cover sheet - macroasia corp 17-a 2010 final.pdf6 7 5 4 a y al a a v enue, makati c i t y ......

COVER SHEET

4 0 5 2 4 SEC Registration Number

M A C R O A S I A C O R P O R A T I O N

A N D S U B S I D I A R I E S

(Company’s Full Name)

1 2 t h F l o o r , A l l i e d B a n k C e n t e r ,

6 7 5 4 A y a l a A v e n u e , M a k a t i C i t y

(Business Address: No. Street City/Town/Province)

Reynaldo O. Munsayac 840-2001 (Contact Person) (Company Telephone Number)

1 2 3 1 1 7 - A Month Day (Form Type) Month Day

(Calendar Year) (Annual Meeting)

NA (Secondary License Type, If Applicable)

Dept. Requiring this Doc. Amended Articles Number/Section Total Amount of Borrowings

882 Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

S T A M P S Remarks: Please use BLACK ink for scanning purposes.

TABLE OF CONTENTS

PART I – BUSINESS AND GENERAL INFORMATION 1

ITEM 1: Description of Business 1ITEM 2: Description of Properties 12ITEM 3: Legal Proceedings 13ITEM 4: Submission of Matters to a Vote of Security Holders 13

PART II – OPERATIONAL AND FINANCIAL INFORMATION 14

ITEM 5: Market for Issuer’s Common Equity and Related Stockholder Matters 14ITEM 6: Management’s Discussion and Analysis or Plan of Operation 17ITEM 7: Financial Statements 25ITEM 8: Information on Independent Accountant and Other Related Matters 25

PART III– MANAGEMENT AND CERTAIN SECURITY HOLDERS 26

ITEM 9: Directors and Executive Officers of the Issuer 26ITEM 10: Executive Compensation 30ITEM 11: Security Ownership of Certain Beneficial Owners and Management 32ITEM 12: Certain Relationships and Related Transactions 34

PART IV– CORPORATE GOVERNANCE 35ITEM 13: Corporate Governance 35

SIGNATURES 40

PART V – EXHIBITS AND SCHEDULES 41ITEM 14: Exhibits and Reports on SEC Form 17‐C 41

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES 42

INDEX TO EXHIBITS 42

Annual Report December 31, 2010

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PART I. BUSINESS AND GENERAL INFORMATION

This report contains references to MacroAsia Corporation and its wholly owned subsidiaries – MacroAsia Air Taxi Services, Inc., MacroAsia Properties Development Corporation, MacroAsia Catering Services, Inc., MacroAsia Airport Services Corporation and MacroAsia Mining Corporation, collectively referred to as the “Group”. Any references to “MacroAsia”, “MAC” and “Company” mean MacroAsia Corporation, the parent company, not including its wholly owned subsidiaries.

ITEM 1. DESCRIPTION OF BUSINESS

A. Business Development

1. Corporate History

MacroAsia Corporation was incorporated in the Philippines on February 16, 1970, (originally under the name Infanta Mineral & Industrial Corporation) to engage in the business of geological exploration and development. As a mining firm, it had exported to Japan, nickel ore from its mine in Brooke’s Point, Palawan during the 1970’s. On January 26, 1994, the Articles of Incorporation was amended to change its primary purpose from geological exploration and development to that of engaging in the business of a holding company, and to change its corporate name to Cobertson Holdings Corporation. On November 6, 1995, the Company’s Articles of Incorporation was again amended to change its corporate name to its present name.

In June 1996, the Company incorporated two of its 100% wholly‐owned subsidiaries: MacroAsia Air Taxi Services, Inc. (MAATS) and MacroAsia Properties Development Corporation (MAPDC). MAATS provides helicopter charter services, while MAPDC operates the special economic zone at the Ninoy Aquino International Airport (NAIA). In October 1996, the Company started its first in‐flight catering business through Cebu Pacific Catering Services, Inc. (CPCS), the only in‐flight caterer in Mactan‐Cebu International Airport. By November of 1996, it has incorporated its second in‐flight catering venture, MacroAsia Catering Services, Inc. (MACS), which is the dominant caterer of foreign airlines in NAIA since it operated in 1998.

Another subsidiary, MacroAsia Airport Services Corporation (MASCORP) was incorporated in 1997 to service the ground handling requirements (passenger and cargo services) of military and commercial aircraft.

In 2000, Lufthansa Technik Philippines, Inc. (LTP) was formed to do aircraft and engine maintenance, repair and overhaul (MRO) in NAIA. With its facilities, LTP is a globally competitive company offering aircraft and engine maintenance, repair, and overhaul in the Philippines, with airline clients from almost all parts of the world.


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In the medium‐term, the Company’s growth and expansion in aviation services is seen to continue, and such growth will be driven principally by further internal growth of its current operating subsidiaries. Its ground‐handling business is expanding its operations, through the increase in its service capability in Mactan Cebu International Airport. Its airline catering facility in NAIA is also looking at business and industry catering to maximize the potential of the facility. Its property development subsidiary is also looking at the development of its “Sucat land”, as well as the possible replication of its business of special airport ecozone operations outside of NAIA.

Beyond the Company’s airport businesses, the Company’s mining project is being targeted to generate revenues in the medium‐term, considering the substantial completion of exploration works and the progress in the acquisition of operating permits for the Company’s Infanta Nickel Project in Brooke’s Point, Palawan. In 2006, the Company received from the government the Mineral Production Sharing Agreement (MPSA) covering 1,114 hectares as renewal of its rights in the nickel‐rich area in Brookes’ Point, Palawan. This is the same area that Infanta Mineral & Industrial Corporation previously held and mined. This mining tenement is free from legal cases or questions since 2008, and mining exploration has been largely completed in 2009. The Company received the Environmental Compliance Certificate (ECC) for operations of the Infanta Nickel Project in Palawan on September 13, 2010.

In May 2007, the Company also received a second MPSA covering 410 hectares in another nearby area in Brooke’s Point, Palawan. Likewise, this area used to be held by Infanta Mineral and Mining Corporation. The purpose of this second MPSA is to provide for the rational exploration, development and commercial utilization of certain chromite, nickel and copper and other associated mineral deposits existing within the tenement area.

2. Bankruptcy, Receivership or Similar Proceedings

No bankruptcy, receivership or similar proceedings have been instituted against MacroAsia and its subsidiaries or associates.

3. Material Reclassification, Merger, Consolidation, or Purchase or Sale of Significant Amount of Assets (not in the ordinary course of business)

No material reclassification, merger, consolidation, or purchase or sale of significant amount of assets not in the ordinary course of business has taken place within the Group.


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B. Business of the Issuer MacroAsia Corporation (MAC) is a publicly‐listed company incorporated on February 16, 1970 to primarily engage then in the business of geological exploration and development. On January 26, 1994, the Securities and Exchange Commission (SEC) approved the amendments to the Articles of Incorporation of Infanta Mineral and Industrial Corporation, changing its original purpose from geological exploration and development to that of a holding company, and its corporate name to Cobertson Holdings Corporation (Cobertson). In November 1995, the SEC further approved the change in the Company’s name from Cobertson Holdings Corporation to its present name ‐ MacroAsia Corporation (MAC). MAC began commercial operations as a holding company under its amended charter in 1996.

The Group at present is engaged primarily in aviation‐related support businesses. It provides aircraft maintenance, repairs and overhaul (MRO) services, charter flight services, airport ground handling services and in‐flight catering services and operates a special economic zone at the Ninoy Aquino International Airport (NAIA). All subsidiaries and associated companies of MAC render services directly to the airline customers/locators at NAIA, Manila Domestic Airport, Diosdado Macapagal International Airport (DMIA), Mactan‐Cebu International Airport (MCIA) and Davao International Airport.

Geographical market split, (i.e., North America, Southeast Asia) is not applicable to the MAC Group of Companies since it does not have any revenues/sales from services rendered outside the Philippines. However, starting in 2005, an average of 65% of the total gross operating revenues reported represented revenues from foreign airlines that fly to the Philippines. Further, net income from these foreign airlines account for an average of 12% of the total net income reported for the last three years.

The Company’s strength relative to its competitors lies on its high liquid assets relative to its operational funding needs and adequate capital to continue and expand its existing businesses and develop or venture into new business activities. The Company’s strategic advantage in the aviation services sector is also gained through close relationships with Philippine Airlines, which enables some reciprocal arrangements for auxiliary aviation services that the Company’s subsidiaries can service for PAL’s foreign airlines partners, whenever possible. The strong backing of the Company’s venture partners in some of the subsidiaries/affiliates, namely, Singapore Air Terminal Services (SATS, Singapore), Cathay Pacific Catering Services (CPCS, Hongkong) and Lufthansa Technik AG (Germany) also provide the globally‐competitive expertise and market reach for the Company’s subsidiaries/affiliates.

The Company’s competitive edge is manifested in various service areas through its high quality of services, competitive pricing, advanced aircraft (MRO) technology, and a carefully packaged inter‐related aviation support services.


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MAC continues to operate mainly through its four (4) subsidiaries and three (3) affiliates, as fully discussed below.

Lufthansa Technik Philippines, Inc.

Lufthansa Technik Philippines, Inc. (LTP) is a joint venture between MAC (49%) and Lufthansa Technik AG of Germany (51%). It is the only company which provides a wide range of aircraft maintenance, repairs and overhaul (MRO) services at the NAIA, DMIA, MCIA and Davao International Airport.

Following the signing of the joint venture agreement on July 12, 2000, and its subsequent registration with the Philippine Economic Zone Authority (PEZA) as an economic zone locator on August 30, 2000, LTP started its commercial operations on September 01, 2000. It consistently generates both export and domestic revenues and enjoys tax incentives as a PEZA‐registered entity.

LTP also has a concession agreement with Manila International Airport Authority (MIAA) upon its business operations is highly dependent. The agreement grants LTP the right to operate as a provider of aircraft MRO services at NAIA Terminals 1 and 2. LTP secures such right by yearly renewal of the agreement and paying the monthly CPF (7% of gross revenue) on time.

LTP is currently providing aircraft maintenance, repair and overhaul services from its facility in NAIA to Philippine Airlines (PAL) as its base client. Other clients include among others – Asiana Airlines, Cathay Pacific, China Airlines, Etihad Airways, Eva Air, Gulf Air, Hawaiian Airlines, Japan Airlines, Korean Air, Malaysian Airlines, Qantas, Qatar Airways, Royal Brunei and Singapore Airlines. Moreover, other international airlines including those with non‐scheduled flights to Manila also avail of LTP’s MRO expertise. These include Lufthansa, Virgin Atlantic, Air Mauritius and Austrian Airlines to name a few.

Aviation authorities/agencies from the respective countries of origin of these airline clients issue licenses/certificates to LTP for the latter’s accreditation to provide MRO services to the formers’ associated airlines. The extent of LTP’s work/services largely depends on these certifications, which describe/specify that LTP’s services must be carried out in accordance with the respective countries’ aviation regulations. These certifications are renewed either annually or every two years.

As an ecozone locator, LTP has a 25‐year lease contract with MacroAsia Properties Development Corporation (MAPDC). It also has a long‐term technical services agreement with PAL renewable yearly and to Lufthansa Technik AG of Germany.

Due to increase in efficiency and productivity, LTP’s personnel count decreased by 4%, to about 2,600 as of December 31, 2010, compared to staff count in previous year.


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LTP’s net income contributes about 98% to the total net income of MAC’s associated companies.

LTP is not aware of any existing or probable government regulations that would have an adverse impact on its on‐going operations. It has no research and development activities/costs during the last three fiscal years.

MacroAsia Catering Services, Inc.

MacroAsia Catering Services, Inc. (MACS) was incorporated on November 5, 1996, then with a corporate name of MacroAsia‐Eurest Catering Services, Inc. (MECS), to primarily provide in‐flight catering services at the NAIA and the Manila Domestic Airport. When MACS started commercial operations on September 1, 1998, it was a joint venture between MAC (67%) and two foreign partners: Singapore Airport Terminal Services (SATS, at 20%) and Compass Group International B.V. (then known as Eurest International B.V., at 13%). On June 28, 2006, by mutual agreement of the three JV partners, a sale and purchase agreement with Compass Group International B.V. was executed whereby MAC acquired the 13% shareholdings of the Compass Group in MACS. Thus, MACS continues now as a joint venture between MAC (80%) and Singapore Airport Terminal Services (SATS) (20%).

In 2006, the Board of Directors of MACS decided to change the name of the Company to MacroAsia Catering Services, Inc.

MACS’ in‐flight kitchen facility occupies an area measuring about 6,500 sq. m., situated on a two‐hectare lot being leased from the MIAA. It has a maximum kitchen capacity of approximately 10,000 meals a day. An extra floor space of about 1,500 sq. m. had previously been added for extra warehousing and production space.

MACS’ operations is dependent on a concession agreement with MIAA which was assigned by MAC ‐ its parent company, and which grants the right to operate an in‐flight catering service for civil and/or military aircraft operating at the NAIA and/or the Manila Domestic Airport.

MACS continues to strictly comply with both international and local hygiene standards and environmental regulations. It has consistently passed all the regular audits conducted by the Bureau of Quarantine, the Medina Audit for some airlines, as well as the periodic audits by other airlines as part of their hygiene and quality enhancement programs. It has a fully‐equipped laboratory manned by in‐house microbiologists to ensure that high standards are maintained at all times.

MACS is the only airline caterer in the Philippines that holds an ISO certification, aside from HACCP and HALAL certificates from independent and professional certifying organizations.


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MACS has received top awards for outstanding service, besting other service providers from all over the world for esteemed airlines like Cathay Pacific and Singapore Airlines.

MACS has a wide suppliers’ base, both local and international, but it is not dependent on any single raw material supplier. Based on its quality standards, regular supplier quality audits (SQA) are conducted by MACS’ staff on supplier’s premises and products.

MACS' trade revenues are predominantly classified as export sales. In 2008, 2009 and 2010, this subsidiary's sales contributions to MAC’s consolidated gross operating revenues were 61%, 64% and 65%, respectively. MACS’ airline clients include Cathay Pacific Airways, Singapore Airlines, Saudi Arabia Airlines, Emirates Airlines, China Airlines, Qatar Airways, KLM Royal Dutch, Qantas Airways, Japan Airlines and Korean Air, All Nippon Airways among others. MACS is also servicing the Delta (Northwest) Lounge at the NAIA and operates the Sampaguita Lounge, a public lounge in Terminal 1.

Today, MACS currently provides in‐flight catering services to about 14 of the foreign airlines that fly to Manila, making MACS the dominant and preferred in‐flight caterer of foreign airlines in NAIA. MACS' share in NAIA’s total foreign airlines market is about 59% in 2010. MACS serves almost 3 million meals per year.

MACS is not aware of any existing or probable government regulations that would have an adverse impact on its on‐going operations. It has no research and development activities/costs during the last three fiscal years.

Cebu Pacific Catering Services, Inc.

Cebu Pacific Catering Services, Inc. (CPCS) is MacroAsia’s first in‐flight catering venture which started commercial operations in October of 1996. MAC has 40% equity in this joint venture, while its partners ‐ Cathay Pacific Catering Services of Hongkong and MGO Pacific Resources Corporation hold 40% and 20% equity, respectively.

CPCS is the first and presently still the only airline catering company at MCIA. CPCS is an economic zone locator in Mactan, Cebu and services both domestic and international airlines.

CPCS owns a two‐storey kitchen facility designed to fully meet projected total airline catering demands and to easily accommodate future expansion. The facility is capable of producing over 3,000 meals a day in accordance with stringent international hygiene standards. The facility was designed and developed by Cathay Pacific Catering Services (HK). With its current portfolio of clients, the facility still has excess capacity to serve the requirements of Mactan Cebu International Airport in the years to come.


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CPCS is presently serving an average of 1,200 meals a day, using local raw materials for its menus. It procures its raw materials from the local market and does not have any major raw materials supply contracts. CPCS services the major airline of the Philippines, i.e. PAL and the bulk of foreign airlines flying to Cebu. Its foreign airline clients include Cathay Pacific Airways, Silk Air, Qatar Airways and Korean Air.

As the only airline catering company in Cebu, CPCS expects to provide most if not all of the catering services for future ex‐Cebu flights to other regional destinations.

MacroAsia’s equity in the net income of its associated companies, on the average over the last three years, account for more than 30% of the Company’s total gross revenues. CPCS contributed an average of 2% out of the total MAC equity in the net income of associates.

As a registered entity, CPCS is subject to the rules and regulations of the Philippine Economic Zone Authority (PEZA). It is not aware of any existing or probable government regulations that would have an adverse effect on its operations.

CPCS does not have any other significant agreements or patents, copyrights, licenses, franchises, concessions, or royalty agreements.

No research and development costs have been incurred by CPCS during the last three fiscal years.

MacroAsia Airport Services Corporation

MacroAsia Airport Services Corporation (MASCORP) was incorporated on September 12, 1997 to provide, manage, promote and/or service any and all ground handling requirements of military and/or commercial aircraft for passengers and cargo. MASCORP commenced its ground handling operations on April 19, 1999 at the NAIA, and has been generating both domestic and export sales. It has a work force of around 290 staff as of December 31, 2010.

On June 15, 1999 the Company originally signed a joint venture agreement with Ogden Aviation Philippines B.V. (formerly Ogden Water Systems of Muscat B.V.). Ogden Aviation Philippines B.V. was subsequently acquired by Menzies Aviation Group in 2001. By April 12, 2007, MAC acquired the 30% share of Menzies making MASCORP a wholly owned subsidiary of MAC.

On July 2, 1999, a wholly‐owned subsidiary of MASCORP, Airport Specialists' Services Corporation (ASSC), was incorporated primarily to manage and promote, service and/or provide manpower support for any and all ground handling requirements of private, military and/or commercial aircraft. ASSC commenced operations immediately after its incorporation but had ceased operations shortly thereafter. Toward the end of 2006, MAC acquired MASCORP’s 100% ownership


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in ASSC. The effective ownership of MAC in ASSC was thus increased from 70% to 100%. Through the restructuring, MAC effectively acquired the 30% minority interest of Menzies Aviation Group in ASSC. Consequently, ASSC became a direct subsidiary of MAC.

MASCORP’s major clients include Thai International Airways, Air Philippines, Korean Airlines, Japan Airlines, and China Airlines.

This subsidiary contributes an average of 19% of the Group’s total operating revenues for the years ended December 31, 2010, 2009 and 2008.

There are six other active ground handling companies operating at NAIA namely: MIASCOR, PAGSS, DNATA, AVIACOR, TOPSERV, and ITI. Through its aggressive marketing efforts, capability to offer a total aviation product (in synergy with the catering and MRO business of MAC), and competitiveness, MASCORP is currently increasing its market share at NAIA. Among the ground handlers in Manila, MASCORP is the only service provider present in all four terminals (Terminal 1, 2, 3 and the Manila Domestic Terminal).

MASCORP is not aware of any existing or probable government regulations that would have an adverse effect on its business. It has no research and development activities during the last three fiscal years.

MASCORP’s operations is very much dependent upon its concession agreement with MIAA which grants the Company the right to operate ground handling services in the NAIA terminals. MASCORP secures such right by paying the monthly CPF (7% of gross revenue) on time.

MacroAsia Properties Development Corporation

MacroAsia Properties Development Corporation (MAPDC), another wholly‐owned subsidiary, was incorporated on June 4, 1996 to primarily engage in the acquisition, development and sale of real properties. After it completed its first infrastructure project in 1997 and following the Asian economic crisis, the Company suspended pursuing further property development projects as a core business and refocused its efforts on aviation‐support activities.

On September 01, 2000, MAPDC was registered as an Ecozone Developer/Operator with the PEZA. As such, it enjoys tax incentives as provided thereby. It started commercial operations again on the same date, this time as the ecozone developer/operator of the 23‐hectare MacroAsia Special Ecozone at the NAIA, with LTP as its anchor locator for the next 25 years. LTP is an associated company of MAPDC as LTP is 49% owned by MAC.

MAPDC has a 25‐year lease covering the 23‐hectare property occupied by the Ecozone with the MIAA. Today, the MacroAsia Special Ecozone is the only operational special ecozone at the NAIA.


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The MacroAsia Special Ecozone is presently managed by a lean team of core employees. The support services needed to maintain the ecozone are provided by contracted service providers.

MAPDC's operations do not require the intensive use of raw materials or like items. It does not therefore have any major existing supply contracts.

For the past three years, MAPDC’s average rental income represented 17% of the Group’s consolidated gross operating revenues.

MAPDC is subject to PEZA rules and regulations and is not aware of any other existing or probable government regulations that may have any adverse effects on its business. MAPDC does not have any other significant agreements or patents, copyrights, licenses, franchises, concessions, or royalty agreement. It did not incur any research and development costs during the last three fiscal years.

MacroAsia Air Taxi Services, Inc.

MacroAsia Air Taxi Services, Inc. (MAATS) is a wholly‐owned subsidiary of MAC which was incorporated in June of 1996. MAATS is a licensed non‐scheduled domestic flight operator providing helicopter chartering services from its base at the General Aviation Area, Manila Domestic Airport to any point within the Philippines. MAATS is duly licensed by the Civil Aeronautics Board (CAB) and holds a current Air Carrier Operating Certificate (ACOC) (No. 4AN9800035) issued by the Air Transportation Office (ATO).

MAATS is greatly dependent on the two aforementioned licenses, without which the Company cannot provide charter services to the public. Both licenses have to be renewed annually. The company ensures that its helicopter receives a year‐round preventive maintenance in accordance with the manufacturer’s specifications and complies with the stringent requirements of the CAB and ATO. The Company’s pilot and mechanics continue to undergo year‐round training in the U.S. to maintain a record of safety and reliability.

MAATS started commercial operations in October 1996. It has since been leasing MAC’s Ecureuil AS350‐BA 5‐passenger helicopter for its chartering business. Revenues derived from chartering operations are 100% domestic, with majority of its customers being local businessmen. MAATS strictly adheres to the stringent safety standards and procedures set by the local regulating agencies. It ensures that its staff underwent continuous year‐round training with emphasis on safety and customer service, a practice that has lifted the Company ahead of its competitors.

MAATS has only few remaining competitors such as Royal Star, INAEC, Ayala Aviation and Asia Aircraft and it expects to be ahead of its competitors by keeping focused on operational safety and customers' convenience.


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MAATS’ charter flight revenues for the last three years account for an average of one percent (1%) of the MAC Group’s consolidated gross operating revenues.

MAATS’ operations do not require the intensive use of raw materials or like items. It does not therefore have any major existing supply contracts.

There are no existing or probable government regulations that may have an adverse effect on MAATS operations. It did not incur any research and development expenditures during the last three fiscal years.

Toll‐MacroAsia Philippines, Inc.

Toll‐MacroAsia Philippines, Inc. (TMP) is a joint venture of MAC (49%) with Sembcorp Logistics Ltd. (Semblog, at 51%), Singapore’s leading supply chain provider. In 2006, Australia's largest logistics company, Toll Holdings (Toll) acquired SembLog. Eventually, the Philippine operations had to be renamed to Toll‐MacroAsia Philippines, Inc. in line with the rebranding of Toll Asia.

TMP was incorporated on October 18, 2005, whose primary purpose is to provide within the Philippines, supply chain management, packing, sourcing, processing and/or assembling of products and logistics‐related consultancy services. TMP started commercial operations on April 1, 2006.

TMP continues to build its position in the local logistics industry which is a fragmented market today. Today’s logistics market is characterized by the presence of various specialized companies supporting specific lines in the supply chain. These companies may be import/export agents, freight forwarders, warehouse operators, local truckers, distributors, air liners, shipping lines and the like. TMP competes based on its affiliation with a regional logistics network, integrated service and better technology. The company’s key competitors are international and large, leading local logistics providers. While most of these competitors focus on one or two types of logistic services, TMP on the other hand, establishes itself to operate as a basic one‐stop third‐party logistics (3PL) service provider with a strong Asian network, giving it a very competitive advantage.

TMP is not aware of any existing or probable government regulations that would have an adverse impact on its business operations in the near future. TMP has not incurred any research and development costs during the last two years.

Major Risks Involved

The businesses of the Group are aviation‐support oriented and some of the major risks that would have a significant impact on the Group’s operations are those emanating from acts of terrorism and incidents that affect the airline business as a whole.


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Periodic strategic planning sessions/meetings with top management, various committees and members of the Board are being held to identify, assess and formulate related contingency plans to manage or minimize the adverse impacts of potential or identified risks on the Group’s operations.

Transactions with and/or Dependence on Related Parties

Please see Note 16 under the Company’s Consolidated Notes to Financial Statements (pages 32 to 34)

Significant Agreements and Commitments

Please see Note 26 under the Company’s Consolidated Notes to Financial Statements (pages 41 to 44)

Other Information

The total number of employees of MAC, its subsidiaries and associates as of December 31, 2010 is 3,338 while in 2009 the level was about 3,519.

The Company provides health/medical insurance/benefits to its employees through an independent Health Maintenance Organization (HMO).

None of the Company, its subsidiaries and associated companies is subject to any Collective Bargaining Agreement (CBA). There has been no strike, nor any attempt to protest against the Company, its subsidiaries and associated companies during the past three years.

MAC or any of its subsidiaries has not issued any short term or long term commercial papers to date.

The average annual cost of compliance to applicable environmental laws for the last three years was below P=500,000.

MacroAsia Corporation’s Mining Project

Macroasia Corporation holds two Mineral Production Sharing Agreements (MPSA), MPSA‐220‐2005‐IVB and MPSA‐221‐2005‐IVB, both located in Brooke’s Point, Palawan. MPSA‐220 or the Infanta Nickel Project covers a total land area of 1,114 hectares with nickel in the form of laterite ore as the primary commodity. This area was the source of ore shipments to Japan in the 1970’s.

The total extent of the laterite area within the MPSA is around 536 hectares with the deposits comprised of limonite and saprolite ores. Within this delineated nickel ore envelope, 2,754 drill holes were done, resulting into 48,568.7 meters drilled. There were also 482 test pits that were dug, yielding 2,550.8 meters more for sampling. The resulting samples collected numbered 52,284, and these were analyzed for nickel (Ni), iron (Fe) and 12 other elements/oxides, including the loss in ignition (LOI), using fused bead X‐Ray Fluorescence (XRF) technique at Intertek Laboratories. The


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Company has completed an exploration report that is compliant to the Philippine Mineral Reporting Code. A mining plan has also been drafted.

The operation of the Mining Project has already been endorsed by the three impact barangays, including the indigenous people in the area. In 2010, the Company has received the Environmental Compliance Certificate (ECC) for operations. The Company is completing the acquisition of other permits needed to operate.

ITEM 2. DESCRIPTION OF PROPERTIES

MacroAsia Corporation

MacroAsia Corporation (MAC) owns an Ecureuil AS 350‐BA five‐passenger helicopter as of December 31, 2010. It has a rental agreement with MAATS (a wholly owned subsidiary) at a monthly lease payment of P=44,000 (fixed) plus P=5,236/revenue flying hour, for the use of the aircraft for a period of six (6) months, renewable thereafter for periods of six (6) months at the option of the parties.

In 1996, the Company entered into a concession agreement with MIAA to exclusively operate an in‐flight catering service for civil and/or military aircraft operating at the NAIA and/or the Manila Domestic Airport. The concession agreement is for a period of five (5) years from the start of operations of the catering service, renewable every year thereafter upon mutual agreement of the parties. Subsequent to this, MAC entered into a lease agreement with MIAA for the use of a parcel of land where its catering concession facilities will be constructed. The lease contract is for a period of 10 years starting six (6) months after the start of the construction of the facilities, renewable every five (5) years thereafter. MAC has assigned all rights and obligations under this concession agreement to MACS, one of its subsidiary companies. In consideration for the concession privilege, MACS pays MIAA a monthly concession privilege fee in the amount equivalent to 7% of its monthly gross income on catering services.

MacroAsia Properties Development Corporation

MacroAsia Properties Development Corporation (MAPDC), a wholly owned subsidiary of MAC, owns five parcels of land with a total area of 7,912 square meters, located at East Service Road, Sucat, Muntinlupa, Metro Manila. These properties were acquired in 1996 for future development.

On September 01, 2000, MAPDC executed a 25‐year lease agreement with the MIAA covering a 23‐hectare area located at NAIA at a monthly lease payment of P=56.01 per square meter. With the full support of the PEZA, MAPDC has transformed the area into an Economic Zone, and has signed a 25‐year lease agreement with LTP, its anchor locator.

MacroAsia Catering Services, Inc.

MacroAsia Catering Services, Inc. (MACS) acquired a ten (10) year lease on a 2‐hectare lot at the NAIA which is renewable every five years thereafter at the parties’ option. MACS’ license and technical assistance agreement with Eurest and its commercial


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marketing assistance agreement with SATS have ceased in November 2006. Thus, the Eurest mark and system will no longer be used by MACS, and SATS will no longer be obliged to market MACS’ services to foreign airlines. In those agreements, SATS and Eurest were entitled to receive from MACS, technical assistance fees and fees on sales as remuneration which expired in 2006 when MAC acquired the 13% holdings of Eurest.

MacroAsia Airport Services Corporation

MacroAsia Airport Services Corporation (MASCORP) entered a lease contract with PAL in November 1998 covering the lease of airline ground handling equipment at a monthly payment of P468,460. The lease was originally for one (1) year renewable upon mutual written agreement on a year‐to‐year basis. As of December 31, 2008, subject ground handling equipment had been purchased by MASCORP from PAL.

ITEM 3. LEGAL PROCEEDINGS

None of the directors, nominees for election as director, executive officers or control persons of the Company have been involved in any legal proceeding, including without limitation being the subject of any of the following events:

(a) bankruptcy petition; (b) conviction by final judgment in a criminal proceeding, domestic or foreign, or a

pending criminal proceeding, domestic or foreign, excluding traffic violations and other minor offenses;

(c) order, judgment or decree of any court of competent jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, commodities or banking activities, which is not subsequently reversed, suspended or vacated, or

(d) judgment of violation of a securities or commodities law or regulation by a domestic or foreign court of competent jurisdiction (in a civil action), the SEC or comparable foreign body, or a domestic or foreign exchange or other organized trading market or self regulatory organization, which has not been reversed, suspended or vacated, for the past five years up to the latest date that is material to the evaluation of his ability or integrity to hold the relevant position in the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

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


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PART II. OPERATIONAL AND FINANCIAL INFORMATION

ITEM 5. MARKET FOR ISSUER’S COMMON EQUITY AND RELATED STOCKHOLER MATTERS

MAC’s common shares are listed and traded at the Philippine Stock Exchange and the approximate number of holders of its common equity as of December 31, 2010 is 882.

There were no unregistered securities sold by the registrant for the past three (3) years.

The high and low prices of the Company's share during 2010 and 2009 are as follows:

2009 High Low

First Quarter P 3.75 P 2.80 Second Quarter 3.20 2.70 Third Quarter 3.15 2.50 Fourth Quarter 3.20 2.70

2010 High Low

First Quarter P 3.05 P 2.55 Second Quarter 3.00 2.60 Third Quarter 3.24 2.50 Fourth Quarter 3.60 3.00

2011 High Low

At April 13, 2011 3.10 3.10

Common shares outstanding as of December 31, 2010 were 1,247,015,000.


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The top 20 stockholders of MacroAsia Corporation as of December 31, 2010 are:

Name No. of Common Shares Held

% of Total

1 PCD Nominee Corporation (Filipino) 194,385,743 15.59 2 PCD Nominee Corporation (Non‐Filipino) 89,554,391 7.18 3 Fortune Tobacco Corporation 88,000,000 7.06 4 PAL Holdings (formerly Baguio Gold Holdings Corporation) 88,000,000 7.06 5 Asia Brewery, Inc. 88,000,000 7.06 6 Dynaworld Holdings, Incorporated 85,110,000 6.82 7 Solar Holdings Corporation 59,000,000 4.73 8 Himmel Industries, Inc. 50,000,000 4.01 9 Foremost Farms, Inc. 50,000,000 4.01 10 Grandspan Development Corp. 50,000,000 4.01 11 Profound Holdings, Inc. 47,500,000 3.81 12 Pioneer Holdings Equities, Inc. 47,405,000 3.80 13 Basic Holdings Corp. 47,370,000 3.80 14 Safeway Holdings & Equities Inc. 46,500,000 3.73 15 Pan‐Asia Securities Corp. 38,328,250 3.07 16 Sycip, Washington Z. 37,545,250 3.01 17 Gem Holdings, Inc. 31,750,000 2.55 18 Palomino Ventures, Inc. 28,900,000 2.32 19 Pan Asia Sec. Corp. 19,757,750 1.58 20 Wonderoad Corporation 12,500,000 1.00

Dividends

The general dividend policy of MacroAsia is governed by the By‐Laws of the Company which provides that dividends upon the capital stock of the Company may be declared by the Board of Directors in the manner and form provided by law, after deducting from the net profit of the Company any approved bonuses to the members of the Board of Directors in an amount not exceeding five percent (5%) of the Company's net profit before tax and the expenses of administration. In each case, no dividend declaration shall be made by the Company which would impair its capital.

Dividends shall not be declared if there are major investments/projects which the Company and its subsidiaries and associated companies anticipate in the near future.

1. Stock Dividends

No stock dividends were declared from 2006 to 2010.


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2. Cash Dividends

Date Approved Per share Stockholder of Record Date Date Paid/IssuedMarch 30, 2010 P=0.065 April 23, 2010 May 19, 2010 April 1, 2009 P=0.06 April 24, 2009 May 19, 2009 April 2, 2008 P=0.05 April 24, 2008 May 19, 2008

3. Cash Dividends Declared After Balance Sheet Date

On March 21, 2011, the Board of Directors approved the declaration of cash dividends of P=0.065 per share to stockholders of record as of April 25, 2011 to be paid on or before May 19, 2011.

4. Restrictions on Retained Earnings

The retained earnings include the total outstanding treasury shares of P=8.8 million, the undistributed net earnings of consolidated subsidiaries and the accumulated equity in net earnings of associates accounted for under the equity method totaling P=702.6 million as of December 31, 2010. This amount is not available for dividend declaration until received in the form of dividends from subsidiaries and associates.

Description of Registrants Securities

MacroAsia Corporation has 2,000,000,000 authorized capital stock out of which 1,250,000,000 are issued.

On July 16, 2010, the BOD approved the Share Buyback Program involving a total cash outlay of P=50 million for the repurchase of the outstanding common shares of the Company from the open market, using the trading facilities of the Philippine Stock Exchange. As of December 31, 2010, the Company has reacquired 2,985,000 shares for P=8,784,050.

Voting and Preemption Rights

All outstanding common shares of the Company as of the record date for the purpose of the Annual Stockholder’s Meeting are entitled to vote at the rate of one (1) vote per share.

A stockholder entitled to vote at the meeting shall have the right to vote in person or by proxy the number of shares registered in his name in the stock transfer book of the Company for as many persons as there are directors to be elected. Each stockholder shall have the right to cumulate said shares and give one nominee as many votes as the number directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same cumulative voting principle among as many nominees as he shall see fit; provided, that the number of votes cast by a stockholder shall not exceed the number of his shares multiplied by the number of director’s to be elected.

Any stockholder of the Company shall have the right to dissent and demand payment of the fair value of his shares in case (i) any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholder or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence; (ii) any sale, lease, exchange,


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transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets; and (iii) of merger or consolidation.

The appraisal right may be exercised by any stockholder who shall have voted against the proposed corporate action, by making a written demand on the corporation within thirty (30) days after the date on which the vote was taken for payment of the value of his shares. If the proposed corporate action is implemented or affected, the corporation shall pay to such stockholder, upon surrender of the certificate or certificates of stock representing his shares, the fair value thereof as of the day prior to the date on which the vote was taken, excluding any appreciation or depreciation in anticipation of such corporate action. No payment shall be made to dissenting stockholder unless the Company has unrestricted retained earnings in its books to cover such payment.

ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Overview

In 2010, MAC carried on its operations through its four (4) subsidiaries and three (3) associated companies.

MAC operates an in‐flight kitchen at the NAIA through MACS (80%owned) and another similar kitchen at the MCIA through CPCS (40%‐owned). These two (2) kitchens service the in‐flight catering needs of most international airlines flying out of Manila and Cebu. MAC’s aircraft ground‐handling operations at NAIA are carried out by its 100%‐owned subsidiary, MASCORP. LTP which is a joint venture with Lufthansa Technik AG Germany provides world‐class aircraft maintenance, repair and overhaul (MRO) services at both NAIA and MCIA.

MAC also operates an economic zone at NAIA through its 100%‐owned subsidiary, MAPDC, the registered developer/operator of the economic zone. Through another 100%‐owned subsidiary, MAATS, MAC provides aircraft charter services from its base at the Manila Domestic Airport.

Passenger loads and flight frequencies of airlines are the two most important factors that affect the revenue levels of the Company’s operating units.

There have been no significant elements of income or loss that did not arise from the Group’s continuing normal operations.

The Group is not aware of any future event that will cause a material change in the relationship between costs and revenues.

The Group is not aware of any event that will trigger direct or contingent financial obligation that is material to the Group, including any default or acceleration of an obligation.

There are no material off‐balance sheet transactions, arrangements, obligations (including contingent obligations) and other relationships of the company with unconsolidated entities or other persons created during the reporting period.


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Key Performance Indicators

The Company uses the following major performance measures. The analyses are based on comparisons and measurement on financial data of the current period against the same period of the previous year.

December 31, 2010 and 2009

2010 2009Return on Net Sales 36.10% 27.43% Return on Investment 13.22% 10.95% Return on Equity 13.22% 10.95% Direct Cost Ratio 74.02% 71.38% Expense Ratio 32.56% 25.88%

Return on Net Sales (RNS)

RNS is the ratio of the Company’s net income attributable to equity holders of the parent to net sales computed by dividing net income attributable to equity holders of the parent by the total net revenues. This ratio measures the amount of income, after all costs and expenses, including taxes are deducted, for every peso of net revenue earned.

Consolidated RNS was higher by 8.67% from 2009 primarily due to the increase in the share in net earnings of associates.

Return on Investment (ROI)

ROI is the ratio of the Company’s net income attributable to equity holders of the parent to interest bearing liabilities and total equity attributable to equity holders of the parent. This ratio is computed by dividing net income attributable to equity holders of the parent by the sum of total interest‐bearing liabilities plus equity attributable to equity holders of the parent. This ratio measures the amount of income earned on invested capital.

Consolidated ROI increased by 2.27% due to higher net income as compared to last year.

Return on Equity (ROE)

ROE is the ratio of the Company’s net income attributable to equity holders of the parent to total equity attributable to equity holders of the parent, computed by dividing net income attributable to equity holders of the parent by the equity attributable to equity holders of the parent. This KPI is a measure of the owner’s return for every peso of invested equity.

Consolidated ROE increased by 2.27% due to higher net income as compared to last year.

Direct Cost and Expense Ratio

Direct Cost ratio is computed by dividing total cost over total net revenues, while total expenses is divided by total net revenues to arrive at expense ratio. This ratio measures the average rate of direct costs and expense on products/services sold.

Overall direct cost ratio is higher by 2.64% to 74.02% from 71.38% level from 2009 primarily attributable to the increase in depreciation charges brought about by the change in accounting estimates. Expense ratio posted an increase of 6.68% due to higher general and administrative expenses from project development expenses.


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2010 Compared with 2009

Results of Operations

The group’s consolidated net income after tax grew by P=90.2 million (or 28.55%) from P=316 million in 2009 to P=406 million in 2010. The increase is driven largely by the increase in the Company’s share in the net income of its associates particularly Lufthansa Technik Philippines, Inc. with its continued sustainable cost leadership strategies. This more than offset the P=10.5 million or 1% decrease in the combined revenues of the operating subsidiaries and the P=72.8 million or 25% increase in general and administrative expenses due to the increased mining project development expenses during the year.

Revenues generated from the in‐flight catering services improved by P=8.3 million to P=722 million as compared to last year’s P=714 million, despite the depreciation of the US Dollar (principal invoicing currency for the catering services) compared to the Philippine peso. Catering revenues grew because of the increase in non‐inflight catering business (NAIA terminal lounge and food orders, including catering business arising from business and industry catering for clients outside NAIA). A P=17.4 million (or 8%) decline in revenues from groundhandling and aviation services was however registered this year due to the effect of the decrease in the total number of airline clients served and lower number of flights serviced. Charter flight revenues of P=11.8 million is down by 16% from 2009 as our aircraft underwent mandated repairs and maintenance. Revenues from rental and administrative fees remain at the same level because lease rental is accounted for on a straight‐line basis over the lease term, in compliance with Philippine Accounting Standards (PAS) 17.

Direct cost ratio of 74% is 3% higher than the 2009 level on the account of the accelerated depreciation of building of MACS coming from the change in accounting estimates relative to the MIAA land lease. General & administrative expenses of P=359 million jumped by P=72.8 million from P=286 million in 2009 primarily due to additional exploration expenses required to complete the initial seven phases of exploration activities, and also to complete the required series of public consultations on the project and secure the necessary permits to operate the mine. Selling expenses for the year was P=2.9 million which is 32% lower than the P=4.3 million in 2009.

Foreign exchange losses of P=16.6 million is lower by P=5 million from last year’s P=21.7 million forex losses due to foreign currency hedging activities during the year. Interest expense decreased substantially by 83.6% from 2009 since no loans from third party were availed in 2010. Interest income earned of P=12.89 million is higher by P=4 million or 45% as compared to P=8.86 million in 2009 due to higher free cash invested as short‐term investments and investments in bonds. Other income of P=5 million represents gain on disposal of investments in bonds acquired in 2010.

Equity in net income of associates represents MAC’s share in the net income/loss of its associated companies. Changes in equity shares from period to period are dependent upon the results of operations of the associated companies.


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Provision for income tax of P=21 million was lower by P=2.3 million due to lower taxable income of the operating subsidiaries for the year.

Despite the challenge in the aviation industry, we continue to remain steadfast in our commitment to strengthen its existing core businesses and pursue new viable opportunities. On‐going strategies were further improved as we endeavor to surpass our past performances in terms of consolidated revenues and bottom‐line earnings.

Financial Position

The Group’s total consolidated assets went up by P=215 million, a 6.70% increase compared to previous year’s level. The increase is significantly driven by the sustained profitability by the operating subsidiaries and associated companies.

During the 12‐month period, the cash position of the Group reached P=792 million, 18% higher as against P=668 million in 2009. This is mainly due to cash dividends received from associated companies, namely LTP and CPCS, and interest income earned from short‐term placements and investment in bonds.

On‐going aggressive collection strategies of MACS and MASCORP for the year resulted in a lower receivables level of P=205 million, a decrease of P=10.8 million (or 5%) from last year’s P=216 million. Inventories went down by P=2 million (or 6%) due to faster raw material turn‐over of the catering business.

Other current assets consists of unused input taxes, tax credit certificates, creditable withholding and prepaid taxes, and other office supplies and prepaid insurance covers for buildings, equipment and the staff. From P=92.8 million in 2009, total other current assets grew by P=41 million (or 45%) primarily due to reclassification of noncurrent input taxes which are being claimed as current tax credits.

The Company had a higher current ratio of 5.88:1 as of December 31, 2010 compared to 4.70:1 as of December 31, 2009, or a 25% improvement thereof.

Investments in associates increased by P=72.9 million, from P=1.29 billion as of last year up to P=1.36 million this year on account of the net effect of the Company’s incremental equity share in the net income/loss of associated companies and cash dividends declared and actually received from LTP and CPCS during the current reporting period. Cumulative translation adjustments due to foreign exchange fluctuations from LTP also contributed to the account movement.

Property and equipment of P=303 million was lower by P=29 million, a 9% change attributed to the accelerated depreciation coming from the change in estimated useful life of the assets. Accrued rental receivable and payable of P=116 million was up by P=5 million (or 5%) as additional accrual of rental income and expense were booked in compliance with PAS 17, which requires the recognition of rentals on a straight‐line basis (average) over the lease term.


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Goodwill of P=17.5 million arose from the Company’s acquisition of the 13% minority interest of Compass (formerly Eurest International B. V.) in MACS. Deferred tax assets rose by P=0.7 million (or 6%) due to higher remaining future deductible items.

Available‐for‐sale investment of P=27 million increased from P=23.5 million due to increase in the market value of golf club shares. Deferred mine exploration costs grew by P=45.3 million (or 27%) as extensive mining exploration activities were undertaken during the year to complete the initial seven phases of exploration work.

Deposits and other noncurrent assets decreased by P=34.6 million (or 37%) due to the reclassification of noncurrent portion of input taxes to current assets.

Accounts payable and accrued liabilities decreased by P=17.5 million (or 8%) due to faster settlement of accounts of the Group. Lower income tax liability of P=0.02 million was booked since most of the income taxes were paid for the first three quarters of the year. Accrued rental payable and unearned rent income are contra‐accounts for accrued rental receivable and deferred rent assets, resulting from compliance with PAS 17. Accrued retirement benefits costs of P=8.3 million was lower by P=2.3 million (or 22%) based on the results of recent actuarial valuation. A deferred tax liability of P=0.8 million was recognized for the year.

The Company’s P=50 million warrants were not exercised by the shareholders and had already expired last July 21, 2005. Thus, the total amount was reclassified to additional paid‐in capital resulting to a new balance of P=281 million since year 2005.

The Company’s share in cumulative translation adjustment of an associate (LTP) amounting to P=156 million grew considerably by P=90.3 million (or 137%) due to foreign currency translation adjustments of the said associate. The unrealized gain on available‐for‐sale financial assets of the Group was due to higher market prices of these assets. In 2010, the Company re‐acquired 2,985,000 shares under its Share Buy‐back Program for a total value of P=8.78 million as of December 31, 2010.

Minority interest represents the 20% equity share of SATS in MACS. Changes in minority interest are dependent on the results of operations of the joint venture companies concerned.

Year‐on‐year, debt‐to‐equity ratio remained almost the same at 0.11:1. Book values per share as of December 31, 2010 and December 31, 2009 were P=2.43 and P=2.25, respectively.


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2009 Compared with 2008

Results of Operations

The Group’s consolidated operating revenues registered a 10.5% increase year‐on‐year from P=1.014 billion to P=1.121 billion. This is attributable to the outstanding performances of its subsidiaries led by MACS, with MASCORP and MAATS following suit.

Revenues of the subsidiaries in 2009 soared by P=95.8 million, P=6.7 million and P=5.1 million, respectively.

Revenues from rental and administrative fees remain at the same level because lease rental is being accounted for on a straight‐line basis over the lease term, in compliance with Philippine Accounting Standards (PAS) 17. Charter flight revenues on the other hand grew considerably by P=5.1 million (or 58%) from last year’s P=9.0 million to this year’s P=14.0 million. The helicopter achieved impressive operating time this year with a flying time of 244 hours.

The Group managed to keep direct cost at the same level as that of last year due to implemented cost‐cutting strategies. Consequently, with higher revenues reported, gross profit increased by P=107.0 million or 50%. Selling expense increased negligibly by P=0.1 million while general & administrative expense decreased by 11% from P=321.5 million to P=286.0 million.

The Group incurred losses from foreign currency exchange transactions this year as evidenced by a P=21.6 million foreign exchange loss as compared to last year’s P=47.1 million foreign exchange gains. This was due to the strengthening of the Philippine Peso against the US dollars. From P=5.3 million last year, interest expense went down by P=2.8 million (or 54%) due to lower loan availments during the year. Interest income of P8.8 million was higher by P=1.6 million (or 22%) year‐on‐year, due to higher cash balances and higher prevailing yields during the year.

Equity in net income of associates represents MAC’s share in the net income/loss of its associated companies. Changes in equity shares from period to period are dependent upon the results of operations of the associated companies.

Provision for income tax of P=23.3 million was higher by P=9.6 million as a result of improved operating performance of the subsidiaries.

The Group’s commitment in expanding its revenue portfolio and implementing effective cost saving strategies despite the downturn in the aviation industry was rewarded by the 9% increase in total consolidated net income from previous year’s P=289.5 million to P=315.8 million this year.

Financial Position

As of December 31, 2009, total consolidated assets was higher by P=249.3 million (or 59.5%) compared to its level as of 2008 year end due principally to considerable increases in cash and cash equivalents, deferred mine exploration costs and property, plant and equipment.


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Cash and cash equivalents of P=667.8 million grew by P=249.3 million (or 60%) due principally to cash dividends received from associated companies, namely, CPCS and LTP and net cash from operating activities.

Receivables (net) were lower by P=15.3 million (or 7%) as MASCORP obtains direct handling of recently acquired accounts and reduction in consolidated advances and accrued interest. Inventories, on the other hand, went up by P=6.0 million (or 20%) in the F&B segment of MACS to meet the requirements of increased flight frequencies.

Other current assets consists of unused input taxes, creditable withholding taxes, office supplies and prepaid insurance covers for the building, equipment and the staff. From P=110.2 million, total other current assets went down by P=17.4 million (or 16%) due to decrease in creditable withholding taxes net of probable losses.

The Company had a higher current ratio of 4.70:1 as of December 31, 2009 compared to 3.52:1 as of December 31, 2008 – a 33% rise.

Investments in associates of P=1.29 billion as of December 31, 2009 decreased by P=161.1 million, or an 11% decrease over 2008’s year end balance, due primarily to the net effect of the Company’s incremental equity share in the net income/loss of associated companies and cash dividends declared and actually received from LTP and CPCS during the current reporting period. Cumulative translation adjustments due to foreign exchange fluctuations also contributed to the account movement.

Property and equipment of P=332.4 million was higher by P=30.0 million (or 10%) mainly due to acquisitions in helicopter spare parts and catering equipment. On the other hand, accrued rental receivable and payable of P=111.0 million was up by P=8.0 million (or 8%) due primarily to additional accrual of rental income and expense in compliance with PAS 17, which requires the recognition of rentals on a straight‐line basis (average) over the lease term. Goodwill of P=17.5 million arose from the Company’s acquisition of the 13% minority interest of Compass (formerly Eurest International B. V.) in MECS. Deferred tax assets decreased by P=1.5 million (or 12%) mainly because of lower accrued retirement benefits cost and unrealized foreign exchange losses combined with higher future deductible items.

Available‐for‐sale investment amounting to P=23.5 million pertains to club shares acquired in 2007. This amount increased against last year as the available for sale reserve was removed with the recognition of a valuation gain and transfer of unrealized loss to the statement of income.

Deferred mine exploration costs increased by P=76.4 million (or 81%) due to continuous intensive nickel mine exploration activities undertaken during the reporting period.

Deposits and other noncurrent assets increased by P=15.8 million (or 20%) due to the increase in input taxes accumulated during the year.

Notes payable by two of the operating subsidiaries (MACS and MASCORP) were fully settled in 2009. These notes were acquired to finance facility expansion projects and purchase of ground support equipment.


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Accounts payable and accrued liabilities went up by P=38.8 million (or 23%) because of the increase in due to affiliates and accruals by yearend. Income tax liability went down by P=0.7 million (or 68.5%) over last year’s end due to less accrual of income tax payable. Accrued rental payable and unearned rent income are contra‐accounts for accrued rental receivable and deferred rent assets, resulting from compliance with PAS 17. Accrued retirement benefits costs of P=10.6 million was lower by P=2.4 million (or 18%) due to reductions incremental accruals of benefit expense (MACS & MASCORP) for the year, based on the results of recent actuarial valuation. No deferred tax liability was recognized in 2009 as there were no unrealized foreign exchange gains during the year (as the peso continued to be stronger against the US dollar).

The Company’s P=50 million warrants were not exercised by the shareholders and had already expired last July 21, 2005. Thus, the total amount was reclassified to additional paid‐in capital resulting to a new balance of P=281 million as of the end of 2005.

The Company’s share in cumulative translation adjustment of an associate (LTP) amounting to P=31.8 million was higher by P=4.8 million (or 18%) due to foreign currency translation adjustments of the said associate.

Minority interest represents the 20% equity share of SATS in MACS. Changes in minority interest are dependent on the results of operations of the joint venture companies concerned.

Year‐on‐year, debt‐to‐equity ratio improved further from 0.14:1 to 0.12:1. Book values per share as of December 31, 2009 and December 31, 2008 were P=2.28 and P=2.12, respectively.

Plans and Prospects

The Company is currently working to re‐open its nickel mine in Palawan. Extensive exploration activities are substantially done, enabling the completion of a PMRC‐compliant Resource Estimation Report and the drafting of a mine operating plan. Preparation for mine development, i.e. setting up of facilities, rehabilitation of roads and construction of port facility and causeway have commenced during the year.

The Company, its subsidiaries and affiliates will keep building on their existing core businesses and pursue new viable opportunities. Intensive marketing efforts for existing business and cost‐cutting programs will be sustained at least for the next twelve (12) months to improve both consolidated revenues and net earnings. The Company also has airport‐related projects in the pipeline, whose further development is dependent on the granting of the required airport concessions from airport authorities.

MAC and its subsidiaries expect to maintain a respectable liquid position and will raise additional outside funds only if any of the new major projects being pursued materialize.

MAC or any of its subsidiaries and affiliates does not expect to buy any significant assets (plant or equipment) except if needed for mining operations. The Group has plans to develop or sell its real estate properties in Muntinlupa.


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The total number of employees is again expected to slightly decrease within the next 12 months as a result of the projected realignment of existing operations.

Due to the nature of the Company’s operations, no product research and development activities are anticipated during the next 12 months. However, more employees, particularly Filipino aircraft engineers and mechanics will continue to undergo specialized training and development in‐house as well as in Germany and other locations overseas.

ITEM 7. FINANCIAL STATEMENTS

The consolidated financial statements are filed as part of this Form 17‐A (pages 43‐104)

ITEM 8. INFORMATION ON INDEPENDENT ACCOUNTANT AND OTHER RELATED MATTERS

External Audit Fees and Services

2010 2009 Regular annual audit of financial statements P=2,639,400 P=2,482,500 Non audit fees ‐ ‐ Total P=2,639,400 P=2,482,500

Audit Committee’s Approval Policies for the Services of External Auditor

All services to be rendered and fees to be charged by the external auditors are presented to and pre‐approved by the Audit Committee. An audit planning meeting is conducted at least one month before the actual performance of work. The meeting includes discussion of the following:

a. client service team b. scope of audit work c. updates for management d. possible risk areas and suggested Management action plans to strengthen

internal controls e. coordination with the audit of subsidiaries and associates f. audit workplan and critical dates g. expectations settings

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Audit Partner‐in‐Charge, Ms. Aileen L. Saringan of SGV & Co. handled the financial audit for the years ended December 31, 2010 and 2009. She took over from Ms. Josephine H. Estomo of the same auditing firm, who was partner‐in‐charge from years 2004 to 2008. The change was made in compliance with SEC Memorandum Circular No. 8 – Rotation of External Auditors/Partners‐in‐Charge. There were no other changes in or disagreements with accountants during the last three fiscal years or any subsequent interim period.


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PART III. MANAGEMENT AND CERTAIN SECURITY HOLDERS

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER

Board of Directors*

Name Position Committee Membership Washington Z. SyCip Chairman of

the Board Chairman – Nomination Committee, Vice Chairman – Compensation Committee

Harry C. Tan Vice Chairman Chairman – Investment Committee, Member – Nomination, Audit and Compensation Committees

Joseph T. Chua President and Chief Executive Officer

Member – Investment and Mining Committees

Lucio K. Tan Jr. Director Member – Compensation, Investment and Mining Committees

Jaime J. Bautista Treasurer Member – Audit and Compensation Committees

George Y. SyCip Director Member – Investment and Mining Committees

Jose Ngaw Director Member – Audit, Investment and Mining Committees

Enrique M. Aboitiz Jr. Independent Director

Chairman – Audit Committee, Member – Nomination Committee

Johnip G. Cua Independent Director

Chairman – Compensation and Mining Committees, Member – Audit and Investment Committees

*The Directors' term of office is one year. Election for the Board of Directors is conducted during the annual stockholders' meeting held every third Friday of July.

Washington Z. SyCip. Mr. Sycip, 89, American, has served as Director since August 1997. He is the Chairman of the Board of Lufthansa Technik Philippines, Inc.(July 2000‐Present) and Cityland Development Corporation (April 1997‐Present). He serves as Chairman Emeritus of the Board of Trustees and Governors of the Asian Institute of Management (Phils.). He is also a Member of the International Advisory Board of the American International Group (New York) (February 1982‐Present). For more than five years, he has been a Director of Philippine Airlines (PAL) (February 1997‐Present), Belle Corporation (July 1996‐Present), PHINMA (September 1996‐Present), State Land Group (July 1996‐Present), First Philippine Holdings (November 1997‐Present)., Philamlife (April 2001‐Present)and Philippine National Bank (December 1999‐Present)among others.

Harry C. Tan. Mr. Tan, 64, Filipino, has served as Director since July 2008. He is the Chairman of the Tobacco Board (1971‐Present) and Vice Chairman of Eton Properties Philippines Inc. (February 2007‐Present). He is also the President of Century Park Hotel (1986‐Present) and Vice‐Chairman of Lucky Travel Corp. (1990‐Present). He serves as a Director of Allied Banking Corp. (1999‐Present), Asia Brewery Inc.(1979‐Present), Basic Holdings Corp.(1989‐Present), Philippine Airlines, Inc. (Aug. 1994‐Present) and holds the position of Vice Chairman and Treasurer of the Board of Directors of PAL (August 2009‐Present).


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Joseph T. Chua. Mr. Chua, 52, Filipino, has served as Director since August 1997 and became President since July 2003 to Present. He is the Chairman of MacroAsia Properties Development Corp. (July 2003‐Present), MacroAsia Mining Corp.(2004‐Present), and J.F. Rubber Phils. (1993‐Present).; the President and Director of MacroAsia Catering Services, Inc.(July 2003‐Present), MacroAsia Airport Services Corp.(1999‐Present) and MacroAsia Air Taxi Services, Inc.(July 2003‐Present) He also serves as a Director of PAL (August 2003‐Present), Bulawan Mining Corporation (June 2009‐Present), and the Managing Director of Goodwind Development Corp.(1982‐Present), among others.

Lucio K. Tan Jr. Mr. Tan, 45, Filipino, has served as Director since August 1997. He is currently President & CEO of Tanduay Distillers, Inc. (2009‐Present) and Executive Vice President of Fortune Tobacco Corporation (1997‐Present). He is a Member of the Executive Committee of Foremost Farms, Inc.(1994‐Present) and serves as Director of Philippine Airlines (2003‐Present).

Jaime J. Bautista. Mr. Bautista, 54, Filipino, a Certified Public Accountant (CPA) has served as Director since August 1997. He is presently the President and Chief Operating Officer of Philippine Airlines Inc. and member of the Board of Directors (August 2004‐Present), President and Member of the Board of Directors of PAL Holdings, Inc. (2004‐Present), Director of MacroAsia Airport Services Corporation and MacroAsia Catering Services, Inc. (1997‐Present). He is also the Vice Chairman, Board of Trustees‐University of the East (1991‐Present), Board of Trustees member of University of the East Ramon Magsaysay Medical Center Foundation (1991‐Present), Member of the Board of Directors of Air Philippines (2001‐Present), and the Treasurer of Tan Yan Kee Foundation (2009‐Present).

George Y. SyCip. Mr. SyCip, 53, American, has served as Director since July 1996. He is the Chairman of the Board of MacroAsia Catering Services, Inc. (1997‐Present) and serves as a Director of: Beneficial Life Insurance Company (July 1996‐Present), MacroAsia Air Taxi Services, Inc. (1997‐Present), MacroAsia Properties Development Corporation (1997‐Present), Paxys, Inc. (October 2004‐Present) and FMF development Corporation (July 1996‐Present), FMF Development Corporation (July 1996‐Present) and Toll‐MacroAsia Philippines, Inc. (October 2005‐Present). He previously worked in Crocker Bank (1982‐1983), Sun Hung Kai Securities Ltd.(1981), American Express International Banking Corporation (1978‐1980) and United Savings Bank (1986‐1989).

Jose Ngaw. Mr. Ngaw, 60, Filipino, has served as Director since July 2008. He is the Assistant to Group Chairman of Lucio Tan Group of Companies (1999‐Present). He is also a Member of the Board of Advisor of Philippine National Bank (1999‐Present), President of PNB Holdings, Inc. (1999‐Present), Board Member of PNB International Investment Corporation – USA (1999‐Present), Board Member of PNB Securities, Inc. (1999‐Present), Board of Trustee of University of the East (1999‐Present) and Board Trustee of UERM Medical Center (1999‐Present). He also serves as Board Advisor of Philippine Airlines (1999‐Present), Board Advisor of PNB Life Insurance (2010‐Present) and Board Secretary of Century Park Hotel (1999‐Present). Prior to 1999, he engaged in private law practice.


‐ 28 ‐

Enrique M. Aboitiz, Jr. Mr. Aboitiz, 56, Filipino, has served as Independent Director since December 2006. He is a Board Member of Aboitiz Transport System Corporation (2002‐Present) and Aboitiz Equity Ventures (2002‐Present). He is a Board Member of ACO (2002‐Present) and previous Board Member of the Philippine Stock Exchange (April 2002‐2004). He sits as Chairman of the Board of Aboitiz Power Corp (2009‐Present).

Johnip G. Cua. Mr. Cua, 54, Filipino, has served as Independent Director since December 2006. He was formerly the President of Procter & Gambles Philippines Inc. (1995‐2006), and currently the Chairman of the Board of the P&Gers Fund Inc. (2009 to present) and member of the Board of Trustees of Xavier School (1996‐Present). He is also an Independent Director of BDO Private Bank (March 2008‐Present), PAL Holdings Inc. (September 2009‐Present), PhilPlans First Inc. (October 2009‐Present), MacroAsia Catering Services, Inc. (2007‐Present) and MacroAsia Airport Services Corp.(2007‐Present). Additionally, he is a member of the Board of Directors of Interbake Marketing Corporation (May 1991‐Present), Teambake Marketing Corporation (January 1994‐Present), Bakerson Corporation (April 2002‐Present), Lartisan Corporation (May 2007‐Present), and Alpha Alleanza Manufacturing Inc. (March 2008‐Present).

Executive Officers

Name Position Reynaldo O. Munsayac Vice President ‐ Finance and Administration Atty. Marivic T. Moya Vice President ‐ Human Resources, Legal and External

Relations, Corporate Secretary Christopher C. Lu Vice President ‐ Marketing and Facilities Management Amador T. Sendin Vice President ‐ Planning and Business Development,

Compliance/Corporate Information Officer

Ramon N. Santos Vice President ‐ Mining

Reynaldo O. Munsayac. Mr. Munsayac, 58, Filipino, a Certified Public Accountant (CPA) has served as an Executive Officer since November 1996. He is currently the Treasurer of MacroAsia Properties Development Corp.(2002‐Present), MacroAsia Air Taxi Services, Inc.(2002‐Present), Toll‐MacroAsia Phils. Inc.(2005‐Present), Kabuhayan, Kaunlaran, & Kalikasan, Inc. (2006‐Present), MacroAsia Catering Services Inc.(1997‐Present) and Cebu Pacific Catering Services, Inc.(November 1996‐Present) He is also the President of MacroAsia Mining Corporation (2002‐Present). He was Lead Cost Analyst of Saudi Arabian American Oil Company (ARAMCO)(1979‐1996) and Assistant Audit Manager at Price Waterhouse & Co.(1973‐1979).

Atty. Marivic T. Moya. Ms. Moya, 51, Filipino, has served as an Executive Officer since May 1999. She is the Corporate Secretary of MacroAsia Catering Services Inc. (2004‐Present), MacroAsia Airport Services Corp.(2004‐Present), MacroAsia Properties Development Corp.(2004‐Present), MacroAsia Air Taxi Services, Inc.(2004‐Present), Kabuhayan, Kaunlaran, & Kalikasan, Inc.(2006‐Present) and MacroAsia Mining Corp.(2000‐Present). She worked with various Government Institutions from 1987 to 1999, holding key positions such as Legal Officer of the National Bureau of Investigation


‐ 29 ‐

(NBI) from 1987‐1989, Arbitration Specialist of POEA from 1989 to 1990, Director II (Chief, Legal Service) of Philippine Health Insurance Corporation from 1990 to 1996 and Graft Investigation Officer II at the Ombudsman from 1997 to 1999. She also held the position of Human Resources Manager of Grand Air from 1996 to 1997.

Christopher C. Lu. Mr. Lu, 57, Filipino, has served as an Executive Officer since March 1998. He is the President of MacroAsia Properties Development Corporation (2004‐Present) and Director of MacroAsia Air Taxi Services, Inc. (2004‐Present). General Manager of MacroAsia Air Taxi Services, Inc.(Present). He was the Vice President for Operations of MacroAsia Airport Services Corporation from 1999 to 2003.

Amador T. Sendin. Mr. Sendin, 48, Filipino, a Certified Public Accountant (CPA) has served as Executive Officer since October 2003. He is a Director of Cebu Pacific Catering Services, Inc.(2004‐Present) and MacroAsia Mining Corporation (2004‐Present). He is also the President of Toll‐MacroAsia Philippines, Inc. (2007‐Present). He is also the Chairman of Tandem Exploration and Mining Corporation (2007‐Present). He was the Finance Manager of MacroAsia Catering Services, Inc. from July 2000 to October 2003, and was Finance Controller of MIASCOR Catering from June 1998 to June 2000. He was with the Central Bank of the Philippines (1983‐1992) and his last position was Division Chief.

Ramon N. Santos. Mr. Santos, 52, Filipino, a Mining Engineer and Geologist, has served as an Executive Officer since July 2010. He has worked with the Philippine Mines and Geosciences Bureau and the Natural Resources Development Corporation from 1980 to 1997 and member of Environmental Impacts Assessment Review Committee of the DENR‐EMB from 1993‐1999. He was an Assistant Professor of the Department of Mining, Metallurgical and Materials Engineering of the University of the Philippines (1996‐2006) and has served as an Environmental Consultant in Dames & Moore (1999), Coffey Partners, Pty. (2000), URS Corporation (2001‐2003), QNI‐BHP Billiton (2003‐2004), Toledo Mining Corporation (2005‐2006) and ERM Indonesia (2006‐2009).

Significant Employee

Aiko M. Maghinang. Ms. Maghinang, 26, Filipino, Certified Public Accountant (CPA) has served as Financial Accountant since April 2010. She worked with Manabat Delgado Amper & Co. (member firm of Deloitte Touche Tohmatsu) and assumed the positions of Junior Associate 1, Junior Associate 2 and Senior Associate 1 from November 2006 to March 2010.

Family Relationships

Lucio K. Tan, Jr., director, is the brother‐in‐law of Joseph T. Chua, President and Chief Executive Officer and the nephew of Harry C. Tan, Director of MAC. Washington SyCip, Chairman of the Board, is the father of George SyCip, Director.


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Involvement in Certain Legal Proceedings

The Directors of the Company have not been involved in any major legal proceedings during the last five years up to the date of filing this report. Furthermore, the Directors are not aware of any major legal proceedings pending or threatened against them personally, or any fact which is likely to give rise to any major legal proceedings which may materially affect their personal capacity as Directors of the Company.

ITEM 10. EXECUTIVE COMPENSATION

The following table summarizes the actual aggregate compensation of all directors and officers of the Company for 2008, 2009 and 2010.

Summary Compensation Table

Name and Principal Position

Year

Salaries and Bonus

(P'mil)

Other Annual Compensation

Executive Officers Joseph T. Chua, President/CEO

Reynaldo O. Munsayac, VP‐Finance & Administration

Marivic T. Moya, VP‐Human Resources, Legal and External Relations

Christopher C. Lu, VP‐Marketing and Facilities Management

Amador T. Sendin, VP‐Planning & Business Development, Compliance/Corporate Information Officer

All Directors and Officers as a Group Unnamed

2008

(Actual)

25.7

36.7

‐ ‐






2009

(Actual)

23.8

‐


‐ 31 ‐


37.0

‐






Ramon N. Santos, VP‐Mining


2010

(Actual)

34.7

58.2

‐ ‐

Compensation of Directors

1. Members of the Board do not receive any regular compensation from the Company, except for every regular, special or committee meeting actually attended, for which members of the Board of Director receive a per diem of P=20,000 to P=50,000.

2. There are no other material terms of, nor any other arrangements with regard to compensation as to which directors are compensated, or are to be compensated, directly or indirectly, for any services provided as a director.

3. As provided for in the Company’s By‐Laws, the Board of Directors is entitled to an annual incentive bonus in an aggregate amount not exceeding five percent (5%) of the Company's net profit before tax

Employment Contracts and Termination of Employment and Change‐in‐Control Arrangements

1. Executive officers’ compensation consists of a monthly negotiated salary, a fixed monthly allowance and 13th month pay.

2. There are no other compensatory plan or arrangement with the named executive officers, which results or will result from the resignation, retirement or any other termination of the executive officer's employment with the Company and its subsidiaries or from a change‐in‐control of the Company or a change in the named executive officer's responsibilities following a change‐in‐control.


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Warrants and Options Outstanding: Repricing

The Company’s P=50 million warrants were not exercised by the shareholders/officers/directors and had already expired last July 21, 2005.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

1. Security Ownership of Certain Record and Beneficial Owners of more than 5% of Registrant’s Securities as of December 31, 2010

Title of Class

Name, Address of Record Owner and Relationship with Issuer

Name of Beneficial Owner and Relationship with Record

Owner

Citizenship No. of Shares Held

% of Class

COMMON PCD Nominee Corporation G/F MSE Building 6754 Ayala Ave., Makati City (Shareholder)

Various Clients1

Filipino 194,385,743 15.59%

COMMON PCD Nominee Corporation G/F MSE Building 6754 Ayala Ave., Makati City (Shareholder)

Various Clients1

Non‐Filipino 89,554,391 7.18%

COMMON Fortune Tobacco Corporation Parang, Marikina City (Shareholder)

Shareholdings, Inc.2

(Shareholder) Lucio C. Tan, President

3

Domingo T. Chua, Treasurer3

Carmen K. Tan, Shareholder3

Filipino 88,000,000 7.06%

COMMON PAL Holdings (formerly Baguio Gold Holdings Corp.)

7th Flr. Allied Bank Center 6754 Ayala Ave., Makati City (Shareholder)

TrustMark Holdings Corp. 4

(Shareholder)

Jaime J. Bautista, CEO5

Henry N. Sitosta, CFO5

Josephine G. Bautista, Shareholder5

Filipino

88,000,000 7.06%

COMMON Asia Brewery, Inc. 6th Flr. Allied Bank Center 6754 Ayala Ave., Makati City (Shareholder)

Shareholdings, Inc.2

(Shareholder) Lucio C. Tan, President

3

Domingo T. Chua, Treasurer3

Carmen K. Tan, Shareholder3

Filipino 88,000,000 7.06%

COMMON Dynaworld, Holdings, Inc. 910 Tower One & Exchange Plaza, Ayala Ave., Makati City

Henry N. Sitosta, President6

Andres C. Co, Treasurer6

Joni A. Tan, Shareholder6

Filipino

85,110,000 6.82%

1 PCD Nominee Corp. (PCD) is a registered owner of certain shares in the books of the Company’s transfer agent in the Philippines. The beneficial owners of such shares are PCD’s participant, who hold shares on their behalf or in behalf of their clients. PCD is a private corporation organized by major institutions actively participating in the Philippine capital markets to implement an automated book‐entry system of handling securities transactions in the Philippines. The securities are voted by the trustee’s designated officers who are not known to the Company. None of the PCD Nominee Corporation (Filipino and Non‐Filipino) account beneficially owns 5% or more of the Company’s common shares. 2 Shareholdings owns 98% and 99% of Fortune Tobacco and Asia Brewery, respectively. 3 Designation in Shareholdings, Inc. 4 TrustMark Holdings Corp. owns 98% of PAL Hodings. 5 Designation in TrustMark Holdings Corp. 6 Designation in Dynaworld, Holdings, Inc.

Note: The above listed beneficial or record owner did not acquire additional shares from options, warrants, rights, conversion privilege or similar obligations, or otherwise within thirty (30) day


‐ 33 ‐

2. Security Ownership of Management as of December 31, 2010

Title of Class

Name of Beneficial Owner Amount and Nature of Ownership

Citizenship % of Class

COMMON Washington Z. SyCip Chairman

37,545,250 Direct (Beneficial)

American 3.01 %

COMMON Joseph T. Chua President and CEO

125,000 Direct 2,817,000 Indirect

(Beneficial)

Filipino <1%

COMMON Harry C. Tan Vice Chairman

100,000 Direct (Beneficial)

Filipino <1%

COMMON Lucio K. Tan Jr. Director


Filipino <1%

COMMON Jaime J. Bautista Treasurer


Filipino <1%

COMMON George Y. SyCip Director

10,862,798 Direct (Beneficial)

American <1%

COMMON Jose Ngaw 100,000 Direct (Beneficial)

Filipino <1%

COMMON Enrique M. Aboitiz, Jr. Independent Director


Filipino <1%

COMMON Johnip G. Cua Independent Director

10,000,000 Indirect (Beneficial)

Filipino <1%

Reynaldo O. Munsayac VP‐Finance and Administration

‐ ‐ ‐

Atty. Marivic T. Moya VP‐ Human Resources, Legal and External Relations, Corporate Secretary

‐ ‐ ‐

Christopher C. Lu VP‐ Marketing and Facilities Management

‐ ‐ ‐

Amador T. Sendin VP – Planning and Business Development; Compliance Officer/ Corporate Information Officer

‐ ‐ ‐

Ramon N. Santos VP – Mining

‐ ‐ ‐

Total 61,900,048 4.96%

3. Voting Trust Holders of 5% or more

There were no persons/shareholders of the Company who have entered into a voting trust agreement during the last three years.

4. Changes in Control

There was no significant change in control of MAC in 2010. We are not aware of any existing or pending transaction which may result in such a change in control.


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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 1. For our detailed discussion of our material related party transactions, see Note 16 of

the Company’s Notes to Financial Statements (pages 32‐34).

A. Part of the Group’s excess cash are deposited/placed with Allied Bank, an affiliate, at very competitive rates and based on the outstanding cash balance at the end of the interest earning period. The Company also leases the office space it currently occupies from the said bank at the bank’s current prevailing rental rate. The Company has not been given any preferential treatment in any of its transactions with the Bank.

B. MAPDC, as an ecozone operator, leases land from MIAA and subsequently leases the same to its Ecozone locators which include LTP, an affiliate. Monthly fees due from LTP are equivalent to MAPDC’s cost of leasing the land from MIAA, plus administrative fees.

C. MASCORP provides ground handling services to various airline companies at NAIA and MCIA, including Air Philippines, an affiliate. The ground handling service rates being charged to Air Philippines are competitive and were the results of negotiations between MASCORP and Air Philippines.

D. MACS provide in‐flight catering to various airline companies at the NAIA, including PAL and Air Philippines. On the other hand, MASCORP rented aviation equipment from PAL (as discussed in “c” above). In 2004, PAL has outstanding trade payables with MACS. Since MASCORP, on the other hand, has outstanding rent payable to PAL, MASCORP assumed PAL’s obligation to MACS by way of offsetting. MASCORP paid MACS in 2005.

E. The Company has a trust fund for the employees’ retirement plan with Allied Bank Corporation as the fund manager. The Company has not been given any preferential treatment in any of its transactions with the Bank.

F. There are no other on‐going contractual or other commitments between the Group and the aforementioned affiliates.

2. There are no other parties that fall outside the definition of “related parties” under Philippine Accounting Standards (PAS) 24 with whom the Company or its related parties have a relationship that enabled the parties to negotiate terms of material transactions that may not be available from others or independent parties on an arm’s length basis.


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PART IV. CORPORATE GOVERNANCE

ITEM 13. CORPORATE GOVERNANCE MACROASIA CORPORATION IS COMMITTED TO ADHERING TO THE HIGHEST LEVEL OF SOUND CORPORATE GOVERNANCE IN SETTING VALUES THAT SERVE AS ITS NUCLEUS IN GUIDING BOTH EMPLOYEES AND STOCKHOLDERS ALIKE.

As a major contributor to national growth and economic development, it is constantly aware of its social responsibilities and advocates the integrity of corporations, financial institutions, markets and the whole economic system in general to ensure the health and stability of our economy.

With a dedicated team of professionals who share such passion, its business practices and work ethics put in place a philosophy of corporate transparency and public accountability.

MacroAsia Corporation believes that through good corporate governance, strategic objectives and corporate goals can be attained while contributing to the country’s social and economic advancement.

The Board of Directors

The Board is composed of nine directors, two of whom are independent directors. The roles of the Chairman and President & CEO are separate and clearly defined while the independent directors are a strong source of independent advice and judgment. They bring considerable knowledge and experience to the Board’s deliberations.

Washington Z. SyCip – Chairman of the Board Harry C. Tan – Vice Chairman of the Board Joseph T. Chua – President & Chief Executive Officer Jaime J. Bautista – Treasurer Lucio K. Tan, Jr. – Director George Y. SyCip – Director Atty. Jose Ngaw – Director Enrique M. Aboitiz, Jr. – Independent Director Johnip G. Cua – Independent Director

The Board meets regularly throughout the year to ensure a high standard of business practice for the Corporation and its stakeholders and to ensure soundness, effectiveness, and adequacy of the Corporation’s internal control environment. Independent judgment is exercised at all times. To aid in complying with the principles of good corporate governance, the Board has established certain committees with which it delegated specific responsibilities.


‐ 36 ‐

Nomination Committee

The Nomination Committee is comprised of three voting directors, one of whom is an independent director, and one non – voting member in the person of the VP for Legal, Human Resources and External Relations. The Committee meets as necessary and is authorized by the Board on new appointments of directors.

All candidates nominated to become a member of the board are pre – screened and rated in accordance with certain qualifications and disqualifications criteria as set forth in the Manual on Corporate Governance.

Washington Z. SyCip ‐ Chairman Harry C. Tan ‐ Member Enrique M. Aboitiz, Jr. – Member (Independent Director) Atty. Marivic T. Moya – Member (Non‐Voting Member)

Investment Committee

The Investment Committee is composed of six directors, one of whom is an independent director. The Committee is the investment fiduciary for the prudent management of the Company’s investment portfolio. The Committee has the exclusive authority to establish, execute and interpret investment policy statement for the portfolio.

Harry C. Tan ‐ Chairman Lucio K. Tan, Jr. – Member Johnip G. Cua – Member (Independent Director) Joseph T. Chua – Member George Y. SyCip – Member Atty. Jose Ngaw – Member

Compensation Committee

The Compensation Committee is composed of five directors, one of whom is an independent director. The Committee has established a formal and transparent procedure for developing a policy on executive remuneration which is sufficient to attract and retain qualified directors and officers needed to run the Company successfully. The Committee also reviews the existing Personnel Handbook to strengthen the provisions on conflict of interest, salaries and benefits policies, promotions and career advancement directives and compliance of personnel concerned with all statutory requirements.

Johnip G. Cua ‐ Chairman (Independent Director) Washington Z. SyCip – Member Jaime J. Bautista – Member Harry C. Tan – Member Lucio K. Tan, Jr. – Member


‐ 37 ‐

Audit Committee

The Audit Committee is currently comprised of four members of the Board, two of whom are independent directors. The members have adequate understanding and competence at the Company’s financial systems and control environment. The Committee checks all financial reports in compliance with both the internal and regulatory requirements. The Committee also performs an oversight role on financial management functions specially in the areas of managing credit, market, liquidity, operational, legal and other risks of the Corporation.

Furthermore, the Committee monitors a transparent financial management system that will ensure the integrity of activities throughout the Company. Through the Committee, the Board is responsible for overseeing the implementation of the internal control policy and the scope of the internal audit function. The Company’s internal audit provides reports to the Audit Committee on the effectiveness of the risk – based control framework in the Company. The Company’s internal audit which provides information to management has all necessary access to management and information.

The internal and external audit functions are separate and independent of each other.

Enrique M. Aboitiz, Jr. – Chairman (Independent Director) Jaime J. Bautista – Member Harry C. Tan ‐ Member Johnip G. Cua – Member (Independent Director) Atty. Jose Ngaw – Member

Risk Management Committee

The Risk Management Committee is composed of six directors, two of whom are independent directors. The Committee assists the Board in assessing the different types of risks to which the organization is exposed. The Committee shall ensure that the management has implemented a process and an annual risk management plan to identify, manage, and report on the risks that might prevent the Company from achieving its strategic objectives.

Harry C. Tan ‐ Chairman Jaime J. Bautista. – Member Enrique M. Aboitiz, Jr. – (Independent Director) Joseph T. Chua – Member Lucio K. Tan, Jr. – Member Johnip G. Cua – Member (Independent Director)


‐ 38 ‐

Mining Committee

The Mining Committee is composed of five directors, one of whom is an independent director. The Committee was created to study, discuss, and assist the Board and management in all mining‐related issues.

Johnip G. Cua ‐ Chairman (Independent Director) Joseph T. Chua – Member George Y. SyCip – Member Lucio K. Tan, Jr. – Member Atty. Jose Ngaw – Member

Evaluation System

The provisions of the Manual on Corporate Governance vis‐à‐vis the Self‐Rating Form on Corporate Governance are regularly reviewed to ensure compliance and identify potential improvements. Deviations, if any, are discussed in the Company’s Regular Board Meeting.

Measures to Fully Comply

The Company conducts Strategic and Corporate Planning Workshops to identify and strengthen the mission and vision and the strategies to carry out its objectives based on leading practices on good corporate governance.

The Company also holds regular weekly Management Meetings. These meetings are presided by the President/CEO and attended by other officers of the Company and the Presidents/Chief Operating Officers of the operating subsidiaries and affiliates. Business risks and challenges are likewise discussed on these meetings. Business review meetings are conducted with the management of each subsidiary from time to time.

Deviations

There are no known deviations from the Company’s Manual of Corporate Governance.


‐ 39 ‐

Plan to Improve

The Company continues its coordination with regulatory government agencies to further improve in‐house corporate governance. It shall also adopt globally proven good governance strategies.

In June 2009, the SEC approved the promulgation of a revised Code of Corporate Governance to make several of its provisions mandatory instead of recommendatory. It issued Memorandum Circular No. 6 (Series of 2009) which took effect on July 15, 2009.

Companies are now obliged to follow SEC’s prescribed Corporate Governance Manual as a minimum. It shall evaluate the corporate governance manuals of companies concerned on an annual basis. The new code doubled the penalty for non‐compliance or violation of the provisions thereof. In addition, the new code listed the minimum internal control responsibilities of the board and stipulated specific qualifications for members of the Audit Committee.

With this development, the Company undertook a revision of its manual on corporate governance to align with the new SEC code. In December 2009, the Board of Directors of MacroAsia Corporation approved the revised manual and subsequently was disclosed to the Philippine Stock Exchange (PSE).


‐ 41 ‐

PART V: EXHIBITS AND SCHEDULES

ITEM 14. EXHIBITS AND REPORTS ON SEC FORM 17 C

1. Please see accompanying Index to Exhibits in the following pages

2. The Company regularly files various reports on SEC Form 17‐C relative to various company disclosures. Of these, the more significant ones are as follows:

Date Title January 28, 2010 Disclosure of Mineral Production Sharing Agreements (MPSA)

Certificate February 1, 2010 Lufthansa Technik Philippines, Inc.’s declaration of cash dividends March 31, 2010 MacroAsia Corporation’s declaration of cash dividends April 22, 2010 Disclosure on the PMRC‐Compliant Resource Estimate Report of the

Infanta Nickel Project September 14, 2010 Disclosure of MacroAsia Corporation’s Report on Interim Exploration

Results done by Competent Person December10, 2009 Disclosure on Amended Manual on Corporate Governance


‐ 42 ‐

INDEX TO EXHIBITS

Consolidated Financial Statements Statement of Management’s Responsibility for Financial Statements Pages 43‐44 Report of Independent Public Accountants Pages 45‐46 Consolidated Balance Sheets as of December 31, 2010 and 2009 Pages 47‐48 Consolidated Statements of Income for the years ended December 31, 2010, 2009 and 2008

Pages 49‐50

Consolidated Statement of Changes in Equity for the years ended December 31, 2010 , 2009 and 2008

Page 51

Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008

Page 52

Notes to Consolidated Financial Statements Pages 53‐104 Supplementary Schedules Report of Independent Accountants on Supplementary Schedules Page 105 A. Marketable Securities – Current Marketable Equity Securities and Other Short‐term Cash Investments)

Page 106

B. Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal Stockholders (Other than Affiliates)

Page 107

C. Non‐current Marketable Equity and Securities, Other Long Term Investments in Stock and Other Investments

Page 108

D. Indebtedness of Unconsolidated Subsidiaries and Related Parties * E. Intangible Assets Page 109 F. Long Term Debt * G. Indebtedness to Related Parties * H. Guarantee of Securities of Other Issuers * I. Capital Stock Page 110 J. Plan of Acquisition, Reorganization, Arrangements, Liquidation or Succession

*

K. Instruments Defining the Rights of Security Holders, Including Incentives * L. Voting Trust Agreements * M. Material Contracts * N. Annual Report to Security Holders or Form 17Q or Quarterly Report to Security Holders

*

O. Letter Re: Director Resignation * P. Report Furnished to Security Holders * Q. Subsidiaries to Registrant * R. Published Report Regarding Matters Submitted to Vote of Security Holders

*

S. Consent of Experts and Independent Counsel * T. Power of Attorney * U. Copy of Board of Investment Certification Page 111 Retained Earnings Available for Dividend Declaration Page 112 *These schedules, which are required by paragraph 4(e) of SRC Rule 68.1, have been omitted because they are either not required, not applicable, or the information required to be presented is included in the Company's consolidated financial statements or the notes to consolidated financial statements.

*SGVMC311260*

INDEPENDENT AUDITORS’ REPORT The Stockholders and the Board of Directors MacroAsia Corporation We have audited the accompanying consolidated financial statements of MacroAsia Corporation and subsidiaries, which comprise the consolidated balance sheets as at December 31, 2010 and 2009, and the consolidated statements of income, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2010, 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.

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 SEC Accreditat ion No. 0012-FR-2

A member firm of Ernst & Young Global Limited

*SGVMC311260*

- 2 -

Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of MacroAsia Corporation and subsidiaries as at December 31, 2010 and 2009, and their financial performance and their cash flows for each of the three years in the period ended December 31, 2010 in accordance with Philippine Financial Reporting Standards. SYCIP GORRES VELAYO & CO. Aileen L. Saringan Partner CPA Certificate No. 72557 SEC Accreditation No. 0096-AR-2 Tax Identification No. 102-089-397 BIR Accreditation No. 08-001998-58-2009, June 1, 2009, Valid until May 31, 2012 PTR No. 2641565, January 3, 2011, Makati City March 21, 2011

*SGVMC311260*

- 2 - December 31 2010 2009 Equity attributable to equity holders of the Company (Note 27): Capital stock - P=1 par value Authorized - 2,000,000,000 shares Issued - 1,250,000,000 shares (held by 882 and 890 equity holders in 2010 and 2009, respectively)

P=1,250,000,000

P=1,250,000,000

Additional paid-in capital 281,437,118 281,437,118 Share in foreign currency translation adjustments of an associate (Note 9)

(156,463,915)

(66,114,195)

Available-for-sale investments reserve (Note 12) 3,385,000 – Treasury shares - 2,985,000 shares (Note 25) (8,784,050) – Retained earnings (Notes 2 and 25) 1,665,167,346 1,345,291,376 3,034,741,499 2,810,614,299 Non-controlling interests 47,233,513 42,285,473 Total Equity 3,081,975,012 2,852,899,772

TOTAL LIABILITIES AND EQUITY P=3,423,095,179 P=3,208,247,759 See accompanying Notes to Consolidated Financial Statements.

*SGVMC311260*

MACROASIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31 2010 2009 2008

SERVICE REVENUE In-flight and other catering (Note 16) P=722,114,435 P=713,804,684 P=617,993,458 Ground handling and aviation (Note 16) 191,054,132 208,439,274 201,741,640 Rental and administrative (Note 16) 186,275,143 185,455,504 185,869,066 Charter flights 11,808,297 14,085,897 8,931,965 1,111,252,007 1,121,785,359 1,014,536,129

DIRECT COSTS (Note 17) 822,543,148 800,780,440 800,490,284

GROSS PROFIT 288,708,859 321,004,919 214,045,845

Equity in net income of associates (Note 9) 498,674,811 323,886,316 363,350,135 General and administrative expenses (Note 18) (358,927,189) (286,087,080) (321,519,463) Foreign exchange gain (loss) - net (Notes 21, 28 and 29) (16,653,365) (21,680,576) 47,171,037 Interest income (Notes 5, 16 and 19) 12,887,240 8,856,638 7,263,875 Selling expenses (2,903,143) (4,278,601) (4,140,177) Financing charges (Notes 14 and 16) (399,983) (2,437,787) (5,300,157) Recovery in value of investment property (Note 11) – 7,912,000 – Impairment loss on AFS investment (Note 12) – (2,300,000) – Other income (charges) - net (Note 19) 5,712,105 (5,672,547) 2,365,061

INCOME BEFORE INCOME TAX 427,099,335 339,203,282 303,236,156

PROVISION FOR INCOME TAX (Note 23) Current 21,032,634 23,263,111 16,435,530 Deferred (7,309) 65,797 (2,769,420) 21,025,325 23,328,908 13,666,110

NET INCOME P=406,074,010 P=315,874,374 P=289,570,046

Attributable to: Equity holders of the Company P=401,125,970 P=307,760,417 P=288,193,110 Non-controlling interests 4,948,040 8,113,957 1,376,936 P=406,074,010 P=315,874,374 P=289,570,046

Basic/Diluted Earnings Per Share (Note 24) P=0.3229 P=0.2462 P=0.2306 See accompanying Notes to Consolidated Financial Statements.

*SGVMC311260*

MACROASIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31 2010 2009 2008

NET INCOME P=406,074,010 P=315,874,374 P=289,570,046 OTHER COMPREHENSIVE INCOME (LOSS) Net foreign currency translation adjustments (Note 9) (90,349,720) (39,091,288) 358,098,758 Changes in fair value of AFS investments (Note 12) 3,385,000 2,000,000 (2,805,000) Unrealized loss in changes in fair value of AFS investments removed from equity and recognized in the consolidated statement of income through impairment – 2,300,000 – (86,964,720) (34,791,288) 355,293,758

TOTAL COMPREHENSIVE INCOME P=319,109,290 P=281,083,086 P=644,863,804

Attributable to: Equity holders of the Company P=314,161,250 P=272,969,129 P=643,486,868 Non-controlling interests 4,948,040 8,113,957 1,376,936 P=319,109,290 P=281,083,086 P=644,863,804 See accompanying Notes to Consolidated Financial Statements.

*SGVMC311260*

MACROASIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008 Attributable to Equity Holders of the Company Share in Foreign Currency Translation Available-for- Additional Adjustments of sale Investments Retained Paid-in an Associate Reserve Treasury Shares Earnings Non-controlling Capital Stock Capital (Note 9) (Note 12) (Note 25) (Note 25) Subtotal Interests Total

BALANCES AT DECEMBER 31, 2007 P=1,250,000,000 P=281,437,118 (P=385,121,665) (P=1,495,000) P=– P=886,837,849 P=2,031,658,302 P=32,794,580 P=2,064,452,882 Total comprehensive income (loss) – – 358,098,758 (2,805,000) – 288,193,110 643,486,868 1,376,936 644,863,804 Cash dividends at P=0.050 per share (Note 25) – – – – – (62,500,000) (62,500,000) – (62,500,000)

BALANCES AT DECEMBER 31, 2008 1,250,000,000 281,437,118 (27,022,907) (4,300,000) – 1,112,530,959 2,612,645,170 34,171,516 2,646,816,686 Total comprehensive income (loss) for the year

–

–

(39,091,288)

4,300,000

–

307,760,417

272,969,129

8,113,957

281,083,086

Cash dividends at P=0.060 per share (Note 25) – – – – – (75,000,000) (75,000,000) – (75,000,000)

BALANCES AT DECEMBER 31, 2009 1,250,000,000 281,437,118 (66,114,195) – – 1,345,291,376 2,810,614,299 42,285,473 2,852,899,772 Total comprehensive income (loss) for the year

–

–

(90,349,720)

3,385,000

–

401,125,970

314,161,250

4,948,040

319,109,290

Acquisition of treasury shares during the year (Note 25)

–

–

–

–

(8,784,050)

–

(8,784,050)

–

(8,784,050)

Cash dividends at P=0.065 per share (Note 25) – – – – – (81,250,000) (81,250,000) – (81,250,000)

BALANCES AT DECEMBER 31, 2010 P=1,250,000,000 P=281,437,118 (P=156,463,915) P=3,385,000 (P=8,784,050) P=1,665,167,346 P=3,034,741,499 P=47,233,513 P=3,081,975,012 See accompanying Notes to Consolidated Financial Statements.

*SGVMC311260*

MACROASIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31 2010 2009 2008

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=427,099,335 P=339,203,282 P=303,236,156 Adjustments for: Equity in net income of associates (Note 9) (498,674,811) (323,886,316) (363,350,135) Depreciation and amortization (Note 10) 72,949,189 50,255,095 63,141,103 Unrealized foreign exchange loss (gain) - net 11,191,702 19,909,755 (9,376) Interest income (Notes 5 and 16) (12,887,240) (8,856,638) (7,263,875) Movements in accrued retirement benefits payable (2,340,587) (2,399,229) 1,941,103 Financing charges (Notes 14 and 16) 399,983 2,437,787 5,300,157 Recovery in value of investment property (Note 11) – (7,912,000) – Impairment loss on AFS investments (Note 12) – 2,300,000 – Gain on sale of equipment – (125,005) (12,999) Provision for probable losses (Notes 13 and 30) – 2,408,000 5,708,617 Operating income (loss) before working capital changes (2,262,429) 73,334,731 8,690,751 Decrease (increase) in: Receivables 11,902,621 15,160,441 (41,375,116) Inventories 2,132,393 (5,940,393) 13,192,658 Derivative assets 265,399 – – Other current assets (48,734,990) 21,960,085 14,256,381 Increase (decrease) in accounts payable and accrued liabilities

(17,899,002)

38,521,802

22,810,621

Cash generated from (used in) operations (54,596,008) 143,036,666 17,575,295 Interest received 12,895,950 8,491,984 7,281,740 Financing charges paid – (3,027,613) (4,839,335) Income taxes paid, including creditable withholding taxes (20,207,289) (28,437,489) (13,904,928) Net cash from (used in) operating activities (61,907,347) 120,063,548 6,112,772

CASH FLOWS FROM INVESTING ACTIVITIES Dividends received (Note 9) 335,438,581 445,901,533 327,697,185 Payments for deferred mine exploration cost (Note 30) (45,266,201) (76,420,441) (37,709,861) Acquisitions of property and equipment (Note 10) (43,221,917) (78,897,827) (50,185,240) Decrease (increase) in other noncurrent assets 41,188,616 (18,015,790) (39,291,743) Proceeds from sales of property and equipment and other noncurrent assets

–

125,005

13,000

Net cash from investing activities 288,139,079 272,692,480 200,523,341

CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (81,087,692) (74,845,130) (62,350,645) Acquisition of treasury shares (Note 25) (8,784,050) – – Payments of notes payable (Note 14) – (46,569,890) (60,430,110) Proceeds from availment of notes payable (Note 14) – – 107,000,000 Net cash used in financing activities (89,871,742) (121,415,020) (15,780,755)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

(12,666,740)

(22,019,337)

1,599,240

NET INCREASE IN CASH AND CASH EQUIVALENTS

123,693,250

249,321,671

192,454,598

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 667,896,943 418,575,272 226,120,674

CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 5) P=791,590,193 P=667,896,943 P=418,575,272 See accompanying Notes to Consolidated Financial Statements.

*SGVMC311260*

MACROASIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Corporate Information and Business Operations Corporate Information MacroAsia Corporation (the Company), a publicly-listed corporation, was incorporated in the

Philippines on February 16, 1970 under the name Infanta Mineral & Industrial Corporation to engage in the business of geological exploration and development. On January 26, 1994, its Articles of Incorporation was amended to change its primary purpose from exploration and development to that of engaging in the business of a holding company, and changed its corporate name to Cobertson Holdings Corporation. On November 6, 1995, the Company’s Articles of Incorporation was again amended to change its corporate name to its present name. Its registered office address is at 12th Floor, Allied Bank Center, 6754 Ayala Avenue, Makati City.

Business Operations

The principal activities of the Company and its subsidiaries (collectively referred to as the Group) are described in Note 4. The Company, through its subsidiaries and associates (see Note 9), is presently engaged in aviation-support businesses at the Ninoy Aquino International Airport (NAIA), Manila Domestic Airport (MDA), Mactan-Cebu International Airport (MCIA) and the General Aviation Areas. It provides in-flight catering services, ground handling services for passenger and cargo aircraft, and helicopter charter flight services. It also operates/develops the sole economic zone within the NAIA.

Through Lufthansa Technik Philippines, Inc. (LTP), an associate with a maintenance, repairs and

overhaul facility in the Philippines, the Company provides globally competitive heavy maintenance and engineering services for specific models of Airbus and Boeing aircraft for airline clients all over the world.

In 2006, the Company ventured into the third party logistics business, through Toll-MacroAsia

(TMP), with Toll Asia Pte., Ltd. (Toll Asia), a company incorporated in Singapore (see Note 9). Further, with the recent developments in the Philippine mining industry, the Company has revived its mining business (see Note 30).

The consolidated financial statements were authorized for issuance by the Board of Directors

(BOD) on March 21, 2011. 2. Summary of Significant Accounting and Financial Reporting Policies Basis of Preparation The consolidated financial statements have been prepared on a historical cost basis, except for

available-for-sale (AFS) investments and derivative financial instruments, which are carried at fair value. The consolidated financial statements are presented in Philippine peso (Peso), the Company’s functional and presentation currency. Amounts are rounded to the last Peso unless otherwise indicated.

Statement of Compliance The consolidated financial statements have been prepared in compliance with Philippine Financial

Reporting Standards (PFRS).

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*SGVMC311260*

Changes in Accounting Policies and Disclosures The accounting policies adopted are consistent with those of the previous financial year except for the adoption of the following PFRS, Philippine Accounting Standards (PAS) and Philippine Interpretations based on International Financial Reporting Interpretations Committee (Philippine Interpretation IFRIC) interpretations and amendments to existing standards which became effective on January 1, 2010. Adoption of these changes in PFRS did not have any significant effect on the Company’s consolidated financial statements: • Amendments to PFRS 2, Shared-based Payment - Group Cash-settled Share-based Payment

Transactions • PFRS 3, Business Combinations (Revised) and PAS 27, Consolidated and Separate Financial

Statements • Amendments to PAS 39, Financial Instruments: Recognition and Measurement - Eligible

Hedged Items • Philippine Interpretation IFRIC 17, Distributions of Non-Cash Assets to Owners

In April 2009 and May 2008, the International Accounting Standards Board (IASB) issued its omnibus of amendments to its standards, primarily with a view to remove inconsistencies and clarify wordings. There are separate transitional provisions for each standard. The following improvements in PFRS did not have a significant impact on the consolidated financial statements:

• PFRS 8, Operating Segments, clarifies that segment assets and liabilities need only be reported

when those assets and liabilities are included in measures that are used by the chief operating decision maker. This had no significant impact as segment assets and liabilities have been included in the Group’s segment reporting.

• PAS 1, Presentation of Financial Statements, clarifies that the terms of a liability that could result, at any time, in its settlement by the issuance of equity instruments at the option of the counterparty do not affect its classification.

• PAS 7, Statement of Cash Flows, explicitly states that only expenditure that results in a recognized asset can be classified as a cash flow from investing activities.

• PAS 17, Leases, removes the specific guidance on classifying land as a lease. Prior to the amendment, leases of land were classified as operating leases. The amendment now requires that leases of land are classified as either “finance” or “operating” in accordance with the general principles of PAS 17.

Adoption of the following improvements are currently not relevant to the Group: • PFRS 2, Share-based Payments • PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations • PAS 36, Impairment of Assets • PAS 38, Intangible Assets • PAS 39, Financial Instruments: Recognition and Measurement • Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives • Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation

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*SGVMC311260*

Basis of Consolidation The consolidated financial statements comprise the financial statements of the Company and the

following subsidiaries:

Nature of business

Percentage of direct ownership

MacroAsia Air Taxi Services, Inc. (MAATS)

Helicopter chartering services

100

MacroAsia Properties Development Corporation (MAPDC)

Economic Zone (Ecozone) developer/operator

100

MacroAsia Airport Services Corporation (MASCORP) *

Groundhandling aviation services

100

Airport Specialists’ Services Corporation (ASSC)**

Manpower services

100

MacroAsia Catering Services, Inc. (MACS)

In-flight and other catering services

80

MacroAsia Mining Corporation (MMC)***

Mine exploration, development and operation

67

* In 2007, the Company bought the 30% minority interest of Menzies Aviation Group (Menzies) in MASCORP. ** Ceased commercial operations effective May 1, 2001. *** MMC was incorporated on September 25, 2000 and has not started commercial operations.

Subsidiaries are entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of any potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group.

Consolidation ceases when control is transferred out of the Group. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of income from the date of acquisition or up to the date of disposal, as appropriate. A change in ownership interest of a subsidiary, without a change in control is accounted for as an equity transaction.

The financial statements of the subsidiaries are prepared for the same reporting year using accounting policies that are consistent with those of the Company. Intra-group balances, transactions, income and expenses, and profits and losses resulting from intra-group transactions are eliminated in full in the consolidation.

Non-controlling Interests Non-controlling interest (previously referred to as a “minority interest”) represents the portion of

the net assets of consolidated subsidiaries not held by the Group, and is presented separately in the consolidated statement of income, consolidated statement of comprehensive income and within the equity section of the consolidated balance sheets, separate from the Company’s equity. The losses applicable to the minority in a consolidated subsidiary may exceed the non-controlling interest’s equity in the subsidiary even if the losses exceed the non-controlling equity investment in the subsidiary.

Prior to January 1, 2010, the excess, and any further losses applicable to the

non-controlling interest, are charged against the majority interest, except to the extent that the non-controlling has a binding obligation to and is able to make good the losses. If the subsidiary subsequently reports profits, the majority interest is allocated all such profits until the non-controlling interest’s share of losses previously absorbed by the majority is recovered. The acquisition of non-controlling interests is not considered a business combination under

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*SGVMC311260*

PFRS 3, Business Combinations, and therefore, the re-measurement of the net assets acquired is not permissible and is not performed. Acquisitions of non-controlling are accounted for using the parent entity extension concept method, wherein any excess of the consideration given up over the book value of the net assets acquired is recognized as goodwill. Any excess of the book value of the net assets acquired over the consideration given up is recognized as negative goodwill referred to as “Excess of net book value of non-controlling interests acquired over acquisition cost” in the consolidated statement of income.

The goodwill recognized by the Group amounting to P=17.5 million as of December 31, 2010 and 2009 resulted from the Company’s acquisition of a non-controlling interest (13%) from a previous stockholder of MACS in 2006. There has been no restatement with respect to the changes in the standard.

Investments in Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for under the equity method of accounting in the consolidated financial statements. Under this method, investments in associates are carried in the consolidated balance sheet at cost plus post-acquisition changes in the Company’s share in the net assets of the associate, less any impairment in value. Dividends are considered return of capital and are deducted from the investment account.

The consolidated statement of income reflects the Company’s share in the results of operations of the associates. Unrealized gains or losses arising from transactions with associates are eliminated to the extent of the Company’s interests in those associates, against the investments in those associates. Unrealized losses are eliminated similarly but only to the extent that there is no evidence of impairment of the asset transferred.

The cumulative post-acquisition movements are adjusted against the carrying amount of the

investment. When the Group’s share in the losses of an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate.

Investments in associates pertain to the Company’s investments in the shares of stock of Cebu

Pacific Catering Services, Inc. (CPCS), 40%-owned; and LTP, 49%-owned and Toll-MacroAsia Philippines, Inc. (TMP), formerly SembLog-MacroAsia Philippines, Inc., also 49%-owned (see Note 9). Since the Company has no joint control but instead has significant influence over these associates, the Company accounts for its investments using the equity method, in compliance with the provisions of PAS 28, Investments in Associates.

Functional Currency-Denominated Transactions Each entity in the Group determines its own functional currency and the items included in the

financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency rate at the date of the transaction. Outstanding monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange at end of reporting period. All differences are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

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*SGVMC311260*

Various factors are considered in determining the functional currency of each entity within the Group, including prices of goods and services, competition, cost and expenses, and other factors including the currency in which financing deals are primarily undertaken. Additional factors are considered in determining the functional currency of a foreign operation, including whether its activities are carried as an extension of the Company rather than being carried out with significant autonomy.

The financial position and results of operations of an associate in United States (US) $ functional currency is translated into the Group’s presentation currency using the following procedures: a. Assets and liabilities for each consolidated balance sheet presented are translated at the closing

rate at the balance sheet date. b. Income and expenses for each consolidated statement of income are translated using the

monthly average rate. c. All resulting exchange differences are recognized as part of other comprehensive income

(loss) and as a separate component of equity.

Cash and Cash Equivalents Cash consists of cash on hand and in banks. Cash equivalents are short-term, highly liquid

investments that are readily convertible to known amounts of cash with original maturities of three months or less from dates of acquisition and are subject to an insignificant risk of changes in value. Financial Assets and Financial Liabilities The Group recognizes a financial asset or a financial liability in the consolidated balance sheet when it becomes a party to the contractual provisions of the instrument. In the case of a regular way purchase or sale of financial assets, recognition and derecognition, as applicable, is done using settlement date accounting. All regular way purchases and sales of financial assets are recognized on the trade date, i.e., the date that the Company commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the market place.

Financial instruments are recognized initially at fair value, which is the fair value of the consideration given (in case of an asset) or received (in case of a liability). The initial measurement of financial instruments, except for those designated at fair value through profit and loss (FVPL), includes any transaction cost. Subsequent to initial recognition, the Group classifies its financial instruments in the following categories: financial assets and financial liabilities at FVPL, loans and receivables, held-to-maturity (HTM) investments, AFS financial assets and other financial liabilities. The classification depends on the purpose for which the instruments are acquired and whether they are quoted in an active market. Management determines the classification at initial recognition and, where allowed and appropriate, re-evaluates this classification at every reporting date.

Financial assets or financial liabilities at FVPL Financial assets or financial liabilities classified in this category are financial assets or financial liabilities that are held for trading or financial assets and financial liabilities that are designated by management as at FVPL 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

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*SGVMC311260*

• The assets and liabilities are part of a group of financial assets and financial liabilities, respectively, or both financial assets and financial liabilities, which are managed and their performance is 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.

Financial assets are classified as held for trading if these are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets and financial liabilities at FVPL are recorded in the consolidated balance sheet at fair value. Changes in fair value are recorded in profit or loss. Interest earned is recorded as interest income, while dividend income is recorded in dividend income according to the terms of the contract, or when the right of the payment has been established. Interest incurred is recorded as interest expense. Where a contract contains one or more embedded derivatives, the hybrid contract may be designated as financial asset or financial liabilities at FVPL, except where the embedded derivative does not significantly modify the cash flows or it is clear that separation of the embedded derivative is prohibited. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or a component that is a financial liability are reported as expense or income. Distributions to holders of a financial instruments classified as equity are charged directly to equity, net of any related income tax benefits. As of December 31, 2010 and 2009, the Group’s outstanding derivative assets are under the FVPL classification. Derivative Financial Instruments A derivative is a financial instrument or other contract with all three of the following characteristics: • Its value changes in response to the change in a specified interest rate, financial instrument

price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a nonfinancial variable that the variable is not specific to a party to the contract (sometimes called the “underlying”);

• It requires no initial net investment or an initial net investment that is smaller than would be

required for other types of contracts that would be expected to have a similar response to changes in market factors; and

• It is settled at a future date. The Company uses derivative financial instruments such as currency forwards contracts as economic hedge to its risks arising from foreign currency fluctuations. Such derivative financial instrument is initially recognized at fair value on the date on which the derivative contracts are entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. The fair values of freestanding forward currency transactions are calculated by reference to current forward exchange rates for contracts with similar maturity profile.

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*SGVMC311260*

Embedded derivatives An embedded derivative is separated from the host financial or non-financial contract and accounted for as a derivative if all of the following conditions are met: • The economic characteristics and risks of the embedded derivative are not closely related to

the economic characteristic of the host contract; • A separate instrument with the same terms as the embedded derivative would meet the

definition of a derivative; and • The hybrid or combined instrument is not recognized as at fair value through profit or loss.

The Company assesses whether embedded derivatives are required to be separated from host contracts when the Company first becomes party to the contract. Reassessment only occurs if there is change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.

The Company has no bifurcated embedded derivatives and has opted not to designate its derivative transactions under hedge accounting.

Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivables. Loans and receivables are carried at cost or amortized cost in the consolidated balance sheet. Amortization is determined using the effective interest rate method. Loans and receivables are included in current assets if maturity is within 12 months from the end of reporting date. Otherwise, these are classified as noncurrent assets.

As of December 31, 2010 and 2009, the Group’s cash in banks and cash equivalents, receivables and deposits are classified as loans and receivables. HTM investments HTM investments are non-derivative financial assets with fixed or determinable payments and fixed maturities wherein the Group has the positive intention and ability to hold to maturity. HTM investments are carried at cost or amortized cost in the consolidated balance sheet. Amortization is determined using the effective interest rate method. Assets under this category are classified as current assets if maturity is within 12 months from the end of reporting date and noncurrent assets if maturity is more than a year. The Group has not designated any financial asset as HTM investment. AFS investments AFS investments are non-derivative financial assets that are either designated in this category or not classified in any of the other categories. AFS investments are carried at fair value in the consolidated balance sheet. Changes in the fair value of investments classified as AFS investments are recognized as other comprehensive income, except for the foreign exchange fluctuations on AFS debt securities and the related effective interest which are taken directly to the consolidated statement of income. These changes in fair values are recognized as other comprehensive income and remain in equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is transferred to the consolidated statement of income.

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*SGVMC311260*

AFS investment as of December 31, 2010 and 2009 consists mainly of the Company’s investments in golf club and listed equity shares. Other financial liabilities This category pertains to financial liabilities that are not held for trading and are not designated as at FVPL upon the inception of the liability. These include liabilities arising from operating and financing activities.

Borrowings are recognized initially at fair value, net of any transaction cost incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statement of income over the period of the borrowing using the effective interest rate. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of reporting date.

Notes payable, accounts payable and accrued liabilities, dividends payable and rental deposit are recognized in the period in which the related money, goods or services are received or when a legally enforceable claim against the Group is established. These are measured at amortized cost, normally equal to the nominal amount.

Other financial liabilities are recognized initially at fair value and are subsequently carried at amortized cost, taking into account the impact of applying the effective interest rate method of amortization (or accretion) for any related premium (or discount) and any directly attributable transaction cost.

Derecognition of Financial Assets and Financial Liabilities

Financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when:

• the right to receive cash flows from the asset has expired; • the Company 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 Company has transferred its right to receive cash flows from the asset and either

(a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Group has transferred its right to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset.

Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged, cancelled or has expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms or the terms of an existing liability are substantially modified, such an exchange or

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modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statement of income.

Impairment of Financial Assets An assessment is made at the end of reporting date to determine whether there is objective evidence that a specific financial asset may be impaired. If such exists, any impairment loss is recognized in consolidated profit or loss.

The Group assesses at each end of the reporting date whether a financial asset or a group of

financial assets is impaired. Assets carried at amortized cost

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant and individually or collectively for financial assets that are not individually significant. Objective evidence includes observable data that comes to the attention of the Group about loss events such as, but not limited to, significant financial difficulty of the counterparty, a breach of contract (such as a default or delinquency in interest or principal payments), probability that the borrower will enter bankruptcy or other financial reorganization. If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced through the use of an allowance account. The amount of loss, if any, is recognized in the consolidated profit or loss. 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 the group of financial assets with similar credit risk and 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 recognized are not included in a collective assessment of impairment.

Loans and receivables, together with the related allowance, are written off when there is no realistic prospect of future recovery and all collateral, if any, have been realized. 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 by adjusting the allowance account. The amount of reversal is recognized in the consolidated profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost at reversal date.

Assets carried at cost

If there is an objective evidence that an impairment loss of an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or a derivative asset that is linked to and must be settled by delivery of such unquoted equity instrument 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 current market rate of return for a similar financial asset.

AFS investments

In case of equity investments classified as AFS investments, impairment would include a significant or prolonged decline in the fair value of the investments below their cost. Where there is evidence of impairment loss, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset

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previously recognized in income - is removed from other comprehensive income and recognized in income. Impairment losses on equity investments are not reversed through income. Increases in fair value after impairment are recognized directly in the other comprehensive income.

In the case of debt instruments classified as AFS, impairment is assessed based on the same criteria as financial assets carried at amortized cost. Future interest income is based on the reduced carrying amount and is accrued based on the rate of interest used to discount cash flows for the purpose of measuring impairment loss. If, in subsequent year, the fair value of a debt instrument increases and the increase can be related objectively to an event occurring after the impairment loss was recognized in income, the impairment loss is reversed through income.

Determination of Fair Value The fair value of financial instruments traded in active markets at end of reporting period 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 asking prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has been a significant change in economic circumstances since the time of the transaction.

For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation 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.

“Day 1” Difference Where the transaction price in a non-active market is different from the fair value of other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Group recognizes the difference between the transaction price and fair value (a “Day 1” difference) in the consolidated profit or loss unless it qualifies for recognition as some other type of asset. In cases where use is made of data which is not observable, the difference between the transaction price and model value is only recognized in the consolidated 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” difference amount.

Offsetting of Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the consolidated

balance sheets 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 generally not the case with the master netting agreements, and the related assets and liabilities are presented in the consolidated balance sheet.

Inventories Inventories are stated at the lower of cost and net realizable value (NRV). Cost, which includes

purchase price and costs incurred in bringing the product to its present location and condition, is determined primarily on the basis of the moving average method.

NRV of food and beverage is the estimated selling price in the ordinary course of business less the

estimated costs of completion and estimated costs necessary to make the sale. In the case of materials and supplies, NRV is the recoverable value of the inventories when disposed of at their current condition.

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Other Current Assets Other current assets include input taxes, tax credit certificates, excess creditable withholding taxes

and prepaid expenses. Tax credit certificates pertain to amount of tax credit for which the Group is allowed or entitled to in accordance with applicable laws and can be used to settle the Group’s obligations due to the national government. Creditable withholding taxes are deducted from income tax due on the same year the revenue was recognized, with excess recognized as current asset. Prepayments are expenses paid in advance and recorded as asset before they are utilized. They are apportioned over the period covered by the payment and charged to the appropriate accounts in profit or loss when incurred. Prepayments that are expected to be realized for no more than 12 months after the reporting period are classified as current assets; otherwise, these are classified as other noncurrent assets.

Value-Added Tax (VAT) Revenues, expenses, assets and liabilities are recognized net of the amount of VAT, except where the VAT incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the VAT is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable.

The net amount of VAT recoverable or payable from taxation authority is included as part of “Other current assets” and “Other noncurrent assets” or “Accounts payable and accrued liabilities” in the consolidated balance sheet.

Property and Equipment Property and equipment, except land, are stated at cost less accumulated depreciation and

amortization and any impairment in value. Land is stated at cost less impairment in value, if any. The initial cost of property and equipment comprises its purchase price, including import duties, taxes, borrowing costs and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property and equipment have been put into operation, such as repairs and maintenance and overhaul costs, are normally charged to profit or loss in the period when the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of property and equipment.

Construction in progress, which is included in property and equipment, is stated at cost. This includes cost of construction, equipment and other direct costs. Construction in progress is not depreciated until such time as the relevant assets are completed and become available for use.

Each part of an item of property and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately.

Except for a helicopter unit which is depreciated based on estimated 5,358 flying hours, depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

No. of years Building 5 to 25 Kitchen and other operations equipment 3 to 10 Transportation equipment 5

(Forward)

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No. of years Aviation equipment 2 to 10 Drilling equipment 5 Helicopter parts 3 to 5 Office furniture, fixtures and equipment 3 to 7

Building and land and leasehold improvements are amortized over the respective lease term or the lives of the assets (which range from 2 to 25 years), whichever is shorter. Depreciation and amortization of an item of property and equipment begins when the asset becomes available for use, i.e., when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation and amortization ceases at the date that the item is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations or the date the asset is derecognized, whichever is earlier. The useful lives and depreciation and amortization methods are reviewed periodically to ensure that the residual values, periods and methods of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and equipment. When property and equipment are sold or retired, their cost, related accumulated depreciation and amortization and any accumulated impairment in value are removed from the accounts. Any gain or loss resulting from their disposal is included in the consolidated statement of income.

Investment Property

Investment property, which pertains to a parcel of land held for appreciation in value, is measured at cost less any impairment in value.

Investment property is derecognized when it has either been disposed of or when the investment

property is permanently withdrawn from use and no future benefit is expected from its disposal. Any gains or losses resulting from the derecognition of an investment property is recognized in the consolidated statement of income in the year of derecognition. Transfers are made to investment property when, and only when, there is a change in use, evidenced by cessation of owner-occupation, commencement of an operating lease to another party or completion of construction or development. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sale.

Deferred Mine Exploration Costs Expenditures for mine exploration works on mining properties are deferred as incurred, carried at

cost less any impairment in value and presented as “Deferred mine exploration costs” in the consolidated balance sheet. When, as a result of the exploration work, recoverable reserves are determined to be present in quantities that can be commercially produced, exploration expenditures and subsequent development costs are capitalized as mine and mining properties and classified as part of property and equipment. A valuation allowance is provided for estimated unrecoverable costs based on the technical assessment by the Group of the future prospects of each mining property. When a project is abandoned, the related deferred mine exploration costs are written off.

Mining costs, which are not related to establishing the technical feasibility and commercial

viability of mineral resource extraction, are expensed outright.

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Impairment of Nonfinancial Assets Nonfinancial assets other than goodwill The Group assesses at each reporting date whether there is an indication that investments in

associates, property and equipment, investment property and input and other taxes may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. The Group also assesses its deferred mine exploration costs for impairment when facts and circumstances suggest that its carrying amount may exceed its recoverable amount. An asset’s recoverable amount is the higher of an asset’s fair value less costs to sell and its value-in-use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses of continuing operations are recognized in the consolidated profit or loss in those expense categories consistent with the function of the impaired asset.

An assessment is also made at each reporting date as to whether there is any indication that

previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed and recognized in consolidated profit or loss 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 or amortization, had no impairment loss been recognized for the asset in prior years. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

Goodwill

Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of the cash generating unit (or group of cash generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit to which goodwill has been allocated is less than its carrying amount, an impairment loss is recognized immediately in the consolidated statement of income. Impairment losses relating to goodwill cannot be reversed for subsequent increases in its recoverable amount in future periods. The Group performs its annual impairment test of goodwill as of December 31 of each year.

Revenue Recognition

Revenue is recognized to the extent that it is probable that the economic benefits associated with the transactions 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 and sales taxes or duties. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal in all its major revenue arrangements. The following specific recognition criteria must also be met before revenue is recognized:

Sale of goods (in-flight and other catering) Catering revenue is recognized upon delivery of goods to and acceptance by airline clients and

other customers.

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Rendering of services Revenue from ground handling, aviation and administrative services, and charter flights is

recognized when the related services are rendered.

Rental income Rental income is accounted for on a straight-line basis over the lease term.

Interest income Interest income is recognized as the interest accrues using, where applicable, the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected term of the financial assets to the net carrying amount of the financial asset. Direct Costs and General and Administrative Expenses Direct costs, which include expenses incurred by the Group for the generation of revenue from rendering of in-flight and other catering services, rental and administrative services, ground handling and aviation services, and charter flights are expensed as incurred. General and administrative expenses, which include the cost of administering the business and are not directly associated with the generation of revenue, are expensed as incurred. Other Comprehensive Income Other comprehensive income comprises items of income and expense (including items previously presented under the consolidated statement of changes in equity) that are not recognized in the consolidated profit or loss for the year in accordance with PFRS. Other comprehensive income of the Company includes foreign currency translation adjustments on investment in an associate and unrealized gain (loss) in changes in fair value of AFS investments.

Retirement Benefits Costs Retirement benefits costs are 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 the employees’ projected salaries. Actuarial valuations are conducted with sufficient regularity with option to accelerate when significant changes to underlying assumptions occur.

The retirement benefits costs include current service cost, interest cost, expected return on plan assets, actuarial gains and losses, amortization of past service cost and effect of any curtailment or settlement. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses for the plan at the end of the previous reporting year exceeded 10% of the higher of the present value of defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plan. Past service cost is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a retirement plan, past service cost is recognized immediately.

The defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not recognized, reduced by past service cost not yet recognized, and the fair value of plan assets out of which the obligations are to be settled directly. If such aggregate is negative (defined benefit asset), the asset is measured at the lower such aggregate or the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. The present value of the defined benefit obligation is determined

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by discounting the estimated future cash outflows using risk-free interest rates of government bond that have terms of maturity approximating the terms of the related retirement benefits liability.

Borrowing Costs

Borrowing costs are capitalized if they are directly attributable to the acquisition, production or construction of a qualifying asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. 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. Borrowing costs not qualified for capitalization are expensed as incurred.

Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment 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 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 fulfilment is dependent on a specified asset; or d. there is a substantial change to the asset.

When a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) above, and at the date of renewal or extension period for scenario (b).

Group as lessee

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the consolidated profit or loss on a straight-line basis over the lease term.

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. Capital Stock and Additional Paid-in Capital Capital stock is measured at par value for all shares issued. When the shares are sold at a premium, the difference between the proceeds and the par value is credited to the “Additional paid-in capital” account. When shares are issued for a consideration other than cash, the proceeds are measured by the fair value of the consideration received. In case the shares are issued to extinguish or settle the liability of the Company, the shares shall be measured either at the fair value of the shares issued or fair value of the liability settled, whichever is more reliably determinable.

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Retained Earnings Retained earnings represent the cumulative balance of net income or loss, any dividend distributions, prior period adjustments and effects of any change in accounting policy .

Treasury Shares Own equity instruments, which are reacquired, are recognized at cost and deducted from equity. No gain or loss is recognized in the consolidated statement of income on the purchase, sale, issue or cancellation of the Company's own equity instruments. Any difference between the carrying amount and consideration, if reissued, is recognized in “Additional paid-in capital” account.

Provisions and Contingencies Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pretax rate that reflects current market assessment of the time value of money and where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provisions due to the passage of time is recognized as an interest expense. Contingent liabilities are not recognized in the consolidated financial statements. These are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the consolidated financial statements but disclosed when an inflow of economic benefits is probable.

Income Taxes Current income tax Current income tax assets and liabilities for the current and prior periods are measured at the

amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date. If the amount already paid, including the cumulative creditable withholding taxes, in respect of the current and prior period exceeds the amount due for those periods, the excess shall be recognized as an asset under “Other current assets” in the consolidated balance sheet.

Deferred income tax Deferred income tax assets and deferred income tax liabilities are provided, using the balance

sheet liability method, on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences. Deferred income tax assets are recognized for all deductible temporary differences, carryforward benefits of excess minimum corporate income tax (MCIT) over the regular corporate income tax (RCIT) and unused net operating loss carryover (NOLCO), to the extent that it is probable that sufficient future taxable profits will be available against which the deductible temporary differences and the carryforward benefits of excess MCIT and unused NOLCO can be utilized. Deferred income tax, however, is not recognized when it arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit.

Deferred income tax liabilities are not provided on non-taxable temporary differences associated

with investments in domestic subsidiaries, associates and interest in joint ventures. With respect to investments in other subsidiaries, associates and interests in joint ventures, deferred income tax liabilities are recognized except where the timing of the reversal of the temporary difference can

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be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient future taxable profits will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred income tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that sufficient future taxable profits will allow the deferred tax assets to be recovered.

Deferred income tax assets and deferred income tax liabilities are measured at the tax rates that are

expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable right exists to set off the deferred tax assets against the deferred income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

Income tax relating to items recognized directly in equity or other comprehensive income is

recognized in equity or other comprehensive income and not in the consolidated profit or loss. Events After the Reporting Date

Post-year-end events that provide additional information about the Group’s position at the reporting date (adjusting events), if any, are reflected in the consolidated financial statements. Post-year-end events that are not adjusting events are disclosed in the notes to consolidated financial statements when material.

Segment Information The Company’s operating businesses are organized and managed separately according to the

nature of the aviation-support service provided by its four operating and two non-operating subsidiaries. This is the basis on which the Company reports its primary segment information. The Company also monitors the revenue and operating results of its associates. Information with respect to these subsidiaries, as well as the Company’s associates, are disclosed in Notes 4 and 9. The Company has only one geographic segment.

Earnings Per Share Basic earnings per share is computed by dividing net income for the year attributable to ordinary

equity holders of the parent by the weighted average number of shares outstanding during the year. Diluted earnings per share is calculated by dividing the net profit by the weighted average number

of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued upon conversion of all dilutive potential ordinary shares. Currently, the Company has no potentially dilutive shares.

Future Changes in Accounting Policies The Company will adopt the following standards and interpretations when these become effective. Except as otherwise indicated, the Company does not expect the adoption of these new and amended PFRS, PAS and Philippine Interpretations to have significant impact on its financial statements.

Effective 2011 • PAS 24, Related Party Disclosures (Revised), clarifies the definition of a related party to

simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirements for government-related entities.

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• PAS 32, Financial Instruments: Presentation (Amendment) - Classification of Rights Issues, amends the definition of a financial liability in order to classify rights issues (and certain options and warrants) as equity instruments in cases where such rights are given pro rata to all of the existing owners of the same class of an entity’s non-derivative equity instruments, or to acquire a fixed number of the entity’s own equity instruments for a fixed amount in any currency.

• Amendment to Philippine Interpretation IFRIC 14, Prepayments of a Minimum Funding Requirement, provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset.

• Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity

Instruments, clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognized immediately in the profit or loss.

Improvements to PFRS In May 2010, the IASB issued omnibus of amendments to the following standards, primarily with a view to remove inconsistencies and clarify wordings. There are separate transitional provisions for each standard. • Revised PFRS 3, Business Combinations, introduces significant changes in the accounting for

business combinations occurring after becoming effective. Changes affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognized, the reported results in the period that an acquisition occurs and future reported results.

• Amendment to PAS 1, Presentation of Financial Statements, clarifies that an entity will

present an analysis of other comprehensive income for each component of equity, either in the statement of changes in equity or in the notes to the financial statements.

• Amendment to PAS 27, Consolidated and Separate Financial Statements, requires that a

change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by PFRS 3 (Revised) and PAS 27 (Amended) affect acquisitions or loss of control of subsidiaries and transactions with non-controlling interests after January 1, 2010.

• Philippine Interpretation IFRIC 13, Customer Loyalty Programmes, clarifies that when the fair

value of award credits is measured based on the value of the awards for which they could be redeemed, the amount of discounts or incentives otherwise granted to customers not participating in the award credit scheme, is to be taken into account.

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Effective 2012 • Amendment to PFRS 7, Financial Instruments: Disclosures, emphasizes the interaction

between quantitative and qualitative disclosures and the nature and extent of risks associated with financial instruments which should be applied retrospectively.

• Amendment to PAS 12, Income Taxes - Deferred Tax: Recovery of Underlying Assets,

provides a practical solution to the problem of assessing whether the recovery of an asset will be through use or sale. It introduces a presumption that recovery of the carrying amount of an asset will, normally, be through sale.

• Philippine Interpretation IFRIC 15, Agreement for Construction of Real Estate, 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.

Effective 2013 • PFRS 9, Financial Instruments: Classification and Measurement, reflects the first phase of the

work on the replacement of PAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in PAS 39. In subsequent phases, hedge accounting and derecognition will be addressed. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Company’s financial assets. The Company will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture.

The required revised disclosures will be included in the consolidated financial statements when the foregoing accounting standards and interpretations are adopted subsequent to 2010.

3. Significant Judgments and Accounting Estimates

The preparation of the consolidated financial statements in accordance with PFRS requires the Group to exercise judgments, make estimates and use assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The estimates and assumptions used in the consolidated financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the financial statements. Future events may occur which will cause the assumptions used in arriving at the estimates to change. The effects of any change in estimates are reflected in the consolidated financial statements as they become reasonably determinable.

Judgments In the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on amounts recognized in the consolidated financial statements.

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Determination of the Company’s functional currency Judgment is exercised in assessing various factors in determining the functional currency of each

entity within the Group. These include the prices of goods and services, competition, cost and expenses, and other factors including the currency in which financing is primarily undertaken. Additional factors are considered in determining the functional currency of a foreign operation, including whether its activities are carried as an extension of that of the Company rather than being carried out with significant autonomy.

The Company, based on the relevant economic substance of the underlying circumstances, has

determined its functional currency to be Philippine peso. It is the currency of the primary economic environment in which the Company operates. The functional currency of LTP, one of the Company’s associated companies (see Notes 2 and 9), has been determined to be US dollar. Classification of financial instruments The Group classifies a financial instrument, or its components, on initial recognition as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement and the definition of a financial liability, a financial asset or an equity instrument. The substance of a financial instrument, rather than its legal form, governs its classification in the Group’s consolidated balance sheet. The classification of the Group’s financial instruments is disclosed in Note 29.

Impairment of AFS equity investments

Management exercised judgment in assessing whether the quoted market price at the reporting date indicated an impairment vis-à-vis the cost. Management assesses that impairment is sustained once the decline in value reaches 30% of cost or that the decline in value persisted for more than 12 months. Considering these criteria, the Group recognized an impairment loss of P=2.3 million in 2009 as management believes then that the prolonged decline in value of the AFS equity investments constitutes an objective evidence of impairment. No similar impairment was recognized in 2010 as the fair value of the AFS investments increased by P=3.5 million. The carrying value of AFS equity investments amounted to P=27.1 million and P=23.6 million of December 31, 2010 and 2009, respectively (see Note 12).

Classification of lease arrangements - the Group as Lessee and Lessor

The Group has property leases where it has determined that the risks and rewards related to such property are retained with the lessor (e.g., no transfer of ownership of leased assets by the end of the lease term). Both the lease and sub-lease agreements are accounted for as operating leases. Rental income amounted to P=186.3 million, P=185.5 million and P=185.9 million 2010, 2009 and 2008, respectively. Rental expense amounted to P=182.8 million, P=181.4 million and P=181.7 million in 2010, 2009 and 2008, respectively (see Notes 16 and 26).

Determination of indicators of impairment of nonfinancial assets The Group assesses at each reporting date whether there is any indication that its investments in associates, property and equipment and investment property may be impaired. Also, the Group assesses whether facts and circumstances suggest that carrying amount of deferred mine exploration costs may exceed its recoverable amount.

The factors that the Group considers important which could trigger an impairment review included the following, among others:

• significant underperformance relative to expected historical or projected future operating results;

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*SGVMC311260*

• significant changes in the manner of use of the acquired assets or the overall business strategy; and,

• significant negative industry or economic trends. As of December 31, 2010 and 2009, management believes there are no impairment indicators on its investment in associates (except for investment in TMP), property and equipment, investment property and deferred mine exploration costs. Further, considering the recent developments on and the status of the Company’s mining projects, there are no facts and circumstances which indicate that the carrying amount of its deferred mine exploration costs exceeds its recoverable amount.

Contingencies The Group in its normal course of business is involved in various legal cases. Based on

management’s assessment, the Group will be able to defend its position on these cases and that the ultimate outcome will not have a significant impact on the Group’s consolidated financial statements. Accordingly, no provision has been recognized for these contingencies.

Estimates and Assumptions The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to

accounting estimates are recognized in the period in which the estimates are revised if the revision affects that period or in the period of revision and future periods if the revision affects both current and future periods.

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing material adjustment to the carrying amounts of the Group’s assets and liabilities follow.

Determination of fair value of financial instruments The Company carries certain financial instruments at fair value, which require use of accounting

estimates and judgment. The significant components of fair value measurement were determined using verifiable objective evidence (i.e., interest and foreign exchange rates and quoted market prices). In the case of financial instruments that have no active markets, fair values are determined using an appropriate valuation technique. Any change in the fair value of these financial instruments would affect the results of operations and equity. The fair values of the Group’s financial assets and financial liabilities are disclosed in Note 29.

Estimation of allowance for doubtful accounts Allowance for doubtful accounts is provided for accounts that are specifically identified to be doubtful of collection. The level of allowance is evaluated by management on the basis of factors that affect the collectability of the accounts, such as historical performance of counterparties, among others. In addition to specific allowance against individually significant receivables primarily from airline customers, the Group also assesses, at least on an annual basis, a collective impairment allowance against credit exposures which, although not specifically identified as requiring a specific allowance, have a greater risk of default than when the receivables were originally granted to customers. This collective allowance is based on various factors such as historical performance of the counterparties within the collective group, deterioration in the markets in which the customers operate, various country or area risks, overall performance of the airline industry, and technological obsolescence which affects the confidence of the air transport market, as well as identified structural weaknesses or deterioration in the cash flows of counterparties.

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*SGVMC311260*

The carrying value of the Group’s receivables amounted to P=205.5 million and P=216.4 million as of December 31, 2010 and 2009, respectively. Provision for doubtful accounts amounted to P=2.5 million, P=1.9 million and P=6.7 million in 2010, 2009 and 2008, respectively (see Note 6).

Determination of net realizable value (NRV) of inventories The Group estimates the NRV of inventories based on the most reliable evidence available at the

time the estimates are made. These estimates consider the fluctuations of prices or costs directly relating to events occurring after the balance sheet date to the extent that such events affect the value of inventories. Other factors include the age and status of the inventories and the Group’s experience on write-off and expirations.

The carrying value of inventories amounted to P=33.6 million and P=35.7 million as of

December 31, 2010 and 2009, respectively (see Note 7). Estimating allowances for probable losses on input taxes and tax credit certificates (TCC) The Group estimates the level of provision for probable losses on input taxes and TCC based on

the experience of the Group and assessment of counsels assisting the Group in processing the claims and negotiating the sale of TCC. As of December 31, 2010 and 2009, the carrying amount of input taxes and TCC amounted to P=144.8 million and P=148.3 million, respectively (see Notes 8 and 13).

Estimation of useful lives and number of flying hours of property and equipment The Group estimates the useful lives, number of flying hours and residual values of property and

equipment based on the internal technical evaluation and experience with similar assets. Estimated lives of property and equipment are reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear, technical and commercial obsolescence and other limits on the use of the assets. In 2010, MACS changed the estimated useful life of its building and certain equipment (from remaining average of 13 years to five years) in view of its ongoing negotiations with MIAA (see Note 26). Additional depreciation recognized as a result of this change amounted to P=21 million.

The carrying value of property and equipment as of December 31, 2010 and 2009 amounted to

P=303.0 million and P=332.4 million, respectively (see Note 10).

Estimation of retirement benefits costs and obligation The Group’s retirement benefits costs are actuarially computed. This entails using estimation of

the present value of the Group’s obligation and fair value of plan assets using assumptions such as annual salary increases, rate of return on plan assets and discount rates. The net accrued retirement benefits payable amounted to P=8.3 million and P=10.7 million as of December 31, 2010 and 2009, respectively (see Note 20).

Recognition of deferred income tax assets

The Group reviews the carrying amounts of deferred income tax assets at each reporting date and adjusts the balance of deferred income tax assets to the extent that it is no longer probable that sufficient future taxable profits will be available to allow all or part of the deferred income tax assets to be utilized. The determination of future taxable income, which will establish the amount of deferred income tax assets that can be recognized, requires the estimation and use of assumptions about the Group’s future income and timing of reversal of temporary differences, unused NOLCO and excess MCIT.

Deferred income tax assets recognized amounted to P=18.0 million and P=17.6 million as of

December 31, 2010 and 2009, respectively. The Group also has unrecognized deferred income

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*SGVMC311260*

taxes primarily on the Company’s and nonoperating subsidiaries’ temporary differences, NOLCO and MCIT (see Note 23).

Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires the estimation of value-in-use of the cash generating unit to which goodwill relates. Estimating the value-in-use requires management to make an estimate of the expected future cash flows from the CGU and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The following describes each key assumption on which management has based its cash projections to undertake impairment testing on goodwill: Projected income before interest and income taxes - The basis used is the most recent financial forecasts that represents management’s best estimate of the range of economic conditions that will exist over the remaining useful life of the cash generating unit. Discount rate – pre-tax rate that reflects the weighted average cost of capital of listed entities with similar assets or similar in terms of service potential and risks. Based on management’s assessment, the recoverable amount of the goodwill is higher than the carrying value, thus no impairment loss was noted on the carrying amount of goodwill of P=17.5 million as of December 31, 2010 and 2009.

4. Segment Information The Group’s operating businesses are organized and managed separately according to the nature of

the aviation-support services provided by the four operating subsidiaries, MMC and ASSC, which is the basis on which the Group reports its primary segment information. The Group also monitors its share in the results of operations of its associates (LTP, CPCS and TMP) that are accounted for using the equity method.

The operating subsidiaries include MACS (in-flight and other catering services), MASCORP

(ground handling and aviation services), MAATS (helicopter chartering) and MAPDC (economic zone development/operation). The operations of these subsidiaries are further described as follows.

• In-flight and other catering segment, which is operated by MACS, refers to servicing of meal

requirement of certain foreign and domestic passenger airlines at the NAIA and the MDA.

• Ground handling and aviation segment, which is operated by MASCORP, refers to both ramp and passenger handling and aviation services to foreign airlines and a domestic carrier at NAIA and MCIA.

• Charter flights segment, which is handled by MAATS, provides international and domestic

chartered flights from its base at the General Aviation Area, MDA to any point within the Philippines, through alliances with other helicopter owners.

• Rental and administrative segment, which is operated through MAPDC, pertains to the

sub-lease of the MacroAsia Ecozone at NAIA (see Note 22), which MAPDC leases from Manila International Airport Authority (MIAA) with LTP as the anchor locator (see Note 26).

• Associates - this segment represents the Group’s investments in associates that are accounted

for using the equity method. Information with respect to these associates are disclosed in Note 9.

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*SGVMC311260*

On the other hand, the Group’s non-operating subsidiaries consist of: • MMC, which serves as the institutional vehicle through and under which the business of a

mining enterprise may be established, operated and maintained. It has not yet started commercial operations.

• ASSC, which provides manpower support for any and all ground handling requirements of

aircraft passenger and cargo. The Group has only one geographic segment. There were no inter-segment sales in 2010, 2009

and 2008. Segment assets include the operating assets used by a segment and consist principally of cash and

cash equivalents, receivables, inventories, other current assets and property and equipment, net of allowances, depreciation and any impairment in value. Segment liabilities include all operating liabilities and consist principally of notes payable, accounts payable, accrued liabilities. Segment assets and liabilities do not include deferred income taxes. Segment results pertain to operating income.

Financial information on the Group’s business segments as of and for the years ended December 31 are as follows. The amounts disclose were determined consistent with the measurement basis under PFRS.

2010 2009 2008 SERVICE REVENUE - External In-flight and other catering P=722,114,435 P=713,804,684 P=617,993,458 Ground handling and aviation 191,054,132 208,439,274 201,741,640 Rental and administrative 186,275,143 185,455,504 185,869,066 Charter flights 11,808,297 14,085,897 8,931,965 Total segment and consolidated revenue

P=1,111,252,007

P=1,121,785,359

P=1,014,536,129

RESULT - Segment results In-flight and other catering services P=53,928,695 P=114,527,437 P=20,332,614 Ground handling and aviation services 12,712,844 15,398,709 10,126,661 Rental and administrative services 3,081,136 7,375,159 6,318,614 Charter flights services 1,796,729 1,148,762 (1,182,809) Mining (53,978,461) (7,739,445) (27,529,714) Equity in net income of associates 498,674,811 323,886,316 363,350,135 Total segment results 516,215,754 454,596,938 371,415,501 Unallocated corporate expenses and eliminations

(89,116,419)

(115,393,656)

(68,179,345)

Provision for income tax (21,025,325) (23,328,908) (13,666,110) Consolidated net income P=406,074,010 P=315,874,374 P=289,570,046

OTHER INFORMATION Segment Assets In-flight and other catering services P=579,949,636 P=634,426,629 P=582,805,739 Rental and administrative services 155,937,697 177,682,067 218,162,988 Ground handling and aviation services 137,686,896 146,479,920 152,382,577 Charter flights services 26,535,914 24,586,089 24,080,473 Mining 221,844,948 176,749,174 100,377,333 Total segment assets P=1,121,955,091 P=1,159,923,879 P=1,077,809,110

(Forward)

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2010 2009 2008 Investments in associates P=1,364,124,279 P=1,291,237,769 P=1,452,344,274 Investment property 126,592,000 126,592,000 118,680,000 Unallocated corporate assets 810,423,809 630,494,111 358,094,185 Consolidated total assets P=3,423,095,179 P=3,208,247,759 P=3,006,927,569 Segment Liabilities In-flight and other catering services P=314,684,679 P=394,294,076 P=383,401,263 Rental and administrative services 139,912,865 164,430,569 206,294,757 Ground handling and aviation services 45,332,216 62,287,750 77,180,848 Charter flights services 2,536,215 2,631,985 3,369,925 Mining 350,562 283,289 235,958 Total segment liabilities 502,816,537 623,927,669 670,482,751 Eliminations (215,753,681) (325,149,977) (365,295,019) Unallocated corporate liabilities 54,057,311 56,570,295 54,923,151 Consolidated total liabilities P=341,120,167 P=355,347,987 P=360,110,883 Capital Expenditures In-flight and other catering services P=19,175,596 P=6,313,719 P=30,652,694 Rental and administrative services 11,901,362 62,778,761 7,016,350 Ground handling and aviation services 11,199,683 10,810,744 12,278,344 Charter flights services 1,233,885 288,205 – P=43,510,526 P=80,191,429 P=49,947,388 Depreciation and Amortization In-flight and other catering services P=43,569,854 P=24,506,692 P=40,533,815 Rental and administrative services 1,304,348 359,184 444,456 Ground handling and aviation services 17,283,785 16,712,325 14,719,285 Charter flights services 419,253 429,406 368,938 Unallocated corporate depreciation and amortization

10,371,949

8,247,488

7,074,609

P=72,949,189 P=50,255,095 P=63,141,103 Noncash Expenses Other than Depreciation and Amortization In-flight and other catering services P=6,000,000 P=11,499,689 P=16,659,972Rental and administrative services 9,280,930 13,478,283 9,956,519Charter flights service 98,062 – 217,434 P=15,378,992 P=24,977,972 P=26,833,925

5. Cash and Cash Equivalents Cash and cash equivalents consist of (Note 16):

2010 2009 Cash on hand and cash in banks P=284,970,450 P=186,996,398 Short-term deposits 506,619,743 480,900,545 P=791,590,193 P=667,896,943

Cash in banks earn interest at the respective bank deposits rates. Short-term deposits are made for

varying periods of up to three months and earn interest at the respective short-term deposit rates. Interest income earned amounted to P=9.4 million, P=8.5 million and P=6.9 million in 2010, 2009 and 2008, respectively.

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6. Receivables Receivables consist of:

2010 2009 Trade (Note 16) P=194,653,922 P=198,234,960 Advances to: Officers and employees 5,569,959 5,988,891 Suppliers, contractors and others 1,294,515 10,442,505 Accrued interest and others (Note 16) 12,121,166 7,330,067 213,639,562 221,996,423 Less allowance for doubtful accounts 8,105,341 5,607,279 P=205,534,221 P=216,389,144

Trade receivables arise from the revenue generating activities of the Group. These are non-interest

bearing with normal credit terms ranging from 30 to 60 days. Advances to suppliers, contractors and others pertain to down payments for various purchases or

operating expenses of the Group. A reconciliation of the allowance for the impairment losses for trade receivables (all arising from

specific impairment) by class is as follows:

Rental and In-flight and administrative other catering Charter flight Total December 31, 2008 P=3,255,264 P=2,589,439 P=1,159,559 P=7,004,262 Provisions (Note 18) – 1,858,281 – 1,858,281 Write-off (3,255,264) – – (3,255,264) December 31, 2009 – 4,447,720 1,159,559 5,607,279 Provisions (Note 18) 2,400,000 98,062 2,498,062 December 31, 2010 P=– P=6,847,720 P=1,257,621 P=8,105,341

7. Inventories Inventories, all carried at cost which is lower than NRV, consist of:

2010 2009 Food and beverage P=23,336,271 P=25,395,271 Materials and supplies 10,259,186 10,332,579 P=33,595,457 P=35,727,850

8. Other Current Assets Other current assets consist of:

2010 2009 Input taxes P=140,995,382 P=86,119,020 Tax credit certificates 22,204,870 25,708,462 Creditable withholding and prepaid taxes 17,620,969 17,000,774

(Forward)

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2010 2009 Prepaid expenses and others (Note 26) P=9,120,102 P=6,616,286 189,941,323 135,444,542 Less allowance for probable losses 55,594,041 42,629,558 P=134,347,282 P=92,814,984

Input taxes represent VAT paid on purchases of goods and services that can be recovered as tax refund/credit from the Bureau of Internal Revenue (BIR) or the Bureau of Customs. The tax credit can be used to pay any income tax due. The Group also has input taxes arising from acquisition of property and equipment and other assets and those which are not expected to be utilized in the next twelve months (see Note 13). Provision for losses amounted to P=12.9 million, P=18.3 million and P=13.5 million in 2010, 2009 and 2008, respectively (see Note 18).

9. Investments in Associates

The Company’s investments in shares of stock of LTP, TMP and CPCS are as follows:

Percentage of ownership

interest

2010

2009 Acquisition costs: LTP 49 P=935,759,560 P=935,759,560 TMP 49 9,661,982 9,661,982 CPCS 40 5,000,000 5,000,000 950,421,542 950,421,542 Accumulated equity in net income: Beginning of year 406,930,422 528,945,639 Share in associates’ net earnings for the year 498,674,811 323,886,316 Dividends declared to the Company (335,438,581) (445,901,533) End of year 570,166,652 406,930,422 Share in foreign currency translation adjustments: Beginning of year (66,114,195) (27,022,907) Net foreign currency translation adjustments for the year

(90,349,720)

(39,091,288)

End of year (156,463,915) (66,114,195) P=1,364,124,279 P=1,291,237,769

The shares of stock of LTP, CPCS and TMP are not traded in public and have no publicly traded price quotation.

LTP On July 12, 2000, the Company entered into an agreement with Lufthansa Technik AG, a corporation organized and existing under the laws of the Federal Republic of Germany, and formed LTP. LTP provides maintenance, repairs and overhaul services on aircraft and components at the NAIA and MCIA. The agreement provides for supermajority (i.e., two-thirds) vote of directors for the approval of the annual budget as well as other critical corporate acts of the agreement.

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TMP On January 24, 2005, the Company entered into an agreement with Toll Asia to form TMP to carry on the business of logistics and supply chain management. TMP started commercial operations in 2006 and has been incurring losses since then. As a result of these losses, the carrying value of the investment has been reduced to nil. The unrecognized share of the Group on the losses of TMP amounted to P=4.6 million and P=3.1 million as of December 31, 2010 and 2009 respectively.

CPCS

CPCS is the Company’s first in-flight catering venture, which started commercial operations in 1996. It is the only in-flight catering company at MCIA and serves both domestic and international airlines.

Summarized financial information of the associates as of and for the years ended December 31 are as follows:

2010 LTP TMP CPCS Total Current assets P=3,515,174,277 P=3,564,000 P=48,661,319 P=3,567,399,596 Noncurrent assets 1,751,004,848 144,000 9,370,423 1,760,519,271 Current liabilities 1,970,032,907 13,067,000 5,553,763 1,988,653,670 Noncurrent liabilities 555,058,284 47,000 – 555,105,284 Equity before foreign currency translation adjustments

2,991,270,368 (9,406,000) 52,477,979

3,034,342,347 Foreign currency translation adjustments

(250,182,434) – –

(250,182,434)

Revenue 9,520,029,602 7,472,000 100,612,544 9,628,114,146 Cost and expenses 7,415,414,821 5,215,000 62,018,789 7,482,648,610 Gross profit 2,104,614,781 2,257,000 38,593,755 2,145,465,536 Net income (loss) 997,076,285 (2,769,000) 26,197,290 1,020,504,575

2009 LTP TMP CPCS Total Current assets P=3,846,673,123 P=6,545,700 P=39,811,096 P=3,893,029,919 Noncurrent assets 1,935,106,866 382,800 11,869,191 1,947,358,857 Current liabilities 2,445,713,378 8,482,695 5,375,878 2,459,571,951 Noncurrent liabilities 793,835,797 5,082,000 – 798,917,797 Equity before foreign currency translation adjustments

2,662,436,083 (6,636,195) 46,304,409

2,702,104,297 Foreign currency translation adjustments

(120,205,269) – –

(120,205,269)

Revenue 10,787,046,593 11,046,100 102,150,920 10,900,243,613 Cost and expenses 8,389,304,550 9,292,100 58,492,301 8,457,088,951 Gross profit 2,397,742,043 1,754,000 43,658,619 2,443,154,662 Net income (loss) 639,938,372 (12,085,935) 32,971,316 660,823,753

2008 LTP TMP CPCS Total Current assets P=4,625,500,096 P=9,771,264 P=40,182,920 P=4,675,454,280 Noncurrent assets 2,132,120,612 823,975 14,109,312 2,147,053,899 Current liabilities 3,350,741,265 5,145,363 10,959,139 3,366,845,767 Noncurrent liabilities 555,962,521 – – 555,962,521

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*SGVMC311260*

2008 LTP TMP CPCS Total Equity before foreign currency translation adjustments

P=2,906,065,711 P=5,449,876 P=43,333,093

P=2,954,848,680 Foreign currency translation adjustments

(55,148,789) – –

(55,148,789)

Revenue 10,588,068,591 23,616,095 125,432,966 10,737,117,652 Cost and expenses 8,489,720,732 20,353,450 71,035,004 8,581,109,186 Gross profit 2,098,347,859 3,262,645 54,397,962 2,156,008,466 Net income (loss) 707,655,770 (8,785,266) 52,258,972 751,129,476

10. Property and Equipment Property and equipment consist of:

2010 Retirements/ January 1,

2010

Additions Disposals/ Transfers

December 31, 2010

Cost Building P=252,029,911 P=– P=– P= 252,029,911 Kitchen and other operations equipment 228,653,181 9,320,667 – 237,973,848 Transportation equipment 98,087,554 11,241,506 – 109,329,060 Helicopter unit and spare parts 103,729,752 4,853,664 – 108,583,416 Aviation equipment 124,602,152 9,093,361 – 133,695,513 Office furniture, fixtures and equipment 52,003,511 5,595,722 – 57,599,233 Building and leasehold improvements 34,709,462 3,405,606 – 38,115,068 Land and land improvements 14,077,627 – – 14,077,627 907,893,150 43,510,526 – 951,403,676 Accumulated Depreciation and Amortization Building (112,484,037) (27,939,236) – (140,423,273) Kitchen and other operations equipment (178,610,642) (11,666,781) – (190,277,423) Transportation equipment (82,752,250) (6,221,500) – (88,973,750) Helicopter unit and spare parts (41,483,004) (7,042,652) – (48,525,656) Aviation equipment (75,562,221) (13,468,777) – (89,030,998) Office furniture, fixtures and equipment (46,317,241) (4,406,259) – (50,723,500) Building and leasehold improvements (30,868,004) (1,271,071) – (32,139,075) Land improvements (7,394,299) (932,913) – (8,327,212) (575,471,698) (72,949,189) – (648,420,887) P=332,421,452 (P=29,438,663) P=– P=302,982,789


2009


December 31, 2009

Cost Building P=252,029,911 P=– P=– P=252,029,911 Kitchen and other operations equipment 218,420,815 10,232,366 – 228,653,181 Transportation equipment 90,794,079 9,840,247 (2,546,772) 98,087,554 Helicopter unit and spare parts 52,058,169 51,671,583 – 103,729,752 Aviation equipment 120,778,754 3,823,398 – 124,602,152 Office furniture, fixtures and equipment 50,160,239 1,843,272 – 52,003,511 Building and leasehold improvements 31,928,899 2,780,563 – 34,709,462 Land and land improvements 14,077,627 – – 14,077,627 830,248,493 80,191,429 (2,546,772) 907,893,150

(Forward)

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2009


December 31, 2009

Accumulated Depreciation and Amortization Building (P=101,432,479) (P=11,051,558) P=– (P=112,484,037) Kitchen and other operations equipment (168,894,165) (9,716,477) – (178,610,642) Transportation equipment (80,949,476) (4,349,546) 2,546,772 (82,752,250) Helicopter unit and spare parts (37,181,713) (4,301,291) – (41,483,004) Aviation equipment (62,318,565) (13,243,656) – (75,562,221) Office furniture, fixtures and equipment (40,959,133) (5,358,108) – (46,317,241) Building and leasehold improvements (29,566,457) (1,301,547) – (30,868,004) Land improvements (6,461,387) (932,912) – (7,394,299) (527,763,375) (50,255,095) 2,546,772 (575,471,698) P=302,485,118 P=29,936,334 P=– P=332,421,452

Depreciation and amortization is distributed as follows:

2010 2009 2008 Direct costs (Note 17) P=47,454,354 P=33,706,504 P=44,258,374 General and administrative expenses (Note 18)

25,494,835

16,548,591

18,882,729

P=72,949,189 P=50,255,095 P=63,141,103 The helicopter unit was depreciated based on 203, 244 and 198 flying hours in 2010, 2009 and

2008, respectively. The cost of fully depreciated property and equipment which are still in use amounted to

P=392.2 million and P=314.2 million as of December 31, 2010 and 2009, respectively. Acquisitions in 2010 and 2009 include unpaid amounts of P=0.29 million and P=1.29 million as of

December 31, 2010 and 2009, respectively. 11. Investment Property Investment property pertains to a parcel of land held for future development with the following

carrying value:

Cost P=143,852,303 Less impairment loss 17,260,303 P=126,592,000

As of December 31, 2010 and 2009, the carrying value is based on the appraisal report rendered by

recognized professional firm of appraisers as of December 29, 2009. In 2009, the Group recognized a reversal of impairment loss on its investment property amounting to P=7.9 million. This is presented as “Recovery in value of investment property” in the 2009 consolidated statement of income.

The independent appraiser used the "Market Data Approach" in valuing the property. This

approach considers the sales and listings and other market data of comparable properties registered within the vicinity of the property being valued. Factors such as location, size, shape of lot, highest and best use and time element were also taken into consideration in order to estimate the value of the property.

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Direct cost incurred in relation to investment property pertains to real property taxes amounted to P=0.2 million in 2010, 2009 and 2008.

12. Available-for-sale Investments The Group’s AFS investments consist of investment in golf club share and other proprietary and

equity shares. These shares are carried at fair value, with changes in fair values for the year presented in other comprehensive income and the cumulative changes in fair value shown as “AFS investments reserve” in the equity section of the consolidated balance sheets. The fair value was determined based on the published club share quotes that are publicly available from the local dailies and from the website of club share brokers.

The original cost of the AFS investments amounted to P=25.9 million. In 2009, the Group

determined that its AFS investments are impaired because of prolonged decline in fair value below its cost. As such, the Group recognized impairment loss amounting to P=2.3 million in 2009. The resulting carrying value of the AFS investments as of December 31, 2009 amounted to P=23.6 million. As of December 31, 2010, the fair value of the AFS investments increased to P=27.1 million. Accordingly, the Group recognized in 2010 the change in fair value amounting to P=3.4 million in the other comprehensive income, net of related deferred income tax of P=0.1 million.

The movement of AFS reserve follows:

2010 2009 Beginning balance P=– (P=4,300,000) Changes in fair value of AFS investments 3,385,000 2,000,000 Unrealized loss transferred to consolidated statements of income – 2,300,000 Ending balance P=3,385,000 P=–

13. Deposits and Other Noncurrent Assets Deposits and other noncurrent assets consist of:

2010 2009 Deposits (Note 16) P=16,961,322 P=16,188,357 Input taxes (Note 8) 35,431,693 81,328,709 Others (Note 26) 6,609,031 1,972 59,002,046 97,519,038 Less allowance for probable losses – 3,935,433 P=59,002,046 P=93,583,605

Provision for probable losses amounted to P=2.4 million in 2009. 14. Notes Payable

a. In 2007, MACS obtained an uncollateralized, short-term loan from a local bank to settle its loans from and payables to the Company. The loan carried interest rates of 8.8% to 9.8% and 7.5% to 8.0% in 2009 and 2008, respectively. The remaining balance of the loan as of

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December 31, 2008 amounting to P=43.0 million was fully paid in 2009. No similar loan was availed of in 2010.

Financing charges amounted to P=2.0 million and P=4.8 million in 2009 and 2008, respectively.

b. In January 2008, MASCORP obtained an uncollaterized short-term loan from a local bank to augment its working capital. The loan carried interest rates ranging from 8.75% to 10.00% in 2009 and 2008. The remaining balance of the loan amounting to P=3.6 million as of December 31, 2008 was fully paid in 2009. No similar loan was availed of in 2010.

Financing charges amounted to P=0.1 million and P=0.2 million in 2009 and 2008, respectively.

15. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consist of:

2010 2009 Accounts payable: Trade P=61,826,810 P=77,200,566 Non-trade (Note 26) 18,732,350 25,980,186 Due to affiliates (Note 16) 13,416,373 25,784,577 Accrued: Personnel costs 28,277,503 24,809,273 Utilities and others (Note 16) 26,019,762 19,472,867 Professional fee 13,377,775 9,393,339 Volume discounts 13,248,261 11,636,406 Management fee (Note 26) 6,986,366 6,984,000 Payable to government agencies 8,447,445 6,569,117 P=190,332,645 P=207,830,331

Trade payables are incurred in the conduct of the Group’s business with normal credit terms

ranging from 30 to 45 days. Nontrade payables include airport taxes payable and payable to mine surveyor and subcontractor.

Accrued volume discounts are incentives due to airline clients of MACS. Accrued

management fee pertains to the 20% of the management fee declared by MACS, which is payable to SATS.

Payable to government agencies include other tax-related payable such as withholding tax and

payable to Social Security System, Philippine Health Insurance Corporation and Pag-IBIG Fund Contributions.

16. Related Party Transactions Parties are considered to be related if one party has the ability to control, directly or indirectly, the

other party or exercise significant influence over the other party in making financial and operating decisions. It includes companies in which one or more of the directors and/or shareholder of the Company either have a beneficial controlling interest or are in a position to exercise significant influence therein. Outstanding balances at year-end are unsecured and are to be settled in cash. There have been no guarantees provided or received for any related party receivables or payables.

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Group • The Group has outstanding Peso and US dollar-denominated short-term investments as well as

current and savings deposits, which bear interest based on prevailing market rates with Allied Banking Corporation (ABC), an affiliated company under common control. Total deposits and cash equivalents amounted to P=334.6 million and P=518.9 million as of December 31, 2010 and 2009, respectively.

In addition, the Company leases from ABC the office space it currently occupies. The lease agreement is for a period of two years up to October 2011, with an annual rental rate that is subject to review every year. Total rent expense amounted to P=2.2 million, P=2.4 million and P=2.6 million in 2010, 2009 and 2008, respectively.

• The Group has a trust fund for its retirement plan with ABC. As of December 31, 2010 and

2009, the fund assets amounted to P=25.8 million and P=15.9 million, respectively (see Note 20). MAPDC

• MAPDC has a contract with LTP covering the sub-lease of a parcel of land located within NAIA. The contract, which commenced on September 1, 2000, is for a period of 25 years and renewable for another 25 years thereafter, subject to mutual agreement of the parties. The rental charge, which is at normal market rate, is subject to a fixed price escalation and deposit. Monthly fee due from LTP is equivalent to MAPDC’s cost of leasing the land from MIAA, plus administrative fees (see Note 26). Rental and administrative income amounted to P=186.3 million, P=185.5 million and P=185.9 million in 2010, 2009 and 2008, respectively. The related accrued rent receivable of December 31, 2010 amounted to P=0.2 million (see Note 6). MAPDC received refundable rental deposit from LTP amounting to P=24.6 million (included as part of “Deposits and other noncurrent assets” account in the consolidated balance sheets), which is valued and reported at its present value of P=3.2 million and P=2.6 million as of December 31, 2010 and 2009, respectively. Accretion of interest amounted to P=0.4 million in 2010 and 2009 and P=0.3 million in 2008. The difference between the face amount and present value of the deposits at inception date amounting to P=19.1 million is treated and presented as unearned rent income in the consolidated balance sheets. This is being amortized on a straight-line basis over the term of the lease. The related amortization amounted to P=1.0 million in 2010, 2009 and 2008. As of December 31, 2010 and 2009, the unearned rent income amounted to P=14.1 million and P=15.1 million, respectively.

Further, as a result of the straight-line recognition of operating lease income, accrued rental

receivable amounted to P=116.5 million and P=111.0 million as of December 31, 2010 and 2009, respectively.

MASCORP

• MASCORP provides ground handling services to Air Philippines, Inc. (Air Phil.), an affiliated company under common control. Fees for these services amounted to P=47.0 million, P=19.8 million and P=39.1 million in 2010, 2009 and 2008, respectively. The related receivables as of December 31, 2010 and 2009 amounted to P=21.5 million and P=14.1 million, respectively (see Note 6).

• MASCORP leases ground support equipment from Philippine Airlines, Inc. (PAL), another

affiliated company under common control, with total rental cost amounting to P=2.0 million, P=1.7 million and P=2.2 million in 2010, 2009 and 2008, respectively. Outstanding balance as of December 31, 2010 and 2009 amounted to P=0.8 million and P=2.1 million, respectively (see Note 15).

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MACS • MACS has various advances from PAL aggregating to P=12.6 million and P=15.4 million as of

December 31, 2010 and 2009, respectively, relating to MACS’ operations in the passenger lounge at NAIA (see Note 15).

• MACS also leases airline catering equipment from PAL. Lease expense amounted to

P=0.6 million in 2010, 2009 and 2008.

Compensation of Key Management Personnel Benefits of the Company’s key management personnel, all short-term, amounted to P=52.5 million, P=47.5 million and P=20.3 million in 2010, 2009 and 2008, respectively.

17. Direct Costs Direct costs consist of:

2010 2009 2008 Food P=308,679,675 P=301,347,281 P=283,700,905 Leases (Note 26) 161,466,052 161,466,052 161,466,052 Salaries and wages 126,705,451 135,071,262 131,482,119 Overhead 48,826,304 40,505,538 44,824,906 Depreciation and amortization (Note 10) 47,454,354 33,706,504 44,258,374 Contractual services 31,634,475 40,184,147 41,299,824 Repairs and maintenance 16,212,663 14,636,992 10,653,006 Employee benefits (Note 20) 15,602,460 14,570,559 16,677,210 Insurance 12,704,808 15,450,462 14,485,564 Rent (Notes 16 and 26) 10,602,518 9,979,130 10,225,358 Supplies 9,863,703 9,240,816 13,850,371 Laundry 7,221,777 6,502,761 7,194,019 Storage and brokerage 5,097,100 4,218,888 7,086,289 Others (Note 26) 20,471,808 13,900,048 13,286,287 P=822,543,148 P=800,780,440 P=800,490,284

18. General and Administrative Expenses General and administrative expenses consist of:

2010 2009 2008 Salaries and wages P=85,656,979 P=76,807,381 P=79,197,489 Employee benefits (Note 20) 61,848,208 50,113,411 59,380,714 Mining exploration expenses (Note 30) 53,911,188 7,692,063 27,467,329 Depreciation and amortization (Note 10) 25,494,835 16,548,591 18,882,729 Repairs and maintenance 16,964,551 21,409,806 16,824,587 Provisions for impairment and probable losses (Notes 6, 8, 13 and 30)

15,378,992

24,977,972

26,833,925

Professional and legal fees 13,499,312 14,722,731 16,083,908 Rent (Notes 16 and 26) 10,712,866 9,922,390 9,979,381 Utilities 8,971,106 7,623,387 8,204,391 Security and janitorial 8,670,363 8,941,202 8,361,427 Management fee (Note 26) 6,986,366 6,984,000 –

(Forward)

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2010 2009 2008 Taxes and licenses (Note 11) P=6,459,338 P=8,552,506 P=8,890,971 Supplies 6,297,886 6,705,535 6,015,708 Transportation and travel 3,571,570 2,664,125 2,965,932 Directors’ fees 3,226,389 3,438,889 2,925,000 Entertainment, amusement and recreation 3,114,498 2,116,928 2,802,207 Others 28,162,742 16,866,163 26,703,765 P=358,927,189 P=286,087,080 P=321,519,463

19. Investment in Bonds

In 2010, the Company invested in foreign currency corporate bonds with total par value of US$3.0 million (or about P=138.3 million), which were designated as AFS investment. The Company disposed the investment in 2010 for a total gain of P=5.0 million, included under “Other income - net” account in the 2010 consolidated statement of income. Interest earned from these bonds amounted to P=3.1 million.

20. Retirement Benefits Costs The Group has a funded, non-contributory defined benefit group retirement plan, administered by

a trustee, covering all of their permanent employees. The following tables summarize the components of the net benefit expense recognized in the consolidated statements of income and the funded status and amounts recognized in the consolidated balance sheets based on the latest actuarial valuation made for the plan as of December 31, 2010.

The details of net benefits expense are as follows:

2010 2009 2008 Current service cost P=4,700,899 P=488,648 P=4,775,014 Interest cost on benefit obligation 3,116,532 4,056,268 2,105,049 Expected return on plan assets (795,147) (545,467) (162,217) Actuarial loss (gain) recognized for the year

49,415

(398,678)

184,952

Effect of asset limit – – 588,305 P=7,071,699 P=3,600,771 P=7,491,103

Portions recognized in: Direct costs P=2,796,571 P=823,716 P=2,700,532 General and administrative expenses

4,275,128

2,777,055

4,790,571

P=7,071,699 P=3,600,771 P=7,491,103 The details of the accrued retirement benefits payable are as follows:

2010 2009 Defined benefit obligation P=54,329,847 P=27,913,611 Fair value of plan assets (25,847,715) (15,902,941)

28,482,132 12,010,670 Unrecognized net actuarial losses (20,156,720) (1,344,671)

P=8,325,412 P=10,665,999

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The details of accrued retirement benefits payable by entity are as follows:

2010 2009 Company P=4,018,830 P=4,807,793 MACS 3,758,757 4,733,810 MASCORP 267,059 1,042,268 MAPDC 127,400 52,136 MAATS 153,366 29,992 P=8,325,412 P=10,665,999

Changes in present value of defined benefit obligation are as follows:

2010 2009 Defined benefit obligation, January 1 P=27,913,611 P=10,799,438 Current service cost 4,700,899 488,648 Interest cost 3,116,532 4,056,268 Actuarial loss on obligation 19,111,091 12,569,257 Benefits paid directly from the Group’s funds (512,286) – Defined benefit obligation, December 31 P=54,329,847 P=27,913,611

Changes in fair value of plan assets are as follows:

2010 2009 Fair value of plan assets, January 1 P=15,902,941 P=9,091,127 Expected return on plan assets 795,147 545,467 Contributions to the plan 8,900,000 6,000,000 Actuarial gain on plan assets 249,627 266,347 Fair value of plan assets, December 31 P=25,847,715 P=15,902,941 Actual return on plan assets P=1,044,774 P=811,814

The major categories of plan assets as a percentage of the fair value of total plan assets are as

follows:

2010 2009 Cash and cash equivalents 80.11 53.31 Investments in government securities 20.01 46.44 Receivables 0.11 0.85 Payables (0.23) (0.60) 100.00 100.00

The Group expects to contribute P=25.1 million in 2011. The overall expected return on the plan

assets is determined based on the market prices prevailing on that date applicable to the period over which the obligation is to be settled.

The principal assumptions used in determining retirement benefits for the Group’s plan as of

January 1 of each year are as follows:

2010 2009 2008 Average discount rate per annum 11.16% 37.56% 10.30% Average expected annual rate of return on plan assets

5%

6%

5%

Average future annual increase in salary 8% 8% 10%

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Average discount rate as of December 31, 2010 is 7.37% based on the interpolated government bond rates with terms consistent with the obligations of the plan. Number of employees covered by the actuarial valuation was 526, 463 and 425 in 2010, 2009 and 2008, respectively.

Amounts for the current and previous years are as follows:

2010 2009 2008 2007 2006 Defined benefit obligation P=54,329,846 P=27,913,611 P=10,799,438 P=20,437,363 P=20,979,160 Plan assets 25,847,715 15,902,941 9,091,127 3,244,365 830,875 Deficit 28,482,131 12,010,670 1,708,311 17,192,998 20,148,285 Experience adjustment on plan liabilities - (gain) loss

(3,955,064)

(4,188,929)

(239,581)

2,685,485

1,202,482

Experience adjustment on plan assets - gain (loss)

249,627

266,347

134,545

106,946

(38,960)

21. Foreign Currency-Denominated Monetary Assets and Liabilities The Group’s foreign currency-denominated monetary assets and liabilities as of December 31 are

as follows:

2010 2009 Peso Peso US Dollars Equivalent US Dollars Equivalent Assets Cash and cash equivalents $6,660,596 P=292,000,529 $12,185,194 P=562,955,963Receivables 3,191,651 139,921,980 3,201,069 147,889,388 9,852,247 431,922,509 15,386,263 710,845,351Liabilities Accounts payable and accrued liabilities $478,209 P=20,964,683 $511,110 P=23,613,282Net foreign currency-denominated monetary assets $9,374,038 P=410,957,826 $14,875,153 P=687,232,069

As of December 31, 2010 and 2009, the exchange rates of the Philippine peso to US dollar were

P=43.84 and P=46.20 to US$1, respectively. As of March 21, 2011, the exchange rate was P=43.55 to US$1.

22. Registrations with the Board of Investments (BOI) and the

Philippine Economic Zone Authority (PEZA)

a. On July 15, 2008, the Company registered with the BOI under the Omnibus Investment Code of 1987, as a producer of beneficiated nickel ore. Under this registration with the BOI, the Company is entitled to certain tax and non-tax incentives including income tax holiday (ITH) for a period of six years from January 2009 or actual start of commercial operations, whichever is earlier. As the mining operations have not yet started, no benefit from ITH was availed of in 2010. As of March 21, 2011, the Company has an ongoing request to the BOI fora revised timetable with regard to the start of its commercial operations.

b. On August 31, 2000, MAPDC was registered with the PEZA and started commercial

operations as the Ecozone Developer/Operator of the MacroAsia Special Ecozone at the Ninoy Aquino International (NAIA). At present, the MacroAsia Special Ecozone is the only existing ecozone within NAIA. Under the terms of its registration, MAPDC is subject to certain requirements and is entitled to certain tax benefits provided for under Republic Act No. (R.A.)

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7916 (The Special Economic Zone Act of 1995), as amended by R.A. No. 8748, which include, among others, exemption from payment of all national internal revenue taxes and all local government imposed fees, licenses or taxes. In lieu thereof, MAPDC shall pay a 5% final tax on gross income earned from its operation of the MacroAsia Special Ecozone.

23. Income Taxes

a. The current provision for income tax in 2010, 2009 and 2008 consists of the MCIT of the Company, the RCIT of MACS, MASCORP and MAATS, the 5% final tax on MAPDC’s gross income from its PEZA-registered activities (see Note 22) and final tax on interest income of the Group.

b. The Company’s and subsidiaries’ net deferred tax assets (liabilities) as of December 31 are as

follows:

2010 Company MACS MASCORP MAPDC MAATS Deferred tax assets on: Allowances for: Probable losses P=– P=7,769,744 P=– P=– P=– Doubtful accounts – 2,054,316 – – 377,286 Lease rental receivables – – – 5,825,276 – Accrued retirement benefits payable – 1,127,627 80,118 – 46,010 Unrealized foreign exchange losses – 541,835 – – 19,779 Unamortized past service cost – 51,067 10,400 – 105,834 – 11,544,589 90,518 5,825,276 548,909 Deferred tax liabilities on: Lease rental liabilities – – – (5,825,276) – Unrealized foreign exchange gain (592,916) – (221,321) – – Fair value change of AFS investment (115,000) – – – – (707,916) – (221,321) (5,825,276) – Net deferred tax assets (liabilities) (P=707,916) P=11,544,589 (P=130,803) P=– P=548,909

2009 Company MACS MASCORP MAPDC MAATS Deferred tax assets on: Allowances for: Probable losses P=– P=8,369,620 P=– P=– P=– Doubtful accounts – 1,334,316 – – 347,868 Lease rental receivables – – – 5,552,027 – Accrued retirement benefits payable – 1,420,143 312,680 – 8,998 Unrealized foreign exchange losses – – – – 36,766 Unamortized past service cost – 58,362 12,134 – 122,084 – 11,182,441 324,814 5,552,027 515,716 Deferred tax liabilities on: Lease rental liabilities – – – (5,552,027) – Unrealized foreign exchange gain – (551,853) (108,648) – – – (551,853) (108,648) (5,552,027) – Net deferred tax assets P=– P=10,630,588 P=216,166 P=– P=515,716

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c. As of December 31, the deductible temporary differences, excess MCIT and NOLCO for which no deferred income tax assets were recognized in the consolidated balance sheets are as follows:

2010 2009 2008 Deductible temporary differences on: Unrealized foreign exchange losses P=19,946,833 P=18,624,565 P=12,781,498 Incentive pay 28,277,503 19,080,000 19,591,291 Deferred revenue 6,431,099 8,038,874 8,508,493 Accrued retirement benefits payable 4,146,229 4,859,929 4,205,304 Impairment in value of investment property 17,260,303 17,260,303 25,200,000 Allowances for probable losses on: Input VAT 27,947,186 18,666,256 6,935,680 Unrecoverable creditable withholding taxes 1,747,707 1,747,707 – Deferred mine exploration costs 4,181,184 4,181,184 4,181,184 Doubtful accounts – – 3,255,264 NOLCO 259,510,735 220,045,174 184,814,422 Excess MCIT 3,318,112 2,647,809 2,001,516

No deferred tax assets were recognized on these temporary differences, MCIT and NOLCO as

management believes the Group may not have enough taxable regular income and capital gains against which these temporary differences, MCIT and NOLCO can be used.

d. As of December 31, 2010, the Company’s MCIT that can be credited against future RCIT due

is as follows:

Incurred in

Available for Credit Until

Year Ended December 31

Year Ending December 31

Amount

2010 2013 P=1,136,701 2009 2012 1,185,955 2008 2011 995,456 P=3,318,112

MCIT incurred by the Company in 2007 and 2006 amounting to P=466,398 and P=539,662

expired in 2010 and 2009, respectively. In 2009, MAATS applied MCIT of P=59,536 against its RCIT payable.

e. As of December 31, 2010, the following NOLCO of the Company, MAPDC, MMC and ASSC

are available for deduction from future taxable income as follows:

Incurred in Available Until Year Ended December 31


Available NOLCO

Tax Effect

Company 2010 2013 P=113,452,707 P=34,035,812 2009 2012 58,547,939 17,564,381 2008 2011 78,659,971 23,597,991 250,660,617 75,198,184 MAPDC 2009 2012 3,883,434 1,165,030 2008 2011 4,644,166 1,393,250 8,527,600 2,558,280 (Forward)

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Incurred in Available Until Year Ended December 31


Available NOLCO

Tax Effect

MMC 2010 2013 P=67,273 P=20,182 2009 2012 47,382 14,215 2008 2011 62,386 18,716 177,041 53,113 ASSC 2010 2013 83,739 25,122 2009 2012 30,069 9,021 2008 2011 31,669 9,500 145,477 43,643 P=259,510,735 P=77,853,220

In 2009, MAATS applied as deduction against taxable income its NOLCO incurred in 2008

amounting to P=956,335. f. A reconciliation of the provision for income tax computed based on income before income tax

at the statutory tax rates to the provision for income tax as shown in the consolidated statements of income is as follows:

2010 2009 2008 Provision for income tax computed at the statutory tax rates

P=128,129,800

P=101,760,985

P=106,132,655

Adjustments resulting from: Equity in net income of associates (149,602,443) (97,165,895)(127,172,547) Deductible temporary differences for which no deferred tax assets were recognized 41,551,289 26,185,263 39,248,871 Nondeductible expenses 4,414,719 1,269,450 1,313,527 Interest income already subjected to final tax at lower rates or not subject to income tax

(3,623,657)

(6,000,739)

(3,619,455)

Write-off of input VAT fully provided with allowance and with recognized deferred income tax asset 1,679,876 – – Deductible temporary differences for which no deferred tax assets were recognized in prior years but were used or for which deferred tax assets were recognized in current year

(482,333)

(139,794)

(4,814,045) Others (1,041,926) (2,580,362) 2,577,104 Provision for income tax P=21,025,325 P=23,328,908 P=13,666,110

g. R.A. No. 9337 or the new Expanded-Value Added Tax law (E-VAT Act of 2005) which

became effective on November 1, 2005, provides for, among others, (1) change in corporate income tax rate from 32% to 35% for the next three years effective on November 1, 2005, and 30% starting on January 1, 2009 and thereafter, and (2) the unallowable deduction for interest expense of 42% of interest income subject to final tax up to December 31, 2008 and 33% effective January 1, 2009.

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24. Basic/Diluted Earnings Per Share Basic/diluted earnings per share are computed as follows:

2010 2009 2008 Net income attributable to equity holders of the Company

P=401,125,970

P=307,760,417

P=288,193,110

Divided by weighted average number of common shares outstanding 1,242,420,079 1,250,000,000 1,250,000,000 P=0.3229 P=0.2462 P=0.2306

25. Retained Earnings and Treasury Shares

a. The undistributed earnings of subsidiaries and associates amounting to P=702.6 million and P=506.3 million as of December 31, 2010 and 2009, which are included as part of retained earnings, are not available for declaration as dividends until declared by such subsidiaries and associates.

b. Cash dividends declared by the Company from the retained earnings are as follows:

Date Approved Per share Stockholder of Record Date Date Paid/Issued March 30, 2010 P=0.065 April 23, 2010 May 19, 2010 April 1, 2009 0.060 April 24, 2009 May 19, 2009 April 2, 2008 0.050 April 24, 2008 May 19, 2008

c. On July 16, 2010, the BOD approved the Share Buyback Program (the Program) involving a

total cash outlay of P=50.0 million for the repurchase of the outstanding common shares of the Company from the open market, using the trading facilities of the Philippine Stock Exchange (PSE). The Program will not involve any active or widespread solicitation for stockholders to sell. Repurchase of shares of stock will be done during the period of the Program at such prices perceived by the Company to be lower than the inherent value of the share. The Program will run until the P=50.0 million authorized cash outlay is fully utilized or until such time that the BOD may direct, subject to appropriate disclosures to the PSE and the SEC. As of December 31, 2010, the Company has reacquired 2,985,000 shares for P=8.8 million. The retained earnings are also restricted for dividend declaration for the portion equivalent to the cost of the treasury shares.

d. On March 21, 2011, the BOD approved the declaration of cash dividends amounting to P=0.065 per share, payable to shareholders of record as of April 25, 2011, on or before May 19, 2011.

26. Significant Agreements and Commitments a. Concession Agreements i. MACS has a concession agreement with Manila International Airport Authority (MIAA) to

exclusively operate an in-flight catering service for civil and/or military aircraft operating at NAIA and/or MDA. The concession agreement is for a period of five years from the start of operations of the catering services, renewable every year thereafter upon mutual agreement of the parties. In consideration of the concession privilege, MACS pays MIAA a monthly concessionaires privilege fee equivalent to 7% of MACS’s monthly gross

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*SGVMC311260*

income on catering services. MACS also assigned a treasury note placement amounting to P=5.0 million, included under “Deposits and other noncurrent assets” account in the consolidated balance sheets, to MIAA in compliance with the concession agreement.

Total fees paid in relation to this concession agreement amounted to P=52.8 million, P=52.4 million and P=48.4 million in 2010, 2009 and 2008, respectively. Outstanding payable as of December 31, 2010 and 2009 to P=3.2 million and P=1.0 million, respectively (included under “Account payable and accrued liabilities”) (see Note 15).

ii. MASCORP entered into a concession agreement with MIAA to operate domestic and

international ground handling services at Terminals 1 and 2 for a period of one year, subject to renewal at the sole option of MIAA. In consideration of the concession privilege, MASCORP pays MIAA a monthly concession privilege fee in the amount equivalent to 7% of MASCORP’s monthly gross income on domestic and international ground handling services.

Total concessionaire privilege fee paid for by MASCORP amounted to P=14.7 million, P=14.7 million and P=14.0 million in 2010, 2009 and 2008, respectively. Related payable outstanding amounted to P=1.6 million and P=0.9 million as of December 31, 2010 and 2009, respectively (included under “Accounts payable and accrued liabilities”) (see Note 15).

b. Lease Agreements

i. In 1996, the Company assigned all its rights and obligations to MACS under the lease

agreement it entered in the same year with MIAA for the use of a parcel of land where the catering concession facilities are located. The lease contract is for a period of 10 years from the start of the construction of the facilities, renewable every five years under such terms and conditions as may be agreed upon by both parties. Minimum annual rental payment amounts to P=8.5 million. Upon expiration of the lease agreement, both parties mutually agreed to continue the lease on a renewable short-term basis using the terms in effect during the last year that the original lease agreement was in force.

In 2004, the Supreme Court (SC) issued a decision declaring current rental charges of MIAA at P=35.55 per square meter as null and void. At present, the Company settles the lease charges using the contested rate notwithstanding the SC’s ruling on the validity of such rate.

The current lease contract between MACS and MIAA expired in July 2008. One of the provisions of the lease agreement is that MACS will transfer to MIAA all permanent improvements which MACS might have constructed in the leased premises upon the expiration of the original lease or upon cancellation of the lease agreement. In 2010, MACS received an offer from MIAA to renew the lease for five years. As of March 21, 2011, the lease agreement has not been renewed as MACS is still evaluating the offer and considering the options. Management continues to have discussions with the necessary parties to ensure renewal of the lease at reasonable rates. Meanwhile, MIAA continues to bill and MACS continues to pay using the current rate.

Lease expense relating to this lease agreement amounted to P=9.9 million in 2010, 2009 and 2008.

ii. On August 7, 2000, MAPDC entered into a lease contract with MIAA covering the use of

a parcel of land for 25 years of 23 hectares of land within NAIA. Significant terms and conditions of the contract are as follows:

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*SGVMC311260*

1. MAPDC is allowed to sub-lease the leased property to an affiliate. Since the leased property is declared as an economic zone, the sublease is preferably extended by MAPDC to an entity which is also PEZA-registered.

2. MAPDC and/or its sub-lessee intends to invest US$200 million over the next five

years by introducing additional capabilities and enhancing the competitiveness in terms of productivity, quality, turnover time and customer orientation.

3. The monthly rental fee shall be P=53.34 per square meter, or a total of P=12.1 million,

with guaranty deposit of two months advance rental. The rental and other charges shall be subject to a fixed price escalation of 5% starting on the sixth year and by another 5% on years 11, 16 and 21. The escalation shall be on a compounded basis.

4. The contract may be terminated and cancelled at the instance of MAPDC if:

a. MAPDC, its sub-lessee or any of its successors-in-interest, cease to operate their

business; and or

b. MIAA or the government decides to transfer the airport to another location, making it impossible for MAPDC to conduct its business.

Future minimum rentals payable as of December 31, 2010 under MAPDC’s operating

lease agreement with MIAA are as follows:

Amount Within one year P=160,131,238 After one year but not more than five years 811,331,605 After more than five years 1,499,228,715

The rental deposit made to MIAA amounting to P=24.6 million is reported at amortized

cost in the consolidated balance sheets. The difference between the face amount of the refundable deposit and its present value at the inception of the lease, amounting to P=19.1 million, is treated as a deferred rent expense and is being amortized over the lease term. Related amortization amounted to P=1.0 million in 2010, 2009 and 2008. As of December 31, 2010 and 2009, deferred rent expense amounted to P=14.1 million and P=15.1 million, respectively.

Further, as a result of the straight-line recognition of operating lease expense, accrued

rental payable amounted to P=116.5 million and P=111.0 million as of December 31, 2010 and 2009, respectively.

Lease expense amounted to P=161.5 million in 2010, 2009 and 2008.

iii. MASCORP has a lease agreement with MIAA for the lease of office space and staging

area in the following locations:

1. Terminal 1 for a period of one year, with a monthly rental of P=0.3 million and renewable at the sole option of MIAA.

2. Terminal 2 for a period of two years from May 16, 2006 up to May 15, 2008, with a

monthly rental of P=0.1 million.

One of the provisions of the lease agreement is that MASCORP will transfer to MIAA all permanent improvements which MASCORP might have constructed in the lease

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*SGVMC311260*

premises upon the expiration of the original lease or upon cancellation of the lease agreement due to breach or violation of the terms and conditions of MIAA, or termination without renewal or extension of the terms of the lease, automatically become the absolute property of MIAA and MASCORP shall have no right of reimbursement of the cost.

On August 10, 2009, the Company paid surety cash deposit to MIAA amounting to P=2.0 million as requirement for the renewal of the lease agreement. For 2010, MASCORP also received an offer from MIAA for the renewal of the lease for five years. As negotiation with MIAA is handled at the Group level, the offer has also not been accepted by MASCORP. Meanwhile, MIAA continues to bill and MASCORP continues to pay the rental fee based on current rates.

3. Terminal 3 for an indefinite period, with a monthly rental of P=0.1 million, which

MASCORP accrues since July 24, 2008. Currently, management is in discussions with necessary parties to formalize the lease agreement.

iv. In 2010, the Company entered into three lease agreements with third party lessors

covering the use of parcels of land for 35 years in Palawan. The leased properties will be used by the Company as drying area and/or stockpile of its mine products and other related purposes (see Note 30). The Company prepaid the rental charges up to 18 to 22 years totaling P=7.1 million (included under “Other current and noncurrent assets).” Rental expense charged to operations amounted to P=0.1 million in 2010.

The future minimum lease payments payable beyond five years, excluding the paid

portion, as of December 31, 2010 amount to P=7.2 million. c. Management fee

In 2007, MACS BOD passed a resolution whereby MACS shall pay management fee to the Company and SATS provided that MACS’ profit before tax, after calculating the management fee, is not less than the amount of management fee. The fee shall be equivalent to 5% of quarterly net sales, which shall be divided according to the equity ratio between the Company and SATS of 80% and 20% share, respectively. Total management fee recognized by MACS amounted to P=34.9 million in 2010 and 2009. SATS’ corresponding share amounted to P=7.0 million in both years. Outstanding payable to SATS amounted to P=7.0 million as of December 31, 2010 and 2009 (see Note 15). In 2008, MACS did not qualify for imposition of management fee.

27. Capital Management The primary objective of the Group’s capital management is to ensure that it maintains a strong credit and healthy capital ratios in order to support its business and maximize shareholder value. The Group manages its capital structure and makes adjustment to it, in light of changes in economic conditions. To maintain or adjust capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders repurchase or issue new shares. No changes were made in the objectives, policies or processes for each of the three years in the period ended December 31, 2010. The Group monitors capital vis-à-vis after-tax profit. The Group’s policy is to achieve a return on equity ratio of 10% or more. Equity considered by the Group is total equity in the consolidated

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balance sheets, excluding items arising from other comprehensive income. The return on equity ratio is after tax profit divided by total capital.

The following table summarizes the total capital considered by the Group:

2010 2009 Capital stock P=1,250,000,000 P=1,250,000,000 Additional paid-in-capital 281,437,118 281,437,118 Treasury shares (8,784,050) – Retained earnings 1,665,167,346 1,345,291,376 P=3,187,820,414 P=2,876,728,494

Net income P=406,074,010 P=315,874,374

Return on equity 12.74% 10.98% 28. Financial Risk Management Objectives and Policies

Risk Management Structure Audit Committee

The Committee performs oversight role on financial management functions especially in the areas of managing credit, market, liquidity, operational, legal and other risks of the Group.

BOD The BOD is responsible for the overall risk management approach and for approval of risk strategies and principles of the Group.

Financial Risk Management

The Group’s principal financial instruments comprise cash and cash equivalents and some external liabilities which were availed of primarily to fund operations. The Group has other financial assets and financial liabilities such as trade receivables and payables which arise directly from operations.

The main risks, arising from the Group’s financial instruments are foreign currency risk, credit

risk, interest rate risk and liquidity risk. The BOD reviews and approves policies for managing these risks and they are summarized as follows:

Foreign currency risk The Group’s transactional currency exposure arises from sales in currencies other than its

functional currency and retaining its cash substantially in currency other than its functional currency. Approximately 97% of MACS and 73% of MASCORP’ sales are denominated in US dollar. Starting in 2009, the Company and MACS enter into forward contracts to mitigate this risk. On the other hand, MASCORP does not enter into forward contracts to mitigate this risk as most of the receivables are current. However, MASCORP closely monitors the foreign exchange rates fluctuations and regularly assesses the impact of future foreign exchange movements on its operations. Foreign currency monetary assets and liabilities are disclosed in Note 21.

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The following table demonstrates the impact on the Group’s income before income tax and equity of reasonably possible changes in the US dollar, with all other variables held constant (amounts in million):

Net Effect on

Movement in US Dollar Income before

Income Tax 2010 Increase of 5% P=21.9

Decrease of 5% (21.9) 2009 Increase of 5% 36.1

Decrease of 5% (36.1) 2008 Increase of 5% 27.2

Decrease of 5% (27.2) The Group reported net foreign exchange losses of P=16.7 million and P=21.7 million in 2010 and

2009, respectively, and net foreign exchange gains of P=47.2 million in 2008. Credit and concentration risk

Credit risk is the risk that the Group will incur a loss because its customers or counterparties failed to discharge their contractual obligations. The Group manages and controls credit risk by setting limits on the amount of risk it is willing to accept for individual counterparties and by monitoring exposures in relation to such limits.

The Group trades only with related parties and duly evaluated and approved creditworthy third

parties. It is the Group’s policy that all customers and counterparties that wish to trade with the Group, particularly on credit terms, are subjected to credit verification procedures. In addition, receivable balances are monitored on a continuous basis with the result that the Group’s exposure to bad debts is not significant.

With respect to credit risk arising from other financial assets of the Group, the Group’s exposure

to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying values of these instruments. The Group only deals with financial institutions that have been approved by the BOD of the Company and those of its subsidiaries.

Maximum exposure to credit risk without taking account of any

collateral and other credit enhancements The table below shows the maximum exposure to credit risk of the financial assets of the Group.

2010 2009 Loans and receivables Cash in bank and cash equivalents P=790,963,772 P=667,026,323 Receivables: Trade 186,548,581 192,627,681 Advances to offices and employees 5,569,959 5,988,891 Accrued interest and others* 12,121,166 7,243,670 Deposits 16,961,322 16,188,357 Derivative assets 1,976,388 2,242,327 Total credit risk exposure P=1,014,141,188 P=891,317,249 * Exclusive of nonfinancial assets of P=86,397 as of December 31,2009

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Credit quality per class of financial assets The credit quality of financial assets is managed by the Group using internal credit ratings. The

table below shows the credit quality by class of asset for loan-related balance sheet lines, based on the Group credit rating system.

The table below shows the credit quality of the Group’s financial assets and an aging analysis of

past due but not impaired receivables. December 31, 2010

Neither past due nor impaired Past due or High

Grade Standard

Grade Sub-standard

Grade individually

impaired

Total Loan and receivable: Cash in bank and cash equivalents

P=790,963,772

P=–

P=–

P=–

P=790,963,772

Receivables: Trade 85,314,305 3,921,996 6,880,830 98,536,791 194,653,922 Advances to officers and employees

1,591,439

–

–

3,978,520

5,569,959

Accrued interest and others

462,914

3,528,740

1,160,011

6,969,501

12,121,166

Deposits 16,961,322 – – – 16,961,322 Derivative assets 1,976,388 – – – 1,976,388 P=897,270,140 P=7,450,736 P=8,040,841 P=109,484,812 P=1,022,246,529

December 31, 2009

Neither past due nor impaired Past due or High

Grade Standard

Grade Sub-standard

Grade individually

impaired

Total Loan and receivable: Cash in bank and cash equivalents

P=667,026,323

P=–

P=–

P=–

P=667,026,323

Receivables: Trade 85,244,403 1,313,721 4,134,956 107,541,880 198,234,960 Advances to officers and employees

2,471,215

–

–

3,517,676

5,988,891

Accrued interest and others

2,573,609

–

–

4,670,061

7,243,670

Deposits 16,188,357 – – – 16,188,357 Derivative assets 2,242,327 – – – 2,242,327 P=775,746,234 P=1,313,721 P=4,134,956 P=115,729,617 P=896,924,528

The Group’s financial assets are categorized based on the Group’s collection experience with affiliates and third parties. a. High Grade - settlements are obtained from counterparty following the terms given to the

counterparty. b. Standard Grade - some reminder follow-ups are performed to obtain settlement from the

counterparty. c. Sub-standard Grade - constant reminder follow-ups are performed to collect accounts from

counterparty. d. Impaired - difficult to collect with some uncertainty as to collectability of the accounts.

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*SGVMC311260*

The aging analysis of receivables as of December 31, 2010 and 2009 are as follows:

Neither Past Due

nor Impaired

Past Due but not Impaired

Less than 30 days 31 to 60 days 61 to 90 daysMore than 90

days Impaired Total 2010 P=102,860,235 P=13,506,218 P=38,016,527 P=9,487,193 P=40,369,533 P=8,105,341 P=212,345,047 2009 95,737,904 4,935,455 51,012,708 24,252,433 29,921,742 5,607,279 211,467,521

Impairment assessment The main considerations for impairment assessment include whether any payments are overdue or

if there are any known difficulties in the cash flows of the counterparties. In view of the limited counterparties of the Group, the Group assesses impairment on an individual account basis.

Items considered when determining allowance amounts include the sustainability of the counterparty’s business plan, its ability to improve performance once a financial difficulty has arisen, projected receipts and the expected dividend payout should bankruptcy ensue, the availability of other financial support and the realizable value of collateral, and the timing of the expected cash flows. The impairment losses are evaluated at each reporting date, unless unforeseen circumstances require more careful attention even at interim.

Interest rate risk The Group’s exposure to the risk for changes in market interest rates relates primarily to the

Group’s notes payable with floating interest rates. The Group has a practice of keeping its interest-bearing liabilities to third parties within a threshold that can be serviced through operating cash flows. Management closely monitors the behavior of interest rates to ensure that cash flow interest rate risk is kept within management’s tolerable level. Finally, interest-bearing liabilities are ordinarily incurred on a short-term basis only. In 2009, MACS and MASCORP were able to settle their respective notes payable to local banks.

The following table sets forth the estimated change in the Group’s income before income tax

(through the impact on the variable rate borrowings) due to parallel changes in the interest rate curve in terms of basis points (bp) as of December 31, 2008, with all other variables held constant. There is no other impact on the Group’s equity other than those already affecting the consolidated statements of income.

Effect on Income

before Income Tax 100 bp rise (P=440,412) 100 bp fall 440,412 50 bp rise (220,206) 50 bp fall 220,206

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its payment obligations when they fall due under normal and stress circumstances. The Group’s obligations comprise mainly of notes payable, accounts payable and accrued liabilities, dividends payable and rental deposit aggregating to P=192,877,465 and P=201,913,847 as of December 31, 2010 and 2009, respectively. To limit this risk, management manages assets with liquidity in mind, and monitors future cash flows and liquidity on a daily basis. This incorporates an assessment of expected cash flows which could be used to secure additional funding if required. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of operating cash flows, advances from related parties and short-term bank loans.

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The table below summarizes the maturity profile of the Group’s financial liabilities based on contractual and undiscounted repayment obligations. Repayments which are subject to notice are treated as if notice were to be given immediately. The table also analyses the maturity profile of the Group’s financial assets in order to provide complete view of the Group’s contractual commitments and liquidity.

Financial liabilities

The maturity grouping is based on the remaining period from the end of the reporting period to the contractual maturity date.

Financial assets The maturity grouping is based on the remaining period from the end of the reporting period to the

contractual maturity date or if earlier, the expected dates the assets will be realized. December 31, 2010

<1 year >1-2 years >2-3 years >3-4 years >4-5 years >5 years Total Loans and receivables: Cash and cash equivalents P=791,590,193 P=– P=– P=– P=– P=– P=791,590,193 Receivables: Trade 194,653,922 – – – – – 194,653,922 Advances to officers and

employees 5,569,959

–

–

–

–

– 5,569,959 Accrued interest and

others 12,121,166

–

–

–

–

–

12,121,166 Deposits – 12,000 – – – 27,044,552 27,056,552 1,003,935,240 12,000 – – – 27,044,552 1,030,991,792 Other financial liabilities: Accounts payable and

accrued liabilities* 174,779,806

–

–

–

– – 174,779,806 Dividends payable 7,975,690 – – – – – 7,975,690 Deposit – – – – – 24,588,996 24,588,996 182,755,496 – – – – 24,588,996 207,344,492 Liquidity position P=821,179,744 P=12,000 P=– P=– P=– P=2,455,556 P=823,647,300

* Exclusive of nonfinancial liabilities of P=15,552,839. December 31, 2009

<1 year >1-2 years >2-3 years >3-4 years >4-5 years >5 years Total Loans and receivables: Cash and cash equivalents P=667,896,943 P=– P=– P=– P=– P=– P=667,896,943 Receivables: Trade 192,627,681 – – – – – 192,627,681 Advances to officers

and employees 5,988,891

–

–

–

– – 5,988,891 Accrued interest and

others* 7,243,670

–

–

–

– – 7,243,670 Deposits – – – – – 27,045,492 27,045,492 873,757,185 – – – – 27,045,492 900,802,677 Other financial liabilities: Accounts payable and

accrued liabilities** 191,483,872

–

–

–

– – 191,483,872 Dividends payable 7,813,383 – – – – – 7,813,383 Deposit – – – – – 24,588,996 24,588,996 199,297,255 – – – – 24,588,996 223,886,251 Liquidity position P=674,459,930 P=– P=– P=– P=– P=2,456,496 P=676,916,426

* Exclusive of nonfinancial assets of P=86,397. **Exclusive of nonfinancial liabilities of P=16,346,459.

29. Fair Value of Financial Instruments

The following is a comparison by category of carrying amounts and fair values of the Group’s financial instruments that are reflected in the consolidated financial statements as of December 31:

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*SGVMC311260*

2010 2009

Carrying

amount Fair value Carrying

amount Fair value Financial Assets Loans and receivables: Cash and cash equivalents P=790,963,772 P=790,963,772 P=667,026,323 P=667,026,323 Receivables: Trade 186,548,581 186,548,581 192,627,681 192,627,681 Advances to officers and employees 5,569,959 5,569,959 5,988,891 5,988,891 Accrued interest and others* 12,121,166 12,121,166 7,243,670 7,243,670 Deposits 16,961,322 17,949,390 16,188,357 16,410,220 1,012,164,800 1,013,152,868 889,074,922 889,296,785 Available-for-sale investments 27,055,800

27,055,800 23,555,800 23,555,800

FVPL: Derivative assets 1,976,388 1,976,388 2,242,327 2,242,327 P=1,041,196,988 P=1,042,185,056 P=914,873,049 P=915,094,912 *Exclusive of nonfinancial assets of P=86,397 as of December 31, 2009

2010 2009

Carrying

amount Fair value Carrying

amount Fair value Financial Liabilities Other financial liabilities: Accounts payable and accrued liabilities* P=174,779,806 P=174,779,806 P=191,483,872 P=191,483,872 Dividends payable 7,975,690 7,975,690 7,813,383 7,813,383 Deposits 3,016,575 4,004,643 2,616,593 2,838,456 P=185,772,071 P=186,760,139 P=201,913,848 P=202,135,711 *Exclusive of nonfinancial liabilities of P=15,552,839 and P=16,346,459 as of December 31, 2010 and 2009,

respectively. The carrying amounts of the Group’s financial assets and financial liabilities shown in the above

table approximate their fair values because of their short-term nature, except for AFS investments where the fair value is based on quoted market prices, rental deposits where the fair value is determined by discounting the future cash flows using the current market rates as of balance sheet date, and derivative assets where fair value is calculated by reference to current exchange rates for contracts with similar maturity and risk profiles as of December 31, 2010.

Fair Value Hierarchy

The Group uses the following hierarchy for determining and disclosing the fair values of financial instruments by valuation technique: • Level 1: Quoted prices in active markets for identical assets or liabilities; • Level 2: Those involving inputs other than quoted prices included in Level 1 that are

observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and,

• Level 3: Those with inputs for the asset or liability that are not based on observable market data (unobservable inputs).

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*SGVMC311260*

2010 Level 1 Level 2 Financial Assets: Available-for-sale investments P=27,055,800 P=27,055,800 P=– Derivative assets 1,976,388 – 1,976,388 P=29,032,188 P=27,055,800 P=1,976,388

2009 Level 1 Level 2 Financial Assets: Available-for-sale investments P=23,555,800 P=23,555,800 P=– Derivative assets 2,242,327 – 2,242,327 P=25,798,127 P=23,555,800 P=2,242,327

The Group does not have transfers of financial instruments from Level 1 to Level 2 and Level 2 to

Level 3. Derivative Financial Instruments Starting in 2009, the Company and MACS, entered into currency forwards to manage its foreign

currency risk arising from its US$ receivables. As of December 31, 2010 and 2009, outstanding buy Peso and sell Dollar forward non-deliverable exchange contracts with a local bank pertains to the Company’s and MACS’ contracts, respectively. These outstanding forward contracts have an aggregate notional amount of $0.6 million $1.2 million as December 31, 2010 and 2009, with remaining maturities ranging from less than one month up to four months. The weighted average forward rate of the outstanding forward exchange contracts is P=43.84 and P=48.44 to US$1 as of December 31, 2010 and 2009, respectively. The unrealized mark to market gains on the outstanding forward contracts amounted to P=2.0 million and P=2.2 million as of the same dates.

Fair Value Changes in Derivatives

The net movements in fair value of the Group’s derivative instruments in 2010 and 2009 are as follows:

2010 2009 Balances at beginning of year P=2,242,327 P=– Net fair value changes during the year 18,546,987 7,158,697 Net fair value of settled transactions (18,812,926) (4,916,370) Balances at end of year P=1,976,388 P=2,242,327

The net fair value changes of the derivatives are included under “Foreign exchange gain (loss) - net” in the consolidated statements of income.

30. Deferred Mine Exploration Costs and Status of Mining Projects a. Deferred mine exploration costs pertain to costs incurred by the Company in the exploration of

its mining property located in Brooke’s Point, Palawan, the Infanta Nickel Project (the Project). The movement of this account follows:

2010 2009 Beginning balance P=170,794,317 P=94,373,876 Additions 45,266,201 76,420,441 Ending balance P=216,060,518 P=170,794,317

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*SGVMC311260*

Additions to deferred mine exploration costs primarily pertain to drilling, assay analysis, geological survey and site management expenditures.

Administrative expenses related to the mining exploration activities are expensed as incurred

and presented as “Mining exploration expenses” under “General and Administrative Expenses” account in the consolidated statements of income. These amounted to P=53.9 million, P=7.7 million and P=27.5 million in 2010, 2009 and 2008, respectively.

The recovery of deferred mine exploration costs depends upon the success of exploration

activities and future development of the mining properties, as well as the discovery of recoverable reserves in quantities that can be commercially produced. In 2008, the Company recognized impairment loss amounting to P=4.2 million considering the current market condition at that time (nil in 2010 and 2009).

In 2010, the exploration efforts of the Company resulted in the delineation of 10.8 million dry

metric ton of measured mineral resource with average grade of 1.30% nickel (Ni) and 31.28% Fe at 1% NI cut-off. The reserves calculation was validated by the Mines and Geosciences Bureau (MGB) to be acceptable. MGB’s independent calculation revealed a measured mineral resource of 12.8 million dry metric ton with averages grade of 1.29% Ni and 32.20% Fe at 1.0% Ni cut off.

b. On September 13, 2010, the Company received the environmental compliance certificate

(ECC) for operations of the Project. The ECC was granted by the Department of Environment and Natural Resources (DENR), after a thorough project review and a series of consultations were conducted principally under the supervision of the Environmental Management Bureau.

The Project is the Company’s tenement under a Mineral Production Sharing Agreement

(MPSA) with the government. This MPSA is a consolidation of the Company’s eight mining lease contracts with the Government that were granted under Commonwealth Act No. 137 and P.D. 463. In the 1970’s, the Company operated the mine as an export producer of beneficiated nickel laterite. As such, it had sales and purchase agreements with Sumitomo Metal Mining Co., Ltd. of Japan, and thus, had made shipments of nickel ore to Japan in the 1970’s until very low nickel prices forced the operations to be suspended. The Project today has an existing road network within the tenement, and an available stockpile of nickel ore in the area previously mined.

The MPSA runs for a term not exceeding 25 years from the date of the grant of the MPSA,

and is renewable for another term not exceeding 25 years under the same terms and conditions, without prejudice to changes that will be mutually agreed upon by the DENR and the Company.

In 2008, the Supreme Court has ruled with finality that the Company has vested and legal

rights to its MPSA; and with this grant of ECC for operations from the DENR, the Company has secured a major permit to bring back the mine to operations at the earliest time possible. Currently, it is working on the Declaration of Mining Feasibility for the project, and has ongoing discussions with potential partners for the development of the project to the best interest of the various project stakeholders.


106

Name of Issuing Entity and PrincipalAssociation of Each Issue Currency Amount

ALLIED BANKING CORPORATION USD 1,059,360 P 47,727,581 P 1,282,172 PHP 2,207,328 2,262,277 52,161 CNY 19,739,059 130,462,758 109,962

UNION BANK OF THE PHILIPPINES USD 225,278 10,028,415 151,140 PHP 61,799,420 56,723,505 1,236,796

PHILIPPINE BANK OF COMMUNICATIONS USD 117,451 5,384,397 102,657 PHP 16,331,403 9,464,906 335,922

BDO PRIVATE BANK USD 3,439,768 151,984,032 1,184,606 PHP 89,795,567 92,581,872 2,786,305

Total P 506,619,743 P 7,241,721

Balance Sheet During the Year( In Php) (In Php)

MACROASIA CORPORATION AND SUBSIDIARIESSchedule A ‐ Marketable Securities ‐ (Current Marketable Equity Securities and Other Short‐term Cash Investments)

For the Year Ended December 31, 2010

IncomeAmount Received

Shown in the and Accrued


106

Name of Issuing Entity and PrincipalAssociation of Each Issue Currency Amount

ALLIED BANKING CORPORATION USD 1,059,360 P

47,727,581 P 1,282,172 PHP 2,207,328 2,262,277 52,161 CNY 19,739,059 130,462,758 109,962

UNION BANK OF THE PHILIPPINES USD 225,278 10,028,415 151,140 PHP 61,799,420 56,723,505 1,236,796

PHILIPPINE BANK OF COMMUNICATIONS USD 117,451 5,384,397 102,657 PHP 16,331,403 9,464,906 335,922

BDO PRIVATE BANK USD 3,439,768 151,984,032 1,184,606 PHP 89,795,567 92,581,872 2,786,305

Total P 506,619,743 P 7,241,721

Balance Sheet During the Year( In Php) (In Php)

MACROASIA CORPORATION AND SUBSIDIARIESSchedule A ‐ Marketable Securities ‐ (Current Marketable Equity Securities and Other Short‐term Cash Investments)


IncomeAmount Received

Shown in the and Accrued


107

Amounts AmountsName and Designation of Debtor Additions Collected Written‐off

Rank and file employees P 4,737,709 28,828,804 (28,900,187) P 4,666,326 Reynaldo O. Munsayac, VP ‐ Finance & Administration 120,427 475,319 (481,405) 114,340 Marivic T. Moya, VP ‐ HR,Legal & External Relations 131,361 534,420 (465,781) 200,000 Officers of subsidiaries ‐ Unnamed 999,393 920,656 (1,330,757) 589,292

Total P 5,988,891 30,759,199 (31,178,131) ‐ P 5,569,959

Deductions

Balance at Balance at

MACROASIA CORPORATION AND SUBSIDIARIESSchedule B ‐ Amounts Receivable from Directors, Officers, Employees, etc.


Beginning of End of Period Period


108

Additions

Number of Equity in Number ofName of Issuing Entity and Shares or Earnings/ Shares orDescription of Investment Principal (Losses) Distribution of Principal

Amount of Percent of Investees Earnings by Percent Amount of Amount Bonds & Notes Owned for the Year Investees Others Owned Bonds & Notes in Pesos

Interest in Joint VentureLufthansa Technik Philippines, Inc. 833,000,000 49% P 1,272,354,008 488,567,380 (327,438,580) (90,349,721) 49% 833,000,000 1,343,133,087

Investment in Associate Cebu Pacific Catering Services, Inc. 15,000,000 40% P 18,883,761 10,107,431 (8,000,000) ‐ 40% 8,000,000 20,991,192

Toll‐MacroAsia Philippines, Inc. 172,774 49% ‐ ‐ ‐ 49% 98,000 ‐ 848,172,774 1,291,237,769 498,674,811 (335,438,580) (90,349,721) 841,098,000 1,364,124,279

Available‐for‐sale InvestmentManila Golf & Country Club 1 23,000,000 3,500,000 1 26,500,000 Tower Club 1 500,000 1 500,000 PLDT 55,800 55,800

2 23,555,800 2 27,055,800

Total 848,172,776 P 1,314,793,569 498,674,811 (335,438,580) (90,349,721) 841,098,002 1,391,180,079

Note:(1) Deduction under "Others" represent the "Net Foreign Currency Translation Adjustments for the Year" and changes in fair value of AFS investments

Amountin Pesos

MACROASIA CORPORATION AND SUBSIDIARIESSchedule C ‐ Non‐Current Marketable Equity Securities, Other Long Term Investments and Other Investments


Beginning Balance Ending BalanceDeductions


109

OtherCharged to Charged to Changes

Additions Cost and Other AdditionsDescription at Cost Expenses Accounts (Deductions)

Software License Cost 3,742,527 198,260 (348,468) - (3,265,367) 326,952

Total P 3,742,527 198,260 (348,468) - (3,265,367) P 326,952

Deduction

MACROASIA CORPORATION AND SUBSIDIARIESSchedule E - Intangible Assets


Ending Balance

Beginning Balance


110

Number ofNumber of Shares Reserved

Number of Number of Shares for Options, Directors,Title of Issue Shares Shares Issued Outstanding* Warrants, Related Officers and Others

Authorized Conversions, and Parties EmployeesOther Rights

Common Stock 2,000,000,000 1,250,000,000 1,247,015,000 ‐ 858,363,250 61,900,048 326,751,702

Total 2,000,000,000 1,250,000,000 1,247,015,000 ‐ 858,363,250 61,900,048 326,751,702

* Note: The Company has reacquired 2,985,000 shares for P8,784,050 under the Share Buyback Program approved by the Board on July 16, 2010.

Number of Shares Held By

MACROASIA CORPORATION AND SUBSIDIARIESSchedule I ‐ Capital Stock



111


112

MacroAsia Corporation12th Floor Allied Bank Center, 6754 Ayala Avenue, Makati City

Retained Earnings Available for Dividend Declaration

Unappropriated Retained Earnings, as adjusted to available for dividend distribution, beginning 778,498,898.00

Add: Net Income actually earned/realized during the period

Net income during the period closed to Retained Earnings 204,668,937.00 Less: Unrealized foreign exchange gains 1,976,387.89

Net income actually earned during the period 202,692,549.11

Less: Dividend declarations during the year (81,250,000.00) Treasury Shares (8,784,050.00)

TOTAL RETAINED EARNINGS, DECEMBER 31, 2010AVAILABLE FOR DIVIDEND DECLARATION 891,157,397.11

cover sheet - macroasia corp 17-a 2010 final.pdf6 7 5 4 a y al a a v enue, makati c i t y ......

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