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S.E.C. Registration Number P A L H O L D I N G S , I N C .
(Company’s Full Name) 7 . T H F L A O Y O A R L A A L A L V I E E . D B A N K C E N T E R
M A K A T I C I T Y (Business Address: No. Street City / Town / Province) 736-8466 Company Telephone Number
SUSAN TCHENG LEE Contact Persons 0 3 3 1 1 7 A
Month Day Fiscal Year
Month Day Annual Meeting
Secondary License Type, If Applicable
Dept. Requiring this Doc.
Amended Articles Number/Section Total Amount of Borrowings
Total No. of Stockholders Domestic -----------------------------------------------------------------------------------------------------------------------------To be accomplished by SEC Personnel concerned
Remarks = pls. use black ink for scanning purposes
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-A ANNUAL REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SECTION 141 OF THE CORPORATION CODE OF THE PHILIPPINES
1.For the fiscal year ended
March 31, 2009
2.SEC Identification Number
3. BIR Tax Identification No. 430-000-707-922
4.Exact name of registration as specified in its charter
PAL HOLDINGS, INC.
Philippines (Province, country or other jurisdiction of incorporation or organization)
(SEC Use Only) Industry Classification Code:
7.7/F Allied Bank Center, 6754 Ayala Avenue, Makati City Address of principal office
1200 Postal Code
(632) 816-3421 local 3453 / 736-8466 Registrant’s telephone number, including area code
Not Applicable Former name, former address, former fiscal year, if changed since last report
10. Securities registered pursuant to Section 8 and 12 of the SRC Number of Shares of Common Stock Outstanding and Amount of Debt Outstanding 5,421,512,096 shares
Title of Each Class Common Stock
11. Are any or all of these securities listed on the Philippine Stock Exchange? Yes [ X ] No [ ]
12. Check whether the registrant: (a) has filed all reports to be filed by Section 17 of the SRC and SRC Rule 17 thereunder or Section 11 of the Revised Securities Act (RSA) and RSA Rule 11 (a)-1 thereunder and Section 26 and 141 of the Corporation Code of the Philippines during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); Yes [ X ] No [ ]
(b) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
13. Aggregate market value of the voting stock held by non-affiliates of the registrant is PHP 372,671,595 as of March 31, 2009.
DOCUMENTS INCORPORATED BY REFERENCE
Inc. 2007.2 billion preferred shares to 400 million common shares at P1 par value per share this was approved by the SEC on October 2.591. the Company transferred its shares in each of the Six Holding Companies to Trustmark Holdings Corporation.73 million using the Additional Paid-In Capital amounting to P4.2 billion preferred shares both at P1 par value per share. the stockholders amended the increase in the Company’s authorized capital stock from 4 billion common shares to 2. On August 14. This allowed the Company to wipe out the deficit as of March 31. the Board of Directors (BOD) approved the increase in authorized capital stock of the Company from P400 million divided into 400 million common shares with a par value of P1 per share to P 20 billion divided into 20 billion common shares. 2007. 1997..8 billion common shares and 1. was satisfied by an equivalent reduction of the liability owning to the Company from the Six Companies. it acquired from the Five Holding Companies 50. 2006. the Board of Directors (BOD) approved the acquisition of the following holding companies which collectively control 84. Ascot Holdings.8 billion common shares and 1. equivalent to 82.PART I . Network Holdings & Equities. the Securities and Exchange Commission approved the equity restructuring of the Company. On August 13. the Company acquired directly from the Six Holding Companies 8. 2007 amounting to P253. On August 30. Both acquisitions were made by way of a dacion en pago. the stockholders approved the increase in the Company’s authorized capital stock from 200 million common shares to 4 billion common shares both at P1 par value per share. Inc. which is equivalent to 81.. whereby the total acquisition price of PHP 12. which consist of the deletion of outdated provisions and the inclusion of the provisions required under the Code of Corporate Governance provided by the SEC. 1999. 2007. On October 17. the stockholders further amended the authorized capital stock from 2.67% of Philippine Airlines (PAL).223 shares in PAL. (the Company). was incorporated in 1930 as “Baguio Gold Mining Company”. On July 26.640.550 million for the shares in the Airline and PR Holdings.3% of the outstanding shares in PR Holdings. the Securities and Exchange Commission approved the change in the Company’s name to “Baguio Gold Holdings Corporation” and the change in its primary purpose to that of a holding company... Inc. 2006 and September 19. 2007 the Securities and Exchange Commission (SEC) approved the increase in authorized capital stock and change in corporate name of Baguio Gold Holdings Corporation to PAL Holdings. Inc.. Inc.. and Maxell Holdings Corporation. 2006. At the same time. Cube Factor Holdings. Inc.823. 2007. Incorporated. Inc. Pol Holdings. Inc.029. On May 30.155 shares in PR Holdings. The Securities and Exchange Commission approved the Amended By-Laws of the Company.6% of the issued and outstanding common shares in the Airline. On January 19. On October 16.3 billion subject to the condition that the remaining additional paid-in capital will not be used to wipe out losses that may be
.BUSINESS AND GENERAL INFORMATION
Item 1. On April 13. 2000. Inc. In 1996. Business a) Corporate History PAL Holdings. On August 17. 1998. Sierra Holdings & Equities.
hold. (PAL).417. Inc. PR Holdings. notes and other securities of any domestic or foreign corporation. Inc. inflight sales. the National Government of the Republic of the Philippines. PAL continues to fly to the most popular domestic jet routes and the international and regional points that are either most visited by Filipinos or provide a good source of visitors to the Philippines.2 % 77.1 million in net revenues. 1998 with a decrease in its authorized capital stock and retirement of some of its shares in exchange of PAL shares to retiring stockholders as return of capital. was incorporated on February 25. PR was partially dissolved or liquidated on November 9. including shares of stocks. 1992 67% of the outstanding capital stock of PAL. acquire. Philippine Airlines. 1941.
. (PR) was organized by a consortium of investors for the purpose of bidding for and acquiring the shares of stock of PAL in accordance with the single-buyer requirement of the bidding guidelines set by the seller.8 %
System 74.incurred in the future without prior approval of the SEC. b) Description of Subsidiaries Philippine Airlines.8% to the Airline's total net revenues. sell.699 domestic and 9. These non-transport operations generated PHP 611. It is the national flag carrier of the Philippines and its principal activity is to provide air transportation for passengers and cargo within and outside the Philippines. a corporation organized and existing under the laws of the Republic of the Philippines. and flight & ground training. assign. Principal products or services and their markets indicating their relative contributions to sales or revenues of each product or service: i) Percentage of sales or revenues and net income contributed by foreign sales PAL's operations for FY2008-09 are described as follows:
During the year.659. manage.809 international) and 297 tons of cargo (166 tons domestic and 131 tons international) per day. PR acquired on March 25.290 100.412 57. use.077. the Airline carried an average of 24.878 22.508 passengers (14.
Operations Summary: System wide FY 2008-2009 (In Thousand PHP)
Total Transport Revenues % to Total System wide Revenues
Domestic International 16. develop. As of 31 March 2009. contributing 0.0 %
Aside from the core business. As a holding company. subscribe. exchange or dispose of real and personal property. the Airline also generated revenues from ancillary businesses including ground handling. PAL’s route network covered 29 points in the Philippines and 31 international destinations. PR Holdings. PR’s primary purpose is to purchase. Inc. debentures. Inc.
Puerto Princesa.Net Revenues by Route Based on FY2008-2009 results. Saigon. PAL also operated regular thrice-weekly direct service to Honolulu. Tagbilaran. five of which fly onward to Las Vegas and back. Singapore. PAL Express flew approximately 0. 9 times a week to Taipei. Technical stops either in Guam or Honolulu are required on the return flights of Transpacific services at certain times of the year to compensate for adverse wind conditions. Pusan. Macau. Osaka. Fukuoka. A330-300. Cebu.6% of the Airline's total capacity. A320-200. The Airline is entitled to fly to 33 other US cities for unlimited frequencies under certain terms and conditions of the Philippines-US bilateral agreement. Legazpi. 28 times a week to Singapore. 12 times a week to Tokyo.
Asia and Australia
PAL operated 181 departures per week out of Manila and Cebu to 9 countries in Asia and Australia. Tuguegarao.0%
During the year. A340-300. Ozamiz. and 4 times a week each to Macau and Pusan. 24 on-line points : Guam. Doha. PAL also operated 4 times weekly service on the Manila-Melbourne-Sydney-Manila route and 3 times weekly service on the ManilaSydney-Melbourne-Manila route. Roxas. Kalibo. Saigon. Taipei. Beijing. Kota Kinabalu. Ormoc. Los Angeles. Vancouver. Osaka. PAL flew an average of 25 flights a week to North America utilizing B747-400s and A340300s: 10 times weekly non-stop flights to Los Angeles. Bahrain. using turbo prop aircraft (Bombardier Q300 and Q400). Jakarta 7 points under joint service/codeshare arrangements : Abu Dhabi. Iloilo. Laoag. Butuan. The Airline flew 35 times a week to Hongkong. PAL’s international route network covered 31 cities (including 7 under jointservice/code share arrangements with other international carriers) in 16 countries. San Jose. Caticlan. 8 times weekly non-stop services to San Francisco. 2009. Dubai. Aside from these. Cagayan de Oro. and Virac. Shanghai.
.6% 45. and Xiamen. the revenue contribution by route is shown below: Transpacific & Canada Asia & Australia Total International Total Domestic Total System International Passenger Services As of March 31. and A319-100) on its domestic routes. Tokyo. Melbourne. 5 times a week each to Beijing and Fukuoka.2% 100. It serves the following domestic destinations: Bacolod. and Zamboanga. Sydney. Surigao. Las Vegas. and 7 times a week to Vancouver. Catarman. 7 times a week each to Nagoya. In FY2008-2009. Dipolog.3% of the Airline's total capacity) during the year. Nagoya. Bandar Seri Begawan. Davao. Tacloban. Hongkong. Manila. Shanghai. Kuala Lumpur 32. 14 times a week to Bangkok. which represented 16. Xiamen.9 billion ASKs on its domestic routes. Dumaguete. Seoul. Guam was served 5 times a week. it flew about 3. PAL Express serves an additional 10 domestic points including Busuanga. Bangkok.
Domestic Passenger Services
PAL's domestic network covered 29 cities and towns in the Philippines. PAL operated all its jet aircraft (B747-400.3 billion ASKs (1.8% 22. Honolulu. General Santos. San Francisco. Cotabato. 16 times a week to Seoul. Jakarta is served 4 times a week via Singapore and three flights direct.2% 77. Calbayog.
The SportsPlus Card is a privilege card designed for sports enthusiasts. has a booking facility which provides interactive booking of flights and ticket purchase. online training registration. Kota Kinabalu and Cebu. and twenty nine (29) located in foreign stations. PAL maintains codeshare agreements with Malaysia Airlines (in place since February 1999) covering a total of 11 weekly flights between Kuala Lumpur and Manila. Aside from the new interiors. "philippineairlines. Members also earn miles through purchases and availment of services from partner establishments including credit cards. route maps. Cellphone subscribers can download the exact flight departure and arrival information through text messaging. flight schedules. with Qatar Airways (in place since August 2002) on 11 times weekly service between Doha and Manila. with Royal Brunei Airlines (in place since March 2004) on 6 times weekly flights between Bandar Seri Begawan and Manila. Functionalities include fares and tour modules.mabuhaymiles. state-of-the-art seats and the latest in inflight entertainment were installed in the aircraft. Flight information via SMS/text messaging continue to be available to passengers. Real time flight information of all PAL flights may also be accessed by logging on to the PAL website. tour operators. telecommunications. banks. The Airline's website. PAL's daily services between Manila and Saigon are operated under a codeshare agreement with Vietnam Airlines (in place since July 2001). PAL Mabuhay Miles has a website "www. and details on promotions and offers. and with Etihad Airways (in place since October 2007) on daily services between Abu Dhabi and Manila. which grants members the benefit of extra free baggage allowance. which the latter operates. cruise services. which provides access to account information. PAL codeshares with Air Philippines (in place since May 2002) on regular domestic services. with Cathay Pacific (in place since November 2001) on daily services between Hongkong and Cebu. hotels and resorts.com". with Gulf Air (in place since March 2006) on 10 times weekly service between Bahrain and Manila. PAL Mabuhay Lounges are available in selected international and domestic stations for Mabuhay class
. and other merchandise companies. and Kuala Lumpur and Cebu. and online cargo booking.com". There are thirty three (33) general sales agents in selected international points and twelve (12) domestic sales agents who handle the promotions and sales of PAL's products and services. dropdown lists. twenty four (24) in other cities in the Philippines. The rest of the Airline's B747-400s will also have the same features and improvement. with Emirates Airlines (in place since September 1999) on 10 times weekly non-stop flights between Dubai and Manila. insurance.
(ii) Distribution methods of products or services
PAL maintains a total of twelve (12) sales and ticket offices in Manila.
(iii) Status of any publicly-announced new product or service
PAL completed the reconfiguration and refurbishment of two of its B747-400s.Joint Services and Code Share Agreements
The Airline continues to employ codesharing and tactical alliances to broaden its route network and establish presence in cities where it does not fly. PAL also has a similar agreement with Garuda Indonesia (since March 2001) on PAL operated flights between Manila and Jakarta. Kota Kinabalu and Manila. car rentals.
Frequent Flyer Programs
The PAL Mabuhay Miles provides opportunities for travel rewards through accumulation of mileage credits earned on flights with PAL and partner airlines. It also contains additional web pages that feature detailed descriptions of PAL destinations and a calendar of destination festivities.
Air Niugini. PT Pertamina. Asiana Airlines.) Sources and availability of raw materials and the names of principal suppliers
PAL’s jet fuel suppliers are: Air BP Limited. Sky Team and One World). Japan Airlines. Japan Energy Corporation. Cathay Pacific.. Air Philippines. Competitors include Cebu Pacific. World Fuel Services (Singapore) Pte. Singapore Petroleum Company Ltd. China Airlines. Kuwait Airways. Dragon Air. Most of these international airlines belong to the largest alliances in the industry (including the Star Alliance. PAL's RHUSH (Rapid Handling of Urgent Shipments) is the airport-to-airport cargo service.
(iv) Competitive business conditions and the registrant’s competitive positions in the industry and methods of competition
PAL continues to maintain a strong market share in its international routes despite competition with flag carriers of the host countries where PAL flies and with the 'fifth freedom' carriers. Petron Corporation. which fly to the Philippines en route to their final destinations. S-Oil Corporation. Korean Airlines..6%
Capacity Share 34.2% share in the domestic market in the fiscal year ending March 2009. Continental Airlines Japan Airlines. Zest Air. competitive fares. which provides the fastest way to ship cargo domestically or overseas. Ltd. is another advantage over the non-Filipino carriers.. guaranteed space.
32. Pilipinas Shell Petroleum Corporation. Ltd. China National Aviation Fuel Supply Co. Singapore Airlines. China Eastern Airlines. Cathay Pacific. and Seair. PTT Public Company Limited. Win Both International Corporation. and an excellent safety record. Eva Airways.passengers and Mabuhay Miles Elite and Premier Elite members. and Qantas Airways are in the list of leading carriers in the Asia and Pacific region. Malaysia Airlines.. Thai Airways. The PAL Swingaround and PALakbayan are the Airline's tour programs. Pacific Fuel Trading Corporation. which continue to offer holiday packages in PAL's international and domestic destinations. Northwest Airlines and Continental Airlines are among the worlds largest in fleet size. China Airlines. Singapore Airlines and Cathay Pacific are among the worlds biggest in terms of passengers carried. The following table shows main competitors and PAL's total market and capacity share per route. Cebu Pacific.. Royal Brunie. Korean Airlines. Korean Airlines. which appeals strongly to the Filipino ethnic passengers. Air Macau. and quick acceptance and release time. It offers high priority in cargo. Shanghai Pudong International Airport Aviation Fuel Supply Co. The continuous enhancement of products and services. Asiana Airlines. Jetstar Asia
Asia and Australia
31. Hyundai Oilbank Company Limited.. Ltd. Thai Airways. PAL's Market and Capacity Share
Market Share 36. enables PAL to hold its market leadership. Qantas Airways. Passengers can unwind. Eva Airways. PAL has the advantage of providing the only nonstop service to mainland USA and Canada. Over the Transpacific. The distinct Filipino flavor in the PAL inflight service. Air Canada. China Airline. and freshen up in these facilities before boarding their flights. dine. PAL held a 45. China Southern Airlines.
. Chevron Products Company. Northwest Airlines.5%
PAL competes with the biggest carriers in the airline industry.
Goodrich. Lubwell Corporation. trademarks.
(viii) Patents. PAL is subject to: a.
Maintenance PAL has a ten year Technical Services Agreement (TSA) with Lufthansa Technik Philipines (LTP). and customer acceptability. PAL's Aircraft Engineering Department undertakes planning. asset and cost management. PAL will also control costs without compromising safety and customer satisfaction. licenses. (SATS) in Singapore and Tokyo Flight Kitchen in Narita. PAL’s inflight catering requirements are provided by its own inflight kitchen in Manila for all outgoing flights. PAL plans to initiate programs geared toward revenue generation. Ltd. Franchise PAL operates under a franchise. Honeywell. Nordam Singapore. monitoring and control of all maintenance activities and technical compliance of aircraft. including duration. the major suppliers include Flying Foods and Hacor in the United States. Development Plans The airline industry is experiencing slow business as a result of the global recession and the upswing in fuel prices. For incoming flights. Recaro Aircraft Seating. franchises. royalty. New management systems will be adopted for operational efficiency.. With these challenges still prevailing. Singapore Airport Terminal Services Ltd. 1590. Maintenance materials and parts are sourced from the original equipment manufacturers which include Airbus Industrie. or
. PAL was not spared from these circumstances. Subic Bay Energy Company Limited. Boeing. General Electric. and Thales Avionics. CFM International. Safeair Corporation. Panasonic Aviation. reliability.Sinopec (HK) Petroleum Company Limited. New service programs to further enhance the customer experience will also be implemented. granted by the Philippine Government under Presidential Decree No. agreements or labor contracts. The Airline will evaluate its route network and venture into other route possibilities. and business efficiency. which extends up to the year 2034. (vii) Transactions with and/or dependence on related parties The Company’s significant transactions with related parties are described in detail in Note 18 of the Notes to Consolidated Financial Statements.
(vi) Dependence on one or a few major customers and identify any such major customers PAL has a large network of customers all over the world and is not dependent on one or a few major customers. which started in September 2000 for the maintenance and overhaul requirements of its fleet. As provided for under the franchise. concessions. PAL also plans to maintain or further improve its on-time performance. engines and accessories with airworthiness standards and industry accepted standards for safety. Man-hour rates for maintenance requirements are negotiated with LTP in accordance with the terms of the PALLTP Technical Service Agreement (TSA). corporate income tax based on net taxable income. SK networks Co.
In addition. the President signed into law RA No. 2-2007 to implement the provisions of the said law. 2005 following the approval on October 19. which amends Section 110(B) of the Tax Code. city. and schedules. 2009. e. registration license. the amendment shall apply to the quarterly VAT returns to be filed after the effectivity of RA No. fees and licenses of any kind. 9337 are the following: a. 2005. nature. interest.
. The franchise tax of PAL is abolished. Among the relevant provisions of RA No. which became effective on December 13. 2005 of Revenue Regulation (RR) No. and other charges on foreign loans obtained by PAL. 2009 and thereafter. interests. in lieu of all other taxes. except VAT returns covering taxable quarters ending earlier than December 2006. duties.b. 2006. provincial or national authority or government agency. 9361.the CAAP and the Department of Transportation and Communications (DOTC) . The Department of Finance through the Bureau of Internal Revenue issued RR No. duties. imposed by any municipal. as may be provided by the Company’s franchise. and other fees and charges. b. 2005. and through airport authorities for airport slots. d. PAL shall be subject to the corporate income tax. Change in unallowable deduction for interest expense from 38% to 42% of interest income subject to final tax for three years effective on November 1.
As further provided for under its franchise. inclusive of the input tax carried over from the previous quarter exceeds the output tax. and 30% starting on January 1.
x) Effects of existing or probable government regulations on the business The Company strictly complies with and adheres to existing and probable government regulations. whichever is lower. provides that if the input tax. fees. 2006. 9337 or the E-VAT Act of 2005. engines. In coordination with the different government air transport agencies . On May 24. 2006. and other personal property are exempt from all taxes. domestic transport and outgoing international transport operations. PAL can carry forward as a deduction from taxable income net loss incurred in any year up to five years following the year of such loss (see Note 23). 9361. On November 21. the Expanded-Value Added Tax (E-VAT) law was signed as Republic Act (RA) No. PAL also conforms to the standards and requirements set by different foreign civil aviation authorities of countries where the airline operates. royalties. The E-VAT law took effect on November 1. and f. 16-2005 which provides for the implementation of the rules of the EVAT law. c. through the Civil Aviation Authority of the Philippines (CAAP) formerly Air Transport Office (RP-ATO) for aircraft and operating standards. This law. including withholding tax. or description. the excess input tax shall be carried over to the succeeding quarter or quarters . the payment of principal. 2005. spares. provided that the liability for the payment of said taxes is assumed by PAL. except real property tax.
franchise tax of two percent (2%) of the gross revenue derived from non transport . Based on the regulation. Change in corporate income tax rate from 32% to 35% for the next three years effective on November 1. and 33% starting on January 1. PAL shall remain exempt from any taxes. tariffs. fees and other charges paid by PAL to lessors for the lease of aircraft. Increase in the VAT rate imposed on goods and services from 10% to 12% effective on February 1.PAL initiates improvement programs for the facilities in the country's domestic and international airport. and all rentals. other flight or ground equipment.
ix) Need of any government approval of principal products or services
Airline operations are regulated by the Philippine Government through the Civil Aeronautics Board (CAB) with regard to new routes.
000/annum for electricity consumption of sewage treatment plant operation P720.
8.000/annum for enzyme used to dissolve grease in the catering/kitchen area. Cost: approximately P432. Appreciation and recognition from the DENR for PAL’s participation in Earth Day . Improved public image and community relations 6. DENR Administrative Order No. Presidential Decree No..
The effects of PAL’s compliance with environmental laws are as follows: 1. 9.34 “Revised Water Usage and Classification”. 6969 “Toxic and Hazardous Waste Management”.005. NOT APPLICABLE xii) Cost and effects of compliance with environmental laws
PAL has fully complied with the following major environmental laws: 1. Waste generation reduction 4. Environmental cost reduction 5. and if applicable the extent to which the cost of such activities are borne directly by customers.No cost to PAL for FY2008-2009 due monthly air sampling done by fuel supplier (Petron).000 for disposal of busted fluorescent lamps. 1152 “Philippine Environmental Code”.200. DENR Administrative Order (AO) No. Republic Act (RA) 8749 “Clean Air Act” . Presidential Decree No. 35 “Revised Effluent Regulations of 1990” Cost: P56. Resource utilization 3. Environment Month and International Coastal Cleanup celebrations. 1586 “Establishing an Environmental Impact Assessment System” DENR Administrative Order No.
. 96-37. approx P45. Republic Act 9003 “The Ecological Waste Management Act of 2000”. Regulatory compliance 2. Cost: P5.No cost to PAL for period covering FY2008-2009 Presidential Decree No.
4. control odor and enhance STP biological reaction. Cost not determined yet due completion of checklist for ECC (Environmental Compliance Certificate) application for fuel farm at MBC (Maintenance Base Complex). approx P1.000 for disposal of hazardous wastes. 90-29.xi) Estimate of the amount spent during each of the last three fiscal years on research and development activities.
DENR Administrative Order No.000 annually for water quality analysis.
5. Enhancing PAL’s commitment to continually improve its environmental performance in all aspects of its operations 8.
7. Republic Act No.50 for renewal of annual Water Permit.
6. 1067 “The Water Code of the Philippines”. Cost cutting through energy and resource conservation. No cost to PAL due solid wastes with recyclable materials are purchased by lot.
No cost to PAL for period covering FY2008-2009 3.
2. Improved positive perception of regulators and NGOs 7.
(xiii) Total number of employees and number of full time employees
The Company’s employees are only the 10 directors who are employed by the company. There are no regular employees. The Company does not have any plan of hiring employees within the ensuing twelve months. PAL Employees :
As of March 31, 2009 PAL has a total workforce of 8,052 as follows: Classification Ground Employees Philippine Foreign Flight Crew Pilots Cabin Crew Number of Employees 5,757 230 472 1,593
PAL recognizes two local labor unions, one for the rank & file ground employees and another for the cabin crew. In addition, it also recognizes foreign labor unions in the United States, Singapore and Japan. Of the total ground employees and flight crew, 4084 and 1509 respectively are covered by a collective bargaining agreement (CBA). The CBA for the local rank & file ground employees is under moratorium while negotiations are ongoing for Singapore (expired in December 2008) and Japan (expired in May 2009). The CBA negotiations for the cabin crew which expired in July 2007 is likewise ongoing. There has been no strike or threatened industrial action for the last 10 years. In FY 2008-2009, PAL gave its employees all benefit entitlements in accordance with the stipulations in the respective collective bargaining agreements.
Major risk/s involved in each of the businesses of the Company and subsidiaries. and the procedures being undertaken to identify, assess and manage such risks. Investment risk – the Company has available-for-sale investment which has unpredictable market prices. Price risk- price fluctuations in cost of fuel which is based primarily in the international price of crude oil. Substantial increases in fuel costs or the unavailability of sufficient quantities of fuel is harmful to the business. Regulatory risk – PAL is subject to extensive regulations which may restrict growth or operations or increase their costs. Competition - PAL is exposed to increased competition with major international and regional airlines. Security and safety risk - the impact of terrorist attacks on the airline industry severely affected the overall air travel of passengers. Financial market risk- fluctuations of interest and currency rates. Economic slowdown – reduces the demand or need for air travel for both business and leisure.
Procedures undertaken to manage risks - PAL continues to comply with applicable statutes, rules and regulations pertaining to the airline industry in order to maintain the required foreign and domestic governmental authorizations needed for their operations. - Increase in fuel cost and shortage in fuel can sometimes be offset by increase in passenger fares or the curtailment of some scheduled services. -Airlines have been required to adopt numerous additional security measures in an effort to prevent any future terrorist attacks, and are required to comply with more rigorous security guidelines. - PAL sees to it that it has remain competitive in the areas of pricing, scheduling (frequency and flight times), on-time performance, frequent flyer programs and other services. - Proper fund management and monitoring is being done to avoid the adverse effects in the results of operations of the Company, cash flows and financial risks are managed to provide adequate liquidity to the Company.
Item 2. Properties The Company does not own any property. It has an annual lease contract for its office space with a monthly rental of P19,200. The lease contract was renewed for another two years which expires in May 2010. The Company has no plans of acquiring any property in the next twelve months.
PAL’s properties and equipment include its aircraft fleet, various parcels of land, and buildings. The Company’s operating fleet as of March 31, 2009 consists of : Owned: Bombardier DHC-8-300 Bombardier DHC-8-400 Capital leases: Boeing 747-400 Airbus 340-300 Airbus 330-300 Airbus 320-200 Operating leases: Boeing 747-400 Airbus 320-200 Airbus 319-100 Total
3 5 4 4 8 10 1 8 4 47
Aircraft covered by capital lease agreements that transfer substantially all the risks and give rights equivalent to ownership are treated as if these had been purchased outright, and the corresponding liabilities to the lessors, net of interest charges, are classified as obligations under finance leases included under the caption long term obligations in the Consolidated Statements of Financial Position. The capital leases provide for quarterly or semi-annual installments, generally ranging over 6 to 15 years including balloon payments for certain capital leases at the end of the lease term, at fixed rates and/or floating interest rates based on certain margins over three-month or six-month London Interbank Offered Rate (LIBOR), as applicable. Aircraft covered by operating lease agreements contain terms ranging from 5 to 11 years. Total operating
lease payments amounted to PHP1,992.7 million for 2009 and PHP 1,890.9 million in 2008.. PAL owns land and buildings located at various domestic and foreign stations. A. Domestic Properties 1. Bacoor, Cavite 2. Maasin, Iloilo City 3. Somerset Millenium Makati City 4. Makati City 5. Malate 6. Ozamiz City 7. Quezon City 8. Bacolod City 9. Mandurriao, Iloilo City 10. Paranaque City B. Foreign Properties 1. Glenn County,San Francisco, California 83 acres ( walnut farm) 2. Hongkong 977 sq.ft & 3,701 sq.ft. (condominium units) 3. San Mateo, Daly City, California 1,760 sq.ft. & 1,193 sq.ft. (condominium units) 4. Singapore 85 sq.m.; 126 sq.m. & 68 sq.m. (office units) 5, Singapore 65 sq.m. (shop unit) 6. Sydney, Australia 177 sq.m. & 229 sq.m. (office units) In addition, PAL owns cargo buildings located at the following domestic stations: 1. 2. 3. 4. 5. 6. 7. Zamboanga Cebu Puerto Princesa Iloilo Butuan Kalibo Legaspi 300 sq.m. 1,215 sq.m. 192 sq.m. 1,000 sq.m. 192 sq.m. 192 sq.m. 192 sq.m. 126 sq.m. (house and lot) 3,310 sq.m & 9,504 sq.m . (parcel of land) 39 sq.m. (condominium unit) 853 sq.m. & 879 sq.m. (parcel of land) 266.40 sq.m. (lot) 10,000 sq.m. (parcel of land) 627 sq.m. (parcel of land) 200,042 sq.m. (parcel of land) 1,300 sq.m. & 1,700 sq.m. (parcel of land) 375 sq.m. (parcel of land)
The land where these buildings are situated are leased from the Civil Aviation Authority of the Philippines (CAAP). PAL’s existing ground facilities service the Airline’s own requirements and some of the requirements of the foreign airlines that fly to the Philippines. These major ground facilities as of April 2009 are as follows: The PAL Learning Center (PLC) in Ermita, Manila is a modern training facility. The Center aims to continue to provide world-class training to every employee regardless of area of specialization, reinforce the culture of service, and develop every employee into the total PAL professional committed to the Airline’s corporate values. The facility serves as the home for the Airline’s Training and Development Department, with the Airline’s seven training units, namely: Corporate & Commercial Training Sub-department, Flight Deck Crew Training Subdepartment, Inflight Services Training Division, Human Factor Division, PAL Personality Development Division, External Training & Development Services, and Training Administration & Logistics Division. Likewise, the PLC is the headquarters of PAL’s sales offices under the Office of the Country ManagerPhilippines, i.e., Passenger Sales, Agency Sales, Metro Manila and Luzon Sales & Services and the Ticket Office. The PLC boasts of new and modern training equipment and facilities, such as 13 classrooms, two (2) computer-
Communications Maintenance. Other facilities located in the MBC include Flight Operations and the B737 Flight Simulator Building. lot space is used for parking and driveway. Line Maintenance International Division. is leased from the Tan Yan Kee Foundation. Various airport support offices servicing PAL’s foreign airline customers were retained at the NAIA 1. and PC servers.m. Security. Ground Equipment Management. a grooming room. Communications Operations. It also covers a Local Area Network (LAN) and Wide Area Network (WAN) that links together all of PAL’s domestic on-line and office stations as well as the other major offices in Metro Manila. The PAL Inflight Center (IFC) along Baltao St. a speech laboratory for personality development. A 4. Aircraft Engineering.01 sq.727.. The DCB is also the center of applications development and maintenance. B737 and cabin safety simulator.588. Reservations Control Center/Telesales.35 sq. Comat Handling.55 sq. Treasury. Safety. inflight service simulators for B747. Pasay houses PAL’s inflight kitchen which is capable of producing more than 3. Aircraft Records Warehouse and other support offices. The terminal boasts of complete facilities for PAL’s passengers’ comfort and convenience.m. two Mabuhay Lounges – one each for domestic and international passengers.787. This gives PAL a genuine hub for its operations where passengers from domestic flights connect seamlessly onto international flights and vice versa. It is the hub of PAL’s domestic network. (covered) land space leased from the MIAA.m.87 sq. canteen and a medical clinic. is leased from the MIAA. Safety and Medical office.328. Employee Benefits.80 sq. m.m. Fuel Management. The land on which it stands is leased from the MIAA. museum.m. i. a big ticket office and spacious check-in and predeparture areas. Operations Accounting.768.. (open) and 1.m. Frasca 172R simulator room. The land where the building stands is leased from the ManiIa International Airport Authority (MIAA). is the core of one of the most extensive computer systems in the Philippines.88 sq. Support facilities include an auditorium/ projection room.539. MBC also houses the K-9 Kennel Facility.00 sq. Pasay. with a 1. Other major ground facilities include a Maintenance Base Complex (MBC) in Nichols. of which 68% is allocated to Catering Services and the remaining 32% for Cabin Services.531. MBC houses the Operations Group. The areas occupied by PAL are leased from MIAA.00 sq. The PLC building with a total floor area of 6.
. together with the Sampaguita Lounge.e. Construction and Facilities Management. Operations Control Center.based training (CBT) rooms.. The modern NAIA Centennial Terminal 2 in Pasay is where the Airline’s entire flight operation is housed in one terminal for the first time since it was founded 68 years ago. The PAL Cargo Terminal (PCT) near NAIA 1 in Pasay which houses PAL’s domestic and international cargo operations and sales offices at the NAIA measures 5. Central Finance Records Warehouse. Pasay City is composed of the North and South sectors which refer to the areas north and south of Andrews Avenue. one (1) cockpit mock-up trainer (CMT) room as follows: one (1) flight management system (FMS-747) and three (3) flight management guidance system trainer (FMGS-Airbus). connecting the various PAL ticket offices and airports.56 sq. warehouse and other offices. Material Sales Management.(warehouse) and 1. one hundred twenty (120) Unix systems. Network Management & Telecom System. PAL’s Data Center Building (DCB) along Airport Road. The DCB.m. Aircraft Interior Maintenance Division. housing close to one hundred twenty (120) analysts and programmers. Sports Complex.050. Airworthiness Management. Medical. and five (5) computer training rooms. Flight Dispatch. PAL IFC has a total land area of 22. (office space). respectively. Ticket Office. comprising 3. It is also the home of the Airport Services Group and other support offices. PAL held 48% market share in terms of meal tray production while 52% was the combined share of MacroAsia and Miascor. Ground Property. annex parking. It covers an area of 104. Corporate Logistics & Services. A340.m.7 million meals annually to service PAL’s catering requirements. General Materials Warehouse.093. gym. It houses two (2) Mainframe Computers. These equipment run the sophisticated systems like Reservations and Departure Control which are used in the daily operation of the airline.
S. and buildings. 2009. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended March 31. Legal. Legal Proceedings PAL is currently being investigated by the U.The Airlines’ head office is located at the PNB Financial Center along President Macapagal Avenue. It houses the Executive Offices.
Item 3.PAL’s properties and equipment include its aircraft fleet.S.080. and the Domestic and International Ticket Offices. Corporate Secretary’s Office. Finance Group. 2007.842.085. Commercial Group. 1999 to July 11. 2009. which carries for each violation a fine not exceeding PHP 4. Department of Justice based in Washington D.08 sq.2 million or imprisonment not exceeding 10 years or both. Except for the foregoing. nor any of its properties the subject of any legal proceeding and has no knowledge of any contemplated proceeding by any government authorities involving an amount exceeding PHP 2.m. Pasay City. for possible violation of U. Government Relations.
. Corporate Audit. Item 4. Anti-trust laws for both passenger and cargo services covering the period January 1.C. Total area being leased from the PNB is 15. Human Resources. various parcels of land. It is being proposed that the Data Center be transferred to the same location. the Company and its subsidiaries or affiliates is not involved in.4 million (10% of its current assets) for fiscal year ended March 31. Corporate Communications.
393. Quality Investment & Securities Corp Luys Securities Company. R.230 40.10 3.139. Te Emmanuel P.. Godinez & Co.0226% 0.000.0160%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
.85.297. the latest practicable trading date.154.907 1.1891% 0.75 4.7507% 0. 2009.421. Inc.
The top 20 stockholders as of June 30.20 4.0213% 0. 2009 are as follows : Stockholders’ Name Trustmark Holdings Corp.865 and common shares outstanding as of the same date were 5.000 4. Mandarin Securities Corp.000 5. Inc.80
6.157 1.144. No.000 1. Tower Securities.20 5. Pan Asia Securities Corp. Ansaldo. Market for Registrant’s Common Equity and Related Stockholder Matters (a) Market Price of and Dividends on Registrant’s Common Equity and Related Stockholder Matters 1.30 3. PAL Holdings’ was traded at P 2.00
LOW Php 2. R.699.20
As of July 10.955.0251% 0.60 4.0949% 0.276 % to Total 97.0361% 0.0247% 0.0498% 0. Abacus Securities Corp. was 6.50 3.OPERATIONAL AND FINANCIAL INFORMATION Item 5.0256% 0. of Shares Held 5.10
3. Inc.176 10.30
8.PART II .55 2. Inc BPI Securities Corp.0922% 0.699.50 8.902 1.679 5.223.0185% 0.0257% 0.000 2.378 866.692 1. 2009. Triton Securities Corp.389. Inc. Holders The number of shareholders of record as of June 30. Inc.512.80 4.10 3. Lim & Company. Coyiuto Securities.0763% 0.561 1.25 3.0190% 0. Wonderoad Corporation Anthony M. Te Cynthia Manalang Citiseconline.028.005.096.341.280.375 1.251. Market Information The market for the registrant’s common equity is the Philippine Stock Exchange.7075% 0.358.779 1.774 1.10 4. S. 2.90 2.com.10
3. The high and low sales prices for each quarter for the past three years are as follows: 2009 Second Quarter First Quarter 2008 Fourth Quarter Third Quarter Second Quarter First Quarter 2007 Fourth Quarter Third Quarter Second Quarter First Quarter HIGH Php 3.
Inc. Management’s Discussion and Analysis (MDA) Restatement to Philippine Peso In line with the adoption of PAS 21.
Item 6. the Company issued 5. the US dollar. there is a need for PAL and its subsidiaries to restate its financial statements to the Philippine peso. the Philippine Securities and Exchange Commission approved PAL’s use its functional currency. The Effects of Changes in Foreign Currency Rates.33% direct ownership in PR. The financial statements of the subsidiaries are prepared as of March 31 of each year using consistent accounting policies as those of the Company.67% of PAL. The Board of Directors may declare dividends only from the surplus profits arising from the business of the Company and in accordance with the preferences constituted in favor of preferred stock when and if such preferred stock be issued and outstanding. Dividends a.0143% 0. Consolidated and Separate Financial Statements.212 768. PAL proceeded in measuring its results of operations and financial position in US dollar.57% of PAL’s shares and an indirect ownership in 3.685 new shares to Trustmark Holdings Corporation (Trustmark) as subscription to the increase in capital pursuant to a debt-to equity transaction. 2005.0142% 0. 2005. 4. Inc.
Consolidation The consolidated financial statements referred to consist of the financial statements of the Company and its subsidiaries. Since the functional and presentation currency of the Company is in Philippine peso.567. Inc. b. Including Recent Issuance of Securities Constituting an Exempt Transaction (for the past three years) On 22 January 2007. As a result of the restructuring in fiscal year 2008 (see note 2 of the notes to consolidated financial statements). On 01 March 2007 the Securities and Exchange Commission confirmed that the issuance of these new shares to Trustmark is exempt from the registration requirements of Section 8 of SRC.0127%
* The Company has no preferred shares. 2009.) The Company did not declare any cash dividends during the past three years in the period ended March 31.000
0.021. Investors Securities. Companies included in the consolidation are PAL and PR Holdings.
.121 686. Irene Imee Lo Ting
776. the Company still owns 84. through a direct ownership in 81. Recent Sales of Unregistered or Exempt Securities. as its presentation currency. On May 20. effective April 1.) There are no other restrictions that limit the ability to pay dividends on common equity or that are likely to do so in the future. Accordingly. for purposes of combination of the financial statements in accordance with PAS 27.18 19 20
Intra-Invest Securities. PAL determined that its functional currency is the US dollar.10% of PAL’s shares through an 82. 3.
The growth in expenses was primarily due to higher expenses related to flying operations.311. The increase in revenues by PHP 8.260. maintenance.00 in 2008 to PHP 46.317.7 million.5 million from the previous year’s total of PHP 67. the Company recognized a total other comprehensive income of PHP 698.
Total revenues for the current fiscal year amounted to PHP 75.0 million or 14% increase from last year’s same period figure of PHP 66. which showed a significant decline in value of derivative assets by 183% resulting from the fair valuation of outstanding fuel hedges recognized in equity and in the
. The increase in flying operations by 64% was attributable mainly to higher fuel costs.6 million. and other income earned during the period.8 million. In FY 08-09 “Other Income” included among others the foreign exchange gain recognized as a result of the depreciation of the Philippine peso versus the US dollar from PHP 44.2068 per US$1.678.118.2 million was brought about mainly by the increase in passenger revenues which increased by 16% due to higher net yield per Revenue Passenger Kilometers (RPK) and by the number of passengers carried.001. All intercompany accounts and transactions with subsidiaries are eliminated in full. resulted in the recognition of a deferred income tax of PHP 473. . in fiscal year 2008 PAL incurred a net foreign exchange translation loss of PHP 1. Changes in the fair valuation of outstanding derivative instruments that did not qualify as cash flow hedges also contributed to the decrease in “Other Expenses” by PHP 108. Presentation of Financial Statements.) FY 2009 vs. As a result of more flights operated in 2009 aircraft & traffic servicing expenses increased by 9.6 million of the previous fiscal year.8 million from a total of PHP 8.993.3 million for the period.637.
In compliance with the amended provisions of PAS 1.6 million was a result of the increase in average fuel price per barrel from US$ 89.009.7 million and this was recognized as part of “Other Expenses”.00 in 2009.2% over last year’s figure of PHP 20. PAL recognized a net foreign exchange translation gain of PHP 731. engine and component repair costs had the effect of increasing maintenance expenses by 11% or PHP 957.1 million for the fiscal year ended March 31.3 million.1 million and this has been included as part of “Other Income” under “ Revenues”. Higher aircraft. This primarily reflects the movements of all non-owner changes in equity.1994 per US$1. The reassessment done by PAL on deferred tax assets and liabilities on all deductible temporary differences in accordance with PAS 12 . In FY 08-09. FY 2008 The Company’s consolidated comprehensive loss amounted to PHP12. Fuel cost also includes the recognition of losses as a result of the early termination of several hedging contracts before maturity date.80 in 2009 and higher fuel consumption as a result of the increase in flights. This basically explains the reduction in Other Expenses from 2008 to 2009 by 31% and at the same time increased “Other Revenues” in 2009 by 30%. Income Taxes.2009 a significant decline from the previous years’ comprehensive loss of PHP 528. Total consolidated expenses increased by 30% or PHP 20. recoveries arising from surcharges.999.5 million.7 % or PHP 777.2 million above last year’s figure of PHP 8.0 million. interest income. Results of Operations a.Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. The rise in fuel cost by 88. These foreign exchange gains and losses arise as a result of the movement of the Philippine peso and other currencies vis a vis the US dollar.52 in 2008 to US$ 123. However. Revenues also include cargo. and aircraft & traffic servicing offset by the decrease in other expenses.
4 billion in 2009.00 in 2008. The decrease in other income by 46% was a result of the PHP 3. 2008 to PHP 48.0% from the previous year’s total of PHP 65.016. Consolidated expenses grew by 4.8 million or 4. The increase in revaluation increment due to appraisal also decreased by 30%.7 million in 2007. there would have been an increase in revenues of PHP 6.2 million. higher fuel. This is due to the significant increase in exchange rates from Php 41.217 as of March 31.9 million over last year's total of PHP 30.138. Presentation of Financial statements.317. Revenues also include cargo. Passenger service expenses increased by 11 % .7 million.net changes in fair value of available-for-sale investments which declined by 297%.902.139. had the effect of reducing the following expenses : There was a slight decline in flying operations by 0. The Company recognized a foreign exchange translation gain amounting to PHP 1.9% lower than last year’s same period figure of PHP 69. reservation & sales.00 in 2007 to PHP 44. The effect of the changes in the fair value of outstanding derivative instruments as well as the continued appreciation of the Philippine peso versus the US dollar had the effect of increasing “Other Expenses” by PHP 3.756 as of March 31.5) million or a decline of 72% from the previous fiscal year’s of PHP 5.6 million. The decrease in revenues was mainly due to the effect of the appreciation of the Philippine peso vis a vis the US dollar from PHP 50. and the recognition as other revenue in November 2006 the amount of PHP 855. and other income earned during the period.on the other hand . 2006. interest income. recoveries arising from surcharges.807. As a result of the early adoption of Amendments to PAS 1. Higher selling expenses recognized related to the above transportation service provided as well as in the cost incurred under the frequent flyer program resulted to the upward movement in reservation and sales expenses by 4%.6 million representing the difference between the face amount of the claims by Manila International Airport Authority (MIAA) and fair value of the amount of the liability under the compromise agreement entered into with MIAA.756 as of March 31. FY 2007 The Company’s consolidated comprehensive income for the fiscal year 2008 amounted to (PHP 528. The increase in passenger revenues was due to higher net yield per Revenue Passenger Kilometers (RPK) and by the number of passengers carried. offset by the decrease in other income.The increase was brought about by the growth in volume of passengers carried as well as improvements implemented by PAL in cabin crew benefits. Improvements in employee benefits implemented by PAL resulted in higher general and administrative expenses by 23% in 2008. cockpit crew cost and aircraft lease charges would have been recognized. This is due to the reduction in exchange rates from Php 48. 2009 b.4825 per US$ 1.716. the Company recognized a foreign exchange translation loss amounting to PHP 2.422 as of March 31.4 million brought about mainly by the increase in passenger revenues.) FY 2008 vs.2068 per US$ 1.2% or PHP 50. maintenance and aircraft & traffic servicing costs. Consolidated revenues for the current fiscal year amounted to PHP 66. The substantial appreciation of the Philippine peso vis a vis the US dollar . The rise in fuel cost was a result of higher fuel consumption and
. general & administrative and other expenses offset by the decrease in flying operations.6 million.678.277. 2007 to PHP 41. Had there been no change in the exchange rate .0 million in the current fiscal year.7 million to PHP 67.156. 2008.6 million credit memorandum received from Boeing with respect to the Settlement Agreement and Release entered into with Boeing on October 30.4 billion in 2008 and PHP 755. The increase was mainly due to higher expenses related to passenger service. Had there been no change in the exchange rate.3 million or 407% higher compared with the previous fiscal year’s figure of PHP 771.
2008 balance of PHP 70. 2008 figure of PHP 5.804. October and December 2008 as part of PAL’s refleeting program. Improvements in pilot’s pay implemented by PAL contributed to the increase in cockpit crew costs. 2009 contributed significantly to the decline as well of the “expendable parts. The aforementioned decreases on the other hand were offset by the increase in other current assets by 58% mainly as a result of the additional security deposits made to collateralize certain derivative instruments.0 million resulting from the acquisition of four (4) A320 aircraft delivered in April .2 million.756 per US$1. The increase was mainly due to the effect of the depreciation of the Philippine peso vis a vis the US dollar from PHP 41. The phase in of four (4) A319 and two (2) A320 aircraft likewise resulted in higher lease rentals. also had the effect of increasing the 2009 balance by PHP 7.190.00 in 2008 to PHP 48. there would have been an increase in aircraft & traffic servicing cost by 11.81 in 2007 to US$ 89. fuel. There was a 2.00 in 2009. The difference was primarily brought about by the downward movement in total current assets by PHP 6.3%. A lower fuel inventory balance as of March 31. amounted to PHP 95. Again.1 million was brought about by the effect of the depreciation of the Philippine peso vis a vis the US dollar in converting the US dollar based figures to Philippine peso.9 million as a result of lower passenger and cargo ticket sales coupled with the effect of the provision for doubtful account recognized during the fiscal year.3 million or 24% as compared with the March 31.9 million mainly on account of the appreciation of the Philippine peso vis a vis the US dollar. Income Taxes the Group recognized a deferred benefit from income tax of PHP 1. July.4 million over the March 31. This was attributable to the decline in cash and cash equivalent balance by 61% due to servicing of debts. 2008 balance of PHP 3. PHP 10.185.756. Maintenance expense decreased by 10% or PHP 1.841. aircraft. July and August 2008 used in PAL’s “PAL Express” flights.019. had the exchange rate remained at 2007 levels.5 million or an increase of 12% from the previous years’ balance of PHP 85.018. materials & supplies” account by 37%. Total liabilities increased by 32% or by PHP 22.
Total noncurrent assets rose by PHP 17.The conversion from a US dollar based amount of the Property and Equipment account to Philippine Peso. The rest was attributable to the availment of additional uncollateralized short term notes payable from several local banks as well as additional long term obligations in support of the acquisition of the turboprops and the Airbus A320
.3 million as compared with the previous year's figure of PHP 10.6 % reduction in aircraft & traffic servicing cost over last year's total of PHP 8.1 million. engine and component repair costs would have increased by 2. As a result of the reassessment done on deferred tax assets and liabilities on all deductible temporary differences in accordance with PAS 12.713.219.5 million inspite of the increase in number of flights operated in 2008. Had the exchange rate remained the same. purchase of turbo-prop aircraft and advance payments made for the purchase of B777-300ER and A320 option aircraft. and eight (8) turbo-prop aircraft (three Q300s and five Q400s) delivered in May.0 million. Had there been no change in the exchange rate.422 per US$1.577.788.0 million principally due to the effect of the remeasurement to fair value of certain financial assets and derivative instruments.the escalation in average fuel price per barrel from US$ 79. The increase was also due to the pre delivery payments made for the B777-300ER scheduled for delivery in fiscal years 2010 to 2011 and A320 option aircraft for delivery on the 3rd and 4th quarter of 2010.
Financial Condition FY 2009 vs FY 2008
The Company’s consolidated total assets as of March 31. 2009. the total assets balance would have decreased by 3% or PHP 2. 2008 balance of PHP 27.9 million for the period.52 in 2008.697.662. The above increases were offset in part by the drop in other non current assets by 11% from the March 31.479.3 million.5 million.917.516. payments made for security deposits used as collateral for certain derivative instruments.6% or PHP 258. The receivable balance also dropped by 11% from the March 31.6 million as a result of the net increase in property and equipment balance by PHP 16. Of this increase.002. June.6 million.
12 billion.472.2008. down by PHP 12. current assets balance would have increased by 2% or PHP 699.2 million as of March 31.1 million.12 billion liabilities of the Holding companies to Trustmark. had the exchange rate remained at 2007 levels. PAL’s increase in current liabilities was in part due to the availment of additional uncollateralized short term notes payable from several local banks.1 million.This is mainly due to the decrease in advances by 97% and long-term obligations-net of current portion by 20%. Following the transfer of PAL’s principal offices to its current business address and the transfer of a domestic airport to a new location. The significant decline was brought about mainly by the net loss recognized during the fiscal year 2008-2009.348. which was used to acquire the PAL and PR Holdings’ shares from the 6 Holding Companies via dacion en pago.756 per US$ 1. 2009 the Company’s stockholders’ equity balance amounted to PHP 2.185. however. The decline was brought about mainly by the net decrease in current and non current assets by 12% and 7% respectively.00 in 2008. the Parent Company assumed an additional PHP 3.1 million resulting from the acquisition of four A320 aircraft. This increase was in part offset by the early retirement of one (1) A320-200 aircraft from PAL’s operating fleet as a result of the total damage incurred by the aircraft while landing at a domestic point.08 billion into additional paid-in capital of the Parent Company. the Company’s consolidated assets amounted to PHP 85. the effect of the remeasurement to fair value of certain financial assets and derivative instruments increased other non current assets by 34 % as compared with the March 31. As of March 31. Likewise.. were partly reduced by the decrease in cash & cash equivalents by 28% due to servicing of debts and the downward movement of available for sale investments by 86% resulting from the remeasurement to fair value of certain financial assets. The increase was mainly a result of the upward movement in other current assets due to the recognition of current derivative assets resulting from the remeasurement to fair value of certain financial assets as well as derivative instruments and prepayments made to repair entity on aircraft reconfiguration and engine repairs. 2007.3 million. These increases. which PAL took delivery in April. the vacated property as well as the owned land where the old airport was located that was vacated by PAL were reclassified from property and equipment to investment properties in the amount of PHP 1. 2008 balance of PHP 14.9 million was mainly due to the effect of the appreciation of the Philippine peso vis a vis the US dollar from PHP 48. Again.837.608. July and November 2007 as part of its refleeting program. 2008. 2007 figure of PHP 2.08 billion out of the PHP 23. 2007 balance of PHP 31.869.2 million.1 million or 84% from the March 31.095. This increased Notes payable by 177%. The decrease in consolidated current assets by 12% over the March 31.9 million. 2008. This resulted in a liability to Maxell Holdings Corp. 2007 balance of PHP 92. This totaled to PHP 12. the remaining advances of PHP 11 billion remained in the books of the holding companies. one of the Holding Companies amounting to PHP 431.577.0 million. The decrease in advances was the result of the Group’s reorganization in 2007.3 million or 8% lower than the March 31. thus the increase in investment properties by 2015%.217 per US$ 1.9 million in 2007 to PHP 70.442. The remeasurement to
. On August 2.00 in 2007 to PHP 41.
FY 2008 vs FY 2007 As of March 31.260. The remeasurement to fair value of certain derivative instruments also had the effect of increasing the accrued liabilities balance grouped under current liabilities and in the other liabilities balance grouped under reserves and other liabilities. The decrease in consolidated noncurrent assets by 7% was mainly due to the effect of the appreciation of the Philippine peso vis a vis the US dollar. Since the 6 Holding Companies no longer form part of the consolidation. Consolidated liabilities decreased by 23% from PHP 91. Had there been no change in the exchange rate. Trustmark agreed to convert its receivable of PHP 3.aircraft under capital lease. noncurrent assets would have increased by 6% brought about by the net increase in property and equipment balance by PHP 928. This increased long-term liabilities-net of current portion by 38%. The depreciation expense recognized during the period also had the effect of reducing the carrying values of these assets.6 million as of March 31.
reliability and presentability in the most costeffective manner To conduct & maintain safe. quality and cost effective inflight service for total passenger satisfaction To maximize revenue generation in passenger and cargo sales through increased yields by diversifying market segments and efficient management of seat inventory and cargo space
Number of safety violations incurred by cabin crew
Number of incidents of safety violation incurred by cabin crew per month
Net Revenues generated from passengers and cargoes carried
Percentage Deviation from Budget/Forecasted Revenues
. As of March 31. dropped by 20 %. At the end of the fiscal year. PAL consistently paid its outstanding debts. cost & effective flight operations To achieve On-Time Performance on all flights operated Key Performance Indicator Aircraft Maintenance Check Completion Measurement Methodology Number of checks performed less number of maintenance delays over number of checks performed By occurrence and monitoring by Flight Operations Safety Office Number of flights operated less number of flights delayed over total flights operated
Number of aircraft related accidents/incidents
Percentage Deviation from Industry Standards (OTP Participation)
To provide safe. this transaction was accounted for as an equity transaction where the reduction in consolidated liabilities was treated as an additional equity investment (or additional paid-in capital of the Parent Company) by Trustmark. the Company’s stockholders’ equity amounted to PHP 14. Accordingly. the ultimate parent company. 2008. long-term obligations recognized under Noncurrent Liabilities.608. During the year.1 million. on time. The disposal relieved the Group with the liabilities that were settled as theywere assumed by Trustmark. TOP FIVE KEY PERFORMANCE INDICATORS OF PAL Mission Statement To maintain aircraft with the highest degree of airworthiness. Further. The release of the investments in the Holding Companies to Trustmark was accounted for as a disposal of “ legal rights” to those Holding Companies as said investee companies did not have assets that were derecognized in the process other than the investment in shares of stock of PAL that has no carrying value at consolidated level. reliable. This was due to the disposal of the Parent Company of its shares in the 6 Holding companies to Trustmark. This downward movement is net of additional obligations incurred during the same period as a result of the acquisition of four (4) A320 aircraft under capital leases. which decreased the current portion of long-term obligations by 33%.fair value of certain derivative instruments also had the effect of increasing the accrued liabilities grouped under current liabilities by 19%. The significant increase of 947% is mainly attributable to the increase in Additional paid-in capital by 335%. 2008. the Company’s reassessment of its deferred tax position resulted in a reduction of deferred tax liabilities by 100% as of March 31.
9 million in face value. and other relationships of the Company with unconsolidated entities or other persons created during the reporting period. which owns 84. These claims are carried in the books at amortized cost amounting to PHP 4.01% 03/31/08
-2. Percentage of Operating Income Operating Income/Total Revenues Asset Management: 3. This property is included under the caption “Other Current Assets” in the Statement of Financial Position as of March 31. on October 30. the following comprise its Quantitiative Financial Ratios: 03/31/09 Profitability Factors: 1.21 -11.18 # of Days in a year/Receivable turnover Financial Leverage: 5.33
0.85 10.. There are no known material off-balance sheet transactions.37% 0. Interest Coverage Ratio Earnings before interest & taxes/Interest Charges 35. Subsequent to fiscal year 2009.99% -14. ii.In addition to the Qualitative Key Performance Indicators of PAL.
.Inc.37 Net Sales/Average Trade Receivables 4. Also. 2009. obligations (including contingent obligations).264. Return on Total Assets Net loss/Average Total Assets 2.1 million.
i.825.4 million. In June 2009. Trustmark Holdings Corporation is the parent company of PAL Holdings.64
In April 2009. PAL purchased these unsecured claims from Trustmark at the same price that they were bought by Trustmark. the Parent Company and Boeing agreed to reschedule the deliveries of these aircraft from their aforementioned original delivery schedules to fiscal years 2013 and 2014. Commitments for capital expenditures
As part of its refleeting program PAL signed in December 2006 operating lease agreements for the lease of two (2) brand new Boeing 777-300ER aircraft scheduled to be delivered in November 2009 and January 2010.67% of PAL. 2006 a purchase agreement with Boeing was finalized wherein PAL placed a firm order for four (4) new Boeing 777-300ER aircraft scheduled to be delivered in fiscal years 2010 to 2012. Number of Days Sales in Receivables ( General Traffic) 35. iii. PAL’s Board of Directors authorized management to finalize the terms of the sale of one of its parcel of land with a carrying value of PHP 346. In May 2009. arrangements. Receivable Turnover 10.82% 5. Trustmark purchased certain unsecured claims against PAL from various debt holders amounting to PHP 5.
investment.H– (11%) Investment properties. vii. 5.92% Accounts payable.(5%) Other non-current assets.24% Deferred tax assets. April.
iv. 27. 4.H.at appraised values.(15%) All of these material changes were explained in the management’s discussion and analysis of financial condition and results of operations stated above. 18.H.H.H.82% Available-for-sale. 8.H.H.(82%) Revenue –H-14% Expenses – H-30% V. 2. 26. plant and equipment. 6.(61%) V. 10. 13.(36%) Accrued expenses.H.31% Income tax payable. fuel.(100%) Unearned transportation revenue.H. 17.233% Total Comprehensive loss. 2009 the passenger cabin of the two (2) B747-400 aircraft have already been reconfigured. 14. events or uncertainties that have had or that are reasonably expected to have material favorable or unfavorable impact on net sales or revenues or income from continuing operations.H. 19.100% Receivables-net.100% Current portion of long term liabilities.58% Property.47% Deposits on aircraft leases. 12. As of March 31. 25.H. There are no known trends. 3.(100%) Short-term investments.PAL on July 28. 9.H.H.8% Accrued employee benefits payable. v .(15%) Long-term liabilities. 29.H-98% V. June and December.34% Other components of equity.H.H. 16.H. May. along with a major upgrade of the interiors and amenities.H.135% Total Other Comprehensive income. 7.35% V. 23.non-current.(11%) Available-for-sale.(9%) Minority interest. 22. Cash and cash equivalents. highlighted by the reconfiguration of the passenger cabin from a tri-class to bi-class layout.H.H.15% Income (loss) before income tax. PAL also embarked on a comprehensive renovation of its long-range wide body fleet.H.H.2220% V.(11%) Notes payable. 2008 exercised its right to purchase two (2) of the five (5) option Airbus 320-200 aircraft scheduled for delivery in fiscal year 2011.(37%) Other current assets. The causes for any material change from period to period which shall include vertical and horizontal analyses of any material item: Results of our Horizontal (H) and Vertical (V) analyses showed the following material changes: 1. 15. PAL experiences a peak in holiday travel during the months of January.H. 11.38% V.There are no significant element of income that did not arise from continuing operations.cost.(818%) V.investment.(11%) Expendable parts. materials & supplies.net of current portion.H. 24.11% Property.(15%) Provision for income tax. 21.H. 30. 20.H. plant and equipment.30% Reserves and other non-current liabilities.H.H. 28.
Yr.514 audit fee and out-of-pocket expenses for the audit of 2008 financial statements. 2009 . b. . and other directorships held in other companies:
.) Tax Fees – None Yr. the appointment of the external auditor is being confirmed in the annual stockholders’ meeting. citizenship. period served as director/officer.) none
All Other Fees – None The audit committee’s approval policies and procedures for the above services: Upon recommendation and approval of the audit committee.B. Executive Officers.Estimated at P 450. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There are no changes in.2008 .000 exclusive of out-of-pocket expenses for the audit of 2009 financial statements. The audit of the Company’s annual financial statements or services that are normally provided by the external auditor in connection with statutory and regulatory filings or engagements for 2009 and 2008.P 439. On the other hand. Yr. Directors and Executive Officers of the Registrant 1. Hereunder are the Company’s incumbent directors and executive officers. and disagreements with the registrant’s accountants on any accounting and financial disclosure during the three most recent fiscal years in the period ended March 31. Financial Statements See accompanying Index to Financial Statements and Supplementary Schedules Item 8.CONTROL AND COMPENSATION INFORMATION Item 9. Directors. financial statements should be approved by the Board of Directors before its release. Information on Independent Accountant and other Related Matters (1) External Audit Fees and Services a. 2008 c. PART III . term of office as director/officer. positions held. Promoters and Control Persons At present. their names.) d. 2009 or in any subsequent interim period. ages.) Audit and Audit-Related Fees
1. business experience for the past five years.
Item 7. the Company has eleven (11) directors.
. and Cube Factor Holdings. and Lucky Travel Corp. Basic Holdings Corp. Grandspan Development Corp. Former Director of
.. Inc. President and Chief Operating Officer of Philippine Airlines.. Link World Construction Development Corp.Name Lucio C. Suricon Resources Corp. Fortune Tobacco Corp. Associated Devt Corp. Chairman of Tobacco Board. Director and Treasurer of Asia Brewery Inc. Himmel Industries Inc.. President and Board of Trustees Member of University of the East.. Inc. Inc. National Bank.. Fortune Tobacco Corp.. Tanduay Holdings. Century Park Hotel and The Charter House.. Director of MacroAsia Corp. Vice Chairman of Eton Properties Philippines. Inc. majority stockholder of Allied Banking Corp. Fortune Tobacco Corp.. Alcorn Petroleum & Minerals Corp. Traders Royal Bank and Traders Hotel. Director of Allied Banking Corp. Inc.. Asia Brewery Inc... Inc....... Eton Properties Philippines.... President of Basic Capital Investments Corp. Inc. Tan
Position /Term of Office/Period Served Chairman/ 1 year/ 1 year
Jaime J... Tanduay Distillers.. Inc. Himmel Industries Inc. Inc.. Charter House Inc. Macroasia-Eurest Catering Services and Macroasia Menzies Airport Services Corp.. Lucky Travel Corp..... President of Century Park Hotel and Landcom Realty Corp. Inc. Bautista
President and Director/ 1 year/ 1 year
Mariano C... Tanduay Distillers. Asia Brewery Inc... Basic Holdings Corp.. Director of Phil. Tanduay Distillers.. Tan
Director/ 1 year/ 1 year
Macario U... Tanenglian
Treasurer & Director/ 1 year/ 1 year
Harry C. Pacific Rim Oil Resources Corp. Board of Trustees Member of UERM Medical Center Foundation Vice Chairman of Philippine Airlines. previously director of Palawan Consolidated Mining Corp. Philippine Airlines Inc. Inc. Chairman of MT Holdings Corp. and Grandspan Development Corp. Tanduay Brands International.. Managing Director of Charter House. Gotesco Land. Inc. Former Director Treasurer of Allied Banking Corp.. Eton Properties Philippines. Te
Director/ 1 year/ 1 year
Business Experience/Other Directorship within the last 5 years Chairman of Philippine Airlines. Inc. Tanduay Holdings. and Tanduay Holdings. Inc.. and Foremost Farms. Inc. Inc.
... Landcom Realty Corp.
Director/ 1 year/ 1 year
Michael G.. Director of Eton Properties Philippines.. PNB Investment. Inc. Waterfront Phils.. Air Philippines Corp. Inc. and Victorias Milling Co.. Far East Molasses Corp. Director of Allied Bankers Insurance Corp.. Philippine Airlines Foundation. Board of Trustees of UERM Medical Center. Nissan North Edsa. Fortune Tobacco Int’l Corp. Tan Jr. Tobacco Recyclers Corp.... PNB General Insurers Inc. Philippine Airlines. Inc.. Himmel Industries.. Tanduay Holdings. Inc. Lucky Travel Corp.. Director of Eton Properties Philippines.. Tanduay Holdings. Inc. Inc.. Inc.. Philippine Airlines. Marcuenco Realty & Development Corp. Zebra Holdings. and Eton Properties Philippines. .... Inc... Oriental Petroleum & Minerals Corp... Inc... Tanduay Distillers.. Asian Alcohol Corp. PNB IFL and PNB Europe PLC. Inc. Inc. Assistant Corp.ViceChairman.. PNB Remittance Center Inc. PNB Holding Corproration. Tanduay Brands International.. Inc. Director/EVP of Fortune Tobacco Corp. Tanduay Brands International Inc. Bulawan Mining Corp.Wilson T. Air Philippines Corp.. Director of Allied Banking Corporation. Charter House.. Young
Director/ 1 Year/ 1 Year
Lucio K. Manufacturing Services & Trade Corp.. and Total Bulk Corp... Inc.. Inc. Absolut Chemicals. Inc.. Inc. Inc... Tan
Director/1 year/ 1 year
Juanita Tan Lee
Director/1 year/ 1 year
Philippine National Bank. Air Philippines Corp. Corporate Secretary of Asia Brewery... Allied Bankers Insurance Corp. Ltd.. Secretary of Basic
. Inc. Chief Operating Officer of Tanduay Distillers. Inc. Director and President of Tanduay Holdings. Lucky Travel Corp. Tanduay Brands International Inc. and Eton Properties Philippines. Inc. Board of Trustees Member of University of the East. Fortune Tobacco Corp.. Dominium Realty & Construction Corp. MacroAsia Corporation. PNB Capital & Investment Corp. Inc. EVP of Foremost Farms. Foremost Farms. Inc. Beneficial PNB Life Corp. Inc. Director/Chief Operating Officer of Asia Brewery. Total Bulk Corp.. Grandspan Development Corp... Lucky Travel Corp. Philippine National Bank. Asian Alcohol Corp.. Flor De Cana Shipping..
Independent Director of Philippine Airlines Corporate Secretary of Allied Banking Corp. suspended. Significant Employees There are no other significant employees who are expected by the registrant to make a significant contribution to the business. Chairman of Landmark Corporation. any conviction by final judgment. of any court of competent jurisdiction. Co. Cecilia L. domestic or foreign. Lucio C. AVP and Asst. Tanenglian and Harry C. Eton Properties Philippines. suspended or vacated. Tan. Inc... Former Chairman of Development Bank of the Philippines (DBP). judgment or decree. Director/Vice-Chairman of Hideco Sugar Milling. Tan is the father of Mr. Family Relationship Chairman Lucio C. Chairman/President of Philippine Trade Center. Former Member of the Monetary Board of Bangko Sentral ng Pilipinas.. Rizal Commercial Banking Corp.. Tan are brothers of Mr. Jr. Chairman of An-Cor Holdings.
Independent Director/ 1 year/ 1 year
Enrique O. Corp. Mariano C. Inc. Allied Savings Bank. Alindogan. President of C55. in a criminal proceeding.. Pending Legal Proceedings (last 5 years) The Directors and Executive officers of the Corporation are not involved in any bankruptcy petition by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time. Former Consultant for Microfinance of DBP. Lee
Chief Finance Officer/ 1 year/ 1 year
Holdings Corp. Inc.
. and Mr. including the nature of the offense.. Inc... Pesayco
Corporate Secretary/ 1 year/ 1 year
Susan T. securities. Independent Director of Phil. or vacated.. CFO of Tanduay Holdings. Airlines. barring suspending or otherwise limiting his involvement in any type of business. permanently or temporarily enjoining. Michael Tan while Messrs.Antonino L. commodities or banking activities. Inc. Air Philippines. to have violated a securities or commodities law or regulation.. Inc. East Silverlane Realty and Dev’t Corp.. Lucio K. being subject to any order. excluding traffic violations and other minor offenses.. and Tanduay Holdings. Inc. 4.. not subsequently reversed.
2. or a domestic or foreign Exchange or other organized trading market or self regulatory organization. Tanduay Holdings Inc. and the judgment has not been reversed. Cheng
Independent Director/ 1 year/ 1 year
Ma. the Commission or comparable foreign body. House of Investments.. Inc. 3. domestic or foreign. Tan Jr. Inc. Eton Properties Philippines. and being found by a domestic or foreign court of competent jurisdiction ( in a civil action).
and all officers and directors as a group. directly or indirectly.) Standard Arrangements – Other than the stated salaries & wages and per diem of the directors. 2009 (1) Security Ownership of Certain Record and Beneficial Owners of more than 5% Title of class Name. b. for any services provided as a director. a.) Employment contract or compensatory plan or arrangement . Raymundo Ave. the directors of the Corporation are entitled to a per diem. Maybunga. Pursuant to Section 13.. Executive Compensation The Company’s president and chief executive officer as well as the other officers receive a fixed basic monthly salary. Lucio Tan shall have the voting power over the shareholdings of TMHC. b.230
97. executive officers and all officers and directors as a group.280.00) for the directors’ attendance in the Annual Stockholders’ Meeting.None Warrants and Options Outstanding: Repricing a.000.708%
* Trustmark Holdings Corp. Pasig City/(Shareholder) Filipino *
5. address of record owner and relationship with Issuer Name of Beneficial Owner and
No. Article II of the Company’s By-laws. Mr.) There are no outstanding warrants or options held by the Company’s CEO.297. The directors and executive officers received no bonus or any other remuneration in cash or in kind. Approved per diem amounted to twenty five thousand Pesos (P 25.) This is not applicable since there are no outstanding warrants or options held by the Company’s CEO. for the last completed fiscal year and the ensuing year. including any additional amounts payable for committee participation or special assignments. The directors and executive officers hold no outstanding warrant or option. Item 11.Item 10. or are to be compensated. C.) Other Arrangements – None c. (2) Security Ownership of Management as of June 30. there are no other standard arrangements to which the directors of the Company are compensated. Security Ownership of Certain Beneficial Owners and Management as of June 30. the named executive officers. of Shares Held Citizenship
with Record Owner Common Trustmark Holdings Corporation* SMI Compound. 2009
.(TMHC) is owned and controlled by the Lucio Tan Group of Companies.
Tan Jaime J. Allied Banking Corporation – deposits. Jr. Te Juanita Tan Lee Antonino Alindogan. Bautista Wilson T.000” r” 1.000 “r” 1 “r” 500 “r” 500 “r” 1. Voting Trust Holders of 5% or More The Company has no recorded stockholder holding more than 5% of the Company’s common stock under a voting trust agreement.
a. Tan Mariano C.) Business purpose of the arrangements: We do business with related parties due to stronger ties which is based on trust and confidence and easier coordination.001 representing 0.Title of class
Name of beneficial owner Lucio C. rental and stock transfer services
. The Company also has a lease and stock transfer agency agreement with the said bank at prevailing rates. an affiliate. 4.000 “r” 1.000 “r” 1.) Identification of the related parties transaction business and nature of relationship: 1. 3.
Item 12. Security ownership of all directors and officers as a group is 8. Enrique O.000 “r” 500 “r” 500 “r” 1.00% of the Company’s total outstanding capital stock. at competitive interest rates. There are no special risk or contingencies involved since the transactions are done under normal business practice. There are no preferential treatment in any of its transactions with the Bank. Michael Tan Macario U. the following are additional relevant related party disclosures: The Company’s cash and cash equivalents are deposited/placed with Allied Banking Corporation. Jr. Young Lucio Tan.000 “r”
Citizenship Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino
Percent of Class Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil
* All shares held by management are of record. b. Cheng
Common Common Common Common Common Common Common Common Common Common Common
Amount and nature of record/beneficial ownership * 1. Changes in Control There are no arrangements which may result in a change in control of the registrant. Tanenglian Harry C. Certain Relationships and Related Transactions In addition to Note 18 of the Notes to the Consolidated Financial Statements on pages 89 to 92.
2.) Transactions have been fairly evaluated since the Company adhere to industry standards and practices.
.) Transaction prices are based on prevailing market rates. e. 3. d.) There are no any ongoing contractual or other commitments as a result of the arrangement. 2.) Not applicable – the Company has no transactions with promoters.) Not applicable – there are no parties that fall outside the definition of “ related parties” with whom the Company or its related parties have a relationship that enables the parties to negotiate terms of material transactions that may not be available from other. more clearly independent parties on an arm’s length basis. MacroAsia Corporation – investments c.
Key dates for tendering the Notes: Early tender date : Tuesday 19 May 2009 4pm London Time (Holders of the Notes must offer to tender by this time to receive their purchase price AND the early tender premium. at its sole discretion. The Notes and the Other Indebtedness have a current aggregate principal amount outstanding of approximately US$220 million. 2008 Subject Matter Disclosed Press Release of Philippine Airlines. the “Notes”) and creditors in respect of certain other unsecured indebtedness of PAL (hereafter. (PAL) November 20. invited holders of the US$200 million Zero Coupon Notes due 2011 (formerly. the “Other Indebtedness”) to offer to tender such Notes and Other Indebtedness for purchase by Trustmark. 2008 – PAL reports $114-M loss Trustmark Holdings Corporation (“Trustmark”)..) : Friday 22 May 2009 4pm GMT
May 13. Trustmark proposes to buy a combination of the Notes and the Other Indebtedness up to an aggregate principal amount of US$143 million. Inc. Inc. as indicated in the Index to Exhibits are either not applicable to the Company or require no answer. 2009
Final expiration date
. Inc.The other exhibits.EXHIBITS AND SCHEDULES Item 13. the controlling stockholder of PAL Holdings. Floating Rate Notes due 2000) issued by Philippine Airlines. (b) Reports on SEC Form 17-C SEC Form 17-C (Current Reports) which have been filed during the year are no longer filed as part of the exhibits. (the “PAL”) (hereafter. LIST OF ITEMS REPORTED UNDER SEC FORM 17-C (DURING THE LAST 6 MONTHS) – OCTOBER 2008 TO MAY 2009 Date of Report November 19.PART IV . Holders of the Notes who offer to tender after will receive their purchase price without the early tender premium. The Tenders: Dutch Auction tenders for unsecured indebtedness of PAL comprised of the Notes (Reg S ISIN:XS0071784762) and the Other Indebtedness. Exhibits and Reports on SEC Form 17-C (a) Exhibits .
(“PAL”) and creditors in respect of certain other unsecured indebtedness of PAL (the “Other Indebtedness”) to offer to tender for purchase such Notes and Other Indebtedness. Inc. Evaluation System The Compliance Officer is currently in charge of evaluating the level of compliance of the Board of Directors and top-level management of the Corporation. 22 May 2009. Deviations The Company is taking steps towards full compliance of its Corporate Governance Manual.P. Morgan Securities Ltd. in its best judgment. The implementation of the Corporate Governance Scorecard allows the Company to properly evaluate compliance to the Manual.Settlement date The Purchaser:
: Friday May 29 [expected]
Trustmark. but intends to advance all payments made by PAL in respect of the Notes and Other Indebtedness for future equity subscriptions. Floating Rate Notes due 2000) (the “Notes”) issued by Philippine Airlines. is sole dealer manager in respect to this transaction.
. Item 16. Item 17. Item 15. 2009 Further to the earlier announcement regarding the invitation by Trustmark Holdings Corporation (“Trustmark”). Plan to improve The Company continues to improve its Corporate Governance when appropriate and warranted. to the holders of US$200 million Zero Coupon Notes due 2011 (formerly. As part of this transaction. please be informed that Trustmark has extended the Early Tender Period to Friday. J.
PART V . Measures undertaken to Fully Comply Measures are slowly being undertaken by the Company to fully comply with the adopted leading practices on good corporate governance and one of them is attending seminars by our Corporate Directors. 4pm London Time. Inc. Trustmark will become the beneficial owner of the purchased Notes & Other Indebtedness. in turn the holder of 84% of the issued share capital of PAL. May 20... the primary shareholder in PAL Holdings Inc.CORPORATE GOVERNANCE Item 14. the controlling stockholder of PAL Holdings.
FINANCIAL STATEMENTS Statement of Management’s Responsibility for Financial Statements Report of Independent Auditors Statements of Financial Position . Related Parties. and Principal Stockholders (Other than Related Parties) Non-Current Marketable Equity Securities. I. K. Other Long-Term Investments in Stock. C. G. 2009 and 2008 Statements of Comprehensive Income for the Period Ended March 31. 2008 and 2007 Statements of Cash Flows for the Years Ended March 31. 2008 and 2007 Notes to Financial Statements SUPPLEMENTARY SCHEDULES Report of Independent Auditors on Supplementary Schedules A. B.
. and Other Investments Indebtedness of Unconsolidated Subsidiaries and Related Parties Intangible Assets and Other Assets Long. 2009. E.PAL HOLDINGS.Term Debt Indebtedness to Related Parties Guarantees of Securities of Other Issuers Capital Stock Reconciliation of Retained Earnings Index to Exhibits 115 * 37-38 40-41 42-43 44-45 46-47 48-49 50-114
* * * * 116-119 * * 120 121 *
* These schedules. INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES SEC FORM 17-A
Page No. J. Employees.March 31. have been omitted because they are either not required. H. D. not applicable or the information required to be presented is included in the Company’s financial statements. which are required by Part IV(e) of SRC Rule 68. Marketable Equity Securities and Other Short-Term Cash Investments Amounts Receivable from Directors. 2009. 2008 and 2007 Statements of Changes in Equity for the Years Ended March 31. Officers. INC. F. 2009.
.PAL Holdings. Inc. 2008 and 2007 and Independent Auditors’ Report
SyCip Gorres Velayo & Co. and Subsidiaries
Consolidated Financial Statements March 31. 2009 and 2008 and Years Ended March 31. 2009.
514 14.185. INC.840.045 581.673 916.577.545 =
48.397.440.836. 18.802 4.127.756.100 2.net (Note 23) Other noncurrent assets (Notes 5. materials and supplies (Note 8) Other current assets (Notes 8.136. 27 and 28) Short-term investments (Notes 27 and 28) Available-for-sale investments (Notes 6.234 5. 18.261 P
=3.109 6.000 93. 18. 27 and 28) Accrued expenses (Notes 14. 18.877 261.454 41.750 P95.028 6.180 481.130 =85.955 3.006.368. 13. 27 and 28) Due to related parties (Notes 2. 25.364 320.967 57.205 – 5.534. 18. 25.552 52.859. 27 and 28) Accrued employee benefits (Note 21) Reserves and other noncurrent liabilities (Note 16) Total Noncurrent Liabilities Total Liabilities (Forward) P6.516.090 – 5. 18.797 1.574. 27 and 28) Total Noncurrent Assets TOTAL ASSETS LIABILITIES AND EQUITY Current Liabilities Notes payable (Notes 13.261.323. 16. 18. fuel.548 819.988 = 374.112.551 938.936 3. 27 and 28) Investment properties (Notes 10 and 11) Deferred income tax assets .486.553.652 3.856 74.150.511.046.450.154.510 1. 25.160
. 27 and 28) Receivables (Notes 7. 27 and 28) Total Current Liabilities Noncurrent Liabilities Long-term obligations .669. 16.577.090 187.352 3.625 481.235 32.517 P5.570
42.583.296. 18.253. 9 and 28) Total Current Assets Noncurrent Assets Property and equipment (Notes 11.237.359.402. 25. 18.487 11. 27 and 28) Income tax payable (Note 23) Unearned transportation revenue Current portion of long-term obligations (Notes 15.131
65.533.888.PAL HOLDINGS. 18.695 P – 92.245 20.013 5. 24 and 25) At cost At appraised values Deposits on aircraft leases (Notes 18. 18. 15.200.806 8.420 4.783.795
=14. AND SUBSIDIARIES_________________________________ CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Amounts in Thousands)
March 31 2009 ASSETS Current Assets Cash and cash equivalents (Notes 5.590 70.713.223 = 3.net of current portion (Notes 15.900 384.853. 24. 27 and 28) Available-for-sale investments (Notes 6. 27 and 28) Accounts payable (Notes 18.365.504.188. 27 and 28) Expendable parts.364 5.517
30.942 1.235 P 5. 12.611 10.065.117 27.136 38.
518 14.975) (56) 1.208 2.028 P95.931.713.212) (56) 12.101 =85.421.583 2.261 P
See accompanying Notes to Consolidated Financial StatementsSee accompanying Notes to Consolidated Financial Statements.545 =
=5.185.517.348.55.324.283 (21.283 (10.614.-2-
March 31 2009 Equity Attributable to the equity holders of the parent: Capital stock (Notes 2 and 17) Additional paid-in capital (Notes 2 and 17) Other components of equity (Note 17) Treasury stock .517.568 P 17.568 = 17.283.820 416.006. at cost (Note 17) Minority interests Total Equity TOTAL LIABILITIES AND EQUITY
726 (2.604 8.745 8.026.272.913.218.991 49. Except Earnings Per Share and Number of Shares) Years Ended March 31 2008 55. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands. net of deferred income tax (Notes 19 and 28) Increase in revaluation increment due to appraisal.899) (12.245.466.667) (4.744 6.999.446 771.073) (10.634 5.095 3.506.702 3.797 4.219.991) (528.111 1.087.743.182 65.230 3.650) 185.389.net (Notes 16 and 28) INCOME (LOSS) BEFORE INCOMETAX PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 23) NET INCOME (LOSS) OTHER COMPREHENSIVE INCOME (LOSS) (Note 19) Net changes in fair values of available-for-sale investments.266.053.639 10.437
64.284 1.317.226.326 4.264.682 (981.485.699.551)
178.039 (2.872.398) 7.728 (12.560.554 1.939. net of deferred income tax (Note 11) Effect of foreign exchange translation* TOTAL OTHER COMPREHENSIVE INCOME (LOSS) TOTAL COMPREHENSIVE INCOME (LOSS) Net income (loss) attributable to: Equity holders of the parent Minority interests
80.958.156.518 (12.320 69.153 7.807.429 2.492.308 87.100) 1.040 (755.924 8.909.902) (1.743 4.796.009.842.678.819 5.793) 340.407 3.985.436 8.359.437
.934 3.648 4.984 5.551)
2009 REVENUE Passenger Cargo Interest income (Note 18) Others (Notes 16 and 18) EXPENSES (Note 20) Flying operations (Note 28) Maintenance (Note 18) Aircraft and traffic servicing Passenger service Reservation and sales General and administrative (Notes 7 and 16) Financing charges (Notes 13.552.016.058 263. 15 and 18) Others .509 67.426 9.593.346 4.824) (1.496 4.693.069 7.716.031 (1.423 698.532 66.687 30. net of deferred income tax (Note 6) Net changes in fair values of derivative assets.241 4597819 461.527) 473.231.813 30.862.542) (6.519.958.PAL HOLDINGS.026.112 75.786.761.957.530 5. INC.902.018.803) 5.972.779 1.260.549 (4.948 3.635 839.662 4.218) (1.355.274 (12.360.046.886)* (523.732) (1.277.099.938.
As of July 8.421.0011) (0.507) (528.0240) (1.867.422. and the monthly average exchange rates for the years then ended. 2009.035) (83.1259
* Represent the effect of translating the US Dollar consolidated financial statements of Philippine Airlines.766 in 2007.310) (12.
.392..512. the applicable exchange rate to US$1 is 48.073) (2.634 1.926. using the applicable year-end exchange rates to US$1 of 48.542) (0.351. 41. 2009.0821) 4. Inc.375.300.
See accompanying Notes to Consolidated Financial Statements. 2008 and 2007. **Computed using the weighted average number of issued and outstanding shares of stock of 5.-2-
2009 Total comprehensive income attributable to: Equity holders of the parent Minority interests Basic/Diluted Earnings (Loss) Per Share** Computed based on Net Income (Loss) Computed based on Total Comprehensive Income (Loss) (10.9169)
Years Ended March 31 2008 2007 (445.807.225 881. and 48. respectively. a subsidiary.260.763) (1.756.409 5.217 as of March 31.3574 1.096 in 2009 and 2008 and 4.
939.822 (972.143) 27.225 (4.021.507)
– 5.107) 3.908
Capital Stock (Notes 2 and 17) BALANCES AT APRIL 1.485.079.033 –
Deposit for Future Stock Subscription (Note 17) 4.158 – (528.079.100)
– – – – (56) – – – –
– 4.860.537.807.807.038.393 – – – 223.850) 9.020.926.662.824 287.331.270.400) – – 253.568 5.000 –
Additional Paid-in Capital (Notes 2 and 17) 12.926.616 881. foreign exchange adjustment and other changes Total income and expense for the year Conversion of deposits for future stock subscription to advances from related parties Conversion of advances from parent company to equity BALANCES AT MARCH 31.287 3.542)
– 170.443) (1.814.079.567 10.567 10.729 (6.284 (56) –
Total (10.304) 4.471.PAL HOLDINGS.net of deferred income tax.977.662.822 1.158 – (445.025 – – – (83.176 – – 197.634 (4.814. 2007 Conversion of advances from parent company to equity Conversion of advances from parent company to equity Additional paid-in capital applied against deficit Total comprehensive income for the year (Notes 3 and 19) (Forward) 400.409 – – 2.421.568 – – – –
– – – 4.662.254 4.367.511 170.143) – – (3. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED MARCH 31. 2006 Total comprehensive income for the year (Notes 3 and 19) Net effect of transfer of portion of revaluation increment in property realized through depreciation .559.471.029.035)
– 881.623 – – (8. 2009.017.688) 5.176 1. INC.225
Minority Interests 1.294
(38.850) – – – – – –
– (1.850 –
Deficit Treasury (Notes 17 Stock and 21) (Note 17) (14.636.850) 9.634
– – – 5.394.814.339) 249.122.729) –
– – (4.918 3.339 5.038.158 (253.569 – – 1.586) – – – (734.687 – – – 72.814.023) 5.409
Total (8. 2008 AND 2007 (Amounts in Thousands)
Attributable to Equity Holders of the Parent Net Changes in Fair Values of Availablefor-sale Investments Net of Cumulative Deferred Revaluation Translation Income Tax Increment Adjustment (Notes 6 in Property (Note 19) and 26) (Note 11) (1.
2008 Total comprehensive income for the year (Notes 3 and 19) Net effect of transfer of portion of revaluation increment in property realized through depreciation .262) 73.267 157.208
– (12.101 (12.392.487.690 12.507) 2.073)
– – –
BALANCE AT MARCH 31.297
– (145.net of deferred income tax.583 (10.867.096)
(69.874 1.938 (3.260.283 –
– – – –
– (734.066.763) 1.239 (145.498.310) 416.421.183 14.net of deferred income tax.931.348.552 270.213. foreign exchange adjustment and other changes Total income and expense for the year BALANCE AT MARCH 31.324.049 (8.262 (10.035 1.497.938
– – (56)
– (10.421. 2009 5.518 (1.302
84.517.888.517.130.781) (4.296.568 17.640) (19.310)
.420 317.096) 125.867.392.351) (10.073) 2.367) 567.763)
– (83.283 See accompanying Notes to Consolidated Financial Statements.Capital Stock (Notes 2 and 17) Net effect of transfer of portion of revaluation increment in property realized through depreciation .996 17. foreign exchange adjustment and other changes Total income and expense for the year
Additional Paid-in Capital (Notes 2 and 17)
Deposit For Future Stock Subscription (Note 17)
Attributable to Equity Holders of the Parent Net Changes in Fair Values of Availablefor-sale Investments Net of Cumulative Deferred Revaluation Translation Income Tax Increment Adjustment (Notes 6 in Property (Note 19) and 26) (Note 11)
Deficit Treasury (Notes 17 Stock and 21) (Note 17)
– – 5.420) 153.902)
– – (56) –
082 (22.106) 13.965.819) (163.713) (10.836.522.128 (4.783 (312.485.391 110.036 (839.140.218)
2009 CASH FLOWS FROM OPERATING ACTIVITIES Income (loss) before income tax Adjustments for: Depreciation and amortization (Notes 10.732 (3.295 124.154 329.527) (1.022 3.547) (530. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Years Ended March 31 2008 (1.333 220.127.116.111) (527.692.030 554.884) (9.630.389 128.347.627) 12.609 – (938.277 546.519.662) (206.687) (470.054 (2.167) 378. 11.039
(12.075 98.297.887 516.162) (1.721) 1.940) (2.715) (372.298) 260.046) 5.888 – (9.435. fuel.910) (461.906 454.161.734) (2.360.352)
6.834) – (226.616.295 (278.993) 2.205) (121) 97.028.646 (2.092.856.527)
6.088 15.287 3.872) (200.829) 497.438 275.872) 3.446 (1.407 1.676.259.264.003 (1.266)
5.998.863) (295.497.098.271) 780.007)
.643 (3.645 (3.776) (32.069) (329.596) 764.623) (2.312) (9.049.846 (270.685.847) (5.349.429 4.542.798.746.776 – 940. materials and supplies Other current assets Increase (decrease) in: Accounts payable Accrued expenses Due to related parties Unearned transportation revenue Net cash settlement on derivative transactions Net increase (decrease) in accrued employee benefits Increase (decrease) in other noncurrent liabilities Net cash generated from (used in) operations Financing charges paid Interest received Income taxes paid (including final and withholding taxes) Net cash flows from (used in) operating activities CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (Notes 11 and 24) Investments in: Short-term investments Available-for-sale investments Proceeds from disposal of: Available-for-sale investments Property and equipment Dividend received Return of various deposits Proceeds from cancellation of predelivery payments (Note 11) Additional various deposits made Decrease (increase) in other noncurrent assets Net cash flows used in investing activities (Forward)
2007 4.532.net Interest income Dividend income Gain on disposal of property and equipment.427 – (55.270 467.619.453 4.218.774 61.629. and others Operating income before working capital changes Decrease (increase) in: Receivables Expendable parts. 18 and 20) Financing charges (Note 20) Realization of hedge and non-hedge derivatives Foreign exchange loss (gain) .058 – 729.155 1.386 163.560.610.567 (1.178 1.477.373 144.482) (1.309 (621.149 (135.493) – – 953.081.369) 9.820) 243.991.051.075) (225.423) 1. INC.492) 698.556) (681.763) (374.251 (1.745) 158.862.627 (1.PAL HOLDINGS.642 836.
707) 14.281) – 7.683 (5.189.125 (8.827.
Years Ended March 31 2008
1.000) (9.049.573.449) 1.004.876.542 18.665.000 – (1.060
.836.789.181) 52.615.946.252.695 5.614) – (7.461.937.737.218 8.410) (6.783.201 (8.857) (8.000) (8.839.783.573.988
3.605.056) (1.518 20.696.824) 272.728 (208.712.060 14.790 – (780.-2-
2009 CASH FLOWS FROM FINANCING ACTIVITIES Availments of: Notes payable (Note 13) Long-term obligations (Notes 15 and 24) Payments of: Notes payable (Note 13) Long-term obligations (Notes 15 and 24) Advances from related parties Net cash flows from (used in) financing activities EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 5)
See accompanying Notes to Consolidated Financial Statements.365) 20.
(the Parent Company) was incorporated in the Philippines on May 10. The consolidated financial statements as of March 31. in separate meetings held on October 20 and December 13. Increase in capital stock of the Parent Company On July 26 and September 19. Status of Operations and Reorganizations a.
2. through Philippine Airlines. 6754 Ayala Avenue. 2009 were authorized for issue by the Board of Directors (BOD) on July 8. INC. 2007.00 per = = share. Allied Bank Center. On September 23. 1930 under the name “Baguio Gold Mining Company” originally to engage in mining and other mineral exploration activities. 1996. 2006.00 million divided into 400 million shares with par value of P = P1. The Parent Company is a subsidiary of Trustmark Holdings Corporation (Trustmark) and is part of the Lucio Tan Group of Companies (LT Group).PAL HOLDINGS.
.73 million against the additional P paid-in capital (see Note 17). Inc.80 per share.02 billion have been subscribed and in payment thereof. at a P rate of P1. Inc.
Corporate Information PAL Holdings. 2007.03 billion additional paid P in capital as of March 31. as a result of the conversion.16% to 97. These business activities are further described in Note 29.73%.02 billion shares with a total par value of P5. (PAL). The Parent Company and its subsidiaries (collectively referred to herein as “the Group”). As a result of the above transactions. 2009 and 2008 and for each of the three years in the period ended March 31. 5. The change of the Parent Company’s name was approved by the Philippine Securities and Exchange Commission (SEC) on January 19. at separate meetings. 2000. Makati City.00 per share to P20. The Parent Company’s registered office address is 7th Floor. The increase in authorized capital stock was approved by the Philippine SEC on January 19. Trustmark’s ownership = over the Parent Company increased from 69. On October 17. 2007 amounting to =253. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. 2009.00 billion divided into 20 billion shares with par value of P1. in the amount of =9. the Parent Company = agreed to convert to equity a part of its debt to Trustmark. the Parent Company’s BOD. the Philippine SEC approved the Parent Company’s request to undergo equity restructuring to wipe out the deficit of the Parent Company as of March 31. 2007. is primarily engaged in air transport of passengers and cargo within the Philippines and between the Philippines and several international destinations. Out of the increase in the authorized capital stock. Accordingly. the Parent Company had a =4. the Philippine national flag carrier and the major subsidiary of the Parent Company. and the stockholders of at least two thirds (2/3) of the outstanding shares of stock.04 billion. 2007. respectively. approved the increase in authorized capital stock of the Parent Company from =400. Inc. the Parent Company changed its primary purpose to that of engaging in the business of a holding company and changed its corporate name to Baguio Gold Holdings Corporation. by a vote of at least a majority of its entire membership. The Parent Company’s Board of Directors (BOD) and its stockholders approved the change of the Parent Company’s name to PAL Holdings.
. Also on August 17. as originally planned on = June 27.08 billion as of June 27. Sierra Holdings & Equities. the Nominees of the LT Group assigned their interests in the Holding Companies to the Parent Company.08 billion (instead of P14. 2007. 2007. These Holding Companies also owned 82. Inc. Ascot Holdings. and Maxell Holdings Corp. will be P converted into additional paid-in capital in the Holding Companies.00 billion are thus retained with the Holding Companies as a result of the amendment.67% of PAL through the Holding Companies and PR.00 million from the individual stockholders representing interests of Lucio Tan Group of Companies (Nominees of the LT Group). On August 2. the acquisition will be made by way of a dacion en pago to pay-off = P12. the BOD of the Parent Company approved the assumption by the Parent Company of the outstanding liability of the Holding Companies to Trustmark.57% of PAL. Cube Factor Holdings. This gave the Parent Company the same effective ownership of 84. (collectively.04 billion. 2006. the Parent Company effectively owned 84. The additional paid-in capital resulting from the conversion into equity of the Parent Company’s obligation to Trustmark will be used to wipe out the Parent Company’s deficit. The Holding Companies collectively owned 81.12 billion liabilities of the Holding Companies to the Parent P Company (after the assumption by the Parent Company of the =14.12 billion liabilities of the Holding Companies. Following the assignment. 3. On October 2.12 billion out of the =23. amounting to =11.. 2006. As approved by the BOD.. the Holding Companies) for = P136. Group reorganizations Transactions in Fiscal Year 2007 In fiscal year 2007.-2b. 2007. the BOD of the Parent Company resolved to amend the June 27. Incorporated. 2007. the BOD of the Parent Company approved the acquisition of 100% of the total voting shares of then its subsidiaries.00 billion. Network Holdings & Equities. Inc.33% ownership in PR.57% aggregate ownership of the Holding Companies in PAL. (PR).
. the Parent Company’s BOD approved the Parent Company’s assumption of a portion of the liabilities of the Holding Companies to Trustmark aggregating to about P9.33% of PR Holdings. the Parent Company undertook the following business restructuring activities that were accounted for under the pooling of interests method: On August 17. Inc. 2006. Inc. POL Holdings. and their 82. Transactions in Fiscal Year 2008 On June 27. On July 19.67% in PAL that existed as of March 31. 2006. The remaining receivable of the Parent Company from the Holding Companies after the dacion en pago.76% owner of PAL. 2007.08 billion receivable of P Trustmark from the Holding Companies). The BOD of Trustmark accepted the said assumption by the Parent = Company on August 18. Trustmark agreed to convert such receivable from the Parent Company (after the assumption) into additional paid-in capital of the Parent Company. Inc. amounting to = P14. 2007 resolution so that the Parent Company only assumes =3. The remaining liabilities of the Holding Companies amounting to = P11. 2007.08 billion) P = out of the P23. the Parent Company’s BOD approved the Parent Company’s acquisition of the 81.
among other things. the Holding Companies assigned to the Parent Company their respective investments in PAL and PR aggregating to = P12.-3-
Pursuant to the approval of the BOD on July 19. Trustmark agreed to assume the obligations of the Parent Company to the previous stockholders of the Holding Companies aggregating to =136. 2007 to acquire direct ownership in PAL and PR. In payment thereof.67% of PAL. P On August 2. 2007 for the Holding Companies to assign to the Parent Company their respective ownerships in PAL and PR. in exchange for the full payment of the = Holding Companies’ liabilities to the Parent Company totaling to =12. as of March 31. the Philippine SEC confirmed its approval of PAL’s Amended and Restated Rehabilitation Plan (Rehabilitation Plan) dated March 15. obtain required approvals and file necessary applications and other documents for the proposed exit from rehabilitation and quasi-reorganization of PAL. including the P = P9. the ultimate parent company. c. The disposal though relieved the Group with the liabilities that were settled as they were assumed by Trustmark. monitor and supervise the strict and faithful implementation of the Rehabilitation Plan. the BOD approved. the BOD of PAL authorized management to initiate action. amounting to =431. As a result thereof. the Parent Company still owns 84. This resulted in the recognition of a liability to Maxell Holding Corp. the Parent Company and Trustmark executed a memorandum of agreement and entered into a deed of assignment effecting the assignment of shares to and assumption of liabilities by Trustmark. P On August 14. that the Parent Company shall sell/assign its shares in the Holding Companies to Trustmark. On May 28. 2007.12 billion.00 million. one of the Holding Companies.10% of PAL’s shares through an 82.33% direct ownership in PR. 2008. the exercise of creditors’ and third parties’ rights under various agreements became subject to Philippine SEC jurisdiction. 2007.57% of PAL’s shares and an indirect ownership in 3. through a direct ownership in 81. Status of PAL’s rehabilitation On June 7.04 billion receivables of the Parent Company from the Holding Companies. As part of the Rehabilitation Plan. (Maxell). Accordingly.
. respectively.60 million as of March 31. The release of the investments in the Holding Companies to Trustmark was accounted for as a disposal of “legal rights” to the Holding Companies as said investee companies did not have assets that were derecognized in the process other than the investment in shares of stock of PAL that has no carrying value at consolidated level. 2007.66 million. With the approval of the Rehabilitation Plan. 1999. see Note 15). upon concurrence of Trustmark. As a result of the restructuring in fiscal year 2008. the Parent Company and the Holding Companies entered into various deeds of assignment on August 13. The Philippine SEC also appointed a Permanent Rehabilitation Receiver (PRR) to. the transaction was accounted for as an equity transaction where the reduction in consolidated liabilities was treated as an additional equity investment (or additional paid-in capital of the Parent Company) by Trustmark. 2007.44 billion and P108. 1999. various liabilities were restructured (reflected as part of “Long-term obligations” in the consolidated statements of financial position.
• Philippine Interpretation IFRIC 14. 2007 (see Note 17). except for land and buildings and improvements which are carried at revalued amounts and available-for-sale investments and derivative financial instruments which are carried at fair value. the Philippine SEC approved the termination of the rehabilitation proceedings with the successful implementation of PAL’s rehabilitation plan. Summary of Significant Accounting and Financial Reporting Policies Basis of Preparation The accompanying consolidated financial statements have been prepared using the historical cost convention. On September 14. 2007. Adoption of these amendments did not have an impact on the financial statements as there was no reclassification of the Group’s available-for-sale financial instruments. Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial years except for the adoption of the following Philippine Interpretation based on International Financial Reporting Interpretation Committee (IFRIC) interpretation which became effective on April 1. 2008. Statement of Compliance The consolidated financial statements have been prepared in compliance with Philippine Financial Reporting Standards (PFRS). the Philippine SEC approved PAL’s request to undergo an equity restructuring to wipe out its deficit as of March 31. the Parent Company’s functional and presentation currency. as well as certain instruments from available-for-sale to loans and receivables. The consolidated financial statements are presented in Philippine peso.The Limit on a Defined Benefit Asset. Amendments to PAS 39. on September 28. the members of the PRR endorsed to the Philippine SEC PAL’s application for exit from rehabilitation. Financial Instruments: Disclosures . This interpretation did not have an impact on the financial statements of the Group. and rounded to the nearest thousand. Minimum Funding Requirements and their Interaction. and amendments to an existing standard which became effective on July 1.
3. loans and receivables or available-for-sale categories is allowed. 2008. These amendments state that in rare circumstances. Accordingly.-4-
On September 7. Philippine Accounting Standard (PAS) 19 . 2007. except when otherwise indicated.Reclassification of Financial Assets.
. Finding the recommendations of the PRR and The Office of the General Accountant of the Philippine SEC meritorious. reclassification of certain financial instruments from held-for-trading to either held-to-maturity. PAL went out of rehabilitation. Financial Instruments: Recognition and Measurement and PFRS 7. 2007. Employee Benefits. This interpretation provides guidance on how to assess the limit on the amount of surplus in a defined benefit scheme that can be recognized as an asset under PAS 19.
Financial Instruments: Presentation and PAS 1. 2009 and have not been early adopted by the Group. (c) all instruments in the subordinate class have identical features. Revised PAS 23. PFRS 8 will replace PAS 14. construction or production of a qualifying asset.
. requires customer loyalty award credits to be accounted for as a separate component of the sales transaction in which they are granted and therefore part of the fair value of the consideration received is allocated to the award credits and deferred over the period that the award credits are fulfilled. Borrowing Costs. Amendments to PAS 27. Operating Segments. clarifies the definition of a vesting condition and prescribes the treatment for an award that is effectively cancelled. or a change in the fair value of the recognized and unrecognized net assets of the entity over the life of the instrument. that puttable financial instruments will be classified as equity if they have all of the following specified features: (a) the instrument entitles the holder to require the entity to repurchase or redeem the instrument (either on an ongoing basis or on liquidation) for a pro-rata share of the entity’s net assets. Consolidated and Separate Financial Statements . Customer Loyalty Programmes. requires capitalization of borrowing costs when such costs are directly attributed to the acquisition. Amendments to PAS 32. Effective in fiscal year 2010 • Revised PFRS 2. and (e) the total expected cash flows attributable to the instrument over its life are based substantially on the profit or loss. Presentation of Financial Statements . Philippine Interpretation IFRIC 13. Segment Reporting.Cost of an Investment in a Subsidiary. the cost of the subsidiary is the previous carrying amount of its share of equity items in the subsidiary rather than its fair value.Vesting Condition and Cancellations. has changes in respect of the holding companies’ separate consolidated financial statements including (a) the deletion of ‘cost method’. Management has yet to complete its assessment of the impact of adopting IFRIC 13 in fiscal year 2010. making the distinction between pre-acquisition and post-acquisition profits no longer required. with no priority over other claims to the assets of the entity on liquidation. Share-based Payment .Puttable Financial Instruments and Obligations Arising on Liquidation. (d) the instrument does not include any contractual obligation to pay cash or financial assets other than the holder’s right to a pro-rata share of the entity’s net assets. Jointly Controlled Entity or Associate. and is required to be adopted only by entities whose debt or equity instruments are publicly traded. or are in the process of filing its financial statements with a securities commission or similar party. a change in recognized net assets. specify. and (b) in cases of reorganizations where a new parent is inserted above an existing parent of the group (subject to meeting specific requirements). the payment of such dividends requires the entity to consider whether there is an indicator of impairment. (b) the instrument is in the most subordinate class of instruments. adopts a full management approach to reporting segment information. among others.-5-
Future Changes in Accounting Policies Following are the new and amended accounting standards and interpretations that will become effective subsequent to March 31. All dividends will be recognized in profit or loss. PFRS 8. However.
Statement of Cash Flows. PAS 19. are transferred to inventory when rental ceases and they are held for sale. Contingent Liabilities and Contingent Assets. PAS 1.
Improvements to PFRS In May 2008. primarily with a view to remove inconsistencies and clarify wordings. Noncurrent Assets Held for Sale and Discontinued Operations. • PFRS 5. to be consistent with PFRS 5. the International Accounting Standards Board issued its first omnibus of amendments to certain standards. the cash receipts from rents and subsequent sales to be shown as cash flows from operating activities. plant and equipment held for rental that are routinely sold in the ordinary course of business after rental. Impairment of Assets. • PAS 23. Provisions. where within the group the hedging instrument can be held in the hedge of a net investment.. Property. Amendments to plans that result in a reduction in benefits related to future services are accounted for as a curtailment. revises the definition of ‘past service costs’ to include reductions in benefits related to past services (‘negative past service costs’) and to exclude reductions in benefits related to future services that arise from plan amendments. Employee Benefits. Hedges of a Net Investment in a Foreign Operation. even when the entity retains a noncontrolling interest in the subsidiary after the sale. It also clarifies that items of property. clarifies that assets and liabilities classified as held for trading are not automatically classified as current in the balance sheet.e. specifies that when a subsidiary is held for sale. Amendment to PAS 16. Proceeds of such sales are subsequently shown as revenue. revises the definition of borrowing costs to consolidate the types of items that are considered components of ‘borrowing costs’. There are separate transitional provisions for each standard. components of the interest expense calculated using the effective interest rate method.-6-
Philippine Interpretation IFRIC 16. to be recycled on disposal of the net investment. Noncurrent Assets Held for Sale and Discontinued Operations and PAS 36. Presentation of Financial Statements.
. is also revised to require cash payments on initial recognition of such items. Plant and Equipment. and how an entity should determine the amount of foreign currency gains or losses. i. PAS 7. all of its assets and liabilities will be classified as held for sale under PFRS 5. It also deletes the reference to the recognition of contingent liabilities to ensure consistency with PAS 37. It also revises the definition of ‘return on plan assets’ to exclude plan administration costs if they have already been included in the actuarial assumptions used to measure the defined benefit obligation. It further revises the definition of ‘short-term’ and ‘other long-term’ employee benefits to focus on the point in time at which the liability is due to be settled. Borrowing Costs. relating to both the net investment and the hedging instrument. provides guidance on identifying foreign currency risks that qualify for hedge accounting in the hedge of net investment. replaces the term ‘net selling price’ with ‘fair value less costs to sell’.
The revised PFRS 3 introduces a number of changes in the accounting for business combinations that will impact the amount of goodwill recognized. Advertising and promotional activities now specifically include mail order catalogues. Agriculture. Effective in fiscal year 2011
Revised PFRS 3. revises the scope (and the scope of PAS 16. PAS 38. removes the reference to the use of a pretax discount rate to determine fair value. PAS 31. It also defines an investment in an associate as a single asset for the purpose of conducting the impairment test. Investment in Associates. if ever. Consolidated and Separate Financial Statements. Financial Instruments: Recognition and Measurement. specifically derivatives designated or re-designated as hedging instruments after initial recognition. persuasive evidence to support an amortization method for finite life intangible assets that results in a lower amount of accumulated amortization than under the straight-line method. are not reclassifications. clarifies that if a joint venture is accounted for at fair value.
PAS 41. liabilities. clarifies that if an associate is accounted for at fair value in accordance with PAS 39. thereby effectively allowing the use of the unit of production method. It also deletes references to there being rarely. any impairment test is not separately allocated to the goodwill included in the investment balance. Intangible Assets. provides that when discounted cash flows are used to estimate ‘fair value less cost to sell’. PAS 40. thereby allowing use of either a pretax or post-tax discount rate depending on the valuation methodology used and removes the prohibition to take into account cash flows resulting from any additional transformations when estimating fair value. Therefore. as well as summary financial information about the assets. consistent with disclosures required when the discounted cash flows are used to estimate ‘value in use’. It also requires use of the revised effective interest rate (rather than the original effective interest rate) when remeasuring a debt instrument on the cessation of fair value hedge accounting. Interest in Joint Ventures. only the requirements of PAS 31 to disclose the commitments of the venturer and the joint venture. the reported
. Property. provides that changes in circumstances relating to derivatives. cash flows that are expected to be generated in the ‘most relevant market’ are taken into account. Where an entity is unable to determine the fair value of an investment property under construction but expects to be able to determine its fair value on completion. in accordance with PAS 39. provides that expenditure on advertising and promotional activities is recognized as an expense when the Group either has the right to access the goods or has received the services.•
-7PAS 28. Instead. Investment Properties. Impairment of Assets. only the requirement of PAS 28 to disclose the nature and extent of any significant restrictions on the ability of the associate to transfer funds to the entity in the form of cash or repayment of loans applies. income and expense will apply. Business Combinations and PAS 27. additional disclosure is required about the discount rate. Plant and Equipment) to include property that is being constructed or developed for future use as an investment property. It further removes the reference to a ‘segment’ when determining whether an instrument qualifies as a hedge. the investment under construction will be measured at cost until such time as fair value can be determined or construction is complete. PAS 39. PAS 36.
The Group is currently assessing the impact of these standards. The subsidiaries and the related percentages of ownership (see Note 2) of the Parent Company as of March 31.57% – – – 70. The amendment also changes the accounting for losses incurred by the subsidiary and loss of control of a subsidiary. businesses as defined in PFRS 3. plant and equipment.
Philippine Interpretation IFRIC 17. addresses only the designation of a one-sided risk in a hedged item and the designation of inflation as a hedged risk or portion in particular situations. The interpretation applies to all non-reciprocal distribution of noncash assets (e. The amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item.19%
. This interpretation requires that revenue on construction of real estate be recognized only upon completion. Consolidation The consolidated financial statements consist of the financial statements of the Parent Company and its subsidiaries. The effects and required disclosures of the adoption of the relevant standards. how to measure it. The revised PAS 27 requires. This exclusion applies to the separate.Eligible Hedged Items.. and future reported results. items of property. and the accounting treatment for the difference between the carrying amount of the assets distributed and the carrying amount of dividends payable when an entity settles the dividend payable. • Amendment to PAS 39. covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. if any.g. that a change in ownership interests of a subsidiary (that does not result in loss of control) will be accounted for as an equity transaction and will have no impact on goodwill nor will it give rise to a gain or loss. ownership interests in another entity or disposal groups as defined in PFRS 5). including those giving the owners a choice of receiving either noncash or cash alternative.23% 54. provided that all owners of the same class of equity instruments are treated equally and the noncash assets distributed are not ultimately controlled by the same party or parties both before and after the distribution. Agreement for Construction of Real Estate. Distributions of Noncash Assets to Owners. amendments and interpretations. (ADSPI) Synergy Services Corporation (SSC) (Forward) 57 Percentages of Ownership Direct Indirect 81. Effective in fiscal year 2013
Philippine Interpretation IFRIC 15. among others. 2009 and 2008 are as follows:
PAL Abacus Distribution Systems Philippines. The financial statements of the subsidiaries are prepared using consistent accounting policies as those of the Parent Company. individual and consolidated financial statements of an entity that makes the distribution.-8results in the period that an acquisition occurs. Financial Instruments: Recognition and Measurement . will be included in the consolidated financial statements when these are adopted subsequent to fiscal year 2009. Construction Contracts. amendments and interpretations. except when such contract qualifies as construction contract to be accounted for under PAS 11. provides guidance on when to recognize a dividend payable. Inc. or involves rendering of services in which case revenue is recognized based on stage of completion.
33% – – 3. All intercompany accounts and transactions with subsidiaries are eliminated in full.10%
Pacific Aircraft Ltd. without any deduction for transaction costs. Financial and Derivative Instruments Financial assets and financial liabilities carried in the Group’s consolidated statement of financial position include cash and cash equivalents.-9Percentages of Ownership Direct Indirect – 84. Pearl Aircraft Ltd. the majority interest is allocated all such profits until the minority interest’s share of losses previously absorbed by the majority interest has been recovered. short-term investments. interest rate and currency derivative instruments.
. The fair value of financial instruments including derivatives traded in active markets at the statement of financial position date is based on their quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions). All regular way purchases and sales of financial assets are recognized on the trade date. Peerless Aircraft Ltd PR PAL
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. short-term and long-term loans.67% – 84.. When current bid and ask prices are not available. and is able to. Minority interest represents the interest in a subsidiary. The equity and net income attributable to minority interests of the consolidated subsidiaries are recognized and. Cash equivalents are short-term. available-for-sale investments. the excess. If losses applicable to the minority interest in a subsidiary exceed the minority interest’s equity in the subsidiary. the price of the most recent transaction is used since it 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.e. deposits on aircraft leases. are shown separately in the consolidated statement of financial position and consolidated statement of comprehensive income. i. make good the losses. directly or indirectly through subsidiaries. If the subsidiary subsequently reports profits. receivables. 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. respectively. which is not owned. the date the Group commits to purchase the assets. Regular way purchases or sales are purchases or sales of financial assets that require the delivery of assets within the period generally established by regulation or convention in the market place. Cash and Cash Equivalents Cash includes cash on hand and in banks. and any further losses applicable to the minority interest. where material. and derivative instruments such as fuel. by the Parent Company. Minority interest represents the interests in PAL and PR not held by the Group.67% 82.67% – 84. are charged against the majority interest except to the extent that the minority has a binding obligation to. 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 that are subject to an insignificant risk of change in value.
Financial instruments are classified as debt or equity in accordance with the substance of the contractual arrangement. held-to-maturity investments or available-for-sale investments. comparison to similar instruments for which market observable prices exist..10 For all other financial instruments not listed in an active market. reevaluates this designation at each financial reporting date. For each transaction. and losses relating to a financial instrument classified as a debt. the Group recognizes the difference between the transaction price and the fair value (a “Day 1” difference) in the consolidated statements of comprehensive income.
. Gains or losses on investments held for trading are recognized in the consolidated statements of comprehensive income. Valuation techniques include discounted cash flow methodologies. The Group determines the classification of its financial instruments upon initial recognition and. Where a contract contains one or more embedded derivatives. are also classified as held for trading unless they are designated as effective hedging instruments or a financial guarantee contract. net of impairment. loans and receivables. Distributions to holders of financial instruments classified as equity are charged directly to equity. they are measured at fair value. Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities. gains. “Day 1” difference Where the transaction price in a non-active market is different to 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. fair value at initial recognition includes any directly attributable transaction cost. except where the embedded derivative does not significantly modify the cash flows or it is clear that separation of the embedded derivative is prohibited. are reported as expense or income. 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 net income or loss when the inputs become observable or when the instrument is derecognized. Financial assets are classified as either financial assets at fair value through profit or loss. In the absence of a reliable basis of determining fair value. investments in unquoted equity securities are carried at cost. In the case of financial assets not classified at fair value through profit or loss and other liabilities. dividends. When financial assets and financial liabilities are recognized initially. as appropriate. Derivatives. Interest. including separated embedded derivatives. and other relevant valuation models. the Group determines the appropriate method of recognizing the “Day 1” difference amount. Financial assets and financial liabilities at fair value through profit or loss Financial assets and financial liabilities at fair value through profit or loss include financial instruments held for trading and financial instruments designated upon initial recognition as at fair value through profit or loss. the hybrid contract may be designated as financial asset at fair value through profit or loss. the fair value is determined by using appropriate valuation techniques. Interest earned or incurred and dividend income is recorded when the right of payments has been established. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. where allowed and appropriate. option pricing models.
This category includes short-term investments. Held-to-maturity investments Quoted nonderivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Group has the positive intention and ability to hold them to maturity. unless the embedded derivative does not significantly modify the cash flows or it is clear. trade receivables arising from operations. in which case the fair value change is either reported in profit or loss with the corresponding adjustment from the hedged transaction (fair value hedge) or deferred in equity (cash flow hedge) under “Cumulative Translation Adjustment” account. Information regarding the Group’s outstanding receivables is included under Note 7. Where the Group sells other than an insignificant amount of held-to-maturity investments. with any gains or losses being recognized in the consolidated net income or loss in the consolidated statement of comprehensive income. Investments intended to be held for an undefined period are not included in this classification.
Assets and liabilities classified under this category are carried at fair value in the consolidated statement of financial position. Gains and losses are recognized in income when the loans and receivables are derecognized or impaired. these are classified as noncurrent assets. or both financial assets and financial liabilities. deposits for aircraft leases and security and refundable deposits.11 Financial instruments may be designated as at fair value through profit or loss by management on initial recognition when the following criteria are met: • The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets and liabilities or recognizing gains or losses on them on a different basis. and through the amortization process. Otherwise. with little or no analysis. This cost is computed as the amount initially recognized minus principal repayments. Other long-term investments that are intended to be held-to-maturity. or The financial instrument contains an embedded derivative. except when the derivative is treated as an effective accounting hedge.. Such assets are carried at amortized cost using the effective interest rate method. issuance costs and all other premiums and
. Loans and receivables Loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market. The Group accounts for its derivative transactions (including embedded derivatives) under this category with fair value changes being reported directly to profit or loss. which are managed and their performance is evaluated on a fair value basis. in accordance with a documented risk management or investment strategy. plus or minus the cumulative amortization using the effective interest rate method of any difference between the initially recognized amount and the maturity amount. Loans and receivables are included in current assets if maturity is within 12 months from the statement of financial position date. such as bonds. the entire category would be tainted and reclassified as available-for-sale investments. This calculation includes fees paid or received between parties to the contract that are an integral part of the effective interest rate. are subsequently measured at amortized cost. that it would not be separately recorded. or The assets or liabilities are part of a group of financial assets or financial liabilities.
shares of stock of MacroAsia Corporation (MAC) and other equity instruments as shown in Note 6.. and through the amortization process. Assets under this category are classified as current assets if maturity is within 12 months from the statement of financial position date. Included under this category are the Group’s accounts payable. Otherwise. payables and accruals) or borrowings (e. other long-term liabilities and due to related parties. The effective yield and (where applicable) results of foreign exchange restatement for available-for-sale investments are reported immediately in the consolidated net income or loss. longterm obligations). or c) hedge of a net investment in a foreign operation. At the inception of a hedge relationship.. These include liabilities arising from operations (e.. The Group has no held-to-maturity investments as of March 31. accrued expenses.12 discounts. obligations under finance leases. The Group did not designate any of its derivatives as fair value hedges.g. the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. After initial recognition. b) a hedge of the exposure to variability in cash flows attributable to an asset or liability or a forecasted transaction (cash flow hedge). Available-for-sale investments Available-for-sale investments are nonderivative financial assets that are designated as availablefor-sale or are not classified in any of the three preceding categories. The liabilities are recognized initially at fair value and are subsequently carried at amortized cost. liability or a firm commitment (fair value hedge). discount and any directly attributable transaction costs. For investments carried at amortized cost.g. hedges are classified primarily either as: a) a hedge of the fair value of an asset. 2009 and 2008. The Group designated its pay-fixed. these are classified as noncurrent assets. receive-floating interest rate swaps and certain fuel derivatives as cash flow hedges. Available-for-sale investments represent the Group’s investment in United States (US) Treasury bonds. taking into account the impact of applying the effective interest rate method of amortization (or accretion) for any related premium. Derivatives and Hedge Accounting Freestanding derivatives For the purpose of hedge accounting. gains and losses are recognized in income when the investments are derecognized or impaired. available-for-sale investments are measured at fair value with gains or losses being recognized as part of other comprehensive income until the investment is derecognized or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the consolidated net income or loss in the consolidated statement of comprehensive income. the nature of the risk being hedged and
. These financial assets are classified as noncurrent assets unless the intention is to dispose such assets within 12 months from the statement of financial position date. The documentation includes identification of the hedging instrument. the hedged item or transaction. notes payable. Other financial liabilities Other financial liabilities pertain to financial liabilities that are not held for trading nor designated as at fair value through profit or loss upon the inception of the liability.
the cumulative gain or loss on the hedging instrument that has been reported directly in equity is retained in equity until the forecasted transaction occurs. the economic risks of the embedded derivatives are not closely related to those of their respective host contracts. For cash flow hedges with critical terms that match those of the hedged items and where there are no basis risks (such as the pay-fixed. gains and losses initially recognized in equity are transferred from equity to income or loss in the same period or periods during which the hedged forecasted transaction or recognized asset or liability affect the consolidated statement of comprehensive income. For cash flow hedges with basis risks (such as crude oil derivatives entered into as proxy hedges for forecasted jet fuel purchases). When the forecasted transaction is no longer expected to occur. Changes in fair values are included in the consolidated statement of comprehensive income. Embedded derivatives that are bifurcated from the host contracts are accounted for as financial assets at fair value through profit or loss. and a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative. any net cumulative gain or loss previously reported in equity is charged against the consolidated statement of comprehensive income. For derivatives that are not designated as effective accounting hedges. Embedded derivatives Embedded derivatives are accounted for at fair value through profit or loss when the entire hybrid contracts (composed of the host contract and the embedded derivative) are not accounted for at fair value through profit or loss. The ineffective portion is immediately recognized in the consolidated statement of comprehensive income.. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. hedge accounting is discontinued prospectively. This assessment on hedge effectiveness is performed on a quarterly basis by the Group by comparing the critical terms of the hedges and the hedged items to ensure that they continue to match and by evaluating the continued ability of the counterparties to perform their obligations under the derivative contracts. Such hedges are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.g. fluctuations in fuel price and benchmark interest rates). the Group assesses the effectiveness of its hedges (both on a prospective and retrospective basis) by using a regression model to determine the correlation of the percentage change in prices of underlying commodities used to hedge jet fuel to the percentage change in prices of jet fuel over a specified period that is consistent with the hedge time horizon or 30 data points whichever is longer.
. changes in the fair value of a hedging instrument that qualifies as a highly effective cash flow hedge are included in the consolidated statement of changes in equity under “Cumulative translation adjustment” account. net of related deferred income tax. any gains or losses arising from changes in fair value of derivatives are recognized directly in the consolidated statement of comprehensive income. In this case. If the hedged cash flow results in the recognition of an asset or a liability. When the hedge ceases to be highly effective.13 how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. In cash flow hedges. the Group expects the hedges to exactly offset changes in expected cash flows relating to the hedged risk (e.. receive-floating interest rate swaps).
The carrying amount of the asset is reduced either directly or through the use of an allowance account. Financial assets carried at amortized cost For financial assets carried at amortized cost. whether significant or not. but has transferred control of the asset. a part of a financial asset or part of a group of similar financial assets) is derecognized when: • • the rights to receive cash flows from the asset have expired. an impairment loss has been incurred. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract. the host contract or both have changed and whether the change is significant relative to the previously expected cash flows on the contract. in which case reassessment is required. When an existing financial liability is replaced by another from the same lender on substantially different terms. The Group initially 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. Any loss determined is recognized in income. cancelled or has expired. but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement. The Group determines whether a modification to cash flows is significant by considering the extent to which the expected future cash flows associated with the embedded derivative.. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset. or (b) has neither transferred nor retained substantially all the risks and rewards of the asset. whenever it is probable that the Group will not collect all amounts due according to the contractual terms of receivables. and any resulting difference is recognized in profit or loss. such modification is treated as a derecognition of the carrying value of the original liability and the recognition of a new liability at fair value. or the terms of an existing liability are substantially modified. the asset
. or the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset.14 The Group assesses whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the entity first becomes a party to the contract.
When the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset. the Group retains the right to receive cash flows from the asset. The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. the asset is recognized to the extent of the Group’s continuing involvement in the asset. A financial liability is derecognized when the obligation under the liability is discharged. Impairment of financial assets The Group assesses at each statement of financial position date whether there is objective evidence that a financial asset may be impaired. where applicable. Derecognition of Financial Assets and Financial Liabilities A financial asset (or.
is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Any subsequent reversal of an impairment loss is recognized in profit or loss. impairment is assessed based on the same criteria as financial assets carried at amortized cost. 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. to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. The carrying amount of the receivable is reduced through the use of an allowance account. Impairment losses on equity investments are not reversed through income. less any impairment loss on that financial asset previously recognized in income . or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has been incurred.
. the impairment loss is reversed through income.is removed from equity and recognized in income.measured as the difference between the acquisition cost and the current fair value. Increases in fair value after impairment are recognized directly in the consolidated statement of changes in equity. If. in a subsequent period. In the case of debt instruments classified as available for sale. the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized. a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all of the amounts due under the original terms of the invoice. the previously recognized impairment loss is reversed. Receivables. are written off when there is no realistic prospect of future recovery and all collateral has been realized. If. Where there is evidence of impairment loss. Impaired receivables are derecognized when they are assessed as uncollectible. Future interest income is based on the reduced carrying amount and is accrued based on the rate of interest used to discount cash flows for the purpose of measuring impairment loss. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of comprehensive income. In relation to trade receivables. the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. the fair value of a debt instrument increases and the increase can be related objectively to an event occurring after the impairment loss was recognized in income. in a subsequent period. together with the associated allowance accounts. impairment would include a significant or prolonged decline in the fair value of the investments below its cost.. Available-for-sale investments In case of equity investments classified as available-for-sale financial assets. the cumulative loss . Assets carried at cost If there is objective evidence that an impairment loss on financial assets carried at cost such as an unquoted equity instrument that is not carried at fair value because its fair value cannot be measured reliably. to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. in subsequent year. the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized. If. the previously recognized impairment loss is reversed.
and only if. Such credits are applied as a reduction from the cost of the property and equipment (including those under finance lease). received from aircraft and engine manufacturers are recorded upon delivery of the related aircraft and engines.. Revaluations are made with sufficient regularity. are normally charged to income in the period in which the costs are incurred. Revalued amounts were determined based on valuations undertaken by professionally qualified appraisers. any related capitalizable borrowing costs attributed to progress payments incurred on account of aircraft acquisition and other significant assets under construction and other directly attributable costs of bringing the asset to its working condition and location for its intended use.
. Property and Equipment Property and equipment (except land and buildings and improvements) are stated at cost less accumulated depreciation and any impairment in value. materials and supplies are stated at the lower of cost and net realizable value. the accumulated depreciation at the date of the revaluation is eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset. Management must be committed to the sale. less any impairment in value. This condition is considered met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale at its present condition. Expendable Parts. For subsequent revaluations. such as repairs and maintenance costs. or to realize the asset and settle the liability simultaneously. 2009. Expenditures incurred after the property and equipment have been put into operation. fuel. Cost is determined using the weighted average method. the expenditures are capitalized as additional cost of property and equipment. and the related assets and liabilities are presented gross in the consolidated statement of financial position. Net realizable value represents the current replacement cost. Land is stated at revalued amount. Fuel. Any resulting increase in the asset’s carrying amount as a result of the revaluation is recognized as other comprehensive income credited directly to equity as “Revaluation increment in property”. Manufacturers’ credits that reduce the price of the aircraft. Any resulting decrease is directly charged against the related revaluation increment to the extent that the decrease does not exceed the amount of the revaluation increment in respect of the same asset. there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis. 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. Asset Held for Sale Noncurrent assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Materials and Supplies Expendable parts.16 Offsetting of Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if. This is not generally the case with master netting agreements. net of the related deferred income tax liability. The initial cost of property and equipment comprises its purchase price. The latest appraisal report obtained by PAL is as of March 31. Buildings and improvements are stated at revalued amounts less accumulated depreciation and any impairment in value.
PAL provides for these costs over the terms of the leases. The portion of “Revaluation increment in property. Investment properties are measured initially at cost. When assets are sold or retired. heavy maintenance visits are required every five to six years for airframe and 10 years for landing gear. realized through depreciation or upon the disposal or retirement of the property is transferred to retained earnings. including any transaction costs. Any changes in estimate arising from the review are accounted for prospectively. The estimated useful lives. accumulated depreciation and any impairment in value and related revaluation increment are eliminated from the accounts. Any gain or loss resulting from their disposal is recognized as income and included in the consolidated statement of comprehensive income. their costs. Construction in progress is not depreciated until such time when the relevant assets are completed and available for use. and excludes the costs of day-to-day servicing of an investment property. which commences when the asset is available for use. Construction in progress represents the cost of aircraft and engine modifications in progress and buildings and improvements and other ground property under construction. Other maintenance and repair costs are expensed as incurred. Generally. based on aircraft hours flown until the next scheduled checks. is computed on a straightline basis over the following estimated useful lives of the assets: Buildings and improvements Passenger aircraft (owned and under finance lease) Other aircraft Spare engines Rotable and reparable parts Other ground property and equipment Number of Years 8 to 40 12 to 20 5 to 10 12 to 20 3 to 18 3 to 8
Expenditures for heavy maintenance on passenger aircraft are capitalized at cost and depreciated over the estimated number of years until the next major overhaul or inspection. Investment Properties Investment properties include parcels of land and building and building improvements not used in operations..
. net of related deferred income tax”. depreciation method and residual values are reviewed periodically to ensure that the periods and method of depreciation and residual values are consistent with the expected pattern of economic benefits from items of property and equipment. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met. Asset Retirement Obligation PAL is required under various aircraft lease agreements to restore the leased aircraft to their original condition and to bear the cost of dismantling and restoration at the end of the lease term.17 Depreciation.
or (d) there is substantial change to the asset. if any. unless the term of the renewal or extension was initially included in the lease term. Where the reassessment is made. and only when. commencement of an operating lease to another party or completion of construction or development. Land is subsequently carried at cost less any impairment in value. (c) there is a change in the determination of whether fulfillment is dependent on a specified asset. The corresponding revaluation increment. are recognized as expense in the consolidated statement of comprehensive income. The recoverable amount is the greater of net selling price and value-in-use.. or (d) above. lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios (a). the estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. other than a renewal or extension of the arrangement.
. or contains a lease is based on the substance of the arrangement at inception date of whether the fulfillment of the arrangement depends on the use of a specific asset or assets or the arrangement conveys a right to use the asset. the carrying value at the date of reclassification is retained as new cost of the investment property. In assessing value-in-use. of the following applies: (a) there is a change in contractual terms. the recoverable amount is determined for the cash generating unit to which the asset belongs. Depreciation and amortization of depreciable investment properties is calculated on a straightline basis over the estimated useful lives ranging from six to eight years. if any. Impairment of Property and Equipment and Investment Properties The carrying values of property and equipment and investment properties are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. and only when. For an asset that does not generate largely independent cash inflows. If any such indication exists and where the carrying values exceed the estimated recoverable amounts. Any gains or losses on the retirement or disposal of an investment property are recognized as income in the consolidated statement of comprehensive income in the year of retirement or disposal. A reassessment is made after the inception of the lease. Impairment losses. evidenced by cessation of owner-occupation. evidenced by commencement of owner-occupation or commencement of development with a view to sale. Leases The determination of whether the arrangement is. the assets or cash generating units are written down to their recoverable amounts. of the asset is retained in equity and released to retained earnings when the asset is derecognized. (b) a renewal option is exercised or extension granted. When an item of property and equipment previously carried at revalued amount is transferred to investment properties. (c). net of the related deferred income tax liability. there is a change in use. there is a change in use. and at the date of renewal or extension period for scenario (b). Investment properties are derecognized when they are either disposed of or permanently withdrawn from use and no future economic benefit is expected from its disposal. Transfers are made from investment properties when. Transfers are made to investment properties when.18 Investment properties are subsequently measured at cost less accumulated depreciation (except land) and any impairment in value.
Operating lease expense is recognized in the consolidated statement of comprehensive income on a straight-line basis over the terms of the lease agreements. for example under an insurance contract. A contingent asset is not recognized in the consolidated statement of financial position but disclosed in the notes to consolidated financial statements when an inflow of economic benefits is probable. the risks specific to the liability. and (c) a reliable estimate of the amount of the obligation can be made. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Financing charges are charged directly against income. Other comprehensive income of the Group includes
. Other Comprehensive Income Other comprehensive income comprises items of income and expense (including items previously presented under the consolidated statement of changes in equity) that are not recognized in profit or loss for the year in accordance with PFRS. The amount of commission not yet recognized as expense is treated as a prepayment and is reflected as a reduction of “Unearned transportation revenue” in the consolidated statement of financial position.. where appropriate. Where the Group expects a provision to be reimbursed. Provisions and Contingencies Provisions are recognized when (a) the Group has a present obligation (legal or constructive) as a result of a past event. They are disclosed in the notes to consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. the asset and the related income are recognized in the consolidated financial statements.g. the increase in the provision due to the passage of time is recognized as interest expense. The related commission is recognized as expense in the same period when the transportation service is provided and is included as part of “Reservation and sales” in the consolidated statement of comprehensive income. If the effect of the time value of money is material. Contingent liabilities are not recognized in the consolidated statement of financial position. Lease payments are apportioned between financing charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Obligations arising from aircraft under finance lease agreements are classified in the consolidated statements of financial position as part of “Long-term obligations”. which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item.. Where discounting is used. If it is virtually certain that an inflow of economic benefits will arise. Revenue also includes recoveries from surcharges during the year. when passengers and cargo are lifted). are capitalized at the inception of the lease at the fair value of the leased property or. (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.19 Finance leases. at the present value of the minimum lease payments. Revenue and Related Commissions Passenger ticket and cargo waybill sales are initially recorded as “Unearned transportation revenue” in the consolidated statement of financial position until recognized as “Revenue” in the consolidated statement of comprehensive income when the transportation service is rendered (e. provisions are determined by discounting the expected future cash flows at a pretax rate that reflects current market assessments of the time value of money and. if lower.
Borrowing costs are capitalized until the assets are substantially ready for their intended use. Retirement Benefits Cost Retirement benefits cost under the defined benefit plan is actuarially determined using the projected unit credit method. cash equivalents and other short-term cash investments and investments in bonds is recognized as the interest accrues using the effective interest rate method. interest cost. If the benefits are already vested immediately following the introduction of. and changes in the frequent flyer program. and any effective portion of gains and losses on hedging instruments in cash flow hedges. amortization of unrecognized past service costs. actuarial gains and losses. The defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not recognized. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Past service cost is recognized as an expense on a straight-line basis over the average period when the benefits become vested. Borrowing Costs Borrowing costs are generally expensed as incurred. and the fair value of plan assets out of which the obligations are to be settled directly. Liability Under Frequent Flyer Program PAL operates a frequent flyer program called “Mabuhay Miles. effect of any curtailment or settlement and changes in actuarial assumptions over the expected average remaining working lives of covered employees. experience adjustments. or changes to. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plan. the retirement plan. gains and losses on re-measuring available-for-sale financial assets. awards redeemed.20 changes in revaluation increment in property. If such aggregate is negative. Dividend income from available-for-sale equity investments is recognized when the Group’s right to receive payment is established. Retirement benefits cost includes current service cost.” The incremental cost of providing awards in exchange for redemption of miles earned by members is accrued in the accounts as an operating cost and a liability after allowing for miles which are not expected to be redeemed. Interest and Dividend Income Interest on cash. Retirement benefits cost under the defined contribution plan is based on the established amount of contribution and is recognized as expense in the same year as the related employee services are rendered. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses for the plan at the end of the previous reporting year exceeded 10% of the higher of the present value of defined benefit obligation and the fair value of plan assets at that date. This method reflects services rendered by employees up to the date of valuation and incorporates assumptions concerning employees’ projected salaries.
. the asset is measured at the lower of such aggregate or the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plans or reductions in the future contributions to the plan. reduced by past service cost not yet recognized.. Borrowing costs are capitalized if they are directly attributable to the acquisition or construction of a qualifying asset. Actuarial valuations are conducted with sufficient regularity with option to accelerate when significant changes to underlying assumptions occur. The liability is adjusted periodically based on awards earned. past service cost is recognized immediately.
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Income Taxes Current income tax Current income 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 amounts are those that have been enacted or substantively enacted as of the statement of financial position date. Deferred income tax Deferred income tax is provided, using the balance sheet liability method, on all temporary differences at the statement of financial position 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, including asset revaluations. Deferred income tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax credits and unused net operating loss carryover (NOLCO), to the extent that it is probable that sufficient taxable profit will be available against which the deductible temporary differences and carryforward benefits of unused tax credits and unused NOLCO can be utilized. Deferred income tax, however, is not recognized when it arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. Deferred income tax liabilities are not provided on non-taxable temporary differences associated with investments in domestic subsidiaries and associates. With respect to investments with other subsidiaries and associates, deferred income tax liabilities are recognized except where the timing of reversal of the temporary differences can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred income tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each statement of financial position date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred income tax asset to be recovered. Deferred income tax assets and deferred income tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted as of statement of financial position date. Income tax relating to items recognized directly in equity is recognized in equity and not included in the calculation of comprehensive income for the period. Deferred income tax assets and deferred income tax 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.
- 22 Functional Currency and Foreign Currency Translation Each entity in the Group determines its own functional currency and the items included in the separate financial statements of each entity are measured using the functional currency. Transactions in foreign currencies are initially recorded using the functional currency rate at the date of the transaction. Outstanding monetary assets and liabilities denominated in foreign currencies are translated using the functional currency rate of exchange at statement of financial position date. All differences are taken to other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The results of operations and financial position of all Group entities (none of which has the functional currency of a hyperinflationary economy) that have functional currencies different from Philippine peso, which is the functional and presentation currency of the Parent Company, are translated to Philippine peso as follows: a. assets and liabilities for each statement of financial position presented are translated at the closing rate at statement of financial position date; b. comprehensive income items for each consolidated statement of comprehensive income presented are translated at the monthly 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); c. capital stock and other equity items resulting from transactions with equity holders (i.e., additional paid-in capital) and equity items resulting from income and expenses directly recognized in equity (i.e., revaluation increment in property) are translated using the rates prevailing on the transaction dates; and d. all resulting exchange differences are recognized as a separate component of equity, in the account “Cumulative translation adjustment”. On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to equity. When a foreign operation is sold or disposed of, exchange differences that were recorded in equity are recognized in the consolidated statement of comprehensive income. Earnings (Loss) Per Share Basic earnings (loss) per share (EPS) is calculated based on net income (loss) before other comprehensive income and total comprehensive income for the year. EPS is calculated by dividing net income (loss) before other comprehensive income or total comprehensive income for the year, as applicable, by the weighted average number of issued and outstanding shares of stock during the year, after giving retroactive effect to any stock dividends declared or stock rights exercised. The Group has no dilutive potential common shares. Events After the Statement of Financial Position Date Post year-end events that provide additional information about the Group’s position at the statement of financial position date (adjusting events), if any, are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to consolidated financial statements when material.
- 23 4. Summary of Significant Accounting Judgments, Estimates and Assumptions The preparation of the consolidated financial statements in accordance with PFRS requires the Group’s management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These judgments, estimates and assumptions are based on management’s evaluation of relevant facts and circumstances as of the date of the comparative consolidated financial statements. Future events may occur which will cause the assumptions used in arriving at the estimates to change. The effects of any change in estimates are reflected in the consolidated financial statements as they become reasonably determinable. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Judgments Determination of functional currency Judgment is exercised in assessing various factors in determining the functional currency of each entity within the Group, including prices of goods and services, competition, cost and expenses and other factors including the currency in which financing is primarily undertaken by the entity. Additional factors are considered in determining the functional currency of a foreign operation, including whether its activities are carried as an extension of that of the Parent Company rather than being carried out with significant autonomy. The Parent Company, based on the relevant economic substance of the underlying circumstances, has determined its functional currency to be Philippine peso. It is the currency of the primary economic environment in which it operates. The functional currency of PAL, its major subsidiary, has been determined to be the US dollar (USD). Classification of financial instruments The Group exercises judgment in classifying a financial instrument, or its component parts, on initial recognition as either a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial asset, a financial liability or an equity instrument. The substance of a financial instrument, rather than its legal form, governs its classification in the consolidated statement of financial position. The classification of the Group’s financial assets and financial liabilities are presented in Note 28. Application of hedge accounting The Group applies hedge accounting treatment for certain qualifying derivatives after complying with hedge accounting requirements, specifically on hedge documentation designation and effectiveness testing. Judgment is involved in these areas, which include management determining the appropriate data points for evaluating hedge effectiveness, establishing that the hedged forecasted transaction in cash flow hedges are probable of occurring, and assessing the credit standing of hedging counterparties. Impairment of available-for-sale equity investments The Group treats available-for-sale 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 considers the decline in value as ‘significant’ when the value generally decreased by 20% or more and ‘prolonged’ if the decline persisted for a period greater than 12 months for quoted equity securities. In addition, the Group evaluates other factors, including normal volatility in share price for quoted equity shares.
Based on the opinion of the Group’s legal counsels on the progress and legal grounds of these cases. The net carrying value of these aircraft amounted to =47. PAL has lease agreements (as lessee) covering some of its aircraft where the lease terms approximate the estimated useful lives of the aircraft or the risks and rewards related to the asset are transferred to PAL. 2009 and 2008 amounted to P5. 2008 amounted to =4. The amount and timing of recorded expenses for any period could therefore differ based on the judgments or estimates made. P = respectively (see Note 7). as of March 31.. which is determined at inception of the instrument. Otherwise. As such. The leases are. Estimates Estimation of allowance for doubtful accounts The allowance for doubtful accounts relating to receivables is estimated as the difference between the carrying amount of the receivables (at amortized cost) and the present value of estimated future cash flows (using the original effective interest rate). which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased items are capitalized. litigations. net of allowance for doubtful accounts.g. In cases where the Group revises its estimates of cash flow receipts or payments and projection of changes in its financial assets or financial liabilities.86 billion as of P P March 31. therefore.76 billion. Contingencies The Group is involved in various labor disputes. accounted for as operating leases (see Notes 18 and 25). Application of effective interest rate method of amortization and impact of revisions in cash flow estimates The Group carries certain financial assets and financial liabilities at amortized cost. 2009 and 2008. 2009 and March 31. The Group also has lease agreements (as lessee) where it has determined that the risks and rewards related to the properties are retained with the lessors (e.15 billion and =5.12 billion. points paid or received. no bargain purchase option and transfer of ownership at the end of the lease term). and tax assessments that are normal to its business. The Group recalculates the carrying amount by discounting the estimated future cash flows using the financial asset or financial liability’s original effective interest rate. no provision was made for these other contingencies. they are considered as operating leases. The allowance for doubtful = P accounts as of March 31.45 billion and P3. claims. with the resulting adjustment being recognized in income or loss. the Group believes that it may have a present obligation arising from a past event but that their likely outcome and estimated potential cash outflow cannot be determined reasonably as of this time.. The carrying value of receivables. An increase in the Group’s allowance for doubtful accounts would increase its recorded general and administrative expenses and decrease its current assets.24 -
Classification of leases Management exercises judgment in determining whether substantially all the significant risks and rewards of ownership of the leased assets are transferred to the Group. Lease contracts. transaction costs and premiums or discounts.
. respectively (see Note 11). along with the cash flows and the expected life of the instrument. respectively. These leases are classified by the Group as finance leases. taking into account any fees. the Group adjusts the carrying amounts to reflect actual and revised estimated cash flows.17 billion and =37.
materials and supplies are expected to be realized.12 million) and =1. Determination of net realizable value of expendable parts. other inputs such as credit risk (whether that of the Group or the counterparties). volatilities and correlations.g. Valuation of property and equipment under revaluation basis The Group’s land and buildings and improvements are carried at revalued amounts.89 million) as of March 31. When the circumstances that previously caused expendable parts.. which approximate their fair values at the date of the revaluation. The fair values of financial assets and financial liabilities are presented in Note 28. materials and supplies The Group’s estimates of the net realizable values of expendable parts. net of the related deferred income tax”.81 million and P = P1. However. materials and supplies as of March 31. net of related deferred income tax. materials and supplies are based on the most reliable evidence (e. less any subsequent accumulated depreciation and any accumulated impairment losses. in the equity section of the consolidated statement of financial position and in the consolidated statement of changes in equity. To the extent practicable.50 billion (net of minority interests’ share P amounting to P271. age and physical condition of the inventory) available at the time the estimates are made. Increase in the values of property resulting from revaluation is treated as other comprehensive income.
. the amount of the write-down is reversed so that the new carrying amount is the lower of the cost and the revised net realizable value. fuel. 2009 and 2008 amounting to =938.25 -
Determination of fair value of financial instruments (including derivatives) The Group initially records all financial instruments at fair value and subsequently carries certain financial assets and financial liabilities at fair value. These are presented as “Revaluation increment. in the valuation of these assets based on appraisal reports amounted to =1.49 billion. respectively. Revaluations are made regularly to ensure that the carrying amounts do not differ materially from those which would be determined using fair values at statement of financial position date. respectively. All models are calibrated to ensure that outputs reflect actual data and comparative market prices. Where valuation techniques are used to determine fair values (discounted cash flow. require management to develop estimates or make adjustments to observable data of comparable instruments. The resulting revaluation increment. option models). Any change in fair value of these financial instruments (including derivatives) would affect either the consolidated statement of comprehensive income or consolidated statement of changes in equity. fuel. The amount of changes in fair values would differ if the Group uses different valuation assumptions or other acceptable methodologies. fuel. A new assessment is made of the net realizable value in each subsequent period.. Valuation techniques are used particularly for financial assets and financial liabilities (including derivatives) that are not quoted in an active market. materials and supplies to be written down below cost no longer exist or when there is a clear evidence of an increase in net realizable value because of change in economic circumstances. of the amount that the expendable parts. 2009 and 2008. and the portion transferred to deficit resulting from their realization. they are periodically reviewed by qualified personnel who are independent of the trading function. which requires extensive use of accounting estimates and judgment. The valuations of property and equipment are performed by professionally qualified appraisers using generally acceptable valuation techniques and methods. forward prices.42 billion (net of minority interests’ share amounting to = P = P257. The expendable parts. fuel. are stated at the lower of cost and net realizable value (see Note 8). fuel. models use only observable data as valuation inputs.
P = respectively (see Note 10). Determination of impairment requires an estimation of the value in use of the cash-generating units to which the assets belong. Additional assumptions are made.52 billion. 2009 and 2008.45 billion and P48. No impairment loss was recognized in 2009.24 billion. when events or changes in circumstances indicate that the carrying values may not be recoverable. 2009 and 2008 amounted to = P4. P = respectively (see Note 11). The carrying amount of investment properties. Unearned transportation revenue. As of March 31. The recoverable amount is the greater of net selling price and value in use. 2009 and 2008. respectively. technical and commercial obsolescence and other limits on the use of the assets. This entails using certain assumptions like salary increases.78 million and (P1. respectively.05 billion. 2009 and 2008 amounted to =65. which resulted = from changes in actuarial assumptions (see Note 21). the timing and amount of tickets used for travel on other airlines and the amount of tickets sold that will not be used. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. the aggregate net carrying value of the Group’s nonfinancial assets amounted to =66. as of March 31. Unrecognized net actuarial gain (loss) amounted to = = P257. net of accumulated depreciation. the Group uses an applicable discount rate specific to its non-financial assets. Other assumptions include fuel costs and fuel surcharge rate.13 billion as of P P March 31.19 billion and =6. If any such indication exists and where the carrying values exceed the estimated recoverable amounts. respectively. the non-financial assets are written down to their recoverable amounts. as of March 31. respectively P P (see Notes 10 and 11). net of the related prepaid commission. Estimation of liability under the Frequent Flyer Program The incremental cost of providing awards in exchange for redemption of miles earned by members is accrued in the accounts as an operating cost and a liability after considering the miles which are not expected to be redeemed. net of accumulated depreciation.26 Estimation of useful lives and residual values of property and equipment and investment properties The Group estimates the useful lives of property and equipment and investment properties based on internal technical evaluation and experience with similar assets. regarding the likelihood
.. In discounting. Estimation of retirement and other benefits cost The Group’s retirement and other benefits cost relating to its defined benefit plan is actuarially computed. Impairment of property and equipment and investment properties The Group determines whether its property and equipment and investment properties are impaired. based on general customer behavior. Accrued employee benefits as of March 31.45 billion and P1. return on plan assets and discount rates. 2009 and 2008 amounted to =1. The accrued cost is based on various estimates with respect to the incremental food. The carrying amount of property and equipment. amounted to =5. Estimation of liability for tickets sold but not yet serviced The Group assesses at each statement of financial position date its liability for tickets sold but not yet serviced based on historical trends.20 billion and P3.90 billion and =50.53 billion. 2009 and 2008. The estimated useful lives and residual values are reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear. insurance and other costs incurred in providing such schemes.58 billion) as of March 31. 2008 and 2007.
2009 and 2008. that is reflected in “Net changes in fair values of available-for-sale investments. including the timing of reversal of deferred income tax liability. were used to collateralize standby letters of credit. 2009 and P P 2008. Available-for-sale Investments The Group’s available-for-sale investments include investments in MAC (amounting to = P255.767. Management uses judgment and estimates in assessing the probability of future taxable profit. could have a significant effect on PAL’s financial results. unquoted equity investments (amounting to =303.. Recognition of deferred income tax assets The Group assesses at each statement of financial position date and recognizes deferred income tax assets to the extent of probable taxable profit and reversing taxable temporary differences that will allow the deferred income tax assets to be utilized. respectively (see Note 16). P P 2009 and 2008. Cash and Cash Equivalents 2008 2009 (In Thousands) P1.822. respectively) and investments in US Treasury bonds (amounting to P92.83 billion and =5.77 million and =236. 2009 and 2008.69 million and =130. net
.581 P14.80 million as of March 31.22 million and P = P264. = respectively.58 billion and P = P1. = The carrying value of these investments includes accumulated unrealized gain of =125. Accrued provisions amounted to =1. Provisions The Group provides for present obligations (legal or constructive) where it is probable that there will be an outflow of resources embodying economic benefits that will be required to settle the said obligations.16 billion as of March 31. 2009 and P P 2008.14 million P and P270. Management exercises judgment in assessing the probability of the Group becoming liable.048 = P1.783.36 million as of March 31.407 = 12. respectively). 2009 and 2008.647 4.00 million as of March 31. The amount of provision is being reassessed at least on an annual basis to consider new and relevant information. 6.836.24 million (net of related deferred income tax) as of March 31. These are shown as part of “Other noncurrent assets” in the consolidated statements of financial position. Changes in cost estimates or accrual methods. certain = quoted equity investments (amounting to =261. respectively (see Note 23). An estimate of the provision is based on known information at statement of financial position date. Deferred income tax assets recognized amounted to =6. respectively.09 million and =322.988 =
Cash (Note 18) Cash equivalents (Note 18)
Cash equivalents amounting to =506. respectively).20 million as of March 31. 5.961.40 billion as of March 31. 2008).695 = P5.20 million and P330. P P 2009 and 2008. respectively (see Note 16). 2009 and 2008.27 of a customer redeeming the miles from PAL. aided by forecasting and budgeting techniques.32 million as of March 31.069. Liability under the frequent flyer program amounted to =491. among other factors.48 million as of March 31.
P3.756.156 = P60.261.382.447.123 P119.175 = P291.202 = = P121.803 P5.560.117 = 560.098 (12.950 3.658) – – 17.092 = 3.234 62.649 = = – – 47.092 P4.553 = 19.803 =
.443.680 9. Receivables 2009 General traffic: Passenger Cargo International Air Transport Association (IATA) Others Non-trade* (Note 18) Less allowance for doubtful accounts (Note 27) 2008 (In Thousands) P3. are as follows (amounts in Thousands):
2009 General Traffic Passenger Cargo Others Non-trade P116.202 =
Balance at beginning of year Charges for the year Recoveries Foreign exchange difference Balance at end of year Collective impairment Individual impairment Balance at end of year
Total P3.952 16. 18.104.22.1683 P4.143 = The fair values of available-for-sale investments were determined based on published prices in the active market.744 25.406 (55.075) Amount in equity transferred to consolidated statements of comprehensive income 15.560.447.824) 291.239 = P125.28 of deferred income tax” of the consolidated statements of changes in equity and the consolidated statements of comprehensive income.383 324.172 P5.080 P4.286 = Movements during the year recognized as other comprehensive income: Mark-to-market gain (loss) 64. dividend and receivables from lessors..462 Less share of minority interests 21.874.308 801.539 P121. Available-for-sale investments with no market prices are measured at cost. accounts of defaulted agents.876.319 Balance at end of year P270.723 497.083 8.114 3.803 = P887.631 = P730.745) Foreign exchange difference 21 (4) 80. net of impairment losses.662 (151.631 = P60.
Movements in allowance for doubtful accounts presented by class.046 – = P60. net of deferred income tax” are as follows: 2008 2009 (In Thousands) Balance at beginning of year P211.222 5.197) (43.140 = 3.119.092 P4.061 P2.598.111 (157.447. if any.878 = P73.172 = 848.429 4.428 (6.150.078 P92.047 8.878 = P23.339 = 98.855) 536.339 = = P9.354 4.741 347.835 = 330.455 P92. The movements in “Net changes in fair values of available-for-sale investments.551 =
* Non-trade receivables include accounts under litigation.286 133.
339 = = P9.649 = P281. Impairment losses are estimated by taking into consideration the age of the receivables.75 million for the years ended March 31. Fuel.119.352) (14.863 = P116.457. The Group determines allowance for each significant receivable on an individual basis.998) = P2. respectively.834 = 294.129.119. 8. nonmoving account receivables.123 P119. Expendable Parts.917) – – – – (14.55 million.486.784 (31.428 532.382 – (358.255) = P3. Materials and Supplies 2009 (In Thousands) At cost: Fuel Materials and supplies Expendable parts At net realizable value . accounts of defaulted agents and accounts from closed stations.148 = 220.049 2.123 906.875 42.29 2008 General Traffic Passenger Cargo Others = P90.782 P938.061 = P24.649
Total = P3.874.804.921 = P2.061
Balance at beginning of year Charges for the year Recoveries Accounts written off Foreign exchange difference Balance at end of year Collective impairment Individual impairment Balance at end of year
Non-trade = P3.123 = P3.013 =
The expendable parts have an aggregate cost of =266.269 P1.067 171. respectively.874.419 = P45.527 – – (31.607) (4.723 614.356..298) = P116.260 91.600 = P91.744 28. P550.163) (462. The Group assesses impairment into two areas: (a) individually assessed allowances and (b) collectively assessed allowances.749 1.172 = P315. Among the items that the Group considers in assessing impairment is the inability to collect from the counterparty based on the contractual terms of the receivables.339 = P119.123 = P– 119.592.55 million and =824.34 million as of P P March 31. For collective assessment.
.806 = 2008
P1. Receivables included in the specific assessment are the accounts that have been endorsed to the legal department. past collection experience and other factors that may affect collectibility.917) (358. 2009.847 57.728 2.179.expendable parts P440.339 = P9. The total impairment losses on the receivables (net of recoveries of previously written off accounts) recognized in the consolidated statement of comprehensive income amounted to = P792.163) (428. 2008 = P and 2007.276 39. allowances are assessed for receivables that are not individually significant and individually significant receivables where there is no objective evidence of individual impairment yet.024 32. 2009 and 2008.061 – = P9.90 million and =140.172
Impairment assessment The main considerations for impairment assessment include whether any payments are overdue or if there are any known difficulties in the cash flows of the counterparties.
62 million as of P P March 31.450.294 38.219) P267.398 P8. respectively.197 1.677 (4.117 =
Derivative assets (Note 28) Deposits (Note 8) Prepayments and others .299 271.687 (4.333 96.400) = – (346.450.747 (33.533.45 billion and =1.168.518
Additions = P2.045 =
April 1.450.553.074. which serve as security or margin deposits to the various fuel suppliers and hedging counterparties.251 = 38.808) =
Foreign Exchange Difference = P13.445.400) – (P346.483. In the valuation process.397..53 billion as of March 31.30 In line with the various purchase agreements and fuel hedging transactions (see Note 28).245 = 2. These have been determined based on valuations performed by various qualified and independent appraisers. Other Current Assets 2008 2009 (In Thousands) P3.525.799 2.364 P
Investment properties pertain to properties not used in operations with a total net book value amounting to P1. PAL has short-term standby letters of credit amounting to =3.
.087.388 = 5. 2008 =1.558. 2009 and P = P1.
9. respectively.197 1.096) =1.450.652 3.460 (25.498 = P12.263 = 33.048 = 140.136) 8. 2008.525. 2007 Cost Land (Note 13) Buildings and improvements (Note 13) Accumulated Depreciation Buildings and improvements Net Book Value = P58.496 1.263 P 33.297. 2009 and 2008.677 – 2.460 (25.400) = 2008 (In Thousands) Reclassifications and Others (Note 18) = P1.57 billion as of March 31. These margin deposits are included under “Deposits” in “Other current assets” in the consolidated statements of financial position (see Note 9). 2009 P1.096) P1.09 billion and =77.587 – 1.587
April 1.485) (P1.702) P1.53 billion as of March 31.012 P5.705 (5. 2009 and 2008.net of allowance for probable losses of =527 in 2009 (Note 18) P
March 31.182.453 = P3.558.569 3.364 =
Foreign Exchange Difference P266. Investment Properties
2009 (In Thousands) Reclassifications and Others Additions (Note 18) P– = – – (4.587 – = P1. the appraisers compared the fair market value of similar assets and considered the best use of the investment properties at hand.533.387) = (P346.468 =
March 31.387) (P4.109) = P72. The = P fair values of investment properties amounted to =1. 2008 Cost Land (Note 13) Buildings and improvements (Note 13) Accumulated Depreciation Buildings and improvements Net Book Value P1.627 (24.
395.410.201.923.589) (290.343.310) 161.396 P
P93.237.099 1.306 – (1.589.261.331.038.053.222) (9.309 = 330.211 (264.100.459.405.877 P
=9.907 10.678 7.824.719 1.429 512.937) 1. 2008 At Cost Cost Passenger aircraft (Notes 15 and 25) Other aircraft Spare engines (Note 15) Rotable and reparable parts (Notes 13 and 15) Other ground property and equipment (Note 13) Accumulated Depreciation Passenger aircraft Other aircraft Spare engines Rotable and reparable parts Other ground property and equipment Net Book Value Construction in progress Predelivery payments (Notes 13 and 25) At Appraised Value .053) (8.099) – – (P264.453.319) (P151.960.247.583.571 3.398
=5.985 1.328 =11.042 8.062.635.611.400 33.135.105) 44.099) =
=2.518) (432.876) (2. 2009
=70.741.804.329.923.910 651.216) (1.479) (253.804.089.868 (5.475 2.631) (361.434.287 (1.326) (1.236) (185.329 P
=56.875) (650.902.304.790 – – – – 78 78 2.268 118.246 = P = – (45.686 13.591 (40.462 2.359 326. Property and Equipment
2009 (In Thousands) April 1.233) (6.630 =241.493 (33.820 (5.095) 49.188 128 800.205 562.253) (P1.876) 286.904.663 2.716 561.827) (45.100.670) (2.117.465.756) (5.786 (5.910 99.152 40.520.124 (6.818) (50.864.306 6.331 7.870) (4.31 11.437 1.196 3.251.669) (P10.864 1. 2008
=77.902 P – 1.465) (213.100 P
=164 P (151.188) (128) (1.536 61.540) (5.048.784.908) (2. 2007 At Cost Cost Passenger aircraft (Notes 15 and 25) Other aircraft Spare engines (Note 15) Rotable and reparable parts (Notes 13 and 15) Other ground property and equipment (Note 13) Accumulated Depreciation Passenger aircraft Other aircraft Spare engines Rotable and reparable parts Other ground property and equipment Net Book Value (Forward) Disposals/ Reclassifications Retirements and Others Foreign Exchange Difference March 31.202 (714.521) (298.948.054) (2.878.101 – 2.611) =261.669.505 (30.053) (8.400
2.033.827) (45.681 P
P408.722) (57.382) (13.833.Buildings and improvements Appraised value (Note 13) Accumulated depreciation Net Book Value Disposals/ Additions Retirements Reclassifications and Others Foreign Exchange Difference March 31.946 (1.571 – (588.851) (7.324 2.900 P
=351.168 544.538) (305.731 = (23.852 13.553.288) (330.346.484) (300.506 7.505 (30.221.238) =70.038.639 649.902.263.650) = 1.940 14.964 6.540.955 =
2008 (In Thousands) April 1.678) 3.261 9.248.928.376 P
(P180.804.431 =7.461.839.385) (40.042 8.092 (P1.753.176.314.135.327 =65.176.575..481.699) 6.065.422.214.171.1242.736) 797.009) 2.790)
(P434.992 694 479.876) (2.711 P (90.448) (9.868 =10.806.958) (193.246 P 286.255.281 =48.364.177) (7.265) (3.205 P 346.105) 44.155) =
=– P – P– =
=699 P 240.053.144) P = – (13.681) 61.864.303 2.581 – 685.902) (225.380) = (1.088 304.477.855 173.517) (4.272
(512) 1.251.018 – – – 4.133.675.686) (573.534)
.476) =33.461.180.427.891.581) 7.002.082) (4.476.213 P P – 45.439 4.289.479) (253.157 P (22.419.992) – (694) 623.393.565.776) P384.041.374.143 7.870) (4.284) 7.139 (4.196.480.340 89.776.340 89.
648 (136.261.213) P6.883 (P1.760) (322.901) (130.228 P 530.683) = March 31.100 P
If buildings and improvements were carried at cost less accumulated depreciation.611) =261.711 351..952) =
=– P (130.641 – =3. 2007 =297.450.131) =2.451 P 3.711 (90.465) (P7.632) (P56.704) =
(P249. Operating Fleet PAL’s operating fleet consists of: 2009 Owned Boeing 747-400 Bombardier DHC 8-400 Bombardier DHC 8-300 Under finance leases Boeing 747-400 Airbus 340-300 Airbus 330-300 Airbus 320-200 Under operating leases Boeing 747-400 Boeing 737-300 Airbus 320-200 Airbus 319-100 – 5 3 4 4 8 10 1 – 8 4 47 2008 1 – – 3 4 8 6 1 1 7 4 35
.724 2.877 P
Construction in progress Predelivery payments (Notes 13 and 25) At Appraised Values: Appraised Value (Note 13) Land Buildings and improvements Accumulated Depreciation Buildings and improvements Net Book Value
Additions =47. 2008 =33.196 P 3.901 =– P
(P1.364.450.024) (450.778.355.901) 130.145 P Disposals/ Reclassifications Retirements and Others =– P (P285. 2009 and 2008 would be as follows: 2008 (In Thousands) P7.600) (P111.119.514. the amounts as of March 31.836 (P1.230.336 (P294.259 = 2009
Cost Accumulated depreciation
Property and equipment used to secure notes payable and obligations under finance leases are described in Notes 13 and 15.587) 27.224 = P5.32 -
2008 (In Thousands) April 1.973 = P1.641) = (72.296 =53.819.281 =48.117.849) = =
=1.952 (141.587) = – (1.401) 28.565) = Foreign Exchange Difference (P26.013.993 P
2.089.648 24.065) =
=– P 351.700.472 = (251) (4.790) P =
=– P 24.
17 billion and =37. The portion of revaluation P increment in property relating to these investment properties. its owned Boeing 737-300 aircraft under an operating lease arrangement for 36 months (see Note 18). of =1. respectively. As of March 31. Also. In September 2008. Inc. the aggregate carrying value of these investment properties amounting to = P1. The related predelivery payments for these aircraft have been paid in 2008. PAL took delivery of five Airbus 320-200 aircraft in 2009. Bombardier aircraft PAL took delivery of two Bombardier DHC 8-400 aircraft from Scandinavian Airlines System Denmark-Norway-Sweden in May and August 2008. Airbus 320-200 As part of its purchase agreement with Airbus. Total predelivery payments returned to PAL amounted =404. In the same month.86 billion as of March 31.39 million.47 billion includes an appraisal increase of =1. with a carrying value (based on revalued amounts) of P288. to investment properties. net of related deferred tax. PAL treated the revalued amounts at reclassification dates as the deemed cost of these investment properties. This property had a carrying value. This aircraft is excluded from the operating fleet of PAL as of March 31. PAL transferred its principal offices to its current business address. and accordingly reclassified the vacated property.46 billion. PAL also took delivery of another three Bombardier DHC 8-400 from Wideroe’s Flyveselskap AS in June and July 2008. In January to March 2009. the owned land where the old airport was located that was vacated by PAL was reclassified from property and equipment to investment properties. Subsequently. 2008.33 Boeing 747-400 In March 2008. PAL entered into finance lease agreements involving the four Boeing 747-400 aircraft (see Note 15). The acquisition of the fifth aircraft was financed through a Japanese Operating Lease (JOL) structure and the related predelivery payment was cancelled. Major Win Enterprises Limited assigned to PAL its right to purchase one Bombardier DHC 8-300 Series aircraft under a purchase agreement with Bombardier. Carrying values of passenger aircraft under finance leases amounted to =47. PAL paid the remaining finance lease obligation for the three remaining Boeing 747-400 aircraft and took ownership of the said aircraft. amounted to P1. In April 2008. 2009 and 2008. PAL received the predelivery payment made in 2008 amounting to = P535. Four of these aircraft were acquired under finance leases (see Note 25).87 million for the fourth DHC 8-400 which was cancelled. a related party. PAL leased out to Air Philippines Corporation (APC). PAL also redelivered one Boeing 737-300 aircraft on operating lease in 2009. based on revalued amounts. 2009 P P and 2008. following the transfer of a domestic airport = to a new location in 2008. P Land and Building and Improvements In October 2007.26 billion. PAL took ownership of one Boeing 747-400 aircraft following the full payment of the related finance lease obligation. PAL also signed a purchase agreement with Major Win Enterprises Limited in respect of two Bombardier DHC 8-300 Series aircraft. Boeing 737-300 In January 2008. PAL accepted delivery of the three Bombardier DHC 8-300 aircraft. Following P the Group’s policy in accounting for investment properties which is the cost model. =
. in April and May 2008 (see Note 25).16 billion at date of reclassification.. In addition.22 million.
58 million and =18. Notes Payable The Group enjoys an omnibus credit facility with Allied Banking Corporation (ABC).891 690.33% in 2008.16 million as of P P March 31.065 = 1.337. respectively.807 2.149 747. having an aggregate net carrying value of P1.net (Note 16)
As of March 31.98 billion.402.625 = =4.069 2.43 million and =130.557 P 2.20 billion and =2.391 P14.89 million in 2007. a related party (see Note 18). Notes payable as of March 31.76 million (see Note 11). long-term security deposits include certain cash and cash equivalents amounting to =172.
13.967 = P3.210 2.48 billion and =1.574. 2009 and 2008.80 million as of March 31.298.26 million in 2008 and =19.90% to 6. Accrued Expenses 2008 2009 (in Thousands) Landing and take-off fees and Ground handling charges (Note 16) Derivative liabilities Maintenance (Note 18) Others (Notes 18 and 27) P5.136..180 P
. = P respectively. PAL availed of uncollateralized short-term loans from various local banks amounting to P8. due in fiscal year 2009. These notes payable carry fixed rates ranging from 5.53 million in 2009.104.642 P3.588.459. 2008 include portion of predelivery payments amounting to = P705.840.526.30 billion as of March 31. = P Fixed interest rates on these notes payable range from 4. respectively.007 = P179.37% to 7.999.533. Interest payable = P relating to short-term notes payable amounted to =46.24 million that were used to collateralize P P various surety bonds issued (as required under the legal proceedings) in connection with certain litigations. = P In 2009 and 2008.40% per annum in 2009 and 2008. Cumulative interest relating to these notes payable amounting to P53. 2009 and 2008. This is in relation to PAL’s acquisition of Airbus 320-200 aircraft (see Note 25).207. respectively. Other Noncurrent Assets 2008 2009 (In Thousands) P1.00% in 2009 and 4. 2009 and 2008.839 = 3. P71. 2009 and 2008. which is covered by a real estate mortgage on certain real properties and chattel mortgage on certain land and rotable and reparable parts.464 2.22% to 8.525.606 =11.
14. was capitalized as part of property and equipment (see Note 11).31 million and =40.931 2. The related interest expense pertaining to all notes payable amounted to = P571.756.856 =
Derivative assets (Note 28) Long-term security deposits (Note 5) Others .34 12.
172 P P36. Interests on the finance leases are to = be paid based on three-month LIBOR plus margin. with maturities generally ranging from 12 to 15 years including balloon payments for certain finance leases at the end of the lease term. 2009 and 2008. As a result. including long-term obligations. Obligations Under Aircraft Finance Leases Relating to Boeing 747-400 Aircraft In March 2008. These finance leases require rental payments over the = lease term of 12 years.879.065 15.454 P42.082 6.165 = 6. These aircraft were delivered in 2009 and 2008 (see Note 11).971.887 5. at fixed rates ranging from 2.547.35 -
15.874 10.715 35. respectively.417.052. In 2009. Long-term Obligations 2008 2009 (In Thousands) =28.420 =
250.888 7. 2009 and 2008 include obligations covering eight Airbus 320-200 aircraft acquired in accordance with the Purchase Agreement signed with Airbus as discussed in Note 25. as applicable.296. The finance lease arrangements covering the Airbus 320-200 aircraft provide for aircraft purchase or remarketing options.01 billion) and =6. As a result. In either case. the ownership of the aircraft was transferred to PAL (see Note 11).750
Obligations under aircraft finance leases (Note 25) Long-term debts: Secured loans Other secured claims (Note 18) Terminated operating lease claims Unsecured claims (Note 18)
Less current portion
837.58% and/or floating interest rates based on certain margins over three-month or six-month LIBOR.569.84 billion (with current portion of =1.
.511. In January to March 2009. As of March 31.709 52. PAL guarantees to the lessor a certain aircraft value at the end of the lease term. PAL fully paid its obligation pertaining to the finance lease of a Boeing 747-400 aircraft under a Japanese Leveraged Lease (JLL) structure.61 billion (with current = P P portion of P552.30% to 6.462. PAL sold all of its four owned Boeing 747-400 aircraft and immediately leased them back under finance lease agreements.235 =30.69 billion as liability arising from the finance leases.06 million).652 P
Note 27 presents the undiscounted contractual maturity analysis of financial liabilities. PAL recognized a total amount of P4. It also provides for quarterly or semi-annual installments.894 8. the aggregate future minimum lease payments for these leases amounted to P12.. PAL also prepaid its outstanding obligation pertaining to the remaining three Boeing 747-400 aircraft under finance leases.112. the ownership of the aircraft was transferred to PAL (see Note 11).745 642.437.368. Relating to Airbus 320-200 Aircraft Obligations under finance leases as of March 31.408.
As a result of the restructuring of the finance leases. Contractual interest rates under the original agreements remain unchanged.301 5.044.417.709 250.211.745 3.627 21.21 billion.484. including balloon payments for certain finance leases at the end of the lease term.888 8.172 = P36.402 7. including capitalized interest payable amounting to an aggregate of =5.419 = P– = 6. with restructured maturities of 15 years. were treated as a separate tranche. and one Airbus 330-300 aircraft..547.567) P28.052.569. and all interest = accruing thereon maintained by PAL to secure the payment of the obligations for JLLs on two Airbus 340-300.982 =
2008 2009 (In Thousands) P6.48 billion as of March 31.973.715 15. 2009 and 2008.462.869. the integrity of the JLLs is not to be affected by the financial restructuring of the underlying loans and the JLLs are therefore treated as unimpaired claims.538. among other things. P Interests on these amounts are paid based on three-month or six-month LIBOR plus margin.970 P P11.847 43.96% and/or floating interest rates based on certain margins over six-month LIBOR.71% to 7.437.103 7. the differences between the actual amount of principal and interest under the original agreements and the principal.39 billion or P2.592.727 =7. as applicable.805.750 = – 250.082 837. Under the Rehabilitation Plan.675) (6.015.732 (7.971.894 6.738.36 -
Relating to Airbus 340-300 and Airbus 330-300 Aircraft Finance lease agreements pertaining to Airbus 340-300 and Airbus 330-300 aircraft provide for semi-annual installments. The original lease agreements contain.054.608. respectively.165 =
Secured loans Other secured claims (Note 18) Terminated operating lease claims Unsecured claims (Note 18) Less current portion
.065 7.662 35. at fixed rates ranging from 7.637 4.39 billion or =3.631.123.132 11. disposal of all or substantially all of PAL’s assets and ownership and control by the present managing stockholder company.559. PAL assigned to the lessor its rights and interest over the Japanese yen (JPY)-denominated deposits with the initial deposit amount aggregating to JPY6.25 billion and P JPY6.471.745 642. provisions regarding merger and consolidation.296 6. PAL’s minimum lease commitments for obligations under finance leases are as follows: Year Ending March 31 2009 2010 2011 2012 2013 and thereafter Net minimum lease payments Interest and others Present value of net minimum lease payments Long-term Debts 2008 2009 (In Thousands) P– = P6.
P Other Secured Claims The details of the other secured claims as of March 31. matured and was fully paid. quarterly or semi-annual installments. The first and second tranche will mature in 2015 and 2013. as applicable.189 P 45. generally ranging over five to eight years until fiscal year 2009 at a fixed interest rate of 8.000 syndicated loan facility (Note 18) Others Outstanding Loan Securities Balances Description Collateral Trust Indenture over certain engines.03 billion in 2007 and were recognized = P as part of “Financing charges” in the consolidated statements of comprehensive income.37 Secured Loans Long-term debts totaling =6.66 million. 2008 are as follows (in thousands):
$60. Fokker 50.
. see Note 18) amounting to = P2. P Terminated Operating Lease Claims In accordance with the Rehabilitation Plan.556 and reparables =250. P989. resulting from the termination of operating leases (Terminated Operating Lease Claims) are treated as unsecured claims. The loan with the syndicate of local banks (including affiliate banks.57 million in 2008 and =1. respectively.3% per annum or floating interest rates based on three-month LIBOR plus margin.75 million worth of other secured claims under the restructuring terms. rotables =205. In 2009. Airbus 340-200. Unsecured Claims The restructured unsecured claims are noninterest-bearing and constitute 100% of the principal and 100% of accrued but unpaid interest as of June 23.745 P Carrying Value
P560. gross of = effect of PAS 39 amounting to =2.37 million for tranche two) and is secured by aircraft and = P aircraft engines with a total appraised value of =4.157 = The other secured claims provide for monthly. Adjustments in present value resulting from the passage of time and the interest portion of prepayments made amounted to = P998. inclusive of a two-year grace period. Aircraft and various aircraft engines with appraised value totaling to =4.22 billion consists of two P tranches (P3. net of security deposits and maintenance reserves held by the lessors.06 billion for tranche one and =157.157 = P560. Any claims. 1998.39 billion.05 billion pertain to loans obtained from a local bank and a P syndicate of local banks. PAL terminated 26 operating leases relating to Boeing 747-200. The loan agreement requires P quarterly payments of principal and interest based on three-month LIBOR rate plus margin. For purposes of valuation of the unsecured claims (including Terminated Operating Lease Claims) for statement of financial position carrying value. Airbus 300-B4.51 million in 2009. The loan from a local bank amounting to =3. and Shorts 360 aircraft. PAL used a discount rate of 12% per annum (PAL’s estimated borrowing cost for instruments of similar type and tenor at the time of deemed issuances of the restructured unsecured claims) to restate the unsecured claims (including Terminated Operating Lease Claims) to present value.07 billion were used as collateral for this syndicated loan. P250..83 billion also requires quarterly payments of principal and interest based on three-month LIBOR plus margin and will mature in September 2015.
046.579.211.824 9. Reserves and Other Noncurrent Liabilities 2008 2009 (In Thousands) P1. 1999.964 1.774 1..928.727 P5.798 491.310 2. in excess of the greater of $50.906.593 236.605 1.397.769 = P2.605. PAL made prepayments under the Excess Cash Flow Recapture mechanism totaling P5.783 1.136 = P6. Such prepayments in respect of indebtedness will be applied in inverse order of maturity of claims.211.26 billion in face value. 16. Subsequent payments relating to the Excess Cash Flow Recapture mechanism amounted to =2.589 P4. (b) PAL’s public offering (as defined in the Rehabilitation Plan) of its shares. 2003.640.18 billion = in 2001. excluding certain funds.000 and the average of the preceding six months’ revenue of PAL) will be used to prepay Eligible Creditors on a pro rata basis.255.166 = 3.83 billion.384.583.970 – P7. Excess Cash Flow Recapture Mechanism of the Rehabilitation Plan Under the Excess Cash Flow Recapture mechanism of the Rehabilitation Plan.291.907.008 7. In June 2009.404. 2004 (five years after the implementation date of the Rehabilitation Plan).502 9. 2011 Face value Less imputed interest Less current portion
2009 P3.805.232 =
2008 P3.38 The amounts payable on the unsecured claims (including Terminated Operating Lease Claims) under the restructured terms are as follows (in thousands): Percentages of Face Value 31 32 32
Maturity Dates June 7. P PAL’s obligations under the Excess Cash Flow Recapture mechanism shall terminate on the last to occur of: (a) June 7.201.477 2. 2010 June 7.063.978 1.959 3.552 =
Derivative liabilities (Note 27) Provisions Liability under the Frequent Flyer Program Other noncurrent liabilities
. With respect to each participating creditor class. 2009 June 7.970 =
In May 2009. and. rights to receive prepayments under the Excess Cash Flow Recapture mechanism would also terminate on the date on which creditors of that creditor class have been returned to their original prerestructuring repayment profiles. Trustmark purchased certain unsecured claims against PAL from various debt holders amounting to P5.727 = 3.805.34 billion in 2008. PAL purchased these unsecured claims P from Trustmark at the same price as they were bought by Trustmark. (c) the end of the fiscal year in which PAL has achieved profits calculated on a cumulative basis over the preceding three fiscal years. at the end of any six-month period starting September 30.596 = 1. any Excess Cash Flow (the remaining cash balance.990.504.579 10. These claims are carried in the books at = amortized cost amounting to =4.256. 2006 and 2007.513.
589 shares. 2009 and 2008 (amounts in thousands. =813. Thus. 2007. excluding the related VAT.512 P
. lighting charges and tacking fees for the period December 1.000. accrued expenses to MIAA.57 million was P recognized as income for the year ended March 31.000. reversal of P = provisions recognized in prior years amounted to =19. Equity Items a. and =876. Provisions.000. as allowed by PAS 37. In 2009.33 million (P90. 2007. PAL agreed to pay MIAA the total amount of =2. Contingent Liabilities and Contingent Assets.97 million and =1. respectively.568 P (56) =5.685 (55. except number of shares): Number of Shares Authorized (Note 1) Issued Treasury stock .421.000 P =5. at cost Issued and outstanding 20. only general descriptions were provided. respectively. which was approved by the Court of Appeals on March 26.000 5. Claims by Manila International Airport Authority (MIAA) PAL and MIAA entered into a Compromise Agreement on November 14.93 billion. P Disclosure of additional details beyond the present disclosures may seriously prejudice PAL’s position and negotiating strategy.00 million (P112. including the related Value-Added-Tax P (VAT). 1995 to March 31.
Provisions Provisions consist substantially of probable claims under labor-related disputes and other litigations involving PAL. 2009 and 2008.55.512.69 billion and =1. amounted to P1. Capital stock The following summarizes the capital stock account as of March 31. The timing of the cash outflows of these provisions is uncertain as it depends upon the outcome of PAL’s negotiations and/or legal proceedings. 2006. additional provision amounted to =48.421.567.79 million in 2008).92 million in 2008) and P = settlement of closed cases amounted to =11.. Under the Compromise Agreement.55 million was included as part of “Accrued landing and take-off fees” (see Note 14) classified under “Current liabilities”.39 million and = P P = P745. parking fees. These payments will serve as full and final settlement of MIAA’s claim against PAL for landing and take-off fees.421. As of March 31.18 billion was included as part P P of “Other noncurrent liabilities” in the consolidated statements of financial position as of March 31. through equal monthly installments over a period of seven years. 2006.80 million.096
Amount =20. which are currently ongoing with the parties involved.93 billion. 2009 and 2008.421. Of the amount. The liability was recognized at fair value at inception and the resulting difference between the face amount and the fair value amounting to =855.589) 5.
- 40 The issued and outstanding shares are held by 6,934 and 6,769 equity holders as of March 31, 2009 and 2008, respectively. The Parent Company has 55,589 treasury shares amounting to =0.06 million. Future P earnings are restricted from dividend declaration to the extent of the cost of these treasury shares. On October 17, 2007, the Philippine SEC approved the wipe out of the Parent Company’s deficit as of March 31, 2007 amounting to =253.73 million against the additional paid-in P capital arising from the conversion of liability to Trustmark into equity in fiscal year 2007 (see Note 2). On June 21, 2007, the BOD of PAL approved the reduction in par value of PAL’s shares of stock from P1.0 per share to =0.8 per share for the purpose of wiping out PAL’s deficit. On = P September 7, 2007, the Philippine SEC approved PAL’s application to reduce the par value of PAL’s shares of stock from =1.0 per share to =0.8 per share. PAL’s resulting reduction P P surplus amounting to =2.16 billion was applied against the deficit as of March 31, 2007 P amounting to P1.54 billion. However, the approval of the request to undergo equity = restructuring was subjected to the condition that the balance of the reduction surplus amounting to P626.72 million shall not be used to wipe out losses that may be incurred in = the future without prior approval of the Philippine SEC. b. Details of other components of equity are as follows: 2009 Cumulative translation adjustment - net of related deferred income tax (Note 19) Net changes in fair values of available-for-sale investments - net of related deferred income tax (Notes 6 and 28) Revaluation increment - net of related deferred income tax (Note 11) Deficit 2008 (In Thousands) (P4,066,367) =
125,143 1,497,302 (19,130,991) (P21,006,975) =
270,239 1,424,267 (8,242,351) (P10,614,212) =
18. Related Party Transactions The Group, in the normal course of business, has transactions with its stockholders, associated companies and related parties pertaining to leases of aircraft and ground property, availment of loans, temporary investments of funds, and purchases of goods and services, among others. The significant related party transactions are as follows: a. On August 2, 2007, the Parent Company’s BOD resolved to amend its June 27, 2007 resolution so that the Parent Company only assumes =3.08 billion (instead of P14.08 billion) P = out of the P23.12 billion liabilities of the Holding Companies, as originally planned. This = resulted to a total of P12.12 billion receivables of the Parent Company from the Holding = Companies, which were used in exchange for the Parent Company’s acquisition of the
- 41 Holding Companies’ investment in PAL and PR amounting to =12.44 billion and P = P108.66 million, respectively. This gave rise to a liability to Maxell amounting to P431.60 = million as of March 31, 2009 and 2008. The =3.08 million assumed liability was converted P to additional paid-in capital, as approved by the BOD on the same date (see Note 2). b. The Parent Company has advances from Trustmark amounting to =49.49 million as of P March 31, 2009 and 2008 which were used to pay filing fees and other expenses related to the acquisition of the Holding Companies and the Parent Company’s change in corporate name and increase in the authorized capital stock. c. As of March 31, 2007, the Parent Company has an outstanding liability to related parties totaling P136.00 million arising from its acquisition of the Holding Companies (see Notes 2 = and 24). These related parties are the previous stockholders of the Holding Companies. On August 14, 2007, the Parent Company assigned to Trustmark its investments in the shares of stock of the Holding Companies. In payment thereof, Trustmark assumed the P136.00 = million liability to the previous stockholders of the Holding Companies (see Note 2). d. Management, accounting, statutory reporting and compliance, and administrative services are provided by a related party at no cost to the Parent Company. e. As of March 31, 2009 and 2008, the Parent Company owns 88 million common shares (7.04% equity interest) of MAC. Controlling owners of the Parent Company are also close family members of certain members of the key management of MAC. Likewise, certain members of the Parent Company’s BOD are also officers and members of the BOD of MAC. Dividends received from this investment amounted to =4.40 million in 2009 and 2008. P f. PAL has finance lease agreements with certain related parties pertaining to three Airbus 330-300 aircraft. Deposits on leases of said aircraft amounted to P3.13 billion = and P2.53 billion as of March 31, 2009 and 2008, respectively. Outstanding obligations = under finance lease of the said aircraft amounted to =5.50 billion and =5.58 billion as of P P March 31, 2009 and 2008, respectively. Financing charges attributable to these finance lease obligations amounted to =331.11 million in 2009, =606.74 million in 2008 and P621.49 P P = million in 2007. Related accrued interest amounted to =73.65 million and =64.43 million as P P of March 31, 2009 and 2008, respectively.
g. PAL has a Technical Services Agreement (TSA) with Lufthansa Technik Philippines (LTP), a related party, which took effect on September 1, 2000. The TSA provides that during the entire duration of the agreement, LTP will serve as the sole and exclusive provider to PAL of aircraft-related technical services and management of all required maintenance work necessary to achieve the sound operation and optimal utilization of PAL’s fleet. The TSA will remain effective for a period of 10 years until September 1, 2010. Within the framework of the TSA, PAL entered into a Heavy Maintenance Service Agreement for D1-Checks (4C/5Y) of Airbus 340-300, Airbus 330-300 and Airbus 320-200 aircraft for the period June 1, 2002 to March 17, 2004. On April 20, 2005, PAL and LTP signed an amendment to the Heavy Maintenance Service Agreement effective from January 1, 2004 until the expiry of the TSA, unless otherwise amended. On February 20, 2009, PAL and LTP signed an additional attachment to the TSA to cover the provision of Engine Maintenance Services for CFM56-5B engines. The attachment is effective for a period of 12 years and LTP has the option to extend the agreement for another two years by giving six months prior written notice.
- 42 Total LTP-related maintenance and repair costs charged to operations amounted to = P8.03 billion, P7.71 billion and =9.03 billion in 2009, 2008 and 2007, respectively. In = P addition, related expendable parts sold to LTP amounted to =26.15 million in 2009, P = P75.73 million in 2008 and =19.79 million in 2007. P In connection with the sale of Maintenance and Engineering facilities to LTP, PAL and LTP entered into several transition services agreements whereby PAL will render to LTP various services such as information technology support, training and medical services, among others. Revenue earned from the said transition services agreements (included under “Others” in the revenue section of the consolidated statements of comprehensive income) amounted to P95.49 million in 2009, =99.33 million in 2008 and =73.05 million in 2007. = P P As of March 31, 2009 and 2008, PAL has outstanding amounts payable to and estimated unbilled charges from LTP totaling =1.99 billion and =1.90 billion, respectively, net of P P unapplied credits from and advance payments to LTP amounting to =326.90 million and P = P292.00 million as of March 31, 2009 and 2008, respectively. Receivables from LTP amounted to P112.78 million and =102.05 million as of March 31, 2009 and 2008, = P respectively. h. The transactions with APC, a related party, include joint services and code share agreements, and endorsements of passengers during flight interruptions. As of March 31, 2009 and 2008, PAL has a net receivable from APC (shown as part of “Non-trade receivables”) amounting to = P461.07 million and P320.10 million, respectively. = In fiscal year 2008, PAL entered into an operating lease agreement with APC covering the owned Boeing 737-300 aircraft at a fixed monthly rate, for a period of 36 months. In relation to this, certain spare parts and tools of the said aircraft were included in the lease. On April 30, 2008, PAL and APC entered into a TSA effective May 1, 2008 and will remain in force for a period of five years. This agreement covers all aircraft-related technical services and management of all required maintenance related to the Bombardier aircraft. Total APC-related maintenance and repair cost amounted to =123.40 million in P 2009. i. As of March 31, 2009, the =2.83 billion syndicated loan, presented under “Secured loans”, P include loans obtained from affiliate banks, Philippine National Bank (PNB) and ABC, amounting to P1.94 billion and =653.70 million, respectively. The related financing charges = P on these loans obtained from related parties represent about 2% of total financing charges while interest on these loans accrued as at the end of the fiscal year 2009 amounted to = P3.97 million. Other secured claims include loans obtained from stockholders and related parties which amounted to P102.59 million as of March 31, 2008. Moreover, unsecured claims include = loans from stockholders amounting to =341.96 million and =286.99 million as of March 31, P P 2009 and 2008, respectively. The related financing charges on these loans represent about 1% of total financing charges in 2009, about 3% in 2008 and 4% in 2007. Related accrued interest on these loans amounted to =0.79 million as of March 31, 2008. P
k. As discussed in Note 13, PAL has outstanding short-term notes payable to ABC amounting to P2.29 billion and P1.06 billion as of March 31, 2009 and 2008, respectively. Also, the = = retirement fund of PAL is being managed by ABC.
As of March 31. amounting to =213.99 billion.067 P292. In October 2008. =
.80 million.57 million in 2009. and retirement benefits of =7.06 million.731 P264. noninterest-bearing loan from Trustmark in the amount of P5. PAL availed of a bridge financing loan from PNB in the amount of = P1. amounted to =46.84 billion and =5. a related party. = Minimum rental commitments under this lease contract are as follows (amounts in thousands): 2009 P29.46 million. 2007 and may be renewed upon mutual agreement of the parties. P P q. r. 2008 and 2007. 2009 amounted to =343. In April 2009.62 million. P8. 2008).77 P P = million in 2007.10 billion. 2008 and 2007. respectively. PAL obtained a short-term..43 -
l. This property is P included under “Other current assets”. =50. total cash and cash equivalents maintained with PNB amounted to = P140.11 million and =42. consisting mainly of shortterm employee benefits. a related party.
In 2009.63 million. 2009 and 2008. = In 2009. P
m.09 million P = and P1.915 148. 2009 (P11.39 million in 2009. There is no outstanding rental liability relating to the said lease contract as of March 31.30 million and =198.40 million to an affiliate. respectively. cash and cash equivalents and short-term investments (included under “Cash and cash equivalents”. PAL entered into an operating lease agreement with PNB. The amounts was fully paid during the year. which was fully paid during the year. respectively.74 million in P P P 2009. P Outstanding balance as of March 31.22 million in 2008 and P258. =124.961 =
Due within one year Due after one year but within five years After more than five years
PAL also maintains checking accounts and money placements with PNB.98 million as of March 31. respectively. = o. The compensation of key management personnel of the Group.529 = 2008 P28. PAL obtained additional working capital from PNB amounting to =2. 2009 and 2008. PAL’s BOD authorized management to finalize terms of the sale of one of its parcels of land with a carrying value of =346.053 = 116. for the lease of a portion of the PNB Financial Center Building. The lease is for a period of 10 years commencing on November 1. p. As of March 31.33 billion. PAL has cash and standby letters of credit with Oceanic Bank. In connection with the transfer of its principal office to a new location. “Short-term investments” and “Other noncurrent assets” in the consolidated statements of financial position) with ABC amounted to P5.23 million and P61.87 billion to support current working capital requirements.979 = 115. n. As of March 31. 2009 and 2008. respectively. The related interest income on these = P investments amounted to =40.745 118.
022 3. (P2. together with certain other economic gains and losses.04 billion.446 3. P21. = = P1. respectively.370 2.07 billion and =2.923 1.82 million) in 2009.619. which are collectively described as “Other comprehensive income” and excluded from the calculation of net income or loss for the year.890.925 7.130.637.44 19.218.806 2.665 6.730. amounting to =1.453 4. and 2007.79 million) in 2007.78 million in 2009. 2009 and 2008 are unrealized after-tax gains on hedging contracts aggregating to P1. The related hedging gains or losses are expected to be recognized in net income or loss at the same time as the corresponding hedged items are recognized in profit or loss..407 2.018.268.862.541 2. respectively.72 million in 2009.49 million.924 6.300.32 million and P P = P183. certain = P derivative instruments (i.498
. = Included under “Cumulative translation adjustment” in the consolidated statement of changes in equity as of March 31.23 billion) in 2009. respectively. =263.021.503 2007 P = 20.73 million in 2008 and =340. respectively.519. 15 and 18) Groundhandling charges Landing and take-off fees (Note 14) Aircraft lease rentals (Note 25) Passenger food
P38.134.573 8.955.063 1.017 5.533.925 1. Comprehensive Income Comprehensive income consists of net income or loss for the year.838.746. These amounts are net of the related = deferred income tax of =676. =80.79 million. =640. Expenses The significant components of expenses by nature are as follows: 2009 2008 (In Thousands) = P 20.90 billion.304.73 million) in 2009.980. fuel derivatives and interest rate swaps) that were designated as effective hedging instruments over the next two years are expected to protect PAL against the impact of rising fuel prices and increasing interest rates.141 6.49 billion in 2008 and (P981. = • Net changes in the fair values on derivative assets and derivative liabilities designated by management as cash flow hedging instruments amounting to (P1.349
Fuel and oil (Note 28) Maintenance (Note 18) Crew and staff costs (Note 21) Depreciation (Notes 10 and 11) Financing charges (Notes 13.964 6. Other comprehensive income includes the following: • Unrealized mark-to-market gains (losses) on available-for-sale investments of (P157. 2008.11 million in 2008 and =178. As discussed in Note 27. These P P amounts are net of the related deferred income tax of =69.941.719.32 million.429 3.259.480. 20.36 billion) and P = (P755.e.992.479.87 million and =504. =15.78 million.486 10.517 = 9. • Effect of foreign exchange gains (losses) arising from the translation to Philippine peso of the assets and liabilities of PAL.68 million in 2007.287 3.914 1. These = P P amounts are net of the related deferred income tax of =37.03 million in 2007.04 million in 2007.666 1. P P P • Increase in revaluation increment in property arising from recognition of the results of an updated appraisal or effect of exchange rate changes in the aggregate amount of = P185.604.67 million P = in 2008 and P25..622 1.295.
248.200.624 = 2008 (In Thousands) =424.381 =
Defined benefit obligation Fair value of plan assets Unrecognized net actuarial gain (loss) Net defined benefit liability
Changes in present value of defined benefit obligation are as follows: 2008 2009 (In Thousands) =4.398 = 371.318.445.463.667 (2.578 =
Defined benefit obligation.569) 146.365 P P4.378) 257.595 P (P50.149.480.585 = P17.149.010 2.381 = 792.169 371.237.169 (35.259 P722.767 = 273.802 P P4.318.445.876) = 2007 P417.582.661 P 319.647 =3.108) 33.248.032) 28.365 = 424..990.170 951.355) (1.318 = P206.398 319.028 =
Regular retirement benefits Other benefits
PAL has a noncontributory defined benefit retirement plan covering all its permanent and regular employees with benefits based on years of service and latest compensation. April 1 Current service cost Interest cost Benefits paid Actuarial loss (gain) on obligation Defined benefit obligation.898 (1. The details of net retirement benefits cost under the defined benefit plan are as follows: 2009 Current service cost Interest cost on benefit obligation Expected return on plan assets Net actuarial loss recognized during the year Actual return (loss) on plan assets P517.979) 4.149.892) (256. March 31
.782 =2.059. The following tables summarize the components of the retirement benefits cost recognized in the consolidated statements of comprehensive income and the amounts recognized in the consolidated statements of financial position.028.599 (1.121.130 =
The details of net defined retirement benefits liability are as follows: 2008 2009 (In Thousands) =5.632 P P3.797 =737.45 -
21.661 517.823 (221.578 = (1.439) =5.805 P1.327.632 P P3.365 P P4. Employee Benefits 2008 2009 (In Thousands) =2.708) 259.529 P P5.823 (89.
Fair value of plan assets.121.138 = (583. 2010.892) (256. expected annual rate of return on plan assets of 5% and future annual increase in salary of 10%.793) (85.569) (85.023 – –
Defined benefit obligations Fair value of plan assets Deficit Experience adjustment on plan liabilities . April 1 Expected return on plan assets Actual contributions to the plan Benefits paid Actuarial gain (loss) on plan assets Fair value of plan assets.666 4.14 million in 2007.21% 7.916 =1. 2009.06 million in 2008 and =313.480.695) 116. P209.990.41% 6% 8% 7% to 12% 10% to 12%
As of March 31.529 P4.46 Changes in fair value of plan assets are as follows: 2008 2009 (In Thousands) P583.260 256.979) (1.908) 116.708 810. following are the information with respect to the above assumptions: discount rate per annum of 9.121. Relevant amounts for the current and prior periods are as follows:
2008 2007 2006 (In Thousands) = = = P4.010 3.863 = P1.355 = 35.409) (1.599 4.318. = P The Group expects to contribute about =1.327.569 (126.96.36.1997 7.546 15.908) 227.gain
Retirement benefits cost under the defined contribution plan amounted to =235.17% to 10.17% to 10. March 31
The major categories of plan assets as a percentage of the fair value of total plan assets are as follows: 2008 2009 Investments in government securities 83% 71% Cash 11% 27% Receivables 6% 2% 100% 100% The overall expected return on the plan assets is determined based on the market prices prevailing on the date applicable to the period over which the obligation is to be settled.578 P5.355 P P1.032 89.863) (23.896.131.03 billion to the retirement fund in fiscal year ending P March 31..107. The principal assumptions used at the beginning of the fiscal year in determining retirement benefits cost for PAL’s plans are as follows: 2009 Number of employees (including those covered by defined contribution plans) Discount rate per annum Expected annual rate of return on plan assets Future annual increase in salary 2008
7.45%.91 million in P 2009.729 2009 (134.86% to 14.377 7.loss (gain) Experience adjustment on plan assets .365 P4.355) 2.916 (318.327.028.
the payment of the principal. The E-VAT law took effect on November 1. 2009. e. duties. except real property tax. PAL shall be subject to the corporate income tax. As further provided for under its franchise. franchise tax of 2% of the gross revenue derived from nontransport. Increase in the VAT rate imposed on goods and services from 10% to 12% effective on February 1. and 30% starting on January 1. domestic transport and outgoing international transport operations. fees and other charges paid by PAL to lessors for the lease of aircraft. engines. net loss incurred in any year up to five years following the year of such loss (see Note 23). c. and other charges on foreign loans obtained by PAL. city. corporate income tax based on net taxable income. including withholding tax. royalties. which extends up to the year 2034. and all rentals. 2005 following the approval on October 19. Change in unallowable deduction for interest expense from 38% to 42% of interest income subject to final tax for three years effective on November 1. 9337 are the following: a. b. Among the relevant provisions of RA No. fees. nature. 2005 of Revenue Regulation (RR) No. 2005. 2005. 2006. 9337 or the E-VAT Act of 2005. the Expanded-Value Added Tax (E-VAT) law was signed as Republic Act (RA) No. spares. PAL’s Franchise PAL operates under a franchise. as may be provided by PAL’s franchise.47 -
22. 2005. 2009 and thereafter. 1590. and licenses of any kind. In addition. d. As provided for under the franchise.. granted by the Philippine Government under Presidential Decree No. registration license. interest. and other fees and charges. PAL is subject to: a. duties.
. The franchise tax of PAL is abolished. provided that the liability for the payment of said taxes is assumed by PAL. imposed by any municipal. PAL can carry forward as a deduction from taxable income. and other personal property are exempt from all taxes. fees. or description. PAL shall remain exempt from any taxes. whichever is lower. provincial or national authority or government agency. and 33% starting on January 1. and f. in lieu of all other taxes. Change in corporate income tax rate from 32% to 35% for three years effective on November 1. other flight or ground equipment. interest. 16-2005 which provides for the implementation of the rules of the E-VAT law. or b. On May 24.
net Net present value adjustments on financial liabilities Revaluation increment in property Cumulative translation and fair value adjustments .196.398) = 2008
(1.140 P473. the Group recognized net deferred income tax liability amounting to P3.394) P581.317) (4.633.610 6.834.274 = 2007 (In Thousands) =342.85 billion as of March 31.021.net Cumulative translation and fair value adjustments .net Prepaid commission and others Net deferred income tax assets P3.558.330 P– = 1. The Group’s recognized deferred income tax assets (liabilities). Income Taxes a.841.355.252.667) = (P2.395 2. respectively.352 =
PAL’s NOLCO amounting to =10.358) P320.760 – 957.471.724) – (1.460 503.205 1. As a result. are as follows: 2009 Thousands) Deferred income tax assets on: NOLCO Accrued retirement benefits cost and unamortized past service cost contribution Unrealized foreign exchange adjustments .550.
.954) (310.656) (6.484 = 1.260 P P301.697. a deferred income tax asset or deferred income tax liability is recognized related to temporary differences arising from changes in exchange rate due to measurement of the Group’s nonmonetary assets and liabilities in its functional currency.006) (874. The provision for (benefit from) income tax consists of the following: 2009 Current income tax Deferred income tax Provision for (benefit from) income tax P134 = 473. c.07 billion incurred in 2009 can be used as deduction P against taxable income until 2014.net Allowance for doubtful accounts and inventory losses Reserves and others Deferred income tax liabilities on: Changes in exchange rates related to nonmonetary assets and liabilities . In accordance with PAS 12.173 451. in = P relation to changes in exchange rates affecting its nonmonetary assets and liabilities.927) (P1.885 622.84 billion and =1.215) (1.705) (301. all relating to PAL.853.466.269) (1. Income Taxes. 2009 and 2008.48 -
23.843.060) (539.061) (262.161.768.686 18.119.382 5. which is different from the currency used in determining the Group’s taxable income or loss.817 = (2.710 2008 (In
A reconciliation of the Group’s provision for (benefit from) income tax computed based on income (loss) before income tax at the statutory tax rates to the benefit from income tax shown in the consolidated statements of comprehensive income is as follows: 2009 Provision for (benefit from) income tax at statutory tax rates Adjustments resulting from: Movement in deductible temporary differences for which no deferred income tax assets were recognized Interest income subjected to final tax and exempted from tax Nondeductible portion of interest expense Deductible temporary differences used/recognized in current year but for which no deferred income tax assets were recognized in prior years Nondeductible expenses and others Provision for (benefit from) income tax 2008 2007 (In Thousands) P1.296
(924) (372.667) =
3. the Parent Company did not recognize deferred income tax asset on the carryforward benefits of NOLCO amounting to =96.759.063 P
In 2009.060 P Available until fiscal year ending March 31 2009 2010 2011 2012
Incurred during fiscal year ended March 31.489
6. Unrealized foreign exchange adjustments on long-term obligations Allowance for doubtful accounts (Note 7) Fair value adjustments on noncurrent derivative liabilities =5. As of March 31.213.829 17.918
e. respectively. 2009 and 2008.355. As of March 31.383 8.49 d.829 17.846) 68.398) =
.383 8.447. the deferred income tax assets on the following deductible temporary differences were not recognized because management believes that the Group may not have sufficient taxable income against which these deductible temporary differences may be utilized (amounts in thousands).596.274 =
– (773. 2007 March 31. 2006 March 31.024
– 968.609) 81.28 million.608 P 4. 2009 =– P 69. 2008 March 31.128) 27.699.866) =
Amount =3..969) 138.519.123 P
Expired =3.803 1.991 (69. 2009.466.084 (193.848 =99.063 P 69.362) (P1.303 (P2.063 P – – – =3.894.848 =96.06 million and P = P90.788 P473. the Parent Company’s NOLCO that are available for deduction against future taxable income are as follows (amounts in thousands):
Balance as of March 31. as management believes that the Parent Company may not have sufficient future taxable profit to allow all or part of the deferred income tax assets to be utilized in the future.
. Also.059 2.544.50% of net sales for sales of goods. EAR expenses amounted to =15.234.334.633 188.8.131.520.50 RR No.
24.f. The future minimum lease payments related to these lease agreements are shown in the following table: Year Ending March 31 2009 2010 2011 2012 2013 2014 and thereafter 2008 2009 (In Thousands) P1.736 3. 1% of net revenue for sales of services and 0.410 = P– = 2.809 –
431. also as part of its refleeting program.736 3.038.729.369 = –
= P6.406 814. The two aircraft are scheduled to be delivered in November 2009 and January 2010.839 2. Aircraft Lease Commitments and Purchases Operating Leases In December 2006..552 P P30. =14.668 =25. PAL entered into operating lease agreements for the lease of Airbus 319-100.625.567
9.52 million in 2009.000 2.600
(136.730.954 17.657 3.000 13.334.822
10.079.84 million in P P P 2007.607. Note to Consolidated Statements of Cash Flows Noncash activities consist of:
2009 Investing activities Liabilities for purchases of property and equipment (Note 11) Claims from insurance set-off against long-term obligation (Notes 11 and 15) Liability to a related party incurred in relation to the acquisition of investments in PAL and PR shares (Note 2) Liability of the Group assumed by Trustmark as consideration for the disposal of the investments in the Holding Companies (Note 2) Financing activities (Note 2) Liability of the Parent Company to Trustmark converted to additional paid-in capital Liability of the Group to Trustmark released upon the disposal of the investments in the Holding Companies 2008 (In Thousands) 2007
= P1.e.338.149. amusement and recreation (EAR) expenses and sets a limit for the amount that is deductible for tax purposes. 10-2002 defines expenses to be classified as entertainment.766
.393. PAL signed operating lease agreements for the lease of two brand-new Boeing 777-300ER aircraft.998. i.000)
3. Airbus 320-200 and Boeing 747-400 aircraft.070.28 million in 2008 and =14.
policies or processes from April 1. To maintain or adjust capital structure. The Group monitors its use of capital using leverage ratios. Capital Management The primary objective of the Group’s capital management is to ensure that it maintains a strong credit and healthy capital ratios in order to support its business and maximize shareholder value.25:1 2008 0. 2007 and September 28. respectively. aggregating to P64. PAL exercised its right to purchase two of the five option aircraft for delivery in fiscal year 2011 by virtue of an amendment agreement to the Purchase Agreement with Airbus. In May 2007. the Philippine SEC has approved PAL’s request to undergo an equity restructuring and to exit from rehabilitation on September 7. the Group may adjust the dividend payment to shareholders.69:1
Debt ratio Debt to equity ratio
. On July 28. The table below shows the leverage ratios of the Group as of March 31. 2009. 2009 0. Capital Expenditure Commitments PAL's capital expenditure commitments relate principally to the acquisition of aircraft fleet. 2005..46:1 2. return capital to shareholders or issue new shares. As mentioned in Note 2. 2007.45 billion as of March 31. Boeing aircraft On October 30. = P
26. 2011 and 2012 to fiscal years 2013 and 2014. debt ratio and debt to equity ratio. The Group manages its capital structure and makes adjustment to it. in light of changes in economic conditions. all nine aircraft on firm order were delivered to and accepted by PAL. PAL finalized a Purchase Agreement with Boeing wherein PAL placed a firm order for two Boeing 777-300ER aircraft for delivery in fiscal year 2010 to fiscal year 2011 and purchase rights for two additional aircraft. 2006 to March 31.62:1 25.50 billion and =58. 2006.51 -
Aircraft Purchases and Finance Leases Airbus aircraft On December 6. Included as debt are notes payable and long-term obligations. 2008. PAL and Boeing agreed to reschedule the deliveries of four Boeing 777-300ER aircraft from their original delivery schedules of fiscal year 2010. 2009. As of March 31. specifically. Subsequent to fiscal year 2009. PAL finalized a supplemental agreement with Boeing relating to its exercise of purchase rights for two Boeing 777-300ER aircraft for delivery in fiscal year 2012. The Group considers its equity as its capital. No changes were made in the objectives. PAL finalized a Purchase Agreement with Airbus wherein PAL placed a firm order for nine Airbus 320-200 aircraft and options for five aircraft for delivery in 2010 to 2013. 2009 and 2008. 2009 and 2008. respectively.
The main purpose of these financial instruments is to raise financing for the Group’s operations. evaluating and analyzing of the Group financial risks in line with the policies and limits set by the Finance Risk Committee. frameworks. Finance Risk Office The Finance Risk Office is responsible for the comprehensive monitoring. PAL uses derivative financial instruments to manage its exposures to currency. policies and limits. Financial Risk Committee The Financial Risk Committee has the overall responsibility for the development of financial risk strategies. short-term investments. Market risks Increasing market fluctuations may result in significant equity. The main risks arising from the use of financial instruments are market risk (consisting of foreign exchange risk. cash flow and profit volatility risks for the Group. consist of loans. The Group generally applies sensitivity analysis in analyzing and managing its market risks. price interest rate risk and fuel price risk are based on the historical volatility for each market factor. cash flow interest rate risk. and accrued expenses. which arise directly from its operations. cash flow interest rate risk. other than derivatives. interest rates and fuel prices. principles. are discussed in this note.
. Sensitivity analysis enables management to identify the risk position of the Group as well as provide an approximate quantification of the risk exposures. The Group seeks to manage and control these risks primarily through its regular operating and financing activities. cash and cash equivalents. liquidity risk.. Financial Risk Management The Group’s principal financial instruments. Estimates provided for foreign exchange risk. trade payables. price interest rate risk. interest and fuel price risks arising from PAL’s operations and its sources of financing. Its operating activities as well as its investing and financing activities are affected by changes in foreign exchange rates. including the risk management objectives and the accounting results. It establishes a forum of discussion of the Group approach to financial risk issues in order to make relevant decisions. and deposits. counterparty risk and credit risk. The details of PAL’s derivative transactions. investments in bonds and equities. with adjustments being made to arrive at what the Group considers to be reasonably possible. Management of financial market risk is a key priority for the Group. The Group has various other financial assets and financial liabilities such as trade receivables. Financial Risk Management Objectives and Policies Risk Management Structure BOD The BOD is mainly responsible for the overall risk management approach and for the approval of risk strategies and policies of the Group. and through execution of a documented hedging strategy.52 -
27. equity price risk and fuel price risk).
069. Singaporean Dollar (SGD).834 1.509.625 4.813 7. Any surplus is sold as soon as practicable.443) (4.064 4.129) P6.290 = 3.001. PAL’s functional currency (amounts in thousands). Euro (EUR).73 million foreign exchange gain in 2009.043 1.715 759.022 6.068 P 4.162.486 (256. Australian Dollar (AUD). expenses and borrowings in currencies other than its functional currency.
The Group recognized P752. The Group’s foreign currency-denominated exposures comprise primarily of USD and Japanese yen (JPY).572 =
=1. respectively. PAL also uses foreign currency forward contracts and options to hedge a portion of its exposure.440.400 1. Sensitivity analysis The following tables show the impact on the Group’s income before income tax of reasonably possible changes in the exchange rates of foreign currencies against the USD.802) (1.964) =3.850.823 (3.162) – (4.241.888.237. security deposits and currency forwards.
.028) (145. and Hong Kong Dollar (HKD). ** Substantially pertaining to notes payable to a local bank. arising from the translation of these foreign currency-denominated financial instruments.01 billion and = P = P193.929.583.819 1.092.403.181.25 million foreign exchange loss in 2008 and 2007.326.141 P
* Includes miscellaneous deposits.166.934 6.021.582. The Group manages this exposure by matching its receipts and payments for each individual currency.185. PAL’s significant foreign currency-denominated monetary assets and liabilities as of March 31 are as follows: 2009 Financial assets and financial liabilities: Financial Assets: Cash Receivables Others* Financial Liabilities: Accounts payable Accrued expenses Others** Net foreign currency-denominated financial assets (liabilities) Nonfinancial liabilities: Accrued employee benefits payable Unremitted tax collections Provisions Net foreign currency-denominated monetary liabilities 2008 (In Thousands)
P738..413 5.141. =1.854 1.593) (5.53 -
Foreign exchange risk The Group is exposed to foreign exchange rate fluctuations arising from its revenue. Other foreign currency exposures include Canadian Dollar (CAD).698.401.892 1.508) (1.200.
54:1 as of March 31. HKD.188) P300.604) (P112. respectively. income for the period ended March 31. the difference between the Group’s floating interest rates and the counterparties’ fixed interest rates.65%
2008 Net loss (gain) effect on income before tax Increase in foreign Decrease in foreign exchange rates exchange rates = P84..568 165.314 = (P458. SGD and others)
PAL’s major currency derivatives consist of options and forwards to buy USD and sell JPY. had the various foreign exchange rates changed = with the range of 9.60% 0.70% in 2008.30% to 15.00%-22.604 P112. the ratio of floating rate to the total borrowings is 0.240) = (P84.64 million. AUD.932) = 31. respectively.847) = 9.08 million and $52. EUR.67:1 and 0.345) (149. 2009 and 2008 would either increase by =36. Before taking into account the effect of income taxes.e.314) =
* Includes various currencies (i. the difference between the Group’s fixed interest rates and the counterparties’ floating interest rates. HKD. EUR.02% 10. With respect to the junior loan financing of one Airbus 330-300 and two Airbus 340-300. These
. = P Other currency derivatives consist of options and forward contracts in different currencies.568) (165. the Group agreed with the counterparties to exchange. CAD. 2009 and 2008 would have either increased by =81.49 million or P P decreased by P140.50% to 6. The effect of these swap agreements (aggregate notional amounts of $36.81 million and =45.61%.847 = (9. income for the period ending March 31.240 =
* Includes various currencies (i.28% in 2009 and 0.12 million and =6.35 million and =32. at semi-annual intervals. Before taking into account the effects of interest hedging.25% 13.188 (P300. CAD.e. AUD.345 149. SGD and others)
Currency PHP JPY Others* Net
Movement in foreign exchange rates 8.56 million and decrease by P P = P50.64 million. The interest rate swap agreements relative to the financing of two Airbus 330-300 aircraft require the exchange.72% 0. respectively) is to effectively fix the Group’s interest rate exposure under these financing agreements to rates ranging from 6. Cash flow interest rate risk The Group’s policy on interest rate risk is designed to limit the Group’s exposure to fluctuating interest rates.00% to 26.80% to 10.41 million as of March 31.54 -
Currency PHP JPY Others* Net
Movement in foreign exchange rates 15. 2009 and 2008. respectively. PAL has interest rate swap agreements (either as freestanding instruments or embedded in certain long-term obligations) to manage its interest rate exposure relative to the financing of three Airbus 330-300 and two Airbus 340-300. There is no other impact on the Group’s equity other than those affecting profit and loss. 2009 and 2008.932 (31. Before taking into account the effect of income taxes.99 million and P6. at semi-annual intervals.73%
2009 Net loss (gain) effect on income before tax Increase in foreign Decrease in foreign exchange rates exchange rates P458.
respectively. 2009. respectively) effectively convert the Group’s fixed interest rate exposure relative to these junior loan financing agreements of 7.95% into floating rate exposure based on sixmonth LIBOR plus margin. Sensitivity analysis A sensitivity analysis to a reasonably possible change in the interest rates. if the USD interest rate for the periods had been 25 basis points = higher or lower in 2009 and 50 basis points higher or lower in 2008. which are affected by the changes in market factors such as interest rates. There is no other impact on the Group’s equity other than those already affecting profit and loss. 2009 and 2008. designated as cash flow hedges and investments in US Treasury bonds. The impact on the Group’s equity already excludes the impact of transactions affecting profit or loss. Sensitivity analysis The Group’s exposure to cash flow interest rate risk arises from the regular repricing of interest on the floating rate loans.99 million and =23. Income before income tax as of March 31. 2009 and 2008 would either decrease or increase by = P54.42 million and $6. classified as available for sale.97 million. The Group assumes concurrent movements in interest rates and parallel shifts in the yield curves..42 million. As of March 31.58 million as of March 31. had the indices P P changed by 31.13 million. holding all other variables constant. respectively. equity as of March 31. and decrease by P1. equity as of March 31. The impact on the Group’s equity already excludes the impact of transactions affecting profit or loss. Sensitivity analysis Before taking into account the effect of taxes. Price interest rate risk PAL’s interest rate swaps. The Group assumes concurrent movements in interest rates and parallel shifts in the yield curves. The prices of these investments are monitored based on their current fair values. would show the potential decrease or increase in the Group’s equity.82% to 25. respectively.55 million.
. would show the potential decrease or increase in the Group’s profit and loss. A sensitivity analysis to a reasonably possible change in the interest rates.99 million = P = and P23. if the USD interest rate for the periods had = been higher or lower by 25 basis points and 50 basis points. holding all other variables constant. The prices of these investments are monitored based on their current fair values.46% in 2009 and by 19. respectively. 2009 and 2008 would either decrease or increase by =69.55 -
swap agreements (aggregate notional amounts of $5.78 million and =55.86 million and P102. the Group has no outstanding quoted debt investments. are subject to price interest rate risk.55% to 37. Equity price risk Equity price risk is the risk that the fair values of equity securities decrease as the result of changes in the levels of equity indices and the value of individual stocks. respectively. Before taking into account the effect of income taxes. 2009 and 2008 would increase by P1.50% in 2008.
= P respectively. 2007 to March 31. The VaR estimates are made assuming normal market conditions using a 95% confidence interval and are determined by observing market data movements over a 90-day period..e.662 = 156. 2009 April 1.621 Average
Low =75. c) to be able to access funding when needed at the least possible cost and d) to maintain an adequate time spread of refinancing maturities. Assumptions and Limitations of VaR The VaR methodology employed by the Group uses a three-day period due to the assumption that not all positions could be undone in a single day given the size of the positions. On longterm exposures. jet fuel).135. PAL also uses fuel derivatives indexed to crude oil as proxy hedges due to liquidity constraints in the refined oil products market (i. the Group has a portfolio of swaps.536 P 92.. b) to meet commitments as they arise without incurring unnecessary costs. It captures the complex dynamics of the term structure of commodity markets.50 million as of March 31.g. In managing this significant risk.56 -
Fuel price risk The Group is exposed to price risk on jet fuel purchases. The VaR computation makes use of Monte Carlo simulation with multi-factor models.878
P390.119 = 322. The Group implements such strategies to manage and minimize the risks within acceptable risk parameters. collars. such as contango and backwardation. The Group’s objectives to manage its liquidity profile are: a) to ensure that adequate funding is available at all times.359
Liquidity risk Liquidity risk arises from the possibility that the Group may encounter difficulties in raising funds to meet commitments from financial instruments (e. 2008 to March 31. 2008 P1. average and low VaR amounts are as follows: High April 1. Multi-factor models ensure that the simulation process takes into account mean reversion and seasonality.30 million and =191. The VaR computation is a risk analysis tool designed to estimate statistically the maximum potential loss from adverse movement in fuel prices. This risk is managed by a combination of strategies with the objective of managing price levels within an acceptable band through various types of derivative and hedging instruments.
The high. The Group uses a Value-at-Risk (VaR) computation to estimate the potential three-day loss in the fair value of its fuel derivatives. 2009 and 2008..
. The estimated potential three-day losses on its fuel derivative transactions. as calculated in the VaR model amounted to P83. PAL’s fuel derivatives are viewed as economic hedges and are not held for speculative purposes. and compound structures with sold options or option combinations with extendible or cancellable features. long-term obligations) or that a market for derivatives may not exist in some circumstances. Short-term exposures are hedged primarily with fuel derivatives indexed to jet fuel.
090 (1.738.483.291. Credit limits are set in line with the long-term rating of the counterparty as determined by Standard & Poor’s and Moody’s.637 4.840 =
414.110.483 3.011 – – – – = P2. Settlement risk on derivatives is managed by limiting aggregate exposure on all outstanding derivatives to any individual counterparty.
Counterparty risk The Group’s counterparty risk encompasses issuer risk on investment securities.701 3.509.732 18.011 – – – – = P7.591
414.532 = P64.479.477 =
3.103 3.915.040.869.486.942.565 481.592.106
414.525 – – – – P12.471.597.559
2.918.008 – – – – P4.811 P15.804.296 2.809
– 1.065 234.178) 2. 2008 (amounts in thousands)
<1 year >1-<2 years >2-<3 years >3-<4 years >4-<5 years
Accounts payable and accrued expenses Notes payable (noncurrent portion is included under “Other noncurrent liabilities”) Obligation under finance lease Other long-term liabilities Other liability (under “Accrued expense” and “Other noncurrent liabilities”) (Note 16) Due to related parties Derivative instruments: Contractual receivable Contractual payable Fuel derivatives = P11.701 906. where the estimated forward or swap curve is compared against contractually agreed rates or prices.520 =
414.047. credit risk on cash in bank.090 (1.187 1.000.355 = P24.108
– 9.084 3.814.738.531.011 – – – 23. PAL also enters into master netting arrangements and implements counterparty and transaction limits to avoid concentration of counterparty risk.383 = P9.107 =
34.556 481.057 1.690.731.483.794) 50.011 – (20.241 =
– 6. In the case of derivatives.008 – – – – P10.452.166
– 5.350 4. taking into account its credit rating.477 =
Note: Coupon cash flows on floating rate liabilities are determined using projected rates.731.015.535 43. and security deposits.477 = P– = P– = P– = P– =
P12.3184.108.40.2063.707 P86.561.090 (1.579.011 481.464.286 = P– = P– = P– = P–
= P11.972) 2. where the settlement mechanism is gross. The Group manages its counterparty risk by transacting with counterparties of good financial condition and selecting investment grade securities.512
6. These limits are regularly monitored.994.992 789.778.745
– 6.918.218.402 3.008 – – – – P9.723
414. reviewed and adjusted as deemed necessary.299.087.537.310
– 4.871 6.090 (1.758.008 481.064.021) 1. Where the settlement mechanism is net.387.437.021) 1.091.691
414.573. the future undiscounted cash flows are used.597.419 250.973.559.896 P32.871 35.008 – – – 2.484.538.991 1.501 – – – – = P10. and settlement risk on derivatives.106.464.804..57 -
The tables below summarize the maturity analysis of the Group’s financial liabilities based on contractual undiscounted payments (principal and interest): March 31. 2009 (amounts in thousands)
<1 year >1-<2 years >2-<3 years >3-<4 years >4-<5 years
Accounts payable and accrued expenses Notes payable (noncurrent portion is included under “Other noncurrent liabilities”) Obligation under finance lease Other long-term liabilities Other liability (under “Accrued expense” and “Other noncurrent liabilities”) (Note 16) Due to related parties Derivative instruments: Contractual receivable Contractual payable Fuel derivatives P12.794 = P10.569 –
3. the contractual cash inflows and outflows are presented by time bucket.345
– 7. time deposits.535 7.104.065 =
Accounts from these agents are consistently monitored in order to identify any potential adverse changes in the credit quality. Credit quality per class of financial assets The credit quality of receivables is managed by the Group using internal credit quality ratings.202
P515.588. To manage such risk.16 billion and =0. the size.050
P43.58 The table below shows the maximum counterparty exposure before taking into account any collateral and other credit enhancements of the Group as of March 31: 2008 2009 (amounts in thousands) Cash in bank and cash equivalents =14.539 = 23. to the best of its knowledge.78 billion. by age.266. An analysis of past due accounts.600 = Short-term investments – 374. The carrying value of these collaterals held as of March 31.113 Margin deposits. Substandard grade accounts. are receivables from agents with history of defaulted payments. = P The Group.083 = Credit risks The Group’s exposure to credit risk arises from the possibility that agents and other counterparties may fail to fulfill their agreed obligations and that the collaterals held may not be sufficient to cover the Group’s claims.580 P P23.630.580 = –
P3. employs a credit evaluation process prior to the accreditation or reaccreditation of its travel and cargo agents. the Group requires from its agents financial guarantees in the form of cash bonds.713 = 13. on the other hand.243
P160.057 P P5. paying habits and the financial condition of the agents.012.205 Receivables 5.724. High grade accounts consist of passenger and cargo receivables from agents with good financial condition and which management believes to be reasonably assured to be recoverable.305 4.880
P5.835 = 330. The table below shows the credit quality of receivables and an aging analysis of past due accounts (amounts in thousands):
2009 Past Due but not Impaired Over 30 Over 60 Over 90 Days Days Days Impaired Financial Assets
High Grade General traffic Passenger receivables Cargo receivables (Forward)
P2. Standard grade accounts consist of passenger and cargo receivables from agents with relatively low defaults.383
. respectively.856. among other factors.878 = 92.549 = 69.100. lease deposits and others 4. 2009 and 2008 amounted to P1.619.496 =29.759.364 – Investment in MAC 330. Past due accounts include those accounts that are past due by only a few days.323.000 255.423 = 12. To further mitigate the risk. Receivables from IATA which consist of receivables from other airlines through the IATA clearing house are deemed high grade accounts as the expectation of default is minimal.469 Investment in US Treasury bonds 92. through its Credit and Collection Department.460 3. the Group.200 Derivative instruments 4. letters of credit and assignment of time deposits. is discussed in the succeeding section.830. has no significant concentration of credit risk with any counterparty..312.531 = 17.622 = 101.577
P121. The Group considers.394 8.
343.394 347.856.077.134 92.744 25.097.741 347.581 374.709 =
High Grade IATA receivables Others Non-trade receivables* P324.510 3.557 = P23.113 – 3.610 = P700.151.205 P1.222 2.604.009.581 374.130 526.012.230.562 18.113 P23.994 441.130 526.205
Carrying Value Fair Value
=1.402 347.681 = P1.460 = P29.475 = P148.138.204
= P202.914 5.124.394 22.752 324.846 =
3.879 P412.178 =
– – – 14.567 P3.063 = P101.339 – 9.645.767.058 = P584.130 P– = – P– = – Impaired Financial Assets P– = 60.675 = *Non-trade receivables exclude receivables arising from statutory requirements amounting to P2.net: General traffic: Passenger Cargo IATA Others Non-trade* Margin deposits.741.347 92.850.161 1.359 840.214 – 12.266.009.192.048 P
12.287 3.586.961.647 –
P1.140 – – 543
= P– – – 1.364 652.294.536.080 398.266.713.822.799 – – 1.959.816 – 516.108 P2.036 137.497.048 =
12.798 4.482 264.173 4.291 303.287 3. lease deposits and others Available-for-sale investments: Debt investments .218.498.822.830.744 16. Financial Instruments Fair Values of Financial Instruments The table below presents a comparison by category of the carrying amounts and fair values of the Group’s financial instruments (amounts in thousands):
2009 Carrying Value Fair Value Financial Assets Cash Loans and Receivables Cash equivalents Short-term investments Accounts receivable .927 *Non-trade receivables exclude receivables arising from statutory requirements amounting to P2.056.407 = 4.459 =
Total P324.092 1.395 8.767.803 108
.364 652.733 47.957 237.123 119.510 3.073.496 18.750 – 516.472.597
= P3.782 = P191.266.161 1. 2008 Past Due but not Impaired Over 30 Over 60 Over 90 Days Days Days
High Grade General traffic Passenger receivables Cargo receivables IATA receivables Others Non-trade receivables*
Impaired Financial Assets
= P2.536.234 2..234 = 62.368 1.479 = P6.069.780 =
3.266.339 = P175.061 1.963
= P116.994 441.560 77.560.744 –
= P6.113 P23.117 560.234 = –
Others P– = – 368.503
= P22.297.443.460 = P29.368 1.613.429 2.218 = P7.340 = P1.
28.395 8.798 3.173 4.568 42 – –
= P591.376.744 16.016
3.219 819.234 2.402 347.830.quoted Equity investments: Quoted Unquoted Derivative Assets: Fair value through profit or loss Accounted for as cash flow hedges P1.176.599 = P144.510
– – – 108.885.59 Standard Grade P– = – Substandard Grade P– = – 2009 Past Due but not Impaired Over 30 Over 60 Over 90 Days Days Days P– = 2.073.069.723 752 – –
= P148.684 42.407 = 4.322.113 – 3.647 –
3.482 264.315 1.315 1.219 819.181 21.443.165 = P3.416 = P49.294.957 237.291 303.497.961.752 324.504 P6.477.
576 = P60. by adjusting the quoted market prices of comparable investments.235 28. accounts payable.503.576 = P57.869.088 =
1.715 481.235 29.100
* Excludes receivables arising from statutory requirements (net of allowance amounting to P562.709 481. the historical cost carrying amounts of receivables.549.463.275.486 481.087.339 37. fair values are estimated by obtaining quotes from counterparties or from independent entities that offer pricing services.083 and P433.177 264.573 481.060 P81.
The following methods and assumptions are used to estimate the fair value of each class of financial instruments: Cash and cash equivalents.721 6.913. Equity investments (available-for-sale investments) The fair values of equity investments are generally based upon quoted market prices. short-term investments and receivables The carrying amounts of cash and cash equivalents and short-term investments approximate fair value.929.229 75.667 3. Unquoted equity investments are carried at cost (subject to impairment) if the fair value cannot be determined reliably or where the variability in the range of fair value estimates is significant.090
2009 Carrying Value Fair Value Financial Liabilities Financial liabilities carried at amortized cost: Accounts payable and accrued expenses Notes payable Obligations under finance lease Other long-term liabilities Due to related parties Other liability (under “Accrued expense” and “Other noncurrent liabilities”) Derivative Liabilities: Fair value through profit or loss Accounted for as cash flow hedges
Carrying Value Fair Value
.364 73. 2009 and 2008.090
= P11.968.417.519 56.399 3.731.223 36.090
= P11.971.074.060 P80. The carrying amounts of receivables approximate fair value due to their short-term settlement period.869.513 16.165 15.556. accrued expenses and due to related parties approximate their fair values due to the short-term nature of these accounts.477 = 6.172 7.956.524 3.408.907.339 37.286 3.223 37.907.462..888. miscellaneous deposits.437.908 8. Debt investments (available-for-sale investments) The fair values of debt investments are generally based upon quoted market prices.087.399 3.813.090
P12.705.169 53.888.721 6.105 6.477 = 6.731.461. Current financial instruments Similarly.165 =
1.981.440.177 264.028 6. If market prices are not readily available.491. respectively).690.636 as of March 31.243
fixed rate notes payable The fair value of long-term obligations (whether fixed or floating) is generally based on the present value of expected cash flows with discount rates that are based on risk-adjusted benchmark rates (in the case of floating rate liabilities with quarterly repricing.733 = – – 34.66% for March 31. fixed rate notes payable approximates its fair value due to the short-term settlement period of the notes (i. Discount rates used are 1. The discount rates used amounted to 2.585 198. Long-term obligations and short-term.907. Derivatives The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles.113 = (In Thousands) Asset Liability =4.627 = 107. the fair value of fuel derivatives is determined by the use of either present value methods or standard option valuation models. respectively.17% and 2.09% for USD-denominated loans in 2009 and 2008. 2009 and 2008.576 =
Fuel derivatives Interest rate swaps Currency forwards Structured currency derivatives
. respectively.65% to 1.949 =4.266.460 P P6.231. respectively.61 Security deposits The fair value of refundable deposits is determined using discounted cash flow techniques based on prevailing market rates.426 P3.890 – – 39.938 39. including (but not limited to) the forward curve derived from published or futures prices adjusted for factors such as seasonality considerations and the volatilities that take into account the impact of spot prices and the long-term price outlook of the underlying commodity. The fair values of fuel derivatives with extendible or cancelable features are based on quotes provided by counterparties. and depending on the type of instrument and the underlying commodity. The fair value of interest rate swap transactions is the net present value of estimated future cash flows. effect of discounting is minimal). the carrying value approximates the fair value in view of the recent and regular repricing based on current market rates). PAL’s derivative financial instruments are accounted for at fair value through profit or loss.e. The valuation inputs on these fuel derivatives are based on assumptions developed from observable information.721 6. In the absence of an active and liquid market.830. The carrying value of the short-term.92% to 4.390 = – 37. The fair values of fuel derivatives that are actively traded on an organized and liquid market are based on published prices.67% and 6. except for interest rate swaps and certain fuel derivatives (which are accounted for as cash flow hedges).570 P P6.813. The following table provides information about PAL’s derivative financial instruments outstanding as of March 31 and the related fair values: 2009 Asset P3.060 = 2008 Liability P3.823... The discount rates used range from 0.467. as discussed in Note 27.10% for JPY-denominated loans in 2009 and 2008.25% and 2.380 P3. Derivative Financial Instruments The derivative financial instruments set out in this section have been entered into to achieve the Group’s risk management objectives.04% to 5.829.
2009 and 2008.705. 2008.000 barrels.35 billion and P2.07 billion in 2008) and “Accrued expenses” (P4. As of March 31.. The net negative fair value of these fuel derivatives as of March 31.855. respectively. In 2009. The dramatic increase in all energy prices over the years is another reason why jet fuel and oil have become a large portion of its expenses. net of deferred income tax” in the equity section of the consolidated statements of financial position amounted to =1. P
.03% of its operating expenses represent jet fuel consumption for March 31. written calls.000 barrels.07 million in 2009 = and P1.00 billion and =2. As of March 31. respectively. there are no outstanding fuel derivatives accounted for as cash flow hedges. are not accounted for as accounting hedges. PAL accounted for certain fuel derivatives as cash flow hedges as such instruments are utilized to reduce the variability of the cash flows of forecasted jet fuel purchases.000 barrels and 9.790. 2008. Approximately 47. respectively.45 million as of March 31. The positive and negative fair values of derivative positions that will settle in more than 12 months are classified under “Other noncurrent assets" (P179. and fixed swaps are linked to specified fuel indices and have various monthly maturities up to June 30. These hedges.30 billion loss resulting from the early termination of several fuel = hedging contracts before maturity date and =2. respectively. 2010. These derivatives include leveraged collars.00 billion in 2009 and =2. PAL enters into fuel derivatives. the outstanding notional amounts of bought and sold options accounted for as cash flow hedges totaled 3.28 million) and P308.54 billion for the years ended P P March 31. 2009 and 2008 amounted to =3. The net positive fair value of these fuel derivatives as of March 31. In order to hedge against adverse market condition and to be able to acquire jet fuel at the lowest possible cost. the positive and negative fair values of derivative positions that will settle in 12 months or less are classified under “Other current assets” (P3.000 and 8. 2009 and 2008.585. the outstanding notional amounts of bought and sold options not accounted for as cash flow hedges totaled 9. 2009 and 2008.000 barrels and 3.32% and 32. The unrealized positive fair value after tax included under “Cumulative translation adjustment.91 billion in 2009 and P1. which provide economic hedges against jet fuel price risk. 2009 and 2008.435.61 = = = billion in 2008). = = Fuel derivatives PAL is dependent on jet fuel to run its operation. consisting of fuel caps and floors (collar structures). respectively. 2008 amounted to = P3. The derivative asset (liability) balances include amounts arising from derivative settlements that are currently due to (due from) the Group. As of March 31. respectively.85 billion loss from restructuring deals. 2009. P = respectively. respectively.09 billion.180.76 billion in 2008) and “Other noncurrent liabilities” (P2. swaps and other structures with extendible or cancelable features and are carried at fair values in the consolidated statement of financial position.62 As of March 31. PAL’s other fuel derivatives. As of March 31. PAL incurred P5. with fair value changes being reported immediately in the consolidated statement of comprehensive income.000 barrels. The amounts totaled (P249. PAL does not purchase or hold any derivative financial instruments for trading purposes. respectively. 2009.14 billion. the outstanding notional amounts of bought and sold options not accounted for as cash flow hedges totaled 3.21 billion in = = P 2008).09 billion in 2009 = and P3.
1999 were P converted into long-term liabilities in 1999 and included as part of the outstanding principal balances of the related “Aircraft secured claims” (see Note 15). 2008. 2009 and 2008. JPY.52 million as of March 31. The aggregate notional amount in USD is equal to $10.01 million as of P March 31.39 million for the years ended March 31. CAD and SGD). = P respectively. Currency forwards The Group’s currency forwards are carried at fair value in the consolidated statements of financial position.42 million.. PHP). =
. PAL also entered P into currency forward contract to buy EUR and sell CAD. the unpaid swap costs amounting to =51. The net positive fair value of these currency forwards amounts to =5.40 million and $29.08 million and $52.94 million as of March 31.41 million as of March 31. Structured currency derivatives The Group entered into structured currency derivatives consisting of compound option structures with combination of long calls with knockout and short put with leverage features.61%. As of March 31. 2009 to September 24.99 million and =39.71 million as of March 31. During 2008. with an aggregate notional amount in EUR 600.27 million.. while negative net fair value of these structures amounts to P5.e. PAL has no outstanding currency forwards. 2009 and 2008. HKD. The net negative fair values of these forwards amount to =37. respectively. Under the agreements. the difference between PAL’s fixed interest rates and the counterparties’ floating interest rates. As discussed under “Aircraft secured claims”.63 -
Interest rate swaps The interest rate swap agreements relative to the financing of two Airbus 330-300 aircraft have aggregate notional amounts of $36. 2009. = P respectively. These contracts are carried at fair value in the consolidated statement of financial position. The effect of these swap agreements is to effectively fix PAL’s interest rate exposures under these financing agreements to rates ranging from 6. 2008. 2009 and 2008.e. PAL agreed with the counterparties to exchange. 2008. and have expiry dates from August 27. respectively. As of March 31. 2009 and 2008.20 million as of March 31.. Financing charges in = P the consolidated statements of comprehensive income include swap costs on the interest rate swap agreements of P77. The outstanding structured currency derivatives are composed of option to buy EUR in USD and buy USD in various currencies (i. 2009. CAD. net of deferred income tax” in the equity section of the consolidated statements of financial position amounted to P26. respectively. the contracts have aggregate notional amounts of $30. with the fair value changes being reported immediately in the consolidated statements of comprehensive income. respectively. The fair value changes of the derivative instruments are recognized directly in the consolidated statement of comprehensive income.50% to 6. AUD.72 million and =107.57 = million and P198.94 million. the estimated negative fair values for these interest rate swap agreements amounted to P37.24 million and =74. JPY. As of March 31. The unrealized negative fair value after tax included under “Cumulative translation adjustment. at semi-annual intervals. 2009 and 2008. The Group’s outstanding currency forwards consist of short term buy USD and sell various currencies (i.
134.734 P P708.268.061 = P2.86 million.093 (2. Fair value changes on derivatives The net changes in the fair values of all derivative instruments for the years ended March 31 are as follows: 2008 2009 (In Thousands) =1. the effective portion of the positive fair value changes on the Group’s cash flows hedges that were deferred in equity amounted to P1.012) (147.895.841.721.848.120) 645. interest rate swaps.273.432 = 1.292) (P3.811 (2.492.118 P
Beginning of year Items recognized as other comprehensive income: Changes in fair value of cash flow hedges Transferred to consolidated statements of comprehensive income* Tax effects of items taken directly to or transferred from equity Foreign exchange difference End of year
* The amount transferred to the consolidated statements of comprehensive income is included in flying operations expense as hedging gain or loss and the amount from interest rate swaps is included as part of financing charges as swap income or cost. which were recognized immediately in profit and loss amounted to (P6. 2009 and 2008.235 (1.
.04 billion = (net of tax) and P2.231.45 million as of = = March 31.273.432 =
Beginning of year Net changes in fair values of derivatives: Designated as accounting hedges Not designated as accounting hedges Fair value of settled instruments** Foreign exchange difference End of year*
* Includes balances that are currently due to (from) the Group amounting to (P 249.650) P1.671) = 4.. 2009 and 2008.314) (678. 2009 and 2008.101) P708.458) 6.391. The total mark-to-market gain (loss) = relating to the ineffective portion of cash flow hedges for the years ended March 31. respectively.041.293.468 = 3.118 = 2009 1.596) (10. currency forwards and structured currency derivatives.282) 1.022 (3. respectively.93) million and = = P658.622 1.486) 157.
For the years ended March 31.729 (358. ** Includes fuel derivatives.908.367.057 =2.135.138 (12.273.845.567. respectively.64 -
Hedge effectiveness of cash flow hedges Below is a rollforward of PAL’s “Cumulative translation adjustments” on cash flow hedges for the years ended March 31: 2008 (In Thousands) P781.647 (80.27 billion (net of tax).281) (1.276) and P308.
PAL’s major revenue-producing asset is the fleet owned by PAL.106) 2.701 (6.000.801) =
1.140) 64.406 3.608..718.
4.109.365) 2008 2007 (In Thousands) =52.274) (P12.518.233.327 = 4.475.809. cargo.470) 65. Segment information for each reportable geographical segment is shown in the following table: 2009 International: Revenue Net income (loss) Domestic: Revenue Net loss Total: Revenue Net income (loss) P57. and other information on cash flows and capital expenditures are not disclosed since there is no reasonable basis for allocating such assets and related liabilities and cash flows to geographical and business segments.659.559 =
(P7.878 = (4.058 P
1.455.455.355.079. Segment Information PAL’s domestic and international destinations constitute its reportable geographical segments.911. liabilities.417.077.837.198 12.437 =
The details of revenue earned from each business segment (passenger. which is employed across its route network (see Note 11).365) =
The reconciliation of total income reported by reportable geographical segment to net income (loss) in the consolidated statements of comprehensive income is presented in the following table: 2009 Total segment income (loss) of reportable segments Add (deduct) unallocated items: Non-transport revenue and other income Non-transport expenses and other charges Benefit from (provision for) income tax Net income (loss) 2008 2007 (In Thousands) P3.290 (7.058 P52. Geographical and business segment assets.935 3.909 (456. which is consistent with how PAL’s management internally disaggregates financial information for the purpose of evaluating performance and making operating decisions.799.412 (3.466.718.398 P7.958.225. and others) are shown in the consolidated statements of comprehensive income.185.370.586 (3.608 (269.029 12.684) 1.667 (P4.348.682) 74.333.65 -
29.863) (473.683) 16.026.408 (6.497 P 3.428.
030 6.490.112.408.419 P
837.836 6.750 -
6.480 3.052.428 P 11.702 30.486.894 8.647 5. 2009
(Am ounts in Thousand Pes os )
Type of Obligation
Amount Authorized by Indenture
Amount Shown as Current
Amount Shown as Long-term
Obligations under finance leases relating to: Boeing 747-400 aircraft Airbus 320-200 aircraft Airbus 340-300 aircraft Airbus 330-300 aircraft
See Annex A
Estimated terminated operating lease claims* Unsecured claims*
Long-term debt: Secured loans Trade Creditor Claims
See Annex B See Annex C
* Net of im pu ted interest
.095 1.064 15.686.547.259.058 4.824 3.631.296.727 10.778 1.905.052. & SUBSIDIARIES Schedule F Long-term Obligations March 31.454 P
495.437.708 52. INC.299.011.250 10.040.971.657.584 11.805.732 36.981 42.074 13.247 3.523 12.840.PAL HOLDINGS.829.
063 3 m ont h LIBOR plus
m argin of 3% quart erly 2008 2015 syndicated loan quart erly 2008 2015
From a syndicate of local banks
2.ANNEX A March 31. INC.750
6.687 3 m ont h LIBOR plus
m argin of 3%
(Am ounts in Thous and Pes os )
Type of Obligation
Amount Shown Amount Shown as as Current Long-term
Floating Interest Rate
Secured Loans: From a local bank P .220.P 3.PAL HOLDINGS.052. & SUBSIDIARIES Schedule F Long-term Obligations .
2010 .32% June 7.5% June 7.328
Restructured Payment terms: June 7.665
8.PAL HOLDINGS. INC.895
495. 2011 .ANNEX B March 31. & SUBSIDIARIES Schedule F Long-term Obligations .947 164.635
342. 2000 1998-2001
5.31% June 7. 2009
(Am ounts in Thous and Pe s os )
Amount Shown as Current Net Present Value
Amount Shown Terminated Operating Expiry Lease as Long-term Lease Claim Date Net Present Value
Early Lease Termination Date
Estimated Terminated Operating Lease Claims
.424 234. 2000 . 2009 .
5% per annum over 1 m ont h LIBOR 01/16/97 01/16/00
2% per annum over 6 m ont h LIBOR 1.75%
Peso denominated loans
98.939. 2009 .075 3.5-4.ANNEX C March 31.32%
3.31% June 7.184
873.083.5% June 7.480
5. 2010 .365.769.584
.109 P 4.104
10.533 4. INC. 2009
(Am ounts in Thousand Pe sos )
Type of Obligation
Amount Shown as Current Net Present Value
Amount Shown as Long-term Net Present Value
Original Fixed Interest Rate
Original Floating Interest Rate
Original Issue Date
Original Maturity Date
Unsecured Claims Foreign-currency denominated loans: US$178.PAL HOLDINGS.296
19.463. & SUBSIDIARIES Schedule F Long-term Obligations . 2000 .065.480 144.5 floating rate note P 2.50%
weight ed average yield rat e for 364-day t reasury bill
Restructured payment terms: June 7.
8. and outstanding conversion and other rights 5.280.096 -
Number of shares held by Affiliates
.PAL HOLDINGS. 2009
Title of Issue No.297.001
124.223. warrants. of shares issued for options. Of shares reserved No.000.512.000.421.000
5. INC. AND SUBSIDIARIES SCHEDULE I: CAPITAL STOCK MARCH 31. of shares authorized
No. Officers and Employees Others
PAL HOLDINGS. 2008 Less net loss during the year closed to retained earnings Deficit as of March 31. 2009
.402 (20. SUPPLEMENTARY SCHEDULE OF RETAINED EARNINGS AVAILABLE FOR DIVIDEND DECLARATION MARCH 31. 2009 (Amounts in Thousands)
Deficit as of March 31.662) 5.