COVER SHEET
Transcription
COVER SHEET
COVER SHEET 3 A Y A L R I E S A C O R P O R A T I O N 4 2 1 8 A N D S U B S I D I A A T R I A N G L E I T Y (Company's Full Name) 3 3 / F A Y A L T A O W E R A N V E O N U E E , , A Y A L M A K A T I C (Business Address: No. Street City / Town / Province) 0 3 3 Victoria D. Frejas 908-3429 Contact Person Company Telephone Number 1 1 7 - Q Month Day Fiscal Year Month Day Annual Meeting Secondary License Type, if Applicable C F D Amended Articles Number/Section Dept. Requiring this Doc. Total Amount of Borrowings 7 3 8 1 Domestic Total No. Of Stockholders To be accomplished by SEC Personnel concerned File Number LCU Document I.D. Cashier STAMPS Remarks = pls. Use black ink for scanning purposes Foreign SEC No. 34218 File No. _____ AYALA CORPORATION (Company’s Full Name) Tower One, Ayala Triangle Ayala Avenue, Makati City (Company’s Address) 908-30-00 (Telephone Number) March 31, 2012 (Quarter Ending) (Month & Day) SEC Form 17- Q Quarterly Report (Form Type) SECURITIES AND EXCHANGE COMMISSION SEC FORM 17-Q QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE (SRC) AND SRC RULE 17(2)(b) THEREUNDER 1. For the semi-annual period ended: Marh 31, 2012 2. SEC Identification No.: 34218 3. BIR Tax Identification No. 000-153-610-000 4. Exact name of the registrant as specified in its charter: AYALA CORPORATION 5. Province, country or other jurisdiction of incorporation or organization: Makati City, Philippines 6. Industry Classification Code: _______ (SEC Use Only) 7. Address of principal office: 34th Floor, Tower One, Ayala Triangle, Ayala Avenue, Makati City Postal Code: 1226 8. Registrant’s telephone number: (632) 908 3000 9. Former name, former address, former fiscal year: Not applicable 10. Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 of the RSA: Title of each class Preferred A Voting Preferred Common* *Net of 15,384,975 treasury shares Number of shares outstanding 12,000,000 200,000,00 577,257,114 Amount of debt outstanding as of March 31, 2012: P96.3 billion 11. Are any of these securities listed on the Philippine Stock Exchange? Yes [x] No [ ] A total of 592,642,089Common shares, 12,000,000 Preferred “A” shares shares are listed with the Philippine Stock Exchange as of March 31, 2012. 12. Check whether the registrant: (a) has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17 thereunder or Sections 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 12 months (or for such shorter period that the registrant 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 [ ] TABLE OF CONTENTS PART – I FINANCIAL INFORMATION Item 1 Item 2 Financial Statements Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011 1 Unaudited Consolidated Statements of Income For the Periods Ended March 31, 2012 and 2011 2 Unaudited Consolidated Statements of Comprehensive Income For the Periods Ended March 31, 2012 and 2011 3 Unaudited Consolidated Statements of Changes in Stockholders’ Equity For the Periods Ended March 31, 2012 and 2011 4 Unaudited Consolidated Statements of Cash Flow for the Periods Ended March 31, 2012 and 2011 5 Notes to Consolidated Financial Statements 6 Management’s Discussion and Analysis of Financial Condition and Results of Operations 23 PART II – OTHER INFORMATION SIGNATURES 29 PART I - FINANCIAL INFORMATION Item I - Financial Statements AYALA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in Thousands) March 31, 2012 December 31, 2011 (Unaudited) (Audited) ASSETS Current Assets Cash and cash equivalents (Note 4) Short-term investments (Note 5) 47,067,971 53,577,252 868,893 1,613,058 Accounts and notes receivable - net (Note 6) 34,740,355 31,319,696 Inventories (Note 8) 26,419,041 27,765,842 Other current assets 12,785,104 9,288,682 121,881,363 123,564,531 Total Current Assets Noncurrent Assets Noncurrent accounts and notes receivable 8,520,284 8,251,363 Land and improvements 21,931,330 18,530,915 Investments in associates and jointly controlled entities - net (Note 9) 78,801,318 79,659,081 Investments in bonds and other securities (Note 7) 3,583,996 3,745,168 Investment properties - net 34,282,183 33,134,958 Property, plant and equipment - net 14,701,831 13,850,956 Service concession assets 67,256,340 66,247,192 Intangible assets - net 4,317,689 4,312,162 Deferred tax assets - net 3,098,358 3,080,584 Pension assets 97,943 189,287 3,552,540 3,060,399 Total Noncurrent Assets 240,143,810 234,062,065 Total Assets 362,025,173 357,626,596 50,636,636 51,013,700 8,143,544 6,665,841 882,217 483,265 Long-term debt (Note 11) 3,441,961 7,459,658 Service concession obligation 1,155,387 980,620 Other current liabilities (Note 12) 3,356,411 2,704,719 67,616,156 69,307,803 Other noncurrent assets LIABILITIES AND EQUITY Current Liabilities Accounts payable and accrued expenses (Note 10) Short-term debt (Note 11) Income tax payable Current portion of: Total Current Liabilities Noncurrent Liabilities Long-term debt - net of current portion (Note 11) 92,888,547 92,592,368 Service concession obligation - net of current portion 6,767,547 6,916,998 Deferred tax liabilities 6,041,127 6,118,857 Pension liabilities 319,770 413,709 12,730,437 11,038,827 Total Noncurrent Liabilities 118,747,428 117,080,759 Total Liabilities 186,363,584 186,388,562 43,145,402 42,832,819 Other noncurrent liabilities (Note 12) Equity Equity attributable to equity holders of Ayala Corporation Paid-up capital (Note 13) Share-based payments 581,108 553,743 Retained earnings 79,368,817 75,885,783 Cumulative translation adjustments (2,309,011) (2,311,051) 1,017,442 1,725,394 Net unrealized gain on available-for-sale-financial assets Parent Company preferred shares held by subsidiaries Equity reserve Treasury stock Noncontrolling interests (250,000) 1,023,504 (250,000) 1,016,259 (12,408,886) (12,408,886) 110,168,377 107,044,062 65,493,212 64,193,972 Total Equity 175,661,589 171,238,034 Total Liabilities and Equity 362,025,173 357,626,596 1 AYALA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Amounts in Thousands) Periods Ended March 31 2012 2011 INCOME Sales and services Equity in net earnings of associates and jointly controlled entities Interest Income Investment and other income COSTS AND EXPENSES Costs of sales and services General and administrative Interest expense and other financing charges Other charges INCOME BEFORE INCOME TAX PROVISION FOR INCOME TAX NET INCOME ATTRIBUTABLE TO: Equity holders of Ayala Corporation Noncontrolling interests EARNINGS PER SHARE (Note 14) Basic Diluted 25,426,090 21,935,602 3,071,332 443,904 197,177 29,138,502 1,848,983 586,451 611,214 24,982,250 18,494,123 2,626,502 1,415,504 118,921 22,655,051 6,483,451 1,082,410 5,401,041 16,245,297 2,425,924 1,361,670 143,179 20,176,071 4,806,179 904,571 3,901,609 3,483,034 1,918,007 5,401,041 2,450,495 1,451,114 3,901,609 5.81 5.77 3.74 3.71 2 AYALA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) For the Periods Ended March 31, 2012 and 2011 (Amounts in thousands) March 2012 NET INCOME FOR THE PERIOD Other comprehensive income: Exchange differences arising from translations of foreign investments Changes in fair value of available-for-sale invesment in equity securities Share of other comprehensive income of associates: Exchange differences arising from translations of foreign investments Changes in fair value of available-for-sale invesment in equity securities Other comprehensive income for the period TOTAL COMPREHENSIVE INCOME FOR THE PERIOD Total comprehensive income attributable to: Equity holders of Ayala Corporation Noncontrolling interests 5,401,041 March 2011 3,901,609 (142,050) 216,188 (102,596) 34,001 13,138 (796,678) (709,401) 76,581 (739,962) (731,976) 4,691,639 3,169,633 2,777,122 1,914,518 4,691,639 1,747,362 1,422,271 3,169,633 3 AYALA CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY As of March 31, 2012 and 2011 (Amounts in thousands) Paid-up Capital ShareCumulative based Translation Payments Adjusments Retained Earnings (2,311,051) 75,885,783 3,483,034 2,040 2,040 3,483,034 Net Unrealized gain on Available for Sale-Financial Assets As at January 1, 2012 as previously reported Net Income Other comprehensive income Total comprehensive income Issuance of shares Cost of share-based payments Acquisition of treasury stocks Changes in non-controlling interests Effect of change in ownership interests in subsidiaries Balances of March 31, 2012 42,832,819 553,743 1,725,394 312,583 - 43,145,402 581,108 (2,309,011) 79,368,817 1,017,442 As at January 1, 2011 as previously reported Net Income Other comprehensive income Total comprehensive income Issuance of shares Cost of share-based payments of Parent Cost of share-based payments of investees Acquisition of treasury stocks Increase in non-controlling interests Effect of change in ownership interests in subsidiaries Balances of March 31, 2011 37,855,466 38,688 1,243,055 (1,763,471) 74,011,144 2,450,495 1,402 1,402 2,450,495 1,128,734 (704,535) (704,535) (707,952) (707,952) Parent Company Preferred Shares Held by Subsidiaries Equity Reserve 1,016,259 - Noncontrolling Interests Treasury Stock (250,000) (12,408,886) - - 27,365 64,193,972 1,918,007 (3,489) 1,914,518 7,517 (622,794) - 7,246 1,023,504 148,302 - (250,000) (12,408,886) 65,493,212 (250,000) - 59,244,915 1,451,114 (28,843) 1,422,271 (4,832,262) - 23,984 (2,667) (311,022) (548,056) 37,894,154 1,264,372 (1,762,069) 76,461,639 424,199 28,907 177,209 (250,000) (5,143,284) 60,119,130 4 Total Equity 171,238,034 5,401,041 (709,401) 4,691,639 312,583 34,882 (622,794) 7,246 175,661,590 166,785,883 3,901,609 (731,976) 3,169,633 38,688 23,984 (2,667) (311,022) (548,056) 28,907 169,185,350 AYALA CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2012 and 2011 (In Thousand Pesos) March 31, 2012 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Interest and other financing charges Depreciation and amortization Cost of share-based payments Equity in net earnings of associates and joint ventures Other investment income Gain on sale of assets Interest income Operating income before changes in working capital Decrease (increase) in: Accounts and notes receivable Inventories Other current assets Increase (decrease) in: Accounts payable and accrued expenses Net pension liabilities Net Service concession obligation Other current liabilities Cash generated from operations Interest received Interest paid Income tax paid Total cash provided by (used in) operating activities March 31, 2011 6,483,451 4,806,180 1,415,504 1,397,310 27,365 (3,071,332) 15,126 (6,478) (443,904) 5,817,042 1,361,670 1,162,482 21,318 (1,848,983) (131,911) (433,142) (586,450) 4,351,165 (3,678,818) 1,346,802 (3,496,421) (1,012,513) (987,234) (4,321,520) (7,586,692) (2,595) (1,187,512) 651,691 (8,136,503) 433,142 7,081,838 (726,105) (1,347,629) 256,667 17,665 (1,367,758) (293,043) (3,356,572) 640,509 (1,415,127) (648,667) (4,779,857) 1,746,349 35,206 744,165 1,271,902 (156,339) 2,299,433 (6,086,767) (2,141,482) 3,588,331 (867,881) (2,982,079) (3,044,322) (545,439) 1,834,465 434,973 2,094,672 4,788,689 (0) 312,583 (7,073,220) (1,956,873) (0) 7,246 13,886,417 7,628 31,061 (647,246) (1,320,691) (311,022) 28,906 1,691,610 50,393 (2,179,574) 1,200,368 (497,913) 12,377,508 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALEN CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR (6,509,281) 53,577,252 9,692,323 53,142,777 CASH AND CASH EQUIVALENTS AT END OF PERIOD 47,067,971 62,835,100 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from: Sale of investments Disposal of property, plant and equipment Maturities of (additions to) short-term investments Additions to: Investments Property, plant and equipment Dividends received from associates and jointly controlled entities Decrease (increase) in other noncurrent assets Net cash provided by (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from: Short-term and long-term debt Issuance of common shares Collections of (additions to) subscription receivable Payment of short-term and long-term debt Dividends paid Acquisition of treasury shares Dilution reserves Increase (decrease) in: Other noncurrent liabilities Minority interest in consolidated subsidiaries Net cash provided by (used in) financing activities 5 AYALA CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Financial Statement Preparation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Philippine Accounting Standard (PAS) 34, Interim Financial Reporting. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and disclosures required in the December 31, 2011 annual audited consolidated financial statements, and should be read in conjunction with the Group’s annual consolidated financial statements as of and for the year ended December 31, 2011. The preparation of the financial statements in compliance with Philippine Financial Reporting Standards (PFRS) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The estimates and assumptions used in the accompanying unaudited condensed consolidated financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the unaudited condensed consolidated financial statements. Actual results could differ from such estimates. The unaudited condensed consolidated financial statements include the accounts of Ayala Corporation (herein referred to as “the Company) and its subsidiaries collectively referred to as “Group.” The unaudited condensed consolidated financial statements are presented in Philippine peso (Php), and all values are rounded to the nearest thousands except when otherwise indicated. On 11 May 2012, the Audit Committee approved and authorized the release of the accompanying unaudited condensed financial statements of Ayala Corporation and Subsidiaries. 2. Significant Accounting Policies Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year except for the adoption of the new and amended Philippine Financial Reporting Standards (PFRS) and the Philippine Interpretations of International Financial Reporting Interpretation Committee (IFRIC) which became effective beginning January 1, 2011. The Group will also adopt several amended and revised standards and interpretations in 2012. Effective 2012 PAS 12 (Amendment), Income Taxes - Deferred Tax: Recovery of Underlying Assets This Amendment is effective for annual periods beginning on or after January 1, 2012. It clarified the determination of deferred tax on investment property measured at fair value. The Amendment introduces a rebuttable presumption that deferred tax on investment property measured using the fair value model in PAS 40, Investment Property, should be determined on the basis that its carrying amount will be recovered through sale. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in PAS 16, Property, Plant and Equipment, always be measured on a sale basis of the asset. PFRS 7 (Amendment), Financial Instruments: Disclosures - Enhanced Derecognition Disclosure Requirements This Amendment is effective for annual periods beginning on or after July 1, 2011. The Amendment requires additional disclosure about financial assets that have been transferred but not derecognized to enable the user of the entity’s financial statements to understand the relationship with those assets that have not been derecognized and their associated liabilities. In addition, the Amendment requires disclosures about continuing involvement in derecognized assets to enable the user to evaluate the nature of, and risks associated with, the entity’s continuing involvement in those derecognized assets. 6 Future Changes in Accounting Policies The Group will adopt the following new and amended Standards and Philippine Interpretations enumerated below when these become effective. Except as otherwise indicated, the Group does not expect the adoption of these new and amended PFRS and Philippine Interpretations to have significant impact on the consolidated financial statements. Effective 2013 PAS 1 (Amendment), Financial Statement Presentation, Presentation of Items of Other Comprehensive Income This Amendment is effective for annual periods beginning on or after July 1, 2012. It changed the grouping of items presented in OCI. Items that could be reclassified (or‘recycled’) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified. The amendment affects presentation only and will have no impact on the Group’s financial position or performance. PAS 19 (Amendments), Employee Benefits The Amendments to PAS 19 range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and rewording. The Group is currently assessing the impact of the amendment to PAS 19. PAS 27, Separate Financial Statements (as revised in 2011) As a consequence of the new PFRS 10, Consolidated Financial Statements and PFRS 12, Disclosure of Interests in Other Entities, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. PAS 28, Investments in Associates and Joint Ventures (as revised in 2011) As a consequence of the new PFRS 11, Joint Arrangements and PFRS 12, PAS 28 has been renamed PAS 28, Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. PFRS 7 (Amendments), Financial instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities These Amendments require an entity to disclose information about rights of set-off and related arrangements (such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set off in accordance with PAS 32. These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or ‘similar agreement’, irrespective of whether they are set-off in accordance with PAS 32. The Amendments require entities to disclose, in a tabular format unless another format is more appropriate, the following minimum quantitative information. This is presented separately for financial assets and financial liabilities recognized at the end of the reporting period: a) The gross amounts of those recognized financial assets and recognized financial liabilities; b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the net amounts presented in the statement of financial position; c) The net amounts presented in the statement of financial position; d) The amounts subject to an enforceable master netting arrangement or similar agreement that are not otherwise included in (b) above, including: i. Amounts related to recognized financial instruments that do not meet some or all of the offsetting criteria in PAS 32; and ii. Amounts related to financial collateral (including cash collateral); and e) The net amount after deducting the amounts in (d) from the amounts in (c) above. The Amendments are to be applied retrospectively. The Amendments affect disclosures only and has no impact on the Group’s financial position or performance. 7 PFRS 10, Consolidated Financial Statements PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by PFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in PAS 27. The Group is currently assessing the full impact that this Standard will have on the Group’s financial position and performance. PFRS 11, Joint Arrangements PFRS 11 replaces PAS 31, Interests in Joint Ventures and SIC-13, Jointly-controlled Entities Non-monetary Contributions by Venturers. PFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. PFRS 12, Disclosure of Interests with Other Entities PFRS 12 includes all of the disclosures that were previously in PAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in PAS 31 and PAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. PFRS 13, Fair Value Measurement PFRS 13 establishes a single source of guidance under PFRS for all fair value measurements. PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS when fair value is required or permitted. The Group is currently assessing the impact that this standard will have on the Group’s financial position and performance. Effective 2014 PAS 32 (Amendments), Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities These Amendments are to be retrospectively applied for annual periods beginning on or after January 1, 2014. These amendments to PAS 32 clarify the meaning of “currently has a legally enforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The Group is currently assessing the impact of the amendments to PAS 32. Effective 2015 PFRS 9, Financial Instruments: Classification and Measurement PFRS 9, as issued in 2010, reflects the first phase of the work on the replacement of PAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in PAS 39. In subsequent phases, hedge accounting and impairment of financial assets will be addressed with the completion of this project expected on the first half of 2012. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Group’s financial assets, but will potentially have no impact on classification and measurements of financial liabilities. The Group will quantify the effect in conjunction with the other phases, when issued, to present a more comprehensive picture. Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate This Interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The Interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion. The Securities and 8 Exchange Commission (SEC) and the Financial Reporting Standards Council (FRSC) have deferred the effectivity of this interpretation until the final Revenue standard is issued by International Accounting Standards Board (IASB) and an evaluation of the requirements of the final Revenue standard against the practices of the Philippine real estate industry is completed. The adoption of this Philippine Interpretation may significantly affect the determination of the revenue from real estate sales and the corresponding costs, and the related trade receivables, deferred tax liabilities and retained earnings accounts. The Group is in the process of quantifying the adoption of this Interpretation. 3. Principles of Consolidation The unaudited condensed consolidated financial statements included the financial statements of the Company and the following wholly and majority owned domestic and foreign subsidiaries: Effective Percentages of Ownership March 2012 December 2011 Real Estate and Hotels: Ayala Land, Inc. (ALI) and subsidiaries * Ayala Hotels, Inc. (AHI) and subsidiaries Technopark Land, Inc. Electronics, Information Technology and Business Process Outsourcing Services: Azalea Technology Investments, Inc. and subsidiaries (Azalea Technology) Azalea International Venture Partners, Limited (AIVPL) (British Virgin Islands Company) Integrated Microelectronics, Inc. (IMI) and subsidiaries** LiveIT Solutions, Inc. Automotive: Ayala Automotive Holdings Corporation (AAHC) and subsidiaries Water Utilities: Manila Water Company, Inc. (MWCI) and subsidiaries Philwater Holdings Company, Inc. Water Capital Works, Inc. International and Others: AC International Finance Limited (ACIFL) and subsidiary (Cayman Island Company) Ayala Aviation Corporation AG Counselors Corporation AYC Finance Ltd. (AYC) (Cayman Island Company) Bestfull Holdings Limited (incorporated in HongKong) and subsidiaries (BHL Group) Darong Agricultural and Development Corporation Michigan Holdings, Inc. and subsidiary AC Energy Holdings, Inc. MPM Noodles Corporation Purefoods International Ltd. 53.2 76.6 78.8 53.2 76.6 78.8 100.0 100.0 100.0 100.0 67.4 100.0 67.4 100.0 100.0 100.0 43 100.0 100.0 43.1 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 *The Company owns 75.17% of the total common and preferred shares of ALI. ** a subsidiary of ACIFL through AYC Holdings, Ltd. 9 On January 4, 2012, MWC received a letter from JMWD stating that JMWD requires infusion of additional funding of INR5 million for meeting its existing liabilities. It was agreed that the further funding requirement shall be met through infusion of additional equity of Php 2.5 million each by MWC and JITF Water. On January 6 and 18, 2012, MWC infused additional equity to JMWD amounting to P2.04 million and P0.98 million, respectively. On February 3, 2012, the Provincial Government of Cebu has awarded to Manila Consortium (composed of MWC, Vicsal Development Corporation and Stateland, Inc.) the development, operation, and maintenance of a bulk water system (“Project”) in the Province of Cebu. With the issuance of the award, the Provincial Government of Cebu and Manila Water Consortium shall negotiate and execute a joint investment agreement with 49% - 51% equity participation, respectively. The Project shall supply 35 million liters per day of potable bulk water sourced from the Luyang River in the Municipality of Carmen. The Project will partly provide for the water demands in the northern and central portions of the province. The Project is not more than 10% of the total assets of the MWC. On February 20, 2012, the ALI’s BOD approved the following restructuring exercise in order to comply with the regulatory requirement on Filipino-ownership following the Supreme Court’s ruling that nonvoting shares do not count as equity when computing for a company’s Filipino-ownership level: i. ii. iii. 4. Redemption and retirement of the 13.0 billion outstanding preferred shares. Reclassification of the 1.97 billion unissued preferred shares to voting preferred shares through an amendment of Article Seventh of the Articles of Incorporation. Increase in unauthorized capital stock by P = 1.3 billion through additional voting preferred shares and stock rights offer of 13.0 billion voting preferred share from the increase in the authorized capital stock. Cash and Cash Equivalents (in Thousand Pesos): Cash on hand and in banks Cash equivalents March 2012 December 2011 14,076,038 8,784,740 32,991,933 44,792,512 47,067,971 53,577,252 Cash in bank earns interest at the prevailing bank deposit rates. Cash equivalents are shortterm investments that are made for varying periods of up to three months depending on the immediate cash requirements of the Group and earn interest at the respective short-term investment rates. 5. Short-term Investments (in Thousand Pesos): Money market placements March 2012 December 2011 868,893 1,613,058 Money market placements are short-term investments made for varying periods of more than three months and up to six months and earn interest at the respective short-term investment rates. 10 6. Accounts and Notes Receivable (in Thousand Pesos): March 2012 December 2011 21,541,976 18,921,685 Electronics manufacturing 5,379,556 5,628,560 Water utilities 1,108,650 1,086,389 Automotive 827,932 534,975 Information technology & business process (BPO) 115,894 117,305 International and others 180,557 2,493 Related parties 5,481,310 3,439,314 Advances to contractors and suppliers 4,005,007 4,493,325 200,000 200,000 5,643,602 6,289,050 44,484,484 40,713,096 1,223,845 1,142,037 43,260,639 39,571,059 Trade: Real estate Investment in bonds classified as loans and receivables Advances and others Less allowance for doubtful accounts Less noncurrent portion 7. 8,251,363 31,319,696 Investments in Bonds and Other Securities (in Thousand Pesos): Quoted/unquoted equity/debt investments 8. 8,520,284 34,740,355 March 2012 3,583,996 December 2011 3,745,168 March 2012 December 2011 Inventories (in Thousand Pesos): Real estate inventories: Subdivision for sale Condominium and commercial units for sale Materials, supplies and others - at NRV (cost of P2,842,735 in 2012 and P3,046,208 in 2011) Vehicles - at cost Work in process - at NRV (cost of P479,495 in 2012 and P363,037 in 2011) Finished Goods - at NRV (cost of P503,724 in 2012 and P465,936 in 2011) Parts and accessories - at NRV (cost of P231,255 in 2012 and P224,255 in 2011) 10,067,352 11,966,396 10,148,211 13,316,731 2,701,613 556,951 2,863,871 472,230 477,552 359,679 502,370 464,659 146,806 26,419,040 140,460 27,765,841 9. Investments in Associates and Jointly Controlled Entities Investments in associates and joint ventures are accounted for under the equity method of accounting. Major associates and joint ventures and the related percentages of ownership as of March 31, 2012 are as follows: 11 Percentage of Ownership March 2012 Carrying Amounts December 2011 March 2012 December 2011 (In Millions) Domestic: Bank of the Philippine Islands and Subsidiaries (BPI) Globe Telecom, Inc. and Subsidiaries (Globe) * Ayala DBS Holdings, Inc. (ADHI) * Emerging City Holdings, Inc. (ECHI) * Cebu Holdings, Inc. and Subsidiaries (CHI) North Triangle Depot Commercial Corporation Berkshire Holdings, Inc. (BHI) * South Luzon Thermal Energy Corp. (SLTEC)* Bonifacio Land Corporation (BLC) Asiacom Philippines, Inc. (Asiacom) * Alabang Commercial Corporation (ACC) * Northwind Power Development Corp.* BG West Properties, Inc. (BGW) BG South Properties, Inc. (BGS) Foreign: Stream Global Services, Inc. (Stream) Integreon, Inc. (Integreon) * Arch Asian Partners L.P. Thu Duc Water B.O.O. Corporation (TDW) Tianjin Eco-City Ayala Land Development Co., Ltd.* Others 23.9 30.5 45.5 50.0 47.0 49.3 50.0 50.0 10.0 60.0 50.0 50.0 50.0 50.0 23.9 30.5 45.5 50.0 47.0 49.3 50.0 50.0 10.1 60.0 50.0 50.0 50.0 50.0 25.8 56.4 23.0 49.0 40.0 Various 25.8 56.4 23.0 49.0 40.0 Various P 26,237 P 16,904 10,761 3,770 2,216 1,379 1,616 1,627 1,247 1,016 656 476 248 197 26,573 17,353 10,743 3,682 2,265 1,336 1,578 1,489 1,161 994 617 458 247 195 2,890 1,343 2,449 1,816 718 1,235 78,801 2,978 1,515 2,403 1,788 729 1,555 79,659 * Jointly controlled entities. 12 Below is BPI’s balance sheet information (in Million Pesos): March 2012 Unaudited December 2011 Audited Total Resources 807,717 842,616 Total Liabilities Capital Funds for Equity Holders Noncontrolling interest 713,638 92,639 1,440 752,086 89,152 1,378 Total Liabilities and Capital Funds 807,717 842,616 Below is BPI’s income statement information (in Million Pesos Except EPS Figures): March 2012 Unaudited December 2011 Audited Interest income Other Income Total revenues 9,814 6,804 16,619 38,689 15,892 54,581 Operating expenses Interest expense Impairment losses Provision for income tax Total Expenses 6,215 3,007 970 593 10,785 23,465 12,823 2,150 3,130 41,568 Net income for the period 5,834 13,013 5,788 46 5,834 12,822 191 13,013 1.62 3.61 Attributable to: Equity holders of BPI Noncontrolling interest EPS: Based on 3,556M common shares as of March 31, 2012 and 3,556M common shares as of December 31, 2011 13 Below is Globe’s balance sheet information (in Million Pesos): March 2012 Unaudited December 2011 Audited Total Current Assets Non-current Assets 26,067 106,514 23,564 107,275 Total Assets 132,581 130,839 35,821 49,864 46,895 38,987 43,424 48,428 132,581 130,839 Current Liabilities Non-current Liabilities Stockholders' Equity Total Liabilities & Stockholders' Equity Below is Globe’s income statement information (in Million Pesos Except EPS Figures): March 2012 Unaudited December 2011 Audited Net Operating Revenues Other Income Total Revenues 21,456 288 21,744 72,437 319 72,756 Costs and Expenses Provision for Income Tax Total Expenses 17,956 1,087 19,043 58,659 4,265 62,924 2,701 9,832 Net Income EPS: Basic Diluted 20.34 20.27 74.02 73.77 As of March 31, 2012 Basic based on 132,390K common shares Diluted based on 133,237K common shares As of December 31, 2011 Basic based on 132,349K common shares Diluted based on 133,271K common shares 14 Below is Stream’s balance sheet information (in Million Dollars and Pesos): March 2012 Unaudited In US $ In Php December 2011 Audited In US $ In Php Total Current Assets Total Non-current Assets 208 391 8,908 16,766 218 400 9,573 17,521 Total Assets 598 25,675 618 27,094 Current Liabilities Non-current Liabilities Equity Holders 119 261 218 5,119 11,192 9,364 122 283 213 5,345 12,392 9,358 Total Liabilities & Stockholders' Equity 598 25,675 618 27,094 Below is Stream’s income statement information (in Million Dollars and Pesos Except EPS Figures): March 2012 Unaudited In US $ In Php December 2011 Audited In US $ In Php Total Revenues 216 9,243 847 36,675 Costs and expenses Provision for income tax 216 1 217 9,243 28 9,271 832 39 871 36,020 1,679 37,699 Net Income EPS: Basic Diluted (1) (28) (24) (1,024) (0.01) (0.01) (0.43) (4.43) (0.30) (0.30) (13.15) (13.15) Basic and diluted based on 75,955K common shares as of March 31, 2012 and 78,493K common shares as of December 31, 2011 15 10. Accounts Payable and Accrued Expenses (in Thousand Pesos): Accounts payable Accrued expenses Dividends payable Accrued personnel costs Interest payable Taxes payable Retention payable March 2012 33,279,563 13,941,992 503,473 803,664 887,116 145,289 1,075,541 50,636,636 December 2011 30,659,414 12,794,711 1,831,318 814,432 1,139,681 2,599,384 1,174,760 51,013,700 Accounts payable and accrued expenses are noninterest-bearing and are normally settled on 15-to-60-day terms. Other payables are noninterest-bearing and are normally settled within one year. 11. Short-term Debt and Long-term Debt (in Thousand Pesos): March 2012 December 2011 Philippine Peso with various interest rates 2,808,310 3,318,500 Foreign Currency with various interest rates 5,335,234 3,347,341 8,143,544 6,665,841 Bank loans with various interest rates 6,465,205 6,464,991 Fixed Rate Corporate Notes (FXCNs) Bonds, due 2017 5,361,603 9,320,169 9,915,628 9,914,149 Bonds, due 2021 9,907,155 9,907,987 Syndicated term loan 1,484,365 1,485,929 33,133,956 37,093,225 Foreign currency with various interest rates 20,256,839 20,191,382 Philippine Peso with various interest rates 14,540,841 14,419,831 Due 2012 351,080 325,390 Due 2013 4,386,045 4,327,900 Short-term debt: Long-term debt: Company: Subsidiaries: Loans fr banks & other financial institutions: Bonds: Due 2014 Floating Rate Corporate Notes (FRCNs) FXCNs Less current portion 237,205 173,715 1,000,000 1,000,000 22,424,543 22,520,583 63,196,553 62,958,801 96,330,509 100,052,026 3,441,961 7,459,658 92,888,547 92,592,368 16 12. Other Current/Noncurrent Liabilities Other Liabilities consists of deposits from commercial center tenants and sale of condominium/subdivision lots and long-term retention payables and deferred credits. A detailed breakdown is unavailable since the Company’s consolidation process is based only on the various group companies’ financial statements and not on their trial balances. Obtaining said details would involve an unreasonable effort and/or expense since the accounts’ changes since the end of the most recent calendar year are not significant. 13. Equity Details of the Company's paid-up capital (in Thousand Pesos): As of January 31, 2012 Issuance of shares As of March 31, 2012 Preferred Stock- A 1,200,000 1,200,000 As of January 31, 2011 Issuance of shares As of March 31, 2011 1,200,000 1,200,000 14. Preferred Preferred Stock- B Stock-Voting 5,800,000 200,000 5,800,000 200,000 5,800,000 5,800,000 200,000 200,000 Common Stock Subscribed 29,655,833 216,209 29,655,833 216,209 24,784,980 5,693 24,790,673 231,114 1,935 233,049 Additional Paid-in Subscriptions Total Paid-up Capital Receivable Capital 6,339,593 (578,816) 42,832,819 179,962 132,621 312,583 6,519,555 (446,195) 43,145,402 6,243,383 30,408 6,273,791 (604,011) 652 (603,359) 37,855,466 38,688 37,894,154 The following table presents information necessary to calculate EPS: Three months ended March 31 2012 2011 (In thousands except EPS figures) Net income applicable to common Less Dividends on Preferred stocks Net Income Applicable to Common Less Dilutive effect of options issued by subsidiaries, associates and jointly controlled entities 3,483,034 (113,200) 3,369,834 2,450,495 (270,338) 2,180,157 7,523 3,362,311 8,920 2,171,237 Weighted average number of common shares Dilutive shares arising from stock options Adjusted wieghted average number of common shares for diluted EPS Basic EPS Diluted EPS 579,965 2,618 582,403 2,539 582,582 5.80 5.77 584,942 3.73 3.71 15. Segment Information Business segment information is reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources among operating segments. Accordingly, the primary segment reporting format is by business segment. For management purposes, the Group is organized into the following business units: 17 • Real estate and hotels - planning and development of large-scale fully integrated residential and commercial communities; development and sale of residential, leisure and commercial lots and the development and leasing of retail and office space and land in these communities; construction and sale of residential condominiums and office buildings; development of industrial and business parks; development and sale of upper middleincome and affordable housing; strategic land bank management; hotel, cinema and theater operations; and construction and property management. • Financial services and bancassurance - universal banking operations, including savings and time deposits in local and foreign currencies; commercial, consumer, mortgage and agribusiness loans; leasing; payment services, including card products, fund transfers, international trade settlement and remittances from overseas workers; trust and investment services including portfolio management, unit funds, trust administration and estate planning; fully integrated bancassurance operations, including life, non-life, pre-need and reinsurance services; internet banking; on-line stock trading; corporate finance and consulting services; foreign exchange and securities dealing; and safety deposit facilities. • Telecommunications - provider of digital wireless communications services, wireline voice communication services, consumer broadband services, other wireline communication services, domestic and international long distance communication or carrier services and mobile commerce services. • Electronics - electronics manufacturing services provider for original equipment manufacturers in the computing, communications, consumer, automotive, industrial and medical electronics markets, service provider for test development and systems integration and distribution of related products and services. • Information technology and BPO services - venture capital for technology businesses and emerging markets; provision of value-added content for wireless services, on-line businessto-business and business-to-consumer services; electronic commerce; technology infrastructure hardware and software sales and technology services; and onshore and offshore outsourcing services in the research, analytics, legal, electronic discovery, document management, finance and accounting, IT support, graphics, advertising production, marketing and communications, human resources, sales, retention, technical support and customer care areas. • Water utilities - contractor to manage, operate, repair, decommission, and refurbish all fixed and movable assets (except certain retained assets) required to provide water delivery services and sewerage services in the East Zone Service Area. • Automotive - manufacture and sale of passenger cars and commercial vehicles. • International - investments in overseas property companies and projects. • Others - power and infrastructure, air-charter services, agri-business and others. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. Intersegment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. Segment revenue, segment expense and segment results include transfers between operating segments. Those transfers are eliminated in consolidation. The Group generally accounts for inter-segment sales and transfers as if the sales or transfers were to third parties at current market prices. 18 The following tables present revenue and net income information regarding business segments for the three months ended March 31, 2012 and 2011 and total assets and total liabilities for the business segments as of March 31, 2012 and December 31, 2011 : March 2012 (in thousands) Parent Company INCOME Sales to external customers Intersegment Equity in net earnings of associates and jointly controlled entities Interest income Other income Total income Operating Expenses Operating profit Interest expense and other financing chgs Other charges Provision for income tax Net income Other information Segment Assets Investments in associates and jointly controlled entities Deferred tax assets Total Assets Segment liabilities Deferred tax liabilities Total Liabilities Real Estate and Hotels 9,905 22,831 11,538,736 225,473 131,975 151,020 (9,411) 306,321 384,191 (77,871) 601,154 39,299 24,602 (742,925) 355,806 210,112 56,494 12,386,622 8,186,121 4,200,502 402,145 74,363 749,201 2,974,793 Financial Services and Telecom Bancassurance munications 1,854,265 1,854,265 1,854,265 1,854,265 870,090 870,090 870,090 870,090 Water Utilities Electronics Information Technology and BPO Automotive Intersegment Services International and Others Eliminations Consolidated 4,848,216 27,312 6,556,102 - 282,882 3,308 2,406 - 2,187,842 28,521 (307,445) 25,426,090 - 25,911 57,753 79,601 5,038,792 3,138,465 1,900,327 363,532 263,601 1,273,194 5,370 32,210 6,593,682 6,547,634 46,048 35,456 2,012 22,673 (14,093) (149,731) 13,051 (9,292) 140,219 328,510 (188,291) 7,097 954 (196,342) 4,139 5,331 18,263 30,140 48,284 (18,144) 2,166 332 231 (20,873) (21,124) 3,508 60,141 2,258,887 2,179,709 79,178 1,712 2,912 12,582 61,972 (2,241) (30,829) (340,516) (307,712) (32,803) 2,241 8,565 (43,610) 3,071,332 443,904 197,177 29,138,502 21,120,627 8,017,875 1,415,504 118,918 1,082,410 5,401,043 280,125,498 78,801,318 3,098,358 362,025,173 102,464,147 147,517,559 - - 80,726,725 18,909,773 3,332,112 4,738,796 3,246,044 (80,809,658) 54,673,224 157,137,372 13,035,215 2,262,508 162,815,281 - - 1,816,401 772,407 83,315,533 23,843 18,933,616 5,668,531 9,000,643 2,291,388 7,030,184 261,440 39,599 3,547,083 1,055,118 (79,754,539) (41,928,898) (41,928,898) (87,617,534) (602,818) (88,220,352) - - Parent Company Financial Real Estate Services and Telecom and Hotels Bancassurance munications (38,128,995) (10,400,146) (5,230,359) (12) (43,359,355) (10,400,158) (276,271) (4,102) (280,373) (559,619) (7,354) (566,973) (1,410,825) (4,937) (1,415,762) (191,715) (180,514,002) (5,849,583) (191,715) (186,363,585) March 2011 (in thousands) INCOME Sales to external customers Intersegment Equity in net earnings of associates and jointly controlled entities Interest income Other income Total income Operating Expenses Operating profit Interest expense and other financing char Other charges Provision for income tax Net income 7,233 35,861 9,723,571 320,873 (1,713) 270,983 72,916 385,280 379,147 6,133 571,765 13,140 47,926 (626,698) 185,977 240,363 119,065 10,589,849 7,516,917 3,072,932 484,343 123,856 592,095 1,872,638 958,100 958,100 958,100 958,100 950,604 950,604 950,604 950,604 Water Utilities Electronics Information Technology and BPO Automotive Intersegment Services International and Others Eliminations Consolidated 4,044,367 27,312 5,393,054 - 224,134 6,108 1,822 - 2,541,422 12,391 (1,024) 58,250 (44,106) 2,624,542 2,839,883 1,244,916 289,831 233,591 721,494 3,795 75,734 5,472,583 5,424,269 48,314 9,695 2,136 31,628 4,855 (229,027) 12,491 33,534 47,240 274,221 (226,981) 2,504 4,959 (234,444) (5,806) 4,553 307,264 307,833 49,153 258,680 5,524 728 (6,587) 259,015 (8,128) 535 46,807 2,593,027 2,558,186 34,841 2,528 3,319 12,214 16,780 (402,545) (4,520) (407,065) (370,555) (36,510) (4,520) (11,255) (20,735) 19 20,475,346 1,848,983 586,450 611,214 23,521,993 17,210,964 6,311,029 1,361,670 143,179 904,571 3,901,609 December 2011 (in thousands) Other information Segment Assets Investments in associates and jointly controlled entities Deferred tax assets Total Assets Segment liabilities Deferred tax liabilities Total Liabilities Parent Company Financial Real Estate Services and and Hotels Bancassurance Telecommun 105,118,650 142,211,846 - - 79,995,712 19,389,986 3,287,465 4,905,148 2,963,620 (82,985,496) 274,886,931 56,666,582 161,785,232 56,095,200 12,626,231 1,948,633 156,786,710 81,755,089 744,234 82,499,323 - - - - 1,788,002 759,751 82,543,465 39,151,261 5,108,729 44,259,990 24,354 19,414,340 10,922,801 204,083 11,126,884 5,943,205 2,352,497 9,230,670 7,257,645 329,582 968,421 8,538 43,271 338,120 1,011,692 282,564 46,019 3,292,203 1,318,373 10,002 1,328,375 79,659,081 301,827 3,080,584 (82,683,669) 357,626,596 (10,281,586) 180,259,141 6,118,857 (10,281,586) 186,377,998 56,095,200 Water Utilities Information Automotive Intersegment Technology Electronics and BPO Internation and Others Eliminations Consolidated 16. Financial Instruments The following methods and assumptions are used to estimate the fair value of each class of financial instrument for which it is practicable to estimate such value: Cash and cash equivalents, short-term investments and current receivables - Carrying amounts approximate fair values due to the relative short-term maturities of these investments. Financial assets at FVPL - These are investments in government securities. Fair value is based on quoted prices. Noncurrent trade and nontrade receivables - The fair values are based on the discounted value of future cash flows using the applicable rates for similar types of instruments. AFS quoted equity shares - Fair values are based on quoted prices published in markets. AFS unquoted shares - The fair value of unquoted shares are not reasonably determinable due to the unpredictable nature or future cash flows and the lack of suitable methods of arriving at a reliable fair value. HTM investments - The fair value of bonds is based on quoted market prices. Liabilities - The fair values of accounts payable and accrued expenses and short-term debt approximate the carrying amounts due to the short-term nature of these transactions. The fair value of noncurrent other financial liabilities (fixed rate and variable rate loans repriced on a semi-annual/annual basis and deposits) are estimated using the discounted cash flow methodology using the current incremental borrowing rates for similar borrowings with maturities consistent with those remaining for the liability being valued. For variable rate loans that reprice every three months, the carrying value approximates the fair value because of recent and regular repricing based on current market rates. Risk Management and Financial Instruments In line with its corporate governance infrastructure, Ayala adopted a group-wide enterprise risk management framework in 2002. The Audit and Risk Committee approved the Enterprise Risk Management Policy in 2003 and regularly reviews and updates it. The policy enhances the risk management process and institutionalizes a focused and disciplined approach to managing the company’s business risks. The risk management policy was updated in 2008 following the framework and standards recommended by the Committee of Sponsoring Organization. 20 The risk management framework covers the following: • Identification and assessment of business risks; • Development of risk management strategies; • Assessment, design, and implementation of risk management capabilities; • Monitoring and evaluation of risk mitigation strategies and management performance; and • Identification of areas and opportunities for improvement in the risk management process. The Audit and Risk Committee provides oversight of the risk management function. In 2008, a more focused enterprise risk management framework was rolled out with the help of an external consultant. This included a formal risk-awareness session and self-assessment workshops with the functional units of the company. The Audit and Risk Committee has initiated efforts to institutionalize an enterprise risk management function across all the subsidiaries and affiliates. In May 2010, the Chief Finance Officer was appointed as the Chief Risk Officer (CRO) in concurrent capacity. The CRO oversees the risk management function and provides periodic reports on risk management initiatives and mitigation efforts to the Audit and Risk Committee. At present, the policy, procedures and processes are under study for further enhancement and a review of the assessment done in 2008 will be undertaken in 2012. The work is in progress and the company shall continue to engage external technical support as it deems necessary to strengthen its Enterprise Risk Management expertise and capabilities. Ayala’s internal auditors monitor the compliance with risk management policies to ensure that an effective control environment exists within the entire Ayala group. Financial Risk Management Objectives and Policies The Group’s principal financial instruments comprise of financial assets at FVPL, AFS financial assets, HTM investments, bank loans, corporate notes and bonds. The financial debt instruments were issued primarily to raise financing for the Group’s operations. The Group has various financial assets such as cash and cash equivalents, accounts and notes receivables and accounts payable and accrued expenses which arise directly from its operations. The main purpose of the Group’s financial instruments is to fund its operational and capital expenditures. The main risks arising from the use of financial instruments are interest rate risk, foreign exchange risk, liquidity risk and credit risk. The Group also enters into derivative transactions, the purpose of which is to manage the currency and interest rate risk arising from its financial instruments. The Group’s risk management policies are summarized below: Interest Rate Risk The Group’s exposure to market risk for changes in Interest rates relates primarily to the Company’s and its subsidiaries’ long-term debt obligations. The Group’s policy is to manage its interest cost using a mix of fixed and variable rate debt. Foreign Exchange Risk The Group’s foreign exchange risk results primarily from movements of the Philippine Peso (PHP) against various foreign currencies. The Company may enter into foreign currency forwards and foreign currency swap contracts in order to hedge its foreign currency obligations. The second and third columns of the table below summarizes the Group’s exposure to foreign exchange risk as of March 31, 2012. The fourth and fifth columns of the table demonstrates the sensitivity to a reasonably possible change in the peso exchange rate, with all variables held constant, of the Group’s profit before tax (due to changes in the fair value of monetary assets and liabilities) and the Group’s equity (in thousands). 21 Foreign currency United States Dollar (USD) Net asset (liabilities) Increase (decrease) in Peso per foreign currency PHP equivalent (236,057) (10,160,540) (9,489,631) (4,960,736) Singapore Dollar (SGD) (2,809) (87,600) Hongkong Dollar (HKD) 88,665 479,585 154,081 1,050,380 2 3 11,740 69,073 Euro (EUR) (45,100) (2,749,103) Czech Koruna (CZK) (31,765) (68,373) (3,140) (27,379) Japanese Yen (JPY) Chinese RMB (RMB) Thai Baht (THB) Malaysian Rupee (MYR) FRF AUD Sterling Pound (GBP) CNY 2 89 (1) (36) 8 56 1.00 (1.00) 1.00 (1.00) 1.00 (1.00) 1.00 (1.00) 1.00 (1.00) 1.00 (1.00) 1.00 (1.00) 1.00 (1.00) 1.00 (1.00) 1.00 (1.00) 1.00 (1.00) 1.00 (1.00) 1.00 (1.00) Increase (decrease) in profit before tax (236,057) 236,057 (9,489,631) 9,489,631 (2,809) 2,809 88,665 (88,665) 154,081 (154,081) 2 (2) 11,740 (11,740) (45,100) 45,100 (31,765) 31,765 (3,140) 3,140 2 (2) (1) 1 8 (8) There is no other impact on the Group’s equity other than those already affecting the net income. Liquidity Risk The Group seeks to manage its liquidity profile to be able to service its maturing debts and to finance capital requirements. The Group maintains a level of cash and cash equivalents deemed sufficient to finance operations. As part of its liquidity risk management, the Company regularly evaluates its projected and actual cash flows. It also continuously assesses conditions in the financial markets for opportunities to pursue fund-raising activities. Fund-raising activities may include bank loans and capital market issues both on-shore and off-shore. Credit Risk The Group’s holding of cash and short-term investments exposes the Group to credit risk of the counterparty. Credit risk management involves dealing only with institutions for which credit limits have been established. The treasury policy sets credit limits for each counter party. Given the Group’s diverse base of counterparties, it is not exposed to large concentration of credit risk. 22 Item 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Consolidated Sales and Services in the first quarter of 2012 increased by 16% year-on-year to P25.4 billion. This was mainly driven by Ayala Land, Inc. which reported strong revenue growth across all its business segments. The strong revenue growth of Integrated Microelectronics, Inc.’s (IMI) with the inclusion of IMI Europe and increased revenues from Manila Water Co. as a result of higher billed volume and the impact of the tariff increase implemented last January also drove sales and services higher. Attributable consolidated net income rose by 42% in the first quarter of the year to P3.5 billion from P2.4 billion in the same period last year. Ayala Land maintained solid growth posting a 31% increase in net income to P2.1 billion. This was underpinned by strong revenues and net income margin improvement. Revenues grew by 17% to P12.4 billion with double-digit increases across all business segments. Residential and property development revenues grew by 18% on the back of strong take-up of Ayala Land Premier, Alveo and Avida residential products, which combined, nearly doubled versus the first quarter of last year. Revenues from its commercial leasing and hotels and resorts businesses also grew by 21% and 16%, respectively, as it continued to expand gross leasable area. Ayala Land remains on track with its 37-billion peso capital expenditure program this year for project completion and land acquisitions. IMI posted a 128% growth in net income year-on-year as revenues grew by 24%. This was attributed to the company’s business expansion in Europe and Mexico and reduced operating expenses. Manila Water Co., Inc. posted a net income of P1.3 billion, 64% higher than the same period last year. This was a result of higher revenues due to strong sales in the East Zone and the impact of the tariff increase implemented at the start of this year. Revenues grew by 28% with new businesses in Laguna, Boracay and Clark contributing nearly 5% of total. Operating expenses, however, increased by 23% due to higher power and overhead costs as the company continued to expand its water and wastewater network coverage and pursued new business initiatives. Manila Water was recently awarded the bulk water supply project in Cebu and was also recently awarded the right to purchase a 49% stake in Kenh Dong Water Supply which owns and operates major water infrastructure in Ho Chi Minh City in Vietnam. Equity in Net Earnings Equity in Net Earnings amounted to P3.1 billion in the first quarter, 66% higher than the P1.8 billion in the first quarter of 2011. The increase was mainly due to banking unit, Bank of the Philippine Islands (BPI), as well as Ayala Land’s associates. Lower equity losses from LiveIt also contributed to the growth. Equity earnings from Globe Telecom, however, was slightly lower at P846 million, from P899 million in the same period last year. BPI registered a net income of P5.8 billion, significantly ahead of the previous year’s P2.8 billion. This was fuelled by its core banking business as well as securities trading gains. Loans grew by 20% as lending remained brisk across all customer segments, while the bank’s 30-day non-performing loan ratio improved further to 2.0%. BPI’s deposits grew by 7%, putting total assets under management to P716 billion, up 15% year-on-year. Net interest income grew by 8% aided by a 14 basis point improvement in net interest margin. The bank’s earnings were further enhanced by trading gains amounting to P3.7 billion as the bank sold some of its securities in inventory. BPI is set to pay a special cash dividend of P0.50 per share in addition to its regular cash dividend of P0.90 per share for the first half of the year. Telecom unit, Globe Telecom, continued to build on the momentum it achieved over the past six quarters. Consolidated revenues in the first quarter reached a new all-time high of P20.2 billion, 6% higher year-on-year. Its mobile business performed strongly driven by robust demand for its postpaid and prepaid services. Globe’s broadband business also continued to grow with revenues up 13% year-on-year. Its new mobile and broadband services attracted subscribers which resulted in higher net adds during the period, pushing mobile subscriber base to 31 million, up 14% versus last year, and broadband subscribers to 1.5 million, 26% higher versus the same period last year. Operating expenses and subsidy were higher driven by the growth in postpaid customers and expenses related to the Company’s network modernization program. This, coupled with higher financing and other non-operating charges, resulted in a 10% decline in reported net income. Core net income, which 23 excludes foreign exchange and mark-to-market charges and one-off items, was 7% lower at P2.7 billion. Interest and Other Income Interest income declined by 24% to P444 million mainly due to lower funds invested by the parent company and Ayala Land. Other income also decreased by 67% year-on-year to P197 million as the prior year included a gain realized from Ayala’s exchange of ownership in Arch Capital Management with the Rohatyn Group. Costs and Expenses Consolidated costs and expenses increased by 14% to P18.5 billion, lower than the rate of growth of sales and services. This reflects the impact of cost containment measures implemented particularly by MWC. Consolidated general and administrative expenses increased by 8% to P2.6 billion, mainly due to compensation-related expenses. Interest and Other Charges Consolidated interest and other charges increased by 4% to P1.4 billion mainly due to higher interest expense at the parent level as well as Manila Water and IMI. This was partly offset by lower interest expense at Ayala Land. Balance Sheet Highlights Consolidated cash and short-term investments declined by 13% during the quarter to P47.9 billion from P55.1 billion at the beginning of the year. The decline was mainly due to the pre-payment of loans at the parent company level and capital expenditure for new projects particularly at Ayala Land as it remained aggressive in expanding its product offerings. Consolidated debt remained relatively flat at P104 billion as of the end of the first quarter from P107 billion at the start of the year. Consolidated current ratio and debt to equity ratio remain healthy at 1.8x and 0.95x, respectively as of the end of the quarter. Key Performance indicators: For the balance sheet items (current ratio and debt to equity ratios), the company aims to maintain for its current ratio not to be lower than 0.5:1 and for its debt to equity ratio not to exceed 3:1. The company and its subsidiaries' ratios are considered better than these levels as a result of prudent debt management policies. The key performance indicators (consolidated figures) that the Company monitors are the following: Revenue Net income Basic earnings per share 1/ YTD March 31, 2012 29,139 million 3,483 million 5.81 YTD March 31, 2011 24,982 million 2,450 million 4.49 Current Ratio 2/ Debt-to-Equity Ratio 3/ As of March 31, 2012 1.80 0.95 As of March 31, 2011 2.15 0.88 1/ Net income applicable to common shareholders / weighted average number of common shares 2/ Current assets / current liabilities 3/ Short-term debt, current & non-current long-term debt / equity attributable to equity holders of the parent 24 2.1 Any known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the registrant’s liquidity increasing or decreasing in any material way. The following conditions shall be indicated: whether or not the registrant is having or anticipates having within the next twelve (12) months any cash flow or liquidity problems; whether or not the registrant is in default or breach of any note, loan, lease or other indebtedness or financing arrangement requiring it to make payments; whether or not a significant amount of the registrant’s trade payables have not been paid within the stated trade terms. The company does not expect any liquidity problems and is not in default of any financial obligations. 2.2 Any events that will trigger direct or contingent financial obligation that is material to the company, including any default or acceleration of an obligation: None 2.3 Any 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: None 2.4 Any material commitments for capital expenditures, the general purpose of such commitments, and the expected sources of funds for such expenditures. For year 2012, Ayala Land‘s consolidated budget for project and capital expenditures amount to P37.0 billion. About 42% is earmarked for residential developments, 24% for land acquisition, 12% for hotels and resorts, 11% for shopping centers, and the balance for offices, commercial and industrial lot development, and other land development activities in the Company’s strategic landbank areas. This will be financed through a combination of internally-generated funds, borrowings and pre-selling. For the first three months of 2012, consolidated project and capital expenditures amounted to P8.0 billion, about 21% of the P37.0 billion budget for the whole year. About 39% was spent for residential projects, 38% for land acquisition, 13% for shopping centers, 6% for hotels and resorts, and the balance spent on offices, commercial and industrial lot development and other land development activities in the Company’s strategic landbank areas. MWCI expects P14 billion capital expenditures in 2012 for the rehabilitation and construction of facilities to improve water and sewer services in the East Zone Service Area. These will be funded from the current cash reserves, internal funds generation and proceeds of available loan facilities. At the parent Company level, projected capital expenditure will be at P7 billion to complement allotment by its major subsidiaries, all to address opportunities in the existing market and certain new sectors. 2.5 Any known trends, events or uncertainties that have had or that are reasonably expected to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations should be described. The Company’s and its subsidiaries’ performance will continue to hinge on the overall economic performance of the Philippines and other countries where its subsidiaries operate. Interest rate movements may affect the performance of the real estate, banking and automotive groups, including the Company. 2.6 Any significant elements of income or loss that did not arise from the registrant's continuing operations None 25 2.7 Causes for any material changes (Increase or decrease of 5% or more in the financial statements) Balance Sheet Items (March 31, 2012 Vs. December 31, 2011) Cash and cash equivalent – 12% decrease from P53,577mln to P47,067mln Decrease due to payment of loans of AC parent and the real estate group; plus payments of various payables and launching of new projects by the real estate group. This account is at 13% and 15% of the total assets as of March 31, 2012 and December 31, 2011, respectively. Short-term investments – 46% decrease from P1,613mln to P869mln Decrease due to liquidation of short-term investments to pay loans of AC parent and the real estate group; fund property acquisition and launching of new projects by the real estate. This account is less than 1% of the total assets as of March 31, 2012 and December 31, 2011. Accounts receivable (current) – 11% increase from P31,320mln to P34,740mln Increase due to the higher sales of the real estate group. This account is at 10% and 9% of the total assets as of March 31, 2012 and December 31, 2011, respectively. Inventories – 5% decrease from P27,766mln to P26,419mln Decline primarily due to higher sales of real estate group. This account is at 8% of the total assets as of March 31, 2012 and December 31, 2011. Other current assets – 38% increase from P9,289mln to P12,785mln Increase due to the higher prepaid expenses for property acquisition and prepayment of construction materials of the real estate group. This account is at 34% and 35% of the total assets as of March 31, 2012 and December 31, 2011, respectively. Land and improvements – 18% increase from P18,531mln to P21,931mln Increase due primarily to the higher land banking and new projects of real estate group. This account is at 6% and 5% of the total assets as of March 31, 2012 and December 31, 2011, respectively. Property and equipment – 6% increase from P13,851mln to P14,702mln Increase is traceable to capital expenditures of the real estate group. This account is at 4% of the total assets as of March 31, 2012 and December 31, 2011. Pension asset – 48% decrease from P189mln to P98mln Mainly due to lower balances of real estate and electronics manufaccturing groups. As of March 31, 2012 and December 31, 2011, this account is less than 1% of the total assets. Other non-current assets – 16% increase from P3,060mln to P3,553mln Mainly caused by higher development cost of energy group. As of March 31, 2012 and December 31, 2011, this account is at 1% of the total assets. Short-term debt – 22% increase from P6,666mln to P8,144mln Mainly due to by new loan availments of the real estate group to support property acquisitions. Short-term debt remained at 4% of the total assets as of March 31, 2012 and December 31, 2011. Income tax payable – 83% increase from P483mln to P882mln Higher taxable income of the real estate and water utilities groups. As a percentage to total liabilities, this account is less than 1% as of March 31, 2012 and December 31, 2011. Current portion of long-term debt – 54% decrease from P7,460mln to P3,442mln Largely due to payment of matured loans of AC parent and water utilities group. As of March 31, 2012 and December 31, 2011, current portion of long-term debt is at 2% and 4% of the total liabilities, respectively. 26 Service concession obligation – current portion – 18% increase from P981mln to P1,155mlnIncrease was mainly due to higher computed and actual obligation due within one year. This account is at 1% of the total liabilities as of March 31, 2012 and December 31, 2011. Other current liabilities – 24% increase from P2,705mln to P3,356mln Largely on account of increase in real estate group offset partially by lower liabilities of electronics manufacturing group. This account stood at 2% and 1% of the total liabilities as of March 31, 2012 and December 30, 2011, respectively Pension liabilities – 23% decrease from P414mln to P320mln Largely on account of decrease in water utilities and real estate groups. This account stood at 0.2% of the total liabilities as of March 31, 2012 and December 30, 2011. Other non-current liabilities – 15% increase from P11,039mln to P12,730mln Largely on account of increase in customer’s and tenant’s deposit of the real estate and water utilities groups. This account stood at 7% and 6% of the total liabilities as of March 31, 2012 and December 30, 2011, respectively. Share-based payments - 5% increase from P554mln to P581mln Mainly due to reclassification of share in the share-based payments of AC parent. Retained earnings – 5% increase from P75,886mln to P79,369mln Mainly due to higher net earnings of most of the subsidiaries and associates of AC parent. Net unrealized gain on available-for-sale financial assets – 41% decrease from P1,725mln to P1,017mln Mainly due to decrease in the market value of securities held by the financial services group. Income Statement items (YTD March 31, 2012 Vs YTD March 31, 2011) Sales and services – 16% increase from P21,936mln to P25,426mln Improved sales performance of real estate and electronics groups; offset by lower sales performance of the automotive and others group mainly due to shortage of vehicle supply. As a percentage to total income, sales and services is at 88% to 87% in 2011 and 2012, respectively. Equity in net earnings of associates and jointly ventures – 66% increase from P1,849mln to P3,071mln Increase mainly due to earnings of financial services; coupled with lower net loss registered by investees of international and information technology and BPO Services groups. As a percentage to total income, this account is 7% to 11% in 2011 and 2012, respectively. Interest income – 24% decrease from P586mln to P444mln Decline arising from lower investible funds by AC parent and the real estate group. This account is 2% of the total income in 2011 and 2012. Other income – 68% decrease from P611mln to P197mln Decline was due to 2011 gains resulting from investment transactions of the international group. This account is at 2% and 1% of the total income in 2011 and in 2012, respectively. Cost of sales and services – 14% increase from P16,245mln to P18,494mln Increase attributable to higher sales of the real estate, water utilities and electronics manufacturing groups; offset partially by lower costs of automotive and others group. As a percentage to total costs and expenses, sale of goods is at 77% to 78% in 2011 and 2012, respectively. General and administrative expenses – 8% increase from P2,425mln to P2,627mln Increase mainly on account of higher manpower costs and other expenses across the groups. This expense classification accounts for 12% and 11% of costs and expenses in 2011 and 2010. Other charges – 17% decrease from P143mln to P119mln Decrease mainly on due to lower other financing expense of AC parent. This expense classification accounts for 1% of costs and expenses in 2011 and 2012, respectively. 27 Provision for income tax – 20% increase from P905mln to P1,082mln Primarily due to higher taxable income of the several subsidiaries significant part of which comes from real estate, electronics and water utilities groups on account of better sales and other operating results. Noncontrolling interests – 32% increase from P1,451mln to P1,918mln Attributable to the favorable performance of the real estate and water utilities groups in 2011. 2.8 Any seasonal aspects that had a material effect on the financial condition or results of operations. Ayala Corporation being a holding company has no seasonal aspects that will have any material effect on its financial condition or operational results. ALI’s leasing portfolio generates a fairly stable stream of revenues throughout the year, with higher sales experienced in the fourth quarter from shopping centers due to holiday spending. ALI’s development operations do not show any seasonality. Projects are launched anytime of the year depending on several factors such as completion of plans and permits and appropriate timing in terms of market conditions and strategy. Development and construction work follow target completion dates committed at the time of project launch. In the case of MWCI, except for the usually higher demand during summer months of April and May, it does not have seasonality of operation. For the other subsidiaries, there is no significant seasonality that would materially affect their operations. 2.9 Any material events subsequent to the end of the interim period that have not been reflected in the financial statements for the interim period. ALI’s Issuance of P15 billion bonds in two tranches of seven and ten years, with coupon rates of 5.625% and 6.0%, respectively. ALI’s Shareholder approval of the redemption of 13 billion in outstanding non-voting preferred shares and the issuance of the same number of voting preferred shares to be done through a stock rights offering. Listing at the Philippine Dealing and Exchange Corporation of ALI’s P15 billion fixed rate callable bonds due 2019 and 2022. 3.0 Other material events or transactions during the interim period. ALI’s Board approval for the following: (a) amendment of Article Seventh of the Company’s Articles of Incorporation to make the preferred shares redeemable, and to decrease the authorized capital stock by P1.3 billion through the retirement and elimination, subsequent to their redemption, of the outstanding preferred shares with a total par value of P1.3 billion, (b) reclassification of the 1.965 billion unissued preferred shares to voting preferred shares through an amendment of the Article Seventh of the Company’s Articles of Incorporation, and (c) increase in the authorized capital stock by P1.3 billion through additional voting preferred shares and stock rights offer of 13.043 billion voting preferred share from the increase in the authorized capital stock. ALI’s Board approval for the issuance of bonds in the amount of P15 billion, with tenors of seven and 10 years. ALI’s Declaration of cash dividend of P0.109488 per share to all shareholders as of record date March 7, 2012, payable on March 27, 2012. 28 PART II – OTHER INFORMATION 1. Ayala Corporation submitted the certificate of Board Attendance of directors in board meetings and the certification of compliance with the Revised Manual of Corporate Governance for the year 2011. 2. Ayala Corporation constantly monitors opportunities in the infrastructure sector and confirm the expansion or operation of the Metro Rail Transit (MRT) Line 3 as well as the Light Railway Transit (LRT) Lines 1 and 2 are included in those opportunities that the company is actively monitoring and considering for potential investment. 3. Ayala Corporation filed on February 8, 2012 the Definitive Information Statement. The annual meeting of stockholders of Ayala Corporation was held at the grand Ballroom of the Hotel InterContinental Manila on April 20, 2012. 4. Ayala Corporation sets P90B capex plan for this year. P200B for infrastructure projects (water, power, road, rail, airport) where the Ayala Group can potentially participate in for the next five years. 5. Ayala Corporation consolidated net income reached P9.4B in 2011. 6. At its regular meeting held 14 March 2012, the Board of Directors of Ayala Corporation approved the offer and issuance of the Ayala Fixed Rate Bonds (the Bonds) in the principal amount of P8B up to P10B subject to the registration requirements of the securities and Exchange Commission (SEC), and the appointment of BPI Capital Corporation as the Issue Manager. 7. Ayala Corporation reported various purchases of common shares pursuant to the share buyback program approved by the Board of Directors on 10 September 2007, 02 June 2010 and 10 December 2010. 29 AYALA CORPORTION AND SUBSIDIARIES AGING OF RECEIVABLES (Based on Unaudited Figures) As of March 31, 2012 (In Thousand Pesos) Up to 6 months Over 6 Mos. to One year Over One Year Past Due TOTAL Trade Receivables 13,166,631 6,083,623 8,029,622 650,843 27,930,720 Non-Trade Receivables 13,897,277 797,597 614,639 20,406 15,329,920 Total 27,063,908 6,881,221 8,644,261 671,249 43,260,639 31