COVER SHEET

Y A

C O R P

O R A

O N

A N D

U B S

E S

(Company's Full Name)

A N G E
A

O
P

A V

O W E R

O N

A N D

Y A

A N G L

E N U

M A K A

E X

C H

(Business Address: No. Street City / Tow n / Province)

Josephine G. De Asis

908-3000

Contact Person

Company Telephone Number

Month
Day
Fiscal Year

Month
Day
Annual Meeting

Secondary License Type, if Applicable

Dept. Requiring this Doc.

Amended Articles Number/Section

Total Amount of Borrow ings

0 B.

Total No. Of Stockholders

bonds

Domestic

Foreign

To be accomplished by SEC Personnel concerned

File Number

LCU

Document I.D.
Cashier

S TA M P S

Remarks = pls. Use black ink for scanning purposes

SEC No. 34218

File No. _____

AYALA CORPORATION
(Companys Full Name)

32F to 35F, Tower One and Exchange Plaza

Ayala Triangle, Ayala Avenue
Makati City
(Companys Address)

908-3000
(Telephone Number)

December 31, 2014

(Fiscal Year Ending)
(Month & Day)

SEC Form 17- A

(Form Type)

APPLICABLE ONLY TO ISSUERS INVOLVED IN

INSOLVENCY/SUSPENSION OF PAYMENTS PROCEEDINGS
DURING THE PRECEEDING FIVE YEARS
14. Check whether the issuer has filed all documents and reports required to be filed by Section 17 of
the Code subsequent to the distribution of securities under a plan confirmed by a court or the
Commission. Not applicable
Yes [ ]

No [ ]

DOCUMENTS INCORPORATED BY REFERENCE

15. Briefly describe documents incorporated by reference and identify the part of the SEC Form 17-A
into which the document is incorporated:
2014 Consolidated Financial Statements of Ayala Corporation and Subsidiaries
2014 Consolidated Financial Statements of Bank of the Philippine Islands and Subsidiaries
2014 Consolidated Financial Statements of Globe Telecom, Inc. and Subsidiaries
2014 Opinion on and Individual Supplementary Schedules
2014 Annual Corporate Governance Report

TABLE OF CONTENTS

PART I
Item 1
Item 2
Item 3
Item 4

BUSINESS AND GENERAL INFORMATION

Business
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders

PART II
Item 5

OPERATIONAL AND FINANCIAL INFORMATION

Market for Registrants Common Equity and Related
Stockholder Matters
Managements Discussion and Analysis or Plan of Operations
Financial Statements and Supplementary Schedules
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures

123

PART III
Item 9
Item 10
Item 11
Item 12

CONTROL AND COMPENSATION INFORMATION

Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions

125
131
133
135

PART IV
Item 13

COPORATE GOVERNANCE
Corporate Governance

137

PART V
Item 14

EXHIBITS AND SCHEDULES

Exhibits
Reports on SEC Form 17-C (Current Report)

138

Item 6
Item 7
Item 8

6
87
93
103

104
107
123

SIGNATURES

140

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES

141

PART I - BUSINESS AND GENERAL INFORMATION

Item 1. Business
Ayala Corporation (the Company or Ayala) is the holding company of one of the oldest and largest
business groups in the Philippines that traces its history back to the establishment of the Casa Roxas
business house in 1834. The Company was incorporated in January 23, 1968, and its Class A Shares
and Class B Shares were first listed on the Manila and Makati Stock Exchanges (the predecessors of
the PSE) in 1976. In 1997 the Companys Class A and Class B Shares were declassified and unified
as Common Shares.
As of December 31, 2014, the Company is 49.03% owned by Mermac, Inc., 10.18% owned by
Mitsubishi Corporation and the rest by the public. Its registered office address and principal place of
business is 32F to 35F, Tower One and Exchange Plaza, Ayala Triangle, Ayala Avenue, Makati City.
The Ayala Groups (the Group) business activities were, for some time, primarily focused on real estate,
banking and insurance. In the 1970s and 1980s, the Group expanded its existing businesses through
organic growth and acquisitions. During this period, the Group also materially diversified its activities
and disposed of interests that it considered peripheral to its business strategy.
Thereafter up to recent years, Ayalas business activities are divided into: (a) real estate and hotels,
(b) financial services and insurance, (c) telecommunications, (d) water distribution and wastewater
services, (e) electronics, (f) automotive, (g) business process outsourcing (BPO), (h) investments in
international or overseas projects and ventures, (i) power generation, (j) transport infrastructure, and
(k) recently in education. Further discussion of the background of certain Ayala Group companies is
included in certain section of this report.
The list of subsidiaries is contained in the attached Companys Consolidated Financial Statements for
December 31, 2014.
For management purposes, the Group is organized into the following business units:
Parent Company - represents operations of the Company including, among others, its financing
entities such as ACIFL and AYCFL; plus results of operations of start-up companies in power
generation, transport infrastructure and education.

Real estate and hotels - planning and development of large-scale fully integrated residential and
commercial communities; development and sale of residential, leisure and commercial lots and the
development and leasing of retail and office space and land in these communities; construction and
sale of residential condominiums and office buildings; development of industrial and business
parks; development and sale of upper middle-income and affordable housing; strategic land bank
management; hotel, cinema and theater operations; and construction and property management.

Financial services and insurance - 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 insurance
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.

Water distribution and wastewater services - 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, pipeworks and management service mainly in the East
Zone Service area of Metro Manila and Rizal province. These services expanded to other parts of
the country like Laguna, Boracay, Clark, Cebu and in development stages in Mindanao region. It
also has presence in Vietnam through a leakage reduction project and two bulk water companies.
6

Electronics - electronics manufacturing services provider for original equipment manufacturers in

the computing, communications, consumer, automotive, industrial and medical electronics markets,
service provider for test development and systems integration and distribution of related products
and services.

Information technology and BPO services - venture capital for technology businesses and emerging
markets; provision of value-added content for wireless services, on-line business-to-business and
business-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.

Automotive - manufacture, distribution and sale of passenger cars and commercial vehicles
including related businesses such as automotive service and repairs; sale of parts and accessories;
and collateral services like vehicle insurance and financing.

International - investments in overseas property companies and projects.

Others - air-charter services, agri-business, consultancy and others.

Please refer to Note 29 on Operating Segment Information of the Companys Consolidated Financial
Statements regarding operating segments which presents assets and liabilities as of December 31,
2014 and 2013 and revenue and profit information for the years ended December 31, 2014, 2013 and
2012.
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.
For the detailed discussion on the specific subsidiaries falling under each business unit as well as the
major transactions of the Group, please refer to Note 2 on Group Information of the Consolidated
Financial Statements for December 31, 2014 which forms part of the Annex of this SEC17A report.
Other major transactions and developments were also disclosed in the Companys previously filed
SEC17Q and SEC17-C reports, listing of which also forms part of the Annex of this SEC17A report.
The consolidated financial statements of the Group as of December 31, 2014 and 2013 and for the
years ended December 31, 2014, 2013 and 2012 were endorsed for approval by the Audit Committee
on March 5, 2015 and authorized for issue by the Board of Directors (BOD) on March 10, 2015.
Based on SECs parameters, the significant subsidiaries of Ayala Corporation as of December 31,
2014 are Manila Water Co, Inc. (MWCI established in 1997), Ayala Land, Inc. (ALI - organized in
1988), and Integrated Micro Electronics, Inc. (IMI - organized in 1980). Except as stated in the
succeeding paragraphs and in the discussion for each of the Companys significant subsidiaries, there
has been no other business development such as bankruptcy, receivership or similar proceeding not in
the ordinary course of business that affected the registrant for the past three years.
As to the material reclassification, merger, consolidation or purchase or sale of a significant
amount of assets:
For detailed discussion as to material reclassification, merger, consolidation and purchase transactions
with subsidiaries, please refer to Note 24 on Business Combinations and Transactions with
Noncontrolling Interest of the Companys Consolidated Financial Statements for December 31, 2014
which forms part of the Annex of this SEC17A report.

Distribution methods of the companys products and services

This is not applicable to the Company being a holding company. The Companys operating companies,
however, have their respective distribution methods of products and services. Please refer to
Significant Subsidiaries, Associates and Joint Ventures portion below.
Competition
The Company is subject to significant competition in each of the industry segments where it operates.
Please refer to Significant Subsidiaries, Associates and Joint Ventures portion below for a discussion
on Ayala Land, Inc. (ALI), Integrated Micro Electronic, Inc. (IMI), and Manila Water Company, Inc.
(MWCI), significant subsidiaries, and Bank of the Philippine Islands (BPI), and Globe Telecom (Globe),
significant associates and joint ventures.
Transactions with related parties
The Company and its subsidiaries, in their regular conduct of business, have entered into transactions
with associates and other related parties principally consisting of advances, loans, reimbursement of
expenses, various guarantees, construction contract, and management, marketing, and administrative
service agreements. Sales and purchases of goods and services to and from related parties are made
at normal commercial prices and terms.
Related party transactions are also discussed in the Note 31 of the accompanying consolidated financial
statements of the Company.
Developmental and Other Activities
Being a holding company, the Company has no material patent, trademark, or intellectual property right
to a product or any of its direct services. The Companys operating companies, however, may have
these material intellectual property rights, but the dates and terms of their expiration or renewal is not
perceived to have a material adverse effect on the Company. The Company complies with all existing
government regulations and environmental laws, the costs of which are not material. As a holding
company, it has no material development activities.
Employees
The Company has a total workforce of 124 employees as of December 31, 2014, classified as follows:
Staff
Managers and Executives
Consultants

45
68
11
124

The Company expects to increase its number of employees in the next 12 months. The Company has
an existing Collective Bargaining Agreement (CBA) with the Ayala Corporation Employees Union for a
period of 5 years, from January 2012 until December 2016. The CBA generally provides for
improvement in compensation and benefits. Union and Management relations continue to be
harmonious. The Companys management had not encountered difficulties with its labor force, nor have
strikes been staged in the past.
In addition to the basic salary and 13th month pay, other supplemental benefits provided by the
Company to its employees include: mid-year bonus, performance bonus, monthly rice subsidy,
retirement benefit, life and health insurance, medical and dental benefits, and various loan facilities.
Risks
For detailed discussion on Risks, please refer to Note 32 on Financial Instruments of the Companys
Consolidated Financial Statements for December 31, 2014 as well as the Companys 2014 Annual
Corporate Governance Report which both form part of the Annex of this SEC17A report.

SIGNIFICANT SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES

AYALA LAND, INC.
Background and Business
Ayala Land, Inc. (alternately referred to as ALI, Ayala Land or the Company in the entire discussion
of Ayala Land, Inc.) is the real estate arm of the Ayala Group. Its defining project was the 1948
development of a planned mixed-use community on 930 hectares of swamp and grassland in the Makati
district of Metro Manila. Over the course of the following 25 years, the Ayala Group transformed Makati
into the premier central business district of the Philippines and a site of some of Metro Manilas most
prestigious residential communities. Ayala Land has become the largest real estate company in the
Philippines engaged principally in the planning, development, subdivision and marketing of large-scale
communities having a mix of residential, commercial, leisure and other uses.
Ayala Land was spun-off by Ayala in 1988 to enhance management focus on the Groups existing real
estate business and to highlight the value of assets, management and capital structure of this business.
The Companys shares were offered to the public and listed on the Manila and Makati Stock Exchanges
(the predecessors of the PSE) in 1991. This IPO diluted the Ayalas effective interest in Ayala Land to
88%. Since then, the Ayalas effective interest has been further reduced to approximately 70.11% as of
31 December 2013 through, among other things, the exercise of stock options by the employees of
Ayala and Ayala Land, disposals of the Company shares by the Ayala, conversions of the Companys
other securities into the Companys common shares and top-up placements of the Companys common
shares in July 2012 and March 2013.
Products / Business Lines
Ayala Lands businesses are organised into several core and non-core supporting business units. Its
core business units consist of residential property development, strategic landbank management,
shopping centre leasing, office leasing and hotels and resorts. Its non-core, supporting business units
include construction and property management.
Property Development
Residential Business - sale of high-end residential lots and units (including leisure community
developments), office spaces, commercial and industrial lots, middle-income residential lots and units,
affordable lots, units and house and lot packages, economic housing units and house and lot packages,
and socialized housing packages; lease of residential units and marketing of residential developments
Strategic Landbank Management and Visayas-Mindanao - acquisition, development and sale of large,
mixed-use, masterplanned communities; sale of override units or Ayala Land's share in properties made
available to subsidiaries for development; lease of gas station sites and carparks outside Ayala Center;
development, sale and lease of the Company and subsidiaries' product offerings in key cities in the
Visayas and Mindanao regions
Commercial Leasing
Shopping Centers - development of shopping centers and lease to third parties of retail space and land
therein; operation of movie theaters, food courts, entertainment facilities and carparks in these shopping
centers; management and operations of malls which are co-owned with partners
Office Leasing - development and lease or sale of office buildings and lease of factory buildings
Hotels and Resorts - development, operation and management of branded and owner-operated hotels;
lease of land to hotel tenants; development, operation and management of eco-resorts
Services
Construction land development and construction of ALI and third-party projects
Property Management facilities management of ALI and third-party projects; operation of water and
sewage treatment facilities in some ALI projects; distribution of district cooling systems; bulk purchase
and supply of electricity for energy solutions
In addition to above business lines, Ayala Land also derives other income from its investment activities
and sale of non-core assets.
Products / Business Lines (with 10% or more contribution to 2014 consolidated revenues):
9

Property Development
65%
(Sale of residential lots and units, office spaces and commercial and industrial lots)
Commercial Leasing
22%
(Shopping Centers, Office Leasing and Hotels and Resorts Operations)
Services
32%
(Construction and Property Management)
Distribution Methods of Products
The Companys residential products are distributed to a wide range of clients through various sales
groups.
Ayala Land (parent company) has its own in-house sales team. In addition, it has a wholly-owned
subsidiary, Ayala Land Sales, Inc. (ALSI), which employs commission-based sales people. Ayala
Land uses a sales force of about 12,791 brokers and sales agents guided by a strict Code of Ethics.
The overseas Filipino (OF) market is being pursued through award-winning websites, permanent sales
offices or broker networks, and regular roadshows with strong follow-through marketing support in key
cities abroad. Ayala Land International Sales, Inc. (ALISI), created in March 2005, led the marketing,
sales and channel development activities and marketing initiatives of the three residential brands
abroad. ALISI established marketing offices in North America (Miltipas and San Francisco), Hong Kong,
Singapore, Dubai, Rome, London and Milan. ALISI likewise assumed operations of AyalaLand Intl.
Marketing in Italy and London, in which ownership of these offices are scheduled to be transferred to
ALISI by 2014.
Separate sales groups have also been formed for certain subsidiaries which cater to different market
segments under Bellavita (socialized housing), Amaia (economic housing), Avida (affordable housing)
and Alveo (middle-income housing). To complement these sales groups, Ayala Land and its
subsidiaries also tap external brokers.
Effective second half of 2008, residential sales support transactions of ALP, Alveo, Avida, Amaia and
BellaVita is being undertaken by the shared services company Amicassa Process Solutions, Inc.
(APSI) put up by the Company. In 2011, Aprisa Business Solutions, Inc. (APRISA) completed its full
roll-out to handle transactional accounting processes across the Ayala Land group.
Development of the business of the registrant and its key operating subsidiaries/associates and
joint ventures during the past three years
Ayala Land, Inc. - parent company (incorporated in 1988), pursued major residential land development
and condominium projects, office buildings, leisure community project and shopping center operations.
Redevelopment activities have been completed in Glorietta, Alabang Town Center and Ayala Center
Cebu. Operations of traditional headquarter-type and BPO buildings continued as well as the
development of its leisure community project, Anvaya Cove in Bataan.
Property Development
Under the Ayala Land Premier brand, horizontal residential projects include, among others, Abrio,
Santierra, Elaro, Luscara, Ayala Westgrove Heights and Ayala Greenfield Estates. Residential
condominium projects undertaken in the past three years include Park Terraces, West Tower Serendra,
Garden Towers, The Suites, 1016 Residences, Two Roxas Triangle and Parkpoint Residences.
Alveo Land Corp., 100% owned by Ayala Land, offers various residential products to the middle-income
market. Alveos projects over the past three years include Verdana Homes Mamplasan, Verdana Village
Center, MarQuee, Treveia NUVALI, Celadon Residences, Celadon Park, The Columns at Ayala
Avenue, The Columns at Legazpi Village, Senta and Ametta Place in Pasig.
Avida Land Corp., a 100%-owned subsidiary, continued to develop affordable housing projects which
offer house-and lot packages and residential lots. Avida also ventured into the development and sale
of residential condominiums. Project launches in the past three years included Avida Towers Sucat,
Avida Towers New Manila, Avida Towers San Lazaro, Avida Towers Makati West, Avida Settings
NUVALI, Avida Residences San Fernando, Avida Residences Sta. Cecilia, and Riego de Dios Village.
Amaia Land Corp., formerly a subsidiary of Avida is now a wholly owned subsidiary of Ayala Land, was
established to pursue a planned expansion of residential development operations to cater to the
countrys economic housing segment.

10

BellaVita Land Corp. (formerly South Maya Ventures Corp.), wholly-owned subsidiary ofAyala Land,
aims to establish the countrys first social enterprise community development targeting minimum wage
earners and members of the informal business sector.Its first project in General Trias, Cavite was
launched in December 2011.
Serendra, Inc., 28%-owned by ALI and 39%-owned by Alveo, is engaged in residential development.
In 2004, it launched Serendra, a residential complex at the BGC in Taguig.
Solinea (formerly Bigfoot Palms, Inc.), a landholding entity, was acquired on March 05, 2011 through
Alveo Land Corporation through acquisition of 65% shares of stock.The remaining 35% was acquired
by Cebu Holdings, Inc., an associate of the Group.
Roxas Land Corp., 50% owned, sold-out One Roxas Triangle in 2007.The project was started in 1996
and was completed in September 2001.
Ayala Greenfield Development Corporation (AGDC), 50-50% owned by Ayala Land and Greenfield
Development Corporation, started development of Ayala Greenfield Estates in Calamba, Laguna in
1999.Over the past twelve years, AGDC continued to develop and sell lots in this high-end residential
subdivision.
Nuevo Centro, Inc., a wholly-owned subsidiary of Ayala Land, was established primarily to acquire and
hold real estate properties for the purpose of developing them into large-scale, mixed-used and
masterplanned communities.
BG West Properties, Inc., BG South Properties, Inc. and BG North Properties, Inc. were incorporated
to engage in the development of high-end, middle-end and affordable residential and retail projects,
respectively, in Bonifacio Global City.
Avencosouth was incorporated in the Philippines and is currently engaged in condominium
development operations.The Company holds 90% indirect interest in Avencosouth as of December 31,
2012.It is 70% owned by Avida (wholly-owned subsidiary of the Company) and 30% owned by Accendo
(67% owned by the Company). Avencosouth was registered with the SEC on April 26, 2012 and started
commercial operations on August 11, 2012.
AIMI, a wholly-owned subsidiary of ALISI, was incorporated on February 28, 2012 to engage in any
lawful act or activity for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the practice of a profession
permitted to be incorporated by the California Corporations Code.
Strategic Landbank Management
Aurora Properties, Incorporated and Vesta Property Holdings, Inc.and Ceci Realty, Inc. (incorporated
in 1974) are owned by Ayala Land 78%, 70% and 60%, respectively. These companies, joint ventures
with the Yulo Family, finalized plans for the development of nearly 1,700 hectares of land in Canlubang,
Laguna.
Emerging City Holdings, Inc. and Berkshires Holdings, Inc., both 50% owned, served as Ayala Lands
corporate vehicles in the acquisition of a controlling stake in Bonifacio Land Corp. / Fort Bonifacio
Development Corp. (FBDC) through Columbus Holdings, Inc. in 2003. FBDC continues to sell
commercial lots and condominium units at the BGC while it leases out retail spaces.
Regent Time International Limited, 100% owned by Ayala Land, also owns a stake at Bonifacio Land
Corp. / Fort Bonifacio Development Corp.
Shopping Centers
NorthBeacon Commercial Corporation formerly Alabang Theatres Management Corporation, is Ayala
Lands wholly-owned vehicle for its MarQuee Mall in Pampanga, which commenced development in
March 2007 and began operations in September 2009.
Station Square East Commercial Corporation, 69% owned subsidiary of Ayala Land, broke ground in
2002 for Market! Market!, a 150,000-sqm mall along C-5 Road in Taguig.It opened Phase 1A of the mall
in 2004 and Phase 1B in 2005.
Accendo Commercial Corp., with a 67% stake, ALI entered into a joint venture agreement with Anflo
Group to develop a mixed-use project in Davao City.
11

ALI-CII Development Corporation, a 50-50% joint venture with Concepcion Industries, continued to
operate Metro Point, a mid-market mall at the corner of EDSA and Taft Avenue, which was completed
in the fourth quarter of 2001.
Alabang Commercial Corporation, 50% owned by Ayala Land, continued to manage and operate the
Alabang Town Center.
North Triangle Depot Commercial Corporation, 63.82% owned by Ayala Land, commenced
development of TriNoma (formerly referred to as North Triangle Commercial Center), a 191,000-sqm
mall constructed at the main depot of MRT-3 in Quezon City. TriNoma broke ground in June 2005 and
began operations in May 2007.
Primavera Town Centre, Inc, 100% wholly-owned subsidiary, was also formed to handle the planning,
development and management of small-format retail facilities known as neighborhood centers within
the Companys existing and planned growth centers across the country.
Subic Bay Town Centre, Inc., 100% owned by Ayala Land, was incorporated on March 9, 2010 for the
planning, development management of a mall to be located in Subic Bay Freeport Zone.
Ayala Theaters Management, Inc., 100% owned, continued to manage and operate theaters at the
Ayala Center in Makati.
Five Star Cinema, Inc., also wholly-owned, continued to manage and operate theaters at the Alabang
Town Center.
Leisure and Allied Industries Phils., Inc., a 50-50% joint venture of Ayala Land with Australian company,
LAI Asia Pte. Ltd., continued to operate family entertainment centers called TimeZone in various Ayala
malls, as well as other malls.
CagayanDe Oro Gateway Corp. was established to pursue a mixed-use development with a 47,000
sqm regional mall as its centerpiece.A 150-room boutique hotel shall be located on top of the mall, while
a single tower residential condominium with 21 floors and 522 rooms shall be located right beside the
mall. The project is strategically located in the economic hub of Cagayan de Oro City.
Arvo Commercial Corporation (ACC), a wholly owned subsidiary of the Ayala Land, was established
primarily to develop and operate shopping malls within the ALI identified growth areas across the
country.
Corporate Business
Laguna Technopark, Inc., 75% owned, continued to sell industrial lots to local and foreign company
locators.It also leases ready-built factory units within the Laguna Technopark.
Asian I-Office Properties, Inc - In 2008, the Company was invited by CPVDC, an ALI subsidiary, to be
a partner in the Asian i-Office Properties, Inc. (AiO) for a 60% stake. It manages and operates two
BPO buildings located in the Asiatown IT Park in Cebu (eBloc and Peak Building A).In 2013, Ayala
Land sold its 60% interest in Asian I-Office Properties, Inc. to Cebu Property Ventures and Development
Corporation.
ALI Property Partners Corp., is the Companys 100%-owned vehicle in partnership with MLT
Investments (Goldman Sachs) which handle various BPO projects and investments.
Gisborne Property Holdings, Inc., Sunnyfield E-Office Corporation, Asterion Technopod, Inc., Crestview
E-Office Corporation, Summerhill E-Office Corporation and Hillsford Property Corp. are wholly-owned
entities established to handle, develop and manage all future BPO buildings located at various growth
centers within the Philippines.
Hotels and Resorts
Ayala Hotels, Inc., 50% owned, currently manages hotel land lease operations.
AHRC, a wholly-owned subsidiary of Ayala Land which will serve as a holding company for the Groups
hotels and resorts operations.

12

Ten Knots Philippines, Inc. and Ten Knots Development Corporation (The Ten Knots Group), 60%
owned by Ayala Land in partnership with Asian Conservation Company Inc. In 2013, the Hotels and
Resorts Group signed an agreement with Asian Conservation Company to acquire its 40% stake in El
Nido Resorts.
Greenhaven Property Venture, Inc., 100% owned by Ayala Land through AHRC established to plan,
develop and manage the hotel being constructed in Glorietta 1 as part of the Ayala Center
redevelopment project.
Visayas-Mindanao
Cebu Holdings, Inc.,50% owned by Ayala Land, continued to manage and operate the Ayala Center
Cebu and sell condominium units and lots within the Cebu Business Park. The company also launched
Amara, a high-end seaside residential subdivision, and continued to sell club shares at City Sports Club
Cebu.Through Cebu Property Ventures Development Corporation, CHI also continued to sell lots at the
Asiatown IT Park.
Adauge, an87% owned subsidiary of the Company, was incorporated on September 5, 2012 for the
acquisition and development of a mixed-use project in Mandurriao, Iloilo City.
International
First Longfield Investments Limited is wholly-owned by Ayala Land. On March 7, 2011, ALI, Ayala Corp
and The Rohatyn Group completed an exchange of ownership interests in Arch Capital and Arch Capital
Asian Partners G.P (a Cayman Islands company), with proceeds and carrying value of the investments
as of the date of exchange amounting to US$3.8 million and US$0.4 million, respectively, resulted to a
gain of US$2.9 million, net of transaction costs. The exchange in ownership interest resulted in TRG
acquiring ALIs 17% stake and Ayala Corps 33% interest. The completed exchange of ownership
interests did not change the activities, management focus and shareholder structure of the ARCH Fund,
with the Company retaining its current 8% interest in the fund
Regent Wise Investments Limited (Regent Wise), a wholly-owned subsidiary of Ayala Land, formed to
enter into an Equity Joint Venture with Sino-Singapore Tianjin Eco-City Investment and Development
Co., Ltdfor the development of a 9.78 hectare residential project in China. The project will be located in
Tianjin Eco-city (the Eco-City), a 3,000 hectare collaboration between the Chinese and Singaporean
governments which will showcase future direction of urban planning and sustainable development.
Construction
Makati Development Corporation, 100% owned by Ayala Land, continued to engage in engineering,
design and construction of horizontal and low-rise vertical developments.It continued to service site
development requirements of Ayala related projects while it provided services to third-parties in both
private and public sectors.
MDC Build Plus was formed to cater primarily to projects focusing on the lower end of the base of the
pyramid, particularly the residential brands Amaia and BellaVita.
Property Management
Ayala Property Management Corporation, 100%-owned by Ayala Land, continued to manage properties
of Ayala Land and its subsidiaries.It also provided its services to third-party clients.
Others
AyalaLand Commercial REIT, Inc., a wholly-owned subsidiary of Ayala Land was formed in September
as a vehicle through which Ayala Land will own and operate select investment properties and which
Ayala Land intends to undertake an IPO under Republic Act No. 9856 or the Philippines Real Estate
Investment Trust (REIT) Law. Said investment properties shall include prime shopping center and
office assets currently owned by the Company which are mature, have recurring income streams and
have achieved stable occupancy rates.
Aprisa Business Solutions, Inc., a wholly-owned subsidiary of Ayala Land that will initially manage
transactional accounting services.
Philippine Integrated Energy Solutions, Inc.,a 60%owned subsidiary of Ayala Land established for the
supply and operations of a district cooling system, performance contracting by introducing various
energy solutions and bulk purchase of electricity.

13

DirectPower Services, Inc., (DirectPower), a wholly owned subsidiary of the ALI, was formed to engage
in the bulk purchase and supply of electricity and to introduce various energy solutions.
Varejo, a wholly-owned subsidiary of the Company, was incorporated with the Securities and Exchange
Commission (SEC) on June 25, 2012.It is the holding company of the Company for its retail-related
initiatives.In 2012, the Company, through Varejo, formed a partnership with Specialty Investments, Inc.
(SII) to pursue opportunities in the Philippine retail sector.SII is a wholly-owned subsidiary of Stores
Specialists, Inc. (SSI), one of the largest retail companies in the Philippines, with the exclusive rights to
sell, distribute and market in the country a variety of brands from around the world.The partnership with
SII will enable the Company to support its mixed-use developments and, at the same time, grow its
recurring income portfolio.
SDC, a wholly-owned subsidiary of the Company, was incorporated on October 19, 2012 to be involved
in real estate development projects of the Group.
AMNI was incorporated in November 29, 2012 and is a wholly-owned subsidiary of the Company.It is
established primarily to develop and operate shopping malls and offices.
Solerte, Corp., a wholly-owned subsidiary of the Company, was incorporated this year as a sharedservice entity to provide manpower services to the Ayala Malls Group.
Whiteknight Holdings, Inc. (WHI), was registered with the Securities and Exchange Commission on
May 14, 2013.Ayala Land, Inc. entered into an agreement with the Mercado Family to acquire WHI in
July 2013, thereby becoming a wholly-owned subsidiary of ALI.WHI owns a 33% equity stake in
Mercado General Hospital, Inc. owner and operator of the Daniel O. Mercado Medical Center in
Tanauan, Batangas, the University Physicians Medical Center through its subsidiary Mercado
Ambulatory and Surgical Centers, Inc. and DMMC - Institute of Health Sciences, Inc.Ayala Land will
enhance its communities with the introduction of healthcare facilities in its township projects under the
QualiMed brand.
Bankruptcy, Receivership or Similar Proceedings
None for any of the subsidiaries and affiliates above.
Material Reclassification, Merger, Consolidation or Purchase or Sale of a Significant Amount of
Assets (not ordinary) over the past three years
On November 19, 2013, AHRC, a wholly owned subsidiary of the Company entered into an agreement
to acquire 100% interest in ACCI, which effectively consolidates the remaining 40% interest in TKDC
and TKPI (60%-owned subsidiary of the Company prior to this acquisition). This acquisition is in line
with the Companys thrust to support the countrys flourishing tourism industry. The agreement resulted
in the Company effectively obtaining 100% interest in TKPI and TKDC.
With 8,639 hectares of developable area in its land bank as of December 31, 2014, ALI believes that it
has sufficient properties for development in next 20 to 25 years given its rapid pace of expansion.
Nevertheless, the Company continues to seek new opportunities for additional, large-scale, masterplanned developments in order to replenish its inventory and provide investors with an entry point into
attractive long-term value propositions. The focus is on acquiring key sites in the Mega Manila area and
other geographies with progressive economies that offer attractive potential and where projected value
appreciation will be fastest.
In March 31, 2008, Ayala Land completed the sale of 100% of its equity shareholdings in three whollyowned subsidiaries to Megaworld Corporation. The subsidiaries jointly own and operate a public parking
facility in Ayala North, Makati CBD. The properties are considered non-strategic assets.
In a disclosure to the SEC dated August 27, 2009, ALI and the NHA signed a Joint Venture Agreement
to develop the 29.1-hectare North Triangle Property in Quezon City as a priming project of the
government and the private sector. The joint venture represents the conclusion of a public bidding
process conducted by the NHA which began last October 3, 2008.
ALIs proposal, which has been approved and declared by the NHA as compliant with the Terms of
Reference of the public bidding and the NEDA Joint Venture Guidelines, features the development of a
new CBD in Quezon City. The CBD will be developed as the Philippines first transit-oriented mixeduse CBD that will be a new nexus of commercial activity. The proposal also aims to benefit the NHA in
achieving its mandate of providing housing for informal settlers and transforming a non-performing asset
14

into a model for urban renewal. The development will also generate jobs and revenues both for both
local and national governments.
ALIs vision for the North Triangle Property is consistent with the mandate of the Urban Triangle
Development (TriDev) Commission to rationalize and speed up the development of the East and North
Triangles of Quezon City into well-planned, integrated and environmentally balanced, mixed-use
communities. The joint venture also conforms with the NHAs vision of a private sector-led and managed
model for the development of the property, similar to the development experience in Fort Bonifacio.
The total project cost is estimated at P65 billion, inclusive of future development costs and the current
value of the property, which ALI and the NHA will contribute as their respective equity share in the joint
venture. ALI expects to start development within two years.
In March 2010, Ayala Land signed a 35-year lease agreement with the Pison group for a 2-hectare
property in Iloilo City that will be used for the development of BPO buildings.
In April 2010, the Company through wholly-owned subsidiary Amaia signed a joint-development
agreement (JDA) with Eton Properties Inc. for the development of a 4-hectare property in Calamba,
Laguna that will form part of Amaia Scapes in Laguna. In addition, Avida also signed a JDA with the
Philippine National Bank for the development of a 2.3-hectare property along EDSA corner Reliance
and Mayflower Sts. in Mandaluyong City into a residential complex.
As reported in the SEC Form 17-Q dated November 9, 2010, the Company announced a 30-year lease
contract agreement signed with Ellimac Prime Holdings (Puregold and S&R Stores Group) for the
development of a 6-hectare property in Fairview, Quezon City.
In a disclosure to the SEC, PSE, and PDEx dated 10 February 2011, the Board of Regents of the
University of the Philippines (U.P.) awarded to the Company the lease contract for the development of
a 7.4-hectare property at the U.P. Diliman East Campus, also known as the U.P. Integrated School
(UP-IS) property along Katipunan Avenue in Quezon City. The Company signed a 25-year lease
contract for the property, with an option to renew said lease for another 25 years by mutual agreement.
The project will involve the construction of a retail establishment with 63,000 sqm of available gross
leasable area (GLA) and a combination of headquarter-and-BPO-office type building with an estimated
8,000 sqm of GLA.
In a disclosure to the SEC, PSE and Philippine Dealing & Exchange Corporation dated March 7, 2011,
Ayala Land, Ayala Corporation and The Rohatyn Group (TRG), an emerging markets-focused private
investment firm, completed an exchange of ownership interests in ARCH Capital Management Co., Ltd
(ARCH Capital) and ARCH Capital Asian Partners, G.P. (a Cayman Islands company).
Ayala Land and Ayala Corporation, as sponsors of ARCH Capital, co-founded the investment
management firm in 2006 together with Richard Yue. The exchange of ownership interest will result in
TRG acquiring Ayala Lands 17% stake and Ayala Corporations 33% interest, with Richard Yue
retaining his current 50% interest in ARCH Capital. The completed exchange of ownership interests will
leave the activities, management, focus, and shareholder structure of the ARCH Capital Fund
unchanged, with Ayala Land retaining its current 8% stake in the Arch Capital Fund. Arch Capital Fund
has existing projects in India, Thailand and China.
In another disclosure dated February 25, 2011, the Company and its subsidiary, Alveo Land Corp.,
have also entered into an agreement with Philippine Racing Club, Inc. to jointly pursue the development
of the 21-hectare property located in Barangay Carmona, Makati City, more commonly known as the
former Sta. Ana Racetrack, subject to the fulfillment of certain closing conditions agreed upon by the
parties. The project is intended as a mixed-use development consisting of residential, retail, and office
components and will form part of the Companys ongoing developments in the City of Makati.
Last July 2011, the Provincial Government of Negros Occidental (PGNO) and Ayala Land Inc. have
completed successful negotiations for the development of the PGNOs 7.7 hectare property located in
San Juan St., North Capitol Road, Bacolod City (the Provincial Capitol Property).An investment of
approximately P6.0 billion is estimated by Ayala Land for the planning and construction of an integrated
mixed-use civic and commercial district that will combine the center of government with commercial and
residential uses, making the growth center of Metro Bacolod and Negros Occidental the Capitol Civic
Center a one of a kind convergence of business community and government.
15

In our disclosure dated 17 September 2012, we reiterated that the deed of sale and contract of lease
for the Bacolod property require COA approval for the transaction to proceed.
In our disclosure dated 09 July 2013, we clarified that Gov. Maranon wrote a letter addressed to Ayala
Land dated 20 June 2013, informing the Company of the Commission on Audits (COAs) decision to
approve the Deed of Conditional Sale and render a favorable ruling on the Contract of Lease between
the Province and Ayala Land, Inc. In response to Gov. Maranons letter, the Company clarified that is
now open to proceed with discussions on the Bacolod Capitol project but remain concerned with the
pending legal case on the said property as this may compromise Ayala Lands long-term development
plans for the property and the Province of Negros as a whole.
On November 2011, BellaVita Land Corp. (formerly South Maya Ventures, Corp.), a subsidiary of Ayala
Land, Inc., operating under the brand name BellaVita the Companys 5th residential brand launched
its first residential subdivision project in December 2011 in a 13.6-hectare property in General Trias,
Cavite. The site is highly accessible from different routes and is strategically located at the center of
schools, places of work, public transportation terminals and commercial destinations.
Phase 1 of the project will involve the development of 602 residential units within a 5.4-hectare parcel
of land inside the property. Lot sizes will range from 34-65 sqm with a floor area of 21-23 sqm. Average
prices are between P400,000.00 to P450,000.00 per unit. The project will have an estimated project
cost of P250 million and is expected to be completed by 2013.
On November 23, 2011, the Company and Mitsubishi Corporation (MC) of Japan announced that they
have formalized a partnership to jointly engage in operations that will promote increased energy
efficiency in the Philippines. The initiatives of the joint-venture partnership will be conducted through
Philippine Integrated Energy Solutions, Inc. (PhilEnergy), which will be owned 60% by ALI and 40% by
MC.
In 2011, Philenergy has already allocated an investment of close to a billion pesos for the construction
two DCS plants which will serve the needs of the Ayala Center redevelopment in Makati and the
Alabang Town Center. The Company is currently planning other DCS projects in Cebu, Davao,
Cagayan de Oro, and Quezon City and will also tap into the large domestic and even regional market
of facilities that require energy-saving solutions.
In a further disclosure to the SEC, Ayala Land signed a Joint Venture Agreement with Alsons
Development and Investment Corporation (ALDEVINCO) for 25-hectare property in Lanang, Davao to
be developed into a mixed-use, fully-integrated community.
In August 2012, the Group won the public bidding for the purchase of the 74-hectare Food Terminal,
Inc. (FTI) property in Taguig. The bid was conducted in accordance with the Asset Specific Bidding
Rules dated July 4, 2012 and in accordance with the provisions of Executive Order No. 323. The
Groups bid was P24.3 billion.
In October 2012, the Company entered into a Purchase Agreement wherein the Seller (FTI) agrees to
sell, convey, assign and transfer and deliver to the buyer, and the buyer agrees to purchase and acquire
from the seller, all of the sellers rights and interests in the property. The property is designed to be a
mixed-use development and will be transformed into a new business district that will serve as Metro
Manilas gateway to the South.
On October 2, 2012, AHRC, a wholly-owned subsidiary of the Company, entered into an agreement to
acquire the interests of Kingdom Manila B.V., an affiliate of Kingdom Hotel Investments (KHI), and its
nominees in KHI-ALI Manila Inc. (now renamed AMHRI) and 72,124 common shares in KHI Manila
Property Inc. (now renamed AMHPI).
AMHRI and AMHPI are the project companies for the Fairmont Hotel and Raffles Suites and
Residences project in Makati which opened last December 2012. A total of P2.4 billion was paid to
acquire the interests of KHI in AMHRI and AMHPI.
In 2013, the Company finalized its purchase price allocation. Changes to the fair market values of the
assets acquired and liabilities assumed noted are retroactively applied in the 2012 balances.
APPCo owns BPO buildings in Makati, Quezon City and Laguna, with a total leasable area of
approximately 230,000 square meters. This acquisition is aligned with the Companys thrust of
expanding its office leasing business and increasing its recurring income.
16

In 2006, the Company signed an agreement with MLT Investments Ltd. (MIL) and Filipinas Investments
Ltd. (FIL) to jointly develop a BPO office building in Dela Rosa Street and to purchase the existing
PeopleSupport Building.
APPHC, the joint-venture company formed, is 60% owned by the Company. APPHC owns 60% interest
in APPCo. The remaining 40% interest in both APPHC and APPCo are split evenly between MIL and
FIL. APPHC and APPCo are joint ventures by the Company, MIL, and FIL.
On December 8, 2008, the Company acquired from FIL its 20% ownership in APPHC and APPCo. This
resulted in an increase in the Companys effective ownership interest in APPHC from 60% to80% and
APPCo from 36% to 68%, thereby providing the Company with the ability to control the operations of
APPHC and APPCo following the acquisition. Accordingly, APPHC and APPCos financial statements
are consolidated on a line-by-line basis with that of the Group as of December 31, 2008.
On November 16, 2011, the SEC approved the merger of APPHC and APPCo, with APPCo as the
surviving entity. The merger was meant to streamline administrative processes and achieve greater
efficiency. From the perspective of the Company, the merger did not affect its effective interest (68%)
in the merged entity.
On April 15, 2013, the Company has entered into a Sale and Purchase Agreement with Global
Technologies International Limited (GTIL) to acquire the latters 32% stake in APPCo for P3,520.0
million. Prior to the acquisition, the Company has 68% effective interest in APPCo. The carrying amount
of the non-controlling interest is reduced to nil as APPCo became wholly owned by the Company. The
difference between the fair value of the consideration paid and the amount by which the non-controlling
interest is adjusted is recognized in equity attributable to the Company amounting to P2,722.6 million.
On April 16, 2013, CPVDC (a subsidiary of CHI) acquired the 60% interest of the Company in AiO for
a cash consideration of P436.2 million. AiO was previously 40%-owned by CPVDC and60%-owned by
the Company. This transaction allows the Company to consolidate into CPVDC the development and
operations of BPO offices in Cebu and businesses related thereto, which should lead to value
enhancement, improved efficiencies, streamlined processes and synergy creation among the Company
and its subsidiaries. This is also consistent with the thrust of the CHI group to build up its recurring
income base.
The acquisition resulted to AiO becoming a wholly owned subsidiary of CPVDC. Both AiO and CHI are
under the common control of the Company. As a result, the acquisition was accounted for using the
pooling of interests method. The transaction has no effect on the carrying amounts of the Groups assets
and liabilities.
On October 31, 2013, the Group Company acquired a 55% interest in TPEPI for a consideration
ofP550.0 million. The acquisition will allow the Group to consolidate its businesses resulting in improved
efficiencies and synergy creation to maximize opportunities in the Cebu real estate market. The
transaction was accounted for as an asset acquisition. The excess of the Groups cost of investment in
TPEPI over its proportionate share in the underlying net assets at the date of acquisition was allocated
to the Investment properties account in the consolidated financial statements. This purchase premium
shall be amortized upon sale of these lots by TPEPI.TPEPIs underlying net assets acquired by the
Group as of date of acquisition consists of cash in bank, input VAT and investment properties amounting
to P550.0 million.
Various Diversification/new product lines introduced by the Company during the last three years
Economic Housing
In 2010, Ayala Land entered into the economic housing segment with the launch of AmaiaScapes in
Laguna under the Companys subsidiary Amaia Land Corp. carrying the brand Amaia.This segment is
expected to provide a steady end-user demand in the long-term as one-third of the estimated 18 million
Filipino households and majority of the almost four million national housing backlog units belong to this
segment.
Socialized Housing
In 2011, the Companys 5th residential brand BellaVita, which will cater to the socialized housing
segment, launched its first residential subdivision project in a 13.6-hectare property in General Trias,
Cavite. The site is highly accessible from different routes and is strategically located at the center of
schools, places of work, public transportation terminals and commercial destinations

17

Hotels and Resorts

Ayala Land also ventured into eco-tourism through the wholly-owned subsidiary, Ten Knots Group, who
owns and manages the world-famous El Nido Resorts in Palawan.
In addition, the Company is successfully operating four (4) Seda hotels in the country; Cagayan De Oro,
Davao, BGC and Nuvali. Seda is positioned as a businessmans hotel (formerly Kukun) and caters to
the increasing number of business travelers into the country.
Hospitals/Clinics
Ayala Land entered into a strategic partnership with the Mercado Group in July 2013 to establish
hospitals and clinics located in the Companys integrated mixed-use developments. The Company will
enhance its communities with the introduction of healthcare facilities under the QualiMed brand. In
2014, QualiMed opened three (3) clinics in Trinoma, Fairview Terraces, McKinley Exchange Corporate
Center, and QualiMed Womens and Childrens Hospital in Atria Park, Iloilo. Qualimed is on track on
the target to grow the hospitals and clinics 10 each till 2020.
Convenience Stores
SIAL CVS Retailers, Inc., a joint venture entity between Varejo Corporation and Specialty Investments,
Inc. (wholly-owned subsidiaries of Ayala Land, Inc. and Stores Specialists, Inc., respectively) signed an
agreement with FamilyMart Co, Ltd and Itochu Corporation to tap opportunities in the convenience store
business. The first FamilyMart store was unveiled last April 7, 2013 at Glorietta 3 in Makati. A total of
87 FamilyMart stores are in operation as of end 2014.
Department Stores
Varejo Corporation and Specialty Investments, Inc. (wholly-owned subsidiaries of Ayala Land, Inc. and
Stores Specialists, Inc., respectively) formed SIAL Specialty Retailers, Inc. to develop and operate
department stores in ALIs mall developments. The first Wellworth branch opened in March 2014 at
Fairview Terraces in Quezon City. The second branch will open Q2 2015 at UP TownCenter also in
Quezon City.
Supermarkets
ALI Capital Corporation (formerly Varejo Corporation), a subsidiary of Ayala Land, entered into a joint
venture agreement with Entenso Equities Incorporated, a wholly-owned entity of Puregold Price Club,
Inc., to develop and operate mid-market supermarkets for some of Ayala Lands mixed-use projects.
The first supermarket will open in the 3rd quarter of 2015 at UP Town Center. The Company expects
to roll out 3 mid-brand supermarkets per year.
Other Services
Philenergy operates the two (2) district cooling system (DCS) plants which serve the needs of the Ayala
Center redevelopment in Makati and the Alabang Town Center. The Company is currently planning
other DCS projects in Cebu, Davao, Cagayan de Oro, and Quezon City and will also tap into the large
domestic and even regional market of facilities that require energy-saving solutions.
Competition
Ayala Land is the only full-line real estate developer in the Philippines with a major presence in almost
all sectors of the industry. Ayala Land believes that, at present, there is no other single property
company that has a significant presence in all sectors of the property market. Ayala Land has different
competitors in each of its principal business lines.
With respect to its mall business, Ayala Lands main competitor is SM Prime whose focus on mall
operations gives SM Prime some edge over the Company in this line of business. Nevertheless, Ayala
Land is able to effectively compete for tenants primarily based on its ability to attract customers -- which
generally depends on the quality and location of its shopping centers, mix of tenants, reputation as a
developer, rental rates and other charges.
For office rental properties, Ayala Land sees competition in smaller developers such as Kuok Properties
(developer of Enterprise Building), Robinsons Land (developer of Robinsons Summit Center) and nontraditional developers such as the AIG Group (developer of Philam Towers) and RCBC (developer of
RCBC towers). For BPO office buildings, Ayala Land competes with the likes of Megaworld and
Robinsons Land. Ayala Land is able to effectively compete for tenants primarily based upon the quality
and location of its buildings, reputation as a building owner and the quality of support services provided
by its property manager, rental and other charges.
With respect to residential lot and condominium sales, Ayala Land competes with developers such as
Megaworld, DMCI Homes, Robinsons Land, and SM Development Corporation. Ayala Land is able to
18

effectively compete for purchasers primarily on the basis of reputation, price, reliability, and the quality
and location of the community in which the relevant site is located.
For the middle-income/affordable housing business, Ayala Land sees the likes of SM Development
Corp, Megaworld, Filinvest Land and DMCI Homes as key competitors. Alveo and Avida are able to
effectively compete for buyers based on quality and location of the project and availability of attractive
in-house financing terms.
For the economic housing segment, Amaia competes with Camella Homes, DMCI Homes, Filinvest,
Robinsons Land and SM Development Corporation.
BellaVita, a relatively new player in the socialized housing market, will continue to aggressively expand
its geographical footprint with product launches primarily located in provincial areas.
Suppliers
The Company has a broad base of suppliers, both local and foreign. The Company is not dependent
on one or a limited number of suppliers.
Customers
Ayala Land has a broad market base including local and foreign individual and institutional clients. The
Company does not have a customer that will account for twenty percent (20%) or more of its revenues.
Transactions with Related Parties
The Company and its subsidiaries (the Group), in their regular conduct of business, have entered into
transactions with associates and other related parties principally consisting of advances and
reimbursement of expenses, purchase and sale of real estate properties, construction contracts, and
development, management, underwriting, marketing, leasing and administrative service agreements.
Sales and purchases of goods and services to and from related parties are made on an arms length
basis and at current market prices at the time of the transactions.
However, no other transaction, without proper disclosure, was undertaken by the Group in which any
director or executive officer, any nominee for election as director, any beneficial owner of more than 5%
of the Companys outstanding shares (direct or indirect) or any member of his immediate family was
involved or had a direct or indirect material interest.
ALI employees are required to promptly disclose any business and family-related transactions with the
Company to ensure that potential conflicts of interest are surfaced and brought to the attention of
management.
Government approvals/regulations
The Company secures various government approvals such as the ECC, development permits, license
to sell, etc. as part of the normal course of its business.
Employees
Ayala Land - parent company has a total workforce of 498 regular employees as of December 31,
2014. The breakdown of the ALI - Parent Company employees according to type is as follows:
Senior Management
Middle Management
Staff
Total

26
224
248
498

Employees take pride in being an ALI employee because of the companys long history of bringing high
quality developments to the Philippines. With the growth of the business, career advancement
opportunities are created for employees. These attributes positively affect employee engagement and
retention.
The Company aims that its leadership development program and other learning interventions reinforce
ALIs operating principles and provide participants with a set of tools and frameworks to help them
develop skills and desired qualities of an effective leader. The programs are also venues to build
positive relations and manage networks within the ALI Group.
ALI has a healthy relation with its employees union. Both parties openly discuss employee concerns
without necessity of activating the formal grievance procedure.
19

Further, employees are able to report fraud, violations of laws, rules and regulations, or misconduct in
the organization thru reporting channels under the ALI Business Integrity Program.
Risks
Ayala Land is subject to significant competition in each of its principal businesses. Ayala Land competes
with other developers and developments to attract land and condominium buyers, shopping center and
office tenants, and customers of the retail outlets, restaurants, and hotels and resorts across the
country.
However, Ayala Land believes that, at present, there is no single property company that has a significant
presence in all sectors of the property market.
High-End, Middle-Income, Affordable Residential, and Economic and Socialized Housing
Developments
With respect to high-end and middle-income land and condominium sales, Ayala Land competes for
buyers primarily on the basis of reputation, reliability, price and the quality and location of the community
in which the relevant site is located. For the affordable, economic and socialized housing markets,
Ayala Land competes for buyers based on quality of projects, affordability of units and availability of inhouse financing. Ayala Land is also actively tapping the overseas Filipino market.
Shopping Center, Office Space and Land Rental
For its shopping centers, Ayala Land competes for tenants primarily based on the ability of the relevant
shopping center to attract customers - which generally depend on the quality and location of, and mix
of tenants in, the relevant retail center and the reputation of the owner of the retail center - and rental
and other charges. The market for shopping centers has become especially competitive and the
number of competing properties is growing. Some competing shopping centers are located within
relatively close proximity of each of Ayala Land's commercial centers.
With respect to its office rental properties, Ayala Land competes for tenants primarily based on the
quality and location of the relevant building, reputation of the building's owner, quality of support
services provided by the property manager, and rental and other charges. The Company is addressing
the continuing demand from BPOs by providing fully integrated and well maintained developments (high
rise or campus facility) in key locations in the country.
Hotels and Resort Operations
The local hotel and resort sector is largely driven by foreign and local travel for leisure or business
purposes. Any slowdown in tourism and business activity due to global financial and local political
turmoil and security concerns could potentially limit growth of the Company's hotels and resorts.
Construction
Ayala Land's construction business is benefiting from the improved performance of the construction
industry, particularly from an uptick in development activities mostly from the residential and retail
sectors. Any slowdown in the construction business could potentially cap growth of the Company's
construction arm.
Other risks that the company may be exposed to are the following:
Changes in Philippine and international interest rates
Changes in the value of the Peso
Changes in construction material and labor costs, power rates and other costs
Changes in laws and regulations that apply to the Philippine real estate industry
Changes in the country's political and economic conditions
Product and service quality and safety issues that go with the volume and pace of expansion
Frequent occurrence of natural disasters affecting our developments
To mitigate the above mentioned risks, Ayala Land shall continue to adopt appropriate risk management
measures as well as conservative financial and operational controls and policies to manage the various
business and operational risks it faces.
Working Capital
Ayala Land finances its working capital requirements through a combination of internally-generated
cash, pre-selling, joint ventures and joint development agreements, borrowings and proceeds from the
sale of non-core assets and installment receivables.

20

Domestic and Export Sales

The table below illustrates the amounts of revenue, profitability, and identifiable assets attributable to
domestic and foreign operations for the years ended December 31, 2014, 2013 and 2012: (in P
= 000)
2014

2013

2012

Consolidated revenues
Domestic
Foreign

95,197,046
-

81,523,070
-

59,932,162
-

Net operating income

Domestic
Foreign

35,801,433
-

29,683,884
-

22,906,452
-

11,741,764
-

9,038,328
-

325,473,685
-

254,115,680
-

Net income (Attributable to equity holders of Ayala Land)

Domestic
14,802,642
Foreign
Total assets
Domestic
Foreign

388,944,463
-

INTEGRATED MICROELECTRONICS, INC.

Background and Business
Established in 1980, Integrated Micro-Electronics, Inc. (alternately referred to as IMI or the Company
in the entire discussion of Integrated Microelectronics, Inc), has grown into a global company offering
core manufacturing capabilities as well as higher value competencies in design, engineering,
prototyping and supply chain management. IMI is a vertically integrated EMS provider to leading global
original equipment manufacturers (OEMs) across industries including computing, communications,
consumer, automotive, industrial and medical electronics segments, as well as emerging industries like
renewable energy. IMI also provides power semiconductor assembly and test services.
IMI, a stock corporation organized and registered under the laws of the Republic of the Philippines on
August 8, 1980, has four wholly-owned subsidiaries, namely: IMI International (Singapore) Pte. Ltd. (IMI
Singapore), IMI USA, Inc. (IMI USA), IMI Japan, Inc. (IMI Japan) and PSi Technologies, Inc. (PSi)
(collectively referred to as the Group). The Company is 50.92% owned by AYC Holdings, Ltd. (AYC),
a corporation incorporated in the British Virgin Islands and a wholly-owned subsidiary of AC
International Finance Ltd. under the umbrella of Ayala Corporation (AC), a corporation incorporated in
the Republic of the Philippines and listed in the Philippine Stock Exchange (PSE). AC is 49.03% owned
by Mermac, Inc., 10.18% owned by Mitsubishi Corporation and the rest by the public. The registered
office address of the Company is North Science Avenue, Laguna, Technopark, Bian, Laguna.
The Company was listed by way of introduction in the PSE on January 21, 2010. It has completed its
follow-on offering and listing of 215,000,000 common shares on December 5, 2014.
The Company is registered with the Philippine Economic Zone Authority (PEZA) as an exporter of
printed circuit board assembly (PCBA), flip chip assembly, box build sub-assembly, and enclosure
system, and provider of electronics product design, research and development, product development
outsourcing, and other electronic parts, among others. The Company is also engaged in the business
of providing test development and systems integration services and distributing related products and
equipment and related services.
IMI Singapore was incorporated and is domiciled in Singapore. It is engaged in the procurement of raw
materials, supplies and provision of customer services. Its wholly-owned subsidiary, Speedy-Tech
Electronics Ltd. (STEL), was incorporated and is domiciled also in Singapore. STEL, on its own, has
subsidiaries located in Hong Kong, Peoples Republic of China (PRC), and Philippines. STEL and its
subsidiaries (collectively referred to as STEL Group) are principally engaged in the provision of
Electronic Manufacturing Services (EMS) and Power Electronics solutions to original equipment
manufacturing (OEM) customers in the consumer electronics, computer peripherals/information
technology, industrial equipment, telecommunications and medical device sectors.

21

On April 16, 2009, IMI Singapore established its Philippine Regional Operating Headquarters (IMI
International ROHQ or IMI ROHQ). It serves as a supervisory, communications and coordinating
center for the affiliates and subsidiaries of IMI Singapore.
On December 14, 2012, the Directors of STEL approved the assignment of assets and liabilities of its
subsidiary, Speedy-Tech (Philippines), Inc. (STPH), to the Parent Company. On June 13, 2013, the
Board of Directors (BOD) of the Company authorized the transfer of all rights, title and ownership over
all of the assets, and assumption of liabilities and obligations of STPH as of December 31, 2012. The
Deed of Assignment was executed on July 30, 2013.
On July 29, 2011, the Company and EPIQ NV executed a Share Purchase Agreement (SPA) wherein
EPIQ NV agreed to sell to Cooperatief IMI Europe U.A. (Cooperatief), an indirect subsidiary of the
Parent Company, all of its shares in its subsidiaries, Integrated Micro-Electronics Bulgaria EOOD
(formerly EPIQ Electronic Assembly EOOD) (IMI BG), Integrated Micro-Electronics Czech Republic
s.r.o. (formerly EPIQ CZ s.r.o.) (IMI CZ) and Integrated Micro-Electronics Mexico, S.A.P.I. de C.V.
(formerly EPIQ MX, S.A.P.I de C.V.) (IMI MX) (collectively referred to as IMI EU/MX Subsidiaries) in
exchange for 43.45 million ($59.77 million) consisting of the Companys 200 million common shares
with a value of 24.37 million ($28.81 million), and 19.08 million ($27.32 million) to be paid by the
Company in cash, out of which 4.83 million ($6.92 million) will be paid upfront and the balance to be
paid on a deferred basis.
The aggregate purchase consideration of 43.45 million is broken down into: (1) payment of
approximately 11.73 million ($16.80 million) to EPIQ NV in consideration of assumption of the
receivables of EPIQ NV from the IMI EU/MX Subsidiaries that was transferred to Cooperatief; and
(2) payment of approximately 31.72 million ($39.32 million) to EPIQ NV for the purchase of equity
share in the IMI EU/MX Subsidiaries.
IMI EU/MX Subsidiaries design and produce printed circuits and spray casting of plastics, and supply
assembled and tested systems and sub-systems which include drive and control elements for
automotive equipment, household appliances, industrial market and other applications with plastic parts
and electronic components. IMI EU/MX Subsidiaries also provide engineering, research and
development, and logistics management services.
IMI USA acts as direct support to the Groups customers by providing program management, customer
service, engineering development and prototype manufacturing services to both North American and
European customers, especially for processes using direct die attach to various electronics substrates.
It specializes in prototyping low to medium PCBA and sub-assembly and is at the forefront of technology
with regard to precision assembly capabilities including, but not limited to, Surface Mount Technology
(SMT), Chip on Flex, Chip on Board and Flip Chip on Flex. IMI USA is also engaged in engineering,
design for manufacturing technology, advanced manufacturing process development, new product
introduction (NPI), direct chip attach and small precision assemblies.
IMI Japan was registered and is domiciled in Japan to serve as IMIs front-end design and product
development and sales support center. IMI Japan was established to attract more Japanese OEMs to
outsource their product development to IMI.
PSi is a power semiconductor assembly and test services (SATS) company serving niche markets in
the global power semiconductor market. It provides comprehensive package design, assembly and
test services for power semiconductors used in various electronic devices.
PSi owns 40% of PSiTech Realty, Inc. (PSiTech Realty), the holding company of Pacsem Realty, Inc.
(Pacsem Realty), which is a real estate company that acquires, holds, develops and disposes any real
estate or interest acquired.
On June 21, 2012, the Philippine Securities and Exchange Commission (SEC) approved the legal
merger of PSi Technologies Laguna, Inc. and PSi, with the former as the absorbed entity and PSi as
the surviving entity. On the same date, the respective BOD of PSi, Pacsem Realty and PSiTech Realty
authorized the dissolution and liquidation of Pacsem Realty and PSiTech Realty by shortening their
corporate life up to December 31, 2013, subject to the approval of the Philippine SEC. As of February
17, 2015, Pacsem Realty and PSiTech Realty are in the process of completing the Philippine SEC
requirements for dissolution.

22

Operations
Design and Engineering Solutions
Partnering with IMI allows a complete and successful product development. This is made possible by
IMIs capability to design and develop complete products and subsystems, analyze product design and
materials for costs reduction through value and profit engineering, and develop solutions for costeffective production and fast time-to-market while safeguarding intellectual property. IMIs product
development and engineering service offerings include Contract Design and Joint Development
Solutions, Advanced Manufacturing Engineering (AME), Test and Systems Development, and
Reliability/Failure Analysis and Calibration Quality Test solutions.
Supply Chain Solutions
IMIs supply chain management solutions are equipped to help partners reduce the risk brought about
by a volatile global market. The three-pronged approach include a systematic Order Management
Solution, a dynamic Supply Chain Strategy hinged on Supplier Managed Inventory, Continuous
Replenishment and Buffer Stock Programs, and a comprehensive Cost Management Solution that
revolves around regular price reviews and negotiations with leading materials strategic supplierpartners, distributors and manufacturers.
Manufacturing Solutions
IMIs comprehensive manufacturing experience allows a prospective client to leverage its strength in
RoHS-compliant and cleanroom manufacturing process, complex manufacturing using consigned
equipment and materials, complete turnkey manufacturing, and ERP-based planning. IMI has the
essential infrastructure equipment, manpower and quality systems to assure quick start of operations
and turnaround time. These include: PCBA and FCPA Assembly (Flexible PCBA, Aluminum PCBA,
Ceramic PCBA, Flip Chip On Flex, Chip-On-Board, Chip-On-flex, Chip-On-Glass, Hybrid Module
PCBA), Automated Through-Hole Assembly, PCBA with Multiple BGA SMT - Automated Manufacturing,
Complete Box build Solutions, Sub Assembly services, Component Assembly and Manufacturing of
Enclosure Systems.
Business Models
IMI recognizes the uniqueness of each customers requirements. To satisfy specific requests, IMI offers
flexible business models that allow it to build the perfect assembly for its clients manufacturing
requirements.
The Standard and Semi-custom business models pertain to IMIs PCBA processes. IMI invests in
SMT lines which support multiple customer requirements. Back-end and box build processes are also
set-up depending on customer requirements.
The Custom Business Model gives the client a free hand in designing the systems by offering a
dedicated facility manned by an independent and exclusive organization that will build the system from
ground up. With quality structures and operational procedures compatible with the clients systems,
IMIs line serves as the clients extension plant, assuring that all the parts and processes are customized
to the clients particular needs.
Capabilities and Solutions
IMIs capabilities allow it to take on the specific outsourcing needs of its customers, providing them with
flexible solutions that encompass design, manufacturing, and order fulfilment. It develops platforms to
customize solutions in response to its customers unique requirements. Its platforms in areas like shortrange wireless systems, embedded systems, and sensors and imaging technology represent
capabilities to manufacture products. New manufacturing capabilities are developed by IMIs AME
group. Its expertise includes immersion silver process, pre-flow underfill process, thermally enhanced
flip chip technology, traceless flip chip technology, and flip chip on flex assembly, among others. IMI
has a complete range of manufacturing solutions from PCBA to complete box build. Through its
flexible, efficient, and cost-effective end-to-end EMS solutions, IMI gives OEMs the luxury of focusing
on their core competencies of technology R&D and brand marketing.
Subsidiary in Power Semiconductor Assembly and Test
IMI through its subsidiary, PSi, provides outsourced power semiconductor assembly and test services
for legacy packages, power QFNs, and power modules.
Global Materials and Supply Chain Management
IMI will continue to strengthen and enhance its supply chain management capabilities through its global
scale of operations which it believes will enable it to achieve greater bargaining power with suppliers
and enable it to negotiate for lower costs and better quality of raw materials.
23

IMIs
turnkey capabilities
involve
major
commodities
for
direct/indirect
materials:
passive/active/mechanical/electro-mechanical components, existing vendor base for over 36,000 line
items, and Global sourcing in Asia, US and Europe of over 200 major and strategic suppliers from over
2,000 suppliers listed in our database. IMI is not or is not expected to be dependent upon one supplier
for raw materials or other items. IMI also has Vendor Partnership Programs to leverage for the most
competitive cost and engaged the supply base on vendor qualification, certification and development.
With regard to inbound and outbound logistics, IMI are partners with the best in the industry. The major
lines inbound are Singapore, Japan, Hong Kong, Taiwan, Malaysia, Thailand, Germany, and the U.S..
Major lines outbound are U.S., Germany, Malaysia, Hong Kong, Israel, Switzerland, Vietnam, UK,
Japan, Singapore, and France.
IMIs warehousing capabilities include housing all direct and indirect materials, management of internal
as well as third party logistics provider, satellite warehouses in other IMI plants and under the mySAPTM
ERP System. Its mission is to offer strategic and competitive Supply Chain Management for complete
order fulfilment of its Customers.
Product Capabilities
IMI has experience in working with some of the worlds leading companies in the following products:
Automotive Electronics
Automotive Camera
Electronic Wiper System
PCBA for Electronic Stability Program (ESP)
Tire Pressure Sensor PCBA
Car Windshield Temperature and Humidity Sensor
Electronic Power Steering (EPS)
Rotor Position Sensor (RPS)
PCBA for Headlight
Switch Controller for Main Light
Communication Power PCBA
Body Control Module (BCM)
Antenna Receiver / DAB Tuner
Powertrain Control Solutions
Semiconductors used in Electric Drive/ Hybrid Electric Vehicles
Fuel Management
Pump Driver
Steering Wheel Control Device
Cockpit Control Device, Audio Processor
Daytime Running Light
Interior Plastic Parts
Front lights
A/C control panels
Multi-functional switches
HVAC
Mirror control units
Drives and ECU
Headlamp
Door system, seating, closures
Digital antenna
Video system
Industrial Electronics
Automated Meter Reading (AMR)
Security Device
Electronic Door Access System
Smart Card
Point Of Sales System
Printer Control Board
Power Amplifier
DC-DC Power Converter
24

Engine Controllers
Welding Machine Inverter
Motor Drivers for Conveyor
Fan Motor Control Board
Computer Numerical Control (CNC) Control Board
Main power supplies for LED street lighting
Modules for renewable energy generation, transmission and conversion
Solar Power Power Regulator
Mobile Base Station Antenna
Semiconductor Test Handling Equipment
Control module for door lock system
Power supply for printer
ATM
Switches for automated conveyor
Garage door system
LCD modules for heating system application
LED lighting
Card readers
Aircon damper, multifunction switches
Access control tags
Fire alarm system
Dosimeter
Sensors for substation
LCD controls
Zigbee control unit
Printer Point Of Sales System (POS)
Gaming Machine
Security management
IGBT power module

Medical Electronics
Flat Panel Imaging Equipment
Auto Body Contouring Imaging Equipment
Dental Imaging System
Defibrillator ventillator
Concealed Hearing Aid
Biomedical and Laboratory Equipment
Centrifuge Control Board
Fitness Equipment Control Board
Medical Instrument Power Supply
DNA Analyzers
COF, Medical X-Ray Detectors
Medical Instrument Power Supply
Radiation Dosimeter
Finger Print Sensor
Telecommunications
Back Panel for Telecommunication Board
Fiber to the X (FFTx) systems
Booster Amplifier
GPON (Gigabit Passive Optical Network) Systems
Wireless Security System
Base Station Power Supply
Digital Station Control Board
Power Transistors for amplifiers in cellular base stations
Power Conversion ICs in adapters and chargers for cell phones and cordless phones
DC port and USB port protection for cell phones and satellite radio peripherals
Communication infrastructure equipment
Interface board for mobile phone

25

Computing and Storage Devices

CD/Combo Drive
DVD Drive
Blu-Ray Disc Drive
Hard Disk Drive
Solid State Drives
Printer Sensor
Printer Control Board
Multi-Function Copier Machine
DVD Recorder Power Supply
Power Supplies for Servers, PCs, Notebooks, and Netbooks, DVD recorder
Over-voltage protection for HDD and DC port protection for keyboard mouse
Flip Chip
Cooling Fan Motor
Thin Client System
Consumer Electronics
Hybrid IC
Gas Ignitor and Re-Ignitor
Air-Conditioning (HVAC) Controller
Power Management and Home Appliance for Lighting Control
Refrigerator and Cooker Hood Control Board
Projector Lamp Drivers
Household Metering Device
Bluetooth Headset
Electric Drive Control for home appliances
Main Power Supply for Flat-panel TV
Power Supply for game consoles and entertainment electronics
High Voltage Power Conversion ICs in adapters and chargers for personal electronics
Garage Door Control
Programmable Timer
Pressure Cooker Modules
Steamer Controller Modules
Washing Machine controllers
Coffee Machine
Control Power module for cooker hood, Human Machine Interface, Air conditioner, refrigerator,
household appliances
Car audio ejector
Digital/internet radio module
Igniter/re-igniter for cooktop
Lighting remote
Power driver for digital projectors
Power supply
Security solution for handheld merchandise
Power Semiconductor
Low-Medium Power Packages:
TO 220 Fpak 2/3L; TO 220 2/3/5/7L, SOT 82
PowerFlex 2/3/5/7L, TO252 / TO251, TO 263 3L;
3 x 3 mm QFN, 3.3 x 3.3mm QFN ; 5x6mm QFN
Medium-High Power Packages:
SOT 93 3L, TO 247 3L, TO 264 3/5L, SOT 227
Standard Packages - SP3, SP4, SP6
DRF, ARF
Small Signal Packages - SOT 223 3L, TO 220 2/3/5/7L
Renewable Energy
Photovolatics (PV) Panel Assembly
Photovolatics (PV) Co-Design & Development
Photovolatics (PV) Panel High Volume Manufacturing
Photovolatics (PV) Panel Platform
26

Photovolatics (PV) Inverter Platform

Inverter Electronics

With regard to emerging product capabilities, IMI is pursuing OEMs in the Photovolatics (PV) or Solar
Energy and Sensor and Imaging fields.
Except as otherwise disclosed as above, there are no other publicly-announced new products or
services during the year.
Human Resources
The Company has a total workforce of 15,424 employees as of December 31, 2014, shown in the
following table:
Job Groups

Total

Philippines

Managers
Supervisors
Rank-and-File
Technicians
Operators
TOTAL

394
1,553
1,967
1,410
10,100
15,424

158
558
892
378
4,821
6,807

China/
Singapore
160
712
623
1,012
3,365
5,872

USA

Japan

Europe

6
6

5
5

65
283
452
20
1,914
2,734

The relationship between management and employees has always been of solidarity and collaboration
from the beginning of its operations up to the present. The Company believes that open communication
and direct engagement between management and employees are the most effective ways to resolve
workplace issues.
IMI has existing supplemental benefits for its employees such as transportation and meal subsidy, group
hospitalization insurance coverage and non-contributory retirement plan.
The Company has or will have no supplemental benefits or incentive arrangements with its employees
other than those mentioned above.
Strategic Partnerships
An active strategic partnership is that with Renewable Energy Test Center, a California-based
engineering services, test and certification provider for PV and renewable energy products. This
partnership was forged in 2009. With IMI Energy Solutions, the partnership aims to offer PV services
including PV panel development, panel prototyping, certification, and mass production. IMI Energy
Solutions focuses on solar panel development and prototyping, while RETC handles product testing
and certification. RETC is right next door to IMI Energy Solutions to ensure fast turnaround time from
prototyping to product certification.
Competition
IMI is an EMS provider to OEM manufacturers in the computing, communications, consumer,
automotive, industrial, and medical electronics segments as well as emerging industries like renewable
energy. Global economy grew by 3.3% in 2014 remain unchanged from 2013 and is estimated to rise
further at 3.5% in 2015. The global electronics equipment production grew 3.3% in 2014 with China up
by 5% as well. 2015 is seen to have better positive estimates with a 4.6% growth in global production
as Europe leaves recession towards a slow yet progressive rise. Combined EMS and original design
manufacturing (ODM) revenues increased by 6.9% in 2014. Global EMS revenues were estimated to
be up 6.7% in 2014. Leading EMS companies continue to seek more innovation by focusing on higher
margins in non-traditional markets as it faces thinning margins and cost pressures from OEM
customers.
IMI competes worldwide, with focus on Asia (including Japan and China), North America, and Europe.
There are two methods of competition: a) price competitiveness and b) robustness of total solution
(service, price, quality, special capabilities or technology). IMI competes with EMS companies ODM
manufacturers all over the world. Some of its fierce EMS provider competitors include Hon Hai,
Flextronics, and Plexus.
HonHai/Foxconn is a Taiwanese company with annual revenues of US$139 billion in 2014. Foxconns
growth has ridden on the coattails of Apple who has been achieving spectacular growth over the last
27

five years. HonHai is a competitor of IMI in the computing and telecommunication infrastructure
markets.
Flextronics is a Singapore-headquartered company with annual revenues of US$26.9 billion in 2014;
its cost structure is very competitive it is vertically integrated as well. Flextronics poses competition to
IMI in the automotive space.
Plexus, U.S.-based, recorded US$2.5 billion revenues in 2014. Plexus is a key EMS player in industrial
and medical sectors, which are target markets of IMI.
IMI is focused on delivering customized solutions of highest quality at reasonable prices. It collaborates
with the customers in finding the right solutions to their problems. IMI even challenges its own systems
and processes if needed. It has a distinct advantage in serving customers who value quality over price
and require complex non-standard solutions. Living up to the flexible expertise brand, IMI is adaptable
to the needs and conditions of its customers. This expertise has propelled IMI onto the current list of
the top 30 EMS providers in the world and earned for IMI several accolades from its customers. IMI
also ranked number 8 among the largest EMS providers in the automotive segment based on 2013
revenues.
Transactions with Related Parties
The Company and its subsidiaries, in their regular conduct of business, have entered into transactions
with associates and other related parties principally consisting of advances, loans, reimbursement of
expenses, various guarantees, construction contract, and management, marketing, and administrative
service agreements. Sales and purchases of goods and services to and from related parties are made
at normal commercial prices and terms.
Risk Factors
The Companys business, financial condition and results of operation could be materially and adversely
affected by risks relating to the Company and the Philippines.
IMIs operating results may significantly fluctuate from period to period
There is a risk that the Companys operating results may fluctuate significantly due to various factors
including but not limited to changes in demand for its products and services, customers sales outlook,
purchasing patterns, and inventory adjustments, changes in the types of services provided to
customers, variations in the, volume of products, adjustments in the processes and manner of delivery
of services, as well as alterations to product specifications on account of complexity of product maturity,
the extent to which the Company can provide vertically integrated services for a product. The
Companys operating result is also affected by the Companys effectiveness in managing its
manufacturing processes, controlling costs, and integrating any potential future acquisitions, the
Companys ability to make optimal use of its available manufacturing capacity, changes in the cost and
availability of labor, raw materials, and components, which affect its margins and its ability to meet
delivery schedules, and the ability to manage the timing of its component purchases so that components
are available when needed for production while avoiding the risks of accumulating inventory in excess
of immediate production needs. Fluctuations in operating results may also be experienced by the
Company on account of the advent of new technology and customer qualification of technology
employed in the production, and the occurrence of any changes in local conditions or occurrence of
events that may affect production volumes and costs of production, such as, but not limited to labor
conditions, political instability, changes in law and regulation, economic disruptions or changes in
economic policies affecting flow of capital, entry of competition, substantial rate hikes of utilities required
for production, or force majeure.
The factors identified above and other risks discussed in this section affect the Companys operating
results from time to time.
Some of these factors are beyond the Companys control. The Company may not be able to effectively
sustain its growth due to restraining factors concerning corporate competencies, competition, global
economies, and market and customer requirements. To meet the needs of its customers, the Company
has expanded its operations in recent years and, in conjunction with the execution of its strategic plans,
the Company expects to continue expanding in terms of geographical reach, customers served,
products, and services. To manage its growth, the Company must continue to enhance its managerial,
technical, operational, and other resources.
The Companys ongoing operations and future growth may also require funding either through internal
or external sources. There can also be no assurance that any future expansion plans will not adversely
28

affect the Companys existing operations since execution of said plans may involve challenges. For
instance, the Company may be required to be confronted with such issues as shortages of production
equipment and raw materials or components, capacity constraints, difficulties in ramping up production
at new facilities or upgrading or expanding existing facilities, and training an increasing number of
personnel to manage and operate those facilities. Compounding these issues are other restraining
factors such as more aggressive efforts of competition in expanding business, volatility in global
economies and market and customer requirements. All these challenges could make it difficult for the
Company to implement any expansion plans successfully and in a timely manner.
In response to a very dynamic operating environment and intense industry competition, the Company
focuses on high-growth/high-margin specialized product niches, diversifies its markets and products,
engages in higher value add services, improves its cost structure, and pursues strategies to grow
existing accounts.
IMI is highly dependent on an industry that is characterized by rapid technological changes
The demand for the Companys solutions is derived from the demand of end customers particularly for
end-use applications in the computing, communications, consumer automotive, industrial and medical
electronics industries. These industries have historically been characterized by rapid technological
change, evolving industry standards, and changing customer needs. There can be no assurance that
the Company will be successful in responding to these industry demands. New services or technologies
may also render the Companys existing services or technologies less competitive. If the Company does
not promptly make measures to respond to technological developments and industry standard changes,
the eventual integration of new technology or industry standards or the eventual upgrading of its
facilities and production capabilities may require substantial time, effort, and capital investment.
The Company is focusing on longer life cycle industries such as automotive, industrial and
telecommunication infrastructure to reduce the volatility of model and design changes. The Company
also keeps itself abreast of trends and technology development the electronics industry and is
continuously conducting studies to enhance its technologies, capabilities and value proposition to its
customers. It defines and executes technology road maps that are aligned with market and customer
requirements.
The industry where IMI operates in does not serve, generally, firm or long-term volume purchase
commitments
Save for specific engagements peculiar to certain products and services required, the Companys
customers do not generally contract for firm and long-term volume purchase. Customers may place
lower-than expected orders, cancel existing or future orders or change production quantities. There are
no guaranteed or fixed volume orders that are committed on a monthly or periodic basis.
In addition, the Company makes significant investment decisions, including determining the levels of
business that it will seek and accept capacity expansion, personnel needs, and other resource
requirements. These key decisions are ultimately based on estimates of customer long-term
requirements. The rapid changes in demand for its products reduce its ability to estimate accurately
long-term future customer requirements. Thus, there is the risk that resource investments are not
optimized at a certain period.
In order to manage the effects of these uncertainties, customers are required to place firm orders within
the manufacturing lead time to ensure delivery. The Company does not solely rely on the forecast
provided by the clients. By focusing on the longer cycle industry segments, the volatility that comes with
rapid model changes is reduced and the Company is able to have a more accurate production planning
and inventory management process.
Buy-back agreements are also negotiated by the Company in the event there are excess inventory
when customer products reach their end-of-life .To the extent possible, the Companys contract include
volume break pricing, and materials buy-back conditions to taper the impact of sudden cancellations,
reductions, and delays in customer requirements.
IMI may encounter difficulties in connection with its global expansion
The Companys globalization strategy has transformed it from a Philippines-centric company into a
global network with manufacturing and engineering facilities as well as sales offices in Asia, Europe,
and North America. This global expansion may expose the Company to potential difficulties that include
diversion of managements attention from the normal operations of the Companys business, potential
loss of key employees and customers of the acquired companies, physical, legal, cultural, and social
impediments in managing and integrating operations in geographically dispersed locations, lack of
29

experience operating in the geographic market of the acquired business, reduction in cash balance and
increases in expenses and working capital requirements, which may reduce return on invested capital,
potential increases in debt, which may increase operating costs as a result of higher interest payments,
and complexities in integrating acquired businesses into existing operations, which may prevent it from
achieving, or may reduce the anticipated synergy.
The Companys acquisitions of new companies or creation of new units, whether onshore or offshore,
may also have an immediate financial impact to the Company due to the dilution of the percentage of
ownership of current stockholders if the acquisition requires any payment in the form of equity of the
Company, the periodic impairment of goodwill and other intangible assets, and liabilities, litigations,
and/or unanticipated contingent liabilities assumed from the acquired companies.
If the Company is not able to successfully manage these potential difficulties, any such acquisitions
may not result in material revenue enhancement or other anticipated benefits or even adversely affect
its financial and/or operating condition.
To limit its exposure, the Company performs a thorough assessment of the upside and downside of any
merger or acquisition. Supported by a team which focuses on business development, finance, legal,
and engineering units, the vision, long-term strategy, compatibility with the culture, customer
relationship, technology, and financial stability of the company to be acquired is carefully examined
thorough due diligence to ensure exposures are mitigated through proper warranties. In addition, the
Company looks at acquisitions that are immediately accretive to the P&L of the Company. The decision
is then reviewed and endorsed by the Finance Committee, and approved by the Board. The Company
carefully plans any merger or acquisition for a substantial period prior to closing date. Prior to closing
of transactions, the Company forms an integration team and formulates detailed execution plans to
integrate the key functions of the acquired entity into the Company.
IMI may not be able to mitigate the effects of declining prices of goods over the life cycles of its
products or as a result of changes in its mix of new and mature products, mix of turnkey and
consignment business arrangements, and lower prices offered by competition
The price of the Companys products tends to decline over the later years of the product life cycle,
reflecting decreased costs of input components, improved efficiency, decreased demand, and
increased competition as more manufacturers are able to produce similar or alternative products. The
gross margin for manufacturing services is highest when a product is first developed but as products
mature, average selling prices of a product drop due to various market forces resulting in gross margin
erosion. The Company may be constrained to reduce the price of its service for more mature products
in order to remain competitive against other manufacturing services providers. This is most apparent in
the automotive segment, where the reduction has historically been observed to occur between the first
two to three years. The Companys gross margin may further decline to be competitive with the lower
prices offered by competition or to absorb excess capacity, liquidate excess inventories, or restructure
or attempt to gain market share.
The Company is moving towards a higher proportion of contracting under a turnkey production (with
the Company providing labor, materials and overhead support), as compared to those under a
consignment model, indicating a possible deterioration in its margins. The Company will also need to
deploy larger amounts of working capital for turnkey engagements.
To mitigate the effects of price declines in the Companys existing products and to sustain margins, the
Company continues to improve its production efficiency by increasing yields, increasing throughputs
through LEAN and six sigma manufacturing process. In addition, the Company continuous to leverage
on its purchase base and supplier programs to avail of discounts and reduced costs in component
prices. It also utilizes its global procurement network and supply chain capabilities to reduce logistics
costs for components including inventory levels. The Company also intensifies its effort to contract with
customers with highermargin products most of which involve higher engineering value add and more
complex box build or system integration requirements.
IMI operates in a highly competitive industry
Some of the Companys competitors in the industry may have greater design, engineering,
manufacturing, financial capabilities, or superior resources than the Company. Customers evaluate
EMS and ODMs based on, among other things, global manufacturing capabilities, speed, quality,
engineering services, flexibility, and costs. In outsourcing, OEMs seek to reduce cost. In addition, major
OEMs typically outsource the same type of products to at least two or three outsourcing partners in
order to diversify their supply risks. The competitive nature of the industry may result in substantial price
competition. The Company faces increasing challenges from competitors who are able to put in place
30

a competitive cost structure by consolidating with or acquiring other competitors, relocating to lower
cost areas, strengthening supply chain partnerships, or enhancing solutions through vertical integration,
among others. The Companys customers may opt to transact with the Companys competitors instead
of the Company or if the Company fails to develop and provide the technology and skills required by its
customers at a rate comparable to its competitors. There can be no assurance that the Company will
be able to competitively develop the higher value add solutions necessary to retain business or attract
new customers. There can also be no assurance that it will be able to establish a compelling advantage
over its competitors.
The industry could become even more competitive if OEMs fail to significantly increase their overall
levels of outsourcing. Increased competition could result in significant price competition, reduced
revenues, lower profit margins, or loss of market share, any of which would have a material adverse
effect on the Companys business, financial condition, and results of operations.
The Company regularly assesses the appropriate pricing model (so as to ensure that it is strategic/value
based or demand based, among others) to be applied on its quotation to existing or prospective
customers. The Company is also strengthening its risk management capabilities to be able to turn some
of the risks (e.g., credit risks) into opportunities to gain or maintain new or existing customers,
respectively. The Company also continues to develop high value-add services that fit the dynamic
markets it serves. It continues to enhance capabilities in design and development, advanced
manufacturing engineering, test and systems development, value engineering, and supply chain
management to ensure an efficient product realization experience for its customers.
In addition, the Companys size, stability and geographical reach allow it to attract global OEMs
customers that look for stable partners that can service them in multiple locations. This is evidenced by
increasing number of global contracts that the Company is able to develop and have multiple sites
serving single customers.
Focusing on high value automotive (such as those for ADAS and Safety-related, power modules and
electronic control units, among others), industrial and medical segments where strict performance and
stringent certification processes are required, the Company is able to establish a high barrier of entry,
business sustainability and better pricing. Generally, the Company has observed that it is usually difficult
for customers in these industries to shift production as they would have to go through a long lead time
in the certification process. The direction the Company has taken resulted in the rise of the Companys
ranking in the global and automotive EMS spaces.
IMI may be subject to reputation and financial risks due to product quality and liability issues
The contracts the Company enters into with its customers, especially customers from the automotive
and medical industry, typically include warranties that its products will be free from defects and will
perform in accordance with agreed specifications. To the extent that products delivered by the Company
to its customers do not, or are not deemed to, satisfy such warranties, the Company could be
responsible for repairing or replacing any defective products, or, in certain circumstances, for the cost
of effecting a recall of all products which might contain a similar defect in an occurrence of an epidemic
failure, as well as for consequential damages. Defects in the products manufactured by the company
adversely affect its customer relations, standing and reputation in the marketplace, result in monetary
losses, and have a material adverse effect on its business, financial condition, and results of operations.
There can be no assurance that the Company will be able to recover any losses incurred as a result of
product liability in the future from any third party.
In order to prevent or avoid a potential breach of warranties which may expose the Company to liability,
the Company performs a detailed review and documentation of the manufacturing process that is
verified, audited and signed-off by the customers. In addition, customers are encouraged, and in some
cases, required to perform official audits of the Companys manufacturing and quality assurance
processes, to ensure compliance with specifications. The Company works closely with customers to
define customer specifications and quality requirements, and follow closely these requirements to
mitigate future product liability claims. The Company also insures itself on product liability and recall on
a global basis.
IMIs production capacity may not correspond precisely to its production demand
The Companys customers may require it to have a certain percentage of excess capacity that would
allow the Company to meet unexpected increases in purchase orders. On occasion, however,
customers may require rapid increases in production beyond the Companys production capacity, and
the Company may not have sufficient capacity at any given time to meet sharp increases in these
requirements. On the other hand, there is also a risk of the underutilization of the production line, which
31

may slightly lower the Companys profit margins. In response, the Company makes the necessary
adjustments in order to have a match between demand and supply. In the case of a lack in supply, the
Company equips itself with flexible systems that allow it to temporarily expand its production lines in
order to lower the overhead costs, and then make corresponding increases in its capacity when there
is a need for it as well.
To soften the impact of this, the Company closely coordinates with customers to provide the parties
with regular capacity reports and action plan/s for common reference and future capacity utilizations.
The Company also closely collaborates with its customers to understand the required technology
roadmaps, anticipate changes in technological requirements, and discuss possible future solutions.
IMI may be involved in intellectual property disputes
The Companys business depends in part on its ability to provide customers with technologically
sophisticated products. The Companys failure to protect its intellectual property or the intellectual
property of its customers exposes it to legal liability, loss of business to competition and could hurt
customer relationships and affect its ability to obtain future business. It could incur costs in either
defending or settling any intellectual property disputes. Customers typically require that the Company
indemnify them against claims of intellectual property infringement. If any claims are brought against
the Companys customers for such infringement, whether these have merit or not, it could be required
to expend significant resources in defending such claims. In the event the Company is subjected to any
infringement claims, it may be required to spend a significant amount of money to develop non-infringing
alternatives or obtain licenses. The Company may not be successful in developing such alternatives or
in obtaining such licenses on reasonable terms or at all, which could disrupt manufacturing processes,
damage its reputation, and affect its profitability.
Since the Company is not positioned as an ODM, the likelihood of the Company infringing upon product
related intellectual property of third parties is significantly reduced. Product designs are prescribed by
and ultimately owned by the customer.
The Company observes strict adherence to approved processes and specifications and adopts
appropriate controls to ensure that the Companys intellectual property and that of its customers are
protected and respected. It continuously monitors compliance with confidentiality undertakings of the
Company and management. As of the date of this Prospectus, there has been no claim or disputes
involving the Company or between the Company and its customers involving any intellectual property.
Demand for services in the EMS industry depends on the performance and business of the
industrys customers as well as the demand from end consumers of electronic products
The performance and profitability of the Companys customers industries are partly driven by the
demand for electronic products and equipment by end-consumers. If the end-user demand is low for
the industrys customers products, companies in the Companys industry may see significant changes
in orders from customers and may experience greater pricing pressures. Therefore, risks that could
harm the customers of its industry could, as a result, adversely affect the Company as well. These risks
include the customers inability to manage their operations efficiently and effectively, the reduced
consumer spending in key customers markets, the seasonality demand for their products, and failure
of the customers products to gain widespread commercial acceptance.
The impact of these risks was very evident in the aftermath of the global financial crisis which resulted
in global reduction of demand for electronics products by end-customers. The Company mitigates the
impact of industry downturns on demand by rationalizing excess labor and capacity to geographical
areas that are most optimal, and by initiating cost containment programs. With indications of global
financial recovery already in place, the Company has been able to re-hire some of its employees. There
are also electronics requirements resulting from global regulations, such as those for improving vehicle
safety and promoting energy-efficient technologies that would increase the demand for electronic
products and equipment.
The Company continuously addresses its concentration risks. There is no single customer that the
Company is dependent on or accounts for more than 15% of the Companys revenues. The Company
also serves global customers which are not concentrated on a specific geographic market.
IMIs industry is dependent on the continuous growth of outsourcing by OEMs
The Company belongs to an industry that is dependent on the strong and continuous growth of
outsourcing in the computing, communications, consumer automotive, industrial, and medical
electronics industries where customers choose to outsource production of certain components and
32

parts, as well as functions in the production process. A customers decision to outsource is affected by
its ability and capacity for internal manufacturing and the competitive advantages of outsourcing.
The Companys industry depends on the continuing trend of increased outsourcing by its customers.
Future growth in its revenue depends on new outsourcing opportunities in which it assumes additional
manufacturing and supply chain management responsibilities from its customers. To the extent that
these opportunities do not materialize, either because the customers decide to perform these functions
internally or because they use other providers of these services, the Companys future growth could be
limited.
The Company believes that its global footprint with manufacturing operations in Asia, Europe, and North
America, its global supply chain systems and capabilities, and its design services will continue to
provide strategic advantages for customers to outsource parts of their product development and
manufacturing processes to the Company.
IMIs industry may experience shortages in, or rises in the prices of components, which may
adversely affect business
There is a risk that the Company will be unable to acquire necessary components for its business as a
result of strong demand in the industry for those components or if suppliers experience any problems
with production or delivery.
The Company is often required by its customers to source certain key components from customernominated and accredited suppliers only, and it may not be able to obtain alternative sources of supply
should such suppliers be unable to meet the supply of key components in the future. Shortages of
components could limit its production capabilities or cause delays in production, which could prevent it
from making scheduled shipments to customers.
If the Company is unable to make scheduled shipments, it may experience a reduction in its sales, an
increase in costs, and adverse effects on its business. Component shortages may also increase costs
of goods sold because it may be required to pay higher prices for components in short supply and
redesign or reconfigure products to accommodate substitute components.
To the extent possible, the Company works closely with customers to ensure that there are back up
suppliers or manufacturers for customer-supplied components or components supplied by customernominated suppliers to mitigate uncertainties in the supply chain. In addition, the Company has
established supplier certification and development programs designed to assess and improve suppliers
capability in ensuring uninterrupted supply of components to the Company.
IMI may be exposed to risk of inventory obsolescence and working capital tied up in inventories
As an EMS provider, the Company may be exposed to a risk of inventory obsolescence because of
rapidly changing technology and customer requirements. Inventory obsolescence may require it to
make adjustments to write down inventory to the lower of cost or net realizable value, and its operating
results could be adversely affected. The Company is cognizant of these risks and accordingly exercises
due diligence in materials planning. The Company also provisions in its inventory systems and planning
a reasonable amount for obsolescence. It is working with key suppliers to establish supplier-managed
inventory arrangements that will mutually reduce the risk. In addition, the Company often negotiates
buy back arrangements with customers where, in the event the customers purchase orders are
delayed, canceled, or enter in the end-of life phase, the customers assumes the risk and compensates
the Company for the excess inventory.
IMI is highly dependent on the continued service of its directors, members of senior
management and other key officers
The Companys directors, members of its senior management, and other key officers have been an
integral part of its success, and the experience, knowledge, business relationships and expertise that
would be lost should any such persons depart could be difficult to replace and may result in a decrease
in the Companys operating efficiency and financial performance. Key executives and members of
management of the Company include CEO, COO, CFO, Chief Procurement Officer, Global Business
Development and Key Account Leader, Global Sales Leader, Global HR, Global Design and
Development, Global Quality and Regional/Site Quality Leaders, and Plant GMs. In the event that the
Company loses the services of any such person and is unable to fill any vacant key executive or
management positions with qualified candidates, or if the qualified individual takes time to learn the
details of the Company, the Companys business and results of operations may be adversely affected.

33

Any deterioration in IMIs employee relations could materially and adversely affect IMIs
operations
The Companys success depends partially on the ability of the Company, its contractors, and its third
party marketing agents to maintain productive workforces. Any strikes, work stoppages, work
slowdowns, grievances, complaints or claims of unfair practices or other deterioration in the Companys,
its contractors or its third party marketing agents employee relations could have a material and adverse
effect on the Companys financial condition and results of operations. There have been no historical
events related to strikes or protests from its employees or unions, given the well-established employee
relations of the Company.
IMIs success depends on attracting, engaging, and retaining key talents, including skilled
research and development engineers
In order to sustain its ability to complete contracted services and deliver on commitments and promote
growth, the Company will have to continuously attract, develop, engage and retain skilled workforce
highly capable to achieve business goals. The Company recognizes that its competitiveness is
dependent on its key talent pipeline, including leadership, talent and skill pool, and succession plan.
The Company continuously identifies top-caliber candidates and keeps the pipeline full to be ready to
assume new roles and fuel growth. The Company has a strong ability to hire in terms of the quality of
recruits as well as in scale. Specifically, there is strong recruitment in Philippines and in China, having
been able to tie up with universities. In the case of an immediate need for to provide manpower, there
are contractual agreements at hand to meet the demand. They have the ability to rapidly organize and
train skilled workers for new products and services and retain qualified personnel.
The Company also leverages on its global reach to identify, recruit and develop the right employees
who can be deployed to the various operating units or divisions of the Company. It also implements on
a regular basis pertinent employee training and development programs, including a cadetship program
that enables it to tap and employ capable graduates from different leading universities. The Company
has implemented proactive measures to retain employees through sound retention programs,
encouraging work-life balance among its employees, and providing structured career development
paths to promote career growth within the organization and loyalty to the Company.
Any shortage of raw materials or components could impair the Companys ability to ship orders
of its products in a cost-efficient manner or could cause the Company to miss its delivery
requirements of its retailers or distributors, which could harm the Companys business
The ability of the Companys manufacturers to supply its products is dependent, in part, upon the
availability of raw materials and certain components. The Companys manufacturers may experience
shortages in the availability of raw materials or components, which could result in delayed delivery of
products to the Company or in increased costs to it. Any shortage of raw materials or components or
inability to control costs associated with manufacturing could increase the costs for the Companys
products or impair its ability to ship orders in a timely cost-efficient manner. As a result, it could
experience cancellation of orders, refusal to accept deliveries, or a reduction in the Companys prices
and margins, any of which could harm the Companys financial performance and results of operations.
Other than for customer-nominated suppliers or specialty components for the manufacture of specific
products, the Company is not dependent on a single supplier for its raw materials.
In addition, since company sources materials from various countries, different natural disasters may
affect supply. Typhoons, earthquakes, and other natural disaster may cause a delay the delivery of the
raw materials to the company, manufacturing of ordered products may not be met, resulting to a loss in
potential sales.
IMI may, from time to time, be involved in legal and other proceedings arising out of its
operations.
The Company may, from time to time, be involved in disputes with its employees and various parties
involved in its manufacturing operations, including contractual disputes with customers or suppliers,
labor disputes with workers or be exposed to damage or personal liability claims. Regardless of the
outcome, these disputes may lead to legal or other proceedings and may result in substantial costs,
delays in the Companys development schedule, and the diversion of resources and managements
attention. The Company may also have disagreements with regulatory bodies in the course of its
operations, which may subject it to administrative proceedings and unfavorable decisions that result in
penalties and/or delay the development of its projects. In such cases, the Companys business, financial
condition, results of operations and cash flows could be materially and adversely affected.

34

Risks Relating to Countries Where the Company Operates (Including the Philippines)
IMI conducts business in various jurisdictions, exposing it to business, political, operational,
financial, and economic risks due to its operations in these jurisdictions.
There is no assurance that there will be no occurrence of an economic slowdown in the countries where
the Company operates, including the Philippines. Factors that may adversely affect an economy include
but are not limited to:

decreases in business, industrial, manufacturing or financial activity in the Philippines or in the

global market,
scarcity of credit or other financing, resulting in lower demand for products and services
the sovereign credit ratings of the country,
exchange rate fluctuations,
a prolonged period of inflation or increase in interest rates,
changes in the relevant government's taxation policies,
natural disasters, including typhoons, earthquakes, fires, floods and similar events,
political instability, terrorism or military conflict, and
other regulatory, political or economic developments in or affecting the Company

Notwithstanding the foregoing, the global operations, marketing, and distribution of the Companys
products inherently integrate the impact of any economic downturn affecting a single country where the
Company operates, and enables the Company to shift the focus of its operations to other jurisdictions.
The Companys manufacturing and sales operations are located in a number of countries throughout
Asia, Europe, and North America. As a result, it is affected by business, political, operational, financial,
and economic risks inherent in international business, many of which are beyond the Companys
control, including difficulties in obtaining domestic and foreign export, import, and other governmental
approvals, permits, and licenses, and compliance with foreign laws, which could halt, interrupt, or delay
the Companys operations if it is unable to obtain such approvals, permits, and licenses, and could have
a material adverse effect on the Companys results of operations.
Changes in law including unexpected changes in regulatory requirements affect the Companys
business plans, such as those relating to labor, environmental compliance and product safety. Delays
or difficulties, burdens, and costs of compliance with a variety of foreign laws, including often conflicting
and highly prescriptive regulations also directly affect the Companys business plans and operations,
cross-border arrangements and the inter-company systems.
Increases in duties and taxation and a potential reversal of current tax or other currently favorable
policies encouraging foreign investment or foreign trade by host countries leading to the imposition of
government controls, changes in tariffs, or trade restrictions on component or assembled products may
result in adverse tax consequences, including tax consequences which may arise in connection with
inter-company pricing for transactions between separate legal entities within a group operating in
different tax jurisdictions, also result in increases in cost of duties and taxation.
Actions which may be taken by foreign governments pursuant to any trade restrictions, such as most
favored nation status and trade preferences, as well as potential foreign exchange and repatriation
controls on foreign earnings, exchange rate fluctuations, and currency conversion restrictions may
adversely affect the Companys business and financial condition.
Under existing foreign exchange controls in the Philippines, as a general rule, Philippine residents may
freely dispose of their foreign exchange receipts and foreign exchange may be freely sold and
purchased outside the Philippine banking system. Restrictions exist on the sale and purchase of foreign
exchange in the Philippine banking system. In the past, the Government has instituted restrictions on
the ability of foreign companies to use foreign exchange revenues or to convert Philippine pesos into
foreign currencies to satisfy foreign currency- denominated obligations, and no assurance can be given
that the Government will not institute such or other restrictive exchange policies in the future.
A substantial portion of the Companys manufacturing operations is located in China, which has
regulated financial and foreign exchange regime. The Company continuously evaluates the options
available to the organization to ensure maximum usage of excess liquidity. Among others, excess
liquidity may be repatriated out of China through dividend payments, payment of management service
or royalty fees, use of leading and lagging payment, and transfer pricing.

35

Environmental laws applicable to IMIs projects could have a material adverse effect on its
business, financial condition or results of operations
The Company cannot predict what environmental legislation or regulations will be amended or enacted
in the future, how existing or future laws or regulations will be enforced, administered or interpreted, or
the amount of future expenditures that may be required to comply with these environmental laws or
regulations or to respond to environmental claims. The introduction or inconsistent application of, or
changes in, laws and regulations applicable to the Companys business could have a material adverse
effect on its business, financial condition and results of operations.
There can be no assurance that current or future environmental laws and regulations applicable to the
Company will not increase the costs of conducting its business above currently projected levels or
require future capital expenditures. In addition, if a violation of any environmental law or regulation
occurs or if environmental hazards on land where the Companys projects are located cause damage
or injury to buyers or any third party, the Company may be required to pay a fine, to incur costs in order
to cure the violation and to compensate its buyers and any affected third parties.
Any political instability in the Philippines and the countries where IMI operates may adversely
affect the business operations, plans, and prospects of IMI
The Philippines has from time to time experienced severe political and social instability. The Philippine
Constitution provides that, in times of national emergency, when the public interest so requires, the
Government may take over and direct the operation of any privately owned public utility or business. In
the last few years, there were instances of political instability, including public and military protests
arising from alleged misconduct by the previous administration.
On 12 December 2011, the House of Representatives initiated impeachment proceedings against
Renato Corona, Chief Justice of the Supreme Court of the Philippines. The impeachment complaint
accused Corona of improperly issuing decisions that favored former President Arroyo, as well as failure
to disclose certain properties, in violation of rules applicable to all public employees and officials. The
trial of Chief Justice Corona began in January 2012 and ended in May 2012, with Corona found guilty
with respect to his failure to disclose to the public his statement of assets, liabilities, and net worth, and
was impeached. In July 2013, a major Philippine newspaper exposed a scam relating to the diversion
and misuse of the Priority Assistance Development Fund by some members of Congress through
pseudo-development organizations headed by Janet Lim Napoles. As a result of this expos, a number
of investigations, including one in the Senate, have been launched to determine the extent of the
diversion of the Priority Assistance Development Fund and the Government officials and the private
individuals responsible for the misappropriation of public funds. On 16 September 2013, cases of
plunder and malversation of public funds were filed with the Office of the Ombudsman against Janet
Lim Napoles, three Senators, a few members of the House of Representatives and other Government
personnel.
Macro-economic conditions of different countries where IMI operates may adversely affect the
Companys business and prospectus
Historically, the Philippines sovereign debt has been rated relatively low by international credit rating
agencies. Although the Philippines long-term foreign currency-denominated debt was recently
upgraded by each of Standard & Poors, Fitch Ratings and Moodys to investment-grade, no assurance
can be given that Standard & Poors, Fitch Ratings or Moodys or any other international credit rating
agency will not downgrade the credit ratings of the Government in the future and, therefore, Philippine
companies. Any such downgrade could have an adverse impact on the liquidity in the Philippine
financial markets, the ability of the Government and Philippine companies, including the Parent
Company, to raise additional financing and the interest rates and other commercial terms at which such
additional financing is available.
In addition, some countries in which the Company operates, such as the Czech Republic and Mexico,
have experienced periods of slow or negative growth, high inflation, significant currency devaluations,
or limited liability of foreign exchange. Furthermore, in countries such as China and Mexico,
governmental authorities exercise significant influence over many aspects of the economy which may
significantly affect the Company.
On an as-need basis, the Company seeks the help of consultants and subject matter experts for
changes in laws and regulations that may have a significant impact in the Companys business
operations. It also maintains good relationship with local government, customs, and tax authorities
through business transparency and compliance and/or payment of all government-related assessments
in a timely manner. The Company has been able to overcome major crises brought about by economic
and political factors affecting the countries where it operates. The strong corporate governance
36

structure of the Company and its prudent management team are the foundations for its continued
success. The Company also constantly monitors its macroeconomic risk exposure, identifies unwanted
risk concentration, and modifies its business policies and activities to navigate such risks. Severe
macroeconomic contractions may conceivably lead the Company to tweak or modify its investment
decisions to meet the downturn. As a holding company, the Company affirms the principles of fiscal
prudence and efficiency in the operations to its subsidiaries operating in various countries.
IMI face risks of international expansion and operation in multiple jurisdictions
The Company expects to have an international customer base which may require worldwide service
and support. The Company may expand its operations internationally and enter additional markets,
which will require significant management attention. Any such expansion may cause a strain in existing
management resources.
The distances between the Company, the customers, and the suppliers globally, create a number of
logistical and communications challenges, including managing operations across multiple time zones,
directing the manufacture and delivery of products across significant distances, coordinating the
procurement of raw materials and their delivery to multiple locations, and coordinating the activities and
decisions of the Companys management team, the members of which are spread out internationally.
While the Company tries to keep its local expertise, it established global functions to ensure that there
is adequate coordination of activities. In addition, the availability and use of cell phones, e-mails, and
internet based communication tools by the Company resulted in more efficient and timely coordination
of activities and decision making by management from different sites and countries.
The Company aggressively pursues hiring of experienced international managers and staff globally.
This enables the Company to ensure that it has sufficient manpower complement possessed with the
required skills and experience to work with customers, vendors, and other partners in and out of the
relevant country where it operates.
Natural or other catastrophes, including severe weather conditions and epidemics, that may
materially disrupt the Companys operations, affect its ability to complete projects and result in
losses not covered by its insurance
The Philippines has experienced a number of major natural catastrophes over the years, including
typhoons, droughts, volcanic eruptions and earthquakes. In October 2013, a 7.2 magnitude earthquake
affected Cebu and the island of Bohol, and on November, 2013, Super Typhoon Haiyan (called Yolanda
in the Philippines) caused destruction and casualties of an as yet undetermined amount, in Tacloban,
certain parts of Samar, and certain parts of Cebu City, all of which are located in the Visayas, the
southern part of the Philippines. There can be no assurance that the occurrence of such natural
catastrophes will not materially disrupt the Companys operations. These factors, which are not within
the Companys control, could potentially have significant effects on the Companys manufacturing
facilities. As a result, the occurrence of natural or other catastrophes or severe weather conditions may
adversely affect the Companys business, financial condition and results of operations.
Natural disasters, such as the 2008 earthquake in China, where most of the Companys manufacturing
operations are located, could severely disrupt the Companys manufacturing operations and increase
the Companys supply chain costs. These events, over which we have little or no control, could cause
a decrease in demand for the Companys services, make it difficult or impossible for the Company to
manufacture and deliver products and for the Companys suppliers to deliver components allowing it to
manufacture those products, require large expenditures to repair or replace the Companys facilities, or
create delays and inefficiencies in the Companys supply chain.
Any escalation in these events or similar future events may disrupt the Companys operations and the
operations of the Companys customers and suppliers, and may affect the availability of materials
needed for the Companys manufacturing services. Such events may also disrupt the transportation of
materials to the Companys manufacturing facilities and finished products to the Companys customers.
There can be no assurance that the Company is fully capable to deal with these situations and that the
insurance coverage it maintains will fully compensate it for all the damages and economic losses
resulting from these catastrophes.
Political instability or threats that may disrupt the Companys operations could result in losses
not covered by the Companys insurance
No assurance can be given that the political environment in the Philippines will remain stable and any
political instability in the future could reduce consumer demand, or result in inconsistent or sudden
37

changes in regulations and policies that affect the Companys business operations, which could have
an adverse effect on the results of operations and the financial condition of the Company.
Increased political instability threats or occurrence of terrorist attacks, enhanced national security
measures, and conflicts in the Middle East and Asia, as well as territorial and other disputes between
China and the Philippines (and a number of Southeast Asian countries), which strain international
relations, may reduce consumer confidence and economic weakness and adversely affect the
Companys business plans and prospects.
The Philippines, China, and several Southeast Asian nations have been engaged in a series of long
standing territorial disputes over certain islands in the West Philippine Sea, also known as the South
China Sea. Despite efforts to reach a compromise, a dispute arose between the Philippines and China
over a group of small islands and reefs known as the Scarborough Shoal. In April and May 2012, the
Philippines and China accused one another of deploying vessels to the shoal in an attempt to take
control of the area, and both sides unilaterally imposed fishing bans at the shoal during the late spring
and summer of 2012. These actions threatened to disrupt trade and other ties between the two
countries, including a temporary ban by China on Philippine banana imports, as well as a temporary
suspension of tours to the Philippines by Chinese travel agencies. Since July 2012, Chinese vessels
have reportedly turned away Philippine fishing boats attempting to enter the shoal, and the Philippines
has continued to protest Chinas presence there. In January 2013, the Philippines sent notice to the
Chinese embassy in Manila that it intended to seek international arbitration to resolve the dispute under
the United Nations Convention on the Law of the Sea. China has rejected and returned the notice sent
by the Philippines requesting arbitral proceedings. Chinese vessels have also recently confronted
Philippine vessels in the area, and the Chinese government has warned the Philippines against what it
calls provocative actions. Recent talks between the Government of the Philippines and the United
States of America about increased American military presence in the country, particularly through
possible American forays into and use of Philippine military installations, may further increase tensions.
In early March 2013, several hundred armed Filipino-Muslim followers of Sultan Jamalul Kiram III, the
self-proclaimed Sultan of Sulu from the south of the Philippines, illegally entered Lahad Datu, Sabah,
Malaysia in a bid to enforce the Sultan of Sulus historical claim on the territory. As a result of the illegal
entry, these followers engaged in a three-week standoff with the Malaysian armed forces, resulting in
casualties on both sides. Clashes between the Malaysian authorities and followers of the Sultan of Sulu
have killed at least 98 Filipino-Muslims and 10 Malaysian policemen army since 1 March 2013. In
addition, about 4,000 Filipino- Muslims working in Sabah have reportedly returned to the southern
Philippines.
On 9 May 2013, a Philippine Coast Guard ship opened fire on a Taiwanese fishermans vessel in a
disputed exclusive economic zone between Taiwan and the Philippines, killing a 65-year old Taiwanese
fisherman. Although the Philippine government maintained that the loss of life was unintended, Taiwan
imposed economic sanctions on the Philippines in the aftermath of the incident. Taiwan eventually lifted
the sanctions in August 2013 after a formal apology was issued by the Government of the Philippines.
However, the incident has raised tensions between the two countries in recent months.
Should territorial disputes between the Philippines and other countries in the region continue or escalate
further, the Philippines and its economy may be disrupted and the Companys operations could be
adversely affected as a result. In particular, further disputes between the Philippines and other countries
may lead to reciprocal trade restrictions on the others imports or suspension of visa-free access and/or
permits. Any impact from these disputes in countries in which the Company has operations could
materially and adversely affect the Companys business, financial condition and results of operations.
Investors may face difficulties enforcing judgments against the Company
It may be difficult for investors to enforce judgments against the Company owing to its global operations,
diverse residencies of its different officers, and assets located in different jurisdictions. It may particularly
be difficult for investors to effect service of process upon any officer who is not a resident of the country
where judgments from courts or arbitral tribunals are obtained outside or within the Philippines if these
are predicated upon the laws of jurisdictions other than the country where such judgments are obtained.
The Philippines is party to the United Nations Convention on the Enforcement and Recognition of
Arbitral Awards, though it is not party to any international treaty relating to the recognition or
enforcement of foreign judgments. Nevertheless, the Philippine Rules of Civil Procedure provide that a
judgment or final order of a foreign court is, through the institution of an independent action, enforceable
in the Philippines as a general matter, unless there is evidence that: (i) the foreign court rendering
judgment did not have jurisdiction, (ii) the judgment is contrary to the laws, public policy, customs or
38

public order of the Philippines, (iii) the party against whom enforcement is sought did not receive notice,
or (iv) the rendering of the judgment entailed collusion, fraud, or a clear mistake of law or fact.

MANILA WATER COMPANY, INC.

Background and Business
Manila Water Company, Inc. (alternately referred to as MWC or the Company in the entire discussion
of Manila Water Company, Inc), is principally engaged in the business of providing water, sewerage
and sanitation services to over six million people in the East Zone of Metro Manila in the Philippines,
covering 16 cities and municipalities, including Makati, Mandaluyong, San Juan, Taguig, Pateros,
Marikina, Pasig, most of Quezon City and Rizal Province, as well as some parts of Manila. Manila Water
was established and incorporated on 6 January 1997. On 21 February 1997, under a 25-year
Concession Agreement with the MWSS, Manila Water was given the exclusive right to provide services
to the East Zone of Metro Manila, as an agent and contractor of the MWSS. The Concession
Agreement, originally set to expire in 2022, was extended to 2037.
The Company provides water treatment, water distribution, sewerage and sanitation services to more
than six million people in the East Zone, comprising a broad range of residential, commercial and
industrial customers. The East Zone encompasses Makati, Mandaluyong, Pasig, Pateros, San Juan,
Taguig, Marikina, most parts of Quezon City, portions of Manila, as well as the following towns of Rizal:
Angono, Antipolo, Baras, Binangonan, Cardona, Jala-Jala, Morong, Pililia, Rodriguez, San Mateo,
Tanay, Taytay and Teresa.
Under the terms of the CA, the Company has the right to the use of land and operational fixed assets,
and the exclusive right, as agent of MWSS, to extract and treat raw water, distribute and sell water, and
collect, transport, treat and dispose used water, including reusable industrial effluent discharged by the
sewerage system in the East Zone. The Company is entitled to recover over the concession period its
operating, capital maintenance and investment expenditures, business taxes, and concession fee
payments, and to earn a rate of return on these expenditures for the remaining term of the concession.
Aside from the East Zone, the Company currently has three operating subsidiaries in the Philippines,
namely Laguna AAAWater Corporation (LAWC), Boracay Island Water Company (BIWC), and Clark
Water Corporation (CWC).
Cebu Manila Water Development, Inc (CMWD) energized the Cebu Bulk Water Project on January 1,
2015 delivering its first water to the Metropolitan Cebu Water District. CMWD is a Joint Investment
Agreement between the Manila Water Consortium (formerly Northern Waterworks and Rivers of Cebu)
and the Provincial Government of Cebu for the development and operation of a bulk water supply
system in the province.
On December 19, 2014, the Company received a notice from the ZCWD awarding the project for nonrevenue water reduction activities in Zamboanga City. The project shall be implemented through a joint
venture company to be formed by ZCWD and the Parent Company.
The Company also has presence in Vietnam through two bulk water companies, namely Thu Duc Water
B.O.O Corporation (TDW) and Kenh Dong Water Supply Joint Stock Company (KDW). In addition,
the Company owns 31.47% of the outstanding capital stock of Saigon Water Infrastructure Corporate
(SII) which is the planned vehicle for accomplishing water and used water projects in the country.
On March 17, 2014, the Company and Mitsubishi Corporation, signed a Memorandum of Understanding
with the YCDC in Yangon City, Myanmar for the development of a proposed non-revenue water
reduction project for Yangon City. YCDC is an administrative body of the city government in Yangon in
charge of the water, infrastructure, business licenses and city property management, among others.
The Concession
The following are some of the key terms of the CA:

Term and Service Area of Concession. The CA took effect on August 1, 1997 (Commencement
Date) and will expire on May 6, 2037 or on an early termination date as provided therein. By virtue
of the CA, MWSS transferred its service obligations (i.e., water supply, sewerage and sanitation,
and customer service) in the East Zone to the Company.

39

Ownership of Assets. While the Company has the right to manage, operate, repair, decommission
and refurbish specified MWSS facilities in the East Zone, legal title to these assets remains with
MWSS. The legal title to all fixed assets contributed to MWSS by the Company during the
concession remains with the Company until the expiration date (or an early termination date), at
which time, all rights, titles and interests in such assets will automatically vest in MWSS.

Ownership of the Company. Under the CA, MWSS granted concessions for water distribution to
private-sector corporations at least 60% of the outstanding capital stock of which is owned and
controlled by Philippine nationals. In addition, the Company represents and warrants to MWSS that
its outstanding voting capital is at least 60% owned by citizens of the Philippines or by corporations
that are themselves at least 60% owned by citizens of the Philippines.

Sponsor Commitment. Unless waived in writing by the MWSS-RO, Ayala, as local sponsor, and
United Utilities PLC, as international operator, are each required to own, directly or through a
subsidiary that is at least 51% owned or controlled, at least 20.0% of the outstanding capital stock
of the Company for the first five years (through December 31, 2002), and thereafter at least 10%
each.

Operations and Performance. The Company has the right to bill and collect for water and sewerage
services supplied in the East Zone. In return, the Company is responsible for the management,
operation, repair and refurbishment of MWSS facilities in the East Zone and must provide service
in accordance with specific operating and performance targets described in the CA.

Concession Fees. The Company is required to pay MWSS the following:

Concession fees consisting of the peso equivalent of (i) 10% of the payments due under any
MWSS loan that was disbursed prior to the Commencement Date; (ii) 10% of payments due
under any MWSS loan designated for the Umiray-AngatTransbasin Project (UATP) that was
not disbursed prior to the Commencement Date; (iii) 10% of the local component costs and cost
overruns related to the UATP; (iv) 100% of the payments due under any MWSS designated
loans for existing projects in the East Zone that were not disbursed prior to the Commencement
Date and were awarded to third party bidders or elected by the Company for continuation; and
(v) 100% of the local component costs and cost overruns related to existing projects in the East
Zone; and

Share in the annual operating budget of MWSS amounting to P396 million each year subject
to annual inflation adjustments

MWSS is required to provide the Company with a schedule of concession fees payable during any
year by January 15 of that year and a written notice of amounts due no later than 14 days prior to
the scheduled payment date of principal, interest, fees and other amounts due. Currently, MWSS
gives monthly invoices to the Company for these fees.

Appropriate Discount Rate. The Company is entitled to earn a rate of return equal to the Appropriate
Discount Rate (ADR) on its expenditures prudently and efficiently incurred for the remaining term
of the concession. The ADR is the real (i.e. not inflation adjusted) weighted average cost of capital
after taxes as determined by the MWSS Regulatory Office (MWSS-RO) based on conventionally
and internationally accepted methods, using estimates of the cost of debt in domestic and
international markets, the cost of equity for utility business in the Philippines and abroad with
adjustments to reflect country risk, exchange rate risk and any other project risk.

Tariff Adjustments and Rate Regulation. Water tariff rates are adjusted according to mechanisms
that relate to inflation, extraordinary events, foreign currency differentials and Rate Rebasing
exercises.

Early Termination. MWSS has a right to terminate the concession under certain circumstances
which include insolvency of the Company or failure to perform an obligation under the CA, which,
in the reasonable opinion of the MWSS-RO, jeopardizes the provision of essential water and
sewerage supply services to all or any significant part of the East Zone. The Company also has
the right to terminate the concession for the failure of MWSS to perform an obligation under the CA,
which prevents the Company from carrying out its responsibilities or upon occurrence of certain
events that would impair the rights of the Company.

40

Reversion. On the expiration of the CA, all the rights, duties and powers of the Company
automatically revert to MWSS or its successors or assigns. MWSS has the option to rebid the
concession or renew the agreement with the express written consent of the government.

Under the CA, the Company and the concessionaire of the West Zone of Metro Manila, Maynilad Water
Services, Inc. (Maynilad), were required to enter into a joint venture or other arrangement that
identifies the responsibilities and liabilities of each with regard to the operation, maintenance, renewal
and decommissioning of Common Purpose Facilities (CPF), as well as an interconnection agreement
which governs such matters as water supply transfers between the East and West Zones and boundary
definitions and identifies the responsibilities and liabilities of parties with regard to the management,
operation and maintenance of certain interconnection facilities. Pursuant to this, the Concessionaires
entered into the Common Purpose Facilities Agreement and the Interconnection Agreement in July
1997.
The Regulatory Office of MWSS
The CA also provided for the establishment of the MWSS Regulatory Office (MWSS RO) under the
jurisdiction of the MWSS Board of Trustees (MWSS-BOT), to oversee and monitor the operations of
the Concessionaires. The MWSS-RO is composed of five members with five-year term and no member
of the MWSS-RO may have any present or prior affiliation with MWSS, the Company or Maynilad. The
MWSS-RO is funded by MWSS through the concession fee payments of the concessionaires. The CA
provides that major disputes between the Company and the MWSS-RO be referred to an appeals panel
consisting of two (2) members appointed by each of the MWSS-RO and the Company and a third
member appointed by the Chairman of the International Chamber of Commerce. Under the CA, both
parties waive their right to contest decisions of the appeals panel through the courts.
Key Performance Indicators and Business Efficiency Measures
The CA initially set service targets relating to the delivery of services by the Company. As part of the
Rate Rebasing exercise that ended on December 31, 2002, the Company and MWSS mutually agreed
to amend these targets based on the Companys business and capital investment plan accepted by the
MWSS-RO. In addition, the Company and MWSS adopted a new performance-based framework. This
performance-based framework, designed to mimic the characteristics of a competitive market and help
the MWSS-RO determine prudent and efficient expenditures, utilizes Key Performance Indicators (KPI)
and Business Efficiency Measures (BEM) to monitor the implementation of the Companys business
plan and will be the basis for certain rewards and penalties on the 2008 Rate Rebasing exercise.
Fourteen KPIs, representing critical performance levels for the range of activities the Company is
responsible for, relate to water service, sewerage and sanitation service and customer service. The
BEMs are intended to enable the MWSS-RO to evaluate the efficiency of the management and
operation of the concessions and gauge progress toward the efficient fulfillment of the concessionaires
business plans. There are nine (9) BEMs relating to income, operating expenses, capital expenditures
and NRW. The BEMs are evaluated for trends and annual forecasts.
Amendments to the Concession Agreement
The CA was amended under Amendment No. 1 to the Concession Agreement executed on October
26, 2001 (Amendment No. 1). Amendment No. 1 adjusted water tariffs to permit adjustment for foreign
exchange losses and reversal of such losses, which under the original CA were recovered only when
the concessionaire petitioned for an Extraordinary Price Adjustment (EPA).
The CA was further amended under the Memorandum of Agreement and Confirmation executed on
October 23, 2009 wherein the Company and the MWSS agree to renew and extend the CA for an
additional period of fifteen (15) years from the year 2022 or until 2037, under the same terms and
conditions.
Organization
The Company is organized into nine functional groups: (1) Operations; (2) Project Delivery; (3) East
Zone Business Operations; (4) Corporate Strategic Affairs; (5) Corporate Strategy and Development;
(6) Corporate Human Resources; (7) Corporate Finance and Governance; (8) Strategic Asset
Management; and (9) Information Technology
1. The Operations Group operates and maintains all of Manila Waters water and Used Water
facilities. It constantly seek ways to further improve the efficiency and reliability in managing all of
Manila Waters facilities by developing high quality engineering standards, delivering innovative
technology solutions and support, exploring new technologies and promoting a culture of a safe
work environment while remaining compliant to environmental and regulatory standards. The
41

Operations Group is committed to protect the environment through environmental sustainability

programs such as the Three-River Master Plan, the protection and development of our watersheds,
and other various environmental efforts.

The Operations Group, in cooperation with counterparts from Maynilad, manages the Common
Purpose Facilities (CPF)/Water Source which includes headworks upstream of the La Mesa
Dam: Angat Dam, Ipo Dam and the Novaliches portals. CPF/Water Source ensures that
sufficient raw water allocation is maintained throughout the year.

From the La Mesa Dam, Water Supply Operations manages the water treatment facilities,
primary transmission lines, pumping stations and service reservoirs to provide 24/7 water
supply at a reliability level of, at least, 99.99% while maintaining 100% compliance in water
quality as defined in the Philippine National Standards for Drinking Water. It is also responsible
for ensuring that water supply meets demand by means of accurate forecasting from source to
production, despite variability in consumer demand or environmental pressures.

Used Water Operations manages the wastewater treatment facilities and lift stations to ensure
that treated wastewater discharge is consistently compliant to environmental standards. It is
responsible for implementing the wastewater service expansion plan, advocating the ThreeRiver System targeted to be completed by 2022.

Encompassing the roles of Water Supply and Used Water, Bonifacio Water Corporation
manages the water and wastewater needs of the Bonifacio Global City, applying the same
philosophies in the regard for quality, efficiency and reliability of its services to this developing
community.

Maintenance Services provides planned, proactive, reactive maintenance support for all
operations facilities as well as all of the company's physical structures.

The Business Continuity Department is committed to develop a culture of preparedness,

resiliency and continual improvement towards a world-class water utility company. Thus
ensuring coordination, integration and alignment of national, local and company emergency
plans and protocols. BCD enables Manila Water to immediately respond to emergencies,
especially when there is a need to provide potable water to disaster-stricken areas. Through
BCD, Manila Water is able to extend help even beyond its concession area by providing mobile
water treatment assistance to various flood-stricken areas in the country.

The Laboratory carries out physical, chemical and microbiological analysis of water and
wastewater samples to true world-class standards. Aside from being accredited by the
Department of Health (DoH), PAO Philippine Accreditation Office, and the Department of the
Environment and Natural Resources (DENR), the Laboratory is also certified to ISO standards.

The Sustainability Department ensures that Manila Water facilities are not only compliant with
current legislation but are also constructed and maintained within environmental sustainability
parameters. It also undertakes projects to protect and develop watersheds that directly affect
its water sources.

The Fleet Management is responsible for the dispatch and maintenance of company vehicles
and equipment. It also provides vehicle assistance during incidents / emergencies and special
events of the company.

The Energy Department monitors power consumption and recommends power-efficiency

measures. It also develops and implements strategies for the company to enjoy advantageous
power rates in all its facilities.

System Analytics Department facilitates operational data flow, consolidation, analytics and
general information architecture and provides relevant and timely notification, reporting, and
escalation of operational information through the Operations Communications Center.

The Innovations Department supports optimization initiatives throughout the Operations Group,
most especially for the Water Supply and Used Water. It helps create value (of systems and
processes) through a collaborative approach, as well as provides linkages and resources to
ensure optimum efficiency, quality and reliability of operations.
42

Operations Management Department strategizes a unified management system to ensure the

effectiveness and efficiency of group targets and programs. Operations Management is
accountable for the ISO certifications (Quality, Environment, Health and Safety) and serves as
a framework in order to produce and promote well-balanced implementation of all policies and
processes across Operations Group including specific requirements of the international
standards (ISO 9001,ISO 14001, and OHSAS 18001.

2. The Project Delivery Group (PDG) is tasked with the execution of the major infrastructure projects
that are crucial for the company to achieve regulatory commitments as stipulated in the Concession
Agreement and Rate Rebasing plans. The careful delivery of projects, while strictly adhering to the
target timelines, prudent and efficient cost and highest standards of quality and safety, is the basis
for the achievement of corporate business objectives aligned with the sustainable expansion of
services that improve people's lives and support regional economic growth. PDG is organized for
an integrated, collaborative approach to project execution. It is composed of six (6) departments
namely Engineering, Projects, Quality Assurance, Project Stakeholders Management, Safety
Solutions and Project Management Office.

The Engineering Department ensures the compliance of projects to established engineering

standards by reviewing design concepts and cost estimates, conducting preliminary and
detailed design (as necessary), spearheading the technical evaluation of technical proposals
during bidding and design submissions during execution and developing high-quality and costeffective engineering standards that are used across the business. It is also at the forefront of
studying the latest construction technologies and methodologies in view of value-engineering.

The Projects Department is tasked with managing the multi-billion project portfolio of the
company. Project Delivery Managers (PDMs) are accountable for keeping the project in line
with time, cost and quality, safety and environmental standards by leading a cross-functional
team that manages the numerous interconnected components of execution. The department is
also a fertile ground for developing project managers not only for the East Zone but also
expansion efforts in and out of the Philippines.

The Quality Assurance Department is in charge of development and implementation of quality

management procedures and system across PDG through (1) process documentation,
including policy formulation and system rollout, (2) management of the Quality Execution
Academy and, (3) review/analysis of quality execution metrics/statistics for continuous
improvement of PDMs.

The Project Stakeholders Management Department ensures that the projects have the support
of critical stakeholders such as local governments, national agencies and the public through
proactive project pre-selling and relationship building that ensure the timely acquisition of
stakeholder approvals and smooth resolution of any project concerns.

The Safety Solutions Department provides a vital role in ensuring that not only are Manila Water
employees empowered to work safely, but also to ensure that our vendors and contractors are
well-trained in keeping worksites safe for employees and the wider public, especially during
construction activities. This utmost regard for a safety environment and mindset has top
management support and carried-out by its employees and contractors.

The Project Management Office is responsible for (1) project control functions to support
construction projects, (2) implementation of integrated project management system and
facilitation of continuous improvement initiatives, (3) strengthening of project information and
analytics, and (4) building systems to ensure project construction documentation and control.

3. The East Zone Business Operations (EZBO) is responsible in the delivery of water and used
water services to the whole East Zone and deals directly with the Companys customers. It is
composed of the East Zone Business Area Operations, East Zone Business Support, Technical
Support Services for Water Network and Technical Support Services for Wastewater.

The East Zone Business Area Operations is the house of the eight (8) Business Areas, Key
Accounts development and Government Affairs and Relations management. This Division is
directly responsible in the delivery of water, used water and sanitation services to the customers
and key accounts, geared towards achieving company targets on billed volume, revenue and
customer service.
43

The East Zone Business Support Division is composed of four departments: Demand
Forecasting and Total Management System (TMS) Management, Billing and Collection,
Customer Service and Stakeholder Management and Program and Policy Development. The
Demand Forecasting and TMS Management department is responsible for revenue
management, demand forecasting, provision of systems and analytical tools and performance
management of all EZBO employees. The Billing and Collection department ensures efficient
meter reading to deliver quality customer bills. It also provides collection support to the business
areas through service provider management and payment facilities sourcing. The Customer
Service and Stakeholder Management department reviews and enhances customer service
processes and standards aimed to drive customer satisfaction. It regularly monitors customer
centricity metrics to ensure that all customers concerns are attended efficiently and
effectively. The Program and Policy Development section handles the rewards and recognition
programs, organization, talent development and policy review and development for EZBO
employees.

The Technical Support Services Department for Water Network oversees the water network
and ensures efficiency and reliability within the distribution system. It develops programs and
conducts research on the latest technologies to reduce water losses.

The Technical Support Services Department for Used water manages the maintenance of the
sewer network and the implementation of the companys desludging services.

The Business Areas and HQ departments aim towards driving the growth of the business,
reduce water losses, manage water and used water network operations and ensure
achievement of regulatory targets in terms of delivery of quality service to Manila Water
customers.

4. The Corporate Strategic Affairs Group (CSAG) is responsible for creating consistent corporate
messaging and harmonizing communication channels that are aligned with the Companys
objectives in order to effectively connect with customers and stakeholders. The group is composed
of two departments: Branding and Market Research and Corporate Communications. The Branding
and Market Research Department is in charge of building and differentiating the Manila Water brand
through strategic communications research and development, visual standards management and
advocacies. It also handles the Lakbayan or Water Trail program as the Companys information,
education and communication program on water and used water appreciation and the Toka Toka
Environmental Movement which is the countrys first and only environmental program focused on
used water management. The Corporate Communications Department handles the execution of
the Companys strategic as well as tactical and/or crisis communication programs through publicity,
events and other stakeholder services. The department handles all Company publicity in the media
(TV, radio, print and below-the-line), as well as media planning, relations and engagement. It is
also responsible for ensuring a well-informed workforce through the development and
implementation of relevant internal communications. Lastly, it handles new media platforms through
social media and web presence.
5. The Corporate Strategy and Development Group (CSDG) handles three core functions: (1)
regulatory affairs, (2) new business development and (3) corporate strategy. In relation to
regulatory affairs, the Groups Regulation and Public Policy Department interfaces with the MWSSRO on all matters relating to the Concession Agreement, including submitting reports and
disclosures relating to compliance, handling negotiations with the MWSS-RO relating to the
Companys service targets and distilling information from the Companys other groups to produce
and periodically update financial projections, which serve as the bases for petitions submitted to
the MWSS-RO for quarterly, annual, and five-year tariff adjustments. The Groups New Business
Development Department is responsible for identifying and pursuing new business opportunities
both locally and abroad. The Groups newly formed Corporate Strategy Department handles the
corporate planning process and special projects identified by the Management Committee.
6. The Corporate Human Resources Group is organized into four core functions: (1) Talent
Management and Leadership Development, (2) Total Rewards Management, (3) Employee
Engagement, and (4) Security Management. The Talent Management and Leadership
Development Department is responsible for Strategic Staffing, Training and Development,
Succession, Competency Management, Corporate University Development and Management as
well as Manpower Planning and Organization Development. The Total Rewards Management
Department is responsible for the design and implementation of programs in Performance
44

Management, Compensation and Benefits, and HR Service Delivery functions which include
Wellness Management (employee wellness and occupational health programs). The Employee
Engagement Department handles Employee Programs (employee recognition and sports
programs), and Employee Relations (Code of Conduct and Collective Bargaining Agreement
Administration). The Security Management Department is responsible for employee, asset and
facility security.
7. The Corporate Finance and Governance Group, which is headed by the Chief Finance Officer
and Treasurer, provides financial and legal services to the Company. The Group is composed of
eleven departments namely: Accounting, Financial Controllership, Financial Planning and Investor
Relations, Treasury, Tax Management, Capex Control and Support, Contracts and Vendor
Management, Logistics, Internal Audit, Legal and Corporate Governance, and Enterprise Risk
Management.

The Accounting Department maintains and safeguards the integrity of the Companys
computerized accounting system, books of accounts and processes to ensure preparation
of accurate and timely financial reports, for the purpose of providing Management, regulators
and other stakeholders with financial information reflective of the Companys true financial
performance and condition. It implements a Quality Management System (QMS) at par with
international standards and duly certified under ISO 9001:2008. The certification which was on
its second year in 2014, assures consistent application of relevant accounting standards,
principles, policies, regulations and rules including a functional staff development, all aimed
towards the continuous improvement of the Companys accounting service.

The Financial Controllership Department ensures implementation of stringent financial systems

and controls in the East Zone but also in the New Business Operations. The department
monitors the performance of the East Zone and the subsidiaries and associates with particular
focus on revenue growth, improvement of operating margins, asset efficiency and future growth
prospects.

The Financial Planning and Investor Relations Department is responsible for the budget and
forward plan preparation of the Company and provides reports to management and other
stakeholders on the financial performance of the company. The department also reviews
CAPEX and new business proposals and ensure that the Companys investment parameters
are met. In addition, the department implements investor-related programs to ensure that
information requirements of investors and analysts are met.

The Treasury Department is responsible for the effective management of the Companys cash
resources and financing activities, as well as the inherent risks associated with it. In carrying
out its functions, the department maintains a sustainable and mutually beneficial relationship
with the banking community. The Treasury Department is ISO 9001:2008 certified and is
committed to continuous improvements and innovations in its processes.

The Tax Management Department provides strategic assistance to the different business and
support units of the Company on matters relating to taxes and tax incentives applicable in the
Companys operations. The Department also provides a focused analysis, interpretation and
application of relevant tax laws, rules and regulations and ensures compliance with the
reportorial requirements of the Bureau of Internal Revenue, Board of Investments and pertinent
local government units and agencies.

The CAPEX Control and Support Department is responsible for the acquisition of properties
required for the implementation of water and wastewater projects. It is also responsible for the
clearing and recovery of right-of-way owned by the Company and MWSS. The department is
also in-charge of the management and monitoring of the Companys CAPEX program through
reliable CAPEX forecasting, implementation of review processes and providing feedback
mechanisms to project proponents and management, and ensures the integrity of contractors
billings through control systems.

The Contracts and Vendor Management Department is responsible for the procurement of the
service requirements for the Companys projects and operations. It is responsible for
implementing a procurement process that meets quality and cost standards and is carried out
with integrity and transparency. The department implements vendor management programs to
ensure availability of quality vendors, contractors and service providers. The Contracts and
Vendor Management Department is ISO 9001:2008 certified.
45

Logistics Department is responsible for the procurement of supplies and materials to support
operations and project requirements. It ensures integrity in the procurement process and
ensures that supplies and materials are sourced at optimal cost and comply with quality
standards. The department is also responsible for the efficient management of materials
inventory. The Logistics Department is ISO 9001:2008 certified.

The Internal Audit Department provides an independent and objective assurance and
consulting services and evaluates the effectiveness of the Companys risk management, control
and governance processes. The department reports functionally to the Audit and Governance
Committee (AGC) and administratively to the Chief Finance Officer. It supports the Committee
in the effective discharge of the Committees oversight role and responsibility and provides the
management and the Board of Directors, through the Committee, with analyses,
recommendations, advice and information concerning the activities/ processes reviewed. The
department obtained a Generally Conforms rating from the External Quality Assessment
Review performed by IIA-Philippines in June 2012.

The Legal and Corporate Governance Department provides legal services, advice and support
across the entire organization and ensures prompt compliance with the compliance and
disclosure requirements of the Securities and Exchange Commission and the Philippine Stock
Exchange for listed companies. It also provides corporate secretarial services to the Board of
Directors and the Board Committees and assists the Office of the Corporate Secretary in the
preparation and conduct of the stockholders meeting and board meetings.

The Enterprise Risk and Insurance Management (ERIM) Department is responsible for the
sustained implementation of the Enterprise Risk Management program of the Company and
ensures that key risks are identified and managed by the respective risk owners. The
department also manages the insurance program of the Company with the objective of making
the program optimal, cost-effective, risk-based and responsive to the Companys needs. The
department reports functionally to the Audit and Governance Committee (AGC) and
administratively to the Chief Finance Officer.

8. The Strategic Asset Management Group is formed to achieve the optimal and sustainable
delivery of services and profitability through the efficient and effective management and
development of assets. The group is mandated to provide a comprehensive, holistic and integrated
master plan that will address capital investments both for water and wastewater systems, the
operation and maintenance of existing and new assets, and the rationalization and disposal of
surplus assets. To deliver these services, the group is organized into four(4) departments namely,
(1) Strategic Asset Planning, (2) Program Management, (3) Asset Management and (4) the Asset
Information Management and Support. The Strategic Asset Planning Department is responsible for
the development of the master plan both for water and wastewater systems and shall ensure the
attainment of business and regulatory commitments. The departments scope is not be limited to
East Zone alone but will include services to Manila Water subsidiaries. The Program Management
Department is entrusted to manage the execution of capital expenditure programs of the company.
The department ensures timely, cost-efficient delivery of all planned infrastructure projects. The
Asset Management Department is tasked to provide a systematic integration of advance
management techniques to sustain optimum performance of assets at least cost. Lastly, the Asset
Investment Management and Support will provide value adding and accurate information, analytics,
policies, framework and processes to each of the departments in the group. Their operation enables
the whole Strategic Asset Management Group to deliver its corporate commitments with efficiency
and effectiveness.
9. The Information Technology Group is responsible for providing innovative technology solutions
that support the companys initiatives towards greater efficiency and growth. It is composed of four
(4) Departments: Systems and Solutions, Service Management, Information Security, and IT
Governance. The Systems and Solutions Department is responsible for the development and
maintenance of all projects and systems supporting the business. It is in charge of identifying,
designing, and delivering technology solutions and applications that support the success of the
business. The Service Management Department oversees the day-to-day operations of ITG
including the availability, performance, and capacity of ITG resources. It is responsible for the
development of tactical plans in the deployment of hardware, operating systems, and data
networks, in order to meet business-driven service levels and business continuity requirements.
The Information Security Department is in charge of developing and enforcing the enterprise wide
Information/IT security strategies, policies, standards, procedures, and awareness program and in
46

ensuring compliance with relevant information security standards. It also implements and maintains
technical and procedural controls to protect information flow across networks. The IT Governance
Department handles the governance functions on program management, financial planning and
control, risk management and other IT processes.
Water Operations
The supply of water by the Company to its customers generally involves abstraction from water sources
and the subsequent treatment and distribution to customers premises. In 2014, the East Zone
Business Operations supplied approximately 1,386 million liters per day (MLD) and billed 448.96 MCM
of water compared to 1,354 MLD of water supplied and 433.6 MCM billed in 2013. The Company served
a total of 1,342,807 households through 948,230 water service connections as of December 31, 2014,
as compared to last years level of 1,305,020 households and 921,898 water service connections.
Water Resources
Under the CA, MWSS is responsible for the supply of raw water to the Companys distribution system
and is required to supply a maximum quantity of water, currently pegged at 1,600 MLD. In case MWSS
fails to supply the required quantity, the Company is required to distribute available water equitably.
The Company substantially receives all of its water from MWSS, which holds permits to the raw surface
waters of the Angat and Umiray Rivers. The raw surface water which MWSS supplies to the Company
comes from the Angat and Umiray Rivers, abstracted from the Angat Dam, and conveyed to the Ipo
Dam through the Ipo River. Only a very small amount of the Companys water supply is still groundsourced through deep wells, these are for the far reaches of Rizal wherein conveyance from the existing
treatment plants would be impractical. As of December 31, 2014, the Company has only three (3)
operational deep wells with an average production of 1.85 MLD.
Water Treatment
Raw water is stored at the La Mesa reservoir located immediately downstream of the Novaliches portal
interconnection before going to the three (3) treatment plants, two (2) of which are in Balara located
seven (7) kilometers away and the third is nestled just at the northeast of La Mesa Dam.
The Balara treatment plants have a total design capacity of 1,600 MLD and consist of two (2) separate
treatment systems: Balara Filter 1, which was commissioned in 1935 and Balara Filter 2 which was
commissioned 1958. These treatment plants have common use of chemical preparation equipment and
dosing facilities.
The treatment process in these plants involves coagulation, flocculation,
sedimentation, filtration and chlorination. The facilities consume higher quantities of chemicals during
the rainy season when the turbidity of water increases, which leads to increased costs of operations.
Both plants are operating with an on-line monitoring system which enables real-time monitoring of water
quality data which, in turn, provide an enhancement in chemical dosing efficiency. All of the filter beds
have been recently upgraded to improve efficiency. The beds were modified using a multi-block
underdrain system that includes an air-scour wash system, a more efficient method of cleaning the
media using less water. Bulk of the sludge management plant was constructed in 2010 and started
operating in 2011. Both plants are currently undergoing a structural retrofit to make the facilities more
resilient to earthquakes.
Water Distribution
After treatment, water is distributed through the Company's network of pipelines, pumping stations and
mini-boosters. As of December 31, 2014, the Company's network consisted of approximately 5,000km
of total pipeline, comprising of primary, secondary and tertiary pipelines ranging in diameter from 50 to
2,200 mm. The pipes are made of steel, cast iron, asbestos cement pipe, polyvinyl chloride and other
materials. Due to pipes' excessive tendency to leak, the Company have replaced most of its Asbestos
Cement Pipes (ACP) down to 0.001% which at the start were estimated to comprise approximately
25.5% of the total pipeline length from the start of the concession in 1997 until the end of 2014, the
Company has laid almost 4,800 km of pipeline through expansion or replacement. This holistic pipe
replacement supported with effective area management has led to a non-revenue water percentage of
11.28%, far from the 1997 value of 63%.
Pumping stations also play a critical part in water distribution. Approximately 66% of the surface water
supplied by the Company is pumped to ensure supply in high elevation areas. Currently, the Company
operates nineteen (19) pumping stations with a combined maximum pumping capacity of 3000 MLD
and an average plant output of 904 MLD. Most of the major pumping stations have reservoirs with a
combined capacity of almost 400 ML.
47

The Company operates twenty-one (21) line boosters in order to reach the fringe areas, which are quite
distant from the treatment plants. Line boosters typically are small facilities aimed at augmenting water
supply for areas that are not sufficiently supplied during the regular pumping operations of the pump
stations.
Non-Revenue Water
NRW refers to the volume of water lost in the Companys distribution system due to leakage, pilferage,
illegal connections and metering errors. As determined by the MWSS-RO, NRW is calculated as a
percentage of the net volume of water supplied by the Company. The net volume of water supplied by
the Company comprises the total volume of water supplied by the Company net of Cross Border
Volume. Cross Border Volume is the volume of water transferred to the West Zone concessionaire less
transfers received by the East Zone from the West Zone Concessionaire in the past. To date, the cross
border flows have completely stopped.
The Companys NRW levels have been significantly reduced from an average of 63% at the date of
commencement of operations under the CA to 11.28% for the year ended December 31, 2014. The
significant improvement in the Companys system losses was accomplished through effective
management of water supply coupled with massive pipe replacement projects.
Water Quality
Since 1998, the Companys water quality has consistently surpassed the Philippine National Standards
for Drinking Water (PNSDW) set by the Department of Health (DOH) and based on World Health
Organization (WHO) water quality guidelines. The Companys rating is based on a series of tests
conducted regularly at 843 (4.3% above the PNSDW requirement of 808 as of end of 2014) regulatory
sampling points within the East Zone. The Companys water samples scored an average bacteriological
compliance of 100%, surpassing the threshold of 95% set in the PNSDW. In 1997, when the concession
began, only 87% of water samples complied with these quality standards. The Company collects and
tests samples for microbial examination and physico-chemical examination from our surface water
sources, (Angat, Ipo, Bicti and La Mesa reservoirs), ground water sources (deepwells), water treatment
plants and distribution points based on frequencies as required in the standard.
Water quality at the Companys water treatment plants undergoes daily microbial (bacteriological) and
physico-chemical analysis and consistently is 100% compliant on the basic and health significant
parameters required in the PNSDW. Regulatory sampling points are designated at strategic locations
across the distribution system within the coverage area wherein sampling is conducted daily by MWCI.
The MWSS-RO, Local Government Units (LGUs) and DOH likewise collect random samples from these
designated sampling points and have them tested by third party laboratories and designated
government laboratories. The results were consistently beyond the 95% set in the PNSDW.
The samples that we collect are tested at our own Laboratory, which is accredited by the DOH and a
recognized EMB-DENR testing laboratory. The Laboratory has also gained its recognition as an
ISO/IEC 17025:2005 accredited laboratory (meeting the principles of ISO 9001:2008 obtained by the
Companys laboratory for water/wastewater testing and sampling in October 2006) granted by the
Philippine Accreditation Office, Department of Trade and Industry (DTI). These recognition and
accreditations subject the laboratory to regular surveillance audits. Consistently, the Laboratory has
gained excellent and satisfactory ratings on most proficiency testing programs it has participated
through local and international proficiency testing program providers. In 2010, the Laboratory also
gained certifications for ISO 9001:2008, ISO 14001:2004 and OSHAS 18001:2007. These recognitions
have gained the confidence of the MWSS-Regulatory Office, the DOH and DENR in the tests results
that are regularly provided to them.
Sewerage Operations
The Company is responsible for the provision of sewerage and sanitation services through the operation
of new and existing sewerage systems and a program of regular maintenance of household septic tanks
in the East Zone.
Sewerage and Sanitation System
Since 1997, the Company has significantly improved and expanded the limited wastewater
infrastructure originally operated and maintained by the MWSS. Sewerage services are provided in
areas where treatment facilities are available. Sewered areas are currently located in Quezon City and
Makati, but parts of Manila, Taguig, Cainta, Pasig and Mandaluyong are also connected to sewer
networks.

48

The Company had few facilities for sewerage services in 1997. The Sewage Treatment Plant (STP) in
Magallanes Village is the largest treatment facility in the country with a 40 MLD capacity. The STP in
Magallanes provides sewerage services to the Makati central business district and some residential
villages. Prior to privatization, this facility had poor treatment efficiency and did not meet effluent quality
standards. The Karangalan Bio-module in Karangalan Village serves approximately 100 households
but also produced substandard effluent quality before 1997. An Imhoff tank in Phil-Am Village and thirtyone communal septic tanks (CSTs) in Quezon City were also turned-over in 1997. These facilities
serve approximately 19,000 households. These facilities have been upgraded to secondary treatment
and now meet effluent standards set by the DENR.
In 2001, the Company constructed two (2) pilot package plants to determine if they were feasible in
terms of social, financial, and environmental aspects. These are located in Valle Verde Homes, Pasig
that serves approximately 100 households and another serves some 400 households of the housing
project in Makati together with approximately 4,000 students and employees in Rizal Elementary
School.
With the success of the two (2) pilot STPs, the Company implemented the Manila Second Sewerage
Project (MSSP) funded by World Bank. Under the MSSP, twenty-six (26) STPs were
constructed. Sixteen (16) of these STPs were formerly CSTs and the rest are on-site STPs for medium
and high rise housing establishments and for the UP campus. Takeover and upgrade of the STP in
Diego Silang, Taguig was also part of the MSSP.
In 2007, the Company took over the operations and maintenance of the Bonifacio Water Sewage
Treatment Plant in Fort Bonifacio Taguig City. This facility brought an additional 5MLD treatment
capacity.
As of the end of 2014, the Company has already served through sewer service, 251,868 households
within the East Metro Manila. As of year-end 2014, the Company operates 38 Wastewater Facilities
including two (2) SpTPs, with a total capacity of 134.602 MLD, compared to 40 MLD in 1997.
Customers who are not connected to the sewer network are provided with septic tank maintenance
services through the Sanitasyon Para Sa Barangay (SPSB) program. Through cooperation with the
barangays the program aims to desludge all septic tanks in a barangay without charge over a specified,
set schedule.
As part of its commitment to expand this service, the Company constructed and subsequently operated
in 2008 under the Manila Third Sewerage Project (MTSP) two (2) SpTPs aimed at managing septic
tank materials siphoned from the East Concession customers. A total of 77 desludging trucks operate
daily to ensure the desludging service is rendered to the entire East Zone population over the next five
years. Since 1997, the Company has already provided such service to more than 1,000,000
households.
The MTSP is a follow-up to the MSSP and has the ultimate objective of improving sewerage and
sanitation conditions in the East Zone. It was developed as a means of achieving the Companys
sewerage and sanitation service targets. The remaining components of the MTSP include the
construction of sewer networks and treatment plants in several locations in the East Zone including
upgrading of existing communal septic tanks with secondary treatment levels.
The technical assistance component will focus on information and education campaigns on proper liquid
waste disposal and environment preservation and the preparation of follow-up programs on sewerage
and sanitation, with emphasis on low-cost sanitation systems.
New Business and Investments Outside of the East Zone
It is also the Companys objective to further bring its expertise in NRW reduction outside of the East
Zone by establishing partnerships with private companies, local water districts and local government
units in top metros of the country and in selected cities in the Asian region. Other water business
models, such as bulk arrangements, operations and maintenance are also being explored and
implemented. Towards this end, the Company has signed joint venture agreements and/or investment
agreements with local and international partners in the last few years.
LAWC is a Joint Venture (JV) between AAA Water Corporation, a wholly-owned subsidiary of Manila
Water, and the Province of Laguna (POL), with shareholdings of 70% and 30%, respectively. The JV
is for the purpose of undertaking the development, design, construction, operation, maintenance and
financing of the water facilities that will service the needs of the cities of Sta. Rosa and Bian, and the
49

municipality of Cabuyao in Laguna. Towards this end, LAWC entered into a Concession Agreement
with the POL on April 9, 2002 for an operational period of 25 years.
BIWC is a JV between Manila Water and the Philippine Tourism Authority (PTA) with shareholdings
of 80% and 20%, respectively. In December 2009, BIWC entered into a concession agreement with the
PTA (now Tourism Infrastructure and Enterprise Zone Authority) covering the provision of water and
wastewater services in the Island of Boracay.
CWC is the water and wastewater concessionaire of Clark Development Corporation (CDC) in the
Clark Freeport Zone in Angeles, Pampanga. By virtue of an amendment agreement executed on August
15, 2014, the 25-year concession agreement with the CDC was extended by another fifteen (15) years
or until October 1, 2040. In November 2011, Manila Water acquired 100% ownership of CWC through
a Sale and Purchase Agreement with Veolia Water Philippines, Inc. and Philippine Water Holdings, Inc.
In December 2011, Manila Water purchased a 49% share ownership of Thu Duc Water BOO
Corporation (TDW) which owns the second largest water treatment plant in Ho Chi Minh City. TDW
has a bulk water supply contract with SAWACO for a minimum consumption of 300 MLD on a take-orpay arrangement.
In the first quarter of 2012, the Company through Northern Waterworks and Rivers of Cebu, Inc. (now
Manila Water Consortium, Inc., a consortium of Manila Water, Metropac Water Investments
Corporation and Vicsal Development Corporation), signed a Joint Investment Agreement (JIA) with
the Provincial Government of Cebu (PGC) for the development and operation of a bulk water supply
system in the province. The JIA resulted in the incorporation of Cebu Manila Water Development, Inc.
(CMWD), a corporation owned by the consortium and the PGC in the proportion of 51% and 49%
respectively.
In July 2012, the Company completed the acquisition of a 47.35% stake in Kenh Dong Water Supply
Joint Stock Company (KDW), a Vietnamese company established in 2003 to build, own, and operate
major water infrastructure facilities in Ho Chi Minh City. .
In October 2013, Manila Water South Asia Holdings Pte. Ltd., a wholly owned subsidiary of Manila
Water in Singapore, completed the acquisition of 31.47% stake in Saigon Water Infrastructure
Corporation (Saigon Water), a listed company in Vietnam. In December of the same year, CMWD
signed a 20-year Bulk Water Supply Contract with the Metropolitan Cebu Water District for the supply
of 18 million liters per day of water for the first year and 35 million liters per day of water for years two
up to twenty. Thereafter, in the same month, LAWC signed an Asset Purchase Agreement with the
Laguna Technopark, Inc. (LTI) for the acquisition of the water reticulation system of LTI in Laguna
Technopark, a premier industrial park located in Sta. Rosa and Binan, Laguna which is home to some
of the regions largest and more successful light to medium non-polluting industries.
On March 17, 2014, the Parent Company and Mitsubishi Corporation, signed a Memorandum of
Understanding with the YCDC in Yangon City, Myanmar for the development of a proposed nonrevenue water reduction project for Yangon City. YCDC is an administrative body of the city government
in Yangon in charge of the water, infrastructure, business licenses and city property management,
among others.
On December 19, 2014, the Parent Company received a notice from the ZCWD awarding the project
for nonrevenue water reduction activities in Zamboanga City. The project shall be implemented through
a joint venture company to be formed by ZCWD and the Parent Company.
Environmental Compliance
The Companys water and wastewater facilities must comply with Philippine environmental standards
set by the Department of Environment and Natural Resources (DENR) on water quality, air quality,
hazardous and solid wastes, and environmental impacts. In keeping with the Companys commitment
to sustainable development, all projects are assessed for their environmental impact and where
applicable, must obtain an Environmental Compliance Certificate (ECC) from the DENR prior to
construction or expansion and the conditions complied with, along with all other existing environmental
regulations. During and subsequent to construction, ambient conditions and facility-specific emissions
(e.g. air, water, hazardous wastes, treatment by-products) from water and wastewater facilities are
routinely sampled and tested against DENR environmental quality standards using international
sampling, testing and reporting procedures.

50

The Company has made efforts to meet and exceed all statutory and regulatory standards. The
Company employs the appropriate environmental management systems and communicates to its
employees, business partners and customers the need to take environmental responsibility seriously.
The Company uses controlled work practices and preventive measures to minimize risk to the water
supply, public health and the environment. The Companys regular maintenance procedures involve
regular disinfection of service reservoirs and mains and replacement of corroded pipes. The Companys
water and wastewater treatment processes meet the current standards of the PNSDW, DOH, DENR
and LLDA. The Company continues to undertake improvements in the way it manages both treated
water and wastewater as well as treatment by-products such as backwash water, sludge and biosolids.
The Company has contingency plans in the event of unforeseen failures in the water and wastewater
treatment or chemical leakage and accidental discharge of septage and sewage. The Companys
Customer Care Center is used to ensure that environmental incidents are tracked, monitored and
resolved.
A policy on climate change was formulated to define the Companys commitment to the National
Framework Strategy for Climate Change. While the company is undertaking climate change mitigating
measures such as greenhouse has accounting and reporting along with initiatives to optimize
consumption of fuel and electricity to reduce its carbon footprint, there is a current emphasis towards
climate change adaptation such as intensifying watershed rehabilitation work, vulnerability assessment
of water sources and assets, improving the climate-resiliency of existing and future water and
wastewater facilities, strengthening risk reduction and management systems with a business continuity
plan, and development of new water sources.
Sustainable Development Projects
Sustainability for Manila Water means that while providing excellent water and wastewater services to
its over six million customers, it ensures that it uses water resources efficiently so that its future
customers will have the same level of services that its present customers, including low-income
communities, enjoy.
As part of its efforts to strengthen sustainability in its organization, Manila Water updated its
Sustainability Policy to make it more comprehensive and inclusive, and to align it to international
frameworks such as the ISO26000 guidance on social responsibility. The Company likewise revised its
Climate Change Policy, consistent with the national governments anchor strategy of adaptation.
Manila Water also championed sustainability among its operating subsidiaries, LAWC, BIWC and CWC,
by assisting them to develop their respective sustainability frameworks and programs.
While continuing to implement its flagship programs for the urban poor such as Tubig Para Sa
Barangay (TPSB) and Lingap programs for public service institutions, Manila Water initiated Greening
our Future, an environmental education program for employees, and participated in the week-long
Global Handwashing Day celebration in Metro Manila, Laguna, Pampanga and Boracay. It also
engages its employees in volunteer work through the Bawat Patak, Tumatatak program.
Employees
As of December 31, 2014, the Company had 1,322 employees. Approximately 16% were nonmanagement employees and 84% held management positions. Six (6) employees are seconded from
Ayala.
The following table presents the number of employees as of the end of the period indicated:
Year

Former MWSS

Direct Hires

Seconded from
Ayala Corp.

Total

2014

649

667

1,322

The following table presents the number of employees by function as of the December 31, 2014:
Group
Corporate Finance & Governance
Corporate Human Resources
Corporate Strategic Affairs
Corporate Strategy & Development

Management
123
25
16
54

NonManagement
5
1

Total
128
26
16
54
51

East Zone Business Operations

Information Technology
Manila Water Foundation
Manila Water Total Solutions
Office of the President
Operations
Project Delivery
Strategic Asset Management

492
24
4
15
4
200
107
48

Total

1112

98

106

210

590
24
4
15
4
306
107
48
1322

Before privatization, the MWSS had 8.4 employees per 1,000 service connections. Manila Water
Company has improved this ratio to 1.5 employees per 1,000 service connections as of December 31,
2014. This was accomplished through improvements in productivity achieved through, among other
initiatives, value enhancement programs, improvements in work processes, employee coaching and
mentoring, transformation of employees into knowledge workers, and various training programs. Manila
Waters organizational structure has been streamlined, and has empowered employees through
decentralized teams with responsibility for managing territories. In addition, the company formed multifunctional working teams which are composed of members of the management team tasked with
addressing corporate issues such as quality and risk, and crisis management.
As of December 31, 2014, 201 or 15 percent of the employees of the company are members of the
Manila Water Employees Union (MWEU). In 2013, the company and the MWEU concluded negotiations
on a new collective bargaining agreement (CBA). MWEU has the option under the law to renegotiate
the non-representation provisions of the CBA by the third quarter of 2016. The CBA provides for a grant
of P500 million in compensation and benefits spread over three years to employees categorized as
non-management collective bargaining unit (CBU) employees. The company believes that its
management maintains a strong partnership with union officials and members as it has not had any
strikes since its inception. Grievances are handled in management-led labor councils. The CBA also
provides for a mechanism for the settlement of grievances.
The company has a two-pronged strategy in talent development strengthening leadership capabilities,
and building and strengthening technical expertise to maintain its leadership in the water industry and
contribute to national development. Programs were implemented in partnership with the line managers
with the aim of ensuring an agile, enabled, mobile and highly engaged workforce that will support the
corporate growth strategy.
On the leadership front, several initiatives were undertaken to ensure a strategic, well-rounded
approach to leadership development:

Succession Management: We have expanded our talent pool to strengthen the senior management
leadership pool of Manila Water. Talents receive deliberate development interventions individual
development planning, stretched assignments, executive coaching, and mentorship to accelerate
their development. We also have conducted talent reviews with the line managers to identify and
develop talents to assume current and emerging roles. Another key initiative was the integration of
Manila Waters talent and succession management process with the New Business Operations (i.e.
Laguna Water, Clark Water and Boracay Water). This exercise aims to strengthen the talent bench
in our subsidiaries, so that they may become a potential talent source for Manila Water.

Executive Coaching and Mentorship Program: The members of the Management Committee
(MANCOM) champion an Executive Coaching and Mentorship Program with key talents of the
organization.

Business Zone Leadership School (BZLS): We launched the competency-based BZLS to ensure a
steady supply of competent talents in the East Zone Business Operations who can assume the
Business Zone Manager (BZM) role as needed by the business.

Complementing leadership development, the same level of focus is given to technical roles where
talents occupying highly technical positions are likewise given technical development to ensure that we
strengthen the technical competencies of our talents in the field that we operate in. A Technical
Coaching Program for our operations and technical groups is in place to support standard and
repeatable knowledge transfer.
52

As the business landscape becomes more complex and customers expectations become increasingly
high, the company has prepared and in 2014, progressed in its transition into competency-based
development. The Company launched the Manila Water University (MWU), the Companys first-ever
corporate university. This learning and development platform will enable our talents to respond to
current and emerging business requirements.
The Company ensures that its reward system is market competitive, performance-based, aligned with
business strategies and results, and within regulatory parameters. In 2005, the company extended an
equal cash incentive to each employee covered by the reward system. In succeeding years, the
company further improved the system by taking care of the gaps in the distribution system and aligning
the reward system with the yearend goals of the company, which are anchored on the KPI/ BEM targets.
2014 marked our second year in engaging the line managers to take ownership and to champion the
implementation of the enhanced rewards programs.
Pursuant to the concession agreement (CA), the Company adopted the Employee Stock Option Plan
(ESOP). The ESOP was instituted to allow employees to participate directly in the growth of the
company and enhance the employees commitment toward its long-term profitability. In 2005, the
company adopted an Employee Stock Ownership Plan as part of its incentives and rewards system.
At the Manila Waters inception, the Company instituted a welfare fund to which it must contribute no
less than five percent of the monthly basic salary of a member who has authorized the company to do
so. In 2005, the company's Board of Directors approved the establishment of an enhanced retirement
and welfare plan. The plan is being administered by a Retirement and Welfare Plan Committee, which
also has the authority to make decisions on the investment parameters to be used by the trustee bank.
Over and above these benefit and reward schemes, the Company gives recognition for employees who
best exemplify the Companys culture of excellence through the Chairmans Circle (C2) Awards for
senior managers, the Presidents Pride due to Performance (P3) honors for middle managers and the
Huwarang Manggagawa (Model Employee) Awards for the rank-and-file employees. Eight of the
Companys model employee awardees have also been awarded The Outstanding Workers of the
Republic (TOWER) Award by the Rotary Club of Manila from 1999 to 2009, by far the most won by any
single company over that period.
Over the past seventeen years, the Company has been the recipient of numerous awards that include
the following: the Global Grand Prize in the 2010 International Water Association Project Innovation
Awards for the companys creative approaches in reducing systems losses to benefit its customers, the
Water Efficiency Project of the Year from Global Water Intelligence and Water Desalination Report for
the Manila Water NRW Strategy that reduced systems losses significantly and improved customer
satisfaction, the Honour Award in the 2010 International Water Association Project Innovation Awards
for the Olandes Sewage Treatment Plant project, 1st Philippine Stock Exchange Bell Awards for
Corporate Governance, Platinum Plus award from the Institute of Corporate Directors, the four BestManaged Company Awards from Asiamoney Magazine, the seven corporate governance awards from
CorporateGovernance Asia, the Best-Managed Mid-Cap Company Award from FinanceAsia Magazine,
twenty Anvil awards from the Public Relations Society of the Philippines from 2004 to 2012, twelve Quill
Awards from the International Association of Business Communicators Philippines from 2006 to 2012,
the Distinction Award for the Water Deal of the Year from Global Water Intelligence, the Asia Water
Management Excellence Award-Industry Category, the Intel-Asian Institute of Management Corporate
Responsibility Award in 2009, the Most Integrated into the Core Business Award from the Management
Association of the Philippines and League of Corporate Foundations, and the 2002 Model Company
Award and 2010 Hall of Fame Award from the Department of Trade and Industry, which singled out the
companys consistency and passion in pursuing programs on labor and management cooperation,
quality and productivity improvement, and family welfare and community relations.
A landmark recognition was earned by Company when it was cited the 2006 Employer of the Year by
the People Management Association of the Philippines. Another prestigious award earned by the
Company was the Asian Human Capital Award given by the Singaporean government in 2012. The
2006 Employer of the Year honors were bestowed upon Manila Water for providing a remarkable
example of how a group of much-maligned government workers was transformed into a thoroughly
efficient organization that is now a leader in its industry. The Asian Human Capital Award, meanwhile,
may be the biggest recognition yet earned by the Company as an employer for simply being an award
that is so difficult to obtain due the stringent standards being employed by its giver, the Singaporean
Ministry of Manpower, whose comprehensive selection process did not prevent Manila Water from
becoming the first-ever Filipino company to capture the elite honors. The Singaporean government
deemed the Company worthy of the award for harnessing its people in transforming from a languishing
53

water service provider into a world-class water and wastewater company, citing not only its
accomplishments but also the way it turned around its business using its human resource.
In 2014, the Company bagged the following awards and recognitions: One of 20 Global Growth
Companies (GGC) in East Asia World Economic Forum (May 2014); No. 2 in the 2014 Sustainability
Ranking Channel NewsAsia (November 2014); Asias Icon on Corporate Governance
CorporateGovernance Asia (November 2014); 1st in Innovation in Water, Wastewater and Stormwater
Network Modelling and Analysis for the Marikina North STP Project - Bentley Systems, Inc.s Be
Inspired Awards (November 2014); PSE Bell Award for Corporate Governance, Hall of Fame
Philippine Stock Exchange (November 2014); Asia Geospatial Excellence Award Asia Geospatial
Forum (November 2014); Philippine Esri Best Overall Map Award for The Business Risk Exposure
Assessment of Manila Water Network Asset Project Map Philippine Esri User Conference and
2nd Philippine Esri Education GIS Conference (September 2014); First Don Emilio Abello Energy
Efficiency Award for the San Juan Pumping Station Department of Energy (October 2014); IABC
Quill Awards, Awards of Excellence and Awards of Merit for various business communication programs
International Association of Business Communicators (IABC) Philippines (2014).
In 2014, Manila Water was also given the ISO 50001 Certification for Energy Management System
(April 2014). (Manila Water is the first Philippine company to receive this certification)
In April 2014, the Laguna Lake Development Authority cited the following employees as Outstanding
Pollution Control Officers Blue Ratee for the 7 Sewage Treatment Plants of Manila Water: Sharon B.
Cerbito - North Septage Treatment Plant (San Mateo); Jimaima M. Hoque - Sikatuna STP; Jocelyn M.
General (PCO), Johannes Paulus O. Costales (Plant Manager) - Fisheries STP; John Von Wernher C.
Dela Cruz - Pag-Asa STP, Heroes Hill STP; Ninya Kristina L. Cabico - Belarmino Stp, Palosapis STP;
and Jeremaine V. Esguerra - East Ave STP.
In August 2014, the Department of Health also gave the Typhoon Yolanda Unsung Heroes Plaque of
Recognition for Manila Waters Mobile Treatment Plant Operations.
Related Party Transactions
In the normal course of business, the Company has transactions with related parties. The sales and
investments with related parties are entered into and/or executed at normal market prices. Furthermore,
service agreement fees are based on rates negotiated and agreed upon by the parties.
As of December 31, 2014, outstanding balances for related party transactions are unsecured and
interest-free. There have been no guarantees provided or received for any related party receivables or
payables. The Company has not made any provision for probable losses relating to amounts owed by
related parties. This assessment is undertaken each financial year by examining the financial position
of the related party and the market in which the related party operates.
The Company has an existing contract with Ayala Corporation for the provision of administrative,
technical and support services in relation to human resources, treasury, accounting, capital works,
corporate services and regulatory affairs and administrative management of the Company.
No other transaction was undertaken by the Company in which any director or executive officer was
involved or had a direct or indirect material interest.
Risks Disclosure
2014 TOP CORPORATE RISKS
EAST
ZONE
BUSINESS
ENVIRONMENT
Failure to adapt to the changing
business environment in the East
Zone as a result of market
saturation, increasing cost of
operations and increasingly
demanding
political
and
consumer environment.
INVESTMENT
EXECUTION

PLAN

MITIGATION STRATEGIES
Weekly quarterbacks are in place to review operational
highlights. Power-saving initiatives and other activities to improve
operational efficiency were implemented. Management of key
accounts was strengthened to maximize revenue opportunities.
In addition, the Manila Water Total Solutions was scaled up to
generate new revenue sources.

A capex optimization project is being undertaken to optimize

processes, functions and resources to ensure projects are
implemented within budget and timeline, and at an acceptable
54

Failure to meet CAPEX targets

within the approved cost, time
and quality.

REGULATORY
Failure to meet regulatory
requirements
and
manage
threats/changes
to
such
requirements
which
may
adversely affect the organization.
WATER SUPPLY
Failure to ensure adequacy and
reliability of raw water supply.

NEW BUSINESS OPERATIONS

Failure to manage risks/issues
linked
to
operating
new
businesses.

quality level. A rigorous review and approval process for project

approval, variation orders and time extensions are in place. Risk
assessments and action plans are also being developed for
critical projects and are reviewed as part of the project approval
process. A project risk management program is in place wherein
projects are categorized in different tiers with varying frequency
of review and reporting of risks and levels for risk acceptance.
Risk management and business continuity workshops were
conducted to suppliers, vendors and contractors to cascade the
risk management mindset to partners. Furthermore, there is a
random safety audit for on-going projects.
Programs have been implemented to ensure control of regulatory
and socio-political risks at both compliance and strategic levels.
Monitoring of the Company's compliance with various regulatory
requirements (all regulatory agencies) is done. Organizational
enhancements were implemented to improve the regulatory
compliance of the organization. In addition, the document
management system has been enhanced to improve readiness
in regulatory review and audit.
Activities are being done to further increase reliability and
efficiency of the current water supply system such as the
development of medium-term water sources, weekly monitoring
and investigation of NRW contributors, preventive and corrective
maintenance of dam facilities, and aqueducts and
implementation of metering at raw water portal and tailrace
metering. The development of new water sources has been
included in the plans.
There were organizational changes to improve Manila Waters
control and visibility in the subsidiaries. Risk officers have been
appointed to strengthen risk governance in the subsidiaries. The
enterprise risk management framework had been implemented
by the new businesses and their top risks and action plans are
being reported to Manila Water. To meet the talent requirements
of new businesses, services of third parties and head hunters
were employed.

As the Company continues to embark on expansion projects locally and internationally, the Company
understands the need for effective Risk Management to identify major risks in the Companys business
operations and development projects. Towards this end, the Company established its Enterprise Risk
Management (ERM) Program, taking the existing risk management process to a higher level and
developing a common risk language and framework that is easily understandable. The ERM is a way
of managing risk and uncertainty in the new economy. It aligns the Companys strategy, processes,
people, technology and knowledge to meet its risk management purpose and achieve its objectives.
The Company aims to make ERM a way of life where managing risks becomes the responsibility of
everyone in the organization with end view of increasing shareholder value and enhancing the already
effective risk management programs of the Company. The Chief Risk Officer is appointed by the Board
to champion the ERM Framework across the entire organization.
Government Regulations
The Company has to comply with environmental laws and regulations which include:

General Environmental Safeguards

Presidential Decree No. 1586 (Philippine Environmental Impact Statement System)
DENR Administrative Order No. 30, Series of 2003 (Implementing Rules and Regulations for
the Philippine Environmental Impact Statement System)
DENR Administrative Order No. 26, Series of 1992 (Appointment/Designation of Pollution
Control Officers).
DENR Administrative Order No. 27, Series of 2003 (Self Monitoring Report System)

55

Water
Republic Act No. 9275 or the Philippine Clean Water Act of 2004
DENR Administrative Order No. 10, Series of 2005 (Implementing Rules and Regulations of
R.A. No. 9275)
DENR Administrative Order No. 35, Series of 1990 (General Effluent Standards)
DENR Administrative Order No. 39, Series of 2003 (Environmental Users Fees)

Air
Republic Act No. 8749 or the Philippine Clean Air Act of 1999
DENR Administrative Order No. 81, Series of 2000 (Implementing Rules and Regulations of
R.A. 8749)

Solid Waste
Republic Act No. 9003 or the Ecological Solid Waste Management Act of 2000
DENR Administrative Order No. 34, Series of 2001 (Implementing Rules and Regulations of
R.A. No. 9003)

Hazardous Wastes and Chemicals

Republic Act No. 6969 or the Toxic Substances, and Hazardous and Nuclear Waste Control
Act of 1990
DENR Administrative Order No. 29, Series of 1992 and DENR Administrative Order No. 22,
Series of 2013 (Implementing Rules and Regulations of R.A. No. 6969, and Revised
Procedures and Standards)
Philippine Drug Enforcement Agency Republic Act 9165- Regulatory Controls in Licit Trade
of Controlled Precursors and Essential Chemicals
Philippine National Police License to Possess/Purchase Explosives (Chemical used in the
laboratory that are ingredients/kind of explosives)

Others
Republic Act No. 4850 or the Act Creating the Laguna Lake Development Authority (LLDA)
Relevant LLDA Board Resolutions and Memorandum Circulars, including but not limited to
Resolution No. 25, Series of 1996 (Environmental User Fee System in the Laguna de Bay
Region) and Resolution No. 33, Series of 1996 (Approving the Rules and Regulations
Implementing the Environmental User Fee System in the Laguna de Bay Region)
Presidential Decree No. 856 or the Philippine Sanitation Code
Implementing Rules and Regulations of the Philippine Sanitation Code

Other Matters
The Company has not been involved in any bankruptcy, receivership or similar proceeding as of
December 31, 2014. Further, except as discussed above, the Company has not been involved in any
material reclassification, consolidation or purchase or sale of a significant amount of assets not in the
ordinary course of business. The Company is not engaged in sales to foreign markets.
The Company is not dependent on a single customer or a few customers, the loss of any or more of
which would have a material adverse effect on the Company.

Bank of the Phil. Islands (BPI or the Bank), and Globe Telecom (Globe) are significant associate and
joint venture of the Group. Their summarized financial information are therefore presented separately.

56

BANK OF THE PHILIPPINE ISLANDS

Bank of the Philippine Islands (BPI or the Bank) highlights of balance sheets and income statements
are shown below:
Balance Sheets
(In Million Pesos)
December 2014

December 2013

Total Resources

1,450,197

1,195,364

Total Liabilities
Capital Funds Attributable to the Equity Holders of BPI
Capital Funds Attributable to the Noncontrolling Interest

1,303,518
144,063
2,616

1,089,557
104,535
1,272

Total Liabilities and Capital Funds

1,450,197

1,195,364

Statements of Income
(In Million pesos)
December 2014

December 2013

Interest income
Other Income
Total revenues

45,992
20,979
66,971

40,802
22,174
62,976

Operating expenses
Interest expense
Impairment losses
Provision for income tax
Total Expenses

29,960
11,184
2,807
4,958
48,909

26,703
10,478
2,648
4,153
43,982

Net income for the period

18,062

18,994

18,039
23
18,062

18,811
183
18,994

4.62

5.19

Attributable to:
Equity holders of BPI
Noncontrolling interest

EPS:
Based on 3,905 million and 3,627 million shares
as of December 31, 2014 and 2013, respectively.

For further details on the BPIs financial condition and operations, please refer to its 2014 Consolidated
Financial Statements which is incorporated herein as part of exhibits.
Background and Business
The Ayala Group conducts its financial services business through Bank of the Philippine Islands
(alternately referred to as BPI, the Bank or the Company in the entire discussion of Bank of the
Philippine Islands). BPI is a Philippine-based universal bank with an expanded banking license.
Founded in 1851, BPI is the countrys oldest bank. In the post-World War II era, BPI evolved, largely
through a series of mergers and acquisitions during the 1980s and 1990s, from a purely commercial
bank to a fully diversified universal bank with activities encompassing traditional commercial banking
as well as investment and consumer banking.
Together with its subsidiaries, BPI offers a wide range of financial services that include corporate
banking, consumer banking, consumer lending, investment banking, asset management, securities
57

distribution, insurance services and leasing. Such services are offered to a wide range of customers,
including multinationals, government entities, large corporations, SMEs and individuals.
BPI is the third largest commercial bank in the country in terms of total assets and is among the listed
banks with the largest market capitalization. It has a significant market share in deposits, lending, and
asset management and trust business. It is recognized as one of the top commercial banks in overseas
Filipino (OF) remittances and enjoys a significant presence in the finance and operating lease business,
government securities dealership, securities distribution and foreign exchange business. BPI is a
recognized leader in electronic banking, where it has been a first mover and innovator in the use of
automated teller machines (ATMs), cash deposit machines (CDMs), point-of-sale debit systems, kiosk
banking, phone banking, internet banking and mobile banking.
Historical Background
Founded in 1851, BPI was the first bank formed in the Philippines and was the issuer of the countrys
first currency notes in 1855. It opened its first branch in Iloilo in 1897 and pioneered in sugar crop loans
thus paving the way for Iloilo and Negros to emerge as prime sugar exporters. It also financed the first
tram service, telephone system, and electric power utility in Manila and the first steamship in the country.
Business Evolution
For many years after its founding, BPI was the only domestic commercial bank in the Philippines. BPIs
business was largely focused on deposit taking and extending credit to exporters and local traders of
raw materials and commodities, such as sugar, tobacco, coffee, and indigo, as well as funding public
infrastructure. BPIs business developed throughout the late 1800s as the economy and the prominence
of the Philippines as an agricultural exporter developed. In keeping with the regulatory model set by the
Glass Steagall Act of 1932, the Bank operated for many years as a private commercial bank. In the
early 1980s, the Monetary Board of the Central Bank of the Philippines (now the BSP) allowed BPI to
evolve into a fully diversified universal bank, with activities encompassing traditional commercial
banking as well as investment and consumer banking. This transformation into a universal bank was
accomplished through both organic growth and mergers and acquisitions with BPI absorbing an
investment house, a stock brokerage company, a leasing company, a savings bank, and a retail finance
company.
BPI consummated three bank mergers since the late 1990s. In 1996, it merged with City Trust Banking
Corporation, a medium sized bank, which further solidified its stronghold in consumer banking, and in
2000, it consummated the biggest merger then in the banking industry when it merged with the former
Far East Bank & Trust Company (FEBTC). This merger established its dominance in the asset
management & trust services and branch banking as well as enhanced its penetration of the middle
market. In 2000, it also formalized its acquisition of three major insurance companies in the life, nonlife and reinsurance fields, a move that further broadened its basket of financial products. In 2005, BPI
acquired and merged with Prudential Bank, a medium sized bank with a clientele of middle market
entrepreneurs.
In March 2011, BPI became the first bank in the Philippines to acquire the trust business of a foreign
bank when it purchased the trust and investment management business and other related assets of
ING Bank N.V. Manila
BPI evolved to its present position of eminence via a continuing process of enhancing its array of
products and services while attaining a balanced and diversified risk structure that guaranteed the
stability of its earning streams.
Business Milestones (2012-2014)
In December 2014, BPI completed its joint venture with Century Tokyo Leasing Corporation, to form
BPI Century Tokyo Lease & Finance Corporation, with BPI retaining 51% of ownership. This strategic
partnership is expected to implement innovation, reach new customers, and enhance services to BPI
Leasings valued customers.
Principal Subsidiaries
The banks principal subsidiaries are:
1. BPI Family Savings Bank, Inc. (BFSB) serves as BPIs primary vehicle for retail deposits, housing
loans and auto finance. It has been in the business since 1985.
2. BPI Capital Corporation is an investment house focused on corporate finance and the securities
distribution business. It began operations as an investment house in December 1994. It merged
58

with FEB Investments Inc. on December 27, 2002. It wholly owns BPI Securities Corporation, a
stock brokerage company.
3. BPI Direct Savings Bank is a savings bank that provides internet and mobile banking services to its
customers. It started operating as such on February 17, 2000 upon approval by the Bangko Sentral
ng Pilipinas.
4. BPI International Finance Limited, Hong Kong is a deposit taking company in Hong Kong. It was
originally established in August 1974.
5. Bank of the Philippine Islands (Europe) Plc was granted a UK banking license by the Financial
Services Authority (FSA) on April 26, 2007. It was officially opened to the public on October 1, 2007.
In July 2008, BPI Europe was permitted by the FSA to carry out cross-border services in other
European Economic Area (EEA) Member States.
6. BPI Century Tokyo Lease & Finance Corporation is a non-bank financial institution (NBFI)
registered with SEC to generally carry on the business of a financing company under the Financing
Company Act. It was originally established as Makati Leasing and Finance Corporation in 1970. It
merged with FEB Leasing & Finance Corporation on February 20, 2001. On December 22, 2014,
BPI Leasing Corporation completed its joint venture with Century Tokyo Leasing Corporation, with
BPI retaining 51% ownership. It wholly owns BPI Century Tokyo Rental Corporation which offers
operating leases.
7. Ayala Plans, Inc. is a 98% owned pre-need insurance company acquired through the merger with
Ayala Insurance Holdings Corp (AIHC) in April 2000.
8. BPI/MS Insurance Corporation is a non-life insurance company formed through the merger of FGU
Insurance Corporation and FEB Mitsui Marine Insurance Company on January 7, 2002. FGU and
FEB Mitsui were acquired by the Bank through its merger with AIHC and FEBTC in April 2000.
Business of Issuer
Principal Products & Services
The Bank offers a wide range of corporate, commercial and retail banking products. The bank has two
major categories for products & services. The first category covers its deposit taking and lending /
investment activities. Revenue from this category is collectively termed as net interest income and
accounts for about 62% of revenues. The second category covers services other than and auxiliary to
the core deposit taking, lending, and investing business, and from which it derives commissions, service
charges & fees from turnover volume. These include investment banking & corporate finance fees,
asset management & trust fees, foreign exchange, securities distribution fees, securities trading gains,
credit card membership fees, rental of bank assets, income from insurance subsidiaries and service
charges/ commissions earned on international trade transactions, drafts, fund transfers, various deposit
related services, etc. These services include traditional loan and deposit products, as well as treasury,
trust banking, investment banking, asset management, insurance and credit card services.

Foreign Offices Contribution

2012

2013

2014

Share in Total Revenue (%)

Hong Kong
USA
Europe

0.86
0.27
0.25
0.34

0.88
0.28
0.22
0.38

0.76
0.30
0.14
0.31

Share in Total Net Income (%)

Hong Kong
USA
Europe

0.04
0.24
0.02
(0.23)

0.25
0.24
0.00
0.01

0.04
0.17
(0.07)
(0.06)

Distribution Network
BPI has 814 branches across the country, including 57 kiosk branches by the end of 2014. Kiosks are
branches much smaller than the traditional branch but fully equipped with terminals allowing direct
electronic access to product information and customers accounts as well as processing of self-service
transactions. They serve as sales outlets in high foot traffic areas such as supermarkets, shopping
59

malls, transit stations, and large commercial establishments. Additionally, there are 6 BPI Globe BanKO
(BanKO) branches set up in strategic locations in the country. BanKO, a joint venture with Ayala Corp.
and Globe Telecom, is the countrys first mobile-based savings bank whose goal is to extend financial
services to the lower end of the market. Overseas, BPI has a total of five (5) branches, one (1) in Hong
Kong (BPI International Finance Limited) and four (4) BPI Europe Plc branches in London.
BPIs ATM network of 2,575 terminals complements the branch network by providing banking services
to its customers at any place and time of the day. The interconnection with Megalink and Bancnet in
1997 and 2006, respectively, gives BPI ATM cardholders access to over 16,400 ATMs as well as debit
payments through non-BPI point-of-sale terminals. BPIs ATM network is likewise interconnected with
the Cirrus International ATM network, China Union Pay (CUP), Discover/Diners, JCB, and Visa
International. Real-time Cardless Deposit is also made available in almost 400 Cash Deposit Machines
in the country. In addition, BPI operates the Express Payment System (point-of-sale/debit card system),
which is a facility that allows customers to pay for purchases electronically through their ATM cards in
major department stores, supermarkets and retail establishments among others.
BPI Express Phone, the bank's phone banking platform, continues to service customer inquiries and
transactions through its self-service facility (IVRS). BPI depositors can inquire about their account
balances and latest transactions, transfer funds to other BPI accounts in real time, pay for their various
bills (e.g., credit cards, electricity, cable company, Telco/ISP, condominium dues, insurance premiums)
and reload prepaid phones. Customer concerns and queries received via Express Phone as well as
through SMS, e-mail, and social media, are all ably addressed by the banks 24-hour Contact Center.
BPI's B2C web-based platform, Express Online (EOL), provides all the transactional services available
through Express Phone plus the real-time convenience of viewing transactional history and balances
on screen. EOL also introduced an online foreign exchange facility for real-time US Dollar to Philippine
Peso conversion as well as a full-service online investment facility, which allows customers to access
portfolio information, apply for an investment fund account, subscribe to additional funds, redeem
investments, and make regular contributions via the Regular Subscription Plan (RSP). For customers
that need to transact at a branch, EOL also offers an online branch transaction appointment system
where customers can pick their time-slot, branch and submit their branch transactions in advance.
BPI Express Mobile, the banks mobile banking platform, offers different variants of Mobile Banking,
depending on customers mobile device and available technology. The most comprehensive and robust
of the variants is the BPI Express Mobile App, which can run on iOS, Android, and Blackberry devices.
Customers are able to do banking transactions such as getting real-time balances of their enrolled
accounts, paying bills, and subscribing to and redeeming investment funds using their BPI Express
Online user ID and password. Furthermore, it allows customers to instantly transfer funds to another
BPI account and reload prepaid phones and prepaid cards, all without the need for pre-enrollment.
BPI also maintains a specialized network of remittance centers for servicing overseas remittances from
Filipinos working abroad. To date, BPI has 5 Remittance Centers and Desks located in Hong Kong,
USA and Europe. BPI also maintains tie-ups with various foreign entities in locations where this mode
of operation is more effective and cost-efficient.
On the lending side, BPI maintains 14 Business Centers across the country to process loan
applications, loan releases, and international trade transactions, and provide after-sales servicing to
both corporate and retail loan accounts.
Competition
Mergers, acquisitions and closures continued to trim down the number of players in the industry from a
high of 50 upon the liberalization of rules on the entry of foreign banks to 36 universal and commercial
banks in 2014.
Lending by universal and commercial banks, excluding thrift banks, grew by 20% in 2014. This strong
loan growth was primarily driven by robust credit demand from the manufacturing, power, wholesale &
retail trade, real estate, financial and insurance industries. Consumer loans also grew by 21% year on
year.
The forthcoming ASEAN Economic Integration further intensified the competition among the local
banks. Domestic banks face the challenge of scaling up their size and expanding client reach in order
to compete with the other banks in the region. To do this, domestic banks heightened their focus on
the consumer and SME market where lending opportunities are better. BPI, being an established and
60

long-term player in this line enjoys the advantage of having an undisputed depth of experience in this
demanding business that spans origination/credit selection, collection, and asset recovery activities.
Remittances continued to be one of the main growth drivers of the economy, with a total of USD 24 Bn
flowing into the country in 2014. BPI, cognizant of this fact, sustained its cross selling activities, targeting
the OF segment, among other client segments.
Based on required published statements by the Bangko Sentral ng Pilipinas (BSP) as of December
2014, BPI is the third largest bank operating in the country in terms of assets, deposits and capital and
second in terms of customer loans and asset management and trust business. Total assets of BPI
based on Philippine Financial Reporting Standards (PFRS) compliant audited financial statement are
higher though than the published statements prepared along BSP standards.
Patents, Trademarks, Licenses, Franchises, etc.
BPI sells its products and services through the BPI trademark and/or trade name. All its major financial
subsidiaries carry the BPI name e.g. BPI Family Savings Bank, BPI Capital, BPI Securities, BPI
Leasing, BPI Direct Savings, and so do its major product & service lines.
In addition to the BPI trademark, it markets its products through the Express brand name e.g.,
1. BPI Express, for its banking kiosks
2. Express Teller, for its ATM
3. Express Deposit, for its cash acceptance machine
4. Express Payment System or EPS, for its debit card payment facility
5. ExpressNet, for its shared ATM network
6. Express Credit, for its credit cards
7. Express Cash, for its electronic cash card
8. Express Phone, for its call center facility
9. Express Online, for its internet based transaction platform for retail customers
10. Express Mobile, for its mobile banking facility
11. ExpressLink, for its internet based transaction platform for corporate customers
12. Expresslink Mobile, for its mobile banking for corporate customers
13. Express Collect, for its corporate deposit related services
At BPI Family Savings Bank, the product trademarks include the BPI Family Housing Loan with BPI
Family Housing Loan Paybreak variant, the BPI Family Auto Loan, the BPI Family Ka-Negosyo
Business Loans (BPI Family Ka-Negosyo Credit Line, BPI Family Ka-Negosyo Franchising Loan and
BPI Family Ka-Negosyo Term Loan) and the BPI Family Motorcycle Loan. Other product brands of
BPI, BFSB and BPI Direct are Maxi-One, Save-up, and Maxi-Saver.
All the Banks Trademark registrations are valid for 10 years with years of expiration varying from year
2013 to 2030. To secure these rights, the Bank files and pays corresponding fees within 1 year from
the Trademarks 5th Anniversary of use at the IPO. The Bank closely monitors the expiry/renewal dates
of these trademark names to protect the Banks brand equity.
In terms of corporate business licenses, BPI has an expanded commercial banking license while BPI
Family Savings Bank and BPI Direct Savings have savings bank licenses. Both BPI and BPI Direct
Savings have e-banking licenses. BPI Capital Corporation has an investment house license. BPI
Century Tokyo Lease & Finance Corporation has a finance company license. BPI Card Finance
Corporation has a quasi-banking license.
Related Parties
In the ordinary course of business, the Bank has entered into various transaction with its Directors,
Officers, Stockholders and their Related Interest or DOSRI including loan transactions. BPI and all its
subsidiaries have always been in compliance with the General Banking Act and the Bangko Sentral ng
Pilipinas Circulars and regulations on DOSRI loans and transactions. As of December 31, 2014, DOSRI
loans amounted to 2.64% of loans and advances as per Note 30 of the 2014 Audited Financial
Statements.
Government Regulations
Under the General Banking Act, the Monetary Board of the BSP is responsible for regulating and
supervising financial intermediaries like BPI. The implementation and enforcement of the BSP
regulations is primarily the responsibility of the supervision and examination sector of the BSP.

61

The General Banking Act was revised in 2000. The revisions allow (1) the issuance of tier 2 capital and
its inclusion in the capital ratio computation, and (2) the 100% acquisition of a local bank by a foreign
bank. The second item removes the advantage of a local bank over a foreign bank in the area of
branching. In 2005, the BSP issued Circular no. 494 covering the guidelines in adopting the provision
of Philippine Financial Reporting Standards (PFRS) and Philippine Accounting Standards (PAS)
effective the annual financial reporting period beginning 1 January 2005. These new accounting
standards aim to promote fairness, transparency and accuracy in financial reporting.
In July 2007, the risk-based Capital Adequacy Ratio (CAR) under the Basel II accord, which assigns
risk weights for credit, market and operational risks, was implemented by the BSP through BSP Circular
538. The circular, which covers all universal and commercial banks including their subsidiary banks
and quasi-banks, also maintained the 10% minimum capital adequacy ratio for both solo and
consolidated basis. Subsequently, the Internal Capital Adequacy Assessment Process (ICAAP)
guidelines were issued in 2009 for adoption by January 2011.
On January 6, 2012, the BSP announced that universal and commercial banks will be required to adopt
the capital adequacy standards under Basel III starting January 1, 2014. On January 15, 2013, the BSP
issued Circular No. 781, which prescribes the new capital adequacy standards in accordance with Basel
III. This circular took effect in January 1, 2014.
On March 29, 2012, the BSP issued Circular No. 753 mandating the unification of the statutory/legal
and liquidity reserves requirements on Peso deposits and Peso deposit substitutes. As such, effective
the week of April 6, 2012, non-foreign currency deposit unit deposit liabilities, including Peso demand,
savings and time deposits, negotiable orders of withdrawal of accounts and deposit substitutes, are
subject to required reserves equivalent of 18%. Likewise, a universal bank is required to set up reserves
of 18% against peso-denominated common trust funds and such other managed funds and reserves of
15% against Peso-denominated Trust and Other Fiduciary Accounts (TOFA) Others.
On October 29, 2014, the BSP issued Circular No. 856 requiring Domestic Systematically Important
Banks (DSIBs) to submit data requirements for identification of DSIBs, starting with 2014 data. DSIBs
will also be required to comply with the additional higher loss absorbency phased-in from January 1,
2017 with full implementation by January 1, 2019. This circular took effect on December 31, 2014.
Research and Development Activities
BPI spent the following for the last three years:

2012
2013
2014

In P M
273.4
235.1
431.3

% of Revenues
0.9
0.7
0.8

Employees
Below is a breakdown of the manpower complement of BPI in 2014.

Unibank
Consumer Banking
Corporate Banking
Investment Banking
Support
Insurance Companies
TOTAL

December 31, 2014 Actual

Officers
Staff
Total
4,552
9,557
14,129
3,207
7,134
10,341
682
1,566
2,248
121
38
159
542
839
1,381
67
346
413
4,619
9,923
14,542

Majority or 95% of the staff are members of various unions and are subject to Collective Bargaining
Agreements (CBAs). The CBA of the parent company was concluded / signed last May 31, 2011 for
the various BPI Provincial Employees Unions and June 9, 2011 for the BPI Metro Manila Employees
Union. The new BPI CBA covers the period April 1, 2011 to March 31, 2014.
CBA for BPI Family Savings Bank was concluded / signed last December 20, 2013. The new BFSB
CBA covers the period November 1, 2013 to October 31, 2015.

62

Risk Management
The Bank espouses a comprehensive risk management and capital management framework, which
integrates the management of all its financial and non-financial risk exposures. The framework
conforms not only to the Banks own rigorous standards, but also Bangko Sentral directives in promoting
an effective Internal Capital Adequacy Assessment Process (ICAAP) and other risk management
processes; also ensures that the Bank has adequate liquidity and capital to mitigate risks. The
framework focuses on three (3) key components of
1. Sound risk management governance;
2. Effective processes, information systems, and controls; and
3. Timely and reliable risk data.
BPIs Board of Directors fulfills its risk management function through its Risk Management Committee.
At the management level, the Risk Management Office is headed by the Chief Risk Officer. The CRO
is ultimately responsible in leading the formulation of risk management policies and methodologies in
alignment with the overall strategy of the Bank, ensuring that risks are prudently and rationally
undertaken and within the Banks risk appetite, as well as commensurate and disciplined to maximize
returns on capital. The CRO and the RMO facilitate risk management learning programs and promote
best practices on an enterprise-wide basis.
The Banks risk exposures are tracked according to three (3) major classifications:
1. Credit Risk, the largest single risk for most local banks, arises from the Banks core lending and
investing business, and involves the thorough evaluation, appropriate approval, management and
continuous monitoring of exposure risks, such as borrower (or counterparty) risk, facility risk,
concentrations and industry risk relating to each loan account. In BPI, the entire credit risk
management process is governed by stringent underwriting policies and rating parameters, and
lending procedures and standards which are regularly reviewed and updated given regulatory
requirements and market developments. The Banks loan portfolio is continuously monitored and
reviewed as to overall quality, concentration and utilization of limits. The Bank recently implemented
its enhanced retail housing credit risk scorecards and an internal credit risk rating model for SMEs
(following its large corporate model), incorporating probability of default estimates, as part of the
Banks preparations to transition into a Basel internal ratings-based (foundation IRB) approach.
2. Market Risk arises from the Banks business in managing interest rate and liquidity gaps, as well
as in the trading and distribution of fixed income, foreign exchange, and derivative instruments (as
allowed by regulation). Price risk and liquidity risk are managed using a set of established policies
and metrics guided by the Bank's market risk management framework set by the Board/RMC. Price
risk is the risk that the Bank's earnings will decline immediately (or over time) because of volatility
in interest rates, FX rates, or equity prices. The Bank employs various methodologies such as valueat-risk, loss limits, and earnings-at-risk, supplemented by regular stress tests. Liquidity exposures
on funding mainly come from the mismatches of asset, liability, and exchange contract maturities.
The Bank manages liquidity risk by setting a minimum cumulative liquidity net inflow limit,
conducting liquidity stress tests, and a contingency funding plan.
3. Operational Risk arises from the Banks people and processes, its information technology, threats
to the security of its facilities, personnel, or data, business interruption risk, reputational risk, and
compliance obligations to regulatory or taxing authorities, amongst others. Operational and IT risk
management in the Bank involves the formulation of policies, setting and monitoring of key risk
indicators, and overseeing the thoroughness of bank-wide risk and control self-assessments, and
loss incident management; and in the process, creating and maintaining a sound business
operating environment that ensures and protects the integrity of the Banks assets, transactions,
reputation, records and data of the Bank and its customers, the enforceability of the Banks claims,
and compliance with all pertinent legal and regulatory parameters.
Risk management is carried out by a dedicated team of skilled risk managers and senior officers who
have extensive prior operational experience working within the Bank. The Banks risk managers
regularly monitor key risk indicators and report exposures against carefully-established credit, market,
and operational and IT risk metrics and limits approved by the RMC. Finally, independent reviews are
regularly conducted by the banks Internal Audit group, regulatory examiners, and external auditors to
ensure that risk controls and mitigants are in place and functioning effectively as intended.

63

GLOBE TELECOM, INC.

Globe Telecoms (alternately referred to as Globe, Globe Telecom or the Company in the entire
discussion of Globe Telecom, Inc), highlights of balance sheets and income statements are shown
below
Balance Sheets
(In Million Pesos)
December 2014

December 2013

Current Assets
Noncurrent Assets
Total Assets

46,742
132,765
179,507

35,631
123,448
159,079

Current Liabilities
Noncurrent Liabilities
Equity Attributable to Equity Holders of the Parent
Equity Attributable to Noncontrolling Interest
Total Liabilities and Equity

60,350
64,619
54,542
(4)
179,507

54,989
62,451
41,639
159,079

Statements of Income
(In Million pesos)
December 2014

December 2013

Net Operating Revenues

Other Income
Total Revenues

103,236
1,255
104,491

95,141
1,228
96,369

Costs and Expenses

Provision for Income Tax
Total Expenses

85,108
6,011
91,119

89,504
1,905
91,409

Net Income

13,372

4,960

Total net income attributable to:

Equity holders of the Parent
Noncontrolling interest
Net Income

13,376
(4)
13,372

4,960
4,960

EPS:
Basic
Based on 132,703K and 132,515K common shares
as of December 31, 2014 and 2013, respectively.
Diluted
Based on 133,286K and 133,283K common shares
as of December 31, 2014 and 2013, respectively.

100.60

37.25

100.36

37.22

For further details on the Globes financial condition and operations, please refer to its 2014
Consolidated Financial Statements which is incorporated herein as part of exhibits.
Background and Business
The Ayala Group conducts its telecommunications business through Globe Telecom, Inc (alternately
referred to as Globe or the Company in the entire discussion of Globe Telecom, Inc.). Globes origin
can be traced back to Robert Dollar Company, a California company which provided wireless long
distance message services. After subsequent mergers and re-namings, the company was named Globe
Telecom, Inc. in 1983, when the partnership between Ayala and Singapore Telecom, the principal
shareholders of Globe, was formalized. Since then, Globe has been recognized as the first company to
64

offer SMS services in the Philippines and as the first Philippine internet service provider in the
Philippines.
Globe Telecom, Inc. is a major provider of telecommunications services in the Philippines, supported
by over 6,100 employees and over 967,000 retailers, distributors, suppliers, and business partners
nationwide. The Company operates one of the largest and most technologically-advanced mobile, fixed
line and broadband networks in the country, providing reliable, superior communications services to
individual customers, small and medium-sized businesses, and corporate and enterprise clients. Globe
currently has about 44.0 million mobile subscribers, over 2.8 million broadband customers, and over
762 thousand landline subscribers.
Globes principal executive offices are located at the The Globe Tower, 32nd Street corner 7 th Avenue,
Bonifacio Global City, Taguig, Metropolitan Manila, Philippines.
Globe is one of the largest and most profitable companies in the country, and has been consistently
recognized both locally and internationally for its corporate governance practices. It is listed on the
Philippine Stock Exchange under the ticker symbol GLO and had a market capitalization of US$5.1
billion as of the end of December 2014.
The Companys principal shareholders are Ayala Corporation and Singapore Telecom, both industry
leaders in their respective countries. Aside from providing financial support, this partnership has
created various synergies and has enabled the sharing of best practices in the areas of purchasing,
technical operations, and marketing, among others.
Globe is committed to being a responsible corporate citizen. Globe BridgeCom, the companys umbrella
corporate social responsibility program, leads and supports various initiatives that
(1) promote
education and raise the level of computer literacy in the country, (2) support entrepreneurship and
micro-enterprise development particularly in the countryside, and (3) ensure sustainable development
through protection of the environment and excellence in operations. Since its inception in 2003, Globe
BridgeCom has made a positive impact on the lives of thousands of public elementary and high school
students, teachers, community leaders, and micro-entrepreneurs throughout the country. For its efforts,
Globe BridgeCom has been recognized and conferred several awards and citations by various
Philippine and international organizations.
The Globe Group is composed of the following companies:
1. Globe Telecom, Inc. (Globe) provides mobile telecommunications services;
2. Innove Communications Inc. (Innove), a wholly-owned subsidiary, provides fixed line
telecommunications and broadband services, high-speed internet and private data networks for
enterprise clients, services for internal applications, internet protocol-based solutions and
multimedia content delivery;
3. G-Xchange, Inc. (GXI), a wholly-owned subsidiary, provides mobile commerce services under the
GCash brand;
4. Yondu (formerly referred to as Entertainment Gateway Group) is engaged in the development and
creation of wireless products and services accessible through telephones and other forms of
communication devices. It also provides internet and mobile value-added services, information
technology and technical services including software development and related services;
5. GTI Business Holdings, Inc. (GTI) is a wholly-owned subsidiary with authority to provide VOIP
services. Its wholly-owned subsidiaries are: GTI Corporation (GTIC US), a company organized
under the General Corporation Law of the State of Delaware for the purpose of engaging in any
lawful act or activity; Globe Telecom HK Limited (GTHK), a limited company organized under the
Companies Ordinance of Hong Kong; Globetel European Limited and its subsidiaries namely: UK
Globetel Limited, a private limited company under the Companies Act of 2006, wherein the
registered address is in England and Wales; Globe Mobile' Italy S.r.l. (GMI), a limited liability
company to perform, directly, and/or through its subsidiaries, services such as voice calling, SMS,
MMS, load top-up and mobile data to Filipinos based in, or visiting Italy with registered address in
Milan, Italy; and Globetel Internacional European Espaa, S.L., a company with registered address
in Barcelona, Spain;
6. Kickstart Ventures, Inc. (Kickstart), a wholly-owned subsidiary, is a pioneering business incubator
designed to provide aspiring technopreneurs with funds and facilities, mentorship and market
access needed to build new businesses; and
7. Asticom Technology, Inc. a wholly-owned subsidiary is a system integrator and information
technology services provider to domestic and international markets.
65

The Company is a grantee of various authorizations and licenses from the National
Telecommunications Commission (NTC) as follows: (1) license to offer and operate facsimile, other
traditional voice and data services and domestic line service using Very Small Aperture Terminal
(VSAT) technology; (2) license for inter-exchange services; and (3) Certificate of Public Convenience
and Necessity (CPCN) for: (a) international digital gateway facility (IGF) in Metro Manila, (b) nationwide
digital cellular mobile telephone system under the GSM standard (CMTS-GSM), (c) nationwide local
exchange carrier (LEC) services after being granted a provisional authority in June 2005, and (d)
international cable landing stations located in Nasugbu, Batangas and Ballesteros, Cagayan.
Business Development and Corporate History
In 1928, Congress passed Act No. 3495 granting the Robert Dollar Company, a corporation organized
and existing under the laws of the State of California, a franchise to operate wireless long distance
message services in the Philippines. Subsequently, Congress passed Act No. 4150 in 1934 to transfer
the franchise and privileges of the Robert Dollar Company to Globe Wireless Limited which was
incorporated in the Philippines on 15 January 1935.
Globe Wireless Limited was later renamed as Globe-Mackay Cable and Radio Corporation (GlobeMackay). Through Republic Act (RA) 4630 enacted in 1965 by Congress, its franchise was further
expanded to allow it to operate international communications systems. Globe-Mackay was granted a
new franchise in 1980 by Batasan Pambansa under Batas Pambansa 95.
In 1974, Globe-Mackay sold 60% of its stock to Ayala Corporation, local investors and its employees.
It offered its shares to the public on 11 August 1975.
In 1992, Globe-Mackay merged with Clavecilla Radio Corporation, a domestic telecommunications
pioneer, to form GMCR, Inc. (GMCR). The merger gave GMCR the capability to provide all forms of
telecommunications to address the international and domestic requirements of its customers. GMCR
was subsequently renamed Globe Telecom, Inc. (Globe).
In 1993, Globe welcomed a new foreign partner, Singapore Telecom, Inc. (STI), a wholly-owned
subsidiary of Singapore Telecommunications Limited (SingTel), after Ayala and STI signed a
Memorandum of Understanding.
In 2001, Globe acquired Isla Communications Company, Inc. (Islacom) which became its whollyowned subsidiary effective 27 June 2001. In 2003, the National Telecommunications Commission
(NTC) granted Globes application to transfer its fixed line business assets and subscribers to Islacom,
pursuant to its strategy to integrate all of its fixed line services under Islacom. Subsequently, Islacom
was renamed as Innove Communications, Inc. (Innove).
In 2004, Globe invested in G-Xchange, Inc. (GXI), a wholly-owned subsidiary, to handle the mobile
payment and remittance service marketed under the GCash brand using Globes network as transport
channel. GXI started commercial operations on 16 October 2004.
In November 2004, Globe and seven other leading Asia Pacific mobile operators (JV partners) signed
an agreement (JV agreement) to form Bridge Alliance. The joint venture company operates through a
Singapore-incorporated company, Bridge Mobile Pte. Limited (BMPL) which serves as a commercial
vehicle for the JV partners to build and establish a regional mobile infrastructure and common service
platform to deliver different regional mobile services to their subscribers. The Bridge Alliance currently
has a combined customer base of over 250 million subscribers among its partners in India, Thailand,
Hong Kong, South Korea, Macau, Philippines, Malaysia, Singapore, Australia, Taiwan and Indonesia.
In 2005, Innove was awarded by the NTC with a nationwide franchise for its fixed line business, allowing
it to operate a Local Exchange Carrier service nationwide and expand its network coverage. In
December 2005, the NTC approved Globes application for third generation (3G) radio frequency
spectra to support the upgrade of its cellular mobile telephone system (CMTS) network to be able to
provide 3G services. The Company was assigned with 10-Megahertz (MHz) of the 3G radio frequency
spectrum.
On 19 May 2008, following the approval of the NTC, the subscriber contracts of Touch Mobile or TM
prepaid service were transferred from Innove to Globe which now operates all wireless prepaid services
using its integrated cellular networks.
In August 2008, and to further grow its mobile data segment, Globe acquired 100% ownership of
Entertainment Gateway Group (EGG), a leading mobile content provider in the Philippines. EGG
66

offers a wide array of value-added services covering music, news and information, games, chat and
web-to-mobile messaging.
On 25 November 2008, Globe formed GTI Business Holdings, Inc. (GTIBH) primarily to act as an
investment company.
On October 30, 2008, Globe, the Bank of the Philippine Islands (BPI) and Ayala Corporation (AC) signed
a memorandum of agreement to form a joint venture that would allow rural and low-income customers
access to financial products and services. Last October 2009, the Bangko Sentral ng Pilipinas (BSP)
approved the sale and transfer by BPI of its shares of stock in Pilipinas Savings Bank, Inc. (PSBI),
formalizing the creation of the venture. Globes and BPIs ownership stakes in PSBI is at 40% each,
while ACs shareholding is at 20%. The partners plan to transform PSBI (now called BPI Globe BanKO,
Inc.) into the countrys first mobile microfinance bank. The banks initial focus will be on wholesale
lending to other microfinance institutions but will eventually expand to include retail lending, deposittaking, and micro-insurance. BPI Globe BanKO opened its first branch in Metro Manila in the first quarter
of 2011 and now has 6 branches nationwide, over 2,000 partner outlets, 261,000 customers and over
P2.4 billion in its wholesale loan portfolio.
On March 2012, Globe launched Kickstart Ventures, Inc. (Kickstart) to help, support and develop the
dynamic and growing community of technopreneurs in the Philippines. Kickstart is a business incubator
that is focused on providing aspiring technopreneurs with the efficient environment and the necessary
mechanisms to start their own business. Since its launch, Kickstart has 10 companies it its portfolio
covering the digital media and technology, and web/mobile platform space.
On October 2013, following the court's approval of the Amended Rehabilitation Plan (jointly filed by
Globe and Bayantel in May 2013), Globe acquired a 38% interest in Bayantel by converting
Bayantel's unsustainable debt into common shares. This follows Globe's successful tender offer for
close to 97% of Bayantel's outstanding indebtedness as of December 2012. As part of the amended
rehab plan and pending regulatory approvals, Globe would further convert a portion of its sustainable
debt into common shares of Bayantel, bringing up its stake to around 56%. On October 2014, Globe
Telecom received a copy of the temporary restraining order (TRO) issued by the Court of Appeals (CA)
stopping the National Telecommunications Commissions (NTC) proceedings in connection with the bid
of Globe Telecom Inc. to take over Bayan Telecommunications Inc. (Bayantel). Despite the lapse of the
Temporary Restraining Order (TRO) last December 9, 2014, the Court of Appeals has advised the NTC
to refrain from conducting any proceedings in connection with the bid of Globe assume majority control
of Bayantel.
On June 3, 2014, Globe signed an agreement with Azalea Technology, Inc. and SCS Computer
Systems, acquiring the entire ownership stake in Asticom. Asticom, a systems integrator and
information technology services provider to domestic and international markets, is 49% owned by
Azalea, a 100%-owned subsidiary of Ayala Corporation and 51% owned by SCS Computer Systems,
a subsidiary of Singapore Telecom.
There was no bankruptcy, receivership or similar proceedings initiated during the past four years.
Business Segments
1. Mobile Business
Globe provides digital mobile communication services nationwide using a fully digital network based
on the Global System for Mobile Communication (GSM) technology. It provides voice, data and
value-added services to its mobile subscribers through three major brands: Globe Postpaid, Globe
Prepaid and TM.
Globe Postpaid includes all postpaid plans such as regular G-Plans and consumable G-Flex Plans,
Load Allowance Plans, Load Tipid Plans and Platinum Plans (for the high-end market). In 2010,
the Company introduced the MY SUPERPLAN and MY FULLY LOADED PLAN which allow
subscribers to personalize their plans, choose and combine various unlimited call, text and web
browsing service options. In addition, Globe has made available various add-on roaming and
mobile browsing plans to cater to the needs of its subscribers. In 2011, Globe further improved
postpaid offerings with the All New My Super Plan where subscribers are given the flexibility to
create their own plans by either subscribing to an All-Unlimited Plan or an All-Consumable Plan.
Subscribers also get to choose their freebies and add-ons which they can change on a monthly
basis. A fully-customizable unlimited data plan (Unli Surf Combo Plan) was also made available to
its subscribers in mid-2011 which provides uninterrupted unlimited mobile surfing without the need
for a WIFI connection. The data plan comes with consumable amounts which the subscriber may
67

use to either local and international calls and text messages. Taking the product customization to
the next level, the company launched in the second quarter of 2013 the BEST-EVER MY
SUPERPLAN with fully-customizable plan components, bigger plan value and more contract
periods to choose from (6, 12, 18, and 30 months). Each plan has a corresponding peso value
that can be converted to avail of a combination of call, text, or surf services, free or discounted
gadgets, and a monthly consumable amount for more calls, texts and surf. In November 2013,
Globe Postpaid launched the iPhone Forever program bannering the latest phone from Apple
(iPhone 5s and iPhone 5c). Under the iPhone Forever program, new and existing Globe subscribers
who are loyal iPhone users may swap their current devices to get a new iPhone every year for free
or with minimal one-time cash out. Following the iPhone Forever Plan launched in 2013, Globe
Postpaid launched Galaxy Forever Plan in the second quarter of 2014, wherein new and existing
subscribers can acquire or upgrade to newest Samsung Galaxy phone every year by simply
subscribing to any Galaxy Forever Plan (Galaxy Forever Plan 1599; Galaxy Forever Plan1999;
Galaxy Forever Plan 2499).
Globe Prepaid and TM are the prepaid brands of Globe. Globe Prepaid is focused on the
mainstream market while TM caters to the value-conscious segment of the market. Each brand is
positioned at different market segments to address the needs of the subscribers by offering
affordable innovative products and services. In February 2012, the Company introduced a selfservice menu that provides Globe prepaid subscribers an easy access to avail of the latest promos
and services of Globe by simply dialing *143#. In early 2013, this menu was further developed with
Globe Prepaids GO SAKTO which allows the subscribers to build their own promos (call, text and
surf promos) that is best suited for their needs and lifestyle. In the third quarter of 2014, the
Company brings even more innovation to beef up its product portfolio by expanding its popular
promo GoSAKTO. With the expanded GoSAKTO, Globe Prepaid customers can personalize their
call, text and surfing needs for 1 day, 2 days, 3 days, 7 days, 15 days or even for 30 days. They
can also select the type and number of call minutes and texts they need and adjust the MBs of
mobile surfing the way they want it.
In addition to digital wireless communications, Globe also offers mobile payments and remittance
services under the GCash brand. GCash is an internationally acclaimed micro payment service
that transforms a mobile phone into a virtual wallet, enabling secure, fast, and convenient money
transfers at the speed and cost of a text message. Since the launch of GCash, wholly-owned
subsidiary GXI has established a wide network of local and international partners that includes
government agencies, utility companies, cooperatives, insurance companies, remittance
companies, universities, and commercial establishments which all accept GCash as a means of
payment for products and services.
Globe offers various top-up or reloading options and facilities for prepaid subscribers including
prepaid call and text cards, bank channels such as ATMs, credit cards, and through internet
banking. Subscribers can also top-up at over 856,000 AutoLoad Max retailers nationwide, all at
affordable denominations and increments. A consumer-to-consumer top-up facility, Share-A-Load,
is also available to enable subscribers to share prepaid load credits via SMS. Globes AutoLoad
Max and Share-A-Load services are also available in selected OFW hubs all over the world.
Globe has a loyalty and rewards program called My Rewards, My Globe for Globe Prepaid
subscribers, TM Astig Rewards for TM subscribers and Tattoo+ Rewards for Tattoo Broadband
subscribers. Globe Postpaid subscribers can earn points based on their monthly billed amounts in
excess of their Monthly Subscription Fee. Subscribers have the option to redeem rewards instantly,
or accumulate points to avail of higher value rewards.
Redeemed points in the form of telecom services is netted out against revenues whereas points
redeemed in the form of non-telco services such as gift certificates and other products are reflected
as marketing expense. At the end of each period, Globe estimates and records the amount of
probable future liability for unredeemed points.
In 2014, Globe Postpaid launched the Globe Blue or Platinum Rewards Cards. The new cards can
also work as a GCash Mastercard which can be used to shop anywhere within the Philippines and
even abroad. Membership to Globe Blue is given to postpaid customers who spend an average of
P2,000-P3,499 per month over a 12-month period. Meanwhile membership to the Globe Platinum
is given to postpaid customers who subscribe to plan P3,799 or spend an average of P3,500-P4,999
over a 12-month period; and membership to Platinum Elite Rewards card is given to postpaid
customer who subscribe to All Net P5,000 or P10,000; roaming P5,000 or P10,000 or spend an
68

average of P5,000 and above over a 12-month period. Special perks may vary depending on the
plan subscription.
a. Mobile Voice
Globes voice services include local, national and international long distance call services. It
has one of the most extensive local calling options designed for multiple calling profiles. In
addition to its standard, pay-per-use rates, subscribers can choose from bulk and unlimited
voice offerings for all-day or off-peak use, and in several denominations to suit different
budgets.
Globe keeps Filipinos connected wherever they may be in the world, made possible by its tieup with over 600 roaming partners in more than 200 calling destinations worldwide. Globe also
offers roaming coverage on-board selected shipping lines and airlines, via satellite. Through its
Globe Kababayan program, Globe provides an extensive range of international call and text
services to allow OFWs (Overseas Filipino Workers) to stay connected with their friends and
families in the Philippines. This includes prepaid and reloadable call cards and electronic PINs
available in popular OFW destinations worldwide.
b. Mobile Data and Value-Added Services
Globes Mobile SMS service includes local and international SMS offerings. Globe also offers
various bucket and unlimited SMS packages to cater to the different needs and lifestyles of its
postpaid and prepaid subscribers.
Globes Mobile Browsing services allow subscribers to access the internet using their internet
capable handsets, devices or laptops with USB modems. Data access can be made using
various technologies including LTE, HSPA+, 3G with HSDPA, EDGE and GPRS. Browsing
subscribers also have multiple charging options available with Globes Flexible Mobile Internet
Browsing rates which allow subscribers to choose between time or usage-based rates. They
can also choose between hourly, daily or monthly browsing plans.
Globes Value-Added Services offers a full range of downloadable content covering multiple
topics including news, information, and entertainment through its web portal. Subscribers can
purchase or download music, movie pictures and wallpapers, games, mobile advertising,
applications or watch clips of popular TV shows and documentaries as well as participate in
interactive TV, do mobile chat, and play games, among others. Additionally, Globe subscribers
can send and receive Multimedia Messaging Service (MMS) pictures and video, or do local and
international 3G video calling.
Through Globes partnership with major banks and remittance companies, and using Globes
pioneering GCash platform, subscribers can perform mobile banking and mobile commerce
transactions. Globe subscribers can complete international and domestic remittance
transactions, pay fees, utility bills and income taxes, avail of micro-finance transactions, donate
to charitable institutions, and buy Globe prepaid load credits using its GCash-activated SIM.
2. Fixed Line and Broadband Business
Globe offers a full range of fixed line communications services, wired and wireless broadband
access, and end-to-end connectivity solutions customized for consumers, SMEs (Small & Medium
Enterprises), large corporations and businesses.
a. Fixed Line Voice
Globes fixed line voice services include local, national and international long distance calling
services in postpaid and prepaid packages through its Globelines brand. Subscribers get to
enjoy toll-free rates for national long distance calls with other Globelines subscribers
nationwide. Additionally, postpaid fixed line voice consumers enjoy free unlimited dial-up
internet from their Globelines subscriptions. Low-MSF (monthly service fee) fixed line voice
services bundled with internet plans are available nationwide and can be customized with
value-added services including multi-calling, call waiting and forwarding, special numbers and
voice mail. For corporate and enterprise customers, Globe offers voice solutions that include
regular and premium conferencing, enhanced voice mail, IP-PBX solutions and domestic or
international toll free services. With The Companys cutting-edge Next Generation Network
(NGN), Globe Business Voice solutions offer enterprises a bevy of fully-managed traditional
and IP-based voice packages that can be custom-fit to their every need.

69

b. Fixed Line Data

Fixed line data services include end-to-end data solutions customized according to the needs
of businesses. Globes product offerings include international and domestic leased line
services, wholesale and corporate internet access, data center services and other connectivity
solutions tailored to the needs of specific industries.
Globes international data services provide corporate and enterprise customers with the most
diverse international connectivity solutions. Globes extensive data network allow customers
to manage their own virtual private networks, subscribe to wholesale internet access via
managed international private leased lines, run various applications, and access other networks
with integrated voice services over high-speed, redundant and reliable connections. In addition
to bandwidth access from multiple international submarine cable operators, Globe also has
international cable landing stations situated in different locales to ensure redundancy and
network resiliency.
The Companys domestic data services include data center solutions such as business
continuity and data recovery services, 24x7 monitoring and management, dedicated server
hosting, maintenance for application-hosting, managed space and carrier-class facilities for colocation requirements and dedicated hardware from leading partner vendors for off-site
deployment.
Other fixed line data services include premium-grade access solutions combining voice,
broadband and video offerings designed to address specific connectivity requirements. These
include Broadband Internet Zones (BIZ) for broadband-to-room internet access for hotels, and
Internet Exchange (GiX) services for bandwidth-on-demand access packages based on
average usage.
Globe Business also launched in 2013 Cloud Solutions that allows an organization's
infrastructure to match the elasticity of the business climate and increase its business agility.
The new cloud capabilities were the first large-scale, private and public-ready, next generation
cloud in Asia. Globe offers a suite of Business Applications that leverage on the power of cloud
to help enterprises improve their business operations such as: PayrollCloud application an
innovative Software-as-a-Service or SaaS providing on-time and accurate payroll accounting
system from automatic calculation of salaries, standard time and attendance reports,
biometric integration, online application and customizable approval hierarchy and online payslip
access; Globe HealthCloud - an end-to-end web-based health ICT solution that enables realtime, secure and convenient access to health information; Office 365 has the applications that
are always up to date and accessible from virtually anywhere; Canvas which enables
businesses to replace expensive and inefficient paper forms with powerful mobile forms on their
smartphones and tablets; Google Apps which is a cloud-based productivity suite that helps
businesses and its employees connect and get work done from anywhere on any device.
Moreover, The Company likewise offers Infrastructure Services that provides consulting,
managed services, and integrated solutions to establish agile and flexible IT environments. This
enables customers through a strategy covering assessment through design, implementation,
management and optimization to reach a true end-to-end solution. These are: Backup-as-aService platform which is the most advanced backup and restoration software that enables
continuous data protection, local off-site storage and managed services to industries,
enterprises as well as small and medium businesses; Managed Security Services that provides
services such as managed firewalls, intrusion detection and prevention (IDP) and messaging
security (anti-virus/anti-spam and content filtering). Furthermore, Infrastructure-as-a-Service is
also offered to corporate clients such as: Virtual Private Cloud which allows them to acquire
processing power without the high
c.

Broadband
Globe offers wired, fixed wireless, and fully mobile internet-on-the-go services across various
technologies and connectivity speeds for its residential and business customers.
Tattoo@Home consists of wired or DSL broadband packages bundled with voice, or broadband
data-only services which are available at download speeds ranging from 1 Mbps up to 15 Mbps.
In selected areas where DSL is not yet available, Globe offers Tattoo WiMAX, a fixed wireless
broadband service using its WiMAX network. Meanwhile, for consumers who require a fully
mobile, internet-on-the-go broadband connection, Tattoo On-the-Go allows subscribers to
access the internet using LTE, 4G HSPA+, 3G with HSDPA, EDGE, GPRS or Wi-Fi at various
hotspots nationwide using a plug-and-play USB modem. This service is available in both
postpaid and prepaid packages. In addition, consumers in selected urban areas who require
70

faster connections have the option to subscribe to Tattoo Torque broadband plans using
leading edge GPON (Gigabit Passive Optical Network) technology with speeds of up to 100
Mbps.
In September 2012, the Company officially launched its Long-Term Evolution (LTE) broadband
service with the Tattoo Black Postpaid Plans. The nomadic broadband plans are equipped with
an LTE dongle and LTE superstick that deliver browsing speeds of up to
42 Mbps and
come with personalized customer handling services such as a dedicated hotline, a relationship
manager, and many other perks.
In 2013, Tattoo kicked off the year with lower price propositions for its 4G product suite. Tattoo
4G Flash was made available for only P995 with surfing speeds of up to 7.2 Mbps. Also, Tattoo
At-Home now offers free unlimited calls to Globe/TM in addition to landline and internet service
in every Tattoo@Home Broadband Bundle. During the second quarter, Tattoo Postpaid
strengthens its lifestyle positioning with the unveiling of Tattoo-Enjoy Card which allows new
Tattoo Postpaid subscribers access to perks and discounts to over 240 brand partners
nationwide. Tattoo Prepaid Lifestyle sticks with surfing speed of up to 12 Mbps on the other
hand was made available to consumers for only P1,295. Meanwhile, in order to address the
increasing demand for mobile Wi-Fi and faster internet connectivity, Tattoo Prepaid re-launched
its 4G SuperStick during the third period with a more affordable price of P1,995 from August 15
to December 31, 2013. Tattoo Postpaid also launched its new and improved postpaid
personalized and consumable plans with increased surfing speed now up to 42 Mbps. LTE
plans which start at P1,299 now comes with a FREE LTE dongle or pay a one-time fee of
P2,000 for an upgrade to a mobile Wi-Fi device. Tattoo consumable plans have been further
improved with more browsing hours for Plan 299 (from 30 hours to 50 hours) and for Plan 499
(from 50 hours to 85 hours) which can also be upgraded to a mobile Wi-Fi device for only P150
per month. Also during this period, Tattoo launched another revolutionary offer bannering the
most affordable tablet bundles, wherein its subscribers can get FREE three devices with
unlimited internet browsing and mobile text and call starting at Plan 1,298, consisting of a free
Skyworth S73 tablet or a Cloudpad 705W, a Blackberry Curve 9220 and the countrys fastest
broadband Wi-Fi stick which can power up to 10 devices. Other Tattoo tablet bundles are
likewise available with varying numbers of free browsing hours together with unlimited calls and
texts on free mobile phone and connectivity through the free mobile Wi-Fi starting at Plan 598.
In 2014, the widest range of Tattoo Prepaid mobile Wi-Fi devices was made available including
4G mobile Wi-Fi with speed up to 12mbps, connects up to 10 devices for only P1,995; 4G
mobile Wi-Fi + Powerbank which full charge the phone up to 3x for only P3,795 and LTE mobile
Wi-Fi with speed up to 42mbps, connects up to 10 devices + Powerbank, which full charge the
phone, for only P4,995. Tattoo Postpaid likewise introduced the best value tablet bundle with
no upfront cash out and Postpaid Tattoo Plan with free LTE stick (Plan999) or LTE Mobile WiFi
(Plan1299). Meanwhile, Tattoo Home Broadband unleashes the fastest broadband connection
as it upgrades its speeds within the same and more affordable plan. Starting at Plan 1599, the
formerly 3 Mbps Tattoo Home Broadband bundle has now been upgraded to a faster and more
reliable 5 Mbps speed. Moreover, Tattoo Platinum, the premium broadband product has
continued its expansion to provide fiber powered home broadband experience powering up the
community in Rockwell Makati with the ultra-high speed home broadband service. Together
with residents from Forbes, Urdaneta, Bel-Air and Serendra, Rockwell residents may now enjoy
speeds of up to 100 Mbps. Tattoo Platinum offers speeds of up to 150 Mbps at the same
monthly fees now. Surfing speeds of up to 10 Mbps is now at Plan 3499, 15 Mbps at Plan 3999,
10 Mbps at Plan 4999, 50 Mbps at Plan 6999, 100 Mbps at Plan 11999 and 150 Mbps at Plan
16999. Being the first to launch the Gigabit-capable Passive Optical Network (GPON) internet
service in the Philippines, Tattoo Platinum comes with exclusive offers all for Free such as
Globe landline, Globe-to-Globe landline NDD calls, Unlicalls to Globe and TM mobile, 4-port
modem + Wi-Fi router and a Tattoo Postpaid Stick with 40 surfing hours per month. Beyond
these, Tattoo Platinum subscribers may enjoy exclusive perks and privileges such as priority
servicing in Globe Stores and Hotline, dedicated relationship managers for Plan4999 and up,
discount to partner merchants and concierge services.
Sales and Distribution
Globe has various sales and distribution channels to address the diverse needs of its subscribers.
1. Independent Dealers
Globe utilizes a number of independent dealers throughout the Philippines to sell and distribute its
prepaid wireless services. This includes major distributors of wireless phone handsets who usually
have their own retail networks, direct sales force, and sub-dealers Dealers are compensated based
71

on the type, volume and value of reload made in a given period. This takes the form of fixed
discounts for prepaid airtime cards and SIM packs, and discounted selling price for phonekits.
Additionally, Globe also relies on its distribution network of over 967,000 AutoloadMax retailers
nationwide who offer prepaid reloading services to Globe, TM, and Tattoo subscribers.
2. Globe Stores
As of December 31, 2014, the Company has a total of 211 Globe Stores all over the country where
customers are able to inquire and subscribe to wireless, broadband and fixed line services, reload
prepaid credits, make GCASH transactions, purchase handsets and accessories, request for
handset repairs, try out communications devices, and pay bills. The Globe Stores are also
registered with the Bangko Sentral ng Pilipinas (BSP) as remittance outlets.
In line with the Companys thrust to become a more customer-focused and service-driven
organization, Globe departed from the traditional store concept which is transactional in nature and
launched the redesigned Globe Store which carries a seamless, semi-circular, two-section design
layout that allows anyone to easily browse around the product display as well as request for after
sales support. It boasts of a wide array of mobile phones that the customers can feel, touch and
test. There are also laptops with high speed internet broadband connections for everyone to try.
The Globe store has an Express Section for fast transactions such as modification of account
information and subscription plans; a Full-Service Section for more complex transactions and
opening of new accounts; and a Cashier Section for bill payments. The store also has a self-help
area where customers can, among others, print a copy of their bill, and use interactive touch
screens for easy access to information about the different mobile phones and Globe products and
services. Globe stores also include NegoStore areas, which serve as additional sales channels for
current and prospective Globe customers. Moreover, select stores also have Tech Coaches or
device experts that can help customers with their concerns on their smartphones. The Company
opened the first concept store in Greenbelt 4 in 2010 and accelerated its roll-out throughout 2011,
averaging 4-5 new stores a month.
In 2012, Globe introduced other store formats in response to the need for more customer service
channels to accommodate more subscribers availing of Globe postpaid, prepaid and internet
services. The new store formats - the premium dealership store, pop-up store, microstore, kiosk,
and store-on-the-go were carefully designed based on demographics, lifestyle and shopping
behaviors of its customers, each providing a different retail mix and experience to subscribers.
In 2013, Globe opened 50 concept stores and will open more concept stores in the country as part
of its commitment to a wonderful customer service experience.
In 2014, Globe simultaneously unveiled its Generation 3 flagship stores in SM North EDSA, Quezon
City, Manila and in Limketkai Mall, Cagayan de Oro. Designed by Tim Kobe, the founder and CEO
of Eight, Inc. and designer of Apple Stores, the Globe Gen3 stores features reconfigurable and
interactive elements, all designed to empower the growing digital lifestyle of customers. The stores
feature four lifestyle zones music, entertainment, productivity, and life each with their own
interactive kiosks.
3. Customer Facing Units
To better serve the various needs of its customers, Globe is organized along three key customer
facing units (CFUs) tasked to focus on the integrated mobile and fixed line needs of specific market
segments. The Company has a Consumer CFU with dedicated marketing and sales groups to
address the needs of individual retail customers, and a Business CFU (Globe Business) focused
on the needs of big and small businesses. Globe Business provides end-to-end mobile and fixed
line solutions and is equipped with its own technical and customer relationship teams to serve the
requirements of its client base. In early 2011, Globe organized an International Business Group to
serve the voice and roaming needs of overseas Filipinos, whether transient or permanent. It is
tasked to grow the Companys international revenues by leveraging on Globes product portfolio
and developing and capitalizing on regional and global opportunities.
4. Others
Globe also distributes its prepaid products SIM packs, prepaid call cards and credits through
consumer distribution channels such as convenience stores, gas stations, drugstores and
bookstores. Lower denomination IDD prepaid loads are also available in public utility vehicles, street
vendors, and selected restaurants and retailers nationwide via the IDD Tingi load, an international
voice scratch card in affordable denominations.
72

Operating Revenues
Gross Operating Revenues by Business
Segment
(in Php Mn)
Service Revenues
Mobile.
Voice1..
SMS2
Mobile Browsing and Other Data3..
Fixed Line and Broadband
Broadband4
Fixed Line Data5
Fixed Line Voice6......
Service Revenues*.....
Non Service Revenues..
Operating Revenues*.
1

Year Ended 31 December

2014
78,069
34,684
29,079
14,306
20,956
12,687
5,480
2,789
99,025
4,211
103,236

% of
total

2013

% of
total

2012

% of
total

76%
34%
28%
14%
20%
12%
5%
3%
96%
4%
100%

72,764
32,367
28,794
11,603
17,736
10,440
4,691
2,605
90,500
4,641
95,141

76%
34%
30%
12%
19%
11%
5%
3%
95%
5%
100%

67,189
32,446
26,552
8,191
15,553
8,721
4,167
2,665
82,742
3,704
86,446

78%
38%
31%
9%
18%
10%
5%
3%
96%
4%
100%

Mobile voice service revenues include the following:

a) Prorated monthly service fees on consumable minutes of postpaid plans;
b) Subscription fees on unlimited and bucket voice promotions including the expiration of the unused value of
denomination loaded;
c) Charges for intra-network and outbound calls in excess of the consumable minutes for various Globe Postpaid plans,
including currency exchange rate adjustments, or CERA, net of loyalty discounts credited to subscriber billings; and
d) Airtime fees for intra network and outbound calls recognized upon the earlier of actual usage of the airtime value or
expiration of the unused value of the prepaid reload denomination (for Globe Prepaid and TM) which occurs between
3 and 120 days after activation depending on the prepaid value reloaded by the subscriber net of (i) bonus credits and
(ii) prepaid reload discounts; and revenues generated from inbound international and national long distance calls and
international roaming calls; and
e) Mobile service revenues of GTI.
Revenues from (a) to (d) are reduced by any payouts to content providers.

Mobile SMS revenues consist of local and international revenues from value-added services such as inbound and outbound
SMS and MMS, infotext, and subscription fees on unlimited and bucket prepaid SMS services, net of any interconnection or
settlement payouts to international and local carriers and content providers.
3

Mobile browsing and other data service revenues consist of local and international revenues from value-added services
such as mobile internet browsing and content downloading, mobile commerce services, other add-on VAS, and service
revenues of GXI and EGG, net of any interconnection or settlement payouts to international and local carriers and content
providers.
4

Broadband service revenues consist of the following:

a) Monthly service fees of wired, fixed wireless, and fully mobile broadband data only and bundled voice and data
subscriptions;
b) Browsing revenues from all postpaid and prepaid wired, fixed wireless and fully mobile broadband packages in excess
of allocated free browsing minutes and expiration of unused value of prepaid load credits;
c) Value-added services such as games; and
d) Installation charges and other one-time fees associated with the service.
5

a)
b)
c)
d)
6

Fixed Line data service revenues consist of the following:

Monthly service fees from international and domestic leased lines;
Other wholesale transport services;
Revenues from value-added services; and
One-time connection charges associated with the establishment of service.

Fixed Line voice service revenues consist of the following:

a) Monthly service fees;
b) Revenues from local, international and national long distance calls made by postpaid, prepaid fixed line voice
subscribers and payphone customers, as well as broadband customers who have subscribed to data packages bundled
with a voice service. Revenues are net of prepaid and payphone call card discounts;
c) Revenues from inbound local, international and national long distance calls from other carriers terminating on Globes
network;
d) Revenues from additional landline features such as caller ID, call waiting, call forwarding, multi-calling, voice mail,
duplex and hotline numbers and other value-added features;
e) Installation charges and other one-time fees associated with the establishment of the service; and
f) Revenues from DUO and SUPERDUO (fixed line portion) services consisting of monthly service fees for postpaid and
subscription fees for prepaid subscribers.
g) 2011 service revenues have been restated to reflect the change in the presentation of outbound revenues to be at
gross of interconnect expenses (from net previously).

Globes mobile business contributed P78.1 billion in 2014 accounting for 79% of total service
revenues, 7% higher compared to last years level of P72.8 billion. Its mobile voice service revenues
73

amounted to P34.7 billion in 2014, contributing 44% of total mobile service revenues. Mobile SMS
service revenues, up by 1% year-on-year, contributed P29.1 billion in 2014. Mobile browsing and
other services, on the other hand, posted strong revenue growth of 23% compared to last years
level and contributed P14.3 billion in 2014.
Accounting for the remaining 21% of total service revenues, Globes fixed line and broadband
business experienced a robust 18% growth, registering P21 billion in 2014, compared to P17.7
billion in 2013. Broadband and Fixed Line Data contributed revenues of P10.4 billion and P4.7
billion in 2013, respectively.
Competition
1. Industry, Competitors and Methods of Competition
a. Mobile Market
The Philippine mobile market has expanded to a total industry SIM base of 114 million. But
despite an industry penetration rate of over 110% as of December 31, 2014, the market is
continuously expanding due to the rise in the demand for more non-traditional services
especially in the form of mobile internet browsing. With the growing penchant of Filipinos for
smartphones, the mobile browsing business in the Philippines presents more opportunities for
revenue growth. Aside from the possible area of growth in the industry through the switch of
prepaid subscribers to postpaid, mobile data usage of both prepaid and postpaid subscribers
continues to be a promising market that is to be developed and penetrated in the coming years.
As of 2014, approximately 96% of industry subscribers remain prepaid, albeit significant growth
in the postpaid segment over the last three years.
The Philippine government liberalized the communications industry in 1993, after a framework
was developed to promote competition in the industry and accelerate the development of the
telecommunications market. Ten (10) operators were granted licenses to provide CMTS
services Globe, Innove (previously Isla Communications, Inc. or Islacom), Bayan
Telecommunications, Inc. (Bayantel), Connectivity Unlimited Resources Enterprises
(CURE), Digitel Telecommunications Philippines, Inc. (Digitel), Express Telecom
(Extelcom), MultiMedia Telephony, Inc., Next Mobile (NEXTEL), Pilipino Telephone
Corporation (Piltel) and Smart Communications, Inc. (Smart). Nine of the ten operators
continued on to operate commercially except for Bayantel, which have yet to roll out their CMTS
services commercially
When Sun Cellular, Digitels mobile brand, entered the market in 2003, it introduced to the
market value-based unlimited call and text propositions, allowing it to build subscriber scale
over time. With the markets preference for these value-based unlimited and bulk call and text
services, Globe and Smart responded by creating a new set of value propositions for their
subscribers. Today, with the high level of mobile penetration, driven in part by the prevalence
of multi-SIMming (i.e., individuals having two SIMs), and the continued shift of consumer
preferences to unlimited and bulk offers, the competition in the mobile market remains intense,
albeit in a more rational environment.
The mobile market continued to grow as shown in the table below. With an estimated
cumulative base of 113.89 million SIMs, the mobile industry grew by 5% and reached 116%
nominal penetration. Globe ended 2014 with a SIM base of 44 million, with an estimated SIM
share of approximately 38.7%, up from 35.5% in 2013.
Mobile Subscribers (Mn)
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

1.62
2.68
5.26
10.53
15.17
22.31
32.87
34.61
42.04
54.86
68.03
75.43*
86.15*
93.74*
102.99*

Penetration Rates
(%)
2.5
3.8
8.6
14.2
19.0
27.3
39.4
40.6
48.3
61.2
74.6
82.3
93.0
98.7
106.4

Growth Rate
43%
65%
96%
100%
44%
47%
47%
5%
21%
30%
24%
11%
14%
9%
10%

74

2013
2014

108.52*
113.89*

110.0
116.0

5%
5%

* Estimated end of year figures.

Source: National Telecommunications Commission (Statistical Data 2007), publicly available information
and Company estimates

Since 2000, the mobile communications industry has experienced a number of consolidations
and ushered in new entrants, namely:

In 2000, Philippine Long Distance and Telephone Company (PLDT) acquired and
consolidated Smart and Piltel, complementing the formers fixed line businesses with the
latters wireless businesses. Subsequently in 2008, PLDT, through Smart, purchased
CURE, one of the four recipients of 3G licenses awarded by the NTC, and has since
launched another wireless brand in the market in Red Mobile, furthering heightening
competition in the market at that time.
In October 2011, PLDT also acquired 99.4% of the outstanding common stock of Digitel,
which owns the Sun Cellular brand, thereby allowing it to control over two-thirds of the
industry subscribers. As a condition of PLDTs acquisition of Digitel, PLDT returned to the
NTC the 3G license in CURE, which is expected to be re-auctioned in the near-term.

In 2008, San Miguel Corporation (SMC), partnering with Qatar Telecom, bought interests
in Liberty Telecom Holdings, Inc. (Liberty) and announced plans to enter the mobile and
broadband businesses.
In 2010, SMC acquired 100% stake in Bell Telecommunication Philippines, Inc. (BellTel),
after acquiring shares in three companies that own the shares of BellTel. Also in 2010,
SMC purchased a 40% stake in Eastern Telecommunications Philippines, Inc. (ETPI) to
expand its telecommunications services. SMC subsequently gained a majority stake of
ETPI in 2011. It now owns 77.7% of the telecommunications company.
In 2012, NTC has granted BellTel, San Miguel Corporations mobile telephony arm, an
extension to its operating license to provide cellular mobile telephone system (CMTS)
service in the country for another three years.

In 2001, Globe acquired Islacom (now Innove). Globe, likewise, acquired approximately
96.5% of the total debt of Bayantel, in December 2012. In October 2013, Globe converted
a portion of the debt it holds in Bayantel into a 38% interest in the latter, based on the
Amended Rehabilitation Plan approved by the Rehabilitation Court in August of the same
year. Upon obtaining relevant and regulatory approvals, Globe would further convert debt
into a total 56.6% share of the common stock of Bayantel.

In May 2013, ABS-CBN Convergence, Inc. (ABS-C, formerly Multimedia Telephony, Inc.)
announced the launch of its mobile brand, ABS-CBN Mobile. The launch of the new mobile
brand is being supported through a network sharing agreement with Globe, wherein the
latter provides network capacity and coverage to ABS-C on a nationwide basis. ABS-C
formally launched the brand in November 26, 2013.

Today, only the PLDT Group and the Globe Group have built significant bases of mobile
subscribers.
b. Fixed Line Market
The fixed line market expanded by 11% with the number of lines in service estimated at 3.26
million lines as of December 31, 2014 with PLDTs subscriber market share at 68%, followed
by Globe (21%) and Bayantel (11%).
Fixed Line Voice
There are at least eight major local exchange carriers (LEC) in the Philippines with licenses to
provide local and domestic long distance services. Each LEC operator (other than PLDT and
Globe, both of whom are authorized to provide nationwide fixed line services) is assigned
service areas in which it must install the required number of fixed lines and provide service.
The NTC has created 15 such service areas in the Philippines. Rates for local exchange and
domestic long distance services are deregulated and operators are allowed to have metered
as well as flat monthly fee tariff plans for the services provided.
75

Competition in the fixed line voice market intensified over the past years as the major players,
Globe, Bayantel, and PLDT introduced fixed wireless voice services with limited mobile phone
capabilities to take advantage of the increasing preference for mobile services. Fixed wireless
services were initially offered in postpaid versions in selected areas where there were no
available fixed line facilities but prepaid kits were eventually made available as coverage was
expanded.
Fixed Line Data
The fixed line data business is a growing segment of the fixed line industry. As the Philippine
economy grows, businesses are increasingly utilizing new networking technologies and the
internet for critical business needs such as sales and marketing, intercompany
communications, database management and data storage. The expansion of the local IT
Enabled Service (ITES) industry which includes call centers and Business Process Outsourcing
(BPO) companies has also helped drive the growth of the corporate data business.
Dedicated business units have been created and organized within the Company to focus on
the mobile and fixed line needs of specific market segments and customers be they residential
subscribers, wholesalers and other large corporate clients or smaller scale industries. This
structure has also been driven by Globes corporate clients preferences for integrated mobile
and fixed line communications solutions.
c. Broadband Market
Broadband continues to be a major growth area for the local telecom industry. Total industry
broadband subscribers grew by 25%, from 5.66 million in 2013 to 7.08 million in 2014. The
aggressive network roll-out of the various operators, the wider availability of affordable prepaid
broadband packages, as well as lower USB internet sticks, PC and tablet prices were the main
drivers of subscriber growth. Operators used both wired and wireless technologies to serve the
growing demand for internet connectivity.
While household penetration rates remains low, competition continues to intensify as telecom
operators aim to capture the market by accelerating the rollout of broadband network to provide
subscribers with faster internet connection and introducing more affordable and bundled
offerings.
As of end 2014, Globe had 2.8 million subscribers, up by 37% from the prior year. The
Companys subscriber share was estimated at 39.4%, up from 36% in 2014. The combined
subscribers of PLDT and Digitel numbered 4.1 million, holding approximately 58% of the
subscribers, down from 60% the prior year. Globe and the PLDT Group accounted for about
97% of cumulative subscribers. Wireless broadband subscribers account for around 78% of the
combined broadband subscribers of Globe and the PLDT Group.
In February 2010, Liberty Telecoms Holdings, Inc, a partnership between San Miguel
Corporation and Qtel Group of Qatar Telecom, launched its WiMAX broadband service under
the brand name Wi-Tribe. It ended the year with an estimated 70,000 subscribers.
d. International Long Distance Market
Consistent with global trends where international traffic is migrated to alternative means of
communication, particularly over-the-top (OTT) applications like Skype, among others, total
inbound international long distance (ILD) traffic for the year was lower against last years levels.
International long distance providers in the Philippines generate revenues from both inbound
and outbound international call traffic whereby the pricing of calls is based on agreed
international settlement rates. Similarly, settlement rates for international long distance traffic
are based on bilateral negotiations. Commercial negotiations for these settlement rates are
settled using a termination rate system where the termination rate is determined by the
terminating carrier (e.g. Philippines) in negotiation with the originating foreign correspondent.
To date, there are eleven licensed international long distance operators, nine of which directly
compete with Globe for customers. Both Globe and Innove offer ILD services which cover
international calls between the Philippines and over 200 calling destinations. To drive growth in
this segment, the Company offers discounted call rates to popular calling destinations, sustains
its usage campaigns and marketing efforts for OFW SIM packs, and ensures the availability of
popular prepaid load denominations.

76

2. Principal Competitive Strengths of the Company

a. Market Leadership Position
Globe is a major provider of telecommunications services in the Philippines. It is a strong player
in the market and operates one of the largest and most technologically-advanced mobile, fixed
line and broadband networks in the country, providing reliable, superior communications
services to individual customers, small and medium-sized businesses, and corporate and
enterprise clients. Globes distinct competitive strengths include its technologically advanced
mobile, fixed line and broadband network, a substantial subscriber base, high quality customer
service, a well-established brand identity and a solid track record in the industry.
b. Strong Brand Identity
The Company has some of the best-recognized brands in the Philippines. This strong brand
recognition is a critical advantage in securing and growing market share, and significantly
enhances Globes ability to cross-sell and push other product and service offerings in the
market.
c. Financial Strength and Prudent Leverage Policies
Globes financial position remains strong with ample liquidity, and gearing comfortably within
bank covenants. At the end of 2014, Globe had total interest bearing debt of P65.3 billion
representing 54% of total book capitalization. Consolidated gross debt to equity ratio stood at
1.2:1 and is well within the 2:1 debt to equity limit prescribed by its debt covenants. Additionally,
debt to EBITDA stood at 1.66:1, significantly lower than 3:1 covenant level. Approximately 78%
of its debt is in pesos while the balance of 22% is denominated in US dollars. Expected US
dollar inflows from the business offset any unhedged US dollar liabilities, helping insulate
Globes balance sheet from any volatilities in the foreign exchange markets.
Globe intends to maintain its strong financial position through prudent fiscal practices including
close monitoring of its operating expenses and capital expenditures, debt position, investments,
and currency exposures.
d. Proven Management Team
Globe has a strong management team with the proven ability to execute on its business plan
and achieve positive results. With its continued expansion, it has been able to attract and retain
senior managers from the telecommunications, consumer products and finance industries with
experience in managing large scale and complex operations.
e. Strong Shareholder Support
The Companys principal shareholders are Ayala Corporation (AC) and Singapore Telecom
(STI), both industry leaders in the country and in the region. Apart from providing financial
support, this partnership has created various synergies and has enabled the sharing of best
practices in the areas of purchasing, technical operations, and marketing, among others.
Suppliers
Globe works with both local and foreign suppliers and contractors. Equipment and technology required
to render telecommunications services are mainly sourced from foreign countries. Its principal
suppliers, among others, are as follows:
The Companys suppliers of mobile equipment include Nokia Solutions and Networks (Finland);
Ericsson Radio Systems AB (Sweden), Alcatel-Lucent (France), and Huawei Technologies Co., Ltd.
(China). For transmission and IP equipment, Company has partnered with NEC (Japan), Alcatel-Lucent
(France), ECI Telecom, Ltd. (Israel), Aviat Networks (USA), Cisco (USA). For the Companys network
modernization program, Huawei was the selected as the primary partner given its technical expertise
and strong track record of success in international markets. Huawei has likewise committed to establish
a Joint Innovation Center (JIC) that would bring the latest technological developments and help further
the Companys service innovation initiatives all focused in providing relevant and customizable services
for our various customer segments.
For fixed line and broadband, Globes principal equipment suppliers include Fujitsu Ltd. (Japan),
Alcatel-Lucent Technologies (France), NEC (Japan), AT&T Global (US), British Telecom (UK), Huawei
Technologies Co., Ltd . (China), ZTE Corporation (China). Singapore Telecom (Singapore), and
Tellabs (USA/Singapore).
For the Companys IT modernization program, Globe has selected Amdocs, the leading provider of
customer experience systems and services, to improve and upgrade Globes Business Support
77

Systems (BSS) and enterprise data warehouse. As part of the transformation program, Amdocs is
tasked to manage and consolidate all of Globes legacy systems onto a single Business Support System
(BSS) platform. This will enable the Company to manage its customer relationships better across all it
various product offerings, simplify business processes and shorten the time to deliver bundled and more
innovative products to the market.
Customers
Globe has a large subscriber base across the country. The Company ended 2014 with over 44 million
mobile subscribers/SIMs, comprised of 2.3 million postpaid and 41.8 million prepaid subscribers.
Meanwhile, Globe has over 762 thousand fixed line voice subscribers and around 2.8 million broadband
customers.
No single customer and contract accounted for more than 20% of the Companys total sales in 2014.
Transactions with Related Parties
Globe Telecom and Innove, in their regular conduct of business, enter into transactions with their major
stockholders, AC and STI, venturers and certain related parties. Please refer to the details of Related
Party Transactions disclosure in Note 16 of Globes 2014 Consolidated Financial Statements, which is
part of exhibits to this report.
Licenses, Patents, and Trademarks
Globe Telecom currently holds the following major licenses:
Service
Globe
Wireless
Local Exchange Carrier
International Long Distance
Interexchange Carrier
VSAT
International Cable Landing
Station & Submarine Cable
System (Nasugbu, Batangas)
International Cable Landing
Station & Submarine Cable
System (Ballesteros, Cagayan)

Innove
Wireless
Local Fixed line
International Long Distance
Interexchange Carrier
1

Type of
License

Date Issued or Last

Extended

Expiration Date

CPCN (1)
CPCN (1)
CPCN (1)
CPCN (1)
CPCN (1)
CPCN (1)

July 22, 2002

July 22, 2002
July 22, 2002
February 14, 2003
February 6, 1996
October 19, 2007

December 24, 2030

December 24, 2030
December 24, 2030
December 24, 2030
February 6, 2021
December 24, 2030

CPCN (1)

June 29, 2010

December 24, 2030

Type of
License
CPCN (1)
CPCN (1)
CPCN (1)
CPCN (1)

Date Issued or Last

Extended
July 22, 2002
July 22, 2002
July 22, 2002
April 30, 2004

Expiration Date
April 10, 2017
April 10, 2017
April 10, 2017
April 10, 2017

Certificate of Public Convenience and Necessity. The term of a CPCN is co-terminus with the franchise term.

In July 2002, the NTC issued CPCNs to Globe and Innove which allow the Company to operate
respective services for a term that will be predicated upon and co-terminus with the Companys
congressional franchise under RA 7229 (Globe) and RA 7372 (Innove). Globe was granted permanent
licenses after having demonstrated legal, financial and technical capabilities in operating and
maintaining wireless telecommunications systems, local exchange carrier services and international
gateway facilities. Additionally, Globe and Innove have exceeded the 80% minimum roll-out compliance
requirement for coverage of all provincial capitals, including all chartered cities within a period of seven
years.
Globe also registered the following brand names with the Intellectual Property Office, the independent
regulatory agency responsible for registration of patents, trademarks and technology transfers in the
Philippines: Globe, Globe Life Device, Globe Load, Globe Commerce, Globe International, Globe
Platinum, Globe Kababayan, Globe Plans, Globe Calls, Globe Labs, Globe GCash, Connected 24ever
and Device, Gloo Netwrkz, Globe Landline Postpaid Plus, Globe Share-A-Load, Globe Kababayan,
Globe Broadband, Globe Telecom, Pixlink, Unlichat, Appzone, Tipidd, Wizard, Duo Mobile Plus
Landline in One, Astig Ang Signal ng TM, Globe Tattoo, Globe Duo, Astig Ang Signal, Republika Ng
TM Astig Tayo Dito, Tattoo, Astig, Astig Rewards, Astigunli, Astig Load, Astig Pabonus Reward, TM
Diskarte, Immortalload, AstigTawag, Astigtxt, Todo Bigay Habambuhay, Duoplus, Load4life, Call4Life,
Text4Life, Globe Text, Todo Text, Globe Tattoo Youniverse, Immortaltxt, Superduo, Tattoo, Globe All
78

you Can, Ka-Globe Retailer Club, and Muzta!, Ang Wordlwidest, Globe for You, Globe Life, Globe
Content, My Rewards.MyGobe, Tattoo Superstick, Super Unli Call and Text, Tattoo Stick, Tattoo Myfi,
Tattoo Torque, Tattoo Live Without Limits, Globe Life, Enjoy Your Way, I Globe and Heart Device,
Tattoo@Home, Enjoy Your Platinum Your Way, Tattoo DSL, Enjoy Your Globe International Your Way,
Enjoy Your Globe Postpaid Your Way, Enjoy Your Prepaid Your Way, Globe Platinum & Device,
Powersurf, M.Globe, Tattoo Wimax, M2M Solutions, SuperallTxt, Globe Business M2M Solutions, Go
Lang Ng Go, Globe Mobile Internet and Globe Life Device, Globe Load and Globe Life Device, Globe
My Super Surf Plan and Device, Tattoo Stylista, Tattoo Explorer, Globe Gcash and Globe Life Device,
Globe Mobile Internet, Tattoo Player, Guaranteed Globe, Guaranteed Happy, Talk2Globe Your Way,
My Rewards, My Globe Logo, Globe Business Infrastructure-as-a-Service, Tattoo Flash, Globe
Business Cloud Solutions, Globe Business Storage-as-a-Service, Guaranteed Globe. Guaranteed
Happy Logo, Tattoo 3G Sonic, Tattoo Sonic, You're On Logo, Globe Plans, Forever, Globe Bizcam,
Globe Pisonet, Trunklite, Web Builder, Globe MyBusiness and Globe Life Device, Globe MyBusiness,
TxtConnect, Yo!, Yo, Cloud Solutions, Globe MyBusiness Gadget Group Plan, MyWebsite.
Further, Globe also applied and registered the following brand names: Globe Telecom (Australia,
Taiwan, Japan, Singapore, Macau, Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia,
Finland, France, Germany, Great Britain, Greece, Hungary, Ireland, Italy, Latvia, Lithuania,
Luxembourg, Malta, Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Korea,
Canada, China, Saudi Arabia), Globe and Globe Life Device (Hong Kong, Taiwan, Singapore, Japan,
Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Great Britain,
Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal,
Slovak Republic, Slovenia, Spain, Sweden, Macau, Qatar, UAE, USA, Saudi Arabia), Globe GCash
(Singapore, Hong Kong, United Kingdom, Taiwan, Japan, Macau, Austria, Belgium, Cyprus, Czech
Republic, Denmark, Estonia, Finland, France, Germany, Great Britain, Greece, Hungary, Ireland, Italy,
Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain,
Sweden, Qatar, Korea, UAE, Saudi Arabia, New Zealand, Ireland, Lebanon, Denmark, Sweden,
Switzerland, Israel), Globe Kababayan (Singapore, Hong Kong, Taiwan, United Kingdom, Australia,
Japan, Macau, USA, Saudi Arabia, Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia,
Finland, France, Germany, Great Britain, Greece, Hungary, Ireland, Italy, Latvia, Lithuania,
Luxembourg, Malta, Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden,
Malaysia, UAE, Italy, Korea, Taiwan), Globe Autoload Max (Norway, Singapore, Austria, Belgium,
Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Great Britain, Greece,
Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovak
Republic, Slovenia, Spain, Sweden, Japan, Hong Kong), Globe M-Commerce Hub (Taiwan, Singapore,
Korea, Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Great
Britain, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland,
Portugal, Slovak Republic, Slovenia, Spain, Sweden, Australia, Macau, Qatar, Malaysia), Muzta, and
Smiley With Salakot Device (Japan, UK, Australia, Kuwait, USA, Saudi Arabia, Bahrain, UAE), Smiley
with Salakot (Japan, United Kingdom, Australia, USA, Saudi Arabia, Bahrain, UAE), and Muzta
(Bahrain, UAE, Canada, Qatar, Saudi Arabia, UAE), GCash Remit and Logo (Austria, Belgium, Cyprus,
Czech Republic, Denmark, Estonia, Finland, France, Germany, Great Britain, Greece, Hungary, Ireland,
Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovak Republic, Slovenia,
Spain, Sweden. Lebanon, Japan, Switzerland, Macau, Hong Kong, Taiwan, New Zealand, China,
Japan, Israel), GCash Express and Logo (Hong Kong, Singapore, Taiwan, Malaysia), Globe Load
(Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Great
Britain, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland,
Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Macau).
Innove registered "Innove Communications" and Gxchange registered "GXchange," with the Intellectual
Property Office.
Gxchange, Inc. and UTI Pty Ltd. have registered in the Philippines the following:
1. Person-to-Person Virtual Cash Transfer Transaction Using Mobile Phones;
2. A Method of Converting Cash into Virtual Cash and Loading it to Mobile Phone Cash Account;
3. A Method of Cashless, Cardless Purchase Transaction Using Mobile Phones; and
4. A Method of Converting Virtual Cash into Cash and Deducting it to Mobile Phone Cash Account.
Gxchange, Inc. and UTI Pty Ltd. have likewise registered the following patents in the United States:
1. Person-to-Person Virtual Cash Transfer Transaction Using Mobile Phones; and
2. A Method of Converting Virtual Cash into Cash and Deducting it to Mobile Phone Cash Account
Gxchange, Inc. and UTI Pty Ltd. have likewise filed the following patent applications in Indonesia,
Singapore and Europe.
79

1.
2.
3.
4.

Person-to-Person Virtual Cash Transfer Transaction Using Mobile Phones;

A Method of Converting Cash into Virtual Cash and Loading it to Mobile Phone Cash Account;
A Method of Cashless, Cardless Purchase Transaction Using Mobile Phones; and
A Method of Converting Virtual Cash into Cash and Deducting it to Mobile Phone Cash Account.

Government approvals/regulations
The Globe Group is regulated by the NTC under the provisions of the Public Service Act (CA 146),
Executive Order (EO) 59, EO 109, and RA 7925. Under these laws, Globe is required to do the following:
a. To secure a CPCN/PA from the NTC for those services it offers which are deemed regulated
services, as well as for those rates which are still deemed regulated, under RA 7925.
b. To observe the regulations of the NTC on interconnection of public telecommunications networks.
c. To observe (and has complied with) the provisions of EO 109 and RA 7925 which impose an
obligation to rollout 700,000 fixed lines as a condition to the grant of its provisional authorities for
the cellular and international gateway services.
d. Globe remains under the supervision of the NTC for other matters stated in CA 146 and RA 7925
and pays annual supervision fees and permit fees to the NTC.
On October 19, 2007, the NTC granted Globe a CPCN to operate and maintain an International Cable
Landing Station and submarine cable system in Nasugbu, Batangas.
On May 19, 2008, Globe Telecom, Inc. announced that the National Telecommunications Commission
(NTC) has approved the assignment by its wholly-owned subsidiary Innove Communications (Innove) of
its Touch Mobile (TM) consumer prepaid subscriber contracts in favor of Globe. Globe would be
managing all migrated consumer mobile subscribers of TM, in addition to existing Globe subscribers in
its integrated cellular network.
On September 11, 2008, the NTC granted Globe a CPCN to operate and maintain an International
Cable Landing Station in Ballesteros, Cagayan Province.
Research and Development
Globe did not incur any research and development costs from 2010 to 2014.
Compliance with Environmental Laws
The Globe Group complies with the Environmental Impact Statement (EIS) system of the Department
of Environment and Natural Resources (DENR) and pays nominal filing fees required for the
submission of applications for Environmental Clearance Certificates (ECC) or Certificates of NonCoverage (CNC) for its cell sites and certain other facilities, as well as miscellaneous expenses
incurred in the preparation of applications and the related environmental impact studies. The Globe
Group does not consider these amounts material.
Globe has not been subject to any significant legal or regulatory action regarding non-compliance to
relevant environmental regulations.
Employees
The Globe Group has 6,182 active regular employees as of December 31, 2014, of which about 5.90%
or 365 are covered by a Collective Bargaining Agreement (CBA) through the Globe Telecom
Employees Union (GTEU).
Breakdown of employees by main category of activity from 2012 to 2014 are as follows:
Employee Type
Rank & File, CBU
Supervisory
Managerial
Executives
Total *

2014
2,347
2,167
1,239
429
6,182

2013
2,365
2,074
1,131
417
5,987

2012
2,596
1,877
1,034
365
5,872

*Includes Globe, Innove, & GXI (excluding Secondees)

In conformance with the Department of Labor and Employments (DOLE) Collective Bargaining
Agreement (CBA), the Globe Telecom Employees Union-Federation of Free Workers (GTEU-FFW)
remains active to pledge the right of every Ka-Globe to form a collective bargaining unit. All employees
are allowed to participate in CBA and through GTEU-FFW, everyone is informed and made aware of
the mandate during employee orientations.
80

The Company has a long-standing, healthy, and constructive relationship with the GTEU characterized
by industrial peace. It is a partnership that mutually agrees to focus on shared goals one that has in
fact allowed the attainment of higher levels of productivity and consistent quality of service to customers
across different segments.
Strong partnership and mutual understanding between the company and the union has been
continuously demonstrated throughout the years. In fact, throughout the many changes and
transformations initiated by the Company to achieve its goals, the union has been there, working hand
in hand with the Company in support of its business goals.
GTEU and Globe have a 5-year collective bargaining agreement for year 2011-2015, a testament to
the strong and peaceful relationship between the two.
Globe Telecom complies with RA 7160 Special Protection of Children Against Child Abuse,
Exploitation and Discrimination Act and observance of the principles of the Human Rights Act and Child
Labor Law. Benchmarking such regulations generate a happy workplace without presenting any fear of
discrimination or violation towards any employee. The company does not condone the violation of the
rights of indigenous people, nor does the company promote any operational activities that would pose
hazardous risks or damages to children or young employees.
The wonderful world of Globe provides a happy and safe workplace and alongside, implements certain
rules and policies to promote good conduct and behavior. Hence, employees who fail to follow the
Globe Code of Conduct (COC) are given corresponding sanctions. This is to protect the companys
interests to be able to consistently create a wonderful world for everyone. The sanctions especially
apply to major offenses related to corruption, extortion, bribery or any form that disrespects the
corporate values of the company. From the beginning, employees will be obliged to declare in writing
any involvement or endeavors that may potentially raise conflict with the company. Failure to do so will
subject the employee for a possible outright dismissal.
Globe continues to explore new ways to enhance employee productivity and realize operating
efficiencies. The Company believes that these initiatives will improve corporate agility, enhance Globes
overall competitiveness and strengthen its position as a service leader in the telecom industry, thereby
enhancing shareholder value.
Risk Factors
1. Foreign Exchange Risk
Globes foreign exchange risk results primarily from movements of the Philippine peso (PHP)
against the US dollar (USD) with respect to its USD-denominated financial assets, liabilities,
revenues and expenditures. Approximately 16% of its total service revenues are in USD while
substantially all of its capital expenditures are in USD. In addition, 22%, 24% and 13% of debt as
of December 31, 2014, 2013 and 2012, respectively, are denominated in USD before taking into
account any swap and hedges.
Globes foreign exchange risk management policy is to maintain a hedged financial position after
taking into account expected USD flows from operations and financing transactions. It enters into
short-term foreign currency forwards and long-term foreign currency swap contracts in order to
achieve this target.
The Company mitigates its foreign exchange risk through the following:
First, the Company has foreign currency-linked revenues which include those (a) billed in foreign
currency and settled in foreign currency; (b) billed in pesos at rates linked to a foreign currency tariff
and settled in pesos, or (c) fixed line monthly service fees and the corresponding application of the
Currency Exchange Rate Adjustment (CERA) mechanism under which Globe has the ability to pass
the effects of local currency depreciation to its subscribers.
Second, Globe enters into short-term currency forwards to manage foreign exchange exposure
related to foreign currency denominated monetary assets and liabilities while it enters into long term
foreign currency and interest rate swap contracts to manage foreign exchange and interest rate
exposures of certain long term foreign currency denominated loans.
There are no assurances that declines in the value of the Peso will not occur in the future or that
the availability of foreign exchange will not be limited. Recurrence of these conditions may adversely
affect Globes financial condition and results of operations.
81

2. Political and Socio-Economic Risks

The growth and profitability of Globe may be influenced by the overall political and economic
situation of the Philippines.
a. Economic Considerations
The first three quarters of 2014 showed decelerated GDP growth for the Philippines. However,
growth accelerated during the fourth quarter, reaching 6.9%, slightly higher than the 6.3% from
the same period last year, resulting to a 6.1% full-year GDP growth rate for the year ended
December 31, 2014. This was driven mostly by the Industry Sector, particularly Manufacturing
and Construction. Aside from this, Real Estate, Renting & Business Activities, Financial
Intermediation and Transport, Storage, and Communication, all part of the Service Sector,
contributed to the robust performance during the last quarter. Despite falling short of the 6.57.5% projection and the decrease in growth rate from the 7.2% in 2013, the countrys economic
outlook remains optimistic.
Zooming into the different sectors that contributed to the GDP growth, it can be seen that the
Service Sector has remained to be the top contributor for the 2014 GDP growth rate with 3.4
percentage points despite decreasing to 6% from 7.2% in 2013. Despite the decrease in growth
rate from 8.7% in 2013 to 8.1% this year, the Real Estate, Renting & Business Activities
subsector has taken the place of Financial Intermediation, which experienced a significant
decrease to 6.7% from 12.6% in 2013, as the subsector under the Service Sector with the
highest growth rate.
Not far behind is the Industry Sector which contributes 2.5 percentage points to the countrys
GDP this year. Its Construction subsector posted the highest growth rate at 8.5% despite
decreasing from last years 9.6%. Construction, Manufacturing, and Electricity, Gas, and Water
Supply all decreased by 21%, 11%, and 35% respectively, from 2013. Only Mining and
Quarrying posted an accelerated growth, increasing by 192% from 1.2% in 2013 to 3.5% in
2014.
The Agricultural Sector, despite being the least contributor at 0.2 percentage points, has
showed signs of improvement having increased by 73% in GDP from last years 1.1% to 1.9%
in 2014. The Agricultural and Forestry subsector mitigated the decline in the Fishing subsector
by having an increase of 92% in GDP from 1.2% in 2013 to 2.3% this year. This shows positive
signs of recovery from calamities experienced in 2013.
Looking at the demand side, government spending decreased drastically by 77% from 7.7% in
2013 to 1.8% this year. However, it is difficult not to notice the outstanding performance of the
international trade, which, alongside high consumer spending and investments in Fixed Capital
Formation, contributed to the positive economic performance of the country for 2014.
In May 2014, Standard & Poors upgraded the countrys long-term sovereign credit rating from
BBB- to a notch higher, BBB and is projected to sustain this rating due to the economic reform
progress that Philippines is experiencing. Aside from this, from a Baa3 investment grade rating,
Moodys has granted the country a Baa2 Stable rating last December 2014. This is mainly due
to declining debt burden and rising private sector investments.
Economic experts remain positive on the countrys solid economic growth and are optimistic
that this economic success will continue in 2015. Growth of 6.3% to 6.7% for the year 2015 is
expected by economists given the possible surge in foreign investments following the countrys
further improvement in credit ratings. However, it is far from the governments target of 7-8%.
For the year 2015, the government budget increased by 15.1% mainly for social services,
infrastructure, and investments in agriculture, tourism and manufacturing. Aside from this,
private consumption is expected to be a major contributor to the GDP growth in 2015. External
risks, however, will likely remain amid the uncertainties in the global scene, particularly the debt
and fiscal problem in the US and the continued debt crisis in the Euro zone which could then
again stall regional trade and capital flows. These events could negatively impact the countrys
growth prospects and as such, could materially and adversely affect Globes business, financial
condition and results of operations, including Globes ability to enhance the growth of its
subscriber base, improve its revenue base and implement its business strategies.

82

b. Political Considerations
The Philippines has from time to time experienced political, social and military instability. In
February 1986, a peaceful civilian and military uprising ended the 21-year rule of President
Ferdinand Marcos and installed Corazon Aquino as President of the Philippines. Between 1986
and 1989, there were a number of attempted coups dtat against the Aquino administration,
none of which was successful.
Political conditions in the Philippines were generally stable during the mid to late 1990s
following the election of Fidel Ramos as President in 1992. His successor, Joseph Estrada was
the subject of various allegations of corruption. He was eventually ousted from office following
impeachment proceedings, mass public protests and the withdrawal of support by the military
on corruption charges. Following President Estradas resignation, then Vice President Gloria
Macapagal Arroyo was sworn in as President on January 20, 2001. President Arroyo was
subjected to various impeachment complaints during her term. These impeachment complaints
involved various allegations including the manipulation of the results of the presidential election
in 2004, corruption and bribery. These complaints have fueled mass protests led by various
cause-oriented groups calling for the President to resign.
The Philippines held its most recent elections in May 2010, which marked the first attempt of
the Commission on Elections to implement a computerization of the national elections that
includes presidential, legislative and local positions. The elections have been deemed a
success, with the automation of the process and the relative decrease in election-related
violence adding credibility to the results. In June 2010, Benigno Noynoy Aquino III was
inaugurated as the 15th President of the Philippines. The son of the late former President
Corazon Aquino garnered over 40% of the vote and has injected the country with renewed
optimism.
The next presidential elections will be held in 2016. In May 2013, the Philippines held its
midterm elections where 12 of the 24 seats of the Senate and all of the seats of the House of
Representatives were elected. The officials elected were sworn in on June 30, 2013, midway
through President Benigno Aquino IIIs term of office.
On the judiciary, following the impeachment of the Chief Justice of the Philippine Supreme
Court, Renato Corona in 2012, President Aquino III immediately appointed Supreme Court
Associate Justice Ma. Lourdes Sereno as the new Chief Justice of the Supreme Court. She is
the first female and the second youngest Chief Justice in the countrys history. Her appointment
gives hope of reform and transparency in the justice system of the Philippines. Her
accomplishments as the Chief Justice are yet to be determined given that she is expected to
be in position for the next 16 years.
It was in mid-2013 and early 2014 that the Pork Barrel Scam made noises that resulted to
citizens questioning the credibility of our government. President Aquino, who initially continued
the Priority Development Assistance Fund (PDAF) legacy upon election, decided to abolish it
given the rise of this major issue that can possibly cripple the Philippine government. The Pork
Barrel Scam began when whistleblowers revealed the P10B-scam involving several
government officials and Janet Lim-Napoles, a business owner of several companies that serve
different agencies. The witness claimed that Napoles offered a portion of the PDAF to
commissioners in exchange of the authority to redirect the funds. Since then, several witness
testimonies in court hearings and investigations continue to reveal pieces on this issue.
Despite the recent improvements in the countrys political and economic systems, there can be
no assurance that the future political environment in the Philippines will be stable or future
governments will adopt economic policies conducive to sustaining economic growth. The
growth and profitability of Globe may be influenced by the overall political and economic
situation of the Philippines. Any political instability in the Philippines could negatively affect the
countrys general economic conditions which in turn could adversely affect Globes business,
financial condition or results of operations.
3. Industry and Operational Risks
a. Competitive Industry
Competition remains intense in the Philippine telecommunications industry as current operators
seek to increase market share with aggressive offerings while new entrants serve to further
heighten the competitive dynamics amidst a maturing mobile market. Today, Globes principal
83

competitor is the PLDT Group (composed of PLDT, Smart and Digitel), becoming a two-player
market following PLDTs acquisition of Digitel in October 2011.
The Philippine telecommunications industry continues to be dominated by the mobile segment
which contributed an estimated 69% of the total industry revenues in 2014, higher than the 66%
contribution it registered in 2013. Nominal penetration rate is now estimated at 113% from
110% in 2013. Industry revenue growth has slowed in recent years, growing only by 3.7% in
2014, lower than the 5% in 2013.
The continued growth and development of the mobile industry will depend on many factors.
Any significant economic, technological or regulatory development could result in either a
slowdown or growth in demand for mobile services and may impact Globes business, revenues
and net income. Globes mobile revenues in 2014 and 2013 accounted for 79% and 80%,
respectively of its total service revenues.
b. Regulatory Risk
The Globe Group is regulated by the NTC for its telecommunications business, and by the SEC
and the BSP for other aspects of its business. The introduction of, changes in, or practicality of
implementation of certain laws or regulations from time to time, may materially affect the
operations of Globe, and ultimately the earnings of the Company which could impair its ability
to service debt. There is no assurance that the regulatory environment will support any increase
in business and financial activity for Globe.
Globe manages its regulatory risks through proactive engagement with regulators and regular
monitoring of circulars and orders especially those that could negatively impact its businesses.
c.

Technology Shift Risk

Globe offers products and services which are dependent on the latest technological
trends. Globe Telecoms inability to identify, align or adapt to emerging technologies that drive
shifts in customer preference and consider the impact of new devices to existing technology
infrastructure and investments may place it in a competitively disadvantageous position
resulting to non-attainment of revenue and growth targets.
Globe Telecoms business, product and technical teams continue to keep abreast of the latest
innovations and trends in telecommunications technologies, devices and gadgets. The
information and insights gathered are considered in the roadmap of future products and
services and Globe Telecoms Network and IT infrastructure evolution. Proper timing of
investments in technology and infrastructure always consider its strategic implications, velocity
of technology cycles and subscriber adaption.

d. Change Program Risk

Globe is in the process of transforming its Network infrastructure mainly to improve network
quality, anticipate the surge in voice and data traffic, decrease total cost of ownership and make
the network robust enough to meet future needs. On the other hand, the IT transformation is
envisioned to re-engineer Globe Telecoms IT systems and key processes to enhance its ability
to deliver superior customer experience while being able to roll out products to the market in a
more efficient and effective manner.
Should Globe Telecoms ambitious and complex transformation programs prove to be
unsuccessful, or fail to achieve the desired outcomes, Globe could ultimately lose market share
thus impacting its financial results.
Globe has institutionalized the appropriate program governance organization with senior
management oversight and accountability to ensure program risks are properly considered and
managed with the end objective of improving customer experience. Supporting processes have
been established to closely monitor and provide a venue for regular progress updates,
alignment of efforts, discussion of critical implementation issues and challenges and help
ensure successful execution of its change programs.
e. Reputational Risk
Globe is recognized as one of the Philippines top companies which provides innovative voice,
SMS and data services, delivers superior customer sales and after sales experience, and
maintains a socially responsible philosophy. Given the prevailing industry landscape and
considering quickly shifting customer loyalty, Globe is exposed to reputational risk which may
84

result from the actions of the company itself or its competitors; indirectly due to the actions of
an employee or consequently through outsourced partners, suppliers or joint venture partners.
Damage to Globe Telecoms reputation and erosion of brand equity could also be triggered by
the inability to swiftly and adequately handle negative traditional and social media sentiments
on Globe Telecoms products and services resulting from unfavorable customer experience.
Regular process effectiveness and efficiency reviews on existing customer-impacting
processes and policies are being conducted to identify and address existing gaps, thus
minimizing exposure to reputational risks arising from problem areas. Front line staff are
regularly trained to enable them to effectively handle customer cases. On the other hand, close
monitoring of customers online sentiments is being performed to quickly detect subscriber
issues being surfaced in social media and be able to manage them early on.
f.

Compliance Risks
(i) Revenue Leakage
Globe is inherently vulnerable to revenue leakage with the dynamic changes in networks
and IT systems and the multitude of its service offerings given the pace at which new offers
are launched in the market.
Globe is continuously improving controls in its revenue assurance processes in order to
prevent and/or detect cases of revenue leakages. Prior to the launch of new products,
services and new systems, appropriate revenue assurance controls are already embedded
in system capabilities and manual processes.
(ii) Fraud
Globe runs the risk of falling victim to fraud perpetrated by unscrupulous persons or
syndicates either to avail of free services, to take advantage of device offers or defraud
its customers. With the increasing complexity of technologies, network and IT architecture,
new types of fraud are becoming more difficult to detect. This risk also involves irregularities
in transactions or activities performed by Globe Telecoms employees for personal gain.
Globe has institutionalized processes and built capabilities that enable the early detection,
close monitoring and timely reporting of various instances of fraudulent activities.
(iii) Business disruptions
Globe Telecoms continued delivery of quality services are highly dependent on network
and IT infrastructure which are vulnerable to damages caused by extreme weather
disturbances, natural calamities, fire, acts of terrorism, intentional damage, malicious acts
and other similar events which could negatively impact the attainment of revenue targets
and damage its reputation.
Globe is enhancing its crisis management plans and capabilities and has incorporated
disaster risk reduction and response objectives in its business continuity planning.
(iv) Cyber Threats
The cyber security landscape is rapidly evolving and users are heavily relying on digitized
information and sharing vast amounts of data across complex and inherently vulnerable
networks. This exposes Globe to various forms of cyber attacks which could result in
disruption of business operations, damage to reputation, legal and regulatory fines and
customer claims.
New technologies and systems being installed in the name of advanced capabilities and
processing efficiencies may introduce new risks which could outpace the organizations
ability to properly identify, assess and address such risks. Further, new business models
that rely heavily on global digitization, use of cloud, big data, mobile devices and social
media increase the organizations exposure to cyber attacks.
Globe continues to strengthen and enhance its existing security detection, vulnerability and
patch management, configuration management, identity access management, events
monitoring, data loss prevention and network/end-user perimeter capabilities to ensure that
cyber threats are effectively managed.

85

(v) Data Privacy

Globe, in the course of regular business acquires personal information of its subscribers
and retains the same in its IT systems. Existing laws require that these information be
adequately protected against unauthorized access and or/disclosure. The risk of data
leakage is high with the level of empowerment granted to in-house and outsourced
employees handling sales and after sales transactions to enable the efficient discharge of
their functions.
Employee awareness on data protection and loss prevention is reinforced through regular
corporate dissemination channels. Further, employees are made accountable for
maintaining the confidentiality of data handled, including disclosures and information
shared in various social media platforms. Controls over processes that require handling of
subscribers personal information are being tightened, coupled with enhancements in
existing security capabilities to prevent compromise of subscriber data.
g. Human Capital Risks
Globe Telecoms greatest asset is its people and its success is largely dependent on its ability
to attract highly skilled personnel and to retain and motivate its best employees. Globe
Telecoms people is the glue that brings everything together which is why it is crucial to ensure
that the company is able to acquire the right people and enhance their exceptional abilities
further.
Various people-related programs designed to engage and motivate employees are being
implemented in order to retain and attract key talents. Globe also conducts an annual survey
to determine the level of employee engagement across the organization. Below norm employee
engagement criteria are analyzed to determine employees key concerns, and correspondingly,
implement programmed interventions to address such concerns and ensure sustainable
engagement.
h. Organizational Agility Risk
In order to maximize the opportunities that may arise from the quickly-evolving changes in the
telecommunications industry, diversification of the business portfolio is critical to maintain Globe
Telecoms market competitiveness. Failure to drive the entire organization to quickly adapt to
changes and make the right shift in skills and mindsets to take on new investments may lead
to missed business opportunities.
Globe has initiated cultural change programs that focus on customer centricity and cultivating
forward-looking risk aware mindsets. Opportunistic hiring of talents required for innovation and
new investment areas are also carefully considered. Further, through Kickstart Ventures, Globe
invests in building to scale, the technical foundation of digital and tech start-up businesses
operating in the Philippines.
Management of Risks
Cognizant of the dynamism of the business and the industry and in line with its goal to continuously
enhance value for its stakeholders, Globe Telecom has put in place a robust risk management process.
As part of its annual planning cycles, senior management and key leaders regularly conduct an
enterprisewide assessment of risks focused on identifying the key risks that could threaten the
achievement of Globes business objectives, both at the corporate and business unit level, as well as
specific plans to mitigate or manage such risks.
Risks are prioritized, depending on their impact to the overall business and the effectiveness by which
these are managed. Risk mitigation strategies are developed, updated and continuously reviewed for
effectiveness, and are also monitored through various control mechanisms.
Globe employs a two-dimensional view of risk monitoring. Business unit or functional group level
leaders regularly monitor the status of operational, legal, financial, project risks that may threaten the
achievement of defined business outcomes and are accountable for the completion of the approved
mitigation plans meant to address the risks to the business. Senior managements oversight of
enterprise level risks includes strategic risks, major programme risks, regulatory risks and the status of
risk mitigation plans as they relate to the attainment of key business objectives.

86

Item 2. Properties

Ayala Corporation
Ayala Corporation owns 4 floors of the Tower One Building located in Ayala Triangle, Ayala Avenue,
Makati. These units were purchased in 1995 and are used as corporate headquarters of the Company.
Other properties of the Company include various provincial lots relating to its business operations
totaling about 860 hectares and Metro Manila lots totaling 2.6 hectares. The Honda Cars Makati, Honda
Cars Pasig, Honda Cars Alabang, Isuzu Alabang and Honda Cars Global City dealership buildings are
located on its Metro Manila lots which are leased to these dealerships. These properties do not have
any mortgage, lien or encumbrance.

ALI
Landbank / Properties with Mortgage of Lien
The following table provides summary information on ALIs land bank as of December 31, 2014.
Properties are wholly-owned and free of lien unless noted.
Location
1

Hectares

Primary land use

Makati
Taguig2
Makati (outside CBD)3
Alabang4
Las Pias/Paranaque
Quezon City5

52
84
4
24
127
108

Commercial/Residential
Commercial/Residential
Commercial/Residential
Commercial/Residential
Commercial/Residential
Commercial/Residential

Others in Metro Manila

59

Commercial/Residential

Metro Manila

457

NUVALI6
Laguna 7
Cavite8
Batangas/Rizal/Quezon9

988
1,499
1,099
433

Calabarzon

4,019

Bulacan/Pampanga10

1,011

Commercial/Residential

Others in Luzon11

2,316

Commercial/Residential

137
205
94
336

Commercial/Residential
Commercial/Residential
Commercial/Residential
Commercial/Residential

49
13

Commercial/Residential

Bacolod/Negros Occidental
Cebu12
Davao13
Cagayan De Oro14
Iloilo15
Others in VisMin
Visayas/Mindanao
TOTAL

Commercial/Residential/Industrial
Commercial/Residential/Industrial
Commercial/Residential
Commercial/Residential

835
8,639

Makati includes sites of Mandarin Hotel (1.6 has.) and Peninsula Hotel (2.0 has.) which are 50% owned through Ayala Hotels,
Inc.,
2

Taguig includes the Arca South Estate with a total of 55 has and the 9.9-ha. site of Market! Market! under lease arrangement
with BCDA; 11.3 has. in Taguig is owned through Fort Bonifacio Development Corporation.

87

For Market! Market!, the lease agreement with the BCDA covers a period of 25 years (renewable for another 25 years) and
involves an upfront cash payment of P689 million and annual lease payments with fixed and variable components.
3

Includes a 21-ha. property which is under a joint development agreement with Philippine Racing Club, Inc.

Alabang pertains to the 17.6-ha. Alabang Town Center which is 50% owned through Alabang Commercial Corp. (ACC)

Includes 45.5 has. under lease arrangement with University of the Philippines; the 13-ha. site of TriNoma which is under lease
arrangement with the Department of Transportation and Communication; a 4.85-has. property which is being leased from Ellimac
Prime Holdings, Inc. and a 29.2-has. property on a joint development agreement with the National Housing Authority
TriNoma is 63.82% owned by ALI through North Triangle Depot Commercial Corp.
6

NUVALI includes 598 has. through Aurora Properties Incorporated and Vesta Holdings, Inc. which are owned 78% and 70%
owned by Ayala Land, respectively; also includes 321 has. which are 60% owned through Ceci Realty, Inc.
7

Laguna includes 92.5 has. which are under a 50-50% joint venture with Greenfield Development Corp.; 4.5 has. in Laguna
Technopark, Inc. which is 75% owned by Ayala Land; and 3.3-ha. site of Pavilion Mall which is under 25-year lease arrangement
with Extra Ordinary Group, with an option to renew every 5 years thereafter.
8

Cavite includes a total of 687 has recently acquired Ex-o lot.

Batangas includes 7 has. in Sto. Tomas project which is under an override arrangement.

10

Pampanga includes 804 has. in Alviera which is100% owned under Nuevo Centro.

11

Includes 300 has in Bataan pertaining to the Anvaya Cove property which is under joint development agreement with SUDECO,
a 6.5-has. property in Subic on lease agreement with Subic Bay Management Authority and a 19-has. Land lease with the
government in Palawan.
12

Cebu includes the 8.6 has. lot pad of Ayala Center Cebu which is 49% owned through Cebu Holdings, Inc. (CHI); 0.62-ha.
Cebu Insular Hotel site owned by AyalaLand Hotels and Resorts Corporation and Cebu Holdings, Inc.; 8 has. in Asiatown IT Park
which is owned by Cebu Property Ventures and Development Corporation which in turn is 76% owned by CHI.
13

Davao includes a 9.2 - ha. property which is 67% owned through Accendo Commercial Corp.

14

Cagayan de Oro includes 3.7 has. which are 70% owned through Cagayan de Oro Gateway Corp.

15

Includes a 2.0 has. land lease with Riverside Holdings, Inc for the Iloilo Technohub site, 12.8-ha. property secured through a
JDA agreement with the Pison Group, and the remaining 4.6-ha. Land bank of Avida in Pavia.

Leased Properties
The Company has an existing contract with BCDA to develop, under a lease agreement a mall with an
estimated gross leasable area of 152,000 square meters on a 9.8-hectare lot inside Fort Bonifacio. The
lease agreement covers 25 years, renewable for another 25 years subject to reappraisal of the lot at
market value. The annual fixed lease rental amounts to P106.5 million while the variable rent ranges
from 5% to 20% of gross revenues. Subsequently, the Company transferred its rights and obligations
granted to or imposed under the lease agreement to SSECC, a subsidiary, in exchange for equity.
On January 28, 2011, a notice was given to the Company for the P4.0 billion development of a 7.4hectare lot at the University of the Philippines Diliman East Campus, also known as the UP Integrated
School, along Katipunan Avenue, Quezon City. The Company signed a 25-year lease contract for the
property last June 22, 2011, with an option to renew for a 58,000 square meters another 25 years by
mutual agreement. The project involves the construction of a retail establishment with 63,000 square
meters of available gross leasable area and a combination of Headquarter-and-BPO- type buildings
with an estimated 8,000 square meters of office space.
Rental Properties
The Companys properties for lease are largely shopping centers and office buildings. It also leases
land, carparks and some residential units. In the year 2014, rental revenues from these properties
accounted for P21.2 billion or 22% of Ayala Lands consolidated revenues. Lease terms vary depending
on the type of property and tenant.
Property Acquisitions
With 8,639 hectares in its landbank as of December 31, 2014, Ayala Land believes that it has sufficient
properties for development in next 25 years.
Nevertheless, the Company continues to seek new opportunities for additional, large-scale, masterplanned developments in order to replenish its inventory and provide investors with an entry point into
attractive long-term value propositions. The focus is on acquiring key sites in the Mega Manila area and
other geographies with progressive economies that offer attractive potential and where projected value
appreciation will be fastest.
88

In a disclosure to the SEC dated February 10, 2011, ALI was awarded by the Board of Regents of the
University of the Philippines (U.P.) the lease contract for the development of a 7.4-hectare property at
the U.P. Diliman East Campus, also known as U.P. Integrated School (UP-IS) property along Katipunan
Avenue in Quezon City. The lease contract is for a period of 25 years, with an option to renew said
lease for another 25 years by mutual agreement. The development of the site involves the construction
of a retail establishment with 63,000 square meters of available GLA and a combination of headquarterand-BPO office type building with an estimated 8,000 square meters of GLA.
In February 2011, the Company through wholly-owned subsidiary Alveo Land entered into an
agreement with Philippine Racing Club, Inc. to jointly pursue the development of the 21-hectare property
located in Barangay Carmona, Makati City, more commonly known as Sta. Ana Racetrack. The project
is intended as a mixed-use development and will form part of the Companys ongoing developments in
the City of Makati.
In a disclosure to the SEC, PSE and PDEx dated June 29, 2012, the Executive Committee of Ayala
Land authorized the negotiation and entry into a strategic alliance with the Group led by Mr. Ignacio R.
Ortigas for the purpose of allowing Ayala Land to participate in OCLP Holdings, Inc., the parent
company of Ortigas & Company Limited Partnership, and in the development of its various properties
and businesses.
In August 2012, the Group won the public bidding for the purchase of the 74-hectare Food Terminal,
Inc. (FTI) property in Taguig. The bid was conducted in accordance with the Asset Specific Bidding
Rules dated July 4, 2012 and in accordance with the provisions of Executive Order No. 323. The
Groups bid was P24.3 billion.
In October 2012, the Company entered into a Purchase Agreement wherein the Seller (FTI) agrees to
sell, convey, assign and transfer and deliver to the buyer, and the buyer agrees to purchase and acquire
from the seller, all of the sellers rights and interests in the property. The property is designed to be a
mixed-use development and will be transformed into a new business district that will serve as Metro
Manilas gateway to the South.
On October 2, 2012, AHRC, a wholly-owned subsidiary of the Company, entered into an agreement to
acquire the interests of Kingdom Manila B.V., an affiliate of Kingdom Hotel Investments (KHI), and its
nominees in KHI-ALI Manila Inc. (now renamed AMHRI) and 72,124 common shares in KHI Manila
Property Inc. (now renamed AMHPI).
AMHRI and AMHPI are the project companies for the Fairmont Hotel and Raffles Suites and
Residences project in Makati which opened last December 2012. A total of P2,430.4 million was paid
to acquire the interests of KHI in AMHRI and AMHPI.
Please refer to Note 30 of the 2014 Consolidated Financial Statements of Ayala Corporation and
Subsidiaries for further discussion on Leases of ALI.
Mortgage, Lien or Encumbrance over Properties
The Company has a 1.37 hectare property in Makati City mortgaged with BPI in compliance with BSP
ruling on directors, officers, stockholders and related interests.
For 2015, the Company has allotted P100.3 billion for capital expenditures primarily earmarked for the
completion of ongoing developments and launches of new residential and leasing projects which will
help sustain the Companys growth trajectory in the coming years.
IMI
IMI has production facilities in the Philippines (Laguna, Cavite and Taguig), China (Shenzhen, Jiaxing,
and Chengdu), Singapore, Bulgaria, Czech Republic, and Mexico. It also has a prototyping and NPI
facility located in Tustin, California. Engineering and design centers, on the other hand, are located in
the Philippines, Singapore, China, United States, Bulgaria and Czech Republic. IMI also has a global
network of sales and logistics offices in Asia, North America and Europe.

89

The Companys global facilities and capabilities of each location as of December 31, 2013 are shown
below:
Location
Philippines-Laguna

Floor Area (in

square meters)
96,182

Philippines-Cavite

2,350

Singapore

4,000

China-Liantang

18,600

China-Kiuchong

23,480

China-Jiaxing

13,000

China-Chengdu

Hong Kong*
Philippines-PSi Taguig

7,500

300
2,322

Capabilities

Philippines-PSi Laguna

7,536

Japan*
USA-Tustin, CA*

110
1,184

37 SMT lines, 2 FC lines

5 COB/COF lines
Box build
Solder Wave, Potting, Al & AG W/B
Protective Coating
ICT, FCT, AOI, RF Testing
Design & Development
Test & System Development
Complex Equipment manufacturing
Cleanroom to class 100
LVHM, HVLM
3 SMT lines
Box Build
PTH, Solder Wave
ICT, FCT, AOI
LVHM
Central Warehouse, Logistics Services,
HMLV
20 SMT lines, 1 COB line
Box Build
PTH, Solder Wave
POP, Auto Pin Insertion
Potting, Conformal coating and Burn-in
ICT, FCT, AOI, RF Testing
Test & System Development
Design & Development
LVHM, HVLM
20 SMT lines
Box Build
PTH, Auto Pin Insertion, Solder Wave
ICT, FCT, AOI, RF Testing
Test & System Development
LVHM, HVLM
13 SMT lines
Box Build
PTH, Auto Pin Insertion, Solder Wave
Conformal Coating, Potting
ICT, FCT, AOI, RF Testing
Test & System Development
LVHM, HVLM
8 SMT lines
Box Build
PTH, Auto Pin Insertion, BGA, X-Ray, COB
Solder Wave
Automated Conformal Coating
ICT, FCT, AOI
HVLM / LVHM
Procurement, marketing and supply chai
support
Customer Specific Quality Requirements
Low/ Med Power Discrete Packaging and
Processes including Au Wire Bonding
Al Ribbon, Cu Clip interconnect
3D Packaging, MCM ,High Reliability OFN
Packages: 3 x 3 mm to 12x12 mm.
Power Component Discrete Packaging, e.g.,
3 - 7L TO-220, 3L TO-247, etc..
Diversified Packaging - from Low to High
Power and Small to Large Outline
R&D line
Sales Support
2 SMT prototyping lines
Engineering Development
Prototype Manufacturing Center
Precision Assembly

90

Botevgrad, Bulgaria

26,928

El Salto, Guadalajara,
Mexico

25,000

Temon, Plzesk,
Czech Republic

7,740

Total

SMT, COB FCOF

Process Development
14 SMT lines
Box build
PTH, Auto Pin Insertion, Solder Wave
Protective Coating
ICT, FCT, AOI
Test & System Development
Design & Development
Plastic Injection, Embedded Toolshop,
Overmolding
6 SMT lines
Box build
PTH, Auto Pin Insertion, Solder Wave,
Protective Coating, Potting
ICT, FCT, AOI,
X-ray
Plastic Injection (50-1,000T)
Overmolding
Embedded Toolshop
Automated BE Assembly
4 SMT lines
PTH, Auto Pin Insertion, Solder Wave,
Ultrasonic Welding
Protective Coating
ICT, FCT, AOI
Mechanical Assembly

236,232

Leased Properties
Please refer to Note 30 of the 2014 Consolidated Financial Statements of Ayala Corporation and
Subsidiaries for further discussion on Leases of IMI.
For 2015, the Company expects to spend US$27.7 million for capital expenditures to be partially funded
by proceeds from the follow-on offering, cash from operations and debt. The main components of these
expenditures are new buildings and extensions, purchase of equipment for new projects, various
machineries restorations and strategic investments. These will ensure uninterrupted services and
meeting demands of the Companys customers.

MWCI
The Concession Agreement grants the Company the right to operate, maintain in good working order,
repair, decommission, and refurbish the MWSS facilities in the East Zone, which include treatment
plants, pumping stations, aqueducts and the business area office. However, legal title to these facilities
remains with MWSS. The net book value of these facilities on Commencement Date based on MWSS
closing audit report amounted to P
= 4.6 billion, with a sound value, or the appraised value less observed
depreciation, of P
= 10.40 billion. These assets are not reflected in the financial statements of the
Company.
Pursuant to the terms of the Concession Agreement, new assets contributed to the MWSS system by
the Company during the term of the Concession Agreement are reflected in the Companys financial
statements and remain with the Company until the Expiration Date (as defined in the Concession
Agreement), at which time all right, title and interest in such assets automatically vest to MWSS. The
Concession Agreement allows the Company to mortgage or create security interests over its assets
solely for the purpose of financing, or refinancing, the acquisition or construction of the said assets,
provided that no such mortgage or security interest shall (i) extend beyond the Expiration Date of the
Concession Agreement, and (ii) be subject to foreclosure except following an event of termination as
defined under the Concession Agreement.
On July 17, 2008, the Parent Company, together with all of its Lenders signed an Omnibus Amendment
Agreement and Intercreditor Agreement and these agreements became effective on September 30,
2008.
Prior to the execution of the Omnibus Amendment Agreement, the obligations of the Company to pay
amounts due and owing or committed to be repaid to the lenders under the existing facility agreements
91

were secured by Assignments of Interests by Way of Security executed by the Parent Company in favor
of a trustee acting on behalf of the lenders. The Assignments were also subject to the provisions of the
Amended and Restated Intercreditor Agreement dated March 1, 2004 and its Amendatory Agreement
dated December 15, 2005 executed by the Company, the lenders and their appointed trustee.
Under the Omnibus Amendment Agreement, the lenders effectively released the Company from the
assignment of its present and future fixed assets, receivables and present and future bank accounts,
all the Project Documents (except for the Agreement, Technical Corrections Agreement and the
Department of Finance Undertaking Letter), all insurance policies where the Company is the beneficiary
and performance bonds posted in its favor by contractors or suppliers.
In consideration for the release of the assignment of the above-mentioned assets, the Company agreed
not to create, assume, incur, permit or suffer to exist, any mortgage, lien, pledge, security interest,
charge, encumbrance or other preferential arrangement of any kind, upon or with respect to any of its
properties or assets, whether now owned or hereafter acquired, or upon or with respect to any right to
receive income, subject only to some legal exceptions. The lenders shall continue to enjoy their rights
and privileges as Concessionaire Lenders (as defined under the Agreement), which include the right to
appoint a qualified replacement operator and the right to receive payments and/or other consideration
pursuant to the Agreement in case of a default of either the Company or MWSS. Currently, all lenders
of the Company are considered Concessionaire Lenders and are on pari passu status with one another.
The Companys corporate head office located in Balara, Quezon City is leased from MWSS and is
subject to yearly renewal. In 2014 and 2013, rent expense of the Company to MWSS amounted to P
=
16.91 million and P
= 16.99 million, respectively.

BPI
BPIs Head Office is located at the BPI Building, 6768 Ayala Avenue, Makati City. Of the 814 local
branches, 671 operate as BPI branches: 352 in Metro Manila/Greater Metro Manila Area and 319 in
the provincial area. The parent bank owns 33% of these branches and leases the remaining 67%.
Total annual lease amounted to Php 678 million. Expiration dates of the lease contracts vary from
branch to branch.
BPI Family Savings Bank (BFSB) operates 143 branches of which 22% are bank owned while 78% are
leased. Total annual lease amounted to Php 134 million.
The head offices of BPI and BPI Family Savings Bank as well as the 814 branches are maintained in
good condition for the benefit of both the employees and the transacting public. The Bank enforces
standards for branch facade, layout, number and types of equipment and upkeep of the premises.
All of the bank-owned properties are free from any lien.
The Bank will continue to reconfigure the mix of its traditional branches, and kiosk branches as it adjusts
to the needs of its customers. To date, the Bank had not identified any property to acquire.
Total lease expense for 2014 for BPI and its subsidiaries amounted to P1,160 million as per Note 24 of
Audited Financial Statement. In 2014, monthly lease payments vary from one property to another,
ranging from a low P6.3 thousand to P1.2 Million, the average of which was P121 thousand.

Globe
Buildings and Leasehold Improvements
Effective 27 August 2013, Globe transferred its Head Office to The Globe Tower, 32 nd Street corner 7th
Avenue, Bonifacio Global City, Taguig from Globe Telecom Plaza, Mandaluyong City.
Globe also owns several floors of Pioneer Highlands Towers 1 and 2, located at Pioneer Street in
Mandaluyong City. In addition, the Company also owns host exchanges in the following areas: Bacoor,
Batangas, Ermita, Iligan, Makati, Mandaluyong, Marikina, Cubao-Aurora, among others.
The Company leases office spaces along Sen. Gil Puyat Avenue, EDSA and Ermita for its technical,
administrative and logistics offices and host exchange, respectively. It also leases the space for most
of its Globe Stores, as well as the Companys base stations and cell sites scattered throughout the
Philippines.
92

Globes existing business centers and cell sites located in strategic locations all over the country are
generally in good condition and are covered by specific lease agreements with various lease payments,
expiration periods and renewal options. As the Company continues to expand its network, Globe intends
to lease more spaces for additional cell sites, stores, and support facilities with lease agreements,
payments, expiration periods and renewal options that are undeterminable at this time.

Item 3. Legal Proceedings

Except as disclosed herein or in the Information Statements of the Companys subsidiaries or
associates and joint ventures which are themselves public companies or as has been otherwise publicly
disclosed, there are no material pending legal proceedings, bankruptcy petition, conviction by final
judgment, order, judgment or decree or any violation of a securities or commodities law for the past five
years to which the Company or any of its subsidiaries or associates and joint ventures or its directors
or executive officers is a party or of which any of its material properties are subject in any court or
administrative government agency.
In any event, below are the legal proceedings involving the Company and its subsidiaries, associates
and joint ventures that may be significant:

ALI
As of December 31, 2014, ALI, its subsidiaries, and its affiliates, are not involved in any litigation
regarding an event which occurred during the past five (5) years that they consider material.
However, the Group has various contingent liabilities arising in the ordinary conduct of business
including a case related to property restriction violation. The estimate of the probable cost for the
resolution of this claim has been developed in consultation with outside counsel handling the defense
in this matter and is based upon an analysis of potential results. The outcomes of the legal proceedings
for various cases are not properly determinable. Accordingly, no provision for any liability has been
made in the consolidated financial statements.
In the opinion of the management and its legal counsel the eventual liability under these lawsuits or
claims, if any, will not have a material or adverse effect on the Groups financial position of operations.
Disclosures required by PAS 37, Provisions, Contingent Liabilities and Contingent Assets, were not
provided as it may prejudice the Companys position in ongoing claims and it can jeopardize the
outcome of the claims and contingencies.

IMI
There are no material pending legal proceedings, bankruptcy petition, conviction by final judgment,
order, judgment or decree or any violation of a securities or commodities law for the past five years to
which the Company or any of its subsidiaries or its directors or executive officers is a party or of which
any of its material properties are subject in any court or administrative government agency.
The Company filed a civil case on April 11, 2011 against Standard Insurance (Standard) seeking to
collect Standards share in the loss incurred by the Company consisting in damage to production
equipment and machineries as a result of the May 24, 2009 fire at the Companys Cebu facility which
the Company claims to be covered by Standards Industrial All Risks Material Damage with Machinery
Breakdown and Business Interruption policy. The share of Standard in the loss is 22% or US
$1,117,056.84 after its co-insurers all paid the amount of loss respectively claimed from them. The
Company had to resort to court action after Standard denied its claim on the ground that the claim is an
excepted peril. Standard filed a motion to dismiss on various grounds, such as lack of cause of action
and of prescription. The Regional Trial Court denied the motion to dismiss but Standard filed a Motion
for Reconsideration with the Court of Appeals (CA). On April 26, 2013, the CA dismissed the case on
the ground that the claim has prescribed. On April 19, 2013, the Company filed a Motion for
Reconsideration. On December 10, 2013, the Company received a decision promulgated on December
2, 2013 denying the said Motion for Reconsideration.
The Company filed a Petition for Review on Certiorari dated January 23, 2014 which is pending with
the Supreme Court.
93

MWCI
The Company is presently involved in the following cases:
Manila Water Company, Inc. vs. MWSS
Arbitration under the Uncitral Rules (1976)
Case No. UNC 136/CYK
In a Resolution dated September 12, 2013, Metropolitan Waterworks and Sewerage System (MWSS)
denied the petition of Manila Water Company, Inc. (Company) for an upward adjustment of its tariffs
and instead ordered the Company to effect a negative adjustment of 29.47% of its 2012 average water
charge of P24.57 per cubic meter (the Rate Rebasing Determination).
The Company filed its formal objection to the Rate Rebasing Determination by serving the MWSS with
a Dispute Notice commencing the arbitration process, the dispute resolution mechanism prescribed
under the Concession Agreement. Pursuant to the said mechanism, MWSS and the Company
convened an Appeals Panel which has since then conducted proceedings in accordance with the
arbitration rules of the United Nations Commission on International Trade Law.
Until this dispute is settled, the current water rates are expected to remain in effect. At present, the
remaining issues between the parties have been submitted for resolution. The Appeals Panel is still
deliberating on the issues submitted by the parties.
Manila Water Company, Inc. and Maynilad Water Services, Inc. vs. Hon. Borbe, et al.
CBAA Case No. L-69
Central Board of Assessment Appeals (Central Board)
This is an appeal from the denial by the Local Board of Assessment Appeals of Bulacan Province (the
Local Board) of the Companys (and Maynilads) appeal from the Notice of Assessment and Notice of
Demand for Payment of Real Property Tax in the amount of P357,110,945 made by the Municipal
Assessor of Norzagaray, Bulacan. The Company is being assessed for half of the amount. In a letter
dated April 3, 2008, the Municipal Treasurer of Norzagaray and the Provincial Treasurer of the Province
of Bulacan, informed both MWSS concessionaires (Company and Maynilad) that their total real property
tax accountabilities have reached P648,777,944.60 as of December 31, 2007. This amount, if paid by
the concessionaires, will ultimately be charged to the customers as part of the water tariff rate. The
concessionaires (and the MWSS, which intervened as a party in the case) are thus contesting the
legality of the tax on a number of grounds, including the fact that the properties subject of the
assessment, are owned by the MWSS. MWSS is both a government-owned and controlled corporation
and an instrumentality of the National Government that is exempt from taxation under the Local
Government Code.
The Central Board conducted a hearing on June 25, 2009. In the said hearing, parties were given the
opportunity and time to exchange pleadings regarding a motion for reconsideration filed by the
Municipality to have the case remanded to and heard by the Local Board rather than by the Central
Board.
Trial is now on-going and the Province of Bulacan is currently presenting its evidence. Manila Water
and Maynilad have already concluded presentation of their respective evidence and witnesses, while
MWSS has waived the presentation of its evidence.
Manila Water Company, Inc. vs. The Regional Director, Environmental Management BureauNational Capital Region, et al.
CA-G.R. No. 112023 (DENR-PAB Case No. NCR-00794-09)
Supreme Court
This case arose from a complaint filed by OIC Regional Director Roberto D. Sheen of the Environmental
Management Bureau-National Capital Region (EMB-NCR) before the Pollution Adjudication Board
(PAB) against the Company, Maynilad and the MWSS for alleged violation of R.A. No. 9275 (Philippine
Water Act of 2004), particularly the five-year deadline imposed in Section 8 thereof for connecting the
existing sewage line found in all subdivisions, condominiums, commercial centers, hotels, sports and
recreational facilities, hospitals, market places, public buildings, industrial complex and other similar
establishments including households, to an available sewerage system. Two (2) similar complaints
against Maynilad and MWSS were consolidated with this case.
On April 22, 2009, the PAB through DENR Secretary and Chair Jose L. Atienza, Jr., issued a Notice of
Violation finding that the Company, Maynilad and MWSS have committed the aforesaid violation of R.A.
9275. Subsequently, a Technical Conference was scheduled on May 5, 2009. In the said Technical
94

Conference, the Company, MWSS and Maynilad explained to the PAB their respective positions and it
was established that DENR has a great role to play to compel people to connect to existing sewer lines
and those that are yet to be established by the Company and Maynilad.
In addition to the explanations made by the Company during the Technical Conference, the Company
together with MWSS and Maynilad wrote a letter dated May 25, 2009 and addressed to the respondent
Secretary where they outlined their position on the matter.
In response to the May 25, 2009 letter, the OIC, Regional Director for NCR, the Regional Director of
Region IV-A and the Regional Director of EMB Region III submitted their respective Comments. The
Company thereafter submitted its letter dated July 13, 2009 to the PAB where it detailed its compliance
with the provisions of R.A. No. 9275 and reiterated its position that the continuing compliance should
be within the context of the Companys CA with MWSS. Despite the explanations of the Company, the
PAB issued the Order dated October 7, 2009 which found the Company, Maynilad and MWSS to have
violated R.A. 9275. The Company filed its Motion for Reconsideration dated October 22, 2009 which
the PAB denied in an Order dated December 2, 2009. Hence, the Company filed its Petition for Review
dated December 21, 2009 with the Court of Appeals. The Company thereafter filed an amended Petition
for Review dated January 25, 2010.
In a Decision dated August 14, 2012, the Court of Appeals denied the Companys Petition for Review
and on September 26, 2012, the Company filed a Motion for Reconsideration of the Court of Appeals
Decision.
On April 29, 2013, the Company received the Resolution dated April 11, 2013 of the Court of Appeals,
denying its Motion for Reconsideration.
The Company has filed its appeal from the decision and resolution of the Court of Appeals in the form
of a Petition for Review on Certiorari with the Supreme Court on May 29, 2013. In this Petition, the
Company reinforced its argument that it did not violate Section 8 of R.A. 9275 as it was able to connect
existing sewage lines to available sewage facilities contrary to the findings of the Court of Appeals.
The case remains pending with the Supreme Court and is now submitted for decision.
Waterwatch Coalition, Inc. et al. vs. Ramon Alikpala, MWSS, et al.,
G.R. No. 207444,
Supreme Court
Water for All Refund Movement (WARM) vs. MWSS, et al.,
G.R. No. 208207
Supreme Court
Javier vs. MWSS, et al.,
G.R. No. 210147, Supreme Court
Hereafter, the Consolidated Cases
The Waterwatch Petition:
On June 25, 2013, the Company received a copy of the Petition for Certiorari and Mandamus with
Prayer for the Issuance of a Temporary Restraining Order dated 20 June 2013 filed by the Waterwatch
Coalition, Inc. The issues raised in the Petition are as follows:
a. The Concession Agreements are unconstitutional for granting inherent sovereign powers to the
Concessionaires who insists they are private entities and mere agents of the MWSS;
b. The Concessionaires are public utilities;
c. The Concession system of MWSS, the Company and Maynilad is in a state of regulatory capture;
d. The Concession Agreements are State Contracts and cannot invoke the non-impairment clause in
the Constitution;
e. The Concessionaires have no vested property rights;
f. MWSS is in a state of regulatory capture;
The WARM Petition
On August 14, 2013, the Company received a copy of a Petition for Certiorari, Prohibition and
Mandamus dated August 5, 2013 filed by the Water for All Refund Movement. The issues raised in the
WARM Petition are as follows:
95

a. The Concession Agreements unduly grant to the concessionaires the exercise of governmental
powers even without the benefit of legislation or at the very least, a franchise for such purpose;
b. Concessionaires performing public service and are therefore, governed by the Public Service Law,
and subject to the 12& profit cap;
c. Concessionaires are public utilities and they are not mere agents or contractors of the MWSS;
d. Public utility or not, Concessionaires may not, pass on their income taxes to the water consumers
as expenditures;
e. The Concession Agreements may not cause the creation of a Regulatory Office, a public office
performing public functions, and even source its funding from the concessionaires, which are the
very same entities supposed to be regulated;
The JAVIER Petition
On January 3, 2014, the Company received a copy of a Petition for Certiorari, Prohibition and
Mandamus dated December 13, 2013 filed by the Virginia S. Javier, et.al, who were suing in their
capacity as consumers/customers of the respondents. The issues raised in the Javier Petition are as
follows:
a. The Concession Agreements are unconstitutional and/or ultra vires for being delegations of
sovereign power without consent of the Congress;
b. The Concessionaires are public utilities;
c. Respondents have improperly implemented RORB calculations for purposes of establishing tariffs;
d. The Concession Agreements are not protected by the non-impairment clause;
e. Respondents should be enjoined from proceeding with arbitration;
f. MWSS is in a state of regulatory capture;
On February 4, 2014, the Company received a copy of the Supreme Courts resolution dated January
14, 2014 consolidating the three (3) cases. The Company filed a consolidated Comment on the
aforesaid Petitions. The arguments raised by Manila Water in response to the Petitions are as follows:
a. The CAs are valid, legal and constitutional as these have statutory basis and do not involve any
grant or delegation of the inherent sovereign powers of police power, eminent domain and
taxation.
b. The Concessionaires are not public utilities in themselves but are mere agents and contractors of
a public utility (MWSS).
c. The Concession Agreements are protected by the non-impairment clause. Petitioners cannot
invoke police power for Courts to nullify, modify, alter or supplant the Concession Agreements.
Police Power is exercised by Congress, through the enactment of laws for the general welfare. No
such law or enactment is involved in this case. If and when Congress passes a law affecting the
Concession Agreements, only then will it be proper to examine the interplay between police power
vis--vis due process and the non-impairment clause.
d. The rates set under the Concession Agreements are compliant with the 12% rate of return cap in
the MWSS Charter.
e. Not being public utilities but mere agents of the MWSS, the concessionaires are not subject to COA
audit.
f. The concessionaires are authorized to pass on corporate income taxes to water consumers.
The Company has filed its Consolidated Comment to the petitions and these cases remain pending with
the Supreme Court.
ABAKADA Guro Party List vs. MWSS, et al.
G.R. No. 213227
Supreme Court
On September 22, 2014, the Company received another Petition for Certiorari and Prohibition filed by
the Abakada-Guro Party List, represented by Atty. Florante B. legaspi, Jr. This Petition was
consolidated with the Petitions of Waterwatch, WARM and Javier due to similarities in issues raised.
In particular, the petition questions the constitutionality of the Concession Agreements entered into by
MWSS with both the Company and Maynilad and the extension of the Concession Agreements for
another 15 years from the year 2022. The Petition also seeks to nullify the on-going arbitration
proceedings between MWSS and the concessionaires. The Company has filed its Comment on the
Petition.
This Petition has been consolidated with the Consolidated Cases discussed above.

96

Ofelia Lim Mendoza, et.al. vs. Manila Water Company, Inc.

NLRC NCR Case No. 06-08649-13
National Labor Relations Commission
On July 5, 2013, the Company and its President, Gerardo C. Ablaza, Jr., received summons from the
National Labor Relations Commission (NLRC), regarding the complaint for illegal dismissal (dated
June 11, 2013) filed by Ms. Ofelia L. Mendoza and 142 other former employees of the Company. The
complainants were former employees whose separation from employment was due to the retirement
program implemented by the Company last August 2012.
All of the complainants uniformly pray for reinstatement and payment of full backwages, 13 th month pay,
moral & exemplary damages, and attorneys fees.
In accordance with the rules and procedures of the NLRC, the mandatory conference was scheduled
on July 15 and 22, 2013. However, Labor Arbiter Eric Chuanico cancelled the mandatory conference
scheduled for July 22, 2013 and instead required the parties to submit their respective Position Papers
on July 25, 2013.
In its Position Paper, the Company and Mr. Ablaza state that Complainants employments were validly
terminated on the ground of redundancy. Moreover, the Release, Waiver and Quitclaims voluntarily
executed by the Complainants before a Labor Arbiter of the NLRC are valid are binding and
complainants are not entitled to reinstatement and to their money claims.
Out of the 433 employees who were being terminated, all or 100% received their separation packages
and voluntarily executed quitclaims. The Special Opportunity Package received by the Complainants
include the following:
a.
b.
c.
d.

Three months Basic Salary for every year of service (tax free)
Cash conversion of all vacation leave and sick leave credits (Tax free)
Pro-rated 13th month bonus and year-end bonus (tax free)
Extension of the HMO coverage
(i) Retiree up to January 31, 2014
(ii) Existing one free dependent up to January 31, 2013
e. Extension of the Group Life Insurance coverage
(i) Retiree up to December 31, 2013
(ii) Existing one free dependent up to December 31, 2012
The Company and Mr. Ablaza filed their Reply to the Position Paper of the Complainants on August 2,
2013 and the Re-Joinder to the Reply of the Complainants on August 30, 2013.
The Company and Mr. Ablaza filed their Reply to the Position Paper of the Complainants on August 2,
2013 and the Re-Joinder to the Reply of the Complainants on August 30, 2013.

On December 3, 2013 the Commission issued Notice of Judgment/Decision AO No. 02-06 notifying
all parties that on November 26, 2013 Labor Arbiter Eric Chuanico rendered a Decision dismissing the
Complaint for lack of merit. The Labor Arbiter found that the following requirements for Redundancy as
an authorized cause for dismissal are present:
a. Written notice served on both employees and DOLE at least one month prior to the intended date
of retrenchment;
b. Payment of separation pay equivalent to at least one month pay or at least one month pay for every
year of service, whichever is higher;
c. Good faith in abolishing the redundant positions; and
d. Fair and reasonable criteria in ascertaining what positions are to be declared redundant and
accordingly abolished.
Complainants filed a Memorandum of Appeal dated December 17, 2013, with the Commission. Manila
Water filed an Opposition on January 13, 2014. The Commission rendered a Decision dated April 29,
2014 reversing the decision of the Labor Arbiter.
The NLRC ruled that the last two requirements for valid Redundancy were not complied with. It found
that the evidence presented by the Company to support the existence of said requirements were not
sufficient. In addition, the NLRC ruled that the quitclaims executed by the Complainants were obtained
under force, and their consents thereto were vitiated by fraud and mistake.
The NLRC Decision called for the following:
a. Reinstatement of Complainants to same or equivalent positions or ranks;
97

b. Payment of Complainants backwages from times of dismissals until reinstatement;

c. Payment of attorneys fees equivalent to 10% of the monetary award.
The amounts previously received by the Complainants shall be deducted from the monetary awards.
On May 19, 2014, the Company filed a Motion for Reconsideration, raising the following arguments: (a)
The Decision to outsource non-core functions is a valid exercise of management prerogative; (b) Manila
Water presented substantial evidence to prove the validity of its redundancy program; (c) Manila Water
has presented substantial evidence to show how Towers Watson identified which positions are
considered non-core and could be contracted out; (d) Manila Water has shown how outsourcing noncore functions has benefited its operations and its customers; and (e) the complainants quitclaims are
valid.
The Motion for Reconsideration is currently pending resolution with the Commission.
Allan Mendoza et al. vs. Manila Water Company, Inc.
Special Civil Action No. R-QZN-14-04863-SC
RTC QC Branch 77
On June 17, 2014, the Company received a copy of an Order from Branch 77 of the Regional Trial
Court in Quezon City requiring it to comment on the Petition for Mandamus filed by a group of separated
and current employees of the Company.
In the said Petition, the petitioners are requesting the court to render a judgment ordering the Company
to reinstitute the Welfare Fund and implement correctly the benefits indicated in Exhibit F of the
Concession Agreement. The petitioners took note of the non-diminution provision in the Concession
Agreement claiming that the Company, as a concessionaire, has the legal duty to grant to all
concessionaire employees benefits no less favorable than those granted to such former employees of
MWSS. Pursuant to said provision, the Company continued the Welfare Fund, but according to
petitioners the Company dissolved the welfare fund and the members were informed that their 100%
contribution and 42% employer share were returned and credited to their BPI accounts. Petitioners
further claim that the balance of the employer share were used, without authority, as seed money for
the newly-established Retirement Fund. Moreover, there was diminution of benefits as the Company
neglected to grant, fully or partially, the benefits enumerated in Exhibit F of the Concession Agreement.
In compliance with the order of the trial court, the Company filed its Comment on June 27, 2014 where
it stated the following:
a. Petitioners have received benefits no less favorable than those granted to such employees by the
MWSS at the time of their separation from MWSS
The Enhanced Retirement and Welfare Plan contains features that improved on the Welfare Fund:
i.

The Welfare Fund was contributory (5% of basic monthly salary) whereas the Enhanced Plan
became non-contributory with a defined benefit (one month basic salary for every year of
service)
ii. All regular employees of the Company are covered by the Enhanced Plan whereas the Welfare
Plan was voluntary (only 29% of the employees as of 2004 were included)
iii. The Welfare Plan is subject to tax whereas the Enhanced Plan is non-taxable if the requisites
for early and normal retirement are complied with.
b. That the court has no jurisdiction over the subject matter. The National Labor Relations
Commission has jurisdiction as the action is essentially an action for payment of employee benefits
c.

Mandamus does not lie to enforce performance of contractual obligations

d. The claims of petitioners have prescribed

The case remains pending with the trial court.

BPI
BPI does not have any material pending legal proceedings to which the registrant or any of its
subsidiaries or affiliates is a party or of which any of their property is the subject.

98

Globe
a. On 23 July 2009, the NTC issued NTC Memorandum Circular (MC) No. 05-07-2009 (Guidelines
on Unit of Billing of Mobile Voice Service). The MC provides that the maximum unit of billing for the
cellular mobile telephone service (CMTS) whether postpaid or prepaid shall be six (6) seconds per
pulse. The rate for the first two (2) pulses, or equivalent if lower period per pulse is used, may be
higher than the succeeding pulses to recover the cost of the call set-up. Subscribers may still opt
to be billed on a one (1) minute per pulse basis or to subscribe to unlimited service offerings or any
service offerings if they actively and knowingly enroll in the scheme. In compliance with NTC MC
05-07-2009, Globe refreshed and offered to the general public its existing per-second rates that, it
bears emphasizing, comply with the NTC Memorandum Circular. Globe made per second charging
for Globe-Globe/TM-TM/Globe available for Globe Subscribers dialing prefix 232 (GLOBE) OR 803
plus 10-digit TM or Globe number for TM subscribers. The NTC, however, contends that Globes
offering does not comply with the circular and with the NTCs Order of 7 December 2009 which
imposed a three-tiered rate structure with a mandated flag-down of P3.00, a rate of P0.4375 for the
13th to the 160th second of the first minute and P0.65 for every 6-second pulse thereafter. On 9
December 2009, the NTC issued a Cease and Desist Order requiring the carriers to refrain from
charging under the previous billing system or regime and refund consumers.
Globe maintains that the Order of the NTC of 7 December 2009 and the Cease and Desist Order
are void as being without basis in fact and law and in violation of Globes rights to due process.
Globe, Smart, Sun and CURE all filed petitions before the Court of Appeals seeking the nullification
of the questioned orders of the NTC. On 18 February 2010, the Court of Appeals issued a
Temporary Restraining Order preventing the NTC from enforcing the disputed Order.
On 25 May 2010, the CA issued a writ of preliminary injunction directing the NTC to cease and
desist from enforcing their assailed Order/s. On 28 December 2010, the CA rendered a Decision
declaring the questioned decisions invalid for being violative of the Petitioners right to due process,
among others.
The Petitioners and the NTC filed their respective Motions for Partial
Reconsideration. The motions were DENIED by the CA in an Order dated 19 January 2012. Due
to lack of material time, the NTC and the Petitioners seasonably filed their respective Motions for
Extension of Time to File Petition for Review with the Supreme Court. Globe filed its Petition on 12
March 2012. The other Movants are expected to file their respective petitions within the month of
March 2012.
Globe believes that its legal position is strong and that its offering is compliant with the NTCs
Memorandum Circular 05-07-2009, and therefore believes that it would not be obligated to make a
refund to its subscribers. If, however, Globe would be held as not being in compliance with the
circular, Globe may be contingently liable to refund to any complaining subscribers any charges it
may have collected in excess of what it could have charged under the NTCs disputed Order of 7
December 2009, if indeed it is proven by any complaining party that Globe charged more with its
per second scheme than it could have under the NTCs 6-second pulse billing scheme stated in the
disputed Order. Management has no estimate of what amount this could be at this time.
b. On 22 May 2006, Innove received a copy of the Complaint of Subic Telecom Company (Subictel),
Inc., a subsidiary of PLDT, seeking an injunction to stop the Subic Bay Metropolitan Authority and
Innove from taking any actions to implement the Certificate of Public Convenience and Necessity
granted by SBMA to Innove. Subictel claimed that the grant of a CPCN allowing Innove to offer
certain telecommunications services within the Subic Bay Freeport Zone would violate the Joint
Venture Agreement (JVA) between PLDT and SBMA. The Supreme Court ordered the
reinstatement of the case and has forwarded it to the NTC-Olongapo for trial.
c.

PLDT and its affiliate, Bonifacio Communications Corporation (BCC) and Innove are in litigation
over the right of Innove to render services and build telecommunications infrastructure in the
Bonifacio Global City. In the case filed by Innove before the NTC against BCC, PLDT and the Fort
Bonifacio Development Corporation (FBDC), the NTC has issued a Cease and Desist Order
preventing BCC from performing further acts to interfere with Innoves installations in the Bonifacio
Global City.
In the case filed by PLDT against the NTC in Branch 96 of the Regional Trial Court (RTC) of Quezon
City, where PLDT sought to obtain an injunction to prevent the NTC from hearing the case filed by
Innove, the RTC denied the prayer for a preliminary injunction and the case has been set for further
hearings. PLDT has filed a Motion for Reconsideration and Globe has intervened in this case. In
a resolution dated 28 October 2008, the RTC QC denied BCCs motion for the issuance of a
temporary restraining order (TRO). On 14 October 2013, the RTC issued an order dismissing the
99

complaint. On 21 October 2013, PLDT elevated the case to the Court of Appeals where the same
is still pending resolution.
In the case filed by BCC against FBDC, Globe Telecom and Innove, Bonifacio Communications
Corp. before the Regional Trial Court of Pasig, which case sought to enjoin Innove from making
any further installations in the BGC and claimed damages from all the parties for the breach of the
exclusivity of BCC in the area, the court did not issue a Temporary Restraining Order and has
instead scheduled several hearings on the case. The case was dismissed by the RTC Pasig.
Dissatisfied with the decision of the RTC, BCC and PLDT elevated the case to the Court of Appeals.
On May 18, 2012, The Court of Appeals dismissed the case. On July 6, 2012, BCC and PLDT filed
a petition for review on certiorari with the Supreme Court on July 6, 2012. Innove filed its Comment
thereon on December 6, 2012. The case is still pending resolution with the Supreme Court.
On 11 November 2008, Bonifacio Communications Corp. (BCC) filed a criminal complaint against
the officers of Innove Communications Inc., the Fort Bonifacio Development Corporation (FBDC)
and Innove contractor Avecs Corporation for malicious mischief and theft arising out of Innoves
disconnection of BCCs duct at the Net Square buildings. The accused officers filed their counteraffidavits and are currently pending before the Prosecutors Office of Pasig. The case is still
pending resolution with the Office of the City Prosecutor.
On 21 January 2011, BCC and PLDT filed with the Court of Appeals a Petition for Certiorari and
Prohibition against NTC, et al. seeking to annul the Orders of the NTC dated 28 October 2008
directing BCC, PLDT and FBDC to comply with the provisions of NTC MC 05-05-02 and the CEASE
AND DESIST from performing further acts that will prevent Innove from implementing and providing
telecommunications services in the Fort Bonifacio Global City pursuant to the authorization granted
by the NTC. BCC and PLDT anchor their petition on the grounds that: 1) the NTC has no jurisdiction
over BCC it being a non-telecommunications entity; 2) the NTC violated BCC and PLDTs right to
due process; and 3) there was no urgency or emergency for the issuance of the cease and desist
order.
On April 25, 2011, Innove Communications, filed its comment on the case filed by PLDT that seeks
to ban all Globe services from the Bonifacio Global City before the CAs Tenth Division. In its
comment, Globe argued that it is in the publics best interest that open access and free competition
among telecom operators be allowed at the Bonifacio Global City. The case is still pending with the
Court of Appeals.
On August 16, 2011, the Ninth Division of the CA ruled that PLDTs case against Innove and the
National Telecommunications Commission (NTC) lacked merit, and thus denied the petition and
dismissed the case. PLDT and its co-petitioner, BCC file their motion for reconsideration. Innove
seasonably filed its Opposition thereto. The case is pending with the Court of Appeals.
d. Other Developments
In November 2004, Globe and seven other leading Asia Pacific mobile operators (JV partners)
signed an agreement (JV agreement) to form Bridge Alliance. The joint venture company operates
through a Singapore-incorporated company, Bridge Mobile Pte. Limited (BMPL) which serves as a
commercial vehicle for the JV partners to build and establish a regional mobile infrastructure and
common service platform to deliver different regional mobile services to their subscribers. The
Bridge Alliance currently has a combined customer base of over 250 million subscribers among its
partners in India, Thailand, Hong Kong, South Korea, Macau, Philippines, Malaysia, Singapore,
Australia, Taiwan and Indonesia.
Globe Group has a ten percent (10%) stake in BMPL. The other joint venture partners each with
equal stake in the alliance include SK Telecom, Co. Ltd., Advanced Info Service Public Company
Limited, Bharti Airtel Limited, Maxis Communications Berhad, Optus Mobile Pty. Limited, Singapore
Telecom Mobile Pte, Ltd., Taiwan Mobile Co. Ltd., PT Telekomunikasi Selular and CSL Ltd. Under
the JV Agreement, each partner shall contribute USD4.00 million based on an agreed schedule of
contribution. Globe Telecom may be called upon to contribute on dates to be determined by the JV.
On November 25, 2014, Globe Telecom received a return of capital amounting to USD1.40 million.
As of December 31, 2014 and 2013, the carrying value of the investment in BMPL amounted to
P21.21 million and P77.12 million, respectively.
In February 2013, Globe obtained approval from its Board of Directors to invest in a Philippine entity
to be named as Taodharma, Inc. to explore growth opportunities in the mobile market.
100

In March 2013, Globe entered into a Shareholders Agreement among three other entities to
incorporate Taodharma Inc. (Tao). Globe subscribed for the 25% preferred shares of Tao
amounting to P55.00 million which has been fully paid up as of August 2013. Tao shall carry on
the business of establishing, operating and maintaining retail stores in strategic locations within the
Philippines that will sell telecommunications or internet-related services, and devices, gadgets,
accessories or embellishments in connection and in accordance with the terms and conditions of
the Dealer Agreement executed among all of the entities. Globe also entered into an exclusive
dealership arrangement with Tao that included provisions to build and open retail outlet stores
scattered across in cities and other major high-traffic locations nationwide.
As of December 31, 2014 and 2013, Globe Group has recognized P139.96 million and P67.55
million, respectively, representing share on costs.
ABS-CBN Deal
On 27 May 2013, Globe, Innove and ABS-CBN Convergence Inc. (ABS-C and formerly known as
Multimedia Telephony Inc.) have entered into a network sharing arrangement in order to provide
capacity and coverage for new mobile telephony, data and value-added services to be offered by
ABS-C nationwide to its subscribers using shared network and interconnect assets of the parties.
This arrangement will enable Globe Telecom, Innove and ABS-C to improve public service by
enhancing utility, capacity, inter-operability and quality of mobile and local exchange telephony and
data services to the public and allow ABS-C to modernize its existing service and expand to a retail
base on top of its existing subscriber base.
On May 31, 2013, the NTC approved the network sharing agreement and co-use of the number
blocks assigned to Globe Telecom.
Bayantel Update
Globe Telecom, Inc. and Bayan Telecommunications, Inc. (BTI) obtained approval from the NTC
for the joint use of the frequencies 1750-1760 MHz / 1845-1855 MHz originally assigned to BTI.
The joint-use agreement will enable Globe to address increasing demand for voice, short message
and mobile data services, and allow BTI to be able to offer mobile-telecommunications services
nationwide.
In another development, the Company announced in November 2012 that it has obtained the
approval by its Board of Directors to commence offers to purchase (the Debt Offers) up to 100%
of the financial obligations of BTI and subsidiary Radio Communications of the Philippines, Inc.
(RCPI) to their respective financial creditors. The Debt Offers were concluded last 22 December
2012, wherein Globe secured the acceptance of 93.66% of the holders of the unsecured financial
indebtedness of BTI under the US$ 13.5% bonds originally due in 2006; 98.26% of the outstanding
other financial indebtedness owed by BTI; and 100% of the outstanding financial indebtedness
owed by RCPI, based on outstanding aggregate principal amount under the terms of the
rehabilitation plan of BTI and RCPI. BTI has been subject to court-supervised rehabilitation
proceedings since 2003. The current rehabilitation plan anticipates that BTI and RCPI will remain
in rehabilitation until 2023. Globe intends to apply with the rehabilitation court to amend the terms
of the rehabilitation plan in the interest of assuring BTIs long-term sustainability.
Meanwhile, Globe has also commenced separate discussions with the controlling shareholders of
BTI regarding a wide range of commercial arrangements including a potential acquisition by Globe
of an equity interest in BTI. The approval of the National Telecommunications Commission is
required to complete the acquisition. The parties remain in discussions on the terms of the
commercial arrangements including the price and other conditions under which the acquisition may
be effected. No definitive arrangement has been executed at this time.
Subsequently, last May 30, 2013, Globe, Bayan Telecommunications Holdings Corporation, the
controlling shareholder of BTI, and BTI jointly filed a motion with the court having jurisdiction over
BTI's debts. The motion seeks to significantly restructure BTI 's financial debt in order to prevent
the recurrence of default and ensure BTI's continued viability. Following Globe's tender offers for
the BTI debt in 2012, Globe currently holds approximately 96.5% of the total financial indebtedness
of BTI. The joint motion is intended to achieve a successful rehabilitation of BTI at the earliest
possible date.

101

The current outstanding principal amount of this debt is approximately the equivalent of US$423.3
million. BTI's operations have not generated sufficient revenue to continue making the debt
payments under its existing rehabilitation plan. This has been attributed to a decline in revenue
from traditional fixed line services offered by BTI, increasing competitive pressures in the
telecommunications industry and BTI's inability to make any considerable capital investments while
under its high debt burden. The restructuring would, upon confirmation by the court, significantly
decrease this through a conversion of up to 69% of the debt into BTI shares. As restructured, the
outstanding principal debt balance would be reduced to approximately US$131.3 million, assuming
the debt to equity conversions occur to their fullest extent. The restructuring, including the debt to
equity conversion feature, would apply to all of BTIs creditors equally upon receipt of certain
regulatory approvals, including the confirmation of the court.
By acquiring the BTI debt, Globe sought to enable BTI's continued viability as a telecommunications
provider. For Globe's part, such a restructuring would allow Globe to further strengthen
collaborative efforts with BTI in respect of their local exchange networks, corporate data and
broadband businesses. Ensuring that BTI remains a going concern would allow both companies
to become more competitive in the current industry environment. On the part of BTI, a restructuring
of its debt and the entry of Globe as a shareholder as well as a Creditor will enable BTI to unlock
and maximize potential of its key business assets and capabilities, and help accelerate its
rehabilitation. Globe appreciates further that BTI's continued operations benefits all of its
employees, suppliers, stakeholders and public telecommunications customers in the Philippines as
a whole.
On September 2013, Globe received a Resolution issued by Branch 158 of the Regional Trial Court
in Pasig City. This is the court having jurisdiction over the debts of BTI and its corporate
rehabilitation proceedings. The Resolution granted the joint motion filed by Globe and BTI to amend
current debt restructuring plan and implement a new Master Restructuring Agreement for all BTIs
creditors. The Amendments principally involve a conversion of up to 69% of the debt into BTI
shares comprising up to 56.6% of BTIs capital stock, on a fully diluted basis. Assuming that debt
to equity conversion occur to their fullest extent, the Amendments will reduce BTIs outstanding
principal debt by 69% from the equivalent of approximately US$423.3 to approximately US$131.3
million. The Amendments also facilitate the entry of Globe into BTI as a shareholder and are
expected to assure BTIs successful rehabilitation. In addition to Globe, the debt to equity
conversion of the new debt restructuring terms will apply to all BTIs creditors.
On October 1, 2013, Globe Telecom acquired 38% interest in BTI following the conversion of its
unsustainable debt (Tranche B) into 45 million common shares based on the confirmation of the
court dated August 27, 2013 of the Amended Rehabilitation Plan. Globe Telecom will further convert
its share of the Tranche A debt upon certain regulatory approvals. Globe Telecoms acquisition of
BTI is intended to increase its current data and DSL businesses using BTIs existing platform.
On October 10, 2014, Globe Telecom received a copy of the temporary restraining order (TRO)
issued by the Court of Appeals (CA) stopping the National Telecommunications Commissions
(NTC) proceedings in connection with the bid of Globe Telecom Inc. to take over Bayan
Telecommunications Inc. (Bayantel).
In a six-page resolution penned by Associate Justice Manuel Barrios, the CAs Special Seventeenth
Division granted the very urgent motion filed by the Philippine Long Distance Telephone Co. (PLDT)
for the issuance of a TRO enjoining the implementation of the orders issued by the NTC on
November 27, 2013, December 13, 2013, and July 3, 2014, which allowed the continuation of the
proceedings in connection with Globe and Bayantels joint application for regulatory approval and
denied the petitioners motion to dismiss or suspend the same.
The appellate court held that PLDT, which is chaired by businessman Manuel V. Pangilinan, being
a stakeholder in the telecommunications industry, has a clear right to be protected on account of
the States policy to protect all telecommunication companies from unfair competition and to due
process.
On October 30, 2014, the Philippine Long Distance and Telephone Company (PLDT) urged the
government to auction the unused frequencies of Bayan Telecommunications Inc. (Bayantel). In a
disclosure to the Philippine Stock Exchange, PLDT cited that Bayantels franchise specifically
prohibits the transfer, sale or assignment of any right or privilege granted it without the approval of
Congress (under Section 13 of Republic Act 3259).
102

Globe Telecom insists that the issue at hand is PLDTs bid to delay the corporate rehabilitation of
Bayan Telecommunications (Bayan) through their petition of TRO. Atty. Froilan Castelo, General
Legal Counsel of Globe clarified that a congressional approval is no longer needed since Globe
acquisition of Bayan only involves transfer of shares of stocks much like when PLDT purchased
Digitel.
Despite the lapse of the Temporary Restraining Order (TRO) last December 9, 2014, the Court of
Appeals has advised the NTC to refrain from conducting any proceedings in connection with the
bid of Globe assume majority control of Bayantel. The CA said that, due to the numerous pleadings
filed and the fact that the NTC has yet to file its main comment on the petition filed by PLDT, the
application for preliminary injunction by the latter has yet to be resolved. Globes internal legal
counsel has advised that it may take several more weeks before any new developments take place.

Item 4. Submission of Matters to a Vote of Security Holders

Except for matters taken up during the annual meeting of stockholders, there was no other matter
submitted to a vote of security holders during the period covered by this report.

103

PART II - OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Registrants Common Equity and Related Stockholder Matters

A) Market Information
Principal market where the registrants common equity is traded.
The following table shows the high and low prices (in PHP) of Ayala Corporations shares in the
Philippine Stock Exchange for the year 2014 and 2013:
2014
1st qtr
2nd qtr
3rd qtr
4th qtr

High
582.50
658.50
740.00
694.00

Low
510.00
590.00
643.00
652.00

2013
High
590.00
688.00
640.00
627.00

Low
520.50
519.00
500.00
516.50

Source: Bloomberg

The market capitalization of the Companys common shares as of end-2014, based on the closing
price of P694.00/share, was approximately P429.89 billion.
The price information of Ayala common and preferred B series 1 and preferred B series 2 shares
as of the close of the latest practicable trading date, March 13, 2015 is P758.00, P512.00, and
P520.00, respectively.

B) Holders
The following are the top 20 registered holders of the Companys securities based on the records
of our stock transfer agents:
Common Shares
There are 7,033 registered holders of common shares as of January 31, 2015.
Stockholder name
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.

Mermac, Inc.
PCD Nominee Corporation (Non-Filipino)
Mitsubishi Corporation
PCD Nominee Corporation (Filipino)
Shoemart, Inc.
Sysmart Corporation
SM Investment Corporation
Philippine Remnants Co., Inc.
ESOWN Administrator 2014
ESOWN Administrator 2012
ESOWN Administrator 2009
ESOWN Administrator 2008
ESOWN Administrator 2006
Mitsubishi Logistics Corporation
ESOWN Administrator 2007
ESOWN Administrator 2005
Antonino T. Aquino
Telengtan Brothers & Sons, Inc.
Lucio Yan
Xavier Loinaz

No. of common
shares
303,689,196
160,446,419
63,077,540
56,357,357
19,539,049
1,500,912
1,418,610
823,046
713,284
680,942
595,478
443,343
412,177
360,512
330,815
254,891
209,957
136,857
127,996
126,052

Percentage of
common shares
49.0261%
25.9017%
10.1829%
9.0980%
3.1543%
0.2423%
0.2290%
0.1329%
0.1151%
0.1099%
0.0961%
0.0716%
0.0665%
0.0582%
0.0534%
0.0411%
0.0339%
0.0221%
0.0207%
0.0203%

104

Preferred B Series 1 Shares

There are 14 registered holders of preferred B series 1 shares as of January 31, 2015.

Stockholder name
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.

PCD Nominee Corp Filipino

PCD Nominee Corp Non Filipino
Sytin, Dominic, L. &/or Sytin, Ann Marietta L.
One Point Contact, Inc.
Mariano Vicente Lim Tan or Katherine Tan or Elena
Lim Tan
Santos, Leonel A. and/or Santos, Alicia
Chan, Raymond O. or Chan Lynette
Chavez, Felix B. or Aida T. Chavez or Irene T.
Chavez
Philippine British Assurance Company, Inc.
Henry Dy Tan and or Sherly G. Tan
Uy, Miguel F.
Bautista, Feliciano M. and or Bautista, Elisa D.
Ching Bun Teng
Macabuhay, Melchor T.

No. of preferred B
series 1 shares
19,869,360
64,470
19,320
10,000
8,000

Percentage of
preferred B
series 1 shares
99.3468%
0.3224%
0.0966%
0.0500%
0.0400%

7,000
5,000
5,000

0.0350%
0.0250%
0.0250%
0.0200%
0.0170%
0.0100%
0.0050%
0.0050%
0.0022%

4,000
3,400
2,000
1,000
1,000
450

Preferred B Series 2 Shares

There are four registered holders of preferred B series 2 shares as of January 31, 2015.

Stockholder name
1.
2.
3.
4.

PCD Nominee Corp Filipino

PCD Nominee Corp Non Filipino
Teh, Alfonso S.
Luna, Reynaldo H.

No. of preferred B
series 2 shares
26,961,060
35,940
2,000
1,000

Percentage of
preferred B
series 2 shares
99.8558%
0.1331%
0.0074%
0.0037%

Voting Preferred Shares

There are 1,007 registered holders of voting preferred shares as of January 31, 2015.

Stockholder name
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.

Mermac, Inc.
Mitsubishi Corporation
Deutsche Bank AG Manila OBO UBS HK
Fernando Zobel de Ayala
Jaime Augusto Zobel de Ayala
CBNA MLA OBO AC 6002079755
Delfin L. Lazaro
HSBC Manila OBO A/C 000-595686-550
HSBC Manila OBO A/C 000-808154-573
Deutsche Regis Partners, Inc. A/C Clients
AB Capital Securities Inc.
BDO Securities Corporation
Deutsche Bank AG, Manila Branch
HSBC Manila OBO A/C 000-595686-574
Mercedita S. Nolledo
Ariston Dela Rosa Estrada, Jr.
Asiasec Equities Inc.
HSBC Manila OBO A/C 000-083766-550
HSBC Manila OBO A/C 000-171579-567

No. of voting
preferred shares
159,577,460
32,640,492
1,561,478
554,983
543,802
364,810
258,297
170,064
169,803
137,372
115,873
115,794
111,385
106,486
84,996
84,396
78,234
73,272
72,884

Percentage of
voting preferred
shares
79.7887%
16.3203%
0.7807%
0.2775%
0.2719%
0.1824%
0.1291%
0.0850%
0.0849%
0.0687%
0.0579%
0.0579%
0.0557%
0.0532%
0.0425%
0.0422%
0.0391%
0.0366%
0.0364%
105

20.

Papa Securities Corporation

69,646

0.0348%

C) Dividends
Stock Dividends
Percent
20%
20%
20%

Record Date

Payment Date

May 22, 2007

April 24, 2008
July 5, 2011

June 18, 2007

May 21, 2008
July 29, 2011

Cash Dividends On Common Shares

Year
Payment Date
2012
July 12, 2012
February 1, 2013
2013
August 12, 2013
January 3, 2014
2014
July 25, 2014
January 3, 2015

Rate
2.00/share
2.00/share
2.40/share
2.40/share
2.40/share
2.40/share

Record Date
June 18, 2012
January 8, 2013
July 17, 2013
December 19, 2013
July 10, 2014
December 18, 2014

Dividend policy
As a holding company, Ayalas policy is to provide a fixed-rate, semi-annual cash dividend of P2.40
per share on common shares. For voting preferred shares, the rate is 1.875% per annum. For nonvoting Preferred B Series 1 and 2 shares, the dividends are given 5.25% and 5.575% per annum.

D) Recent Sales of Securities

The following shares were issued to/subscribed by the Companys executives as a result of the exercise
of stock options (ESOP) and the subscription to the stock ownership (ESOWN) plans:
No. of shares
Year
ESOP
ESOWN*
2013
766,993
14,474
2014
666,299
768,407
*Net of cancelled subscriptions.
The above shares formed part of the 8,864,000 ESOP and ESOWN shares subject of the Commissions
resolution dated January 12, 2006 confirming the issuance of such shares as exempt transactions
pursuant to Section 10.2 of the Securities Regulation Code.
On July 23, 2012, the Company sold 15,000,000 common shares held in treasury at P430 per share, a
6% discount to the Companys closing market price of P458 per common share.
On May 30, 2013, the Company sold its remaining 5,183,740 common shares held in treasury at P647
per share, a 3% discount to the Companys closing market price of P667 per common share.
On November 25, 2014, Mermac, Inc. executed the placement of, and subscription to the Companys
18,779,100 common shares at P660.00 per share or an aggregate of $275 million or P12.4 billion. The
placement price of P660.00 per share was at a 5.2% discount on the 30-day volume weighted average
price of the Companys common stock.
The Company filed Notices of Exemption with the SEC for the above sale of treasury shares and
additional issuance of common shares under the following provisions of the SRC:

SRC Subsection 10.1 (e), The sale of capital stock of a corporation to its own stockholders
exclusively, where no commission or other remuneration is paid or given directly or indirectly in
connection with the sale of such capital stock.
SRC Section 10.1 (h), Brokers transaction, executed upon customers orders, on any registered
Exchange or other trading market.
SRC Section 10.1 (l), The sale of securities to a bank.
106

Item 6. Managements Discussion and Analysis of Operations

2014
Ayala Corporations consolidated net income attributable to equity holders expanded 46 percent in 2014
to P18.6 billion, primarily driven by the solid performance of its real estate, telecom and electronics
manufacturing units and boosted by a net gain from the divestment of Stream.
On a core net income basis or without the impact of accelerated depreciation from its telecom units
network transformation initiative in the previous year, Ayala grew 25% in 2014. This is the third
consecutive year of above-20% growth for the conglomerate as its diversified portfolio of investments
benefited from the countrys economic gains over the past three years.
Consolidated Sale of Goods and Services
Growth was achieved on the back of a 16% increase in consolidated revenues which reached P184.3
billion. Sale of goods rose 13% to P105.1 billion, while rendering of services grew 16% to P51.3 billion
This was driven by improved residential sales at Ayala Land Inc. coupled with higher revenues
generated by Integrated Micro-Electronics Inc. and increased billed volume recorded by Manila Water
Company Inc.
Real Estate
As the positive momentum in the real estate sector continued, Ayala Lands net income expanded 26
percent to P14.8 billion year-on-year. The robust performance of its property development and
commercial leasing operations, which rose 21 percent and 18 percent, respectively, fuelled the 18
percent-growth in Ayala Lands real estate revenues to P93 billion. Residential revenues reached P55.9
billion, up 26 percent from a year ago on new bookings and completion of existing residential projects.
Residential sales take-up remained strong, hitting an all-time high of P102 billion, 11 percent higher
year-on-year. Sales from overseas Filipinos likewise improved as it now comprise 24 percent of Ayala
Lands residential bookings, which grew 13 percent to P76.7 billion. The sale of office spaces in
Bonifacio Global City and Cebu likewise fuelled Ayala Lands real estate revenues in 2014.
Electronics
In electronics manufacturing, Integrated Micro-Electronics Inc. (IMI) recorded solid growth in 2014 with
net income soaring nearly threefold to $29.1 million from its year-ago level. Revenue growth was robust,
up by 13 percent, to $844.5 million, outpacing the global electronics manufacturing services, which
posted around 6 percent growth. Strong demand from the telecom, automotive and storage device
markets helped lift IMIs revenues in 2014.
IMI successfully completed its follow-on offering in December 2014. It listed 215 million common shares,
raising 1.6 billion in proceeds and increasing its public float level to 19 percent.
Water Distribution and Wastewater Services
Manila Water ended 2014 at a steady pace, registering a one percent growth in consolidated net income
to 5.8 billion primarily driven by improved billed volume and higher contribution from new businesses.
Notwithstanding the absence of a tariff adjustment, the East Zone concession posted profits of 5.1
billion on the back of a 4 percent growth in billed volume owing to a modest increase in service
connections. Manila Water sustained its nonrevenue water (NRW) in the East Zone at 11.3 percent.
Manila Waters operating units outside the East Zone concession all sustained solid growth in billed
volume. Laguna Water registered a 52 percent jump in profits to 164 million following the acquisition
of the water reticulation system of Laguna Technopark Inc in January 2014 and new service
connections. Boracay Water and Clark Water both posted double-digit growth, expanding 32 percent
and 17 percent, respectively. Manila Waters Vietnam-based associates, Thu Duc Water, Kenh Dong
Water and Saigon Water Infrastructure Corporation, contributed a total of 357 million in earnings.
Manila Waters new businesses accounted for 11 percent of its net income in 2014.
Share of Profit of Associates and Joint Ventures
Share of profit of associates and joint ventures amounted to P13.2 billion in 2014, reflecting a 31%
increase mainly driven by higher earnings from Globe which counterbalanced the relatively flat
contribution from BPI. The increase in ACs ownership interest in BPI in November 2013 was offset by
the impact of the decline in its net income year-on-year.
107

Telecommunications
Globe Telecom posted another record net income, which more than doubled to P13.4 billion year-onyear buoyed by lower accelerated depreciation charges from its network transformation. The robust
revenue growth from sustained demand for data connectivity across the mobile, broadband and fixed
line businesses also drove year-on-year increase. The solid revenue growth, which balanced out the
subsidy and operating expenses, drove the 8 percent increase in Globes earnings before interest taxes
depreciation and amortization (EBITDA) to P39.3 billion.
Mobile revenues, which account for 79 percent of consolidated revenues, grew 7 percent to P78.1
billion, propelled by growth in the postpaid and mass market TM brands. Globes postpaid revenues
continued to improve at P29.9 billion, up 11 percent from the previous year. Despite yield pressures on
multi-SIM incidence and value-based bucket offers, its prepaid revenues improved 5 percent to P48.2
billion. Total mobile subscriber base stood at 44 million in 2014, a 14 percent growth from its year-ago
level.
Globes broadband business registered a 22 percent growth to P12.7 billion as it continued to launch
affordable products and competitive tablet bundles. Similarly, Globes fixed line revenues reported
improvement with data and voice segments reporting a 17 percent and 7 percent, respectively.
Financial Services
BPI reported a net income of P18 billion in 2014, a 4 percent decline from the previous year. This was
largely due to a 5 percent decline in non-interest income as a result of a sharp contraction in trading
gains compared to the previous year as the bank reduced its reliance on securities trading.
The banks core lending business, however, continued to drive growth with net interest income growing
15 percent to P34.8 billion. Net loans expanded 27 percent to P800 billion year-on-year. Deposits
jumped 19 percent from a year ago to P1.2 trillion. The bank registered a current and savings account
ratio of 69 percent.
BPIs operating expenses rose 12 percent attributed to the banks investment in infrastructure and
technology as it positions itself for future growth. Cost-to-income ratio stood at 53.7 percent in 2014.
Interest Income
Interest income expanded 79% to P5.5 billion on the back of higher investible funds following the fund
raising activities of the parent company and Ayala Land. This accounts for 3.5% of total income in 2014.
Other Income
Other income ended flat, down 1% to P9.2 billion mainly driven by the lower rehabilitation works of
Manila Water. This was partially counterbalanced by the net gain of P1.8 billion from LiveIts sale of
Stream Global Services.
Costs and Expenses
Consolidated cost of sales rose 17% to P77.8 billion attributed to higher sales of Ayala Land, IMI and
Ayala Automotive Holdings Corporation, accounting for 54% and 52% of total costs and expenses in
2014 and 2013, respectively. Cost of rendering services rose 10% to P34.5 billion resulting from higher
revenues from IMI, Manila Water and Ayala Land.
General and administrative expenses increased by 8% to P15.8 billion. The increase was mainly on
account of higher manpower expenses, taxes, and advertising costs related to Ayala Land, certain
provisions at IMI, and start-up costs of AC Energy, AC Infra and Ayala Education.
Interest Expense and Other Financing Charges
Consolidated interest expense and other financing charges increased by 13.5% to P11.9 billion mainly
due to higher borrowings in the latter part of 2013 to 2014. As of end-December 2014, total debt
increased by 26% from year-end 2013 as a result of new borrowings at the parent level to fund its
investments in various power and transport infrastructure projects and increased investment in BPI
through subscription in the banks stock rights offering. In addition, Ayala Land and Manila Water for
new expansion projects and investments in operational improvements. Total debt as of end December
2014 stood at P259 billion. Notwithstanding the higher debt levels, gearing ratios remain comfortable
108

and well within limits. Ayala Corp.'s consolidated debt to equity ratio was at 1.39 times while parent debt
to equity ratio was at 0.54 to 1 with net debt to equity at 0.24 to 1.
Balance Sheet Highlights
Consolidated cash and cash equivalents expanded by 38% to P90.7 billion largely attributed to the
proceeds from Ayala parents offering of preferred shares, issuance of new common shares, loan
availments and sale of exchangeable bonds. Ayala Lands higher sales and loan availments as well as
IMIs higher collections and proceeds from its follow-on offering and sale of property also contributed to
the increase.
Accounts and notes receivables (current) grew by 29% to P72.7 billion as a result of higher sales across
all of Ayala Land's residential brands. Significant growth in revenues from IMI and Ayala Automotive
also pushed up accounts receivables.
Total non-current assets rose by 22% to P471.3 billion from P384.8 billion at the beginning of the year.
This was primarily due to the increased investment of Ayala Corp in BPI through the stock rights,
investments in various power projects, Ayala Lands increased investment in land acquisitions as well
as additional investments in real properties.
On the liabilities side, long-term debt (noncurrent) reached P227 billion, up 28% mainly due to new
borrowings made through AYC Finances issuance of exchangeable bonds to fund Ayala parents
investments in power and transport infrastructure as well as its acquisition of additional stake in BPI. In
addition, Ayala Lands new loans to bankroll its expansion projects contributed to the increase.
Total stockholders equity reached P286.9 billion, P51.4 billion higher than the start of the year primarily
resulting from higher earnings during the period, the re-issuance of 27 million ACs Preferred B shares
which generated P13.4 billion proceeds, and the top-up placement of ACs 18.8 million common shares
which generated P12.2 billion proceeds, in 4Q 2014.
Consolidated current ratio and debt to equity ratio remained healthy at 1.50x and 1.39x, respectively as
of the end of December 2014. Consolidated net debt to equity ratio was at 0.85X.
In 2015, the Ayala Group has earmarked P185 billion in combined capital expenditures to support the
massive expansion plans of its real estate and telecom units.
Outlook for 2015
As the growth momentum in the Philippine economy continues, Ayala expects the performance of
each of its business units to remain upbeat with mostly double-digit earnings growth in 2015. This
should allow Ayala to achieve its original 2016 target of P20 billion a year earlier.
Key performance indicators of the Company and its significant subsidiaries
The table sets forth the comparative key performance indicators of the Company and its significant
subsidiaries.
Ayala Corporation (Consolidated)

(In million pesos, except ratios)

Income
Net Income Attributable to Equity Holders
Total Assets
Total Debt
Stockholders' Equity1
Current Ratio2
Debt to Equity Ratio3

2014
184,276

2013
159,412

2012
(As restated4)
130,571

18,609
726,048
258,845

12,778
599,664
205,681

10,504
510,904
175,085

185,664
1.50

143,476
1.46

124,098
1.46

1.39

1.43

1.41

109

Ayala Land, Inc.

2014
95,197

2013
81,523

2012
(As restated4)
59,932

14,803
388,944
124,666
106,940

11,742
325,474
101,902
98,470

9,038
254,550
74,778
81,993

Current Ratio2

1.22

1.45

1.41

Debt to Equity Ratio3

1.17

1.03

0.91

2014
844,474

2013
745,032

2012
(As restated4)
661,850

29,117
552,707
112,194
244,051

10,473
488,229
110,257
192,650

5,585
453,353
109,707
193,817

Current Ratio2

1.73

1.53

1.56

Debt to Equity Ratio3

0.46

0.57

0.57

2014
16,357

2013
15,926

2012
(As restated4)
14,553

5,813
74,860
25,471
34,508

5,752
72,858
26,252
30,477

5,490
67,127
24,071
26,488

1.16

1.12

0.83

0.74

0.86

0.91

(In million pesos, except ratios)

Revenue
Net Income Attributable to Equity Holders
Total Assets
Total Debt
Stockholders' Equity1

Integrated Micro-Electronics, Inc.

(In thousand US dollars, except ratios)

Revenue
Net Income Attributable to Equity Holders
Total Assets
Total Debt
Stockholders' Equity1

Manila Water Company, Inc.

(In million pesos, except ratios)

Revenue
Net Income Attributable to Equity Holders
Total Assets
Total Debt
Stockholders' Equity1
Current Ratio2
Debt to Equity

Ratio3

Stockholders Equity attributable to owners of the Parent

Current Asset/Current Liabilities
3
Total Debt/ Stockholders Equity1 (Total Debt includes short-term debt, long-term debt and current portion of long-term debt).
4
Restatement in Y2012 pertains to impact of the adoption of new accounting standards on employee benefits (PAS 19) and
consolidation (PFRS 10).
1

There are no known trends, events or uncertainties that will result in the Companys liquidity increasing
or decreasing in a material way.
There were no events that will trigger direct or contingent financial obligation that is material to the
Company, including any default or acceleration of an obligation.
Likewise, there were no material off-balance sheet transactions, arrangements, obligations (including
contingent obligations), and other relationships of the Company with unconsolidated entities or other
persons created during the reporting period.
There are no seasonal aspects that may have a material effect on the financial condition of the
Company.
Causes for any material changes
(Increase or decrease of 5% or more in the financial statements)
Balance Sheet Items
As of December 31, 2014 vs. December 31, 2013
Cash and cash equivalents 38% increase from P
= 65,655 million to P
= 90,770 million
110

Increase mainly attributable to proceeds from: AC parent's offer of preferred shares and top-up
placement of common shares plus loan availments; AYC Finances exchangeable bond offer; ALI's
higher collections from sales and loan availments; IMIs higher collections and proceeds from its followon IPO and sale of property in Singapore; LiveIts proceeds from divestment of Stream; and loan
availments of AAHC. These were partially offset by the Groups loan payments, additional shares
subscription in BPI, infusion in investment on power generation and transport infrastructure; and
expansion in real estate projects. This account is at 13% and 11% of the total assets as of December
31, 2014 and 2013, respectively.
Short-term investments 8 times higher from P
= 119 million to P
= 1,103 million
Primarily due to ALIs and MWCIs short-term investments for the period. This account is at less than
1% of the total assets as of December 31, 2014 and 2013.
Accounts and notes receivable (current) 29% increase from P
= 56,341 million to P
= 72,710 million
Attributable to higher sales from across residential brands, new project launches and existing project
sales of ALI group and significant growth of revenues from all sites of IMI group. This account is at
10% and 9% of the total assets as of December 31, 2014 and 2013, respectively.
Inventories 10% increase from P
= 50,178 million to P
= 54,962 million
Due to increase in real estate and vehicle inventories of ALI and Automotive groups, respectively. This
account is at 8% of the total assets as of December 31, 2014 and 2013.
Other current assets 10% decrease from P
= 39,194 million to P
= 35,157 million
Decrease on account of ALIs maturities of investment in UITF placements partially offset by reduction
in escrow/ deposit accounts. This account is at 5% and 7% of the total assets as of December 31, 2014
and 2013, respectively.
Noncurrent asset held for sale 100% decrease from P
= 3,329 million to zero balance
Due to the LiveIts divestment of Stream in March 2014.
Accounts and notes receivable (noncurrent) 75% increase from P
= 18,283 million to P
= 32,006 million
Mainly due to higher receivables by the ALI group. This account is at 4% and 3% of the total assets as
of December 31, 2014 and 2013, respectively.
Land and improvements 28% increase from P
= 62,475 million to P
= 79,960 million
Increase due to ALI groups unsubdivided land and certain land acquisitions. This account is at 11%
and 10% of the total assets as of December 31, 2014 and 2013, respectively.
Investments in associates and joint ventures 28% increase from P
= 119,804 million to P
= 152,765 million
Attributable to Groups shares subscription in BPI through stock rights offering, infusion in various
investments in power and transport infrastructure and share in earnings offset by dividends from
investees. This account is at 21% and 20% of the total assets as of December 31, 2014 and 2013,
respectively.
Investment in bonds and other securities 23% increase from P
= 2,785 million to P
= 3,432 million
Increase mainly attributable to ALIs and Bestfull's additional investments. This account is at less than
1% of the total assets as of December 31, 2014 and 2013.
Investment properties 13% increase from P
= 63,157 million to P
= 71,324 million
Increase mainly attributable to ALI groups additional investment properties. This account is at 10% of
the total assets as of December 31, 2014 and 2013.
Property, plant and equipment 8% increase from P
= 25,883 million to P
= 27,953 million
Increase mainly attributable to ALI and ACEnergy acquisitions made during the year. This account is
at 4% of the total assets as of December 31, 2014 and 2013.
Deferred tax asset - 24% increase from P
= 6,514 million to P
= 8,055 million
Increase mainly attributable to ALI groups higher deferred tax asset due to tax effect of temporary
difference from sale and collection of booked accounts. This account is at 1% of the total assets as of
December 31, 2014 and 2013.

111

Pension and other noncurrent assets - 110% increase from P

= 8,016 million to P
= 16,830 million
Increase mainly attributable to ALI groups higher pre-operating expenses, deferred charges and down
payments pertaining to new projects as well as to AYCs long-term placement. The account also
includes the Groups pension asset.1 This account is at 2% and 1% of the total assets as of December
31, 2014 and 2013, respectively.
Accounts payable and accrued expenses - 22% increase from P
= 103,604 million to P
= 126,102 million
Increase mainly caused by higher trade payables and accruals of ALI group for its new and existing
projects including reclassification of accounts from Other Current Liabilities; higher trade payables and
accruals by IMI group pertaining to their expanded operations; offset by AC parent or Company's
settlement of accounts relating to acquisition of additional ADHI shares and payment of dividends. This
account is at 29% and 28% of the total liabilities as of December 31, 2014 and 2013, respectively.
Short-term debt 33% increase from P
= 15,811 million to P
= 21,084 million
Mainly due to loan availments of the ALI and Automotive groups. This account is at 5% and 4% of the
total liabilities as of December 31, 2014 and 2013, respectively.
Income tax payable 20% decrease from P
= 1,668 million to P
= 1,340 million
Due to lower tax payable of ALI group. As a percentage to total liabilities, this account is at less than
1% as of December 31, 2014 and 2013.
Long-term debt (current) 9% decrease from P
= 11,842 million to P
= 10,761 million
Mainly due to the Companys lower amount of long-term debt maturing within 1 year partially offset by
ALIs availment of loans. This account is at 2% and 3% of the total liabilities as of December 31, 2014
and 2013, respectively.
Service concession obligation (current) 21% decrease from P
= 1,290 million to P
= 1,020 million
Decrease was mainly due to lower computed and actual obligation due within one year. This account
is at less than 1% of the total liabilities as of December 31, 2014 and 2013.
Other current liabilities 14% decrease from P
= 10,992 million to P
= 9,452 million
Net decrease was due to reclassification of accounts to trade payables partially offset by increase in
ALI groups payable to various contractors, deposits from residential assets and retention payable from
projects. This account is at 2% and 3% of the total liabilities as of December 31, 2014 and 2013,
respectively.
Long-term debt (noncurrent) 28% increase from P
= 178,027 million to P
= 226,999 million
Due to new borrowings made by the Company, directly and through AYC Finance, to fund investments
in power generation, transport infrastructure, BPI stock rights offer and refinance debt; exchangeable
bonds issued by AYC Finance plus ALI group's new loans to fund expansion projects. This account is
at 52% and 49% of the total liabilities as of December 31, 2014 and 2013, respectively.
Deferred tax liabilities 6% increase from P
= 6,347 million to P
= 6,743 million
Increase attributable to ALI groups non-taxable income. This account stood at 2% of the total liabilities
as of December 31, 2014 and 2013.
Pension liabilities 14% increase from P
= 1,915 million to P
= 2,180 million
Increase attributable to the effect of PAS 19- immediate recognition of past service cost and remeasurement of unrealized actuarial gains or losses. This account is at less than 1% of the total
liabilities as of December 31, 2014 and 2013.

The Company's pension fund is known as the AC Employees Welfare and Retirement Fund (ACEWRF). ACEWRF is a legal
entity separate and distinct from the Company, governed by a board of trustees appointed under a Trust Agreement between
the Company and the initial trustees. It holds common and preferred shares of the Company in its portfolio. All such shares
have voting rights under certain conditions, pursuant to law. ACEWRF's portfolio is managed by a committee appointed by the
fund's trustees for that purpose. The members of the committee, all of whom are Managing Directors of the Company, are
Delfin C. Gonzalez, Jr. (the Company's Chief Finance Officer), Solomon M. Hermosura (the Company's Group Head of
Corporate Governance, General Counsel, Corporate Secretary & Compliance Officer), John Philip S. Orbeta (the Companys
Head for Strategic Human Resources), Ma. Cecilia T. Cruzabra (the Companys Treasurer), and Josephine G. de Asis (the
Companys Comptroller). ACEWRF has not exercised voting rights over any shares of the Company that it owns.

112

Paid in capital - 47% increase P

= 50,166 million to P
= 73,571 million
Represents proceeds from the Companys re-issuance of treasury preferred shares amounting to
P13.4B plus ACs top-up placement of common shares totaling P12.2B.
Cumulative translation adjustments - 52% decrease (improved) from negative P
= 1,257 million to negative
P
= 604 million
Mainly due to higher foreign denominated net assets held by the international operations groups and
depreciation of Peso from P
= 44.395 in December 2013 to P
= 44.720 in December 2014.
Share-based payments 22% decrease from P
= 485 million to P
= 377 million
Decrease in share-based payments of the Company resulting to conversion to common shares.
Remeasurement losses (gains) on defined benefit plans 24% decrease (improved) from negative P
=
1,318 million to negative P
= 1,006 million
Decrease attributable to the effect of PAS 19- immediate recognition of past service cost and remeasurement of unrealized actuarial gains or losses.
Net unrealized gain on available-for-sale financial assets 103% decrease from P
= 278 million to
negative P
= 7 million
Pertains to the movement in the market value of securities held by BPI group.
Equity-conversion option 100% increase from zero to P
= 1,114 million
P
= 1.1B arising from exchangeable bonds issued by AYC Finance.
Retained earnings 15% increase from P
= 92,640 million to P
= 107,040 million
Represents share in FY 2014 group net income partially offset by P
= 2.9B dividends declared.
Treasury stock - 54% decrease P
= 5,000 million to P
= 2,300 million
Attributable to the Companys re-issuance of treasury preferred shares.
Non-controlling interests 10% increase from P
= 91,994 million to P
= 101,202 million
Share in FY 2014 group net income partially offset by dividends received.
Income Statement items
For the Year Ended December 31, 2014 vs. December 31, 2013
Sale of goods 13% increase from P
= 92,725 million to P
= 105,141 million
Mainly on account of new projects and improved performance of ALI group from residential sales; higher
revenues across all sites of IMI group plus incremental sales of Automotive group. As a percentage to
total income, this account is at 57% and 58% in December 31, 2014 and 2013, respectively.
Rendering of services 16% increase from P
= 44,216 million to P
= 51,276 million
Improved sales performance of ALI (malls, office leasing & hotel operations specifically full year impact
of sales generated by its newly acquired subsidiaries), MWCI (increase in billed volume and additional
connections) and IMI (growth of customer demand) groups. As a percentage to total income, this
account is at 28% in December 31, 2014 and 2013.
Share of profit of associates and joint ventures 31% increase from P
= 10,091 million to P
= 13,185 million
Increase significantly from the higher equity in net earnings of Globe and BPI. As a percentage to total
income, this account is at 7% and 6% in December 31, 2014 and 2013, respectively.
Interest income 79% increase from P
= 3,072 million to P
= 5,494 million
Mainly from to ALIs higher investible funds. This account is at 3% and 2% of the total income in
December 31, 2014 and 2013, respectively.
Other income 1% decrease from P
= 9,307 million to P
= 9,180 million
Decrease was a result of the lower rehabilitation works of MWCI group partially offset by LiveIts P1.8B
gain from divestment of Stream. This account is at 5% and 6% of the total income in December 31,
2014 and 2013, respectively.
Cost of sales 17% increase from P
= 66,540 million to P
= 77,774 million
Increase attributable to higher sales of ALI, IMI and Automotive groups. As a percentage to total costs
and expenses, this account is at 54% and 52% in December 31, 2014 and 2013, respectively.
113

Cost of rendering services 10% increase from P

= 31,487 million to P
= 34,496 million
Increase coming from higher revenues from IMI, MWCI and ALI groups. As a percentage to total costs
and expenses, this account is at 24% in December 31, 2014 and 2013, respectively.
General and administrative expenses 8% increase from P
= 14,614 million to P
= 15,830 million
Increase mainly on account of higher manpower expenses, taxes, advertising costs related to ALI;
inventory provisions taken up by IMI; and start-up costs of ACEnergy, ACInfra and Ayala Education.
This expense classification accounts for 11% of the total costs and expenses in December 31, 2014
and 2013.
Interest and other financing charges 14% increase from P
= 10,511 million to P
= 11,934 million
Increase was due to higher loan balance as a result of fundraising activities in late 2013 and new
borrowings in 2014 of the Company (for initiatives for new growth areas like power generation and
transport infrastructure sectors), international and ALI group (for landbanking and expansion of various
existing mixed use projects). This expense classification accounts for 8% of the total costs and
expenses in December 31, 2014 and 2013.
Other charges 30% decrease from P
= 5,481 million to P
= 3,829 million
Decrease coming from lower rehabilitation works of MWCI group due to limited capital expenditure
caused by ongoing arbitration; offset by impairment provisions on goodwill taken up by IMI. This
expense classification accounts for 3% and 4% of the total costs and expenses in December 31, 2014
and 2013, respectively.
Provision for income tax (current and deferred) 22% increase from P
= 6,654 million to P
= 8,138 million
Primarily due to higher taxable income of the several subsidiaries significant part of which comes from
ALI, Automotive and IMI groups on account of better sales and other operating results.
Income attributable to Owners of the parent 46% increase from P12,778 million to P18,609 million
Resulting from better operating results of most of the subsidiaries and associates of the Group.
Income attributable to Non-controlling interests 20% increase from P
= 11,347 million to P
= 13,665 million
Better operating results of most of the subsidiaries of the Group.

2013
Ayala Corporations consolidated net income attributable to equity holders for the year ended December
31, 2013 amounted to P12.8 billion, 22% higher than 2012. Core net income reached P14.8 billion, 28%
higher than prior year. This excludes the impact of the accelerated depreciation of Globe Telecom as a
result of its network modernization program.
Consolidated Sales of Goods and Services
Ayalas consolidated sale of goods and services for the year reached P136.9 billion, a 24% increase
from 2012 primarily driven by new projects and improved sales performance of real estate, electronics,
automotive, water distribution and wastewater services and international operations groups. This
accounts for 86% of total income in 2013.
Real Estate
Ayala Land, Inc.s (ALI) net income attributable to equity holders of ALI rose by 30% to a record P11.7
billion on the back of double-digit revenue growth and stable margins across its business segments.
ALI recorded P81.5 billion in total revenues, a 36% jump from its year-ago level as its property
development, commercial leasing and construction businesses continued to post gains.
Revenues from property development expanded by 51% to P51.9 billion driven by strong gains from its
residential segment as well as the sale of commercial lots in NUVALI development, the large-scale
master planned development and Arca South, the Food Terminal Inc. property ALI acquired in 2012.
Revenues from commercial leasing grew 21% to P18.0 billion on a combination of higher average lease
rates and higher occupancy of gross leasable area in shopping centers and offices coupled with the
opening of new malls. Higher revenues from hotels and resorts (which is a component of revenues from
commercial leasing) also rose by 64% to P4 billion, as new hotels and resorts began to contribute.
Construction and property management generated combined revenues of P26.3 billion, 29% higher
than the previous year.
114

ALI spent a total of P66.3 billion in capital expenditures in 2013, 7% lower than the P71.3 billion spent
the previous year. The bulk of capital expenditures in 2013 were utilized for residential development
(32% of total) and land acquisition (41%), offices (8%), shopping centers (12%), hotels and resorts
(2%), with the balance spent on support business and land development activities in the companys
strategic landbank areas. For 2014, ALI has allotted another P70.0 billion for capital expenditures
primarily earmarked for the completion of ongoing developments and launches of new residential and
leasing projects. Targeted launches in 2014 include 78 projects, including 55 residential / office for sale,
8 office buildings, 6 shopping centers, 5 hotels and resorts, 2 commercial estates and 2 hospitals.
Water Distribution and Wastewater Services
Manila Water Companys (MWC) net income attributable to equity holders of MWC expanded by 5% in
2013 to P5.8 billion, driven by higher billed volume in the East Zone and increased contribution from
new businesses. New businesses, which include operations in Laguna, Boracay, Clark and Vietnam,
accounted for 12% of MWCs earnings in 2013. Additional income from the liquidation of connection
fees in the East Zone was also recognized, boosting net income.
Total revenues grew by 9% to P15.9 billion with total billed volume up 10% versus prior year. Revenues
from its Vietnam operations, which consist of a leakage reduction project and two bulk water companies,
Thu Duc Water B.O.O. Corporation and Kenh Dong Water Supply Joint Stock Company, grew by 42%
in 2013 to P294 million.
MWC recently took over as exclusive water provider within the Laguna Technopark through its
subsidiary, Laguna Water Company. It is also constructing a bulk water project in Cebu, which is
expected to start operations in June.
Electronics
Ayalas electronics business, Integrated Microelectronics, Inc. (IMI), nearly doubled its net income
attributable to eguity holders of IMI in 2013 to US$10.5 million due mainly to business expansion in
Europe and the Philippines. Despite a contraction in the electronics sector, IMI continued to register
higher revenues in 2013, reaching US$745 million, a 13% growth from the previous year. This resilient
performance was primarily driven by IMIs diversification strategy. This includes the companys move
to higher-growth, higher margin niche markets in automotive, industrial, medical, and
telecommunications segments.
Automotive
Consolidated sales of Ayala Automotive Holdings Corporation grew by 6% to P10.8 billion. Vehicle unit
sales grew by 9% from 9,259 to 10,111. Consolidated net income, which includes its equity share and
dividend income from Honda Cars Philippines, Inc. and Isuzu Philippines Corporation, was 81% lower
than the previous year mainly on start-up costs of Volkswagen operations.
In 2012, Volkswagen AG appointed Ayala Automotive as the Philippine importer for Volkswagen
passenger vehicles. This partnership will enhance Ayala Automotives existing portfolio of product
offerings along with the Honda and Isuzu brands.
Share of profit of Associates and Joint Ventures
The Companys share of profit of associates and joint ventures increased by 31% from P7.7 billion in
2012 to P10.1 billion in 2013 mainly due to equity earnings from the Bank of the Philippine Islands partly
offset by lower net income registered by Globe Telecom. As a percentage to total income, this account
is at 6% in 2013 and 2012.
Financial Services
BPI registered a 15% year-on-year growth in net income attributable to equity holders of BPI to P18.8
billion, primarily driven by higher interest income on the back of a 21% growth in the banks loan
portfolio. Higher fee-based income and foreign exchange trading also contributed to the banks earnings
in 2013, which translated to a return on equity of 18%.
The double-digit loan growth was driven by higher corporate and consumer loans, which grew by 23%
and 13%, respectively. While the net interest income expanded as a result of an 18% growth in the
banks average asset base, net interest margin slightly contracted by 26 basis points to 3.3% owing to
the competitive lending environment. BPIs asset quality further improved with 90-day gross nonperforming loan ratio closing at 1.8% from the 2.1% registered a year ago.

115

BPIs total assets at the end of 2013 expanded 21% to P1.2 trillion. Deposits jumped 23% to P989
billion as a result of higher savings and demand deposits. The banks operating expenses rose 8%, with
increases largely attributed to regulatory, technology and occupancy-related costs. Despite this, BPI
managed to post modest gains in its cost-to-income ratio to 51% from 52% the previous year.
Telecommunications
Globe Telecom sustained its growth momentum with core net income of P11.6 billion, a 13% increase
year-on-year. Service revenues reached P90.5 billion, a 9% increase from the previous year, led by
the continued growth in mobile telephony and the demand for data connectivity across its mobile,
broadband and fixed line businesses.
Mobile revenues, which account for 80% of total revenues, rose 8% to P72.8 billion on the back of
sustained growth in postpaid revenues, which expanded by 18% to P27.1 billion. Prepaid revenues
inched up 3% to P45.7 billion despite yield pressures from the shift to value-based from pay-per-use
bucket. Globe's mobile subscribers climbed 16% in 2013 to 38.5 million from 33.1 million the previous
year. Its broadband business registered a sharp gain in both revenues and customer base, climbing
20% and 22%, respectively year-on-year. Fixed line data expanded by 13% in 2013 to P4.7 billion,
mitigating the decline in traditional fixed line voice services.
Globe's operating expenses rose 13% to P54.08 billion, largely due to subsidy and recontracting costs.
Globe's reported net income after tax declined 28% in 2013 owing to accelerated depreciation charges
arising from its network transformation initiative.
Interest Income
The Companys interest income decreased 29% from P4.3 billion in 2012 to P3.1 billion in 2013 mainly
due to lower placements and interest rates of Ayala Land and the Company in 2013. As a percentage
to total income, this account s at 2% and 3% in 2013 and 2012, respectively.
Other income
The Companys other income increased 8% from P8,646 million in 2012 to P9,307 million in 2013 mainly
due to forex gain and derivative asset gain of the electronics, BPO and international operations groups.
As a percentage to total income, this account is at 6% and 7% in 2013 and 2012, respectively.
Costs and Expenses
Consolidated cost of goods increased 20% from P55,3 billion in 2012 to P66.5 billion in 2013 while cost
of rendering services increased 37% from P23.0 billion in 2012 to P31.5 billion in 2013. The increase
was driven by higher sales of the real estate, electronics, automotive, water distribution and wastewater
services and business process outsourcing (BPO) groups. The cost of goods accounts for 52%, while
the cost of rendering services accounts for 24% of total costs and expenses in 2013.
Consolidated general and administrative expenses increased 14% from P12.9 billion in 2012 to P14.6
billion in 2013 mainly due to higher expenses of the real estate group resulting from a line by line
consolidation of AMHRI/AMHPI (Kingdom Investments: Fairmont and Raffles) after the step-up
acquisition in Q4 2012. General and administrative expenses accounts for 11% of total costs and
expenses in 2013.
Interest Expense and Other Financing Charges
Consolidated interest expenses and other financing charges increased 29% from P8.2 billion in 2012
to P10.5 billion in 2013 mainly due to higher loan balance as a result of fundraising activities in late
2012 and new borrowings in 2013 of the Company (for initiatives for new growth areas like the energy
and transport infrastructure sectors) and the real estate group (for landbanking and expansion of various
mixed use projects). As a percentage to total costs and expenses, this account is at 8% in 2013 and
2012.
Other charges
The Companys other charges decreased 20% from P6.8 billion in 2012 to P5.5 billion in 2013 mainly
due to lower rehabilitation costs of the water distribution and wastewater services group. As a
percentage to total costs and expenses, this account is at 4% and 6% in 2013 and 2012, respectively.
116

Provision for income tax

The Companys provision for income tax increased 34% from P5.0 billion in 2012 to P6,7 billion in 2013
mainly due to the higher taxable income of several Subsidiaries in the real estate and water distribution
and wastewater services groups on account of better sales and other operating results.
Balance Sheet Highlights
Consolidated cash and short term investments declined by 18% to P65.7 billion as of the end of 2013
compared to P80.3 billion in 2012. Decline was due mainly to placements of funds from short term cash
equivalents to other form of financial instruments, and use of funds for operations and loan payments.
Accounts receivable rose by 32% to P56.3 billion on the back of higher sales from residential brands,
new project launches and existing project sales of the real estate group. The significant growth in
revenues of the electronics group particularly in Europe and the Philippines coupled with higher
receivables of the BPO group also contributed to the increase. This account makes up for 9% of total
assets in 2013.
Noncurrent asset held for sale represents the carrying value of our investment that will be disposed
within Y2014.
Overall, total current assets increased by 18% to P211.5 billion.
Total noncurrent assets rose to P384.8 billion from P331.9 billion in 2012. This was primarily due to an
increase in investments in our banking sector coupled with higher earnings from investee companies,
additional investments in real properties, land and improvements and higher receivables by ALI arising
from ramp up on revenues.
On the liabilities side, total current and noncurrent liabilities reached P364.2 billion, 20% higher than its
level in 2012.
Total consolidated stockholders equity reached P235.5 billion, 14% higher than in 2012 mainly as a
result of additional paid up capital from re-issuance of treasury shares and higher earnings during the
period, net of dividends.
On a consolidated basis, gearing remained comfortable with consolidated debt to equity ratio at 1.43 to
1 and consolidated net debt to equity ratio at 0.98 to 1. Gearing at the parent company level also
remained comfortable with debt to equity ratio at 0.49 to 1 and net debt to equity ratio at 0.32 to 1.
In 2014, the Ayala Group earmarked nearly P190 billion in capital expenditures to continue its
investment programs in its real estate, banking, telecommunications, and water businesses as well as
to ramp up its new businesses.
Key performance indicators of the Company and its significant subsidiaries
The table sets forth the comparative key performance indicators of the Company and its significant
subsidiaries.
Ayala Corporation (Consolidated)
(In million pesos, except ratios)
Income
Net Income Attributable to Equity Holders
Total Assets
Total Debt
Stockholders' Equity1
Current Ratio2
Debt to Equity Ratio3

2013
159,412

2012
(As restated4)
130,571

2011
(As restated4)
110,828

12,778
599,664
205,681

10,504
510,904
175,085

9,183
369,039
111,268

143,476
1.46
1.43

124,098
1.46
1.41

106,353
1.76
1.05

117

Ayala Land, Inc.

(In million pesos, except ratios)
Revenue
Net Income Attributable to Equity Holders
Total Assets
Total Debt
Stockholders' Equity1
Current Ratio2
Debt to Equity Ratio3

2013
81,523

2012
(As restated4)
59,932

2011
(As restated4)
47,668

11,742
325,474
101,902
98,470
1.45
1.03

9,038
254,550
74,778
81,993
1.41
0.91

7,140
166,399
39,041
62,184
1.64
0.63

2013
745,032

2012
(As restated4)
661,850

2011
(As restated4)
575,454

10,473
488,229
110,257
192,650
1.53
0.57

5,585
453,353
109,707
193,817
1.56
0.57

3,255
441,885
99,407
185,421
1.51
0.54

2013
15,926

2012
(As restated4)
14,553

2011
(As restated4)
12,004

5,752
72,858
26,252
30,477
1.12
0.86

5,490
67,127
24,071
26,488
0.83
0.91

4,270
60,897
23,268
22,538
1.24
1.03

Integrated Micro-Electronics, Inc.

(In thousand US dollars, except ratios)
Revenue
Net Income Attributable to Equity Holders
Total Assets
Total Debt
Stockholders' Equity1
Current Ratio2
Debt to Equity Ratio3
Manila Water Company, Inc.
(In million pesos, except ratios)
Revenue
Net Income Attributable to Equity Holders
Total Assets
Total Debt
Stockholders' Equity1
Current Ratio2
Debt to Equity Ratio3

Stockholders Equity attributable to owners of the Parent

Current Asset/Current Liabilities
3
Total Debt/ Stockholders Equity1 (Total Debt includes short-term debt, long-term debt and current portion of long-term debt).
4
Restatement in Y2012 and Y2011 pertains to impact of the adoption of new accounting standards on employee benefits (PAS
19) and consolidation (PFRS 10).
1

There are no known trends, events or uncertainties that will result in the Companys liquidity increasing
or decreasing in a material way.
There were no events that will trigger direct or contingent financial obligation that is material to the
Company, including any default or acceleration of an obligation.
Likewise, there were no material off-balance sheet transactions, arrangements, obligations (including
contingent obligations), and other relationships of the Company with unconsolidated entities or other
persons created during the reporting period.
There are no seasonal aspects that may have a material effect on the financial condition of the
Company.
Causes for any material changes
(Increase or decrease of 5% or more in the financial statements)
A. The accounting policies adopted in the preparation of the consolidated financial statements are
consistent with those of the previous financial years except for the new PFRS, amended PFRS and
improvements to PFRS which were adopted beginning January 1, 2013. The Group applied, for
the first time, certain standards and amendments that require restatement of previous financial
statements. These include:
a. PFRS 10 Consolidated Financial Statements*
b. PAS 19 Employee Benefits (Revised 2011)
118

*Accounting for ALI groups interests in North Triangle Depot Commercial Corporation
(NTDCC), Cebu Holdings, Inc. (CHI), Alabang Commercial Corporation (ACC), BG West
Properties, Inc. (BGW), BG South Properties, Inc. (BGS), BG North Properties, Inc. (BGN). For
all financial years up to December 31, 2012, NTDCC, CHI and ACC were considered to be
associates under the previously existing PAS 28, Investments in Associates while BGW, BGS
and BGN were considered to be joint ventures under the previously existing PAS 31, Interests
in Joint Ventures. These entities were accounted for using the equity method. At the date of
initial application of PFRS 10, the ALI group assessed that it controls these companies based
on the factors explained in Note 4 of the Groups Consolidated Financial Statements,
Judgments and Estimates and consolidated the financial statements of NTDCC, CHI, ACC,
BGW, BGS and BGN.
B. The consolidated financial statements show several significant increases in Balance Sheet
accounts (vs. December 31, 2012 balances) and Income Statement accounts (vs. December 2012
levels) relating to the ALI groups acquisitions.
On October 2, 2012, AyalaLand Hotels and Resorts Corp. (AHRC), a wholly owned subsidiary of
ALI, entered into an agreement to acquire the interests of Kingdom Manila B.V., an affiliate of
Kingdom Hotel Investments (KHI), and its nominees in KHI-ALI Manila Inc. (now renamed AMHRI)
and 72,124 common shares in KHI Manila Property Inc. (now renamed AMHPI). AMHRI and AMHPI
are the project companies for the Fairmont Hotel and Raffles Suites and Residences project in
Makati which opened last December 2012.
Balance Sheet Items
(As of December 31, 2013 vs. Restated December 31, 2012)
Cash and cash equivalents 18% decrease from P
= 80,286 million to P
= 65,655 million
Decrease significantly attributable to: real estate groups placements of funds from short term cash
equivalents to other form of financial instruments as well as their major landbanking, property
acquisitions and new project launches partially offset by the fundraising activities through reissuance of
shares, bonds offering and net new loans; payment of 2012/ new investments and loan payments
partially offset by AC parents issuance of treasury shares, bonds offering and new borrowing, plus net
new borrowings of the water distribution and wastewater services group. This account is at 11% and
16% of the total assets as of December 31, 2013 and 2012, respectively.
Short-term investments 60% decrease from P
= 297 million to P
= 119 million
Decrease due to maturities of short-term investments by AC parent and the real estate group. This
account is at less than 1% of the total assets as of December 31, 2013 and 2012.
Accounts and notes receivable (current) 32% increase from P
= 42,550 million to P
= 56,341 million
Mainly due to higher sales from across residential brands, new project launches and existing project
sales of real estate group, significant growth of revenues from Philippines and Europe operations of the
electronics group and higher receivables of BPO and international and others groups. This account is
at 9% and 8% of the total assets as of December 31, 2013 and 2012, respectively.
Inventories 51% increase from P
= 33,269 million to P
= 50,178 million
Increase primarily due to launching of new and completed projects of the real estate group (mostly on
residential projects including those from VizMin areas) and increase in inventories of the electronics
group (from Europe and China operations) and automotive group (stable supply of vehicles and
introduction of a new automotive brand Volkwagen). This account is at 8% and 7% of the total assets
as of December 31, 2013 and 2012, respectively.
Other current assets 73% increase from P
= 22,652 million to P
= 39,194 million
Increase mainly due to additional real estate deposits and prepaid expenses for projects plus
investment in short term fund/ UITF of the real estate group, increase in other current assets of the
automotive and electronics groups (input tax and creditable withholding tax) and international
operations group (higher valuation of investments). This account is at 7% and 4% of the total assets
as of December 31, 2013 and 2012, respectively.
Noncurrent asset held for sale 100% increase from zero to P
= 3,329 million
Noncurrent asset held for sale represents the carrying value of our investment that will be disposed
within Y2014.
119

Investments in bonds and other securities 14% decrease from P

= 3,244 million to P
= 2,785 million
Mainly attributable to lower investments by AC parent, water and real estate groups. This account is at
less than 1% of the total assets as of December 31, 2013 and 2012.
Land and improvements 27% increase from P
= 49,218 million to P
= 62,475 million
Increase due to new landbanking projects and additional costs recognized for certain land acquisition
of the real estate group. This account is at 10% of the total assets as of December 31, 2013 and 2012.
Investments in associates and joint ventures 16% increase from P
= 102,939 million to P
= 119,804 million
Mainly attributable to additional investments made by AC parent to financial services and insurance
group and to the additional investments made the Groups energy sector. Also attributed to the increase
was the higher share of profit of associates and joint ventures by the real estate and water distribution
and wastewater services groups partially offset by the reclassification of investment in Stream to
Noncurrent asset held for sale. This account is at 20% of the total assets as of December 31, 2013 and
2012.
Investment properties 20% increase from P
= 52,449 million to P
= 63,157 million
Increase due to the new acquisitions and developments of the real estate group major of which are
those in Metro Manila, Cebu and Cavite. This account is at 10% of the total assets as of December 31,
2013 and 2012.
Property, plant and equipment 13% increase from P
= 23,002 million to P
= 25,883 million
Increase mainly due to additions in PPE of the real estate groups hotels and resorts operations. This
account is at 4% of the total assets as of December 31, 2013 and 2012.
Intangible assets 4% decrease from P
= 4,021 million to P
= 4,176 million
Decrease mainly due to the consolidation of associates and joint ventures (effect of PFRS 10) by the
real estate groups. This account is at less than 1% of the total assets as of December 31, 2013 and
2012.
Deferred tax asset - 43% increase from P
= 4,547 million to P
= 6,514 million
Increase mainly attributable to real estate groups increase in realized gross profit on installment sales
brought by collections from previous years and PAS 19 adjustment on retirement benefit. This account
is at 1% of the total assets as of December 31, 2013 and 2012.
Pension and other noncurrent assets - 146% increase from P
= 3,254 million to P
= 8,016 million
Increase mainly attributable to the pre-development expenses for projects in the pipeline and still to be
launched by the real estate group. The account also includes the Groups pension asset. 2 This account
is at 1% of the total assets as of December 31, 2013 and 2012.
Accounts payable and accrued expenses - 26% increase from P
= 81,901 million to P
= 103,604 million
Increase mainly caused by higher trade payables and accruals of the real estate group for its expansion
in its operations and AC parents incremental payable related to its additional investment in BPI,
purchased from DBS Bank, Ltd.. This account is at 28% and 27% of the total liabilities as of December
31, 2013 and 2012, respectively.
Short-term debt 28% increase from P
= 12,343 million to P
= 15,811 million
Mainly due to the additional loans made by the real estate group. This account is at 4% of the total
liabilities as of December 31, 2013 and 2012.
Income tax payable 13% increase from P
= 1,481 million to P
= 1,668 million
Due to higher tax payable by the real estate and water distribution and wastewater services groups. As
a percentage to total liabilities, this account is at less than 1% as of December 31, 2013 and 2012.
Long-term debt (current) 38% decrease from P
= 19,021 million to P
= 11,842 million

The Company's pension fund is known as the AC Employees Welfare and Retirement Fund (ACEWRF). ACEWRF is a legal
entity separate and distinct from the Company, governed by a board of trustees appointed under a Trust Agreement between
the Company and the initial trustees. It holds common and preferred shares of the Company in its portfolio. All such shares
have voting rights under certain conditions, pursuant to law. ACEWRF's portfolio is managed by certain persons that are
beneficiaries of the fund, appointed by the fund's trustees for that purpose. These persons have the ability to exercise voting
rights over the shares in its holdings. These persons are Delfin C. Gonzalez, Jr. (who is the Company's Managing Director &
Chief Finance Officer) and Solomon M. Hermosura (who is the Company's Managing Director, Group Head of Corporate
Governance, General Counsel, Corporate Secretary & Compliance Officer). ACEWRF has not exercised voting rights over any
shares of the Company that it owns.

120

Mainly due to the settlement of loans by AC parent, the real estate, and water distribution and
wastewater services groups. This account is at 3% and 6% of the total liabilities as of December 31,
2013 and 2012, respectively.
Service concession obligation (current) 54% increase from P
= 841 million to P
= 1,290 million
Increase was mainly due to the water distribution and wastewater services groups higher service
concession obligation due within one year. This account is at less than 1% of the total liabilities as of
December 31, 2013 and 2012.
Other current liabilities 58% increase from P
= 6,970 million to P
= 10,992 million
Increase pertains mainly to the real estate groups payable to various contractors, deposits from
residential assets and higher retention payable from projects. This account is at 3% and 2% of the total
liabilities as of December 31, 2013 and 2012, respectively.
Long-term debt (noncurrent) 24% increase from P
= 143,720 million to P
= 178,027 million
Mainly due to net increase in loan amount of AC parent and the real estate (bond offerings and new
loans), water distribution and wastewater services, and international business groups. This account is
at 49% and 47% of the total liabilities as of December 31, 2013 and 2012, respectively.
Service concession obligation (noncurrent) 7% increase from P
= 7,372 million to P
= 7,868 million
Increase was mainly due to the water distribution and wastewater services groups higher service
concession obligation. This account is at 2% of the total liabilities as of December 31, 2013 and 2012.
Pension liabilities 21% increase from P
= 1,583 million to P
= 1,915 million
Increase attributable to the effect of PAS 19- immediate recognition of past service cost and remeasurement of unrealized actuarial gains or losses. This account stood at less than 1% of the total
liabilities as of December 31, 2013 and 2012.
Other noncurrent liabilities 8% increase from P
= 22,975 million to P
= 24,828 million
Increase mainly attributable to higher deposit from residential customers and increase in retention
payable of the real estate group. This account is at 7% and 8% of the total liabilities as of December
31, 2013 and 2012, respectively.
Paid-in capital - 11% increase from P
= 45,120 million to P
= 50,166 million
Mainly due to reissuances of treasury shares Preferred B and common shares by AC parent during the
year.
Cumulative translation adjustments - 61% increase (improved) from negative P
= 3,238 million to negative
P
= 1,257 million
Mainly due to higher foreign exchange translation of foreign denominated net assets held by the
international operations group (due to depreciation of Peso from P
= 41.05 in December 31, 2012 to P
=
44.395 in December 31, 2013).
Net unrealized gain on available-for-sale financial assets (including remeasurement gains/losses on
defined benefit plans) 222% decrease from P
= 856 million to negative P
= 1,040 million
Mainly due to movement in the market value of securities held by the financial services and insurance
group and impact of PAS 19 on other comprehensive income component of retirement funds
investments.
Equity reserve 39% increase from P
= 5,379 million to P
= 7,482 million
In March 2013 and July 2012, the Company participated in the placement and subscription of 399.5
million and 680.0 million common shares of stock in ALI, respectively, whereby the Company sold its
listed ALI common shares through a private placement and infused the proceeds into ALI as
subscription for the same number of new ALI shares at the same price. Following these transactions,
the Companys ownership interest in ALIs common stock was reduced from 53.2% to 50.4% as of July
2012 and further reduced to 48.9% as of March 2013. The Company will maintain the same number of
common shares it held in ALI prior to the transaction. The transaction increased the equity reserve
account by P
= 2.7 billion and P
= 5.3 billion in 2013 and 2012, respectively. The balance was partially offset
by the equity reserve on the acquisition of additional shares of the water distribution and wastewater
services group by AC parent.
Retained earnings 11% increase from P
= 83,268 million to P
= 92,640 million
Mainly due to share in group net income offset by dividends paid during the year.
121

Treasury stock 33% decrease from P

= 7,497 million to P
= 5,000 million
Mainly due to AC parents sale/reissuance of common and Preferred B treasury shares
Non-controlling interest (NCI) 12% increase from P
= 82,343 million to P
= 91,994 million
Mainly due to AC parents top-up placement and subsequent sale of ALI shares which increased NCI
plus increments due to share in year-to-date net income.
Income Statement items
(For the Year Ended December 31, 2013 vs. Restated December 31, 2012)
Sale of goods 34% increase from P
= 69,335 million to P
= 92,725 million
Mainly on account of new projects and improved sales performance of real estate, electronics (mainly
from Europe operations and new projects in the Philippines) and automotive group (improved and stable
supply of vehicles). As a percentage to total income, this account is at 58% and 53% in December 31,
2013 and 2012, respectively.
Rendering of services 9% increase from P
= 40,554 million to P
= 44,216 million
Improved sales performance of real estate (malls, office leasing & hotel operations specifically sales
generated by its newly acquired subsidiary), water distribution and wastewater services (increase in
volume) and international operations (new interactive clients) groups. As a percentage to total income,
this account is at 28% and 31% in December 31, 2013 and 2012, respectively.
Share of profit of associates and joint ventures 31% increase from P
= 7,682 million to P
= 10,091 million
Increase mainly due to earnings of financial services and insurance partly offset by lower income
registered by investees in telecommunications group. As a percentage to total income, this account is
at 6% in December 31, 2013 and 2012.
Interest income 29% decrease from P
= 4,354 million to P
= 3,072 million
Mainly due to lower placements and interest rates of real estate group and AC parent in 2013. This
account is at 2% and 3% of the total income in December 31, 2013 and 2012, respectively.
Other income 8% increase from P
= 8,646 million to P
= 9,307 million
Mainly due to forex gain and derivative asset gain of electronics, BPO and international operations
groups. This account is at 6% and 7% of the total income in December 31, 2013 and 2012, respectively.
Cost of sales 20% increase from P
= 55,285 million to P
= 66,540million
Increase attributable to higher sales of the real estate, electronics, automotive and international
operations groups. As a percentage to total costs and expenses, this account is at 52% in December
31, 2013 and 2012.
Cost of rendering services 37% increase from P
= 22,990 million to P
= 31,487 million
Increase mainly due to higher sales of rendering services and consolidation of new hotels by the real
estate, electronics, water distribution and wastewater services and BPO groups. As a percentage to
total costs and expenses, this account is at 24% and 22% in December 31, 2013 and 2012, respectively.
General and administrative expenses 14% increase from P
= 12,852 million to P
= 14,614 million
Increase mainly on account of higher expenses of real estate group [line by line consolidation of
AMHRI/AMHPI (Kingdom Investments: Fairmont and Raffles) after step-up acquisition in Q4 2012].
This expense classification accounts for 11% and 12% of the total costs and expenses in December
31, 2013 and 2012, respectively.
Interest and other financing charges 29% increase from P
= 8,155 million to P
= 10,511 million
Increase mainly due to higher loan balance as a result of fundraising activities in late 2012 and new
borrowings in 2013 of AC parent (for initiatives for new growth areas like Energy and Transport
Infrastructure sectors) and real estate group (for landbanking and expansion of various mixed use
projects). This expense classification accounts for 8% of the total costs and expenses in December 31,
2013 and 2012.
Other charges 20% decrease from P
= 6,812 million to P
= 5,481 million
Decrease mainly due lower rehabilitation costs of the water distribution and wastewater services group.
This expense classification accounts for 4% and 6% of the total costs and expenses in December 31,
2013 and 2012, respectively.
Provision for income tax 34% increase from P
= 4,976 million to P
= 6,654 million
122

Primarily due to higher taxable income of the several subsidiaries significant part of which comes from
real estate and water distribution and wastewater services groups on account of better sales and other
operating results.
Non-controlling interests 26% increase from P
= 8,995 million to P
= 11,347 million
Attributable to the favorable performance of the real estate, water distribution and wastewater services,
electronics and international operations groups in 2013.

Item 7. Financial Statements and Supplementary Schedules

The consolidated financial statements and schedules as listed in the accompanying Index to Financial
Statements and Supplementary Schedules are filed as part of this Form 17 A.

Item 8. Changes in and Disagreements with Accountants on Accounting and Financial

Disclosures
The accounting policies and methods of computations adopted in the preparation of the consolidated
financial statements are consistent with those of the previous financial years, except for the adoption of
the new and amended standards as of January 1, 2014. Please refer to Note 3 of the Companys
Consolidated Financial Statements as well as Annex K of this SEC17A report regarding summary of
significant accounting policies as of December 31, 2014.
The Company has engaged the services of SGV & Co. during the two most recent fiscal years. There
were no disagreements with SGV & Co. on any matter of accounting principles or practices, financial
statement disclosures, or auditing scope or procedure.
Information on Independent Public Accountant
a. The external auditor of the Company is the accounting firm of SyCip, Gorres, Velayo & Company
(SGV & Co.). The Board, upon the recommendation of the Companys Audit Committee (composed
of Mr. Loinaz, an independent director, as Chairman, Mr. del Rosario, Jr., an independent director,
as member, and Yoshio Amano, a non-executive director as member), approved the reappointment of SGV & Co. as the Companys independent auditor for 2015 based on their
performance and qualifications, and fixed its remuneration amounting to P5 million, inclusive of
VAT, in 2015. The 22% increase in the audit fees is due to the additional audit procedures to cover
the increasing scope and complexities of the Ayala Group and the additional review procedures for
Globe Telecom, Inc. given the latters change in external auditors to Navarro Amper & Co./Deloitte
Philippines for 2015.
The re-appointment of the SGV & Co., and the fixing of its remuneration, will be presented to the
stockholders for their approval at the annual stockholders meeting.
b. Representatives of SGV & Co. for the current year and for the most recently completed fiscal year
are expected to be present at the annual stockholders meeting. They will have the opportunity to
make a statement if they desire to do so and are expected to be available to respond to appropriate
questions.
Pursuant to the General Requirements of SRC Rule 68 (2011 Amended), Par. 3 (Qualifications and
Reports of Independent Auditors), the Company has engaged SGV & Co. as external auditor, and
Ms. Jessie D. Cabaluna has been the Partner In-Charge since audit year 2012.
External Audit Fees and Services
The Company paid or accrued the following fees, including VAT, to its external auditors in the past two
years:
Audit Fees

2014
2013

P4.12M
P3.92M

Auditrelated
Fees
P9.52 M
P5.82 M

Tax Fees

Non-Audit Fees

P1.97 M
P0.56 M

123

SGV & Co. was engaged by the Company to audit its annual financial statements. SGV & Co. was also
engaged to conduct post reviews and other procedures to issue comfort letters for the Company and
the Underwriters for the offering by AYC Finance Limited of Exchangeable Bonds in 2014, and for the
issuance of the Companys preferred B Shares in 2013 and 2014. The audit-related fees include other
assurance services that are reasonably related to the performance of the audit of the Companys
financial statements pursuant to regulatory requirements.
No tax consultancy services were secured from SGV & Co. for the past two years.
In 2014, SGV & Co. billed the Company for an aggregate fee of P1.97M for the following services:
i.

Accounting advisory services for review of policies and procedures for the offering of AYC Finance
Limited, a wholly-owned subsidiary of the Company, of the US$300 million Exchangeable Bonds
ii. Review of Ayala Rewards Circle (ARC) operational processes
iii. Accounting advisory services for the Southwest Integrated Transport System Project
iv. Validation of stockholders votes during the 2014 annual stockholders meeting
In 2013, SGV & Co. billed the Company for an aggregate fee of P0.6M for the following services:
i. Updates on Philippine Accounting and Reporting Standards for the entire group of companies and
IFRIC 12 (Service Concession) for select entities in the group.
ii. Review of ARC operational processes
iii. Validation of stockholders votes during the 2013 annual stockholders meeting
The Audit Committee reviewed the nature of non-audit services rendered by SGV & Co. and the
corresponding fees and concluded that these are not in conflict with the audit functions of the
independent auditors.
The Audit Committee has an existing policy to review and to pre-approve the audit and non-audit
services rendered by the Companys independent auditors. It does not allow the Company to engage
the independent auditor for certain non-audit services expressly prohibited by regulations of the SEC to
be performed by an independent auditor for its audit clients. This is to ensure that the independent
auditor maintains the highest level of independence from the Company, both in fact and appearance.

124

PART III - CONTROL AND COMPENSATION INFORMATION

Item 9. Directors and Executive Officers of the Registrant

The following persons have been nominated to the Board for election at the annual stockholders
meeting and have accepted their nomination:
JAIME AUGUSTO ZOBEL DE AYALA
YOSHIO AMANO
RAMON R. DEL ROSARIO, JR.
DELFIN L. LAZARO

FERNANDO ZOBEL DE AYALA

XAVIER P. LOINAZ
ANTONIO JOSE U. PERIQUET

The nominees were formally nominated to the Nomination Committee of the Board by a shareholder of
the Company, Ms. Remedios D. Wingco. Messrs. Ramon R. del Rosario, Jr., Xavier P. Loinaz and
Antonio Jose U. Periquet, all incumbent directors, are being nominated as independent directors. Ms.
Wingco is not related to any of the nominees including Messrs. Loinaz, Del Rosario, and Periquet. The
Nomination Committee evaluated the qualifications of the nominees and prepared the final list of
nominees in accordance with SRC Rule 38 (Requirements on Nomination and Election of Independent
Directors) and the By-laws of the Company.
Only nominees whose names appear on the final list of candidates are eligible for election as
directors. No nominations will be entertained or allowed on the floor during the annual stockholders
meeting.
Messrs. Jaime Augusto Zobel de Ayala, Fernando Zobel de Ayala, Lazaro and Loinaz have served as
directors of the Company for more than five years. On the other hand, Messrs. Del Rosario and Periquet
have served as directors of the Company for five years. Mr. Amano has served as director for less than
five years.
The officers of the Company are elected annually by the Board during its organizational meeting.
A summary of the qualifications of the incumbent directors, nominees for directors for election at the
stockholders meeting and incumbent officers including positions currently held by the directors and
executive officers, as well as positions held during the past five years is set forth below.
Board of Directors
Jaime Augusto Zobel de Ayala
Fernando Zobel de Ayala
Yoshio Amano
Ramon R. del Rosario, Jr.
Delfin L. Lazaro
Xavier P. Loinaz
Antonio Jose U. Periquet

Chairman and Chief Executive Officer

President and Chief Operating Officer
Director
Independent Director
Director
Independent Director
Independent Director

Jaime Augusto Zobel de Ayala, Filipino, 55, Director of Ayala Corporation since May 1987. He is the
Chairman and CEO of Ayala Corporation since April 2006. He holds the following positions in publicly
listed companies: Chairman of Globe Telecom, Inc., Integrated Micro-Electronics, Inc. and Bank of the
Philippine Islands; and Vice Chairman of Ayala land, Inc. and Manila Water Company, Inc. He is also
the Co-Chairman of Ayala Foundation, Inc.; Vice Chairman of AC Energy Holdings, Inc.; Chairman of
Harvard Business School Asia-Pacific Advisory Board; Vice Chairman of the Makati Business Club, and
member of the Harvard Global Advisory Council, Mitsubishi Corporation International Advisory
Committee, JP Morgan International Council, Endeavor Philippines and National Competitiveness
Council; and a Philippine Representative for APEC Business Advisory Council. He graduated with B.A.
in Economics (Cum Laude) at Harvard College in 1981 and took his MBA at the Harvard Graduate
School of Business Administration in 1987.
Fernando Zobel de Ayala, Filipino, 54, Director of Ayala Corporation since May 1994. He is the
President and Chief Operating Officer of Ayala Corporation since April 2006. He holds the following
positions in publicly listed companies: Chairman of Ayala Land, Inc. and Manila Water Company, Inc.;
and Director of Bank of The Philippine Islands, Globe Telecom, Inc. and Integrated Micro-Electronics,
Inc. He is the Chairman of AC International Finance Ltd., AC Energy Holdings, Inc., and Hero
Foundation, Inc.; Co-Chairman of Ayala Foundation, Inc.; Director of LiveIt Investments, Ltd., Ayala
125

International Holdings Limited, Honda Cars Philippines, Inc., Isuzu Philippines Corporation, Pilipinas
Shell Petroleum Corp., Manila Peninsula and Habitat for Humanity International; Member of the
INSEAD East Asia Council, World Presidents Organization and Habitat for Humanity International;
Chairman of Habitat for Humanitys Asia-Pacific Capital Campaign Steering Committee; and Member
of the Board of Trustees of Caritas Manila, Pilipinas Shell Foundation, Kapit Bisig para sa Ilog Pasig
Advisory Board, National Museum and the foundation of the Roman Catholic Church. He graduated
with B.A. Liberal Arts at Harvard College in 1982.
Yoshio Amano, Japanese, 56, Director of Ayala Corporation since April 2012. He is a Senior Vice
President of Mitsubishi Corporation and the General Manager of Mitsubishi Corporation-Manila Branch;
Chairman of International Elevator & Equipment Inc., and MCPL (Philippines) Inc.; President of MC
Diamond Realty Investment Phils., Inc., MC Oranbo Investment, Inc. and Japanese Chamber of
Commerce & Industry of the Philippines (JCCIPI); Director of Isuzu Philippines Corporation, Imasen
Philippines Manufacturing Corp., Kepco Ilijan Corporation, UniCharm Philippines Inc., Trans World
Agro-Products Corp., Philippine Resins Industries, Inc., Portico Land Corporation, and The Japanese
Association Manila, Inc. He is not a director of any publicly listed company. Mr. Amano graduated from
the University of Tokyo with a degree on Faculty Engineering in 1982.
Ramon R. del Rosario, Jr., Filipino, 70, Independent Director of Ayala Corporation since April
2010. He holds the following positions in publicly listed companies: President and Chief Executive
Officer of Phinma Corporation; Chairman of Trans-Asia Petroleum Corporation; and Vice Chairman of
Trans-Asia Oil and Energy Development Corporation. He is the President and Chief Executive Officer
of Philippine Investment Management, Inc.; Chairman of Araullo University, University of Iloilo,
University of Pangasinan, Cagayan de Oro College, United Pulp and Paper Co., Inc., Microtel Inns and
Suites (Pilipinas), Inc., Microtel Development Corp., Trans-Asia Power Generation Corporation, TransAsia Renewable Energy Corp., Trans-Asia Gold and Minerals Development Corp., CIP II Power Corp.,
Fuld & Co., Inc., Fuld & Co (Philippines), Inc. and Paramount Building Management & Services Corp.;
Vice-Chairman of Phinma Foundation; Director of Phinma Property Holdings Corp., Union Galvasteel
Corp., and South Luzon Thermal Energy Corp.; Chairman of The National Museum of the Philippines,
the Makati Business Club, Philippine Business for Education, the Philippines-US Business Council, and
the Integrity Initiative; Vice-Chairman of Caritas Manila; and Trustee of De La Salle University. Mr. del
Rosario graduated from De La Salle College in 1967 with a degree in BSC-Accounting and AB Social
Sciences Magna cum Laude and from Harvard Business School in 1969 for his Master in Business
Administration.
Delfin L. Lazaro, Filipino, 68, Director of Ayala Corporation since January 2007. He holds the following
positions in publicly listed companies: Director of Ayala Land, Inc., Integrated Micro-Electronics, Inc.,
Manila Water Company, Inc., and Globe Telecom, Inc.; and Independent Director of Lafarge Republic,
Inc. His other significant positions include: Chairman of Philwater Holdings Company, Inc. and Atlas
Fertilizer & Chemicals Inc., Chairman and President of A.C.S.T. Business Holdings, Inc.; Vice Chairman
and President of Asiacom Philippines, Inc.; Director of AC Energy Holdings, Inc., AC Infrastructure
Holdings Corporation, Ayala International Holdings, Ltd., Bestfull Holdings Limited, Probe Productions,
Inc. and Empire Insurance Company; and Trustee of Insular Life Assurance Co., Ltd. He graduated
with BS Metallurgical Engineering at the University of the Philippines in 1967 and took his MBA (with
Distinction) at Harvard Graduate School of Business in 1971.
Xavier P. Loinaz, Filipino, 71, Independent Director of Ayala Corporation since April 2009. He is also
an Independent Director of Bank of the Philippine Islands, a publicly listed company. He also holds the
following positions: Independent Director of BPI Family Savings Bank, Inc., BPI Direct Savings Bank,
and BPI/MS Insurance Corporation; Trustee of E. Zobel Foundation, BPI Foundation, Inc. and PETA;
and Chairman of Alay Kapwa Kilusan Pangkalusugan and XPL Manitou Properties, Inc.; and Vice
Chairman of XPL MTJL Properties, Inc. He was formerly the President of the Bank of the Philippine
Islands (BPI) from 1982 to 2004. He was also the President of Bankers Association of the Philippines
from 1989 to 1991. He graduated with an AB Economics degree at Ateneo de Manila University in
1963 and took his MBA-Finance at Wharton School, University of Pennsylvania in 1965.
Antonio Jose U. Periquet, Filipino, 53, Independent Director of Ayala Corporation since
September 2010. He is also an Independent Director of other listed companies namely: ABS-CBN
Corporation, ABS-CBN Holdings Corporation, Bank of the Philippine Islands, DMCI Holdings, Inc.
Philippine Seven Corporation, and Maxs Group, Inc. His other significant positions are: Chairman of
Pacific Main Holdings, Inc., Campden Hill Group, Inc., and Campden Hill Advisor, Inc.; Director of The
Straits Wine Company; Independent Director of BPI Capital Corporation, and BPI Family Savings Bank,
Inc.; and Trustee of Lyceum of the Philippines University. He graduated with an AB Economics degree
126

at Ateneo de Manila University in 1982 and took his Masters of Science in Economics at the Oxford
University, UK in 1988 and Masters in Business Administration at University of Virginia, USA in 1990.
Nominees to the Board of Directors for election at the stockholders meeting
All the above incumbent directors.
Ayala Group Management Committee Members / Senior Leadership Team
*/***
*/***
***
**
**
**
**
**
****
***
***/*****
***

Jaime Augusto Zobel de Ayala

Fernando Zobel de Ayala
Gerardo C. Ablaza, Jr.
Cezar P. Consing
Arthur R. Tan
Ernest Lawrence L. Cu
Bernard Vincent O. Dy
Alfredo I. Ayala
Maria Lourdes Heras-De Leon
John Eric T. Francia
Delfin C. Gonzalez, Jr.
Solomon M. Hermosura

*****
******
***

Jose Teodoro K. Limcaoco

Ruel T. Maranan
John Philip S. Orbeta

***

Paolo Maximo F. Borromeo

Ma. Cecilia T. Cruzabra
Josephine G. De Asis
June Vee D. MonteclaroNavarro

Chairman & Chief Executive Officer

President & Chief Operating Officer
Senior Managing Director, President and CEO of Manila Water Company, Inc.
Senior Managing Director, President and CEO of Bank of the Philippine Islands
Senior Managing Director, President and CEO of Integrated Micro-Electronics, Inc.
President and CEO of Globe Telecom, Inc.
President and CEO of Ayala Land, Inc.
Managing Director, Chief Executive Officer of LiveIt Investments, Ltd.
Managing Director, President of Ayala Foundation, Inc.
Managing Director, President and CEO of AC Energy Holdings, Inc. and AC
Infrastructure Holdings Corporation
Managing Director & Chief Finance Officer (CFO)
Managing Director, Group Head of Corporate Governance, General Counsel,
Corporate Secretary & Compliance Officer
Managing Director, CFO and Finance Group Head
Managing Director, President of Ayala Foundation, Inc.
Managing Director, Group Head of Corporate Resources and Chairman and
President of Ayala Automotive Holdings Corporation
Executive Director, Group Head of Corporate Strategy and Development
Treasurer
Controller
Assistant Corporate Secretary

* Members of the Board of Directors.

** Ayala Group Management Committee members.
***Ayala Corporation Management Committee and Ayala Group Management Committee members
**** Retired effective December 31, 2014.
***** Mr. Limcaoco was appointed as CFO and Finance Group Head effective April 10, 2015 replacing Mr. Gonzalez.
****** Managing Director effective January 1, 2015 and as President of Ayala Foundation, Inc. effective March 1, 2015.

Gerardo C. Ablaza, Jr. 61, Filipino, has served as member of the Ayala Corporation Management
Committee since April 2009 and the Ayala Group Management Committee since 1998. He also holds
the following positions in other publicly listed companies in the Philippines: President and CEO of Manila
Water Company, Inc. and Co-Vice Chairman of Globe Telecom, Inc. He is also a member of the Board
of Directors of Hochiminh City Infrastructure Investment Joint Stock Company, a listed company on the
Ho Chi Minh Stock Exchange. His other significant positions are: Director of Manila Water Philippine
Ventures, Inc., Boracay Island Water Company, Inc., Cebu Manila Water Development, Inc., Manila
Water Consortium, Inc., Manila Water International Solutions, Inc., Clark Water Corporation, Manila
Water Total Solutions Corporation, Manila Water Asia Pacific Pte. Ltd., Manila Water South Asia
Holdings Pte. Ltd., Kenh Dong Water Holdings Pte. Ltd., and Thu Duc Water Holdings Pte. Ltd., Azalea
International Ventures Partners Ltd., Asiacom Philippines, Inc., LiveIt Investment Ltd.; AC Energy
Holdings, Inc., Purefoods International Investment Ltd., ACST Business Holdings, Inc. and AG Holdings
Limited. He is also a member of the Board of Trustees of the Manila Water Foundation, Inc. and Ayala
Foundation, Inc. From 1998 to April 2009, Mr. Ablaza was the President and CEO of Globe Telecom,
Inc. He was also the Chairman of the Board of Directors of Innove Communications Inc., a wholly owned
subsidiary of Globe Telecom Inc. from October 2003 to April 2009. Before joining the Ayala Group, Mr.
Ablaza was Vice-President and Country Business Manager for Philippines and Guam of Citibank, N.A.
for its Global Consumer Banking Business (1994-1997), Vice President for Consumer Banking of
Citibank, N.A. Singapore (1994-1995). In 2004, Mr. Ablaza was recognized by CNBC as the Asia
Business Leader of the Year, making him the first Filipino CEO to win the award. In the same year, he
was awarded by Telecom Asia as the Best Asian Telecom CEO. In 2013, he was recognized for his
consistent leadership and innovation across the banking, investment, telecommunications and utility
service industries through the Citi Distinguished Alumni Award for Leadership and Ingenuity. Mr. Ablaza
graduated summa cum laude from the De La Salle University in 1974 with a degree in Liberals Arts,
Major in Mathematics (Honors Program). As one of the most accomplished graduates of his alma
mater, he sits as a member of the Board of Trustees in various De La Salle schools in the country.
Cezar P. Consing, Filipino, 55, is a Senior Managing Director of Ayala Corporation and a member of
its Ayala Group Management Committee since April 2013. He also holds the following positions in other
127

publicly listed companies: President and CEO of Bank of the Philippine Islands and Independent
Director of Jollibee Foods Corporation. His other significant positions are: Chairman of BPI Direct
Savings Bank, Inc. and BPI Computer Systems Corporation, Vice Chairman of BPI Capital Corporation,
Director of BPI Family Savings Bank, Inc., BPI Globe BanKo, Inc, BPI/MS Insurance Corporation,
Capital Advisors Partners Asia Sdn Bhd, Capital Islamic Infrastructure Fund (General Partner) Limited,
Capital Asean Infrastructure Fund II (General Partner) Limited, Arch Capital Management Co. Ltd., Arch
Capital Asian Partners, G.P and Filgifts.com , He was a partner at the Rohatyn Group from 2004 to
March 2013; an Investment Banker with J.P. Morgan & Co. from 1985 to 2004; and an independent
director of CIMB Group Holdings Berhad and CIMB Group Sdn. Berhad from 2004 to 2012 and First
Gen Corporation from 2005 to 2013. He graduated with a degree of A.B (Accelerated Program)
Economics (Magna Cum Laude) from De La Salle University in 1979 and took his M.A. Applied
Economics in the University of Michigan in 1980.
Arthur R. Tan, Filipino, 55, has been a member of the Ayala Group Management Committee since
2002. He is a Senior Managing Director of the Company since January 2007. He has been the
President and Chief Executive Officer of Integrated Micro-Electronics, Inc., a publicly listed company,
since April 2002. Concurrently, he is the President and Chief Executive Officer of PSi Technologies
Inc., and President of Speedy-Tech Electronics Ltd. He graduated with B.S. in Electronics
Communications Engineering degree from Mapua Institute of Technology in 1982 and attended post
graduate programs at the University of Idaho, Singapore Institute of Management, IMD and Harvard
Business School.
Ernest Lawrence L. Cu, Filipino, 54, has been a member of the Ayala Group Management Committee
since January 2009. He is the President and Chief Executive Officer of Globe Telecom, Inc., a publicly
listed company. He is a trustee of Ayala Foundation, Inc. and Hero Foundation, Inc. He is also a director
of BPI Globe BanKo, Inc., Systems Technology Institute, Inc., and Prople BPO, Inc. Prior to joining
Globe, he was the President and CEO of SPI Technologies, Inc. In 2014, he was honored as the
Telecommunications Executive of the Year in the Stevies International Business Awards. In 2013, he
was the highest ranked Filipino in the Power 100 of London-based Global Telecoms Business Magazine
that recognizes the 100 most influential telecom leaders worldwide. He earned international accolade
in 2012 as CEO of the Year by Frost & Sullivan Asia Pacific. In 2010, he was adjudged Best CEO by
Finance Asia. He was moreover conferred the International Association of Business Communicators'
(IABC) CEO EXCEL award for communication excellence in telecoms and IT, and he was also voted
as one of the Most Trusted Filipinos in a poll conducted by Readers Digest. He earned a degree in BS
Industrial Management Engineering from De La Salle University in 1982 and took his Masters Degree
in Business Administration at the JL Kellogg Graduate School of Management in 1984.
Bernard Vincent O. Dy, Filipino, 51, has been a member of the Ayala Group Management Committee
since April 2014. He is the President & Chief Executive Officer of Ayala Land, Inc. (ALI). Prior to this
post, he was the Head of the Residential Business, Commercial Business and Corporate Marketing and
Sales of ALI. He is the Chairman of other two publicly listed companies namely: Cebu Holdings, Inc.
and Cebu Property Ventures and Development Corporation. His other significant positions include:
Chairman of Ayala Land International Sales, Inc., Anvaya Cove Golf & Sports Club and Amicassa
Process Solutions, Inc., Amaia Land Corporation, Avida Land Corp. (Avida), Alveo, Alviera Country
Club, Inc., Ayalaland Commercial Reit, Inc., Lagdigan Land Corporation, Cagayan De Oro Gateway
Corp., BGSouth Properties, Inc., BGNorth Properties, Inc., BGWest Properties, Inc., Portico Land Corp.,
Directpower Services, Inc., Philippine Integrated Energy Solutions, Inc., Bonifacio Estate Services
Corporation, Amaia Southern Properties, Inc. ; Vice Chairman of Bellavita Land Corporation and Ayala
Greenfield Development Corporation; President of Serendra, Inc. and Varejo Corporation, Alabang
Commercial Corporation, Accendo Commercial Corp., Aurora Properties Incorporated, Ceci Realty Inc.,
Vesta Property Holdings, Inc., Bonifacio Land Corporation, Berkshires Holdings, Inc. and Columbus
Holdings, Inc.; Director of Fort Bonifacio Development Corporation, Ayala Land Sales, Inc., North
Triangle Depot Commercial Corporation, Station Square East Commercial Corporation, Ayala
Greenfield Golf & Leisure Club, Ayala Property Management Corporation, Makati Development
Corporation and Nuevocentro, Inc.; and Treasurer of SIAL Specialty Retailers, Inc. and SIAL CVS
Retailers, Inc. He earned a degree of B.B.A Accountancy from the University of Notre Dame in 1985
and took his Masters Degree in Business Administration and International Relations at the University
of Chicago in 1997 and 1989, respectively.
Alfredo I. Ayala, Filipino, 53, has been a Managing Director of Ayala Corporation and a member of the
Ayala Group Management Committee since June 2006. He is the Chief Executive Officer of LiveIt
Investments, Ltd., the holding company of Ayala Corporation for its investments in the BPO sector, and
LiveIt Global Services Management Institute, Inc, Currently, he also holds the following positions:
Chairman of International Business Processing Association of the Philippines and Integreon Managed
128

Solutions (Philippines), Inc.; and Director of Affordable Private Education Centers, Inc., NewBridge
International Investment Limited, Affinity Express Holdings Limited, Affinity Express Philippines, Inc. IQ
BackOffice Holdings, Ltd., HRMall, Inc., Integreon, Inc., and Integreon Managed Solutions Philippines,
Inc. He has an MBA from the Harvard Graduate School of Business Administration and B.A. in
Development Studies and Economics, graduating with honors from Brown University.
Maria Lourdes Heras-De Leon, Filipino, 60, was a Managing Director of Ayala Corporation in October
2011 and President of Ayala Foundation, Inc. in January 2012. She retired from the Company on
December 31, 2014. She was formerly with Chevron Geothermal Philippines Holdings as Vice
President for Policy, Government and Public Affairs. She was expatriated to the Philippines as a
member of the Senior Leadership Team to lead Chevron Geothermals and Chevron Malampayas
government affairs, policy advocacy and public affairs. She also led the companys community
engagement and corporate social responsibility programs refocusing its community development
projects from traditional corporate donations into a sustainable, public-private partnership process. She
spearheaded the advocacies of Ayala Foundation: Education, Youth Leadership, Sustainable
Livelihood and Arts & Culture. She graduated with a degree of Bachelor of Arts in Asian Studies from
the University of British Columbia in 1976 and took her Masters Degree in Business Administration
from Thunderbird School of Global Management in 1981.
John Eric T. Francia, Filipino, 43, is a Managing Director and a member of the Ayala Corporation
Management Committee and the Ayala Group Management Committee since January 2009. He is the
head of Ayalas Energy and Infrastructure Group since September 2014. He is a Director of publicly
listed companies namely: Manila Water Company, Inc. and Integrated Micro-Electronics, Inc. He also
holds the following positions: President and Chief Executive Officer of AC Energy Holdings, Inc. and
AC Infrastructure Holdings Corp.; Chairman and President of PhilNewEnergy, Inc., PhilnewRiver Power
Corp., PhilnewHydro Power Corp., and Quadriver Power Corp.; and Director of LiveIt Investments Ltd,
Live It Global Services Management Institute, Inc., Northwind Power Development Corp., North Luzon
Renewable Energy Corporation, South Luzon Thermal Energy Corporation, Automated Fare Collection
Services, Inc., Light Rail Manila Corporation, and HCM City Infrastructure Investment Joint Stock
Company. Mr. Francia was the head of the Companys Corporate Strategy and Development Group,
which is responsible for overseeing Ayalas portfolio strategy and new business development, from
January 2009 to September 2014. Prior to joining Ayala, Mr. Francia was a senior consultant and
member of the management team of Monitor Group, a strategy consulting firm based in Cambridge,
Massachusetts, USA. Prior to consulting, he spent a few years in the field of academe and media. He
received his undergraduate degree in Humanities and Political Economy from the University of Asia &
the Pacific, graduating magna cum laude. He then completed his Masters Degree in Management
Studies at the University of Cambridge in the UK, graduating with First Class Honors.
Delfin C. Gonzalez, Jr., Filipino, 65, is the Chief Finance Officer of Ayala Corporation and is also a
member of the Ayala Corporation Management Committee, and the Ayala Group Management
Committee since April 2010. He joined Ayala Corporation in late 2000, assigned as Chief Finance
Officer for its subsidiary, Globe Telecom, Inc. until early 2010. He is a director of Integrated MicroElectronic, Inc, a publicly listed company. He also holds the following positions in various companies of
the Ayala Group: Chairman of Darong Agricultural Development Corporation, AC Infrastructure
Holdings Corporation and AYC Finance Ltd.; President and Director of Ayala DBS Holdings Inc.; and
Director of AC International Finance, Ltd., Asiacom Philippines, Inc., AC Energy Holdings, Inc., LiveIt
Investments, Ltd., Ayala Aviation Corporation, AYC Holdings Ltd., Michigan Holdings, Inc., Azalea
International Venture Partners Ltd., Philwater Holdings Company, and various Ayala international
companies. He graduated Magna Cum Laude in Bachelor of Science in Chemical Engineering from
De La Salle College in 1971 and took his Masters Degree in Business Administration from Harvard
Business School in 1975.
Solomon M. Hermosura, Filipino, 52, has served as Managing Director of Ayala Corporation since
1999 and a member of the Ayala Corporation Management Committee since 2009 and the Ayala Group
Management Committee since 2010. He is also the Group Head of Corporate Governance, General
Counsel, Compliance Officer, and Corporate Secretary of Ayala Corporation. He is the CEO of Ayala
Group Legal. He serves as General Counsel and Corporate Secretary of Ayala Land, Inc., and
Corporate Secretary of Globe Telecom, Inc., Manila Water Company, Inc., Integrated Micro-Electronics,
Inc. and Ayala Foundation, Inc.; and a member of the Board of Directors of a number of companies in
the Ayala group. He graduated valedictorian with Bachelor of Laws degree from San Beda College in
1986 and placed third in the 1986 Bar Examination.
Jose Teodoro K. Limcaoco, Filipino, 52, was appointed Chief Finance Officer and Finance Group
Head of Ayala Corporation effective April 10, 2015. He is currently the President of BPI Family Savings
129

Bank. His prior assignments within the Ayala Group include President of BPI Capital Corporation from
2007 to 2010. He was Officer-in-Charge for Ayala Life Assurance, Inc. and Ayala Plans, Inc., Trustee
and Treasurer of Ayala Foundation, Inc., President of myAyala.com, and CFO of Azalea Technology
Investments, Inc. He graduated with a degree in BS Mathematical Sciences in Standford University in
1984 and took his Masters Degree in Finance from Wharton School University in 1988.
Ruel T. Maranan, Filipino, 52, is a Managing Director of Ayala Corporation effective January 1, 2015.
He was the Group Director of Manila Water Company, Inc. (MWC)s Corporate Human Resources
Group from 2004 to 2014. Before joining MWC, he was part of various organizations such as Globe
Telecom, Inc., Vitarich Corporation, and Integrated Farm Management, among others. In MWC, Mr.
Maranan introduced numerous innovations in human resources management, rallying behind the
companys being the first Filipino company to win the prestigious Asian Human Capital Award in 2011,
an award sponsored by the Singapore Ministry of Manpower, CNBC Asia-Pacific, and INSEAD.
Through his leadership in human resources, MWC was vested the 2006 Outstanding Employer of the
Year by the People Management Association of the Philippines. Mr. Maranan earned his AB Social
Sciences degree from the Ateneo de Manila University and his law degree from the University of Santo
Tomas. He has also completed the Harvard Leadership Management Program.
John Philip S. Orbeta, Filipino, 53, has served as a member of the Ayala Corporation Management
Committee since May 2005 and the Ayala Group Management Committee since April 2009. He is
currently the Managing Director and Group Head for Corporate Resources, covering Strategic Human
Resources, Corporate Communications and Information & Communications Technology at Ayala
Corporation. He is the President and CEO of Ayala Automotive Holdings, Corporation and Automobile
Central Enterprise, Inc. (Philippine importer of Volkswagen). He is Chairman and CEO of Honda Cars
Makati, Inc., Isuzu Automotive Dealership, Inc., and Iconic Dealership, Inc.; Chairman of Ayala Aviation
Corporation and HRMall, Inc./IQBack Office. He also serves as a Director of AG Counselors
Corporation, BPI Family Bank, Inc. and ALFM Growth Fund, Inc. He is concurrently the Chairman of
the following councils at the Ayala Group: Human Resources Council, Corporate Security Council, and
the Ayala Business Clubs and is the Program Director of the Ayala Young Leaders Congress. Prior to
joining Ayala Corporation, he was the Vice President and Global Practice Director of the Human Capital
Consulting Group at Watson Wyatt Worldwide (now Towers Watson), overseeing the firm's practices in
executive compensation, strategic rewards, data services and organization effectiveness around the
world. He was also a member of Watson Wyatt's Board of Directors. He graduated with a degree in
A.B. Economics from the Ateneo de Manila University in 1982.
Paolo Maximo F. Borromeo, Filipino, 37, has served as Group Head of Corporate Strategy and
Development of the Company since September 2014 and has since then been a member of the Ayala
Corporation Management Committee and the Ayala Group Management Committee. He oversees the
overall portfolio strategy and corporate planning process, group-wide innovation projects and new
business development initiatives, and investor relations. He sits on the board of PhilNew Energy, Inc.
Viage Corporation, Moorland Philippines Holdings, Inc., Presage Corporation, Affordable Private
Education Center, Inc., AC College of Enterprise and Technology, Inc., LiveIt Global Services
Management, Inc., LiveIt Investments, Ltd. and LINC Institute, Inc. Prior to joining Ayala, he was a
Principal at Booz & Company, a global strategy consulting firm, based in San Francisco, California,
USA. He obtained his Bachelors of Science degree in Management Engineering from the Ateneo de
Manila University and his Masters in Business Administration with honors from the Wharton School at
the University of Pennsylvania.
Ma. Cecilia T. Cruzabra, Filipino, 49, has served as Treasurer of Ayala Corporation since January 1,
2014. Currently, she also holds the following positions: President/Director of AYC Finance Limited;
Director and Treasurer of Technopark Land, Inc. and AC Infrastructure Holdings Corp.,
respectively; Treasurer of ACST Business Holdings, Inc., Asiacom Philippines, Inc., Ayala Foundation,
Inc., Azalea International Venture Partners Ltd., Azalea Technology Investments, Inc., Lagdigan Land
Corporation and Purefoods International Limited; Director of AYC Finance Limited, AYC Holdings
Limited, Bayan Telecommunications, Inc., Michigan Holdings, Inc. and Workplace Asia Solutions. She
is also an Adjunct Faculty at the Asian Institute of Management. Prior to joining Ayala, she was the
Director/Treasurer of Halo Holdings and the Subsidiaries and the Corporate Finance Head of ALC Explo
and General Services, Inc. and the Chairman of the Board and President of Altimax Broadcasting Co.,
a subsidiary of Halo Holdings. She also served as the Treasury and Enterprise-Wide Risk Management
Head of Globe Telecom, Inc. from 1997 to 2006. She earned a degree in Bachelor of Arts in Economics
from Ateneo de Manila University in 1986 and took her Masters in Business Management at the Asian
Institute of Management in 1990.

130

Josephine G. De Asis, Filipino, 43, has been the Controller of Ayala Corporation since August 2012.
Currently, she also holds the following positions: Chairwoman of PPI Prime Ventures, Inc., Director and
Chief Finance Officer of Azalea International Venture Partners Ltd., Azalea Technology Investments,
Inc. and Pameka Holdings, Inc., Director of Darong Agricultural & Development Corporation,
Technopark Land, Inc., and Water Capital Works, Inc.,; Chief Finance Officer of AG Counselors
Corporation and Michigan Holdings, Inc.; and Audit and Risk Committee Member of AC Energy
Holdings, Inc.. Prior to joining Ayala Corporation, she served as the Head of Financial Control Division
of Globe Telecom, Inc. from 2010 to 2012 and Controller of the Wireless Business of Globe Telecom,
Inc. from 2005-2010. She is a Certified Public Accountant. She graduated with a degree in BS
Accountancy (summa cum laude) from Polytechnic University of the Philippines in 1991 and attended
an Executive Management Program of the University of California Los Angeles in 2004-2005.
June Vee D. Monteclaro-Navarro, Filipino, 43, is the Assistant Corporate Secretary of Ayala
Corporation since April 11, 2014. She is a Director of Ayala Group Legal. Currently, she holds the
position of Corporate Secretary of Cebu Holdings, Inc., Cebu Property Ventures Development
Corporation, Aurora Properties, Inc., Vesta Property Holdings, Inc., Ceci Realty, Inc., Buendia
Landholdings, Inc., Avida Land Corporation, Avida Sales Corp., Avencosouth Corp., Alveo Land
Corporation, HLC Development Corporation, OLC Development Corporation, Solerte Corp., Laguna
Phenix Structures, Inc., Alabang Commercial Corporation, Leisure and Allied Industries Phils., Inc.,
North Triangle Depot Commercial Corporation, Food Court Company, Inc., Asterion Technopod
Incorporated; and Assistant Corporate Secretary and Deputy General Counsel of Ayala Land, Inc. She
earned a Bachelor of Laws degree from the University of the Philippines in 1997.
Employment Contracts and Termination of Employment and Change-in-Control Arrangements
The above named executive officers are covered by letters of appointment stating their respective job
functionalities, among others.
Significant Employees
The Company considers its human resources working as a team as a key element for its continued
success. But the Company has no employee who is not an executive officer and who is expected to
make individually on his own a significant contribution to the business.
Family Relationships
Jaime Augusto Zobel de Ayala, Chairman/Chief Executive Officer, and Fernando Zobel de Ayala,
President/Chief Operating Officer, are brothers.
There are no known family relationships between the current members of the Board and key officers
other than the above.
Ownership Structure and Parent Company
As of January 31, 2015, Mermac, Inc. owns 56.53% of the outstanding voting shares of the Company.
Involvement in Certain Legal Proceedings
Please refer to Part I - Item 3. Legal Proceedings.
Resignation of Directors/Management Committee members/Key Officers
To date, no director has resigned from, or declined to stand for re-election to the Board since the date
of the 2014 annual meeting of stockholders due to any disagreement with the Company relative to its
operations, policies and practices.

Item 10. Executive Compensation

Name and Principal Position

Year

Salary

Bonus

Other Annual
Compensation

Jaime Augusto Zobel de Ayala

Chairman & CEO
Fernando Zobel de Ayala
President & Chief Operating Officer
John Eric T. Francia
Managing Director
Delfin C. Gonzalez, Jr.
Managing Director & Chief Finance
Officer

131

Solomon M. Hermosura
Managing Director, General Counsel,
Corporate Secretary & Compliance
Officer
John Philip S. Orbeta
Managing Director
CEO & Most Highly Compensated
Executive Officers

Actual 2013
Actual 2014
Projected 2015
All other officers** as a group
Actual 2013
unnamed
Actual 2014
Projected 2015
**Managers and up (including all above-named officers).

P199M
P215M
P234M
P409M
P465M
P480M

P131M
P175M
P127M
P226M
P313M
P260M

P0
P0
P0
P0
P0
P0

The total annual compensation consists of basic pay and other taxable income (guaranteed bonus and
performance-based bonus).
The Company has no other arrangement with regard to the remuneration of its existing directors and
officers aside from the compensation received as herein stated.
Warrants and options outstanding; repricing
i.

Since 1995, the Company has offered its officers options to acquire common shares under its
executive stock option plan (ESOP). Of the above named officers, there were options covering
187,629 shares exercised in 2014 by the following officers, to wit:
Name

No. of Shares

John Eric T. Francia

Fernando Zobel de Ayala
Jaime Augusto Zobel de Ayala
All above-named Officers as a group
187,629
All officers ** and Directors as a Group
666,299**
* Average prices.
** Managers and up including the above-named officers.

ii.

Date of
Grant

Exercise Price

Market Price at
Date of Grant

Various
Various
Various

Various
Various
Various
358.44
188.02*

Various
Various
Various
492.04*
236.91*

The Company has adjusted the exercise price and market price of the options awarded to the above
named officers due to the stock dividend declared by the Company in May 2004, June 2007, May
2008 and July 2011 and to the reverse stock split in May 2005.

Compensation of Directors
Article IV, Section 20, of the By-Laws provides:
Section 20 - Each director shall be entitled to receive from the Corporation, pursuant to a resolution of
the Board of Directors, fees and other compensation for his services as director. The Board of Directors
shall have the sole authority to determine the amount, form and structure of the fees and other
compensation of the directors. In no case shall the total yearly compensation of directors exceed one
percent (1%) of the net income before income tax of the Corporation during the preceding year.
The compensation and remuneration committee of the Board of Directors shall have the responsibility
of recommending to the Board of Directors the fees and other compensation for directors. In discharging
this duty, the committee shall be guided by the objective of ensuring that the level of compensation
should fairly pay directors for work required in a company of the Corporations size and scope. (As
amended on 18 April 2011)
i.

Standard arrangement
During the 2011 annual stockholders meeting, the stockholders approved a resolution fixing the
current remuneration of non-executive directors as follows:
Retainer Fee:
Board Meeting Fee per meeting attended:
Audit Committee Meeting Fee per meeting attended:
Other Committee Meeting Fee per meeting attended:

P 1,200,000.00
P 200,000.00
P 100,000.00
P 50,000.00
132

Directors who hold executive or management positions do not receive directors fees.
compensation of executive directors is included in the compensation table in Item 10 above.
ii.

The

Other arrangement
None of the directors who are paid fees as set forth above (Standard arrangement) is contracted
and compensated by the Company for services other than those provided as a director.
The Company has no other arrangement with regard to the remuneration of its existing directors
and officers aside from the compensation received as herein stated.

The Companys Personnel and Compensation Committee is chaired by Mr. del Rosario, an independent
director, with Messrs. Lazaro and Amano as members.

Item 11. Security Ownership of Certain Beneficial Owners and Management

Security ownership of certain record and beneficial owners (of more than 5%) as of January 31, 2015.
Title of
class
of voting
shares
Common
Voting
Preferred

Common

Common
Voting
Preferred
Common

Name and address of record owner

and relationship with Issuer

Mermac, Inc.3
3/F Makati Stock Exchange Building,
Ayala Triangle,
Ayala Avenue, Makati City
Stockholder
PCD Nominee Corporation
(Non-Filipino)5
G/F MSE Bldg.
Ayala Ave., Makati City
Mitsubishi Corporation7
3-1, Marunouchi 2- Chome, Chiyodaku, Tokyo 100-8086
PCD Nominee Corporation
(Filipino)3
G/F MSE Bldg.
Ayala Ave., Makati City

Name of beneficial
owner and
relationship with
record owner
Mermac, Inc.4

Citizenship

No. of
shares held

Filipino

303,689,196
159,577,460

Percent of
outstanding
voting
shares
37.0604%
19.4739%

PCD participants
acting for
themselves or for
their customers6
Mitsubishi
Corporation8

Various

160,446,419

19.5799%

Japanese

63,077,540
32,640,492

7.6976%
3.9832%

PCD participants
acting for
themselves or for
their customers4

Filipino

56,357,357

6.8775%

3
The Co-Vice Chairmen of Mermac, Inc. (Mermac), Jaime Augusto Zobel de Ayala and Fernando Zobel de Ayala, are the
Chairman/CEO and President/COO of the Company, respectively. Mr. Jaime Augusto Zobel de Ayala has been named and
appointed to exercise the voting power.
4
The Board of Directors of Mermac has the power to decide how Mermac shares in Ayala are to be voted.
5
PCD is not related to the Company.
6
Each beneficial owner of shares through a PCD participant is the beneficial owner to the extent of the number of shares in his
account with the PCD participant. Out of the 216,803,776 common shares registered in the name of PCD Nominee
Corporation, 69,260,437 (8.4521% of the voting stock) and 54,113,298 (6.6036% of the voting stock) are for the accounts of
Deutsche Bank Manila (DB) and The Hongkong and Shanghai Banking Corporation (HSBC), respectively. The Company has
no record relating to the power to decide how the shares held by PCD are to be voted. As advised to the Company, none of DB
and HSBC or any of their customers beneficially owns more than 5% of the Companys common shares.
7
Mitsubishi Corporation (Mitsubishi) is not related to the Company.
8
The Board of Directors of Mitsubishi has the power to decide how Mitsubishis shares in Ayala are to be voted. Mr. Yoshio
Amano has been named and appointed to exercise the voting power.

133

Security ownership of directors and management as of January 31, 2015.

Title of class of
voting shares

Directors
Common
Preferred B
Voting
Preferred
Common
Voting
Preferred
Common
Voting
Preferred
Common
Common
Voting
Preferred
Common
Common

Name of beneficial owner

Amount and nature of beneficial

ownership

Citizenship

177,896
20,000
543,802

(direct & indirect)

(indirect)
(direct)

Fernando Zobel de Ayala

177,896
554,983

(direct & indirect)

(direct)

Delfin L. Lazaro

181,119
258,297

(direct & indirect)

(direct)

1
126,614
65,517

(direct)
(direct)
(direct)

Japanese

1,200
1

(direct)
(direct)

Filipino
Filipino

Jaime Augusto Zobel de Ayala

Yoshio Amano
Xavier P. Loinaz
Antonio Jose U. Periquet
Ramon R. Del Rosario, Jr.

Percent of
total
outstanding
shares
0.0205%
0.0023%

Filipino

0.0628%
0.0205%
Filipino
0.0641%
0.0209%
Filipino
0.0298%
0.0000%
0.0146%

Filipino
0.0076%
0.0001%
0.0000%

CEO and most highly compensated officers

Common
177,896 (direct & indirect)
Preferred B
20,000 (indirect)
Jaime Augusto Zobel de Ayala
Filipino
Voting
543,802 (direct)
Preferred
Common
177,896 (direct & indirect)
Fernando Zobel de Ayala
Filipino
Voting
554,983 (direct)
Preferred
Common
John Eric T. Francia
93,526 (direct & indirect)
Filipino
Common
Delfin C. Gonzalez, Jr.*
135,891 (direct & indirect)
Filipino
Common
93,392 (indirect)
Solomon M. Hermosura
Filipino
Voting
53,583 (direct)
Preferred
Common
John Philip S. Orbeta
436,147 (indirect)
Filipino
Other executive officers (Ayala group ManCom members/Senior Leadership Team)
Common
Gerardo C. Ablaza, Jr.
531,833 (direct & indirect)
Filipino
Common
Cezar P. Consing
18,594 (indirect)
Filipino
Common
Arthur R. Tan
276,460 (direct & indirect)
Filipino
Common
Ernest Lawrence L. Cu
41,485 (indirect)
Filipino
Common
Bernard Vincent O. Dy
0
Filipino
Common
Alfredo I. Ayala
141,025 (direct & indirect)
Filipino
Common
Maria Lourdes Heras-De Leon**
7,609 (indirect)
Filipino
Common
Jose Teodoro K. Limcaoco*
135,007 (indirect)
Filipino
Common
Ruel T. Maranan***
0
Filipino
Common
Paolo Maximo F. Borromeo
12,189 (indirect)
Filipino
Common
Ma. Cecilia T. Cruzabra
5,344 (direct & indirect)
Filipino
Common
Josephine G. De Asis
1,000 (indirect)
Filipino
Common
June Vee D. Monteclaro-Navarro
0
Filipino
All Directors and Officers as a group
4,645,394
*Mr. Limcaoco was appointed Chief Finance Officer and Finance Group Head effective April 10, 2015 replacing Mr. Gonzalez.
** Retired effective December 31, 2014.
***Managing Director effective January 1, 2015

0.0205%
0.0023%
0.0628%
0.0205%
0.0641%
0.0108%
0.0157%
0.0108%
0.0062%
0.0503%
0.0614%
0.0021%
0.0319%
0.0048%
0.0000%
0.0163%
0.0009%
0.0156%
0.0000%
0.0014%
0.0006%
0.0001%
0.0000%
0.5361%

None of the Companys directors and officers owns 2.0% or more of the outstanding capital stock of the
Company.
The Company knows of no person holding more than 5% of common shares under a voting trust or
similar agreement.
No change of control in the Company has occurred since the beginning of its last fiscal year.

134

Item 12. Certain Relationships and Related Transactions

The Company, in the regular conduct of business, has entered into transactions with associates, joint
ventures and other related parties principally consisting of advances, loans and reimbursement of
expenses, purchase and sale of real estate properties, various guarantees, construction contracts, and
development, management, underwriting, marketing and administrative service agreements. Sales and
purchases of goods and services to and from related parties are made at normal commercial prices and
terms.
There has not been any material transaction during the last two years, or proposed transaction, to which
the Company was or is to be a party, in which any of its directors or executive officers, any nominee for
election as a director or any security holder had or is to have a direct or indirect material interest.
To date, there are no complaints received by the Company regarding related-party transactions.
For detailed discussion on related party transactions, please refer to Note 31 of the Consolidated
Financial Statements for December 31, 2014 which forms part of the Annex of this SEC17A report.
Transactions with Promoters
There are no transactions with promoters within the past five (5) years.
Awards and Recognitions
Ayalas corporate governance practices have been consistently cited in various polls and publications
locally and in the region. Poll results published by Asiamoney ranked Ayala among the best in the
Philippines for Corporate Governance, Disclosure and Transparency, Responsibilities of the
Management and the Board of Directors, and Corporate Social Responsibility. Ayala was ranked first
in Corporate Governance in the country by FinanceAsia and Alpha Southeast Asia in 2014.
In 2014, the Institute of Corporate Directors recognized Ayala as Governance Ambassador for its role
in raising the standard of governance in the private sector through continuing education. With Ayalas
support, ICDs Distinguished Corporate Governance Speaker Series brought the worlds thought
leaders and practitioners of good governance to the Philippines to share their insight and experience
with board directors, compliance officers, and the public.
Ayala continued to figure prominently in polls of regional publications in the areas of company
management, corporate governance, corporate social responsibility, and investor relations. Ayalas
$300 million bond exchangeable into Ayala Land shares was also named by FinanceAsia as the Best
Philippines Deal for 2014. f
Jaime Augusto Zobel de Ayala received the Ramon V. del Rosario Sr. Award for Nation Building. Ayalas
Delfin C. Gonzalez Jr. and Ayala Lands Jaime E. Ysmael were among the countrys Best CFOs,
according to CorporateGovernanceAsia and FinanceAsia, respectively. Solomon M. Hermosura was
one of the recipients of the 2nd Asian Company Secretary of the Year Award, also given by
CorporateGovernanceAsia.
On its 180th year, Ayala won the 19th IMD-Lombard Odier Global Family Business Award, regarded as
the most prestigious international recognition for successful family businesses. The award recognizes
firms that unite family interests with those of the business, and combine tradition and innovation while
demonstrating a clear commitment to their local community.
Website
Information on the companys corporate governance initiatives is available at www.ayala.com.ph. As
part of our stakeholder engagement, Ayala also maintains social media accounts at
Facebook.com/AyalaCorporation and Twitter @Ayala_1834. On the occasion of Ayalas 180th
anniversary, iPad apps were developed: the 2012 and 2013 Annual Reports and the special publication
Inside Ayala.

135

Other Information
The other major information about the Group are disclosed in appropriate notes in the accompanying
audited Consolidated Financial Statements for December 31, 2014 or discussed in previously filed
SEC17Q and SEC17-C reports for 2014 (listed in the Exhibits and Schedules Reports on SEC Form
17-C also in Annex of this SEC17A report).
In addition, the Group has the following other major information:
Parent Company
a. On November 13, 2014 press statement, AC announced that the Companys consolidated net
income during the first 9 months of the year expanded by 35% to a total of P14.1 billion.
b. On November 18, 2014, AC clarified the news article titled Ayala sees 2014 profit growing 2530%, posted on The Manila Times (Internet Edition) on November 17, 2014. AC clarified that the
25-30% net income growth mentioned in the news article pertains to the Companys year-on-year
target for 2014 and does not serve as profit guidance. Further, the projections of P19 billion and
P16-16.5 billion on Ayalas 2014 core net income and net income, respectively were not made by
the Company.
On the funding of power projects, AC clarified that the Company is allocating US$300 million to
finance 90% of the equity requirement of its investee companies that will build the 600-megawatt
GNPower Kauswagan in Lanao Del Norte and another US$300 million to fund 50% of the equity
requirement for the 1,320-megawatt expansion of GNPower in Bataan.
In addition, AC clarifed that each of these investee companies will be raising project finance at their
level amounting to about US$600 million and US$1 billion for the Lanao Del Norte and Bataan
plants, respectively. These amounts will be drawn by the investee companies over a three to fouryear period.
Since the debt and project finance will not be raised at the AC parent level, these do not entail any
recourse to the Company.
c.

On November 26, 2014, further to the disclosure on the top-up placement covering 18,779,100
common shares, AC advised that the number of issued and outstanding common shares as of
November 25, 2014 is 619,436,152 (inclusive of 28642 shares covering the exercise of stock
options).

d. The proceeds from the Company's re-issuance of Preferred B shares were used as follows: the
P13.5 billion offering proceeds was reduced by P76.2 million offering-related expenses to arrive at
net proceeds of P13.4 billion; out of which an P8.0 billion was used to pre-terminate other existing
long term debt of the Company
e. In April 2015, ALI, through its wholly-owned subsidiary, Regent Wise Investments Limited, has
acquired 9.16% of the shares of Malaysian company GW Plastics Holdings Bhd., to be renamed
Modular Construction Technology (MCT) Bhd., through a private placement for a total amount of
US$43 million (P1.9 billion). MCT Bhd., first established in 1999 as a construction company, is a
property development company specializing in mixed-use projects which include retail, offices,
hotels, and mid-to-affordable residences.

Events after the Reporting Period

For detailed discussion, please refer to Note 41 of the Consolidated Financial Statements for December
31, 2014 which forms part of the Annex of this SEC17A report.

136

PART IV CORPORATE GOVERNANCE

Item 13. Corporate Governance
Please refer to the Annual Corporate Governance Report which forms part of the Annex of this SEC17A
Report and as posted in the Companys Official Website www.ayala.com.ph. The detailed discussion
of this Section deleted as per SEC Memorandum Circular No. 5, series of 2013, issued last March 20,
2013.

137

PART V - EXHIBITS AND SCHEDULES

Item 14. Exhibits and Reports on SEC Form 17-C (Current Report)
(a)

Exhibits - See accompanying Index to Financial Statements and Supplementary Schedules

(b)

Reports on SEC Form 17-C

Aside from compliance with periodic reporting requirements, Ayala promptly discloses major and
market sensitive information such as dividend declarations, joint ventures and acquisitions, the sale
and disposition of significant assets, and other information that may affect the decision of the investing
public.
In 2014 the Company filed, among others, unstructured disclosures involving the following:
1. Sale by LiveIt Investments Ltd. of its 29% ownership in Stream Global Services, Inc. to Convergys
Corporation
2. Closing of the acquisition of Stream Global Services, Inc. by Convergys Corporation
3. Record of attendance of directors in meetings of the Board of Directors in 2013 and 2014
4. Notice and agenda of the 2014 Annual Stockholders Meeting
5. Results of the Annual Stockholders Meeting and organizational Board of Directors meeting and
the capital expenditures in 2014
6. Notices of Analysts Briefing
7. Copy of the certificate of attendance of the Board of Directors and officers in the Corporate
Governance Summit
8. Updates and changes made in the Annual Corporate Governance Report (ACGR)
9. Board approval of the amendment of the Third Article of the Articles of Incorporation and Section
2, Article III of the By-laws
10. Approval of the final terms of the USD300,000,000 exchangeable bonds to be issued by AYC
Finance Limited
11. Completion of the issuance of USD300M 0.5% guaranteed exchangeable bonds of AYC Finance
Limited and its listing with the Singapore Exchange
12. Certifications of the Independent Directors
13. 2014 ESOWN grants
14. Board approval of the creation of a Risk Management Committee
15. Submission of the Revised Corporate Governance Manual
16. Re-issuance and Offering of up to 30M Preferred B Shares
17. SEC Approval of the amended Articles of Incorporation and By-Laws of the Company
18. Appointment of members of the Risk Management Committee
19. Appointment of new Head of the Corporate Strategy and Development Group
20. Appointment of New Chief Finance Officer and Finance Group Head
21. New IR Officer
22. SEC Approval of the Preferred B Series 2 (ACPB2) Shares Re-issuance
23. ACPB2 Dividend Rate
24. ACPB2 Terms and Condition and Implementing Guidelines
25. Preferred B Trading Symbols
26. Results of the ACPB2 Offer
27. Change in the Issued and Outstanding Shares of Company due to ACPB2 Issuance and Top-up
Placement Transaction
28. Use of Proceeds Generated from ACPB2 Offer
29. Placement of and Subscription to 18,779,100 AC Common shares by Mermac, Inc.
30. Press Statement on the Top up Placement Transaction
31. Setting of 2015 Annual Stockholders Meeting
32. Board Approval on the Amendments to By-Laws
33. Declaration of cash dividends on all outstanding common and preferred shares
34. Dividend rate re-pricing on the voting preferred shares
35. Notices of interest payments for all outstanding corporate bonds
36. Various transactions of Ayalas 100%-owned subsidiary, AC Energy Holdings, Inc. (ACEHI):
a. Acquisition of a wholly owned subsidiary of approximately 17% ownership stake in GNPower
Mariveles Coal Plant, Ltd. Co.
b. Signing by GNPower Kauswagan Ltd. Co., the joint venture company between AC Energy
Holdings, Inc. and Power Partners Ltd. Co., of the engineering, procurement and construction
contract for 552MW thermal plant in Mindanao
138

37. Various transactions of Ayalas 100%-owned subsidiary, AC Infrastructure Holdings Corporation

(AC Infra):
a. Receipt of AF Consortium of the Notice of Award to design and construct the Php1.72B
Automatic Fare Collection System (AFCS) Project
b. Signing by AF Consortium of a ten-year concession agreement to build and implement the
new AFCS project
c. Submission of bid for the LRT1 Cavite Extension Project by Light Rail Manila Consortium,
consisting of AC Infrastructure Holdings Corporation, Metro Pacific Light Rail Corporation,
and Macquarie Infrastructure Holdings (Philippines) Pte. Limited
d. Submission of bid documents by AC Infrastructure Holdings Corporation to the Department of
Public Works and Highways for the bidding of the Cavite-Laguna Expressway (CALAX)
Project
e. Submission by Team Orion Consortium of a Motion to Intervene to the Office of the President
of the Republic of the Philippines
f. Public Announcement of Team Orion Consortium on the filing with the Office of the President
of a comment on the Memorandum of Appeal put forward by Optimal Infrastructure
Development, Inc. (Optimal) for the bidding of CALAX Project
g. Copy of Team Orions comment on Optimals Memorandum of Appeal filed with the Office of
the President in relation to Optimals disqualification from the bidding of the CALAX Project
h. Filing by Team Orion of a Motion to Urge the President to Settle CALAX Stalemate
i. Awarding by DOTC of the LRT1 Project to Light Rail Manila Consortium
j. Signing of Concession Agreement for LRT 1 Cavite Extension Project
38. News Clarifications on:
a. Ayala targets transpo hub south of metro
b. Likely Naga complex bidders named
c. Metro Pacific-led consortium picked for P65B CAVEX Project
d. Submission of bids for Php2.5B Integrated Transport System Southwest Terminal
e. Ayala and Metro Pacifics interest in the operation and maintenance contract of LRT-2
f. Ayalas allocation of P4B to debt-servicing funds
g. 25% to 30% growth in 2014 profit

139

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES

I.

2014 Consolidated Financial Statements of Registrant

1. Statement of Managements Responsibility for Financial Statements
2. Ayala Corporation and Subsidiaries Consolidated Financial Statements
As of December 31, 2014 and 2013 and Years Ended December 31, 2014, 2013 and 2012 and
Independent Auditors Report

II.

2014 Supplementary Schedules

1. Independent Auditors Opinion on Supplementary Schedules
2. Supplementary Schedules Details
A.
Financial Assets (Current Marketable Equity Securities and Other Short-Term Cash
Investments)
B.
Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal
Stockholders (Other than Related Parties)
C.1. Amounts Receivable from Related Parties which are Eliminated during the Consolidation
of Financial Statements
C.2. Amounts Payable to Related Parties which are Eliminated during the Consolidation of
Financial Statements
D.
Intangible Assets and Other Assets (Deferred Charges)
E.
Long-term Debt
F.
Indebtedness to Related Parties (Long-term Loans from Related Parties)
G.
Guarantees of Securities of Other Issuers
H.
Capital Stock
I.
Reconciliation of Retained Earnings Available for Dividend Declaration
J.
Map of the Relationships of the Companies within the Group
K.
Schedule of All the Effective Standards and Interpretations as of December 31, 2014
L.
Financial Ratios
M.
Non-Current Marketable Equity Securities, Other Long-term Investment in Stocks and
Other Investments (Non-Current Investments)
N.
Indebtedness of Unconsolidated Subsidiaries and Related parties

III.

2014 Consolidated Financial Statements of Associate and Joint Venture

1. Bank of the Philippine Islands and Subsidiaries
2. Globe Telecom, Inc. and Subsidiaries

IV.

2014 Annual Corporate Governance Report

V.

2014 Original BIR/Bank Stamp Received:

1. Independent Auditors Report on Ayala Corporation (Parent Company) Financial Statements
2. Parent Company Statements of Financial Position as at December 31, 2014 and 2013
3. Parent Company Statements of Income, Comprehensive Income, Changes in Equity and Cash
Flows for the Years Ended December 31, 2014 and 2013

VI.

2014 Ayala Corporation and Subsidiaries Special Form for Financial Statements (SFFS)
1. SFFS Certification by CFO and Comptroller
2. Diskette form (soft copy) of SFFS
3. Printed copy of SFFS

141

I.

2014 Consolidated Financial Statements of Registrant

142

Ayala Corporation and Subsidiaries

Consolidated Financial Statements
December 31, 2014 and 2013
And Years Ended December 31, 2014, 2013 and 2012
and
Independent Auditors Report

SyCip Gorres Velayo & Co.

6760 Ayala Avenue
1226 Makati City
Philippines

Tel: (632) 891 0307

Fax: (632) 819 0872
ey.com/ph

BOA/PRC Reg. No. 0001,

December 28, 2012, valid until December 31, 2015
SEC Accreditation No. 0012-FR-3 (Group A),
November 15, 2012, valid until November 16, 2015

INDEPENDENT AUDITORS REPORT

The Stockholders and the Board of Directors

Ayala Corporation

We have audited the accompanying consolidated financial statements of Ayala Corporation and its
subsidiaries, which comprise the consolidated statements of financial position as at December 31,
2014 and 2013, and the consolidated statements of income, statements of comprehensive income,
statements of changes in equity and statements of cash flows for each of the three years in the period
ended December 31, 2014, and a summary of significant accounting policies and other explanatory
information.
Managements Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with Philippine Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on the auditors judgment,
including the assessment of the risks of material misstatement of the financial statements, whether due
to fraud or error. In making those risk assessments, the auditor considers internal control relevant to
the entitys preparation and fair presentation of the consolidated financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entitys internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.

*SGVFS011298*
A member firm of Ernst & Young Global Limited

-2Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Ayala Corporation and its subsidiaries as at December 31, 2014 and 2013, and their
financial performance and their cash flows for each of the three years in the period ended
December 31, 2014 in accordance with Philippine Financial Reporting Standards.

SYCIP GORRES VELAYO & CO.

Jessie D. Cabaluna
Partner
CPA Certificate No. 36317
SEC Accreditation No. 0069-AR-3 (Group A),
February 14, 2013, valid until February 13, 2016
Tax Identification No. 102-082-365
BIR Accreditation No. 08-001998-10-2012,
April 11, 2012, valid until April 10, 2015
PTR No. 4751262, January 5, 2015, Makati City
March 10, 2015

*SGVFS011298*
A member firm of Ernst & Young Global Limited

AYALA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Amounts in Thousands)

December 31
2014

2013

ASSETS
Current Assets
Cash and cash equivalents (Notes 5, 31, 32 and 33)
Short-term investments (Notes 6, 31, 32 and 33)
Accounts and notes receivable (Notes 7, 31, 32 and 33)
Inventories (Note 8)
Other current assets (Notes 9 and 32)
Total Current Assets
Noncurrent asset held for sale (Notes 12 and 33)
Noncurrent Assets
Noncurrent accounts and notes receivable (Notes 7, 32 and 33)
Investments in bonds and other securities
(Notes 10, 31, 32 and 33)
Land and improvements (Note 11)
Investments in associates and joint ventures (Note 12)
Investment properties (Note 13)
Property, plant and equipment (Note 14)
Service concession assets (Note 15)
Intangible assets (Note 16)
Deferred tax assets - net (Note 25)
Pension and other noncurrent assets (Note 17)
Total Noncurrent Assets
Total Assets

P
= 90,769,525
1,102,703
72,710,512
54,962,164
35,156,558
254,701,462

254,701,462

P
= 65,655,049
119,345
56,341,044
50,178,486
39,194,020
211,487,944
3,328,712
214,816,656

32,006,450

18,282,941

3,432,215
79,959,887
152,764,854
71,324,245
27,953,145
74,836,633
4,183,464
8,055,020
16,830,401
471,346,314
P
= 726,047,776

2,784,807
62,474,802
119,804,086
63,157,223
25,883,469
73,754,407
4,175,846
6,513,585
8,016,478
384,847,644
P
= 599,664,300

P
= 126,101,836
21,084,269
1,340,269

P
= 103,604,247
15,811,285
1,667,543

10,761,443
1,019,515
9,452,281
169,759,613

11,842,519
1,290,406
10,991,693
145,207,693

LIABILITIES AND EQUITY

Current Liabilities
Accounts payable and accrued expenses
(Notes 18, 31, 32 and 33)
Short-term debt (Notes 20, 31, 32 and 33)
Income tax payable
Current portion of:
Long-term debt (Notes 20, 31, 32 and 33)
Service concession obligation (Notes 15, 32 and 33)
Other current liabilities (Notes 19, 32 and 33)
Total Current Liabilities
(Forward)

*SGVFS011298*

-2-

December 31
2014
Noncurrent Liabilities
Long-term debt - net of current portion
(Notes 20, 31, 32 and 33)
Service concession obligation - net of current portion
(Notes 15, 32 and 33)
Deferred tax liabilities - net (Note 25)
Pension liabilities (Note 27)
Other noncurrent liabilities (Notes 21, 32 and 33)
Total Noncurrent Liabilities
Total Liabilities
Equity
Equity attributable to owners of the parent
Paid-in capital (Note 22)
Share-based payments (Note 28)
Remeasurement gains/(losses) on defined benefit plans
(Note 27)
Net unrealized gain (loss) on available-for-sale
financial assets (Note 10)
Cumulative translation adjustments
Equity reserve (Note 2)
Equity conversion option (Note 20)
Retained earnings (Note 22)
Treasury stock (Note 22)
Non-controlling interests
Total Equity
Total Liabilities and Equity

2013

P
= 226,999,015

P
= 178,027,343

7,859,153
6,742,633
2,179,966
25,640,911
269,421,678
439,181,291

7,868,295
6,347,400
1,915,040
24,827,938
218,986,016
364,193,709

73,571,505
377,376

50,166,129
485,187

(1,005,572)

(1,317,954)

(7,211)
(603,765)
7,478,259
1,113,745
107,039,814
(2,300,000)
185,664,151
101,202,334
286,866,485
P
= 726,047,776

277,848
(1,256,831)
7,482,121

92,639,781
(5,000,000)
143,476,281
91,994,310
235,470,591
P
= 599,664,300

See accompanying Notes to Consolidated Financial Statements.

*SGVFS011298*

AYALA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Earnings Per Share Figures)

Years Ended December 31

2014
2013
INCOME
Sale of goods (Note 31)
Rendering of services (Notes 13 and 31)
Share of profit of associates and joint ventures
Interest income (Note 31)
Other income (Note 23)
COSTS AND EXPENSES
Costs of sales (Notes 8 and 31)
Costs of rendering services (Notes 23 and 31)
General and administrative (Notes 23, 27 and 31)
Interest and other financing charges (Notes 20, 23
and 31)
Other charges (Note 23)
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX (Note 25)
Current
Deferred
NET INCOME
Net Income Attributable to:
Owners of the parent (Note 26)
Non-controlling interests
EARNINGS PER SHARE (Note 26)
Basic
Diluted

2012

P
= 105,140,825
51,275,623
13,185,147
5,493,715
9,180,254
184,275,564

P
= 92,725,460
44,216,018
10,091,140
3,072,071
9,306,855
159,411,544

P
= 69,335,195
40,553,713
7,681,899
4,353,984
8,645,733
130,570,524

77,773,560
34,495,682
15,831,000

66,539,860
31,486,686
14,613,841

55,285,281
22,989,804
12,852,062

11,933,781
3,829,020
143,863,043

10,511,432
5,480,816
128,632,635

8,155,330
6,812,352
106,094,829

40,412,521

30,778,909

24,475,695

7,964,375
173,543
8,137,918

8,036,780
(1,382,570)
6,654,210

5,838,415
(861,978)
4,976,437

P
= 32,274,603

P
= 24,124,699

P
= 19,499,258

P
= 18,609,229
13,665,374
P
= 32,274,603

P
= 12,777,932
11,346,767
P
= 24,124,699

P
= 10,504,385
8,994,873
P
= 19,499,258

P
= 29.83
P
= 29.35

P
= 20.53
P
= 20.39

P
= 17.03
P
= 16.92

See accompanying Notes to Consolidated Financial Statements.

*SGVFS011298*

AYALA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)

Years Ended December 31

2014
2013
NET INCOME

P
= 32,274,603

P
= 24,124,699

463,755

2,223,630

2012

P
= 19,499,258

OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income that may be
reclassified to profit or loss in subsequent
periods:
Exchange differences arising from translations of
foreign investments
Changes in fair values of available-for-sale
financial assets
Other comprehensive income not to be reclassified to
profit or loss in subsequent periods:
Remeasurement gains/(losses) on defined
benefit plans (Note 27)
Tax effect relating to components of other
comprehensive income

(1,137,783)

(18,337)

(79,486)

(360,318)

304,334

(566,140)

(104,709)

(35,348)
714,404

72,973
1,650,977

12,858
(1,589,952)

(19,454)

112,230

(108,187)

SHARE OF OTHER COMPREHENSIVE INCOME

OF ASSOCIATES AND JOINT VENTURES
Other comprehensive income that may be
reclassified to profit or loss in subsequent
periods:
Exchange differences arising from translations of
foreign investments
Changes in fair values of available-for-sale
financial assets
Other comprehensive income not to be reclassified to
profit or loss in subsequent periods:
Remeasurement gains/(losses) on defined
benefit plans

TOTAL OTHER COMPREHENSIVE

INCOME (LOSS), NET OF TAX
TOTAL COMPREHENSIVE INCOME
Total Comprehensive Income Attributable to:
Owners of the parent
Non-controlling interests

(204,190)

(1,346,297)

296,879

87,797
(135,847)

(104,731)
(1,338,798)

(533,205)
(344,513)

578,557

312,179

P
= 32,853,160

P
= 24,436,878

P
= 17,564,793

P
= 19,289,618
13,563,542
P
= 32,853,160

P
= 12,863,794
11,573,084
P
= 24,436,878

P
= 9,163,498
8,401,295
P
= 17,564,793

(1,934,465)

See accompanying Notes to Consolidated Financial Statements.

*SGVFS011298*

AYALA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in Thousands)

EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT

Other Comprehensive Income

Paid-in
Capital
(Note 22)

As of January 1, 2014
Net income
Other comprehensive income (loss)
Total comprehensive income (loss)
Exercise of ESOP/ESOWN
Cost of share-based payments
Sale of treasury stock
Issuance of shares
Cash dividends
Equity-conversion option
Change in non-controlling interests
At December 31, 2014

P
= 50,166,129

444,044

10,724,121
12,237,211

P
= 73,571,505

Remeasurement
Gain (Losses) Net Unrealized
on Defined Gain (Loss) on
Share-based
Benefit
Available-forPayments
Plans
Sale Financial
(Note 28)
(Note 27) Assets (Note 10)
P
= 485,187

(181,961)
74,150

P
= 377,376

(P
= 1,317,954)

312,382
312,382

(P
= 1,005,572)

P
= 277,848

(285,059)
(285,059)

(P
= 7,211)

Cumulative
Translation
Adjustments

(P
= 1,256,831)

653,066
653,066

(P
= 603,765)

Equity
Equity
Retained
Reserve
Coversion
Earnings
(Note 2)
Option
(Note 22)
For the year ended December 31, 2014
P
= 7,482,121

(3,862)
P
= 7,478,259

P
=

1,113,745

P
= 1,113,745

P
= 92,639,781
18,609,229

18,609,229

(4,209,196)

P
= 107,039,814

Treasury Stock (Note 22)

Common
Preferred
Stock
Stock - B

P
=

P
=

(P
= 5,000,000)

2,700,000

(P
= 2,300,000)

Total

P
= 143,476,281
18,609,229
680,389
19,289,618
262,083
74,150
13,424,121
12,237,211
(4,209,196)
1,113,745
(3,862)
P
= 185,664,151

Non-controlling
Interests

P
= 91,994,310
13,665,374
(101,833)
13,563,541

(4,522,813)

167,296
P
= 101,202,334

Total Equity

P
= 235,470,591
32,274,603
578,556
32,853,159
262,083
74,150
13,424,121
12,237,211
(8,732,009)
1,113,745
163,434
P
= 286,866,485

*SGVFS011298*

-2-

Paid-in
Capital
(Note 22)
As of January 1, 2013
Net income
Other comprehensive income (loss)
Total comprehensive income (loss)
Exercise of ESOP/ESOWN
Cost of share-based payments
Sale of treasury stock
Redemption of preferred shares
Cash dividends
Change in non-controlling interests
At December 31, 2013

P
= 45,119,932

287,338

9,558,859
(4,800,000)

P
= 50,166,129

Paid-in
Capital
(Note 22)

As of January 1, 2012, as restated

Net income
Other comprehensive income (loss)
Total comprehensive income (loss)
Exercise of ESOP/ESOWN
Cost of share-based payments
Sale of treasury stock
Cash dividends
Change in non-controlling interests
At December 31, 2012

P
= 42,832,820

779,027
36,807
1,471,278

P
= 45,119,932

Remeasurement
Gain (Losses)
on Defined
Share-based
Benefit
Payments
Plans
(Note 28)
(Note 27)
P
= 460,771

(90,083)
114,499

P
= 485,187

(P
= 943,361)

(374,593)
(374,593)

(P
= 1,317,954)

Remeasurement
Gain (Losses)
on Defined
Share-based
Benefit
Payments
Plans
(Note 28)
(Note 27)

P
= 553,743

(171,284)
78,312

P
= 460,771

(P
= 456,254)

(487,107)
(487,107)

(P
= 943,361)

EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT

Other Comprehensive Income
Parent
Company
Net Unrealized
Preferred
Gain (Loss) on
Shares
Available-forCumulative
Equity
Retained
Held by
Sale Financial
Translation
Reserve
Earnings
Subsidiaries
Assets (Note 10)
Adjustments
(Note 2)
(Note 22)
(Note 22)
For the year ended December 31, 2013
P
= 1,798,964

(1,521,116)
(1,521,116)

P
= 277,848

(P
= 3,238,400)

1,981,569
1,981,569

(P
= 1,256,831)

P
= 5,379,074

2,103,047
P
= 7,482,121

P
= 83,268,077
12,777,932

12,777,932

(3,406,228)

P
= 92,639,781

(P
= 250,000)

250,000

P
=

EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT

Other Comprehensive Income
Parent
Company
Net Unrealized
Preferred
Gain (Loss) on
Shares
Available-forCumulative
Equity
Retained
Held by
Sale Financial
Translation
Reserve
Earnings
Subsidiaries
Assets (Note 10)
Adjustments
(Note 2)
(Note 22)
(Note 22)
For the year ended December 31, 2012
P
= 1,725,394

73,570
73,570

P
= 1,798,964

(P
= 2,311,050)

(927,350)
(927,350)

(P
= 3,238,400)

P
= 1,016,259

4,362,815
P
= 5,379,074

P
= 75,651,302
10,504,385

10,504,385

(2,887,610)

P
= 83,268,077

(P
= 250,000)

(P
= 250,000)

Treasury Stock (Note 22)

Common
Preferred
Stock
Stock - B

(P
= 1,697,344)

1,697,344

P
=

(P
= 5,800,000)

2,000,000
(1,200,000)

(P
= 5,000,000)

Treasury Stock (Note 22)

Common
Preferred
Stock
Stock - B

(P
= 6,608,886)

4,911,542

(P
= 1,697,344)

(P
= 5,800,000)

(P
= 5,800,000)

Total

P
= 124,097,713
12,777,932
85,860
12,863,792
197,255
114,499
13,256,203
(5,750,000)
(3,406,228)
2,103,047
P
= 143,476,281

Total

P
= 106,353,328
10,504,385
(1,340,887)
9,163,498
607,743
115,119
6,382,820
(2,887,610)
4,362,815
P
= 124,097,713

Non-controlling
Interests

P
= 82,342,636
11,346,766
226,319
11,573,085

(3,529,114)
1,607,703
P
= 91,994,310

Non-controlling
Interests

P
= 68,115,587
8,994,873
(593,578)
8,401,295

(2,478,197)
8,303,951
P
= 82,342,636

Total Equity

P
= 206,440,349
24,124,698
312,179
24,436,877
197,255
114,499
13,256,203
(5,750,000)
(6,935,342)
3,710,750
P
= 235,470,591

Total Equity

P
= 174,468,915
19,499,258
(1,934,465)
17,564,793
607,743
115,119
6,382,820
(5,365,807)
12,666,766
P
= 206,440,349

See accompanying Notes to Consolidated Financial Statements.

*SGVFS011298*

AYALA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)

Years Ended December 31

2014
2013
2012
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Interest and other financing charges - net of
amount capitalized (Note 23)
Depreciation and amortization (Note 23)
Cost of share-based payments (Note 28)
Provision for impairment on (Note 23):
Inventories
Available-for-sale financial assets
Property, plant and equipment
Investment properties
Intangible assets
Doubtful accounts
Gain on sale of (Note 23):
Investments
Other assets
Other investment income (Note 23)
Interest income
Share of profit of associates and joint ventures
Remeasurement gain arising from business
combinations - net (Notes 23 and 24)
Operating income before changes in working capital
Increase in:
Accounts and notes receivable trade
Inventories
Service concession asset
Other current assets
Increase in:
Accounts payable and accrued expenses
Net pension liabilities
Other current liabilities
Net cash generated from operations
Interest received
Interest paid
Income tax paid
Net cash provided by operating activities

P
= 40,412,521

P
= 30,778,909

P
= 24,475,695

11,933,781
9,158,195
222,417

10,511,432
8,643,905
199,301

8,155,330
7,195,902
217,333

149,077
66,834

335,731
182,383

228,580
222
400
31,830

61,076
11,575
19,500

(2,633,329)
(711,001)
(443,090)
(5,493,715)
(13,185,148)

(190,296)
(19,382)
(879,951)
(3,072,071)
(10,091,139)

(67,847)
(26,588)
(531,714)
(4,353,984)
(7,681,899)

39,994,656

36,141,740

(593,853)
26,880,526

(11,576,951)
(1,534,405)
(2,997,352)
(3,933,236)

(8,361,297)
(2,285,580)
(5,368,835)
(2,895,043)

(9,005,266)
(1,861,119)
(5,497,422)
(10,253,547)

31,114,583
479,604
3,814,709
55,361,608
5,595,767
(11,966,127)
(9,782,770)
39,208,478

19,236,450
169,723
4,021,260
40,658,418
2,863,872
(10,056,631)
(7,849,804)
25,615,855

13,058,649
149,365
4,964,574
18,435,760
3,929,058
(8,398,754)
(4,983,373)
8,982,691

(Forward)

*SGVFS011298*

-2Years Ended December 31

2014
2013
2012
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Sale/maturities of available-for-sale financial
assets
Sale/maturities of financial assets at fair value
through profit or loss
Sale/redemptions of investments in associates and
joint ventures
Disposals of:
Property, plant and equipment (Note 14)
Investment propertieis (Note 13)
Land and improvements (Note 11)
Maturities of (additions to) short-term investments
Additions to:
Service concession assets (Note 15)
Investments in associates and joint ventures
Property, plant and equipment (Note 14)
Investment properties (Note 13)
Land and improvements (Note 11)
Accounts and notes receivable - non trade
Financial assets at fair value through profit or loss
Available-for-sale financial assets
Intangible assets (Note 16)
Dividends received from associates, joint ventures
and available-for-sale financial assets
Acquisitions through business combinations - net of
cash acquired (Note 24)
Increase in other noncurrent assets
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term and long-term debt
Payments of short-term and long-term debt
Reissuance of treasury shares (Note 22)
Dividends paid
Redemption of preferred shares (Note 22)
Service concession obligation paid (Note 15)
Collections of subscriptions receivable
Issuance of common shares (Note 22)

P
= 717,072

P
= 653,327

P
= 1,281,413

40,417,857

1,046,783

449,557

7,300,597

681,120

113,858

1,657,058
1,538,984
3,935
(983,358)

101,797
131,781

177,159

213,612
1,653
1,613
1,316,555

(666,569)
(35,926,256)
(6,233,101)
(13,375,167)
(28,841,363)
(5,171,180)
(33,186,064)
(562,661)
(172,452)

(89,054)
(18,574,892)
(6,838,751)
(12,086,027)
(29,446,957)
(2,607,547)
(13,823,514)
(1,119,885)
(175,883)

(1,096,920)
(18,776,599)
(6,768,129)
(9,232,788)
(31,882,873)
(7,580,428)
(797,175)
(647,266)
(41,538)

5,742,014

6,131,475

6,648,576

(274,932)
(14,730,215)
(82,745,801)

2,766
(4,906,765)
(80,743,067)

(1,096,432)
(2,127,413)
(70,020,724)

78,310,834
(25,018,135)
13,424,121
(7,581,660)

(698,927)
113,817
12,237,211

76,845,127
(45,973,965)
13,256,203
(6,640,418)
(5,750,000)
(924,936)
112,453

83,427,558
(21,234,866)
6,382,820
(5,777,400)

(356,385)
448,040

(Forward)

*SGVFS011298*

-3Years Ended December 31

2014
2013
2012
Increase (decrease) in:
Other noncurrent liabilities
Non-controlling interests in consolidated
subsidiaries
Net cash provided by financing activities

P
= 812,972

P
= 2,044,949

P
= 9,521,838

(2,948,434)
68,651,799

7,526,493
40,495,906

12,616,280
85,027,885

NET INCREASE (DECREASE) IN CASH AND

CASH EQUIVALENTS

25,114,476

(14,631,306)

23,989,852

CASH AND CASH EQUIVALENTS AT

BEGINNING OF YEAR

65,655,049

80,286,355

56,296,503

CASH AND CASH EQUIVALENTS AT

END OF YEAR (Note 5)

P
= 90,769,525

P
= 65,655,049

P
= 80,286,355

See accompanying Notes to Consolidated Financial Statements.

*SGVFS011298*

AYALA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information
Ayala Corporation (the Company) is incorporated in the Republic of the Philippines on
January 23, 1968. The Companys registered office address and principal place of business is
Tower One, Ayala Triangle, Ayala Avenue, Makati City. The Company is a publicly listed
company which is 49.03% owned by Mermac, Inc., 10.18% owned by Mitsubishi Corporation and
the rest by the public.
The Company is the holding company of the Ayala Group of Companies (the Group), with
principal business interests in real estate and hotels, financial services and insurance,
telecommunications, water distribution and wastewater services, electronics, information
technology, business process outsourcing (BPO) services, automotive, transport infrastructure,
power generation, international, education and others.

2. Group Information
The consolidated financial statements comprise the financial statements of the Company and the
following subsidiaries of the Group:

Subsidiaries
AC Energy Holdings, Inc. (ACEHI)
AC Infrastructure Holdings Corporation
(AC Infra)
AC International Finance Limited
(ACIFL)*
AG Counselors Corporation (AGCC)
Ayala Automotive Holdings Corporation
(AAHC)
Ayala Aviation Corporation (AAC)
Ayala Land, Inc. (ALI)
AYC Finance Ltd. (AYCFL)*
Azalea International Venture Partners
Limited (AIVPL)**
Azalea Technology Investments, Inc.
(Azalea Technology)
Bestfull Holdings Limited (BHL)***
Darong Agricultural and Development
Corporation (DADC)
Integrated Microelectronics, Inc. (IMI)
LiveIt Global Services Management
Institute, Inc. (LGSMI)
Manila Water Company, Inc. (MWC)
Michigan Holdings, Inc. (MHI)
MPM Noodles Corporation (liquidated in
2014)
Philwater Holdings Company, Inc.
(Philwater)
Purefoods International, Ltd. (PFIL)**
Technopark Land, Inc. (TLI)
Water Capital Works, Inc. (WCW)

Nature of Business
Power
Transport Infrastructure

% of Ownership
Interest held by the Group
2014
2013
100.0%
100.0%
100.0
100.0

Investment Holding

100.0

100.0

Legal Services
Automotive

100.0
100.0

100.0
100.0

Air Charter
Real Estate and Hotels
Investment Holding
BPO

100.0
48.9
100.0
100.0

100.0
48.9
100.0
100.0

Information Technology

100.0

100.0

Investment Holding International

Agriculture

100.0

100.0

100.0

100.0

Electronics Manufacturing
Education

50.9
100.0

57.8
100.0

Water Distribution and

Wastewater Services
Investment Holding
Investment Holding

48.5

48.8

100.0

100.0
100.0

Investment Holding

100.0

100.0

Investment Holding
Real Estate
Investment Holding

100.0
78.8
100.0

100.0
78.8
100.0

*Incorporated in Cayman Islands

**Incorporated in British Virgin Islands
***Incorporated in Hong Kong

*SGVFS011298*

-2-

Unless otherwise indicated, the principal place of business and country of incorporation of the
Companys investments in subsidiaries, associates and joint ventures is the Philippines.
Except as discussed below, the voting rights held by the Company in its investments in
subsidiaries, associates and joint ventures are in proportion to its ownership interest.
The following significant transactions affected the Companys investments in its subsidiaries:
Investment in ACIFL
In June 2014, ACIFL repurchased its 39,585,146 shares which were issued and registered in the
name of the Company, ACIFLs sole shareholder. The repurchase price was at par of US$1.00 per
share for a total amount of US$39.6 million. ACIFL remained a wholly-owned subsidiary of the
Company after the transaction.
As of December 31, 2014 and 2013, ACIFL, through its wholly-owned subsidiary, AYC Holdings
Inc., owns 50.9% and 57.8% of the common shares of IMI, respectively. The fair value of IMI
shares held by the AYC Holdings amounted to P
= 6.4 billion and P
= 2.4 billion as of
December 31, 2014 and 2013, respectively.
Investment in ACEHI
On various dates in 2014, the Company infused additional capital to ACEHI which amounted to
P
= 9.49 billion. The proceeds were used to finance the various renewable energy and coal projects
of ACEHI to complete its planned 1,000 megawatt capacity.
In September 2013, the Company converted its subscription to ACEHI amounting to P
= 3.4 million
into additional equity for 34.6 million common shares.
Investment in ALI
In March 2013, the Company participated in the placement and subscription of P
= 399.5 million
common shares of stock in ALI, whereby the Company sold its listed ALI common shares through
a private placement and infused the proceeds into ALI as subscription for the same number of
new ALI shares at the same price. This transaction supports ALIs fund raising initiatives to
acquire assets for its next phase of expansion.
Following this transaction, the Companys ownership in ALIs common stock was reduced from
50.4% to 48.9% as of March 2013. The Company maintained the same number of common
shares it held in ALI prior to the transaction.
In 2014, there were no changes in the Companys investment in ALI.
ALI shares with carrying value of P
= 301.2 million as of December 31, 2014 and 2013 were
collateralized to secure the Companys loan facility. Fair value of ALI shares collateralized
amounted to P
= 13.3 billion and P
= 9.8 billion as of December 31, 2014 and 2013, respectively (see
Note 20).
The fair value of the ALI shares held by the Company amounted to P
= 232.9 billion and
P
= 171.2 billion as of December 31, 2014 and 2013, respectively. The voting rights held by the
Company in ALI is 70.1% in 2014 and 2013.
Investment in AIVPL
In June 2014, AIVPL repurchased its 140,865,770 shares which were issued and registered in the
name of Company, AIVPL's sole shareholder. The repurchase price was at par of US$1.00 per
share for a total amount of US$140.9 million. AIVPL remained a wholly-owned subsidiary of the
Company after the transaction.

*SGVFS011298*

-3-

Investment in MWC
In August and December 2013, the Company acquired 0.05 million and 140.0 million common
shares, respectively, for a total consideration of P
= 2.8 billion. The latter represents 5.7% ownership
interest in MWC which resulted to an increase of ownership interest from 26.5% to 32.3%.
In 2014, there were no significant changes in the Companys investment in MWC.
The fair value of the MWC shares held by the Company amounted to P
= 22.8 billion and
P
= 17.3 billion as of December 31, 2014 and 2013, respectively. The voting rights held by the
Group in MWC as of December 31, 2014 and 2013 is 79.7% and 79.3%, respectively.
Investment in BHL
On various dates in 2014, the Company sold to ACIFL 9,835,709 redeemable preferred shares of
BHL amounting to P
= 4.5 billion for a total consideration of P
= 5.1 billion. BHL remained a whollyowned subsidiary of the Company after the transaction.
Investment in AAHC
In 2014, the Company subscribed to redeemable preferred shares of AAHC amounting to
P
= 450 million.
The redeemable preferred shares have the following features: (a) voting; (b) participating; (c)
preferred in distribution of assets in case of liquidation and in payment of dividend; (d) redeemable
at the option of AAHC, provided that in no case shall the redemption price be less than the cost of
shares as recorded in the books of AAHC at the time of redemption.
In July 2013, the Company infused additional capital to AAHC amounting to P
= 300 million. The
infusion was used to fund the start-up costs of Volkswagen business.
Investment in AAC
The Company infused additional capital to AAC amounting to P
= 268.72 million and P
= 40.6 million in
2014 and 2013, respectively. The additional capital was used to purchase new aircrafts.
Investment in AC Infra
On various dates in 2014, the Company infused additional capital to AC Infra amounting to
P
= 925.0 million. The additional capital was used for operating and capital expenditures of AC Infra
and investment in Light Rail Manila Holdings, Inc (see Note 12).
In 2013, the Company partially paid the subscription amounting to P
= 50.0 million.
Investment in IMI
As of December 31, 2014 and 2013, the Companys investment in IMI includes P
= 1.1 billion
investment in IMI Preferred Shares. The IMI Preferred Shares have the following features:
(a) voting; (b) dividends payable quarterly, cumulative; (c) nonconvertible; (d) preferred in
distribution of assets in case of liquidation and in payment of dividends; (e) nonparticipating; (f) no
pre-emptive rights; and (g) redeemable at the option of IMI at issue value after the 5th year issue
anniversary.
In 2013, the Company acquired 460.0 million IMI Preferred Shares from Asiacom for an aggregate
amount of P
= 460.0 million. In November 2013, the dividend rate of IMI preferred shares has been
re-priced from 8.25% to 2.9% per annum.
In 2014, IMI has completed its public offering and listing of 215.0 million common shares at an
offer price of P
= 7.50 per share, with a par value of P
= 1.00 per share, raising P
= 1.61 billion
($35.92 million) cash to fund capital expenditure, support business expansion, refinance debt and
fund working capital requirements. The follow-on offering resulted in the Groups ownership
interest in IMI reduced from 57.8% to 50.9%.

*SGVFS011298*

-4-

The fair value of the IMI shares held by the Company amounted to P
= 9.3 million and P
= 3.5 million as
of December 31, 2014 and 2013, respectively. The voting rights held by the Group in IMI as of
December 31, 2014 and 2013 is 63.7% and 70.2%, respectively.
Investment in LGSMI
In 2014 and 2013, the Company infused additional capital to LGSMI amounting to
P
= 389.0 million and P
= 57.1 million respectively. The capital infusion was used for LGSMIs
investment in Affordable Private Education Center (APEC) and Learning through Industry
Collaboration (LIC).
Investment in PFIL
In August 2014, PFIL redeemed from the Company 3,500,000 shares amounting to
P
= 153.4 million. PFIL remained a wholly-owned subsidiary of the Company after the transaction.
Investment in MPM
In 2014, MPM was dissolved. The Company derecognized its investment amounting to
P
= 81.6 million.
Material partly-owned subsidiaries
Information of subsidiaries that have material non-controlling interests is provided below:

Subsidiary
ALI
MWC
IMI

Accumulated Balances of
Non-controlling Interest
2014
2013
(In Thousands)
P
= 68,438,083
P
= 62,779,490
27,382,229
25,631,434
4,849,118
3,100,466

Profit (Loss) Allocated to

Non-controlling Interest
2014
2013
(In Thousands)
P
= 10,454,204
P
= 8,150,756
2,678,153
2,917,444
560,988
155,840

2012
P
= 6,368,764
2,815,231
(21,296)

The summarized financial information of these subsidiaries is provided below. These information
is based on amounts before inter-company eliminations.
2014
Statement of financial position
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Dividends paid to non-controlling interests
Statement of comprehensive income
Revenue
Profit (loss) attributable to:
Equity holders of the parent
Non-controlling interests
Total comprehensive income attributable
to:
Equity holders of the parent
Non-controlling interests
Statement of cash flows
Operating activities
Investing activities
Financing activities
Effect of changes in foreign exchange on
cash and cash equivalents
Net increase (decrease) in cash and
cash equivalents

ALI

MWC
(In Thousands)

IMI*

P
= 165,634,445
223,310,018
135,446,156
131,502,849
1,342,623

P
= 9,094,065
65,765,839
7,858,162
31,900,171

P
= 18,603,911
6,113,164
10,761,152
3,032,366

P
= 95,197,046

P
= 16,357,145

P
= 37,764,880

14,802,642
2,911,816

5,813,089
16,860

1,302,113
(5,619)

14,851,119
2,913,188

5,948,616
16,972

1,038,034
(5,619)

P
= 37,027,858
(53,948,544)
17,631,830

P
= 5,031,823
(759,497)
(4,999,553)

1,822,661
(142,914)
1,412,333

P
= 711,144

(P
= 727,227)

(25,053)
P
= 3,067,027

*Translated using the exchange rate at the reporting date (US$1:P

= 44.72 in December 31, 2014 )

*SGVFS011298*

-52013
Statement of financial position
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Dividends paid to non-controlling interests

ALI

MWC
(In Thousands)

IMI*

P
= 146,986,957
178,486,728
101,623,207
111,752,912
1,109,467

P
= 9,069,404
63,788,120
8,072,931
33,730,537

P
= 15,017,182
6,657,736
9,824,702
3,413,147

P
= 81,523,070

P
= 15,925,817

P
= 33,075,690

11,741,764
2,562,929

5,752,362
28,199

464,949
(56,691)

11,466,162
2,557,938

5,793,305
28,102

310,910
(56,691)

P
= 27,238,649
(69,952,151)
38,557,555

P
= 4,345,087
15,820
(3,121,277)

Statement of comprehensive income

Revenue
Profit (loss) attributable to:
Equity holders of the parent
Non-controlling interests
Total comprehensive income attributable
to:
Equity holders of the parent
Non-controlling interests
Statement of cash flows
Operating activities
Investing activities
Financing activities
Effect of changes in foreign exchange on
cash and cash equivalents
Net increase (decrease) in cash and
cash equivalents

(P
= 4,155,947)

P
= 667,817
(749,138)
(233,233)

(3,038)

P
= 1,239,630

(P
= 317,592)

*Translated using the exchange rate at the reporting date (US$1:P

= 44.395 in December 31, 2013)

3. Summary of Significant Accounting Policies

Basis of Preparation
The accompanying consolidated financial statements of the Group have been prepared on a
historical cost basis, except for financial assets at fair value through profit or loss (FVPL),
available-for-sale (AFS) financial assets and derivative financial instruments that have been
measured at fair value. The consolidated financial statements are presented in Philippine Peso
(P
= ) and all values are rounded to the nearest thousand pesos (P
= 000) unless otherwise indicated.
The consolidated financial statements provide comparative information in respect of the previous
period.
Statement of Compliance
The consolidated financial statements of the Group have been prepared in compliance with
Philippine Financial Reporting Standards (PFRS).
Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Group as of
December 31, 2014 and 2013 and for each of the three years in the period ended
December 31, 2014.
Control is achieved when the Group is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns through its power over the
investee. Specifically, the Group controls an investee if and only if the Group has:
a. Power over the investee (i.e. existing rights that give it the current ability to direct the relevant
activities of the investee)
b. Exposure, or rights, to variable returns from its involvement with the investee, and
c. The ability to use its power over the investee to affect its returns

*SGVFS011298*

-6-

When the Group has less than a majority of the voting or similar rights of an investee, the Group
considers all relevant facts and circumstances in assessing whether it has power over an
investee, including:
a. The contractual arrangement with the other vote holders of the investee
b. Rights arising from other contractual arrangements
c. The Groups voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate
that there are changes to one or more of the three elements of control. Consolidation of a
subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group
loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired
or disposed of during the year are included or excluded in the consolidated financial statements
from the date the Group gains control or until the date the Group ceases to control the subsidiary.
Non-controlling interests pertain to the equity in a subsidiary not attributable, directly or indirectly
to the Company. Any equity instruments issued by a subsidiary that are not owned by the
Company are non-controlling interests including preferred shares and options under share-based
transactions. The portion of profit or loss and net assets in subsidiaries not wholly-owned and are
presented separately in the consolidated statements of income, consolidated statements of
comprehensive income, consolidated statements of changes in equity and consolidated
statements of financial position, separately from the Companys equity. Non-controlling interests
are net of any outstanding subscription receivable.
Losses within a subsidiary are attributed to the non-controlling interests even if that results in a
deficit balance.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an
equity transaction. Any difference between the amount by which the non-controlling interests are
adjusted and the fair value of the consideration paid or received is recognized directly in equity as
Equity reserve and attributed to the owners of the Company. If the Group losses control over a
subsidiary, it:

Derecognizes the assets (including goodwill) and liabilities of the subsidiary;

Derecognizes the carrying amount of any non-controlling interests;
Derecognizes the cumulative translation adjustments recorded in equity;
Recognizes the fair value of the consideration received;
Recognizes the fair value of any investment retained;
Recognizes any surplus or deficit in profit or loss; and
Reclassifies the parents share of components previously recognized in OCI to profit or loss or
retained earnings, as appropriate, as would be required if the Group had directly disposed of
the related assets and liabilities.

Changes in Accounting Policies and disclosures

The accounting policies adopted in the preparation of the consolidated financial statements are
consistent with those of the previous financial years except for the new PFRS, amended PFRS
and improvements to PFRS which were adopted beginning January 1, 2014. The nature and the
impact of each new standards and amendments is described below:
New and amended standards and interpretations
The Group applied for the first time certain standards and amendments, which are effective for
annual periods beginning on or after January 1, 2014.

*SGVFS011298*

-7-

The nature and impact of each new standard and amendment is described below:
Investment Entities (Amendments to PFRS 10, Consolidated Financial Statements, PFRS 12,
Disclosure of Interests in Other Entities, and PAS 27, Separate Financial Statements)
These amendments provide an exception to the consolidation requirement for entities that meet
the definition of an investment entity under PFRS 10. The exception to consolidation requires
investment entities to account for subsidiaries at fair value through profit or loss. The
amendments must be applied retrospectively, subject to certain transition relief. The amendments
must be applied retrospectively, subject to certain transition relief. These amendments have no
impact to the Group, since none of its investee companies qualifies to be an investment entity
under PFRS 10.
PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities
(Amendments)
These amendments clarify the meaning of currently has a legally enforceable right to set-off and
the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting
and are applied retrospectively. These amendments have no impact on the Group, since none of
the entities in the Group has any offsetting arrangements.
PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives and
Continuation of Hedge Accounting (Amendments)
These amendments provide relief from discontinuing hedge accounting when novation of a
derivative designated as a hedging instrument meets certain criteria and retrospective application
is required. These amendments have no impact on the Group as the Group has not novated its
derivatives during the current or prior periods.
PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets
(Amendments)
These amendments remove the unintended consequences of PFRS 13, Fair Value Measurement,
on the disclosures required under PAS 36. In addition, these amendments require disclosure of
the recoverable amounts for assets or cash-generating units (CGUs) for which impairment loss
has been recognized or reversed during the period. The application of these amendments has no
material impact on the disclosure in the Groups consolidated financial statements.
Philippine Interpretation IFRIC 21, Levies (IFRIC 21)
IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers
payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon
reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated
before the specified minimum threshold is reached. Retrospective application is required for
IFRIC 21. This interpretation has no impact on the Group as it has applied the recognition
principles under PAS 37, Provisions, Contingent Liabilities and Contingent Assets, consistent with
the requirements of IFRIC 21 in prior years.
Annual Improvements to PFRSs (2010-2012 cycle)
In the 2010 2012 annual improvements cycle, seven amendments to six standards were
issued, which included an amendment to PFRS 13, Fair Value Measurement. The amendment to
PFRS 13 is effective immediately and it clarifies that short-term receivables and payables with no
stated interest rates can be measured at invoice amounts when the effect of discounting is
immaterial. This amendment has no impact on the Group.
Annual Improvements to PFRSs (2011-2013 cycle)
In the 2011 2013 annual improvements cycle, four amendments to four standards were issued,
which included an amendment to PFRS 1, First-time Adoption of Philippine Financial Reporting
StandardsFirst-time Adoption of PFRS. The amendment to PFRS 1 is effective immediately. It
clarifies that an entity may choose to apply either a current standard or a new standard that is not
yet mandatory, but permits early application, provided either standard is applied consistently

*SGVFS011298*

-8-

throughout the periods presented in the entitys first PFRS financial statements. This amendment
has no impact on the Group as it is not a first time PFRS adopter.
Standards and interpretation issued but not yet effective
The Group will adopt the following new and amended Standards and Philippine Interpretations of
International Financial Reporting Interpretations Committee (IFRIC) 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.
PFRS 9, Financial Instruments Classification and Measurement (2010 version)
PFRS 9 (2010 version) reflects the first phase on the replacement of PAS 39 and applies to the
classification and measurement of financial assets and liabilities as defined in PAS 39, Financial
Instruments: Recognition and Measurement. PFRS 9 requires all financial assets to be measured
at fair value at initial recognition. A debt financial asset may, if the fair value option (FVO) is not
invoked, be subsequently measured at amortized cost if it is held within a business model that has
the objective to hold the assets to collect the contractual cash flows and its contractual terms give
rise, on specified dates, to cash flows that are solely payments of principal and interest on the
principal outstanding. All other debt instruments are subsequently measured at fair value through
profit or loss. All equity financial assets are measured at fair value either through other
comprehensive income (OCI) or profit or loss. Equity financial assets held for trading must be
measured at fair value through profit or loss. For FVO liabilities, the amount of change in the fair
value of a liability that is attributable to changes in credit risk must be presented in OCI. The
remainder of the change in fair value is presented in profit or loss, unless presentation of the fair
value change in respect of the liabilitys credit risk in OCI would create or enlarge an accounting
mismatch in profit or loss. All other PAS 39 classification and measurement requirements for
financial liabilities have been carried forward into PFRS 9, including the embedded derivative
separation rules and the criteria for using the FVO. The adoption of the first phase of PFRS 9 may
have an effect on the classification and measurement of the Groups financial assets, but may
potentially have no significant impact on the classification and measurement of financial liabilities.
PFRS 9 (2010 version) is effective for annual periods beginning on or after January 1, 2015. This
mandatory adoption date was moved to January 1, 2018 when the final version of PFRS 9 was
adopted by the Philippine Financial Reporting Standards Council (FRSC). Such adoption,
however, is still for approval by the Board of Accountancy (BOA). The Group will continue to
monitor developments in this reporting standard and assess its impact on or need for adoption.
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 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 SEC and the FRSC have deferred the effectivity of this
interpretation until the final Revenue standard is issued by the 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 following new standards and amendments issued by the IASB were already adopted by the
FRSC but are still for approval by BOA.

*SGVFS011298*

-9-

Effective January 1, 2015

PAS 19, Employee Benefits Defined Benefit Plans: Employee Contributions (Amendments)
PAS 19 requires an entity to consider contributions from employees or third parties when
accounting for defined benefit plans. Where the contributions are linked to service, they should be
attributed to periods of service as a negative benefit. These amendments clarify that, if the amount
of the contributions is independent of the number of years of service, an entity is permitted to
recognize such contributions as a reduction in the service cost in the period in which the service is
rendered, instead of allocating the contributions to the periods of service. This amendment is
effective for annual periods beginning on or after January 1, 2015. It is not expected that this
amendment would be relevant to the Group, since none of the entities within the Group has
defined benefit plans with contributions from employees or third parties.
Annual Improvements to PFRSs (2010-2012 cycle)
The Annual Improvements to PFRSs (2010-2012 cycle) are effective for annual periods beginning
on or after January 1, 2015 and are not expected to have a material impact on the Group. They
include:
PFRS 2, Share-based Payment Definition of Vesting Condition
This improvement is applied prospectively and clarifies various issues relating to the definitions of
performance and service conditions which are vesting conditions, including:
A performance condition must contain a service condition
A performance target must be met while the counterparty is rendering service
A performance target may relate to the operations or activities of an entity, or to those of
another entity in the same group
A performance condition may be a market or non-market condition
If the counterparty, regardless of the reason, ceases to provide service during the vesting
period, the service condition is not satisfied.
PFRS 3, Business Combinations Accounting for Contingent Consideration in a Business
Combination
The amendment is applied prospectively for business combinations for which the acquisition date
is on or after July 1, 2014. It clarifies that a contingent consideration that is not classified as equity
is subsequently measured at fair value through profit or loss whether or not it falls within the scope
of PAS 39, Financial Instruments: Recognition and Measurement (or PFRS 9, Financial
Instruments, if early adopted). The Group shall consider this amendment for future business
combinations.
PFRS 8, Operating Segments Aggregation of Operating Segments and Reconciliation of the
Total of the Reportable Segments Assets to the Entitys Assets
The amendments are applied retrospectively and clarify that:
An entity must disclose the judgments made by management in applying the aggregation
criteria in the standard, including a brief description of operating segments that have been
aggregated and the economic characteristics (e.g., sales and gross margins) used to assess
whether the segments are similar.
The reconciliation of segment assets to total assets is only required to be disclosed if the
reconciliation is reported to the chief operating decision maker, similar to the required
disclosure for segment liabilities.
PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets Revaluation Method
Proportionate Restatement of Accumulated Depreciation and Amortization
The amendment is applied retrospectively and clarifies in PAS 16 and PAS 38 that the asset may
be revalued by reference to the observable data on either the gross or the net carrying amount. In
addition, the accumulated depreciation or amortization is the difference between the gross and
carrying amounts of the asset.

*SGVFS011298*

- 10 PAS 24, Related Party Disclosures Key Management Personnel

The amendment is applied retrospectively and clarifies that a management entity, which is an
entity that provides key management personnel services, is a related party subject to the related
party disclosures. In addition, an entity that uses a management entity is required to disclose the
expenses incurred for management services.
Annual Improvements to PFRSs (2011-2013 cycle)
The Annual Improvements to PFRSs (2011-2013 cycle) are effective for annual periods beginning
on or after January 1, 2015 and are not expected to have a material impact on the Group. They
include:
PFRS 3, Business Combinations Scope Exceptions for Joint Arrangements
The amendment is applied prospectively and clarifies the following regarding the scope exceptions
within PFRS 3:
Joint arrangements, not just joint ventures, are outside the scope of PFRS 3.
This scope exception applies only to the accounting in the financial statements of the joint
arrangement itself.
PFRS 13, Fair Value Measurement Portfolio Exception
The amendment is applied prospectively and clarifies that the portfolio exception in PFRS 13 can
be applied not only to financial assets and financial liabilities, but also to other contracts within the
scope of PAS 39 (or PFRS 9, as applicable).
PAS 40, Investment Property
The amendment is applied prospectively and clarifies that PFRS 3, and not the description of
ancillary services in PAS 40, is used to determine if the transaction is the purchase of an asset or
business combination. The description of ancillary services in PAS 40 only differentiates between
investment property and owner-occupied property (i.e., property, plant and equipment).
Effective January 1, 2016
PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets Clarification of
Acceptable Methods of Depreciation and Amortization (Amendments)
The amendments clarify the principle in PAS 16 and PAS 38 that revenue reflects a pattern of
economic benefits that are generated from operating a business (of which the asset is part) rather
than the economic benefits that are consumed through use of the asset. As a result, a revenuebased method cannot be used to depreciate property, plant and equipment and may only be used
in very limited circumstances to amortize intangible assets. The amendments are effective
prospectively for annual periods beginning on or after January 1, 2016, with early adoption
permitted. These amendments are not expected to have any impact to the Group given that the
Group has not used a revenue-based method to depreciate its non-current assets.
PAS 16, Property, Plant and Equipment, and PAS 41, Agriculture Bearer Plants (Amendments)
The amendments change the accounting requirements for biological assets that meet the
definition of bearer plants. Under the amendments, biological assets that meet the definition of
bearer plants will no longer be within the scope of PAS 41. Instead, PAS 16 will apply. After initial
recognition, bearer plants will be measured under PAS 16 at accumulated cost (before maturity)
and using either the cost model or revaluation model (after maturity). The amendments also
require that produce that grows on bearer plants will remain in the scope of PAS 41 measured at
fair value less costs to sell. For government grants related to bearer plants, PAS 20, Accounting
for Government Grants and Disclosure of Government Assistance, will apply. The amendments
are retrospectively effective for annual periods beginning on or after January 1, 2016, with early
adoption permitted. These amendments are not expected to have any impact to the Group as the
Group does not have any bearer plants.

*SGVFS011298*

- 11 PAS 27, Separate Financial Statements Equity Method in Separate Financial Statements
(Amendments)
The amendments will allow entities to use the equity method to account for investments in
subsidiaries, joint ventures and associates in their separate financial statements. Entities already
applying PFRS and electing to change to the equity method in its separate financial statements
will have to apply that change retrospectively. For first-time adopters of PFRS electing to use the
equity method in its separate financial statements, they will be required to apply this method from
the date of transition to PFRS. The amendments are effective for annual periods beginning on or
after January 1, 2016, with early adoption permitted. These amendments will not have any impact
on the Groups consolidated financial statements.
PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates and Joint
Ventures Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
These amendments address an acknowledged inconsistency between the requirements in PFRS
10 and those in PAS 28 (2011) in dealing with the sale or contribution of assets between an
investor and its associate or joint venture. The amendments require that a full gain or loss is
recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A
partial gain or loss is recognized when a transaction involves assets that do not constitute a
business, even if these assets are housed in a subsidiary. These amendments are effective from
annual periods beginning on or after January 1, 2016.
PFRS 11, Joint Arrangements Accounting for Acquisitions of Interests in Joint Operations
(Amendments)
The amendments to PFRS 11 require that a joint operator accounting for the acquisition of an
interest in a joint operation, in which the activity of the joint operation constitutes a business must
apply the relevant PFRS 3 principles for business combinations accounting. The amendments
also clarify that a previously held interest in a joint operation is not remeasured on the acquisition
of an additional interest in the same joint operation while joint control is retained. In addition, a
scope exclusion has been added to PFRS 11 to specify that the amendments do not apply when
the parties sharing joint control, including the reporting entity, are under common control of the
same ultimate controlling party.
The amendments apply to both the acquisition of the initial interest in a joint operation and the
acquisition of any additional interests in the same joint operation and are prospectively effective
for annual periods beginning on or after January 1, 2016, with early adoption permitted. These
amendments are not expected to have any significant impact to the Group.
PFRS 14, Regulatory Deferral Accounts
PFRS 14 is an optional standard that allows an entity, whose activities are subject to rateregulation, to continue applying most of its existing accounting policies for regulatory deferral
account balances upon its first-time adoption of PFRS. Entities that adopt PFRS 14 must present
the regulatory deferral accounts as separate line items on the statement of financial position and
present movements in these account balances as separate line items in the statement of profit or
loss and other comprehensive income. The standard requires disclosures on the nature of, and
risks associated with, the entitys rate-regulation and the effects of that rate-regulation on its
financial statements. PFRS 14 is effective for annual periods beginning on or after January 1,
2016. Since the Group is an existing PFRS preparer, this standard would not apply.
Annual Improvements to PFRSs (2012-2014 cycle)
The Annual Improvements to PFRSs (2012-2014 cycle) are effective for annual periods beginning
on or after January 1, 2016 and are not expected to have a material impact on the Group. They
include:
PFRS 5, Non-current Assets Held for Sale and Discontinued Operations Changes in Methods of
Disposal
The amendment is applied prospectively and clarifies that changing from a disposal through sale
to a disposal through distribution to owners and vice-versa should not be considered to be a new

*SGVFS011298*

- 12 -

plan of disposal, rather it is a continuation of the original plan. There is, therefore, no interruption
of the application of the requirements in PFRS 5. The amendment also clarifies that changing the
disposal method does not change the date of classification.
PFRS 7, Financial Instruments: Disclosures Servicing Contracts
PFRS 7 requires an entity to provide disclosures for any continuing involvement in a transferred
asset that is derecognized in its entirety. The amendment clarifies that a servicing contract that
includes a fee can constitute continuing involvement in a financial asset. An entity must assess the
nature of the fee and arrangement against the guidance in PFRS 7 in order to assess whether the
disclosures are required. The amendment is to be applied such that the assessment of which
servicing contracts constitute continuing involvement will need to be done retrospectively.
However, comparative disclosures are not required to be provided for any period beginning before
the annual period in which the entity first applies the amendments.
PFRS 7 - Applicability of the Amendments to PFRS 7 to Condensed Interim Financial Statements
This amendment is applied retrospectively and clarifies that the disclosures on offsetting of
financial assets and financial liabilities are not required in the condensed interim financial report
unless they provide a significant update to the information reported in the most recent annual
report.
PAS 19, Employee Benefits regional market issue regarding discount rate
This amendment is applied prospectively and clarifies that market depth of high quality corporate
bonds is assessed based on the currency in which the obligation is denominated, rather than the
country where the obligation is located. When there is no deep market for high quality corporate
bonds in that currency, government bond rates must be used.
PAS 34, Interim Financial Reporting disclosure of information elsewhere in the interim financial
report
The amendment is applied retrospectively and clarifies that the required interim disclosures must
either be in the interim financial statements or incorporated by cross-reference between the
interim financial statements and wherever they are included within the greater interim financial
report (e.g., in the management commentary or risk report).
Effective January 1, 2018
PFRS 9, Financial Instruments Hedge Accounting and amendments to PFRS 9, PFRS 7 and
PAS 39 (2013 version)
PFRS 9 (2013 version) already includes the third phase of the project to replace PAS 39 which
pertains to hedge accounting. This version of PFRS 9 replaces the rules-based hedge accounting
model of PAS 39 with a more principles-based approach. Changes include replacing the rulesbased hedge effectiveness test with an objectives-based test that focuses on the economic
relationship between the hedged item and the hedging instrument, and the effect of credit risk on
that economic relationship; allowing risk components to be designated as the hedged item, not
only for financial items but also for non-financial items, provided that the risk component is
separately identifiable and reliably measurable; and allowing the time value of an option, the
forward element of a forward contract and any foreign currency basis spread to be excluded from
the designation of a derivative instrument as the hedging instrument and accounted for as costs of
hedging. PFRS 9 also requires more extensive disclosures for hedge accounting.
PFRS 9 (2013 version) has no mandatory effective date. The mandatory effective date of
January 1, 2018 was eventually set when the final version of PFRS 9 was adopted by the FRSC.
The adoption of the final version of PFRS 9, however, is still for approval by BOA.

*SGVFS011298*

- 13 -

The adoption of PFRS 9 may have an effect on the classification and measurement of the Groups
financial assets but will have no impact on the classification and measurement of the Groups
financial liabilities. The adoption will also have an effect on the Groups application of hedge
accounting. The Group will continue to monitor developments in this reporting standard and
assess its impact on or need for adoption by the Group.
PFRS 9, Financial Instruments (2014 or final version)
In July 2014, the final version of PFRS 9, Financial Instruments, was issued. PFRS 9 reflects all
phases of the financial instruments project and replaces PAS 39, Financial Instruments:
Recognition and Measurement, and all previous versions of PFRS 9. The standard introduces new
requirements for classification and measurement, impairment, and hedge accounting. PFRS 9 is
effective for annual periods beginning on or after January 1, 2018, with early application permitted.
Retrospective application is required, but comparative information is not compulsory. Early
application of previous versions of PFRS 9 is permitted if the date of initial application is before
February 1, 2015.
The adoption of PFRS 9 may have an effect on the classification and measurement of the Groups
financial assets and impairment methodology for financial assets, but will have no impact on the
classification and measurement of the Groups financial liabilities. The adoption may also have an
effect on the Groups application of hedge accounting. The Group will continue to monitor
developments in this reporting standard and assess its impact on or need for adoption.
The following new standard issued by the IASB has not yet been adopted by the FRSC
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue
arising from contracts with customers. Under IFRS 15 revenue is recognised at an amount that
reflects the consideration to which an entity expects to be entitled in exchange for transferring
goods or services to a customer. The principles in IFRS 15 provide a more structured approach to
measuring and recognising revenue. The new revenue standard is applicable to all entities and
will supersede all current revenue recognition requirements under IFRS. Either a full or modified
retrospective application is required for annual periods beginning on or after 1 January 2017 with
early adoption permitted. The Group is currently assessing the impact of IFRS 15 and plans to
adopt the new standard on the required effective date once adopted locally.
The significant accounting policies that have been used in the preparation of the consolidated
financial statements are summarized below. These policies have been consistently applied to all
the years presented, unless otherwise stated.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash with original maturities of three
months or less from dates of acquisition and which are subject to an insignificant risk of change in
value.
Short-term Investments
Short-term investments are short-term placements with maturities of more than three months but
less than one year from the date of acquisition. These earn interest at the respective short-term
investment rates.
Financial Instruments
Date of recognition
The Group recognizes a financial asset or a financial liability in the consolidated statement of
financial position when it becomes a party to the contractual provisions of the instrument.
Purchases or sales of financial assets that require delivery of assets within the time frame
established by regulation or convention in the marketplace are recognized on the settlement date.
In the case of derivatives, the Group follows trade date accounting.

*SGVFS011298*

- 14 Initial recognition of financial instruments

All financial assets and financial liabilities are recognized initially at fair value. Except for financial
instruments at FVPL, the initial measurement of financial instruments includes transaction costs.
The Group classifies its financial assets in the following categories: financial assets at FVPL, loans
and receivables, held-to-maturity (HTM) investments and AFS financial assets. The Group also
classifies its financial liabilities into financial liabilities at FVPL and other financial liabilities. The
classification depends on the purpose for which the investments were acquired and whether they
are quoted in an active market.
The Group determines the classification of its financial instruments at initial recognition and, where
allowed and appropriate, re-evaluates such designation at every reporting date.
Financial instruments are classified as liability or equity in accordance with the substance of the
contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or
a component that is a financial liability, are reported as expense or income. Distributions to
holders of financial instruments classified as equity are charged directly to equity, net of any
related income tax benefits.
Determination of fair value
The fair value for financial instruments traded in active markets at the reporting date is based on
their quoted market price or dealer price quotations (bid price for long positions and ask price for
short positions), without any deduction for transaction costs. When current bid and ask prices are
not available, the price of the most recent transaction provides evidence of the current fair value
as long as there has not been a significant change in economic circumstances since the time of
the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by
using appropriate valuation methodologies. Valuation methodologies include net present value
techniques, comparison to similar instruments for which market observable prices exist, option
pricing models, and other relevant valuation models.
Day 1 difference
Where the transaction price in a non-active market is different from the fair value from other
observable current market transactions in the same instrument or based on a valuation technique
whose variables include only data from observable market, the Group recognizes the difference
between the transaction price and fair value (a Day 1 difference) in the consolidated statement of
income under Interest income or Interest and other financing charges unless it qualifies for
recognition as some other type of asset or liability. In cases where use is made of data which is
not observable, the difference between the transaction price and model value is only recognized in
the consolidated statement of income when the inputs become observable or when the instrument
is derecognized. For each transaction, the Group determines the appropriate method of
recognizing the Day 1 difference amount.
Financial assets and financial liabilities at FVPL
Financial assets and financial liabilities at FVPL include derivatives, financial assets and financial
liabilities held for trading and financial assets and financial liabilities designated upon initial
recognition as at FVPL.
Financial assets and financial liabilities are classified as held for trading if they are acquired for the
purpose of selling or repurchasing in the near term. Derivatives, including separated embedded
derivatives, are also classified as held for trading unless they are designated as effective hedging
instruments or a financial guarantee contract. Fair value gains or losses on investments held for
trading, net of interest income or expense accrued on these assets, are recognized in the
consolidated statement of income under Other income or Other charges. Interest earned or
incurred is recorded in Interest income or Interest and other financing charges while dividend
income is recorded in Other income when the right to receive payment has been established.

*SGVFS011298*

- 15 -

Where a contract contains one or more embedded derivatives, the hybrid contract may be
designated as financial asset or financial liability at FVPL, except where the embedded derivative
does not significantly modify the cash flows or it is clear that separation of the embedded
derivative is prohibited.
Financial assets and financial liabilities may be designated at initial recognition as at FVPL if any
of the following criteria are met:
(i) the designation eliminates or significantly reduces the inconsistent treatment that would
otherwise arise from measuring the assets or liabilities or recognizing gains or losses on them
on a different basis; or
(ii) the assets or liabilities are part of a group of financial assets, financial liabilities or both which
are managed and their performance evaluated on a fair value basis, in accordance with a
documented risk management or investment strategy; or
(iii) the financial instrument contains an embedded derivative that would need to be separately
recorded.
The Groups financial assets and financial liabilities at FVPL pertain to government securities,
other investment securities, derivatives not designated as accounting hedges and embedded
derivative arising from the acquisition of PSi.
Derivative instruments (including bifurcated embedded derivatives) are initially recognized at fair
value on the date in which a derivative transaction is entered into or bifurcated, and are
subsequently remeasured at fair value. Any gains or losses arising from changes in fair value of
derivatives that do not qualify for hedge accounting are taken directly to the consolidated
statement of income. Derivatives are carried as assets when the fair value is positive and as
liabilities when the fair value is negative.
The Group uses derivative instruments such as structured currency options and currency forwards
to hedge its risks associated with foreign currency fluctuations. Such derivative instruments
provide economic hedges under the Groups policies but are not designated as accounting
hedges.
An embedded derivative is separated from the host contract and accounted for as a derivative if all
of the following conditions are met: a) the economic characteristics and risks of the embedded
derivative are not closely related to the economic characteristics and risks of the host contract; b)
a separate instrument with the same terms as the embedded derivative would meet the definition
of a derivative; and c) the hybrid or combined instrument is not recognized at FVPL.
The Group assesses whether embedded derivatives are required to be separated from the host
contracts when the Group first becomes a party to the contract. Reassessment of embedded
derivatives is only done when there are changes in the contract that significantly modifies the
contractual cash flows that otherwise would be required under the contract.
HTM investments
HTM investments are quoted nonderivative financial assets with fixed or determinable payments
and fixed maturities that the Group has the positive intention and ability to hold to maturity. Where
the Group sells other than an insignificant amount of HTM investments, the entire category would
be tainted or reclassified as AFS financial assets. After initial measurement, these investments
are measured at amortized cost using the effective interest rate method, less impairment in value.
Amortized cost is calculated by taking into account any discount or premium on acquisition and
fees that are integral parts of the effective interest rate. The amortization is included in Interest
income in the consolidated statement of income. Gains and losses are recognized in the
consolidated statement of income when the HTM investments are derecognized or impaired, as
well as through the amortization process. The losses arising from impairment of such investments
are recognized in the consolidated statement of income under Provision for impairment losses
account. HTM investments are included under Other current assets if the maturity falls within 12
months from reporting date.

*SGVFS011298*

- 16 -

As of December 31, 2014 and 2013, the Group has no outstanding HTM investments.
Loans and receivables
Loans and receivables are nonderivative financial assets with fixed or determinable payments that
are not quoted in an active market. They are not entered into with the intention of immediate or
short-term resale and are not designated as AFS financial assets or financial asset at FVPL. This
accounting policy relates to the consolidated statement of financial position captions Cash and
cash equivalents, Short-term investments and Accounts and notes receivable (except for
Advances to contractors and suppliers).
After initial measurement, loans and receivables are subsequently measured at amortized cost
using the effective interest rate method, less any allowance for impairment losses. Amortized cost
is calculated by taking into account any discount or premium on acquisition and fees that are
integral parts of the effective interest rate. Gains and losses are recognized in the consolidated
statement of income when the loans and receivables are derecognized or impaired, as well as
through the amortization process. The amortization is included in the Interest income account in
the consolidated statement of income. The losses arising from impairment of such loans and
receivables are recognized under Provision for doubtful accounts in the consolidated statement
of income.
Loans and receivables are included in current assets if maturity is within 12 months or when the
Group expects to realize or collect within 12 months from the reporting date. Otherwise, they are
classified as noncurrent assets.
AFS financial assets
AFS financial assets are those which are designated as such or do not qualify to be classified as
designated at FVPL, HTM, or loans and receivables.
Financial assets may be designated at initial recognition as AFS if they are purchased and held
indefinitely, and may be sold in response to liquidity requirements or changes in market
conditions.
After initial measurement, AFS financial assets are measured at fair value. The unrealized gains
or losses arising from the fair valuation of AFS financial assets are recognized in other
comprehensive income and are reported as Net unrealized gain (loss) on available-for-sale
financial assets (net of tax where applicable) in equity. The Groups share in its associates or
joint ventures net unrealized gain (loss) on AFS is likewise included in this account.
When the security is disposed of, the cumulative gain or loss previously recognized in equity is
recognized in the consolidated statement of income under Other income or Other charges.
Where the Group holds more than one investment in the same security, the cost is determined
using the weighted average method. Interest earned on AFS financial assets is reported as
interest income using the effective interest rate. Dividends earned are recognized under Other
income in the consolidated statement of income when the right to receive payment is established.
The losses arising from impairment of such investments are recognized under Provision for
impairment losses in the consolidated statement of income.
When the fair value of AFS financial assets cannot be measured reliably because of lack of
reliable estimates of future cash flows and discount rates necessary to calculate the fair value of
unquoted equity instruments, these investments are carried at cost, less any allowance for
impairment losses.
The Groups AFS financial assets pertain to investments in debt and equity securities included
under Investments in bonds and other securities in the consolidated statement of financial
position. AFS financial assets are included under Other current assets if expected to be realized
within 12 months from reporting date.

*SGVFS011298*

- 17 Other financial liabilities

Issued financial instruments or their components, which are not designated at FVPL are classified
as other financial liabilities where the substance of the contractual arrangement results in the
Group having an obligation either to deliver cash or another financial asset to the holder, or to
satisfy the obligation other than by the exchange of a fixed amount of cash or another financial
asset for a fixed number of its own equity shares. The components of issued financial instruments
that contain both liability and equity elements are accounted for separately, with the equity
component being assigned the residual amount, after deducting from the instrument as a whole
the amount separately determined as the fair value of the liability component on the date of issue.
After initial measurement, other financial liabilities are subsequently measured at amortized cost
using the effective interest rate method. Amortized cost is calculated by taking into account any
discount or premium on the issue and fees that are an integral part of the effective interest rate.
Any effects of restatement of foreign currency-denominated liabilities are recognized in the
consolidated statement of income.
This accounting policy applies primarily to the Groups short-term and long-term debt, accounts
payable and accrued expenses, and other current and noncurrent liabilities and obligations that
meet the above definition (other than liabilities covered by other accounting standards, such as
income tax payable).
Other financial liabilities are included in current liabilities if maturity is within 12 months or when
the Group expects to realize or collect within 12 months from the reporting date. Otherwise, they
are classified as noncurrent liabilities.
Exchangeable bonds
In 2014, AYCFL issued exchangeable bonds (see Note 20). On issuance of exchangeable bonds,
the proceeds are allocated between the embedded exchange option and the liability component.
The embedded exchange option is recognized at its fair value. The liability component is
recognised as the difference between total proceeds and the fair value of the exchange option.
The exchange option is subsequently carried at its fair value with fair value changes recognized in
profit or loss. The liability component is carried at amortised cost until the liability is extinguished
on exchange or redemption.
When the exchange option is exercsed, the carrying amounts of the liability component and the
exchange option are derecognized. The related investment in equity security of the guarantor is
likewise derecognized.
At the AC Consolidated level, the exchangeable bond is classified as a compound instrument and
accounted for using split accounting. The value allocated to the equity component at initial
recognition is the residual amount after deducting the fair value of the liability component from the
issue proceeds of the exchangeable bonds. Any transaction costs incurred in relation to the
issuance of the exchangeable bonds is to be apportioned between the liability and equity
component based on their values at initial recognition.
Subsequently, the liability component is carried at amortized cost using the effective interest rate
method while the equity component is not revalued. When the convertion option is exercised, the
carrying amount of the liability and equity component is derecognized and their balances
transferred to equity. No gain or loss is recognized upon exercise of the conversion option.
Deposits, retentions payable and customers guaranty and other deposits
Deposits, retentions payable and customers deposits and other deposits are initially measured at
fair value. After initial recognition, these are subsequently measured at amortized cost using the
effective interest rate method. The difference between the cash received and its fair value is
deferred (included in the Deferred credits account in the consolidated statement of financial
position). Deposits are amortized using the straight-line method with the amortization included
under the Rendering of services account in the consolidated statement of income while

*SGVFS011298*

- 18 -

customers guaranty and other deposits are amortized over the remaining concession period with
the amortization included under Interest and other financing charges in the consolidated
statement of income.
Financial guarantee contracts
Financial guarantee contracts are recognized initially as a liability at fair value, adjusted for
transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the
liability is measured at the higher of the best estimate of expenditure required to settle the present
obligation at the reporting date and the amount recognized less cumulative amortization.
Derecognition of Financial Assets and Liabilities
Financial asset
A financial asset (or, where applicable, a part of a financial asset or part of a group of financial
assets) is derecognized where:
the rights to receive cash flows from the assets have expired;
the Group retains the right to receive cash flows from the asset, but has assumed an
obligation to pay them in full without material delay to a third-party under a pass-through
arrangement; or
the Group has transferred its right to receive cash flows from the asset and either (a) has
transferred substantially all the risks and rewards of the asset, or (b) has neither transferred
nor retained the risks and rewards of the asset but has transferred control of the asset.
Where the Group has transferred its rights to receive cash flows from an asset or has entered into
a pass-through arrangement, and has neither transferred nor retained substantially all the risks
and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent
of the Groups 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.
Financial liability
A financial liability is derecognized when the obligation under the liability is discharged or
cancelled or has expired. 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
recognized in the consolidated statement of income.
Impairment of Financial Assets
The Group assesses at each reporting date whether there is objective evidence that a financial
asset or group of financial assets is impaired. A financial asset or a group of financial assets is
deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one
or more events that has occurred after the initial recognition of the asset (an incurred loss event)
and that loss event (or events) has an impact on the estimated future cash flows of the financial
asset or the group of financial assets that can be reliably estimated. Evidence of impairment may
include indications that the borrower or a group of borrowers is experiencing significant financial
difficulty, default or delinquency in interest or principal payments, the probability that they will enter
bankruptcy or other financial reorganization and where observable data indicate that there is
measurable decrease in the estimated future cash flows, such as changes in arrears or economic
conditions that correlate with defaults.
Loans and receivables
For loans and receivables carried at amortized cost, the Group first assesses whether objective
evidence of impairment exists individually for financial assets that are individually significant, or
collectively for financial assets that are not individually significant. If the Group determines that no
objective evidence of impairment exists for an individually assessed financial asset, whether
significant or not, it includes the asset in a group of financial assets with similar credit risk
characteristics and collectively assesses for impairment. Those characteristics are relevant to the

*SGVFS011298*

- 19 -

estimation of future cash flows for groups of such assets by being indicative of the debtors ability
to pay all amounts due according to the contractual terms of the assets being evaluated. Assets
that are individually assessed for impairment and for which an impairment loss is, or continues to
be, recognized are not included in a collective assessment for impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is
measured as the difference between the assets carrying amount and the present value of
estimated future cash flows (excluding future credit losses that have not been incurred) discounted
at the financial assets original effective interest rate (i.e., the effective interest rate computed at
initial recognition). The carrying amount of the asset is reduced through the use of an allowance
account and the amount of the loss is charged to the consolidated statement of income under
Provision for doubtful accounts. Interest income continues to be recognized based on the
original effective interest rate of the asset. Loans and receivables, together with the associated
allowance accounts, are written off when there is no realistic prospect of future recovery and all
collateral has been realized. If, in a subsequent period, the amount of the estimated impairment
loss decreases because of an event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is
recognized in consolidated statement of income, to the extent that the carrying value of the asset
does not exceed its amortized cost at the reversal date.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis
of such credit risk characteristics such as customer type, payment history, past-due status and
term.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are
estimated on the basis of historical loss experience for assets with credit risk characteristics
similar to those in the group. Historical loss experience is adjusted on the basis of current
observable data to reflect the effects of current conditions that did not affect the period on which
the historical loss experience is based and to remove the effects of conditions in the historical
period that do not exist currently. The methodology and assumptions used for estimating future
cash flows are reviewed regularly by the Group to reduce any differences between loss estimates
and actual loss experience.
Financial assets carried at cost
If there is an objective evidence that an impairment loss has been incurred on an unquoted equity
instrument that is not carried at fair value because its fair value cannot be reliably measured, or on
derivative asset that is linked to and must be settled by delivery of such an unquoted equity
instrument, the amount of the loss is measured as the difference between the carrying amount
and the present value of estimated future cash flows discounted at the current market rate of
return for a similar financial asset.
AFS financial assets
In the case of equity investments classified as AFS financial assets, impairment would include a
significant or prolonged decline in the fair value of the investments below its cost. Significant is
to be evaluated against the original cost of the investment and prolonged against the period in
which the fair value has been below its original cost. Where there is evidence of impairment loss,
the cumulative loss - measured as the difference between the acquisition cost and the current fair
value, less any impairment loss on that financial asset previously recognized in the consolidated
statement of income - is removed from other comprehensive income and recognized in the
consolidated statement of income under Other charges. Impairment losses on equity
investments are not reversed through the consolidated statement of income. Increases in fair
value after impairment are recognized directly in the consolidated statement of comprehensive
income.
In the case of debt instruments classified as AFS, impairment is assessed based on the same
criteria as financial assets carried at amortized cost. Future interest income is based on the
reduced carrying amount and is accrued using the rate of interest used to discount future cash

*SGVFS011298*

- 20 -

flows for the purpose of measuring impairment loss and is recorded as part of Interest income
account in the consolidated statement of income. If, in a subsequent year, the fair value of a debt
instrument increased and the increase can be objectively related to an event occurring after the
impairment loss was recognized in the consolidated statement of income, the impairment loss is
reversed through the consolidated statement of income.
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount reported in the consolidated
statement of financial position if, and only if, there is a currently enforceable legal right to offset the
recognized amounts and there is an intention to settle on a net basis, or to realize the asset and
settle the liability simultaneously.
Inventories
Inventories are carried at the lower of cost and net realizable value (NRV). Costs incurred in
bringing each product to its present location and conditions are generally accounted for as follows:
Real estate inventories
Land cost
Land improvement cost
Amounts paid to contractors for construction and development
Borrowing costs, planning and design costs, costs of site preparation, professional fees,
property transfer taxes, construction overheads and other related costs
Club shares - cost is determined mainly on the basis of the actual development cost incurred plus
the estimated development cost to complete the project based on the estimates as determined by
the in-house engineers, adjusted with the actual costs incurred as the development progresses,
including borrowing costs during the development stage.
Vehicles - purchase cost on specific identification basis.
Finished goods and work-in-process - determined on a moving average basis; cost includes direct
materials and labor and a proportion of manufacturing overhead costs based on normal operating
capacity.
Parts and accessories, materials, supplies and others - purchase cost on a moving average basis.
NRV for real estate inventories, club shares, vehicles, finished goods and work-in-process and
parts and accessories is the estimated selling price in the ordinary course of business, less
estimated costs of completion and estimated costs necessary to make the sale, while NRV for
materials, supplies and others represents the related replacement costs. In the event that NRV is
lower than cost, the decline shall be recognized as an expense in the consolidated statement of
income.
The cost of real estate inventory recognized in the consolidated statement of income on disposal
is determined with reference to the specific costs incurred on the property and allocated to
saleable area based on relative size.
An allowance for inventory losses is provided for slow-moving, obsolete and defective inventories
based on managements physical inspection and evaluation. When inventories are sold, the cost
and related allowance is removed from the account and the difference is charged against
operations.
Prepaid Expenses
Prepaid expenses are carried at cost less the amortized portion. These typically comprise
prepayments for commissions, marketing fees and promotion, taxes and licenses, rentals and
insurance.

*SGVFS011298*

- 21 -

Creditable Withholding Tax

This pertains to the tax withheld at source by the Groups customer and is creditable against the
income tax liability of the Group.
Value-Added Tax (VAT)
The input VAT pertains to the 12% indirect tax paid by the Group in the course of the Groups
trade or business on local purchase of goods or services.
Output VAT pertains to the 12% tax due on the local sale of goods or services by the Group.
If at the end of any taxable month, the output VAT exceeds the input VAT, the outstanding
balance is included under Other current liabilities account. If the input VAT exceeds the output
VAT, the excess shall be carried over to the succeeding months and included under Other current
asset account.
Noncurrent Assets Held for Sale
Noncurrent assets held for sale are carried at the lower of its carrying amount and fair value less
costs to sell. At reporting date, the Group classifies assets as held for sale (disposal group) when
their carrying amount will be recovered principally through a sale transaction rather than through
continuing use. For this to be the case the asset must be available for immediate sale in its
present condition subject only to terms that are usual and customary for sales of such assets and
its sale must be highly probable. For the sale to be highly probable, the appropriate level of
management must be committed to a plan to sell the asset and an active program to locate a
buyer and complete the plan must have been initiated. Further, the asset must be actively
marketed for sale at a price that is reasonable in relation to its current fair value. In addition, the
sale should be expected to qualify for recognition as a completed sale within one year from the
date of classification.
Land and Improvements
Land and improvements consist of properties for future development and are carried at the lower
of cost or NRV. NRV is the estimated selling price in the ordinary course of business, less
estimated cost of completion and estimated costs necessary to make the sale. Cost includes cost
of purchase and those costs incurred for development and improvement of the properties.
Investments in Associates and Joint Ventures
An associate is an entity over which the Group has significant influence. Significant influence is
the power to participate in the financial and operating policy decisions of the investee, but is not
control or joint control over those policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the joint venture. Joint control is the contractually
agreed sharing of control of an arrangement, which exists only when decisions about the relevant
activities require unanimous consent of the parties sharing control.
The considerations made in determining significant influence or joint control are similar to those
necessary to determine control over subsidiaries.
The Groups investments in associates and joint ventures are accounted for using the equity
method.
Under the equity method, the investment in associates or joint ventures is initially recognized at
cost. The carrying amount of the investment is adjusted to recognize changes in the Groups
share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to
the associate or joint venture is included in the carrying amount of the investment and is neither
amortized nor individually tested for impairment.

*SGVFS011298*

- 22 -

The consolidated statement of income reflects the Groups share of the results of operations of the
associate or joint venture. Any change in OCI of these investees is presented as part of the
Groups OCI. In addition, when there has been a change recognized directly in the equity of the
associate or joint venture, the Group recognizes its share of any changes, when applicable, in the
consolidated statement of changes in equity. Unrealized gains and losses resulting from
transactions between the Group and the associate or joint venture are eliminated to the extent of
the interest in the associate or joint venture.
The aggregate of the Groups share of profit or loss of associates and joint ventures is shown on
the face of the consolidated statement of income outside operating profit and represents profit or
loss after tax and non-controlling interests in the subsidiaries of the associate or joint venture.
The financial statements of the associate or joint venture are prepared for the same reporting
period as the Group. When necessary, adjustments are made to bring the accounting policies in
line with those of the Group.
After application of the equity method, the Group determines whether it is necessary to recognize
an impairment loss on its investment in its associate or joint venture. At each reporting date, the
Group determines whether there is objective evidence that the investment in the associate or joint
venture is impaired. If there is such evidence, the Group calculates the amount of impairment as
the difference between the recoverable amount of the associate or joint venture and its carrying
value, then recognizes the loss as Share of profit of associates and joint ventures in the
statement of income.
Upon loss of significant influence over the associate or joint control over the joint venture, the
Group measures and recognizes any retained investment at its fair value. Any difference between
the carrying amount of the associate or joint venture upon loss of significant influence or joint
control and the fair value of the retained investment and proceeds from disposal is recognized in
profit or loss.
Interest in a Joint Operation
Makati Development Corporation (MDC), an ALI subsidiary, has an interest in a joint operation,
whereby the venturers have a contractual arrangement that establishes joint control. MDC
recognizes its share of jointly held assets, liabilities, income and expenses of the joint venture with
similar items, line by line, in its financial statements. The financial statements of the joint venture
are prepared for the same reporting period as the Group. Adjustments are made where
necessary to bring the accounting policies into line with those of the Group.
Investment Properties
Investment properties comprise completed property and property under construction or
re-development that are held to earn rentals and for capital appreciation, and are not occupied by
the companies in the Group. The Group uses the cost model in measuring investment properties
since this represents the historical value of the properties subsequent to initial recognition.
Investment properties, except for land, are carried at cost less accumulated depreciation and
amortization and any impairment in value. Land is carried at cost less any impairment in value.
Expenditures incurred after the investment property has been put in operation, such as repairs
and maintenance costs, are normally charged against income in the period in which the costs are
incurred.
Construction-in-progress (including borrowing cost) are carried at cost and transferred to the
related investment property account when the construction and related activities to prepare the
property for its intended use are complete, and the property is ready for occupation.
Depreciation and amortization are computed using the straight-line method over the estimated
useful lives of the assets, regardless of utilization. The estimated useful lives and the depreciation
and amortization method are reviewed periodically to ensure that the period and method of

*SGVFS011298*

- 23 -

depreciation and amortization are consistent with the expected pattern of economic benefits from
items of investment properties.
The estimated useful lives of investment properties follow:
Land improvements
Buildings

8-40 years
20-40 years

Investment properties are derecognized when either they have been disposed of or when the
investment property is permanently withdrawn from use and no future economic benefit is
expected from its disposal. Any gain or loss on the retirement or disposal of an investment
property is recognized in the consolidated statement of income in the year of retirement or
disposal.
Transfers are made to investment property when there is a change in use, evidenced by ending of
owner-occupation, commencement of an operating lease to another party or ending of
construction or development. Transfers are made from investment property when, and only when,
there is a change in use, evidenced by commencement of owner-occupation or commencement of
development with a view to sale. Transfers between investment property, owner-occupied
property and inventories do not change the carrying amount of the property transferred and they
do not change the cost of the property for measurement or for disclosure purposes.
Property, Plant and Equipment
Property, plant and equipment, except for land, are carried at cost less accumulated depreciation
and amortization and any impairment in value. Land is carried at cost less any impairment in
value. The initial cost of property, plant and equipment consists of its construction cost or
purchase price and any directly attributable costs of bringing the property, plant and equipment to
its working condition and location for its intended use.
Construction-in-progress is stated at cost. This includes cost of construction and other direct
costs. Construction-in-progress is not depreciated until such time that the relevant assets are
completed and put into operational use.
Major repairs are capitalized as part of property, plant and equipment only when it is probable that
future economic benefits associated with the item will flow to the Group and the cost of the items
can be measured reliably. All other repairs and maintenance are charged against current
operations as incurred.
Depreciation and amortization of property, plant and equipment commences once the property,
plant and equipment are available for use and computed on a straight-line basis over the
estimated useful lives of the property, plant and equipment as follows:
Buildings and improvements
Machinery and equipment
Hotel property and equipment
Furniture, fixtures and equipment
Transportation equipment

3 to 40 years
3 to 10 years
20 to 50 years
2 to 10 years
3 to 5 years

The assets residual values, useful lives and depreciation and amortization methods are reviewed
periodically to ensure that the amounts, periods and method of depreciation and amortization are
consistent with the expected pattern of economic benefits from items of property, plant and
equipment.
When property, plant and equipment are retired or otherwise disposed of, the cost and the related
accumulated depreciation and amortization and accumulated provision for impairment losses, if
any, are removed from the accounts and any resulting gain or loss is credited to or charged
against current operations.

*SGVFS011298*

- 24 -

Service Concession Assets and Obligations

The Group accounts for its concession arrangements with Department of Public Works and
Highways (DPWH), Metropolitan Waterworks and Sewerage System (MWSS), Province of Laguna
(POL), Tourism Infrastructure and Enterprise Zone Authority (TIEZA) and Clark Development
Corporation (CDC) under the Intangible Asset model as it receives the right (license) to charge
users of public service. Under the Groups concession agreements, the Group is granted the sole
and exclusive right and discretion during the concession period to manage, occupy, operate,
repair, maintain, decommission and refurbish the identified facilities required to provide the public
water services. The legal title to these assets shall remain with DPWH, MWSS, POL, TIEZA and
CDC at the end of the concession period.
On the other hand, the concession arrangements with the Provincial Government of Cebu are
accounted for under the Financial Asset model as it has an unconditional contractual right to
receive cash or other financial asset for its construction services from or at the direction of the
grantor. Under the concession arrangement, Cebu Manila Water Development, Inc. (CMWD) (a
subsidiary of MWC) is awarded the right to deliver Bulk Water supply to the grantor for a specific
period of time under the concession period.
The Service concession assets (SCA) pertain to the fair value of the service concession
obligations at drawdown date and construction costs related to the rehabilitation works performed
by the Group and other local component costs and cost overruns paid by the Group. These are
amortized using the straight-line method over the life of the related concession.
In addition, the Company and MWC recognize and measure revenue from rehabilitation works in
accordance with PAS 11, Construction Contracts, and PAS 18, Revenue, for the services it
performs. Recognition of revenue is by reference to the 'stage of completion method', also known
as the 'percentage of completion method' as provided under PAS 11. Contract revenue and costs
from rehabilitation works are recognized as "Revenue from rehabilitation works" and "Cost of
rehabilitation works" in the consolidated statement of income in the period in which the work is
performed.
Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of
intangible assets acquired in a business combination is the fair value as at the date of acquisition.
Subsequently, intangible assets are measured at cost less accumulated amortization and
provision for impairment loss, if any. Internally generated intangible assets, excluding capitalized
development costs, are not capitalized and expenditure is reflected in the consolidated statement
of income in the year in which the expenditure is incurred.
The estimated useful life of intangible assets is assessed as either finite or indefinite.
The estimated useful lives of intangible assets with finite lives are assessed at the individual asset
level. Intangible assets with finite lives are amortized over their estimated useful lives on a
straight line basis. Periods and method of amortization for intangible assets with finite useful lives
are reviewed annually or earlier when an indicator of impairment exists.
The estimated useful lives of intangible assets follow:
Developed software
Customer relationships
Order backlog
Unpatented technology
Licenses
Technical service agreement
Technology and trade name

15 years
7 years
6 months
5 years
3 years
3 years
3-5 years

*SGVFS011298*

- 25 -

Changes in the expected useful life or the expected pattern of consumption of future economic
benefits embodied in the asset is accounted for by changing the amortization period or method, as
appropriate, and are treated as changes in accounting estimates. The amortization expense on
intangible assets with finite lives is recognized in the consolidated statement of income in the
expense category consistent with the function of the intangible assets.
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment
annually, either individually or at the CGU level. The assessment of indefinite useful life is
reviewed annually to determine whether the indefinite useful life continues to be supportable. If
not, the change in useful life from indefinite to finite is made on a prospective basis.
A gain or loss arising from derecognition of an intangible asset is measured as the difference
between the net disposal proceeds and the carrying amount of the intangible assets and is
recognized in the consolidated statement of income when the intangible asset is derecognized.
As of December 31, 2014 and 2013, intangible asset pertaining to leasehold right is included
under Other noncurrent assets.
Research and development costs
Research costs are expensed as incurred. Development expenditures on an individual project are
recognized as an intangible asset when the Group can demonstrate:
The technical feasibility of completing the intangible asset so that the asset will be available
for use or sale;
Its intention to complete and its ability to use or sell the asset;
How the asset will generate future economic benefits;
The availability of resources to complete the asset;
The ability to measure reliably the expenditure during development; and,
The ability to use the intangible asset generated.
Following initial recognition of the development expenditure as an asset, the asset is carried at
cost less any accumulated amortization and accumulated impairment losses. Amortization of the
asset begins when development is complete and the asset is available for use. It is amortized over
the period of expected future benefit. During the period of development, the asset is tested for
impairment annually.
Business Combinations and Goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition
is measured as the aggregate of the consideration transferred, measured at acquisition date fair
value and the amount of any non-controlling interest in the acquiree. For each business
combination, the acquirer measures the non-controlling interest in the acquiree either at fair value
or at the proportionate share of the acquirees identifiable net assets. Acquisition costs are
expensed as incurred.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date. This includes the separation of
embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirers
previously held equity interest in the acquiree is remeasured to fair value at the acquisition date
and included under Remeasurement gain/loss arising from business combination in the
consolidated statement of income.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at
the acquisition date. Subsequent changes to the fair value of the contingent consideration which
is deemed to be an asset or liability will be recognized in accordance with PAS 39 either in profit
or loss or as a change to other comprehensive income. If the contingent consideration is
classified as equity, it should not be remeasured until it is finally settled within equity.

*SGVFS011298*

- 26 -

Goodwill is initially measured at cost being the excess of the aggregate of the consideration
transferred and the amount recognized for non-controlling interest over the net identifiable assets
acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets
of the subsidiary acquired, the difference is recognized in profit or loss as bargain purchase gain.
The Group reassess whether it has correctly identified all of the assets acquired and all of the
liabilities assumed and reviews the procedures used to measure amounts to be recognized at the
acquisition date if the reassessment still results in an excess of the fair value of net assets
acquired over the aggregate consideration transferred, then the gain is recognized in the profit or
loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment loss.
Goodwill is reviewed for impairment, annually or more frequently if events or changes in
circumstances indicate that the carrying value may be impaired. For purposes of impairment
testing, goodwill acquired in a business combination is, from the acquisition date, allocated to
each of the Groups cash-generating units (CGUs), or groups of CGUs, that are expected to
benefit from the synergies of the combination, irrespective of whether other assets or liabilities of
the Group are assigned to those units or groups of units.
Each unit or group of units to which the goodwill is allocated should:

represent the lowest level within the Group at which the goodwill is monitored for internal
management purposes; and
not be larger than an operating segment determined in accordance with PFRS 8, Operating
Segments.

Impairment is determined by assessing the recoverable amount of the CGU (or group of CGUs),
to which the goodwill relates. Where the recoverable amount of the CGU (or group of CGUs) is
less than the carrying amount, an impairment loss is recognized. Where goodwill forms part of a
CGU (or group of CGUs) and part of the operation within that unit is disposed of, the goodwill
associated with the operation disposed of is included in the carrying amount of the operation when
determining the gain or loss on disposal of the operation. Goodwill disposed of in these
circumstances is measured based on the relative values of the operation disposed of and the
portion of the CGU retained. If the acquirers interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities exceeds the cost of the business combination, the acquirer shall
recognize immediately in the consolidated statement of income any excess remaining after
reassessment.
If the initial accounting for a business combination can be determined only provisionally by the end
of the period in which the combination is effected because either the fair values to be assigned to
the acquirees identifiable assets, liabilities or contingent liabilities or the cost of the combination
can be determined only provisionally, the acquirer shall account for the combination using those
provisional values. The acquirer shall recognize any adjustments to those provisional values as a
result of completing the initial accounting within twelve months of the acquisition date as follows:
(i) the carrying amount of the identifiable asset, liability or contingent liability that is recognized or
adjusted as a result of completing the initial accounting shall be calculated as if its fair value at the
acquisition date had been recognized from that date; (ii) goodwill or any gain recognized shall be
adjusted by an amount equal to the adjustment to the fair value at the acquisition date of the
identifiable asset, liability or contingent liability being recognized or adjusted; and (iii) comparative
information presented for the periods before the initial accounting for the combination is complete
shall be presented as if the initial accounting has been completed from the acquisition date.
Combinations of entities under common control
Business combinations of entities under common control are accounted for using the pooling of
interests method. The pooling of interests method is generally involve the following:

The assets and liabilities of the combining entities are reflected in the consolidated financial
statements at their carrying amounts. No adjustments are made to reflect fair values, or

*SGVFS011298*

- 27 -

recognize any new assets or liabilities, at the date of the combination. The only adjustments
that are made are those adjustments to harmonize accounting policies.
No new goodwill is recognized as a result of the combination. The only goodwill that is
recognized is any existing goodwill relating to either of the combining entities. Any difference
between the consideration paid or transferred and the equity acquired is reflected within
equity.
The consolidated statement of income reflects the results of the combining entities for the full
year, irrespective of when the combination took place.
Comparatives are presented as if the entities had always been combined.

The Group opted not to restate the comparative financial information in the consolidated financial
statements as allowed by the Philippines Interpretations Committee (PIC) Q&A 2012-01.
The effects of intercompany transactions on current assets, current liabilities, revenues, and cost
of sales for the current period presented and on retained earnings at the beginning of the current
period presented are eliminated to the extent possible.
Asset Acquisitions
If the assets acquired and liabilities assumed in an acquisition transaction do not constitute a
business, the transaction is accounted for as an asset acquisition. The Group identifies and
recognizes the individual identifiable assets acquired (including those assets that meet the
definition of, and recognition criteria for, intangible assets) and liabilities assumed. The acquisition
cost is allocated to the individual identifiable assets and liabilities on the basis of their relative fair
values at the date of purchase. Such a transaction or event does not give rise to goodwill. Where
the Group acquires a controlling interest in an entity that is not a business, but obtains less than
100% of the entity, after it has allocated the cost to the individual assets acquired, it notionally
grosses up those assets and recognizes the difference as non-controlling interests.
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 assets recoverable amount. An assets recoverable amount
is calculated as the higher of the assets or CGUs fair value less costs to sell and its value in use
and is determined for an individual asset, unless the asset does not generate cash inflows that are
largely independent of those from other assets or groups of assets. Where the carrying amount of
an asset exceeds its recoverable amount, the asset is considered impaired and is written down to
its recoverable amount. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current market assessment of the
time value of money and the risks specific to the asset. In determining fair value less cost to sell,
an appropriate valuation model is used. These calculations are corroborated by valuation
multiples or other fair value indicators. Impairment losses of continuing operations are recognized
in the consolidated statement of income in those expense categories consistent with the function
of the impaired asset.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there
is any indication that previously recognized impairment losses may no longer exist or may have
decreased. If such indication exists, the recoverable amount is estimated. A previously
recognized impairment loss is reversed only if there has been a change in the estimates used to
determine the assets recoverable amount since the last impairment loss was recognized. If that
is the case, the carrying amount of the asset is increased to its recoverable amount. That
increased amount cannot exceed the carrying amount that would have been determined, net of
depreciation and amortization, had no impairment loss been recognized for the asset in prior
years. Such reversal is recognized in the consolidated statement of income unless the asset is
carried at revalued amount, in which case the reversal is treated as revaluation increase. After
such a reversal, the depreciation and amortization charge is adjusted in future periods to allocate
the assets revised carrying amount, less any residual value, on a systematic basis over its
remaining useful life.

*SGVFS011298*

- 28 Investments in associates and joint ventures

After application of the equity method, the Group determines whether it is necessary to recognize
any additional impairment loss with respect to the Groups net investment in the investee
company. The Group determines at each reporting date whether there is any objective evidence
that the investment in the investee company is impaired. If this is the case, the Group calculates
the amount of impairment as being the difference between the recoverable amount of the investee
company and the carrying cost and recognizes the amount as a reduction of the Share of profit of
associates and joint ventures account in the consolidated statement of income.
Impairment of goodwill
For assessing impairment of goodwill, a test for impairment is performed annually and when
circumstances indicate that the carrying value may be impaired. Impairment is determined for
goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the
goodwill relates. Where the recoverable amount of the CGU is less than its carrying amount, an
impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future
periods.
Fair Value Measurement
The Group measures financial instruments such as financial assets at FVPL, derivative
instruments and AFS financial assets at fair value at each reporting date. Also, fair values of
financial instruments measured at amortized cost and nonfinancial assets such as investment
properties are disclosed in Note 33 to the consolidated financial statements.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to sell the asset or transfer the
liability takes place either:

In the principal market for the asset or liability; or

In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible to by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants
would use when pricing the asset or liability, assuming that market participants act in their
economic best interest.
The Group uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximizing the use of relevant observable
inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial
statements are categorized within the fair value hierarchy, described as follows, based on the
lowest level input that is significant to the fair value measurement as a whole:

Level 1 - Quoted (unadjusted) market prices in active markets for identical assets and
liabilities.
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is directly or indirectly observable.
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is unobservable.

For assets and liabilities that are recognized in the consolidated financial statements on a
recurring basis, the Group determines whether transfers have occurred between Levels in the
hierarchy by reassessing categorization (based on the lowest level input that is significant to the
fair value measurement as a whole) at the end of each reporting period.

*SGVFS011298*

- 29 -

For the purpose of fair value disclosures, the Group has determined classes of assets and
liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of
the fair value hierarchy as explained above.
Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a
result of a past event, it is probable that an outflow of resources embodying economic benefits will
be required to settle the obligations and a reliable estimate can be made of the amount of the
obligation.
Where the Group expects a provision to be reimbursed, the reimbursement is recognized as a
separate asset but only when the reimbursement is virtually certain. If the effect of the time value
of money is material, provisions are determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability. Where discounting is used, the increase in the
provision due to the passage of time is recognized as interest expense. Provisions are reviewed
at each reporting date and adjusted to reflect the current best estimate.
Equity
Capital stock is measured at par value for all shares subscribed, issued and outstanding. When
the shares are sold at premium, the difference between the proceeds at the par value is credited
to Additional paid-in capital (APIC) account. Direct costs incurred related to equity issuance are
chargeable to Additional paid-in capital account. If additional paid-in capital is not sufficient, the
excess is charged against retained earnings. When the Group issues more than one class of
stock, a separate account is maintained for each class of stock and the number of shares issued.
Subscriptions receivable pertains to the uncollected portion of the subscribed shares and is
presented as reduction from equity.
Retained earnings represent accumulated earnings of the Group less dividends declared.
Own equity instruments which are reacquired (treasury shares) are recognized at cost and
deducted from equity. No gain or loss is recognized in the consolidated statement of income on
the purchase, sale, issue or cancellation of the Groups own equity instruments. Any difference
between the carrying amount and the consideration, if reissued, is recognized in additional paid-in
capital. Voting rights related to treasury shares are nullified for the Group and no dividends are
allocated to them respectively. When the shares are retired, the capital stock account is reduced
by its par value and the excess of cost over par value upon retirement is debited to additional
paid-in capital when the shares were issued and to retained earnings for the remaining balance.
Revenue and Cost Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the
Group and the revenue can be reliably measured, regardless of when payment is being made.
Revenue is measured at the fair value of the consideration received or receivable, taking into
account contractually defined terms of payment and excluding taxes or duty. The following specific
recognition criteria must also be met before revenue is recognized:
For real estate sales, the Group assesses whether it is probable that the economic benefits will
flow to the Group when the sales prices are collectible. Collectibility of the sales price is
demonstrated by the buyers commitment to pay, which in turn is supported by substantial initial
and continuing investments that give the buyer a stake in the property sufficient that the risk of
loss through default motivates the buyer to honor its obligation to the seller. Collectibility is also
assessed by considering factors such as the credit standing of the buyer, age and location of the
property.

*SGVFS011298*

- 30 -

Revenue from sales of completed real estate projects is accounted for using the full accrual
method. In accordance with Philippine Interpretations Committee (PIC), Q&A 2006-01, the
percentage-of-completion method is used to recognize income from sales of projects where the
Group has material obligations under the sales contract to complete the project after the property
is sold, the equitable interest has been transferred to the buyer, construction is beyond preliminary
stage (i.e., engineering, design work, construction contracts execution, site clearance and
preparation, excavation and the building foundation are finished, and the costs incurred or to be
incurred can be measured reliably). Under this method, revenue is recognized as the related
obligations are fulfilled, measured principally on the basis of the estimated completion of a
physical proportion of the contract work.
Any excess of collections over the recognized receivables are included under Other current
liabilities in the liabilities section of the consolidated statement of financial position.
If any of the criteria under the full accrual or percentage-of-completion method is not met, the
deposit method is applied until all the conditions for recording a sale are met. Pending recognition
of sale, cash received from buyers are presented under the Other current liabilities account in
the liabilities section of the consolidated statement of financial position.
Cost of real estate sales is recognized consistent with the revenue recognition method applied.
Cost of subdivision land and condominium units sold before the completion of the development is
determined on the basis of the acquisition cost of the land plus its full development costs, which
include estimated costs for future development works, as determined by the Groups in-house
technical staff.
The cost of real estate inventory recognized in profit or loss on disposal is determined with
reference to the specific costs incurred on the property allocated to saleable area based on
relative size and takes into account the percentage of completion used for revenue recognition
purposes.
Revenue from construction contracts are recognized using the percentage-of-completion method,
measured principally on the basis of the estimated physical completion of the contract work.
Contract costs include all direct materials and labor costs and those indirect costs related to
contract performance. Expected losses on contracts are recognized immediately when it is
probable that the total contract costs will exceed total contract revenue. Changes in contract
performance, contract conditions and estimated profitability, including those arising from contract
penalty provisions, and final contract settlements which may result in revisions to estimated costs
and gross margins are recognized in the year in which the changes are determined.
Rental income under noncancellable and cancellable leases on investment properties is
recognized in the consolidated statement of income on a straight-line basis over the lease term
and the terms of the lease, respectively, or based on a certain percentage of the gross revenue of
the tenants, as provided under the terms of the lease contract.
Rooms revenue from hotel and resort operations are recognized when services are rendered.
Revenue from banquets and other special events are recognized when the events take place.
Water and sewer revenue are recognized when the related water and sewerage services are
rendered. Water and sewerage are billed every month according to the bill cycles of the
customers. As a result of bill cycle cut-off, monthly service revenue earned but not yet billed at
end of the month are estimated and accrued. These estimates are based on historical
consumption of the customers. A certain percentage of the water revenue are recognized as
environmental charges as provided for in the concession agreement. Other customer related fees
such as reconnection and disconnection fees are recognized when these services have been
rendered.

*SGVFS011298*

- 31 -

Revenue from rehabilitation works is recognized and measured by the Group in accordance with
PAS 11 and PAS 18 for the service. This includes revenue from rehabilitation works which is
equivalent to the related cost for the rehabilitation works covered by the service concession
arrangements which is recognized as part of SCA.
When the Group provides construction or upgrade services, the consideration received or
receivable is recognized at its fair value. The Group accounts for revenue and costs relating to
operation services in accordance with PAS 18.
Revenue from sales of electronic products and vehicles and related parts and accessories are
recognized when the significant risks and rewards of ownership of the goods have passed to the
buyer and the amount of revenue can be measured reliably. Revenue is measured at the fair
value of the consideration received excluding discounts, returns, rebates and sales taxes.
Marketing fees, management fees from administrative and property management and revenue
from vehicle repairs are recognized when services are rendered.
Revenue from digitizing and document creation services are recognized when the service is
completed and electronically sent to the customer. Provision for discounts and other adjustments
are provided for in the same period the related sales are recorded.
Revenue from implementation of human resource outsourcing services arising from stand-alone
service contracts that require significant modification or automization of software is recognized
based on percentage-of-completion method.
Revenue from run and maintenance of human resource outsourcing services arising from a standalone post contract customer support or services is recognized on a straight-line basis over the life
of the contract.
Revenue from implementation and run and maintenance of finance and accounting outsourcing
services arising from multiple deliverable software arrangements is recognized on a straight-line
basis over the life of the contract.
Interest income is recognized as it accrues using the effective interest method.
Dividend income is recognized when the right to receive payment is established.
Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of
the arrangement at inception date of whether the fulfillment of the arrangement is dependent on
the use of a specific asset or assets or the arrangement conveys a right to use the asset. A
reassessment is made after inception of the lease only if one of the following applies: (a) there is a
change in contractual terms, other than a renewal or extension of the arrangement; (b) a renewal
option is exercised or extension granted, unless the term of the renewal or extension was initially
included in the lease term; (c) there is a change in the determination of whether fulfillment is
dependent on a specified asset; or (d) there is a substantial change to the asset.
Where a reassessment is made, lease accounting shall commence or cease from the date when
the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and at the
date of renewal or extension period for scenario (b).
Group as lessee
Leases where the lessor retains substantially all the risks and benefits of ownership of the
consolidated asset are classified as operating leases. Fixed lease payments are recognized as an
expense in the consolidated statement of income on a straight-line basis while the variable rent is
recognized as an expense based on terms of the lease contract.

*SGVFS011298*

- 32 -

Finance leases, which transfer substantially all the risks and benefits incidental to ownership of the
leased item, are capitalized at the inception of the lease at the fair value of the leased property or,
if lower, at the present value of the minimum lease payments. Lease payments are apportioned
between the finance charges and reduction of the lease liability so as to achieve a constant rate of
interest on the remaining balance of the liability. Finance charges are charged directly against
income.
Capitalized leased assets are depreciated over the shorter of the estimated useful lives of the
assets or the respective lease terms.
Group as lessor
Leases where the Group does not transfer substantially all the risks and benefits of ownership of
the assets are classified as operating leases. Lease payments received are recognized as
income in the consolidated statement of income on a straight-line basis over the lease term. Initial
direct costs incurred in negotiating operating leases are added to the carrying amount of the
leased asset and recognized over the lease term on the same basis as the rental income.
Contingent rent is recognized as revenue in the period in which it is earned.
Commissions
Commissions paid to sales or marketing agents on the sale of pre-completed real estate units are
deferred when recovery is reasonably expected and are charged to expense in the period in which
the related revenue is recognized as earned. Accordingly, when the percentage-of-completion
method is used, commissions are likewise charged to expense in the period the related revenue is
recognized. Commission expense is included in the Costs of sales account in the consolidated
statement of income.
Expenses
Costs of rendering services and general and administrative expenses, except for lease
agreements, are recognized as expense as they are incurred.
Borrowing Costs
Borrowing costs directly attributable to the acquisition or construction of an asset that necessarily
takes a substantial period of time to get ready for its intended use or sale are capitalized as part of
the cost of the respective assets (included in Inventories, Investment properties, Property,
plant and equipment and Service concession assets accounts in the consolidated statement of
financial position). All other borrowing costs are expensed in the period in which they occur.
Borrowing costs consist of interest and other costs that an entity incurs in connection with the
borrowing of funds.
The interest capitalized is calculated using the Groups weighted average cost of borrowings after
adjusting for borrowings associated with specific developments. Where borrowings are
associated with specific developments, the amounts capitalized is the gross interest incurred on
those borrowings less any investment income arising on their temporary investment. Interest is
capitalized from the commencement of the development work until the date of practical
completion. The capitalization of borrowing costs is suspended if there are prolonged periods
when development activity is interrupted. If the carrying amount of the asset exceeds its
recoverable amount, an impairment loss is recorded.
Pension Cost
Defined benefit plan
The net defined benefit liability or asset is the aggregate of the present value of the defined benefit
obligation at the end of the reporting period reduced by the fair value of plan assets (if any),
adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling
is the present value of any economic benefits available in the form of refunds from the plan or
reductions in future contributions to the plan.

*SGVFS011298*

- 33 -

The cost of providing benefits under the defined benefit plans is actuarially determined using the
projected unit credit method. This method reflects services rendered by employees up to the date
of valuation and incorporates assumptions concerning employees projected salaries. Actuarial
valuations are conducted with sufficient regularity, with the option to accelerate when significant
changes to underlying assumptions occur.
Defined benefit costs comprise the following:
Service cost
Net interest on the net defined benefit liability or asset
Remeasurements of net defined benefit liability or asset
Service costs which include current service costs, past service costs and gains or losses on nonroutine settlements are recognized as expense in profit or loss. Past service costs are recognized
when plan amendment or curtailment occurs.
Net interest on the net defined benefit liability or asset is the change during the period in the net
defined benefit liability or asset that arises from the passage of time which is determined by
applying the discount rate based on government bonds to the net defined benefit liability or asset.
Net interest on the net defined benefit liability or asset is recognized as expense or income in
profit or loss.
Remeasurements comprising actuarial gains and losses, return on plan assets and any change in
the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized
immediately in other comprehensive income in the period in which they arise. Remeasurements
are not reclassified to profit or loss in subsequent periods.
Pension liabilities are the aggregate of the present value of the defined benefit obligation at the
end of the balance sheet date reduced by the fair value of plan assets, adjusted for any effect of
limiting a net pension asset to the asset ceiling. The asset ceiling is the present value of any
economic benefits available in the form of refunds from the plan or reductions in future
contributions to the plan.
Plan assets are assets that are held by a long-term employee benefit fund. Plan assets are not
available to the creditors of the Group, nor can they be paid directly to the Group. Fair value of
plan assets is based on market price information. When no market price is available, the fair
value of plan assets is estimated by discounting expected future cash flows using a discount rate
that reflects both the risk associated with the plan assets and the maturity or expected disposal
date of those assets (or, if they have no maturity, the expected period until the settlement of the
related obligations). If the fair value of the plan assets is higher than the present value of the
defined benefit obligation, the measurement of the resulting defined benefit asset is limited to the
present value of economic benefits available in the form of refunds from the plan or reductions in
future contributions to the plan.
Defined contribution plans
Certain foreign subsidiaries participate in their respective countrys pension schemes which are
considered as defined contribution plans. A defined contribution plan is a pension plan under
which the subsidiary pays fixed contributions. These subsidiaries have no legal or constructive
obligations to pay further contributions if the fund does not hold sufficient assets to pay all the
benefits relating to employee service in the current and prior periods. The required contributions
to the national pension schemes are recognized as pension cost as accrued.
Termination benefit
Termination benefits are employee benefits provided in exchange for the termination of an
employees employment as a result of either an entitys decision to terminate an employees
employment before the normal retirement date or an employees decision to accept an offer of
benefits in exchange for the termination of employment.

*SGVFS011298*

- 34 -

A liability and expense for a termination benefit is recognized at the earlier of when the entity can
no longer withdraw the offer of those benefits and when the entity recognizes related restructuring
costs. Initial recognition and subsequent changes to termination benefits are measured in
accordance with the nature of the employee benefit, as either post-employment benefits, shortterm employee benefits, or other long-term employee benefits.
Employee leave entitlement
Employee entitlements to annual leave are recognized as a liability when they are accrued to the
employees. The undiscounted liability for leave expected to be settled wholly before twelve
months after the end of the annual reporting period is recognized for services rendered by
employees up to the end of the reporting period.
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 as of reporting date.
Current tax relating to items recognized directly in equity is recognized in equity and not in profit or
loss. The Group periodically evaluates positions taken in the tax returns with respect to situations
in which applicable tax regulations are subject to interpretation and establishes provisions where
appropriate.
Deferred tax
Deferred income tax is provided, using the liability method, on all temporary differences, with
certain exceptions, at the reporting date between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, with certain
exceptions. Deferred tax assets are recognized for all deductible temporary differences,
carryforward benefit of unused tax credits from excess of minimum corporate income tax (MCIT)
over the regular corporate income tax and unused net operating loss carryover (NOLCO), to the
extent that it is probable that taxable income will be available against which the deductible
temporary differences and carryforward benefits of MCIT and NOLCO can be utilized.
Deferred tax liabilities are not provided on nontaxable temporary differences associated with
investments in domestic subsidiaries, associates and interests in joint ventures. With respect to
investments in foreign 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 reporting date and reduced to the
extent that it is no longer probable that sufficient taxable income will be available to allow all as
part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at
each reporting date and are recognized to the extent that it has become probable that future
taxable income will allow all as part of the deferred tax assets to be recovered.
Deferred tax assets and liabilities are measured at the tax rate that is expected to apply to the
period when the asset is realized or the liability is settled, based on tax rates and tax laws that
have been enacted or substantively enacted as at the end of the reporting period. Movements in
the deferred income tax assets and liabilities arising from changes in tax rates are charged or
credited to income for the period.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set
off current tax assets against current tax liabilities and the deferred taxes relate to the same
taxable entity and the same authority.

*SGVFS011298*

- 35 -

For periods where the income tax holiday (ITH) is in effect, no deferred taxes are recognized in
the consolidated financial statements as the ITH status of the subsidiary neither results in a
deductible temporary difference or temporary taxable difference. However, for temporary
differences that are expected to reverse beyond the ITH, deferred taxes are recognized.
Foreign Currency Transactions
The functional and presentation currency of Ayala Corporation and its subsidiaries (except for
AYCF, ACIFL, PFIL, BHL, AIVPL and IMI), is the Philippine Peso (P
= ). Each entity in the Group
determines its own functional currency and items included in the financial statements of each
entity are measured using that functional currency. Transactions in foreign currencies are initially
recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are retranslated at the functional currency rate of
exchange ruling at the reporting date. All differences are taken to the consolidated statement of
income with the exception of differences on foreign currency borrowings that provide a hedge
against a net investment in a foreign entity. These are recognized in the consolidated statement
of comprehensive income until the disposal of the net investment, at which time they are
recognized in the consolidated statement of income. Tax charges and credits attributable to
exchange differences on those borrowings are also dealt with in equity. Nonmonetary items that
are measured in terms of historical cost in a foreign currency are translated using the exchange
rate as at the date of initial transaction. Nonmonetary items measured at fair value in a foreign
currency are translated using the exchange rate at the date when the fair value was determined.
The functional currency of AYCF, ACIFL, PFIL, BHL, AIVPL and IMI is the US Dollar (US$). As of
the reporting date, the assets and liabilities of these subsidiaries are translated into the
presentation currency of the Group at the rate of exchange ruling at the reporting date and their
statement of income accounts are translated at the weighted average exchange rates for the year.
The exchange differences arising on the translation are recognized in the consolidated statement
of comprehensive income and reported as a separate component of equity as Cumulative
Translation Adjustment. On disposal of a foreign entity, the deferred cumulative amount
recognized in the consolidated statement of comprehensive income relating to that particular
foreign operation shall be recognized in the consolidated statement of income.
Exchange differences arising from elimination of intragroup balances and intragroup transactions
are recognized in profit or loss. As an exception, if the exchange differences arise from intragroup
balances that, in substance, forms part of an entitys net investment in a foreign operation, the
exchange differences are not to be recognized in profit or loss, but are recognized in OCI and
accumulated in a separate component of equity until the disposal of the foreign operation.
On disposal of a foreign entity, the deferred cumulative amount recognized in the consolidated
statement of comprehensive income relating to that particular foreign operation shall be
recognized in profit or loss.
The Groups share in the associates translation adjustments are likewise included under the
Cumulative translation adjustments account in the consolidated statement of comprehensive
income.
MWC
As approved by the MWSS Board of Trustees (BOT) under Amendment No. 1 of the Concession
Agreement, the following will be recovered through billings to customers:
a. Restatement of foreign currency-denominated loans;
b. Excess of actual Concession Fee payment over the amounts of Concession Fees translated
using the base exchange rate assumed in the business plan approved every rate rebasing
exercise. The current base exchange rate is P
= 44.0:US$1.0 based on the last rate rebasing
exercise effective on January 1, 2008;
c. Excess of actual interest payment translated at exchange spot rate on settlement date over
the amount of interest translated at drawdown rate; and

*SGVFS011298*

- 36 -

d. Excess of actual payment of other financing charges relating to foreign currency-denominated

loans translated at exchange spot rate on settlement date over the amount of other financing
charges translated at drawdown rate.
In view of the automatic reimbursement mechanism, MWC recognizes deferred foreign currency
differential adjustment (FCDA) (included as part of Other noncurrent assets in the consolidated
statement of financial position) for both the realized and unrealized foreign exchange gains and
losses. Other water revenue-FCDA is credited (debited) upon recovery (refund) of realized foreign
exchange losses (gains). The write-off or reversal of the deferred FCDA pertaining to concession
fees will be made upon determination of the rebased foreign exchange rate, which is assumed in
the business plan approved by MWSS-RO during the latest Rate Rebasing exercise, unless
indication of impairment of the deferred FCDA would be evident at an earlier date.
Share-based Payments
The Group has equity-settled, share-based compensation plans with its employees.
PFRS 2 Options
For options granted after November 7, 2002 that have not vested on or before January 1, 2005,
the cost of equity-settled transactions with employees is measured by reference to the fair value at
the date on which they are granted. In valuing equity-settled transactions, vesting conditions,
including performance conditions, other than market conditions (conditions linked to share prices),
shall not be taken into account when estimating the fair value of the shares or share options at the
measurement date. Instead, vesting conditions are taken into account in estimating the number of
equity instruments that will ultimately vest. Fair value is determined by using the Black-Scholes
model, further details of which are provided in Note 28 to the consolidated financial statements.
The cost of equity-settled transactions is recognized, together with a corresponding increase in
equity, over the period in which the performance conditions are fulfilled, ending on the date on
which the relevant employees become fully entitled to the awards (vesting date). The cumulative
expense recognized for equity-settled transactions at each reporting date until the vesting date
reflects the extent to which the vesting period has expired and the Groups best estimate of the
number of equity instruments that will ultimately vest. The income or expense for a period
represents the movement in cumulative expense recognized as of the beginning and end of that
period.
No expense is recognized for awards that do not ultimately vest, except for awards where vesting
is conditional upon a market condition, which are treated as vesting irrespective of whether or not
the market condition is satisfied, provided that all other performance conditions are satisfied.
Where the terms of an equity-settled award are modified, as a minimum, an expense is
recognized as if the terms had not been modified. In addition, an expense is recognized for any
increase in the value of the transaction as a result of the modification, as measured at the date of
modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of
cancellation, and any expense not yet recognized for the award is recognized immediately.
However, if a new award is substituted for the cancelled award, and designated as a replacement
award on the date that it is granted, the cancelled and new awards are treated as if they were a
modification of the original award, as described in the previous paragraph.
Pre-PFRS 2 Options
For options granted before November 7, 2002 that have vested before January 1, 2005, the
intrinsic value of stock options determined as of grant date is recognized as expense over the
vesting period.
The dilutive effect of outstanding options is reflected as additional share dilution in the
computation of diluted earnings per share (see Note 26).

*SGVFS011298*

- 37 Employee share purchase plans

The Company and some of its subsidiaries have employee share purchase plans (ESOWN) which
allow the grantees to purchase the Companys and its respective subsidiaries shares at a
discounted price. The Group recognizes stock compensation expense over the holding period.
The Group treats its ESOWN plan as option exercisable within a given period. These are
accounted for similar to the PFRS 2 options. Dividends paid on the awards that have vested are
deducted from equity and those paid on awards that are unvested are charged to profit or loss.
For the unsubscribed shares where the employees still have the option to subscribe in the future,
these are accounted for as options.
Earnings Per Share
Basic earnings per share (EPS) is computed by dividing net income attributable to common equity
holders by the weighted average number of common shares issued and outstanding during the
year. Diluted EPS is computed by dividing net income attributable to common equity holders by
the weighted average number of common shares issued and outstanding during the year plus the
weighted average number of common shares that would be issued on conversion of all the dilutive
potential common shares. Calculation of diluted EPS considers the potential ordinary shares of
subsidiaries, associates and joint ventures that have dilutive effect on the basic EPS of the
Company. The calculation of diluted EPS does not assume conversion, exercise or other issue of
potential common shares that would have an antidilutive effect on earnings per share. Basic and
diluted EPS are adjusted to give retroactive effect to any stock dividends declared during the
period.
Assets Held in Trust
Assets which are owned by MWSS, POL, TIEZA and CDC but are operated by the MWC Group
under the concession agreements are not reflected in the consolidated statement of financial
position but are considered as Assets Held in Trust (see Note 38).
Operating Segments
The Groups operating businesses are organized and managed separately according to the nature
of the products and services provided, with each segment representing a strategic business unit
that offers different products and serves different markets. Financial information on operating
segments is presented in Note 29 to the consolidated financial statements.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. These are
disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.
Contingent assets are not recognized in the consolidated financial statements but disclosed when
an inflow of economic benefits is probable.
Events after the Reporting Period
Post year-end events that provide additional information about the Groups position at the
reporting date (adjusting events) are reflected in the consolidated financial statements. Post yearend events that are not adjusting events are disclosed in the consolidated financial statements
when material.

4. Significant Accounting Judgments and Estimates

The preparation of the accompanying consolidated financial statements in conformity with PFRS
requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. The estimates and assumptions used
in the accompanying consolidated financial statements are based upon managements evaluation
of relevant facts and circumstances as of the date of the consolidated financial statements. Actual
results could differ from such estimates.

*SGVFS011298*

- 38 -

Judgments
In the process of applying the Groups accounting policies, management has made the following
judgments, apart from those involving estimations, which have the most significant effect on the
amounts recognized in the consolidated financial statements:
Investment in Subsidiaries
The Group determined that it has control over its subsidiaries (see Note 2) by considering, among
others, its power over the investee, exposure or rights to variable returns from its involvement with
the investee, and the ability to use its power over the investee to affect its returns. The following
were also considered:
The contractual arrangement with the other vote holders of the investee
Rights arising from other contractual agreements
The Groups voting rights and potential voting rights
Consolidation of entities in which the Group holds only 50% or less than majority of voting rights
ALI Group determined that it controls certain entities even though it owns 50% or less than
majority of the voting rights. The factors considered include, among others, the size of its block of
voting shares, the relative size and dispersion of holdings of other shareholders, and contractual
agreements to direct the relevant activities of the entities.
Investment in Associates
The Group determined that it exercises significant influence over its associates (see Note 12) by
considering, among others, its ownership interest (holding 20% or more of the voting power of the
investee), board representation and participation on board sub-committees, and other contractual
terms.
Classification of joint arrangements
The Groups investments in joint ventures (see Note 12) are structured in separate incorporated
entities. Even though the Group holds various percentage of ownership interest on these
arrangements, their respective joint arrangement agreements requires unanimous consent from all
parties to the agreement for the relevant activities identified. The Group and the parties to the
agreement only have rights to the net assets of the joint venture through the terms of the
contractual arrangements.
Service concession arrangement
In applying Philippine Interpretation IFRIC 12, Service Concession Arrangements (SCA), the
Group has made a judgment that its concession agreements qualify under the Intangible Asset
and Financial Asset model. The accounting policy on the Groups SCA under the Intangible Asset
and Financial model is discussed in Note 3.
Operating lease commitments - Group as lessor
The Group has entered into commercial property leases on its investment property portfolio. The
Group has determined that it retains all significant risks and rewards of ownership of these
properties as the Group considered among others the length of the lease term as compared with
the estimated useful life of the assets.
A number of the Groups operating lease contracts are accounted for as noncancellable operating
leases and the rest are cancellable. In determining whether a lease contract is cancellable or not,
the Group considers among others, the significance of the penalty, including the economic
consequence to the lessee.
Operating lease commitments - Group as lessee
The Group has entered into contracts with various parties to develop commercial or retail
properties. The Group has determined that all significant risks and rewards of ownership of these
properties are retained by the lessor.

*SGVFS011298*

- 39 Finance lease commitments - Group as lessee

Certain subsidiaries have entered into finance lease agreements related to office equipment,
machineries and production equipment. They have determined, based on the evaluation of the
terms and conditions of the arrangement, that they bear substantially all the risks and rewards
incidental to ownership of the said machineries and equipment and so account for the contracts as
finance leases.
Classification of property as investment property or real estate inventories
The Group determines whether a property is classified as investment property or real estate
inventory as follows:

Investment property comprises land and buildings (principally offices, commercial and retail
property) which are not occupied substantially for use by, or in the operations of, the Group,
nor for sale in the ordinary course of business, but are held primarily to earn rental income and
capital appreciation.
Real estate inventory comprises property that is held for sale in the ordinary course of
business. Principally, this is residential, commercial and industrial property that the Group
develops and intends to sell before or on completion of construction.

Distinction between investment properties and owner-occupied properties

The Group determines whether a property qualifies as investment property. In making its
judgment, the Group considers whether the property is not occupied substantially for use by, or in
operations of the Group, not for sale in the ordinary course of business, but are held primarily to
earn rental income and capital appreciation. Owner-occupied properties generate cash flows that
are attributable not only to property but also to the other assets used in the production or supply
process.
Some properties comprise a portion that is held to earn rentals or for capital appreciation and
another portion that is held for use in the production or supply of goods or services or for
administrative purposes. If these portions cannot be sold separately as of reporting date, the
property is accounted for as investment property only if an insignificant portion is held for use in
the production or supply of goods or services or for administrative purposes. Judgment is applied
in determining whether ancillary services are so significant that a property does not qualify as
investment property. The Group considers each property separately in making its judgment.
Distinction between real estate inventories and land and improvements
The Group determines whether a property will be classified as real estate inventories or land and
improvements. In making this judgment, the Group considers whether the property will be sold in
the normal operating cycle (real estate inventories) or whether it will be retained as part of the
Groups strategic landbanking activities for development or sale in the medium or long-term (land
and improvements).
Property acquisitions and business combinations
The Group acquires subsidiaries that own real estate. At the time of acquisition, the Group
considers whether the acquisition represents the acquisition of a business. The Group accounts
for an acquisition as a business combination where an integrated set of activities is acquired in
addition to the property. More specifically, consideration is made of the extent to which significant
processes are acquired and, in particular, the extent of ancillary services provided by
the subsidiary (e.g., maintenance, cleaning, security, bookkeeping, hotel services, etc.). The
significance of any process is judged with reference to the guidance in PAS 40 on ancillary
services.
When the acquisition of subsidiaries does not represent a business, it is accounted for as an
acquisition of a group of assets and liabilities. The cost of the acquisition is allocated to the assets
and liabilities acquired based upon their relative fair values, and no goodwill or deferred tax is
recognized.

*SGVFS011298*

- 40 Collectibility of the sales price

For real estate sales, in determining whether the sales prices are collectible, the Group considers
that initial and continuing investments by the buyer of about 10% would demonstrate the buyers
commitment to pay.
Impairment of AFS equity investments
The Group treats AFS equity investments as impaired when there has been a significant or
prolonged decline in the fair value below its cost or where other objective evidence of impairment
exists. The determination of what is significant or prolonged requires judgment. The Group
treats significant generally as 20% or more and prolonged as greater than 6 months for quoted
equity securities. In addition, the Group evaluates other factors, including normal volatility in share
price for quoted equities and the future cash flows and the discount factors for unquoted equities.
Financial assets not quoted in an active market
The Group classifies financial assets by evaluating, among others, whether the asset is quoted or
not in an active market. Included in the evaluation on whether a financial asset is quoted in an
active market is the determination on whether quoted prices are readily and regularly available,
and whether those prices represent actual and regularly occurring market transactions on an
arms length basis.
Contingencies
The Group is currently involved in various legal proceedings. The estimate of the probable costs
for the resolution of these claims has been developed in consultation with outside counsel
handling the defense in these matters and is based upon an analysis of potential results. The
Group currently does not believe that these proceedings will have a material effect on the Groups
financial position (see Note 37).
Managements Use of Estimates
The key assumptions concerning the future and other sources of estimation uncertainty at the
reporting date that have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year are discussed below.
Revenue and cost recognition
The Groups revenue recognition policies require management to make use of estimates and
assumptions that may affect the reported amounts of revenue and costs. The Groups revenue
from real estate, pipeworks, construction, management contracts and human resource
outsourcing services are recognized based on the percentage-of-completion measured principally
on the basis of the estimated completion of a physical proportion of the contract work, and by
reference to the actual costs incurred to date over the estimated total costs of the project.
Estimating allowance for impairment losses
The Group maintains allowance for doubtful accounts based on the results of the individual and
collective assessment under PAS 39. Under the individual assessment, the Group is required to
obtain the present value of estimated cash flows using the receivables original effective interest
rate. Impairment loss is determined as the difference between the receivables carrying balance
and the computed present value. Factors considered in individual assessment are payment
history, past due status and term. The collective assessment would require the Group to group its
receivables based on the credit risk characteristics (customer type, payment history, past-due
status and term) of the customers. Impairment loss is then determined based on historical loss
experience of the receivables grouped per credit risk profile. Historical loss experience is adjusted
on the basis of current observable data to reflect the effects of current conditions that did not affect
the period on which the historical loss experience is based and to remove the effects of conditions
in the historical period that do not exist currently. The methodology and assumptions used for the
individual and collective assessments are based on managements judgment and estimate.
Therefore, the amount and timing of recorded expense for any period would differ depending on
the judgments and estimates made for the year.

*SGVFS011298*

- 41 -

Further details on receivables are disclosed in Note 7.

Evaluation of net realizable value of inventories and land and improvements
Inventories and land and improvements are valued at the lower of cost and NRV. This requires
the Group to make an estimate of the inventories and land and improvements estimated selling
price in the ordinary course of business, cost of completion and costs necessary to make a sale to
determine the NRV. For real estate inventories and land and improvements, the Group adjusts
the cost of its real estate inventories and land and improvements to net realizable value based on
its assessment of the recoverability of the real estate inventories and land and improvements. In
determining the recoverability of the inventories and land and improvements, management
considers whether those inventories and land and improvements are damaged or if their selling
prices have declined. Likewise, management also considers whether the estimated costs of
completion or the estimated costs to be incurred to make the sale have increased.
In the event that NRV is lower than the cost, the decline is recognized as an expense. The
amount and timing of recorded expenses for any period would differ if different judgments were
made or different estimates were utilized.
Further details on inventories and land and improvements are disclosed in Notes 8 and 11,
respectively.
Evaluation of impairment of nonfinancial assets
The Group reviews investments in associates and joint ventures, investment properties, property,
plant and equipment, service concession assets and intangible assets for impairment of value.
Impairment for goodwill is assessed at least annually. This includes considering certain
indications of impairment such as significant changes in asset usage, significant decline in assets
market value, obsolescence or physical damage of an asset, significant underperformance relative
to expected historical or projected future operating results and significant negative industry or
economic trends.
The Group estimates the recoverable amount as the higher of the fair value less costs to sell and
value in use. For investments in associates and joint ventures, fair value less costs to sell pertain
to quoted prices (listed equities) and to fair values determined using discounted cash flows or
other valuation technique such as multiples. In determining the present value of estimated future
cash flows expected to be generated from the continued use of the assets, the Group is required
to make estimates and assumptions that may affect investments in associates and joint ventures,
investment properties, property, plant and equipment, service concession assets and intangible
assets.
For goodwill, this requires an estimation of the recoverable amount which is the fair value less
costs to sell or value in use of the cash-generating units to which the goodwill is allocated.
Estimating a value in use amount requires management to make an estimate of the expected
future cash flows for the cash generating unit and also to choose a suitable discount rate in order
to calculate the present value of cash flows.
Further details on investments in associates and joint ventures, investment properties, property,
plant and equipment, service concession assets and intangible assets are disclosed in Notes 12,
13, 14, 15 and 16, respectively.
Estimating useful lives of investment properties, property, plant and equipment, and intangible
assets
The Group estimated the useful lives of its investment properties, property, plant and equipment
and intangible assets with finite useful lives based on the period over which the assets are
expected to be available for use. The estimated useful lives of investment properties, property,
plant and equipment and intangible assets are reviewed at least annually and are updated if
expectations differ from previous estimates due to physical wear and tear and technical or
commercial obsolescence on the use of these assets. It is possible that future results of

*SGVFS011298*

- 42 -

operations could be materially affected by changes in these estimates brought about by changes
in factors mentioned above. A reduction in the estimated useful lives would increase depreciation
and amortization expense and decrease noncurrent assets.
Further details on investment properties, property, plant and equipment, service concession
assets and intangible assets are disclosed in Notes 13, 14, 15 and 16, respectively.
Determining the fair value of investment properties
The Group discloses the fair values of its investment properties. The Group engaged independent
valuation specialist to assess fair value as at December 31, 2014 and 2013. The Groups
investment properties consist of land and building pertaining to land properties, retail (malls) and
office properties. These were valued by reference to market based evidence using comparable
prices adjusted for specific market factors such as nature, location and condition of the property.
Further details on investment properties assets are disclosed in Note 13.
Deferred FCDA
Under the concession agreements entered into by the MWC Group, MWC and Boracay Island
Water Company (BIWC) are entitled to recover (refund) foreign exchange losses (gains) arising
from concession loans and any concessionaire loans. MWC and BIWC recognized deferred
FCDA (included as part of Other noncurrent assets or Other noncurrent liabilities in the
consolidated statement of financial position) for both realized and unrealized foreign exchange
gains and losses. Deferred FCDA is set up as an asset for the realized and unrealized exchange
losses since this is a resource controlled by MWC and BIWC as a result of past events and from
which future economic benefits are expected to flow to MWC and BIWC. Realized and unrealized
foreign exchange gains, on the other hand, which will be refunded to the customers, are presented
as liability
Further details on deferred FCDA of MWC and BIWC are disclosed in Note 17.
Deferred tax assets
The Group reviews the carrying amounts of deferred income taxes at each reporting date and
reduces deferred tax assets to the extent that it is no longer probable that sufficient taxable
income will be available to allow all or part of the deferred tax assets to be utilized. However,
there is no assurance that the Group will generate sufficient taxable income to allow all or part of
deferred tax assets to be utilized. The Group looks at its projected performance in assessing the
sufficiency of future taxable income.
Further details on deferred tax assets are disclosed in Note 25.
Recognition and measurement of taxes
The Group has exposure to taxes in numerous jurisdictions. Significant judgment is involved in
determining the group-wide provision for taxes including value-added tax, consumption tax and
customs duty. There are certain transactions and computations for which the ultimate tax
determination is uncertain during the ordinary course of business. The Group recognizes liabilities
for expected tax issues based on estimates of whether additional taxes are due. Where the final
tax outcome of these matters is different from the amounts that were initially recognized, such
differences will impact the profit and loss in the period in which such determination is made.
The carrying amount of the Groups income taxes payable as of December 31, 2014 and 2013
amounted to P
= 1.3 billion and P
= 1.7 billion, respectively.
Share-based payments
The expected life of the options is based on the expected exercise behavior of the stock option
holders and is not necessarily indicative of the exercise patterns that may occur. The volatility is
based on the average historical price volatility which may be different from the expected volatility
of the shares of stock of the Group.

*SGVFS011298*

- 43 -

Further details on the share-based payments recognized by the Group are disclosed in Note 28.
Defined benefit plans (pension benefits)
The cost of defined benefit pension plans and other post employment medical benefits as well as
the present value of the pension obligation are determined using actuarial valuations. The
actuarial valuation involves making various assumptions. These include the determination of the
discount rates, future salary increases, mortality rates and future pension increases. Due to the
complexity of the valuation, the underlying assumptions and its long-term nature, defined benefit
obligations are highly sensitive to changes in these assumptions. All assumptions are reviewed at
each reporting date.
Further details on net benefit liability are disclosed in Note 27.
In determining the appropriate discount rate, management considers the interest rates of
government bonds that are denominated in the currency in which the benefits will be paid, with
extrapolated maturities corresponding to the expected duration of the defined benefit obligation.
The mortality rate is based on publicly available mortality tables for the specific country and is
modified accordingly with estimates of mortality improvements. Future salary increases and
pension increases are based on expected future inflation rates for the specific country.
Further details about the assumptions used are provided in Note 27.
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded in the consolidated
statement of financial position or disclosed in the notes to the consolidated financial statements
cannot be derived from active markets, they are determined using internal valuation techniques
using generally accepted market valuation models. The inputs to these models are taken from
observable markets where possible, but where this is not feasible, estimates are used in
establishing fair values. These estimates may include considerations of liquidity, volatility, and
correlation. Certain financial assets and liabilities were initially recorded at fair values by using the
discounted cash flow methodology. Further details arefair value of financial instruments are
disclosed in Note 33.

5. Cash and Cash Equivalents

This account consists of the following:

Cash on hand and in banks (Note 31)

Cash equivalents (Note 31)

2014
2013
(In Thousands)
P
= 22,963,793
P
= 22,728,761
67,805,732
42,926,288
P
= 90,769,525
P
= 65,655,049

Cash in banks earns interest at the prevailing bank deposit rates. Cash equivalents are shortterm, highly liquid investments that are made for varying periods of up to three months depending
on the immediate cash requirements of the Group and earn interest at the prevailing short-term
rates.

6. Short-term Investments
Short-term investments pertain to money market placements made for varying periods of more
than three months up to than one year and earn interest ranging from 0.5% to 2.0% in 2014 and
1.3% to 1.6% in 2013.

*SGVFS011298*

- 44 -

7. Accounts and Notes Receivable net

This account consists of the following:
2014
2013
(In Thousands)
Trade:
Real estate
Electronics manufacturing
Water distribution and wastewater services
Automotive
Information technology and BPO
International and others
Advances to other companies
Advances to contractors and suppliers
Receivable from related parties (Note 31)
Receivable from officers and employees (Note 31)
Receivable from BWC
Investment in bonds classified as loans and
receivables
Dividend receivable (Note 31)
Others (Note 31)
Less allowance for doubtful accounts
Less noncurrent portion

P
= 57,898,143
8,587,953
1,991,179
1,496,794
202,829
5,050
21,173,727
10,389,240
2,709,445
731,336
529,501

P
= 39,832,997
7,286,792
1,645,476
985,390
194,584
3,618
10,912,046
8,837,924
3,145,472
507,042
544,374

450,000
104
138,202
106,303,503
1,586,541
104,716,962
32,006,450
P
= 72,710,512

1,000,000
1,412,577
92,093
76,400,385
1,776,400
74,623,985
18,282,941
P
= 56,341,044

The classes of trade receivables of the Group follow:

Real estate
Real estate receivables are receivables relating to residential development which pertain to
receivables from the sale of high-end; upper middle-income and affordable residential lots and
units, economic housing development and leisure community developments; construction
contracts which pertain to receivables from third party construction projects; shopping centers
which pertain to lease receivables of retail space; corporate business which pertain to lease
receivables of office and factory buildings and receivables from the sale of office buildings and
industrial lots; and management fees which pertain to facility management fees receivable.
The sales contracts receivable, included under residential development, are collectible in monthly
installments over a period of one (1) to ten (10) years and bear annual interest rates ranging from
3.00% to 16.00% computed on the diminishing balance of the principal. Titles to real estate
properties are not transferred to the buyers until full payment has been made.
Receivables from construction contracts, shopping centers and management fee are due within 30
days upon billing. Corporate business receivables are collectible on a monthly or quarterly basis
depending on the terms of the lease.
Electronics manufacturing
Pertains to receivables arising from manufacturing and other related services for electronic
products and components and billings to customers for production and test equipment and all
other charges agreed with the customers in carrying out business operations. These are
collectible within 30- to 60- days from invoice date.

*SGVFS011298*

- 45 -

As of December 31, 2013, IMI Bulgaria, a subsidiary of IMI, has pledged receivables with
UniCredit Bulbank amounting to $7.0 million (P
= 310.8 million) (see Note 20):
Water distribution and wastewater services
Water distribution and wastewater services receivables arise from water and sewer services
rendered to residential, commercial, semi-business and industrial customers of MWC Group and
are collectible within 30 days from bill generation.
Automotive
Automotive receivables are receivables relating to sale of passenger cars and commercial
vehicles and are collectible within 30- to 90- days from date of sale.
Information technology and BPO
Information technology and BPO receivables arise from venture capital for technology businesses;
provision of value-added content for wireless services, online business-to-business and businessto-consumer services; electronic commerce; technology infrastructure sales and technology
services; and onshore- and offshore-BPO services and are normally collected within 30- to 60days from invoice date.
International and others
International and other receivables arose from investments in overseas property companies and
projects, charter services, agri-business and others and are generally on 30- to 60- day terms.
The nature of the Groups other receivables follows:
Advances to other companies
Advances to other companies mainly pertain to ALIs advances to third party joint venture
partners. These are generally non-interest bearing and are due and demandable. Certain
advances are interest bearing and subject to terms as agreed between the parties. This also
includes MWCIs receivable from SAWACO which pertains to the unpaid portion of services
rendered by MWC in relation to its management contract with SAWACO. These are offset against
the management billings made by MWC.
Advances to contractors and suppliers
Advances to contractors and suppliers are recouped every progress billing payment date
depending on the percentage of accomplishment or delivery.
Receivables from BWC
Receivables from BWC pertain to the assigned recievables from the share purchase agreement
between MWC and Veolia Water Philippines, Inc. (VWPI) related to the acquisition of VWPIs
interest in Clark Water Corporation (CWC) in 2011.
Investment in bonds classified as loans and receivables
Investment in bonds classified as loans and receivables pertain to ALIs investments in various
notes and bonds as follows:

P
= 200.0 million investment in 7.25% unsecured subordinated notes of Land Bank of the
Philippines (LBP) due 2019, callable with step-up interest in 2014. The note was redeemed in
full by LBP on June 10, 2014.
P
= 100.0 million investment in 5.88% unsecured subordinated notes of Land Bank of the
Philippines due 2022, callable in 2017.
P
= 200.0 million investment in 5.75% unsecured subordinated notes of Development Bank of
the Philippines due 2022, callable in 2017.

*SGVFS011298*

- 46

P
= 500 million investment in 5.75% collateralized bonds of First Metro Investment Corp. due
2019, callable in 2017. As of December 31, 2014, the Companys investment in the bond
amounted to P
= 150 million since the investment was partially redeemed on November 2014.
No gain or loss was recognized on the redemption.

Receivables from officers and employees

Receivable from officers and employees pertain to housing, car, salary and other loans granted to
the Groups officers and employees which are collectible through salary deduction. These are
interest bearing ranging from 6.0% to 13.5% per annum and have various maturity dates ranging
from 2015 to 2026.
Others
Other receivables include accrued interest receivable and other nontrade receivables which are
non-interest bearing and are due and demandable.

*SGVFS011298*

- 47 -

Movements in the allowance for doubtful accounts follow (in thousands):

2014

At January 1
Provisions during the year (Note 23)
Write-offs
Reversals (Note 23)
At December 31
Individually impaired
Collectively impaired
Total
Gross amount of loans and receivables individually
determined to be impaired

Real Estate
P
= 507,507
136,774
(33,113)

P
= 611,168
297,191
313,977
P
= 611,168
P
= 297,191

Electronics
P
= 96,397

(13,357)
(38,129)
P
= 44,911
38,760
6,151
44,911
P
= 38,760

Water
Distribution and
Wastewater
Services
P
= 540,719
29,025

569,744
42,010
527,734
P
= 569,744

Automotive
P
= 23,542
1,154

P
= 24,696
13,346
11,350
P
= 24,696

P
= 42,010

P
= 13,346

Information
Technology and
BPO Services
P
= 7,370
2,242

(4,784)
P
= 4,828
2,358
2,470
P
= 4,828
P
= 2,358

Others
P
= 600,865
13,188
(275,965)
(6,894)
P
= 331,194
271,897
59,297
P
= 331,194

Total
P
= 1,776,400
182,383
(322,435)
(49,807)
1,586,541
665,562
920,979
P
= 1,586,541

P
= 271,897

P
= 665,562

2013

At January 1
Provisions during the year (Note 23)
Write-offs
Reversals (Note 23)
At December 31
Individually impaired
Collectively impaired
Total
Gross amount of loans and receivables individually
determined to be impaired

Real Estate
P
= 324,197
235,596
(51,028)
(1,258)
P
= 507,507
203,828
303,679
P
= 507,507
P
= 203,828

Electronics
P
= 100,949
(5,364)

812
P
= 96,397
96,397

P
= 96,397
P
= 96,397

Water
Distribution and
Wastewater
Services
P
= 493,646
47,073

P
= 540,719
33,829
506,890
P
= 540,719

Automotive
P
= 23,542

P
= 23,542
1,688
21,854
P
= 23,542

P
= 33,829

P
= 1,688

Information
Technology and
BPO Services
P
= 17,333
2,150

(12,113)
P
= 7,370
7,370

P
= 7,370
P
= 7,370

Others
P
= 586,262
406,639

(392,036)
P
= 600,865
264,526
336,339
P
= 600,865

Total
P
= 1,545,929
686,094
(51,028)
(404,595)
P
= 1,776,400
607,638
1,168,762
P
= 1,776,400

P
= 264,526

P
= 607,638

*SGVFS011298*

- 48 -

On March 20, 2014, the long-outstanding receivables of IMI from a customer with an aggregate
nominal amount of US$1.8 million (P
= 80.5 million) were converted to common shares of the
customer. The corresponding allowance for doubtful accounts on these receivables were
reversed accordingly.

As of December 31, 2014 and 2013, certain real estate receivables and receivables from officers
and employees with a nominal amount of P
= 66.4 billion and P
= 46.7 billion, respectively, were
recorded initially at fair value. The fair value of the receivables was obtained by discounting future
cash flows using the applicable rates of similar types of instruments.

Movements in the unamortized discount of the Groups receivables as of December 31, 2014 and
2013 follow:

Balance at beginning of the year

Additions during the year
Accretion for the year
Balance at end of the year

2014
2013
(In Thousands)
P
= 4,387,807
P
= 2,524,764
773,302
3,575,225
(1,678,252)
(1,712,182)
P
= 3,482,857
P
= 4,387,807

In 2014, the ALI Group entered into an agreement with Bank of the Philippine Islands (BPI) for
the sale of interest bearing employee receivables amounting to P
= 105.4 million at 6% interest rate.
The transaction was without recourse and did not result to any gain or loss.

In 2013, the Company sold to BPI Family Savings Bank (BPI Family Bank) its notes receivable
from officers and employees amounting to P
= 74.6 million.

In 2012, ALI sold real estate receivables on a without recourse basis to BPI Family Bank and
RCBC Savings amounting to P
= 3.0 billion and P
= 1.4 billion, respectively. These were sold for a total
average discount rate of 6.0% or P
= 2.6 billion to BPI Family Bank and P
= 1.2 billion to RCBC
Savings. The total discounting cost on these receivables amounted to P
= 498.0 million recognized
under Interest and other financing charges in the consolidated statements of income
(see Note 23).

On April 29, 2011, LIL granted promissory notes to two IQ Backoffice officers. The notes have
an aggregate amount of P
= 27.3 million which bear interests at four percent (4%) per annum and will
mature on April 29, 2016. On the same date, the parties to the notes simultaneously entered into
a Pledge Agreement where the officers (Pledgor), who are also shareholders of IQ Backoffice
(Pledgee), pledge their entire 3.9 million shares on LIL as collateral for the notes they have
availed.
8. Inventories
This account consists of the following:
2014
(In Thousands)
At cost:
Subdivision land for sale
Condominium, residential and commercial units
Vehicles
Finished goods
Work-in-process
Materials, supplies and others

P
= 25,948,283
21,937,355
1,704,711
769,085
594,980
2,369,019
53,323,433

2013

P
= 16,854,931
26,920,259
1,171,478
354,134
432,008
1,544,821
47,277,631

(Forward)

*SGVFS011298*

- 49 -

2014
(In Thousands)
At NRV:
Subdivision land for sale
Finished goods
Work-in-process
Parts and accessories
Materials, supplies and others

P
= 524,158
16,237

199,164
899,172
1,638,731
P
= 54,962,164

2013

P
= 524,158
316,576
176,749
168,451
1,714,921
2,900,855
P
= 50,178,486

A summary of the movement of real estate inventories is set out below.

2014

Opening balances at January 1

Land acquired during the year
Land cost transferred from land and
improvements
Construction/development costs incurred
Disposals (recognized as cost of sales)
Transfers from / to investment properties and
other assets
Other adjustments/reclassifications
Exchange differences

Condominium,
Subdivision residential and
commercial
land
units
for sale
(In Thousands)
P
= 17,379,089
P
= 26,920,259
7,223,854
1,165,866
4,528,267
3,581,001
(6,617,596)
301,247
76,579

P
= 26,472,441

Total
44,299,348
8,389,720

6,108,313
13,612,708
(26,108,603)

10,636,580
17,193,709
(32,726,199)

387,164
(157,021)
8,669
P
= 21,937,355

688,411
(80,442)
8,669
P
= 48,409,796

2013

Opening balances at January 1

Land cost transferred from land and
improvements
Construction/development costs incurred
Disposals (recognized as cost of sales)
Transfers from / to investment properties and
other assets
Exchange differences
Other adjustments/reclassifications

Subdivision Condominium,
land residential and
for sale commercial units
(In Thousands)
P
= 9,899,209
P
= 18,511,527

Total
P
= 28,410,736

7,454,628
10,551,863
(10,498,850)

7,271,578
25,087,265
(23,938,638)

14,726,206
35,639,128
(34,437,488)

(26,138)

(1,623)
P
= 17,379,089

9,831
(21,304)

P
= 26,920,259

(16,307)
(21,304)
(1,623)
P
= 44,299,348

Inventories recognized as cost of sales amounted to P

= 77.8 billion, P
= 66.5 billion and P
= 55.3 billion in
2014, 2013 and 2012, respectively, and were included under Costs of sales in the consolidated
statement of income.
The Group recorded provision for inventory obsolescensce amounting to P
= 149.1 million,
P
= 105.7 million and P
= 330.8 million in 2014, 2013 and 2012, respectively. The provision is included
under General and administrative expenses in the consolidated statement of income (see
Note 23).
The Group recognized gain from sale of scrapped packaging supplies amounting to
US$0.6 million (P
= 26.6 million), US$0.9 million (P
= 39.0 million) and loss amounting to US$1.8
million (P
= 72.8 million) in 2014, 2013 and 2012, respectively. These gains and losses are included
under Other income in the consolidated statement of income (see Note 23).

*SGVFS011298*

- 50 -

As of December 31, 2013, IMI BGs pledged inventories with UniCredit Bulbank amounted to
$11.04 million (P
= 490.1 million).

9. Other Current Assets

This account consists of the following:
2014

Prepaid expenses
Financial assets at FVPL
Input VAT
Deposits in escrow
Creditable withholding tax
Concession financial receivable
Derivative assets (Notes 32 and 33)
Others

2013
(In Thousands)
P
= 10,882,300
P
= 7,708,414
10,374,780
17,916,513
5,768,622
3,660,057
5,332,733
6,743,298
2,231,651
2,068,934
76,914
77,459
8,835
456,768
480,723
562,577
P
= 35,156,558
P
= 39,194,020

Prepaid expenses
Prepaid expenses mainly include prepayments for commissions, marketing fees and promotion,
taxes and licenses, rentals and insurance.
Financial Assets at FVPL
TRG Investments
Financial assets at FVPL includes the Groups investment in The Rohatyn Group (TRG) Allocation
LLC and TRG Management LP (collectively TRG investments), which have a combined fair value
of US$37.7 million (P
= 1.7 billion) and US$36.2 (P
= 1.6 billion) as of December 31, 2014 and 2013,
respectively.
These investments are accounted for at FVPL. There is no change in managements intention to
hold the investments for trading purpose. It was concluded in the past that there was no
appropriate valuation method to value these unquoted investments and reference to equity
transactions by external party would be the best approximation to fair value. There were no markto-market gains recognized from the TRG investments in 2014, 2013 and 2012.
In the absence of equity transaction at reporting date, the Group uses the last transaction price as
the fair value as of reporting date.
In December 2012, the Group amended its partnership agreement for the TRG investments to
include a clause on how much the Group will receive (Distributable Amount) in connection with a
liquidation of the Partnership or a sale or other disposition of all or substantially all of the assets of
the Partnership that leads to a liquidation of the Partnership of a Sale of Business. The
Distributable Amount available to the Group will vary as follows:
a. if Distributable Amount is less than US$150 million, the Group and the other strategic partner
would be entitled to receive 2 times the original equity interest, and after that, the remaining
would be divided on a pro-rata basis among the remaining equity interest holders;
b. if the Distributable Amount is between US$150 million and US$334 million, then the first
US$66.8 million would be divided between the Group and the other strategic partner on a prorata basis and after that, the rest would be divided among all the remaining equity interest
holders; and,
c. if the Distributable Amount is above US$334 million, then the Distributable Amount should be
divided among all the equity interest holders, including the Group and the other strategic
partner on a pro-rata basis.

*SGVFS011298*

- 51 -

In 2014 and 2013, the Group made additional investment in TRG investments amounting to
US$1.6 million and US$2.8 million, respectively, representing capital call for the year.
As of December 31, 2014 and 2013, the Groups remaining capital commitment with the TRG
Investments amounted to US$5.7 million and US$7.3 million, respectively.
Unit Investment Trust Fund (UITF) investments
The Group started investing in the BPI Short Term Fund (the BPI Fund) in July 2013. The BPI
Fund, which is structured as a money market UITF, aims to generate liquidity and stable income
by investing in a diversified portfolio of primarily short-term fixed income instruments. It has no
minimum holding period and the Bangko Sentral ng Pilipinas (BSP) Special Deposit Account
accounted for close to 70% of the BPI Fund. As of December 31, 2014 and 2013, the fair value of
the Groups total investment in the BPI Fund amounted to P
= 5.6 billion and P
= 12.8 billion,
respectively.
ARCH Fund
In 2007, the private equity fund, called ARCH Capital Asian Partners, L.P. (the Fund) was
established. The Fund achieved its final closing, resulting in a total investor commitment of
US$330.0 million in 2007. As of December 31, 2014 and 2013, the carrying amount of the Fund
amounted to US$13.0 million (P
= 581.4 million) and US$27.4 million (P
= 1,214.8 million), respectively.
On various dates in 2014 and 2013, the Fund made capital calls where the Groups share
amounted to US$2.0 million and US$0.1 million, respectively. In 2014 and 2013, the Fund
returned capital amounting to US$17.4 million (P
= 778.1 million) and US$19.2 million
(P
= 858.6 million), respectively.
As of December 31, 2014 and 2013, the Groups remaining capital commitment with the Fund
amounted to US$7.0 million and US$9.0 million, respectively.
In 2011, the Company, through one of its subsidiaries, committed to invest US$50.0 million in
ARCH Capitals second real estate fund, ARCH Capital-TRG Asian Partners, L.P. (the Fund II),
which had its first closing on June 30, 2011. As of December 31, 2014 and 2013, the carrying
amount of the Fund II amounted to US$36.0 million (P
= 1,609.9 million) and US$37.8 million
(P
= 1,676.8 million), respectively.
On various dates in 2014 and 2013, the Fund II made capital calls where the Groups share
amounted to US$48.5 million and US$36.6 million, respectively. In 2014 and 2013, the Fund
returned capital amounting to US$20.0 million (P
= 894.4million) and US$0.4 million (P
= 17.8 million),
respectively.
As of December 31, 2014 and 2013, the Groups remaining capital commitment with the Fund II
amounted to US$1.5 million and US$13.4 million, respectively.
On July 1, 2014, the Company, through one of its subsidiaries, committed to invest 10% of capital
raised, capped at US$50.0 million in ARCH Capitals third real estate fund, ARCH Capital-TRG
Asian Partners III, L.P. (the Fund III). As of December 31, 2014, the carrying amount of the
investment in the Fund III amounted to US$5.1 million (P
= 228.1 million).
As of December 31, 2014, the Groups remaining capital commitment with the Fund III amounted
to US$12.2 million.
As of December 31, 2014, ARCH Fund I has existing real estate project in Macau called The
Concordia, has successfully sold 100% across Phases 1 to 3. Phase 1 units have been handed
over to buyers and expect to be fully transferred in 1st quarter of 2015. The decrease in the
amount in ARCH Fund 1 was mainly due to the return of capital amounting to US$14.5million in
2014, that arose due to the Phase 1 transfer proceeds. Assuming timely release of government

*SGVFS011298*

- 52 -

permits, Phase 2 units will commence handover of units to buyers within 1st quarter of 2015 and
Phase 3 units unit 2nd half of 2015.
At BHL level, the Group has a direct interest of 2.975% in The Concordia through Glory High (see
Note 12). There is a shareholder advance to Glory High amounting to US$4.7 million in 2013
which was fully paid in 2014 via distributions from Glory High. Income from investment amounting
to US$9.5 million was recorded in 2014 arising from distributions from Glory High after settling the
shareholder advances. Similarly, these funds were from Phase 1 transfer proceeds. Assuming
timely release of government permits, Phase 2 units will commence handover of units to buyers
within 1st quarter of 2015 and Phase 3 units unit 2nd half of 2015.
Net changes in fair value of financial assets at FVPL is included under Other income in the
consolidated statement of income (see Note 23).
Input VAT
Input VAT is applied against output VAT. The remaining balance is recoverable in future periods.
Deposits in escrow
Deposits in escrow pertain to the proceeds from the sales of ALI Group generated from new
projects without the permanent License To Sell (LTS) but are provided with a temporary LTS by
the Housing and Land Use Regulatory Board (HLURB). For projects with temporary LTS, all
payments, inclusive of down payments, reservation, and monthly amortization, among others,
made by the buyer within the selling period shall be deposited in an escrow account.
Creditable withholding tax
The Group will be able to apply the creditable withholding taxes against income tax payable.
Concession financial receivable
Concession financial receivable is accounted for in accordance with IFRIC 12, arising from the
bulk water contract between CMWD and Metropolitan Cebu Water District (MCWD) whereby
potable and treated water shall be delivered by CMWD at an aggregate volume of 18,000 cubic
meters per day for the first year and 35,000 cubic meters per day for the succeeding years up to
20 years in the amount of P
= 24.59 per cubic meter or for the total amount of P
= 161.6 million in the
first year.
The breakdown of the concesion financial receivable is as follows:

Current
Noncurrent

2014
2013
(In Thousands)
P
= 76,914
P
= 77,459
899,070
603,905
P
= 975,984
P
= 681,364

10. Investments in Bonds and Other Securities

This account consists of investments in:
2014
2013
(In Thousands)
AFS financial assets
Quoted equity investments
Unquoted equity investments
Quoted debt investments

P
= 1,916,799
1,275,497
3,192,296
239,919
P
= 3,432,215

P
= 1,241,869
1,439,637
2,681,506
103,301
P
= 2,784,807

*SGVFS011298*

- 53 -

Quoted Equity Investments

Quoted equity instruments consist mainly of investments in listed equity securities and golf club
shares. It also includes the following quoted equity investments:
Ho Chi Minh City Infrastructure Investment Joint Stock Co. (CII)
The Group, through BHL, has acquired a 10% ownership interest in CII for US$15.9 million in
2012. CII is listed on the Ho Chi Minh City Stock Exchange (HOSE) and is a leading player in the
infrastructure sector in Vietnam with a solid track record in sourcing, implementing and operating
infrastructure assets. CII has a portfolio of strategic infrastructure assets, including water
treatment plants and toll roads serving Ho Chi Minh City and surrounding areas.
BHL has an indirect holding in CII via its investment in joint venture, VinaPhil Technical
Infrastructure Investment Stock Company (VinaPhil) (see Note 12). As of December 31, 2013,
Vinaphil has 16,920,000 shares amounting to VND 415 billion (US$19.9 million). In 2014, Vinaphil
has disposed 14,928,890 shares, acquired additional shares of 114,530 shares and has gained
30,194,707 shares from the conversion of convertible bonds. As of December 31, 2014, Vinaphil
has 32,300,347 shares in CII amounting to VND 516 billion (US$24.68 million).
The carrying amount of the investment in CII amounted to US$10.9 million (P
= 487.0 million) and
US$10.3 million (P
= 459.2 million) as of December 31, 2014 and 2013, respectively. In 2013, the
Group recognized a provision for probable impairment loss amounting to US$5.4 million
(P
= 228.58 million), including the unrealized loss on this investment amounting to US$3.3 million as
of December 31, 2012, due to the prolonged decline in the value of CIIs share price
(see Note 23).
Unquoted Equity Investments
Unquoted equity investments include unlisted preferred shares in public utility companies which
the Group will continue to carry as part of the infrastructure that it provides for its real estate
development projects, water utilities projects, and to its other operations. It also includes the
following unquoted equity investments:
TRG Global Opportunity Fund (GOF) and TRG Special Opportunity Fund (SOF)
The GOF is a multi-strategy hedge fund which invests primarily in emerging markets securities.
The SOF focuses on less liquid assets in emerging markets (Latin America, Asia, Emerging
Europe, Middle East and Africa) such as distressed debt, NPLs, corporate high yield, mid and
small cap stocks, real estate (debt and equity) and private equity. In 2013, the Group received a
return of capital from SOF amounting to US$4.1 million (P
= 182.0 million). In 2014, the Group
received a return on capital from TRG SOF and GOF amounting to US$5.5 million (P
= 246.0 million)
(see Note 23).
Red River Holdings (Red River)
Red River is a fund that seeks to achieve a balanced and diversified portfolio of Vietnamese
companies. In 2010, a final capital call was made amounting to US$1.9 million bringing the total
investment in Red River to US$10.0 million. The carrying amount of the investment in Red River
amounted to US$8.5 million (P
= 380.1 million) and US$10.4 million (P
= 460.4 million) as of
December 31, 2014 and 2013, respectively. In 2014, Red River returned capital amounting to
US$4.7 million (P
= 210.2 million).
In 2012, the Group recorded a provision for impairment loss on its investment in Red River
amounting to P
= 61.1 million (see Note 23).
Victoria 1522 Investments, LP (Victoria)
Victoria is an investment management firm exclusively focused on the emerging markets of Asia,
Latin America, Europe, Middle East and Africa. The Group committed to invest US$1.0 million in
Preferred C units of Victoria. The carrying amount of the investment on Victoria amounted to nil
and US$0.9 million as of December 31, 2014 and 2013, respectively. In 2014, the Group fully
impaired the investment in Victoria.

*SGVFS011298*

- 54 -

Glory High
Glory High is a property development company with projects in Macau. The carrying amount of
the investment in Glory High amounted to US$0.6 million as of December 31, 2014 and 2013.
Quoted Debt Investments
Quoted debt investments in 2013 consist mainly of government securities such as retail treasury
bonds. These bonds earn interest ranging from 6.25% to 8.25% in 2013 with maturity dates up to
five years. All the quoted debt investments matured in 2014
Quoted debt investments in 2014 includes investments in CII convertible bonds amounting to
US$5.4 million (P
= 239.9 million). The bonds bear interest rate of 12% per annum and will mature 5
years from issue date. The bonds are convertible at the option of the bond holder.
The net unrealized gain (loss) on AFS financial assets as reflected in the equity section is broken
down as follows:
2014
2013
(In Thousands)
Net unrealized gain on AFS financial assets of
the Company and its consolidated subsidiaries
Share in the net unrealized gain on AFS financial
assets of associates and jointly-controlled
entities

P
= 834,185

(841,396)
(P
= 7,211)

(P
= 421,595)

699,443
P
= 277,848

The rollforward of unrealized gain (loss) on AFS financial assets of the Company and its
consolidated subsidiaries is as follows:

At January 1
Changes in fair value recognized in equity
Recognized in profit and loss
At December 31

2014
2013
(In Thousands)
(P
= 421,595)
P
= 469,519
1,926,410
(873,047)
(670,630)
(18,067)
P
= 834,185
(P
= 421,595)

11. Land and Improvements

The rollforward analysis of this account follows:
2014
2013
(In Thousands)
Cost
At January
Additions
Transfers*
Disposals
At December 31
Allowance for decline in value
At January 1 and December 31

P
= 62,984,927
28,604,686
(11,119,540)
(61)
80,470,012

P
= 49,728,125
29,446,957
(16,190,155)

62,984,927

(510,125)
P
= 79,959,887

(510,125)
P
= 62,474,802

*Transfers pertain to land to be developed for sale and included under Real estate inventories account.

On November 26, 2014, Alveo Land Corporation (Alveo), a wholly owned subsidiary of ALI,
acquired a 6,986 sq. m. property located along Valero St., Salcedo Village, Makati City for
P
= 1.6 billion.

*SGVFS011298*

- 55 -

On September 15, 2014, Alveo acquired on installment a 2,400 square meters. property located
along Ayala Avenue, Makati for P
= 1.2 billion payable until 2015.
In 2012, ALI won the public bidding for the purchase of the 74-hectare Food Terminal, Inc. (FTI)
property in Taguig City. ALIs bid was P
= 24.3 billion. The bid was conducted in accordance with
the Asset Specific Bidding Rules dated July 4, 2012 and in accordance with the provisions of
Executive Order No. 323.
In October 2012, ALI entered into a Purchase Agreement wherein the Seller (FTI) agrees to sell,
convey, assign and transfer and deliver to the buyer, and the buyer agrees to purchase and
acquire from the seller, all of the sellers rights and interests in the property. The property is
designed to be a mixed-use development.
On August 27, 2009, ALI and the National Housing Authority (NHA) signed a Joint Venture
Agreement to develop the 29.1-hectare North Triangle Property in Quezon City as a priming
project of the government and the private sector. The joint venture represents the conclusion of a
public bidding process conducted by the NHA which began last October 3, 2008.
ALIs proposal, which has been approved and declared by the NHA as compliant with the Terms
of Reference of the public bidding and the National Economic Development Authority (NEDA)
Joint Venture Guidelines, features the development of a new Central Business District (CBD) in
Quezon City. The CBD will be developed as the Philippines first transit-oriented mixed-use
central business district that will be a new nexus of commercial activity. The proposal also aims to
benefit the NHA in achieving its mandate of providing housing for informal settlers and
transforming a non-performing asset in a model for urban renewal. The development will also
generate jobs and revenues both for the local and national governments.
ALI's vision for the property is consistent with the mandate of the Urban Triangle Development
(TriDev) Commission to rationalize and speed up the development of the East and North Triangles
of Quezon City into well-planned, integrated and environmentally balanced, mixed-use
communities. The joint venture also conforms to NHA's vision of a private sector-led and
managed model for the development of the property, similar to the development experience in Fort
Bonifacio.
The total project cost is estimated at P
= 22.0 billion, inclusive of future development costs and the
current value of the property, which ALI and the NHA will contribute as their respective equity
share in the joint venture. The development of Phase 1 commenced in the second quarter of
2012.

12. Investments in Associates and Joint Ventures

This account consists of the following:

Acquisition cost
Accumulated equity in earnings
Other comprehensive loss

2014
2013
(In Thousands)
P
= 127,252,199
P
= 98,667,066
27,186,995
24,403,130
(1,674,340)
(3,266,110)
P
= 152,764,854
P
= 119,804,086

*SGVFS011298*

- 56 -

Details of the Groups investments in associates and joint ventures and the related percentages of
ownership are shown below:
Percentage of Ownership
2014
2013
Domestic:
Bank of the Philippine Islands (BPI)
Ayala DBS Holdings, Inc. (ADHI)*
Globe Telecom, Inc. (Globe)*
GNPower Mariveles Coal Plant Ltd. Co (GNPower)
Philippine Wind Holdings Corporation (PWHC)*
Emerging City Holdings, Inc. (ECHI)*
South Luzon Thermal Energy Corp. (SLTEC)*
Berkshires Holdings, Inc. (BHI)*
Cebu District Property Enterprise, Inc. (CDPEI)*
Bonifacio Land Corporation (BLC)
Asiacom Philippines, Inc. (Asiacom)*
Rize-Ayalaland (Kingsway) GP Inc. (Rize-Ayalaland)
Light Rail Manila Holdings, Inc. (LRMHI)
Mercado General Hospital, Inc. (MGHI)
SIAL Specialty Retailers, Inc.*
Northwind Power Development Corp.* (Note 24)
SIAL CVS Retailers, Inc.*
Automated Fare Collections Services, Inc. (AFCSI)
Foreign:
Thu Duc Water B.O.O. Corporation (TDW) (incorporated
in Vietnam)
Kenh Dong Water Supply Joint Stock Company (KDW)
(incorporated in Vietnam)
Integreon, Inc. (Integreon) (British Virgin Islands
Company)*
VinaPhil Technical Infrastructure Investment Joint Stock
Company (VinaPhil) (incorporated in Vietnam)*
Saigon Water Infrastructure Joint Stock Company (Saigon
Water) (incorporated in Vietnam)
Tianjin Eco-City Ayala Land Development Co., Ltd.
(incorporated in China)
Stream Global Services, Inc. (Stream) (U.S. Company)
Others
Reclassification to noncurrent asset held for sale

32.6%
73.8
30.4
17.0
75.0
50.0
50.0
50.0
42.0
10.0
60.0
49.0
50.0
33.0
50.0
50.0
50.0
10.0

32.6%
73.8
30.4

75.0
50.0
50.0
50.0

10.0
60.0
49.0

33.0
50.0
50.0
50.0

Carrying Amounts
2014
2013
(In Millions)
P
= 65,811
P
= 52,635
35,943
29,072
16,321
15,371
7,164

4,218
2,180
4,113
3,993
3,513
3,070
1,815
1,955
1,492

1,356
1,395
1,142
1,097
697
501
563

422
360
332
209
324
466
153
162
144

49.0

49.0

2,258

2,200

47.4

47.4

2,018

1,863

58.7

58.7

961

1,449

49.0

49.0

723

590

31.5

31.5

686

645

40.0

Various

40.0
28.9
Various

484

112
152,765

P
= 152,765

543
3,329
48
123,133
(3,329)
P
= 119,804

* Joint ventures

Unless otherwise indicated, the principal place of business and country of incorporation of the
Groups investments in associates and joint ventures is the Philippines.
Except as discussed in subsequent notes, the voting rights held by the Group in its investments in
associates and joint ventures are in proportion to its ownership interest.

*SGVFS011298*

- 57 -

Financial information on significant associates follows:

BPI

Total resources
Total liabilities
Net interest income and other income
Total expenses
Net income
Other comprehensive income
Total comprehensive income
Net income attributable to:
Equity holders of the bank
Non-controlling interests
Earnings per share:
Basic and diluted
Dividends received from BPI

2014
2013
(In Millions, except earnings per
share)
P
= 1,450,197
P
= 1,195,364
1,303,518
1,089,557
55,787
52,498
37,725
33,504
18,062
18,994
(45)
(4,638)
18,017
14,356
18,039
23
4.62
1,153

TDW

18,811
183
5.19
2,086

2014
2013
(In Thousands)
P
= 102,233
P
= 104,451
2,558,962
2,712,849
399,688
352,739
260,590
800,602
770,317
655,427
444,296
441,449

87,749

Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Revenue
Net income
Dividends received from TDW
The conversion rate used was P
= 0.0021 to VND1 as of December 31, 2014 and 2013.

KDW

2014
2013
(In Thousands)
P
= 654,567
P
= 126,091
2,594,523
2,383,454
346,204
522,501
1,510,063
1,115,527
464,796
150,829
236,114
161,880

Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Revenue
Net income
The conversion rate used was P
= 0.0021 to VND1 as of December 31, 2014 and 2013.

BLC
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Revenue
Cost and expenses
Net income

2014
2013
(In Thousands)
P
= 24,747,739
P
= 23,612,217
20,183,121
21,013,477
4,785,573
4,895,150
4,903,468
3,693,719
9,186,619
8,067,041
(5,819,431)
(5,511,372)
3,367,188
2,555,669

*SGVFS011298*

- 58 -

Financial information on significant joint ventures (amounts in millions, except earnings per share
figures) follows:
Globe
Current assets, including cash and cash equivalents
amounting to P
= 16.8 billion in 2014 and
P
= 7.4 billion in 2013
Noncurrent assets
Current liabilities including financial liabilities* amounting
to P
= 6.1 billion in 2014 and P
= 11.2 billion in 2013
Noncurrent liabilities, including financial liabilities*
amounting to P
= 59.1 billion in 2014 and P
= 58.1 billion
in 2013
Revenue
Interest income
Costs and expenses
Depreciation and amortization
Interest expense
Provision for income tax
Net income
Other comprehensive loss
Total comprehensive income
Earnings per share:
Basic
Diluted
Dividends received from Globe

2014

2013

P
= 46,742
132,765

P
= 35,631
123,448

60,350

54,989

64,619
103,236
683

62,450
95,141
688

18,123
2,566
6,011
13,372
(238)
13,134
100.60
100.36
3,025

27,477
2,912
1,905
4,960
(213)
4,747
37.25
37.22
2,701

*excluding trade and other payables and provisions

In addition to the interest in associates and joint ventures discussed above, the Group also
has interest in a number of individually immaterial associates and joint ventures. Below is a
summary of certain financial information concerning these immaterial associates and joint
ventures:

Carrying amount
Equity in net earnings
Share in other comprehensive income

2014
2013
(In Millions)
P
= 21,894.0
P
= 17,268.0
399.6
(181.1)
187.6
828.9

As of December 31, 2014 and 2013, the Group had total commitments relating to the Groups
interests in its associates and joint ventures amounting to P
= 11,050.0 million and P
= 3,787.5 million,
respectively (see Note 36).
As of December 31, 2014 and 2013, the Group has not incurred any contingent liabilities in
relation to its investments in associates and joint ventures.
On certain investments in associates and joint ventures, the Group entered into shareholders
agreements with fellow shareholders. Such shareholders agreements include, among others,
restriction as to declaration and payment of dividend, incurrence of debt and transactions with
related parties.
The following significant transactions affected the Groups investments in associates and joint
ventures:
Investment in BPI
In October 2012, the Company entered into an agreement with DBS Bank, Ltd. (DBS) to
acquire 8.69%, equivalent to 309.3 million of the outstanding common shares held by DBS in BPI
for a total consideration of P
= 21.6 billion. As of December 31, 2014 and 2013, outstanding payable
to DBS in relation to the transaction amounted to P
= 3.3 billion and P
= 14.2 billion, respectively.

*SGVFS011298*

- 59 -

On November 6, 2013, the BOD of BPI approved the offering for subscription of up to 370 million
common shares of BPI by way of a stock rights offering to eligible registered holders of common
shares as of January 16, 2014 at the entitlement ratio of 1 rights share for every 9.602 existing
common shares held by such eligible shareholders. On January 20, 2014, the offer period for the
stock rights offering of BPI started at an offer price of P
= 67.5 per rights share. The Company, MHI
and ADHI participated in the stock rights offering by subscribing to 114.4 million, 7.7 million and
79.8 million common shares, respectively, amounting to P
= 7.7 billion, P
= 0.5 billion and P
= 5.4 billion,
respectively. The Companys share in the subscription of ADHI was P
= 3.98 billion representing
58.9 million common shares.
The fair value of the BPI shares held by the Group amounted to P
= 112.8 billion and P
= 92.3 billion as
of December 31, 2014 and 2013, respectively.
As of December 31, 2014 and 2013, the notional goodwill resulting from the difference between
the share in the net assets in BPI and its carrying value amounted to P
= 19.1 billion.
Investment in ADHI
In December 2013, DBS divested its 46.5% remaining ownership interest in ADHI of which the
Company acquired 20.3%. Arran Investment Pte. Ltd., an entity managed and controlled by GIC
Special Investments Pte. Ltd. (GICSI) acquired the remaining interest of 26.2% and replaced DBS
as the new joint venture partner of the Company in ADHI. The total consideration paid by the
Company for the additional 37.6 million ADHI Class B common shares amounted to P
= 13.2 billion
(see Note 18).
In January 2014, the Company infused additional capital to ADHI in the form of subscriptions
which amounted to P
= 4.0 billion. The proceeds was used for ADHIs participation in the stock
rights offering of BPI by subscribing to 79.8 million common shares amounting to P
= 5.4 billion.
As of December 31, 2014 and 2013, ADHI owns 837.6 million and 757.8 million common shares
of BPI, respectively, representing a direct ownership interest in BPI of 21.3%. The fair value of
BPI shares held by ADHI amounted to P
= 78.7 billion and P
= 64.4 billion as of December 31, 2014
and 2013, respectively.
As of December 31, 2014 and 2013, the notional goodwill resulting from the difference between
the share in the net assets in ADHI and its carrying value amounted to P
= 6.1 billion.
The Company and GICSI, as joint venture partners, agreed to vote its BPI shares based on the
common position reached jointly by them as shareholders.
Investment in Globe
On August 8, 2014, the SEC approved Globe's offering of 20.0 million non-voting perpetual
preferred shares with an aggregate issue size of P
= 7.0 billion with an oversubscription option of up
to P
= 3.0 billion. On August 15, 2014, the 20.0 billion shares were fully subscribed and issued.
Dividends on this preferred shares is at fixed 5.2006% per annum calculated in respect to each
preferred share in relation to the offer price of P
= 500 per share, redeemable by Globe on the 7th
year.
The fair value of the Globe shares held by the Company amounted to P
= 69.4 billion and
P
= 65.5 billion as of December 31, 2014 and 2013, respectively.
As of December 31, 2014 and 2013, the notional goodwill resulting from the difference of the
share in the net assets in Globe and its carrying value amounted to P
= 2.9 billion.
The Company also holds 60% of Asiacom, which owns 158.5 million Globe preferred shares and
460.0 million AC preferred shares as of December 31, 2014 and 2013. The Company does not
exercise control over Asiacom since it is a joint venture with Singapore Telecommunications
Limited (SingTel).

*SGVFS011298*

- 60 -

Investment in GNPower
On May 30, 2014 AC Energy Holdings,Inc. through its wholly owned subsidiary, ACE Mariveles
Power Ltd. Co (AMPLC), signed a sale and purchase agreement with Arlington Mariveles
Netherlands Holding B.V. (AMNHB) to purchase the 17.02% limited partnership interest and
0.08% General Partnership interest in GN Power Mariveles Coal Plant Ltd. Co. (GMCP) for a
consideration amounting to US$163.9 million (P
= 7.2 billion).
On June 17, 2014, AMPLC and AMNHB closed the acquisition of the GMCP interests and entered
into Deeds of Assignment to assign the GMCP Interests to the AMPLC, subject to fulfillment of
certain post-closing conditions as required by the GMCP financing agreements.
Investment in ECHI, BHI and BLC
ALIs 5.32% direct investment in BLC and 4.78% through Regent are accounted for using the
equity method because ALI has significant influence over BLC.
On April 17, 2003, the following transactions were consummated pursuant to the terms and
conditions of the Assignment Agreement (Agreement), dated February 8, 2003, among ALI,
Evergreen Holdings, Inc. (EHI), Greenfield Development Corporation and Larouge,
B.V. (Larouge), as amended, and the Agreement, dated November 23, 2002, among ALI, EHI
and Neo Oracle Holdings, Inc. ( [formerly Metro Pacific Corporation (MPC)] as amended:
(a) The assignment to ALI and EHI of the rights and obligations of Larouge under the loan
agreement between Larouge and MPC, pursuant to which, Larouge extended MPC a loan in
the principal amount of US$90.0 million, together with all the rights, title and interests of
Larouge in the pledge constituted on 50.38% of the outstanding shares in BLC. The
consideration paid by ALI and EHI for such assignment was approximately US$90 million,
subject in part to foreign exchange adjustment.
(b) The assignment to ALI and EHI (acting in this instance through the joint venture corporation,
Columbus Holdings, Inc. (Columbus)) of the controlling interests in BLC representing 50.38%
of BLCs outstanding capital stock. The assignment was effected by MPC under a dacion en
pago arrangement, and included an assignment of payables of BLC in the principal amount of
P
= 655.0 million together with its underlying security in the form of shares in Fort Bonifacio
Development Corporation (FBDC) representing 5.55% of its outstanding capital stock.
The Agreement, as amended, also provides for the constitution of a pledge over 5% of BLCs
unencumbered shares as security for contingent liabilities and breach of representation and
warranties. The pledge lien over the 5% BLC shares shall continue to subsist until the third
anniversary of the closing date.
ALI and EHI jointly hold the 50.38% equity interest in BLC through ECHI and BHI. ALI and EHI
assigned the notes receivable from MPC to ECHI and BHI, which acquired the shares of stock of
Columbus. Columbus directly owns the 50.38% interest in BLC. BLC owns 55% interest in
FBDC, the primary developer of certain areas in Fort Bonifacio Global City for residential,
commercial and business development.
Columbus accounted for the acquisition of the 50.38% interest in BLC using the purchase method,
resulting in a negative goodwill of P
= 1.4 billion.
Subsequent to this, ALI and EHI acquired additional shares of BLC through a combination of direct
acquisition and through its associates at varying dates as follows:

*SGVFS011298*

- 61 -

On July 31, 2008, the Group acquired, through ALI, Regent and Columbus, additional 4,360,178
shares of BLC from FBDC amounting to P
= 689.0 million, equivalent to 7.66% ownership in BLC. In
January and October 2009, a total of 2,295,207 BLC shares were acquired from Development
Bank of the Philippines and MPC, pertaining to the pledged shares, through Columbus amounting
to P
= 362.6 million. This resulted in an increase in the Groups effective interest in BLC to 45.05%
as of December 31, 2009.
In 2011, BLC redeemed its 3,485,050 preferred shares with an aggregate redemption price of
P
= 500.0 million.
Investment in PWHC
On July 12, 2013, ACEHI signed an Investment Framework Agreement and Shareholders
Agreement with UPC Philippines Wind Holdco I B.V. (UPC), a wholly-owned company of UPC
Renewable Partners and the Philippine Investment Alliance for Infrastructure fund (PINAI),
comprised of the Government Service Insurance System, Langoer Investments Holding B.V. and
Macquarie Infrastructure Holdings (Philippines) Pte. Limited, to develop wind power projects in
Ilocos Norte through Northern Luzon UPC Asia Corporation (NLUPC) as their joint venture
company. An initial equity investment has been agreed for the first 81 Megawatt (MW) project
with an investment value of approximately US$220 million with ACEHI funding 64% of equity,
PINAI 32% and UPC 4%.
The 81MW wind power project received a declaration of commerciality on June 17, 2013 from the
Department of Energy (DOE). Accordingly, NLUPC has signed the Turbine Supply, Installation
and Service Availability Agreements with Siemens Wind Power A/S and Siemens Inc. and has
issued the Notice to Proceed.
As of December 31, 2014 and 2013, ACEHIs total capital commitment on its investments in
PWHC amounted to P
= 2.1 billion and P
= 2.5 billion, respectively.
Investment in SLTEC
On June 29, 2011, ACEHI entered into a 50-50 joint venture with Trans-Asia Oil and Energy
Development Corporation to incorporate SLTEC which will undertake the construction and
operation of a 135 MW power plant in Calaca, Batangas. The power plant will employ the
environment-friendly Circulating Fluidized Bed boiler technology. The construction officially
commenced in December 2011for its first of two units, Units 1 and 2, coal power plant both with a
generating capacity of 135MW each. SLTEC will operate as a base load plant to serve the
anticipated demand for power in the Luzon grid. As of December 31, 2014, Unit 1 and 2 is 100%
completed and 88.4% complete, respectively. Unit 1 is currently under testing and commissioning
phase and is expected to be operational by the 1st quarter of 2015. Unit 2 is currently under
construction and is expected to be completed by the 4th Quarter of 2015.
In various dates in 2013, ACEHI infused additional capital to SLTEC amounting to
P
= 1,184.0 million.
On January 15, 2014 and February 14, 2014, ACEHI paid the subscribed shares of stock
amounting to P
= 316.00 million and P
= 175.00 million, respectively.
As of December 31, 2014 and 2013, ACEHIs total capital commitment on its investment in SLTEC
amounted to P
= 105.0 million and P
= 231.0 million, respectively.
Investment in CDPEI
CDPEI was incorporated on February 20, 2014 and is a 50-50 joint venture between ALI and
Aboitiz Land, Inc. CDPEIs main purpose is to create a mixed-use commercial and residential
district with the 15.4 hectare property in Subangdaku, Mandaue. On April 11, 2014, ALI assigned
10% and 5% of its equity interest in CDPEI to Cebu Holdings, Inc. and Cebu Property Ventures
Development Corporation, respectively.

*SGVFS011298*

- 62 -

Investment in Light Rail Manila Holdings, Inc. (LRMHI)

LRMHI was incorporated on June 23, 2014, as a holding company for the LRT 1 Cavite extension
project. LRMHI holds 70% of the total equity of Light Rail Manila Corporation (LRMC), the project
company established for the construction, operation and maintenance of the LRT 1 Cavite
extension project. AC Infra owns 50% of the shares of LRMHI that ultimately resulted to a 35%
interest in LRMC.
As of December 31, 2014, AC Infras total equity investment commitment for the LRT 1 project
amounts to 8.5 billion.
Investment in Stream
On January 7, 2014, LiveIt and its two private equity partners, Ares Management and Providence
Equity Partners, entered into an agreement with Convergys Corporation to sell their 100%
combined interest in Stream subject to satisfaction of customary closing conditions, including
receipt of applicable regulatory approvals. The investment in Stream amounting to P
= 3.4 billion is
shown as Noncurrent Asset Held for Sale as of December 31, 2013 in the consolidated statement
of financial position.
On March 4, 2014, the transaction achieved financial close with LiveIt realizing a gain amounting
to P
= 1.8 billion (see Note 23).
Thu Duc Water B.O.O. Corporation (TDW)
On October 12, 2011, Thu Duc Water Holdings Pte. Ltd. (TDWH) (a subsidiary of MWC) and CII
entered into a share sale and purchase agreement whereby CII will sell to TDWH its 49% interest
(2,450,000 common shares) in TDW. On December 8, 2011, TDWH completed the acquisition of
CIIs interest in the common shares of TDW after which TDWH obtained significant influence in
TDW.
The acquisition cost of the investment amounted to P
= 1.8 billion (VND858 billion). The investment
in TDW include notional goodwill amounting to P
= 1.4 billion as of December 31, 2014 and 2013.
Kenh Dong Water Supply Joint Stock Company (KDW)
On May 17, 2012, MWC, through its subsidiary Kenh Dong Water Holding Pte. Ltd. (KDWH),
entered into a Share Purchase Agreement with CII for the purchase of 47.35% of CIIs interest in
KDW. The payment for the shares will be done in two tranches, with additional contingent
considerations subject to the fulfillment of certain conditions precedent for a total purchase price of
P
= 1.7 billion.
The consideration paid by MWC for its investment in KDW amounted to P
= 1.6 billion
(VND785.2 billion). Contingent consideration included in the purchase price allocation amounted
to P
= 89.0 million (VND44.5 billion). The share purchase transaction was completed on July 20,
2012 warranting KDWH to obtain significant influence in KDW.
In 2013, KDW finalized its purchase price allocation which resulted in a notional goodwill
amounting to P
= 1.4 billion. MWC also received P
= 62.9 million from KDWH as indemnification for the
damages resulting from the delay in operations.
Saigon Water Infrastructure Joint Stock Company (SWI)
On October 8, 2013, MWC thru its subsidiary Manila Water South Asia Holdings Pte. Ltd
(MWSAH) entered into a Investment Agreement with SWI to acquire a 31.47% interest. The
acquisition cost of the investment amounted to P
= 627.9 million (VND310.5 billion). The share
purchase transaction was completed on October 8, 2013.
The investment in SWI includes notional goodwill amounting to P
= 288.8 million as of December 31,
2014 and 2013.

*SGVFS011298*

- 63 -

Investment in Tianjin Eco-City Ayala Land Development Co., Ltd.

Regent Wise, a wholly-owned subsidiary of ALI, signed an Equity Joint Venture Agreement with
Sino-Singapore Tianjin Eco-City Investment and Development Co., Ltd for the development of a
9.78 hectare residential project in China. The project will be located in Tianjin Eco-City, a 3,000
hectare collaboration between the Chinese and Singaporean governments which will showcase
future direction of urban planning and sustainable development.
Investment in VinaPhil
CII and the Group have entered into an agreement to jointly invest in VinaPhil Technical
Infrastructure Investment JSC (VinaPhil), a corporation established under Vietnamese law to
invest in infrastructure projects in Vietnam. VinaPhil will be initially 49%-owned by the Group with
the remainder owned by CII and other Vietnamese investors. VinaPhil will have an initial charter
capital of VND 900 billion (approximately US$43 million).
In 2013, VinaPhil proportionately redeemed 30% of the outstanding shares issued to each
shareholders wherein the Groups share amounted to VND132.3 billiion (US$6.35 million). The
redemption of the shares did not alter the ownership structure of VinaPhil.
In 2014, the Group, together with CII and other Vietnamese investors, proportionately acquired
additional shares in VinaPhil wherein the Groups shares amounted to VND15.4 billion
(US$0.7 million). The additional investment did not alter the ownership structure of VinaPhil.
VinaPhil holds 9% interest in CII as of December 31, 2014.
Investment in Rize-Ayalaland
Rize-Ayalaland (Kingsway) GP, Inc. was incorporated on January 25, 2013 under the laws of
British Columbia, Canada. ALIs effective ownership is 49% through its Vancouver-based
subsidiary, AyalaLand Real Estate Investments Inc.
Investment in MGHI
In July 2013, ALI entered into an agreement with the Mercado Family to acquire Whiteknight
Holdings, Inc. (WHI), a 33% equity stockholder of MGHI. Its acquisition of WHI will allow ALI to
build a strategic partnership with the Mercado Group and support MGHIs future growth. This
partnership also enhances the potential of ALIs development of mixed-use communities by
offering the critical component of medical services to complement the residential, shopping
centers, office and hotel developments therein.
Investment in AFCSI
AFCSI was incorporated on February 10, 2014 and is engaged in the design, construction,
installation and operation and maintenance of a contactless automated fare collection system for
public utility transport facilities. AC Infra owns 10% of the total shares and voting interest of
AFCSI.
AFCSI is the project company that will develop and operate the P
= 1.72 billion contactless
Automated Fare Collection Systems (AFCS) project awarded by the Department of Transportation
and Communications to the AF consortium last January 30, 2014. On March 31, 2014, the
Concession and Accession Agreements were signed and executed.
As of December 31, 2014, AC Infras total equity investment commitment for the project amounts
to P
= 500.0 million.

*SGVFS011298*

- 64 -

13. Investment Properties

The movements in investment properties follow:
2014
Land
Cost
Balance at beginning of the year
Additions
Transfers
Disposals
Balance at end of the year
Accumulated depreciation and
amortization and impairment loss
Balance at beginning of the year
Depreciation and amortization (Note 23)
Transfer
Disposals
Balance at end of the year
Net book value

ConstructionBuilding
in-Progress
(In Thousands)

Total

P
= 10,775,471
1,752,477
(880,194)
(4,921)
11,642,833

P
= 63,591,094
3,862,165
5,224,265
(744,842)
71,932,682

P
= 4,118,138
7,470,659
(5,139,747)
(512,272)
5,936,778

P
= 78,484,703
13,085,301
(795,676)
(1,262,035)
89,512,293

26,616

26,616
P
= 11,616,217

15,300,864
2,878,035
9,336
(26,803)
18,161,432
P
= 53,771,250

P
= 5,936,778

15,327,480
2,878,035
9,336
(26,803)
18,188,048
P
= 71,324,245

2013
Land
Cost
Balance at beginning of the year
Additions
Transfers
Disposals
Balance at end of the year
Accumulated depreciation and
amortization and impairment loss
Balance at beginning of the year
Depreciation and amortization (Note 23)
Transfers
Disposals
Balance at end of the year
Net book value

P
= 5,968,510
3,246,941
1,605,130
(45,110)
10,775,471

26,616

26,616
P
= 10,748,855

ConstructionBuilding
in-Progress
(In Thousands)

Total

P
= 53,452,688
3,247,461
7,142,251
(251,306)
63,591,094

P
= 6,045,271
5,591,625
(7,502,509)
(16,249)
4,118,138

P
= 65,466,469
12,086,027
1,244,872
(312,665)
78,484,703

12,990,921
2,490,412
415
(180,884)
15,300,864
P
= 48,290,230

P
= 4,118,138

13,017,537
2,490,412
415
(180,884)
15,327,480
P
= 63,157,223

Certain parcels of land are leased to several individuals and corporations. Some of the lease
contracts provide, among others, that within a certain period from the expiration of the contracts,
the lessee will have to demolish and remove all improvements (such as buildings) introduced or
built within the leased properties. Otherwise, the lessor will cause the demolition and removal
thereof and charge the cost to the lessee unless the lessor occupies and appropriates the same
for its own use and benefit.
The aggregate fair value of the Groups investment properties amounted to P
= 234.5 billion in 2014
and P
= 232.9 billion in 2013. The fair values of the investment properties were determined based
on valuations performed by independent professional qualified appraisers.
The fair value of the investment properties was arrived using the Market Data Approach and Cost
Approach for land and building, respectively, and were determined by independent professionally
qualified appraisers.
In Market Data Approach, the value of the land is based on sales and listing of comparable
property registered within the vicinity. The technique of this approach requires the establishment
of comparable property by reducing reasonable comparative sales and listings to a common
denominator. This is done by adjusting the differences between the subject property and those
actual sales and listings regarded as comparable. The properties used as basis of comparison
are situated within the immediate vicinity of the subject property.

*SGVFS011298*

- 65 -

Cost Approach is a comparative approach to the value of the building and improvements or
another asset that considers as a substitute for the purchase of a given property, the possibility of
constructing another property that is a replica of, or equivalent to, the original or one that could
furnish equal utility with no undue cost resulting from delay. It is based on the reproduction cost
(new) of the subject property or asset, less total (accrued) depreciation, plus the value of the land
to which an estimate of entrepreneurial incentive or developers profit/loss is commonly added.
The Company owns certain parcels of idle land which is intended to be sold or developed in the
future. The highest and best use of these parcels of land has been determined to be for
commercial and agricultural land utilization.
Interest capitalized amounted to P
= 76.1 million, P
= 113.5 million and P
= 189.9 million and in 2014,
2013 and 2012, respectively.
Consolidated rental income from investment properties amounted to P
= 16.4 billion in 2014,
P
= 13.3 billion in 2013 and P
= 13.2 billion in 2012. Consolidated direct operating expenses arising
from the investment properties amounted to P
= 5.5 billion in 2014, P
= 4.1 billion in 2013 and
P
= 3.1 billion, respectively.
Depreciation and amortization expense pertaining to investment properties amounted to
P
= 2.9 billion, P
= 2.5 billion and P
= 1.5 billion in 2014, 2013 and 2012, respectively (see Note 23).

14. Property, Plant and Equipment

The movements in property, plant and equipment follow:
2014

Cost
At January 1
Additions
Additions through business
combination (Note 24)
Disposals
Transfers
Exchange differences
At December 31
Accumulated depreciation
and amortization and
impairment loss
At January 1
Depreciation and amortization
for the year (Note 23)
Disposals
Exchange differences
At December 31
Net book value

Land,
Buildings and
Improvements
(Note 19)

Machinery
and
Equipment

Hotel
Property and
Equipment
(Note 19)

P
= 9,601,612
1,275,250

P
= 12,151,848
2,668,427

P
= 13,695,918
818,371

P
= 5,873,788
945,498

P
= 2,727,877
585,989

P
= 683,782
474,606

P
= 44,734,825
6,768,141

22,357
(428,545)
(56,464)
(41,481)
10,372,729

(1,729,153)
70,767
(244,663)
12,917,226

(8)
(15)

14,514,266

(560,045)
(45,696)
30,911
6,244,456

(410,411)
(50,963)
(2,785)
2,849,707

(6,561)
(228,408)
(13,410)
910,009

22,357
(3,134,723)
(310,779)
(271,428)
47,808,393

3,573,075

6,503,803

2,749,520

4,536,675

1,488,283

18,851,356

616,999
(308,118)
13,799
3,895,755
P
= 6,476,974

980,800
(861,284)
(175,545)
6,447,774
P
= 6,469,452

504,217

3,253,737
P
= 11,260,529

724,776
(403,387)
10,783
4,868,847
P
= 1,375,609

248,050
(346,797)
(401)
1,389,135
P
= 1,460,572

P
= 910,009

3,074,842
(1,919,586)
(151,364)
19,855,248
P
= 27,953,145

Furniture,
Fixtures and
Equipment
(In Thousands)

Transportation
Equipment

Constructionin-Progress

Total

*SGVFS011298*

- 66 -

2013
Land,
Buildings and
Improvements
(Note 19)
Cost
At January 1
Additions
Disposals
Transfers
Exchange differences
At December 31
Accumulated depreciation
and amortization and
impairment loss
At January 1
Depreciation and amortization
for the year (Note 23)
Impairment Loss (Note 23)
Disposals
Transfers
Exchange differences
At December 31
Net book value

Machinery
and
Equipment

Hotel
Property and
Equipment
(Note 19)

P
= 9,942,458
1,517,370
(280,091)
(1,566,473)
(11,652)
9,601,612

P
= 10,673,309
2,130,395
(1,274,259)
565,811
56,592
12,151,848

P
= 12,379,164
1,316,792
(38)

13,695,918

P
= 5,083,954
875,276
(140,821)
36,422
18,957
5,873,788

P
= 2,126,377
709,532
(113,045)
3,642
1,371
2,727,877

3,484,905

6,398,522

2,367,590

4,010,374

1,331,695

17,593,086

350,877

(266,192)
(49)
3,534
3,573,075
P
= 6,028,537

1,315,165
222
(1,232,804)
15
22,683
6,503,803
P
= 5,648,045

381,968

(38)

2,749,520
P
= 10,946,398

644,088

(140,821)
375
22,659
4,536,675
P
= 1,337,113

268,581

(113,045)

1,052
1,488,283
P
= 1,239,594

P
= 683,782

2,960,679
222
(1,752,900)
341
49,928
18,851,356
P
= 25,883,469

Furniture,
Fixtures and Trwsansportation
Equipment
Equipment
(In Thousands)

Constructionin-Progress

P
= 390,274
289,385
(126)

4,249
683,782

Total

P
= 40,595,536
6,838,750
(1,808,380)
(960,598)
69,517
44,734,825

Consolidated depreciation and amortization expense on property, plant and equipment amounted
to P
= 3.1 billion in 2014, P
= 3.0 billion in 2013 and P
= 2.9 billion in 2012 (see Note 23).
The carrying values of the Groups equipment under finance lease amounted to US$4.5 million
(P
= 199.4 million) and US$5.9 million (P
= 264.1 million) as of December 31, 2014 and 2013,
respectively (see Note 30).
The cost of fully depreciated property, plant and equipment amounted to P
= 11.5 billion and
P
= 8.8 billion as of December 31, 2014 and 2013, respectively.
On August 27, 2014, IMI Group entered into an agreement with DBS Trustee Limited (in its
capacity as trustee of Soilbuild Business Space REIT) for a purchase consideration of
SGD22.4 million (US$ 17.2 million), subject to the fulfillment of certain conditions precedent. The
cost of the property amounted to US$4.7 million with accumulated depreciation of US$2.05 million.
On December 23, 2014, the transaction was completed and the Group recognized a gain on sale
of the property amounting to US$14.3 million (P
= 651.2 million) (see Note 23). Expenses related to
the sale amounted to US$0.2 million (P
= 8.9 million).
As of December 31, 2014, the carrying value of IMI Groups pledged equipment with BNP Paribas
amounted to US$1.55 million (P
= 69.3 million).
On May 15, 2014, GNPower Kauswagan Ltd. Co. (GNPK) entered into an Engineering, Design
and Procurement Agreement, Construction and Supply Agreement and Coordination Agreement
with Shanghai Electric Power Construction Co. Ltd., the effectivity of which was conditioned on the
happening of certain conditions precedent, such as the closing of project financing for GNPK.
GNPK is the project company for the 4 x 135MW Coal Fired Power Generation Facility in
Kauswagan, Lanao Del Norte (the Kauswagan Power Plant Project).

*SGVFS011298*

- 67 -

15. Service Concession Assets and Obligations

Service Concession Assets
The movements in this account follow:
2014
(In Thousands)
Cost
At January 1
Additions during the year
Transfers (Note 23)
At December 31
Accumulated amortization
At January 1
Amortization (Note 23)
At December 31
Net book value

2013

P
= 92,222,739
4,114,659

96,337,398

P
= 86,728,953
5,457,889
35,897
92,222,739

18,468,332
3,032,433
21,500,765
P
= 74,836,633

15,433,554
3,034,778
18,468,332
P
= 73,754,407

SCA consists of the present value of total estimated concession fee payments, including
regulatory costs and local component costs, pursuant to the Groups concession agreements and
the revenue from rehabilitation works which is equivalent to the related cost for the rehabilitation
works covered by the service concession arrangements.
Total interest and other borrowing costs capitalized as part of SCA amounted to P
= 377.7 million
and P
= 299.5 million in 2014 and 2013, respectively. The capitalization rates used range from
7.01% to 8.78% in 2014 and 4.16% to 7.06% in 2013.
Transfers pertain to the acquisition of the water reticulation system of Laguna Technopark, Inc.
(LTI), a subsidiary of ALI, by LAWC on December 23, 2013.
In March 2010, MWC entered into a MOA with MWSS for the repayment of the Export-Import
Bank of China loan which resulted in additional SCA and SCO amounting to P
= 253.9 million in
2013.
The Company has a concession agreement with the DPWH while the MWC Group has
concession agrewsements with MWSS, POL, TIEZA and CDC. These concession agreements
set forth the rights and obligations of the Company and MWC Group throughout the concession
period (see Note 36).
Service Concession Obligation
POL Concession Fees
Under Laguna AAA Water Corporations (LAWC) concession agreement with POL, LAWC is
required to pay concession fees to POL computed as a percentage of water sales as follows:
Operational Period
Years 1 to 5
Years 6 to 10
Years 11 to 25

Percentage of Water Sales

4%
3%
2%

Advance payment to POL was made for the said concession fees and 70% of the annual
concession fees is applied against the said advances. The remaining thirty percent (30%) of the
annual concession fees is expensed in the period they are incurred. Advances as of
December 31, 2014 and 2013 amounted to P
= 102.8 million and P
= 124.2 million, respectively.

*SGVFS011298*

- 68 -

BIWC Concession Fees

The aggregate concession fee pursuant to the Agreement is equal to the sum of the following:
a. Servicing the aggregate peso equivalent of all liabilities of Boracay Water Sewerage System
(BWSS) as of commencement date;
b. 5% of the monthly gross revenue of the Concessionaire, inclusive of all applicable taxes which
are for the account of BIWC.
c.

Payment of annual operating budget of the TIEZA Regulatory Office starting 2010. For 2010
and 2011, the amount shall not exceed P
= 15.0 million. For the year 2012 and beyond, the
Concessionaire shall pay not more than P
= 20.0 million, subject to annual consumer price index
(CPI) adjustments.

In addition, advance payment of P

= 60.0 million was provided to TIEZA which shall be offset against
the annual concession fees pertaining to the 5% annual gross revenue of BIWC, within a period of
10 years from the signing of the concession agreement or until fully paid. Any amount payable
after application of the advance payment will be expensed in the period this is incurred. The
remaining balance of the advances amounted to P
= 4.2 million and P
= 27.7 million as of
December 31, 2014 and 2013, respectively.
CDC Concession Fees
The aggregate concession fee pursuant to the Agreement is equal to the sum of the following:
a. Annual franchise fee of P
= 1.5 million;
b. Semi-annual rental fees of P
= 2.8 million for leased facilities from CDC.
MWSS Concession Fees
The aggregate concession fees of MWC pursuant to the Agreement are equal to the sum of the
following:
a. 10% of the aggregate peso equivalent due under any MWSS loan which has been disbursed
prior to the Commencement Date, including MWSS loans for existing projects and the Umiray
Angat Transbasin Project (UATP), on the prescribed payment date;
b. 10% of the aggregate peso equivalent due under any MWSS loan designated for the UATP
which has not been disbursed prior to the Commencement Date, on the prescribed payment
date;
c.

10% of the local component costs and cost overruns related to the UATP;

d. 100% of the aggregate peso equivalent due under MWSS loans designated for existing
projects, which have not been disbursed prior to the Commencement Date and have been
either awarded to third party bidders or elected by the MWC for continuation; and
e. 100% of the local component costs and cost overruns related to existing projects; and
f.

MWCs share in the repayment of MWSS loan for the financing of the Project.

*SGVFS011298*

- 69 -

The schedule of undiscounted future concession fee payments follows:

In Original Currency
Foreign Currency
Denominated
Peso Loans/
Loans
Project Local
Total Peso
(Translated to
Support
US Dollars)
Year
Equivalent*
2015
$7,871,129
P
= 395,714,907
P
= 747,711,806
2016
8,682,118
395,714,907
783,979,212
2017
6,927,835
395,714,907
705,527,673
2018
7,107,025
395,714,907
713,541,071
2019 onwards
51,784,480
7,518,583,229
9,834,385,161
$82,372,587
P
= 9,101,442,857 P
= 12,785,144,923
*Peso equivalent is translated using the PDEx closing rate as of December 31, 2014 amounting to P
= 44.72 to US$1.

Estimated concession fee payments on future concession projects, excluding MWCs share in
current operating budget, related to the Extension is still not determinable. It is only determinable
upon loan drawdown of MWSS and actual construction of the related concession projects.

*SGVFS011298*

- 70 -

16. Intangible Assets

The movements in intangible assets follow:
2014

Cost
At January 1
Additions during the year
Additions through business combination
(Note 24)
Exchange differences
At December 31
Accumulated amortization and
impairment loss
At January 1
Amortization (Note 23)
Impairment (Note 23)
Exchange differences
At December 31
Net book value

Technical
Service
Agreement

P
= 295,999
3,054

32,963
331,006

67,146
89,196

23,799
180,141
P
= 150,865

Goodwill

Customer
Relationships

Order
Backlog

Unpatented
Technology

P
= 5,243,079

P
= 1,211,713

P
= 4,128

P
= 4,105

P
= 240,607
57,436

10,983
49,331
5,303,393

9,839
1,221,552

4,128

4,105

1,689,549

335,731
(1,271)
2,024,009
P
= 3,279,384

991,204
64,695

9,417
1,065,316
P
= 156,236

4,128

4,128
P
=

4,105

4,105
P
=

Trademarks

Project
Development
Cost

Total

P
= 84,733

P
= 66,604

P
= 180,953
12,730

P
= 7,331,921
73,220

299,053

84,733

66,604

365,243

558,926

376,226
92,133
7,873,500

253,772

253,772
P
= 45,281

84,733

84,733
P
=

41,952
12,394

54,346
P
= 12,258

19,486

19,486
P
= 539,440

3,156,075
166,285
335,731
31,945
3,690,036
P
= 4,183,464

Developed
Software
Licenses
(In Thousands)

2013

Cost
At January 1
Additions through business combination
(Note 24)
Additions during the year
Exchange differences
At December 31
Accumulated amortization and
impairment loss
At January 1
Amortization (Note 23)
Impairment (Note 23)
Exchange differences
At December 31
Net book value

Developed
Software
Licenses
(In Thousands)

Technical
Service
Agreement

Project
Trademarks Development Cost

Goodwill

Customer
Relationships

Order
Backlog

Unpatented
Technology

P
= 5,103,080

P
= 1,202,746

P
= 4,128

P
= 4,105

P
= 177,114

P
= 295,999

P
= 84,733

P
= 8,405

P
= 89,978

P
= 6,970,288

31,830

108,169
5,243,079

8,967
1,211,713

4,128

4,105

34,986
28,507
240,607

295,999

84,733

49,922
8,277
66,604

90,975

180,953

31,830
175,883
153,920
7,331,921

1,657,719

31,830

1,689,549
P
= 3,553,530

910,367
78,036

2,801
991,204
P
= 220,509

4,128

4,128
P
=

4,105

4,105
P
=

11,886
38,591

16,669
67,146
P
= 173,461

253,772

253,772
P
= 42,227

84,733

84,733
P
=

3,061
34,732

4,159
41,952
P
= 24,652

19,486

19,486
P
= 161,467

2,949,257
151,359
31,830
23,629
3,156,075
P
= 4,175,846

Total

*SGVFS011298*

- 71 -

Goodwill pertains to the excess of the acquisition cost over the fair value of the identifiable assets
and liabilities of companies acquired by the Group.
Impairment testing of goodwill for the Group
IMI Group
Goodwill acquired through business combinations have been allocated to five individual CGUs of
IMI for impairment testing as follows (amounts in thousands):
2014
Speedy Tech Electronics, Ltd.
(STEL)
IMI USA
IMI CZ
IMI Philippines
Psi

2013

In US$

In Php*

In US$

In Php*

US$45,128
657
650
441

US$46,876

P
= 2,018,124
29,381
29,068
19,722

P
= 2,096,295

US$45,128
657
650
441
7,479
US$54,355

P
= 2,003,458
29,168
28,857
19,578
332,030
P
= 2,413,091

*Translated using the PDEx closing exchange rate at the statement of financial position date (US$1:P
= 44.72 in 2014 and
US$1:P
= 44.395 in 2013).

STEL Group, PSi and IMI USA and IMI CZ

The recoverable amounts of these CGUs have been based on value in use calculations using
cash flow projections from financial budgets approved by management covering a five-year
period. The post-tax discount rates applied to cash flow are as follows:

STEL Group
Psi
IMI USA
IMI CZ

2014
10.18%
11.07%
8.47%
10.50%

2013
13.07%
14.11%
13.69%
12.73%

Cash flows beyond the five-year period are extrapolated using a steady growth rate of 1%, which
does not exceed the compound annual growth rate for the global EMS industry.
Key assumptions used in value in use calculations
The calculations of value in use for the CGUs are most sensitive to the following assumptions:

Forecasted gross margins - Gross margins are based on the mix of business model
arrangements with the customers.
Revenue - Revenue forecasts are managements best estimates considering factors such as
index growth to market, customer projections and economic factors.
Pre-tax discount rates - Discount rates represent the current market assessment of the risks
specific to each CGU, taking into consideration the time value of money and individual risks of
the underlying assets that have not been incorporated in the cash flow estimates. This is also
the benchmark used by management to assess operating performance. The discount rate
calculation is based on the specific circumstances of the Group and its operating segments
and is derived from its weighted average cost of capital.

No impairment loss was assessed for STEL Group, IMI USA and IMI CZ in 2014, 2013 and 2012.
For PSi, the assessment resulted in an impairment loss for the remaining balance of goodwill
amounting to US$7.5 million (P
= 335.7 million) in 2014 included in Other charges in the
consolidated statement of income (see Note 23). The comparison of the recoverable amount and
the carrying amount resulted in no impairment in 2013 and 2012.

*SGVFS011298*

- 72 -

Sensitivity to changes in assumptions

With regard to the assessment of value in use of STEL Group, IMI USA, and IMI CZ, management
believes that no reasonably possible change in any of the above key assumptions would cause
the carrying value of the units to exceed their recoverable amount.
IMI Philippines
This pertains to the goodwill arising from the purchase of M. Hansson Consulting, Inc. (MHCI) in
2006. MHCI was subsequently merged with IMI Philippines as testing and development
department.
The recoverable amount was based on the market price of the IMIs shares at valuation date less
estimated costs to sell. The comparison of the recoverable amount and the carrying amount
resulted to no impairment loss in 2014, 2013 and 2012.
MWC and Philwater
Goodwill from the acquisition of MWC and Philwater amounted to P
= 393.8 million. The recoverable
amount in 2014 and 2013 was based on the market price of MWC shares at valuation date less
estimated cost to sell. The comparison of the recoverable amount and the carrying amount
resulted in no impairment.
CWC
This pertains to the goodwill arising from the purchase of CWC in 2011. MWCs impairment tests
for goodwill are based on value in use and fair value less cost to sell calculations. The value in
use calculations in 2014 used a discounted cash flow model. The cash flows are derived from the
budget for the next 36 years and assumes a steady growth rate. MWC used the remaining
concession life of CWC, which is a period longer than the maximum of five years. The
recoverable amount is most sensitive to discount rate used for the discounted cash flow model.
The post-tax discount rate applied to cash flows projections is 10.45% for 2014.
The carrying value of goodwill amounted to P
= 130.3 million as of December 31, 2014 and 2013.
No impairment loss was recognized as a result of the impairment testing performed.
ACEHI Group
Goodwill acquired through business combinations have been allocated to two individual CGUs of
ACEHI for impairment testing as follows:

Wind Power
Hydro Power

2014
2013
(In Thousands)
P
= 411,031
P
= 411,031
55,424
55,424
P
= 466,455
P
= 466,455

Wind Power Companies

The recoverable amount of the Wind Power CGU is based on value in use calculations using cash
flow projections from financial budgets approved by ACEHI management covering the period the
CGU is expected to be operational. The post-tax discount rates applied to cash flow projections
for the Wind Power CGU is 10% which is based on weighted average cost of capital of
comparable entities. The value in use computation is most sensitive to the discount rate and
growth rate applied to the cash flow projections.
ACEHI management believes that no reasonably possible change in any of the key assumptions
would cause the carrying value of the Wind Power CGU to exceed its recoverable amount.
No impairment loss was assessed for the Wind Power CGU in 2014 and 2013.

*SGVFS011298*

- 73 -

Hydro Power Companies

The recoverable amount of Hydro Power CGU is based on fair value less cost to sell calculations
using cash flow projections from financial budgets approved by ACEHI management covering the
period the Hydro Power CGU is expected to be operational. The post-tax discount rates applied
to cash flow projections for the Hydro Power CGU is 12% which is based on weighted average
cost of capital of comparable entities. The value in use computation is most sensitive to the
discount rate and growth rate applied to the cash flow projections.
ACEHI management believes that no reasonably possible change in any of the key assumptions
would cause the carrying value of the units to exceed their recoverable amount.
No impairment loss was assessed for the Hydro Power CGU in 2014 and 2013.
Customer relationships
Customer relationships pertain to STEL Groups and IMI BGs noncontractual and contractual
agreements, respectively, with certain customers which lay out the principal terms upon which the
parties agree to undertake business. Customer relationship of STEL amounting to
US$12.9 million (P
= 576.9 million) is fully amortized as of December 31, 2014 and 2013.
Developed software
Developed software pertains to IQ BackOffice's (IQB), a subsidiary of AIVPL, internally developed
web-based process management tool that is used jointly with customers to manage transactions
in real-time. The developed software augments IQB's existing accounting system and automates
traditionally paper-based processes (e.g.,electronic/paper receipt, electronic routing, approvals.
etc.).
Licenses
These pertain to the IMIs acquisitions of computer applications and modules

17. Pension and Other Noncurrent Assets

This account consists of the following:

Deposits
Concession financial receivable (Note 9)
Deferred charges
Deferred FCDA
Leasehold rights
Pension assets (Note 27)
Others

2014
2013
(In Thousands)
P
= 6,654,046
P
= 6,611,799
899,070
603,905
474,470
271,048
141,189
55,407
100,100
106,819
19,064
9,156
8,542,462
358,344
P
= 16,830,401
P
= 8,016,478

Deposits and Advances - Projects

Deposits and advances for projects include escrow deposits and security deposits on land leases,
electric and water meter deposits.
MWC Group
MWC Groups deposits include payments for the guarantee deposits in Manila Electric Company
(MERALCO) for the electric connection, its related deferred charges, deposits to Department of
Environment and Natural Resources (DENR), deposits for land acquisitions and right of way and
water banking rights. CMWD entered into a 30-year Right of Way Agreement with certain
individuals for an easement of right of way of a portion of their lands wherein the pipelines and
other appurtenances between the weir and water treatment plant of CMWD will pass through. For

*SGVFS011298*

- 74 -

the water banking rights, the National Water Resources Board (NWRB) approved the assignment
of Water Permit No. 16241 from Central Equity Ventures Inc. (now Stateland Inc.) to MW
Consortium. The NWRB likewise approved the change of the purpose of Water Permit No. 16241
from Domestic to Municipal. It is the intention of MW Consortium to allow CMWD to use the said
water permit for its project.
ACEHI
In 2012, ACEHI deposited in an escrow account potential earn-out amounting to P
= 167.7 million in
relation to the Achieved Capacity Factor Adjustment. Payment of which is dependent on the final
resolution of the Arbitration Committee and the final FiT rate to be awarded to NorthWind in 2013
(see Note 39). Management decided not to reverse the FiT contingent consideration on the
grounds that the previous owners of NorthWind may still decide to pursue the transaction. In
February 2014, the previous owners of Northwind signed the arbitration procedures. Interest
income earned on the escrow account amounted to P
= 2.9 million and P
= 3.0 million in 2014 and
2013, respectively.
As of December 31, 2014, the arbitration proceedings between the previous owners of Northwind
and ACEHI has not started.
Deferred charges
Deferred charges mainly consist of deposits made for implementation of marketing strategies for
acquisition and development of real estate projects.
Deferred FCDA
Deferred FCDA refers to the unrecovered amounts from (amounts for refund to) customers of
MWC for realized losses (gains) from payments of foreign loans on the difference between the
drawdown or rebased rate versus the closing rate at payment date. This account also covers the
unrealized gains/losses from loan valuations, accrual of interest and accretion of transaction and
related costs.
Leasehold rights
Leasehold rights pertain to the right to use an island property which expires on
December 31, 2029. The cost amounted to P
= 127.4 million and accumulated amortization expense
as of December 31, 2014 and 2013 amounted to P
= 27.3 million and P
= 20.6 million, respectively.
Amortization expense amounted to P
= 6.7 million in 2014, 2013 and 2012.
Others
Others include restricted cash that are not available for use by the Group and therefore are not
highly liquid. These pertain to AYCFLs money market placements amounting to US$185.0 million
(P
= 8.3 billion) (see Note 31) in BPI that were used as collateral for the Companys P
= 8.0 billion long
term-debt (see Note 20).

*SGVFS011298*

- 75 -

18. Accounts Payable and Accrued Expenses

This account consists of the following:

Accounts payable
Accrued expenses
Project costs
Personnel costs
Rental and utilities
Professional and management fees
Advertising and promotions
Repairs and maintenance
Various operating expenses
Taxes payable
Dividends payable
Related parties (Note 31)
Interest payable (Note 31)
Retentions payable

2014
2013
(In Thousands)
P
= 73,540,123
P
= 63,198,549
17,321,785
3,772,205
3,497,019
2,703,201
2,371,634
1,694,872
1,328,853
11,292,425
2,845,013
2,458,817
2,261,525
1,014,364
P
= 126,101,836

11,983,222
2,694,816
2,330,388
1,801,971
1,115,532
1,516,026
3,230,745
6,067,957
2,093,323
4,107,009
2,272,458
1,192,251
P
= 103,604,247

Accounts payable and accrued expenses are non-interest bearing and are normally settled on
15- to 60-day terms. Other payables are non-interest bearing and are normally settled within one
year.
In 2014 and 2013, accounts payable includes non-interest bearing liability of the Company to DBS
Ltd. in relation to the acquisition of BPI common shares and ADHI Class B common shares
amounting to P
= 3.3 billion and P
= 14.2 billion, respectively (see Note 12).
Accrued expenses consist mainly of accruals already incurred but not yet billed for film share,
postal and communication, supplies, transportation and travel, subcontractual costs, security,
insurance and representation.
Project costs represent accrual for direct costs associated with the commercial, residential and
industrial project development and construction like engineering, design works, contract cost of
labor and direct materials.
Taxes payable consists of net output VAT, withholding taxes, business taxes, and other statutory
payables, which are due within one year.

19. Other Current Liabilities

This account consists of:

Customers deposits
Nontrade payables
Installment payable
Derivative liability (Note 33)

2014
2013
(In Thousands)
P
= 9,161,743
P
= 5,362,355
278,407
5,614,201
7,376
11,667
4,755
3,470
P
= 9,452,281
P
= 10,991,693

*SGVFS011298*

- 76 -

Customers deposits consist of tenants deposits and construction bonds to be refunded by the
Group through the application of the amount thereof against the rent and service due to the
Group.
Nontrade payables pertain mainly to non-interest bearing real estate-related payables to
contractors and various non-trade suppliers which are due within one year. This account also
includes finance lease payable and miscellaneous non-interest bearing non-trade accounts of the
Group due within one year.

20. Short-term and Long-term Debt

Short-term debt consists of:
2014
2013
(In Thousands)
Philippine peso debt - with interest rates ranging from 2.0%
to 8.0% per annum in 2014 and 1.21% to 8.0% per
annum in 2013
P
= 16,919,900 P
= 12,114,451
Foreign currency debt - with interest rates ranging from
1.1% to 2.55% in 2014, 1.05% to 3.0% over 1 month
EURIBOR in 2013
4,164,369
3,696,834
P
= 21,084,269 P
= 15,811,285
ALI Group
The short-term debt of ALI Group amounted to P
= 16.3 billion and P
= 12.4 billion as of December 31,
2014 and 2013, respectively, represent unsecured peso-denominated bank loans and dollardenominated bank loans with various interest rates.
AAHC Group
The Philippine peso debt of AAHC Group pertains to short-term loans with various banks
amounting to P
= 2.0 billion and P
= 1.1 billion as of December 31, 2014 and 2013, respectively. These
loans are unsecured and bear interest rate of 2.7% to 2.9% per annum in 2014 and 3.0% to 4.3%
per annum in 2013.
AIVPL Group
The Philippine peso debt of AIVPL Group pertains to short-term loans with various banks
amounting to P
= 275.0 million and P
= 254.0 million as of December 31, 2014 and 2013, respectively.
These loans are unsecured and bear interest rates ranging from 6.0% to 8.0% in 2014 and 7.0%
to 8.0% in 2013.
BHL Group
BHLs loans are unsecured dollar-denominated bank loans amounting to US$3.9 million
(P
= 173.2 million) as of December 31, 2014 and bear interest rate of 5.0%.

*SGVFS011298*

- 77 -

IMI Group
IMI Philippines
As of December 31, 2014 and 2013, IMI Philippines has short-term loans aggregating to
US$29.0 million (P
= 1,296.9 million) and US$24.0 million (P
= 1,065.5 million), respectively. The loans
have maturities ranging from 30-180 days and fixed interest rates ranging from 1.75% to 2.20% in
2014 and 1.9% to 2.4% in 2013.
PSi
PSi has short-term loans and trust receipts payable to a local bank amounting to US$9.2 million
(P
= 411.4 million) and US$9.4 million (P
= 418.2 million) as of December 31, 2014 and 2013,
respectively.
These loans fall under an unsecured Omnibus Line Credit Facility of US$10.0 million granted on
November 24, 2010. The credit facility includes 30 to 360 days Promissory Notes (maybe
denominated in USD or Philippine peso), Letter of Credit/Trust Receipt (LC/TR) Line, Export
Packing Credit Line, FX Forward Cover, and Foreign Bills Line and Domestic Bill Purchase Line,
subject to interest rates ranging from 2.23% to 2.53% in 2014 and 2.16% to 2.57% in 2013. This
credit facility is renewable annually, and the current term is until May 30, 2015.
As of December 31, 2014 and 2013, the outstanding trust receipts payable amounted to
US$0.4 million (P
= 17.4 million) and US$0.2 million (P
= 9.8 million), respectively.
The undrawn credit facility amounted to US$0.4 million (P
= 17.9 million) and US$0.6 million
(P
= 25.7 million) as of December 31, 2014 and 2013, respectively.
IMI BG
In 2013, IMI BG has short-term loans from the following banks (in thousands):

UniCredit Bulbank
BNP Paribas

In US$
US$5,167
1,380
US$6,547

In Php*
P
= 229,389
61,265
P
= 290,654

*Translated using the exchange rate at the reporting date (US$1:P

= 44.395 in 2013)

The loans from UniCredit Bulbank and BNP Paribas are from existing revolving credit facilities with
terms of one year. The loans bear interest based on 1-month EURIBOR plus 3.00% and 3-month
EURIBOR plus 2.50%, respectively.
The credit facility with UniCredit Bulbank is subject to the following collaterals:

First ranking pledge on materials, ready made and unfinished production at balance sheet
value, minimum of 8.0 million;
First ranking pledge on receivables from a certain customer; and
Notary signed Soft Letter of Comfort from IMI Philippines.

As of December 31, 2013, IMI BGs pledged inventories and receivables with UniCredit Bulbank
amounted to $18.05 million (P
= 801.3 million).
The credit facility with BNP Paribas is subject to the following collaterals:

First rank pledge on receivables from selected customers of IMI BG, subject to pre- financing
in the amount of 125% of the utilized portion of the facility but not more than 3,750.0 million;
and
First rank pledge on goods of IMI BG in the amount of 125% of the utilized portion of the
facility but not more than 3,750.0 million.

*SGVFS011298*

- 78 -

IMI BGs loan with UniCredit Bulbank as of December 31, 2013 amounting to $5.17 million was
fully settled in the first quarter of 2014. The short-term loan with BNP Paribas was refinanced as
long-term in 2014.
STEL
The loans of STEL amounting to $13.5 million (P
= 603.72 million) are clean loans from various
Singapore banks from existing revolving credit facilities and bear interest rates of 1.73% to 2.55%
in 2014 and 2.30% to 2.39% in 2013, respectively, and have maturities of 90 to 240 days from the
date of issue with renewal options.
IMI MX
IMI MX has a revolving credit line with Banamex amounting to US$2.2 million (P
= 98.4 million) as of
December 31, 2013, resepectively, with term not exceeding twelve (12) months and bears interest
on LIBOR plus 2%.
Long-term debt consists of:
2014
(In Thousands)
The Company:
Bank loans - with interest rates ranging from 2.7% to
4.3% per annum in 2014 and 0.7% to 3.8% per
annum in 2013 and varying maturity dates up to
2020
Bonds due 2017
Bonds due 2019
Bonds due 2021
Bonds due 2027
Syndicated term loans
Fixed Rate Corporate Notes (FXCNs) with interest
rates ranging from 6.7% to 8.4% per annum and
varying maturity dates up to 2016
Subsidiaries:
Loans from banks and other institutions:
Foreign currency - with interest rates ranging from
0.50% to 6-month LIBOR plus 1.5% spread per
annum in 2014 and 3 months LIBOR to 3% in
2013
Philippine peso - with interest rates ranging from
2.02% to 10.21% in 2014 and 1.06% to 12% in
2013 (Note 23)
Bonds:
Exchangeable bonds due 2019
Due 2014
Due 2015
Due 2016
Due 2019
Due 2020
Due 2022
Due 2024
Due 2025
Due 2033

2013

P
= 21,171,095
9,957,982
9,925,168
9,930,244
9,920,501

P
= 13,193,780
9,941,761
9,912,239
9,921,802
9,914,072
2,938,575

60,904,990

2,816,443
58,638,672

45,284,334

32,392,171

42,443,993

32,189,740

12,247,531

986,710
1,982,700
9,292,190
3,969,010
5,615,067
14,875,092
7,922,131
1,982,330
146,601,088

620,195
992,460
1,999,650
9,281,120
3,964,465
5,608,377
14,864,568

1,981,840
103,894,586

(Forward)

*SGVFS011298*

- 79 -

Floating Rate Corporate Notes (FRCNs)

FXCNs

Less current portion

2014
2013
(In Thousands)
P
= 1,000,000
P
= 1,000,000
29,254,380
26,336,604
30,254,380
27,336,604
237,760,458
189,869,862
10,761,443
11,842,519
P
= 226,999,015
P
= 178,027,343

Reconciliation of carrying amount against nominal amount follows:

2014

Nominal amount
Unamortized discount

2013
(In Thousands)
P
= 238,851,638
P
= 190,742,889
(1,091,180)
(873,027)
P
= 237,760,458
P
= 189,869,862

The Company
Generally, the Companys long-term loans are unsecured. Due to certain regulatory constraints in
the local banking system regarding loans to directors, officers, stockholders and related interest,
some of the Companys credit facilities with a local bank are secured by shares of stock of a
subsidiary with a fair value of P
= 13.3 billion and P
= 9.8 billion as of December 31, 2014 and 2013,
respectively, in accordance with Bangko Sentral ng Pilipinas (BSP) regulations. All credit facilities
of the Company outside of this local bank are unsecured, and their respective credit agreements
provide for this exception. The Company positions its deals across various currencies, maturities
and product types to provide utmost flexibility in its financing transactions.
In March 2009, the Company issued P
= 1.0 billion FXCNs consisting of 7-year note to a local
financial institution with fixed interest rate of 8.40% per annum. The loan was prepaid in full by the
Company in December 2013.
Bonds due on 2017
In April 2010, the Company issued 7.20% Fixed rate Putable Bonds with an aggregate principal of
P
= 10.0 billion to mature in 2017. On the twentieth (20th) Coupon Payment Date
(the Put Option Date), each Bondholder shall have the option (but not the obligation) to require
the Company to redeem the outstanding Bonds. The bonds have been rated PRS Aaa by
PhilRatings.
Bonds due on 2021
In May 2011, the Company issued 6.80% Fixed Rate Multiple Put Bonds with an aggregate
principal amount of P
= 10.0 billion to mature in 2021. On the fifth (5th) anniversary of the Issue
Date, Bondholders shall have the right, but not the obligation, to require the Company to redeem
up to 20% of all outstanding Bonds registered in such Bondholders name at such time (the Five
Year Put Option); and on the eighth (8th) anniversary of the Issue Date, Bondholders shall have
the right, but not the obligation, to require the Company to redeem up to 100% of all outstanding
Bonds registered in such Bondholders name at such time (the Eight Year Put Option). The
Bonds have been rated PRS Aaa by PhilRatings.
Bonds due on 2027
In May 2012, the Company issued 6.875% Fixed Rate Bonds with an aggregate principal amount
of P
= 10.0 billion to mature in May 2027. On the tenth (10th) anniversary from the Issue Date and
every year thereafter until the fourteenth (14th) anniversary from the Issue Date, the Issuer shall
have the right, but not the obligation, to redeem and pay the principal and all amounts due on
outstanding bonds. The Bonds have been rated PRS Aaa by PhilRatings.

*SGVFS011298*

- 80 -

Bonds due on 2019

In November 2012, the Company issued 5.45% Fixed Rate Bonds with an aggregate principal
amount of P
= 10.0 billion to mature in November 2019. On the fourth (4th) anniversary from the
Issue date and every year thereafter until the sixth (6th) anniversary from the Issue Date, the
Issuer shall have the right, but not the obligation, to redeem and pay the principal and all amounts
due on outstanding bonds. The Bonds have been rated PRS Aaa by PhilRatings.
Bank loans - with interest rates ranging from 1.4% to 3.8% per annum in 2012 and 1.7% to 3.8%
per annum in 2011 and varying maturity dates up to 2019
In October and November 2012, the Company availed P
= 2.0 billion and P
= 5.0 billion loan from
various banks to mature in 2017 and 2019, respectively. The P
= 2.0 billion loans shall have interest
rate per annum equal to the 3-month PDST-R2 plus a spread of seventy five basis points (0.75%)
per annum, or BSP reverse repurchase (RRP) rate, whichever is higher. The P
= 5.0 billion loans
shall have interest rate per annum equal to the 3-month PDST-R2 plus a spread of seventy five
basis points (0.75%) or the BSP RRP rate plus spread of twenty five (25) basis points, whichever
is higher. The interest rate shall be set on the first drawdown date and every three months
thereafter.
In November and December 2013, the Company availed P
= 2.0 billion and P
= 4.3 billion loan from
various banks to mature in 2018 and 2020, respectively. The P
= 2.0 billion loans shall have interest
rate per annum equal to the 3-month PDST-R2 plus a spread of 100 basis points (1%) per annum,
or BSP overnight reverse repurchase (RRP) rate plus a spread of 25 basis points (0.25%),
whichever is higher. The P
= 4.3 billion loans shall have interest rate per annum equal to the 6month PDST-R1 plus a spread of thirty basis points (0.30%) for the first six months and 3-month
PDST-R1 plus a spread of sixty basis points (0.60%) thereafter.
On January 24, 2014, the Company issued promissory note to BPI amounting to P
= 8.0 billion with
principal repayment of 5%, 5% and 90% on end of third year, fourth year and fifth year,
respectively. The loan under this note (including interest, charges, and those taxes for which the
Company is liable under the terms of Loan Agreement) was secured by an assignment of deposits
belonging to AYCFL (see Note 17).
Syndicated term loans
In June and October 2007, the Company issued P
= 3.5 billion FXCNs consisting of 5- and 7-year
notes to a local bank with fixed interest rates of 6.725% and 6.70% per annum, respectively. In
June 2011, the Company prepaid in full the P
= 2.0 billion 5-year FXCN with a fixed interest rate of
6.725% per annum. In October 2014, the Company paid in full the P
= 1.5 billion FXCNs.
In February 2008, the Company availed of a syndicated term loan amounting to P
= 1.5 billion which
bears fixed interest rate of 6.75% per annum and will mature in 2018. The loan was prepaid in full
by the Company in December 2014.
Fixed rate corporate noted (FXCNs)
In August 2009, the Company issued P
= 3.0 billion FXCNs consisting of a 5-year note to various
institutions with fixed interest rate of 7.45% per annum. In August 2014, the Company paid in full
the P
= 3.0 billion FXCNs.
Subsidiaries
On December 16, 2010, AYCFL entered into a 6-year syndicated term loan facility with a foreign
bank with the Company as guarantor for US$229.2 million. On November 16, 2011 and
December 12, 2012, AYCFL drewdown US$100.0 million and US$129.2 million on the syndicated
term loan facility at a rate of 1.46 basis points over the 1-, 3- or 6-month US$ LIBOR at the
Companys option.
On March 28, 2011, AYCFL entered into a US$150.0 million 6.5-year transferrable term loan
facility with a foreign bank. The transferrable term loan facility was subsequently amended on
September 28, 2012 and on August 30, 2013. On September 5, 2013 and January 7, 2014,

*SGVFS011298*

- 81 -

AYCFL drewdown US$50.0 million and US$100.0 million on the transferrable term loan facility at a
rate of 139.4 basis points over the 1-, 3- or 6-month LIBOR at the Companys option.
On September 28, 2012, AYCFL entered into a 3-year revolving credit facility with a foreigh bank,
with the Company as guarantor for US$20.0 million. On January 7, 2014, AYCFL drewdown the
full amount of the revolving credit facility with interest rate of 86.67 basis points over the 1-, 3- or
6-month LIBOR at the Companys option.
On November 28, 2013, AYCFL, entered into a 5-year syndicated term loan with a foreign bank,
with the Company as guarantor, for US$ 225.0 million. On January 14, 2014, AYCFL drewdown
the full amount of the term loan at a rate of 135 basis points over the 1-, 3- or 6-month LIBOR at
the Companys option.
AYCFL Exchangeable Bonds
On May 2, 2014, AYCFL issued at face US$300.0 million Exchangeable Bonds (the Bonds) due
on May 2, 2019 with a fixed coupon rate of 0.50% per annum, payable semi-annually. The Bonds
are guaranteed by the Company and constitute direct, unsubordinated, unconditional and
unsecured obligations of AYCFL, ranking pari passu and without any preference or priority among
themselves. The Bonds were listed in the Singapore Stock Exchange and include features such
as exchange option, put option and early redemption options. The exchange option entitles the
bondholders to exchange the Bonds for ALIs common shares at any time on or after June 11,
2014 up to the close of business on the 10th day prior to maturity date, or if such bonds shall have
been called for redemption by AYCFL before the maturity date, then up to the close of business on
a date no later than 10 days prior to the date fixed for redemption. The exchange price per
principal amount to be exchanged, translated into at the fixed exchange rate of P
= 44.31/US$1.00,
is equal to 36.48, subject to anti-dilutive adjustments contingent on certain events. The exchange
option was assessed to be an equity component of the Bonds at the consolidated financial
statements as the Bonds are denominated in the functional currency of AYCFL and to be settled
by the Group through issuance of a fixed number of ALIs common shares.
The put option entitles the bondholders to require AYCFL to redeem, in whole or in part, the
Bonds on May 2, 2017 (put option date) at 100% of the principal amount together with accrued
and unpaid interest. Moreover, if a change of control event occurs (the change of control put) or in
the event that the common shares of ALI are delisted or suspended from trading for a period of
more than 20 consecutive trading days (the delisting put), the bondholders may require AYCFL to
redeem the Bonds, in whole but not in part, at 100% of the principal amount together with accrued
and unpaid interest.
The early redemption option gives the right to AYCFL to redeem the Bonds, in whole but not in
part, at any time after May 2, 2017 at 100% of the principal amount on the date fixed for such
redemption, provided, however, that no such redemption may be made unless the closing price of
the common shares of ALI (translated into US$ at the prevailing average to US$ exchange rate as
published by BSP) for any 30 consecutive trading days was at least 130% of the exchange price
then in effect (translated into US$ at the fixed exchange rate of P
= 44.31/US$1.00). In addition, if at
any time the aggregate principal amount of the Bonds outstanding is less than 10% of the
aggregate principal amount originally issued or if a tax event occurs, AYCFL may redeem the
Bonds, in whole but not in part, at 100% of principal amount together with accrued and unpaid
interest.
The put and early redemption options were assessed to be embedded derivatives that are clearly
and closely related to the host contract, therefore, not required to be bifurcated. As the Bonds
were determined to be a compound instrument at the consolidated level, (i.e., it has liability and an
equity component which pertains to the exchange option), the Group applied split accounting. The
value allocated to the equity component at issue date amounted P
= 1.1 billion, being the residual
amount after deducting the fair value of the liability component amounting to P
= 11.9 billion from the
issue proceeds of the Bonds.

*SGVFS011298*

- 82 -

IMI Group
IMI Philippines
In October 2011, IMI Philippines obtained a five-year term clean loan from a Philippine bank
amounting to US$40.0 million payable in a single balloon payment at the end of the loan term. IMI
Philippines may, at its option, prepay the loan in part or in full, together with the accrued interest
without penalty. Interest on the loan is payable quarterly and re-priced quarterly at the rate of
three-month LIBOR plus margin of 0.8%.
On February 29, 2012, IMI Philippines obtained a 5.0 million (P
= 306.3 million) five-year term clean
loan from a local bank payable in a single balloon payment at the end of the loan term. IMI
Philippines may, at its option, prepay the loan in part or in full, together with the accrued interest
without penalty, if made on an interest payment date, subject to certain conditions. Interest is
payable semi-annually at the rate of six-month LIBOR plus 1.50% spread per annum.
Cooperatief
Cooperatiefs long-term debt aggregating to 14.25 million ($20.40 million) as at July 29, 2011
relates primarily to the acquisition of EPIQ shares and receivables of EPIQ NV from IMI EU/MX
Subsidiaries. Based on the payment schedule in the SPA, this long-term debt will be settled from
2013 to 2018, subject to interest rate of 1.60% plus 1.50%.
As of December 31, 2014, Cooperatief had already paid 4.00 million ($5.3 million).
Below is the amortization schedule:
Due Dates
2015
2016
2017
2018

In EUR
2,000,000
2,000,000
2,000,000
4,248,743
10,248,743

In USD
$2,679,600
2,679,600
2,679,600
5,692,466
$13,731,266

IMI BG
IMI BG has a long-term debt from BNP Paribas that relates to the term loan facility for financing
the construction of a new warehouse with a term of five years and bears interest based on
3-month EURIBOR plus 2.90%. The warehouse was completed in 2013 and no borrowing costs
were capitalized in 2014.
The credit facility with BNP Paribas is subject to the following collateral: Security of Transfer of
Ownership Title relating to office and factory equipment with the carrying value of $1.55 million.
IMI CZ
IMI CZ has a long-term debt from Citibank amounting to 0.59 million (P
= 35.9 million) that relates
to term loan facility for the purchase of its new Surface Mount Technology machine. The debt
bears interest of 1-month EURIBOR plus 2.7% and matures on July 31, 2019.
MWC Group
MWC International Finance Corporation (IFC) Loan
On March 28, 2003, MWC entered into a loan agreement with IFC (the First IFC Loan) to
partially finance MWCs investment program from 2002-2005 to expand water supply and
sanitation services, improvement on the existing facilities of the MWC, and concession fee
payments. The First IFC Loan will be made available in Japanese Yen (JPY) in the aggregate
principal amount of JPY3,591.6 million equivalent to US$30.0 million and shall be payable in 25
semi-annual installments, within 12 years starting on July 15, 2006. As of December 31, 2014 and
2013, the carrying value of the loan amounted to JPY992.1 million and JPY1,271.4 million
respectively.

*SGVFS011298*

- 83 -

On May 31, 2004, MWC entered into a loan agreement with IFC (the Second IFC Loan)
comprising of regular loan in the amount of up to US$20.0 million and a standby loan in the
amount of up to US$10.0 million to finance the investment program from 2004 to 2007 to expand
water supply and sanitation services, improvement of existing facilities of MWC, and concession
fee payments. This loan was subsequently amended on November 22, 2006, when MWC
executed the Amended and Restated Loan Agreement for the restructuring of the Second IFC
Loan. The terms of the second loan were amended to a loan in the aggregate amount of up to
US$30.0 million, no part of which shall consist of a standby loan. On December 12, 2008, MWC
made a full drawdown on the said facility. As of December 31, 2014 and 2013, the outstanding
balance amounted to US$5.9 million and US$9.8 million, respectively.
On July 31, 2013, MWC, entered into a loan agreement with IFC (the Fourth Omnibus
Agreement) in the amount of up to US$100.00 million for financing the Projects in accordance with
the provisions of the Agreement. The loan has a term of 18 years, payable in semi-annual
installments after the grace period. This loan facility has neither been activated nor disbursed and
was consequently cancelled in November 2014.
Land Bank of the Philippines (LBP) Loan
On October 20, 2005, MWC entered into a Subsidiary Loan Agreement with LBP to finance the
improvement of the sewerage and sanitation conditions in the East Zone. The loan has a term of
17 years, and was made available in Japanese Yen in the aggregate principal amount of
JPY6.6 billion payable via semi-annual installments after the 5-year grace period. MWC made its
last drawdown on October 26, 2012.
The total drawn amount for the loan is JPY3.99 billion. As of December 31, 2014 and 2013,
outstanding balance of the LBP loan amounted to JPY2,527.9 million and JPY2,862.1 million,
respectively.
On September 25, 2012, MWC entered into a Subsidiary Loan Agreement with Land Bank of the
Philippines under the Metro Manila Wastewater Management Project (MWMP) with the World
Bank. The MWMP aims to improve wastewater services in Metro Manila through increased
wastewater collection and treatment. The loan has a term of twenty-five (25) years, and was
made available in US Dollars in the aggregated principal amount of US$137.5 million via semi
annual installments after the seven-year grace period. As of December 31, 2014, MWC has not
made any drawdown from the facility.
European Investment Bank (EIB) Loan
On June 20, 2007, MWC entered into a Finance Contract (the EIB Loan) with EIB to partially
finance the capital expenditures of MWC from 2007 to 2010, as specified under Schedule 1 of the
Finance Contract. The loan, in the aggregate principal amount of 60 million, having a term of
10 years, is subject to the Relevant Interbank Rate plus a spread to be determined by EIB, and
may be drawn in either fixed-rate or floating-rate tranches. The loan has two tranches as
described below:

Sub-Credit A: In an amount of 40 million to be disbursed in US Dollars or Japanese yen

payable via semi-annual installments after the two and a half-year grace period. This loan
tranche is guaranteed against all commercial risks by a consortium of international commercial
banks composed of ING Bank, Development Bank of Singapore and Sumitomo-Mitsui
Banking Corporation under a Guaranty Facility Agreement; and

Sub-Credit B: In an amount of 20 million to be disbursed in US Dollars, European Euro or

Japanese Yen payable via semi-annual installments after the two and a half-year grace
period. This loan tranche is guaranteed against all commercial risks by ING Bank under a
Guaranty Facility Agreement.

*SGVFS011298*

- 84 -

On May 21, 2012, the Sub-Credit A Guarantee Facility Agreement was amended to extend the
effectivity of the guarantee. Two of the original guarantors, ING Bank and Sumitomo Mitsui
Banking Corporation, agreed to extend the guarantee by another five years towards the maturity
of the loan.
On July 30, 2013, the Sub-Credit B Guarantee Facility Agreement was amended to extend the
effectivity of the guarantee. The original guarantor, ING Bank, agreed to extend the guarantee by
another five years towards the maturity of the loan.
The carrying value of the EIB loan amounted to JPY1,755.1 million and US$9.3 million as of
December 31, 2014 and JPY2,433.6 million and US$13.0 million as of December 31, 2013. MWC
decided to prepay the EIB Loan effective February 20, 2015.
NEXI Loan
On October 21, 2010, MWC entered into a term loan agreement (NEXI Loan) amounting to
US$150.0 million to partially finance capital expenditures within the East Zone. The loan has a
tenor of 10 years and is financed by a syndicate of four banks - ING N.V Tokyo, Mizuho Corporate
Bank, Ltd., The Bank of Tokyo-Mitsubishi UFJ Ltd. and Sumitomo Mitsui Banking Corporation and
is insured by Nippon Export and Investment Insurance. First, second and third drawdowns of the
loan amounted to US$84.0 million, US$30.0 million and US$36.0 million, respectively. The
carrying value of this loan as of December 31, 2014 and 2013 amounted to US$108.8 million and
US$125.3 million, respectively.
ALI Group
In October 2012, ALI executed and fully withdrawn a US$58.5 million long-term facility. The loan
bears a floating interest rate based on a credit spread over the three-month US Dollar London
Interbank Offered Rate (LIBOR), repriceable quarterly. The loan will mature on the third month
succeeding the tenth anniversary of the initial drawdown date. In January 2014, ALI made a
partial prepayment of US$5.8 million on the loan.
Philippine Peso Debt
MWC Group
MWC
On April 8, 2011, MWC issued P
= 10.0 billion FXCNs. The notes were divided to P
= 5.0 billion
with an interest rate of 6.385% and have a term of five years and ten years for the remaining
P
= 5.0 billion from the issue date with a fixed interest rate equivalent to 8.25% payable quarterly.
Prior to maturity, MWC may repay the whole, and not in part only, the relevant outstanding bonds
on the seventh anniversary. The amount payable to the holders in respect of such redemptions
shall be calculated based on the principal amount of the bonds being redeemed, as the sum of
102% of the principal amount and accrued interest on the bonds on the optional redemption date.
The carrying value of the notes as of December 31, 2014 and 2013 amounted to P
= 9.83 billion and
P
= 9.9 billion, respectively.
On August 16, 2013, MWC entered into a Credit Facility Agreement with a local bank having a
fixed nominal rate of 4.42% and with a term of 7 year from the issue date which is payable
annually. MWC may repay the whole and not a part only of the loan starting on the 3rd
anniversary of the drawdown date of such loan or on any interest payment date thereafter.
The amount payable in respect to such prepayment shall be calculated as 102% of the principal
rd
amount being prepaid and accrued interest if such prepayment occurs on or after the 3
anniversary but before the 4th anniversary of the drawdown date. The amount payable in respect
to such prepayment shall be calculated as 101.5% of the principal amount being prepaid and
th
accrued interest if such prepayment occurs on or after the 4th anniversary but before the 5
anniversary of the drawdown date. The amount payable in respect to such prepayment shall be
calculated as 101% of the principal amount being prepaid and accrued interest if such prepayment

*SGVFS011298*

- 85 occurs on or after the 5th anniversary but before the 6th anniversary of the drawdown date. The
amount payable in respect to such prepayment shall be calculated as 100.5% of the principal
amount being prepaid and accrued interest if such prepayment occurs on or after the 6th
anniversary but before the 7th anniversary of the drawdown date. The carrying value of the loan
as of December 31, 2014 and 2013 amounted to P
= 5.00 billion.
On July 17, 2008, MWC, together with all of its Lenders signed an Omnibus Amendment
Agreement and Intercreditor Agreement and these agreements became effective on
September 30, 2008.
Prior to the execution of the Omnibus Amendment Agreement, the obligation of MWC to pay
amounts due and owing committed to be repaid to the lenders under the existing facilty
agreements were secured by Assignemnet of Interest by Way of Security executed by the
Company in favor of a trustee acting on behalf of the lenders. The Assignments were also subject
to the provisions of the Amended and Restated Intercreditor Agreement dated March 1, 2004 and
its Amendatory Agreement dated December 15, 2005 executed by MWC, the lenders and their
appointed trustee.
Under the Omnibus Amendment Agreement, the lenders effectively released MWC from the
assignment of its present and future fixed assets, receivables and present and future bank
accounts, all the Project Documents (except for the Agreement, Technical Corrections Agreement
and the Department of Finance Undertaking Letter), all insurance policies where MWC is the
beneficiary and performance bonds posted in its favor by contractors or suppliers.
In consideration for the release of the assignment of the above-mentioned assets, MWC agreed
not to create, assume, incur, permit or suffer to exist, any mortgage, lien, pledge, security interest,
charge, encumbrance or other preferential arrangement of any kind, upon or with respect to any of
its properties or assets, whether now owned or hereafter acquired, or upon or with respect to any
right to receive income, subject only to some legal exceptions. The lenders shall continue to enjoy
their rights and privileges as Concessionaire Lenders (as defined under the Agreement), which
include the right to appoint a qualified replacement operator and the right to receive payments
and/or other consideration pursuant to the Agreement in case of a default of either MWC or
MWSS. Currently, all lenders of MWC (including the bondholders) are considered Concessionaire
Lenders and are on pari passu status with one another.
In November and December 2014, MWC signed the Amendment Agreements to its loan
agreements with its existing lenders. This effectively relaxed certain provisions in the loan
agreements providing MWC more operational and financial flexibility.
LAWC
On September 7, 2010, LAWC, entered into a loan agreement with two local banks for the
financing of its construction, operation, maintenance and expansion of facilities in its servicing
area. Pursuant to the loan agreement, the lenders have agreed to provide loans to LAWC up to
P
= 500.0 million, principal payments of which will be made in 30 consecutive equal quarterly
installments starting August 2013. First and second drawdowns from the loan were made in
November 2010 and July 2011 amounting to P
= 250.0 million each. The carrying value of this loan
amounted to P
= 396.6 million and P
= 462.1 million as of December 31, 2014 and 2013, respectively.
On April 29, 2013, LAWC entered into a loan agreement with Development Bank of the Philippines
(DBP) to partially finance the modernization and expansion of the water network system and water
supply facilities in Bian, Sta. Rosa and Cabuyao, Laguna. Under the loan agreement, the lender
has agreed to provide loans to the borrowers through the Philippine Water Revolving Fund
(PWRF) in the aggregate principal amount of up to P
= 500.0 million bearing an effective interest rate
of 7.25%. First and second drawdowns were made in July and December 2013 amounting to
P
= 250.0 million each. The carrying value of this loan as of December 31, 2014 and 2013 amounted
to P
= 498.7 million and P
= 496.3 million, respectively.

*SGVFS011298*

- 86 -

On January 9, 2014, LAWC excercised its option to avail of the second tranche of its loan
agreement with DBP to finance its water network and supply projects, including the development
of a well-field network on the Bian, Sta. Rosa area of Laguna. Under the expanded facility
agreement, DBP provided additional loans to LAWC in the aggregate principal amount of
P
= 833.0 million. The first and second drawdowns were made in January 2014 and May 2014,
respectively, amounting to P
= 416.5 million each. The carrying value of the loans amounted to
P
= 830.8 million as of December 31, 2014.
BIWC
On July 29, 2011, BIWC, entered into an omnibus loan and security agreement with the
Development Bank of the Philippines (DBP) and Security Bank Corporation (SBC) to finance the
construction, operation, maintenance and expansion of facilities for the fulfillment of certain
service targets for water supply and waste water services for the Service Area under the
Concession Agreement, as well as the operation and maintenance of the completed drainage
system. The loan shall not exceed the principal amount of P
= 500.0 million and is payable in twenty
(20) years inclusive of a three (3)-year grace period.
The loan shall be available in three sub-tranches, as follows:
Sub-tranche 1A, the loan in the amount of P
= 250.0 million to be provided by DBP and funded
through Philippine Water Revolving Fund (PWRF);
Sub-tranche 1B, the loan in the amount of P
= 125.0 million to be provided by SBC and funded
through PWRF; and
Sub-tranche 1C, the loan in the amount of P
= 125.0 million to be provided by SBC and funded
through its internally-generated funds.
The first loan draw down made on August 25, 2011 amounted to P
= 150.0 million, second draw
down on August 25, 2012 amounted P
= 155.0 million and final draw down on August 23, 2013
amounted to P
= 195.0 million. The carrying value of the loan as of December 31, 2014 and 2013
amounted to P
= 487.6 million and P
= 494.5 million, respectively.
The Agreement provided BIWC the option to borrow additional loans from the lenders. On
November 14, 2012, BIWC entered into the second omnibus loan and security agreement with
DBP and SBC. The agreed aggregate principal of the loan amounted to P
= 500.0 million which is
available in three sub-tranches:

Sub-tranche 2A, the loan in the amount of P

= 250.0 million to be provided by DBP and funded
through Philippine Water Revolving Fund (PWRF)
Sub-tranche 2B, the loan in the amount of P
= 125.0 million to be provided by SBC and funded
through PWRF
Sub-tranche 2C, the loan in the amount of P
= 125.0 million to be provided by SBC and funded
through BIWCs internally-generated funds.

On November 23, 2012, BIWC made its first loan drawdown amounting to P
= 75.0 million and the
second loan drawdown on August 26, 2014 amounted to P
= 200.0 million. The carrying value of the
loan as of December 31, 2014 and 2013 amounted to P
= 271.4 million and P
= 72.8 million,
respectively.
On October 9, 2014, BIWC signed a Third Omnibus Loan and Security Agreement in the amount
of P
= 650.0 million with SBC. The loan will be used to fund the capital expenditures which will be
used to provide water and sewerage services in the concession area of BIWC.
CMWD
On December 19, 2013, the CMWD entered into an omnibus loan and security agreement
(the Agreement) with DBP to partially finance the construction works in relation to its bulk water
supply project in Cebu, Philippines. The lender has agreed to extend a loan facility in the
aggregate principal amount of P
= 800.0 million or up to 70% of the total project cost whichever is
lower.

*SGVFS011298*

- 87 -

The first drawdown made on December 20, 2013 amounted to P

= 541.1 million, the second
drawdown made on May 20, 2014 amounted to P
= 195.6 million and the third drawdown made on
November 14, 2014 amounted to P
= 14.2 million. The carrying value of the loan as of
December 31, 2014 and 2013 amounted to P
= 741.0 million and P
= 537.1 million, respectively.
ALI Group
The Philippine Peso bank loans include ALI subsidiaries loans that will mature on various dates
up to 2024 with floating interest rates at 60 to 80 basis points spread over benchmark 91-day
PDST-R1/R2 and fixed interest rates of 3.26% to 10.21% per annum. Certain loans which are
subject to floating interest rates are subject to floor floating interest rates at the Overnight Reverse
Repurchase Agreement Rate of the Bangko Sentral ng Pilipinas (BSP Overnight Rate) or at the
BSP Overnight Rate plus a spread of 20to 75 basis points
5-Year Bonds due 2013
In 2008, ALI issued P
= 4.0 billion bonds due 2013 with fixed rate equivalent to 8.75% per annum.
The PhilRatings assigned a PRS Aaa rating on the bonds indicating that it has the smallest
degree of investment risk. Interest payments are protected by a large or by an exceptionally
stable margin and principal is assured. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally strong position of
such issues. PhilRatings maintained its rating of PRS AAA for the P
= 4.0 billion bonds in 2014 and
2013. On August 14, 2013, ALI completed the final redemption of its bond issue with aggregate
principal of P
= 4.0 billion.
Philippine Peso Homestarter Bond due 2014
In May 2011, ALI launched a new issue of the Homestarter Bond. The bond is to be issued over a
series of 36 issues, once every month which commenced on May 16, 2011, with an initial issue
amount of up to P
= 56.0 million or up to an aggregate issue amount of P
= 2.0 billion over a 3-year
period. The bond carries an interest rate of 5% per annum, payable at the final maturity date or
upon the bondholders exercise of the option to apply the bond to partial or full payment for a
residential property offered for sale by ALI or its affiliates. In the event of application of the bond
to partial or full payment for a property, the bondholder shall be entitled to, in addition to interest, a
notional credit equivalent to 10% of the aggregate face value of the bond. The bonus credit is also
subject to a maximum of 5% of the net selling price of the property selected. The bond is
alternatively redeemable at par plus accrued interest on the third anniversary of the initial issue
date. As of December 31, 2014 and 2013, outstanding bond issued amounted to nil and P
= 620.2
million, respectively.
Philippine Peso Homestarter Bond due 2015
In October 2012, ALI issued P
= 1,000.0 million bond due 2015 with fixed rate equivalent to 5.0%
p.a. The Credit Rating and Investors Services Philippines, Inc. (CRISP) assigned a AAA issuer
rating indicating that it has the smallest degree of investment risk for the bond. AAA is the highest
credit rating possible on CRISPs rating scale for issuers. CRISP also assigned a stable credit
outlook for ALIs issuer rating as CRISP continues to believe that ALIs strong financial
performance will continue and roll out of its new development projects will sustain its leadership
position.
Philippine Peso Homestarter Bond due 2016
In May 2013, ALI issued the second tranche of the bonds registered with the SEC in 2012, at an
aggregate principal amount of P
= 2.0 billion. The bonds have a term of three (3) years from the
issue date, and will bear interest on its principal amount at a fixed rate of 4.00% p.a. Interest will
not be compounded and shall be payable on maturity date or on the date of effectivity of an Early
Downpayment Application, as may be applicable, less the amount of any applicable withholding
taxes.

*SGVFS011298*

- 88 -

Philippine Peso 7-Year and 10-year Bonds due 2019 and 2022
In April 2012, ALI issued a total of P
= 15.0 billion bonds, broken down into a P
= 9.4 billion bond due
2019 at a fixed rate equivalent to 5.625% p.a. and a P
= 5.7 billion bond due 2022 at a fixed rate
equivalent to 6.00% p.a. The PhilRatings assigned a PRS AAA rating on the bonds indicating that
it has the smallest degree of investment risk. Interest payments are protected by a large or by an
exceptionally stable margin and principal is assured. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. PRS AAA is the highest credit rating possible on PhilRatings
rating scales for long-term issuances.
Philippine Peso 5-,7- and 10-year FXCNs due in 2011, 2013 and 2016
In September 2006, ALI issued P
= 3.0 billion FXCNs consisting of 5-, 7- and 10-year notes issued to
various financial institutions and will mature on various dates up to 2016. The FXCNs bear fixed
interest rates ranging from 7.25% to 7.75% p.a. depending on the term of the notes. In January
2011, simultaneous to a new corporate note offering, ALI undertook a liability management
exercise by offering to prepay holders of the corporate notes issued in 2006 while inviting the
same institutions to participate in the new issuance. A number of investors holding up to
P
= 875.0 million of notes maturing in 2013 and 2016 accepted the offer to be prepaid. On
September 23, 2011, the 5-year and one (1) day FXCNs amounting to P
= 1.8 billion matured and
were fully paid by ALI. Subsequently in September 2013, the balance of the 7-year FXCNs
amounting to P
= 195.0 million matured and was fully repaid by ALI. As of December 31, 2014 and
2013, outstanding balance amounted to P
= 100.0 million, respectively.
Philippine Peso 5-, 7- and 10-year FXCN due 2014, 2016 and 2019
In January 2009, ALI issued an aggregate P
= 2.4 billion in 5-, 7- and 10-year notes to various
financial institutions and retail investors. The notes will mature on various dates up to 2019. The
FXCNs bear fixed interest rates ranging from 7.76% to 8.90%. P
= 220.0 million and P
= 830.0 million
notes due in 2014 and 2016, respectively, were prepaid on January 28, 2013.
Philippine Peso 7-year FRCN due 2016
In October 2009, ALI executed a P
= 1.0 billion committed FRCN facility with a local bank, of which
an initial P
= 10.0 million was drawn on October 12, 2009. The balance of P
= 990.0 million was
subsequently dr awn on November 18, 2011. The FRCN bears a floating interest rate based on
the 3-month PDST-R1 plus a spread of 0.96%, repriceable quarterly. The FRCNs will mature on
October 12, 2016, the seventh anniversary of the initial drawdown date.
Philippine Peso 5-, 10-, 15-Year FXCN due on 2016, 2021 and 2026
In January 2011, ALI issued P
= 10.0 billion FXCNs to various financial institutions and retail
investors. The notes will mature on various dates up to 2026. The FXCNs bear fixed interest
rates ranging from 5.62% to 7.50% p.a. depending on the term of the notes. P
= 1.95 billion note
due in 2016 was prepaid on January 19, 2013.
Philippine Peso 10-year FRCN due 2022
In December 2012, ALI executed a P
= 5.0 billion committed Corporate Note facility with a local
bank, of which an initial P
= 3.5 billion was drawn in 2012. The balance of P
= 1.5 billion was
subsequently drawn in January 2013. Notes currently bear a fixed interest rate of 4.50%. The
Corporate Notes will mature on the third month succeeding the tenth anniversary of the initial
drawdown date.
Philippine Peso 10-year and 6-month Bonds due 2024
In July 2013, ALI issued a total of P
= 15.0 billion bonds due 2024 at a fixed rate equivalent to 5.0%
p.a. CRISP assigned a "AAA" on the bonds indicating that it has a minimal credit risk owing to the
Companys capacity to repay its debt obligations. AAA is the highest rating assigned by CRISP.

*SGVFS011298*

- 89 -

Philippine Peso 7-Year and 20-year Bonds due 2020 and 2033
In October 2013, ALI issued a total of P
= 6.0 billion bonds, broken down into a P
= 4.0 billion bond due
2020 at a fixed rate equivalent to 4.625% p.a. and a P
= 2.0 billion bond due 2033 at a fixed rate
equivalent to 6.00% p.a. CRISP assigned a "AAA" rating on the bonds indicating that it has a
minimal credit risk owing ALIs capacity to repay its debt obligations. AAA is the highest rating
assigned by CRISP.
Philippine Peso 8.0 Billion Fixed Rate Bonds due 2025
In April 2014, ALI issued a total of P
= 8.0 billion bonds due 2025 at a fixed rate equivalent to 5.625%
p.a. The Bonds have been rated PRS Aaa by (PhilRatings), indicating that obligors capacity to
meet its financial commitment on the obligation is extremely strong.
The loan agreements on long-term debt of the Company and certain subsidiaries provide for
certain restrictions and requirements with respect to, among others, payment of dividends,
incurrence of additional liabilities, investment and guaranties, mergers or consolidations or other
material changes in their ownership, corporate set-up or management, acquisition of treasury
stock, disposition and mortgage of assets and maintenance of financial ratios at certain levels.
These restrictions and requirements were complied with by the Group as of December 31, 2014
and 2013.
Total interest paid amounted to P
= 12.0 billion in 2014, P
= 10.1 billion in 2013 and P
= 8.4 billion in
2012.
Interest capitalized by subsidiaries amounted to P
= 453.7 million in 2014, P
= 580.2 million in 2013,
and P
= 533.8 million in 2012. The average capitalization rate is 7.01% to 8.78% in 2014, 4.16% to
7.06% in 2013, and 2.06% to 7.23% in 2012.

21. Other Noncurrent Liabilities

This account consists of the following:

Deposits and deferred credits

Estimated liability on property developments
Retentions payable
Provisions (Note 37)
Liability for purchased land
Others

2014
2013
(In Thousands)
P
= 15,450,637
P
= 12,676,476
3,999,529

3,925,798
3,654,350
1,013,825
861,360
203,329
7,260,101
1,047,793
375,651
P
= 25,640,911
P
= 24,827,938

Deposits and deferred credits

Deposits include rental deposits that serve as security for any damages to the leased property and
which will be refunded at the end of lease term and guaranty deposits from customers for the setup of new connections which will be refunded to the customers upon termination of the customers
water service connection or at the end of the concession, whichever comes first.
Deposits are initially recorded at fair value, which was obtained by discounting future cash flows
using the applicable rates of similar types of instruments. The difference between the cash
received and its fair value is recorded as deferred credits.
Deferred credits also include prepayments received from customers before the completion of
delivery of goods or services.

*SGVFS011298*

- 90 -

Estimated liability on property developments

Estimated liability on property development pertains to the estimate for additional project cost to
be incurred for future development.
Retentions payable
Retentions payable pertains to amount withheld from the contractors progress billings which will
be later released after the guarantee period, usually one year after the completion of the project.
The retention serves as a security from the contractor should there be defects in the project.
Provisions
Provisions relate to pending unresolved claims and assessments. The information usually
required by PAS 37, Provisions, Contingent Liabilities and Contingent Assets, is not disclosed on
the grounds that it can be expected to prejudice the outcome of these claims and assessments.
Others
Other liabilities mainly include nontrade payables (see Note 31). It also includes liabilities arising
from PSis Subcontracting Service Agreement (SSA) with a local customer. On June 28, 2010,
PSi and a local customer entered into a SSA for PSi to provide subcontracted services. In
consideration, the local customer shall pay PSi service fees as provided for in the SSA. The
subcontracted services shall be effective starting from July 15, 2010 and ending February 29,
2020, renewable upon mutual agreement by both parties.
In September 2009, PSi received non-interest bearing cash advances amounting to US$3.0
million from a foreign customer, an affiliate of the local customer. On July 15, 2010, the foreign
customer assigned all of its rights with respect to the cash advances, including payments thereof,
to the local customer. The local customer and PSi agree that the full cash advances amounting to
US$3.0 million will be applied to prepay and cover any, and all of the fees payable under Annex B
of the SSA for the facilities support services that will be rendered by PSi to the local customer.
Moreover, PSi shall return to the local customer, upon termination of the SSA, for any reason, the
cash advances less any amount applied to pay the fees as detailed in the SSA.
The current and noncurrent portion of the advances from the local customer follow (amounts in
thousands):

Total outstanding advances from the local customers

Less: Current portion
Noncurrent portion

(In US$)
$1,742
299
$1,443

2014
(In Php)
P
= 77,902
13,371
P
= 64,531

(In US$)
$2,030
288
$1,742

2013
(In Php)
P
= 90,166
12,786
P
= 77,380

*Translated using the closing exchange rate at the reporting date (US$1:P
= 44.72 in 2014 and US$1:P
= 44.395 in 2013)

The current portion is included under Accounts payable and accrued expenses.

*SGVFS011298*

- 91 -

22. Equity
Information about the Companys common and preferred shares follow:
Common shares
2014
2013
Authorized shares
Par value per share
Issued and subscribed
shares
Outstanding shares
At beginning of year
Issued new common
shares
Issued shares on
exercise of share
options
Subscribed shares
Treasury stock
Reissuance
Acquisition/
Redemption
At end of year

Preferred A
shares Preferred B shares Preferred C shares
2014
2014
2014
2013
2013
2013
(In Thousands, except for par value figures)
12,000
58,000
40,000
12,000
58,000
40,000
P
= 100
P
= 100
P
= 100
P
= 100
P
= 100
P
= 100

900,000
P
= 50

900,000
P
= 50

619,436

599,438

20,000

20,000

599,438

593,689

12,000

20,000

18,779

451
768

550
15

5,184

619,436

599,438

(12,000)

Voting Preferred
shares
2014
2013
200,000
P
=1

200,000
P
=1

200,000

200,000

200,000

200,000

27,000

20,000

47,000

20,000

200,000

200,000

Common Shares
The common shares may be owned or subscribed by or transferred to any person, partnership,
association or corporation regardless of nationality, provided that at anytime at least 60% of the
outstanding capital stock shall be owned by citizens of the Philippines or by partnerships,
associations or corporations with 60% of the voting stock or voting power of which is owned and
controlled by citizens of the Philippines.
In July 2013, the SEC approved the amendments to the Companys Articles of Incorporation for
the exemption of 100 million common shares from the exercise of pre-emptive rights of holders of
common shares. These shares are allocated to support the financing activities of the Company.
In November 2014, the Company issued 18,779,100 common shares at a price of P
= 660 per share
through top-up placement. The top-up placement entails issuance by the Company of equal
number of shares at the same price, with Mermac Inc. as the seller in the placement tranche and
subscriber in the subscription tranche. The top-up placement resulted to recognition of the
Company of P
= 939.0 million and P
= 11.3 billion increase in common stock and APIC net of direct
expenses, respectively.
All proceeds of the placement were remitted to the Company to support its investments in power
and infrastructure projects.
Preferred Shares
Preferred A shares
On November 11, 2008, the Company filed a primary offer in the Philippines of its Preferred A
shares at an offer price of P
= 500 per share to be listed and traded on the Philippine Stock
Exchange (PSE). The Preferred A shares are cumulative, nonvoting and redeemable at the
option of the Company under such terms that the Company BOD may approve at the time of the
issuance of shares and with a dividend rate of 8.88% per annum. The Preferred A shares may be
redeemed at the option of the Company starting on the fifth year.
On June 28, 2013, the Company BOD approved and authorized the exercise of the call option on
Preferred A shares effective November 25, 2013 based on the dividend rate of 8.88% per annum.
The redemption of Preferred A shares is presented as part of treasury stock.

*SGVFS011298*

- 92 -

Preferred B shares
In July 2006, the Company filed a primary offer in the Philippines of its Preferred B shares at an
offer price of P
= 100 per share to be listed and traded in PSE. The Preferred B shares are
cumulative, nonvoting and redeemable at the option of the Company under such terms that the
BOD may approve at the time of the issuance of shares and with dividend rate of 9.4578% per
annum. The Preferred B shares may be redeemed at the option of the Company starting on the
fifth year from the date of issuance.
On March 14, 2011, the Company BOD approved and authorized the exercise of the call option on
Preferred B shares effective July 21, 2011 based on the dividend rate of 9.5% per annum. The
redemption of Preferred B shares is presented as part of treasury stock.
In September 2013, the Company BOD approved and authorized the re-issuance and offering of
the Preferred B shares for an aggregate amount of P
= 10 billion. The Preferred B Series 1 shares
were offered at a price of P
= 500 per share with a fixed quarterly dividend rate of 5.25% per annum.
On August 22, 2014, the Company BOD approved and authorized the re-issuance and offering of
the Preferred B Series 2 shares for an aggregate amount of P
= 13.5 billion. The Preferred B Series
2 shares were offered at a price of P
= 500 per share with a fixed quarterly dividend rate of 5.575%.
The reissuance resulted to the Company recognizing P
= 10.7 billion APIC net of direct expenses
from re-issuance.
Preferred C shares
Preferred C shares are cumulative, non-participating, non-voting and redeemable at the option of
the Company under such terms that the Company BOD may approve at the time of the issuance
of the shares.
Voting Preferred shares
On March 15, 2010, the Company BOD approved the reclassification of 4.0 million unissued
common shares with a par value of P
= 50 per share into 200.0 million Voting Preferred shares with
a par value of P
= 1 per share and the amendment of the Companys amended Articles of
Incorporation to reflect the reclassification of the unissued common shares into new Voting
Preferred shares.
On April 16, 2010, the Companys stockholders ratified the reclassification.
On April 22, 2010, the SEC approved the amendments to the Companys Articles of Incorporation
embodying the reclassification of the unissued common shares to new Voting Preferred shares.
The Voting Preferred shares are cumulative, voting and redeemable at the option of the Company
under such terms that the Company BOD may approve at the time of the issuance of shares and
with a dividend rate of 5.3% per annum. In 2013, the dividend rate was repriced to 1.875%.
Treasury shares
On July 17, 2012, the Company BOD approved the sale of 15.0 million treasury shares at a price
of P
= 430 per share. As of December 31, 2012, 15.0 million shares were sold at a total
consideration of P
= 6.5 billion. As of December 31, 2012, treasury stock arising from common
shares amounted to P
= 1.7 billion.
On May 29, 2013, the Company BOD approved the placement of the remaining 5.2 million
treasury shares at a price of P
= 647 per share. As of December 31, 2013, 5.2 million shares were
sold at a total consideration of P
= 3.3 billion.
Following these transactions, all common shares held in treasury by the Company have already
been reissued.

*SGVFS011298*

- 93 -

On November 6, 2014, the Company re-issued 2.7 million Preferred B shares held as treasury
shares. The re-issuance increased total outstanding preferred B shares to 47.0 million.
The details of the Companys paid-in capital follow:
2014

At January 1, 2014
Exercise/ cancellation of
ESOP/ESOWN
Reclassification of ESOWN
shares
Issuance of new common
shares
Reissuance of treasury
stocks
At December 31, 2014

Preferred
Stock Voting

Additional
Total
Common
Paid-in Subscriptions
Paid-in
Stock Subscribed
Capital
Receivable
Capital
(In Thousands)
P
= 200,000 P
= 29,821,726
P
= 150,176 P
= 13,432,506
(P
= 438,279) P
= 50,166,129

Preferred
Stock - A

Preferred
Stock B

P
= 1,200,000

P
= 5,800,000

22,530

38,420

16,786

(16,786)

938,955

P
= 1,200,000

P
= 5,800,000

Preferred
Stock A

Preferred
Stock B

P
= 1,200,000

P
= 5,800,000

27,516

11,200

P
= 1,200,000

P
= 5,800,000

Preferred
Stock - A

Preferred
Stock B

P
= 1,200,000

P
= 5,800,000

P
= 1,200,000

P
= 5,800,000

P
= 200,000 P
= 30,799,997

660,682

(277,588)

444,044

11,298,256

12,237,211

10,724,121
P
= 171,810 P
= 36,115,565

10,724,121
(P
= 715,867) P
= 73,571,505

2013

As of January 1, 2013
Exercise/Cancellation of
ESOP/ESOWN
Reclassification of ESOWN
shares
Reissuance of Treasury
Stock
Redemption of preferred
shares
As of December 31, 2013

Preferred
Stock Voting

Common
Stock Subscribed
(In Thousands)
P
= 200,000 P
= 29,783,010
P
= 160,652

P
= 200,000 P
= 29,821,726

724
(11,200)

Additional
Paid-in Subscriptions
Capital
Receivable
P
= 8,457,871

Total
Paid-in
Capital

(P
= 481,601) P
= 45,119,932

215,776

43,322

287,338

9,558,859

9,558,859

(4,800,000)
P
= 150,176 P
= 13,432,506

(4,800,000)
(P
= 438,279) P
= 50,166,129

2012

As of January 1, 2012
Exercise/Cancellation of
ESOP/ESOWN
Reissuance of Treasury
Stock
As of December 31, 2012

Preferred
Stock Voting

Common
Stock Subscribed
(In Thousands)
P
= 200,000 P
= 29,655,833
P
= 216,209

127,177

P
= 200,000 P
= 29,783,010

(55,557)

P
= 160,652

Additional
Paid-in Subscriptions
Capital
Receivable
P
= 6,339,594

(P
= 578,816) P
= 42,832,820

647,000
1,471,277
P
= 8,457,871

Total
Paid-in
Capital

97,215

815,835

1,471,277
(P
= 481,601) P
= 45,119,932

The movements in the Companys outstanding number of common shares follow:

2014
At January 1
Issuance of new common shares
Exercise of ESOP/ESOWN
Reissuance of Treasury stock
At December 31

599,438
18,779
1,219

619,436

2013
(In Thousands)
593,689

565
5,184
599,438

2012
577,257

1,432
15,000
593,689

*SGVFS011298*

- 94 -

In accordance with SRC Rule 68, as Amended (2011), Annex 68-D, below is a summary of the
Companys track record of registration of securities.

Common shares

Number of shares
registered
200,000,000*

Preferred A shares

12,000,000

Preferred B shares-

20,000,000

Series 1****
Preferred B shares-

20,000,000

Series 2*****
Voting preferred
shares

200,000,000

Issue/offer price
P
= 1.00 par value**;
P
= 4.21 issue price
P
= 100 par value;
P
= 500 issue price
P
= 100 par value;
P
= 500 issue price

Date of approval

2014
Number of
holders of
securities as of
December 31

2013
Number of
holders of
securities as of
December 31

July 21, 1976

6,891

7,033

November 11, 2008

None***

None***

October 31, 2013

16

1,007

994

P
= 100 par value;
P
= 500 issue price

October 17, 2014

P
= 1 par value;
P
= 1 issue price

March 15, 2010

*Initial number of registered shares only.

**Par value now is P
= 50.00
***The Preferred A shares were fully redeemed on November 25, 2013.
****The Preferred B-Series 1 shares were re-issued on November 15, 2013.
*****The Preferred B-Series 2 shares were re-issued on November 6, 2014.

Retained Earnings
Retained earnings include the accumulated equity in undistributed net earnings of consolidated
subsidiaries and associates and joint ventures accounted for under the equity method amounting
to P
= 77,702.0 million, P
= 64,307.3 million and P
= 55,450.0 million as of December 31, 2014, 2013 and
2012, respectively, which are not available for dividend declaration by the Company until these are
declared by the investee companies.
Retained earnings are further restricted for the payment of dividends to the extent of the cost of
the shares held in treasury.
In accordance with the SRC Rule 68, as Amended (2011), Annex 68-C, the Companys retained
earnings available for dividend declaration as of December 31, 2014 and 2013 amounted to
P
= 27.0 billion and P
= 23.3 billion, respectively.
Dividends consist of the following:
2014
2013
2012
(In Thousands, except dividends per share)
Dividends to common shares
Cash dividends declared during the year
Cash dividends per share
Dividends to equity preferred shares declared
during the year
Cash dividends to Preferred A shares
Cash dividends to Preferred B shares
Cash dividends to Voting Preferred
shares

P
= 2,927,822
4.80

P
= 2,877,477
4.80

P
= 2,344,246
4.00

1,277,625

525,000

532,800

3,750

3,750

10,563

Capital Management
The primary objective of the Companys capital management policy is to ensure that it maintains a
strong credit rating and healthy capital ratios in order to support its business and maximize
shareholder value.

*SGVFS011298*

- 95 -

The Company manages its capital structure and makes adjustments to it, in light of changes in
economic conditions. To maintain or adjust the capital structure, the Company may adjust the
dividend payment to shareholders or issue new shares. No changes were made in the objectives,
policies or processes for the years ended December 31, 2014, 2013 and 2012.
The Company monitors capital using a gearing ratio of debt to equity and net debt to equity. Debt
consists of short-term and long-term debt. Net debt includes short-term and long-term debt less
cash and cash equivalents, short-term investments and restricted cash. The Company considers
as capital the equity attributable to equity holders of the Company.

Short-term debt
Long-term debt
Total debt
Less:
Cash and cash equivalents
Short-term investments
Restricted cash
Net debt
Equity attributable to owners of the parent
Debt to equity
Net debt to equity

2014
2013
(In Thousands)
P
= 21,084,269
P
= 15,811,285
237,760,458
189,869,862
258,844,727
205,681,147
90,769,525
1,102,703
8,273,200
P
= 158,699,299
P
= 185,664,151
139.4%
85.5%

65,655,049
119,345

P
= 139,906,753
P
= 143,476,281
143.4%
97.5%

The Company is not subject to externally imposed capital requirements.

23. Other Income and Costs and Expenses

Other income consists of:
2014
Revenue from rehabilitation works
(Note 14)
Gain on sale of investments (Notes 11
and 12)
Gain on sale of other assets
Revenue from management contracts
Connection fees
Mark to market gain on financial assets
at FVPL and derivatives (Notes 9
and 31)
Dividend income
Recoveries of accounts written off
(Note 7)
Insurance claim
Foreign exchange gain/(loss) (Note 31)
Remeasurement gain arising from
business combination (Note 24)
Others

2013
(In Thousands)

2012

P
= 3,285,900

P
= 5,160,312

P
= 6,037,467

2,633,329
711,001
645,087
496,377

190,296
19,382
624,424
646,109

67,847
26,588
518,468
102,266

392,002
224,767

1,345,800
173,031

351,167
180,547

404,595
23,891
113,226

367,415
25,458
306,431

605,789
P
= 9,306,855

593,853
68,226
P
= 8,645,733

49,807
40,131
(177,404)

879,257
P
= 9,180,254

Others mainly includes income derived from ancillary services of consolidated subsidiaries. This
may include, among others, marketing fees, collateral income from vehicle sales and income from
sale of scrap.

*SGVFS011298*

- 96 -

Details of costs of rendering services included in the consolidated statement of income are as
follows:
2014

Personnel costs (Notes 27 and 30)

Depreciation and amortization
(Notes 13, 14, 15 and 16)
Rental, utilities and supplies
Professional and management fees
Taxes and licenses
Repairs and maintenance
Contract labor
Transportation and travel
Insurance
Others

2013
(In Thousands)
P
= 9,466,055
P
= 8,657,801
7,981,039
6,223,666
5,980,762
1,821,705
1,664,722
353,468
164,247
230,036
609,982
P
= 34,495,682

7,526,263
6,468,249
4,246,499
2,028,640
888,370
508,047
658,799
212,692
291,326
P
= 31,486,686

2012
P
= 6,440,028
6,196,599
4,250,922
2,150,607
1,001,047
950,238
347,081
206,954
194,372
1,251,956
P
= 22,989,804

Others include various costs such as communication, dues and fees and miscellaneous
overhead, among others.
General and administrative expenses included in the consolidated statement of income are as
follows:
2014

Personnel costs (Notes 27 and 30)

Taxes and licenses
Depreciation and amortization
(Notes 13, 14, 15 and 16)
Professional fees
Advertising and promotions
Rental and utilities
Transportation and travel
Donations and contributions
Contract labor
Repairs and maintenance
Insurance
Postal and communication
Provision for doubtful accounts (Note 7)
Entertainment, amusement and
recreation
Provision for inventory obsolescence
(Note 8)
Supplies
Dues and fees
Research and development
Others

2013
(In Thousands)
P
= 8,451,329
P
= 7,476,239
1,203,119
938,430

2012
P
= 6,476,914
525,786

1,177,156
1,171,376
540,951
481,518
415,097
360,208
314,895
276,481
203,413
203,296
182,383

1,117,642
1,021,964
375,341
453,620
325,861
358,441
153,342
236,864
160,066
207,042
686,094

999,303
984,608
246,935
287,917
279,509
499,680
278,140
238,192
133,329
164,424
719,398

159,620

76,551

120,279

149,077
124,169
93,359
47,133
276,420
P
= 15,831,000

105,702
159,782
89,352
94,431
577,077
P
= 14,613,841

330,822
106,999
107,370
90,164
262,293
P
= 12,852,062

Others include various expenses such as management fees, marketing, collection charges,
sales commission, bank service charge, periodicals and miscellaneous operating expenses.

*SGVFS011298*

- 97 -

Depreciation and amortization expense included in the consolidated statement of income follows:
2014
Included in:
Costs of sales and services
General and administrative expenses

P
= 7,981,039
1,177,156
P
= 9,158,195

2013
(In Thousands)
P
= 7,526,263
1,117,642
P
= 8,643,905

2012

P
= 6,196,599
999,303
P
= 7,195,902

Personnel costs included in the consolidated statement of income follow:

2014
Included in:
Costs of sales and services
General and administrative
expenses

2013
(In Thousands)

2012

P
= 9,466,055

P
= 8,657,801

P
= 6,440,028

8,451,329
P
= 17,917,384

7,476,239
P
= 16,134,040

6,476,914
P
= 12,916,942

Interest and other financing charges consist of:

2014
Interest expense on:
Short-term debt
Long-term debt
Amortization of service concession
obligations and deposits
Amortization of discount on
long-term debt
Others

2012
(In Thousands)

2011

P
= 131,939
10,439,736

P
= 914,214
7,552,952

P
= 259,734
6,126,583

576,757

613,142

418,362

313,730
471,619
P
= 11,933,781

274,518
1,156,606
P
= 10,511,432

267,612
1,083,039
P
= 8,155,330

Others include, among others, various charges such as, pretermination costs, bond offering fees,
and credit card charges.
Other charges consist of:
2014

Cost of rehabilitation works (Note 15)

Provision for impairment losses on:
Goodwill (Notes 16 and 24)
AFS financial assets (Note 10)
Property, plant and equipment
(Note 14)
Investment properties (Note 13)
Write offs and other charges
Others

2013
(In Thousands)
P
= 3,285,900
P
= 5,161,312

2012
P
= 6,284,542

335,731
66,834

31,830
228,580

61,076

2,080
138,476
P
= 3,829,021

222
400

58,472
P
= 5,480,816

11,575
19,500
150,392
285,267
P
= 6,812,352

Others include cost and expenses relating to income derived from ancillary services of
subsidiaries as shown in the other income.

*SGVFS011298*

- 98 -

24. Business Combinations and Transactions with Non-controlling Interests

2014 Acquisitions
GN Power Kauswagan, Ltd. Co.
On July 30, 2013, ACEHI signed a Limited Partnership Agreement (LPA) with Power Partners Ltd.
Co. (PPLC) to build and operate a 4x135 MW coal-fired power facility in Kauswagan, Lanao del
Norte. Along with this, AC Energy GP Corporation, a wholly owned subsidiary of ACEHI was
incorporated. AEGC and ACEHI will be the general partner and limited partner, respectively, for
the development company related to the partnership. PPLC on the other hand incorporated
GNPower Holdings Philippines GP Corp. (GPHP). GPHP and PPLC will be the general partner
and limited partner, respectively, for the development company related to the partnership.
Accordingly, ACEHI and PPLC each subscribed to 49.6% Class A Partnership Interest and AGPC
and GPHP each subscribed to 0.40% Class A Partnership interest in KPHLC.
On November 12, 2013, KPHLC, together with Kauswagan Power GP Corp. (KPGPC),
established GN Power Kausawagan, Ltd. Co. (GNPK) as the project company for the power
facility. GNPK is 87.5% owned by KPGPC and the balance is owned by KPHLC.
As agreed among the partners of KPHLC, all equity required for the project shall be provided by
ACEHI. Accordingly, ACEHI infused capital in various dates in 2014 in the form of Class B Limited
Partnership interest. The capital infusion enabled ACEHI to obtain 98.74% economic interest in
KPHLC thereby obtaining control over KPHLC. ACEHI management assessed that control over
KPHLC was obtained in December 2014. The purchase price allocation have been prepared in a
preliminary basis.
Below is a summary of the fair values of the assets acquired and liabilities assumed as of the date
when control was obtained (amounts in thousands):
Assets
Cash
Receivables
Loans receivable
Other current assets
Input value-added taxes
Property and equipment
Other noncurrent assets

P
= 149,949
1,484
1,399
3,014
15,109
22,357
365,243
558,555

Liabilities
Accounts payable and accrued expenses
Notes payable

69,978
74,678
144,656
413,899
10,982
P
= 424,881

Net assets
Goodwill
Acquisition cost
The cost of the acquisition is determined as follows (amount in thousands):
Cash paid
Fair value of equity interest in KPHLC held before
business combination
Fair value of non-controlling interest in KPHLC

P
= 424,881

P
= 424,881

The fair value of the existing ownership interest in KPHLC was determined to be nil due to net
liability position of KPHLC as of acquisition date.

*SGVFS011298*

- 99 -

Cash on acquisition is as follows (amounts in thousand):

Cash acquired from KPHLC
Cash paid
Net cash flow

P
= 149,949
(424,881)
(P
= 274,932)

From the date of acquisition, the Groups share in the revenue and net loss of KPHLC amounted
to nil. If the combination had taken place at the beginning of the year, the Group's total revenue
would have been 4.35 million and net loss would have been 21.21 million.
2013 Acquisitions
PRP Investors
In the latter part of December 2013, AY Fontana, LLC (AY Fontana), a subsidiary of BHL, bought
the remaining 9.03% interest of the managing member in PRP Investors Fontana, LLC (PRP
Investors) for a nominal amount of US$1 and the related management agreement was likewise
amended thereby giving AY Fontana control over PRP Investors. Below is a summary of the fair
values of assets acquired and liabilities assumed as of the date of the acquisition (amounts in
thousands):

Assets
Cash
Receivables
Prepaid expense and other current assets
Investment property
Other noncurrent assets
Liabilities
Accounts payable and accrued expenses
Advances from related parties
Deferred credits
Other payables
Net assets
Goodwill
Acquisition cost

In US$

In Php*

$62
410
215
24,168
3,760
28,615

P
= 2,753
18,202
9,545
1,072,938
166,925
1,270,363

4,745
30,812
955
40
36,552
(7,937)
716
($7,221)

210,654
1,367,899
42,397
1,776
1,622,726
(352,363)
31,787
(P
= 320,576)

*Translated using the exchange rate at the transaction date (US$1:P

= 44.395).

The cost of acquisition is determined as follows (amounts in thousands):

Cash paid
Fair value of equity interest in PRP Investors held
before business combination
Share in excess losses on PRP Investors

(7,221)
($7,221)

P
=

(320,576)
(P
= 320,576)

The fair value of the existing ownership interest in PRP Investors was determined to be nil due to
the net liability position of PRP Investors as of acquisition date.
From the date of acquisition, the Group's share in the revenue and net loss of PRP Investors
amounted to nil. If the combination had taken place at the beginning of the year, the Group's total
revenue would remain at $23.05 million and net income would have been $0.30 million. Given the
net liability position of PRP Investors, the goodwill arising from the business combination
amounting to $0.72 million was impaired.

*SGVFS011298*

- 100 -

Cash on acquisition follows (amounts in thousands):

Cash acquired from PRP Investors
Cash paid
Net cash flow

$62

$62

P
= 2,752

P
= 2,752

Asian I-Office Properties, Inc. (AiO)

On April 16, 2013, Cebu Property Ventures and Development Corporation (CPVDC) (a subsidiary
of CHI) acquired the 60% interest of ALI in AiO for a cash consideration of P
= 436.2 million. AiO
was previously 40%-owned by CPVDC and 60%-owned by ALI.
This transaction allowed ALI to consolidate into CPVDC the development and operations of BPO
offices in Cebu and businesses related thereto, which should lead to value enhancement,
improved efficiencies, streamlined processes and synergy creation among the Company and its
subsidiaries. This is also consistent with the thrust of the CHI group to build up its recurring
income base.
The acquisition resulted to AiO becoming a wholly owned subsidiary of CPVDC. Both AiO and
CHI are under the common control of the Company. As a result, the acquisition was accounted
for using the pooling of interests method. The transaction has no effect on the carrying amounts
of the Groups assets and liabilities.
Taft Punta Engao Property, Inc. (TPEPI)
On October 31, 2013, ALI acquired a 55% interest in TPEPI for a consideration of P
= 550.0 million.
The acquisition will allow ALI to consolidate its businesses resulting in improved efficiencies and
synergy creation to maximize opportunities in the Cebu real estate market. The transaction was
accounted for as an asset acquisition.
The excess of the ALIs cost of investment in TPEPI over its proportionate share in the underlying
net assets at the date of acquisition was allocated to Investment properties account in the
consolidated financial statements. This purchase premium shall be amortized upon sale of these
lots by TPEPI.
TPEPIs underlying net assets acquired by ALI as of date of acquisition consists of cash in bank,
input VAT and investment properties amounting to P
= 550.0 million.
2012 Acquisitions
ALI Makati Hotel & Residences, Inc. (AMHRI) and ALI Makati Hotel Property, Inc. (AMHPI)
On October 2, 2012, AyalaLand Hotels and Resorts Corp. (AHRC), a wholly owned subsidiary of
ALI, entered into an agreement to acquire the interests of Kingdom Manila B.V., an affiliate of
Kingdom Hotel Investments (KHI), and its nominees in KHI-ALI Manila Inc. (now renamed AMHRI)
and 72,124 common shares in KHI Manila Property Inc. (now renamed AMHPI).
AMHRI and AMHPI are the project companies for the Fairmont Hotel and Raffles Suites and
Residences project in Makati which opened in December 2012.
Prior to the acquisition, ALI effectively owned 20% economic interest in AMHRI and AMHPI. ALI
acquired the remaining 80% interest in AMHRI and AMHPI for a total consideration of
P
= 2,430.4 million.
The acquisition is in line with KHIs value realization strategy and with ALIs thrust to grow its
commercial leasing business. It adds 32 Raffles Suites and 280 Fairmont Hotel rooms to AHRCs
growing hotel portfolio. The continuing sale of units in the Raffles Residences will also generate
immediate cash, while the operations of the hotel and serviced apartments will augment and
diversify the sources of recurring revenues. Furthermore, this landmark project will complement

*SGVFS011298*

- 101 -

the various offerings of the Makati Central Business District, and fortify its position as the countrys
premier financial district.
The fair value of ALIs interest prior to the acquisition amounting to P
= 769.0 million was determined
using the adjusted net asset value method. Remeasurement of ALIs equity interest in both
companies resulted to the recognition of a gain (included under Other income) amounting to
P
= 593.9 million (see Note 23).
In 2013, ALI finalized its purchase price allocation. The following are fair values of the identifiable
assets and liabilities assumed (in thousands):
Assets
Cash
Trade and other receivables
Real estate inventories
Other current assets
Hotel property and equipment
Liabilities
Accounts and other payables
Loans payable
Deferred tax liabilities
Net assets
Negative goodwill
Acquisition cost

P
= 1,334,000
1,708,000
936,000
202,000
5,421,000
9,601,000
2,162,000
3,594,000
633,698
6,389,698
3,211,302
(11,870)
P
= 3,199,432

The fair value of the trade and other receivables approximate their carrying amounts. None of the
trade receivables have been impaired and it is expected that the full contractual amounts can be
collected.
From the date of acquisition, the Groups share in AMHRI and AMHPIs revenue and net income
amounted to P
= 898.9 million and a loss of P
= 96.4 million, respectively. If the combination had taken
place at the beginning of the year, the Groups total revenue would have been P
= 64.2 billion, while
the Groups net income would have been P
= 10.6 billion.
Transactions with Non-controlling Interest
ALI Group
North Triangle Depot Commercial Corporation (NTDCC)
On December 10, 2014, ALI purchased its proportionate share in Anglo Philippine Holdings
Corporations 15.79% interest in NTDCC for P
= 738.0 million which consists of 539,249 common
shares and 2,265,507 preferred shares. This brings ALIs ownership in NTDCC from 49.29% to
58.53% of the total outstanding capital stock of NTDCC which owns and operates the Trinoma
Commercial Centre in North Triangle, Quezon City.
Subsequently, on December 22, 2014, ALI purchased the shares of Allante Realty and
Development Corporation and DBH Incorporated in NTDCC for P
= 211.0 million each comprises of
154,287 common shares and 648,196 preferred shares for each company. This results to an
increase in ALIs ownership in NTDCC from 58.53% to 63.82% of the total outstanding capital
stock of NTDCC.

*SGVFS011298*

- 102 -

Philippine Intergrated Energy Solutions, Inc. (PhilEnergy)

ALI acquired Mitsubishi Corporations (MC) 40% equity stake in PhilEnergy which effectively made
PhilEnergy a wholly owned subsidiary ALI. The transaction which was executed last March 13,
2014 through a Share Purchase Agreement involving 2,957,200 shares held by MC in PhilEnergy
amounting to a total investment cost of P
= 322.3 million which is equivalent to the par value of the
shares plus 40% of PhilEnergys audited retained earnings as of December 31, 2013.
Asian Conservation Company, Inc. (ACCI)
On November 19, 2013, AHRC, a wholly owned subsidiary of ALI entered into an agreement to
acquire 100% interest in ACCI, which effectively consolidates the remaining 40% interest in TKDC
and TKPI (60%-owned subsidiary of the Company prior to this acquisition). This acquisition is in
line with ALIs thrust to support the countrys tourism industry.
The agreement resulted in ALI effectively obtaining 100% interest in TKPI and TKDC. A total of
P
= 2.0 billion was paid to obtain the 100% interest in ACCI. The carrying amount of the noncontrolling interest is reduced to nil as ALI already owns 100% share in TKDC and TKPI. The
difference between the fair value of the consideration paid and the amount by which the noncontrolling interest is adjusted is recognized in equity under Equity Reserve amounting to
P
= 586.0 million.
APPHC and APPCo
On April 15, 2013, ALI entered into a Sale and Purchase Agreement with Global Technologies
International Limited (GTIL) to acquire the latters 32% stake in APPCo for P
= 3,520.0 million. Prior
to the acquisition, ALI has 68% effective interest in APPCo.
The carrying amount of the non-controlling interest is reduced to nil as APPCo became a whollyowned subsidiary of ALI. The difference between the fair value of the consideration paid and the
amount by which the non-controlling interest is adjusted is recognized in equity under Equtiy
Reserve amounting to P
= 2,722.6 million.
IMI Group
PSi
On September 26, 2012, amendments relating to the Investors Agreement (the Agreement)
entered into between IMI, Narra Venture Capital II, LP (Narra Venture) with PSi Technologies
Holdings, Inc. and Merill Lynch Global Emerging Markets Partners, LLC were made to allow the
parties to respectively exercise their option rights without the need for third party valuation.
Accordingly, a fixed price was established amounting to $0.15 million.
On January 9, 2013, pursuant to the second amendment to the Agreement, the exercise notice,
which is one of the conditions for the completion of the sale and purchase of the option shares,
was received by the parties. The sale and purchase transaction involving the option shares shall
be deemed completed upon compliance of the rest of conditions set forth in the Agreement.
On March 12, 2013, the Deeds of Assignment have been executed and the stock certificates have
been delivered. The exercise of the option rights increased IMIs ownership interest in PSi from
55.78% to 83.25%.
On January 5, 2015, Deeds of Assignment of Shares effective December 29, 2014 were executed
between IMI and the minority shareholders of PSi namely Narra Venture and Narra Associate II
Limited for the purchase of the remaining 16.75% interest in PSi for a total consideration of
US$0.5 million. The purchase of the remaining minority shares resulted to the 100% ownership of
IMI in PSi.

*SGVFS011298*

- 103 -

Microenergia
In October 2014, IMI BG acquired the remaining 30% ownership interest in Microenergia for a total
consideration of US$138,622.
The details of the transaction are as follow (amounts in thousands):
Non-controlling interest acquired
Consideration paid to the non-controlling
shareholder
Total amount recognized in Additional paid-in
capital account within equity

US$200

P
= 8,973,680

(138)

(6,210,959)

US$62

P
= 2,762,721

25. Income Tax

The components of the Groups deferred taxes are as follows:
Net deferred tax assets
2014
(In Thousands)
Deferred tax assets on:
Difference between tax and book basis of
accounting for real estate transactions
Retirement benefits
Allowance for probable losses
Service concession obligation
Advanced rental
Accrued expenses
Share-based payments
Unrealized foreign exchange loss
Allowance for doubtful accounts
NOLCO and MCIT
Remeasurement loss on pension
Allowance for inventory obsolescence
Revaluation of property, plant and equipment
Others
Deferred tax liabilities on:
Capitalized interest and other expenses
Unrealized foreign exchange gain
Others
Net deferred tax assets

2013

P
= 4,054,553
1,593,628
1,051,452
855,050
130,745
89,224
62,794
47,028
36,013
35,002
30,588
18,339

610,728
8,615,144

P
= 3,358,688
1,292,095
1,020,409
814,269
10,285
37,407
87,265
52,095
17,489
287,757

10,290
19,722
100,181
7,107,952

(557,149)
(2,305)
(670)
(560,124)
P
= 8,055,020

(592,732)
(1,635)

(594,367)
P
= 6,513,585

*SGVFS011298*

- 104 -

Net deferred tax liabilities

2014
(In Thousands)
Deferred tax assets on:
Fair value adjustments on:
Long-term debt
AFS financial asset
Difference between tax and book basis of
accounting for real estate transactions
Allowance for probable losses
NOLCO
Retirement benefits
Advanced rental
Others
Deferred tax liabilities on:
Fair value adjustments on:
Service concession assets
Land and improvements
Property and equipment
Service concession obligation
Customers guaranty and other deposits
Investment properties
Difference between tax and book basis of
accounting for real estate transactions
Prepaid expenses
Unrealized gain on AFS
Concession finance receivable
Capitalized interest and other expenses
Unrealized fair value gain less costs to sell of
biological assets
Revaluation of property, plant and equipment
Unrealized foreign exchange gain
Service concession obligation
Retirement benefits
Others
Net deferred tax liabilities

2013

P
= 193,834
1,116

P
= 167,492
1,116

131,721
71,020
42,006
39,396
25,891
27,369
532,353

320,464

11,303

139,272
639,647

(4,498,258)
(625,490)
(396,942)
(34,091)
(18,691)

(4,742,672)
(625,490)
(531,986)
(34,091)
(18,691)
(12,108)

(1,258,928)
(134,665)
(84,375)
(67,874)
(63,801)

(476,166)
(149,972)
(11,804)

(45,201)

(7,142)

(4,141)
(2,495)

(78,093)
(7,274,986)
(P
= 6,742,633)

(6,164)
(73,086)
(19,007)

(72,756)
(167,853)
(6,987,047)
(P
= 6,347,400)

The Group has NOLCO amounting to P

= 13.1 billion and P
= 10.7 billion in 2014 and 2013,
respectively, on which deferred tax have not been recognized. Further, deferred tax assets from
the excess MCIT over regular corporate income tax amounting to P
= 83.1 million in 2014 and
P
= 76.7 million in 2013, respectively, were also not recognized, since management believes that
there could be no sufficient taxable income against which the benefits of the deferred tax assets
may be utilized.
As of December 31, 2014, NOLCO and MCIT that can be claimed as deduction from future
taxable income or used as deductions against income tax liabilities, respectively, are as follows:
Year incurred

Expiry Date

2012
2013
2014

2015
2016
2017

NOLCO
(In Thousands)
P
= 3,274,417
4,076,216
5,767,695
P
= 13,118,328

MCIT
P
= 22,264
32,167
28,670
P
= 83,101

*SGVFS011298*

- 105 -

As of December 31, 2014 and 2013 deferred tax liabilities have not been recognized on the
undistributed earnings and cumulative translation adjustment of foreign subsidiaries since the
timing of the reversal of the temporary difference can be controlled by the Group and management
does not expect the reversal of the temporary differences in the foreseeable future. The
undistributed earnings and cumulative translation adjustment amounted to P
= 5.1 billion and
P
= 2.9 billion as of December 31, 2014 and 2013, respectively.
The reconciliation between the statutory and the effective income tax rates follows:

Statutory income tax rate

Tax effects of:
Nontaxable share of profit of
associates and jointly
controlled entities
Nondeductible expenses
Interest income and capital gains
subjected to lower rates
Income under income tax holiday
Others
Effective income tax rate

2014
30.00%

2013
30.00%

(9.79)
1.44

(9.84)

(11.03)

(2.03)
(0.31)
0.83
20.14%

(1.61)
(0.48)
3.55
21.62%

(2.47)
(0.44)
4.27
20.33%

2012
30.00%

The income tax on profits of overseas subsidiaires have been calculated at the rates of tax
prevailing in the countries where such subsidiary operates, based on existing legislation,
interpretations and practices in respect thereof.
Revenue Regulations (RR) No. 16-2008
RR No. 16-2008 provided the implementing guidelines for Section 34 of Republic Act No. 9504 on
the use of the Optional Standard Deduction (OSD) for corporations. The OSD allowed shall be an
amount not exceeding 40% of the gross income. Gross income earned refers to gross sales or
gross revenue derived from any business activity, net of returns and allowances, less cost of sales
or direct costs but before any deduction is made for administrative expenses or incidental losses.
This was applied by MWC and for the years ended December 31, 2014, 2013, and 2012.
MWC availed of the income tax holiday granted for Board of Investments (BOI) registered
projects, the Antipolo Water Supply Project in 2011 and East La Mesa (Rodriguez) Water
Treatment Plant Project in 2012.
The tax rate of 18% for the years in which OSD is projected to be utilized was used in computing
the deferred income taxes on the net service concession obligation starting 2009.
The availment of OSD affected the recognition of several deferred tax assets and liabilities, in
which the related income and expenses are not considered in determining gross income for
income tax purposes. MWC forecasts that it will continue to avail of the OSD, such that the
manner by which it will recover or settle the underlying assets and liabilities, for which the deferred
tax assets and liabilities were initially recognized, would not result in any future tax consequence
under OSD.
Registration with the Philippine Export Zone Authority (PEZA) and Board of Investments (BOI)
Incentives
Some activities of certain local subsidiaries are registered with the PEZA and BOI. Under the
registration, these subsidiaries are entitled to certain tax and nontax incentives, which include, but
are not limited to, income tax holiday (ITH) and duty-free importation of inventories and capital
equipment. Upon the expiration of the ITH, the subsidiaries will be liable for payment of a five
percent (5%) tax on gross income earned from sources within the PEZA economic zone in lieu of
payment of national and local taxes.

*SGVFS011298*

- 106 -

26. Earnings Per Share

The following table presents information necessary to calculate EPS on net income attributable to
equity holders of the Company:

Net income
Less dividends on preferred stock
Less profit impact of assumed conversions
of potential ordinary shares of investees

Weighted average number of common shares

Dilutive shares arising from stock options
Adjusted weighted average number of
common shares for diluted EPS
Basic EPS
Diluted EPS

2014
2013
2012
(In Thousands, except EPS figures)
P
= 18,609,229
P
= 12,777,932
P
= 10,504,385
622,828
528,750
543,363
17,986,401
12,249,182
9,961,022
205,014
P
= 17,781,387

16,342
P
= 12,232,840

23,953
P
= 9,937,069

603,060
2,751

596,591
3,399

585,027
2,341

605,811
P
= 29.83
P
= 29.35

599,990
P
= 20.53
P
= 20.39

587,368
P
= 17.03
P
= 16.92

27. Defined Benefit Plan

The Company and certain subsidiaries have their respective funded, noncontributory tax-qualified
defined benefit type of retirement plans covering substantially all of their employees. The benefits
are based on defined formula with minimum lump-sum guarantee of 1.5 months effective salary
per year of service. The consolidated retirement costs charged to operations amounted to
P
= 839.3 million, P
= 651.5 million and P
= 685.9 million in 2014, 2013 and 2012, respectively.
The funds are administered by a trustee bank under the supervision of the Board of Trustees of
the plan. The Board of Trustees is responsible for investment of the assets. It defines the
investment strategy as often as necessary, at least annually, especially in the case of significant
market developments or changes to the structure of the plan participants. When defining the
investment strategy, it takes account of the plans objectives, benefit obligations and risk capacity.
The investment strategy is defined in the form of a long-term target structure (investment policy).
The Board of Trustees delegates the implementation of the investment policy in accordance with
the investment strategy as well as various principles and objectives to an Investment Committee,
which also consists of members of the Board of Trustees, a Director and a Controller. The
Controller overseas the entire investment process.
The Company's pension fund is known as the AC Employees Welfare and Retirement Fund
(ACEWRF). ACEWRF is a legal entity separate and distinct from the Company, governed by a
board of trustees appointed under a Trust Agreement between the Company and the initial
trustees. It holds common and preferred shares of the Company in its portfolio. All such shares
have voting rights under certain conditions, pursuant to law. ACEWRF's portfolio is managed by a
committee appointed by the fund's trustees for that purpose.
Under the existing regulatory framework, Republic Act 7641 requires a provision for retirement
pay to qualified private sector employees in the absence of any retirement plan in the entity,
provided however that the employees retirement benefits under any collective bargaining and
other agreements shall not be less than those provided under the law. The law does not require
minimum funding of the plan. The Group also provides additional post employment healthcare
benefits to certain senior employees in the Philippines. These benefits are unfunded.

*SGVFS011298*

- 107 -

The components of expense (included in personnel costs under Cost of services and General
and administrative expenses) in the consolidated statements of income follow:
2014

2013

2012

(In Thousands)

Current service cost

Past service cost
Net interest cost on benefit
obligation
Loss on curtailment and
settlements
Total pension expense

P
= 768,166
6,903

P
= 592,284
644

64,070

49,542

59,899

114
P
= 839,253

9,009
P
= 651,479

26,535
P
= 685,876

P
= 606,303
(6,861)

The remeasurement effects recognized in other comprehensive income (included in Equity under
Remeasurement gains/(losses) on defined benefit plans) in the consolidated statements of
financial position follow:
2014

2013

2012

(In Thousands)

Return (loss) on plan assets (excluding

amount included in net interest)
Actuarial loss due to liability assumption
changes demographic
Actuarial (gain)/loss due to liability
assumption changes financial
assumptions
Remeasurements in other
comprehensive income

(P
= 193,384)

(P
= 172,247)

(P
= 434,971)

300,898

315,393

(29,426)

196,820

422,994

569,106

P
= 304,334

P
= 566,140

P
= 104,709

The funded status and amounts recognized in the consolidated statement of financial position for
the pension plan as of December 31, 2014 and 2013, as follows:
2014

2013
(In Thousands)

Benefit obligations
Plan assets
Net pension liability position

P
= 9,167,101
(7,006,199)
P
= 2,160,902

P
= 8,176,962
(6,271,078)
P
= 1,905,884

As of December 31, 2014 and 2013 pension assets (included under other noncurrent assets)
amounted to P
= 19.1 million, and P
= 9.2 million (see Note 17), respectively, and pension liabilities
amounted to P
= 2.2 billion and P
= 1.9 billion, respectively.

*SGVFS011298*

- 108 -

The following tables present the changes in the present value of defined benefit obligation and fair
value of plan assets:
Present value of defined benefit obligation

Balance at beginning of year

Current Service Cost
Past service cost
Interest cost
Loss on curtailment and settlements
Benefits paid from plan assets
Remeasurements in other comprehensive income:
Actuarial changes arising from changes in
demographic
Actuarial changes arising from experience
adjustments
Transfers
Foreign currency exchange difference

2014
2013
(In Thousands)
P
= 8,176,962
P
= 6,834,086
768,166
592,284
6,903
644
374,887
341,299
114
9,009
(674,104)
(397,507)
300,668
196,820
8,595
8,090
P
= 9,167,101

337,521
422,994
45,187
(8,555)
P
= 8,176,962

Fair value of plan assets

Balance at beginning of year

Contributions
Interest income on plan assets
Return on plan assets (excluding amount included in
net interest)
Benefits paid
Transfers
Foreign currency exchange difference

2014
2013
(In Thousands)
P
= 6,271,078
P
= 5,250,815
532,480
906,590
310,817
291,757
193,154
(303,266)
6,229
(4,293)
P
= 7,006,199

194,375
(397,507)
26,528
(1,480)
P
= 6,271,078

The fair value of plan assets by each classes as at the end of the reporting period are as follow:
2014
(In Thousands)
Assets
Cash and Cash Equivalents
Debt investments
Equity Investments
Other Assets
Liabilities
Trust fee payable
Unamortized tax on premium
Provision for probable losses
Other liabilities
Net Asset Value*

2013

P
= 334,639
3,474,513
3,149,663
46,980
7,005,795

P
= 761,440
2,443,358
2,775,264
78,937
6,058,999

(9,798)
(60,219)

(609)
(70,626)
P
= 6,935,169

(418)
(1,211)
(10)
(572)
(2,211)
P
= 6,056,788

*The difference of P
= 71.0 million and P
= 200.0 million in the fair value of plan assets as of December 31, 2014 and
December 31, 2013, respectively, pertains to movements after the valuation date.

*SGVFS011298*

- 109 -

All equity and debt instruments held have quoted prices in active market. The remaining plan
assets do not have quoted market prices in active market.
The plan assets have diverse investments and do not have any concentration risk.
The cost of defined benefit pension plans and other post-employment medical benefits as well as
the present value of the pension obligation are determined using actuarial valuations. The
actuarial valuation involves making various assumptions. The principal assumptions used in
determining pension and post-employment medical benefit obligations for the defined benefit
plans are shown below:
2014
4.0% to 5.0%
4.0% to 8.0%

Discount rates:
Future salary increases:

2013
3.5% to 5.3%
4.0% to 8.5%

There were no changes from the previous period in the methods and assumptions used in
preparing sensitivity analysis.
The sensitivity analysis below has been determined based on reasonably possible changes of
each significant assumption on the defined benefit obligation as of the end of the reporting period,
assuming if all other assumptions were held constant:

Increase(decrease)
Discount rates

1%
(1%)

Future salary increases

1%
(1%)

2014
2013
Net Pension Liabilities
(In Thousands)
(P
= 602,308)
(P
= 593,804)
771,273
745,298
749,728
(596,164)

721,656
(586,589)

The management performed an Asset-Liability Matching Study (ALM) annually. The overall
investment policy and strategy of the Groups defined benefit plans is guided by the objective of
achieving an investment return which, together with contributions, ensures that there will be
sufficient assets to pay pension benefits as they fall due while also mitigating the various risk of
the plans. The Groups current strategic investment strategy consists of 50.1% of debt
instruments, 45.4% of equity instruments and 4.5% other assets.
The Group expects to contribute P
= 386.2 million to the defined benefit pension plan in 2014.
The average duration of the defined benefit obligation at the end of the reporting period is
5.3 to 26.8 years in 2014 and 8.3 to 23.4 years in 2013.
Shown below is the maturity analysis of the undiscounted benefit payments as of December 31,
2014 (amounts in thousands):
Less than 1 year
More than 1 year to 5 years
More than 5 years to 10 years
More than 10 years

P
= 1,118,803
2,815,633
5,654,071
6,932,797
P
= 16,521,304

As of December 31, 2014 and 2013, the plan assets include shares of stock of the Company with
total fair value of P
= 862.2 million and P
= 981.7 million.

*SGVFS011298*

- 110 -

The carrying value and fair value of the plan assets of the Group as of December 31, 2014
amounted to P
= 6.4 billion and P
= 7.0 billion, respectively.
The fund includes investment in securities of its related parties. Details of the investment per type
of security are as follows (in thousands):
2014

Carrying Value
P
= 1,218,484
960,644
504,039
P
= 2,683,167

Equity securities
Debt securities
Unit investment trust funds

2013

Carrying Value

Equity securities
Debt securities
Unit investment trust funds

P
= 829,780
505,424
357,549
P
= 1,692,753

Fair Value Unrealized Gains

(In Thousands)
P
= 1,807,843
P
= 589,359
981,269
20,625
518,786
14,747
P
= 3,307,898
P
= 624,731
Fair Value Unrealized Gains
(In Thousands)
P
= 1,269,258
P
= 439,478
509,988
4,564
358,094
545
P
= 2,137,340
P
= 444,587

The overall expected rate of return on assets is determined based on the market prices prevailing
on that date.
The Groups transactions with the fund mainly pertain to contributions, benefit payments,
settlements and curtailments.

28. Stock Option Purchase Plans

The Company has stock option plans for key officers (Executive Stock Option Plan - ESOP) and
employees (Employee Stock Ownership Plan - ESOWN) covering 3.0% of the Companys
authorized capital stock. The grantees are selected based on certain criteria like outstanding
performance over a defined period of time.
The ESOP grantees may exercise in whole or in part the vested allocation in accordance with the
vesting percentage and vesting schedule stated in the ESOP. Also, the grantee must be an
employee of the Company or any of its subsidiaries during the 10-year option period. In case the
grantee retires, he is given 3 years to exercise his vested and unvested options. In case the
grantee resigns, he is given 90 days to exercise his vested options.
ESOP
Movements in the number of stock options outstanding under ESOP are as follows:
2014

Outstanding, at beginning of year

Exercised
Grants
Cancelled
Outstanding, at end of year

Number
of Shares
2,893,368
(666,299)

(605,463)
1,621,606

Weighted
Average
Exercise Price
P
= 249.13
(231.63)

(127.32)
P
= 301.80

2013
Number
of Shares
3,940,680
(766,450)
445,064
(725,926)
2,893,368

2012

Weighted
Average
Exercise Price
P
= 177.46
(177.61)
500
(89.41)
P
= 249.13

Number
of Shares
5,313,474
(1,019,194)

(353,600)
3,940,680

Weighted
Average
Exercise Price
P
= 174.63
(183.49)

P
= 177.46

The options have a contractual term of 10 years. As of December 31, 2014 and 2013, the
weighted average remaining contractual life of options outstanding is 7.3 years and 5 years,
respectively, and the range of exercise prices amounted from P
= 227.53 to P
= 500.0, respectively.

*SGVFS011298*

- 111 -

The fair value of each option is estimated on the date of grant using the Black-Scholes optionpricing model. The fair values of stock options granted under ESOP at each grant date and the
assumptions used to determine the fair value of the stock options are as follows:

Weighted average share price

Exercise price
Expected volatility
Option life
Expected dividends
Risk-free interest rate

April 26,
2013
P
= 640
P
= 500
42.40%
10 years
0.54%
3.04%

April 18,
2011
P
= 352.08
P
= 316.87
41.21%
10 years
0.86%
6.64%

April 16,
2010
P
= 303.70
P
= 273.03
41.31%
10 years
0.92%
8.56%

June 30,
2005
P
= 327.50
P
= 295.00
46.78%
10 years
1.27%
12.03%

June 10,
2004
P
= 244.00
P
= 220.00
46.71%
10 years
1.43%
12.75%

The expected volatility reflects the assumption that the historical volatility is indicative of future
trends, which may also necessarily be the actual outcome.
ESOWN
The Parent Company also has ESOWN granted to qualified officers and employees wherein
grantees may subscribe in whole or in part to the shares awarded to them based on the 10%
discounted market price as offer price set at grant date. To subscribe, the grantee must be an
employee of the Parent Company or any of its subsidiaries during the 10-year payment period. In
case the grantee resigns, the unsubscribed shares are cancelled, while the subscription may be
paid up to the percent of holding period completed and payments may be converted into the
equivalent number of shares. In case the grantee is separated, not for cause, but through
retrenchment and redundancy, subscribed shares may be paid in full, unsubscribed shares may
be subscribed, or payments may be converted into the equivalent number of shares. In case the
grantee retires, the grantee may subscribe to the unsubscribed shares anytime within the 10-year
period. The plan does not allow sale or assignment of the shares. All shares acquired through
the plan are subject to the Parent Companys Right to Repurchase.
The subscribed shares are effectively treated as options exercisable within a given period which is
the same time as the grantees payment schedule. The fair values of these options are estimated
at the date of grant using the Binomial Tree Model. The Binomial Tree model requires six inputs
to produce an option stock value namely; market value of the share, book value of the share, time
to maturity, volatility rate, dividend yield, and risk free rate.
Shares granted and subscribed under the ESOWN in 2014 follows:
Date of Grant
Number of shares subscribed
Exercise price

April 11, 2014

713,284
P
= 480

Subscriptions receivable from the stock option plans covering the Parent Companys shares are
presented under equity.
For the unsubscribed shares, the employee still has the option to subscribe from the start of the
fifth year but not later than on the start of the seventh year from date of grant. Movements in the
number of options outstanding under ESOWN as of December 31, 2014 and 2013 follow:

At January 1
Granted
Exercised/cancelled
At December 31

2014
Weighted
Number of
average
options exercise price
120,244
P
= 260.22
8,344
480.00
(67,434)
(275.77)
61,154
P
= 273.06

2013
Weighted
Number of
average
options exercise price
143,256
P
= 247.93

(23,012)
183.73
120,244
P
= 260.22

*SGVFS011298*

- 112 -

The fair value of stock options granted is estimated on the date of grant using the Black-Scholes
Merton Formula, taking into account the terms and conditions upon which the options were
granted. The fair value of stock options granted under ESOWN at grant date and the assumptions
used to determine the fair value of the stock options follow:

Number of unsubscribed
shares
Fair value of each option
Weighted average share price
Exercise price
Expected volatility
Dividend yield
Interest rate

April 11, 2014

April 30, 2012

April 30, 2009

8,344
P
= 619
P
= 673.96
P
= 480
42.13%
0.74%
4.38%

50,229
P
= 259.97
P
= 434.47
P
= 322.00
41.78%
0.74%
5.59%

17,788
P
= 112.87
P
= 263.38
P
= 180.13
49.88%
1.59%
7.49%

Total expense arising from share-based payments of the Company (included under General and
administrative expenses) in the consolidated statements of income amounted to P
= 222.4 million,
P
= 199.3 million and P
= 217.3 milllion in 2014, 2013 and 2012, respectively.
ALI
ALI has stock option plans for key officers (ESOP) and employees (ESOWN) covering 2.5% of the
ALIs authorized capital stock. The grantee is selected based on certain criteria like outstanding
performance over a three-year period.
The ESOP grantees may exercise in whole or in part the vested allocation in accordance with the
vesting percentage and vesting schedule stated in the ESOP. Also, the grantee must be an
employee of ALI or any of its subsidiaries during the 10-year option period. In case the grantee
retires, he is given 3 years to exercise his vested and unvested options. In case the grantee
resigns, he is given 90 days to exercise his vested options.
ESOP
Movements in the number of stock options outstanding under ESOP are as follows:
PFRS 2 Options

At January 1
Exercised
Cancelled
At December 31

Weighted
average
exercise
2014
price
2013
10,377,981
P
= 4.58 11,039,666
(5,624,981)
4.26
(661,685)
(1,894,640)

2,858,360
P
= 5.63 10,377,981

Weighted
average
exercise
price
P
= 4.23
3.74

P
= 4.58

The options exercised had a weighted average exercise price of P

= 4.26 per share or P
= 23.94 million
in 2014, and P
= 3.74 per share or P
= 12.02 million in 2013.
The average fair market value of the shares at the exercise date was P
= 31.46 per share or about
P
= 177.0 million in 2014 and P
= 30.00 per share or about P
= 96.4 million in 2013.

*SGVFS011298*

- 113 -

The fair value of stock options granted are estimated as at the date of grant using the BlackScholes option pricing model, taking into account the terms and conditions upon which the options
were granted. The fair value of stock options granted under ESOP at June 30, 2005 grant date,
and the assumptions used to determine the fair value of the stock options are as follows:
Weighted average share price
Exercise price
Expected volatility
Option life
Dividend yield
Interest rate

P
= 8.36
P
= 6.75
46.30%
10 years
3.21%
12.60%

The expected volatility reflects the assumption that the historical volatility is indicative of future
trends, which may also necessarily be the actual outcome.
ESOWN
In November 2001, ALI offered all its ESOWN subscribers with outstanding ESOWN subscriptions
the option to cancel the subscriptions within the 5-year holding period. In December 2001, the
program for ESOWN was indefinitely suspended.
In 2005, the ALI introduced a revised ESOWN Plan (the Plan) wherein grantees may subscribe in
whole or in part to the shares awarded to them based on a discounted market price that was
determined by the Compensation Committee of ALI as the offer price set at grant date. The
grantees paid for the shares subscribed through installments over a maximum period of ten (10)
years. The subscription is subject to a holding period stated in the plan. To subscribe, the
grantee must be an employee of ALI or any of its subsidiaries during the ten (10)-year payment
period. In case the grantee resigns, unsubscribed shares are cancelled, while the subscription
may be paid up to the percent of holding period completed and payments may be converted into
the equivalent number of shares. In case the grantee is separated, not for cause, but through
retrenchment and redundancy, subscribed shares may be paid in full, unsubscribed shares may
be subscribed, or payments may be converted into the equivalent number of shares. In case the
grantee retires, the grantee may subscribe to the unsubscribed shares anytime within the ten (10)year period. The plan does not allow sale or assignment of the shares. All shares acquired
through the Plan are subject to ALIs right to repurchase.
The subscribed shares are effectively treated as options exercisable within a given period which is
the same time as the grantees payment schedule. The fair values of these options are estimated
on the date of grant using the Binomial Tree Model. The Binomial Tree model requires six inputs
to produce an option stock value namely: market value of the share, book value of the share, time
to maturity, volatility rate, dividend yield, and risk free rate.
For the unsubscribed shares, the employee still has the option to subscribe within seven (7) years.
Movements in the number of options outstanding and weighted average exercise prices (WAEP)
under ESOWN follow:

At January 1
Granted
Subscribed
Cancelled availment
Cancelled
At December 31

2014
12,683,257
12,640,541
(12,330,426)
279,632
(993,724)
12,279,280

WAEP
P
= 14.19

21.10

P
= 15.61

2013
19,149,441
15,385,695
(18,784,577)
792,824
(3,860,126)
12,683,257

WAEP
P
= 10.31

18.74

P
= 14.19

*SGVFS011298*

- 114 -

The fair values of stock options granted are estimated on the date of grant using the Binomial Tree
Model and Black-Scholes Merton Formula, taking into account the terms and conditions upon
which the options were granted. The expected volatility was determined based on an independent
valuation. Option maturity is 4 years from the date of grant.
The fair value of stock options granted under ESOWN at grant date and the assumptions used to
determine the fair value of the stock options follow:

Number of unsubscribed shares

Fair value of each option
Weighted average share price
Exercise price
Expected volatility
Dividend yield
Interest rate

Number of unsubscribed shares

Fair value of each option
Weighted average share price
Exercise price
Expected volatility
Dividend yield
Interest rate

March 18,
2013
1,713,868
P
= 12.07
P
= 30.00
P
= 21.45
36.25%
1.93%
2.78%

Grant Date
March 13, March 31,
2012
2011
3,967,302 3,843,057
P
= 6.23
P
= 7.27
P
= 21.98
P
= 15.5
P
= 14.69
P
= 13.2
33.00%
36.25%
0.90%
1.01%
5.70%
5.60%

April 30,
May 15,
2009
2008
5,418,619 15,057,840
P
= 4.05
P
= 6.77
P
= 6.40
P
= 10.50
P
= 4.96
P
= 9.74
37.45%
32.04%
0.85%
0.49%
5.94%
8.53%

Grant Date
September
20,
June 5,
2007
2006
494,400 5,270,333
P
= 6.93
P
= 7.33
P
= 15.00
P
= 13.00
P
= 12.00
P
= 10.35
34.67%
46.03%
0.41%
1.56%
6.93%
10.55%

March 20,
2014
1,369,887
P
= 28.40
P
= 31.46
P
= 22.55
33.50%
1.42%
3.13%

March 31,
2010
2,298,247
P
= 8.88
P
= 13.00
P
= 9.74
43.57%
0.48%
5.95%

November
16, 2005
3,036,933
P
= 5.58
P
= 9.30
P
= 7.03
46.32%
0.77%
11.30%

Total expense (included under General and administrative expenses) recognized in 2014, 2013
and 2012 in the consolidated statements of income arising from share-based payments of ALI
amounted to P
= 196.1 million, P
= 232.7 million and P
= 248.4 million, respectively.
IMI
IMI has an ESOWN, which is a privilege extended to the Groups eligible managers and staff
whereby IMI allocates up to 10% of its authorized capital stock for subscription by said personnel
under certain terms and conditions stipulated in the ESOWN. Under the ESOWN, for as long as
IMI remains privately-owned, the subscription price of the shares granted shall be determined
based on the multiples of net book value, Earnings Before Income Tax and Depreciation and
Amortization (EBITDA) and net income of ten comparable Asian EMS companies as at the close
of the calendar year prior to the grant. Once IMI becomes publicly listed, the subscription price
per share shall be based on market price with a discount to be determined by the Compensation
Committee of IMI at the date of grant.
To subscribe, the grantee must be an eligible participant as defined in the ESOWN. However,
should the grantee cease to be employed by or connected with IMI before the full payment is
made for the subscribed shares, the remaining balance becomes due and demandable upon
separation, except for special circumstances as provided by the ESOWN. In such instances, the
grantee/heirs may be allowed to continue paying for the balance for the duration of the original
payment period. If the grantee is separated for cause, shares not fully paid will be forfeited and
whatever the amount the grantee has partially paid will be returned to him with no interest; if fully
paid prior to separation, the shares shall be subject to the Right to Repurchase. If the grantee
separates voluntarily, fully vested but not fully paid shares may be paid for in full upon separation
subject to Right to Repurchase; and payments made for subscribed shares up to the time of

*SGVFS011298*

- 115 -

separation may be converted into the equivalent number of shares based on the stipulated
subscription price when the shares were availed of. If the grantee separates involuntarily, shares
not fully paid for, whether fully vested or not, may be paid for in full within ninety (90) days from
separation subject to the Right to Repurchase; and payments made for subscribed shares up to
the time of separation may be converted into the equivalent number of shares based on the
stipulated subscription price.
A subscription is declared delinquent when the minimum payment required remains unpaid one
month after the due date. Any cash dividend of a delinquent subscription will be applied to pay the
subscription due. Stock dividends paid while the subscription is delinquent will only be released to
the grantee when the delinquent account is paid. If sixty (60) days after the due date and account
is still delinquent, the remaining shares are forfeited and the employee will not be eligible for future
ESOWN grants.
On February 21, 2007, IMIs BOD approved the granting of 45,150,000 shares of IMI under the
ESOWN at the subscription price of P
= 12.50 to various employees of STEL and to IMIs top
performers and key personnel. In 2008, additional 1,539,000 shares were granted to STEL and to
IMIs top performers and key personnel subject to the same terms as the shares subscribed in
2007. All the granted shares have been subscribed. The grantees will pay for the shares
subscribed through installments over a period of eight years, wherein an initial payment of 2.5% of
the value of the subscribed shares is payable upon subscription. It shall serve as a down payment
for the subscription. The subscribed shares have a holding period as follows: (a) 40% after one
year from subscription date; (b) 30% after two years from subscription date; and (c) 30% after
three years from subscription date. The actual grant date of the above two grants was on October
15, 2007. The fair value, determined based on a private banks valuation of IMI to be used by a
potential investor, was P
= 14.98 per share. The difference between the fair value and the
subscription price will be recognized as employee benefit expense over the required service
period. In 2008, management has approved a 2-year moratorium on the scheduled payments due
in 2008 and 2009, which resulted in an extension of the payment period from eight to ten years.
The outstanding shares under this grant have fully vested in September 2010.
On December 14, 2009, the Chairman of IMIs BOD approved the terms for granting 30,885,000
shares of the IMI under ESOWN at the subscription price of P
= 5.54 per share to various employees
of IMI. The grant date was on January 21, 2010. The payment scheme and holding period for this
grant are similar to the grant in 2007. The fair value per share used in valuing the grant is P
= 9.30,
which is the closing price of IMIs stock at the PSE at the date of grant.
On October 13, 2014, the Executive Committee of the BOD of IMI approved the grant of stock
options to qualified executives covering up to 35.9 million shares at a subscription price of P
= 5.91
per share. Out of the total shares granted, 31.8 million shares were subscribed by 38 executives
of IMI, of which 7.8 million shares are from unissued shares and 23.9 million shares were issued
from ESOWN Trust Account where all the previously cancelled ESOWN subscriptions were held.
The payment scheme and holding period for this grant are similar to the grant in 2007. The fair
value of stock options granted in 2014 is estimated at the date of grant using the Black-Scholes
Melton Formula, taking into account the terms and conditions upon which the stock options were
granted. The expected volatility was determined based on an independent valuation.

*SGVFS011298*

- 116 -

Movements in the number of shares outstanding under ESOWN in 2014, 2013 and 2012 follow:

Balances at January 1
Forfeitures
Subscriptions
Balances at December 31

2014
2013
2012
Weighted
Weighted
Weighted
Average
Average
Average
Exercise Number of
Exercise
Number of
Exercise Number of
Price
Shares
Price
Shares
Price
Shares
107,380,812
P
= 6.95 110,405,814
P
= 6.95 116,250,309
P
= 6.95
(3,276,342)
6.95 (3,025,002)
6.95 (5,844,495)
6.95
31,797,958
5.91

135,902,428
P
= 6.71 107,380,812
P
= 6.95 110,405,814
P
= 6.95

Total expense arising from share-based payments of IMI (included under General and
administrative expenses) in the consolidated statements of income amounted to US$0.17 million
(P
= 7.5 million), US$0.01 million (P
= 0.4 million), and US$0.07 million (P
= 3.0 million) in 2014, 2013 and
2012, respectively.
MWC
Executive Stock Option Plan (Executive SOP), Expanded Executive SOP and ESOWN
On February 26, 2004, MWCs BOD authorized the allocation of up to 20.00 million of the treasury
shares for distribution from time to time as may be authorized by the Chairman of the Board
(Chairman) of MWC as incentive and reward to deserving officers of MWC with rank of Manager 2
and above, including senior officers seconded from any parent company, under the Executive
SOP.
On October 28, 2004, MWCs BOD approved the allocation of an additional 3.6 million shares for
the Executive SOP, which will come from MWCs unissued shares or common shares held in
treasury. Accordingly, total allocation for the Executive SOP increased to 23.6 million shares.
On the same date, MWCs BOD approved the allocation of 136.4 million common shares for the
Expanded Executive SOP covering 96.4 million common shares and the ESOWN covering
40.0 million common shares. The common shares for the ESOWN and the Expanded Executive
SOP will come from MWCs unissued common shares or common shares held in treasury. The
common shares under the Expanded Executive SOP and ESOWN will be distributed from time to
time as an incentive and reward to deserving MWCs executives (Expanded Executive SOP) and
employees (ESOWN) of MWC as may be authorized by the Chairman.
In March 2005, MWC granted 23.6 million options under the Executive SOP with an exercise price
of P
= 2.71 per share. To enjoy the rights provided for in the plan, the option holder should be with
the MWC at the time the options vest. The vesting schedule of the options is as follows:
Year
2006
2007
2008

Vesting Percentage
40%
30%
30%

On November 15, 2005, MWCs BOD approved the allocation of 25.00 million common shares,
consisting of unissued shares and/or undisposed treasury shares, for distribution from time to time
as may be authorized by the Chairman, as an incentive and reward to deserving executives of
MWC with rank of Manager 1 and above, under the ESOWN.
On February 2, 2006, MWCs BOD authorized the migration of the Executive SOP covering
23.6 million common shares to ESOWN by giving Executive SOP grantees a one-time opportunity
to convert their Executive SOP allocation into an ESOWN subscription using the Executive SOP
subscription price of P
= 2.71 per share. The ESOWN terms are described in the succeeding
paragraphs.

*SGVFS011298*

- 117 -

The migration resulted in the recognition of the additional fair value of the replacement options
amounting to P
= 26.5 million. For the exercised options, the fair value was computed using the
market price at the date of grant less the discounted strike price.
The subscribed shares are effectively treated as options exercisable within a given period which is
the same time as the grantees payment schedule. The fair values of these options are estimated
on the date of grant using the Binomial Tree Model. In computing for the stock option value for
2013 grant, MWC assumed 24.90%, 3.47% and 2.99% as the volatility, dividend yield and risk-free
interest rate, respectively.
For the unsubscribed shares, the employee still has the option to subscribe within seven (7) years.
The fair values of stock options granted are estimated on the date of grant using the Binomial Tree
Model and Black-Scholes Merton Formula, taking into account the terms and conditions upon
which the options were granted. The expected volatility was determined based on an independent
valuation.
The fair value of stock options granted under ESOWN at grant date and the assumptions used to
determine the fair value of the stock options follow:
November 19,
2013
Number of shares granted
6,627,100
Number of unsubscribed
Shares
351,680
Fair value of each option
P
= 10.58
Weighted average share
Price
P
= 23.00
Exercise price
P
= 22.92
Expected volatility
24.90%
Dividend yield
3.47%
Risk-free interest rate
2.99%
Expected life of option
4 years

Grant Dates
April 30,
2009
9,241,025

June 15,
2008
7,798,483

May 21,
2007
2,130,000

May 2,
2006
13,625,000

992,000
P
= 8.68

1,442,000
P
= 5.90

1,580,000
P
= 10.65

520,000
P
= 9.85

2,265,000
P
= 4.59

P
= 19.80
P
= 17.38
33.68%
2.68%
4.76%
4 years

P
= 13.50
P
= 9.63
44.66%
2.92%
8.53%
4 years

P
= 18.00
P
= 15.13
25.64%
1.96%
6.93%
4 years

P
= 12.00
P
= 8.08
27.29%
2.58%
10.55%
7 years

P
= 6.50
P
= 5.47
24.65%
3.40%
11.30%
7 years

October 5,
2012
4,772,414

September
19, 2011
5,073,000

460,000
P
= 11.76
P
= 26.24
P
= 24.07
30.66%
2.56%
4.57%
4 years

The expected life of the options is based on managements estimate and is not necessarily
indicative of exercise patterns that may occur. The expected volatility used for the 2007 and 2006
grants was based on the average historical price volatility of several water utility companies within
the Asian region. For the grants beginning 2008, MWCs volatility was used as input in the
valuation. The expected volatility reflects the assumption that the historical volatility is indicative of
future trends, which may also not necessarily reflect the actual outcome.
No other features of the options granted were incorporated into the measurement of fair value.
To enjoy the rights provided for in the ESOWN, the grantee should be with MWC at the time the
holding period expires. The Holding Period of the ESOWN shares follows:
Holding period
After one year from subscription date
After two years from subscription date
After three years from subscription date

40%
30%
30%

The ESOWN grantees are allowed to subscribe fully or partially to whatever allocation may have
been granted to them. In case of partial subscriptions, the employees are still allowed to
subscribe to the remaining unsubscribed shares granted to them provided that this would be made
at the start of Year 5 from grant date up to the end of Year 6. Any additional subscription made by
the employee (after the initial subscription) will be subjected to another 3-year holding period.

*SGVFS011298*

- 118 -

Movements in the number of stock options outstanding under ESOWN are as follows:

At January 1
Granted
Exercised
At December 31

Weighted
average
2014 exercise price
6,745,880
P
= 22.92

(2,528,708)
22.92
4,217,172
P
= 22.92

Weighted
average
2013 exercise price
5,936,000
P
= 24.07
6,627,100
22.92
(5,817,220)
22.92
6,745,880
P
= 22.92

Total expense arising from equity-settled share-based payment transactions of MWC (included
under General and administrative expenses) in the consolidated statement of income amounted
to P
= 63.05 million, P
= 50.83 million and P
= 31.86 million in 2014, 2013 and 2012, respectively.

29. Operating Segment Information

For management purposes, the Group is organized into the following business units:

Parent Company - represents operations of the Company including, among others, its
financing entities such as ACIFL and AYCFL; plus results of operations of start-up companies
in power generation, transport infrastructure and education.

Real estate and hotels - planning and development of large-scale fully integrated residential
and commercial communities; development and sale of residential, leisure and commercial
lots and the development and leasing of retail and office space and land in these communities;
construction and sale of residential condominiums and office buildings; development of
industrial and business parks; development and sale of upper middle-income and affordable
housing; strategic land bank management; hotel, cinema and theater operations; and
construction and property management.

Financial services and insurance - universal banking operations, including savings and time
deposits in local and foreign currencies; commercial, consumer, mortgage and
agri-business 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.

Water distribution and wastewater services - contractor to manage, operate, repair,

decommission, and refurbish all fixed and movable assets (except certain retained assets)
required to provide water delivery, sewerage and sanitation including waste and wastewater
management in the East Zone Service Area.

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.

*SGVFS011298*

- 119

Information technology and BPO services - venture capital for technology businesses and
emerging markets; provision of value-added content for wireless services, on-line business-tobusiness 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.

Automotive manufacturing, distribution and sale of passenger cars and commercial vehicles.

International - investments in overseas property companies and projects.

Others air-chartered services, agri-business and other operating companies.

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 following tables regarding operating segments present assets and liabilities as of
December 31, 2014 and 2013 and revenue and income information for each of the three years in
the period ended December 31, 2014 (amounts in millions):

*SGVFS011298*

- 120 -

2014

Income
Sales to external customers
Intersegment
Share of profit of associates and joint
ventures
Interest income
Other income
Total income
Operating expenses
Operating profit
Interest expense and other financing
charges
Provision for (benefit from) income
tax
Net income
Other information
Segment assets
Investments in associates and joint
ventures
Deferred tax assets
Total assets
Segment liabilities
Deferred tax liabilities
Total liabilities
Segment additions to property, plant
and equipment and investment
properties
Depreciation and amortization
Non-cash expenses other than
depreciation and amortization
Cash flows provided by (used in):
Operating activities
Investing activities
Financing activities

Water
Financial
Distribution and
Services and Telecommunicati
Wastewater
Insurance
ons
Services

Information
Technology and
Electronics
BPO Services

Parent
Company

Real Estate
and Hotels

P
= 754
155

P
= 88,422

P
=

P
=

P
= 15,412
110

P
= 37,558

(197)
460
143
1,315
3,557
(2,242)

647
4,778
709
94,556
65,092
29,464

8,593

8,593

8,593

4,017

4,017

4,017

357
186
4,054
20,119
11,755
8,364

9
647
38,214
36,527
1,687

4,562

5,602

1,548

125

25

6,092
P
= 17,770

P
= 8,593

P
= 4,017

1,621
P
= 5,195

272
P
= 1,290

31
P
= 1,497

P
= 158,642

P
= 372,509

P
=

P
=

P
= 88,113

P
= 24,616

P
= 2,085

P
= 7,180

P
= 6,442

(P
= 97,791)

P
= 561,796

133,826
149
P
= 292,617
P
= 125,145
89
P
= 125,234

11,735
7,202
391,446
P
= 264,761
1,967
P
= 266,728

P
=

P
=

P
=

P
=

4,959
881
P
= 93,953
P
= 39,823
4,593
P
= 44,416

23
80
P
= 24,719
P
= 13,724
64
P
= 13,788

3,292
39
P
= 5,416
P
= 745
2
P
= 747

1,914

P
= 9,094
P
= 300
19
P
= 319

447
75
P
= 6,964
P
= 3,865
9
P
= 3,874

(371)
(P
= 98,162)
(P
= 15,294)

(P
= 15,294)

156,196
8,055
P
= 726,047
P
= 433,069
6,743
P
= 439,812

P
= 1,230
P
= 126

P
= 15,782
P
= 4,363

P
=
P
=

P
=
P
=

P
= 376
P
= 3,312

=
P1,091
P
= 1,021

P
= 121
P
= 125

P
= 163
P
= 26

P
= 657
P
= 178

P
= 114

P
= 139

P
=

P
=

P
= 36

P
= 457

P
= 35

P
= 67

P
= 10

(P
= 28)

P
=
P
=
P
=

P
=
P
=
P
=

P
= 1,822
(P
= 142)
P
= 1,412

(P
= 404)
(P
= 778)
P
= 918

(P
= 653)
P
=
P
= 880

P
=
P
=
P
=

44
(P
= 6,848)

(P
= 1,518)
(P
= 28,627)
P
= 52,635

P
= 36,673
(P
= 53,594)
P
= 17,632

P
= 5,030
(P
= 759)
(P
= 5,000)

P
= 1,770

(379)
51
2,148
3,590
2,037
1,553

International

Automotive
and Others

P
= 589

P
= 11,912
269

P
=
(534)

P
= 156,417

95
10
977
1,671
915
756

52
2
502
12,737
12,585
152

(2)

(536)
(539)
3

13,185
5,494
9,180
184,276
131,929
52,347

68

(11)
P
= 763

(P
= 1,742)
P
= 1,154
P
= 173

89
(P
= 5)

Intersegment
Eliminations

Consolidated

11,934

P
=3

8,138
P
= 32,275

P
= 211
P
=7

P
= 19,631
P
= 9,158
P
= 830
P
= 39,208
(P
= 82,746)
P
= 68,650

*SGVFS011298*

- 121 -

2013

Income
Sales to external customers
Intersegment
Share of profit of associates and joint
ventures
Interest income
Other income
Total income
Operating expenses
Operating profit
Interest expense and other financing
charges
Other charges
Provision for (benefit from) income
tax
Net income
Other information
Segment assets
Investments in associates and joint
ventures
Deferred tax assets
Total assets
Segment liabilities
Deferred tax liabilities
Total liabilities
Segment additions to property, plant
and equipment and investment
properties
Depreciation and amortization
Non-cash expenses other than
depreciation and amortization
Cash flows provided by (used in):
Operating activities
Investing activities
Financing activities

Water Distribution
Financial
Services and Telecommunicatio and Wastewater
Insurance
ns
Services

Electronics

Information
Technology and
BPO Services

International

Automotive
and Others

P
= 14,503
140

P
= 31,661

P
= 1,519

P
= 482

P
= 10,879
162

P
=
(568)

P
= 136,941

1,612

1,612

1,612

294
174
6,621
21,732
7,920
13,812

9
134
31,804
31,035
769

36
1
348
11,426
11,362
64

(18)
(674)
(1,260)
(665)
(595)

10,091
3,436
8,943
159,411
112,589
46,822

1,631
5,257

122
53

43
18

(18)

10,511
5,532

4,657
P
= 14,297

P
= 8,321

P
= 1,612

1,653
P
= 5,271

195
P
= 399

(25)
(P
= 552)

6,654
P
= 24,125

P
= 112,147

P
= 308,789

P
=

P
=

P
= 85,277

P
= 21,240

P
= 6,751

P
= 4,512

(P
= 75,296)

P
= 473,346

102,349
94
P
= 214,590
(P
= 83,315)
(83)
(P
= 83,398)

9,319
5,485
P
= 323,593
(P
= 211,065)
(1,307)
(P
= 212,372)

P
=

P
=

P
=

P
=

4,708
821
P
= 90,806
(P
= 40,646)
(4,759)
(P
= 45,405)

29
P
= 21,269
(P
= 12,642)
(138)
(P
= 12,780)

2,504
3
P
= 9,258
(P
= 120)
(2)
(P
= 122)

P
= 10,516
P
= 2,112
(47)
P
= 2,065

334
82
P
= 4,928
(P
= 2,309)
(11)
(P
= 2,320)

(P
= 75,296)
(P
= 9,862)

(P
= 9,862)

119,804
6,514
P
= 599,664
(P
= 357,847)
(6,347)
(P
= 364,194)

P
= 83
P
= 94

P
= 16,035
P
= 3,892

P
=
P
=

P
=
P
=

P
= 275
P
= 3,329

=
P926
P
= 935

P
= 319
P
= 162

P
= 1,076
P
=1

P
= 18
P
= 47

P
= 275

P
=4

P
=

P
=

P
= 55

P
= 956

P
=3

P
= 1190

P
= 113

P
=

P
= 2,596

P
=
P
=
P
=

P
=
P
=
P
=

(P
= 417)
(P
= 760)
P
= 749

P
=
P
=
P
=

P
= 25,616
(P
= 80,743)
P
= 40,496

Parent
Company

Real Estate
and Hotels

P
= 127
216

P
= 77,770
50

P
=

P
=

(133)
670
681
1,561
2,641
(1,080)

550
2,114
1,039
81,523
57,795
23,728

8,321

8,321

8,321

3,911
(158)

4,774

125
(P
= 4,958)

(P
= 5,334)
(P
= 10,090)
P
= 4,669

P
= 27,239
(P
= 69,952)
P
= 38,558

P
= 4,286
P
= 362
(P
= 3,567)

=
P693
(P
= 777)
(P
= 233)

(323)
70
391
1,657
1,798
(141)
25
23
20
(P
= 209)

P
=8
(P
= 170)
P
= 335

(266)
416
403
1,035
703
332
23
339
(12)
(P
= 18)
P
= 9,926
590

(P
= 859)
P
= 644
(P
= 15)

Intersegment
Eliminations

41
(P
= 38)

P
= 4,067
(P
= 100)

Consolidated

P
= 22,799
P
= 8,360

*SGVFS011298*

- 122 -

2012

Income
Sales to external customers
Intersegment
Share of profit (loss) of associates
and joint ventures
Interest income
Other income
Total income
Operating expenses
Operating profit
Interest and other financing charges
Other charges
Provision for income tax
Net income (loss)
Segment additions to property, plant
and equipment and investment
properties
Depreciation and amortization
Non-cash expenses other than
depreciation and amortization

Water Distribution
Financial
and Wastewater
Services and
Services
Insurance Telecommunications

Information
Technology and
Electronics
BPO Services

Parent
Company

Real Estate
and Hotels

P
= 230
107

P
= 55,929
67

P
=

P
=

P
= 13,962
158

P
= 27,979
18

(58)
858
1,070
2,207
2,513
(306)
2,979
44
153
(P
= 3,482)

536
3,130
408
60,070
41612
18,458
3,604
313
3,471
P
= 11,070

5,633

5,633

5,633

P
= 5,633

2,144

2,144

2,144

P
= 2,144

206
237
6,672
21,235
7,349
13,886
1,371
6,118
1,385
P
= 5,012

25
31
28,053
27,670
383
140
4
165
P
= 74

(574)
73
95
884
1,410
(526)
18
139
17
(P
= 700)

(222)
305
405
802
806
(4)
22
275
(264)
(P
= 37)

P
= 689
P
= 92

P
= 20,142
P
= 2,715

P
=
P
=

P
=
P
=

P
= 615
P
= 2,320

P
= 689
P
= 1,127

P
= 79
P
= 260

P
=
P
=1

P
= 75
P
= 36

P
= 82

P
= 313

P
=

P
=

P
= 83

P
= 15

P
= 139

P
= 319

P
=

P
= 1,273
17

International

Automotive
and Others

Intersegment
Eliminations

P
= 314

P
= 10,202
190

P
=
(556)

P
= 109,889
1

17
10
277
10,696
10,517
179
27
0
46
P
= 106

(6)
(591)
(1,153)
(829)
(324)
(6)

3
(P
= 321)

7,682
4,632
8,367
130,571
91,048
39,523
8,155
6,893
4,976
P
= 19,499

P
=
P
= 638

P
= 22,289
P
= 7,189

(P
= 7,121)

Consolidated

(P
= 6,170)

*SGVFS011298*

- 123 -

Geographical Segments

Philippines
Japan
USA
Europe
Others (mostly
Asia)

2014
P
= 143,309
3,180
12,027
18,680

Revenue
2013
P
= 128,554
2,944
8,927
14,759

2012
P
= 111,122
241
7,243
8,679

2014
P
= 701,273
12
2,356
4,878

7,080
P
= 184,276

4,228
P
= 159,412

3,286
P
= 130,571

17,528
P
= 726,047

Total Assets
2013
2012
P
= 577,433
P
= 500,806
9
37
410
347
6,872
5,233
14,940
P
= 599,664

4,481
P
= 510,904

Investment Properties and

Property, Plant and
Equipment Additions
2014
2013
2012
P
= 18,746
P
= 16,473
P
= 22,223
1

362
63
33
291
519

231
P
= 19,631

267
P
= 17,322

32
P
= 22,288

30. Leases
Finance leases - as lessee
The Group has finance leases for various items of property, plant and equipment. These leases
have lease terms of 3 to 10 years. Future minimum lease payments under the finance leases
together with the present value of the net minimum lease payments follow:

Minimum
Payments

2014
2013
Present
values
Minimum Present values
of payments
Payments
of payments
(In Thousands)
P
= 45,727
P
= 60,764
P
= 55,177

Within one year

P
= 51,377

After one year but not more than five years

114,284

108,690

142,138

134,151

Total minimum lease payments

Less amounts

165,661
10,313

154,417

202,902
684

189,328

P
= 155,348

P
= 154,417

P
= 202,218

P
= 189,328

Present value of minimum lease payments

Operating lease commitments - as lessee

ALI Group entered into lease agreements with third parties covering real estate properties. These
leases generally provide for either (a) fixed monthly rent, or (b) minimum rent or a certain
percentage of gross revenue, whichever is higher.
Future minimum rentals payable under noncancellable operating leases of lessee subsidiaries are
as follows:

Within one year

After one year but not more than five years
More than five years

2014
2013
(In Thousands)
P
= 921,686
P
= 848,509
2,798,273
2,514,219
11,942,690
11,810,476
P
= 15,662,649
P
= 15,173,204

ALI
On January 28, 2011, the Board of Regents of the University of the Philippines awarded to ALI the
P
= 4.0 billion development of a 7.4-hectare lot at the University of the Philippines Diliman East
Campus, also known as the UP Integrated School, along Katipunan Avenue, Quezon City. ALI
signed a 25-year lease contract for the property last June 22, 2011, with an option to renew for
another 25 years subject to mutual agreement of the parties. The lease payments shall commence
as soon as sales are registered by the merchants.
A retail establishment with about 63,000 square meters of gross leasable area and an office/BPO
building about 8,000 square meters of gross leasable area shall be constructed on the property.

*SGVFS011298*

- 124 -

For the year ended December 31, 2014, Phase 1a (with gross leasable area of 5,000 sqm.) of the
retail establishment has commenced operations on September 30, 2013.
On December 18, 2013, ALI donated the New UPIS facilities at a total cost of P
= 224.7 million and
the rehabilitated and upgraded UPIS K-2 and 3-6 Buildings at a cost of P
= 40.0 million to the
University of the Philippines.
IMI Group
IMI Singapore and STEL Group, subsidiaries of IMI, have various operating lease agreements in
respect of office premises and land. These noncancellable leases have remaining noncancellable
lease terms of between 1 to 50 years commencing on January 1, 1992 to April 1, 2011 and ending
on February 28, 2010 to April 30, 2050. Most leases contain renewable options. There are no
restrictions placed upon the lessee by entering into these leases.
On August 27, 2014, STEL entered into an agreement relating to the sale and purchase of the
building with DBS Trustee Limited, in its capacity as trustee of Soilbuild Business Space REIT
(see Note 14). The existing building is a part 3 / part 6-storey light industrial building sited on a
land area of 3,992.70 square meters and is held under a lease issued by JTC Corporation (JTC)
for a term of 30 years commencing from May 1, 2000 with a covenant by JTC to grant a further
term of 20 years subject to the terms and conditions of the lease.
Pursuant to a Lease Agreement, the Trustee will lease the Property to STEL and will take
assignment of the existing tenancies. In addition, STEL will undertake to commit 100% occupancy
of the property for a term of 10 years commencing from the date of completion of the agreement.
On commencement of the lease term, STEL shall provide a security deposit equivalent to 6
months rent and a joint Corporate Guarantee from the immediate and ultimate holding
companies, IMI Singapore and IMI Philippines, respectively.
PSi
PSi has a cancellable fifteen-year operating lease agreement with FTI for its plant facilities, office
spaces and other facilities, with Lot Nos. 92-A and 92-B commencing on August 15, 2004 up to
August 14, 2019. The operating lease agreement with FTI provides for a 5% increase in rental per
year starting on the second year and annually thereafter until the end of the lease term.
PSi leases its plant facilities, office spaces and other facilities in Calamba, Laguna from
Centereach Resources, Inc. (CRI), an unrelated entity. The operating lease agreement will expire
in March 2018.
In 2012, the operating lease agreement for the second facility was executed between CRI and PSi
for office and warehouse use. The operating lease agreement commenced on October 13, 2012
and will expire on October 12, 2015.
The operating lease agreements with CRI provides for the increase in rental at varying rates over
the term of the lease and a penalty interest rate of 3% per month using simple interest.
Operating leases - as lessor
ALI Group have lease agreements with third parties covering their investment properties portfolio.
These leases generally provide for either (a) fixed monthly rent, or (b) minimum rent or a certain
percentage of gross revenue, whichever is higher.
IMI Group
STEL Group has entered into leases on their leasehold building. These non-cancellable leases
have remaining lease terms of between one (1) and five (5) years. The lease income of
recognized by STEL amounted to US$1.26 million (P
= 55.9 million) in 2014, US$1.08 million
(P
= 45.8 million) in 2013, and US$0.57 thousand (P
= 2.4 million)in 2012.

*SGVFS011298*

- 125 -

Future minimum rentals receivable under noncancellable operating leases of the Group are as
follows:

Within one year

After one year but not more than five years
More than five years

2014
2013
(In Thousands)
P
= 4,043,670
P
= 3,240,947
8,895,438
7,494,768
8,719,812
3,160,333
P
= 21,658,920
P
= 13,896,048

31. Related Party Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the
other party or exercise significant influence over the other party in making financial and operating
decisions. Parties are also considered to be related if they are subject to common control or
common significant influence which include affiliates. Related parties may be individuals or
corporate entities.
The Group, in its regular conduct of business, has entered into transactions with associates, joint
ventures and other related parties principally consisting of advances, loans and reimbursement of
expenses, purchase and sale of real estate properties, various guarantees, construction contracts,
and development, management, underwriting, marketing and administrative service agreements.
Sales and purchases of goods and services as well as other income and expense to and from
related parties are made at normal commercial prices and terms.
There has not been any material transaction during the last two years, or proposed transaction, to
which the Group was or is to be a party, in which any of its directors or executive officers, any
nominee for election as a director or any security holder identified in this condensed financial
information had or is to have a direct or indirect material interest.
The transactions and balances of accounts with related parties follow:
a. Transactions with BPI, an associate
i.

As of December 31, 2014 and 2013, the Group maintains current and savings account,
money market placements and other short-term investments with BPI broken down as
follows (amounts in thousands):

Cash in bank
Cash equivalents
Financial assets at FVPL
Other non-current asset (Note 17)

2014
P
= 14,878,169
36,759,229
6,264,569
8,273,200

2013
P
= 14,403,016
24,141,865
12,794,654

From the Groups placements and short-term investments with BPI, the Group has
accrued interest receivable amounting to P
= 79.4 million and P
= 8.1 million as of December
31, 2014 and 2013, respectively. Interest income earned amounted to P
= 586.5 million in
2014, P
= 648.7 million in 2013 and P
= 1,166.7 million in 2012.
ii.

The Group also has short-term and long-term debt payable to BPI amounting to
P
= 38.0 billion and P
= 23.2 billion as of December 31, 2014 and 2013, respectively. These
short-term and long-term debts are interest bearing with varying rates, have various
maturities starting 2015 and varying schedules of payments for interest. The Group has
accrued interest payable pertaining to the outstanding balance of the short-term and long-

*SGVFS011298*

- 126 -

term debt amounting to P

= 190.6 million and P
= 32.2 million as of December 31, 2014 and
2013, respectively. Interest expense incurred from the debt amounted to P
= 402.7 million in
2014, P
= 145.2 million in 2013 and P
= 131.1 million in 2012.
b. Outstanding balances of related party transaction follow (amounts in thousands):
Receivables
2014
Associates:
BPI
First Gen Northern Energy (FGNEC)
Bonifacio Land Corp. (BLC)
Stream
Ayala System Technology (ASTI)
Naraya Development Co. Ltd.
Joint ventures:
Integreon
Globe
ADHI
Asiacom
Other related parties:
Columbus Holdings, Inc. (Columbus)
Fort Bonifacio Development
Corporation (FBDC)
Honda Cars Philippines, Inc. (HCP)
myAyala.com, Inc.
Lagoon Development Corporation
(Lagoon)
Isuzu Philippines Corporation (IPC)
GN Power Kauswagan (GNPK)
Fort Bonifacio Holdings Corp.
Sonoma Services Inc.
Others

i.
ii.

iii.
iv.

2013

Payables
2014

2013

P
= 435,123
5,531
374

441,028

P
= 276,659
5,531

246,488
15,741
4,877
549,296

P
= 257,238

212,696

469,934

P
= 104,911

212,696

90

317,697

543,836
165,419
10,883

720,138

488,221
141,939

630,160

2,409

13,617
16,026

2,005

13,581
15,586

888,953

888,815

1,156,308

1,156,308

394,026
112,522
2,097

274,645
72,650
2,098

403,297
152,457

2,154,003
170,298

828

149,853
1,548,279
P
= 2,709,445

5,964
25,452
69,936
3,085
867
622,504
1,966,016
P
= 3,145,472

193,537

33,617
33,641
1,972,857
P
= 2,458,817

48,695

244,422
3,773,726
P
= 4,107,009

Receivable from BPI includes trade receivables on vehicles sold by AAHC and accrued
interest receivables on short-term placements by the Group.
Receivable from Stream in 2013 represents a convertible promissory note entered into on
April 27, 2012 for the principal sum of US$4.7 million, plus interest at the rate of 10% per
annum maturing on April 29, 2013. To the extent the outstanding balance is not repaid in
full on or prior to the maturity date, AIVPL Group may elect at any time after the maturity
date, upon delivery of conversion notice to Stream, to convert the note into a number of
units of membership interests. On April 19, 2013, Stream and AIVPL Group amended the
maturity date of the loan to April 29, 2014. Interest income earned in 2014 and 2013
amounted to nil and P
= 21.7 million, respectively.
Receivables from ASTI and FGNEC are advances made for working capital requirements
which are non-interest bearing and demandable.
Receivable from Integreon represents a convertible promissory note entered into on
February 2010 with a principal of US$7.30 million and bear interest of 14% per annum.
The lender has a conversion option for a period of 30 days beginning on the final maturity
date at a stipulated price per share. Subsequent amendments were made to the
convertible note on February 15, 2011, July 15, 2012 and on March 4, 2014 which
include, among others, extension of the final maturity date and optional coversion period
and change in interest rate. The latest amendment extended the final maturity date from
February 15, 2014 to February 15, 2016 and the optional conversion period from
February 15, 2014 to March 14, 2017. The convertible note bears interest of 12% per
annum. Interest income earned amounted to P
= 38.9 million, P
= 37.2 million and
P
= 54.6 million in 2014, 2013 and 2012, respectively.

*SGVFS011298*

- 127 -

v.

vi.
vii.
viii.
ix.
x.
xi.

xii.
xiii.

xiv.

c.

Receivable from GNPK by ACEHI in 2013 represents an advance for development costs,
non-interest bearing and shall be paid in full within 30 days from financial closing of the
project. GNPK is a project company of ACEHI and Power Partners Ltd. Co. for the
development of 3X135MW coal-fired power plant in Kauswagan Lanao del Norte
Receivable from Columbus represents non-interest bearing advance for future acquisition
of shares in BLC.
Receivable from FBDC largely pertains to management fees which are included under
Other income.
Other outstanding balances of receivable from related parties at year-end pertain mostly
to advances and reimbursement of operating expenses. These are unsecured, interest
free, will be settled in cash and are due and demandable.
Payable to Columbus and BLC represent non-interest bearing advances for stock
redemption.
Payable to IPC and HCP consist of purchased parts and accessories and vehicles that
are trade in nature, interest-free, unsecured and are payable within 15 to 30 days.
Payable to BPI includes interest payable on Groups borrowings payable at various
payments terms like monthly or quarterly and insurance premiums payable which are due
in 30-60 days.
The other outstanding balances of payable to related parties at year-end are unsecured,
interest-free, will be settled in cash and are due and demandable.
Allowance for doubtful accounts on amounts due from related parties amounted to
P
= 135.4 million and P
= 145.6 million as of December 31, 2014 and 2013, respectively.
Provision for doubtful accounts amounted to P
= 0.3 million, P
= 0.8 million and P
= 15.9 million in
2014, 2013 and 2012, respectively.
On November 26, 2014, Alveo Land Corporation, a wholly owned subsidiary of ALI,
acquired a 6,986 sq. m. property located along Valero St., Salcedo Vill., Makati City. The
property was purchased from BPI for P
= 1,590.0 million, resulting into a gain of
P
= 700.0 million.

Receivables from officers and employees pertain to housing, car, salary and other loans
granted to the Groups officers and employees which are collectible through salary deduction,
are interest bearing ranging from 6.0% to 13.5% per annum and have various maturity dates
ranging from 2015 to 2026.

d. The fair value of the Groups total investment in the BPI Fund amounted P
= 5.6 billion and
P
= 12.8 billion, as of December 31, 2014 and 2013, respectively.
e. Revenue and expenses from related parties follow:

Associates:
BPI
PPI
Stream
ASTI
Jointly controlled
entities:
Globe
Integreon
Asiacom
Northwind Power
Development
Corp.
BPI Globe Banko

2014

Revenue
2013

2014

Expenses
2013

2012

P
= 558,814
60

558,874

P
= 702,699
417
21,715
826
725,657

P
= 1,166,696
339
11,859
1,101
1,179,995

P
= 427,263

427,263

P
= 143,582

143,582

P
= 131,004

131,004

101,381
38,973
613

71,913
37,226
1,154

16,642
54,682
6,998

124,563

115,809

32,071

140,967

110,293

4,410
222
82,954

124,563

115,809

32,071

2012
(In Thousands)

(Forward)

*SGVFS011298*

- 128 -

Other related
parties:
FBDC
Lagoon
6750 Ayala Avenue
Others

2014

Revenue
2013

P
= 176,194
49,135
17,697
25,921
268,947
P
= 968,788

P
= 221,483
41,143
46,511
27,405
336,542
P
= 1,172,492

2014

Expenses
2013

2012

P
= 155,099
1,315

156,414
P
= 708,240

P
= 129,175

28,351
157,526
P
= 416,917

P
= 16,959

3,575
20,534
P
= 183,609

2012
(In Thousands)

P
= 113,471

9,258
122,729
P
= 1,385,678

Revenue recognized from related parties includes:

i.
Leasing and developmental projects services rendered by ALI group.
ii. Water and sewerage services rendered by MWC.
iii. Automotive sales and repair services rendered by AAHC group.
iv. Interest income from cash deposits and money market placements in BPI.
Expenses recognized from related parties include:
i.
Interest expense from short-term and long-term debt payable to BPI.
ii. Purchases of communications software and billings for mobile phone charges and
internet connections with Globe.
iii. Building rental, leased lines, internet connections and ATM connections with Innove,
subsidiary of Globe.
f.

The Groups Compensation of key management personnel by benefit type follows:

2014
Short-term employee benefits
Post-employment benefits (Note 27)
Share-based payments (Note 28)

P
= 1,369,942
69,079
37,957
P
= 1,476,978

2013
(In Thousands)
P
= 1,242,543
139,933
63,571
P
= 1,446,047

2012
P
= 1,401,840
77,177
158,131
P
= 1,637,148

32. Financial Instruments

Financial Risk Management
General
Like any other risks, financial risks are inherent in the its business activities and are typical of any
large holding company. The financial risk management of the Company seeks to effectively
contribute to better decision making, enhance performance, and satisfy compliance demands.
The Company defines financial risks as risk that relates to the Companys ability to meet financial
obligations and mitigate funding risk, credit risk and exposure to broad market risks, including
volatility in foreign currency exchange rates and interest rates. Funding risk refers to the potential
inability to meet contractual or contingent financial obligations as they arise and could potentially
impact the Companys financial condition or overall financial position. Credit risk is the risk of
financial loss arising from a counterpartys failure to meet its contractual obligations or nonpayment of an investment. These exposures may result in unexpected losses and volatilities in
the Companys profit and loss accounts.
The Company maintain a strong focus on its funding strategy to help provide access to sufficient
funding to meet our business needs and financial obligations throughout business cycles. The
Companys plans are established within the context of our annual strategic and financial planning
processes. The Company also take into account capital allocations and growth objectives,
including dividend pay-out. As a holding company, the Company generate cash primarily on
dividend payments of its subsidiaries, associates and joint ventures and other sources of funding.

*SGVFS011298*

- 129 -

The Company also establish credit policies setting up limits for counterparties that are reviewed
quarterly and monitoring of any changes in credit standing of counterparties.
In 2014, the Company formalized the foreign exchange and interest rate risk management policy.
The Company actively monitor foreign exchange exposure and interest rate changes. And in
addition, the Company ensure that all loan covenants and regulatory requirements are complied
with.
Risk is inherent in our business; thus, the effective management of risk is vital to the strategic and
sustained growth of the Company and the Ayala Group.
The Ayala Group adopts a formal risk management process as an essential element of sound
corporate governance and an integral part of good management practice. It is designed primarily
to have a structured and disciplined approach of aligning strategy, processes, people, technology,
and knowledge with the purpose of evaluating and managing the uncertainties the Group faces as
it creates value for all stakeholders.
Enterprise Risk Management (ERM) policies and programs are in place, in accordance with an
internationally recognized standards and framework. These are periodically reviewed and
improved to adapt to changes in the business and operating environment, and be responsive to
emerging and changing risks. The risk management framework encompasses the identification
and assessment of risks drivers;measurement of risks impact; formulation of risk management
strategies; assessment of risk management capabilities required to implement risk management
strategies; design and implementation of risk management capability-building initiatives; and
monitoring and evaluating the effectiveness of risk mitigation strategies and management
performance. And as a continuous process, areas and opportunities for improvement in the risk
management process are identified. Also included in the continuous improvement program, the
Group aims to strengthen its ERM practices and benchmark with industry best practices to ensure
they remain relevant, effective, and a key enabler in the achievement of business strategies and
objectives.
Our Chief Risk Officer (CRO) is the ultimate champion of enterprise risk management of the
Group and oversees the entire risk management function. The Group Risk Management Unit
provides support to the CRO and drives the implementation and continuous improvement of the
risk management process. The Unit also provides oversight and assistance to the Ayala group of
companies risk management functions.
The Audit and Risk Committee provides oversight to the risk management process in compliance
with the Audit and Risk Committee Charter. The CRO and the Group Risk Management Unit
submit risk management reports to the committee on a quarterly basis, focusing on the
implementation of risk management strategies and action plans for the identified top risks of the
Ayala group, any emerging risks, and developments in risk management. The CRO and the Group
Risk Management Unit report the same to the Ayala Corp and Ayala Group Mancom at least twice
a year.
In November 2014, the charter of the Audit and Risk Committee was revised with the creation of a
separate Risk Committee of the Board.
The Board monitors the effectiveness of risk management through the regular updates on
strategic and operational risks facing the Group from management and reports from the Audit and
Risk Committee. The companys internal auditors monitor the compliance with risk management
policies to ensure that an effective control environment exists within the entire Ayala group.
The Ayala Group continues to monitor and manage its financial risk exposures in accordance with
Board approved policies. The succeeding discussion focuses on Ayala Groups financial risk
management.

*SGVFS011298*

- 130 -

Financial Risk Management Objectives and Policies

The Groups principal financial instruments comprise financial assets at FVPL, AFS financial
assets, bank loans, corporate notes and bonds. The financial debt instruments were issued
primarily to raise financing for the Groups operations. The Group has various financial assets
such as cash and cash equivalents, short-term investments, accounts and notes receivables and
accounts payable and accrued expenses which arise directly from its operations.
The Groups main risks arising from the use of financial instruments are interest rate risk,
foreignexchange risk, price risk, liquidity risk, and credit risk.
The Group also uses hedging instruments, the purpose of which is to manage the currency and
interest rate risks arising from its financial instruments.
The Groups risk management policies relevant to financial risks are summarized below:
Interest rate risk
The Groups exposure to market risk for changes in interest rates relates primarily to the
Companys and its subsidiaries obligations. The policy is to keep a certain level of the total
obligations as fixed to minimize earnings volatility due to fluctuation in interest rates.
The following table demonstrates the sensitivity of the Groups profit before tax and equity to a
reasonably possible change in interest rates as of December 31, 2014 and 2013, with all variables
held constant, (through the impact on floating rate borrowings and changes in fair value of AFS
financial assets).
Fair value interest rate risk
Change in
basis points
AFS financial assets

+100
-100

2014
(In Thousands)
P
=

2013
(P
= 1,148)
1,150

Cash flow interest rate risk

Effect on profit before tax
Change in
basis points
Parent Company Floating rate
Borrowings
Subsidiaries Floating rate
Borrowings

2014
(In Thousands)

2013

+100
-100

(P
= 58,542)
58,542

(P
= 58,481)
57,841

+100
-100

(420,388)
420,388

(466,560)
466,560

There is no other impact on the Groups equity other than those already affecting the net income.

*SGVFS011298*

- 131 -

The terms and maturity profile of the interest-bearing financial assets and liabilities, together with its corresponding nominal amounts and carrying values (in thousands),
are shown in the following table:
December 31, 2014
Rate Fixing
Period

Nominal
Amount

< 1 year

1 to 5 years

> 5 years

Carrying Value

Various
Various

P
= 90,761,860
1,102,703

P
= 90,761,860
1,102,703

P
=

P
=

P
= 90,761,860
1,102,703

Various
Various

15,136,805
239,919

7,781,795
239,919

7,231,704

93,150

15,106,649
239,919

Various

8,273,200
P
= 115,514,487

P
= 99,886,277

P
= 7,231,704

8,273,200
P
= 8,366,350

8,273,200
P
= 115,484,331

Fixed at 6.70% to 8.40%

Fixed at 6.75% to 6.80%
Fixed at 6.88%

7 years
10 years
15 years

P
= 20,000,000
10,000,000
10,000,000

P
=

P
= 19,883,150

P
=
9,930,244
9,920,501

P
= 19,883,150
9,930,244
9,920,501

Variable at 0.50% to 0.67% over 91-day

T-bills PDST-R1

3 months

21,250,000

142,140

17,008,891

4,020,064

21,171,095

Ranging from 2.00% to 8.00%

Ranging from 1.10% to 2.55%

Monthly, quarterly
Monthly, quarterly

4,164,369
16,919,900

4,164,639
16,919,900

4,164,639
16,919,900

Fixed at 0.50% to 10.21%

3,4,5,7,10 and 15
years

114,478,982

4,175,614

40,479,307

69,391,206

114,046,127

5 years

13,461,000

12,247,531

12,247,531

3 months,
semi-annual

53,001,484

6,463,131

39,957,883

4,140,796

50,561,810

P
= 263,275,735

P
= 31,865,424

P
= 117,329,231

P
= 109,650,342

P
= 258,844,997

Interest terms (p.a.)

Group
Cash and cash equivalents
Short-term investments
Accounts and notes receivable
AFS financial asset Quoted debt investments
Other noncurrent asset

Fixed at the date of investment

Fixed at the date of investment or
revaluation cut-off
Fixed at the date of sale or transaction
Fixed at the date of investment or
revaluation cut-off
Fixed at the date of investment

Company
Long-term debt
Fixed

Floating

Subsidiaries
Short-term debt
Long-term debt
Fixed
Peso and foreign currency
Dollar
Exchangeable bond

Fixed at 0.50%

Floating
Variable at Libor+1.50% to 3.50%

*SGVFS011298*

- 132 -

December 31, 2013

Rate Fixing
Period

Nominal
Amount

< 1 year

1 to 5 years

> 5 years

Carrying Value

Various
Various

P
= 65,643,383
119,345

P
= 65,643,383
119,345

P
=

P
=

P
= 65,643,383
119,345

Various
Various

18,264,029
103,301

7,423,796
103,301

8,885,742

254,689

16,564,227
103,301

P
= 84,130,058

P
= 73,289,825

P
= 8,885,742

P
= 254,689

P
= 82,430,256

5 years
7 years
10 years
15 years

P
= 2,820,000
21,455,000
11,491,667
10,000,000

P
= 2,816,470
1,453,368
1,667

P
=
9,943,541
1,490,000

P
=
9,912,247
9,921,805
9,909,917

P
= 2,816,470
21,309,156
11,413,472
9,909,917

3 months

13,250,000

39,649

4,242,785

8,907,223

13,189,657

Ranging from 1.21% to 8.0%

Ranging from 1.05% to 4.13%%

Monthly, quarterly
Monthly, quarterly

3,696,834
12,114,451

3,696,834
12,114,451

3,696,834
12,114,451

Fixed at 2.4753% to 13.50%

3,4,5,7,10 and 15
years

89,282,857

2,980,552

29,453,703

56,500,262

88,934,517

3 months,
semi-annual

42,443,365

4,649,230

32,698,580

4,948,863

42,296,673

P
= 206,554,174

P
= 27,752,221

P
= 77,828,609

P
= 100,100,317

P
= 205,681,147

Interest terms (p.a.)

Group
Cash and cash equivalents
Short-term investments
Accounts and notes receivable
AFS financial asset Quoted debt investments

Fixed at the date of investment

Fixed at the date of investment or
revaluation cut-off
Fixed at the date of sale or transaction
Fixed at the date of investment or
revaluation cut-off

Company
Long-term debt
Fixed
Fixed
Fixed
Fixed
Fixed

at 7.45%%
at 6.70% to 8.40%
at 6.75% to 6.80%
at 6.88%

Floating
Variable at 0.50% to 0.67% over 91-day
T-bills PDST-R1
Subsidiaries
Short-term debt
Long-term debt
Fixed
Peso and foreign currency
Floating
Variable at Libor+0.50% to 3.50%

*SGVFS011298*

- 133 -

Foreign exchange risk

The Groups foreign exchange risk results primarily from movements of the USD against other
currencies. As a result of significant operating expenses in PHP, the Groups consolidated
statements of income can be affected significantly by movements in the USD versus the PHP. In
2014 and 2013, the Group entered into currency forward contracts to hedge its risks associated
with foreign currency fluctuations.
IMI Group
The IMI Groups foreign exchange risk results primarily from movements of the USD against other
currencies. As a result of significant operating expenses in PHP, the IMI Groups consolidated
statements of income can be affected significantly by movements in the USD versus the PHP. In
2014 and 2013, the IMI Group entered into currency forward contracts to hedge its risks
associated with foreign currency fluctuations.
IMI Group also has transactional currency exposures. Such exposure arises from sales or
purchases denominated in other than IMI Groups functional currency. Approximately 50% and
45% of the Groups sales for the years ended December 31, 2014 and 2013, respectively, and
49% and 37% of costs for the years ended December 31, 2014 and 2013, respectively, are
denominated in currencies other than IMI Groups functional currency.
IMI Group manages its foreign exchange exposure risk by matching, as far as possible, receipts
and payments in each individual currency. Foreign currency is converted into the relevant
domestic currency as and when the management deems necessary. The unhedged exposure is
reviewed and monitored closely on an ongoing basis and management will consider hedging any
material exposure where appropriate.
MWC Group
The MWC Groups foreign exchange risk results primarily from movements of the PHP against the
USD and Japanese Yen (JPY). Majority of revenues are generated in PHP, and substantially all
capital expenditures are also in PHP. Approximately 34% and 40% of debt as of December 31,
2014 and 2013, respectively, was denominated in foreign currency. Under Amendment 1 of the
Agreement, however, the Group has a natural hedge on its foreign exchange risks on its loans
and concession fee payments through a recovery mechanism in the tariff.
Information on the Groups foreign currency-denominated monetary assets and liabilities and their
Php equivalent follows:
December 31, 2014
US$
Assets
Cash and cash equivalents
Short-term investments
Accounts and notes receivables
Other current assets
Total assets
Liabilities
Accounts payable and accrued
expenses
Short-term debt
Long-term debt
Other noncurrent liabilities
Total liabilities
Net foreign currency
denominated liabilities

December 31, 2013

Php
Equivalent*
US$ Php Equivalent*
(In Thousands)

US$44,199
1,247
6,804
375
52,625

P
= 1,976,586
55,766
304,275
16,770
2,353,397

US$33,352

8,440

41,792

P
= 1,480,661

374,694

1,855,355

576
37,154
281,747
78,020
397,497

25,759
1,661,527
12,599,730
3,489,039
17,776,055

233,917
37,840
208,085
86,729
566,571

10,384,727
1,679,905
9,237,920
3,850,326
25,152,878

(US$344,872)

(P
= 15,422,658) (US$524,778) (P
= 23,297,535)

*Translated using the exchange rate at the reporting date (US$1:P

= 44.720 in December 31, 2014 and US$1: P
= 44.395 in December 31,
2013).

*SGVFS011298*

- 134 -

December 31, 2014

JPY
Assets
Cash and cash equivalents
Accounts and notes receivable
Other noncurrent assets
Total assets
Liabilities
Accounts payable and accrued
expenses
Long-term debt
Service concession obligation
Total liabilities
Net foreign currency
denominated liabilities

December 31, 2013

Php
Php
Equivalent*
Equivalent*
JPY
(In Thousands)

JPY25,781
175,708
2,491
203,980

P
= 9,578
65,274
925
75,777

JPY11,600
224,306
2,449
238,355

P
= 4,919
95,106
1,038
101,063

373,082
5,274,985
1,288,651
6,936,718

138,596
1,954,909
477,574
2,571,079

709,951
6,567,179
1,363,650
8,640,780

301,019
2,784,484
578,188
3,663,691

(JPY6,732,738) (P
= 2,495,302) (JPY8,402,425) (P
= 3,562,628)

*Translated using the exchange rate at the reporting date (JPY1:P

= 0.37 in December 31, 2014 and JPY1:P
= 0.424 in December 31, 2013).

December 31, 2014

SGD
Assets
Cash and cash equivalents
Accounts and notes receivables
Other current assets
Total assets
Liabilities
Accounts payable and accrued
expenses
Net foreign currency
denominated assets
(liabilities)

December 31, 2013

Php
Php
Equivalent*
SGD
Equivalent*
(In Thousands)

SGD24,377
400
16
24,793

P
= 824,059
13,501
522
838,082

SGD3,334
298
21
3,653

P
= 116,630
10,426
733
127,789

4,891

165,314

3,900

136,424

SGD19,902

P
= 672,768

(SGD247)

(P
= 8,635)

*Translated using the exchange rate at the reporting date (SGD1:P

= 33.80 in December 31, 2014 and SGD1:P
= 34.98 in December 31, 2013).

December 31, 2014

HKD
Assets
Cash and cash equivalents
Accounts and notes receivables
Total assets
Liabilities
Accounts payable and accrued
expenses
Net foreign currency
denominated assets

December 31, 2013

Php
Php
Equivalent*
Equivalent*
HKD
(In Thousands)

HKD11,897
9,133
21,030

P
= 68,398
52,639
121,037

HKD13,401
45,153
58,554

P
= 76,721
258,503
335,224

2,973

17,134

2,853

16,336

HKD18,057

P
= 103,903

HKD55,701

P
= 318,888

*Translated using the exchange rate at the reporting date (HKD1:P

= 5.75 in December 31, 2014 and HKD1:P
= 5.725 in December 31, 2013).

*SGVFS011298*

- 135 -

December 31, 2014

RMB
Assets
Cash and cash equivalents
Accounts and notes receivables
Total assets
Liabilities
Accounts payable and accrued
expenses
Net foreign currency
denominated assets

December 31, 2013

Php
Php
Equivalent*
RMB
Equivalent*
(In Thousands)

RMB141,839
459,909
601,748

P
= 1,036,358
3,360,369
4,396,727

RMB53,670
402,731
456,401

P
= 393,563
2,953,229
3,346,792

269,156

1,966,614

275,434

2,019,759

RMB332,592

P
= 2,430,113

RMB180,967

P
= 1,327,033

*Translated using the exchange rate at the reporting date (RMB1: P

= 7.30 in December 31, 2014 and RMB1: =
P7.333 in December 31, 2013).

December 31, 2014

INR
Assets
Cash and cash equivalents
Receivables
Other current assets
Total assets
Liabilities
Accounts payable and accrued
expenses
Net foreign currency
denominated assets
(liabilities)

December 31, 2013

Php
Php
Equivalent*
INR
Equivalent
(In Thousands)

INR34,068
311,470

345,538

P
= 23,970
219,146

243,116

INR1,790
12,167
7,136
21,093

P
= 1,285
8,736
5,124
15,145

92,499

65,081

16,921

12,150

INR253,039

P
= 178,035

INR4,172

P
= 2,995

*Translated using the exchange rate at the reporting date (INR1: =

P0.70 in December 31, 2014 and INR1: =
P0.718 in December 31, 2013).

December 31, 2014

EUR
Assets
Cash and cash equivalents
Receivables
Total assets
Liabilities
Accounts payable and accrued
expenses
Other current liabilities
Short term debt
Long-term debt
Total liabilities
Net foreign currency
denominated assets
(liabilities)

December 31, 2013

Php
Php
Equivalent*
Equivalent
EUR
(In Thousands)

EUR 8,651
37,540
46,191

P
= 471,336
2,045,274
2,516,610

EUR2,445
24,394
26,839

P
= 148,603
1,482,929
1,631,532

13,733

2,299
14,199
30,231

748,200

125,245
773,600
1,647,045

11,066
652
9,745

21,463

672,682
39,663
592,413

1,304,758

EUR15,960

P
= 869,565

(EUR5,376)

(P
= 326,774)

*Translated using the exchange rate at the reporting date (EUR1: P

= 54.48 in December 31, 2014 and EUR1: P
= 60.79 in December 31, 2013)

*SGVFS011298*

- 136 -

December 31, 2014

CZK
Assets
Cash and cash equivalents
Receivables
Total assets
Liabilities
Accounts payable and accrued
expenses
Other current liabilities
Total liabilities
Net foreign currency
denominated liabilities

December 31, 2013

Php
Equivalent*
CZK Php Equivalent
(In Thousands)

CZK4,334
(782)
3,552

P
= 8,516
(1,536)
6,980

CZK894
263
1,157

P
= 1,996
587
2,583

51,942
122
52,064

102,066
240
102,306

25,794

25,794

57,573

57,573

(CZK48,512)

(P
= 95,326)

(CZK24,637)

(P
= 54,990)

*Translated using the exchange rate at the reporting date (CZK1:P

= 1.96 in December 31, 2014 and CZK1:P
= 2.232 in December 31, 2013).

December 31, 2014

December 31, 2013
VND Php Equivalent*
VND Php Equivalent
(In Thousands)
Assets
Cash and cash equivalents
Liabilities
Accounts payable and
accrued expenses
Net foreign currency
denominated assets
(liabilities)

VND35,133,686

P
= 75,055

VND34,533,794

P
= 72,618

640,458,604

1,348,732

VND35,133,686

P
= 75,055 (VND605,924,810)

(P
= 1,276,114)

*Translated using the exchange rate at the reporting date (VND1:P=0.0021 in December 31, 2014 and VND1:P
= 0.0020 in
December 31,2013).

December 31, 2014

MXN
Assets
Cash and cash equivalents
Receivables
Total assets
Liabilities
Accounts payable and accrued
expenses
Net foreign currency
denominated assets
(liabilities)

December 31, 2013

Php
Equivalent*
MXN Php Equivalent
(In Thousands)

MXN5,547
177,303
182,850

P
= 16,884
539,725
556,609

MXN47,208
123,735
170,943

P
= 160,560
420,834
581,394

89,179

271,468

179,946

612,014

MXN93,671

P
= 285,141

(MXN9,003)

(P
= 30,620)

*Translated using the exchange rate at the reporting date (MXN1:P

= 3.04 in December 31, 2014 and MXN1:P
= 3.404 in December 31, 2013).

*SGVFS011298*

- 137 -

The following table demonstrates the sensitivity to a reasonably possible change in the exchange
rate, with all variables held constant, of the Groups profit before tax (due to changes in the fair
value of monetary assets and liabilities) and the Groups equity (amounts in thousands).
2014

Currency
US$
JPY
SGD
HKD
RMB
INR
EUR
CZK
VND
MXN

Increase
(decrease) in
Peso per foreign
currency
P
= 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
(P
= 344,872)
344,872
(6,732,738)
6,732,738
19,902
(19,902)
18,057
(18,057)
332,592
(332,592)
253,039
(253,039)
15,960
(15,960)
(48,512)
48,512
35,133,686
(35,133,686)
93,671
(93,671)

Increase
(decrease) in
Peso per foreign
currency
P
= 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
(P
= 524,778)
524,778
(8,402,425)
8,402,425
(247)
247
55,701
(55,701)
180,967
(180,967)
4,172
(4,172)
34
(34)
4,394
(4,394)

2013

Currency
US$
JPY
SGD
HKD
RMB
INR
THB
MYR
(Forward)

*SGVFS011298*

- 138 -

Currency
EUR
CZK
VND
MXN

Increase
(decrease) in
Peso per foreign
currency
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)

Increase
(decrease)
in profit
before tax
5,376
(5,376)
(24,637)
24,637
(605,924,810)
605,924,810
(9,003)
9,003

Increase
(decrease) in
Peso per foreign
currency
P
= 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
(P
= 302,339)
302,339
(7,926,008)
7,926,008
(2,555)
2,555
81,563
(81,563)
197,470
(197,470)
8,082
(8,082)
(35,038)
35,038)
5,041
(5,041)
(23,112)
23,112
(20,327)
20,327
474,336,336
(474,336,336)
24,801
24,801

2012

Currency
US$
JPY
SGD
HKD
RMB
INR
THB
MYR
EUR
CZK
VND
MXN

There is no other impact on the Groups equity other than those already affecting net income.
Equity price risk
AFS financial assets are acquired at certain prices in the market. Such investment securities are
subject to price risk due to changes in market values of instruments arising either from factors
specific to individual instruments or their issuers, or factors affecting all instruments traded in the
market. Depending on several factors such as interest rate movements, the countrys economic
performance, political stability, and domestic inflation rates, these prices change, reflecting how
market participants view the developments. The Groups investment policy requires it to manage
such risks by setting and monitoring objectives and constraints on investments; diversification
plan; and limits on investment in each sector and market.

*SGVFS011298*

- 139 -

The analysis below demonstrates the sensitivity to a reasonably possible change of market index
with all other variables held constant, of the Groups equity arising from fair valuation of quoted
AFS financial assets (amounts in thousands).

Market Index
2014

PSEi

2013

PSEi

Change in
Variables
5%
(5%)
5%
(5%)

Effect on
Equity
Increase
(decrease)
(In Thousands)
P
= 425,527
(425,527)
P
= 310,230
(310,230)

Liquidity risk
Liquidity risk is defined by the Group as the risk of losses arising from funding difficulties due to
deterioration in market conditions and/or the financial position of the Group that make it difficult to
raise the necessary funds or that forces the Group to raise funds at significantly higher interest
rates than usual.
This is also the possibility of experiencing losses due to the inability to sell or convert marketable
securities into cash immediately or in instances where conversion to cash is possible but at loss
due to wider than normal bid-offer spreads.
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 Group 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.
ALI Group
ALI Group employs scenario analysis and contingency planning to actively manage its liquidity
position and guarantee that all operating, investing and financing needs are met. ALI Group has
come up with a three-layered approach to liquidity through the prudent management of sufficient
cash and cash equivalents, the potential sale of accounts receivables and the maintenance of
short-term revolving credit facilities.
Cash and cash equivalents are maintained at a level that will enable it to fund its general and
administrative expenses as well as to have additional funds as buffer for any opportunities or
emergencies that may arise. Management develops viable funding alternatives through a
continuous program for the sale of its receivables and ensures the availability of ample unused
short-term revolving credit facilities from both local and foreign banks as back-up liquidity.
MWC Group
MWC Groups objective is to maintain a balance between continuity of funding and flexibility
through the use of bank overdrafts, bank loans, debentures, preference shares, leases and hire
purchase contracts. The Groups policy is to maintain a level of cash that is sufficient to fund its
monthly cash requirements, at least for the next four to six months. Capital expenditures are
funded through long-term debt, while operating expenses and working capital requirements are
sufficiently funded through cash collections.

*SGVFS011298*

- 140 -

The table summarizes the maturity profile of the Groups financial liabilities as of December 31,
2014 and 2013, based on contractual undiscounted payments.
December 31, 2014
< 1 year 1 to < 2 years 2 to < 3 years
(In Thousands)
Accounts payable and
accrued expenses
Accounts payable
Project costs
Accrued expenses
Related parties
Retentions payable
Dividends payable
Personnel costs
Derivative liability
Service concession obligation
Customers deposit
Short-term debt
Long-term debt (LTD)
Other noncurrent liabilities
Interest payable

P
= 73,540,123
17,321,785
11,595,579
2,458,817
1,014,364
2,845,013
3,772,205
4,755
1,019,515
9,161,743
21,084,269
10,761,443

10,142,902
P
= 164,722,513

< 1 year
Accounts payable and
accrued expenses
Accounts payable
Project costs
Accrued expenses
Related parties
Retentions payable
Dividends payable
Personnel costs
Derivative liability
Service concession obligation
Customers deposit
Short-term debt
Long-term debt (LTD)
Other noncurrent liabilities
Interest payable

P
= 63,198,549
11,983,222
9,994,662
4,107,009
1,192,251
2,093,323
2,694,816
3,470
1,290,406
5,362,355
15,811,285
11,953,695

7,700,799
P
= 137,385,842

P
=

1,531,691

11,573,756
17,178,307
13,141,805
P
= 43,425,559

P
=

705,528

60,051,210
353
12,721,097
P
= 73,478,188

P
=

708,971

47,622,962
836,059
24,865,468
P
= 74,033,460

Total

P
=
P
= 73,540,123

17,321,785

11,595,579

2,458,817

1,014,364

2,845,013

3,772,205

4,755
10,547,926
13,804,660

9,161,743

21,084,269
156,465,229
238,851,638
6,197,304
23,375,964
24,947,802
60,953,606
P
= 198,158,261 P
= 479,784,521

December 31, 2013

1 to < 2 years 2 to < 3 years
(In Thousands)

P
=

1,474,349

4,092,763
10,057,907
7,200,769
P
= 22,825,788

> 3 years

> 3 years

Total

P
=
P
= 63,198,549

11,983,222

9,994,662

4,107,009

1,192,251

2,093,323

2,694,816

3,470
10,539,730
14,013,456

5,362,355

15,811,285
127,073,469
190,742,889
13,072,611
23,966,577
38,830,272
78,597,308
P
= 189,516,082 P
= 423,761,172

Cash and cash equivalents, short-term investments, financial assets at FVPL and AFS debt
investments are used for the Groups liquidity requirements. Please refer to the terms and
maturity profile of these financial assets under the maturity profile of the interest-bearing financial
assets and liabilities disclosed in the interest rate risk section.
Credit risk
Credit risk is the risk that the Groups counterparties to its financial assets will fail to discharge
their contractual obligations. The Groups holding of cash and short-term investments and
receivables from customers and other third parties exposes the Group to credit risk of the
counterparty. Credit risk management involves dealing with institutions for which credit limits have
been established. The Groups Treasury Policy sets credit limits for each counterparty. The
Group trades only with recognized, creditworthy third parties and has a well-defined credit policy
and established credit procedures.

*SGVFS011298*

- 141 -

ALI Group
For installments receivable from the sale of properties, credit risk is managed primarily through
credit reviews and an analysis of receivables on a continuous basis. The Group also undertakes
supplemental credit review procedures for certain installment payment structures. The Groups
stringent customer requirements and policies in place contribute to lower customer default than its
competitors. Customer payments are facilitated through various collection modes including the
use of postdated checks and auto-debit arrangements. Exposure to bad debts is not significant as
titles to real estate properties are not transferred to the buyers until full payment has been made
and the requirement for remedial procedures is minimal given the profile of buyers.
Credit risk arising from rental income from leasing properties is primarily managed through a
tenant selection process. Prospective tenants are evaluated on the basis of payment track record
and other credit information. In accordance with the provisions of the lease contracts, the lessees
are required to make a deposit with the Group (e.g. security deposits and advance rentals) which
helps reduce the Groups credit risk exposure in case of defaults by the tenants. For existing
tenants, the Group has put in place a monitoring and follow-up system. Receivables are aged and
analyzed on a continuous basis to minimize credit risk associated with these receivables. Regular
meetings with tenants are also undertaken to provide opportunities for counseling and further
assessment of paying capacity.
IMI Group
The credit evaluation reflects the customers overall credit strength based on key financial and
credit characteristics such as financial stability, operations, focus market and trade references. All
customers who wish to trade on credit terms are subject to credit verification procedures. In
addition, receivable balances are monitored on an ongoing basis with the result that the Groups
exposure to bad debts is not significant.
MWC Group
It is the Groups policy that except for connection fees and other highly meritorious cases, the
Group does not offer credit terms to its customers. Credit risk is managed primarily through credit
reviews and an analysis of receivables on a continuous basis. Customer payments are facilitated
through various collection modes including the use of postdated checks and auto-debit
arrangements.
With respect to credit risk arising from other financial assets of the Group, which comprise cash
and cash equivalents and short-term investments and AFS financial assets, the Groups exposure
to credit risk arises from default of the counterparty, with a maximum exposure equal to the
carrying amount of the investments.
Given the Groups diverse base of counterparties, it is not exposed to large concentrations of
credit risk.

*SGVFS011298*

- 142 -

The table below shows the maximum exposure to credit risk for the components of the
consolidated statement of financial position except for those financial assets whose carrying
amounts approximates fair value. The Groups maximum exposure for cash and cash equivalents
excludes the carrying amount of cash on hand. The maximum exposure is shown at gross, before
the effect of mitigation through the use of master netting arrangements or collateral agreements.

Financial assets at FVPL

Derivative assets
Accounts and notes receivables
Trade
Real estate
Investment in bonds classified as loans and
receivables
Receivable from officers and employees
Receivable from BWC
Concession financial receivable
AFS financial assets
Quoted equity investments
Unquoted equity investments
Quoted debt investments
Total credit risk exposure

2014
2013
(In Thousands)
P
= 10,374,780
P
= 17,916,513
8,835
456,768
57,898,143

39,832,997

450,000
731,336
529,501
975,984

1,000,000
507,042
544,374
681,364

1,916,799
1,275,497
239,919
P
= 74,400,794

1,241,869
1,439,637
103,301
P
= 63,723,865

*SGVFS011298*

- 143 -

The aging analysis of accounts and notes receivables that are past due but not impaired follows:
December 31, 2014
Neither Past
Due nor
Impaired
Trade:
Real estate
Electronics manufacturing
Water distribution and wastewater
services
Automotive
Information technology and BPO
International and others
Advances to other companies
Advances to contractors and suppliers
Receivable from related parties
Dividend receivable
Receivable from BWC
Concession financial receivable
Receivable from officers and employees
Investment in bonds classified as
loans and receivables
Others
Total

Past Due but not Impaired

<30 days 30-60 days 60-90 days 90-120 days
(In Thousands)

P
= 54,076,618
7,048,571

P
= 493,629
951,639

P
= 514,089
93,569

P
= 346,998
98,768

1,421,435
1,462,348
113,817
4,530
20,352,068
10,214,501
2,514,597
104
529,501
975,984
651,812

20,612
48,191
73
275,346
1,391
19,479

63,163

9,821
447
55,270

17,522

1,505

3,853

24,203

44,226

2,047

450,000

113,817
2,283
P
= 99,929,703 P
= 1,875,806

4,821
P
= 697,044

3,853
P
= 523,948

>120 days

Total

P
= 417,839 P
= 1,437,802 P
= 3,210,357
89,672
260,823
1,494,471

19,454

16,464
5,966
49

879

2,866

281,165
1,266
107,158

11,865

20,612
84,185
520
652,448
8,623
188,434

79,459

Impaired

Total

P
= 611,168
44,911

P
= 57,898,143
8,587,953

569,744
13,834
4,827

169,211
166,116
6,413

65

1,991,179
1,496,794
202,829
5,050
21,173,727
10,389,240
2,709,445
104
529,501
975,984
731,336

450,000
6,026
7,151
24,134
252
138,203
P
= 556,349 P
= 2,110,096 P
= 5,763,243 P
= 1,586,541 P
= 107,279,488

*SGVFS011298*

- 144 -

December 31, 2013

Neither Past
Due nor
Impaired

<30 days

Trade:
Real estate
P
= 36,449,792 P
= 642,028
Electronics manufacturing
5,987,296
850,487
Water distribution and wastewater services
364,981
196,437
Automotive
528,171
233,620
Information technology and BPO
187,214

International and others

3,603

Advances to other companies

9,753,179
247,941
Receivable from related parties
2,610,919
161,100
Dividend receivable
1,412,577

Receivable from BWC

544,374

Concession financial receivable

681,364

Receivable from officers and employees

376,636
90,203
Investment in bonds classified as
loans and receivables
1,000,000

Others
72,871
12,934
Total
P
= 59,972,977 P
= 2,434,750

Past Due but not Impaired

30-60 days 60-90 days 90-120 days
(In Thousands)

>120 days

Total

Impaired

Total

P
= 386,081
83,623
176,192
86,221

2,011
59,408

4,063

P
= 308,010
88,270
135,852
61,346

37,015
37,735

1,415

P
= 312,357 P
= 1,227,222 P
= 2,875,698
79,594
101,125
1,203,099
102,823
128,472
739,776
26,533
25,957
433,677

15

15
16,947
297,074
600,988
27,212
208,115
493,570

3,087
29,635
128,403

P
= 507,507 P
= 39,832,997
96,397
7,286,792
540,719
1,645,476
23,542
985,390
7,370
194,584

3,618
557,879 10,912,046
40,983
3,145,472

1,412,577

544,374

681,364
2,003
507,042

1,653
P
= 799,252

1,029
P
= 670,672

1,000,000
539
3,067
19,222

92,093
P
= 569,107 P
= 2,020,667 P
= 6,494,448 P
= 1,776,400 P
= 68,243,825

*SGVFS011298*

- 145 -

The table below shows the credit quality of the Groups financial assets as of December 31, 2014 and 2013 (amounts in thousands):
December 31, 2014

Cash and cash equivalents

Short-term investments
FVPL financial assets
Other noncurrent assets
Accounts and notes receivables
Trade
Real estate
Electronics manufacturing
Water distribution and wastewater
services
Automotive
Information technology and BPO
International and others
Advances to other companies
Advances to contractors and suppliers
Receivable from related parties
Dividend receivable
Receivable from BWC
Concession financial receivable
Receivable from officers employees
Investments in bonds classified as
loans and receivables
Other receivable
AFS Investments
Quoted shares of stocks
Unquoted shares of stocks
Quoted debt investments

Neither past due nor impaired

High Grade Medium Grade
Low Grade
P
= 90,761,860
P
=
P
=
1,102,703

10,374,780

8,273,200

Total
P
= 90,761,860
1,102,703
10,374,780
8,273,200

Past due but

not impaired
P
=

Impaired
P
=

Total
P
= 90,761,860
1,102,703
10,374,780
8,273,200

47,413,704
522,677

3,974,333
6,525,188

2,688,581
706

54,076,618
7,048,571

3,210,357
1,494,471

611,168
44,911

57,898,143
8,587,953

1,406,532
1,183,041

14,903
195,118

84,189

1,421,435
1,462,348

20,612

569,744
13,834

1,991,179
1,496,794

15,245,423
8,718,904
1,767,865
104
529,501
975,984
631,444

113,817
4,530
3,525,796
1,175,343
334,792

15,747

1,580,849
320,254
411,941

4,621

113,817
4,530
20,352,068
10,214,501
2,514,598
104
529,501
975,984
651,812

84,185
520
652,448
8,623
188,434

79,459

4,827

169,211
166,116
6,413

65

202,829
5,050
21,173,727
10,389,240
2,709,445
104
529,501
975,984
731,336

450,000
106,283

3,070

4,464

450,000
113,817

24,134

252

450,000
138,203

1,916,799
1,275,497
239,919
P
= 192,896,220

P
= 15,882,637

P
= 5,095,605

1,916,799
1,275,497
239,919
P
= 213,874,462

P
= 5,763,243

P
= 1,586,541

1,916,799
1,275,497
239,919
P
= 221,224,246

*SGVFS011298*

- 146 -

December 31, 2013

Cash and cash equivalents

Short-term investments
FVPL financial assets
Accounts and notes receivables
Trade
Real estate
Electronics manufacturing
Water distribution and wastewater
services
Automotive
Information technology and BPO
International and others
Advances to other companies
Receivable from related parties
Dividend receivable
Receivable from BWC
Concession financial receivable
Receivable from officers employees
Investments in bonds classified as
loans and receivables
Other receivable
AFS Investments
Quoted shares of stocks
Unquoted shares of stocks
Quoted debt investments

Neither past due nor impaired

High Grade Medium Grade
Low Grade
P
= 53,990,229
P
=
P
=
119,345

17,916,513

Total
P
= 53,990,229
119,345
17,916,513

Past due but

not impaired
P
=

Impaired
P
=

Total
P
= 53,990,229
119,345
17,916,513

33,767,802
275,579

1,251,638
5,155,813

1,430,352
555,904

36,449,792
5,987,296

2,875,698
1,203,099

507,507
96,397

39,832,997
7,286,792

352,650
528,171

3,603
9,753,179
2,278,449
1,412,577
544,374
681,364
368,845

12,331

187,214

332,470

7,791

364,981
528,171
187,214
3,603
9,753,179
2,610,919
1,412,577
544,374
681,364
376,636

739,776
433,677

15
600,988
493,570

128,403

540,719
23,542
7,370

557,879
40,983

2,003

1,645,476
985,390
194,584
3,618
10,912,046
3,145,472
1,412,577
544,374
681,364
507,042

1,000,000
71,119

1,752

1,000,000
72,871

19,222

1,000,000
92,093

1,241,869
1,439,637
103,301
P
= 125,848,606

P
= 6,949,009

P
= 1,986,256

1,241,869
1,439,637
103,301
P
= 134,783,871

P
= 6,494,448

P
= 1,776,400

1,241,869
1,439,637
103,301
P
= 143,054,719

*SGVFS011298*

- 147 -

The credit quality of the financial assets was determined as follows:

Cash and cash equivalents, short-term investments, FVPL financial assets, quoted AFS financial
assets,investment in bonds classified as loans and receivable,advances to other companies and
related party receivables
High grade pertains to cash and cash equivalents and short-term investments, quoted financial
assets, investment in bonds classified as loans and receivable, related party transactions and
receivables with high probability of collection.
Medium grade pertains to unquoted financial assets other than cash and cash equivalents and
short-term investments with nonrelated counterparties and receivables from counterparties with
average capacity to meet their obligation.
Low grade pertains to financial assets with the probability to be impaired based on the nature of
the counterparty.
Trade receivables
Real estate, information technology and BPO and international and others - high grade pertains to
receivables with no default in payment; medium grade pertains to receivables with up to 3 defaults
in payment in the past; and low grade pertains to receivables with more than 3 defaults in
payment.
Electronics manufacturing - high grade pertains to receivable with favorable credit terms and can
be offered with a credit term of 15 to 45 days; medium grade pertains to receivable with normal
credit terms and can be offered with a credit term of 15 to 30 days; and low grade pertains to
receivables under advance payment or confirmed irrevocable Stand-by Letter of Credit and
subjected to semi-annual or quarterly review for possible upgrade or transaction should be under
advance payment or confirmed and irrevocable Stand-By Letters of credit; subject to quarterly
review for possible upgrade after one year.
Water distribution and wastewater services - high grade pertains to receivables that are collectible
within 7 days from bill delivery; medium grade pertains to receivables that are collectible from 11
to 30 days from bill delivery.
Automotive - high grade pertains to receivables from corporate accounts and medium grade for
receivables from noncorporate accounts.
Unquoted AFS financial assets - the unquoted investments are unrated.

*SGVFS011298*

- 148 -

33. Fair Value Measurement and Derivative Instruments

Fair Value of Financial and Nonfinancial Instruments
The carrying amounts approximate fair values for the Groups financial assets and liabilities due to
its short-term maturities except for the following financial instruments as of December 31, 2014
and 2013 (amounts in thousands):
2014
Carrying Value
FINANCIAL ASSETS AT FVPL
Held for trading
Derivative assets
Embedded
Total financial assets at FVPL
LOANS AND RECEIVABLES
Accounts and notes receivables
Trade receivables
Real estate
Nontrade receivables
Investment in bonds
classified as loans and
receivables
Receivable from officers
and employees
Total loans and receivables
Total other financial assets
AFS FINANCIAL ASSETS
Quoted equity investments
Unquoted equity investments
Quoted debt investments
Total AFS financial assets
Total financial assets
FINANCIAL LIABILITIES AT
FVPL
Derivative liabilities
Freestanding
Embedded
Total derivative liabilities
OTHER FINANCIAL
LIABILITIES
Noncurrent other financial
liabilities
Service concession obligation
Other noncurrent liabilities
Long-term debt
Total other financial liabilities
Total financial liabilities

Fair Value

2013
Carrying Value

Fair Value

P
= 10,374,780

P
= 10,374,780

P
= 17,916,513

P
= 17,916,513

8,835
10,383,615

8,835
10,383,615

456,768
18,373,281

456,768
18,373,281

50,410,593

50,567,423

39,325,490

39,362,376

450,000

463,407

1,000,000

1,091,291

260,251
51,120,844
61,504,459

266,824
51,297,654
61,681,269

274,900
40,600,390
58,973,671

274,972
40,728,639
59,101,920

1,916,799
1,275,497
239,919
3,432,215
P
= 64,936,674

1,916,799
1,275,497
239,919
3,432,215
P
= 65,113,484

1,241,869
1,439,637
103,301
2,784,807
P
= 61,758,478

1,241,869
1,439,637
103,301
2,784,807
P
= 61,884,318

P
= 4,755

P
= 4,755

P
= 4,755

P
= 4,755

P
= 1,803
1,667
P
= 3,470

P
= 1,803
1,667
P
= 3,470

7,859,153
18,441,386
226,999,015
253,299,554
P
= 253,304,309

11,806,727
18,940,040
276,149,199
306,895,966
P
= 306,900,721

7,868,295
23,738,011
178,027,343
209,633,649
P
= 209,637,119

12,738,815
23,809,863
186,432,252
222,980,930
P
= 222,984,400

The following methods and assumptions were used to estimate the fair value of each class of
financial instrument for which it is practicable to estimate such value:
Financial assets at FVPL - Fair values of investment securities are based on quoted prices as of
the reporting date. For other investment securities with no reliable measure of fair value, these
are carried at its last transaction price.

*SGVFS011298*

- 149 -

Derivative instrument - The fair value of the freestanding currency forwards is based on
counterparty valuation. Derivative asset - The fair value is estimated using a modified stock price
binomial tree model for convertible callable bonds. The model involves a two-step process of
generating stock price paths over the life of the note, and subsequently computing for the
convertible bond value using an expected present value technique. The fair value of the derivative
asset is simply the difference in fair values of a straight note and the convertible callable note.
Significant assumptions and estimates used to compute for the value of the derivative asset are as
follows:
a. The stock price was calculated using standard equity valuation techniques, using both the
discounted free cash flows and market comparable approach.
b. Stock price volatility is derived from peers with traded shares.
c. Stock price was assumed to move in only two directions - up or down.
d. Credit spread was implied from current indicative rates given by creditor banks.
Noncurrent trade and nontrade receivables - The fair values are based on the discounted value of
future cash flows using the applicable rates for similar types of instruments. The discount rates
used ranged from 8.0% to 13.25% in 2014, in 0.23% to 13.25% 2013 and 0.30% to 13.25% in
2012.
AFS quoted debt and equity investments - Fair values are based on the quoted prices published in
markets.
AFS unquoted equity investments - Fair value of equity funds are based on the net asset value per
share. For other unquoted equity shares where the fair value is not reasonably determinable due
to the unpredictable nature of future cash flows and the lack of suitable method of arriving at a
reliable fair value, these are carried at cost less impairment, if any.
Customers deposits - non-current - The fair values are estimated using the discounted cash flow
methodology using the Groups current incremental borrowing rates for similar borrowings with
maturities consistent with those remaining for the liability being valued. The discount rates used
for Peso-denominated loans were 1.82% to 6.13% in 2014 and 1.25% to 4.08% in 2013 while the
discount rates used for the foreign currency-denominated loans ranged 1.86% to 5.17% in 2014,
in 0.09% to 4.27% 2013 and 0.13% to 3.01% in 2012.
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. The discount rates used ranged from
0.02% to 12.26% in 2014, 0.23% to 6.16% in 2013 and 0.28% to 6.37% in 2012.
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.

*SGVFS011298*

- 150 -

The following table shows the fair value hierarchy of the Groups assets and liabilities as at
December 31, 2014 and 2013 (amounts in thousands):
2014
Quoted
Prices in
Active
Markets
(Level 1)
Recurring financial assets measured
at fair value
Financial assets at FVPL
Derivative assets
Embedded
AFS financial assets
Quoted equity investments
Unquoted equity investments
Quoted debt investments
Recurring financial assets for which
fair values are disclosed:
Loans and receivables
Recurring financial liabilities
measured at fair value
Derivative liabilities
Freestanding
Recurring financial liabilities for which
fair values are disclosed:
Noncurrent other financial liabilities
Service concession obligation
Other noncurrent liabilities
Long-term debt

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

P
=

P
= 5,607,838

P
= 4,766,942

P
= 10,374,780

8,835

8,835

1,916,800

239,919
P
= 2,156,719

1,014,382

P
= 6,622,220

261,115

P
= 5,036,892

1,916,800
1,275,497
239,919
P
= 13,815,831

P
=

P
=

P
= 51,297,654

P
= 51,297,654

P
=

P
=

P
= 4,755

P
= 4,755

P
=

P
=

P
=

P
=

P
= 11,806,727
18,940,040
276,149,199
P
= 306,895,966

P
= 11,806,727
18,940,040
276,149,199
P
= 306,895,966

Nonfinancial assets for which fair

values are disclosed:
Investments in associates and joint
ventures*
Investment properties

P
= 182,213,103
P
=
P
=
P
= 182,213,103

234,471,109
234,471,109
P
= 182,213,103
P
=
P
= 234,471,109
P
= 416,684,212
*Fair value of investments in listed associates and joint ventures for which there are published price quotations
2013
Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

P
=

P
= 12,799,097

P
= 5,117,416

P
= 17,916,513

456,768

456,768

1,241,869

103,301
P
= 1,345,170

1,156,055

P
= 13,955,152

281,173

P
= 5,855,357

1,241,869
1,437,228
103,301
P
= 21,155,679

P
=

P
=

P
= 40,728,639

P
= 40,728,639

Quoted Prices in
Active Markets
(Level 1)
Recurring financial assets measured
at fair value
Financial assets at FVPL
Derivative assets
Embedded
AFS financial assets
Quoted equity investments
Unquoted equity investments
Quoted debt investments
Recurring financial assets for which
fair values are disclosed:
Loans and receivables
(Forward)

*SGVFS011298*

- 151 -

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

P
=

P
=

P
= 1,803

P
= 1,803

P
=
1,667
P
= 1,667

P
= 1,803
1,667
P
= 3,470

P
=

P
=

P
=

P
=

P
= 12,738,815
23,809,863
186,432,252
P
= 222,980,930

P
= 12,738,815
23,809,863
186,432,252
P
= 222,980,930

P
=

P
=

P
= 3,328,712

P
= 3,328,712

Quoted Prices in
Active Markets
(Level 1)
Recurring financial liabilities
measured at fair value
Derivative liabilities
Freestanding
Embedded
Recurring financial liabilities for which
fair values are disclosed:
Noncurrent other financial liabilities
Service concession obligation
Other noncurrent liabilities
Long-term debt
Non-recurring financial assets for
which fair values are disclosed:
Noncurrent assets held for sale
Nonfinancial assets for which fair
values are disclosed:
Investments in associates and joint
ventures*
Investment properties

P
= 157,782,802
P
=
P
=
P
= 157,782,802

232,927,400
232,927,400
P
= 157,782,802
P
=
P
= 232,927,400
P
= 390,710,202
*Fair value of investments in listed associates and joint ventures for which there are published price quotations

There was no change in the valuation techniques used by the Group in determining the fair market
value of the assets and liabilities.
There were no transfers between Level 1 and Level 2 fair value measurements, and no transfers
into and out of Level 3 fair value measurements.
A reconciliation of the beginning and closing balances of Level 3 financial assets at FVPL are
summarized below:

At January 1
Additions
Disposals/ redemptions
Recognized in statement of income
At December 31

2014
P
= 5,855,357
1,380,725
(2,415,755)
216,565
P
= 5,036,892

2013
P
= 3,988,597
1,702,033
(451,939)
616,666
P
= 5,855,357

Derivatives

Derivative Assets
Conversion option of AIVPL
Derivative Liabilities
Conversion option of AIVPL
Freestanding currency forwards of IMI

2014

2013

P
= 8,835

P
= 456,768

P
= 4,755

P
= 4,755

P
= 1,604
1,803
P
= 3,407

*SGVFS011298*

- 152 -

In 2014 and 2013, IMI entered into various short-term currency forwards with an aggregate
notional amount of US$17.0 million (P
= 760.0 million) and US$37.0 million (P
= 1,643.0 million),
respectively. As of December 31, 2014 and 2013, the outstanding forward contracts have a net
positive fair value of nil and US$0.04 million, respectively. Net fair value gains (loss) recognized in
2014, 2013 and 2012 amounted to US$0.3 (P
= 13.0 million), (US$0.7) million (P
= 30.0 million)and nil,
respectively (see Note 23).
Embedded derivatives
MWC
P
= 10.0 Billion Notes Payable
MWC has an embedded call option on the P
= 10.0 Billion Corporate Notes issued on April 8, 2011.
The embedded call option gives MWC the right to redeem all, but not in part, the outstanding
notes starting on the seventh anniversary. The amount payable to the holder in respect of such
redemptions shall be calculated based on the principal amount of the bonds being redeemed, as
the sum of 102% of the principal amount and accrued interest on the notes on the optional
redemption date. As of December 31, 2013, the option has been reassessed which resulted to
the option as clearly and closely related to the host contract since the amortized cost of the loan
approximates the prepayment at each option exercise date.
P
= 5.0 Billion Notes
MWC has an embedded call option on the P
= 5.00 Billion Corporate Notes issued on
August 16, 2013. The embedded call option gives MWC the right to redeem all but not in part the
outstanding notes starting on the 3rd anniversary. The amount payable to the holder in respect of
such redemptions shall be calculated based on the principal amount of the bonds being
redeemed, as the sum of 102%-100.5% of the principal amount and accrued interest on the notes,
depending on the optional redemption date.
As of December 31, 2014, the option was assessed as clearly and closely related to the host
contract since the amortized cost of the loan approximates the prepayment at each option
exercise date. However, as of inception date, the value of the option is not material.
AIVPL Group
Note A
In conjunction with the transactions contemplated by the Subscription Agreement among the
Borrower, Lender and Actis, in February 2010, Integreon has settled $22.2 million of the total
outstanding notes receivables. Consequently, upon settlement of the notes, the marked to market
valuation amounting to $1.8 million, which had been recognized in prior years pertaining to the
convertible promissory notes of $7.3 million was reversed and charged to Other expenses
account. Simultaneously, Integreon has issued a new 14% one-year convertible promissory note
with a principal of $7.30 million. Certain provisions of the promissory note are as follows:
1. The lender has a conversion option, which set forth that the principal can be converted to
Class A-4 preferred shares, for a period of thirty (30) days beginning on the Final Maturity
Date at a price of US$55.9 per share.
2. The Borrower has the option to prepay the loan in full or in part together with the accrued
interest, which upon exercise shall annul the optional conversion option of the lender on the
extent of the principal paid.
On February 15, 2011, AIVPL, Integreon and Actis have approved amendments on the 14%
convertible note, with a principal amount of $7.3 million dated February 16, 2010, as follows:
a) The Final Maturity Date is extended to February 15, 2012 and if unpaid, interest shall continue
to accrue at the rate of 15% per annum until such time Integreon has settled the note.
b) The Optional Conversion Period shall be from February 16, 2011 through March 15, 2012.
c) The Lender has the right to exercise the Conversion Option as many times during the Optional
Conversion Period provided that Conversion amount shall not exceed the principal amount.

*SGVFS011298*

- 153 -

As a result of the amendments made on the note, this effectively terminated the rights and
obligations of AIVPL associated with the loan. Thus, the derivative liability initially recognized on
February 16, 2010 expired. The amended note introduced new rights and these have been
recognized as derivative asset in the consolidated statement of financial position.
On July 15, 2012, AIVPL, Integreon and Actis have approved amendments on the 14% convertible
note, with a principal amount of $7.3 million dated February 16, 2010, as follows:
a) The Final Maturity Date is extended from February 15, 2012 to February 15, 2014;
b) The Borrower is liable for the principal sum of $7.3 million, plus accrued interest at the rate of
a) fourteen percent (14%) p.a. until February 15, 2012; and b) twelve percent (12%) p.a. from
February 16, 2012 until the Final Maturity Date.
c) The Optional Conversion Period shall be from February 15, 2014 through March 16, 2015.
d) The Lender has the option to extend the Final Maturity Date to a date that is one (1) year from
the immediately preceding Final Maturity Date. This option shall be exercised during the
Optional Conversion Period.
The abovementioned amendments to the note effectively terminated the rights and obligations of
AIVPL associated with the loan. The derivative asset initially recognized on February 16, 2011
has expired, and thus has been reversed. The amended note introduced new rights and these
have been recognized as derivative asset in the consolidated statement of financial position.
As of December 31, 2014 and 2013, the fair value of the compound embedded derivatives
representing the Conversion Option and the Term Extension Option amount to $0.2 million
(P
= 8.9 million) and $0.7 million (P
= 31.1 million), respectively.
Note B
On April 27, 2012, Stream issued a convertible promissory note to LIL Group (Lender) amounting
to $4.7 million, which bears interest of 10% p.a, compounded annually, calculated on the basis of
a 360-day year and actual days elapsed. The note will mature on April 29, 2013.
Certain provisions of the promissory note are as follows:
a) Conversion option - The Lender may elect at any time after the Maturity Date, upon delivery of
written notice to the Borrower, at least two (2) days prior to the date specified therein for
conversion, to convert the note to a number of units of membership interest in Stream,
determined by dividing the (i) the outstanding principal amount that has not been repaid,
together with all accrued and unpaid interest thereon, as of the date of conversion, by (ii) a
conversion price equal to $3.25 per unit, subject to certain adjustments.
b) Prepayment option - Stream has the option to prepay all (but not less than all) of the unpaid
principal balance of the Note, together with all accrued interest thereon and all other sums
payable thereunder.

*SGVFS011298*

- 154 -

On April 19, 2013, Stream, LIL Group and certain holders of convertible promissory notes entered
in to an exchange agreement which the original convertible promissory notes issued on
April 27, 2012 was amended and restated into new convertible promissory notes dated
April 19, 2013. The new convertible promissory note issued to LIL Group amounting to
$4.72 million has the following amended provisions:
a) The Final Maturity Date is on April 29, 2014.
b) The Borrower is liable for the principal sum of $4.72 million, plus accrued interest commencing
on April 27, 2012 at the rate of 10% p.a. compounded annually, calculated on the basis of a
360-day year and actual days elapsed.
c) The Conversion price shall be equal to $325.0 per share, subject to certain adjustments.
Management has assessed that the prepayment option is clear and closely-related to the host
contract, thus has not been separately accounted for.
On the other hand, the conversion option is regarded as an embedded derivative for bifurcation.
Accordingly, the net positive fair value of the embedded derivative, which is presented as
derivative asset in the consolidated statement of financial position, amounted to $0.20 million (P
=
8.9 million) and $10.3 million (P
= 457.7 million) as of December 31, 2014 and 2013, respectively.
The related marked to market gain and interest income amounted to $0.2 million (P
= 8.9 million) and
$0.1 million (P
= 4.0 million), respectively, in 2014 and $8.68 million (P
= 368.3 million) and $0.51
million (P
= 21.6 million), respectively, in 2013.
Fair Value Changes on Derivatives
The net movements in fair values of the Groups derivative instruments as of December 31 follow
(amounts in thousands):
Derivative Assets

Balance at beginning of year

Initial value of long call option
Net changes in fair value of derivatives
Fair value of settled instruments
Balance at end of year

2014
P
= 456,768
29
8,777
465,574
(456,739)
P
= 8,835

2013
P
= 184,276

389,772
574,048
(117,280)
P
= 456,768

Derivative Liability

Balance at beginning of year

Net changes in fair value of derivatives
Fair value of settled instruments
Balance at end of year

2014
P
= 3,470
3,088
6,558
(1,803)
P
= 4,755

2013
P
=
3,470
3,470

P
= 3,470

Net changes in fair value of derivative asets and liabilities was recognized in the consolidated
statement of income under Other Income. However, the net changes in fair value of IMI Groups
freestanding currency forward are recognized in the consolidated statements of comprehensive
income under Foreign exchange gains (losses) (see Note 23).

*SGVFS011298*

- 155 -

34. Notes to Consolidated Statements of Cash Flows

The Groups noncash investing and financing activities are as follows:
2014
In November 2013, the Parent Company acquired 37.6 million ADHI Class B common shares
for a total consideration of P
= 13.2 billion. Outstanding payable to DBS arising from this
transaction amounted to P
= 3.3 billion
Transfers from land and improvements to inventories amounted to P
= 11.0 billion
Transfer from inventories to property and equipment amounted to P
= 138.8 million
Transfers from investment properties to inventories amounted to P
= 827.2 million
Transfer from investment properties to property and equipment amounted to P
= 2.3 million
Transfers from property and equipment to other assets amounting P
= 239.8 million
Transfer from investment properties to other assets amounted to P
= 8.6 million
Transfer from prop erty and equipment to investment property amounting to P
= 33.1 million in
2014;
Transfer from other assets to property and equipment amounting to P
= 274.4 million
Transfer from land and improvements to other assets amounted to P
= 100.3 million;
Transfer from land and improvements to intercompany receivables amounted to P
= 25.4 million;
Contingent consideration for the purchase of KDW amounting to P
= 90.2 million as of December
31, 2012.
Capitalization of machinery and facilities equipment under finance lease amounted to
$3.77 million (P
= 168.6 million). Conversion of long-outstanding trade and nontrade receivables
of the IMI Company to Class A common stock amounting to $1.75 million (P
= 78.3 million).
2013
Conversion of subscription and advances of the Company from ACEHI amounting to
P
= 3.4 billion into 33.9 million common shares in 2013.
In November 2013, the Company acquired 37.6 million ADHI Class B common shares for a
total consideration of P
= 13.2 billion. Outstanding payable to ADHI arising from this transaction
amounted to P
= 9.9 billion.
LAWCs payable to LTI amounting to P
= 343.8 million representing 55% of the total purchase
price amounting to P
= 625.0 million as of December 31, 2013.
Noncontrolling interest in shares of subsidiary through business combination pertaining to
purchase of water assets from LTI amounting to P
= 282.0 million.
Capitalization of office equipment under finance lease amounting to P
= 134.5 million.
Transfers from land and improvements to inventories amounting to P
= 14.7 billion.
Transfers from land and improvements to investment properties amounting to P
= 1.5 billion.
Transfers from inventories to investment properties and property and equipment amounting to
P
= 26.1 million in 2013.
Transfers from investment properties to property and equipment amounting to P
= 157.4 million.
Transfers from property and equipment to other assets amounting to P
= 2.2 billion.
2012
Conversion of subscription and advances from ACEHI amounting to P
= 2.2 billion into 21.8
million common shares in 2012.
In 2012, the Company acquired 309.3 million common shares of DBS in BPI and
15.0 million ADHI Class B common shares for a total consideration of P
= 21.6 billion and
P
= 3.98 billion, respectively. As of December 31, 2013 and 2012, outstanding payable to DBS
amounted to P
= 4.3 billion and P
= 12.8 billion, respectively. The decrease in accounts payable
and accrued expenses relating to this transaction were classified under investing activities.
Conversion of receivable from BHL amounting to US$2.7 million (P
= 110.8 million) into
0.3 million redeemable preferred shares in 2012.
Subscription of the Company to 1.4 million common shares of AC Infra, which amounted to
P
= 140.0 million in 2012. The related amount is recorded under subscription payable.

*SGVFS011298*

- 156

In 2012, cash activity pertaining to service concession assets amounting to P

= 907.8 million and
P
= 189.2 million were classified under investing and operating activities, respectively.
Contingent consideration for the purchase of KDW amounting to P
= 90.2 million as of
December 31, 2012 (see Note 12).
Capitalization of office equipment under finance lease amounting to $32 million.
Transfers from land and improvements to inventories amounting to P
= 1.2 billion.
Transfers from investment properties to inventories amounting to P
= 116.1 million.
Transfers from investment properties to property and equipment amounting to P
= 96.1 million.
Transfers from property and equipment to other assets amounting to P
= 764.4 million.
Other noncash items pertain to business combinations in 2012 and 2010 (see Note 24).

35. Interest in a Joint Operation

MDC has a 51% interest in Makati Development Corporation - First Balfour, Inc. Joint Venture (the
Joint Venture), a joint operation whose purpose is to design and build St. Lukes Medical Center
(the Project) in Fort Bonifacio Global City, Taguig. The application of PFRS 11 does not have
significant impact on the Groups accounting of its interest in a joint operation since it already
reported its share in interest in a joint operation using proportionate consolidation.
The Project, which started on January 31, 2007, is a world-class medical facility comprising, more
or less, of a 611-bed hospital and a 378-unit medical office building, with an approximate gross
floor area of 154,000 square meters, which meets international standards, and all standards and
guidelines of applicable regulatory codes of the Philippines and complies with the criteria of the
Environment of Care of the Joint Commission International Accreditation. The project was
completed on October 30, 2009. Activities in 2011 to 2013 mainly pertain to winding down
operations and punch listing works.
The share of MDC in the net assets and liabilities of the Joint Operation at December 31, 2014,
2013 and 2012 which are included in the consolidated financial statements follow:
2014
(In Thousands)
Current assets:
Cash and cash equivalents
Other current assets
Total assets
Total liabilities

P
= 46,557
47,205
P
= 93,672
P
= 10,866

2013

P
= 65,045
51,698
P
= 116,743
P
= 18,986

The following is the share of the MDC on the net income of the Joint Venture:
2014

Revenue from construction contracts

Contract costs
Interest and other income
Income (loss) before income tax
Provision for income tax
Net loss

2013
(In Thousands)
P
=
P
=
(22,440)
(1,031)
6,513
946
(15,927)
(85)
(51)
85
(P
= 15,978)
P
=

2012
P
=
(994)
1,175
181
(181)
P
=

Provision for income tax pertains to the final tax on interest income.

*SGVFS011298*

- 157 -

36. Commitments
The Company acted as guarantor to AYCFLs term loans and credit facilities as follows:

Description of Facility

Date Contracted

US$229.2 million transferable

term loan facility
December 16, 2010
US$150 million transferable
term loan facility
March 28, 2011
US$20.0 million revolving
credit facility
September 28, 2012
US$225 million transferable
term loan facility
November 28, 2013
US$100 million transferable
loan facility
March 28, 2014
US$200 million term loan
facility
May 9, 2014

2014
2013
Amount
drawn as of
December 31,
Outstanding balance as of
2014
December 31
(Amounts in thousands)
US$229,200

US$229,200

US$229,200

150,000

150,000

50,000

20,000

20,000

225,000

225,000

Undrawn

Undrawn

US$624,200

US$279,200

The Company unconditionally guaranteed the due and punctual payment of advances if, for any
reason AYCFL does not make timely payment. The Company waived all rights of subrogation,
contribution, and claims of prior exhaustion of remedies. The Companys obligation as guarantor
will remain in full force until no sum remains to be lent by the lenders, and the lenders recover the
advances.
On May 2, 2014, AYCFL issued at face US$300.0 million Exchangeable Bonds (the Bonds) due
on May 2, 2019 with a fixed coupon rate of 0.5% per annum, payable semi-annually. The Bonds
are guaranteed by the Company and constitute direct, unsubordinated, unconditional and
unsecured obligations of AYCFL, ranking pari passu and without any preference or priority among
themselves. The Bonds were listed in the Singapore Stock Exchange and include features such
as exchange option, put option and early redemption options.
On January 24, 2014, the Company issued promissory note to BPI amounting to P
= 8.0 billion. The
loan under this note (including interest, charges, and those taxes for which the Company is liable
under the terms of Loan Agreement) was secured by an assignment of deposits belonging to
AYCFL (the Assignor). For this purpose, the Assignor, cedes, transfers and conveys unto the
Bank, its successors and assigns, by way of assignment, all of the rights, titles and interests of the
Assignor on and over these deposits. The Assignor, while the obligations secured remain
outstanding, shall not withdraw and shall keep renewed for the term of the Note the Assigned
Deposits.
ALI Group
On October 16, 2009, ALI executed a lease agreement with the Subic Bay Metropolitan Authority
(SBMA), for the development of a 7.5-hectare property along Rizal Highway within the Subic Bay
Freeport Zone, located between the two main gates linking the Freeport Zone to Olongapo City.
The lease commitment is expected to be completed in 2060 after the 50-year lease term. The
lease may be renewed for another 25 years upon mutual agreement of the parties. ALI offered to
develop a mall with an estimated gross leasable area of 38,000 square meters.
On March 25, 2010, ALI entered into an assignment of lease agreement whereby ALI assigned its
rights and obligations granted to or imposed under the lease agreement to its subsidiary, SBTCI.
The lease payments to SBMA started from the commencement of the commercial operation of the
mall last April 26, 2012, which was completed during the same period.

*SGVFS011298*

- 158 -

ALI has an existing contract with Bases Conversion and Development Authority (BCDA) to
develop, under a lease agreement signed in July 2000, a mall with an estimated gross leasable
area of 152,000 square meters on a 9.8-hectare lot inside Fort Bonifacio. The lease agreement
covers 15 years, renewable for another 25 years subject to reappraisal of the lot at market value.
The annual fixed lease rental amounts to P
= 106.5 million while the variable rent ranges from 5.0%
to 20.0% of gross revenues. Subsequently, ALI transferred its rights and obligations granted to or
imposed under the lease agreement to Station Square East Commercial Corporation (SSECC), in
exchange for equity. As part of the bid requirement, ALI procured a performance bond in 2003
from the Government Service Insurance System in favor of BCDA amounting to P
= 3.9 billion to
guarantee the committed capital to BCDA. Moreover, SSECC obtained stand-by letters of credit
to guarantee the payment of the fixed and variable rent as prescribed in the lease agreement.
MDC, in the normal course of business, furnishes performance bonds in connection with its
construction projects. These bonds shall guarantee MDCs execution and completion of the work
indicated in the respective construction contracts.
On October 18, 2010, ALI undertook to cause the planning, developing and construction of
Anvaya Golf and Sports Club, Inc.s leisure and recreational facilities. ALI was able to deliver the
committed facilities and Anvaya Golf and Sports Club officialy opened its doors to its members on
December 7, 2013.
Parent Companys Concession Agreement
In 2012, the Company entered into a concession agreement with the DPWH to finance, design,
construct, operate and maintain the Daang Hari - SLEX Link Road (the Project). Under the
concession agreement, the Company will:
a. Purchase the advance works on Segment I of the Project from Alabang - Sto. Tomas
Development, Inc. and finance and construct the remaining works thereof;
b. Finance, design, and construct Segment II of the Project;
c. Undertake the operations and maintenance of the Project;
d. Impose and collect tolls from the users of the Project; and
e. Grant business concessions and charge and collect fees for non-toll user related facilities and
toll user related facilities situated in the Project.
The Company is authorized to adjust the toll rates once every two years in accordance with a
prescribed computation as set out in the concession agreement and upon compliance with the
rules and regulations on toll rate implementation as issued or may be issued by the Toll
Regulatory Board.
In the event that the Company is disallowed from charging and collecting the authorized amounts
of the toll rates as prescribed in the concession agreement from the users of the Project, the
Company shall be entitled to either of the following:
a. Compensation from the DPWH of the toll income forgone by the Company which shall be
calculated based on a prescribed computation under the concession agreement.
b. Extension of the concession period to compensate the Company for the forgone toll income
which shall be mutually agreed by the Company and the DPWH.
The Company shall pay the DPWH an amount equal to 5% of all gross revenues arising from nontoll user and toll user related facilities situated within the Project.
The concession period shall commence on the date of the issuance of the Notice to Proceed with
Segment II and shall end on the date that is 30 years thereafter, unless otherwise extended or
terminated in accordance with the concession agreement. Any extension of the concession period
shall in no event be beyond 50 years after the date of the issuance of the Notice to Proceed with
Segment II.

*SGVFS011298*

- 159 -

As of December 31, 2014 and 2013, the Companys capital commitment for construction of
service concession asset amounted to P
= 470.0 million and P
= 665.8 million, respectively.
MWC Group
MWCs Concession Agreement (the Agreement)
The significant commitments of MWC under the Agreement and Extension are as follows:
a. To pay MWSS concession fees;
b. To post a performance bond, bank guarantee or other security acceptable to MWSS
amounting to US$70.0 million in favor of MWSS as a bond for the full and prompt performance
of MWCs obligations under the Agreement. The aggregate amounts drawable in one or more
installments under such performance bond during the Rate Rebasing Period to which it relates
are set out below.

Rate Rebasing Period

First (August 1, 1997 - December 31, 2002)
Second (January 1, 2003 - December 31, 2007)
Third (January 1, 2008 - December 31, 2012)
Fourth (January 1, 2013 - December 31, 2017)
Fifth (January 1, 2018 - December 31, 2022)
Sixth (January 1, 2013 - December 31, 2027)
Seventh (January 1, 2028 - December 31, 2032)
Eighth (January 1, 2033 - May 6, 2037)

Aggregate amount drawable

under performance bond
(in US$ millions)
US$70.0
70.0
60.0
60.0
50.0
50.0
50.0
50.0

Within 30 days from the commencement of each renewal date, MWC shall cause the
performance bond to be reinstated in the full amount set forth above as applicable for that
year.
Upon not less than 10-day written notice to MWC, MWSS may make one or more drawings
under the performance bond relating to a Rate Rebasing Period to cover amounts due to
MWSS during that period; provided, however, that no such drawing shall be made in respect
of any claim that has been submitted to the Appeals Panel for adjudication until the Appeals
Panel has handed down its decision on the matter.
In the event that any amount payable to MWSS by MWC is not paid when due, such amount
shall accrue interest at a rate equal to that of a 364-day Treasury Bill for each day it remains
unpaid;
c.

With the Extension, MWC agreed to increase its annual share in MWSS operating budget by
100% from P
= 100.0 million to P
= 395.0 million, subject to annual CPI;

d. To meet certain specific commitments in respect of the provision of water and sewerage
services in the East Zone, unless deferred by MWSS-RO due to unforeseen circumstances or
modified as a result of rate rebasing exercise;
e. To operate, maintain, renew and, as appropriate, decommission facilities in a manner
consistent with the National Building Standards and best industrial practices so that, at all
times, the water and sewerage system in the East Zone is capable of meeting the service
obligations (as such obligations may be revised from time to time by the MWSS-RO following
consultation with MWC);
f.

To repair and correct, on a priority basis, any defect in the facilities that could adversely affect
public health or welfare, or cause damage to persons or third party property;

*SGVFS011298*

- 160 -

g. To ensure that at all times, MWC has sufficient financial, material and personnel resources
available to meet its obligations under the Agreement; and
h. To ensure that no debt or liability that would mature after the life of the Agreement will be
incurred unless with the approval of MWSS.
Failure of MWC to perform any of its obligations that is deemed material by MWSS-RO may cause
the Agreement to be terminated.
In March 2012, MWC submitted to MWSS a business plan embodying its rate rebasing proposal
for charging year 2013. MWCC conducted a review of the proposal including MWCs last five (5)
years financial performance. The financial review process extended up to the third quarter of
2013. On September 10, 2013, MWSS-RO issued Resolution No. 13-09-CA providing for the
MWSS rate rebasing negative adjustment of negative 29.47% to MWCs 2012 average basic
water charge of P
= 24.57 per cubic meter. The adjustment shall be implemented in 5 equal
tranches of negative 5.9% per charging year. MWC objected to MWSS Rate Rebasing
determination and formally filed its Dispute Notice on September 24, 2013, before a dulyconstituted Appeals Panel, commencing the arbitration process as provided under Section 12 (in
relation to Section 9.4 of the Concession Agreement).
On December 10, 2013, the MWSS Board of Trustees thru R.O. Resolution No. 13-012 CA,
approved the implementation of a Status Quo for MWCs Standard Rates and FCDA, until such
time that the Appeals Panel has rendered a final award for the 2013 Rate Rebasing determination.
On December 17, 2014, the MWSS Board of Trustees approved the implementation of an FCDA
adjustment of P
= 0.36 per cubic meter based on the exchange rates of USD1:P
= 44.80 and
JPY1:P
= 0.42 which was published on December 31, 2014 and took effect 15 days after its
publication. The FCDA component of the water bill will be adjusted to 1.32% of the basic charge
in the first quarter of 2015. The FCDA has no impact on the projected net income of MWC.
As of March 10, 2015, MWC continues to implement the current standard rates pending the final
award of the Arbitration Panel.
LAWCs Concession Agreement
The significant commitments of LAWC under its concession agreement with POL are as follows:
a. To pay POL concession fees;
b. To manage, occupy, operate, repair, maintain, decommission, and refurbish the transferred
facilities;
c.

To design, construct and commission the new facilities during the cooperation period;

d. To provide and manage the services;

e. To bill and collect payment from the customer for all services;
f.

To extract raw water exclusively from all sources of raw water; and

g. To negotiate in good faith with POL any amendment or supplement to the concession
agreement to establish, operate and maintain wastewater facilities if doing such is financially
and economically feasible.

*SGVFS011298*

- 161 -

BIWCs Concession Agreement

The significant commitments of BIWC under its concession agreement with TIEZA are as follows:
a. To meet certain commitments in respect of the provision of water and sewerage services in
the service area, unless deferred by the TIEZA Regulatory Office (TIEZA-RO) due to
unforeseen circumstances or modified as a result of rate rebasing exercise;
b. To pay concession fees, subject to the following provisions:
i.
Assumption of all liabilities of the BWSS as of Commencement Date and service such
liabilities as they fall due. BWSS has jurisdiction, supervision and control over all
waterworks and sewerage systems within the Boracay island prior to commencement
date. The servicing of such liabilities shall be applied to the concession fees;
ii.

Payment of an amount equivalent to 5.0% of the monthly gross revenue of BIWC,

inclusive of all applicable taxes. Such payments shall be subject to adjustment based
on the gross revenue of BIWC as reflected in its separate financial statements;

iii.

Provision of the amount of the TIEZA BODs approved budget in 2012, payable in
semi-annual installments at the first month of each quarter and not exceeding:
Month
January
July

iv.

Provision of the annual operating budget of the TIEZA-RO, payable in 2 equal

tranches in January and July and not exceeding:
Year
2011
2012
2013 and beyond

c.

Maximum Amount
P
= 10,000,000
10,000,000

Maximum Amount
P
= 15,000,000
20,000,000
20,000,000, subject to annual
CPI adjustments

To establish, at Boracay Island, a TIEZA-RO building with staff house, the cost of which
should be reasonable and prudent;

d. To pay an incentive fee pegged at P

= 1.00 per tourist, local and foreign, entering the service
area;
e. To raise financing for the improvement and expansion of the BWSS water and wastewater
facilities;
f.

To operate, maintain, repair, improve, renew and as appropriate, decommission facilities, as

well as to operate and maintain the drainage system upon its completion, in a manner
consistent with the National Building Standards and best industrial practices so that, at all
times, the water and sewerage system in the service area is capable of meeting the service
obligations (as such obligations may be revised from time to time by the TIEZA-RO following
consultation with BIWC);

g. To repair and correct, on a priority basis, any defect in the facilities that could adversely affect
public health or welfare, or cause damage to persons or third party property; and
h. To ensure that at all times, BIWC has sufficient financial, material and personnel resources
available to meet its obligations under the Agreement.

*SGVFS011298*

- 162 -

In addition, MWC, as the main proponent of BIWC, shall post a bank security in the amount of
US$2.5 million to secure MWCs and BIWCs performance of their respective obligations under the
agreement. The amount of the performance security shall be reduced by MWC following the
schedule below:

Rate Rebasing Period

First
Second
Third
Fourth
Fifth

Amount of
Performance Security
(in US$ millions)
US$2.5
2.5
1.1
1.1
1.1

On or before the start of each year, BIWC shall cause the performance security to be reinstated in
the full amount set forth as applicable for that year.
Upon not less than 10 days written notice to BIWC, TIEZA may take one or more drawings under
the performance security relating to a Rate Rebasing Period to cover amounts due to TIEZA
during that period; provided, however, that no such drawing shall be made in respect of any claim
that has been submitted to the Arbitration Panel for adjudication until the Arbitration Panel has
handed its decision on the matter.
In the event that any amount payable to TIEZA by BIWC is not paid when due, such amount shall
accrue interest at a rate equal to that of a 364-day Treasury Bill for each day it remains unpaid.
Failure of BIWC to perform any of its obligations that is deemed material by TIEZA-RO may cause
the concession agreement to be terminated.
Under its concession agreement, BIWC is entitled to the following rate adjustments:
a. Annual standard rate adjustment to compensate for increases in the consumer price index
(CPI);
b. EPA to account for the financial consequences of the occurrence of certain unforeseen events
stipulated in the Agreement; and
c.

FCDA to recover foreign exchange losses including accruals and carrying costs thereof arising
from TIEZA loans and any loans used for capital expenditures and concession fee payments.

These rate adjustments are subject to a rate adjustment limit which is equivalent to the sum of CPI
published in the Philippines, EPA and Rebasing Convergence adjustment as defined in BIWCs
concession agreement.
The rate rebasing date is set every 5 years starting January 1, 2011. Hence, the first rate
rebasing period shall commence on January 1, 2010 and end on December 31, 2010, and in the
case of subsequent rate rebasing periods, the period commencing on the last rate rebasing date
and ending on December 31 of the fifth year thereafter. No rate rebasing transpired on January 1,
2011.
BIWC requested for the deferment of the rate rebasing since it was not able to commence
operations in June 2009, as originally planned, because the SEC required the Company to seek
conformity from the Department of Finance before it could be incorporated.

*SGVFS011298*

- 163 -

In January 2013, TIEZA approved the new tariff adjustment for BIWC which is equivalent to an
increase from its existing rates of 35.0% to be implemented on a staggered basis for a period of
four years with 10.1% increase in 2013; 9.2% for 2014; 8.4% in 2015; and 7.8% in 2016, effective
February 1, 2013.
For 2013 and 2014, only the approved rate rebasing adjustment was implemented while the CPI
adjustment was deferred due to economic considerations relative to the first time adjustment and
natural calamities in 2013.
Technical services agreement
Simultaneous with the execution of BIWCs concession agreement, BIWC and MWC executed a
Technical Services Agreement by which MWC is being paid by BIWC a technical services fee
equivalent to 4% of the annual gross revenue of BIWC, for rendering the following services to
BIWC:

a. Financial management, including billing and collection services, accounting methods and
financial control devices; and

b. Operations and project management, including facility operations and maintenance, and
infrastructure project management.
CWCs Concession Agreement
The significant commitments of CWC under its concession agreement with CDC are follows:
a. To pay franchise and rental fees of CDC;
b. Finance, design, and construct the New Facilities - defined as any improvement and extension
works to (i) all Existing Facilities - defined as all fixed and movable assets specifically listed in
the Concession Agreement; (ii) the Construction Work - defined as the scope of construction
work set out in the Concession Agreement; and (iii) other new works that do not constitute
refurbishment or repair of Existing Facilities undertaken after the commencement date;
c.

Manage, exclusively possess, occupy, operate, repair, maintain, decommission and refurbish
the Existing Facilities, except for the private deep wells set out in the Concession Agreement,
the negotiations for the acquisition and control of which shall be the sole responsibility and for
the account of the Company; and manage, own, operate, repair, maintain, decommission and
refurbish the New Facilities;

d. Treat raw water and wastewater in CSEZ;

e. Provide and manage all water and wastewater related services (the Services) like assisting
locator on relocating of pipes and assess internal leaks;
f.

Bill and collect payment from the customers for the services (with the exception of SM City
Clark). SM City Clark has been carved out by virtue of Republic Act 9400 effective 2007 even
if it is located within the franchise area; and

g. Extract raw water exclusively from all sources of raw water including all catchment areas,
watersheds, springs, wells and reservoirs in CFZ free of charge by CDC.
On August 15, 2014, the CWC and CDC signed an amendment agreement to the CA dated
March 16, 2000. The Amendment provides for the following:
Extension of the original concession period for another 15 years up to October 1, 2040;
Additional investment of P
= 4.00 billion provided under the amended CA to be spent for
further improvement and expansion water and waste water services in the area.
Investment requirement under the original CA amounted to P
= 3.00 billion;
Introduction of rate rebasing mechanism for every four years starting 2014;

*SGVFS011298*

- 164

Reduction in tariff rates by 3.9% (from Php25.63/m3 to Php24.63/m3) effective

September 1, 2014 with no tariff change until 2017, subject to the Extraordinary Price
Adjustment; and
Increase in tariff rates by:
P
= 0.41 (from Php24.63/m3 to Php25.04/m3 ) in 2018
P
= 0.42 (from Php25.04/m3 to Php25.45/m3 ) in 2019
P
= 0.42 (from Php25.45/m3 to Php25.87/m3 ) in 2020
P
= 0.43 (from Php25.87/m3 to Php26.30/m3 ) in 2021

As a result of the extension of the concession period, service concession assets and service
concession obligation as of August 15, 2014 increased by P
= 56.6 million. Further, the recovery
period of the Companys investment is now extended by another 15 years from 2025 to 2040.
MWC Management Contracts
Vietnam Project
On July 22, 2008, MWC entered into a Performance-Based Leakage Reduction and Management
Services Contract with Saigon Water Corporation. The contract involves the following
components:
a.
b.
c.
d.
d.
e.

General requirements;
District Metering Area establishment;
Leakage reduction and management services;
System expansion work;
Emergency and unforseen works; and
Daywork schedule.

In 2014, 2013 and 2012, total revenue from the Vietnam Project amounted to P
= 25.5 million,
P
= 174.9 million and P
= 169.5 million, respectively. Total costs related to the Vietnam Project
amounted to P
= 54.3 million, P
= 96.2 million and P
= 124.5 million in 2014, 2013 and 2012, respectively.
MWC contracts with the Maynilad Water Services, Inc. (Maynilad)
In relation to the Concession Agreement with MWSS, MWC entered into the following contracts
with Maynilad:
a. Interconnection Agreement wherein the two Concessionaires shall form an unincorporated
joint venture that will manage, operate, and maintain interconnection facilities. The terms of
the agreement provide, among others, the cost and the volume of water to be transferred
between zones.
b. Joint Venture Arrangement that will operate, maintain, renew, and as appropriate,
decommission common purpose facilities, and perform other functions pursuant to and in
accordance with the provisions of the Agreement and perform such other functions relating to
the concession (and the concession of the West Zone Concessionaire) as the
Concessionaires may choose to delegate to the joint venture, subject to the approval of
MWSS.

c. In March 2010, MWSS entered into a loan agreement with The Export-Import Bank of China to
finance the Angat Water Utilization and Aqueduct Improvement Project Phase II (the
Project). Total loan facility is US$116.6 million with maturity of 20 years including 5 years
grace period. Interest rate is 3% per annum. MWSS then entered into a Memorandum of
Agreement with MWC and Maynilad for MWC and Maynilad to shoulder equally the repayment
of the loan, to be part of the concession fees.

*SGVFS011298*

- 165 -

ACEHI
On December 23, 2014, ACEHI entered into an Equity Contribution Agreement with GNPK,
Citicorp International Limited in its capacity as offshore collateral agent and certain other parties,
whereby ACEHI agreed to provide its proportionate share in the equity required for the
construction of the Kauswagan Power Plant Project. On even date, the Company, ACEHI and
Citicorp International Limited, in its capacity as Offshore Collateral Agent for the secured parties,
signed an equity subscription undertaking whereby the Company agreed to make timely capital
subscriptions of up to US$281 million into ACEHI under the subscription agreement as and when
required thereunder to support ACEHIs commitments under the Equity Contribution Agreement.
On December 22, 2014, ACEHI and GNPK executed a Contract of Lease and Access Agreement
for certain parcels of land in Kasuwagan, Lanao del Norte with an area of approximately 608,642
square meters.. The lease is for 50 years and payments will start in 2015.
On December 23, 2014, the Kauswagan Power Holding Limited Partnership Agreement (KPHLC
LPA) and GNPower Kauswagan Limited Partnersip Agreement (GNPK LPA) were amended to
facilitate the subscription by PINAI investors for the Class C limited partnership interest in KPHLC
and Class B interests in GNPK. Total aggregate committed capital of PINAI and ACEHI per LPA
will be up to US$110.0 million and US$281.0 million, respectively.
AC Infra
Investment commitment in LRT 1 and AFCS projects
As of December 31, 2014, AC Infras total equity investment commitment for the LRT 1 and AFCS
projects amounts to 8.5 billion and 500.0 million, respectively.

37. Contingencies
The Group has various contingent liabilities arising in the ordinary conduct of business which are
either pending decision by the courts or being contested, the outcome of which are not presently
determinable.
In the opinion of the Groups management and its legal counsel, the eventual liability under these
lawsuits or claims, if any, will not have a material or adverse effect on the Groups financial
position and results of operations.
MWC
On October 13, 2005, the Municipality of Norzagaray, Bulacan jointly assessed MWC and
Maynilad Water Services, Inc. (jointly, the Concessionaires) for real property taxes on certain
common purpose facilities registered in the name of and owned by MWSS purportedly due from
1998 to 2005 amounting to P
= 955.3 million. On November 15, 2010, the local government of
Quezon City demanded the payment of P
= 302.7 million for deficiency real property taxes from
MWSS on MWSS properties within its territorial jurisdiction. The assessments from the
municipality of Norzagaray and local government of Quezon City have been questioned by the
Concessionaires and MWSS, and are pending resolution before the Central Board of Assessment
Appeals and Suprement Court, respectively.

*SGVFS011298*

- 166 -

38. Assets Held in Trust

MWSS
MWC is granted the right to operate, maintain in good working order, repair, decommission and
refurbish the movable property required to provide the water and sewerage services under the
Agreement. The legal title to all movable property in existence at the Commencement Date,
however, shall be retained by MWSS and upon expiration of the useful life of any such movable
property as may be determined by MWC, such movable property shall be returned to MWSS in its
then-current condition at no charge to MWSS or MWC.
The Agreement also provides for the Concessionaires to have equal access to MWSS facilities
involved in the provision of water supply and sewerage services in both East and West Zones
including, but not limited to, the MWSS management information system, billing system, telemetry
system, central control room and central records.
The net book value of the facilities transferred to MWC on Commencement Date based on MWSS
closing audit report amounted to P
= 4.6 billion with a sound value of P
= 10.4 billion.
A re-appraisal of the MWSS facilities mentioned above as of December 31, 2004 was conducted
by Cuervo Appraisers. The final appraisal report was submitted last November 2006 showing a
total reproduction cost of P
= 27.0 billion with a sound value of P
= 17.2 billion.
In 2009, MWC engaged the services of Cuervo Appraisers to conduct a re-appraisal of the MWSS
assets on record as of December 31, 2008. Total reproduction cost as of December 31, 2008
amounted to P
= 37.7 billion with a sound value of P
= 22.9 billion.
MWSS corporate headquarters is made available to the Concessionaires starting August 1, 1997,
subject to periodic renewal by mutual agreement of the parties. On October 27, 2006, MWC has
renewed the lease for 5 years, with expiry of October 27, 2011. Rent expense amounted to
P
= 17.0 million and P
= 19.8 million in 2013 and 2012, respectively. These are included under Rental
and utilities in the consolidated statement of income.
POL
LAWC is granted the right to manage, occupy, operate, repair, maintain, decommission and
refurbish the property required to provide water services under its concession agreement with
POL. The legal title of all property in existence at the commencement date shall be retained by
POL. Upon expiration of the useful life of any such property as may be determined by LAWC,
such property shall be returned to POL in its then condition at no charge to POL or LAWC.
In 2011, LAWC engaged the services of Cuervo Appraisers to conduct a re-appraisal of POL
assets on record as of December 31, 2010. Total reproduction cost as of December 31, 2010
amounted to P
= 434.5 million with a sound value of P
= 205.9 million.
TIEZA
BIWC is granted the right to operate, maintain in good working order, repair, decommission and
refurbish the movable property required to provide the water and sewerage services under the
Agreement. The legal title to all movable property in existence at the commencement date,
however, shall be retained by TIEZA and upon expiration of the useful life of any such movable
property as may be determined by MWC, such movable property shall be returned to TIEZA in its
then-current condition at no charge to TIEZA or MWC.
The net book value of the facilities transferred to MWC on commencement date based on TIEZAs
closing audit report amounted to P
= 618.3 million.

*SGVFS011298*

- 167 -

CDC
CWC is granted the right to occupy, operate, repair, maintain, decommission and refurbish all
fixed and movable assets specifically listed in the concession agreement with CDC. Any new
construction, change, alteration, addition or improvement on the facilities is permitted to the extent
allowed under the agreement with CDC or with the prior written consent of CDC. Legal title, free of
all liens and encumbrances, to improvements made or introduced by CWC on the facilities as well
as title to new facilities procured by CWC in the performance of its obligations under the
concession agreement shall automatically pass to CDC on the date when the concession period
expires or the date of receipt of a validly served termination notice, in the latter case, subject to
payment of the amount due as termination payments as defined in the concession agreement.
The net book value of the facilities transferred to CWC on commencement date based on CDCs
closing audit report amounted to P
= 1.4 billion.

39. Renewable Energy Act of 2008

Republic Act No. 9513, An Act Promoting the Development, Utilization and Commercialization of
Renewable Energy Resources and for Other Purposes, which shall be known as the Renewable
Energy Act of 2008 (the Act), became effective on January 30, 2009. The Act aims to:
(a) accelerate the exploration and development of renewable energy resources such as, but not
limited to, biomass, solar, wind, hydro, geothermal and ocean energy sources, including hybrid
systems, to achieve energy self-reliance, through the adoption of sustainable energy development
strategies to reduce the countrys dependence on fossil fuels and thereby minimize the countrys
exposure to price fluctuations in the international markets, the effects of which spiral down to
almost all sectors of the economy; (b) increase the utilization of renewable energy by
institutionalizing the development of national and local capabilities in the use of renewable energy
systems,and promoting its efficient and cost-effective commercial application by providing fiscal
and non-fiscal incentives; (c) encourage the development and utilization of renewable energy
resources as tools to effectively prevent or reduce harmful emissions and thereby balance the
goals of economic growth and development with the protection of health and environment; (d)
establish the necessary infrastructure and mechanism to carry out mandates specified in the Act
and other laws.
As provided for in the Act, Renewable Energy (RE) developers of RE facilities, including hybrid
systems, in proportion to and to the extent of the RE component, for both power and non-power
applications, as duly certified by the Department of Energy (DOE), in consultation with the Board
of Investments, shall be entitled to the following incentives, among others:
i.

Income Tax Holiday (ITH) - For the first seven (7) years of its commercial operations, the duly
registered RE developer shall be exempt from income taxes levied by the National
Government;

ii.

Duty-free Importation of RE Machinery, Equipment and Materials - Within the first ten (10)
years upon issuance of a certification of an RE developer, the importation of machinery and
equipment, and materials and parts thereof, including control and communication equipment,
shall not be subject to tariff duties;

iii. Special Realty Tax Rates on Equipment and Machinery - Any law to the contrary
notwithstanding, realty and other taxes on civil works, equipment, machinery, and other
improvements of a registered RE developer actually and exclusively used for RE facilities shall
not exceed 1.5% of their original cost less accumulated normal depreciation or net book value;
iv. NOLCO - the NOLCO of the RE developer during the first three (3) years from the start of
commercial operation which had not been previously offset as deduction from gross income
shall be carried over as deduction from gross income for the next seven (7) consecutive
taxable years immediately following the year of such loss;

*SGVFS011298*

- 168 -

v. Corporate Tax Rate - After seven (7) years of ITH, all RE developers shall pay a corporate tax
of 10% on its net taxable income as defined in the National Internal Revenue
Code of 1997, as amended by Republic Act No. 9337;
vi. Accelerated Depreciation - If, and only if, an RE project fails to receive an ITH before full
operation, it may apply for accelerated depreciation in its tax books and be taxed based on
such;
vii. Zero Percent VAT Rate - The sale of fuel or power generated from renewable sources of
energy shall be subject to 0% VAT;
viii. Cash Incentive of RE Developers for Missionary Electrification - An RE developer, established
after the effectivity of the Act, shall be entitled to a cash generation-based incentive per
kilowatt-hour rate generated, equivalent to 50% of the universal charge for power needed to
service missionary areas where it operates the same;
ix. Tax Exemption of Carbon Credits - All proceeds from the sale of carbon emission credits shall
be exempt from any and all taxes; and
x.

Tax Credit on Domestic Capital Equipment and Services - A tax credit equivalent to 100% of
the value of the value-added tax and customs duties that would have been paid on the RE
machinery, equipment, materials and parts had these items been imported shall be given to
an RE operating contract holder who purchases machinery, equipment, materials, and parts
from a domestic manufacturer for purposes set forth in the Act.

In addition, to accelerate the development of emerging renewable energy resources, a feed-in tariff
system for electricity produced from wind, solar, ocean, run-of-river hydropower and biomass will
be promulgated which shall include, but not limited to, the following:
a.
b.
c.

Priority connections to the grid for electricity generated from emerging renewable energy
resources;
The priority purchase and transmission of, and payment for, such electricity by the grid system
operators; and
Determine the fixed tariff to be paid to electricity produced from each type of emerging
renewable energy and the mandated number of years for the application of these rates, which
shall not be less than twelve (12) years.

The feed-in tariff to be set shall be applied to the emerging renewable energy to be used in
compliance with the renewable portfolio standard as provided for in the Act and in accordance with
the feed-in-tariff rules to be promulgated by the Energy Regulatory Commission (ERC) in
consultations with the National Renewable Energy Board. On July 27, 2012, ERC approved the
feed-in tariff of 8.53 kilowatt per hour (kWh) for wind renewable energy resource. The approved
subsidy will be reviewed and readjusted, if necessary, after its three-year initial implementation or
when the target installed capacity for each renewable resource set by the DOE has been met.
RE developers and local manufacturers, fabricators and suppliers of locally-produced RE
equipment shall register with the DOE, through the Renewable Energy Management Bureau
(REMB). Upon registration, a certification shall be issued to each RE developer and local
manufacturer, fabricator and supplier of locally-produced renewable energy equipment to serve as
the basis of their entitlement to the incentives provided for in the Act. All certifications required to
qualify RE developers to avail of the incentives provided for under the Act shall be issued by the
DOE through the REMB.

*SGVFS011298*

- 169 -

Within six (6) months from the effectivity of the Act, the DOE shall, in consultation with the Senate
and House of Representatives Committee on Energy, relevant government agencies and RE
stakeholders, promulgate the Implementing Rules and Regulations of the Act. On May 25, 2009,
the DOE issued the Implementing Rules and Regulations of the Act which became effective on
June 12, 2009.
ACEHI and its subsidiaries expect that the Act will impact their future operations and financial
results. The impact of the Act will be disclosed as the need arises.
Northwind
On January 18, 2010, Northwind filed its intent with the REMB for the conversion of its Negotiated
Commercial Contract into Wind Energy Service Contract and Registration as RE Developer as
provided for under the Act. On November 9, 2010, the DOE issued a Provisional Certificate of
Registration as an RE Developer in favor of Northwind, subject to negotiation and execution of a
Wind Energy Service Contract to replace the Negotiated Commercial Contract.
On April 6, 2011, Northwind filed with the ERC an application for a Feed-In Tariff (FiT). The FiT
will provide for a fixed rate per kilowatt of electricity produced over a period of fifteen years. On
June 6, 2011, the ERC granted Northwind a provisional FiT rate of P
= 9.30 per kilowatt hour which
shall be effective and collected only upon the final approval of the FiT for emerging renewable
energy technologies, specifically for wind energy.
On October 10, 2014, the DOE granted Northwind a Certificate of Endorsement for Feed-In Tariff
(FIT) Eligibility (COE-FIT No. 2014-10-001) for its Phase III expansion project. The endorsement
qualifies the Phase III expansion under the FIT System and accordingly, will be granted the
national FIT for wind projects amounting to 8.53/kWh. The endorsement shall be the basis for the
Energy Regulatory Commission (ERC) to issue a FIT Certificate of Compliance.

40. Events after the Reporting Period

Parent Company
a) In January 2015, the Company assisted ALI to raise funds through a placement of
484,848,500 common shares of ALI that the Company owns at a price of P
= 33.00 per share
(the Offer Price). The placement was conducted via a bookbuilt offering structured as a topup placement with all the proceeds to be received by ALI.
The equity placement raised an aggregate of P
= 16.0 billion in proceeds which ALI will use for
its expansion projects.
As a result of this transaction, the Companys holdings in common shares of ALI was reduced
to 47.3% from 48.9% but the Company will retain voting control at over 68.9%.
b) On March 10, 2015, the BOD of the Company approved the following:
Approval for AI North America, Inc. (AINA), a wholly-owned subsidiary of AG Holdings,
to invest US$20.0 million in the Sares Regis Multi-family Value Add Fund II, a real estate
private equity fund to be managed by the Sares-Regis group (SRG) based in California,
USA. The investment will entitle AINA to get a voting interest through 1 (one) board seat
on the Board of Advisors. AINA is also authorized, through its authorized signatories, to
execute the Limited Partnership Agreement with SRG.
Application of US$20.0 million Term Loan Facility for GN Power Mariveles Coal Plant Ltd.
Co. (GMCP). Arlington BV will grant the loan of up to US$20.0 million in accordance with
the following terms and Ayala-Sithe Global funding terms:
o Interest of 10% per annum compounded semi-annually
o Payable on or before December 31, 2016
o Step-up interest of 20% per annum if the loan is unpaid by maturity date
o Sithe commits to buy-out US$15.0 million of the loan by July 2015

*SGVFS011298*

- 170 -

ALI
a) In February 2015, ALI purchased the remaining non-controlling interest of the following:
Anglo Philippine Holdings Corporation in NTDCC comprising of 382,072 common shares
and 1,605,169 preferred shares for P
= 523.0 million.
Remaining interest of Allante Realty and Development Corporation and DBH, Inc.
consisting of 167,548 common shares and 703,904 preferred shares for P
= 229.0 million.
This brings ALIs ownership in NTDCC from 63.8% to 73.2% of the total outstanding capital
stock of NTDCC, which owns and operates the Trinoma Commercial Centre in North Triangle,
Quezon City.
b) On February 20, 2015, the BOD of ALI approved the declaration of regular cash dividends of
P
= 0.2 per share on the outstanding common shares. The dividends will be paid on
March 20, 2015 to stockholders of record as of March 6, 2015.
c) On February 23, 2015, the BOD of ALI approved the declaration of cash dividends of
4.74786% per annum or P
= 0.0474786 per share on the outstanding unlisted voting preferred
shares. The dividends will be paid on June 29, 2015 to stockholders of record as of June 15,
2015.
MWC
a) On January 6, 2015, MWCs Remuneration Committee approved the grant to the qualified
executives, officers and employees of stock options covering up to 7,281,647 common shares
at a subscription price of P
= 26.00 per share.
b) On January 5, 2015, CMWD delivered its initial 18.0 million liters per day bulk water supply to
MCWD. CMWD will increase its bulk water delivery to 35.0 million liters per day in 2016.
c) On January 30, 2015, MWC and the Zamboanga City Water District (ZCWD) have signed and
executed a Joint Venture Agreement to govern their relationship as joint venture partners in
the conduct of Non-Revenue Water Reduction Activities. MWC and ZCWD shall thereafter
cause the incorporation of a Joint Venture Company which shall perform the Non-Revenue
Water Reduction Activities for a period of ten (10) years. MWC shall own seventy percent
(70%) while ZCWD shall own (30%) of the Joint Ventures outstanding capital stock.
d) On February 20, 2015, the BOD of MWC approved the following:
i. Declaration of cash dividends for the first semester of 2015 of P
= 0.4075 per share on the
outstanding Common Shares and P
= 0.04075 per share on the outstanding Participating
Preferred Shares. The dividends will be paid on March20, 2015 to stockholders of record
as of March 6, 2015.
ii. Additional investment of P
= 492.0 million in Manila Water Total Solutions Corporation and
P
= 250.0 million in Manila Water Philippine Ventures, Inc.
IMI
a) On February 17, 2015, the BOD of IMI approved the declaration of regular cash dividends of
US$0.0042 (P
= 0.1868) per share on the outstanding common shares. The dividends will be
paid on March 19, 2015 to stockholders of record as of March 4, 2015.
AC Infrastructure Holdings Corporation
a) On January 27, 2015, together with Metro Pacific Light Rail Corporation, AC Infra submitted its
prequalification bid for the operation and maintenance of LRT Line 2 under Light Rail Manila
Holdings 2, Inc. (LRMH2I). On February 16, 2015, the Department of Transportation and
Communications (DOTC) announced the qualification of LRMH2I to bid for the project
together with three other qualified bidders.

*SGVFS011298*

- 171 -

AC Energy Holdings Inc.

a) On various dates of January to February 2015, the Company infused $14.3 million to ACEHI
to fund the investment in GNPK.
b) On February 9, 2015, the AC Energy guarantee in connection with NLREC P
= 3.0 billion loan
facility was extended by 2 months or until April 10, 2015.
BPI
a) On November 19, 2014, the BOD of BPI approved the declaration of cash dividends of P
= 0.90
per outstanding common shares subject to the approval of the BSP. On February 2, 2015, the
BSP approved the dividend declaration which will be paid on March 17, 2015 to stockholders
of record as of February 24, 2015.

c) Approval of the Consolidated Financial Statements

The consolidated financial statements of Ayala Corporation and Subsidiaries (the Group) as of
December 31, 2014, 2013 and 2012 and for each of the three years in the period ended
December 31, 2014 were endorsed for approval by the Audit Committee on March 5, 2015 and
authorized for issue by the Board of Directors (BOD) on March 10, 2015.

*SGVFS011298*

II.

2014 Supplementary Schedules

144

AYALA CORPORATION AND SUBSIDIARIES

Schedule A Financial Assets (Current Marketable Equity Securities and Other Short-Term
Cash Investments)
As of December 31, 2014
(In Thousand Pesos)

Name of Issuing entity &

association of each issue

Number of shares or
principal amount of bonds
& interest

Amount shown in the

balance sheet

Valued based on market

quotation at balance
sheet date

Income received &

accrued

A. OTHER SHORT-TERM CASH INVESTMENTS 1/

Special Savings Account
BPI
Other Banks
Sub-Total

5,938,112
599,979
6,538,090

Time Deposits (FX)

BPI
Others
Sub-Total

40,292
40,292

Time Deposits (Peso)

BPI
Metrobank
Unionbank
Citibank
Others
Sub-Total

24,497
547,619
572,115

Money Market Placements (FX)

Banco de Oro
BPI
Union Bank
RCBC
Citibank
Metrobank
Chinabank
Security Bank
Mizuho Bank
OTHERS
Sub-Total

3,717,527
12,421,747
31,844
10,494,421
44,720
268,320
44,794
973,893
27,997,266

Money Market Placements (Peso)

BPI
Banco de Oro
Chinabank
Metrobank
Standard Chartered Bank
Security Bank
RCBC
Unionbank
Others
Sub-Total

18,399,371
4,305,467
43,750
3,360,538
322
124,600
599,500
170,900
288,600
27,293,048

Others

5,364,919

Total
B. SHORT-TERM INVESMENTS 2/
C. CURRENT MARKETABLE SECURITIES 3/

67,805,732

4,083,203

NOT APPLICABLE
NOT APPLICABLE

1/ Short-term highly liquid investments with varying periods up to three months shown as part of the Cash and Cash Equivalents account in the Balance Sheet. Cash equivalents is
9.3% of the P726,047,776k total assets as of December 31, 2014.
2/ Money market placements with varying maturity periods of more than three months and up to six months amounting to P1,102,703k is 0.15% of the P726,047,776k total assets as
of December 31, 2014. This is booked under the Short-term investment account.
3/ Current marketable securities are composed of financial assets at FVPL amounting to P10,374,780k. An amount of P5,607,838k is placed under BPI's UITF. The total FVPL
account is shown under the other current assets account and is 1.4% of the P726,047,776k total assets as of December 31, 2014.

145

Schedule B Amounts Receivable from Directors, Officers, Employees, Related Parties and
Principal Stockholders (Other than Related Parties)
As of December 31, 2014
(In Thousand Pesos)

Account Type

Beginning
Ending
Balance Additions Deductions Balance

Current Non-current

Advances to Employees
Housing and Related Loan
Car and Related Loan
Others

235,774
141,784
53,331
76,153

731,620
94,586
105,160
78,974

(554,273) 413,121
(81,111) 155,259
(82,628) 75,863
(68,034) 87,093

376,212
56,530
38,043
43,798

36,909
98,729
37,820
43,295

TOTAL

507,042

1,010,340

(786,046) 731,336

514,583

216,753

Payment Period
30 days to 1 year
1 year to 15 years
1 year to 5 years
6 months to 1 year

Receivables from officers and employees pertain to housing, car, salary and other loans
granted to the Groups officers and employees w hich are collectible through salary deduction,
are interest bearing ranging from 6.0% to 13.5% per annum and have various maturity dates.

Schedule C.1. Amounts Receivable from Related Parties which are Eliminated during the
Consolidation of Financial Statements
As of December 31, 2014
(In Thousand Pesos)

Creditor
AC
AC
AC
AC
AC Infra
ACIFL
ACIFL
ACIFL
ACIFL
AIVPL
ALI
ALI
ALI
ALI
AYC
AYC
AzTech
BHL
Others
TOTAL

Creditor's
Relationship to the
Reporting Co.
Parent
Parent
Parent
Parent
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary

Account Type
Other receivable
Dividends receivable
Other receivable
Other receivable
Subscription receivable
Other receivable
Other receivable
Other receivable
Other receivable
Other receivable
Other receivable
Trade receivable
Trade receivable
Other receivable
Other receivable
Other receivable
Subscription receivable
Other receivable
Other receivable

Beginning
Balance Movement
231,382
40,000
76,963
31,427
90,000
566,260
2,366,807
441,543
15,621
586,459
152,304
20,821
4,385,402
419,622
55,552
17,052
9,497,216

Ending
Balance

Nature of Accounts

(230,363)
1,019 Advances, non-interest bearing
65,525
105,525 Dividends from AGCC, IMI and PHI
(12,223)
64,741 Rental fees, with interest on overdue accounts
(31,427)
- Management fees, non-interest bearing
80,000
170,000 Deposits on subscriptions, non-interest bearing
566,260 Deposits on options to purchase shares
(2,366,807)
- Deposits on subscriptions, non-interest bearing
(364,747)
76,796 Deposits on subscriptions, non-interest bearing
1,633,281 1,633,281 Other receivables from PFIL
(15,621)
- Advances, non-interest bearing
(343,133)
243,326 Retention accounts for construction projects
(126,091)
26,213 Advances, non-interest bearing
243,401
243,401 Advances, non-interest bearing
120
20,941 Reimbursement of communication costs
7,636,472 12,021,874 Non-interest bearing receivable from ACIFL
(419,622)
- Deposits on options to purchase shares
(7,040)
48,512 Deposits on subscriptions, non-interest bearing
821,800
821,800 Other receivables from ACIFL
63,423
80,475 Reimbursement of expenses, etc.
6,626,948 16,124,164

146

Schedule C.2. Amounts Payable to Related Parties which are Eliminated during the
Consolidation of Financial Statements
As of December 31, 2014
(In Thousand Pesos)

Debtor
AAHC
AC
AC
AC
AC
AC
AC
ACIFL
ACIFL
AGCC
AGCC
AIVPL
ALI
Bestfull
IMI
LGSMI
MWCI
MWCI
PFIL
PHI
Others
TOTAL

Debtor's
Relationship to the
Reporting Co.
Subsidiary
Parent
Parent
Parent
Parent
Parent
Parent
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary

Beginning
Balance Movement

Account Type
Accounts payable
Subscription payable
Accounts payable
Subscription payable
Accounts payable
Other payables
Other payables
Accounts payable
Accounts payable
Customers' and tenants deposits
Dividends payable
Other payables
Other payables
Accounts payable
Dividends payable
Other payables
Other payables
Retention payable
Other payables
Dividends payable
Other payables

76,963
55,552
152,304
90,000
419,622
566,260
4,385,402
20,821
441,543
231,382
2,366,807
15,621
31,427
586,459
40,000
17,052
9,497,216

Ending
Balance

Nature of Accounts

(12,223)
64,741 Rental fees, with interest on overdue accounts
(7,040)
48,512 Deposits on subscriptions, non-interest bearing
(126,091)
26,213 Advances, non-interest bearing
80,000
170,000 Deposits on subscriptions, non-interest bearing
(419,622)
- Deposits on options to purchase shares
566,260 Deposits on options to purchase shares
243,401
243,401 Other payables
7,636,472 12,021,874 Non-interest bearing payable to AYC
821,800
821,800 Other payables to BHL
120
20,941 Reimbursement of communication costs
50,000
50,000 Dividends
(364,747)
76,796 Deposits on subscriptions, non-interest bearing
(230,363)
1,019 Advances, non-interest bearing
(2,366,807)
- Deposits on subscriptions, non-interest bearing
17,525
17,525 Dividends
(15,621)
- Advances, non-interest bearing
(31,427)
- Management fees, non-interest bearing
(343,133)
243,326 Retention accounts for construction projects
1,633,281 1,633,281 Other payables to ACIFL
(2,000)
38,000 Dividends
63,423
80,475 Reimbursement of expenses, etc.
6,626,948 16,124,164

Schedule D Intangible Assets and Other Assets (Deferred Charges)

As of December 31, 2014
(In Thousand Pesos)

DESCRIPTION
INTANGIBLE ASSETS*

BEGINNING
BALANCE
4,175,846

ADDITIONS AT
COST
449,446

CHARGED TO
COSTS AND
EXPENSES
(502,016)

CHARGED TO
OTHER
ACCOUNTS

OTHER
CHANGES
ADD/(DED)

60,188

4,183,464

203,422

474,470

ENDING
BALANCE

* Please refer to Note 16 of the 2014 Consolidated Audited Financial

Statements for detailed account analysis and discussion.

OTHER ASSETS - DEFERRED CHARGES

271,048

147

Schedule E Long-term Debt

As of December 31, 2014
(In Thousand Pesos)

TITLE OF ISSUE & TYPE OF OBLIGATION

CURRENT

PARENT COMPANY:
Bank loans - with interest rates ranging from 2.7% to 4.3% per annum in 2014 and
0.7% to 3.8% per annum in 2013 and varying maturity dates up to 2020
Bonds due 2017
Bonds due 2019
Bonds due 2021
Bonds due 2027

SUBSIDIARIES:
Loans from banks and other institutions:
Foreign Currency - with interest rates ranging from 0.50%% to 6-month LIBOR
plus 1.5% spread per annum in 2014 and 3m LIBOR to 3% in 2013
MWCI
AYC FINANCE
ALI
IMI
Others (BHL)
Philippine peso - with interest rates ranging from 2.02% to 10.21% in 2014,
1.06% to 12% in 2013
ALI
MWC
Others
Bonds:
Exchangeable bonds due 2019
Due 2014
Due 2015
Due 2016
Due 2019
Due 2020
Due 2022
Due 2024
Due 2025
Due 2033

Floating Rate Corporate Notes (FRCNs)

Fixed Rate Corporate Notes (FXCNs)
TOTAL

NON-CURRENT

TOTAL

77,376
77,376

21,093,719
9,957,982
9,925,168
9,930,244
9,920,501
60,827,614

21,171,095
9,957,982
9,925,168
9,930,244
9,920,501
60,904,990

5,851,997
2,382,077
2,920,003
422,000
125,245
2,672

39,432,337
5,292,388
24,914,985
6,662,564
2,562,400
-

45,284,334
7,674,465
27,834,988
7,084,564
2,687,645
2,672

3,644,560
3,507,393
127,912
9,255
9,496,557

38,799,433
30,716,972
8,047,562
34,899
78,231,770

42,443,993
34,224,365
8,175,474
44,154
87,728,327

986,710
986,710

12,247,531
1,982,700
9,292,190
3,969,010
5,615,067
14,875,092
7,922,131
1,982,330
57,886,051

12,247,531
986,710
1,982,700
9,292,190
3,969,010
5,615,067
14,875,092
7,922,131
1,982,330
58,872,761

200,800

1,000,000
29,053,580

1,000,000
29,254,380

10,761,443

226,999,015

237,760,458

Schedule F Indebtedness to Related Parties (Long-term Loans from Related Parties)

As of December 31, 2014
(In Thousand Pesos)

Name of Related Parties

Bank of the Philippine Islands*

Balance at Beginning
of Period

23,093,250

Balance at End of
Period

38,012,270

*Please refer to Note 31 of the 2014 Consolidated Audited Financial

Statements for further discussion.

148

Schedule G Guarantees of Securities of Other Issuers

As of December 31, 2014
(In Thousand Pesos)

Name of issuing
entity of securities
guaranteed by the
company for which
this statement is filed
AYC Finance Limited

Title of issue of each class of securities

guaranteed

Amount owned
by person for
which
Total amount guaranteed
statement is
and outstanding
filed

Nature of guaranty

US$20M Revolving Credit Facility

Agreement (Executed on 9/28/2012)

US$20.0M (Guaranteed and

Outstanding as of 12/31/14)

Unconditional and irrevocable guarantee for the

proper and punctual payment of indebtedness.
The Guarantor shall be liable as if it were the sole
principal debtor.

US$229,230,769.23 Term Loan Facility

Agreement (Originally $260Mn; 12/16/2010
amended on 12/09/2011)

US$229.2M (Guaranteed and

Outstanding as of 12/31/14)

Unconditional & irrevocable guarantee for the

punctual payment of the guaranteed
indebtedness. The guarantor shall be liable as if it
is the sole principal debtor and not merely a
surety. The guaranty likewise includes
compliance with financial ratios, semi-annual
submission of financial statements, 100%
ownership of AYC Finance's issued voting share
capital, among others.

US$150M Transferable Term Loan Facility

US$150.0M (Guaranteed and
Agreement (Executed on 3/28/2011, with
Outstanding as of 12/31/14)
amendments dated 09/28/2012 & 08/30/2013)

Unconditional & irrevocable guarantee for the

punctual payment of the guaranteed
indebtedness. The guarantor shall be liable as if it
is the sole principal debtor and not merely a
surety. The guaranty likewise includes
compliance with financial ratios, semi-annual
submission of financial statements, 100%
ownership of AYC Finance's issued voting share
capital, among others.

US$225M Transferable Term Loan Facility

Agreement (Executed on 11/28/2013)

US$225.0M (Guaranteed and

Outstanding as of 12/31/14)

Unconditional & irrevocable guarantee for the

punctual payment of the guaranteed
indebtedness. The guarantor shall be liable as if it
is the sole principal debtor and not merely a
surety. The guaranty likewise includes
compliance with financial ratios, semi-annual
submission of financial statements, 100%
ownership of AYC Finance's issued voting share
capital, among others.

US$300M 0.5% Guaranteed Exchangeable

Bonds (Executed on 05/02/2014)

US$300.0M (Guaranteed and

Outstanding as of 12/31/14)

Unconditional & irrevocable guarantee for the

punctual payment of the guaranteed
indebtedness. The guarantor shall be liable as if it
is the sole principal debtor and not merely a
surety. The guaranty likewise includes
compliance with financial ratios, semi-annual
submission of financial statements, 100%
ownership of AYC Finance's issued voting share
capital, among others.

US$100M Transferable Term Loan Facility

Agreement (Executed on 03/28/2014)

US$100.0M (Undrawn as of
12/31/14)

Unconditional & irrevocable guarantee for the

punctual payment of the guaranteed
indebtedness. The guarantor shall be liable as if it
is the sole principal debtor and not merely a
surety. The guaranty likewise includes
compliance with financial ratios, semi-annual
submission of financial statements, 100%
ownership of AYC Finance's issued voting share
capital, among others.

US$200M Transferable Term Loan Facility

Agreement (Executed on 05/09/2014)

US$200.0M (Undrawn as of
12/31/14)

Unconditional & irrevocable guarantee for the

punctual payment of the guaranteed
indebtedness. The guarantor shall be liable as if it
is the sole principal debtor and not merely a
surety. The guaranty likewise includes
compliance with financial ratios, semi-annual
submission of financial statements, 100%
ownership of AYC Finance's issued voting share
capital, among others.

149

Schedule H Capital Stock

As of December 31, 2014
(In Thousand Pesos)

TITLE OF ISSUE

NUMBER OF SHARES
NUMBER OF SHARES NUMBER OF SHARES
RESERVED FOR
NUMBER OF
AUTHORIZED
ISSUED/ SUBSCRIBED OPTIONS, WARRANTS, SHARES HELD BY
CONVERSION & RIGHTS
AFFILIATES

Common Stock issued & subscribed a/

900,000,000

DIRECTORS,
OFFICERS &
EMPLOYEES

599,438,041

OTHERS

4,252,738

Issued and subscribed on exercise of share

options

1,219,011

Top-up Placement
Common shares outstanding

18,779,100
900,000,000

619,436,152

Preferred A shares b /

12,000,000

Preferred B shares d/

58,000,000

47,000,000

20,000

Preferred C shares

40,000,000

Voting preferreds e/

200,000,000

200,000,000

1,217,885

a/ Ayala Corporation has stock option plans for

the key officers (Executive Stock Option PlanESOP) and employees (Employee Stock
Ownership Plan - ESOWN) covering 3% of the
Company's capital stock.
b / Cumulative, nonvoting and redeemable with a
par value of P100 per share and is listed at the
Philippine Stock Exchange. It may be redeemed
at the option of Ayala Corporation starting in the
fifth year. The offering price is P500 per share
with a dividend rate of 8.9% per annum. This
security was redeemed on Nov. 25, 2013

d / Cumulative, nonvoting and redeemable with a

par value of P100 per share. It is listed and
traded at the Philippine Stock Exchange and may
redeemed at the option of Ayala Corporation
starting on the fifth year of issue date. The
offering price is P100 per share with a dividend
rate of 5.25% per annum for the Preferred B
Series 1 and 5.575% per annum for the Preferred
B Series 2.
e/ Cumulative, voting and redeemable at the
option of Ayala Corporation with a par value of P1
per share and dividend rate of 1.875% per
annum.

Schedule I Reconciliation of Retained Earnings Available for Dividend Declaration

As of December 31, 2014
(In Thousand Pesos)
December 2014

December 2013

Unappropriated retained earnings, as adjusted to available for

dividend distribution, beginning *
Add: Net income actually earned/realized during the period - Parent co.
Add (Less):
Dividend declarations during the period
Treasury shares

(4,209,196)
2,700,000

TOTAL RETAINED EARNINGS, END AVAILABLE FOR DIVIDEND*

23,332,441

20,320,778

5,214,138

3,920,547

(1,509,196)

(3,406,228)
2,497,344

(908,884)

27,037,383

23,332,441

*Reconciliation of consolidated retained earnings to retained earnings

available for dividend follows:
Consolidated retained earnings balance
Accumulated equity in net earnings of subsidiaries, associates
and joint ventures
Treasury shares
Retained Earnings available for dividends

January 2014
92,639,781

December 2014
107,039,814

January 2013
83,268,077

December 2013
92,639,781

(64,307,340)
(5,000,000)
23,332,441

(77,702,431)
(2,300,000)
27,037,383

(55,449,955)
(7,497,344)
20,320,778

(64,307,340)
(5,000,000)
23,332,441

150

Schedule J Map of the Relationships of the Companies within the Group (part 1)
As of December 31, 2014

MITSUBISHI
CORPORATION

MERMAC, INC.
49.0%

10.2%

AYALA
CORPORATION

100%

100%
AYALA
AUTOMOTIVE
HOLDINGS CORP.

AYALA AVIATION
CORP.

48.9%

100%
AC INT'L.
FINANCE LTD.

50%
50%

AYALA LAND, INC.

AYALA HOTELS,
INC. 74.4%

100%

AYC FINANCE
LTD.

100%

100%

LIVEIT GLOBAL
SERVICE
MANAGEMENT
INSTITUTE

100%

PUREFOODS
INT'L. LTD.

100%

BESTFULL
HOLDINGS LTD.

DARONG AGRI
DEV CORP.

100%
PHILWATER
HOLDINGS
COMPANY, INC.

100%

MICHIGAN
HOLDINGS, INC.

100.00%
AZALEA INT'L.
VENTURE
PARTNERS LTD.

100%

100%
AC
INFRASTRUCTURE
HOLDINGS CORP.

AC ENERGY
HOLDINGS, INC.

AZALEA
TECHNOLOGY
INVESTMENTS, INC.

100%

AG COUNSELORS
CORP.

100%

32.2%
16.3%

78.8%

MLA. WATER CO.

INC. 48.5%

100.0%

TECHNOPARK
LAND, INC.

WATER CAPITAL
WORKS, INC.

2.1%
30.5%

BANK OF THE
PHIL. ISLANDS
48.3%

73.8%
21.3%

AYALA DBS
HOLDINGS, INC.

33.3%
FIRST GEN
NORTHERN
ENERGY CORP.

20%
40%

BPI GLOBE
BANKO INC.
51.5%

60%
ASIACOM PHILS.,
INC.
30.4%

40%

GLOBE
TELECOM, INC.

40%

LAGDIGAN LAND
CORPORATION

Legend:
% of ownership appearing on top of the box - direct % of ownership
% of ownership appearing inside the box - effective/economic % of ownership

151

Schedule J Map of the Relationships of the Companies within the Group (part 2)
As of December 31, 2014

Subsidiaries

Alveo Land
Corporation
(100%)

Ayala Land, Inc.

Serendra, Inc.
(28%)

Serendra, Inc.
(39%)

Solinea, Inc.
(formerly
Bigfoot Palms,
Inc.) (65%)

OLC
Development
Corporation
(100%)

Ayala
Greenfield
Development
Corp. (50%)

Amorsedia
Development
Corporation
(100%)

HLC
Development
Corporation
(100%)

Avida Land
Corporation
(100%)

Allysonia
International
Ltd (100%)

Buendia
Landholdings,
Inc. (100%)

Buklod
Bahayan
Realty and
Development
Corp. (100%)

Avida Sales
Corp. (100%)

Ayala Land
Sales, Inc.
(100%)

Amaia Land
Co. (formerly
First Realty
Communities,
Inc.) (100%)

Amaia
Southern
Properties,
Inc. (65%)

Ayala Land
International
Sales, Inc.
(100%)

Crans
Montana
Holdings, Inc.
(100%)

Crimson Field
Enterprises,
Inc. (100%)

Ecoholdings
Company, Inc.
(100%)

NorthBeacon
Commercial
Corporation
(100%)

Red Creek
Properties,
Inc. (100%)

Ayalaland
International
Marketing,
Inc. (AIMI)
(100%)
Ayala Land
International
(Singapore)
Pte. Ltd.
(100%)

Ayalaland
International
Marketing
(Hong Kong)
Limited (100%)

BGSouth
Properties,
Inc. (50%)

Amicassa
Process
Solutions, Inc.
(100%)

Portico Land
Corp. (60%)

BGNorth
Properties,
Inc. (50%)

Ayala Land
International
Marketing ,
SRL (100%)

Avenco South
Corporation
(70%)

Ayala Land
International
Marketing
London
(100%)

152

Schedule J Map of the Relationships of the Companies within the Group (part 3)
As of December 31, 2014

Ayala Land,
Inc.
Regent Time
International
, Limited
(100%)

Asterion
Technopod,
Incorporate
d (100%)

Bonifacio Land
Corp. (5%)
(An Associate
of ALI Group)
Fort Bonifacio
Development
Corporation
(55%)

Westview
Commercial
Ventures Corp
(formerly Crestview
E-Office
Corporation)
(100%)

Fairview Prime
Commercial Corp.
(formerly
Gisborne
Property
Holdings, Inc.)
(100%)

Hillsford
Property
Corporation
(100%)

Primavera
Towncentre,
Inc. (100%)

Summerhill
E-Office
Corporation
(100%)

Sunnyfield
E-Office
Corporation
(100%)

AyalaLand Real
Estate Investments
Inc. (100%)

Subic Bay
Town
Centre, Inc.
(100%)

Regent Wise
Investments
Limited
(100%)

AyalaLand Advisory
Broadway Inc.
(100%)

Rize-AyalaLand
(Kingsway) GP Inc.,
(49%) (An Associate
of ALI Group)

AyalaLand
Commercial
REIT, Inc.
(100%)

AyalaLand
Development
(Canada) Inc.
(100%)

Arvo
Commercial
Corporation
(100%)

BellaVita
Land
Corporation
(100%)

Tianjin Eco City

Ayala Land
Development Co.,
Ltd. (40%)
(An Associate of
ALI Group)

Nuevo
Centro, Inc.
(100%)

AyalaLand Offices,
Inc. (ALO) ( formerly
ALI Property Partners
Corp. (APPCo))

(100%)
One Dela
Rosa
Property
Developmen
t, Inc.
(100%)

First
Gateway
Real Estate
Corp. (100%)
Glensworth
Developmen
t, Inc.
(100%)
UP North
Property
Holdings,
Inc. (100%)

153

Schedule J Map of the Relationships of the Companies within the Group (part 4)
As of December 31, 2014
Ayala Land, Inc.
Laguna
Technopark, Inc.
(75%)
Ecozone
Power
Management
, Inc. (100%)

Aurora
Properties,
Incorporated
(78%)

Soltea
Commercial
Corp. (20%)

Vesta
Property
Holdings,
Inc. (70%)

Station
Square East
Commercial
Corporation
(69%)

Accendo
Commercial
Corp. (67%)
Avenco
South
Corporation
(30%)
Aviana
Development
Corporation
(10%)

Cagayan de
Oro Gateway
Corp. (70%)

Ceci Realty,
Inc. (60%)
Soltea
Commerci
al Corp.
(20%)

CMPI
Holdings,
Inc. (60%)
CMPI Land,
Inc. (60%)

ALI-CII
Development
Corporation
(50%)

Roxas Land
Corporation
(50%)

Makati
Development
Corporation (100%)

MDC - Subic
(100%)

MDC - Build
Plus (100%)

MDC
Equipment
Solutions, Inc.
(100%)
MDC
Conqrete Inc.
(100%)

Ayala
Hotels, Inc.
(50%)

AyalaLand Hotels
and Resorts
Corporation
(100%)

La gdigan La nd
Corpora tion
(60%)

Enjay Hotels, Inc.

(100%)
Cebu Insular Hotel
Company, Inc.
(63%)

Greenhaven
Property Venture,
Inc. (100%)
Bonifacio Hotel
Ventures, Inc.
(100%)

Southcrest Hotel
Ventures, Inc.
(67%)
Northgate Hotel
Ventures, Inc.
(70%)
North Triangle
Hotel Ventures,
Inc. (100%)
Ecosouth Hotel
Ventures, Inc.
(100%)
ALI Makati Hotels &
Residences, Inc. (80%)

ALI Makati Hotel

Property, Inc. (80%)
Asian Conservation
Company, Inc. (100%)
Asian Conservation
Company Limited
(100%)

Ten Knots Phils, Inc.

and Subsidiary (40%)

Sentera Hotel
Ventures Inc.
(100%)

Ten Knots
Development, Corp.
and Subs (40%)

Econorth Resorts
Ventures, Inc. (100)
ALI Triangle Hotel
Ventures, Inc. (100%)
ArcaSouth Hotel
Ventures, Inc. (ASHVI)
(100%)

Capitol Central Hotel

Ventures, Inc. (CCHVI)
(100%)
Circuit Makati Hotel
Ventures, Inc. (CMHVI)
(100%)

154

Schedule J Map of the Relationships of the Companies within the Group (part 5)
As of December 31, 2014

Ayala Land, Inc.

Ten Knots
Ten Knots
Phils, Inc. Development
(60%)
Corp. (60%)

Bacuit Bay
Development
Corporation
(100%)

Ayala Property
Management
Corporation
(100%)

Ayala Theatres
Management,
Inc. (100%)

Five Star
Cinema,
Inc. (100%)

Chirica
Resorts
Corp.
(100%)

Leisure and
Allied
Industries
Philippines,
Inc. (50%)

ALInet.com,
Inc. (100%)

Cavite
Commercial
Town
Center, Inc.
(100%)

First Longfield
Investments
Limited
(100%)

Aprisa
Business
Process
Solutions,
Inc. (100%)

DirectPower
Services, Inc.
(100%)

Green
Horizons
Holdings
Limited
(100%)

Kingfisher
Capital
Resources
Corp.
(100%)

Philippine
Integrated
Energy
Solutions,
Inc. (100%)

Adauge
Commercial
Corporation
(72%)

Varejo
Corporation
(100%)

AyaGold
SIAL Specialty
Retailers, Inc.
Retailers, Inc. (50%)
(50%) (Joint
(Joint Venture Entity of Venture Entity
ALI group)
of ALI group)

South
Gateway Ayalaland
Developme MetroNorth
, Inc.
nt Corp.
(100%)
(100%)

SIAL CVS Retailers, Inc.

(50%)
(A Joint Venture Entity
of ALI group)
Philippine
FamilyMart CVS,
Inc.(60%)

Ayala Land, Inc.

ALI Commercial
Center Inc. (100%)

Taft Punta Engao

Property Inc. (55%)

AyalaLand Club
Management, Inc.
(100%)

North Triangle Depot

Commercial Corporation
(64%)

Cebu Property Ventures

Development Corp.
(76%)

Cebu Leisure Company,

Inc. (100%)

Soltea
Commercial
Corp. (60%)

Cebu Holdings, Inc.

(50%)

CBP Theatre
Management Inc. (100%)

Cebu Insular Hotel

Company, Inc. (37%)

BGWest Properties,
Inc. (50%)

Solerte, Inc. (100%)

Solinea, Inc. (formerly

Bigfoot Palms, Inc. (35%)

Verde Golf
Development
Corporation (100%)

Amaia Southern
Properties, Inc. (35%)

Cebu Property Ventures &

Development Corp. (CPVDC)
(7.8%)

Cebu District Property

Enterprise, Inc. (10%)

Southportal Properties,
Inc. (35%)

Alabang Commercial
Corporation (50%)

South Innovative
Theater Management,
Inc. (100%)

Aviana Development
Corporation (50%)

Whiteknight
Southportal Properties,
Holdings, Inc. (100%)
Inc. (65%)

Mercado General
Hospital, Inc. (36.01%)
(An Associate of ALI
Group)

Asian I-Office Properties,

Inc. (100%)

Cebu District Property

Enterprise, Inc. (5%)

155

Schedule J Map of the Relationships of the Companies within the Group (part 6)
As of December 31, 2014

Direct Investments in Joint Ventures

Direct Investments in Associates

Ayala Land, Inc.

Cebu District Property

Enterprise, Inc. (35%)

Ayala Land, Inc.

Emerging City Holdings, Inc.

(50%)

Berkshires Holdings, Inc.

(50%)

Columbus Holdings, Inc. (70%)

Columbus Holdings, Inc. (30%)

Bonifacio Land Corp. (70%)

(An Associate of ALI Group)

Bonifacio Land Corp. (70%)

(An Associate of ALI Group)

Fort Bonifacio
Development
Corp. (55%)

Bonifacio Land Corp. (5%)

(An Associate of the Group)

Lagoon Development
Corporation (30%)

ALI Makati Hotels &

Residences, Inc. (20%)
(Subsidiary of the Group)

ALI Makati Property, Inc.

(20%) (Subsidiary of the
Group)

Fort Bonifacio Development

Corp. (55%)

Fort Bonifacio
Development
Corp. (55%)

156

Schedule J Map of the Relationships of the Companies within the Group (part 7)
As of December 31, 2014

Ayala Corporation

Manila Water
Company, Inc.

Manila Water
International
Solutions, Inc.
(MWIS)
100%

Manila Water
Total Solutions
Corp. (MWTS)
100%

Manila Water
Consortium Inc.
(MWC)
51%

Boracay Island
Water Company,
Inc. (BIWC)
80%

Cebu Manila
Water
Development
(CMWD)
51%

Manila Water
Philippine
Ventures, Inc.
(formerly
AAAWater
Corporation
(AAA))
100%

Clark Water
Corporation
(CWC)
100%

Manila Water
Asia Pacific Pte.
Ltd. (MWAP)
100%

Laguna AAA
Water
Corporation
(LAWC)
70%

Manila Water
South Asia
Holdings Pte.
Ltd.
(MWSAH)
100%

Thu Duc Water

Holdings Pte.
Ltd.
(TDWH)
100%

Kenh Dong
Water Holdings
Pte. Ltd.
(KDWH)
100%

Thu Duc Water

BOO (Thu Duc)
49%

Kenh Dong
Water Supply
Joint Stock
Company
(WASS)
47.35%

Saigon Water
Infrastructure
Corporation
31.47%

AYALA CORPORATION
AYALA AUTOMOTIVE HOLDINGS CORP.
(100%)

ISUZU AUTOMOTIVE
DEALERSHIP INC. (100%)

ISUZU CEBU INC.

(100%)

HONDA CARS MAKATI INC.

(100%)

ISUZU ILOILO CORP.

(66.67%)

PRIME INITIATIVES INC.

(100%)

ICONIC DEALERSHIP INC.

(100%)

AUTOMOBILE CENTRAL
ENTERPRISE INC. (100%)

HONDA CARS CEBU

INC. (100%)

157

Schedule J Map of the Relationships of the Companies within the Group (part 8)
As of December 31, 2014

AYALA
CORPORATION

AC ENERGY
HOLDINGS, INC.

WIND

100%
MOORLAND
PHILIPPINES, INC.

100%
PRESAGE
CORPORATION

WIND

MINI-HYDRO

100%

VIAGE CORPORATION

75%
QUADRIVER ENERGY CORP.
(70%)
PHILNEW HYDRO POWER (70%)
PHILNEW RIVER POWER (68%)

PHILIPPINE WIND
HOLDINGS CORP.

16.8%
24.7%

NORTHWIND
POWER DEV
CORP.

SOLAR

100%
8.5%

ILOCOS WIND

COAL

50%
PHILNEW ENERGY

COAL

COAL

50%

100%

SOUTH LUZON THERMAL

ENERGY CORP.
ACTA POWER CORP

AC ENERGY GP
CORPORATION

0.40%

49.60%

KAUSWAGAN POWER
HOLDING LTD. CO.

100%

COAL

100%
ACE MARIVELES GP
CORPORATION

99.20%

0.80%

ACE MARIVELES POWER

LTD. CO.

17%

100%
ACE DINGININ GP
CORPORATION

49.50%

0.50%

DINGININ POWER
HOLDING LTD. CO.

50%

36%

24%

NORTH LUZON
RENEWABLE
ENERGY CORP

GN POWER
KAUSWAGAN LTD. CO.

GN POWER MARIVELES
COAL PLANT LTD. CO.

GNPOWER DINGININ
LTD. CO.

158

Schedule J Map of the Relationships of the Companies within the Group (part 9)
As of December 31, 2014

AYALA CORPORATION

100%
AC INFRASTRUCTURE HOLDINGS
CORPORATION

50%-1

Light Rail
Manila
Holdings, Inc.

50%+1

AA Infrastructure
Projects Corporation
(CALAx Project)

10%

Automated Fare
Collection Services, Inc.
(AFCS Project)

50%-1

A2 Airport Partners,
Inc.
(MCIA Project)

80%

MCX Tollway, Inc.

50%-1

Light Rail Manila

Holdings 2, Inc.
(LRT 2 Project)

70%

Light Rail
Manila
Corporation

*LRMC Shareholders

35% - AC Infra
55% - MPIC
10% - MIRA

159

Schedule J Map of the Relationships of the Companies within the Group (part 10)
As of December 31, 2014

Affinity Express
Holdings 99.6%

IQB Holdings
82.5%
LiveIt Investments
Ltd 100%

AIVPL

Integreon Inc.
58.7%

Milestone Group
Pty Ltd. 18.8%

NewBridge Int'l
100%

Narra Venture
Capital Mgt. LLC
28.5%

LiveIt ROHQ
100%

Narra Venture
Capital LP 47.8%

Narra Venture
Capital II LP 20%

160

Schedule J Map of the Relationships of the Companies within the Group (part 11)
As of December 31, 2014

161

Schedule J Map of the Relationships of the Companies within the Group (part 12)
As of December 31, 2014

AYALA CORPORATION

100%
BESTFULL HLDGS LTD.

100%
AG HOLDINGS LTD.

100%

100%
VIP
Infrastructure
Holdings Pte.
Ltd.

FINE STATE
GROUP LTD

100%
Total Jade Group
Limited

100%
Strong Group
Limited

49%
VinaPhil Technical
Infrastructure
Investment Joint
Stock Company

100%
AG REGION
PTE LTD

100%
Ayala
International
Properties Pte Ltd

100%
Ayala
International
Holdings Limitd

100%
Aya l a
International
Pte Ltd / AINA

162

Schedule K Schedule of All the Effective Standards and Interpretations as of December 31,
2014
As of December 31, 2014

PHILIPPINE FINANCIAL REPORTING STANDARDS AND

INTERPRETATIONS
Effective as of December 31, 2014

Adopted

Framework for the Preparation and Presentation of Financial

Statements
Conceptual Framework Phase A: Objectives and qualitative
characteristics

PFRSs Practice Statement Management Commentary

Not
Not
Adopted Applicable

Philippine Financial Reporting Standards

PFRS 1
(Revised)

First-time Adoption of Philippine Financial Reporting

Standards

Amendments to PFRS 1 and PAS 27: Cost of an

Investment in a Subsidiary, Jointly Controlled Entity
or Associate

Amendments to PFRS 1: Additional Exemptions for

First-time Adopters

Amendment to PFRS 1: Limited Exemption from

Comparative PFRS 7 Disclosures for First-time
Adopters

Amendments to PFRS 1: Severe Hyperinflation and

Removal of Fixed Date for First-time Adopters

Amendments to PFRS 1: Government Loans

Amendments to PFRS 1: Borrowing costs

Amendments to PFRS 1: Meaning of Effective

PFRSs
PFRS 2

Not early adopted

Share-based Payment

Amendments to PFRS 2: Vesting Conditions and

Cancellations

Amendments to PFRS 2: Group Cash-settled Sharebased Payment Transactions

Amendments to PFRS 2: Definition of Vesting

Condition*
PFRS 3
(Revised)

PFRS 4

PFRS 5

Business Combinations

Not early adopted

Amendments to PFRS 3: Accounting for Contingent

Consideration in a Business Combination*

Not early adopted

Amendments to PFRS 3: Scope Exceptions for Joint

Arrangements*

Not early adopted

Insurance Contracts

Amendments to PAS 39 and PFRS 4: Financial

Guarantee Contracts

Non-current Assets Held for Sale and Discontinued

Operations

Amendments to PFRS 5: Changes in Methods of

Disposal*
PFRS 6

Exploration for and Evaluation of Mineral Resources

PFRS 7

Financial Instruments: Disclosures

Not early adopted

163

PHILIPPINE FINANCIAL REPORTING STANDARDS AND

INTERPRETATIONS
Effective as of December 31, 2014

PFRS 8

PFRS 9

PFRS 10

Adopted

Amendments to PFRS 7: Transition

Amendments to PAS 39 and PFRS 7:

Reclassification of Financial Assets

Amendments to PAS 39 and PFRS 7:

Reclassification of Financial Assets - Effective Date
and Transition

Amendments to PFRS 7: Improving Disclosures

about Financial Instruments

Amendments to PFRS 7: Disclosures - Transfers of

Financial Assets

Amendments to PFRS 7: Disclosures - Offsetting

Financial Assets and Financial Liabilities

Not
Not
Adopted Applicable

Amendments to PFRS 7: Mandatory Effective Date

of PFRS 9 and Transition Disclosures

Not early adopted

Amendments to PFRS 7: Disclosures - Servicing

Contracts*

Not early adopted

Applicability of the Amendments to PFRS 7 to

Condensed Interim Financial Statements*

Not early adopted

Operating Segments

Amendments to PFRS 8: Aggregation of Operating

Segments and Reconciliation of the Total of the
Reportable Segments Assets to the Entitys Assets*

Not early adopted

Financial Instruments: Classification and Movement

(2010 version)

Not early adopted

Financial Instruments - Hedge Accounting and

amendments to PFRS 9, PFRS 7 and PAS 39 (2013
version)*

Not early adopted

Financial Instruments (2014 or final version)*

Not early adopted

Amendments to PFRS 9: Mandatory Effective Date

of PFRS 9 and Transition Disclosures

Not early adopted

Consolidated Financial Statements

Amendments to PFRS 10: Investment Entities

Amendments to PFRS 10: Sale or Contribution of

Assets between an Investor and its Associate or
Joint Venture*
PFRS 11

Joint Arrangements

Not early adopted

Amendments to PFRS 11: Accounting for

Acquisitions of Interests in Joint Operations*
PFRS 12

Disclosure of Interests in Other Entities

Not early adopted

Amendments to PFRS 12: Investment Entities

PFRS 13

Fair Value Measurement

Amendments to PFRS 13: Short-term receivable

and payables

Amendments to PFRS 13: Portfolio Exception*

Not early adopted

PFRS 14

Regulatory Deferral Accounts*

Not early adopted

IFRS 15

Revenue from Contracts with Customers**

Not early adopted

164

PHILIPPINE FINANCIAL REPORTING STANDARDS AND

INTERPRETATIONS
Effective as of December 31, 2014

Adopted

Not
Not
Adopted Applicable

Philippine Accounting Standards

PAS 1
(Revised)

Presentation of Financial Statements

Amendment to PAS 1: Capital Disclosures

Amendments to PAS 32 and PAS 1: Puttable

Financial Instruments and Obligations Arising on
Liquidation

Amendments to PAS 1: Presentation of Items of

Other Comprehensive Income

Amendments to PAS 1: Clarification of the

requirements for comparative information

PAS 2

Inventories

PAS 7

Statement of Cash Flows

PAS 8

Accounting Policies, Changes in Accounting

Estimates and Errors

PAS 10

Events after the Reporting Period

PAS 11

Construction Contracts

PAS 12

Income Taxes

Amendment to PAS 12: Deferred Tax: Recovery of

Underlying Assets

Property, Plant and Equipment

Amendment to PAS 16: Classification of servicing

equipment

PAS 16

Amendment to PAS 16: Revaluation Method Proportionate Restatement of Accumulated

Depreciation*

Not early adopted

Amendment to PAS 16 and PAS 38: Clarification of

Acceptable Methods of Depreciation and
Amortization*

Not early adopted

Amendment to PAS 16: Bearer Plants*

Not early adopted

PAS 17

Leases

PAS 18

Revenue

PAS 19

Employee Benefits

Amendments to PAS 19: Actuarial Gains and

Losses, Group Plans and Disclosures

PAS 19
Employee Benefits
(Amended)
Amendments to PAS 19: Defined Benefit Plans:
Employee Contributions*

Not early adopted

Amendments to PAS 19: Regional Market Issue

regarding Discount Rate*

Not early adopted

PAS 20

Accounting for Government Grants and Disclosure

of Government Assistance

PAS 21

The Effects of Changes in Foreign Exchange Rates

Amendment: Net Investment in a Foreign Operation

PAS 23
(Revised)

Borrowing Costs

165

PHILIPPINE FINANCIAL REPORTING STANDARDS AND

INTERPRETATIONS
Effective as of December 31, 2014
PAS 24
(Revised)
PAS 26

Related Party Disclosures

Adopted

Amendments to PAS 24: Key Management

Personnel*

Not early adopted

Accounting and Reporting by Retirement Benefit

Plans

PAS 27
Separate Financial Statements
(Amended)
Amendments to PAS 27: Investment Entities

Amendments to PAS 27: Equity Method in Separate

Financial Statements*
PAS 28
Investments in Associates and Joint Ventures
(Amended)
Amendments to PAS 28: Sale or Contribution of
Assets between an Investor and its Associate or
Joint Venture*

Not early adopted

Not early adopted

PAS 29

Financial Reporting in Hyperinflationary Economies

PAS 31

Interests in Joint Ventures

PAS 32

Financial Instruments: Disclosure and Presentation

Amendments to PAS 32 and PAS 1: Puttable

Financial Instruments and Obligations Arising on
Liquidation

Amendment to PAS 32: Classification of Rights

Issues

Amendments to PAS 32: Tax effect of distribution to

holders of equity instruments

Amendments to PAS 32: Offsetting Financial Assets

and Financial Liabilities

PAS 33

Earnings per Share

PAS 34

Interim Financial Reporting

PAS 36

Amendments to PAS 34: Interim financial reporting

and segment information for total assets and
liabilities

Not early adopted

Amendments to PAS 34: Disclosure of information

elsewhere in the interim financial report*

Not early adopted

Impairment of Assets

Amendments to PAS 36: Recoverable Amount

Disclosures for Non-Financial Assets

PAS 37

Provisions, Contingent Liabilities and Contingent

Assets

PAS 38

Intangible Assets

PAS 39

Not
Not
Adopted Applicable

Amendments to PAS 38: Revaluation Method Proportionate Restatement of Accumulated

Amortization*

Not early adopted

Amendments to PAS 16 and PAS 38: Clarification of

Acceptable Methods of Depreciation and
Amortization*

Not early adopted

Financial Instruments: Recognition and

Measurement

166

PHILIPPINE FINANCIAL REPORTING STANDARDS AND

INTERPRETATIONS
Effective as of December 31, 2014

Adopted

Amendments to PAS 39: Transition and Initial

Recognition of Financial Assets and Financial
Liabilities

Amendments to PAS 39: Cash Flow Hedge

Accounting of Forecast Intragroup Transactions

Amendments to PAS 39: The Fair Value Option

Amendments to PAS 39 and PFRS 4: Financial

Guarantee Contracts

Amendments to PAS 39 and PFRS 7:

Reclassification of Financial Assets

Amendments to PAS 39 and PFRS 7:

Reclassification of Financial Assets - Effective Date
and Transition

Amendments to Philippine Interpretation IFRIC-9

and PAS 39: Embedded Derivatives

Amendment to PAS 39: Eligible Hedged Items

Not
Not
Adopted Applicable

Amendment to PAS 39: Novation of Derivatives and

Continuation of Hedge Accounting
PAS 40

Investment Property

Amendment to PAS 40: Interrelationship between

PFRS 3 and PAS 40*
PAS 41

Not early adopted

Agriculture
Not early adopted

Amendment to PAS 41: Bearer Plants*

Philippine Interpretations
IFRIC 1

Changes in Existing Decommissioning, Restoration

and Similar Liabilities

IFRIC 2

Members' Share in Co-operative Entities and Similar

Instruments

IFRIC 4

Determining Whether an Arrangement Contains a

Lease

IFRIC 5

Rights to Interests arising from Decommissioning,

Restoration and Environmental Rehabilitation Funds

IFRIC 6

Liabilities arising from Participating in a Specific

Market - Waste Electrical and Electronic Equipment

IFRIC 7

Applying the Restatement Approach under PAS 29

Financial Reporting in Hyperinflationary Economies

IFRIC 8

Scope of PFRS 2

IFRIC 9

Reassessment of Embedded Derivatives

Amendments to Philippine Interpretation IFRIC-9

and PAS 39: Embedded Derivatives

IFRIC 10

Interim Financial Reporting and Impairment

IFRIC 11

PFRS 2- Group and Treasury Share Transactions

IFRIC 12

Service Concession Arrangements

IFRIC 13

Customer Loyalty Programmes

IFRIC 14

The Limit on a Defined Benefit Asset, Minimum

167

PHILIPPINE FINANCIAL REPORTING STANDARDS AND

INTERPRETATIONS
Effective as of December 31, 2014

Adopted

Not
Not
Adopted Applicable

Funding Requirements and their Interaction

Amendments to Philippine Interpretations IFRIC- 14,
Prepayments of a Minimum Funding Requirement

IFRIC 15

Agreements for the Construction of Real Estate***

IFRIC 16

Hedges of a Net Investment in a Foreign Operation

IFRIC 17

Distributions of Non-cash Assets to Owners

IFRIC 18

Transfers of Assets from Customers

IFRIC 19

Extinguishing Financial Liabilities with Equity

Instruments

IFRIC 20

Stripping Costs in the Production Phase of a

Surface Mine

IFRIC 21

Levies

SIC-7

Introduction of the Euro

SIC-10

Government Assistance - No Specific Relation to

Operating Activities

SIC-12

Consolidation - Special Purpose Entities

Amendment to SIC - 12: Scope of SIC 12

SIC-13

Jointly Controlled Entities - Non-Monetary

Contributions by Venturers

SIC-15

Operating Leases - Incentives

SIC-21

Income Taxes - Recovery of Revalued NonDepreciable Assets

SIC-25

Income Taxes - Changes in the Tax Status of an

Entity or its Shareholders

SIC-27

Evaluating the Substance of Transactions Involving

the Legal Form of a Lease

SIC-29

Service Concession Arrangements: Disclosures

SIC-31

Revenue - Barter Transactions Involving Advertising

Services

SIC-32

Intangible Assets - Web Site Costs

* Approved by Financial Reporting Standards Council (FRSC) but still for approval by the Board of Accountancy (BOA)
** New standards and amendments issued by the International Accounting Standards Board (IASB) has not yet been
adopted by the FRSC.
*** Effectivity has been deferred by the Securities and Exchange Commission (SEC) and FRSC

168

Schedule L Financial Ratios

As of December 31, 2014

Ratio
Liquidity Ratio

Current ratio

Solvency Ratio

December 2014

December 2013

Formula

(Audited)

(Audited)

Cash/ Cash equivalents + Short-term cash investments

Current Liabilities

0.54

0.45

Current assets
Current liabilities

1.50

1.46

0.06

0.06

After-Tax Net Profit + (Depreciation + Amortization)+

Provision for Bad Debts
Total Liabilities

Debt-to-Equity Ratio

Long-term Loans + Short Term Loans

Equity Attributable to Owners of the Parent

1.39

1.43

Assets- to-Equity Ratio

Total Assets
Equity Attributable to Owners of the Parent

3.91

4.18

EBITDA
Interest Expense

5.15

4.75

Net Income to Owners of the Parent

Equity Attributable to Owners of the Parent (Average)

11.3%

9.6%

12.2%

10.2%

4.4%

4.0%

Interest Expense Coverage Ratio

Return on Equity

Return on Common Equity

Return on Assets

Net Income to Owners of the Parent Less Dividends on

Preferred Shares
Common Equity Attributable to Owners of the Parent
(Average)
Net Income
Total Assets

169

Schedule M Non-Current Marketable Equity Securities, Other Long-term Investment in Stocks and Other Investments (Non-Current
Investments) (part 1)
As of December 31, 2014

BEGINNING BALANCE
NAME OF COMPANY

Number of
Shares

Amount in
Pesos
(Restated)

ADDITIONS
DEDUCTIONS
Equity in
Earnings
Distribution of
Others (Cost &
Others-Cost (&
(Losses) of
Earnings by
Equity Adj )
equity adj)
Investees for the
Investees
period

ENDING BALANCE
Number of
Shares

Effective %
of
Ownership

Amount in
Pesos

Dividends
received/accrued
fr investments not
accounted for by
the equity method

INVESTMENTS IN ASSOCIATES & JOINT VENTURES

Domestic:
Bank of the Philippine Islands and subsidiaries
Ayala DBS Holdings, Inc.
Globe Telecom, Inc. and subsidiaries
GNPower Mariveles Coal Plant Ltd. Co.
Philippine Wind Holdings Corporation
Emerging City Holdings, Inc.
South Luzon Thermal Energy Corp.
Berkshires Holdings, Inc.
Cebu District Property Enterprise, Inc. (CDPEI)
Bonifacio Land Corporation
Asiacom Philippines, Inc.
Rize-Ayala Land GP, Inc.
Light Rail Manila Holdings, Inc. (LRMHI)
Mercado General Hospital Inc.
SIAL Specialty Retailers, Inc.
Northwind Power Development Corp.
SIAL CVS Retailers, Inc.
Automated Fare Collections Services, Inc. (AFCSI)

1,085,423,799
166,786,127
40,321,095

52,635,471
29,071,982
15,371,450

472,661
72,150,000
17,915,125
31,000,000

2,180,000
3,992,669
3,070,121
1,955,494

4,397,118
10,269,000
4,900

1,394,561
1,097,180
500,950

18,787,600
209,000,000
1,823,597
183,000,000

359,523
208,836
465,503
161,611

5,785,284
2,782,767
3,978,185
145,216
(55,827)
469,628
(42,764)
201,269
(5,594)
102,116
39,126
(9,011)
(4,283)
12,225
(88,521)
(129,019)
(53,950)
(6,098)

9,045,790
4,331,526
332,440
7,213,524
2,139,257
186,000
491,000
1,497,603
41,707
5,400
204,819
567,656
56,089
212,000

(1,152,875)
(3,024,963)
(183,370)

(502,847)
(242,839)
(335,840)
(11,674)
(45,626)

(535,000)
(240,000)

(5,191)
(101,419)

(122,404)

(60,098)

(5,446)
(12,966)

45,250
150,404

1,280,972,560
204,433,441
40,344,596
482,049
72,150,000
17,915,125
31,000,000
10,500,000
2,812,618
10,269,000
4,900
427,656,251
22,107,854
421,000,000
1,823,597
226,250,000
150,404,051

32.6%
73.8%
30.4%
17.0%
75.0%
50.0%
50.0%
50.0%
42.0%
10.0%
60.0%
49.0%
50.0%
33.0%
50.0%
50.0%
50.0%
10.0%

65,810,823
35,943,436
16,321,272
7,163,696
4,217,804
4,113,296
3,513,166
1,815,344
1,492,009
1,355,882
1,141,706
696,757
563,373
422,392
332,315
323,518
152,911
144,306
-

2,450,000
18,941,070
57,911,722
30,870,000
18,370,000
117,100,000

49.0%
47.4%
58.7%
49.0%
31.5%
40.0%

2,257,468
2,018,083
960,649
723,217
685,949
483,981
111,500

Foreign:
Thu Doc Water BOO Corp.
Kenh Dong Water Supply Joint Stock Company
Integreon, Inc.
VinaPhil Technical Infrastructure Investment
Saigon Water Infrastructure Joint Stock Company
Tian-Jin Eco City Ayala Land Devt Co.
Others
TOTAL-INVESTMENTS IN ASSOCIATES & JOINT VENTURES

2,734,200
18,941,070
57,911,722
30,870,000
18,370,000
117,100,000
-

2,199,521
1,863,334
1,449,400
590,088
645,352
542,558
48,482
119,804,086

217,705
111,800
(317,468)
95,307
27,794
(58,577)
(12,162)
13,185,147

(159,758)
42,949
69,678
37,822
12,803

(240,960)

75,180
26,758,898

(5,271,579)

(1,711,698)

152,764,854

170

Schedule M Non-Current Marketable Equity Securities, Other Long-term Investment in Stocks and Other Investments (Non-Current
Investments) (part 2)
As of December 31, 2014
BEGINNING BALANCE
NAME OF COMPANY

Number of
Shares

Amount in
Pesos

ADDITIONS
DEDUCTIONS
Equity in
Earnings
Distribution
Others (Cost
Others-Cost
(Losses) of
of Earnings
& Equity Adj )
(& equity adj)
Investees for
by Investees
the period

ENDING BALANCE
Number of
Shares

Effective
% of
Ownership

Dividends
received/accrued
fr investments not
Amount in
accounted for by
Pesos
the equity
method

INVESTMENTS IN BONDS & OTHER SECURITIES

AFS financial assets:

Quoted equity investments:
IMA
CII
Others

466,119
459,234
316,516
1,241,869

Unquoted equity investments:

Rohatyn Group (SOF & GOF)
City Sports Club Cebu, Inc.
Tech Ventures
Red River Holdings
Glory High
Anvaya Golf Club
Others

416,444
164,611
51,131
460,443
26,299
676
320,033
1,439,637

94,474
27,804
552,651
674,930

(87,388)

12,152
(80,070)
193

12,344

51,283
52,018
103,301

239,919
(51,283)
(52,018)
136,618

2,784,807

823,893

(676)
(8,351)
(176,484)

560,593
487,038
869,168
1,916,799
329,056
164,611
63,283
380,373
26,491
311,683
1,275,497

Quoted debt investments:

CII Convertible Bonds
SMIC Bond
Others

TOTAL-INVESTMENTS IN BONDS & OTHER SECURITIES

(176,484)

239,919
239,919

3,432,215

Schedule N Indebtedness of Unconsolidated Subsidiaries and Related Parties

As of December 31, 2014
Name of Related Parties

Balance at Beginning of Period

Balance at End of Period

The Group has the following indebtedness of unconsolidated subsidiaries and related parties: P2.7B in
receivables. Please refer to Note 31 of the 2014 Consolidated Audited Financial Statements.

171

III.

2014 Consolidated Financial Statements of Associate and Joint Venture

172

Bank of the
Philippine Islands
Financial Statements
As at December 31, 2014 and 2013
and for each of the three years
in the period ended December 31, 2014

BANK OF THE PHILIPPINE ISLANDS

STATEMENTS OF CONDITION
DECEMBER 31, 2014 and 2013
(In Millions of Pesos)

Notes

Consolidated
2014
2013

Parent
2014

2013

RESOURCES
CASH AND OTHER CASH ITEMS

38,427

25,696

37,292

24,888

DUE FROM BANGKO SENTRAL NG

PILIPINAS

211,946

244,483

170,648

195,076

DUE FROM OTHER BANKS

22,227

17,070

15,429

8,789

7, 8

5,782

17,397

5,246

10,037

- DERIVATIVE FINANCIAL ASSETS

35,981

16,550

35,981

16,550

- TRADING SECURITIES

INTERBANK LOANS RECEIVABLE AND

SECURITIES PURCHASED UNDER
AGREEMENTS TO RESELL
FINANCIAL ASSETS AT FAIR VALUE
THROUGH PROFIT OR LOSS

10

15,862

4,597

6,620

2,626

AVAILABLE-FOR-SALE SECURITIES, net

11

51,309

87,556

41,866

81,736

HELD-TO-MATURITY SECURITIES

12

209,409

96,172

193,001

85,900

LOANS AND ADVANCES, net

13

800,170

630,203

621,441

475,155

5,018

5,852

2,470

3,480

ASSETS HELD FOR SALE, net

BANK PREMISES, FURNITURE,
FIXTURES AND EQUIPMENT, net

14

12,760

12,205

8,467

8,030

INVESTMENT PROPERTIES, net

15

808

1,597

808

1,597

INVESTMENTS IN SUBSIDIARIES AND

ASSOCIATES, net

16

4,784

4,176

6,726

6,793

ASSETS ATTRIBUTABLE TO INSURANCE

OPERATIONS

5, 7

16,445

14,586

DEFERRED INCOME TAX ASSETS, net

17

5,718

6,176

3,595

4,296

18

13,551
1,450,197

11,048
1,195,364

8,658
1,158,248

7,414
932,367

OTHER RESOURCES, net

Total resources
(forward)

BANK OF THE PHILIPPINE ISLANDS

STATEMENTS OF CONDITION
DECEMBER 31, 2014 and 2013
(In Millions of Pesos)

Notes

Consolidated
2014
2013

Parent
2014

2013

LIABILITIES AND CAPITAL FUNDS

19

1,176,213

988,586

952,681

785,403

DERIVATIVE FINANCIAL LIABILITIES

34,846

16,360

34,846

16,360

BILLS PAYABLE

20

32,993

26,179

26,288

18,990

DEPOSIT LIABILITIES

DUE TO BANGKO SENTRAL NG PILIPINAS

AND OTHER BANKS

687

2,051

688

2,052

MANAGERS CHECKS AND DEMAND

DRAFTS OUTSTANDING

8,353

7,183

6,664

6,026

ACCRUED TAXES, INTEREST AND OTHER

EXPENSES

5,597

4,907

4,017

3,396

13,561

13,061

21

31,268
1,303,518

31,230
1,089,557

25,469
1,050,653

26,338
858,565

39,272
29,341
2,098
76,575
(3,223)
144,063
2,616
146,679
1,450,197

35,563
8,316
1,680
62,137
(3,161)
104,535
1,272
105,807
1,195,364

39,272
29,341
2,095
41,388
(4,501)
107,595
107,595
1,158,248

35,563
8,316
1,680
32,053
(3,810)
73,802
73,802
932,367

LIABILITIES ATTRIBUTABLE TO INSURANCE

OPERATIONS
DEFERRED CREDITS AND OTHER
LIABILITIES
Total liabilities
CAPITAL FUNDS ATTRIBUTABLE TO THE
EQUITY HOLDERS OF BPI
Share capital
Share premium
Reserves
Surplus
Accumulated other comprehensive loss
NON-CONTROLLING INTERESTS
Total capital funds
Total liabilities and capital funds

22

(The notes on pages 1 to 99 are an integral part of these financial statements.)

BANK OF THE PHILIPPINE ISLANDS

STATEMENTS OF INCOME
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2014
(In Millions of Pesos, Except Per Share Amounts)

Notes
INTEREST INCOME
On loans and advances
On held-to-maturity securities
On available-for-sale securities
On deposits with BSP and other banks
On trading securities
Gross receipts tax
INTEREST EXPENSE
On deposits
On bills payable and other borrowings
NET INTEREST INCOME
IMPAIRMENT LOSSES
NET INTEREST INCOME AFTER
IMPAIRMENT LOSSES
OTHER INCOME
Trading gain on securities
Fees and commissions
Income from foreign exchange trading
Income attributable to insurance operations
Other operating income
Gross receipts tax
OTHER EXPENSES
Compensation and fringe benefits
Occupancy and equipment-related expenses
Other operating expenses
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX
Current
Deferred

19
20

11, 13, 18

5
23

25
14, 15, 24

25

Consolidated
2013

2012

2014

Parent
2013

2012

36,441
8,141
831
1,769
406
(1,596)
45,992

32,368
4,930
2,615
1,641
690
(1,442)
40,802

30,790
5,191
3,424
1,230
847
(1,373)
40,109

23,282
7,545
778
1,135
370
(1,147)
31,963

20,255
4,434
2,436
904
628
(1,000)
27,657

19,356
4,638
3,126
702
763
(963)
27,622

10,834
350
11,184
34,808
2,807

9,530
948
10,478
30,324
2,648

11,648
1,007
12,655
27,454
2,923

6,735
138
6,873
25,090
1,787

5,187
597
5,784
21,873
1,599

6,929
588
7,517
20,105
2,003

32,001

27,676

24,531

23,303

20,274

18,102

1,362
7,370
2,007
1,007
10,668
(1,435)
20,979

4,839
5,885
2,042
1,449
9,514
(1,555)
22,174

5,908
5,111
1,682
694
7,878
(1,342)
19,931

1,034
5,400
1,683
9,971
(1,195)
16,893

3,983
4,823
1,652
8,556
(1,307)
17,707

4,717
4,256
1,372
6,771
(1,122)
15,994

11,850
9,017
9,093
29,960
23,020

10,641
8,040
8,022
26,703
23,147

10,470
7,193
7,139
24,802
19,660

9,568
7,144
6,593
23,305
16,891

8,292
6,460
5,872
20,624
17,357

8,262
5,798
5,378
19,438
14,658

5,374
(416)
4,958
18,062

4,147
6
4,153
18,994

3,576
(418)
3,158
16,502

3,759
(138)
3,621
13,270

2,644
245
2,889
14,468

2,444
(213)
2,231
12,427

18,039
23
18,062

18,811
183
18,994

16,352
150
16,502

13,270
13,270

14,468
14,468

12,427
12,427

4.62

5.19

4.60

3.40

3.99

3.49

26
17

NET INCOME FOR THE YEAR

Attributable to:
Equity holders of BPI
Non-controlling interests
Earnings per share for net income attributable to
the equity holders of BPI during the year:
Basic and diluted

2014

22

(The notes on pages 1 to 99 are an integral part of these financial statements.)

BANK OF THE PHILIPPINE ISLANDS

STATEMENTS OF TOTAL COMPREHENSIVE INCOME
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2014
(In Millions of Pesos)

Note
NET INCOME FOR THE YEAR
OTHER COMPREHENSIVE INCOME
Items that may be subsequently reclassified
to profit or loss
Net change in fair value reserve on availablefor-sale securities, net of tax effect
Share in other comprehensive income (loss)
of associates
Fair value reserve on investments of
insurance subsidiaries, net of tax effect
Currency translation differences
Item that will not be reclassified to profit or
loss
Actuarial gains (losses) on defined benefit
plan, net of tax effect
Total other comprehensive (loss) income, net of
tax effect
TOTAL COMPREHENSIVE INCOME FOR
THE YEAR
Attributable to:
Equity holders of BPI
Non-controlling interests

2014
18,062

Consolidated
2013
18,994

2012
16,502

2014
13,270

Parent
2013
14,468

2012
12,427

22

(903)

(3,983)

(718)

(1,043)

(3,671)

(550)

254

(88)

503

169
(65)

(309)
233

161
(104)

500

(491)

1,752

352

(4,638)

1,594

(691)

(45)

(416)

1,390

(4,087)

840

18,017

14,356

18,096

12,579

10,381

13,267

17,972
45
18,017

14,230
126
14,356

17,937
159
18,096

12,579
12,579

10,381
10,381

13,267
13,267

(The notes on pages 1 to 99 are an integral part of these financial statements.)

BANK OF THE PHILIPPINE ISLANDS

STATEMENTS OF CHANGES IN CAPITAL FUNDS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2014
(In Millions of Pesos)

Balance, January 1, 2012

Comprehensive income
Net income for the year
Other comprehensive income for the
year
Total comprehensive income for
the year
Transactions with owners
Cash dividends
Transfer from surplus to reserves
Other changes in non-controlling
interests
Total transactions with owners
Balance, December 31, 2012
Balance, January 1, 2013
Comprehensive income
Net income for the year
Other comprehensive loss for the
year
Total comprehensive income
(loss) for the year
Transactions with owners
Cash dividends
Transfer from surplus to reserves
Others
Other changes in non-controlling
interests
Total transactions with owners
Balance, December 31, 2013
(forward)

Share
capital
35,562

Consolidated
Attributable to equity holders of BPI (Note 22)
Accumulated
other
Share
comprehensive
premium Reserves Surplus
income (loss)
8,317
1,462
41,763
(165)

16,352

16,352

141

35,562
35,562

8,317
8,317

(8,180)
(141)

150

16,502

1,585

1,585

1,594

1,585

17,937

159

18,096

(8,180)
-

(8,180)
(110)
(8,290)
98,122
98,122

141
1,603
1,603

(8,321)
49,794
49,794

1,420
1,420

(8,180)
96,696
96,696

(110)
(110)
1,426
1,426

18,811

183

18,811

(4,581)

18,811

(4,581)

76
1

(6,401)
(76)
9

(6,468)
62,137

(3,161)

(1)

1
35,563

(1)
8,316

77
1,680

Total
equity
88,316

16,352

Total
86,939

Noncontrolling
interests
1,377

(4,581)
14,230
(6,401)
10
(6,391)
104,535

(57)

18,994
(4,638)

126

14,356

(6,401)
10

(280)
(280)
1,272

(280)
(6,671)
105,807

BANK OF THE PHILIPPINE ISLANDS

STATEMENTS OF CHANGES IN CAPITAL FUNDS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2014
(In Millions of Pesos)

Balance, January 1, 2014

Comprehensive income
Net income for the year
Other comprehensive (loss) income for the
year
Total comprehensive income (loss) for
the year
Transactions with owners
Proceeds from the stock rights offering
Executive stock plan amortization
Cash dividends
Transfer from surplus to reserves
Change in ownership interest in subsidiary
that did not result in loss of control
Others
Other changes in non-controlling interests
Total transactions with owners
Balance, December 31, 2014

Share
capital
35,563

Consolidated
Attributable to equity holders of BPI (Note 22)
Accumulated
other
Share
comprehensive
premium Reserves Surplus
income (loss)
8,316
1,680
62,137
(3,161)

18,039
18,039

(67)
(67)

3,709
-

21,025
-

21
397

(3,538)
(397)

3,709
39,272

21,025
29,341

418
2,098

336
(2)
(3,601)
76,575

5
5
(3,223)

Total
104,535

Noncontrolling
interests
1,272

Total
equity
105,807

18,039

23

18,062

(67)

22

(45)

17,972

45

18,017

24,734
21
(3,538)
-

24,734
21
(3,538)
-

336
3
21,556
144,063

(The notes on pages 1 to 99 are an integral part of these financial statements.)

1,299
1,299
2,616

336
3
1,299
22,855
146,679

BANK OF THE PHILIPPINE ISLANDS

STATEMENTS OF CHANGES IN CAPITAL FUNDS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2014
(In Millions of Pesos)

Parent (Note 22)

Balance, January 1, 2012

Comprehensive income
Net income for the year
Other comprehensive income for the year
Total comprehensive income for the
year
Transactions with owners
Cash dividends
Transfer from surplus to reserves
Total transactions with owners
Balance, December 31, 2012
Balance, January 1, 2013
Comprehensive income
Net income for the year
Other comprehensive loss for the year
Total comprehensive income (loss) for
the year
Transactions with owners
Cash dividends
Transfer from surplus to reserves
Others
Total transactions with owners
Balance, December 31, 2013
(forward)

Share
capital
35,562

Share
premium
8,317

Reserves
1,462

Surplus
19,948

Accumulated
other
comprehensive
income (loss)
(563)

Total
64,726

12,427
-

840

12,427
840

12,427

840

13,267

35,562
35,562

8,317
8,317

141
141
1,603
1,603

(8,180)
(141)
(8,321)
24,054
24,054

277
277

(8,180)
(8,180)
69,813
69,813

14,468
-

(4,087)

14,468
(4,087)

14,468

(4,087)

10,381

(6,401)
(76)
8
(6,469)
32,053

(3,810)

(6,401)
9
(6,392)
73,802

1
1
35,563

(1)
(1)
8,316

76
1
77
1,680

BANK OF THE PHILIPPINE ISLANDS

STATEMENTS OF CHANGES IN CAPITAL FUNDS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2014
(In Millions of Pesos)

Parent (Note 22)

Balance, January 1, 2014

Comprehensive income
Net income for the year
Other comprehensive loss for the year
Total comprehensive income (loss) for
the year
Transactions with owners
Proceeds from the stock rights offering
Executive stock option plan amortization
Cash dividends
Transfer from surplus to reserves
Total transactions with owners
Balance, December 31, 2014

Share
capital
35,563

Share
premium
8,316

Reserves
1,680

Surplus
32,053

Accumulated
other
comprehensive
income (loss)
(3,810)

Total
73,802

13,270
-

(691)

13,270
(691)

13,270

(691)

12,579

18
397
415
2,095

(3,538)
(397)
(3,935)
41,388

3,709
3,709
39,272

21,025
21,025
29,341

(The notes on pages 1 to 99 are an integral part of these financial statements.)

(4,501)

24,734
18
(3,538)
21,214
107,595

BANK OF THE PHILIPPINE ISLANDS

STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2014
(In Millions of Pesos)

Consolidated
Notes

CASH FLOWS FROM OPERATING

ACTIVITIES
Income before income tax
Adjustments for:
Impairment losses
Depreciation and amortization
Share in net income of associates
Dividend and other income
Share based compensation
Interest income
Interest expense
Operating loss before changes in
operating assets and liabilities
Changes in operating assets and
liabilities
(Increase) decrease in:
Interbank loans receivable and
securities purchased under
agreements to resell
Trading securities, net
Loans and advances, net
Assets held for sale
Assets attributable to insurance
operations
Other resources
Increase (decrease) in:
Deposit liabilities
Due to Bangko Sentral ng Pilipinas
and other banks
Managers checks and demand
drafts outstanding
Accrued taxes, interest and other
expenses
Liabilities attributable to insurance
operations
Derivative financial instruments
Deferred credits and other liabilities
Net cash (used in) from operations
Interest received
Interest paid
Income taxes paid
Net cash from operating activities
(forward)

11, 13, 18
14, 15
16
2, 23

Parent

2014

2013

2012

2014

2013

2012

23,020

23,147

19,660

16,891

17,357

14,658

2,807
3,587
(257)
(22)
21
(47,588)
11,184

2,648
3,459
(590)
(28)
1
(42,244)
10,478

2,923
3,346
(138)
(27)
(41,482)
12,655

1,787
2,299
(2,000)
18
(33,110)
6,874

1,599
2,125
(1,923)
1
(28,657)
5,784

2,003
2,188
(1,383)
(28,585)
7,517

(7,248)

(3,129)

(3,063)

(7,241)

(3,714)

(3,602)

(5,045)
(11,218)
(167,393)
764

17,345
(110,369)
434

(9,887)
(74,049)
1,868

(5,010)
(3,952)
(142,705)
878

16,291
(91,710)
900

(7,593)
(53,801)
1,759

(910)
(2,897)

(2,059)
3,212

(724)
(3,661)

(1,545)

2,901

(3,603)

187,627

186,312

121,173

16

317

1,170

1,389

1,663

623

542

557

(1,364)

500
(935)
3,737
(2,589)
45,984
(11,117)
(4,500)
27,778

2,267
(107)
3,250
99,103
42,407
(10,932)
(5,243)
125,335

856
387
3,949
39,386
41,152
(12,418)
(2,961)
65,159

167,278

157,038

83,951

16

318

637

1,518

1,120

419

306

652

(1,364)

(935)
2,684
9,144
31,608
(6,672)
(2,920)
31,160

(107)
3,157
86,596
28,927
(6,149)
(3,660)
105,714

608
3,191
23,000
27,479
(7,423)
(2,079)
40,977

BANK OF THE PHILIPPINE ISLANDS

STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2014
(In Millions of Pesos)

CASH FLOWS FROM INVESTING

ACTIVITIES
(Increase) decrease in:
Available-for-sale securities, net
Held-to-maturity securities
Bank premises, furniture, fixtures and
equipment, net
Investment properties, net
Investment in subsidiaries and
associates, net
Assets attributable to insurance
operations
Dividends received
Proceeds from sale of interest in a
subsidiary
Net cash used in investing activities
CASH FLOWS FROM FINANCING
ACTIVITIES
Cash dividends paid
Increase (decrease) in:
Collection on stock subscriptions
Bills payable
Unsecured subordinated debt
Proceeds from sale of interest in a
subsidiary to a non-controlling interest
Net cash from (used in) financing activities
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS
January 1
December 31

Notes

2014

Consolidated
2013

11
12

35,013
(111,906)

14,479
(19,695)

(32,756)
13,230

14

(3,434)
709

(2,557)
909

(95)

23
2

20
2

Parent
2013

2012

38,452
(105,811)

7,078
(17,879)

(28,286)
12,165

(2,748)
(12)

(2,061)
709

(1,406)
912

(1,416)
(12)

(349)

(24)

(248)

(851)
22

936
28

(614)
27

572

(80,542)

(6,249)

(22,897)

(6,739)

(3,201)

(11,380)

24,733
6,812
-

(100)
(5,000)

1,744
26,550

2012

2014

302

(80)

1,923

1,383

1,744
(66,643)

(9,070)

(16,246)

(6,739)

(3,201)

(11,380)

7,144
-

24,733
7,300
-

(2,973)
-

7,076
-

(8,301)

(4,236)

25,294

(6,174)

(4,304)

(26,214)

110,785

38,026

(10,189)

90,470

20,427

299,772
273,558

188,987
299,772

150,961
188,987

233,799
223,610

143,329
233,799

122,902
143,329

(The notes on pages 1 to 99 are an integral part of these financial statements.)

BANK OF THE PHILIPPINE ISLANDS

NOTES TO FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2014 AND 2013 AND FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 2014
Note 1 - General Information
Bank of the Philippine Islands (BPI or the Parent Bank) is a domestic commercial bank with an expanded
banking license and has its registered office address, which is also its principal place of business, at BPI Building,
Ayala Avenue corner Paseo de Roxas, Makati City. BPI and its subsidiaries as detailed in Note 2.3 (collectively
referred to as the BPI Group) offer a whole breadth of financial services that include corporate banking, consumer
banking, investment banking, asset management, corporate finance, securities distribution, and insurance services.
At December 31, 2014, the BPI Group has 14,542 employees (2013 - 13,024 employees) and operates 825
branches and 2,575 ATMs (2013 - 825 branches and 2,181 ATMs) to support its delivery of services. The BPI
Group also serves its customers through alternative electronic banking channels such as telephone, mobile phone
and the internet. The BPI shares have been traded in the Philippine Stock Exchange (PSE) since
October 12, 1971. The Parent Bank was registered with the Securities and Exchange Commission (SEC) on
January 4, 1943. This license was extended for another 50 years on January 4, 1993.
These financial statements have been approved and authorized for issuance by the Board of Directors of the
Parent Bank on February 18, 2015. There are no material events that occurred subsequent to February 18, 2015
until February 20, 2015.
Note 2 - Summary of Significant Accounting Policies
The principal accounting policies applied in the preparation of these financial statements are set out below.
These policies have been consistently applied to all the years presented, unless otherwise stated.
2.1 Basis of preparation
The financial statements of the BPI Group have been prepared in accordance with Philippine Financial Reporting
Standards (PFRS). The term PFRS in general includes all applicable PFRS, Philippine Accounting Standards
(PAS), and interpretations of the Philippine Interpretations Committee (PIC), Standing Interpretations Committee
(SIC) and International Financial Reporting Interpretations Committee (IFRIC) which have been approved by the
Financial Reporting Standards Council (FRSC) and adopted by the SEC.
As allowed by the SEC, the pre-need subsidiary of the Parent Bank continues to follow the provisions of the
Pre-Need Uniform Chart of Accounts (PNUCA) prescribed by the SEC and adopted by the Insurance
Commission.
The financial statements comprise the statement of condition, statement of income and statement of total
comprehensive income shown as two statements, statement of changes in capital funds, statement of cash flows
and the notes.
These financial statements have been prepared under the historical cost convention, as modified by the
revaluation of trading securities, available-for-sale financial assets and all derivative contracts.
The preparation of financial statements in conformity with PFRS requires the use of certain critical accounting
estimates. It also requires management to exercise its judgment in the process of applying the BPI Groups
accounting policies. Changes in assumptions may have a significant impact on the financial statements in the
period the assumptions changed. Management believes that the underlying assumptions are appropriate and
that the financial statements therefore fairly present the financial position and results of the BPI Group. The
areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are
significant to the financial statements are disclosed in Note 4.

2.2 Changes in accounting policy and disclosures

New and amended standards adopted by the BPI Group
The following standards have been adopted by the BPI Group effective January 1, 2014:

Amendment to PAS 32, Financial instruments: Presentation on offsetting financial assets and financial
liabilities. This amendment clarifies that the right of set-off must not be contingent on a future event. It must
also be legally enforceable for all counterparties in the normal course of business, as well as in the event of
default, insolvency or bankruptcy. The amendment also considers settlement mechanisms. The amendment
did not have a significant effect on the BPI Groups financial statements.

Amendment to PAS 36, Impairment of assets, on the recoverable amount disclosures for non-financial
assets. This amendment removed certain disclosures of the recoverable amount of cash generating units
(CGUs) which had been included in PAS 36 by the issue of PFRS 13, Fair Value Measurement. The
amendment did not have a significant effect on the BPI Groups financial statements.

Amendment to PAS 39, Financial instruments: Recognition and measurement on the novation of
derivatives and the continuation of hedge accounting. This amendment considers legislative changes to
over-the-counter derivatives and the establishment of central counterparties. Under PAS 39, novation of
derivatives to central counterparties would result in discontinuance of hedge accounting. The amendment
provides relief from discontinuing hedge accounting when novation of a hedging instrument meets specified
criteria. The amendment did not have a significant effect on the BPI Groups financial statements.

Other standards, amendments and interpretations which are effective for the financial year beginning on
January 1, 2014 are considered not relevant to the BPI Group.
New standards, amendments and interpretations not yet adopted
A number of new standards and amendments to standards and interpretations are effective for annual periods
beginning after January 1, 2014, and have not been applied in preparing these financial statements. None of
these standards are expected to have a significant effect on the financial statements of the BPI Group, except
the following as set out below:

PFRS 9, Financial instruments, addresses the classification, measurement and recognition of financial
assets and financial liabilities. The complete version of PFRS 9 was issued in July 2014. It replaces the
guidance in PAS 39 that relates to the classification and measurement of financial instruments. PFRS 9
retains but simplifies the mixed measurement model and establishes three primary measurement
categories for financial assets: amortized cost, fair value through other comprehensive income and fair value
through profit or loss. The basis of classification depends on the entitys business model and the contractual
cash flow characteristics of the financial asset. Investments in equity instruments are required to be
measured at fair value through profit or loss with the irrevocable option at inception to present changes in
fair value in other comprehensive income with no recycling to profit or loss. There is now a new expected
credit losses model that replaces the incurred loss impairment model used in PAS 39. For financial liabilities,
there were no changes to classification and measurement except for the recognition of changes in own
credit risk in other comprehensive income for liabilities designated at fair value through profit or loss.
PFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness
tests. It requires an economic relationship between the hedged item and hedging instrument and for the
hedged ratio to be the same as the one management actually use for risk management purposes.
Contemporaneous documentation is still required but is different to that currently prepared under PAS 39.
The standard is effective for accounting periods beginning on or after January 1, 2018. Early adoption is
permitted. The BPI Group is assessing the full impact of PFRS 9.

PFRS 15, Revenue from contracts with customers, deals with revenue recognition and establishes
principles for reporting useful information to users of financial statements about the nature, amount, timing
and uncertainty of revenue and cash flows arising from an entitys contracts with customers. Revenue is
recognized when a customer obtains control of a good or service and thus has the ability to direct the use
and obtain the benefits from the good or service. The standard replaces PAS 18 Revenue and PAS 11
Construction contracts and related interpretations. The standard is effective for annual periods beginning
on or after January 1, 2017 and earlier application is permitted. The BPI Group is assessing the impact of
PFRS 15.

(2)

There are no other standards, amendments or interpretations that are not yet effective that have a material
impact on the BPI Group.
2.3 Consolidation
The consolidated financial statements comprise the financial statements of the BPI Group as at
December 31, 2014 and 2013. The subsidiaries financial statements are prepared for the same reporting year as
the Parent Bank. The consolidated financial statements include the financial statements of the Parent Bank and
the following subsidiaries as at December 31:

Subsidiaries
BPI Family Savings Bank, Inc.
BPI Capital Corporation
BPI Direct Savings Bank, Inc.
BPI International Finance Limited
BPI Europe Plc.
BPI Securities Corp.
BPI Card Finance Corp.
Filinvest Algo Financial Corp.
BPI Investment Management Inc.
Santiago Land Dev. Corp.
BPI Operations Management Corp.
BPI Computer Systems Corp.
BPI Foreign Exchange Corp.
BPI Express Remittance Corp. USA
BPI Express Remittance Corp. Nevada
BPI Express Remittance Center HK (Ltd.)
Green Enterprises S. R. L. in Liquidation
(formerly BPI Express Remittance
Europe, S.p.A.)
First Far - East Development Corporation
FEB Stock Brokers, Inc.
BPI Express Remittance Spain S.A
FEB Speed International
AF Holdings and Management Corp.
Ayala Plans, Inc.
FGU Insurance Corporation
BPI Century Tokyo Lease and Finance
Corporation (formerly BPI Leasing
Corporation)
BPI Century Tokyo Rental Corporation
(formerly BPI Rental Corporation)
CityTrust Securities Corporation
BPI/MS Insurance Corporation
BPI Globe BanKO, Inc.

Country of
incorporation
Philippines
Philippines
Philippines
Hong Kong
England and Wales
Philippines
Philippines
Philippines
Philippines
Philippines
Philippines
Philippines
Philippines
USA
USA
Hong Kong

Principal activities
Banking
Investment house
Banking
Financing
Banking (deposit)
Securities dealer
Financing
Financing
Investment management
Land holding
Operations management
Business systems service
Foreign exchange
Remittance
Remittance
Remittance

% of ownership
2014
2013
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

100
100
100
100
100

100
100
100
100
100

Philippines
Philippines
Philippines

Remittance
Real estate
Securities dealer
Remittance
Remittance
Financial management
consultancy
Pre-need
Non-life insurance

100
98.67
94.62

100
98.67
94.62

Philippines

Leasing

51

100

Philippines
Philippines
Philippines
Philippines

Rental
Securities dealer
Non-life insurance
Banking

51
51
50.85
40

100
100
50.85
40

Italy
Philippines
Philippines
Spain
Philippines

BPI has control over BPI Globe BanKO, Inc. since BPI is largely involved in key decisions concerning financial
and operating policies and activities of, and provision of technological support and technical know-how to BPI
Globe BanKO, Inc.

(3)

On December 23, 2014, BPI sold its 49% interest in BPI Leasing Corporation to Century Tokyo Leasing
Corporation for a total consideration of P1,744 million, thereby bringing its remaining ownership interest to 51%.
The BPI Group recognized an increase in non-controlling interest of P1,231 million and an increase in equity
attributable to owners of the Parent Bank of P336 million. The name of BPI Leasing has also been changed to
BPI Century Tokyo Lease and Finance Corporation as a consequence of the sale. In addition, the Parent Banks
effective ownership in BPI Century Tokyo Rental Corporation and CityTrust Securities Corporation, both whollyowned subsidiaries of BPI Century Tokyo Lease and Finance Corporation, has been reduced to 51% each as at
December 31, 2014.
The effect of change in the ownership interest in BPI Century Tokyo Lease and Finance Corporation on the
equity attributable to owners of BPI Parent during the year is summarized as follows:

Consideration received from non-controlling interest

Carrying amount of non-controlling interest sold, net of related cost
Excess of consideration received recognized in equity

(In Millions of Pesos)

1,744
1,408
336

At BPI Parent, the gain from sale recognized in the statement of income amounts to P1,428 million.
(a) Subsidiaries
Subsidiaries are all entities over which the BPI Group has control. The BPI Group controls an entity when it is
exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those
returns through its power over the entity. The BPI Group also assesses existence of control where it does not
have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of defacto control. De-facto control may arise in circumstances where the size of the BPI Groups voting rights
relative to the size and dispersion of holdings of other shareholders give the BPI Group the power to govern the
financial and operating policies.
Subsidiaries are fully consolidated from the date on which control is transferred to the BPI Group. They are deconsolidated from the date that control ceases.
The BPI Group applies the acquisition method of accounting to account for business combinations. The
consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the
liabilities incurred to the former owners of the acquiree and the equity interests issued by the BPI Group. The
consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration
arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are measured initially at their fair values at the
acquisition date. On an acquisition-by-acquisition basis, the BPI Group recognizes any non-controlling interest in
the acquiree either at fair value or at the non-controlling interests proportionate share of the acquirees
identifiable net assets.
Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirers previously
held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.
Any contingent consideration to be transferred by the BPI Group is recognized at fair value at the acquisition
date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or
liability is recognized in accordance with PAS 39 either in profit or loss or as a change to other comprehensive
income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is
not accounted for within equity.
The excess of the aggregate of the consideration transferred, the amount of any non-controlling interest in the
acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of
the BPI Groups share of the identifiable net assets acquired is recorded as goodwill. If the total of consideration
transferred, non-controlling interest recognized and previously held interest measured is less than the fair value
of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized
directly in profit or loss.

(4)

Inter-company transactions, balances and unrealized gains on transactions between group companies are
eliminated. Unrealized losses are also eliminated. Accounting policies of subsidiaries have been changed where
necessary to ensure consistency with the policies adopted by the BPI Group, except for the pre-need subsidiary
which follows the provisions of the PNUCA as allowed by the SEC.
When the BPI Group ceases to have control, any retained interest in the entity is re-measured to its fair value at
the date when control is lost, with the change in carrying amount recognized in profit or loss. The fair value is the
initial carrying amount for purposes of subsequently accounting for the retained interest as an associate, joint
venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in
respect of that entity are accounted for as if the BPI Group had directly disposed of the related assets or
liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to
profit or loss.
(b) Transactions with non-controlling interests
Transactions with non-controlling interests that do not result in loss of control are accounted for as equity
transactions - that is, as transactions with the owners in their capacity as owners. For purchases from noncontrolling interests, the difference between any consideration paid and the relevant share acquired of the
carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to noncontrolling interests are also recorded in equity.
Interests in the equity of subsidiaries not attributable to the Parent Bank are reported in consolidated equity as
non-controlling interests. Profits or losses attributable to non-controlling interests are reported in the statement
of income as net income (loss) attributable to non-controlling interests.
(c) Associates
Associates are all entities over which the BPI Group has significant influence but not control, generally
accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates in the
consolidated financial statements are accounted for using the equity method of accounting. Under the equity
method, the investment is initially recognized at cost and the carrying amount is increased or decreased to
recognize the investors share of the profit or loss of the investee after the date of acquisition. The BPI Groups
investment in associates includes goodwill identified on acquisition (net of any accumulated impairment loss).
If the ownership interest in an associate is reduced but significant influence is retained, a proportionate share of
the amounts previously recognized in other comprehensive income is reclassified to profit or loss where
appropriate.
The BPI Groups share of its associates post-acquisition profits or losses is recognized in profit or loss, and its
share of post-acquisition movements in reserves is recognized in other comprehensive income. The cumulative
post-acquisition movements are adjusted against the carrying amount of the investment. When the BPI Groups
share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured
receivables, the BPI Group does not recognize further losses, unless it has incurred legal or constructive
obligations or made payments on behalf of the associate.
The BPI Group determines at each reporting date whether there is any objective evidence that the investment in
the associate is impaired. If this is the case, the BPI Group calculates the amount of impairment as the
difference between the recoverable amount of the associate and its carrying value and recognizes the amount
adjacent to share of profit (loss) of an associate in profit or loss.
Unrealized gains on transactions between the BPI Group and its associates are eliminated to the extent of the
BPI Groups interest in the associates. Unrealized losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where
necessary to ensure consistency with the policies adopted by the BPI Group.

(5)

2.4 Investments in subsidiaries and associates

Investments in subsidiaries and associates in the Parent Banks separate financial statements are accounted for
using the cost method in accordance with PAS 27. Under this method, income from investment is recognized in
profit or loss only to the extent that the investor receives distributions from accumulated profits of the investee
arising after the acquisition date. Distributions received in excess of such profits are regarded as a recovery of
investment and are recognized as reduction of the cost of the investment.
The Parent Bank recognizes a dividend from a subsidiary or associate in profit or loss in its separate financial
statements when its right to receive the dividend is established.
The Parent Bank determines at each reporting date whether there is any indicator of impairment that the
investment in the subsidiary or associate is impaired. If this is the case, the Parent Bank calculates the amount
of impairment as the difference between the recoverable amount and carrying value and the difference is
recognized in profit or loss.
Investments in subsidiaries and associates are derecognized upon disposal or when no future economic benefits
are expected to be derived from the subsidiaries and associates at which time the cost and the related
accumulated impairment loss are removed in the statement of condition. Any gains and losses on disposal is
determined by comparing the proceeds with the carrying amount of the investment and recognized in profit or
loss.
2.5 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
executive officer who allocates resources to, and assesses the performance of the operating segments of the
BPI Group.
All transactions between business segments are conducted on an arms length basis, with intra-segment
revenue and costs being eliminated upon consolidation. Income and expenses directly associated with each
segment are included in determining business segment performance.
In accordance with PFRS 8, the BPI Group has the following main banking business segments: consumer
banking, corporate banking and investment banking. Its insurance business is assessed separately from these
banking business segments (Note 6).
2.6 Cash and cash equivalents
Cash and cash equivalents consist of Cash and other cash items, Due from Bangko Sentral ng Pilipinas (BSP),
Due from other banks, and Interbank loans receivable and securities purchased under agreements to resell with
maturities of less than three months from the date of acquisition and that are subject to insignificant risk of
changes in value.
2.7 Repurchase and reverse repurchase agreements
Securities sold subject to repurchase agreements (repos) are reclassified in the financial statements as pledged
assets when the transferee has the right by contract or custom to sell or repledge the collateral; the counterparty
liability is included in deposits from banks or deposits from customers, as appropriate. The difference between
sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective
interest method.
Securities purchased under agreements to resell (reverse repos) are recorded as loans and advances to other
banks and customers and included in the statement of condition under Interbank loans receivable and securities
purchased under agreements to resell. Securities lent to counterparties are also retained in the financial
statements.

(6)

2.8 Financial assets

2.8.1 Classification
The BPI Group classifies its financial assets in the following categories: financial assets at fair value through
profit or loss, loans and receivables, held-to-maturity securities and available-for-sale securities. The
classification depends on the purpose for which the financial assets are acquired. Management determines the
classification of its financial assets at initial recognition.
(a) Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for trading and those designated at fair value through
profit or loss at inception.
A financial asset is classified as held for trading if it is acquired principally for the purpose of selling or
repurchasing it in the near term or if it is part of a portfolio of identified financial instruments that are managed
together and for which there is evidence of a recent actual pattern of short-term profit-taking. Financial assets
held for trading (other than derivatives) are shown as Trading securities in the statement of condition.
Derivatives are also categorized as held for trading unless they are designated as hedging instruments.
Financial assets designated at fair value through profit or loss at inception are those that are managed and their
performance is evaluated on a fair value basis, in accordance with a documented investment strategy.
Information about these financial assets is provided internally on a fair value basis to the BPI Groups key
management personnel. The BPI Group has no financial assets that are specifically designated at fair value
through profit or loss.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments: (i) that are not
quoted in an active market, (ii) with no intention of being traded, and (iii) that are not designated as available-forsale. Significant accounts falling under this category include loans and advances, cash and other cash items,
due from BSP and other banks, interbank loans receivable and securities purchased under agreements to resell
and accounts receivable included under other resources.
(c) Held-to-maturity securities
Held-to-maturity securities are non-derivative financial assets with fixed or determinable payments and fixed
maturities that the BPI Groups management has the positive intention and ability to hold to maturity. If the BPI
Group were to sell other than an insignificant amount of held-to-maturity assets, the entire category would be
tainted and reclassified as available-for-sale.
(d)

Available-for-sale securities

Available-for-sale securities are non-derivative financial assets that are either designated in this category or not
classified in any of the other categories.
2.8.2

Recognition and measurement

(a) Initial recognition and measurement

Regular-way purchases and sales of financial assets at fair value through profit or loss, held-to-maturity
securities and available-for-sale securities are recognized on trade date, the date on which the BPI Group
commits to purchase or sell the asset. Loans and receivables are recognized upon origination when cash is
advanced to the borrowers or when the right to receive payment is established. Financial assets not carried at
fair value through profit or loss are initially recognized at fair value plus transaction costs. Financial assets
carried at fair value through profit or loss are initially recognized at fair value; and transaction costs are
recognized in profit or loss.

(7)

(b) Subsequent measurement

Available-for-sale securities and financial assets at fair value through profit or loss are subsequently carried at
fair value. Loans and receivables and held-to-maturity securities are subsequently carried at amortized cost.
Amortized cost is the amount at which the financial instrument was recognized at initial recognition less any
principal repayments, plus accrued interest, and for financial assets less any write-down for incurred impairment
losses. Accrued interest includes amortization of transaction costs deferred at initial recognition and of any
premium or discount to maturity amount using the effective interest method. Accrued interest income, including
both accrued coupon and amortized discount or premium (including fees deferred at origination, if any), are not
presented separately and are included in the carrying values of the related items in the statement of condition.
Gains and losses arising from changes in the fair value of financial assets at fair value through profit or loss are
included in the statement of income (as Trading gain/loss on securities) in the year in which they arise.
Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are
recognized directly in other comprehensive income, until the financial asset is derecognized or impaired at which
time the cumulative fair value adjustments previously recognized in other comprehensive income should be
recognized in profit or loss. However, interest is calculated on these securities using the effective interest
method and foreign currency gains and losses on monetary assets classified as available-for-sale are recognized
in profit or loss. Dividends on equity instruments are recognized in profit or loss when the BPI Groups right to
receive payment is established.
2.8.3

Reclassification

The BPI Group may choose to reclassify a non-derivative financial asset held for trading out of the held-fortrading category if the financial asset is no longer held for the purpose of selling it in the near term. Financial
assets other than loans and receivables are permitted to be reclassified out of the held-for-trading category only
in rare circumstances arising from a single event that is unusual and highly unlikely to recur in the near term. In
addition, the BPI Group may choose to reclassify financial assets that would meet the definition of loans and
receivables out of the held-for-trading or available-for-sale categories if the BPI Group has the intention and
ability to hold these financial assets for the foreseeable future or until maturity at the date of reclassification.
Reclassifications are made at fair value as of the reclassification date. Fair value becomes the new cost or
amortized cost as applicable, and no reversals of fair value gains or losses recorded before reclassification date
are subsequently made. Effective interest rates for financial assets reclassified to loans and receivables and
held-to-maturity categories are determined at the reclassification date. Further increases in estimates of cash
flows adjust effective interest rates prospectively.
2.8.4

Derecognition

Financial assets are derecognized when the contractual rights to receive the cash flows from these assets have
ceased to exist or the assets have been transferred and substantially all the risks and rewards of ownership of
the assets are also transferred (that is, if substantially all the risks and rewards have not been transferred, the
BPI Group tests control to ensure that continuing involvement on the basis of any retained powers of control
does not prevent derecognition).
2.9 Impairment of financial assets
(a) Assets carried at amortized cost
The BPI Group assesses at each reporting date whether there is objective evidence that a financial asset or
group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment
losses are incurred only if there is objective evidence of impairment as a result of one or more events that
occurred after the initial recognition of the asset (a loss event) and that loss event (or events) has an impact on
the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

(8)

The criteria that the BPI Group uses to determine that there is objective evidence of an impairment loss include:

Delinquency in contractual payments of principal or interest;

Cash flow difficulties experienced by the borrower;

Breach of loan covenants or conditions;

Initiation of bankruptcy proceedings;

Deterioration of the borrowers competitive position; and

Deterioration in the value of collateral.

The BPI 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. If the BPI
Group determines that no objective evidence of impairment exists for an individually assessed financial asset,
whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics
and collectively assesses them for impairment. Financial assets that are individually assessed for impairment
and for which an impairment loss is or continues to be recognized are not included in a collective assessment of
impairment.
The amount of impairment loss is measured as the difference between the assets carrying amount and the
present value of estimated future cash flows (excluding future credit losses that have not been incurred)
discounted at the financial assets original effective interest rate (recoverable amount). The calculation of
recoverable amount of a collateralized financial asset reflects the cash flows that may result from foreclosure
less costs of obtaining and selling the collateral, whether or not foreclosure is probable. If a loan or held-tomaturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the
current effective interest rate determined under the contract. The carrying amount of the asset is reduced
through the use of an allowance account and the amount of loss is recognized in profit or loss.
For purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit
risk characteristics (i.e., on the basis of the BPI Groups grading process that considers asset type, industry,
geographical location, collateral type, past-due status and other relevant factors). Those characteristics are
relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors ability
to pay all amounts due according to the contractual terms of the assets being evaluated.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on
the basis of the contractual cash flows of the assets in the BPI Group and historical loss experience for assets
with credit risk characteristics similar to those in the BPI Group. Historical loss experience is adjusted on the
basis of current observable data to reflect the effects of current conditions that did not affect the period on which
the historical loss experience is based and to remove the effects of conditions in the historical period that do not
currently exist. The methodology and assumptions used for estimating future cash flows are reviewed regularly
to reduce any differences between loss estimates and actual loss experience.
When a loan is uncollectible, it is written off against the related allowance for loan impairment. Such loans are
written off after all the necessary procedures have been completed and the amount of loss has been determined.
If in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively
to an event occurring after the impairment was recognized (such as an improvement in the debtors credit rating),
the previously recognized impairment loss is reversed by adjusting the allowance account. Subsequent
recoveries of amounts previously written-off are credited to impairment loss in the statement of income.
(b) Assets classified as available-for-sale
The BPI Group assesses at each reporting date whether there is an objective evidence that a security classified
as available-for-sale is impaired. For debt securities, the BPI Group uses the criteria mentioned in (a) above.
For an equity security classified as available-for-sale, a significant or prolonged decline in the fair value below
cost is considered in determining whether the securities are impaired. Generally, the BPI Group treats
significant as 20% or more and prolonged as greater than twelve months. The cumulative loss (difference
between the acquisition cost and the current fair value less any impairment loss on that financial asset previously
recognized in profit or loss) is removed from other comprehensive income and recognized in profit or loss when
the asset is determined to be impaired. If in a subsequent period, the fair value of a debt instrument previously
impaired increases and the increase can be objectively related to an event occurring after the impairment loss
was recognized, the impairment loss is reversed through profit or loss. Reversal of impairment losses
recognized previously on equity instruments is made directly to other comprehensive income.

(9)

(c) Renegotiated loans

Loans that are either subject to individual or collective impairment assessment and whose terms have been
renegotiated are no longer considered to be past due but are treated as new loans.
2.10 Financial liabilities
2.10.1

Classification

The BPI Group classifies its financial liabilities in the following categories: financial liabilities at fair value through
profit or loss and financial liabilities at amortized cost.
(a) Financial liabilities at fair value through profit or loss
This category comprises two sub-categories: financial liabilities classified as held for trading, and financial
liabilities designated by the BPI Group as at fair value through profit or loss upon initial recognition.
A financial liability is classified as held for trading if it is acquired or incurred principally for the purpose of selling
or repurchasing it in the near term or if it is part of a portfolio of identified financial instruments that are managed
together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are
also categorized as held for trading unless they are designated and effective as hedging instruments. Gains and
losses arising from changes in fair value of financial liabilities classified as held for trading are included in the
statement of income and are reported as Trading gains/losses. The BPI Group has no financial liabilities that
are designated at fair value through profit loss.
(b) Other liabilities measured at amortized cost
Financial liabilities that are not classified as at fair value through profit or loss fall into this category and are
measured at amortized cost. Financial liabilities measured at amortized cost include deposits from customers
and banks, bills payable, amounts due to BSP and other banks, managers checks and demand drafts
outstanding, subordinated notes and other financial liabilities under deferred credits and other liabilities.
2.10.2

Recognition and measurement

(a) Initial recognition and measurement

Financial liabilities not carried at fair value through profit or loss are initially recognized at fair value plus
transaction costs. Financial liabilities carried at fair value through profit or loss are initially recognized at fair
value; and transaction costs are recognized as expense in profit or loss.
(b) Subsequent measurement
Financial liabilities at fair value through profit or loss are subsequently carried at fair value. Other liabilities
are measured at amortized cost using the effective interest method.
2.10.3

Derecognition

Financial liabilities are derecognized when they have been redeemed or otherwise extinguished (i.e. when the
obligation is discharged or is cancelled or has expired). Collateral (shares and bonds) furnished by the BPI
Group under standard repurchase agreements and securities lending and borrowing transactions is not
derecognized because the BPI Group retains substantially all the risks and rewards on the basis of the
predetermined repurchase price, and the criteria for derecognition are therefore not met.
2.11 Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.
The fair value of a non-financial asset is measured based on its highest and best use. The assets current use is
presumed to be its highest and best use.

(10)

The fair value of financial and non-financial liabilities takes into account non-performance risk, which is the risk
that the entity will not fulfill an obligation.
The BPI Group classifies its fair value measurements using a fair value hierarchy that reflects the significance of
the inputs used in making the measurements. The fair value hierarchy has the following levels:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities. This level includes
listed equity securities and debt instruments on exchanges (for example, Philippine Stock Exchange, Inc.,
Philippine Dealing and Exchange Corp., etc.).

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly (that is, as prices) or indirectly (that is, derived from prices). This level includes the majority of
the over-the-counter (OTC) derivative contracts. The primary source of input parameters like LIBOR yield
curve or counterparty credit risk is Bloomberg.

Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
This level includes equity investments and debt instruments with significant unobservable components. This
hierarchy requires the use of observable market data when available. The BPI Group considers relevant and
observable market prices in its valuations where possible. The BPI Group has no assets or liabilities
classified under Level 3 as at December 31, 2014 and 2013.

The appropriate level is determined on the basis of the lowest level input that is significant to the fair value
measurement.
(a) Financial instruments
For financial instruments traded in active markets, the determination of fair values of financial assets and
financial liabilities is based on quoted market prices or dealer price quotations. This includes listed equity
securities and quoted debt instruments on major exchanges and broker quotes mainly from Bloomberg.
A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly
available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those
prices represent actual and regularly occurring market transactions on an arms length basis. If the above criteria
are not met, the market is regarded as being inactive. Indications that a market is inactive are when there is a
wide bid-offer spread or significant increase in the bid-offer spread or there are few recent transactions.
For all other financial instruments, fair value is determined using valuation techniques. In these techniques, fair
values are estimated from observable data in respect of similar financial instruments, using models to estimate
the present value of expected future cash flows or other valuation techniques, using inputs (for example, LIBOR
yield curve, FX rates, volatilities and counterparty spreads) existing at reporting dates. The BPI Group uses
widely recognized valuation models for determining fair values of non-standardized financial instruments of lower
complexity, such as options or interest rate and currency swaps. For these financial instruments, inputs into
models are generally market observable.
For more complex instruments, the BPI Group uses internally developed models, which are usually based on
valuation methods and techniques generally recognized as standard within the industry. Valuation models are
used primarily to value derivatives transacted in the OTC market, unlisted debt securities (including those with
embedded derivatives) and other debt instruments for which markets were or have become illiquid. Some of the
inputs to these models may not be market observable and are therefore estimated based on assumptions.
The fair value of OTC derivatives is determined using valuation methods that are commonly accepted in the
financial markets, such as present value techniques and option pricing models. The fair value of foreign
exchange forwards is generally based on current forward exchange rates, with the resulting value discounted
back to present value.
In cases when the fair value of unlisted equity instruments cannot be determined reliably, the instruments are
carried at cost less impairment. The fair value for loans and advances as well as liabilities to banks and
customers are determined using a present value model on the basis of contractually agreed cash flows, taking
into account credit quality, liquidity and costs. The fair values of contingent liabilities and irrevocable loan
commitments correspond to their carrying amounts.

(11)

(b) Non-financial assets or liabilities

The BPI Group uses valuation techniques that are appropriate in the circumstances and applies the technique
consistently. Commonly used valuation techniques are as follows:

Market approach - A valuation technique that uses observable inputs, such as prices, broker quotes and
other relevant information generated by market transactions involving identical or comparable assets or
group of assets.

Income approach - A valuation technique that converts future amounts (e.g., cash flows or income and
expenses) to a single current (i.e., discounted) amount. The fair value measurement is determined on the
basis of the value indicated by current market expectations about those future amounts.

Cost approach - A valuation technique that reflects the amount that would be required currently to replace
the service capacity of an asset (often referred to as current replacement cost).

The fair values were determined in reference to observable market inputs reflecting orderly transactions, i.e.
market listings, published broker quotes and transacted deals from similar and comparable assets, adjusted to
determine the point within the range that is most representative of the fair value under current market conditions.
The fair values of BPI Groups investment properties and foreclosed assets (shown as Assets held for sale) fall
under level 2 of the fair value hierarchy. The BPI Group has no non-financial assets or liabilities classified under
Level 3 as at December 31, 2014 and 2013.

(12)

2.12 Classes of financial instruments

The BPI Group classifies the financial instruments into classes that reflect the nature of information and take into
account the characteristics of those financial instruments. The classification made can be seen in the table
below:
Classes (as determined by the BPI Group)
Categories
(as defined by PAS 39)
Financial assets

Financial assets at fair value

through profit or loss

Main classes
- Trading securities
- Derivative financial assets
- Cash and other cash items
- Loans and advances
to banks

Loans and receivables

- Loans and advances to
customers

- Others

Held-to-maturity investments
Available-for-sale financial
assets
Financial liabilities

Financial liabilities at fair

value through profit or loss

Financial liabilities at
amortized cost

Off-balance sheet
financial
instruments

Sub-classes
- Debt securities
- Equity securities

- Investment securities
(debt securities)
- Investment securities
(debt securities)
- Investment securities
(equity securities)

- Due from BSP

- Due from other banks
- Interbank loans receivable and
securities purchased under agreements
to resell
- Real estate
mortgages
- Loans to
- Auto loans
individuals
(retail)
- Credit cards
- Others
- Large corporate
- Loans to
customers
corporate
- Small and mediumentities
sized enterprises
- Accounts receivables
- Sales contracts receivable
- Rental deposits
- Other accrued interest and fees
receivable
- Government
- Others
- Government
- Others
- Listed
- Unlisted

- Derivative financial liabilities

- Demand
- Deposits from
- Savings
customers
- Time
- Deposits from banks
- Bills payable
- Due to BSP and other
banks
- Managers check and
demand drafts outstanding
- Interest payable
- Unsecured subordinated
debt
- Other liabilities
- Accounts payable
- Outstanding acceptances
- Dividend payable

Loan commitments
Guarantees, acceptances and other financial facilities

(13)

2.13 Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount reported in the statement of condition when there is
a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or
realize the asset and settle the liability simultaneously.
2.14 Derivative financial instruments
Derivatives are initially recognized at fair value on the date on which a derivative contract is entered into and are
subsequently re-measured at their fair value. Fair values are obtained from quoted market prices in active
markets including recent market transactions, and valuation techniques (for example for structured notes),
including discounted cash flow models and options pricing models, as appropriate. All derivatives are carried as
assets when fair value is positive and as liabilities when fair value is negative.
Certain derivatives embedded in other financial instruments are treated as separate derivatives when their
economic characteristics and risks are not closely related to those of the host contract and the host contract is
not carried at fair value through profit or loss. The assessment of whether an embedded derivative is required to
be separated from the host contract is done when the BPI Group first becomes a party to the contract.
Reassessment of embedded derivative is only done when there are changes in the contract that significantly
modify the contractual cash flows. The embedded derivatives are measured at fair value with changes in fair
value recognized in profit or loss.
The BPI Groups derivative instruments do not qualify for hedge accounting. Changes in the fair value of any
derivative instrument that does not qualify for hedge accounting are recognized immediately in the statement of
income under Trading gain/loss on securities.
2.15 Bank premises, furniture, fixtures and equipment
Land and buildings comprise mainly of branches and offices. All bank premises, furniture, fixtures and
equipment are stated at historical cost less accumulated depreciation. Historical cost includes expenditure that
is directly attributable to the acquisition of an asset which comprises its purchase price, import duties and any
directly attributable costs of bringing the asset to its working condition and location for its intended use.
Subsequent costs are included in the assets carrying amount or are recognized as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to the BPI
Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit
or loss during the year in which they are incurred.
Land is not depreciated. Depreciation for buildings and furniture and equipment is calculated using the straightline method to allocate cost or residual values over the estimated useful lives of the assets, as follows:
Building
Furniture and equipment
Equipment for lease

25-50 years
3-5 years
2-8 years

Leasehold improvements are depreciated over the shorter of the lease term (ranges from 5 to 10 years) and the
useful life of the related improvement (ranges from 5 to 10 years). Major renovations are depreciated over the
remaining useful life of the related asset.
The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.
Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable.
An assets carrying amount is written down immediately to its recoverable amount if the assets carrying amount
is greater than its estimated recoverable amount. The recoverable amount is the higher of an assets fair value
less costs to sell and value in use. Bank premises, furniture, fixtures and equipment with carrying value of
P69 million were fully impaired as at December 31, 2014 (2013 - P56 million).

(14)

An item of Bank premises, furniture, fixtures and equipment is derecognized upon disposal or when no future
economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on
derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying
amount of the item) is included in profit or loss in the period the item is derecognized.
2.16 Investment properties
Properties that are held either to earn rental income or for capital appreciation or both, and that are not
significantly occupied by the BPI Group are classified as investment properties. Transfers to, and from,
investment property are made when, and only when, there is a change in use, evidenced by:
(a) Commencement of owner-occupation, for a transfer from investment property to owner-occupied property;
(b) Commencement of development with a view of sale, for a transfer from investment property to real
properties held-for-sale and development;
(c) End of owner occupation, for a transfer from owner-occupied property to investment property; or
(d) Commencement of an operating lease to another party, for a transfer from real properties held-for-sale and
development to investment property.
Transfers to and from investment property do not result in gain or loss.
Investment properties comprise land and building. Investment properties are measured initially at cost, including
transaction costs. Subsequent to initial recognition, investment properties are stated at cost less accumulated
depreciation and impairment losses, if any. Depreciation on investment property is determined using the same
policy as applied to Bank premises, furniture, fixtures, and equipment. Impairment test is conducted when there
is an indication that the carrying amount of the asset may not be recovered. An impairment loss is recognized for
the amount by which the propertys carrying amount exceeds its recoverable amount, which is the higher of the
propertys fair value less costs to sell and value in use.
An item of investment property is derecognized upon disposal or when no future economic benefits are expected to
arise from the continued use of the asset. Any gains and losses arising on derecognition of the asset (calculated as
the difference between the net disposal proceeds and the carrying amount of the item) is included in profit or loss in
the period the item is derecognized.
2.17 Foreclosed assets
Assets foreclosed shown as Assets held for sale in the statement of condition are accounted for at the lower of cost
and fair value less cost to sell similar to the principles of PFRS 5. The cost of assets foreclosed includes the
carrying amount of the related loan less allowance for impairment at the time of foreclosure. Impairment loss is
recognized for any subsequent write-down of the asset to fair value less cost to sell.
Foreclosed assets not classified as Assets held for sale are accounted for in any of the following classification using
the measurement basis appropriate to the asset as follows:
(a) Investment property is accounted for using the cost model under PAS 40;
(b) Bank-occupied property is accounted for using the cost model under PAS 16; and
(c) Financial assets are classified as available-for-sale.
2.18 Intangible assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the BPI Groups share in the net
identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of
subsidiaries is included in Miscellaneous assets under Other resources in the consolidated financial statements.
Goodwill on acquisitions of associates is included in Investments in subsidiaries and associates. Separately
recognized goodwill is carried at cost less accumulated impairment losses. Gains and losses on the disposal of a
subsidiary/associate include carrying amount of goodwill relating to the subsidiary/associate sold.
Goodwill is an indefinite-lived intangible asset and hence not subject to amortization.

(15)

Goodwill is allocated to cash-generating units for the purpose of impairment testing. Each cash-generating unit is
represented by each primary reporting segment.
Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances
indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the
higher of value in use and the fair value less costs to sell. Any impairment is recognized immediately as an expense
and is not subsequently reversed.
(b) Contractual customer relationships
Contractual customer relationships acquired in a business combination are recognized at fair value at the
acquisition date. The contractual customer relationships have finite useful lives and are carried at cost less
accumulated amortization. Amortization is calculated using the straight-line method over the expected life of the
customer relationship.
(c) Computer software
Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use
the specific software. These costs are amortized on a straight-line basis over the expected useful lives (three to five
years). Computer software is included in Miscellaneous assets under Other resources.
Costs associated with maintaining computer software programs are recognized as an expense as incurred.
Development costs that are directly attributable to the design and testing of identifiable and unique software
products controlled by the BPI Group are recognized as intangible assets when the following criteria are met:

it is technically feasible to complete the software product so that it will be available for use;
management intends to complete the software product and use or sell it;
there is an ability to use or sell the software product;
it can be demonstrated how the software product will generate probable future economic benefits;
adequate technical, financial and other resources to complete the development and to use or sell the
software product are available; and
the expenditure attributable to the software product during its development can be reliably measured.

Directly attributable costs that are capitalized as part of the software product include the software development
employee costs and an appropriate portion of relevant overheads.
Other development expenditures that do not meet these criteria are recognized as an expense when incurred.
Development costs previously recognized as an expense are not recognized as an asset in a subsequent period.
2.19 Impairment of non-financial assets
Assets that have indefinite useful lives - for example, goodwill or intangible assets not ready for use - are not subject
to amortization and are tested annually for impairment and more frequently if there are indicators of impairment.
Assets that have definite useful lives are subject to amortization and are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is
recognized for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of an assets fair value less costs to sell and value in use. For purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cashgenerating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible
reversal of impairment at each reporting date.
2.20 Borrowings and borrowing costs
The BPI Groups borrowings consist mainly of bills payable and unsecured subordinated debt. Borrowings are
recognized initially at fair value, being their issue proceeds, net of transaction costs incurred. Borrowings are
subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the
redemption value is recognized in profit or loss over the period of the borrowings using the effective interest method.
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are
capitalized as part of the cost of the asset. All other borrowing costs are expensed as incurred. The BPI Group has
no qualifying asset as at December 31, 2014 and 2013.

(16)

2.21 Interest income and expense

Interest income and expense are recognized in profit or loss for all interest-bearing financial instruments using the
effective interest method.
The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability
and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the
rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial
instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial
liability.
When calculating the effective interest rate, the BPI Group estimates cash flows considering all contractual terms of
the financial instrument but does not consider future credit losses. The calculation includes all fees paid or received
between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other
premiums or discounts.
Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss,
interest income is recognized using the rate of interest used to discount the future cash flows for the purpose of
measuring impairment loss.
2.22 Fees and commission income
Fees and commissions are generally recognized on an accrual basis when the service has been provided.
Commission and fees arising from negotiating or participating in the negotiation of a transaction for a third party
(i.e. the arrangement of the acquisition of shares or other securities, or the purchase or sale of businesses) are
recognized on completion of underlying transactions. Portfolio and other management advisory and service fees
are recognized based on the applicable service contracts, usually on a time-proportionate basis. Asset
management fees related to investment funds are recognized ratably over the period in which the service is
provided.
2.23 Dividend income
Dividend income is recognized in profit or loss when the BPI Groups right to receive payment is established.
2.24 Credit card income
Credit card income is recognized upon receipt from merchants of charges arising from credit card transactions.
These are computed based on rates agreed with merchants and are deducted from the payments to
establishments.
2.25 Foreign currency translation
(a) Functional and presentation currency
Items in the financial statements of each entity in the BPI Group are measured using the currency of the primary
economic environment in which the entity operates (the functional currency). The financial statements are
presented in Philippine Peso, which is the Parent Banks functional and presentation currency.

(17)

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at
the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss. Non-monetary
items measured at historical cost denominated in a foreign currency are translated at exchange rates as at the
date of initial recognition. Non-monetary items in a foreign currency that are measured at fair value are
translated using the exchange rates at the date when the fair value is determined.
Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale
are analyzed between translation differences resulting from changes in the amortized cost of the security, and
other changes in the carrying amount of the security. Translation differences are recognized in profit or loss, and
other changes in carrying amount are recognized in other comprehensive income.
Translation differences on non-monetary financial instruments, such as equities held at fair value through profit
or loss, are reported as part of the fair value gain or loss recognized under Trading gain (Ioss) in the statement
of income. Translation differences on non-monetary financial instruments, such as equities classified as
available-for-sale, are included in Accumulated other comprehensive income (loss) in the capital funds.
(c) Foreign subsidiaries
The results and financial position of BPIs foreign subsidiaries (none of which has the currency of a
hyperinflationary economy) that have a functional currency different from the presentation currency are
translated into the presentation currency as follows:
(i)

assets and liabilities are translated at the closing rate at reporting date;

(ii)

income and expenses are translated at average exchange rates (unless this average is not a
reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in
which case income and expenses are translated at the dates of the transactions); and

(iii)

all resulting exchange differences are recognized as a separate component (Translation adjustments) of
Accumulated other comprehensive income (loss) in the capital funds. When a foreign operation is sold,
such exchange differences are recognized in profit or loss as part of the gain or loss on sale.

2.26 Accrued expenses and other liabilities

Accrued expenses and other liabilities are recognized in the period in which the related money, goods or services
are received or when a legally enforceable claim against the BPI Group is established.
2.27 Provisions for legal or contractual obligations
Provisions are recognized when all of the following conditions are met: (i) the BPI Group has a present legal or
constructive obligation as a result of past events; (ii) it is probable that an outflow of resources will be required to
settle the obligation; and (iii) the amount has been reliably estimated. Provisions are not recognized for future
operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is
determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an
outflow with respect to any one item is included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation
using a pre-tax rate that reflects the current market assessments of the time value of money and the risk specific to
the obligation. The increase in the provision due to the passage of time is recognized as interest expense.

(18)

2.28 Income taxes

(a) Current income tax
Income tax payable is calculated on the basis of the applicable tax law in the respective jurisdiction and is
recognized as an expense for the year except to the extent that current tax is related to items (for example, current
tax on available-for-sale investments) that are charged or credited in other comprehensive income or directly to
capital funds.
The BPI Group has substantial income from its investment in government securities subject to final withholding tax.
Such income is presented at its gross amount and the final tax paid or withheld is included in Provision for income
tax - Current.
(b) Deferred income tax
Deferred income tax is recognized on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the financial statements. The deferred income tax is not accounted for if it
arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at
the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is
determined using tax rates (and laws) that have been enacted or substantively enacted at the reporting date and
are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability
is settled.
Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax
losses (net operating loss carryover or NOLCO) and unused tax credits (excess minimum corporate income tax
or MCIT) to the extent that it is probable that future taxable profit will be available against which the temporary
differences, unused tax losses and unused tax credits can be utilized. Deferred income tax liabilities are
recognized in full for all taxable temporary differences except to the extent that the deferred tax liability arises
from the initial recognition of goodwill.
The BPI Group reassesses at each reporting date the need to recognize a previously unrecognized deferred
income tax asset.
Deferred income tax assets are recognized on deductible temporary differences arising from investments in
subsidiaries, and associates and joint arrangements only to the extent that it is probable the temporary difference
will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be
utilized.
Deferred income tax liabilities are provided on taxable temporary differences arising from investments in
subsidiaries, and associates and joint arrangements, except for deferred income tax liability where the timing of the
reversal of the temporary difference is controlled by the BPI Group and it is probable that the temporary difference
will not reverse in the foreseeable future. Generally the BPI Group is unable to control the reversal of the temporary
difference for associates except when there is an agreement in place that gives the BPI Group the ability to control
the reversal of the temporary difference.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes
levied by the same taxation authority on either the taxable entity or different taxable entities where there is an
intention to settle the balances on a net basis.
2.29 Employee benefits
(a) Pension obligations
The BPI Group has a defined benefit plan that shares risks among entities within the group. A defined benefit
plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement,
usually dependent on one or more factors such as age, years of service and compensation.

(19)

The liability recognized in the statement of condition in respect of defined benefit pension plan is the present
value of the defined benefit obligation at the reporting date less the fair value of plan assets. The defined benefit
obligation is calculated annually by independent actuaries using the projected unit credit method. The present
value of the defined benefit obligation is determined by discounting the estimated future cash outflows using
interest rates of government bonds that are denominated in the currency in which the benefits will be paid, and
that have terms to maturity approximating the terms of the related pension liability.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are
charged or credited to equity in other comprehensive income in the period in which they arise.
Past-service costs are recognized immediately in profit or loss.
For individual financial reporting purposes, the unified plan assets are allocated among the BPI Group entities
based on the level of the defined benefit obligation attributable to each entity to arrive at the net liability or asset
that should be recognized in the individual financial statements.
(b) Share-based compensation
The BPI Group engages in equity-settled share-based payment transactions in respect of services received from
certain employees.
The fair value of the services received is measured by reference to the fair value of the shares or share options
granted on the date of the grant. The cost of employee services received in respect of the shares or share
options granted is recognized in profit or loss (with a corresponding increase in reserve in capital funds) over the
period that the services are received, which is the vesting period.
The fair value of the options granted is determined using option pricing models which take into account the
exercise price of the option, the current share price, the risk-free interest rate, the expected volatility of the share
price over the life of the option and other relevant factors.
When the stock options are exercised, the proceeds received, net of any directly attributable transaction costs,
are credited to share capital (par value) and share premium for the excess of exercise price over par value.
(c) Profit sharing and bonus plans
The BPI Group recognizes a liability and an expense for bonuses and profit-sharing, based on a formula that
takes into consideration the profit attributable to the Parent Banks shareholders after certain adjustments. The
BPI Group recognizes a provision where contractually obliged or where there is a past practice that has created
a constructive obligation.
2.30 Capital funds
Common shares and preferred shares are classified as share capital.
Share premium includes any premiums or consideration received in excess of par value on the issuance of share
capital.
Incremental costs directly attributable to the issue of new shares or options are shown in capital funds as a
deduction from the proceeds, net of tax.
2.31 Earnings per share (EPS)
Basic EPS is calculated by dividing income applicable to common shares by the weighted average number of
common shares outstanding during the year with retroactive adjustments for stock dividends. In case of a rights
issue, an adjustment factor is being considered for the weighted average number of shares outstanding for all
periods before the rights issue. Diluted EPS is computed in the same manner as basic EPS, however, net
income attributable to common shares and the weighted average number of shares outstanding are adjusted for
the effects of all dilutive potential common shares.

(20)

2.32 Dividends on common shares

Dividends on common shares are recognized as a liability in the BPI Groups financial statements in the period in
which the dividends are approved by the Board of Directors and the BSP.
2.33 Fiduciary activities
The BPI Group commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of
assets on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets and income
arising thereon are excluded from these financial statements, as they are not assets of the BPI Group (Note 29).
2.34 Leases
(a) BPI Group is the lessee
(i)

Operating lease
Leases in which a significant portion of the risks and rewards of ownership are retained by another
party, the lessor, are classified as operating leases. Payments, including prepayments, made under
operating leases (net of any incentives received from the lessor) are charged to Occupancy and
equipment-related expenses in the statement of income on a straight-line basis over the period of the
lease. When an operating lease is terminated before the lease period has expired, any payment
required to be made to the lessor by way of penalty is recognized as an expense in the period in which
the termination takes place.

(ii) Finance lease

Leases of assets, where the BPI Group has substantially all the risks and rewards of ownership, are
classified as finance leases. Finance leases are capitalized at the commencement of the lease at the
lower of the fair value of the leased property and the present value of the minimum lease payments.
Each lease payment is allocated between the liability and finance charges so as to achieve a constant
rate on the finance balance outstanding. The interest element of the finance cost is charged to profit or
loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance
of the liability for each period.
(b) BPI Group is the lessor
(i)

Operating lease
Properties (land and building) leased out under operating leases are included in Investment properties
in the statement of condition. Rental income under operating leases is recognized in profit or loss on a
straight-line basis over the period of the lease.

(ii) Finance lease

When assets are leased out under a finance lease, the present value of the lease payments is
recognized as a receivable. The difference between the gross receivable and the present value of the
receivable is recognized as unearned finance income.
Lease income under finance lease is recognized over the term of the lease using the net investment
method before tax, which reflects a constant periodic rate of return.

(21)

2.35 Insurance and pre-need operations

(a) Non-life insurance
The more significant accounting policies observed by the non-life insurance subsidiaries follow: (a) gross premiums
written from short-term insurance contracts are recognized at the inception date of the risks underwritten and are
earned over the period of cover in accordance with the incidence of risk using the 24th method; (b) acquisition costs
are deferred and charged to expense in proportion to the premium revenue recognized; reinsurance commissions
are deferred and deducted from the applicable deferred acquisition costs, subject to the same amortization method
as the related acquisition costs; (c) a liability adequacy test is performed which compares the subsidiaries
reported insurance contract liabilities against current best estimates of all contractual future cash flows and
claims handling, and policy administration expenses as well as investment income backing up such liabilities,
with any deficiency immediately charged to profit or loss; (d) amounts recoverable from reinsurers and loss
adjustment expenses are classified as assets, with an allowance for estimated uncollectible amounts; and (e)
financial assets and liabilities are measured following the classification and valuation provisions of PAS 39.
(b) Pre-need
The more significant provisions of the PNUCA as applied by the pre-need subsidiary follow: (a) premium income
from sale of pre-need plans is recognized as earned when collected; (b) costs of contracts issued and other
direct costs and expenses are recognized as expense when incurred; (c) pre-need reserves which represent the
accrued net liabilities of the subsidiary to its plan holders are actuarially computed based on standards and
guidelines set forth by the Insurance Commission; the increase or decrease in the account is charged or credited
to other costs of contracts issued in profit or loss; and (d) insurance premium reserves which represent the
amount that must be set aside by the subsidiary to pay for premiums for insurance coverage of fully paid plan
holders, are actuarially computed based on standards and guidelines set forth by the Insurance Commission.
2.36 Related party relationships and transactions
Related party relationship exists when one party has the ability to control, directly, or indirectly through one or more
intermediaries, the other party or exercises significant influence over the other party in making financial and
operating decisions. Such relationship also exists between and/or among entities which are under common control
with the reporting enterprise, or between and/or among the reporting enterprise and its key management personnel,
directors, or its shareholders. In considering each possible related party relationship, attention is directed to the
substance of the relationship, and not merely the legal form.
2.37 Comparatives
Except when a standard or an interpretation permits or requires otherwise, all amounts are reported or disclosed
with comparative information.
Where PAS 8 applies, comparative figures have been adjusted to conform with changes in presentation in the
current year. There were no changes to the presentation made during the year.
2.38 Reclassification
Certain amounts have been reclassified in the statement of condition to conform with the current years
presentation. This is not considered material and did not change the amount of total resources as at
December 31, 2013.
2.39 Subsequent events (or Events after the reporting date)
Post year-end events that provide additional information about the BPI Groups financial position at the reporting
date (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events
are disclosed in the notes to financial statements when material.

(22)

Note 3 - Financial Risk and Capital Management

Risk management in the BPI Group covers all perceived areas of risk exposure, even as it continuously endeavors
to uncover hidden risks. Capital management is understood to be a facet of risk management. The Board of
Directors, through its Risk Management Committee (RMC), sets the BPI Groups management tone by specifying
the parameters by which financial and business risks are to be taken and by allocating the appropriate capital for
absorbing potential losses from such risks.
The primary objective of the BPI Group is the generation of recurring acceptable returns to shareholders capital.
To this end, the BPI Groups policies, business strategies, and business activities are directed towards the
generation of cash flows that are in excess of its fiduciary and contractual obligations to its depositors, and to its
various other funders and stakeholders.
To generate acceptable returns to its shareholders capital, the BPI Group understands that it has to bear risk, that
risk-taking is inherent in its business. Risk is understood by the BPI Group as the uncertainty in its future income an uncertainty that emanates from the possibility of incurring losses that are due to unplanned and unexpected
drops in revenues, increases in expenses, impairment of asset values, or increases in liabilities.
The possibility of incurring losses is, however, compensated by the possibility of earning more than expected
income. Risk-taking is, therefore, not entirely bad to be avoided. Risk-taking presents opportunities if risks are
accounted, deliberately taken, and are kept within rationalized limits.
The most important risks that the BPI Group manages are credit risk, liquidity risk, market risk and other operational
and information technology (IT) risks.
3.1 Credit risk
The BPI Group takes on exposure to credit risk, which is the risk that a counterparty will cause a financial loss to the
BPI Group by failing to discharge an obligation. Significant changes in the economy, or in the prospects of a
particular industry segment that may represent a concentration in the BPI Groups portfolio, could result in losses
that are different from those provided for at the reporting date. Management therefore carefully manages its
exposure to credit risk. Credit exposures arise principally in loans and advances, debt securities and other bills.
There is also credit risk in off-balance sheet financial arrangements. The Credit Policy Group works with the Credit
Committee in managing credit risk, and reports are regularly provided to the Board of Directors.
3.1.1 Credit risk management
(a)

Loans and advances

In measuring credit risk of loans and advances at a counterparty level, the BPI Group considers three
components: (i) the probability of default by the client or counterparty on its contractual obligations; (ii) current
exposures to the counterparty and its likely future development; and (iii) the likely recovery ratio on the defaulted
obligations. In the evaluation process, the BPI Group also considers the conditions of the industry/sector to
which the counterparty is exposed, other existing exposures to the group where the counterparty may be related,
as well as the client and the BPI Groups fallback position assuming the worst-case scenario. Outstanding and
potential credit exposures are reviewed to likewise ensure that they conform to existing internal credit policies.
The BPI Group assesses the probability of default of individual counterparties using internal rating tools tailored
to the various categories of counterparty. The BPI Group has internal credit risk rating systems, designed for
corporate, small and medium-sized enterprises (SMEs), and retail accounts, that measure the borrower's credit
risk based on quantitative and qualitative factors. The ratings of individual exposures may subsequently migrate
between classes as the assessment of their probabilities of default changes. For retail, the consumer credit
scoring system is a formula-based model for evaluating each credit application against a set of characteristics
that experience has shown to be relevant in predicting repayment. The BPI Group regularly validates the
performance of the rating systems and their predictive power with regard to default events, and enhances them if
necessary. The BPI Group's internal ratings are mapped to the following standard BSP classifications:

Unclassified - these are loans that do not have a greater-than-normal risk and do not possess the
characteristics of loans classified below. The counterparty has the ability to satisfy the obligation in full and
therefore minimal loss, if any, is anticipated.

(23)

Loans especially mentioned - these are loans that have potential weaknesses that deserve managements
close attention. These potential weaknesses, if left uncorrected, may affect the repayment of the loan and
thus increase the credit risk of the BPI Group.

Substandard - these are loans which appear to involve a substantial degree of risk to the BPI Group
because of unfavorable record or unsatisfactory characteristics. Further, these are loans with well-defined
weaknesses which may include adverse trends or development of a financial, managerial, economic or
political nature, or a significant deterioration in collateral.

Doubtful - these are loans which have the weaknesses similar to those of the substandard classification with
added characteristics that existing facts, conditions, and values make collection or liquidation in full highly
improbable and substantial loss is probable.

Loss - these are loans which are considered uncollectible and of such little value that their continuance as
bankable assets is not warranted although the loans may have some recovery or salvage value.

(b) Debt securities and other bills

For debt securities and other bills, external ratings such as Standard & Poors, Moodys and Fitchs ratings or
their equivalents are used by the BPI Group for managing credit risk exposures. Investments in these securities
and bills are viewed as a way to gain better credit quality mix and at the same time, maintain a readily available
source to meet funding requirements.
3.1.2 Risk limit control and mitigation policies
The BPI Group manages, limits and controls concentrations of credit risk wherever they are identified - in
particular, to individual counterparties and groups, to industries and sovereigns.
The BPI Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in
relation to one borrower, or groups of borrowers, and to geographical and industry segments. Such risks are
monitored on a regular basis and subjected to annual or more frequent review, when considered necessary.
Limits on large exposures and credit concentration are approved by the Board of Directors.
The exposure to any one borrower is further restricted by sub-limits covering on- and off-balance sheet exposures.
Actual exposures against limits are monitored regularly.
Exposure to credit risk is also managed through regular analysis of the ability of existing and potential borrowers
to meet interest and capital repayment obligations and by changing these lending limits where appropriate.
The BPI Group employs a range of policies and practices to mitigate credit risk. Some of these specific control
and mitigation measures are outlined below.
(a) Collateral
One of the most traditional and common practice in mitigating credit risk is requiring security particularly for
loans and advances. The BPI Group implements guidelines on the acceptability of specific classes of collateral
for credit risk mitigation. The principal collateral types for loans and advances are:

Mortgages over real estate properties and chattels; and

Hold-out on financial instruments such as debt securities deposits, and equities

In order to minimize credit loss, the BPI Group seeks additional collateral from the counterparty when
impairment indicators are observed for the relevant individual loans and advances.

(24)

(b) Derivatives
The BPI Group maintains strict market limits on net open derivative positions (i.e., the difference between purchase
and sale contracts). Credit risk is limited to the net current fair value of instruments, which in relation to derivatives
is only a small fraction of the contract, or notional values used to express the volume of instruments outstanding.
This credit risk exposure is managed as part of the overall lending limits with customers, together with potential
exposures from market movements. Collateral or other security is not usually obtained for credit risk exposures on
these instruments (except where the BPI Group requires margin deposits from counterparties).
Settlement risk arises in any situation where a payment in cash, securities, foreign exchange currencies, or equities
is made in the expectation of a corresponding receipt in cash, securities, foreign exchange currencies, or equities.
Daily settlement limits are established for each counterparty to cover the aggregate of all settlement risk arising
from the BPI Groups market transactions on any single day. The introduction of the delivery versus payment
facility in the local market has brought down settlement risk significantly.
(c) Master netting arrangements
The BPI Group further restricts its exposure to credit losses by entering into master netting arrangements with
counterparties with which it undertakes a significant volume of transactions. Master netting arrangements do not
generally result in an offset of balance sheet assets and liabilities, as transactions are usually settled on a gross
basis. However, the credit risk associated with favorable contracts (asset position) is reduced by a master netting
arrangement to the extent that if a default occurs, all amounts with the counterparty are terminated and settled on a
net basis. The BPI Groups overall exposure to credit risk on derivative instruments subject to master netting
arrangements can change substantially within a short period, as it is affected by each transaction subject to the
arrangement.
(d) Credit-related commitments
The primary purpose of these instruments is to ensure that funds are available to a customer as required. Standby
letters of credit carry the same credit risk as loans. Documentary and commercial letters of credit - which are
written undertakings by the BPI Group on behalf of a customer authorizing a third party to draw drafts on the BPI
Group up to a stipulated amount under specific terms and conditions - are collateralized by the underlying
shipments of goods to which they relate and therefore carry less risk than a direct loan.
Commitments to extend credit represent unused portions of authorizations to extend credit in the form of loans, or
letters of credit. With respect to credit risk on commitments to extend credit, the BPI Group is potentially exposed to
loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total
unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific
credit standards. The BPI Group monitors the term to maturity of credit commitments because longer-term
commitments generally have a greater degree of credit risk than shorter-term commitments.

(25)

3.1.3 Impairment and provisioning policies

As described in Note 3.1.1, the BPI Groups credit-quality mapping on loans and advances is based on the standard
BSP loan classifications. Impairment provisions are recognized for financial reporting purposes based on objective
evidence of impairment (Note 2.9).
The table below shows the percentage of the BPI Groups loans and advances and the related allowance for
impairment.

Unclassified
Loans especially mentioned
Substandard
Doubtful
Loss

Consolidated
2014
2013
Loans and
Allowance for
Loans and
Allowance for
advances (%)
impairment (%) advances (%)
impairment (%)
98.14
0.77
97.61
0.81
0.26
5.35
0.34
5.46
0.64
21.19
0.90
20.12
0.45
63.85
0.52
62.55
0.51
100.00
0.63
100.00
100.00
100.00
Parent

Unclassified
Loans especially mentioned
Substandard
Doubtful
Loss

2014
Loans and
Allowance for
advances (%)
impairment (%)
98.61
0.75
0.16
6.75
0.55
21.23
0.25
72.32
0.43
100.00
100.00

2013
Loans and
advances (%)
97.99
0.28
0.76
0.38
0.59
100.00

Allowance for
impairment (%)
0.84
5.37
19.23
67.92
100.00

(26)

3.1.4 Maximum exposure to credit risk before collateral held or other credit enhancements
Credit risk exposures relating to significant on-balance sheet financial assets are as follows:

Due from BSP

Due from other banks
Interbank loans receivable and securities
purchased under agreements to resell (SPAR)
Financial assets at fair value through profit or loss
Derivative financial assets
Trading securities - debt securities
Available-for-sale - debt securities
Held-to-maturity securities
Loans and advances, net
Other financial assets
Accounts receivable, net
Other accrued interest and fees receivable
Sales contracts receivable, net
Rental deposits
Others, net

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
211,946
170,648
244,483
195,076
22,227
15,429
17,070
8,789
5,782

17,397

5,246

10,037

35,981
15,247
47,484
209,409
800,170

16,550
4,334
85,885
96,172
630,203

35,981
6,620
41,604
193,001
621,441

16,550
2,626
81,486
85,900
475,155

1,489
661
39
366
425
1,351,226

879
662
78
335
444
1,114,492

1,063
613
304
387
1,092,337

623
573
27
280
393
877,515

Credit risk exposures relating to off-balance sheet items are as follows:

Undrawn loan commitments

Bills for collection
Unused letters of credit
Others

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
154,257
148,215
120,792
114,960
13,686
13,679
14,863
14,848
12,196
12,196
13,117
13,117
1,213
1,213
1,390
1,390
181,352
175,303
150,162
144,315

The preceding table represents the maximum credit risk exposure at December 31, 2014, and 2013, without taking
into account any collateral held or other credit enhancements. For on-balance-sheet assets, the exposures set out
above are based on net carrying amounts as reported in the statement of condition.
Management is confident in its ability to continue to control and sustain minimal exposure to credit risk of the BPI
Group resulting from its loan and advances portfolio based on the following:

98% of the loans and advances portfolio is considered to be neither past due nor impaired (2013 - 97%);
Mortgage loans are backed by collateral; and
The BPI Group continues to implement stringent selection process of granting loans and advances.

(27)

3.1.5 Credit quality of loans and advances

Loans and advances are summarized as follows:

Neither past due nor impaired

Past due but not impaired
Impaired
Allowance for impairment

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
793,702
617,395
624,220
471,920
5,407
4,454
7,481
3,182
14,767
8,770
11,119
8,916
813,876
630,619
642,820
484,018
(13,706)
(9,178)
(12,617)
(8,863)
800,170
621,441
630,203
475,155

Impaired category as shown in the table above includes loan accounts which are individually (Note 3.1.5c) and
collectively assessed for impairment.
The total consolidated impairment provision for loans and advances is P2,990 million (2013 - P1,886 million), of
which P1,703 million (2013 - P1,334 million) represents provision for individually impaired loans and the remaining
amount of P1,287 million (2013 - P552 million) represents the portfolio provision. Further information of the
impairment allowance for loans and advances is provided in Note 13.
When entering into new markets or new industries, the BPI Group focuses on corporate accounts and retail
customers with good credit rating and customers providing sufficient collateral, where appropriate or necessary.
Collaterals held as security for Loans and advances are described in Note 13.
(a) Loans and advances neither past due nor impaired
Loans and advances that were neither past due nor impaired consist mainly of accounts with Unclassified rating
and those loans accounts in a portfolio to which an impairment has been allocated on a collective basis. Details of
these accounts follow:
Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
Corporate entities:
Large corporate customers
Small and medium enterprises
Retail customers:
Mortgages
Credit cards
Others

554,372
88,187

414,136
80,369

534,073
55,268

396,663
50,916

119,759
25,712
5,672
793,702

102,118
22,215
5,382
624,220

152
25,367
2,535
617,395

147
22,059
2,135
471,920

(28)

(b) Loans and advances past due but not impaired

The table below presents the gross amount of loans and advances that were past due but not impaired classified by
type of borrowers. Collateralized past due loans are not considered impaired when the cash flows that may result
from foreclosure of the related collateral are higher than the carrying amount of the loans.
Consolidated
2014
Large
corporate
customers

Small and
medium
enterprises

2013

Retail
customers

Large
corporate
customers

Small and
medium
enterprises

Retail
customers

(In Millions of Pesos)

2,890
175

Total

Total

Past due up to 30 days

541

292

2,057

226

1,623

2,024

Past due 31 - 90 days

262

148

996

1,406

81

144

888

1,113

Past due 91 - 180 days

466

241

47

754

122

224

1,628

1,974

Over 180 days

124

274

(41)

357

42

444

1,884

2,370

1,393

955

5,407

420

1,038

6,023

7,481

3,059

4,437

Fair value of collateral

4,322

Parent
2014
Large
corporate
customers

Small and
medium
enterprises

2013

Retail
customers

Past due up to 30 days

459

193

1,909

Past due 31 - 90 days

252

80

752

Past due 91 - 180 days

454

144

76
1,241

Over 180 days

Large
corporate
customers

Total

Small and
medium
enterprises

(In Millions of Pesos)

2,561
84

Retail
customers

Total

63

1,492

1,639

1,084

53

16

656

725

598

72

42

465

579

135

211

98

141

239

552

2,661

209

219

2,754

3,182

Fair value of collateral

4,454
1,881

319

(c) Loans and advances individually impaired

The breakdown of the gross amount of individually impaired loans and advances (included in Impaired category) by
class, along with the fair value of related collateral held by the BPI Group as security, are as follows:
Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
Corporate entities:
Large corporate customers
Small and medium enterprises
Retail customers:
Mortgages
Credit cards
Others
Fair value of collateral

3,825
4,919

4,661
4,864

3,438
3,333

4,078
3,376

893
1,427
177
11,241

6
1,370
10
10,911

5
1,423
177
8,376

6
1,370
2
8,832

7,602

9,459

6,856

5,385

(29)

3.1.6 Credit quality of other financial assets

a.

Due from Bangko Sentral ng Pilipinas

Due from BSP are considered fully performing at December 31, 2014 and 2013. This account consists of:

Clearing account
Special deposit accounts (SDA)

b.

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
173,954
156,348
130,617
118,476
37,992
14,300
113,866
76,600
211,946
170,648
244,483
195,076

Due from other banks

Due from other banks are considered fully performing at December 31, 2014 and 2013. The table below presents
the credit ratings of counterparty banks based on Standard & Poors.

AA- to AA+
A- to A+
Lower than AUnrated

c.

Consolidated
Parent
2014
2014
2013
(In Millions of Pesos)
2,954
2,954
6,419
15,818
11,628
8,490
45
44
38
3,410
803
2,123
22,227
15,429
17,070

2013
5,259
3,099
7
424
8,789

Interbank loans receivable and securities purchased under agreement to resell

Interbank loans receivable are considered fully performing at December 31, 2014 and 2013. The table below
presents the credit ratings of counterparty banks based on Standard & Poors.

Lower than AUnrated

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
888
888
5,282
5,246
4,991
4,991
5,282
5,246
5,879
5,879

Securities purchased under agreements to resell includes reverse repurchase agreements amounting to
P500 million and nil for the BPI Group and Parent Bank, respectively (2013 - P11,518 million and P4,158 million,
respectively), which are made with a sovereign counterparty and are considered fully performing.

(30)

d.

Derivative financial assets

The table below presents the Standard & Poors credit ratings of counterparties for derivative financial assets at
December 31, 2014 and 2013 presented in the consolidated and parent financial statements.
Consolidated and Parent
2014

2013

(In Millions of Pesos)

383
35,536
33
29
35,981

AA- to AA+
A- to A+
Lower than AUnrated

e.

692
14,395
172
1,291
16,550

Debt securities, treasury bills and other government securities

The table below presents the ratings of debt securities, treasury bills and other government securities at
December 31, 2014 and 2013 based on Standard & Poors:
At December 31, 2014
Consolidated
Trading
securities
AAA
AA- to AA+
A- to A+
Lower than AUnrated

Availablefor-sale

Held-tomaturity

1,521
1,251
122
12,090
263

212
6,011
6,327
32,962
1,972

280
5,438
4,845
196,608
2,238

15,247

47,484

209,409

Parent
Total

Trading
securities

(In Millions of Pesos)

2,013
1,521
12,700
1,251
11,294
122
241,660
3,632
4,473
94
272,140

6,620

Availablefor-sale

Held-tomaturity

Total

194
5,887
5,395
28,369
1,759

173
5,153
4,351
181,379
1,945

1,888
12,291
9,868
213,380
3,798

41,604

193,001

241,225

At December 31, 2013

Consolidated
Trading
securities
AAA
AA- to AA+
A- to A+
Lower than AUnrated

f.

Availablefor-sale

Held-tomaturity

3,774
22
353
185

487
4,859
4,560
73,040
2,939

110
5,293
732
89,229
808

4,334

85,885

96,172

Parent
Total

Trading
securities

(In Millions of Pesos)

597
2,442
13,926

Availablefor-sale

5,314
162,622
3,932

124

487
4,790
4,484
69,833
1,892

186,391

2,626

81,486

22
38

Held-tomaturity

Total

79,983
808

487
12,341
4,506
149,854
2,824

85,900

170,012

5,109

Other financial assets

The BPI Groups other financial assets (shown under Other resources) at December 31, 2014 and 2013 consist
mainly of sales contracts receivable, accounts receivable, accrued interest and fees receivable from various unrated
counterparties with good credit standing.

(31)

3.1.7 Repossessed or foreclosed collaterals

The BPI Group acquires assets by taking possession of collaterals held as security for loans and advances.
As at December 31, 2014, the BPI Groups foreclosed collaterals have carrying amount of P5,018 million
(2013 - P5,852 million). The related foreclosed collaterals have aggregate fair value of P6,861 million
(2013 - P7,673 million). Foreclosed collaterals include real estate (land, building, and improvements), auto or
chattel, bond and stocks.
Repossessed properties are sold as soon as practicable and are classified as Assets held for sale in the
statement of condition.
3.1.8 Concentrations of risks of financial assets with credit risk exposure
The BPI Groups main credit exposure at their carrying amounts, as categorized by industry sectors follow:
Consolidated
Financial
institutions

Consumer

Manufacturing

Real estate

(In Millions of Pesos)

-

Due from BSP

Due from other banks
Interbank loans receivable
and SPAR
Financial assets at fair
value through profit or
loss
Derivative financial
assets
Trading securities debt securities
Available-for-sale - debt
securities
Held-to-maturity securities
Loans and advances, net
Other financial assets
Accounts receivable, net
Other accrued interest
and fees receivable
Sales contracts
receivable, net
Rental deposits
Others, net

211,946
22,227

5,782

35,941

10

372

At December 31, 2014

394,585

Less allowance

Others

Total

211,946
22,227

5,782

30

35,981

36

14,833

15,247

209
502
179,477

32,369
200,954
295,950

(13,706)

47,484
209,409
800,170

(1,037)

1,489

14,814
7,953
95,550

92
74,991

167,908

2,526

661

49
366
523

(10)
(98)

39
366
425

75,083

167,924

548,261

(14,851)

1,351,226

180,224

661

(32)

Financial
institutions

Consumer

Manufacturing

(In Millions of Pesos)

-

Due from BSP

Due from other banks
Interbank loans receivable
and SPAR
Financial assets at fair
value through profit or
loss
Derivative financial
assets
Trading securities debt securities
Available-for-sale - debt
securities
Held-to-maturity securities
Loans and advances, net
Other financial assets
Accounts receivable, net
Other accrued interest
and fees receivable
Sales contracts
receivable, net
Rental deposits
Others, net

244,483
17,070

17,397

16,373

101

245

2
139,187

At December 31, 2013

364,049

16,886
855
50,740

62,670

Real estate

Less allowance

Others

Total

244,483
17,070

17,397

76

16,550

4,084

4,334

300
502
173,326

68,699
94,815
216,897

(12,617)

85,885
96,172
630,203

(1,397)

879

2,276

662

662

82
335
466

(4)
(22)

78
335
444

388,392

(14,040)

1,114,492

62,670

139,290

174,131

(33)

Parent
Financial
institutions

Consumer

Manufacturing

Real estate

Due from BSP

Due from other banks
Interbank loans receivable
and SPAR
Financial assets at fair
value through profit or
loss
Derivative financial
assets
Trading securities debt securities
Available-for-sale - debt
securities
Held-to-maturity securities
Loans and advances, net
Other financial assets
Accounts receivable, net
Other accrued interest
and fees receivable
Sales contracts
receivable, net
Rental deposits
Others, net

170,648
15,429

(In Millions of Pesos)

-

5,246

35,941

351

13,562
6,826
93,098

At December 31, 2014

Others

Less allowance

Total

170,648
15,429

5,246

30

35,981

6,269

6,620

92
32,940

163,173

199
502
86,753

27,751
185,673
254,655

(9,178)

41,604
193,001
621,441

1,964

(901)

1,063

613

613

10
304
477

(10)
(90)

304
387

341,101

33,032

163,183

87,454

477,746

(10,179)

1,092,337

10

(34)

Financial
institutions

Consumer

Due from BSP

Due from other banks
Interbank loans receivable
and SPAR
Financial assets at fair
value through profit or
loss
Derivative financial
assets
Trading securities debt securities
Available-for-sale - debt
securities
Held-to-maturity securities
Loans and advances, net
Other financial assets
Accounts receivable, net
Other accrued interest
and fees receivable
Sales contracts
receivable, net
Rental deposits
Others, net

195,076
8,789

10,037

16,373

245

At December 31, 2013

289,383

15,816
95
42,952

26,533

Manufacturing

Real estate

(In Millions of Pesos)

-

Less allowance

Others

Total

195,076
8,789

10,037

101

76

16,550

2,381

2,626

135,394

196
502
87,738

65,474
85,303
191,401

(8,863)

81,486
85,900
475,155

(1,252)

623

1,875

573

573

29
280
407

(2)
(14)

27
280
393

347,799

(10,131)

877,515

26,533

135,495

88,436

Trading, available-for-sale and held-to-maturity securities under Others category include local and US treasury
bills. Likewise, Loans and advances under the same category pertain to loans granted to individual and retail
borrowers belonging to various industry sectors.
3.2 Market risk
The BPI Group is exposed to market risk - the risk that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in market prices. Market risk is managed by the RMO guided by policies and
procedures approved by the RMC and confirmed by the Executive Committee/Board of Directors.
Market risk management
Market risk management is incumbent on the Board of Directors through its RMC. Market risk management in BPI
covers managing exposures to trading risk, foreign exchange risk, counterparty credit risk, interest rate risk of the
banking book and liquidity risk. At the management level, the Banks market risk exposure is managed by the Risk
Management Office (RMO), headed by the Banks Chief Risk Officer (CRO) who reports directly to the RMC. In
addition, Internal Audit is responsible for the independent review of risk assessment measures and procedures and
the control environment.
The BPI Group reviews and controls market risk exposures of both its trading and non-trading portfolios. Trading
portfolios include those positions arising from the BPI Groups market-making transactions. Non-trading portfolios
primarily arise from the interest rate management of the BPI Groups retail and commercial banking assets and
liabilities.
As part of the management of market risk, the BPI Group undertakes various hedging strategies. The BPI Group
also enters into interest rate swaps to match the interest rate risk associated with fixed-rate long-term debt
securities.

(35)

Value-at-Risk (VaR) measurement is an integral part of the BPI Groups market risk control system. This metric
estimates, at 99% confidence level, the maximum loss that a trading portfolio may incur over a trading day. This
metric indicates as well that there is 1% statistical probability that the trading portfolios actual loss would be
greater than the computed VaR. In order to ensure model soundness, the VaR is periodically subject to model
validation and back testing. VaR is supplemented by other risk metrics and measurements that would provide
preliminary signals to Treasury and to the management to assess the vulnerability of Banks positions. To control
the risk, the RMC sets risk limits for trading portfolios which are consistent with the Banks goals, objectives, risk
appetite, and strategy.
Stress tests indicate the potential losses that could arise in extreme conditions that would have detrimental effect to
the Banks positions. The Bank periodically performs stress testing (price risk and liquidity risk) to assess the Banks
condition on assumed stress scenarios. Contingency plans are frequently reviewed to ensure the Banks
preparedness in the event of real stress. Results of stress tests are reviewed by senior management and by the
RMC.
The average daily VaR for the trading portfolios are as follows:

Local fixed-income
Foreign fixed-income
Foreign exchange
Derivatives
Equity securities
Mutual fund

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
230
206
984
911
66
63
118
114
44
14
33
10
75
75
78
78
26
14
19
26
460
358
1,253
1,113

(36)

3.2.1 Foreign exchange risk

The BPI Group takes on exposure to the effects of fluctuations in the prevailing exchange rates on its foreign
currency financial position and cash flows. The table below summarizes the BPI Groups exposure to more material
foreign currency exchange rate risk at December 31, 2014 and 2013. Included in the table are the BPI Groups
financial instruments at carrying amounts, categorized by currency.
Consolidated

USD
As at December 31, 2014
Financial Assets
Cash and other cash items
Due from other banks
Interbank loans receivable and
SPAR
Financial assets at fair value
through profit or loss
Derivative financial assets
Trading securities
Available-for-sale securities
Held-to-maturity securities
Loans and advances, net
Others financial assets
Accounts receivable, net
Other accrued interest and
fees receivable
Others
Total financial assets
Financial Liabilities
Deposit liabilities
Derivative financial liabilities
Bills payable
Due to BSP and other banks
Managers checks and demand
drafts outstanding
Other financial liabilities
Accounts payable
Others
Total financial liabilities
Net on-balance sheet financial
position (in Philippine Peso)

JPY

1,815
13,520

72
755

2,705

4,777
1,565
22,239
37,382
97,772

79

Less allowance

EUR
GBP
(In Millions of Pesos)

650
-

79
2,957
-

16
1,980
-

2,705

5,574
1,995
23,539
39,892
98,060

15

(11)

88

(462)

321
193,368

47
4,166

154,687
3,699
26,077
70

1,152
-

3,390
171
-

1,029
641
-

(2,830)

(451)

125
6,184

119
184,833

1,982
19,212

636
375
107
980
20

1,477

161
55
1,193
1,530
69

149
182,003

181

Total

15

1,152

38
3,614

1
1,671

325

2,570

2,495

160,258
4,511
26,077
70

196

158
191,270

(462)

2,098

(37)

USD
As at December 31, 2013
Financial Assets
Cash and other cash items
Due from other banks
Interbank loans receivable and
SPAR
Financial assets at fair value
through profit or loss
Derivative financial assets
Trading securities
Available-for-sale securities
Held-to-maturity securities
Loans and advances, net
Others financial assets
Accounts receivable, net
Other accrued interest and
fees receivable
Others
Total financial assets
Financial Liabilities
Deposit liabilities
Derivative financial liabilities
Bills payable
Due to BSP and other banks
Managers checks and demand
drafts outstanding
Other financial liabilities
Accounts payable
Others
Total financial liabilities
Net on-balance sheet financial
position (in Philippine Peso)

JPY

1,691
13,746
888

2,009
3,796
15,782
29,653
73,989
78

Less allowance

EUR
GBP
(In Millions of Pesos)

55
747

89
838

713
-

20
1,185
-

Total

1,855
16,516

888

116
473
1,717
169

346
133
657
31

(481)

2,471
3,796
16,388
32,027
74,421

59

(9)

129

(490)

255
148,746

99
141,731

1,515

111
3,572

45
2,418

128,301
2,062
17,758
87

1,084
-

3,056
144
37
-

696
346
-

133,137
2,552
17,795
87

55

11
1,095

75
102
3,418

1
6
1,051

343
1,684
155,653

420

154

1,367

49
267
1,565
150,089
(8,358)

(490)

(6,907)

(38)

Parent

USD
As at December 31, 2014
Financial Assets
Cash and other cash items
Due from other banks
Interbank loans receivable and
SPAR
Financial assets at fair value
through profit or loss
Derivative financial assets
Trading securities
Available-for-sale securities
Held-to-maturity securities
Loans and advances, net
Other financial assets
Accounts receivable, net
Other accrued interest and
fees receivable
Others
Total financial assets
Financial Liabilities
Deposit liabilities
Derivative financial liabilities
Bills payable
Due to BSP and other banks
Managers checks and demand
drafts outstanding
Other financial liabilities
Accounts payable
Others
Total financial liabilities
Net on-balance sheet financial
position (in Philippine Peso)

JPY

EUR
GBP
(In Millions of Pesos)

1,659
8,063

71
751

2,705

4,777
1,565
18,264
34,630
97,593

650

79

71
2,779
-

14
1,445
-

161
55
1,193
1,530
69
-

636
375
107
-

Less allowance

Total

1,815
13,038

2,705

(449)

5,574
1,995
19,564
36,160
97,863

(11)

68

(460)

306
179,088

149
169,484

1,472

125
5,983

32
2,609

142,702
3,699
26,063
70

1,152
-

3,270
171
-

720
641
-

147,844
4,511
26,063
70

195

136
178,819

180
116
172,830
(3,346)

15

1,152

20
3,476

1,361

320

2,507

1,248

(460)

269

(39)

USD
As at December 31, 2013
Financial Assets
Cash and other cash items
Due from other banks
Interbank loans receivable and
SPAR
Financial assets at fair value
through profit or loss
Derivative financial assets
Trading securities
Available-for-sale securities
Held-to-maturity securities
Loans and advances, net
Other financial assets
Accounts receivable, net
Other accrued interest and
fees receivable
Others
Total financial assets
Financial Liabilities
Deposit liabilities
Derivative financial liabilities
Bills payable
Due to BSP and other banks
Managers checks and demand
drafts outstanding
Other financial liabilities
Accounts payable
Others
Total financial liabilities
Net on-balance sheet financial
position (in Philippine Peso)
3.2.2

JPY

1,535
5,864
888

2,009
2,464
15,094
27,705
73,989
68

Less allowance

EUR
GBP
(In Millions of Pesos)

Total

55
743

78
698

18
243

1,686
7,548

888

713
-

116
473
1,718
169
-

346
133
7
-

(479)

2,471
2,464
15,700
29,423
74,399

(9)

59

(488)

224
134,862

99
129,715

1,511

111
3,363

14
761

116,608
2,062
17,758
87

1,084
-

3,023
144
-

414
346
-

121,129
2,552
17,758
87

36

11
1,095

2
102
3,275

6
768

254
1,684
143,500

416

88

30
252
1,565
138,362
(8,647)

(7)

(488)

(8,638)

Interest rate risk

There are two types of interest rate risk: (i) fair value interest risk and (ii) cash flow interest risk. Fair value interest
rate risk is the risk that the fair value of a financial instrument will fluctuate because of changes in market interest
rates. Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because
of changes in market interest rates. The BPI Group takes on exposure to the effects of fluctuations in the prevailing
levels of market interest rates on both its fair value which affects mainly the BPI Groups trading securities portfolio
and cash flow risks on available-for-sale securities portfolio which is carried at market.
Interest rate risk in the banking book arises from the BPI Groups core banking activities. The main source of this
type of interest rate risk is repricing risk, which reflects the fact that the BPI Groups assets and liabilities are of
different maturities and are priced at different interest rates. Interest margins may increase as a result of such
changes but may also result in losses in the event that unexpected movements arise. The Board of Directors sets
limits on the level of mismatch of interest rate repricing that may be undertaken, which is monitored monthly by the
FRMC.

(40)

The table below summarizes the BPI Groups exposure to interest rate risk, categorized by the earlier of contractual
repricing or maturity dates.
Consolidated

Up to 1 year
As at December 31, 2014
Financial Assets
Cash and other cash items
Due from BSP
Due from other banks
Interbank loans receivable and SPAR
Financial assets at fair value through
profit or loss
Derivative financial assets
Trading securities - debt securities
Available-for-sale - debt securities
Held-to-maturity securities
Loans and advances, net
Other financial assets
Accounts receivable, net
Other accrued interest and fees
receivable
Sales contracts receivable, net
Rental deposits
Others, net
Total financial assets
Financial Liabilities
Deposit liabilities
Derivative financial liabilities
Bills payable
Due to BSP and other banks
Managers checks and demand drafts
outstanding
Other financial liabilities
Accounts payable
Outstanding acceptances
Deposits on lease contract
Dividends payable
Others
Total financial liabilities
Total interest gap

Repricing
Over 1 up to
Non3 years
Over 3 years
repricing
(In Millions of Pesos)

Total

38,427
-

211,946
22,227
5,782

38,427
211,946
22,227
5,782

12,607
6,938
4
611,809

20,224
43,678

3,150
81,386

15,247
40,546
209,405
63,297

35,981
15,247
47,484
209,409
800,170

1,489

1,489

661

661
39
366
425
1,389,653

669,785

63,902

84,536

584,042
839
-

509,929
21,769
-

9,440
12,238
-

584,881
84,904

531,698
(467,796)

21,678
62,858

39
366
425
571,430
72,802
32,993
687

1,176,213
34,846
32,993
687

8,353

8,353

4,735
947
1,974
1,838
124,329
447,101

4,735
947
1,974
1,838
1,262,586
127,067

(41)

Up to 1 year
As at December 31, 2013
Financial Assets
Cash and other cash items
Due from BSP
Due from other banks
Interbank loans receivable and SPAR
Financial assets at fair value through
profit or loss
Derivative financial assets
Trading securities - debt securities
Available-for-sale - debt securities
Held-to-maturity securities
Loans and advances, net
Other financial assets
Accounts receivable, net
Other accrued interest and fees
receivable
Sales contracts receivable, net
Rental deposits
Others, net
Total financial assets
Financial Liabilities
Deposit liabilities
Derivative financial liabilities
Bills payable
Due to BSP and other banks
Managers checks and demand drafts
outstanding
Other financial liabilities
Accounts payable
Outstanding acceptances
Deposits on lease contract
Dividends payable
Others
Total financial liabilities
Total interest gap

Repricing
Over 1 up to
Non3 years
Over 3 years
repricing
(In Millions of Pesos)

Total

25,696
-

244,483
17,070
17,397

25,696
244,483
17,070
17,397

13,100
223
9,265
4
518,048

665
22,860

2,785
45,072

4,111
76,620
96,168
44,223

16,550
4,334
85,885
96,172
630,203

879

879

662
78
335
444
502,470

662
78
335
444
1,140,188

566,336

23,525

47,857

460,692
12,929
-

513,541
719
-

14,353
2,712
-

26,179
2,051

988,586
16,360
26,179
2,051

7,183

7,183

3,551
1,677
2,076
3,201
1,607
47,525
454,945

3,551
1,677
2,076
3,201
1,607
1,052,471
87,717

473,621
92,715

514,260
(490,735)

17,065
30,792

(42)

Parent

Up to 1 year
As at December 31, 2014
Financial Assets
Cash and other cash items
Due from BSP
Due from other banks
Interbank loans receivable and SPAR
Financial assets at fair value through
profit or loss
Derivative financial assets
Trading securities - debt securities
Available-for-sale - debt securities
Held-to-maturity securities
Loans and advances, net
Other financial assets
Accounts receivable, net
Other accrued interest and fees
receivable
Sales contracts receivable, net
Rental deposits
Others, net
Total financial assets
Financial Liabilities
Deposit liabilities
Derivative financial liabilities
Bills payable
Due to BSP and other banks
Managers checks and demand drafts
outstanding
Other financial liabilities
Accounts payable
Outstanding acceptances
Deposits on lease contract
Dividends payable
Others
Total financial liabilities
Total interest gap

Repricing
Over 1 up to
Non3 years
Over 3 years
repricing
(In Millions of Pesos)

Total

37,292
-

170,648
15,429
5,246

37,292
170,648
15,429
5,246

12,607
6,938
4
531,154

20,224
19,846

3,150
44,503

6,620
34,666
192,997
25,938

35,981
6,620
41,604
193,001
621,441

1,063

1,063

587,995
447,239
839
448,078
139,917

40,070

47,653

613
304
387
453,911

613
304
387
1,129,629

434,227
21,769
-

12,238
-

71,215
26,288
688

952,681
34,846
26,288
688

6,664

6,664

3,502
947
1,694
110,998
342,913

3,502
947
1,694
1,027,310
102,319

455,996
(415,926)

12,238
35,415

(43)

Up to 1 year
As at December 31, 2013
Financial Assets
Cash and other cash items
Due from BSP
Due from other banks
Interbank loans receivable and SPAR
Financial assets at fair value through
profit or loss
Derivative financial assets
Trading securities - debt securities
Available-for-sale - debt securities
Held-to-maturity securities
Loans and advances, net
Other financial assets
Accounts receivable, net
Other accrued interest and fees
receivable
Sales contracts receivable, net
Rental deposits
Others, net
Total financial assets
Financial Liabilities
Deposit liabilities
Derivative financial liabilities
Bills payable
Due to BSP and other banks
Managers checks and demand drafts
outstanding
Other financial liabilities
Accounts payable
Outstanding acceptances
Deposits on lease contract
Dividends payable
Others
Total financial liabilities
Total interest gap

Repricing
Over 1 up to
Non3 years
Over 3 years
repricing
(In Millions of Pesos)

Total

24,888
-

195,076
8,789
10,037

24,888
195,076
8,789
10,037

13,100
222
9,264
3
447,055

665
6,196

2,785
12,475

2,404
72,222
85,897
9,429

16,550
2,626
81,486
85,900
475,155

623

623

494,532

6,861

15,260

573
27
280
393
385,750

573
27
280
393
902,403

310,213
12,929
-

354,198
719
-

1,451
2,712
-

119,541
18,990
2,052

785,403
16,360
18,990
2,052

6,026

6,026

2,370
1,677
3,201
1,498
155,355
230,395

2,370
1,677
3,201
1,498
837,577
64,826

323,142
171,390

354,917
(348,056)

4,163
11,097

(44)

In order to measure the interest rate risk in the banking book, the BPI Group employs Balance Sheet VaR (BSVaR)
which measures impact of interest rate movements on the economic value of equity. The BSVaR is founded on repricing gaps, or the difference between the amounts of rate sensitive assets and the amounts of rate sensitive
liabilities. An asset or liability is considered to be rate-sensitive if the interest rate applied to the outstanding
principal balance changes (either contractually or because of a change in a reference rate) during the interval.
The BSVaR estimates the riskiness of the balance sheet and compares the degree of risk taking activity in the
banking books from one period to the next. In consideration of the static framework, and the fact that income from
the positions is accrued rather than generated from marking-to-market, the probable loss (that may be exceeded
1% of the time) that is indicated by the BSVaR is not realized in accounting income.
The average BSVaR for the banking or non-trading book are as follows:
Consolidated
Parent
2014
2014
2013
(In Millions of Pesos)
1,932
1,627
1,511

BSVaR

2013
1,325

3.3 Liquidity risk

Liquidity risk is the risk that the BPI Group will be unable to meet its payment obligations associated with its
financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence may be
the failure to meet obligations to repay depositors and fulfill commitments to lend.
3.3.1

Liquidity risk management process

The BPI Groups liquidity management process, as carried out within the BPI Group and monitored by the RMC
includes:

Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be met. This
includes replenishment of funds as they mature or as borrowed by customers;
Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any
unforeseen interruption to cash flow;
Monitoring liquidity gaps against internal and regulatory requirements (Note 19);
Managing the concentration and profile of debt maturities; and
Performing periodic liquidity stress testing on the BPI Groups liquidity position by assuming a faster rate of
withdrawals in its deposit base.

Monitoring and reporting take the form of cash flow measurement and projections for the next day, week and
month as these are key periods for liquidity management. The starting point for these projections is an analysis
of the contractual maturity of the financial liabilities (Notes 3.3.3 and 3.3.4) and the expected collection date of
the financial assets.
The BPI Group also monitors unmatched medium-term assets, the level and type of undrawn lending
commitments, the usage of overdraft facilities and the impact of contingent liabilities such as standby letters of
credit.
3.3.2

Funding approach

Sources of liquidity are regularly reviewed by the BPI Group to maintain a wide diversification by currency,
geography, counterparty, product and term.

(45)

3.3.3

Non-derivative cash flows

The table below presents the maturity profile of non-derivative financial instruments based on undiscounted cash
flows, including interest, which the BPI Group uses to manage the inherent liquidity risk. The maturity analysis is
based on the remaining period from the end of the reporting period to the contractual maturity date or, if earlier,
the expected date the financial asset will be realized or the financial liability will be settled.
Consolidated

Up to 1 year
As at December 31, 2014
Financial Assets
Cash and other cash items
Due from BSP
Due from other banks
Interbank loans receivable and
securities under agreements to
resell (SPAR)
Financial assets at fair value through
profit or loss
Trading securities - debt securities
Available-for-sale securities - debt
securities
Held-to-maturity securities
Loans and advances, net
Other financial assets
Accounts receivable, net
Other accrued interest and fees
receivable
Sales contracts receivable, net
Rental deposits
Others, net
Total financial assets
Financial Liabilities
Deposit liabilities
Bills payable
Due to BSP and other banks
Managers checks and demand drafts
outstanding
Other financial liabilities
Accounts payable
Outstanding acceptances
Deposits on lease contract
Dividends payable
Others
Total financial liabilities
Total maturity gap

38,427
211,971
22,227

Over 1 up to
3 years
Over 3 years
(In Millions of Pesos)

3,045

2,733

225

10,280

380

7,356

7,933
28,853
391,288

8,709
73,239
101,131

45,581
186,025
314,765

1,489
661
39
366
425
717,004
660,774
36,109
687
8,353
4,735
947
1,974
1,838
715,417
1,587

Total

38,427
211,971
22,227

6,003

18,016
62,223
288,117
807,184
1,489

553,952

661
39
366
425
1,457,148

513,147
4,968
-

9,762
428
-

1,183,683
41,505
687

186,192

518,115
(331,923)

10,190
543,762

8,353
4,735
947
1,974
1,838
1,243,722
213,426

(46)

Up to 1 year
As at December 31, 2013
Financial Assets
Cash and other cash items
Due from BSP
Due from other banks
Interbank loans receivable and
securities under agreements to
resell (SPAR)
Financial assets at fair value through
profit or loss
Trading securities - debt securities
Available-for-sale securities - debt
securities
Held-to-maturity securities
Loans and advances, net
Other financial assets
Accounts receivable, net
Other accrued interest and fees
receivable
Sales contracts receivable, net
Rental deposits
Others, net
Total financial assets
Financial Liabilities
Deposit liabilities
Bills payable
Due to BSP and other banks
Managers checks and demand drafts
outstanding
Other financial liabilities
Accounts payable
Outstanding acceptances
Deposits on lease contract
Dividends payable
Others
Total financial liabilities
Total maturity gap

25,696
244,606
17,070

Over 1 up to
3 years
Over 3 years
(In Millions of Pesos)

Total

25,696
244,606
17,070

14,605

2,761

245

17,611

3,827

126

605

4,558

9,517
17,492
392,546

15,257
26,936
82,158

87,745
104,272
205,191

112,519
148,700
679,895

879

662
27
335
444
727,706

290,777
25,466
2,051
7,183
3,551
1,677
2,076
3,201
1,607
337,589
390,117

879

127,289

398,058

662
78
335
444
1,253,053

278,941
598
-

419,912
367
-

989,630
26,431
2,051

279,539
(152,250)

420,279
(22,221)

51

7,183
3,551
1,677
2,076
3,201
1,607
1,037,407
215,646

(47)

Parent

Up to 1 year
As at December 31, 2014
Financial Assets
Cash and other cash items
Due from BSP
Due from other banks
Interbank loans receivable and
securities under agreements to
resell (SPAR)
Financial assets at fair value through
profit or loss
Trading securities - debt securities
Available-for-sale - debt securities
Held-to-maturity securities
Loans and advances, net
Other financial assets, net
Accounts receivable, net
Other accrued interest and fees
receivable
Sales contracts receivable, net
Rental deposits
Others, net
Total financial assets
Financial Liabilities
Deposit liabilities
Bills payable
Due to BSP and other banks
Managers checks and demand drafts
outstanding
Other financial liabilities
Accounts payable
Outstanding acceptances
Deposits on lease contracts
Dividends payable
Others
Total financial liabilities
Total maturity gap

37,292
170,655
15,429

Over 1 up to
3 years
Over 3 years
(In Millions of Pesos)

Total

37,292
170,655
15,429

2,493

2,733

225

5,451

2,088
5,152
20,678
376,748

327
7,305
69,723
87,261

6,670
42,829
169,533
166,217

9,085
55,286
259,934
630,226

1,063
613
-

304
387
632,902
517,730
27,991
688
6,664
3,502
947
1,694
559,216
73,686

167,349
435,571
439
436,010
(268,661)

1,063
613

385,474

304
387
1,185,725

396
-

953,301
28,826
688

396
385,078

6,664
3,502
947
-

1,694
995,622
190,103

(48)

Up to 1 year
As at December 31, 2013
Financial Assets
Cash and other cash items
Due from BSP
Due from other banks
Interbank loans receivable and
securities under agreements to
resell (SPAR)
Financial assets at fair value through
profit or loss
Trading securities - debt securities
Available-for-sale - debt securities
Held-to-maturity securities
Loans and advances, net
Other financial assets, net
Accounts receivable, net
Other accrued interest and fees
receivable
Sales contracts receivable, net
Rental deposits
Others, net
Total financial assets
Financial Liabilities
Deposit liabilities
Bills payable
Due to BSP and other banks
Managers checks and demand drafts
outstanding
Unsecured subordinated debt
Other financial liabilities
Accounts payable
Outstanding acceptances
Deposits on lease contracts
Dividends payable
Others
Total financial liabilities
Total maturity gap

24,888
195,161
8,789

Over 1 up to
3 years
Over 3 years
(In Millions of Pesos)

Total

24,888
195,161
8,789

7,238

2,761

245

10,244

2,459
7,673
14,925
348,050

38
14,907
24,185
42,397

220
84,882
93,883
126,488

2,717
107,462
132,993
516,935

623

623

573
27
280
393
611,079

84,288

305,718

573
27
280
393
1,001,085

230,468
18,215
2,052

222,030
560
-

333,045
319
-

785,543
19,094
2,052

6,026
2,370
1,677
3,201
1,498
265,507
345,572

222,590
(138,302)

333,364
(27,646)

6,026
2,370
1,677
3,201
1,498
821,461
179,624

(49)

3.3.4 Derivative cash flows

(a) Derivatives settled on a net basis
The BPI Groups derivatives that are settled on a net basis consist of interest rate swaps, non-deliverable
forwards and non-deliverable swaps. The table below presents the contractual undiscounted cash flows of
interest rate swaps based on the remaining period from December 31 to the contractual maturity dates that are
subject to offsetting, enforceable master netting arrangements and similar agreements.
Consolidated and Parent

Up to 1 year
2014
Interest rate swap contracts - held for trading
- Inflow
- Outflow
- Net inflow (outflow)
Non-deliverable forwards and swaps - held for trading
- Inflow
- Outflow
- Net inflow

41
(58)
(17)

9,718
(9,951)
(233)

32,824
(32,836)
(12)

8,731
(8,456)
275

Up to 1 year
2013
Interest rate swap contracts - held for trading
- Inflow
- Outflow
- Net inflow (outflow)
Non-deliverable forwards and swaps - held for trading
- Inflow
- Outflow
- Net inflow

Over 1 up to
Over 3
3 years
years
(In Millions of Pesos)

Total

12,574
(12,822)
(248)

2,815
(2,813)
2

41,555
(41,292)
263

Over 1 up to
Over 3
3 years
years
(In Millions of Pesos)

137
(133)
4

615
(643)
(28)

5,559
(5,453)
106

11,900
(11,879)
21

Total

2,732
(2,712)
20

3,484
(3,488)
(4)

17,459
(17,332)
127

(b) Derivatives settled on a gross basis

The BPI Groups derivatives that are settled on a gross basis include foreign exchange derivatives mainly,
currency forwards, currency swaps and spot contracts. The table below presents the contractual undiscounted
cash flows of foreign exchange derivatives based on the remaining period from reporting date to the contractual
maturity dates.
Consolidated and Parent

Up to 1 year
Foreign exchange derivatives - held for trading
2014
- Inflow
- Outflow
- Net inflow (outflow)
2013
- Inflow
- Outflow
- Net inflow (outflow)

Over 1 up to
Over 3
3 years
years
(In Millions of Pesos)

Total

110,902
(110,954)
(52)

12,501
(11,396)
1,105

123,403
(122,350)
1,053

77,495
(77,456)
39

622
(665)
(43)

78,117
(78,121)
(4)

(50)

3.4 Fair value of financial assets and liabilities

The table below summarizes the carrying amount and fair value of those significant financial assets and liabilities
not presented on the statement of condition at fair value at December 31.
Consolidated
Carrying amount
Fair value
2014
2014
2013
2013
(In Millions of Pesos)
Financial assets
Cash and other cash items
Due from BSP
Due from other banks
Interbank loans receivable and SPAR
Held-to-maturity securities
Loans and advances, net
Other financial assets
Accounts receivable, net
Other accrued interest and fees receivable
Sales contracts receivable, net
Rental deposits
Others, net
Financial liabilities
Deposit liabilities
Bills payable
Due to BSP and other banks
Managers checks and demand drafts
outstanding
Other financial liabilities
Accounts payable
Deposits on lease contract
Outstanding acceptances
Dividends payable
Others

38,427
211,946
22,227
5,782
209,409
800,170

25,696
244,483
17,070
17,397
96,172
630,203

38,427
211,946
22,227
5,782
220,292
815,038

25,696
244,483
17,070
17,397
104,563
659,885

1,489
661
39
366
425

879
662
78
335
444

1,489
661
39
366
425

879
662
78
335
444

1,176,213
32,993
687

988,586
26,179
2,051

1,175,367
32,985
687

963,463
26,352
2,051

8,353

7,183

8,353

7,183

4,787
1,974
947
1,838

3,551
2,076
1,677
3,201
1,607

4,787
1,974
947
1,838

3,551
2,076
1,677
3,201
1,607

(51)

Parent
Carrying amount
Fair value
2014
2014
2013
2013
(In Millions of Pesos)
Financial assets
Cash and other cash items
Due from BSP
Due from other banks
Interbank loans receivable and SPAR
Held-to-maturity securities
Loans and advances, net
Other financial assets
Accounts receivable, net
Other accrued interest and fees receivable
Sales contracts receivable, net
Rental deposits
Others, net
Financial liabilities
Deposit liabilities
Bills payable
Due to BSP and other banks
Managers checks and demand drafts
outstanding
Other financial liabilities
Accounts payable
Outstanding acceptances
Deposit on lease contracts
Dividends payable
Others
(i)

37,292
170,648
15,429
5,246
193,001
621,441

24,888
195,076
8,789
10,037
85,900
475,155

37,292
170,648
15,429
5,246
202,888
621,097

24,888
195,076
8,789
10,037
93,586
488,832

1,063
613
304
387

623
573
27
280
393

1,063
613
304
387

623
573
27
280
393

952,681
26,288
688

785,403
18,990
2,052

949,453
26,280
688

710,719
19,022
2,052

6,664

6,026

6,664

6,026

3,502
947
1,694

2,370
1,677
3,201
1,498

3,502
947
1,694

2,370
1,677
3,201
1,498

Cash and other cash items, due from BSP and other banks and interbank loans receivable and SPAR

The fair value of floating rate placements and overnight deposits approximates their carrying amount. The
estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing moneymarket interest rates for debts with similar credit risk and remaining maturity. All of these financial assets have a
maturity of one year, thus their fair values approximate their carrying amounts.
(ii) Investment securities
Fair value of held-to-maturity assets is based on market prices or broker/dealer price quotations. Where this
information is not available, fair value is estimated using quoted market prices for securities with similar credit,
maturity and yield characteristics.
(iii) Loans and advances
The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows
expected to be received. Expected cash flows are discounted with the use of assumptions regarding appropriate
credit spread for the loan, derived from other market instruments.
(iv) Financial liabilities
The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the
amount repayable on demand.

(52)

The estimated fair value of fixed interest-bearing deposits and other borrowings not quoted in an active market is
based on discounted cash flows using market interest rates for new debts with similar remaining maturity.
(v) Other financial assets / liabilities
Carrying amounts of other financial assets / liabilities which have no definite repayment dates are assumed to be
their fair values.
3.5 Fair value hierarchy
The following table presents the fair value hierarchy of the BPI Groups assets and liabilities at December 31:
Consolidated

2014
Recurring measurements
Financial assets
Financial assets at fair value through profit or loss
Derivative financial assets
Trading securities
- Debt securities
- Equity securities
Available-for-sale financial assets
- Debt securities
- Equity securities

Level 1

Fair value
Level 2
(In Millions of Pesos)

Total

35,981

35,981

14,932
615

315
-

15,247
615

43,750
2,216
61,513

3,734
1,514
41,544

47,484
3,730
103,057

Financial liabilities
Derivative financial liabilities

34,846

34,846

Non-recurring measurements
Assets held for sale, net

3,033

3,033

(53)

2014
Fair values disclosed
Financial assets
Cash and other cash items
Due from BSP
Due from other banks
Interbank loans receivable and SPAR
Held-to-maturity securities
Loans and advances, net
Other financial assets
Accounts receivable, net
Other accrued interest and fees receivable
Sales contracts receivable, net
Rental deposits
Others, net
Financial liabilities
Deposit liabilities
Bills payable
Due to BSP and other banks
Managers checks and demand drafts outstanding
Other financial liabilities
Accounts payable
Outstanding acceptances
Deposits on lease contract
Dividends payable
Others
Non-financial assets
Investment properties

Level 1

2013
Recurring measurements
Financial assets
Financial assets at fair value through profit or loss
Derivative financial assets
Trading securities
- Debt securities
- Equity securities
Available-for-sale financial assets
- Debt securities
- Equity securities

Level 1

219,648

Fair value
Level 2

Total

38,427
211,946
22,227
5,782
220,292
815,038

38,427
211,946
22,227
5,782
644
815,038

1,489
661
39
366
425

1,175,367
32,985
687
8,353

1,175,367
32,985
687
8,353

4,787
947
1,974
1,838

4,787
947
1,974
1,838

2,057

2,057

Fair value
Level 2
(In Millions of Pesos)

1,489
661
39
366
425

Total

16,550

16,550

3,926
263

408
-

4,334
263

74,208
1,285
79,682

11,677
28,635

85,885
1,285
108,317

Financial liabilities
Derivative financial liabilities

16,360

16,360

Non-recurring measurements
Assets held for sale, net

3,078

3,078

(54)

2013
Fair values disclosed
Financial assets
Cash and other cash items
Due from BSP
Due from other banks
Interbank loans receivable and SPAR
Held-to-maturity securities
Loans and advances, net
Other financial assets
Accounts receivable, net
Other accrued interest and fees receivable
Sales contracts receivable, net
Rental deposits
Others, net
Financial liabilities
Deposit liabilities
Bills payable
Due to BSP and other banks
Managers checks and demand drafts outstanding
Other financial liabilities
Accounts payable
Outstanding acceptances
Deposits on lease contract
Dividends payable
Others
Non-financial assets
Investment properties

Level 1

104,563
-

Fair value
Level 2

Total

25,696
244,483
17,070
17,397
659,885

25,696
244,483
17,070
17,397
104,563
659,885

879
662
78
335
444

879
662
78
335
444

963,463
26,352
2,051
7,183

963,463
26,352
2,051
7,183

3,551
1,677
2,076
3,201
1,607

3,551
1,677
2,076
3,201
1,607

3,289

3,289

Parent
Level 1
2014
Financial assets
Financial assets at fair value through profit or loss
Derivative financial assets
Trading securities - debt securities
Available-for-sale financial assets
- Debt securities
- Equity securities

Level 2
(In Millions of Pesos)

Total

6,475

35,981
145

35,981
6,620

38,435
203
45,113

3,169
39,295

41,604
203
84,408

Financial liabilities
Derivative financial liabilities

34,846

34,846

Non-recurring measurements
Assets held for sale, net

1,865

1,865

(55)

2014
Fair values disclosed
Financial assets
Cash and other cash items
Due from BSP
Due from other banks
Interbank loans receivable and SPAR
Held-to-maturity securities
Loans and advances, net
Other financial assets
Accounts receivable, net
Other accrued interest and fees receivable
Sales contracts receivable, net
Rental deposits
Others, net
Financial liabilities
Deposit liabilities
Bills payable
Due to BSP and other banks
Managers checks and demand drafts outstanding
Other financial liabilities
Accounts payable
Outstanding acceptances
Deposits on lease contract
Dividends payable
Others
Non-financial assets
Investment properties

Level 1

Total

37,292
170,648
15,429
5,246
644
621,097

37,292
170,648
15,429
5,246
202,888
621,097

1,063
613
294
387

1,063
613
294
387

949,453
26,280
688
6,664

949,453
26,280
688
6,664

3,554
947
1,694

3,554
947
1,694

2,057

2,057

202,244
-

Level 1
2013
Financial assets
Financial assets at fair value through profit or loss
Derivative financial assets
Trading securities - debt securities
Available-for-sale financial assets
- Debt securities
- Equity securities

Fair value
Level 2

Level 2
(In Millions of Pesos)

Total

2,280

16,550
346

16,550
2,626

69,809
136
72,225

11,677
28,573

81,486
136
100,798

Financial liabilities
Derivative financial liabilities

16,360

16,360

Non-recurring measurements
Assets held for sale, net

2,094

2,094

(56)

2013
Fair values disclosed
Financial assets
Cash and other cash items
Due from BSP
Due from other banks
Interbank loans receivable and SPAR
Held-to-maturity securities
Loans and advances, net
Other financial assets
Accounts receivable, net
Other accrued interest and fees receivable
Sales contracts receivable, net
Rental deposits
Others, net
Financial liabilities
Deposit liabilities
Bills payable
Due to BSP and other banks
Managers checks and demand drafts outstanding
Other financial liabilities
Accounts payable
Outstanding acceptances
Deposits on lease contract
Dividends payable
Others
Non-financial assets
Investment properties

Level 1

93,586
-

Fair value
Level 2

Total

24,888
195,076
8,789
10,037
488,832

24,888
195,076
8,789
10,037
93,586
488,832

623
573
27
280
393

623
573
27
280
393

710,719
19,022
2,052
6,026

710,719
19,022
2,052
6,026

2,370
1,677
3,201
1,498

2,370
1,677
3,201
1,498

3,289

3,289

The BPI Group has no financial instruments, other assets or liabilities with non-recurring fair value
measurements or with fair values disclosed that fall under the Level 3 category as at December 31, 2014 and
2013. There were no transfers between Level 1 and Level 2 during the years ended December 31, 2014 and
2013.
3.6 Insurance risk management
The non-life insurance entities decide on the retention, or the absolute amount that they are ready to assume
insurance risk from one event. The retention amount is a function of capital, experience, actuarial study and risk
appetite or aversion.
In excess of the retention, these entities arrange reinsurances either thru treaties or facultative placements.
They also accredit reinsurers based on certain criteria and set limits as to what can be reinsured. The
reinsurance treaties and the accreditation of reinsurers require Board of Directors approval.
3.7 Capital management
Cognizant of its exposure to risks, the BPI Group understands that it must maintain sufficient capital to absorb
unexpected losses, to stay in business for the long haul, and to satisfy regulatory requirements. The BPI Group
further understands that its performance, as well as the performance of its various units, should be measured in
terms of returns generated vis--vis allocated capital and the amount of risk borne in the conduct of business.

(57)

The BPI Group manages its capital following the framework of Basel Committee on Banking Supervision
Accord II (Basel II) and its implementation in the Philippines by the BSP. The BSP through its Circular 538
requires each bank and its financial affiliated subsidiaries to keep its Capital Adequacy Ratio (CAR) - the ratio of
qualified capital to risk-weighted exposures - to be no less than 10%. In quantifying its CAR, BPI currently uses
the Standardized Approach (for credit risk and market risk) and the Basic Indicator Approach (for operational
risk). Capital adequacy reports are filed with the BSP every quarter.
Qualifying capital and risk-weighted assets are computed based on BSP regulations. The qualifying capital of the
Parent Bank consists of core tier 1 capital and tier 2 capital. Tier 1 capital comprises paid-up capital stock, paidin surplus, surplus including net income for the year, surplus reserves and minority interest less deductions such
as deferred income tax, unsecured credit accommodations to DOSRI, goodwill and unrealized fair value losses
on available-for-sale securities. Tier 2 capital includes net unrealized fair value gains on available-for-sale
investments and general loan loss provisions for BSP reporting purposes.
The Basel II framework following BSP Circular 538 took into effect on July 1, 2007 and was relevant until 2013.
Effective January 1, 2014, the BSP, through its Circular 781, requires each bank and its financial affiliated
subsidiaries to adopt new capital requirements in accordance with the provisions of Basel III. The new guidelines
are meant to strengthen the composition of the Bank's capital by increasing the level of core capital and
regulatory capital. The Circular sets out minimum Common Equity Tier 1 (CET1) ratio and Tier 1 Capital ratios of
6.0% and 7.5%, respectively. A capital conservation buffer of 2.5%, comprised of CET1 capital, was likewise
imposed. The minimum required capital adequacy ratio remains at 10% which includes the capital conservation
buffer.
In addition, existing capital requirements as at December 31, 2010 which do not meet the eligibility criteria for
capital instruments under the revised capital framework shall no longer be recognized as capital upon the
effectivity of Basel III.
The table below summarizes the CAR under the Basel III and Basel II framework for the years ended
December 31, 2014 and 2013, respectively.

Tier 1 capital
Tier 2 capital
Gross qualifying capital
Less: Regulatory adjustments/required deductions
Total qualifying capital

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
139,604
93,616 139,105
95,634
7,579
6,199
6,257
5,041
147,183
99,873 145,304 100,675
18,664
50,102
3,218
32,170
128,519
95,202
96,655
68,505

Risk weighted assets

CAR (%)

865,708
14.85

705,556
13.70

701,290
13.58

563,773
12.15

The BPI Group has fully complied with the CAR requirement of the BSP.
Likewise, the BPI Group manages the capital of its non-life insurance subsidiaries, pre-need subsidiary and
securities dealer subsidiaries in accordance with the capital requirements of the relevant regulatory agency, such as
Insurance Commission, Philippine SEC and PSE. These subsidiaries have fully complied with the relevant capital
requirements.
As part of the reforms of the PSE to expand capital market and improve transparency among listed firms, PSE
requires listed entities to maintain a minimum of ten percent (10%) of their issued and outstanding shares, exclusive
of any treasury shares, held by the public. The Parent Bank has fully complied with this requirement.
Note 4 - Critical Accounting Estimates and Judgments
The BPI Group makes estimates and assumptions that affect the reported amounts of assets and liabilities.
Estimates and judgments are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances. It is reasonably
possible that the outcomes within the next financial year could differ from assumptions made at reporting date and
could result in the adjustment to the carrying amount of affected assets or liabilities.

(58)

A. Critical accounting estimates

(i)

Impairment losses on loans and advances (Note 13)

The BPI Group reviews its loan portfolios to assess impairment on a regular basis. In determining whether an
impairment loss should be recorded in profit or loss, the BPI Group makes judgments as to whether there is any
observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of
loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include
observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or
national or local economic conditions that correlate with defaults on assets in the group. Management uses
estimates based on historical loss experience for loans with credit risk characteristics and objective evidence of
impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and
assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce
any differences between loss estimates and actual loss experience. To the extent that the net present value of
estimated cash flows of individually impaired accounts and the estimated impairment for collectively assessed
accounts differs by +/- 5%, impairment provision for the year ended December 31, 2014 would be an estimated
P524 million (2013 - P428 million) higher or lower.
(ii) Fair value of derivatives and other financial instruments (Notes 3.4 and 9)
The fair values of financial instruments that are not quoted in active markets are determined by using generally
accepted valuation techniques. Where valuation techniques (for example, discounted cash flow models) are used
to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area
that created them. Inputs used in these models are from observable data and quoted market prices in respect of
similar financial instruments.
All models are approved by the Board of Directors before they are used, and models are calibrated to ensure that
outputs reflect actual data and comparative market prices. Changes in assumptions about these factors could affect
reported fair value of financial instruments. The BPI Group considers that it is impracticable to disclose with
sufficient reliability the possible effects of sensitivities surrounding the fair value of financial instruments that are not
quoted in active markets.
(iii) Pension liability on defined benefit plan (Note 28)
The BPI Group estimates its pension benefit obligation and expense for defined benefit pension plans based on the
selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions are
described in Note 28 and include, among others, the discount rate and future salary increases. The BPI Group
determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to
determine the present value of estimated future cash outflows expected to be required to settle the retirement
obligations. The present value of the defined benefit obligations of the BPI Group at December 31, 2014 and
2013 are determined using the market yields on Philippine government bonds with terms consistent with the
expected payments of employee benefits. Plan assets are invested in either equity securities, debt securities or
other forms of investments. Equity markets may experience volatility, which could affect the value of pension
plan assets. This volatility may make it difficult to estimate the long-term rate of return on plan assets. Actual
results that differ from the BPI Groups assumptions are reflected as remeasurements in other comprehensive
income. The BPI Groups assumptions are based on actual historical experience and external data regarding
compensation and discount rate trends. The sensitivity analysis on key assumptions is disclosed in Note 28.
(iv) Valuation of assets held for sale
In determining the fair value of assets held for sale, the BPI Group analyzed the sales prices by applying
appropriate units of comparison, adjusted by differences between the subject asset or property and related
market data. Should there be a subsequent write-down of the asset to fair value less cost to sell, such writedown is recognized as impairment loss in the statement of income.
In 2014, the BPI Group has recognized an impairment loss on its foreclosed assets amounting to P65 million
(2013 - P599 million) as a result of reduction in fair market values.
The BPI Group considers that it is impracticable to disclose with sufficient reliability the possible effects of
sensitivities surrounding the fair value of assets held for sale.

(59)

B. Critical accounting judgments

(i)

Impairment of available-for-sale securities (Note 11)

The BPI Group follows the guidance of PAS 39 to determine when an available-for-sale security is impaired. This
determination requires significant judgment. In making this judgment, the BPI Group evaluates, among other
factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health
and near-term business outlook of the issuer, including factors such as industry and sector performance, changes in
technology and operational and financing cash flows.
(ii) Classification of held-to-maturity securities (Note 12)
The BPI Group follows the guidance of PAS 39 in classifying non-derivative financial assets with fixed or
determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgment. In
making this judgment, the BPI Group evaluates its intention and ability to hold such investments to maturity. If the
BPI Group fails to keep these investments to maturity other than for the specific circumstances - for example selling
an insignificant amount close to maturity - it will be required to reclassify the entire class as available-for-sale. The
investments would therefore be measured at fair value and not at amortized cost.
(iii) Classification of assets held for sale
Management follows the principles in PFRS 5 in classifying certain foreclosed assets (consisting of real estate and
auto or chattel), as assets held for sale when the carrying amount of the assets will be recovered principally through
sale. Management is committed to a plan to sell these foreclosed assets and the assets are actively marketed for
sale at a price that is reasonable in relation to their current fair value.
(iv) Realization of deferred income tax assets (Note 17)
Management reviews at each reporting date the carrying amounts of deferred tax assets. The carrying amount of
deferred tax assets is reduced to the extent that the related tax assets cannot be utilized due to insufficient taxable
profit against which the deferred tax losses will be applied. Management believes that sufficient taxable profit will
be generated to allow all or part of the deferred income tax assets to be utilized.
Note 5 - Assets and Liabilities Attributable to Insurance Operations
Details of assets and liabilities attributable to insurance operations at December 31 are as follows:
2014
2013
(In Millions of Pesos)
Assets
Cash and cash equivalents (Note 7)
Insurance balances receivable, net
Investment securities
Available-for-sale
Held-to-maturity
Land, building and equipment
Accounts receivable and other assets, net

Liabilities
Reserves and other balances
Accounts payable, accrued expenses and other payables

215
4,810

117
3,803

5,390
3,765
144
2,121
16,445

4,477
3,827
131
2,231
14,586

12,658
903
13,561

12,273
788
13,061

(60)

Details of income attributable to insurance operations before income tax and minority interest for the years ended
December 31 are as follows:
2014

Premiums earned and related income

Investment and other income
Benefits, claims and maturities
Increase (decrease) in actuarial reserve liabilities
Management and general expenses
Commissions
Other expenses
Income before income tax and minority interest

2013
(In Millions of Pesos)
2,868
3,020
423
457
3,291
3,477
1,363
1,133
(162)
(80)
515
452
554
518
14
5
2,284
2,028
1,007
1,449

2012
2,441
426
2,867
972
271
433
478
19
2,173
694

Note 6 - Business Segments

Operating segments are reported in accordance with the internal reporting provided to the chief executive officer,
who is responsible for allocating resources to the reportable segments and assessing their performance. All
operating segments used by the BPI Group meet the definition of a reportable segment under PFRS 8.
The BPI Group has determined the operating segments based on the nature of the services provided and the
different markets served representing a strategic business unit.
The BPI Groups main operating business segments follow:

Consumer Banking - this segment addresses the individual and retail markets. It covers deposit taking and
servicing, consumer lending such as home mortgages, auto loans and credit card finance as well as the
remittance business. It includes the entire transaction processing and service delivery infrastructure consisting
of the BPI and BPI Family Bank network of branches, ATMs and point-of-sale terminals as well as phone and
Internet-based banking platforms.

Corporate Banking - this segment consists of the entire lending, leasing, trade and cash management services
provided by the BPI Group to corporate and institutional customers. These customers include both high-end
corporations as well as various middle market clients.

Investment Banking - this segment includes the various business groups operating in the investment markets
and dealing in activities other than lending and deposit taking. These services cover corporate finance,
securities distribution, asset management, trust and fiduciary services as well as proprietary trading and
investment activities.

The performance of the Parent Bank is assessed as a single unit using financial information presented in the
separate or Parent only financial statements. Likewise, the chief executive officer assesses the performance of its
insurance business as a separate segment from its banking and allied financial undertakings. Information on the
assets, liabilities and results of operations of the insurance business is fully disclosed in Note 5.
The BPI Group and the Parent Bank mainly derive revenue (more than 90%) within the Philippines, accordingly,
no geographical segment is presented.
Revenues of the BPI Groups segment operations are derived from interest (net interest income). The segment
report forms part of managements assessment of the performance of the segment, among other performance
indicators.

(61)

There were no changes in the reportable segments during the year. Transactions between the business segments
are carried out at arms length. The revenue from external parties reported to management is measured in a
manner consistent with that in profit or loss until 2013. Funds are ordinarily allocated between segments, resulting
in funding cost transfers disclosed in inter-segment net interest income. Interest charged for these funds is based on
the BPI Groups cost of capital. The funds transfer pricing (FTP) prior to 2014 was computed on a gross basis. In
2014, the manner of reporting has changed, in which interest income and interest expense are no longer presented
separately, considering that the calculation of FTP shifted from gross to net. In addition, majority of the segments
revenues are from interest and the chief executive officer relies primarily on net interest income to assess the
performance of the segments and to make decisions concerning the segments.
Internal charges and transfer pricing adjustments have been reflected in the performance of each business.
Revenue-sharing agreements are used to allocate external customer revenues to a business segment on a
reasonable basis. Inter-segment revenues however, are deemed insignificant for financial reporting purposes, thus,
not reported in segment analysis below.
The BPI Groups management reporting is based on a measure of operating profit comprising net income, loan
impairment charges, fee and commission income, other income and non-interest income.
Segment assets and liabilities comprise majority of operating assets and liabilities, measured in a manner
consistent with that shown in the statement of condition, but exclude items such as taxation.
The segment assets, liabilities and results of operations of the reportable segments of the BPI Group as at and for
the years ended December 31, 2014, 2013 and 2012 are as follows:
2014
Consumer
banking
Net interest income
Impairment charge
Net interest income after impairment charge
Fees and commission income
Other income
Gross receipts tax
Other income, net
Compensation and fringe benefits
Occupancy and equipment - related expenses
Other operating expenses
Total operating expenses
Operating profit
Share in net income of associates
Provision for income tax
Total assets
Total liabilities

21,984
2,047
19,937
5,294
6,632
(775)
11,151
8,122
4,392
7,031
19,545
11,543

463,989
1,205,684

Corporate Investment
banking
banking
(In Millions of Pesos)
7,242
5,956
755
6,487
5,956
649
1,677
1,958
4,673
(44)
(502)
2,563
5,848
1,041
904
1,174
132
4,147
1,402
6,362
2,438
2,688
9,366

598,184
10,168

361,061
70,255

Total per
management
reporting
35,182
2,802
32,380
7,620
13,263
(1,321)
19,562
10,067
5,698
12,580
28,345
23,597
257
4,958
1,423,234
1,286,107

(62)

2013
Consumer
banking
Interest income
Interest expense
Net interest income
Impairment charge
Net interest income after impairment charge
Fees and commission income
Other income
Gross receipts tax
Other income, net
Compensation and fringe benefits
Occupancy and equipment - related expenses
Other operating expenses
Total operating expenses
Operating profit
Share in net income of associates
Provision for income tax
Total assets
Total liabilities

29,563
9,561
20,002
2,316
17,686
4,775
5,812
(685)
9,902
7,498
4,302
5,695
17,495
10,093

384,670
1,014,263

Corporate
Investment
banking
banking
(In Millions of Pesos)
7,754
3,912
377
139
7,377
3,773
1,304
6,073
3,773
524
782
2,028
8,483
(46)
(785)
2,506
8,480
923
674
1,198
144
3,459
1,150
5,580
1,968
2,999
10,285

460,029
14,918

329,460
42,299

Total per
management
reporting
41,229
10,077
31,152
3,620
27,532
6,081
16,323
(1,516)
20,888
9,095
5,644
10,304
25,043
23,377
590
4,153
1,174,159
1,071,480

2012
Consumer
banking
Interest income
Interest expense
Net interest income
Impairment charge
Net interest income after impairment charge
Fees and commission income
Other income
Gross receipts tax
Other income, net
Compensation and fringe benefits
Occupancy and equipment - related expenses
Other operating expenses
Total operating expenses
Operating profit
Share in net income of associates
Provision for income tax
Total assets
Total liabilities

27,138
11,726
15,412
2,103
13,309
4,192
4,546
(547)
8,191
7,189
4,204
5,230
16,623
4,877

336,125
829,128

Corporate
Investment
banking
banking
(In Millions of Pesos)
8,226
4,926
475
107
7,751
4,819
817
6,934
4,819
523
641
1,686
8,816
(55)
(697)
2,154
8,760
921
559
1,070
124
3,074
1,015
5,065
1,698
4,023
11,881

366,674
16,626

264,426
29,794

Total per
management
reporting
40,290
12,308
27,982
2,920
25,062
5,356
15,048
(1,299)
19,105
8,669
5,398
9,319
23,386
20,781
138
3,158
967,225
875,548

(63)

Reconciliation of segment results to consolidated results of operations:

2014
Total per
Consolidation
consolidated
adjustments/
financial
Others
statements
(In Millions of Pesos)
35,182
34,808
(374)
2,802
2,807
5
32,380
32,001
(379)
7,620
7,370
(250)
13,263
15,044
1,781
(1,321)
(1,435)
(114)
19,562
20,979
1,417
10,067
11,850
1,783
5,698
9,017
3,319
12,580
9,093
(3,487)
28,345
29,960
1,615
23,597
23,020
(577)
257
257
4,958
4,958
-

Total per
management
reporting
Net interest income
Impairment charge
Net interest income after impairment charge
Fees and commission income
Other income
Gross receipts tax
Other income, net
Compensation and fringe benefits
Occupancy and equipment - related expenses
Other operating expenses
Total operating expenses
Operating profit
Share in net income of associates (included in Other income)
Provision for income tax
Total assets
Total liabilities

1,423,234
1,286,107

26,963
17,411

1,450,197
1,303,518

2013
Total per
Consolidation
consolidated
adjustments/
financial
Others
statements
(In Millions of Pesos)
41,229
(427)
40,802
10,077
401
10,478
31,152
(828)
30,324
3,620
(972)
2,648
27,532
144
27,676
6,081
(196)
5,885
16,323
1,521
17,844
(1,516)
(39)
(1,555)
20,888
1,286
22,174
9,095
1,546
10,641
5,644
2,396
8,040
10,304
(2,282)
8,022
25,043
1,660
26,703
23,377
(230)
23,147
590
590
4,153
4,153

Total per
management
reporting
Interest income
Interest expense
Net interest income
Impairment charge
Net interest income after impairment charge
Fees and commission income
Other income
Gross receipts tax
Other income, net
Compensation and fringe benefits
Occupancy and equipment - related expenses
Other operating expenses
Total operating expenses
Operating profit
Share in net income of associates (included in Other income)
Provision for income tax
Total assets
Total liabilities

1,174,159
1,071,480

21,205
18,077

1,195,364
1,089,557

(64)

2012
Total per
Consolidation
consolidated
adjustments/
financial
Others
statements
(In Millions of Pesos)
40,290
(181)
40,109
12,308
347
12,655
27,982
(528)
27,454
2,920
3
2,923
25,062
(531)
24,531
5,356
(245)
5,111
15,048
1,114
16,162
(1,299)
(43)
(1,342)
19,105
826
19,931
8,669
1,801
10,470
5,398
1,795
7,193
9,319
(2,180)
7,139
23,386
1,416
24,802
20,781
(1,121)
19,660

Total per
management
reporting
Interest income
Interest expense
Net interest income
Impairment charge
Net interest income after impairment charge
Fees and commission income
Other income
Gross receipts tax
Other income, net
Compensation and fringe benefits
Occupancy and equipment - related expenses
Other operating expenses
Total operating expenses
Operating profit
Share in net income of associates (included in Other income)
Provision for income tax
Total assets
Total liabilities

138
3,158
967,225
875,548

18,016
11,571

138
3,158
985,241
887,119

Consolidation adjustments/Others pertain to balances of insurance operations, support units and inter-segment
elimination in accordance with the BPI Groups internal reporting.
Note 7 - Cash and Cash Equivalents
This account at December 31 consists of:

Cash and other cash items

Due from BSP
Due from other banks
Interbank loans receivable and securities
purchased under agreements
to resell (Note 8)
Cash and cash equivalents attributable to
insurance operations (Note 5)

Consolidated
2014
2013
(In Millions of Pesos)
38,427
25,696
211,946
244,483
22,227
17,070

Parent
2014

2013

37,292
170,648
15,429

24,888
195,076
8,789

743

12,406

241

5,046

215
273,558

117
299,772

223,610

233,799

(65)

Note 8 - Interbank Loans Receivable and Securities Purchased under Agreements to Resell (SPAR)
The account at December 31 consists of transactions with:

BSP
Other banks
Accrued interest receivable

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
500
11,505
4,150
5,266
5,231
5,879
5,879
5,766
5,231
17,384
10,029
16
15
13
8
5,782
5,246
17,397
10,037

Interbank loans receivable and SPAR maturing within 90 days from the date of acquisition are classified as cash
equivalents in the statement of cash flows (Note 7).

Current
Non-current

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
2,905
2,369
14,531
7,171
2,877
2,877
2,866
2,866
5,782
5,246
17,397
10,037

Government bonds are pledged by the BSP as collateral under reverse repurchase agreements. The face value of
securities pledged is equivalent to the total balance of outstanding placements as at reporting date. All collateral
agreements mature within 12 months.
The range of average interest rates (%) of interbank loans receivable of the BPI Group for the years ended
December 31 follows:

Peso-denominated
US dollar-denominated

2014
3.16 - 3.54
0.07 - 0.13

2013
3.50 - 3.62
0.13 - 0.16

Note 9 - Derivative Financial Instruments

Derivatives held by the BPI Group for non-hedging purposes mainly consist of the following:

Foreign exchange forwards represent commitments to purchase or sell one currency against another at an
agreed forward rate on a specified date in the future. Settlement can be made via full delivery of forward
proceeds or via payment of the difference (non-deliverable forward) between the contracted forward rate
and the prevailing market rate on maturity.

Foreign exchange swaps refer to spot purchase or sale of one currency against another with an agreement
to sell or purchase the same currency at an agreed forward rate in the future.

Interest rate swaps refer to agreement to exchange fixed rate versus floating interest payments (or vice
versa) on a reference notional amount over an agreed period of time.

Cross currency swaps refer to spot exchange of notional amounts on two currencies at a given exchange
rate and with an agreement to re-exchange the same notional amounts at a specified maturity date based
on the original exchange rate. Parties on the transaction agree to pay a stated interest rate on the borrowed
notional amount and receive a stated interest rate on the lent notional amount, payable or receivable
periodically over the term of the transaction.

Credit-Linked Notes (CLNs) are structured notes whose value is derived from the creditworthiness of an
underlying reference entity. A CLN may be viewed as a bundled note that consists of a bond and a credit
default swap, allowing the issuer to transfer the credit risk of a reference entity to the investor during the
reference period.

(66)

The BPI Groups credit risk represents the potential cost to replace the swap contracts if counterparties fail to
fulfill their obligation. This risk is monitored on an ongoing basis with reference to the current fair value, a
proportion of the notional amount of the contracts and the liquidity of the market. To control the level of credit
risk taken, the BPI Group assesses counterparties using the same techniques as for its lending activities.
The notional amounts of certain types of financial instruments provide a basis for comparison with instruments
recognized on the statement of condition. They do not necessarily represent the amounts of future cash flows
involved or the current fair values of the instruments and therefore are not indicative of the BPI Groups exposure
to credit or price risks. The derivative instruments become favorable (assets) or unfavorable (liabilities) as a
result of fluctuations in market interest rates or foreign exchange rates relative to their terms. The aggregate
contractual or notional amount of derivative financial instruments on hand and the extent at which the
instruments can become favorable or unfavorable in fair values can fluctuate significantly from time to time.
The contract/ notional amount and fair values of derivative instruments held as at December 31 are set out
below:
Consolidated and Parent
Contract/
Notional Amount
2014
2013
Free-standing derivatives
Foreign exchange derivatives
Currency swaps
Currency forwards
Interest rate swaps
Credit default swaps
Embedded credit derivatives
Total derivatives assets (liabilities) held for
trading

Fair Values
Assets
Liabilities
2014
2014
2013
2013
(In Millions of Pesos)

122,364
101,657
87,499
1,342
5,009

70,312
60,661
46,862
888
5,327

21,828
1,487
12,544
28
94

12,294
700
3,471
13
72

(21,359)
(652)
(12,791)
(44)
-

(12,252)
(621)
(3,478)
(9)
-

317,871

184,050

35,981

16,550

(34,846)

(16,360)

Note 10 - Trading Securities

This account at December 31 consists of:
Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
Debt securities
Government securities
Commercial papers of private companies
Accrued interest receivable
Equity securities - listed

14,537
658
15,195
52
15,247
615
15,862

3,900
429
4,329
5
4,334
263
4,597

6,085
492
6,577
43
6,620
6,620

2,258
367
2,625
1
2,626
2,626

All trading securities are classified as current.

(67)

Note 11 - Available-for-Sale Securities

This account at December 31 consists of:
Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
28,046
23,650
65,808
62,636
18,806
17,422
19,115
17,944
46,852
41,072
84,923
80,580
632
532
962
906
47,484
41,604
85,885
81,486

Debt securities
Government securities
Others
Accrued interest receivable
Equity securities
Listed
Unlisted

2,474
1,663
4,137
51,621
(312)
51,309

Allowance for impairment

643
1,614
2,257
88,142
(586)
87,556

355
113
468
42,072
(206)
41,866

350
113
463
81,949
(213)
81,736

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
5,295
2,992
5,038
3,352
46,326
39,080
83,104
78,597
51,621
42,072
88,142
81,949

Current
Non-current

The reconciliation of the allowance for impairment at December 31 is summarized as follows:

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
586
213
586
213
(274)
(7)
312
206
586
213

At January 1
Reversal of impairment losses
At December 31

The range of average interest rates (%) of available-for-sale debt securities of the BPI Group for the years ended
December 31 follows:
2014
2.84 - 3.18
2.39 - 2.71

Peso-denominated
Foreign currency-denominated

2013
3.30 - 4.60
1.96 - 2.46

The movement in available-for-sale securities is summarized as follows:

At January 1
Additions
Disposals
Amortization of premium, net
Fair value adjustments
Exchange differences
Net change in allowance for impairment
Net change in accrued interest receivable
At December 31

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
87,556
81,736
106,403
92,845
72,240
58,135
264,840
241,745
(107,387) (280,663)
(96,923) (249,990)
(2,365)
(2,252)
(507)
(505)
1,831
1,525
(3,347)
(3,129)
38
26
1,214
1,129
(274)
(7)
(330)
(374)
(384)
(359)
51,309
41,866
87,556
81,736

(68)

On January 9, 2014, the BPI Group reclassified certain available-for-sale securities aggregating P63.4 billion to
held-to-maturity category. The reclassification was triggered by managements change in intention over the
securities in the light of volatile market prices due to rising interest rate environment. Management believes that
despite the market uncertainties, the BPI Group has the capability to hold those reclassified securities until
maturity dates.
The aggregate fair value loss of those securities at reclassification dates that are still recognized in Accumulated
other comprehensive income (under Capital funds), and which will be amortized over the remaining lives of the
instruments using the effective interest rate method amounts to P4,534 million. Unamortized fair value loss as at
December 31, 2014 amounts to P4,201 million. Fair value gain that would have been recognized in other
comprehensive income if the available-for-sale securities had not been reclassified amounts to P3,678 million for
the year ended December 31, 2014. There are no gains or losses recognized in profit or loss or other
comprehensive income.
On October 22, 2008, the BPI Group reclassified certain available-for-sale securities aggregating P19.1 billion to
held-to-maturity category. Likewise, on November 12, 2008, an additional portfolio of US dollar-denominated
available-for-sale securities totaling US$171.6 million (or peso equivalent of P9.2 billion) was further reclassified
from available-for-sale to held-to-maturity. The reclassification was triggered by managements change in
intention over the securities in the light of volatile market prices due to global economic downturn. Management
believes that despite the market uncertainties, the BPI Group has the capability to hold those reclassified
securities until maturity dates.
The aggregate fair value loss of those securities at reclassification dates still recognized in Accumulated other
comprehensive income (under Capital funds), and which will be amortized over the remaining lives of the
instruments using the effective interest rate method amounts to P1,757 million. Unamortized fair value loss as at
December 31, 2014 amounts to P269 million (2013 - P371 million). Fair value loss that would have been
recognized in other comprehensive income if the available-for-sale securities had not been reclassified amounts to
P123 million for the year ended December 31, 2014 (2013 - P277 million loss). There are no gains or losses
recognized in profit or loss or other comprehensive income.
Note 12 - Held-to-Maturity Securities
This account at December 31 consists of:

Government securities
Commercial papers of private companies
Accrued interest receivable

Current
Non-current

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
195,779
180,547
91,277
82,129
10,301
9,428
2,898
2,034
206,080
189,975
94,175
84,163
3,329
3,026
1,997
1,737
209,409
193,001
96,172
85,900
Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
8,625
7,571
9,851
8,350
200,784
185,430
86,321
77,550
209,409
193,001
96,172
85,900

The range of average interest rates (%) of held-to-maturity securities of the BPI Group for the years ended
December 31 follows:

Peso-denominated
Foreign currency-denominated

2014
4.27 - 4.98
4.25 - 4.71

2013
6.82 - 7.89
4.55 - 4.75

(69)

The movement in held-to-maturity securities is summarized as follows:

At January 1
Additions
Maturities
Amortization of premium, net
Exchange differences
Net change in accrued interest receivable
At December 31

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
96,172
85,900
76,243
67,822
127,125
118,981
48,508
42,493
(13,580)
(11,843)
(29,906)
(25,815)
(1,698)
(1,369)
(1,374)
(1,067)
58
43
2,478
2,269
1,332
1,289
223
198
209,409
193,001
96,172
85,900

Note 13 - Loans and Advances

Major classifications of this account at December 31 are as follows:

Corporate entities
Large corporate customers
Small and medium enterprise
Retail customers
Credit cards
Mortgages
Others
Accrued interest receivable
Unearned discount/income
Allowance for impairment

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
553,493
532,181
417,537
399,235
94,185
58,875
86,740
54,471
31,010
123,965
10,719
813,372
2,753
(2,249)
813,876
(13,706)
800,170

27,222
106,413
5,759
643,671
2,175
(3,026)
642,820
(12,617)
630,203

30,931
182
7,390
629,559
1,973
(913)
630,619
(9,178)
621,441

27,054
180
2,291
483,231
1,449
(662)
484,018
(8,863)
475,155

The Parent balances above include amounts due from related parties (Note 30).

Current
Non-current

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
649,056
619,169
390,421
345,925
164,820
11,450
252,399
138,093
813,876
630,619
642,820
484,018

The amount of loans and advances above include finance lease receivables as follows:

Total future minimum lease collections

Unearned finance income
Present value of future minimum lease collections
Allowance for impairment

Consolidated
2014
2013
(In Millions of Pesos)
6,507
6,546
(817)
(821)
5,690
5,725
(132)
(121)
5,604
5,558

(70)

Details of future minimum lease collections follow:

Consolidated
2014
2013
(In Millions of Pesos)
3,578
3,047
2,929
3,499
6,507
6,546
(817)
(821)
5,690
5,725

Not later than one year

Later than one year but not later than five years
Unearned finance income

The BPI Group, through BPI Leasing Century Tokyo Lease and Finance Corporation, mainly leases out vehicle
and equipment under various finance lease agreements which typically run for a non-cancellable period of two to
five years. The contracts generally include an option to purchase the leased asset after the lease period at a
price that generally lies between 5% to 20% of the fair value of the asset at the inception of the lease. In the
event that the residual value of the leased asset exceeds the guaranteed deposit liability at the end of the lease
term, the BPI Group receives additional payment from the lessee prior to the transfer of the leased asset. On the
other hand, the BPI Group sets up a liability to the lessee for any excess of the guaranteed deposit liability over
residual value of the leased asset.
The Parent Bank has no finance lease receivables as at December 31, 2014 and 2013.
There is no contingent rent recognized as income during the years ended December 31, 2014 and 2013.
Details of the loans and advances portfolio of the BPI Group at December 31 are as follows:
1)

As to industry/economic sector (in %)

Consumer
Manufacturing
Real estate, renting and other related
activities
Agriculture and forestry
Wholesale and retail trade
Financial institutions
Others

2)

Consolidated
2014
2013
9.38
10.04
21.00
21.65
22.45
2.15
12.88
11.95
20.19
100.00

26.97
1.62
12.62
7.89
19.21
100.00

Parent
2014
5.34
26.45

2013
5.87
27.97

14.06
2.68
14.99
15.09
21.39
100.00

18.13
2.03
15.03
8.87
22.10
100.00

As to collateral
Consolidated
Parent
2014
2014
2013
(In Millions of Pesos)

Secured loans
Real estate mortgage
Chattel mortgage
Others
Unsecured loans

187,605
40,146
245,778
473,529
337,594
811,123

179,228
35,968
159,988
375,184
265,461
640,645

97,983
141
210,919
309,043
319,603
628,646

2013

80,650
2,673
146,969
230,292
252,277
482,569

Other collaterals include hold-out deposits, mortgage trust indentures, government securities and bonds,
quedan/warehouse receipts, standby letters of credit, trust receipts, and deposit substitutes.
Loans and advances aggregating P479 million (2013 - P1,310 million) and P461 million (2013 - P1,232 million)
are used as security for bills payable (Note 20) of the BPI Group and Parent Bank, respectively.

(71)

The range of average interest rates (%) of loans and advances of the BPI Group for the years ended
December 31 follows:

Commercial loans
Peso-denominated loans
Foreign currency-denominated loans
Real estate mortgages
Auto loans

2014

2013

3.99 - 4.05
2.33 - 2.59
7.44 - 7.65
10.04 - 10.18

4.50 - 4.73
2.43 - 2.66
7.76 - 8.13
9.68 - 10.12

Non-performing accounts (over 30 days past due) of the BPI Group and the Parent Bank, net of specific
allowance for credit losses, following BSP Circular 772 are as follows:
Consolidated
Parent
2014
2014
2013
(In Millions of Pesos)
12,540
7,205
11,452
7,477
4,560
8,268
5,063
2,645
3,184

Non-performing accounts (NPL 30)

Specific allowance for credit losses
Net NPL 30

2013
6,788
5,399
1,389

Reconciliation of allowance for impairment by class at December 31 follows:

Consolidated

Corporate entities
Large
Small and
corporate
medium
customers
enterprises
At January 1
Provision for impairment
losses
Write-off/disposal
Unwind of discount
Transfers
At December 31

5,059

2,154

727
(152)
(76)
23
5,581

306
(127)
(47)
30
2,316

Corporate entities
Large
Small and
corporate
medium
customers
enterprises
At January 1
Provision for impairment
losses
Write-off/disposal
Unwind of discount
Transfers
At December 31

3,054

2,780

212
(432)
(87)
2,312
5,059

138
(46)
(60)
(658)
2,154

2014
Retail customers
Credit
Mortgages
cards
(In Millions of Pesos)
1,478
2,390
153
(92)
1,539

1,079
(1,179)
2
2,292

Others

Total

1,536

12,617

725
(177)
(106)
1,978

2,990
(1,635)
(123)
(143)
13,706

2013
Retail customers
Credit
Mortgages
cards
(In Millions of Pesos)
1,510
2,305
74
(4)
(102)
1,478

1,200
(1,115)
2,390

Others

Total

1,448

11,097

262
(72)
(102)
1,536

1,886
(1,669)
(147)
1,450
12,617

(72)

Parent

Corporate entities
Large
Small and
corporate
medium
customers
enterprises
At January 1
Provision for impairment
losses
Write-off/disposal
Unwind of discount
Transfers
At December 31

4,307

1,923

566
(152)
(76)
53
4,698

179
(99)
(47)
7
1,963

Corporate entities
Large
Small and
corporate
medium
customers
enterprises
At January 1
Provision for impairment
losses
Write-off/disposal
Unwind of discount
Transfers
At December 31

2,950

2,143

104
(432)
(87)
1,772
4,307

109
(38)
(60)
(231)
1,923

2014
Retail customers
Credit
Mortgages
cards
(In Millions of Pesos)
65
2,390
(2)
(34)
29

1,067
(1,177)
(1)
2,279

Others

Total

178

8,863

104
(74)
1
209

1,914
(1,502)
(123)
26
9,178

2013
Retail customers
Credit
Mortgages
cards
(In Millions of Pesos)
38
2,305
15
(4)
16
65

1,200
(1,115)
2,390

Others

Total

95

7,531

82
(3)
4
178

1,510
(1,592)
(147)
1,561
8,863

Transfers pertain to reclassification of allowance for impairment between accounts.

(73)

Note 14 - Bank Premises, Furniture, Fixtures and Equipment

This account at December 31 consists of:
Consolidated

Land
Cost
January 1, 2014
Additions
Disposals
Amortization
Transfers
Others
December 31, 2014
Accumulated depreciation
January 1, 2014
Depreciation
Disposals/transfers
December 31, 2014
Net book value, December 31, 2014

Total

3,074
(1)
1
3,074

5,395
946
(175)
(4)
6,162

12,857
1,494
(512)
13,839

4,786
1,797
(1,671)
4,912

26,112
4,237
(2,184)
(175)
1
(4)
27,987

3,074

2,253
236
32
2,521
3,641

10,027
1,378
(403)
11,002
2,837

1,628
1,109
(1,033)
1,704
3,208

13,908
2,723
(1,404)
15,227
12,760

Land
Cost
January 1, 2013
Additions
Disposals
Amortization
Transfers
December 31, 2013
Accumulated depreciation
January 1, 2013
Depreciation
Disposals/transfers
December 31, 2013
Net book value, December 31, 2013

2014
Buildings and
Furniture
leasehold
and
Equipment
improvements
equipment
for lease
(In Millions of Pesos)

2013
Buildings and
Furniture
leasehold
and
Equipment
improvements
equipment
for lease
(In Millions of Pesos)

Total

3,146
(76)
4
3,074

5,844
389
(611)
(151)
(76)
5,395

11,890
1,957
(987)
(3)
12,857

4,852
1,883
(1,949)
4,786

25,732
4,229
(3,623)
(151)
(75)
26,112

3,074

2,352
215
(314)
2,253
3,142

9,322
1,317
(612)
10,027
2,830

1,637
1,095
(1,105)
1,627
3,159

13,311
2,627
(2,031)
13,907
12,205

(74)

Parent

Land
Cost
January 1, 2014
Additions
Disposals
Amortization
Transfers
December 31, 2014
Accumulated depreciation
January 1, 2014
Depreciation
Disposals/transfers
December 31, 2014
Net book value, December 31, 2014

Total

2,664
(1)
1
2,664

4,670
848
(129)
5,389

11,912
1,331
(432)
12,811

19,246
2,179
(433)
(129)
1
20,864

2,664

1,976
206
32
2,214
3,175

9,241
1,289
(347)
10,183
2,628

11,217
1,495
(315)
12,397
8,467

Land
Cost
January 1, 2013
Additions
Disposals
Amortization
Transfers
December 31, 2013
Accumulated depreciation
January 1, 2013
Depreciation
Disposals/transfers
December 31, 2013
Net book value, December 31, 2013

2014
Buildings and
leasehold
Furniture and
improvements
equipment
(In Millions of Pesos)

2013
Buildings and
leasehold
Furniture and
improvements
equipment
(In Millions of Pesos)

Total

2,692
(28)
2,664

5,055
342
(528)
(114)
(85)
4,670

10,985
1,850
(923)
11,912

18,732
2,192
(1,479)
(114)
(85)
19,246

2,664

2,057
185
(266)
1,976
2,694

8,574
1,237
(571)
9,240
2,672

10,631
1,422
(837)
11,216
8,030

Depreciation is included in Occupancy and equipment-related expenses in the statement of income.

Note 15 - Investment Properties
This account at December 31 consists of:

Land
Buildings
Accumulated depreciation
Allowance for impairment

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
97
97
963
963
2,013
2,013
1,856
1,856
2,110
2,110
2,819
2,819
(1,300)
(1,300)
(1,220)
(1,220)
(2)
(2)
(2)
(2)
808
808
1,597
1,597

(75)

The movement in investment properties is summarized as follows:

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
1,597
1,597
2,582
2,575
157
157
(866)
(866)
(994)
(987)
85
85
(80)
(80)
(76)
(76)
808
808
1,597
1,597

At January 1
Additions
Disposals
Transfers
Depreciation
At December 31

Investment properties have aggregate fair value of P2,057 million as at December 31, 2014
(2013 - P3,289 million). The fair value of investment property is determined on the basis of appraisal made by
an internal or an external appraiser duly certified by the BPI Groups Credit Policy group. Valuation method
employed by the appraisers mainly includes the market data approach.
Depreciation is included in Occupancy and equipment-related expenses in the statement of income.
All investment properties generate rental income. Rental income from investment properties recognized in the
statement of income, as part of Other operating income, amounts to P298 million for the year ended
December 31, 2014 (2013 - P255 million; 2012 - P260 million). Direct operating expenses (including repairs and
maintenance) arising from these investment properties amount to P23 million for the year ended
December 31, 2014 (2013 - P21 million; 2012 - P193 million).
Note 16 - Investments in Subsidiaries and Associates
This account at December 31 consists of investments in shares of stock:
Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
Carrying value (net of impairment)
Investments at equity method
Investments at cost method

4,784
4,784

4,176
4,176

6,726
6,726

6,793
6,793

Investments in associates carried at equity method in the consolidated statement of condition follow:
Place of business/
country of
incorporation
Name of entity
BPI - Philamlife Assurance Corporation
Automated Fare Collection
Services, Inc.
National Reinsurance Corporation*
Beacon Properties
Victoria 1552 Investments, LP
Citytrust Realty Corporation
Allowance for impairment

Percentage of
ownership interest
(%)
2014
2013

Acquisition cost
2014
2013

Measurement
method

Philippines

47.67

47.67

371

371

Equity

Philippines
Philippines
Philippines
Delaware, USA
Philippines

20.00
13.69
20.00
35.00
40.00

15.38
20.00
35.00
40.00

300
204
100
7
2
984
(7)
977

204
100
7
2
684
(7)
677

Equity
Equity
Equity
Equity
Equity

*BPI Group has significant influence due to its representation on the governing body of National Reinsurance Corporation

(76)

For BPI-Philamlife Assurance Corporation, BPI acts as distribution channel for the formers insurance products.
In 2014, the distribution agreement with Philamlife has been extended for another twenty years or until
November 27, 2039 unless earlier terminated.
Details and movements of investments in associates carried at equity method in the consolidated financial
statements follow:
2014
2013
(In Millions of Pesos)
Acquisition cost
At January 1
Addition
Allowance for impairment
At December 31
Accumulated equity in net income
At January 1
Share in net income for the year
Dividends received
At December 31
Accumulated share in other comprehensive income
At January 1
Share in other comprehensive income for the year
At December 31

677
300
977

677
677

1,968
257
(201)
2,024

1,385
590
(7)
1,968

1,530
253
1,783
4,784

1,618
(87)
1,531
4,176

As the associates are not considered to be individually material to impact the financial statements of the BPI
Group, the unaudited financial information of associates as at and for the years ended December 31 has been
aggregated as follows:

Total assets
Total liabilities
Total revenues
Total net income

2014
2013
(In Millions of Pesos)
79,092
66,239
63,083
52,042
18,667
17,898
480
1,414

(77)

The details of equity investments at cost method in the separate financial statements of the Parent Bank follow:

Acquisition cost
2014
2013
Subsidiaries
BPI Europe Plc.
Ayala Plans, Inc.
BPI Capital Corporation
BPI Direct Savings Bank, Inc.
BPI Century Tokyo Lease and
Finance Corporation (formerly
BPI Leasing Corporation)
FGU Insurance Corporation
BPI Globe BanKO, Inc.
BPI Foreign Exchange Corp.
BPI Express Remittance Corp. USA
BPI Family Savings Bank, Inc.
First Far-East Development
Corporation
Green Enterprises S.R.L. in
Liquidation (formerly BPI
Express Remittance Europe,
S.p.A)
BPI Card Finance Corp.
FEB Stock Brokers, Inc.
BPI Computer Systems Corp.
BPI Express Remittance Spain S.A
Others
Associates

Allowance for
impairment
2014
2013
(In Millions of Pesos)

Carrying value
2014
2013

1,910
863
623
392

1,910
863
623
392

1,910
863
623
392

1,910
863
623
392

329
303
607
195
191
150

644
303
359
195
191
150

329
303
607
195
191
150

644
303
359
195
191
150

91

91

91

91

54
50
25
23
25
322
677
6,830

54
50
25
23
25
322
677
6,897

(104)
(104)

(104)
(104)

54
50
25
23
25
218
677
6,726

54
50
25
23
25
218
677
6,793

In 2014, the Parent Bank made additional capital infusion to BPI Globe BanKO, Inc. amounting to P248 million.
Note 17 - Deferred Income Taxes
The significant components of deferred income tax assets and liabilities at December 31 are as follows:
Consolidated
Parent
2014
2014
2013
(In Millions of Pesos)
Deferred income tax assets
Allowance for impairment
Net operating loss carry over (NOLCO)
Minimum corporate income tax (MCIT)
Pension liability
Others
Total deferred income tax assets
Deferred income tax liabilities
Revaluation gain on properties acquired from a
business combination
Fair value gain on available-for-sale securities
Others
Total deferred income tax liabilities

2013

5,919
117
1
298
1
6,336

5,662
10
2
370
1,007
7,051

3,901
268
4,169

3,813
283
1,035
5,131

(543)
(42)
(33)
(618)
5,718

(767)
(108)
(875)
6,176

(543)
(31)
(574)
3,595

(731)
(104)
(835)
4,296

(78)

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
Deferred income tax assets
Amount to be recovered within 12 months
Amount to be recovered after 12 months
Deferred income tax liabilities
Amount to be settled within 12 months
Amount to be settled after 12 months

444
5,892
6,336

612
6,439
7,051

431
3,738
4,169

559
4,572
5,131

449
169
618

175
700
875

449
125
574

175
660
835

The movement in the deferred income tax account is summarized as follows:

Consolidated
Parent
2014
2014
2013
(In Millions of Pesos)
6,176
4,296
5,087

At January 1
Amounts credited to (charged against) statement
of income
Amounts (charged against) credited to other
comprehensive income
At December 31

416
(874)
5,718

(6)
1,095
6,176

138
(839)
3,595

2013
3,525
(245)
1,016
4,296

The deferred tax charge (credit) in the statement of income comprises the following temporary differences:

2014

Consolidated
2013

(298)
(107)
76
(87)
(416)

Allowance for impairment

NOLCO
Pension
Others

(94)
(3)
82
21
6

2014
2012
(In Millions of Pesos)
(163)
(436)
(3)
75
22
(50)
(1)
(138)
(418)

Parent
2013
191
52
2
245

2012
(210)
19
(22)
(213)

The outstanding NOLCO at December 31 consists of:

Year of Incurrence

Year of Expiration

2014
2013
2012
2011
2010

2017
2016
2015
2014
2013

Used portion/ expired during the year

Tax rate
Deferred income tax asset on NOLCO

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
361
20
20
10
10
3
3
11
394
44
(3)
(11)
391
33
30%
30%
30%
30%
117
10
-

(79)

The details of MCIT at December 31 are as follows:

Year of Incurrence

Year of Expiration

2014
2013
2012
2011

2017
2016
2015
2014

Used portion during the year

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
1
3
3
4
3
(3)
(1)
1
2
-

Note 18 - Other Resources

The account at December 31 consists of the following:

Intangible assets
Accounts receivable
Residual value of equipment for lease
Sundry debits
Accrued trust and other fees
Creditable withholding tax
Prepaid expenses
Rental deposits
Miscellaneous assets
Allowance for impairment

Consolidated
Parent
2014
2014
2013
(In Millions of Pesos)
2,334
2,282
2,744
2,574
1,974
2,356
1,974
1,994
3,196
2,310
1,167
1,213
1,109
1,153
482
210
1,334
732
508
725
366
304
335
2,158
1,291
999
15,029
9,988
12,807
(1,478)
(1,330)
(1,759)
13,551
8,658
11,048

2013
2,689
1,902
1,149
1,004
1,076
494
280
420
9,014
(1,600)
7,414

Miscellaneous assets include returned checks, prepaid taxes and other office supplies.
The reconciliation of the allowance for impairment at December 31 is summarized as follows:

At January 1
(Reversal of) provision for impairment losses
Write-off
At December 31

Current
Non-current

Consolidated
Parent
2014
2014
2013
(In Millions of Pesos)
1,759
1,600
1,662
(246)
(255)
159
(35)
(15)
(62)
1,478
1,330
1,759

Consolidated
Parent
2014
2014
2013
(In Millions of Pesos)
10,366
8,481
8,405
4,663
1,507
4,402
15,029
9,988
12,807

2013
1,523
88
(11)
1,600

2013
7,513
1,501
9,014

(80)

Note 19 - Deposit Liabilities

This account at December 31 consists of:
Consolidated
Parent
2014
2014
2013
(In Millions of Pesos)
199,690
191,954
179,681
616,448
525,129
505,538
360,075
235,598
303,367
1,176,213
952,681
988,586

Demand
Savings
Time

2013
171,731
430,185
183,487
785,403

The Parent balances above include amounts due to related parties (Note 30).
Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
584,042
447,239
288,733
429,754
592,171
505,442
699,853
355,649
1,176,213
952,681
988,586
785,403

Current
Non-current

Related interest expense on deposit liabilities is broken down as follows:

2014
Demand
Savings
Time

452
5,584
4,798
10,834

Consolidated
2013
448
3,032
6,050
9,530

2014
2012
(In Millions of Pesos)
405
550
4,320
2,651
2,010
8,447
6,735
11,648

Parent
2013

2012

403
2,351
2,433
5,187

505
2,190
4,234
6,929

Under current and existing BSP regulations as at December 31, 2014 and 2013, the BPI Group should comply
with a simplified minimum reserve requirement instead of the separate liquidity and statutory reserve
requirements. Further, BSP requires all reserves be kept at the central bank. The BPI Group is in full compliance
with the simplified reserve requirement.
The required liquidity and statutory reserves as reported to BSP at December 31 comprise of:

Due from BSP

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
177,871
160,625
128,276
116,419

(81)

Note 20 - Bills Payable; Unsecured Subordinated Debt

The account at December 31 consists of:
Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
990
919
6,916
225
7,395
313
26,077
26,063
17,794
17,758
32,993
26,288
26,179
18,990

Bangko Sentral ng Pilipinas

Local banks
Foreign banks

The range of average interest rates (%) of bills payable of the BPI Group for the years ended December 31 follows:
2014
3.32 - 3.72
3.06 - 3.43
0.90 - 1.05

Bangko Sentral ng Pilipinas

Private firms and local banks - Peso-denominated
Foreign banks

2014
Interest expense

Consolidated
2013

350

545

Current
Non-current

2014
2012
(In Millions of Pesos)
138
584

Parent
2013
194

2013
3.87 - 4.10
5.81 - 6.31
1.04 - 1.31

2012
165

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
28,476
26,103
25,313
18,209
4,517
185
866
781
32,993
26,288
26,179
18,990

Bills payable include funds borrowed from Land Bank of the Philippines (LBP), Development Bank of the
Philippines (DBP) and Social Security System (SSS) which were relent to customers of the BPI Group in
accordance with the financing programs of LBP, DBP and SSS and credit balances of settlement bank accounts.
The average payment term of these bills payable is 1.03 years (2013 - 1.35 years). Loans and advances of the
BPI Group arising from these financing programs serve as security for the related bills payable (Note 13).
On August 20, 2013, the Board of Directors of the Parent Bank approved the exercise of its option to call or
redeem the P5,000 million BPI Lower Tier 2 Notes on the optional redemption date, being December 13, 2013.
Note 21 - Deferred Credits and Other Liabilities
The account at December 31 consists of the following:

Bills purchased - contra

Accounts payable
Deposit on lease contract
Outstanding acceptances
Withholding tax payable
Vouchers payable
Other deferred credits
Due to the Treasurer of the Philippines
Dividends payable
Miscellaneous liabilities

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
13,854
13,817
11,797
11,786
4,787
3,554
3,550
2,370
1,974
2,076
947
947
1,677
1,677
545
435
502
402
531
531
731
731
419
92
425
35
301
270
366
328
3,201
3,201
7,910
5,823
6,905
5,808
31,268
25,469
31,230
26,338

(82)

Bills purchased - contra represents liabilities arising from the outright purchases of checks before actual clearing
as a means of immediate financing offered by the BPI Group. Miscellaneous liabilities include insurance and
other employee-related payables.
Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
19,955
17,868
20,354
18,449
11,313
7,601
10,876
7,889
31,268
25,469
31,230
26,338

Current
Non-current

Note 22 - Capital Funds

Details of authorized share capital of the Parent Bank follow:
2014

Authorized capital (at P10 par value per share)

Common shares
Preferred A shares

2013
2012
(In Millions of Pesos,
Except Par Value Per Share)

49,000
600
49,600

49,000
600
49,600

49,000
600
49,600

Details of outstanding common shares follow:

2014
Issued common shares
At January 1
Issuance of shares during the year
At December 31
Subscribed common shares

3,558,720,023
373,494,161
3,932,214,184
5,056,319

2013
(In Number of Shares)
3,556,356,173
2,363,850
3,558,720,023
2,363,850

2012

3,556,356,173
3,556,356,173
-

Share premium as at December 31, 2014 amounts to P29,341 million (2013 - P8,316 million).
As at December 31, 2014, 2013 and 2012, the Parent Bank has 11,858, 12,111 and 12,447 common
shareholders, respectively. There are no preferred shares issued and outstanding at December 31, 2014, 2013
and 2012.

(83)

Details of and movements in Accumulated other comprehensive income (loss) for the years ended December 31
follow:

2014
Fair value reserve on available-for-sale
securities
At January 1
Unrealized fair value (loss) gain before tax
Deferred income tax effect
At December 31
Share in other comprehensive income (loss)
of insurance subsidiaries
At January 1
Share in other comprehensive income
(loss) for the year, before tax
Deferred income tax effect
At December 31
Share in other comprehensive income (loss)
of associates
At January 1
Share in other comprehensive income
(loss) for the year
At December 31
Translation adjustment on foreign operations
At January 1
Translation differences
At December 31
Actuarial (losses) gains on defined benefit
plan, net
At January 1
Actuarial (losses) gains for the year
Deferred income tax effect
At December 31

(2,952)
(1,406)
503
(3,855)

Consolidated
2014
2013
2012
(In Millions of Pesos)

Parent
2013

2012

1,748
(987)
269
1,030

(3,029)
(1,525)
482
(4,072)

642
(4,592)
921
(3,029)

1,192
(809)
259
642

1,030
(4,901)
919
(2,952)

36

289

137

157
(5)
188

(331)
78
36

169
(17)
289

1,530

1,618

1,116

254
1,784

(88)
1,530

502
1,618

(781)
503
(151)
(429)
(4,501)

(365)
(594)
178
(781)
(3,810)

(1,755)
1,986
(596)
(365)
277

(703)
(65)
(768)

(936)
233
(703)

(832)
(104)
(936)

(1,072)
713
(213)
(572)
(3,223)

(581)
(702)
211
(1,072)
(3,161)

(2,333)
2,504
(752)
(581)
1,420

On November 12, 2014, the Board of Directors of the Parent Bank approved to grant to qualified
beneficiaries/participants up to 3,200,000 shares for Executive Stock Option Plan (ESOP) and 4,100,000 shares
for Executive Stock Purchase Plan (ESPP).
On November 27, 2013, the Board of Directors of the Parent Bank approved to grant to qualified beneficiaries/
participants up to 3,500,000 shares for ESOP and up to 4,300,000 shares for ESPP.
The ESOP has a three-year vesting period with 1/3 of the option being vested at the end of each year from grant
date while the ESPP has a five-year payment period.
The exercise price for ESOP is equal to the volume weighted average of BPI share price for the most recent
previous 30-trading days from grant date. The weighted average fair value of options granted during 2014
determined using the Black-Scholes valuation model was P16.20 per option (2013 - P17.54).
Movements in the number of employee share options are as follows:

At January 1
Granted
Exercised
Cancelled
At December 31
Exercisable

2014
3,250,000
3,175,000
(75,000)
6,350,000
1,058,333

2013
3,250,000
3,250,000
-

(84)

The subscription price for ESPP is equivalent to 15% below the volume weighted average of BPI share price for
the most recent previous 30-trading days from grant date. The subscription dates for ESPP were on
November 12, 2014 and December 23, 2013.
The impact of ESOP is not considered material to the 2013 financial statements; thus, the disclosures were only
limited to the information mentioned above.
Details of and movements in Reserves for the years ended December 31 follow:

Surplus reserves
At January 1
Transfer from surplus
Executive stock plan amortization
At December 31

2014

Consolidated
2013

1,680
397
21
2,098

1,603
76
1
1,680

2014
2012
(In Millions of Pesos)
1,462
141
1,603

1,680
397
18
2,095

Parent
2013

2012

1,603
76
1
1,680

1,462
141
1,603

Parent
2013

2012

1,645
34
1
1,680

1,569
34
1,603

Surplus reserves consist of:

2014
Reserve for trust business
Reserve for self-insurance
Executive stock option plan amortization

2,043
34
21
2,098

Consolidated
2014
2013
2012
(In Millions of Pesos)
2,043
1,645
1,569
34
34
34
18
1
2,095
1,680
1,603

In compliance with existing BSP regulations, 10% of the Parent Banks income from trust business is
appropriated to surplus reserve. This yearly appropriation is required until the surplus reserve for trust business
reaches 20% of the Parent Banks regulatory net worth.
Reserve for self-insurance represents the amount set aside to cover losses due to fire, defalcation by and other
unlawful acts of personnel and third parties.
Cash dividends declared by the Board of Directors of the Parent Bank during the years 2012 to 2014 follow:

Date declared
March 21, 2012
March 21, 2012
October 21, 2012
April 17, 2013
November 6, 2013
May 21, 2014

Date approved by the BSP

April 10, 2012
April 10, 2012
November 16, 2012
May 15, 2013
December 5, 2013
June 19, 2014

Amount of dividends
Total
Per share
(In Millions of Pesos)
0.50
1,778
0.90
3,201
0.90
3,201
0.90
3,201
0.90
3,201
0.90
3,538

On November 19, 2014, cash dividend of P0.90 per share was declared by the Board of Directors, which was
approved by the BSP on February 2, 2015.
Cash dividends declared are payable to common shareholders of record as of 15th working day from receipt by
the Parent Bank of the approval by the BSP and distributable on the 15th working day from the said record date.

(85)

The calculation of earnings per share (EPS) is shown below:

Consolidated
Parent
2014
2014
2013
2012
2013
2012
(In Millions, Except Earnings Per Share Amounts)
a) Net income attributable to equity holders
of the Parent Bank
b) Weighted average number of common
shares outstanding during the year
c) Basic EPS (a/b)

18,039

18,811

16,352

13,270

14,468

12,427

3,905
4.62

3,627
5.19

3,556
4.60

3,905
3.40

3,627
3.99

3,556
3.49

For 2013, the weighted average number of common shares outstanding during the year has been adjusted to take
into consideration the rights issue approved by the Board of Directors on November 6, 2013. The Parent Bank
offered for subscription a total of 370,370,370 common shares to eligible shareholders on a pre-emptive rights basis
at P67.50 per share. The stock rights have been fully subscribed and listed on February 10, 2014. The proceeds
from the rights offer amounting to P25 billion has increased the Parent Banks capital base.
The basic and diluted EPS are the same for the years presented as the stock options outstanding is not significant
to impact the weighted average number of common shares.
Note 23 - Other Operating Income
Details of other operating income follow:

2014
Trust and asset management fees
Rental income
Credit card income
Gain on sale of assets
Dividend income
Others

Consolidated
2013

3,433
1,796
1,550
1,363
22
2,504
10,668

3,723
1,830
1,359
1,296
28
1,278
9,514

2014
2012
(In Millions of Pesos)
2,913
1,698
1,342
1,192
27
706
7,878

2,793
439
1,548
2,418
572
2,201
9,971

Parent
2013
3,026
425
1,359
1,028
1,923
795
8,556

2012
2,453
415
1,342
640
1,383
538
6,771

Trust and asset management fees arise from the BPI Groups asset management and trust services and are based
on agreed terms with various managed funds and investments.
Rental income is earned by the BPI Group by leasing out its investment properties (Note 15) and other assets which
consist mainly of fleet of vehicles.
Gain on sale of assets arises mainly from disposals of properties (including equity investments), foreclosed
collaterals and non-performing assets.
Dividend income recognized by the Parent Bank substantially pertains to dividend distribution of subsidiaries.
Other income includes recoveries on charged-off assets and revenues from service arrangements with
customers and a related party.

(86)

Note 24 - Leases
The BPI Group and the Parent Bank have various lease agreements which mainly pertain to branch premises that
are renewable under certain terms and conditions. The rentals (included in Occupancy and equipment-related
expenses) under these lease contracts are as follows:
Consolidated
Parent
(In Millions of Pesos)
1,160
937
1,071
869
936
745

2014
2013
2012

The future minimum lease payments under non-cancellable operating leases of the BPI Group are as follows:
2014
2013
(In Millions of Pesos)
59
67
90
85
149
152

No later than 1 year

Later than 1 year but no later than 5 years

Note 25 - Operating Expenses

Details of compensation and fringe benefits expenses follow:

Salaries and wages

Retirement expense (Note 28)
Other employee benefit expenses

2014

Consolidated
2013

9,516
826
1,508
11,850

8,788
786
1,067
10,641

2014

Consolidated
2013

2014
2012
(In Millions of Pesos)
7,610
8,328
670
1,032
1,288
1,110
9,568
10,470

Parent
2013

2012

6,831
639
822
8,292

6,565
822
875
8,262

Parent
2013

2012

1,269
1,104
594
441
239
349
333

1,127
1,268
556
351
130
321
332

197
215
18
1,113
5,872

134
207
33
919
5,378

Details of other operating expenses follow:

Insurance
Advertising
Travel and communication
Supervision and examination fees
Taxes and licenses
Litigation expenses
Amortization expense
Management and other
professional fees
Office supplies
Shared expenses
Others

2,513
1,335
722
497
469
417
316

1,908
1,346
696
500
461
521
337

297
275
2,252
9,093

261
256
1,736
8,022

2014
2012
(In Millions of Pesos)
1,642
1,685
1,163
1,457
601
662
436
398
295
237
224
444
312
334
188
248
1,486
7,139

251
226
22
1,421
6,593

Others include fees and incentives paid to agents, outsourcing fees and other business expense.

(87)

Note 26 - Income Taxes

A reconciliation between the provision for income tax at the statutory tax rate and the actual provision for income
tax for the years ended December 31 follows:

2014
Rate
Amount
(%)
Statutory income tax
Effect of items not subject to statutory tax rate:
Income subjected to lower tax rates
Tax-exempt income
Others, net
Actual income tax

6,906

30.00

(1,571)
(2,062)
1,685
4,958

(6.82)
(8.96)
7.31
21.53

2014
Rate
Amount
(%)
Statutory income tax
Effect of items not subject to statutory tax rate:
Income subjected to lower tax rates
Tax-exempt income
Others, net
Actual income tax

5,067

30.00

(1,491)
(1,035)
1,080
3,621

(8.83)
(6.13)
6.39
21.43

Consolidated
2013
Rate
Amount
(%)
(In Millions of Pesos)
6,944
30.00
(689)
(2,938)
836
4,153

(2.98)
(12.69)
3.61
17.94

Parent
2013
Rate
Amount
(%)
(In Millions of Pesos)
5,207
30.00
(645)
(1,993)
320
2,889

(3.72)
(11.48)
1.85
16.65

2012
Rate
(%)

Amount
5,898

30.00

(1,132)
(2,850)
1,242
3,158

(5.76)
(14.50)
6.32
16.06

2012
Amount

Rate
(%)

4,397

30.00

(868)
(1,982)
684
2,231

(5.92)
(13.52)
4.66
15.22

Note 27 - Basic Quantitative Indicators of Financial Performance

The key financial performance indicators follow (in %):

Return on average equity

Return on average assets
Net interest margin

Consolidated
2014
2013
13.75 18.05
1.44
1.87
3.03
3.31

Parent
2014
2013
13.37
19.05
1.33
1.87
2.73
3.09

Note 28 - Retirement Plans

BPI and its subsidiaries, and a non-life insurance subsidiary have separate trusteed, noncontributory retirement
benefit plans covering all qualified officers and employees. The description of the plans follows:
BPI
BPI has a unified plan which includes its subsidiaries other than insurance companies. Under this plan, the
normal retirement age is 60 years. Normal retirement benefit consists of a lump sum benefit equivalent to 200%
of the basic monthly salary of the employee at the time of his retirement for each year of service, if he has
rendered at least 10 years of service, or to 150% of his basic monthly salary, if he has rendered less than 10
years of service. For voluntary retirement, the benefit is equivalent to 112.50% of the employees basic monthly
salary for a minimum of 10 years of service with the rate factor progressing to a maximum of 200% of basic
monthly salary for service years of 25 or more. Death or disability benefit, on the other hand, shall be
determined on the same basis as in voluntary retirement.
The net defined benefit cost and contributions to be paid by the entities within the BPI Group are determined by
an independent actuary.
Plan assets are held in trusts, governed by local regulations and practice in the Philippines.

(88)

Non-life insurance subsidiary

BPI/MS has a separate trusteed defined benefit plan. Under the plan, the normal retirement age is 60 years or
the employee should have completed at least 10 years of service, whichever is earlier. The normal retirement
benefit is equal to 150% of the final basic monthly salary for each year of service for below 10 years and 175% of
the final basic monthly salary for each year of service for 10 years and above.
Death or disability benefit for all employees of the non-life insurance subsidiary shall be determined on the same
basis as in normal or voluntary retirement as the case may be.
Following are the amounts recognized based on recent actuarial valuations:
(a) Pension liability as at December 31 recognized in the statement of condition
Consolidated
2014
2013
(In Millions of Pesos)
11,541
11,495
(11,133)
(10,261)
408
1,234

Present value of defined benefit obligations

Fair value of plan assets
Pension liability recognized in the statement of condition

Parent
2014
2013
(In Millions of Pesos)
9,498
9,277
(9,165)
(8,332)
333
945

Present value of defined benefit obligations

Fair value of plan assets
Pension liability recognized in the statement of condition

Pension liability is shown as part of Miscellaneous liabilities within Deferred credits and other liabilities
(Note 21).
The movement in plan assets is summarized as follows:

At January 1
Fund transfer due to transferred employees from a
subsidiary
Asset return in net interest cost
Contributions
Benefit payments
Remeasurement - return on plan assets
At December 31

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
10,261
8,332
10,406
8,385
544
942
(1,110)
496
11,133

687
756
(1,158)
(430)
10,261

108
448
766
(897)
408
9,165

553
605
(866)
(345)
8,332

The carrying value of the plan assets as at December 31, 2014 is equivalent to the fair value of P11,133 million
(2013 - P10,261 million).
The plan assets are comprised of the following:

2014
Amount
Debt securities
Equity securities
Others

5,940
5,177
16
11,133

Consolidated
Parent
2014
2013
2013
%
%
Amount
%
Amount
%
Amount
(In Millions of Pesos Except for Rates)
4,890
53
5,306
52
53
4,309
52
4,262
47
4,933
48
47
4,006
48
13
22
17
9,165 100
100
10,261 100
8,332 100

(89)

Pension plan assets of the unified retirement plan include investment in BPIs common shares with carrying
amount of P958 million (2013 - P1,232 million) and fair value of P2,365 million at December 31, 2014
(2013 - P2,750 million). Realized and unrealized gains coming from BPIs common shares amount to
P489 million and P1,407 million in 2014, respectively (2013 - P474 million and P1,518 million). The actual return
on plan assets of the BPI Group was P1,040 million in 2014 (2013 - P257 million). An officer of the Parent Bank
exercises the voting rights over the plans investment in BPIs common shares.
The movement in the present value of defined benefit obligation is summarized as follows:

At January 1
Present value of defined benefit obligation for transferred
employees from a subsidiary
Current service cost
Past service cost
Interest cost
Benefit payments
Remeasurement - changes in financial assumptions
At December 31

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
11,495
9,277
10,909
8,702
759
611
(1,110)
(214)
11,541

764
(11)
720
(1,158)
271
11,495

95
621
497
(897)
(95)
9,498

618
574
(866)
249
9,277

The BPI Group has no other transactions with the plan other than the contributions presented above for the
years ended December 31, 2014 and 2013.
(b) Expense recognized in the statement of income

Current service cost

Net interest cost
Past service cost

Consolidated
Parent
2014
2014
2013
2012
2013
(In Millions of Pesos)
759
621
764
816
618
67
49
33
216
21
(11)
826
670
786
1,032
639

2012
657
165
822

The principal assumptions used for the actuarial valuations of the unified plan of the BPI Group are as follows:

Discount rate
Future salary increases

2014
5.31%
5.00%

2013
5.31%
4.00%

Assumptions regarding future mortality and disability experience are based on published statistics generally used
for local actuarial valuation purposes.
The defined benefit plan typically exposes the BPI Group to a number of risks such as investment risk, interest rate
risk and salary risk. The most significant of which relate to investment and interest rate risk. The present value of
the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of
government bonds that are denominated in the currency in which the benefits will be paid, and that have terms to
maturity approximating the terms of the related pension liability. A decrease in government bond yields will increase
the defined benefit obligation although this will also be partially offset by an increase in the value of the plans fixed
income holdings. Hence, the present value of defined benefit obligation is directly affected by the discount rate to be
applied by the BPI Group. However, the BPI Group believes that due to the long-term nature of the pension liability
and the strength of the BPI Group itself, the mix of debt and equity securities holdings of the plan is an appropriate
element of the BPI Groups long term strategy to manage the plan efficiently.

(90)

The BPI Group ensures that the investment positions are managed within an asset-liability matching framework that
has been developed to achieve long-term investments that are in line with the obligations under the plan. The BPI
Groups main objective is to match assets to the defined benefit obligation by investing primarily in long-term debt
securities with maturities that match the benefit payments as they fall due. The asset-liability matching is being
monitored on a regular basis and potential change in investment mix is being discussed with the trustor, as
necessary to better ensure the appropriate asset-liability matching.
The average remaining service life of employees under the BPI unified retirement plan as at December 31, 2014
is 12 years (2013 - 20 years). The BPI Group contributes to the plan depending on the suggested funding
contribution as calculated by an independent actuary. The expected contribution for the year ending
December 31, 2015 for the BPI Group and Parent amounts to P968 million and P797 million, respectively.
The projected maturity analysis of retirement benefit payments as at December 31 are as follows:
Consolidated
(In Millions of Pesos)
Less than a year
Between 1 to 5 years
Between 5 to 10 years
Between 10 to 15 years
Between 15 to 20 years
Over 20 years

2014
868
3,485
4,829
8,623
12,962
74,609

2013
865
3,327
4,370
6,768
10,463
47,518

2014
637
2,709
4,000
7,558
10,873
54,499

2013
692
2,516
3,392
5,905
8,722
36,697

Parent
(In Millions of Pesos)
Less than a year
Between 1 to 5 years
Between 5 to 10 years
Between 10 to 15 years
Between 15 to 20 years
Over 20 years

The sensitivity of the defined benefit obligation as at December 31 to changes in the weighted principal
assumptions follows:
Consolidated
2014

Discount rate
Salary growth rate

Change in
assumption
0.5%
1.0%

Impact on defined benefit obligation

Increase in
assumption
Decrease in assumption
Decrease by 0.94%
Increase by 1.52%
Increase by 3.92%
Decrease by 1.60%

Change in
assumption
0.5%
1.0%

Impact on defined benefit obligation

Increase in
assumption
Decrease in assumption
Decrease by 1.66%
Increase by 3.02%
Increase by 7.13%
Decrease by 2.57%

2013

Discount rate
Salary growth rate

(91)

Parent
2014

Discount rate
Salary growth rate

Change in
assumption
0.5%
1.0%

Impact on defined benefit obligation

Increase in
assumption
Decrease in assumption
Decrease by 0.95%
Increase by 1.55%
Increase by 3.99%
Decrease by 1.61%

Change in
assumption
0.5%
1.0%

Impact on defined benefit obligation

Increase in
assumption
Decrease in assumption
Decrease by 1.69%
Increase by 3.13%
Increase by 7.39%
Decrease by 2.61%

2013

Discount rate
Salary growth rate

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions
constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated.
When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same
method (present value of the defined benefit obligation calculated with the projected unit credit method at the
end of the reporting period) has been applied as when calculating the retirement liability recognized within the
statement of condition.
Note 29 - Trust Assets
At December 31, 2014, the net asset value of trust and fund assets administered by the BPI Group amounts to
P619 billion (2013 - P580 billion).
Government securities deposited by the BPI Group and the Parent Bank with the BSP in compliance with the
requirements of the General Banking Act relative to the trust functions follow:

Government securities

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
9,425
5,386
6,702
6,650

Note 30 - Related Party Transactions

In the normal course of the business, the Parent Bank transacts with related parties consisting of its subsidiaries
and associates. Likewise, the BPI Group has transactions with Ayala Corporation (AC) and its subsidiaries (Ayala
Group). AC has a significant influence over the BPI Group as at reporting date.
These transactions such as loans and advances, deposit arrangements, trading of government securities and
commercial papers, sale of assets, lease of bank premises, investment advisory/management, service
arrangements and advances for operating expenses are made in the normal banking activities and have terms and
conditions that are generally comparable to those offered to non-related parties or to similar transactions in the
market.
The Parent Bank has a Related Party Transactions Committee that reviews and endorses all related party
transactions, including those involving DOSRI, which shall require final Board approval. The Committee consists
of four directors, two of whom are independent directors including the Chairman.

(92)

Significant related party transactions and outstanding balances as at and for the years ended December 31 are
summarized below (transactions with subsidiaries have been eliminated in the consolidated financial statements):
Consolidated
2014
Outstanding
Transactions
balances
(In Millions of Pesos)
Loans and advances from:
Subsidiaries
Associates
AC
Subsidiaries of AC
Key management personnel
Other related parties
Deposits from:
Subsidiaries
Associates
Ayala Group
Key management personnel

(163)
8,000
56,464
863

31
14,250
72,529
863

65,164

87,673

(910)
317
10,232
1,707

6,026
989
31,391
2,721

11,346

41,127

Terms and conditions

These are loans and advances granted

to related parties that are generally
secured with interest rates ranging from
0.99% to 5.49% and with maturity
periods ranging from 23 days to
10 years. Additional information on
DOSRI loans are discussed below.

These are demand, savings and time

deposits bearing the following average
interest rates:
Demand - 0.23% to 0.24%
Savings - 0.83% to 0.86%
Time
- 1.70% to 1.76%

(93)

2013
Outstanding
Transactions
balances
(In Millions of Pesos)
Loans and advances from:
Subsidiaries
Associates
AC
Subsidiaries of AC
Key management personnel

Deposits from:
Subsidiaries
Associates
Ayala Group
Key management personnel

(202)
11,403
-

194
6,250
16,065
-

11,201

22,509

2,885
613
(17,910)
704

6,936
672
21,159
1,014

(13,708)

29,781

Terms and conditions

These are loans and advances granted

to related parties that are generally
secured with interest rates ranging from
0.65% to 8.04% and with maturity
periods ranging from 8 days to
12 years. Additional information on
DOSRI loans are discussed below.

These are demand, savings and time

deposits bearing the following average
interest rates:
Demand - 0.28% to 0.36%
Savings - 0.70% to 0.98%
Time
- 2.20% to 3.25%

2012
Outstanding
Transactions
balances
(In Millions of Pesos)
Loans and advances from:
Subsidiaries
Associates
AC
Subsidiaries of AC
Key management personnel

Deposits from:
Subsidiaries
Associates
Ayala Group
Key management personnel

(1,285)
1,750
4,460
-

396
6,250
4,662
-

4,925

11,308

724
16
21,216
(32)

4,051
59
39,069
310

21,924

43,489

Terms and conditions

These are loans and advances granted

to related parties that are generally
secured with interest rates ranging from
1.19% to 6.50% and with maturity
periods ranging from 2 days to
12 years. Additional information on
DOSRI loans are discussed below.

These are demand, savings and time

deposits bearing the following average
interest rates:
Demand - 0.40% to 0.55%
Savings - 0.95% to 1.06%
Time
- 3.45% to 3.71%

(94)

Parent
2014
Outstanding
Transactions
balances
(In Millions of Pesos)
Loans and advances from:
Subsidiaries
Associates
AC
Subsidiaries of AC
Key management personnel
Other related parties
Deposits from:
Subsidiaries
Associates
Ayala Group
Key management personnel

(163)
8,000
56,464
863

31
14,250
72,529
863

65,164

87,673

647
303
9,286
1,454

5,945
975
30,445
2,468

11,690

39,833

Terms and conditions

These are loans and advances granted

to related parties that are generally
secured with interest rates ranging from
0.99% to 5.49% and with maturity
periods ranging from 23 days to
10 years. Additional information on
DOSRI loans are discussed below.

These are demand, savings and time

deposits bearing the following average
interest rates:
Demand - 0.21% to 0.23%
Savings - 0.77% to 0.80%
Time
- 0.78% to 0.94%

2013
Outstanding
Transactions
balances
(In Millions of Pesos)
Loans and advances from:
Subsidiaries
Associates
AC
Subsidiaries of AC
Key management personnel

Deposits from:
Subsidiaries
Associates
Ayala Group
Key management personnel

194
11,653
-

194
6,250
16,065
-

11,847

22,509

1,955
613
(17,910)
704

5,298
672
21,159
1,014

(14,638)

28,143

Terms and conditions

These are loans and advances granted

to related parties that are generally
secured with interest rates ranging from
0.65% to 8.04% and with maturity
periods ranging from 8 days to
12 years. Additional information on
DOSRI loans are discussed below.

These are demand, savings and time

deposits bearing the following average
interest rates:
Demand - 0.26% to 0.35%
Savings - 0.64% to 0.92%
Time
- 1.42% to 2.61%

(95)

2012
Outstanding
Transactions
balances
(In Millions of Pesos)
Loans and advances from:
Subsidiaries
Associates
AC
Subsidiaries of AC
Key management personnel

Deposits from:
Subsidiaries
Associates
Ayala Group
Key management personnel

(1,681)
(1,750)
4,210
-

6,250
4,412
-

779

10,662

277
16
21,216
(342)

3,343
59
39,069
310

21,167

42,781

Terms and conditions

These are loans and advances granted

to related parties that are generally
secured with interest rates ranging from
1.19% to 6.50% and with maturity
periods ranging from 5 days to
12 years. Additional information on
DOSRI loans are discussed below.

These are demand, savings and time

deposits bearing the following average
interest rates:
Demand - 0.39% to 0.55%
Savings - 0.92% to 1.05%
Time
- 2.87% to 3.18%

The aggregate amounts included in the determination of income before income tax that resulted from
transactions with each class of related parties are as follows:
Consolidated
2014

2013

2012

(In Millions of Pesos)

Interest income
Subsidiaries
Associates
AC
Subsidiaries of AC
Key management personnel
Other related parties
Other income
Subsidiaries
Associates
AC
Subsidiaries of AC
Key management personnel
Interest expense
Subsidiaries
Associates
Ayala Group
Key management personnel

10
384
582
16
992

5
127
368
500

76
3
119
88
286

817
37
798
1,652

1,018
577
16
(75)
1,536

973
370
22
62
1,427

10
2
118
20
150

5
3
68
5
81

21
301
2
324

(96)

2014
Other expenses
Subsidiaries
Associates
AC
Subsidiaries of AC
Key management personnel
Retirement benefits
Key management personnel
Salaries, allowances and other short-term benefits
Key management personnel
Directors remuneration

2013

2012

101
116
277
494

1,003
175
42
1,220

905
132
49
1,086

58

33

39

673
69

701
57

556
51

Parent
2014

2013

2012

(In Millions of Pesos)

Interest income
Subsidiaries
Associates
AC
Subsidiaries of AC
Key management personnel
Other related parties
Other income
Subsidiaries
Associates
AC
Subsidiaries of AC
Key management personnel
Interest expense
Subsidiaries
Associates
Ayala Group
Key management personnel
Other expenses
Subsidiaries
Associates
AC
Subsidiaries of AC
Key management personnel
Retirement benefits
Key management personnel
Salaries, allowances and other short-term benefits
Key management personnel
Directors remuneration

1
384
582
16
983
708
729
1,437

2
127
368
497

56
3
119
82
260

585
577
(131)
1,031

577
370
947

9
2
115
15
141

5
3
68
5
81

7
301
2
310

45
116
51
212

900
175
42
1,117

343
132
49
524

49

29

36

570
61

570
50

487
38

Other income mainly consists of rental income and revenue from service arrangements with related parties. Also,
in November 2014, an investment property was sold to a related party for P1.59 billion resulting in a gain of
P729 million. In March 2013, a loss arising from sale of an impaired investment property was recognized.
Other expenses mainly consist of rental expenses and management fees.

(97)

There were no provisions recognized against receivables from related parties. Also, no additional provision was
recognized during the year.
Details of DOSRI loans are as follows:

Outstanding DOSRI loans

% to total outstanding loans and advances

% to total outstanding DOSRI loans
Unsecured DOSRI loans
Past due DOSRI loans
Non-performing DOSRI loans

Consolidated
Parent
2014
2014
2013
2013
(In Millions of Pesos)
21,458
21,428
6,871
6,837
In percentages (%)
Consolidated
Parent
2014
2014
2013
2013
2.65
3.41
1.07
1.42
17.26
0.05
0.04

28.23
0.15
0.14

17.28
0.05
0.04

28.23
0.15
0.14

At December 31, 2014 and 2013, the BPI Group is in full compliance with the General Banking Act and the BSP
regulations on DOSRI loans.
Note 31 - Commitments and Contingencies
At present, there are lawsuits, claims and tax assessments pending against the BPI Group. In the opinion of
management, after reviewing all actions and proceedings and court decisions with legal counsels, the aggregate
liability or loss, if any, arising therefrom will not have a material effect on the BPI Groups financial position or
financial performance.
BPI and some of its subsidiaries are defendants in legal actions arising from normal business activities.
Management believes that these actions are without merit or that the ultimate liability, if any, resulting from them will
not materially affect the financial statements.
In the normal course of business, the BPI Group makes various commitments (Note 3.1.4) that are not presented
in the financial statements. The BPI Group does not anticipate any material losses from these commitments.
Note 32 - Events After the Reporting Date
BPI entered into an agreement to sell its merchant acquiring business to Global Payments Asia Pacific-Philippines,
Inc. (GPAP) and to subscribe to primary shares of GPAP for a 49% stake in the entity. The transaction is currently
pending regulatory approval and is expected to be completed in the second quarter of 2015.
Note 33 - Supplementary information required by the Bureau of Internal Revenue
Supplementary information required by Revenue Regulations No. 15-2010
On December 28, 2010, Revenue Regulations (RR) No. 15-2010 became effective and amended certain provisions
of RR No. 21-2002 prescribing the manner of compliance with any documentary and/or procedural requirements in
connection with the preparation and submission of financial statements and income tax returns. Section 2 of RR
No. 21-2002 was further amended to include in the Notes to Financial Statements information on taxes, duties and
license fees paid or accrued during the year in addition to what is mandated by PFRS.

(98)

Below is the additional information required by RR No. 15-2010 that is relevant to the Parent Bank. This information
is presented for purposes of filing with the Bureau of Internal Revenue (BIR) and is not a required part of the basic
financial statements.
(i)

Documentary stamp tax

Documentary stamp taxes paid for the year ended December 31, 2014 consist of:
(In Millions of Pesos)
Deposit and loan documents
Trade finance documents
Mortgage documents
Others

Amount
2,749
178
90
4
3,021

A portion of the amount disclosed above was passed on to the counterparties.

(ii) Withholding taxes
Withholding taxes paid/accrued and/or withheld for the year ended December 31, 2014 consist of:

(In Millions of Pesos)

Income taxes withheld on compensation
Final income taxes withheld on interest on deposits and yield on deposit
substitutes
Creditable income taxes withheld (expanded)
Final income taxes withheld on income payment
Fringe benefit tax
VAT withholding tax

Paid
1,835
903
706
606
35
26
4,111

Amount
Accrued
199
116
85
25
30
10
465

Total
2,034
1,019
791
631
65
36
4,576

(iii) All other local and national taxes

All other local and national taxes paid/accrued for the year ended December 31, 2014 consist of:

(In Millions of Pesos)

Gross receipts tax
Real property tax
Municipal taxes
Others

Paid
2,310
116
83
34
2,543

Amount
Accrued
259
259

Total
2,569
116
83
34
2,802

(iv) Tax cases and assessments

As at reporting date, the Parent Bank has outstanding cases filed in courts against local government units
contesting certain local tax assessments and with the tax authorities for various claims for tax refund.
Management is of the opinion that the ultimate outcome of these cases will not have a material impact on
the financial statements of the Parent Bank. Also, the taxable years 2011, 2012 and 2013 remain open, for
which no assessment has yet been received.

(99)

COVER SHEET
for
AUDITED FINANCIAL STATEMENTS
SEC Registration Number

1 1 7 7
Company Name
G L O B E

T E L E C O M ,

I N C .

A N D

S U B S I D I A R I E S

Principal Office (No./Street/Barangay/City/Town/Province)

T h e

G l o b e

T o w e r ,

c o r n e r

7 t h

A v e n u e

G l o b a l

C i

Form Type

t y

3 2 n d
,

S t r e e t

B o n i

f a c i o

T a g u i g

Department requiring the report

Secondary License Type, If Applicable

A A C F S
COMPANY INFORMATION
Companys Email Address

Companys Telephone Number/s

Mobile Number

730-2000

No. of Stockholders

Annual Meeting
Month/Day

Fiscal Year
Month/Day

04/08

12/31

CONTACT PERSON INFORMATION

The designated contact person MUST be an Officer of the Corporation

Name of Contact Person

Email Address

Telephone Number/s

Alberto M. de Larrazabal

amdelarrazabal@globe.com.ph

797-4889

Mobile Number

Contact Persons Address

Note: In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission
within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated.

*SGVFS010845*

SyCip Gorres Velayo & Co.

6760 Ayala Avenue
1226 Makati City
Philippines

Tel: (632) 891 0307

Fax: (632) 819 0872
ey.com/ph

BOA/PRC Reg. No. 0001,

December 28, 2012, valid until December 31, 2015
SEC Accreditation No. 0012-FR-3 (Group A),
November 15, 2012, valid until November 16, 2015

INDEPENDENT AUDITORS REPORT

The Stockholders and the Board of Directors

Globe Telecom, Inc.
The Globe Tower
32nd Street corner 7th Avenue
Bonifacio Global City, Taguig

We have audited the accompanying consolidated financial statements of Globe Telecom, Inc. and
Subsidiaries, which comprise the consolidated statements of financial position as at
December 31, 2014 and 2013 and the consolidated statements of comprehensive income, consolidated
statements of changes in equity and consolidated statements of cash flows for each of the three years
in the period ended December 31, 2014, and a summary of significant accounting policies and other
explanatory information.
Managements Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with Philippine Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation and fair presentation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on the auditors judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditors consider internal control
relevant to the entitys preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entitys internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.

*SGVFS010845*
A member firm of Ernst & Young Global Limited

-2-

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of Globe Telecom, Inc. and Subsidiaries as at December 31, 2014 and 2013 and
their financial performance and their cash flows for each of the three years in the period ended
December 31, 2014 in accordance with Philippine Financial Reporting Standards.

SYCIP GORRES VELAYO & CO.

Lucy L. Chan
Partner
CPA Certificate No. 88118
SEC Accreditation No. 0114-AR-3 (Group A),
February 4, 2013, valid until February 3, 2016
Tax Identification No. 152-884-511
BIR Accreditation No. 08-001998-46-2012,
April 11, 2012, valid until April 10, 2015
PTR No. 4751267, January 5, 2015, Makati City
February 4, 2015

*SGVFS010845*
A member firm of Ernst & Young Global Limited

GLOBE TELECOM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 31

Notes
ASSETS
Current Assets
Cash and cash equivalents
Receivables
Inventories and supplies
Derivative assets
Prepayments and other current assets
Noncurrent Assets
Property and equipment
Intangible assets and goodwill
Investments and advances
Deferred income tax assets - net
Derivative assets
Other noncurrent assets

Noncurrent Liabilities
Long-term debt - net of current portion
Deferred income tax liabilities - net
Other long-term liabilities

16,756,908
17,860,750
3,186,415
8,319
8,929,671
46,742,063

7,420,735
15,200,923
3,544,887
1,834
9,462,823
35,631,202

7
7,8
10
24
28
11

117,229,158
5,671,644
450,717
1,904,298
580,224
6,928,848
132,764,889
179,506,952

110,424,072
3,840,660
162,754
1,916,878
553,562
6,549,805
123,447,731
159,078,933

12, 16, 28
14, 28
14, 28
4
24
13
28

47,526,559

6,129,663
4,609,967
1,587,428
401,288
94,809
60,349,714

37,993,010
5,219,900
5,980,300
4,253,464
1,028,263
294,700
219,694
54,989,331

14, 28
24
15, 28

59,146,140
399
5,473,033
64,619,572
124,969,286

58,100,749

4,349,602
62,450,351
117,439,682

17
16, 17
17, 28
17

44,478,242
189,433
(977,853)
10,852,478
54,542,300
(4,634)
54,537,666
179,506,952

34,402,396
261,144
(739,575)
7,715,286
41,639,251

41,639,251
159,078,933

Total Liabilities
Equity
Equity attributable to equity holders of the parent
Paid-up capital
Cost of share-based payments
Other reserves
Retained earnings
Equity attributable to equity holders of the parent
Non-controlling interest
Total Equity
Total Liabilities and Equity

2013

28, 30
4, 16, 28
5
28
6

Total Assets

LIABILITIES AND EQUITY

Current Liabilities
Accounts payable and accrued expenses
Notes payable
Current portion of long-term debt
Unearned revenues
Income tax payable
Provisions
Derivative liabilities

2014
(In Thousand Pesos)

See accompanying Notes to Consolidated Financial Statements.

*SGVFS010845*

GLOBE TELECOM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31
Notes
REVENUES
Service revenues
Nonservice revenues
INCOME
Interest income
Gain on disposals of property and equipment - net
Other income - net
COSTS AND EXPENSES
General, selling and administrative
Depreciation and amortization:
Incremental effect of network modernization
Others
Interconnect costs
Cost of sales
Financing costs
Impairment losses and others
Equity in net losses of associates and joint ventures

16, 29
29

99,024,604
4,211,109
103,235,713

90,500,137
4,640,848
95,140,985

82,742,565
3,703,584
86,446,149

19, 25.5, 29
7, 29
20, 29

682,998
101,159
470,647
1,254,804

688,249
64,333
475,246
1,227,828

579,851
42,447
716,371
1,338,669

21
7, 8, 29

41,382,877

37,318,839

33,602,411

1,623,172
16,500,352
8,429,934
10,661,344
2,565,706
3,720,169
224,257
85,107,811

9,065,966
18,411,528
9,280,229
9,953,106
2,911,785
2,482,628
79,959
89,504,040

5,080,471
18,502,946
8,859,309
7,678,359
2,362,609
1,863,584
83,582
78,033,271

19,382,706

6,864,773

9,751,547

5,879,878
130,636
6,010,514

4,995,416
(3,090,888)
1,904,528

4,355,699
(1,449,406)
2,906,293

13,372,192

4,960,245

6,845,254

(397,930)
119,379
(278,551)

(492,009)
147,603
(344,406)

(289,283)
86,785
(202,498)

7,724

223,182

45,529

20,392

(22,500)

43,974

14,474
(2,317)
40,273
(238,278)
13,133,914

(2,357)
(66,955)
131,370
(213,036)
4,747,209

4,470
(13,659)
80,314
(122,184)
6,723,070

29
5
14, 22, 25, 29
5, 23
10, 29

INCOME BEFORE INCOME TAX

PROVISION FOR INCOME TAX
Current
Deferred

24

NET INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
Items that will not be reclassified into profit or loss
in subsequent periods:
Remeasurement losses on defined benefit plan
Income tax effect
Items that will be reclassified into profit or loss in
subsequent periods:
Transactions on cash flow hedges - net
Changes in fair value of available-for-sale
investments in equity securities
Exchange differences arising from translations of
foreign investments
Income tax effect

TOTAL COMPREHENSIVE INCOME

2013
2012
2014
(In Thousand Pesos, Except Per Share Figures)

17

(Forward)

*SGVFS010845*

-2-

Years Ended December 31

Notes
Total net income (loss) attributable to:
Equity holders of the parent
Non-controlling interest

Total comprehensive income (loss) attributable to:

Equity holders of the parent
Non-controlling interest

Earnings Per Share

Basic

13,376,381
(4,189)

4,960,245

6,845,254

13,372,192

4,960,245

6,845,254

13,138,103

4,747,209

6,723,070

4,747,209

6,723,070

100.60

37.25

51.45

100.36

37.22

51.38

75.00

67.00

65.00

(4,189)
13,133,914
27

Diluted
Cash dividends declared per common share

2013
2012
2014
(In Thousand Pesos, Except Per Share Figures)

17

See accompanying Notes to Consolidated Financial Statements.

*SGVFS010845*

GLOBE TELECOM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Year Ended December 31, 2014

Attributable to Equity Holders of the Parent

Notes
As of January 1, 2014
Total comprehensive income for the year
Dividends on:
Common stock
Preferred stock - voting
Preferred stock - non-voting
Cost of share-based payments
Issuance of non-voting preferred stock
Equity transaction costs on non-voting preferred stock
Non-controlling interest arising from a business combination
Exercise of stock options
As of December 31, 2014

17.3

18.1

17.2

Capital
Stock
(Note 17)

Additional
Paid-in
Capital

Cost of
Share-based
Payments
(Note 16.5)

7,422,360

26,980,036

261,144

Other
Reserves
Retained
Non-controlling
(Note 17)
Earnings
Subtotal
Interest
Total
(In Thousand Pesos)
41,639,251
(739,575) 7,715,286 41,639,251
(238,278) 13,376,381 13,138,103
(4,189) 13,133,914

1,000,000

6,869
8,429,229

9,000,000
(61,429)

130,406
36,049,013

31,841

(103,552)
189,433

(9,952,702)

(26,457)

(260,030)

(977,853) 10,852,478

(9,952,702)
(26,457)
(260,030)
31,841
10,000,000
(61,429)

33,723
54,542,300

(9,952,702)

(26,457)

(260,030)

31,841

10,000,000

(61,429)
(445)
(445)

33,723
(4,634) 54,537,666

*SGVFS010845*

-2-

Notes
As of January 1, 2013
Total comprehensive income for the year
Dividends on:
Common stock
Preferred stock
Cost of share-based payments
Exercise of stock options
As of December 31, 2013

17.3
18.1
17.2

Notes
As of January 1, 2012
Total comprehensive income for the year
Dividends on:
Common stock
Preferred stock
Cost of share-based payments
Exercise of stock options
As of December 31, 2012
See accompanying Notes to Consolidated Financial Statements.

17.3
18.1
17.2

For the Year Ended December 31, 2013

Additional
Cost of
Other
Retained
Paid-in Share-based
Reserves
Earnings
Capital
Payments
(Note 17)
(In Thousand Pesos)
7,412,866 26,683,110
472,911
(526,539)
11,655,643

(213,036)
4,960,245

45,697,991
4,747,209

9,494
296,926
7,422,360 26,980,036

(8,876,764)
(23,838)

7,715,286

(8,876,764)
(23,838)
50,000
44,653
41,639,251

For the Year Ended December 31, 2012

Additional
Cost of
Other
Retained
Paid-in Share-based
Reserves
Earnings
Capital
Payments
(Note 17)
(In Thousand Pesos)
7,410,226 26,557,250
573,436
(404,355)
13,449,162
(122,184)
6,845,254

Total

Capital
Stock
(Note 17)

50,000
(261,767)
261,144

(739,575)

Capital
Stock
(Note 17)

2,640

Total

47,585,719
6,723,070

125,860

11,502
(112,027)

(8,605,628)
(33,145)

(8,605,628)
(33,145)
11,502
16,473

7,412,866 26,683,110

472,911

(526,539)

11,655,643

45,697,991

*SGVFS010845*

GLOBE TELECOM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Notes
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization
Equity in net losses of associates and joint ventures
Impairment losses on property and equipment and
intangible assets
Provisions for claims and assessments
Loss (gain) on derivative instruments
Cost of share-based payments
Interest income
Interest expense
Foreign exchange losses (gains) - net
Gain on disposals of property and equipment - net
Operating income before working capital changes
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables
Inventories and supplies
Prepayments and other current assets
Other noncurrent assets
Increase (decrease) in:
Accounts payable and accrued expenses
Unearned revenues
Other long-term liabilities
Cash generated from operations
Income tax paid
Net cash flows provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to:
Property and equipment
Intangible assets
Investments and advances
Interest received
Proceeds from loans receivable
Proceeds from sale of property and equipment
Proceeds from return of capital
Acquisition of subsidiaries, net of cash acquired
Net cash flows used in investing activities
(Forward)

Years Ended December 31

2013
2014
(In Thousand Pesos)

2012

19,382,706

6,864,773

9,751,547

7, 8
10

18,123,524
224,257

27,477,494
79,959

23,583,417
83,582

23
23
20, 22
16, 18
19
22
20, 22
7

110,238
137,185
(103,560)
31,841
(682,998)
2,326,171
(884)
(101,159)
39,447,321

26,312
88,333
59,282
50,000
(688,249)
2,091,915
486,308
(64,333)
36,471,794

259,262
56,327
9,593
11,502
(579,851)
2,104,792
(318,334)
(42,447)
34,919,390

(3,240,009)
358,472
201,119
(275,508)

(3,607,858)
(1,468,350)
3,547,877
727,308

(2,235,848)
(164,986)
(6,996,121)
(4,854,588)

4,047,846
356,504
633,143
41,528,888
(5,073,730)
36,455,158

965,321
1,750,561
677,032
39,063,685
(5,103,438)
33,960,247

2,485,946
121,524
(106,783)
23,168,534
(3,802,665)
19,365,869

(21,120,217)
(114,913)
(548,000)
786,531
532,027
197,773
62,944
(12,251)
(20,216,106)

(28,999,480)
(101,956)
(59,010)
771,868
187,536
105,760

(28,095,282)

(20,124,476)
(152,056)
(20,990)
465,711

70,070

(19,761,741)

7
8
10
6, 11
10
9

*SGVFS010845*

-2-

Notes
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings:
Long-term
Short-term
Repayments of borrowings:
Long-term
Short-term
Payments of dividends to stockholders:
Common
Preferred - voting
Issuance of non-voting preferred stock
Exercise of stock options
Interest paid
Net cash provided by (used in) financing activities

2012

14
7,000,000
1,700,112

16,695,035
3,428,880

25,847,770
5,052,430

(6,025,143)
(6,917,068)

(13,613,525)
(432,070)

(12,810,082)
(4,694,020)

(9,952,702)
(26,457)
9,938,571
33,723
(2,693,173)

(8,876,764)
(56,983)

44,653
(2,665,459)

(8,605,628)
(35,295)

16,473
(2,573,745)

(6,942,137)

(5,476,233)

2,197,903

9,296,915

388,732

1,802,031

39,258

272,248

(201,322)

7,420,735

6,759,755

5,159,046

16,756,908

7,420,735

6,759,755

14

17

17

NET INCREASE IN CASH

AND CASH EQUIVALENTS
NET FOREIGN EXCHANGE DIFFERENCE ON
CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS
AT THE BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS
AT THE END OF YEAR
See accompanying Notes to Consolidated Financial Statements.

Years Ended December 31

2013
2014
(In Thousand Pesos)

28, 30

*SGVFS010845*

GLOBE TELECOM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information
Globe Telecom, Inc. (hereafter referred to as Globe Telecom) is a stock corporation organized
under the laws of the Philippines, and enfranchised under Republic Act (RA) No. 7229 and its
related laws to render any and all types of domestic and international telecommunications
services. Globe Telecom is one of the leading providers of digital wireless communications
services in the Philippines under the Globe Postpaid and Prepaid, Touch Mobile (TM) and Tattoo
brands using a fully digital network. It also offers domestic and international long distance
communication services or carrier services. Globe Telecoms head office is located at The Globe
Tower, 32nd Street corner 7th Avenue, Bonifacio Global City, Taguig, Metropolitan Manila,
Philippines. Globe Telecom is listed in the Philippine Stock Exchange (PSE) and has been
included in the PSE composite index since September 17, 2001. Major stockholders of Globe
Telecom include Ayala Corporation (AC), Singapore Telecom International Pte Ltd. (STI) and
Asiacom Philippines, Inc. None of these companies exercise control over Globe Telecom.
Globe Telecom owns 100% of Innove Communications, Inc. (Innove). Innove is a stock
corporation organized under the laws of the Philippines and enfranchised under RA No. 7372 and
its related laws to render any and all types of domestic and international telecommunications
services. Innove holds a license to provide digital wireless communication services in the
Philippines. Innove also offers a broad range of broadband internet and wireline voice and data
communication services, as well as domestic and international long distance communication
services or carrier services. Innove also has a license to establish, install, operate and maintain a
nationwide local exchange carrier (LEC) service, particularly integrated local telephone service
with public payphone facilities and public calling stations, and to render and provide international
and domestic carrier and leased line services.
Globe Telecom owns 100% of G-Xchange, Inc. (GXI). GXI is a stock corporation organized
under the laws of the Philippines and formed for the purpose of developing, designing,
administering, managing and operating software applications and systems, including systems
designed for the operations of bill payment and money remittance, payment and delivery facilities
through various telecommunications systems operated by telecommunications carriers in the
Philippines and throughout the world and to supply software and hardware facilities for such
purposes. GXI is registered with the Bangko Sentral ng Pilipinas (BSP) as a remittance agent and
electronic money issuer. GXI handles the mobile payment and remittance service using Globe
Telecoms network as transport channel under the GCash brand. The service, which is integrated
into the cellular services of Globe Telecom and Innove, enables easy and convenient person-toperson fund transfers via short messaging services (SMS) and allows Globe Telecom and Innove
subscribers to easily and conveniently put cash into and get cash out of the GCash system.
Globe Telecom owns 100% of Yondu, Inc. (formerly known as Entertainment Gateway Group
Corp. [EGGC]) and EGGstreme (Hong Kong) Limited (EHL) (collectively referred here as EGG
Group). EGG Group is engaged in the development and creation of wireless products and
services accessible through telephones or other forms of communication devices. It also provides
internet and mobile value added services, information technology and technical services including
software development and related services. EGGC is registered with the Department of
Transportation and Communication (DOTC) as a content provider. On May 15, 2014, EGGC
changed its corporate name from Entertainment Gateway Group Corp. to Yondu, Inc.
(Yondu). On February 1, 2013, EHL was liquidated and the cost of investment amounting to
P
=11.48 million was derecognized in the consolidated statements of financial position.

*SGVFS010845*

-2-

Globe Telecom owns 100% of GTI Business Holdings, Inc. (GTI). The primary purpose of this
company is to invest, purchase, subscribe for or otherwise acquire and own, hold, sell or otherwise
dispose of real and personal property of every kind and description, provided that GTI shall not
engage in the business of an open-ended investment company as defined in the Investment
Company Act (Republic Act 2629). GTI was incorporated on November 25, 2008. In July 2009,
GTI incorporated its wholly owned subsidiary, GTI Corporation (GTIC), a company organized
under the General Corporation Law of the United States of America, State of Delaware, for the
purpose of engaging in any lawful act or activity for which corporations may be organized under
the Delaware General Corporation Law. GTIC has started commercial operations on
April 1, 2011. In December 2011, GTI incorporated another wholly owned subsidiary, Globe
Telecom HK Limited (GTHK), a limited company organized under the Companies Ordinance
(Chapter 32 of the Laws of Hong Kong). GTHK has started commercial operations on
August 1, 2012. On May 10, 2013, GTI incorporated its wholly owned subsidiary, Globetel
European Limited (GTEU) and the latters wholly owned subsidiary, UK Globetel Limited
(UKGT). It was incorporated to act as holding company for the operating companies of Globe
Telecom, which proposed to establish operations in Europe, marketing and selling mobile
telecommunications services, as a mobile network operator, or through any other appropriate
vehicle, to Filipino individuals and businesses located within, and to Filipino visitors, initially, in
the United Kingdom, Spain and Italy. These entities are private limited companies under the
Companies Act of 2006, wherein the registered address is in England and Wales, and incorporated
to market and sell mobile telecommunications, as a mobile virtual network operator, to Filipino
individuals and businesses located within the United Kingdom and to Filipino visitors in the
United Kingdom. GTEU started commercial operations on the same date of incorporation while
UKGTs commercial operations commenced on July 22, 2013.
On July 22, 2013 and October 4, 2013, respectively, GTEU incorporated additional two European
wholly owned subsidiaries which are Globe Mobile Italy S.r.l. (GMI), a limited liability
company, with registered address in Milan, Italy and Globetel Internacional European
Espaa, S.L. (GIEE), with registered address in Barcelona, Spain. GMI and GIEE commenced
commercial operations on November 24, 2013 and August 7, 2014, respectively.
On November 12, 2014, GTI incorporated Globetel Singapore Pte. Ltd. (GTSG), a wholly owned
subsidiary, to provide international cable services that will help strengthen connectivity between
Singapore and the Philippines, and to provide business support services operating in the two
countries.
On March 28, 2012, Globe Telecom incorporated Kickstart Ventures, Inc. (Kickstart or KVI), a
stock corporation organized under the laws of the Philippines and formed for the purpose of
investing in individual, corporate, or start-up businesses, and to do research, technology
development and commercializing of new business ventures. Kickstart has started commercial
operations on March 29, 2012. In February 2014, Kickstart acquired 40% equity interest in
Flipside Publishing Services, Inc. (FPSI) which was accounted for as a subsidiary based on
Kickstarts assessment of relevant facts and circumstances. FPSI was consolidated starting
February 2014.

*SGVFS010845*

-3-

On June 3, 2014, Globe signed an agreement with Azalea Technology, Inc. and SCS Computer
Systems, Pte. Ltd. acquiring 100% ownership stake in Asticom Technology, Inc. (Asticom). It is
engaged in trading, marketing, installing and servicing of computer equipment, peripherals,
software and other data processing devices. Asticom was consolidated starting June 2014.

2. Summary of Significant Accounting Policies

2.1 Basis of Preparation
The accompanying consolidated financial statements of Globe Telecom, Inc. and Subsidiaries,
collectively referred to as the Globe Group, have been prepared under the historical cost
convention method, except for derivative financial instruments and available-for-sale (AFS)
investments that are measured at fair value.
The consolidated financial statements of the Globe Group are presented in Philippine Peso (),
Globe Telecoms functional currency, and rounded to the nearest thousands, except when
otherwise indicated.
On February 4, 2015, the Board of Directors (BOD) approved and authorized the release of the
consolidated financial statements of Globe Telecom, Inc. and Subsidiaries as of
December 31, 2014 and 2013 and for each of the three years in the period ended
December 31, 2014.
2.2 Statement of Compliance
The consolidated financial statements of the Globe Group have been prepared in compliance
with Philippine Financial Reporting Standards (PFRS), which includes all applicable PFRS,
Philippine Accounting Standards (PAS), and Interpretations issued by the International
Financial Reporting Interpretations Committee (IFRIC), Philippine Interpretations Committee
(PIC), and Standing Interpretations Committee (SIC) as approved by the Financial Reporting
Standards Council (FRSC) and the Board of Accountancy, and adopted by the SEC.
2.3 Basis of Consolidation
The accompanying consolidated financial statements include the accounts of Globe Telecom and
the following subsidiaries:
Percentage of
Ownership
Name of Subsidiary

Place of
Incorporation

Innove

Philippines

GXI

Philippines

Yondu

Philippines

Principal Activity
Wireless and wireline voice and
data communication services
Software development for
telecommunications
applications and money
remittance services
Mobile content and application
development services

2014

2013

100%

100%

100%

100%

100%

100%

(Forward)

*SGVFS010845*

-4-

Percentage of
Ownership
Name of Subsidiary
GTI

Place of
Incorporation
Philippines

GTIC

United States

GTHK
GTEU

Hong Kong
United Kingdom

UKGT

United Kingdom

GMI

Italy

GIEE

Spain

GTSG

Singapore

FPSI

Philippines
Philippines

KVI

Asticom

Philippines

Principal Activity
Investment and holding company
Wireless and data communication
services
Marketing and selling of products
and services under
distributorship agreement
Investment and holding company
Wireless and data communication
services
Wireless and data communication
services
Wireless and data communication
services
Wireless and data communication
services
Investment, research, technology
development and
commercializing for business
ventures
E-book solutions
Trading, marketing and installation
of computer equipment and
other data devices

2014
100%

2013
100%

100%

100%

100%
100%

100%
100%

100%

100%

100%

100%

100%

100%

100%

100%
40%

100%

100%

The assets, liabilities, income and expense of subsidiaries are consolidated from the date on which
control is transferred to the Globe Group and ceases to be consolidated from the date on which
control is transferred out of the Globe Group.
Control is achieved when the Globe Group is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns through its power over the
investee. Specifically, the Globe Group controls an investee if and only if the Globe Group has:
(a) power over the investee (i.e. existing rights that give it the current ability to direct the relevant
activities of the investee); (b) exposure, or rights, to variable returns from its involvement with the
investee; and (c) the ability to use its power over the investee to affect its returns.
When the Globe Group has less than a majority of the voting or similar rights of an investee, the
Globe Group considers all relevant facts and circumstances in assessing whether it has power over
an investee, including: (a) the contractual arrangement with the other vote holders of the investee;
(b) rights arising from other contractual arrangements; and (c) the Globe Groups voting rights and
potential voting rights.
The Globe Group re-assesses whether or not it controls an investee if facts and circumstances
indicate that there are changes to one or more of the three elements of control.
Non-controlling interests pertain to the equity in a subsidiary not attributable, directly or indirectly
to the Globe Group. Non-controlling interests represent the portion of profit or loss and net assets
in subsidiaries not wholly-owned and are presented in the consolidated statements of
comprehensive income, consolidated statements of changes in equity and consolidated statements
of financial position, separately from the equity attributable to the parent.

*SGVFS010845*

-5-

Profit or loss and each component of other comprehensive income (OCI) are attributed to the
equity holders of the parent of the Group and to the non-controlling interests, even if this results in
the non-controlling interests having deficit balance. When necessary, adjustments are made to the
financial statements of the subsidiaries to bring their accounting policies into line with the Globe
Groups accounting policies.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an
equity transaction. Any difference between the amount by which the non-controlling interest are
adjusted and the fair value of the consideration paid or received is recognized directly in equity
and attributed to the equity holders of the parent.
If the Globe Group loses control over a subsidiary, it derecognizes the related assets (including
goodwill), liabilities, non-controlling interest and other components of equity while any resultant
gain or loss is recognized in profit or loss. Any investment retained is recognized at fair value.
The financial statements of the subsidiaries are prepared for the same reporting year as Globe
Telecom, except for Asticom wherein the annual reporting period is March 31, using uniform
accounting policies for like transactions and other events in similar circumstances. All significant
intercompany balances and transactions, including intercompany profits and losses, were
eliminated in full during consolidation in accordance with the accounting policy on consolidation.
2.4 Adoption of New Standards, Amendments to Standards and Interpretations
The accounting policies adopted in the preparation of the consolidated financial statements are
consistent with those followed in the preparation of the Globe Groups consolidated financial
statements as of and for the year ended December 31, 2013, except for the adoption of following
new standards and amendment to standards and interpretations effective on January 1, 2014.
The nature and impact of each new standard and amendment is described below:

Investment Entities (Amendments to PFRS 10, Consolidated Financial Statements, PFRS

12, Disclosure of Interests in Other Entities and PAS 27, Separate Financial Statements)
These amendments provide an exception to the consolidation requirement for entities that
meet the definition of an investment entity under PFRS 10. The exception to
consolidation requires investment entities to account for subsidiaries at fair value through
profit or loss. The amendments must be applied retrospectively subject to certain relief.
These amendments have no impact to the Globe Group since none of the entities within
the Globe Group qualifies as an investment entity under PFRS 10.

Amendments to PAS 36, Impairment of Assets - Recoverable Amount Disclosures for

Non-Financial Assets
These amendments remove the unintended consequences of PFRS 13, Fair Value
Measurement, on the disclosures required under PAS 36. In addition, these amendments
require disclosure of the recoverable amounts for assets or cash-generating units (CGUs)
for which impairment loss has been recognized or reversed during the period. The
amendments have no impact on the disclosure in the Globe Groups consolidated financial
statements.

Philippine Interpretation IFRIC 21, Levies

IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that
triggers payment, as identified by the relevant legislation, occurs. For a levy that is
triggered upon reaching a minimum threshold, the interpretation clarifies that no liability

*SGVFS010845*

-6-

should be anticipated before the specified minimum threshold is reached. The adoption of
the standard has no impact on the Globe Groups consolidated financial statements.

Amendments to PAS 39, Financial Instruments: Recognition and Measurement Novation of Derivatives and Continuation of Hedge Accounting
These amendments provide relief from discontinuing hedge accounting when novation of
a derivative designated as a hedging instrument meets certain criteria and retrospective
application is required. These amendments have no impact on the Globe Group as the
Globe Group has not novated its derivatives during the current period. However, these
amendments would be considered for future novations.

Amendments to PAS 32, Financial Instruments: Presentation - Offsetting Financial

Assets and Financial Liabilities
The amendments clarify the meaning of currently has a legally enforceable right to setoff and the criteria for non-simultaneous settlement mechanisms of clearing houses to
qualify for offsetting and are applied simultaneously. The amendments have no impact on
the Globe Groups financial position or performance.

Annual Improvements to PFRSs (2010-2012 cycle)

In the 2010 - 2012 annual improvements cycle, seven amendments to six standards were
issued, which included an amendment to PFRS 13, Fair Value Measurement. The
amendment to PFRS 13 is effective immediately and it clarifies that short-term
receivables and payables with no stated interest rates can be measured at invoice amounts
when the effect of discounting is immaterial. This amendment has no impact on the
Globe Group.

Annual Improvements to PFRSs (2011-2013 cycle)

In the 2011 - 2013 annual improvements cycle, four amendments to four standards were
issued, which included an amendment to PFRS 1, First-time Adoption of Philippine
Financial Reporting Standards - First-time Adoption of PFRS. The amendment to
PFRS 1 is effective immediately. It clarifies that an entity may choose to apply either a
current standard or a new standard that is not yet mandatory, but permits early application,
provided either standard is applied consistently throughout the periods presented in the
entitys first PFRS financial statements. This amendment has no impact on the Globe
Group as it is not a first time PFRS adopter.

2.5 Future Adoption of New Standards and Amendments to Standards

The Globe Group will adopt the following new standards and amendment to standards enumerated
below when these become effective. Except as otherwise indicated, the Globe Group does not
expect the adoption of these new standards and amendments to standards to have significant
impact on the consolidated financial statements.
PFRS 9, Financial Instruments - Classification and Measurement (2010 version)
PFRS 9 (2010 version) reflects the first phase on the replacement of PAS 39 and applies to the
classification and measurement of financial assets and liabilities as defined in
PAS 39, Financial Instruments: Recognition and Measurement. PFRS 9 requires all financial
assets to be measured at fair value at initial recognition. A debt financial asset may, if the fair
value option (FVO) is not invoked, be subsequently measured at amortized cost if it is held
within a business model that has the objective to hold the assets to collect the contractual cash
flows and its contractual terms give rise, on specified dates, to cash flows that are solely
payments of principal and interest on the principal outstanding. All other debt instruments are
subsequently measured at fair value through profit or loss. All equity financial assets are

*SGVFS010845*

-7-

measured at fair value either through other comprehensive income (OCI) or profit or loss.
Equity financial assets held for trading must be measured at fair value through profit or loss.
For FVO liabilities, the amount of change in the fair value of a liability that is attributable to
changes in credit risk must be presented in OCI. The remainder of the change in fair value is
presented in profit or loss, unless presentation of the fair value change in respect of the
liabilitys credit risk in OCI would create or enlarge an accounting mismatch in profit or loss.
All other PAS 39 classification and measurement requirements for financial liabilities have
been carried forward into PFRS 9, including the embedded derivative separation rules and the
criteria for using the FVO. The adoption of the first phase of PFRS 9 will have an effect on the
classification and measurement of the Globe Groups financial assets, but will potentially have
no impact on the classification and measurement of financial liabilities.
PFRS 9 (2010 version) is effective for annual periods beginning on or after January 1, 2015.
This mandatory adoption date was moved to January 1, 2018 when the final version of PFRS 9
was adopted by the Philippine FRSC. Such adoption, however, is still for approval by the BOA.
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 SEC and the
Financial Reporting Standards Council (FRSC) have deferred the effectivity of this
interpretation until the final Revenue standard is issued by the 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. Adoption of the
interpretation when it becomes effective will not have any impact on the consolidated financial
statements of the Globe Group.
The following new standards and amendments issued by the IASB were already adopted by the
FRSC but are still for approval of the Board of Accountancy (BOA).
Effective January 1, 2015

Amendments to PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions
PAS 19 requires an entity to consider contributions from employees or third parties when
accounting for defined benefit plans. Where the contributions are linked to service, they
should be attributed to periods of service as a negative benefit. These amendments clarify that,
if the amount of the contributions is independent of the number of years of service, an entity is
permitted to recognize such contributions as a reduction in the service cost in the period in
which the service is rendered, instead of allocating the contributions to the periods of service.
This amendment is effective for annual periods beginning on or after January 1, 2015. It is not
expected that this amendment would be relevant to Globe Group, since it has no defined
benefit plans with contributions from employees or third parties.

Annual Improvements to PFRS (2010-2012 cycle)

The Annual Improvements to PFRSs (2010-2012 cycle) are effective for annual periods beginning
on or after January 1, 2015 and are not expected to have a material impact to Globe Group. They
include:

PFRS 2, Share-based Payment -Definition of Vesting Condition

This improvement is applied prospectively and clarifies various issues relating to the
definitions of performance and service conditions which are vesting conditions, including:
A performance condition must contain a service condition
A performance target must be met while the counterparty is rendering service

*SGVFS010845*

-8

A performance target may relate to the operations or activities of an entity, or to those of

another entity in the same group
A performance condition may be a market or non-market condition
If the counterparty, regardless of the reason, ceases to provide service during the vesting
period, the service condition is not satisfied.

PFRS 3, Business Combinations - Accounting for Contingent Consideration in a Business

Combination
The amendment is applied prospectively for business combinations for which the acquisition
date is on or after July 1, 2014. It clarifies that a contingent consideration that is not classified
as equity is subsequently measured at fair value through profit or loss whether or not it falls
within the scope of PAS 39, Financial Instruments: Recognition and Measurement (or
PFRS 9, Financial Instruments, if early adopted). The Globe Group shall consider this
amendment for future business combinations.

PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation of the

Total of the Reportable Segments Assets to the Entitys Assets
The amendments are applied retrospectively and clarify that:
An entity must disclose the judgments made by management in applying the aggregation
criteria in the standard, including a brief description of operating segments that have been
aggregated and the economic characteristics (e.g., sales and gross margins) used to assess
whether the segments are similar.
The reconciliation of segment assets to total assets is only required to be disclosed if the
reconciliation is reported to the chief operating decision maker, similar to the required
disclosure for segment liabilities.

PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets - Revaluation Method
- Proportionate Restatement of Accumulated Depreciation and Amortization
The amendment is applied retrospectively and clarifies in PAS 16 and PAS 38 that the asset
may be revalued by reference to the observable data on either the gross or the net carrying
amount. In addition, the accumulated depreciation or amortization is the difference between
the gross and carrying amounts of the asset.

PAS 24, Related Party Disclosures - Key Management Personnel

The amendment is applied retrospectively and clarifies that a management entity, which is an
entity that provides key management personnel services, is a related party subject to the
related party disclosures. In addition, an entity that uses a management entity is required to
disclose the expenses incurred for management services.

Annual Improvements to PFRSs (2011-2013 cycle)

The Annual Improvements to PFRSs (2011-2013 cycle) are effective for annual periods beginning
on or after January 1, 2015 and are not expected to have a material impact to Globe Group. They
include:

PFRS 3, Business Combinations - Scope Exceptions for Joint Arrangements

The amendment is applied prospectively and clarifies the following regarding the scope
exceptions within PFRS 3:
Joint arrangements, not just joint ventures, are outside the scope of PFRS 3.
This scope exception applies only to the accounting in the financial statements of the joint
arrangement itself.

*SGVFS010845*

-9

PFRS 13, Fair Value Measurement - Portfolio Exception

The amendment is applied prospectively and clarifies that the portfolio exception in PFRS 13
can be applied not only to financial assets and financial liabilities, but also to other contracts
within the scope of PAS 39 (or PFRS 9, as applicable).

PAS 40, Investment Property

The amendment is applied prospectively and clarifies that PFRS 3, and not the description of
ancillary services in PAS 40, is used to determine if the transaction is the purchase of an asset
or business combination. The description of ancillary services in PAS 40 only differentiates
between investment property and owner-occupied property (i.e., property, plant and
equipment).

Effective January 1, 2016

PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets - Clarification of
Acceptable Methods of Depreciation and Amortization (Amendments)
The amendments clarify the principle in PAS 16 and PAS 38 that revenue reflects a pattern of
economic benefits that are generated from operating a business (of which the asset is part)
rather than the economic benefits that are consumed through use of the asset. As a result, a
revenue-based method cannot be used to depreciate property, plant and equipment and may
only be used in very limited circumstances to amortize intangible assets. The amendments are
effective prospectively for annual periods beginning on or after January 1, 2016, with early
adoption permitted. These amendments are not expected to have any impact to Globe Group
given that it has not used a revenue-based method to depreciate its non-current assets.

PAS 16, Property, Plant and Equipment, and PAS 41, Agriculture - Bearer Plants
(Amendments)
The amendments change the accounting requirements for biological assets that meet the
definition of bearer plants. Under the amendments, biological assets that meet the definition of
bearer plants will no longer be within the scope of PAS 41. Instead, PAS 16 will apply. After
initial recognition, bearer plants will be measured under PAS 16 at accumulated cost (before
maturity) and using either the cost model or revaluation model (after maturity). The
amendments also require that produce that grows on bearer plants will remain in the scope of
PAS 41 measured at fair value less costs to sell. For government grants related to bearer
plants, PAS 20, Accounting for Government Grants and Disclosure of Government Assistance,
will apply. The amendments are retrospectively effective for annual periods beginning on or
after January 1, 2016, with early adoption permitted. These amendments are not expected to
have any impact to Globe Group as the Globe Group does not have any bearer plants.

PAS 27, Separate Financial Statements - Equity Method in Separate Financial Statements
(Amendments)
The amendments will allow entities to use the equity method to account for investments in
subsidiaries, joint ventures and associates in their separate financial statements. Entities
already applying PFRS and electing to change to the equity method in its separate financial
statements will have to apply that change retrospectively. For first-time adopters of PFRS
electing to use the equity method in its separate financial statements, they will be required to
apply this method from the date of transition to PFRS. The amendments are effective for
annual periods beginning on or after January 1, 2016, with early adoption permitted. These
amendments will not have any impact to the Globe Groups financial statements.

*SGVFS010845*

- 10

PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates and Joint
Ventures - Sale or Contribution of Assets between an Investor and its Associate or Joint
Venture
These amendments address an acknowledged inconsistency between the requirements in
PFRS 10 and those in PAS 28 (2011) in dealing with the sale or contribution of assets between
an investor and its associate or joint venture. The amendments require that a full gain or loss is
recognized when a transaction involves a business (whether it is housed in a subsidiary or
not). A partial gain or loss is recognized when a transaction involves assets that do not
constitute a business, even if these assets are housed in a subsidiary. These amendments are
effective from annual periods beginning on or after 1 January 2016.

PFRS 11, Joint Arrangements - Accounting for Acquisitions of Interests in Joint Operations
(Amendments)
The amendments to PFRS 11 require that a joint operator accounting for the acquisition of an
interest in a joint operation, in which the activity of the joint operation constitutes a business
must apply the relevant PFRS 3 principles for business combinations accounting. The
amendments also clarify that a previously held interest in a joint operation is not remeasured
on the acquisition of an additional interest in the same joint operation while joint control is
retained. In addition, a scope exclusion has been added to PFRS 11 to specify that the
amendments do not apply when the parties sharing joint control, including the reporting entity,
are under common control of the same ultimate controlling party.
The amendments apply to both the acquisition of the initial interest in a joint operation and the
acquisition of any additional interests in the same joint operation and are prospectively
effective for annual periods beginning on or after January 1, 2016, with early adoption
permitted. These amendments are not expected to have any impact to Globe Group.

PFRS 14, Regulatory Deferral Accounts

PFRS 14 is an optional standard that allows an entity, whose activities are subject to rateregulation, to continue applying most of its existing accounting policies for regulatory deferral
account balances upon its first-time adoption of PFRS. Entities that adopt PFRS 14 must
present the regulatory deferral accounts as separate line items on the statement of financial
position and present movements in these account balances as separate line items in the
statement of profit or loss and other comprehensive income. The standard requires disclosures
on the nature of, and risks associated with, the entitys rate-regulation and the effects of that
rate-regulation on its financial statements. PFRS 14 is effective for annual periods beginning
on or after January 1, 2016. Since the Globe Group is an existing PFRS preparer, this standard
would not apply.

Annual Improvements to PFRSs (2012-2014 cycle)

The Annual Improvements to PFRSs (2012-2014 cycle) are effective for annual periods beginning
on or after January 1, 2016 and are not expected to have a material impact to Globe Group. They
include:

PFRS 5, Non-current Assets Held for Sale and Discontinued Operations - Changes in
Methods of Disposal
The amendment is applied prospectively and clarifies that changing from a disposal through
sale to a disposal through distribution to owners and vice-versa should not be considered to be
a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no
interruption of the application of the requirements in PFRS 5. The amendment also clarifies
that changing the disposal method does not change the date of classification.

*SGVFS010845*

- 11

PFRS 7, Financial Instruments: Disclosures - Servicing Contracts

PFRS 7 requires an entity to provide disclosures for any continuing involvement in a
transferred asset that is derecognized in its entirety. The amendment clarifies that a servicing
contract that includes a fee can constitute continuing involvement in a financial asset. An
entity must assess the nature of the fee and arrangement against the guidance in PFRS 7 in
order to assess whether the disclosures are required. The amendment is to be applied such that
the assessment of which servicing contracts constitute continuing involvement will need to be
done retrospectively. However, comparative disclosures are not required to be provided for
any period beginning before the annual period in which the entity first applies the
amendments.

PFRS 7 - Applicability of the Amendments to PFRS 7 to Condensed Interim Financial

Statements
This amendment is applied retrospectively and clarifies that the disclosures on offsetting of
financial assets and financial liabilities are not required in the condensed interim financial
report unless they provide a significant update to the information reported in the most recent
annual report.

PAS 19, Employee Benefits - Regional Market Issue Regarding Discount Rate
This amendment is applied prospectively and clarifies that market depth of high quality
corporate bonds is assessed based on the currency in which the obligation is denominated,
rather than the country where the obligation is located. When there is no deep market for high
quality corporate bonds in that currency, government bond rates must be used.

PAS 34, Interim Financial Reporting - Disclosure of Information Elsewhere in the Interim
Financial Report
The amendment is applied retrospectively and clarifies that the required interim disclosures
must either be in the interim financial statements or incorporated by cross-reference between
the interim financial statements and wherever they are included within the greater interim
financial report (e.g., in the management commentary or risk report).

Effective January 1, 2018

PFRS 9, Financial Instruments - Hedge Accounting and amendments to PFRS 9, PFRS 7 and
PAS 39 (2013 version)
PFRS 9 (2013 version) already includes the third phase of the project to replace PAS 39 which
pertains to hedge accounting. This version of PFRS 9 replaces the rules-based hedge
accounting model of PAS 39 with a more principles-based approach. Changes include
replacing the rules-based hedge effectiveness test with an objectives-based test that focuses on
the economic relationship between the hedged item and the hedging instrument, and the effect
of credit risk on that economic relationship; allowing risk components to be designated as the
hedged item, not only for financial items but also for non-financial items, provided that the
risk component is separately identifiable and reliably measurable; and allowing the time value
of an option, the forward element of a forward contract and any foreign currency basis spread
to be excluded from the designation of a derivative instrument as the hedging instrument and
accounted for as costs of hedging. PFRS 9 also requires more extensive disclosures for hedge
accounting.
PFRS 9 (2013 version) has no mandatory effective date. The mandatory effective date of
January 1, 2018 was eventually set when the final version of PFRS 9 was adopted by the
FRSC. The adoption of the final version of PFRS 9, however, is still for approval by BOA.

*SGVFS010845*

- 12 -

The adoption of PFRS 9 will have an effect on the classification and measurement of the
Globe Groups financial assets but will have no impact on the classification and measurement
of the Globe Groups financial liabilities. The adoption will also have an effect on the Globe
Groups application of hedge accounting. The Globe Group is currently assessing the impact
of adopting this standard. The Globe Group will not early adopt PFRS 9 for the current year.

PFRS 9, Financial Instruments (2014 or final version)

In July 2014, the final version of PFRS 9, Financial Instruments, was issued. PFRS 9 reflects
all phases of the financial instruments project and replaces PAS 39, Financial Instruments:
Recognition and Measurement, and all previous versions of PFRS 9. The standard introduces
new requirements for classification and measurement, impairment, and hedge accounting.
PFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early
application permitted. Retrospective application is required, but comparative information is
not compulsory. Early application of previous versions of PFRS 9 is permitted if the date of
initial application is before February 1, 2015.
The adoption of PFRS 9 will have an effect on the classification and measurement of the
Groups financial assets and impairment methodology for financial assets, but will have no
impact on the classification and measurement of the Globe Groups financial liabilities. The
adoption will also have an effect on the Globe Groups application of hedge accounting. The
Group is currently assessing the impact of adopting this standard. The Globe Group will not
early adopt PFRS 9 for the current year.

The following new standard issued by the IASB has not yet been adopted by the FRSC:

IFRS 15, Revenue from Contracts with Customers

IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to
revenue arising from contracts with customers. Under IFRS 15 revenue is recognized at an
amount that reflects the consideration to which an entity expects to be entitled in exchange for
transferring goods or services to a customer.
The principles in IFRS 15 provide a more structured approach to measuring and recognizing
revenue.
The new revenue standard is applicable to all entities and will supersede all current revenue
recognition requirements under IFRS. Either a full or modified retrospective application is
required for annual periods beginning on or after January 1, 2017 with early adoption
permitted. The Globe Group is currently assessing the impact of IFRS 15 and plans to adopt
the new standard on the required effective date once adopted locally.

2.6 Significant Accounting Policies

2.6.1

Revenue Recognition

The Globe Group provides mobile and wireline voice, data communication and
broadband internet services which are both provided under postpaid and prepaid
arrangements.
The Globe Group assesses its revenue arrangements against specific criteria in order to
determine if it is acting as principal or agent (see Note 3.1.5).

*SGVFS010845*

- 13 -

Revenue is recognized when the delivery of the products or services has occurred and
collectability is reasonably assured.
Revenue is stated at amounts invoiced and accrued to customers, taking into
consideration the bill cycle cut-off (for postpaid subscribers), the amount charged
against preloaded airtime value (for prepaid subscribers), switch-monitored traffic (for
carriers and content providers) and excludes value-added tax (VAT) and overseas
communication tax. Inbound and outbound traffic charges, net of discounts, are accrued
based on actual volume of traffic monitored by Globe Groups network and in the traffic
settlement system.
2.6.1.1 Service Revenue
2.6.1.1.1 Subscribers
Revenues from subscribers principally consist of: (1) fixed monthly service fees for
postpaid wireless, wireline voice, broadband internet, data subscribers and wireless
prepaid and postpaid subscription fees for promotional offers; (2) usage of airtime and
toll fees for local, domestic and international long distance calls in excess of
consumable fixed monthly service fees and subscription fees for the promotional offer
and, less (a) bonus airtime and short messaging services (SMS) on free Subscribers
Identification Module (SIM), and (b) prepaid reload discounts, (3) revenues from
value-added services (VAS) such as SMS in excess of consumable fixed monthly
service fees (for postpaid) and free SMS allocations (for prepaid), multimedia
messaging services (MMS), content and infotext services, net of payout to content
providers; (4) mobile data services, (5) inbound revenues from other carriers which
terminate their calls to the Globe Groups network less discounts; (6) revenues from
international roaming services for Voice, SMS and Data on top of the subscription
promo offers; (7) usage of broadband and internet services in excess of fixed monthly
service fees; and (8) service connection fees (for wireline voice and data subscribers).
Postpaid service arrangements include fixed monthly service fees, which are
recognized over the subscription period on a pro-rata basis. Monthly service fees
billed in advance are initially deferred and recognized as revenues during the period
when earned. Telecommunications services provided to postpaid subscribers are
billed throughout the month according to the bill cycles of subscribers. As a result of
bill cycle cut-off, monthly service revenues earned but not yet billed at the end of the
month are estimated and accrued. These estimates are based on actual usage less
estimated consumable usage using historical ratio of consumable usage and free
minutes.
Proceeds from over-the-air reloading channels and the sale of prepaid cards are
deferred and shown as Unearned revenues in the consolidated statement of financial
position. Revenue is recognized upon actual usage of airtime value net of discounts
on promotional calls and net of free airtime value or SMS and bonus reloads. Unused
load value is recognized as revenue upon expiration based on the load denomination.
The Globe Group offers loyalty programs which allow its subscribers to accumulate
points when they purchase services from the Globe Group. The points can then be
redeemed for free services and discounts for future billings, subject to a minimum
number of points being obtained. The consideration received or receivable is allocated
between the sale of services and award credits. The portion of the consideration

*SGVFS010845*

- 14 -

allocated to the award credits is accounted for as unearned revenues. This will be
recognized as revenue upon the award redemption.
2.6.1.1.2 Traffic
Inbound revenues refer to traffic originating from other telecommunications providers
terminating to the Globe Groups network, while outbound charges represent traffic sent
out or mobile content delivered using agreed termination rates and/or revenue sharing
with other foreign and local carriers and content providers. Adjustments are made to the
accrued amount for discrepancies between the traffic volume per Globe Groups records
and per records of the other carriers as these are determined and/or mutually agreed upon
by the parties. Outstanding inbound revenues are shown as traffic settlements receivable
under the Receivables account, while unpaid outbound charges are shown as traffic
settlements payable under the Accounts payable and accrued expenses account in the
consolidated statement of financial position unless a legal right of offset exists in which
case the net amount is shown either under Receivables or Accounts payable and
accrued expenses account.
2.6.1.1.3 GCash
Service revenues of GXI consist of SMS revenue arising from GCash transactions passing
through the telecom networks of Globe Telecom. Service revenue also includes
transaction fees and discounts earned from arrangements with partners and from
remittances made through GCash partners using the Globe Groups facilities. The Globe
Group earns service revenue from one-time connection fee received from new partners.
Depending on the arrangement with partners and when the fee is nonconsumable, outright
service revenue is recognized upon cash receipt.
2.6.1.2 Nonservice Revenues
Proceeds from sale of handsets, nomadic broadband sticks (Tattoos), modems, other
mobile devices and accessories, SIM packs, call cards and others are recognized as
revenue upon delivery of the items and the related cost or net realizable value are
presented as Cost of sales in the consolidated statement of comprehensive income.
2.6.1.3 Others
Interest income is recognized as it accrues using the effective interest rate method.
Lease income from operating lease is recognized on a straight-line basis over the lease
term.
Dividend income is recognized when the Globe Groups right to receive payment is
established.
2.6.2 Subscriber Acquisition and Retention Costs
The related costs incurred in connection with the acquisition of wireless and wireline voice
subscribers are charged against current operations, while the related acquisition costs of data
communication and broadband internet subscribers are capitalized. Subscriber acquisition
costs primarily include commissions, handset, phonekit, modems, mobile internet kit
subsidies, device subsidies and selling expenses. Those that meet the recognition criteria are
capitalized while others are expensed outright. Subsidies represent the difference between the
cost of handsets, nomadic broadband sticks (Tattoos), modems, other mobile devices and
accessories, SIM packs, call cards and others (included in the Cost of sales and Impairment
losses and others account), and the price offered to the subscribers (included in the

*SGVFS010845*

- 15 -

Nonservice revenues account). The data communication and broadband internet costs
represent the acquisition cost of modems (included in the Property and Equipment account)
which are depreciated over a period of two years (included in the Depreciation and
amortization account). Retention costs for existing postpaid subscribers are in the form of
free handsets, devices and bill credits. Retention costs are charged against current operations
and included under the General, selling and administrative expenses account in the
consolidated statement of comprehensive income upon delivery or when there is a contractual
obligation to deliver. Bill credits are deducted from service revenues upon application against
qualifying subscriber bills.
2.6.3 Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash with original maturities of
three months or less from date of placement and that are subject to an insignificant risk of
change in value.
2.6.4

Financial Instruments

2.6.4.1 General
2.6.4.1.1 Initial Recognition and Measurement
Financial instruments are recognized in the Globe Groups consolidated statement of
financial position when the Globe Group becomes a party to the contractual
provisions of the instrument. Purchases or sales of financial assets that require
delivery of assets within the time frame established by regulation or convention in the
marketplace are recognized (regular way trades) on the trade date, i.e., the date that
the Globe Group commits to purchase or sell the asset.
Financial instruments are recognized initially at fair value. Except for financial
instruments at fair value through profit or loss (FVPL), the initial measurement of
financial assets includes directly attributable transaction costs.
The Globe Group classifies its financial assets into the following categories: financial
assets at FVPL, held-to-maturity (HTM) investments, AFS investments, and loans and
receivables. The Globe Group classifies its financial liabilities into financial liabilities
at FVPL and other financial liabilities. The classification depends on the purpose for
which the investments were acquired and whether they are quoted in an active market.
Management determines the classification of its investments at initial recognition and,
where allowed and appropriate, re-evaluates such designation every reporting date.
2.6.4.1.2 Financial Assets or Financial Liabilities at FVPL
This category consists of financial assets or financial liabilities that are held for
trading or designated by management as FVPL on initial recognition. Financial
assets or financial liabilities are classified as held for sale if they are acquired for the
purpose of selling or repurchasing in the near term. Derivatives, including separated
embedded derivatives, are also classified as held for trading, unless they are
designated as effective hedging instruments as defined by PAS 39.
Financial assets or financial liabilities at FVPL are recorded in the consolidated
statement of financial position at fair value, with changes in fair value being
recorded in the consolidated profit or loss. Interest earned or incurred is recorded as
Interest income or expense, respectively, while dividend income is recorded when

*SGVFS010845*

- 16 -

the right to receive payment has been established. Both are recorded in the
consolidated profit or loss.
Financial assets or financial liabilities are classified in this category as designated
by management on initial recognition when any of the following criteria are met:

the designation eliminates or significantly reduces the inconsistent treatment that

would otherwise arise from measuring the assets or liabilities or recognizing
gains or losses on a different basis; or

the assets and liabilities are part of a group of financial assets, financial liabilities
or both which are managed and their performance are evaluated on a fair value
basis, in accordance with a documented risk management or investment strategy;
or

the financial instrument contains an embedded derivative, unless the embedded

derivative does not significantly modify the cash flows or it is clear, with little or
no analysis, that it would not be separately recorded.

The Globe Group evaluates its financial assets held for trading, other than
derivatives, to determine whether the intention to sell them in the near term is still
appropriate. When in rare circumstances the Globe Group is unable to trade these
financial assets due to inactive markets and managements intention to sell them in
the foreseeable future significantly changes, the Globe Group may elect to reclassify
these financial assets. The reclassification to loans and receivables, AFS or HTM
depends on the nature of the asset. This evaluation does not affect any financial
assets designated at FVPL using the fair value option at designation because these
instruments cannot be reclassified after initial recognition.
Derivatives embedded in host contracts are accounted for as separate derivatives and
recorded at fair value if their economic characteristics and risks are not closely
related to those of the host contracts and the host contracts are not held for trading
or designated at fair value though profit or loss. These embedded derivatives are
measured at fair value with changes in fair value recognized in the consolidated
profit or loss. Reassessment only occurs if there is a change in the terms of the
contract that significantly modifies the cash flows that would otherwise be required.
2.6.4.1.3 HTM Investments
HTM investments are quoted non-derivative financial assets with fixed or determinable
payments and fixed maturities for which the Globe Groups management has the
positive intention and ability to hold to maturity. Where the Globe Group sells other
than an insignificant amount of HTM investments, the entire category would be tainted
and reclassified as AFS investments. After initial measurement, HTM investments are
subsequently measured at amortized cost using the effective interest rate method, less
any impairment losses. Amortized cost is calculated by taking into account any
discount or premium on acquisition and fees that are an integral part of the effective
interest rate. Gains and losses are recognized in the consolidated profit or loss when
the HTM investments are derecognized or impaired, as well as through the
amortization process. The amortization is included in Interest income in the
consolidated statement of comprehensive income. The effects of restatement of
foreign currency-denominated HTM investments are recognized in the consolidated
profit or loss.

*SGVFS010845*

- 17 -

There are no outstanding HTM investments as of December 31, 2014 and 2013.
2.6.4.1.4 Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They are not entered into with the
intention of immediate or short-term resale and are not classified as financial assets
held for trading, designated as AFS investments or designated at FVPL.
This accounting policy relates to the consolidated statement of financial position
caption Receivables, which arise primarily from subscriber and traffic revenues and
other types of receivables, cash and cash equivalents, other nontrade receivables
included under Prepayments and other current assets and loans receivables included
under Other noncurrent assets.
Receivables are recognized initially at fair value. After initial measurement,
receivables are subsequently measured at amortized cost using the effective interest
rate method, less any allowance for impairment losses. Amortized cost is calculated
by taking into account any discount or premium on the issue and fees that are an
integral part of the effective interest rate.
Penalties, termination fees and surcharges on past due accounts of postpaid
subscribers are recognized as revenues upon collection. The losses arising from
impairment of receivables are recognized in the Impairment losses and others
account in the consolidated statement of comprehensive income. The level of
allowance for impairment losses is evaluated by management on the basis of factors
that affect the collectability of accounts (see accounting policy on 2.6.4.2 Impairment
of Financial Assets).
Other nontrade receivables and loans receivable are recognized initially at fair value,
which normally pertains to the consideration paid. Similar to receivables, subsequent
to initial recognition, other nontrade receivables and loans receivables are measured at
amortized cost using the effective interest rate method, less any allowance for
impairment losses.
2.6.4.1.5 AFS Investments
AFS investments are those investments which are designated as such or do not qualify
to be classified or designated as at FVPL, HTM investments or loans and receivables.
They are purchased and held indefinitely, and may be sold in response to liquidity
requirements or changes in market conditions. They include equity investments.
After initial measurement, AFS investments are subsequently measured at fair value.
Interest earned on holding AFS investments are reported as interest income using the
effective interest rate. The unrealized gains and losses arising from the fair value
changes of AFS investments are included in other comprehensive income and are
reported as Other reserves (net of tax where applicable) in the equity section of the
consolidated statement of financial position. When the investment is disposed of, the
cumulative gains or losses previously recognized in equity is recognized in the
consolidated profit or loss.
When the fair value of AFS investments cannot be measured reliably because of lack
of reliable estimates of future cash flows and discount rates necessary to calculate the
fair value of unquoted equity instruments, these investments are carried at cost, less
any allowance for impairment losses. Dividends earned on holding AFS investments

*SGVFS010845*

- 18 -

are recognized in the consolidated profit or loss when the right to receive payment has
been established.
The losses arising from impairment of such investments are recognized as Impairment
losses and others in the consolidated statement of comprehensive income.
2.6.4.1.6 Other Financial Liabilities
Issued financial instruments or their components, which are not designated at FVPL are
classified as other financial liabilities where the substance of the contractual arrangement
results in the Globe Group having an obligation either to deliver cash or another financial
asset to the holder, or to satisfy the obligation other than by the exchange of a fixed
amount of cash or another financial asset for a fixed number of own equity shares. The
components of issued financial instruments that contain both liability and equity elements
are accounted for separately, with the equity component being assigned the residual
amount after deducting from the instrument as a whole the amount separately determined
as the fair value of the liability component on the date of issue. After initial measurement,
other financial liabilities are subsequently measured at amortized cost using the effective
interest rate method. Amortized cost is calculated by taking into account any discount or
premium on the issue and fees that are an integral part of the effective interest rate. Any
effects of restatement of foreign currency-denominated liabilities are recognized in the
consolidated profit or loss.
This accounting policy applies primarily to the Globe Groups debt, accounts payable and
other obligations that meet the above definition (other than liabilities covered by other
accounting standards, such as income tax payable).
2.6.4.1.7

Derivative Instruments

2.6.4.1.7.1 General
The Globe Group enters into short-term deliverable and nondeliverable currency
forward contracts to manage its currency exchange exposure related to short-term
foreign currency-denominated monetary assets and liabilities and foreign
currency linked revenues.
The Globe Group also enters into long-term currency and interest rate swap
contracts to manage its foreign currency and interest rate exposures arising from
its long-term loan. Such swap contracts are sometimes entered into in
combination with options.
2.6.4.1.7.2 Recognition and Measurement
Derivative financial instruments are initially recognized at fair value on the date
on which a derivative contract is entered into and are subsequently remeasured at
fair value. Derivatives are carried as financial assets when the fair value is
positive and as financial liabilities when the fair value is negative. The method of
recognizing the resulting gain or loss depends on whether the derivative is
designated as a hedge of an identified risk and qualifies for hedge accounting
treatment. The objective of hedge accounting is to match the impact of the
hedged item and the hedging instrument in the consolidated profit or loss. To
qualify for hedge accounting, the hedging relationship must comply with strict
requirements such as the designation of the derivative as a hedge of an identified
risk exposure, hedge documentation, probability of occurrence of the forecasted
transaction in a cash flow hedge, assessment (both prospective and retrospective

*SGVFS010845*

- 19 -

bases) and measurement of hedge effectiveness, and reliability of the

measurement bases of the derivative instruments.
Upon inception of the hedge, the Globe Group documents the relationship
between the hedging instrument and the hedged item, its risk management
objective and strategy for undertaking various hedge transactions, and the details
of the hedging instrument and the hedged item. The Globe Group also documents
its hedge effectiveness assessment methodology, both at the hedge inception and
on an ongoing basis, as to whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in fair values or cash flows
of hedged items.
Hedge effectiveness is likewise measured, with any ineffectiveness being
reported immediately in the consolidated profit or loss.
2.6.4.1.7.3 Types of Hedges
The Globe Group designates derivatives which qualify as accounting hedges as
either: (a) a hedge of the fair value of a recognized fixed rate asset, liability or
unrecognized firm commitment (fair value hedge); or (b) a hedge of the cash
flow variability of recognized floating rate asset and liability or forecasted sales
transaction (cash flow hedge).
Fair Value Hedges
Fair value hedges are hedges of the exposure to variability in the fair value of
recognized assets, liabilities or unrecognized firm commitments. The gain or loss
on a derivative instrument designated and qualifying as a fair value hedge, as well
as the offsetting loss or gain on the hedged item attributable to the hedged risk,
are recognized in the consolidated profit or loss in the same accounting period.
Hedge effectiveness is determined based on the hedge ratio of the fair value
changes of the hedging instrument and the underlying hedged item. When the
hedge ceases to be highly effective, hedge accounting is discontinued.
As of December 31, 2014 and 2013, there were no derivatives designated and
accounted for as fair value hedges.
Cash Flow Hedges
The Globe Group designates as cash flow hedges the following derivatives:
(a) cross currency swaps as cash flow hedge of foreign exchange and interest
rate risk of United States Dollar (USD) loans (b) interest rate swaps as cash
flow hedge of the interest rate risk of a floating rate obligation, and (c) certain
foreign exchange forward contracts as cash flow hedge of expected USD
revenues.
A cash flow hedge is a hedge of the exposure to variability in future cash flows
related to a recognized asset, liability or a forecasted sales transaction. Changes
in the fair value of a hedging instrument that qualifies as a highly effective cash
flow hedge are recognized in Other reserves, which is a component of equity.
Any hedge ineffectiveness is immediately recognized in the consolidated profit
or loss.
If the hedged cash flow results in the recognition of a nonfinancial asset or
liability, gains and losses previously recognized directly in equity are
transferred from equity and included in the initial measurement of the cost or

*SGVFS010845*

- 20 -

carrying value of the asset or liability. Otherwise, for all other cash flow
hedges, gains and losses initially recognized in equity are transferred from
equity to consolidated profit or loss in the same period or periods during which
the hedged forecasted transaction or recognized asset or liability affect earnings.
Hedge accounting is discontinued prospectively when the hedge ceases to be
highly effective. When hedge accounting is discontinued, the cumulative gains
or losses on the hedging instrument that has been recognized in OCI is retained
in Other reserves until the hedged transaction impacts consolidated profit or
loss. When the forecasted transaction is no longer expected to occur, any net
cumulative gains or losses previously recognized in Other reserves is
immediately recycled in the consolidated profit or loss.
For cash flow hedges of USD revenues, the effective portion of the hedge
transaction coming from the fair value changes of the currency forwards are
subsequently recycled from equity to consolidated profit or loss and is
presented as part of the US dollar-based revenues upon consummation of the
transaction or when the hedge become ineffective.
2.6.4.1.7.4 Other Derivative Instruments Not Accounted for as Accounting
Hedges
Certain freestanding derivative instruments that provide economic hedges under
the Globe Groups policies either do not qualify for hedge accounting or are not
designated as accounting hedges. Changes in the fair values of derivative
instruments not designated as hedges are recognized immediately in the
consolidated profit or loss. For bifurcated embedded derivatives in financial and
nonfinancial contracts that are not designated or do not qualify as hedges, changes
in the fair values of such transactions are recognized in the consolidated profit or
loss.
2.6.4.1.7.5 Offsetting
Financial assets and financial liabilities are offset and the net amount is reported
in the consolidated statements of financial position if, and only if, there is a
currently enforceable legal right to offset the recognized amounts and there is an
intention to settle on a net basis, or to realize the asset and settle the liability
simultaneously. This is not generally the case with master netting agreements;
thus, the related assets and liabilities are presented gross in the consolidated
statements of financial position.
2.6.4.2 Impairment of Financial Assets
The Globe Group assesses at end of the reporting date whether a financial asset or
group of financial assets is impaired.
2.6.4.2.1 Assets Carried at Amortized Cost
If there is objective evidence that an impairment loss on financial assets carried at
amortized cost (e.g., receivables) has been incurred, the amount of the loss is measured as
the difference between the assets carrying amount and the present value of estimated
future cash flows discounted at the assets original effective interest rate. Time value is
generally not considered when the effect of discounting is not material. The carrying
amount of the asset is reduced through the use of an allowance account. The amount of
the loss is to be recognized in the consolidated profit or loss.

*SGVFS010845*

- 21 -

The Globe Group first assesses whether objective evidence of impairment exists
individually for financial assets that are individually significant, and individually or
collectively for financial assets that are not individually significant. 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 a group of financial assets with similar
credit risk 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 continues to be recognized are not included in a collective assessment of impairment.
If, in a 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 profit or loss to the extent that the
carrying value of the asset does not exceed what should have been its amortized cost at the
reversal date.
With respect to receivables, the Globe Group performs a regular review of the risk profile
of accounts, designed to identify accounts with objective evidence of impairment and
provide the appropriate allowance for impairment losses. The review is accomplished
using a combination of specific and collective assessment approaches, with the
impairment losses being determined for each risk grouping identified by the Globe Group.
2.6.4.2.1.1 Subscribers
Management regularly reviews its portfolio and assesses if there are accounts
requiring specific provisioning based on objective evidence of high default
probability. Observable data indicating high impairment probability could be
deterioration in payment status, declaration of bankruptcy or national/local
economic indicators that might affect payment capacity of accounts.
Full allowance for impairment losses, net of average recoveries, is provided for
receivables from permanently disconnected wireless, wireline and broadband
subscribers. Permanent disconnections are made after a series of collection steps
following nonpayment by postpaid subscribers. Such permanent disconnections
generally occur within a predetermined period from due date.
Impairment losses are applied to active wireless, wireline and broadband accounts
specifically identified to be doubtful of collection where there is information on
financial incapacity after considering the other contractual obligations between
Globe Group and the subscriber. Allowance is applied regardless of age bucket of
identified accounts.
Application of impairment losses to receivables, net of receivables with applied
specific loss, is also determined based on the results of net flow to permanent
disconnection methodology.
For wireless, net flow tables are derived from account-level monitoring of
subscriber accounts between different age brackets depending on the defined
permanent disconnection timeline, from current to 150 days past due and up. The
net flow to permanent disconnection methodology relies on the historical data of
net flow tables to establish a percentage (net flow rate) of subscriber receivables
that are current or in any state of delinquency as of reporting date that will

*SGVFS010845*

- 22 -

eventually result to permanent disconnection. The allowance for impairment

losses is then computed based on the outstanding balances of the receivables at
the end of reporting date and the net flow rates determined for the current and
each delinquency bucket. Full allowance is provided for receivables of active
consumer accounts in the 150 days past due and up bucket.
For active wireline voice and broadband subscribers, the allowance for
impairment loss is also determined based on the results of net flow rate to
permanent disconnection computed from account-level monitoring of accounts
from current to 90 days past due and up age bucket except for consumer where
impairment rate applied at 90 days past due and up bucket is full allowance net of
average recoveries prior to permanent disconnection.
2.6.4.2.1.2 Traffic
As per PAS 39, impairment provision is recognized in the light of actual losses
incurred by the Globe Group as a result of one or more events that occurred after
the initial recognition of the asset (a loss event) and that loss event (or events)
has an impact on the estimated future cash flows of the financial asset or group of
assets that can be reliably estimated.
For traffic receivables, impairment losses are provided on specific or per carrier
basis observing objective evidence of impairment. Objective evidence of
impairment includes the following: a) financial difficulty of interconnect carriers;
b) default or delinquency; c) high probability of bankruptcy or financial reorganization; and d) historical pattern of collections that amounts due will not be
collected. For receivable balances that appear doubtful of collection, allowance is
provided after review of the status of settlement with each carrier and roaming
partner, taking into consideration normal payment cycles, recovery experience
and credit history of the counterparties.
2.6.4.2.1.3 Other Receivables
Other receivables from dealers, credit card companies and other parties are
provided with allowance for impairment losses if specifically identified to be
doubtful of collection regardless of the age of the account.
2.6.4.2.2 AFS Investments Carried at Cost
If there is objective evidence that an impairment loss has been incurred on an unquoted
equity instrument that is not carried at fair value because its fair value cannot be reliably
measured, or on a derivative asset that is linked to and must be settled by delivery of such
unquoted equity instrument, the amount of the loss is measured as the difference between
the assets carrying amount and the present value of estimated future cash flows
discounted at the current market rate of return for a similar financial asset. The carrying
amount of the asset is reduced through the use of an allowance account.
2.6.4.2.3 AFS Investments Carried at Fair Value
If an AFS investment carried at fair value is impaired, an amount comprising the
difference between its cost (net of any principal repayment and amortization) and its
current fair value, less any impairment loss previously recognized in the consolidated
profit or loss, is transferred from equity to profit or loss. Reversals of impairment losses
in respect of equity instruments classified as AFS are not recognized in the consolidated
profit or loss. Reversals of impairment losses on debt instruments are made through profit
or loss if the increase in fair value of the instrument can be objectively related to an event
occurring after the impairment loss was recognized in the consolidated profit or loss.

*SGVFS010845*

- 23 -

2.6.4.3 Derecognition of Financial Instruments

2.6.4.3.1 Financial Asset
A financial asset (or, where applicable a part of a financial asset or part of a group of
financial assets) is derecognized where:

the rights to receive cash flows from the asset have expired;
the Globe Group retains the right to receive cash flows from the asset, but has
assumed an obligation to pay them in full without material delay to a third party
under a pass-through arrangement; or
the Globe Group has transferred its rights to receive cash flows from the asset
and either (a) has transferred substantially all the risks and rewards of ownership
or (b) has neither transferred nor retained the risk and rewards of the asset but
has transferred the control of the asset.

Where the Globe 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 recognized to the extent of the
Globe Groups continuing involvement in the asset. Continuing involvement that
takes the form of a guarantee over the transferred asset, which is measured at the
lower of the original carrying amount of the asset and the maximum amount of
consideration that the Globe Group could be required to pay.
2.6.4.3.2 Financial Liability
A financial liability is derecognized when the obligation under the liability is
discharged or cancelled or has expired. 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 recognized in the
consolidated profit or loss.
2.6.5 Fair Value Measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to sell the asset or transfer the
liability takes place either:

In the principal market for the asset or liability, or

In the absence of a principal market, in the most advantageous market for the asset or
liability

The principal or the most advantageous market must be accessible to the Globe Group.
The fair value of an asset or a liability is measured using the assumptions that market
participants would use when pricing the asset or liability, assuming that market participants
act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participants
ability to generate economic benefits by using the asset in its highest and best use or by selling
it to another market participant that would use the asset in its highest and best use.

*SGVFS010845*

- 24 -

The Globe Group uses valuation techniques that are appropriate in the circumstances and for
which sufficient data are available to measure fair value, maximizing the use of relevant
observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial
statements are categorized within the fair value hierarchy, described as follows, based on the
lowest level input that is significant to the fair value measurement as a whole:

Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or
liabilities
Level 2 - Valuation techniques for which the lowest level input that is significant to the
fair value measurement is directly or indirectly observable
Level 3 - Valuation techniques for which the lowest level input that is significant to the
fair value measurement is unobservable

For assets and liabilities that are recognized in the consolidated financial statements on a
recurring basis, the Globe Group determines whether transfers have occurred between Levels
in the hierarchy by re-assessing categorization (based on the lowest level input that is
significant to the fair value measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Globe Group has determined classes of assets
and liabilities on the basis of the nature, characteristics and risks of the asset or liability and
the level of the fair value hierarchy as explained above.
2.6.6 Inventories and Supplies
Inventories and supplies are stated at the lower of cost and net realizable value (NRV).
NRV for handsets, modems, devices and accessories is the selling price in the ordinary
course of business less direct costs to sell, while NRV for SIM packs, call cards, spare parts
and supplies consists of the related replacement costs. In determining the NRV, the
Company considers any adjustment necessary for obsolescence, which is generally an
allowance for non-moving items after a certain period. Cost is determined using the moving
average method.
2.6.7 Noncurrent Assets Held for Sale
Non-current assets classified as held for sale are measured at the lower of carrying amount and
fair value less cost to sell. Non-current assets (and the related liabilities) are classified as held
for sale if their carrying amounts will be recovered through a sale transaction rather than
through continuing use. This condition is regarded as met only when the sale is highly
probable and the asset is available for immediate sale in its present condition.
Events or circumstances may extend the period to complete the sale beyond one year. An
extension of the period required to complete a sale does not preclude an asset from being
classified as held for sale if the delay is caused by events or circumstances beyond the entity's
control and there is sufficient evidence that the entity remains committed to its plan to sell the
asset.
Items of property and equipment and intangible assets once classified as held for sale are not
depreciated/amortized.
Assets that cease to be classified as held for sale are measured at the lower of its carrying
value before the assets were classified as held for sale, adjusted for any depreciation that
would have been recognized had the asset not been classified as held for sale, and its

*SGVFS010845*

- 25 -

recoverable amount at the date of the changes to the plan of sale. Adjustment is recognized in
profit or loss.
2.6.8 Prepayments
Prepayments, included under Other current assets account in the consolidated statement of
financial position, are expenses paid in advance and recorded as asset before they are utilized.
This account comprises of advance payment to suppliers and contractors, prepaid rentals and
insurance premiums and other prepaid items and creditable withholding taxes. Prepaid rentals
and insurance premiums and other prepaid items are apportioned over the period covered by
the payment and charged to the appropriate accounts in profit or loss when incurred.
Creditable withholding taxes are deducted from income tax payable. Prepayments that are
expected to be realized for no more than 12 months after the balance sheet date are classified
as current assets; otherwise, these are classified as other noncurrent assets.
2.6.9 Value Added Tax (VAT)
Input VAT is recognized when the Globe Group purchases goods or services from a VAT
registered supplier or vendor. This account is offset against any output VAT previously
recognized. Input VAT on capital goods exceeding 1 million and input VAT from purchases
of goods and services which remain unpaid at each reporting date are recognized as Deferred
input VAT.
2.6.10 Property and Equipment
Property and equipment, except land, are carried at cost less accumulated depreciation,
amortization and impairment losses. Land is stated at cost less any impairment losses.
The initial cost of an item of property and equipment includes its purchase price and any
cost attributable in bringing the property and equipment to its intended location and working
condition. Cost also includes: (a) interest and other financing charges on borrowed funds
specifically used to finance the acquisition of property and equipment to the extent incurred
during the period of installation and construction; and (b) asset retirement obligations
(ARO) specifically on property and equipment installed/constructed on leased properties.
Expenditures incurred after the property and equipment have been put into operation, such
as repairs and maintenance, are normally charged to income 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 additional costs of property and equipment.
Subsequent costs are capitalized as part of property and equipment only when it is probable
that future economic benefits associated with the item will flow to the Globe Group and the
cost of the item can be measured reliably.
Assets under construction (AUC) are carried at cost and transferred to the related property and
equipment account when the construction or installation and the related activities necessary to
prepare the property and equipment for their intended use are complete, and the property and
equipment are ready for service.
Depreciation and amortization of property and equipment commences once the property and
equipment are available for use and computed using the straight-line method over the
estimated useful lives (EUL) of the property and equipment.

*SGVFS010845*

- 26 -

Leasehold improvements are amortized over the shorter of their EUL or the corresponding
lease terms.
The EUL of property and equipment are reviewed annually based on expected asset utilization
as anchored on business plans and strategies that also consider expected future technological
developments and market behavior to ensure that the period of depreciation and amortization
is consistent with the expected pattern of economic benefits from items of property and
equipment.
The residual values of property and equipment are reviewed at each financial year end and
adjusted prospectively, if appropriate.
When property and equipment is retired or otherwise disposed of, the cost and the related
accumulated depreciation, amortization and impairment losses are removed from the accounts.
Any resulting gain or loss is credited to or charged against current operations.
2.6.11 ARO
The Globe Group is legally required under various contracts to restore leased property to its
original condition and to bear the cost of dismantling and deinstallation at the end of the contract
period. The Globe Group recognizes the present value of these obligations and capitalizes these
costs as part of the carrying value of the related property and equipment accounts, and are
depreciated on a straight-line basis over the useful life of the related property and equipment or
the contract period, whichever is shorter.
The amount of ARO is recognized at present value and the related accretion is recognized as
interest expense.
2.6.12 Intangible Assets
Intangible assets consist of: 1) costs incurred to acquire application software (not an integral part
of its related hardware or equipment) and telecommunications equipment software licenses; 2)
intangible assets identified to exist during the acquisition of Yondu Group for its existing customer
contracts; and (3) exclusive dealership right in Taodharma, Inc. (Taodharma). Costs directly
associated with the development of identifiable software that generate expected future benefits to
the Globe Group are recognized as intangible assets. All other costs of developing and
maintaining software programs are recognized as expense when incurred.
Subsequent to initial recognition, intangible assets are measured at cost less accumulated
amortization and any impairment losses. The EUL of intangible assets with finite lives are
assessed at the individual asset level. Intangible assets with finite lives are amortized on a straightline basis over their useful lives. The periods and method of amortization for intangible assets
with finite useful lives are reviewed annually or more frequently when an indicator of impairment
exists.
A gain or loss arising from derecognition of an intangible asset is measured as the difference
between the net disposal proceeds and the carrying amount of the asset and is recognized in the
consolidated statements of comprehensive income when the asset is derecognized.
2.6.13 Business Combinations and Goodwill
Business combinations are accounted for using the purchase method. The cost of an
acquisition is measured as the aggregate of the consideration transferred, measured at
acquisition date fair value and the amount of any non-controlling interest in the acquiree. For
each business combination, the Globe Group elects whether it measures the non-controlling

*SGVFS010845*

- 27 -

interest in the acquiree either at fair value or at the proportionate share of the acquirees
identifiable net assets. Acquisition costs incurred are expensed and included in administrative
expenses in the consolidated statements of comprehensive income.
When the Globe Group acquires a business, it assesses the financial assets and financial
liabilities assumed for appropriate classification and designation in accordance with the
contractual terms, economic circumstances and pertinent conditions as at the acquisition date.
This includes the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, any previously held equity interest is
remeasured at its acquisition date fair value and any resulting gain or loss is recognized in the
consolidated profit or loss. It is then considered in the determination of goodwill. Any
contingent consideration to be transferred by the acquirer will be recognized at fair value at
the acquisition date. Subsequent changes to the fair value of the contingent consideration that
is deemed to be an asset or liability will be recognized in accordance with PAS 39 either in
profit or loss or as a change to OCI. If the contingent consideration is classified as equity, it
will not be remeasured. Subsequent settlement is accounted for within equity. In instances
where the contingent consideration does not fall within the scope of PAS 39, it is measured in
accordance with the appropriate PFRS.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration
transferred and the amount recognized for non-controlling interest over the net identifiable
assets acquired and liabilities assumed. If this consideration is lower than the fair value of the
net assets of the subsidiary acquired, the difference is recognized in the consolidated profit or
loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
For the purpose of impairment testing, goodwill acquired in a business combination is, from
the acquisition date, allocated to each of the Globe Groups cash-generating units (CGUs) that
are expected to benefit from the combination, irrespective of whether other assets or liabilities
of the acquiree are assigned to those units.
Where goodwill forms part of a CGU and part of the operation within that unit is disposed of,
the goodwill associated with the operation disposed of is included in the carrying amount of
the operation when determining the gain or loss on disposal of the operation. Goodwill
disposed of in this circumstance is measured based on the relative values of the operation
disposed of and the portion of the CGU retained.
2.6.14 Investments in Associate and Joint Ventures
An associate is an entity over which the Globe Group has significant influence. Significant
influence is the power to participate in the financial and operating policy decisions of the
investee, but is not control or joint control over those policies.
A joint venture (JV) is a type of joint arrangement whereby the parties that have joint control
of the arrangement have rights to the net assets of the joint venture. Joint control is the
contractually agreed sharing of control of an arrangement, which exists only when decisions
about the relevant activities require unanimous consent of the parties sharing control.
The considerations made in determining significant influence or joint control are similar to
those necessary to determine control over subsidiaries.
The Globe Groups investments in its associate and JV are accounted for using the equity
method.

*SGVFS010845*

- 28 -

Under the equity method, the investments in an associate and JV are carried in the
consolidated statement of financial position at cost plus post-acquisition changes in the Globe
Groups share in net assets of the associate and JV, less any allowance for impairment losses.
The profit or loss includes Globe Groups share in the results of operations of its associate or
JV. Any change in OCI of those investees is presented as part of the Globe Groups OCI. In
addition, where there has been a change recognized directly in the equity of the associate or
JV, the Globe Group recognizes its share of any changes and discloses this, when applicable,
in OCI.
When the share of losses recognized under the equity method has reduced the investment to
zero, the Globe Group shall discontinue recognizing its share or further losses and apply it to
other interests that, in substance, for part of Globe Groups net investment in the associate or
JV. If the associate or JV subsequently reports profits, the Globe Group will resume
recognizing its share of those profits only after its share of the profits equal the share in losses
not recognized.
The financial statements of the associate or JV are prepared for the same reporting period as
the Globe Group.
Upon loss of significant influence over the associate or joint control over the JV, the Globe
Group measures and recognizes any retained investment at its fair value. Any difference
between the carrying amount of the associate or JV upon loss of significant influence or joint
control and the fair value of the retained investment and proceeds from disposal is recognized
in the consolidated profit or loss.
2.6.15 Impairment of Nonfinancial Assets
For nonfinancial assets, excluding goodwill, an assessment is made at the end of the reporting
date to determine whether there is any indication that an asset may be impaired, or whether
there is any indication that an impairment loss previously recognized for an asset in prior
periods may no longer exist or may have decreased. If any such indication exists and when
the carrying value of an asset exceeds its estimated recoverable amount, the asset or CGU to
which the asset belongs is written down to its recoverable amount. The recoverable amount of
an asset is the higher of its fair value less cost to sell and value in use. Recoverable amounts
are estimated for individual assets or investments or, if it is not possible, for the CGU to which
the asset belongs. For impairment loss on specific assets or investments, the recoverable
amount represents the fair value less cost to sell.
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.
An impairment loss is recognized only if the carrying amount of an asset exceeds its
recoverable amount. An impairment loss is charged against operations in the year in which it
arises. A previously recognized impairment loss is reversed only if there has been a change in
estimate used to determine the recoverable amount of an asset, however, not to an amount
higher than the carrying amount that would have been determined (net of any accumulated
depreciation and amortization for property and equipment and intangible assets) had no
impairment loss been recognized for the asset in prior years. A reversal of an impairment loss
is credited to current operations.
After application of the equity method, the Globe Group determines whether it is necessary to
recognize an impairment loss on its investment in its associate or joint venture. At each
reporting date, the Globe Group determines whether there is objective evidence that the

*SGVFS010845*

- 29 -

investment in the associate or joint venture is impaired. If there is such evidence, the Globe
Group calculates the amount of impairment as the difference between the recoverable amount
of the associate or joint venture and its carrying value, and then recognizes the loss as Equity
in net losses of associates and joint ventures account in the consolidated profit or loss.
For assessing impairment of goodwill, a test for impairment is performed annually and when
circumstances indicate that the carrying value may be impaired. Impairment is determined for
goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the
goodwill relates. Where the recoverable amount of the CGU is less than their carrying
amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be
reversed in future periods.
2.6.16 Unearned Revenues
Unearned revenues are recognized when proceeds are collected from wireless subscribers
under prepaid arrangements. These also represent advance payments for leased lines,
installation fees and monthly service fees and points expected to be redeemed under its
Loyalty programmes.
2.6.17 Income Tax
2.6.17.1Current Income 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 tax authority. The tax rates and tax
laws used to compute the amount are those that are enacted or substantively enacted as at
the end of the reporting date.
2.6.17.2Deferred Income Tax
Deferred income tax is provided using the balance sheet liability method on all temporary
differences, with certain exceptions, at the end of the reporting date between the tax bases
of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences, with
certain exceptions. Deferred income tax assets are recognized for all deductible temporary
differences, with certain exceptions, and carryforward benefits of unused tax credits from
excess minimum corporate income tax (MCIT) over regular corporate income tax (RCIT)
and net operating loss carryover (NOLCO) to the extent that it is probable that taxable
income will be available against which the deductible temporary differences and the
carryforward benefits of unused MCIT and NOLCO can be used.
Deferred income tax 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
transaction, affects neither the accounting income nor taxable income or loss. Deferred
income tax liabilities/assets are not recognized for taxable/deductible temporary
differences associated with investments in foreign subsidiaries when the timing of the
reversal of the temporary differences can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable future.
Deferred income tax relating to items recognized directly in equity or OCI is included in
the related equity or OCI account and not in profit or loss.
The carrying amounts of deferred income tax assets are reviewed every end of reporting
date and reduced to the extent that it is no longer probable that sufficient taxable income
will be available to allow all or part of the deferred income tax assets to be utilized.

*SGVFS010845*

- 30 -

Deferred income tax assets and liabilities are offset, if a legally enforceable right exists to
set off current income tax assets against current income tax liabilities and the deferred
income taxes relate to the same taxable entity and the same taxation authority.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to
apply in the year when the assets are realized or the liabilities are settled based on tax rates
(and tax laws) that have been enacted or substantively enacted as at the end of the reporting
date.
Movements in the deferred income tax assets and liabilities arising from changes in tax
rates are charged or credited to income for the period.
2.6.18 Provisions
Provisions are recognized when: (a) the Globe Group has a present obligation (legal or
constructive) as a result of a past event; (b) it is probable (i.e., more likely than not) that an
outflow of resources embodying economic benefits will be required to settle the obligation;
and (c) a reliable estimate can be made of the amount of the obligation. Provisions are
reviewed every end of the reporting period and adjusted to reflect the current best estimate. If
the effect of the time value of money is material, provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects current market assessment of the time
value of money and, where appropriate, the risks specific to the liability. Where discounting
is used, the increase in the provision due to the passage of time is recognized as interest
expense under Financing costs in the consolidated statement of comprehensive income.
2.6.19 Share-based Payment Transactions
Certain employees (including directors) of the Globe Group receive remuneration in the form
of share-based payment transactions, whereby employees render services in exchange for
shares or rights over shares (equity-settled transactions) (see Note 18).
The cost of equity-settled transactions with employees is measured by reference to the fair
value at the date at which they are granted. In valuing equity-settled transactions, vesting
conditions, including performance conditions, other than market conditions (conditions linked
to share prices), shall not be taken into account when estimating the fair value of the shares or
share options at the measurement date. Instead, vesting conditions are taken into account in
estimating the number of equity instruments that will vest.
The cost of equity-settled transactions is recognized in the consolidated profit or loss, together
with a corresponding increase in equity, over the period in which the service conditions are
fulfilled, ending on the date on which the relevant employees become fully entitled to the
award (vesting date). The cumulative expense recognized for equity-settled transactions at
each reporting date until the vesting date reflects the extent to which the vesting period has
expired and the number of awards that, in the opinion of the management of the Globe Group
at that date, based on the best available estimate of the number of equity instruments, will
ultimately vest. Costs of exercised awards plus the corresponding strike amount are
reclassified to the capital accounts.
No expense is recognized for awards that do not ultimately vest, except for awards where
vesting is conditional upon a market condition, which are treated as vesting irrespective of
whether or not the market condition is satisfied, provided that all other performance conditions
are satisfied.

*SGVFS010845*

- 31 -

Where the terms of an equity-settled award are modified, as a minimum, an expense is

recognized as if the terms had not been modified. In addition, an expense is recognized for
any increase in the value of the transaction as a result of the modification, measured at the date
of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of
cancellation, and any expense not yet recognized for the award is recognized immediately.
However, if a new award is substituted for the cancelled award, and designated as a
replacement award on the date that it is granted, the cancelled and new awards are treated as if
they were a modification of the original award, as described in the previous paragraph. The
dilutive effect of outstanding options is reflected as additional share dilution in the
computation of earnings per share (EPS) (see Note 27).
2.6.20 Capital Stock
Capital stock is recognized as issued when the stock is paid for or subscribed under a binding
subscription agreement and is measured at par value. The transaction costs incurred as a
necessary part of completing an equity transaction are accounted for as part of that transaction
and are deducted from additional paid-in capital, net of related income tax benefits.
2.6.21 Additional Paid-in Capital
Additional paid-in capital includes any premium received in excess of par value on the
issuance of capital stock.
2.6.22 Treasury Stock
Treasury stock is recorded at cost and is presented as a deduction from equity. When the
shares are retired, the capital stock account is reduced by its par value and the excess of cost
over par value upon retirement is debited to additional paid-in capital to the extent of the
specific or average additional paid-in capital when the shares were issued and to retained
earnings for the remaining balance.
2.6.23 Other Comprehensive Income
OCI are items of income and expense that are not recognized in the consolidated profit or loss
for the year in accordance with PFRS.
2.6.24 Pension Cost
The net defined benefit liability or asset is the aggregate of the present value of the defined
benefit obligation at the end of the reporting period reduced by the fair value of plan assets (if
any), adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The
asset ceiling is the present value of any economic benefits available in the form of refunds
from the plan or reductions in future contributions to the plan.
The cost of providing benefits under the defined benefit plans is actuarially determined using
the projected unit credit method. Defined benefit costs comprise service cost, net interest on
the net defined benefit liability or asset and remeasurements of net defined benefit liability or
asset.
Service costs which include current service costs, past service costs and gains or losses on
non-routine settlements are recognized as expense in the consolidated profit or loss. Past
service costs are recognized when plan amendment or curtailment occurs. These amounts are
calculated periodically by independent qualified actuaries.
Net interest on the net defined benefit liability or asset is the change during the period in the
net defined benefit liability or asset that arises from the passage of time which is determined

*SGVFS010845*

- 32 -

by applying the discount rate based on government bonds to the net defined benefit liability or
asset. Net interest on the net defined benefit liability or asset is recognized as expense or
income in the consolidated profit or loss.
Remeasurements comprising actuarial gains and losses, return on plan assets and any change
in the effect of the asset ceiling (excluding net interest on defined benefit liability) are
recognized immediately in OCI in the period in which they arise. Remeasurements are not
reclassified to the consolidated profit or loss in subsequent periods.
Plan assets are assets that are held by a long-term employee benefit fund. Plan assets are not
available to the creditors of the Globe Group, nor can they be paid directly to the Globe
Group. Fair value of plan assets is based on market price information. When no market price
is available, the fair value of plan assets is estimated by discounting expected future cash
flows using a discount rate that reflects both the risk associated with the plan assets and the
maturity or expected disposal date of those assets (or, if they have no maturity, the expected
period until the settlement of the related obligations). If the fair value of the plan assets is
higher than the present value of the defined benefit obligation, the measurement of the
resulting defined benefit asset is limited to the present value of economic benefits available in
the form of refunds from the plan or reductions in future contributions to the plan.
2.6.25 Borrowing Costs
Borrowing costs are capitalized if these are directly attributable to the acquisition, construction
or production of a qualifying asset. Capitalization of borrowing costs commences when the
activities for the assets intended use are in progress and expenditures and borrowing costs are
being incurred. Borrowing costs are capitalized until the assets are ready for their intended use.
These costs are amortized using the straight-line method over the EUL of the related property
and equipment. If the resulting carrying amount of the asset exceeds its recoverable amount, an
impairment loss is recognized. Borrowing costs include interest charges and other related
financing charges incurred in connection with the borrowing of funds, as well as exchange
differences arising from foreign currency borrowings used to finance these projects to the
extent that they are regarded as an adjustment to interest costs. Premiums on long-term debt
are included under the Long-term debt account in the consolidated statement of financial
position and are amortized using the effective interest rate method.
Other borrowing costs are recognized as expense in the period in which these are incurred.
2.6.26 Leases
The determination of whether an arrangement is, or contains a lease, is based on the substance
of the arrangement and requires an assessment of whether the fulfillment of the arrangement is
dependent on the use of a specific asset or assets and the arrangement conveys a right to use the
asset. A reassessment is made after inception of the lease only if one of the following applies:

there is a change in contractual terms, other than a renewal or extension of the

arrangement;
a renewal option is exercised or an extension granted, unless that term of the renewal
or extension was initially included in the lease term;
there is a change in the determination of whether fulfillment is dependent on a
specified asset; or
there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when
the change in circumstances gave rise to the reassessment for any of the scenarios above, and
at the date of renewal or extension period for the second scenario.

*SGVFS010845*

- 33 -

2.6.26.1Group as Lessee
Finance leases, which transfer to the Globe Group substantially all the risks and rewards
incidental to ownership of the leased item, are capitalized at the inception of the lease at
the fair value of the leased property or, if lower, at the present value of the minimum lease
payments and included in the Property and equipment account with the corresponding
liability to the lessor included in the Other long-term liabilities account in the
consolidated statement of financial position. Lease payments are apportioned between the
finance charges and reduction of the lease liability so as to achieve a constant rate of
interest on the remaining balance of the liability. Finance charges are charged directly as
Interest expense in the consolidated statement of comprehensive income.
Capitalized leased assets are depreciated over the shorter of the EUL of the assets and the
respective lease terms.
Leases where the lessor retains substantially all the risks and rewards of ownership of the
asset are classified as operating leases. Operating lease payments are recognized as an
expense in the consolidated profit or loss on a straight-line basis over the lease term.
2.6.26.2Globe Group as Lessor
Finance leases, where the Globe Group transfers substantially all the risk and rewards
incidental to ownership of the leased item to the lessee, are included in the consolidated
statements of financial position under Prepayments and other current assets account. A
lease receivable is recognized equivalent to the net investment (asset cost) in the lease.
All income resulting from the receivable is included in the Interest income account in
the consolidated statement of comprehensive income.
Leases where the Globe Group does not transfer substantially all the risk and rewards of
ownership of the assets are classified as operating leases. Initial direct costs incurred in
negotiating operating leases are added to the carrying amount of the leased asset and
recognized over the lease term on the same basis as the rental income. Contingent rents
are recognized as revenue in the period in which they are earned.
2.6.27 General, Selling and Administrative Expenses
General, selling and administrative expenses, except for rent, are charged against current
operations as incurred.
2.6.28 Foreign Currency Transactions
The functional and presentation currency of the Globe Group is the Philippine Peso, except for
GTHK and GTIC US whose functional currency is the USD, GTEU, GTUK, GMI and GIEE
whose functional currency is Euro and GTSG whose functional currency is the Singapore
Dollar (SGD). Transactions in foreign currencies are initially recorded at the functional
currency rate prevailing at the date of the transaction. Outstanding monetary assets and
liabilities denominated in foreign currencies are retranslated at the functional currency rate of
exchange at the end of reporting period.
Nonmonetary items that are measured in terms of historical cost in a foreign currency are
translated using the exchange rate as at the date of the initial transaction and are not
subsequently restated. Nonmonetary items measured at fair value in a foreign currency are
translated using the exchange rate at the date when the fair value was determined. All foreign
exchange differences are taken to the consolidated profit or loss, except where it relates to
equity securities where gains or losses are recognized directly in OCI.

*SGVFS010845*

- 34 -

As at the reporting date, the assets and liabilities of GTIC and GTHK, GTEU, UKGT, GMI and
GIEE and GTSG are translated into the presentation currency of the Globe Group at the rate of
exchange prevailing at the end of reporting period and its profit or loss is translated at the
monthly weighted average exchange rates during the year. The exchange differences arising on
the translation are taken directly to a separate component of equity under Other reserves
account. Upon disposal of GTIC, GTHK, GTEU, UKGT, GMI, GIEE and GTSG the
cumulative translation adjustments shall be recognized in the consolidated profit or loss.
2.6.29 EPS
Basic EPS is computed by dividing net income attributable to common stock by the weighted
average number of common shares outstanding, after giving retroactive effect for any stock
dividends, stock splits or reverse stock splits during the period.
Diluted EPS is computed by dividing net income by the weighted average number of common
shares outstanding during the period, after giving retroactive effect for any stock dividends,
stock splits or reverse stock splits during the period, and adjusted for the effect of dilutive
options and dilutive convertible preferred shares. Outstanding stock options will have a
dilutive effect under the treasury stock method only when the average market price of the
underlying common share during the period exceeds the exercise price of the option. If the
required dividends to be declared on convertible preferred shares divided by the number of
equivalent common shares, assuming such shares are converted, would decrease the basic
EPS, then such convertible preferred shares would be deemed dilutive. Where the effect of
the assumed conversion of the preferred shares and the exercise of all outstanding options
have anti-dilutive effect, basic and diluted EPS are stated at the same amount.
2.6.30 Operating Segment
The Globe Groups major operating business units are the basis upon which the Globe Group
reports its primary segment information. The Globe Groups business segments consist of: (1)
mobile communications services; and (2) wireline communications services. The Globe Group
generally accounts for intersegment revenues and expenses at agreed transfer prices.
2.6.31 Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. These are
disclosed unless the possibility of an outflow of resources embodying economic benefits is
remote. Contingent assets are not recognized in the consolidated financial statements but are
disclosed when an inflow of economic benefits is probable.
2.6.32 Events after the Reporting Period
Any post period-end event up to the date of approval of the BOD of the consolidated financial
statements that provides additional information about the Globe Groups position at the end of
reporting period (adjusting event) is reflected in the consolidated financial statements. Any
post period-end event that is not an adjusting event is disclosed in the consolidated financial
statements when material.

3. Managements Significant Accounting Judgments and Use of Estimates and Assumptions

The preparation of the accompanying consolidated financial statements in conformity with
PFRS requires management to make judgments, estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying notes. The
judgments, estimates and assumptions used in the accompanying consolidated financial
statements are based upon managements evaluation of relevant facts and circumstances as of
the date of the consolidated financial statements. Actual results could differ from such

*SGVFS010845*

- 35 -

judgments, estimates and assumptions.

Judgments, estimates and assumptions are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances.
3.1 Judgments
3.1.1

Leases

3.1.1.1 Operating Lease Commitments as Lessor

The Globe Group has entered into lease agreements as a lessor. Critical judgment was
exercised by management to distinguish the lease agreement as either an operating or
finance lease by looking at the transfer or retention of significant risk and rewards of
ownership of the properties covered by the agreements. The Globe Group has determined
that it retains all the significant risks and rewards of ownership of the properties and so
accounts for the agreement as an operating leases (see Note 25.1.1).
3.1.1.2 Operating Lease Commitments as Lessee
The Globe Group has entered into various lease agreements as a lessee where it has
determined that the lessors retain all the significant risks and rewards of ownership of the
properties and, as such, accounts for the agreements as operating lease (see Note 25.1.1).
3.1.1.3 Finance Lease Commitments as Lessee
The Globe Group has entered into finance lease agreements related to hardware
infrastructure and information equipment. They have determined, based on the evaluation
of the terms and conditions of the arrangements, that they bear substantially all the risks
and rewards incidental to ownership of the said machineries and equipment and so
account for the contracts as finance leases (see Note 25.1.2).
3.1.2 Fair Value of Financial Instruments
When the fair value of financial assets and financial liabilities recorded in the consolidated
statement of financial position cannot be derived from active markets, their fair value is
determined using valuation techniques including the discounted cash flow model. The inputs
to these models are taken from observable markets where possible, but where this is not
feasible, a degree of judgment is required in establishing fair values. The judgments include
considerations of inputs such as liquidity risk, credit risk and volatility. Changes in
assumptions about these factors could affect the reported fair value of financial instruments.
3.1.3 Financial Assets not Quoted in an Active Market
The Globe Group classifies financial assets by evaluating, among others, whether the asset
is quoted or not in an active market. Included in the evaluation on whether a financial asset
is quoted in an active market is the determination on whether quoted prices are readily and
regularly available, and whether those prices represent actual and regularly occurring
market transactions on an arms-length basis.
3.1.4 Allocation of Goodwill to Cash-Generating Units
The Globe Group allocated the carrying amount of goodwill to the mobile content and
application development services business CGU, for the Globe Group believes that this
CGU represents the lowest level within the Globe Group at which the goodwill is monitored
for internal management reporting purposes; and not larger than an operating segment
determined in accordance with PFRS 8.

*SGVFS010845*

- 36 -

3.1.5 Determination of Whether the Globe Group is Acting as a Principal or an Agent

The Globe Group assesses its revenue arrangements against the following criteria to
determine whether it is acting as a principal or an agent:

whether the Globe Group has primary responsibility for providing the goods and
services;
whether the Globe Group has inventory risk;
whether the Globe Group has discretion in establishing prices; and
whether the Globe Group bears the credit risk.

If the Globe Group has determined it is acting as a principal, the Globe Group recognizes
revenue on a gross basis, with the amount remitted to the other party being accounted for as
part of costs and expenses.
If the Globe Group has determined it is acting as an agent, only the net amount retained is
recognized as revenue.
The Globe Group assessed its revenue arrangements and concluded that it is acting as a
principal in some arrangements and as an agent in other arrangements.
3.1.6 Provisions and Contingencies
Globe Group is currently involved in various legal proceedings and tax assessments. The
estimate of the probable costs for the resolution of these claims has been developed in
consultation with internal and external counsel handling Globe Groups defense in these
matters and is based upon an analysis of potential results. Globe Group currently does not
believe that these proceedings will have a material adverse effect on the consolidated
statements of financial position and results of operations. It is possible, however, that
future results of operations could be materially affected by changes in the estimates or in the
effectiveness of the strategies relating to these proceedings (see Notes 13 and 26).
3.1.7 Classification of Non-current Assets Held for Sale
The Globe Group classified certain non-current assets as held-for-sale in 2010. PFRS 5,
Noncurrent Assets Held for Sale and Discontinued Operations, requires that the sale should
be expected to qualify for recognition as a completed sale within one year from the date of
classification, with certain exceptions. Globe Group has determined that circumstances
have occurred which will qualify as exception to the timing of the recognition of the sale in
previous years.
In 2013, the Globe Group ceased to classify these assets as held for sale due to the
substantial delay in the completion of the transaction. The Globe Group recognized a catchup depreciation amounting to 397.00 million for the year ended December 31, 2013 (see
Note 25.4).
3.1.8 Assessment of Investment in Bayan Telecommunications Inc. (BTI) and Receivables
from BTI
The Globe Group purchased BTIs outstanding debts from its creditors and was recognized
at transaction price which was considered its fair value. The total debt of BTI is comprised
of sustainable Tranche A and unsustainable Tranche B. A portion of the debt (Tranche B)
was converted into equity and was valued at nil while the total consideration at point of
tender was assigned to the collectible portion of Tranche A (see Notes 6, 11 and 16.6).

*SGVFS010845*

- 37 -

Critical judgment was exercised to assess the facts and circumstances indicating the
elements of control or level of influence of Globe Group over BTI. The Globe Group
determines that it has significant influence in the financial and operating policy decisions of
BTI but not control over those policies. The converted portion of debt (Tranche B) to the
Globe Groups interest is recognized as investment in an associate and is accounted for
using the equity method.
The collectible portion of Tranche A is determined to be a financial asset classified as
Loans receivable and not as trading assets nor designated at FVPL or AFS since this has
fixed or determinable payments that are not quoted in an active market and is measured at
amortized cost using the effective interest rate reasonably determined by the Globe Group.
3.1.9 Assessment of Investment in Automated Fare Collection Services, Inc. (AFCS)
On February 10, 2014, the AF Consortium, composed of BPI Card Finance Corporation, AC
Infrastructure Holdings Corp., Smart Communications, Inc., Meralco Financial Services
Corporation, Metro Pacific Investments Corporation and Globe Telecom was awarded the
rights to design, build and operate the 1.72 billion automated fare collection system.
Critical judgment was exercised to assess the facts and circumstances indicating the
elements of control or level of influence of Globe Group over AFCS. The Globe Group
determines that it has significant influence in the financial and operating policy decisions of
FCS but not control over those policies. The total capital contribution of 300.00 million
equivalent to 20% ownership is recognized as investment in an associate and is accounted
for using the equity method (see Note 10.2).
3.1.10 Consolidation of Flipside Publishing Services, Inc. (FPSI)
The Globe Group considers that it controls FPSI even though it owns less than 50% of the
voting rights. The Globe Group has contractual arrangement to purchase additional equity
interest in FPSI to bring the Globe Groups total ownership in FPSI to 65% and has rights
arising from this agreement to exercise control.
3.2 Estimates
3.2.1 Revenue Recognition
The Globe Groups revenue recognition policies require management to make use of estimates
and assumptions that may affect the reported amounts of revenues and receivables.
The Globe Group estimates the fair value of points awarded under its Loyalty programmes,
which are within the scope of Philippine Interpretation IFRIC 13, Customer Loyalty
Programmes, by applying estimation procedures using historical data and trends. The points
expected to be redeemed is estimated based on the remaining points, the run-rate redemption
by the subscribers and the points to peso conversion. As of December 31, 2014 and 2013, the
estimated liability for unredeemed points included in Unearned revenues amounted to
265.50 million and 323.38 million, respectively.
3.2.2 Allowance for Impairment Losses on Receivables
The Globe Group maintains an allowance for impairment losses at a level considered
adequate to provide for potential uncollectible receivables. The Globe Group performs a
regular review of the age and status of these accounts, designed to identify accounts with
objective evidence of impairment and provide the appropriate allowance for impairment
losses. The review is accomplished using a combination of specific and collective
assessment approaches, with the impairment losses being determined for each risk grouping
identified by the Globe Group. The amount and timing of recorded expenses for any period

*SGVFS010845*

- 38 -

would differ if the Globe Group made different judgments or utilized different
methodologies. An increase in allowance for impairment losses would increase the recorded
operating expenses and decrease current assets.
Impairment losses on receivables for the years ended December 31, 2014, 2013 and 2012
amounted to 3,035.24 million, 2,046.52 million and 1,377.32 million, respectively (see
Note 23). Receivables, net of allowance for impairment losses, amounted to
17,860.75 million and 15,200.92 million as of December 31, 2014 and 2013, respectively
(see Note 4).
The carrying value of loans receivable presented under prepayments and other current assets
and other noncurrent assets as of December 31, 2014 and 2013 amounted to
5,570.58 million and 6,164.27 million, respectively.
3.2.3 Obsolescence and Market Decline
The Globe Group, in determining the NRV, considers any adjustment necessary for
obsolescence. The Globe Group adjusts the cost of inventory to the recoverable value at a
level considered adequate to reflect market decline in the value of the recorded inventories.
The Globe Group reviews the classification of the inventories and generally provides
adjustments for recoverable values of new, actively sold and slow-moving inventories by
reference to prevailing values of the same inventories in the market.
The amount and timing of recorded expenses for any period would differ if different
judgments were made or different estimates were utilized. An increase in allowance for
obsolescence and market decline would increase recorded operating expenses and decrease
current assets.
Inventory obsolescence and market decline for the years ended December 31, 2014, 2013
and 2012 amounted to 437.51 million, 321.46 million and 170.68 million, respectively
(see Note 23).
Inventories and supplies, net of allowances, amounted to 3,186.41 million and 3,544.89
million as of December 31, 2014 and 2013, respectively (see Note 5).
3.2.4 ARO
The Globe Group is legally required under various contracts to restore leased property to its
original condition and to bear the costs of dismantling and deinstallation at the end of the
contract period. These costs are accrued based on an in-house estimate, which incorporates
estimates of asset retirement costs and interest rates. The Globe Group recognizes the
present value of these obligations and capitalizes the present value of these costs as part of
the balance of the related property and equipment accounts, which are being depreciated and
amortized on a straight-line basis over the EUL of the related asset or the lease term,
whichever is shorter.
The present value of dismantling costs is computed based on an average credit-adjusted
risk-free rate of 6.64% and 6.67% for the years ended December 31, 2014 and 2013,
respectively. Assumptions used to compute ARO are reviewed and updated annually.
The amount and timing of recorded expenses for any period would differ if different
judgments were made or different estimates were utilized. An increase in ARO would
increase recorded operating expenses and increase noncurrent liabilities.

*SGVFS010845*

- 39 -

The Globe Group updated its assumptions on timing of settlement and estimated cash
outflows arising from ARO on its leased premises. As a result of the changes in estimates,
the Globe Group adjusted downward its ARO liability (included under Other long-term
liabilities account) by 2.71 million and 16.03 million for the years ended December 31,
2014 and 2013 respectively, against the book value of the assets on leased premises (see
Note 15).
As of December 31, 2014 and 2013, ARO amounted to 1,868.01 million and 1,724.30
million, respectively (see Note 15).
3.2.5 EUL of Property and Equipment and Intangible Assets
The Globe Group reviews annually the EUL of these assets based on expected asset utilization
as anchored on business plans and strategies that also consider expected future technological
developments and market behavior. It is possible that future results of operations could be
materially affected by changes in these estimates brought about by changes in the factors
mentioned.
A reduction in the EUL of property and equipment and intangible assets would increase the
recorded depreciation and amortization expense and decrease noncurrent assets.
The EUL of property and equipment are as follows:
Years
Telecommunications equipment:
Tower
Switch
Outside plant, cellsite structures and improvements
Distribution dropwires and other wireline assets
Cellular equipment and others
Buildings
Leasehold improvements
Investments in cable systems
Office equipment
Transportation equipment

20
7 and 10
10-20
2-10
3-10
20
5 years or lease term,
whichever is shorter
15
3-5
3-5

Intangible assets comprising of licenses and application software are amortized over the EUL
of the related hardware or equipment ranging from three (3) to ten (10) years or life of the
telecommunications equipment where it is assigned while exclusive dealership rights are
amortized over the life of the dealership agreement.
In 2012, the Globe Group changed the EUL of certain wireless and wireline telecommunications
equipment and licenses resulting from new information affecting the expected utilization of these
assets. The net effect of the change in EUL resulted in higher depreciation of 1,623.17 million
and 9,065.97 million in 2014 and 2013, respectively. There will be no future effect on
depreciation expense due to network transformation as these assets are already carried at its
residual value. In 2014 and 2013, there was no change in the EUL of property and equipment and
intangible assets.
As of December 31, 2014 and 2013, the aggregate carrying value of property and equipment and
intangible assets (excluding goodwill) amounted to 122,573.68 million and
113,937.61 million, respectively (see Notes 7 and 8).

*SGVFS010845*

- 40 -

3.2.6 Estimation of Residual Value

The Globe Group estimates a residual value (RV) for assets subjected to accelerated depreciation
caused by network transformation. The Globe Group adjusted the RV based on the progress of
disposal of decommissioned assets as of December 31, 2014 and 2013.
The Globe Group regularly assesses the need to adjust the RV on a periodic basis.
3.2.7

Asset Impairment
3.2.7.1 Impairment of Nonfinancial Assets Other Than Goodwill
The Globe Group assesses impairment of assets (property and equipment, intangible
assets and investments and advances) whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The factors that the
Globe Group considers important which could trigger an impairment review include the
following:

significant underperformance relative to expected historical or projected future

operating results;
significant changes in the manner of use of the acquired assets or the strategy for
the overall business; and,
significant negative industry or economic trends.

An impairment loss is recognized whenever the carrying amount of an asset or investment

exceeds its recoverable amount. The recoverable amount is the higher of an assets fair
value less cost to sell and value in use. The fair value less cost to sell is the amount
obtainable from the sale of an asset in an arms length transaction, while value in use is
the present value of estimated future cash flows expected to arise from the continuing use
of an asset and from its disposal at the end of its useful life. Recoverable amounts are
estimated for individual assets or investments or, if it is not possible, for the CGU to
which the asset belongs.
For impairment loss on specific assets or investments, the recoverable amount represents
the fair value less cost to sell.
For the Globe Group, the CGU is the combined mobile and wireline asset groups of Globe
Telecom and Innove. This asset grouping is predicated upon the requirement contained in
Executive Order (EO) No.109 and Republic Act (RA) No.7925 requiring licensees of
Cellular Mobile Telephone System (CMTS) and International Digital Gateway Facility
(IGF) services to provide 400,000 and 300,000 Local Exchange Carrier lines, respectively,
as a condition for the grant of such licenses.
In determining the present value of estimated future cash flows expected to be generated
from the continued use of the assets or holding of an investment, the Globe Group is
required to make estimates and assumptions that can materially affect the consolidated
financial statements.
The aggregate carrying value of property and equipment, intangible assets, goodwill and
investments and advances amounted to 123,351.51 million and 114,427.49 million as
of December 31, 2014 and 2013, respectively (see Notes 7, 8 and 10).

*SGVFS010845*

- 41 -

3.2.7.2 Impairment of Goodwill

The Globe Groups impairment test for goodwill is based on value in use calculations that
use a discounted cash flow model. The cash flows are derived from the budget for the
next five years and do not include restructuring activities that the Globe Group is not yet
committed to or significant future investments that will enhance the asset base of the CGU
being tested. The recoverable amount is most sensitive to the discount rate used for the
discounted cash flow model as well, as the expected future cash inflows and the growth
rate used for extrapolation purposes. As of December 31, 2014 and 2013, the carrying
value of goodwill amounted to 327.13 million (see Note 8).
Goodwill acquired through business combination with Yondu was allocated to the mobile
content and applications development services business CGU, which is part of the
Mobile Communications Services reporting segment (see Note 29).
The recoverable amount of the CGU, which exceeds the carrying amount of the related
goodwill by 3,899.79 million and 3,967.15 million as of December 31, 2014 and 2013,
respectively, has been determined based on value in use calculations using cash flow
projections from financial budgets covering a five-year period. The pre-tax discount rate
applied to cash flow projections was 9.40% in 2014 and 2013 and cash flows beyond the
five-year period are extrapolated using a 3% long-term growth rate in 2014 and 2013.
3.2.8 Deferred Income Tax Assets
The carrying amounts of deferred income tax assets are reviewed at each reporting date and
reduced to the extent that it is no longer probable that sufficient taxable income will be
available to allow all or part of the deferred income tax assets to be utilized (see Note 24).
As of December 31, 2014, the combined net deferred income tax assets of Globe Telecom,
Innove, GXI, Yondu, KVI and Asticom amounted to 1,904.30 million. As of
December 31, 2013, the combined net deferred income tax assets of Globe Telecom, Innove,
GXI and Yondu amounted to 1,916.88 million (see Note 24).
As of December 31, 2014, GTI has net deferred income tax liabilities amounting to
0.40 million.
3.2.9 Financial Assets and Financial Liabilities
The Globe Group carries certain financial assets and liabilities at fair value, which requires
extensive use of accounting estimates and judgment. While significant components of fair
value measurement were determined using verifiable objective evidence (i.e., foreign
exchange rates, interest rates), the amount of changes in fair value would differ if the Globe
Group utilized different valuation methodologies. Any changes in fair value of these financial
assets and liabilities would affect the consolidated statement of comprehensive income and
consolidated statement of changes in equity.
Financial assets comprising AFS investments and derivative assets carried at fair values as of
December 31, 2014 and 2013 amounted to 853.33 million and 778.11 million, respectively,
and financial liabilities comprising derivative liabilities carried at fair values as of
December 31, 2014 and 2013 amounted to 94.81 million and 219.69 million (see Note
28.10).

*SGVFS010845*

- 42 -

3.2.10 Estimation of Losses and Recognition of Claims from Insurer

The Globe Group assesses the extent of losses arising from natural calamities. Certain
methodology and reasonable estimates are exercised considering all factors including
insurance coverage, type of losses sustained. The Globe Group determines the recoverability
of losses from insured assets.
Provision for impairment of assets recognized in 2013 amounted to P
=139.00 million (see
Note 23).
3.2.11 Pension and Other Employee Benefits
The cost of defined benefit pension plans as well as the present value of the pension
obligation are determined using actuarial valuations. The actuarial valuation involves
making various assumptions. These include the determination of the discount rates, future
salary increases and mortality rates. Due to the complexity of the valuation, the underlying
assumptions and its long-term nature, defined benefit obligations are highly sensitive to
changes in these assumptions. All assumptions are reviewed at each reporting date.
In determining the appropriate discount rate, management considers the interest rates of
government bonds that are denominated in the currency in which the benefits will be paid,
with extrapolated maturities corresponding to the expected duration of the defined benefit
obligation.
The mortality rate is based on the 1994 Group Annuity Mortality Table developed by the
Society of Actuaries, which provides separate rates for males and females and is modified
accordingly with estimates of mortality improvements. Future salary increases and pension
increases are based on expected future inflation rates for the specific country.
The net pension liability as at December 31, 2014 and 2013 amounted to 2,321.20 million
and 1,607.30 million, respectively. Further details are provided in Note 18.
The Globe Group also determines the cost of equity-settled transactions using assumptions
on the appropriate pricing model. Significant assumptions for the cost of share-based
payments include, among others, share price, exercise price, option life, expected dividend
and expected volatility rate.
Cost of share-based payments in 2014, 2013 and 2012 amounted to 31.84 million, 50.00
million and 11.50 million, respectively (see Notes 16.5 and 18.1).
The Globe Group also estimates other employee benefit obligations and expenses, including
cost of paid leaves based on historical leave availments of employees, subject to the Globe
Groups policy. These estimates may vary depending on the future changes in salaries and
actual experiences during the year.
The accrued balance of other employee benefits (included in the Accounts payable and
accrued expenses account and in the Other long-term liabilities account in the
consolidated statements of financial position) as of December 31, 2014 and 2013 amounted
614.23 million and 545.36 million, respectively (see Notes 12 and 15).
While the Globe Group believes that the assumptions are reasonable and appropriate,
significant differences between actual experiences and assumptions may materially affect
the cost of employee benefits and related obligations.

*SGVFS010845*

- 43 -

4. Receivables
This account consists of receivables from:
Notes

2013

2014
(In Thousand Pesos)

Subscribers
Traffic settlements - net
Dealers
Others
Less allowance for impairment losses:
Subscribers
Traffic settlements and others

16, 28.2.2
12, 16, 28.2.2
28.2.2
28.2.2

19,361,384
2,045,919
1,655,366
479,963
23,542,632

15,616,059
1,503,841
1,210,535
1,060,533
19,390,968

28.2.2
28.2.2

5,372,535
309,347
5,681,882
17,860,750

3,970,421
219,624
4,190,045
15,200,923

Receivables are noninterest-bearing and are generally collectible in the short-term.

Subscriber receivables arise from wireless and wireline voice, data communications and
broadband internet services provided under postpaid arrangements.
Traffic settlements receivables are presented net of traffic settlements payable from the same
carrier amounting to 1,611.47 million and 1,487.25 million as of December 31, 2014 and 2013,
respectively.
Amounts collected from wireless subscribers under prepaid arrangements are reported under
Unearned revenues in the consolidated statements of financial position and recognized as
revenues upon actual usage of airtime value or upon expiration of the unused load value prepaid
credit. The unearned revenues from these subscribers amounted to 2,603.91 million and
2,428.79 million as of December 31, 2014 and 2013, respectively.
Advance monthly service fee which is also reported under Unearned revenue account in the
parent company statements of financial position amounted to 1,727.42 million and 1,493.82
million as of December 31, 2014 and 2013, respectively.

5. Inventories and Supplies

This account consists of:
2014

2013

(In Thousand Pesos)

At cost:
Call cards and others
SIM cards and SIM packs
Spare parts and supplies
Modem and accessories
At NRV:
Handsets, devices and accessories
Nomadic broadband device
(Forward)

9,474
8,877
6,933
1,327
26,611

2,805
61
3,110
112,668
118,644

2,122,255
588,712

2,562,689
390,646

*SGVFS010845*

- 44 -

2013

2014
(In Thousand Pesos)

Spare parts and supplies

SIM cards and SIM packs
Modem and accessories
Call cards and others

P288,403
=
121,801
35,661
2,972
3,159,804
3,186,415

P313,092
=
111,252
44,824
3,740
3,426,243
3,544,887

Inventories recognized as expense during the year amounting to 11,098.47 million,

10,274.57 million and 7,849.04 million in 2014, 2013 and 2012, respectively, are included as part of
Cost of sales and Impairment losses and others accounts (see Note 23) in the consolidated
statements of comprehensive income. An insignificant amount is included under General, selling and
administrative expenses as part of Utilities, supplies and other administrative expenses account (see
Note 21).
Cost of sales incurred consists of:
2014

2013

2012

(In Thousand Pesos)

Inventories:
Handsets, devices and accessories
Nomadic broadband device
SIM cards and SIM packs
Call cards and others
Spare parts and supplies
Modems and accessories
Services

7,734,702
2,370,154
498,986
48,318
8,386
414
384
10,661,344

8,028,405
1,314,176
349,558
251,692
8,014
1,261

9,953,106

6,565,510
561,310
245,462
228,198
4,472
73,407

7,678,359

There are no unusual purchase commitments and accrued net losses as of December 31, 2014.
6. Prepayments and Other Current Assets
This account consists of:
Notes

2014

2013

(In Thousand Pesos)

Advance payments to suppliers and

contractors
Prepayments
Deferred input VAT
Input VAT - net
Miscellaneous receivable - net
Current portion of loan receivable from
Bayan Telecommunications, Inc. (BTI)
Globe Group retirement plan (GGRP)
Bethlehem Holdings, Inc. (BHI)
Creditable withholding tax
Other current assets

25.3
25.1
10
16
11, 16.6
11, 16.3
11,16.3, 25.5
25.11

5,731,121
792,820
504,213
321,368
225,827

5,223,600
949,203
466,982
450,525
220,025

424,761

481,366
968,000
158,620
225,079
319,423
9,462,823

532,966
396,595
8,929,671

The Prepayments account includes prepaid insurance, rent, maintenance, and National
Telecommunications Commission (NTC) spectrum users fee among others.

*SGVFS010845*

- 45 -

Other current assets include advances to employees amounting to P

=200.21 million and
P
=120.49 million as of December 31, 2014 and 2013.
Deferred input VAT pertains to various purchases of goods and services which cannot be claimed
yet as credits against output VAT liabilities, pursuant to the existing VAT rules and regulations.
However, these can be applied against future output VAT liabilities.
As of December 31, 2014, Innove, GTI and Asticom reported net input VAT amounting to
P
=321.37 million, net of output VAT of =
P781.65 million. As of December 31, 2013, Innove, GXI,
GTI and KVI reported net input VAT amounting to =
P450.53 million, net of output VAT of
=
P125.84 million.

7.

Property and Equipment

This rollforward analysis of this account follows:
2014

Cost
At January 1
Additions
Retirements/disposals
Reclassifications/adjustments (Note 8)
At December 31
Accumulated Depreciation
and Amortization
At January 1
Depreciation and amortization
Incremental effect of
network modernization
Others
Retirements/disposals
Reclassifications/adjustments
At December 31
At January 1
Additions (Note 23)
Writeoff/adjustments
At December 31
Net Book Value at December 31

Investments
in Cable
Office
Systems
Equipment
(In Thousand Pesos)

Telecommunications
Equipment

Buildings and
Leasehold
Improvements

199,195,469
9,775,049
(6,355,088)
11,233,274
213,848,704

34,805,499
851,755
(7,560)
3,261,303
38,910,997

18,979,908
159,749

642,795
19,782,452

141,480,546

16,003,575

1,347,141
10,738,834
(6,189,854)
(16,305)
147,360,362
243,822

(92,245)
151,577

Transportation
Equipment

Land

Assets Under
Construction

Total

9,223,985
276,089
(45,184)
1,194,861
10,649,751

2,338,024
353,632
(279,754)
21,235
2,433,137

1,600,413

9,649
1,610,062

20,318,463
15,452,572
(13,712)
(19,836,058)
15,921,265

286,461,761
26,868,846
(6,701,298)
(3,472,941)
303,156,368

8,689,260

7,544,300

1,700,206

175,417,887

2,423
1,835,548
(2,444)
10,350
17,849,452

1,198,452

3
9,887,715

12,157
987,195
(41,339)
5,684
8,507,997
3,182

(3,182)

263,802
(262,212)
12,958
1,714,754

9,860
9,860

372,798
110,238
(37,543)
445,493

1,361,721
15,023,831
(6,495,849)
12,690
185,320,280
619,802
110,238
(123,110)
606,930

66,336,765

21,061,545

9,894,737

2,141,754

708,523

1,610,062

15,475,772

117,229,158

Telecommunications
Equipment

Buildings and
Leasehold
Improvements

202,201,632
13,784,885
(22,281,856)
5,490,808
199,195,469

28,852,761
348,336
(3,649)
5,608,051
34,805,499

14,144,444
251,136
4,584,328
18,979,908

2013

Cost
At January 1
Additions
Retirements/disposals
Reclassifications/adjustments (Note 8)
At December 31

Investments in
Office
Cable Systems
Equipment
(In Thousand Pesos)

Transportation
Equipment

Land

Assets Under
Construction

Total

7,951,568
284,219
(32,931)
1,021,129
9,223,985

2,311,840
257,635
(243,245)
11,794
2,338,024

1,573,994
26,419
1,600,413

17,596,471
20,754,416
(1,015)
(18,031,409)
20,318,463

274,632,710
35,680,627
(22,562,696)
(1,288,880)
286,461,761

Accumulated Depreciation
and Amortization
At January 1
Depreciation and amortization
Incremental effect of
network modernization
Others
Retirements/disposals
Reclassifications/adjustments
At December 31

143,047,869

14,551,973

6,485,043

6,834,232

1,680,991

172,600,108

7,747,607
12,938,614
(22,239,228)
(14,316)
141,480,546

23,880
1,436,398
(3,386)
(5,290)
16,003,575

1,259
1,394,939
808,019
8,689,260

56,978
833,998
(32,139)
(148,769)
7,544,300

247,540
(229,768)
1,443
1,700,206

7,829,724
16,851,489
(22,504,521)
641,087
175,417,887

Impairment Losses
At January 1
Additions (reversals) (Note 23)
Writeoff/adjustments
At December 31
Net Book Value at December 31

138,069
123,852
(18,099)
243,822
57,471,101

18,801,924

10,290,648

3,182
3,182
1,676,503

637,818

1,600,413

468,987
(97,540)
1,351
372,798
19,945,665

610,238
26,312
(16,748)
619,802
110,424,072

*SGVFS010845*

- 46 -

In the last quarter of 2011, the Globe Group announced its network and IT transformation
program for an estimated investment of USD790.00 million over the next two to three years.
External partners were engaged in 2011 to help manage the modernization effort. In the first
quarter of 2012, the EUL of certain wireless telecommunications equipment were changed as a
result of continuing upgrade and migration to a modernized network. The net effect of the change
in EUL resulted in higher depreciation expense of 1,361.72 million, 7,829.72 million and
4,245.30 million for the years ended December 31, 2014, 2013 and 2012, respectively.
In 2013, the Globe Group ceased to classify these assets as held for sale due to the substantial
delay in the completion of the transaction. The carrying value of these assets amounted to
778.32 million.
Assets under construction include intangible components of a network system which are to be
reclassified to depreciable intangible assets only when assets become available for use
(see Note 8).
Investments in cable systems include the cost of the Globe Groups ownership share in the
capacity of certain cable systems under a joint venture or a consortium or private cable set-up and
indefeasible rights of use (IRUs) of circuits in various cable systems. It also includes the cost of
cable landing station and transmission facilities where the Globe Group is the landing party.
The costs of fully depreciated property and equipment that are still being used in the network
amounted to 119,393.98 million and 129,699.68 million as of December 31, 2014 and 2013,
respectively.
The Globe Group uses its borrowed funds to finance the acquisition of property and equipment
and bring it to its intended location and working condition. Borrowing costs incurred relating to
these acquisitions were included in the cost of property and equipment using 3.05% , 2.83% and
3.01% capitalization rates in 2014, 2013 and 2012, respectively. The Globe Groups total
capitalized borrowing costs amounted to 647.98 million, 823.90 million and 808.25 million
for the years ended December 31, 2014, 2013 and 2012, respectively (see Note 22).
The Company is currently recovering decommissioned network assets affected by the conversion
to new upgraded equipment from its continuing network modernization project.
The carrying value of the hardware infrastructure and information equipment held under finance
lease included under Office and Equipment, Asset under Construction and Intangible assets
amounted to 318.85 million, 300.68 million, 77.98 million, respectively, as of
December 31, 2014 and 389.71 million, 364.14 million and nil, respectively, as of
December 31, 2013 (see Note 25.1.2).
Included under asset retirement and disposals for the year ended December 31, 2014 are network
assets damaged by a typhoon amounting to 73.71 million which is covered under existing
insurance contracts. Partial recoveries from insurance company, which is presented under Gain
on disposals of property and equipment - net in the consolidated statements of comprehensive
income, amounted to 125.47 million for the year ended December 31, 2014.

*SGVFS010845*

- 47 -

8. Intangible Assets and Goodwill

The rollforward analysis of this account follows:
December 31, 2014

Licenses and
Application
Software
Cost
At January 1
Additions
Reclassifications/
adjustments (Note 7)
At December 31
Accumulated Amortization
At January 1
Amortization
Incremental effect of
network
modernization
Others
Reclassifications/adjustments
At December 31
Net Book Value at December
31

Customer
Contracts

Exclusive
Dealership
Total
Right
Intangible
(Note 25.10)
Assets
(In Thousand Pesos)

Goodwill

Total
Intangible
Assets and
Goodwill

P
= 13,681,879
114,913

P
= 28,381

P
= 67,552

P
= 13,777,812
114,913

P
= 327,125

P
= 14,104,937
114,913

3,374,206
17,170,998

72,408
139,960

3,446,614
17,339,339

28,381

327,125

3,446,614
17,666,464

10,232,761

28,381

3,135

10,264,277

10,264,277

261,451
1,453,616
(7,429)
11,940,399
P
= 5,230,599

22,905

28,381
P
=

26,040
P
= 113,920

261,451
1,476,521
(7,429)
11,994,820
P
= 5,344,519

261,451
1,476,521
(7,429)
11,994,820
P
= 5,671,644

Customer
Contracts

Exclusive
Dealership
Right
(Note 25.10)

P
= 327,125

December 31, 2013

Licenses and
Application
Software

Total
Intangible
Assets

Goodwill

Total
Intangible
Assets and
Goodwill

(In Thousand Pesos)

Cost
At January 1
Additions
Retirements/disposals
Reclassifications/
adjustments (Note 7)
At December 31
Accumulated Amortization
At January 1
Amortization
Incremental effect of
network
modernization
Others
Retirements/disposals
Reclassifications/adjustments
At December 31
Net Book Value at December

P
=11,260,680
30,486
(351,474)

P
=28,381

=
P
67,552

P
=11,289,061
98,038
(351,474)

P
=327,125

P
=11,616,186
98,038
(351,474)

2,742,187
13,681,879

28,381

67,552

2,742,187
13,777,812

327,125

2,742,187
14,104,937

7,796,686

25,542

7,822,228

7,822,228

1,236,242
1,554,065
(351,474)
(2,758)
10,232,761
P
=3,449,118

2,839

28,381
=
P

3,135

3,135
P
=64,417

1,236,242
1,560,039
(351,474)
(2,758)
10,264,277
P
=3,513,535

P
=327,125

1,236,242
1,560,039
(351,474)
(2,758)
10,264,277
P
=3,840,660

No impairment loss on intangible assets was recognized in 2014, 2013 and 2012.
In the first quarter of 2012, the EUL of certain wireless licenses were changed as a result of continuing
upgrade and migration to a modernized network. The net effect of the change in EUL resulted to
higher amortization expense of 261.45 million, 1,236.24 million and 835.17 million for the years
ended December 31, 2014, 2013 and 2012, respectively.

*SGVFS010845*

- 48 -

Intangible assets pertain to (1) telecommunications equipment software licenses, corporate

application software and licenses and other VAS software applications that are not integral to the
hardware or equipment; (2) costs of the web application system developed by a third party for
Kickstart; (3) intangible assets identified to exist during the acquisition of Yondu for its existing
customer contracts and (4) exclusive dealership right in Taodharma (see Note 25.10).

9. Business Combinations
9.1 Investment in FPSI
On December 19, 2013, Kickstart entered into a Memorandum of Agreement with FPSI and
FPSIs stockholders to subscribe the 5.07 million common shares of FPSI for a total subscription
price of 18.88 million.
FPSI is engaged in acquiring publishing rights to produce, publish, market and sell printed and
electronic books and other electronic documents and content for international and domestic sales.
On February 4, 2014, Kickstart entered into a subscription agreement with FPSI for the acquisition
of 2.08 million common shares for a total subscription price of 8.22 million which constitutes
40% ownership as of reporting period. The remaining balance will be paid upon completion of
certain conditions. The transaction was accounted for as acquisition of a subsidiary.
The Globe Groups acquisition of Flipside Publishing Services, Inc. (FPSI) aims to promote the
use of electronic books (e-books) in educational and corporate institutions nationwide.
The share in the fair values of the identifiable assets and liabilities of FPSI as at the date of
acquisition is equal to the purchase price consideration.
Net cash outflow from the acquisition is as follows (in thousand pesos):
Total cash paid on acquisition
Cash and cash equivalents acquired from FPSI
Net cash outflow on acquisition

=8,216
P
(198)
=8,018
P

From the date of acquisition, FPSI has contributed 1.13 million of revenue and loss before
income tax of 2.83 million. If the combination had taken place at the beginning of the year,
revenue from would have been 1.27 million and loss before tax would have been 2.99 million.
9.2 Investment in Asticom
On June 3, 2014, Globe Telecom signed an agreement with Azalea Technology, Inc. and SCS
Computer Systems, Pte. Ltd. acquiring 100% ownership of Asticom for a total consideration of
12.45 million. The transaction was accounted for as an acquisition of a subsidiary.
Formerly known as Ayala Systems Technology, Inc., Asticom provides enterprise resource
planning, customer relationship management systems, other systems integration and information
technology services to domestic and international markets. Asticom was 49% owned by Azalea, a
100%-owned subsidiary of Ayala Corporation and 51% owned by SCS Computer Systems, a
subsidiary of Singapore Telecom.
Globe Telecoms acquisition of Asticom is in line with its strategy to expand its business
operations in the information technology space. The acquisition has been accounted for using the
acquisition method. The consolidated financial statements include the results of Asticom for the
seven-month period from the acquisition date.

*SGVFS010845*

- 49 -

The purchase price consideration had been allocated to the identifiable assets and liabilities of
Asticom on the basis of its book values. As allowed under the relevant standard, Globe Telecom
will recognize any adjustment to those provisional values as an adjustment to goodwill upon
determining the final fair values of identifiable assets and liabilities within 12 months from
acquisition date.
The provisional fair values of the identifiable assets and liabilities of Asticom as at the date of
acquisition are as follows (in thousand pesos):
Current assets
Noncurrent assets
Current liabilities
Total identifiable net assets at fair value
Gain arising from acquisition (provisional)
Purchase consideration transferred

=81,674
P
7,705
(27,860)
61,519
(49,065)
=12,454
P

Gain arising from acquisition of Asticom is reported under Other income in the 2014
consolidated statements of comprehensive income (see Note 20).
Net cash outflow from the acquisition is as follows (in thousand pesos):
Total cash paid on acquisition
Cash and cash equivalents acquired from Asticom
Net cash outflow on acquisition

=12,454
P
(8,221)
=4,233
P

From the date of acquisition, Asticom has contributed 27.56 million of revenue and loss before
income tax of 2.04 million. If the combination had taken place at the beginning of the year,
revenue from would have been 39.01 million and income before tax would have been
9.66 million.

10. Investments and Advances

This account consists of the following as of December 31:

Investments at equity
Advances - net of share in equity in net losses of JV of
=104.43 million in 2014
P

2013
2014
(In Thousand Pesos)
=162,754
P
P
=307,150
143,567
P
=450,717

=162,754
P

*SGVFS010845*

- 50 -

Details of the Globe Groups investments in associates and joint ventures and the related
percentages of ownership are shown below:
Country of
Incorporation

Principal Activities

2014

2013

Associates
BTI

Philippines

Automatic Fare Collection System Inc.

(AFCS)
Joint Ventures
BPI Globe BanKO Inc., A Savings Bank
(BPI Globe BanKO)

Bridge Mobile Pte. Ltd. (BMPL)

Philippines

Philippines

Singapore

Telecommunication
services
Construction and
establishment of systems,
infrastructure
Micro-finance enterprises
banking services
Mobile technology
infrastructure and common
service

38%

38%

20%

40%

40%

10%

10%

The movement in investments in associates and joint ventures are as follows:

2014
(In Thousand Pesos)
Acquisition Cost
At January 1
Acquisition during the year
Return of capital during the year
At December 31
Accumulated Equity in Net Losses:
At January 1
Equity in net losses
At December 31
Other Comprehensive Income
At January 1
Net foreign exchange difference
Others
At December 31
Carrying Value at December 31

2013

P
=411,620
300,000
(62,944)
648,676

=352,010
P
59,010

411,620

(238,614)
(119,824)
(358,438)

(158,655)
(79,959)
(238,614)

(10,252)
965
26,199
16,912
P
=307,150

(10,762)
510

(10,252)
=162,754
P

Investment in Associate
10.1
Investment in BTI
On October 1, 2013, Globe Telecom acquired 38% interest in BTI following the conversion of its
unsustainable debt (Tranche B) into 45 million common shares equity based on the confirmation
of the Court dated August 27, 2013 on the Amended Rehabilitation Plan. Globe Telecom shall
further convert its share of the Tranche A debt upon certain regulatory approvals. Globe
Telecom's acquisition of BTI is intended to augment its current data and DSL businesses using
BTI's existing platform.
As of December 31, 2014 and 2013, the equity in BTI was recognized as investment in an
associate carried at acquisition cost valued at nil. BTI remains in a capital deficiency after Tranche
B conversion with a negative book value of 45.75 and =
P57.62 per common share as of
December 31, 2014 and 2013, respectively.

*SGVFS010845*

- 51 -

The following is the share in net losses and other comprehensive loss of BTI as of December 31,
which is not considered material:
2013*

2014
(In Thousand Pesos)

Share in net loss

Share in other comprehensive loss
Share in total comprehensive loss - unrecognized*

830,679
32,362
863,041

574,672
31,881
606,553

*2013 consist of October to December only

The Globe Group has no share of any contingent liabilities as of December 31, 2014.
10.2
Investments in AFCS
On January 30, 2014, following a competitive bidding process, the Department of Transportation
and Communication awarded to AF Consortium, composed of AC Infrastructure Holdings Corp.,
BPI Card Finance Corp., Globe Telecom, Inc., Meralco Financial Services, Inc., Metro Pacific
Investments Corp., and Smart Communications, Inc. the rights to design, build and operate the
P
=1.72 billion automated fare collection system. This is a public-private partnership project
intended to upgrade and consolidate the fare collection systems of the three urban rail transit
systems which presently serve Metro Manila.
On February 10, 2014, AF Consortium incorporated AFCS, a special purpose company, which
will assume the rights and obligations of the concessionaire. These rights and obligations include
the construction and establishment of systems, infrastructure including implementation, test,
acceptance and maintenance plans, and operate the urban transit system for a period of 10 years.
As of December 31, 2014, Globe Telecom has invested a total of 300.00 million in the
consortium with 20% equivalent equity interest.
The following tables present the summarized financial information of the AFCS as at
December 31, 2014 and for the year ended December 31, 2014 (in thousand pesos).
Statement of Financial Position:
Current assets, including cash and cash equivalents P
=794,042
Noncurrent assets
Current liabilities
Equity
Statement of Comprehensive Income:
Revenue
Cost and expenses
Loss before tax
Provision for income tax
Net loss for the year
Other comprehensive income
Total comprehensive income
Globe Groups share in net loss for the year

831,671
671,975
73,925
1,429,721
8,511
65,098
(56,587)

(56,587)

(56,587)
(11,318)

On January 20, 2015, AFCS BOD approved the additional capital contribution of 160.00 million
to be paid on or before March 31, 2015.

*SGVFS010845*

- 52 -

Investments in Joint Ventures

10.3
Investment in BPI Globe BanKO
On July 17, 2009, Globe acquired a 40% stake in BPI Globe BanKO (formerly Pilipinas Savings
Bank, Inc. or PS Bank) for 141.33 million, pursuant to a Shareholder Agreement with Bank of
the Philippine Islands (BPI), AC and PS Bank, and a Deed of Absolute Sale with BPI. BPI Globe
BanKO will have the capability to provide services to micro-finance institutions and retail clients
through mobile and related technology.
On May 10, 2011, the BOD of Globe Telecom approved the additional investment of
100.00 million as share for BPI Globe BanKOs increase in capitalization to cover its expansion
plan for the next three years. Globe Telecom made the initial capital infusion of 79.01 million on
May 10, 2011, and 20.99 million last March 28, 2012. Globe infused additional capital recorded
under Investments and advances account amounting to 248.00 million in 2014. As of
December 31, 2014 and 2013, the investment and advances of Globe Telecom in BPI Globe
BanKO amounted to 143.57 million and 85.63 million, respectively, representing 40% interest.
10.4
Investment in BMPL
Globe Telecom and other leading Asia Pacific mobile operators (JV partners) signed an
Agreement in 2004 (JV Agreement) to form a regional mobile alliance, which will operate through
a Singapore-incorporated company, BMPL. The JV company is a commercial vehicle for the JV
partners to build and establish a regional mobile infrastructure and common service platform and
deliver different regional mobile services to their subscribers.
Globe Group has a ten percent (10%) stake in BMPL. The other joint venture partners each with
equal stake in the alliance include SK Telecom, Co. Ltd., Advanced Info Service Public Company
Limited, Bharti Airtel Limited, Maxis Communications Berhad, Optus Mobile Pty. Limited,
Singapore Telecom Mobile Pte, Ltd., Taiwan Mobile Co. Ltd., PT Telekomunikasi Selular and
CSL Ltd. Under the JV Agreement, each partner shall contribute USD4.00 million based on an
agreed schedule of contribution. Globe Telecom may be called upon to contribute on dates to be
determined by the JV. On November 25, 2014, Globe Telecom received a return of capital
amounting to USD1.40 million.
As of December 31, 2014 and 2013, the carrying value of the investment in BMPL amounted to
21.21 million and 77.12 million, respectively.
The following tables present the aggregate summarized financial information of BPI Globe
BanKO and BMPL that are individually immaterial as at December 31, 2014 and 2013 and for the
years ended December 31, 2014 and 2013.
2014
(In Thousand Pesos)
Statements of Financial Position
Current assets, including cash and cash equivalents
P
=295,441 (2013: P
=785,631)
Noncurrent assets
Current liabilities
Equity

P
=1,420,895
250,440
1,433,771
237,563

2013

P
=2,976,759
212,169
2,129,732
1,059,196

*SGVFS010845*

- 53 -

2014
(In Thousand Pesos)
Statements of Comprehensive Income
Revenue
Cost and expenses
Income before tax
Provision for income tax
Net income for the year
Other comprehensive income
Total comprehensive income
Globe Groups share in net loss for the year

P293,656
=
827,194
(533,538)
(25,912)
(507,626)

2013

P410,524
=
593,347
(182,824)
(3,380)
(179,444)

(179,444)
(79,959)

(507,626)
(212,939)

The Globe Group has no share of any contingent liabilities of the joint ventures as of
December 31, 2014 and 2013.

11. Other Noncurrent Assets

This account consists of:
Notes
Loans receivable from:
BTI - net of current portion
GGRP
BHI
AFS investment in equity securities
Deferred input VAT
Miscellaneous deposits
Others - net

6
6, 16.3, 18.2
16.3, 18.2, 25.5
25.10, 28.12
6
25.1

2014
(In Thousand Pesos)
4,019,195
968,000
158,620
264,785
740,927
750,010
27,311
6,928,848

2013
4,556,287

222,712
1,013,833
694,487
62,486
6,549,805

Loans Receivable from BTI

On November 5, 2012, Globe Telecom obtained internal approvals to commence offers to
purchase up to 100% of the financial obligations of BTI and Radio Communications of the
Philippines, Inc. (RCPI), a subsidiary of BTI, collectively referred to as BTI loans, to their
respective financial creditors.
On December 21, 2012, Globe Telecom settled its tender offers for:
i. 93.66% of the aggregate remaining principal amount of the USD-denominated notes originally

due in 2006;
ii. 98.26% of the aggregate remaining principal amount of peso and USD-denominated BTI

loans; and
iii. 100% of the aggregate remaining principal amount of peso and USD-denominated RCPI
loans.
The total consideration for the tender offers is USD/310.00 per USD/1,000.00 face amount, for
a total payment of 5,354.76 million, composed of US Dollar and Philippine peso-denominated
loans amounting to USD110.55 million and 818.74 million, respectively.
The acquired loans were part of the original debt subjected to rehabilitation plan approved on
June 28, 2004. The plan was reviewed and evaluated by a court appointed receiver who was

*SGVFS010845*

- 54 -

tasked to monitor and oversee the implementation of the Plan. The implementing term sheet
submitted by the receiver was approved on March 15, 2005.
The restructured loan is divided into sustainable (Tranche A) and unsustainable debt (Tranche B)
and is denominated in existing currencies with an option for any of the creditors in Tranche B to
convert their USD-denominated restructured debt into PHP at an agreed exchange rate on the date
of implementation.
Tranche A is repayable semi-annually on a pari passu basis up to December 31, 2023 based on a
table of debt reduction computed at certain percentages of the principal. Tranche B is a noninterest bearing convertible debt and to be repaid only if there are sufficient future cash flows and
upon full repayment of Tranche A. At the conclusion of the rehabilitation period, other than as the
result of an event of default, Tranche B to the extent not previously converted is to be converted
into new BTI shares considering no conversion had been previously made. The conversion rights
in relation to Tranche B are up to a maximum of 40% of the authorized share capital as at the
effective date. The loans were initially accounted for at fair value, and the entire acquisition price
was allocated to Tranche A.
On May 30, 2013, Globe Telecom and BTI agreed to jointly file a motion with the court having
jurisdiction over BTIs debt to significantly restructure the financial debt in order to prevent the
recurrence of default and ensure BTIs continued viability. The joint motion is intended to achieve
a successful rehabilitation at the earliest possible date. The restructuring, including the debt to
equity conversion feature would apply to all BTIs creditors equally upon receipt of certain
regulatory approvals, including the confirmation of the court.
On July 1, 2013, Globe Telecom purchased additional BTI bonds with face value of USD2.80
million, part of the BTI loans from their financial creditors, bringing total aggregate principal
amount of the USD-denominated notes originally due in 2006 from 93.66% to 95.10%.
On August 27, 2013, the joint motion to amend BTIs current debt restructuring plan was granted
by the Court. Accordingly, a new Master Restructuring Agreement (MRA) for all BTI creditors
will be implemented. This principally involves a conversion of up to 56.60% of its capital stock.
Globe Telecom and BTI were directed to provide separate reports on the implementation
procedures of the Amended Rehabilitation Plan and its accompanying MRA within a certain
period as mandated by the Court. Likewise, Globe Telecom and BTI were directed by the Court to
ensure that the details of the mechanics for converting debt positions are clear and properly
communicated to the creditors involved.
Pursuant to the resolution of the Court dated August 27, 2013 confirming the Amended
Rehabilitation Plan jointly filed by Globe Telecom and BTI, BTI issued common shares certificate
to Globe Telecom on October 1, 2013 for the conversion of its unsustainable debt (Tranche B) into
38% equity (Note 10.1). Globe Telecom intends to further convert portion of Tranche A debt,
which together with the converted Tranche B debt would represent more than 50% of BTIs
outstanding shares upon certain regulatory approvals.
On October 29, 2013, Globe filed a report with the court covering the mechanics for converting
debt positions as provided for under MRA.
On October 9, 2014, the Court of Appeals issued a 60-day temporary restraining order (TRO) on
the petition of Philippine Long Distance Company (PLDT), preventing the NTC from acting on
Globe Telecom and BTIs joint application for the acquisition by Globe of a majority stake in BTI.

*SGVFS010845*

- 55 -

In a Joint Rejoinder Globe and BTI filed on October 30, 2014, both asked the CA to
correspondingly lift the TRO issued against NTC. The TRO automatically ended last
December 19, 2014 as the Court of Appeals did not extend it.
As of December 31, 2014 and 2013, loans receivable from BTI amounted to 4,443.96 million and
5,037.65 million comprising of principal and interest due until 2023, with quarterly interest
payments and semi-annual principal payments (see Note 16.6).

12. Accounts Payable and Accrued Expenses

This account consists of:
Notes
Accrued project costs
Accounts payable
Accrued expenses
General, selling and administrative
Services
Manpower
Advertising
Repairs and maintenance
Utilities
Lease
Interest
Traffic settlements - net
Output VAT - net
Dividends payable

25.3
16
16

4
17.3

2013
2014
(In Thousand Pesos)
P
=16,557,492
P
=22,015,721
10,046,748
12,458,225
2,093,660
2,118,356
2,031,114
1,877,680
1,590,523
809,122
665,367
392,632
1,182,691
31,438
260,030
P
=47,526,559

2,239,867
1,428,743
1,408,912
1,769,515
787,375
1,072,107
504,078
361,705
1,596,233
220,235

=37,993,010
P

General, selling and administrative accrued expenses include travel, professional fees, supplies,
commissions and miscellaneous, which are individually immaterial.
Traffic settlements payables are presented net of traffic settlements receivable from the same
carrier amounting to 1,425.25 million and 3,312.39 million as of December 31, 2014 and 2013,
respectively.
As of December 31, 2014, Globe, GXI, Yondu and KVI reported net output VAT amounting to
31.44 million, net of input VAT of 782.00 million. As of December 31, 2013, Globe and
Yondu reported net output VAT amounting to 220.24 million, net of input VAT of
621.33 million.

*SGVFS010845*

- 56 -

13. Provisions
The rollforward analysis of this account follows:
Note
At beginning of year
Provisions for claims and assessments
Payments/reversals
At end of year

23

2013
2014
(In Thousand Pesos)
203,191
294,700
93,309
137,185
(1,800)
(30,597)
294,700
401,288

Provisions relate to various pending unresolved claims and assessments over the Globe Groups
mobile and wireline businesses. The information required by PAS 37, Provisions, Contingent
Liabilities and Contingent Assets, is not disclosed as it may prejudice the outcome of these ongoing claims and assessments. As of February 4, 2015, the remaining pending claims and
assessments are still being resolved.

14. Notes Payable and Long-term Debt

Notes payable consists of short-term, unsecured US dollar and peso-denominated promissory notes
from local banks for working capital requirements amounting to 5,219.90 million, which bears
interest ranging from 1.12% to 3.00% as of December 31, 2013. There are no short-term notes
payable outstanding as of December 31, 2014.
Long-term debt consists of:
2013

2014
(In Thousand Pesos)

Term Loans:
Peso
Dollar
Corporate notes
Retail bonds
Less current portion

P
=31,834,026
14,464,146
2,086,067
16,891,564
65,275,803
6,129,663
P
=59,146,140

=28,018,106
P
14,321,158
4,877,621
16,864,164
64,081,049
5,980,300
=58,100,749
P

The maturities of long-term debt at nominal values as of December 31, 2014 follow (in
thousands):
Due in:
2015
2016
2017
2018
2019 and thereafter

=6,136,366
P
7,636,854
9,993,954
7,283,954
34,553,272
=65,604,400
P

*SGVFS010845*

- 57 -

Unamortized debt issuance costs included in the above long-term debt as of December 31, 2014
and 2013 amounted to 328.60 million and 402.34 million, respectively (see Note 28.2.3).
Interest expense recognized related to long-term debt and short-term notes payable, excluding the
capitalized interest, amounted to 2,067.34 million, 1,850.02 million and 1,843.41 million in
2014, 2013 and 2012, respectively (see Notes 7 and 22).
The interest rates and maturities of the above debt are as follows:

Term Loans:
Peso

Maturities

Interest Rates

2015-2022

1.02% to 6.00% in 2014

0.99% to 6.00% in 2013
1.25% to 1.75% in 2014
1.27% to 1.80% in 2013
1.65% to 8.43% in 2014
1.65% to 8.43% in 2013
4.89% to 6.00% in 2014
4.89% to 6.00% in 2013

Dollar

2015-2022

Corporate notes

2015-2016

Retail bonds

2017-2023

14.1

Term Loans and Corporate Notes

Globe Groups unsecured term loans and corporate notes, which consist of fixed and floating
rate notes and dollar and peso-denominated bank loans, bear interest at stipulated and prevailing
market rates.
On March 6, 2013, Globe Telecom signed a USD75 million 3-year term loan with floating
interest rate with Bank of Tokyo - Mitsubishi UFJ, Ltd., Singapore Branch as lender. The
purpose of the loan is to fund Globe Groups capital expenditures.
On March 22, 2013, Globe Telecom signed a USD120 million 7-year term loan with floating
interest rate with Metrobank as lender to finance Globe Groups capital expenditure.
On July 29, 2013, Globe Telecom signed a USD40 million 3-year term loan with floating
interest rate with Mizuho Bank Ltd. as lender to prepay and refinance certain debts.
On December 4, 2013, Globe Telecom signed a 7,000 million 7-year term loan credit facility
with fixed interest rate with Land Bank of the Philippines as lender. The proceeds of the loan
were used to partially finance Globe Telecoms general financing and corporate requirements for
capital expenditures.
The loan agreements with banks and other financial institutions provide for certain restrictions and
requirements with respect to, among others, maintenance of financial ratios and percentage of
ownership of specific shareholders, incurrence of additional long-term indebtedness or guarantees
and creation of property encumbrances.
The financial tests under Globes loan agreements include compliance with the following ratios:
Total debt* to equity not exceeding 2:1;
Total debt* to EBITDA not exceeding 3:1;
Debt service coverage exceeding 1.3 times; and
Secured debt ratio not exceeding 0.2 times.
*Composed of notes payable and long term debt.

*SGVFS010845*

- 58 -

As of December 31, 2014, the Globe Group is not in breach of any loan covenants.
14.2
Retail Bonds
On June 1, 2012, the Globe Group issued 10,000.00 million fixed rate bonds. The amount
comprises 4,500.00 million and 5,500.00 million fixed rate bonds due in 2017 and 2019, with
interest rate of 5.75% and 6.00%, respectively. The net proceeds of the issue were used to partially
finance the Globe Groups capital expenditure requirements in 2012.
The five-year and seven-year retail bonds may be redeemed in whole, but not in part, starting two
years before maturity date and on the anniversary thereafter at a price equal to 101.00% and
100.50%, respectively, of the principal amount of the bonds and all accrued interest to the date of
the redemption.
On July 17, 2013, the Globe Group issued 7,000.00 million fixed rate bond. The amount
comprises 4,000.00 million and 3,000.00 million bonds due in 2020 and 2023, with interest rate
of 4.8875% and 5.2792%, respectively. The net proceeds of the issue were used to partially finance
the Globe Groups capital expenditure requirements in 2013.
The seven-year and ten-year retail bonds may be redeemed in whole, but not in part only, starting
two years for the seven-year bonds and three years for the ten-year bonds before the maturity date
and on the anniversary thereafter at a price ranging from 101.0% to 100.5% and 102.0% to 100.5%,
respectively, of the principal amount of the bonds and all accrued interest depending on the year of
redemption.
The prepayment feature is assessed as clearly and closely related to the host debt instrument, and
hence need not be separately accounted for at FVPL.
The Globe Group has to meet certain bond covenants including a maximum debt-to-equity ratio of
2 to 1. As of December 31, 2014, the Globe Group is not in breach of any bond covenants.

15. Other Long-term Liabilities

This account consists of:
Notes
Accrued pension
ARO
Accrued lease obligations and others

18.2
3.2.4, 7
25.1.2

2013
2014
(In Thousand Pesos)
1,607,299
2,321,195
1,724,304
1,868,006
1,017,999
1,283,832
4,349,602
5,473,033

The rollforward analysis of the Globe Groups ARO follows:

Notes
At beginning of year
Capitalized to property and equipment
Accretion expense during the year
Reversals
Adjustments due to changes in estimates
At end of year

30
22
3.2.4

2013
2014
(In Thousand Pesos)
1,594,633
1,724,304
15,675
9,495
130,021
141,358
(4,442)

(16,025)
(2,709)
1,724,304
1,868,006

*SGVFS010845*

- 59 -

16. Related Party Transactions

Parties are considered to be related to Globe Group if it has the ability, directly or indirectly, to
control the Group or exercise significant influence over the Group in making financial and
operating decisions, or vice versa, or where the Group and the party are subject to common control
or common significant influence. Related parties may be individuals (being members of key
management personnel, significant shareholders and/or their close family members) or entities and
include entities which are under the significant influence of related parties of the Group where
those parties are individuals, and post-employment benefit plan which are for the benefit of
employees of the Group or of any entity that is a related party of the Group.
The Globe Group, in their regular conduct of business, enter into transactions with their major
stockholders, AC and STI, associates, joint ventures and certain related parties.
16.1
Entities with Joint Control over Globe Group - AC and STI
Globe Telecom has interconnection agreements with STI. The related net traffic settlements
receivable (included in Receivables account in the consolidated statements of financial
position) and the interconnection revenues earned (included in Service revenues account in
the consolidated statements of comprehensive income) are as follows:
2014

2013

2012

(In Thousand Pesos)

Traffic settlements receivable - net

Interconnection revenues
Interconnection costs

79,191
784,965
112,976

201,216
921,540
116,477

126,277
1,117,420
151,382

Globe Telecom and STI have a technical assistance agreement whereby STI will provide
consultancy and advisory services, including those with respect to the construction and
operation of Globe Telecoms networks and communication services (see Note 25.6),
equipment procurement and personnel services. In addition, Globe Telecom has software
development, supply, license and support arrangements, lease of cable facilities, maintenance
and restoration costs and other transactions with STI.
The details of fees (included in repairs and maintenance under the General, selling and
administrative expenses account in the consolidated statements of comprehensive income)
incurred under these agreements are as follows:
2014

2013

2012

(In Thousand Pesos)

Technical assistance fee

Maintenance and restoration costs and
other transactions
Software development, supply, license
and support

160,534

163,004

140,083

63,695

61,841

64,835

19,642

16,681

12,590

*SGVFS010845*

- 60 -

The outstanding balances due to STI (included in the Accounts payable and accrued
expenses account in the consolidated statements of financial position) arising from these
transactions are as follows:
2014

2013

2012

(In Thousand Pesos)

Technical assistance fee

Maintenance and restoration costs and
other transactions
Software development, supply, license
and support

135,877

35,775

45,326

10,882

20,695

32,372

4,014

35,268

Globe Group earns subscriber revenues from AC. The outstanding subscribers receivable
from AC (included in Receivables account in the consolidated statements of financial
position) and the amount earned as service revenue (included in the Service revenues
account in the consolidated statements of comprehensive income) are as follows:
2014

2013

2012

(In Thousand Pesos)

Subscriber receivables
Service revenues

9,662
18,990

14,761
14,107

2,143
14,720

Globe Telecom reimburses AC for certain operating expenses. The net outstanding liabilities
to (included in Accounts payable and accrued expenses account in the consolidated
statements of financial position) and the amount of expenses incurred (included in the
General, selling and administrative expenses account in the consolidated statements of
comprehensive income) are as follows:
2014

2013

2012

(In Thousand Pesos)

General, selling and administrative

expenses
Accounts payable and accrued expenses

37,135
755

7,768

9,145

16.2
Joint Ventures in which the Globe Group is a venturer (see Note 10)
Globe Telecom has preferred roaming service contract with BMPL. Under this contract,
Globe Telecom will pay BMPL for services rendered by the latter which include, among
others, coordination and facilitation of preferred roaming arrangement among JV partners, and
procurement and maintenance of telecommunications equipment necessary for delivery of
seamless roaming experience to customers. Globe Telecom also earns or incurs commission
from BMPL for regional top-up service provided by the JV partners. The net outstanding
liabilities to BMPL related to these transactions amounted to 2.37 million and 0.98 million
as of December 31, 2014 and 2013, respectively. Balances related to these transactions
(included in General, selling and administrative expenses account in the consolidated
statements of comprehensive income) amounted to 23.76 million and 3.76 million, as of
December 31, 2014 and 2013, respectively.

In October 2009, the Globe Group entered into an agreement with BPI Globe BanKO for the
pursuit of services that will expand the usage of GCash technology. As a result, the Globe
Group recognized revenue amounting to 6.81 million and 0.54 million in 2014 and 2013,

*SGVFS010845*

- 61 respectively. The related receivables amounted to 7.16 million and 1.11 million in 2014
and 2013, respectively.
16.3
Transactions with the GGRP (see Note 11)
In 2008, Globe Telecom, Innove and GXI pooled its plan assets for single administration by
the GGRP, which was created for the management of the retirement fund. The decisions of the
GGRP are made through collective decision of the Board of Trustees. The chairman of the
BOT approves the retirement plans transactions of Globe Group and is a member of the
BOD.
The plan is funded by contributions as recommended by the independent actuary on the basis
of reasonable actuarial assumptions. These assumptions and the funded status of the pension
plan are disclosed in Note 18.2.
The unfunded status for the pension plan of Globe Group as of December 31, 2014 and 2013
amounted to 2,321.20 million and 1,607.30 million, respectively (see Note 18.2).
The fair value of plan assets by each class held by the retirement fund, on a pooled basis
follows:

Cash and cash equivalents

Loans receivables
Investment in fixed income securities
Government
Corporate
Loans
Others
Investment in equity securities
Liabilities

2013
2014
(In Thousand Pesos)
121,330
143,746
968,000
968,000
796,424
200,488
4,945
128,035
1,636,204
(968,000)
2,909,842

696,382
298,750
22,801
9,033
1,506,611
(968,000)
2,654,907

All equity and debt instruments held, except for investment in preferred shares of HALO
Group, debt securities issued by private corporations and long-term negotiable certificates of
deposit, have quoted prices in active market. The remaining plan assets do not have quoted
market prices in active market.
Loans and receivables consist of interest and dividend receivables, receivable on securities
sold to brokers and loan granted by the plan to BHI.
Liabilities pertain to interest and trust fee payables, accrued professional fees and loan granted
to the plan by Globe Telecom.
The plan assets have diverse investments and do not have any concentration risk.

As of December 31, 2014 and 2013, the pension plan assets of the retirement plan include
shares of stock of Globe Telecom with total fair value of 26.32 million and 24.77 million,
respectively, and shares of stock of other related parties with total fair value of
115.08 million and 83.31 million, respectively. Gains arising from these investments
amounted to 12.91 million and 8.34 million in 2014 and 2013, respectively.

*SGVFS010845*

- 62

In 2008, the Globe Group granted a short-term loan to the GGRP amounting to 800.00
million with interest at 6.20%. Upon maturity in 2009, the loan was rolled over until
September 2014 with interest at 7.75%. Further, in 2009, the Globe Group granted an
additional loan to the retirement fund amounting to 168.00 million which bears interest at
7.75% and is due also in September 2014.
On September 16, 2014, the maturity of the outstanding balance of loan receivable from
GGRP amounting to 968.00 million was extended to September 11, 2017 and the interest
rate was reduced to 5% per annum effective on September 11, 2014. Interest income
amounted to 68.02 million, 76.26 million and 76.27 million in 2014, 2013 and 2012,
respectively (see Note 19).
The retirement plan utilized the loan to fund its investments in BHI, a domestic corporation
organized to invest in media ventures. BHI has controlling interest in Altimax Broadcasting
Co., Inc. (Altimax) and Broadcast Enterprises and Affiliated Media Inc. (BEAM),
respectively.

On August 13 and December 21, 2009, the Globe Group granted five-year loans amounting to
250.00 million and 45.00 million, respectively, to BHI at 8.275% interest. The 250.00
million loan is covered by a pledge agreement whereby in the event of default, the Globe
Group shall be entitled to offset whatever amount is due to BHI from any unpaid fees to
BEAM from the Globe Group. The 45.00 million loan is fully secured by a chattel mortgage
agreement dated December 21, 2009 between Globe Group and BEAM. Interest income
amounted to 11.30 million, 13.72 million and 24.82 million in 2014, 2013 and 2012,
respectively (see Note 25.5).
On August 13, 2014, the maturity of the outstanding balance of loan receivable from BHI
amounting to 158.62 million was extended to August 13, 2017 and the interest rate was
reduced to 5% per annum effective August 14, 2014 (see Note 11).

On February 1, 2009, the Globe Group entered into a memorandum of agreement (MOA) with
BEAM for the latter to render mobile television broadcast service to Globe subscribers using
the mobile TV service. As a result, the Globe Group recognized an expense (included in
Professional and other contracted services) amounting to 155.00 million in 2014 and 2013
and 194.00 million in 2012. Effective January 1, 2015, BEAM will charge an increased
service fee rate to Globe Group as a result of an amendment to the MOA.

On October 1, 2009, the Globe Group entered into a MOA with Altimax for the Globe
Groups co-use of specific frequencies of Altimaxs for the rollout of broadband wireless
access to the Globe Groups subscribers. As a result, the Globe Group recognized an expense
(included in General, selling and administrative expenses account in the consolidated
statements of comprehensive income) amounting to 90.00 million in 2014 and 2013.

16.4
Transactions with other related parties
Globe Telecom has money market placements and bank balances, and subscriber receivables
(included in Cash and cash equivalents and Receivables accounts in the consolidated
statements of financial position, respectively) and earns service revenues (included in the
Service revenues account in the consolidated statements of comprehensive income) from its
other related parties namely, Ayala Land Inc., Ayala Property Management Corporation, Bank
of the Philippine Islands, Manila Water Company, Inc., Integrated Microelectronics, Inc.,
Stream Global Services, Inc., HR Mall Inc., Honda Cars, Inc., Isuzu Automotive Dealership,
Inc., Accendo Commercial Corp., Affinity Express Philippines, Inc., Alveo Land Corp., Asian
I-Office Properties,Inc., Avida Land Corp., Avida Sales Corporation, Ayala Hotels, Inc.,

*SGVFS010845*

- 63 -

Ayala Plans, Inc., Ayala Systems Technology, Inc., Cebu Holdings, Inc., Makati Development
Corp., myAyala.com, Inc., North Triangle Depot Commercial Corp., PSI Technologies, Inc.,
Roxas Land Corp, Serendra, Inc., Station Square East Commercial Corp., Ten Knots
Development, KHI ALI Manila, Inc., Lagoon Development Corp., Subic Bay Town Center,
Inc., Ayala Aviation Corporation, Laguna AAA Water Corp., Liveit Solution, Inc., Liveit
Investments, Ltd., Integreon, Inc., Arvo Commercial Corp., Amaia Land Corp., Michigan
Power, Philippine Intergrated Energy Solutions, Inc., Southcrest Hotel Ventures, Inc.,
Bonifacio Hotels and Crestview E-Office.
The balances with other related parties are recorded under the following accounts:
2013

2012

Notes

2014

30

1,385,635

166,074

199,392

21
7
29
12

171,873
64,300
479,923
15,454

346,280
60,437
439,702
72,440

345,004
71,272
344,206
50,008

218,837

212,391

102,454

(In Thousand Pesos)

Cash and cash equivalents

General, selling and administrative
expenses
Property and equipment
Revenues
Accounts payable and accrued
expenses
Subscriber receivables (included in
Receivables account)

The balances under General, selling and administrative expenses and Property and
equipment accounts consist of expenses incurred on rent, utilities, customer contract services,
other miscellaneous services and purchase of vehicles, respectively.
These related parties are either controlled or significantly influenced by AC.
16.5

Transactions with key management personnel of the Globe Group

The Globe Groups compensation of key management personnel by benefit type are as
follows:
Notes

2013

2014
(In Thousand Pesos)

Short-term employee benefits

Share-based payments
Post-employment benefits

21
18.1
18.2

237,100
9,649
30,466
277,215

157,272
15,151
18,090
190,513

There are no agreements between the Globe Group and any of its directors and key officers
providing for benefits upon termination of employment, except for such benefits to which they
may be entitled under the Globe Groups retirement plans.
The Globe Group has no non-interest bearing short-term loans to its key management
personnel in 2014 and 2013, respectively.
16.6
Transaction with BTI
The Globe group purchased BTIs outstanding debts from its creditors and was recognized at
transaction price which was considered its fair value. The total debt of BTI is comprised of
sustainable Tranche A and unsustainable Tranche B. A portion of the debt (Tranche B) was

*SGVFS010845*

- 64 -

converted into equity and was valued at nil while the total consideration at point of tender was
assigned to the collectible portion of Tranche A.
As of December 31, 2014 and 2013, loans receivable from BTI amounted to
P
=4,443.96 million and =
P5,037.65 million comprising of principal and interest due until 2023,
with quarterly interest payments and semi-annual principal payments (see Notes 6 and 11).
Interest income amounted to =
P504.67 million and =
P475.82 million in 2014 and 2013,
respectively.
Globe Telecom and BTI executed an agreement to jointly use BTI frequencies for their
respective telecommunications services (see Note 25.8).

*SGVFS010845*

- 65 -

The summary of balances arising from related party transactions for the relevant financial year follows (in thousands):
2014
Amount/Volume

Outstanding Balance
Property and Cash and Cash Amounts owed
Amounts
Equipment
Equivalents
by Related
Owed to
(Note 7)
(Note 30)
Parties Related Parties

Revenue

Cost and
Expenses

AC

18,990

37,135

9,662

755

STI
Jointly ventures

671,989

243,871

79,191

146,759

23,765

2,367

6,812

7,160

Terms

Conditions

Entities with joint control

over the Company

BMPL
BPI Globe BanKO
Associate

Interest-free,
settlement in cash
Interest-free, settlement
in cash

Unsecured, no impairment

Unsecured, no impairment

504,671

5,000

4,443,956

80,334

GGRP

68,015

968,000

3 years, 5%, settlement

in cash

BHI

11,304

158,620

BEAM

155,000

Altimax
Key management personnel

90,000
277,215

Others

479,923
1,761,704

171,873
1,003,859

64,300
64,300

1,385,635
1,385,635

218,837
5,885,426

Unsecured, no impairment

Interest-free, settlement
in cash
Interest-free, settlement
in cash
Loan receivable - 20
years, 9.60%
to 11.55%; lease capacity
provisioning - interestfree, settlement in cash

BTI
Other related parties

Unsecured, no impairment

15,454
245,669

3 years, 5%, settlement

in cash
Interest-free, settlement
in cash
Interest-free, settlement
in cash

Unsecured, no impairment

Unsecured, no impairment
The 250.00 million is covered by a
pledge agreement while the 45.00
million is fully secured by chattel
mortgage agreement.

Unsecured, no impairment
Interest-free, excluding
cash and cash
equivalents, settlement in
cash

Unsecured, no impairment

*SGVFS010845*

- 66 -

2013
Amount/Volume

Outstanding Balance

Revenue

Cost and
Expenses

Property and
Equipment
(Note 7)

Cash and Cash

Equivalents
(Note 30)

Amounts owed
by Related
Parties

Amounts Owed
to Related
Parties

AC

14,107

7,768

14,761

STI
Joint ventures

957,232

241,526

201,216

60,484

541

3,762

1,107

977

475,822

5,000

5,037,653

9,500

GGRP

76,257

968,000

BHI

13,721

158,620

BEAM

155,000

Altimax

90,000

Key management personnel

190,513

439,702
1,977,382

346,280
1,039,849

60,437
60,437

166,074
166,074

212,391
6,593,748

72,440
143,401

Terms

Conditions

Entities with joint control

over the Company

BMPL
BPI Globe BanKO
Associate
BTI
Other related parties

Others

Interest-free, settlement
in cash
Interest-free, settlement
in cash
Interest-free, settlement
in cash

5 years, 7.75%, settlement

in cash

5 years, 8.275%, settlement

in cash
Interest-free, settlement in
cash
Interest-free, settlement in
cash
Interest-free, settlement
in cash
Interest-free, excluding
cash and cash equivalents,
settlement
in cash

Unsecured, no impairment
Unsecured, no impairment

Unsecured, no impairment

Unsecured, no impairment
The 250.00 million is covered by a
pledge agreement while the 45.00
million is fully secured by chattel
mortgage agreement.

Unsecured, no impairment

Unsecured, no impairment

*SGVFS010845*

- 67 -

17. Equity and Other Comprehensive Income

Globe Telecoms authorized capital stock consists of:
2013
2014
Shares
Amount
Shares
Amount
(In Thousand Pesos and Number of Shares)
Voting preferred stock 5 per share

160,000

800,000

250,000

1,250,000

Non-voting preferred stock 50 per share

Common stock - 50 per share

40,000
148,934

2,000,000
7,446,719

179,934

8,996,719

Globe Telecoms issued and subscribed capital stock consists of:

Voting preferred stock

Non-voting preferred stock
Common stock
Total capital stock

2013
2014
Shares
Amount
Shares
Amount
(In Thousand Pesos and Number of Shares)
158,515
792,575
158,515
792,575

20,000
1,000,000
132,596
6,629,785
132,733
6,636,654
7,422,360
8,429,229

Below is a summary of the Globe Telecoms track record of registration of securities.

Voting preferred stock

Non-voting preferred stock
Common stock

Number of
shares
registered

Issue/offer
price

Date of approval

158,515,021
20,000,000
30,000,000

500.00
5.00
0.50

June 2001
August 11, 2014
August 11, 1975

*Initial number of registered shares only.

17.1

Preferred Stock

Non-Voting Preferred Stock

On February 10, 2014, the Globe Telecoms BOD approved the amendment of Articles of
Incorporation (AOI) to reclassify 31 million of unissued common shares with par value of
50 per share and 90 million of unissued voting preferred shares with par value of 5 per share
into a new class of 40 million non-voting preferred shares with par value of 50 per share.
On April 8, 2014, the stockholders approved the issuance, offer and listing of up to 20 million
non-voting preferred shares, with an issue volume of up to 10 billion. The non-voting
preferred shares shall be redeemable, non-convertible, non-voting, cumulative and may be
issued in series.
On June 6, 2014, the Securities and Exchange Commission (SEC) approved the amendment of
AOI to implement the foregoing reclassification of shares.
On August 8, 2014, the SEC approved the offer of non-voting preferred perpetual shares and on
August 15, 2014, the 20 million non-voting preferred shares were fully subscribed and issued.
Subsequently, the shares were listed at the Philippines Stock Exchange (PSE) on
August 22, 2014.

*SGVFS010845*

- 68 -

Proceeds from preferred issuance were used to partially finance capital expenditures for the year.
Non-voting preferred stock has the following features:
a) Issued at 50 par;
b) Dividend rate to be determined by the BOD at the time of issue;
c) Redemption - at Globes option at such times and price(s) as may be determined by the BOD
at the time of issue, which price may not be less than the par value thereof plus accrued
dividends;
d) Eligibility of investors - Any person, partnership, association or corporation regardless of
nationality wherein at least 60% of the outstanding capital stock shall be owned by Filipino
e) No voting rights;
f) Cumulative and non-participating;
g) No pre-emptive rights over any sale or issuance of any share in Globe Telecoms capital
stock; and
h) Shares shall rank ahead of the common shares and equally with the voting preferred shares in
the event of liquidation.
Voting Preferred Stock
Voting preferred stock has the following features:
(a) Issued at 5 par;
(b) Dividend rate to be determined by the BOD at the time of issue;
(c) One preferred share is convertible to one common share starting at the end of the 10th year of
the issue date at a price to be determined by the Globe Telecoms BOD at the time of issue
which shall not be less than the market price of the common share less the par value of the
preferred share;
(d) Call option - Exercisable any time by Globe Telecom starting at the end of the 5th year from
issue date at a price to be determined by the BOD at the time of issue;
(e) Eligibility of investors - Only Filipino citizens or corporations or partnerships wherein 60%
of the voting stock or voting power is owned by Filipino;
(f) With voting rights;
(g) Cumulative and non-participating;
(h) Preference as to dividends and in the event of liquidation; and
(i) No pre-emptive rights to any share issue of Globe Telecom, and subject to yield protection in
case of change in tax laws.
The dividends for preferred shares are declared upon the sole discretion of Globe Telecoms BOD.
17.2

Common Stock

The rollforward of outstanding common shares follows:

Shares

2014
Amount

Shares

2013
Amount

Shares

2012
Amount

(In Thousand Pesos and Number of Shares)

At beginning of year
Exercise of stock options
At end of year

132,596
137
132,733

6,629,785
6,869
6,636,654

132,406
190
132,596

6,620,291
9,494
6,629,785

132,353 6,617,651
53
2,640
132,406 6,620,291

*SGVFS010845*

- 69 -

17.3

Cash Dividends

Information on the Globe Telecoms BOD declaration of cash dividends follows:

Per Share

Date
Amount
Record
Payable
(In Thousand Pesos, Except Per Share Figures)

Voting preferred stock dividends declared on:

December 11, 2012
November 8, 2013
November 11, 2014

0.21
0.15
0.03

33,145 December 27, 2012 January 24, 2013

23,838 November 22, 2013 December 8, 2013
26,457 November 25, 2014 December 11, 2014

Non-voting preferred stock dividends declared on:

December 12, 2014

12.50

260,030 January 26, 2015

Common stock dividends declared on:

February 10, 2012
August 5, 2012
February 5, 2013
August 6, 2013
February 10, 2014
August 5, 2014
November 11, 2014

32.50
32.50
33.50
33.50
37.50
18.75
18.75

4,302,737
4,302,891
4,435,828
4,440,936
4,975,351
2,488,624
2,488,727

February 24, 2012

August 28, 2012
February 19, 2013
August 22, 2013
February 26, 2014
August 19, 2014
November 25, 2014

February 22, 2015

March 16, 2012
September 18, 2012
March 12, 2013
September 13, 2013
March 20, 2014
September 4, 2014
December 11, 2014

17.4
Common Stock Dividend
The dividend policy of Globe Telecom as approved by the BOD is to declare cash dividends to its
common stockholders on a regular basis as may be determined by the BOD. On November 8,
2011, the BOD approved the current dividend policy of Globe Telecom to distribute cash
dividends at the rate of 75% to 90% of prior year's core net income. On August 6, 2013, the BOD
further approved the change in distribution from semi-annual dividend payments to quarterly
dividend distributions. However, on December 10, 2013, the BOD approved to defer the
implementation of the quarterly dividend payout to the second semester of 2014.
The dividend distribution policy is reviewed annually and subsequently each quarter of the year,
taking into account Globe Telecom's operating results, cash flows, debt covenants, capital
expenditure levels and liquidity.
17.5
Retained Earnings Available for Dividend Declaration
The total unrestricted retained earnings available for dividend declaration amounted to 4,219.82
million as of December 31, 2014. This amount excludes the undistributed net earnings of
consolidated subsidiaries, accumulated equity in net earnings of joint ventures accounted for under
the equity method, and unrealized gains recognized on asset and liability currency translations and
unrealized gains on fair value adjustments. The Globe Group is also subject to loan covenants that
restrict its ability to pay dividends (see Note 14).

*SGVFS010845*

- 70 -

17.6

Other Comprehensive Income

Other Reserves
December 31, 2014

As of January 1, 2014
Fair value changes
Remeasurement losses on defined
benefit plan
Transferred to profit or loss
Income tax effect
to or transferred
from equity
Exchange
differences
As of December 31, 2014

Cash flow
hedges

AFS
financial
assets

35,027
(207,522)

57,775
20,392

215,246
(2,317)

40,434

78,167

Exchange
differences arising
from translations
of foreign
investments
(In Thousand Pesos)
(6,020)

14,474
8,454

Remeassurement
losses on defined
benefit plan

Total

(826,357)

(739,575)
(187,130)

(397,930)

119,379

(1,104,908)

(397,930)
215,246
117,062
14,474
(977,853)

Remeassurement
losses on defined
benefit plan

Total

(481,951)

(526,539)
383,694

(492,009)

147,603

(826,357)

(492,009)
(183,012)
80,648
(2,357)
(739,575)

Remeassurement
losses on defined
benefit plan

Total

(279,453)

(404,355)
76,734

(289,283)

86,785

(481,951)

(289,283)
12,769
73,126
4,470
(526,539)

December 31, 2013

As of January 1, 2013
Fair value changes
Remeasurement losses on defined
benefit plan
Transferred to profit or loss
Income tax effect
Exchange differences
As of December 31, 2013

Cash flow
hedges

AFS
financial
assets

(121,200)
406,194

80,275
(22,500)

(183,012)
(66,955)

35,027

57,775

Exchange
differences arising
from translations
of foreign
investments
(In Thousand Pesos)
(3,663)

(2,357)
(6,020)

December 31, 2012

As of January 1, 2012
Fair value changes
Remeasurement losses on defined
benefit plan
Transferred to profit or loss
Income tax effect
Exchange differences
As of December 31, 2012

Cash flow
hedges

AFS
financial
assets

(153,070)
32,760

36,301
43,974

Exchange
differences arising
from translations
of foreign
investments
(In Thousand Pesos)
(8,133)

12,769
(13,659)

(121,200)

80,275

4,470
(3,663)

*SGVFS010845*

- 71 -

18. Employee Benefits

18.1

Stock Plans

The Globe Group has Executive Stock Option Plan (ESOP) and Long-Term Incentive Plan
(LTIP). The number of shares allocated under these plans shall not exceed the aggregate
equivalent of 6% of the authorized capital stock.
18.1.1 Executive Stock Option Plan
Since 2003, the Globe Group had a share-based compensation plan called the Executive Stock
Option Plan (ESOP).
The number of shares allocated under the above plans shall not exceed the aggregate
equivalent of 6% of the authorized capital stock.
The following are the stock option grants to key executives and senior management personnel
of the Globe Group under the ESOP from 2003 to 2014:
Fair Value
of Each
Option
283.11

Fair Value
Measurement
Black-Scholes
option pricing
model

Number
of Options
680,200

Exercise Price
547.00 per share

Exercise Dates
50% of options exercisable from April 4,
2005 to April 14, 2013; the remaining 50%
exercisable from April 4, 2006 to April 14,
2013

July 1, 2004

803,800

840.75 per share

50% of options exercisable from July 1,

2006 to June 30, 2014; the remaining 50%
from July 1, 2007 to June 30, 2014

357.94

Black-Scholes
option pricing
model

March 24,
2006

749,500

854.75 per share

50% of the options become exercisable from

March 24, 2008 to March 23, 2016; the
remaining 50% become exercisable from
March 24, 2009 to March 23, 2016

292.12

Trinomial option
pricing model

May 17, 2007

604,000

1,270.50 per share

50% of the options become exercisable from

May 17, 2009 to May 16, 2017, the
remaining 50% become exercisable from
May 17, 2010 to May 16, 2017

375.89

Trinomial option
pricing model

August 1,
2008

635,750

1,064.00 per share

50% of the options become exercisable from

August 1, 2010 to July 31, 2018, the
remaining 50% become exercisable from
August 1, 2011 to July 31, 2018

305.03

Trinomial option
pricing model

October 1,
2009

298,950

993.75 per share

50% of the options become exercisable from

October 1, 2011 to September 30, 2019, the
remaining 50% become exercisable from
October 1, 2012 to September 30, 2019

346.79

Trinomial option
pricing model

Date of Grant
April 4, 2003

The exercise price is based on the average quoted market price for the last 20 trading days
preceding the approval date of the stock option grant.

*SGVFS010845*

- 72 -

A summary of the Globe Groups ESOP activity and related information follows:
2013

2014

Weighted
Weighted
Average
Number of Average Exercise
Exercise
Number of
Price
Shares
Price
Shares
(In Thousand Number of Shares, Except per Share Figures)
Outstanding, at beginning of year
Exercised
Expired/forfeited
Outstanding, at end of year
Exercisable, at end of year

574
(302)
(5)
267

1,087.26
1,109.96
840.75
1,068.56

1,366
(771)
(21)
574

1,081.01
1,085.79
729.82
1,087.76

267

1,068.56

574

1,087.76

The average share prices at dates of exercise of the stock options in 2014, 2013 and 2012
amounted to 1,697.34, 1,586.10 and 1,213.00, respectively.
As of December 31, 2014 and 2013, the weighted average remaining contractual life of
options outstanding is 2.87 years and 3.85 years, respectively.
The following assumptions were used to determine the fair value of the stock options at
effective grant dates:

Share price
Exercise price
Expected volatility
Option life
Expected dividends
Risk-free interest rate

October 1,
2009
995.00
993.75
48.49%
10 years
6.43%
8.08%

August 1,
2008
1,130.00
1,064.00
31.73%
10 years
6.64%
9.62%

May 17,
2007
1,340.00
1,270.50
38.14%
10 years
4.93%
7.04%

March 24,
2006
930.00
854.75
29.51%
10 years
5.38%
10.30%

July 1,
2004
835.00
840.75
39.50%
10 years
4.31%
12.91%

April 4,
2003
580.00
547.00
34.64%
10 years
2.70%
11.46%

The expected volatility measured at the standard deviation of expected share price returns was
based on analysis of share prices for the past 365 days. Cost of share-based payments for the
years ended December 31, 2014, 2013 and 2012 amounted to 31.84 million, 50.00 million
and 11.50 million, respectively (Note 16.5).
18.1.2 Long-Term Incentive Plan
In November 2014, Globe has obtained approval from the Board to implement another LongTerm Incentive Plan (LTIP) also called a Performance Share Plan (PSP). Eligible to this plan
are key executives and senior management. Under the PSP, the grantees are awarded a
specific number of shares at the start of the performance period and get vested over a
specified performance period and contingent upon the achievement of specified long-term
goals.
The following are the stock grants to key executives and senior management personnel of the
Globe Group under the LTIP:
Date of Grant

November 28,
2014

Number
of Grants

Settlement Dates

Fair Value of
Each Grant

Fair Value
Measurement

106,293

100% after 3 years subject to attainment of

plan targets and subject to stock ownership
requirements

1,630.35

Share price on grant

date

*SGVFS010845*

- 73 -

18.2
Pension Plan
The Globe Group has a funded, noncontributory, defined benefit pension plan covering
substantially all of its regular employees. The benefits are based on years of service and
compensation on the last year of employment.
The Plan is managed and administered by a Board of Trustees (BOT) whose members are
unanimously appointed by the Globe Group acting through its BOD. The BOT is authorized to
appoint one or more fund managers to hold, invest and reinvest the assets of the Plan and execute
an Investment Agreement with the said fund managers. The Plan is held and invested by the fund
managers, in accordance with the guidelines set by the BOT.
Under the existing regulatory framework, Republic Act 7641 requires a provision for retirement
pay to qualified private sector employees in the absence of any retirement plan in the entity,
provided however that the employees retirement benefits under any collective bargaining and
other agreements shall not be less than those provided under the law. The law does not require
minimum funding of the plan.
The components of pension expense (included in staff costs under General, selling and
administrative expenses account) in the consolidated Globe Group statements of comprehensive
income are as follows:
2014

2013

2012

(In Thousand Pesos)

Current service cost

417,653

348,399

282,746

The accrued pension is as follows:

2013

2014
(In Thousand Pesos)

Present value of benefit obligation

Fair value of plan assets
Liabilities recognized in the consolidated statements of
financial position

5,236,037
(2,914,842)

4,262,206
(2,654,907)

2,321,195

1,607,299

The following tables present the changes in the present value of defined benefit obligation and
fair value of plan assets:
Present value of defined benefit obligation
2014
(In Thousand Pesos)
Balance at beginning of year
Current service cost
Past service cost
Interest cost
Benefits paid from plan assets
Benefits paid directly by the Globe Group
Remeasurements in other comprehensive income:
Actuarial changes arising from changes in demographic
assumptions
Actuarial changes arising from experience adjustments
Balance at end of year

2013

4,262,206
417,653

208,358
(106,988)

3,437,028
348,399
217
184,708
(165,182)
(957)

336,002
118,806
5,236,037

271,077
186,916
4,262,206

*SGVFS010845*

- 74 -

Fair value of plan assets

2013

2014
(In Thousand Pesos)

Balance at beginning of year

Contributions
Interest income on plan assets
Return on plan assets (excluding amount included in
net interest)
Benefits paid
Balance at end of year
Actual return on plan assets

2,654,907
172,440
137,606

2,593,117
119,392
141,597

56,877
(106,988)
2,914,842
194,483

(34,017)
(165,182)
2,654,907
107,580

The recommended contribution for the Globe Group retirement fund for the year 2015 amounted
to 217.78 million. This amount is based on the Globe Groups actuarial valuation report as of
December 31, 2014.
As of December 31, 2014 and 2013, the allocation of the fair value of the plan assets of the Globe
Group follows:

Cash and cash equivalents

Loans receivables
Investment in fixed income securities
Government
Corporate
Loans
Others
Investment in equity securities
Quoted
Holding firm
Property
Industrial
Financials
Mining and oil
Others
Unquoted
Liabilities

2013
2014
(In Thousand Pesos)
121,330
148,746
968,000
968,000
796,424
200,488
4,945
128,035

696,382
298,750
22,801
9,033

164,202
133,920
123,543
88,342
30,550
95,647
1,000,000
(968,000)
2,914,842

166,382
104,323
99,160
59,513
19,226
58,007
1000,000
(968,000)
2,654,907

The assumptions used to determine pension benefits for the Globe Group are as follows:
Discount rate
Salary rate increase

2014

2013

4.50%
4.50%

5.27%
5.13%

The assumptions regarding future mortality rates are based on the 1994 Group
Annuity Mortality Table developed by the Society of Actuaries, which provides separate rate for
males and females.
In 2014 and 2013, the Globe Group applied a single weighted average discount rate that reflects
the estimated timing and amount of benefit payments.

*SGVFS010845*

- 75 -

The sensitivity analysis below has been determined based on reasonably possible changes of each
significant assumption on the defined benefit obligation as of December 31, 2014 and 2013,
assuming all other assumptions were held constant (in thousand pesos):
2013

2014

Discount rates
Future salary increases
Mortality

Increase
(decrease)

Impact on
defined benefit
obligation
Increase
(decrease)

Increase
(decrease)

+0.50%
-0.50%
+1%
-1%
+10%
-10%

(335,974)
370,470
772,823
(646,860)
(1,044)
1,044

+0.50%
-0.50%
+1%
-1%
+10%
-10%

Impact on
defined benefit
obligation
Increase
(decrease)
(270,806)
298,757
622,604
(521,273)
(566)

620

There were no changes from the previous period in the methods and assumptions used in
preparing sensitivity analysis.
The objective of the plans portfolio is capital preservation by earning higher than regular deposit
rates over a long period given a small degree of risk on principal and interest. Asset purchases and
sales are determined by the plans investment managers, who have been given discretionary
authority to manage the distribution of assets to achieve the plans investment objectives. The
compliance with target asset allocations and composition of the investment portfolio is monitored
by the BOT on a regular basis.
The defined benefit retirement plan is funded by the participating companies, namely Globe,
Innove and G-Xchange. The plan contributions are based on the actuarial present value of
accumulated plan benefits and fair value of plan assets are determined using an independent
actuarial valuation.
The average duration of the defined benefit obligation at the end of the reporting period is 17.38
years in 2014 and 22.21 years in 2013.
Shown below is the maturity analysis of the undiscounted benefit payments as of
December 31, 2014 and 2013:

Within 1 year
More than 1 year to 5 years
More than 5 years

2013
2014
(In Thousand Pesos)
181,324
215,168
971,056
1,115,523
1,883,478
2,148,394
3,035,858
3,479,085

*SGVFS010845*

- 76 -

19. Interest Income

Interest income is earned from the following sources:
Notes

2013

2014

2012

(In Thousand Pesos)

Loans receivable:
BTI
GGRP
BHI
Others
Short-term placements
Cash in banks

6, 11
16.6
16.3
16.3, 25.5
30
30

504,671
68,015
11,304

91,044
7,964
682,998

475,822
76,257
13,721
24,431
79,813
18,205
688,249

138,385
76,273
24,818
6,384
316,894
17,097
579,851

20. Other Income

This account consists of:
Notes

2014

2013

2012

(In Thousand Pesos)

Foreign exchange gain - net

Lease income
Gain on derivative instruments - net
Others

22, 28.2.1.2
25.1.1, 25.4
22, 28
9

884
172,499
70,829
226,435
470,647

172,499

318,334
172,499

302,747
475,246

225,538
716,371

The peso to US dollar exchange rates amounted to 44.740, 44.398 and 44.078 as of
December 31, 2014, 2013 and 2012, respectively.
The Globe Groups net foreign currency-denominated liabilities amounted to USD312.43 million,
USD357.85 million and USD161.22 million as of December 31, 2014, 2013 and 2012,
respectively (see Note 28.2.1.2).
These combinations of net liability movements and peso rate depreciation/appreciation resulted in
net foreign exchange gain in 2014 and net foreign exchange loss in 2013 (see Note 22).
The Others account includes insurance claims and other items that are individually immaterial.

21. General, Selling and Administrative Expenses

This account consists of:
Notes
Staff costs
Selling, advertising and promotions
Professional and other contracted
services
Utilities, supplies and other
administrative expenses

2014

2013
(In Thousand Pesos)

2012

7,473,499
7,014,729

6,426,592
6,440,554

6,653,441

5,966,481

5,193,217

4,481,830

4,399,110

4,260,773

16.5, 18

8,665,757
8,000,982

16
5

(Forward)

*SGVFS010845*

- 77 -

Notes

2013

2014

2012

(In Thousand Pesos)

Rent
Repairs and maintenance
Taxes and licenses
Courier, delivery and miscellaneous
expenses
Insurance and security services
Others

16, 25
16

P
=4,116,372
4,099,986
1,787,694

P
=3,534,975
3,656,671
2,055,909

P
=3,153,505
3,672,038
1,595,842

1,486,356
1,439,942
650,517
41,382,877

1,320,112
1,383,294
514,059
37,318,839

1,055,375
1,330,648
473,867
33,602,411

The Others account includes various other items that are individually immaterial.

22. Financing Costs

This account consists of:
Notes

2013

2014

2012

(In Thousand Pesos)

Interest expense - net*

Swap and other financing costs
Foreign exchange loss - net
Loss on derivative instruments - net

7, 14
28.4
20, 28.2.1.2
20, 28.4

2,091,915
245,187
486,308
88,375
2,911,785

2,326,171
239,535

2,565,706

2,104,792
183,007

74,810
2,362,609

*This account is net of the amount of capitalized borrowing costs (see Note 7).

In 2014, gain on derivative instruments amounting to 70.83 million (nil in 2013 and 2012) and
net foreign exchange gain in 2014 and 2012 amounting to 0.88 million and 318.33 million (nil
in 2013), respectively, was presented as part of the Other income account in the consolidated
statements of comprehensive income (see Note 20).
Interest expense-net is incurred on the following:
Notes

2014

2013

2012

(In Thousand Pesos)

Long-term debt
Accretion expense
Amortization of debt issuance cost
Short-term notes payable
Net interest cost on defined
benefit obligation
Others

14
15, 24.4
14
14

1,958,594
171,493
108,746

1,660,094
193,815
131,967
57,954

1,657,862
168,707
103,497
82,047

70,752
16,586
2,326,171

43,111
4,974
2,091,915

18,714
73,965
2,104,792

*SGVFS010845*

- 78 -

23. Impairment Losses and Others

This account consists of:
Notes
Impairment losses on:
Receivables
Property and equipment and
intangible assets
Provisions for:
Inventory obsolescence and
market decline
Claims and assessments

2013
2014
(In Thousand Pesos)

2012

4
28.2.2
7, 8

3,035,235

2,046,523

1,377,317

110,238

26,312

259,262

5
13

437,511
137,185
3,720,169

321,460
88,333
2,482,628

170,678
56,327
1,863,584

24. Income Tax

The significant components of the deferred income tax assets and liabilities of the Globe Group
represent the deferred income tax effects of the following:
2014
(In Thousand Pesos)
Deferred income tax assets on:
Allowance for impairment losses
on receivables
Unearned revenues and advances
already subjected to income tax
Accrued pension
Accrued manpower cost
ARO
Inventory obsolescence and market
decline
Accumulated impairment losses
on property and equipment
Accrued rent expense under PAS 17
Cost of share-based payments
Unrealized foreign exchange losses
Provision for claims and assessment
Allowance for doubtful accounts for
long-outstanding net advances
NOLCO
Unrealized loss on derivative
transactions
Others
Deferred income tax liabilities on:
Excess of accumulated depreciation
and amortization of Globe Telecom
equipment for (a) tax reporting over
(b) financial reporting
Undepreciated capitalized borrowing
costs already claimed as deduction for tax
reporting

2013

1,725,002

1,267,463

864,049
826,097
709,141
519,885

801,636
643,823
116,561
476,901

183,384

146,965

179,121
122,248
71,115
69,067
64,858

185,941
119,087
136,424
128,713
52,696

58,532
561

40,497

43,958
5,437,018

26,414
29,390
4,172,511

2,004,385

815,677

1,513,860

1,432,724

(Forward)

*SGVFS010845*

- 79 -

Unrealized foreign exchange gain

Unamortized discount on noninterest
bearing liability
Unrealized gain on derivative transaction
Others
Net deferred income tax assets
(a)
(b)

2014
P
=2,217

2013
P
=

5,583
6,970
103
3,533,119
1,903,899

850

6,382
2,255,633
1,916,878

Sum-of-the-years digit method

Straight-line method

Net deferred tax assets and liabilities presented in the consolidated statements of financial
position on a net basis by entity are as follows:
2013

2014
(In Thousand Pesos)

Net deferred tax assets*

Net deferred tax liabilities (GTI)

1,904,298
399

1,916,878

*2014 consist of Globe Telecom, Innove, GXI, Yondu. KVI and Asticom
2013 consist of Innove, GTI and Yondu

The composition of deferred income tax assets follows:

2013
2014
(In Thousand Pesos)
1,577,737
1,447,696
456,203
339,141
1,916,878
1,903,899

Deferred income tax recognized in profit or loss

Deferred income tax recognized in OCI

The reconciliation of the provision for income tax at statutory tax rate and the actual current and
deferred provision for income tax follows:
2014

2013

2012

(In Thousand Pesos)

Provision at statutory income tax rate

Add (deduct) tax effects of:
Equity in net losses of associates and joint
ventures
Deferred tax on unexercised stock options
and basis differences on deductible and
reported stock compensation expense
Income subjected to lower tax rates
Others
Actual provision for income tax

5,814,812

2,059,432

2,925,464

67,277

23,988

25,075

3,252
(64,633)
189,806
6,010,514

(176,949)
(16,861)
14,918
1,904,528

(54,524)
(823,505)
833,783
2,906,293

The current provision for income tax includes the following:

RCIT or MCIT whichever is higher

Final Tax

2013
2014
(In Thousand Pesos)
4,949,057
5,830,006
46,359
49,872
4,995,416
5,879,878

2012
4,291,409

64,290
4,355,699

The corporate tax rate is 30% in 2014, 2013 and 2012.

*SGVFS010845*

- 80 -

Globe Telecom and Innove are entitled to certain tax and nontax incentives and have availed of
incentives for tax and duty-free importation of capital equipment for their services under their
respective franchises.
25. Agreements and Commitments
25.1

Lease Commitments

25.1.1 Operating Lease Commitments

a) Globe Group as lessee
The Globe Group leases certain premises for some of its telecommunications facilities and
equipment and for most of its business centers and network sites. The operating lease
agreements are for periods ranging from one (1) to ten (10) years from the date of the
contracts and are renewable under certain terms and conditions. The agreements generally
require certain amounts of deposit and advance rentals, which are shown as part of the
Prepayment and other current assets and Other noncurrent assets accounts in the
consolidated statements of financial position (see Notes 6 and 11). The Globe Group also
has short-term renewable leases on transmission cables and equipment. The Globe
Groups rentals incurred on these various leases (included in the General, selling and
administrative expenses account in the consolidated statements of comprehensive income)
amounted to4,116.37 million, 3,534.98 million and 3,153.51 million, respectively, for
the years ended December 31, 2014, 2013 and 2012, respectively.
The future minimum lease payments under these operating leases are as follows:
2013

2014
(In Thousand Pesos)

Not later than one year

After one year but not more than five years
After five years

1,003,867
6,773,893
4,216,802
11,994,562

798,706
4,374,751
2,309,172
7,482,629

b) Globe Group as lessor

Globe Telecom have certain lease agreements on equipment and office spaces. The
operating lease agreements are for periods ranging from one (1) to fourteen (14) years from
the date of contracts. These include Globe Telecoms lease agreement with C2C Pte. Ltd.
(C2C) (see Note 25.4).
Total lease income amounted to 172.50 million for the years ended December 31, 2014,
2013 and 2012, respectively (included in Other income account in the consolidated
statements of comprehensive income) (see Note 20).
The future minimum lease receivables under these operating leases are as follows:
2014

2013

(In Thousand Pesos)

Within one year

After one year but not more than five years

159,686
39,921
199,607

146,694
183,367
330,061

*SGVFS010845*

- 81 -

25.1.2 Finance lease commitments

Globe Group as lessee
The Globe Group engaged the services of various suppliers for the upgrade of its wireless,
data and telephony network. In partnership with equipment and service providers and the
appointment of a project and program manager, the Globe Group undertook a
transformation upgrade and overhaul of its business support systems within the
USD790.00 million modernization project.
Part of the managed service engagement with the service provider is a lease for hardware
infrastructure and information equipment valued over the seven-year term of the lease at
893.28 million. Total lease payments as of December 31, 2014 and 2013 amounted to
306.90 million and 168.26 million, respectively. The managed service engagement has
terms of renewal and purchase options, among others.
Future minimum lease payments under finance leases with the present value of the net
minimum lease payments are as follows:
2013
2014
Minimum Present Value
Minimum
Present Value
Payments
of Payments
Payments
of Payments
(In Thousand Pesos)

Within one year

After one year but not
more than five years
More than five years
Total minimum lease payments
Less amounts representing finance charges
Present value of minimum lease payments

123,070

114,279

183,726

168,707

463,502

586,572
(22,607)
563,965

449,686

563,965

563,965

510,561
30,938
725,225
(34,724)
690,501

491,311
30,483
690,501

690,501

In addition, total payments to service providers based on the seven-year agreement for the
maintenance of servers, which includes application development and maintenance, service
design, managed network services, office automation or end-user computing, service desk
services and business supports systems amounted to 131.31 million and 95.70 million
as of December 31, 2014 and 2013, respectively.
25.2
Agreements and Commitments with Other Carriers
Globe Telecom and Innove have existing international telecommunications service agreements
with various foreign administrations and interconnection agreements with local
telecommunications companies for their various services. Globe also has international roaming
agreements with other foreign operators, which allow its subscribers access to foreign networks.
The agreements provide for sharing of toll revenues derived from the mutual use of
telecommunication networks.
25.3
Arrangements and Commitments with Suppliers
Globe Telecom and Innove have entered into agreements with various suppliers for the
development or construction, delivery and installation of property and equipment. Under the
terms of these agreements, advance payments are made to suppliers and delivery, installation,
development or construction commences only when purchase orders are served. While the
development or construction is in progress, project costs are accrued based on the billings
received. Billings are based on the progress of the development or construction and advance
payments are being applied proportionately to the milestone billings. When development or
construction and installation are completed and the property and equipment is ready for service,
the balance of the value of the related purchase orders is accrued.

*SGVFS010845*

- 82 -

The accrued project costs as of December 31, 2014 and 2013 included in the Accounts payable
and accrued expenses account in the consolidated statements of financial position amounted to
22,015.72 million and 16,557.49 million, respectively (see Note 12). As of December 31, 2014
and 2013, the consolidated expected future billings on the unaccrued portion of purchase orders
issued amounted to 36,381.74 million and 38,320.44 million, respectively. The settlement of
these liabilities is dependent on the payment terms and project milestones agreed with the
suppliers and contractors. As of December 31, 2014 and 2013, the unapplied advances made to
suppliers and contractors relating to purchase orders issued amounted to 5,731.12 million and
5,223.60 million, respectively (see Note 6).
25.4
Agreements with C2C/Pacnet
In 2001, Globe Telecom signed a cable equipment supply agreement with C2C as the supplier. In
March 2002, Globe Telecom as a lessor entered into an equipment lease agreement for the said
equipment with GB21 Hong Kong Limited (GB21).
Subsequently, GB21, in consideration of C2Cs agreement to assume all payment obligations
pursuant to the lease agreement, assigned all its rights, obligations and interest in the equipment
lease agreement to C2C. As a result of the said assignment of payables by GB21 to C2C, the
Globe Groups liability arising from the cable equipment supply agreement with C2C was
effectively converted into a noninterest bearing long-term obligation accounted for at net present
value under PAS 39 starting 2005.
In January 2003, the Globe Group received advance lease payments from C2C for its use of a
portion of the Globe Groups cable landing station facilities. Based on the amortization schedule,
the Globe Group recognized lease income amounting to 12.26 million for the years ended
December 31, 2014, 2013 and 2012.
On November 17, 2009, Globe Telecom and Pacnet Cable Ltd. (Pacnet), formerly C2C, signed a
memorandum of agreement (MOA) to terminate and unwind their Landing Party Agreement dated
August 15, 2000 (LPA). The MOA further requires Globe Telecom, being duly licensed and
authorized by the NTC to land the C2C Cable Network in the Philippines and operate the C2C
Cable Landing Station (CLS) in Nasugbu, Batangas, Philippines, to transfer to Pacnets designated
qualified partner, the license of the C2C CLS, the CLS, a portion of the property on which the
CLS is situated, certain equipment and associated facilities thereof.
In return, Pacnet will compensate Globe Telecom in cash and by way of C2C cable capacities
deliverable upon completion of certain closing conditions. The MOA also provided for novation
of abovementioned equipment supply and lease agreements and reciprocal options for Globe
Telecom to purchase future capacities from Pacnet and Pacnet to purchase backhaul and ducts
from Globe Telecom at agreed prices.
In the second quarter of 2010, the specific equipment, portion of the property and facilities, and
the liabilities associated with the transfer were identified, classified and shown separately in the
consolidated statement of financial position as Assets classified as held for sale and Liabilities
directly associated with the assets classified as held for sale.
In 2013, the Globe Group ceased to classify its non-current assets as held for sale due to
substantial delay in the completion of the transaction. Globe Group recognized a catch-up
depreciation amounting to 397.0 million for the year ended December 31, 2013.
25.5
Agreement with BHI
On August 11, 2009, Globe Telecom signed a credit facility agreement with BHI amounting to
750.00 million. As of December 31, 2014 and 2013, the total drawdown of BHI amounted to

*SGVFS010845*

- 83 295.00 million. The loan is payable in one full payment, five years from the date of initial
drawdown, with a prepayment option in whole or in part on an interest payment date. Interest is at
the rate of 8.275%, payable semi-annually in arrears and the loan is secured by a pledge and
chattel mortgage agreement. Interest income amounted to 11.30 million, 13.72 million and
24.82 million in 2014, 2013 and 2012, respectively (see Note 19). As of December 31, 2014 and
2013, the outstanding balance of loan receivable from BHI amounted to 158.62 million (see
Notes 6 and 11).
On August 13, 2014, the maturity of the outstanding balance of loan receivable from BHI
amounting to 158.62 million was extended to August 13, 2017 and the interest rate was reduced
to 5% per annum effective August 14, 2014.
As of December 31, 2014 and 2013, the outstanding balance of the loan receivable amounted to
158.62 million (see Notes 6 and 11).
25.6
Agreement with STI
In 2009, STI agreed to sell to Globe Telecom its own capacity in a certain cable system. In 2009
also, Globe Telecom agreed to sell to STI capacities that it owns in a certain cable system (see
Note 16.1). In March 2011, the final agreements were executed between Globe Telecom and STI
whereby the Globe Telecom conveyed and transferred ownership of certain IRU of certain
international cables systems in exchange for IRUs of certain cables systems of STI. The assets
received were booked at its fair value amounting to 120.19 million.
25.7
Construction Maintenance Agreement for South-East Asia Japan Cable System (SJC)
In April 2011, the global consortium of telecommunication companies formed to build and operate
the South-East Asia Japan Cable (SJC) system officially started the construction of the project that
will link Brunei, China Mainland, Hong Kong, Philippines, Japan, and Singapore with options to
extend to Thailand. The SJC consortium is composed of the Globe Group and nine other
international carriers. The Globe Telecoms investment for this project amounts to USD63.91
million and total expenditures incurred was at 100% and 95% as of December 31, 2014 and 2013,
respectively (see Note 7).
25.8
Agreement with BTI
On July 26, 2012, Globe Telecom and BTI executed an agreement to jointly use BTI frequencies
for their respective telecommunications services. Globe Telecom agreed to pay BTI a capacity
provision fee per annum and grant access to each others network, resources and facilities to
enable joint and efficient use of the frequency.
On October 1, 2012, the NTC provisionally approved the joint use by the Globe Group and BTI
the frequencies assigned to BTI. The joint use agreement will allow the Globe Group to address
the increasing demand for voice, SMS and mobile data services; and for BTI to be able to offer
mobile telecommunications services nationwide. The NTC imposed conditions to both parties,
which includes the continuous payment of annual spectrum usage fee (SUF) imposed by the NTC
to both parties, and where the Globe Telecom shall improve and maintain the required quality
service in order to continue the joint use of the assigned frequencies.
25.9
Network Sharing Arrangement with ABS-CBN Convergence Inc.
On May 27, 2013, Globe Telecom, Innove and ABS-CBN Convergence Inc. (ABS-C) entered into
a network sharing arrangement in order to provide capacity and coverage for new mobile
telephony, data and value-added services to be offered by ABS-C nationwide to its subscribers
using shared network and interconnect assets of the parties.

*SGVFS010845*

- 84 -

This arrangement will enable Globe Telecom, Innove and ABS-C to improve public service by
enhancing utility, capacity, inter-operability and quality of mobile and local exchange telephony
and data services to the public and allow ABS-C to modernize its existing service and expand to a
retail base on top of its existing subscriber base.
On May 31, 2013, NTC approved the network sharing agreement and co-use of the number blocks
assigned to Globe Telecom.
25.10 Shareholders and dealership agreement with Taodharma
In March 2013, Globe Telecom entered into a Shareholders Agreement among four other entities
to incorporate Taodharma.
Globe Telecom subscribed for the 25% preferred shares of Taodharma amounting to
P
=55.00 million which has been fully paid up as of August 2013 (see Note 11). Taodharma shall
carry on the business of establishing, operating and maintaining retail stores in strategic locations
within the Philippines that will sell telecommunications or internet-related services, and devices,
gadgets, accessories or embellishments in connection and in accordance with the terms and
conditions of the Dealer Agreement executed among all of the entities.
In March 2013, Globe Telecom also entered into an exclusive dealership arrangement with
Taodharma that included provisions to build and open retail outlet stores scattered across cities
and other major high-traffic locations nationwide.
As of December 31, 2014 and 2013, Globe Group has recognized P
=139.96 million and =
P67.55
million, respectively, representing share on costs classified under Intangible assets and goodwill net account in the consolidated statements of financial position (see Note 8).
25.11 Deed of Assignment of Certificate of Public Convenience and Necessity by Wordwide
Communication Inc. (WWCI)
On July 5, 2013, the NTC approved the Deed of Assignment (DoA) dated February 13, 2013
executed by WWCI in favor of Globe Telecom. Through the DoA, WWCI assigned and
transferred its entire interest including the operation of its Trunk Radio Network, the Certificate of
Public Convenience and Necessity granted by the NTC and the pertinent permits necessary to
operate the trunk radio to Globe Telecom. The total consideration under the said original DoA
was 30.00 million.
On April 1, 2014, Globe Telecom and WWCI signed the Supplemental Agreement to the DoA for
final consideration of 150.00 million to be paid in tranches upon fulfillment of stated conditions.
Conditions include reassignment and reallocation of Radio Station Licenses and issuance of
associated Frequency Assignment Sheets in the name of Globe Telecom. Pending compliance on
the conditions, payments will be recorded as advances classified under Prepayments and other
current assets in the consolidated statements of financial position.
On January 29, 2015, WWCI and Globe Telecom have agreed to wind down the transaction as the
conditions for closing can no longer be met. The advances made amounting to 45.00 million will
be due to Globe Telecom on or before July 31, 2015 (see Note 6).
25.12 Southeast Asia- United States (SEA - US) Project
Globe has joined a consortium of seven international telecommunication companies for the
construction of a new submarine cable system directly connecting Southeast Asia and the United

*SGVFS010845*

- 85 -

States. Other members of the consortium include PT Telekomunikasi Indonesia International

(Telin), Telkom USA, RAM Telecom International (RTI), Hawaiian Telcom, and Teleguam
Holdings (GTA). The 15,000-kilometer cable system would link Manado in Indonesia, Davao in
the Philippines, Piti in Guam, Oahu in Hawaii, and Los Angeles in California, providing superior
latency delivering additional 20 terabits per second (Tbps), utilizing 100 gigabits per second
(Gbps) transmission equipment. Globe and GTIC US is spending more than $80 million for the
SEA-US undersea cable system slated for completion in the last quarter of 2016.
25.13 Facilities-based Operations License granted to Globetel Singapore Pte. Ltd (GTSG)
On November 25, 2014, Globetel Singapore Pte. Ltd. has applied for a facilities-based operations
license (FBO License) with Infocomm Development Authority of Singapore (IDA) which was
subsequently granted on January 7, 2015. GTSG will provide IDA with performance bond for the
aggregate sum of USD75,400 to secure its obligation to fulfill the installation of equipment
required to support Southeast Asia Japan cable system and activation of its capacity between
Singapore, Philippines and Hongkong.

26. Contingencies
(a)

On October 10, 2011, the NTC issued Memorandum Circular No. 02-10-2011 titled
Interconnection Charge for Short Messaging Service requiring all public telecommunication
entities to reduce their interconnection charge to each other from P
=0.35 to =
P0.15 per text, which
Globe Telecom complied as early as November 2011. On December 11, 2011, the NTC One
Stop Public Assistance Center (OSPAC) filed a complaint against Globe, Smart and Digitel
alleging violation of the said MC No. 02-10-2011 and asking for the reduction of SMS off-net
retail price from =
P1.00 to =
P0.80 per text. Globe Telecom filed its answer maintaining the position
that the reduction of the SMS interconnection charges does not automatically translate to a
reduction in the SMS retail charge per text.
On November 20, 2012, the NTC rendered a decision directing Globe Telecom to:
1. Reduce its regular SMS retail rate from =
P1.00 to not more than P
=0.80;
2. Refund/reimburse its subscribers the excess charge of P
=0.20; and
3. Pay a fine of =
P200.00 per day from December 1, 2011 until date of compliance.
On May 7, 2014, NTC denied the Motion for Reconsideration (MR) filed by Globe Telecom last
December 5, 2012 in relation to the November 20, 2012 decision. Globe Telecoms assessment is
that Globe Telecom is in compliant with the NTC Memorandum Circular No. 02-10-2011. On
June 9, 2014, Globe filed petition for review of the NTC decision and resolution with the
Court of Appeals (CA).
The CA granted the petition in a resolution dated September 3, 2014 by issuing a 60-day
temporary restraining order against Memorandum Circular 02-10-2011 by the NTC. On
October 15, 2014, Globe posted a surety bond to compensate for possible damages as directed by
the CA.

(b) On 22 May 2006, Innove received a copy of the Complaint of Subic Telecom Company
(Subictel), Inc., a subsidiary of PLDT, seeking an injunction to stop the Subic Bay
Metropolitan Authority and Innove from taking any actions to implement the Certificate of
Public Convenience and Necessity granted by SBMA to Innove. Subictel claimed that the grant
of a CPCN allowing Innove to offer certain telecommunications services within the Subic Bay
Freeport Zone would violate the Joint Venture Agreement (JVA) between PLDT and SBMA.

*SGVFS010845*

- 86 -

(c) The Supreme Court ordered the reinstatement of the case and has forwarded it to the NTCOlongapo for trial. The case is now being tried before the Olongapo RTC.
(d) PLDT and its affiliate, Bonifacio Communications Corporation (BCC) and Innove and Globe
Telecom are in litigation over the right of Innove to render services and build
telecommunications infrastructure in the Bonifacio Global City. In the case filed by Innove
before the NTC against BCC, PLDT and the Fort Bonifacio Development Corporation
(FBDC), the NTC has issued a Cease and Desist Order 100 preventing BCC from performing
further acts to interfere with Innoves installations in the Bonifacio Global City.
In the case filed by PLDT against the NTC in Branch 96 of the Regional Trial Court (RTC) of
Quezon City, where PLDT sought to obtain an injunction to prevent the NTC from hearing the
case filed by Innove, the RTC denied the prayer for a preliminary injunction and the case has
been set for further hearings. PLDT has filed a Motion for Reconsideration and Globe has
intervened in this case. In a resolution dated October 28, 2008, the RTC QC denied BCCs
motion for the issuance of a temporary restraining order (TRO). The case is still pending with
the QC RTC.
In the case filed by BCC against FBDC, Globe Telecom and Innove, Bonifacio
Communications Corp. before the Regional Trial Court of Pasig, which case sought to enjoin
Innove from making any further installations in the BGC and claimed damages from all the
parties for the breach of the exclusivity of BCC in the area, the court did not issue a Temporary
Restraining Order and has instead scheduled several hearings on the case. The defendants filed
their respective motions to dismiss the complaint on the grounds of forum shopping and lack of
jurisdiction, among others. On 30 March 2012, the RTC of Pasig, as prayed for, dismissed the
complaint on the aforesaid grounds. Dissatisfied with the decision of the RTC, BCC and PLDT
elevated the case to the Court of Appeals. On 18 May 2012, The Court of Appeals dismissed
the case. On July 6, 2012, BCC and PLDT filed a petition for review on certiorari with the
Supreme Court on July 6, 2012. Innove filed its Comment thereon on 6 December 2012. The
case is still pending resolution with the Supreme Court.
On 11 November 2008, Bonifacio Communications Corp. (BCC) filed a criminal complaint
against the officers of Innove Communications Inc., the Fort Bonifacio Development
Corporation (FBDC) and Innove contractor Avecs Corporation for malicious mischief and theft
arising out of Innoves disconnection of BCCs duct at the Net Square buildings. The accused
officers filed their counter affidavits and are currently pending before the Prosecutors Office
of Pasig. The case is still pending resolution with the Office of the City Prosecutor.
On 21 January 2011, BCC and PLDT filed with the Court of Appeals a Petition for Certiorari
and Prohibition against NTC, et al. seeking to annul the Orders of the NTC dated 28 October
2008 directing BCC, PLDT and FBDC to comply with the provisions of NTC MC 05-05-02
and the CEASE AND DESIST from performing further acts that will prevent Innove from
implementing and providing telecommunications services in the Fort Bonifacio Global City
pursuant to the authorization granted by the NTC. BCC and PLDT anchor their petition on the
grounds that: 1) the NTC has no jurisdiction over BCC it being a non telecommunications
entity; 2) the NTC violated BCC and PLDTs right to due process; and 3) there was no
urgency or emergency for the issuance of the cease and desist order. The case is pending with
the court of appeals.

*SGVFS010845*

- 87 -

On April 25, 2011, Innove Communications, filed its comment on the case filed by PLDT that
seeks to ban all Globe services from the Bonifacio Global City before the CAs Tenth
Division. In its comment, Globe argued that Innove is duly authorised to provide services in
the BGC, that BCC and PLDT have no right to maintain their monopolistic hold of the BGC
telecommunications market; and it is in the publics best interest that open access and free
competition among telecom operators be allowed at the Bonifacio Global City.
On August 16, 2011, the Ninth Division of the CA ruled that PLDTs case against Innove and
the National Telecommunications Commission (NTC) lacked merit, and thus denied the
petition and DISMISSED the case. PLDT and its co-petitioner, BCC file their motion for
reconsideration. The same is still pending resolution.
(e) On July 23, 2009, the NTC issued NTC Memorandum Circular (MC) No. 05-07-2009
(Guidelines on Unit of Billing of Mobile Voice Service). The MC provides that the maximum
unit of billing for the CMTS whether postpaid or prepaid shall be six (6) seconds per pulse.
The rate for the first two (2) pulses, or equivalent if lower period per pulse is used, may be
higher than the succeeding pulses to recover the cost of the call set-up. Subscribers may still
opt to be billed on a one (1) minute per pulse basis or to subscribe to unlimited service
offerings or any service offerings if they actively and knowingly enroll in the scheme.
On December 28, 2010, the Court of Appeals (CA) rendered its decision declaring null and
void and reversing the decisions of the NTC in the rates applications cases for having been
issued in violation of Globe Telecom and the other carriers constitutional and statutory right to
due process. However, while the decision is in Globes favor, there is a provision in the
decision that NTC did not violate the right of petitioners to due process when it declared via
circular that the per pulse billing scheme shall be the default.
Last January 21, 2011, Globe Telecom and two other telecom carriers, filed their respective
Motions for Partial Reconsideration (MR) on the pronouncement that the Per Pulse Billing
Scheme shall be the default. The MR is pending resolution as of February 4, 2015.
The Globe Group is contingently liable for various claims arising in the ordinary conduct of
business and certain tax assessments which are either pending decision by the courts or are being
contested, the outcome of which are not presently determinable. In the opinion of management and
legal counsel, the possibility of outflow of economic resources to settle the contingent liability is
remote.

27. Earnings Per Share

The Globe Groups earnings per share amounts were computed as follows:
2014

2013

2012

(In Thousand Pesos and Number of Shares,

Except Per Share Figures)

Net income attributable to common shareholders for

basic earnings per share
Add dividends on convertible preferred shares
Net income attributable to shareholders for diluted
earnings per share

13,089,894
26,457

4,936,407
23,838

6,812,109
33,145

13,376,381

4,960,245

6,845,254

(Forward)

*SGVFS010845*

- 88 -

2014

2013

2012

(In Thousand Pesos and Number of Shares,

Except Per Share Figures)

Weighted average number of common shares outstanding,

beginning
Add weighted average number of exercised stock options
Weighted average number of common shares for basic
earnings
pershares
share arising from:
Dilutive
Convertible preferred shares
Stock options
Adjusted weighted average number of common shares
for diluted earnings per share
Basic earnings per share
Diluted earnings per share

132,596
107

132,406
109

132,353
41

132,703

132,515

132,394

467
117

535
233

699
136

133,286
100.60
100.36

133,283
37.25
37.22

133,229
51.45
51.38

28. Capital and Risk Management and Financial Instruments

28.1
General
The Globe Group adopts an expanded corporate governance approach in managing its business
risks. An Enterprise Risk Management Policy was developed to systematically view the risks and
to provide a better understanding of the different risks that could threaten the achievement of the
Globe Groups mission, vision, strategies, and goals, and to provide emphasis on how
management and employees play a vital role in achieving the Globe Groups mission of
transforming and enriching lives through communications.
The policies are not intended to eliminate risk but to manage it in such a way that opportunities to
create value for the stakeholders are achieved. Globe Group risk management takes place in the
context of the normal business processes such as strategic planning, business planning, operational
and support processes.
The application of these policies is the responsibility of the BOD through the Chief Executive
Officer. The Chief Financial Officer and concurrent Chief Risk Officer champions and oversees
the entire risk management function. Risk owners have been identified for each risk and they are
responsible for coordinating and continuously improving risk strategies, processes and measures
on an enterprise-wide basis in accordance with established business objectives.
The risks are managed through the delegation of management and financial authority and
individual accountability as documented in employment contracts, consultancy contracts, letters of
authority, letters of appointment, performance planning and evaluation forms, key result areas,
terms of reference and other policies that provide guidelines for managing specific risks arising
from the Globe Groups business operations and environment.
The Globe Group continues to monitor and manage its financial risk exposures according to its
BOD approved policies.
The succeeding discussion focuses on Globe Groups capital and financial risk management.

*SGVFS010845*

- 89 -

28.2
Capital and Financial Risk Management Objectives and Policies
Capital represents equity attributable to equity holders of the parent.
The primary objective of the Globe Groups capital management is to ensure that it maintains a
strong credit rating and healthy capital ratios in order to support its business and maximize
shareholder value.
The Globe Group monitors its use of capital using leverage ratios, such as debt to total
capitalization and makes adjustments to it in light of changes in economic conditions and its
financial position.
The Globe Group is not subject to regulatory imposed capital requirements. The ratio of debt to
total capitalization for the years ended December 31, 2014 and 2013 was at 54% and 62%,
respectively.
The main purpose of the Globe Groups financial risk management is to fund its operations and
capital expenditures. The main risks arising from the use of financial instruments are market risk,
credit risk and liquidity risk. The Globe Group also enters into derivative transactions, the
purpose of which is to manage the currency and interest rate risk arising from its financial
instruments.
Globe Telecoms BOD reviews and approves the policies for managing each of these risks. The
Globe Group monitors market price risk arising from all financial instruments and regularly
reports financial management activities and the results of these activities to the BOD.
The Globe Groups risk management policies are summarized below:
28.2.1 Market Risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will
fluctuate because of changes in market prices. Globe Group is mainly exposed to two types of
market risk: interest rate risk and currency risk.
Financial instruments affected by market risk include loans and borrowings, AFS investments,
and derivative financial instruments.
The sensitivity analyses in the following sections relate to the position as at December 31,
2014 and 2013. The analyses exclude the impact of movements in market variables on the
carrying value of pension, provisions and on the non-financial assets and liabilities of foreign
operations.
The following assumptions have been made in calculating the sensitivity analyses:

The statement of financial position sensitivity relates to derivatives.

The sensitivity of the relevant income statement item is the effect of the assumed changes
in respective market risks. This is based on the financial assets and financial liabilities
held as at December 31, 2014 and 2013 including the effect of hedge accounting.

The sensitivity of equity is calculated by considering the effect of any associated cash
flow hedges for the effects of the assumed changes in the underlying.

*SGVFS010845*

- 90 -

28.2.1.1Interest Rate Risk

The Globe Groups exposure to market risk from changes in interest rates relates primarily
to the Globe Groups long-term debt obligations. Please refer to table presented under
28.2.3 Liquidity Risk.
Globe Groups policy is to manage its interest cost using a mix of fixed and variable rate
debt, targeting a ratio of between 31%-62% fixed rate USD debt to total USD debt, and
between 44%-88% fixed rate PHP debt to total PHP debt. To manage this mix in a costefficient manner, Globe Group enters into interest rate swaps, in which Globe Group
agrees to exchange, at specified intervals, the difference between fixed and variable
interest amounts calculated by reference to an agreed-upon notional principal amount.
After taking into account the effect of currency and interest rate swaps, 51% and 69% and
46% and 63% of the Globe Groups USD and PHP borrowings as of December 31, 2014
and 2013, respectively, are at a fixed rate of interest.
The following tables demonstrate the sensitivity of income before tax to a reasonably
possible change in interest rates after the impact of hedge accounting, with all other
variables held constant.
2014

Increase/ decrease
in basis Points
USD
PHP

+20bps
-20bps
+150bps
-150bps

Effect on income
before income tax
Increase (decrease)
(In Thousand Pesos)
(12,896)
12,896
(203,468)
203,435

Effect on equity
Increase (decrease)
(40)
40
2,367
(2,635)

2013
Increase/ decrease
in basis Points
USD
PHP

+35bps
-35bps
+100bps
-100bps

Effect on income
before income tax
Increase (decrease)
(In Thousand Pesos)
(22,496)
22,496
(209,419)
209,032

Effect on equity
Increase (decrease)
(58)
58
1,648
(2,100)

28.2.1.2Foreign Exchange Risk

The Globe Groups foreign exchange risk results primarily from movements of the PHP
against the USD with respect to USD-denominated financial assets, USD-denominated
financial liabilities and certain USD-denominated revenues. Majority of revenues are
generated in PHP, while substantially all of capital expenditures are in USD. In addition,
22% and 24% of debt as of December 31, 2014 and 2013, respectively, are denominated
in USD before taking into account any swap and hedges.

*SGVFS010845*

- 91 -

Information on the Globe Groups foreign currency-denominated monetary assets and

liabilities and their PHP equivalents are as follows:
2013

2014
US
Dollar

Peso
Equivalent

US
Dollar

Peso
Equivalent

(In Thousand Pesos)

Assets
Cash and cash equivalents
Receivables
Long-term notes receivable
Liabilities
Accounts payable and accrued
expenses
Short-term notes payable
Long-term debt
Net foreign currency denominated liabilities

$70,244
75,276
85,561
$231,081

3,142,696
3,367,838
3,828,015
10,338,549

$25,572
68,178
97,578
$191,328

1,135,339
3,026,975
4,332,248
8,494,562

218,507

325,000
543,507

9,776,020

14,540,500
24,316,520

174,181
50,000
325,000
549,181

7,733,269
2,219,900
14,429,350
24,382,519

$312,426

13,977,971

$357

15,887,957

The following tables demonstrate the sensitivity to a reasonably possible change in the
PHP to USD exchange rate, with all other variables held constant, of the Globe Groups
income before tax (due to changes in the fair value of foreign currency-denominated
assets and liabilities).
2014
Increase/decrease
Effect on income before
income tax
in Peso to
Increase (decrease)
US Dollar exchange rate
(In Thousand Pesos)
+0.60
(187,456)
-0.60
187,456

Effect on equity
Increase (decrease)
101,520
(101,520)

2013
Increase/decrease
in Peso to
US Dollar exchange rate

Effect on income before

income tax
Effect on equity Increase
Increase (decrease)
(decrease)
(In Thousand Pesos)
+0.40
(145,199)
51,882
-0.40
145,199
(51,882)

*SGVFS010845*

- 92 -

The movement on the effect on income before income tax is a result of a change in the fair
value of derivative financial instruments not designated in a hedging relationship and
monetary assets and liabilities denominated in US dollars, where the functional currency
of the Group is Philippine Peso. Although the derivatives have not been designated in a
hedge relationship, they act as a commercial hedge and will offset the underlying
transactions when they occur.
The movement in equity arises from changes in the fair values of derivative financial
instruments designated as cash flow hedges.
In addition, the consolidated expected future payments on foreign currency-denominated
purchase orders related to capital projects amounted to USD685.20 million and
USD666.22 million as of December 31, 2014 and 2013, respectively (see Note 25.3).
The settlement of these liabilities is dependent on the achievement of project milestones
and payment terms agreed with the suppliers and contractors. Foreign exchange exposure
assuming a +/-60 centavos in 2014 and +/- 40 centavos in 2013 movement in PHP to USD
rate on commitments amounted to 411.12 million and 266.49 million gain or loss,
respectively.
The Globe Groups foreign exchange risk management policy is to maintain a hedged
financial position, after taking into account expected USD flows from operations and
financing transactions. Globe Telecom enters into short-term foreign currency forwards
and long-term foreign currency swap contracts in order to achieve this target.
28.2.2 Credit Risk
Applications for postpaid service are subjected to standard credit evaluation and verification
procedures. The Credit and Billing Management of the Globe Group continuously reviews
credit policies and processes and implements various credit actions, depending on assessed
risks, to minimize credit exposure. Receivable balances of postpaid subscribers are being
monitored on a regular basis and appropriate credit treatments are applied at various stages of
delinquency. Likewise, net receivable balances from carriers of traffic are also being
monitored and subjected to appropriate actions to manage credit risk. The maximum credit
exposure relates to receivables net of any allowances provided.
With respect to credit risk arising from other financial assets of the Globe Group, which
comprise cash and cash equivalents, AFS financial investments and certain derivative
instruments, the Globe Groups exposure to credit risk arises from the default of the
counterparty, with a maximum exposure equal to the carrying amount of these instruments.
The Globe Groups investments comprise short-term bank deposits. Credit risk from these
investments is managed on a Globe Group basis. For its investments with banks, the Globe
Group has a counterparty risk management policy which allocates investment limits based on
counterparty credit rating and credit risk profile.
The Globe Group makes a quarterly assessment of the credit standing of its investment
counterparties, and allocates investment limits based on size, liquidity, profitability, and asset
quality. The usage of limits is regularly monitored. For its derivative counterparties, the
Globe Group deals only with counterparty banks with investment grade ratings and large local
banks. Credit ratings of derivative counterparties are reviewed quarterly.

*SGVFS010845*

- 93 -

Following are the Globe Group exposures with its investment counterparties for cash and cash
equivalents as of December 31:
2013
30%
70%

2014
60%
36%

4%

Local bank deposits

Onshore foreign bank
Special deposit account
Offshore bank deposit

2012
36%
36%
20%
8%

The Globe Group has not executed any credit guarantees in favor of other parties. There is
also minimal concentration of credit risk within the Globe Group. Credit exposures from
subscribers and carrier partners continue to be managed closely for possible deterioration.
When necessary, credit management measures are proactively implemented and identified
collection risks are being provided for accordingly. Outstanding credit exposures from
financial instruments are monitored daily and allowable exposures are reviewed quarterly.
The tables below show the aging analysis of the Globe Groups receivables as of
December 31.
2014
Neither Past
Due Nor
Impaired

Past Due But Not Impaired

Less than 30
days

31 to 60 days

61 to 90 days

More than 90
days

Impaired
Financial
Assets

Total

(In Thousand Pesos)

16,743,176

16,743,176

507,838
4,192

1,079,923
50,451

665,874
111,579

397,132
140,953

4,254,175
1,927,838

2,591,260
216,371

9,496,202
2,451,384

54,832
566,862

124,263
1,254,637

109,210
886,663

82,004
620,089

923,175
7,105,188

249,927
3,057,558

1,543,412
13,490,997

267,675
67,272

409,490
315,865

127,917
299,526

90,188
367,002

89,515
1,514,434

1,553,436
352,081

2,538,221
2,916,180

31,745
366,692
574

62,577
787,932
115,560

30,167
457,610

16,719
473,909
535

37,518
1,641,467
293

118,679
2,024,196
1,619

297,405
5,751,806
118,581

20,435
1,725,381
1,745,816
2,119,971

2,796
2,796

2,828
2,828

2,386
2,386

154,231
137,861
292,092
15,358

174,666
1,871,252
2,045,918
2,135,329

Receivables

4,799,914

2,160,925

1,347,101

1,096,919

8,746,948

5,393,320

23,542,632

Loans receivables

5,570,576

5,570,576

27,113,667

2,160,925

1,347,101

1,096,918

8,746,948

5,390,823

45,856,384

Cash and cash equivalents

Receivables
Wireless receivables:
Consumer
Key corporate accounts
Other corporations and
Small and Medium
Enterprises (SME)
Wireline receivables
Consumer
Key corporate accounts
Other corporations and
SME
Other trade receivables
Traffic receivables:
Foreign
Local
Other receivables

Total

*SGVFS010845*

- 94 -

2013
Neither Past
Due Nor
Impaired

Past Due But Not Impaired

Less than 30
days

31 to 60 days

61 to 90 days

More than 90
days

Impaired
Financial
Assets

Total

(In Thousand Pesos)

7,405,677

7,405,677

421,441
5,865

830,032
54,851

540,192
121,562

297,678
133,771

3,313,742
1,790,681

1,501,094
170,412

6,904,179
2,277,142

8,276
435,582

139,846
1,024,729

139,840
801,594

89,979
521,428

685,456
5,789,879

344,817
2,016,323

1,408,214
10,589,535

269,178
131,074

239,189
179,856

155,270
432,353

65,571
230,771

81,820
1,083,291

1,459,396
314,513

2,270,424
2,371,858

48,501
448,753
22

51,385
470,430
40,156

47,539
635,162

19,076
315,418

34,055
1,199,166

143,508
1,917,417

344,064
4,986,346
40,178

1,189,372
122,033

161,362
31,074

1,350,734
153,107

1,311,405
2,256,332
4,452,094
6,164,273
18,022,044

1,535,315

1,535,315

1,436,756

1,436,756

836,846

836,846

6,989,045
6,989,045

192,436
14,736
4,140,912

4,140,912

1,503,841
2,271,068
19,390,968
6,164,273
32,960,918

Cash and cash equivalents

Receivables:
Wireless receivables:
Consumer
Key corporate accounts
Other corporations and
Small and Medium
Enterprises (SME)
Wireline receivables:
Consumer
Key corporate accounts
Other corporations and
SME
Other trade receivables
Traffic receivables:
Foreign
Local
Other receivables
Receivables
Loans receivables
Total

Total allowance for impairment losses of 5,681.88 million and 4,190.05 million includes
allowance for impairment losses arising from specific and collective assessment which
amounted to 966.60 million and 341.73 million as of December 31, 2014 and 2013,
respectively (see Note 4).
The table below provides information regarding the credit risk exposure of the Globe Group
by classifying assets according to the Globe Groups credit ratings of receivables as of
December 31. The Globe Groups credit rating is based on individual borrower characteristics
and their relationship to credit event experiences.
2014

Cash and cash equivalents

Wireless receivables:
Consumer
Key corporate accounts
Other corporations and SME
Wireline receivables:
Consumer
Key corporate accounts
Other corporations and SME
Other trade receivables
Loans receivables
Total

Neither Past Due Nor Impaired

High Quality Medium Quality Low Quality
(In Thousand Pesos)
P
=16,743,176
P
=
P
=

Total
P
=16,743,176

229,210
1,695
25,524
256,429

263,607
2,440
12,427
278,474

15,021
57
16,881
31,959

507,838
4,192
54,832
566,862

232,864
61,286
28,308
322,458
574

34,773
5,965
3,284
44,022

38
21
153
212

5,570,576
P
=5,893,072

267,675
67,272
31,745
366,692
574
5,570,576
P
=23,247.880

P
=17,322,637

P
=32,171

*SGVFS010845*

- 95 -

2013

Cash and cash equivalents

Wireless receivables:
Consumer
Key corporate accounts
Other corporations and SME

Neither Past Due Nor Impaired

High Quality
Medium Quality
Low Quality
(In Thousand Pesos)
=7,405,677
P
P
=
P
=

Wireline receivables:
Consumer
Key corporate accounts
Other corporations and SME
Other trade receivables
Loans receivables
Total

Total
7,405,677

169,064
2,976
5,617
177,657

234,119
2,804
698
237,621

18,258
85
1,961
20,304

421,441
5,865
8,276
435,582

228,761
124,166
44,126
397,053
22

40,413
6,331
4,179
50,923

4
577
196
777

6,164,273
=6,452,817
P

269,178
131,074
48,501
448,753
22
6,164,273
=14,454,070
P

=7,980,409
P

=21,081
P

High quality accounts are accounts considered to be high value and have consistently
exhibited good paying habits. Medium quality accounts are active accounts with propensity of
deteriorating to mid-range age buckets. These accounts do not flow through to permanent
disconnection status as they generally respond to credit actions and update their payments
accordingly. Low quality accounts are accounts which have probability of impairment based
on historical trend. These accounts show propensity to default in payment despite regular
follow-up actions and extended payment terms. Impairment losses are also provided for these
accounts based on net flow rate.
Traffic receivables that are neither past due nor impaired are considered to be high quality
given the reciprocal nature of the Globe Groups interconnect and roaming partner agreements
with the carriers and the Globe Groups historical collection experience.
Other receivables are considered high quality accounts as these are substantially from credit
card companies and Globe dealers.
The following is a reconciliation of the changes in the allowance for impairment losses for
receivables as of December 31 (in thousand pesos) (see Notes 4 and 23):
2014

Consumer
At beginning of the year
Charges for the period
Reversals/write
offs/adjustments
At end of year

Subscribers
Key
Other
Traffic
corporate Corporations Settlements
accounts
and SME and Others
(In Thousand Pesos)

Non-trade

Total

2,742,022
2,623,783

540,525
117,676

687,874
162,176

219,624
97,288

58,414 4,248,459
34,312
3,035,235

(1,085,263)
4,280,542

57,017
715,218

(473,275)
376,775

(7,565)
309,347

(2,920) (1,512,006)
89,806 5,771,688

*SGVFS010845*

- 96 -

2013

Consumer
At beginning of the year
Charges for the period
Reversals/write
offs/adjustments
At end of year

Subscribers
Key
Other
Traffic
corporate Corporations Settlements
accounts
and SME and Others
(In Thousand Pesos)

P2,453,266
=
1,665,993

P320,404
=
225,907

P543,344
=
203,343

=221,058
P
14,254

(1,377,237)
=2,742,022
P

(5,786)
=540,525
P

(58,813)
P687,874
=

(15,688)
P219,624
=

Non-trade

Total

P124,082
=
(62,974)

P3,662,154
=
2,046,523

(2,694) (1,460,218)
P58,414 P
=
=4,248,459

28.2.3 Liquidity Risk

The Globe Group seeks to manage its liquidity profile to be able to finance capital
expenditures and service maturing debts. To cover its financing requirements, the Globe
Group intends to use internally generated funds and available long-term and short-term credit
facilities. As of December 31, 2014 and 2013, the Globe Group has available uncommitted
short-term credit facilities of USD79.40 million and 12,945.00 million, USD6.90 million and
7,920.00 million, respectively.
As of December 31, 2014 and 2013, the Globe Group has nil and 7,000.00 million,
respectively, in committed long-term facilities.
As part of its liquidity risk management, the Globe Group regularly evaluates its projected and
actual cash flows. It also continuously assesses conditions in the financial markets for
opportunities to pursue fund raising activities, in case any requirements arise. Fund raising
activities may include bank loans, export credit agency facilities and capital market issues.
The following tables show comparative information about the Globe Groups financial
instruments as of December 31 that are exposed to liquidity risk and interest rate risk and
presented by maturity profile including forecasted interest payments for the next five years
from December 31 figures (in thousands).

*SGVFS010845*

- 97 -

Long-term Liabilities
2014

Liabilities:
Long-term debt
Fixed Rate
Philippine peso
Interest rate

Floating rate
USD notes
Interest rate

Philippine peso
Interest rate

Interest payable*
PHP debt

2019 and
thereafter

Total
(in USD)

Total
(in PHP)

Debt
Issuance
Costs

Carrying
Value
(in PHP)

Fair Value
(in PHP)

2015

2016

2017

2018

71,100
4.85%;8.36%

2,327,800
5.24%;4.93%;
4.85%;8.36%;4.91%

4,830,000
5.24%;4.93%;
5.75%;4.85%;4.9
1%

330,000
5.24%;4.93%;
4.85%;4.91%

25,480,000
5.24%;4.93%;
4.89%;6.00%;
4.85%;4.91%;
5.28%;6.00%

33,038,900

206,045

32,832,855

36,813,735

$2,100
Libor 6-mo. +
1.00% margin;
Libor 3mo. +
1.50% margin

$2,100
Libor 6-mo. +
1.00% margin;
Libor 3mo. +
1.50% margin

$202,800
Libor 6-mo. +
1.00% margin;
Libor 3mo. +
1.50% margin

$325,000

76,354

14,464,146

14,762,429

5,070,000
PDSTF 3mo. +
.50% margin;
PDSTF 3mo. +
.60% margin

6,860,000
PDSTF 3mo. +
.60% margin

18,025,000

46,198

17,978,802

18,653,802

$325,000

51,063,900

328,597

65,275,803

70,229,966

$900
Libor 3mo. +
1.50% margin

6,025,000
PDSTF 3mo. +
0.75% margin;
PDSTF 3mo. +
0.65% margin

2,439,494

$117,100
Libor 6-mo. +
1.00% margin;
Libor 3mo. + .90%
margin; Libor 3mo.
+ 1.00% margin;
Libor 3mo. +
1.50% margin
70,000
PDSTF 3mo. + .60%
margin

1,880,879

1,448,319

2,553,672

10,523,643

USD debt
$4,785
$3,826
$3,168
*Used month-end USD LIBOR and Philippine Dealing and Exchange Corporation (PDEX) rates.
* Using 44.740 - USD exchange rate as of December 31, 2014.

$3,136

$7,662

$22,578

2,201,279

*SGVFS010845*

- 98 -

2013

Liabilities:
Long-term debt
Fixed Rate
Philippine peso
Interest rate
Floating rate
USD notes
Interest rate

Philippine peso
Interest rate

Interest payable*
PHP debt

2014

2015

1,386,300
4.85%;7.40%;
8.36%

71,100
4.85%;8.36%

2,117,800
4.85%;8.36%

4,550,000
5.75%;4.85%

19,300,000
4.89%;5.28%;
6.00%;
4.85%

$900
Libor 3mo. + 1.50%
margin

$2,100
Libor 6-mo. +
1.00% margin;
Libor 3mo. +
1.50% margin

4,603,843
PDSTF 6mo. +
1.25% margin;
PDSTF 3mo. +
0.75% margin;
PDSTF 3mo. +
1.25% margin;
PDSTF 3mo. + 1%
margin

6,025,000
PDSTF 3mo. +
0.75% margin;
PDSTF 3mo. +
0.65% margin

$117,100
Libor 6-mo. +
1.00% margin;
Libor 3mo. + .90%
margin; Libor 3mo.
+ 1.00% margin;
Libor 3mo. +
1.50% margin
70,000
PDSTF 3mo. +
.60% margin

120,000
PDSTF 3mo. +
.50% margin;
PDSTF 3mo. +
.60% margin

1,996,351

2016

2017

2018 and
thereafter

Total
(in USD)

Total
(in PHP)

Debt
Issuance
Costs

Carrying
Value
(in PHP)

Fair Value
(in PHP)

27,425,200

221,887

27,203,313

30,731,664

$204,900
Libor 6-mo. +
1.00% margin;
Libor 3mo. +
1.50% margin

325,000

108,192

14,321,158

14,747,965

11,810,000
PDSTF 3mo. +
.50% margin;
PDSTF 3mo. +
.60% margin

22,628,843

72,265

22,556,578

22,566,560

$325,000

50,054,043

402,344

64,081,049

68,046,189

1,656,312

1,492,003

3,113,584

10,092,511

USD debt
$4,799
$4,776
$3,799
*Used month-end LIBOR and Philippine Dealing and Exchange Corporation (PDEX) rates.
*Using 44.398 USD exchange rate as of December 31, 2013.

$3,146

$10,733

$27,252

1,834,261

*SGVFS010845*

- 99 -

The following tables present the maturity profile of the Globe Groups other liabilities and derivative instruments (undiscounted cash flows including swap
costs payments/receipts except for other long-term liabilities) as of December 31, 2014 and 2013 (in thousands):
2014
Other Financial Liabilities

Accounts payable and accrued expenses*

Other long-term liabilities

On Demand

Less than
1 year

1 to 2 years

5,544,310
1,283,832
5,544,310

38,347,933

38,347,933

2 to 3 years
3 to 4 years
(In Thousand Pesos)

4 to 5 years

Over 5 years

Total

1,283,832

43,892,243
1,283,832
45,176,075

*Excludes taxes payable which is not a financial instrument.

Derivative Instruments
2015
Receive
Projected Swap Coupons*:
Interest Rate Swaps PHP
Interest Rate Swaps USD
Cross Currency Swaps USD

2016
Pay

Receive

2017
Pay

Receive

2018
Pay

Receive

2019 and beyond

Receive
Pay

Pay

23,083
$

50,428
$

23,083
$

$112,377

$213,125

$86,412

$139,097

$63,106

$84,794

$74,619

$84,794

$118,963

$127,656

*Projected USD swap coupons were converted to PHP at the balance sheet date
2015
Receive
Projected Principal Exchanges*:
Cross Currency Swaps- PHP
Cross Currency Swaps- USD

2016
Pay

Receive

$115,000

2017
Pay
4,847,850
$

Receive

2018
Pay

Receive

2019 and beyond

Receive
Pay

Pay

$50,000

2,063,750
$

*SGVFS010845*

- 100 -

2013
Other Financial Liabilities
Less than
1 year

On Demand
Accounts payable and accrued expenses*
Notes payable
Other long-term liabilities

2,737,211

1,017,680
2,737,211

1 to 2 years

33,971,965
5,219,900

39,191,865

2 to 3 years
3 to 4 years
(In Thousand Pesos)

4 to 5 years

Total

Over 5 years

1,017,680

36,709,176
5,219,900
1,017,680
42,946,756

*Excludes taxes payable which is not a financial instrument.

Derivative Instruments
2014
Receive
Projected Swap Coupons*:
Interest Rate Swaps - PHP
Interest Rate Swaps - USD
Cross Currency Swaps - USD
Projected Principal Exchanges*:
Cross Currency Swaps- PHP
Cross Currency Swaps- USD

2015
Pay

Receive

2016
Pay

Receive

2017
Pay

Receive

2018 and beyond

Receive
Pay

Pay

28,606
$1,554
84,749

173,464
$3,904
162,025

32,285
$
81,963

50,461
$
162,025

$
65,966

$
102,602

$
76,720

$
84,794

$
264,525

$
212,450

$75,000

3,062,250
$

$50,000

2,063,750
$

*Projected USD swap coupons were converted to PHP at the balance sheet date.

*SGVFS010845*

- 101 -

28.2.4 Hedging Objectives and Policies

The Globe Group uses a combination of natural hedges and derivative hedging to manage its
foreign exchange exposure. It uses interest rate derivatives to reduce earnings volatility related to
interest rate movements.
It is the Globe Groups policy to ensure that capabilities exist for active but conservative
management of its foreign exchange and interest rate risks. The Globe Group does not engage
in any speculative derivative transactions. Authorized derivative instruments include currency
forward contracts (embedded), currency swap contracts, interest rate swap contracts and
currency option contracts (embedded). Certain swaps are entered with option combination or
structured provisions.
28.3
Derivative Financial Instruments
The Globe Groups freestanding and embedded derivative financial instruments are accounted for
as hedges or transactions not designated as hedges. The table below sets out information about the
Globe Groups derivative financial instruments and the related fair values as of December 31:
2014
USD
Notional
Amount
Derivative instruments designated as hedges
Cash flow hedges
Cross currency swaps
Derivative instruments not designated
as hedges
Freestanding
Interest rate swaps
Embedded
Currency forwards*
Net

PHP
Notional
Derivative
Amount
Asset
(In Thousands)

Derivative
Liability

$165,000

580,224

65,666

2,025,000

23,176

18,080

8,319
588,543

5,967
94,809

PHP
Notional
Derivative
Amount
Asset
(In Thousands)

Derivative
Liability

*The embedded currency forwards are at a net sell position.

2013
USD
Notional
Amount
Derivative instruments designated as hedges
Cash flow hedges
Cross currency swaps
Interest rate swaps
Derivative instruments not designated
as hedges
Freestanding
Interest rate swaps
Embedded
Currency forwards*
Net

$125,000
26,000

187,500

553,562

62,174
3,484

4,125,000

148,009

6,849

1,834
555,396

6,027
219,694

*The embedded currency forwards are at a net sell position.

*SGVFS010845*

- 102 -

The table below also sets out information about the maturities of Globe Groups derivative
instruments as of December 31 that were entered into to manage interest and foreign exchange
risks related to the long-term debt and US dollar-based revenues (in thousands).
2014

Derivatives
Interest Rate Swaps
Floating-Fixed
Notional PHP
Notional USD
Pay-fixed rate
Receive-floating
rate
Cross Currency Swaps
Floating-Fixed
Notional USD
Pay-fixed rate
Receive-floating
rate

<1 Year

>1-<2
Years

>2-<3
Years

>3-<4
Years

>4-<5
Years

2,025,000
$

$-

2,025,000
$
4.92% for PHP
3mo PDSTF

$115,000

$50,000

$165,000
2.48% - 4.12% for PHP;
USD LIBOR +0.9%1.0%

>2-<3
Years

>3-<4
Years

>4-<5
Years

4,312,500
$26,000
3.9%-4.92% for PHP;
0.67% for USD
USD LIBOR 3mo. ,
PDSTF 3mo.

$75,000

$50,000

$125,000
2.48% - 4.12% for PHP
USD LIBOR + 1.0%

Total

2013
<1 Year
Derivatives
Interest Rate Swaps:
Floating-Fixed:
Notional PHP
Notional USD
Pay-fixed rate
Receive-floating
rate
Cross Currency Swaps:
Fixed-Floating :
Notional USD
Pay-fixed rate
Receive-floating
rate

>1-<2
Years

2,287,500 2,025,000
$26,000
$

Total

The Globe Groups other financial instruments that are exposed to interest rate risk are cash and
cash equivalents. These mature in less than a year and are subject to market interest rate
fluctuations.
The Globe Groups other financial instruments which are non-interest bearing and therefore not
subject to interest rate risk are trade and other receivables, accounts payable and accrued expenses
and long-term liabilities. Loans receivable are also not subject to interest rate risk due to fixed
interest rates.
The subsequent sections will discuss the Globe Groups derivative financial instruments according
to the type of financial risk being managed and the details of derivative financial instruments that
are categorized into those accounted for as hedges and those that are not designated as hedges.

*SGVFS010845*

- 103 -

28.4
Derivative Instruments Accounted for as Hedges
The following sections discuss in detail the derivative instruments accounted for as cash flow
hedges.

Cross Currency Swaps

The Globe Group entered into cross currency swap contracts to hedge the foreign exchange
and interest rate risk on dollar loans with maturities until April 2020. These cross currency
swaps have a notional amount of USD165.00 million and USD125.00 million as of
December 31, 2014 and 2013, respectively. The fair values on the cross currency swaps as of
December 31, 2014 and 2013 amounted to net gain of 514.55 million and 491.39 million,
of which 30.84 million and 47.35 million (net of tax) is reported in the equity section of the
consolidated statemens of financial position (see Note 17.6).

Interest Rate Swaps

As of December 31, 2014 and 2013, the Globe Group has nil and USD26.00 million,
respectively, in notional amount of USD interest rate swap that have been designated as cash
flow hedge of interest rate risk from USD loans. The interest rate swap effectively fixed the
benchmark rate of the hedged USD loan at 0.67% over the duration of the agreement, which
involves quarterly payment intervals up to April 2014.
The Globe Group also has PHP interest rate swap contracts with a total notional amount of
187.50 million as of December 31, 2013 which have been designated as cash flow hedges of
interest rate risk from PHP loans. These interest rate swaps effectively fixed the benchmark
rate of the hedged PHP loans at 3.90% over the duration of the swaps, with quarterly payment
intervals up to July 2014.
As of December 31, 2014 and 2013, the fair value of the outstanding swap amounted to nil and
3.48 million losses, respectively, of which 12.32 million (net of tax), is reported as Other
reserves in the equity section of the consolidated statements of financial position (see Note
17.5).
Accumulated swap cost for the years ended December 31, 2014, 2013 and 2012 amounted to
43.64 million, 67.80 million and 35.46, respectively (see Note 22).

Deliverable and Nondeliverable Forwards

The Globe Group has no outstanding deliverable and nondeliverable forwards as of
December 31, 2014 and December 31, 2013.
Hedging gains/losses on derivatives intended to manage foreign currency fluctuations on
dollar based revenues for the years ended December 31, 2014, 2013 and 2012 amounted to
4.74 million gain, 144.70 million loss and 21.29 million gain, respectively. These hedging
gains/losses are reflected under Service revenues in the consolidated statements of
comprehensive income.

28.5
Other Derivative Instruments Not Designated as Hedges
The Globe Group enters into certain derivatives as economic hedges of certain underlying
exposures. Such derivatives, which include embedded and freestanding currency forwards,
embedded call options, and certain currency and interest rate swaps with option combination or
structured provisions, are not designated as accounting hedges. The gains or losses on these
instruments are accounted for directly in profit or loss in the consolidated statements of
comprehensive income. This section consists of freestanding derivatives and embedded
derivatives found in both financial and nonfinancial contracts.

*SGVFS010845*

- 104 -

28.6
Freestanding Derivatives
Freestanding derivatives that are not designated as hedges consist of currency forwards and
interest rate swaps entered into by the Globe Group. Fair value changes on these instruments are
accounted for directly in profit or loss in the consolidated statements of comprehensive income.

Interest Rate Swaps

The Globe Group also has an outstanding PHP interest rate swap contract which swaps a
floating PHP loan into fixed rate of 4.92% and involves quarterly payment intervals up to
September 2015. Outstanding notional as of December 31, 2014 and 2013 amounts to
2,025.00 million and 4,125.00 million, respectively.
The fair values on the interest rate swaps as of December 31, 2014 and 2013, amounted
to net loss of 23.18 million and 148.01 million, respectively.

Deliverable and Nondeliverable Forwards

As of December 31, 2014 and 2013, the Globe Group has no outstanding deliverable and
nondeliverable currency forward contracts not designated as hedges.

28.7
Embedded Derivatives and Other Financial Instruments
The Globe Group has instituted a process to identify any derivatives embedded in its financial
or nonfinancial contracts. Based on PAS 39, the Globe Group assesses whether these
derivatives are required to be bifurcated or are exempted based on the qualifications provided
by the said standard. The Globe Groups embedded derivatives include embedded currency
derivatives noted in non-financial contracts.

Embedded Currency Forwards

As of December 31, 2014 and 2013, the total outstanding notional amount of currency
forwards embedded in nonfinancial contracts amounted to USD18.08 million and USD6.85
million, respectively. The nonfinancial contracts consist mainly of foreign currencydenominated purchase orders with various expected delivery dates and unbilled leaselines
receivables and payables denominated in foreign currency with domestic counterparties. The
net fair value gains of the embedded currency forwards as of December 31, 2014 amounted to
2.35 million while net fair value losses as of December 31, 2013 amounted to 4.19 million.

28.8
Fair Value Changes on Derivatives
The net movements in fair value changes of all derivative instruments are as follows:
2013

2014
(In Thousand Pesos)

At beginning of year
Net changes in fair value of derivatives:
Designated as cash flow hedges
Not designated as cash flow hedges
Less fair value of settled instruments
At end of period

335,702

(240,233)

(263,856)
(229,371)
(157,525)
(651,259)
493,734

307,431
(138,765)
(71,567)
(407,269)
335,702

28.9
Hedge Effectiveness Results
As of December 31, 2014 and 2013, the effective fair value changes on the Globe Groups cash
flow hedges that were deferred in equity amounted to 40.43 million and 35.03 million losses, net
of tax, respectively. Total ineffectiveness for the years ended December 31, 2014 and 2013 is
immaterial.

*SGVFS010845*

- 105 -

The distinction of the results of hedge accounting into Effective or Ineffective represent
designations based on PAS 39 and are not necessarily reflective of the economic effectiveness of
the instruments.
28.10 Categories of Financial Assets and Financial Liabilities
The table below presents the carrying value of the Globe Groups financial instruments by
category as of December 31:
2013

2014
(In Thousand Pesos)

Financial Assets
Financial assets at FVPL:
Derivative assets designated as cash flow hedges
Derivative assets not designated as hedges
AFS investment in equity securities (Note 11)
Loans and receivables - net*
Financial Liabilities
Financial liabilities at FVPL:
Derivative liabilities designated as cash flow
hedges
Derivative liabilities not designated as hedges
Financial liabilities at amortized cost**

580,224
8,319
264,785
40,642,772
41,496,100

553,562
1,834
222,712
29,166,805
29,944,913

65,666
29,143
112,179,300
112,274,109

65,658
154,036
107,027,805
107,247,499

*This consists of cash and cash equivalents, receivables (subscribers, traffic settlements - net, dealers and other receivables),
non-trade receivables (employee receivables, miscellaneous receivables and accrued interest receivables and loans
receivables.
**This consists of accounts payable, accrued expenses, accrued project cost, traffic settlement-net, dividends payable, notes
payable, long-term debt (including current portion) and other long-term liabilities (including current portion).

As of December 31, 2014 and 2013, the Globe Group has no investments in foreign securities.
28.11 Offsetting Financial Assets and Financial Liabilities
The Globe Group has derivative financial instruments that have offsetting arrangements. Upon
adoption of the amendment to PFRS 7, the Globe Group has determined that there is no impact on
financial position or on profit or loss, but resulted in additional disclosures about such offsetting
arrangements. Accordingly, these additional disclosures are set forth below.
December 31, 2014

Derivative assets
Derivative liabilities
Traffic settlements receivable
Traffic settlements payable

Gross
amounts

Amounts
offset
under PAS
32

588,543
94,809
3,657,393
2,607,937

(1,611,474)
(1,425,246))

Amounts offset
Reported
under master
amounts in
netting
the consolidated
arrangements or
statement of
other similar
financial
contracts
position
(In Thousand Pesos)
588,543
94,809
2,045,919
1,182,691

(88,842)
(88,842)

Amounts
offset by
financial
collateral
received or
pledged

Net
exposure

499,701
5,967
2,045,919
1,182,691

*SGVFS010845*

- 106 -

December 31, 2013

Gross amounts
Derivative assets
Derivative liabilities
Traffic settlements receivable
Traffic settlements payable

493,222
157,521
2,991,096
4,908,628

Reported
amounts in
the
Amounts offset
consolidatestate under master netting
ment of
arrangements or
Amounts
financial
other similar
offset under
position
contracts
PAS 32
(In Thousand Pesos)

(1,487,255)
(3,312,395)

493,222
157,521
1,503,841
1,596,233

Amounts
offset by
financial
collateral
received or
pledged

Net
exposure

345,213
9,512
1,503,841
1,596,233

(148,009)
(148,009)

The Globe Group makes use of master netting agreements with counterparties with whom a
significant volume of transactions are undertaken. Such arrangements provide for single net
settlement of all financial instruments covered by the agreements in the event of default on any
one contract. Master netting arrangements do not normally result in an offset of balance sheet
assets and liabilities unless certain conditions for offsetting under PAS 32 apply.
Although master netting arrangements may significantly reduce credit risk, it should be noted that:
a) Credit risk is eliminated only to the extent that amounts due to the same counterparty will be
settled after the assets are realized; and
b) The extent to which overall credit risk is reduced may change substantially within a short
period because the exposure is affected by each transaction subject to the arrangement and
fluctuations in market factors.
28.12 Fair Values of Financial Assets and Financial Liabilities
The table below presents a comparison of carrying amounts and estimated fair values of the Globe
Groups financial instruments as of December 31:
2013

2014
Carrying
Value

Fair
Value

Carrying
Value

Fair
Value

(In Thousand Pesos)

Financial Assets
Derivative assets
AFS investment in equity securities
(Note 11)

P
=588,543

P
=588,543

P
=555,396

P
=555,396

264,785

264,785

222,712

222,712

P
=853,328

P
=853,328

P
=778,108

P
=778,108

94,809

94,809

219,694

219,694

65,275,803

70,229,966

64,081,049

68,046,189

65,370,612

70,324,775

64,300,743

68,265,883

Financial Liabilities
Derivative liabilities (including current portion)
Long-term debt (including
current portion)

*SGVFS010845*

- 107 -

The following discussions are methods and assumptions used to estimate the fair value of each
class of financial instrument for which it is practicable to estimate such value.
28.12.1 Non-Derivative Financial Instruments
The fair values of cash and cash equivalents, subscriber receivables, traffic settlements
receivable, current portion of loan receivable, miscellaneous receivables, accrued interest
receivables, accounts payable, accrued expenses and notes payable are approximately equal to
their carrying amounts considering the short-term maturities of these financial instruments.
The fair value of AFS investments are based on quoted prices. Unquoted AFS equity
securities are carried at cost, subject to impairment.
The carrying value of loans receivables approximates carrying value after calculations.
For variable rate financial instruments that reprice every three months, the carrying value
approximates the fair value because of recent and regular repricing based on current market
rates. For variable rate financial instruments that reprice every six months, the fair value is
determined by discounting the principal amount plus the next interest payment using the
prevailing market rate for the period up to the next repricing date. The discount rates used
range from 0.26% to 1.80% for USD floating loans. For noninterest bearing obligations, the
fair value is estimated as the present value of all future cash flows discounted using the
prevailing market rate of interest for a similar instrument.
28.12.2 Derivative Instruments
The fair value of freestanding and embedded forward exchange contracts is calculated by
using the interest rate parity concept.
The fair values of interest rate swaps and cross currency swap transactions are determined
using valuation techniques with inputs and assumptions that are based on market observable
data and conditions and reflect appropriate risk adjustments that market participants would
make for credit and liquidity risks existing at the end each of reporting period. The fair value
of interest rate swap transactions is the net present value of the estimated future cash flows.
The fair values of currency and cross currency swap transactions are determined based on
changes in the term structure of interest rates of each currency and the spot rate.
The fair values were tested to determine the impact of credit valuation adjustments. However,
the impact is immaterial given that the Globe Group deals its derivatives with large foreign
and local banks with very minimal risk of default.
Embedded currency options are valued using the simple option pricing model of third party
provider.

*SGVFS010845*

- 108 -

28.12.3 Fair Value Hierarchy

The following tables provide the fair value measurement hierarchy of the Globe Groups
assets and liabilities:
December 31, 2014
Fair value measurement using

Quoted
prices in
active
markets
(Level 1)

Significant
observable
inputs
(Level 2)

No
significant
observable
inputs
(Level 3)

Total

(In Thousand Pesos)

Assets measured at fair value:

AFS investment in equity securities net

Derivative assets:
Cross currency swaps
Embedded currency forwards
Liabilities measured at fair value:
Derivative liabilities:
Cross currency swaps
Interest rate swaps
Embedded currency forwards
Liabilities for which fair values are disclosed:
Long-term debt (including current portion)

264,785

264,785

580,224
8,319

580,224
8,319

65,666
23,176
5,967

65,666
23,176
5,967

70,229,966

70,229,966

December 31, 2013

Fair value measurement using
Quoted
prices in
active
markets
(Level 1)

Significant No significant
observable
observable
inputs
inputs
(Level 2)
(Level 3)
(In Thousand Pesos)

Total

Assets measured at fair value:

Derivative assets:
Cross currency swaps
Embedded currency forwards
AFS investment in equity securities - net
Liabilities measured at fair value:
Derivative liabilities:
Cross currency swaps
Interest rate swaps
Embedded currency forwards
Liabilities for which fair values are disclosed:
Long-term debt (including current portion)

P
=

222,712

553,562
1,834

P
=

553,562
1,834
222,712

62,174
151,493
6,027

62,174
151,493
6,027

62,174
151,493
6,027

68,046,189

68,046,189

68,046,189

There were no transfers from Level 1 and Level 2 fair value measurements for the years ended
December 31, 2014 and 2013.

*SGVFS010845*

- 109 -

29. Operating Segment Information

The Globe Groups reportable segments consist of: (1) mobile communications services; and
(2) wireline communications services; which the Globe Group operates and manages as strategic
business units and organize by products and services. The Globe Group presents its various
operating segments based on segment net income.
The mobile value added data content and application development services coming from various
revenue streams are reported under Others in the 2013 interim consolidated financial statements.
In the second quarter of 2014, the Globe Group restated the segment reporting disclosure to
conform with the current presentation of internal management reports by including this under
mobile communications services segment.
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 result include transfers between business segments. Those transfers are
eliminated in consolidation.
Most of revenues are derived from operations within the Philippines, hence, the Globe Group does
not present geographical information required by PFRS 8, Operating Segments. The Globe Group
does not have a single customer that will meet the 10% reporting criteria.
The Globe Group also presents the different product types that are included in the report that is
regularly reviewed by the chief operating decision maker in assessing the operating segments
performance.
Segment assets and liabilities are not measures used by the chief operating decision maker since
the assets and liabilities are managed on a group basis.
The Globe Groups segment information is as follows (in thousand pesos):
2014
Mobile
Wireline
Communications Communications
Services
Services
REVENUES:
Service revenues:
External customers:
Voice
SMS
Data
Broadband
Nonservice revenues:
External customers
Segment revenues
EBITDA
Depreciation and amortization
EBIT
INCOME (LOSS) BEFORE TAX
Provision for income tax
NET INCOME (LOSS)
Core net income after tax
(Forward)

34,683,538
29,078,791
14,306,227

2,789,304

Consolidated

5,480,245
12,686,499

37,472,842
29,078,791
19,786,472
12,686,499

2,981,383
81,049,939

1,229,726
22,185,774

4,211,109
103,235,713

34,068,215
(9,197,603)
24,870,612

5,203,166
(8,925,922)
(3,722,756)

39,271,381
(18,123,525)
21,147,856

23,295,190
(4,787,141)
18,508,049

(3,912,484)
(1,223,373)
(5,135,857)

19,382,706
(6,010,514)
13,372,192
14,489,176

*SGVFS010845*

- 110 -

2014
Wireline
Mobile
Communications Communications
Services
Services
Other segment information
Intersegment revenues
Subsidy1
Interest income2
Interest expense
Equity in net losses of associates
and joint ventures
Impairment losses and others
Capital expenditure
Cost of sales
Cash Flows
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
1
2

Consolidated

(2,039,736)
(6,185,207)
627,464
(2,192,498)

(540,210)
(265,028)
6,665
(133,673)

(2,579,946)
(6,450,235)
634,129
(2,326,171)

(224,257)
2,846,665
22,741,742
(9,166,590)

873,504
4,242,016
(1,494,754)

(224,257)
3,720,169
26,983,758
(10,661,344)

30,681,003
(15,723,193)
(6,942,137)

5,774,155
(4,492,913)

36,455,158
(20,216,106)
(6,942,137)

Computed as non-service revenues less cost of sales

Net of final tax

2013
Mobile
Communications
Services

Wireline
Communications
Services

Consolidated

REVENUES:
Service revenues:
External customers:
Voice
SMS
Data
Broadband
Nonservice revenues:
External customers
Segment revenues

32,367,171
28,794,052
11,602,470

2,605,121

4,691,004
10,440,319

34,972,292
28,794,052
16,293,474
10,440,319

3,833,070
76,596,763

807,778
18,544,222

4,640,848
95,140,985

EBITDA
Depreciation and amortization
EBIT

32,544,044
(17,058,605)
15,485,439

3,969,773
(10,418,889)
(6,449,116)

36,513,817
(27,477,494)
9,036,323

INCOME (LOSS) BEFORE TAX2

Provision for income tax
NET INCOME (LOSS)
Core net income after tax

13,517,040
(1,755,619)
11,761,421

(6,652,267)
(148,909)
(6,801,176)

6,864,773
(1,904,528)
4,960,245
11,616,512

Other segment information

Intersegment revenues
Subsidy1
Interest income2
Interest expense
Equity in net losses of joint ventures
Impairment losses and others
Capital expenditure
Cost of sales
(Forward)

(607,967)
(5,014,970)
631,030
(2,087,571)
(79,959)
3,318,192
(32,058,333)
(8,848,040)

(556,902)
(297,288)
53,977
(4,344)

(835,564)

(1,105,066)

(1,164,869)
(5,312,258)
685,007
(2,091,915)
(79,959)
2,482,628
(35,778,666)
(9,953,106)

*SGVFS010845*

- 111 -

2013
Mobile
Communications
Services

Wireline
Communications
Services

Consolidated

P
=26,388,852
(24,466,931)
(2,476,233)

P
=7,571,395
(3,628,351)
(3,000,000)

P
=33,960,247
(28,095,282)
(5,476,233)

Mobile
Communications
Services

2012
Wireline
Communications
Services

Consolidated

32,551,516
26,551,913
8,085,727

2,665,559

4,166,919

35,217,075
26,551,913
12,252,646

8,720,931

8,720,931

2,773,992

929,592

3,703,584

69,963,148

16,483,001

86,446,149

32,273,018
(13,232,506)

2,737,792
(10,350,911)

35,010,810
(23,583,417)

EBIT

19,040,512

(7,613,119)

11,427,393

INCOME (LOSS) BEFORE TAX2

Provision for income tax2

17,483,863
(3,599,530)

(7,732,316)
693,237

9,751,547
(2,906,293)

13,884,332

(7,039,079)

6,845,254

Cash Flows
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
1
2

Computed as non-service revenues less cost of sales

Net of final tax

REVENUES:
Service revenues:
External customers:
Voice
SMS
Data
Broadband
Nonservice revenues:
External customers
Segment revenues
EBITDA
Depreciation and amortization

NET INCOME (LOSS)

10,263,062

Core net income after tax

Other segment information
Intersegment revenues
Subsidy1
Interest income2
Interest expense
Equity in net losses of joint ventures
Impairment losses and others
Capital expenditure
Cost of sales

(285,133)
(4,036,892)
448,481
(2,021,345)
(83,582)
(1,186,031)
(23,193,951)
(6,810,884)

(206,911)
62,117
67,081
(83,447)

(677,553)
(3,615,609)
(867,475)

(492,044)
(3,974,775)
515,562
(2,104,792)
(83,582)
(1,863,584)
(26,809,560)
(7,678,359)

*SGVFS010845*

- 112 -

Mobile
Communications
Services

2012
Wireline
Communications
Services

Consolidated

P
=13,106,654
(19,417,376)
2,197,903

P
=6,259,215
(344,365)

P
=19,365,869
(19,761,741)
2,197,903

Cash Flows
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
1
2

Computed as non-service revenues less cost of sales

Net of final tax

A breakdown of revenues and a reconciliation of segment revenues to the total revenues presented
in the consolidated statements of comprehensive income are shown below:
2013

2014

2012

(In Thousand Pesos)

Gross service revenues

Interconnection charges
Net service revenues
Nonservice revenues
Segment revenues
Interest income
Other income - net
Total Revenues

90,500,137
(9,280,229)
81,219,908
4,640,848
85,860,756
688,249
475,246
87,024,251

99,024,604
(8,429,934)
90,594,670
4,211,109
94,805,779
682,998
470,647
95,959,424

82,742,565
(8,859,309)
73,883,256
3,703,584
77,586,840
579,851
716,371
78,883,062

The reconciliation of the EBITDA to income before income tax presented in the consolidated
statements of comprehensive income is shown below:
2013

2014

2012

(In Thousand Pesos)

EBITDA
Gain on disposals of property and
equipment - net
Interest income
Equity in net losses of associates and
joint ventures
Financing costs
Depreciation and amortization
Other items
Income before income tax

39,271,381

36,513,817

35,010,810

101,159
682,998

64,333
688,249

42,447
579,851

(224,257)
(2,565,706)
(18,123,525)
240,656
19,382,706

(79,959)
(2,911,785)
(27,477,494)
67,612
6,864,773

(83,582)
(2,362,609)
(23,583,417)
148,046
9,751,547

The reconciliation of core net income after tax (NIAT) to NIAT is shown below:

Core NIAT
Accelerated depreciation 1
Mark-to-market gains (losses)1
Foreign exchange gains1
Non-recurring items1
NIAT
1

2014

2013

2012

14,489,176
(1,136,220)
49,581
619
(30,964)
13,372,192

11,616,512
(6,346,176)
(61,863)
(340,416)
92,188
4,960,245

10,263,062
(3,556,330)
(52,367)
222,834
(31,945)
6,845,254

Net of income taxes

*SGVFS010845*

- 113 -

29.1 Mobile Communications Services

This reporting segment is made up of digital cellular telecommunications services that allow
subscribers to make and receive local, domestic long distance and international long distance
calls, international roaming calls and other value added services (VAS) in any place within
the coverage areas.
29.1.1 Mobile communication voice net service revenues include the following:
a) Pro-rated monthly service fees on postpaid plans;
b) Charges for intra-network and outbound calls in excess of the consumable
minutes for various Globe Postpaid plans, including currency exchange rate
adjustments (CERA) net of loyalty discounts credited to subscriber billings;
c) Airtime fees for intra-network and outbound calls recognized upon the earlier
of actual usage of the airtime value or expiration of the unused value of the
prepaid reload denomination (for Globe Prepaid and TM) which occurs
between 3 and 120 days after activation depending on the prepaid value
reloaded by the subscriber net of (i) bonus credits and (ii) prepaid reload
discounts;
d) Revenues generated from inbound international and national long distance calls
and international roaming calls; and
e) Mobile service revenues of GTI.
29.1.2 Mobile SMS service revenues consist of local and international revenues from valueadded services such as inbound and outbound SMS and MMS, and infotext,
subscription fees on unlimited and bucket prepaid SMS services, net of any payouts to
content providers.
29.1.3 Mobile communication data net service revenues consist of local and international
revenues from value-added services such as mobile internet browsing and content
downloading, mobile commerce services, other add-on VAS and service revenues of
GXI and EGG, net of payouts to content providers.
29.1.4 Globe Telecom offers its wireless communications services to consumers, corporate
and small and medium enterprise (SME) clients through the following three (3)
brands: Globe Postpaid, Globe Prepaid and Touch Mobile.
The Globe Group also provides its subscribers with mobile payment and remittance
services under the GCash brand.
29.2 Wireline Communications Services
This reporting segment is made up of fixed line telecommunications services which offer
subscribers local, domestic long distance and international long distance voice services in
addition to broadband and mobile internet services and a number of VAS in various areas
covered by the Certificate of Public Convenience and Necessity (CPCN) granted by the
NTC.
29.2.1 Wireline voice service revenues consist of the following:
a) Monthly service fees including CERA of voice-only subscriptions;
b) Revenues from local, international and national long distance calls made by
postpaid and prepaid wireline subscribers, as well as broadband customers who
have subscribed to data packages bundled with a voice service. Revenues are
net of prepaid call card discounts;
c) Revenues from inbound local, international and national long distance calls
from other carriers terminating on Globes network;

*SGVFS010845*

- 114 -

d) Revenues from additional landline features such as caller ID, call waiting, call
forwarding, multi-calling, voice mail, duplex and hotline numbers and other
value-added features;
e) Installation charges and other one-time fees associated with the establishment
of the service; and
f) Revenues from DUO and SUPERDUO (fixed line portion) service consisting
of monthly service fees for postpaid and subscription fees for prepaid.
29.2.2 Wireline data service revenues consist of the following:
a) Monthly service fees from international and domestic leased lines;
b) Other wholesale transport services;
c) Revenues from value-added services; and
d) One-time connection charges associated with the establishment of service.
29.2.3 Broadband service revenues consist of the following:
a) Monthly service fees of wired, fixed wireless and fully mobile broadband data
only and bundled voice and data subscriptions;
b) Browsing revenues from all postpaid and prepaid wired, fixed mobile and fully
mobile broadband packages in excess of allocated free browsing minutes and
expiration of unused value of prepaid load credits;
c) Value-added services such as games; and
d) Installation charges and other one-time fees associated with the service.
29.2.4 The Globe Group provides wireline voice communications (local, national and
international long distance), data and broadband and data services to consumers,
corporate and SME clients in the Philippines.

Consumers - the Globe Groups postpaid voice service provides basic landline
services including toll-free NDD calls to other Globe landline subscribers for a
fixed monthly fee. For wired broadband, consumers can choose between
broadband services bundled with a voice line, or a broadband data-only service.
For fixed wireless broadband connection using Long-Term Evolution (LTE) or
Worldwide Interoperability for Microwave Access (WiMax), the Globe Group
offers broadband packages bundled with voice, or broadband data-only service.
For subscribers who require full mobility, Globe Broadband Tattoo service come
in postpaid and prepaid packages and allow them to access the internet via LTE,
3G with HSDPA, Enhanced Datarate for GSM Evolution (EDGE), General
Packet Radio Service (GPRS) or WiFi at hotspots located nationwide.

Corporate/SME clients - for corporate and SME enterprise clients wireline voice
communication needs, the Globe Group offers postpaid service bundles which
come with a business landline and unlimited dial-up internet access. The Globe
Group also provides a full suite of telephony services from basic direct lines to
Integrated Services Digital Network (ISDN) services, 1-800 numbers,
International Direct Dialing (IDD) and National Direct Dialing (NDD) access as
well as managed voice solutions such as Voice Over Internet Protocol (VOIP)
and managed Internet Protocol (IP) communications. Value-priced, high speed
data services, wholesale and corporate internet access, data center services and
segment-specific solutions customized to the needs of vertical industries.

*SGVFS010845*

- 115 -

30. Notes to Consolidated Statements of Cash Flows

The principal noncash transactions are as follows:
Note

2014

2013

2012

(In Thousand Pesos)

Increase in liabilities related to the

acquisition of property and equipment
Capitalized ARO
Dividends on preferred shares

14

5,091,154
9,495

5,838,624
15,675

5,699,760
25,022
33,145

2013

2012

The cash and cash equivalents account consists of the following:

2014

(In Thousand Pesos)

Cash on hand and in banks

Short-term placements

6,126,034
10,630,874
16,756,908

4,468,305
2,952,430
7,420,735

2,632,954
4,126,801
6,759,755

Cash in banks earn interest at respective bank deposit rates. Short-term placements represent
short-term money market placements.
The ranges of interest rates of the above placements are as follows:
2014
Placements:
PHP
USD

2013

2012

0.20% to 1.50% 0.15% to 3.90% 1.35% to 4.69%

0.01% to 1.75% 0.02% to 1.75% 0.06% to 1.85%

31. Event After Reporting Period

Dividend Declaration
On February 4, 2015, the BOD approved the declaration of the first quarterly cash dividend of
P
=20.75 per common share, payable to common stockholders of record as of February 18, 2015.
Total dividends amounting to =
P2.8 billion will be payable on March 4, 2015.

*SGVFS010845*

IV.

2014 Annual Corporate Governance Report

173

TABLE OF CONTENTS
A. BOARD MATTERS..

1) BOARD OF DIRECTORS
(a) Composition of the Board

(b) Directorship in Other Companies..

(c) Shareholding in the Company

2) CHAIRMAN AND CEO

3) OTHER EXECUTIVE, NON-EXECUTIVE AND INDEPENDENT DIRECTORS.

10

4) CHANGES IN THE BOARD OF DIRECTORS

12

5) ORIENTATION AND EDUCATION PROGRAM

17

B. CODE OF BUSINESS CONDUCT & ETHICS..

18

C.

1) POLICIES.

18

2) DISSEMINATION OF CODE

19

3) COMPLIANCE WITH CODE.

19

4) RELATED PARTY TRANSACTIONS.

19

(a) Policies and Procedures.

20

(b) Conflict of Interest.

20

5) FAMILY, COMMERCIAL AND CONTRACTUAL RELATIONS

21

6) ALTERNATIVE DISPUTE RESOLUTION

22

BOARD MEETINGS & ATTENDANCE.

23

1) SCHEDULE OF MEETINGS..

23

2) DETAILS OF ATTENDANCE OF DIRECTORS.

23

3) SEPARATE MEETING OF NON-EXECUTIVE DIRECTORS.

23

4) ACCESS TO INFORMATION

24

5) EXTERNAL ADVICE..

25

6) CHANGES IN EXISTING POLICIES..

25

D. REMUNERATION MATTERS
1) REMUNERATION PROCESS

25
25
2

E.

F.

2) REMUNERATION POLICY AND STRUCTURE FOR DIRECTORS

25

3) AGGREGATE REMUNERATION

27

4) STOCK RIGHTS, OPTIONS AND WARRANTS..

28

5) REMUNERATION OF MANAGEMENT

28

BOARD COMMITTEES.

30

1) NUMBER OF MEMBERS, FUNCTIONS AND RESPONSIBILITIES.

30

2) COMMITTEE MEMBERS.

34

3) CHANGES IN COMMITTEE MEMBERS..

37

4) WORK DONE AND ISSUES ADDRESSED

38

5) COMMITTEE PROGRAM.

40

RISK MANAGEMENT SYSTEM...

43

1) STATEMENT ON EFFECTIVENESS OF RISK MANAGEMENT SYSTEM.

43

2) RISK POLICY.

45

3) CONTROL SYSTEM..

46

G. INTERNAL AUDIT AND CONTROL

54

1) STATEMENT ON EFFECTIVENESS OF INTERNAL CONTROL SYSTEM.

54

2) INTERNAL AUDIT.

54

(a) Role, Scope and Internal Audit Function..

54

(b) Appointment/Removal of Internal Auditor

56

(c) Reporting Relationship with the Audit Committee

56

(d) Resignation, Re-assignment and Reasons

57

(e) Progress against Plans, Issues, Findings and Examination Trends.

57

(f) Audit Control Policies and Procedures.

58

(g) Mechanisms and Safeguards

58

H. ROLES OF STAKEHOLDERS..

59

I.

62

DISCLOSURES & TRANSPARENCY

J.

RIGHTS OF STOCKHOLDERS

68

1) RIGHT TO PARTICIPATE EFFECTIVELY IN STOCKHOLDERS MEETINGS

68

2) TREATMENT OF MINORITY STOCKHOLDERS

77

K. INVESTORS RELATIONS PROGRAM

77

L.

CORPORATE SOCIAL RESPONSIBILITY INITIATIVES.

80

M. BOARD, DIRECTOR, COMMITTEE AND CEO APPRAISAL.

82

N. INTERNAL BREACHES AND SANCTIONS..

84

A. BOARD MATTERS
1) Board of Directors
Number of Directors per Articles of Incorporation

Seven

Actual number of Directors for the year

Seven

(a) Composition of the Board

Complete the table with information on the Board of Directors:
The following are the directors of the Corporation, classified in accordance with the Revised Code of Corporate
Governance and SEC Memorandum Circular No. 16, series of 2002:

Type
[Executive (ED),
Non-Executive
(NED) or
Independent
Director (ID)]

If nominee,
identify the
principal

Jaime Augusto
Zobel de Ayala

ED

Mermac,
Inc.

Fernando Zobel
de Ayala

ED

Mermac,
Inc.

Delfin L. Lazaro

NED

N.A.

Yoshio Amano

NED

Ramon R. Del
Rosario, Jr.

ID

Mitsubishi
Corporati
on (MC)
N.A.

Xavier P. Loinaz

ID

Antonio Jose U.
Periquet

ID

Directors Name

Nominator in
the last election
(if ID, state the
relationship with
the nominator)

Date first
elected

Date last
elected (if
ID, state
the
number of
years
served as
ID)1

Elected
when
(Annual
/Special
Meeting)

No. of
years
served
as
director

Remedios D.
Wingco &
Mermac, Inc.
Remedios D.
Wingco &
Mermac, Inc.
Remedios D.
Wingco
Remedios D.
Wingco &
MC
Remedios D.
Wingco (not
related to Mr.
Del Rosario)

May 1987

April 10,
2015

Annual
Meeting

28

May 1994

April 10,
2015

Annual
Meeting

21

January
2007
April 2012

April 10,
2015
April 10,
2015

Annual
Meeting
Annual
Meeting

April 2010

Annual
Meeting

N.A.

Remedios D.
Wingco (not
related to Mr.
Loinaz)

April 2009
(as ID)

Annual
Meeting

N.A.

Remedios D.
Wingco (not
related to Mr.
Periquet)

September
2010

April 10,
2015
(Served
as ID for
3 years
from
April
2012)
April 10,
2015
(Served
as ID for
3 years
from
April
2012)
April 10,
2015
(Served
as ID for
3 years

Annual
Meeting

Reckoned from the election immediately following January 2, 2012.

5

from
April
2012)

(b) Provide a brief summary of the corporate governance policy that the board of directors has adopted. Please
emphasize the policy/ies relative to the treatment of all shareholders, respect for the rights of minority
shareholders and of other stakeholders, disclosure duties, and board responsibilities.
It is the duty of the directors to promote shareholders rights, remove impediments to the exercise of
shareholders rights and provide effective redress for violation of those rights. The directors shall encourage
the exercise of shareholders voting rights and the resolution of collective action problems through
appropriate mechanisms. They shall be instrumental in reducing or eliminating costs and other administrative
or practical impediments to shareholders participating in meetings and/or voting in person. The directors shall
pave the way for the electronic filing and distribution of shareholders information necessary to make informed
decisions subject to legal constraints.
(c) How often does the Board review and approve the vision and mission?
The Board reviews and approves the vision and mission at least once a year, as part of the review and
approval of the Companys strategy as recommended by Management. The Board and Management also
revisit the Companys vision and mission as part of the budget review process.
(d) Directorship in Other Companies
(i) Directorship in the Companys Group2
Identify, as and if applicable, the members of the companys Board of Directors who hold the office of
director in other companies within its Group:

Directors Name
Jaime Augusto Zobel de Ayala

Corporate Name of the

Group Company
Bank of the Philippine Islands
Integrated Micro-Electronics,
Inc.
Globe Telecom, Inc.
Ayala Land, Inc.
Manila Water Company, Inc.
Mermac, Inc.
Alabang Commercial
Corporation
Ayala International Pte Ltd.
AC Energy Holdings, Inc.

Type of Directorship
(Executive, Non-Executive,
Independent). Indicate if
director is also the Chairman.
Chairman, Non-Executive
Director
Chairman, Non- Executive
Director
Chairman, Non-Executive
Director
Vice Chairman, Non-Executive
Director
Vice Chairman, Non-Executive
Director
Co-Vice Chairman, NonExecutive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director

The Group is composed of the parent, subsidiaries, associates and joint ventures of the company.
6

Fernando Zobel de Ayala

AC International Finance Limited

Ayala International Pte., Ltd.
Bank of the Philippine Islands
LiveIt Investments, Ltd.
Mermac, Inc.
Globe Telecom, Inc.
Integrated Micro-Electronics, Inc.
Asiacom Philippines, Inc.
AG Holdings Limited
Ayala International Holdings
Limited
AI North America, Inc.
Accendo
Commercial
Corporation
Ceci Realty, Inc.
Sonoma Services, Inc.
Vesta Property Holdings, Inc.
Columbus Holdings, Inc
Emerging City Holdings, Inc.
Fort Bonifacio Development
Corporation
Bonifacio Land Corporation

Delfin L. Lazaro

Philwater Holdings Company,

Inc.
AYC Holdings, Ltd.
Purefoods International, Ltd.
A.C.S.T. Business Holdings, Inc.
Globe Telecom, Inc.
Ayala Land, Inc.
Integrated Micro-Electronics,
Inc.
Manila Water Co., Inc.
Ayala DBS Holdings, Inc.
AC Energy Holdings, Inc.
Ayala International Holdings,
Ltd.
Bestfull Holdings Limited
AG Holdings Limited
AI North America, Inc.

Chairman, Non-Executive
Director
Chairman, Non-Executive
Director
Vice Chairman, Non-Executive
Director
Vice Chairman, Non-Executive
Director
Co-Vice Chairman, NonExecutive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chairman,
Non-Executive
Director
Vice Chairman, Non-Executive
Director
Non-Executive Director
Vice Chairman, Non-Executive
Director
Vice Chairman, Non-Executive
Director
Vice Chairman, Non-Executive
Director
Vice Chairman, Non-Executive
Director
Vice Chairman, Non-Executive
Director
Chairman, Non-Executive
Director
Chairman, Non-Executive
Director
Chairman, Non-Executive
Director
Chairman, Non-Executive
Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
7

Xavier P. Loinaz
Ramon R. Del Rosario, Jr.

Yoshio Amano
Antonio Jose U. Periquet

Bank of the Philippine Islands

and Subsidiaries
South Luzon Thermal Energy
Corp.*

Independent Director

Portico Land Corporation

Bank of the Philippine Islands
and subsidiaries

Non-Executive Director
Independent Director

Non-Executive Director

* The Company has no power to elect a majority of the members of the board of directors of South Luzon Thermal
Energy Corporation.

(ii) Directorship in Other Listed Companies

Identify, as and if applicable, the members of the companys Board of Directors who are also directors of
publicly-listed companies outside of its Group:

Directors Name
Antonio Jose U. Periquet

Ramon R. del Rosario, Jr.

Name of Listed Company

ABS-CBN Holdings Corporation
ABS-CBN Corporation
DMCI Holdings, Inc.
Philippine Seven Corporation
Maxs Group, Inc.
Phinma Corporation
Trans-Asia Petroleum Corporation
Trans-Asia Oil & Energy Devt.
Corp.

Type of Directorship
(Executive, Non-Executive,
Independent). Indicate if
director is also the Chairman.
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Executive Director
Executive Director
Executive Director

(iii) Relationship within the Company and its Group

Provide details, as and if applicable, of any relation among the members of the Board of Directors, which
links them to significant shareholders in the company and/or in its group:

Jaime Agusto Zobel de Ayala

Name of the
Significant Shareholder
Mermac, Inc.

Fernando Zobel de Ayala

Mermac, Inc.

Yoshio Amano

Mitsubishi Corporation

Directors Name

Description of the relationship

Mr. Zobel is an officer and a
stockholder of Mermac, Inc.
Mr. Zobel is an officer and a
stockholder of Mermac, Inc.
Mr. Amano is the General
Manager of Mitsubishi
Corporation-Manila Branch

(iv) Has the company set a limit on the number of board seats in other companies (publicly listed, ordinary
and companies with secondary license) that an individual director or CEO may hold simultaneously? In
particular, is the limit of five board seats in other publicly listed companies imposed and observed? If yes,
briefly describe other guidelines:
Yes. The Corporation ensure that adequate time and attention is given to the fulfillment of the directors of
their duties. The independent directors hold no more than five board seats in publicly-listed companies
and executive directors hold no more than two board seats in listed companies outside the Corporations
group. In the implementation of this policy, the Board may consider several directorships in related
companies or companies in the same industry as one. (Charter of the Board of Directors, Section 3.4)

(e) Shareholding in the Company

Complete the following table on the members of the companys Board of Directors who directly and indirectly
own shares in the company:
Name of Director
Jaime Augusto Zobel de
Ayala

Number of Direct
shares*
Common-39,731

Number of
Indirect shares / Through
(name of record owner)*
Common (through ESOWN
subscription)-98,435

Voting Preferred-543,802

0.0810%
Preferred B (through PCD)
20,000
Common (through ESOWN
subscription)-43,341

Fernando Zobel de Ayala

Common-94,825

Delfin L. Lazaro

Voting Preferred-554,983
Common-1

Ramon R. Del Rosario, Jr.

Antonio Jose U. Periquet

Common-1
Common-126,614
Voting Preferred-65,517
Common-1
Common-1,200

TOTAL

1,684,972

0.0800%

Common (through ESOWN

subscription)-181,039

Voting Preferred-258,297

Yoshio Amano
Xavier P. Loinaz

% of Capital
Stock

0.0507%
Common (through PCD
Nominee)-79
None
None
None
Preferred B (through PCD)
400,000
742,894

0.0000%
0.0222%
0.0000%
0.0463%
0.2802%

2) Chairman and CEO

(a) Do different persons assume the role of Chairman of the Board of Directors and CEO? If no, describe the
checks and balances laid down to ensure that the Board gets the benefit of independent views.

Yes

No

Identify the Chair and CEO:

Chairman of the Board
CEO/President

Jaime Augusto Zobel de Ayala

Jamie Augusto Zobel de Ayala (CEO)/
Fernando Zobel de Ayala (President)

Among the checks and balances laid down to ensure that the Board gets the benefit of independent views are:
(1) the powers and responsibilities of the Chairman and of the CEO are specified and separate in the By-laws;
(2) only two of the seven directors are executive directors and the powers and responsibilities of directors are
clearly delineated from the powers and responsibilities of management; and (3) three of the seven directors
are independent directors.
(b) Roles, Accountabilities and Deliverables
Define and clarify the roles, accountabilities and deliverables of the Chairman and CEO.
Chairman
Role
Accountabilities

1. Schedule meetings to enable the

Board to perform its duties

Chief Executive Officer

1. Have general supervision of the
business, affairs, and property of

Deliverables

responsibly while not interfering with

the flow of the Corporations
operations;
2. Prepare the meeting agenda;
3. Exercise control over quality,
quantity and timeliness of the flow of
information between Management
and the Board; and
4. Assist in ensuring compliance with
the Corporations guidelines on
corporate governance.

the Corporation, and over its

employees and officers;
2. See that all orders and
resolutions of the Board of
Directors are carried into effect;
3. Submit to the Board as soon as
possible after the close of each
fiscal year, and to the
stockholders at the annual
meeting, a complete report of
the operations of the Corporation
for the preceding year, and the
state of its affairs; and
4. Report to the Board from time to
time all matters within its
knowledge which the interest of
the Corporation may require to
be brought to their notice.

3) Explain how the board of directors plan for the succession of the CEO/Managing Director/President and the top
key management positions?
The Nomination Committee of the Board conducts a review and evaluation of the qualifications of all persons
nominated to positions in the Corporation which require appointment by the Board. In conducting its review, the
Committee shall consider the following factors:
a) Duties and responsibilities of the position/s under consideration;
b) For the nominees:
(i) level of knowledge on the Corporations business;
(ii) potential to assume greater responsibility in the organization;
(iii) ability, integrity and expertise; and
(iv) results of previous performance assessments.
The Committees review of the management succession plan shall also take into account relevant human resource
policies of the Corporation and its vision, mission and overall corporate strategy. (Charter of the Nomination
Committee, Section 4)
The Board approves the succession plans for the CEO/Managing Director/President and the top key management
positions based on the recommendations of the Committee and other factors that the Board may deem proper and
relevant. (Charter of the Board of Directors, Section 6.1 (t), and Annex B)
4) Other Executive, Non-Executive and Independent Directors
Does the company have a policy of ensuring diversity of experience and background of directors in the board?
Please explain.
The Board shall be composed of members who possess the necessary knowledge, skills and experience required to
properly perform the duties of the Board.
The Board shall encourage the selection of a mix of competent directors, each of whom can add value and
independent judgment in the formulation of sound corporate strategies and policies. Careful attention must be
given to ensure that there is independence and diversity, and appropriate representation of women in the Board to
the greatest extent possible. (Charter of the Board of Directors, Section 2.2)
Does it ensure that at least one non-executive director has an experience in the sector or industry the company
belongs to? Please explain.
Yes. Mr. Amano, a Non-Executive Director of the Corporation, is the General Manager of Mitsubishi CorporationManila Branch. Mitsubishi Corporation is also a holding company. Mr. del Rosario, an Independent Director of the
10

Corporation, has been the President and CEO of Phinma, Corporation, a holding company, for at least ten years.
Define and clarify the roles, accountabilities and deliverables of the Executive, Non-Executive and Independent
Directors:
Executive Directors
Role
Deliverables

Accountabilities

Non-Executive Directors

Independent Directors

1.

Conduct fair business transaction with the

Perform the same roles
corporation and ensure that personal interest
and deliverables as those
does not bias Board decisions.
given to the executive
2. Devote time and attention necessary to properly and non-executive
discharge his duties and responsibilities.
directors. In addition,
3. Before deciding on any matter brought before
independent directors
the Board, every director should carefully study
serve as chairs of the
the issue.
Audit Committee, Risk
4. The director should view each company issues
Management
objectively and support plans and ideas which
Committee,
he believes are beneficial to the Company.
Compensation
5. The director should be knowledgeable of the
Committee and
statutory and regulatory requirements affecting Nomination Committee
the corporation.
of the Company.
6. The director should not disclose any non-public
information of the Company to any person
without the authority of the Board.
7. Each director is responsible for assuring that
actions taken by the Board maintain the
adequacy of the control environment within the
Corporation.
8. Prior to assuming office, the director is expected
to attend a seminar on corporate governance
conducted by a duly recognized private or
government institution.
Directors who willfully and knowingly vote for or assent to patently unlawful acts
of the Corporation or who are guilty of gross negligence or bad faith in directing
the affairs of the Corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors, shall be liable jointly and severally for
all damages resulting therefrom suffered by the Corporation, its stockholders
and other persons.
When a director attempts to acquire or acquires, in violation of his duty, any
interest adverse to the Corporation in respect of any matter which has been
reposed in him in confidence, as to which equity imposes a disability upon him to
deal in his own behalf, he shall be liable as a trustee for the Corporation and
must account for the profits which otherwise would have accrued to the
Corporation.

Provide the companys definition of "independence" and describe the companys compliance to the definition.
The Corporation adheres to both Philippine law and the rules of the Securities and Exchange Commission and of
the Philippine Stock Exchange (the Philippine Requirements) and the standards set by the Association of
Southeast Asian Nations (ASEAN) for the strengthening of the ASEAN capital market development and integration
for the establishment of an ASEAN Economic Community (the ASEAN Standards) in the determination of
independent directors. In line with this, the Corporation has adopted two classes of independent directors: the first
class is for compliance with Philippine Requirements, while the second class is for compliance with ASEAN
Standards.
Independent directors under the Philippine Requirements shall, apart from their fees and shareholdings, hold no
interests or relationships with the Corporation that may hinder their independence from the Corporation,
Management or shareholders which could or could reasonably be perceived to, materially interfere with the
11

exercise of independent judgment in carrying out the responsibilities of a director. For this purpose, each
independent director submits to the Corporate Secretary a letter of confirmation stating that he holds no interest
affiliated with the Corporation, the Management or controlling stockholder at the time of his election or reelection.
On the other hand, independent directors under the ASEAN standards shall also possess the qualifications and
none of the disqualifications for independent directors under the Philippine Requirements provided and except
that, when relevant in the application of the qualifications and disqualifications, a substantial stockholder shall
mean a stockholder who possesses the power to direct or govern, directly or indirectly, the financial and operating
policies of the Corporation so as to obtain benefits from its activities. (Charter of the Board of Directors, Section 2.4
and Annex A)
Does the company have a term limit of five consecutive years for independent directors? If after two years, the
company wishes to bring back an independent director who had served for five years, does it limit the term for no
more than four additional years? Please explain.
Yes. The independent directors of the Corporation, considered as such in accordance with SEC Memorandum
Circular No. 16, series of 2002, can serve for five (5) consecutive years, provided that service for the a period of at
least six (6) months shall be equivalent to one (1) year, regardless of the manner by which the independent
director position was relinquished or terminated. After completion of the five-year service period, an independent
director shall be ineligible for election as such in the Corporation unless the independent director has undergone a
cooling off period of two (2) years, provided, that during such period, the independent director concerned has
not engaged in any activity that under existing rules of the SEC disqualifies a person from being elected as
independent director of the Corporation. An independent director re-elected as such in the Corporation after the
cooling off period can serve for another four (4) consecutive years under the conditions mentioned above. After
serving as independent director for nine (9) years, the independent director shall be perpetually barred from being
elected as such in the Corporation, without prejudice to being elected as independent director in other companies
outside of the business conglomerate, where applicable, under the same conditions provided for in the rules and
regulations of the Securities and Exchange Commission. (Charter of the Board of Directors, Sections 4.6 - 4.8)
5) Changes in the Board of Directors (Executive, Non-Executive and Independent Directors)
(a) Resignation/Death/Removal
Indicate any changes in the composition of the Board of Directors that happened during the period:
None.
Name

Position

Date of Cessation

Reason

N.A.
(b) Selection/Appointment, Re-election, Disqualification, Removal, Reinstatement and Suspension
Describe the procedures for the selection/appointment, re-election, disqualification, removal, reinstatement
and suspension of the members of the Board of Directors. Provide details of the processes adopted
(including the frequency of election) and the criteria employed in each procedure:
Procedure

Process Adopted

Criteria

The stockholders of the

Company may submit written
nominations to the Board at
least 30 business days before
the next annual meeting of the
stockholders. The Nomination
Committee evaluates the
nominees and approves a list

A director of the Company

shall have the following
qualifications:
1. Ownership of at least one
(1) share of the capital
stock of the Company;
2. College degree or its
equivalent or adequate

a. Selection/Appointment
(i) Executive Directors
(ii) Non-Executive Directors
(iii) Independent Directors

12

of nominees eligible to be
elected as members of the
Board.
The Nomination Committee
likewise identifies and
recommends qualified
individuals for nomination and
election to the Board through
the use of professional search
firms and other external
sources of candidates.

3.

4.

5.

6.

competence and
understanding of the
fundamentals of doing
business or sufficient
experience and
competence in managing
a business;
Relevant qualifications,
such as previous business
experience, membership in
good standing in relevant
industry and membership
in business or professional
organizations;
Integrity, probity,
diligence and
assiduousness in the
performance of his
functions;
Directorships in other
companies, taking into
account the following
factors:
i) the nature of the
business of the
Corporation
ii) the number of directors
in other companies;
iii) any possible conflict of
interest; and
iv) the age of the director;
and
For independent directors,
beneficial equity
ownership in the
Corporation or in its
related companies, which
must not exceed two
percent (2%).

b. Re-appointment
(i) Executive Directors
(ii) Non-Executive Directors
(iii) Independent Directors

The stockholders of the

Company may submit written
nominations to the Board at
least 30 business days before
the next annual meeting of the
stockholders. The Nomination
Committee evaluates the
nominees and comes up with
list of nominees eligible to be
elected as members of the
Board.
The Nomination Committee
likewise identifies and
recommends qualified
individuals for nomination and
election to the Board through
the use of professional search

A director of the Company

shall have the following
qualifications:
1. Ownership of at least one
(1) share of the capital
stock of the Company;
2. College degree or its
equivalent or adequate
competence and
understanding of the
fundamentals of doing
business or sufficient
experience and
competence in managing
a business;
3. Relevant qualifications,
such as previous business
experience, membership in
13

firms and other external

sources of candidates.

4.

5.

6.

7.

good standing in relevant

industry and membership
in business or professional
organizations;
Integrity, probity,
diligence and
assiduousness in the
performance of his
functions;
Directorships in other
companies, taking into
account the following
factors:
i) the nature of the
business of the
Corporation
ii) the number of directors
in other companies;
iii) any possible conflict of
interest; and
iv) the age of the director;
For independent directors,
beneficial equity
ownership in the
Corporation or in its
related companies, which
must not exceed two
percent (2%); and
The term limit set for
independent directors
under applicable laws,
rules and regulations.

c. Permanent Disqualification
(i) Executive Directors
(ii) Non-Executive Directors
(iii) Independent Directors

The Company abides with the

rules set forth in its Manual of
Corporate Governance, the SEC
Code of Corporate Governance
and existing laws.

The following persons are

disqualified from being a
director of the Corporation:
1. Any person who has been
finally convicted by a
competent judicial or
administrative body of any
crime involving the
purchase or sale securities,
arising out of the persons
conduct as an underwriter,
broker, dealer, and arising
out of his relationship with
a bank, quasi-bank and
investment house.
2. Any person finally convicted
judicially of an offense
involving moral turpitude or
fraudulent acts or
transgressions;
3. Any person finally found by
the SEC or a court or other
administrative body to have
willfully violated or willfully
aided any provision of the
14

Securities Regulation Code;

4. Any person judicially
declared to be insolvent;
5. Any person finally found
guilty by a foreign court or
equivalent financial
regulatory authority of
acts, violation or
misconduct listed above;
6. Any person convicted by
final and executory
judgment of an offense
punishable by
imprisonment for a period
exceeding six (6) years, or a
violation of the Corporation
Code, committed within
five (5) years prior to the
date of his election of
appointment;
7. Any person engaged in any
business which competes
with or is antagonistic to
that of the Corporation;
and
8. After serving as
independent director for
nine years, the independent
director shall be perpetually
barred from being elected
as such in the Corporation,
without prejudice to being
elected as independent
director in other companies
outside of the business
conglomerate, where
applicable, under the same
conditions provided for in
the rules and regulations of
the SEC.
d. Temporary Disqualification
(i) Executive Directors
(ii) Non-Executive Directors
(iii) Independent Directors

The Company abides with the

rules set forth in its Manual of
Corporate Governance, the SEC
Code of Corporate Governance
and existing laws. The
temporary disqualification of
the director requires a
resolution of a majority of the
Board

1. The following are the

grounds for temporary
disqualification of
incumbent directors:
Refusal to fully disclose
the extent of his business
interest as required under
the Securities Regulation
Code and Implementing
Rules and Regulations.
2. Absence or nonparticipation for whatever
reason/s other than
illness, death of
immediate family or
serious accident in at least
75% of all board meetings
15

during his incumbency, or

any twelve month period
during his incumbency.
3. Dismissal or termination
from directorship in
another listed corporation;
4. Being under preventive
suspension by the
Corporation for any
reason; and
5. Conviction that has not yet
become final referred to in
the grounds for
disqualification of
directors
e. Removal
(i) Executive Directors
(ii) Non-Executive Directors
(iii) Independent Directors

The removal of directors

requires an affirmative vote of
2/3 of the outstanding capital
stock of the Company.

A director may be removed

with or without cause with
the affirmative vote of
shareholders owning 2/3 of
outstanding capital stock.
However, a director may not
be removed without cause if it
will deny minority
shareholders representation
in the Board.

f. Re-instatement
(i) Executive Directors
(ii) Non-Executive Directors

A temporary disqualified director shall, within 60 business days

from such disqualification, take the appropriate action to
remedy or correct the disqualification.

(iii) Independent Directors

If the beneficial security ownership of an independent director in
the Corporation or in its related companies exceeds 2%, the
Corporation shall cease to consider him as an independent
director until his beneficial security ownership is reduced to 2%
or lower.
g. Suspension
(i) Executive Directors
(ii) Non-Executive Directors

After due notice and hearing, a director who violates the

Manual of Corporate Governance will be subjected to the
penalties as set forth in the said Manual.

(iii) Independent Directors

Voting Result of the last Annual General Meeting
Name of Director
Jaime Augusto Zobel de Ayala
Fernando Zobel de Ayala
Delfin L. Lazaro
Yoshio Amano
Xavier P. Loinaz
Ramon R. Del Rosario, Jr.
Antonio Jose U. Periquet
*Percentage out of the registered voting shares

Votes Received (in favor)*

620,331,407 (93.40%)
620,045,688 (93.36%)
620,190,375 (93.38%)
619,108,485 (93.21%)
626,321,226 (94.30%)
622,893,401 (93.78%)
623,167,531 (93.83%)

16

6) Orientation and Education Program

(a) Disclose details of the companys orientation program for new directors, if any.
The Corporate Secretary briefs each new director of the By-laws and Manual of Corporate Governance, the
schedule of regular meetings of the Board and Board committees, their rights, including access to information
and advice, and the procedure and processes for the provision of information to them.
The Office of Corporate Strategy and the Chief Finance Officer give each new director a briefing of existing and
planned investments, current strategic directions, budgets and internal controls and processes.
Prior to assuming office, each director is required to attend a seminar on corporate governance conducted by
a duly recognized private or government institution.
(b) State any in-house training and external courses attended by Directors and Senior Management3 for the past
three (3) years:

Ayala-LEAP (Ayala Leadership Acceleration Program)

EAGLE (Emerging Ayala Group Leaders Program)
The Leadership Circle (integrated within Ayala-LEAP and EAGLE)
LEAP Alumni Learning Series (presentations by visiting professors and practitioners in the fields of
customer centricity, strategy, leadership, etc.)
Executive Coaching
Ayala Group Corporate Governance Summit
Corporate Governance and Risk Management for Banks
Corporate Governance Orientation Program by the Institute of Corporate Directors (ICD)
Corporate Governance Seminar by SyCip Gorres Velayo & Co. (SGV)
Ayala Group Sustainability Summit
Ayala Group Corporate Governance and Risk Management Summit held on 4 February 2014
Ayala Group Corporate Governance Summit held on 18 February 2015

(c) Continuing education programs for directors: programs and seminars and roundtables attended during the
year.
Name of
Director/Officer
Jaime Augusto Zobel
de Ayala
Fernando Zobel de
Ayala
Yoshio Amano (NED)

Date of Training

Program

February 18, 2015

Ayala Group Corporate

Governance Summit

Name of Training
Institution
Institute of Corporate
Directors, Inc.

Delfin L. Lazaro (NED)

Xavier P. Loinaz (ID)
Ramon R. del Rosario
(ID)
Antonio Jose U.
Periquet (ID)
The directors of the Corporation, in their own capacity or as sponsored by the Corporation, attend education
programs, seminars, and roundtable discussions on corporate governance with service providers that are duly
accredited by the SEC.

Senior Management refers to the CEO and other persons having authority and responsibility for planning, directing
and controlling the activities of the company.
17

B. CODE OF BUSINESS CONDUCT & ETHICS

1) Discuss briefly the companys policies on the following business conduct or ethics affecting directors, senior
management and employees:
Business Conduct &
Ethics
(a) Conflict of Interest

(b) Conduct of Business

and Fair Dealings

(c) Receipt of gifts from

third parties

Directors

Senior Management

Employees

All the Corporations directors, officers and employees are expected to avoid
situations of conflicts of interest or impropriety. Directors, officers and employees
who have personal or pecuniary interest on any enterprise with which the
Corporation has an existing or intended transaction shall fully disclose the relevant
facts of the situation.
All directors, officers, and employees shall:
1. Deal fairly with the Corporations customers, suppliers and business partners,
and with the government, competitors and colleagues;
2. Not take undue advantage through misrepresentation of material facts,
concealment, manipulation, or any other form of unfair dealing practice; and
3. Treat everyone with respect and act in good faith and with integrity and sense of
professionalism at all times.
Directors, officers and employees shall not accept gifts or invitations of any form
from any supplier, customer or business partner of the Corporation, or from any
third person or entity with existing or intended business dealings with the
Corporation, except when the gift or invitation is:
directly attributable to purely familial or personal relationships;
only of nominal value;
a simple promotional item or is part of the suppliers public relations program;
or
part of business meetings or discussions.
However, when the gift does not fall under any of the above-mentioned conditions,
the Company encourages the employee to turn over the gift to Strategic Human
Resources and Organization Development for inclusion in the Company Christmas
party raffle.

(d) Compliance with

Laws & Regulations

(e) Respect for Trade

Secrets/Use of Nonpublic Information

Directors, officers and employees must immediately report any offer or gift of any
value given to them or their immediate family with a view to get favors or to
influence business recommendations, proposals or decisions affecting the
Corporation or any of its related companies. The report shall be made to the
Chairman of the Board in the case of the directors, President and CEO, to the
President in case of the Managing Directors, and to the Group Head and Unit Heads
in the case of employees. All disclosures shall be submitted to the Managing
Director for Strategic Human Resources.
Ayala expects its directors, officers and employees to conduct business in
accordance with Philippine laws and regulations. Employees are encouraged to
consult with Corporate Governance Group and the Office of General Counsel
whenever there is any doubt concerning the legality of any matter.
Any suspected criminal violations will be reported to the appropriate authorities.
Non-criminal violations will be investigated and addressed as appropriate.
The directors, officers and employees shall strictly observe company rules that
provide for restrictions to access to classified information and controls on the
release of such information to other companies, agencies, parties or to the general
public. The directors, officers and employees shall not release classified information
unless authorized by Management. They should shall maintain the integrity of all
company documents and records and protect them against unauthorized or
improper alteration, forgery, concealment or destruction.
18

(f) Use of Company

Funds, Assets and
Information

(g) Employment &

Labor Laws &
Policies

(h) Disciplinary action

(i) Whistle Blower

All directors, officers and employees shall be responsible for the proper use of all
company assets and resources, which include, but are not limited to, information,
facilities, equipment, software, vehicles and supplies owned or leased by the
Corporation or are otherwise in its possession, They shall use company assets and
resources efficiently, responsibly and for legitimate business purposes only.
The Company is consistently compliant with the Philippine labor laws, its
implementing rules & regulations, DOLE department orders and circulars. The Ayala
Group (AG) networks on Labor and Employee Relations, with oversight provided by
the AG Human Resource Council, meet regularly to, among other functions, monitor
and share current trends in, including strict observance of, legislation and
jurisprudence on laws, proclamations and orders involving employee and labor
relations .
The Company, in the spirit of its shared and corporate values, holds all its employees
in esteem and believes in protecting their rights, implementing discipline with firm
but fair actions. At the same time, it expects each of its employees to respect the
rights of fellow employees at all times and strive to live out these shared values in
conducting personal and business affairs with: integrity; long-term vision;
empowering leadership; commitment to national development.
All offenses or violations of Company policies and rules shall be dealt with
accordingly.
As expressly provided in its Code of Conduct and Ethics and the Whistleblower
Policy, the Company encourages directors, officers, and employees, and all
suppliers, business partners, contractors and sub-contractors to come forward and
raise serious concerns about a perceived wrongdoing, malpractice or risk involving
the Corporation. The whistleblower may send or communicate a report, formally or
anonymously, through a face-to-face meeting with the members of the Disclosure
Committee, or email to whistleblower@ayala.com.ph.
The Disclosure Committee will forthwith conduct investigations and, applying the
rules of due process, make the appropriate recommendations on personnel actions.

(j) Conflict Resolution

Should it be determined by the Committee that a whistleblower knowingly (a)

submitted a report containing false allegations or (b) presented fabricated evidence,
the whistleblower shall be subject to disciplinary or legal action pursuant to the
policies and procedures of the Corporation, and any applicable laws.
The Company adheres to the ideals of justice and fairness in its business and in all
its dealings with its Employees. The Company provides for an Investigation
Committee to look into serious violations of Company policies, rules and regulations.

2) Has the code of ethics or conduct been disseminated to all directors, senior management and employees?
Yes. All employees have copies of the Code of Conduct and Ethics. Part of the on-boarding program of all newly
hired employees is the orientation on the Code of Conduct and Ethics to keep them informed in the same manner
that the existing employees, as well as the directors, chairman, and senior management, are aware and informed.
They are provided with the Code of Conduct and Ethics handbook.
3) Discuss how the company implements and monitors compliance with the code of ethics or conduct.
The Strategic Human Resources has the specific task of implementing and monitoring compliance with the
provisions of the Code. It is responsible for:
ensuring that the contents of the Code are communicated to all existing and new directors, officers and
employees, and requiring each to sign an acknowledgment receipt that he/she has read and understood the
same and agrees to abide with the standards and norms set forth therein;
making the Code available on the company intranet for ease of access;
requiring all directors, officers and employees to declare annually that they have complied with the Code,
specifically on the provisions of conflict of interest and insider trading;
investigating reported violations of the Code and impose sanctions for violations determined after investigation;
19

 reviewing and continuously updating the Code; and

drafting and promulgating the Implementing Rules for the effective implementation of the Code, subject to the
approval of the President and CEO.
Management is also responsible for enforcing and monitoring compliance with the Code within their respective
area of jurisdiction and taking or implementing disciplinary action after proper investigation.
All directors, officers and employees have the duty to report non-compliance with the Code and its Implementing
Rules that may come to their knowledge and attention, in accordance with the relevant company rules and
procedures.
Any violation shall be dealt with in accordance with the procedures provided in the Implementing Rules, the
Corporations Human Resources Manual of Policies and Procedures, the Employee Handbook and other existing
company policies and proper observance of the requirements of due process. This shall be without prejudice to the
filing of any legal action against the party concerned under existing laws.
4) Related Party Transactions
(a) Policies and Procedures
Describe the companys policies and procedures for the review, approval or ratification, monitoring and
recording of related party transactions between and among the company and its parent, joint ventures,
subsidiaries, associates, affiliates, substantial stockholders, officers and directors, including their spouses,
children and dependent siblings and parents and of interlocking director relationships of members of the
Board.
The Companys Related Party Transactions (RPT) policy was revised, approved and was in effect in December
2014.
It is the policy of Ayala Corporation (Corporation) that related party transactions between the Corporation
and related parties shall be subject to review and approval to ensure that they are at arms length, the
terms are fair, and they will inure to the best interest of the Corporation and its shareholders.
Related party transactions shall be disclosed, reviewed and approved in accordance with the policy consistent
with the principles of transparency and fairness.
The policy also defines related party as a person or entity that is related to the entity that is preparing its
financial statements, also referred to as the reporting entity.
A person or a close member of that persons family is related to a reporting entity if that person has
control or joint control over the reporting entity; has significant influence over the reporting entity; or
is a member of the key management personnel of the reporting entity or of a parent of the reporting
entity.
An entity is related to a reporting entity if any of the following conditions applies:
o The entity and the reporting entity are members of the same group (which means that each
parent, subsidiary and fellow subsidiary is related to the others)
o One entity is an associate or joint venture of the other entity (or an associate or joint venture
of a member of a group of which the other entity is a member)
o Both entities are joint ventures of the same third party.
o One entity is a joint venture of a third entity and the other entity is an associate of the third
party
o The entity is a post-employment benefit plan for the benefit of employees of either the
reporting entity or an entity related to the reporting entity. If the reporting entity is itself
such a plan, the sponsoring employers are also related to the reporting entity.
o The entity is controlled or jointly controlled by a person of the reporting entity
o A person of the reporting entity has significant influence over the entity or is a member of
the key management personnel of the entity (or of a parent of the entity).
o The entity, or any member of a group of which it is a part, provides key management
personnel service to the reporting entity or to the parent of the reporting entity.
20

Material/significant related party transactions shall be reviewed by the Risk Management Committee and
endorsed to the Board of Directors for approval. Material/significant related party transactions are those
transactions involving Php50 million and over.
The Board shall approve a material/significant RPT before its commencement. If not identified beforehand,
the material/significant RPT must be subsequently reviewed by the Committee and ratified by the Board or the
same may be discontinued, rescinded or modified to make it acceptable for ratification.
The Committee considers the following factors in the review of the RPTs:
The terms of the transaction;
The aggregate value of the transaction;
Whether the terms of the transaction are no less favorable than those generally available to nonrelated parties under the same or similar circumstances;
The extent of Related Partys interest in the transaction;
Purpose and timing of the transaction;
Whether the transaction would present an improper conflict of interest or special risks or
contingencies for the Corporation, or the related party taking into account the size of the transaction
and the overall financial position of the Related Party; and
Any material information or other factors the Committee deems relevant.
The Group Risk Management Unit monitors RPTs for approval of the Risk Management Committee while the
Controllership Unit ensures that RPTs are properly disclosed in the Corporations financial statements, and
other applicable fillings in accordance with the relevant rules and issuances of the Securities and Exchange
Commission and other regulatory bodies.
Related Party Transactions
(1) Parent Company
(2) Joint Ventures
(3) Subsidiaries
(4) Entities Under Common Control
(5) Substantial Stockholders
(6) Officers including
spouse/children/siblings/parents
(7) Directors including
spouse/children/siblings/parents
(8) Interlocking director relationship
of Board of Directors

Policies and Procedures

All transactions with related parties are made on terms
equivalent to those that prevail in arms length transactions.
There have been no guarantees provided or received for any
related party receivables or payables. An assessment is
undertaken each financial year through examining the
financial position of the related parties and the markets in
which the related parties operate.
Annual disclosure of business interests and adherence to ACs
Insider Trading Policy to uphold transparency and practice
corporate governance.

(b) Conflict of Interest

(i) Directors/Officers and 5% or more Shareholders
Identify any actual or probable conflict of interest to which directors/officers/5% or more shareholders
may be involved.

Name of Director/s
Name of Officer/s
Name of Significant Shareholders

Details of Conflict
of Interest (Actual or Probable)
N.A.
N.A.
N.A.

(ii) Mechanism
Describe the mechanism laid down to detect, determine and resolve any possible conflict of interest
21

between the company and/or its group and their directors, officers and significant shareholders.

Company

Directors/Officers/Significant Shareholders
The Companys Human Resources Manual of Policies and
Procedures, the Employee Handbook, and the Code of
Conduct and Ethics apply to directors, officers and
employees. They provide principles, guidelines and
standards by which officers are expected to conduct
themselves.
Directors, employees and officers are required to submit
Annual Disclosure of business interests and adherence to the
companys Insider Trading Policy to uphold transparency
and practice corporate governance.
If a director has an interest in a matter under consideration
by the board, then the director is not allowed to participate
in those discussions and the board should follow any further
appropriate processes. Individual directors should be
conscious of shareholder and public perceptions and seek to
avoid situations where there might be an appearance of a
conflict of interest.

Group

Independent directors are aware of the shareholders and

publics perceptions and they are guided to avoid situations
where there could be an appearance of conflict of interest.
Each company in the Group has its Manual of Policies and
Procedures and Code of Conduct which apply to directors,
officers and employees.

5) Family, Commercial and Contractual Relations

(a) Indicate, if applicable, any relation of a family,4 commercial, contractual or business nature that exists
between the holders of significant equity (5% or more), to the extent that they are known to the company:
Names of Related
Significant Shareholders
None

Type of Relationship

Brief Description of the

Relationship

(b) Indicate, if applicable, any relation of a commercial, contractual or business nature that exists between the
holders of significant equity (5% or more) and the company:
Names of Related
Significant Shareholders
None

Type of Relationship

Brief Description

(c) Indicate any shareholder agreements that may impact on the control, ownership and strategic direction of
the company:
4

Family relationship up to the fourth civil degree either by consanguinity or affinity.

22

Name of Shareholders

% of Capital Stock affected

(Parties)

Brief Description of the

Transaction

None that the Company is

aware of.

6) Alternative Dispute Resolution

Describe the alternative dispute resolution system adopted by the company for the last three (3) years in amicably
settling conflicts or differences between the corporation and its stockholders, and the corporation and third
parties, including regulatory authorities.
Alternative Dispute Resolution System
Corporation & Stockholders
The Company has no record of conflicts
or differences with its stockholders,
Corporation & Third Parties
regulatory authorities and other third
Corporation & Regulatory Authorities
parties.
However, it is the policy of the Company
to resolve disputes or differences with
stockholders, regulatory authorities and
other third parties, if and when such
disputes or differences arise, through
mutual consultation or negotiation,
mediation or arbitration.

C. BOARD MEETINGS & ATTENDANCE

1) Are Board of Directors meetings scheduled before or at the beginning of the year?
Yes. . At the beginning of the year, the Office of the Corporate Secretary sends to the directors, though email, the
schedule of board meetings for the year as follows:
January 14, 2015
March 10, 2015
April 10, 2015
June 25, 2015
September 3, 2015 and
December 3, 2015
2) Attendance of Directors

Board

Name

Date of
Election

No. of
Meetings Held
during the
year*

No. of
Meetings
Attended*

Chairman

Jaime Augusto Zobel de Ayala

April 10, 2015

100%

Member

Fernando Zobel de Ayala

April 10, 2015

100%

Member

Delfin L. Lazaro

April 10, 2015

100%

Member

Yoshio Amano

April 10, 2015

100%

Independent

Xavier P. Loinaz

April 10, 2015

100%
23

Independent

Ramon R. Del Rosario, Jr.

April 10, 2015

100%

Independent

Antonio Jose U. Periquet

April 10, 2015

100%

*Meetings in 2014 and during the incumbency of the director.

3) Do non-executive directors have a separate meeting during the year without the presence of any executive? If
yes, how many times?
Yes, once in 2014.
4) Is the minimum quorum requirement for Board decisions set at two-thirds of board members? Please explain.
Yes. Two-thirds (2/3) of the number of directors as fixed in the articles of incorporation constitute a quorum for the
transaction of corporate business.
5) Access to Information
(a) How many days in advance are board papers5 for board of directors meetings provided to the board?
The board materials for the board of directors meetings are being distributed to the directors at least five
business days before the meeting.
(b) Do board members have independent access to Management and the Corporate Secretary?
Yes, board members are free to contact the General Counsel and Corporate Secretary, and any of the
management team to discuss issues or matters that need clarification in the discharge of their duties as
members of the Corporations board of directors.
(c) State the policy of the role of the company secretary. Does such role include assisting the Chairman in
preparing the board agenda, facilitating training of directors, keeping directors updated regarding any
relevant statutory and regulatory changes, etc?
The Corporate Secretary of the Corporation has the following functions:
(a) Serve as an adviser to the directors on their responsibilities and obligations;
(b) Keep the minutes of meetings of the stockholders, the Board of Directors, the Executive Committee, and
all other committees in a book or books kept for that purpose, and shall furnish copies thereof to the
Chairman, the President and other members of the Board as appropriate;
(c) Keep in safe custody the seal of the Corporation and affix it to any instrument requiring the same;
(d) Have charge of the stock certificate book and such other books and papers as the Board may direct;
(e) Attend to the giving and serving of notices of Board and shareholder meetings;
(f) Be fully informed and be part of the scheduling process of other activities of the Board;
(g) Prepare an annual schedule of board meetings and the regular agendas of meetings, and put the Board
on notice of such agenda at every meeting;
(h) Oversee the adequate flow of information to the Board prior to meetings;
(i) Ensure fulfillment of disclosure requirements of the Securities and Exchange Commission and the
Philippine Stock Exchange.
Yes, the role of the Corporate Secretary includes assisting the Chairman in preparing the board agenda,
facilitating training of directors, keeping directors updated regarding any relevant statutory and regulatory
changes, etc.
(d) Is the company secretary trained in legal, accountancy or company secretarial practices? Please explain
should the answer be in the negative.

Board papers consist of complete and adequate information about the matters to be taken in the board meeting.
Information includes the background or explanation on matters brought before the Board, disclosures, budgets,
forecasts and internal financial documents.
24

Yes. The Corporate Secretary possesses organizational and interpersonal skills, and the legal skills of a chief
legal officer. He also has financial and accounting knowledge.
(e) Committee Procedures
Disclose whether there is a procedure that Directors can avail of to enable them to get information necessary
to be able to prepare in advance for the meetings of different committees:
Yes

No

Committee

Details of the procedures

Executive
Audit
Risk Management
Nomination
Remuneration
Finance
Inspectors of Proxies and Ballots

1. The Office of the Corporate Secretary sends the board

materials at least five business days before the scheduled
meeting.
2. The board materials provide supporting information for
matters for approval of the directors during the meeting.
3. The Company meets with the independent directors, nonexecutive directors and executive directors, individually or in
groups, as may be necessary for management to keep the
directors informed and to seek guidance.

6) External Advice
Indicate whether or not a procedure exists whereby directors can receive external advice and, if so, provide
details:
The General Counsel and Corporate Secretary of the Company attends to the directors concerns. When necessary,
the General Counsel and Corporate Secretary may recommend to the directors to seek for an advice from third
parties.
7) Change/s in existing policies
Indicate, if applicable, any change/s introduced by the Board of Directors (during its most recent term) on existing
policies that may have an effect on the business of the company and the reason/s for the change:
Existing Policies

Changes

Reason

None

D. REMUNERATION MATTERS
1) Remuneration Process
Disclose the process used for determining the remuneration of the CEO and the four (4) most highly compensated
management officers:
Process

CEO

(1) Fixed remuneration

Approved by the Board of

Directors upon the
recommendation of the
Compensation Committee of
the Board.

(2) Variable remuneration

The Company adopts a

performance-based variable

Top 4 Highest Paid

Management Officers
Approved by the Board of
Directors upon the
recommendation of the
Compensation Committee of the
Board and the Chairman of the
Board
The Company adopts a
performance-based variable pay
25

pay program aligned with

business strategy. It is
determined by the
Compensation Committee of
the Board and duly approved by
the Board of Directors.
(3) Per diem allowance

(4) Bonus

(5) Stock Options and

other financial
instruments
(6) Others (specify)

program aligned with business

strategy. The Performance
Bonus Pie is approved by the
Compensation Committee of the
Board. Individual amount is
approved by the Chairman and
CEO and the President and COO.
In the conduct of business abroad, per diem allowance is provided
to reimburse miscellaneous expenses like airport fees, travel tax,
taxi fare, laundry and phone allowance.
The Company adopts a
The Company adopts a
performance-based variable
performance-based variable pay
pay program aligned with
program aligned with business
business strategy. It is
strategy. The Performance
determined by the
Bonus Pie is approved by the
Compensation Committee of
Compensation Committee of the
the Board and duly approved by Board. Individual amount is
the Board of Directors.
approved by the Chairman and
CEO and the President and COO.
The Stock Option Plan is used as a guide in the selection of
grantees, the size of the grant, the offer price and the discount. The
grant is approved by the Board of Directors upon the
recommendation of the Compensation Committee of the Board.
N.A.

N.A.

2) Remuneration Policy and Structure for Executive and Non-Executive Directors

Disclose the companys policy on remuneration and the structure of its compensation package. Explain how the
compensation of Executive and Non-Executive Directors is calculated.
Remuneration
Policy

Structure of
Compensation Packages

Executive Directors

Directors who hold

executive or
management
positions do not
receive directors
fees.

Fixed and variable

compensation, stock
options and other
benefits (for the executive
position).

Non-Executive Directors

Each director shall

be entitled to
receive from the
Corporation,
pursuant to a
resolution of the
Board of directors,
fees and other
compensation for
his services as
director. The Board
of Directors shall
have the sole
authority to
determine the
amount, form and
structure of the fees

Retainer fee: P1,200,000;

Board meeting fee per
meeting attended:
P200,000;
Audit committee meeting
fee per meeting attended:
P100,000;
Other committee meeting
fee per meeting attended:
P50,000.

How
Compensation is
Calculated
Based on the role,
responsibility,
performance of the
company and the
individual,
contribution to the
organization, and
market.
The Board of
Directors shall
have the sole
authority to
determine the
amount, form and
structure of the
fees and other
compensation of
the directors. In no
case shall the total
yearly
compensation of
directors exceed
one percent (1%) of
the net income
before tax of the
26

and other
compensation of the
directors. The
Compensation
Committee shall
have the
responsibility of
recommending to
the Board of
Directors the fees
and other
compensation for
directors. In
discharging this
duty, the committee
shall be guided by
the objective of
ensuring that the
level of
compensation
should fairly pay
directors for work
required in a
company of the
Corporations size
and scope.

Corporation during
the preceding year.

Do stockholders have the opportunity to approve the decision on total remuneration (fees, allowances, benefitsin-kind and other emoluments) of board of directors? Provide details for the last three (3) years.
Yes. On April 18, 2011, the stockholders of the Corporation approved the increase in the compensation of the nonexecutive directors. The rationale for such increase in compensation is to recognize the invaluable services
rendered by the directors of the Corporation in successfully governing the business of the Corporation.
Remuneration Scheme
Retainer Fee: P1.2 Million annually
Board Meeting Fee: P200,000 for every meeting
attended
Audit Committee Meeting: P100,000 for every
meeting attended
Other Committee Meeting: P50,000 for every
meeting attended

Date of
Stockholders Approval
April 18, 2011
April 18, 2011
April 18, 2011
April 18, 2011

3) Aggregate Remuneration
Complete the following table on the aggregate remuneration accrued during the most recent year:

Remuneration Item
(a)
(b)
(c)
(d)
(e)

Fixed Remuneration
Variable Remuneration
Per diem Allowance
Bonuses
Stock Options and/or
other financial

Executive
Directors
The Executive
Directors do
not receive
remuneration
as directors.

Non-Executive Directors
(other than independent
directors)
P2,400,000.00
none
P3,500,000.00
none
none

Independent
Directors
P3,600,000.00
none
P5,550,000.00
none
none

27

instruments
(f) Others (Specify)
Total

none

none

P 5,900,000.00

P 9,150,000.00

Non-Executive Director
(other than independent
directors)

Independent
Directors

none

none

none

none

none

none

(d) Pension Plans, Obligations

incurred

none

none

(e) Life Insurance Premium

none

none

(f) Hospitalization Plan

none

none

(g) Car Plan

none

none

(h) Others (Specify)

none

none

Executive
Directors

Other Benefits

The Executive
Directors do not
receive
remuneration
as directors.

(a) Advances
(b) Credit granted
(c) Pension Plan/s
Contributions

Total
4) Stock Rights, Options and Warrants
(a) Board of Directors
Complete the following table, on the members of the companys Board of Directors who own or are entitled
to stock rights, options or warrants over the companys shares:

Directors Name

46,826
140,559

Number of
Indirect
Option/Rights/
Warrants
None
None

140,559

None

Number of Direct
Option/Rights/
Warrants

Delfin L. Lazaro
Fernando Zobel
de Ayala
Jaime Augusto
Zobel de Ayala

Number of
Equivalent
Shares

Total % from
Capital Stock

46,826
140,559

0.0078%
0.0234%

140,559

0.0234%

No rights and warrants were given to directors with their position as director of the company. Non-executive
and Independent Directors do not receive any compensation as director other than the retainer fee and per
diem as set forth above.
(b) Amendments of Incentive Programs
Indicate any amendments and discontinuation of any incentive programs introduced, including the criteria
used in the creation of the program. Disclose whether these are subject to approval during the Annual
Stockholders Meeting:
Incentive Program

Amendments

Date of
Stockholders Approval

None
5) Remuneration of Management
28

Identify the five (5) members of management who are not at the same time executive directors and indicate the
total remuneration received during the financial year:
Name of Officer/Position

Total Remuneration

John Eric T. Francia

Delfin C. Gonzalez, Jr.
Solomon M. Hermosura

P176M

Paolo Maximo F. Borromeo

John Philip S. Orbeta

29

E. BOARD COMMITTEES
1) Number of Members, Functions and Responsibilities
Provide details on the number of members of each committee, its functions, key responsibilities and the
power/authority delegated to it by the Board:

Committee

No. of Members
NonExecutiv
executiv
Independe
e
e
nt Director
Director
Director
(ID)
(ED)
(NED)

Committee
Charter

Executive

Yes

Audit

Yes

Functions

Key
Responsibiliti
es

Power

The Committee, in accordance with the

authority granted by the Board, or during
the absence of the Board, shall act by
majority vote of all its members on such
specific matters within the competence of
the Board of Directors as may from time to
time be delegated to the Executive
Committee in accordance with Corporations
By-Laws, except with respect to:
1. Approval of any action for which
shareholders approval is also required;
2. Filling of vacancies on the Board or in the
Executive Committee;
3. Amendment or repeal of By-Laws or the
adoption of new By-Laws;
4. Amendment or repeal of any resolution
of the Board of Directors which by its
express terms is not so amendable or
repealable;
5. Distribution of cash dividends; and
6. Exercise of powers delegated by the
Board exclusively to other committees, if
any.
Assists the Board of Directors in fulfilling its
responsibility for oversight of the
organizations corporate governance
processes, with the following particular
duties:
1. Regularly reports to the Board on the
results of the audits conducted by the
independent and internal auditors, the
integrity of the companys financial
statements, the appropriateness and
effectiveness of the systems of internal
controls, risk management, and
governance processes.
2. Recommends the appointment or reappointment of the independent
auditors; reviews and approves all audit,
audit-related, and permissible non-audit
services provided by the independent
auditors to Ayala and the related fees to
ensure that their independence is not
compromised.
3. Reviews and approves the Internal Audit
30

Charter to ensure the independence and

effectiveness of the internal audit
function; ensures that the internal audit
function is adequately resourced and all
its activities are performed in
accordance with the International
Standards for the Professional Practice
of Internal Auditing.
4. Reviews and approves the overall scope
and plans for the respective audits of
the companys internal auditors and
independent auditors, and the results of
their assessment of the companys
internal controls and overall quality of
the financial reporting process.
5. Reviews the quarterly and annual
financial statements and all related
disclosures with Management and the
independent auditors.
6. Reviews and assesses the adequacy of
the Audit Committee Charter at least
annually, requesting Board approval for
proposed changes.
7. Conducts self-assessment to evaluate
the effectiveness of their performance
as against the requirements of its
Charter and in accordance with the SEC
Memorandum Circular Number 4, Series
of 2012.
Reports annually to the Board of Directors
describing the committees composition,
responsibilities and how they were
discharged, and any other information
required by law; confirms annually that all
responsibilities outlined in its charter have
been carried out.
Risk
Management

Yes

The Risk Management Committee of the

Board of Directors is established by the
Board to provide assistance in fulfilling the
Boards oversight responsibilities in relation
to risk governance. The assistance includes
ensuring that Management maintains a
sound risk management framework and
internal control system, and identifies and
assesses material risk exposures, In
addition, the Committee:
1.

2.

Promotes an open discussion regarding

risks faced by the Corporation, as well
as risks faced by its subsidiaries that
may have potential impact on the
Corporations operations, and ensures
that risk awareness culture is pervasive
throughout the organization.
Reviews
and
discusses
with
Management the Corporations risk
governance structure and adequacy of
policies and processes for risk
31

identification,
assessment
and
mitigation.
3. Reviews and recommends to the
Management the Corporations levels
of risk appetite and risk tolerance, and
risk exposure allocation for approval by
the Board of Directors.
4. Reviews the Corporations risk profile
on an ongoing basis and re-evaluate
the likelihood of occurrence, severity of
impact of risk exposures, and any
mitigating measures affecting those
risks.
5. Monitors the implementation of the
Corporations risk mitigation plans and
other risk management activities with
the assistance of the risk management
function.
6. Reviews
and
discusses
risk
management-related reports and issues
raised by the Management, internal
auditors, external auditors, legal
counsel and regulators that impact the
Corporations
risk
management
framework.
7. Reviews disclosures regarding risk
contained in the Corporations Annual
Report and other publicly-issued
statements.
8. Reviews the objectivity, effectiveness
and efficiency of the Corporations risk
management function in the context of
the Corporations size, scale, complexity
and scope of operations.
9. Secures independent expert advice on
risk management matters where
considered necessary or desirable.
10. In coordination with the Audit
Committee,
ensures
that
the
Corporations internal audit work plan
is aligned with risk management
activities and that the internal control
system considers all risks identified in
the risk assessment process.
11. Determines the advisability of, and
review and evaluate the terms and
conditions of any material or significant
related party transactions and their
required reporting disclosures.
12. Performs other activities related to this
Charter as requested by the Board.
Nomination

Yes

1.

Review and monitor the structure, size

and composition of the Board and
make recommendations to ensure
compliance with applicable laws, rules
and regulations as well as the
Corporations By-laws and Manual of
Corporate Governance
32

2.

Personnel and
Compensation

Yes

Encourage the selection of a mix of

competent directors, each of whom can
add value and contribute independent
judgment to the formulation of sound
corporate strategies and policies;
3. Ensure that all nominations to the
Board are fair and transparent, and
that all nominees are qualified in
accordance with the By-laws, Manual
of Corporate Governance and relevant
laws, rules and regulations;
4. Review and evaluate the qualifications
of persons nominated to positions
which require appointment by the
Board, and provide guidance and
advice as necessary for appointments
by the Chairman or President to
positions below Managing Director;
5. Review succession plans for members
of the Board and senior executives
(from group heads to the Chief
Executive Officer);
6. Assess the effectiveness of the Boards
processes and procedures in the
election or replacement of Board
members and in appointing officers or
advisors, and develop, update and
recommend to the Board policies for
considering nominees for directors,
officers or advisors; and
7. Perform such other duties and
responsibilities that may be delegated
to the Committee by the Board from
time to time.
1. Establish a formal and transparent
procedure for developing a policy on
executive remuneration and for fixing the
remuneration packages of corporate
officers and directors, and provide
oversight over remuneration of senior
management and other key personnel
ensuring that compensation is consistent
with the Corporations culture, strategy
and control environment;
2. Designate the amount of remuneration,
which shall be in a sufficient level to
attract and retain directors and officers
who are needed to run the Corporation
successfully;
3. Develop a form on Full Business Interest
Disclosure as part of the pre-employment
requirements for all incoming officers,
which among others compel all officers to
declare under the penalty of perjury all
their existing business interest or
shareholdings that may directly or
indirectly conflict in their performance of
duties once hired;
33

4. Disallow any director to decide his own

remuneration during his incumbent term;
5. Provide in the Corporations annual
reports, information and proxy statements
a clear, concise and understandable
disclosure of compensation of its
executive officers for the previous fiscal
year and the ensuring year;
6. Review the existing Human Resources
Development or Personnel Handbook, to
strengthen provisions on conflict of
interest, salaries and benefits policies,
promotion and career advancement
directives and compliance of personnel
concerned with all statutory requirements
that must be periodically met in their
respective posts;
7. In the absence of a Personnel Handbook,
cause the development of such covering
the same parameters of governance
stated above.
Finance
1
1
1
Yes
1. Responsible for reviewing and evaluating
the financial affairs of the Corporation
from time to time.
2. Conduct an annual financial review and
operations review prior to each annual
stockholders meeting.
Inspectors of
3*
0
0
Yes
Has the power to pass on the validity of
Proxies and
proxies submitted by the stockholders for the
Ballots
annual or special meetings.
* Officers of the company who are not members of the companys Board of Directors.
2) Committee Members
(a) Executive Committee

Office

Name

Chairman (ED)

Jaime Augusto Zobel de

Ayala

Member (ED)

Fernando Zobel de Ayala

Member (NED)

Yoshio Amano

Date of
Appointment

May 10,
1996
May 10,
1996
April 30,
2012

No. of
Meetings
Held

None

No. of
Meetings
Attended

Length of
Service in
the
Committee

N.A.

N.A.

19

N.A.

N.A.

19

N.A.

N.A.

The actions of the Executive Committee may also be taken by written consent (in physical, electronic or digital
format) by majority of the members when deemed necessary or desirable by the Committee or its Chairman.
(b) Audit Committee

Office

Name

Date of
Appointment

Chairman (ID)
Member (NED)
Member (ID)

Xavier P. Loinaz
Yoshio Amano
Ramon R. Del Rosario, Jr.

April 3, 2009
April 20, 2012
April 16, 2010

No. of
Meetings
Held*

No. of
Meetings
Attended*

Length of
Service in
the
Committee

5
5
5

100%
100%
100%

6
3
5
34

* In 2014
Disclose the profile or qualifications of the Audit Committee members.
Xavier P. Loinaz, Filipino, 71, Independent Director of Ayala Corporation since April 2009. He is also an
Independent Director of Bank of the Philippine Islands, a publicly listed company. He also holds the following
positions: Independent Director of BPI Family Savings Bank, Inc., BPI Direct Savings Bank, and BPI/MS
Insurance Corporation; Trustee of E. Zobel Foundation, BPI Foundation, Inc. and PETA; and Chairman of Alay
Kapwa Kilusan Pangkalusugan and XPL Manitou Properties, Inc.; and Vice Chairman of XPL MTJL Properties,
Inc. He was formerly the President of the Bank of the Philippine Islands (BPI) from 1982 to 2004. He was also
the President of Bankers Association of the Philippines from 1989 to 1991. He graduated with an AB
Economics degree at Ateneo de Manila University in 1963 and took his MBA-Finance at Wharton School,
University of Pennsylvania in 1965.
Yoshio Amano, Japanese, 56, Director of Ayala Corporation since April 2012. He is a Senior Vice President of
Mitsubishi Corporation and the General Manager of Mitsubishi Corporation-Manila Branch; Chairman of
International Elevator & Equipment Inc., and MCPL (Philippines) Inc.; President of MC Diamond Realty
Investment Phils., Inc., MC Oranbo Investment, Inc. and Japanese Chamber of Commerce & Industry of the
Philippines (JCCIPI); Director of Isuzu Philippines Corporation, Imasen Philippines Manufacturing Corp., Kepco
Ilijan Corporation, UniCharm Philippines Inc., Trans World Agro-Products Corp., Philippine Resins Industries,
Inc., Portico Land Corporation, and The Japanese Association Manila, Inc. He is not a director of any publicly
listed company. Mr. Amano graduated from the University of Tokyo with a degree on Faculty Engineering in
1982.
Ramon R. del Rosario, Jr., Filipino, 70, Independent Director of Ayala Corporation since April 2010. He holds
the following positions in publicly listed companies: President and Chief Executive Officer of Phinma
Corporation; Chairman of Trans-Asia Petroleum Corporation; and Vice Chairman of Trans-Asia Oil and Energy
Development Corporation. He is the President and Chief Executive Officer of Philippine Investment
Management, Inc.; Chairman of Araullo University, University of Iloilo, University of Pangasinan, Cagayan de
Oro College, United Pulp and Paper Co., Inc., Microtel Inns and Suites (Pilipinas), Inc., Microtel Development
Corp., Trans-Asia Power Generation Corporation, Trans-Asia Renewable Energy Corp., Trans-Asia Gold and
Minerals Development Corp., CIP II Power Corp., Fuld & Co., Inc., Fuld & Co (Philippines), Inc. and Paramount
Building Management & Services Corp.; Vice-Chairman of Phinma Foundation; Director of Phinma Property
Holdings Corp., Union Galvasteel Corp., and South Luzon Thermal Energy Corp.; Chairman of The National
Museum of the Philippines, the Makati Business Club, Philippine Business for Education, the Philippines-US
Business Council, and the Integrity Initiative; Vice-Chairman of Caritas Manila; and Trustee of De La Salle
University. Mr. del Rosario graduated from De La Salle College in 1967 with a degree in BSC-Accounting and
AB Social Sciences Magna cum Laude and from Harvard Business School in 1969 for his Master in Business
Administration.
Describe the Audit Committees responsibility relative to the external auditor.
1.

Review the performance and recommend the appointment, retention or discharge of the Independent
Auditors, including the fixing of their remuneration to the Board of Directors. In case of resignation or
cessation from service of an independent auditor, ensure that there is a process for reporting in the
annual and current reports the reason for cessation from service, and the date thereof, of an independent
auditor.
A preliminary copy of the said report shall be given by the corporation to the independent auditor before
its submission.

2.

Ensure the rotation of the lead engagement partner at least once every five (5) years and consider
whether there should be a regular rotation of the audit firm itself.

3.

Review and pre-approve the Independent Auditor's plans and ascertain the basis for their risk assessment
and financial statement materiality, including the scope and frequency of the audit.
35

In this regard, the Committee shall discuss with the Independent Auditors, before the audit commences,
the nature and scope of the audit, and ensure cooperation when more than one professional service firm
is needed.
4.

Monitor the coordination of efforts between the external and internal auditors. The Committee shall
ensure that the internal and external auditors act independently from each other.

5.

Review of the reports of the Independent Auditors, where applicable, and ensure that management is
taking appropriate corrective actions in a timely manner, including addressing control, governance, and
compliance issues.

6.

Conduct a separate meeting in executive session, with the external auditors to discuss any matter that the
committee or auditors believe should be discussed privately, including the results of the audit, year-end
financial statements, the quality of management, financial and accounting controls.

7.

Review and approve the proportion of audit versus non-audit work both in relation to their significance to
the auditor and in relation to the Corporation's year-end financial statements, and total expenditure on
consultancy, to ensure that non-audit work will not be in conflict with the audit functions of the
independent auditor. The amount of both audit and non-audit work of independent auditors shall be
disclosed in the annual report.

8.

Ensure that the independent auditor has unrestricted access to all records, properties and personnel to
enable performance of the required audit.

9.

Review with the independent auditor any problems or difficulties, including any restrictions on the scope
of the independent auditor's activities or on access to requested information and any significant
disagreements with management. The review may also include discussion of any proposed accounting
adjustments that were "passed' or not recorded.

10. Review of the independent auditor's evaluation of internal accounting controls. Independent auditors
shall provide feedback to the Audit Committee on their observations of internal control weaknesses
arising from statutory financial audits. Independent auditors should highlight findings which are disputed
by Management or where Management has not agreed to implement remedial actions that would rectify
the identified weaknesses.
(c) Nomination Committee

Office

Name

Chairman (ID)

Ramon R. Del
Rosario, Jr.
Jaime Augusto Zobel
de Ayala
Fernando Zobel de
Ayala
Antonio Jose U.
Periquet

Member (ED)
Member (ED)
Member (ID)

April 18, 2011

No. of
Meetings
Attended
*
4

100%

Length of
Service in
the
Committee
4

April 4, 2008

100%

100%

11

100%

Date of
Appointment

March 26,
2004
April 20, 2012

No. of
Meetings
Held*

* In 2014

(d) Personnel and Compensation Committee

Office

Chairman (ID)

Name

Date of
Appointment

No. of
Meetings
Held*

No. of
Meetings
Attended*

Length of
Service in
the
Committee

Ramon R. del

April 16, 2010

100%

5
36

Member
(NED)
Member
(NED)
* In 2014

Rosario, Jr.
Delfin L. Lazaro

March 30,
2007
April 20, 2012

Yoshio Amano

100%

100%

(e) Others
Provide the same information on all other committees constituted by the Board of Directors:
Finance Committee

Office

Chairman (NED)
Member (ED)
Member (ID)

Date of
Appointment

Name

No. of
Meetings
Held*

No. of
Meetings
Attended*

Length of
Service in
the
Committee

Delfin L. Lazaro

April 16, 2010

100%

Jaime Augusto
Zobel de Ayala
Antonio Jose U.
Periquet

May 29, 2012

100%

100%

No. of
Meetings
Attended*

Length of
Service in
the
Committee

100%

1
1

100%
100%

1
2

No. of
Meetings
Attended*

Length of
Service in
the
Committee

100%

100%

!00%

5
April 18, 2011

* In 2014

Committee of Inspectors of Proxies and Ballots

Office

Chairman
Member
Member
* In 2014

Date of
Appointment

Name

Solomon M.
Hermosura
Catherine H. Ang
Josephine G. De Asis

No. of
Meetings
Held*

April 16, 2010

April 11, 2014
April 19, 2013

Risk Management Committee

Office

Chairman (ID)
Member (ID)
Member (NED)

3)

Date of
Appointment

Name

Antonio Jose U.
Periquet
Ramon R. del
Rosario, Jr.
Yoshio Amano

September 1,
2014
September 1,
2014
September 1,
2014

No. of
Meetings
Held*

Changes in Committee Members

Indicate any changes in committee membership that occurred during the year and the reason for the changes:
Name of Committee
Executive
Audit
Nomination

Name
None
None
Jaime Augusto Zobel de Ayala

Reason

Stepped down in April 2015 to limit

37

the members of the committee to

three in accordance with the
Companys
Charter
of
the
Nomination Committee
Remuneration
Finance Committee
Committee of
Inspectors of Proxies
and Ballots
Risk Management
Committee

None
None
None

Chairman: Mr. Antonio Jose U.

Periquet
Members: Mr. Ramon R. Del
Rosario, Jr. and Mr. Yoshio Amano

Newly established committee in

2014

4) Work Done and Issues Addressed

Describe the work done by each committee and the significant issues addressed during the year.
Name of Committee
Executive

Audit

Work Done

Issues Addressed

1.
2.

Donations and disposals of Properties;

Additional cash infusions and advances to wholly-owned
subsidiaries of the Company;
3. Participation in BPI Stock Rights Offer;
4. Investment in GN Power Mariveles under subsidiary AC Energy
Holdings, Inc.;
5. Divestment in Stream Global Services, Inc., a BPO associate under
subsidiary AIVPL/ LiveIt;
6. Drawdown of US$ 345M loan facility and issuance of US$ 300M
exchangeable bonds thru subsidiary AYC Finance Ltd.;
7. Participation of AC Infrastructure Holdings, Inc. in the bidding of LRT
1 Extension and CALA Expressway Projects;
8. Re-issuance of 10B to 15B Class B Series 2 Preferred Shares;
9. Approval of 3B and 17B term loan facilities with Metropolitan Bank
and Trust Company, and Bank of the Philippine Islands, respectively;
10. Placement and subscription of the Companys 22M common shares
to certain qualified third party buyers or investors;
11. Approval of short-term credit facilities from Security Bank
Corporation and UnionBank of the Philippines; and
12.
1. Reviewed and approved the
Integrity of the Companys financial
quarterly unaudited consolidated statements, the financial reporting
financial statements and the
process; and the systems of internal
annual audited consolidated
controls.
financial statements of Ayala
Corporation and Subsidiaries,
and the annual Parent Company
Financial Statements, including
the Managements Discussion
and Analysis of Financial
Condition and Results of
Operations, with management,
internal auditors, and external
auditors, SGV & Co.;
2. Discussed with external auditors
the matters required by
applicable Auditing Standard and
required communication with the
Audit Committee;
38

3. Discussed and approved the

overall scope and plans for the
respective audits of the
Companys internal auditors and
external auditors, and the results
of their assessment of the
Companys internal controls and
overall quality of the financial
reporting process;
4. Discussed the reports and
updates of the internal auditors
to ensure adequacy of its
resource and all its activities are
performed in accordance with
the International Standards for
the Professional Practice of
Internal Auditing;
5. Discussed and approved the
appointment of the Internal
Audit Head given the scheduled
retirement of the previous
Internal Audit Head;
6. Reviewed the reports of the Chief
Risk Officer and the periodic
updates regarding the
Companys enterprise risk
management procedures and
processes, the business risks and
the mitigating steps to address
such risks;
7. Reviewed and approved all audit,
audit-related, and permissible
non-audit services provided by
the external auditor to Ayala
Corporation and the related fees,
and concluded that the non-audit
fees are not significant to impair
their independence;
8. Recommended the appointment
of SGV as the Companys
external auditor for the year and
the approval of the audit fees of
SGV based on their performance
and qualifications;
9. Recommended the inclusion of
the audited consolidated
financial statements in the
Annual Report for the year ended
December 31, 2014 for filing with
the Securities and Exchange
Commission and the Philippine
Stock Exchange;
10. Reviewed the existing Committee
Charter; and
11. Conducted a self-assessment to
evaluate the effectives of their
performance as against the
requirements of its Charter and in

Performance of the Companys

internal audit function and
independent auditors

Quality and integrity of the risk

management process

Independence and performance of

external auditors

Governance and disclosure

Effectiveness and performance of the

Committee

39

Nomination

1.
2.

Remuneration

1.
2.

Finance Committee

Risk Management
Committee

1.
2.
1.

2.

3.

4.

5.

accordance with the SEC

Memorandum Circular Number 4,
Series of 2012.
Reviewed the qualifications of all persons nominated to positions
requiring appointment by the Board; and
Approved the final list of nominees for directors for election at the 2014
annual stockholders meeting after ensuring that all nominees to the
Board have met all the qualifications and none of the disqualifications as
set forth in the Corporations By-Laws, Revised Manual of Corporate
Governance and the rules of the SEC.
Approved the performance bonus, merit increase of the employees of the
Corporation; and
Approved the 2014 Employee Stock Ownership Plan (ESOWN).
Approved the final terms of the US$300 Million AYC Finance Limited
Exchangeable Bonds; and
Approved the LRT1 and Cavite-Laguna Expressway Project Bid
Ensured that Management maintained a sound risk management
framework and internal control system and identified material risk
exposures and their impact to the Companys objectives.
Reviewed the objectivity, effectives and efficiency of the Companys risk
management function as evidenced by:
i. The Chief Risk Officer, as supported by the Group Risk Management
Unit, led the overall review of the Companys risk management
framework which resulted to the adoption of the ISO 31000 Risk
Management Framework, introduction of the Black Swans
workshop as a tool in improving its risk-sensing capability,
redefinition of the risk tolerance matrix, and updating of key risks
register to promote and support the active management of
important risks. The key risk register provides further clarity around
ownership, accountability, and mitigation strategies.
ii. The Management showed a great deal of support with all Managing
Directors making themselves available to discuss their respective
risk management plans and to answer any question raised by the
Committee.
Noted the other programs by the Group Risk Management Unit designed
to create risk awareness and to promote good risk management
processes achieving appropriate risk and reward in the Companys
businesses.
Determined the advisability of, and reviewed and evaluated the terms
and conditions of any material or significant related party transactions
and their required reporting disclosures. The Chief Finance Officer,
through the Controllership Unit, reported and disclosed any related party
transactions.
Revisited the Risk Management Committee Charter to ensure that
proper coordination with Audit Committee existed and that the output of
the enterprise risk management process was an input to the annual riskbased planning of the Internal Audit Unit.

5) Committee Program
Provide a list of programs that each committee plans to undertake to address relevant issues in the improvement
or enforcement of effective governance for the coming year.

Name of Committee
Executive

Planned Programs

Issues to be Addressed

The Executive Committee, in accordance with the authority granted by the Board,
or during the absence of the Board, shall act by majority vote of all its members

40

on such specific matters within the competence of the Board of Directors as may
from time to time be delegated to the Executive Committee in accordance with
the Corporation's By-Laws.

Audit

a. Review and approve the quarterly

unaudited consolidated financial
statements and the annual
audited consolidated financial
statements of Ayala Corporation
and Subsidiaries, and the annual
Parent
Company
Financial
Statements,
including the
Managements Discussion and
Analysis of Financial Condition
and Results of Operations, with
management, internal auditors,
and external auditors, SGV & Co.;
b. Discuss with external auditors the
matters required by applicable
Auditing Standard and required
communication with the Audit
Committee;
c. Discuss and approve the overall
scope and plans for the
respective
audits
of
the
Companys internal auditors and
external auditors, and the results
of their assessment of the
Companys internal controls and
overall quality of the financial
reporting process;
d. Discuss the reports and updates
of the internal auditors to ensure
adequacy of its resource and all
its activities are performed in
accordance
with
the
International Standards for the
Professional Practice of Internal
Auditing;
e. Discuss
and
approve
the
appointment of the Internal Audit
Head given the scheduled
retirement of the previous IA
Head;
f. Review the reports of the Chief
Risk Officer and the periodic
updates regarding the Companys
enterprise risk management
procedures and processes, the
business risks and the mitigating
steps to address such risks;
g. Review and approve all audit,
audit-related, and permissible
non-audit services provided by
the external auditor to Ayala
Corporation and the related fees ,
and concluded that the non-audit
fees are not significant to impair
their independence;
h. Recommend the appointment of

Integrity of the Companys financial

statements, the financial reporting
process; and the systems of internal
controls.

Performance of the Companys

internal audit function and
independent auditors

Quality and integrity of the risk

management process

Independence and performance of

external auditors

Governance and disclosure

41

Risk Management

SGV as the Companys external

auditor for 2014 and the
approval of the audit fees of SGV
based on their performance and
qualifications;
i. Recommend the inclusion of the
audited consolidated financial
statements in the Annual Report
for the year ended December 31,
2013 for filing with the Securities
and Exchange Commission and
the Philippine Stock Exchange;
j. Review the existing Committee
Charter; and
Effectiveness and performance of the
Committee
k. Conduct a self-assessment to
evaluate the effectives of their
performance as against the
requirements of its Charter and
in accordance with the SEC
Memorandum Circular Number
4 Series of 2012.
To carry out its Board Oversight responsibilities in relation to risk governance
and related party transactions approval, the Committee:
1. Promotes an open discussion regarding risks faced by the
Corporation, as well as risk faced by its subsidiaries that may have
potential impact on the Corporations operations, and ensures that
risk awareness culture is pervasive throughout the organization
2. Reviews and discusses with Management the Corporations risk
governance structure and adequacy of policies and processes for
risk identification, assessment and mitigation
3. Reviews and recommends to the Management the Corporations
level of risk appetite and risk tolerance, and risk exposure allocation
for approval by the Board of Directors
4. Reviews the Corporations risk profile on an ongoing basis and reevaluate the likelihood of occurrence, severity of impact of risk
exposures, and any mitigating measures affecting those risks
5. Monitors the implementation of the Corporations risk mitigation
plans and other risk management activities with the assistance of
the risk management function
6. Reviews and discusses risk management-related reports and issues
raised by the Management, internal auditors, external auditors,
legal counsel and regulators that impact the Corporations risk
management framework
7. Reviews disclosures regarding risk contained in the Corporations
Annual Report and other publicly-issued statements
8. Reviews the objectivity, effectiveness and efficiency of the
Corporations risk management function in the context of the
Corporations size, scale, complexity and scope of operations
9. Secures independent expert advice on risk management matters
where considered necessary or desirable
10. In coordination with the Audit Committee, ensures that the
Corporations internal audit work plan is aligned with the risk
management activities and that the internal control system
considers all risks identified during the risk assessment process.
11. Determines the advisability of, and reviews and evaluated the terms
and conditions of any material or significant related party
transactions and their required reporting disclosures
12. Performs other activities related to the Charter as requested by the
42

Nomination

Board
13. Regularly reports to the Board updates in all actions initiated by the
Committee
14. Reviews the Charter annually
15. Conducts annual self-assessment with respect to the fulfillment of
its functions and responsibilities as mandated in this Charter.
Annually, the Committee oversees the selection and nomination process for
the Board of Directors of the Company to ensure that nominees to the Board
are qualified for election in accordance with the By-laws, Manual of
Corporate Governance and relevant laws, rules and regulations.
The Committee also reviews annually the succession plans for members of
the Board and senior executives (from group heads to the CEO).

Remuneration
Finance

The Committee also provides assessment on the Board's effectiveness in

directing the process of renewing and replacing Board members and in
appointing officers or advisors and develop, update as necessary and
recommend to the Board policies for considering nominees for directors,
officers or advisors.
The Committee annually approves the performance bonus, merit increase
and stock options of the employees of the Corporation.
The Committee annually reviews and approves the Corporations dividend
policy and recommends dividend actions to the Board of Directors.
The Committee will review the financial terms of mergers, acquisitions, or
other strategic investments, as well as divestitures of any material
operations of the Company for the coming years and make the appropriate
recommendations to the Board of Directors.
The Committee oversees Corporations Treasury activities such as but not
limited to policies with respect to cash flow management, policies with
respect to investment of the companys cash, and policies with respect to
financial risk management, including the use of derivatives.
The Committee approves Letters of Parental Guarantee and/or Letters of
Comfort and Awareness between the Corporation and its subsidiaries except
for those issued in the ordinary course of business or in compliance with law
and court orders.

Inspectors of Proxies
and Ballots

The Committee reviews and evaluates the financial affairs of the Corporation
from time to time and carry out such other duties as may be delegated to it
by the Board of Directors from time to time.
Annually, the committee ensures that only proxy forms received at least
seven days before the meeting will be validated for the years annual
stockholders meeting.
Guided by SRC Rule 20 on Proxy Voting, the committee will validate the proxy
forms five days before the actual stockholders meeting.
All validated proxies will be tabulated and registered in the system.

F. RISK MANAGEMENT SYSTEM

1) Disclose the following:
(a) Overall risk management philosophy of the company
Risk Management: An Act of Balancing Risk and Reward
43

Risk lies in every sector of our businesses and presents both positive and negative opportunities. Hence an
effective risk management system is necessary to explore and maximize positive opportunities and mitigate
adverse outcomes of the negatives ones in order to secure long-term value for our stakeholders.
Institutionalized in 2002, the Company has adopted an integrated enterprise risk management (ERM)
framework that is continuously being enhanced and improved as conventional risk management may not be
enough to achieve the Corporation's objectives.
An appropriate organizational structure is put in place that promotes good governance, ownership and
accountability for risk taking. Our risk governance structure is applied throughout all operational levels within
the Company and within the Group.

The Board retains the overall responsibility for setting the Companys risk appetite and risk tolerance
and for reviewing the Companys risk management process.
The Risk Management Committee, constituted by the Board in June 2014 to assist in discharging this
responsibility, focuses on the robustness of the risk management process and reviews the
appropriateness of risk appetite and risk tolerance in pursuit of business objectives.
The Management Committee is the principal executive forum that reviews enterprise, project and
investment risks and is responsible for the assurance of the risk management framework approved by
the Board.
The Chief Risk officer advocates the enterprise risk management for the company and for the group.
He oversees the entire risk management function thru the Group Risk Management Unit that
implements programs and activities designed to improve the risk taking capability of the company
and the group.
Internal Audit Unit assists the Audit Committee by conducting internal reviews of the Companys
operations, in particular, the review of material controls in the areas identified as critical risks. The
Unit also looks into the effectiveness and adequacy of the risk management process.
Business Units ensure compliance with risk management policies, and monitor and report risk profiles
and implement actions. They embed risk management in their day-to-day activities.

(b) A statement that the directors have reviewed the effectiveness of the risk management system and
commenting on the adequacy thereof
As set forth in its Charter approved by the Board of Directors, the Risk Management Committee has reviewed
and assessed the adequacy and the effectiveness of the Corporation's enterprise risk management process.
Although the Committee, which was constituted in June 2014, had only one meeting in 2014:
The Committee had reviewed the enterprise risk management policy, risk governance structure, and risk
appetite of the Corporation.
Thru the Chief Risk Officer, as supported by the Group Risk Management Unit, the Committee had
ascertained that an effective risk management process was in place. The Corporation had adopted the ISO
31000 framework, improved its risk sensing capability thru the Black Swans workshop facilitated by
experts, and implemented other activities designed to increase risk awareness within the Corporation and
across the group.
The Committee had also noted the Management support as the Managing Directors made themselves
available to discuss their risk strategies and to respond to queries raised by the Committee.

(c) Period covered by the review;

For the year ended December 31, 2014
(d) How often the risk management system is reviewed and the directors criteria for assessing its effectiveness
In addition to the regular reports of the CRO thru the Group Risk Management Unit, an annual selfassessment of the Corporation's risk management maturity, based on the criteria listed below, is completed:
44

Governance and organization

Risk Management Strategy
Reporting and Communication
Tools and technology
Culture and Capability

The planned external assurance of risk management process was not carried out due to a limited number of local
service providers that could meet our requirements.
(e) Where no review was conducted during the year, an explanation why not.
Not Applicable.
2) Risk Policy
(a) Company
Give a general description of the companys risk management policy, setting out and assessing the risk/s
covered by the system (ranked according to priority), along with the objective behind the policy for each kind
of risk:
Risk Exposure
Portfolio Management

Risk Management Policy

The Corporations diversification
and portfolio management
strategy is sufficient to maximize
profitability and shield the
Corporation from undue risk.

Objective
To continue the long-term value
creation process for the
Corporation's stakeholders.

Governance
Control; Brand
Reputation

The Corporations reputation of

high integrity and strong
governance makes it a company
of choice for:
a) Partner/investors
b) Talent
c) Customers
d) Capital Markets

To maintain and improve the

strong AYALA brand, identified as
its core value.

The Corporation will hold up well

in the event of significant
Philippine and global economic
disruption. .

To ensure that the Corporations

financial assets and liabilities will
not be affected by market factors
including foreign exchange,
interest rates and others, as well
as credit events, which may result
in actual cash losses and volatility
in Profit and Loss.

and
and

Capital Market

(b) Group
Give a general description of the Groups risk management policy, setting out and assessing the risk/s covered
by the system (ranked according to priority), along with the objective behind the policy for each kind of risk:
Since the Corporation is one of the most diversified conglomerates in the country with leadership positions in
real estate, financial services, telecommunications, and a broad range of investments in water, electronics
manufacturing, automotive, business process outsourcing, education, power generation and transport
infrastructure, the following are the common risks across the Group:
Risk Exposure
Regulatory and Political

Risk Management Policy

The regulatory landscape, while

Objective
To improve the Groups ability to
45

challenging, will not seriously

impact the Groups ongoing
profitable growth or ongoing
viability.
Future changes in the Philippine
political landscape will not
seriously threaten the Groups
ongoing viability.
Market share growth will be
protected at all times.

Competition

Talent

anticipate regulatory and political

changes which may impact the
Groups business models.

To continue the long-term value

creation for the Group
stakeholders.
To continue our talent
management program from
recruitment, development,
succession planning, and
until resignation/retirement
of our employees.
To continue to be the
employer of choice.

The Group has sufficient,

qualified, fresh and diverse talent
pool which ensures operational
excellence and which brings
debate and new ideas.

(c) Minority Shareholders

Indicate the principal risk of the exercise of controlling shareholders voting power.
Risk to Minority Shareholders
The Companys Related Party Transactions policy that took effect last December 2014 ensures that
the rights of the minority shareholders are protected. The Corporation established a mechanism to
ensure that related party transactions are at arms-length, the terms are fair, and that they inure to
the best interest of the Corporation and all of its shareholders. The Corporation strictly monitored,
reported, and disclosed related party transactions as well as inter-company transactions.
3) Control System Set Up
(a) Company
Briefly describe the control systems set up to assess, manage and control the main issue/s faced by the
company:
Risk Exposure
Strategic

Risk Assessment

Risk Management and Control

(Monitoring and Measurement Process)

(Structures, Procedures, Actions Taken)

Structured and periodic

strategic planning process
and portfolio strategy review
Monitoring of achievement of
strategic targets
Continuous monitoring of
existing, as well as of new
and emerging, risks through
the business unit risk
management champions and
the office of the CRO

Operational

Business planning and

budgeting
Monitoring of actual results
vs. objectives
Identified key risk indicators
and metrics to measure the

Investment in processes and

technologies are made to
support the requirements of
new businesses
Rigorous portfolio analytics and
reviews including resource
allocation and strategy
Portfolio and strategic
initiatives visibility and
discussions at various
governance committees
Development of formal policies
and processes
Regular review of financial and
operations metrics and
reporting to senior
management, and management
and board committees
Monthly and annual portfolio
46

effectiveness of the risk

mitigation strategies
Talent/Knowledge
Management

Regular discussions among

the Strategic HR Groups on
initiatives and staffing needs
including timing
Regular talent reviews

Governance and
Internal Controls

Annual risk assessment and

regular reporting to the Audit
Committee and Risk
Management Committee
Periodic review of internal
controls

analysis/review
Policies are regularly reviewed
and updated to remain relevant
Organizational structure,
leadership and talent
management, and development
programs are reviewed
regularly to respond to the
changing needs, new business
models and strategies
Development of succession
planning
Compliance with the mandates
of the Companys Manual on
Corporate Governance for the
Board of Directors to ensure the
presence of organizational and
procedural controls supported
by an effective management
information system and risk
management reporting system.
Compliance with laws and
regulations
Regular benchmarking with
industry best practices and
development of continuous
improvement program to
strengthen the Companys
practices and policies

(b) Group
Briefly describe the control systems set up to assess, manage and control the main issue/s faced by the
company:
Risk Exposure
Strategic

Risk Assessment

Risk Management and Control

(Monitoring and Measurement Process)

(Structures, Procedures, Actions Taken)

Operational

Structured strategic planning

process
Discussions on new business
development, strategy
execution, and synergy
initiatives happen at various
levels in the organization
including at Management
and Board oversight
committees.

Business planning and

budgeting
Regular management
meetings and performance
review process

Talent/Knowledge
Management

Regular discussions among

the Strategic HR Groups on

Adopt a disciplined approach in

investment evaluation and
decision process
Continue to evaluate the risks
and opportunities in relation to
both the companys business
portfolio and the integration to
existing business operations
Formal/institutionalized process
and improving discipline in
investment and divestment
decisions
Regular review of financial and
operations metrics and
reporting to senior
management, and management
and board committees
Monitoring of actual results vs.
objectives
Annual talent review process for
all subsidiaries
47

Governance and
Internal Controls

initiatives and staffing needs

including timing
Monitoring attrition rates in
the group
Results of employee
satisfaction surveys

Regular benchmarking with

industry best practices
Periodic review of internal
controls

Development of a succession
plan
Implementation of service level
agreements (SLAs) on hiring
Implementation of employee
engagement and retention
programs
Institutionalize good
governance and sound internal
controls for all companies in the
group
Ensuring the Board and all its
committees have approved
Charters
Adopting and conducting good
governance and internal
controls assessment checklist
Development of continuous
improvement program to
strengthen the Groups
practices and policies

(c) Committee
Identify the committee or any other body of corporate governance in charge of laying down and supervising
these control mechanisms, and give details of its functions:
Committee/Unit

Control Mechanism

Details of its Functions

Executive Committee (ExCom)

Corporate governance
control and mechanisms
Supports the Board of
Directors in the review and
approval of resolutions that
drive business strategy and
operations of the company

The Executive Committee, in

accordance with the authority
granted by the Board, or
during the absence of the
Board, shall act by majority
vote of all its members on such
specific matters within the
competence of the Board of
Directors as may from time to
time be delegated to the
Executive Committee in
accordance with the
Corporations By-Laws, except
with respect to -i. approval of any action for
which shareholders approval
is also required;
ii. the filling of vacancies on
the Board or in the Executive
Committee;
iii. the amendment or repeal
of any resolution of the Board
of Directors which by its
express terms is not so
amendable or repealable;
iv. the distribution of cash
dividends;
v. the exercise of powers
delegated by the Board
exclusively to other
48

Nomination Committee

Personnel and Compensation

Committee

Corporate governance
control and mechanisms
Ensures that all nominees to
the Board have all the
qualifications and none of
the disqualifications under
the Companys By-Laws, its
Manual of Corporate
Governance, and the rules of
the SEC.
Reviews the qualifications of
all persons nominated to
positions requiring
appointment by the Board.

Corporate governance
control and mechanisms
Establishes a policy for a

committees, if any.
The Nomination Committee of
the Board of Directors shall:
(a) install and maintain a
process to ensure that
nominees to the Board for
election by the stockholders or
the Board are qualified in
accordance with the By-laws,
Manual of Corporate
Governance and relevant laws,
rules and regulations;
(b) encourage the selection of
a mix of competent directors,
each of whom can add value
and contribute independent
judgment to the formulation of
sound corporate strategies and
policies;
(c) review and evaluate the
qualifications of persons
nominated for Managing
Director (Vice President) or
higher rank, which shall
require appointment by the
Board, and provide guidance
and advice as necessary for
appointments by the Chairman
or President to positions below
Managing Director (Vice
President);
(d) review succession plans for
members of the Board and
senior executives (from group
heads to the CEO);
(e) provide assessment on the
Board's effectiveness in
directing the process of
renewing and replacing Board
members and in appointing
officers or advisors and
develop, update as necessary
and recommend to the Board
policies for considering
nominees for directors, officers
or advisors; and
(f) discharge any other duties
and responsibilities delegated
to the Committee by the Board
from time to time.
The Committee shall be guided
by the Company's mission and
vision in the fulfilment of its
functions.
The Committee shall have the
following powers, duties and
responsibilities:
49

formal and transparent

procedure for determining
the salaries of officers and
directors
Supports the Board in the
determination of executive
compensation and
remuneration

1. Establish a formal and

transparent procedure for
developing a policy on
executive remuneration and
for fixing the remuneration
packages of corporate officers
and directors, and provide
oversight over remuneration of
senior management and other
key personnel ensuring that
compensation is consistent
with the Corporation's culture,
strategy and control
environment;
2. Review, at least annually,
the performance of each of the
Chairman of the Board, the
Chief Executive Officer (CEO),
the President and Chief
Operating Officer (COO) and
measure such performance
against each of his or her goals
and objectives pursuant to the
Corporation's plans and
determine his or her
compensation for approval of
the Board;
3. Review the structure and
competitiveness of the
Corporation's executive officer
compensation programs
considering the following
factors: (i) the attraction and
retention of executive officers;
(ii) the motivation of executive
officers to achieve the
Corporation's business
objectives, and (iii) the
alignment of the interest of
executive officers with the
long-term interests of the
Corporation's shareholders.
4. Develop and periodically
review a form on Full Business
Interest Disclosure, which
among others compel all
incoming and incumbent
officers to declare under the
penalty of perjury all their
existing business interests or
shareholdings that may
directly or indirectly conflict in
their performance of duties
once hired;
5. Provide in the Corporation's
annual reports, information
and proxy statements a clear,
concise and understandable
50

Finance Committee

Corporate governance
control and mechanisms
Oversees the companys
financial policy and
strategy, including capital
structure, dividend policy,
acquisitions and
divestments, and makes
the appropriate
recommendations to the
Board of Directors
Oversight responsibility
over the Companys
Treasury activities, and
reviews and approves
changes in Treasury Policies
Responsible for reviewing
and evaluating the financial
affairs of the company on a
regular basis and carrying
out such other duties as
may be delegated to it by
the Board of Directors.

disclosure of compensation of
its executive officers for the
previous fiscal year and the
ensuring year; and
6. Periodically review the
Human Resources
Development or Personnel
Handbook, to strengthen
provisions on conflict of
interest, salaries and benefits
policies, promotion and career
advancement directives and
compliance of personnel
concerned with all statutory
requirements that must be
periodically met in their
respective posts.
No member of the Committee
will act to fix his or her own
compensation except for
uniform compensation to
directors for their services as a
director.
The Finance Committee shall
carry out the following duties,
in each case in line with the
Boards policies and directives:
1. The Committee shall
review the companys capital
structure strategies. The
Committee shall also review
and approve the Corporations
dividend policy and
recommend dividend actions to
the Board of Directors.
2. The Committee shall
review the financial terms of
mergers, acquisitions, or other
strategic investments, as well
as divestitures of any material
operations of the Company,
and make the appropriate
recommendations to the Board
of Directors.
3. The Committee shall have
general oversight responsibility
over the Corporations
Treasury activities. The
Committee shall review and
approve changes in Treasury
Policies, including:
a. Policies with respect to
cash flow management,
b. Policies with respect to
investment of the
companys cash, and
c. Policies with respect to
financial risk
51

Audit Committee

Corporate governance
control and mechanisms
Oversees the internal
control, internal auditors,
external auditors, financial
reporting.

Risk Management Committee

Risk Governance
Related Part Transactions
Review

management, including
the use of derivatives.
The Committee shall approve
Letters of Parental Guarantee
and/or Letters of Comfort and
Awareness between the
Corporation and its
subsidiaries except for those
issued in the ordinary course of
business or in compliance with
law and court orders.
The Audit Committee provides
assistance to the Board of
Directors in fulfilling their
oversight responsibility to the
shareholders relating to:
the integrity of the
Company's financial
statements and the
financial reporting process;
the appointment,
remuneration,
qualifications,
independence and
performance of the
independent external
auditors and the integrity of
the audit process as a
whole;
the effectiveness of the
systems of internal control
and the risk management
process;
the performance and
leadership of the internal
audit function;
the company's compliance
with applicable legal,
regulatory and corporate
governance requirements;
and
the preparation of year-end
report of the Committee for
approval of the Board and
to be included in the annual
report.
Ensure that Management
maintains a sound risk
management framework
and internal controls
system and identifies
material risk exposures
and their impact in
achieving the
Corporations objectives.
Determine the advisability
of, and review and
evaluate the terms and
52

conditions of any
material/significant
related party transactions
and their required
reporting disclosures.

53

G. INTERNAL AUDIT AND CONTROL

1) Internal Control System
Disclose the following information pertaining to the internal control system of the company:
(a) Explain how the internal control system is defined for the company;
Internal Control System is the framework under which internal controls are developed and implemented
(alone or in concert with other policies or procedures) to manage and control a particular risk or business
activity, or combination of risks or business activities, to which the corporation is exposed. To be effective, the
internal control system needs to adapt to changing business and operating environments, mitigate risks to
acceptable levels, and support sound decision-making and governance of the organization. Internal control
effected by the companys board of directors, management, and all employees, is designed to provide
reasonable assurance regarding the achievement of the companys objectives.
Everyone in the organization has responsibility for internal control. Management owns the internal control
system and is responsible for establishing sound internal control policies and procedures. Management is
accountable to the Board of Directors who provides governance, guidance, and oversight. Internal auditors
play an important role in evaluating the effectiveness of control systems, and contribute to ongoing
effectiveness by providing recommendations.
(b) A statement that the directors have reviewed the effectiveness of the internal control system and whether
they consider them effective and adequate;
The Board of Directors, through the Audit and the Risk Management Committees, has reviewed the internal
control system of the Company based on the assessments completed and reported by the internal and
external auditors. The Board found the internal control system to be effective.
The statement of the directors on the effectiveness of the companys internal control system is embodied in
the Report of the Audit Committee to the Board of Directors which is part of the companys 2014 Annual
Report.
(c) Period covered by the review;
For the year ended December 31, 2014.
(d) How often internal controls are reviewed and the directors criteria for assessing the effectiveness of the
internal control system; and
Management reviews the adequacy and effectiveness of internal controls continuously throughout the year as
part of its day-to-day function. Internal Audit assists management to attain company goals through
independent risk-based planned reviews and evaluation of the effectiveness of controls.
The directors criteria for assessing the effectiveness of the internal control system include:
1.
2.

3.
4.
5.

Control Environment-the tone of the top and ethical behavior culture in the company.
Risk Assessment-the identification and analysis of relevant risks to the achievement of objectives, forming
a basis for how the risks should be managed and provide reasonable assurance that risks are reduced to
an acceptable level.
Information and Communication-systems or processes that support the identification, capture, and
exchange of accurate and complete information.
Control Activities- policies and procedures, international standards and industry best practices to ensure
compliance with laws, regulations, supervisory requirements, and relevant internal policies.
Monitoring-processes used to regularly assess the continuing quality of internal control and risk
management activities.
54

(e) Where no review was conducted during the year, an explanation why not.
Not applicable. Review was conducted during the year.
2) Internal Audit
(a) Role, Scope and Internal Audit Function
Give a general description of the role, scope of internal audit work and other details of the internal audit
function.
The Internal Audit Group governs its work in adherence to The Institute of Internal Auditors Code of Ethics
and the Companys Code of Conduct. The Internal Audit also conducts its activities in conformance with the
International Standards for the Professional Practice of Internal Auditing (ISPPIA) of The Institute of Internal
Auditors and guided by the COSO framework on internal control.

Role

Scope

Assist the Board

and the Audit
Committee in
discharging its
governance
responsibility
Evaluates and
provides
reasonable
assurance that
risk
management,
control, and
governance
systems are
functioning as
intended and will
enable the
companys
strategy,
objectives and
goals to be met

The scope of work

of the internal
audit function is to
determine whether
Ayala
Corporations risk
management,
control, and
governance
processes is
adequate and
functioning
effectively to
ensure:
Risks are
appropriately
identified and
managed;
Financial
information is
accurate,
reliable, and
timely;
Compliance with
policies,
standards,
procedures and
applicable laws
and regulations
is achieved;
Resources are
safeguarded;
and
Achievement of
programs, plans
and objectives
are reasonably
assured.

Reports risk
management
issues and
internal controls
deficiencies
identified directly
to the Audit
Committee and
provides
recommendation
s to improve the
companys
operations, in
terms of both
efficient and

Indicate whether
In-house or
Outsource
Internal Audit
Function
In-house

Name of Chief
Internal
Auditor/Auditing
Firm
Catherine H. Ang

Reporting
process
To maintain its
independence,
Internal Audit
reports
functionally to
the Board of
Directors,
through the
Audit
Committee, and
administratively
to the President
and Chief
Operating
Officer or his
designate.

Reports are
issued to
management
and the Audit
Committee upon
completion of
the audit
reviews.
Significant
findings and
issues are taken
up in the
quarterly
meetings of the
Audit
55

effective
performance
Evaluates
information
security and
associated risk
exposures
Evaluates
regulatory
compliance
program with
consultation from
legal counsel and
other relevant
units or external
advisors, as
necessary
Evaluates the
companys
readiness in case
of business
interruption
Maintains open
communication
with
management and
the Audit
Committee
Teams with other
internal and
external
resources as
appropriate for
assurance and
advisory work
Engages in
continuous
education and
staff
development
Provides support
to the company's
anti-fraud and
whistleblower
programs.

Committee.
In carrying out
their duties and
responsibilities,
members of the
internal audit
function have full,
free, and
unrestricted access
to all
organizational
activities, records,
property and
personnel of Ayala
Corporation.

(b) Do the appointment and/or removal of the Internal Auditor or the accounting /auditing firm or corporation to
which the internal audit function is outsourced require the approval of the audit committee?
As provided in the Audit Committee Charter and the Internal Audit Charter, the Audit Committee is responsible
for the setting up of the Internal Audit Department, including the qualification criteria and appointment of the
Chief Internal Auditor. The Committee evaluates the performance of the Chief Internal Auditor and the
Internal Auditors taken as a whole. Moreover, the Committee having appointed the Chief Internal Auditor,
also approves his/her replacement, re-assignment, or dismissal. The Committee also reviews and approves
any outsourcing of the internal audit function.
(c) Discuss the internal auditors reporting relationship with the audit committee. Does the internal auditor have
direct and unfettered access to the board of directors and the audit committee and to all records, properties
56

and personnel?
The Chief Internal Auditor reports directly to the Board of Directors through the Audit Committee and has
direct access to all members of the Audit Committee. The internal audit function as empowered by the Audit
Committee Charter and the Internal Audit Charter has free access to all records, properties and personnel.
(d) Resignation, Re-assignment and Reasons
Disclose any resignation/s or re-assignment of the internal audit staff (including those employed by the thirdparty auditing firm) and the reason/s for them.
Name of Audit Staff
Roxanne Kate L. Petilla, Internal
Auditor

Reason
Additional headcount as approved by the Audit Committee.

(e) Progress against Plans, Issues, Findings and Examination Trends

State the internal audits progress against plans, significant issues, significant findings and examination
trends.

Progress Against Plans

Issues6

Findings7

Examination Trends

The activities of Internal Audit is guided by the

Audit Committee approved, risk-based audit plan.
Internal Audit submit periodic reports to the
Committee on the status of its activity,
accomplishments, key findings and
recommendations, as well as managements
responses thereto
There are no significant issues noted based on the
results of the audit reviews conducted. Noted
issues are on enhancements of and compliance to
existing policies and procedures
There are no significant findings noted based on
the results of the audit reviews conducted.
Reported findings are primarily on the
enhancements and documentation of corporate
governance policies and guidelines, and
consistent implementation of procedural controls.
Report on the results of the audit review is
provided to the responsible personnel,
department heads, senior management, and the
Audit Committee based on the Committee
approved Risk Reporting Framework.
High risk areas are reviewed at least annually.
Based on follow-up of audit recommendations,
management are addressing reported risk issues,
control weaknesses and opportunities for
improvement within the audit period and
committed timeline.

[The relationship among progress, plans, issues and findings should be viewed as an internal control review
cycle which involves the following step-by-step activities:
a. Preparation of an audit plan inclusive of a timeline and milestones;
b. Conduct of examination based on the plan;
c. Evaluation of the progress in the implementation of the plan;
6
7

Issues are compliance matters that arise from adopting different interpretations.
Findings are those with concrete basis under the companys policies and rules.
57

d.
e.
f.

Documentation of issues and findings as a result of the examination;

Determination of the pervasive issues and findings (examination trends) based on single
year result and/or year-to-year results;
Conduct of the foregoing procedures on a regular basis.]

(f) Audit Control Policies and Procedures

Disclose all internal audit controls, policies and procedures that have been established by the company and
the result of an assessment as to whether the established controls, policies and procedures have been
implemented under the column Implementation.
Policies & Procedures
Finance Manual
Treasury Manual
Information Technology Manual
Human Resources Manual

Implementation
Implemented
Implemented
Implemented
Implemented

(g) Mechanism and Safeguards

State the mechanism established by the company to safeguard the independence of the auditors, financial
analysts, investment banks and rating agencies (example, restrictions on trading in the companys shares and
imposition of internal approval procedures for these transactions, limitation on the non-audit services that an
external auditor may provide to the company):
Auditors
(Internal and External)
Rotation of partner-incharge every five years
for external auditors

Functional reporting to
the Audit Committee
by the internal auditors

Abide by the
companys Code of
Ethics

Abide by the
companys policy on
Conflict of interest and
Insider Trading Policy

Financial Analysts

Investment Banks

Rating Agencies

Equitable access to
company
representatives by
analysts, regardless of
their prior research,
opinions,
recommendations,
earnings estimates or
research conclusions on
the company.
Equitable release of
disclosure/information
(i.e. no analyst gets
more information than
the other) in terms of
content and timing (i.e.
no one gets ahead of
information over
another)
Independence and
impartiality in the
opinions, estimates or
forecasts made by
analysts on Ayalas
performance.
Open flow of
communication with
analysts without
compromising material
non-public information.

Approval of the
Investment Committee
and/or the Finance
Committee and the
Board of Directors prior
to any engagement
with Investment Banks.

Approval of the
Investment Committee
and/or the Finance
Committee and the
Board of Directors prior
to engagement of
rating agency.

Use of different
Investment Banks for
each deal.

Periodic submission of
reports and data to the
Rating Agency

Use of multiple
Investment Banks
instead of just one or
two for bond deals.

Management interview
sessions prior to
ratings.

58

(h) State the officers (preferably the Chairman and the CEO) who will have to attest to the companys full
compliance with the SEC Code of Corporate Governance. Such confirmation must state that all directors,
officers and employees of the company have been given proper instruction on their respective duties as
mandated by the Code and that internal mechanisms are in place to ensure that compliance.
On January 16, 2013, the Company submitted to the SEC the certification on the compliance with the revised
manual of corporate governance for the year 2012. The certification was signed by the Companys Compliance
Officer and the President and COO.
On July 1, 2013, the Company has also submitted to the SEC the notarized Annual Corporate Governance
Report for 2012 signed by the Chairman and CEO, the President and COO, and two independent directors of
the Company.
On January 9, 2015, the Company submitted to the SEC the Consolidated Changes in the Annual Corporate
Governance Report for 2014 that was reviewed and approved by the Board of Directors of the Company at
their meeting on December 4, 2014.
H. ROLE OF STAKEHOLDERS
1) Disclose the companys policy and activities relative to the following:
Policy

Activities

Customers' welfare

We take innovative approaches to

increase customer value and
enhance customer experience;
empower more customers including
those with limited access to essential
goods and services.

Supplier/contractor selection
practice

In our supply chains, we include

environmental parameters in the
accreditation of our suppliers.

Environmentally friendly valuechain

Members of the Ayala group 1.

management committee recognize
the role of business in social
development and its impact to the
environment.

Our stakeholder engagements are

designed and implemented to
understand our customers well.
We offer our customers
sustainable lifestyle as we design
our products and services.
We also provide customer touch
points to ensure that their
feedback and concerns are
monitored and acted upon.
We do an annual customer
satisfaction survey so we can
improve the overall customer
experience.
Accreditation of suppliers follows
an accreditation procedure and
criteria. In every required
purchase of significant value we
observe reviewing quotation
submitted by at least three (3)
accredited suppliers.
In our operations, we consciously
move towards the continuous
reductions of our energy, water,
and solid waste footprints. Where
possible, we move beyond
regulatory compliance and apply
best practices and global
voluntary standards on
environmental and social
responsibility.
In our supply chains, we include
environmental parameters in the
accreditation of our suppliers. We
also consciously use our buying

2.

59

3.

4.

5.

6.

Community interaction

The company, directly and through

Ayala Foundation, Inc. (AFI): On
Community EngagementUnderstanding community realities
and engages people in the change
process.

volume to enable communities to

develop by providing
opportunities to entrepreneurs
and cooperatives.
In our products and services, we
innovate to be able to serve and
empower more customers,
particularly those that are
disadvantaged and who do not
have access to essential goods
and services. Our product
development explicitly include
environmental and social factors,
and we continuously look for
ways to design our products and
services for lower environmental
impact.
In our human resource practices,
we ensure that our employees
work in the safest and healthiest
environments possible and in a
manner that enable them to
reach their highest potential. We
also encourage sustainability
initiatives to build positive
momentum for sustainable
business practices within the
workforce.
In our community involvement,
we provide, to the best of our
ability, the resources needed to
help address that issues of quality
education, vibrant
microenterprises, and a healthy
environment for our communities
for the sake of economic
advancement and nation
building.
In our management approach, we
strive for material impact and
measurable results on
sustainability while finding
opportunities to improve
operating efficiencies and satisfy
our shareholder requirements.
AFI actively consults its program
communities to understand their
dreams, needs, aspirations, and
even their capacities. AFIs
interventions in education, youth
leadership, sustainable livelihood,
and arts and culture ensure great
participation from the members
of the communities. Each
community member is an active
partner, not just a beneficiary or
recipient. AFI conducts
60

community insighting and other

forms of intensive on-the-ground
work and research prior to
starting projects. AFI conducts
program reviews on a periodic
basis to ensure the effectiveness
of the programs.
On Stakeholder Engagement- The
company builds and nurtures
partnerships with the public and
private groups and the civil society to
achieve impact, scale, and
sustainability for everyone involved.

Anti-corruption programmes and

procedures?

Safeguarding creditors' rights

Values drive behavior in our

organization. One of our Core Values
is Integrity, which to all AC citizens
mean "doing the right thing" - being
held accountable for all our actions.
And doing the right thing has earned
Ayala a commanding position of
trust among its stakeholders. But
integrity starts with individuals, the
kind of individuals we engage at
Ayala. Their individual ethics are
perpetuated and reinforced by our
corporate culture.
Creditors as integral stakeholders.

AFI is a strong believer in publicprivate partnerships. Every sector

in its program communities has a
role to play to ensure the
effectiveness and sustainability of
its programs.
The Foundation is consistently in
consultation with its stakeholders
(donors, project partners,
LGUs/government
representatives, etc.) before,
during, and after the intervention.
Among the other guidelines on
anti-corruption, the Company sets
guidelines for dealing with
business gifts and gratuities to
protect the integrity of its
employees and its business
interests.

The Company protects the rights

of all creditors by endeavoring to
be faithful to the terms and
conditions of credit agreements,
such as timely principal interest
payments, compliance with
positive and negative covenants,
and timely disclosure of relevant
and accurate information. The
Company also endeavors to the
extent applicable that all similarly
classed obligations will rank pari
passu with each other.

2) Does the company have a separate corporate responsibility (CR) report/section or sustainability report/section?
Yes, the Company has a published Sustainability Report. A write up on sustainable developments and corporate
social responsibility are also included in the Annual Report. A section on Sustainability is also available at the
company website (www.ayala.com.ph)
3) Performance-enhancing mechanisms for employee participation.
(a) What are the companys policy for its employees safety, health, and welfare?
The Company maintains a comprehensive medical and wellness program which provides for in-patient and
61

out-patient benefits for employees, dependents and retirees. It is designed to provide payments of the actual,
reasonable and customary expenses incurred by an employee and eligible dependents and retirees, subject to
a maximum amount limit.
We also encourage employees to undergo annual executive check-up or physical examinations for health
maintenance. The company pays for memberships in gym, sports club and interest clubs. We maintain a
chapel in the office vicinity for daily masses and spiritual growth.
(b) Show data relating to health, safety and welfare of its employees.
Programs
Gym Membership
46% of the population availed of the
free membership
Sports Club & Interest Club
Golf, Badminton, Volleyball,
Bowling tournaments are in place
as well as Yoga sessions
Annual Physical Exams / Executive
Majority of the employees and their
Check-ups
dependents avail of the services
Vaccination Program
48% availed of the free vaccination
(c) State the companys training and development programmes for its employees. Show the data.
Various training and development programs are made available to Ayala employees. From the beginning of
their career in Ayala, they are provided with core programs to assist them in their on-boarding and to allow
them to become fully integrated into the organization.
Employees have continuous access to both technical training programs and soft skills programs and are
encouraged to actively participate training that will be helpful in growing their functional expertise and in
making them more effective in their day-to-day work.
A major focus has been on leadership development not only within Ayala but across its group of companies.
The aim has been to develop a deeper leadership bench across the conglomerate by strengthening the general
management skills at the executive and middle management levels.
(d) State the companys reward/compensation policy that accounts for the performance of the company beyond
short-term financial measures
The company rewards qualified employees with long-term stock options or stock ownership. The company
promotes an ownership culture within the company which aligns the interests of the stock plan participants
with those of the shareholders.
4) What are the companys procedures for handling complaints by employees concerning illegal (including
corruption) and unethical behaviour? Explain how employees are protected from retaliation.
Impartial investigation composed of a Committee of representatives from Human Resources, Legal and the Labor
Union. Results of the investigation are managed discreetly.
I.

DISCLOSURE AND TRANSPARENCY

1) Ownership Structure
(a) Holding 5% shareholding or more
Shareholder
Mermac, Inc.

PCD Nominee
Corporation (Non-

Number of Shares
Common-303,689,196
Voting Preferred159,577,460
Common-160,446,419

Percent*
56.5270%

Beneficial Owner
Mermac, Inc.

19.5774%

PCD Participants
acting for themselves
62

Filipino)
Mitsubishi
Corporation
PCD Nominee
Corporation (Filipino)

or for their customers

Common-63,077,540
Voting Preferred32,640,492
Common-56,357,357

11.6794%

6.8766%

Mitsubishi
Corporation
PCD Participants
acting for themselves
or for their customers

*of outstanding voting shares

Name of Senior
Management

Number of Direct shares

Jaime Augusto Zobel de

Ayala

Common-39,731
Voting Preferred-543,802

Fernando Zobel de Ayala

Gerardo C. Ablaza, Jr.

Common-94,825
Voting Preferred-554,983
Common-270,086

Cezar P. Consing

None

Bernard Vincent O. Dy
Arthur R. Tan

None
Common-80,754

Alfredo I. Ayala

Common-25,760

John Eric T. Francia

None

Delfin C. Gonzalez*

Common-50,750

Solomon M. Hermosura

Voting Preferred Shares

53,583

Jose Teodoro K. Limcaoco*

None

Ruel T. Maranan
John Philip S. Orbeta

None
None

Number of
Indirect shares / Through
(name of record owner)
Common (through ESOWN
subscription)-98,435
Preferred B (through PCD)
20,000
Common (through ESOWN
subscription)-43,341
Common (through ESOWN
subscription)-201,724
Common (through PCD
Nominee)-60,023
Preferred B (through PCD)
10,000
Common (through ESOWN
subscription)-18,594
None
Common (through ESOWN
subscription)-135,864
Common (through PCD
Nominee)-59,842
Common (through ESOWN
subscription)-113,907
Common (through ESOWN
subscription)-83,375
Common (through PCD
Nominee)-1
Common (through ESOWN
subscription)-101,947
Common (through PCD
Nominee)-18,944
Preferred B (through PCD)
10,000
Common (through ESOWN
subscription)-58,124
Common (through PCD
Nominee)-15,707
Common (through ESOWN
subscription)-125,665
Common (through PCD
Nominee)-7,342
None
Common (through ESOWN
subscription)-370,462
Common (though PCD
Nominee) 65,685

% of
Capital
Stock
0.0810%

0.0800%
0.0625%

0.0021%
0.0319%

0.0161%
0.0096%

0.0210%

0.0147%

0.0153%

0.0503%

63

Paolo Maximo F.
Borromeo
Ma. Cecilia T. Cruzabra

None

Josephine G. De Asis

None

Catherine H. Ang

None

Common (through ESOWN

subscription)-12,189
Common (through ESOWN
subscription)-5,104
Common (through ESOWN
subscription)-1,000
Voting Preferred Shares
5,290
None
None

Common-240

0.0014%
0.0006%
0.0001%
0.0006%

Dodjie D. Lagazo
None
Charlene Mae C. TapicNone
Castro
TOTAL
1,714,514
1,642,565
0.3874%
*Mr. Limcaoco was appointed as CFO and Finance Group Head effective April 10, 2015 replacing Mr.
Gonzalez.
2) Does the Annual Report disclose the following:
Key risks
Corporate objectives

Yes
Yes

Financial performance indicators

Yes

Non-financial performance indicators

Yes

Dividend policy

Yes

Details of whistle-blowing policy

Biographical details (at least age, qualifications, date of first appointment, relevant
experience, and any other directorships of listed companies) of
directors/commissioners

Yes

Training and/or continuing education program attended by each director/commissioner

Yes

Yes
Yes

Number of board of directors/commissioners meetings held during the year

Yes

Attendance details of each director/commissioner in respect of meetings held

Details of remuneration of the CEO and each member of the board of
directors/commissioners

Yes

Should the Annual Report not disclose any of the above, please indicate the reason for the non-disclosure.
The training and/or continuing education programs attended by each of the companys directors will be disclosed
in the 2014 Annual Report.
3) External Auditors fee
Name of auditor

Audit Fee

Non-audit Fee

Sycip, Gorres, Velayo & Co.

P4.12million

P1.97million

4) Medium of Communication
List down the mode/s of communication that the company is using for disseminating information.
Ayala employs the following modes of communication for disseminating corporate developments and financial and
operational results on a regular basis to its stakeholders:
a.
b.
c.

Structured and unstructured corporate disclosures

Company website
Analysts briefings
64

d.
e.
f.
g.
h.
i.
j.
k.
l.

Press releases
Press briefings
One-on-one meetings between company officers and analysts/institutional investors
Annual report
International and local investor conferences
International non-deal roadshows
Stockholders meeting
Conference calls
Email alerts

5) Date of release of audited financial report:

March 17, 2015

6) Company Website
Does the company have a website disclosing up-to-date information about the following?
Business operations

Yes

Financial statements/reports (current and prior years)

Yes

Materials provided in briefings to analysts and media

Yes

Shareholding structure

Yes

Group corporate structure

Yes

Downloadable annual report

Yes

Notice of AGM and/or EGM

Yes

Company's constitution (company's by-laws, memorandum and articles of

association)

Yes

Should any of the foregoing information be not disclosed, please indicate the reason thereto.
7) Disclosure of RPT
Below are the details of the Companys Related Party Transactions which formed part of the Companys December
2014 audited financial statements:
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or
exercise significant influence over the other party in making financial and operating decisions. Parties are also
considered to be related if they are subject to common control or common significant influence which include
affiliates. Related parties may be individuals or corporate entities.
The Group, in its regular conduct of business, has entered into transactions with associates, joint ventures and
other related parties principally consisting of advances, loans and reimbursement of expenses, purchase and sale
of real estate properties, various guarantees, construction contracts, and development, management,
underwriting, marketing and administrative service agreements. Sales and purchases of goods and services as
well as other income and expense to and from related parties are made at normal commercial prices and terms.
There has not been any material transaction during the last two years, or proposed transaction, to which the
Group was or is to be a party, in which any of its directors or executive officers, any nominee for election as a
director or any security holder identified in this condensed financial information had or is to have a direct or
indirect material interest.
The transactions and balances of accounts with related parties follow:
a.

Transactions with BPI, an associate

65

i.

As of December 31, 2014 and 2013, the Group maintains current and savings account, money market
placements and other short-term investments with BPI broken down as follows (amounts in thousands):
2014
P
=14,878,169
36,759,229
6,264,569
8,273,200

Cash in bank
Cash equivalents
Financial assets at FVPL
Other non-current asset (Note 17)

2013
=P14,403,016
24,141,865
12,794,654

From the Groups placements and short-term investments with BPI, the Group has accrued interest
receivable amounting to P
=79.4 million and P
=8.1 million as of December 31, 2014 and 2013, respectively.
Interest income earned amounted to P
=586.5 million in 2014, P
=648.7 million in 2013 and P
=1,166.7 million
in 2012.
ii.

b.

The Group also has short-term and long-term debt payable to BPI amounting to
=38.0 billion and P
P
=23.2 billion as of December 31, 2014 and 2013, respectively. These short-term and
long-term debts are interest bearing with varying rates, have various maturities starting 2015 and varying
schedules of payments for interest. The Group has accrued interest payable pertaining to the outstanding
balance of the short-term and long-term debt amounting to P
=190.6 million and P
=32.2 million as of
December 31, 2014 and 2013, respectively. Interest expense incurred from the debt amounted to =P402.7
million in 2014, P
=145.2 million in 2013 and P
=131.1 million in 2012.

Outstanding balances of related party transaction follow (amounts in thousands):

Receivables
2014
Associates:
BPI
First Gen Northern Energy (FGNEC)
Bonifacio Land Corp. (BLC)
Stream
Ayala System Technology (ASTI)
Naraya Development Co. Ltd.
Joint ventures:
Integreon
Globe
ADHI
Asiacom
Other related parties:
Columbus Holdings, Inc. (Columbus)
Fort Bonifacio Development Corporation
(FBDC)
Honda Cars Philippines, Inc. (HCP)
myAyala.com, Inc.
Lagoon Development Corporation
(Lagoon)
Isuzu Philippines Corporation (IPC)
GN Power Kauswagan (GNPK)
Fort Bonifacio Holdings Corp.
Sonoma Services Inc.
Others

i.
ii.

Payables
2013

2014

2013

P
=435,123
5,531
374

441,028

=276,659
P
5,531

246,488
15,741
4,877
549,296

P
=257,238

212,696

469,934

=104,911
P

212,696

90

317,697

543,836
165,419
10,883

720,138

488,221
141,939

630,160

2,409

13,617
16,026

2,005

13,581
15,586

888,953

888,815

1,156,308

1,156,308

394,026
112,522
2,097

274,645
72,650
2,098

403,297
152,457

2,154,003
170,298

828

149,853
1,548,279
P
=2,709,445

5,964
25,452
69,936
3,085
867
622,504
1,966,016
=3,145,472
P

193,537

33,617
33,641
1,972,857
P
=2,458,817

48,695

244,422
3,773,726
=4,107,009
P

Receivable from BPI includes trade receivables on vehicles sold by AAHC and accrued interest receivables
on short-term placements by the Group.
Receivable from Stream in 2013 represents a convertible promissory note entered into on
April 27, 2012 for the principal sum of US$4.7 million, plus interest at the rate of 10% per annum
maturing on April 29, 2013. To the extent the outstanding balance is not repaid in full on or prior to the
maturity date, AIVPL Group may elect at any time after the maturity date, upon delivery of conversion
notice to Stream, to convert the note into a number of units of membership interests. On April 19, 2013,
66

iii.
iv.

v.

vi.
vii.
viii.

ix.
x.
xi.
xii.
xiii.

xiv.

Stream and AIVPL Group amended the maturity date of the loan to April 29, 2014. Interest income
earned in 2014 and 2013 amounted to nil and P
=21.7 million, respectively.
Receivables from ASTI and FGNEC are advances made for working capital requirements which are noninterest bearing and demandable.
Receivable from Integreon represents a convertible promissory note entered into on February 2010 with
a principal of US$7.30 million and bear interest of 14% per annum. The lender has a conversion option
for a period of 30 days beginning on the final maturity date at a stipulated price per share. Subsequent
amendments were made to the convertible note on February 15, 2011, July 15, 2012 and on March 4,
2014 which include, among others, extension of the final maturity date and optional conversion period
and change in interest rate. The latest amendment extended the final maturity date from February 15,
2014 to February 15, 2016 and the optional conversion period from February 15, 2014 to March 14,
2017. The convertible note bears interest of 12% per annum. Interest income earned amounted to P
=38.9
million, P
=37.2 million and P
=54.6 million in 2014, 2013 and 2012, respectively.
Receivable from GNPK by ACEHI in 2013 represents an advance for development costs, non-interest
bearing and shall be paid in full within 30 days from financial closing of the project. GNPK is a project
company of ACEHI and Power Partners Ltd. Co. for the development of 3X135MW coal-fired power plant
in Kauswagan Lanao del Norte
Receivable from Columbus represents non-interest bearing advance for future acquisition of shares in
BLC.
Receivable from FBDC largely pertains to management fees which are included under Other income.
Other outstanding balances of receivable from related parties at year-end pertain mostly to advances
and reimbursement of operating expenses. These are unsecured, interest free, will be settled in cash and
are due and demandable.
Payable to Columbus and BLC represent non-interest bearing advances for stock redemption.
Payable to IPC and HCP consist of purchased parts and accessories and vehicles that are trade in nature,
interest-free, unsecured and are payable within 15 to 30 days.
Payable to BPI includes interest payable on Groups borrowings payable at various payments terms like
monthly or quarterly and insurance premiums payable which are due in 30-60 days.
The other outstanding balances of payable to related parties at year-end are unsecured, interest-free,
will be settled in cash and are due and demandable.
Allowance for doubtful accounts on amounts due from related parties amounted to P
=135.4 million and P
=
145.6 million as of December 31, 2014 and 2013, respectively. Provision for doubtful accounts amounted
to P
=0.3 million, P
=0.8 million and P
=15.9 million in 2014, 2013 and 2012, respectively.
On November 26, 2014, Alveo Land Corporation, a wholly owned subsidiary of ALI, acquired a 6,986 sq.
m. property located along Valero St., Salcedo Vill., Makati City. The property was purchased from BPI for
=1,590.0 million, resulting into a gain of
P
=700.0 million.
P

c.

Receivables from officers and employees pertain to housing, car, salary and other loans granted to the
Groups officers and employees which are collectible through salary deduction, are interest bearing ranging
from 6.0% to 13.5% per annum and have various maturity dates ranging from 2015 to 2026.

d.

The fair value of the Groups total investment in the BPI Fund amounted P
=5.6 billion and P
=12.8 billion, as of
December 31, 2014 and 2013, respectively.

e.

Revenue and expenses from related parties follow:

Associates:
BPI
PPI
Stream
ASTI
Jointly controlled
entities:
Globe
Integreon
Asiacom

2014

Revenue
2013

P
=558,814
60

558,874

=702,699
P
417
21,715
826
725,657

101,381
38,973
613

71,913
37,226
1,154

2014

Expenses
2013

2012

=1,166,696
P
339
11,859
1,101
1,179,995

P
=427,263

427,263

=143,582
P

143,582

=131,004
P

131,004

16,642
54,682
6,998

124,563

115,809

32,071

2012
(In Thousands)

67

Northwind Power
Development
Corp.
BPI Globe Banko

140,967

110,293

2014

Revenue
2013

P
=176,194
49,135
17,697
25,921
268,947
P
=968,788

=221,483
P
41,143
46,511
27,405
336,542
=1,172,492
P

4,410
222
82,954

124,563

115,809

32,071

2014

Expenses
2013

2012

P
=155,099
1,315

156,414
P
=708,240

=129,175
P

28,351
157,526
=416,917
P

=16,959
P

3,575
20,534
=183,609
P

(Forward)

Other related
parties:
FBDC
Lagoon
6750 Ayala Avenue
Others

2012
(In Thousands)

=113,471
P

9,258
122,729
=1,385,678
P

Revenue recognized from related parties includes:

i.
Leasing and developmental projects services rendered by ALI group.
ii. Water and sewerage services rendered by MWC.
iii. Automotive sales and repair services rendered by AAHC group.
iv. Interest income from cash deposits and money market placements in BPI.
Expenses recognized from related parties include:
i.
Interest expense from short-term and long-term debt payable to BPI.
ii. Purchases of communications software and billings for mobile phone charges and internet connections
with Globe.
iii. Building rental, leased lines, internet connections and ATM connections with Innove, subsidiary of Globe.
f.

The Groups Compensation of key management personnel by benefit type follows:

2014
Short-term employee benefits
Post-employment benefits (Note 27)
Share-based payments (Note 28)

P
=1,369,942
69,079
37,957
P
=1,476,978

2013
(In Thousands)
=1,242,543
P
139,933
63,571
=1,446,047
P

2012
=1,401,840
P
77,177
158,131
=1,637,148
P

When RPTs are involved, what processes are in place to address them in the manner that will safeguard the
interest of the company and in particular of its minority shareholders and other stakeholders?
The Company and its subsidiaries observe the following:
Each business unit which may be a related party has corporate governance policy that ensures propriety of
business conduct. The representation of minority stakeholders and other stakeholders in the Board of Directors
and various Board Committees form part of the corporate governance. The Board of Directors and committees
review the critical and key operating areas.
Each business unit which may be a related party has its own set of management team responsible in achieving
their respective overall operating goals.
All transactions with related parties are on arms-length basis, the terms are fair and they will inure to the
benefit of the Corporation and all of its shareholders.
J.

RIGHTS OF STOCKHOLDERS

1)

Right to participate effectively in and vote in Annual/Special Stockholders Meetings

(a) Quorum
Give details on the quorum required to convene the Annual/Special Stockholders Meeting as set forth in its
By-laws.
68

One-half of the outstanding stock

is present or represented except
in cases where the Corporation
Law requires a greater number.

Quorum Required

(b) System Used to Approve Corporate Acts

Explain the system used to approve corporate acts.
System Used

By poll.

Description

Straight and cumulative voting.

In all items for approval, each voting share of stock entitles its registered
owner as of the Record Date to one vote.
In the case of the election of directors, each stockholder may vote such
number of shares for as many persons as there are directors to be elected or
he may cumulate the aforesaid shares and give one nominee as many votes
as the number of directors to be elected multiplied by the number of his
shares, or he may distribute them on the same principle among as many
nominees as he shall see fit; provided that, the whole number of votes cast
by him shall not exceed the number of shares owned by him multiplied by the
total number of directors to be elected.
Voting will be by poll. Upon registration at the annual stockholders meeting,
each stockholder will be given a ballot to enable him to vote in writing on each
item or proposal in the Agenda. Nonetheless, each stockholder may vote viva
voce or by other means of communicating his approval or objection.
All votes will be counted and tabulated by the Office of the Corporate
Secretary and the results will be validated by the external auditor of the
Company, SGV & Co.

(c) Stockholders Rights

List any Stockholders Rights concerning Annual/Special Stockholders Meeting that differ from those laid
down in the Corporation Code.
Stockholders Rights under
The Corporation Code
Voting Right

Stockholders Rights not in

The Corporation Code
None

Pre-emptive Right
Right of Inspection
Right to Information
Right to Dividends
Appraisal Right
Dividends
Cash Dividend on Common Shares
Declaration Date

Record Date

Payment Date

June 26, 2014

July 10, 2014

July 25, 2014

December 4, 2014

December 18, 2014

January 3, 2015

69

Cash Dividend on Preferred B Series 1 Shares

Declaration Date

Record Date

Payment Date

December 4, 2014

January 21, 2015

February 15, 2015

December 4, 2014

April 20, 2015

May 15, 2015

December 4, 2014

July 22, 2015

August 15, 2015

December 4, 2014

October 21, 2015

November 15, 2015

Cash Dividend on Preferred B Series 2 Shares

Declaration Date

Record Date

Payment Date

December 4, 2014

January 12, 2015

February 5, 2015

December 4, 2014

April 7, 2015

May 5, 2015

December 4, 2014

July 10, 2015

August 5, 2015

December 4, 2014

October 12, 2015

November 5, 2015

Declaration Date

Record Date

Payment Date

December 4, 2015

April 23, 2015

May 20, 2015

Cash Dividend on Voting Preferred Shares

(d) Stockholders Participation

1.

State, if any, the measures adopted to promote stockholder participation in the Annual/Special Stockholders
Meeting, including the procedure on how stockholders and other parties interested may communicate
directly with the Chairman of the Board, individual directors or board committees. Include in the discussion
the steps the Board has taken to solicit and understand the views of the stockholders as well as procedures
for putting forward proposals at stockholders meetings.
The agenda for the Annual Stockholders Meeting, the detailed Definitive Information Statement and the
unbundled proxy form are distributed to the stockholders on record 15 business days prior to the meeting to
enable the stockholders to study and understand every agenda item of the meeting. During the annual
stockholders meeting, the Chairman of the Board encourages the stockholders to ask questions for each
agenda or matters for approval during the meeting. The question and answer portion is documented in the
minutes of the meeting.

2.

State the company policy of asking shareholders to actively participate in corporate decisions regarding:
a.
b.
c.

Amendments to the company's constitution

Authorization of additional shares
Transfer of all or substantially all assets, which in effect results in the sale of the company

The Company calls for a regular or special stockholders meeting to propose to the stockholders the actions
listed above. The details of the proposed actions are presented in the Definitive Information Statement which
is made available to the stockholders. During the meeting, the Companys board and/or management present
the proposed actions and encourage stockholders to ask questions. The affirmative vote of stockholders
representing at least 2/3 of the issued and outstanding capital stock of the Company is required for the
approval of the above items.
In cases of amendment of the Articles of Incorporation where written assent is allowed, a stockholder may
deliver, in person or by mail, his vote directly to the Corporation.
70

3.

Does the company observe a minimum of 21 business days for giving out of notices to the AGM where items
to be resolved by shareholders are taken up?
a.

Date of sending out notices:

March 20, 2014 (The Company is compliant with paragraph (3)(c) of the SRC Rule 20 wherein the notice
and the Definitive Information Statement is given to the security holders at least fifteen (15) business days
prior to the meeting date.)

b.

Date of the Annual/Special Stockholders Meeting:

April 11, 2014

4.

State, if any, questions and answers during the Annual/Special Stockholders Meeting.
Below is the list of questions and answers during the 2014 Annual Stockholders Meeting:
Q & A No. 1
Question: A stockholder of the Company inquired regarding the assets of the Company that are available for
sale but which remain unsold.
Answer: The CFO responded that the Companys assets that are available for sale are valued every year based
on the current market value. Some of these assets may have fallen in value but not necessarily for a long time
while others are seen to rise in value. The Chairman added that the Company has very good portfolio of
assets and that although the value of the assets available for sale fluctuates over time, the Company ensures
that these are reflected on accounting standards.
Q & A No. 2
Question: A stockholder commented that the Company has a very high increase in growth but not so much
growth in terms of profitability.
Answer: The Chairman replied that to a large extent this is because the Company has decided to redo its
whole telecommunication infrastructure which has a large depreciation hit right up-front. However, the
Chairman said that taking away the accelerated depreciation number, the net income has been moving up
quite comfortably.
Q & A No. 3
Question: A stockholder inquired on the Companys investments.
Answer: The Chairman responded that the Company bought out a significant stake in BPI from DBS Bank. GIS
of Singapore came in but its investment was not significant. The Company also bought the shares of
Mitsubishi Corporation in MWC.
Q & A No. 4
Question: A stockholder noted that compared to the other subsidiaries of the Company which have fairly high,
stable margins and which have been established over the years, IMI is challenged on margins. The
stockholder then asked about the Companys plans for IMI.
Answer: The Chairman stated that IMI will balance its portfolio by expanding globally from being a Philippinebased company. Dealing with Japanese-related businesses, the Company has tried to lower IMIs risk profile
but it has plans of expanding in China and moving on to Eastern Europe and Mexico. By having a global
footprint and by trying to link-up with higher value-creative customers, the Company has tried to change the
margin component of the business of IMI. The Chairman added that while it is not easy to work in a global
environment, IMI has a unique capability and is probably the only Philippine company that has established a
footprint of its kind. While it is really a competitive world for electronics, IMI has tried to expand its portfolio
and the net income figures from IMI have been increasing.
Q& A No. 5
Question: A stockholder inquired about the figures in the acquisition of Family Mart.
71

Answer: Mr. Bernard Vincent O. Dy, ALIs President and CEO, replied that the acquisition was through a
partnership with Store Specialists, Inc. (SSI), with the Rustans Group and Japan Family Mart. The local
partners, the Company and SSI, own 60% equity while Japan Family Mart owns 40%. Thirty stores were
opened last year and the plan for this year is to open 100 stores. The medium-term goal for the next five
years is to put up 500 stores.
Q& A No. 6
Question: A stockholder asked the average percentage of MWC in the Companys portfolio.
Answer: Mr. Delfin C. Gonzalez stated that the contribution of MWC to the Companys net income last year
was 10%.
Q& A No. 7
Question: A stockholder asked if the Company is taking action to prevent further losses in the event MWC
would not get a favorable resolution in the arbitration with MWSS.
Answer: The Chairman replied that in view of the on-going arbitration, it is not possible to make any
comment. However, he added that the Companys purchase of additional shares in MWC should send the
message to the market that the Company is confident of the future prospects of MWC.
Q& A No. 8
Question: A stockholder asked if the Company has any plans of expanding the business of MWC in some areas
other than Metro Manila.
Answer: The Chairman replied that MWC has businesses in Clark, Laguna and Boracay and it also has a water
project in Cebu. While these may take some time to grow, they will be major contributions in the future. It
was also added that MWC signed a Memorandum of Understanding with the Government of Myanmar for the
development of a proposed non-revenue water reduction project for Yangon City. Thus, it is expected that
there would be major contributions in the future from new businesses that are growing very rapidly.
Q& A No. 9
Question: A stockholder inquired which segment of real estate is most vulnerable today from the demandsupply perspective.
Answer: The Chairman answered that ALI has a very broad range of products throughout the country and in
terms of the income groups. The results continue to be very strong for ALI as it has the benefit of having
horizontal products, high-rise products and diversity in terms of its recurring businesses.
Q& A No. 10
Question: A stockholder inquired about IMI being penalized by the PSE for not conducting stock rights offering
or making public offering.
Answer: Mr. Hermosura clarified that IMI has been given by the PSE an extension of time within which to
make a public offering of shares.
Q& A No. 11
Question: A stockholder inquired on the Ayala Land Real Estate Investment Trust.
Answer: The Chairman responded that the Ayala group, as a whole, including ALI, is quite keen to look at the
tight structure of real estate investment trust as a way of creating liquidity in the Company, which is
dependent on government policy. The dialogue between the government and the real estate industry in
inconclusive. As of now, there is no clear structure that has been accepted by the executive department of the
government.
Q& A No. 12
Question: A stockholder inquired about the rate of sale of the vehicles.
Answer: Mr. Gonzalez responded that the sale is about 7% but the net income is down at 81% principally on
72

account of the start-up cost for the Volkswagen dealership and distributorship. Units sold are up by 9%. The
Company expects some growth this year.
Q& A No. 13
Question: A stockholder inquired on the impact of the ASEAN Integration by 2015 to the Ayala group.
Answer: The Chairman stated that the Company is of the view that ASEAN Integration as a whole has a
potential benefit to the country. He added that each of the company in the Ayala group is well prepared to
compete.
5.

Result of Annual/Special Stockholders Meetings Resolutions

Resolution

Approving

Dissenting

Abstaining

Resolution No. S-01-15:

RESOLVED, to approve the
minutes of the annual
stockholders meeting held on
April 11, 2014.

626,714,725 shares or
94.36%

Resolution No. S-02-15:

RESOLVED, to note the
Corporations Annual Report,
which consists of the Chairmans
Message, the Presidents Report,
and the audio-visual presentation
to the stockholders, and to
approve the consolidated audited
financial statements of the
Corporation and its subsidiaries as
of December 31, 2014, as audited
by the Corporations external
auditor SyCip Gorres Velayo &
Co.

626,713,702 shares or
94.36%

1,007 shares or
0.00015%

Resolution No. S-03-15:

RESOLVED, to approve, confirm,
and ratify all resolutions of the
Board of Directors and the
Executive Committee, and other
Board Committees, as well as all
acts of Management taken or
adopted since the annual
stockholders meeting on April 11,
2014 until today, as reported by
the Corporate Secretary.

626,331,407 shares or
94.30%

1,007 or 0.0015%

378,714 shares or
0.06%

620,350,710 shares or
93.40%

3,943,204 shares
or 0.59%

2,040,170 shares or
0.1%

Fernando Zobel de Ayala

620,045,688 shares or
93.36%

6,268,530 shares
or 0.94%

19,840 shares or
0.003%

Delfin L. Lazaro

620,190,375 shares or
93.38%

6,130,960 shares
or 0.92%

Resolution No. S-04-15:

RESOLVED, to elect the following
as directors of the Corporation to
serve as such beginning today
until their successors are elected
and qualified:
Jaime Augusto Zobel de Ayala

73

Xavier P. Loinaz

626,321,226 shares or
94.30%

110 shares or
0.00002%

Ramon R. Del Rosario, Jr.

622,893,401 shares or
93.78%

3,309,834 shares
or 0.50%

Yoshio Amano

619,108,485 shares or
93.21%

7,212,50 shares or
1.09%

Antonio Jose U. Periquet

619,108,485 shares or
93.21%
624,151,249 shares or
93.97%

3,133,864 shares
or 0.47%
1,861,100 shares
or 0.28%

Resolution No. S-05-15:

RESOLVED, as endorsed by the
Board of Directors, to approve
the re-election of SyCip Gorres
Velayo & Company as the
external auditor of the
Corporation for the year 2015 for
an audit fee of PhP5 Million,
inclusive of value-added tax.
6.

118,100 shares or
0.012%
-

19,840 shares or
0.003%
702,376 shares or
0.11%

Date of publishing of the result of the votes taken during the most recent AGM for all resolutions:
April 11, 2015 or the following business day after the annual stockholders meeting.

(a) Modifications
State, if any, the modifications made in the Annual/Special Stockholders Meeting regulations during the most
recent year and the reason for such modification:
Modifications

Reason for Modification

None

(b) Stockholders Attendance

(i) Details of Attendance in the Annual/Special Stockholders Meeting Held:

Type of
Meeting
Annual

Names of Board
members /
Officers present

Jaime Augusto
Zobel de Ayala,
Fernando Zobel
de Ayala, Delfin
L. Lazaro, Yoshio
Amano, Xavier P.
Loinaz, Antonio
Jose U. Periquet
and Ramon R.
Del Rosario, Jr.,
and all other
members of the
Senior
Leadership Team

Date of
Meeting
April 10,
2015

Voting
Procedure
(by poll,
show of
hands, etc.)

% of SH
Attending
in Person

% of SH in
Proxy

Total % of
SH
attendance

By poll

67.35%

9.44%

76.79%

74

Special

Not Applicable

(ii) Does the company appoint an independent party (inspectors) to count and/or validate the votes at the
ASM/SSMs?
Yes. The company has engaged SyCip Gorres Velayo & Co. to validate the voting results of the companys
annual stockholders meeting since 2014.
(iii) Do the companys common shares carry one vote for one share? If not, disclose and give reasons for any
divergence to this standard. Where the company has more than one class of shares, describe the voting
rights attached to each class of shares.
One vote per share for common and voting preferred shares. One vote per share for preferred B on
matters where holders of non-voting shares are entitled to vote under Section 6 of the Corporation Code.

(c) Proxy Voting Policies

State the policies followed by the company regarding proxy voting in the Annual/Special Stockholders
Meeting.
Companys Policies
Execution and acceptance of proxies

Proxies shall be in writing, signed by the stockholder or his

duly authorized representative and filed before the scheduled
meeting with the Corporate Secretary.
A stockholder may designate any person of his choice to act
as his proxy. Absent such designation or in cases where the
designated proxy should fail to appear at the meeting, the
Chairman of the meeting shall be deemed authorized and
hereby directed to cast the vote as indicated by the voting
stockholder or his proxy.
If a duly accomplished and executed proxy is undated, the
postmark or date of dispatch indicated in the electronic mail
or, if not mailed, its actual date of presentation, shall be
considered as the date of the proxy.

Notary

Not required

Submission of Proxy

The stockholder may deliver in person or by mail his or her

proxy forms directly to the Corporation through the Office of
the Corporate Secretary not later than seven (7) business
days prior to the meeting.
Where a proxy is given to two or more persons in the
alternative in one instrument, the proxy designated as an
alternate can only act as proxy in the event of nonattendance of the other designated person. If the
stockholder designates several proxies, the number of shares
of stock to be represented by each proxy will be specifically
indicated in the proxy form. Where the same stockholder
gives two or more proxy forms, the latest one given is to be
deemed to revoke all former proxies.
The duly accomplished proxy form should be submitted to the
Office of the Corporate Secretary not later than seven (7)
business days prior to the date of the annual stockholders
meeting. Unless provided in the proxy, it will be valid only for
the meeting for which it is intended. No proxy will be valid
and effective for a period longer than five (5) years at any

Several Proxies

Validity of Proxy

75

one time. Stockholders may vote by proxy at other corporate

meetings even when the purpose thereof is not solely to elect
the directors of the Corporation.

Proxies executed abroad

Invalidated Proxy

Validation of Proxy

Violation of Proxy

Any reasonable doubt about the validity of the proxy shall be

resolved in favor of the stockholder.
Proxies executed abroad should be authenticated by the
Philippine Embassy or Consular Office.
Proxy forms received after the prescribed date of submission
shall be invalid. A proxy may be revoked at any time before
the right granted is exercised, unless it is coupled with
interest. The revocation may be done in writing, orally or by
conduct (e.g. appearance of the stockholder of record at the
meeting).
The validation of proxy shall be conducted by the Committee
of Inspectors of Proxies and Ballots at least five (5) business
days prior to the date of the stockholders meeting.
No person making a solicitation shall solicit any undated or
post-dated proxy or any proxy which provides that it shall be
deemed to be dated as of any date subsequent to the date on
which it is signed by the security holder. No security broker
shall give any proxy, consent or authorization, in respect of
any security carried for the account of a customer, to a
person other than the customer, without the express written
authorization of such customer.

(d) Sending of Notices

State the companys policies and procedure on the sending of notices of Annual/Special Stockholders
Meeting.
Policies

Procedure

In accordance with the companys By-laws and

applicable rules, written notice of the time, date,
place, and purposes of the meeting shall be sent
to all stockholders as of the record date for the
annual/special stockholders meeting.
The notice of the annual/special stockholders
meeting shall be sent to the stockholders at least
15 business days before the meeting.
The notice of the meeting shall be deemed to have
been given at the time when delivered personally
or deposited in the post office, or sent
electronically or by e-mail.
The Corporation shall give the notice and provide
electronically only to stockholders who have
consented to receive notices by e-mail or
electronic transmission.

The Company abides by its policies in sending out

of notices of Annual/Special Stockholders
Meeting.

(e) Definitive Information Statements and Management Report

Number of Stockholders entitled to receive
Definitive Information Statements and
Management Report and Other Materials
Date of Actual Distribution of Definitive
Information Statement and Management Report
and Other Materials held by market
participants/certain beneficial owners

7,914

March 17, 2015

76

Date of Actual Distribution of Definitive

Information Statement and Management Report
and Other Materials held by stockholders
State whether CD format or hard copies were
distributed
If yes, indicate whether requesting stockholders
were provided hard copies

March 17, 2015

CD format, hard copies and electronic mail
Yes, stockholders who wished to receive paper
copies of the Definitive Information Statement
were provided with paper copies.

(f) Does the Notice of Annual/Special Stockholders Meeting include the following:
Each resolution to be taken up deals with only one item.

Yes

Profiles of directors (at least age, qualification, date of first appointment,

experience, and directorships in other listed companies) nominated for
election/re-election.

Yes

The auditors to be appointed or re-appointed.

Yes

An explanation of the dividend policy, if any dividend is to be declared.

Yes

The amount payable for final dividends.

Yes

Documents required for proxy vote.

Yes

Should any of the foregoing information be not disclosed, please indicate the reason thereto.
2) Treatment of Minority Stockholders
(a) State the companys policies with respect to the treatment of minority stockholders.
Policies
A Director may be removed with or without cause,
but directors shall not be removed without cause
if it will deny minority shareholders representation
in the Board.
The minority shareholders shall have the right to
propose the holding of a meeting, and the right to
propose items in the agenda of the meeting,
provided the items are for legitimate business
purposes.
The minority shareholders shall have access to any
and all information relating to matters for which
the management is accountable for and to those
relating to matters for which the management
should include such matters in the agenda of the
meeting provided always that this right of access
is conditioned upon the requesting shareholders
having a legitimate purpose for such access.
(b)

Implementation
The Company strictly adheres with its policies
with respect to the treatment of minority
stockholders.

Do minority stockholders have a right to nominate candidates for board of directors?

Yes, the companys Board Charter and the Charter of the Nomination Committee allows any stockholder,
including minority stockholders, to nominate candidates for board of directors.

K. INVESTORS RELATIONS PROGRAM

77

1) Discuss the companys external and internal communications policies and how frequently they are reviewed.
Disclose who reviews and approves major company announcements. Identify the committee with this
responsibility, if it has been assigned to a committee.
Ayalas external and internal communications programs are handled by both the Corporate Communications and
Investor Relations units. Major company announcements are reviewed and approved by the Chairman and Chief
Executive Officer, President and Chief Operating Officer, Chief Finance Officer and Group Head of Corporate
Strategy and Development.
The companys communication policies are reviewed in conjunction with enterprise risk management reviews or as
needed or required.
2) Describe the companys investor relations program including its communications strategy to promote effective
communication with its stockholders, other stakeholders and the public in general. Disclose the contact details
(e.g. telephone, fax and email) of the officer responsible for investor relations.
Details
(1) Objectives

The companys investor communications program is aimed at

promoting greater understanding among the investing public of
the companys investment proposition, its performance targets
and strategies, and its long-term value creation objectives.
Through its Investor Relations Unit under Corporate Strategy
and Development, information requirements of the investing
public and minority shareholders are fully disclosed to the
Philippine Stock Exchange on time, as well as through quarterly
briefings, annual reports, stockholders meetings, one-on-one
meetings, conference calls, roadshows, investor conferences,
website, email alerts and conference calls.

(2) Principles

(3) Modes of Communications

(4) Investors Relations Officer

The Investor Relations Unit also provides feedback to company

management of perspectives and views of the investing public
on the company and its stated goals/strategies.
Ayalas investor relations program is guided by the principles of
full disclosure, transparency and fairness. The company also
implements uniform disclosure standards across all
stakeholders (whether minority, retail, institutional, local or
foreign shareholders). Ayala also practices proper internal
checks across all communications and ensures these do not
compromise competitive information.
Ayala employs the following modes of communications for its
stakeholders:
1. Structured and unstructured corporate disclosures
2. Company website
3. Analysts briefings
4. Press releases
5. Press briefings
6. One-on-one meetings between company officers and
analysts/institutional investors
7. Annual report
8. International and local investor conferences
9. International non-deal roadshows
10. Stockholders meeting
11. Conference calls
12. Email alerts
Ms. Ma. Margarita G. Villanueva
Head, Investor Relations
Tel: +632 908-3434
78

Email: villanueva.mg@ayala.com.ph
Fax: +632 848 5846
Ms. Celeste M. Jovenir
Investor Relations Manager
Tel:+632 908 3394
Email: jovenir.cm@ayala.com.ph
Fax: +632 848 5846
3) What are the companys rules and procedures governing the acquisition of corporate control in the capital
markets, and extraordinary transactions such as mergers, and sales of substantial portions of corporate assets?
Companys Rules and Procedures for Mergers and Acquisitions:
1.
2.

3.

4.
5.
6.
7.

Starts with Strategy and Planning where a potential transaction is assessed in the context of strategic goals of
the Company, its subsidiaries and affiliates;
Once this is pre-cleared through the Investment Committee (IC), the transaction then goes to the second
stage of evaluation and screening for a more detailed due diligence procedure. In this stage, a project lead,
team members (from financial, technical, legal, commercial, environmental, etc.), steering committee
members (preferably composed of business unit, finance and legal representatives) and external advisors are
formed and engaged;
An inventory of risks with various risk levels / probability of occurrence and suggested risk mitigants are
reported to the Steering Committee for evaluation, recommendation and discussion of risk levels, tolerance
and mitigation strategies;
The key transaction risks and mitigation strategies identified along with the proposed offer, structure and
authorized signatories are then subject to IC approval;
When necessary, the proposal will also pass through the Finance Committee, Executive Committee and the
Board of Directors;
Once approved, the final bid or offer is prepared and the binding terms of the definitive agreements are
negotiated and discussed.
After signing, the transaction is then disclosed to the public.

Companys Rules and Procedures for Divestments:

1.
2.
3.

4.
5.
6.
7.
8.
9.

Starts with strategy and planning on the account of the portfolio review or business unit initiative in the
context of strategic goals of Company, its subsidiaries and affiliates;
Approval of the Investment Committee is needed in order to determine initial position of whether to hold or
sell;
Once pre-cleared, a project lead, team members (from financial, technical, legal, commercial, environmental,
etc.), steering committee members (preferably composed of business unit, finance and legal representatives)
and external advisors are formed and engaged;
Divestment plans (with identification of potential buyers and target selling price) are prepared;
Investment teaser is provided to the interested buyers and they are asked to sign an Non-Disclosure
Agreement (NDA);
After signing the NDA/exclusivity agreement, buyers can then perform its own due diligence;
Offers are evaluated by the team and steering committee and presented to the IC (then Finance
Committee/Executive Committee/Board of Directors, if necessary) for approval;
Once approved, the final bid or offer is prepared and the binding terms of the definitive agreements are
negotiated and discussed;
After signing, the transaction is then disclosed to the public.

Name of the independent party the board of directors of the company appointed to evaluate the fairness of the
transaction price.
The company engaged various accredited independent parties to issue fairness opinion reports for the Companys
mergers, acquisitions of assets and divestment transactions.

79

L.

CORPORATE SOCIAL RESPONSIBILITY INITIATIVES

Discuss any initiative undertaken or proposed to be undertaken by the company.
Initiative
EDUCATION
Center of Excellence in Public Elementary Education in
two public elementary schools (Tondo, Manila, and
Bauan, Batangas), implemented in partnership with
the Department of Education.

EDUCATION
Text2Teach, a partnership program with the
Department of Education, Nokia, Pearson, Globe, and
local government units.

YOUTH LEADERSHIP
Ayala Young Leaders Congress (AYLC), the flagship
youth leadership program of the Ayala group of
companies.

YOUTH LEADERSHIP
Leadership
Communities,
empowers
youth
organizations to help address pressing needs and
issues in their local community through projects they
themselves propose, plan, and implement.

Beneficiary
The bright children of economically disadvantaged
families in Manila and Batangas.
In 2013, both CENTEX schools had a total enrollment
of 997 students. Thirty-nine from the first batch of 75
CENTEX students completed their college education,
with more graduating soon. CENTEX also organized
the JPMorgan Chase CENTEX Principals and
Teachers Training Institute for 334 Principals and
Teachers.
Public elementary school students (grade 5 and 6),
teachers, and principals.
In 2013, Text2Teach connected 340 new public
elementary schools to Text2Teach, reaching over
30,000 students and training over 2,000 teachers.
Text2Teach was also included in the list of 100 most
inspiring social tech innovations as compiled by UK
funder for tech projects, Nominet Trust. Since it
started, Text2Teach has reached 897 schools
nationwide.
Top student leaders from universities and colleges
nationwide.
In 2013, 81 student leaders from around the country
participated in the 15th year of the AYLC. The AYLC
also celebrated its 15th year anniversary, staging its
third AYLC Grand Reunion with more than 500 alumni
from across the 15 batches present. In 2013, AYLC
alumni, as a way of paying forward what they have
learned from their AYLC experience, conducted 22
community-based Leadership Camps, and trained
2,641 student leaders all over the country.
Community-based young leaders committed to
bringing positive change in their respective
communities.
In 2013, LeadCom was brought to Southville 7, the
resettlement in Calauan, Laguna in partnership with
the municipal government of Calauan and the Don
Bosco Brothers. LeadCom trained 25 young people
from Calauan, Laguna. They are now implementing 4
community projects in their area.

YOUTH LEADERSHIP

150 youth leaders from all over the ASEAN.

LEAD ASEAN Youth Summit, a youth summit

organized in partnership with the United States

In 2013, the LEAD ASEAN Youth Summit brought

together 150 youth leaders from all over the ASEAN
80

Embassy in Manila.

to network and address pressing issues in the region.

The summit resulted into 4 cross-country
collaborative projects.

SUSTAINABLE LIVELIHOOD

Members of the indigenous Iraya-Mangyan

community in Talipanan, Oriental Mindoro.

Iraya-Mangyan Project

AFIs work among the Iraya-Mangyans included

educational assistance for 56 Iraya-Mangyan
students (46 high school and 10 college) and a
computer center was set up with 10 computers for
educational and additional livelihood skills training.
AFI is helping the Iraya-Mangyan market and sell
their nito baskets, the community joined 3 product
fairs to showcase their products.
SUSTAINABLE LIVELIHOOD
Calauan, Laguna Project focuses on Southville 7 in
Calauan, Laguna, a 107 hectare relocation site for
families displaced by Typhoon Ondoy and the Pasig
River rehabilitation. Owned by the National Housing
Authority, the property is home to 4,500 families. AFI
is implementing sustainable livelihood projects for the
families in the area in partnership with the Municipal
Government of Calauan, Salesians of Don Bosco,
Franciscan Sisters of Sacred Heart, e-Skills Network,
Consuelo Foundation, Habitat for Humanity, and ABSCBN Foundation.

Residents of Southville 7, Calauan, Laguna, home to

4,500 families.
In 2013, AFI implemented several livelihood
enterprises and livelihood skills training opportunities
for residents of Southville 7 which included a Job Fair
that attracted over 200 job applicants with 23
residents hired on the spot and a Landscape Training
for 25 residents. AFI also piloted mushroom-growing
enterprise for 10 families and an ube-growing
enterprise for 12 families.

81

SUSTAINABLE LIVELIHOOD

Residents of barangay Sibaltan and Villa Libertad in El

Nido, Palawan

El Nido Project works closely with the local

communities in their efforts towards gaining
employment or diversified sources of income and
developing and strengthening local industries such as
weaving, cashew production, local tourism and
others.

In 2013, AFI provided training for the weavers of

Sibaltan, El Nido, on production scale and studied the
production time of the weaving process. Fifty women
weavers have been reached through the Sibaltan-Buri
Pandan Weavers association. Master women
weavers have also been identified to help speed up
the weaving process. AFI has also taken steps in
helping scale-up cashew production and local way of
life tourism in partnership with the Sibaltan Heritage
Council.
In 2013, the Ayala Museum had a total of 111,501
visitors. It staged 37 workshops and other
educational programs with 2,743 participants
attending its educational programs. The Ayala
Museum joined the Musee du quai Branlys
Philippines: Archipel des Echanges exhibit in Paris.
The Ayala Museum also launched the Botong
Francisco: A Nation Imagined traveling exhibit and its
accompanying short film directed by Peque Gallaga
was screened at the Cinemalaya Independent Film
Festival. It presented several major exhibitions, such
as The Real HR Ocampo; I Love Kusama; Media Art
Sensorium; and Constancio Bernardo, 1913-2013.

ARTS AND CULTURE

Ayala Museum

ARTS AND CULTURE

In 2013, FHL opened its new space on the sixth floor

of the Ayala Museum, presenting itself as a
contemporary space for the contemporary
researcher, with a strong commitment to
digitization. It served 1,543 researchers and reached
323 people through its educational programs.
Through its five FHL-managed websites, it drew a
total of 350,341 visitors online. Through its
digitization project, it digitized 450 rare books. The
FHL also acquired 573 books from the family of
former Spanish Ambassador to the Philippines Pedro
Ortiz Armengol, who was a distinguished writer,
historian, traveler and Philippine scholar.

Filipinas Heritage Library (FHL)

M. BOARD, DIRECTOR, COMMITTEE AND CEO APPRAISAL

Disclose the process followed and criteria used in assessing the annual performance of the board and its
committees, individual director, and the CEO/President.

Board of Directors

Process

Criteria

The directors are requested

annually to answer a
performance assessment survey
form where they will evaluate

Knowledge Whether the

Board possesses adequate
information on industry trends
82

their performance as a director

and the performance of the
Board. The directors may
answer the survey
anonymously. The Corporate
Secretary summarizes the result
of the survey. An outside
consultant may be employed to
conduct simultaneous
evaluation of the Boards
performance.

Board Committees

Audit Committee fills out a selfassessment questionnaire that

shall benchmark its practices
against the expectations set
forth in the Audit Committee
Charter.

and overall business

environment;
Strategy and Implementation
Whether the Board has
adopted appropriate
corporate strategy and
whether the same has been
effectively implemented;
Risk Management Whether
the Board has a keen
understanding of the types of
risks to which the Corporation
may be exposed and would be
vulnerable, and whether it has
adopted appropriate systems
and processes to manage
these risks;
Corporate Ethics Whether
the Board has taken the lead
role to ensure faithful
compliance with all the
applicable laws and rules, and
the Corporations By-laws,
Manual of Corporate
Governance, Code of Conduct
and Ethics, and other relevant
company policies; and
Internal Control/Oversight
Function Whether the Board
has taken reasonable steps to
ensure that the Corporation is
properly managed, including
monitoring of the operational
and financial results.
Committee Organization
Whether the Committee is
composed of appropriate
number of Directors with the
right balance of skills,
experiences and backgrounds
to ensure the proper
performance of the roles and
responsibilities of the
Committee;
Committee Meetings
Whether the Committee had
adequate number of meetings
to sufficiently focus on
significant matters of concern;
and
Committee Processes and
Procedures Whether the
Committee adopted processes
and procedures to ensure
timely resolution of matters
83

before it.
Individual Directors

The directors are requested

annually to answer a
performance assessment survey
form where they will evaluate
their performance as a director
and the performance of the
Board. The directors may
answer the survey
anonymously. The Corporate
Secretary summarizes the result
of the survey.

Knowledge Whether the

Director has an in-depth
knowledge of the
Corporations business and
strategic direction;
Participation Whether the
Director attended all, some or
only a few of the meetings of
the Board and of the
committees in which he/she is
a member, and whether
he/she made valuable
contributions in the discussion
of matters before the Board
and/or the committees; and
Fair Dealing Whether the
Director conducted fair
business transactions with the
Corporation and ensured that
his/her personal interest did
not conflict with the interest
of the Corporation.

CEO/President

The performance of the Senior

Management Group, including
the Chairman and the President,
are regularly evaluated. The
Company uses an Evaluation
System which includes selfassessment and discussions.

The companys Performance

Evaluation System includes
metrics, deliverables,
accomplishments and
development plan.

N. INTERNAL BREACHES AND SANCTIONS

Discuss the internal policies on sanctions imposed for any violation or breach of the corporate governance manual
involving directors, officers, management and employees
After due notice and hearing, a director, officer or employee who violates the Manual of Corporate Governance of
the company will be subjected to the following penalties:
Violations
First Violation
Second Violation
Third Violation

Sanctions
Reprimand.
Suspension from office. The duration shall be at the reasonable
discretion of the Board, depending on the gravity of the violation.
Removal from office.

84

V.

2014 Original BIR/Bank Stamp Received

174

VI.

2014 Ayala Corporation and Subsidiaries Special Form for Financial Statements (SFFS)

175