PHILIPPINE AEROSPACE DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. CORPORATE BACKGROUND
The Philippine Aerospace Development Corporation (PADC) was created by virtue
of Presidential Decree (PD) No. 286, dated September 5, 1973, as amended by PD
Nos. 346 and 696, dated December 14, 1973 and May 9, 1975, respectively. PADC
is attached to the Department of Transportation and Communication (DOTC).
The Corporation is mandated to undertake all manner of activity, business or
development projects for the establishment of reliable aviation and aerospace
industry that shall include (a) the design, assembly, manufacture, and sale of all
forms of aircraft and aviation/aerospace devices, equipment or contraptions and
studies or researches for innovation and improvements, (b) the development of local
capabilities in the maintenance, repair/overhaul and modification of aerospace and
associated flight and ground equipment and components, and (c) the operation and
provision of transport services, whether for cargo or passengers, on a scheduled,
non-scheduled, or charter basis or domestic and/or international scale.
The Corporation is governed and its activities are directed, controlled and managed
by the Board of Directors, as follows:
Chairman
-
Jose P. De Jesus, DOTC Secretary
Vice-Chairman
-
Antonio G. Buendia, Jr., PADC President
Corporate Secretary
-
Atty. Reginald Jeremy I. Wan
Member
-
Francisco F. Del Rosario, Jr., DBP President
Rolando C. Geronimo - Alternate
Member
-
Robert G. Vergara, GSIS General Manager
Joseph Philip T. Andres - Alternate
Member
-
Gregory L. Domingo, DTI Secretary
Cristino Panlileo, - Alternate
Member
-
Cesar V. Purisima, DOF Secretary
Lourdes Z. Santiago - Alternate
Member
-
Oscar Rabena, PAF Commanding General
Dionisio Robles - Alternate
Member
-
Voltaire T. Gazmin, DND Secretary
Fernando I. Manalo- Alternate
Member
-
Numeriano Dayrit
Private Sector
Member
-
Edward Mijares
Private Sector
7
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Accounting
Revenues and expenses are recorded on the accrual basis of accounting.
b. Cash Equivalents
For purposes of the statement of cash flows, the Corporation considers all highly
liquid instruments purchased with original maturities of three months or less from
date of acquisition to be cash equivalents.
c. Inventories
Inventories of supplies and materials are stated at weighted average and are
determined on the basis of perpetual inventory records. Allowance for inventory
obsolescence is set up upon the approval of the Board based on the actual
physical count of obsolete spare parts, with their corresponding weighted
average costs.
d. Investments
Investments are stated at cost less allowance for impairment loss.
e. Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation.
Major repairs which extend the life of the assets are capitalized, while minor
repairs are charged outright to expense.
f. Foreign Currency Transactions
Transactions in foreign currencies are recorded in Philippine pesos based on the
exchange rate prevailing at the date of the transactions. Cash denominated in
foreign currencies are restated using the Bangko Sentral ng Pilipinas guiding
exchange rate as of balance sheet date. The foreign exchange differential is
treated as a gain or loss on conversion of foreign currency, as the case may be.
3. CASH AND CASH EQUIVALENTS
This account consists of the following:
Cash in current/savings account - PNB
Cash in current/savings account - LBP-DOTC
Cash in U.S. dollar account - LBP
Cash in U.S. dollar account - TD-LBP
Revolving fund
2010
2009
11,540
6,654,531
3,269,889
13,054,062
50,000
8,064
2,373,547
3,448,605
4,349,141
50,000
23,040,022
10,229,357
8
The BSP guiding foreign exchange rate as of balance sheet date was adopted to
convert the US dollar deposits at year end. Conversion rates as of December 31,
2010 and December 31, 2009 are P43.642 and P46.495, respectively.
4. RECEIVABLES
This account consists of the following:
Trade receivables
Receivables from tenants
Allowance for bad debts
Receivables from officers and employees
Other receivables
2010
2009
6,855,308
2,790,426
9,645,734
(9,067,469)
578,265
2,059,337
241,479
4,299,633
4,767,836
9,067,469
9,067,469
2,081,254
241,479
2,879,081
11,390,202
Trade receivables represent accounts arising from service parts, labor, and overthe- counter sales. Receivables from tenants consist of receivables for rental of
office spaces and hangarage, and telephone, water, and electricity bills of various
tenants of the Corporation. Receivables from officers and employees consist mainly
of unliquidated cash advances, while Other receivables represent the cash advance
granted to a PADC Treasurer, for travel to Beijing, China on October 10-14, 2006,
the liquidation voucher of which was disallowed by the PADC-COA Audit Team
Leader under Notice of Disallowance (ND) No. 2008-001-(2006). A Notice of Finality
of Decision was issued by the Director, Cluster B, Corporate Government Sector,
Commission on Audit, Quezon City, on the said disallowance.
5. INVENTORIES
This account consists of the following:
2010
2009
Aircraft inventory
Spare parts and accessories
Jobs in progress
Other supplies
0
64,766,563
9,905,453
12,888,171
26,798,779
65,517,461
11,063,633
12,888,491
Allowance for obsolescence
87,560,187
(23,563,740)
116,268,364
(23,563,740)
63,996,447
92,704,624
9
Aircraft inventory represents the BO-105 S163 costing P26,798,779 which was
transferred to the Philippine Coast Guard in 2003 via a Deed of Transfer. Deed of
Sale for P10,000,000.00 was executed in April 2010 with the payment received in
the same year.
6. ADVANCES TO PHSI
This account represents the net advances by PADC to the Philippine Helicopter
Services, Inc. (PHSI), a former subsidiary which was privatized. PHSI is now
Eurocopter Philippines, Inc. (EPI). It remained uncollected due to lack of supporting
documents.
7. INVESTMENTS
This account consists of the Corporation’s investment in shares of stock of the
following:
2010
2009
Eurocopter Phils., Inc.
PLDT
Meralco
11,799,153
55,300
5,870
11,799,153
55,300
5,870
Allowance for impairment loss
11,860,323
(6,900,948)
11,860,323
(6,900,948)
4,959,375
4,959,375
Investment in EPI consists of the Corporation’s investment in EPI’s 11,700 shares,
representing 30% equity. EPI has not declared dividends since it started operations
in 1997. EPI’s shares of stock is now valued at P 255.73 per share.
10
8. PROPERTY, PLANT AND EQUIPMENT
This account is composed of the following (amounts stated in thousand pesos):
Mach.
&
Bldgs. &
Acft &
Office
Lease-
Lease-
Acft
Furn./
hold
hold
Grd.
Fix. & Improv't. Improv't. Motor
Equipt. Improv't. Equipt. Equipt.
(Bldg.)
IT and
Comm. Software
(Land) Vehicle Equipt. Equipt.
TOTAL
At December 31, 2009
Cost
39,017
29,060
8,218
11,190
1,879
7,981
5,628
1,746
75
104,794
Accumulated
36,489
26,316
6,557
9,566
221
7,648
4,898
707
27
92,429
2,528
2,744
1,661
1,624
1,658
333
730
1,039
48
12,365
1,661
1,624
1,658
333
730
1,039
48
12,365
Net Book Value
Year Ended DECEMBER 31, 2010
Opening Net Book Value
2,528
2,744
Additions/Deductions
(112)
29
40
-
-
1
(42)
-
-
-
Adjustments:
177
-
-
(65)
(512)
(294)
6
-
-
(688)
Depreciation for the Year
(403)
(180)
(145)
(361)
(105)
(38)
(181)
(24)
(14)
(1,451)
Closing Net Book Value
2,190
2,593
1,516
1,238
1,041
2
555
1,015
34
10,184
Cost
38,905
29,089
8,218
11,230
1,879
7,982
5,628
1,746
75
104,752
Accumulated Depreciation
36,715
26,496
6,702
9,992
838
7,980
5,073
731
41
94,568
2,190
2,593
1,516
1,238
1,041
2
555
1,015
34
10,184
Accumulated Depreciation
At DECEMBER 31, 2010
Net Book Value
Leasehold Improvement – Buildings balance still include cost of battery and nondestructive test shops destroyed and dismantled upon orders of a former President
of PADC. Bookkeeping adjustments will be made in accordance with the usual
government accounting and auditing procedures.
As a matter of policy, depreciation expenses are allocated and added to the
following costs/expenses:
Salaries and wages
Depreciation
Auditing services
2010
2009
677
763
11
1,224
1,137
20
1,451
2,381
11
9. DEFERRED CHARGES
This account substantially represents customs duties, freight and import charges
that are being paid for before delivery of imported aircraft parts and supplies. The
estimated amounts for these expenses are given to the PADC Logistics personnel to
be liquidated/accounted for upon receipt of goods. The balance in the account
represents unreconciled/unmatched amounts upon liquidation.
10. OTHER ASSETS
This account consists of the following:
Trade receivables
Miscellaneous receivables
Allowance for doubtful accounts
2010
2009
35,568,891
8,513,714
44,082,605
(44,082,605)
36,305,268
8,513,714
44,818,982
(27,838,402)
Traded-in spare parts & accessories
Flight equipment–rotable parts
Allowance for obsolescence
Deposits
Non-operating equipment
16,980,580
11,270,950
1,610,445
12,881,395
(12,881,395)
11,270,950
1,610,445
12,881,395
(12,881,395)
-
-
2,082,544
2,082,544
825,761
825,761
2,908,305
19,888,885
Because of doubtful collectibility and utilization, the above accounts, together with
their allowances, were reclassified under Other Assets account by virtue of Board
Resolution No. 12 Series of 1991. In CY 2010, a 100% allowance was provided on
the receivables. Miscellaneous Receivables include the claim of P2,183,500 against
a former PADC Treasurer who entrusted to an intermediary PNB employee the
amount for the purchase of dollars in the black market. An estafa case against the
former PADC Treasurer, which was filed on April 22, 1986 by the Office of the
Government Corporate Counsel with the Office of the Provincial Fiscal of Rizal, is
still pending as of this time.
12
11. ACCOUNTS PAYABLE
This account consists of the following:
Accounts payable - trade
Accounts payable - others
Accrued liabilities
Other payables
Other payables - (miscellaneous)
Deferred credits
2010
2009
11,452,052
10,289,947
17,949,603
8,323,204
(11,027,714)
1,860,685
11,452,052
10,247,828
20,187,311
8,323,204
(7,771,650)
1,547,053
38,847,777
43,985,798
Accounts payable – trade account represents obligations to suppliers of aircraft
parts and supplies, while Accounts payable – others account substantially consists
of duties and fees due to the Bureau of Customs, insurance of various properties
due to GSIS, and claims of former PADC officials and employees. Accrued liabilities
consist of various accruals for expenses incurred but not yet paid. Other payables –
(miscellaneous) includes Input VAT that normally has a debit balance. Deferred
credits represent advance payments made by the Philippine Navy for the repairs to
be undertaken on its aircrafts.
12. PROVISION FOR VACATION AND SICK LEAVE PAYMENTS
This account represents the money value of the earned vacation and sick leave
credits of employees.
13. DEPOSITORY LIABILITIES
This account consists of deposits made by airline companies and various tenants in
connection with the lease of PADC hangars, as follows:
Cebu Pacific Airways
Philippine Airlines, Inc.
Various customers
2010
2009
2,935,906
1,204,561
522,725
2,935,906
1,204,561
361,561
4,663,192
4,502,028
13
14. CAPITAL STOCK
This account pertains to the subscribed and paid for shares, as follows:
Subscribed
Shares
Par Value/
Stated Value
2,000,000
917,783
40
150
151,967,400
DBP
500,000
40
GSIS
500,000
40
NG
3,917,783
Property
Contribution
Cash
Contribution
Total
65,700,000
80,000,000
137,667,400
-
20,000,000
20,000,000
-
20,000,000
20,000,000
151,967,400
105,700,000
P 257,667,400
Under P.D. No. 286, the initial authorized capital stock of the Corporation is P50M,
divided into five (5) hundred thousand shares at P100 par value. P.D. No. 346
increased the authorized capital stock into three (3) million shares, no par value.
P.D. No. 696 further increased the capital stock into five (5) million shares, no par
value.
The two (2) million shares of stock subscribed and paid for by the National
Government had an initial stated value of P40/share. The five (5) hundred thousand
shares of stock each for the Development Bank of the Philippines and Government
Service Insurance System were also issued at P40/share.
The property contribution of the National Government consisted of four (4) C-130
airplanes.
15. SALES / COST OF SALES
This account represents the following:
Sales
Service parts sales
Aircraft (Note 5)
Man-hours
Over-the-counter
Cost of Sales
Service parts
Aircraft (Note 5)
Labor and overhead
Over-the-counter
Gross profit (loss)
2010
2009
1,834,728
10,000,000
1,363,680
493,588
1,543,952
742,700
47,002
13,691,996
2,333,654
1,188,651
26,798,778
1,302,858
448,078
973,319
507,542
21,046
29,738,365
1,501,907
(16,046,369)
831,747
14
In 2008, various aircraft spare parts, accessories, and equipment were sold way
below their acquisition costs. Notice of Charge No. 2009-001(2008), dated January
16, 2009, was issued by the COA-PADC Audit Team Leader to persons determined
as liable to recover losses incurred by PADC on the irregular sales of these
inventories. Supplemental Notice of Charge No. 2009-001(2008)A, dated November
12, 2010, was also issued by the Fraud Audit and Investigation Office, Legal
Services Sector, Commission on Audit, as a result of its Special Audit.
16. OTHER INCOME/EXPENSES
This account consists of the following:
Interest income
Other income
Loss on conversion of foreign currencies
Bank charges
2010
2009
196,769
367,353
(183,150)
(894)
163,416
164,314
(122,228)
(3,146)
380,078
202,356
15
17. CONTINGENT LIABILITIES
The Bureau of Internal Revenue (BIR) issued Tax Assessment for alleged tax
deficiencies by PADC for the years 1999, 2003, 2004 and 2008, as follows:
(Incremental
Charges for Late
Payment)
2008
1999
2003
2004
12,239,939
32,650,997
5,975,775
9,900,762
16,661,371
2,377,298
1,493,310
30,432,741
247,036
728,504
416,655
350,552
1,742,747
-
5,941,555
-
352,603
6,294,158
-
-
1,023,676
148,079
1,171,755
22,387,737
55,982,427
9,793,404
2,344,544
90,508,112
Deficiency income
tax
Total
50,866,711
Value Added Tax
EWT
Witholding tax on
compensation
Witholding
Creditable
Added Tax
of
Value
Total
In a Board Meeting held on February 7, 2007, the Board instructed the PADC
Management to exert optimum efforts in negotiating with the Bureau of Internal
Revenue for possible tax remedies PADC can undertake. On August 1, 2008, the
Bureau of Internal Revenue issued a Final Decision on Disputed Assessment for CY
2003, against which a petition for review was filed by the Corporation at the Court of
Tax Appeals on September 8, 2008, paying aggregate court fees amounting to
P505,475.13.
SUPPLEMENTARY INFORMATION
In compliance with Bureau of Internal Revenue (BIR) Revenue Regulation (RR) #
15-2010, dated November 25, 2010, it is hereby disclosed that the Corporation paid
the following taxes for the year:
Particular
VAT Withheld
Compensation
Expanded
Taxes paid on
sales of goods &
services
Total
Income
Withholding
-
-
-
-
183,460
Total
269,197
1,384,728
183,460
-
4,503,889
4,503,889
4,956,546
6,341,274
1,384,728
1,384,728
Others
269,197
-
16