and cash equivalents
Trade and other receivables
Other current assets
Property and equipment - net
Other noncurrent assets
Accounts payable and accrued expenses
Other current liabilities
Other noncurrent liabilities
Net assets
Goodwill arising on acquisition
Total consideration
*Translated using the exchange rate at the transaction date (US$1:P
= 47.63)
Cost of the acquisition follows:
In US$
In Php*
(In Thousands)
US$10,389
P
= 494,828
1,022
48,678
406
19,338
US$11,817
P
= 562,844
Cash paid
Shares issued
Transaction costs
*Translated using the exchange rate at the transaction date (US$1:P
= 47.63)
Cash flow on acquisition follows:
In US$
In Php*
(In Thousands)
US$155
P
= 7,396
10,389
494,828
US$10,234
P
= 487,432
Net cash acquired with the subsidiary
Cash paid
Net cash outflow
*Translated using the exchange rate at the transaction date (US$1:P
= 47.63)
From the date of acquisition, Grail has contributed US$0.42 million (P
=20.00 million) to the net income of the Group.
If the contribution had taken place at the beginning of the year, the net income of the Group would have increased by
US$0.46 million (P
=21.91 million) and revenue would have increased by US$7.03 million (P
= 334.82 million) in 2009.
2008 Acquisitions
Datum
On May 30, 2008, Integreon Managed Solutions, Inc. (IMSI), a wholly owned subsidiary of Integreon which in turn is a
subsidiary of LIL, acquired 100% of Datum.
130 AYALA CORPORATION
58
The purchase price allocation has been prepared on a preliminary basis as of December 31, 2008. The following is a
summary of the provisional fair values of the assets acquired and liabilities assumed as of the date of the acquisition:
Fair Value
Recognized on Acquisition
In US$
In Php*
(In Thousands)
US$530
P
= 23,261
2,156
94,667
68
2,998
364
15,987
12
506
3,130
137,419
1,324
58,149
450
19,780
128
5,575
1,902
83,504
1,228
53,915
3,500
153,680
3,678
161,511
US$8,406
P
= 369,106
Cash and cash equivalents
Trade and other receivables
Other current assets
Property and equipment - net
Other noncurrent assets
Accounts payable and accrued expenses
Other current liabilities
Other noncurrent liabilities
Net assets
Intangible assets arising on acquisition
Goodwill arising on acquisition
Total consideration
*Translated using the exchange rate at the transaction date (US$1:P
= 43.91)
Cost of the acquisition follows:
In US$
In Php*
(In Thousands)
US$7,289
P
= 320,066
631
27,701
486
21,339
US$8,406
P
= 369,106
Cash paid
Shares issued
Transaction costs
*Translated using the exchange rate at the transaction date (US$1:P
= 43.91)
Cash flow on acquisition follows:
In US$
In Php*
(In Thousands)
US$530
P
= 23,261
7,775
341,405
US$7,245
P
= 318,144
Net cash acquired with the subsidiary
Cash paid
Net cash outflow
*Translated using the exchange rate at the transaction date (US$1:P
= 43.91)
From the date of acquisition, Datum has contributed P
= 38.9 million to the net income of the Group. If the contribution
had taken place at the beginning of the year, the net income of the Group would have increased by P
= 111.2 million
and revenue would have increased by P
= 417.2 million in 2008.
In 2009, IMSI finalized its purchased price allocation and there were no significant changes to the fair values of the
assets acquired and liabilities assumed of Datum. In 2009, IMSI paid an earn-out as consideration for the acquisition
of Datum. This was reflected as additional goodwill.
APPHC
In 2006, ALI signed an agreement with MLT Investments Ltd. (MIL) and Filipinas Investments Ltd. (FIL) to jointly
develop a business process outsourcing office building in Dela Rosa Street and to purchase the existing
PeopleSupport Building.
As of December 31, 2007, APPHC, the joint-venture company, is 60% owned by ALI. APPHC owns 60% interest in
its subsidiary, APPCo. The remaining 40% interest in both APPHC and APPCo. are split evenly between MIL and
FIL. APPHC and APPCo. are jointly controlled by ALI, MIL, and FIL.
59
2009 ANNUAL REPORT 131
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
On December 8, 2008, ALI acquired from FIL its 20% ownership in APPHC and APPCo. This resulted in an increase
in ALI’s effective ownership interest in APPHC from 60% to 80% and APPCo. from 36% to 68%, thereby providing ALI
with the ability to control the operations of APPHC and APPCo. following the acquisition. Accordingly, APPHC and
APPCo.’s financial statements are consolidated on a line-by-line basis with that of the Group as of December 31,
2008.
Following is a summary of the fair values of the identifiable assets acquired and liabilities assumed of APPHC and
APPCo. as of the date of acquisition (in thousands):
Assets
Cash and cash equivalents
Trade and other receivables
Other current assets
Investment property - net (Note 12)
Property and equipment - net (Note 13)
Other assets
P
= 227,266
188,974
649,154
3,944,127
1,290,979
21,304
6,321,804
Liabilities
Accounts and other payables
Deposits and other current liabilities
Loans payable
Deposits and other noncurrent liabilities
Net assets
Noncontrolling interests in APPHC
Net assets of APPHC acquired
Noncontrolling interests in APPCo. acquired
Total net assets acquired
Acquisition cost
Cash and cash equivalents acquired with the subsidiary
Acquisition cost, net of cash acquired
716,815
41,171
3,282,150
288,287
4,328,423
1,993,381
(800,392)
1,192,989
238,678
400,196
638,874
638,874
227,266
P
= 411,608
From the date of acquisition, APPHC and APPCo’s additional contribution to the Group’s net income is immaterial.
Had the combination taken place at the beginning of the year, the net income of the Group would have increased by
P
= 14.1 million and revenue from continuing operations would have increased by P
=323.9 million in 2008.
Total costs directly attributable to the business combination amounted to P
= 15.6 million.
In 2009, ALI finalized its purchase price allocation which resulted in adjustments to the fair value of investment
properties and property, plant and equipment. The related 2008 comparative information has been restated to reflect
these adjustments. The value of investment properties and property, plant and equipment increased (decreased) by
P
= 286.5 million and (P
= 1.7 million), respectively. There was also a corresponding deduction in goodwill amounting to
P
= 148.7 million and an increase in noncontrolling interest amounting to P
= 136.1 million. The increase in depreciation
and amortization charge on investment properties and property, plant and equipment was not material.
132 AYALA CORPORATION
60
23. Income Taxes
The components of the Group’s deferred taxes as of December 31, 2009 and 2008 are as follows:
Net deferred tax assets
2009
2008
(In Thousands)
Deferred tax assets on:
Allowance for probable losses
Unrealized gain, deposits and accruals for various
expenses on real estate transactions
Retirement benefits
Share-based payments
NOLCO
MCIT
Others
Deferred tax liabilities on:
Capitalized interest and other expenses
Others
Net deferred tax assets
P
= 832,834
P
= 796,299
321,177
100,466
82,784
19,052
27,323
484,134
1,867,770
446,236
144,850
62,265
28,854
5,214
233,895
1,717,613
(471,778)
–
(471,778)
P
= 1,395,992
(553,912)
(30,854)
(584,766)
P
= 1,132,847
Net deferred tax liabilities
2009
2008
(In Thousands)
Deferred tax assets on:
Unrealized gain, deposits and accruals for various
expenses on real estate transactions
NOLCO
Others
Deferred tax liabilities on:
Excess of financial realized gross profit over taxable
realized gross profit
Capitalized interest and other expenses
Others
Net deferred tax liabilities
P
= 17
–
809
826
(147,368)
(37,151)
(23,732)
(208,251)
(P
= 207,425)
P
= 63,593
36,984
13,347
113,924
(137,854)
(117,271)
(44,335)
(299,460)
(P
= 185,536)
The Group has NOLCO amounting to P
=5.6 billion and P
= 7.2 billion in 2009 and 2008, respectively, which were not
recognized. Further, deferred tax assets from the excess MCIT over regular corporate income tax amounting to
P
= 38.6 million in 2009 and P
=41.2 million in 2008 and from unrealized gain on real estate sales amounting to
P
= 4.8 million as of December 31, 2007, respectively, were also not recognized, since management believes that there
would not be sufficient taxable income against which the benefits of the deferred tax assets may be utilized.
As of December 31, 2009, NOLCO and MCIT that can be claimed as deduction from future taxable income or used as
deductions against income tax liabilities are as follows:
Year incurred
Expiry Date
2007
2008
2009
2010
2011
2012
NOLCO
MCIT
(In Thousands)
P
= 2,095,519
P
= 20,248
2,282,936
17,482
1,336,734
28,197
P
= 5,715,189
P
= 65,927
At December 31, 2009 and 2008, deferred tax liabilities have not been recognized on the undistributed earnings and
cumulative translation adjustment of foreign subsidiaries, associates and jointly controlled entities since the timing of
the reversal of the temporary difference can be controlled by the Group and management does not expect the
reversal of the temporary differences in the foreseeable future. The undistributed earnings and cumulative translation
adjustment amounted to P
= 1,626.7 million and P
= 2,051.0 million as of December 31, 2009 and 2008, respectively.
61
2009 ANNUAL REPORT 133
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
The reconciliation between the statutory and the effective income tax rates follows:
Statutory income tax rate
Tax effects of:
Gain on sale of shares and capital
gains tax
Nontaxable equity in net earnings of
associates and jointly controlled
entities
Interest income subjected to final tax
at lower rates
Income under income tax holiday
Effect of change in tax rate
Others
Effective income tax rate
2009
30.00%
2008
35.00%
(3.20)
(7.43)
(17.56)
(17.67)
(19.80)
(16.70)
(0.97)
(0.16)
–
5.59
13.59%
(2.45)
(0.22)
0.90
12.49
18.49%
2007
35.00%
(1.82)
(0.04)
–
10.81
9.69%
As of December 31, 2008, the deferred tax assets and liabilities are set-up based on the 30% corporate tax rate which
became effective beginning January 1, 2009 as provided under Republic Act No. 9337.
24. Earnings Per Share
The following table presents information necessary to calculate EPS on net income attributable to equity holders of
the Company:
Net income
Less dividends on preferred stock
Weighted average number of common shares
Dilutive shares arising from stock options
Adjusted weighted average number of
common shares for diluted EPS
Basic EPS
Diluted EPS
2009
2008
2007
(In Thousands, except EPS figures)
P
= 8,154,345
P
= 8,108,597
P
= 16,256,601
1,081,352
548,552
548,552
P
= 7,072,993
P
= 7,560,045
P
= 15,708,049
496,984
496,756
496,787
1,541
1,719
2,374
498,525
P
= 14.23
P
= 14.19
498,475
P
= 15.22
P
= 15.17
499,161
P
= 31.62
P
= 31.47
EPS on income before income associated with noncurrent assets held for sale attributable to equity holders of the
Company follows:
2009
2008
2007
(In Thousands, except EPS figures)
Income before income associated with
noncurrent assets held for sale
Less: Income before income associated with
noncurrent assets held for sale
associated to minority interests
Less: Dividends on preferred stock
P
= 10,804,887
P
= 10,658,688
P
= 18,437,341
2,650,542
1,081,352
P
= 7,072,993
2,550,091
548,552
P
= 7,560,045
2,665,546
548,552
P
= 15,223,243
496,984
1,541
496,756
1,719
496,787
2,374
498,525
P
= 14.23
P
= 14.19
498,475
P
= 15.22
P
= 15.17
499,161
P
= 30.64
P
= 30.50
Weighted average number of common shares
for basic EPS
Dilutive shares arising from stock options
Adjusted weighted average number of
common shares for diluted EPS
Basic EPS
Diluted EPS
134 AYALA CORPORATION
62
25. Retirement Plan
The Company and certain subsidiaries have their respective funded, noncontributory tax-qualified defined benefit type
of retirement plans covering substantially all of their employees. The benefits are based on defined formula with
minimum lump-sum guarantee of 1.5 months effective salary per year of service. The consolidated retirement costs
charged to operations amounted to P
= 344.4 million in 2009, P
= 195.6 million in 2008 and P
= 331.5 million in 2007.
The principal actuarial assumptions used to determine the pension benefits with respect to the discount rate, salary
increases and return on plan assets were based on historical and projected normal rates. The Company’s and certain
subsidiaries’ annual contributions to their respective plans consist of payments covering the current service cost for
the year and the required funding relative to the guaranteed minimum benefits as applicable.
The components of retirement expense in the consolidated statement of income are as follows:
2009
Current service cost
Interest cost on benefit obligation
Expected return on plan assets
Net actuarial gain
Past service cost
Curtailment loss (gain)
Settlement gain
Effect of ceiling limit
Total retirement expense
Actual return (loss) on plan assets
P
= 261,116
307,200
(255,016)
30,401
2,532
382,296
(384,170)
–
P
= 344,359
P
= 453,834
2008
(In Thousands)
P
= 263,055
215,771
(247,462)
(29,573)
2,796
(11,447)
–
2,504
P
= 195,644
(P
= 410,372)
2007
P
= 260,685
158,528
(167,940)
(18,715)
98,539
–
–
357
P
= 331,454
P
= 244,109
The funded status and amounts recognized in the consolidated statement of financial position for the pension plan
assets of subsidiaries in a net pension asset position as of December 31, 2009 and 2008 are as follows:
2009
Benefit obligation
Plan assets
Unrecognized net actuarial gains
Assets recognized in the consolidated statements of
financial position
2008
(In Thousands)
(P
= 244,605)
(P
= 306,808)
508,082
730,490
263,477
423,682
(131,058)
(306,294)
P
= 132,419
P
= 117,388
The funded status and amounts recognized in the consolidated statement of financial position for the pension plan
liabilities of the Company and subsidiaries in a net pension liability position as of December 31, 2009 and 2008 are as
follows:
2009
Benefit obligation
Plan assets
Unrecognized net actuarial losses
Unrecognized past service cost
Liabilities recognized in the consolidated statements of
financial position
63
2008
(In Thousands)
(P
= 3,529,634)
(P
= 3,136,033)
3,147,837
2,283,634
(381,797)
(852,399)
125,793
331,431
27,692
30,224
(P
= 228,312)
(P
= 490,744)
2009 ANNUAL REPORT 135
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Changes in the present value of the combined defined benefit obligation are as follows:
2009
2008
(In Thousands)
P
= 3,442,841
P
= 3,708,898
307,200
215,771
261,116
263,055
(282,615)
(342,328)
(214,791)
180,934
125
–
(34,104)
281,525
(416,887)
(153,679)
–
19
P
= 3,774,239
P
= 3,442,841
Balance at January 1
Interest cost on benefit obligation
Current service cost
Benefits paid
Actuarial loss (gains) on obligations
Benefits obligation from acquired subsidiary
Curtailments
Settlements
Past service cost
Balance at December 31
Changes in the fair value of the combined plan assets are as follows:
2009
2008
(In Thousands)
P
= 3,014,124
P
= 3,734,339
255,016
247,462
652,516
186,164
(282,615)
(342,328)
(181,940)
(153,679)
198,818
(657,834)
P
= 3,014,124
P
= 3,655,919
Balance at January 1
Expected return
Contributions by employer
Benefits paid
Settlements
Actuarial gains (losses) on plan assets
Balance at December 31
The assumptions used to determine pension benefits for the Group are as follows:
2009
9.5% to 15.0%
6.0% to 10.0%
4.0% to 11.0%
Discount rates
Salary increase rates
Expected rates of return on plan assets
2008
7.0 to 13.4%
4.5 to 8.0%
3.0 to 8.0%
The allocation of the fair value of plan assets of the Group follows:
2009
69.0%
23.5%
7.5%
Investments in debt securities
Investments in equity securities
Others
2008
51.4%
25.0%
23.6%
Amounts for the current and previous annual periods are as follows:
2009
Defined benefit obligation
Plan assets
Excess (deficit)
(P
= 3,774,239)
3,655,919
(P
= 118,320)
2008
2007
2006
(In Thousands)
(P
= 3,442,841) (P
= 3,708,898) (P
= 4,012,650)
3,014,124
3,734,339
3,508,563
(P
= 428,717)
P
= 25,441
(P
= 504,087)
2005
(P
= 3,026,065)
2,910,036
(P
= 116,029)
Gains (losses) on experience adjustments are as follows:
2009
Defined benefit obligation
Plan assets
2008
(In Thousands)
P
= 19,482
(P
= 566,144)
198,818
(657,834)
2007
P
= 136,564
30,727
The Company expects to contribute P
= 113.4 million to its defined benefit pension plan in 2010.
As of December 31, 2009 and 2008, the plan assets include shares of stock of the Company with total fair value of
P
= 196.5 million and P
= 357.8 million, respectively.
The overall expected rate of return on assets is determined based on the market prices prevailing on that date.
136 AYALA CORPORATION
64
26. Stock Option Purchase Plans
The Company has stock option plans for key officers (Executive Stock Option Plan - ESOP) and employees
(Employee Stock Ownership Plan - ESOWN) covering 3.0% of the Company’s authorized capital stock. The grantees
are selected based on certain criteria like outstanding performance over a defined period of time.
The ESOP grantees may exercise in whole or in part the vested allocation in accordance with the vesting percentage
and vesting schedule stated in the ESOP. Also, the grantee must be an employee of the Company or any of its
subsidiaries during the 10-year option period. In case the grantee retires, he is given 3 years to exercise his vested
and unvested options. In case the grantee resigns, he is given 90 days to exercise his vested options.
ESOP
A summary of the Company’s stock option activity and related information for the years ended December 31, 2009,
2008 and 2007 follows:
2009
Outstanding, at beginning of
year
Exercised
Adjustment due to 20% stock
dividends (Note 20)
Outstanding, at end of year
2008
Weighted
Average
Exercise
Number
Price
of Shares
2007
Weighted
Average
Exercise
Number
Price
of Shares
Number
of Shares
Weighted
Average
Exercise
Price
3,352,018
(11,900)
P
= 141.18
(143.51)
2,837,102
(52,499)
P
= 170.30
(150.99)
2,533,908
(169,656)
P
= 205.13
(203.37)
–
3,340,118
–
P
= 141.17
567,415
3,352,018
–
P
= 141.18
472,850
2,837,102
–
P
= 170.30
The options have a contractual term of 10 years. As of December 31, 2009 and 2008, the weighted average
remaining contractual life of options outstanding is 3.16 years and 4.3 years, respectively, and the range of exercise
prices amounted from P
= 107.29 to P
= 204.86.
The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. The fair
values of stock options granted under ESOP at each grant date and the assumptions used to determine the fair value
of the stock options are as follows:
June 30, 2005
P
= 327.50
P
= 295.00
46.78%
10 years
1.27%
12.03%
Weighted average share price
Exercise price
Expected volatility
Option life
Expected dividends
Risk-free interest rate
June 10, 2004
P
= 244.00
P
= 220.00
46.71%
10 years
1.43%
12.75%
The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also
necessarily be the actual outcome.
ESOWN
The Company also has ESOWN granted to qualified officers and employees wherein grantees may subscribe in
whole or in part to the shares awarded to them based on the 10% discounted market price as offer price set at grant
date. To subscribe, the grantee must be an employee of the Group during the 10-year payment period. In case the
grantee resigns, unsubscribed shares are cancelled, while the subscription may be paid up to the percent of holding
period completed and payments may be converted into the equivalent number of shares. In case the grantee is
separated, not for cause, but through retrenchment and redundancy, subscribed shares may be paid in full,
unsubscribed shares may be subscribed, or payments may be converted into the equivalent number of shares. In
case the grantee retires, the grantee may subscribe to the unsubscribed shares anytime within the 10-year period.
The plan does not allow sale or assignment of the shares. All shares acquired through the plan are subject to the
Company’s Right to Repurchase.
65
2009 ANNUAL REPORT 137
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Shares granted and subscribed under the ESOWN follows:
2009
1,831,782
1,813,994
P
= 180.13
Granted
Subscribed
Exercise price
2008
1,015,200
898,260
P
= 284.96
Subscriptions receivable from the stock option plans covering the Company’s shares are presented under equity.
For the unsubscribed shares, the employee still has the option to subscribe from the start of the fifth year but not later
than on the start of the seventh year from date of grant. Movements in the number of options outstanding under
ESOWN as of December 31, 2009 and 2008 follow:
2009
At January 1
Granted
Exercised/cancelled
Adjustment due to 20% stock
dividends (Note 20)
At December 31
2008
Number of
options
190,795
17,788
(48,433)
Weighted
average
exercise
price
P
= 251.39
180.13
(222.07)
Number of
options
61,546
116,940
–
Weighted
average
exercise
price
P
= 237.88
284.96
–
–
160,150
–
P
= 252.34
12,309
190,795
–
P
= 251.39
The fair value of stock options granted is estimated on the date of grant using the Black-Scholes Merton Formula,
taking into account the terms and conditions upon which the options were granted. The expected volatility was
determined based on an independent valuation. The fair value of stock options granted under ESOWN at grant date
and the assumptions used to determine the fair value of the stock options follow:
April 30, 2009
17,788
P
= 112.87
P
= 263.38
P
= 180.13
49.88%
1.59%
7.49%
Number of unsubscribed shares
Fair value of each option
Weighted average share price
Exercise price
Expected volatility
Dividend yield
Interest rate
May 15, 2008
116,940
P
= 137.45
P
= 316.50
P
= 284.96
30.63%
1.56%
8.23%
Total expense arising from share-based payments recognized by the Group in the consolidated statement of income
amounted to P
= 471.6 million in 2009, P
= 342.9 million in 2008 and P
= 288.0 million in 2007.
27. Operating Segment Information
For management purposes, the Group is organized into the following business units:
a.
b.
c.
d.
Real estate and hotels
Financial services and bancassurance
Telecommunications
AC Capital
Real estate and hotels - planning and development of large-scale fully integrated residential and commercial
communities; development and sale of residential, leisure and commercial lots and the development and leasing
of retail and office space and land in these communities; construction and sale of residential condominiums and
office buildings; development of industrial and business parks; development and sale of upper middle-income
and affordable housing; strategic land bank management; hotel, cinema and theater operations; and construction
and property management.
138 AYALA CORPORATION
66
Financial services and bancassurance - universal banking operations, including savings and time deposits in
local and foreign currencies; commercial, consumer, mortgage and agribusiness loans; leasing; payment
services, including card products, fund transfers, international trade settlement and remittances from overseas
workers; trust and investment services including portfolio management, unit funds, trust administration and estate
planning; fully integrated bancassurance operations, including life, non-life, pre-need and reinsurance services;
internet banking; on-line stock trading; corporate finance and consulting services; foreign exchange and
securities dealing; and safety deposit facilities.
Telecommunications - provider of digital wireless communications services, wireline voice communication
services, consumer broadband services, other wireline communication services, domestic and international long
distance communication or carrier services and mobile commerce services.
AC Capital - the business unit that oversees the financial performance of subsidiaries other than the three major
businesses of the Group. AC Capital also provides support to subsidiaries’ growth initiatives and seeks new
investment opportunities for the Group that will complement existing business and further enhance the Group’s
value. AC Capital has the following operating segments:
Electronics - electronics manufacturing services provider for original equipment manufacturers in the
computing, communications, consumer, automotive, industrial and medical electronics markets, service
provider for test development and systems integration and distribution of related products and services.
Information technology and BPO services - venture capital for technology businesses and emerging markets;
provision of value-added content for wireless services, on-line business-to-business and business-toconsumer services; electronic commerce; technology infrastructure hardware and software sales and
technology services; and onshore and offshore outsourcing services in the research, analytics, legal,
electronic discovery, document management, finance and accounting, IT support, graphics, advertising
production, marketing and communications, human resources, sales, retention, technical support and
customer care areas.
Water utilities - contractor to manage, operate, repair, decommission, and refurbish all fixed and movable
assets (except certain retained assets) required to provide water delivery services and sewerage services in
the East Zone Service Area.
Automotive - manufacture and sale of passenger cars and commercial vehicles.
International - investments in overseas property companies and projects.
Others - air-charter services, agri-business and others.
Management monitors the operating results of its business units separately for the purpose of making decisions about
resource allocation and performance assessment. Segment performance is evaluated based on operating profit or
loss and is measured consistently with operating profit or loss in the consolidated financial statements.
Intersegment transfers or transactions are entered into under the normal commercial terms and conditions that would
also be available to unrelated third parties. Segment revenue, segment expense and segment results include
transfers between operating segments. Those transfers are eliminated in consolidation.
67
2009 ANNUAL REPORT 139
140 AYALA CORPORATION
968
822
591
318
4
P
= 28,393
–
1,617
1,813
Operating expenses
Operating profit
68
and amortization
Non-cash expenses other than depreciation
Depreciation and amortization
equipment and investment properties
Segment additions to property, plant and
Total liabilities
Deferred tax liabilities
Segment liabilities
Total assets
Deferred tax assets
controlled entities
Investments in associates and jointly
Segment assets
Other information
Net income
noncurrent assets held for sale
Income before income associated with
Provision for income tax
Other charges
charges
Interest expense and other financing
21,857
1,795
Total revenue
236
151
–
P
= 1,287
P
= 1,794
P
=–
P
= 116
P
= 4,895
P
= 77
P
= 48,877
P
= 48,726
P
= 45,248
P
= 45,248
P
= 111,021
1,523
10,798
P
= 98,700
P
= 5,318
P
= 154,819
52,517
P
= 102,302
(P
= 817)
5,318
1,165
13
(817)
1,345
1,407
2,381
9,235
31,092
1,987
3,608
Other income
jointly controlled entities*
Financial
Services and
P
=–
P
=–
P
=–
P
=–
–
P
=–
P
=–
–
P
=–
P
= 2,707
2,707
–
–
–
2,707
2,707
–
–
2,707
–
P
=–
P
=–
P
=–
P
=–
P
=–
–
P
=–
P
=–
–
P
=–
P
= 3,862
3,862
–
–
–
3,862
–
3,862
–
–
3,862
–
P
=–
and Hotels Bancassurance Telecommunications
Real Estate
P
=–
Company
Parent
Interest income
Equity in net earnings of associates and
Intersegment
Sales to external customers
Revenue
2009
P
=–
P
=–
P
=–
P
=–
–
P
=–
P
=–
–
P
=–
P
= 1,029
1,029
–
–
–
1,029
1,029
–
–
1,029
–
P
=–
Water Utilities
P
= 67
P
= 997
P
= 387
P
= 6,246
5
P
= 6,241
P
= 14,029
10
–
P
= 14,019
P
= 433
433
240
4
82
759
18,536
19,295
323
35
–
–
P
= 18,937
Electronics
P
= 75
P
= 339
P
= 407
P
= 3,139
42
P
= 3,097
P
= 11,629
40
5,341
P
= 6,248
(P
= 729)
(729)
1
–
69
(659)
4,575
3,916
701
5
(809)
(22)
P
= 4,041
BPO Services
Information
Technology and
AC Capital
P
=–
P
=4
P
= 23
P
= 898
5
P
= 893
P
= 6,807
2,531
P
= 4,276
(P
= 445)
(445)
(18)
2
22
(439)
284
(155)
128
111
(394)
–
P
=–
International
P
=3
P
= 109
P
= 414
P
= 1,632
5
P
= 1,627
P
= 3,277
45
370
P
= 2,862
(P
= 25)
(25)
50
9
19
53
11,452
11,505
284
3
(6)
(32)
P
= 11,256
and Others
Automotive
P
=–
P
=–
P
=–
(P
= 8,979)
–
(P
= 8,979)
(P
= 69,103)
(222)
–
(P
= 68,881)
–
(P
= 528)
(528)
25
–
(96)
(599)
34
(565)
(205)
(96)
–
(264)
P
=–
Eliminations
Intersegment
P
= 1,548
P
= 3,243
P
= 6,203
P
= 97,061
208
P
= 96,853
P
= 232,479
1,396
71,557
P
= 159,526
P
= 10,805
10,805
1,699
1,435
3,822
17,761
58,533
76,294
3,809
2,497
7,361
–
P
= 62,627
Consolidated
The following tables regarding operating segments present assets and liabilities as of December 31, 2009 and 2008 and revenue and profit information for each of the three years
in the period ended December 31, 2009 (amounts in millions).
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
69
2009 ANNUAL REPORT 141
3,591
4,832
1,429
3,403
Other income
Total revenue
Operating expenses
Operating profit
197
Provision for income tax
noncurrent assets held for sale
depreciation and amortization
Non-cash expenses other than
Depreciation and amortization
equipment and investment properties
Segment additions to property, plant and
Total liabilities
Deferred tax liabilities
Segment liabilities
Total assets
Deferred tax assets
controlled entities
Investment in associates and jointly
Segment assets
Other information
Net income
assets held for sale, net of tax
Income associated with noncurrent
P
= 1,024
92
P
= 84
P
= 47,720
–
P
= 47,720
P
= 153,582
–
50,857
P
= 102,725
(P
= 91)
–
(91)
999
Income before income associated with
2,298
charges
Other charges
Interest expense and other financing
1,234
7
–
P
=–
Parent Company
Interest income
jointly controlled entities
Equity in net earnings of associates and
Intersegment
Sales to external customers
Revenue
2008
P
= 462
1,259
P
= 4,918
P
= 45,410
162
P
= 45,248
P
= 103,173
795
9,916
P
= 92,462
P
= 5,801
–
5,801
2,065
376
1,050
9,292
24,591
33,883
1,331
925
885
63
P
= 30,679
and Hotels
Real Estate
P
=–
–
P
=–
P
=–
–
P
=–
P
=–
–
–
P
=–
P
= 2,145
–
2,145
–
–
–
2,145
–
2,145
–
–
2,145
–
P
=–
Bancassurance
Financial
Services and
P
=–
–
P
=–
P
=–
–
P
=–
P
=–
–
–
P
=–
P
= 3,643
–
3,643
–
–
–
3,643
–
3,643
–
–
3,643
–
P
=–
Telecommunications
P
=–
–
P
=–
P
=–
–
P
=–
P
=–
–
P
=–
P
= 907
–
907
–
–
–
907
–
907
–
–
907
–
P
=–
Water Utilities
P
= 166
936
P
= 731
P
= 6,882
–
P
= 6,882
P
= 14,604
1
–
P
= 14,603
(P
= 562)
–
(562)
109
79
1,607
1,233
19,387
20,620
261
53
–
–
P
= 20,306
Electronics
P
=9
558
P
= 646
P
= 940
12
P
= 928
P
= 8,401
53
3,906
P
= 4,442
(P
= 940)
–
( 940)
7
16
12
(905)
3,391
2,486
4
8
(122)
(15)
P
= 2,611
BPO Services
Information
Technology and
AC Capital
P
= 221
4
P
=5
P
= 543
6
P
= 537
P
= 6,529
–
2,952
P
= 3,577
(P
= 268)
–
(268)
(2)
117
8
(145)
271
126
178
92
(144)
–
P
=–
International
P
=–
91
P
= 355
P
= 1,146
6
P
= 1,140
P
= 2,772
36
510
P
= 2,226
P
= 99
–
99
32
9
34
174
10,566
10,740
207
1
75
–
P
= 10,457
and Others
Automotive
P
=–
–
P
=–
(P
= 10,640)
–
(P
= 10,640)
(P
= 68,873)
248
–
(P
= 69,121)
(P
= 75)
–
(75)
11
–
(72)
(136)
(137)
(273)
(155)
(70)
–
(48)
P
=–
Eliminations
Intersegment
P
= 1,882
2,940
P
= 6,739
92,001
186
P
= 91,815
P
= 220,188
1,133
68,141
P
= 150,914
10,659
–
10,659
2,419
1,596
4,937
19,611
59,498
79,109
5,417
2,243
7,396
–
P
= 64,053
Consolidated
142 AYALA CORPORATION
70
Net income
assets held for sale, net of tax
Income associated with noncurrent
noncurrent assets held for sale
Income before income associated with
Provision for income tax
Other charges
charges
Interest expense and other financing
P
= 4,871
–
4,871
140
2
3,316
8,329
Operating profit
Total revenue
1,819
8,854
10,148
Other income
Operating expenses
1,233
61
–
P
=–
Parent Company
Interest income
jointly controlled entities
Equity in net earnings of associates and
Intersegment
Sales to external customers
Revenue
2007
P
= 5,258
599
4,659
1,567
874
868
7,968
17,928
25,896
1,459
597
804
74
P
= 22,962
and Hotels
Real Estate
P
= 3,291
–
3,291
–
–
–
3,291
–
3,291
–
–
3,291
–
P
=–
Bancassurance
Financial
Services and
P
= 4,545
–
4,545
–
–
–
4,545
–
4,545
–
–
4,545
–
P
=–
Telecommunications
P
= 800
–
800
–
–
–
800
–
800
–
–
800
–
P
=–
Water Utilities
P
= 1,610
–
1,610
150
21
215
1,996
17,761
19,757
165
66
–
–
P
= 19,526
Electronics
(P
= 1,602)
–
(1602)
17
663
20
(902)
3,036
2,134
22
11
(28)
–
P
= 2,129
BPO Services
Information
Technology and
AC Capital
P
= 249
26
223
23
–
9
255
242
497
157
114
226
–
P
=–
International
P
= 176
–
176
63
10
22
271
12,024
12,295
264
2
68
–
P
= 11,961
and Others
Automotive
(P
= 136)
–
(136)
12
–
(330)
(454)
(143)
(597)
(193)
(330)
–
(74)
P
=–
Eliminations
Intersegment
P
= 19,062
625
18,437
1,972
1,570
4,120
26,099
52,667
78,766
10,728
1,693
9,767
–
P
= 56,578
Consolidated
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Geographical Segments
Revenue
2009
2008
2007
Philippines
P
= 60,284,336 P
= 63,077,576 P
= 56,931,668
Japan
1,023,625
1,083,135
9,400,556
USA
6,253,443
6,736,608
6,081,976
Europe
5,594,446
4,471,487
3,525,576
Others (mostly Asia)
3,137,965
3,739,847
2,827,080
P
= 76,293,815 P
= 79,108,653 P
= 78,766,856
Segment Assets
2009
2008
P
= 212,727,696 P
= 205,816,750
12,532
13,020
10,667,684
6,048,504
111,678
–
8,959,445
8,309,613
P
= 232,479,035 P
= 220,187,887
Investment Properties and
Property, Plant and
Equipment Additions
2009
2008
P
= 5,850,799
P
= 5,340,557
254
199
181,336
919,310
–
–
171,152
478,982
P
= 6,203,541
P
= 6,739,048
Summarized financial information of BPI, Globe and MWCI are presented in Note 10 to the consolidated financial
statements.
28. Leases
Finance leases - as lessee
Foreign subsidiaries conduct a portion of their operations from leased facilities, which include office equipment.
These leases are classified as finance leases and expire over the next 5 years. The average discount rate implicit in
the lease is 8.5% per annum in 2009 and 2008. Future minimum lease payments under the finance leases together
with the present value of the net minimum lease payments follow:
Within one year
After one year but not more than five years
Total minimum lease payments
Less amounts representing finance charges
Present value of minimum lease payments
2009
2008
Minimum Present values
Minimum
Present values
payments
of payments
payments
of payments
(In Thousands)
P
= 13,448
P
= 11,866
P
= 1,036
P
= 980
23,987
21,982
14
13
37,435
33,848
1,050
993
3,587
–
57
–
P
= 33,848
P
= 33,848
P
= 993
P
= 993
Operating lease commitments - as lessee
The Group entered into lease agreements with third parties covering real estate properties. These leases generally
provide for either (a) fixed monthly rent, or (b) minimum rent or a certain percentage of gross revenue, whichever is
higher.
Future minimum rentals payable under non-cancellable operating leases of lessee subsidiaries are as follows:
2009
2008
(In Thousands)
P
= 300,933
P
= 154,923
755,185
513,202
1,536,304
1,478,113
P
= 2,592,422
P
= 2,146,238
Within one year
After one year but not more than five years
More than five years
Operating leases - as lessor
Certain subsidiaries have lease agreements with third parties covering its investment property portfolio. These leases
generally provide for either (a) fixed monthly rent, or (b) minimum rent or a certain percentage of gross revenue,
whichever is higher.
Future minimum rentals receivable under non-cancellable operating leases of the Group are as follows:
2009
2008
(In Thousands)
P
= 1,618,130
P
= 1,361,126
4,789,404
3,783,681
3,349,840
1,405,812
P
= 9,757,374
P
= 6,550,619
Within one year
After one year but not more than five years
More than five years
71
2009 ANNUAL REPORT 143
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
29. Related Party Transactions
The Group, in its regular conduct of business, has entered into transactions with associates, jointly controlled entities
and other related parties principally consisting of advances and reimbursement of expenses, purchase and sale of
real estate properties, various guarantees, construction contracts, and development, management, underwriting,
marketing and administrative service agreements. Sales and purchases of goods and services to and from related
parties are made at normal market prices.
The effects of the foregoing are shown under the appropriate accounts in the consolidated financial statements as
follows (in thousands):
Receivable from related parties
Associates:
Interest in limited partnerships of AINA
CHI
NTDCC
Naraya Development Co. Ltd.
Lagoon Development Corporation
Arch Capital
MD Express
Accendo Commercial Corp.
Jointly controlled entities:
MWCI
Globe
ACC
EGS Acquisition
EGS Corp.
Other related parties:
Glory High
Columbus Holdings, Inc. (Columbus)
Key management personnel
Fort Bonifacio Development Corporation (FBDC)
Ayala Systems Technology, Inc.
PPI Prime Ventures, Inc.
Innove Communications, Inc. (Innove)
Honda Cars Philippines, Inc. (HCP)
MyAyala
2009
2008
P
= 1,559,312
120,791
25,383
17,863
15,337
908
144
–
1,739,738
P
= 948,629
85,587
19
16,628
25,626
611
19
63,510
1,140,629
48,113
38,827
15,929
–
–
102,869
3,840
92,640
7,457
2,130,844
2,855,215
5,089,996
571,467
520,066
280,488
87,296
76,747
5,946
4,890
603
51
1,547,554
P
= 3,390,161
642,308
520,061
220,877
247,428
–
–
4,806
–
3,038
1,638,518
P
= 7,869,143
2009
2008
P
= 78,829
509
427
79,765
P
=–
1,341
–
1,341
94
13
107
–
116
116
484,888
–
149,204
69,665
13,455
110
33,225
750,547
P
= 830,419
4,937
121,447
6,371
1,196
331
134,282
P
= 135,739
Payable to related parties
Associates:
BLC
CHI
Arch Capital
Jointly controlled entities:
Asiacom
Globe
Other related parties:
Columbus
Cebu Property Ventures and Development
Corporation
HCP
Green Horizons
Innove
Others
144 AYALA CORPORATION
72
Income
2009
Associates
Jointly controlled entities
Other related parties
P
= 956,704
140,652
15,062
P
= 1,112,418
2008
(In Thousands)
P
= 109,277
229,954
669,162
P
= 1,008,393
2007
P
= 164,666
71,895
918,140
P
= 1,154,701
Cost and expenses
2009
Jointly controlled entities
Other related parties
P
= 47,732
7,294
P
= 55,026
2008
(In Thousands)
P
= 54,339
12,983
P
= 67,322
2007
P
= 46,201
1,938
P
= 48,139
Receivable from related parties include the following:
a.
Receivables from AINA’s interest in limited partnerships are nontrade in nature and bear interests ranging from
12% to 15%.
b.
In 2008, AYC Holdings, Inc. issued promissory notes and advances to EGS Corp. and EGS Acquisition
amounting to P
= 4,986.1 million. The advances amounting to P
=665.3 million is payable in one year and bear
interest at the rate of 12% per annum. The promissory notes amounting to P
=4,320.8 million is payable over a
period of five years and bear interest at the rate of 12% to 18% per annum. The notes and advances were
partially collected in October 1, 2009. The balance amounting to P
= 1,655.8 million owed by EGS Corp. was
assigned to NewBridge in 2009.
c.
Promissory notes issued by BLC, which were assigned by MPC to ALI and Evergreen Holdings Inc. and the
advances subsequently made by ALI to FBDC to fund the completion of the Bonifacio Ridge project and to BLC
to finance the costs to be incurred in relation to its restructuring program are due and demandable and bear
interest at the rates of 12% to 14% per annum.
d.
Any other outstanding balances at the year-end are unsecured, interest free and will be settled in cash.
Allowance for doubtful accounts on amounts due from related parties amounted to P
= 5.2 million and P
= 8.0 million as of
December 31, 2009 and 2008, respectively. Reversal of provision for doubtful accounts in 2009 amounted to
P
= 2.8 million and provision for doubtful accounts amounted to P
= 6.0 million in 2008 and P
= 1.7 million in 2007.
Compensation of key management personnel by benefit type follows:
2009
Short-term employee benefits
Share-based payments (Note 26)
Post-employment benefits (Note 25)
P
= 864,014
167,886
103,979
P
= 1,135,879
73
2008
(In Thousands)
P
= 675,164
184,521
48,256
P
= 907,941
2007
P
= 503,101
144,767
78,110
P
= 725,978
2009 ANNUAL REPORT 145
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
30. Financial Instruments
Fair Value of Financial Instruments
The table below presents a comparison by category of carrying amounts and estimated fair values of all of the
Group’s financial instruments (in thousands):
2009
FVPL FINANCIAL ASSETS
Financial assets at FVPL
LOANS AND RECEIVABLES
Cash and cash equivalents
Short-term investments
Accounts and notes receivables
Trade receivables
Real estate
Electronics manufacturing
Automotive
Information technology and BPO
International and others
Total trade receivables
Nontrade receivables
Advances to other companies
Related parties
Investments in bonds classified
as loans and receivables
Other receivables
Total nontrade receivables
Total loans and receivables
AFS FINANCIAL ASSETS
Quoted equity investments
Unquoted equity investments
Quoted debt investments
Total AFS financial assets
HTM INVESTMENTS
Quoted debt investments
Total financial assets
OTHER FINANCIAL LIABILITIES
Current other financial liabilities
Accounts payable and accrued
expenses
Accounts payable
Accrued expenses
Dividends payable
Accrued project cost
Accrued personnel costs
Interest payable
Retentions payable
Related Parties
Customers’ deposits
Short-term debt
Current portion of long-term debt
Noncurrent other financial liabilities
Other noncurrent liabilities
Long-term debt
Total other financial liabilities
2008
Carrying Value
Fair Value
Carrying Value
Fair Value
P
= 926,860
P
= 926,860
P
= 2,233,201
P
= 2,233,201
45,656,889
4,560,976
45,656,889
4,560,976
42,885,792
1,008,924
42,885,792
1,008,924
12,808,632
3,867,003
818,850
799,783
3,700
18,297,968
12,904,112
3,867,003
818,850
799,783
3,700
18,393,448
10,428,525
3,115,891
639,346
332,964
3,940
14,520,666
11,118,638
3,115,891
639,346
332,964
3,940
15,210,779
2,888,665
3,384,955
2,860,678
3,384,955
3,643,843
7,861,125
3,643,843
8,168,757
200,000
514,018
6,987,638
75,503,471
200,000
514,018
6,959,651
75,570,964
–
1,455,732
12,960,700
71,376,082
–
1,435,553
13,248,153
72,353,648
877,509
2,392,489
1,199,154
4,469,152
877,509
2,392,489
1,199,154
4,469,152
1,449,982
1,614,520
–
3,064,502
1,449,982
1,614,520
–
3,064,502
–
P
= 80,899,483
–
P
= 80,966,976
65,405
P
= 76,739,190
68,695
P
= 77,720,046
P
= 14,584,321
6,152,842
2,264,306
2,136,700
427,502
402,278
120,938
105,355
2,374,457
2,638,658
2,453,144
P
= 14,584,321
6,152,842
2,264,306
2,136,700
427,502
402,278
120,938
105,355
2,374,457
2,638,658
2,453,144
P
= 13,922,547
6,821,712
1,333,740
2,022,903
823,717
501,251
262,330
135,739
1,246,593
2,755,447
1,478,871
P
= 13,922,547
6,821,712
1,333,740
2,022,903
823,717
501,251
262,330
135,739
1,246,593
2,755,447
1,478,871
8,083,130
51,431,583
P
= 93,175,214
8,042,012
53,331,913
P
= 95,034,426
7,016,372
50,250,151
P
= 88,571,373
7,022,465
51,849,121
P
= 90,176,436
The following methods and assumptions were used to estimate the fair value of each class of financial instrument for
which it is practicable to estimate such value:
Cash and cash equivalents, short-term investments and current receivables - Carrying amounts approximate fair
values due to the relative short-term maturities of these investments.
Financial assets at FVPL - Fair values of investments in government securities are based on quoted prices as of the
reporting date.
146 AYALA CORPORATION
74
Noncurrent trade and nontrade receivables - The fair values are based on the discounted value of future cash flows
using the applicable rates for similar types of instruments. The discount rates used ranged from 4.28% to 9.59% in
2009 and 6.40% to 7.70% in 2008.
AFS quoted investments - Fair values are based on quoted prices published in markets.
AFS unquoted shares - Fair value of equity funds are based on the net asset value per share. For other unquoted
equity shares where the fair value is not reasonably determinable due the unpredictable nature of future cash flows
and the lack of suitable method of arriving at a reliable fair value, these are carried at cost.
HTM investments - The fair value of bonds is based on quoted market prices.
Liabilities - The fair values of accounts payable and accrued expenses and short-term debt approximate the carrying
amounts due to the short-term nature of these transactions.
The fair value of noncurrent other financial liabilities (fixed rate and variable rate loans repriced on a semiannual/annual basis and deposits) are estimated using the discounted cash flow methodology using the current
incremental borrowing rates for similar borrowings with maturities consistent with those remaining for the liability being
valued. The discount rates used ranged from 4.28% to 9.59% in 2009 and 6.60% to 7.70% in 2008.
For variable rate loans that reprice every three months, the carrying value approximates the fair value because of
recent and regular repricing based on current market rates.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by
valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable,
either directly or indirectly
Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on
observable market data.
Financial assets at FVPL and quoted AFS financial assets amounting to P
= 440.6 million and P
= 2,076.7 million,
respectively, were classified under the Level 1 category. There are no financial assets at FVPL and quoted AFS
financial assets that have been classified under the Level 2 and 3 category.
During the reporting period ended December 31, 2009, there were no transfers between Level 1 and Level 2 fair
value measurements, and no transfers into and out of Level 3 fair value measurements.
Risk Management and Financial Instruments
General
In line with the corporate governance structure of the Company, the Company has adopted a group-wide enterprise
risk management framework in 2002. An Enterprise Risk Management Policy was approved by the Audit Committee
in 2003, and was subsequently revised and approved on February 14, 2008. The policy was designed primarily to
enhance the risk management process and institutionalize a focused and disciplined approach to managing the
Company’s business risks. By understanding and managing risk, the Company provides greater certainty and
confidence to the stockholders, employees, and the public in general.
The risk management framework encompasses the identification and assessment of business risks, development of
risk management strategies, assessment/design/implementation of risk management capabilities, monitoring and
evaluating the effectiveness of risk mitigation strategies and management performance, and identification of areas
and opportunities for improvement in the risk management process.
A Chief Risk Officer (CRO) is the ultimate champion of enterprise risk management of the Group and oversees the
entire risk management function. On the other hand, the Risk Management Unit provides support to the CRO and is
responsible for overall continuity. Beginning 2008, under an expanded charter, the Audit and Risk Committee will
provide a more focused oversight role over the risk management function. A quarterly report on the risk portfolio of
the Group and the related risk mitigation efforts and initiatives are provided to the Audit and Risk Committee. The
Company’s internal auditors monitor the compliance with Group’s risk management policies to ensure that an
effective control environment exists within the Group.
75
2009 ANNUAL REPORT 147
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
The Company engaged the services of an outside consultant to assist the Company in the roll-out of a more focused
enterprise risk management framework which included a formal risk awareness session and self-assessment
workshops with all the functional units of the Company. The Company continues to monitor the major risk exposures
and the related risk mitigation efforts and initiatives.
The Audit and Risk Committee has initiated the institutionalization of an enterprise risk management function across
all the subsidiaries and affiliates.
Financial Risk Management Objectives and Policies
The Group’s principal financial instruments comprise financial assets at FVPL, AFS financial assets, HTM
investments, bank loans, corporate notes and bonds. The financial debt instruments were issued primarily to raise
financing for the Group’s operations. The Group has various financial assets such as cash and cash equivalents,
accounts and notes receivables and accounts payable and accrued expenses which arise directly from its operations.
The main purpose of the Group’s financial instruments is to fund its operational and capital expenditures. The main
risks arising from the use of financial instruments are interest rate risk, foreign exchange risk, liquidity risk and credit
risk. The Group also enters into derivative transactions, the purpose of which is to manage the currency and interest
rate risks arising from its financial instruments.
The Group’s risk management policies are summarized below:
Interest rate risk
The Group’s exposure to market risk for changes in interest rates relates primarily to the Company’s and its
subsidiaries’ long-term debt obligations. The Group’s policy is to manage its interest cost using a mix of fixed and
variable rate debt.
The following table demonstrates the sensitivity of the Group’s profit before tax and equity to a reasonably possible
change in interest rates as of December 31, 2009 and 2008, with all variables held constant, (through the impact on
floating rate borrowings and changes in fair value of financial assets at FVPL).
December 31, 2009
Effect on profit before tax
Change in basis points
+100 basis points
-100 basis points
(In Thousands)
(P
= 3,796)
P
= 3,846
(52,388)
52,388
(49,700)
49,700
(P
= 105,884)
P
= 105,934
FVPL financial assets
Parent Company - floating rate borrowings
Subsidiaries - floating rate borrowings
Change in basis points
Effect on equity
+100 basis points
-100 basis points
(In Thousands)
(P
= 12,106)
P
= 12,438
AFS financial assets
December 31, 2008
Effect on profit before tax
Change in basis points
+100 basis points
-100 basis points
(In Thousands)
(P
= 10,295)
P
= 10,475
(52,425)
52,425
(130,990)
130,990
(P
= 193,710)
P
= 193,890
FVPL financial assets
Parent Company - floating rate borrowings
Subsidiaries - floating rate borrowings
There is no other impact on the Group’s equity other than those already affecting the net income.
148 AYALA CORPORATION
76
The terms and maturity profile of the interest-bearing financial assets and liabilities, together with its corresponding
nominal amounts and carrying values (in thousands), are shown in the following table:
2009
Rate Fixing
Period
Nominal
Amount
< 1 year
1 to 5 years
> 5 years
Carrying Value
Various
P
= 45,656,889
P
= 45,656,889
P
=–
P
=–
P
= 45,656,889
Balance date
4,560,976
4,560,976
–
–
4,560,976
Balance date
433,821
433,821
–
–
433,821
Accounts and
Date of
notes receivable
sale
Quoted debt
Fixed at the date of
Various
investments
investment or
revaluation cut-off
Company
Long-term debt
Fixed
Fixed at 6.725% to 7.95%
5 years
Fixed at 8.15%
6 years
Fixed at 6.70% to 8.40%%
7 years
Fixed at 6.75%
10 years
Floating
Variable at 0.50% to
3 months
0.67% over 91-day
T-bills PDST-R1
(formerly Mart1)
Subsidiaries
Short-term debt
Variable ranging from
Monthly
1.9% to 3.9%
Variable ranging from
Monthly
5.0% to 9.5%
Long-term debt
Fixed
Fixed at 5.0% to 14.88%
3,5,7 and 10
years
Floating
Variable
3 months,
semi-annual
12,502,881
9,328,493
1,282,872
125,549
10,736,914
925,694
925,694
222,490
50,970
1,199,154
14,000,000
1,000,000
2,485,000
1,498,333
45,000
–
7,500
1,667
13,955,000
1,000,000
1,477,500
6,666
–
–
1,000,000
1,490,000
14,000,000
1,000,000
2,485,000
1,498,333
6,985,000
255,000
6,730,000
–
6,985,000
968,783
968,783
–
–
968,783
1,669,875
1,669,875
–
–
1,669,875
15,891,724
322,320
11,388,838
4,177,019
15,888,177
12,031,450
1,821,657
9,382,894
823,666
12,028,217
Interest terms (p.a.)
Group
Cash and cash
equivalents
Short-terms
investments
Financial assets
at FVPL
Fixed at the date of
investment
Fixed at the date of
investment or
revaluation cut-off
Fixed at the date of
investment or
revaluation cut-off
Fixed at the date of sale
77
2009 ANNUAL REPORT 149
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
2008
Interest terms (p.a.)
Group
Cash and cash
equivalents
Short-term
investments
Financial assets
at FVPL
Fixed at the date of
investment
Fixed at the date of
investment or
revaluation cut-off
Fixed at the date of
investment or
revaluation cut-off
Fixed at the date of sale
Accounts and
notes receivable
HTM
Fixed at 16.50%
Company
Long-term debt
Fixed
Fixed at 6.70%
Fixed at 6.75%
Fixed at 6.825%
Fixed at 10.00%
Fixed at 10.375%
Fixed at 6.725%
Floating
Variable at 0.50% to
0.67% over 91-day
T-bills PDST-R1
(formerly Mart1)
Subsidiaries
Short-term debt
Variable ranging from
7.0% to 9.64%
Variable ranging from
2.5% to 6.4%
Long-term debt
Fixed
Fixed at 9.5%
Fixed at 5.0% to 14.88%
Rate Fixing
Period
Nominal
Amount
< 1 year
1 to 5 years
> 5 years
Carrying Value
Various
P
= 42,885,792
P
= 42,885,792
P
=–
P
=–
P
= 42,885,792
Balance date
1,008,924
1,008,924
–
–
1,008,924
Balance date
1,778,720
1,778,720
–
1,778,720
Date of
sale
6 months
14,720,214
8,017,173
5,651,461
208,166
13,876,800
65,000
65,405
–
–
65,405
7 years
10 years
5 years
5 years
7 years
5 years
1,492,500
1,500,000
6,000,000
3,000,000
4,170,000
2,000,000
7,500
1,667
–
–
10,000
–
30,000
6,667
6,000,000
3,000,000
4,160,000
2,000,000
1,455,000
1,491,666
–
–
–
–
1,492,500
1,500,000
6,000,000
3,000,000
4,170,000
2,000,000
3 months
6,990,000
5,000
6,985,000
–
6,990,000
Monthly
1,501,000
1,501,000
–
–
1,501,000
Monthly
1,254,447
1,254,447
–
–
1,254,447
1 and 2
years
3,5,7 and 10
years
33,500
33,500
–
–
33,500
13,855,658
204,892
9,884,047
3,762,625
13,851,564
3 months
1,625,000
39,250
435,350
1,146,394
1,620,994
3 months
10,985,557
1,177,062
9,799,115
9,380
10,985,557
Floating
Variable at 1.00% to 1.5%
over 91-day PDST-F
or PDST-R1
Variable from 4.0% to
15.0%
150 AYALA CORPORATION
78
Foreign exchange risk
The Group’s foreign exchange risk results primarily from movements of the Philippine Peso (PHP) against the United
States Dollar (US$). The Company may enter into foreign currency forwards and foreign currency swap contracts in
order to hedge its US$ obligations.
The table below summarizes the Group’s exposure to foreign exchange risk as of December 31, 2009 and 2008.
Included in the table are the Group’s monetary assets and liabilities at carrying amounts, categorized by currency.
2009
US$ Php Equivalent*
(In Thousands)
Assets
Cash and cash equivalents
Short term investments
Accounts and notes receivables
Total assets
Liabilities
Accounts payable and accrued
expenses
Short-term debt
Long-term debt
Total liabilities
Net foreign currency denominated
assets (liabilities)
2008
US$ Php Equivalent*
US$171,687
6,576
1,968
180,231
P
= 7,931,962
303,811
90,932
8,326,705
US$88,107
6,120
107,245
201,472
P
= 4,186,845
290,822
5,096,282
9,573,949
70,911
34,500
155,000
260,411
3,276,098
1,593,900
7,161,000
12,030,998
2,119
–
175,000
177,119
100,695
–
8,316,000
8,416,695
US$24,353
P
= 1,157,254
(US$80,180)
(P
= 3,704,293)
*Translated using the exchange rate at the reporting date (US$1:P
= 46.200 in 2009, US$1:47.520)
The table below summarizes the exposure to foreign exchange risk of the subsidiaries with a functional currency of
US$.
2009
PHP US$ Equivalent*
(In Thousands)
Assets
Cash and cash equivalents
Accounts and notes receivables
Other current assets
Other non-current assets
Total assets
Liabilities
Accounts payable and accrued
expenses
Other current liabilities
Short-term debt
Other noncurrent liabilities
Total liabilities
Net foreign currency denominated
assets (liabilities)
2008
PHP US$ Equivalent*
P
= 446,323
194,834
29,604
38,413
709,174
US$9,661
4,217
641
831
15,350
P
= 783,272
236,652
43,935
–
1,063,859
US$16,483
4,980
925
–
22,388
551,037
68,216
71,000
27,343
717,596
11,927
1,477
1,537
592
15,533
534,193
–
–
–
534,193
11,241
–
–
–
11,241
P
= 529,666
US$11,147
(P
= 8,422)
(US$183)
*Translated using the exchange rate at the reporting date (P
=1:US$0.022 in 2009, P
= 1:US$0.021 in 2008)
2009
SGD US$ Equivalent*
(In Thousands)
Assets
Cash and cash equivalents
Accounts and notes receivables
Other current assets
Other noncurrent assets
Total assets
Liabilities
Accounts payable and accrued
expenses
Other current liabilities
Short-term debt
Long-term debt
Other noncurrent liabilities
Total liabilities
Net foreign currency denominated
assets
2008
SGD US$ Equivalent*
SGD5,434
717
–
5,611
11,762
US$3,911
515
–
4,037
8,463
SGD12,976
142
1,275
8,074
22,467
US$8,944
98
879
5,565
15,486
2,205
2,085
3,172
–
143
7,605
1,590
1,349
2,291
–
103
5,333
2,117
–
–
6,949
171
9,237
1,459
–
–
4,790
118
6,367
SGD4,157
US$3,130
SGD13,230
US$9,119
*Translated using the exchange rate at the reporting date (SGD1:US$0.719 in 2009, SGD1:US$0.689 in 2008)
79
2009 ANNUAL REPORT 151
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
2009
JPY US$ Equivalent*
(In Thousands)
Assets
Cash and cash equivalents
Accounts and notes receivables
Other noncurrent assets
Total assets
Liabilities
Accounts payable and accrued
expenses
Net foreign currency denominated
assets (liabilities)
2008
JPY US$ Equivalent*
JPY19,854
151,583
320
171,757
US$217
1,696
3
1,916
JPY44,824
92,418
–
137,242
US$493
1,016
–
1,509
323,334
3,630
80,176
882
JPY57,066
US$627
(JPY151,577)
(US$1,714)
*Translated using the exchange rate at the reporting date (JPY1:US$0.011 in 2009 and 2008)
2009
HKD US$ Equivalent*
(In Thousands)
Assets
Cash and cash equivalents
Accounts and notes receivables
Other current assets
Other noncurrent assets
Total assets
Liabilities
Accounts payable and accrued
expenses
Net foreign currency denominated
assets
2008
HKD US$ Equivalent*
HKD1,053
97,199
320
16,541
115,113
US$136
12,542
41
2,134
14,853
HKD106,845
106,559
320
16,541
230,265
US$13,787
13,750
41
2,134
29,712
4,765
615
12,076
1,558
HKD110,348
US$14,238
HKD218,189
US$28,154
*Translated using the exchange rate at the reporting date (HKD1:US$0.129 in 2009 and 2008)
2009
RMB US$ Equivalent*
(In Thousands)
Assets
Cash and cash equivalents
Accounts and notes receivables
Total assets
Liabilities
Accounts payable and accrued
expenses
Other current liabilities
Total liabilities
Net foreign currency denominated
assets (liabilities)
2008
RMB US$ Equivalent*
RMB43,235
160,552
203,787
US$6,333
23,518
29,851
RMB16,508
132,881
149,389
US$ 2,410
19,403
21,813
234,361
9
234,370
34,081
–
34,081
103,097
–
103,097
15,054
–
15,054
RMB46,292
US$6,759
(RMB30,583)
(US$4,230)
*Translated using the exchange rate at the reporting date (RMB1:US$0.146 in 2009 and 2008)
2009
GBP US$ Equivalent*
(In Thousands)
Assets
Cash and cash equivalents
Accounts and notes receivables
Other noncurrent assets
Total assets
Liabilities
Accounts payable and accrued
expenses
Other current liabilities
Total liabilities
Net foreign currency denominated
liabilities
GBP77
642
775
1,494
US$124
1,035
1,250
2,409
–
–
–
–
–
–
–
–
2,354
247
2,601
3,797
399
4,196
–
–
–
–
–
–
–
–
(GBP1,107)
(US$1,787)
*Translated using the exchange rate at the reporting date (GBP1:US$0.914)
152 AYALA CORPORATION
2008
GBP US$ Equivalent
80
2009
INR US$ Equivalent*
(In Thousands)
Assets
Cash and cash equivalents
Accounts and notes receivables
Other current assets
Total assets
Liabilities
Accounts payable and accrued
expenses
Other current liabilities
Long-term debt
Total liabilities
Net foreign currency denominated
liabilities
2008
INR US$ Equivalent
INR20,467
4,001
34,142
58,610
US$441
86
735
1,262
–
–
–
–
–
–
–
–
67,627
25,361
21,799
114,787
1,456
546
469
2,471
–
–
–
–
–
–
–
–
–
–
(INR56,177)
(US$1,209)
*Translated using the exchange rate at the reporting date (INR1:US$0.022)
2009
THB US$ Equivalent*
(In Thousands)
Assets
Cash and cash equivalents
Accounts and notes receivables
Other current assets
Other noncurrent assets
Total assets
Liabilities
Accounts payable and accrued
expenses
Net foreign currency denominated
assets
2008
THB US$ Equivalent*
THB4,846
1,591
–
153,386
159,823
US$146
48
–
4,619
4,813
THB4,846
–
92
210,205
215,143
US$137
–
3
5,524
5,664
182
5
144
4
THB159,641
US$4,808
THB214,999
US$5,660
*Translated using the exchange rate at the reporting date (THB1:US$0.030 in 2009, THB1:US$0.028 in 2008 )
2009
MYR US$ Equivalent*
(In Thousands)
Assets
Cash and cash equivalents
Accounts and notes receivables
Other current assets
Other noncurrent assets
Total assets
Liabilities
Accounts payable and accrued
expenses
Other noncurrent liabilities
Total liabilities
Net foreign currency denominated
assets
2008
MYR US$ Equivalent*
MYR3,567
30
–
4,082
7,679
US$1,052
9
–
1,204
2,265
MYR5,233
9
68
5,410
10,720
US$1,445
2
19
1,494
2,960
78
26
104
23
8
31
78
26
104
22
7
29
MYR7,575
US$2,234
MYR10,616
US$2,931
*Translated using the exchange rate at the reporting date (MYR1:US$0.0.295 in 2009, MYR1:US$0.0.276 in 2008)
The following table demonstrates the sensitivity to a reasonably possible change in the exchange rate, with all
variables held constant, of the Group’s profit before tax (due to changes in the fair value of monetary assets and
liabilities) and the Group’s equity (in thousands).
2009
Currency
US$
Increase (decrease) in
Peso per foreign currency
depreciation (appreciation)
P
= 1.00
(1.00)
81
Effect
on profit
before tax
(P
= 80,180)
80,180
2009 ANNUAL REPORT 153
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Currency
PHP
SGD
JPY
HKD
RMB
GBP
INR
THB
MYR
Increase (decrease) in
USD per foreign currency
depreciation (appreciation)
US$1.00
(US$1.00)
US$1.00
(US$1.00)
US$1.00
(US$1.00)
US$1.00
(US$1.00)
US$1.00
(US$1.00)
US$1.00
(US$1.00)
US$1.00
(US$1.00)
US$1.00
(US$1.00)
US$1.00
(US$1.00)
Effect
on profit
before tax
(US$8,422)
8,422
4,157
(4,157)
(151,577)
151,577
110,348
(110,348)
(30,583)
30,583
(1,107)
1,107
(56,177)
56,177
159,641
(159,641)
7,575
(7,575)
Increase (decrease) in
Peso per foreign currency
depreciation (appreciation)
P
= 1.00
(1.00)
Effect
on profit
before tax
P
= 24,353
(24,353)
Increase (decrease) in
USD per foreign currency
depreciation (appreciation)
US$1.00
(US$1.00)
US$1.00
(US$1.00)
US$1.00
(US$1.00)
US$1.00
(US$1.00)
US$1.00
(US$1.00)
US$1.00
(US$1.00)
US$1.00
(US$1.00)
Effect
on profit
before tax
US$529,666
(529,666)
13,230
(13,230)
218,189
(218,189)
46,292
(46,292)
57,066
(57,066)
215,143
(215,143)
10,616
(10,616)
2008
Currency
US$
Currency
PHP
SGD
HKD
RMB
JPY
THB
MYR
There is no other impact on the Group’s equity other than those already affecting net income.
Price risk
AFS financial assets are acquired at certain prices in the market. Such investment securities are subject to price risk
due to changes in market values of instruments arising either from factors specific to individual instruments or their
issuers or factors affecting all instruments traded in the market. Depending on the several factors such as interest
rate movements, the country’s economic performance, political stability, domestic inflation rates, these prices change,
reflecting how market participants view the developments.
The analysis below demonstrates the sensitivity to a reasonably possible change of market index with all other
variables held constant, of the Group’s equity (in thousands).
2009
Market Index
PSEi
154 AYALA CORPORATION
Change in Variables
+5%
-5%
Effect on Equity
P
= 168,206
(168,206)
82
2008
Market Index
PSEi
Change in Variables
+5%
-5%
Effect on Equity
P
= 38,096
(38,096)
Liquidity risk
The Group seeks to manage its liquidity profile to be able to service its maturing debts and to finance capital
requirements. The Group maintains a level of cash and cash equivalents deemed sufficient to finance operations.
As part of its liquidity risk management, the Company regularly evaluates its projected and actual cash flows. It also
continuously assesses conditions in the financial markets for opportunities to pursue fund-raising activities.
Fund-raising activities may include bank loans and capital market issues both on-shore and off-shore.
The table summarizes the maturity profile of the Group’s financial liabilities as of December 31, 2009 and 2008 based
on contractual undiscounted payments.
Accounts payable and
accrued expenses
Accounts payable
Accrued expenses
Accrued project costs
Dividends payable
Accrued personnel
costs
Related parties
Retentions payable
Customers’ deposit
Short-term debt
Long-term debt
Other noncurrent liabilities
Interest payable
Accounts payable and
accrued expenses
Accounts payable
Accrued expenses
Accrued project costs
Dividends payable
Accrued personnel
costs
Retentions payable
Related parties
Customers’ deposit
Short-term debt
Long-term debt
Other noncurrent liabilities
Interest payable
< 1 year
1 to < 2 years
2009
2 to < 3 years
(In Thousands)
> 3 years
Total
P
= 14,584,321
6,152,842
2,136,700
2,264,306
P
=–
–
–
–
P
=–
–
–
–
P
=–
–
–
–
P
= 14,584,321
6,152,842
2,136,700
2,264,306
427,502
105,355
120,938
2,374,457
2,638,658
2,453,144
–
P
= 33,258,223
–
–
–
–
–
8,256,906
6,865,272
P
= 15,122,178
–
–
–
–
–
11,289,842
902,293
P
= 12,192,135
–
–
–
–
–
31,884,835
315,565
P
= 32,200,400
427,502
105,355
120,938
2,374,457
2,638,658
53,884,727
8,083,130
P
= 92,772,936
< 1 year
P
= 3,119,138
1 to < 2 years
P
= 1,795,261
2 to < 3 years
P
= 1,675,878
> 3 years
P
= 2,948,760
Total
P
= 9,539,037
< 1 year
1 to < 2 years
2008
2 to < 3 years
(In Thousands)
> 3 years
Total
P
= 13,922,547
6,821,712
2,022,903
1,333,740
P
=–
–
–
–
P
=–
–
–
–
P
=–
–
–
–
P
= 13,922,547
6,821,712
2,022,903
1,333,740
823,717
262,330
135,739
1,246,593
2,755,447
1,478,871
–
P
= 30,803,599
–
–
–
–
–
5,669,616
2,260,063
P
= 7,929,679
–
–
–
–
–
8,801,387
745,981
P
= 9,547,368
–
–
–
–
–
35,694,241
4,010,328
P
= 39,704,569
823,717
262,330
135,739
1,246,593
2,755,447
51,644,115
7,016,372
P
= 87,985,215
< 1 year
P
= 3,625,656
1 to < 2 years
P
= 3,360,187
2 to < 3 years
P
= 3,212,604
> 3 years
P
= 4,162,923
Total
P
= 14,361,370
83
2009 ANNUAL REPORT 155
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Cash and cash equivalents, short-term investments, financial assets at FVPL and AFS debt investments are used for
the Group’s liquidity requirements. Please refer to the terms and maturity profile of these financial assets under the
maturity profile of the interest-bearing financial assets and liabilities disclosed in the interest rate risk section. AFS
unquoted debt investments with maturity of more than a year from December 31 are marketable securities and could
be sold as and when needed prior to its maturity in order to meet the Group’s short-term liquidity needs.
Credit risk
The Group’s holding of cash and short-term investments exposes the Group to credit risk of the counterparty. Credit
risk management involves dealing only with institutions for which credit limits have been established. The Group’s
treasury policy sets credit limits for each counterparty. Given the Group’s diverse base of counterparties, it is not
exposed to large concentrations of credit risk.
The table below shows the maximum exposure to credit risk for the components of the consolidated statement of
financial position. The maximum exposure is shown at gross, before the effect of mitigation through the use of master
netting arrangements or collateral agreements.
2009
2008
(In Thousands)
P
= 41,696,097
P
= 39,113,232
4,560,976
1,008,924
926,860
2,233,201
Cash and cash equivalents
Short-term investments
Financial assets at FVPL
Accounts and notes receivables
Trade
Real estate
Electronics manufacturing
Automotive
Information technology and business
process outsourcing
International and others
Advances to other companies
Related parties
Investment in bonds classified as loans and
receivables
Others
AFS financial assets
Quoted equity investments
Unquoted equity investments
Quoted debt investments
HTM investments
Bonds
Total credit risk exposure
156 AYALA CORPORATION
84
12,808,632
3,867,003
818,850
10,428,525
3,115,891
639,346
799,783
3,700
2,888,665
3,384,955
332,964
3,940
3,643,843
7,861,125
200,000
514,018
–
1,455,732
877,509
2,392,489
1,199,154
1,449,982
1,614,520
–
–
P
= 76,938,691
65,405
P
= 72,966,630
The analysis of accounts and notes receivables that are past due but not impaired follows:
December 31, 2009
Neither Past
Due nor
Impaired
Past Due but not Impaired
<30 days 30-60 days 60-90 days 90-120 days
>120 days
Total
Impaired
Total
(In Thousands)
Trade:
Real estate
Electronics
manufacturing
Information
technology and
BPO
Automotive
International and
others
Related parties
Advances to other
companies
Investment in bonds
classified as loans
and receivables
Others
Total
P
= 10,616,823
P
= 706,133
P
= 309,749
P
= 296,463
P
= 263,399
P
= 640,257 P
= 2,216,001
3,634,407
88,862
69,953
14,462
15,810
43,509
232,596
14,436
3,881,439
272,769
562,613
677
152,945
406,287
48,798
–
15,412
99,157
9,772
20,893
29,310
527,014
256,237
77,405
30,451
877,188
849,301
2,263
3,216,798
3
106,132
635
13,169
–
3,074
–
28,319
799
17,463
1,437
168,157
103
5,206
3,803
3,390,161
1,689,117
73,816
177,172
50,595
38,763
859,202
1,199,548
–
2,888,665
200,000
522,926
–
134
–
419
–
1,109
–
908
–
266
–
2,836
–
30,827
200,000
556,589
P
= 20,717,716 P
= 1,128,702 P
= 1,026,182
P
= 381,115
P
= 456,128 P
= 1,611,699 P
= 4,603,826
P
= 178,618 P
= 13,011,442
P
= 337,046 P
= 25,658,588
December 31, 2008
Neither Past
Due nor
Impaired
Past Due but not Impaired
<30 days
30-60 days
60-90 days
90-120 days
>120 days
Total
Impaired
Total
(In Thousands)
Trade:
Real estate
Electronics
manufacturing
Automotive
Information
technology and
BPO
International and
others
Advances to other
companies
Related parties
Others
Total
P
= 8,132,446
P
= 907,944
P
= 267,659
P
= 369,772
P
= 132,440
2,942,598
245,499
138,169
274,359
16,415
89,929
244
28,933
–
7,777
18,465
18,956
173,293
419,954
36,277
217
3,152,168
665,670
200,326
64,596
20,296
31,365
16,381
–
132,638
19,120
352,084
–
1,542
1,681
258
189
270
3,940
60,134
64,074
2,429,488
7,634,485
1,067,694
249,737
56,138
38,823
27,017
47,536
69,285
383,020
44,731
72,592
8,563
41,372
87,538
546,018
36,863
76,826
1,214,355
226,640
345,064
–
8,018
114,203
3,643,843
7,869,143
1,526,961
P
= 22,652,536 P
= 1,731,308
P
= 539,818
P
= 930,915
85
P
= 671,869 P
= 2,349,684
P
= 294,260 P
= 1,369,267 P
= 4,865,568
P
= 83,124 P
= 10,565,254
P
= 321,093 P
= 27,839,197
2009 ANNUAL REPORT 157
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
The table below shows the credit quality of the Group’s financial assets as of December 31, 2009 and 2008
(in thousands):
December 31, 2009
Neither past due nor impaired
Past due but
High Grade Medium Grade Low Grade
Cash and cash equivalents
Short-term investments
FVPL financial assets
Accounts and notes receivables
Trade
Real estate
Electronics manufacturing
Information technology and BPO
Automotive
International and others
Related parties
Advances to other companies
Investments in bonds classified as
loans and receivables
Others
AFS Investments
Quoted shares of stocks
Unquoted shares of stocks
Quoted debt investments
Total
not impaired
P
=– P
= 45,656,889
–
4,560,976
–
926,860
P
=–
–
–
Impaired
Total
P
= 45,656,889
4,560,976
926,860
P
=–
–
–
P
=– P
= 45,656,889
–
4,560,976
–
926,860
9,151,761
3,269,152
272,769
381,983
–
3,102,245
1,668,211
854,788
334,198
–
180,630
2,263
31,457
4,317
610,274
31,057
–
–
–
83,096
16,589
10,616,823
3,634,407
272,769
562,613
2,263
3,216,798
1,689,117
2,216,001
232,596
527,014
256,237
1,437
168,157
1,199,548
178,618
14,436
77,405
30,451
103
5,206
–
13,011,442
3,881,439
877,188
849,301
3,803
3,390,161
2,888,665
200,000
522,792
–
134
–
–
200,000
522,926
–
2,836
–
30,827
200,000
556,589
877,509
–
1,199,154
–
2,392,489
–
–
–
–
877,509
2,392,489
1,199,154
–
–
–
–
–
–
877,509
2,392,489
1,199,154
P
= 71,790,301
P
= 3,800,276
P
= 741,016 P
= 76,331,593
P
= 4,603,826
P
= 337,046 P
= 81,272,465
December 31, 2008
Neither past due nor impaired
High Grade Medium Grade
Cash and cash equivalents
Short-term investments
FVPL financial assets
Accounts and notes receivables
Trade
Real estate
Electronics manufacturing
Automotive
Information technology and BPO
International and others
Advances to other companies
Related parties
Others
AFS Investments
Quoted shares of stocks
Unquoted shares of stocks
HTM Investments
Quoted debt investments
Past due but
Low Grade
Total
not impaired
P
=– P
= 42,885,792
–
1,008,924
–
2,233,201
P
=–
–
–
Impaired
Total
P
= 42,885,792
1,008,924
2,233,201
P
=–
–
–
6,042,439
867,658
192,080
200,326
–
2,407,629
6,967,055
928,795
1,600,010
1,682,919
53,419
–
–
7,942
667,430
138,899
489,997
392,021
–
–
–
13,917
–
–
8,132,446
2,942,598
245,499
200,326
–
2,429,488
7,634,485
1,067,694
2,349,684
173,293
419,954
132,638
3,940
1,214,355
226,640
345,064
83,124
36,277
217
19,120
60,134
–
8,018
114,203
10,565,254
3,152,168
665,670
352,084
64,074
3,643,843
7,869,143
1,526,961
1,449,982
–
–
1,614,520
–
–
1,449,982
1,614,520
–
–
–
–
1,449,982
1,614,520
–
65,405
–
–
65,405
P
= 895,935 P
= 71,910,360
P
= 4,865,568
65,405
–
P
= 65,249,286
P
= 5,765,139
P
=– P
= 42,885,792
–
1,008,924
–
2,233,201
P
= 321,093 P
= 77,097,021
The credit quality of the financial assets was determined as follows:
Cash and cash equivalents, short-term investments, FVPL financial assets, quoted AFS financial assets, HTM
investments, advances to other companies and related party receivables
High grade pertains to cash and cash equivalents and short-term investments, quoted financial assets, related party
transactions and receivables with high probability of collection.
Medium grade pertains to unquoted financial assets other than cash and cash equivalents and short-term
investments with nonrelated counterparties and receivables from counterparties with average capacity to meet its
obligation.
Low grade pertains to financial assets with the probability to be impaired based on the nature of the counterparty.
158 AYALA CORPORATION
86
Trade receivables
Real estate - high grade pertains to receivables with no default in payment; medium grade pertains to receivables with
up to 3 defaults in payment; and low grade pertains to receivables with more than 3 defaults in payment.
Electronics manufacturing - high grade pertains to receivable with favorable credit terms and can be offered with a
credit term of 15 to 45 days; medium grade pertains to receivable with normal credit terms and can be offered with a
credit term of 15 to 30 days; and low grade pertains to receivables under advance payment or confirmed irrevocable
Stand-by Letter of Credit and subjected to semi-annual or quarterly review for possible upgrade.
Automotive - high grade pertains to receivables from corporate accounts and medium grade for receivables from
noncorporate accounts.
AFS financial assets - the unquoted investments are unrated.
31. Registration with the Philippine Export Zone Authority (PEZA)
Some activities of certain subsidiaries are registered with the PEZA. Under the registration, these subsidiaries are
entitled to certain tax and nontax incentives, which include, but are not limited to, income tax holiday (ITH) and dutyfree importation of inventories and capital equipment. Upon the expiration of the ITH, the subsidiaries will be liable for
payment of a five percent (5%) tax on gross income earned from sources within the PEZA economic zone in lieu of
payment of national and local taxes.
32. Note to Consolidated Statements of Cash Flows
The Group’s noncash investing activity in 2009 pertains to the loans receivable from EGS Corp. that were transferred
to Stream as part of the Agreement amounting to P
= 1,699.6 million (US$35.8 million).
33. Interest in a Joint Venture
MDC has a 51% interest in Makati Development Corporation - First Balfour, Inc. Joint Venture (the Joint Venture), a
jointly controlled operation whose purpose is to design and build St. Luke’s Medical Center (the Project) in Fort
Bonifacio Global City, Taguig.
The Project was started on January 31, 2007. The Project is a world-class medical facility comprising, more or less,
of a 611-bed hospital and a 378-unit medical office building, with an approximate gross floor area of 154,000 square
meters, which meets international standards, and all standards and guidelines of applicable regulatory codes of the
Philippines and complies with the criteria of the Environment of Care of the Joint Commission International
Accreditation.
The Group’s share in the assets, liabilities, income and expenses of the Joint Venture at December 31, 2009 and
2008 and for the years then ended, which are included in MDC’s financial statements, are as follows:
2009
(In Thousands)
Current assets
Cash and cash equivalents
Receivables
Due from customers for contract work
Inventory
Other current assets
Property and equipment
Total assets
Current liabilities
Revenue
Contract costs
Interest and other income
Income before income tax
Income tax
Net income
P
= 150,805
191,809
61,379
–
46,326
22
450,341
226,545
835,615
(730,779)
(583)
104,253
(831)
P
= 103,422
2008
P
= 181,953
440,569
229,596
18,349
135,674
16,978
1,023,119
802,821
1,422,023
(1,218,026)
16,516
220,513
(2,250)
P
= 218,263
Provision for income tax pertains to final tax on interest income.
87
2009 ANNUAL REPORT 159
Ayala Corporation and Subsidiaries
Notes to Consolidated Financial Statements
34. Commitments and Contingencies
Commitments
ALI has an existing contract with the Bases Conversion Development Authority (BCDA) to develop, under a lease
agreement, a mall with an estimated gross leasable area of 152,000 square meters on a 9.8-hectare lot inside Fort
Bonifacio. The lease agreement covers 25 years, renewable for another 25 years subject to reappraisal of the lot at
market value. The annual fixed lease rental amounts to P
= 106.5 million while the variable rent ranges from 5% to 20%
of gross revenue.
Subsequently, ALI transferred its rights and obligations granted to or imposed under the lease agreement to SSECC,
its subsidiary, in exchange for equity.
As part of the bid requirement, ALI procured a performance bond in 2003 from the Government Service Insurance
System in favor of BCDA amounting to P
= 3.9 billion to guarantee the committed capital to BCDA. Moreover, SSECC
obtained standby letters of credit to guarantee the payment of the fixed and variable rent as prescribed in the lease
agreement.
On April 15, 2003, ALI entered into a Joint Development Agreement (JDA) with BCDA for development of another lot
inside Fort Bonifacio with a gross area of 11.6 hectares for residential purposes. Pursuant to the agreement, BCDA
shall contribute its title and interest to the lot and ALI in turn shall provide the necessary cash and expertise to
undertake and complete the implementation of the residential development. ALI commits to invest sufficient capital to
complete the residential development.
ALI procured a surety bond with a face value of P
= 122.9 million issued by an insurance company in favor and for the
benefit of BCDA as beneficiary. The surety bond shall be continuing in nature and shall secure the obligation of ALI
to pay BCDA annual minimum revenue share for each of the first 8 selling periods of the residential project.
In 2002, ALI agreed to underwrite the subscription to NTDCC additional shares amounting to P
= 1.4 billion over a
4-year equity schedule up to 2007 in exchange for a 5% underwriting fee (net of a 1.5% rebate to existing
shareholders who subscribed).
MDC, in the normal course of business, furnishes performance bonds in connection with its construction projects.
These bonds shall guarantee MDC’s execution and completion of the work indicated in the respective construction
contracts.
On April 15, 2008, the Company acted as guarantor to a US$50 million transferable term loan facility between AYC, a
subsidiary, as borrower and several lenders who are also the lead arrangers of the Agreement.
Repayment dates for advances made to AYC are in six-month intervals from 2011 to 2013. The Company
unconditionally guaranteed the due and punctual payment of advances if for any reason AYC does not make timely
payment. The Company waived all rights of subrogation, contribution, and claims of prior exhaustion of remedies.
The Company’s obligation as guarantor will remain in full force until no sum remains to be lent by the lenders, and the
lenders recover the advances.
AINA obtained a US$3.0 million letter of credit as security for the release of a loan to one of its subsidiaries. As
security for the letter or credit, AINA is required to maintain a US$3.0 million certificate of deposit with the bank.
AINA, together with another individual, jointly and severally guarantees the obligation of its subsidiary.
Share sale and purchase agreement with United Utilities (UU)
On November 11, 2009, the Company, UU and Philwater Holdings, Inc. signed agreements for the Company’s
acquisition of UU’s 81.9 million common shares and economic interest in 2 billion preferred shares in MWCI for a total
consideration of P
= 3.5 billion.
As of December 31, 2009, the MWCI shares held by UU was not transferred to the Company pending compliance of
certain conditions precedents under the Share Sale and Purchase Agreement (see Note 35).
Contingencies
The Group has various contingent liabilities arising in the ordinary conduct of business which are either pending
decision by the courts or being contested, the outcome of which are not presently determinable.
In the opinion of management and its legal counsel, the eventual liability under these lawsuits or claims, if any, will not
have a material or adverse effect on the Group’s financial position and results of operations.
160 AYALA CORPORATION
88
As a result of the explosion which occurred on October 19, 2007 at the basement of the Makati Supermarket Building,
the Philippine National Police - Multi-Agency Investigation Task Force and the Department of Interior and Local
Government - Inter-Agency task Force (DILG-IATF) filed complaints with and recommended to the Department of
Justice (“DOJ”) the prosecution of certain officers/employees of Makati Supermarket Corporation, the owner of the
building, as well as some officers/employees of Ayala Property Management Corp. (APMC), among other individuals,
for criminal negligence. In a Joint Resolution dated April 23, 2008, the DOJ special panel of prosecutors ruled that
there was no probable cause to prosecute the APMC officers/employees for criminal negligence. This was affirmed
by the DOJ Secretary in a Resolution dated November 17, 2008. A Motion for Reconsideration was filed by the DILGIATF to question the DOJ Secretary’s Resolution which remains unresolved to date. No civil case has been filed by
any of the victims of the incident.
35. Events after the Reporting Period
The Company
On March 4, 2010, the Company completed the acquisition of UU’s 81.9 million common shares and economic
interest in 2 billion preferred shares in MWCI. The acquisition increased the Company’s interest in MWCI from 31.7%
to 43.3%.
In various dates from January 1 to March 10, 2010, the Company bought a total of 1.34 million common shares
amounting to P
= 395.4 million as part of the Company’s share buyback program.
IMI
Listing by Way of Introduction
On December 9, 2009, the BOD of PSE approved the application of IMI for the initial listing by way of introduction of
1,137,708,197 common shares, with a par value of P
=1.00 per share, under the First Board of the Exchange, at an
indicative opening price of P
= 6.24 per share. On the same day, the PSE approved the application of IMI to list
additional 146,681,420 common shares to cover IMI’s ESOWN. The listing ceremony was held on January 21, 2010.
On this date, IMI’s stock symbol, IMI, officially entered into the electronic board of the PSE marking the start of public
trading of its common shares through the stock market.
Restructuring plan
On January 21, 2010, the IMI’s BOD approved another restructuring plan. IMI estimated to incur about $0.64 million
(P
= 30.0 million) as a result of this restructuring. The employees that will be laid off will come from two projects of IMI
that will end its manufacturing agreements in February 2010. Most of the employees included in the restructuring
plan are in the operator level. It is expected that the restructuring will be carried out and completed by March 2010.
Integreon
On February 16, 2010, Actis LLP, an emerging market private equity specialist, invested US$50.0 million for a 37.7%
interest in Integreon.
89
2009 ANNUAL REPORT 161
PARTIES TO THE OFFER
The Company
Ayala Corporation
33rd Floor Tower One
Ayala Avenue corner Paseo de Roxas
Makati City 1200
Philippines
Tel. No.: (632) 848-5643
Issue Manager
BPI Capital Corporation
8th Floor BPI Building
Ayala Avenue corner Paseo de Roxas
Makati City 1200
Tel. No. (632) 816-9580
Co-Issue Manager
First Metro Investment Corporation
45th Floor GT Tower International
6813 Ayala Avenue, corner H.V. Dela Costa Street
Makati City
Joint Lead Underwriters
BDO Capital Corporation
BPI Capital Corporation
Citicorp Capital Philippines, Inc.
First Metro Investment Corporation
The Hongkong and Shanghai Banking Corporation Limited
ING Bank, N.V., Manila Branch
RCBC Capital Corporation
Standard Chartered Bank
Legal Counsel to the Issuer
Ayala Group Legal
32nd Floor Tower One Ayala Triangle
Ayala Avenue
Makati City 1226
Tel. No.: (632) 841-5336
Legal Counsel to the Issue Manager and
the Underwriters
Romulo Mabanta Buenaventura Sayoc & De Los Angeles
30th Floor, Citibank Tower
8741 Paseo de Roxas
Makati City
Trustee to the Bondholders
Metropolitan Bank and Trust Company – Trust Banking Group
18th Floor GT Tower International
6813 Ayala Avenue, corner H.V. Dela Costa Street
Makati City
Registrar
Philippine Depository and Trust Corporation
37/F Enterprise Tower One
6766 Ayala Avenue, Makati City
Tel. No. (632) 884-5000
Paying Agent
BPI Stock Transfer Office
16th Floor BPI Building
Ayala Avenue corner Paseo de Roxas
Makati City 1200
Independent Public Accountants
SyCip Gorres Velayo & Co
6760 Ayala Avenue, Makati City 1200
Tel. No. (632) 891-0307