MACROASIA CORPORATION

Transcription

April 28, 2006
PHILIPPINE STOCK EXCHANGE
Compliance & Surveillance Department
Exchange Road, Ortigas Center
Pasig City, Metro Manila
Attention
:
Ms. Jurisita M. Quintos
Senior Vice President – Operations Group
Dear Ms. Quintos :
In compliance with PSE’s disclosure regulations for publicly listed companies, we hereby
submit MacroAsia Corporation’s Annual Report (SEC Form 17-A) as of and for the years
ended December 31, 2005 and 2004.
Thank you very much.
Very truly yours,
12/F, Allied Bank Center, 6754 Ayala Avenue, Makati City
• Tel. No. (632) 840 2001 • Fax No. (632) 840 1892
COVER SHEET
4 0 5 2 4
SEC Registration Number
M A C R O A S I A
A N D
C O R P O R A T I O N
S U B S I D I A R I E S
(Company’s Full Name)
1 2
t h
F l o o r
6 7 5 4
A y a l a
,
A l
l
i
e d
A v e n u e
,
B a n k
C e n t e r
M a k a t
i
C i
,
t y
(Business Address: No. Street City/Town/Province)
Reynaldo O. Munsayac
840-2001
(Contact Person)
(Company Telephone Number)
1 2
3 1
Month
Day
1 7 - A
Month
(Form Type)
(Calendar Year)
Day
(Annual Meeting)
NA
(Secondary License Type, If Applicable)
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
977
P27.50 M
Total No. of Stockholders
Domestic
Foreign
To be accomplished by SEC Personnel concerned
File Number
LCU
Document ID
Cashier
STAMPS
Remarks: Please use BLACK ink for scanning purposes.
December 31, 2005
SEC Form 17-A
ANNUAL REPORT PURSUANT TO SECTION 17
OF THE SECURITIES REGULATION CODE AND SECTION 141
OF CORPORATION CODE OF THE PHILIPPINES
1. For the fiscal year ended December 31, 2005
2. SEC Identification Number 40524
3. BIR Tax Identification No. 004-666-098
4. Exact name of issuer as specified in its charter MACROASIA CORPORATION
6. ______________________________
5. City of Makati, Metro Manila
Province, Country or other jurisdiction
Industry Classification Code
Incorporation or organization
7. 12th Floor, Allied Bank Center, 6754 Ayala Avenue,
Makati City
Address of Principal Office
1226
Zip Code
8. (632) 840-2001
Issuer’s telephone number including area code
9. __N/A______________________________________________________________
Former name, address, and former fiscal year, if changed since last report
10. Securities registered pursuant to Section 8 and 12 of the RSA
Title of Each Class
Number of Shares or Amount of Debt Outstanding
Common Stock, P 1 par value
1,250,000,000 shares outstanding
11. Are any of these securities listed on the Philippine Stock Exchange.
Yes ( X )
No (
)
12. Check whether the issuer:
(a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule
17 thereunder or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder, and
Sections 26 and 141 of The Corporation Code of the Philippines during the
preceding twelve (12) months (or for such shorter period that the issuer was
required to file such reports;
Yes ( X )
No (
)
(b) has been subject to such filing requirements for the past 90 days
Yes ( X )
No ( )
13. Aggregate market value of the voting stock held by non-affiliates: P 532,854,723
TABLE OF CONTENTS
Page No.
PART I – BUSINESS AND GENERAL INFORMATION
Item 1
Item 2
Item 3
Item 4
Business
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
1
9
10
11
PART II – OPERATIONAL AND FINANCIAL INFORMATION
Item 5
Item 6
Item 7
Item 8
Market for Issuer’s Common Equity and Related
Stockholder Matters
Management’s Discussion and Analysis or
Plan of Operation
Financial Statements
Information on Independent Accountant and
Other Related Matters
11
13
21
21
PART III – CONTROL AND COMPENSATION INFORMATION
Item 9
Item 10
Item 11
Item 12
Directors and Executive Officers of the Issuer
Executive Compensation
Security Ownership of Certain Beneficial Owners
and Management
Certain Relationships and Related Transactions
PART IV – CORPORATE GOVERNANCE
22
25
26
28
29
PART V – EXHIBITS AND SCHEDULES
Item 13
a. Exhibits
b. Reports on SEC Form 17-C
30
30
SIGNATURES
31
INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTARY SCHEDULES
32
INDEX TO EXHIBITS
91
DECEMBER 31, 2005
PART I – BUSINESS AND GENERAL INFORMATION
Item 1. – BUSINESS
MacroAsia Corporation (MAC) - Formerly known as Infanta Mineral and Industrial
Corporation, MacroAsia Corporation is a publicly-listed company incorporated on
February 16, 1970 to primarily engage then in the business of geological exploration
and development. On January 26, 1994, the Securities and Exchange Commission
(SEC) approved the amendments to the Articles of Incorporation of Infanta, changing its
original purpose from geological exploration and development to that of a holding
company, and its corporate name to Cobertson Holdings Corporation (Cobertson). In
November 1995, the SEC further approved the change in the Company’s name from
Cobertson Holdings Corporation to MacroAsia Corporation (MAC). MAC began
commercial operation as a holding company under its amended charter in 1996.
MAC is presently engaged in aviation-related businesses. It provides aircraft
maintenance, repairs and overhaul, charter flight services, airport ground handling
services and in-flight catering services and operates a special economic zone at the
Ninoy Aquino International Airport (NAIA). All subsidiaries and associated companies of
MAC render services directly to the airline customers/locators at NAIA, Mactan-Cebu
International Airport (MCIA) and Davao International Airport.
Geographical market split, i.e., North America, Southeast Asia, is not applicable, that is,
the Group does not have any revenues/sales outside the Philippines. However, from
2003 to 2005, an average of 66% of the total gross operating revenues reported
represented revenues from foreign airlines that fly to Manila and Cebu. Further, net
income from these foreign airlines account for an average of 10% of the total net income
reported for the last three years.
The Company’s financial strength relative to its competitors lies in the Company’s high
liquid assets to finance its operations and an adequate capital to continue and expand its
existing businesses and develop/venture into new projects.
On the other hand, perceived market strength of leading competitors lies only in the
ground handling area, where the Company remains as the youngest player who is still
trying to penetrate the international or foreign airline market at both NAIA and MCIA.
The Company may have the advantage when it comes to the other service areas due to
its high quality services, very competitive pricing, advance aircraft technology, and the
carefully packaged inter-related aviation support logistics being marketed and provided
by its subsidiary/affiliated companies.
MAC continues to operate mostly through its four (4) subsidiaries and two (2) affiliates,
as more fully discussed below.
1
Cebu Pacific Catering Services, Inc. (CPCS), is MacroAsia’s first in-flight catering
venture which started commercial operation in October of 1996. MAC holds 40% equity
in this joint venture, while its partners Cathay Pacific Catering Services of Hongkong,
and MGO Pacific Resources Corporation hold 40% and 20% equity, respectively.
CPCS is the first and presently still the only world-class airline catering company at
Mactan-Cebu International Airport. Managed by Cathay Pacific Catering Services, and
with a work force of about fifty-six (56) employees (7 in administration and 49 in
operations), as of December 31, 2005, it serves both domestic and international airlines.
The bulk of its revenues though comes from export sales.
CPCS owns a two-storey kitchen facility designed to meet projected total airline catering
demands and to easily accommodate further expansion in the future. The facility
occupies an area measuring 1,800 square meters and is capable of producing over
3,000 meals a day in accordance with stringent international hygiene standards. The
facility was designed and developed by Cathay Pacific Catering Services (HK).
CPCS is presently serving 700 to 800 meals a day, using local raw materials for its
menus. It procures its raw materials from the local market and does not have any major
raw materials supply contracts. Its airline clients include Philippine Airlines, Cathay
Pacific Airways and Mandarin Airlines. Philippine Airlines and Cathay Pacific Airways
account for more than 20% of the Company's sales, and the loss of either airline will
have a significant effect on the Company’s operations.
There are four (4) domestic airlines and three (3) international airlines regularly flying the
Cebu route. CPCS is servicing all ex-Cebu flights bound for HongKong, Taiwan,
Singapore and Japan, as well as chartered flights to/from Cebu.
Being the only in-flight catering company in Cebu, CPCS expects to provide most if not
all of the catering services for future ex-Cebu flights to other regional destinations.
MacroAsia’s equity in the net income of its associated companies, on the average over
the last three years, account for more than 11% of the Company’s total gross revenues.
CPCS contributed an average of 6% out of the total MAC equity in the net income of
associates.
As a registered entity, CPCS is subject to the rules and regulations of the Philippine
Economic Zone Authority. It is, however, not aware of any existing or probable
government regulations that would have an adverse effect on its operations.
CPCS does not have any other significant agreements or patents, copyrights, licenses,
franchises, concessions, or royalty agreements.
CPCS did not incur any research and development costs during the last three fiscal
years.
MacroAsia Air Taxi Services, Inc. (MAATS) is a wholly-owned subsidiary, incorporated
in June 1996. MAATS is a licensed non-scheduled domestic flight operator providing
helicopter chartering services from its base at the General Aviation Area, Manila
Domestic Airport to any point within the Philippines. MAATS is duly licensed by the Civil
Aeronautics Board (CAB) and holds a current Air Carrier Operating Certificate (ACOC)
(No. 4AN9800035) issued by the Air Transportation Office (ATO).
2
MAATS is greatly dependent on the two aforementioned licenses, without which the
Company cannot provide charter services to the public. Both licenses are renewed
annually. Thus, the Company ensures that the helicopter receives a year-round
preventive maintenance in accordance with the manufacturer’s specifications, and
comply with the stringent requirements of CAB and ATO. The Company’s pilot and
mechanics also continue to undergo year-round training in the U.S. to assure safe
operations.
As of December 31, 2005, this subsidiary has 3 employees (2 in operations and 1 in
administration).
MAATS started commercial operations in October 1996. It has since been leasing
MacroAsia Corporation’s Ecureuil AS350-BA 5-passenger helicopter for its chartering
business. Revenues derived from chartering operations are 100% domestic, with
majority of its customers being local businessmen.
MAATS' marketing strategy remains focused on safety and convenience, as it strictly
adheres to the stringent safety standards and procedures set by regulating agencies. It
ensures that its staff undergo continuous year-round training with emphasis on safety
and customer service, a practice that has kept the Company ahead of its competitors.
MAATS has only few remaining competitors such as Air Span and Air Ads and it expects
to be ahead of its competitors by keeping focused on operational safety and customers'
convenience and by maintaining its competitiveness.
MAATS’ charter flight revenues for the last three years account for an average of less
than two percent (2%) of the Company’s consolidated gross operating revenues.
MAATS does not have any major existing supply or sales contracts and is not dependent
on any single or few customers that account for more than 20% of its business. It also
provides charter services to affiliated companies but is not dependent on any one of
them.
There are no existing or probable government regulations that may have an adverse
effect on MAATS operations. It did not incur any research and development
expenditures during the last three fiscal years.
MacroAsia Properties Development Corporation (MAPDC), another wholly-owned
subsidiary, was incorporated on June 4, 1996 to primarily engage in the acquisition,
development and sale of real properties. After it completed its first infrastructure project
in 1997 and following the Asian economic crisis, the Company suspended pursuing
property development projects as a core business and refocused its efforts on aviationsupport businesses.
On September 01, 2000 MAPDC was registered as an Ecozone Developer/Operator
with the Philippine Economic Zone Authority (PEZA). As such, it enjoys tax incentives
as provided by PEZA. It started commercial operations again on the same date, this
time as the ecozone developer/operator of the 23-hectare Macroasia Ecozone at the
Ninoy Aquino International Airport, with Lufthansa Technik Philippines, Inc. as its anchor
locator for the next 25 years. MAPDC has a 25-year lease covering the 23-hectare
property occupied by the ecozone with the Manila International Airport Authority. The
Macroasia Ecozone is the only existing ecozone at NAIA.
3
The MacroAsia Ecozone presently has a workforce of 6 staff (4 in operations and 2 in
administration) and generates revenues which are considered 100% domestic.
MAPDC's operations do not require the intensive use of raw materials or like items. It
does not therefore have any major existing supply contracts.
For the past three years, MAPDC’s average rental income represented 25% of the
Company’s consolidated gross operating revenues.
Lufthansa Technik Philippines is an associated company of MAPDC as it is 49% owned
by MacroAsia Corporation.
MAPDC is subject to PEZA rules and regulations and is not aware of any other existing
or probable government regulations that may have any adverse effects on its business.
MAPDC does not have any other significant agreements or patents, copyrights, licenses,
franchises, concessions, or royalty agreement. The Company did not incur any research
and development costs during the last three fiscal years.
MacroAsia Eurest Catering Services, Inc. (MECS), which was incorporated on
November 5, 1996, is a joint venture among MacroAsia Corporation (67%), Eurest
International B.V. (13%) and Singapore Airport Terminal Services (SATS) (20%). MECS
began commercial operations on September 1, 1998. Today, MECS currently provides
in-flight catering services to about 14 of the foreign airlines that fly to Manila. In terms of
number of meals, MECS serves more than 2 million meals per annum or an average
production of over 5,000 meals a day. MECS is servicing an average of 16 international
flights a day.
MECS has a license and technical assistance agreement with Eurest International B.V.
wherein Eurest shall render technical assistance to MECS in establishing and operating
an in-flight catering business at the Ninoy Aquino International Airport (NAIA), the Manila
Domestic Airport and the general aviation areas. Furthermore, the license enables
MECS to exclusively use the Mark and System of Eurest.
In 1998, MECS also executed a marketing and commercial assistance agreement with
SATS, whereby SATS shall provide marketing and commercial services to MECS for its
in-flight catering business.
Nevertheless, MECS’ operations is not contingent on the use of the Eurest mark and
system as such, nor from marketing and commercial services rendered by SATS.
However, should the joint venture agreement with the aforementioned two cease, brand
equity from the established trade name of MECS may be slightly affected but the extent
of such will be limited only to marketing and not the commercial operations. MAC,
MECS’ majority stockholder is currently studying a possible renegotiation with SATS &
Eurest.
MECS' in-flight kitchen facility now occupies an area measuring about 6,500 sq. m., on a
two-hectare lot being leased from the Manila International Airport Authority. It now has a
maximum kitchen capacity of approximately 8,000 meals a day. An extra floor space of
about 1,000 sq. m. has been added for extra warehousing and production space.
4
MECS catering capacity could easily be further expanded to 10,000 meals per day
without any major renovations. The kitchen was designed by the International
Engineering Division of Eurest In-flight Services.
On the other hand, MECS’ operations is highly dependent upon the concession
agreement with MIAA which was assigned by MAC, its parent company, and which
grants the right to operate an in-flight catering service for civil and/or military aircraft
operating at the NAIA and/or the Manila Domestic Airport. MIAA, however, has also
provided MECS with an automatic renewal agreement, provided, the concessionaire’s
privilege fee (CPF) (7% of gross revenue) is paid on time.
MECS, with its state-of-the-art facility, continues to strictly comply with both international
and local hygiene standards and environmental regulations. It has consistently passed
all the regular audits conducted by the Bureau of Quarantine, the Medina Audit for
Lufthansa and other airlines and the periodic audits by other airlines as part of their
hygiene and quality enhancement programs. It has a fully-equipped laboratory manned
by in-house microbiologists to ensure that high standards are maintained at all times.
MECS also holds a valid Halal Certificate from the Office of Muslim Affairs, Office of the
President.
Another government agency which closely monitors MECS is the Environmental
Management Bureau of the Laguna Lake Development Authority. This government
agency monitors the production area to ensure that waste disposal regulations are fully
complied with to protect the environment.
MECS is the first and only in-flight caterer and one of the very few food companies in the
Philippines to be ISO-certificated. It earned the "1999 Best Hygiene Award" from Cathay
Pacific Airways, and the "Silver Quality Award for Asia/India" from Lufthansa Airlines.
The local suppliers of MECS include, among others, ScanAsia Overseas, Inc. for dairy
products, L.G. Arambulo Enterprises and Marlett Marketing Corp. for fresh fruits and
vegetables, Mother Earth Products, Inc. for meat products, and Deepsea Products, Inc.
for seafoods. On the other hand, international suppliers include Wenatchee Marketing
Inc., Tuckerbag, Inc., Leos Fine Foods Co., Ltd. for meat products, Snorre Food for
seafoods, and Raynier Marketing for general supplies. MECS’ suppliers provide quality
products that have passed the hygiene tests conducted periodically by its in-house
microbiologists. MECS does not have existing major supply contracts and is not
dependent on any single raw materials supplier. It uses available local raw materials
whenever possible.
Almost all of MECS' trade revenues are classified as export sales. In 2003, 2004 and
2005, this subsidiary's sales contributions to MacroAsia's consolidated gross operating
revenues were 59%, 63%, and 67%, respectively. MECS’ airline clients include Cathay
Pacific Airways, Singapore Airlines, Saudi Arabia Airlines, Emirates, China Airlines,
Northwest, Qatar, KLM Royal Dutch and Qantas. These airlines contribute over 90% of
MECS' total revenues. Four airline customers contribute more than 40% of MECS’ total
revenues, and the loss of these accounts will adversely affect MECS’ operations. MECS
is also servicing the Northwest Lounge at the NAIA. MECS' estimated share in the NAIA
foreign airlines market was about 49% as of December 31, 2005 (48% in 2004).
5
With a manpower complement of about 207 staff (6 managerial positions, 38 in
administration, and 163 in operations) as of December 31, 2005, MECS is operating at
about 70% of its present capacity and can easily accommodate more airline customers.
Its competitors include Philippine Airlines and Manila International Airport Services
Corporation.
MECS had no research and development activities during each of the last three fiscal
years.
MacroAsia-Menzies Airport Services Corporation (Mac-Menzies) was incorporated
on September 12, 1997 to provide, manage, promote and/or service any and all ground
handling requirements of military and/or commercial aircraft for passengers and cargo.
Mac-Menzies commenced its ground handling operations on April 19, 1999 at the NAIA,
and generates both domestic and export sales. It has a work force of around 185 staff
(166 are in operations, 13 in administration and 6 in managerial positions) as of
December 31, 2005.
On June 15, 1999 the Company originally signed a joint venture agreement with Ogden
Aviation Philippines B.V. (formerly Ogden Water Systems of Muscat B.V.). Ogden
Aviation Philippines B.V. was subsequently acquired by Menzies Aviation Group in 2001.
Mac-Menzies is jointly owned by MacroAsia (70%) and Menzies Aviation Group (30%).
On July 2, 1999, a wholly-owned subsidiary of Mac-Menzies, Airport Specialists'
Services Corporation (ASSC), was incorporated primarily to manage and promote,
service and/or provide manpower support for any and all ground handling requirements
of private, military and/or commercial aircraft. ASSC commenced operations immediately
after its incorporation but had ceased operations in 2001.
Mac-Menzies’ present clients include Thai International Airways, Air Philippines, Pacific
East Asia Cargo, Palau Micronesia Air and United Aviation Services. Thai Airways and
Air Philippines represent more than 50% of Mac-Menzies' present revenues; the loss of
either airline will have an adverse effect on the continuing operations of Mac-Menzies.
This subsidiary contributes an average of 10% of the Group’s total operating revenues
for the years ended December 31, 2005, 2004 and 2003.
Other ground handling companies operating at the Ninoy Aquino International Airport
(NAIA), include Manila International Airport Services Corporation (MIASCOR), Philippine
Airlines (PAL), Philippine Airport Ground Services (PAGS), and DNATA Wings (WINGS).
Through aggressive marketing efforts and competitiveness, Mac-Menzies expects to
further increase its market share at NAIA.
Mac-Menzies is not aware of any existing or probable government regulations that would
have an adverse effect on its business. It had no research and development activities
during the last three fiscal years.
Mac-Menzies’ operations is very much dependent upon its concession agreement with
MIAA which grants the Company the right to operate ground handling services at the
NAIA and/or the Manila Domestic Airport. Mac-Menzies secures such right by yearly
renewal of the agreement and paying the monthly CPF (7% of gross revenue) on time.
6
Lufthansa Technik Philippines, Inc. (LTP) is a joint venture between MacroAsia
Corporation (49%) and Lufthansa Technik AG of Germany (51%). It is the only company
which provides a wide range of aircraft maintenance, repairs and overhaul (MRO)
services at the Ninoy Aquino International Airport in Manila and the Mactan-Cebu
International Airport.
Following the signing of the joint venture agreement on July 12, 2000, and its
subsequent registration with the Philippine Economic Zone Authority (PEZA) as an
economic zone locator on August 30, 2000, LTP started its commercial operations on
September 01, 2000. It generates both domestic and export revenues and enjoys tax
incentives, being a PEZA-registered entity.
LTP also has a concession agreement with MIAA upon which the Company’s business
operations is highly dependent. The agreement grants the Company the right to operate
as a provider of aircraft MRO at the NAIA 1 and 2. LTP secures such right by yearly
renewal of the agreement and paying the monthly CPF (7% of gross revenue) on time.
LTP is currently providing aircraft maintenance, repair and overhaul services from its
facility in NAIA to Philippine Airlines, Lufthansa Airlines, Singapore Airlines and other
international airlines. It also provides technical ground handling services to Air Niugini,
China Airlines, Egypt Air, Eva Air, KLM Royal Dutch, Korean Air, Malaysia Airlines, Silk
Air, Singapore Airlines and Cathay Pacific Airways.
Aviation authorities/agencies of the respective countries of origin of the airline clients
issue licenses/certificates to LTP for the latter’s accreditation to provide MRO to the
airlines’ aircraft. The extent of LTP’s work/services largely depend on these
certifications, which describe/specify that LTP’s services be carried out in accordance
with the respective countries’ aviation regulations. These certifications are renewed
either annually or every two years .
The number of personnel went up to 2,374 as of December 31, 2005 (1,518 in
production and 856 as support personnel) from last year’s 2,332 employees.
As previously discussed, more than 11% of MAC’s total revenues is provided by its
share in the net income of its associated companies. An average of 94% of the MAC
share in the net income of associated companies comes from LTP.
As an ecozone locator, LTP has a 25-year lease contract with MacroAsia Properties
Development Corporation. It also has a long-term technical services agreement with
Philippine Airlines and Lufthansa Technik AG of Germany. Philippine Airlines accounts
for more than 20% of LTP's present business; the loss of the account may have a
significant impact on LTP's operations.
LTP is not aware of any existing or probable government regulations that would have an
adverse impact on its on-going business. It had no research and development activities
during the last three fiscal years.
SembLog-MacroAsia Philippines, Inc. (SMP) is a new joint venture of MacroAsia
Corporation (49%) with Sembcorp Logistics Ltd. (SembLog) (51%), Asia’s leading supply
chain logistics company listed in the Singapore Exchange. SMP was incorporated on
October 18, 2005, whose primary purpose is to provide within the Philippines, supply
chain management, packing, sourcing, processing and/or assembling of products and
7
logistics related consultancy services.
however, has not started operations yet.
As of December 31, 2005, the Company,
SMP will operate in the logistics industry which is quite a fragmented market. It is
characterized by various specialized company supporting the line of supply chain. They
may include import/export agents, freight forwarders, warehouse operators, local
trucking, distributor, air liners, shipping lines and the like. The company will compete
based on regional network, service and technology. The Company’s key competitors are
international and large leading local logistics providers, like UPS-Delbros, FedEx, Aspac
Worldwide Logistics, Inc. (AWLI), and R.V. MARZAN among others. While most of these
companies focus on one to two types of logistic services, SMP on the other hand, will
function as a basic one-stop third-party logistics (3PL) service provider with a strong
Asian network, giving it a very competitive advantage.
The Company has not yet engaged any suppliers. These suppliers are expected to be
warehouse owners, trucking companies, import/export agents, etc. SMP does not have
any other significant agreements or patents, copyrights, licenses, franchises,
concessions, or royalty agreement. Research and development is conducted by the
Singapore shareholder.
SMP is not aware of any existing or probable government regulations that would have an
adverse impact on its business operations in the future.
The Company expects it to be fully operational over the next 12 months. There may be
investments in equipment such as forklift and warehouse rackings. Depending on the
business development, SMP may initially hire 33 employees (6 in managerial positions
and 27 in operations).
Major risks involved
The businesses of the Company are aviation-support oriented. Some of the major risks
that would have a significant impact on the Company’s operations are acts of terrorism
and peace and order situation. Past events have had almost crippling effects on the
aviation industry which the Company supports.
Periodic strategic planning sessions with top management are being held to identify,
assess and formulate related contingency plans to at least minimize the adverse impacts
of the risks on the Company’s operations.
Transactions with and/or Dependence on Related Parties
Please see Note 15 under the Company’s Consolidated Notes to Financial Statements
(p. 70 to 71)
Significant Agreements and Commitments
Please see Note 27 under the Company’s Consolidated Notes to Financial Statements
(p. 80 to 83)
8
Other Information
No bankruptcy, receivership or similar proceedings have been instituted against
MacroAsia Corporation and its subsidiaries or associates. Furthermore, no
material reclassification, merger, consolidation, or purchase or sale of a
significant amount of assets not in the ordinary course of business has taken
place.
The total number of employees of MacroAsia Corporation, its subsidiaries and
associates as of December 31, 2005 remained at the same level in 2004, which is
about 2,800.
The Company provides health/medical insurance/benefits to its employees
through an independent Health Maintenance Organization (HMO).
None of the Company, its subsidiaries and associated companies is subject to
any Collective Bargaining Agreement (CBA). And there has been no strike, nor
any attempt of protest against the Company, its subsidiaries and associated
companies during the past three years.
MacroAsia Corporation or any of its subsidiaries has not issued any short term or
long term commercial papers to date.
The average annual cost of compliance to environmental laws for the last three
years was below P150,000.
Item 2. – PROPERTIES
MacroAsia Corporation (MAC) owns an Ecureuil AS 350-BA five passenger helicopter
as of December 31, 2005. It has a rental agreement with MacroAsia Air Taxi Services,
Inc. (a wholly owned subsidiary) at a monthly lease payment of P44,000 (fixed) plus
P5,236/revenue flying hour, for the use of the aircraft for a period of six (6) months,
renewable thereafter for periods of six (6) months at the option of the parties.
In 1996, the Company entered into a concession agreement with MIAA to exclusively
operate an in-flight catering service for civil and/or military aircraft operating at the NAIA
and/or the Manila Domestic Airport. The concession agreement is for a period of five (5)
years from the start of operations of the catering service, renewable every year
thereafter upon mutual agreement of the parties. Subsequent to this, MacroAsia entered
into a lease agreement with MIAA for the use of a parcel of land where its catering
concession facilities will be constructed. The lease contract is for a period of 10 years
starting six (6) months after the start of the construction of the facilities, renewable every
five (5) years thereafter. MAC has assigned all rights and obligations under this
concession agreement to MacroAsia Eurest Catering Services Inc. (MECS), one of its
subsidiary companies. In consideration for the concession privilege, MECS pays MIAA
a monthly concession privilege fee in the amount equivalent to 7% of MECS’ monthly
gross income on catering services.
9
MacroAsia Properties Development Corporation (MAPDC), a wholly owned
subsidiary of MacroAsia Corporation, owns five parcels of land with a total area of 7,912
square meters, located at East Service Road, Sucat, Muntinlupa, Metro Manila. These
properties which were acquired in 1996 for future development were used as collateral
for the loans of MECS, an associated company.
On September 01, 2000, MAPDC executed a 25-year lease agreement with the Manila
International Airport Authority covering a 23-hectare area located at NAIA at a monthly
lease payment of P56.01 per square meter. With the full support of the Philippine
Economic Zone Authority, MAPDC has transformed the area into an Economic Zone,
and has signed a 25-year lease agreement with Lufthansa Technik Philippines, Inc., its
anchor locator.
MacroAsia Eurest Catering Services, Inc. (MECS), by way of assignment from MAC,
acquired a ten (10) year lease on a 2-hectare lot at the Ninoy Aquino International
Airport which is renewable every five years thereafter at the parties’ option. MECS has a
license and technical assistance agreement with Eurest Spain, a related party. In the
agreement, MECS was granted an exclusive right to use the mark and system of Eurest
which shall also render to MECS technical assistance in establishing and operating its
catering business. MECS also has a commercial marketing assistance agreement with
SATS wherein SATS will market the services of MECS to foreign airlines. As
remuneration, MECS is to pay Eurest Spain and SATS a total fee based on sales and
earnings before depreciation, interest and taxes.
MacroAsia-Menzies Airport Services Corporation (Mac-Menzies) entered a lease
contract with Philippine Airlines, Inc. in November 1998 covering the lease of airline
ground handling equipment at a monthly payment of P468,460. The lease was originally
for one (1) year renewable upon mutual written agreement on a year-to-year basis.
In 2004, however, subject ground handling equipment were eventually purchased by
Mac-Menzies from Philippine Airlines.
Item 3. – LEGAL PROCEEDINGS
Blue Ridge Mining Corporation (Blue Ridge) and Celestial Nickel Mining Exploration
Corporation (Celestial) filed a case against the Company with the office of the Mines and
Geosciences Bureau (MGB) in December 1995 and Regional Panel of Arbitrators of the
Department of Environment and Natural Resources (DENR) in February 1997,
respectively, involving the cancellation of the Company’s mining lease contracts. The
cases have been consolidated into a single case.
On November 26, 2004, the Mines Adjudication Board (MAB) ruled in favor of MAC on
the separate Petitions for Cancellation of MAC’s mining lease contracts filed by Blue
Ridge and Celestial. The decision vacated the previous ruling of the MAB in canceling
MAC’s mining leases and granting preferential rights to Blue Ridge and Celestial,
respectively. MAB resolved that the preferential rights of the Company on mining
privilege are still subsisting unless the same are revoked or cancelled by the Secretary
of the DENR.
10
Blue Ridge filed a Motion for Reconsideration with the MAB, while Celestial filed an
appeal before the Court of Appeals (CA). The MAB and CA, however, denied the said
motion and appeal. Consequently, BlueRidge filed a Petition for Review before the CA
on September 19, 2005, while, Celestial, filed for a Review on Certiorari before the
Supreme Court (SC) on September 17, 2005.
On April 25, 2005, the Company received a copy of the decision of the CA affirming the
November 26, 2004 decision of MAB. A Motion for Reconsideration was filed by
Celestial but the same was denied by the CA. Celestial filed for a Petition for Review on
Certiorari before the SC. On September 19, 2005, Blue Ridge filed a Petition for Review
before the CA. On February 20, 2006, Celestial filed a Motion for Issuance of Temporary
Restraining Order/Preliminary Prohibitory Injunction/Mandatory Injunction before the SC.
As of March 30, 2006, the SC has yet to rule on the Petition for Review on Certiorari of
Celestial and the CA has yet to rule on the Petition for Review filed by Blue Ridge. In
both cases, considering what have been decided upon by the courts and DENR, the
Company’s rights to the mining area may likely be affirmed by the higher courts.
On March 28, 2006, the Company received the Mineral Production Sharing Agreement
(MPSA) from the Mines and Geosciences Bureau of the DENR. The MPSA covers
1,114 hectares of land situated in Brooke’s Point, Palawan.
Under the MPSA, the Company shall have the exclusive right to conduct mining
operations within, but not title over, the contracted area. Mining operations that are
allowed include exploration, development and utilization for commercial purposes of
nickel, chromite, iron and other associated mineral deposits that may be found in the
area.
The MPSA runs for a term not exceeding twenty-five (25) years from the date of the
grant of the MPSA, and is renewable for another term not exceeding 25 years under the
same terms and conditions, without prejudice to changes that will be mutually agreed
upon by the Government and the Company.
Item 4. – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no matter was
submitted to the vote of security holders of the Corporation.
PART II – OPERATIONAL AND FINANCIAL OPERATION
Item 5. – Market for Issuer’s Common Equity and Related Stockholder Matters
MacroAsia Corporation’s common shares are listed and traded at the Philippine Stock
Exchange and the approximate number of holders of its common equity as of December
31, 2005 is 977.
11
There were no unregistered securities sold by the registrant for the past three (3) years.
The high and low prices of the Company's share during 2005 and 2004 are as follows:
2005
High
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
P
2004
2.75
2.00
1.92
1.78
Low
P
High
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
P
As of April 17, 2006
0.61
0.70
1.82
3.30
2.00
1.68
1.68
1.44
Low
P
1.84
0.45
0.43
0.62
1.30
1.80
The top 20 stockholders of MacroAsia Corporation as of December 31, 2005 are:
Name
No. of Shares
% of
Held
Total
1
PCD Nominee Corporation (Filipino)
207,142,464
16.57
2
Fortune Tobacco Corporation
88,000,000
7.04
3
Asia Brewery, Inc.
88,000,000
7.04
4
5
Baguio Gold Holdings Corporation
Luy, Jr., Enrique
88,000,000
67,610,000
7.04
5.41
6
Solar Holdings Corporation
59,000,000
4.72
7
PCD Nominee Corporation (Non-Filipino)
50,761,088
4.06
8
Himmel Industries, Inc.
50,000,000
4.00
9
Foremost Farms, Inc.
50,000,000
4.00
10
Grandspan Development Corp.
50,000,000
4.00
11
Profound Holdings, Inc.
47,500,000
3.80
12
Pioneer Holdings Equities, Inc.
47,405,000
3.79
13
Basic Holdings Corp.
47,370,000
3.79
14
15
16
17
18
19
20
Safeway Holdings & Equities Inc.
JNJ Realty Philippine Corp.
Pan-Asia Securities Corp.
SyCip, Washington Z.
Gem Holdings, Inc.
Palomino Ventures, Inc.
Wonderoad Corporation
46,500,000
46,246,940
45,905,250
41,545,250
31,750,000
28,900,000
12,500,000
3.72
3.70
3.67
3.32
2.54
2.31
1.00
12
Dividends
The general dividend policy of MacroAsia is governed by the By-Laws of the Company which
provides that dividends upon the capital stock of the Company may be declared by the Board of
Directors in the manner and form provided by law, after deducting from the net profit of the
Company any approved bonuses to the members of the Board of Directors in an amount not
exceeding five percent (5%) of the Company's net profit before tax and the expenses of
administration. In each case, no dividend declaration shall be made by the Company which
would impair its capital.
Dividends shall not be declared if there are major investments/projects which the Company and
its subsidiaries and associated companies anticipate in the near future.
The Company declared cash dividends of P0.02 per share during its annual general meeting
last July 15, 2005. Said cash dividends were paid on or before August 24, 2005 to shareholders
of record as of July 29, 2005.
Item 6. – Management Discussion and Analysis or Plan of Operation
Overview
In 2005, MacroAsia Corporation (MAC) carried on its operations through its four (4)
subsidiaries and two (2) associated companies.
MAC operates an in-flight kitchen at the Ninoy Aquino International Airport through
MacroAsia-Eurest Catering Services, Inc. (67%-owned) and another similar kitchen at the
Mactan-Cebu International Airport (MCIA) through Cebu Pacific Catering Services, Inc.
(40%-owned). These two (2) kitchens service the in-flight catering needs of most
international airlines flying out of Manila and Cebu. MAC’s aircraft ground-handling
operations at NAIA are carried out by its 70%-owned subsidiary, MacroAsia-Menzies
Airport Services Corporation. Lufthansa Technik Philippines (LTP) which is a joint venture
with Lufthansa Technik AG Germany, provides world-class aircraft maintenance, repair and
overhaul (MRO) services at both NAIA and MCIA.
MAC also operates an economic zone at NAIA through its 100%-owned subsidiary,
MacroAsia
Properties
Development
Corporation
(MAPDC),
the
registered
developer/operator of the economic zone. Through another 100%-owned subsidiary,
MacroAsia Air Taxi Services, Inc. (MAATS), MAC provides aircraft charter services from its
base at the Manila Domestic Airport.
Passenger loads and flight frequencies of airlines are the two most important factors that
affect the revenue levels of the Company’s operating units.
There have been no significant elements of income or loss that did not arise from the
Company’s continuing normal operations.
The Group is not aware of any future event that will cause a material change in the
relationship between costs and revenues.
13
The Company is not aware of any event that will trigger direct or contingent financial
obligation that is material to the Company, including any default or acceleration of an
obligation.
There are 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.
2005 Compared with 2004
The Company continues to grow, as 2005’s net income rose to P124.40 million, an 18%
jump over last year’s P105.34 million. The significant increase is credited mainly to higher
revenues from in-flight catering services and equity in net income of associated companies.
Despite the stiff competition, revenue from catering services went up by P91.85 million (or
20%) due principally to higher number of flights serviced, and therefore, higher number of
meals served. The Company’s share in net income of its associates grew by P42.38
million (or 55%) primarily because of the increase in the revenues of Lufthansa Technik
Philippines (LTP), particularly from aircraft overhaul services to airline customers.
Revenue from rental and administrative fees was at the same level of P184.50 million
because it is accounted for on a straight-line basis over the lease term, in compliance with
Philippine Accounting Standards (PAS) 17. Ground handling revenues was slightly up by
P0.76 million (or 1%) due to increased number of (non-routine) flights serviced. However,
charter flight revenues had a significant decline of P5.59 million (or 45%) compared to last
year’s P12.40 million due mainly to the decrease in the number of charter flights serviced. It
should be noted though, that there was a national elections held during the previous year
which resulted to a higher number of clients and revenue flights. Nevertheless, the Group
still posted a 12% (or P87.02 million) increase in combined revenues for the full year 2005
over last year’s P722.36 million.
Except for energy and fuel, the company was able to manage all other direct costs, selling
and general & administrative expenses quite well, thus, direct cost and expenses in relation
to revenues were maintained at 75% and 22% level, respectively. Year-on-year though,
direct costs of P608.13 million increased by P63.68 million (or 12%) due mainly to the
continuous rise in energy and fuel prices, increases in raw materials costs, direct labor and
subcontract costs. Selling and general & administrative expenses of P182.62 million was
also up by P21.63 million (or 13%) due principally to higher salaries and wages, repairs &
maintenance of kitchen equipment, provision for doubtful accounts, professional and legal
fees, and expenses incurred for new and prospective businesses.
The Company incurred a net foreign exchange loss of P13.31 million as compared to a net
gain of P0.66 million in year 2004 as a result of lower Peso exchange rate against the US
dollar (i.e., collection of dollar denominated receivables was settled at a lower peso
conversion rate compared to the booking rate previously used). From P3.79 million last
year, interest expense declined by P2.64 million (or 70%) due to lower loan balances and
lower interest rates. Interest income of P5.47 million, however, was higher by P1.86 million
(or 52%) year-on-year, due to higher cash balance and interest rates during the year.
Other income fell by P8.10 million (or 50%) mainly because there was a P14 million
adjustment of rental payable last year.
14
Equity in net income of associates represents MacroAsia Corporation’s (MAC) share in the
net income/(loss) of its affiliate/associated companies. Changes in shares from period to
period are dependent upon the results of the operations of the affiliates.
Provision for income tax of P12.61 million increased by P7.47 million (or 145%) year-onyear due primarily to higher taxable net income of the operating subsidiaries.
The Group’s thrust on expanding its revenue portfolio and implementing effective cost
saving strategies resulted to a 20% (or P19.05 million) increase in total consolidated net
income attributable to equity holders of the parent, from previous year’s P99.59 million to
P119.06 million in 2005.
As of December 31, 2005, total consolidated assets was higher by P136.32 million (or 6%)
compared to its level as of 2004 yearend due principally to the increases in cash and cash
equivalents, investments in associated companies and other current assets.
Cash and cash equivalents of P200.96 million grew by P19.35 million (or 11%) due
principally to cash dividends received from associated companies, namely, CPCS and LTP,
and the increase in meal volumes from the catering business.
Receivables (net) and inventories were slightly higher by P6.39 million (or 4%) and by
P0.42 million (or 2%), respectively, principally because of additional airline clients serviced
and the resulting increase in raw materials requirements, respectively, of the Company’s
catering business, vis-à-vis the increase in meal uplift volumes.
Other current assets consists of unused input taxes, creditable withholding taxes, office
supplies and prepaid insurance coverages for the building, equipment and the staff. From
P64.09 million, total other current assets went up by P18.42 million (or 29%) due mainly to
additional tax credit certificates and input taxes.
The Company had a better current ratio of 3:1 as of December 31, 2005 compared to
2.74:1 as of December 31, 2004.
Investments in associates of P1.13 billion rose by P112.21 million to P1.24 billion, or a 10%
increase over 2004’s yearend balance, due significantly to the net effect of the Company’s
P119.33 million incremental share in the net income of associates, receipt of cash
dividends and the recent P5.51 million cash investment in SembLog-MacroAsia, a new joint
venture company with Sembcorp Logistics Ltd., a company listed in the Singapore Stock
Exchange.
Property and equipment of P337.51 million decreased by P33.12 million (or 9%) primarily
due to depreciation. On the other hand, accrued rental receivable and payable of P79.01
million increased by P12.85 million (or 19%) due primarily to additional accrual of rental
income and expense in compliance with PAS 17, which requires the recognition of rentals
on a straight-line basis (average) over the lease term. Deferred tax assets also increased
by P1.72 million (or 26%) mainly because of higher future deductible losses and unrealized
foreign exchange losses.
15
MacroAsia Properties Development Corporation (MAPDC), a wholly-owned subsidiary, has
a refundable noninterest-bearing deposit amounting to P
= 24.59 million related to its lease
contract with Manila International Airport Authority (MIAA), (please see Note 27 of the
Notes to Consolidated Financial Statements) and, on the other hand, a refundable deposit
payable of the same amount related to its sublease contract with LTP.
Upon adoption of PAS 39 on January 1, 2005, MAPDC revalued and reported the deposits
at their present value of P
= 1.03 million, as such, deposits and other noncurrent assets
decreased by P21 million (or 33%). Consequently, rental deposit (refundable to LTP) also
decreased by P23.55 million (or 96%). As of December 31, 2005, the related unearned
rent income and deferred rent expense amounted to P19.07 million. The 2004 balances
were not restated because the Group availed of the exemption under Philippine Financial
Reporting Standards (PFRS) 1 and charged the effect of adopting PAS 32 and PAS 39, the
standards on financial instruments, to retained earnings as of January 1, 2005.
Notes payable of P45 million was obtained by one of the operating subsidiaries during the
month of May to partially settle its outstanding loans/advances from its shareholders. With
a committed monthly amortization of P2.5 million, year-end balance stood at P27.50 million.
Accounts payable and accrued liabilities, as well as total loans from and payables to
subsidiaries’ stockholders had a considerable decline of P25.33 million (or 17%) and
P10.07 million (or 34%), respectively, due to the sustained account settlements by the
operating subsidiaries. Income tax payable also dropped by P0.34 million (or 28%) due to
the application of available creditable withholding taxes.
Accrued retirement benefits costs of P6.36 million was higher by P0.68 million (or 12%) due
to incremental accruals of expense for the year, based on the results of the actuarial
valuation. Deferred tax liability was lower by P0.084 million (or 27%) due to lower
unrealized foreign exchange gain.
The Company’s P50 million warrants were not exercised by the shareholders and had
already expired last July 21, 2005. Thus, the total amount was reclassified to additional
paid-in capital resulting to a new balance of P281 million as of the end of 2005.
The Company’s share in cumulative translation adjustment of joint venture LTP amounting
to P30.86 million was lesser by P26.98 million (or 47%) due to lower foreign currency
translation adjustments of the said joint venture.
Minority interest represents the 20% equity share of Singapore Airport Terminal Services
and the 13% equity share of Eurest International B.V. in Macroasia-Eurest Catering
Services, Inc.; and the 30% equity participation of Menzies Aviation Group in MacroAsiaMenzies Airport Services Corporation. Changes in Minority Interest are a factor of the
results of operations of the joint - venture companies concerned.
Year-on-year, debt-to-equity ratio remained at 0.14:1. Book values per share as of
December 31, 2005 and 2004 were P1.63 and P1.52, respectively.
16
2004 Compared with 2003
2004 was a progressive year for MacroAsia as total group revenues rose to P722.36
million, a 13% increase over the previous year’s P639.32 million. This was greatly
attributed to MECS’ improved performance as meal revenues reached P452.92 million, a
20% increase compared to 2003’s P377.81 million. Charter flights also had its share as it
showed a revenue growth of more than 100% from P5.65 million last year to P12.40 million.
Ground handling revenues grew by P1.18 million (or 2%) from last year’s P71.36 million.
Additional airline clients secured during the third quarter of 2003 and last quarter of 2004,
and the increase in the number of flights serviced and meals served, brought about a
significant upswing in revenue from catering services; increased number of helicopter
flights related to the national elections in May 2004 resulted to higher charter flight
revenues; while ground handling revenues increased as new clients came in during the
third quarter of 2004.
The decrease of P9.54 million (or 6%) in total selling and general & administrative
expenses (from P170.53 million to P160.90 million) resulted from the Group’s continuing
effort to reduce costs and expenses; while total direct costs and total selling &
administrative expenses in relation to operating revenues decreased by 5% (from 103% of
revenues to 98% of revenues) due mainly to the increase in total gross operating revenues.
However, other income (net of other charges) of P93.57 million decreased by P7.27 million
(or 7%) compared to its total at the end of 2003, due principally to the P9.35 million (or
11%) decrease in the equity in net income of associated companies, and lower net foreign
exchange gain (down by P11.60 million or 95%) due to lower US dollar position and a more
stable Philippine peso versus the US dollar.
Lower interest rates during the year precluded the Company from generating higher
interest earnings, thus, interest income was lower by P4.54 million (or 56%) year-on-year.
Interest expense was lower by P3 million (or 44%) as against last year’s total because of
lower rates on borrowings. These decreases were partially offset by the P15 million (or
more than 16x) increase in miscellaneous income mainly because of the P14 million
adjustment of rental payable in the books of Mac-Menzies.
Equity in net income of associates represents MacroAsia Corporation’s share in the net
income/(loss) of its affiliate/associated companies. Changes in shares from period to
period are dependent upon the results of the operations of the affiliates.
With the foregoing, net income before income tax of P110.48 million was higher by 32%
compared last year. Consequently, provision for income tax of P5.14 million increased by
more than 2x over last year.
2004 consolidated net income attributable to equity holders of the parent of P99.60 million
was 14% higher than 2003’s P87.04 million (as restated) due mainly to the increase in
revenues and decreases in total costs and expenses.
The Group’s total consolidated assets of P2.18 billion as of December 31, 2004 went up by
P141.87 million, a 7% increase compared to the previous year’s ending balance (as
restated). This increase is attributable to the increases in investments in associates which
was higher by P106.61 million (or 10%) due mainly to the Company’s share in their net
income; consolidated cash and cash equivalents of P181.61 million which considerably
17
grew by P44.86 million (or 33%) due principally to higher sales volume, collection of the
subsidiaries’ trade receivables, and receipt of P4.8 million cash dividends from CPCS, an
associated company; and the increase in accrued rental receivable of P15.27 million (or
30%) due to the application of PAS 17, as discussed earlier.
Additional clients serviced and increases in meal volumes resulted to a higher receivables
as of 2004 yearend, from P146.32 million to P154.82 million (increased by P8.5 million or
6%). Inventories of P23.62 million as of December 31, 2004 increased by P1.71 million (or
8%) compared to its yearend balance in 2003 primarily due to higher raw materials
requirements in relation to higher catering sales volume. On the other hand, other current
assets of P64.10 million declined by P10.66 million (or 14%) mainly because of MECS’ sale
of tax credit certificates to a third party company.
The Group still maintained a respectable liquidity position as current ratio as of December
31, 2004 was at 2.74:1 (2.72:1 as of December 31, 2003).
Property and equipment (net of depreciation) as of December 31, 2004 was lower by
P26.18 million (or 7%) from 2003 yearend balance of P396.80 million, primarily because of
depreciation. While deferred tax assets of P6.70 million increased by P0.97 million (or
17%) over last year’s balance, because of the increases in deductible temporary
differences (e.g., allowance for probable losses). Deposits and other noncurrent assets
was higher by P0.78 million (or 1%) due mainly to higher deferred mine exploration costs.
Although consolidated provision for income tax for 2004 increased, income tax payable of
P1.20 million was lower by 9% due essentially to higher creditable taxes available for
application against income taxes due. The balance of notes payable of P 14.25 million in
2003 was fully settled in 2004. Total loans from and payables to subsidiaries’ stockholders
continue their declines (down by P28.04 million or 48%) due to the sustained account
settlements by the operating subsidiaries.
However, accounts payable and accrued liabilities of P146.28 million increased by P29.28
million (or 25%) due principally to higher raw materials purchases in relation to higher sales
volume. Accrued rental payable of P66.16 million was also higher by P15.27 million (or
30%) as a result of the application of PAS 17, as discussed earlier. On the contrary,
accrued retirement benefits costs of P5.68 million (as restated) considerably declined by
48% (or P5.19 million) due to the application of PAS 19, Employee Benefits (please see
Note 3 on the Notes to Consolidated Financial Statements).
Minority interest represents the 20% equity share of SATS and the 13% equity share of
Eurest International B.V. in MacroAsia-Eurest Catering Services, Inc.; and the 30% equity
participation of Menzies Aviation Group in MacroAsia-Menzies Airport Services
Corporation. Changes in Minority Interest are a factor of the results of operations of the
joint - venture companies concerned.
Cumulative translation adjustment in the equity section of the balance sheets represents
the Company’s share in Lufthansa Technik’s foreign currency translation adjustments.
As of December 31, 2004, debt-to-equity ratio of 0.15:1 slightly improved from last year’s
ratio of 0.16:1. Book values per share as of December 31, 2004 and 2003 were P1.52 and
P1.40, respectively.
18
2005 Compared with 2006 Projection
With the current growth trend in the country’s economy together with the aggressive
promotion of Philippine tourism, the Group projects a 9% increase in total revenues in 2006
compared to the current year, coming mainly from the airline catering business, as well as
from the ground handling activities on account of the anticipated increases in in-flight meal
uplifts from existing and new airline clients, and expected additional ground handling airline
client. The Company will continue to push for a more effective cost control to further
maximize profits without sacrificing the quality of the products and services the Company
provides. A 3% reduction in the total cost and expenses (in relation to total operating
revenues) is expected to be achieved in 2006.
Looking forward, the Group expects to attain in 2006 a net income in excess of P135
million, or a 10% growth which is projected to be generated primarily from the operations of
the subsidiaries/affiliates/associates.
The MacroAsia Group hopes to surpass its
performance during the current year through effective management of operations and
marketing strategies.
Key Performance Indicators (KPI)
Company
Return on Net
Sales
Return on
Investment
Return on Equity
Cost Ratio
Expense Ratio
2005
2004
2005
2004
2005
2004
2005
2004
2005
2004
Consolidated
15%
14%
6%
5%
6%
5%
75%
75%
22%
22%
MECS
4%
1%
5%
1%
17%
4%
66%
67%
22%
24%
MAPDC
3%
4%
3%
26%
4%
26%
94%
95%
2%
2%
MASCORP
-9%
20%
-11%
40%
-11%
40%
92%
84%
16%
17%
MAATS
2%
24%
1%
20%
1%
20%
79%
57%
21%
13%
1. Return on Net Sales (RNS)
RNS is the ratio of the Company’s net income attributable to equity holders of the
parent to net sales computed by dividing net income attributable to equity holders of
the parent by the total net revenues. This ratio measures the amount of income, after
all costs and expenses, including taxes are deducted, for every peso of net revenue
earned.
The Company achieved its targeted consolidated RNS for 2005, and was even higher
by 1% compared to 2004 due mainly to higher revenues and controlled costs and
expenses.
2. Return on Investment (ROI)
ROI is the ratio of the Company’s net income attributable to equity holders of the
parent to interest bearing liabilities and total equity attributable to equity holders of the
parent. This ratio is computed by dividing net income attributable to equity holders of
the parent by the sum of total interest-bearing liabilities plus equity attributable to
equity holders of the parent. This ratio measures the amount of income earned on
invested capital.
19
The Group was also able to attain its projected ROI for 2005, and was also higher than
2004 due primarily to higher earnings.
3. Return on Equity (ROE)
ROE is the ratio of the Company’s net income attributable to equity holders of the
parent to total equity attributable to equity holders of the parent, computed by dividing
net income attributable to equity holders of the parent by the equity attributable to
equity holders of the parent. This KPI is a measure of the owners’ return for every
peso of invested equity.
Actual ROE for 2005 was lower than budget by 1% due mainly to higher equity
attributable to equity holders of the parent. 2005 ROE, however, was higher than 2004
principally because of higher earnings.
4. Cost and Expense Ratio
Cost ratio is computed by dividing total cost over total net revenues, while the sum of
selling and general & administrative expenses is divided by total net revenues to arrive
at expense ratio. This ratio measures the average rate of direct costs and expense on
products/services sold.
2005 and 2004 cost and expense ratio was at the same level of 75% and 22%
respectively, due primarily to higher earnings in 2005 than 2004 and controlled costs
and expenses. Actual cost and expense ratio for 2005, however, was off by 6%
compared to budget due mainly to lower revenues and higher costs and expenses
incurred.
Plans and Prospects
With the recent favorable decision of the Mines Adjudication Board of the Dept. of
Environment and Natural Resources regarding its mining cases, the Company is
now seriously looking into the revival of its nickel mining project in Palawan soon.
MacroAsia Corporation is now in the process of looking for interested global players
in the nickel mining industry for a possible business development venture.
And still, MacroAsia Corporation, its subsidiaries and affiliates will continue to build
on their existing core businesses and pursue new viable opportunities. On-going
aggressive marketing efforts for existing business and cost-cutting programs will be
sustained for the next twelve (12) months to improve both consolidated revenues
and net earnings. MacroAsia shall always look for potential global partners for the
development of other aviation-related businesses and support services, such as the
development of an aviation training center and cargo handling/warehousing facilities
among others.
MacroAsia and its subsidiaries expect to maintain a respectable liquidity position
and to raise additional funds only if new major projects being pursued materialize.
MacroAsia or any of its subsidiaries and affiliates does not expect to buy or sell any
significant assets (plant or equipment).
20
The total number of employees, however, is expected to slightly increase within the
next 12 months as a result of the projected expansion of existing operations and the
forthcoming operations of SMP.
Due to the nature of the Company’s operations, no product research and
development activities are anticipated during the next 12 months. However, more
employees, particularly Filipino aircraft engineers and mechanics will continue to
undergo specialized training and development in Germany and other locations
overseas.
Item 7. – Financial Statements
The consolidated financial statements are filed as part of this Form 17-A (pp. 36-85)
Item 8. – Information on Independent Accountant and Other Related Matters
(1)
External Audit Fees and Services
2005
Regular annual audit of financial statements
P
P
1,616,409
-
115,500
Tax fees 2
-
114,682
98,700
112,476
Total
2
1,733,390
Other assurance and related services 1
Others (out-of-pocket)
1
2004
P
1,832,090 P
1,959,067
Fee for manpower assistance/special audit
Fee for tax compliance review
Audit Committee’s Approval Policies for the Services of External Auditor :
All services to be rendered and fees to be charged by the external auditors are presented to and
pre-approved by the Audit Committee. An audit planning meeting is conducted at least one
month before the actual performance of work. The meeting includes discussion of the following :
a.
b.
c.
d.
client service team
scope of audit work
updates for management
possible risk areas and suggested Management action plans to strengthen internal
controls
e. coordination with the audit of subsidiaries and associates
f. audit workplan and critical dates
g. expectations setting
21
(2)
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Partner-in-charge, Ms. Josephine H. Estomo of SGV & Co. handled the financial audits for the
years ended December 31, 2005 and 2004. She took over Ms. Cynthia A. Manlapig of the
same auditing firm. The change was made in compliance with SEC Memorandum Circular No.
8 – Rotation of External Auditors/Partners-in-Charge. There were no other changes in nor
disagreements with accountants during the last three fiscal years or any subsequent interim
period.
PART III - CONTROL AND COMPENSATION INFORMATION
Item 9. – DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER
Directors:
Name/Position/
Citizenship
Term as
Age Director
Period Served
as Director
Business Experience
for the Past 5 Years
Washington Z. SyCip
(Chairman of the Board;
Chairman – Nomination
Committee)
(American)
84
1 yr.
Since August,
1997
He is the Chairman of the Board of Lufthansa
Technik Philippines, Inc. and the Board of
Trustees and Governors of the Asian Institute
of Management (Phils.). He is also a Member
of the International Advisory Board of the
American International Group (New York). For
more than five years, he’s been a Director of
Philippine Airlines (PAL), Belle Corporation,
PHINMA, State Land Group, Cityland
Development, Benpres Holdings Corp., PNB
and Solid Group, Inc. among others.
Joseph T. Chua
(President/Chief Executive
Officer; Member –
Compensation Committee)
(Filipino)
49
1 yr.
Since August,
1997
He is the Chairman of MacroAsia Properties
Development Corp., MacroAsia Mining Corp.,
and J.F. Rubber Phils.; the President of
MacroAsia-Eurest Catering Services, Inc.,
MacroAsia-Menzies Airport Services Corp.,
MacroAsia Air Taxi Services, Inc., and
SembLog-MacroAsia Phils. He also serves as
a Director of PAL (since August 2003), and the
Managing Director of Goodwind Development
Corp., among others.
Mariano Tanenglian
(Vice Chairman; Member –
Nomination Committee)
(Filipino)
66
1 yr.
Since August,
1997
He is presently the Vice Chairman of PAL, and
Tanduay Holdings Inc. He also serves as
Director of Allied Bankers Insurance Corp., and
Allied Leasing & Finance Corp. He is also the
Treasurer of Allied Banking Corp., Asia
Brewery, Basic Holdings Corp., Fortune
Tobacco
Corporation,
Charter
House,
Grandspan Dev. Corp., Tanduay Distillers Inc.,
and Himmel Industries.
22
Lucio K. Tan, Jr.
(Director)
(Filipino)
39
1 yr.
Since August,
1997
He is currently the Executive Vice President of
Fortune Tobacco Corporation, and Foremost
Farms, Inc. He is also the Chief Executive
Officer of Tanduay Distillers, Inc., and a
Member of the Board of Advisors of Philippine
Airlines.
Jaime J. Bautista
(Treasurer;
Member – Audit
Committee; Member –
Compensation Committee)
(Filipino)
48
1 yr.
Since August,
1997
He is presently the President and COO of PAL,
Chairman and President of Basic Capital
Investments Corp. and President of Cube
Factor Holdings, Inc. He is also the Vice
Chairman of the Board of Trustees of the
University of the East. He serves as a Director
of MacroAsia-Eurest Catering Services and
MacroAsia Menzies Airport Services Corp. He
was the President and CEO of Air Philippines
and President of PNB Forex Inc.
George SyCip
(Director)
(American)
49
1 yr.
Since July,
1996
He is the Chairman of the Board of MacroAsiaEurest Catering Services, Inc. and serves as a
Director of: Beneficial PNB Life Insurance
Company, SembLog-MacroAsia Philippines,
and FMF Development Corporation. He
previously worked in Crocker Bank, Sun Hung
Kai Securities, American Express International
and International Banking Corporation.
Hans T. Sy
(Independent Director;
Chairman – Compensation
& Audit Committee;
Member – Nomination
Committee)
(Filipino)
51
1 yr.
Since July,
1999
He is currently the Chairman of Family
Entertainment Center, Inc., Wonderfoods, Inc.,
Linde Refrigeration Phils., Inc., and President
of Shopping Ctr. Management Corp. and SM
Prime Holdings, Inc. He is the Vice Chairman
of Belle Corp. and China Banking Corp. He
also serves as Director of SM Development
Corp., and Supervalue, Inc., among others.
Stewart C. Lim
(Director)
(Filipino)
50
1 yr.
Since July,
2002
He is presently the Vice-President for Treasury
of Philippine Airlines. He also served as
Assistant Vice President for Finance of Basic
Holdings Corporation.
The Directors' term of office is one year. Election for the Board of Directors is conducted during
the annual stockholders' meeting held every third Friday of July.
Executive Officers:
(VP-Finance &
Administration)
(Filipino)
53
9 yrs.
Since
November,
1996
23
He is currently the Treasurer of MacroAsiaEurest Catering Services, Inc., MacroAsia
Properties Development Corp., MacroAsia Air
Taxi Services, Inc., SembLog-MacroAsia
Phils., Kabuhayan, Kaunlaran, & Kalikasan,
Inc., and Cebu Pacific Catering Services, Inc.
He is also the President of MacroAsia Mining
Corporation. He was Lead Cost Analyst of
Saudi Arabian American Oil Company
(ARAMCO) and was an Assistant Audit
Manager at Price Waterhouse & Co.
Atty. Marivic T. Moya
(VP-Human Resources,
Legal and External
Relations; Corporate
Secretary)
(Filipino)
45
6 yrs.
Since May
1999
She is the Corporate Secretary of MECS, MacMenzies, MAPDC, MAATS, Kabuhayan,
Kaunlaran, & Kalikasan, Inc. and Mac-Mining.
She worked with various Government
Institutions from 1987 to 1999, holding key
positions such as Legal Officer of the National
Bureau of Investigation (NBI) from 1987-1989,
Arbitration Specialist of POEA from 1989 to
1990, Director II (Chief, Legal Service) of
Philippine Health Insurance Corporation from
1990 to 1996 and Graft Investigation Officer II
at the Ombudsman from 1997 to 1999. She
also held the position of Human Resources
Manager of Grand Air from 1996 to 1997.
Christopher C. Lu
(VP-Marketing and
Facilities Management)
(Filipino)
51
7 yrs.
Since March,
1998
He is the President of MacroAsia Properties
Development Corporation and Vice President –
Marketing of MacroAsia Air Taxi Services Inc.
He was the Vice President for Operations of
MacroAsia-Menzies
Airport
Services
Corporation from 1999 to 2003.
Amador T. Sendin
(VP-Planning and
Business Development;
Compliance/Corporate
Information Officer)
(Filipino)
43
> 2 yrs.
Since October
2003
He is a Director of Cebu Pacific Catering
Services, Inc. and Mac-Mining. He was the
Finance
Manager
of
MacroAsia-Eurest
Catering Services, Inc. from July 2000 to
October 2003. He worked with MIASCOR from
June 1998 to June 2000.
30
> 3 yrs.
Since August,
2002
She served as Chief Accountant of Executive
Plaza Hotel and Masagana Telamart, Inc. She
worked with SGV & Co. from 1996 to 1999.
Significant Employee:
Maria Corazon M. Pineda
– De Manuel
(Financial Accountant)
(Filipino)
Family Relationships:
Lucio K. Tan, Jr., director, is the brother-in-law of Joseph T. Chua, President and Chief
Executive Officer and the nephew of Mariano Tanenglian, Director of MacroAsia
Corporation. Washington SyCip, Chairman of the Board, is the father of George SyCip,
Director.
Involvement in Certain Legal Proceedings
The Directors of the Company have not been involved in any legal proceedings during the
last five years up to the date of filing this report. Furthermore, the Directors are not aware of
any legal proceedings pending or threatened against them personally, or any fact which is
likely to give rise to any legal proceedings which may materially affect their personal
capacity as Directors of the Company.
24
Item 10. – EXECUTIVE COMPENSATION
The following table summarizes the actual aggregate compensation of all directors and officers
of the Company for 2004 and 2005, as well as the estimated aggregate compensation for the
year 2006:
(a)
Summary Compensation Table
Other
Annual
Compensation
Name and Principal Position
Year
Salaries
(P'mil)
Bonus
Executive Officers
Joseph T. Chua, President/CEO
Reynaldo O. Munsayac, VP-Finance & Administration
Marivic T. Moya, VP-Human Resources, Legal and
External Relations
Christopher C. Lu, VP-Marketing and Facilities Management
Amador T. Sendin, VP-Planning & Business Development,
Compliance/Corporate Information
Officer
2004
(Actual)
9.58
-
-
-
-
10.18
All Directors and Officers as a Group Unnamed
Executive Officers
External Relations
Compliance/Corporate Information
Officer
2005
(Actual)
10.46
11.79
Executive Officers
External Relations
Compliance/ Corporate Information
Officer
2006
(Estimate)
11.51
12.83
25
-
-
(b)
(c)
(d)
Compensation of Directors
(1)
Members of the Board do not receive any regular compensation from the
Company, except for every regular or special meeting actually attended, for
which members of the Board of Directors receive a per diem of P10,000.00.
(2)
There are no material terms of, nor any other arrangements with regard to
compensation as to which directors are compensated, or are to be compensated,
directly or indirectly, for any services provided as a director.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements.
(1)
Executive officers’ compensation consists of a monthly negotiated salary, a fixed
monthly allowance, and 13th month pay.
(2)
There are no other compensatory plan or arrangement with the named executive
officers, which results or will result from the resignation, retirement or any other
termination of the executive officer's employment with the Company and its
subsidiaries or from a change-in-control of the Company or a change in the
named executive officer's responsibilities following a change-in-control.
Warrants and Options Outstanding: Repricing
The Company’s P50 million warrants were not exercised by the shareholders/officers/
directors and had already expired last July 21, 2005.
Item 11. – Security Ownership of Certain Beneficial Owners & Management
(1)
Title of
Class
COMMON
COMMON
Security Ownership of Certain Record and Beneficial Owners as of December 31, 2005
Name, Address of Record
Owner and Relationship
with Issuer
Name of Beneficial Owner
and Relationship with Record
Owner
PCD Nominee Corporation
G/F MSE Building
6754 Ayala Ave., Makati City
(Shareholder)
Triton Securities Corp.1
(Shareholder)
Fortune Tobacco Corporation
Parang, Marikina City
(Shareholder)
Shareholdings, Inc.3
(Shareholder)
2
Edwin L. Luy, President
Irene T. Luy, Treasurer2
Enrique Luy, Jr., Vice-Pres.2
Lucio Tan, President4
Carmen Khao Tan, Shareholder
Benito Tan Kee Hiong,
(estate, deceased)
Mariano Tanenglian, Treasurer4
26
Citizenship
No. of
Shares Held
% of
Class
207,142,464
16.57
88,000,000
7.04%
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
COMMON
COMMON
COMMON
Asia Brewery, Inc.
6th Flr. Allied Bank Center
(Shareholder)
Shareholdings, Inc.3
(Shareholder)
4
Lucio Tan, President
Carmen Khao Tan, Shareholder
Benito Tan Kee Hiong,
(estate, deceased)
4
Mariano Tanenglian, Treasurer
Trust Mark Holdings Corp.
(Shareholder)
Jaime Bautista, CEO
Filipino
Luy, Jr., Enrique
26th Flr. LKG Tower
(Shareholder)
Luy, Jr., Enrique
(Beneficial)
Filipino
Triton owns 7% of MacroAsia Corporation’s total outstanding common shares.
2
Designation in Triton Securities Corp.
3
Shareholdings owns 99% of Fortune Tobacco and Asia Brewery
4
Designation in Shareholdings..
5
Designation in Trust Mark
88,000,000
7.04%
67,610,000
5.41%
Filipino
Baguio Gold Holdings Corp.
7th Flr. Allied Bank Center
(Shareholder)
1
7.04%
Filipino
Filipino
Filipino
3
5
88,000,000
Note: The above listed beneficial or record owner did not acquire additional shares from options, warrants, rights,
conversion privilege or similar obligations, or otherwise within thirty (30) days from 31 December 2005.
(2)
Security Ownership of Management as of December 31, 2005 :
Title of
Class
Name of Beneficial Owner
Amount and Nature
of Ownership
Citizenship
% of
Class
COMMON
Washington Z. SyCip
Chairman
41,545,250
(Beneficial)
American
3.32%
COMMON
Joseph T. Chua
President and CEO
425,000
(Beneficial)
Filipino
<1%
COMMON
Mariano Tanenglian
Vice Chairman
125,000
(Beneficial)
Filipino
<1%
COMMON
Lucio K. Tan, Jr.
Director
125,000
(Beneficial)
Filipino
<1%
COMMON
Jaime J. Bautista
Treasurer
125,000
(Beneficial)
Filipino
<1%
COMMON
George SyCip
Director
10,862,798
(Beneficial)
American
<1%
COMMON
Hans T. Sy
Independent Director
625,000
(Beneficial)
Filipino
<1%
27
COMMON
Stewart C. Lim
Director
100,000
(Beneficial)
<1%
VP – Finance & Administration
-
-
-
Marivic T. Moya
VP - Human Resources, Legal
and External Relations;
Corporate Secretary
-
-
-
Christopher C. Lu
VP - Marketing & Facilities
Management
-
-
-
Amador T. Sendin
VP - Planning and Business
Development;
Compliance/Corporate
Information Officer
-
-
-
Total
(3)
Filipino
53,933,048
4.31%
Voting Trust Holders of 5% or More :
There were no persons/shareholders of the Company who have entered into a voting
trust agreement during the last three years.
(4)
Changes in Control:
There was no significant change in control of MacroAsia Corporation in 2005. The
management team also remained the same.
Item 12. – Certain Relationships and Related Party Transactions
(1)
Please see Note 15 under the Company’s Notes to Financial Statements (p. 70 - 71).
(a)
Part of the Group’s excess cash are deposited/placed with Allied Bank, an
affiliate, at very competitive rates and based on the outstanding cash balance at
the end of the interest earning period. The Company also leases the office space
it currently occupies from the said bank at the bank’s current prevailing rental
rate. The Company has not been given any preferential treatment in any of its
transactions with the Bank.
(b)
MAPDC, as an ecozone operator, leases land from MIAA and subsequently
leases the same to its Ecozone locators which include LTP, an affiliate. Monthly
fees due from LTP is equivalent to MAPDC’s cost of leasing the land from MIAA,
plus administrative fees.
28
(2)
(c)
The original agreement between Mac-Menzies (lessee) and Philippine Airlines
(PAL) (lessor) was to lease the aviation and transportation equipment to be used
for the lessee’s business operations. However, in 2004, it was agreed by the
parties that the lessee would just buy the equipment. Accrued rental charges
past the date of sale, therefore, had to be reversed. The lease rates and the
purchase price of the equipment were the results of negotiations between MAC
and PAL based on prevailing prices in the market.
(d)
Mac-Menzies provides ground handling services to various airline companies at
NAIA and Cebu, including Air Philippines, an affiliate. The ground handling
service rates being charged to Air Philippines are competitive and were the
results of negotiations between Mac-Menzies and Air Phils.
(e)
MacroAsia Eurest provides in-flight catering to various airline companies at the
NAIA, including PAL, an affiliate. On the other hand, Mac-Menzies rented an
aviation equipment from PAL (as discussed in “c” above). In 2004, PAL has
outstanding trade payables with MECS. Since Mac-Menzies, on the other hand,
has outstanding rent payable to PAL, Mac-Menzies assumed PAL’s obligation to
MECS by way of offsetting. Mac-Menzies paid MECS in 2005.
(f)
MECS’ various advances from PAL represented raw materials purchased on an
arm’s-length transaction. The purchase price of the raw materials were
competitive and the results of negotiations between MECS and PAL.
(g)
MacroAsia Eurest also provides catering services to Lufthansa Technik
Philippines (LTP), an affiliate. The meal prices being charged to LTP were the
results of arms-length negotiations between MECS and LTP.
(h)
The Company has a trust fund for the employees’ retirement plan with Allied
Bank Corporation as the fund manager. The Company has not been given any
preferential treatment in any of its transactions with the Bank.
(i)
There are no other on-going contractual or other commitments between the
Group and the aforementioned affiliates.
There are no other parties that fall outside the definition of “related parties” under IAS 24
with whom the Company or its related parties have a relationship that enabled the
parties to negotiate terms of material transactions that may not be available from others
or independent parties on an arm’s length basis.
PART IV- CORPORATE GOVERNANCE
(a)
Evaluation System
The provisions of the Manual on Corporate Governance vis-à-vis the Self-Rating Form
on Corporate Governance are regularly reviewed to ensure compliance. Deviations, if
any, are discussed in the Company’s Regular Board Meeting.
29
(b)
Measures To Fully Comply
The Company conducts Strategic and Corporate Planning Workshops attended by its
Directors and top-level management, primarily to identify and strengthen the mission and
vision and the strategies to carry out its objectives based on leading practices on good
corporate governance.
The Company also holds regular weekly Management Meetings. These meetings are
presided by the President/CEO and attended by other officers of the Company and the
Presidents/Chief Operating Officers of the Subsidiaries and Affiliates. Business risks are
likewise discussed on these meetings.
(c)
Deviations
There are no deviations from the Company’s Manual of Corporate Governance.
(d)
Plan to Improve
The Company continues its coordination with regulatory government agencies to further
improve in-house corporate governance. It shall also adopt globally proven good
governance strategies.
PART V- EXHIBITS AND SCHEDULES
Item 13. – Exhibits and Reports on SEC Form 17-C
a) Exhibits – See accompanying Index to Exhibits (p. 32 and 91)
b) Reports on SEC Form 17-C
During the last six (6) month period covered by this report, the following events/
transactions were reported to the SEC :
SUBJECT
DATE REPORTED
1.
Election of Directors and Officers held during the Annual
General Meeting of Stockholders held on 15 July 2005
July 18, 2005
2.
Declaration of cash dividends
July 18, 2005
3.
Agency agreement for collateral management services of
MacroAsia Corp. with Pacorini-SembLog (Asia-Pacific) Pte
Ltd.
August 10, 2005
4.
Vacancy in one of the Board seats
(Independent Director)
August 15, 2005
5.
Annual certification as to the attendance of the Directors
during Board Meetings
30
December 27, 2005
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES
FORM 17-A, Item 7
Page No.
Consolidated Financial Statements
Statement of Management’s Responsibility for Financial Statements
33
Report of Independent Public Accountants
35
Consolidated Balance Sheets as of December 31, 2005 and 2004
36
Consolidated Statements of Income for the years ended December 31, 2005,
2004
37
Consolidated Statement of Changes in Equity for the years ended December 31,
2005, 2004 and 2003
38
Consolidated Statements of Cash Flows for the years ended December 31,
2005, 2004
39
Notes to Consolidated Financial Statements
41
Supplementary Schedules
Report of Independent Public Accountants on Supplementary Schedules *
86
A. Marketable Securities – (Current Marketable Equity Securities and Other
Short-term Cash Investments)
*
B. Amounts Receivable from Directors, Officers, Employees, Related Parties
and Principal Stockholders (Other Than Affiliates)
87
C. Non-Current Marketable Equity and Securities, Other Long-term Investments
in Stock, and Other Investments
88
D. Indebtedness of Unconsolidated Subsidiaries and Related Parties
E. Intangible Assets – Other Assets
*
89
F. Long-Term Debt
*
G. Indebtedness to Related Parties
*
H. Guarantees of Securities of Other Issuers
*
I.
Capital Stock
90
*
These schedules, which are required by paragraph 4(e) of SRC Rule 68.1, have been omitted because they are either not
required, not applicable, or the information required to be presented is included in the Company's consolidated financial
statements or the notes to consolidated financial statements.
32
MACROASIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
2005
ASSETS
Current Assets
Cash and cash equivalents (Notes 5, 15 and 21)
Receivables - net (Notes 6, 15 and 21)
Inventories - at cost (Note 7)
Other current assets (Note 8)
Total Current Assets
Noncurrent Assets
Investments in associates (Note 9)
Property and equipment - net (Note 10)
Investment property - net (Notes 11 and 15)
Accrued rental receivable (Note 15)
Deferred rent expense (Notes 3 and 27)
Deferred tax assets - net (Note 23)
Deposits and other noncurrent assets - net (Notes 3 and 12)
Total Noncurrent Assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Current Liabilities
Note payable (Note 13)
Accounts payable and accrued liabilities (Notes 14 and 21)
Income tax payable
Dividends payable
Total Current Liabilities
Noncurrent Liabilities
Accrued rental payable (Note 27)
Unearned rent income (Notes 3 and 15)
Rental deposit (Notes 3 and 15)
Loans from and payables to subsidiaries’ stockholders (Notes 16 and 21)
Accrued retirement benefits payable (Note 20)
Deferred tax liability (Note 23)
Total Noncurrent Liabilities
Total Liabilities
Equity
Attributable to the equity holders of the parent:
Capital stock - =
P1 par value (Note 24)
Authorized - 2,000,000,000 shares
Issued - 1,250,000,000 shares (held by 977 and 994 equity
holders in 2005 and 2004, respectively)
Additional paid-in capital (Note 24)
Warrants outstanding (Note 24)
Share in foreign currency translation adjustments of an
associate (Note 9)
Retained earnings (Notes 3 and 26)
Minority interests (Note 16)
Total Equity
TOTAL LIABILITIES AND EQUITY
2004
(As restated,
Note 3)
P
=200,963,727
161,217,328
24,043,484
82,515,952
468,740,491
=181,609,048
P
154,825,118
23,618,021
64,090,748
424,142,935
1,242,374,610
337,506,008
118,680,000
79,013,572
19,073,320
8,410,175
42,857,501
1,847,915,186
P
=2,316,655,677
1,130,161,360
370,623,000
118,680,000
66,165,371
–
6,692,670
63,865,938
1,756,188,339
=2,180,331,274
P
P
=27,500,000
120,945,290
861,070
7,137,132
156,443,492
=–
P
146,278,382
1,203,856
7,137,132
154,619,370
79,013,572
19,073,320
1,034,395
19,732,606
6,359,106
220,804
125,433,803
281,877,295
66,165,371
–
24,588,996
29,799,151
5,680,197
304,506
126,538,221
281,157,591
1,250,000,000
281,437,118
–
1,250,000,000
231,437,118
50,000,000
(30,860,108)
471,503,867
1,972,080,877
62,697,505
2,034,778,382
P
=2,316,655,677
(57,836,112)
377,444,345
1,851,045,351
48,128,332
1,899,173,683
=2,180,331,274
P
See accompanying Notes to Consolidated Financial Statements.
*SGVMC305960*
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31
2004
(As restated,
Note 3)
2005
SERVICE REVENUE
In-flight catering
Rental and administrative (Note 15)
Ground handling and aviation (Note 15)
Charter flights
P
=544,773,792
184,502,135
73,295,879
6,811,400
809,383,206
=452,924,401
P
184,502,135
72,535,408
12,397,777
722,359,721
DIRECT COST (Note 17)
608,134,886
544,459,045
GROSS PROFIT
201,248,320
177,900,676
(14,304,368)
(168,314,848)
119,333,806
(13,313,864)
5,470,563
(1,151,881)
8,039,664
(13,977,894)
(147,011,282)
76,955,111
655,999
3,610,756
(3,789,248)
16,139,826
137,007,392
110,483,944
Selling expenses (Note 19)
General and administrative expenses (Note 18)
Equity in net income of associates (Note 9)
Foreign exchange gain (loss) - net
Interest income (Note 15)
Financing charges (Notes 13, 15 and 16)
Others - net
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX (Note 23)
Current
Deferred
NET INCOME
Attributable to:
Equity holders of the parent
Minority interests
Basic Earnings Per Share (Note 25)
16,639,983
(4,026,106)
12,613,877
7,473,049
(2,333,563)
5,139,486
P
=124,393,515
=105,344,458
P
P
=119,059,522
5,333,993
P
=124,393,515
=99,593,382
P
5,751,076
=105,344,458
P
P
=0.0952
=0.0797
P
*SGVMC305960*
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
Capital Stock
(Note 24)
BALANCES AT DECEMBER 31, 2003,
AS PREVIOUSLY REPORTED
Attributable to the Equity Holders of the Parent
Share in Foreign
Currency
Additional
Translation
Paid-In
Warrants Adjustments of
Retained
Capital
Outstanding
an Associate
Earnings
(Note 24)
(Note 24)
(Note 9)
(Note 26)
P
=231,437,118
P
=50,000,000
–
–
–
1,250,000,000
231,437,118
50,000,000
(50,720, 579)
Net foreign currency translation adjustments
for the year recognized directly in equity (Note 9)
–
–
–
(7,115,533)
Net income for the year, as restated (Note 3)
–
–
–
–
99,593,382
99,593,382
5,751,076
105,344,458
Total income and expense for the year
–
–
–
(7,115,533)
99,593,382
92,477,849
5,751,076
98,228,925
AS RESTATED
P
=1,250,000,000
P
=231,437,118
P
=50,000,000
(P
=57,836,112)
P
=377,444,345 P
=1,851,045,351
P
=48,128,332 P
=1,899,173,683
AS PREVIOUSLY REPORTED
P
=1,250,000,000
P
=231,437,118
P
=50,000,000
(P
=57,836,112)
P
=320,519,701 P
=1,794,120,707
P
=47,085,909 P
=1,841,206,616
–
–
–
AS RESTATED
Effect of change in accounting for employee benefits
AS RESTATED
–
–
P
=41,201,679 P
=1,753,914,277
45,854,904
45,854,904
1,175,577
47,030,481
277,850,963
1,758,567,502
42,377,256
1,800,944,758
–
(7,115,533)
–
(7,115,533)
56,924,644
56,924,644
1,042,423
57,967,067
377,444,345
1,851,045,351
48,128,332
1,899,173,683
1,250,000,000
231,437,118
50,000,000
for the year recognized directly in equity (Note 9)
–
–
–
26,976,004
–
26,976,004
–
26,976,004
Net income for the year
–
–
–
–
119,059,522
119,059,522
5,333,993
124,393,515
Total income and expense for the year
–
–
–
26,976,004
119,059,522
146,035,526
5,333,993
151,369,519
Expired warrants (Note 24)
–
50,000,000
–
–
–
–
–
Advances of minority stockholder to a subsidiary
converted to equity (Note 16)
–
–
–
–
–
–
9,235,180
9,235,180
Cash dividends at =
P0.02 per share
(Note 26)
–
–
–
–
P
=1,250,000,000
P
=281,437,118
P
=–
BALANCES AT DECEMBER 31, 2005
(50,000,000)
(57,836,112)
P
=231,996,059 P
=1,712,712,598
Total
P
=1,250,000,000
Effect of change in accounting for
employee benefits (Note 3)
(P
=50,720,579)
Total
Minority
Interest
(Note 16)
(P
=30,860,108)
(25,000,000)
(25,00,000)
P
=471,503,867 P
=1,972,080,877
–
(25,000,000)
P
=62,697,505 P
=2,034,778,382
*SGVMC305960*
CONSOLIDATED STATEMENTS OF CASH FLOWS
2004
(As restated,
Note 3)
2005
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization (Note 10)
Unrealized foreign exchange loss (gain) - net
Equity in net income of associates (Note 9)
Interest income
Financing charges
Gain on sale of equipment
Dividend income
Operating income before working capital changes
Decrease (increase) in:
Receivables
Inventories
Other current assets
Increase (decrease) in:
Accounts payable and accrued liabilities
Rental deposit
Provisions (reversals of allowances) for
doubtful accounts and other losses
Retirement benefits cost (Note 20)
Benefit paid and contributions to the fund (Note 20)
Cash generated from operations
Interest received
Financing charges paid
Income taxes paid, including creditable withholding taxes
Net cash from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property and equipment
Proceeds from sales of:
Property and equipment and other noncurrent assets
Tax credit certificates
Additional investment in an associate (Note 9)
Dividends received (Note 9)
Collections of advances to an associate
Increase in other noncurrent assets
Net cash used in investing activities
(Forward)
P
=137,007,392
=110,483,944
P
63,736,146
12,331,888
(119,333,806)
(5,470,563)
1,151,881
(136,114)
(1,200)
89,285,624
64,007,488
(698,504)
(76,955,111)
(3,610,756)
3,789,248
(314,140)
–
96,702,169
(8,336,432)
(425,463)
(27,024,955)
(12,203,325)
(1,714,178)
12,892,785
(20,416,731)
–
13,338,670
(208,330)
6,825,895
1,394,140
(715,231)
40,586,847
5,234,534
(3,498,168)
(12,984,014)
29,339,199
(9,122,808)
1,594,734
(300,000)
100,979,717
3,602,363
(3,568,150)
(11,801,239)
89,212,691
(33,429,647)
(22,413,409)
391,350
–
(5,508,286)
36,606,046
–
(2,546,164)
(4,486,701)
353,000
7,646,021
–
4,800,000
3,127,541
(3,006,629)
(9,493,476)
-2-
2004
(As restated,
Note 3)
2005
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from availments of notes payable
Payments of notes payable
Loans and advances received from subsidiaries’ stockholders
Dividends paid
Net cash from (used in) financing activities
P
=45,000,000
(17,500,000)
–
(25,000,000)
2,500,000
=–
P
(14,254,281)
(21,625,000)
–
(35,879,281)
NET EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS
(7,997,819)
1,020,627
NET INCREASE IN CASH AND CASH EQUIVALENTS
19,354,679
44,860,561
AT BEGINNING OF YEAR
181,609,048
136,748,487
AT END OF YEAR (Note 5)
P
=200,963,727
=181,609,048
P
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information and Business Operations
Corporate Information
MacroAsia Corporation (the Company) was incorporated in the Philippines on February 16, 1970
under the name Infanta Mineral & Industrial Corporation to engage in the business of geological
exploration and development. On January 26, 1994, its Articles of Incorporation was amended to
change its primary purpose from exploration and development to that of engaging in the business
of a holding company, and change its corporate name to Cobertson Holdings Corporation. On
November 6, 1995, the Company’s Articles of Incorporation was again amended to change its
corporate name to its present name. Its registered office address is 12th Floor, Allied Bank
Center, 6754 Ayala Avenue, Makati City.
The consolidated financial statements for the years ended December 31, 2005 and 2004 were
authorized for issue by the Board of Directors (BOD) on March 30, 2006.
Business Operations
The principal activities of the Company and its subsidiaries (the Group) are described in Note 4.
The Company, through its subsidiaries and associates (see Note 9), is presently engaged in
aviation-support businesses at the Ninoy Aquino International Airport (NAIA), Manila Domestic
Airport (MDA), Mactan-Cebu International Airport (MCIA), and the General Aviation Areas. It
provides in-flight catering services, ground handling services for passenger and cargo aircraft, and
helicopter charter flight services, and it operates/develops the sole economic zone within the
NAIA.
Through Lufthansa Technik Philippines, Inc. (LTP), an associate, which has a maintenance,
repairs and overhaul facility in the Philippines, it provides globally competitive heavy
maintenance and engineering services for specific models of Airbus and Boeing aircraft for airline
clients all over the world.
The Company positions itself for further growth and expansions as it pursues development
projects outside the aviation support services. It ventured into the third party logistics business
with Sembcorp Logistics Ltd. (SembLog, a company incorporated in Singapore) on January 24,
2005 (see Note 9). Further, with the recent developments in the Philippine mining industry, the
Company is considering the revival of its mining business (see Notes 12 and 30).
2. Significant Accounting Judgments and Estimates
The preparation of the financial statements in compliance with Philippine generally accepted
accounting principles (GAAP) requires the Company to make judgments, estimates and
assumptions that affect the amounts reported in the consolidated financial statements and
accompanying notes. The estimates and assumptions are based on management’s evaluation of
relevant facts and circumstances as of dates of the comparative financial statements. Actual
results could differ from such estimates.
-2Determination of the Group’s functional currency
The Group, based on the relevant economic substance of the underlying circumstances, has
determined its functional currency to be the Philippine peso. It is the currency of the primary
economic environment in which its subsidiaries and two of its associates operate.
Classification of financial instruments
The Group classifies a financial instrument, or its components, on initial recognition as a financial
liability, a financial asset or an equity instrument in accordance with the substance of the
contractual arrangement and the definitions of a financial liability, a financial asset or an equity
instrument. The substance of a financial instrument, rather than its legal form, governs its
classification in the Group’s consolidated balance sheets.
The Group determines the classification at initial recognition and reevaluates this classification at
every reporting date.
Estimating allowance for doubtful accounts
Allowance for doubtful accounts is provided for accounts that are specifically identified to be
doubtful of collection. The level of allowance is evaluated by management on the basis of factors
that affect the collectibility of the accounts. The balance of allowance for doubtful accounts
amounted to P
=8.9 million and P
=9.2 million as of December 31, 2005 and 2004, respectively (see
Note 6).
Recognition of deferred tax assets
The Group reviews the carrying amounts of deferred tax assets at each balance sheet date and
adjusts the balance of deferred tax assets to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred tax assets to be utilized.
Deferred tax assets recognized amounted to P
=8.4 million and P
=6.7 million as of
December 31, 2005 and 2004, respectively. More details are provided in Note 23 to the
consolidated financial statements.
Estimating useful lives and residual values of property and equipment
The Group estimates the useful lives and residual values of property and equipment based on the
internal technical evaluation and experience with similar assets. Estimated lives of property and
equipment are reviewed periodically and updated if expectations differ from previous estimates
due to physical wear and tear, technical and commercial obsolescence and other limits on the use
of the assets. The carrying value of property and equipment as of December 31, 2005 and 2004
amounted to P
=337.5 million and P
=370.6 million, respectively (see Note 10).
Impairment of assets
The Group determines whether its nonfinancial assets are impaired, at least on an annual basis.
This requires an estimation of the value in use of the cash generating units to which the assets
belong. Estimating the value in use requires the Group to make an estimate of the expected future
-3cash flows from the cash generating unit and also to choose the approximate pre-tax discount rate
to calculate the present value of those cash flows. As of December 31, 2005 and 2004, the
recognized impairment loss on investment property amounted to P
=25.2 million (see Note 11).
Provisions
The Group provides for present obligations (legal or constructive) when it is probable that there
will be an outflow of resources embodying economic benefits that will be required to settle said
obligations. An estimate of the provision is based on known information at the balance sheet
date, net of any estimated amount that may be reimbursed to the Group. If the effect of the time
value of money is material, provisions are discounted using a current pre-tax rate that reflects the
risks specific to the liability. The amount of provision is reassessed at least on an annual basis to
consider new relevant information. The Group has not recognized any provision in 2005 and
2004.
Estimating retirement benefits cost
The Group’s retirement benefits cost is actuarially computed. This entails using certain
assumptions with respect to salary increases, rate of return on plan assets and discount rates (see
Note 20). Total accrued retirement benefits payable amounted to P
=6.4 million and P
=5.7 million as
of December 31, 2005 and 2004, respectively.
3. Summary of Significant Accounting and Financial Reporting Policies
Basis of Preparation
The accompanying consolidated financial statements have been prepared using the historical cost
basis, except for financial assets and financial liabilities that have been measured at fair values,
and in compliance with GAAP in the Philippines as set forth in Philippine Financial Reporting
Standards (PFRS) and presented in Philippine peso, the Group’s functional currency. These are
the Group’s first consolidated financial statements prepared in accordance with PFRS.
The Group prepared its consolidated financial statements until December 31, 2004 in compliance
with Statements of Financial Accounting Standards (SFAS) and Statements of Financial
Accounting Standards/International Accounting Standards (SFAS/IAS).
The Group applied PFRS 1, First-time Adoption of Philippine Financial Reporting Standards, in
preparing the consolidated financial statements, with January 1, 2004 as the date of transition.
The adoption of PFRS resulted in certain changes to the Group’s previous accounting policies.
The comparative figures for the 2004 consolidated financial statements were restated to reflect
these changes to policies, except Philippine Accounting Standard (PAS) 32, Financial
Instruments: Disclosure and Presentation and PAS 39, Financial Instruments: Recognition and
Measurement. Based on the exemption available under PFRS 1 and as allowed by the Philippine
Securities and Exchange Commission (SEC), the Group adjusted the effect of adopting PAS 39 to
retained earnings as of January 1, 2005.
-4An explanation of the effects of the transition to PFRS is set forth in the following table and
notes:
Notes
ASSETS
Current Assets
Cash and cash equivalents
Receivables - net
Inventories
Other noncurrent assets
Total Current Assets
Noncurrent Assets
Investments in associates
Property and equipment - net
Investment property - net
Accrued rental receivable
Deferred tax assets - net
Deposits and other
noncurrent assets - net
Total Noncurrent Assets
TOTAL ASSETS
=136,748,487
P
146,324,058
21,903,843
74,750,026
379,726,414
b, c
b
a
c
LIABILITIES AND
EQUITY
Current Liabilities
Notes payable
Accounts payable and accrued
liabilities
Income tax payable
Dividends payable
Loans from subsidiary’s
stockholders
Total Current Liabilities
Noncurrent Liabilities
Accrued rental payable
Rental deposit
Loans from and payables to
subsidiaries’ stockholders
Accrued retirement
benefits payable
Deferred tax liability
Total Noncurrent
Liabilities
Total Liabilities
Equity
Attributable to the equity
holders of the parent:
Capital stock
Additional paid-in capital
Warrants outstanding
Share in foreign currency
translation adjustments
of an associate
Retained earnings
Minority interest
Total Equity
TOTAL LIABILITIES
AND EQUITY
At January 1, 2004
(date of transition)
Effect of
Previous
transition to
GAAP
PFRS
a
1,023,550,266
371,040,202
118,680,000
50,896,440
5,721,709
88,849,884
1,658,738,501
=2,038,464,915
P
a
41,571,516
25,761,385
–
–
(1,030,170)
=136,748,487
P
146,324,058
21,903,843
74,750,026
379,726,414
=181,609,048
P
154,825,118
23,618,021
64,090,748
424,142,935
1,065,121,782
396,801,587
118,680,000
50,896,440
4,691,539
1,077,088,654
347,422,392
118,680,000
66,165,371
8,220,750
(25,761,385)
63,088,499
87,066,546
40,541,346
1,699,279,847 1,704,643,713
=40,541,346 =
P
P2,079,006,261 P
=2,128,786,648
=–
P
–
–
–
–
53,072,706
23,200,608
–
–
(1,528,080)
PFRS
=181,609,048
P
154,825,118
23,618,021
64,090,748
424,142,935
1,130,161,360
370,623,000
118,680,000
66,165,371
6,692,670
(23,200,608)
63,865,938
51,544,626
1,756,188,339
=51,544,626 =
P
P2,180,331,274
=14,254,281
P
=–
P
=14,254,281
P
=–
P
=–
P
=–
P
95,869,842
1,322,336
7,137,132
–
–
–
95,869,842
1,322,336
7,137,132
146,278,382
1,203,856
7,137,132
–
–
–
146,278,382
1,203,856
7,137,132
21,125,000
139,708,591
–
–
21,125,000
139,708,591
–
154,619,370
–
–
–
154,619,370
50,896,440
24,588,996
–
–
50,896,440
24,588,996
66,165,371
24,588,996
–
–
66,165,371
24,588,996
57,845,076
–
57,845,076
29,799,151
–
29,799,151
10,874,598
636,937
(6,489,135)
–
4,385,463
636,937
12,102,638
304,506
(6,422,441)
–
5,680,197
304,506
144,842,047
284,550,638
(6,489,135)
(6,489,135)
138,352,912
278,061,503
132,960,662
287,580,032
(6,422,441)
(6,422,441)
126,538,221
281,157,591
1,250,000,000
231,437,118
50,000,000
1,250,000,000
231,437,118
50,000,000
–
–
–
(50,720,579)
277,850,963
1,758,567,502
42,377,256
1,800,944,758
(57,836,112)
320,519,701
1,794,120,707
47,085,909
1,841,206,616
–
56,924,644
56,924,644
1,042,423
57,967,067
(57,836,112)
377,444,345
1,851,045,351
48,128,332
1,899,173,683
=40,541,346 P
P
=2,079,006,261 P
=2,128,786,648
=51,544,626
P
=2,180,331,274
P
1,250,000,000
231,437,118
50,000,000
a
=–
P
–
–
–
–
PFRS
At December 31, 2004
(end of last period presented
under previous GAAP)
Effect of
Previous
transition to
GAAP
PFRS
(50,720,579)
231,996,059
1,712,712,598
41,201,679
1,753,914,277
=2,038,464,915
P
–
–
–
–
45,854,904
45,854,904
1,175,577
47,030,481
1,250,000,000
231,437,118
50,000,000
-5a. Retirement Benefits Costs
Under the previous Philippine GAAP, pension benefits were actuarially determined using the
projected unit credit method and past service cost and experience adjustments amortized over
the expected average remaining working lives of the covered employees. Under PAS 19,
Employee Benefits, pension benefits are determined using the projected unit credit method
and actuarial gains and losses that exceed a 10% of the higher of the defined benefit
obligation and the fair value of plan assets are amortized over the expected average remaining
working lives of participating employees and vested past service costs, recognized
immediately (see Note 20).
The Group applied the standard retroactively which resulted in the restatement of prior year’s
consolidated financial statements. The Group’s retained earnings as of December 31, 2004
and January 1, 2004 increased by P
=3.8 million and P
=4.3 million, respectively, and net income
in 2004 decreased by P
=0.4 million.
LTP also applied this standard retroactively which resulted in the restatement of prior year’s
financial statements. LTP’s retained earnings as of December 31, 2004 and January 1, 2004
increased by P
=108.3 million and P
=84.8 million, respectively, and net income in 2004
increased by P
=23.5 million. These adjustments accordingly increased the Company’s retained
earnings as of December 31, 2004 and January 1, 2004 by P
=53.1 million and 41.6 million,
respectively, and share in equity in net earnings in associate in 2004 by P
=11.5 million.
b. Investment Property
PAS 40, Investment Property, prescribes the accounting treatment for investment property
and related disclosure requirements. This standard permits a company to choose either the
fair value model or cost model in accounting for investment property. Fair value model
requires an investment property to be measured at fair value with fair value changes
recognized directly in the statements of income. Cost model requires that an investment
property be measured at depreciated cost, less any accumulated impairment losses.
The Group has land held for future development that was previously recorded as “land held
for future development” in the consolidated balance sheets. Under PFRS, a tangible asset that
is being leased out or held for capital appreciation should be reclassified to and separately
presented as Investment property, in accordance with PAS 40.
Upon adoption of PAS 40, the Group reclassified the said property, and accordingly reported
it as investment property. The Group opted to continue the use of the cost model in
accounting for its investment property. Accordingly, the adoption of PAS 40 has no effect on
retained earnings as of January 1 and December 31, 2004 or on the net income for 2004.
c. Noncurrent Assets Held for Sale
PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations, specifies the
accounting for assets held for sale and the presentation and disclosure of discontinued
operations. It requires assets that meet the criteria to be classified as held for sale to be
measured at the lower of carrying amount and fair value less costs to sell, and the depreciation
on such assets to cease. Furthermore, assets that meet the criteria to be classified as held for
sale should be presented separately on the face of the consolidated balance sheet and the
results of discontinued operations to be presented separately in the consolidated statement of
income.
-6The Group has a helicopter unit, that is used intermittently in business and such and related
spare parts were previously recorded as part of “Deposits and other noncurrent assets” in the
consolidated balance sheets. At the time when the BOD approved the proposal to sell these
assets on June 30, 2000, these were reclassified from “Property and equipment” to “Deposits
and other noncurrent assets” at the lower of their carrying value and net realizable value.
Under PFRS, if these assets do not qualify as held for sale (or for inclusion in a disposable
group that is classified as held for sale) in accordance with PFRS 5, they should be classified
as property and equipment. Accordingly, upon the Company’s adoption of PFRS, the Group
reclassified the helicopter unit and spare parts back to “Property and equipment”. This,
though, has no effect on retained earnings as of January 1, 2004.
The foregoing adjustments increased retained earnings at December 31, 2004 and January 1, 2004
as follows:
Investments in associates (Note a)
Accrued retirement benefit payable (Note a)
Deferred tax assets (Note a)
December 31,
2004
=53,072,706
P
5,380,018
(1,528,080)
=56,924,644
P
January 1,
2004
=41,571,516
P
5,313,558
(1,030,170)
=45,854,904
P
Reconciliation of Income for 2004
Previous
GAAP
Effects of
transition to
PFRS
PFRS
=452,924,401
P
184,502,135
72,535,408
12,397,777
722,359,721
=–
P
–
–
–
–
=452,924,401
P
184,502,135
72,535,408
12,397,777
722,359,721
DIRECT COST
544,459,045
–
544,459,045
GROSS PROFIT
177,900,676
–
177,900,676
(13,977,894)
(146,944,587)
65,453,921
3,610,756
(3,789,248)
655,999
16,139,826
–
(66,695)
11,501,190
–
–
–
–
(13,977,894)
(147,011,282)
76,955,111
3,610,756
(3,789,248)
655,999
16,139,826
99,049,449
11,434,495
110,483,944
4,641,577
=94,407,872
P
497,909
=10,936,586
P
5,139,486
=
P105,344,458
Notes
SERVICE REVENUE
In-flight catering
Rental and administrative
Ground handling and aviation
Charter flights
Selling expenses
General and administrative expenses
Equity in net income of associates
Interest income
Financing charges
Foreign exchange gain - net
Others - net
a
a
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX
NET INCOME
(Forward)
a
-7-
Notes
Attributable to:
Minority interests
Basic earnings per share
Previous
GAAP
Effects of
transition to
PFRS
PFRS
=88,523,642
P
5,884,230
=94,407,872
P
=11,069,740
P
(133,154)
=10,936,586
P
=99,593,382
P
5,751,076
=
P105,344,458
=0.0708
P
=0.0797
P
Effects on the 2004 Consolidated Statement of Cash Flows
The following table shows the effect on the 2004 consolidated statement of cash flows of the
Group’s transition to PFRS:
Notes
Cash flows from:
Operating activities:
Income before income tax
Equity in net income
of associates
Retirement benefits cost
Other items
Investing activities
Financing activities
Net effect of exchange rate
changes on cash and
cash equivalents
Net increase in cash and cash
equivalents
Cash and cash equivalents at
beginning of year
Cash and cash equivalents at end of year
Previous
GAAP
Effects of
Transition
to PFRS
PFRS
a
=99,049,449
P
=11,434,495 =
P
P110,483,944
a
a
(65,453,921)
1,528,039
54,089,124
89,212,691
(9,493,476)
(35,879,281)
(11,501,190) (76,955,111)
66,695
1,594,734
–
54,089,124
89,212,691
–
(9,493,476)
–
– (35,879,281)
1,020,627
–
1,020,627
44,860,561
–
44,860,561
136,748,487
=181,609,048
P
– 136,748,487
=– =
P
P181,609,048
Other Adopted PFRS
The Group also adopted the following other new and revised accounting standards beginning
January 1, 2005. Comparative presentation and disclosures have been amended as required by
the standards. Adoption of these standards has no effect on equity at January 1, 2004 and
December 31, 2004.
New Accounting Standards
·
PAS 21, The Effects of Changes in Foreign Exchange Rates, prohibits the capitalization of
foreign exchange losses. It also requires a company to determine its functional currency and
measure its results of operations and financial position in that currency. The Group has
determined that its functional currency is the Philippine peso, which is also its reporting
currency.
-8·
PAS 32, Financial Instruments: Disclosure and Presentation, covers the disclosure and
presentation of all financial instruments. The standard requires more comprehensive
disclosures about the company’s financial instruments in the financial statements. New
disclosure requirements include terms and conditions of financial instruments used by a
company, types of risks associated with financial instruments (market risk, price risk, credit
risk, liquidity risk, and cash flow risk), fair value information of financial assets and financial
liabilities, and the company’s financial risk management policies and objectives. The
standard also requires financial instruments to be classified as liabilities or equity in
accordance with their substance and not their legal form.
·
PAS 39, Financial Instruments: Recognition and Measurement, establishes the accounting
and reporting standards for recognizing and measuring the company’s financial assets and
financial liabilities. The standard requires a financial asset or financial liability to be
recognized initially at fair value. Subsequent to initial recognition, a company should
continue to measure financial assets at their fair values, except for loans and receivables and
held-to-maturity investments, which are to be measured at cost or amortized cost using the
effective interest rate method. Financial liabilities are subsequently measured at cost or
amortized cost, except for liabilities classified as “at fair value through profit and loss” and
derivatives, which are subsequently to be measured at fair value.
MacroAsia Properties Development Corporation (MAPDC), a wholly owned subsidiary, has a
refundable noninterest-bearing deposit receivable amounting to P
=24.6 million related to its
lease contract with Manila International Airport Authority (MIAA, see Note 27) and another
deposit payable of the same amount related to its sublease contract with LTP (see Note 15).
The adoption of PAS 39 resulted in the adjustment of the values of these deposits to their
present value of P
=1.0 million and P
=1.2 million as of December 31, 2005 and January 1, 2005,
respectively. This resulted in the recognition of deferred rent expense and unearned rent
income for the same amount of P
=19.0 million and P
=20 million as of December 31, 2005 and
January 1, 2005, respectively. The net effect on retained earnings as of January 1, 2005 is
zero as the deferred rent expense and unearned rent income, net of accretion of interest and
amortization in prior years, were adjusted at the same amount of P
=3.5 million against retained
earnings. In 2005, accretion of interest and amortization of deferred rent expense/unearned
rent income amounted to P
=0.2 million and P
=1.0 million, respectively.
·
PFRS 3, Business Combinations, results in the cessation of the amortization of goodwill and a
requirement for an annual test for goodwill impairment. Any resulting negative goodwill
after performing reassessment will be credited to income. Moreover, pooling of interests in
accounting for business combination will no longer be permitted.
PFRS 3 has been applied for business combinations for which the agreement date is on or
after January 1, 2004. The effect of the adoption of PFRS 3 upon the Group’s accounting
policies has impacted the recognition of restructuring provisions arising upon an acquisition.
The Group is now only permitted to recognize an existing liability contained in the acquiree’s
financial statements on acquisition. Previously, this type of restructuring provision could be
recognized by the acquirer regardless of whether the acquiree had recognized this type of
liability.
-9Further, upon acquisition, the Group initially measures the identifiable assets, liabilities and
contingent liabilities acquired at their fair values as at the acquisition date; hence causing any
minority interest in the acquiree to be stated at the minority proportion of the net fair values
of those items.
Revised Accounting Standards
·
PAS 1, Presentation of Financial Statements, provides a framework within which a company
assesses how to present fairly the effects of transactions and other events; provides the base
criteria for classifying liabilities as current or noncurrent; prohibits the presentation of income
from operating activities and extraordinary items as separate line items in the consolidated
statement of income; and specifies the disclosures about key sources of estimation,
uncertainty and judgments management has made in the process of applying the company’s
accounting policies. It also requires changes in the presentation of minority interest in the
consolidated balance sheet and consolidated statement of income.
·
PAS 2, Inventories, reduces the alternatives for measurement of inventories. It does not
permit the use of the last in, first out formula to measure the cost of inventories.
·
PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, removes the
concept of fundamental error and the allowed alternative to retrospective application of
voluntary changes in accounting policies and retrospective restatement to correct prior period
errors. It defines material omission or misstatements, and describes how to apply the concept
of materiality when applying accounting policies and correcting errors.
·
PAS 10, Events After the Balance Sheet Date, provides a limited clarification of the
accounting for dividends declared after the balance sheet date.
·
PAS 16, Property, Plant and Equipment, provides additional guidance and clarification on
recognition and measurement of items of property, plant and equipment. It also provides that
each part of an item of property, plant and equipment with a cost that is significant in relation
to the total cost of the item shall be depreciated separately.
·
PAS 17, Leases, provides a limited revision to clarify the classification of a lease of land and
buildings and prohibits expensing of initial direct costs in the financial statements of the
lessors.
·
PAS 24, Related Party Disclosures, provides additional guidance and clarity in the scope of
the standard, the definitions and disclosures for related parties. It also requires the disclosure
of the compensation of key management personnel in total and by benefit type.
·
PAS 27, Consolidated and Separate Financial Statements, reduces alternatives in accounting
for subsidiaries in consolidated financial statements and in accounting for investments in the
separate financial statements of a parent, venturer or investor. Investments in subsidiaries
will be accounted for either at cost or in accordance with PAS 39 in the separate financial
statements. The Company accounted for its investment in subsidiaries at cost, less any
impairment loss, in its separate financial statements.
- 10 ·
PAS 28, Investments in Associates, reduces alternatives in accounting for associates in
consolidated financial statements and in accounting for investments in the separate financial
statements of an investor. Investments in associates will be accounted for either at cost or in
accordance with PAS 39 in the separate financial statements.
The Company accounted for its investments in subsidiaries and associates at cost, less any
impairment loss, in its separate financial statements. This change was applied retroactively
and prior years’ parent company financial statements were restated accordingly. In the parent
company financial statements, the Company’s retained earnings as of January 1, 2004 and
December 31, 2004 decreased by P
=77.4 million and P
=160.9 million, respectively, and net
income in 2004 decreased by P
=83.5 million. Moreover, the Company’s share in foreign
currency translation adjustments of its associate amounting to P
=57.8 million as of
December 31, 2004 was reversed.
·
PAS 31, Interests in Joint Ventures, reduces the alternatives in accounting for interests in
joint ventures in consolidated financial statements and in accounting for investments in the
separate financial statements of a venturer. Interests in joint ventures will be accounted for
either at cost, less any impairment loss, or in accordance with PAS 39 in the separate financial
statements.
·
PAS 33, Earnings Per Share, prescribes principles for the determination and presentation of
earnings per share for companies with publicly traded shares, companies in the process of
issuing ordinary shares to the public, and companies that calculate and disclose earnings per
share. The standard also provides additional guidance in computing earnings per share
including the effects of mandatorily convertible instruments and contingently issuable shares,
among others.
·
PAS 36, Impairment of Assets, requires a company to measure the recoverable amount of an
intangible asset with an indefinite useful life annually, whether or not there is an indication of
impairment. Goodwill recognized on a business combination is required to be tested for
impairment annually.
Standards Effective Subsequent to 2005
The Accounting Standards Council has also approved the following amendments and new
standards which will become effective after December 31, 2005. The revised disclosures
provided by these amendments and new standards will be included in the Group’s consolidated
financial statements when the Group adopts them subsequent to December 31, 2005 when they
become effective.
·
Amendments to PAS 19, Employee Benefits-Actuarial Gains and Losses, Group Plans and
Disclosures (effective January 1, 2006)
·
Amendments to PAS 39, Financial Instruments: Recognition and Measurement (effective
January 1, 2006)
- 11 ·
PFRS 6, Exploration for and Evaluation of Mineral Resources (effective January 1, 2006),
permits an entity to develop an accounting policy for exploration and evaluation assets
without specifically considering the requirements of SFAS/IAS 8, Accounting Policies,
Changes in Accounting Estimates and Errors. Thus, under PFRS 6, an entity may continue to
use the accounting policies applied immediately before adopting PFRS 6. This includes
continuing to use recognition and measurement practices that are part of those accounting
policies. It also requires entities recognizing exploration and evaluation assets to perform an
impairment test on those assets when facts and circumstances suggest that the carrying
amount of the assets may exceed their recoverable amount. It varies the recognition of
impairment from that in PAS 36, but measures the impairment in accordance with that
standard once the impairment is identified.
·
PFRS 7, Financial Instruments: Disclosures (effective January 1, 2007), applies to all risks
arising from all financial instruments, except those instruments exempted under PFRS 7.
While PFRS 7 applies to all entities, the extent of disclosures required depends on the extent
of the entity’s use of financial instruments and its exposure to risk. PFRS 7 requires
disclosures of the following:
a. the significance of financial instruments for an entity’s financial position and
performance
b. qualitative and quantitative information about exposure to risks arising from financial
instruments, including specified minimum disclosures about credit risk, liquidity risk and
market risk. The quantitative disclosures describe management’s objectives, provide
information about the extent to which the entity is exposed to risk, based on information
provided internally to the entity’s key management personnel. Together, these
disclosures provide an overview of the entity’s use of financial instruments and the
exposures to the risks they create.
Basis of Consolidation
The consolidated financial statements comprise the financial statements as of December 31 of
each year of the Company and the following subsidiaries, which were all incorporated in the
Philippines.
MacroAsia Air Taxi Services, Inc. (MAATS)
MAPDC
MacroAsia-Menzies Airport Services Corporation (MASCORP)
Airport Specialists’ Services Corporation (ASSC)*
MacroAsia-Eurest Catering Services, Inc. (MECS)
MacroAsia Mining Corporation (MMC)**
* A wholly owned subsidiary of MASCORP; has ceased
commercial operations effective May 1, 2001.
** Incorporated on September 25, 2000; has not started commercial operations.
Percentage of Ownership
Direct
Indirect
100
–
100
–
70
–
–
70
67
–
67
–
- 12
The consolidated financial statements are prepared using uniform accounting policies for like
transactions and other events in similar circumstances. Intercompany balances and transactions,
including intercompany profits and unrealized profits and losses, are eliminated.
Minority Interest
Minority interest represents the interest in a subsidiary, which not owned, directly or indirectly
through subsidiaries, by the Company. If losses applicable to the minority interest in a subsidiary
exceed the minority interest’s equity in the subsidiary, the excess, and any further losses
applicable to the minority interest, are charged against the majority interest except to the extent
that the minority has a binding obligation to, and is able to, make good the losses. If the
subsidiary subsequently reports profits, the majority interest is allocated all such profits until the
minority interest’s share of losses previously absorbed by the majority interest has been
recovered.
Investments in Associates
Investments in associates pertain to the Company’s investments in shares of stock of Cebu Pacific
Catering Services Inc. (CPCS), 40%-owned, and LTP and SembLog-MacroAsia Philippines, Inc.
(SMP), 49%-owned (see Note 9). Since the Company has no joint control but instead has
significant influence over LTP and SMP, joint ventures, the Company accounts for its
investments in LTP and SMP in compliance with the provisions of PAS 28.
An associate is an entity in which the Company has significant influence, mainly through
representation in the associate’s BOD and participation in policy-making processes, and which is
neither a subsidiary nor a joint venture.
The Company’s investments in associates are accounted for using the equity method. Under this
method, the investments in associates are carried in the consolidated balance sheets at cost plus
post-acquisition changes in the Company’s share in the net assets of the associate, less any
impairment in value. Dividends are considered return of capital and are deducted from the
investment account.
The consolidated statements of income reflect the Company’s share in the results of operations of
the associates. Unrealized gains arising from transactions with the associates are eliminated to
the extent of the Company’s interests in the associates, against the investments in those
associates. Unrealized losses are eliminated similarly but only to the extent that there is no
evidence of impairment of the asset transferred.
Cash and Cash Equivalents
Cash consists of 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 are subject to an insignificant risk of changes in
value.
- 13 Receivables
Receivables are stated at face value less allowance for doubtful accounts. Provision is made
when there is objective evidence that the Group will not be able to collect debts. Doubtful
accounts are written off when identified.
Financial Assets and Liabilities
Effective January 1, 2005, the Group adopted the following policies in accounting for financial
assets and liabilities.
Financial assets within the scope of PAS 39 are classified as either financial assets at fair value
through profit or loss, loans or receivables, held-to-maturity investments, and available-for-sale
financial assets, as appropriate. Financial liabilities, on the other hand, are classified as either
financial liabilities through profit and loss or other liabilities, as appropriate. The Group
determines the classification at initial recognition and reevaluates this classification at every
reporting date.
Financial assets and liabilities are recognized initially at fair value. Transaction costs are
included in the initial measurement as of all financial assets and liabilities, except for financial
instruments measured at fair value through profit and loss. Fair value is determined by reference
to the transaction price or other market prices. If such market prices are not readily determinable,
the fair value of the consideration is estimated as the sum of all future cash payments or receipts,
discounted using the prevailing market rates of interest for similar instruments with similar
maturities.
The Group recognizes a financial asset or a financial liability in the consolidated balance sheet
when it becomes a party to the contractual provisions of the instrument.
a. Financial Asset or Financial Liability at Fair Value Through Profit or Loss
A financial asset or financial liability is classified in this category if acquired principally for
the purpose of selling or repurchasing in the near term or upon initial recognition, it is
designated by the management as at fair value through profit or loss. Derivatives are also
categorized as held at fair value through profit or loss, except those derivatives designated and
considered as effective hedging instruments. Assets or liabilities classified under this
category are carried at fair value in the consolidated balance sheets. Changes in the fair value
of such assets and liabilities are accounted for in earnings. Financial instruments held at fair
value through profit or loss is classified as current if they are expected to be realized within
twelve months of the balance sheet date.
b. Loans or Receivables
Loans or receivables are non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. They arise when the Group provides money, goods or
services directly to a debtor with no intention of trading the receivables. Loans or receivables
are carried at cost or amortized cost in the consolidated balance sheets. Amortization is
determined using the effective interest rate method. Loans or receivables are included in
current assets if maturity is within twelve months from the balance sheet date. Otherwise,
these are classified as noncurrent assets.
- 14 c. Held-to-maturity Investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable
payments and fixed maturities wherein the Group has the positive intention and ability to hold
to maturity. Held-to-maturity assets are carried at cost or amortized cost in the consolidated
balance sheets. Amortization is determined by using the effective interest rate method.
Assets under this category are classified as current assets if maturity is within twelve months
of the balance sheet date and noncurrent assets if maturity is more than a year.
d. Available-for-sale Financial Assets
Available-for-sale financial assets are non-derivatives that are either designated in this
category or not classified in any of the other category. Available-for-sale financial assets are
carried at fair value in the consolidated balance sheets. Changes in the fair value of such
assets are accounted for in equity. These financial assets are classified as noncurrent assets
unless the intention is to dispose such assets within twelve months from the balance sheet
date.
The Group has not designated any financial asset as held to maturity nor has designated any
financial asset or financial liability as at fair value through profit or loss.
The Group does not actively enter into derivative transactions.
Derecognition of Financial Assets and Liabilities
Financial assets
A financial asset (or, where applicable a part of a financial asset or part of a group of similar
financial assets) is derecognised where:
a. the rights to receive cash flows from the asset have expired;
b. 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
c. the Group has transferred its rights to receive cash flows from the asset and either (a) has
transferred substantially all the risks and rewards of the asset, or (b) has neither transferred
nor retained substantially all 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 and has neither
transferred nor retained substantially all the risks and rewards of the asset nor transferred control
of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the
asset. Continuing involvement that takes the form of a guarantee over the transferred asset is
measured at the lower of the original carrying amount of the asset and the maximum amount of
consideration that the Group could be required to repay.
- 15 Where continuing involvement takes the form of a written and/or purchased option (including a
cash-settled option or similar provision) on the transferred asset, the extent of the Group’s
continuing involvement is the amount of the transferred asset that the Group may repurchase,
except that in the case of a written put option (including a cash-settled option or similar provision)
on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to
the lower of the fair value of the transferred asset and the option exercise price.
Financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or
cancelled or expires.
Where an existing financial liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially modified, such an exchange
or modification is treated as a derecognition of the original liability and the recognition of a new
liability, and the difference in the respective carrying amounts is recognised in profit or loss.
Inventories
Inventories are stated at the lower of cost and net realizable value. Costs incurred in bringing the
product to its present location and condition are accounted for at purchase cost, determined
primarily on the basis of the moving average method. Net realizable value is the selling price in
the ordinary course of business, less the estimated costs of completion and estimated costs
necessary to make the sale.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization and any
impairment in value.
The initial cost of property and equipment comprises of its purchase price, including import
duties, taxes, borrowing costs and any directly attributable costs of bringing the asset to its
working condition and location for its intended use. Expenditures incurred after the property and
equipment have been put into operation, such as repairs and maintenance and overhaul costs, are
normally charged to operations in the period when the costs are incurred. In situations where it
can be clearly demonstrated that the expenditures have resulted in an increase in the future
economic benefits expected to be obtained from the use of an item of property and equipment
beyond its originally assessed standard of performance, the expenditures are capitalized as an
additional cost of property and equipment.
Except for a helicopter unit, which is depreciated based on flying hours, depreciation is computed
using the straight-line method over the estimated useful lives of the assets as follows:
Building
Kitchen and other operations equipment
Office furniture, fixtures and equipment
Aviation equipment
Transportation equipment
Helicopter spare parts
No. of Years
25
3 to 10
3 to 7
5
5
3 to 5
- 16 Building and leasehold improvements are amortized over the terms of the leases or the lives of the
assets (which range from two to five years), whichever is shorter.
Depreciation of an item of property and equipment begins when it becomes available for use, i.e.,
when it is in the location and condition necessary for it to be capable of operating in the manner
intended by management. Depreciation ceases at the earlier of the date that the item is classified
as held for sale (or included in a disposal group that is classified as held for sale) in accordance
with PFRS 5 and the date the asset is derecognized.
The residual values, useful lives and depreciation and amortization method are reviewed
periodically to ensure that the residual values, periods and methods of depreciation and
amortization are consistent with the expected pattern of economic benefits from items of property
and equipment.
When property and equipment are sold or retired, their cost and related accumulated depreciation
and amortization and any impairment in value are removed from the accounts, and any gain or
loss resulting from their disposal is included in the consolidated statements of income.
Construction in progress, included in property and equipment, is stated at cost. This includes cost
of construction, equipment and other direct costs. Borrowing costs that are directly attributable to
the construction of equipment are capitalized during the construction period. Construction in
progress is not depreciated until such time as the relevant assets are completed and become
available for use.
Investment Property
Investment property pertains to land held for future development that is measured at cost less any
impairment in value.
Investment property is derecognized when it has either been disposed of or when the investment
property is permanently withdrawn from use and no future benefit is expected from its disposal.
Any gains or losses on the derecognition of an investment property is recognized in the
consolidated statement of income in the year of derecognition.
Impairment of Financial Assets
The Group assesses at each balance sheet date whether a financial asset or group of financial
assets is impaired.
If there is objective evidence that an impairment loss on loans and receivables carried at
amortized cost has been incurred, the amount of loss is measured as a 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 shall be reduced either directly or through the use of an allowance account. The
amount of loss shall be recognized in the consolidated statements of income. The Group first
assesses whether objective evidence of impairment exists individually for financial assets that are
individually significant, and collectively for financial assets that are not individually significant.
- 17 If it is determined that no objective evidence of impairment exists for an individually assessed
financial asset, whether significant or not, the asset is included in the group of financial assets
with similar credit risk and characteristics and that group of financial assets is collectively
assessed for impairment. Assets that are individually assessed for impairment and for which an
impairment loss is or continue to be recognized are not included in a collective assessment of
impairment.
If, in subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to 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 the consolidated statements of income, to the extent that the carrying value of the
asset does not exceed its amortized cost at the reversal date.
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 the higher of an asset’s or cash generating unit’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 assessments of the time value of money and the risks specific to the asset. Impairment
losses of continuing operations are recognized in the consolidated statements of income in those
expense categories consistent with the function of the impaired asset.
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, had no impairment loss been recognized for
the asset in prior years. Such reversal is recognized in profit or loss unless the asset is carried at
revalued amount, in which case the reversal is treated as a revaluation increase. After such a
reversal, the depreciation 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.
Deferred Mine Exploration Costs
Expenditures for mine exploration works on mining properties are deferred as incurred and
included under the “Deposits and other noncurrent assets” in the consolidated balance sheets.
When, as a result of the exploration work, recoverable reserves are determined to be present in
quantities that can be commercially produced, exploration expenditures and subsequent
development costs are capitalized as mine and mining properties and classified as part of property
and equipment.
- 18 A valuation allowance is provided for estimated unrecoverable costs based on the technical
assessment by the Group of the future prospects of each mining property. When a project is
abandoned, the related deferred mine exploration costs are written-off.
Revenue
Revenue is recognized to the extent that it is probable that the economic benefits associated with
the transactions will flow to the Group and the revenue can be reliably measured.
Sale of goods
Catering revenue is recognized upon delivery of goods to and acceptance by airline clients and
other customers.
Rendering of services
Revenue from ground handling and aviation and administrative services, and charter flights is
recognized when the related services are rendered.
Rental income
Rental income is accounted for on a straight-line basis over the lease term, except for helicopter
rental income which is accounted for based on flying hours.
Interest income
Interest income is recognized as the interest accrues using, where applicable, the effective interest
method, which is the rate that exactly discounts estimated future cash receipts through the
expected life of the financial assets to the net carrying amount of the financial asset.
Retirement Benefits Costs
Retirement benefits costs are actuarially determined using the projected unit credit method.
Actuarial gains and losses are recognized as income or expense when the net cumulative
unrecognized actuarial gains and losses for the plan at the end of the previous reporting year
exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at
that date. These gains or losses are recognized over the expected average remaining working lives
of the employees participating in the plan.
Past service cost is recognized as an expense on a straight-line basis over the average period until
the benefits become vested. If the benefits are already vested immediately following the
introduction of, or changes to, a retirement plan, past service cost is recognized immediately.
The defined benefit liability is the aggregate of the present value of the defined benefit obligation
and actuarial gains and losses not recognized, reduced by past service cost not yet recognized, and
the fair value of plan assets out of which the obligations are to be settled or the aggregate of
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.
- 19 If the asset is measured at the aggregate of 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, net actuarial losses of the current
period and past service cost of the current period are recognized immediately to the extent that
they exceed any reduction in the present value of those economic benefits. If there is no change
or an increase in the present value of economic benefits, the entire net actuarial losses of the
current period and past service cost of the current period are recognized immediately to the extent
that they exceed any reduction in the present value of those economic benefits. Similarly, net
actuarial gains of the current period after the deduction of past service cost of the current period
exceeding any increase in the present value of the economic benefits stated above are recognized
immediately if the asset is measured at the aggregate of 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. If there is no change or a decrease in the present value of the economic
benefits, the entire net actuarial gains of the current period after the deduction of past service cost
of the current period are recognized immediately.
Borrowing Costs
Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are
directly attributable to the acquisition or construction of a qualifying asset. Capitalization of
borrowing costs commences when the activities to prepare the asset are in progress and
expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the
assets are substantially ready for their intended use.
Operating Leases
Lease expense (income) under an operating lease agreement is recognized in the statements of
income as expense (income) on a straight-line basis over the lease term.
Provisions and Contingencies
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 obligation, and a reliable estimate can be made of the amount of the
obligation.
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. A contingent asset is not recognized in the balance sheets but disclosed when an inflow
of economic benefits is probable.
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 at the balance sheet
date.
Deferred tax
Deferred tax assets and liabilities are provided, using the balance sheet liability method, on all
temporary differences at the balance sheet date between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes.
- 20 Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets
are recognized for all deductible temporary differences, carryforward benefits of excess minimum
corporate income tax (MCIT) over the regular corporate income tax (RCIT), and net operating
loss carryover (NOLCO), to the extent that it is probable that taxable profit will be available
against which the deductible temporary differences and the carryforward benefits of excess MCIT
and unused NOLCO can be utilized. Deferred income tax, however, is not recognized when it
arises from the initial recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting profit nor taxable
profit or loss.
Deferred tax liabilities are not provided on non-taxable temporary differences associated with
investments in domestic subsidiaries, associates and interest in joint ventures. With respect to
investments in other subsidiaries, associates and interests in joint ventures, 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 balance sheet date and reduced to
the extent that is no longer probable that sufficient taxable profit will be available to allow all or
part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at
each balance sheet date and are recognized to the extent that it has become probable that future
taxable profit will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the
period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that
have been enacted or substantively enacted at the balance sheet date.
Income tax relating to items recognized directly in equity is recognized in equity and not in the
consolidated statements of income.
Foreign Currency Transactions and Translations
Transactions denominated in foreign currencies are recorded using the exchange rate at the date
of the transaction. Outstanding monetary assets and liabilities denominated in foreign currencies
are restated using the closing exchange rate at balance sheet dates. Foreign exchange gains or
losses are credited to or charged against current operations.
The results and financial position of an associate whose functional currency is not the currency of
a hyperinflationary economy is translated into the Group’s presentation currency using the
following procedures:
a. assets and liabilities for each consolidated balance sheet presented shall be translated at the
closing rate at the consolidated balance sheet date
b. income and expenses for each consolidated income statement shall be translated at exchange
rates at the dates of transactions
c. all resulting exchange differences shall be recognized as a separate component of equity.
- 21 Events after the Balance Sheet Date
Post-year-end events that provide additional information about the Group’s position at the balance
sheet date (adjusting events), if any, are reflected in the consolidated financial statements. Postyear-end events that are not adjusting events are disclosed in the notes to consolidated financial
statements when material.
Earnings Per Share
Basic earnings per share are computed by dividing net income by the weighted average number of
shares outstanding during the year.
4. Segment Information
The Group’s operating businesses are organized and managed separately according to the nature
of aviation-support services provided by the Company’s four operating subsidiaries and MMC,
which is the basis on which the Group reports its primary segment information.
The operating subsidiaries include MECS (in-flight catering services), MASCORP (ground
handling and aviation services), MAATS (helicopter chartering), and MAPDC (economic zone
development/operation). The operations of these subsidiaries are further described as follows:
·
MECS provides the meal requirements of certain foreign and domestic passenger airlines. It
operates an in-flight catering business at the NAIA and the MDA.
·
MASCORP provides both ramp and passenger handling and aviation services to foreign
airlines at NAIA and a domestic carrier at MDA.
·
MAATS, through alliances with other helicopter owners, provides international and domestic
chartered flights from its base at the General Aviation Area, MDA to any point within the
Philippines.
·
MAPDC is the economic zone developer/operator of the MacroAsia Ecozone at NAIA (see
Note 22), with LTP as the anchor locator and to whom MAPDC has sub-leased the property it
leases from Manila International Airport Authority (MIAA) (see Note 27).
MMC, on the other hand, was incorporated to serve as the institutional vehicle through and under
which the business of a mining enterprise may be established, operated and maintained. It has not
started commercial operations.
The Group has only one geographic segment.
Segment assets include the operating assets used by a segment and consist principally of cash and
cash equivalents, receivables, inventories, other current assets, and property and equipment, net of
allowances, depreciation and impairment in value. Segment liabilities include all operating
liabilities and consist principally of accounts payable, accrued wages and other accrued liabilities.
Segment assets and liabilities do not include deferred taxes.
- 22 Financial information on the Group’s business segments as of and for the years ended
December 31, 2005 and 2004 are as follows:
SERVICE REVENUE - External
In-flight catering
Rental and administrative
Ground handling and aviation
Charter flights
Total segment and consolidated revenue
2005
2004
P
=544,773,792
184,502,135
73,295,879
6,811,400
P
=809,383,206
=452,924,401
P
184,502,135
72,535,408
12,397,777
=722,359,721
P
2005
RESULT - Segment result
In-flight catering services
Rental and administrative services
Ground handling and aviation services
Charter flights services
Mining
Total segment result
Unallocated corporate expenses and eliminations
Other income - net
Provision for income tax
Consolidated net income
Attributable to:
Minority interest
Consolidated net income
2004
(As restated,
Note 3)
P
=64,101,958
6,852,676
(6,568,912)
(619,590)
(33,615)
63,732,517
(45,103,413)
118,378,288
(12,613,877)
P
=124,393,515
=40,481,401
P
6,638,085
(610,045)
3,805,817
(29,291)
50,285,967
(21,873,277)
82,071,254
(5,139,486)
=105,344,458
P
P
=119,059,522
5,333,993
P
=124,393,515
=99,593,382
P
5,751,076
=105,344,458
P
OTHER INFORMATION
2005
Segment assets
Mining
Total segment assets
Investments in associates
Investment property - net
Unallocated corporate assets
Consolidated total assets
P
=551,939,712
256,833,017
81,225,090
15,320,323
21,774,982
927,093,124
1,242,374,610
118,680,000
28,507,943
P
=2,316,655,677
2004
(As restated,
Note 3)
=565,133,455
P
129,314,489
104,128,995
16,560,188
7,984,133
823,121,260
1,130,161,360
118,680,000
108,368,654
=2,180,331,274
P
- 23 -
2005
Segment liabilities
Mining
Total segment liabilities
Eliminations
Unallocated corporate liabilities
Consolidated total liabilities
Capital expenditures
Total
Depreciation and amortization
Unallocated corporate depreciation and amortization
Total
Noncash expenses other than
depreciation and amortization
Total
P
=432,661,285
224,487,034
19,665,755
962,238
49,116
677,825,428
(364,854,181)
(31,093,952)
P
=281,877,295
2004
(As restated,
Note 3)
=464,735,122
P
221,652,035
68,329,669
1,343,967
20,000
756,080,793
(408,623,127)
(66,300,075)
=281,157,591
P
2005
2004
P
=11,418,917
2,524,458
9,010,493
87,163
P
=23,041,031
=34,604,578
P
2,914,989
13,416,102
–
=50,935,669
P
2005
2004
P
=45,604,755
1,740,440
9,944,893
285,240
6,160,818
P
=63,736,146
=47,226,352
P
2,289,029
7,560,023
294,816
6,637,268
=64,007,488
P
2005
2004
P
=6,000,000
–
P
=6,000,000
=4,929,149
P
307,159
=5,236,308
P
2005
P
=76,801,735
124,161,992
P
=200,963,727
2004
=98,234,688
P
83,374,360
=181,609,048
P
5. Cash and Cash Equivalents
Cash and cash equivalents consist of:
Cash
Cash equivalents
- 24 Cash in banks earn interest at the respective bank deposits rates. Short-term deposits are made for
varying periods of up to three months depending on the immediate cash requirements of the
Group, and earn interest at the respective short-term deposit rates.
As of December 31, 2005 and 2004, cash includes foreign currency amounting to US$1.1 million
and US$1.0 million, respectively, held by Morgan Stanley in trust for the Company.
6. Receivables
Receivables consist of:
Trade - net of allowance for doubtful accounts of
=8,934,937 in 2005 and P
P
=9,166,472 in 2004
Advances to:
Officers and employees
Suppliers and contractors
Related parties (Note 15)
Dividend receivable (Note 9)
Accrued interest
Others
2005
2004
P
=140,947,832
=142,559,954
P
3,180,853
7,880,452
36,453
3,000,000
49,924
6,121,814
P
=161,217,328
5,643,736
1,724,593
–
–
89,561
4,807,274
=154,825,118
P
2005
P
=15,549,773
8,493,711
P
=24,043,484
2004
=14,118,996
P
9,499,025
=23,618,021
P
2005
2004
P
=43,089,988
15,167,518
19,445,847
4,812,599
P
=82,515,952
=36,309,941
P
14,717,117
7,705,509
5,358,181
=64,090,748
P
7. Inventories
Inventories consist of:
Food and beverage - at cost
Materials and supplies - at cost
8. Other Current Assets
Other current assets consist of:
Input taxes - net of allowance for
probable losses of P
=16,747,839 in 2005 and
=9,921,944 in 2004
P
Creditable withholding taxes
Tax credit certificates
Prepaid expenses and others
- 25 Input taxes represent the value added taxes (VAT) paid on purchases of goods and services which
can be recovered as tax refund/credit, subject to approval by the Bureau of Internal Revenue
(BIR) or the Bureau of Customs. Of the input taxes recoverable as of December 31, 2005, tax
credit certificates amounting to P
=11.7 million and P
=7.7 million in 2005 and 2004, respectively,
were received from the BIR.
9. Investments in Associates
Details of the Company’s investments in shares of stock of LTP, SMP and CPCS are as follows:
Percentage of
ownership
interest
Acquisition costs:
LTP
SMP
CPCS
49
49
40
Accumulated equity in net earnings:
Beginning of year:
As previously reported
Effect of change in accounting for
employee benefits (Note 3)
As restated
Share in associates’ net earnings for the year
Dividend declared
End of year
Share in foreign currency translation
adjustments:
Beginning of year
for the year
End of year
2005
2004
(As restated,
Note 3)
P
=935,759,560
5,508,286
5,000,000
946,267,846
=935,759,560
P
–
5,000,000
940,759,560
194,165,206
133,511,285
53,072,706
247,237,912
119,333,806
(39,604,846)
326,966,872
41,571,516
175,082,801
76,955,111
(4,800,000)
247,237,912
(57,836,112)
(50,720,579)
(7,115,533)
26,976,004
(57,836,112)
(30,860,108)
=1,130,161,360
P
=1,242,374,610 P
LTP
On July 12, 2000, the Company entered into a joint venture agreement with Lufthansa Technik
AG, a corporation organized and existing under the laws of the Federal Republic of Germany, and
formed LTP. LTP provides maintenance, repairs and overhaul services on aircraft and
components at the NAIA and MCIA. The joint venture agreement provides for supermajority
(i.e., two-thirds) vote of directors for the approval of the annual budget as well as other critical
corporate acts of the joint venture.
On December 10, 2002, the BOD approved the additional capital infusion to LTP amounting to
US$4.9 million. The Company made the additional capital infusion on February 19, 2003.
- 26 SMP
On January 24, 2005, the Company entered into a joint venture agreement with SembLog to form
SMP to carry on the business of logistics and supply chain management. The share capital of the
Company and SembLog shall be on a 49:51 proportion basis. The Company and SembLog shall
subscribe to and pay for 98,000 shares and 102,000 shares, respectively, at US$1 per share. The
two companies shall contribute the balance share capital of US$185,000 as follows:
2005
2006
Amount of
Contribution
US$65,000
120,000
US$185,000
MacroAsia
US$31,850
58,800
US$90,650
SembLog
US$33,150
61,200
US$94,350
On October 18, 2005, the Philippine SEC approved the incorporation of SMP. SMP has not yet
started commercial operations.
CPCS
CPCS is the Company’s first in-flight catering venture, which started commercial operations in
1996. It is the only in-flight catering company at MCIA and serves both domestic and
international airlines.
Summarized financial information of the associates follows:
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Equity before foreign currency
Foreign currency translation
adjustments
Revenue
Cost and expenses
Gross profit
Net income (loss)
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Equity before foreign currency
Foreign currency translation
adjustments
(Forward)
LTP
P
=3,195,576,083
2,288,412,425
2,333,215,088
663,682,709
2,665,033,164
(177,942,453)
9,665,879,061
9,419,454,738
1,267,499,424
227,850,784
2005
CPCS
SMP
P
=39,503,962
P
=11,137,092
16,789,613
–
10,813,882
271,062
–
–
45,479,693
10,866,030
–
–
70,597,743
49,983,674
27,030,552
19,217,305
27,092
271,062
27,092
(243,970)
Total
P
=3,246,217,137
2,305,202,038
2,344,300,032
663,682,709
2,721,378,887
(177,942,453)
9,736,503,896
9,469,709,474
1,294,557,068
246,824,119
2004 (As restated, Note 3)
LTP
CPCS
Total
=2,977,139,793
P
=42,838,435
P
=3,019,978,228
P
2,447,285,640
19,349,969
2,466,635,609
2,095,571,359
3,926,016
2,099,497,375
1,069,963,449
–
1,069,963,449
2,533,024,358
(274,133,733)
58,262,388
2,591,286,746
–
(274,133,733)
- 27 -
Revenue
Cost and expenses
Gross profit
Net income
2004 (As restated, Note 3)
LTP
CPCS
Total
=8,839,051,350
P
=63,596,348
P
=8,902,647,698
P
8,686,717,919
44,856,533
8,731,574,452
913,186,489
22,659,356
935,845,845
143,910,116
17,549,211
161,459,327
10. Property and Equipment
Property and equipment consist of:
Cost
Building
Helicopter unit and spare parts
Aviation equipment
Building and leasehold improvements
Accumulated Depreciation and
Amortization
Building
Aviation equipment
Net Book Value
Construction in progress
Total
January 1,
2005
Additions
=247,149,416
P
194,367,481
78,793,660
41,754,058
59,385,964
32,462,690
25,923,248
679,836,517
=4,879,994
P
2,092,129
6,630,245
3,571,733
7,269,913
3,969,109
155,156
28,568,279
(57,238,589) (11,010,841)
(117,549,263) (25,215,647)
(50,984,344)
(9,562,136)
(18,553,450)
(4,287,084)
(26,168,119)
(8,772,866)
(24,387,335)
(3,588,205)
(17,173,662)
(1,299,367)
(312,054,762) (63,736,146)
367,781,755 (35,167,867)
2,841,245
2,306,111
=370,623,000 (P
P
=32,861,756)
January 1,
2004
(As restated,
Note 3)
Cost
Building
Aviation equipment
(Forward)
=242,767,113
P
167,390,195
76,643,171
40,303,798
47,431,934
30,984,545
25,923,248
631,444,004
Additions
P4,382,303
=
27,175,616
3,007,489
1,450,260
11,954,030
1,854,436
–
49,824,134
Retirements/
Disposals
December 31,
2005
=– P
P
=252,029,410
–
196,459,610
(485,858)
84,938,047
–
45,325,791
(1,747,344)
64,908,533
(36,247)
36,395,552
–
26,078,404
(2,269,449)
706,135,347
–
(68,249,430)
–
(142,764,910)
231,478
(60,315,002)
–
(22,840,534)
1,747,342
(33,193,643)
35,393
(27,940,147)
–
(18,473,029)
2,014,213
(373,776,695)
(255,236)
332,358,652
–
5,147,356
(P
=255,236) P
=337,506,008
Retirements/
Disposals
=–
P
(198,330)
(857,000)
–
–
(376,291)
–
(1,431,621)
December 31,
2004
(As restated,
Note 3)
=247,149,416
P
194,367,481
78,793,660
41,754,058
59,385,964
32,462,690
25,923,248
679,836,517
- 28 January 1,
2004
(As restated,
Note 3)
Accumulated Depreciation
and Amortization
Building
Aviation equipment
Net Book Value
Construction in progress
Total
Additions
(P
=46,902,193) (P
=10,336,396)
(91,520,388) (26,207,529)
(42,551,086)
(9,290,258)
(14,542,415)
(4,011,035)
(19,527,839)
(6,640,280)
(20,061,466)
(4,682,976)
(14,334,648)
(2,839,014)
(249,440,035) (64,007,488)
382,003,969
(14,183,354)
14,797,616
2,841,245
=396,801,585 (P
P
=11,342,109)
Retirements/
Disposals
December 31,
2004
(As restated,
Note 3)
=–
P
178,654
857,000
–
–
357,107
–
1,392,761
(38,860)
(14,797,616)
(P
=14,836,476)
(P
=57,238,589)
(117,549,263)
(50,984,344)
(18,553,450)
(26,168,119)
(24,387,335)
(17,173,662)
(312,054,762)
367,781,755
2,841,245
=370,623,000
P
Non-cash investing activities in 2004 consist of the acquisition of production and operations
equipment amounting to P
=2.8 million in credit, which was fully paid in 2005.
11. Investment Property
Investment property pertains to land held for future development with the following details:
Cost
Less impairment loss
=143,880,000
P
25,200,000
=118,680,000
P
MAPDC owns certain parcels of land for future development. MAPDC was incorporated
primarily to engage in the acquisition, development and sale of real properties. After completing
its first project in 1997 and following the Asian economic crisis, MAPDC suspended pursuing
property development projects as its core business and refocused its efforts on potential aviationsupport businesses (see Notes 22 and 27).
In 2002, an impairment loss of P
=25.2 million became evident and was recognized on land held for
future development. This write-down represents the estimated excess of the carrying value of the
property over its recoverable amount, which is based on the estimated net selling price of the
property based on the report of an independent firm of appraisers.
The fair value of the investment property approximates its carrying value based on a valuation
performed by an independent appraiser as of December 31, 2005 and 2004.
- 29 -
12. Deposits and Other Noncurrent Assets
Deposits and other noncurrent assets consist of:
Deposits (Note 27)
Input taxes
Deferred mine exploration costs - net of allowance
for unrecoverable costs of P
=1,215,922 (Note 30)
Others
2005
P
=13,010,503
13,548,738
2004
(As restated,
Note 3)
=36,770,959
P
24,703,189
15,721,460
576,800
P
=42,857,501
1,814,991
576,799
=63,865,938
P
Deposits include a Treasury Note placement amounting to P
=5.0 million, which MECS assigned to
MIAA in compliance with the terms of MECS’ concession agreement with MIAA (see Note 27).
Input taxes represent VAT equivalent to 10% of the value of goods and services purchased by
MECS from VAT-registered suppliers. MECS is entitled to apply for tax refund/credit out of
these input taxes subject to compliance with the procedural and documentation requirements of
the Department of Finance.
The recovery of deferred mine exploration costs depends upon the success of exploration
activities and future development of the corresponding mining properties as well as the discovery
of recoverable reserves in quantities that can be commercially produced.
13. Note Payable
Note payable pertains to uncollateralized short-term loan obtained by MECS from a local bank to
settle its loans from and payables to the Company. This short-term loan carries interest at an
annual average rate of 9.081%. Financing charges in 2005 amounted to P
=1,151,881.
14. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of:
Accounts payable:
Trade
Non-trade
Accrued:
Technical Assistance Fees (TAF)
and Fees on Sales (FOS)
(Forward)
2005
2004
P
=37,052,199
24,933,352
=62,235,781
P
24,812,359
16,983,231
29,742,681
- 30 -
Utilities
Discounts
Withholding taxes
Other accrued liabilities
2005
P
=6,026,777
14,495,117
4,825,487
16,629,127
P
=120,945,290
2004
=7,419,904
P
6,028,883
3,938,814
12,099,960
=146,278,382
P
Other accrued liabilities mainly pertain to accruals for payroll-related expenses and taxes
other than income tax.
15. Related Party Transactions
a. The Group has outstanding Philippine peso and US dollar-denominated short-term
investments as well as current and savings deposits, which bear interest based on prevailing
market rates, with Allied Banking Corporation (ABC). Total deposits and cash equivalents
amounted to P
=72.2 million in 2005 and P
=46.2 million in 2004.
In addition, the Company leases from ABC the office space it currently occupies. The lease
agreement is for a period of two years with an annual rental rate subject to review every year.
Total rent expense amounted to P
b. MAPDC has a contract with LTP covering the sub-lease of a parcel of land located within
NAIA. The contract, which commenced on September 1, 2000, shall be for a period of
25 years and renewable for another 25 years thereafter. The rental charge, which is at normal
market rate, shall be subject to a fixed price escalation and guaranty. Monthly fee due from
LTP is equivalent to MAPDC’s cost of leasing the land from MIAA, plus administrative fees
(see Note 27). MAPDC received refundable rental deposit from LTP amounting to
=24.6 million.
P
As discussed in Note 3, the rental deposits received from LTP amounting to P
=24.6 million
was valued and reported at its present value of P
=1.0 million in the 2005 consolidated balance
sheet. The difference between the face amount and present value of the deposits at inception
date amounting to P
=19.1 million was treated as a unearned rent income and amortized over
the term of the lease.
Further, as a result of the straight-line recognition of operating lease income, accrued rental
receivable amounted to P
=79.0 million and P
=66.2 million as of December 31, 2005 and 2004,
respectively.
c. In June 2004, MASCORP purchased aviation and transportation equipment from Philippine
Airlines, Inc. (PAL), an affiliate, for P
=10.4 million, which remained unpaid as of
December 31, 2004. Previously, these equipment were leased by MASCORP from PAL. In
2004, MASCORP reversed rent payable to PAL amounting to P
=14.1 million following the
completion of its account reconciliations with PAL.
d. MASCORP provides ground handling services to Air Philippines, Inc. (Air Phil.), an affiliate,
amounting to P
=30.3 million in 2004. The related receivables as of
December 31, 2005 and 2004 amounted to P
=3.0 million and P
- 31 e. In 2004, MASCORP assumed PAL’s trade payables to MECS amounting to P
=3.2 million by
way of offset against MASCORP’s rent payables to PAL. These were subsequently paid in
2005.
f.
MECS has various advances from PAL amounting to P
=3.3 million and P
=0.9 million as of
December 31, 2005 and 2004, respectively, relating to MECS’ operations in the passenger
lounge at NAIA.
g. MECS provides catering services in LTP’s canteen. MECS’ revenue from catering services
amounted to P
h. The Group has a trust fund for its retirement plan with ABC. As of December 31, 2005 and
2004, the fund assets amounted to P
=0.3 million.
i.
Short-term employee benefits of the Company’s key management personnel amounted to
=11.1 million and P
P
=10.2 million in 2005 and 2004, respectively.
16. Loans from and Payables to Subsidiaries’ Stockholders
Loans from and payables to subsidiaries’ stockholders consist of:
(a) accrued interest payable of MECS to the Company’s two corporate partners in MECS, namely
Singapore Airport Terminal Services Ltd. (SATS) and Compass Group International B.V.,
formerly known as Eurest International B.V. (Eurest), amounting to P
=10.2 million and
=9.6 million, respectively, as of December 31, 2005 and December 31, 2004. The loans were
P
used to support the construction of MECS’ kitchen facility and its working capital
requirements.
(b) noninterest-bearing loan of MASCORP from the Company’s corporate partner in MASCORP,
Menzies Aviation Group Services (Asia Pacific) LLC (Menzies), amounting to P
=10.1 million
as of December 31, 2004 for MASCORP’s working capital requirements.
In 2005, the BOD of Menzies and MASCORP’s BOD resolved that these noninterest-bearing
loans are in substance strategic investment in MASCORP rather than liabilities, hence, the
loans were reclassified and presented as “Deposit for future stock subscription” in
MASCORP’s 2005 balance sheet.
17. Direct Cost
Direct cost consists of:
Food
Lease (Note 27)
Salaries and wages
(Forward)
2005
P
=216,081,019
160,512,683
75,390,693
2004
(As restated,
Note 3)
=169,906,012
P
168,360,898
60,096,745
- 32 -
Depreciation (Note 10)
Overhead
Employee benefits (Note 20)
Rent
Repairs and maintenance
Laundry
Storage and brokerage
Others
2005
P
=47,502,368
45,613,933
14,652,621
10,714,236
5,612,084
3,406,806
2,476,541
26,171,902
P
=608,134,886
2004
(As restated,
Note 3)
=45,955,238
P
41,567,263
22,208,822
7,848,214
6,768,784
2,931,574
2,117,216
16,698,279
=544,459,045
P
2005
P
=48,385,605
20,220,569
16,233,778
8,559,297
8,369,979
7,712,593
7,624,458
7,019,416
6,949,279
5,873,170
3,747,892
3,681,756
3,486,003
2,856,777
2,368,995
1,695,865
13,529,416
P
=168,314,848
2004
(As restated,
Note 3)
=43,021,359
P
18,516,437
18,052,250
5,498,937
4,986,238
6,118,191
6,435,190
5,895,166
4,929,149
5,971,094
1,410,712
1,623,241
4,969,970
2,211,245
–
1,733,242
15,638,861
=147,011,282
P
2005
P
=8,307,044
5,997,324
P
=14,304,368
2004
=5,876,051
P
8,101,843
=13,977,894
P
18. General and Administrative Expenses
General and administrative expenses consist of:
Salaries and wages
Employee benefits (Note 20)
Depreciation and amortization (Note 10)
Repairs and maintenance
Professional and legal fees
Rent (Note 15)
Utilities
Supplies
Provision for doubtful accounts
Security and janitorial
Transportation and travel
Technical assistance fees (Note 27)
Taxes and licenses
Entertainment, amusement and recreation
Project and development
Insurance
Others
19. Selling Expenses
Selling expenses consist of:
Fees on sales (Note 27)
Advertising and promotions
- 33 20. Retirement Benefits Costs
The Group has a funded, noncontributory defined benefit group retirement plan, administered by
a trustee, covering all of their permanent employees. The following tables summarize the
components of the net benefit expense recognized in the consolidated statements of income and
the funded status and amounts recognized in the consolidated balance sheets:
The details of net benefits expense are as follows:
Current service cost
Interest cost on benefit obligation
Expected return on plan assets
Net actuarial gain recognized during the year
Portions recognized in:
Direct costs
General and administrative expenses
Actual return on plan assets
2005
P
=904,606
571,120
(30,000)
(51,586)
P
=1,394,140
2004
(As restated,
Note 3)
=1,068,478
P
526,256
–
–
=1,594,734
P
P
=754,104
640,036
P
=1,394,140
=829,694
P
765,040
=1,594,734
P
P
=30,000
=–
P
The details of benefit liability are as follows:
Defined benefit obligation
Fair value of plan assets
Unrecognized net actuarial losses
2005
P
=4,013,020
336,213
3,676,807
2,682,299
P
=6,359,106
2004
(As restated,
Note 3)
=4,079,436
P
300,000
3,779,436
1,900,761
=5,680,197
P
Changes in present value of defined benefit obligation are as follows:
Defined benefit obligation, January 1
Current service cost
Interest cost
Benefits paid
Actuarial gains on obligation
Defined benefit obligation, December 31
2005
P
=4,079,436
904,606
571,120
(715,231)
(826,911)
P
=4,013,020
2004
(As restated,
Note 3)
=4,385,463
P
1,068,478
526,256
–
(1,900,761)
=4,079,436
P
- 34 Changes in fair value of plan assets are as follows:
2005
P
=300,000
30,000
–
6,213
P
=336,213
Fair value of plan assets, January 1
Expected return on plan assets
Actual contributions to the plan
Actuarial gain
Fair value of plan assets, December 31
2004
(As restated,
Note 3)
=–
P
–
300,000
–
=300,000
P
The major categories of plan assets as a percentage of the fair value of total plan assets are as
follows:
2004
100.00
–
–
100.00
2005
89.40
8.60
2.00
100.00
Investments in government securities
Receivables
The overall expected return on the plan assets is determined based on the market prices
prevailing on that date applicable to the period over which the obligation is to be settled. There
has been no significant change in the expected rate of return on plan assets.
The principal assumptions used in determining retirement benefits for the Group’s plan are as
follows:
2004
201
14%
10%
5%
2005
287
12%
10%
5%
Number of employees
Discount rate per annum
Expected annual rate of return on plan assets
Future annual increase in salary
21. Foreign Currency-Denominated Monetary Assets and Liabilities
The Group’s foreign currency-denominated monetary assets and liabilities as of December 31 are
as follows:
2004
2005
Assets
Receivables
Liabilities
Accounts payable and accrued liabilities
Loans from and payables to
subsidiaries’ stockholders
Net foreign currency-denominated
monetary assets
US Dollars
Peso
Equivalent
US Dollars
Peso
Equivalent
2,736,848
2,208,129
4,944,977
145,217,155
117,163,325
262,380,480
2,587,611
1,683,572
4,271,183
145,630,747
94,751,432
240,382,179
78,232
4,150,990
115,488
6,499,644
–
78,232
–
4,150,990
180,023
295,511
10,131,694
16,631,338
4,866,745
258,229,490
3,975,672
223,750,841
- 35 As of December 31, 2005 and 2004, the exchange rates of the Philippine Peso to United States
dollar were P
=53.06 and P
=56.28 to US$1, respectively. As of March 30, 2006, the exchange rate is
=51.25 to US$1.
P
22. Registrations with the Board of Investments (BOI) and the
Philippine Economic Zone Authority (PEZA)
a. MECS is registered with the BOI under Executive Order No. 226, otherwise known as the
Omnibus Investments Code of 1987, as a new service exporter in the field of airline catering
and in-flight services on a preferred non-pioneer status. As such, MECS is entitled to certain
tax and nontax incentives including, among others, income tax holiday for a period of four
years until April 2002. In 2002, MECS secured a final extension of its income tax holiday
status up to April 2003. Accordingly, MECS became subject to income tax starting
May 2003.
b. On August 31, 2000, PEZA approved the application of MAPDC to register and operate
a special economic zone (MacroAsia Ecozone) at Philippine Airlines Technical Center
(PATC). Under the terms of its registration, MAPDC is subject to certain requirements and is
entitled to certain tax benefits provided for under Republic Act No. 7916 (The Special
Economic Zone Act of 1995), as amended by Republic Act No. 8748, which include, among
others, the exemption from payment of all national internal revenue taxes and all local
government import fees, licenses or taxes. In lieu thereof, MAPDC shall pay a 5% final tax
on gross income earned from its operation of the MacroAsia Ecozone.
23. Income Taxes
a. The Group’s deferred tax assets and deferred tax liability are as follows:
2005
Deferred tax assets (liability) on:
Allowances for:
Probable losses of a subsidiary
Doubtful accounts of subsidiaries
Accrued retirement benefits costs of subsidiaries
Unrealized foreign exchange losses of
subsidiaries
Lease rental:
Receivables of a subsidiary
Liabilities of a subsidiary
MCIT of a subsidiary
Deferred tax liability on unrealized foreign
exchange gain of the Company and a subsidiary
2004
(As restated,
Note 3)
P
=4,383,729
697,655
1,133,005
=2,087,981
P
971,541
1,364,773
2,195,786
287,515
3,950,679
(3,950,679)
–
P
=8,410,175
3,308,269
(3,308,269)
1,980,860
=6,692,670
P
P
=220,804
=304,506
P
- 36 b. As of December 31, 2005, the Company’s and MASCORP’s MCIT that can be credited
against future RCIT due is as follows:
Incurred in
Year Ended
December 31
Available for Credit
Until Year Ending
December 31
The Company
2003
2004
2005
2006
2007
2008
=948,399
P
703,379
614,907
2,266,685
MASCORP
2005
2008
164,409
=2,431,094
P
Amount
MCIT incurred in 2002 by the Company amounting to P
=622,891 expired in 2005.
c. As of December 31, 2005, the Company’s, MASCORP’s and ASSC’s NOLCO available for
deduction from future taxable income are as follows:
Incurred in
Year Ended
December 31
Available Until
Year Ending
December 31
The Company
2005
Available
NOLCO
Tax Effect
2008
=13,319,850
P
=4,661,947
P
MASCORP
2005
2008
3,819,261
1,336,741
ASSC
2003
2004
2005
2006
2007
2008
59,359
3,486
18,535
81,380
=17,220,491
P
17,075
1,115
6,487
24,677
=6,023,365
P
NOLCO incurred in 2002 by the Company amounting to P
=291,595, with tax effect of
=93,310, was applied in 2004. Unused NOLCO as of December 31, 2004 amounting to
P
=6,077,480, with tax effect of P
P
=1,944,794, has expired in 2005.
NOLCO incurred in 2002 by ASSC amounting to P
=32,950, with tax effect of P
=10,544,
expired in 2005.
- 37 c. As of December 31, 2005 and 2004, the deductible temporary differences, MCIT and NOLCO
for which no deferred tax assets were recognized in the consolidated balance sheets are as
follows:
2005
Deductible temporary differences on:
Impairment in value of investment property
Deferred revenue
Allowances for probable losses on:
Doubtful accounts
Input VAT
Deferred mine exploration costs
Accrued retirement benefits payable
Unrealized foreign exchange losses
Preoperating expenses
NOLCO
MCIT
2004
(As restated,
Note 3)
P
=25,200,000
10,743,175
=25,200,000
P
11,522,106
7,585,951
3,879,838
1,215,922
3,147,669
6,905,317
423,357
17,220,491
2,431,094
6,473,510
3,053,944
1,215,922
1,448,936
3,594
101,507
6,077,480
2,274,669
e. The current provision for income tax in 2005 consists of the MCIT of the Company and
MASCORP, the RCIT of MECS and MAATS, the 5% final tax on MAPDC’s gross income
from its PEZA-registered activities (see Note 22). The current provision for income tax in
2004 represents the Company’s and MECS’ MCIT, the RCIT of MASCORP and MAATS,
the 5% final tax on MAPDC’s gross income from its PEZA registered activities and
MAPDC’s RCIT on its non-PEZA registered activities.
f.
A reconciliation of the provision for income tax computed based on income before income tax
at the statutory tax rates to the provision for income tax as shown in the consolidated
statements of income is as follows:
2005
Provision for income tax computed at the
statutory tax rates
Adjustments resulting from:
Equity in net income of associates
Deductible temporary differences for which no
deferred tax assets were recognized in prior
years but were used or for which deferred
tax assets were recognized in current year
Deductible temporary differences
for which no deferred tax assets
were recognized
(Forward)
2004
(As restated,
Note 3)
P
=44,527,402
=35,354,862
P
(38,783,487)
(24,625,635)
(272,625)
(4,445,270)
10,506,614
939,396
- 38 -
2005
Interest income already subjected to
final tax at lower rates
Nondeductible loss/income exempt from tax
or subjected to final tax
Change in tax rate and others
Provision for income tax
2004
(As restated,
Note 3)
(P
=1,777,933)
(P
=1,043,962)
1,820,331
(3,406,425)
P
=12,613,877
1,633,164
(2,673,069)
=5,139,486
P
g. On May 24, 2005, the new Expanded-Value Added Tax (E-VAT) law was signed as Republic
Act No. 9337 or the E-VAT Act of 2005. The E-VAT law took effect on November 1, 2005
following the approval on October 19, 2005 of Revenue Regulations 16-2005 which provides
for the implementation of the rules of the new E-VAT law. Among the relevant provisions of
the new E-VAT law are:
i.
change in corporate income tax rate from 32% to 35% for the next three years effective
on November 1, 2005, and 30% starting on January 1, 2009 and thereafter
ii. a 70% cap on the input VAT that can be claimed against output VAT
iii. increase in the VAT rate imposed on goods and services from 10% to 12% effective
January 1, 2006 provided that the VAT collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds 2.8% or the Philippine national government
deficit as a percentage of GDP of the previous year exceeds 1.5%
On January 31, 2006, the President, upon recommendation of the Secretary of Finance,
approved the 2% increase in VAT rate effective on February 1, 2006.
24. Stock Rights and Warrants
On March 22, 2000, the Board of Governors of the Philippine Stock Exchange (PSE) approved
the Company’s application to list 250 million Rights Shares with 500 million Warrants attached
to and detachable from the Rights Shares (the Offer) to eligible shareholders in good standing as
of the record date of April 12, 2000. The SEC issued on July 19, 2000 a Certificate of Permit to
Offer Securities for Sale to the Company. The Rights Shares were offered at a price of P
=2 each,
payable in full on the basis of one Rights Share for every four common shares held as of the
record date. No fractional shares were issued. The Warrants were issued at a price of P
=0.10 each,
payable in full on the basis of two Warrants attached to and detachable from each Rights Share.
Subscription to the Warrants was optional. However, eligible shareholders subscribed to the
Warrants upon subscription to the Rights Shares.
- 39 Each Warrant entitles the holder thereof to the right to subscribe to one New Common Share with
a par value of P
=1 in the capital of the Company at an exercise price of P
=6. Initially, the Warrants
were exercisable within 10 trading days immediately before the end of the three-year period from
the listing date. Furthermore, each Warrant granted the right to additional Warrants or adjustment
to the terms of the Warrants upon the occurrence of certain events such as:
a.
b.
c.
d.
e.
Change in par value of each share
Payment of stock dividends
Merger, consolidation and/or reorganization
Disposition of a substantial portion of the Company’s assets to stockholders for cash
Offer of new shares at a price lower than the exercise price
In view of the SEC’s approval of the Offer, the Company filed an application for increase in
authorized capital stock from P
=1 billion, divided into 1 billion shares, to P
=2 billion, divided into
2 billion shares, all with par value of P
=1 per share, as approved by the stockholders on July 18,
1997. The application was approved by the SEC on June 2, 2000.
The Rights Shares represented 20% of the Company’s total number of shares outstanding of
1.25 billion immediately after the Offer. Subsequently, upon full exercise of the Warrants, the
outstanding shares of the Company will increase to 1.75 billion.
The Rights Shares and the underlying Shares of the Warrants will be eligible for payment of
dividends in accordance with the Company’s dividend policy, which depends upon the
Company’s earnings, cash flows and financial condition, among other factors.
As of December 31, 2000, the Rights Shares and the Warrants have been fully subscribed and
paid-up. The additional paid-in capital of P
=231.4 million (net of stock issuance costs of
=18.6 million) resulting from the issuance of 250 million shares subscribed at P
P
=2 per share and
the outstanding warrants amounting to P
=50 million are presented in the equity section of the
consolidated balance sheets.
On June 4, 2002, the Board of Directors extended the exercise period of the Warrants from the 10
trading day period immediately preceding the end of three years from the listing date of the
Warrants to the 10 trading day period immediately preceding the end of five years from the listing
date of the Warrants. The extension was approved by the SEC and the PSE on July 12, 2002 and
August 28, 2002, respectively.
In 2005, the extension of the exercise period of the warrants has expired. The P
=50 million
warrants were accordingly reclassified to additional paid-in capital in the equity section of the
consolidated balance sheets.
- 40 -
25. Basic Earnings Per Share
Basic earnings per share are computed as follows:
2005
Net income attributable to equity holders
of the parent
Divided by weighted average number of
common shares outstanding
2004
(As restated,
Note 3)
P
=119,059,522
=99,593,382
P
1,250,000,000
P
=0.0952
1,250,000,000
=0.0797
P
26. Retained Earnings
The undistributed earnings of subsidiaries and associates amounting to P
=313.3 million as of
December 31, 2005, which are included in retained earnings, are not available for declaration as
dividends until declared by such subsidiaries and associates.
On July 15, 2005, the Company declared cash dividends of P
=0.02 per share to the stockholders of
the Company of record as of July 29, 2005. The cash dividends have been fully paid on
August 24, 2005.
27. Significant Agreements and Commitments
a. Concession Agreements
i.
In 1996, the Company assigned to MECS all its rights and obligations under the
concession agreement it entered in the same year with MIAA to exclusively operate an inflight catering service for civil and/or military aircraft operating at the NAIA and/or
MDA. The concession agreement is for a period of five years from the start of operations
of the catering services, renewable every year thereafter upon mutual agreement of the
parties. In consideration for the concession privilege, MECS pays MIAA a monthly
concession privilege fee (CPF) in the amount equivalent to 7% of MECS’ monthly gross
income on catering services. MECS also assigned its Treasury Note placement
amounting to P
=5 million (included under the “Deposits and other noncurrent assets”, see
Note 12) to MIAA in compliance with the concession agreement.
The concession agreement expired on August 2003. Starting October 13, 2003, the
concession contract commenced on a month-to-month basis.
ii. In 1999, MASCORP entered into a concession agreement with MIAA to operate domestic
and international ground handling services at Terminal 1 for a period of one year subject
for renewal at the sole option of MIAA. In consideration of the concession privilege,
MASCORP pays MIAA a monthly CPF in the amount equivalent to 7% of MASCORP’s
monthly gross income on domestic and international ground handling services.
- 41 b. License and Technical Assistance Agreement
In 1996, MECS entered into a license and technical assistance agreement with Eurest,
whereby Eurest shall grant MECS the following:
i.
The license to exclusively use the Mark and System of Eurest (the System) for the
purpose of establishing and operating an in-flight or airline catering business at NAIA,
MDA and the General Aviation Areas
ii. The benefits and advantages of the System by rendering to MECS technical assistance in
establishing and operating its business
In consideration of the foregoing, MECS pays Eurest, subject to certain conditions as
specified in the agreement, the following fees:
i.
Fee based on a certain percentage of sales
ii. TAF at a fixed rate based on earnings before depreciation, interest and taxes
This agreement shall remain for an initial period of 10 years from date of execution. It shall
be automatically renewed for another 10 years unless terminated by either party. Total fees on
sales for Eurest in 2005 and 2004 amounted to P
=5.5 million and P
TAF amounted to P
c. Marketing and Commercial Assistance Agreement
In 1998, MECS entered into an agreement with SATS, whereby SATS shall provide
marketing and commercial services to MECS. In consideration of the foregoing, MECS pays
SATS, subject to certain conditions as specified in the agreement, the following fees:
i.
Fee based on a certain percentage of sales
ii. Marketing and commercial assistance fee at a fixed rate based on earnings before
depreciation, interest and taxes
This agreement shall continue in full force for as long as the Company, Eurest and SATS
remain as shareholders of MECS, unless terminated by one party. Total fees on sales for
SATS amounted to =
P2.8 million in 2005 and P
=1.8 million in 2004. Management and
commercial assistance fees amounted to P
d. Lease Agreements
i.
In 1996, the Company assigned to MECS all of its rights and obligations under the lease
agreement it entered in the same year with MIAA for the use of a parcel of land where its
catering concession facilities are located. The lease is for a period of 10 years starting six
months from the start of the construction of the facilities up to 2007, renewable every five
years under such terms and conditions as may be agreed upon by both parties. Minimum
annual lease rental amounted to P
=8.5 million.
- 42 ii. On August 7, 2000, MAPDC entered into a lease contract with MIAA covering the use
for 25 years of 23 hectares of land within NAIA. Significant terms and conditions of the
contract are as follows:
1. MAPDC is allowed to sub-lease the leased property to an affiliate. Since the leased
property is declared as an economic zone, the sublease is preferably extended by
MAPDC to an entity that is registered with PEZA.
2. MAPDC and/or its sub-lessee intends to invest US$200 million over the next five
years into the PATC at NAIA by introducing additional capabilities and enhancing
the competitiveness of PATC in terms of productivity, quality, turnover time and
customer orientation.
3. The monthly rental fee shall be P
=53.34 per square meter or a total of P
=12.1 million,
with guaranty deposit of two months advance rental. The rental and other charges
shall be subject to a fixed price escalation of 5% starting on the sixth year and by
another 5% on years 11, 16 and 21. The escalation shall be on a compounded basis.
4. The contract may be terminated and cancelled at the instance of MAPDC if:
a. MAPDC, its sub-lessee or any of its successors-in-interest, cease to operate their
business
b. MIAA or the government decides to transfer the airport to another location,
making it impossible for MAPDC to conduct its business
Future minimum rentals payable as of December 31, 2005 under MAPDC’s operating
lease agreement with MIAA are as follows:
Within one year
After one year but not more than five years
After more than five years
Amount
=152,505,941
P
612,565,529
2,470,691,558
As discussed in Note 3, the rental deposit made to MIAA amounting to P
=24.6 million was
valued and reported at its present value of P
=1.0 million in the 2005 consolidated balance
sheet. The difference between the face amount and present value of the deposits at
inception date amounting to P
=19.1 million was treated as deferred rent expense and
amortized over the lease term.
Further, as a result of the straight-line recognition of operating lease expense, accrued
rental payable amounted to P
=79.0 million and P
=66.2 million as of December 31, 2005 and
2004, respectively.
iii. MASCORP has a lease agreement with MIAA for the lease of office space for a period of
one year, with monthly rental of P
=0.2 million, and renewable at the sole option of MIAA.
The lease agreement has been renewed up to 2005.
- 43 iv. MASCORP has a lease agreement with PAL for the lease of airline ground handling
equipment and office space at monthly rental charges amounting to P
=0.5 million and
=0.02 million, respectively (see Note 15). The lease is for a period of one year, which
P
commenced on November 15, 1998, renewable upon mutual written agreement on a yearto-year basis. The lease agreement was terminated in June 2004.
28. Financial Risk Management Objectives and Policies
The Group’s principal financial instruments comprise of its notes payable and loans from
stockholders which were obtained primarily to raise funds for the Group’s operations. The Group
has other financial assets and liabilities such as cash and cash equivalents, trade receivables and
payables which arise directly from its operations.
It is, and has been throughout the year under review, the Group’s policy that no trading in
financial instruments shall be undertaken.
The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk,
foreign currency risk and credit risk. The BOD reviews and agrees on policies for managing these
risks and they are summarized as follows:
Interest rate risk
The Group’s exposure to the risk for changes in market interest rates relates primarily to the
Group’s notes payable and long-term debt obligations with floating interest rates.
Liquidity risk
The Group’s objective is to maintain a balance between continuity of funding and flexibility
through the use of bank loans.
Foreign currency risk
The Group’s transactional currency exposure arises from sales in currencies other than its
functional currency and retaining its cash substantially in currency other than its functional
currency. Approximately 90% of the MECS’ sales are denominated in currencies other than its
functional currency.
Credit risk
The Group trades only with related parties and duly evaluated and approved creditworthy third
parties. It is the Group’s policy that all customers that wish to trade on credit terms are subject to
credit verification procedures. In addition, receivable balances are monitored on a continuous
basis with the result that the Group’s exposure to bad debts is not significant.
With respect to credit risk arising from other financial assets of the Group, the Group’s exposure
to credit risk arises from default of the counterparty, with a maximum exposure equal to the
carrying values of these instruments. The Group only deals with financial institutions that have
been approved by the BOD of the Company and its subsidiaries.
- 44 -
29. Financial Instruments
Fair Values
The following summarizes the carrying values of the Group’s financial assets and liabilities as of
December 31, 2005:
Financial assets
Cash
Receivables
Deposits
Financial Liabilities
Notes payable
Accounts payable
Dividends payable
Loans from and payables’ to subsidiaries
Rental deposit
=200,963,727
P
161,217,328
13,010,503
27,500,000
99,490,676
7,137,132
19,732,606
1,034,395
The carrying amounts of the Company’s financial assets and liabilities approximate their fair
values either because of their short-term nature or the interest rates that they carry which
approximate interest rates for comparable instruments in the market.
Interest Rate Risk
The Group is exposed to interest rate risk with respect to its notes payable with a carrying value
of P
=27.5 million as of December 31, 2005, that carries interest at a floating rate (see Note 13).
30. Others
a. Blue Ridge Mining Corporation (Blue Ridge) and Celestial Nickel Mining Corporation
(Celestial) filed a case against the Company with the office of the Mines and Geosciences
Bureau (MGB) in December 1995 and the Regional Panel of Arbitrators of the Department of
Environment and Natural Resources (DENR) in February 1997, respectively, involving the
cancellation of the Company’s mining lease contracts.
On November 26, 2004, the Mines Adjudication Board (MAB) of DENR issued a resolution
in favor of the Company, declaring the seven lease contracts of the Company as subsisting
prior to their expirations without prejudice to any decision or order that the Secretary may
render on the same. No preferential right over the same mining lease claims is accorded to
Blue Ridge or Celestial without prejudice to the determination by the Secretary over the
matter at the proper time.
Blue Ridge filed a Motion for Reconsideration with the DENR, while Celestial filed an
appeal before the Court of Appeals (CA).
- 45 On April 25, 2005, the Company received a copy of the decision of the CA affirming the
November 26, 2004 decision of MAB. A Motion for Reconsideration was filed by Celestial
but the same was denied by the CA. Celestial filed for a Petition for Review on Certiorari
before the Supreme Court (SC).
On September 19, 2005, Blue Ridge filed a Petition for Review before the CA. On
February 20, 2006, Celestial filed a Motion for Issuance of Temporary Restraining
Order/Preliminary Prohibitory Injunction/Mandatory Injunction before the SC.
As of March 30, 2006, the SC has yet to rule on the Petition for Review on Certiorari of
Celestial and the CA has yet to rule on the Petition for Review filed by Blue Ridge. In both
cases, considering what have been decided upon by the courts and DENR, the Company’s
rights to the mining area may likely be affirmed by the higher courts.
b. On March 28, 2006, the Company received the Mineral Production Sharing Agreement
(MPSA) from the MGB of the DENR. The MPSA covers 1,114 hectares of land situated in
Brooke’s Point, Palawan.
With the MPSA, the Company shall have the exclusive right to conduct mining operations
within, but not title over, the contracted area. Mining operations that are allowed include
exploration, development and utilization for commercial purposes of nickel, chromite, iron
and other associated mineral deposits that may be found in the area.
The MPSA runs for a term not exceeding 25 years from the date of the grant of the MPSA,
and is renewable for another term not exceeding 25 years under the same terms and
conditions, without prejudice to changes that will be mutually agreed upon by the
Government and the Company.
Schedule B - Amounts Receivable from Directors, Officers, Employees, etc.
For the Year Ended December 31, 2005
Deductions
Balance at
Beginning of
Period
Name and Designation of Debtor
Rank and file employees
Lucio K. Tan, Jr., Former President
Reynaldo O. Munsayac, VP - Finance & Administration
Marivic T. Moya, VP - HR,Legal & External Relations
Christopher C. Lu, VP - Marketing & Facilities Mgt.
Amador T. Sendin, VP - Planning/Business Development
Tomas Jamtander, General Manager (MECS)
Ferdinand Ylagan, Marketing Manager
Total
P
P
Additions
3,465,564
312,500
1,562,500
62,500
109,948
62,083
62,500
6,142
1,882,950
5,643,736
2,633,284
50,000
601,646 *
98,688
Amounts
Collected
Amounts
Written-off
Not Current
4,906,144 * *
P
442,369
312,500
1,562,500
62,500
108,316
62,083
62,500
568,085
P
3,180,853
51,631
39,703
33,467
5,030,946
* P600,000 represents advance payment and deposit to suppliers
** Collection of receivables amounting to P3.1 million represents liquidation of company expenses with proper supporting documents
87
Current
Balance at
End of
Period
-
-
-
Schedule C - Non-Current Marketable Equity Securities, Other Long-Term Investments and Other Investments
Beginning Balance
Name of Issuing Entity and
Description of Investment
Number of
Shares or
Principal
Amount of
Percent
Bonds & Notes Owned
Additions
Amount
in Pesos
Interest in Joint Venture
Lufthansa Technik Philippines, Inc.
833,000,000
49%
P 1,053,783,700
Investment in Associate
Cebu Pacific Catering Services, Inc.
5,000,000
40%
P
23,304,954
Semblog MacroAsia Philippines, Inc.
98,000
49%
P
5,508,286
Total
838,098,000
P 1,082,596,940
Equity in
Earnings (Losses)
of Investees
for the Periood
111,646,884
Deductions
Others
(1)
80,048,710
7,686,922
119,333,806
80,048,710
Note :
(1)
Addition under "Others" represents the following :
Effects of changes in accounting for employee benefits (please see
Note 3 of the Company's Notes to Consolidated Financial Statements).
53,072,706
Net foreign currency translation adjustments for the year
26,976,004
Total
80,048,710
88
Distribution of
Earnings by
Investees
Ending Balance
Number of
Shares or
Principal
Percent
Amount of
Owned Bonds & Notes
Others
Amount
in Pesos
26,804,846
49%
12,800,000
40%
5,000,000 P
18,191,876
49%
P
5,508,286
39,604,846
-
Dividends
Received/
Accrued from
Investments
Not Accounted
for by the
Equity Method
833,000,000 P 1,218,674,448
838,000,000 P 1,242,374,610 P
-
Schedule E - Intangible Assets - Other Assets
Deduction
Beginning
Balance
Description
Additions
at Cost
Charged to
Cost and
Expenses
Charged to
Other
Accounts
Other
Changes
Additions
(Deductions)
Ending
Balance
OTHER ASSETS
Deposits
Input taxes
Deferred mine exploration costs - net
Others
Total
(a)
(b)
P
36,770,959
24,703,189
1,814,991
576,799
17,758,004
15,122,391
205,855
63,865,938
32,880,395
23,554,601
28,912,455
13,010,503
13,548,738
15,721,460
576,800
1,215,922
1,421,777
52,467,056
-
P
42,857,501
Notes :
(a)
Charged to other accounts represent amounts reclassified to Deferred Rent Expense and the related Interest Income (or Retained Earnings for amounts
pertaining to previous years), as a result of the adoption of PAS 39, Financial Instruments (please see Note 3 of the Notes to Consolidated Financial Statements).
(b)
Charged to other accounts represents application against output taxes.
Other deductions represent reclassification to recoverable input taxes as other current assets.
89
Schedule I - Capital Stock
Title of Issue
Common stock
Total
Number of
Shares
Authorized
Number of
Shares Issued
and
Outstanding
Number of
Shares Reserved
for Options,
Warrants,
Conversions, and
Other Rights
Number of Shares Held By
Related
Parties
Directors,
Officers and
Employees
Others
2,000,000,000
1,250,000,000
500,000,000
801,359,750
53,933,048
394,707,202
2,000,000,000
1,250,000,000
500,000,000
801,359,750
53,933,048
394,707,202
90
FORM 17-A
INDEX TO EXHIBITS
Page No.
(3)
Plan of acquisition, reorganization, arrangement, liquidation or
succession
NA
Instruments defining the rights of security holders, including
Indentures
NA
(8)
Voting trust agreement
NA
(9)
Material contracts
NA
(10)
Annual reports to security holders, Form 17-Q or quarterly
report to security holders – n1
NA
(13)
Letter re-change in certifying accountant - n2
NA
(16)
Report furnished to security holders
NA
(18)
Subsidiaries and affiliates of the registrant
92
(19)
Published reports regarding matters submitted to vote
of security holders
NA
(20)
Consent of experts and independent counsel
NA
(21)
Power of Attorney
NA
(5)
91
EXHIBIT 18 – SUBSIDIARIES AND AFFILIATES OF THE REGISTRANT
MacroAsia Corporation has five (5) consolidated subsidiaries and three (3)
unconsolidated associates each of which is owned as follows:
Name
Jurisdiction
Ownership
MacroAsia Properties Development Corp.
Philippines
100%
MacroAsia Air Taxi Services, Inc.
Philippines
100%
MacroAsia-Menzies Airport Services Corp.
Philippines
70%
MacroAsia-Eurest Catering Services, Inc.
Philippines
67%
MacroAsia Mining Corporation 1
Philippines
67%
Lufthansa Technik Philippines, Inc.
Philippines
49%
Cebu Pacific Catering Services, Inc.
Philippines
40%
SembLog-MacroAsia Philippines, Inc. 2
Philippines
49%
1
Incorporated on September 25, 2000 but has not yet commenced operations.
2
Incorporated on October 18, 2005 but has not yet commenced operations.
92

MACROASIA CORPORATION

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