May 28, 2013
PHILIPPINE STOCK EXCHANGE, INC.
3rd Floor, Tower One and Exchange Plaza
Ayala Triangle, Ayala Avenue
Makati City
Attention:
Ms. Janet A. Encarnacion
Head, Disclosure Department
Gentlemen:
Please find attached a copy of SEC Form 20-IS (Definitive Information
Statement) of Cebu Air, Inc. (the “Corporation”) which we have filed with the Securities
and Exchange Commission in connection with the Annual Meeting of the Stockholders of
the Corporation to be held on June 27, 2013.
Thank you.
Very truly yours,
ROSALINDA F. RIVERA
Corporate Secretary
/mhd
Airline Operations Center, Manila Domestic Airport, Pasay City, Philippines
Trunkline: (632) 802-7000
COVER SHEET
1 5 4 6 7 5
SEC Registration Number
C E B U
A I R ,
I N C .
(Company’s Full Name)
A I R L I N E
O P E R A T I O N S
D OM E S T I C
R O A D ,
C E N T E R ,
P A S A Y
C I T Y
(Business Address: No. Street City/Town/Province)
1
2
Month
Atty. Rosalinda F. Rivera
Corporate Secretary
802-7000
(Contact Person)
(Company Telephone Number)
3 1
2 0 -
I S
Day
(Form Type)
Fourth Thursday of June
Month
(Fiscal Year)
Day
(Annual Meeting)
Definitive Information Statement
N/A
(Secondary License Type, If Applicable)
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
Total No. of Stockholders
Domestic
Foreign
To be accomplished by SEC Personnel concerned
File Number
LCU
Document ID
Cashier
STAMPS
Remarks: Please use BLACK ink for scanning purposes.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 27, 2013
Notice is hereby given that the Annual Meeting of the Stockholders of CEBU AIR, INC. will be
held on June 27, 2013 at 5:00 p.m. at the Ruby Ballroom of CROWNE PLAZA MANILA GALLERIA,
Ortigas Avenue corner Asian Development Bank Avenue, Quezon City.
The Agenda for the meeting is as follows:
1. Proof of notice of the meeting and existence of a quorum.
2. Reading and approval of the Minutes of the Annual Meeting of Stockholders held on June 28,
2012.
3. Presentation of Annual Report and approval of Financial Statements for the preceding year.
4. Election of Board of Directors.
5. Election of External Auditor.
6. Ratification of all acts of the Board of Directors and Management since the last annual meeting.
7. Consideration of such other matters as may properly come during the meeting.
8. Adjournment.
For convenience in registering your attendance, please have available some form of identification,
such as Voter’s I.D., or Driver’s License.
Pursuant to Section 2, Article VII of the Amended By-Laws of Cebu Air, Inc., proxies must be
received by the Corporate Secretary for inspection and recording not later than five (5) working days
before the time set for the meeting, or not later than June 20, 2013. We are not, however, soliciting
proxies.
Registration starts at 4:00 p.m. and will close at exactly 5:15 p.m. Only stockholders of record as
of May 23, 2013 shall be entitled to vote.
By Authority of the Chairman
ROSALINDA F. RIVERA
Corporate Secretary
Airline Operations Center, Manila Domestic Airport, Pasay City, Philippines
Trunkline: (632) 802-7000
Date, Time and Place of Meeting of Security Holders
Date Time and Place of Meeting
:
June 27, 2013
5:00 P.M.
Ruby Ballroom
Crowne Plaza Manila Galleria
Ortigas Avenue corner
Asian Development Bank Avenue
Quezon City, Metro Manila
Complete Mailing Address of Principal Office
:
2nd Floor Doña Juanita Marquez Lim
Building, Osmeña Blvd., Cebu City
Approximate date on which the Information
Statement is first to be sent or given to
security holders
:
June 5, 2013
Dissenters’ Right of Appraisal
Any stockholder of the Corporation may exercise his appraisal right against the proposed
actions which qualify as instances giving rise to the exercise of such right pursuant to and subject to
the compliance with the requirements and procedure set forth under Title X of the Corporation
Code of the Philippines.
There are no matters to be acted upon by the stockholders at the Annual Meeting of the
Stockholders to be held on June 27, 2013 which would require the exercise of the appraisal right.
Interest of Certain Persons in or Opposition to Matters to be acted upon
None of the following persons have any substantial interest, direct or indirect, in any matter
to be acted upon other than election to office:
1. Directors or officers of the Corporation at any time since the beginning of the last fiscal
year;
2. Nominees for election as directors of the Corporation;
3. Associate of any of the foregoing persons.
Voting Securities and Principal Holders Thereof
(a) The Corporation has 605,953,330 outstanding shares as of April 30, 2013. Every
stockholder shall be entitled to one vote for each share of stock held as of the established
record date.
(b) All stockholders of record as of May 23, 2013 are entitled to notice and to vote at the
Corporation’s Annual Meeting of Stockholders.
(c) Section 8, Article VII of the By-Laws of the Corporation states that, for purposes of
determining the stockholders entitled to notice of, or to vote or be voted at any meeting
of stockholders or any adjournments thereof, or entitled to receive payment of any
dividends or other distribution or allotment of any rights, or for the purpose of any
other lawful action, or for making any other proper determination of stockholders, the
2
Board of Directors may provide that the stock and transfer books be closed for a stated
period, which shall not be more than sixty (60) days nor less than thirty (30) days before
the date of such meeting. In lieu of closing the stock and transfer books, the Board of
Directors may fix in advance a date as the record date for any such determination of
stockholders. A determination of stockholders of record entitled to notice of or to vote
or be voted at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Election of Directors
Section 1 (a), Article II of the By-Laws of the Corporation provides that the directors of the
Corporation shall be elected by plurality vote at the annual meeting of the stockholders for that
year at which a quorum is present. At each election for directors, every stockholder shall have the
right to vote, in person or by proxy, the number of shares owned by him for as many persons as
there are directors to be elected, or to cumulate his votes by giving one candidate as many votes as
the number of such directors multiplied by the number of his shares shall equal, or by distributing
such votes on the same principle among any number of candidates.
The report attached to this SEC Form 20-IS is the management report to stockholders
required under SRC Rule 20 to accompany the SEC Form 20-IS and is hereinafter referred to as
the “Management Report”.
Security Ownership of Certain Record and Beneficial Owners and Management
Security Ownership of Certain Record and Beneficial Owners of more than 5% of the Corporation’s
voting securities as of April 30, 2013
Title of
Class
Common
Common
Common
Names and addresses of record
owners and relationship with the
Corporation
CPAir Holdings, Inc.
43/F Robinsons Equitable Tower,
ADB Avenue corner Poveda
Street, Ortigas Center, Pasig City
(stockholder)
PCD Nominee Corporation
(Non-Filipino)
37/F Tower 1, The Enterprise
Center, Ayala Ave. corner Paseo
de Roxas, Makati City
(stockholder)
PCD Nominee Corporation
(Filipino)
37/F Tower 1, The Enterprise
Center, Ayala Ave. corner Paseo
de Roxas, Makati City
(stockholder)
Name of beneficial
owner and
relationship with
record owner
JG Summit
Holdings, Inc.
(See note 1)
Citizenship
Filipino
Number of
% to Total
Shares Held
Outstanding
400,816,841
66.15%
PDTC Participants
and their clients
(See note 2)
Non-Filipino
136,441,271
(See note 3)
22.52%
PDTC Participants
and their clients
(See note 2)
Filipino
60,855,209
10.04%
Notes:
1. CPAir Holdings, Inc. is a wholly-owned subsidiary of JG Summit Holdings, Inc. Under the By-Laws of CPAir Holdings,
Inc., the President is authorized to represent the corporation at all functions and proceedings. The incumbent President of
CPAir Holdings, Inc. is Mr. Lance Y. Gokongwei.
3
2.
PCD Nominee Corporation is the registered owner of the shares in the books of the Corporation’s transfer agent. PCD
Nominee Corporation is a corporation wholly-owned by Philippine Depository and Trust Corporation, Inc. (formerly the
Philippine Central Depository) (“PDTC”), whose sole purpose is to act as nominee and legal title holder of all shares of
stock lodged in the PDTC. PDTC is a private corporation organized to establish a central depository in the Philippines and
introduce scripless or book-entry trading in the Philippines. Under the current PDTC system, only participants (brokers and
custodians) will be recognized by PDTC as the beneficial owners of the lodged shares. Each beneficial owner of shares
though his participant will be the beneficial owner to the extent of the number of shares held by such participant in the
records of the PCD Nominee.
3.
Out of the PCD Nominee Corporation (Non-Filipino) account, “The Hongkong and Shanghai Banking Corp. Ltd. -Clients’
Acct.” holds for various trust accounts the following shares of the Corporation as of April 30, 2013:
The Hongkong and Shanghai Banking Corp. Ltd. -Clients’ Acct.
No. of shares
72,042,695
% to Outstanding
11.89%
The securities are voted by the trustee’s designated officers who are not known to the Corporation.
Security Ownership of Management as of April 30, 2013
Title of
Name of beneficial
Class
Owner
1
Named Executive Officers
Common
1. Lance Y. Gokongwei
2. Victor Emmanuel B. Custodio
3. Antonio Jose L. Rodriguez
4. Michael S. Shau
5. Jeanette U. Yu
Sub-Total
Amount & nature of
beneficial ownership
Common
Common
Common
Common
Common
Common
Common
Common
Common
-
1
1
1
1
1
1
1
1
10,000
10,008
-
6. Ricardo J. Romulo
7. John L. Gokongwei, Jr.
8. James L. Go
9. Jose F. Buenaventura
10. Robina Y. Gokongwei-Pe
11. Frederick D. Go
12. Antonio L. Go
13. Oh Wee Khoon
14. Jaime I. Cabangis
15. Bach Johann M. Sebastian
16. Rosita D. Menchaca
17. Candice Jennifer A. Iyog
18. Joseph G. Macagga
19. Robin C. Dui
20. Alexander G. Lao
21. Alejandro B. Reyes
22. Rosalinda F. Rivera
23. William S. Pamintuan
All directors and executive officers as a group
unnamed
1
1
Direct
Direct
Direct
Direct
Direct
Citizenship
Filipino
Filipino
Filipino
Filipino
Filipino
Direct
Filipino
Direct
Filipino
Direct
Filipino
Direct
Filipino
Direct
Filipino
Direct
Filipino
Direct
Filipino
Direct
Singaporean
Under PCD account
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
% to Total
Outstanding
*
*
*
*
*
*
*
*
*
*
*
*
*
10,009
Notes:
1. As defined under Part IV (B) (1) (b) of SRC Rule 12, the “named executive officers” to be listed refer to the Chief Executive
Officer and those that are the four (4) most highly compensated executive officers as of April 30, 2013.
* less than 0.01%
4
Shares owned by foreigners
The total number of shares owned by foreigners as of April 30, 2013 is 136,441,272 common
shares.
Voting Trust Holders of 5% or more - as of April 30, 2013
There are no persons holding more than 5% of a class under a voting trust or similar
agreement.
Changes in Control
There has been no change in the control of the Corporation since the beginning of its last
fiscal year.
Directors and Executive Officers
Information required hereunder is incorporated by reference to the section entitled “Board
of Directors and Executive Officers of the Registrant” on Item 8, pages 30 to 36 of the Management
Report.
The incumbent directors of the Corporation are expected to be nominated by management
for re-election this year.
The incumbent members of the Nomination Committee of the Corporation are as follows:
1. John L. Gokongwei, Jr.
2. James L. Go (Chairman)
3. Lance Y. Gokongwei
4. Frederick D. Go
5. Oh Wee Khoon (independent director)
The incumbent members of the Audit Committee of the Corporation are as follows:
1. John L. Gokongwei, Jr.
2. James L. Go
3. Lance Y. Gokongwei
4. Frederick D. Go
5. Antonio L. Go (independent director) (Chairman)
6. Oh Wee Khoon (independent director)
The incumbent members of the Remuneration and Compensation Committee of the
Corporation are as follows:
1. John L. Gokongwei, Jr.
2. James L. Go (Chairman)
3. Lance Y. Gokongwei
4. Frederick D. Go
5. Antonio L. Go (independent director)
Information required by the SEC under SRC Rule 38 on the nomination and election of
Independent Directors.
The following criteria and guidelines shall be observed in the pre-screening, short listing, and nomination
of Independent Directors:
5
A. Definition
1.
An independent director is a person who, apart from his fees and shareholdings, is
independent of management and free from any business or other relationship which could, or
could reasonably be perceived to, materially interfere with his exercise of independent
judgment in carrying out his responsibilities as a director in the corporation and includes,
among others, any person who:
1.1
Is not a director or officer or substantial stockholder of the corporation or of its
related companies or any of its substantial shareholders except when the same shall
be an independent director of any of the foregoing;
1.2
Does not own more than two percent (2%) of the shares of the corporation and/or its
related companies or any of its substantial shareholders;
1.3
Is not a relative of any director, officer or substantial shareholder of the corporation,
any of its related companies or any of its substantial shareholders. For this purpose,
relatives include spouse, parent, child, brother, sister, and the spouse of such child,
brother or sister;
1.4
Is not acting as a nominee or representative of any director or substantial shareholder
of the corporation, and/or any of its related companies and/or any of its substantial
shareholders, pursuant to a Deed of Trust or under any contract or arrangement;
1.5
Has not been employed in any executive capacity by the corporation, any of its
related companies and/or by any of its substantial shareholders within the last two (2)
years.
1.6
Is not retained, either personally or through his firm or any similar entity, as
professional adviser, by the corporation, any of its related companies and/or any of its
substantial shareholders, within the last two (2) years; or
1.7
Has not engaged and does not engage in any transaction with the corporation and/or
with any of its related companies and/or with any of its substantial shareholders,
whether by himself and/or with other persons and/or through a firm of which he is a
partner and/or a company of which he is a director or substantial shareholder, other
than transactions which are conducted at arms length and are immaterial.
2.
No person convicted by final judgment of an offense punishable by imprisonment for a
period exceeding six (6) years, or a violation of this Code, committed within five (5) years
prior to the date of his election, shall qualify as an independent director. This is without
prejudice to other disqualifications which the corporation’s Manual on Corporate Governance
provides.
3.
Any controversy or issue arising from the selection, nomination or election of independent
directors shall be resolved by the Commission by appointing independent directors from the
list of nominees submitted by the stockholders.
4.
When used in relation to a company subject to the requirements above:
4.1
Related company means another company which is: (a) its holding company, (b) its
subsidiary, or (c) a subsidiary of its holding company; and
6
4.2
Substantial shareholder means any person who is directly or indirectly the beneficial
owner of more than ten percent (10%) of any class of its equity security.
B. Qualifications and Disqualifications of Independent Directors
1.
2.
An independent director shall have the following qualifications:
1.1
He shall have at least one (1) share of stock of the corporation;
1.2
He shall be at least a college graduate or he has sufficient management experience to
substitute for such formal education or he shall have been engaged or exposed to the
business of the corporation for at least five (5) years;
1.3
He shall be twenty one (21) years old up to seventy (70) years old, however, due
consideration shall be given to qualified independent directors up to the age of eighty
(80);
1.4
He shall have been proven to possess integrity and probity; and
1.5
He shall be assiduous.
No person enumerated under Section II (5) of the Code of Corporate Governance shall
qualify as an independent director. He shall likewise be disqualified during his tenure under
the following instances or causes:
2.1
He becomes an officer or employee of the corporation where he is such member of
the board of directors/trustees, or becomes any of the persons enumerated under letter
A hereof;
2.2
His beneficial security ownership exceeds two percent (2%) of the outstanding
capital stock of the corporation where he is such director;
2.3
Fails, without any justifiable cause, to attend at least 50% of the total number of
Board meetings during his incumbency unless such absences are due to grave illness
or death of an immediate family.
2.4
Such other disqualifications that the Corporate Governance Manual provides.
C. Number of Independent Directors
All companies are encouraged to have independent directors. However, issuers of registered securities
and public companies are required to have at least two (2) independent directors or at least twenty
percent (20%) of its board size.
D. Nomination and Election of Independent Directors
1.
The Nomination Committee (the “Committee”) shall have at least three (3) members, one of
whom is an independent director. It shall promulgate the guidelines or criteria to govern the
conduct of the nomination. The same shall be properly disclosed in the corporation’s
information or proxy statement or such other reports required to be submitted to the
Commission.
7
2.
Nomination of independent director/s shall be conducted by the Committee prior to a
stockholders’ meeting. All recommendations shall be signed by the nominating stockholders
together with the acceptance and conformity by the would-be nominees.
3.
The Committee shall pre-screen the qualifications and prepare a final list of all candidates
and put in place screening policies and parameters to enable it to effectively review the
qualifications of the nominees for independent director/s.
4.
After the nomination, the Committee shall prepare a Final List of Candidates which shall
contain all the information about all the nominees for independent directors, as required
under Part IV (A) and (C) of Annex "C" of SRC Rule 12, which list, shall be made available
to the Commission and to all stockholders through the filing and distribution of the
Information Statement, in accordance with SRC Rule 20, or in such other reports the
Corporation is required to submit to the Commission. The name of the person or group of
persons who recommended the nomination of the independent director shall be identified in
such report including any relationship with the nominee.
5.
Only nominees whose names appear on the Final List of Candidates shall be eligible for
election as independent director/s. No other nomination shall be entertained after the Final
List of Candidates shall have been prepared. No further nominations shall be entertained nor
allowed on the floor during the actual annual stockholders' meeting.
6.
Election of Independent Director/s
6.1
Except as those required under this Rule and subject to pertinent existing laws, rules
and regulations of the Commission, the conduct of the election of independent
director/s shall be made in accordance with the standard election procedures of the
company or its by-laws.
6.2
It shall be the responsibility of the Chairman of the Meeting to inform all
stockholders in attendance of the mandatory requirement of electing independent
director/s. He shall ensure that an independent director/s are elected during the
stockholders’ meeting.
6.3
Specific slot/s for independent directors shall not be filled-up by unqualified
nominees.
6.4
In case of failure of election for independent director/s, the Chairman of the Meeting
shall call a separate election during the same meeting to fill up the vacancy.
E. Termination/Cessation of Independent Directorship
In case of resignation, disqualification or cessation of independent directorship and only after
notice has been made with the Commission within five (5) days from such resignation,
disqualification or cessation, the vacancy shall be filled by the vote of at least a majority of the
remaining directors, if still constituting a quorum, upon the nomination of the Committee
otherwise, said vacancies shall be filled by the stockholders in a regular or special meeting called
for that purpose. An independent director so elected to fill a vacancy shall serve only for the
unexpired term of his predecessor in office.
The New By-Laws of the Corporation dated May 28, 2007 include the provisions of SRC Rule
38, as amended.
8
Presented below is the Final List of Candidates for Independent Directors:
1. Mr. Antonio L. Go was elected as an independent director of the Corporation on 6 December
2007. He also currently serves as director and President of Equitable Computer Services, Inc. and
is Chairman of Equicom Savings Bank. He is also a director of Medilink Network, Inc.,
Maxicare Healthcare Corporation, Equicom Manila Holdings, United Industrial Corporation
Limited, Oriental Petroleum and Minerals Corporation, Pin-An Holdings, Inc., Equicom
Information Technology, and ALGO Leasing and Finance, Inc. He is also a trustee of Go Kim
Pah Foundation and Equitable Foundation, Inc. He graduated from Youngstown University,
United States with a Bachelor of Science degree in Business Administration. He attended the
International Advanced Management program at the International Management Institute, Geneva,
Switzerland as well as the Financial Planning/Control program at the ABA National School of
Bankcard Management, Northwestern University, United States.
2. Mr. Oh Wee Khoon was elected as an independent director of the Corporation effective 3
January 2008. He is the founder and managing director of Sobono Energy Private Limited. He is
also the Vice Chairman of the Sustainable Energy Association of Singapore. He graduated with
honours from the University of Manchester Institute of Science and Technology with a Bachelor
of Science degree in Mechanical Engineering. He obtained his Master’s degree in Business
Administration from the National University of Singapore.
The Certification of Independent Directors executed by the above-mentioned independent
directors are attached hereto as Annex “A” and Annex “B”, respectively.
The name of the person who recommended the nomination of the foregoing candidates for Independent
Directors is as follows:
CPAir Holdings, Inc. - controlling shareholder of the Corporation owning 66.15% of the
Corporation’s total outstanding capital stock as of April 30, 2013.
CPAir Holdings, Inc. has no relationship with Mr. Antonio L. Go and Mr. Oh Wee Khoon,
the candidates for independent directors of the Corporation.
Significant Employees
There are no persons who are not executive officers of the Corporation who are expected by
the Corporation to make a significant contribution to the business.
Family Relationships
1.
2.
3.
4.
Mr. James L. Go is the brother of Mr. John L. Gokongwei, Jr.
Mr. Lance Y. Gokongwei is the son of Mr. John L. Gokongwei, Jr.
Ms. Robina Gokongwei-Pe is the daughter of Mr. John L. Gokongwei, Jr.
Mr. Frederick D. Go is the nephew of Mr. John L. Gokongwei, Jr.
9
Involvement in Certain Legal Proceedings of Directors and Executive Officers
To the best of the Corporation’s knowledge and belief and after due inquiry, none of the
Corporation’s directors or executive officers are involved in any of the following events for the past
five years and up to the date of this SEC Form 20-IS:
1. Any bankruptcy petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the bankruptcy or within two
years prior to that time;
2. Any conviction by final judgment in a criminal proceeding;
3. Being subjected to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, domestic or foreign,
permanently or temporarily enjoining, barring, suspending or otherwise limiting their
involvement in any type of business, securities, commodities or banking activities; or
4. Being found by a domestic or foreign court of competent jurisdiction (in a civil action),
the Philippine SEC or comparable foreign body, or a domestic or foreign exchange or
other organized trading market or self regulatory organization, to have violated a
securities or commodities law or regulation and the judgment has not been reversed,
suspended, or vacated.
Certain Relationships and Related Party Transactions
The Corporation, in its regular conduct of business, had engaged in transactions with its
ultimate parent company, its joint venture and affiliates. See Note 26 (Related Party Transactions)
of the Notes to the Consolidated Financial Statements as of December 31, 2012 on pages 51 to 57 of
the audited consolidated financial statements as of December 31, 2012.
Information on the parent of the Corporation, the basis of control, and the percentage of
voting securities owned as of April 30, 2013:
Parent Company
CPAir Holdings, Inc.
Number of Shares Held
400,816,841
% Held
66.15%
Compensation of directors and executive officers
Summary Compensation Table
The following are our Company’s Chief Executive Officer (“CEO”) and four most highly compensated
executive officers for the years ended 2011, 2012 and 2013 estimates:
Name
Lance Y. Gokongwei
Victor Emmanuel B. Custodio
Antonio Jose L. Rodriguez
Michael S. Shau
Jeanette U. Yu
Position
President and CEO
Vice President
Vice President
Vice President
Vice President - Treasurer
10
The following table identifies and summarizes the aggregate compensation of the Company’s CEO and
the four most highly compensated executive officers for the years ended 2011, 2012 and 2013 estimates:
Salaries
CEO and four (4) most highly compensated executive
officers
1. Lance Y. Gokongwei – President and CEO
2. Victor Emmanuel B. Custodio – Vice President
3. Antonio Jose L. Rodriguez – Vice President
4. Michael S. Shau – Vice President
5. Jeanette U. Yu – Vice President-Treasurer
Aggregate compensation paid to all officers and
directors as a group unnamed
1
Includes per diem of directors
P3,062,481
P400,000
P37,648,861
P76,860,270
P6,516,539
P3,205,000
P86,581,809
Actual – Fiscal Year 2012
Bonuses
Other
Income1
Total
P52,167,107
P4,490,873
P390,000
P57,047,980
P91,787,249
P7,751,597
P2,925,000
P102,463,846
Salaries
CEO and four (4) most highly compensated executive
officers
1. Lance Y. Gokongwei – President and CEO
2. Victor Emmanuel B. Custodio – Vice President
3. Antonio Jose L. Rodriguez – Vice President
4. Michael S. Shau – Vice President
5. Jeanette U. Yu – Vice President-Treasurer
Aggregate compensation paid to all officers and
directors as a group unnamed
1
Includes per diem of directors
Total
P34,186,380
Salaries
CEO and four (4) most highly compensated executive
officers
1. Lance Y. Gokongwei – President and CEO
2. Victor Emmanuel B. Custodio – Vice President
3. Antonio Jose L. Rodriguez – Vice President
4. Michael S. Shau – Vice President
5. Jeanette U. Yu – Vice President-Treasurer
Aggregate compensation paid to all officers and
directors as a group unnamed
1
Includes per diem of directors
Actual – Fiscal Year 2011
Bonuses
Other
Income1
Fiscal Year 2013 Estimates
Bonuses
Other
Income1
Total
P55,970,963
P4,737,871
P390,000
P61,098,834
P95,160,200
P8,069,316
P3,030,000
P106,259,516
Standard Arrangements
Other than payment of reasonable per diem, there are no standard arrangements pursuant
to which directors of the Corporation are compensated, or are to be compensated, directly or
indirectly, for any services provided as a director for the last completed fiscal year and the ensuing
year.
11
Other Arrangements
There are no other arrangements pursuant to which any director of the Corporation was
compensated, or is to be compensated, directly or indirectly, during the Corporation’s last
completed fiscal year, and the ensuing year, for any service provided as a director.
Employment Contracts and Termination of Employment and Change-in-Control Arrangement
There are no agreements between the Corporation and its directors and executive officers
providing for benefits upon termination of employment, except for such benefits to which they may
be entitled under the Corporation’s pension plans.
Warrants and Options Outstanding
There are no outstanding warrants or options held by the Corporation’s CEO, the named
executive officers, and all officers and directors as a group.
Independent Public Accountants
Sycip Gorres Velayo & Co. (SGV & Co.) has acted as the Corporation’s independent public
accountant. The same accounting firm is tabled for reappointment for the current year at the
annual meeting of stockholders. The representatives of the principal accountant have always been
present at prior year’s meetings and are expected to be present at the current year’s annual
meeting of stockholders. They may also make a statement and respond to appropriate questions
with respect to matters for which their services were engaged.
The current handling partner of SGV & Co. has been engaged by the Corporation in 2012
and is expected to be rotated every five years.
Action with respect to reports
The following are included in the agenda of the Annual Meeting of Stockholders for the
approval of the stockholders:
1. Reading and approval of the Minutes of the Annual Meeting of Stockholders held on
June 28, 2012.
2. Presentation of Annual Report and approval of Financial Statements for the preceding
year.
3. Election of Board of Directors.
4. Election of External Auditor.
5. Ratification of all acts of the Board of Directors and Management since the last annual
meeting.
A summary of the matters approved and recorded in the Minutes of the Annual Meeting of
the Stockholders last June 28, 2012 is as follows: (a) reading and approval of the minutes of the
Annual Meeting of Stockholders held on July 7, 2011; (b) presentation of annual report and
12
approval of financial statements for the preceding year; (c) election of Board of Directors; (d)
election of external auditors; and (e) ratification of all acts of the Board of Directors and
management since the last annual meeting.
Brief description of material matters approved by the Board of Directors and Management and disclosed
to the SEC and PSE since the last annual meeting of stockholders held on June 28, 2012 for ratification
by the stockholders:
Date of Board Approval
June 28, 2012
Description
Results of the Organizational Meeting of the Board of
Directors.
Voting Procedures
The vote required for approval or election:
Pursuant to Article VII, Section 3 of the By-Laws of the Corporation, no stockholders’
meeting shall be competent to decide any matter or transact any business, unless a majority of the
outstanding capital stock is present or represented thereat, except in those cases in which the
Corporation law requires the affirmative vote of a greater proportion.
The method by which votes will be counted:
Article VII, Section 4 of the By Laws provides that voting upon all questions at all meetings
of the stockholders shall be by shares of stock and not per capital.
Article VII, Section 2 of the By Laws also provides that stockholders may vote at all
meetings the number of shares registered in their respective names, either in person or by proxy
duly given in writing and duly presented to and received by the Corporate Secretary for inspection
and recording not later than five (5) working days before the time set for the meeting, except such
period shall be reduced to one (1) working day for meetings that are adjourned due to lack of the
necessary quorum. No proxy bearing a signature which is not legally acknowledged by the
Corporate Secretary shall be honored at the meetings. Proxies shall be valid and effective for five
(5) years, unless the proxy provides for a shorter period, and shall be suspended for any meeting
wherein the stockholder appears in person.
Article II, Section 1 (a) provides that the directors of the Corporation shall be elected by
plurality vote at the annual meeting of the stockholders for that year at which a quorum is present.
At each election of directors, every stockholder shall have the right to vote, in person or by proxy,
the number of shares owned by him for as many persons as there are directors to be elected, or to
cumulate his votes by giving one candidate as many votes as the number of such directors
multiplied by the number of his shares shall equal, or by distributing such votes on the same
principle among any number of candidates.
The Secretary shall record all the votes and proceedings of the stockholders and of the
directors in a book kept for that purpose.
Restriction that Limits the Payment of Dividends on Common Shares
None.
13
Information Required by the SEC Pursuant to SRC Rule 20
PART 1 - BUSINESS AND GENERAL INFORMATION
Item 1.
Business
Cebu Air, Inc. (the Company) is an airline that operates under the trade name “Cebu Pacific Air” and is
the leading low-cost carrier in the Philippines. It pioneered the “low fare, great value” strategy in the
local aviation industry by providing scheduled air travel services targeted to passengers who are willing to
forego extras for fares that are typically lower than those offered by traditional full-service airlines while
offering reliable services and providing passengers with a fun travel experience.
The Company was incorporated in August 26, 1988 and was granted a 40-year legislative franchise to
operate international and domestic air transport services in 1991. It commenced its scheduled passenger
operations in 1996 with its first domestic flight from Manila to Cebu. In 1997, it was granted the status as
an official Philippine carrier to operate international services by the Office of the President of the
Philippines pursuant to Executive Order (EO) No. 219. International operations began in 2001 with
flights from Manila to Hong Kong.
In 2005, the Company adopted the low-cost carrier (LCC) business model. The core element of the LCC
strategy is to offer affordable air services to passengers. This is achieved by having: high-load, highfrequency flights; high aircraft utilization; a young and simple fleet composition; and low distribution
costs.
The Company‟s common stock was listed with the Philippine Stock Exchange (PSE) on October 26,
2010, the Company‟s initial public offering (IPO).
As of December 31, 2012, the Company operates an extensive route network serving 60 domestic routes
and 31 international routes with a total of 2,288 scheduled weekly flights. It operates from six hubs,
including the Ninoy Aquino International Airport (NAIA) Terminal 3 located in Pasay City, Metro
Manila; Mactan-Cebu International Airport located in Lapu-Lapu City, part of Metropolitan Cebu;
Diosdado Macapagal International Airport (DMIA) located in Clark, Pampanga; Davao International
Airport located in Davao City, Davao del Sur; Ilo-ilo International Airport located in Ilo-ilo City, regional
center of the western Visayas region; and Kalibo International Airport in Kalibo, Aklan.
As of December 31, 2012, the Company operates a fleet of 41 aircraft which comprises of ten Airbus
A319, 23 Airbus A320 and eight ATR 72-500 aircraft. It operates its Airbus aircraft on both domestic
and international routes and operates the ATR 72-500 aircraft on domestic routes, including destinations
with runway limitations. The average aircraft age of the Company‟s fleet is approximately 3.87 years as
of December 31, 2012.
The Company has three principal distribution channels: the internet; direct sales through booking sales
offices, call centers and government/corporate client accounts; and third-party sales outlets. Aside from
passenger service, it also provides airport-to-airport cargo services on its domestic and international
routes. In addition, the Company offers ancillary services such as cancellation and rebooking options, inflight merchandising such as sale of duty-free products on international flights, baggage and travel-related
products and services.
1
The percentage contributions to the Company‟s revenues of its principal business activities are as follows:
Passenger Services
Cargo Services
Baggage fee
Ancillary Services
For the Years Ended December 31
2011
2012
86.2%
85.1%
6.5%
6.3%
6.4%
7.5%
1.0%
1.1%
100.0%
100.0%
2010
89.0%
7.2%
2.7%
1.1%
100.0%
No material reclassification, merger, consolidation, or purchase or sale of a significant amount of assets
not in the ordinary course of business was made in the past three years. The Company has not been
subjected to any bankruptcy, receivership or similar proceeding in the said period.
Distribution Methods of Products or Services
The Company has three principal distribution channels: the internet; direct sales through booking sales
offices, call centers and government/corporate client accounts; and third-party sales outlets.
Internet
In January 2006, the Company introduced its internet booking system. Through www.cebupacificair.com,
passengers can book flights and purchase services online. The system also provides passengers with real
time access to the Company‟s flight schedules and fare options.
Booking Offices and Call Centers
As of December 31, 2012, the Company has a network of eight booking offices located throughout the
Philippines and one booking office located in Hong Kong. It directly operates these booking offices
which also handle customer service issues, such as customer requests for change of itinerary. In addition,
the Company operates two in-house call centers, one in Manila and the other in Cebu. It also uses a thirdparty call centre outsourcing service to help accommodate heavy call traffic. Its employees who work as
reservation agents are also trained to handle customer service inquiries and to convert inbound calls into
sales. Purchases made through call centers can be settled through various modes, such as credit cards,
payment centers and authorized agents.
Government/Corporate Client Accounts
As of December 31, 2012, the Company has government and corporate accounts for passenger sales. It
provides these accounts with direct access to its reservation system and seat inventory as well as credit
lines and certain incentives. Further, clients may choose to settle their accounts by post-transaction
remittance or by using pre-enrolled credit cards.
Third Party Sales Outlets
As of December 31, 2012, the Company has a network of distributors in the Philippines selling its
domestic and international air services within an agreed territory or geographical coverage. Each
distributor maintains and grows its own client base and can impose on its clients a service or transaction
fee. Typically, a distributor‟s client base would include agents, travel agents or end customers. The
Company also has a network of foreign general sales agents, wholesalers, and preferred sales agents who
market, sell and distribute the Company‟s air services in other countries.
2
Publicly Announced New Product or Service
The Company continues to analyze its route network. It can opt to increase frequencies on existing routes
or add new routes/destinations. It can also opt to eliminate unprofitable routes and redeploy capacity.
The Company plans to expand its fleet over the course of the next three years to 55 aircraft by the end of
2015 (net of redelivery of four leased aircraft). The additional aircraft will support the Company‟s plans
to increase frequency on current routes and to add new city pairs and destinations. The Company has
increased frequencies on domestic routes such as Manila to Tuguegarao; Cebu to Bacolod, Butuan,
Cagayan de Oro, Siargao, Caticlan and Pagadian; and international routes such as Manila to Singapore. A
total of 10 domestic routes were also launched, paving the way for more air travel in various parts of the
Philippines. This includes flights from Davao to Dipolog and from Zamboanga to Cagayan de Oro, routes
which were previously served by buses plying 12-14 hour rides. It also launched direct flights from
Manila to Hanoi, Siem Reap and Xiamen as well as from Cebu to Bankok and Kuala Lumpur. The
Company also pioneered direct flights from Iloilo to Hongkong and Singapore. The Company is slated
to launch twice weekly Manila-Bali (Denpasar) flights in March 16, 2013. It will also launch its longhaul operations with its first Manila to Dubai flight on October 7, 2013. The Manila-Dubai will be
operated on the Airbus A330-300 aircraft with a configuration of more than 400 all-economy class seats.
The Company will lease up to eight Airbus A330-300 aircraft for its long-haul operations. The Company
will take delivery of two Airbus A330-300 aircraft this year, and an additional two in 2014. The Airbus
A330-300 has a range of up to 11 hours which means the Company could serve markets such as
Australia, Middle East, parts of Europe and the US.
Further, the Company has turned into firm orders its existing options for seven Airbus A320 aircraft for
delivery between 2015 and 2016. The Company has also placed a new firm order for 30 Airbus A321neo
(New Engine Option) aircraft with options for a further ten Airbus A321neos. Airbus A321neos will be a
first of its type to operate in the Philippines, being a larger and longer-haul version of the familiar Airbus
A320. These 220-seater aircraft will have a much longer range which will enable the Company to serve
cities in Australia, India and Northern Japan, places the A320 cannot reach. This order for A321neo
aircraft will be delivered between 2017 and 2021.
The Company has also signed a joint venture agreement with CAE, world leader in aviation training, to
establish an aviation training center for airlines in the Asia Pacific region. The joint venture is known as
the Philippine Academy for Aviation Training, Inc. (PAAT) and is located in Clark Freeport Zone,
northwest of Manila. On January 24, 2012, the Company broke ground in Clark, Pampanga and the
facility was formally inaugurated on December 3, 2012. The new training center will be a world-class,
one-stop training center for the Company and a hub for training services for other airlines. The facility
will initially cater to Airbus A319/320/321 series pilot type-rating training requirements, among others. It
will be initially equipped with two Airbus A320 Full Flight Simulators with the capability to expand by
two additional simulators. Training is also expected to be added for other aviation personnel in the future,
such as cabin crew, dispatch, ground handling personnel and cadets. Each simulator can train/certify
approximately 300-700 pilots per simulator per year.
Competition
The Philippine aviation authorities deregulated the airline industry in 1995 eliminating certain restrictions
on domestic routes and frequencies which resulted in fewer regulatory barriers to entry into the Philippine
domestic aviation market. On the international market, although the Philippines currently operates under
a bilateral framework, whereby foreign carriers are granted landing rights in the Philippines on the basis
of reciprocity as set forth in the relevant bilateral agreements between the Philippine government and
foreign nations, in March 2011, the Philippine government issued EO 29 which authorizes the Civil
3
Aeronautics Board (CAB) and the Philippine Air Panels to pursue more aggressively the international
civil aviation liberalization policy to boost the country‟s competitiveness as a tourism destination and
investment location.
Currently, the Company faces intense competition on both its domestic and international routes. The
level and intensity of competition varies from route to route based on a number of factors. Principally, it
competes with other airlines that service the routes it flies. However, on certain domestic routes, the
Company also considers alternative modes of transportation, particularly sea and land transport, to be
competitors for its services. Substitutes to its services also include video conferencing and other modes
of communication.
The Company‟s competitors in the Philippines are Philippine Airlines (“PAL”), a full-service Philippine
flag carrier; Air Philippine Express a low-cost domestic operator that has the same major shareholders as
PAL (but separate management team) and which code shares with PAL on certain domestic routes and
leases certain aircraft from PAL; Air Asia Philippines; Zest Air; and South East Asian Airlines (Seair).
Most of the Company‟s domestic and international destinations are also serviced by theses airlines.
According to CAB data, the Company is the leading domestic airline in the Philippines by passengers
carried, with a market share of 46.1% for the year ended December 31, 2012.
The Company is the leading regional low-cost airline offering services to more destinations and serving
more routes with a higher frequency between the Philippines and other ASEAN countries than any other
airline in the Philippines. The Company currently competes with the following LCC‟s and full-service
airlines in its international operations: AirAsia, Tiger Airways (Tiger), Jetstar Airways, PAL, Cathay
Pacific, Singapore Airlines, Thai Airways, among others.
Raw Materials
Fuel is a major cost component for airlines. The Company‟s fuel requirements are classified by location
and sourced from various suppliers.
The Company‟s fuel suppliers at its international stations include PTT-Bangkok Aviation, Petronas-Kuala
Lumpur, Shell-Singapore, SK Corp-Korea and Kuwait Aviation-Hongkong, among others. It also
purchases fuel from PTT Philippines and Phoenix Petroleum. The Company purchases fuel stocks on a
per parcel basis, in such quantities as are sufficient to meet its monthly operational requirements. Most of
the Company‟s contracts with fuel suppliers are on a yearly basis and may be renewed for subsequent
one-year periods.
Dependence on One or a Few Major Customers and Identify any such Major Customers
The Company‟s business is not dependent upon a single customer or a few customers that a loss of
anyone of which would have a material adverse effect on the Company.
Transactions with and/or Dependence on Related Parties
The Company‟s significant transactions with related parties are described in detail in Note 26 of the Notes
to Consolidated Financial Statements.
4
Patents, Trademarks, Licenses, Franchises, Concessions and Royalty Agreements
Trademarks
The Company has registered the “Cebu Pacific” and the Cebu Pacific feather-like device trademarks with
the Philippine Intellectual Property Office (PIPO). In the Philippines, certificates of registration of a trade
mark filed with the PIPO prior to the effective date of the Philippine Intellectual Property Code (PIPC) in
1998 are generally effective for a period of 20 years from the date of the certificate, while those filed after
the PIPC became effective are generally effective for a shorter period of ten years, unless terminated
earlier. The Company currently has no trademark applications pending with the PIPO. However, it has
27 trademark applications pending with the China Trademark Office. The Company has also registered
the business name “Cebu Pacific Air” with the Department of Trade and Industry (DTI). Registering a
business name with the DTI precludes another entity engaged in the same or similar business from using
the same business name as one that has been registered. A registration of a business name shall be
effective for five years from the initial date of registration and must be renewed within the first three
months following the expiration of the five-year period from the date of original registration.
Licenses / Permits
The Company operates its business in a highly regulated environment. The Company‟s business depends
upon the permits and licenses issued by the government authorities or agencies for its operations which
include the following:






Legislative Franchise to Operate a Public Utility
Certificate of Public Convenience and Necessity
Letter of Authority
Air Operator Certificate
Certificate of Registration
Certificate of Airworthiness
The Company also has to seek approval from the relevant airport authorities to secure airport slots for its
operations.
Franchise
In 1991, pursuant to Republic Act (RA) No. 7151, the Company was granted a franchise to operate air
transportation services, both domestic and international. In accordance with the Company‟s franchise,
this extends up to year 2031:
a) The Company is subject to franchise tax of five percent of the gross revenue derived from air
transportation operations. For revenue earned from activities other than air transportation, the
Company is subject to regular corporate income tax and to real property tax.
b) In the event that any competing individual, partnership or corporation received and enjoyed tax
privileges and other favorable terms which tended to place the Company at any disadvantage, then
such privileges shall have been deemed by the fact itself of the Company‟s tax privileges and shall
operate equally in favor of the Company.
Kindly refer to Note 1 of the Notes to Consolidated Financial Statements.
5
Government Approval of Principal Products or Services
The Company operates its business in a highly regulated environment. The Company‟s business depends
upon the permits and licenses issued by the government authorities or agencies for its operations which
include the following:






Legislative Franchise to Operate a Public Utility
Certificate of Public Convenience and Necessity
Letter of Authority
Air Operator Certificate
Certificate of Registration
Certificate of Airworthiness
The Company also has to seek approval from the relevant airport authorities to secure airport slots for its
operations.
Effects of Existing or Probable Government Regulations on the Business
Civil Aeronautics Administration and CAAP
Policy-making for the Philippine civil aviation industry started with RA 776, known as the Civil
Aeronautics Act of the Philippines (the “Act”), passed in 1952. The Act established the policies and laws
governing the economic and technical regulation of civil aeronautics in the country. It established the
guidelines for the operation of two regulatory organizations, CAB for the regulation of the economic
activities of airline industry participants and the Air Transportation Office, which was later transformed
into the CAAP, created pursuant to RA 9497, otherwise known as the Civil Aviation Authority Act of
2008.
The CAB is authorized to regulate the economic aspects of air transportation, to issue general rules and
regulations to carry out the provisions of RA 776, and to approve or disapprove the conditions of carriage
or tariff which an airline desires to adopt. It has general supervision and regulation over air carriers,
general sales agents, cargo sales agents, and airfreight forwarders, as well as their property, property
rights, equipment, facilities and franchises.
The CAAP, a government agency under the supervision of the Department of Transportation and
Communications for purposes of policy coordination, regulates the technical and operational aspects of
air transportation in the Philippines, ensuring safe, economic and efficient air travel. In particular, it
establishes the rules and regulations for the inspection and registration of all aircraft and facilities owned
and operated in the Philippines, determine the charges and/or rates pertinent to the operation of public air
utility facilities and services, and coordinates with the relevant government agencies in relation to airport
security. Moreover, CAAP is likewise tasked to operate and maintain domestic airports, air navigation
and other similar facilities in compliance with the International Civil Aviation Organization (ICAO), the
specialized agency of the United Nations whose mandate is to ensure the safe, efficient and orderly
evolution of international civil aviation.
The Company complies with and adheres to existing government regulations.
Category 2 Rating
In early January 2008, the Federal Aviation Administration (FAA) of the United States (U.S.)
downgraded the aviation safety ranking of the Philippines to Category 2 from the previous Category 1
6
rating. The FAA assesses the civil aviation authorities of all countries with air carriers that operate to the
U.S. to determine whether or not foreign civil aviation authorities are meeting the safety standards set by
the ICAO. The lower Category 2 rating means a country either lacks laws or regulations necessary to
oversee airlines in accordance with minimum international standards, or its civil aviation authority is
deficient in one or more areas, such as technical expertise, trained personnel, recordkeeping or inspection
procedures. Further, it means Philippine carriers can continue flying to the U.S. but only under heightened
FAA surveillance or limitations. In addition, the Philippines has been included in the “Significant Safety
Concerns” posting by the ICAO as a result of an unaddressed safety concern highlighted in the recent
ICAO audit. As a result of this unaddressed safety concern, Air Safety Committee (ASC) of the
European Union banned all Philippine commercial air carriers from operating flights to and from Europe.
The ASC based its decision on the absence of sufficient oversight by the CAAP.
Recently, the ICAO has lifted the significant safety concerns on the ability of CAAP to meet global
aviation standards. The ICAO SSC Validation Committee reviewed the corrective actions, evidence and
documents submitted by the Philippines to address the concerns and determined that the corrective actions
taken have successfully addressed and resolved the audit findings. The CAAP is now focused on
regaining the FAA‟s category 1 rating.
Although the Company does not currently operate flights to the U.S. and Europe, this development opens
the opportunity for the Company to establish new routes to other countries that base their decision on
flight access on the FAA and ASC‟s evaluation.
EO 28 and 29
In March 2011, the Philippine government issued EO 28 which provides for the reconstitution and
reorganization of the existing Single Negotiating Panel into the Philippine Air Negotiating Panel (PANP)
and Philippine Air Consultation Panel (PACP) (collectively, the Philippine Air Panels). The PANP shall
be responsible for the initial negotiations leading to the conclusion of the relevant ASAs while the PACP
shall be responsible for the succeeding negotiations of such ASAs or similar arrangements.
Also in March 2011, the Philippine government issued EO 29 which authorizes the CAB and the
Philippine Air Panels to pursue more aggressively the international civil aviation liberalization policy to
boost the country‟s competitiveness as a tourism destination and investment location. Among others, EO
29 provides the following:

In the negotiation of the ASAs, the Philippine Air Panels may offer and promote third, fourth and
fifth freedom rights to the country‟s airports other than the NAIA without restriction as to frequency,
capacity and type of aircraft, and other arrangements that will serve the national interest as may be
determined by the CAB; and

Notwithstanding the provisions of the relevant ASAs, the CAB may grant any foreign air carriers
increases in frequencies and/or capacities in the country‟s airports other than the NAIA, subject to
conditions required by existing laws, rules and regulations. All grants of frequencies and/or capacities
which shall be subject to the approval of the President shall operate as a waiver by the Philippines of
the restrictions on frequencies and capacities under the relevant ASAs.
The issuance of the foregoing EOs may significantly increase competition.
Air Passenger Bill of Rights
The Air Passenger Bill of Rights (the “Bill”), which was formed under a joint administrative order of the
Department of Transportation and Communications, the CAB and the Department of Trade and Industry,
was signed and published by the Government on 11 December 2012 and came into effect on 21
7
December 2012. The Bill sets the guidelines on several airline practices such as overbooking, rebooking,
ticket refunds, cancellations, delayed flights, lost luggage and misleading advertisement on fares.
The Company is not adversely affected by the passage of the Bill.
Republic Act (RA) No. 10378 - Common Carriers Tax Act
RA No. 10378, otherwise known as the Common Carriers Tax Act, was signed into law on March 7,
2013. This act recognizes the principle of reciprocity as basis for the grant of income tax exceptions to
international carriers and rationalizes other taxes imposed thereon by amending sections 28(A)(3)(a), 109,
108 and 236 of the National Internal Revenue Code, as amended.
Among the relevant provisions of the act follows:
a.) An international carrier doing business in the Philippines shall pay a tax of two and one-half percent
(2 1/2 %) on its Gross Philippine Billings, provided, that international carriers doing business in the
Philippines may avail of a preferential rate or exemption from the tax herein imposed on their gross
revenue derived from the carriage of persons and their excess baggage on the basis of an applicable
tax treaty or international agreement to which the Philippines is a signatory or on the basis of
reciprocity such that an international carrier, whose home country grants income tax exemption to
Philippine carriers, shall likewise be exempt from the tax imposed under this provision;
b.) International air carriers doing business in the Philippines on their gross receipts derived from
transport of cargo from the Philippines to another country shall pay a tax of three percent (3%) of
their quarterly gross receipts;
c.) VAT exemption on the transport of passengers by international carriers.
While the removal of CCT takes away the primary constraint on foreign carrier‟s capacity growth and
places the Philippines on an almost level playing field with that of other countries, this may still be a
positive news for the industry as a whole, as it may drive tourism into the Philippines. With Cebu
Pacific‟s dominant network, the Company can benefit from the government‟s utmost support for tourism.
Research and Development
The Company incurred minimal amounts for research and development activities, which do not amount to
a significant percentage of revenues.
Cost and Effects of Compliance with Environmental Laws
The operations of the Company are subject to various laws enacted for the protection of the environment.
The Company has complied with the following applicable environmental laws and regulations:

Presidential Decree No. 1586 (Establishing an Environmental Impact Assessment System) which
directs every person, partnership or corporation to obtain an Environmental Compliance Certificate
(ECC) before undertaking or operating a project declared as environmentally critical by the President
of the Philippines. Petro-chemical industries, including refineries and fuel depots, are considered
environmentally critical projects for which an ECC is required. The Company has obtained ECCs for
the fuel depots it operates and maintains for the storage and distribution of aviation fuel for its
aircraft.
8

RA 8749 (The Implementing Rules and Regulations of the Philippine Clean Air Act of 1999) requires
operators of aviation fuel storage tanks, which are considered as a possible source of air pollution, to
obtain a Permit to Operate from the applicable regional office of the Enrivonment Management
Bureau (EMB). The Company‟s aviation fuel storage tanks are subject to and are compliant with this
requirement.

RA 9275 (Implementing Rules and Regulations of the Philippine Clean Water Act of 2004) requires
owners or operators of facilities that discharge regulated effluents to secure from the Laguna Lake
Development Authority (LLDA) (Luzon area) and/or the applicable regional office of the EMB
(Visayas and Mindanao areas) a Discharge Permit, which is the legal authorization granted by the
Department of Energy and Natural Resources for the discharge of waste water. The Company‟s
operations generate waste water and effluents for the disposal of which a Discharge Permit was
obtained from the LLDA and the EMB of Region 7 which enables it to discharge and dispose of
liquid waste or water effluent generated in the course of its operations at specifically designated areas.
The Company also contracted the services of government-licensed and accredited third parties to
transport, handle and dispose its waste materials.
Compliance with the foregoing laws does not have a material effect to the Company‟s capital
expenditures, earnings and competitive position.
On an annual basis, the Company spends approximately P138,600 in connection with its compliance with
applicable environmental laws.
Employees
As of December 31 2012, the Company has 3,002 permanent full time employees, categorized as follows:
Division:
Operations
Commercial
Support Departments(1)
Employees
2,276
432
294
3,002
Note:
(1)
Support Departments include the Office of the General Manager, Corporate Finance and Legal Affairs
Department, People Department, Administrative Services Department, Procurement Department,
Information Systems Department, Comptroller Department, Internal Audit Department and Treasury
Department.
The Company‟s employees are not unionized, and it has not experienced any labor strikes or work
stoppages in the past three years.
Risk
The major business risks facing the Company are as follows:
(1) Cost and Availability of Fuel
The cost and availability of fuel are subject to many economic and political factors and events
occurring throughout the world, the most important of which are not within the Company‟s control.
Fuel prices have been subject to high volatility, fluctuating substantially over the past several years.
9
Any increase in the cost of fuel or any decline in the availability of adequate supplies of fuel could
have a material adverse effect on the Company‟s operations and profitability.
The Company implements various fuel management strategies to manage the risk of rising fuel
prices including hedging.
(2) Competition
The Company faces intense competition on its domestic and international routes, both from other
low-cost carriers and from full-service carriers. Its existing competitors or new entrants into the
market may undercut its fares in the future, increase capacity on their routes or attempt to conduct
low-fare or low-cost airline operations of their own in an effort to increase market share, any of
which could negatively affect the Company‟s business. The Company also faces competition from
ground and sea transportation alternatives, including buses, trains, ferries, boats and cars, which are
the principal means of transportation in the Philippines. Video teleconferencing and other methods
of electronic communication, and improvements therein, also add a new dimension of competition to
the industry as they, to a certain extent, provide lower-cost substitutes for air travel.
The Company focuses on areas of costs, on-time performance, service delivery and scheduling to
remain competitive.
(3) Lack of Marketing Alliance
Many airlines have marketing alliances with other airlines under which they market and advertise
their status as marketing alliance partners. The Company is not a member of any such marketing
alliance with respect to its passenger services. Its lack of alliance could harm its business and
competitive ability.
The Company may try to enter into code sharing agreements, interlining agreements or any other
marketing alliances in the future.
(4) Economic Downturn
The deterioration in the financial markets has heralded a recession in many countries, which led to
significant declines in employment, household wealth, consumer demand and lending and, as a
result, has adversely affected economic growth in the Philippines and elsewhere. Since a substantial
portion of airline travel, for both business and leisure, is discretionary, the airline industry tends to
experience adverse financial results during general economic downturns. Any deterioration in the
economy could negatively affect consumer sentiment and lead to a reduction in demand for flying
which could adversely affect the Company‟s business. The Company could also experience
difficulty accessing the financial markets, which could make it more difficult or expensive to obtain
funding in the future.
(5) Availability of Debt Financing
The Company‟s business is highly capital intensive. It has historically required debt financing to
acquire aircraft and expects to incur significant amounts of debt in the future to fund the acquisition
of additional aircraft, its operations, other anticipated capital expenditures, working capital
requirements and expansion overseas. Failure to obtain additional financing could adversely affect
the Company‟s ability to grow its business and its future profitability.
10
(6) Foreign Exchange and Interest Rate Fluctuations
The Company‟s exposure to foreign exchange rate fluctuations is principally in respect of its U.S.
dollar-denominated long-term debt as well as a majority of its operating costs, such as U.S. dollardenominated purchases of aviation fuel. On the other hand, the Company‟s exposure to interest rate
fluctuations is relative to debts incurred which have floating interest rates. In such cases, any
significant devaluation of the Philippine peso and any significant increases in interest rates will result
to increased obligations that could adversely impact the Company‟s result of operations.
The Company may enter into derivative contracts in the future to hedge foreign exchange exposure.
In addition, the Company may fix the interest rates for a portion of its loans.
(7) Airport and Air Traffic Control Infrastructure Constraints
The Company relies on operational efficiency to reduce unit costs and provide reliable service. Any
delay to the addition of capacity at airports or upgrade of facilities in the Philippines could affect the
Company‟s operational efficiency.
(8) Reliance on Third Party Facilities and Service Providers
The Company‟s inability to lease, acquire or access airport facilities and service providers on
reasonable terms to support its growth or to maintain its current operations would have a material
adverse effect on our business, prospects, financial condition and results of operations. Furthermore,
the Company‟s reliance on third parties to provide essential services on its behalf gives the Company
less control over the efficiency, timeliness and quality of services.
(9) Safety and Security
The Company is exposed to potentially significant losses in the event that any of its aircraft is lost or
subject to an accident, terrorist incident or other disaster. In addition, any such event would give rise
to significant costs related to passenger claims, repairs or replacement of a damaged aircraft and its
temporary or permanent loss from service. Moreover, aircraft accidents or incidents, even if fully
insured, are likely to create a public perception that the airline is less safe than other airlines, which
could significantly reduce its passenger volumes and have a material adverse effect on its business,
prospects, financial condition and results of operations. Terrorist attacks could also result in
decreased seat load factors and yields and could result in increased costs, such as increased fuel
expenses or insurance costs.
The Company is committed to operational safety and security. Its commitment to safety and security
is reflected in its rigorous aircraft maintenance program and flight operations manuals, intensive
flight crew, cabin crew and employee training programs and strict compliance with applicable
regulations regarding aircraft and operational safety and security.
(10) Maintenance Cost and Performance of Maintenance Repair Organizations
As the fleet ages, maintenance and overhaul expenses will increase. Any significant increase in
maintenance and overhaul expenses and the inability of maintenance repair organizations to provide
satisfactory service could adversely affect the business.
The Company enters into long term contracts to manage maintenance and overhaul expenses.
11
(11) Reliance on Automated Systems and the Internet
The Company depends on automated systems to operate its business, including, among others, its
website, its reservation and its departure control systems. Any disruption to its website or online
reservation and telecommunication services could result in losses, increased expenses and could
harm its reputation.
(12) Dependence on the Efforts of Executive Officers and Other Key Management
The Company‟s success depends to a significant extent upon the continued services of its executive
officers and other key management personnel. The unavailability of any of its executive officers and
other key management or failure to recruit suitable or comparable replacements could have a
material adverse effect on its business, prospects, financial condition and results of operations.
(13) Retaining and Attracting Qualified Personnel
The Company‟s business model requires it to have highly skilled, dedicated and efficient pilots,
engineers and other personnel. Its growth plans will require the Company to hire, train and retain a
significant number of new employees in the future. However, from time to time, the airline industry
has experienced a shortage of skilled personnel, particularly pilots and engineers. The Company
competes against full-service airlines which offer wage and benefit packages that exceed those
offered by the Company. The inability of the Company to hire, train and retain qualified employees
at a reasonable cost could result in inability to execute its growth strategy, which would have a
material adverse effect on its business, prospects, financial condition and results of operations. In
addition, the Company may find it increasingly challenging to maintain its corporate culture as it
replaces or hires additional personnel.
The Company may have to increase wages and benefits to attract and retain qualified personnel.
(14) Availability of Insurance
Insurance is fundamental to airline operations. Because of terrorist attacks or other world events,
certain aviation insurance could become unavailable or available only for reduced amounts of
coverage that are insufficient to comply with the levels of coverage required by the Company‟s
aircraft lenders and lessors or applicable government regulations. Any inability to obtain insurance,
on commercially acceptable terms or at all, for the Company‟s general operations or specific assets
would have a material adverse effect on its business, prospects, financial condition and results of
operations.
(15) Regulations
The Company has no control over applicable regulations. Changes in the interpretation of current
regulations or the introduction of new laws or regulations could have a material adverse effect on its
business, prospects, financial condition and results of operations.
(16) Catastrophes and Other Factors Beyond the Company‟s Control
Like other airlines, the Company is subject to delays caused by factors beyond its control, including
weather conditions, traffic congestion at airports, air traffic control problems and increased security
measures. In the event that the Company delays or cancels flights for any of these reasons, revenues
and profits would be reduced and the Company‟s reputation would suffer which could result in a loss
of customers.
12
(17) Unionization, Work Stoppages, Slowdowns and Increased Labor Costs
At present, the Company has a non-unionized workforce. However, in the event the employees
unionize, it could result to demands that may increase operating expenses and adversely affect the
Company‟s profitability. Likewise, disagreements between the labor union and management could
result to work slowdowns or stoppages or disruptions which could be harmful to the business.
(18) Restrictions under the Philippine Constitution and other Laws
The Company is subject to nationality restrictions under the Philippine Constitution and other laws,
limiting ownership of public utility companies to citizens of the Philippines or corporations or
associations organized under the laws of the Philippines of which at least 60% of the capital stock
outstanding is owned and held by citizens of the Philippines. There is a risk that these ownership
restrictions may be breached which could result in the revocation of the Company‟s franchise
generally and its rights to fly on certain international routes.
(19) Relationship with Third Party Sales Outlets
While part of the Company‟s strategy is to increase bookings through the internet, sales through third
party sales outlets remain an important distribution channel. There is no assurance that the Company
will be able to maintain favorable relationships with them nor be able to suitably replace them. The
Company‟s revenues could be adversely impacted if third parties who sell its air services elect to
prioritize other airlines.
(20) Outbreaks
Any present or future outbreak of contagious diseases could have a material adverse effect on the
Company‟s business, prospects, financial condition and results of operations.
(21) Domestic Concentration
Since the Company‟s operations have focused and, at least in the near term, will continue to focus on
air travel in the Philippines, it would be materially and adversely affected by any circumstances
causing a reduction in demand for air transportation in the Philippines, including adverse changes in
local economic and political conditions, negative travel advisories issued by foreign governments,
declining interest in the Philippines as a tourist destination, or significant price increases linked to
increases in airport access costs and fees imposed on passengers.
(22) Investment Risk
The Company has investment securities, the values of which are dependent on fluctuating market
prices. Any negative movement in the market price of the Company‟s investments could affect the
Company‟s results of operations.
The foregoing risks are not all inclusive. Other risks that may affect the Company‟s business and
operations may not be included in the above disclosure.
13
Item 2.
Properties
As of the December 31, 2012, the Company does not own any land or buildings. It leases the office space
used for its corporate headquarters from the Philippine Aerospace Development Corp., while it leases its
hangar, aircraft parking and other operational space from the Manila International Airport Authority.
Kindly refer to Notes 12, 16 and 29 of the Notes to Consolidated Financial Statements for the detailed
discussions on Properties, Leases, Purchases and Capital Expenditure Commitments.
Item 3.
Legal Proceedings
The Company is subject to law suits and legal actions in the ordinary course of business. The Company
is not a party to, and its properties are not subject of, any material pending legal proceedings that could be
expected to have a material adverse effect on the Company‟s financial position or result of operations.
PART II - OPERATIONAL AND FINANCIAL INFORMATION
Market for Registrant’s Common Equity and Related Stockholder Matter
Item 4.
Market Information
The principal market for the Company‟s common equity is the Philippine Stock Exchange (PSE). Sales
prices of the common stock follow:
Year 2012
October to December 2012
July to September 2012
April to June 2012
January to March 2012
Year 2011
October to December 2011
July to September 2011
April to June 2011
January to March 2011
High
Low
P63.50
70.00
71.40
77.00
P54.30
52.40
62.00
63.80
High
Low
P77.40
92.00
98.15
114.00
P62.50
67.30
76.75
74.50
As of May 20, 2013, the latest trading date prior to the completion of this report, sales price of the
common stock is at P80.00.
Holders
The number of shareholders of record as of April 30, 2013 was 84. Common shares outstanding as of
April 30, 2013 were 605,953,330.
14
List of Top 20 Stockholders of Record
As of April 30, 2013
Name of Stockholders
1. CPAir Holdings, Inc.
2. PCD Nominee Corporation (Non-Filipino)
3. PCD Nominee Corporation (Filipino)
4. JG Summit Holdings, Inc.
5. Pacita K. Yap &/or Philip K. Yap
6. BNC Ingredients Corporation
7. BNC Ingredients Corporation
8. Pablo M. Pagtalunan &/or Francisca P. Pagtalunan
9. Elizabeth Yu Gokongwei
9. Girme L. Gutierrez &/or Carmencita R. Gutierrez
10. Ricardo Sy Po
11. Philippine British Assurance Co., Inc.
12. Raul Veloso Del Mar
13. Alfonso S. Teh
14. Randy U. Cortez &/or Grace M.
15. Antonio M. Suarez
16. Mario H. Liuag &/or Lydia P. Liuag
17. Eric Macario Bernabe
17. Estevez Villaruz (Esvill), Inc.
18. Brigida T. Guingona
19. Francisco Paulino V. Cayco
19. Sally Chua Co
19. Vicente Lim Co
20. Eric Macario Bernabe
20. Virginia M. Lopez
Other stockholders
Total Outstanding
Number of
Shares Held
400,816,841
136,441,271
60,855,209
6,595,190
700,000
180,000
60,000
50,000
40,000
40,000
36,400
20,000
16,000
12,500
10,000
8,000
7,000
5,000
5,000
4,800
4,000
4,000
4,000
3,000
3,000
32,119
605,953,330
% to Total
Outstanding
66.15%
22.52%
10.04%
1.09%
0.12%
0.03%
0.01%
0.01%
0.01%
0.01%
0.01%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.01%
100.00%
Dividends
On June 28, 2012, the Parent Company‟s BOD approved the declaration of a regular cash dividend in the
amount P
=1 per common share to all stockholders of record as of July 18, 2012 and payable on August 13,
2012.
On March 17, 2011, the Board of Directors (BOD) of the Company approved the declaration of a regular
cash dividend in the amount of P2.00 per share and a special cash dividend in the amount of P1.00 per
share from the unrestricted retained earnings of the Company to all stockholders of record as of April 14,
2011 and payable on May 12, 2011.
Recent Sales of Unregistered Securities
Not Applicable. All shares of the Company are listed in the PSE.
15
Item 5.
Management's Discussion and Analysis or Plan of Operation
The following discussion should be read in conjunction with the accompanying consolidated financial
statements and notes thereto, which form part of this Report. The consolidated financial statements and
notes thereto have been prepared in accordance with the Philippine Financial Reporting Standards
(PFRS).
Results of Operations
Year Ended December 31, 2012 Compared with Year Ended December 31, 2011
Revenues
The Company generated revenues of P37.904 billion for the year ended December 31, 2012, 11.7%
higher than the P33.935 billion revenues earned last year. Growth in revenues is accounted for as
follows:
Passenger Revenues
Passenger revenues increased by P3.009 billion or 10.3% to P32.252 billion for the year ended December
31, 2012 from P29.242 billion registered in 2011. This increase was primarily due to the 11.1% growth
in passenger volume to 13.3 million from 11.9 million for the year ended December 31, 2011 driven by
the increased number of flights and higher seat load factor of 82.7% in 2012. Number of flights went up
by 12.5% year on year primarily as a result of the increase in the number of aircraft operated to 41 aircraft
as of December 31, 2012 from 37 aircraft as of end 2011. The reinstatement of fuel surcharge also
contributed to improved passenger revenues in 2012. Increase in revenues, however, was partially offset
by the reduction in average fares by 2.1% to P2,232 from P2,280 in 2011, partly due to elimination of free
baggage allowance from the fare as part of the Company‟s unbundling of fares strategy.
Cargo Revenues
Cargo revenues grew by P187.655 million or 8.6% to P2.381 billion for the year ended December 31,
2012 from P2.193 billion for the year ended December 31, 2011 following the increase in the volume and
average freight charges of cargo transported in 2012.
Baggage Fee and Ancillary Revenues
Baggage fee and Ancillary revenues went up by P0.772 billion or 30.9% to P3.272 billion for the year
ended December 31, 2012 from P2.500 billion posted last year. As part of its unbundling of fares
strategy, the Company commenced charging for every checked-in luggage with the elimination of free
baggage allowance. Improved online bookings also contributed to the increase. Online bookings
accounted for 51.0% of the total tickets sold during the year compared to 48.6% in 2011.
Expenses
The Company incurred operating expenses of P35.244 billion for the year ended December 31, 2012,
15.2% higher than the P30.599 billion operating expenses recorded for the year ended December 31,
2011. Increase in expenses due to seat growth was partially offset by the strengthening of the Philippine
peso against the U.S. dollar as referenced by the appreciation of the Philippine peso to an average of
P42.22 per U.S. dollar for the year ended December 31, 2012 from an average of P43.31 per U.S. dollar
last year based on the Philippine Dealing and Exchange Corporation (PDEx) weighted average rates.
Operating expenses increased as a result of the following:
Flying Operations
Flying operations expenses moved up by P2.668 billion or 15.4% to P20.019 billion for the year ended
December 31, 2012 from P17.350 billion charged in 2011. Aviation fuel expenses grew by 15.4% to
P17.562 billion from P15.221 billion for the year ended December 31, 2011 consequent to the increase in
the volume of fuel consumed as a result of the increased number of flights year on year. Rise in aviation
16
fuel expenses was further influenced by the surge in aviation fuel prices as referenced by the increase in
the average published fuel MOPS price of U.S.$126.83 per barrel in the twelve months ended December
31, 2012 from U.S.$125.50 average per barrel in the same period last year. Higher flight deck expenses
owing to higher pilot costs, including training, also contributed to the increase in flying operations
expenses.
Aircraft and Traffic Servicing
Aircraft and traffic servicing expenses increased by P442.120 million or 14.8% to P3.433 billion for the
year ended December 31, 2012 from P2.991 billion registered in 2011 as a result of the overall increase in
the number of flights flown in 2012. Higher expenses were particularly attributable to more international
flights operated for which airport and ground handling charges were generally higher compared to
domestic flights. International flights increased by 12.0% year on year.
Depreciation and Amortization
Depreciation and amortization expenses grew by P453.0 million or 19.6% to P2.768 billion for the year
ended December 31, 2012 from P2.315 billion for the year ended December 31, 2011. Depreciation and
amortization expenses increased consequent to the arrival of two Airbus A320 aircraft during the last
quarter of 2011 and four Airbus A320 aircraft in 2012.
Repairs and Maintenance
Repairs and maintenance expenses went up by P434.778 million or 14.4% to P3.462 billion for the year
ended December 31, 2012 from P3.027 billion posted last year. Increase was driven by the overall
increase in the number of flights which was offset in part by the appreciation of the Philippine peso
against the U.S. dollar as referenced by the strengthening of the Philippine peso to an average of P42.22
per U.S. dollar for the twelve month ended December 31, 2012 from an average of P43.31 per U.S. dollar
in 2011.
Aircraft and Engine Lease
Aircraft and engine lease expenses moved up by P315.522 million or 18.4% to P2.034 billion in the year
ended December 31, 2012 from P1.718 billion charged for the year ended December 31, 2011. Increase
in aircraft and engine lease expenses was due to the lease of two Airbus A320 aircraft and three
ATR 72-550 engine during the last quarter of 2011 and four Airbus A320 aircraft in 2012. Increase was
partially reduced by the return of two leased Airbus A320 aircraft in June 2012 and the effect of the
appreciation of the Philippine peso against the U.S. dollar during the current period.
Reservation and Sales
Reservation and sales expenses increased by P145.966 million or 9.9% to P1.627 billion for the year
ended December 31, 2012 from P1.481 billion registered last year. This was mainly due to the increase in
commission expenses and online bookings relative to the overall growth in passenger volume year on
year.
General and Administrative
General and administrative expenses grew by P133.265 million or 16.2% to P953.718 million for the year
ended December 31, 2012 from P820.453 million incurred in 2011. Growth in general and administrative
expenses was primarily attributable to the increased flight and passenger activity in 2012.
Passenger Service
Passenger service expenses went up by P68.973 million or 9.1% to P825.758 million for the year ended
December 31, 2012 from P756.786 million posted for the year ended December 31, 2011 consequent to
the additional cabin crew hired. Increased passenger liability insurance premiums relative to the increase
in the number of aircraft also contributed to the increase.
17
Operating Income
As a result of the foregoing, the Company finished with an operating income of P2.660 billion for the
year ended December 31, 2012, 20.3% lower than the P3.336 billion operating income earned last year.
Other Income (Expenses)
Interest Income
Interest income dropped by P231.627 million or 35.8% to P415.771 million for the year ended December
31, 2012 from P647.398 million recorded in 2011 consequent to the sale of the Company‟s quoted debt
investment securities in 2012.
Fuel Hedging Gains
Fuel hedging gains of P258.544 million for the year ended December 31, 2012 resulted from the higher
mark-to-market valuation on fuel hedging positions consequent to the significant increase in fuel prices
from end of 2012.
Foreign Exchange Gains
Net foreign exchange gains of P1.205 billion for the year ended December 31, 2012 resulted from the
appreciation of the Philippine peso against the U.S. dollar as referenced by the strengthening of the
Philippine peso to P41.05 per U.S. dollar for the twelve months ended December 31, 2012 from P43.84
per U.S. dollar for the twelve months ended December 31, 2011. The Company‟s major exposure to
foreign exchange rate fluctuations is in respect of U.S. dollar denominated long-term debt incurred in
connection with aircraft acquisitions.
Equity in Net Income of Joint Venture
The Company had equity in net income of joint venture of P54.384 million for the year ended December
31, 2012, P12.066 million or 28.5% higher than the P42.318 million equity in net income of joint venture
earned last year. Increase in this account was due to the increase in net income from the current
operations of Aviation Partnership (Philippines) Corporation (A-plus) and SIA Engineering (Philippines)
Corporation (SIAEP) in 2012.
Fair Value Losses of Financial Assets designated at Fair Value through Profit or Loss (FVPL)
No fair value losses on FVPL was recognized for the year ended December 31, 2012 as a result of the sale
of the related quoted debt and equity investment securities in 2012.
Interest Expense
Interest expense increased by P69.795 million or 10.5% to P732.592 million for the year ended December
31, 2012 from P662.797 million registered in 2011. Increase was due to higher interest expense incurred
brought by the additional loans availed to finance the acquisition of two Airbus A320 aircraft in the last
quarter of 2011 and four Airbus A320 aircraft in 2012 partially reduced by the effect of the strengthening
of the Philippine peso against the U.S.dollar during the current period.
Income before Income Tax
As a result of the foregoing, the Company recorded income before income tax of P3.867 billion for the
year ended December 31, 2012, slightly higher by 3.2% or P119.996 million than the P3.747 billion
income before income tax posted for the year ended December 31, 2011.
Provision for Income Tax
Provision for income tax for the year ended December 31, 2012 amounted to P297.387 million, of which,
P30.081 million pertains to current income tax recognized as a result of the taxable income in 2012.
Provision for deferred income tax amounted to P267.305 million resulting from the recognition of
deferred tax liabilities on future taxable amounts during the year.
18
Net Income
Net income for the year ended December 31, 2012 amounted to P3.570 billion, a decline of 1.5% from the
P3.624 billion net income earned in 2011.
Year Ended December 31, 2011 Compared with Year Ended December 31, 2010
Revenues
The Company generated revenues of P33.935 billion for the year ended December 31, 2011, 16.7%
higher than the P29.089 billion revenues earned last year. Growth in revenues is accounted for as
follows:
Passenger Revenues
Passenger revenues increased by P3.351 billion or 13.0% to P29.242 billion for the year ended December
31, 2011 from P25.891 billion registered in 2010. This increase was primarily due to the 14.1% growth
in passenger volume to 11.9 million from 10.5 million for the year ended December 31, 2010 driven by
the increased number of flights and higher seat load factor of 86.3% in 2011. Number of flights went up
by 10.5% year on year primarily as a result of the increase in the number of aircraft operated to 37 aircraft
as of December 31, 2011 from 31 aircraft as of end 2010. The reinstatement of fuel surcharge also
contributed to improved passenger revenues in 2011. Increase in revenues, however, was partially offset
by the reduction in average fares by 3.3% to P2,280 from P2,357 in 2010, partly due to elimination of free
baggage allowance from the fare as part of the Company‟s unbundling of fares strategy.
Cargo Revenues
Cargo revenues grew by P97.672 million or 4.7% to P2.193 billion for the year ended
December 31, 2011 from P2.096 billion for the year ended December 31, 2010 following the increase in
the volume and average freight charges of cargo transported in 2011.
Baggage Fee and Ancillary Revenues
Baggage fee and ancillary revenues went up by P1.398 billion or 127.0% to P2.500 billion for the year
ended December 31, 2011 from P1.101 billion posted last year. As part of its unbundling of fares
strategy, the Company commenced charging for every checked-in luggage with the elimination of free
baggage allowance. Improved online bookings also contributed to the increase. Online bookings
accounted for 48.6% of the total tickets sold during the year compared to 41.7% in 2010.
Expenses
The Company incurred operating expenses of P30.599 billion for the year ended December 31, 2011,
34.2% higher than the P22.809 billion operating expenses recorded for the year ended December 31,
2010. Increase in expenses due to seat growth was partially offset by the strengthening of the Philippine
peso against the U.S. dollar as referenced by the appreciation of the Philippine peso to an average of
P43.31 per U.S. dollar for the year ended December 31, 2011 from an average of P45.12 per U.S. dollar
last year based on the Philippine Dealing and Exchange Corporation (PDEx) weighted average rates.
Operating expenses increased as a result of the following:
Flying Operations
Flying operations expenses moved up by P5.933 billion or 52.0% to P17.350 billion for the year ended
December 31, 2011 from P11.417 billion charged in 2010. Aviation fuel expenses grew by 55.2% to
P15.221 billion from P9.808 billion for the year ended December 31, 2010 consequent to the increase in
the volume of fuel consumed as a result of the increased number of flights year on year. Rise in aviation
fuel expenses was further influenced by the surge in aviation fuel prices as referenced by the increase in
the average published fuel MOPS price of U.S.$125.50 per barrel in the twelve months ended December
31, 2011 from U.S.$90.10 average per barrel in the same period last year. Higher flight deck expenses
owing to higher pilot costs, including training, also contributed to the increase in flying operations
expenses.
19
Aircraft and Traffic Servicing
Aircraft and traffic servicing expenses increased by P529.471 million or 21.5% to P2.991 billion for the
year ended December 31, 2011 from P2.462 billion registered in 2010 as a result of the overall increase in
the number of flights flown in 2011. Higher expenses were particularly attributable to more international
flights operated for which airport and ground handling charges were generally higher compared to
domestic flights. International flights increased by 22.4% year on year.
Depreciation and Amortization
Depreciation and amortization expenses grew by P448.828 million or 24.1% to P2.315 billion for the year
ended December 31, 2011 from P1.866 billion for the year ended December 31, 2010. The acquisition of
three Airbus A320 aircraft, one ATR 72-500 aircraft and one spare Airbus engine in 2011 primarily
resulted to the increase. Moreover, 2011 was first full year in which depreciation was recorded for the
three Airbus A320 aircraft delivered in the last quarter of 2010. Additional „Asset Retirement Obligation‟
(ARO) capitalized in 2011 and the additional ARO provision during the last quarter of 2010 also
contributed to the growth in depreciation and amortization expense.
Repairs and Maintenance
Repairs and maintenance expenses went up by P332.348 million or 12.3% to P3.027 billion for the year
ended December 31, 2011 from P2.695 billion posted last year. Increase was driven by the overall
increase in the number of flights which was offset in part by the appreciation of the Philippine peso
against the U.S. dollar as referenced by the strengthening of the Philippine peso to an average of P43.31
per U.S. dollar for the twelve month ended December 31, 2011 from an average of P45.12 per U.S. dollar
in 2010.
Aircraft and Engine Lease
Aircraft and engine lease expenses moved up by P113.576 million or 7.1% to P1.718 billion for the year
ended December 31, 2011 from P1.605 billion charged for the year ended December 31, 2010. Increase
in aircraft and engine lease expenses was due to the lease of two Airbus A320 aircraft and one
ATR 72-500 engine in 2011, partially offset by the effect of the appreciation of the Philippine peso
against the U.S. dollar during the current year.
Reservation and Sales
Reservation and sales expenses increased by P144.654 million or 10.8% to P1.481 billion for the year
ended December 31, 2011 from P1.336 billion registered last year. Higher spending to build market
presence and establish brand name in its international operations accounted for the increase. Moreover,
increase in commission expenses relative to increased sales also contributed to the growth in reservation
and sales expenses.
General and Administrative
General and administrative expenses grew by P125.565 million or 18.1% to P820.453 million for the year
ended December 31, 2011 from P694.888 million incurred in 2010. Growth in general and administrative
expenses was primarily attributable to the increased flight and passenger activity in 2011.
Passenger Service
Passenger service expenses went up by P117.305 million or 18.3% to P756.786 million for the year ended
December 31, 2011 from P639.481 million posted for the year ended December 31, 2010 consequent to
the additional cabin crew hired for the three Airbus A320 aircraft acquired during the last quarter of 2010
and five Airbus A320 acquired in 2011. Increased passenger liability insurance premiums relative to the
increase in the number of aircraft also contributed to the increase.
20
Operating Income
As a result of the foregoing, the Company finished with an operating income of P3.336 billion for the
year ended December 31, 2011, 46.9% lower than the P6.280 billion operating income earned last year.
Other Income (Expenses)
Interest Income
Interest income moved up by P409.902 million or 172.6% to P647.398 million for the year ended
December 31, 2011 from P237.496 million recorded in 2010. Increased cash from operations were placed
in short-term money markets and investment securities which generated interests thus resulting to a
considerable increase in interest income in 2011. Interest rates on placements and interest earned on debt
securities were also higher this year.
Fuel Hedging Gains
Fuel hedging gains of P477.128 million for the year ended December 31, 2011 resulted from the higher
mark-to-market valuation on fuel hedging positions consequent to the significant increase in fuel prices
from end of 2010.
Foreign Exchange Gains
Net foreign exchange gains of P50.155 million for the year ended December 31, 2011 resulted from the
appreciation of the Philippine peso against the U.S. dollar as referenced by the strengthening of the
Philippine peso to an average of P43.31 per U.S. dollar for the twelve months ended December 31, 2011
from an average of P45.12 per U.S. dollar for the twelve months ended December 31, 2010 based on PDS
weighted average rates. The Company‟s major exposure to foreign exchange rate fluctuations is in
respect of U.S. dollar denominated long-term debt incurred in connection with aircraft acquisitions.
Equity in Net Income of Joint Venture
The Company had equity in net income of joint venture of P42.318 million for the year ended December
31, 2011, P17.070 million or 67.6% higher than the P25.249 million equity in net income of joint venture
earned last year. Increase in this account was due to the increase in net income from the current
operations of Aviation Partnership (Philippines) Corporation (A-plus), partially offset by the net loss
incurred by SIA Engineering (Philippines) Corporation (SIAEP) in 2011.
Fair Value Losses of Financial Assets designated at Fair Value through Profit or Loss (FVPL)
Fair value losses amounted to P143.555 million for the year ended December 31, 2011 resulting from the
decline in the fair values of quoted debt and equity instruments designated at FPVL.
Interest Expense
Interest expense declined by P98.3 million or 13.0% to P662.8 million for the year ended December 31,
2011 from P761.1 million registered in 2010. Decrease was due to the repayment of the Company‟s
obligations in accordance with the loan repayment schedules and lower interest rates on outstanding debts
during the current year. Likewise, the strengthening of the Philippine peso against the U.S. dollar in 2011
complemented the decline.
Income before Income Tax
As a result of the foregoing, the Company recorded income before income tax of P3.747 billion for the
year ended December 31, 2011, 46.0% lower than the P6.940 billion income before income tax posted in
the year ended December 31, 2010
Provision for Income Tax
Provision for income tax for the year ended December 31, 2011 amounted to P122.585 million, of which,
P52.679 million pertains to current income tax recognized as a result of the taxable income in 2011.
21
Provision for deferred income tax amounted to P69.906 million resulting from the recognition of deferred
tax liabilities on future taxable amounts during the year.
Net Income
Net income for the year ended December 31, 2011 amounted to P3.624 billion, a decline of 47.6% from
the P6.922 billion net income earned in 2010.
Year Ended December 31, 2010 Compared with Year Ended December 31, 2009
The Company posted revenues of P29.089 billion for the year ended December 31, 2010 which was
24.8% higher than the P23.311 billion revenues generated last year. Considerable improvement in
revenues is accounted for as follows:
Passenger Revenues
Passenger revenues increased by P5.173 billion or 25.0% to P25.892 billion for the year ended December
31, 2010 from P20.719 billion revenues posted last year. This increase was primarily due to the 19.5%
increase in passenger volume to 10.5 million for the twelve months ended December 31, 2010 from
8.8 million for the twelve months ended December 31, 2009. This was driven by the increase in number
of flights year on year and higher seat load factor in 2010. The Company increased the size of its fleet by
adding two Airbus A320 aircraft and two ATR 72-500 aircraft during the twelve months ended December
31, 2009. These aircraft were in operation for the entire twelve months ended December 31, 2010 thereby
resulting in more flights compared to 2009. Moreover, three Airbus A320 aircraft arrived during the last
quarter of 2010 which further contributed to the increased number of flights. Total number of flights in
2010 was up by 8.2% year on year. The increase in passenger revenues for the twelve months ended
December 31, 2010 compared with the twelve months ended December 31, 2009 was also attributable to
the increase in the average fares which moved up by 5.8% to P2,357 in 2010 from P2,227 in prior year.
Cargo Revenues
Cargo revenues increased by P411.194 million or 24.4% to P2.096 billion for the year ended December
31, 2010 from P1.684 billion for the year ended December 31, 2009, mainly as a result of the increase in
the volume of cargo transported during the period.
Baggage fee and ancillary revenues
Baggage fee and ancillary revenues increased by P193.652 million or 21.3% to P1.101 billion for the year
ended December 31, 2010 from P0.907 billion registered in 2009.
Expenses
The Company incurred expenses of P22.809 billion for the year ended December 31, 2010,
12.6% higher than the P20.254 billion expenses incurred last year. Increase in expenses due to seat
growth was partially offset by the strengthening of the Philippine peso against the U.S. dollar to an
average of P45.12 per U.S. dollar for the twelve months ended December 31, 2010 from an average of
P47.64 per U.S. dollar in 2009 based on the Philippine Dealing System weighted average rates. Expenses
increased as a result of the following:
Flying Operations
Flying operations expenses increased by P2.560 billion or 28.9% to P11.417 billion for the year ended
December 31, 2010 from P8.857 billion for the year ended December 31, 2009. Increase in flying
operations expenses was mainly attributable to the increase in aviation fuel expenses by 33.3% to
P9.808 billion in the twelve months ended December 31, 2010 from P7.360 billion incurred last year as a
result of the overall increase in the number of flights as well as increase in aviation fuel prices. Aviation
fuel prices rose as referenced by the increase in the average published MOPS price of U.S. $90.10 per
barrel in the twelve months ended December 31, 2010 compared to the U.S. $69.97 per barrel in 2009.
22
Aircraft and Traffic Servicing
Aircraft and traffic servicing expenses decreased by P170.026 million or 6.5% to P2.462 billion for the
year ended December 31, 2010 from P2.632 billion posted in 2009. Decline was mainly due to lower
airport charges further reduced by the strengthening of the Philippine peso against the U.S. dollar in 2010.
Repairs and Maintenance
Repairs and maintenance expenses decreased by P124.373 million or 4.4% to P2.695 billion for the year
ended December 31, 2010 from P2.819 billion last year. Decline in repairs and maintenance expenses
resulted from the Company‟s effective cost management. The appreciation of the Philippine peso against
the U.S. dollar in 2010 also contributed to the decrease.
Depreciation and Amortization
Depreciation and amortization expenses increased by P92.072 million or 5.2% to P1.866 billion for the
year ended December 31, 2010 from P1.774 billion for the year ended December 31, 2009 mainly
because of the addition of two ATR 72-500 aircraft during the course of the twelve months ended
December 31, 2009 which were in operation for the entire twelve months ended December 31, 2010 and
the acquisition of three Airbus A320 aircraft during the last quarter of 2010. The acquisition of one spare
engine in fourth quarter 2009 also contributed to the increase.
Aircraft and Engine Lease
Aircraft and engine lease expenses decreased by P119.031 million or 6.9% to P1.605 billion in the year
ended December 31, 2010 from P1.724 billion in prior year consequent to the return of two leased Boeing
757 aircraft in June and October 2009. Decline in aircraft and engine lease expenses was also attributable
to the strengthening of the Philippine peso to an average of P45.12 per U.S. dollar for the twelve months
ended December 31, 2010 compared to an average of P47.64 per U.S. dollar for the twelve months ended
December 31, 2009.
Reservation and Sales
Reservation and sales expenses increased by P341.289 million or 34.3% to P1.336 billion for the year
ended December 31, 2010 from P0.995 billion in 2009. This increase was primarily attributable to the
increased advertising and promotions expenditures incurred to promote the Company‟s services on the
Company‟s international routes during the twelve months ended December 31, 2010. Increase was also
due to higher commission expenses as a result of the overall increase in passenger and cargo volumes,
especially on the international operations.
General and Administrative
General and administrative expenses decreased by P127.622 million or 15.5% to P694.888 million for
year ended December 31, 2010 from P822.510 million last year. This was due to the impairment loss on
other receivables recognized in 2009 which offset the increase in other general and administrative
expenses due to the additional staff and service requirements associated with the increased flight and
passenger activity in the twelve months ended December 31, 2010.
Passenger Service
Passenger service expenses increased by P58.585 million or 10.1% to P639.481 million for the year
ended December 31, 2010 from P580.896 million for the year ended December 31, 2009. This increase
was mainly due to the additional cabin crew requirements for Airbus A319 fleet consequent to the
reconfiguration of said aircraft which increased the seat capacity from 150 passengers to 156 passengers
thereby requiring more cabin crew to attend to passenger needs. The Company also hired additional
cabin crew for the three Airbus A320 aircraft acquired in the last quarter of 2010.
23
Operating Income
As a result of the foregoing, the Company registered operating income of P6.280 billion for the year
ended December 31, 2010, 105.4% higher than the P3.057 billion posted in 2009.
Other Income (Expenses)
Interest Expense
Interest expense decreased by P144.792 million or 16.0% to P761.079 million for the year ended
December 31, 2010 from P905.872 million for the year ended December 31, 2009. Decline was due to
the repayment of the Company‟s outstanding obligations in accordance with the loan repayment
schedules partially offset by the interest incurred on additional loans availed during the last quarter of
2010. Likewise, the strengthening of the Philippine peso against the U.S. dollar in 2010 also contributed
to the decline.
Long-term debt as of December 31, 2010 amounted to P18.433 billion, 7.7% higher than the
P17.110 balance as of December 31, 2009. Additional loans were obtained during the last quarter of
2010.
Foreign Exchange Gains
Foreign exchange gains increased by P158.797 million or 38.0% to P576.979 million for the year ended
December 31, 2010 from P418.182 million in prior year. This was due to the strengthening of the
Philippine peso against the U.S. dollar to an average of P45.12 per U.S. dollar for the twelve months
ended December 31, 2010 from an average of P47.64 per U.S. dollar in 2009. The Company‟s principal
exposure to foreign exchange rate fluctuations is in respect of U.S. dollar denominated long-term debt
incurred in connection with aircraft acquisitions.
Fuel Hedging Gains
Fuel hedging gains of P474.255 million in the year ended December 31, 2010 resulted from the higher
mark-to-market valuation on fuel hedging positions.
Interest Income
Interest income increased by P228.647 million or 2584.0% to P237.496 million for the year ended
December 31, 2010 from P8.849 million in 2009. Increased cash from operations were placed in shortterm money markets and investment securities which earned interests thus resulting to a significant
increase in interest income in the current year.
Fair Value Gains of Financial Assets designated at FVPL
Fair value gains amounted to P107.631 million for the year ended December 31, 2010. This resulted from
the changes in the fair values of quoted debt and equity instruments designated at FVPL acquired during
the current year.
Equity in Net Income (Loss) of Joint Venture
The Company had equity in net income of joint venture of P25.249 million for the year ended December
31, 2010, an improvement from last year‟s net loss of P25.474 million as the losses of SIAEP, a company
which was established in July 2008 and began commercial operations in August 2009, narrowed. Higher
income generated by the current operations of A-plus also accounted for the improvement.
Income before Income Tax
As a result of the foregoing, the Company posted income before income tax of P6.940 billion for the year
ended December 31, 2010, 114.3% higher than the P3.238 billion registered in 2009.
Provision for (Benefit from) Income Tax
24
Provision for income tax for the year ended December 31, 2010 was P17.760 million. Increase in
provision for income tax was mainly due to the deferred tax liabilities recognized in connection with the
net unrealized foreign exchange gains on foreign currency denominated obligations as a result of the
strengthening of the Philippine peso during the year.
Net Income
Audited net income for the year ended December 31, 2010 surged to P6.922 billion, 112.5% higher than
the P3.258 billion net income posted in 2009.
Financial Position
December 31, 2012 versus December 31, 2011
As of December 31, 2012, the Company‟s consolidated balance sheet remains solid, with net debt to
equity of 0.55 [total debt after deducting cash and cash equivalents (including financial assets held-fortrading at fair value and available-for-sale assets) divided by total equity]. Consolidated assets grew to
P61.336 billion from P54.506 billion as of December 31, 2011 as the Company added aircraft to its fleet.
Equity grew to P
=22.135 billion from P
=19.166 billion in prior year while book value per share amounted to
=36.53 as of December 31, 2012 from P
P
=31.63 as of December 31, 2011.
The Company‟s cash requirements have been mainly sourced through cash flow from operations. Net
cash from operating activities amounted to P6.161 billion. As of December 31, 2012, net cash used in
investing activities amounted to P1.014 million which included payments in connection with the purchase
of aircraft and proceeds from the sale of investment securities. Net cash used in financing activities
amounted to P3.114 billion. Net cash used in financing activities mainly comprised the repayments of
certain long-term debt and the payment of cash dividends to the Company‟s stockholders.
As of December 31, 2012, except as otherwise disclosed in the financial statements and to the best of the
Company‟s knowledge and belief, there are no events that will trigger direct or contingent financial
obligation that is material to the Company, including any default or acceleration of an obligation.
Material Changes in the 2012 Financial Statements
(Increase/Decrease of 5% or more versus 2011)
Material changes in the Statements of Consolidated Comprehensive Income were explained in detail in
the management‟s discussion and analysis or plan of operations stated above.
Consolidated Statements of Financial Position - December 31, 2012 versus December 31, 2011
19.8% increase in Cash and Cash Equivalents
Due to collections as a result of the improvement in the Company‟s operations and from the proceeds of
investment securities sold during the period.
96.9% decrease in Financial Assets at FVPL
Due to sale of investments in quoted debt and equity securities.
18.1% increase in Receivables
Due to increased trade receivables relative to the growth in revenues.
216.7% increase in Other Current Assets
Due to advanced payments made to suppliers
25
19.1% increase in Property and Equipment
Due mainly to the acquisition of four Airbus A320 aircraft.
100% decrease in Available-for-Sale Investment
Due to sale of investments in quoted equity security.
25.0% increase in Investment in Joint Ventures
Due to investments in Philippine Academy for Aviation Training, Inc. and share in the net income of Aplus and SIAEP during the period.
43.6% decrease in Other Noncurrent Assets
Due to reduction of security deposits on leased aircraft.
15.8% increase in Accounts Payable and Other Accrued Liabilities
Due to increase in trade payables and accruals of certain operating expenses as a result of the increased
flight and passenger activity in the twelve months ended December 31, 2012.
13.9% increase in Unearned Transportation Revenue
Due to increase in sale of passenger travel services.
9.8% increase in Long-Term Debt (including Current Portion)
Due to additional loans availed to finance the purchase of the four Airbus A320 aircraft acquired during
the year partially offset by the repayment of certain outstanding long-term debt in accordance with the
repayment schedule.
100% decrease in Financial Liabilities at FVPL
Due to increase in value of certain derivative financial instruments.
121.6 % increase in Deferred Tax Liabilities- net
Due to future taxable amount recognized during the year.
100% decrease in Net Unrealized Losses on Available-for-Sale Investment
Due to sale of investments in quoted equity security.
27.8% increase in Retained Earnings
Due to net income during the year partially offset by the cash dividends distributed to stockholders.
Fuel prices have significantly increased in 2012 and this will have an impact on the Company‟s operating
income.
For 2012, there are no significant element of income that did not arise from the Company‟s continuing
operations.
The Company generally records higher domestic revenue in January, March, April, May and December as
festivals and school holidays in the Philippines increase the Company‟s seat load factors in these periods.
Accordingly, the Company‟s revenue is relatively lower in July to September due to decreased domestic
travel during these months. Any prolonged disruption in the Company‟s operations during such peak
periods could materially affect its financial results.
In addition, the Company has capital expenditure commitments which principally relate to the acquisition
of aircraft. Kindly refer to Note 29 of the Notes to Consolidated Financial Statements for the detailed
discussion on Purchase and Capital Expenditure Commitments.
26
December 31, 2011 versus December 31, 2010
As of December 31, 2011, the Company‟s consolidated balance sheet remains solid, with net debt to
equity of 0.57 [total debt after deducting cash and cash equivalents (including financial assets held-fortrading at fair value and available-for-sale assets) divided by total equity]. Consolidated assets grew to
P54.506 billion from P48.725 billion as of December 31, 2010 as the Company added aircraft to its fleet.
Equity grew to P 19.166 billion from P 17.907 billion in prior year while book value per share amounted
to P 31.63 as of December 31, 2011 from P 29.20 as of December 31, 2010.
The Company‟s cash requirements have been mainly sourced through cash flow from operations. Net
cash from operating activities amounted to P 7.995 billion. As of December 31, 2011, net cash used in
investing activities amounted to P4.291 billion which included payments in connection with the purchase
of aircraft. Net cash used in financing activities amounted to P4.504 billion. Net cash used in financing
activities mainly comprised the repayments of certain long-term debt and the payment of cash dividends
to the Company‟s stockholders.
As of December 31, 2011, except as otherwise disclosed in the financial statements and to the best of the
Company‟s knowledge and belief, there are no events that will trigger direct or contingent financial
obligation that is material to the Company, including any default or acceleration of an obligation.
Material Changes in the 2011 Financial Statements
(Increase/Decrease of 5% or more versus 2010)
Material changes in the Statements of Consolidated Comprehensive Income were explained in detail in
the management‟s discussion and analysis or plan of operations stated above.
Consolidated Statements of Financial Position - December 31, 2011 versus December 31, 2010
8.3% decrease in Cash and Cash Equivalents
Due to payments made in connection with the acquisition of Airbus A320 and A321Neo aircraft,
repayment of certain long-term debt and distribution of cash dividends to the Company‟s stockholders.
15.9% decrease in Financial Assets at FVPL
Due to decline in the fair value of quoted debt and equity instruments and the settlement of certain
derivative financial instruments relative to its fuel hedges.
7.4% increase in Expendable Parts, Fuel, Materials and Supplies
Due to higher fuel prices during the year.
5.5% increase in Other Current Assets
Due to advance rentals made for the additional leased aircraft.
21.6% increase in Property and Equipment
Due mainly to the acquisition of three Airbus A320 aircraft, one ATR 72-500 aircraft and one spare
Airbus engine.
10.8% increase in Investment in Joint Ventures
Due to investment in PAAT and share in the net income of A-plus during the period.
19.4% increase in Other Noncurrent Assets
Due to deposits made for the delivery of leased Airbus A320 aircraft.
27
19.9% increase in Accounts Payable and Other Accrued Liabilities
Due to increase in trade payables and accruals of certain operating expenses as a result of the increased
flight and passenger activity in the twelve months ended December 31, 2011.
14.0% increase in Unearned Transportation Revenue
Due to increase in sale of passenger travel services.
13.2% increase in Long-Term Debt (including Current Portion)
Due to additional loans availed to finance the purchase of the three Airbus A320 aircraft acquired during
the year partially offset by the repayment of certain outstanding long-term debt in accordance with the
repayment schedule.
100.0% increase in Financial Liabilities at FVPL
Due to decline in value of certain derivative financial instruments.
44.8% increase in Deferred Tax Liabilities- net
Due to future taxable amount recognized during the year.
100.0% increase in Treasury Stocks
Due to purchase of 7,283,220 shares of common stocks.
107.4% increase in Net Unrealized Losses on Available-for-Sale Investment
Due to decrease in fair value of the acquired quoted equity security.
20.1% increase in Retained Earnings
Due to net income during the year partially offset by the cash dividends distributed to stockholders.
Fuel prices have significantly increased in 2012 and this will have an impact on the Company‟s operating
income.
For 2011, there are no significant element of income that did not arise from the Company‟s continuing
operations.
The Company generally records higher domestic revenue in January, March, April, May and December as
festivals and school holidays in the Philippines increase the Company‟s seat load factors in these periods.
Accordingly, the Company‟s revenue is relatively lower in July to September due to decreased domestic
travel during these months. Any prolonged disruption in the Company‟s operations during such peak
periods could materially affect its financial results.
In addition, the Company has capital expenditure commitments which principally relate to the acquisition
of aircraft. Kindly refer to Note 29 of the Notes to Consolidated Financial Statements for the detailed
discussion on Purchase and Capital Expenditure Commitments.
28
Key Performance Indicators
The Company sets certain performance measures to gauge its operating performance periodically and to
assess its overall state of corporate health. Listed below are major performance measures, which the
Company has identified as reliable performance indicators. Analyses are employed by comparisons and
measurements based on the financial data as of December 31, 2012 and 2011 and for the years ended
December 31, 2012 and 2011:
Key Financial Indicators
Total Revenue
Pre-tax Core Net Income
EBITDAR Margin
Cost per Available Seat Kilometre (ASK) (Php)
Cost per ASK (U.S. cents)
Seat Load Factor
2012
P37.904 billion
P2.398 billion
21.2%
2.49
5.89
83%
2011
P33.935 billion
P3.363 billion
23.2%
2.47
5.71
86%
The manner by which the Company calculates the above key performance indicators for both year-end
2012 and 2011 is as follows:
Total Revenue
Pre-tax Core Net Income
EBITDAR Margin
Cost per ASK
Seat Load Factor
Item 6.
The sum of revenue obtained from the sale of air
transportation services for passengers and cargo and
ancillary revenue.
Operating income after deducting net interest
expense and adding equity income/loss of joint
venture
Operating income after adding depreciation and
amortization, accretion and amortization of ARO and
aircraft and engine lease expenses divided by total
revenue
Operating expenses, including depreciation and
amortization expenses and the costs of operating
leases, but excluding fuel hedging effects, foreign
exchange effects, net financing charges and taxation,
divided by ASK
Total number of passengers divided by the total
number of actual seats on actual flights flown
Financial Statements
The financial statements are filed as part of this report.
Item 7.
Independent Public Accountants and Audit Related Fees
Independent Public Accountants
Sycip Gorres Velayo & Co. (SGV & Co.) has acted as the Company‟s independent public accountant.
The same accounting firm is tabled for reappointment for the current year at the annual meeting of
stockholders. The representatives of the principal accountant have always been present at prior year‟s
meetings and are expected to be present at the current year‟s annual meeting of stockholders. They may
also make a statement and respond to appropriate questions with respect to matters for which their
services were engaged.
29
The current handling partner of SGV & Co. has been engaged by the Company in 2012 and is expected to
be rotated every five years.
A.
Audit Fees
The following table sets out the aggregate fees billed for each of the last three years for professional
services rendered by SGV & Co.
Audit and audit-related fees
2012
P2,425,500
2011
P2,310,000
2010
P2,100,000
The audit committee‟s approval policies and procedures for the services rendered by the external auditors:
The Corporate Governance Manual of the Company provides that the audit committee shall, among
others:
1.
Evaluate all significant issues reported by the external auditors relating to the adequacy,
efficiency, and effectiveness of policies, controls, processes and activities of the Company.
2.
Ensure that other non-audit work provided by the external auditors is not in conflict with their
functions as external auditors.
3.
Ensure the compliance of the Company with acceptable auditing and accounting standards and
regulations.
B.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III - CONTROL AND COMPENSATION INFORMATION
Item 8.
Board of Directors and Executive Officers of the Registrant
Currently, the Board consists of nine members, of which two are independent directors. The table below
sets forth certain information regarding the members of our Board.
Name
Ricardo J. Romulo
John L. Gokongwei, Jr.
James L. Go
Lance Y. Gokongwei
Jose F. Buenaventura
Robina Y. Gokongwei-Pe
Frederick D. Go
Antonio L. Go*
Oh Wee Khoon
Age
79
86
73
46
78
51
43
72
54
Position
Chairman
Director
Director
Director, President and Chief
Executive Officer
Director
Director
Director
Independent Director
Independent Director
*He is not related to any of the other directors
30
Citizenship
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Singaporean
All of the above directors have served their respective offices since June 28, 2012. There are no other
directors who resigned or declined to stand for re-election to the board of directors since the date of the
last annual meeting of the stockholders for any reason whatsoever.
Messrs. Antonio L. Go and Oh Wee Khoon are the independent directors of the Company.
The table below sets forth certain information regarding our executive officers.
Name
Bach Johann M. Sebastian…….
Jaime I. Cabangis…...
Victor Emmanuel B. Custodio...
Rosita D. Menchaca…………...
Candice Jennifer A. Iyog……...
Joseph G. Macagga……………
Antonio Jose L. Rodriguez …...
Robin C. Dui…………………..
Jeanette U. Yu…………………
Michael S. Shau……………….
Alejandro B. Reyes……………
Alexander G. Lao………………
Rosalinda F. Rivera…………....
William S. Pamintuan…………
Age Position
51 Senior Vice President Chief Strategist…….....……
60 Chief Financial Officer…...
54 Vice President .……………
50 Vice President .……………
40 Vice President .……………
47 Vice President .……………
59 Vice President .……………
66 Vice President…………..…
59 Vice President - Treasurer....
49 Vice President .……………
45 General Manager .……………
37 Vice President……………...
42 Corporate Secretary……….
50 Assistant Corporate
Secretary…………………...
Citizenship
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
The table below sets forth certain information regarding our senior consultants.
Name
Garry R. Kingshott..............................
Mark Breen………..............................
Age
60
39
Citizenship
Australian
Irish
The business experience for the past five years of each of our directors, executive officers and senior
consultants is set forth below:
Ricardo J. Romulo has been the Chairman of our Board since December 1995. He is also a director of JG
Summit Holdings, Inc. and a Senior Partner in Romulo, Mabanta, Buenaventura, Sayoc & De Los
Angeles. Mr. Romulo is also Chairman of Federal Phoenix Assurance Company, Inc. and InterPhil
Laboratories, Inc. He is Vice Chairman of Planters Development Bank and a director of SM
Development Corporation, Philippine American Life and General Insurance Company, and Zuellig
Pharma Corporation. He received his Bachelor of Laws degree from Georgetown University and Doctor
of Laws degree from Harvard Law School.
John L. Gokongwei, Jr. has been a director of our Company since December 1995. He is the Chairman
Emeritus and a member of the Board of Directors of JG Summit Holdings, Inc. and certain of its
subsidiaries. He also continues to be a member of the Executive Committee of JG Summit Holdings, Inc.
He is currently the Chairman of the Gokongwei Brothers Foundation, Inc., Deputy Chairman and Director
of United Industrial Corporation Limited and Singapore Land Limited, and a director of JG Summit
Capital Markets Corporation and Oriental Petroleum and Minerals Corporation. He is also a nonexecutive director of A. Soriano Corporation. Mr. John L. Gokongwei, Jr. received a Master‟s degree in
Business Administration from De La Salle University and attended the Advanced Management Program
at Harvard Business School.
31
James L. Go has been a director of our Company since May 2002. He is the Chairman and Chief
Executive Officer of JG Summit Holdings, Inc. and, as such, he heads the Executive Committee of JG
Summit Holdings, Inc. He is currently the Chairman of Universal Robina Corporation, Robinsons Land
Corporation and JG Summit Petrochemical Corporation. He is the Chairman and Chief Executive Officer
of Robinsons, Inc.and Oriental Petroleum and Minerals Corporation. He is also the President and a
Trustee of the Gokongwei Brothers Foundation, Inc. He was elected director of the Philippine Long
Distance Telephone Company (PLDT) on November 3, 2011 and was also appointed a member of
PLDT‟s Technology Strategy Committee. He is also a director of United Industrial Corporation Limited,
Singapore Land Limited, Marina Centre Holdings, Inc., Hotel Marina City Private Limited and JG
Summit Capital Markets Corporation. Mr. James L. Go received a Bachelor of Science degree and a
Master of Science degree in Chemical Engineering from the Massachusetts Institute of Technology.
Lance Y. Gokongwei has been the President and Chief Executive Officer of our Company since 1997. He
is the President and Chief Operating Officer of JG Summit Holdings, Inc. He is the President and Chief
Executive Officer of Universal Robina Corporation and JG Summit Petrochemical Corporation, and the
Vice Chairman and Chief Executive Officer of Robinsons Land Corporation. He is also the Chairman of
Robinsons Bank, Chairman and President of JG Summit Capital Markets Corporation, and a director of
Oriental Petroleum and Minerals Corporation, United Industrial Corporation Limited and Singapore Land
Limited. He is also trustee, secretary and treasurer of the Gokongwei Brothers Foundation, Inc. Mr.
Lance Y. Gokongwei received a Bachelor of Science degree in Finance and a Bachelor of Science degree
in Applied Science from the University of Pennsylvania.
Jose F. Buenaventura has been director of our Company since December 1995. He is a Senior Partner in
Romulo, Mabanta, Buenaventura, Sayoc & De Los Angeles. Mr. Buenaventura is a Director and
President of Consolidated Coconut Corporation. He is also a member of the Board of The Country Club,
Inc., Peter Paul Philippine Corporation, GROW, Inc., Grow Holdings, Inc., Total Consolidated Asset
Management, Inc., Philippine First Insurance Co., Inc. and PhilPlans First, Inc. Mr. Buenaventura
received his Bachelor of Laws degree from the Ateneo de Manila University School of Law and his
Master of Laws Degree from Georgetown University Law Centre, Washington D.C. He was admitted to
the Philippine Bar in 1959.
Robina Y. Gokongwei-Pe was elected as a director of our Company effective 1 August 2007. She is
currently a director of JG Summit Holdings, Inc., Robinsons Land Corporation, Robinsons Bank and JG
Summit Capital Markets Corporation. She is currently the President and Chief Operating Officer of the
Robinsons Retail Group, consisting of Robinsons Department Store, Robinsons Supermarket, Handyman,
True Value, Robinsons Specialty Stores, Robinsons Appliances and Toys R Us and Saizen by Daiso
Japan. She obtained her Bachelor of Arts degree in Journalism from the New York University.
Frederick D. Go was elected a director of our Company effective 1 August 2007. He is currently the
President and Chief Operating Officer of Robinsons Land Corporation and Robinsons Recreation
Corporation. He is the Group General Manager of Shanghai Ding Feng Real Estate Development
Company Limited, Xiamen Pacific Estate Investment Company Limited, Chengdu Ding Feng Real Estate
Development Company Limited, and Taicang Ding Feng Real Estate Development Company Limited. He
also serves as a director of Universal Robina Corporation, JG Summit Petrochemical Corporation,
Robinsons Bank, Secret Recipes Corporation, Ho Tsai Dimsum Incorporated, Cebu Light Industrial Park,
and Philippine Hotels Federation. He is also the President of the Philippine Retailers Association. He
received a Bachelor of Science degree in Management Engineering from the Ateneo De Manila
University.
32
Mr. Antonio L. Go was elected as an independent director of the Corporation on 6 December 2007. He
also currently serves as director and President of Equitable Computer Services, Inc. and is Chairman of
Equicom Savings Bank. He is also a director of Medilink Network, Inc., Maxicare Healthcare
Corporation, Equicom Manila Holdings, United Industrial Corporation Limited, Oriental Petroleum and
Minerals Corporation, Pin-An Holdings, Inc., Equicom Information Technology, and ALGO Leasing and
Finance, Inc. He is also a trustee of Go Kim Pah Foundation and Equitable Foundation, Inc. He graduated
from Youngstown University, United States with a Bachelor of Science degree in Business
Administration. He attended the International Advanced Management program at the International
Management Institute, Geneva, Switzerland as well as the Financial Planning/Control program at the
ABA National School of Bankcard Management, Northwestern University, United States.
Mr. Oh Wee Khoon was elected as an independent director of the Corporation effective 3 January 2008.
He is the founder and managing director of Sobono Energy Private Limited. He is also the Vice Chairman
of the Sustainable Energy Association of Singapore. He graduated with honors from the University of
Manchester Institute of Science and Technology with a Bachelor of Science degree in Mechanical
Engineering. He obtained his Master's degree in Business Administration from the National University of
Singapore.
Bach Johann M. Sebastian is the Senior Vice President - Chief Strategist of our Company and is Head of
Corporate Strategy effective 5 May 2007. He is also the Senior Vice President and Director of Corporate
Planning of JG Summit, URC and RLC. Prior to joining our Company in 2002, he was Senior Vice
President and Chief Corporate Strategist at PSI Technologies and RFM Corporation. He was also Chief
Economist and Director of the Policy and Planning Group at the Department of Trade and Industry. He
received a Bachelor of Arts degree in Economics from the University of the Philippines and a Master‟s
degree in Business Management from the Asian Institute of Management. He has nine years experience
in the airline industry, all of which have been with our Company.
Jaime I. Cabangis was appointed as the Chief Financial Officer of our Company since January 1, 2012.
Prior to his appointment, he was the former Chief Financial Officer and Corporate Center Unit Head of
Digitel Telecommunications, Inc, and Digitel Mobile Philippines, Inc. He was also the Chief Financial
Officer of URC International Co. Ltd., URC Asean Brands Co. Ltd, and Hong Kong China Foods, Co.
Ltd from July 2001 to December 2002. He is a certified public accountant and was a partner of SGV and
Co. where he worked for 21 years. Mr. Jaime Cabangis has more thana year of experience in the airline
industry, all of which have been with Cebu Pacific.
Victor Emmanuel B. Custodio has been the Vice President for Flight Operations of our Company since
2004. An instructor pilot in the A320, he was also a Check Airman in both the DC-9 and B-757. Prior to
joining Cebu Pacific, he served as the Presidential Pilot and Aide de Camp of Philippine Presidents
Corazon Aquino and Fidel Ramos. He was formerly the Acting Director of Operations of the 250th
Presidential Airlift Wing, the Squadron Commander of the Headquarters Squadron of the 250th
Presidential Airlift Wing and the Air Operations Officer of the 250th Presidential Airlift Wing. Capt.
Custodio graduated from the Philippine Military Academy in 1983 where he received his Bachelor of
Science degree (cum laude) and the Philippine Air Force Flying School in 1985 where he was awarded
the Minister of National Defence Saber for graduating at the top of his class. Prior to being assigned in
the 250th Presidential Airlift Wing, he was assigned in the 205th Helicopter Wing where he flew as a
combat pilot all over the Philippines and received numerous medals and commendations such as the
Bronze Cross Medal, Military Merit Medal, Military Commendation Medal and the Combat Kagitingan
Badge. He has 31 years of experience in the aviation industry, the last 16 of which have been with Cebu
Pacific.
33
Rosita D. Menchaca is the Vice President for Inflight Services of our Company effective May 2009 and
was previously Vice President for Passenger Service from February 2007 to May 2009. She joined our
Company in 1996 as a Cabin Crew Supervisor and has since been promoted twice, first to Director, Cabin
Services, in November 1999 and in May 2006 to Head of Passenger Services. She previously worked
with Philippine Airlines as a flight attendant for two years and joined Saudi Arabian Airlines in 1985 as a
Senior Flight Attendant for eight years. Ms. Rosita D. Menchaca received her Bachelor of Science degree
in Psychology from Silliman University. She has 28 years experience in the airline industry, the last 15 of
which have been with our Company.
Candice Jennifer A. Iyog has been with our Company since September 2003 and was appointed Vice
President for Marketing and Distribution of our Company in September 2008. Prior to this position, she
was Vice President for Marketing and Product from February 2007 to September 2008. She was formerly
the General Manager of Jobstreet.com and was also the marketing manager of NABISCO. She also
worked at URC as Product Manager and, as such, handled major snack food brands of URC such as
Chippy, Piattos and Nova. Ms. Candice Jennifer A. Iyog received her Bachelor of Science degree in
Management from the Ateneo de Manila University. She has nine years experience in the airline industry,
all of which have been with our Company.
Joseph G. Macagga has been the Vice President for Fuel and Cargo Operations of our Company since
September 2004. He started with Cebu Pacific as Manager for Purchasing and handled Internal Audit for
more than two years. He served as Audit Manager for JG Summit Holdings, Inc. for five years and
worked for the Audit Division of SyCip Gorres Velayo & Co for three years. A Certified Public
Accountant, Mr. Joseph G. Macagga received his Bachelor of Science degree in Commerce, Major in
Accounting from the University of Sto. Tomas. He has 16 years experience in the airline industry, all of
which have been with our Company.
Antonio Jose L. Rodriguez has been the Vice President for Airport Services of our Company since March
2010. He previously worked with various multinational companies including California Manufacturing
Co. from 1993 to 2003, initially as Human Resources Manager and later on as Director and finally as
Vice President in charge of the Human Resources Group. He was also AVP-Human Resources of Allied
Thread Co. Inc. for the period from 1990 to 1992. Prior to this, he was employed with Triumph
International (Phils.) Inc. from 1985 to 1990. He is a graduate of De La Salle University where he
completed Lia-Com a double degree course, majoring in Business Administration and Behavioural
Sciences. He has seven years experience in the airline industry, all of which have been with our
Company.
Robin C. Dui has been the Vice President - Comptroller of our Company since 1998. He was formerly
with the Audit Division of SyCip Gorres Velayo & Co for four years. He previously worked with
Philippine Airlines for 18 years as Manager - General Accounting, Director - Operations Accounting,
Director - Revenue Accounting and Vice President - Comptroller. He also previously held the position of
Director - Finance of GrandAir for one year. A Certified Public Accountant, Mr. Robin C. Dui obtained a
Bachelor of Science degree in Business Administration. He has 32 years experience in the airline
industry, 13 of which have been with our Company.
Jeanette U. Yu has been the Vice President - Treasurer of our Company since 1995. She is also the Chief
Financial Officer of Oriental Petroleum and Minerals Corporation and the Senior Vice President and
Treasurer of JG Summit Capital Markets Corporation and Vice President of URC. Prior to joining URC
in 1980, she worked for AEA Development Corporation and Equitable Banking Corporation. Ms.
Jeanette U. Yu received her Bachelor of Science degree in Business Administration from St. Theresa‟s
College in Quezon City. She has 16 years experience in the airline industry, all of which have been with
our Company.
34
Michael S. Shau joined our Company in May 2007 as VP Airport and Administration Services and was
appointed Vice President for People and Administration Services of our Company effective March 2010.
He has been with the JG Summit Group since January 1999 and has held various senior management
positions with his last assignment as Business Unit General Manager of Universal Robina Corporation –
Packaging Division. He received a degree in Industrial Management Engineering, Minor in Mechanical
Engineering and completed all academic requirements for a Master‟s degree in Business Management,
both from De La Salle University. He has four years experience in the airline industry, all of which have
been with our Company.
Alejandro B. Reyes was appointed as the General Manager for long-haul operations on
February 2012. He was the former Vice President for Commercial Planning of our Company from
January 2008 to January 2012. He previously worked as Senior Vice President of PhilWeb. Prior to this,
he held various positions with The Inquirer Group, the latest of which was Senior Vice President and
Chief Operating Officer of the Inquirer Publications, Inc. Mr. Alejandro B. Reyes graduated Summa Cum
Laude from Georgetown University with a Bachelor of Science degree in International Economics. He
received his Master‟s degree in Business Administration from the University of Virginia. He has five
years of experience in the airline industry, all of which have been with our Company.
Alexander G. Lao was appointed Vice President for Commercial Planning in February 2012. He served
as the Director of Revenue Management from October 8, 2007 to February 2012. Before joining our
Company, he worked as Assistant Vice President of Philamlife from August 2001 to September 2007, as
Business Development Assistant of Ayala Life from 1998 to 1999. Mr. Alexander G. Lao graduated in
Ateneo De Manila University with a Bachelor of Science degree in Legal Management. He received his
Master‟s degree in Business Administration from the Asian Institute of Management. He has five years
of experience in the airline industry, all of which have been with our Company.
Rosalinda F. Rivera was appointed Corporate Secretary of our Company effective 31 October 2006. She
is also the Corporate Secretary of JG Summit, URC, RLC, JG Summit Petrochemical Corporation and
CPAir Holdings, Inc. Prior to joining the JG group, she was a Senior Associate at Puno and Puno Law
Offices. She received a Juris Doctor degree from the Ateneo de Manila University School of Law and a
Master of Law degree in International Banking from Boston University School of Law. She was admitted
to the Philippine Bar in 1995. She has four years experience in the airline industry, all of which have been
with our Company.
William S. Pamintuan is the Assistant Corporate Secretary of our Company since December 1995. He is
currently the First Vice President and Deputy General Counsel, Compliance Officer and also Assistant
Corporate Secretary of Manila Electric Company (MERALCO). He is also the Corporate Secretary of
Meralco PowerGen Corporation, Atimon Land Ventures Development Corporation, Calamba Aero Power
Corporation and RP Energy, Inc. He also serves as a director of Miescorrail, Inc. He was the former
Corporate Secretary and Senior Vice President of Digital Telecommunications Phils., Inc. and Digitel
Mobile Phils., Inc.. He obtained his Bachelor of Laws degree from the University of the Philippines. He
has 16 years experience in the airline industry, all of which have been with our Company.
Garry R. Kingshott is one of our Company‟s senior consultants. He provides advice to the President with
respect to fare structuring, cost management, route development and market entry strategies. Garry was
previously with Jet Lite (India) and Ansett International Limited (Australia) as their Chief Executive
officer. Garry has 22 years combined experience in aviation consultancy and the airline industry, and
joined our Company in 2008.
35
Mark Breen is one of our Company‟s senior consultants. He provides advice to the President on
operations-related functions, including airport services, emergency response procedures, airline service
quality, supplier evaluation, product selection, sourcing of spares, inventory management, crew
management and control centre management.
Mark was previously with Sama as their
Chief Operating Officer. Mark was educated at the College of Commerce and is a graduate of Transport
Management. He also has a Masters Degree in Air Transport Management from the College of
Aeronautics, School of Engineering of Cranfield University. He has a vast amount of airline experience
from his time with, among others, Sama, AirAsia, Gulf Air and Ryan Air. He has 17 years experience in
the airline industry, and joined our Company in 2009.
The Company‟s executive officers can be reached at the address of its business office at Airline
Operations Center, Domestic Road, Pasay City.
Involvement in Certain Legal Proceedings of Directors and Executive Officers
Except as otherwise disclosed, to the best of the Company‟s knowledge and belief and after due inquiry,
none of the Company‟s directors, nominees for election as director, or executive officer have in the past
five years: (i) had any petition filed 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 a two year period of that time; (ii)
convicted by final judgment in a criminal proceeding, domestic or foreign, or have been subjected to a
pending judicial proceeding of a criminal nature, domestic or foreign, excluding traffic violations and
other minor offences; (iii) subjected to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, domestic or foreign, permanently or
temporarily enjoining, barring, suspending or otherwise limiting their involvement in any type of
business, securities, commodities or banking activities; or (iv) found by a domestic or foreign court of
competent jurisdiction (in a civil action), the Philippine Securities and Exchange Commission (SEC) or
comparable foreign body, or a domestic or foreign exchange or other organized trading market or self
regulatory organization, to have violated a securities or commodities law or regulation and the judgment
has not been reversed, suspended, or vacated.
Family Relationship




Mr. James L. Go is the brother of Mr. John L. Gokongwei, Jr.
Mr. Lance Y. Gokongwei is the son of Mr. John L. Gokongwei, Jr.
Mr. Frederick D. Go is the nephew of Mr. John L. Gokongwei, Jr.
Ms. Robina Y. Gokongwei-Pe is the daughter of Mr. John L. Gokongwei, Jr.
Item 9. Executive Compensation
The following are our Company‟s Chief Executive Officer (“CEO”) and four most highly compensated
executive officers for the years ended 2010, 2011 and 2012 estimates:
Name
Lance Y. Gokongwei . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Victor Emmanuel B. Custodio . . . . . . . . . . . . . . . . . . . . . .
Antonio Jose L. Rodriguez . . . . . . . . . . . . . . . . . . . . . . . . .
Michael S. Shau. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jeanette U. Yu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36
Position
President and CEO
Vice President
Vice President
Vice President
Vice President
The following table identifies and summarizes the aggregate compensation of the Company‟s CEO and
the four most highly compensated executive officers for the years ended 2011, 2012 and 2013 estimates:
Salaries
CEO and four (4) most highly compensated executive
officers
1. Lance Y. Gokongwei – President and CEO
2. Victor Emmanuel B. Custodio – Vice President
3. Antonio Jose L. Rodriguez – Vice President
4. Michael S. Shau – Vice President
5. Jeanette U. Yu – Vice President-Treasurer
Aggregate compensation paid to all officers and
directors as a group unnamed
1
Includes per diem of directors
P3,062,481
P400,000
P37,648,861
P76,860,270
P6,516,539
P3,205,000
P86,581,809
Actual – Fiscal Year 2012
Bonuses
Other
Income1
Total
P52,167,107
P4,490,873
P390,000
P57,047,980
P91,787,249
P7,751,597
P2,925,000
P102,463,846
Salaries
CEO and four (4) most highly compensated executive
officers
1. Lance Y. Gokongwei – President and CEO
2. Victor Emmanuel B. Custodio – Vice President
3. Antonio Jose L. Rodriguez – Vice President
4. Michael S. Shau – Vice President
5. Jeanette U. Yu – Vice President-Treasurer
Aggregate compensation paid to all officers and
directors as a group unnamed
1
Includes per diem of directors
Total
P34,186,380
Salaries
CEO and four (4) most highly compensated executive
officers
1. Lance Y. Gokongwei – President and CEO
2. Victor Emmanuel B. Custodio – Vice President
3. Antonio Jose L. Rodriguez – Vice President
4. Michael S. Shau – Vice President
5. Jeanette U. Yu – Vice President-Treasurer
Aggregate compensation paid to all officers and
directors as a group unnamed
1
Includes per diem of directors
Actual – Fiscal Year 2011
Bonuses
Other
Income1
Fiscal Year 2013 Estimates
Bonuses
Other
Income1
Total
P55,970,963
P4,737,871
P390,000
P61,098,834
P95,160,200
P8,069,316
P3,030,000
P106,259,516
Standard Arrangements
Other than payment of reasonable per diem as may be determined by the Board for every meeting, there
are no standard arrangements pursuant to which directors of the Company are compensated, or are to be
compensated, directly or indirectly, for any services provided as a director for the last completed year and
the ensuing year.
37
Other Arrangements
There are no other arrangements pursuant to which directors of the Company are compensated, or are to
be compensated, directly or indirectly, for any services provided as a director for the last completed year
and the ensuing year.
Employment Contracts and Termination of Employment and Change-in-Control Arrangement
There are no agreements between the Company and its directors and executive officers providing for
benefits upon termination of employment, except for such benefits to which they may be entitled under
the Company‟s pension plans.
Warrants and Options Outstanding
There are no outstanding warrants or options held by the Company‟s CEO, the named executive officers,
and all officers and directors as a group.
Item 10.
(1)
Security Ownership
Management
of
Certain
Record
and
Beneficial
Owners
and
Security Ownership of Certain Record and Beneficial Owners
As of December 31, 2012, the Company knows no one who beneficially owns in excess of 5% of the
Company‟s common stock except as set forth in the table below.
Title of
Class
Common
Common
Common
Names and Addresses of
Record Owners and
Relationship with the
Corporation
CPAir Holdings, Inc.
43/F, Robinsons Equitable
Tower, ADB Avenue corner
Poveda Street, Ortigas Center
Pasig City
(stockholder)
PCD Nominee Corporation
(Non-Filipino)
37/F, Tower 1, The Enterprise
Center, Ayala Ave. cor. Paseo
de Roxas, Makati City
(stockholder)
PCD Nominee Corporation
(Filipino)
37/F, Tower 1, The Enterprise
Center, Ayala Ave. cor. Paseo
de Roxas, Makati City
(stockholder)
Name of
Beneficial Owner
and Relationship
with Record
Owner
Citizenship
No. of
Shares Held
% to Total
Outstanding
Same as record
owner
(See note 1)
Filipino
400,816,841
66.15 %
PDTC Participants
and their clients
(See note 2)
Non-Filipino
136,423,471
(See note 3)
22.51%
PDTC Participants
and their clients
(See note 2)
Filipino
60,817,949
10.04%
Notes:
1. CPAir Holdings, Inc. is a wholly-owned subsidiary of JG Summit Holdings, Inc. Under the By-Laws of CPAir Holdings,
Inc., the President is authorized to represent the corporation at all functions and proceedings. The incumbent President of CPAir
Holdings, Inc. is Mr. Lance Y. Gokongwei.
38
2. PCD Nominee Corporation is the registered owner of the shares in the books of the Corporation‟s transfer agent. PCD
Nominee Corporation is a corporation wholly-owned by Philippine Depository and Trust Corporation, Inc. (formerly the
Philippine Central Depository) (“PDTC”), whose sole purpose is to act as nominee and legal title holder of all shares of stock
lodged in the PDTC. PDTC is a private corporation organized to establish a central depository in the Philippines and introduce
scripless or book-entry trading in the Philippines. Under the current PDTC system, only participants (brokers and custodians) will
be recognized by PDTC as the beneficial owners of the lodged shares. Each beneficial owner of shares through his participant
will be the beneficial owner to the extent of the number of shares held by such participant in the records of the PCD Nominee.
3. Out of the PCD Nominee Corporation (Non-Filipino) account, “The Hongkong and Shanghai Banking Corp. Ltd. -Clients‟
Acct.” holds for various trust accounts the following shares of the Corporation as of December 31, 2012:
The Hongkong and Shanghai Banking Corp. Ltd. - Clients‟ Acct.
No. of shares
71,275,219
% to Outstanding
11.76%
The securities are voted by the trustee‟s designated officers who are not known to the Corporation.
(2)
Security Ownership of Management as of December 31, 2012
Title of
Class
Name of Beneficial Owner
Position
Amount and
Nature of
Beneficial
Ownership
% to Total
(Direct)
Citizenship Outstanding
Named Executive Officers 1
Common Lance Y. Gokongwei
Director, President and
Chief Executive Officer
Victor Emmanuel B.Custodio Vice President
Antonio Jose L. Rodriguez
Vice President
Michael S. Shau
Vice President
Jeanette U. Yu
Vice President -Treasurer
Subtotal
Other Directors and Executive Officers
Common Ricardo J. Romulo
Chairman
Common John L. Gokongwei, Jr.
Director
Common James L. Go
Director
Common Jose F. Buenaventura
Director
Common Robina Y. Gokongwei-Pe
Director
Common Frederick D.Go
Director
Common Antonio L.Go
Independent Director
Common Oh Wee Khoon
Independent Director
Common Jaime I. Cabangis
Chief Financial Officer
Subtotal
All directors and executive officers as a group unnamed
1
–
–
–
–
1
Filipino
Filipino
Filipino
Filipino
Filipino
1 Filipino
1 Filipino
1 Filipino
1 Filipino
1 Filipino
1 Filipino
1 Filipino
1 Singaporean
10,000 Filipino
10,008
10,009
*
–
–
–
–
*
*
*
*
*
*
*
*
*
*
*
*
Notes:
As defined under Part IV (B) (1) (b) of SRC Rule 12, the “named executive officers” to be listed refer to the Chief Executive
Officer and those that are the four (4) most highly compensated executive officers as of December 31, 2011.
1.
*
less than 0.01%
39
(3)
Voting Trust Holders of 5% or More
As of December 31, 2012, there are no persons holding more than 5% of a class under a voting trust or
similar agreement.
(4)
Change in Control
As of December 31, 2012, there has been no change in the control of the Company since the beginning of
its last fiscal year.
PART IV - CORPORATE GOVERNANCE
Item 11.
Corporate Governance
The Company adheres to the principles and practices of good corporate governance, as embodied in its
Corporate Governance Manual, Code of Business Conduct and related SEC Circulars. On September 24,
2010, the BOD approved the adoption of a revised Corporate Governance Manual in accordance with
SEC Memorandum Circular No. 6 (Series of 2009) dated June 22, 2009. Continuous improvement and
monitoring of governance and management policies have been undertaken to ensure that the Company
observes good governance and management practices. This is to assure the shareholders that the
Company conducts its business with the highest level of integrity, transparency and accountability. On
January 28, 2011, a Certification of Compliance with the Manual on Corporate Governance was
submitted by the Company to the SEC and PSE. The Company likewise submitted a Corporate
Governance Disclosure Report to the PSE on February 11, 2011.
The Company likewise consistently strives to raise its financial reporting standards by adopting and
implementing prescribed PFRS.
40
- 47 CEBU AIR, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY SCHEDULES
SEC FORM 17-A
CONSOLIDATED FINANCIAL STATEMENTS
Statement of Management’s Responsibility for Financial Statements
Report of Independent Auditors
Consolidated Statements of Financial Position as of December 31, 2012
and 2011
Consolidated Statements of Comprehensive Income for the Years Ended
December 31, 2012, 2011 and 2010
Consolidated Statements of Changes in Equity for the Years Ended
December 31, 2012, 2011 and 2010
Consolidated Statements of Cashflows for the Years Ended
December 31, 2012, 2011 and 2010
SUPPLEMENTARY SCHEDULES
Reconciliation of Retained Earnings Available for Dividend Declaration
Schedule of all Effective Standards and Interpretations as of December 31, 2012
Map of the relationships of companies within the group
Schedule of Financial Ratios
Report of Independent Auditors on Supplementary Schedules
A. Financial Assets (Current Marketable Equity and Debt Securities and Other Short-Term
Cash Investments)
B. Amounts Receivable from Directors, Officers, Employees,
Related Parties and Principal Stockholders (Other than Related parties)
C. Amounts Receivable from Related Parties which are eliminated during the Consolidation
of Financial Statements*
D. Intangible Assets - Other Assets*
E. Property and Equipment
F. Accumulated Depreciation
G. Long-Term Debt
H. Indebtedness to Related Parties*
I. Guarantees of Securities of Other Issuers*
J. Capital Stock
*
These schedules, which are required by SRC Rule 68, have been omitted because they are either
not required, not applicable or the information required to be presented is included/shown in the
related consolidated financial statements or in the notes thereto.
[
SyCip Gorres Velayo & Co.
6760 Ayala Avenue
1226 Makati City
Philippines
Phone: (632) 891 0307
Fax:
(632) 819 0872
www.sgv.com.ph
BOA/PRC Reg. No. 0001,
December 28, 2012, valid until December 31, 2015
SEC Accreditation No. 0012-FR-3 (Group A),
November 15, 2012, valid until November 16, 2015
INDEPENDENT AUDITORS’ REPORT
The Stockholders and the Board of Directors
Cebu Air, Inc.
2nd Floor, Doña Juanita Marquez Lim Building
Osmeña Boulevard, Cebu City
We have audited the accompanying consolidated financial statements of Cebu Air, Inc. and its
subsidiaries, which comprise the consolidated statements of financial position as at
December 31, 2012 and 2011, and the consolidated statements of comprehensive income, statements
of changes in equity and statements of cash flows for each of the three years in the period ended
December 31, 2012, and a summary of significant accounting policies and other explanatory
information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with Philippine Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
*SGVFS001094*
A member firm of Ernst & Young Global Limited
[
-2Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of Cebu Air, Inc. and its subsidiaries as at December 31, 2012 and 2011, and their
financial performance and their cash flows for each of the three years in the period ended
December 31, 2012 in accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Michael C. Sabado
Partner
CPA Certificate No. 89336
SEC Accreditation No. 0664-AR-1 (Group A),
March 11, 2011, valid until March 10, 2014
Tax Identification No. 160-302-865
BIR Accreditation No. 08-001998-73-2012,
April 11, 2012, valid until April 10, 2015
PTR No. 3670019, January 2, 2013, Makati City
March 14, 2013
*SGVFS001094*
[
CEBU AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
2012
December 31
2011
P
=10,728,326,325
102,682,762
988,511,487
417,434,810
882,604,550
13,119,559,934
=8,957,783,986
P
3,261,077,998
836,786,224
397,527,340
278,691,061
13,731,866,609
ASSETS
Current Assets
Cash and cash equivalents (Note 7)
Financial assets at fair value through profit or loss (Note 8)
Receivables (Note 9)
Expendable parts, fuel, materials and supplies (Note 10)
Other current assets (Note 11)
Total Current Assets
Noncurrent Assets
Property and equipment (Notes 12, 16, 29 and 30)
Investment in joint ventures (Notes 13)
Available-for-sale investment (Note 8)
Other noncurrent assets (Note 14)
Total Noncurrent Assets
47,484,106,152 39,863,194,631
409,478,237
511,756,873
110,367,200
–
391,452,391
220,895,946
48,216,758,971 40,774,492,459
P54,506,359,068
P
=61,336,318,905 =
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and other accrued liabilities (Note 15)
Unearned transportation revenue (Note 4 and 5)
Current portion of long-term debt (Notes 12 and 16)
Financial liabilities at fair value through profit or loss (Note 8)
Due to related parties (Note 26)
Total Current Liabilities
P
=7,768,537,046
5,981,195,913
2,769,442,355
–
45,602,315
16,564,777,629
=6,710,838,876
P
5,253,433,343
2,467,451,166
60,857,586
36,302,174
14,528,883,145
Noncurrent Liabilities
Long-term debt - net of current portion (Notes 12 and 16)
Deferred tax liabilities - net (Note 24)
Other noncurrent liabilities (Notes 17 and 22)
Total Noncurrent Liabilities
Total Liabilities
20,154,916,843
491,504,377
1,990,307,272
22,636,728,492
39,201,506,121
18,404,442,267
221,786,183
2,185,724,183
20,811,952,633
35,340,835,778
Equity (Note 18)
Common stock
Capital paid in excess of par value
Treasury stock
Net unrealized losses on available-for-sale investment (Note 8)
Retained earnings
Total Equity
613,236,550
613,236,550
8,405,568,120
8,405,568,120
(529,319,321)
(529,319,321)
(5,630,261)
–
13,645,327,435 10,681,668,202
22,134,812,784 19,165,523,290
=54,506,359,068
P
=61,336,318,905 P
See accompanying Notes to Consolidated Financial Statements.
*SGVFS001094*
[
CEBU AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
2012
REVENUES (Notes 4 and 19)
Years Ended December 31
2011
2010
=33,935,402,775 =
P29,088,798,959
P
=37,904,453,623 P
EXPENSES
Flying operations (Note 20)
Repairs and maintenance (Notes 17 and 20)
Aircraft and traffic servicing (Note 20)
Depreciation and amortization (Note 12)
Aircraft and engine lease (Note 29)
Reservation and sales
General and administrative (Note 21)
Passenger service
Other expenses (Note 23)
OPERATING INCOME
OTHER INCOME (EXPENSE)
Foreign exchange gains
Interest income (Notes 7 and 8)
Fuel hedging gains (Note 8)
Equity in net income of joint venture (Note 13)
Gain on sale of financial assets designated at fair value
through profit or loss and available for sale
financial assets
Fair value gains (losses) of financial assets designated at
fair value through profit or loss (Note 8)
Interest expense (Note 16)
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX (Note 24)
NET INCOME
20,018,588,742
3,462,277,900
3,433,398,594
2,767,863,860
2,033,953,783
1,626,603,317
953,718,392
825,758,373
122,312,426
35,244,475,387
17,350,168,400
3,027,499,790
2,991,278,104
2,314,954,127
1,718,431,374
1,480,637,473
820,453,486
756,785,558
138,839,386
30,599,047,698
11,417,488,512
2,695,151,789
2,461,807,197
1,866,126,225
1,604,855,579
1,335,983,655
694,888,478
639,480,811
93,293,869
22,809,076,115
2,659,978,236
3,336,355,077
6,279,722,844
1,205,149,590
415,770,873
258,543,810
54,384,007
50,154,940
647,397,939
477,128,001
42,318,202
576,978,771
237,495,750
474,255,226
25,248,534
5,764,090
–
–
–
(732,591,508)
1,207,020,862
(143,554,705)
(662,796,854)
410,647,523
107,631,255
(761,079,413)
660,530,123
3,866,999,098
3,747,002,600
6,940,252,967
297,386,535
122,584,882
17,759,687
3,569,612,563
3,624,417,718
6,922,493,280
Net unrealized losses on available-for-sale
investment (Note 8)
Benefit from income tax (Notes 8 and 24)
–
–
(4,164,799)
1,249,440
(3,878,432)
1,163,530
OTHER COMPREHENSIVE INCOME,
NET OF TAX
–
(2,915,359)
(2,714,902)
TOTAL COMPREHENSIVE INCOME
Basic/Diluted Earnings Per Share (Note 25)
P
=3,569,612,563
=3,621,502,359
P
=
P6,919,778,378
P
=5.89
=5.93
P
=11.78
P
See accompanying Notes to Consolidated Financial Statements.
*SGVFS001094*
CEBU AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Balance at January 1, 2012
Net income
Other comprehensive income
Total comprehensive income
Appropriation of retained earnings
Dividend declaration
Balance at December 31, 2012
Balance at January 1, 2011
Net income
Other comprehensive income
Total comprehensive income
Appropriation of retained earnings
Treasury stock
Dividend declaration
Balance at December 31, 2011
Common Stock
(Note 18)
P
= 613,236,550
–
–
–
–
–
P
= 613,236,550
Common Stock
(Note 18)
=613,236,550
P
–
–
–
–
–
–
=613,236,550
P
Capital Paid in
Excess of Par
Value
(Note 18)
P
=8,405,568,120
–
–
–
–
–
P
=8,405,568,120
Capital Paid in
Excess of Par
Value
(Note 18)
=8,405,568,120
P
–
–
–
–
–
–
=8,405,568,120
P
For the Year Ended December 31, 2012
Net unrealized
losses on
Appropriated Unappropriated
available-for-sale
Retained
Retained
Treasury Stock
investment
Earnings
Earnings
Total
(Note 18)
(Note 8)
(Note 18)
(Note 18)
Equity
(P
=529,319,321)
(P
=5,630,261)
P
=933,500,000
P
=9,748,168,202 P
=19,165,523,290
–
–
–
3,569,612,563
3,569,612,563
–
5,630,261
–
–
5,630,261
–
5,630,261
–
3,569,612,563
3,575,242,824
–
–
483,262,000
(483,262,000)
–
–
–
–
(605,953,330)
(605,953,330)
(P
=529,319,321)
P
=–
P
=1,416,762,000 P
=12,228,565,435 P
=22,134,812,784
For the Year Ended December 31, 2011
Net unrealized
losses on
Appropriated
available-for-sale
Retained
Treasury Stock
investment
Earnings
(Note 18)
(Note 8)
(Note 18)
=–
P
(P
=2,714,902)
=–
P
–
–
–
–
(2,915,359)
–
–
(2,915,359)
–
–
–
933,500,000
(529,319,321)
–
–
–
–
–
(P
=529,319,321)
(P
=5,630,261)
=933,500,000
P
Unappropriated
Retained
Earnings
Total
Equity
(Note 18)
=8,890,960,134 =
P
P17,907,049,902
3,624,417,718
3,624,417,718
–
(2,915,359)
3,624,417,718
3,621,502,359
(933,500,000)
–
–
(529,319,321)
(1,833,709,650)
(1,833,709,650)
=9,748,168,202 P
P
=19,165,523,290
*SGVFS001094*
[
-2-
Balance at January 1, 2010
Net income
Other comprehensive income
Total comprehensive income
Issuance of shares
Transaction costs
Balance at December 31, 2010
Common Stock
(Note 18)
=582,574,750
P
–
–
–
30,661,800
–
=613,236,550
P
For the Year Ended December 31, 2010
Net unrealized
Capital Paid in
losses on
Appropriated Unappropriated
Excess of Par available-for-sale
Retained
Retained
Value
investment
Earnings
Earnings
Total
(Note 18)
(Note 8)
(Note 18)
(Note 18)
Equity
=4,703,920,250
P
=–
P
=– P
P
=1,968,466,854 P
=7,254,961,854
–
–
6,922,493,280 6,922,493,280
–
(2,714,902)
–
–
(2,714,902)
–
(2,714,902)
– 6,922,493,280 6,919,778,378
3,802,063,200
–
–
– 3,832,725,000
(100,415,330)
–
–
–
(100,415,330)
=8,405,568,120
P
(P
=2,714,902)
=– P
P
=8,890,960,134 P
=17,907,049,902
See accompanying Notes to Consolidated Financial Statements.
*SGVFS001094*
CEBU AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
2012
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization (Note 12)
Interest expense (Note 16)
Depreciation and accretion of asset retirement obligation
(Note 17)
Fair value gain (loss) of financial assets at
fair value through profit or loss (Note 8)
Provision for credit losses on receivables (Note 9)
Loss (gain) on disposal of property and equipment
(Note 12)
Gain on sale of financial assets at fair value through
profit or loss and available for sale financial assets
Equity in net income of joint ventures (Note 13)
Fuel hedging gains (Note 8)
Interest income (Notes 7 and 8)
Unrealized foreign exchange gains
Operating income before working capital changes
Decrease (increase) in:
Receivables
Other current assets
Expendable parts, fuel, materials and supplies
Financial assets at fair value through profit or loss
(derivatives) (Note 8)
Increase (decrease) in:
Accounts payable and other accrued liabilities
Unearned transportation revenue
Due to related parties
Noncurrent liabilities
Net cash generated from operations
Interest paid
Interest received
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Dividends received from a joint venture (Note 13)
Proceeds from sale of financial assets at FVPL (Note 8)
Proceeds from sale of available-for sale investments (Note 8)
Investment in joint venture (Notes 13 and 32)
Decrease (increase) in other noncurrent assets
Acquisition of property and equipment
(Notes 12 and 29)
Advances to a related party (Note 26)
Proceeds from disposal of other noncurrent assets
Net cash used in investing activities
Years Ended December 31
2011
2010
P
=3,866,999,098
=3,747,002,600
P
=6,940,252,967
P
2,767,863,860
732,591,508
2,314,954,127
662,796,854
1,866,126,225
761,079,413
577,510,459
508,929,530
405,206,405
–
–
143,554,705
–
(107,631,255)
2,127,309
(413,540)
(1,168,434)
4,050,103
(5,764,090)
(54,384,007)
(258,543,810)
(415,770,873)
(1,150,415,449)
6,059,673,156
–
(42,318,202)
(477,128,001)
(647,397,939)
(29,680,099)
6,179,545,141
–
(25,248,534)
(474,255,226)
(237,495,750)
(574,806,957)
8,559,404,700
(301,781,692)
(603,913,488)
(19,907,470)
58,936,320
(15,153,984)
(27,495,305)
157,564,532
77,065,113
(21,059,547)
111,883,670
1,011,022,845
212,132,124
1,200,632,639
727,762,570
9,300,141
(843,647,430)
6,340,002,096
(729,842,736)
550,377,733
6,160,537,093
516,791,388
647,122,327
772,870
(330,535,976)
8,041,005,626
(679,203,619)
633,365,232
7,995,167,239
561,841,257
1,137,155,662
(2,400,212)
50,624,954
10,732,328,583
(803,117,030)
94,496,407
10,023,707,960
53,229,016
3,258,002,595
110,369,718
(101,123,645)
170,556,445
36,234,703
–
2,575,551
(33,750,000)
(63,605,237)
21,959,482
–
162,020,516
–
(83,070,335)
(4,506,101,631)
–
1,521,751
(1,013,545,751)
(4,232,090,595)
–
–
(4,290,635,578)
(2,361,432,894)
(3,662,583,961)
–
(5,923,107,192)
(Forward)
*SGVFS001094*
-2-
2012
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common shares of stock (Note 18)
Payments of transaction costs (Note 18)
Acquisition of treasury shares (Note 18)
Dividends paid
Repayments of long-term debt
Payments of borrowings from a related party (Note 28)
Net cash provided by (used in) financing activities
EFFECTS OF EXCHANGE RATE CHANGES IN CASH
AND CASH EQUIVALENTS
Years Ended December 31
2011
2010
P
=–
–
–
(605,953,330)
(2,508,469,536)
–
(3,114,422,866)
=–
P
–
(529,319,321)
(1,833,709,650)
(2,141,112,305)
–
(4,504,141,276)
=3,832,725,000
P
(100,415,330)
–
–
(1,791,793,102)
(40,480,463)
1,900,036,105
(262,026,137)
(5,895,371)
(78,207,356)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
1,770,542,339
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR
8,957,783,986
9,763,288,972
3,840,859,455
CASH AND CASH EQUIVALENTS
AT END OF YEAR (Note 7)
P
=10,728,326,325
=8,957,783,986
P
=9,763,288,972
P
(805,504,986)
5,922,429,517
See accompanying Notes to Consolidated Financial Statements.
*SGVFS001094*
CEBU AIR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information
Cebu Air, Inc. (the Parent Company) was incorporated and organized in the Philippines on
August 26, 1988 to carry on, by means of aircraft of every kind and description, the general
business of a private carrier or charter engaged in the transportation of passengers, mail,
merchandise and freight, and to acquire, purchase, lease, construct, own, maintain, operate and
dispose of airplanes and other aircraft of every kind and description, and also to own, purchase,
construct, lease, operate and dispose of hangars, transportation depots, aircraft service stations and
agencies, and other objects and service of a similar nature which may be necessary, convenient or
useful as an auxiliary to aircraft transportation. The principal place of business of the Parent
Company is at 2nd Floor, Doña Juanita Marquez Lim Building, Osmeña Boulevard, Cebu City.
The Parent Company has seven special purpose entities (SPE) that it controls, namely: Cebu
Aircraft Leasing Limited (CALL), IBON Leasing Limited (ILL), Boracay Leasing Limited (BLL),
Surigao Leasing Limited (SLL), Sharp Aircraft Leasing Limited (SALL), Vector Aircraft Leasing
Limited (VALL) and Panatag One Aircraft Leasing Limited (POALL) (collectively known as the
“Group”). CALL, ILL, BLL, SLL, SALL, VALL and POALL are SPEs in which the Parent
Company does not have equity interest. CALL, ILL, BLL, SLL, SALL, VALL and POALL
acquired the passenger aircraft for lease to the Parent Company under finance lease arrangements
(Note 12) and funded the acquisitions through long-term debt (Note 16). In accordance with
Standards Interpretations Committee (SIC) 12, Consolidation - Special Purpose Entities, the
consolidated financial statements include the accounts of these SPEs (Note 2).
The Parent Company’s common stock was listed with the Philippine Stock Exchange (PSE) on
October 26, 2010, the Parent Company’s initial public offering (IPO).
The Parent Company’s ultimate parent is JG Summit Holdings, Inc. (JGSHI). The Parent
Company is 66.15%-owned by CP Air Holdings, Inc. (CPAHI).
In 1991, pursuant to Republic Act (RA) No. 7151, the Parent Company was granted a franchise to
operate air transportation services, both domestic and international. In August 1997, the Office of
the President of the Philippines gave the Parent Company the status of official Philippine carrier to
operate international services. In September 2001, the Philippine Civil Aeronautics Board (CAB)
issued the permit to operate scheduled international services and a certificate of authority to
operate international charters.
The Parent Company is registered with the Board of Investments (BOI) as a new operator of air
transport on a pioneer and non-pioneer status. Under the terms of the registration and subject to
certain requirements, the Parent Company is entitled to certain fiscal and non-fiscal incentives,
including among others, an income tax holiday (ITH) for a period of four (4) years. The Parent
Company can avail of bonus years in certain specified cases but the aggregate ITH availment
(basic and bonus years) shall not exceed eight (8) years (Notes 24 and 31).
Prior to the grant of the ITH and in accordance with the Parent Company’s franchise, which
extends up to year 2031:
a. The Parent Company is subject to franchise tax of five percent (5%) of the gross revenue
derived from air transportation operations. For revenue earned from activities other than air
transportation, the Parent Company is subject to regular corporate income tax (RCIT) and to
real property tax.
*SGVFS001094*
-2b. In the event that any competing individual, partnership or corporation received and enjoyed
tax privileges and other favorable terms which tended to place the Parent Company at any
disadvantage, then such privileges shall have been deemed by the fact itself of the Parent
Company’s tax privileges and shall operate equally in favor of the Parent Company.
On May 24, 2005, the Reformed-Value Added Tax (R-VAT) law was signed as RA No. 9337 or
the R-VAT Act of 2005. The R-VAT law took effect on November 1, 2005 following the
approval on October 19, 2005 of Revenue Regulation (RR) No. 16-2005 which provides for the
implementation of the rules of the R-VAT law. Among the relevant provisions of RA No. 9337
are the following:
a. The franchise tax of the Parent Company is abolished;
b. The Parent Company shall be subject to RCIT;
c. The Parent Company shall remain exempt from any taxes, duties, royalties, registration
license, and other fees and charges;
d. Change in RCIT rate from 32.00% to 35.00% for the next three years effective on
November 1, 2005, and 30.00% starting on January 1, 2009 and thereafter;
e. 70.00% cap on the input VAT that can be claimed against output VAT; and
f. Increase in the VAT rate imposed on goods and services from 10.00% to 12.00% effective on
February 1, 2006.
On November 21, 2006, the President signed into law RA No. 9361, which amends
Section 110(B) of the Tax Code. This law, which became effective on December 13, 2006,
provides that if the input tax, inclusive of the input tax carried over from the previous quarter
exceeds the output tax, the excess input tax shall be carried over to the succeeding quarter or
quarters. The Department of Finance through the Bureau of Internal Revenue issued
RR No. 2-2007 to implement the provisions of the said law. Based on the regulation, the
amendment shall apply to the quarterly VAT returns to be filed after the effectivity of
RA No. 9361.
On December 16, 2008, the Parent Company was registered as a Clark Freeport Zone (CFZ)
enterprise and committed to provide air transportation services both domestic and international for
passengers and cargoes at the Diosdado Macapagal International Airport.
2. Basis of Preparation
The accompanying consolidated financial statements of the Group have been prepared on a
historical cost basis, except for financial assets and liabilities at fair value through profit or loss
(FVPL) and available-for-sale (AFS) investment that have been measured at fair value.
The financial statements of the Group are presented in Philippine Peso (P
=), the Parent Company’s
functional and presentation currency. All amounts are rounded to the nearest peso unless
otherwise indicated.
Statement of Compliance
The consolidated financial statements of the Group have been prepared in compliance with
Philippine Financial Reporting Standards (PFRS).
*SGVFS001094*
-3Basis of Consolidation
The consolidated financial statements include the financial statements of the Parent Company and
the SPEs that it controls.
SIC 12, prescribes guidance on the consolidation of SPE. Under SIC 12, an SPE should be
consolidated when the substance of the relationship between the company and the SPE indicates
that the SPE is controlled by the company. Control over an entity may exist even in cases where
an enterprise owns little or none of the SPE’s equity, such as when an entity retains majority of the
residual risks related to the SPE or its assets in order to obtain benefits from its activities.
The consolidated financial statements are prepared using uniform accounting policies for like
transactions and other events in similar circumstances. All significant intercompany transactions
and balances, including intercompany profits and unrealized profits and losses, are eliminated in
the consolidation.
3. Changes in Accounting Policies
The accounting policies adopted are consistent with those of the previous financial year, except for
the adoption of new and amended PFRS and Philippine Interpretations from International
Financial Reporting Interpretations Committee (IFRIC) that are discussed below. Except as
otherwise indicated, the adoption of the new and amended PFRS and Philippine Interpretations did
not have any effect on the consolidated financial statements of the Group.
·
PFRS 7, Financial Instruments: Disclosures (Amendment) - Enhanced Derecognition
Disclosure Requirements (effective for annual periods beginning on or after July 1, 2011)
The amendment requires additional disclosure about financial assets that have been transferred
but not derecognized to enable the user of the Group’s financial statements to understand the
relationship with those assets that have not been derecognized and their associated liabilities.
In addition, the amendment requires disclosures about continuing involvement in
derecognized assets to enable the user to evaluate the nature of, and risks associated with, the
entity’s continuing involvement in those derecognized assets.
·
Amendments to PAS 12, Income Taxes - Deferred Tax: Recovery of Underlying Assets
(effective for annual periods beginning on or after January 1, 2012)
The amendment clarified the determination of deferred tax on investment property measured
at fair value. The amendment introduces a rebuttable presumption that deferred tax on
investment property measured using the fair value model in PAS 40, Investment Property,
should be determined on the basis that its carrying value amount will be recovered through
sale. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets
are measured using revaluation model in PAS 16, Property, Plant and Equipment, always be
measured on a sale basis of the asset.
Future Changes in Accounting Policies
The Group will adopt the following new and amended PFRS and Philippine Interpretations
enumerated below when these become effective. Except as otherwise indicated, the following
new and amended PFRS and Philippine Interpretations will not have significant impact on the
consolidated financial statements of the Group:
*SGVFS001094*
-4Effective 2013
·
PFRS 7, Financial instruments: Disclosures - Offsetting Financial Assets and Financial
Liabilities (effective for annual periods beginning on or after January 1, 2013)
These amendments require an entity to disclose information about rights of set-off and related
arrangements (such as collateral agreements). The new disclosures are required for all
recognized financial instruments that are set-off in accordance with PAS 32. These
disclosures also apply to recognized financial instruments that are subject to an enforceable
master netting arrangement or ‘similar agreement’, irrespective of whether they are set-off in
accordance with PAS 32. The amendments require entities to disclose, in a tabular format
unless another format is more appropriate, the following minimum quantitative information.
This is presented separately for financial assets and financial liabilities recognized at the end
of the reporting period:
a) The gross amounts of those recognized financial assets and recognized financial liabilities;
b) The amounts that are set off in accordance with the criteria in PAS 32 when determining
the net amounts presented in the statement of financial position;
c) The net amounts presented in the statement of financial position;
d) The amounts subject to an enforceable master netting arrangement or similar agreement
that are not otherwise included in (b) above, including:
i. Amounts related to recognized financial instruments that do not meet some or all of
the offsetting criteria in PAS 32; and
ii. Amounts related to financial collateral (including cash collateral); and
e) The net amount after deducting the amounts in (d) from the amounts in (c) above.
The amendments to PFRS 7 are to be applied retrospectively. The amendment affects
disclosures only and has no impact on the Group’s financial position or performance.
·
PFRS 10, Consolidated Financial Statements (effective for annual periods beginning on or
after January 1, 2013)
PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements,
that addresses the accounting for consolidated financial statements. It also includes the issues
raised in SIC-12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single
control model that applies to all entities including special purpose entities. The changes
introduced by PFRS 10 will require management to exercise significant judgment to determine
which entities are controlled, and therefore, are required to be consolidated by a parent,
compared with the requirements that were in PAS 27.
·
PFRS 11, Joint Arrangements (effective for annual periods beginning on or after
January 1, 2013)
PFRS 11 replaces PAS 31, Interests in Joint Ventures and SIC-13, Jointly-controlled Entities Non-monetary Contributions by Venturers. PFRS 11 removes the option to account for jointly
controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the
definition of a joint venture must be accounted for using the equity method.
·
PFRS 12, Disclosures of Involvement with Other Entities (effective for annual periods
beginning periods on or after January 1, 2013)
PFRS 12 includes all of the disclosures that were previously in PAS 27 related to consolidated
financial statements, as well as all of the disclosures that were previously included in PAS 31
and PAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint
arrangements, associates and structured entities. A number of new disclosures are also
required.
*SGVFS001094*
-5·
PFRS 13, Fair Value Measurement (effective for annual periods beginning on or before
January 1, 2013)
PFRS 13 establishes a single source of guidance under PFRS for all fair value measurements.
PFRS 13 does not change when an entity is required to use fair value, but rather provides
guidance on how to measure fair value under PFRS when fair value is required or permitted.
·
PAS 1, Financial Statement Presentation - Presentation of Items of Other Comprehensive
Income (effective for annual periods beginning on or after July 1, 2012)
The amendments to PAS 1 change the grouping of items presented in OCI. Items that could
be reclassified (or “recycled”) to profit or loss at a future point in time (for example, upon
derecognition or settlement) would be presented separately from items that will never be
reclassified. The amendment affects presentation only and has therefore no impact on the
Group’s financial position or performance.
·
Amendments to PAS 19, Employee Benefits (effective for annual periods beginning on or after
January 1, 2013)
Amendments to PAS 19 range from fundamental changes such as removing the corridor
mechanism and the concept of expected returns on plan assets to simple clarifications and rewording. Once effective, the Group has to apply the amendments retroactively to the earliest
period presented.
The Group reviewed its existing employee benefits and determined that the amended standard
has significant impact on its accounting for retirement benefits. The Group obtained the
services of an external actuary to compute the impact to the financial statements upon
adoption of the standard. The effects are detailed below:
As at
December 31,
2012
Increase (decrease) in:
Consolidated statements of financial position
Net defined benefit liability
Deferred tax asset on unrecognized actuarial losses
Other comprehensive income
Retained earnings
P
=139,529,356
20,777,543
(69,258,478)
73,701,878
As at
January 1,
2012
=73,701,878
P
16,099,223
(53,664,078)
73,701,878
As at
December 31,
2012
Consolidated statement of comprehensive income
Net pension expense
Income tax expense
Statement of comprehensive income
Amortization of actuarial gain
·
P
=67,289,100
20,186,730
3,431,000
Revised PAS 27, Separate Financial Statements (effective for annual periods beginning on or
after January 1, 2013)
As a consequence of the new PFRS 10, Consolidated Financial Statements, and PFRS 12,
Disclosure of Interests in Other Entities, what remains of PAS 27 is limited to accounting for
subsidiaries, jointly controlled entities, and associates in separate financial statements.
*SGVFS001094*
-6·
Revised PAS 28, Investments in Associates and Joint Ventures (effective for annual periods
beginning on or after January 1, 2013)
As a consequence of the new PFRS 11, Joint Arrangements, and PFRS 12, PAS 28 has been
renamed PAS 28, Investments in Associates and Joint Ventures, and describes the application
of the equity method to investments in joint ventures in addition to associates.
·
Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine
(effective for annual periods beginning on or after January 1, 2013)
This Philippine Interpretation applies to waste removal costs that are incurred in surface
mining activity during the production phase of the mine (“production stripping costs”) and
provides guidance on the recognition of production stripping costs as an asset and
measurement of the stripping activity asset.
Improvements to PFRS 2012
The Annual Improvements to PFRSs (2009-2011 cycle) contain non-urgent but necessary
amendments to PFRSs. The amendments are effective for annual periods beginning on or after
January 1, 2013 and are applied retrospectively. Earlier application is permitted. Except as
otherwise indicated, the following new and amended PFRS and Philippine Interpretations will not
have significant impact on the financial statements of the Company:
·
PFRS 1, First-time Adoption of PFRS - Borrowing Costs
The amendment clarifies that, upon adoption of PFRS, an entity that capitalized borrowing
costs in accordance with its previous generally accepted accounting principles, may carry
forward, without any adjustment, the amount previously capitalized in its opening statement of
financial position at the date of transition. Subsequent to the adoption of PFRS, borrowing
costs are recognized in accordance with PAS 23, Borrowing Costs.
·
PAS 1, Presentation of Financial Statements - Clarification of the requirements for
comparative information
The amendments clarify the requirements for comparative information that are disclosed
voluntarily and those that are mandatory due to retrospective application of an accounting
policy, or retrospective restatement or reclassification of items in the financial statements. An
entity must include comparative information in the related notes to the financial statements
when it voluntarily provides comparative information beyond the minimum required
comparative period. The additional comparative period does not need to contain a complete
set of financial statements. On the other hand, supporting notes for the third balance sheet
(mandatory when there is a retrospective application of an accounting policy, or retrospective
restatement or reclassification of items in the financial statements) are not required.
·
PAS 16, Property, Plant and Equipment - Classification of servicing equipment
The amendment clarifies that spare parts, stand-by equipment and servicing equipment should
be recognized as property, plant and equipment when they meet the definition of property,
plant and equipment and should be recognized as inventory if otherwise.
·
PAS 32, Financial Instruments: Presentation - Tax effect of distribution to holders of equity
instruments
The amendment clarifies that income taxes relating to distributions to equity holders and to
transaction costs of an equity transaction are accounted for in accordance with PAS 12,
Income Taxes.
*SGVFS001094*
-7·
PAS 34, Interim Financial Reporting - Interim financial reporting and segment information
for total assets and liabilities
The amendment clarifies that the total assets and liabilities for a particular reportable segment
need to be disclosed only when the amounts are regularly provided to the chief operating
decision maker and there has been a material change from the amount disclosed in the entity’s
previous annual financial statements for that reportable segment.
Effective 2014
·
PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial
Liabilities (effective for annual periods beginning on or after January 1, 2014)
These amendments to PAS 32 clarify the meaning of “currently has a legally enforceable right
to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement
systems (such as central clearing house systems) which apply gross settlement mechanisms
that are not simultaneous.
Effective 2015
·
PFRS 9, Financial Instruments: Classification and Measurement (effective for annual periods
beginning on or after January 1, 2015)
PFRS 9 as issued reflects the first phase on the replacement of PAS 39 and applies to
classification and measurement of financial assets and financial liabilities as defined in
PAS 39. In subsequent phases, hedge accounting and impairment of financial assets will be
addressed with the completion of this project expected on the first half of 2012. The adoption
of the first phase of PFRS 9 will have an effect on the classification and measurement of the
Group’s financial assets, but will potentially have no impact on classification and
measurements of financial liabilities.
·
Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate
The implementation of the Philippine Interpretation is deferred until the final Review Standard
is issued by IASB and after an evaluation on the requirements and guidance in the standard
vis-à-vis the practices and regulations in the Philippine real estate industry is completed. This
Philippine Interpretation covers accounting for revenue and associated expenses by entities
that undertake the construction of real estate directly or through subcontractors. This
Philippine Interpretation requires that revenue on construction of real estate be recognized
only upon completion, except when such contract qualifies as construction contract to be
accounted for under PAS 11, Construction Contracts, or involves rendering of services in
which case revenue is recognized based on stage of completion. Contracts involving provision
of services with the construction materials and where the risks and reward of ownership are
transferred to the buyer on a continuous basis will also be accounted for based on stage of
completion. The SEC and the Financial Reporting Standards Council (FRSC) have deferred
the effectivity of this interpretation until the final Revenue standard is issued by the
International Accounting Standards Board (IASB) and an evaluation of the requirements of the
final Revenue standard against the practices of the Philippine real estate industry is completed.
Adoption of the interpretation when it becomes effective will not have any impact on the
financial statements of the Group.
*SGVFS001094*
-8-
4. Summary of Significant Accounting Policies
Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the
Group and the revenue can be reliably measured. Revenue is measured at the fair value of the
consideration received, excluding discounts, rebates and other sales taxes or duty. The following
specific recognition criteria must also be met before revenue is recognized:
Sale of air transportation services
Passenger ticket and cargo waybill sales are initially recorded under ‘Unearned transportation
revenue’ account in the consolidated statement of financial position until recognized under
Revenue account in the consolidated statement of comprehensive income when the transportation
service is rendered by the Group (e.g., when passengers and cargo are lifted). Unearned tickets
are recognized as revenue using estimates regarding the timing of recognition based on the terms
and conditions of the ticket and historical trends.
The related commission is recognized as outright expense upon the receipt of payment from
customers, and is included under ‘Reservation and sales’ account.
Baggage and Ancillary revenue
Revenue from not directly related in the transportation of passengers, cargo, mail and merchandise
are recognized when transactions are carried out.
Interest income
Interest on cash, cash equivalents, short-term cash investments and debt securities classified as
financial assets at FVPL is recognized as the interest accrues using the effective interest method.
Expense Recognition
Expenses are recognized when it is probable that a decrease in future economic benefits related to
decrease in an asset or an increase in liability has occurred and the decrease in economic benefits
can be measured reliably. Expenses that arise in the course of ordinary regular activities of the
Group include, among others, the operating expenses on the Group’s operation.
General and Administrative Expenses
General and administrative expenses constitute cost of administering the business. These are
recognized as expenses when it is probable that a decrease in future economic benefit related to a
decrease in an asset or an increase in a liability has occurred and the decrease in economic benefits
can be measured reliably.
Cash and Cash Equivalents
Cash represents cash on hand and in banks. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash with original maturities of
three months or less from dates of placement and that are subject to an insignificant risk of
changes in value. Cash equivalents include short-term investment that can be pre-terminated and
readily convertible to known amount of cash and that are subject to an insignificant risk of
changes in value. Cash and cash equivalents, excluding cash on hand, are classified and
accounted for as loans and receivables.
*SGVFS001094*
-9Financial Instruments
Date of recognition
Purchases or sales of financial assets that require delivery of assets within the time frame
established by regulation or convention in the marketplace are recognized using the settlement
date accounting. Derivatives are recognized on a trade date basis.
Initial recognition of financial instruments
Financial instruments are recognized initially at the fair value of the consideration given. Except
for financial instruments at FVPL, the initial measurement of financial assets includes transaction
costs. The Group classifies its financial assets into the following categories: financial assets at
FVPL, held-to-maturity (HTM) investments, AFS investments and loans and receivables.
Financial liabilities are classified into financial liabilities at FVPL and other financial liabilities
carried at cost or amortized cost. The Group has no HTM investments as of December 31, 2012
and 2011.
The classification depends on the purpose for which the investments were acquired and whether
they are quoted in an active market. Management determines the classification of its investments
at initial recognition and, where allowed and appropriate, re-evaluates such designation at every
reporting date.
Determination of fair value
The fair value of financial instruments traded in active markets at the statement of financial
position date is based on their quoted market price or dealer price quotations (bid price for long
positions and ask price for short positions), without any deduction for transaction costs. When
current bid and ask prices are not available, the price of the most recent transaction provides
evidence of the current fair value as long as there has not been a significant change in economic
circumstances since the time of the transaction.
The Group follows the hierarchy in Philippine Interpretations Committee (PIC) Question and
Answer (Q&A) No. 2010-01: PAS 39.AG71-72, Rate used in determining the fair value of
government securities in the Philippines, beginning January 1, 2010, for the determination of fair
value of government securities in the Philippines, using market data published by the Philippine
Dealing and Exchange Corporation or PDEx:
a. Current bid yield, if available, on the reporting date.
b. When a current bid yield is not available, the last or close yield on the reporting date.
c. When there is no transaction for a security on the reporting date, the PDSI-R2 rate may be
used.
The consensus in the Q&A has been approved by the PIC on March 2, 2010 and approved by the
Financial Reporting Standards Committee on June 4, 2010.
For all other financial instruments not listed in an active market, the fair value is determined by
using appropriate valuation techniques. Valuation techniques include net present value
techniques, comparison to similar instruments for which market observable prices exist, options
pricing models and other relevant valuation models. Any difference noted between the fair value
and the transaction price is treated as expense or income, unless it qualifies for recognition as
some type of asset or liability.
*SGVFS001094*
- 10 ‘Day 1’ profit or loss
Where the transaction price in a non-active market is different from the fair value based on other
observable current market transactions in the same instrument or based on a valuation technique
whose variables include only data from an observable market, the Group recognizes the difference
between the transaction price and fair value (a ‘Day 1’ profit or loss) in profit or loss unless it
qualifies for recognition as some other type of asset or liability. In cases where the transaction
price used is made of data which is not observable, the difference between the transaction price
model value is only recognized in profit or loss, when the inputs become observable or when the
instrument is derecognized. For each transaction, the Group determines the appropriate method of
recognizing the ‘Day 1’ profit or loss amount.
Financial assets and financial liabilities at FVPL
Financial assets and financial liabilities at FVPL include financial assets and financial liabilities
held for trading purposes, derivative instruments or those designated upon initial recognition as at
FVPL. Financial assets and financial liabilities are designated by management on initial
recognition when any of the following criteria are met:
·
·
·
The designation eliminates or significantly reduces the inconsistent treatment that would
otherwise arise from measuring the assets or liabilities or recognizing gains or losses on them
on a different basis; or
The assets or liabilities are part of a group of financial assets, financial liabilities or both
which are managed and their performance are evaluated on a fair value basis, in accordance
with a documented risk management or investment strategy; or
The financial instrument contains an embedded derivative, unless the embedded derivative
does not significantly modify the cash flows or it is clear, with little or no analysis, that it
would not be separately recorded.
As of December 31, 2012 and 2011, the Group’s financial assets at FVPL consist of derivative
assets, as well as private and government debt and equity securities (Note 8).
Financial assets and financial liabilities at FVPL are presented in the consolidated statement of
financial position at fair value. Changes in fair value are reflected in profit or loss. Interest earned
or incurred is recorded in interest income or expense, respectively, while dividend income is
recorded in other revenue according to the terms of the contract, or when the right of the payment
has been established.
Derivatives recorded at FVPL
The Group is a counterparty to certain derivative contracts such as commodity options. Such
derivative financial instruments are initially recorded at fair value on the date at which the
derivative contract is entered into and are subsequently re-measured at fair value. Any gains or
losses arising from changes in fair values of derivatives (except those accounted for as accounting
hedges) are taken directly to profit or loss. Derivatives are carried as assets when the fair value is
positive and as liabilities when the fair value is negative.
For the purpose of hedge accounting, hedges are classified primarily as either: (a) a hedge of the
fair value of an asset, liability or a firm commitment (fair value hedge); or (b) a hedge of the
exposure to variability in cash flows attributable to an asset or liability or a forecasted transaction
(cash flow hedge). The Group did not apply hedge accounting on its derivative transactions for
the years ended December 31, 2012 and 2011.
*SGVFS001094*
- 11 The Group enters into fuel derivatives to manage its exposure to fuel price fluctuations. Such fuel
derivatives are not designated as accounting hedges. These derivatives are entered into for risk
management purposes. The gains or losses on these instruments are accounted for directly as
charges to or credits against current operations under ‘Fuel hedging gains (losses)’ account in
profit or loss.
As of December 31, 2012 and 2011, the Group has no embedded derivatives.
AFS investments
AFS investments are those non-derivative investments which are designated as such or do not
qualify to be classified or designated as financial assets at FVPL, HTM investments or loans and
receivables. They are purchased and held indefinitely, and may be sold in response to liquidity
requirements or changes in market conditions.
After initial measurement, AFS investments are subsequently measured at fair value.
The unrealized gains and losses are recognized directly in equity [other comprehensive income
(loss)] under ‘Net unrealized gain (loss) on AFS investments’ account in the statement of financial
position. When the investment is disposed of, the cumulative gain or loss previously recognized
in the statement of comprehensive income is recognized in the statement of income. Where the
Group holds more than one investment in the same security they are deemed to be disposed of on
a first-in first-out basis. Dividends earned while holding AFS investments are recognized in the
statement of income when the right of the payment has been established. The losses arising from
impairment of such investments are recognized in the statement of income and removed from the
‘Net unrealized gain (loss) on AFS investments’ account.
The AFS investment of the Group represents a quoted equity security (Note 8).
Receivables
Receivables are non-derivative financial assets with fixed or determinable payments and fixed
maturities that are not quoted in an active market. After initial measurement, receivables are
subsequently carried at amortized cost using the effective interest method less any allowance for
impairment loss. Amortized cost is calculated by taking into account any discount or premium on
acquisition, and includes fees that are an integral part of the effective interest rate (EIR) and
transaction costs. Gains and losses are recognized in profit or loss, when the receivables are
derecognized or impaired, as well as through the amortization process.
This accounting policy applies primarily to the Group’s trade and other receivables (Note 9) and
certain refundable deposits.
Financial liabilities
Issued financial instruments or their components, which are not designated at FVPL are classified
as other financial liabilities where the substance of the contractual arrangement results in the
Group having an obligation either to deliver cash or another financial asset to the holder, or to
satisfy the obligation other than by the exchange of a fixed amount of cash or another financial
asset for a fixed number of own equity shares. The components of issued financial instruments
that contain both liability and equity elements are accounted for separately, with the equity
component being assigned the residual amount after deducting from the instrument as a whole the
amount separately determined as the fair value of the liability component on the date of issue.
*SGVFS001094*
- 12 After initial measurement, other financial liabilities are subsequently measured at cost or
amortized cost using the effective interest method. Amortized cost is calculated by taking into
account any discount or premium on the issue and fees that are an integral part of the EIR. Any
effects of restatement of foreign currency-denominated liabilities are recognized in profit or loss.
This accounting policy applies primarily to the Group’s accounts payable and other accrued
liabilities, long-term debt, and other obligations that meet the above definition (Notes 15, 16
and 17).
Impairment of Financial Assets
The Group assesses at each reporting date whether there is objective evidence that a financial asset
or group of financial assets is impaired. A financial asset or a group of financial assets is deemed
to be impaired if, and only if, there is objective evidence of impairment as a result of one or more
events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that
loss event (or events) has an impact on the estimated future cash flows of the financial asset or the
group of financial assets that can be reliably estimated. Evidence of impairment may include
indications that the borrower or a group of borrowers is experiencing significant financial
difficulty, default or delinquency in interest or principal payments, the probability that they will
enter bankruptcy or other financial reorganization and where observable data indicate that there is
a measurable decrease in the estimated future cash flows, such as changes in arrears or economic
conditions that correlate with defaults.
Assets carried at amortized cost
If there is objective evidence that an impairment loss on financial assets carried at amortized cost
(i.e., receivables) has been incurred, the amount of the loss is measured as the difference between
the asset’s carrying amount and the present value of estimated future cash flows discounted at the
asset’s original EIR. Time value is generally not considered when the effect of discounting is not
material. The carrying amount of the asset is reduced through the use of an allowance account.
The amount of the loss shall be recognized in profit or loss. The asset, together with the
associated allowance accounts, is written-off when there is no realistic prospect of future recovery.
The Group first assesses whether objective evidence of impairment exists individually for
financial assets that are individually significant, and collectively for financial assets that are not
individually significant. If it is determined that no objective evidence of impairment exists for an
individually assessed financial asset, whether significant or not, the asset is included in a group of
financial assets with similar credit risk characteristics and that group of financial assets is
collectively assessed for impairment. Assets that are individually assessed for impairment and for
which an impairment loss is or continues to be recognized are not included in the collective
assessment of impairment.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is
recognized in profit or loss to the extent that the carrying value of the asset does not exceed its
amortized cost at the reversal date.
*SGVFS001094*
- 13 The Group performs a regular review of the age and status of these accounts, designed to identify
accounts with objective evidence of impairment and provide the appropriate allowance for
impairment loss. The review is accomplished using a combination of specific and collective
assessment approaches, with the impairment loss being determined for each risk grouping
identified by the Group.
AFS investments
The Group assesses at each reporting date whether there is objective evidence that a financial asset
or group of financial assets is impaired. In the case of debt instruments classified as AFS
investments, impairment is assessed based on the same criteria as financial assets carried at
amortized cost. Interest continues to be accrued at the original EIR on the reduced carrying
amount of the asset and is recorded under interest income in profit or loss. If, in a subsequent
year, the fair value of a debt instrument increases, and the increase can be objectively related to an
event occurring after the impairment loss was recognized in profit or loss, the impairment loss is
also reversed through profit or loss.
For equity investments classified as AFS investments, objective evidence would include a
significant or prolonged decline in the fair value of the investments below its cost. The
determination of what is significant and prolonged is subject to judgment. Where there is
evidence of impairment, the cumulative loss measured as the difference between the acquisition
cost and the current fair value, less any impairment loss on that investment previously recognized
is removed from other comprehensive income and recognized in profit or loss. Impairment losses
on equity investments are not reversed through the statement of comprehensive income. Increases
in fair value after impairment are recognized directly in other comprehensive income.
Derecognition of Financial Instruments
Financial assets
A financial asset (or, where applicable a part of a financial asset or part of a group of financial
assets) is derecognized where:
·
·
the rights to receive cash flows from the asset have expired;
the Group retains the right to receive cash flows from the asset, but has assumed an obligation
to pay them in full without material delay to a third party under a “pass-through” arrangement;
or
the Group has transferred its rights to receive cash flows from the asset and either: (a) has
transferred substantially all the risks and rewards of ownership and retained control over the asset;
or (b) has neither transferred nor retained the risks and rewards of the asset but has transferred the
control over the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a
pass-through arrangement, and has neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control over the asset, the asset is recognized to the extent of
the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a
guarantee over the transferred asset is measured at the lower of original carrying amount of the
asset and the maximum amount of consideration that the Group could be required to repay.
Financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged,
cancelled or has expired. When an existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an existing liability are substantially
*SGVFS001094*
- 14 modified, such an exchange or modification is treated as a derecognition of the original liability
and the recognition of a new liability, and the difference in the respective carrying amounts is
recognized in profit or loss.
Offsetting Financial Instruments
Financial assets and liabilities are offset and the net amount reported in the consolidated statement
of financial position if, and only if, there is a currently enforceable legal right to offset the
recognized amounts and there is an intention to settle on a net basis, or to realize the asset and
settle the liability simultaneously. This is not generally the case with master netting agreements;
thus, the related assets and liabilities are presented gross in the consolidated statement of financial
position.
Expendable Parts, Fuel, Materials and Supplies
Expendable parts, fuel, materials and supplies are stated at lower of cost and net realizable value
(NRV). Cost of flight equipment expendable parts, materials and supplies are stated at acquisition
cost determined on a moving average cost method. Fuel is stated at cost on a weighted average
cost method. NRV is the estimated selling price in the ordinary course of business less estimated
costs to sell.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation, amortization and
impairment loss, if any. The initial cost of property and equipment comprises its purchase price,
any related capitalizable borrowing costs attributed to progress payments incurred on account of
aircraft acquisition under construction and other directly attributable costs of bringing the asset to
its working condition and location for its intended use.
Subsequent costs are capitalized as part of ‘Property and equipment’ account only when it is
probable that future economic benefits associated with the item will flow to the Group and the cost
of the item can be measured reliably. Subsequent costs such as actual costs of heavy maintenance
visits for passenger aircraft are capitalized and depreciated based on the estimated number of years
or flying hours, whichever is applicable, until the next major overhaul or inspection. Generally,
heavy maintenance visits are required every five to six years for airframe and ten years or 20,000
flight cycles, whichever comes first, for landing gear. All other repairs and maintenance are
charged against current operations as incurred.
Construction in-progress are transferred to the related ‘Property and equipment’ account when the
construction or installation and related activities necessary to prepare the property and equipment
for their intended use are completed, and the property and equipment are ready for service.
Construction in-progress is not depreciated until such time when the relevant assets are completed
and available for use.
Depreciation and amortization of property and equipment commence once the property and
equipment are available for use and are computed using the straight-line method over the
estimated useful lives (EULs) of the assets, regardless of utilization.
*SGVFS001094*
- 15 The EULs of property and equipment of the Group follows:
Passenger aircraft*
Engines
Rotables
Ground support equipment
EDP Equipment, mainframe and peripherals
Transportation equipment
Furniture, fixtures and office equipment
Communication equipment
Special tools
Maintenance and test equipment
Other equipment
15 years
15 years
15 years
5 years
3 years
5 years
5 years
5 years
5 years
5 years
5 years
* With residual value of 15.00%
Leasehold improvements are amortized over the shorter of their EULs or the corresponding lease
terms.
An item of property and equipment is derecognized upon disposal or when no future economic
benefits are expected to arise from the continued use of the asset. Any gain or loss arising on
derecognition of the asset (calculated as the difference between the net disposal proceeds and the
carrying amount of the item) is included in profit or loss, in the year the item is derecognized.
The assets’ residual values, useful lives and methods of depreciation and amortization are
reviewed and adjusted, if appropriate, at each financial year-end.
Aircraft Maintenance and Overhaul Cost
The Group recognizes aircraft maintenance and overhaul expenses in accordance with the
contractual terms.
The maintenance contracts are classified into two: (a) those based on time and material basis
(TMB), and (b) power-by-the-hour (PBH) contract. For maintenance contract under TMB, the
Group recognizes expenses based on expense as incurred method. For maintenance contract under
PBH, the Group recognizes expense on an accrual basis.
ARO
The Group is contractually required under various lease contracts to restore certain leased aircraft
to its original condition and to bear the cost of restoration at the end of the contract period. The
contractual obligation includes regular aircraft maintenance, overhaul and restoration of the leased
aircraft to its original condition. Regular aircraft maintenance is accounted for as expense when
incurred, while overhaul and restoration are accounted on an accrual basis.
The Group recognizes the present value of these costs as ARO asset and ARO liability (included
under ‘Noncurrent liabilities’). The Group depreciates ARO asset on a straight-line basis over the
EUL of the related asset or the lease term, whichever is shorter, or written off as a result of
impairment of the related asset. The Group amortizes ARO liability using the effective interest
method and recognizes accretion expense over the lease term. Amortization of ARO asset and
accretion expense of ARO liability are recognized under “Repairs and Maintenance” account in
the consolidated statements of comprehensive income.
The Group regularly assesses the provision for ARO and adjusts the related liability (Note 5).
*SGVFS001094*
- 16 Investment in Joint Ventures
A joint venture (JV) is a contractual arrangement whereby two or more parties undertake an
economic activity that is subject to joint control. A jointly controlled entity is a JV that involves
the establishment of a separate entity in which each venturer has an interest.
The Group’s 50.00%, 49.00% and 35.00% investments in Philippine Academy for Aviation
Traning, Inc. (PAAT), Aviation Partnership (Philippines) Corporation (A-plus) and SIA
Engineering (Philippines) Corporation (SIAEP), respectively, are accounted for under the equity
method (Note 13). Under the equity method, the investments in JV are carried in the consolidated
statement of financial position at cost plus post-acquisition changes in the Group’s share of net
assets of the JV, less any allowance for impairment in value. The consolidated statement of
comprehensive income reflects the Group’s share in the results of operations of the JV. Dividends
received are treated as a revaluation of the carrying value of the investment.
The financial statements of the investee companies used in the preparation of the consolidated
financial statement are prepared as of the same date with the Group. The investee companies’
accounting policies conform to those by the Group for like transactions and events in similar
circumstances.
Impairment of Nonfinancial Assets
This accounting policy applies primarily to the Group’s property and equipment and investments
in JV.
At each reporting date, the Group assesses whether there is any indication that its nonfinancial
assets may be impaired. When an indicator of impairment exists or when an annual impairment
testing for an asset is required, the Group makes a formal estimate of recoverable amount.
Recoverable amount is the higher of an asset’s (or cash-generating unit’s) fair value less costs to
sell and its value in use and is determined for an individual asset, unless the asset does not
generate cash inflows that are largely independent of those from other assets or groups of assets, in
which case the recoverable amount is assessed as part of the cash generating unit to which it
belongs. Where the carrying amount of an asset (or cash-generating unit) exceeds its recoverable
amount, the asset (or cash-generating unit) is considered impaired and is written down to its
recoverable amount. In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset (or cash-generating unit).
An assessment is made at each statement of financial position date as to whether there is any
indication that a previously recognized impairment loss may no longer exist or may have
decreased. If such indication exists, the recoverable amount is estimated. A previously
recognized impairment loss is reversed only if there has been a change in the estimates used to
determine the asset’s recoverable amount since the last impairment loss was recognized. If that is
the case, the carrying amount of the asset is increased to its recoverable amount. That increased
amount cannot exceed the carrying amount that would have been determined, net of depreciation
and amortization, had no impairment loss been recognized for the asset in prior years. Such
reversal is recognized in profit or loss. After such a reversal, the depreciation and amortization
expense is adjusted in future years to allocate the asset’s revised carrying amount, less any
residual value, on a systematic basis over its remaining life.
*SGVFS001094*
- 17 Impairment of Investment in JV
The Group’s investment in JV is tested for impairment in accordance with PAS 36 as a single
asset, by comparing its recoverable amount (higher of value in use and fair value less costs to sell)
with its carrying amount, whenever application of the requirements in PAS 39 indicates that the
investment may be impaired. An impairment loss recognized in those circumstances is not
allocated to any asset that forms part of the carrying amount of the investment in a JV.
Accordingly, any reversal of that impairment loss is recognized in accordance with PAS 36 to the
extent that the recoverable amount of the investment subsequently increases. In determining the
value in use of the investment, an entity estimates: (a) its share of the present value of the
estimated future cash flows expected to be generated by the JV, including the cash flows from the
operations of the JV and the proceeds on the ultimate disposal of the investment; or (b) the present
value of the estimated future cash flows expected to arise from dividends to be received from the
investment and from its ultimate disposal.
Common Stock
Common stocks are classified as equity and recorded at par. Proceeds in excess of par value are
recorded as ‘Capital paid in excess of par value’ in the consolidated statement of financial
position. Incremental costs directly attributable to the issue of new shares or options are shown in
equity as a deduction from the proceeds.
Treasury Stock
Own equity instruments which are acquired (treasury shares) are recognized at cost and deducted
from equity. No gain or loss is recognized in the profit and loss on the purchase, sale, issue or
cancellation of the Parent Company’s own equity instruments.
Retained Earnings
Retained earnings represent accumulated earnings of the Group less dividends declared.
Dividends on Common Shares
Dividends on common shares are recognized as a liability and deducted from equity when
approved and declared by the BOD, in the case of cash dividends; or by the BOD and
shareholders, in the case of stock dividends.
Provisions and Contingencies
Provisions are recognized when: (a) the Group has a present obligation (legal or constructive) as a
result of a past event; (b) it is probable (i.e., more likely than not) that an outflow of assets
embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate
can be made of the amount of the obligation. Provisions are reviewed at each reporting date and
adjusted to reflect the current best estimate. Where the Group expects a provision to be
reimbursed, for example under an insurance contract, the reimbursement is recognized as a
separate asset but only when the reimbursement is virtually certain. If the effect of the time value
of money is material, provisions are determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability. Where discounting is used, the increase in the
provision due to the passage of time is recognized as an interest expense in profit or loss.
Contingent liabilities are not recognized in the consolidated statement of financial position but are
disclosed unless the possibility of an outflow of resources embodying economic benefits is
remote. Contingent assets are not recognized but disclosed in the consolidated financial
statements when an inflow of economic benefits is probable. If it is virtually certain that an inflow
of economic benefits will arise, the asset and the related income are recognized in the consolidated
financial statements.
*SGVFS001094*
- 18 Pension Costs
Pension cost is actuarially determined using the projected unit credit method. This method reflects
services rendered by employees up to the date of valuation and incorporates assumptions
concerning employees’ projected salaries. Actuarial valuations are conducted with sufficient
regularity, with option to accelerate when significant changes to underlying assumptions occur.
Pension cost includes current service cost, interest cost, expected return on any plan assets,
actuarial gains and losses and the effect of any curtailment or settlement.
Actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions are credited to or charged against profit or loss when the net cumulative unrecognized
actuarial gains and losses at the end of the previous period exceed 10.00% of the higher of the
present value of the defined benefit obligation and the fair value of plan assets at that date.
The excess actuarial gains or losses are recognized over the average remaining working lives of
the employees participating in the plan.
The asset or liability recognized in the consolidated statement of financial position in respect of
defined benefit retirement plan is the present value of the defined benefit obligation as of
statement of financial position date less the fair value of plan assets, together with adjustments for
unrecognized actuarial gains or losses and past service costs. The value of any asset is restricted
to the sum of any past service cost not yet recognized and the present value of any economic
benefits available in the form of refunds from the plan or reductions in the future contributions to
the plan. The defined benefit obligation is calculated annually by an independent actuary. The
present value of the defined benefit obligation is determined by discounting the estimated future
cash inflows using long term government bond risk-free interest rates that have terms to maturity
approximating the terms of the related pension liability for applying a single weighted average
discount rate that reflects the estimated timing and amount of benefit payments.
Short-term employee benefits are expensed as incurred.
Income Taxes
Current tax
Current tax assets and liabilities for the current and prior periods are measured at the amount
expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used
to compute the amount are those that are enacted or substantially enacted as of the reporting date.
Deferred tax
Deferred tax is provided using the liability method on all temporary differences, with certain
exceptions, at the reporting date between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, with certain
exceptions. Deferred tax assets are recognized for all deductible temporary differences with
certain exceptions, and carryforward benefits of unused tax credits from excess minimum
corporate income tax (MCIT) over RCIT and unused net operating loss carryover (NOLCO), to
the extent that it is probable that sufficient taxable income will be available against which the
deductible temporary differences and carryforward benefits of unused tax credits from excess
MCIT and unused NOLCO can be utilized. Deferred tax assets, however, are not recognized
when it arises from the initial recognition of an asset or liability in a transaction that is not a
business combination and, at the time of transaction, affects neither the accounting income nor
taxable profit or loss. Deferred tax liabilities are not provided on non-taxable temporary
*SGVFS001094*
- 19 differences associated with interests in JV. With respect to interests in JV, deferred tax liabilities
are recognized except where the timing of the reversal of the temporary difference can be
controlled and it is probable that the temporary difference will not reverse in the foreseeable
future.
The carrying amounts of deferred tax assets are reviewed at each reporting date and reduced to the
extent that it is no longer probable that sufficient taxable income will be available to allow all or
part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at
each reporting date, and are recognized to the extent that it has become probable that future
taxable income will allow the deferred tax assets to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are applicable 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 the statement of financial position date.
Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss.
Deferred tax items are recognized in correlation to the underlying transaction either in profit or
loss or other comprehensive income.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set
off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable
entity and the same taxation authority.
Leases
The determination of whether an arrangement is, or contains a lease, is based on the substance of
the arrangement at inception date, and requires an assessment of whether the fulfillment of the
arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a
right to use the asset. A reassessment is made after inception of the lease only if one of the
following applies:
a. there is a change in contractual terms, other than a renewal or extension of the arrangement;
b. a renewal option is exercised or an extension granted, unless that term of the renewal or
extension was initially included in the lease term;
c. there is a change in the determination of whether fulfillment is dependent on a specified asset;
or
d. there is a substantial change to the asset.
Where a reassessment is made, lease accounting shall commence or cease from the date when the
change in circumstances gave rise to the reassessment for (a), (c) and (d) scenarios above, and at
the date of renewal or extension period for scenario (b).
Group as lessee
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to
ownership of the leased item, are capitalized at the inception of the lease at the fair value of the
leased property or, if lower, at the present value of the minimum lease payments and included
under ‘Property and equipment’ account with the corresponding liability to the lessor included
under ‘Long-term debt’ account in the consolidated statement of financial position. Lease
payments are apportioned between the finance charges and reduction of the lease liability so as to
achieve a constant rate of interest on the remaining balance of the liability. Finance charges are
charged directly to profit or loss.
*SGVFS001094*
- 20 Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable
certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated
over the shorter of the EUL of the asset and the lease term.
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are
classified as operating leases. Operating lease payments are recognized as an expense in profit or
loss on a straight-line basis over the lease term.
Group as lessor
Leases where the Group does not transfer substantially all the risks and benefits of ownership of
the assets are classified as operating leases. Initial direct costs incurred in negotiating operating
leases are added to the carrying amount of the leased asset and recognized over the lease term on
the same basis as the rental income. Contingent rents are recognized as revenue in the period in
which they are earned.
Borrowing Costs
Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are
directly attributable to the acquisition or construction of a qualifying asset. Capitalization of
borrowing costs commences when the activities to prepare the asset are in progress, and
expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the
assets are substantially ready for their intended use.
The Group had not capitalized any borrowing costs for the years ended December 31, 2012 and
2011 as all borrowing costs from outstanding long-term debt relate to assets that are at state ready
for intended use (Note 16).
Foreign Currency Transactions
Transactions in foreign currencies are initially recorded in the Group’s functional currency using
the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated at the functional currency using the Philippine
Dealing and Exchange Corp. (PDEX) closing rate prevailing at the reporting date. All differences
are taken to the consolidated statement of comprehensive income. Non-monetary items that are
measured in terms of historical cost in a foreign currency are translated using the prevailing
closing exchange rate as of the date of initial transaction.
Earnings (Loss) Per Share (EPS)
Basic EPS is computed by dividing net income applicable to common stock by the weighted
average number of common shares issued and outstanding during the year, adjusted for any
subsequent stock dividends declared.
Diluted EPS amounts are calculated by dividing the net profit attributable to ordinary equity
holders of the Group by the weighted average number of ordinary shares outstanding during the
year plus the weighted average number of ordinary shares that would be issued on the conversion
of all the dilutive potential ordinary shares into ordinary shares.
For the years ended December 31, 2012 and 2011, the Parent Company does not have any dilutive
potential ordinary shares.
*SGVFS001094*
- 21 Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the
Chief Operating Decision Maker (CODM). The CODM, who is responsible for resource
allocation and assessing performance of the operating segment, has been identified as the
President. The nature of the operating segment is set out in Note 6.
Events After the Reporting Date
Post-year-end events that provide additional information about the Group’s position at the
reporting date (adjusting event) are reflected in the consolidated financial statements. Post-yearend events that are not adjusting events are disclosed in the consolidated financial statements,
when material.
5. Significant Accounting Judgments and Estimates
In the process of applying the Group’s accounting policies, management has exercised judgments
and estimates in determining the amounts recognized in the consolidated financial statements.
The most significant uses of judgments and estimates follow.
Judgments
a. Going concern
The management of the Group has made an assessment of the Group’s ability to continue as a
going concern and is satisfied that the Group has the resources to continue in business for the
foreseeable future. Furthermore, the Group is not aware of any material uncertainties that may
cast significant doubts upon the Group’s ability to continue as a going concern. Therefore, the
consolidated financial statements continue to be prepared on a going concern basis.
b. Classification of financial instruments
The Group exercises judgment in classifying a financial instrument, or its component, 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, financial liability or equity instrument. The substance of a financial instrument, rather
than its legal form, governs its classification in the consolidated statement of financial
position.
In addition, the Group classifies financial assets by evaluating, among others, whether the
asset is quoted or not in an active market. Included in the evaluation on whether a financial
asset is quoted in an active market is the determination of whether quoted prices are readily
and regularly available, and whether those prices represent actual and regularly occurring
market transactions on an arm’s length basis.
c. Fair values of financial instruments
Where the fair values of certain financial assets and liabilities recorded in the consolidated
statement of financial position cannot be derived from active markets, they are determined
using valuation techniques, including the discounted cash flow model. The inputs to these
models are taken from observable market data where possible, but where this is not feasible,
estimates are used in establishing fair values. The judgments include considerations of
liquidity risk, credit risk and volatility. Changes in assumptions about these factors could
affect the reported fair value of financial instruments. For derivatives, the Group generally
relies on counterparties’ valuation.
*SGVFS001094*
- 22 The fair values of the Group’s financial instruments are presented in Note 28.
d. Impairment of financial assets
In determining whether an impairment loss should be recorded in profit or loss, the Group
makes judgments as to whether there is any objective evidence of impairment as a result of
one or more events that has occurred after initial recognition of the asset and that loss event or
events has an impact on the estimated future cash flows of the financial assets or the group of
financial assets that can be reliably estimated. This observable data may include adverse
changes in payment status of borrowings in a group, or national or local economic conditions
that correlate with defaults on assets in the portfolio.
e. 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,
which transfer to the Group substantially all the risks and rewards incidental to ownership of
the leased items, are capitalized. Otherwise, they are considered as operating leases.
The Group also has lease agreements where it has determined that the risks and rewards
related to the leased assets are retained with the lessors. Such leases are accounted for as
operating leases (Note 29).
f.
Consolidation of SPEs
The Group periodically undertakes transactions that may involve obtaining the right to control
or significantly influence the operations of other companies. These transactions include the
purchase of aircraft and assumption of certain liabilities. Also, included are transactions
involving SPEs and similar vehicles. In all such cases, management makes an assessment as
to whether the Group has the right to control or significantly influence the SPEs, and based on
this assessment, the SPE is consolidated as a subsidiary or associated company. In making
this assessment, management considers the underlying economic substance of the transaction
and not only the contractual terms.
g. Determination of functional currency
PAS 21 requires management to use its judgment to determine the entity’s functional currency
such that it most faithfully represents the economic effects of the underlying transactions,
events and conditions that are relevant to the entity. In making this judgment, each entity in
the Group considers the following:
a) the currency that mainly influences sales prices for financial instruments and services (this
will often be the currency in which sales prices for its financial instruments and services
are denominated and settled);
b) the currency in which funds from financing activities are generated; and
c) the currency in which receipts from operating activities are usually retained.
The Group’s consolidated financial statements are presented in Philippine peso, which is also
the Parent Company’s functional currency.
h. Contingencies
The Group is currently involved in certain legal proceedings. The estimate of the probable
costs for the resolution of these claims has been developed in consultation with outside
counsel handling the defense in these matters and is based upon an analysis of potential
results. The Group currently does not believe that these proceedings will have a material
*SGVFS001094*
- 23 adverse effect on the Group’s financial position and results of operations. It is possible,
however, that future results of operations could be materially affected by changes in the
estimates or in the effectiveness of the strategies relating to these proceedings (Note 29).
i.
Allocation of revenue, costs and expenses
Revenue, costs and expenses are classified as exclusive and common. Exclusive revenue, cost
and expenses such as passenger revenue, cargo revenue, excess baggage revenue, fuel and
insurance surcharge, fuel and oil expense, hull/war/risk insurance, maintenance expense,
depreciation (for aircraft under finance lease), lease expense (for aircraft under operating
lease) and interest expense based on the related long-term debt are specifically identified per
aircraft based on an actual basis. For revenue, cost and expense accounts that are not
identifiable per aircraft, the Group provides allocation based on activity factors that closely
relate to the earning process of the revenue.
j.
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 (Note 8).
Estimates
The key assumptions concerning the future and other sources of estimation uncertainty at the
statement of financial position date that have significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next year are discussed below:
a. Estimation of allowance for credit losses on receivables
The Group maintains allowance for impairment losses at a level considered adequate to
provide for potential uncollectible receivables. The level of this allowance is evaluated by
management on the basis of factors that affect the collectibility of the accounts. These factors
include, but are not limited to, the length of the Group’s relationship with the agents,
customers and other counterparties, the payment behavior of agents and customers, other
counterparties and other known market factors. The Group reviews the age and status of
receivables, and identifies accounts that are to be provided with allowances on a continuous
basis.
The related balances follow (Note 9):
Receivables
Allowance for credit losses
2012
P
=1,206,749,106
218,237,619
2011
=1,069,370,364
P
232,584,140
b. Determination of NRV of expendable parts, fuel, materials and supplies
The Group’s estimates of the NRV of expendable parts, fuel, materials and supplies are based
on the most reliable evidence available at the time the estimates are made, of the amount that
the expendable parts, fuel, materials and supplies are expected to be realized. In determining
the NRV, the Group considers any adjustment necessary for obsolescence, which is generally
providing 100.00% for nonmoving items for more than one year. A new assessment is made
of NRV in each subsequent period. When the circumstances that previously caused
expendable parts, fuel, materials and supplies to be written-down below cost no longer exist or
*SGVFS001094*
- 24 when there is a clear evidence of an increase in NRV because of a change in economic
circumstances, the amount of the write-down is reversed so that the new carrying amount is
the lower of the cost and the revised NRV.
The related balances follow (Note 10):
Expendable Parts, Fuel, Materials and Supplies
At NRV
At cost
2012
2011
P
=241,414,140
176,020,670
=243,906,026
P
153,621,314
As of December 31, 2012 and 2011, allowance for inventory write-down for expendable parts
amounted to P
=20.5 million. No additional provision for inventory write-down was recognized
by the Group in 2012 and 2011.
c. Estimation of ARO
The Group is contractually required under certain lease contracts to restore certain leased
passenger aircraft to stipulated return condition and to bear the costs of restoration at the end
of the contract period. Since the first operating lease entered by the Group in 2001, these
costs are accrued based on an internal estimate which includes estimates of certain redelivery
costs at the end of the operating aircraft lease. The contractual obligation includes regular
aircraft maintenance, overhaul and restoration of the leased aircraft to its original condition.
Regular aircraft maintenance is accounted for as expense when incurred, while overhaul and
restoration are accounted on an accrual basis. The Group recognizes the present value of these
costs as ARO asset and ARO liability.
Assumptions used to compute ARO are reviewed and updated annually by the Group.
In 2012, the Group recognized additional ARO asset and ARO liability amounting
=459.3 million for the cost of restoration of two (2) new operating lease passenger aircraft.
P
In 2011, the Group recognized additional ARO asset and ARO liability amounting
=279.9 million for the costs of restoration of two (2) new leased passenger aircraft of the
P
Group (Note 17). As of December 31, 2012 and 2011, the present value of the cost of
restoration is computed based on the Group’s average borrowing cost.
The amount and timing of recorded expenses for any period would differ if different
judgments were made or different estimates were utilized. The recognition of ARO would
increase other noncurrent liabilities and repairs and maintenance.
As of December 31, 2012 and 2011, the Group’s ARO liability net of ARO asset (included
under ‘Other noncurrent liabilities’ account in the statements of financial position) has a
carrying value of P
=1,351.9 million and P
=1,263.3 million, respectively (Note 17). The
related repairs and maintenance expense for the years ended December 31, 2012, 2011 and
2010 amounted to P
=577.5 million, P
=508.9 million and P
=405.2 million, respectively
(Notes 17 and 20).
d. Estimation of useful lives and residual values of property and equipment
The Group estimates the useful lives of its property and equipment based on the period over
which the assets are expected to be available for use. The Group estimates the residual value
of its property and equipment based on the expected amount recoverable at the end of its
useful life. The Group reviews annually the EULs and residual values of property and
equipment based on factors that include physical wear and tear, technical and commercial
*SGVFS001094*
- 25 obsolescence and other limits on the use of the assets. It is possible that future results of
operations could be materially affected by changes in these estimates brought about by
changes in the factors mentioned. A reduction in the EUL or residual value of property and
equipment would increase recorded depreciation and amortization expense and decrease
noncurrent assets.
As of December 31, 2012 and 2011, the carrying values of the Group’s property and
equipment amounted to P
=47,484.1 million and P
=39,863.2 million, respectively (Note 12).
The Group’s depreciation and amortization expense amounted to P
=2,767.9 million,
=2,315.0 million and P
P
=1,866.1 million for the years ended December 31, 2012, 2011 and
2010, respectively (Note 12).
e. Impairment of nonfinancial assets
The Group assesses the impairment of nonfinancial assets, particularly property and
equipment and investment in JV, whenever events or changes in circumstances indicate that
the carrying amount of the nonfinancial asset may not be recoverable. The factors that the
Group considers important which could trigger an impairment review include the following:
·
·
·
significant underperformance relative to expected historical or projected future operating
results;
significant changes in the manner of use of the acquired assets or the strategy for overall
business; and
significant negative industry or economic trends.
An impairment loss is recognized whenever the carrying amount of an asset or investment
exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value
less cost to sell and value in use. The fair value less cost to sell is the amount obtainable from
the sale of an asset in an arm’s length transaction while value in use is the present value of
estimated future cash flows expected to arise from the continuing use of an asset and from its
disposal at the end of its useful life.
Recoverable amounts are estimated for individual assets or investments or, if it is not possible,
for the cash-generating unit to which the asset belongs.
In determining the present value of estimated future cash flows expected to be generated from
the continued use of the assets, the Group is required to make estimates and assumptions that
can materially affect the consolidated financial statements.
As of December 31, 2012 and 2011, the carrying values of the Group’s property and
equipment amounted to P
=47,484.1 million and P
=39,863.2 million, respectively (Note 12).
Investment in JV amounted to P
=511.8 million and P
=409.5 million as of December 31, 2012
and 2011, respectively (Note 13). There were no provision for impairment losses on the
Group’s property and equipment and investment in JV for the years ended December 31, 2012
and 2011.
f.
Estimation of pension and other employee benefit costs
The determination of the obligation and cost of pension and other employee benefits is
dependent on the selection of certain assumptions used in calculating such amounts. Those
assumptions include, among others, discount rates and salary increase rates (Note 22). Actual
*SGVFS001094*
- 26 results that differ from the Group’s assumptions are accumulated and amortized over future
periods and therefore, generally affect the recognized expense and recorded obligation in such
future periods.
While the Group believes that the assumptions are reasonable and appropriate, significant
differences between actual experiences and assumptions may materially affect the cost of
employee benefits and related obligations.
The Group’s pension liability (included in ‘Other noncurrent liabilities’ account in the
consolidated statements of financial position) amounted to P
=214.1 million and P
=251.6 million
as of December 31, 2012 and 2011, respectively (Notes 17 and 22).
The Group also estimates other employee benefit obligations and expense, including the cost
of paid leaves based on historical leave availments of employees, subject to the Group’s
policy. These estimates may vary depending on the future changes in salaries and actual
experiences during the year.
g. Recognition of deferred tax assets
The Group assesses the carrying amounts of deferred income taxes at each reporting date and
reduces deferred tax assets to the extent that it is no longer probable that sufficient taxable
income will be available to allow all or part of the deferred tax assets to be utilized.
Significant management judgment is required to determine the amount of deferred tax assets
that can be recognized, based upon the likely timing and level of future taxable profits
together with future tax planning strategies.
As of December 31, 2012 and 2011, the Group had certain gross deductible and taxable
temporary differences which are expected to expire or reverse within the ITH period, and for
which deferred tax assets and deferred tax liabilities were not set up on account of the Parent
Company’s ITH.
As of December 31, 2012 and 2011, the Group has deferred tax assets amounting
=1,469.4 million and P
P
=1,069.3 million, respectively (Note 24). Unrecognized deferred tax as
of December 31, 2012 and 2011 amounted to nil and P
=4.6 million, respectively.
h. Passenger revenue recognition
Passenger sales are recognized as revenue when the obligation of the Group to provide
transportation service ceases, either: (a) when transportation services are already rendered; or
(b) when the Group estimates that unused tickets are already expired. The value of unused
tickets is included as unearned transportation revenue in the consolidated statement of
financial position and recognized as revenue based on estimates. These estimates are based on
historical experience. While actual results may vary from these estimates, the Group believes
it is unlikely that materially different estimates for future refunds, exchanges, and forfeited
tickets would be reported based on other reasonable assumptions or conditions suggested by
actual historical experience and other data available at the time the estimates were made.
As of December 31, 2012 and 2011, the balances of the Group’s unearned transportation
revenue amounted to P
=5,981.2 million and P
=5,253.4 million, respectively. Ticket sales that
are not expected to be used for transportation are recognized as revenue using estimates
regarding the timing of recognition based on the terms and conditions of the tickets and
historical trends.
*SGVFS001094*
- 27 -
6. Segment Information
The Group has one reportable operating segment, which is the airline business (system-wide).
This is consistent with how the Group’s management internally monitors and analyzes the
financial information for reporting to the CODM, who is responsible for allocating resources,
assessing performance and making operating decisions.
The revenue of the operating segment was mainly derived from rendering transportation services.
All sales are made to external customers.
Transfer prices between operating segments are on an arm’s length basis in a manner similar to
transactions with third parties.
The amount of segment assets and liabilities are based on the measurement principles that are
similar with those used in measuring the assets and liabilities in the consolidated statement of
financial position which is in accordance with PFRS.
Segment information for the reportable segment is shown in the following table:
Revenue
Net income
Depreciation and amortization
Interest expense
Interest income
2012
P
=39,844,065,994
3,569,612,563
2,767,863,860
732,591,508
415,770,873
2011
=35,152,401,857
P
3,624,417,718
2,314,954,127
662,796,854
647,397,939
2010
=30,510,408,495
P
6,922,493,280
1,866,126,225
761,079,413
237,495,750
The reconciliation of total revenue reported by reportable operating segment to revenue in the
consolidated statements of comprehensive income is presented in the following table:
Total segment revenue of reportable
operating segment
Nontransport revenue and
other income
Total revenue
2012
2011
2010
P
=37,904,453,623
=33,935,402,775
P
=29,088,798,959
P
1,939,612,371
P
=39,844,065,994
1,216,999,082
=35,152,401,857
P
1,421,609,536
=30,510,408,495
P
The reconciliation of total income reported by reportable operating segment to total
comprehensive income in the consolidated statements of comprehensive income is presented in
the following table:
Total segment income of reportable
segment
Add (deduct) unallocated items:
Nontransport revenue and other
income
Nontransport expenses and other
charges
Provision for income tax
Net income
Other comprehensive loss, net of tax
Total comprehensive income
2012
2011
2010
P
=2,659,978,236
=3,336,355,074
P
=6,279,722,842
P
1,939,612,371
1,216,999,082
1,421,609,537
(732,591,508)
(297,386,536)
3,569,612,563
–
P
=3,569,612,563
(806,351,559)
(122,584,882)
3,624,417,715
(2,915,359)
=3,621,502,356
P
(761,079,413)
(17,759,687)
6,922,493,279
(2,714,902)
=6,919,778,376
P
*SGVFS001094*
- 28 The Group’s major revenue-producing asset is the fleet of aircraft owned by the Group, which is
employed across its route network (Note 12).
The Group has no significant customer which contributes 10.00% or more to the revenues of the
Group.
7. Cash and Cash Equivalents
This account consists of:
Cash on hand
Cash in banks (Note 26)
Short-term placements (Note 26)
2012
P
=19,491,988
321,236,059
10,387,598,278
P
=10,728,326,325
2011
P16,641,225
=
503,830,598
8,437,312,163
=8,957,783,986
P
Cash in banks earns interest at the respective bank deposit rates. Short-term placements, which
represent money market placements, are made for varying periods depending on the immediate
cash requirements of the Group. Short-term placements denominated in Philippine peso earn an
average interest of 3.60%, 4.57% and 2.20% in 2012, 2011 and 2010, respectively. Moreover,
short-term placements in US dollar earn an average of 1.57%, 1.55% and 1.20% in 2012, 2011 and
2010, respectively.
Interest income on cash and cash equivalents, presented in the consolidated statements of
comprehensive income, amounted to P
=411.4 million, P
=394.4 million and P
=133.5 million in 2012,
2011 and 2010, respectively.
8. Investment and Trading Securities
Financial Assets at FVPL
This account consists of:
Derivative financial instruments
not designated as accounting hedges
Designated at FVPL
Quoted debt securities:
Private
Government
Quoted equity securities
2012
2011
P
=102,682,762
=16,880,208
P
–
–
–
–
–
P
=102,682,762
2,021,911,190
1,039,254,600
3,061,165,790
183,032,000
3,244,197,790
=3,261,077,998
P
At inception, the Group classified this group of debt and equity securities as financial assets
designated at FVPL since their performance are managed and evaluated on a fair value basis in
accordance with the Group’s documented investment strategy. The information about these
financial instruments is reported to management on that basis.
*SGVFS001094*
- 29 In 2011, the Group earned interest income of P
=222.4 million from debt securities as financial
assets designated at FVPL. Also, the Group earned dividend income from equity securities
amounting nil and P
=21.4 million in 2012 and 2011, respectively.
The financial assets designated at FVPL are shown inclusive of unrealized gain amounting nil and
=1.1 million in 2012 and 2011, respectively.
P
On January 13, 2012, JGSHI acquired all of the Group’s debt and equity securities classified as
financial assets at FVPL in exchange for a settlement amounting P
=3,258.4 million, of which P
=89.0
million pertains to the settlement of accrued interest from these financial assets. Market value of
financial assets at FVPL at date of sale amounted to P
=3,258.0 million. Realized gain on the sale of
financial assets at FVPL amounted to P
=13.8 million (Note 26).
Commodity options
The Group enters into fuel derivatives to manage its exposure to fuel price fluctuations. Such fuel
derivatives are not designated as accounting hedges. The gains or losses on these instruments are
accounted for directly as a charge against or credit to profit or loss. As of December 31, 2012
and 2011, the Group has outstanding fuel hedging transactions with notional quantity of
240,000 US barrels and 600,000 US barrels, respectively. The notional quantity is the amount of
the derivatives’ underlying asset or liability, reference rate or index and is the basis upon which
changes in the value of derivatives are measured. The options can be exercised at various
calculation dates with specified quantities on each calculation date. The options have various
maturity dates through December 31, 2013 (Note 5).
Fair value changes on derivatives
The changes in fair value of all derivative financial instruments not designated as accounting
hedges follow:
2012
Balance at beginning of period
Derivative assets
Derivative liabilities
Net changes in fair value of derivatives
Fair value of settled instruments
Balance at end of period
Attributable to:
Derivative assets
Derivative liabilities
P
=16,880,208
(60,857,586)
(43,977,378)
258,543,810
214,566,432
(111,883,670)
P
=102,682,762
P
=102,682,762
P
=–
2011
=489,917,466
P
–
489,917,466
477,128,001
967,045,467
(1,011,022,845)
(P
=43,977,378)
=16,880,208
P
(P
=60,857,586)
AFS Investment
This account represents investment in a quoted equity security. As of December 31, 2012 and
2011, the carrying value of AFS investment amounted to nil and P
=110.4 million, respectively. The
Group earned dividend income from equity securities amounting P
=4.4 million and P
=9.2 million as
of December 31, 2012 and 2011, respectively.
On January 13, 2012, JGSHI acquired all of the Group’s AFS financial assets in exchange for a
settlement amounting P
=110.4 million. Market value of the AFS financial assets at date of sale
amounted to P
=110.4 million and has an existing unrealized loss on AFS amounting P
=5.6 million,
*SGVFS001094*
- 30 net of tax amounting P
=2.4 million. Realized loss from sale of AFS financial assets amounted to
=8.0 million (Note 26).
P
9. Receivables
This account consists of:
2012
P
=735,938,884
175,709,003
11,637,492
283,463,727
1,206,749,106
218,237,619
P
=988,511,487
Trade receivables (Note 26)
Due from related parties (Note 26)
Interest receivable
Others
Less allowance for credit losses
2011
=546,244,400
P
35,174,259
146,244,351
341,707,354
1,069,370,364
232,584,140
=836,786,224
P
Trade receivables are noninterest-bearing and generally have 30 to 90 days terms. The receivables
are carried at cost.
Interest receivable pertains to accrual of interest income from FVPL and short-term placements.
Accrued interest income from FVPL amounted to nil and P
=133.7 million, in 2012 and 2011
respectively. Accrued interest income from short-term placements amounted to P
=11.6 million and
=12.5 million in 2012 and 2011, respectively.
P
Others include receivable under a sublease agreement denominated in US dollar equivalent to
=211.1 million with another airline company. This receivable is fully provided with allowance for
P
credit losses. The account also includes receivables from employees and counterparties.
The changes in the allowance for credit losses on receivables follow:
2012
Balance at beginning of year
Unrealized foreign exchange gain on
allowance for credit losses
Balance at end of year
Trade
Receivables
P
=6,330,875
Others
P
=226,253,265
Total
P
=232,584,140
–
P
=6,330,875
(14,346,521)
P
=211,906,744
(14,346,521)
P
=218,237,619
2011
Balance at beginning of year
Unrealized foreign exchange gain on
allowance for credit losses
Balance at end of year
Trade
Receivables
=6,330,875
P
Others
=226,253,265
P
Total
=232,584,140
P
–
=6,330,875
P
–
=226,253,265
P
–
=232,584,140
P
As of December 31, 2012 and 2011, the specific allowance for credit losses on trade receivables
and other receivables amounted to P
=6.3 million and P
=211.9 million and P
=6.3 million and
=226.3 million, respectively.
P
*SGVFS001094*
- 31 -
10. Expendable Parts, Fuel, Materials and Supplies
This account consists of:
At NRV:
Expendable parts
At cost:
Fuel
Materials and supplies
2012
2011
P
=241,414,140
=243,906,026
P
142,603,044
33,417,626
176,020,670
P
=417,434,810
128,721,614
24,899,700
153,621,314
=397,527,340
P
The cost of expendable and consumable parts, and materials and supplies recognized as expense
(included under ‘Repairs and maintenance’ account in the consolidated statements of
comprehensive income) for the years ended December 31, 2012, 2011 and 2010 amounted to
=290.9 million, P
P
=180.2 million and P
=172.2 million, respectively. The cost of fuel reported as
expense under ‘Flying operations’ amounted to P
=17,561.9 million, P
=15,220.7 million and
=9,807.8 million in 2012, 2011 and 2010, respectively (Note 20).
P
The cost of expendable parts amounted to P
=239.9 million and P
=139.1 million as of
December 31, 2012 and 2011, respectively. There are no additional provisions for inventory
write down in 2012 and 2011. No expendable parts, fuel, material and supplies are pledged as
security for liabilities.
11. Other Current Assets
This account consists of:
Advances to suppliers
Prepaid rent
Prepaid insurance
Others
2012
P
=679,944,204
146,026,694
29,338,807
27,294,845
P
=882,604,550
2011
=55,060,231
P
163,245,902
39,222,963
21,161,965
=278,691,061
P
Advances to suppliers include advances made for the purchase of various aircraft parts and service
maintenance. These are recouped from progress billings which occurs within one year from the
date the advances arose. The advances are unsecured and noninterest bearing.
Prepaid rent pertains to advance rental on aircraft under operating lease and on office spaces in
airports (Note 29).
Prepaid insurance consist of aviation insurance which represents insurance of hull, war, and risk,
passenger and cargo insurance for the aircraft during flights and nonaviation insurance represents
insurance payments for all employees’ health and medical benefits, commission, casualty and
marine insurance as well as car/motor insurance.
*SGVFS001094*
- 32 -
12. Property and Equipment
The composition and movements in this account follow:
2012
Passenger
Aircraft
(Notes 16 and 30)
Cost
Balance at January 1, 2012
Additions
Reclassification
Disposals/others
Balance at December 31, 2012
Accumulated Depreciation
and Amortization
Balance at January 1, 2012
Depreciation and amortization
Reclassification
Disposals/others
Balance at December 31, 2012
Net Book Value at
December 31, 2012
P
=38,776,630,813
5,446,827,008
2,068,204,768
–
46,291,662,589
Engines
P
=2,191,776,807
300,124,520
(51,927,969)
–
2,439,973,358
8,578,599,508
2,337,081,674
–
–
10,915,681,182
699,397,980
144,548,185
–
–
843,946,165
P
=35,375,981,407
P
=1,596,027,193
Rotables
Ground
Support
Equipment
EDP
Equipment,
Mainframe and
Peripherals
Leasehold
Improvements
Transportation
Equipment
Sub-total
P
=1,115,405,930
726,119,381
(13,600,345)
(1,336,816)
1,826,588,150
P
=313,326,797
72,215,253
–
(517,900)
385,024,150
P
=543,389,386
84,793,509
(80,357)
(5,373,376)
622,729,162
P
=168,944,591
157,851,524
7,081,621
–
333,877,736
P
=146,808,582
30,067,857
(830,357)
(6,450,893)
169,595,189
P
=43,256,282,906
6,817,999,052
2,008,847,361
(13,678,985)
52,069,450,334
188,735,911
107,811,305
(574,805)
(311,924)
295,660,487
209,674,610
44,188,061
–
(517,900)
253,344,771
428,171,073
72,381,670
–
(5,373,376)
495,179,367
119,346,130
19,415,773
–
–
138,761,903
91,671,004
22,112,959
–
(6,367,574)
107,416,389
10,315,596,216
2,747,539,627
(574,805)
(12,570,774)
13,049,990,264
P
=1,530,927,663
P
=131,679,379
P
=127,549,795
P
=195,115,833
P
=62,178,800
P
=39,019,460,070
Other
Equipment
Construction
In-progress
Total
2012
Cost
Balance at January 1, 2012
Additions
Reclassification
Disposals/others
Balance at December 31, 2012
Accumulated Depreciation and Amortization
Balance at January 1, 2012
Depreciation and amortization
Reclassification
Disposals/others
Balance at December 31, 2012
Net Book Value at December 31, 2012
Furniture,
Fixtures and
Office
Equipment
Communication
Equipment
P
=74,032,991
7,217,602
–
–
81,250,593
P
=8,519,385
879,868
–
–
9,399,253
P
=12,854,536
196,561
–
(543,689)
12,507,408
P
=6,416,984
264,647
–
–
6,681,631
P
=70,576,308
5,072,677
–
(190,909)
75,458,076
P
=6,871,436,133
3,624,117,408
(2,075,286,389)
–
8,420,267,152
P
=50,300,119,243
10,455,747,815
(66,439,028)
(14,413,583)
60,675,014,447
49,810,645
9,164,100
–
–
58,974,745
P
=22,275,848
5,445,800
1,182,848
–
–
6,628,648
P
=2,770,605
11,605,041
451,407
–
(543,689)
11,512,759
P
=994,649
5,884,046
190,027
–
–
6,074,073
P
=607,558
48,582,864
9,335,851
–
(190,909)
57,727,806
P
=17,730,270
–
–
–
–
–
P
=8,420,267,152
10,436,924,612
2,767,863,860
(574,805)
(13,305,372)
13,190,908,295
P
=47,484,106,152
Special
Tools
Maintenance
and Test
Equipment
*SGVFS001094*
- 33 2011
Passenger
Aircraft
(Notes 16 and 30)
Cost
Balance at January 1, 2011
Additions
Reclassification
Disposals/others
Balance at December 31, 2011
Accumulated Depreciation
and Amortization
Balance at January 1, 2011
Depreciation and amortization
Disposals/others
Balance at December 31, 2011
Net Book Value at
December 31, 2011
Engines
Rotables
Ground
Support
Equipment
EDP
Equipment,
Mainframe and
Peripherals
Leasehold
Improvements
Transportation
Equipment
=133,129,222
P
19,122,866
=32,410,390,938
P
4,721,966,704
1,644,273,171
–
38,776,630,813
=1,696,909,369
P
494,867,438
–
–
2,191,776,807
=798,821,749
P
318,949,438
–
(2,365,257)
1,115,405,930
=287,461,784
P
25,865,013
–
–
313,326,797
=481,156,585
P
70,782,742
–
(8,549,941)
543,389,386
=156,829,955
P
–
12,114,636
–
168,944,591
6,606,695,587
1,971,903,921
–
8,578,599,508
586,415,896
112,982,084
–
699,397,980
131,556,201
59,544,967
(2,365,257)
188,735,911
168,090,218
41,584,392
–
209,674,610
367,763,753
68,957,261
(8,549,941)
428,171,073
99,528,561
19,817,569
–
119,346,130
=30,198,031,305
P
=1,492,378,827
P
=926,670,019
P
=103,652,187
P
=115,218,313
P
Sub-total
(5,443,506)
146,808,582
=35,964,699,602
P
5,651,554,201
1,656,387,807
(16,358,704)
43,256,282,906
74,929,505
20,777,889
(4,036,390)
91,671,004
8,034,979,721
2,295,568,083
(14,951,588)
10,315,596,216
=49,598,461
P
=55,137,578
P
=32,940,686,690
P
Construction
In-progress
Total
2011
Cost
Balance at January 1, 2011
Additions
Reclassification
Disposals/others
Balance at December 31, 2011
Accumulated Depreciation and Amortization
Balance at January 1, 2011
Depreciation and amortization
Disposals/others
Balance at December 31, 2011
Net Book Value at December 31, 2011
Furniture,
Fixtures and
Office
Equipment
Communication
Equipment
Special
Tools
Maintenance
and Test
Equipment
Other
Equipment
=64,624,424
P
9,408,567
–
–
74,032,991
=7,237,019
P
1,282,366
–
–
8,519,385
=12,390,580
P
463,956
–
–
12,854,536
=6,410,377
P
6,607
–
–
6,416,984
=67,213,503
P
3,362,805
–
–
70,576,308
=4,788,168,627 =
P
P40,910,744,132
3,739,655,313
9,405,733,815
(1,656,387,807)
–
–
(16,358,704)
6,871,436,133 50,300,119,243
41,582,453
8,228,192
–
49,810,645
=24,222,346
P
4,347,658
1,098,142
–
5,445,800
=3,073,585
P
11,219,202
385,839
–
11,605,041
=1,249,496
P
5,721,144
162,902
–
5,884,046
=532,938
P
39,071,895
9,510,969
–
48,582,864
=21,993,444
P
–
8,136,922,073
–
2,314,954,127
–
(14,951,588)
– 10,436,924,612
=6,871,436,133 =
P
P39,863,194,631
*SGVFS001094*
- 34 Passenger Aircraft Held as Securing Assets Under Various Loans
In 2005 and 2006, the Group entered into Export Credit Agency (ECA)-backed loan facilities
(ECA loans) to partially finance the purchase of ten Airbus A319 aircraft. In 2007, the Group also
entered into a commercial loan facility to partially finance the purchase of two Airbus A320
aircraft, one CFM 565B4/P engine, two CFM 565B5/P engines and one Quick Engine Change
(QEC) Kit. In 2008, the Group entered into both ECA loans and commercial loans to partially
finance the purchase of six Avion de Transport Regional (ATR) 72-500 turboprop aircraft. Then
in 2009, ECA loans were availed to finance the purchase of two ATR 72-500 turboprop aircraft.
In 2010, the Group entered into ECA loan to finance the purchase of three Airbus A320 aircraft.
In 2011, the Group entered into ECA loan to finance the purchase of three additional Airbus A320
aircraft. In 2012, the Group entered into ECA loan to finance the purchase of four additional
Airbus A320 aircraft.
Under the terms of the ECA loan and the commercial loan facilities (Note 16), upon the event of
default, the outstanding amount of loan (including accrued interest) will be payable by CALL or
ILL or BLL or SLL or SALL, VALL or POALL, or by the guarantors which are CPAHI and
JGSHI. Failure to pay the obligation will allow the respective lenders to foreclose the securing
assets.
As of December 31, 2012 and 2011, the carrying amounts of the securing assets (included under
the ‘Property and equipment’ account) amounted to P
=35.6 billion and P
=30.4 billion, respectively.
Operating Fleet
As of December 31, 2012 and 2011, the Group’s operating fleet follows:
Owned (Note 16):
Airbus A319
Airbus A320
ATR 72-500
Under operating lease (Note 29):
Airbus A320
2012
2011
10
12
8
10
8
8
11
41
11
37
Construction in-progress represents the cost of aircraft and engine construction in progress and
buildings and improvements and other ground property under construction. Construction
in-progress is not depreciated until such time when the relevant assets are completed and available
for use. As of December 31, 2012 and 2011, the Group’s capitalized pre-delivery payments as
construction-in-progress amounted to P
=8.4 billion and P
=6.9 billion, respectively (Note 29).
As of December 31, 2012 and 2011, the gross amount of fully depreciated property and equipment
which are still in use by the Group amounted to P
=664.5 million and P
=556.2 million, respectively.
As of December 31, 2012 and 2011, there are no temporary idle property and equipment.
*SGVFS001094*
- 35 -
13. Investment in Joint Ventures
The investment in joint ventures represents the Parent Company’s 50.00%, 49.00% and 35.00%
interest in PAAT, A-plus and SIAEP, respectively. The joint ventures are accounted for as jointly
controlled entities.
Investment in PAAT pertains to the Parent Company's 60.00% investment in shares of the joint
venture. However, the joint venture agreement between the Parent Company and CAE
International Holdings Limited (CAE) states that the Parent Company is entitled to 50% share on
the net income/loss of PAAT. As such, the Parent Company recognizes equivalent 50% share in
net income and net assets of the joint venture.
The Parent Company entered into a joint venture agreement with CAE on December 13, 2011.
PAAT was created to provide training for pilots, cabin crews, aviation management services and
guest services for purposes of addressing the Group’s training requirements and to pursue business
opportunities for training third parties in the commercial fixed wing aviation industry, including
other local and international airline companies. On December 19, 2011, the Parent Company paid
=33.8 million representing 25% payment for the 135,000,000 Class A subscribed shares at P
P
=1.00
par value. PAAT was formally incorporated on January 27, 2012.
As of December 31, 2012 and 2011, the Parent Company’s investment in PAAT amounted to
=124.2 million and P
P
=33.8 million, net of subscription payable of P
=101.3 million, respectively.
A-plus and SIAEP were established for the purpose of providing line, light and heavy maintenance
services to foreign and local airlines, utilizing the facilities and services at airports in the country,
as well as aircraft maintenance and repair organizations.
A-plus was incorporated on May 24, 2005 and started commercial operations on July 1, 2005
while SIAEP was incorporated on July 27, 2008 and started commercial operations on
August 17, 2009. PAAT was incorporated on January 27, 2012.
The movements in the carrying values of the Group’s investments in joint ventures in A-plus,
SIAEP and PAAT follow:
2012
SIAEP
A-plus
Cost
Balance at beginning of the year
Investment during the year
Accumulated Equity in
Net Income (Loss)
Balance at beginning of the year
Equity in net income (loss)
during the year
Dividends received
Balance at end of the year
Net Carrying Value
P
=87,012,572
–
87,012,572
44,732,164
50,543,615
(53,229,016)
42,046,763
P
=129,059,335
P
=304,763,900
–
304,763,900
(60,780,399)
14,506,902
–
(46,273,497)
P
=258,490,403
PAAT*
Total
P
=33,750,000
101,123,645
134,873,645
P
=425,526,472
101,123,645
526,650,117
–
(10,666,510)
–
(10,666,510)
P
=124,207,135
(16,048,235)
54,384,007
(53,229,016)
(14,893,244)
P
=511,756,873
*Beginning balance is net of subscription payable amounting =
P 101,250,000
*SGVFS001094*
- 36 -
A-plus
Cost
Balance at beginning of the year
Investment during the year*
Balance at end of period
Accumulated Equity in
Net Income (Loss)
Balance at beginning of the year
Equity in net income (loss)
during the year
Dividends received
Balance at end of the year
Net Carrying Value
=87,012,572
P
–
87,012,572
30,116,847
50,850,020
(36,234,703)
44,732,164
=131,744,736
P
2011
SIAEP
=304,763,900
P
–
304,763,900
PAAT*
Total
=–
P
33,750,000
33,750,000
=391,776,472
P
33,750,000
425,526,472
(52,248,581)
–
(22,131,734)
(8,531,818)
–
(60,780,399)
=243,983,501
P
–
–
–
=33,750,000
P
42,318,202
(36,234,703)
(16,048,235)
=409,478,237
P
*Net of subscription payable amounting =
P101,250,000
Selected financial information of A-plus, SIAEP and PAAT follow:
A-plus
Total current assets
P
= 411,578,768
Total assets
482,283,412
Total current liabilities 217,093,296
Total liabilities
217,093,296
Net income (loss)
82,639,006
2012
SIAEP
P
=416,322,433
1,020,266173
377,439,493
377,439,493
17,767,060
A-plus
PAAT
P396,481,683
P
=62,520,432 =
449,545,110
495,453,301
178,874,540
249,999,035
178,874,540
249,999,035
84,118,310
(21,333,018)
2011
SIAEP
=267,039,671
P
871,670,211
228,070,700
228,070,700
(21,902,640)
PAAT
=–
P
–
–
–
–
The fiscal year-end of A-plus and SIAEP is every March 31 while the year-end of PAAT is every
December 31.
The undistributed earnings of A-plus included in the consolidated retained earnings amounted to
=42.0 million and P
P
=44.7 million as of December 31, 2012 and 2011, respectively, which is not
currently available for dividend distribution unless declared by A-plus.
The Group has no share of any contingent liabilities or capital commitments as of
December 31, 2012 and 2011.
14. Other Noncurrent Assets
This account consists of:
Refundable deposits
Creditable withholding tax
Others
2012
P
=33,438,542
28,382,890
159,074,514
P
=220,895,946
2011
=166,175,680
P
57,492,013
167,784,698
=391,452,391
P
Refundable deposits pertain to security deposits provided to lessor for aircraft under operating
lease.
Others include option and commitment fees. The option and commitment fees shall be applied
against payments for future aircraft delivery.
*SGVFS001094*
- 37 -
15. Accounts Payable and Other Accrued Liabilities
This account consists of:
Accrued expenses
Trade payables (Note 26)
Airport and other related fees payable
Deposit from foreign carrier
Advances from agents and others
Accrued interest payable (Note 16)
Other payables
2012
P
=3,750,064,107
2,478,769,275
534,436,035
410,500,000
251,878,844
105,008,615
237,880,170
P
=7,768,537,046
2011
=3,312,566,151
P
2,639,714,690
330,044,660
–
191,017,007
102,259,843
135,236,525
=6,710,838,876
P
2012
P
=872,776,722
546,839,542
486,040,399
398,690,076
323,628,299
244,198,125
216,918,668
199,083,829
113,424,579
127,609,933
45,776,243
32,277,324
8,375,590
134,424,778
P
=3,750,064,107
2011
=861,990,342
P
505,238,321
359,401,193
408,910,866
231,723,393
226,106,789
165,768,719
153,277,223
108,131,398
91,959,267
41,924,552
38,980,896
13,658,115
105,495,077
=3,312,566,151
P
Accrued Expenses
The Group’s accrued expenses include accruals for:
Maintenance (Note 29)
Compensation and benefits
Training costs
Advertising and promotion
Navigational charges
Landing and take-off fees
Repairs and services
Fuel
Ground handling charges
Rent (Note 29)
Aircraft insurance
Catering supplies
Reservation costs
Others
Others represent accrual of professional fees, security, utilities and other expenses.
Trade Payables
Trade payables, which consist mostly of payables related to the purchase of inventories, are
noninterest-bearing and are normally settled on a 60-day term. These inventories are necessary for
the daily operations and maintenance of the aircraft, which include aviation fuel, expendables
parts, equipment and in-flight supplies.
Airport and Other Related Fees Payable
Airport and other related fees payable are amounts payable to the Philippine Tourism Authority
and Air Transportation Office on aviation security, terminal fees and travel taxes.
Deposit from foreign carrier
Deposit from foreign carrier represents advances received in 2012 which was subsequently
returned in January 2013.
*SGVFS001094*
- 38 Advances from Agents and Others
Advances from agents and others represent cash bonds required from major sales and ticket
offices or agents.
Interest Payable
Interest payable is related to long-term debt and normally settled quarterly throughout the year.
Other Payables
Other payables are noninterest-bearing and have an average term of two months. This account
includes commissions payable, refunds payable and other tax liabilities such as withholding taxes
and output VAT.
16. Long-term Debt
This account consists of:
2012
ECA loans
Interest Rates
3.37% to 5.83%
Maturities
Various dates
through 2023
0.85% to 2.05%
(US Dollar LIBOR
6 months + margin
or 3 months + margin)
Commercial loans
from foreign banks
4.11% to 5.67%
Various dates
through 2017
1.65% to 1.71%
(US Dollar LIBOR
6 months + margin)
Less current portion
US Dollar
US$334,364,127
Philippine Peso
Equivalent
P
=13,725,647,412
180,762,668
515,126,795
7,420,307,510
21,145,954,922
40,325,975
1,655,381,256
2,996,907
43,322,882
558,449,677
67,465,100
US$490,984,577
123,023,020
1,778,404,276
22,924,359,198
2,769,442,355
P
=20,154,916,843
2011
ECA loans
Interest Rates
3.37% to 5.83%
Maturities
Various dates
through 2023
0.85% to 2.05%
(US Dollar LIBOR
6 months + margin
or 3 months + margin)
Commercial loans
from foreign banks
4.11% to 5.67%
1.65% to 1.71%
(US Dollar LIBOR
6 months + margin)
Less current portion
Various dates
through 2017
US Dollar
US$248,553,773
Philippine Peso
Equivalent
=10,896,597,403
P
175,556,066
424,109,839
7,696,377,955
18,592,975,358
47,428,768
2,079,277,203
4,553,852
51,982,620
476,092,459
56,283,101
US$419,809,358
199,640,872
2,278,918,075
20,871,893,433
2,467,451,166
=18,404,442,267
P
*SGVFS001094*
- 39 ECA Loans
In 2005 and 2006, the Group entered into ECA-backed loan facilities to partially finance the
purchase of ten Airbus A319 aircraft. The security trustee of the ECA loans established CALL, a
special purpose company, which purchased the aircraft from the supplier and leases such aircraft
to the Parent Company pursuant to twelve-year finance lease agreements. The quarterly rental
payments made by the Parent Company to CALL correspond to the principal and interest
payments made by CALL to the ECA-backed lenders. The quarterly lease rentals to CALL are
guaranteed by CPAHI and JGSHI. The Parent Company has the option to purchase the aircraft for
a nominal amount at the end of such leases.
In 2008, the Group entered into ECA-backed loan facilities to partially finance the purchase of six
ATR 72-500 turboprop aircraft. The security trustee of the ECA loans established BLL, a special
purpose company, which purchased the aircraft from the supplier and leases such aircraft to the
Parent Company pursuant to ten-year finance lease agreements. The semi-annual rental payments
made by the Parent Company to BLL corresponds to the principal and interest payments made by
BLL to the ECA-backed lenders. The semi-annual lease rentals to BLL are guaranteed by JGSHI.
The Parent Company has the option to purchase the aircraft for a nominal amount at the end of
such leases. On November 30, 2010, the Parent Company pre-terminated the lease agreement
with BLL related to the disposal of one ATR 72-500 turboprop aircraft. The outstanding balance
of the related loans and accrued interests amounting P
=638.1 million (US$14.5 million) and
=13.0 million (US$0.3 million), respectively, were also pre-terminated. The proceeds from the
P
insurance claim on the related aircraft were used to settle the loan and accrued interest. JGSHI
was released as guarantor on the related loans.
In 2009, the Group entered into ECA-backed loan facilities to partially finance the purchase of
two ATR 72-500 turboprop aircraft. The security trustee of the ECA loans established SLL, a
special purpose company, which purchased the aircraft from the supplier and leases such aircraft
to the Parent Company pursuant to ten-year finance lease agreements. The semi-annual rental
payments made by the Parent Company to SLL corresponds to the principal and interest payments
made by SLL to the ECA-backed lenders. The semi-annual lease rentals to SLL are guaranteed by
JGSHI. The Parent Company has the option to purchase the aircraft for a nominal amount at the
end of such leases.
In 2010, the Group entered into ECA-backed loan facilities to partially finance the purchase of
four Airbus A320 aircraft, delivered between 2010 to January 2011. The security trustee of the
ECA loans established SALL, a special purpose company, which purchased the aircraft from the
supplier and leases such aircraft to the Parent Company pursuant to twelve-year finance lease
agreements. The quarterly rental payments made by the Parent Company to SALL corresponds to
the principal and interest payments made by SALL to the ECA-backed lenders. The quarterly
lease rentals to SALL are guaranteed by JGSHI. The Parent Company has the option to purchase
the aircraft for a nominal amount at the end of such leases.
In 2011, the Group entered into ECA-backed loan facilities to fully finance the purchase of three
Airbus A320 aircraft, delivered between 2011 to January 2012. The security trustee of the ECA
loans established VALL, special purpose company, which purchased the aircraft from the supplier
and leases such aircraft to the Parent Company pursuant to twelve-year finance lease agreements.
The quarterly rental payments made by the Parent Company to VALL corresponds to the principal
and interest payments made by VALL to the ECA-backed lenders. The quarterly lease rentals to
VALL are guaranteed by JGSHI. The Parent Company has the option to purchase the aircraft for
a nominal amount at the end of such leases.
*SGVFS001094*
- 40 In 2012, the Group entered into ECA-backed loan facilities to partially finance the purchase of
three Airbus A320 aircraft. The security trustee of the ECA loans established POALL, a special
purpose company, which purchased the aircraft from the supplier and leases such aircraft to the
Parent Company pursuant to twelve-year finance lease agreements. The quarterly rental payments
made by the Parent Company to POALL corresponds to the principal and interest payments made
by POALL to the ECA-backed lenders. The quarterly lease rentals to POALL are guaranteed by
JGSHI. The Parent Company has the option to purchase the aircraft for a nominal amount at the
end of such leases.
The terms of the ECA-backed facilities, which are the same for each of the ten Airbus A319
aircraft, seven ATR 72-500 turboprop aircraft and ten Airbus A320 aircraft, follow:
·
·
·
·
·
·
·
Term of 12 years starting from the delivery date of each Airbus A319 aircraft and Airbus
A320, and ten years for each ATR 72-500 turboprop aircraft.
Annuity style principal repayments for the first four Airbus A319 aircraft, eight ATR 72-500
turboprop aircraft and seven Airbus A320 aircraft, and equal principal repayments for the last
six Airbus A319 aircraft and last three Airbus A320 aircraft. Principal repayments shall be
made on a semi-annual basis for ATR 72-500 turboprop aircraft. Principal repayments shall
be made on a quarterly basis for Airbus A319 and A320 aircraft.
Interest on loans from the ECA lenders related to CALL, BLL and SALL is at fixed rates,
which range from 3.78% to 5.83%. Interest on loans from ECA lenders related to SLL is
fixed at 3.37% for one aircraft and US dollar LIBOR 6 months plus margin for the other
aircraft. Interest on loans from the ECA lenders related to VALL is fixed at 2.56% for one
Airbus A320 aircraft and US dollar LIBOR 3 months plus margin for two Airbus A320
aircraft. Interest on loans from ECA lenders related to POALL for the three A320 aircraft is
US dollar LIBOR 3 months plus margin.
As provided under the ECA-backed facility, CALL, BLL, SLL, SALL, VALL and POALL
cannot create or allow to exist any security interest, other than what is permitted by the
transaction documents or the ECA administrative parties. CALL, BLL, SLL, SALL, VALL
and POALL must not allow impairment of first priority nature of the lenders’ security
interests.
The ECA-backed facilities also provide for the following events of default: (a) nonpayment of
the loan principal or interest or any other amount payable on the due date, (b) breach of
negative pledge, covenant on preservation of transaction documents, (c) misrepresentation,
(d) commencement of insolvency proceedings against CALL or BLL or SLL or SALL or
VALL or POALL becomes insolvent, (e) failure to discharge any attachment or sequestration
order against CALL’s, BLL’s, SLL’s, SALL’s VALL’s and POALL’s assets, (f) entering into
an undervalued transaction, obtaining preference or giving preference to any person, contrary
to the laws of the Cayman Islands, (g) sale of any aircraft under ECA financing prior to
discharge date, (h) cessation of business, (i) revocation or repudiation by CALL or BLL or
SLL or SALL or VALL or POALL, the Group, JGSHI or CPAHI of any transaction document
or security interest, and (j) occurrence of an event of default under the lease agreement with
the Parent Company.
Upon default, the outstanding amount of loan will be payable, including interest accrued.
Also, the ECA lenders will foreclose on secured assets, namely the aircraft.
An event of default under any ECA loan agreement will occur if an event of default as
enumerated above occurs under any other ECA loan agreement.
*SGVFS001094*
- 41 As of December 31, 2012 and 2011, the total outstanding balance of the ECA loans amounted to
=21,146.0 million (US$515.1 million) and P
P
=18,593.0 million (US$424.1 million), respectively.
Interest expense amounted to P
=632.6 million, P
=549.8 million and P
=623.4 million in 2012, 2011
and 2010, respectively.
Commercial Loans from Foreign Banks
In 2007, the Group entered into a commercial loan facility to partially finance the purchase of
two Airbus A320 aircraft, one CFM 565B4/P engine, two CFM 565B5/P engines and one QEC
Kit. The security trustee of the commercial loan facility established ILL, a special purpose
company, which purchased the aircraft from the supplier and leases such aircraft to the Parent
Company pursuant to (a) ten-year finance lease arrangement for the aircraft, (b) six-year finance
lease arrangement for the engines and (c) five-year finance lease arrangement for the QEC Kit.
The quarterly rental payments of the Parent Company correspond to the principal and interest
payments made by ILL to the commercial lenders and are guaranteed by JGSHI. The Parent
Company has the option to purchase the aircraft, the engines and the QEC Kit for a nominal
amount at the end of such leases.
In 2008, the Group also entered into a commercial loan facility, in addition to ECA-backed loan
facility, to partially finance the purchase of six ATR 72-500 turboprop aircraft. The security
trustee of the commercial loan facility established BLL, a special purpose company, which
purchased the aircraft from the supplier and leases such aircraft to the Parent Company. The
commercial loan facility is payable in 12 equal, consecutive, semi-annual installments starting six
months after the utilization date.
The terms of the commercial loans from foreign banks follow:
·
·
·
·
·
·
·
·
Term of ten years starting from the delivery date of each Airbus A320 aircraft.
Terms of six and five years for the engines and QEC Kit, respectively.
Term of six years starting from the delivery date of each ATR 72-500 turboprop aircraft.
Annuity style principal repayments for the two Airbus A320 aircraft and six ATR 72-500
turboprop aircraft, and equal principal repayments for the engines and the QEC Kit. Principal
repayments shall be made on a quarterly and semi-annual basis for the two Airbus A320
aircraft, engines and the QEC Kit and six ATR 72-500 turboprop aircraft, respectively.
Interest on the commercial loan facility for the two Airbus A320 aircraft shall be
US dollar LIBOR 3 months plus margin. On February 29, 2009, the interest rates on the two
Airbus A320 aircraft, engines and QEC Kit were fixed ranging from 4.11% to 5.67%.
Interest on the commercial loan facility for the six ATR 72-500 turboprop aircraft shall be
US dollar LIBOR 6 months plus margin.
The commercial loan facility provides for material breach as an event of default.
Upon default, the outstanding amount of loan will be payable, including interest accrued.
The lenders will foreclose on secured assets, namely the aircraft.
As of December 31, 2012 and 2011, the total outstanding balance of the commercial loans from
foreign banks amounted to P
=1,778.4 million (US$43.3 million) and P
=2,278.9 million
(US$52.0 million), respectively. Interest expense amounted to P
=100.0 million, P
=113.0 million and
=137.7 million in 2012, 2011 and 2010, respectively.
P
The Group is not in breach of any loan covenants as of December 31, 2012 and 2011.
*SGVFS001094*
- 42 -
17. Other Noncurrent Liabilities
This account consists of:
2012
P
=1,351,931,051
424,276,778
214,099,443
P
=1,990,307,272
ARO
Accrued maintenance
Pension liability (Note 22)
2011
=1,263,319,344
P
670,810,817
251,594,022
=2,185,724,183
P
ARO
The Group is legally required under certain lease contracts to restore certain leased passenger
aircraft to stipulated return conditions and to bear the costs of restoration at the end of the contract
period. These costs are accrued based on an internal estimate made by the work of both third
party and the Group’s engineers in 2010, which includes estimates of certain redelivery costs at
the end of the operating aircraft lease (see Note 5).
The rollforward analysis of the Group’s ARO follows:
2012
ARO Asset
Balance at beginning of year
Capitalized during the year**
Amortization*
Balance at end of year
ARO Liability
Balance at beginning of year
Accretion expense*
Capitalized during the year**
Payment of restorations during the year
Balance at end of year
Net ARO Liability
2011
P1,211,879,019
P
=1,174,348,991 =
279,926,767
459,298,467
(317,456,796)
(369,113,893)
1,174,348,990
1,264,533,565
2,070,145,159
2,437,668,334
191,472,734
208,396,566
279,926,767
459,298,467
(103,876,326)
(488,898,751)
2,437,668,334
2,616,464,616
P1,263,319,344
P
=1,351,931,051 =
*Included under repairs and maintenance (Note 20) account in the consolidated statements of comprehensive income.
**In 2012, capitalized ARO liability pertains to two additional Airbus A320 aircraft under operating lease entered in
March 2012. In 2011, capitalized ARO liability refers to two additional Airbus A320 aircraft under operating lease
agreements entered in October 2011.
Expenses included as part of repairs and maintenance (Note 20) follow:
Amortization
Accretion expense
2012
P
=369,113,893
208,396,566
P
=577,510,459
2011
=317,456,796
P
191,472,734
=508,929,530
P
2010
=234,803,539
P
170,402,866
=405,206,405
P
Accrued Maintenance
This account pertains to accrual of maintenance costs of aircraft based on the number of flying
hours but will be settled beyond one year based on management’s assessment.
*SGVFS001094*
- 43 -
18. Equity
The details of the number of common shares and the movements thereon follow:
Authorized - at =
P1 par value
Beginning of year
Treasury shares
Issuance of shares during the year
Issued and outstanding
2012
1,340,000,000
605,953,330
–
–
605,953,330
2011
1,340,000,000
613,236,550
(7,283,220)
–
605,953,330
2010
1,340,000,000
582,574,750
–
30,661,800
613,236,550
Issuance of Common Shares of Stock
On October 26, 2010, the Parent Company listed with the PSE its common stock, by way of
primary and secondary share offerings, wherein it offered 212,419,700 shares to the public at
=125.00 per share. Of the total shares sold, 30,661,800 shares are newly issued shares with total
P
proceeds amounting P
=3,800.0 million. The Parent Company’s share in the total transaction costs
incurred incidental to the IPO amounting P
=100.4 million, which is charged against ‘Capital paid in
excess of par value’ in the parent statement of financial position. The registration statement was
approved on October 11, 2010. The Group has 76 and 56 existing certified shareholders as of
December 31, 2012 and 2011, respectively.
Treasury Shares
On February 28, 2011, the BOD of the Parent Company approved the creation and implementation
of a share buyback program (SBP) up to P
=2,000.0 million worth of the Parent Company’s
common share. The SBP shall commence upon approval and shall end upon utilization of the said
amount, or as may be otherwise determined by the BOD.
The Parent Company has outstanding treasury shares of 7,283,220 shares amounting to
=529.3 million as of December 31, 2012 and 2011, restricting the Parent Company from declaring
P
an equivalent amount from unappropriated retained earnings as dividends.
Appropriation of Retained Earnings
On April 19, 2012, the Parent Company’s Executive Committee appropriated P
=483.3 million from
its unrestricted retained earnings as of December 31, 2011 for purposes of the Group’s re-fleeting
program. The appropriated amount will be used for settlement of pre-delivery payments and
aircraft lease commitments in 2013.
On December 9, 2011, the Parent Company’s BOD appropriated P
=933.5 million from its
unrestricted retained earnings as of December 31, 2010 for purposes of the Parent Company’s
re-fleeting program. The appropriated amount will be used for settlement of pre-delivery
payments and aircraft lease commitments in 2013.
Unappropriated Retained Earnings
The income of the subsidiaries and JV that are recognized in the statements of comprehensive
income are not available for dividend declaration unless these are declred by the subsidiaries and
JV. Likewise, retained earnings are restricted for the payment of dividends to the extent of the
cost of common shares held in treasury.
On June 28, 2012, the Parent Company’s BOD approved the declaration of a regular cash dividend
in the amount of P
=606.0 million or P
=1.00 per common share to all stockholders of record as of
July 18, 2012 and was paid on August 13, 2012.
*SGVFS001094*
- 44 On March 17, 2011, the BOD of the Parent Company approved the declaration of a regular cash
dividend in the amount of P
=1,222.4 million or P
=2.00 per share and a special cash dividend in the
amount of P
=611.2 million or P
=1.00 per share from the unrestricted retained earnings of the Parent
Company to all stockholders of record as of April 14, 2011 and was paid on May 12, 2011.
After reconciling items which include fair value adjustments on financial instruments, foreign
exchange gain and cost of common stocks held in treasury, the amount of retained earnings that is
available for dividend declaration as of December 31, 2012 amounted to P
=7,426.9 million.
Under the Tax Code, publicly-held Corporations are allowed to accumulate retained earnings in
excess of capital stock and are exempt from improperly accumulated earnings tax.
Capital Management
The primary objective of the Group’s capital management is to ensure that it maintains healthy
capital ratios in order to support its business and maximize shareholder value. The Group
manages its capital structure, which composed of paid up capital and retained earnings, and makes
adjustments to these ratios in light of changes in economic conditions and the risk characteristics
of its activities. In order to maintain or adjust the capital structure, the Group may adjust the
amount of dividend payment to shareholders, return capital structure or issue capital securities.
No changes have been made in the objective, policies and processes as they have been applied in
previous years.
The Group’s ultimate parent monitors the use of capital structure using a debt-to-equity capital
ratio which is gross debt divided by total capital. The ultimate parent includes within gross debt
all interest-bearing loans and borrowings, while capital represent total equity.
The Group’s debt-to-capital ratios follow:
2011
2012
P20,871,893,433
P
=22,924,359,198 =
22,134,812,784 19,165,523,290
1.1:1
1.0:1
(a) Long term debt (Note 16)
(b) Capital
(c) Debt-to-capital ratio (a/b)
The JGSHI Group’s policy is to keep the debt to capital ratio at the 2:1 level as of
December 31, 2012 and 2011. Such ratio is currently being managed on a group level by the
Group’s ultimate parent.
19. Revenues
Revenues consist of:
Passenger
Cargo
Baggage fee
Ancillary revenues
2012
P
=32,251,670,072
2,380,938,624
2,837,630,241
434,214,686
P
=37,904,453,623
2011
=29,242,324,163
P
2,193,283,974
2,173,466,124
326,328,514
=33,935,402,775
P
2010
=25,891,755,088
P
2,095,612,224
778,395,571
323,036,076
=29,088,798,959
P
Passenger revenues pertain to fare revenues and other revenues related in the transportation of
passengers such as charter flights, refund charges rebooking and cancellation fees, seat selection
and in-flight sales.
*SGVFS001094*
- 45 Cargo revenues pertain to revenues and other revenues related to transportation of cargo, mail and
merchandise.
Baggage fees pertain to other revenue on passenger luggage.
Ancillary revenues pertain to revenues not directly related in the transportation of passengers,
cargo, mail and merchandise. This includes commissions, simulator revenue share, building
sub-lease, homepage advertising revenue share, sale of scrap and others.
20. Operating Expenses
Flying Operations
This account consists of:
Aviation fuel expense
Flight deck
Aviation insurance
Others
2012
P
=17,561,860,875
2,156,797,336
182,842,911
117,087,620
P
=20,018,588,742
2011
=15,220,724,678
P
1,815,106,843
176,697,232
137,639,647
=17,350,168,400
P
2010
=9,807,825,079
P
1,365,724,876
152,573,085
91,365,472
=11,417,488,512
P
2012
P
=1,982,460,047
1,079,658,319
371,280,228
P
=3,433,398,594
2011
=1,715,448,209
P
941,465,556
334,364,339
=2,991,278,104
P
2010
=1,405,341,791
P
758,912,700
297,552,706
=2,461,807,197
P
Aircraft and Traffic Servicing
This account consists of:
Airport charges
Ground handling
Others
Others pertain to staff expenses incurred by the Group such as basic pay, employee training cost
and allowances.
Repairs and maintenance
Repairs and maintenance expenses relate to the cost of maintaining, repairing and overhauling of
all aircraft and engines, technical handling fees on pre-flight inspections and cost of aircraft spare
parts and other related equipment. The account includes the related amortization of ARO asset
and cost of other contractual obligation under the aircraft operating lease agreements (Note 29).
These amounted to P
=577.5 million, P
=508.9 million and P
=405.2 million in 2012, 2011 and 2010,
respectively (Note 17).
*SGVFS001094*
- 46 -
21. General and Administrative Expenses
This account consists of:
Staff cost
Utilities
Security and professional fees
Others
2011
=286,615,189
P
175,088,622
155,449,402
203,300,273
=820,453,486
P
2012
P
=333,600,755
211,140,793
173,254,532
235,722,312
P
=953,718,392
2010
=296,635,837
P
98,751,158
140,012,498
159,488,985
=694,888,478
P
Others include membership dues, annual listing maintenance fees, supplies, rent and others.
22. Employee Benefits
Employee Benefit Cost
Total personnel expenses, consisting of salaries, expense related to defined benefit plans and other
employee benefits, are included in flying operations, aircraft traffic and servicing, repairs and
maintenance, reservation and sales, general and administrative, and passenger service.
Defined Benefit Plan
The Parent Company has an unfunded, noncontributory, defined benefit plan covering
substantially all of its regular employees. The benefits are based on years of service and
compensation on the last year of employment.
As of January 1, 2012, 2011 and 2010, the assumptions used to determine pension benefits of the
Parent Company follow:
Average remaining working life
Discount rate
Salary rate increase
2012
12 years
5.79%
5.50%
2011
12 years
6.54%
5.50%
2010
10 years
9.93%
5.50%
As of December 31, 2012, 2011 and 2010, the discount rate used in determining the pension
liability is 5.79%, 6.54% and 9.93%, which is determined by reference to market yields at the
reporting date on Philippine government bonds.
The amounts recognized as pension liability (included under ‘Other noncurrent liabilities’ account
in the consolidated statements of financial position) follow (Note 17):
Present value of defined benefit obligation (PVO)
Fair value of plan assets
Unrecognized actuarial loss
Pension liability at end of year
2012
P
=434,471,123
(80,842,324)
(139,529,356)
P
=214,099,443
2011
=325,295,900
P
–
(73,701,878)
=251,594,022
P
*SGVFS001094*
- 47 Movements in unrecognized actuarial gain (loss) follow:
2012
(P
=73,701,878)
3,431,000
263,793
(69,522,271)
(P
=139,529,356)
Balance at beginning of year
Amortization of actuarial gain
Actuarial gain due to PVO
Actuarial loss due to PVO
Balance at end of year
2011
(P
=20,037,800)
–
–
(53,664,078)
(P
=73,701,878)
Movements in the fair value of plan asset follow:
Actual contribution during the year
Actuarial gain
Balance at end of year
2012
P
=80,578,531
263,793
P
=80,842,324
2011
=–
P
–
=–
P
Amount
P
=80,849,281
(6,957)
P
=80,842,324
%
100%
–
100%
The plan assets consist of:
Cash
Liabilities
The Group expects to contribute about P
=80.0 million into the pension fund for the year ending
2013.
Movements in the defined benefit liability follow:
Balance at beginning of year
Pension expense during year
Actual contributions
Benefits paid during year
Balance at end of year
2012
P
=251,594,022
70,720,100
(80,578,531)
(27,636,148)
P
=214,099,443
2011
=210,156,100
P
52,987,000
–
(11,549,078)
=251,594,022
P
Components of pension expense included in the consolidated statements of comprehensive income
follow:
Current service cost
Interest cost
Amortization of actuarial gain
Total pension expense
2012
P
= 46,014,700
21,274,400
3,431,000
P
= 70,720,100
2011
=33,075,200
P
19,911,800
–
=52,987,000
P
2010
=24,318,200
P
15,911,600
–
=40,229,800
P
*SGVFS001094*
- 48 Changes in the present value of the defined benefit obligation follow:
2012
P
=325,295,900
46,014,700
21,274,400
(27,636,148)
69,522,271
P
=434,471,123
Balance at beginning of year
Current service cost
Interest cost
Benefits paid
Actuarial loss
Balance at end of year
2011
=230,193,900
P
33,075,200
19,911,800
(11,549,078)
53,664,078
=325,295,900
P
Amounts for the current and previous periods follow:
2012
2011
Present value of retirement
obligation
=325,295,900
P
= 434,471,123 P
Experience adjustments - loss (gain)
–
263,793
2010
2009
2008
=230,193,900 P
P
=160,237,500
(1,435,700)
1,445,500
=91,413,300
P
1,199,000
23. Other Expenses
This account consists mainly of bank charges.
24. Income Taxes
Provision for income tax consists of:
Current
MCIT
Deferred
2012
2011
2010
P
=30,081,311
267,305,224
P
=297,386,535
=52,679,330
P
69,905,552
=122,584,882
P
P1,595,963
=
16,163,724
=17,759,687
P
Provision for income tax pertains to RCIT or MCIT and deferred income tax.
Income taxes include corporate income tax, as discussed below, and final taxes paid at the rate of
20.00% and 7.50% on peso-denominated and foreign currency-denominated short-term
placements and cash in banks, respectively, which are final withholding taxes on gross interest
income.
The NIRC of 1997 also provides for rules on the imposition of a 2.00% MCIT on the gross income
as of the end of the taxable year beginning on the fourth taxable year immediately following the
taxable year in which the Parent Company commenced its business operations. Any excess MCIT
over the RCIT can be carried forward on an annual basis and credited against the RCIT for the
three immediately succeeding taxable years.
In addition, the NIRC of 1997 allows the Parent Company to deduct from its taxable income for
the current year its accumulated net operating losses carried over (NOLCO) from the immediately
preceding three consecutive taxable years.
*SGVFS001094*
- 49 Details of the Parent Company’s NOLCO and MCIT are as follows:
NOLCO
Year Incurred
2008
2009
2010
2012
Amount
=81,434,888
P
79,186,012
533,255,953
1,301,721,876
=1,995,598,729
P
Expired/Applied
(P
=81,434,888)
(79,186,012)
(267,084,527)
–
(P
=427,705,427)
Balance
=–
P
–
266,171,426
1,301,721,876
=1,567,893,302
P
Expiry Year
2011
2012
2013
2015
In 2011, the Parent Company has applied NOLCO amounting P
=427.7 million.
MCIT
Year Incurred
2009
2010
2011
2012
Amount
=4,585,763
P
1,595,963
52,679,330
30,081,311
=88,942,367
P
Expired/Applied
(P
=4,585,763)
–
–
–
(P
=4,585,763)
Balance
=–
P
1,595,963
52,679,330
30,081,311
=84,356,604
P
Expiry Year
2012
2013
2014
2015
The Parent Company has the following registrations with the BOI as a new operator of air
transport on a non-pioneer status under the Omnibus Investments Code of 1987 (Executive
Order 226):
Batch
First
Second
Third
Fourth
Fifth
Sixth
Seventh
Eight
Ninth
Tenth
Eleventh
Twelfth
Thirteenth
Date of Registration
December 14, 2005
June 4, 2008
November 3,2010
November 16, 2011
November 16, 2011
November 16, 2011
November 16, 2011
January 17, 2012
January 17, 2012
January 17, 2012
October 4, 2012
December 6, 2012
December 6, 2012
Registration
Number
2005-213
2008-119
2010-180
2011-240
2011-241
2011-242
2011-243
2012-012
2012-013
2012-014
2012-208
2012-261
2012-262
ITH Period
Jan 2007 - Dec 2010
Mar 2009 - Feb 2013
Jan 2011 - Dec 2016
Nov 2011 - Nov 2015
Nov 2011 - Nov 2017
Nov 2011 - Nov 2015
Dec 2011 - Dec 2017
Jan 2017 - Jan 2018
Mar 2012 - Feb 2016
Mar 2012 - Feb 2016
Oct 2012 - Oct 2018
Dec 2012 - Dec 2018
Dec 2012 - Dec 2018
Number of
Aircraft
20
8
5
1
1
1
1
1
1
1
1
1
1
43
On the above registrations, the Parent Company can avail of bonus years in certain specified cases
but the aggregate ITH availment (basic and bonus years) shall not exceed eight (8) years.
As of December 31, 2012 and 2011, the Parent Company has complied with externally imposed
capital requirements set by the BOI in order to avail the ITH incentives for the first and second
batch aircraft of registered activity (Note 31).
*SGVFS001094*
- 50 The components of the Group’s deferred tax assets and liabilities follow:
Deferred tax assets on:
ARO - liability
NOLCO
Accrued retirement costs
Allowance for credit losses
MCIT
Unrealized loss on financial assets designated
at FVPL
Unrealized loss on net derivative liability
Unrealized loss on AFS investment*
Deferred tax liabilities on:
Unrealized foreign exchange gain - net
ARO - asset
Double depreciation
Unrealized gain on derivative asset
Unrealized gain on financial assets designated
at FVPL
Net deferred tax liabilities
2012
2011
P
=784,939,385
470,324,758
64,229,845
65,471,285
84,356,605
=731,300,500
P
79,851,428
75,478,207
69,775,242
58,861,056
–
–
–
1,469,321,878
43,066,411
8,559,355
2,412,970
1,069,305,169
807,881,245
194,497,361
944,198,871
14,248,778
504,354,224
220,320,170
566,416,958
–
–
1,960,826,255
P
=491,504,377
–
1,291,091,352
=221,786,183
P
* Movement under other comprehensive income
The Group’s recognized deferred tax assets and deferred tax liabilities are expected to be reversed
more than twelve months after the reporting date.
The Group has the following gross deductible and taxable temporary differences which are
expected to reverse within the ITH period, and for which deferred tax assets and deferred tax
liabilities, respectively, were not set up on account of the Parent Company’s ITH.
Deductible temporary differences:
Unrealized loss on net derivative liability
Taxable temporary differences:
ARO - asset
Unrealized gain on derivative asset
2012
2011
P
=–
=15,446,196
P
P
=489,720,314
55,186,836
P
=544,907,150
=362,655,952
P
–
=362,655,952
P
*SGVFS001094*
- 51 A reconciliation of the statutory income tax rate to the effective income tax rate follows:
Statutory income tax rate
Adjustments resulting from:
Income subject to ITH
Interest income subjected to final tax
Gain on sale of financial assets
Unrecognized deferred tax
assets and liabilities
Equity in net (income) loss of JV
Nondeductible items
Effective income tax rate
2012
30.00%
(18.07)
(3.17)
(0.04)
(1.65)
(0.42)
1.05
7.69%
2011
30.00%
(23.85)
(3.13)
2010
30.00%
(29.71)
(0.49)
–
–
(0.49)
(0.29)
1.03
3.27%
0.41
(0.11)
0.16
0.26%
Entertainment, Amusement and Recreation (EAR) Expenses
Current tax regulations define expenses to be classified as EAR expenses and set a limit for the
amount that is deductible for tax purposes. EAR expenses are limited to 0.50% of net sales for
sellers of goods or properties or 1.00% of net revenue for sellers of services. For sellers of both
goods or properties and services, an apportionment formula is used in determining the ceiling on
such expenses. The Parent Company recognized EAR expenses (allocated under different expense
accounts in the consolidated statements of comprehensive income) amounting P
=10.9 million,
=3.0 million and P
P
=4.8 million in 2012, 2011 and 2010, respectively.
25. Earnings Per Share
The following reflects the income and share data used in the basic/dilutive EPS computations:
2012
(a) Net income attributable to common
shareholders
(b) Weighted average number of common
shares for basic EPS
(c) Basic/diluted earnings per share
P
=3,569,612,563
605,953,330
P
=5.89
2011
2010
=3,624,417,718 =
P
P6,922,493,280
610,851,702
=5.93
P
587,685,050
=11.78
P
The Group has no dilutive potential common shares in 2012, 2011 and 2010.
26. Related Party Transaction
Transactions between related parties are based on terms similar to those offered to nonrelated
parties. Parties are considered to be related if one party has the ability, directly or indirectly, to
control the other party or exercise significant influence over the other party in making financial
and operating decisions or the parties are subject to common control or common significant
influence. Related parties may be individuals or corporate entities.
The Group has entered into transactions with its ultimate parent, its JV and affiliates principally
consisting of advances, sale of passenger tickets, reimbursement of expenses, regular banking
transactions, maintenance and administrative service agreements. In addition to the related
information disclosed elsewhere in the financial statements, the following are the year-end
balances in respect of transactions with related parties, which were carried out in the normal
course of business on terms agreed with related parties during the year.
*SGVFS001094*
- 52 The significant transactions and outstanding balances of the Group with the related parties follow:
Consolidated Statement of Financial Position
Cash and
Cash Equivalents
(Note 7)
Outstanding
Amount
Balance
Due from Related Parties
(Note 9)
Outstanding
Amount
Balance
Due to Related Parties
(Note 15)
Outstanding
Amount
Balance
Trade Receivables (Note 9)
Outstanding
Amount
Balance
Trade Payables (Note 15)
Outstanding
Amount
Balance
Ultimate parent company
JGSHI
31-Dec-12
P
=–
P
=–
P
=–
P
=–
P
=924,541
P
=2,473,561
P
=–
P
=–
P
=–
P
=–
31-Dec-11
–
–
–
–
1,199,020
1,549,020
–
–
–
–
31-Dec-10
–
–
–
–
(42,007,610)
350,000
–
–
–
–
Parent company
CPAHI
31-Dec-12
–
–
(10,854,945)
56,203
–
–
–
–
–
–
31-Dec-11
–
–
(47,903,126)
10,911,148
–
–
–
–
–
–
31-Dec-10
–
–
57,913,604
58,814,274
–
–
–
–
–
–
31-Dec-12
–
–
2,994,440
18,330,539
–
–
–
(12,696,455)
–
JV in which the Company is a
venturer
A-plus
SIAEP
PAAT, Inc.
–
31-Dec-11
–
–
(11,593,694)
15,336,099
–
–
–
–
(58,456,712)
12,696,455
31-Dec-10
–
–
(8,486,542)
26,929,793
–
–
–
–
59,505,413
71,153,167
31-Dec-12
–
–
3,034,066
9,773,472
–
–
39,742
46,242
(18,644,261)
6,865,985
6,739,406
–
–
6,500
6,500
(63,380,052)
25,510,246
832,407
–
–
(13,708)
31-Dec-11
–
–
5,906,999
31-Dec-10
–
–
(3,240,189)
–
–
–
31-Dec-12
–
–
145,361,183
147,548,788
–
–
–
–
–
–
31-Dec-11
–
–
2,187,605
2,187,605
–
–
–
–
–
–
31-Dec-10
–
–
–
–
–
–
–
–
–
–
(Forward)
*SGVFS001094*
- 53 Consolidated Statement of Financial Position
Cash and
Cash Equivalents
(Note 7)
Outstanding
Amount
Balance
Due from Related Parties
(Note 9)
Outstanding
Amount
Balance
Due to Related Parties
(Note 15)
Outstanding
Amount
Balance
Trade Receivables (Note 9)
Outstanding
Amount
Balance
Trade Payables (Note 15)
Outstanding
Amount
Balance
Entities under common control
Robinsons Savings
Bank (RSB)
Universal Robina
Corporation (URC)
Digitel Telecommunication*
(DIGITEL)
Robinsons Land
Corporation (RLC)
Robinsons Handyman, Inc.
Summit Publishing,
Inc. (SPI)
31-Dec-12
P
=922,831,166 P
=6,810,956,591
P
=–
P
=–
31-Dec-11
1,335,447,233
31-Dec-10
4,327,376,700
31-Dec-12
–
–
31-Dec-11
–
–
31-Dec-10
–
(P
=420,178)
P
=529,985
P
=54,957
P
=54,957
P
=100,200
P
=1,471,859
5,888,125,425
–
–
91,795
950,163
4,552,678,192
–
–
294,858
858,368
(5,631)
–
1,220,800
1,371,659
(42,912)
5,631
–
9,945,024
42,598,769
(257,682)
2,657,183
2,392,203
–
(1,055,987)
32,653,745
730,928
2,914,865
(2,102,032)
–
–
3,043,237
33,709,732
374,185
2,183,937
746,021
150,859
3,191,028
798,825
2,900,857
31-Dec-12
–
–
–
–
–
(210,082)
211,565
31-Dec-11
–
–
–
–
–
6,999
1,678,260
421,647
421,647
31-Dec-10
–
–
–
–
–
374,185
1,671,261
(241,740)
–
31-Dec-12
–
–
–
–
–
321,938
971,241
(132,593)
1,330,597
31-Dec-11
–
–
–
–
–
367,462
649,303
31-Dec-10
–
–
–
–
–
(32,498)
281,841
–
(1,494,734)
183,526
(329,172)
1,442,077
1,463,190
(181,374)
21,113
31-Dec-12
–
–
–
–
–
–
–
–
236,109
297,980
31-Dec-11
–
–
–
–
–
–
–
–
–
–
31-Dec-10
–
–
–
–
–
–
–
–
–
–
31-Dec-12
–
–
–
–
–
–
(150,614)
639,908
–
–
31-Dec-11
–
–
–
–
–
–
(65,408)
790,521
–
–
31-Dec-10
–
–
–
–
–
–
225,751
855,930
–
–
(Forward)
*SGVFS001094*
- 54 Consolidated Statement of Financial Position
Cash and
Cash Equivalents
(Note 7)
JG Petrochemical
Corporation (JGPC)
Robinsons Inc.
Jobstreet.com Phils., Inc.
Unicon Insurance Brokers
Total
Due from Related Parties
(Note 9)
Amount
Outstanding
Balance
31-Dec-12
P
=–
Due to Related Related
(Note 15)
Amount
Outstanding
Balance
P
=–
P
=–
Trade Receivables (Note 9)
Amount
Outstanding
Balance
P
=–
P
=–
P
=–
Trade Payables (Note 15)
Amount
Outstanding
Balance
Amount
Outstanding
Balance
P
=995,954
P
=1,052,002
P
=–
P
=–
31-Dec-11
–
–
–
–
–
–
(207,435)
56,048
–
–
31-Dec-10
–
–
–
–
–
–
260,088
263,484
–
–
31-Dec-12
–
–
–
–
–
(158,653)
342,615
(2,569,040)
31-Dec-11
–
–
–
–
538,044
1,149,247
(630,330)
501,268
2,280,579
2,569,040
31-Dec-10
–
–
–
–
482,063
611,203
630,684
1,131,598
256,747
288,461
(1,149,247)
–
31-Dec-12
–
–
–
–
–
–
51,261
51,261
–
–
31-Dec-11
–
–
–
–
–
–
–
–
–
–
31-Dec-10
–
–
–
–
–
–
–
–
–
–
31-Dec-12
–
–
–
–
–
–
–
–
5,062
56,984
31-Dec-11
–
–
–
–
–
–
–
–
48,410
51,922
31-Dec-10
–
–
–
–
–
–
–
–
3,512
3,512
31-Dec-12
P
=922,831,166 P
=6,810,956,591 P
=140,534,744
P
=175,709,003
P
=9,300,140
P
=45,602,315
P
=5,998,935
(P
=31,518,857)
P
=13,425,998
31-Dec-11
1,335,447,233 5,888,125,425
35,174,259
772,871
36,302,174
203,085
6,596,765
(118,525,283)
44,882,984
35,529,304
1,775,775
6,393,682
59,759,407
74,517,969
(51,402,216)
31-Dec-10 4,327,376,700 4,552,678,192
46,186,873
*As of December 31, 2011, Digitel Telecommunication is no longer a related party of Cebu Air, Inc.
86,576,474
(38,187,452)
(P
=597,830)
*SGVFS001094*
- 55 -
Year
Consolidated Statement of Comprehensive Income
Repairs and
Sale of Air Transportation
Service
Interest Income
Maintenance
Amount/
Amount/
Amount/
Outstanding Balance
Outstanding Balance
Outstanding Balance
JV in which the Company is a venture
A-plus
SIAEP
2012
P
=–
P
=–
P
=290,371,627
2011
–
–
277,178,544
2010
–
–
259,226,381
2012
233,666
–
–
2011
93,776
–
–
2010
263,606
–
–
2012
1,615,318
359,337,295
–
2011
723,696
288,358,555
–
2010
715,413
28,960,516
–
2012
25,619,354
–
–
2011
25,660,486
–
–
2010
23,185,728
–
–
2012
18,430,121
–
–
2011
20,521,872
–
–
2010
15,921,059
–
–
2012
11,186,607
–
–
2011
10,321,822
–
–
2010
6,035,538
–
–
2012
2,207,662
–
–
2011
5,525,371
–
–
2010
2,484,213
–
–
2012
3,137,969
–
–
2011
1,222,177
–
–
2010
830,006
–
–
2012
18,060,662
–
–
2011
15,700,314
–
–
2010
11,592,290
–
–
2012
451,232
–
–
2011
–
–
–
2010
–
–
–
2012
P
=80,942,591
P
=359,337,295
P
=290,371,627
2011
79,769,514
288,358,555
277,178,544
2010
61,727,854
28,960,516
259,226,381
Entities under common control
RSB
URC
DIGITEL*
RLC
SPI
JGPC
Robinsons Inc.
Jobstreet.com Phils., Inc.
Total
*SGVFS001094*
- 56 Terms and conditions of transactions with related parties
Outstanding balances at year-end are unsecured, interest-free and settlement occurs in cash. Also,
these transactions are short-term in nature. There have been no guarantees provided or received
for any related party receivables or payables. The Group has not recognized any impairment
losses on amounts due from related parties for the years ended December 31, 2012 and 2011. This
assessment is undertaken each financial year through a review of the financial position of the
related party and the market in which the related party operates.
The Group’s significant transactions with related parties follow:
1. Expenses advanced by the Group on behalf of CPAHI. The said expenses are subject to
reimbursement and are recorded under ‘Receivables’ in the consolidated statements of
financial position.
2. The Group entered into a Shared Services Agreement with A-plus. Under the aforementioned
agreement, the Group will render certain administrative services to A-plus which include
payroll processing and certain information technology-related functions. The Group also
entered into a Ground Support Equipment (GSE) Maintenance Services Agreement with
A-plus. Under the GSE Maintenance Services Agreement, the Group shall render routine
preventive maintenance services on certain ground support equipment used by A-plus in
providing technical GSE to airline operators in major airports in the Philippines. The Group
also performs repair or rectification of deficiencies noted and supply replacement components.
3. For the aircraft maintenance program, the Group engaged SIAEC to render line maintenance,
light aircraft checks and technical ramp handling services at various domestic and
international airports which were performed by A-plus, and to maintain and provide aircraft
heavy maintenance services which was performed by SIAEP. Cost of services are recorded as
‘Repairs and maintenance’ in the consolidated statements of comprehensive income and any
unpaid amount as of statement of financial position date as trade payable under ‘Accounts
payable and other accrued liabilities’.
4. The Group maintains deposit accounts and short-term investments with RSB which is reported
as ‘Cash and cash equivalents’. The Group also incurs liabilities to RSB for loan payments of
its employees and to URC primarily for the rendering of payroll service to the Group which
are recorded as ‘Due to related parties’.
5. The Group provides air transportation services to certain related parties, for which unpaid
amounts are recorded as trade receivables under ‘Receivables’ in the consolidated statement of
financial position.
The Group also purchases goods from URC for in-flight sales and recorded as trade payable, if
unpaid, in the consolidated statements of financial position. Total amount of purchases in
2012, 2011 and 2010 amounted to P
=5.2 million, P
=1.8 million and P
=6.4 million, respectively.
6. On January 13, 2012, JGSHI acquired all of the Group’s debt and equity securities classified
as financial assets at FVPL and AFS financial assets in exchange for a settlement amounting
=3,368.4 million, of which P
P
=89.0 million pertains to the settlement of accrued interest from
these financial assets. Market value of financial assets at FVPL and AFS financial assets at
date of sale amounted to P
=3,368.4 million. Realized gain (loss) on the sale of financial assets
at FVPL and AFS financial assets amounted to P
=13.8 million and (P
=8.0) million, respectively
in 2012 (Note 8).
*SGVFS001094*
- 57 The compensation of the Group’s key management personnel by benefit type follows:
Short-term employee benefits
Post-employment benefits
2012
P
=131,590,618
1,565,035
P
=133,155,653
2011
=119,792,501
P
14,136,670
=133,929,171
P
2010
=118,221,095
P
1,528,853
=119,749,948
P
There are no agreements between the Group and any of its directors and key officers providing for
benefits upon termination of employment, except for such benefits to which they may be entitled
under the Group’s pension plans.
27. Financial Risk Management Objectives and Policies
The Group’s principal financial instruments, other than derivatives, comprise cash and cash
equivalents, financial assets at FVPL, AFS investments, receivables, payables and interest-bearing
borrowings. The main purpose of these financial instruments is to finance the Group’s operations
and capital expenditures. The Group has various other financial assets and liabilities, such as trade
receivables and trade payables which arise directly from its operations. The Group also enters into
fuel derivatives to manage its exposure to fuel price fluctuations.
The Group’s BOD reviews and approves policies for managing each of these risks and they are
summarized in the succeeding paragraphs, together with the related risk management structure.
Risk Management Structure
The Group’s risk management structure is closely aligned with that of its ultimate parent. The
Group has its own BOD which is ultimately responsible for the oversight of the Group’s risk
management process which involves identifying, measuring, analyzing, monitoring and
controlling risks.
The risk management framework encompasses environmental scanning, the identification and
assessment of business risks, development of risk management strategies, design and
implementation of risk management capabilities and appropriate responses, monitoring risks and
risk management performance, and identification of areas and opportunities for improvement in
the risk management process.
The Group and the ultimate parent with its other subsidiaries (JGSHI Group) created the following
separate board-level independent committees with explicit authority and responsibility for
managing and monitoring risks.
Each BOD has created the board-level Audit Committee to spearhead the managing and
monitoring of risks.
Audit Committee
The Group’s Audit Committee assists the Group’s BOD in its fiduciary responsibility for the overall effectiveness of risk management systems, and both the internal and external audit functions of
the Group. Furthermore, it is also the Audit Committee’s purpose to lead in the general evaluation
and to provide assistance in the continuous improvements of risk management, control and
governance processes.
*SGVFS001094*
- 58 The Audit Committee also aims to ensure that:
a. financial reports comply with established internal policies and procedures, pertinent
accounting and auditing standards and other regulatory requirements;
b. risks are properly identified, evaluated and managed, specifically in the areas of managing
credit, market, liquidity, operational, legal and other risks, and crisis management:
c. audit activities of internal and external auditors are done based on plan, and deviations are
explained through the performance of direct interface functions with the internal and external
auditors; and
d. the Group’s BOD is properly assisted in the development of policies that would enhance the
risk management and control systems.
Enterprise Risk Management Group (ERMG)
The fulfillment of the risk management functions of the Group’s BOD is delegated to the ERMG.
The ERMG is primarily responsible for the execution of the Enterprise Risk Management (ERM)
framework. The ERMG’s main concerns include:
·
·
·
·
formulation of risk policies, strategies, principles, framework and limits;
management of the fundamental risk issues and monitoring of relevant risk decisions;
support to management in implementing the risk policies and strategies; and
development of a risk awareness program.
Corporate Governance Compliance Officer
Compliance with the principles of good corporate governance is one of the objectives of the
Group’s BOD. To assist the Group’s BOD in achieving this purpose, the Group’s BOD has
designated a Compliance Officer who shall be responsible for monitoring the actual compliance of
the Group with the provisions and requirements of good corporate governance, identifying and
monitoring control compliance risks, determining violations, and recommending penalties for such
infringements for further review and approval of the Group’s BOD, among others.
Day-to-day Risk Management Functions
At the business unit or company level, the day-to-day risk management functions are handled by
four different groups, namely:
1. Risk-taking personnel - this group includes line personnel who initiate and are directly
accountable for all risks taken.
2. Risk control and compliance - this group includes middle management personnel who perform
the day-to-day compliance check to approved risk policies and risks mitigation decisions.
3. Support - this group includes back office personnel who support the line personnel.
4. Risk management - this group pertains to the Group’s Management Committee which makes
risk mitigating decisions within the enterprise-wide risk management framework.
ERM Framework
The Group’s BOD is also responsible for establishing and maintaining a sound risk management
framework and is accountable for risks taken by the Group. The Group’s BOD also shares the
responsibility with the ERMG in promoting the risk awareness program enterprise-wide.
*SGVFS001094*
- 59 The ERM framework revolves around the following eight interrelated risk management
approaches:
1. Internal Environmental Scanning - it involves the review of the overall prevailing risk profile
of the business unit to determine how risks are viewed and addressed by management. This is
presented during the strategic planning, annual budgeting and mid-year performance reviews
of the business unit.
2. Objective Setting - the Group’s BOD mandates the Group’s management to set the overall
annual targets through strategic planning activities, in order to ensure that management has a
process in place to set objectives which are aligned with the Group’s goals.
3. Risk Assessment - the identified risks are analyzed relative to the probability and severity of
potential loss which serves as a basis for determining how the risks should be managed. The
risks are further assessed as to which risks are controllable and uncontrollable, risks that
require management’s attention, and risks which may materially weaken the Group’s earnings
and capital.
4. Risk Response - the Group’s BOD, through the oversight role of the ERMG, approves the
Group’s responses to mitigate risks, either to avoid, self-insure, reduce, transfer or share risk.
5. Control Activities - policies and procedures are established and approved by the Group’s BOD
and implemented to ensure that the risk responses are effectively carried out enterprise-wide.
6. Information and Communication - relevant risk management information are identified,
captured and communicated in form and substance that enable all personnel to perform their
risk management roles.
7. Monitoring - the ERMG, Internal Audit Group, Compliance Office and Business Assessment
Team constantly monitor the management of risks through risk limits, audit reviews,
compliance checks, revalidation of risk strategies and performance reviews.
Risk Management Support Groups
The Group’s BOD created the following departments within the Group to support the risk
management activities of the Group and the other business units:
1. Corporate Security and Safety Board (CSSB) - under the supervision of ERMG, the CSSB
administers enterprise-wide policies affecting physical security of assets exposed to various
forms of risks.
2. Corporate Supplier Accreditation Team (CORPSAT) - under the supervision of ERMG, the
CORPSAT administers enterprise-wide procurement policies to ensure availability of supplies
and services of high quality and standards to all business units.
3. Corporate Management Services (CMS) - the CMS is responsible for the formulation of
enterprise-wide policies and procedures.
4. Corporate Planning and Legal Affairs (CORPLAN) - the CORPLAN is responsible for the
administration of strategic planning, budgeting and performance review processes of the
business units.
5. Corporate Insurance Department (CID) - the CID is responsible for the administration of the
insurance program of business units concerning property, public liability, business
interruption, money and fidelity, and employer compensation insurances, as well as in the
procurement of performance bonds.
Risk Management Policies
The main risks arising from the use of financial instruments are credit risk, liquidity risk and
market risk, namely foreign currency risk, commodity price risk and interest rate risk. The
Group’s policies for managing the aforementioned risks are summarized below.
*SGVFS001094*
- 60 Credit Risk
Credit risk is defined as the risk of loss due to uncertainty in a third party’s ability to meet its
obligation to the Group. The Group trades only with recognized, creditworthy third parties. It is
the Group’s policy that all customers who wish to trade on credit terms are being subjected to
credit verification procedures. In addition, receivable balances are monitored on a continuous
basis resulting in an insignificant exposure in bad debts.
With respect to credit risk arising from the other financial assets of the Group, which comprise
cash in bank and cash equivalents and certain derivative instruments, the Group’s exposure to
credit risk arises from default of the counterparty with a maximum exposure equal to the carrying
amount of these instruments.
Maximum exposure to credit risk without taking account of any credit enhancement
The table below shows the gross to credit risk (including derivative assets) of the Group as of
December 31, 2012 and 2011, without considering the effects of collaterals and other credit risk
mitigation techniques.
Financial assets at FVPL (Note 8)
Designated at FVPL
Quoted debt securities
Private
Government
Quoted equity securities
Derivative financial instruments
not designated as accounting hedges
AFS investments (Note 8)
Quoted equity securities
Loans and receivables
Cash and cash equivalents* (Note 7)
Receivables (Note 9)
Trade receivables
Interest receivable
Due from related parties
Others**
Refundable deposits*** (Note 14)
2012
2011
P
=–
–
–
–
–
=2,021,911,190
P
1,039,254,600
3,061,165,790
183,032,000
3,244,197,790
102,682,762
102,682,762
16,880,208
3,261,077,998
–
110,367,200
10,708,834,337
8,941,142,761
735,938,884
11,637,492
175,709,003
283,463,727
1,206,749,106
33,438,542
P
=12,051,704,747
546,244,400
146,244,351
35,174,259
341,707,354
1,069,370,364
166,175,680
=13,548,134,003
P
*Excluding cash on hand
**Include nontrade receivables from derivative counterparties and employees
***Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position
Risk concentrations of the maximum exposure to credit risk
Concentrations arise when a number of counterparties are engaged in similar business activities, or
activities in the same geographic region or have similar economic features that would cause their
ability to meet contractual obligations to be similarly affected by changes in economic, political or
other conditions. Concentrations indicate the relative sensitivity of the Group’s performance to
developments affecting a particular industry or geographical location. Such credit risk
*SGVFS001094*
- 61 concentrations, if not properly managed, may cause significant losses that could threaten the
Group's financial strength and undermine public confidence. In order to avoid excessive
concentrations of risk identified concentrations of credit risks are controlled and managed
accordingly.
The Group’s credit risk exposures, before taking into account any collateral held or other credit
enhancements are categorized by geographic location as follows:
2012
Financial assets at FVPL (Note 8)
Designated at FVPL
Quoted debt securities
Private
Government
Quoted equity securities
Derivative financial instruments
not designated as accounting hedges
AFS investments (Note 8)
Quoted equity securities
Loans and receivables
Cash and cash equivalents* (Note 7)
Receivables (Note 9)
Trade receivables
Interest receivable
Due from related parties
Others**
Refundable deposits*** (Note 14)
Philippines
Asia
(excluding
Philippines)
Europe
Others
Total
P
=–
–
–
–
–
P
=–
–
–
–
–
P
=–
–
–
–
–
P
=–
–
–
–
–
P
=–
–
–
–
–
–
–
–
–
102,682,762
102,682,762
–
–
102,682,762
102,682,762
–
–
–
–
–
9,717,006,892
991,827,445
–
–
10,708,834,337
547,077,162
11,637,492
175,709,003
137,223,912
871,647,569
–
P
=10,588,654,461
188,049,068
–
–
14,593,950
202,643,018
–
P
=1,194,470,463
–
–
–
–
–
33,438,542
P
=136,121,304
812,654
735,938,884
–
11,637,492
–
175,709,003
131,645,865
283,463,727
132,458,519
1,206,749,106
–
33,438,542
P
=132,458,519 P
=12,051,704,747
*Excluding cash on hand
**Include nontrade receivables from derivative counterparties and employees
***Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position.
2011
Financial assets at FVPL (Note 8)
Designated at FVPL
Quoted debt securities
Private
Government
Quoted equity securities
Derivative financial instruments
not designated as accounting hedges
AFS investments (Note 8)
Quoted equity securities
Loans and receivables
Cash and cash equivalents* (Note 7)
Receivables (Note 9)
Trade receivables
Interest receivable
Philippines
Asia
(excluding
Philippines)
Europe
Others
Total
=2,021,911,190
P
966,672,000
2,988,583,190
183,032,000
3,171,615,190
=–
P
72,582,600
72,582,600
–
72,582,600
=–
P
–
–
–
–
=2,021,911,190
P
1,039,254,600
3,061,165,790
183,032,000
3,244,197,790
–
3,171,615,190
–
72,582,600
16,880,208
16,880,208
=–
P
–
–
–
–
–
–
–
–
110,367,200
–
–
110,367,200
8,284,718,611
656,424,150
–
–
8,941,142,761
431,367,661
142,991,628
112,455,082
3,252,723
2,421,657
–
–
–
546,244,400
146,244,351
16,880,208
3,261,077,998
(Forward)
*SGVFS001094*
- 62 -
2011
Due from related parties
Others**
Refundable deposits*** (Note 14)
Philippines
=35,174,259
P
58,424,350
667,957,898
–
=12,124,291,699
P
Asia
(excluding
Philippines)
=–
P
33,125,717
148,833,522
–
=988,207,472
P
Europe
=–
P
250,157,287
252,578,944
166,175,680
=435,634,832
P
Others
Total
=–
P
=35,174,259
P
–
341,707,354
–
1,069,370,364
–
166,175,680
=– P
P
=13,548,134,003
*Excluding cash on hand
**Include nontrade receivables from derivative counterparties and employees
***Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position.
The Group has no concentration of risk with regard to various industry sectors. The major
industry relevant to the Group is the transportation sector and financial intermediaries.
Credit quality per class of financial assets
The Group rates its financial assets based on an internal and external credit rating system.
The table below shows the credit quality by class of financial assets based on internal credit rating
of the Group (gross of allowance for impairment losses) as of December 31, 2012 and 2011.
2012
Neither Past Due Nor Specifically Impaired
High
Standard
Substandard
Grade
Grade
Grade
Financial assets at FVPL (Note 8)
Derivative financial instruments
not designated as accounting
hedges
Loans and receivables:
Cash and cash equivalents*
(Note 7)
Receivables (Note 9)
Trade receivables
Interest receivable
Due from related parties
Others**
Refundable deposits*** (Note 14)
Past Due
or Individually
Impaired
Total
P
=102,682,762
P
=–
P
=–
P
=–
P
=102,682,762
10,708,834,337
–
–
–
10,708,834,337
660,538,509
11,637,492
175,709,003
283,463,727
33,438,542
P
=11,976,304,372
–
–
–
–
–
P
=–
–
–
–
–
–
P
=–
75,400,375
–
–
–
–
P
=75,400,375
735,938,884
11,637,492
175,709,003
283,463,727
33,438,542
P
=12,051,704,747
*Excluding cash on hand
**Include nontrade receivables from derivative counterparties and employees
***Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position.
2011
Neither Past Due Nor Specifically Impaired
High
Standard
Substandard
Grade
Grade
Grade
Financial assets at FVPL (Note 8)
Derivative financial instruments
not designated as accounting
hedges
Loans and receivables:
Cash and cash equivalents*
(Note 7)
Receivables (Note 9)
Trade receivables
Interest receivable
Due from related parties
Others**
Refundable deposits*** (Note 14)
Past Due
or Individually
Impaired
Total
=16,880,208
P
=–
P
=–
P
=–
P
=16,880,208
P
8,941,142,761
–
–
–
8,941,142,761
335,930,556
146,244,351
35,174,259
115,454,089
166,175,680
=9,757,001,904
P
114,814,154
–
–
–
–
=114,814,154
P
–
–
–
–
–
=–
P
95,499,690
–
–
226,253,265
–
=321,752,955
P
546,244,400
146,244,351
35,174,259
341,707,354
166,175,680
P
=10,193,569,013
*Excluding cash on hand
**Include nontrade receivables from derivative counterparties and employees
***Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position.
*SGVFS001094*
- 63 High grade cash and cash equivalents are short-term placements and working cash fund placed,
invested, or deposited in foreign and local banks belonging to the top ten banks in terms of
resources and profitability.
High grade accounts are accounts considered to be of high value. The counterparties have a very
remote likelihood of default and have consistently exhibited good paying habits.
Standard grade accounts are active accounts with propensity of deteriorating to mid-range age
buckets. These accounts are typically not impaired as the counterparties generally respond to
credit actions and update their payments accordingly.
Substandard grade accounts are accounts which have probability of impairment based on historical
trend. These accounts show propensity to default in payment despite regular follow-up actions
and extended payment terms.
Past due or individually impaired accounts consist of past due but not impaired receivables
amounting to P
=69.0 million and P
=92.4 million as December 31, 2012 and 2011, respectively, and
past due and impaired receivables amounting P
=218.2 and P
=232.6 million as of December 31, 2012
and 2011, respectively. Past due but not impaired receivables are secured by cash bonds from
major sales and ticket offices recorded under ‘Accounts payable and other accrued liabilities’
account in the consolidated statement of financial position. For the past due and impaired
receivables, specific allowance for impairment losses amounted to P
=218.2 and P
=232.6 million as
of December 31, 2012 and 2011, respectively (Note 9).
For financial assets such as designated financial assets at FVPL and AFS investments, the Group
assesses their credit quality using external credit ratings from Standard & Poor’s (S&P). Financial
assets with at least A- are identified as high grade, at least B- as standard grade and not rated (NR)
if the credit rating is not performed by an external credit rating agency.
As of December 31, 2012, the Group has no existing FVPL and AFS investments.
Below is a summary of the Group’s FVPL and AFS external credit rating classification for the
year ended December 31, 2011:
2011
Neither Past Due Nor Specifically Impaired
High
Standard
Grade
Grade
Not Rated
Financial assets at FVPL (Note 8)
Designated at FVPL
Quoted debt securities
Private
BBB+
BB+
BB
NR
Government
BB+
BB
Quoted equity securities
AAFS investments (Note 8)
Quoted equity securities
BBB-
Past Due
or Individually
Impaired
Total
=–
P
–
–
–
=–
P
P47,540,096
=
232,352,000
228,968,100
–
=508,860,196
P
=–
P
–
–
1,513,050,994
=1,513,050,994
P
=–
P
–
–
–
=–
P
P47,540,096
=
232,352,000
228,968,100
1,513,050,994
=2,021,911,190
P
–
–
–
72,582,600
966,672,000
1,548,114,796
–
–
1,513,050,994
–
–
–
72,582,600
966,672,000
3,061,165,790
183,032,000
183,032,000
–
1,548,114,796
–
1,513,050,994
–
–
183,032,000
3,244,197,790
–
=183,032,000
P
110,367,200
=1,658,481,996
P
–
=1,513,050,994
P
–
=–
P
110,367,200
=3,354,564,990
P
*SGVFS001094*
- 64 -
The following tables show the aging analysis of the Group’s receivables:
Trade receivables
Interest receivable
Due from related parties
Others*
Neither Past
Due Nor
Impaired
P
= 660,538,513
11,637,492
175,709,003
71,556,983
P
= 919,441,991
2012
Past Due But Not Impaired
31-60 days
P
= 45,991,793
–
–
–
P
= 45,991,793
61-90 days
P
= 23,077,703
–
–
–
P
= 23,077,707
91-180 days
P
=–
–
–
–
P
=–
Past
Over
Due and
180 days
Impaired
Total
P
=–
P
= 6,330,875
P
= 735,938,884
–
–
11,637,492
–
–
175,709,003
–
211,906,744
283,463,727
P
=–
P
= 218,237,619 P
= 1,206,749,106
*Include nontrade receivables from derivative counterparties and employees
Trade receivables
Interest receivable
Due from related parties
Others*
Neither Past
Due Nor
Impaired
=450,744,710
P
146,244,351
31,977,638
115,454,089
=744,420,788
P
2011
Past Due But Not Impaired
31-60 days
=43,594,752
P
–
–
–
=43,594,752
P
61-90 days
=40,712,136
P
–
–
–
=40,712,136
P
91-180 days
P1,591,235
=
–
–
–
=1,591,235
P
Past
Over
Due and
180 days
Impaired
Total
=3,270,692
P
=6,330,875
P
=546,244,400
P
–
–
146,244,351
3,196,621
–
35,174,259
–
226,253,265
341,707,354
=6,467,313
P
P232,584,140 =
=
P1,069,370,364
*Include nontrade receivables from derivative counterparties and employees.
Collateral or credit enhancements
As collateral against trade receivables from sales ticket offices or agents, the Group requires cash
bonds from major sales ticket offices or agents ranging from P
=50,000 to P
=2.1 million depending
on the Group’s assessment of sales ticket offices and agents’ credit standing and volume of
transactions. As of December 31, 2012 and 2011, outstanding cash bonds (included under
‘Accounts payable and other accrued liabilities’ account in the consolidated statement of financial
position) amounted to P
=177.1 million and P
=161.4 million, respectively (Note 15). There are no
collaterals for impaired receivables.
Impairment assessment
The Group recognizes impairment losses based on the results of its specific/individual and
collective assessment of its credit exposures. Impairment has taken place when there is a presence
of known difficulties in the servicing of cash flows by counterparties, infringement of the original
terms of the contract has happened, or when there is an inability to pay principal overdue beyond a
certain threshold. These and the other factors, either singly or in tandem, constitute observable
events and/or data that meet the definition of an objective evidence of impairment.
The two methodologies applied by the Group in assessing and measuring impairment include:
(1) specific/individual assessment; and (2) collective assessment.
Under specific/individual assessment, the Group assesses each individually significant credit
exposure for any objective evidence of impairment, and where such evidence exists, accordingly
calculates the required impairment. Among the items and factors considered by the Group when
assessing and measuring specific impairment allowances are: (a) the timing of the expected cash
flows; (b) the projected receipts or expected cash flows; (c) the going concern of the
counterparty’s business; (d) the ability of the counterparty to repay its obligations during financial
crises; (e) the availability of other sources of financial support; and (f) the existing realizable value
of collateral. The impairment allowances, if any, are evaluated as the need arises, in view of
favorable or unfavorable developments.
With regard to the collective assessment of impairment, allowances are assessed collectively for
losses on receivables that are not individually significant and for individually significant
receivables when there is no apparent nor objective evidence of individual impairment yet.
*SGVFS001094*
- 65 A particular portfolio is reviewed on a periodic basis in order to determine its corresponding
appropriate allowances. The collective assessment evaluates and estimates the impairment of the
portfolio in its entirety even though there is no objective evidence of impairment yet on an
individual assessment. Impairment losses are estimated by taking into consideration the following
deterministic information: (a) historical losses/write-offs; (b) losses which are likely to occur but
have not yet occurred; and (c) the expected receipts and recoveries once impaired.
Liquidity Risk
Liquidity is generally defined as the current and prospective risk to earnings or capital arising
from the Group’s inability to meet its obligations when they become due without recurring
unacceptable losses or costs.
The Group’s liquidity management involves maintaining funding capacity to finance capital
expenditures and service maturing debts, and to accommodate any fluctuations in asset and
liability levels due to changes in the Group’s business operations or unanticipated events created
by customer behavior or capital market conditions. The Group maintains a level of cash and cash
equivalents deemed sufficient to finance operations. As part of its liquidity risk management, the
Group regularly evaluates its projected and actual cash flows. It also continuously assesses
conditions in the financial markets for opportunities to pursue fund raising activities. Fund raising
activities may include obtaining bank loans and availing of export credit agency facilities.
Financial assets
The analysis of financial assets held for liquidity purposes into relevant maturity grouping is based
on the remaining period at the statement of financial position date to the contractual maturity date
or if earlier the expected date the assets will be realized.
Financial liabilities
The relevant maturity grouping is based on the remaining period at the statement of financial
position date to the contractual maturity date. When counterparty has a choice of when the amount
is paid, the liability is allocated to the earliest period in which the Group can be required to pay.
When an entity is committed to make amounts available in installments, each installment is
allocated to the earliest period in which the entity can be required to pay.
The tables below summarize the maturity profile of financial instruments based on remaining
contractual undiscounted cash flows as of December 31, 2012 and 2011:
Financial Assets
Financial assets at FVPL
Designated at FVPL
Quoted debt securities
Private
Government
Quoted equity securities
Derivative financial
instruments not
designated as
accounting hedges
AFS investments
Quoted equity securities
Loans and receivables
Cash and cash equivalents
Less than one
month
1 to 3
months
P
=–
–
–
–
–
P
=–
–
–
–
–
–
–
2012
3 to 12
months
1 to 5
years
More than
5 years
Total
P
=–
–
–
–
–
P
=–
–
–
–
–
P
=–
–
–
–
–
P
=–
–
–
–
–
–
–
102,682,762
102,682,762
–
–
–
–
102,682,762
102,682,762
–
–
–
–
–
–
10,708,834,337
–
–
–
–
10,708,834,337
(Forward)
*SGVFS001094*
- 66 -
Receivables:
Trade receivables
Interest receivable
Due from related
parties*
Others **
Refundable deposits
Financial Liabilities
On-balance sheet
Accounts payable and
other accrued
liabilities***
Due to related parties*
Long-term debt
Derivative financial
instruments not
designated as
accounting hedges
Others****
Off-balance sheet
Contingent liability*****
Less than one
month
1 to 3
months
P
= 581,902,889
11,637,492
P
= 69,069,500
–
175,709,003
83,158,,032
–
P
= 11,561,241,753
2012
3 to 12
months
1 to 5
years
More than
5 years
Total
P
= 78,635,620
–
P
= 6,330,875
–
P
=–
–
P
= 735,938,884
11,637,492
–
47,594,482
–
P
= 116,663,982
–
17,935,399
–
P
= 199,253,781
–
134,775,814
33,438,542
P
= 174,545,231
–
–
–
P
=–
175,709,003
283,463,727
33,438,542
P
= 12,051,704,747
P
=–
45,602,315
–
P
=–
–
–
P
=–
–
–
P
=–
–
–
P
=–
–
–
P
=–
45,602,315
–
–
–
45,602,315
–
–
–
–
–
–
–
–
–
–
–
–
–
–
45,602,315
–
P
= 45,602,315
–
P
=
–
P
=
–
P
=
–
P
=
–
P
= 45,602,315
1 to 5
years
More than
5 years
Total
=2,021,911,190
P
1,039,254,600
3,061,165,790
183,032,000
3,244,197,790
*Receivable and payable on demand
**Include nontrade receivables from derivative counterparties and employees
***Excluding government-related payables
****Included under ‘Other noncurrent liabilities’ in the consolidated statement of financial position.
*****Pertains to capital expenditure commitments (Note 29)
Financial Assets
Financial assets at FVPL
Designated at FVPL
Quoted debt securities
Private
Government
Quoted equity securities
Derivative financial
instruments not
designated as
accounting hedges
AFS investments
Quoted equity securities
Loans and receivables
Cash and cash equivalents
Receivables:
Trade receivables
Interest receivable
Due from related
parties*
Others **
Refundable deposits
Financial Liabilities
On-balance sheet
Accounts payable and
other accrued
liabilities***
Due to related parties*
Long-term debt
2011
3 to 12
months
Less than one
month
1 to 3
months
=–
P
=–
P
=–
P
=1,726,543,574
P
–
–
–
–
–
–
1,726,543,574
–
1,726,543,574
=295,367,616
P
1,039,254,600
1,334,622,216
183,032,000
1,517,654,216
–
–
4,212,529
4,212,529
12,667,679
12,667,679
–
1,726,543,574
–
1,517,654,216
16,880,208
3,261,077,998
–
–
–
–
110,367,200
110,367,200
8,941,142,761
–
–
–
–
8,941,142,761
450,744,710
146,244,351
84,306,888
–
1,591,235
–
9,135,744
–
465,823
–
546,244,400
146,244,351
31,977,638
115,454,089
–
=9,685,563,549
P
–
–
–
=88,519,417
P
3,196,621
–
–
=17,455,535
P
–
–
–
=1,735,679,318
P
–
226,253,265
166,175,680
=2,020,916,184
P
35,174,259
341,707,354
166,175,680
=13,548,134,003
P
=2,037,478,569
P
36,302,174
230,707,985
=1,598,466,188
P
–
615,196,217
=2,543,947,944
P
–
2,371,584,782
=137,383,870
P
–
12,372,862,317
=23,124,550
P
–
8,727,988,097
=6,340,401,121
P
36,302,174
24,318,339,398
(Forward)
*SGVFS001094*
- 67 -
Derivative financial
instruments not
designated as
accounting hedges
Others****
Off-balance sheet
Contingent liability*****
Less than one
month
1 to 3
months
=–
P
–
2,304,488,728
=–
P
–
2,213,662,405
–
=2,304,488,728
P
–
=2,213,662,405
P
2011
3 to 12
months
1 to 5
years
More than
5 years
Total
=60,857,586
P
–
4,976,390,312
=–
P
670,810,817
13,181,057,004
=–
P
–
8,751,112,647
P60,857,586
=
670,810,817
31,426,711,096
9,737,276,141
=14,713,666,453
P
56,840,205,217
=
P70,021,262,221
–
=8,751,112,647
P
66,557,481,358
=
P97,984,192,454
*Receivable and payable on demand
**Include nontrade receivables from derivative counterparties and employees
***Excluding government-related payables
****Included under ‘Other noncurrent liabilities’ in the consolidated statement of financial position.
*****Pertains to capital expenditure commitments (Note 29)
Market Risk
Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may
result from changes in the price of a financial instrument. The value of a financial instrument may
change as a result of changes in foreign currency exchange rates, interest rates, commodity prices
or other market changes. The Group’s market risk originates from its holding of foreign exchange
instruments, interest-bearing instruments and derivatives.
Foreign currency risk
Foreign currency risk arises on financial instruments that are denominated in a foreign currency
other than the functional currency in which they are measured. It is the risk that the value of a
financial instrument will fluctuate due to changes in foreign exchange rates.
The Group has transactional currency exposures. Such exposures arise from sales and purchases
in currencies other than the Parent Company’s functional currency. During the years ended
December 31, 2012, 2011 and 2010, approximately 27.15%, 25.0% and 24.40%, respectively, of
the Group’s total sales are denominated in currencies other than the functional currency.
Furthermore, the Group’s capital expenditures are substantially denominated in US Dollar. As of
December 31, 2012, 2011 and 2010, 66.1%, 71.93% and 68.32%, respectively, of the Group’s
financial liabilities were denominated in US Dollar.
The Group does not have any foreign currency hedging arrangements.
The tables below summarize the Group’s exposure to foreign currency risk. Included in the tables
are the Group’s financial assets and liabilities at carrying amounts, categorized by currency.
Financial Assets
Financial Assets at FVPL
Designated at FVPL
Quoted debt securities
Private
Government
Quoted equity securities
Derivative financial
instruments not designated
as accounting hedges
US Dollar
Hong Kong
Dollar
2012
Singaporean
Dollar
Other
Currencies*
Total
P
=–
–
–
–
–
P
=–
–
–
–
–
P
=–
–
–
–
–
P
=–
–
–
–
–
P
=–
–
–
–
–
102,682,762
102,682,762
–
–
–
–
–
–
102,682,762
–
(Forward)
*SGVFS001094*
- 68 -
AFS investments:
Quoted equity securities
Cash and cash equivalents
Receivables
Refundable deposits**
Financial Liabilities
Accounts payable and other
accrued liabilities***
Long-term debt
Derivative financial
instruments not designated as
accounting hedges
Others****
US Dollar
Hong Kong
Dollar
2012
Singaporean
Dollar
Other
Currencies*
Total
P
=–
4,603,849,230
326,429,524
33,438,542
P
=5,093,400,058
P
=–
48,014,282
26,374,554
–
P
=74,388,836
P
=–
16,800,256
35,600,044
–
P
=52,400,300
P
=–
56,801,552
136,543,329
–
P
=193,344,881
P
=–
4,752,465,320
524,947,451
33,438,542
P
=5,413,534,075
P
=3,550,719,971
22,924,359,198
P
=36,875,301
–
P
=16,848,227
–
P
=163,003,710
–
P
=3,767,447,209
22,924,359,198
–
–
–
–
–
670,810,775
670,810,775
P
=27,145,889,944
P
=36,875,301
P
=16,848,227
P
=163,003,710
P
=27,632,617,182
* Other currencies include Malaysian ringgit, Korean won, New Taiwan dollar, Japanese yen, Australian dollar and Euro
** Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position
***Excluding government-related payables
**** Included under ‘Other noncurrent liabilities’ in the consolidated statement of financial position
Financial Assets
Financial Assets at FVPL
Designated at FVPL
Quoted debt securities
Private
Government
Quoted equity securities
Derivative financial
instruments not designated
as accounting hedges
AFS investments:
Quoted equity securities
Cash and cash equivalents
Receivables
Refundable deposits**
Fina ncial Liabilities
Accounts payable and other
accrued liabilities***
Long-term debt
Derivative financial
instruments not designated as
accounting hedges
Others****
US Dollar
Hong Kong
Dollar
2011
Singaporean
Dollar
Other
Currencies*
Total
=2,021,911,190
P
1,039,254,600
3,061,165,790
183,032,000
3,244,197,790
=–
P
–
–
–
–
=–
P
–
–
–
–
=–
P
–
–
–
–
=2,021,911,190
P
1,039,254,600
3,061,165,790
183,032,000
3,244,197,790
16,880,208
3,261,077,998
–
–
–
16,880,208
3,261,077,998
110,367,200
712,920,906
445,489,378
166,175,680
=4,696,031,162
P
–
287,899,905
22,922,687
–
=310,822,592
P
–
33,375,457
26,657,135
–
=60,032,592
P
–
328,292,828
121,927,679
–
=450,220,507
P
110,367,200
1,362,489,096
616,996,879
166,175,680
=5,517,106,853
P
US Dollar
Hong Kong
Dollar
2011
Singaporean
Dollar
Other
Currencies*
Total
P3,335,028,805
=
20,871,893,433
=39,759,803
P
–
=33,404,496
P
–
=131,471,536
P
–
P3,539,664,640
=
20,871,893,433
60,857,586
–
–
–
60,857,586
670,810,817
–
–
–
670,810,817
=24,938,590,641
P
=39,759,803
P
=33,404,496
P
=131,471,536
P
=25,143,226,476
P
* Other currencies include Malaysian ringgit, Korean won, New Taiwan dollar, Japanese yen, Australian dollar and Euro
** Included under ‘Other noncurrent assets’ account in the consolidated statement of financial position
***Excluding government-related payables
**** Included under ‘Other noncurrent liabilities’ in the consolidated statement of financial position
*SGVFS001094*
- 69 The exchange rates used to restate the Group’s foreign currency-denominated assets and liabilities
as of December 31, 2012 and 2011 follow:
2011
P43.84 to US$1.00
=
=33.85 to SGD1.00
P
=5.65 to HKD1.00
P
2012
P
=41.05 to US$1.00
P
=33.70 to SGD1.00
P
=5.31 to HKD1.00
US dollar
Singapore dollar
Hong Kong dollar
The following table sets forth the impact of the range of reasonably possible changes in the
US dollar - Philippine peso exchange value on the Group’s pre-tax income for the years ended
December 31, 2011, 2010 and 2009 (in thousands).
Changes in foreign exchange value
Change in pre-tax income
Change in equity
2012
P
=5
(P
=2,686,052)
P
=–
(P
=5)
P
=2,686,052
P
=–
2011
=5
P
(P
=2,308,680)
=12,588
P
(P
=5)
=2,308,680
P
(P
=12,588)
2010
=5
P
(P
=1,833,907)
(P
=5)
=1,833,907
P
=13,063
P
(P
=13,063
Other than the potential impact on the Group’s pre-tax income and change in equity from AFS
investments, there is no other effect on equity.
The Group does not expect the impact of the volatility on other currencies to be material.
Commodity price risk
The Group enters into commodity derivatives to manage its price risks on fuel purchases.
Commodity hedging allows stability in prices, thus offsetting the risk of volatile market
fluctuations. Depending on the economic hedge cover, the price changes on the commodity
derivative positions are offset by higher or lower purchase costs on fuel. A change in price by
US$10.00 per barrel of jet fuel affects the Group’s fuel costs in pre-tax income by
=1,258.9 million, P
P
=1,121.0 million and P
=989.8 million as of December 31, 2012, 2011 and 2010,
respectively, in each of the covered periods, assuming no change in volume of fuel is consumed.
Interest rate risk
Interest rate risk arises on interest-bearing financial instruments recognized in the consolidated
statement of financial position and on some financial instruments not recognized in the
consolidated statement of financial position (i.e., some loan commitments, if any). The Group’s
policy is to manage its interest cost using a mix of fixed and variable rate debt (Note 16).
*SGVFS001094*
- 70 The following tables show information about the Group’s long-term debt that are exposed to interest rate risk and are presented by maturity profile
(Note 16):
December 31, 2012
ECA-backed loans from foreign banks
(Note 16) Floating rate
US Dollar London Interbank Offering
Rate (LIBOR) 6 months + margin
US Dollar LIBOR 3 months+ margin
Commercial loans from foreign banks
(Note 16) Floating rate
US Dollar LIBOR 6 months + margin
Total
(in Philippine
Peso)
Fair Value
<1 year
>1-2 years
>2-3 years
>3-4 years
>4-5 years
>5 years
Total
(In US Dollar)
US$1,353,113
US$1,310,023
US$1,365,588
US$1,422,834
US$1,483,860
US$3,672,103
US$10,607,521
P
=435,438,765
P
=438,962,935
13,962,272
15,315,385
14,106,395
15,416,418
14,253,122
15,618,710
14,398,563
15,821,397
14,554,502
16,038,362
98,880,293
102,552,396
170,155,147
180,762,668
6,984,868,745
7,420,307,510
6,909,607640
7,348,570,575
1,635,080
US$16,950,465
1,361,827
US$16,778,245
–
US$15,618,710
–
US$15,821,397
–
–
2,996,907
US$16,038,362 US$102,552,396 US$183,759,575
123,023,020
P
=7,543,330,530
123,491,661
P
=7,472,062,236
Total
(in Philippine
Peso)
Fair Value
December 31, 2011
ECA-backed loans from foreign banks
(Note 16) Floating rate
US Dollar London Interbank Offering
Rate (LIBOR) 6 months + margin
US Dollar LIBOR 3 months+ margin
Commercial loans from foreign banks
(Note 16) Floating rate
US Dollar LIBOR 6 months + margin
<1 year
>1-2 years
>2-3 years
>3-4 years
>4-5 years
>5 years
Total
(In US Dollar)
US$1,256,891
US$1,174,361
US$1,224,172
US$1,276,096
US$1,329,485
US$5,737,756
US$11,998,761
=526,025,684
P
=348,420,966
P
12,810,096
14,066,987
13,153,759
14,328,120
13,477,803
14,701,975
13,819,378
15,095,474
14,163,694
15,493,179
96,132,575
101,870,331
163,557,305
175,556,066
7,170,352,271
7,696,377,955
8,122,569,745
8,470,990,711
1,557,084
US$15,624,071
1,635,163
US$15,963,283
1,361,605
US$16,063,580
–
US$15,095,474
–
–
4,553,852
US$15,493,179 US$101,870,331 US$180,109,918
199,640,873
=7,896,018,828
P
176,618,066
=8,647,608,777
P
*SGVFS001094*
- 71 The following table sets forth the impact of the range of reasonably possible changes in interest
rates on the Group’s pre-tax income for the years ended December 31, 2012, 2011 and 2010.
Changes in interest rates
Changes in pre-tax income
2012
1.50%
(1.50%)
(P
=91,088,144)
P
=91,088,144
2011
1.50%
(1.50%)
(P
=104,185,842)
=104,185,842
P
2010
1.50%
(P
=20,179,681)
(1.50%)
=20,179,681
P
Fair value interest rate risk
Fair value interest rate risk is the risk that the value/future cash flows of a financial instrument
will fluctuate because of changes in market interest rates. The Group’s exposure to interest rate
risk relates primarily to the Group’s financial assets designated at FVPL.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates,
with all other variables held constant, of the Group’s pre-tax income, through the impact of
mark-to-market of financial assets designated at FVPL which are recognized in profit or loss.
2012
1.50%
(P
=–)
Changes in market interest rates
Changes in pre-tax income
Changes in market interest rates
Changes in pre-tax income
(1.50%)
P
=–
2011
1.50%
(1.50%)
(P
=263,355,208)
=263,355,208
P
Other than the potential impact on the Group’s pre-tax income, there is no other effect on equity.
28. Fair Value Measurement
The methods and assumptions used by the Group in estimating the fair value of its financial
instruments are:
Cash and cash equivalents (excluding cash on hand), Receivables and Accounts payable and other
accrued liabilities
Carrying amounts approximate their fair values due to the relatively short-term maturity of these
instruments.
Investments in quoted equity securities
Fair values are based on quoted prices published in markets.
Amounts due from and due to related parties
Carrying amounts of due from/to related parties, which are receivable/payable and due on demand,
approximate their fair values.
Non-interest bearing refundable deposits
The fair values are determined based on the present value of estimated future cash flows using
prevailing market rates. The Group used discount rates of 5.03% in 2011 and 6.93% in 2010.
Derivative instruments
The fair values of fuel derivatives are based on quotes obtained from an independent counterparty.
*SGVFS001094*
- 72 Long-term debt
The fair value of long-term debt is determined using the discounted cash flow methodology, with
reference to the Group’s current incremental lending rates for similar types of loans. The discount
curve used range from 3.67% to 4.44% as of December 31, 2012 and 2011.
The following table summarizes the carrying amounts and fair values of all the Group’s financial
instruments.
2012
Carrying Value
Financial Assets
Financial assets at FVPL
(Note 8)
Designated at FVPL
Quoted debt securities
Private
Government
Quoted equity securities
Derivative financial
instruments not
designated as
accounting hedges
AFS investments (Note 8)
Quoted equity securities
Loans and receivables
Cash and cash equivalents
(Note 7)
Receivables (Note 9)
Trade receivables
Interest receivable
Due from related parties
Others*
Refundable deposits**
(Note 14)
Fair Value
2011
Carrying Value
Fair Value
P
=–
–
–
–
–
P
=–
–
–
–
–
=2,021,911,190
P
1,039,254,600
3,061,165,790
183,032,000
3,244,197,790
=2,021,911,190
P
1,039,254,600
3,061,165,790
183,032,000
3,244,197,790
102,682,762
102,682,762
102,682,762
102,682,762
16,880,208
3,261,077,998
16,880,208
3,261,077,998
–
–
110,367,200
110,367,200
10,728,326,325
10,728,326,325
8,957,783,986
8,957,783,986
735,938,884
11,637,492
735,938,884
11,637,492
175,709,003
283,463,727
175,709,003
283,463,727
546,244,400
146,244,351
35,174,259
341,707,354
546,244,400
146,244,351
35,174,259
341,707,354
33,438,542
11,968,513,973
P
= 12,071,196,735
33,428,542
11,968,503,973
P
=12,071,196,735
166,175,680
10,303,697,230
=13,564,775,228
P
126,709,251
10,264,230,801
=13,525,308,799
P
P
=–
=6,340,401,121
P
=6,340,401,121
P
22,924,359,198
20,871,893,433
18,461,269,306
–
60,857,586
36,302,174
670,810,817
=27,980,265,131
P
60,857,586
36,302,174
670,810,817
=25,569,641,004
P
Total financial assets
Financial Liabilities
Accounts payable and other
accrued liabilities***
(Note 15)
P
=–
Long-term debt****
(Note 16)
22,924,359,198
Derivative financial
instruments not
designated as accounting
hedges
–
Due to related parties
45,602,315
Others*****
424,276,778
Total financial liabilities
P
= 23,394,238,291
45,602,315
424,276,778
P
=23,394,238,291
* Include nontrade receivables from derivative counterparties and employees
** Included under ‘Other noncurrent assets’ account in the consolidated statements of financial position.
*** Excluding government-related payables
**** Includes current portion.
***** Included under ‘Other noncurrent liabilities’ in the consolidated statements of financial position.
*SGVFS001094*
- 73 The Group uses the following hierarchy for determining and disclosing the fair value of financial
assets designated at FVPL, derivative financial instruments and AFS investments by valuation
techniques:
(a) Level 1: quoted (unadjusted) prices in an active market for identical assets or liabilities;
(b) Level 2: other techniques for which all inputs which have a significant effect on the recorded
fair value are observable, either directly or indirectly; and
(c) Level 3: techniques which use inputs which have a significant effect on the recorded fair value
that are not based on observable market data.
The table below shows the Group’s financial instruments carried at fair value hierarchy
classification:
2012
Level 1
Financial Assets
Financial assets at FVPL
(Note 8)
Designated at FVPL
Quoted debt securities
Private
Government
AFS investments (Note 8)
Quoted equity securities
2011
Level 1
Level 2
P
=–
–
–
–
–
P
=–
–
–
–
–
=2,021,911,190
P
1,039,254,600
3,061,165,790
183,032,000
3,244,197,790
=–
P
–
–
–
–
102,682,762
102,682,762
102,682,762
102,682,762
–
3,244,197,790
16,880,208
16,880,208
–
P
=102,682,762
–
P
=102,682,762
110,367,200
=3,354,564,990
P
–
=16,880,208
P
P
=–
P
=–
=–
P
=60,857,586
P
Quoted equity securities
Derivative financial
instruments not
designated as accounting
hedges
Level 2
Financial Liabilities
Derivative financial
instruments not
designated as accounting
hedges
There are no financial instruments measured at Level 3. There were no transfers within any
hierarchy level of fair value measurements for the years ended December 31, 2012 and 2011,
respectively.
29. Commitments and Contingencies
Operating Aircraft Lease Commitments
The Group entered into operating lease agreements with certain leasing companies which cover
the following aircraft:
*SGVFS001094*
- 74 A320 aircraft
The following table summarizes the specific lease agreements on the Group’s Airbus A320
aircraft:
Date of Lease
Agreement
Original Lessors
December 23, 2004 CIT Aerospace International
(CITAI)
April 23, 2007
New Lessors
Wilmington Trust SP
Services (Dublin)
Limited*
No. of Units
Lease Term
2
May 2005 - May 2012
June 2005 - June 2012
Celestial Aviation Trading 17 Inishcrean Leasing
Limited (CAT 17)
Limited (Inishcrean)**
CITAI
–
1
October 2007 - October 2016
4
March 2008 - March 2014
April 2008 - April 2014
May 2008 - May 2014
October 2008 - October 2014
March 14, 2008
Celestial Aviation Trading 19 GY Aviation Lease
Limited (CAT 19)
0905 Co. Limited***
2
January 2009 - January 2017
March 14, 2008
Celestial Aviation Trading 23 –
Limited (CAT 23)
2
October 2011 - October 2019
May 29, 2007
July 13, 2011
RBS Aerospace Limited
–
2
March 2012 - February 2018
* Effective November 21, 2008 for the first aircraft and December 9, 2008 for the second aircraft.
** Effective June 24, 2009
*** Effective March 25, 2010
On March 14, 2008, the Group entered into an operating lease agreement with CAT 19 for the
lease of two Airbus A320 aircraft, which were delivered in 2009. On the same date, the Group
also entered into another lease agreement with Celestial Aviation Trading 23 Limited (CAT 23)
for the lease of two additional Airbus A320 aircraft to be received in 2012. In November 2010,
the Group signed an amendment to the operating lease agreements with CAT 23, advancing the
delivery of the two Airbus A320 aircraft to 2011 from 2012.
Lease agreements with CITAI, CAT 17 and CAT 19 were amended to effect the novation of lease
rights by the original lessors to new lessors as allowed under the existing lease agreements.
On July 13, 2011, the Group entered into an operating lease agreement with RBS Aerospace Ltd.
for the lease of two Airbus A320 aircraft, which were delivered in March 2012. These aircrafts
replaced the two aircrafts under Wilmington Trust SP Services (Dublin) Ltd. which contract
expired on May 2012 and June 2012.
Lease expenses relating to aircraft leases (included in ‘Aircraft and engine lease’ account in
the consolidated statements of comprehensive income) amounted to P
=2,034.0 million,
=1,718.4 million and P
P
=1,604.9 million in 2012, 2011 and 2010, respectively.
A330 aircraft
On December 6, 2011, the Group entered into an aircraft operating lease Memorandum of
Understanding (MOU) with CIT Aerospace International for the lease of four Airbus A330-300
aircrafts, which are scheduled to be delivered from June 2013 to 2014. These aircrafts shall be
used for the long-haul network expansion programs of the Group.
*SGVFS001094*
- 75 Future minimum lease payments under the above-indicated operating aircraft leases follow:
Within one year
After one year but not more
than five years
Over five years
2012
Philippine peso
equivalent
US dollar
US$54,171,098
P
= 2,223,723,588
258,475,371
333,453,833
US$646,100,302
10,610,413,991
13,688,279,865
P
= 26,522,417,444
2011
Philippine peso
US dollar
equivalent
US$46,796,685
=2,051,566,670
P
303,869,815
312,695,865
US$663,362,365
13,321,652,690
13,708,586,722
=29,081,806,082
P
2010
Philippine peso
US dollar
equivalent
US$37,805,531
=1,657,394,460
P
113,948,252
8,408,350
US$160,162,133
4,995,491,378
368,622,089
=7,021,507,927
P
Operating Non-Aircraft Lease Commitments
The Group has entered into various lease agreements for its hangar, office spaces, ticketing
stations and certain equipment. These leases have remaining lease terms ranging from one to ten
years. Certain leases include a clause to enable upward revision of the annual rental charge
ranging from 5.00% to 10.00%.
Future minimum lease payments under these noncancellable operating leases follow:
Within one year
After one year but not more than
five years
Over five years
2012
P
=108,795,795
2011
=104,835,557
P
2010
=101,622,518
P
487,021,206
266,875,198
P
=862,692,199
466,379,370
394,888,300
=966,103,227
P
443,485,392
124,367,033
=669,474,943
P
Lease expenses relating to both cancellable and non-cancellable non-aircraft leases (allocated
under different expense accounts in the consolidated statements of comprehensive income)
amounted to P
=263.7 million, P
=240.3 million and P
=231.2 million in 2012, 2011 and 2010,
respectively.
Service Maintenance Commitments
On June 21, 2012, the Company has entered into an agreement with Messier-Bugatti-Dowty
(Safran group) to purchase wheels and brakes for its fleet of Airbus A319 and A320 aircraft. The
contract covers the current fleet, as well as future aircraft to be acquired.
On June 22, 2012, the Group has entered into service contract with Rolls-Royce Total Care
Services Limited (Rolls-Royce) for service support for the engines of the A330 aircraft. RollsRoyce will provide long-term TotalCare service support for the Trent 700 engines on up to eight
A330 aircraft.
On July 12, 2012, the Company has entered into a maintenance service contract with SIA
Engineering Co. Ltd. for the maintenance, repair and overhaul services of its A319 and A320
aircraft.
Aircraft and Spare Engine Purchase Commitments
As of December 31, 2009, the Group has existing commitments to purchase 15 additional new
Airbus A320 aircraft, which are scheduled for delivery between 2010 and 2014, and one spare
engine to be delivered in 2011. The Group has taken delivery of the initial six aircrafts as
scheduled in 2010, 2011 and 2012. In 2011, the spare engine was delivered as scheduled.
In 2010, the Group exercised its option to purchase five Airbus A320 aircraft and entered into a
new commitment to purchase two Airbus A320 aircraft to be delivered between 2011 and 2014.
*SGVFS001094*
- 76 Four of the five additional A320 aircraft were delivered between September 2011 and
November 2012.
On May 2011, the Group turned into firm orders its existing options for the seven Airbus A320
aircraft which are scheduled to be delivered in 2015 to 2016.
As of December 31, 2011, the Group has existing commitments to purchase 25 new Airbus
A320 aircraft, four of which were delivered on January 30, August 9, October 16 and
November 29, 2012, respectively. As of December 31, 2012, the Group has existing commitments
to purchase 21 new Airbus A320 aircraft, which are scheduled to be delivered between 2013 and
2016, two of which were delivered on January 18, 2013 and March 7, 2013.
On August 2011, the Group entered in a new commitment to purchase firm orders of thirty new
A321 NEO Aircraft and ten addition option orders. These aircraft are scheduled to be delivered
from 2017 to 2021. These aircraft shall be used for a longer range network expansion programs.
The above-indicated commitments relate to the Group’s re-fleeting and expansion programs.
On June 28, 2012, the Group has entered into an agreement with United Technologies
International Corporation Pratt & Whitney Division to purchase new PurePower® PW1100G-JM
engines for its thirty (30) firm and ten (1) option A321 NEO aircraft to be delivered beginning
2017. The agreement also includes an engine maintenance services program for a period of ten
(10) years from the date of entry into service of each engine.
Capital Expenditure Commitments
The Group’s capital expenditure commitments relate principally to the acquisition of aircraft fleet,
aggregating to P
=53.22 billion and P
=53.85 billion as of December 31, 2012 and 2011, respectively.
2012
Within one year
After one year but not more than
five years
Philippine peso
US dollar
equivalent
US$350,323,073 P
=14,380,762,158
999,124,578 41,014,063,944
US$1,349,447,651 P
=55,394,826,102
2011
Within one year
After one year but not more than
five years
Philippine peso
US dollar
equivalent
US$245,151,805 =
P10,747,455,131
1,039,815,241 45,585,500,185
US$1,284,967,046 =
P56,332,955,316
Contingencies
The Group has pending suits and claims for sums of money against certain general sales agents
which are either pending decision by the courts or being contested, the outcome of which are not
presently determinable. The estimate of the probable costs for the resolution of these claims has
been developed in consultation with outside counsel handling the defense in these matters and is
*SGVFS001094*
- 77 based upon an analysis of potential results. The Group currently does not believe that these
proceedings will have a material adverse effect on the Group’s financial position and results of
operations.
The Parent Company has a pending tax preassessment, the outcome of which is not presently
determinable.
30. Supplemental Disclosures to the Consolidated Statements of Cash Flows
The principal noncash activities of the Group were as follows:
a. On June 30, 2010, JGSHI settled its payable to the Group through transfer of quoted debt and
equity securities amounting P
=3.7 billion and accrued interest receivable amounting
to P
=71.4 million. The transfer price was at fair value. These investments are classified by the
Group as designated financial assets at FVPL and AFS investments amounting P
=3.5 billion
and P
=118.4 million, respectively (Notes 8 and 26).
b.
On February 28, 2010, the Group sold an engine for P
=89.5 million with a book value of
=72.2 million to a third party maintenance service provider (buyer). The transaction was
P
settled through direct offset against the Group’s US-dollar denominated liability to the buyer
amounting to P
=88.3 million.
c. On December 31, 2011, the Group recognized a liability based on the schedule of pre-delivery
payments amounting P
=564.2 million with a corresponding debit to ‘Construction-in progress’
account. The liability was paid on January 3, 2012.
d. In 2012, 2011 and 2010, the Group acquired a total of ten (10) passenger aircraft by assuming
direct liabilities (Notes 12 and 16). This transaction is considered as a non-cash financing
activity.
31. Registration with the BOI
The Parent Company is registered with the BOI as a new operator of air transport on a pioneer
status on one (1) ATR72-500 and ten (10) A320 and non-pioneer status for five (5) ATR72-500
and seven (7) Airbus A320 aircraft. Under the terms of the registration and subject to certain
requirements, the Parent Company is entitled to the following fiscal and non-fiscal incentives:
a. ITH for
· Registration no. 2008-119: four (4) years from March 2009 to February 2013;
· Registration no. 2010-180: six (6) years from January 1, 2011 to December 31, 2016;
· Registration no. 2011-240: four (4) years from November 16, 2011 to November 16, 2015
· Registration no. 2011-241: six (6) years from November 16, 2011 to November 16, 2017;
· Registration no. 2011-242: four (4) years from November 16, 2011 to
November 16, 2015;
· Registration no. 2011-243: six (6) years from December 14, 2011 to December 13, 2017;
· Registration no. 2012-012: six (6) years from January 17, 2012 to January 16, 2018;
· Registration no. 2012-013: four (4) years from March 1, 2012 to February 29, 2016;
· Registration no. 2012-014: four (4) years from March 1, 2012 to February 29, 2016;
*SGVFS001094*
- 78 ·
·
·
Registration no. 2012-208: six (6) years from October 4, 2012 to October 3, 2018;
Registration no. 2012-261: six (6) years from December 6, 2012 to December 5, 2018;
Registration no. 2012-262: six (6) years from December 6, 2012 to December 5, 2018;
a.i. Only income directly attributed to the revenue generated from the registered project shall
be qualified for ITH. For this purpose, the Parent Company shall submit audited
segregated income statements for this project. Net income from operation of registered
activity shall be certified under oath by Chief Executive Officer or Chief Financial
Officer.
a.ii. The Parent Company shall submit the list of cost items common to all its
projects/activities (whether BOI or non-BOI registered) and its methodology adopted in
allocating common cost. The methodology to be adopted in accounting fixed assets
particularly the plant, property and equipment account shall be the straight line
depreciation method.
a.iii. Furthermore, the interest expense on the firm’s liabilities shall proportionately be
allocated for this project.
b. Employment of foreign nationals. This may be allowed in supervisory, technical or advisory
positions for five (5) years from date of registration. The president, general manager and
treasurer of foreign-owned registered firms or their equivalent shall be subject to the foregoing
limitations.
c. Importation of capital equipment, spare parts and accessories at zero (0%) duty from date of
registration to June 16, 2011 pursuant to E.O. 528 and its Implementing Rules and
Regulations.
d. Avail of a bonus year in each of the following cases but the aggregated ITH availment (regular
and bonus years) shall not exceed eight (8) years.
· The ratio of total of imported and domestic capital equipment to the number of workers
for the project does not exceed US$10,000 to one (1) worker; or
· The net foreign exchange savings or earnings amount to at least US$500,000 annually
during the first three (3) years of operation.
· The indigenous raw materials used in the manufacture of the registered product must at
least be fifty percent (50%) of the total cost of raw materials for the preceding years prior
to the extension unless the BOI prescribes a higher percentage.
e. For the first five (5) years from date of registration, the Parent Company shall be allowed an
additional deduction from taxable income of fifty percent (50%) of the wages corresponding
to the increment in number of direct labor for skilled and unskilled workers in the year of
availment as against the previous year if the project meets the prescribed ration of capital
equipment to the number of workers set by the BOI of US$10,000 to one worker and provided
that this incentive shall not be availed of simultaneously with the ITH.
f.
Tax credit equivalent to the national internal revenue taxes and duties paid on raw materials
and supplies and semi-manufactured products used in producing its export product and
forming part thereof for a ten (10) years from start of commercial operations. Request for
amendment of the date of start of commercial operation for purposes of determining the
reckoning date of the 10-year period, shall be files within one (1) year from date of committed
start of commercial operation.
*SGVFS001094*
- 79 g. Simplification of customs procedures for the importation of equipment, spare parts, raw
materials and suppliers.
h. Access to Customs Bonded Manufacturing Warehouse (CBMW) subject to the customs rules
and regulations provided the Parent Company exports at least 70% of production output.
i.
Exemption from wharfage dues, any export tax, duties, imports and fees for a ten (10) year
period.
j.
Importation of consigned equipment for a period of ten (10) years from date of registration
subject to posting of re-export bond.
k. Exemption from taxes and duties on imported spare parts and consumable supplies for export
producers with CBMW exporting at least 100% of production.
The Parent Company shall submit to the BOI a quarterly report on the actual investments,
employment and sales pertaining to the registered project. The report shall be due 15 days after
the end of each quarter.
32. Events After the Statement of Financial Position Date
In February 2013, the Group has pre-terminated its existing fuel derivative contracts with its
counterparties. The Group recognized realized mark-to-market gain amounting P
=163.8 million
from the transaction. However, as of December 31, 2012, the Group recognized unrealized gain
of P
=102.7 million from the positive fair value change from its fuel derivatives (Note 8). As such,
the Group will realize P
=61.1million as net realized gain from the transaction.
On March 8, 2013, the Parent Company’s BOD appropriated P
=2.5 billion from its unrestricted
retained earnings as of December 31, 2012 for purposes of the Group’s re-fleeting program. The
appropriated amount will be used for settlement of pre delivery payments and aircraft lease
commitments in 2013.
33. Approval of the Consolidated Financial Statements
The accompanying consolidated financial statements were approved and authorized for issue by
the BOD on March 14, 2013.
*SGVFS001094*
CEBU AIR, INC. AND SUBSIDIARIES
SCHEDULE OF ALL THE EFFECTIVE STANDARDS AND INTERPRETATIONS
List of Philippine Financial Reporting Standards (PFRSs) [which consist of PFRSs, Philippine
Accounting Standards (PASs) and Philippine Interpretations] and Philippine Interpretations
Committee (PIC) Q&As effective as of December 31, 2012
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS
Effective as of December 31, 2012
Adopted
Framework for the Preparation and Presentation of Financial
Statements
Conceptual Framework Phase A: Objectives and qualitative
characteristics
4
PFRSs Practice Statement Management Commentary
4
Not
Adopted
Not
Applicable
Philippine Financial Reporting Standards
PFRS 1
(Revised)
First-time Adoption of Philippine Financial Reporting
Standards
Amendments to PFRS 1 and PAS 27: Cost of an
Investment in a Subsidiary, Jointly Controlled Entity or
Associate
PFRS 2
4
4
Amendments to PFRS 1: Additional Exemptions for
First-time Adopters
4
Amendment to PFRS 1: Limited Exemption from
Comparative PFRS 7 Disclosures for First-time Adopters
4
Amendments to PFRS 1: Severe Hyperinflation and
Removal of Fixed Date for First-time Adopters
4
Amendments to PFRS 1: Government Loans
4
Share-based Payment
4
Amendments to PFRS 2: Vesting Conditions and
Cancellations
4
Amendments to PFRS 2: Group Cash-settled Share-based
Payment Transactions
4
PFRS 3
(Revised)
Business Combinations
PFRS 4
Insurance Contracts
4
Amendments to PAS 39 and PFRS 4: Financial Guarantee
Contracts
4
PFRS 5
Non-current Assets Held for Sale and Discontinued
Operations
4
PFRS 6
Exploration for and Evaluation of Mineral Resources
4
PFRS 7
Financial Instruments: Disclosures
4
Amendments to PFRS 7: Transition
4
Amendments to PAS 39 and PFRS 7: Reclassification of
4
4
*SGVFS001094*
-2-
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS
Effective as of December 31, 2012
Adopted
Not
Adopted
Not
Applicable
Financial Assets
Amendments to PAS 39 and PFRS 7: Reclassification of
Financial Assets - Effective Date and Transition
4
Amendments to PFRS 7: Improving Disclosures about
Financial Instruments
4
Amendments to PFRS 7: Disclosures - Transfers of
Financial Assets
4
Amendments to PFRS 7: Disclosures – Offsetting
Financial Assets and Financial Liabilities
4
Amendments to PFRS 7: Mandatory Effective Date of
PFRS 9 and Transition Disclosures
4
PFRS 8
Operating Segments
4
PFRS 9
Financial Instruments
4
Amendments to PFRS 9: Mandatory Effective Date of
PFRS 9 and Transition Disclosures
4
PFRS 10
Consolidated Financial Statements
4
PFRS 11
Joint Arrangements
4
PFRS 12
Disclosure of Interests in Other Entities
4
PFRS 13
Fair Value Measurement
4
Philippine Accounting Standards
Presentation of Financial Statements
4
Amendment to PAS 1: Capital Disclosures
4
Amendments to PAS 32 and PAS 1: Puttable Financial
Instruments and Obligations Arising on Liquidation
Amendments to PAS 1: Presentation of Items of Other
Comprehensive Income
4
PAS 2
Inventories
4
PAS 7
Statement of Cash Flows
4
PAS 8
Accounting Policies, Changes in Accounting Estimates
and Errors
4
PAS 10
Events after the Balance Sheet Date
4
PAS 11
Construction Contracts
PAS 12
Income Taxes
4
Amendment to PAS 12 - Deferred Tax: Recovery of
Underlying Assets
4
PAS 16
Property, Plant and Equipment
4
PAS 17
Leases
4
PAS 1
(Revised)
4
4
*SGVFS001094*
-3-
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS
Effective as of December 31, 2012
Adopted
PAS 18
Revenue
4
PAS 19
Employee Benefits
4
Amendments to PAS 19: Actuarial Gains and Losses,
Group Plans and Disclosures
4
Employee Benefits
PAS 19
(Amended)
PAS 20
Accounting for Government Grants and Disclosure of
Government Assistance
PAS 21
The Effects of Changes in Foreign Exchange Rates
Borrowing Costs
PAS 24
(Revised)
Related Party Disclosures
PAS 26
Accounting and Reporting by Retirement Benefit Plans
Separate Financial Statements
PAS 27
(Amended)
Not
Applicable
4
4
4
Amendment: Net Investment in a Foreign Operation
PAS 23
(Revised)
Not
Adopted
4
4
4
4
4
Investments in Associates and Joint Ventures
PAS 28
(Amended)
4
PAS 29
Financial Reporting in Hyperinflationary Economies
PAS 31
Interests in Joint Ventures
4
PAS 32
Financial Instruments: Disclosure and Presentation
4
4
Amendments to PAS 32 and PAS 1: Puttable Financial
Instruments and Obligations Arising on Liquidation
4
Amendment to PAS 32: Classification of Rights Issues
4
Amendments to PAS 32: Offsetting Financial Assets and
Financial Liabilities
4
PAS 33
Earnings per Share
4
PAS 34
Interim Financial Reporting
4
PAS 36
Impairment of Assets
4
PAS 37
Provisions, Contingent Liabilities and Contingent Assets
4
PAS 38
Intangible Assets
4
PAS 39
Financial Instruments: Recognition and Measurement
4
Amendments to PAS 39: Transition and Initial
Recognition of Financial Assets and Financial Liabilities
4
Amendments to PAS 39: Cash Flow Hedge Accounting of
Forecast Intragroup Transactions
4
Amendments to PAS 39: The Fair Value Option
4
*SGVFS001094*
-4-
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS
Effective as of December 31, 2012
Adopted
Amendments to PAS 39 and PFRS 4: Financial Guarantee
Contracts
Not
Adopted
Not
Applicable
4
Amendments to PAS 39 and PFRS 7: Reclassification of
Financial Assets
4
Amendments to PAS 39 and PFRS 7: Reclassification of
Financial Assets – Effective Date and Transition
4
Amendments to Philippine Interpretation IFRIC–9 and
PAS 39: Embedded Derivatives
4
Amendment to PAS 39: Eligible Hedged Items
4
PAS 40
Investment Property
PAS 41
Agriculture
4
4
Philippine Interpretations
IFRIC 1
Changes in Existing Decommissioning, Restoration and
Similar Liabilities
IFRIC 2
Members' Share in Co-operative Entities and Similar
Instruments
4
IFRIC 4
Determining Whether an Arrangement Contains a Lease
4
IFRIC 5
Rights to Interests arising from Decommissioning,
Restoration and Environmental Rehabilitation Funds
4
IFRIC 6
Liabilities arising from Participating in a Specific Market
- Waste Electrical and Electronic Equipment
4
IFRIC 7
Applying the Restatement Approach under PAS 29
Financial Reporting in Hyperinflationary Economies
4
IFRIC 8
Scope of PFRS 2
4
IFRIC 9
Reassessment of Embedded Derivatives
4
Amendments to Philippine Interpretation IFRIC–9 and
PAS 39: Embedded Derivatives
4
IFRIC 10
Interim Financial Reporting and Impairment
4
IFRIC 11
PFRS 2- Group and Treasury Share Transactions
4
IFRIC 12
Service Concession Arrangements
4
IFRIC 13
Customer Loyalty Programmes
4
IFRIC 14
The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction
4
Amendments to Philippine Interpretations IFRIC- 14,
Prepayments of a Minimum Funding Requirement
4
4
IFRIC 16
Hedges of a Net Investment in a Foreign Operation
4
IFRIC 17
Distributions of Non-cash Assets to Owners
4
IFRIC 18
Transfers of Assets from Customers
4
*SGVFS001094*
-5-
PHILIPPINE FINANCIAL REPORTING STANDARDS AND
INTERPRETATIONS
Effective as of December 31, 2012
Adopted
Not
Adopted
Not
Applicable
IFRIC 19
Extinguishing Financial Liabilities with Equity
Instruments
4
IFRIC 20
Stripping Costs in the Production Phase of a Surface
Mine
4
SIC-7
Introduction of the Euro
4
SIC-10
Government Assistance - No Specific Relation to
Operating Activities
4
SIC-12
Consolidation - Special Purpose Entities
4
Amendment to SIC - 12: Scope of SIC 12
4
SIC-13
Jointly Controlled Entities - Non-Monetary Contributions
by Venturers
4
SIC-15
Operating Leases - Incentives
4
SIC-21
Income Taxes - Recovery of Revalued Non-Depreciable
Assets
4
SIC-25
Income Taxes - Changes in the Tax Status of an Entity or
its Shareholders
4
SIC-27
Evaluating the Substance of Transactions Involving the
Legal Form of a Lease
4
SIC-29
Service Concession Arrangements: Disclosures.
4
SIC-31
Revenue - Barter Transactions Involving Advertising
Services
4
4
Intangible Assets - Web Site Costs
SIC-32
Not applicable standards have been adopted but the Group has no significant covered transactions as of and
for the years ended December 31, 2012, 2011 and 2010.
*SGVFS001094*
CEBU AIR, INC. AND SUBSIDIARIES
MAP OF THE RELATIONSHIPS OF THE COMPANIES WITHIN THE GROUP
FOR THE YEAR ENDED DECEMBER 31, 2012
*SGVFS001094*
CEBU AIR, INC. AND SUBSIDIARIES
SCHEDULE OF FINANCIAL RATIOS
FOR THE YEARS ENDED DECEMBER 31, 2012 and 2011
The following are the financial ratios that the Group monitors in measuring and analyzing its financial
soundness:
Financial Ratios
Liquidity Ratios
Current Ratio
Quick Ratio
2012
2011
79%
71%
95%
90%
Capital Structure Ratios
Debt-to-Equity Ratio (x)
Net Debt-to Equity Ratio (x)
Adjusted Net Debt-to Equity Ratio (x)
Asset to Equity Ratio (x)
Interest Coverage Ratio (x)
1.04
0.55
1.31
2.77
3.11
1.22
0.57
1.20
2.84
3.39
Profitability Ratios
EBITDAR Margin
EBIT Margin
Pre-tax core net income margin
Return on asset
Return on equity
21%
7%
6%
6%
17%
23%
10%
10%
7%
20%
*SGVFS001094*
COVER SHEET
1 5 4 6 7 5
SEC Registration Number
C e b u
A i r ,
I n c .
a n d
S u b s i d i a r i e s
(Company’s Full Name)
2 n d
i m
u
F l o o r ,
D o ñ a
B u i l d i n g ,
J u a n i t a
O s m e ñ a
M a r q u e z
L
B o u l e v a r d , C e b
C i t y
(Business Address: No. Street City/Town/Province)
Robin C. Dui
852-2461
(Contact Person)
(Company Telephone Number)
1 2
3 1
Month
Day
1 7 - Q
(Form Type)
Month
(Fiscal Year)
Day
(Annual Meeting)
(Secondary License Type, If Applicable)
Amended Articles Number/Section
Total Amount of Borrowings
Total No. of Stockholders
Domestic
Foreign
To be accomplished by SEC Personnel concerned
File Number
LCU
Document ID
Cashier
STAMPS
Remarks: Please use BLACK ink for scanning purposes.
-1-
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-Q
QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES
REGULATION CODE AND SRC RULE 17(2)(b) THEREUNDER
1. For the quarterly period ended March 31, 2013
2. SEC Identification No.154675
3. BIR Tax Identification No.000-948-229-000
Cebu Air, Inc.
4. Exact name of issuer as specified in its charter
Cebu City, Philippines
5. Province, country or other jurisdiction of incorporation or organization
6. Industry Classification Code:
(SEC Use Only)
2nd Floor, Dona Juanita Marquez Lim Building, Osmena Blvd., Cebu City
7. Address of issuer's principal office
6000
Postal Code
(032) 255-4552
8. Issuer's telephone number, including area code
Not Applicable
9. Former name, former address and former fiscal year, if changed since last report
10. Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 of the RSA
Number of Shares of Common
Stock Outstanding and Amount
Title of Each Class
of Debt Outstanding
Common Stock, P1.00 Par Value
605,953,330 shares
11. Are any or all of the securities listed on the Philippine Stock Exchange?
Yes [x]
No [ ]
12. Indicate by check mark whether the registrant:
(a) has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17
thereunder or Sections 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and
141 of the Corporation Code of the Philippines, during the preceding twelve (12) months (or
for such shorter period 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 [ ]
-2-
PART I–FINANCIAL INFORMATION
Item 1.
Financial Statements
The unaudited consolidated financial statements are filed as part of this Form 17-Q.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Cebu Air, Inc. (the Company) is an airline that operates under the trade name “Cebu Pacific Air”
and is the leading low-cost carrier in the Philippines. It pioneered the “low fare, great value”
strategy in the local aviation industry by providing scheduled air travel services targeted to
passengers who are willing to forego extras for fares that are typically lower than those offered by
traditional full-service airlines while offering reliable services and providing passengers with a
fun travel experience.
The Company was incorporated in August 26, 1988 and was granted a 40-year legislative
franchise to operate international and domestic air transport services in 1991. It commenced its
scheduled passenger operations in 1996 with its first domestic flight from Manila to Cebu. In
1997, it was granted the status as an official Philippine carrier to operate international services by
the Office of the President of the Philippines pursuant to Executive Order (EO) No. 219.
International operations began in 2001 with flights from Manila to Hong Kong.
In 2005, the Company adopted the low-cost carrier (LCC) business model. The core element of
the LCC strategy is to offer affordable air services to passengers. This is achieved by having:
high-load, high-frequency flights; high aircraft utilization; a young and simple fleet composition;
and low distribution costs.
The Company’s common stock was listed with the Philippine Stock Exchange (PSE) on
October 26, 2010, the Company’s initial public offering (IPO).
As of March 31, 2013, the Company operates an extensive route network serving 60 domestic
routes and 32 international routes with a total of 2,278 scheduled weekly flights. It operates from
six hubs, including the Ninoy Aquino International Airport (NAIA) Terminal 3 located in Pasay
City, Metro Manila; Mactan-Cebu International Airport located in Lapu-Lapu City, part of
Metropolitan Cebu; Diosdado Macapagal International Airport (DMIA) located in Clark,
Pampanga; Davao International Airport located in Davao City, Davao del Sur;Ilo-ilo International
Airport located in Ilo-ilo City, regional center of the western Visayas region; and Kalibo
International Airport in Kalibo, Aklan.
As of March 31, 2013, the Company operates a fleet of 43 aircraft which comprises of ten Airbus
A319, 25 Airbus A320 and eight ATR 72-500 aircraft. It operates its Airbus aircraft on both
domestic and international routes and operates the ATR 72-500 aircraft on domestic routes,
including destinations with runway limitations. The average aircraft age of the Company’s fleet
is approximately 3.93 years as of March 31, 2013.
The Company has three principal distribution channels: the internet; direct sales through booking
sales offices, call centers and government/corporate client accounts; and third-party sales outlets.
Aside from passenger service, it also provides airport-to-airport cargo services on its domestic and
international routes. In addition, the Company offers ancillary services such as cancellation and
rebooking options, in-flight merchandising such as sale of duty-free products on international
flights, baggage and travel-related products and services.
-3-
Results of Operations
Three Months Ended March 31, 2013 Versus March 31, 2012
Revenues
The Company generated revenues of P
=10.542 billion for the three months ended March 31, 2013,
12.9% higher than the P
=9.341 billion revenues earned in the same period last year. Growth in
revenues is accounted for as follows:
Passenger
Passenger revenues grew by P
=976.448 million or 13.6% to P
=8.169 billion in the three months
ended March 31, 2013 from P
=7.192 billion posted in the three months ended March 30, 2012.
The growth was primarily due to the increase in average fares by 8.3% to P2,312 from P2,134 in
2012. Increase in passenger volume by 4.9% to 3.5 million from 3.4 million in 2012 driven by
the increased number of flights in 2013 also contributed to the growth in passenger revenues.
Number of flights went up by 4.8% year on year primarily as a result of the increase in the
number of aircraft operated to 43 aircraft as of March 31, 2013 from 40 aircraft as of
March 31, 2012.
Cargo
Cargo revenues grew by P19.498 million or 3.5% to P570.648 million for the quarter ended
March 31, 2013 from P551.151 million for the quarter ended March 31, 2012 following the
increase in the volume and average freight charges of cargo transported in 2013.
Ancillary
Ancillary revenues went up by P
=205.333 million or 12.9% to P
=1.803 billion in the three months
ended March 31, 2013 from P
=1.598 billion registered in the same period last year. The Company
began unbundling ancillary products and services in 2011 and significant improvements in
ancillary revenues were noted since then. Increased online bookings also contributed to the
increase. Online bookings accounted for 52.8% of the total tickets sold in the first quarter of 2013
compared to the 51.7% in the three months ended March 31, 2012.
Expenses
The Company incurred operating expenses of P9.223 billion for the quarter ended
March 31, 2013, 3.4% higher than the P8.921 billion operating expenses recorded for the quarter
ended March 31, 2012. Increase in expenses due to seat growth was partially offset by the
strengthening of the Philippine peso against the U.S. dollar as referenced by the appreciation of
the Philippine peso to an average of P40.70 per U.S. dollar for the three months ended
March 31, 2013 from an average of P43.03 per U.S. dollar last year based on the Philippine
Dealing and Exchange Corporation (PDEx) weighted average rates. Operating expenses
increased as a result of the following:
Flying Operations
Flying operations expenses moved up by P104.727 million or 2.0% to P5.237 billion for the
quarter ended March 31, 2013 from P5.132 billion incurred in the same period last year. Aviation
fuel expenses grew by 3.4% to P4.638 billion from P4.485 billion for the three months ended
March 31, 2012 consequent to the increase in the volume of fuel consumed as a result of the
increased number of flights year on year. Rise in aviation fuel expenses, however, was partially
offset by the reduction in aviation fuel prices as referenced by the decrease in the average
published fuel MOPS price of U.S. $128.5 per barrel in the three months ended March 31, 2013
from U.S.$131.8 average per barrel in the same period last year. Increase in flying operation
expenses was also offset by the decrease in pilot costs due to the reduction in the number of expat
pilots year on year.
-4-
Aircraft and Traffic Servicing
Aircraft and traffic servicing expenses increased by P42.081 million or 5.0% to P884.777 million
for the quarter ended March 31, 2013 from P842.696 million registered in the same period in
2012 as a result of the overall increase in the number of flights flown in 2013. Higher expenses
were particularly attributable to more international flights operated for which airport and ground
handling charges were generally higher compared to domestic flights. International flights
increased by 13.7% year on year.
Depreciation and Amortization
Depreciation and amortization expenses grew by P133.416 million or 20.3% to P792.126 million
for the three months ended March 31, 2013 from P658.710 million for the three months ended
March 31, 2012. Depreciation and amortization expenses increased consequent to the arrival of
three Airbus A320 aircraft during the last quarter of 2012 and two Airbus A320 aircraft in 2013.
Repairs and Maintenance
Repairs and maintenance expenses slightly went up by 0.04% to P916.203 million for the quarter
ended March 31, 2013 from P915.855 million posted in the three months ended March 31, 2012.
Increase was driven by the overall increase in the number of flights which was offset in part by
the appreciation of the Philippine peso against the U.S. dollar as referenced by the strengthening
of the Philippine peso to an average of P40.70 per U.S. dollar for the three months ended
March 31, 2013 from an average of P43.03 per U.S. dollar for the same period in 2012.
Aircraft and Engine Lease
Aircraft and engine lease expenses went down by P45.037 million or 8.8% to P466.039 million in
the three months ended March 31, 2013 from P511.076 million charged for the three months
ended March 31, 2012. Decrease in aircraft and engine lease expenses was due to the effect of the
appreciation of the Philippine peso against the U.S. dollar during the current period and the timing
of the return of two leased Airbus A320 aircraft in 2012.
Reservation and Sales
Reservation and sales expenses increased by P46.478 million or 11.5% to P449.297 million for
the three months ended March 31, 2013 from P402.818 million in the three months ended
March 31, 2012 . This was primarily attributable to the increase in commission expenses and
online bookings relative to the overall growth in passenger volume year on year.
General and Administrative
General and administrative expenses grew by P21.664 million or 10.0% to P238.658 million for
the three months ended March 31, 2013 from P216.994 million incurred in the three months
ended March 31, 2012. Growth in general and administrative expenses was primarily attributable
to the increased flight and passenger activity in 2013.
Passenger Service
Passenger service expenses went up by P8.496 million or 4.2% to P210.260 million for the
quarter ended March 31, 2013 from P201.764 million posted for the quarter ended
March 31, 2012. Additional cabin crew hired for the additional Airbus A320 aircraft acquired
during the last quarter of 2012 and in 2013 mainly caused the increase. Increase in expenses was
partially offset by lower premiums for passenger liability insurance and the strengthening of the
Philippine peso against the U.S. dollar in 2013.
Operating Income
As a result of the foregoing, the Company finished with an operating income of P1.319 billion for
the quarter ended March 31, 2013, 214.0% higher than the P420.122 million operating income
earned last year.
-5-
Other Income (Expenses)
Interest Income
Interest income dropped by P41.313 million or 31.6% to P89.487 million for the quarter ended
March 31, 2013 from P130.800 million earned in the same period last year due to decrease in the
balance of cash in bank and short-term placements year on year and lower interest rates.
Fuel Hedging Gains
Fuel hedging gains of P59.970 million for the quarter ended March 31, 2013 resulted from the
unwinding of hedge transactions.
Foreign Exchange Gains
Net foreign exchange gains of P85.718 million for the quarter ended March 31, 2013 resulted
from the appreciation of the Philippine peso against the U.S. dollar as referenced by the
strengthening of the Philippine peso to P40.80 per U.S. dollar for the three months ended
March 31, 2013 from P41.05 per U.S. dollar for the twelve months ended December 31, 2012.
The Company’s major exposure to foreign exchange rate fluctuations is in respect to U.S. dollar
denominated long-term debt incurred in connection with aircraft acquisitions.
Equity in Net Income of Joint Venture
The Company had equity in net income of joint venture of P19.116 million for the quarter ended
March 31, 2013, P0.696 million or 3.8% higher than the P18.420 million equity in net income of
joint venture earned last year. Increase in this account was due to the increase in net income from
the current operations of Aviation Partnership (Philippines) Corporation (A-plus) and SIA
Engineering (Philippines) Corporation (SIAEP) in 2013.
Fair Value Losses of Financial Assets designated at Fair Value through Profit or Loss (FVPL)
No fair value losses on FVPL was recognized for the quarter ended March 31, 2013 as a result of
the sale of the related quoted debt and equity investment securities in 2012.
Interest Expense
Interest expense increased by P13.731 million or 7.8% to P188.926 million for the quarter ended
March 31, 2013 from P175.194 million in the three months ended March 31, 2012. Increase was
due to higher interest expense incurred brought by the additional loans availed to finance the
acquisition of three Airbus A320 aircraft in the last quarter of 2012 and two Airbus A320 aircraft
in 2013 partially reduced by the effect of the strengthening of the Philippine peso against the U.S.
dollar during the current period.
Income before Income Tax
As a result of the foregoing, the Company recorded income before income tax of P1.385 billion
for the quarter ended March 31, 2013, higher by 20.2% or P232.703 million than the
P1.152 billion income before income tax posted for the quarter ended March 31, 2012.
Provision for Income Tax
Provision for income tax for the quarter ended March 31, 2013 amounted to P227.859 million, of
which, P15.923 million pertains to current income tax recognized as a result of the taxable income
in 2013. Provision for deferred income tax amounted to P211.936 million resulting from the
recognition of deferred tax liabilities on future taxable amounts during the quarter.
Net Income
Net income for the quarter ended March 31, 2013 amounted to P1.157 billion, a growth of 20.2%
from the P962.396 million net income earned in the same period last year.
-6-
Financial Position
March 31, 2013 versus December 31, 2012
As of March 31, 2013, the Company’s consolidated balance sheet remains solid, with net debt to
equity of 0.54 [total debt after deducting cash and cash equivalents (including financial assets
held-for-trading at fair value and available-for-sale assets) divided by total equity]. Consolidated
assets grew to P65.757 billion from P61.336 billion as of December 31, 2012 as the Company
added aircraft to its fleet. Equity grew to P
=23.292 billion from P
=22.135 billion in 2012, while
book value per share amounted to P
=38.44 as of March 31, 2013 from P
=36.53 as of
December 31, 2012.
The Company’s cash requirements have been mainly sourced through cash flow from operations
and from borrowings. Net cash from operating activities amounted to P2.574 billion. As of
March 31, 2013, net cash used in investing activities amounted to P3.063 billion which included
payments in connection with the purchase of aircraft. Net cash provided by financing activities
amounted to P2.101 billion which comprised of proceeds from long-term debt of P2.844 billion
and repayments of long-term debt amounting to P743.6 million.
As of March 31, 2013, except as otherwise disclosed in the financial statements and to the best of
the Company’s knowledge and belief, there are no events that will trigger direct or contingent
financial obligation that is material to the Company, including any default or acceleration of an
obligation.
Financial Ratios
The following are the major financial ratios that the Company monitors in measuring and
analyzing its financial performance:
Liquidity and Capital Structure Ratios
Current Ratio
Debt-to-Equity Ratio
Asset-to-Equity Ratio
Interest Coverage Ratio
March 31, 2013
0.84:1
1.07:1
2.82:1
5.98:1
December 31, 2012
0.79:1
1.04:1
2.77:1
2.63:1
March 31, 2013
2%
5%
11%
March 31, 2012
2%
5%
10%
Profitability Ratios
Return on Asset
Return on Equity
Return on Sales
-7-
Material Changes in the 2013 Financial Statements
(Increase/Decrease of 5% or more versus 2012)
Material changes in the Statements of Consolidated Comprehensive Income were explained in
detail in the management’s discussion and analysis of financial condition and results of operations
stated above.
Consolidated Statements of Financial Position –March 31, 2013 versus December 31, 2012
14.66% increase in Cash and Cash Equivalents
Due to collections as a result of the improvement in the Company’s operations as evidenced by
the 12.9% growth in revenues and in EBITDA.
100.00% decrease in Financial Assets at FVPL
Due to pre-termination of existing fuel derivative contracts with counterparties in 2013.
41.73% increase in Receivables
Due to increased trade receivables relative to the growth in revenues.
8.95% increase in Expendable Parts, Fuel, Materials and Supplies
Due to increased volume of materials and supplies inventory relative to the increased number of
flights and larger fleet size during the period.
5.21% increase in Property and Equipment
Due mainly to the acquisition of two Airbus A320 aircraft during the period.
5.37% decrease in Other Noncurrent Assets
Due to the application of creditable withholding tax on income tax due for the first quarter.
11.20% increase in Unearned Transportation Revenue
Due to the increase in sale of passenger travel services.
8.60% increase in Long-Term Debt (including Current Portion)
Due to additional loans availed to finance the purchase of the two Airbus A320 aircraft acquired
during the period partially offset by the repayment of certain outstanding long-term debt in
accordance with the repayment schedule.
43.12% increase in Deferred Tax Liabilities- net
Due to future taxable amount recognized during the period.
8.48% increase in Retained Earnings
Due to net income during the period.
As of March 31, 2013, there are no significant elements of income that did not arise from the
Company’s continuing operations.
-8-
The Company generally records higher domestic revenue in January, March, April, May and
December as festivals and school holidays in the Philippines increase the Company’s seat load
factors in these periods. Accordingly, the Company’s revenue is relatively lower in July to
September due to decreased domestic travel during these months. Any prolonged disruption in the
Company’s operations during such peak periods could materially affect its financial condition
and/or results of operations.
KEY PERFORMANCE INDICATORS
The Company sets certain performance measures to gauge its operating performance periodically
and to assess its overall state of corporate health. Listed below are major performance measures,
which the Company has identified as reliable performance indicators. Analyses are employed by
comparisons and measurements based on the financial data as of March 31, 2013 and
December 31, 2012 and for three months ended March 31, 2013 and 2012:
Key Financial Indicators
Total Revenue
Pre-tax Core Net Income
EBITDAR Margin
Cost per Available Seat Kilometre (ASK) (Php)
Cost per ASK (U.S. cents)
Seat Load Factor
2013
2012
P10.542 billion
P1.239 billion
25.9%
2.42
5.95
83.9%
P9.341 billion
P0.394 billion
18.4%
2.54
5.90
83.9%
The manner by which the Company calculates the above key performance indicators for both
2013 and 2012 is as follows:
Total Revenue
The sum of revenue obtained from the sale of air
transportation services for passengers and cargo and
ancillary revenue
Pre-tax Core Net Income
Operating income after deducting net interest
expense and adding equity income/loss of joint
venture
EBITDAR Margin
Operating income after adding depreciation and
amortization, accretion and amortization of ARO and
aircraft and engine lease expenses divided by total
revenue
Cost per ASK
Operating expenses, including depreciation and
amortization expenses and the costs of operating
leases, but excluding fuel hedging effects, foreign
exchange effects, net financing charges and taxation,
divided by ASK
Seat Load Factor
Total number of passengers divided by the total
number of actual seats on actual flights flown
-9-
As of March 31, 2013, except as otherwise disclosed in the financial statements and to the best of the
Company’s knowledge and belief, there are no known trends, demands, commitments, events or
uncertainties that may have a material impact on the Company’s liquidity.
As of March 31, 2013, except as otherwise disclosed in the financial statements and to the best of the
Company’s knowledge and belief, there are no events that would have a material adverse impact on
the Company’s net sales, revenues and income from operations and future operations.
- 11 -
CEBU AIR, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS OF MARCH 31, 2013
(With Comparative Audited Figures as of December 31, 2012)
March 31,
2013
(Unaudited)
December 31,
2012
(Audited)
ASSETS
Current Assets
Cash and cash equivalents (Note 7)
Financial assets at fair value through profit or loss (Note 8)
Receivables (Note 9)
Expendable parts, fuel, materials and supplies (Note 10)
Other current assets (Note 11)
Total Current Assets
Noncurrent Assets
Property and equipment (Notes 12, 16, 27 and 28)
Investment in joint ventures (Note 13)
Other noncurrent assets (Note 14)
Total Noncurrent Assets
P10,728,326,325
P
=12,301,294,550 =
102,682,762
–
988,511,487
1,401,042,364
417,434,810
454,815,205
882,604,550
901,493,676
15,058,645,795 13,119,559,934
49,958,571,093 47,484,106,152
511,756,873
530,872,560
220,895,946
209,038,736
48,216,758,971
50,698,482,389
P61,336,318,905
P
=65,757,128,184 =
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and other accrued liabilities (Note 15)
Unearned transportation revenue (Note 4 and 5)
Current portion of long-term debt (Notes 12 and 16)
Due to related parties (Note 25)
Total Current Liabilities
P
=8,114,151,712
6,650,998,130
3,038,823,883
43,424,474
17,847,398,199
=7,768,537,046
P
5,981,195,913
2,769,442,355
45,602,315
16,564,777,629
Noncurrent Liabilities
Long-term debt - net of current portion (Notes 12 and 16)
Deferred tax liabilities - net
Other noncurrent liabilities (Notes 17 and 22)
Total Noncurrent Liabilities
Total Liabilities
21,857,784,160
703,440,828
2,056,828,216
24,618,053,204
42,465,451,403
20,154,916,843
491,504,377
1,990,307,272
22,636,728,492
39,201,506,121
Equity (Note 18)
Common stock
Capital paid in excess of par value
Treasury stock
Retained earnings
Total Equity
See accompanying Notes to Unaudited Consolidated Financial Statements.
613,236,550
613,236,550
8,405,568,120
8,405,568,120
(529,319,321)
(529,319,321)
14,802,191,432 13,645,327,435
23,291,676,781 22,134,812,784
=61,336,318,905
P
=65,757,128,184 P
- 12 -
CEBU AIR, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012
Quarters Ended
2012
2013
REVENUES (Notes 4 and 19)
EXPENSES
Flying operations (Note 20)
Repairs and maintenance (Notes 17 and 20)
Aircraft and traffic servicing (Note 20)
Depreciation and amortization (Note 12)
Aircraft and engine lease (Note 28)
Reservation and sales
General and administrative (Note 21)
Passenger service
Other expenses (Note 23)
OPERATING INCOME
OTHER INCOME (EXPENSE)
Interest income (Notes 7 and 8)
Foreign exchange gains
Fuel hedging gains (Note 8)
Equity in net income of joint venture (Note 13)
Gain on sale of financial assets designated at fair value
through profit or loss and available for sale
financial assets
Interest expense (Note 16)
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX
NET INCOME
OTHER COMPREHENSIVE INCOME,
NET OF TAX
TOTAL COMPREHENSIVE INCOME
Basic/Diluted Earnings Per Share (Note 24)
See accompanying Notes to Unaudited Consolidated Financial Statements.
P
=10,542,218,022
=9,340,939,033
P
5,236,581,396
916,202,631
884,776,861
792,125,898
466,039,045
449,296,747
238,657,654
210,259,641
28,919,692
9,222,859,565
5,131,854,516
915,855,497
842,696,278
658,710,155
511,076,421
402,818,430
216,994,083
201,763,731
39,048,049
8,920,817,160
1,319,358,457
420,121,873
89,486,533
85,718,434
59,970,007
19,115,688
130,800,006
401,443,521
350,665,093
18,420,027
–
(188,925,751)
65,364,911
5,764,090
(175,194,373)
731,898,364
1,384,723,368
1,152,020,237
227,859,371
189,623,846
1,156,863,997
962,396,391
–
–
P
=1,156,863,997
=962,396,391
P
P
=1.91
=1.59
P
- 13 -
CEBU AIR, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2013
(With Comparative Unaudited Figures as of March 31, 2012)
Balance at January 1, 2013
Net income
Other comprehensive income
Total comprehensive income
Appropriation of retained earnings
Balance at March 31, 2013
Balance at January 1, 2012
Net income
Other comprehensive income
Total comprehensive income
Reclassification adjustment
Balance at March 31, 2012
Common Stock
(Note 18)
P
= 613,236,550
–
–
–
–
P
= 613,236,550
Common Stock
(Note 18)
=613,236,550
P
–
–
–
–
=613,236,550
P
Capital Paid in
Excess of Par
Value
(Note 18)
P
=8,405,568,120
–
–
–
–
P
=8,405,568,120
For the Three Months Ended March 31, 2013
Net unrealized
losses on
Appropriated Unappropriated
available-for-sale
Retained
Retained
Treasury Stock
investment
Earnings
Earnings
Total
(Note 18)
(Note 8)
(Note 18)
(Note 18)
Equity
(P
=529,319,321)
P
=–
P
=1,416,762,000 P
=12,228,565,435 P
=22,134,812,784
–
–
–
1,156,863,997
1,156,863,997
–
–
–
–
–
–
–
–
1,156,863,997
1,156,863,997
–
–
2,500,000,000
(2,500,000,000)
–
(P
=529,319,321)
P
=–
P
=3,916,762,000 P
=10,885,429,432 P
=23,291,676,781
Capital Paid in
Excess of Par
Value
(Note 18)
=8,405,568,120
P
–
–
–
–
=8,405,568,120
P
For the Three Months Ended March 31, 2012
Net unrealized
losses on
Appropriated
Unappropriated
available-for-sale
Retained
Retained
Treasury Stock
investment
Earnings
Earnings
Total
(Note 18)
(Note 8)
(Note 18)
(Note 18)
Equity
(P
=529,319,321)
(P
=5,630,261)
=933,500,000
P
=9,748,168,202 =
P
P19,165,523,290
962,396,391
962,396,391
–
–
–
–
–
–
–
–
962,396,391
962,396,391
–
–
–
5,630,261
5,630,261
–
–
–
(P
=529,319,321)
=–
P
=933,500,000 P
P
=10,710,564,593 P
=20,133,549,942
See accompanying Notes to Unaudited Consolidated Financial Statements.
- 14 -
CEBU AIR, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization (Note 12)
Interest expense (Note 16)
Depreciation and accretion of asset retirement obligation
(Note 17)
Gain on sale of financial assets at fair value through
profit or loss and available for sale financial assets
Equity in net income of joint ventures (Note 13)
Fuel hedging gains (Note 8)
Interest income (Notes 7 and 8)
Unrealized foreign exchange gains
Operating income before working capital changes
Decrease (increase) in:
Receivables
Other current assets
Expendable parts, fuel, materials and supplies
Financial assets at fair value through profit or loss
(derivatives) (Note 8)
Increase (decrease) in:
Accounts payable and other accrued liabilities
Unearned transportation revenue
Due to related parties
Noncurrent liabilities
Net cash generated from operations
Interest paid
Interest received
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Dividends received from a joint venture (Note 13)
Proceeds from sale of financial assets at FVPL (Note 8)
Proceeds from sale of available-for sale investments (Note 8)
Investment in joint venture (Note 13)
Decrease in other noncurrent assets
Acquisition of property and equipment
(Notes 12 and 27)
Net cash used in investing activities
(Forward)
2013
2012
P
= 1,384,723,368
=1,152,020,237
P
792,125,898
188,925,751
658,710,155
175,194,373
154,551,261
128,971,048
–
(19,115,688)
(59,970,007)
(89,486,533)
(94,204,488)
2,257,549,562
(5,764,090)
(18,420,027)
(350,665,093)
(130,800,006)
(418,278,200)
1,190,968,397
(434,901,962)
(18,889,127)
(37,380,395)
(26,256,608)
(48,864,297)
21,964,432
162,652,769
68,889,921
171,672,103
669,802,216
(2,177,842)
(88,030,359)
2,680,296,965
(193,238,926)
86,488,751
2,573,546,790
–
–
–
11,857,210
(3,074,897,486)
(3,063,040,276)
246,908,019
1,078,018,726
(1,514,489)
(55,138,199)
2,474,975,902
(181,746,827)
206,551,894
2,499,780,969
3,258,002,595
110,369,718
(29,913,800)
92,688,611
(1,848,044,811)
1,583,102,313
- 15 -
2013
2012
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt
Repayments of long-term debt
Net cash provided by financing activities
EFFECTS OF EXCHANGE RATE CHANGES IN CASH
AND CASH EQUIVALENTS
NET INCREASE IN CASH
AND CASH EQUIVALENTS
P
=2,844,205,000
(743,564,518)
2,100,640,482
=1,535,200,237
P
(651,204,380)
883,995,857
(38,178,771)
(60,606,795)
1,572,968,225
4,906,272,344
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR
10,728,326,325
8,957,783,986
CASH AND CASH EQUIVALENTS
AT END OF YEAR (Note 7)
P
=12,301,294,550
=13,864,056,330
P
See accompanying Notes to Unaudited Consolidated Financial Statements.
- 16 -
CEBU AIR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information
Cebu Air, Inc. (the Parent Company) was incorporated and organized in the Philippines on
August 26, 1988 to carry on, by means of aircraft of every kind and description, the general
business of a private carrier or charter engaged in the transportation of passengers, mail,
merchandise and freight, and to acquire, purchase, lease, construct, own, maintain, operate and
dispose of airplanes and other aircraft of every kind and description, and also to own, purchase,
construct, lease, operate and dispose of hangars, transportation depots, aircraft service stations and
agencies, and other objects and service of a similar nature which may be necessary, convenient or
useful as an auxiliary to aircraft transportation. The principal place of business of the Parent
Company is at 2nd Floor, Doña Juanita Marquez Lim Building, Osmeña Boulevard, Cebu City.
The Parent Company has eight special purpose entities (SPE) that it controls, namely: Cebu
Aircraft Leasing Limited (CALL), IBON Leasing Limited (ILL), Boracay Leasing Limited (BLL),
Surigao Leasing Limited (SLL), Sharp Aircraft Leasing Limited (SALL), Vector Aircraft Leasing
Limited (VALL), Panatag One Aircraft Leasing Limited (POALL) and Panatag Two Aircraft
Leasing Limited (PTALL) (collectively known as the “Group”). CALL, ILL, BLL, SLL, SALL,
VALL, POALL and PTALL are SPEs in which the Parent Company does not have equity interest.
CALL, ILL, BLL, SLL, SALL, VALL, POALL and PTALL acquired the passenger aircraft for
lease to the Parent Company under finance lease arrangements (Note 12) and funded the
acquisitions through long-term debt (Note 16). In accordance with Standards Interpretations
Committee (SIC) 12, Consolidation - Special Purpose Entities, the consolidated financial
statements include the accounts of these SPEs (Note 2).
The Parent Company’s common stock was listed with the Philippine Stock Exchange (PSE) on
October 26, 2010, the Parent Company’s initial public offering (IPO).
The Parent Company’s ultimate parent is JG Summit Holdings, Inc. (JGSHI).
Company is 66.15%-owned by CP Air Holdings, Inc. (CPAHI).
The Parent
In 1991, pursuant to Republic Act (RA) No. 7151, the Parent Company was granted a franchise to
operate air transportation services, both domestic and international. In August 1997, the Office of
the President of the Philippines gave the Parent Company the status of official Philippine carrier to
operate international services. In September 2001, the Philippine Civil Aeronautics Board (CAB)
issued the permit to operate scheduled international services and a certificate of authority to
operate international charters.
The Parent Company is registered with the Board of Investments (BOI) as a new operator of air
transport on a pioneer and non-pioneer status. Under the terms of the registration and subject to
certain requirements, the Parent Company is entitled to certain fiscal and non-fiscal incentives,
including among others, an income tax holiday (ITH) for a period of four (4) years. The Parent
Company can avail of bonus years in certain specified cases but the aggregate ITH availment
(basic and bonus years) shall not exceed eight (8) years.
- 17 Prior to the grant of the ITH and in accordance with the Parent Company’s franchise, which
extends up to year 2031:
a. The Parent Company is subject to franchise tax of five percent (5%) of the gross revenue
derived from air transportation operations. For revenue earned from activities other than air
transportation, the Parent Company is subject to regular corporate income tax (RCIT) and to
real property tax.
b. In the event that any competing individual, partnership or corporation received and enjoyed
tax privileges and other favorable terms which tended to place the Parent Company at any
disadvantage, then such privileges shall have been deemed by the fact itself of the Parent
Company’s tax privileges and shall operate equally in favor of the Parent Company.
On May 24, 2005, the Reformed-Value Added Tax (R-VAT) law was signed as RA No. 9337 or
the R-VAT Act of 2005. The R-VAT law took effect on November 1, 2005 following the
approval on October 19, 2005 of Revenue Regulation (RR) No. 16-2005 which provides for the
implementation of the rules of the R-VAT law. Among the relevant provisions of RA No. 9337
are the following:
a. The franchise tax of the Parent Company is abolished;
b. The Parent Company shall be subject to RCIT;
c. The Parent Company shall remain exempt from any taxes, duties, royalties, registration
license, and other fees and charges;
d. Change in RCIT rate from 32.00% to 35.00% for the next three years effective on
November 1, 2005, and 30.00% starting on January 1, 2009 and thereafter;
e. 70.00% cap on the input VAT that can be claimed against output VAT; and
f. Increase in the VAT rate imposed on goods and services from 10.00% to 12.00% effective on
February 1, 2006.
On November 21, 2006, the President signed into law RA No. 9361, which amends
Section 110(B) of the Tax Code. This law, which became effective on December 13, 2006,
provides that if the input tax, inclusive of the input tax carried over from the previous quarter
exceeds the output tax, the excess input tax shall be carried over to the succeeding quarter or
quarters. The Department of Finance through the Bureau of Internal Revenue issued
RR No. 2-2007 to implement the provisions of the said law. Based on the regulation, the
amendment shall apply to the quarterly VAT returns to be filed after the effectivity of
RA No. 9361.
On December 16, 2008, the Parent Company was registered as a Clark Freeport Zone (CFZ)
enterprise and committed to provide air transportation services both domestic and international for
passengers and cargoes at the Diosdado Macapagal International Airport.
2. Basis of Preparation
The accompanying consolidated financial statements of the Group have been prepared on a
historical cost basis, except for financial assets and liabilities at fair value through profit or loss
(FVPL) and available-for-sale (AFS) investment that have been measured at fair value.
The financial statements of the Group are presented in Philippine Peso (P
=), the Parent Company’s
functional and presentation currency. All amounts are rounded to the nearest peso unless
otherwise indicated.
- 18 -
Statement of Compliance
The consolidated financial statements of the Group have been prepared in compliance with
Philippine Financial Reporting Standards (PFRS).
Basis of Consolidation
The consolidated financial statements include the financial statements of the Parent Company and
the SPEs that it controls.
SIC 12, prescribes guidance on the consolidation of SPE. Under SIC 12, an SPE should be
consolidated when the substance of the relationship between the company and the SPE indicates
that the SPE is controlled by the company. Control over an entity may exist even in cases where
an enterprise owns little or none of the SPE’s equity, such as when an entity retains majority of the
residual risks related to the SPE or its assets in order to obtain benefits from its activities.
The consolidated financial statements are prepared using uniform accounting policies for like
transactions and other events in similar circumstances. All significant intercompany transactions
and balances, including intercompany profits and unrealized profits and losses, are eliminated in
the consolidation.
3. Changes in Accounting Policies
The accounting policies adopted are consistent with those of the previous financial year, except for
the adoption of new and amended PFRS and Philippine Interpretations from International
Financial Reporting Interpretations Committee (IFRIC) that are discussed below. Except as
otherwise indicated, the adoption of the new and amended PFRS and Philippine Interpretations did
not have any effect on the consolidated financial statements of the Group.

PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Government Loans
(effective for annual periods beginning on or after January 1, 2013)
These amendments add an exception to the retrospective application of PFRSs. First-time
adopters are required to apply the requirements in PFRS 9, Financial Instruments and PAS 20,
Accounting for Government Grants and Disclosure of Government Assistance prospectively
to government loans existing at the date of transition to PFRSs. However, a first-time adopter
may apply the requirements of PFRS 9 and PAS 20 to government loans retrospectively if it
has obtained the necessary information to do so.
The amendment is not applicable as the Group has no outstanding government loans.

PFRS 7, Financial instruments: Disclosures - Offsetting Financial Assets and Financial
Liabilities (effective for annual periods beginning on or after January 1, 2013)
These amendments require an entity to disclose information about rights of set-off and related
arrangements (such as collateral agreements). The new disclosures are required for all
recognized financial instruments that are set-off in accordance with PAS 32. These
disclosures also apply to recognized financial instruments that are subject to an enforceable
master netting arrangement or ‘similar agreement’, irrespective of whether they are set-off in
accordance with PAS 32. The amendments require entities to disclose, in a tabular format
unless another format is more appropriate, the following minimum quantitative information.
- 19 -
This is presented separately for financial assets and financial liabilities recognized at the end
of the reporting period:
a) The gross amounts of those recognized financial assets and recognized financial liabilities;
b) The amounts that are set off in accordance with the criteria in PAS 32 when determining
the net amounts presented in the statement of financial position;
c) The net amounts presented in the statement of financial position;
d) The amounts subject to an enforceable master netting arrangement or similar agreement
that are not otherwise included in (b) above, including:
i. Amounts related to recognized financial instruments that do not meet some or all of
the offsetting criteria in PAS 32; and
ii. Amounts related to financial collateral (including cash collateral); and
e) The net amount after deducting the amounts in (d) from the amounts in (c) above.
The amendments to PFRS 7 are to be applied retrospectively. The amendment affects
disclosures only and has no impact on the Group’s financial position or performance.

PFRS 10, Consolidated Financial Statements (effective for annual periods beginning on or
after January 1, 2013)
PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements,
that addresses the accounting for consolidated financial statements. It also includes the issues
raised in SIC-12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single
control model that applies to all entities including special purpose entities. The changes
introduced by PFRS 10 will require management to exercise significant judgment to determine
which entities are controlled, and therefore, are required to be consolidated by a parent,
compared with the requirements that were in PAS 27.
The Group’s management has assessed that it has control over its existing SPEs. The
consolidated financial statements include the financial statements of the Parent Company and
the SPEs that it controls.

PFRS 11, Joint Arrangements (effective for annual periods beginning on or after
January 1, 2013)
PFRS 11 replaces PAS 31, Interests in Joint Ventures and SIC-13, Jointly-controlled Entities Non-monetary Contributions by Venturers. PFRS 11 removes the option to account for jointly
controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the
definition of a joint venture must be accounted for using the equity method.
The Group currently accounts for its investments in joint venture using the equity method.

PFRS 12, Disclosures of Involvement with Other Entities (effective for annual periods
beginning periods on or after January 1, 2013)
PFRS 12 includes all of the disclosures that were previously in PAS 27 related to consolidated
financial statements, as well as all of the disclosures that were previously included in PAS 31
and PAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint
arrangements, associates and structured entities. A number of new disclosures are also
required.
The amendment affects disclosures only and has no impact on the Group’s financial position
or performance.
- 20 
PFRS 13, Fair Value Measurement (effective for annual periods beginning on or before
January 1, 2013)
PFRS 13 establishes a single source of guidance under PFRS for all fair value measurements.
PFRS 13 does not change when an entity is required to use fair value, but rather provides
guidance on how to measure fair value under PFRS when fair value is required or permitted.
As of December 31, 2012, the Group has adopted the standard in reporting its consolidated
financial statements.

PAS 1, Financial Statement Presentation - Presentation of Items of Other Comprehensive
Income (effective for annual periods beginning on or after July 1, 2012)
The amendments to PAS 1 change the grouping of items presented in OCI. Items that could
be reclassified (or “recycled”) to profit or loss at a future point in time (for example, upon
derecognition or settlement) would be presented separately from items that will never be
reclassified.
The amendment affects presentation only and has therefore no impact on the Group’s financial
position or performance.

Amendments to PAS 19, Employee Benefits (effective for annual periods beginning on or after
January 1, 2013)
Amendments to PAS 19 range from fundamental changes such as removing the corridor
mechanism and the concept of expected returns on plan assets to simple clarifications and rewording.
As of December 31, 2012, the Group reviewed its existing employee benefits and determined
that the amended standard has significant impact on its accounting for retirement benefits.
The Group obtained the services of an external actuary to compute the impact to the financial
statements upon adoption of the standard. The effects are detailed below:
As at
December 31,
2012
Increase (decrease) in:
Consolidated statements of financial position
Net defined benefit liability
Deferred tax asset on unrecognized actuarial losses
Other comprehensive income
Retained earnings
=139,529,356
P
20,777,543
(69,258,478)
73,701,878
As at
December 31,
2012
Consolidated statement of comprehensive income
Net pension expense
Income tax expense
Statement of comprehensive income
Amortization of actuarial gain
=67,289,100
P
20,186,730
3,431,000
- 21 
Revised PAS 27, Separate Financial Statements (effective for annual periods beginning on or
after January 1, 2013)
As a consequence of the new PFRS 10, Consolidated Financial Statements, and PFRS 12,
Disclosure of Interests in Other Entities, what remains of PAS 27 is limited to accounting for
subsidiaries, jointly controlled entities, and associates in separate financial statements.
The Group’s management has assessed that it has control over its existing SPE’s. The
consolidated financial statements include the financial statements of the Parent Company and
the SPEs that it controls.

Revised PAS 28, Investments in Associates and Joint Ventures (effective for annual periods
beginning on or after January 1, 2013)
As a consequence of the new PFRS 11, Joint Arrangements, and PFRS 12, PAS 28 has been
renamed PAS 28, Investments in Associates and Joint Ventures, and describes the application
of the equity method to investments in joint ventures in addition to associates.
The Group currently accounts for its investments in joint venture using the equity method.

Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine
(effective for annual periods beginning on or after January 1, 2013)
This Philippine Interpretation applies to waste removal costs that are incurred in surface
mining activity during the production phase of the mine (“production stripping costs”) and
provides guidance on the recognition of production stripping costs as an asset and
measurement of the stripping activity asset.
Future Changes in Accounting Policies
The Group will adopt the following new and amended PFRS and Philippine Interpretations
enumerated below when these become effective. Except as otherwise indicated, the following
new and amended PFRS and Philippine Interpretations will not have significant impact on the
consolidated financial statements of the Group:
Improvements to PFRS 2012
The Annual Improvements to PFRSs (2009-2011 cycle) contain non-urgent but necessary
amendments to PFRSs. The amendments are effective for annual periods beginning on or after
January 1, 2013 and are applied retrospectively. Earlier application is permitted. Except as
otherwise indicated, the following new and amended PFRS and Philippine Interpretations will not
have significant impact on the financial statements of the Company:

PFRS 1, First-time Adoption of PFRS - Borrowing Costs
The amendment clarifies that, upon adoption of PFRS, an entity that capitalized borrowing
costs in accordance with its previous generally accepted accounting principles, may carry
forward, without any adjustment, the amount previously capitalized in its opening statement of
financial position at the date of transition. Subsequent to the adoption of PFRS, borrowing
costs are recognized in accordance with PAS 23, Borrowing Costs.

PAS 1, Presentation of Financial Statements - Clarification of the requirements for
comparative information
The amendments clarify the requirements for comparative information that are disclosed
voluntarily and those that are mandatory due to retrospective application of an accounting
policy, or retrospective restatement or reclassification of items in the financial statements. An
entity must include comparative information in the related notes to the financial statements
- 22 -
when it voluntarily provides comparative information beyond the minimum required
comparative period. The additional comparative period does not need to contain a complete
set of financial statements. On the other hand, supporting notes for the third balance sheet
(mandatory when there is a retrospective application of an accounting policy, or retrospective
restatement or reclassification of items in the financial statements) are not required.

PAS 16, Property, Plant and Equipment - Classification of servicing equipment
The amendment clarifies that spare parts, stand-by equipment and servicing equipment should
be recognized as property, plant and equipment when they meet the definition of property,
plant and equipment and should be recognized as inventory if otherwise.

PAS 32, Financial Instruments: Presentation - Tax effect of distribution to holders of equity
instruments
The amendment clarifies that income taxes relating to distributions to equity holders and to
transaction costs of an equity transaction are accounted for in accordance with PAS 12,
Income Taxes.

PAS 34, Interim Financial Reporting - Interim financial reporting and segment information
for total assets and liabilities
The amendment clarifies that the total assets and liabilities for a particular reportable segment
need to be disclosed only when the amounts are regularly provided to the chief operating
decision maker and there has been a material change from the amount disclosed in the entity’s
previous annual financial statements for that reportable segment.
Effective 2014

PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial
Liabilities (effective for annual periods beginning on or after January 1, 2014)
These amendments to PAS 32 clarify the meaning of “currently has a legally enforceable right
to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement
systems (such as central clearing house systems) which apply gross settlement mechanisms
that are not simultaneous.
Effective 2015

PFRS 9, Financial Instruments: Classification and Measurement (effective for annual periods
beginning on or after January 1, 2015)
PFRS 9 as issued reflects the first phase on the replacement of PAS 39 and applies to
classification and measurement of financial assets and financial liabilities as defined in
PAS 39. In subsequent phases, hedge accounting and impairment of financial assets will be
addressed with the completion of this project expected on the first half of 2012. The adoption
of the first phase of PFRS 9 will have an effect on the classification and measurement of the
Group’s financial assets, but will potentially have no impact on classification and
measurements of financial liabilities.

Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate
The implementation of the Philippine Interpretation is deferred until the final Review Standard
is issued by IASB and after an evaluation on the requirements and guidance in the standard
vis-à-vis the practices and regulations in the Philippine real estate industry is completed. This
Philippine Interpretation covers accounting for revenue and associated expenses by entities
that undertake the construction of real estate directly or through subcontractors. This
- 23 -
Philippine Interpretation requires that revenue on construction of real estate be recognized
only upon completion, except when such contract qualifies as construction contract to be
accounted for under PAS 11, Construction Contracts, or involves rendering of services in
which case revenue is recognized based on stage of completion. Contracts involving provision
of services with the construction materials and where the risks and reward of ownership are
transferred to the buyer on a continuous basis will also be accounted for based on stage of
completion. The SEC and the Financial Reporting Standards Council (FRSC) have deferred
the effectivity of this interpretation until the final Revenue standard is issued by the
International Accounting Standards Board (IASB) and an evaluation of the requirements of the
final Revenue standard against the practices of the Philippine real estate industry is completed.
Adoption of the interpretation when it becomes effective will not have any impact on the
financial statements of the Group.
4. Summary of Significant Accounting Policies
Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the
Group and the revenue can be reliably measured. Revenue is measured at the fair value of the
consideration received, excluding discounts, rebates and other sales taxes or duty. The following
specific recognition criteria must also be met before revenue is recognized:
Sale of air transportation services
Passenger ticket and cargo waybill sales are initially recorded under ‘Unearned transportation
revenue’ account in the consolidated statement of financial position until recognized under
Revenue account in the consolidated statement of comprehensive income when the transportation
service is rendered by the Group (e.g., when passengers and cargo are lifted). Unearned tickets
are recognized as revenue using estimates regarding the timing of recognition based on the terms
and conditions of the ticket and historical trends.
The related commission is recognized as outright expense upon the receipt of payment from
customers, and is included under ‘Reservation and sales’ account.
Ancillary revenue
Revenue from in-flight sales and other services are recognized when the goods are delivered or the
services are carried out.
Interest income
Interest on cash, cash equivalents, short-term cash investments and debt securities classified as
financial assets at FVPL is recognized as the interest accrues using the effective interest method.
Expense Recognition
Expenses are recognized when it is probable that a decrease in future economic benefits related to
decrease in an asset or an increase in liability has occurred and the decrease in economic benefits
can be measured reliably. Expenses that arise in the course of ordinary regular activities of the
Group include, among others, the operating expenses on the Group’s operation.
General and Administrative Expenses
General and administrative expenses constitute cost of administering the business. These are
recognized as expenses when it is probable that a decrease in future economic benefit related to a
decrease in an asset or an increase in a liability has occurred and the decrease in economic benefits
can be measured reliably.
- 24 -
Cash and Cash Equivalents
Cash represents cash on hand and in banks. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash with original maturities of
three months or less from dates of placement and that are subject to an insignificant risk of
changes in value. Cash equivalents include short-term investment that can be pre-terminated and
readily convertible to known amount of cash and that are subject to an insignificant risk of
changes in value. Cash and cash equivalents, excluding cash on hand, are classified and
accounted for as loans and receivables.
Financial Instruments
Date of recognition
Purchases or sales of financial assets that require delivery of assets within the time frame
established by regulation or convention in the marketplace are recognized using the settlement
date accounting. Derivatives are recognized on a trade date basis.
Initial recognition of financial instruments
Financial instruments are recognized initially at the fair value of the consideration given. Except
for financial instruments at FVPL, the initial measurement of financial assets includes transaction
costs. The Group classifies its financial assets into the following categories: financial assets at
FVPL, held-to-maturity (HTM) investments, AFS investments and loans and receivables.
Financial liabilities are classified into financial liabilities at FVPL and other financial liabilities
carried at cost or amortized cost. As of March 31, 2013 and December 31, 2012, the Group has no
HTM investments.
The classification depends on the purpose for which the investments were acquired and whether
they are quoted in an active market. Management determines the classification of its investments
at initial recognition and, where allowed and appropriate, re-evaluates such designation at every
reporting date.
Determination of fair value
The fair value of financial instruments traded in active markets at the statement of financial
position date is based on their quoted market price or dealer price quotations (bid price for long
positions and ask price for short positions), without any deduction for transaction costs. When
current bid and ask prices are not available, the price of the most recent transaction provides
evidence of the current fair value as long as there has not been a significant change in economic
circumstances since the time of the transaction.
The Group follows the hierarchy in Philippine Interpretations Committee (PIC) Question and
Answer (Q&A) No. 2010-01: PAS 39.AG71-72, Rate used in determining the fair value of
government securities in the Philippines, beginning January 1, 2010, for the determination of fair
value of government securities in the Philippines, using market data published by the Philippine
Dealing and Exchange Corporation or PDEx:
a. Current bid yield, if available, on the reporting date.
b. When a current bid yield is not available, the last or close yield on the reporting date.
c. When there is no transaction for a security on the reporting date, the PDSI-R2 rate may be
used.
The consensus in the Q&A has been approved by the PIC on March 2, 2010 and approved by the
Financial Reporting Standards Committee on June 4, 2010.
- 25 -
For all other financial instruments not listed in an active market, the fair value is determined by
using appropriate valuation techniques. Valuation techniques include net present value
techniques, comparison to similar instruments for which market observable prices exist, options
pricing models and other relevant valuation models. Any difference noted between the fair value
and the transaction price is treated as expense or income, unless it qualifies for recognition as
some type of asset or liability.
‘Day 1’ profit or loss
Where the transaction price in a non-active market is different from the fair value based on other
observable current market transactions in the same instrument or based on a valuation technique
whose variables include only data from an observable market, the Group recognizes the difference
between the transaction price and fair value (a ‘Day 1’ profit or loss) in profit or loss unless it
qualifies for recognition as some other type of asset or liability. In cases where the transaction
price used is made of data which is not observable, the difference between the transaction price
model value is only recognized in profit or loss, when the inputs become observable or when the
instrument is derecognized. For each transaction, the Group determines the appropriate method of
recognizing the ‘Day 1’ profit or loss amount.
Financial assets and financial liabilities at FVPL
Financial assets and financial liabilities at FVPL include financial assets and financial liabilities
held for trading purposes, derivative instruments or those designated upon initial recognition as at
FVPL. Financial assets and financial liabilities are designated by management on initial
recognition when any of the following criteria are met:



The designation eliminates or significantly reduces the inconsistent treatment that would
otherwise arise from measuring the assets or liabilities or recognizing gains or losses on them
on a different basis; or
The assets or liabilities are part of a group of financial assets, financial liabilities or both
which are managed and their performance are evaluated on a fair value basis, in accordance
with a documented risk management or investment strategy; or
The financial instrument contains an embedded derivative, unless the embedded derivative
does not significantly modify the cash flows or it is clear, with little or no analysis, that it
would not be separately recorded.
As of March 31, 2013, the Group has no financial assets at FVPL. As of December 31, 2012, the
Group’s financial assets at FVPL consist of derivative assets (Note 8).
Financial assets and financial liabilities at FVPL are presented in the consolidated statement of
financial position at fair value. Changes in fair value are reflected in profit or loss. Interest earned
or incurred is recorded in interest income or expense, respectively, while dividend income is
recorded in other revenue according to the terms of the contract, or when the right of the payment
has been established.
Derivatives recorded at FVPL
The Group is a counterparty to certain derivative contracts such as commodity options. Such
derivative financial instruments are initially recorded at fair value on the date at which the
derivative contract is entered into and are subsequently re-measured at fair value. Any gains or
losses arising from changes in fair values of derivatives (except those accounted for as accounting
hedges) are taken directly to profit or loss. Derivatives are carried as assets when the fair value is
positive and as liabilities when the fair value is negative.
- 26 -
For the purpose of hedge accounting, hedges are classified primarily as either: (a) a hedge of the
fair value of an asset, liability or a firm commitment (fair value hedge); or (b) a hedge of the
exposure to variability in cash flows attributable to an asset or liability or a forecasted transaction
(cash flow hedge). The Group did not apply hedge accounting on its derivative transactions for the
three months ended March 31, 2013 and 2012.
The Group enters into fuel derivatives to manage its exposure to fuel price fluctuations. Such fuel
derivatives are not designated as accounting hedges. These derivatives are entered into for risk
management purposes. The gains or losses on these instruments are accounted for directly as
charges to or credits against current operations under ‘Fuel hedging gains (losses)’ account in
profit or loss.
As of March 31, 2013 and December 31, 2012, the Group has no embedded derivatives.
AFS investments
AFS investments are those non-derivative investments which are designated as such or do not
qualify to be classified or designated as financial assets at FVPL, HTM investments or loans and
receivables. They are purchased and held indefinitely, and may be sold in response to liquidity
requirements or changes in market conditions. After initial measurement, AFS investments are
subsequently measured at fair value.
The unrealized gains and losses are recognized directly in equity [other comprehensive income
(loss)] under ‘Net unrealized gain (loss) on AFS investments’ account in the statement of financial
position. When the investment is disposed of, the cumulative gain or loss previously recognized
in the statement of comprehensive income is recognized in the statement of income. Where the
Group holds more than one investment in the same security they are deemed to be disposed of on
a first-in first-out basis. Dividends earned while holding AFS investments are recognized in the
statement of income when the right of the payment has been established. The losses arising from
impairment of such investments are recognized in the statement of income and removed from the
‘Net unrealized gain (loss) on AFS investments’ account.
As of March 31, 2013 and December 31, 2012, the Group has no AFS investments.
Receivables
Receivables are non-derivative financial assets with fixed or determinable payments and fixed
maturities that are not quoted in an active market. After initial measurement, receivables are
subsequently carried at amortized cost using the effective interest method less any allowance for
impairment loss. Amortized cost is calculated by taking into account any discount or premium on
acquisition, and includes fees that are an integral part of the effective interest rate (EIR) and
transaction costs. Gains and losses are recognized in profit or loss, when the receivables are
derecognized or impaired, as well as through the amortization process.
This accounting policy applies primarily to the Group’s trade and other receivables (Note 9) and
certain refundable deposits.
Financial liabilities
Issued financial instruments or their components, which are not designated at FVPL are classified
as other financial liabilities where the substance of the contractual arrangement results in the
Group having an obligation either to deliver cash or another financial asset to the holder, or to
satisfy the obligation other than by the exchange of a fixed amount of cash or another financial
asset for a fixed number of own equity shares. The components of issued financial instruments
that contain both liability and equity elements are accounted for separately, with the equity
- 27 -
component being assigned the residual amount after deducting from the instrument as a whole the
amount separately determined as the fair value of the liability component on the date of issue.
After initial measurement, other financial liabilities are subsequently measured at cost or
amortized cost using the effective interest method. Amortized cost is calculated by taking into
account any discount or premium on the issue and fees that are an integral part of the EIR. Any
effects of restatement of foreign currency-denominated liabilities are recognized in profit or loss.
This accounting policy applies primarily to the Group’s accounts payable and other accrued
liabilities, long-term debt, and other obligations that meet the above definition (Notes 15, 16
and 17).
Impairment of Financial Assets
The Group assesses at each reporting date whether there is objective evidence that a financial asset
or group of financial assets is impaired. A financial asset or a group of financial assets is deemed
to be impaired if, and only if, there is objective evidence of impairment as a result of one or more
events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that
loss event (or events) has an impact on the estimated future cash flows of the financial asset or the
group of financial assets that can be reliably estimated. Evidence of impairment may include
indications that the borrower or a group of borrowers is experiencing significant financial
difficulty, default or delinquency in interest or principal payments, the probability that they will
enter bankruptcy or other financial reorganization and where observable data indicate that there is
a measurable decrease in the estimated future cash flows, such as changes in arrears or economic
conditions that correlate with defaults.
Assets carried at amortized cost
If there is objective evidence that an impairment loss on financial assets carried at amortized cost
(i.e., receivables) has been incurred, the amount of the loss is measured as the difference between
the asset’s carrying amount and the present value of estimated future cash flows discounted at the
asset’s original EIR. Time value is generally not considered when the effect of discounting is not
material. The carrying amount of the asset is reduced through the use of an allowance account.
The amount of the loss shall be recognized in profit or loss. The asset, together with the
associated allowance accounts, is written-off when there is no realistic prospect of future recovery.
The Group first assesses whether objective evidence of impairment exists individually for
financial assets that are individually significant, and collectively for financial assets that are not
individually significant. If it is determined that no objective evidence of impairment exists for an
individually assessed financial asset, whether significant or not, the asset is included in a group of
financial assets with similar credit risk characteristics and that group of financial assets is
collectively assessed for impairment. Assets that are individually assessed for impairment and for
which an impairment loss is or continues to be recognized are not included in the collective
assessment of impairment.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is
recognized in profit or loss to the extent that the carrying value of the asset does not exceed its
amortized cost at the reversal date.
The Group performs a regular review of the age and status of these accounts, designed to identify
accounts with objective evidence of impairment and provide the appropriate allowance for
impairment loss. The review is accomplished using a combination of specific and collective
assessment approaches, with the impairment loss being determined for each risk grouping
identified by the Group.
- 28 -
AFS investments
The Group assesses at each reporting date whether there is objective evidence that a financial asset
or group of financial assets is impaired. In the case of debt instruments classified as AFS
investments, impairment is assessed based on the same criteria as financial assets carried at
amortized cost. Interest continues to be accrued at the original EIR on the reduced carrying
amount of the asset and is recorded under interest income in profit or loss. If, in a subsequent
year, the fair value of a debt instrument increases, and the increase can be objectively related to an
event occurring after the impairment loss was recognized in profit or loss, the impairment loss is
also reversed through profit or loss.
For equity investments classified as AFS investments, objective evidence would include a
significant or prolonged decline in the fair value of the investments below its cost. The
determination of what is significant and prolonged is subject to judgment. Where there is
evidence of impairment, the cumulative loss measured as the difference between the acquisition
cost and the current fair value, less any impairment loss on that investment previously recognized
is removed from other comprehensive income and recognized in profit or loss. Impairment losses
on equity investments are not reversed through the statement of comprehensive income. Increases
in fair value after impairment are recognized directly in other comprehensive income.
Derecognition of Financial Instruments
Financial assets
A financial asset (or, where applicable a part of a financial asset or part of a group of financial
assets) is derecognized where:



the rights to receive cash flows from the asset have expired;
the Group retains the right to receive cash flows from the asset, but has assumed an obligation
to pay them in full without material delay to a third party under a “pass-through” arrangement;
or
the Group has transferred its rights to receive cash flows from the asset and either: (a) has
transferred substantially all the risks and rewards of ownership and retained control over the
asset; or (b) has neither transferred nor retained the risks and rewards of the asset but has
transferred the control over the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a
pass-through arrangement, and has neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control over the asset, the asset is recognized to the extent of
the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a
guarantee over the transferred asset is measured at the lower of original carrying amount of the
asset and the maximum amount of consideration that the Group could be required to repay.
Financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged,
cancelled or has expired. When an existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a derecognition of the original liability
and the recognition of a new liability, and the difference in the respective carrying amounts is
recognized in profit or loss.
Offsetting Financial Instruments
Financial assets and liabilities are offset and the net amount reported in the consolidated statement
of financial position if, and only if, there is a currently enforceable legal right to offset the
recognized amounts and there is an intention to settle on a net basis, or to realize the asset and
- 29 -
settle the liability simultaneously. This is not generally the case with master netting agreements;
thus, the related assets and liabilities are presented gross in the consolidated statement of financial
position.
Expendable Parts, Fuel, Materials and Supplies
Expendable parts, fuel, materials and supplies are stated at lower of cost and net realizable value
(NRV). Cost of flight equipment expendable parts, materials and supplies are stated at acquisition
cost determined on a moving average cost method. Fuel is stated at cost on a weighted average
cost method. NRV is the estimated selling price in the ordinary course of business less estimated
costs to sell.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation, amortization and
impairment loss, if any. The initial cost of property and equipment comprises its purchase price,
any related capitalizable borrowing costs attributed to progress payments incurred on account of
aircraft acquisition under construction and other directly attributable costs of bringing the asset to
its working condition and location for its intended use.
Subsequent costs are capitalized as part of ‘Property and equipment’ account only when it is
probable that future economic benefits associated with the item will flow to the Group and the cost
of the item can be measured reliably. Subsequent costs such as actual costs of heavy maintenance
visits for passenger aircraft are capitalized and depreciated based on the estimated number of years
or flying hours, whichever is applicable, until the next major overhaul or inspection. Generally,
heavy maintenance visits are required every five to six years for airframe and ten years or 20,000
flight cycles, whichever comes first, for landing gear. All other repairs and maintenance are
charged against current operations as incurred.
Construction in-progress are transferred to the related ‘Property and equipment’ account when the
construction or installation and related activities necessary to prepare the property and equipment
for their intended use are completed, and the property and equipment are ready for service.
Construction in-progress is not depreciated until such time when the relevant assets are completed
and available for use.
Depreciation and amortization of property and equipment commence once the property and
equipment are available for use and are computed using the straight-line method over the
estimated useful lives (EULs) of the assets, regardless of utilization.
The EULs of property and equipment of the Group follows:
Passenger aircraft*
Engines
Rotables
Ground support equipment
EDP Equipment, mainframe and peripherals
Transportation equipment
Furniture, fixtures and office equipment
Communication equipment
Special tools
Maintenance and test equipment
Other equipment
* With residual value of 15.00%
15 years
15 years
15 years
5 years
3 years
5 years
5 years
5 years
5 years
5 years
5 years
- 30 -
Leasehold improvements are amortized over the shorter of their EULs or the corresponding lease
terms.
An item of property and equipment is derecognized upon disposal or when no future economic
benefits are expected to arise from the continued use of the asset. Any gain or loss arising on
derecognition of the asset (calculated as the difference between the net disposal proceeds and the
carrying amount of the item) is included in profit or loss, in the year the item is derecognized.
The assets’ residual values, useful lives and methods of depreciation and amortization are
reviewed and adjusted, if appropriate, at each financial year-end.
Aircraft Maintenance and Overhaul Cost
The Group recognizes aircraft maintenance and overhaul expenses in accordance with the
contractual terms.
The maintenance contracts are classified into two: (a) those based on time and material basis
(TMB), and (b) power-by-the-hour (PBH) contract. For maintenance contract under TMB, the
Group recognizes expenses based on expense as incurred method. For maintenance contract under
PBH, the Group recognizes expense on an accrual basis.
ARO
The Group is contractually required under various lease contracts to restore certain leased aircraft
to its original condition and to bear the cost of restoration at the end of the contract period. The
contractual obligation includes regular aircraft maintenance, overhaul and restoration of the leased
aircraft to its original condition. Regular aircraft maintenance is accounted for as expense when
incurred, while overhaul and restoration are accounted on an accrual basis.
The Group recognizes the present value of these costs as ARO asset and ARO liability (included
under ‘Noncurrent liabilities’). The Group depreciates ARO asset on a straight-line basis over the
EUL of the related asset or the lease term, whichever is shorter, or written off as a result of
impairment of the related asset. The Group amortizes ARO liability using the effective interest
method and recognizes accretion expense over the lease term. Amortization of ARO asset and
accretion expense of ARO liability are recognized under “Repairs and Maintenance” account in
the consolidated statements of comprehensive income.
The Group regularly assesses the provision for ARO and adjusts the related liability (Note 5).
Investment in Joint Ventures
A joint venture (JV) is a contractual arrangement whereby two or more parties undertake an
economic activity that is subject to joint control. A jointly controlled entity is a JV that involves
the establishment of a separate entity in which each venturer has an interest.
The Group’s 50.00%, 49.00% and 35.00% investments in Philippine Academy for Aviation
Traning, Inc. (PAAT), Aviation Partnership (Philippines) Corporation (A-plus) and SIA
Engineering (Philippines) Corporation (SIAEP), respectively, are accounted for under the equity
method (Note 13). Under the equity method, the investments in JV are carried in the consolidated
statement of financial position at cost plus post-acquisition changes in the Group’s share of net
assets of the JV, less any allowance for impairment in value. The consolidated statement of
comprehensive income reflects the Group’s share in the results of operations of the JV. Dividends
received are treated as a revaluation of the carrying value of the investment.
- 31 -
The financial statements of the investee companies used in the preparation of the consolidated
financial statement are prepared as of the same date with the Group. The investee companies’
accounting policies conform to those by the Group for like transactions and events in similar
circumstances.
Impairment of Nonfinancial Assets
This accounting policy applies primarily to the Group’s property and equipment and investments
in JV.
At each reporting date, the Group assesses whether there is any indication that its nonfinancial
assets may be impaired. When an indicator of impairment exists or when an annual impairment
testing for an asset is required, the Group makes a formal estimate of recoverable amount.
Recoverable amount is the higher of an asset’s (or cash-generating unit’s) fair value less costs to
sell and its value in use and is determined for an individual asset, unless the asset does not
generate cash inflows that are largely independent of those from other assets or groups of assets, in
which case the recoverable amount is assessed as part of the cash generating unit to which it
belongs. Where the carrying amount of an asset (or cash-generating unit) exceeds its recoverable
amount, the asset (or cash-generating unit) is considered impaired and is written down to its
recoverable amount. In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset (or cash-generating unit).
An assessment is made at each statement of financial position date as to whether there is any
indication that a previously recognized impairment loss may no longer exist or may have
decreased. If such indication exists, the recoverable amount is estimated. A previously
recognized impairment loss is reversed only if there has been a change in the estimates used to
determine the asset’s recoverable amount since the last impairment loss was recognized. If that is
the case, the carrying amount of the asset is increased to its recoverable amount. That increased
amount cannot exceed the carrying amount that would have been determined, net of depreciation
and amortization, had no impairment loss been recognized for the asset in prior years. Such
reversal is recognized in profit or loss. After such a reversal, the depreciation and amortization
expense is adjusted in future years to allocate the asset’s revised carrying amount, less any
residual value, on a systematic basis over its remaining life.
The Group’s investment in JV is tested for impairment in accordance with PAS 36 as a single
asset, by comparing its recoverable amount (higher of value in use and fair value less costs to sell)
with its carrying amount, whenever application of the requirements in PAS 39 indicates that the
investment may be impaired. An impairment loss recognized in those circumstances is not
allocated to any asset that forms part of the carrying amount of the investment in a JV.
Accordingly, any reversal of that impairment loss is recognized in accordance with PAS 36 to the
extent that the recoverable amount of the investment subsequently increases. In determining the
value in use of the investment, an entity estimates: (a) its share of the present value of the
estimated future cash flows expected to be generated by the JV, including the cash flows from the
operations of the JV and the proceeds on the ultimate disposal of the investment; or (b) the present
value of the estimated future cash flows expected to arise from dividends to be received from the
investment and from its ultimate disposal.
Common Stock
Common stocks are classified as equity and recorded at par. Proceeds in excess of par value are
recorded as ‘Capital paid in excess of par value’ in the consolidated statement of financial
position. Incremental costs directly attributable to the issue of new shares or options are shown in
equity as a deduction from the proceeds.
- 32 -
Treasury Stock
Own equity instruments which are acquired (treasury shares) are recognized at cost and deducted
from equity. No gain or loss is recognized in the profit and loss on the purchase, sale, issue or
cancellation of the Parent Company’s own equity instruments.
Retained Earnings
Retained earnings represent accumulated earnings of the Group less dividends declared.
Dividends on Common Shares
Dividends on common shares are recognized as a liability and deducted from equity when
approved and declared by the BOD, in the case of cash dividends; or by the BOD and
shareholders, in the case of stock dividends.
Provisions and Contingencies
Provisions are recognized when: (a) the Group has a present obligation (legal or constructive) as a
result of a past event; (b) it is probable (i.e., more likely than not) that an outflow of assets
embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate
can be made of the amount of the obligation. Provisions are reviewed at each reporting date and
adjusted to reflect the current best estimate. Where the Group expects a provision to be
reimbursed, for example under an insurance contract, the reimbursement is recognized as a
separate asset but only when the reimbursement is virtually certain. If the effect of the time value
of money is material, provisions are determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability. Where discounting is used, the increase in the
provision due to the passage of time is recognized as an interest expense in profit or loss.
Contingent liabilities are not recognized in the consolidated statement of financial position but are
disclosed unless the possibility of an outflow of resources embodying economic benefits is
remote. Contingent assets are not recognized but disclosed in the consolidated financial
statements when an inflow of economic benefits is probable. If it is virtually certain that an inflow
of economic benefits will arise, the asset and the related income are recognized in the consolidated
financial statements.
Pension Costs
Pension cost is actuarially determined using the projected unit credit method. This method reflects
services rendered by employees up to the date of valuation and incorporates assumptions
concerning employees’ projected salaries. Actuarial valuations are conducted with sufficient
regularity, with option to accelerate when significant changes to underlying assumptions occur.
Pension cost includes current service cost, interest cost, expected return on any plan assets,
actuarial gains and losses and the effect of any curtailment or settlement.
Actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions are credited to or charged against profit or loss when the net cumulative unrecognized
actuarial gains and losses at the end of the previous period exceed 10.00% of the higher of the
present value of the defined benefit obligation and the fair value of plan assets at that date.
The excess actuarial gains or losses are recognized over the average remaining working lives of
the employees participating in the plan.
- 33 -
The asset or liability recognized in the consolidated statement of financial position in respect of
defined benefit retirement plan is the present value of the defined benefit obligation as of
statement of financial position date less the fair value of plan assets, together with adjustments for
unrecognized actuarial gains or losses and past service costs. The value of any asset is restricted
to the sum of any past service cost not yet recognized and the present value of any economic
benefits available in the form of refunds from the plan or reductions in the future contributions to
the plan. The defined benefit obligation is calculated annually by an independent actuary. The
present value of the defined benefit obligation is determined by discounting the estimated future
cash inflows using long term government bond risk-free interest rates that have terms to maturity
approximating the terms of the related pension liability for applying a single weighted average
discount rate that reflects the estimated timing and amount of benefit payments.
Short-term employee benefits are expensed as incurred.
Income Taxes
Current tax
Current tax assets and liabilities for the current and prior periods are measured at the amount
expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used
to compute the amount are those that are enacted or substantially enacted as of the reporting date.
Deferred tax
Deferred tax is provided using the liability method on all temporary differences, with certain
exceptions, at the reporting date between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, with certain
exceptions. Deferred tax assets are recognized for all deductible temporary differences with
certain exceptions, and carry forward benefits of unused tax credits from excess minimum
corporate income tax (MCIT) over RCIT and unused net operating loss carryover (NOLCO), to
the extent that it is probable that sufficient taxable income will be available against which the
deductible temporary differences and carry forward benefits of unused tax credits from excess
MCIT and unused NOLCO can be utilized. Deferred tax assets, however, are not recognized
when it arises from the initial recognition of an asset or liability in a transaction that is not a
business combination and, at the time of transaction, affects neither the accounting income nor
taxable profit or loss.
Deferred tax liabilities are not provided on non-taxable temporary differences associated with
interests in JV. With respect to interests in JV, deferred tax liabilities are recognized except where
the timing of the reversal of the temporary difference can be controlled and it is probable that the
temporary difference will not reverse in the foreseeable future.
The carrying amounts of deferred tax assets are reviewed at each reporting date and reduced to the
extent that it is no longer probable that sufficient taxable income will be available to allow all or
part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at
each reporting date, and are recognized to the extent that it has become probable that future
taxable income will allow the deferred tax assets to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are applicable 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 the statement of financial position date.
- 34 -
Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss.
Deferred tax items are recognized in correlation to the underlying transaction either in profit or
loss or other comprehensive income.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set
off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable
entity and the same taxation authority.
Leases
The determination of whether an arrangement is, or contains a lease, is based on the substance of
the arrangement at inception date, and requires an assessment of whether the fulfillment of the
arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a
right to use the asset. A reassessment is made after inception of the lease only if one of the
following applies:
a. there is a change in contractual terms, other than a renewal or extension of the arrangement;
b. a renewal option is exercised or an extension granted, unless that term of the renewal or
extension was initially included in the lease term;
c. there is a change in the determination of whether fulfillment is dependent on a specified asset;
or
d. there is a substantial change to the asset.
Where a reassessment is made, lease accounting shall commence or cease from the date when the
change in circumstances gave rise to the reassessment for (a), (c) and (d) scenarios above, and at
the date of renewal or extension period for scenario (b).
Group as lessee
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to
ownership of the leased item, are capitalized at the inception of the lease at the fair value of the
leased property or, if lower, at the present value of the minimum lease payments and included
under ‘Property and equipment’ account with the corresponding liability to the lessor included
under ‘Long-term debt’ account in the consolidated statement of financial position. Lease
payments are apportioned between the finance charges and reduction of the lease liability so as to
achieve a constant rate of interest on the remaining balance of the liability. Finance charges are
charged directly to profit or loss.
Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable
certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated
over the shorter of the EUL of the asset and the lease term.
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are
classified as operating leases. Operating lease payments are recognized as an expense in profit or
loss on a straight-line basis over the lease term.
Group as lessor
Leases where the Group does not transfer substantially all the risks and benefits of ownership of
the assets are classified as operating leases. Initial direct costs incurred in negotiating operating
leases are added to the carrying amount of the leased asset and recognized over the lease term on
the same basis as the rental income. Contingent rents are recognized as revenue in the period in
which they are earned.
- 35 -
Borrowing Costs
Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are
directly attributable to the acquisition or construction of a qualifying asset. Capitalization of
borrowing costs commences when the activities to prepare the asset are in progress, and
expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the
assets are substantially ready for their intended use.
The Group has not capitalized any borrowing costs for the quarters ended March 31, 2013 and
2012 as all borrowing costs from outstanding long-term debt relate to assets that are at state ready
for intended use (Note 16).
Foreign Currency Transactions
Transactions in foreign currencies are initially recorded in the Group’s functional currency using
the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated at the functional currency using the Philippine
Dealing and Exchange Corp. (PDEX) closing rate prevailing at the reporting date. All differences
are taken to the consolidated statement of comprehensive income. Non-monetary items that are
measured in terms of historical cost in a foreign currency are translated using the prevailing
closing exchange rate as of the date of initial transaction.
Earnings (Loss) Per Share (EPS)
Basic EPS is computed by dividing net income applicable to common stock by the weighted
average number of common shares issued and outstanding during the year, adjusted for any
subsequent stock dividends declared.
Diluted EPS amounts are calculated by dividing the net profit attributable to ordinary equity
holders of the Group by the weighted average number of ordinary shares outstanding during the
year plus the weighted average number of ordinary shares that would be issued on the conversion
of all the dilutive potential ordinary shares into ordinary shares.
For the quarters ended March 31, 2013 and 2012, the Group does not have any dilutive potential
ordinary shares.
Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the
Chief Operating Decision Maker (CODM). The CODM, who is responsible for resource
allocation and assessing performance of the operating segment, has been identified as the
President. The nature of the operating segment is set out in Note 6.
Events After the Reporting Date
Post-year-end events that provide additional information about the Group’s position at the
reporting date (adjusting event) are reflected in the consolidated financial statements. Post-yearend events that are not adjusting events are disclosed in the consolidated financial statements,
when material.
- 36 -
5. Significant Accounting Judgments and Estimates
In the process of applying the Group’s accounting policies, management has exercised judgments and
estimates in determining the amounts recognized in the consolidated financial statements. The most
significant uses of judgments and estimates follow.
Judgments
a. Going concern
The management of the Group has made an assessment of the Group’s ability to continue as a
going concern and is satisfied that the Group has the resources to continue in business for the
foreseeable future. Furthermore, the Group is not aware of any material uncertainties that may
cast significant doubts upon the Group’s ability to continue as a going concern. Therefore, the
consolidated financial statements continue to be prepared on a going concern basis.
b. Classification of financial instruments
The Group exercises judgment in classifying a financial instrument, or its component, 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, financial liability or equity instrument. The substance of a financial instrument, rather
than its legal form, governs its classification in the consolidated statement of financial
position.
In addition, the Group classifies financial assets by evaluating, among others, whether the
asset is quoted or not in an active market. Included in the evaluation on whether a financial
asset is quoted in an active market is the determination of whether quoted prices are readily
and regularly available, and whether those prices represent actual and regularly occurring
market transactions on an arm’s length basis.
c. Fair values of financial instruments
Where the fair values of certain financial assets and liabilities recorded in the consolidated
statement of financial position cannot be derived from active markets, they are determined
using valuation techniques,including the discounted cash flow model. The inputs to these
models are taken from observable market data where possible, but where this is not feasible,
estimates are used in establishing fair values. The judgments include considerations of
liquidity risk, credit risk and volatility. Changes in assumptions about these factors could
affect the reported fair value of financial instruments. For derivatives, the Group generally
relies on counterparties’ valuation.
d. Impairment of financial assets
In determining whether an impairment loss should be recorded in profit or loss, the Group
makes judgments as to whether there is any objective evidence of impairment as a result of
one or more events that has occurred after initial recognition of the asset and that loss event or
events has an impact on the estimated future cash flows of the financial assets or the group of
financial assets that can be reliably estimated. This observable data may include adverse
changes in payment status of borrowings in a group, or national or local economic conditions
that correlate with defaults on assets in the portfolio.
- 37 -
e. 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,
which transfer to the Group substantially all the risks and rewards incidental to ownership of
the leased items, are capitalized. Otherwise, they are considered as operating leases.
The Group also has lease agreements where it has determined that the risks and rewards
related to the leased assets are retained with the lessors. Such leases are accounted for as
operating leases (Note 28).
f.
Consolidation of SPEs
The Group periodically undertakes transactions that may involve obtaining the right to control
or significantly influence the operations of other companies. These transactions include the
purchase of aircraft and assumption of certain liabilities. Also, included are transactions
involving SPEs and similar vehicles. In all such cases, management makes an assessment as
to whether the Group has the right to control or significantly influence the SPEs, and based on
this assessment, the SPE is consolidated as a subsidiary or associated company. In making
this assessment, management considers the underlying economic substance of the transaction
and not only the contractual terms.
g. Determination of functional currency
PAS 21 requires management to use its judgment to determine the entity’s functional currency
such that it most faithfully represents the economic effects of the underlying transactions,
events and conditions that are relevant to the entity. In making this judgment, each entity in
the Group considers the following:
a) the currency that mainly influences sales prices for financial instruments and services (this
will often be the currency in which sales prices for its financial instruments and services
are denominated and settled);
b) the currency in which funds from financing activities are generated; and
c) the currency in which receipts from operating activities are usually retained.
The Group’s consolidated financial statements are presented in Philippine peso, which is also
the Parent Company’s functional currency.
h. Contingencies
The Group is currently involved in certain legal proceedings. The estimate of the probable
costs for the resolution of these claims has been developed in consultation with outside
counsel handling the defense in these matters and is based upon an analysis of potential
results. The Group currently does not believe that these proceedings will have a material
adverse effect on the Group’s financial position and results of operations. It is possible,
however, that future results of operations could be materially affected by changes in the
estimates or in the effectiveness of the strategies relating to these proceedings (Note 28).
i.
Allocation of revenue, costs and expenses
Revenue, costs and expenses are classified as exclusive and common. Exclusive revenue, cost
and expenses such as passenger revenue, cargo revenue, excess baggage revenue, fuel and
insurance surcharge, fuel and oil expense, hull/war/risk insurance, maintenance expense,
depreciation (for aircraft under finance lease), lease expense (for aircraft under operating
lease) and interest expense based on the related long-term debt are specifically identified per
aircraft based on an actual basis. For revenue, cost and expense accounts that are not
identifiable per aircraft, the Group provides allocation based on activity factors that closely
relate to the earning process of the revenue.
- 38 -
j.
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 (Note 8).
Estimates
The key assumptions concerning the future and other sources of estimation uncertainty at the
statement of financial position date that have significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next year are discussed below:
a. Estimation of allowance for credit losses on receivables
The Group maintains allowance for impairment losses at a level considered adequate to
provide for potential uncollectible receivables. The level of this allowance is evaluated by
management on the basis of factors that affect the collectibility of the accounts. These factors
include, but are not limited to, the length of the Group’s relationship with the agents,
customers and other counterparties, the payment behavior of agents and customers,
othercounterparties and other known market factors. The Group reviews the age and status of
receivables, and identifies accounts that are to be provided with allowances on a continuous
basis.
The related balances follow (Note 9):
Receivables
Allowance for credit losses
2013
P
=1,617,994,453
(216,952,089)
2012
=1,206,749,106
P
(218,237,619)
b. Determination of NRV of expendable parts, fuel, materials and supplies
The Group’s estimates of the NRV of expendable parts, fuel, materials and supplies are based
on the most reliable evidence available at the time the estimates are made, of the amount that
the expendable parts, fuel, materials and supplies are expected to be realized. In determining
the NRV, the Group considers any adjustment necessary for obsolescence, which is generally
providing 100.00% for nonmoving items for more than one year. A new assessment is made
of NRV in each subsequent period. When the circumstances that previously caused
expendable parts, fuel, materials and supplies to be written-down below cost no longer exist or
when there is a clear evidence of an increase in NRV because of a change in economic
circumstances, the amount of the write-down is reversed so that the new carrying amount is
the lower of the cost and the revised NRV.
The related balances follow (Note 10):
Expendable Parts, Fuel, Materials and Supplies
At NRV
At cost
2013
2012
P
=255,484,287
199,330,918
=241,414,140
P
176,020,670
As of March 31, 2013 and December 31, 2012, allowance for inventory write-down for
expendable parts amounted to P
=20.5 million. No additional provision for inventory writedown was recognized by the Group in 2013 and 2012.
- 39 -
c. Estimation of ARO
The Group is contractually required under certain lease contracts to restore certain leased
passenger aircraft to stipulated return condition and to bear the costs of restoration at the end
of the contract period. Since the first operating lease entered by the Group in 2001, these
costs are accrued based on an internal estimate which includes estimates of certain redelivery
costs at the end of the operating aircraft lease. The contractual obligation includes regular
aircraft maintenance, overhaul and restoration of the leased aircraft to its original condition.
Regular aircraft maintenance is accounted for as expense when incurred, while overhaul and
restoration are accounted on an accrual basis. The Group recognizes the present value of these
costs as ARO asset and ARO liability.
The amount and timing of recorded expenses for any period would differ if different
judgments were made or different estimates were utilized. The recognition of ARO would
increase other noncurrent liabilities and repairs and maintenance.
As of March 31, 2013 and December 31, 2012, the Group’s ARO liability net of ARO asset
(included under ‘Other noncurrent liabilities’ account in the statements of financial position)
has a carrying value of P
=1,492.2 million and P
=1,352.0 million, respectively (Note 17). The
related repairs and maintenance expense for the three months ended March 31, 2013 and 2012
amounted to P
=154.6 million and P
=129.0 million, respectively (Notes 17 and 20).
d. Estimation of useful lives and residual values of property and equipment
The Group estimates the useful lives of its property and equipment based on the period over
which the assets are expected to be available for use. The Group estimates the residual value
of its property and equipment based on the expected amount recoverable at the end of its
useful life. The Group reviews annually the EULs and residual values of property and
equipment based on factors that include physical wear and tear, technical and commercial
obsolescence and other limits on the use of the assets. It is possible that future results of
operations could be materially affected by changes in these estimates brought about by
changes in the factors mentioned. A reduction in the EUL or residual value of property and
equipment would increase recorded depreciation and amortization expense and decrease
noncurrent assets.
As of March 31, 2013 and December 31, 2012, the carrying values of the Group’s property
and equipment amounted to P
=49,958.6 million and P
=47,484.1 million, respectively (Note 12).
The Group’s depreciation and amortization expense amounted to P
=792.1 million and
= 658.7 million for the three months ended March 31, 2013 and 2012, respectively (Note 12).
P
e. Impairment of nonfinancial assets
The Group assesses the impairment of nonfinancial assets, particularly property and
equipment and investment in JV, whenever events or changes in circumstances indicate that
the carrying amount of the nonfinancial asset may not be recoverable. The factors that the
Group considers important which could trigger an impairment review include the following:



significant underperformance relative to expected historical or projected future operating
results;
significant changes in the manner of use of the acquired assets or the strategy for overall
business; and
significant negative industry or economic trends.
- 40 -
An impairment loss is recognized whenever the carrying amount of an asset or investment
exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value
less cost to sell and value in use. The fair value less cost to sell is the amount obtainable from
the sale of an asset in an arm’s length transaction while value in use is the present value of
estimated future cash flows expected to arise from the continuing use of an asset and from its
disposal at the end of its useful life.
Recoverable amounts are estimated for individual assets or investments or, if it is not possible,
for the cash-generating unit to which the asset belongs.
In determining the present value of estimated future cash flows expected to be generated from
the continued use of the assets, the Group is required to make estimates and assumptions that
can materially affect the consolidated financial statements.
As of March 31, 2013 and December 31, 2012, the carrying values of the Group’s property
and equipment amounted to P
=49,958.6 million and P
=47,484.1 million, respectively (Note 12).
Investment in JV amounted to P
=530.9 million and P
=511.8 million as of March 31, 2013 and
December 31, 2012, respectively (Note 13). There were no provision for impairment losses
on the Group’s property and equipment and investment in JV for the three months ended
March 31, 2013 and 2012.
f.
Estimation of pension and other employee benefit costs
The determination of the obligation and cost of pension and other employee benefits is
dependent on the selection of certain assumptions used in calculating such amounts. Those
assumptions include, among others, discount rates and salary increase rates (Note 22). Actual
results that differ from the Group’s assumptions are accumulated and amortized over future
periods and therefore, generally affect the recognized expense and recorded obligation in such
future periods.
While the Group believes that the assumptions are reasonable and appropriate, significant
differences between actual experiences and assumptions may materially affect the cost of
employee benefits and related obligations.
The Group’s pension liability (included in ‘Other noncurrent liabilities’ account in the
consolidated statements of financial position) amounted to P
=140.4 million and P
=214.1 million
as of March 31, 2013 and December 31, 2012, respectively (Notes 17 and 22).
The Group also estimates other employee benefit obligations and expense, including the cost
of paid leaves based on historical leave availments of employees, subject to the Group’s
policy. These estimates may vary depending on the future changes in salaries and actual
experiences during the year.
g. Recognition of deferred tax assets
The Group assesses the carrying amounts of deferred income taxes at each reporting date and
reduces deferred tax assets to the extent that it is no longer probable that sufficient taxable
income will be available to allow all or part of the deferred tax assets to be utilized.
Significant management judgment is required to determine the amount of deferred tax assets
that can be recognized, based upon the likely timing and level of future taxable profits
together with future tax planning strategies.
- 41 -
As of March 31, 2013 and December 31, 2012, the Group had certain gross deductible and
taxable temporary differences which are expected to expire or reverse within the ITH period,
and for which deferred tax assets and deferred tax liabilities were not set up on account of the
Parent Company’s ITH.
h. Passenger revenue recognition
Passenger sales are recognized as revenue when the obligation of the Group to provide
transportation service ceases, either: (a) when transportation services are already rendered; or
(b) when the Group estimates that unused tickets are already expired. The value of unused
tickets is included as unearned transportation revenue in the consolidated statement of
financial position and recognized as revenue based on estimates. These estimates are based on
historical experience. While actual results may vary from these estimates, the Group believes
it is unlikely that materially different estimates for future refunds, exchanges, and forfeited
tickets would be reported based on other reasonable assumptions or conditions suggested by
actual historical experience and other data available at the time the estimates were made.
As of March 31, 2013 and December 31, 2012, the balances of the Group’s unearned
transportation revenue amounted to P
=6,651.0 million and P
=5,981.2 million, respectively.
Ticket sales that are not expected to be used for transportation are recognized as revenue using
estimates regarding the timing of recognition based on the terms and conditions of the tickets
and historical trends.
6. Segment Information
The Group has one reportable operating segment, which is the airline business (system-wide).
This is consistent with how the Group’s management internally monitors and analyzes the
financial information for reporting to the CODM, who is responsible for allocating resources,
assessing performance and making operating decisions.
The revenue of the operating segment was mainly derived from rendering transportation services.
All sales are made to external customers. The Company generally records higher domestic
revenue in January, March, April, May and December as festivals and school holidays in the
Philippines increase the Company’s seat load factor in these periods. Accordingly, the Company’s
revenue is relatively lower in July to September due to decreased domestic travel during these
months.
Transfer prices between operating segments are on an arm’s length basis in a manner similar to
transactions with third parties.
The amount of segment assets and liabilities are based on the measurement principles that are
similar with those used in measuring the assets and liabilities in the consolidated statement of
financial position which is in accordance with PFRS.
Segment information for the reportable segment is shown in the following table:
Revenue
Net income
Depreciation and amortization
Interest expense
Interest income
2013
P
=10,796,508,684
1,156,863,997
792,125,898
188,925,751
89,486,533
2012
=10,248,031,770
P
962,396,391
658,710,155
175,194,373
130,800,006
- 42 -
The reconciliation of total revenue reported by reportable operating segment to revenue in the
consolidated statements of comprehensive income is presented in the following table:
Total segment revenue of reportable
operating segment
Nontransport revenue and
other income
Total revenue
2013
2012
P
=10,542,218,022
=9,340,939,033
P
254,290,662
P
=10,796,508,684
907,092,737
=10,248,031,770
P
The reconciliation of total income reported by reportable operating segment to total
comprehensive income in the consolidated statements of comprehensive income is presented in
the following table:
Total segment income of reportable
segment
Add (deduct) unallocated items:
Nontransport revenue and other
income
Nontransport expenses and other
charges
Provision for income tax
Net income
Other comprehensive income
Total comprehensive income
2013
2012
P
=1,319,358,457
=420,121,873
P
254,290,662
907,092,737
(188,925,751)
(227,859,371)
1,156,863,997
(175,194,373)
(189,623,846)
962,396,391
–
–
P
=1,156,863,997
=962,396,391
P
The Group’s major revenue-producing asset is the fleet of aircraft owned by the Group, which is
employed across its route network (Note 12).
The Group has no significant customer which contributes 10.00% or more to the revenues of the
Group.
7. Cash and Cash Equivalents
This account consists of:
Cash on hand
Cash in banks (Note 25)
Short-term placements (Note 25)
December 31,
March 31,
2012
2013
(Audited)
(Unaudited)
=19,491,988
P
P
=19,610,417
321,236,059
339,833,844
11,941,850,289 10,387,598,278
P10,728,326,325
P
=12,301,294,550 =
Cash in banks earns interest at the respective bank deposit rates. Short-term placements, which
represent money market placements, are made for varying periods depending on the immediate
cash requirements of the Group. Short-term placements denominated in Philippine peso earn an
average interest of 2.62% and 4.08% for three months ended March 31, 2013 and 2012,
respectively. Moreover, short-term placements in US dollar earn an average of 1.71% and 1.62%
in 2013 and 2012, respectively.
- 43 -
Interest income on cash and cash equivalents, presented in the consolidated statements of
comprehensive income, amounted to P
=89.5 million and P
=130.8 million for the three months ended
March 31, 2013 and 2012, respectively.
8. Investment and Trading Securities
Financial Assets at FVPL
This account consists of:
Derivative financial instruments
not designated as accounting hedges
Designated at FVPL
Quoted debt securities:
Private
Government
Quoted equity securities
March 31,
2013
(Unaudited)
December 31,
2012
(Audited)
P
=–
=102,682,762
P
–
–
–
–
–
P
=–
–
–
–
–
–
=102,682,762
P
At inception, the Group classified this group of debt and equity securities as financial assets
designated at FVPL since their performance are managed and evaluated on a fair value basis in
accordance with the Group’s documented investment strategy. The information about these
financial instruments is reported to management on that basis.
On January 13, 2012, JGSHI acquired all of the Parent Company’s debt and equity securities
classified as financial assets at FVPL in exchange for a settlement amounting P
=3,258.0 million.
Carrying value of financial assets at FVPL at date of sale amounted to P
=3,244.2 million. Realized
gain on the sale of financial assets at FVPL amounted to P
=13.8 million (Note 25).
Commodity options
The Group enters into fuel derivatives to manage its exposure to fuel price fluctuations. Such fuel
derivatives are not designated as accounting hedges. The gains or losses on these instruments are
accounted for directly as a charge against or credit to profit or loss. As of March 31, 2013, the
Group has no outstanding fuel hedging transactions. As of March 31, 2012, the Group has
outstanding fuel hedging transactions with notional quantity of 450,000 US barrels. The notional
quantity is the amount of the derivatives’ underlying asset or liability, reference rate or index and
is the basis upon which changes in the value of derivatives are measured. The options can be
exercised at various calculation dates with specified quantities on each calculation date.
- 44 -
In January 2013, the Group settled its fuel hedge transaction with notional quantity of 20,000 US
barrels and realized mark-to-market gain. In February 2013, the Group has pre-terminated its
existing fuel derivative contracts with its counterparties. The Group recognized an aggregate
realized mark-to-market gain amounting to P
=162.7 million from these transactions. However, as
of December 31, 2012, the Group recognized unrealized gain of P
=102.7 million from the positive
fair value change from its fuel derivatives (Note 8). As such, the Group will realized P
=60.0
million as net realized gain from the transactions.
Fair value changes on derivatives
The changes in fair value of all derivative financial instruments not designated as accounting
hedges follow:
2013
Balance at beginning of period
Derivative assets
Derivative liabilities
Net changes in fair value of derivatives
Fair value of settled instruments
Balance at end of period
Attributable to:
Derivative assets
Derivative liabilities
P
=102,682,762
–
102,682,762
59,970,007
162,652,769
(162,652,769)
P
=–
P
=–
P
=–
2012
P16,880,208
=
(60,857,586)
(43,977,378)
258,543,810
214,566,432
(111,883,670)
=102,682,762
P
=102,682,762
P
=–
P
AFS Investment
On January 13, 2012, JGSHI acquired all of the Group’s AFS financial assets in exchange for a
settlement amounting P
=110.4 million. Market value of the AFS financial assets at date of sale
amounted to P
=110.4 million and has an existing unrealized loss on AFS amounting P
=5.6 million,
net of tax amounting P
=2.4 million. Realized loss from sale of AFS financial assets amounted to
=8.0 million (Note 25).
P
9. Receivables
This account consists of:
Trade receivables (Note 25)
Due from related parties (Note 25)
Interest receivable
Others
Less allowance for credit losses
March 31,
2013
(Unaudited)
P
=803,490,724
551,766,469
14,635,274
248,101,986
1,617,994,453
216,952,089
P
=1,401,042,364
December 31,
2012
(Audited)
=735,938,884
P
175,709,003
11,637,492
283,463,727
1,206,749,106
218,237,619
=988,511,487
P
Trade receivables are noninterest-bearing and generally have 30 to 90 days terms. The receivables
are carried at cost.
- 45 -
Interest receivable pertains to accrual of interest income from short-term placements. Accrued
interest income from short-term placements amounted to P
=14.6 million and P
=11.6 million as of
March 31, 2013 and December 31, 2012, respectively.
Others include receivable under a sublease agreement denominated in US dollar equivalent to
=209.8 million with another airline company. This receivable is fully provided with allowance for
P
credit losses. The account also includes receivables from employees and counterparties.
The following tables show the aging analysis of the Group’s receivables:
Trade receivables
Interest receivable
Due from related parties
Others*
Neither Past
Due Nor
Impaired
P
= 724,880,193
14,635,274
551,766,469
37,480,772
P
= 1,328,762,708
2013
Past Due But Not Impaired
31-60 days
P
= 30,130,101
–
–
–
P
= 30,130,101
61-90 days
P
= 42,149,555
–
–
–
P
= 42,149,555
91-180 days
P
=–
–
–
–
P
=–
Past
Over
Due and
180 days
Impaired
Total
P
=–
P
= 6,330,875
P
= 803,490,724
–
–
14,635,274
–
–
551,766,469
–
210,621,214
248,101,986
P
=–
P
= 216,952,089 P
= 1,617,994,453
*Include nontrade receivables from derivative counterparties and employees
Trade receivables
Interest receivable
Due from related parties
Others*
Neither Past
Due Nor
Impaired
=660,538,513
P
11,637,492
175,709,003
71,556,983
=919,441,991
P
2012
Past Due But Not Impaired
31-60 days
=45,991,793
P
–
–
–
=45,991,793
P
61-90 days
=23,077,703
P
–
–
–
=23,077,703
P
91-180 days
=–
P
–
–
–
=–
P
Past
Over
Due and
180 days
Impaired
Total
=–
P
=6,330,875
P
=735,938,884
P
–
–
11,637,492
–
–
175,709,003
–
211,906,744
283,463,727
=–
P
P218,237,619 =
=
P1,206,749,106
*Include nontrade receivables from derivative counterparties and employees.
The changes in the allowance for credit losses on receivables follow:
Balance at beginning of year
Unrealized foreign exchange gain on
allowance for credit losses
Balance at end of year
Balance at beginning of year
Unrealized foreign exchange gain on
allowance for credit losses
Balance at end of year
March 31, 2013 Unaudited
Trade
Receivables
Others
Total
P
=6,330,875
P
=211,906,744
P
=218,237,619
–
P
=6,330,875
(1,285,530)
P
=210,621,214
(1,285,530)
P
=216,952,089
December 31, 2012 Audited
Trade
Receivables
Others
Total
=6,330,875
P
=226,253,265
P
=232,584,140
P
–
=6,330,875
P
(14,346,521)
=211,906,744
P
(14,346,521)
=218,237,619
P
As of March 31, 2013 and December 31, 2012, the specific allowance for credit losses on trade
receivables and other receivables amounted to P
=6.3 million and P
=210.6 million and P
=6.3 million
and P
=212.0 million, respectively.
- 46 -
10. Expendable Parts, Fuel, Materials and Supplies
This account consists of:
At NRV:
Expendable parts
At cost:
Fuel
Materials and supplies
March 31,
2013
(Unaudited)
December 31,
2012
(Audited)
P
=255,484,287
=241,414,140
P
164,247,829
35,083,089
199,330,918
P
=454,815,205
142,603,044
33,417,626
176,020,670
=417,434,810
P
The cost of expendable and consumable parts, and materials and supplies recognized as expense
(included under ‘Repairs and maintenance’ account in the consolidated statements of
comprehensive income) for the three months ended March 31, 2013 and 2012 amounted to
=67.4 million and P
P
=72.5 million, respectively. The cost of fuel reported as expense under ‘Flying
operations’ amounted to P
=4.6 billion and P
=4.5 million for the three months ended
March 31, 2013 and 2012, respectively (Note 20).
The cost of expendable parts amounted to P
=265.8 million and P
=243.6 million as of
March 31, 2013 and December 31, 2012, respectively. There are no additional provisions for
inventory write down in 2013 and 2012. No expendable parts, fuel, material and supplies are
pledged as security for liabilities.
11. Other Current Assets
This account consists of:
Advances to suppliers
Prepaid rent
Prepaid insurance
Others
March 31,
2013
(Unaudited)
P
=659,594,378
151,496,769
76,522,832
13,879,697
P
=901,493,676
December 31,
2012
(Audited)
=679,944,204
P
146,026,694
29,338,807
27,294,845
=882,604,550
P
Advances to suppliers include advances made for the purchase of various aircraft parts and service
maintenance. These are recouped from progress billings which occurs within one year from the
date the advances arose. The advances are unsecured and noninterest bearing.
Prepaid rent pertains to advance rental on aircraft under operating lease and on office spaces in
airports.
Prepaid insurance consist of aviation insurance which represents insurance of hull, war, and risk,
passenger and cargo insurance for the aircraft during flights and non-aviation insurance represents
insurance payments for all employees’ health and medical benefits, commission, casualty and
marine insurance as well as car/motor insurance.
- 47 -
12. Property and Equipment
This account consists of:
March, 31,
2013
(Unaudited)
Acquisition Costs
Passenger aircraft
Pre-delivery payments
Engines
Rotables
EDP equipment, mainframe and peripherals
Ground support equipment
Leasehold improvements
Transportation equipment
Furniture, fixtures and office equipment
Construction in-progress
Special tools
Communication equipment
Maintenance and test equipment
Other equipment
Total
Accumulated depreciation
Net book value
December 31,
2012
(Audited)
P46,594,710,884
P
=49,735,534,909 =
8,356,055,126
7,600,016,679
2,439,973,358
2,920,001,072
1,523,539,852
1,677,098,747
622,729,161
633,446,792
385,024,151
387,017,040
333,877,735
334,203,628
169,595,188
172,112,153
81,250,593
84,478,598
64,212,027
91,260,826
12,507,408
12,507,408
9,399,252
10,791,919
6,681,631
6,681,631
75,458,076
73,799,177
63,738,950,579 60,675,014,442
(13,780,379,486) (13,190,908,290)
=47,484,106,152
P
=49,958,571,093 P
The Group’s depreciation and amortization expense amounted to P
=792.1 million and
=658.7 million for the three months ended March 31, 2013 and 2012, respectively.
P
Passenger Aircraft Held as Securing Assets Under Various Loans
In 2005 and 2006, the Group entered into Export Credit Agency (ECA)-backed loan facilities
(ECA loans) to partially finance the purchase of ten Airbus A319 aircraft. In 2007, the Group also
entered into a commercial loan facility to partially finance the purchase of two Airbus A320
aircraft, one CFM 565B4/P engine, two CFM 565B5/P engines and one Quick Engine Change
(QEC) Kit. In 2008, the Group entered into both ECA loans and commercial loans to partially
finance the purchase of six Avion de Transport Regional (ATR) 72-500 turboprop aircraft. Then in
2009, ECA loans were availed to finance the purchase of two ATR 72-500 turboprop aircraft. In
2010, the Group entered into ECA loan to finance the purchase of three Airbus A320 aircraft. In
2011, the Group entered into ECA loan to finance the purchase of three additional Airbus A320
aircraft. In 2012, the Group entered into ECA loan to finance the purchase of four additional
Airbus A320 aircraft.
In December 2012, the Group entered into a commercial loan facility with a local bank to partially
finance the purchase of four additional Airbus A320 aircraft with scheduled delivery in January,
March and July 2013.
Under the terms of the ECA loan and commercial loan facilities (Note 16), upon the event of
default, the outstanding amount of loan (including accrued interest) will be payable by CALL or
ILL or BLL or SLL or SALL, VALL, POALL, or PTALL, or by the guarantors which are CPAHI
and JGSHI. Failure to pay the obligation will allow the respective lenders to foreclose the securing
assets.
- 48 -
As of March 31, 2013 and December 31, 2012, the carrying amounts of the securing assets
(included under the ‘Property and equipment’ account) amounted to =
P38.5 billion and
=35.6 billion, respectively.
P
Operating Fleet
As of March 31, 2013 and December 31, 2012, the Group’s operating fleet follows:
Owned (Note 16):
Airbus A319
Airbus A320
ATR 72-500
Under operating lease (Note 28):
Airbus A320
2013
2012
10
14
8
10
12
8
11
43
11
41
Construction in-progress represents the cost of aircraft and engine construction in progress and
buildings and improvements and other ground property under construction. Construction
in-progress is not depreciated until such time when the relevant assets are completed and available
for use. As of March 31, 2013 and December 31, 2012, the Group’s capitalized pre-delivery
payments as construction-in-progress amounted to P
=7.6 billion and P
=8.4 billion, respectively
(Note 28).
As of March 31, 2013 and December 31, 2012, the gross amount of fully depreciated property and
equipment which are still in use by the Group amounted to P
=710.1 million and P
=664.5 million,
respectively.
As of March 31, 2013 and December 31, 2012, there are no temporary idle property and
equipment.
13. Investment in Joint Ventures
The investment in joint ventures represents the Parent Company’s 50.00%, 49.00% and 35.00%
interest in PAAT, A-plus and SIAEP, respectively. The joint ventures are accounted for as jointly
controlled entities.
Investment in PAAT pertains to the Parent Company's 60.00% investment in shares of the joint
venture. However, the joint venture agreement between the Parent Company and CAE
International Holdings Limited (CAE) states that the Parent Company is entitled to 50% share on
the net income/loss of PAAT. As such, the Parent Company recognizes equivalent 50% share in
net income and net assets of the joint venture.
The Parent Company entered into a joint venture agreement with CAE on December 13, 2011.
PAAT was created to provide training for pilots, cabin crews, aviation management services and
guest services for purposes of addressing the Group’s training requirements and to pursue business
opportunities for training third parties in the commercial fixed wing aviation industry, including
other local and international airline companies. On December 19, 2011, the Parent Company paid
=33.8 million representing 25% payment for the 135,000,000 Class A subscribed shares at P
P
=1.00
par value. PAAT was formally incorporated on January 27, 2012.
- 49 As of March 31, 2013 and December 31, 2012, the Parent Company’s investment in PAAT
amounted to P
=124.23 million and P
=124.21 million, net of subscription payable of
=101.3 million, respectively.
P
A-plus and SIAEP were established for the purpose of providing line, light and heavy maintenance
services to foreign and local airlines, utilizing the facilities and services at airports in the country,
as well as aircraft maintenance and repair organizations.
A-plus was incorporated on May 24, 2005 and started commercial operations on July 1, 2005
while SIAEP was incorporated on July 27, 2008 and started commercial operations on
August 17, 2009.
The movements in the carrying values of the Group’s investments in joint ventures in A-plus,
SIAEP and PAAT follow:
2013
SIAEP
A-plus
Cost
Balance at beginning of the year
Investment during the year
Accumulated Equity in
Net Income (Loss)
Balance at beginning of the year
Equity in net income (loss)
during the year
Balance at end of the year
Net Carrying Value
P
=87,012,572
–
87,012,572
P
=304,763,900
–
304,763,900
PAAT*
Total
P
=134,873,645
–
134,873,645
P
=526,650,117
–
526,650,117
42,046,763
(46,273,497)
(10,666,510)
14,461,357
56,508,120
P
=143,520,692
4,630,399
(41,643,098)
P
=263,120,802
23,931
(10,642,579)
P
=124,231,066
(14,893,244)
19,115,687
4,222,443
P
=530,872,560
*Beginning balance is net of subscription payable amounting =
P 101,250,000
A-plus
Cost
Balance at beginning of the year
Investment during the year*
Balance at end of period
Accumulated Equity in
Net Income (Loss)
Balance at beginning of the year
Equity in net income (loss)
during the year
Dividends received
Balance at end of the year
Net Carrying Value
=87,012,572
P
–
87,012,572
44,732,164
50,543,615
(53,229,016)
42,046,763
=129,059,335
P
2012
SIAEP
=304,763,900
P
–
304,763,900
PAAT*
Total
P33,750,000
=
101,123,645
134,873,645
=425,526,472
P
101,123,645
526,650,117
–
(60,780,399)
14,506,902
–
(46,273,497)
=258,490,403
P
(10,666,510)
–
(10,666,510)
=124,207,135
P
(16,048,235)
54,384,007
(53,229,016)
(14,893,244)
=511,756,873
P
*Net of subscription payable amounting =
P 101,250,000
Selected financial information of A-plus, SIAEP and PAAT follow:
Total current assets
Total assets
Total current liabilities
Total liabilities
Net income (loss)
A-plus
2013
SIAEP
PAAT
A-plus
2012
SIAEP
P
=455,864,134
533,294,050
238,590,957
238,590,957
112,151,981
P
=404,816,848
1,038,771,077
386,600,705
386,600,705
30,357,099
P
=45,301,694
724,402,322
478,900,192
478,900,192
47,863
=411,578,768
P
482,283,412
217,093,296
217,093,296
82,639,006
P416,322,433
=
1,020,266173
377,439,493
377,439,493
17,767,060
PAAT
P62,520,432
=
495,453,301
249,999,035
249,999,035
(21,333,018)
- 50 -
The fiscal year-end of A-plus and SIAEP is every March 31 while the year-end of PAAT is every
December 31.
The undistributed earnings of A-plus included in the consolidated retained earnings amounted to
=56.5 million and P
P
=54.8 million as of March 31, 2013 and 2012, respectively, which is not
currently available for dividend distribution unless declared by A-plus.
The Group has no share of any contingent liabilities or capital commitments as of
March 31, 2013 and December 31, 2012.
14. Other Noncurrent Assets
This account consists of:
Refundable deposits
Creditable withholding tax
Others
March 31,
2013
(Unaudited)
P
=33,438,542
12,141,608
163,458,586
P
=209,038,736
December 31,
2012
(Audited)
=33,438,542
P
28,382,890
159,074,514
=220,895,946
P
Refundable deposits pertain to security deposits provided to lessor for aircraft under operating
lease.
Others include option and commitment fees. The option and commitment fees shall be applied
against payments for future aircraft delivery.
15. Accounts Payable and Other Accrued Liabilities
This account consists of:
Accrued expenses
Trade payables (Note 25)
Airport and other related fees payable
Advances from agents and others
Accrued interest payable (Note 16)
Other payables
Deposit from foreign carrier
March 31,
2013
(Unaudited)
P
=3,746,442,641
3,059,026,137
603,058,690
251,814,816
100,695,440
353,113,988
–
P
=8,114,151,712
December 31,
2012
(Audited)
=3,750,064,107
P
2,478,769,275
534,436,035
251,878,844
105,008,615
237,880,170
410,500,000
=7,768,537,046
P
- 51 -
Accrued Expenses
The Group’s accrued expenses include accruals for:
Maintenance (Note 28)
Compensation and benefits
Training costs
Advertising and promotion
Navigational charges
Repairs and services
Landing and take-off fees
Ground handling charges
Rent (Note 28)
Aircraft insurance
Fuel
Catering supplies
Reservation costs
Others
December 31,
March 31,
2012
2013
(Audited)
(Unaudited)
=872,776,722
P
P
=930,089,598
546,839,542
554,008,242
486,040,399
507,101,179
398,690,076
427,561,575
323,628,299
357,122,906
216,918,668
255,594,674
244,198,125
167,039,692
113,424,579
144,686,244
127,609,933
114,007,598
45,776,243
53,527,309
199,083,829
42,684,539
32,277,324
25,328,593
8,375,590
7,415,163
134,424,778
160,275,329
P3,750,064,107
P
=3,746,442,641 =
Others represent accrual of professional fees, security, utilities and other expenses.
Trade Payables
Trade payables, which consist mostly of payables related to the purchase of inventories, are
noninterest-bearing and are normally settled on a 60-day term. These inventories are necessary for
the daily operations and maintenance of the aircraft, which include aviation fuel, expendables
parts, equipment and in-flight supplies.
Airport and Other Related Fees Payable
Airport and other related fees payable are amounts payable to the Philippine Tourism Authority
and Air Transportation Office on aviation security, terminal fees and travel taxes.
Deposit from foreign carrier
Deposit from foreign carrier represents advances received in 2012 which was subsequently
returned in January 2013.
Advances from Agents and Others
Advances from agents and others represent cash bonds required from major sales and ticket
offices or agents.
Accrued Interest Payable
Accrued interest payable is related to long-term debt and normally settled quarterly throughout the
year.
Other Payables
Other payables are noninterest-bearing and have an average term of two months. This account
includes commissions payable, refunds payable and other tax liabilities such as withholding taxes
and output VAT.
- 52 -
16. Long-term Debt
This account consists of:
2013
ECA loans
Interest Rates
2.51% to 5.83%
Maturities
Various dates
through 2023
0.91% to 2.32%
(US Dollar LIBOR
6 months + margin
or 3 months + margin)
Commercial loans
from foreign banks
4.11% to 5.67%
Various dates
through 2017
1.91% to 1.99%
(US Dollar LIBOR
6 months + margin)
Commercial loans from
a local bank
3.75%
January 2023;
March 2023
Less current portion
US Dollar
US$322,606,000
Philippine Peso
Equivalent
P
=13,162,324,800
176,570,324
499,176,324
7,204,069,230
20,366,394,030
38,525,930
1,571,857,959
2,508,727
41,034,657
70,000,000
102,356,054
1,674,214,013
2,856,000,000
610,210,981
74,480,978
US$535,730,003
24,896,608,043
3,038,823,883
P
=21,857,784,160
2012
ECA loans
Interest Rates
2.51% to 5.83%
Maturities
Various dates
through 2023
0.95% to 2.32%
(US Dollar LIBOR
6 months + margin
or 3 months + margin)
Commercial loans
from foreign banks
4.11% to 5.67%
1.98% to 2.01%
(US Dollar LIBOR
6 months + margin)
Less current portion
Various dates
through 2017
US Dollar
US$334,364,127
Philippine Peso
Equivalent
=13,725,647,412
P
180,762,668
515,126,795
7,420,307,510
21,145,954,922
40,325,975
1,655,381,256
2,996,907
43,322,882
558,449,677
67,465,100
US$490,984,577
123,023,020
1,778,404,276
22,924,359,198
2,769,442,355
=20,154,916,843
P
ECA Loans
In 2005 and 2006, the Group entered into ECA-backed loan facilities to partially finance the
purchase of ten Airbus A319 aircraft. The security trustee of the ECA loans established CALL, a
special purpose company, which purchased the aircraft from the supplier and leases such aircraft
to the Parent Company pursuant to twelve-year finance lease agreements. The quarterly rental
payments made by the Parent Company to CALL correspond to the principal and interest
payments made by CALL to the ECA-backed lenders. The quarterly lease rentals to CALL are
guaranteed by CPAHI and JGSHI. The Parent Company has the option to purchase the aircraft for
a nominal amount at the end of such leases.
- 53 -
In 2008, the Group entered into ECA-backed loan facilities to partially finance the purchase of six
ATR 72-500 turboprop aircraft. The security trustee of the ECA loans established BLL, a special
purpose company, which purchased the aircraft from the supplier and leases such aircraft to the
Parent Company pursuant to ten-year finance lease agreements. The semi-annual rental payments
made by the Parent Company to BLL corresponds to the principal and interest payments made by
BLL to the ECA-backed lenders. The semi-annual lease rentals to BLL are guaranteed by JGSHI.
The Parent Company has the option to purchase the aircraft for a nominal amount at the end of
such leases. On November 30, 2010, the Parent Company pre-terminated the lease agreement with
BLL related to the disposal of one ATR 72-500 turboprop aircraft. The outstanding balance of the
related loans and accrued interests amounting P
=638.1 million (US$14.5 million) and
=13.0 million (US$0.3 million), respectively, were also pre-terminated. The proceeds from the
P
insurance claim on the related aircraft were used to settle the loan and accrued interest. JGSHI
was released as guarantor on the related loans.
In 2009, the Group entered into ECA-backed loan facilities to partially finance the purchase of
two ATR 72-500 turboprop aircraft. The security trustee of the ECA loans established SLL, a
special purpose company, which purchased the aircraft from the supplier and leases such aircraft
to the Parent Company pursuant to ten-year finance lease agreements. The semi-annual rental
payments made by the Parent Company to SLL corresponds to the principal and interest payments
made by SLL to the ECA-backed lenders. The semi-annual lease rentals to SLL are guaranteed by
JGSHI. The Parent Company has the option to purchase the aircraft for a nominal amount at the
end of such leases.
In 2010, the Group entered into ECA-backed loan facilities to partially finance the purchase of
four Airbus A320 aircraft, delivered between 2010 to January 2011. The security trustee of the
ECA loans established SALL, a special purpose company, which purchased the aircraft from the
supplier and leases such aircraft to the Parent Company pursuant to twelve-year finance lease
agreements. The quarterly rental payments made by the Parent Company to SALL corresponds to
the principal and interest payments made by SALL to the ECA-backed lenders. The quarterly
lease rentals to SALL are guaranteed by JGSHI. The Parent Company has the option to purchase
the aircraft for a nominal amount at the end of such leases.
In 2011, the Group entered into ECA-backed loan facilities to fully finance the purchase of three
Airbus A320 aircraft, delivered between 2011 to January 2012. The security trustee of the ECA
loans established VALL, special purpose company, which purchased the aircraft from the supplier
and leases such aircraft to the Parent Company pursuant to twelve-year finance lease agreements.
The quarterly rental payments made by the Parent Company to VALL corresponds to the principal
and interest payments made by VALL to the ECA-backed lenders. The quarterly lease rentals to
VALL are guaranteed by JGSHI. The Parent Company has the option to purchase the aircraft for
a nominal amount at the end of such leases.
In 2012, the Group entered into ECA-backed loan facilities to partially finance the purchase of
three Airbus A320 aircraft. The security trustee of the ECA loans established POALL, a special
purpose company, which purchased the aircraft from the supplier and leases such aircraft to the
Parent Company pursuant to twelve-year finance lease agreements. The quarterly rental payments
made by the Parent Company to POALL corresponds to the principal and interest payments made
by POALL to the ECA-backed lenders. The quarterly lease rentals to POALL are guaranteed by
JGSHI. The Parent Company has the option to purchase the aircraft for a nominal amount at the
end of such leases.
- 54 -
The terms of the ECA-backed facilities, which are the same for each of the ten Airbus A319
aircraft, seven ATR 72-500 turboprop aircraft and ten Airbus A320 aircraft, follow:







Term of 12 years starting from the delivery date of each Airbus A319 aircraft and Airbus
A320, and ten years for each ATR 72-500 turboprop aircraft.
Annuity style principal repayments for the first four Airbus A319 aircraft, eightATR 72-500
turboprop aircraft and seven Airbus A320 aircraft, and equal principal repayments for the last
six Airbus A319 aircraft and last three Airbus A320 aircraft. Principal repayments shall be
made on a semi-annual basis for ATR 72-500 turboprop aircraft. Principal repayments shall
be made on a quarterly basis for Airbus A319 and A320 aircraft.
Interest on loans from the ECA lenders related to CALL, BLL and SALL is at fixed rates,
which range from 3.78% to 5.83%. Interest on loans from ECA lenders related to SLL is
fixed at 3.37% for one aircraft and US dollar LIBOR 6 months plus margin for the other
aircraft. Interest on loans from the ECA lenders related to VALL is fixed at 2.56%for one
Airbus A320 aircraft and US dollar LIBOR 3 months plus margin for two Airbus A320
aircraft. Interest on loans from ECA lenders related to POALL for the three A320 aircraft is
US dollar LIBOR 3 months plus margin.
As provided under the ECA-backed facility, CALL, BLL, SLL, SALL, VALL and POALL
cannot create or allow to exist any security interest, other than what is permitted by the
transaction documents or the ECA administrative parties. CALL, BLL, SLL, SALL, VALL
and POALL must not allow impairment of first priority nature of the lenders’ security
interests.
The ECA-backed facilities also provide for the following events of default: (a) nonpayment of
the loan principal or interest or any other amount payable on the due date, (b) breach of
negative pledge, covenant on preservation of transaction documents, (c) misrepresentation,
(d) commencement of insolvency proceedings against CALL or BLL or SLL or SALL or
VALL or POALL becomes insolvent, (e) failure to discharge any attachment or sequestration
order against CALL’s, BLL’s, SLL’s, SALL’s VALL’s and POALL’s assets, (f) entering into
an undervalued transaction, obtaining preference or giving preference to any person, contrary
to the laws of the Cayman Islands, (g) sale of any aircraft under ECA financing prior to
discharge date, (h) cessation of business, (i) revocation or repudiation by CALL or BLL or
SLL or SALL or VALL or POALL, the Group, JGSHI or CPAHI of any transaction document
or security interest, and (j) occurrence of an event of default under the lease agreement with
the Parent Company.
Upon default, the outstanding amount of loan will be payable, including interest accrued.
Also, the ECA lenders will foreclose on secured assets, namely the aircraft.
An event of default under any ECA loan agreement will occur if an event of default as
enumerated above occurs under any other ECA loan agreement.
As of March 31, 2013 and December 31, 2012, the total outstanding balance of the ECA loans
amounted to P
=20,366.4 million (US$499.2 million) and P
=21,146.0 million (US$515.1million),
respectively. Interest expense amounted to P
=158.2 million and P
=148.0 million for the three
months ended March 31, 2013 and 2012, respectively.
Commercial Loans from Foreign Banks
In 2007, the Group entered into a commercial loan facility to partially finance the purchase of
two Airbus A320 aircraft, one CFM 565B4/P engine, two CFM 565B5/P engines and one QEC
Kit. The security trustee of the commercial loan facility established ILL, a special purpose
company, which purchased the aircraft from the supplier and leases such aircraft to the Parent
Company pursuant to (a) ten-year finance lease arrangement for the aircraft, (b) six-year finance
lease arrangement for the engines and (c) five-year finance lease arrangement for the QEC Kit.
- 55 -
The quarterly rental payments of the Parent Company correspond to the principal and interest
payments made by ILL to the commercial lenders and are guaranteed by JGSHI. The Parent
Company has the option to purchase the aircraft, the engines and the QEC Kit for a nominal
amount at the end of such leases.
In 2008, the Group also entered into a commercial loan facility, in addition to ECA-backed loan
facility, to partially finance the purchase of six ATR 72-500 turboprop aircraft. The security
trustee of the commercial loan facility established BLL, a special purpose company, which
purchased the aircraft from the supplier and leases such aircraft to the Parent Company. The
commercial loan facility is payable in 12 equal, consecutive, semi-annual installments starting six
months after the utilization date.
The terms of the commercial loans from foreign banks follow:








Term of ten years starting from the delivery date of each Airbus A320 aircraft.
Terms of six and five years for the engines and QEC Kit, respectively.
Term of six years starting from the delivery date of each ATR 72-500 turboprop aircraft.
Annuity style principal repayments for the two Airbus A320 aircraft and six ATR 72-500
turboprop aircraft, and equal principal repayments for the engines and the QEC Kit. Principal
repayments shall be made on a quarterly and semi-annual basis for the two Airbus A320
aircraft, engines and the QEC Kit and six ATR 72-500 turboprop aircraft, respectively.
Interest on the commercial loan facility for the two Airbus A320 aircraft shall be
US dollar LIBOR 3 months plus margin. On February 29, 2009, the interest rates on the two
Airbus A320 aircraft, engines and QEC Kit were fixed ranging from 4.11% to 5.67%.
Interest on the commercial loan facility for the six ATR 72-500 turboprop aircraft shall be
US dollar LIBOR6 months plus margin.
The commercial loan facility provides for material breach as an event of default.
Upon default, the outstanding amount of loan will be payable, including interest accrued.
The lenders will foreclose on secured assets, namely the aircraft.
As of March 31, 2013 and December 31, 2012, the total outstanding balance of the commercial
loans from foreign banks amounted to P
=1,674.2 million (US$41.0 million) and P
=1,778.4 million
(US$43.3 million), respectively. Interest expense amounted to P
=21.8 million and P
=27.2 million
for the three months ended March 31, 2013 and 2012, respectively.
Commercial Loans from a Local Bank
In December 2012, the Group entered into a commercial loan facility to partially finance the
purchase of four Airbus A320 aircraft. The security trustee of the commercial loan facility
established PTALL, a special purpose company, which purchased the aircraft from the supplier
and leases such aircraft to the Parent Company pursuant to ten-year finance lease arrangement for
the aircraft. The semiannual rental payments of the Parent Company correspond to the principal
and interest payments made by PTALL to the commercial lenders and are guaranteed by JGSHI.
The Parent Company has the option to purchase the aircraft for a nominal amount at the end of
such leases.
- 56 -
The terms of the commercial loans from a local bank follow:






Term of ten years starting from the delivery date of each Airbus A320 aircraft.
Equal principal repayments for the four Airbus A320 aircraft. Principal repayments shall be
made on a semi-annual basis.
Interest on the commercial loan facility for the four Airbus A320 aircraft shall be a fixed rate
of 3.75% per annum. Interest will be paid semi-annually in arrears on the last day of each
interest period or the interest payment date.
If the Group fails to pay the amount due, the principal and interest due will be payable,
including default interest on such past due and unpaid amount from and including the due date
up to and excluding the date of payment in full, at default rate of 2% per annum.
The following are some of the events of default provided in the commercial loan facility:
(a) nonpayment of the loan principal or interest or any other amount payable on the due date,
(b) misrepresentation, (c) breach of any provisions of the finance documents and such breach
have not been waived by the lender, or is not remedied for a period of 30 calendar days from
written notice by the lender, (d) insolvency or bankruptcy, (e) cessation of business,
(f) commence negotiations, or has already commenced negotiations, with any one or more of
its creditors with a view to a general adjustment or rescheduling of its financial indebtedness,
(g) revocation or cancellation of any of the concessions, permits, rights, franchises, or
privileges required for the conduct of the business and operations, (h) an attachment or
garnishment of or levy upon the aircraft is made which will result in a material adverse
change, (i) repudiates a finance document or evidences an intention to repudiate a finance
document, (j) the guarantee is not in full force or effect, and (i) any event occurs or any
circumstances arises which constitutes an event of default.
Upon default, the outstanding amount of loan will be payable, including interest accrued.
The lender will foreclose on secured assets, namely the aircraft.
As of March 31, 2013, the total outstanding balance of the commercial loans from a local bank
amounted to P
=2,856.0 million (US$70.0 million). As of December 31, 2012, the balance was nil.
Interest expense amounted to P
=9.0 million for the three months ended March 31, 2013.
The Group is not in breach of any loan covenants as of March 31, 2013 and December 31, 2012.
17. Other Noncurrent Liabilities
This account consists of:
ARO
Accrued maintenance
Pension liability (Note 22)
March 31,
2013
(Unaudited)
P
=1,492,156,157
424,276,778
140,395,281
P
=2,056,828,216
December 31,
2012
(Audited)
=1,351,931,051
P
424,276,778
214,099,443
=1,990,307,272
P
- 57 -
ARO
The Group is legally required under certain lease contracts to restore certain leased passenger
aircraft to stipulated return conditions and to bear the costs of restoration at the end of the contract
period. These costs are accrued based on an internal estimate made by the work of the Group’s
engineers, which includes estimates of certain redelivery costs at the end of the operating aircraft
leases (see Note 5).
The roll forward analysis of the Group’s ARO follows:
March 31,
2013
(Unaudited)
ARO Asset
Balance at beginning of the period
Capitalized during the period**
Amortization*
Balance at end of the period
ARO Liability
Balance at beginning of the period
Accretion expense*
Capitalized during the period**
Payment of restorations during the period
Balance at end of the period
Net ARO Liability
December 31,
2012
(Audited)
=1,174,348,991
P
459,298,467
(369,113,893)
(96,550,372)
1,264,533,565
1,167,983,193
P
=1,264,533,565
–
2,437,668,334
208,396,566
459,298,467
–
(488,898,751)
(14,326,155)
2,616,464,616
2,660,139,350
=1,351,931,051
P
=1,492,156,157 P
2,616,464,616
58,000,889
*Included under repairs and maintenance (Note 20) account in the consolidated statements of comprehensive income.
**In 2012, capitalized ARO liability pertains to two additional Airbus A320 aircraft under operating lease entered in
March 2012.
Expenses included as part of repairs and maintenance (Note 20) follow:
Amortization
Accretion expense
2012
=369,113,893
P
208,396,566
=577,510,459
P
2013
P
=96,550,372
58,000,889
P
=154,551,261
Accrued Maintenance
This account pertains to accrual of maintenance costs of aircraft based on the number of flying
hours but will be settled beyond one year based on management’s assessment.
18. Equity
The details of the number of common shares and the movements thereon follow:
Authorized - at P
=1 par value
Beginning of year
Treasury shares
Issuance of shares during the year
Issued and outstanding
March 31,
2013
1,340,000,000
605,953,330
–
–
605,953,330
December 31,
2012
1,340,000,000
605,953,330
–
–
605,953,330
- 58 -
Issuance of Common Shares of Stock
On October 26, 2010, the Parent Company listed with the PSE its common stock, by way of
primary and secondary share offerings, wherein it offered 212,419,700 shares to the public at
=125.00 per share. Of the total shares sold, 30,661,800 shares are newly issued shares with total
P
proceeds amounting P
=3,800.0 million. The Parent Company’s share in the total transaction costs
incurred incidental to the IPO amounting P
=100.4 million, which is charged against ‘Capital paid in
excess of par value’ in the parent statement of financial position. The registration statement was
approved on October 11, 2010. The Group has 83 and 76 existing certified shareholders as of
March 31, 2013 and December 31, 2012, respectively.
Treasury Shares
On February 28, 2011, the BOD of the Parent Company approved the creation and implementation
of a share buyback program (SBP) up to P
=2,000.0 million worth of the Parent Company’s
common share. The SBP shall commence upon approval and shall end upon utilization of the said
amount, or as may be otherwise determined by the BOD.
The Parent Company has outstanding treasury shares of 7,283,220 shares amounting to
=529.3 million as of March 31, 2013 and December 31, 2012, restricting the Parent Company
P
from declaring an equivalent amount from unappropriated retained earnings as dividends.
Appropriation of Retained Earnings
On March 8, 2013, the Parent Company’s BOD appropriated P
=2.5 billion from its unrestricted
retained earnings as of December 31, 2012 for purposes of the Group’s re-fleeting program. The
appropriated amount will be used for settlement of pre delivery payments and aircraft lease
commitments in 2013.
On April 19, 2012, the Parent Company’s Executive Committee appropriated P
=483.3 million from
its unrestricted retained earnings as of December 31, 2011 for purposes of the Group’s re-fleeting
program. The appropriated amount will be used for settlement of pre-delivery payments and
aircraft lease commitments in 2013.
On December 9, 2011, the Parent Company’s BOD appropriated P
=933.5 million from its
unrestricted retained earnings as of December 31, 2010 for purposes of the Parent Company’s
re-fleeting program. The appropriated amount will be used for settlement of pre-delivery
payments and aircraft lease commitments in 2013.
Unappropriated Retained Earnings
The income of the subsidiaries and JV that are recognized in the statements of comprehensive
income are not available for dividend declaration unless these are declared by the subsidiaries and
JV. Likewise, retained earnings are restricted for the payment of dividends to the extent of the
cost of common shares held in treasury.
On June 28, 2012, the Parent Company’s BOD approved the declaration of a regular cash dividend
in the amount of P
=606.0 million or P
=1.00 per common share to all stockholders of record as of
July 18, 2012 and was paid on August 13, 2012.
- 59 -
On March 17, 2011, the BOD of the Parent Company approved the declaration of a regular cash
dividend in the amount of P
=1,222.4 million or P
=2.00 per share and a special cash dividend in the
amount of P
=611.2 million or P
=1.00 per share from the unrestricted retained earnings of the Parent
Company to all stockholders of record as of April 14, 2011 and was paid on May 12, 2011.
After reconciling items which include fair value adjustments on financial instruments, foreign
exchange gain and cost of common stocks held in treasury, the amount of retained earnings that is
available for dividend declaration amounted to P
=5,712.9 million and P
=7,426.9 million as of
March 31, 2013 and December 31, 2012, respectively.
Under the Tax Code, publicly-held Corporations are allowed to accumulate retained earnings in
excess of capital stock and are exempt from improperly accumulated earnings tax.
Capital Management
The primary objective of the Group’s capital management is to ensure that it maintains healthy
capital ratios in order to support its business and maximize shareholder value. The Group
manages its capital structure, which composed of paid up capital and retained earnings, and makes
adjustments to these ratios in light of changes in economic conditions and the risk characteristics
of its activities. In order to maintain or adjust the capital structure, the Group may adjust the
amount of dividend payment to shareholders, return capital structure or issue capital securities.
No changes have been made in the objective, policies and processes as they have been applied in
previous years.
The Group’s ultimate parent monitors the use of capital structure using a debt-to-equity capital
ratio which is gross debt divided by total capital. The ultimate parent includes within gross debt
all interest-bearing loans and borrowings, while capital represent total equity.
The Group’s debt-to-capital ratios follow:
(a) Long term debt (Note 16)
(b) Capital
(c) Debt-to-capital ratio (a/b)
December 31,
March 31,
2012
2013
(Audited)
(Unaudited)
P22,924,359,198
P
=24,896,608,043 =
23,291,676,781 22,134,812,784
1.0:1
1.1:1
The JGSHI Group’s policy is to keep the debt to capital ratio at the 2:1 level as of
March 31, 2013 and December 31, 2012. Such ratio is currently being managed on a group level
by the Group’s ultimate parent.
- 60 -
19. Revenues
Revenues consist of:
Passenger
Cargo
Ancillary revenues
2013
P
=8,168,512,848
570,648,490
1,803,056,684
P
=10,542,218,022
2012
=7,192,064,371
P
551,150,737
1,597,723,925
=9,340,939,033
P
Ancillary revenues include baggage fees, rebooking and cancellation fees, inflight sales and
services provided through reservation system such as advance seat selection and website
administration fees.
20. Operating Expenses
Flying Operations
This account consists of:
Aviation fuel expense
Flight deck
Aviation insurance
Others
2013
P
=4,638,195,919
525,304,662
38,427,511
34,653,304
P
=5,236,581,396
2012
=4,485,147,595
P
569,740,837
45,518,013
31,448,071
=5,131,854,516
P
2013
P
=509,563,854
271,493,184
103,719,823
P
=884,776,861
2012
=495,799,787
P
256,688,165
90,208,326
=842,696,278
P
Aircraft and Traffic Servicing
This account consists of:
Airport charges
Ground handling
Others
Others pertain to staff expenses incurred by the Group such as basic pay, employee training cost
and allowances.
Repairs and maintenance
Repairs and maintenance expenses relate to the cost of maintaining, repairing and overhauling of
all aircraft and engines, technical handling fees on pre-flight inspections and cost of aircraft spare
parts and other related equipment. The account includes the related amortization of ARO asset
and cost of other contractual obligation under the aircraft operating lease agreements (Note 28).
These amounted to P
=154.6 million and P
=129.0 million for the quarters ended March 31, 2013 and
2012, respectively (Note 17).
- 61 -
21. General and Administrative Expenses
This account consists of:
Staff cost
Utilities
Security and professional fees
Others
2013
P
=85,452,963
32,100,579
72,452,278
48,651,834
P
=238,657,654
2012
=77,601,024
P
22,942,347
62,683,198
53,767,514
=216,994,083
P
Others include membership dues, annual listing maintenance fees, supplies, rent and others.
22. Employee Benefits
Employee Benefit Cost
Total personnel expenses, consisting of salaries, expense related to defined benefit plans and other
employee benefits, are included in flying operations, aircraft traffic and servicing, repairs and
maintenance, reservation and sales, general and administrative, and passenger service.
Defined Benefit Plan
The Parent Company has an unfunded, noncontributory, defined benefit plan covering
substantially all of its regular employees. The benefits are based on years of service and
compensation on the last year of employment.
23. Other Expenses
This account consists mainly of bank charges.
24. Earnings Per Share
The following reflects the income and share data used in the basic/dilutive EPS computations:
(a) Net income attributable to common
shareholders
(b) Weighted average number of common
shares for basic EPS
(c) Basic/diluted earnings per share
2013
2012
P
=1,156,863,997
=962,396,391
P
605,953,330
P
=1.91
605,953,330
=1.59
P
The Group has no dilutive potential common shares in 2013 and 2012.
- 62 -
25. Related Party Transaction
Transactions between related parties are based on terms similar to those offered to nonrelated
parties. Parties are considered to be related if one party has the ability, directly or indirectly, to
control the other party or exercise significant influence over the other party in making financial
and operating decisions or the parties are subject to common control or common significant
influence. Related parties may be individuals or corporate entities.
The Group has entered into transactions with its ultimate parent, its JV and affiliates principally
consisting of advances, sale of passenger tickets, reimbursement of expenses, regular banking
transactions, maintenance and administrative service agreements.
There are no agreements between the Group and any of its directors and key officers providing for
benefits upon termination of employment, except for such benefits to which they may be entitled
under the Group’s pension plans.
26. Financial Risk Management Objectives and Policies
The Group’s principal financial instruments, other than derivatives, comprise cash and cash
equivalents, financial assets at FVPL, AFS investments, receivables, payables and interest-bearing
borrowings. The main purpose of these financial instruments is to finance the Group’s operations
and capital expenditures. The Group has various other financial assets and liabilities, such as trade
receivables and trade payables which arise directly from its operations. The Group also enters into
fuel derivatives to manage its exposure to fuel price fluctuations.
The Group’s BOD reviews and approves policies for managing each of these risks and they are
summarized in the succeeding paragraphs, together with the related risk management structure.
Risk Management Structure
The Group’s risk management structure is closely aligned with that of its ultimate parent. The
Group has its own BOD which is ultimately responsible for the oversight of the Group’s risk
management process which involves identifying, measuring, analyzing, monitoring and
controlling risks.
The risk management framework encompasses environmental scanning, the identification and
assessment of business risks, development of risk management strategies, design and
implementation of risk management capabilities and appropriate responses, monitoring risks and
risk management performance, and identification of areas and opportunities for improvement in
the risk management process.
The Group and the ultimate parent with its other subsidiaries (JGSHI Group) created the following
separate board-level independent committees with explicit authority and responsibility for
managing and monitoring risks.
Each BOD has created the board-level Audit Committee to spearhead the managing and
monitoring of risks.
- 63 -
Audit Committee
The Group’s Audit Committee assists the Group’s BOD in its fiduciary responsibility for the overall effectiveness of risk management systems, and both the internal and external audit functions of
the Group. Furthermore, it is also the Audit Committee’s purpose to lead in the general evaluation
and to provide assistance in the continuous improvements of risk management, control and
governance processes.
The Audit Committee also aims to ensure that:
a. financial reports comply with established internal policies and procedures, pertinent
accounting and auditing standards and other regulatory requirements;
b. risks are properly identified, evaluated and managed, specifically in the areas of managing
credit, market, liquidity, operational, legal and other risks, and crisis management:
c. audit activities of internal and external auditors are done based on plan, and deviations are
explained through the performance of direct interface functions with the internal and external
auditors; and
d. the Group’s BOD is properly assisted in the development of policies that would enhance the
risk management and control systems.
Enterprise Risk Management Group (ERMG)
The fulfillment of the risk management functions of the Group’s BOD is delegated to the ERMG.
The ERMG is primarily responsible for the execution of the Enterprise Risk Management (ERM)
framework. The ERMG’s main concerns include:




formulation of risk policies, strategies, principles, framework and limits;
management of the fundamental risk issues and monitoring of relevant risk decisions;
support to management in implementing the risk policies and strategies; and
development of a risk awareness program.
Corporate Governance Compliance Officer
Compliance with the principles of good corporate governance is one of the objectives of the
Group’s BOD. To assist the Group’s BOD in achieving this purpose, the Group’s BOD has
designated a Compliance Officer who shall be responsible for monitoring the actual compliance of
the Group with the provisions and requirements of good corporate governance, identifying and
monitoring control compliance risks, determining violations, and recommending penalties for such
infringements for further review and approval of the Group’s BOD, among others.
Day-to-day Risk Management Functions
At the business unit or company level, the day-to-day risk management functions are handled by
four different groups, namely:
1. Risk-taking personnel - this group includes line personnel who initiate and are directly
accountable for all risks taken.
2. Risk control and compliance - this group includes middle management personnel who perform
the day-to-day compliance check to approved risk policies and risks mitigation decisions.
3. Support - this group includes back office personnel who support the line personnel.
4. Risk management - this group pertains to the Group’s Management Committee which makes
risk mitigating decisions within the enterprise-wide risk management framework.
- 64 -
ERM Framework
The Group’s BOD is also responsible for establishing and maintaining a sound risk management
framework and is accountable for risks taken by the Group. The Group’s BOD also shares the
responsibility with the ERMG in promoting the risk awareness program enterprise-wide.
The ERM framework revolves around the following eight interrelated risk management
approaches:
1. Internal Environmental Scanning - it involves the review of the overall prevailing risk profile
of the business unit to determine how risks are viewed and addressed by management. This is
presented during the strategic planning, annual budgeting and mid-year performance reviews
of the business unit.
2. Objective Setting - the Group’s BOD mandates the Group’s management to set the overall
annual targets through strategic planning activities, in order to ensure that management has a
process in place to set objectives which are aligned with the Group’s goals.
3. Risk Assessment - the identified risks are analyzed relative to the probability and severity of
potential loss which serves as a basis for determining how the risks should be managed. The
risks are further assessed as to which risks are controllable and uncontrollable, risks that
require management’s attention, and risks which may materially weaken the Group’s earnings
and capital.
4. Risk Response - the Group’s BOD, through the oversight role of the ERMG, approves the
Group’s responses to mitigate risks, either to avoid, self-insure, reduce, transfer or share risk.
5. Control Activities - policies and procedures are established and approved by the Group’s BOD
and implemented to ensure that the risk responses are effectively carried out enterprise-wide.
6. Information and Communication - relevant risk management information are identified,
captured and communicated in form and substance that enable all personnel to perform their
risk management roles.
7. Monitoring - the ERMG, Internal Audit Group, Compliance Office and Business Assessment
Team constantly monitor the management of risks through risk limits, audit reviews,
compliance checks, revalidation of risk strategies and performance reviews.
Risk Management Support Groups
The Group’s BOD created the following departments within the Group to support the risk
management activities of the Group and the other business units:
1. Corporate Security and Safety Board (CSSB) - under the supervision of ERMG, the CSSB
administers enterprise-wide policies affecting physical security of assets exposed to various
forms of risks.
2. Corporate Supplier Accreditation Team (CORPSAT) - under the supervision of ERMG, the
CORPSAT administers enterprise-wide procurement policies to ensure availability of supplies
and services of high quality and standards to all business units.
3. Corporate Management Services (CMS) - the CMS is responsible for the formulation of
enterprise-wide policies and procedures.
4. Corporate Planning and Legal Affairs (CORPLAN) - the CORPLAN is responsible for the
administration of strategic planning, budgeting and performance review processes of the
business units.
5. Corporate Insurance Department (CID) - the CID is responsible for the administration of the
insurance program of business units concerning property, public liability, business
interruption, money and fidelity, and employer compensation insurances, as well as in the
procurement of performance bonds.
- 65 -
Risk Management Policies
The main risks arising from the use of financial instruments are credit risk, liquidity risk and
market risk, namely foreign currency risk, commodity price risk and interest rate risk. The
Group’s policies for managing the aforementioned risks are summarized below.
Credit Risk
Credit risk is defined as the risk of loss due to uncertainty in a third party’s ability to meet its
obligation to the Group. The Group trades only with recognized, creditworthy third parties. It is
the Group’s policy that all customers who wish to trade on credit terms are being subjected to
credit verification procedures. In addition, receivable balances are monitored on a continuous
basis resulting in an insignificant exposure in bad debts.
With respect to credit risk arising from the other financial assets of the Group, which comprise
cash in bank and cash equivalents and certain derivative instruments, the Group’s exposure to
credit risk arises from default of the counterparty with a maximum exposure equal to the carrying
amount of these instruments.
Collateral or credit enhancements
As collateral against trade receivables from sales ticket offices or agents, the Group requires cash
bonds from major sales ticket offices or agents ranging from P
=50,000 to P
=2.1 million depending
on the Group’s assessment of sales ticket offices and agents’ credit standing and volume of
transactions. As of March 31, 2013 and December 31, 2012, outstanding cash bonds (included
under ‘Accounts payable and other accrued liabilities’ account in the consolidated statement of
financial position) amounted to P
=185.7 million and P
=177.1 million, respectively (Note 15). There
are no collaterals for impaired receivables.
Impairment assessment
The Group recognizes impairment losses based on the results of its specific/individual and
collective assessment of its credit exposures. Impairment has taken place when there is a presence
of known difficulties in the servicing of cash flows by counterparties, infringement of the original
terms of the contract has happened, or when there is an inability to pay principal overdue beyond a
certain threshold. These and the other factors, either singly or in tandem, constitute observable
events and/or data that meet the definition of an objective evidence of impairment.
The two methodologies applied by the Group in assessing and measuring impairment include:
(1) specific/individual assessment; and (2) collective assessment.
Under specific/individual assessment, the Group assesses each individually significant credit
exposure for any objective evidence of impairment, and where such evidence exists, accordingly
calculates the required impairment. Among the items and factors considered by the Group when
assessing and measuring specific impairment allowances are: (a) the timing of the expected cash
flows; (b) the projected receipts or expected cash flows; (c) the going concern of the
counterparty’s business; (d) the ability of the counterparty to repay its obligations during financial
crises; (e) the availability of other sources of financial support; and (f) the existing realizable value
of collateral. The impairment allowances, if any, are evaluated as the need arises, in view of
favorable or unfavorable developments.
With regard to the collective assessment of impairment, allowances are assessed collectively for
losses on receivables that are not individually significant and for individually significant
receivables when there is no apparent nor objective evidence of individual impairment yet.
A particular portfolio is reviewed on a periodic basis in order to determine its corresponding
appropriate allowances. The collective assessment evaluates and estimates the impairment of the
- 66 -
portfolio in its entirety even though there is no objective evidence of impairment yet on an
individual assessment. Impairment losses are estimated by taking into consideration the following
deterministic information: (a) historical losses/write-offs; (b) losses which are likely to occur but
have not yet occurred; and (c) the expected receipts and recoveries once impaired.
Liquidity Risk
Liquidity is generally defined as the current and prospective risk to earnings or capital arising
from the Group’s inability to meet its obligations when they become due without recurring
unacceptable losses or costs.
The Group’s liquidity management involves maintaining funding capacity to finance capital
expenditures and service maturing debts, and to accommodate any fluctuations in asset and
liability levels due to changes in the Group’s business operations or unanticipated events created
by customer behavior or capital market conditions. The Group maintains a level of cash and cash
equivalents deemed sufficient to finance operations. As part of its liquidity risk management, the
Group regularly evaluates its projected and actual cash flows. It also continuously assesses
conditions in the financial markets for opportunities to pursue fund raising activities. Fund raising
activities may include obtaining bank loans and availing of export credit agency facilities.
Financial assets
The analysis of financial assets held for liquidity purposes into relevant maturity grouping is based
on the remaining period at the statement of financial position date to the contractual maturity date
or if earlier the expected date the assets will be realized.
Financial liabilities
The relevant maturity grouping is based on the remaining period at the statement of financial
position date to the contractual maturity date. When counterparty has a choice of when the amount
is paid, the liability is allocated to the earliest period in which the Group can be required to pay.
When an entity is committed to make amounts available in installments, each installment is
allocated to the earliest period in which the entity can be required to pay.
Market Risk
Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may
result from changes in the price of a financial instrument. The value of a financial instrument may
change as a result of changes in foreign currency exchange rates, interest rates, commodity prices
or other market changes. The Group’s market risk originates from its holding of foreign exchange
instruments, interest-bearing instruments and derivatives.
Foreign currency risk
Foreign currency risk arises on financial instruments that are denominated in a foreign currency
other than the functional currency in which they are measured. It is the risk that the value of a
financial instrument will fluctuate due to changes in foreign exchange rates.
The Group does not have any foreign currency hedging arrangements.
The exchange rates used to restate the Group’s foreign currency-denominated assets and liabilities
as of March 31, 2013 and December 31, 2012 follow:
US dollar
Singapore dollar
Hong Kong dollar
March 31, 2013
P
=40.80 to US$1.00
P
=32.98to SGD1.00
P
=5.27 to HKD1.00
December 31, 2012
=41.05 to US$1.00
P
=33.70 to SGD1.00
P
=5.31 to HKD1.00
P
- 67 -
The following table sets forth the impact of the range of reasonably possible changes in the
US dollar - Philippine peso exchange value on the Group’s pre-tax income for the three months
ended March 31, 2013 and for the year ended December 31, 2012 (in thousands).
Changes in foreign exchange value
Change in pre-tax income
March 31, 2013 (Unaudited) December 31, 2012 (Audited)
P5
=
(P
=5)
P
=5
(P
=5)
(P
=3,136,409)
P
=3,136,409
(P
=2,686,052)
=2,686,052
P
Other than the potential impact on the Group’s pre-tax income and change in equity from AFS
investments, there is no other effect on equity.
The Group does not expect the impact of the volatility on other currencies to be material.
Commodity price risk
The Group enters into commodity derivatives to manage its price risks on fuel purchases.
Commodity hedging allows stability in prices, thus offsetting the risk of volatile market
fluctuations. Depending on the economic hedge cover, the price changes on the commodity
derivative positions are offset by higher or lower purchase costs on fuel. A change in price by
US$10.00 per barrel of jet fuel affects the Group’s fuel costs in pre-tax income by
=323.7 million and P
P
=1,258.9 million as of March 31, 2013 and December 31, 2012, respectively,
in each of the covered periods, assuming no change in volume of fuel is consumed.
Interest rate risk
Interest rate risk arises on interest-bearing financial instruments recognized in the consolidated
statement of financial position and on some financial instruments not recognized in the
consolidated statement of financial position (i.e., some loan commitments, if any). The Group’s
policy is to manage its interest cost using a mix of fixed and variable rate debt (Note 16).
The following table sets forth the impact of the range of reasonably possible changes in interest
rates on the Group’s pre-tax income for the three months ended March 31, 2013 and for the year
ended December 31, 2012.
Changes in interest rates
Changes in pre-tax income
March 31, 2013 (Unaudited)
1.50%
(1.50%)
(P
=27,751,686)
P
=27,751,686
December 31, 2012 (Audited)
1.50%
(1.50%)
(P
=91,088,144)
=91,088,144
P
Other than the potential impact on the Group’s pre-tax income, there is no other effect on equity.
27. Fair Value Measurement
The methods and assumptions used by the Group in estimating the fair value of its financial
instruments are:
Cash and cash equivalents (excluding cash on hand), Receivables and Accounts payable and other
accrued liabilities
Carrying amounts approximate their fair values due to the relatively short-term maturity of these
instruments.
Investments in quoted equity securities
Fair values are based on quoted prices published in markets.
- 68 -
Amounts due from and due to related parties
Carrying amounts of due from/to related parties, which are receivable/payable and due on demand,
approximate their fair values.
Non-interest bearing refundable deposits
The fair values are determined based on the present value of estimated future cash flows using
prevailing market rates. The Group used a discount rate of 6.93% in 2013 and 2012.
Derivative instruments
The fair values of fuel derivatives are based on quotes obtained from an independent counterparty.
Long-term debt
The fair value of long-term debt is determined using the discounted cash flow methodology, with
reference to the Group’s current incremental lending rates for similar types of loans. The discount
curve used range from 3.67% to 4.44% as of March 31, 2013 and December 31, 2012.
28. Commitments and Contingencies
Operating Aircraft Lease Commitments
The Group entered into operating lease agreements with certain leasing companies which cover
the following aircraft:
A320 aircraft
The following table summarizes the specific lease agreements on the Group’s Airbus A320
aircraft:
Date of Lease
Agreement
Original Lessors
December 23, 2004 CIT Aerospace International
(CITAI)
April 23, 2007
New Lessors
Wilmington Trust SP
Services (Dublin)
Limited*
No. of Units
Lease Term
2
May 2005 - May 2012
June 2005 - June 2012
Celestial Aviation Trading 17 Inishcrean Leasing
Limited (CAT 17)
Limited (Inishcrean)**
CITAI
–
1
October 2007 - October 2016
4
March 2008 - March 2014
April 2008 - April 2014
May 2008 - May 2014
October 2008 - October 2014
March 14, 2008
Celestial Aviation Trading 19 GY Aviation Lease
Limited (CAT 19)
0905 Co. Limited***
2
January 2009 - January 2017
March 14, 2008
Celestial Aviation Trading 23 –
Limited (CAT 23)
2
October 2011 - October 2019
May 29, 2007
July 13, 2011
RBS Aerospace Limited
–
2
March 2012 - February 2018
* Effective November 21, 2008 for the first aircraft and December 9, 2008 for the second aircraft.
** Effective June 24, 2009
*** Effective March 25, 2010
- 69 -
On March 14, 2008, the Group entered into an operating lease agreement with CAT 19 for the
lease of two Airbus A320 aircraft, which were delivered in 2009. On the same date, the Group
also entered into another lease agreement with Celestial Aviation Trading 23 Limited (CAT 23)
for the lease of two additional Airbus A320 aircraft to be received in 2012. In November 2010,
the Group signed an amendment to the operating lease agreements with CAT 23, advancing the
delivery of the two Airbus A320 aircraft to 2011 from 2012.
Lease agreements with CITAI, CAT 17 and CAT 19 were amended to effect the novation of lease
rights by the original lessors to new lessors as allowed under the existing lease agreements.
On July 13, 2011, the Group entered into an operating lease agreement with RBS Aerospace Ltd.
for the lease of two Airbus A320 aircraft, which were delivered in March 2012. These aircrafts
replaced the two aircrafts under Wilmington Trust SP Services (Dublin) Ltd. which contract
expired on May 2012 and June 2012.
Lease expenses relating to aircraft leases (included in ‘Aircraft and engine lease’ account in
the consolidated statements of comprehensive income) amounted to P
=459.3 million and
=508.0 million for the three months ended March 31, 2013 and 2012, respectively.
P
A330 aircraft
On December 6, 2011, the Group entered into an aircraft operating lease Memorandum of
Understanding (MOU) with CIT Aerospace International for the lease of four Airbus A330-300
aircrafts, which are scheduled to be delivered from June 2013 to 2014. These aircrafts shall be
used for the long-haul network expansion programs of the Group.
Future minimum lease payments under the above-indicated operating aircraft leases follow:
Within one year
After one year but not more than
five years
Over five years
March 31, 2013
In USD
In Php
$61,294,132 P
=2,500,800,601
March 31, 2012
In USD
In Php
$44,678,252 P
=1,917,590,592
253,880,436
10,358,321,800
315,945,478
12,890,575,497
$631,120,046 P
=25,749,697,898
260,086,842
11,162,927,257
369,966,901
15,878,979,397
$674,731,995 =
P28,959,497,246
Operating Non-Aircraft Lease Commitments
The Group has entered into various lease agreements for its hangar, office spaces, ticketing
stations and certain equipment. These leases have remaining lease terms ranging from one to ten
years. Certain leases include a clause to enable upward revision of the annual rental charge
ranging from 5.00% to 10.00%.
Future minimum lease payments under these noncancellable operating leases follow:
Within one year
After one year but not more than five years
Over five years
March 31,
March 31,
2012
2013
P105,711,690
P
=109,992,268 =
472,173,094
491,499,177
363,545,730
234,227,379
=941,430,514
P
=835,718,824 P
- 70 -
Lease expenses relating to both cancellable and non-cancellable non-aircraft leases (allocated
under different expense accounts in the consolidated statements of comprehensive income)
amounted to P
=69.3 million and P
=66.9 million for the three months ended March 31, 2013 and
2012, respectively.
Service Maintenance Commitments
On June 21, 2012, the Company has entered into an agreement with Messier-Bugatti-Dowty
(Safran group) to purchase wheels and brakes for its fleet of Airbus A319 and A320 aircraft. The
contract covers the current fleet, as well as future aircraft to be acquired.
On June 22, 2012, the Group has entered into service contract with Rolls-Royce Total Care
Services Limited (Rolls-Royce) for service support for the engines of the A330 aircraft. RollsRoyce will provide long-term TotalCare service support for the Trent 700 engines on up to eight
A330 aircraft.
On July 12, 2012, the Company has entered into a maintenance service contract with SIA
Engineering Co. Ltd. for the maintenance, repair and overhaul services of its A319 and A320
aircraft.
Aircraft and Spare Engine Purchase Commitments
In 2010, the Group exercised its option to purchase five Airbus A320 aircraft and entered into a
new commitment to purchase two Airbus A320 aircraft to be delivered between 2011 and 2014.
Four of the five additional A320 aircraft were delivered between September 2011 and
November 2012.
On May 2011, the Group turned into firm orders its existing options for the seven Airbus A320
aircraft which are scheduled to be delivered in 2015 to 2016.
As of December 31, 2011, the Group has existing commitments to purchase 25 new Airbus
A320 aircraft, four of which were delivered on January 30, August 9, October 16 and
November 29, 2012, respectively. As of December 31, 2012, the Group has existing commitments
to purchase 21 new Airbus A320 aircraft, which are scheduled to be delivered between 2013 and
2016, two of which were delivered on January 18, 2013 and March 7, 2013.
On August 2011, the Group entered in a new commitment to purchase firm orders of thirty new
A321 NEO Aircraft and ten addition option orders. These aircraft are scheduled to be delivered
from 2017 to 2021. These aircraft shall be used for a longer range network expansion programs.
The above-indicated commitments relate to the Group’s re-fleeting and expansion programs.
On June 28, 2012, the Group has entered into an agreement with United Technologies
International Corporation Pratt & Whitney Division to purchase new PurePower® PW1100G-JM
engines for its thirty (30) firm and ten (1) option A321 NEO aircraft to be delivered beginning
2017. The agreement also includes an engine maintenance services program for a period of ten
(10) years from the date of entry into service of each engine.
As of March 31, 2013, the Group has existing commitments to purchase 17 new Airbus A320
aircraft, which are scheduled to be delivered between July 2013 and 2017; and 30 A321 NEO
aircraft for delivery between 2017 to 2021.
- 71 -
Capital Expenditure Commitments
The Group’s capital expenditure commitments relate principally to the acquisition of aircraft fleet,
aggregating to P
=56.72 billion and P
=50.76 billion as of March 31, 2013 and 2012, respectively.
Within one year
After one year but not more than
five years
March 31, 2013
In USD
In Php
$254,518,507 P
=10,384,355,067
March 31, 2012
In USD
In Php
$261,538,453 P
=11,225,230,417
41,966,565,102
$1,188,518,694
48,491,562,730 $977,785,767
P53,191,795,519
$1,443,037,201 P
=58,875,917,797 $1,239,324,220 =
Contingencies
The Group has pending suits and claims for sums of money against certain general sales agents
which are either pending decision by the courts or being contested, the outcome of which are not
presently determinable. The estimate of the probable costs for the resolution of these claims has
been developed in consultation with outside counsel handling the defense in these matters and is
based upon an analysis of potential results. The Group currently does not believe that these
proceedings will have a material adverse effect on the Group’s financial position and results of
operations.
The Group has a pending tax pre-assessment, the outcome of which is not presently determinable.
29. Supplemental Disclosures to the Consolidated Statements of Cash Flows
The principal noncash activities of the Group were as follows:
a. On March 31, 2012, the Group recognized a liability based on the schedule of pre-delivery
payments amounting to P
=100.4 million with a corresponding debit to ‘Construction-in
progress’ account. The liability was paid on April 2012.
b. On March 31, 2013, the Group recognized a liability based on the schedule of pre-delivery
payments amounting to P
=191.7 million with a corresponding debit to ‘Construction-in
progress’ account. The liability was paid on April 2013.
30. Events After the Statement of Financial Position Date
No material subsequent events to the end of the interim period have occurred that would require
recognition disclosure in the consolidated financial statements for the interim period.