macroasia · pdf fileexact name of issuer as specified in its charter macroasia corporation 5....

12/F, Allied Bank Center, 6754 Ayala Avenue, Makati City • Tel. No. (632) 840 2001 • Fax No. (632) 840 1892

MACROASIA CORPORATION April 28, 2006 PHILIPPINE STOCK EXCHANGE Compliance & Surveillance Department Exchange Road, Ortigas Center Pasig City, Metro Manila

Attention : Ms. Jurisita M. Quintos Senior Vice President – Operations Group Dear Ms. Quintos :

In compliance with PSE’s disclosure regulations for publicly listed companies, we hereby

submit MacroAsia Corporation’s Annual Report (SEC Form 17-A) as of and for the years

ended December 31, 2005 and 2004.

Thank you very much. Very truly yours,

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

977 P27.50 M 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.

COVER SHEET

MACROASIA CORPORATION December 31, 2005

SEC Form 17-A

ANNUAL REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SECTION 141

OF CORPORATION CODE OF THE PHILIPPINES

1. For the fiscal year ended December 31, 2005 2. SEC Identification Number 40524 3. BIR Tax Identification No. 004-666-098 4. Exact name of issuer as specified in its charter MACROASIA CORPORATION 5. City of Makati, Metro Manila 6. ______________________________ Province, Country or other jurisdiction Industry Classification Code Incorporation or organization 7. 12th Floor, Allied Bank Center, 6754 Ayala Avenue, 1226

Makati City Zip Code Address of Principal Office 8. (632) 840-2001

Issuer’s telephone number including area code 9. __N/A______________________________________________________________ Former name, address, and former fiscal year, if changed since last report 10. Securities registered pursuant to Section 8 and 12 of the RSA

Title of Each Class Number of Shares or Amount of Debt Outstanding

Common Stock, P 1 par value

1,250,000,000 shares outstanding

11. Are any of these securities listed on the Philippine Stock Exchange.

Yes ( X ) No ( ) 12. Check whether the issuer:

(a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17 thereunder or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of The Corporation Code of the Philippines during the preceding twelve (12) months (or for such shorter period that the issuer was required to file such reports;

Yes ( X ) No ( )

(b) has been subject to such filing requirements for the past 90 days

Yes ( X ) No ( )

13. Aggregate market value of the voting stock held by non-affiliates: P 532,854,723

TABLE OF CONTENTS Page No. PART I – BUSINESS AND GENERAL INFORMATION Item 1 Business 1 Item 2 Properties 9 Item 3 Legal Proceedings 10 Item 4 Submission of Matters to a Vote of Security Holders 11 PART II – OPERATIONAL AND FINANCIAL INFORMATION Item 5 Market for Issuer’s Common Equity and Related Stockholder Matters 11 Item 6 Management’s Discussion and Analysis or Plan of Operation 13 Item 7 Financial Statements 21 Item 8 Information on Independent Accountant and Other Related Matters 21 PART III – CONTROL AND COMPENSATION INFORMATION Item 9 Directors and Executive Officers of the Issuer 22 Item 10 Executive Compensation 25 Item 11 Security Ownership of Certain Beneficial Owners and Management 26 Item 12 Certain Relationships and Related Transactions 28 PART IV – CORPORATE GOVERNANCE 29 PART V – EXHIBITS AND SCHEDULES Item 13 a. Exhibits 30 b. Reports on SEC Form 17-C 30 SIGNATURES 31 INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES 32 INDEX TO EXHIBITS 91

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MACROASIA CORPORATION DECEMBER 31, 2005

PART I – BUSINESS AND GENERAL INFORMATION Item 1. – BUSINESS

MacroAsia Corporation (MAC) - Formerly known as Infanta Mineral and Industrial Corporation, MacroAsia Corporation 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, 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 MacroAsia Corporation (MAC). MAC began commercial operation as a holding company under its amended charter in 1996. MAC is presently engaged in aviation-related businesses. It provides aircraft maintenance, repairs and overhaul, 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, Mactan-Cebu International Airport (MCIA) and Davao International Airport. Geographical market split, i.e., North America, Southeast Asia, is not applicable, that is, the Group does not have any revenues/sales outside the Philippines. However, from 2003 to 2005, an average of 66% of the total gross operating revenues reported represented revenues from foreign airlines that fly to Manila and Cebu. Further, net income from these foreign airlines account for an average of 10% of the total net income reported for the last three years. The Company’s financial strength relative to its competitors lies in the Company’s high liquid assets to finance its operations and an adequate capital to continue and expand its existing businesses and develop/venture into new projects. On the other hand, perceived market strength of leading competitors lies only in the ground handling area, where the Company remains as the youngest player who is still trying to penetrate the international or foreign airline market at both NAIA and MCIA. The Company may have the advantage when it comes to the other service areas due to its high quality services, very competitive pricing, advance aircraft technology, and the carefully packaged inter-related aviation support logistics being marketed and provided by its subsidiary/affiliated companies. MAC continues to operate mostly through its four (4) subsidiaries and two (2) affiliates, as more fully discussed below.

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Cebu Pacific Catering Services, Inc. (CPCS), is MacroAsia’s first in-flight catering venture which started commercial operation in October of 1996. MAC holds 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 world-class airline catering company at Mactan-Cebu International Airport. Managed by Cathay Pacific Catering Services, and with a work force of about fifty-six (56) employees (7 in administration and 49 in operations), as of December 31, 2005, it serves both domestic and international airlines. The bulk of its revenues though comes from export sales. CPCS owns a two-storey kitchen facility designed to meet projected total airline catering demands and to easily accommodate further expansion in the future. The facility occupies an area measuring 1,800 square meters and 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). CPCS is presently serving 700 to 800 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. Its airline clients include Philippine Airlines, Cathay Pacific Airways and Mandarin Airlines. Philippine Airlines and Cathay Pacific Airways account for more than 20% of the Company's sales, and the loss of either airline will have a significant effect on the Company’s operations. There are four (4) domestic airlines and three (3) international airlines regularly flying the Cebu route. CPCS is servicing all ex-Cebu flights bound for HongKong, Taiwan, Singapore and Japan, as well as chartered flights to/from Cebu. Being the only in-flight 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 11% of the Company’s total gross revenues. CPCS contributed an average of 6% 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. It is, however, 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. CPCS did not incur any research and development costs during the last three fiscal years. MacroAsia Air Taxi Services, Inc. (MAATS) is a wholly-owned subsidiary, incorporated in June 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).

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MAATS is greatly dependent on the two aforementioned licenses, without which the Company cannot provide charter services to the public. Both licenses are renewed annually. Thus, the Company ensures that the helicopter receives a year-round preventive maintenance in accordance with the manufacturer’s specifications, and comply with the stringent requirements of CAB and ATO. The Company’s pilot and mechanics also continue to undergo year-round training in the U.S. to assure safe operations. As of December 31, 2005, this subsidiary has 3 employees (2 in operations and 1 in administration). MAATS started commercial operations in October 1996. It has since been leasing MacroAsia Corporation’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' marketing strategy remains focused on safety and convenience, as it strictly adheres to the stringent safety standards and procedures set by regulating agencies. It ensures that its staff undergo continuous year-round training with emphasis on safety and customer service, a practice that has kept the Company ahead of its competitors. MAATS has only few remaining competitors such as Air Span and Air Ads and it expects to be ahead of its competitors by keeping focused on operational safety and customers' convenience and by maintaining its competitiveness. MAATS’ charter flight revenues for the last three years account for an average of less than two percent (2%) of the Company’s consolidated gross operating revenues. MAATS does not have any major existing supply or sales contracts and is not dependent on any single or few customers that account for more than 20% of its business. It also provides charter services to affiliated companies but is not dependent on any one of them. 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. 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 property development projects as a core business and refocused its efforts on aviation-support businesses. On September 01, 2000 MAPDC was registered as an Ecozone Developer/Operator with the Philippine Economic Zone Authority (PEZA). As such, it enjoys tax incentives as provided by PEZA. It started commercial operations again on the same date, this time as the ecozone developer/operator of the 23-hectare Macroasia Ecozone at the Ninoy Aquino International Airport, with Lufthansa Technik Philippines, Inc. as its anchor locator for the next 25 years. MAPDC has a 25-year lease covering the 23-hectare property occupied by the ecozone with the Manila International Airport Authority. The Macroasia Ecozone is the only existing ecozone at NAIA.

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The MacroAsia Ecozone presently has a workforce of 6 staff (4 in operations and 2 in administration) and generates revenues which are considered 100% domestic. 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 25% of the Company’s consolidated gross operating revenues. Lufthansa Technik Philippines is an associated company of MAPDC as it is 49% owned by MacroAsia Corporation. 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. The Company did not incur any research and development costs during the last three fiscal years. MacroAsia Eurest Catering Services, Inc. (MECS), which was incorporated on November 5, 1996, is a joint venture among MacroAsia Corporation (67%), Eurest International B.V. (13%) and Singapore Airport Terminal Services (SATS) (20%). MECS began commercial operations on September 1, 1998. Today, MECS currently provides in-flight catering services to about 14 of the foreign airlines that fly to Manila. In terms of number of meals, MECS serves more than 2 million meals per annum or an average production of over 5,000 meals a day. MECS is servicing an average of 16 international flights a day. MECS has a license and technical assistance agreement with Eurest International B.V. wherein Eurest shall render technical assistance to MECS in establishing and operating an in-flight catering business at the Ninoy Aquino International Airport (NAIA), the Manila Domestic Airport and the general aviation areas. Furthermore, the license enables MECS to exclusively use the Mark and System of Eurest. In 1998, MECS also executed a marketing and commercial assistance agreement with SATS, whereby SATS shall provide marketing and commercial services to MECS for its in-flight catering business. Nevertheless, MECS’ operations is not contingent on the use of the Eurest mark and system as such, nor from marketing and commercial services rendered by SATS. However, should the joint venture agreement with the aforementioned two cease, brand equity from the established trade name of MECS may be slightly affected but the extent of such will be limited only to marketing and not the commercial operations. MAC, MECS’ majority stockholder is currently studying a possible renegotiation with SATS & Eurest. MECS' in-flight kitchen facility now occupies an area measuring about 6,500 sq. m., on a two-hectare lot being leased from the Manila International Airport Authority. It now has a maximum kitchen capacity of approximately 8,000 meals a day. An extra floor space of about 1,000 sq. m. has been added for extra warehousing and production space.

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MECS catering capacity could easily be further expanded to 10,000 meals per day without any major renovations. The kitchen was designed by the International Engineering Division of Eurest In-flight Services. On the other hand, MECS’ operations is highly dependent upon the 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. MIAA, however, has also provided MECS with an automatic renewal agreement, provided, the concessionaire’s privilege fee (CPF) (7% of gross revenue) is paid on time. MECS, with its state-of-the-art facility, 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 Lufthansa and other airlines and 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. MECS also holds a valid Halal Certificate from the Office of Muslim Affairs, Office of the President. Another government agency which closely monitors MECS is the Environmental Management Bureau of the Laguna Lake Development Authority. This government agency monitors the production area to ensure that waste disposal regulations are fully complied with to protect the environment. MECS is the first and only in-flight caterer and one of the very few food companies in the Philippines to be ISO-certificated. It earned the "1999 Best Hygiene Award" from Cathay Pacific Airways, and the "Silver Quality Award for Asia/India" from Lufthansa Airlines. The local suppliers of MECS include, among others, ScanAsia Overseas, Inc. for dairy products, L.G. Arambulo Enterprises and Marlett Marketing Corp. for fresh fruits and vegetables, Mother Earth Products, Inc. for meat products, and Deepsea Products, Inc. for seafoods. On the other hand, international suppliers include Wenatchee Marketing Inc., Tuckerbag, Inc., Leos Fine Foods Co., Ltd. for meat products, Snorre Food for seafoods, and Raynier Marketing for general supplies. MECS’ suppliers provide quality products that have passed the hygiene tests conducted periodically by its in-house microbiologists. MECS does not have existing major supply contracts and is not dependent on any single raw materials supplier. It uses available local raw materials whenever possible. Almost all of MECS' trade revenues are classified as export sales. In 2003, 2004 and 2005, this subsidiary's sales contributions to MacroAsia's consolidated gross operating revenues were 59%, 63%, and 67%, respectively. MECS’ airline clients include Cathay Pacific Airways, Singapore Airlines, Saudi Arabia Airlines, Emirates, China Airlines, Northwest, Qatar, KLM Royal Dutch and Qantas. These airlines contribute over 90% of MECS' total revenues. Four airline customers contribute more than 40% of MECS’ total revenues, and the loss of these accounts will adversely affect MECS’ operations. MECS is also servicing the Northwest Lounge at the NAIA. MECS' estimated share in the NAIA foreign airlines market was about 49% as of December 31, 2005 (48% in 2004).

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With a manpower complement of about 207 staff (6 managerial positions, 38 in administration, and 163 in operations) as of December 31, 2005, MECS is operating at about 70% of its present capacity and can easily accommodate more airline customers. Its competitors include Philippine Airlines and Manila International Airport Services Corporation. MECS had no research and development activities during each of the last three fiscal years. MacroAsia-Menzies Airport Services Corporation (Mac-Menzies) 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. Mac-Menzies commenced its ground handling operations on April 19, 1999 at the NAIA, and generates both domestic and export sales. It has a work force of around 185 staff (166 are in operations, 13 in administration and 6 in managerial positions) as of December 31, 2005. 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. Mac-Menzies is jointly owned by MacroAsia (70%) and Menzies Aviation Group (30%). On July 2, 1999, a wholly-owned subsidiary of Mac-Menzies, 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 in 2001. Mac-Menzies’ present clients include Thai International Airways, Air Philippines, Pacific East Asia Cargo, Palau Micronesia Air and United Aviation Services. Thai Airways and Air Philippines represent more than 50% of Mac-Menzies' present revenues; the loss of either airline will have an adverse effect on the continuing operations of Mac-Menzies. This subsidiary contributes an average of 10% of the Group’s total operating revenues for the years ended December 31, 2005, 2004 and 2003. Other ground handling companies operating at the Ninoy Aquino International Airport (NAIA), include Manila International Airport Services Corporation (MIASCOR), Philippine Airlines (PAL), Philippine Airport Ground Services (PAGS), and DNATA Wings (WINGS). Through aggressive marketing efforts and competitiveness, Mac-Menzies expects to further increase its market share at NAIA. Mac-Menzies is not aware of any existing or probable government regulations that would have an adverse effect on its business. It had no research and development activities during the last three fiscal years. Mac-Menzies’ operations is very much dependent upon its concession agreement with MIAA which grants the Company the right to operate ground handling services at the NAIA and/or the Manila Domestic Airport. Mac-Menzies secures such right by yearly renewal of the agreement and paying the monthly CPF (7% of gross revenue) on time.

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Lufthansa Technik Philippines, Inc. (LTP) is a joint venture between MacroAsia Corporation (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 Ninoy Aquino International Airport in Manila and the Mactan-Cebu 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 generates both domestic and export revenues and enjoys tax incentives, being a PEZA-registered entity. LTP also has a concession agreement with MIAA upon which the Company’s business operations is highly dependent. The agreement grants the Company the right to operate as a provider of aircraft MRO at the NAIA 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, Lufthansa Airlines, Singapore Airlines and other international airlines. It also provides technical ground handling services to Air Niugini, China Airlines, Egypt Air, Eva Air, KLM Royal Dutch, Korean Air, Malaysia Airlines, Silk Air, Singapore Airlines and Cathay Pacific Airways. Aviation authorities/agencies of the respective countries of origin of the airline clients issue licenses/certificates to LTP for the latter’s accreditation to provide MRO to the airlines’ aircraft. The extent of LTP’s work/services largely depend on these certifications, which describe/specify that LTP’s services be carried out in accordance with the respective countries’ aviation regulations. These certifications are renewed either annually or every two years . The number of personnel went up to 2,374 as of December 31, 2005 (1,518 in production and 856 as support personnel) from last year’s 2,332 employees. As previously discussed, more than 11% of MAC’s total revenues is provided by its share in the net income of its associated companies. An average of 94% of the MAC share in the net income of associated companies comes from LTP. As an ecozone locator, LTP has a 25-year lease contract with MacroAsia Properties Development Corporation. It also has a long-term technical services agreement with Philippine Airlines and Lufthansa Technik AG of Germany. Philippine Airlines accounts for more than 20% of LTP's present business; the loss of the account may have a significant impact on LTP's operations. LTP is not aware of any existing or probable government regulations that would have an adverse impact on its on-going business. It had no research and development activities during the last three fiscal years. SembLog-MacroAsia Philippines, Inc. (SMP) is a new joint venture of MacroAsia Corporation (49%) with Sembcorp Logistics Ltd. (SembLog) (51%), Asia’s leading supply chain logistics company listed in the Singapore Exchange. SMP 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

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logistics related consultancy services. As of December 31, 2005, the Company, however, has not started operations yet. SMP will operate in the logistics industry which is quite a fragmented market. It is characterized by various specialized company supporting the line of supply chain. They may include import/export agents, freight forwarders, warehouse operators, local trucking, distributor, air liners, shipping lines and the like. The company will compete based on regional network, service and technology. The Company’s key competitors are international and large leading local logistics providers, like UPS-Delbros, FedEx, Aspac Worldwide Logistics, Inc. (AWLI), and R.V. MARZAN among others. While most of these companies focus on one to two types of logistic services, SMP on the other hand, will function as a basic one-stop third-party logistics (3PL) service provider with a strong Asian network, giving it a very competitive advantage. The Company has not yet engaged any suppliers. These suppliers are expected to be warehouse owners, trucking companies, import/export agents, etc. SMP does not have any other significant agreements or patents, copyrights, licenses, franchises, concessions, or royalty agreement. Research and development is conducted by the Singapore shareholder. SMP is not aware of any existing or probable government regulations that would have an adverse impact on its business operations in the future. The Company expects it to be fully operational over the next 12 months. There may be investments in equipment such as forklift and warehouse rackings. Depending on the business development, SMP may initially hire 33 employees (6 in managerial positions and 27 in operations). Major risks involved The businesses of the Company are aviation-support oriented. Some of the major risks that would have a significant impact on the Company’s operations are acts of terrorism and peace and order situation. Past events have had almost crippling effects on the aviation industry which the Company supports. Periodic strategic planning sessions with top management are being held to identify, assess and formulate related contingency plans to at least minimize the adverse impacts of the risks on the Company’s operations. Transactions with and/or Dependence on Related Parties

Please see Note 15 under the Company’s Consolidated Notes to Financial Statements (p. 70 to 71)

Significant Agreements and Commitments

Please see Note 27 under the Company’s Consolidated Notes to Financial Statements (p. 80 to 83)

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Other Information No bankruptcy, receivership or similar proceedings have been instituted against MacroAsia Corporation and its subsidiaries or associates. Furthermore, no material reclassification, merger, consolidation, or purchase or sale of a significant amount of assets not in the ordinary course of business has taken place. The total number of employees of MacroAsia Corporation, its subsidiaries and associates as of December 31, 2005 remained at the same level in 2004, which is about 2,800.

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). And there has been no strike, nor any attempt of protest against the Company, its subsidiaries and associated companies during the past three years. MacroAsia Corporation 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 environmental laws for the last three years was below P150,000.

Item 2. – PROPERTIES

MacroAsia Corporation (MAC) owns an Ecureuil AS 350-BA five passenger helicopter as of December 31, 2005. It has a rental agreement with MacroAsia Air Taxi Services, Inc. (a wholly owned subsidiary) at a monthly lease payment of P44,000 (fixed) plus P5,236/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, MacroAsia 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 MacroAsia Eurest Catering Services Inc. (MECS), one of its subsidiary companies. In consideration for the concession privilege, MECS pays MIAA a monthly concession privilege fee in the amount equivalent to 7% of MECS’ monthly gross income on catering services.

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MacroAsia Properties Development Corporation (MAPDC), a wholly owned subsidiary of MacroAsia Corporation, 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 which were acquired in 1996 for future development were used as collateral for the loans of MECS, an associated company. On September 01, 2000, MAPDC executed a 25-year lease agreement with the Manila International Airport Authority covering a 23-hectare area located at NAIA at a monthly lease payment of P56.01 per square meter. With the full support of the Philippine Economic Zone Authority, MAPDC has transformed the area into an Economic Zone, and has signed a 25-year lease agreement with Lufthansa Technik Philippines, Inc., its anchor locator. MacroAsia Eurest Catering Services, Inc. (MECS), by way of assignment from MAC, acquired a ten (10) year lease on a 2-hectare lot at the Ninoy Aquino International Airport which is renewable every five years thereafter at the parties’ option. MECS has a license and technical assistance agreement with Eurest Spain, a related party. In the agreement, MECS was granted an exclusive right to use the mark and system of Eurest which shall also render to MECS technical assistance in establishing and operating its catering business. MECS also has a commercial marketing assistance agreement with SATS wherein SATS will market the services of MECS to foreign airlines. As remuneration, MECS is to pay Eurest Spain and SATS a total fee based on sales and earnings before depreciation, interest and taxes. MacroAsia-Menzies Airport Services Corporation (Mac-Menzies) entered a lease contract with Philippine Airlines, Inc. 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. In 2004, however, subject ground handling equipment were eventually purchased by Mac-Menzies from Philippine Airlines.

Item 3. – LEGAL PROCEEDINGS

Blue Ridge Mining Corporation (Blue Ridge) and Celestial Nickel Mining Exploration Corporation (Celestial) filed a case against the Company with the office of the Mines and Geosciences Bureau (MGB) in December 1995 and Regional Panel of Arbitrators of the Department of Environment and Natural Resources (DENR) in February 1997, respectively, involving the cancellation of the Company’s mining lease contracts. The cases have been consolidated into a single case. On November 26, 2004, the Mines Adjudication Board (MAB) ruled in favor of MAC on the separate Petitions for Cancellation of MAC’s mining lease contracts filed by Blue Ridge and Celestial. The decision vacated the previous ruling of the MAB in canceling MAC’s mining leases and granting preferential rights to Blue Ridge and Celestial, respectively. MAB resolved that the preferential rights of the Company on mining privilege are still subsisting unless the same are revoked or cancelled by the Secretary of the DENR.

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Blue Ridge filed a Motion for Reconsideration with the MAB, while Celestial filed an appeal before the Court of Appeals (CA). The MAB and CA, however, denied the said motion and appeal. Consequently, BlueRidge filed a Petition for Review before the CA on September 19, 2005, while, Celestial, filed for a Review on Certiorari before the Supreme Court (SC) on September 17, 2005.

On April 25, 2005, the Company received a copy of the decision of the CA affirming the November 26, 2004 decision of MAB. A Motion for Reconsideration was filed by Celestial but the same was denied by the CA. Celestial filed for a Petition for Review on Certiorari before the SC. On September 19, 2005, Blue Ridge filed a Petition for Review before the CA. On February 20, 2006, Celestial filed a Motion for Issuance of Temporary Restraining Order/Preliminary Prohibitory Injunction/Mandatory Injunction before the SC.

As of March 30, 2006, the SC has yet to rule on the Petition for Review on Certiorari of

Celestial and the CA has yet to rule on the Petition for Review filed by Blue Ridge. In both cases, considering what have been decided upon by the courts and DENR, the Company’s rights to the mining area may likely be affirmed by the higher courts.

On March 28, 2006, the Company received the Mineral Production Sharing Agreement (MPSA) from the Mines and Geosciences Bureau of the DENR. The MPSA covers 1,114 hectares of land situated in Brooke’s Point, Palawan.

Under the MPSA, the Company shall have the exclusive right to conduct mining

operations within, but not title over, the contracted area. Mining operations that are allowed include exploration, development and utilization for commercial purposes of nickel, chromite, iron and other associated mineral deposits that may be found in the area.

The MPSA runs for a term not exceeding twenty-five (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 Government and the Company.

Item 4. – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this report, no matter was

submitted to the vote of security holders of the Corporation.

PART II – OPERATIONAL AND FINANCIAL OPERATION Item 5. – Market for Issuer’s Common Equity and Related Stockholder Matters

MacroAsia Corporation’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, 2005 is 977.

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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 2005 and 2004 are as follows: 2005 High Low First Quarter P 2.75 P 2.00 Second Quarter 2.00 1.68 Third Quarter 1.92 1.68 Fourth Quarter 1.78 1.44

2004 High Low First Quarter P 0.61 P 0.45 Second Quarter 0.70 0.43 Third Quarter 1.82 0.62 Fourth Quarter 3.30 1.30 As of April 17, 2006 1.84 1.80

The top 20 stockholders of MacroAsia Corporation as of December 31, 2005 are: Name No. of Shares

Held % of

Total 1 PCD Nominee Corporation (Filipino) 207,142,464 16.57 2 Fortune Tobacco Corporation 88,000,000 7.04 3 Asia Brewery, Inc. 88,000,000 7.04 4 Baguio Gold Holdings Corporation 88,000,000 7.04 5 Luy, Jr., Enrique 67,610,000 5.41 6 Solar Holdings Corporation 59,000,000 4.72 7 PCD Nominee Corporation (Non-Filipino) 50,761,088 4.06 8 Himmel Industries, Inc. 50,000,000 4.00 9 Foremost Farms, Inc. 50,000,000 4.00 10 Grandspan Development Corp. 50,000,000 4.00 11 Profound Holdings, Inc. 47,500,000 3.80 12 Pioneer Holdings Equities, Inc. 47,405,000 3.79 13 Basic Holdings Corp. 47,370,000 3.79 14 Safeway Holdings & Equities Inc. 46,500,000 3.72 15 JNJ Realty Philippine Corp. 46,246,940 3.70 16 Pan-Asia Securities Corp. 45,905,250 3.67 17 SyCip, Washington Z. 41,545,250 3.32 18 Gem Holdings, Inc. 31,750,000 2.54 19 Palomino Ventures, Inc. 28,900,000 2.31 20 Wonderoad Corporation 12,500,000 1.00

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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. The Company declared cash dividends of P0.02 per share during its annual general meeting last July 15, 2005. Said cash dividends were paid on or before August 24, 2005 to shareholders of record as of July 29, 2005. Item 6. – Management Discussion and Analysis or Plan of Operation

Overview In 2005, MacroAsia Corporation (MAC) carried on its operations through its four (4) subsidiaries and two (2) associated companies. MAC operates an in-flight kitchen at the Ninoy Aquino International Airport through MacroAsia-Eurest Catering Services, Inc. (67%-owned) and another similar kitchen at the Mactan-Cebu International Airport (MCIA) through Cebu Pacific Catering Services, Inc. (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 70%-owned subsidiary, MacroAsia-Menzies Airport Services Corporation. Lufthansa Technik Philippines (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, MacroAsia Properties Development Corporation (MAPDC), the registered developer/operator of the economic zone. Through another 100%-owned subsidiary, MacroAsia Air Taxi Services, Inc. (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 Company’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.

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The Company is not aware of any event that will trigger direct or contingent financial obligation that is material to the Company, 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. 2005 Compared with 2004 The Company continues to grow, as 2005’s net income rose to P124.40 million, an 18% jump over last year’s P105.34 million. The significant increase is credited mainly to higher revenues from in-flight catering services and equity in net income of associated companies. Despite the stiff competition, revenue from catering services went up by P91.85 million (or 20%) due principally to higher number of flights serviced, and therefore, higher number of meals served. The Company’s share in net income of its associates grew by P42.38 million (or 55%) primarily because of the increase in the revenues of Lufthansa Technik Philippines (LTP), particularly from aircraft overhaul services to airline customers. Revenue from rental and administrative fees was at the same level of P184.50 million because it is accounted for on a straight-line basis over the lease term, in compliance with Philippine Accounting Standards (PAS) 17. Ground handling revenues was slightly up by P0.76 million (or 1%) due to increased number of (non-routine) flights serviced. However, charter flight revenues had a significant decline of P5.59 million (or 45%) compared to last year’s P12.40 million due mainly to the decrease in the number of charter flights serviced. It should be noted though, that there was a national elections held during the previous year which resulted to a higher number of clients and revenue flights. Nevertheless, the Group still posted a 12% (or P87.02 million) increase in combined revenues for the full year 2005 over last year’s P722.36 million. Except for energy and fuel, the company was able to manage all other direct costs, selling and general & administrative expenses quite well, thus, direct cost and expenses in relation to revenues were maintained at 75% and 22% level, respectively. Year-on-year though, direct costs of P608.13 million increased by P63.68 million (or 12%) due mainly to the continuous rise in energy and fuel prices, increases in raw materials costs, direct labor and subcontract costs. Selling and general & administrative expenses of P182.62 million was also up by P21.63 million (or 13%) due principally to higher salaries and wages, repairs & maintenance of kitchen equipment, provision for doubtful accounts, professional and legal fees, and expenses incurred for new and prospective businesses. The Company incurred a net foreign exchange loss of P13.31 million as compared to a net gain of P0.66 million in year 2004 as a result of lower Peso exchange rate against the US dollar (i.e., collection of dollar denominated receivables was settled at a lower peso conversion rate compared to the booking rate previously used). From P3.79 million last year, interest expense declined by P2.64 million (or 70%) due to lower loan balances and lower interest rates. Interest income of P5.47 million, however, was higher by P1.86 million (or 52%) year-on-year, due to higher cash balance and interest rates during the year. Other income fell by P8.10 million (or 50%) mainly because there was a P14 million adjustment of rental payable last year.

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Equity in net income of associates represents MacroAsia Corporation’s (MAC) share in the net income/(loss) of its affiliate/associated companies. Changes in shares from period to period are dependent upon the results of the operations of the affiliates. Provision for income tax of P12.61 million increased by P7.47 million (or 145%) year-on-year due primarily to higher taxable net income of the operating subsidiaries. The Group’s thrust on expanding its revenue portfolio and implementing effective cost saving strategies resulted to a 20% (or P19.05 million) increase in total consolidated net income attributable to equity holders of the parent, from previous year’s P99.59 million to P119.06 million in 2005. As of December 31, 2005, total consolidated assets was higher by P136.32 million (or 6%) compared to its level as of 2004 yearend due principally to the increases in cash and cash equivalents, investments in associated companies and other current assets. Cash and cash equivalents of P200.96 million grew by P19.35 million (or 11%) due principally to cash dividends received from associated companies, namely, CPCS and LTP, and the increase in meal volumes from the catering business. Receivables (net) and inventories were slightly higher by P6.39 million (or 4%) and by P0.42 million (or 2%), respectively, principally because of additional airline clients serviced and the resulting increase in raw materials requirements, respectively, of the Company’s catering business, vis-à-vis the increase in meal uplift volumes. Other current assets consists of unused input taxes, creditable withholding taxes, office supplies and prepaid insurance coverages for the building, equipment and the staff. From P64.09 million, total other current assets went up by P18.42 million (or 29%) due mainly to additional tax credit certificates and input taxes. The Company had a better current ratio of 3:1 as of December 31, 2005 compared to 2.74:1 as of December 31, 2004. Investments in associates of P1.13 billion rose by P112.21 million to P1.24 billion, or a 10% increase over 2004’s yearend balance, due significantly to the net effect of the Company’s P119.33 million incremental share in the net income of associates, receipt of cash dividends and the recent P5.51 million cash investment in SembLog-MacroAsia, a new joint venture company with Sembcorp Logistics Ltd., a company listed in the Singapore Stock Exchange. Property and equipment of P337.51 million decreased by P33.12 million (or 9%) primarily due to depreciation. On the other hand, accrued rental receivable and payable of P79.01 million increased by P12.85 million (or 19%) 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. Deferred tax assets also increased by P1.72 million (or 26%) mainly because of higher future deductible losses and unrealized foreign exchange losses.

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MacroAsia Properties Development Corporation (MAPDC), a wholly-owned subsidiary, has a refundable noninterest-bearing deposit amounting to P=24.59 million related to its lease contract with Manila International Airport Authority (MIAA), (please see Note 27 of the Notes to Consolidated Financial Statements) and, on the other hand, a refundable deposit payable of the same amount related to its sublease contract with LTP. Upon adoption of PAS 39 on January 1, 2005, MAPDC revalued and reported the deposits at their present value of P=1.03 million, as such, deposits and other noncurrent assets decreased by P21 million (or 33%). Consequently, rental deposit (refundable to LTP) also decreased by P23.55 million (or 96%). As of December 31, 2005, the related unearned rent income and deferred rent expense amounted to P19.07 million. The 2004 balances were not restated because the Group availed of the exemption under Philippine Financial Reporting Standards (PFRS) 1 and charged the effect of adopting PAS 32 and PAS 39, the standards on financial instruments, to retained earnings as of January 1, 2005. Notes payable of P45 million was obtained by one of the operating subsidiaries during the month of May to partially settle its outstanding loans/advances from its shareholders. With a committed monthly amortization of P2.5 million, year-end balance stood at P27.50 million. Accounts payable and accrued liabilities, as well as total loans from and payables to subsidiaries’ stockholders had a considerable decline of P25.33 million (or 17%) and P10.07 million (or 34%), respectively, due to the sustained account settlements by the operating subsidiaries. Income tax payable also dropped by P0.34 million (or 28%) due to the application of available creditable withholding taxes. Accrued retirement benefits costs of P6.36 million was higher by P0.68 million (or 12%) due to incremental accruals of expense for the year, based on the results of the actuarial valuation. Deferred tax liability was lower by P0.084 million (or 27%) due to lower unrealized foreign exchange gain. The Company’s P50 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 P281 million as of the end of 2005. The Company’s share in cumulative translation adjustment of joint venture LTP amounting to P30.86 million was lesser by P26.98 million (or 47%) due to lower foreign currency translation adjustments of the said joint venture. Minority interest represents the 20% equity share of Singapore Airport Terminal Services and the 13% equity share of Eurest International B.V. in Macroasia-Eurest Catering Services, Inc.; and the 30% equity participation of Menzies Aviation Group in MacroAsia-Menzies Airport Services Corporation. Changes in Minority Interest are a factor of the results of operations of the joint - venture companies concerned. Year-on-year, debt-to-equity ratio remained at 0.14:1. Book values per share as of December 31, 2005 and 2004 were P1.63 and P1.52, respectively.

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2004 Compared with 2003 2004 was a progressive year for MacroAsia as total group revenues rose to P722.36 million, a 13% increase over the previous year’s P639.32 million. This was greatly attributed to MECS’ improved performance as meal revenues reached P452.92 million, a 20% increase compared to 2003’s P377.81 million. Charter flights also had its share as it showed a revenue growth of more than 100% from P5.65 million last year to P12.40 million. Ground handling revenues grew by P1.18 million (or 2%) from last year’s P71.36 million. Additional airline clients secured during the third quarter of 2003 and last quarter of 2004, and the increase in the number of flights serviced and meals served, brought about a significant upswing in revenue from catering services; increased number of helicopter flights related to the national elections in May 2004 resulted to higher charter flight revenues; while ground handling revenues increased as new clients came in during the third quarter of 2004. The decrease of P9.54 million (or 6%) in total selling and general & administrative expenses (from P170.53 million to P160.90 million) resulted from the Group’s continuing effort to reduce costs and expenses; while total direct costs and total selling & administrative expenses in relation to operating revenues decreased by 5% (from 103% of revenues to 98% of revenues) due mainly to the increase in total gross operating revenues. However, other income (net of other charges) of P93.57 million decreased by P7.27 million (or 7%) compared to its total at the end of 2003, due principally to the P9.35 million (or 11%) decrease in the equity in net income of associated companies, and lower net foreign exchange gain (down by P11.60 million or 95%) due to lower US dollar position and a more stable Philippine peso versus the US dollar. Lower interest rates during the year precluded the Company from generating higher interest earnings, thus, interest income was lower by P4.54 million (or 56%) year-on-year. Interest expense was lower by P3 million (or 44%) as against last year’s total because of lower rates on borrowings. These decreases were partially offset by the P15 million (or more than 16x) increase in miscellaneous income mainly because of the P14 million adjustment of rental payable in the books of Mac-Menzies. Equity in net income of associates represents MacroAsia Corporation’s share in the net income/(loss) of its affiliate/associated companies. Changes in shares from period to period are dependent upon the results of the operations of the affiliates. With the foregoing, net income before income tax of P110.48 million was higher by 32% compared last year. Consequently, provision for income tax of P5.14 million increased by more than 2x over last year. 2004 consolidated net income attributable to equity holders of the parent of P99.60 million was 14% higher than 2003’s P87.04 million (as restated) due mainly to the increase in revenues and decreases in total costs and expenses. The Group’s total consolidated assets of P2.18 billion as of December 31, 2004 went up by P141.87 million, a 7% increase compared to the previous year’s ending balance (as restated). This increase is attributable to the increases in investments in associates which was higher by P106.61 million (or 10%) due mainly to the Company’s share in their net income; consolidated cash and cash equivalents of P181.61 million which considerably

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grew by P44.86 million (or 33%) due principally to higher sales volume, collection of the subsidiaries’ trade receivables, and receipt of P4.8 million cash dividends from CPCS, an associated company; and the increase in accrued rental receivable of P15.27 million (or 30%) due to the application of PAS 17, as discussed earlier. Additional clients serviced and increases in meal volumes resulted to a higher receivables as of 2004 yearend, from P146.32 million to P154.82 million (increased by P8.5 million or 6%). Inventories of P23.62 million as of December 31, 2004 increased by P1.71 million (or 8%) compared to its yearend balance in 2003 primarily due to higher raw materials requirements in relation to higher catering sales volume. On the other hand, other current assets of P64.10 million declined by P10.66 million (or 14%) mainly because of MECS’ sale of tax credit certificates to a third party company. The Group still maintained a respectable liquidity position as current ratio as of December 31, 2004 was at 2.74:1 (2.72:1 as of December 31, 2003). Property and equipment (net of depreciation) as of December 31, 2004 was lower by P26.18 million (or 7%) from 2003 yearend balance of P396.80 million, primarily because of depreciation. While deferred tax assets of P6.70 million increased by P0.97 million (or 17%) over last year’s balance, because of the increases in deductible temporary differences (e.g., allowance for probable losses). Deposits and other noncurrent assets was higher by P0.78 million (or 1%) due mainly to higher deferred mine exploration costs. Although consolidated provision for income tax for 2004 increased, income tax payable of P1.20 million was lower by 9% due essentially to higher creditable taxes available for application against income taxes due. The balance of notes payable of P 14.25 million in 2003 was fully settled in 2004. Total loans from and payables to subsidiaries’ stockholders continue their declines (down by P28.04 million or 48%) due to the sustained account settlements by the operating subsidiaries. However, accounts payable and accrued liabilities of P146.28 million increased by P29.28 million (or 25%) due principally to higher raw materials purchases in relation to higher sales volume. Accrued rental payable of P66.16 million was also higher by P15.27 million (or 30%) as a result of the application of PAS 17, as discussed earlier. On the contrary, accrued retirement benefits costs of P5.68 million (as restated) considerably declined by 48% (or P5.19 million) due to the application of PAS 19, Employee Benefits (please see Note 3 on the Notes to Consolidated Financial Statements). Minority interest represents the 20% equity share of SATS and the 13% equity share of Eurest International B.V. in MacroAsia-Eurest Catering Services, Inc.; and the 30% equity participation of Menzies Aviation Group in MacroAsia-Menzies Airport Services Corporation. Changes in Minority Interest are a factor of the results of operations of the joint - venture companies concerned. Cumulative translation adjustment in the equity section of the balance sheets represents the Company’s share in Lufthansa Technik’s foreign currency translation adjustments. As of December 31, 2004, debt-to-equity ratio of 0.15:1 slightly improved from last year’s ratio of 0.16:1. Book values per share as of December 31, 2004 and 2003 were P1.52 and P1.40, respectively.

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2005 Compared with 2006 Projection With the current growth trend in the country’s economy together with the aggressive promotion of Philippine tourism, the Group projects a 9% increase in total revenues in 2006 compared to the current year, coming mainly from the airline catering business, as well as from the ground handling activities on account of the anticipated increases in in-flight meal uplifts from existing and new airline clients, and expected additional ground handling airline client. The Company will continue to push for a more effective cost control to further maximize profits without sacrificing the quality of the products and services the Company provides. A 3% reduction in the total cost and expenses (in relation to total operating revenues) is expected to be achieved in 2006. Looking forward, the Group expects to attain in 2006 a net income in excess of P135 million, or a 10% growth which is projected to be generated primarily from the operations of the subsidiaries/affiliates/associates. The MacroAsia Group hopes to surpass its performance during the current year through effective management of operations and marketing strategies. Key Performance Indicators (KPI)

Company Return on Net

Sales Return on Investment

Return on Equity Cost Ratio Expense Ratio

2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

Consolidated 15% 14% 6% 5% 6% 5% 75% 75% 22% 22%

MECS 4% 1% 5% 1% 17% 4% 66% 67% 22% 24%

MAPDC 3% 4% 3% 26% 4% 26% 94% 95% 2% 2%

MASCORP -9% 20% -11% 40% -11% 40% 92% 84% 16% 17%

MAATS 2% 24% 1% 20% 1% 20% 79% 57% 21% 13%

1. 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.

The Company achieved its targeted consolidated RNS for 2005, and was even higher

by 1% compared to 2004 due mainly to higher revenues and controlled costs and expenses.

2. 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.

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The Group was also able to attain its projected ROI for 2005, and was also higher than 2004 due primarily to higher earnings.

3. 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 owners’ return for every peso of invested equity.

Actual ROE for 2005 was lower than budget by 1% due mainly to higher equity

attributable to equity holders of the parent. 2005 ROE, however, was higher than 2004 principally because of higher earnings.

4. Cost and Expense Ratio Cost ratio is computed by dividing total cost over total net revenues, while the sum of

selling and general & administrative 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.

2005 and 2004 cost and expense ratio was at the same level of 75% and 22%

respectively, due primarily to higher earnings in 2005 than 2004 and controlled costs and expenses. Actual cost and expense ratio for 2005, however, was off by 6% compared to budget due mainly to lower revenues and higher costs and expenses incurred.

Plans and Prospects With the recent favorable decision of the Mines Adjudication Board of the Dept. of Environment and Natural Resources regarding its mining cases, the Company is now seriously looking into the revival of its nickel mining project in Palawan soon. MacroAsia Corporation is now in the process of looking for interested global players in the nickel mining industry for a possible business development venture. And still, MacroAsia Corporation, its subsidiaries and affiliates will continue to build on their existing core businesses and pursue new viable opportunities. On-going aggressive marketing efforts for existing business and cost-cutting programs will be sustained for the next twelve (12) months to improve both consolidated revenues and net earnings. MacroAsia shall always look for potential global partners for the development of other aviation-related businesses and support services, such as the development of an aviation training center and cargo handling/warehousing facilities among others. MacroAsia and its subsidiaries expect to maintain a respectable liquidity position and to raise additional funds only if new major projects being pursued materialize. MacroAsia or any of its subsidiaries and affiliates does not expect to buy or sell any significant assets (plant or equipment).

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The total number of employees, however, is expected to slightly increase within the next 12 months as a result of the projected expansion of existing operations and the forthcoming operations of SMP. 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 Germany and other locations overseas.

Item 7. – Financial Statements The consolidated financial statements are filed as part of this Form 17-A (pp. 36-85) Item 8. – Information on Independent Accountant and Other Related Matters (1) External Audit Fees and Services

2005 2004 Regular annual audit of financial statements P 1,733,390 P 1,616,409

Other assurance and related services 1 - 115,500 Tax fees 2 - 114,682 Others (out-of-pocket) 98,700 112,476 Total P 1,832,090 P 1,959,067

1 Fee for manpower assistance/special audit 2 Fee for tax compliance review 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 setting

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(2) Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Partner-in-charge, Ms. Josephine H. Estomo of SGV & Co. handled the financial audits for the years ended December 31, 2005 and 2004. She took over Ms. Cynthia A. Manlapig of the same auditing firm. 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 nor disagreements with accountants during the last three fiscal years or any subsequent interim period.

PART III - CONTROL AND COMPENSATION INFORMATION Item 9. – DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER Directors:

Name/Position/ Citizenship

Age

Term as Director

Period Served as Director

Business Experience for the Past 5 Years

Washington Z. SyCip (Chairman of the Board; Chairman – Nomination Committee) (American)

84 1 yr. Since August, 1997

He is the Chairman of the Board of Lufthansa Technik Philippines, Inc. and 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). For more than five years, he’s been a Director of Philippine Airlines (PAL), Belle Corporation, PHINMA, State Land Group, Cityland Development, Benpres Holdings Corp., PNB and Solid Group, Inc. among others.

Joseph T. Chua (President/Chief Executive Officer; Member – Compensation Committee) (Filipino)


He is the Chairman of MacroAsia Properties Development Corp., MacroAsia Mining Corp., and J.F. Rubber Phils.; the President of MacroAsia-Eurest Catering Services, Inc., MacroAsia-Menzies Airport Services Corp., MacroAsia Air Taxi Services, Inc., and SembLog-MacroAsia Phils. He also serves as a Director of PAL (since August 2003), and the Managing Director of Goodwind Development Corp., among others.

Mariano Tanenglian (Vice Chairman; Member – Nomination Committee) (Filipino)


He is presently the Vice Chairman of PAL, and Tanduay Holdings Inc. He also serves as Director of Allied Bankers Insurance Corp., and Allied Leasing & Finance Corp. He is also the Treasurer of Allied Banking Corp., Asia Brewery, Basic Holdings Corp., Fortune Tobacco Corporation, Charter House, Grandspan Dev. Corp., Tanduay Distillers Inc., and Himmel Industries.

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Lucio K. Tan, Jr. (Director) (Filipino)


He is currently the Executive Vice President of Fortune Tobacco Corporation, and Foremost Farms, Inc. He is also the Chief Executive Officer of Tanduay Distillers, Inc., and a Member of the Board of Advisors of Philippine Airlines.

Jaime J. Bautista (Treasurer; Member – Audit Committee; Member – Compensation Committee) (Filipino)


He is presently the President and COO of PAL, Chairman and President of Basic Capital Investments Corp. and President of Cube Factor Holdings, Inc. He is also the Vice Chairman of the Board of Trustees of the University of the East. He serves as a Director of MacroAsia-Eurest Catering Services and MacroAsia Menzies Airport Services Corp. He was the President and CEO of Air Philippines and President of PNB Forex Inc.

George SyCip (Director) (American)

49 1 yr. Since July, 1996

He is the Chairman of the Board of MacroAsia-Eurest Catering Services, Inc. and serves as a Director of: Beneficial PNB Life Insurance Company, SembLog-MacroAsia Philippines, and FMF Development Corporation. He previously worked in Crocker Bank, Sun Hung Kai Securities, American Express International and International Banking Corporation.

Hans T. Sy (Independent Director; Chairman – Compensation & Audit Committee; Member – Nomination Committee) (Filipino)


He is currently the Chairman of Family Entertainment Center, Inc., Wonderfoods, Inc., Linde Refrigeration Phils., Inc., and President of Shopping Ctr. Management Corp. and SM Prime Holdings, Inc. He is the Vice Chairman of Belle Corp. and China Banking Corp. He also serves as Director of SM Development Corp., and Supervalue, Inc., among others.

Stewart C. Lim (Director) (Filipino)


He is presently the Vice-President for Treasury of Philippine Airlines. He also served as Assistant Vice President for Finance of Basic Holdings Corporation.

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.

Executive Officers: Reynaldo O. Munsayac (VP-Finance & Administration) (Filipino)

53 9 yrs. Since November, 1996

He is currently the Treasurer of MacroAsia-Eurest Catering Services, Inc., MacroAsia Properties Development Corp., MacroAsia Air Taxi Services, Inc., SembLog-MacroAsia Phils., Kabuhayan, Kaunlaran, & Kalikasan, Inc., and Cebu Pacific Catering Services, Inc. He is also the President of MacroAsia Mining Corporation. He was Lead Cost Analyst of Saudi Arabian American Oil Company (ARAMCO) and was an Assistant Audit Manager at Price Waterhouse & Co.

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Atty. Marivic T. Moya (VP-Human Resources, Legal and External Relations; Corporate Secretary) (Filipino)

45 6 yrs. Since May 1999

She is the Corporate Secretary of MECS, Mac-Menzies, MAPDC, MAATS, Kabuhayan, Kaunlaran, & Kalikasan, Inc. and Mac-Mining. She worked with various Government Institutions from 1987 to 1999, holding key positions such as Legal Officer of the National Bureau of Investigation (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 (VP-Marketing and Facilities Management) (Filipino)

51 7 yrs. Since March, 1998

He is the President of MacroAsia Properties Development Corporation and Vice President – Marketing of MacroAsia Air Taxi Services Inc. He was the Vice President for Operations of MacroAsia-Menzies Airport Services Corporation from 1999 to 2003.

Amador T. Sendin (VP-Planning and Business Development; Compliance/Corporate Information Officer) (Filipino)

43 > 2 yrs. Since October 2003

He is a Director of Cebu Pacific Catering Services, Inc. and Mac-Mining. He was the Finance Manager of MacroAsia-Eurest Catering Services, Inc. from July 2000 to October 2003. He worked with MIASCOR from June 1998 to June 2000.

Significant Employee: Maria Corazon M. Pineda – De Manuel (Financial Accountant) (Filipino)

30 > 3 yrs. Since August, 2002

She served as Chief Accountant of Executive Plaza Hotel and Masagana Telamart, Inc. She worked with SGV & Co. from 1996 to 1999.

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 Mariano Tanenglian, Director of MacroAsia Corporation. Washington SyCip, Chairman of the Board, is the father of George SyCip, Director.

Involvement in Certain Legal Proceedings The Directors of the Company have not been involved in any legal proceedings during the

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

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Item 10. – EXECUTIVE COMPENSATION The following table summarizes the actual aggregate compensation of all directors and officers of the Company for 2004 and 2005, as well as the estimated aggregate compensation for the year 2006: (a) Summary Compensation Table

Name and Principal Position

Year

Salaries (P'mil)

Bonus

Other Annual

Compen-sation

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

2004

(Actual)

9.58

10.18

-

-



Compliance/Corporate Information Officer


2005

(Actual)

10.46

11.79

-

-



Compliance/ Corporate Information Officer


2006

(Estimate)

11.51

12.83

-

-

26

(b) Compensation of Directors

(1) Members of the Board do not receive any regular compensation from the Company, except for every regular or special meeting actually attended, for which members of the Board of Directors receive a per diem of P10,000.00.

(2) There are no 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.

(c) 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.

(d) Warrants and Options Outstanding: Repricing

The Company’s P50 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 & Management (1) Security Ownership of Certain Record and Beneficial Owners as of December 31, 2005

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)

Triton Securities Corp.1 (Shareholder) Edwin L. Luy, President2 Irene T. Luy, Treasurer2

Enrique Luy, Jr., Vice-Pres.2

Filipino Filipino Filipino

207,142,464 16.57

COMMON Fortune Tobacco Corporation Parang, Marikina City (Shareholder)

Shareholdings, Inc.3 (Shareholder) Lucio Tan, President4 Carmen Khao Tan, Shareholder Benito Tan Kee Hiong, (estate, deceased) Mariano Tanenglian, Treasurer4


Filipino

88,000,000 7.04%

27

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

Shareholdings, Inc.3 (Shareholder) Lucio Tan, President4 Carmen Khao Tan, Shareholder Benito Tan Kee Hiong, (estate, deceased) Mariano Tanenglian, Treasurer4


Filipino

88,000,000 7.04%

COMMON Baguio Gold Holdings Corp. 7th Flr. Allied Bank Center 6754 Ayala Ave., Makati City (Shareholder)

Trust Mark Holdings Corp.3 (Shareholder) Jaime Bautista, CEO5

Filipino

88,000,000 7.04%

COMMON Luy, Jr., Enrique 26th Flr. LKG Tower 6801 Ayala Ave., Makati City (Shareholder)

Luy, Jr., Enrique (Beneficial)

Filipino 67,610,000 5.41%

1 Triton owns 7% of MacroAsia Corporation’s total outstanding common shares. 2 Designation in Triton Securities Corp. 3 Shareholdings owns 99% of Fortune Tobacco and Asia Brewery 4 Designation in Shareholdings.. 5 Designation in Trust Mark

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) days from 31 December 2005. (2) Security Ownership of Management as of December 31, 2005 :

Title of Class

Name of Beneficial Owner

Amount and Nature of Ownership

Citizenship

% of

Class

COMMON Washington Z. SyCip Chairman

41,545,250 (Beneficial)

American 3.32%

COMMON Joseph T. Chua

President and CEO 425,000

(Beneficial) Filipino <1%

COMMON Mariano Tanenglian

Vice Chairman 125,000


COMMON Lucio K. Tan, Jr.

Director 125,000


COMMON Jaime J. Bautista

Treasurer 125,000


COMMON George SyCip

Director 10,862,798 (Beneficial)

American <1%

COMMON Hans T. Sy

Independent Director 625,000


28

COMMON Stewart C. Lim Director

100,000 (Beneficial)

Filipino <1%

Reynaldo O. Munsayac

VP – Finance & Administration - - -

Marivic T. Moya

VP - Human Resources, Legal and External Relations; Corporate Secretary

- - -

Christopher C. Lu

VP - Marketing & Facilities Management

- - -

Amador T. Sendin

VP - Planning and Business Development; Compliance/Corporate Information Officer

- - -

Total 53,933,048 4.31% (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 MacroAsia Corporation in 2005. The management team also remained the same.

Item 12. – Certain Relationships and Related Party Transactions (1) Please see Note 15 under the Company’s Notes to Financial Statements (p. 70 - 71).

(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 is equivalent to MAPDC’s cost of leasing the land from MIAA, plus administrative fees.

29

(c) The original agreement between Mac-Menzies (lessee) and Philippine Airlines (PAL) (lessor) was to lease the aviation and transportation equipment to be used for the lessee’s business operations. However, in 2004, it was agreed by the parties that the lessee would just buy the equipment. Accrued rental charges past the date of sale, therefore, had to be reversed. The lease rates and the purchase price of the equipment were the results of negotiations between MAC and PAL based on prevailing prices in the market.

(d) Mac-Menzies provides ground handling services to various airline companies at

NAIA and Cebu, including Air Philippines, an affiliate. The ground handling service rates being charged to Air Philippines are competitive and were the results of negotiations between Mac-Menzies and Air Phils.

(e) MacroAsia Eurest provides in-flight catering to various airline companies at the

NAIA, including PAL, an affiliate. On the other hand, Mac-Menzies rented an aviation equipment from PAL (as discussed in “c” above). In 2004, PAL has outstanding trade payables with MECS. Since Mac-Menzies, on the other hand, has outstanding rent payable to PAL, Mac-Menzies assumed PAL’s obligation to MECS by way of offsetting. Mac-Menzies paid MECS in 2005.

(f) MECS’ various advances from PAL represented raw materials purchased on an

arm’s-length transaction. The purchase price of the raw materials were competitive and the results of negotiations between MECS and PAL.

(g) MacroAsia Eurest also provides catering services to Lufthansa Technik

Philippines (LTP), an affiliate. The meal prices being charged to LTP were the results of arms-length negotiations between MECS and LTP.

(h) 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.

(i) 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 IAS 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.

PART IV- CORPORATE GOVERNANCE

(a) 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. Deviations, if any, are discussed in the Company’s Regular Board Meeting.

30

(b) Measures To Fully Comply

The Company conducts Strategic and Corporate Planning Workshops attended by its Directors and top-level management, primarily 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 Subsidiaries and Affiliates. Business risks are likewise discussed on these meetings.

(c) Deviations There are no deviations from the Company’s Manual of Corporate Governance. (d) 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.

PART V- EXHIBITS AND SCHEDULES

Item 13. – Exhibits and Reports on SEC Form 17-C a) Exhibits – See accompanying Index to Exhibits (p. 32 and 91) b) Reports on SEC Form 17-C

During the last six (6) month period covered by this report, the following events/ transactions were reported to the SEC :

SUBJECT DATE REPORTED 1. Election of Directors and Officers held during the Annual

General Meeting of Stockholders held on 15 July 2005 July 18, 2005

2. Declaration of cash dividends July 18, 2005 3. Agency agreement for collateral management services of

MacroAsia Corp. with Pacorini-SembLog (Asia-Pacific) Pte Ltd.

August 10, 2005

4. Vacancy in one of the Board seats

(Independent Director) August 15, 2005

5. Annual certification as to the attendance of the Directors

during Board Meetings December 27, 2005

32

MACROASIA CORPORATION

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES FORM 17-A, Item 7

Page No.

Consolidated Financial Statements

Statement of Management’s Responsibility for Financial Statements 33

Report of Independent Public Accountants 35

Consolidated Balance Sheets as of December 31, 2005 and 2004 36

Consolidated Statements of Income for the years ended December 31, 2005, 2004

37

Consolidated Statement of Changes in Equity for the years ended December 31, 2005, 2004 and 2003

38

Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004

39

Notes to Consolidated Financial Statements 41

Supplementary Schedules

Report of Independent Public Accountants on Supplementary Schedules * 86

A. Marketable Securities – (Current Marketable Equity Securities and Other Short-term Cash Investments)

*

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

87

C. Non-Current Marketable Equity and Securities, Other Long-term Investments in Stock, and Other Investments

88

D. Indebtedness of Unconsolidated Subsidiaries and Related Parties *

E. Intangible Assets – Other Assets 89

F. Long-Term Debt *

G. Indebtedness to Related Parties *

H. Guarantees of Securities of Other Issuers *

I. Capital Stock 90 * 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.

*SGVMC305960*

MACROASIA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31

2005

2004 (As restated,

Note 3) ASSETS Current Assets Cash and cash equivalents (Notes 5, 15 and 21) P=200,963,727 P=181,609,048 Receivables - net (Notes 6, 15 and 21) 161,217,328 154,825,118 Inventories - at cost (Note 7) 24,043,484 23,618,021 Other current assets (Note 8) 82,515,952 64,090,748 Total Current Assets 468,740,491 424,142,935 Noncurrent Assets Investments in associates (Note 9) 1,242,374,610 1,130,161,360 Property and equipment - net (Note 10) 337,506,008 370,623,000 Investment property - net (Notes 11 and 15) 118,680,000 118,680,000 Accrued rental receivable (Note 15) 79,013,572 66,165,371 Deferred rent expense (Notes 3 and 27) 19,073,320 – Deferred tax assets - net (Note 23) 8,410,175 6,692,670 Deposits and other noncurrent assets - net (Notes 3 and 12) 42,857,501 63,865,938 Total Noncurrent Assets 1,847,915,186 1,756,188,339 TOTAL ASSETS P=2,316,655,677 P=2,180,331,274 LIABILITIES AND EQUITY Current Liabilities Note payable (Note 13) P=27,500,000 P=– Accounts payable and accrued liabilities (Notes 14 and 21) 120,945,290 146,278,382 Income tax payable 861,070 1,203,856 Dividends payable 7,137,132 7,137,132 Total Current Liabilities 156,443,492 154,619,370 Noncurrent Liabilities Accrued rental payable (Note 27) 79,013,572 66,165,371 Unearned rent income (Notes 3 and 15) 19,073,320 – Rental deposit (Notes 3 and 15) 1,034,395 24,588,996 Loans from and payables to subsidiaries’ stockholders (Notes 16 and 21) 19,732,606 29,799,151 Accrued retirement benefits payable (Note 20) 6,359,106 5,680,197 Deferred tax liability (Note 23) 220,804 304,506 Total Noncurrent Liabilities 125,433,803 126,538,221 Total Liabilities 281,877,295 281,157,591 Equity Attributable to the equity holders of the parent: Capital stock - P=1 par value (Note 24) Authorized - 2,000,000,000 shares Issued - 1,250,000,000 shares (held by 977 and 994 equity holders in 2005 and 2004, respectively)

1,250,000,000

1,250,000,000

Additional paid-in capital (Note 24) 281,437,118 231,437,118 Warrants outstanding (Note 24) – 50,000,000 Share in foreign currency translation adjustments of an associate (Note 9)

(30,860,108)

(57,836,112)

Retained earnings (Notes 3 and 26) 471,503,867 377,444,345 1,972,080,877 1,851,045,351 Minority interests (Note 16) 62,697,505 48,128,332 Total Equity 2,034,778,382 1,899,173,683 TOTAL LIABILITIES AND EQUITY P=2,316,655,677 P=2,180,331,274 See accompanying Notes to Consolidated Financial Statements.

*SGVMC305960*

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

2005

2004 (As restated,

Note 3)

SERVICE REVENUE In-flight catering P=544,773,792 P=452,924,401 Rental and administrative (Note 15) 184,502,135 184,502,135 Ground handling and aviation (Note 15) 73,295,879 72,535,408 Charter flights 6,811,400 12,397,777 809,383,206 722,359,721 DIRECT COST (Note 17) 608,134,886 544,459,045

GROSS PROFIT 201,248,320 177,900,676

Selling expenses (Note 19) (14,304,368) (13,977,894) General and administrative expenses (Note 18) (168,314,848) (147,011,282) Equity in net income of associates (Note 9) 119,333,806 76,955,111 Foreign exchange gain (loss) - net (13,313,864) 655,999 Interest income (Note 15) 5,470,563 3,610,756 Financing charges (Notes 13, 15 and 16) (1,151,881) (3,789,248) Others - net 8,039,664 16,139,826

INCOME BEFORE INCOME TAX 137,007,392 110,483,944

PROVISION FOR INCOME TAX (Note 23) Current 16,639,983 7,473,049 Deferred (4,026,106) (2,333,563) 12,613,877 5,139,486

NET INCOME P=124,393,515 P=105,344,458

Attributable to: Equity holders of the parent P=119,059,522 P=99,593,382 Minority interests 5,333,993 5,751,076 P=124,393,515 P=105,344,458

Basic Earnings Per Share (Note 25) P=0.0952 P=0.0797 See accompanying Notes to Consolidated Financial Statements.

*SGVMC305960*

MACROASIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 Attributable to the Equity Holders of the Parent Share in Foreign Currency Additional Translation Paid-In Warrants Adjustments of Retained Minority Capital Stock Capital Outstanding an Associate Earnings Interest (Note 24) (Note 24) (Note 24) (Note 9) (Note 26) Total (Note 16) Total

BALANCES AT DECEMBER 31, 2003, AS PREVIOUSLY REPORTED P=1,250,000,000 P=231,437,118 P=50,000,000 (P=50,720,579) P=231,996,059 P=1,712,712,598 P=41,201,679 P=1,753,914,277 Effect of change in accounting for employee benefits (Note 3)

–

–

–

–

45,854,904

45,854,904

1,175,577

47,030,481

BALANCES AT DECEMBER 31, 2003, AS RESTATED 1,250,000,000 231,437,118 50,000,000 (50,720, 579) 277,850,963 1,758,567,502 42,377,256 1,800,944,758

Net foreign currency translation adjustments for the year recognized directly in equity (Note 9)

–

–

–

(7,115,533)

–

(7,115,533)

–

(7,115,533)

Net income for the year, as restated (Note 3) – – – – 99,593,382 99,593,382 5,751,076 105,344,458

Total income and expense for the year – – – (7,115,533) 99,593,382 92,477,849 5,751,076 98,228,925

BALANCES AT DECEMBER 31, 2004, AS RESTATED P=1,250,000,000 P=231,437,118 P=50,000,000 (P=57,836,112) P=377,444,345 P=1,851,045,351 P=48,128,332 P=1,899,173,683

BALANCES AT DECEMBER 31, 2004, AS PREVIOUSLY REPORTED P=1,250,000,000 P=231,437,118 P=50,000,000 (P=57,836,112) P=320,519,701 P=1,794,120,707 P=47,085,909 P=1,841,206,616 Effect of change in accounting for employee benefits – – – – 56,924,644 56,924,644 1,042,423 57,967,067

BALANCES AT DECEMBER 31, 2004, AS RESTATED 1,250,000,000 231,437,118 50,000,000 (57,836,112) 377,444,345 1,851,045,351 48,128,332 1,899,173,683

Net foreign currency translation adjustments for the year recognized directly in equity (Note 9)

–

–

–

26,976,004

–

26,976,004

–

26,976,004

Net income for the year – – – – 119,059,522 119,059,522 5,333,993 124,393,515

Total income and expense for the year – – – 26,976,004 119,059,522 146,035,526 5,333,993 151,369,519

Expired warrants (Note 24) – 50,000,000 (50,000,000) – – – – –

Advances of minority stockholder to a subsidiary converted to equity (Note 16)

–

–

–

–

–

–

9,235,180

9,235,180

Cash dividends at P=0.02 per share (Note 26)

–

–

–

–

(25,000,000)

(25,00,000)

–

(25,000,000)

BALANCES AT DECEMBER 31, 2005 P=1,250,000,000 P=281,437,118 P=– (P=30,860,108) P=471,503,867 P=1,972,080,877 P=62,697,505 P=2,034,778,382 See accompanying Notes to Consolidated Financial Statements.

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

2005

2004 (As restated,

Note 3)

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=137,007,392 P=110,483,944 Adjustments for: Depreciation and amortization (Note 10) 63,736,146 64,007,488 Unrealized foreign exchange loss (gain) - net 12,331,888 (698,504) Equity in net income of associates (Note 9) (119,333,806) (76,955,111) Interest income (5,470,563) (3,610,756) Financing charges 1,151,881 3,789,248 Gain on sale of equipment (136,114) (314,140) Dividend income (1,200) – Operating income before working capital changes 89,285,624 96,702,169 Decrease (increase) in: Receivables (8,336,432) (12,203,325) Inventories (425,463) (1,714,178) Other current assets (27,024,955) 12,892,785 Increase (decrease) in: Accounts payable and accrued liabilities (20,416,731) 13,338,670 Rental deposit – (208,330) Provisions (reversals of allowances) for doubtful accounts and other losses

6,825,895

(9,122,808)

Retirement benefits cost (Note 20) 1,394,140 1,594,734 Benefit paid and contributions to the fund (Note 20) (715,231) (300,000) Cash generated from operations 40,586,847 100,979,717 Interest received 5,234,534 3,602,363 Financing charges paid (3,498,168) (3,568,150) Income taxes paid, including creditable withholding taxes (12,984,014) (11,801,239) Net cash from operating activities 29,339,199 89,212,691

CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of property and equipment (33,429,647) (22,413,409) Proceeds from sales of: Property and equipment and other noncurrent assets 391,350 353,000 Tax credit certificates – 7,646,021 Additional investment in an associate (Note 9) (5,508,286) – Dividends received (Note 9) 36,606,046 4,800,000 Collections of advances to an associate – 3,127,541 Increase in other noncurrent assets (2,546,164) (3,006,629) Net cash used in investing activities (4,486,701) (9,493,476)

(Forward)

- 2 - Years Ended December 31

2005

2004 (As restated,

Note 3)

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from availments of notes payable P=45,000,000 P=– Payments of notes payable (17,500,000) (14,254,281) Loans and advances received from subsidiaries’ stockholders – (21,625,000) Dividends paid (25,000,000) – Net cash from (used in) financing activities 2,500,000 (35,879,281)

NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (7,997,819) 1,020,627

NET INCREASE IN CASH AND CASH EQUIVALENTS 19,354,679 44,860,561

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 181,609,048 136,748,487

CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 5) P=200,963,727 P=181,609,048 See accompanying Notes to Consolidated Financial Statements.

MACROASIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Corporate Information and Business Operations Corporate Information MacroAsia Corporation (the Company) 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 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. Its registered office address is 12th Floor, Allied Bank Center, 6754 Ayala Avenue, Makati City.

The consolidated financial statements for the years ended December 31, 2005 and 2004 were

authorized for issue by the Board of Directors (BOD) on March 30, 2006.

Business Operations The principal activities of the Company and its subsidiaries (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, and it operates/develops the sole economic zone within the NAIA.

Through Lufthansa Technik Philippines, Inc. (LTP), an associate, which has a maintenance,

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

The Company positions itself for further growth and expansions as it pursues development

projects outside the aviation support services. It ventured into the third party logistics business with Sembcorp Logistics Ltd. (SembLog, a company incorporated in Singapore) on January 24, 2005 (see Note 9). Further, with the recent developments in the Philippine mining industry, the Company is considering the revival of its mining business (see Notes 12 and 30).

2. Significant Accounting Judgments and Estimates The preparation of the financial statements in compliance with Philippine generally accepted

accounting principles (GAAP) requires the Company to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The estimates and assumptions are based on management’s evaluation of relevant facts and circumstances as of dates of the comparative financial statements. Actual results could differ from such estimates.

- 2 - Determination of the Group’s functional currency The Group, based on the relevant economic substance of the underlying circumstances, has

determined its functional currency to be the Philippine peso. It is the currency of the primary economic environment in which its subsidiaries and two of its associates operate.

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 definitions 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 sheets. The Group determines the classification at initial recognition and reevaluates this classification at every reporting date.

Estimating 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 collectibility of the accounts. The balance of allowance for doubtful accounts amounted to P=8.9 million and P=9.2 million as of December 31, 2005 and 2004, respectively (see Note 6). Recognition of deferred tax assets The Group reviews the carrying amounts of deferred tax assets at each balance sheet date and adjusts the balance of deferred tax assets to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. Deferred tax assets recognized amounted to P=8.4 million and P=6.7 million as of December 31, 2005 and 2004, respectively. More details are provided in Note 23 to the consolidated financial statements.

Estimating useful lives and residual values of property and equipment The Group estimates the useful lives 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. The carrying value of property and equipment as of December 31, 2005 and 2004 amounted to P=337.5 million and P=370.6 million, respectively (see Note 10).

Impairment of assets The Group determines whether its nonfinancial assets are impaired, at least on an annual basis. This requires an estimation of the value in use of the cash generating units to which the assets belong. Estimating the value in use requires the Group to make an estimate of the expected future

- 3 - cash flows from the cash generating unit and also to choose the approximate pre-tax discount rate to calculate the present value of those cash flows. As of December 31, 2005 and 2004, the recognized impairment loss on investment property amounted to P=25.2 million (see Note 11).

Provisions The Group provides for present obligations (legal or constructive) when it is probable that there will be an outflow of resources embodying economic benefits that will be required to settle said obligations. An estimate of the provision is based on known information at the balance sheet date, net of any estimated amount that may be reimbursed to the Group. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. The amount of provision is reassessed at least on an annual basis to consider new relevant information. The Group has not recognized any provision in 2005 and 2004.

Estimating retirement benefits cost The Group’s retirement benefits cost is actuarially computed. This entails using certain

assumptions with respect to salary increases, rate of return on plan assets and discount rates (see Note 20). Total accrued retirement benefits payable amounted to P=6.4 million and P=5.7 million as of December 31, 2005 and 2004, respectively.

3. Summary of Significant Accounting and Financial Reporting Policies Basis of Preparation The accompanying consolidated financial statements have been prepared using the historical cost

basis, except for financial assets and financial liabilities that have been measured at fair values, and in compliance with GAAP in the Philippines as set forth in Philippine Financial Reporting Standards (PFRS) and presented in Philippine peso, the Group’s functional currency. These are the Group’s first consolidated financial statements prepared in accordance with PFRS.

The Group prepared its consolidated financial statements until December 31, 2004 in compliance

with Statements of Financial Accounting Standards (SFAS) and Statements of Financial Accounting Standards/International Accounting Standards (SFAS/IAS).

The Group applied PFRS 1, First-time Adoption of Philippine Financial Reporting Standards, in

preparing the consolidated financial statements, with January 1, 2004 as the date of transition. The adoption of PFRS resulted in certain changes to the Group’s previous accounting policies. The comparative figures for the 2004 consolidated financial statements were restated to reflect these changes to policies, except Philippine Accounting Standard (PAS) 32, Financial Instruments: Disclosure and Presentation and PAS 39, Financial Instruments: Recognition and Measurement. Based on the exemption available under PFRS 1 and as allowed by the Philippine Securities and Exchange Commission (SEC), the Group adjusted the effect of adopting PAS 39 to retained earnings as of January 1, 2005.

- 4 - An explanation of the effects of the transition to PFRS is set forth in the following table and

notes:

At January 1, 2004 (date of transition)

At December 31, 2004 (end of last period presented

under previous GAAP)

Notes Previous

GAAP

Effect of transition to

PFRS PFRS Previous

GAAP

Effect of transition to

PFRS PFRS ASSETS Current Assets Cash and cash equivalents P=136,748,487 P=– P=136,748,487 P=181,609,048 P=– P=181,609,048 Receivables - net 146,324,058 – 146,324,058 154,825,118 – 154,825,118 Inventories 21,903,843 – 21,903,843 23,618,021 – 23,618,021 Other noncurrent assets 74,750,026 – 74,750,026 64,090,748 – 64,090,748 Total Current Assets 379,726,414 – 379,726,414 424,142,935 – 424,142,935

Noncurrent Assets Investments in associates 1,023,550,266 41,571,516 1,065,121,782 1,077,088,654 53,072,706 1,130,161,360 Property and equipment - net b, c 371,040,202 25,761,385 396,801,587 347,422,392 23,200,608 370,623,000 Investment property - net b 118,680,000 – 118,680,000 118,680,000 – 118,680,000 Accrued rental receivable 50,896,440 – 50,896,440 66,165,371 – 66,165,371 Deferred tax assets - net a 5,721,709 (1,030,170) 4,691,539 8,220,750 (1,528,080) 6,692,670 Deposits and other noncurrent assets - net

c

88,849,884

(25,761,385)

63,088,499

87,066,546

(23,200,608)

63,865,938

Total Noncurrent Assets 1,658,738,501 40,541,346 1,699,279,847 1,704,643,713 51,544,626 1,756,188,339 TOTAL ASSETS P=2,038,464,915 P=40,541,346 P=2,079,006,261 P=2,128,786,648 P=51,544,626 P=2,180,331,274 LIABILITIES AND EQUITY

Current Liabilities Notes payable P=14,254,281 P=– P=14,254,281 P=– P=– P=– Accounts payable and accrued liabilities

95,869,842

–

95,869,842

146,278,382

–

146,278,382

Income tax payable 1,322,336 – 1,322,336 1,203,856 – 1,203,856 Dividends payable 7,137,132 – 7,137,132 7,137,132 – 7,137,132 Loans from subsidiary’s stockholders

21,125,000

–

21,125,000

–

–

–

Total Current Liabilities 139,708,591 – 139,708,591 154,619,370 – 154,619,370

Noncurrent Liabilities Accrued rental payable 50,896,440 – 50,896,440 66,165,371 – 66,165,371 Rental deposit 24,588,996 – 24,588,996 24,588,996 – 24,588,996 Loans from and payables to subsidiaries’ stockholders

57,845,076

–

57,845,076

29,799,151

–

29,799,151

Accrued retirement benefits payable

a

10,874,598

(6,489,135)

4,385,463

12,102,638

(6,422,441)

5,680,197

Deferred tax liability 636,937 – 636,937 304,506 – 304,506 Total Noncurrent Liabilities

144,842,047

(6,489,135)

138,352,912

132,960,662

(6,422,441)

126,538,221

Total Liabilities 284,550,638 (6,489,135) 278,061,503 287,580,032 (6,422,441) 281,157,591

Equity Attributable to the equity holders of the parent:

Capital stock 1,250,000,000 – 1,250,000,000 1,250,000,000 – 1,250,000,000 Additional paid-in capital 231,437,118 – 231,437,118 231,437,118 – 231,437,118 Warrants outstanding 50,000,000 – 50,000,000 50,000,000 – 50,000,000 Share in foreign currency translation adjustments of an associate

(50,720,579)

–

(50,720,579)

(57,836,112)

–

(57,836,112) Retained earnings a 231,996,059 45,854,904 277,850,963 320,519,701 56,924,644 377,444,345 1,712,712,598 45,854,904 1,758,567,502 1,794,120,707 56,924,644 1,851,045,351 Minority interest a 41,201,679 1,175,577 42,377,256 47,085,909 1,042,423 48,128,332 Total Equity 1,753,914,277 47,030,481 1,800,944,758 1,841,206,616 57,967,067 1,899,173,683 TOTAL LIABILITIES AND EQUITY

P=2,038,464,915

P=40,541,346

P=2,079,006,261

P=2,128,786,648

P=51,544,626

P=2,180,331,274

- 5 -

a. Retirement Benefits Costs Under the previous Philippine GAAP, pension benefits were actuarially determined using the

projected unit credit method and past service cost and experience adjustments amortized over the expected average remaining working lives of the covered employees. Under PAS 19, Employee Benefits, pension benefits are determined using the projected unit credit method and actuarial gains and losses that exceed a 10% of the higher of the defined benefit obligation and the fair value of plan assets are amortized over the expected average remaining working lives of participating employees and vested past service costs, recognized immediately (see Note 20).

The Group applied the standard retroactively which resulted in the restatement of prior year’s

consolidated financial statements. The Group’s retained earnings as of December 31, 2004 and January 1, 2004 increased by P=3.8 million and P=4.3 million, respectively, and net income in 2004 decreased by P=0.4 million.

LTP also applied this standard retroactively which resulted in the restatement of prior year’s

financial statements. LTP’s retained earnings as of December 31, 2004 and January 1, 2004 increased by P=108.3 million and P=84.8 million, respectively, and net income in 2004 increased by P=23.5 million. These adjustments accordingly increased the Company’s retained earnings as of December 31, 2004 and January 1, 2004 by P=53.1 million and 41.6 million, respectively, and share in equity in net earnings in associate in 2004 by P=11.5 million.

b. Investment Property PAS 40, Investment Property, prescribes the accounting treatment for investment property

and related disclosure requirements. This standard permits a company to choose either the fair value model or cost model in accounting for investment property. Fair value model requires an investment property to be measured at fair value with fair value changes recognized directly in the statements of income. Cost model requires that an investment property be measured at depreciated cost, less any accumulated impairment losses.

The Group has land held for future development that was previously recorded as “land held

for future development” in the consolidated balance sheets. Under PFRS, a tangible asset that is being leased out or held for capital appreciation should be reclassified to and separately presented as Investment property, in accordance with PAS 40.

Upon adoption of PAS 40, the Group reclassified the said property, and accordingly reported

it as investment property. The Group opted to continue the use of the cost model in accounting for its investment property. Accordingly, the adoption of PAS 40 has no effect on retained earnings as of January 1 and December 31, 2004 or on the net income for 2004.

c. Noncurrent Assets Held for Sale

PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations, specifies the

accounting for assets held for sale and the presentation and disclosure of discontinued operations. It requires assets that meet the criteria to be classified as held for sale to be measured at the lower of carrying amount and fair value less costs to sell, and the depreciation on such assets to cease. Furthermore, assets that meet the criteria to be classified as held for sale should be presented separately on the face of the consolidated balance sheet and the results of discontinued operations to be presented separately in the consolidated statement of income.

- 6 -

The Group has a helicopter unit, that is used intermittently in business and such and related

spare parts were previously recorded as part of “Deposits and other noncurrent assets” in the consolidated balance sheets. At the time when the BOD approved the proposal to sell these assets on June 30, 2000, these were reclassified from “Property and equipment” to “Deposits and other noncurrent assets” at the lower of their carrying value and net realizable value.

Under PFRS, if these assets do not qualify as held for sale (or for inclusion in a disposable

group that is classified as held for sale) in accordance with PFRS 5, they should be classified as property and equipment. Accordingly, upon the Company’s adoption of PFRS, the Group reclassified the helicopter unit and spare parts back to “Property and equipment”. This, though, has no effect on retained earnings as of January 1, 2004.

The foregoing adjustments increased retained earnings at December 31, 2004 and January 1, 2004 as follows:

December 31,

2004 January 1,

2004 Investments in associates (Note a) P=53,072,706 P=41,571,516 Accrued retirement benefit payable (Note a) 5,380,018 5,313,558 Deferred tax assets (Note a) (1,528,080) (1,030,170) P=56,924,644 P=45,854,904

Reconciliation of Income for 2004

Notes Previous

GAAP

Effects of transition to

PFRS PFRS

SERVICE REVENUE In-flight catering P=452,924,401 P=– P=452,924,401 Rental and administrative 184,502,135 – 184,502,135 Ground handling and aviation 72,535,408 – 72,535,408 Charter flights 12,397,777 – 12,397,777 722,359,721 – 722,359,721

DIRECT COST 544,459,045 – 544,459,045

GROSS PROFIT 177,900,676 – 177,900,676

Selling expenses (13,977,894) – (13,977,894) General and administrative expenses a (146,944,587) (66,695) (147,011,282) Equity in net income of associates a 65,453,921 11,501,190 76,955,111 Interest income 3,610,756 – 3,610,756 Financing charges (3,789,248) – (3,789,248) Foreign exchange gain - net 655,999 – 655,999 Others - net 16,139,826 – 16,139,826

INCOME BEFORE INCOME TAX 99,049,449 11,434,495 110,483,944

PROVISION FOR INCOME TAX a 4,641,577 497,909 5,139,486 NET INCOME P=94,407,872 P=10,936,586 P=105,344,458

(Forward)

- 7 -

Notes Previous

GAAP

Effects of transition to

PFRS PFRS

Attributable to: Equity holders of the parent P=88,523,642 P=11,069,740 P=99,593,382 Minority interests 5,884,230 (133,154) 5,751,076 P=94,407,872 P=10,936,586 P=105,344,458 Basic earnings per share P=0.0708 P=0.0797

Effects on the 2004 Consolidated Statement of Cash Flows The following table shows the effect on the 2004 consolidated statement of cash flows of the

Group’s transition to PFRS:

Notes

Previous

GAAP

Effects of Transition

to PFRS

PFRS Cash flows from: Operating activities: Income before income tax a P=99,049,449 P=11,434,495 P=110,483,944 Equity in net income of associates a (65,453,921) (11,501,190) (76,955,111) Retirement benefits cost a 1,528,039 66,695 1,594,734 Other items 54,089,124 – 54,089,124 89,212,691 – 89,212,691 Investing activities (9,493,476) – (9,493,476) Financing activities (35,879,281) – (35,879,281) Net effect of exchange rate changes on cash and cash equivalents 1,020,627 – 1,020,627 Net increase in cash and cash equivalents 44,860,561 – 44,860,561 Cash and cash equivalents at beginning of year 136,748,487 – 136,748,487 Cash and cash equivalents at end of year P=181,609,048 P=– P=181,609,048

Other Adopted PFRS The Group also adopted the following other new and revised accounting standards beginning January 1, 2005. Comparative presentation and disclosures have been amended as required by the standards. Adoption of these standards has no effect on equity at January 1, 2004 and December 31, 2004.

New Accounting Standards

• PAS 21, The Effects of Changes in Foreign Exchange Rates, prohibits the capitalization of foreign exchange losses. It also requires a company to determine its functional currency and measure its results of operations and financial position in that currency. The Group has determined that its functional currency is the Philippine peso, which is also its reporting currency.

- 8 -

• PAS 32, Financial Instruments: Disclosure and Presentation, covers the disclosure and presentation of all financial instruments. The standard requires more comprehensive disclosures about the company’s financial instruments in the financial statements. New disclosure requirements include terms and conditions of financial instruments used by a company, types of risks associated with financial instruments (market risk, price risk, credit risk, liquidity risk, and cash flow risk), fair value information of financial assets and financial liabilities, and the company’s financial risk management policies and objectives. The standard also requires financial instruments to be classified as liabilities or equity in accordance with their substance and not their legal form.

• PAS 39, Financial Instruments: Recognition and Measurement, establishes the accounting

and reporting standards for recognizing and measuring the company’s financial assets and financial liabilities. The standard requires a financial asset or financial liability to be recognized initially at fair value. Subsequent to initial recognition, a company should continue to measure financial assets at their fair values, except for loans and receivables and held-to-maturity investments, which are to be measured at cost or amortized cost using the effective interest rate method. Financial liabilities are subsequently measured at cost or amortized cost, except for liabilities classified as “at fair value through profit and loss” and derivatives, which are subsequently to be measured at fair value.

MacroAsia Properties Development Corporation (MAPDC), a wholly owned subsidiary, has a

refundable noninterest-bearing deposit receivable amounting to P=24.6 million related to its lease contract with Manila International Airport Authority (MIAA, see Note 27) and another deposit payable of the same amount related to its sublease contract with LTP (see Note 15).

The adoption of PAS 39 resulted in the adjustment of the values of these deposits to their

present value of P=1.0 million and P=1.2 million as of December 31, 2005 and January 1, 2005, respectively. This resulted in the recognition of deferred rent expense and unearned rent income for the same amount of P=19.0 million and P=20 million as of December 31, 2005 and January 1, 2005, respectively. The net effect on retained earnings as of January 1, 2005 is zero as the deferred rent expense and unearned rent income, net of accretion of interest and amortization in prior years, were adjusted at the same amount of P=3.5 million against retained earnings. In 2005, accretion of interest and amortization of deferred rent expense/unearned rent income amounted to P=0.2 million and P=1.0 million, respectively.

• PFRS 3, Business Combinations, results in the cessation of the amortization of goodwill and a

requirement for an annual test for goodwill impairment. Any resulting negative goodwill after performing reassessment will be credited to income. Moreover, pooling of interests in accounting for business combination will no longer be permitted.

PFRS 3 has been applied for business combinations for which the agreement date is on or

after January 1, 2004. The effect of the adoption of PFRS 3 upon the Group’s accounting policies has impacted the recognition of restructuring provisions arising upon an acquisition. The Group is now only permitted to recognize an existing liability contained in the acquiree’s financial statements on acquisition. Previously, this type of restructuring provision could be recognized by the acquirer regardless of whether the acquiree had recognized this type of liability.

- 9 - Further, upon acquisition, the Group initially measures the identifiable assets, liabilities and

contingent liabilities acquired at their fair values as at the acquisition date; hence causing any minority interest in the acquiree to be stated at the minority proportion of the net fair values of those items.

Revised Accounting Standards

• PAS 1, Presentation of Financial Statements, provides a framework within which a company assesses how to present fairly the effects of transactions and other events; provides the base criteria for classifying liabilities as current or noncurrent; prohibits the presentation of income from operating activities and extraordinary items as separate line items in the consolidated statement of income; and specifies the disclosures about key sources of estimation, uncertainty and judgments management has made in the process of applying the company’s accounting policies. It also requires changes in the presentation of minority interest in the consolidated balance sheet and consolidated statement of income.

• PAS 2, Inventories, reduces the alternatives for measurement of inventories. It does not permit the use of the last in, first out formula to measure the cost of inventories.

• PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, removes the concept of fundamental error and the allowed alternative to retrospective application of voluntary changes in accounting policies and retrospective restatement to correct prior period errors. It defines material omission or misstatements, and describes how to apply the concept of materiality when applying accounting policies and correcting errors.

• PAS 10, Events After the Balance Sheet Date, provides a limited clarification of the

accounting for dividends declared after the balance sheet date.

• PAS 16, Property, Plant and Equipment, provides additional guidance and clarification on recognition and measurement of items of property, plant and equipment. It also provides that each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately.

• PAS 17, Leases, provides a limited revision to clarify the classification of a lease of land and

buildings and prohibits expensing of initial direct costs in the financial statements of the lessors.

• PAS 24, Related Party Disclosures, provides additional guidance and clarity in the scope of

the standard, the definitions and disclosures for related parties. It also requires the disclosure of the compensation of key management personnel in total and by benefit type.

• PAS 27, Consolidated and Separate Financial Statements, reduces alternatives in accounting

for subsidiaries in consolidated financial statements and in accounting for investments in the separate financial statements of a parent, venturer or investor. Investments in subsidiaries will be accounted for either at cost or in accordance with PAS 39 in the separate financial statements. The Company accounted for its investment in subsidiaries at cost, less any impairment loss, in its separate financial statements.

- 10 -

• PAS 28, Investments in Associates, reduces alternatives in accounting for associates in

consolidated financial statements and in accounting for investments in the separate financial statements of an investor. Investments in associates will be accounted for either at cost or in accordance with PAS 39 in the separate financial statements.

The Company accounted for its investments in subsidiaries and associates at cost, less any

impairment loss, in its separate financial statements. This change was applied retroactively and prior years’ parent company financial statements were restated accordingly. In the parent company financial statements, the Company’s retained earnings as of January 1, 2004 and December 31, 2004 decreased by P=77.4 million and P=160.9 million, respectively, and net income in 2004 decreased by P=83.5 million. Moreover, the Company’s share in foreign currency translation adjustments of its associate amounting to P=57.8 million as of December 31, 2004 was reversed.

• PAS 31, Interests in Joint Ventures, reduces the alternatives in accounting for interests in

joint ventures in consolidated financial statements and in accounting for investments in the separate financial statements of a venturer. Interests in joint ventures will be accounted for either at cost, less any impairment loss, or in accordance with PAS 39 in the separate financial statements.

• PAS 33, Earnings Per Share, prescribes principles for the determination and presentation of

earnings per share for companies with publicly traded shares, companies in the process of issuing ordinary shares to the public, and companies that calculate and disclose earnings per share. The standard also provides additional guidance in computing earnings per share including the effects of mandatorily convertible instruments and contingently issuable shares, among others.

• PAS 36, Impairment of Assets, requires a company to measure the recoverable amount of an

intangible asset with an indefinite useful life annually, whether or not there is an indication of impairment. Goodwill recognized on a business combination is required to be tested for impairment annually.

Standards Effective Subsequent to 2005

The Accounting Standards Council has also approved the following amendments and new standards which will become effective after December 31, 2005. The revised disclosures provided by these amendments and new standards will be included in the Group’s consolidated financial statements when the Group adopts them subsequent to December 31, 2005 when they become effective.

• Amendments to PAS 19, Employee Benefits-Actuarial Gains and Losses, Group Plans and

Disclosures (effective January 1, 2006) • Amendments to PAS 39, Financial Instruments: Recognition and Measurement (effective

January 1, 2006)

- 11 -

• PFRS 6, Exploration for and Evaluation of Mineral Resources (effective January 1, 2006), permits an entity to develop an accounting policy for exploration and evaluation assets without specifically considering the requirements of SFAS/IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. Thus, under PFRS 6, an entity may continue to use the accounting policies applied immediately before adopting PFRS 6. This includes continuing to use recognition and measurement practices that are part of those accounting policies. It also requires entities recognizing exploration and evaluation assets to perform an impairment test on those assets when facts and circumstances suggest that the carrying amount of the assets may exceed their recoverable amount. It varies the recognition of impairment from that in PAS 36, but measures the impairment in accordance with that standard once the impairment is identified.

• PFRS 7, Financial Instruments: Disclosures (effective January 1, 2007), applies to all risks

arising from all financial instruments, except those instruments exempted under PFRS 7. While PFRS 7 applies to all entities, the extent of disclosures required depends on the extent of the entity’s use of financial instruments and its exposure to risk. PFRS 7 requires disclosures of the following:

a. the significance of financial instruments for an entity’s financial position and

performance

b. qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk. The quantitative disclosures describe management’s objectives, provide information about the extent to which the entity is exposed to risk, based on information provided internally to the entity’s key management personnel. Together, these disclosures provide an overview of the entity’s use of financial instruments and the exposures to the risks they create.

Basis of Consolidation The consolidated financial statements comprise the financial statements as of December 31 of

each year of the Company and the following subsidiaries, which were all incorporated in the Philippines.

Percentage of Ownership Direct Indirect MacroAsia Air Taxi Services, Inc. (MAATS) 100 – MAPDC 100 – MacroAsia-Menzies Airport Services Corporation (MASCORP) 70 – Airport Specialists’ Services Corporation (ASSC)* – 70 MacroAsia-Eurest Catering Services, Inc. (MECS) 67 – MacroAsia Mining Corporation (MMC)** 67 –

* A wholly owned subsidiary of MASCORP; has ceased commercial operations effective May 1, 2001. ** Incorporated on September 25, 2000; has not started commercial operations.

- 12

The consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. Intercompany balances and transactions, including intercompany profits and unrealized profits and losses, are eliminated.

Minority Interest Minority interest represents the interest in a subsidiary, which not owned, directly or indirectly

through subsidiaries, by the Company. If losses applicable to the minority interest in a subsidiary exceed the minority interest’s equity in the subsidiary, the excess, and any further losses applicable to the minority interest, are charged against the majority interest except to the extent that the minority 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 minority interest’s share of losses previously absorbed by the majority interest has been recovered.

Investments in Associates

Investments in associates pertain to the Company’s investments in shares of stock of Cebu Pacific Catering Services Inc. (CPCS), 40%-owned, and LTP and SembLog-MacroAsia Philippines, Inc. (SMP), 49%-owned (see Note 9). Since the Company has no joint control but instead has significant influence over LTP and SMP, joint ventures, the Company accounts for its investments in LTP and SMP in compliance with the provisions of PAS 28. An associate is an entity in which the Company has significant influence, mainly through representation in the associate’s BOD and participation in policy-making processes, and which is neither a subsidiary nor a joint venture.

The Company’s investments in associates are accounted for using the equity method. Under this method, the investments in associates are carried in the consolidated balance sheets 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 statements of income reflect the Company’s share in the results of operations of the associates. Unrealized gains arising from transactions with the associates are eliminated to the extent of the Company’s interests in the 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.

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.

- 13 -

Receivables Receivables are stated at face value less allowance for doubtful accounts. Provision is made

when there is objective evidence that the Group will not be able to collect debts. Doubtful accounts are written off when identified. Financial Assets and Liabilities

Effective January 1, 2005, the Group adopted the following policies in accounting for financial assets and liabilities.

Financial assets within the scope of PAS 39 are classified as either financial assets at fair value through profit or loss, loans or receivables, held-to-maturity investments, and available-for-sale financial assets, as appropriate. Financial liabilities, on the other hand, are classified as either financial liabilities through profit and loss or other liabilities, as appropriate. The Group determines the classification at initial recognition and reevaluates this classification at every reporting date.

Financial assets and liabilities are recognized initially at fair value. Transaction costs are included in the initial measurement as of all financial assets and liabilities, except for financial instruments measured at fair value through profit and loss. Fair value is determined by reference to the transaction price or other market prices. If such market prices are not readily determinable, the fair value of the consideration is estimated as the sum of all future cash payments or receipts, discounted using the prevailing market rates of interest for similar instruments with similar maturities. 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.

a. Financial Asset or Financial Liability at Fair Value Through Profit or Loss

A financial asset or financial liability is classified in this category if acquired principally for the purpose of selling or repurchasing in the near term or upon initial recognition, it is designated by the management as at fair value through profit or loss. Derivatives are also categorized as held at fair value through profit or loss, except those derivatives designated and considered as effective hedging instruments. Assets or liabilities classified under this category are carried at fair value in the consolidated balance sheets. Changes in the fair value of such assets and liabilities are accounted for in earnings. Financial instruments held at fair value through profit or loss is classified as current if they are expected to be realized within twelve months of the balance sheet date.

b. Loans or Receivables

Loans or 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 or receivables are carried at cost or amortized cost in the consolidated balance sheets. Amortization is determined using the effective interest rate method. Loans or receivables are included in current assets if maturity is within twelve months from the balance sheet date. Otherwise, these are classified as noncurrent assets.

- 14 -

c. Held-to-maturity Investments

Held-to-maturity 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. Held-to-maturity assets are carried at cost or amortized cost in the consolidated balance sheets. Amortization is determined by using the effective interest rate method. Assets under this category are classified as current assets if maturity is within twelve months of the balance sheet date and noncurrent assets if maturity is more than a year.

d. Available-for-sale Financial Assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other category. Available-for-sale financial assets are carried at fair value in the consolidated balance sheets. Changes in the fair value of such assets are accounted for in equity. These financial assets are classified as noncurrent assets unless the intention is to dispose such assets within twelve months from the balance sheet date.

The Group has not designated any financial asset as held to maturity nor has designated any financial asset or financial liability as at fair value through profit or loss. The Group does not actively enter into derivative transactions. Derecognition of Financial Assets and 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 derecognised where:

a. the rights to receive cash flows from the asset have expired; b. the Group retains the right to receive cash flows from the asset, but has assumed an obligation

to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or

c. the Group has transferred its rights to receive cash flows from the asset and either (a) has

transferred substantially all the risks and rewards of the asset, 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 rights to receive cash flows from an asset and has neither

transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

- 15 - Where continuing involvement takes the form of a written and/or purchased option (including a

cash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

Where an existing financial liability is replaced by another from the same lender on substantially

different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.

Inventories Inventories are stated at the lower of cost and net realizable value. Costs incurred in bringing the

product to its present location and condition are accounted for at purchase cost, determined primarily on the basis of the moving average method. Net realizable value is the selling price in the ordinary course of business, less the estimated costs of completion and estimated costs necessary to make the sale.

Property and Equipment Property and equipment are stated at cost, less accumulated depreciation and amortization and any

impairment in value. The initial cost of property and equipment comprises of 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 operations 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.

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

No. of Years Building 25 Kitchen and other operations equipment 3 to 10 Office furniture, fixtures and equipment 3 to 7 Aviation equipment 5 Transportation equipment 5 Helicopter spare parts 3 to 5

- 16 - Building and leasehold improvements are amortized over the terms of the leases or the lives of the assets (which range from two to five years), whichever is shorter.

Depreciation of an item of property and equipment begins when it 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 ceases at the earlier of 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 and the date the asset is derecognized.

The residual values, useful lives and depreciation and amortization method 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 and related accumulated depreciation and amortization and any impairment in value are removed from the accounts, and any gain or loss resulting from their disposal is included in the consolidated statements of income.

Construction in progress, included in property and equipment, is stated at cost. This includes cost of construction, equipment and other direct costs. Borrowing costs that are directly attributable to the construction of equipment are capitalized during the construction period. Construction in progress is not depreciated until such time as the relevant assets are completed and become available for use.

Investment Property Investment property pertains to land held for future development that 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 on the derecognition of an investment property is recognized in the consolidated statement of income in the year of derecognition. Impairment of Financial Assets

The Group assesses at each balance sheet date whether a financial asset or group of financial assets is impaired.

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 a 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 either directly or through the use of an allowance account. The amount of loss shall be recognized in the consolidated statements of income. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and collectively for financial assets that are not individually significant.

- 17 - 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 or continue to be recognized are not included in a collective assessment of impairment.

If, in subsequent period, the amount of the impairment loss decreases and the decrease can be

related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the consolidated statements of income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. Impairment of Nonfinancial Assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses of continuing operations are recognized in the consolidated statements of income in those expense categories consistent with the function of the impaired asset.

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

recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the 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, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. 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.

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

included under the “Deposits and other noncurrent assets” in the consolidated balance sheets. 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.

- 18 - 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.

Revenue

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.

Sale of goods Catering revenue is recognized upon delivery of goods to and acceptance by airline clients and

other customers. Rendering of services Revenue from ground handling and 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, except for helicopter rental income which is accounted for based on flying hours.

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 life of the financial assets to the net carrying amount of the financial asset.

Retirement Benefits Costs Retirement benefits costs are actuarially determined using the projected unit credit method.

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 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 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.

- 19 - If the asset is measured at 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, net actuarial losses of the current period and past service cost of the current period are recognized immediately to the extent that they exceed any reduction in the present value of those economic benefits. If there is no change or an increase in the present value of economic benefits, the entire net actuarial losses of the current period and past service cost of the current period are recognized immediately to the extent that they exceed any reduction in the present value of those economic benefits. Similarly, net actuarial gains of the current period after the deduction of past service cost of the current period exceeding any increase in the present value of the economic benefits stated above are recognized immediately if the asset is measured at 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. If there is no change or a decrease in the present value of the economic benefits, the entire net actuarial gains of the current period after the deduction of past service cost of the current period are recognized immediately.

Borrowing Costs Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are directly attributable to the acquisition or construction of a qualifying asset. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the assets are substantially ready for their intended use.

Operating Leases Lease expense (income) under an operating lease agreement is recognized in the statements of

income as expense (income) on a straight-line basis over the lease term.

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.

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 balance sheets but disclosed when an inflow of economic benefits is probable.

Income Tax Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount

expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the balance sheet date.

Deferred tax Deferred tax assets and liabilities are provided, using the balance sheet liability method, on all

temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

- 20 -

Deferred tax liabilities are recognized for all taxable temporary differences. Deferred 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 net operating loss carryover (NOLCO), to the extent that it is probable that taxable profit 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 or loss.

Deferred 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 tax liabilities are recognized except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and 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 balance sheet date.

Income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statements of income.

Foreign Currency Transactions and Translations Transactions denominated in foreign currencies are recorded using the exchange rate at the date

of the transaction. Outstanding monetary assets and liabilities denominated in foreign currencies are restated using the closing exchange rate at balance sheet dates. Foreign exchange gains or losses are credited to or charged against current operations.

The results and financial position of an associate whose functional currency is not the currency of a hyperinflationary economy is translated into the Group’s presentation currency using the following procedures: a. assets and liabilities for each consolidated balance sheet presented shall be translated at the

closing rate at the consolidated balance sheet date b. income and expenses for each consolidated income statement shall be translated at exchange

rates at the dates of transactions c. all resulting exchange differences shall be recognized as a separate component of equity.

- 21 -

Events after the Balance Sheet Date Post-year-end events that provide additional information about the Group’s position at the balance sheet 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.

Earnings Per Share Basic earnings per share are computed by dividing net income by the weighted average number of

shares outstanding during the year. 4. Segment Information The Group’s operating businesses are organized and managed separately according to the nature

of aviation-support services provided by the Company’s four operating subsidiaries and MMC, which is the basis on which the Group reports its primary segment information.

The operating subsidiaries include MECS (in-flight 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:

• MECS provides the meal requirements of certain foreign and domestic passenger airlines. It

operates an in-flight catering business at the NAIA and the MDA.

• MASCORP provides both ramp and passenger handling and aviation services to foreign airlines at NAIA and a domestic carrier at MDA.

• MAATS, through alliances with other helicopter owners, provides international and domestic

chartered flights from its base at the General Aviation Area, MDA to any point within the Philippines.

• MAPDC is the economic zone developer/operator of the MacroAsia Ecozone at NAIA (see

Note 22), with LTP as the anchor locator and to whom MAPDC has sub-leased the property it leases from Manila International Airport Authority (MIAA) (see Note 27).

MMC, on the other hand, was incorporated to serve as the institutional vehicle through and under which the business of a mining enterprise may be established, operated and maintained. It has not started commercial operations.

The Group has only one geographic segment. 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 impairment in value. Segment liabilities include all operating liabilities and consist principally of accounts payable, accrued wages and other accrued liabilities. Segment assets and liabilities do not include deferred taxes.

- 22 - Financial information on the Group’s business segments as of and for the years ended

December 31, 2005 and 2004 are as follows:

2005 2004 SERVICE REVENUE - External In-flight catering P=544,773,792 P=452,924,401 Rental and administrative 184,502,135 184,502,135 Ground handling and aviation 73,295,879 72,535,408 Charter flights 6,811,400 12,397,777 Total segment and consolidated revenue P=809,383,206 P=722,359,721

2005

2004 (As restated,

Note 3) RESULT - Segment result In-flight catering services P=64,101,958 P=40,481,401 Rental and administrative services 6,852,676 6,638,085 Ground handling and aviation services (6,568,912) (610,045) Charter flights services (619,590) 3,805,817 Mining (33,615) (29,291) Total segment result 63,732,517 50,285,967 Unallocated corporate expenses and eliminations (45,103,413) (21,873,277) Other income - net 118,378,288 82,071,254 Provision for income tax (12,613,877) (5,139,486) Consolidated net income P=124,393,515 P=105,344,458 Attributable to: Equity holders of the parent P=119,059,522 P=99,593,382 Minority interest 5,333,993 5,751,076 Consolidated net income P=124,393,515 P=105,344,458

OTHER INFORMATION

2005

2004 (As restated,

Note 3) Segment assets In-flight catering services P=551,939,712 P=565,133,455 Rental and administrative services 256,833,017 129,314,489 Ground handling and aviation services 81,225,090 104,128,995 Charter flights services 15,320,323 16,560,188 Mining 21,774,982 7,984,133 Total segment assets 927,093,124 823,121,260 Investments in associates 1,242,374,610 1,130,161,360 Investment property - net 118,680,000 118,680,000 Unallocated corporate assets 28,507,943 108,368,654 Consolidated total assets P=2,316,655,677 P=2,180,331,274

- 23 -

2005

2004 (As restated,

Note 3) Segment liabilities In-flight catering services P=432,661,285 P=464,735,122 Rental and administrative services 224,487,034 221,652,035 Ground handling and aviation services 19,665,755 68,329,669 Charter flights services 962,238 1,343,967 Mining 49,116 20,000 Total segment liabilities 677,825,428 756,080,793 Eliminations (364,854,181) (408,623,127) Unallocated corporate liabilities (31,093,952) (66,300,075) Consolidated total liabilities P=281,877,295 P=281,157,591

2005 2004 Capital expenditures In-flight catering services P=11,418,917 P=34,604,578 Rental and administrative services 2,524,458 2,914,989 Ground handling and aviation services 9,010,493 13,416,102 Charter flights services 87,163 – Total P=23,041,031 P=50,935,669

2005 2004 Depreciation and amortization In-flight catering services P=45,604,755 P=47,226,352 Rental and administrative services 1,740,440 2,289,029 Ground handling and aviation services 9,944,893 7,560,023 Charter flights services 285,240 294,816 Unallocated corporate depreciation and amortization 6,160,818 6,637,268 Total P=63,736,146 P=64,007,488

2005 2004 Noncash expenses other than depreciation and amortization In-flight catering services P=6,000,000 P=4,929,149 Rental and administrative services – 307,159 Total P=6,000,000 P=5,236,308

5. Cash and Cash Equivalents Cash and cash equivalents consist of:

2005 2004 Cash P=76,801,735 P=98,234,688 Cash equivalents 124,161,992 83,374,360 P=200,963,727 P=181,609,048

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

varying periods of up to three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.

As of December 31, 2005 and 2004, cash includes foreign currency amounting to US$1.1 million

and US$1.0 million, respectively, held by Morgan Stanley in trust for the Company. 6. Receivables Receivables consist of:

2005 2004 Trade - net of allowance for doubtful accounts of P=8,934,937 in 2005 and P=9,166,472 in 2004

P=140,947,832

P=142,559,954

Advances to: Officers and employees 3,180,853 5,643,736 Suppliers and contractors 7,880,452 1,724,593 Related parties (Note 15) 36,453 – Dividend receivable (Note 9) 3,000,000 – Accrued interest 49,924 89,561 Others 6,121,814 4,807,274 P=161,217,328 P=154,825,118

7. Inventories Inventories consist of:

2005 2004 Food and beverage - at cost P=15,549,773 P=14,118,996 Materials and supplies - at cost 8,493,711 9,499,025 P=24,043,484 P=23,618,021

8. Other Current Assets Other current assets consist of:

2005 2004 Input taxes - net of allowance for probable losses of P=16,747,839 in 2005 and P=9,921,944 in 2004

P=43,089,988

P=36,309,941 Creditable withholding taxes 15,167,518 14,717,117 Tax credit certificates 19,445,847 7,705,509 Prepaid expenses and others 4,812,599 5,358,181 P=82,515,952 P=64,090,748

- 25 - Input taxes represent the value added taxes (VAT) paid on purchases of goods and services which

can be recovered as tax refund/credit, subject to approval by the Bureau of Internal Revenue (BIR) or the Bureau of Customs. Of the input taxes recoverable as of December 31, 2005, tax credit certificates amounting to P=11.7 million and P=7.7 million in 2005 and 2004, respectively, were received from the BIR.

9. Investments in Associates

Details of the Company’s investments in shares of stock of LTP, SMP and CPCS are as follows:

Percentage of ownership

interest

2005

2004 (As restated,

Note 3) Acquisition costs: LTP 49 P=935,759,560 P=935,759,560 SMP 49 5,508,286 – CPCS 40 5,000,000 5,000,000 946,267,846 940,759,560 Accumulated equity in net earnings: Beginning of year: As previously reported 194,165,206 133,511,285 Effect of change in accounting for employee benefits (Note 3)

53,072,706

41,571,516

As restated 247,237,912 175,082,801 Share in associates’ net earnings for the year 119,333,806 76,955,111 Dividend declared (39,604,846) (4,800,000) End of year 326,966,872 247,237,912 Share in foreign currency translation adjustments:

Beginning of year (57,836,112) (50,720,579) Net foreign currency translation adjustments for the year

26,976,004

(7,115,533)

End of year (30,860,108) (57,836,112) P=1,242,374,610 P=1,130,161,360

LTP On July 12, 2000, the Company entered into a joint venture 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 joint venture 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 joint venture.

On December 10, 2002, the BOD approved the additional capital infusion to LTP amounting to

US$4.9 million. The Company made the additional capital infusion on February 19, 2003.

- 26 - SMP

On January 24, 2005, the Company entered into a joint venture agreement with SembLog to form SMP to carry on the business of logistics and supply chain management. The share capital of the Company and SembLog shall be on a 49:51 proportion basis. The Company and SembLog shall subscribe to and pay for 98,000 shares and 102,000 shares, respectively, at US$1 per share. The two companies shall contribute the balance share capital of US$185,000 as follows:

Amount of Contribution

MacroAsia

SembLog

2005 US$65,000 US$31,850 US$33,150 2006 120,000 58,800 61,200 US$185,000 US$90,650 US$94,350

On October 18, 2005, the Philippine SEC approved the incorporation of SMP. SMP has not yet started commercial operations.

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 follows:

2005 LTP CPCS SMP Total Current assets P=3,195,576,083 P=39,503,962 P=11,137,092 P=3,246,217,137 Noncurrent assets 2,288,412,425 16,789,613 – 2,305,202,038 Current liabilities 2,333,215,088 10,813,882 271,062 2,344,300,032 Noncurrent liabilities 663,682,709 – – 663,682,709 Equity before foreign currency translation adjustments

2,665,033,164 45,479,693 10,866,030

2,721,378,887

Foreign currency translation adjustments

(177,942,453) – –

(177,942,453)

Revenue 9,665,879,061 70,597,743 27,092 9,736,503,896 Cost and expenses 9,419,454,738 49,983,674 271,062 9,469,709,474 Gross profit 1,267,499,424 27,030,552 27,092 1,294,557,068 Net income (loss) 227,850,784 19,217,305 (243,970) 246,824,119

2004 (As restated, Note 3) LTP CPCS Total Current assets P=2,977,139,793 P=42,838,435 P=3,019,978,228 Noncurrent assets 2,447,285,640 19,349,969 2,466,635,609 Current liabilities 2,095,571,359 3,926,016 2,099,497,375 Noncurrent liabilities 1,069,963,449 – 1,069,963,449 Equity before foreign currency translation adjustments

2,533,024,358 58,262,388

2,591,286,746

Foreign currency translation adjustments

(274,133,733) –

(274,133,733)

(Forward)

- 27 -

2004 (As restated, Note 3) LTP CPCS Total Revenue P=8,839,051,350 P=63,596,348 P=8,902,647,698 Cost and expenses 8,686,717,919 44,856,533 8,731,574,452 Gross profit 913,186,489 22,659,356 935,845,845 Net income 143,910,116 17,549,211 161,459,327

10. Property and Equipment Property and equipment consist of:

January 1, Retirements/ December 31, 2005 Additions Disposals 2005 Cost Building P=247,149,416 P=4,879,994 P=– P=252,029,410 Kitchen and other operations equipment 194,367,481 2,092,129 – 196,459,610 Transportation equipment 78,793,660 6,630,245 (485,858) 84,938,047 Helicopter unit and spare parts 41,754,058 3,571,733 – 45,325,791 Aviation equipment 59,385,964 7,269,913 (1,747,344) 64,908,533 Office furniture, fixtures and equipment 32,462,690 3,969,109 (36,247) 36,395,552 Building and leasehold improvements 25,923,248 155,156 – 26,078,404 679,836,517 28,568,279 (2,269,449) 706,135,347 Accumulated Depreciation and Amortization

Building (57,238,589) (11,010,841) – (68,249,430) Kitchen and other operations equipment (117,549,263) (25,215,647) – (142,764,910) Transportation equipment (50,984,344) (9,562,136) 231,478 (60,315,002) Helicopter unit and spare parts (18,553,450) (4,287,084) – (22,840,534) Aviation equipment (26,168,119) (8,772,866) 1,747,342 (33,193,643) Office furniture, fixtures and equipment (24,387,335) (3,588,205) 35,393 (27,940,147) Building and leasehold improvements (17,173,662) (1,299,367) – (18,473,029) (312,054,762) (63,736,146) 2,014,213 (373,776,695) Net Book Value 367,781,755 (35,167,867) (255,236) 332,358,652 Construction in progress 2,841,245 2,306,111 – 5,147,356 Total P=370,623,000 (P=32,861,756) (P=255,236) P=337,506,008

January 1, December 31, 2004 2004 (As restated, Retirements/ (As restated, Note 3) Additions Disposals Note 3) Cost Building P=242,767,113 P=4,382,303 P=– P=247,149,416 Kitchen and other operations equipment 167,390,195 27,175,616 (198,330) 194,367,481 Transportation equipment 76,643,171 3,007,489 (857,000) 78,793,660 Helicopter unit and spare parts 40,303,798 1,450,260 – 41,754,058 Aviation equipment 47,431,934 11,954,030 – 59,385,964 Office furniture, fixtures and equipment 30,984,545 1,854,436 (376,291) 32,462,690 Building and leasehold improvements 25,923,248 – – 25,923,248 631,444,004 49,824,134 (1,431,621) 679,836,517 (Forward)

- 28 -

January 1, December 31, 2004 2004 (As restated, Retirements/ (As restated, Note 3) Additions Disposals Note 3) Accumulated Depreciation and Amortization

Building (P=46,902,193) (P=10,336,396) P=– (P=57,238,589) Kitchen and other operations equipment (91,520,388) (26,207,529) 178,654 (117,549,263) Transportation equipment (42,551,086) (9,290,258) 857,000 (50,984,344) Helicopter unit and spare parts (14,542,415) (4,011,035) – (18,553,450) Aviation equipment (19,527,839) (6,640,280) – (26,168,119) Office furniture, fixtures and equipment (20,061,466) (4,682,976) 357,107 (24,387,335) Building and leasehold improvements (14,334,648) (2,839,014) – (17,173,662) (249,440,035) (64,007,488) 1,392,761 (312,054,762) Net Book Value 382,003,969 (14,183,354) (38,860) 367,781,755 Construction in progress 14,797,616 2,841,245 (14,797,616) 2,841,245 Total P=396,801,585 (P=11,342,109) (P=14,836,476) P=370,623,000

Non-cash investing activities in 2004 consist of the acquisition of production and operations

equipment amounting to P=2.8 million in credit, which was fully paid in 2005. 11. Investment Property Investment property pertains to land held for future development with the following details:

Cost P=143,880,000 Less impairment loss 25,200,000 P=118,680,000

MAPDC owns certain parcels of land for future development. MAPDC was incorporated

primarily to engage in the acquisition, development and sale of real properties. After completing its first project in 1997 and following the Asian economic crisis, MAPDC suspended pursuing property development projects as its core business and refocused its efforts on potential aviation-support businesses (see Notes 22 and 27).

In 2002, an impairment loss of P=25.2 million became evident and was recognized on land held for

future development. This write-down represents the estimated excess of the carrying value of the property over its recoverable amount, which is based on the estimated net selling price of the property based on the report of an independent firm of appraisers.

The fair value of the investment property approximates its carrying value based on a valuation

performed by an independent appraiser as of December 31, 2005 and 2004.

- 29 - 12. Deposits and Other Noncurrent Assets Deposits and other noncurrent assets consist of:

2005

2004 (As restated,

Note 3) Deposits (Note 27) P=13,010,503 P=36,770,959 Input taxes 13,548,738 24,703,189 Deferred mine exploration costs - net of allowance for unrecoverable costs of P=1,215,922 (Note 30)

15,721,460

1,814,991

Others 576,800 576,799 P=42,857,501 P=63,865,938

Deposits include a Treasury Note placement amounting to P=5.0 million, which MECS assigned to

MIAA in compliance with the terms of MECS’ concession agreement with MIAA (see Note 27).

Input taxes represent VAT equivalent to 10% of the value of goods and services purchased by MECS from VAT-registered suppliers. MECS is entitled to apply for tax refund/credit out of these input taxes subject to compliance with the procedural and documentation requirements of the Department of Finance.

The recovery of deferred mine exploration costs depends upon the success of exploration

activities and future development of the corresponding mining properties as well as the discovery of recoverable reserves in quantities that can be commercially produced.

13. Note Payable Note payable pertains to uncollateralized short-term loan obtained by MECS from a local bank to

settle its loans from and payables to the Company. This short-term loan carries interest at an annual average rate of 9.081%. Financing charges in 2005 amounted to P=1,151,881.

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

2005 2004 Accounts payable: Trade P=37,052,199 P=62,235,781 Non-trade 24,933,352 24,812,359 Accrued: Technical Assistance Fees (TAF) and Fees on Sales (FOS)

16,983,231

29,742,681

(Forward)

- 30 -

2005 2004 Utilities P=6,026,777 P=7,419,904 Discounts 14,495,117 6,028,883 Withholding taxes 4,825,487 3,938,814 Other accrued liabilities 16,629,127 12,099,960 P=120,945,290 P=146,278,382

Other accrued liabilities mainly pertain to accruals for payroll-related expenses and taxes

other than income tax. 15. Related Party Transactions

a. The Group has outstanding Philippine 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). Total deposits and cash equivalents amounted to P=72.2 million in 2005 and P=46.2 million in 2004.

In addition, the Company leases from ABC the office space it currently occupies. The lease agreement is for a period of two years with an annual rental rate subject to review every year. Total rent expense amounted to P=1.5 million in 2005 and P=0.8 million in 2004.

b. 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, shall be for a period of 25 years and renewable for another 25 years thereafter. The rental charge, which is at normal market rate, shall be subject to a fixed price escalation and guaranty. Monthly fee due from LTP is equivalent to MAPDC’s cost of leasing the land from MIAA, plus administrative fees (see Note 27). MAPDC received refundable rental deposit from LTP amounting to P=24.6 million.

As discussed in Note 3, the rental deposits received from LTP amounting to P=24.6 million was valued and reported at its present value of P=1.0 million in the 2005 consolidated balance sheet. The difference between the face amount and present value of the deposits at inception date amounting to P=19.1 million was treated as a unearned rent income and amortized over the term of the lease.

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

receivable amounted to P=79.0 million and P=66.2 million as of December 31, 2005 and 2004, respectively.

c. In June 2004, MASCORP purchased aviation and transportation equipment from Philippine

Airlines, Inc. (PAL), an affiliate, for P=10.4 million, which remained unpaid as of December 31, 2004. Previously, these equipment were leased by MASCORP from PAL. In 2004, MASCORP reversed rent payable to PAL amounting to P=14.1 million following the completion of its account reconciliations with PAL.

d. MASCORP provides ground handling services to Air Philippines, Inc. (Air Phil.), an affiliate,

amounting to P=31.0 million in 2005 and P=30.3 million in 2004. The related receivables as of December 31, 2005 and 2004 amounted to P=3.0 million and P=3.5 million, respectively.

- 31 - e. In 2004, MASCORP assumed PAL’s trade payables to MECS amounting to P=3.2 million by

way of offset against MASCORP’s rent payables to PAL. These were subsequently paid in 2005.

f. MECS has various advances from PAL amounting to P=3.3 million and P=0.9 million as of

December 31, 2005 and 2004, respectively, relating to MECS’ operations in the passenger lounge at NAIA.

g. MECS provides catering services in LTP’s canteen. MECS’ revenue from catering services

amounted to P=8.8 million in 2005.

h. The Group has a trust fund for its retirement plan with ABC. As of December 31, 2005 and 2004, the fund assets amounted to P=0.3 million.

i. Short-term employee benefits of the Company’s key management personnel amounted to

P=11.1 million and P=10.2 million in 2005 and 2004, respectively. 16. Loans from and Payables to Subsidiaries’ Stockholders

Loans from and payables to subsidiaries’ stockholders consist of: (a) accrued interest payable of MECS to the Company’s two corporate partners in MECS, namely

Singapore Airport Terminal Services Ltd. (SATS) and Compass Group International B.V., formerly known as Eurest International B.V. (Eurest), amounting to P=10.2 million and P=9.6 million, respectively, as of December 31, 2005 and December 31, 2004. The loans were used to support the construction of MECS’ kitchen facility and its working capital requirements.

(b) noninterest-bearing loan of MASCORP from the Company’s corporate partner in MASCORP,

Menzies Aviation Group Services (Asia Pacific) LLC (Menzies), amounting to P=10.1 million as of December 31, 2004 for MASCORP’s working capital requirements.

In 2005, the BOD of Menzies and MASCORP’s BOD resolved that these noninterest-bearing

loans are in substance strategic investment in MASCORP rather than liabilities, hence, the loans were reclassified and presented as “Deposit for future stock subscription” in MASCORP’s 2005 balance sheet.

17. Direct Cost Direct cost consists of:

2005

2004 (As restated,

Note 3) Food P=216,081,019 P=169,906,012 Lease (Note 27) 160,512,683 168,360,898 Salaries and wages 75,390,693 60,096,745

(Forward)

- 32 -

2005

2004 (As restated,

Note 3) Depreciation (Note 10) P=47,502,368 P=45,955,238 Overhead 45,613,933 41,567,263 Employee benefits (Note 20) 14,652,621 22,208,822 Rent 10,714,236 7,848,214 Repairs and maintenance 5,612,084 6,768,784 Laundry 3,406,806 2,931,574 Storage and brokerage 2,476,541 2,117,216 Others 26,171,902 16,698,279 P=608,134,886 P=544,459,045

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

2005

2004 (As restated,

Note 3) Salaries and wages P=48,385,605 P=43,021,359 Employee benefits (Note 20) 20,220,569 18,516,437 Depreciation and amortization (Note 10) 16,233,778 18,052,250 Repairs and maintenance 8,559,297 5,498,937 Professional and legal fees 8,369,979 4,986,238 Rent (Note 15) 7,712,593 6,118,191 Utilities 7,624,458 6,435,190 Supplies 7,019,416 5,895,166 Provision for doubtful accounts 6,949,279 4,929,149 Security and janitorial 5,873,170 5,971,094 Transportation and travel 3,747,892 1,410,712 Technical assistance fees (Note 27) 3,681,756 1,623,241 Taxes and licenses 3,486,003 4,969,970 Entertainment, amusement and recreation 2,856,777 2,211,245 Project and development 2,368,995 – Insurance 1,695,865 1,733,242 Others 13,529,416 15,638,861 P=168,314,848 P=147,011,282

19. Selling Expenses Selling expenses consist of:

2005 2004 Fees on sales (Note 27) P=8,307,044 P=5,876,051 Advertising and promotions 5,997,324 8,101,843 P=14,304,368 P=13,977,894

- 33 - 20. Retirement Benefits Costs The Group has a funded, noncontributory 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:

The details of net benefits expense are as follows:

2005

2004 (As restated,

Note 3) Current service cost P=904,606 P=1,068,478 Interest cost on benefit obligation 571,120 526,256 Expected return on plan assets (30,000) – Net actuarial gain recognized during the year (51,586) – P=1,394,140 P=1,594,734

Portions recognized in: Direct costs P=754,104 P=829,694 General and administrative expenses 640,036 765,040 P=1,394,140 P=1,594,734

Actual return on plan assets P=30,000 P=– The details of benefit liability are as follows:

2005

2004 (As restated,

Note 3) Defined benefit obligation P=4,013,020 P=4,079,436 Fair value of plan assets 336,213 300,000 3,676,807 3,779,436 Unrecognized net actuarial losses 2,682,299 1,900,761 P=6,359,106 P=5,680,197

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

2005

2004 (As restated,

Note 3) Defined benefit obligation, January 1 P=4,079,436 P=4,385,463 Current service cost 904,606 1,068,478 Interest cost 571,120 526,256 Benefits paid (715,231) – Actuarial gains on obligation (826,911) (1,900,761) Defined benefit obligation, December 31 P=4,013,020 P=4,079,436

- 34 - Changes in fair value of plan assets are as follows:

2005

2004 (As restated,

Note 3) Fair value of plan assets, January 1 P=300,000 P=– Expected return on plan assets 30,000 – Actual contributions to the plan – 300,000 Actuarial gain 6,213 – Fair value of plan assets, December 31 P=336,213 P=300,000

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

follows:

2005 2004 Investments in government securities 89.40 100.00 Cash and cash equivalents 8.60 – Receivables 2.00 – 100.00 100.00

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. There has been no significant change in the expected rate of return on plan assets.

The principal assumptions used in determining retirement benefits for the Group’s plan are as follows:

2005 2004 Number of employees 287 201 Discount rate per annum 12% 14% Expected annual rate of return on plan assets 10% 10% Future annual increase in salary 5% 5%

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: 2005 2004 Peso Peso US Dollars Equivalent US Dollars Equivalent Assets Cash and cash equivalents 2,736,848 145,217,155 2,587,611 145,630,747 Receivables 2,208,129 117,163,325 1,683,572 94,751,432 4,944,977 262,380,480 4,271,183 240,382,179 Liabilities Accounts payable and accrued liabilities 78,232 4,150,990 115,488 6,499,644 Loans from and payables to subsidiaries’ stockholders

–

–

180,023

10,131,694

78,232 4,150,990 295,511 16,631,338 Net foreign currency-denominated monetary assets 4,866,745 258,229,490 3,975,672 223,750,841

- 35 - As of December 31, 2005 and 2004, the exchange rates of the Philippine Peso to United States

dollar were P=53.06 and P=56.28 to US$1, respectively. As of March 30, 2006, the exchange rate is P=51.25 to US$1.

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

Philippine Economic Zone Authority (PEZA)

a. MECS is registered with the BOI under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, as a new service exporter in the field of airline catering and in-flight services on a preferred non-pioneer status. As such, MECS is entitled to certain tax and nontax incentives including, among others, income tax holiday for a period of four years until April 2002. In 2002, MECS secured a final extension of its income tax holiday status up to April 2003. Accordingly, MECS became subject to income tax starting May 2003.

b. On August 31, 2000, PEZA approved the application of MAPDC to register and operate

a special economic zone (MacroAsia Ecozone) at Philippine Airlines Technical Center (PATC). 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. 7916 (The Special Economic Zone Act of 1995), as amended by Republic Act No. 8748, which include, among others, the exemption from payment of all national internal revenue taxes and all local government import fees, licenses or taxes. In lieu thereof, MAPDC shall pay a 5% final tax on gross income earned from its operation of the MacroAsia Ecozone.

23. Income Taxes a. The Group’s deferred tax assets and deferred tax liability are as follows:

2005

2004 (As restated,

Note 3) Deferred tax assets (liability) on: Allowances for: Probable losses of a subsidiary P=4,383,729 P=2,087,981 Doubtful accounts of subsidiaries 697,655 971,541 Accrued retirement benefits costs of subsidiaries 1,133,005 1,364,773 Unrealized foreign exchange losses of subsidiaries

2,195,786

287,515

Lease rental: Receivables of a subsidiary 3,950,679 3,308,269 Liabilities of a subsidiary (3,950,679) (3,308,269) MCIT of a subsidiary – 1,980,860 P=8,410,175 P=6,692,670

Deferred tax liability on unrealized foreign exchange gain of the Company and a subsidiary P=220,804 P=304,506

- 36 -

b. As of December 31, 2005, the Company’s and MASCORP’s MCIT that can be credited against future RCIT due is as follows:

Incurred in Available for Credit Year Ended December 31

Until Year Ending December 31

Amount

The Company 2003 2006 P=948,399 2004 2007 703,379 2005 2008 614,907 2,266,685 MASCORP 2005 2008 164,409 P=2,431,094

MCIT incurred in 2002 by the Company amounting to P=622,891 expired in 2005.

c. As of December 31, 2005, the Company’s, MASCORP’s and ASSC’s NOLCO available for deduction from future taxable income are as follows:

Incurred in Available Until Year Ended December 31

Year Ending December 31

Available NOLCO

Tax Effect

The Company 2005 2008 P=13,319,850 P=4,661,947 MASCORP 2005 2008 3,819,261 1,336,741 ASSC 2003 2006 59,359 17,075 2004 2007 3,486 1,115 2005 2008 18,535 6,487 81,380 24,677 P=17,220,491 P=6,023,365

NOLCO incurred in 2002 by the Company amounting to P=291,595, with tax effect of

P=93,310, was applied in 2004. Unused NOLCO as of December 31, 2004 amounting to P=6,077,480, with tax effect of P=1,944,794, has expired in 2005.

NOLCO incurred in 2002 by ASSC amounting to P=32,950, with tax effect of P=10,544,

expired in 2005.

- 37 - c. As of December 31, 2005 and 2004, the deductible temporary differences, MCIT and NOLCO

for which no deferred tax assets were recognized in the consolidated balance sheets are as follows:

2005

2004 (As restated,

Note 3) Deductible temporary differences on: Impairment in value of investment property P=25,200,000 P=25,200,000 Deferred revenue 10,743,175 11,522,106 Allowances for probable losses on: Doubtful accounts 7,585,951 6,473,510 Input VAT 3,879,838 3,053,944 Deferred mine exploration costs 1,215,922 1,215,922 Accrued retirement benefits payable 3,147,669 1,448,936 Unrealized foreign exchange losses 6,905,317 3,594 Preoperating expenses 423,357 101,507 NOLCO 17,220,491 6,077,480 MCIT 2,431,094 2,274,669

e. The current provision for income tax in 2005 consists of the MCIT of the Company and

MASCORP, the RCIT of MECS and MAATS, the 5% final tax on MAPDC’s gross income from its PEZA-registered activities (see Note 22). The current provision for income tax in 2004 represents the Company’s and MECS’ MCIT, the RCIT of MASCORP and MAATS, the 5% final tax on MAPDC’s gross income from its PEZA registered activities and MAPDC’s RCIT on its non-PEZA registered activities.

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:

2005

2004 (As restated,

Note 3) Provision for income tax computed at the statutory tax rates

P=44,527,402

P=35,354,862

Adjustments resulting from: Equity in net income of associates (38,783,487) (24,625,635)

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 (272,625) (4,445,270)

Deductible temporary differences for which no deferred tax assets were recognized 10,506,614 939,396

(Forward)

- 38 -

2005

2004 (As restated,

Note 3) Interest income already subjected to final tax at lower rates (P=1,777,933) (P=1,043,962) Nondeductible loss/income exempt from tax or subjected to final tax 1,820,331 1,633,164 Change in tax rate and others (3,406,425) (2,673,069) Provision for income tax P=12,613,877 P=5,139,486

g. On May 24, 2005, the new Expanded-Value Added Tax (E-VAT) law was signed as Republic

Act No. 9337 or the E-VAT Act of 2005. The E-VAT law took effect on November 1, 2005 following the approval on October 19, 2005 of Revenue Regulations 16-2005 which provides for the implementation of the rules of the new E-VAT law. Among the relevant provisions of the new E-VAT law are:

i. 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

ii. a 70% cap on the input VAT that can be claimed against output VAT

iii. increase in the VAT rate imposed on goods and services from 10% to 12% effective January 1, 2006 provided that the VAT collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds 2.8% or the Philippine national government deficit as a percentage of GDP of the previous year exceeds 1.5%

On January 31, 2006, the President, upon recommendation of the Secretary of Finance,

approved the 2% increase in VAT rate effective on February 1, 2006. 24. Stock Rights and Warrants

On March 22, 2000, the Board of Governors of the Philippine Stock Exchange (PSE) approved

the Company’s application to list 250 million Rights Shares with 500 million Warrants attached to and detachable from the Rights Shares (the Offer) to eligible shareholders in good standing as of the record date of April 12, 2000. The SEC issued on July 19, 2000 a Certificate of Permit to Offer Securities for Sale to the Company. The Rights Shares were offered at a price of P=2 each, payable in full on the basis of one Rights Share for every four common shares held as of the record date. No fractional shares were issued. The Warrants were issued at a price of P=0.10 each, payable in full on the basis of two Warrants attached to and detachable from each Rights Share. Subscription to the Warrants was optional. However, eligible shareholders subscribed to the Warrants upon subscription to the Rights Shares.

- 39 - Each Warrant entitles the holder thereof to the right to subscribe to one New Common Share with

a par value of P=1 in the capital of the Company at an exercise price of P=6. Initially, the Warrants were exercisable within 10 trading days immediately before the end of the three-year period from the listing date. Furthermore, each Warrant granted the right to additional Warrants or adjustment to the terms of the Warrants upon the occurrence of certain events such as:

a. Change in par value of each share b. Payment of stock dividends c. Merger, consolidation and/or reorganization d. Disposition of a substantial portion of the Company’s assets to stockholders for cash e. Offer of new shares at a price lower than the exercise price

In view of the SEC’s approval of the Offer, the Company filed an application for increase in

authorized capital stock from P=1 billion, divided into 1 billion shares, to P=2 billion, divided into 2 billion shares, all with par value of P=1 per share, as approved by the stockholders on July 18, 1997. The application was approved by the SEC on June 2, 2000.

The Rights Shares represented 20% of the Company’s total number of shares outstanding of

1.25 billion immediately after the Offer. Subsequently, upon full exercise of the Warrants, the outstanding shares of the Company will increase to 1.75 billion.

The Rights Shares and the underlying Shares of the Warrants will be eligible for payment of

dividends in accordance with the Company’s dividend policy, which depends upon the Company’s earnings, cash flows and financial condition, among other factors.

As of December 31, 2000, the Rights Shares and the Warrants have been fully subscribed and

paid-up. The additional paid-in capital of P=231.4 million (net of stock issuance costs of P=18.6 million) resulting from the issuance of 250 million shares subscribed at P=2 per share and the outstanding warrants amounting to P=50 million are presented in the equity section of the consolidated balance sheets.

On June 4, 2002, the Board of Directors extended the exercise period of the Warrants from the 10

trading day period immediately preceding the end of three years from the listing date of the Warrants to the 10 trading day period immediately preceding the end of five years from the listing date of the Warrants. The extension was approved by the SEC and the PSE on July 12, 2002 and August 28, 2002, respectively.

In 2005, the extension of the exercise period of the warrants has expired. The P=50 million

warrants were accordingly reclassified to additional paid-in capital in the equity section of the consolidated balance sheets.

- 40 - 25. Basic Earnings Per Share Basic earnings per share are computed as follows:

2005

2004 (As restated,

Note 3) Net income attributable to equity holders of the parent

P=119,059,522

P=99,593,382

Divided by weighted average number of common shares outstanding 1,250,000,000 1,250,000,000 P=0.0952 P=0.0797

26. Retained Earnings

The undistributed earnings of subsidiaries and associates amounting to P=313.3 million as of December 31, 2005, which are included in retained earnings, are not available for declaration as dividends until declared by such subsidiaries and associates.

On July 15, 2005, the Company declared cash dividends of P=0.02 per share to the stockholders of

the Company of record as of July 29, 2005. The cash dividends have been fully paid on August 24, 2005.

27. Significant Agreements and Commitments a. Concession Agreements i. In 1996, the Company assigned to MECS all its rights and obligations under the

concession agreement it entered in the same year with MIAA to exclusively operate an in-flight catering service for civil and/or military aircraft operating at the 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 for the concession privilege, MECS pays MIAA a monthly concession privilege fee (CPF) in the amount equivalent to 7% of MECS’ monthly gross income on catering services. MECS also assigned its Treasury Note placement amounting to P=5 million (included under the “Deposits and other noncurrent assets”, see Note 12) to MIAA in compliance with the concession agreement.

The concession agreement expired on August 2003. Starting October 13, 2003, the

concession contract commenced on a month-to-month basis.

ii. In 1999, MASCORP entered into a concession agreement with MIAA to operate domestic and international ground handling services at Terminal 1 for a period of one year subject for renewal at the sole option of MIAA. In consideration of the concession privilege, MASCORP pays MIAA a monthly CPF in the amount equivalent to 7% of MASCORP’s monthly gross income on domestic and international ground handling services.

- 41 - b. License and Technical Assistance Agreement In 1996, MECS entered into a license and technical assistance agreement with Eurest,

whereby Eurest shall grant MECS the following:

i. The license to exclusively use the Mark and System of Eurest (the System) for the purpose of establishing and operating an in-flight or airline catering business at NAIA, MDA and the General Aviation Areas

ii. The benefits and advantages of the System by rendering to MECS technical assistance in

establishing and operating its business In consideration of the foregoing, MECS pays Eurest, subject to certain conditions as

specified in the agreement, the following fees:

i. Fee based on a certain percentage of sales

ii. TAF at a fixed rate based on earnings before depreciation, interest and taxes This agreement shall remain for an initial period of 10 years from date of execution. It shall

be automatically renewed for another 10 years unless terminated by either party. Total fees on sales for Eurest in 2005 and 2004 amounted to P=5.5 million and P=4.0 million, respectively. TAF amounted to P=1.8 million in 2005 and P=1.2 million in 2004.

c. Marketing and Commercial Assistance Agreement In 1998, MECS entered into an agreement with SATS, whereby SATS shall provide

marketing and commercial services to MECS. In consideration of the foregoing, MECS pays SATS, subject to certain conditions as specified in the agreement, the following fees:

i. Fee based on a certain percentage of sales

ii. Marketing and commercial assistance fee at a fixed rate based on earnings before

depreciation, interest and taxes This agreement shall continue in full force for as long as the Company, Eurest and SATS

remain as shareholders of MECS, unless terminated by one party. Total fees on sales for SATS amounted to P=2.8 million in 2005 and P=1.8 million in 2004. Management and commercial assistance fees amounted to P=1.8 million in 2005 and P=1.2 million in 2004.

d. Lease Agreements i. In 1996, the Company assigned to MECS all of its rights and obligations under the lease

agreement it entered in the same year with MIAA for the use of a parcel of land where its catering concession facilities are located. The lease is for a period of 10 years starting six months from the start of the construction of the facilities up to 2007, renewable every five years under such terms and conditions as may be agreed upon by both parties. Minimum annual lease rental amounted to P=8.5 million.

- 42 -

ii. On August 7, 2000, MAPDC entered into a lease contract with MIAA covering the use for 25 years of 23 hectares of land within NAIA. Significant terms and conditions of the contract are as follows: 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 that is registered with PEZA.

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

years into the PATC at NAIA by introducing additional capabilities and enhancing the competitiveness of PATC 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 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, 2005 under MAPDC’s operating

lease agreement with MIAA are as follows:

Amount Within one year P=152,505,941 After one year but not more than five years 612,565,529 After more than five years 2,470,691,558

As discussed in Note 3, the rental deposit made to MIAA amounting to P=24.6 million was

valued and reported at its present value of P=1.0 million in the 2005 consolidated balance sheet. The difference between the face amount and present value of the deposits at inception date amounting to P=19.1 million was treated as deferred rent expense and amortized over the lease term.

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

rental payable amounted to P=79.0 million and P=66.2 million as of December 31, 2005 and 2004, respectively.

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

one year, with monthly rental of P=0.2 million, and renewable at the sole option of MIAA. The lease agreement has been renewed up to 2005.

- 43 - iv. MASCORP has a lease agreement with PAL for the lease of airline ground handling

equipment and office space at monthly rental charges amounting to P=0.5 million and P=0.02 million, respectively (see Note 15). The lease is for a period of one year, which commenced on November 15, 1998, renewable upon mutual written agreement on a year-to-year basis. The lease agreement was terminated in June 2004.

28. Financial Risk Management Objectives and Policies The Group’s principal financial instruments comprise of its notes payable and loans from

stockholders which were obtained primarily to raise funds for the Group’s operations. The Group has other financial assets and liabilities such as cash and cash equivalents, trade receivables and payables which arise directly from its operations.

It is, and has been throughout the year under review, the Group’s policy that no trading in

financial instruments shall be undertaken. The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk,

foreign currency risk and credit risk. The BOD reviews and agrees on policies for managing these risks and they are summarized as follows:

Interest rate risk The Group’s exposure to the risk for changes in market interest rates relates primarily to the

Group’s notes payable and long-term debt obligations with floating interest rates.

Liquidity risk The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans.

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 90% of the MECS’ sales are denominated in currencies other than its functional currency.

Credit risk The Group trades only with related parties and duly evaluated and approved creditworthy third

parties. It is the Group’s policy that all customers that wish to trade on credit terms are subject 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 its subsidiaries.

- 44 - 29. Financial Instruments Fair Values The following summarizes the carrying values of the Group’s financial assets and liabilities as of

December 31, 2005:

Financial assets Cash P=200,963,727 Receivables 161,217,328 Deposits 13,010,503 Financial Liabilities Notes payable 27,500,000 Accounts payable 99,490,676 Dividends payable 7,137,132 Loans from and payables’ to subsidiaries 19,732,606 Rental deposit 1,034,395

The carrying amounts of the Company’s financial assets and liabilities approximate their fair

values either because of their short-term nature or the interest rates that they carry which approximate interest rates for comparable instruments in the market.

Interest Rate Risk The Group is exposed to interest rate risk with respect to its notes payable with a carrying value

of P=27.5 million as of December 31, 2005, that carries interest at a floating rate (see Note 13). 30. Others a. Blue Ridge Mining Corporation (Blue Ridge) and Celestial Nickel Mining Corporation

(Celestial) filed a case against the Company with the office of the Mines and Geosciences Bureau (MGB) in December 1995 and the Regional Panel of Arbitrators of the Department of Environment and Natural Resources (DENR) in February 1997, respectively, involving the cancellation of the Company’s mining lease contracts.

On November 26, 2004, the Mines Adjudication Board (MAB) of DENR issued a resolution

in favor of the Company, declaring the seven lease contracts of the Company as subsisting prior to their expirations without prejudice to any decision or order that the Secretary may render on the same. No preferential right over the same mining lease claims is accorded to Blue Ridge or Celestial without prejudice to the determination by the Secretary over the matter at the proper time.

Blue Ridge filed a Motion for Reconsideration with the DENR, while Celestial filed an

appeal before the Court of Appeals (CA).

- 45 - On April 25, 2005, the Company received a copy of the decision of the CA affirming the

November 26, 2004 decision of MAB. A Motion for Reconsideration was filed by Celestial but the same was denied by the CA. Celestial filed for a Petition for Review on Certiorari before the Supreme Court (SC).

On September 19, 2005, Blue Ridge filed a Petition for Review before the CA. On

February 20, 2006, Celestial filed a Motion for Issuance of Temporary Restraining Order/Preliminary Prohibitory Injunction/Mandatory Injunction before the SC.

As of March 30, 2006, the SC has yet to rule on the Petition for Review on Certiorari of

Celestial and the CA has yet to rule on the Petition for Review filed by Blue Ridge. In both cases, considering what have been decided upon by the courts and DENR, the Company’s rights to the mining area may likely be affirmed by the higher courts.

b. On March 28, 2006, the Company received the Mineral Production Sharing Agreement

(MPSA) from the MGB of the DENR. The MPSA covers 1,114 hectares of land situated in Brooke’s Point, Palawan.

With the MPSA, the Company shall have the exclusive right to conduct mining operations

within, but not title over, the contracted area. Mining operations that are allowed include exploration, development and utilization for commercial purposes of nickel, chromite, iron and other associated mineral deposits that may be found in the area.

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 Government and the Company.

Amounts AmountsName and Designation of Debtor Additions Collected Written-off Current Not Current

Rank and file employees P 3,465,564 1,882,950 4,906,144 * * P 442,369 Joseph T. Chua, President/CEO 312,500 312,500 Lucio K. Tan, Jr., Former President 1,562,500 1,562,500 Reynaldo O. Munsayac, VP - Finance & Administration 62,500 62,500 Marivic T. Moya, VP - HR,Legal & External Relations 109,948 50,000 51,631 108,316 Christopher C. Lu, VP - Marketing & Facilities Mgt. 62,083 62,083 Amador T. Sendin, VP - Planning/Business Development 62,500 62,500 Tomas Jamtander, General Manager (MECS) 6,142 601,646 * 39,703 568,085 Ferdinand Ylagan, Marketing Manager 98,688 33,467

Total P 5,643,736 2,633,284 5,030,946 - - - P 3,180,853

* P600,000 represents advance payment and deposit to suppliers

** Collection of receivables amounting to P3.1 million represents liquidation of company expenses with proper supporting documents

Deductions

Beginning ofPeriod

Balance at

For the Year Ended December 31, 2005

MACROASIA CORPORATION AND SUBSIDIARIESSchedule B - Amounts Receivable from Directors, Officers, Employees, etc.

End of Period

Balance at

87

Name of Issuing Entity and Number of Number of Description of Investment Shares or Equity in Shares or

Principal Earnings (Losses) Distribution of Principal Amount of Percent of Investees Earnings by Percent Amount of

Bonds & Notes Owned for the Periood Others Investees Others Owned Bonds & Notes(1)

Interest in Joint VentureLufthansa Technik Philippines, Inc. 833,000,000 49% P 1,053,783,700 111,646,884 80,048,710 26,804,846 49% 833,000,000 P 1,218,674,448

Investment in AssociateCebu Pacific Catering Services, Inc. 5,000,000 40% P 23,304,954 7,686,922 12,800,000 40% 5,000,000 P 18,191,876

Semblog MacroAsia Philippines, Inc. 98,000 49% P 5,508,286 49% P 5,508,286

Total 838,098,000 P 1,082,596,940 119,333,806 80,048,710 39,604,846 - 838,000,000 P 1,242,374,610 P -

Note :

(1) Addition under "Others" represents the following :

Effects of changes in accounting for employee benefits (please seeNote 3 of the Company's Notes to Consolidated Financial Statements). 53,072,706

Net foreign currency translation adjustments for the year 26,976,004

Total 80,048,710

MACROASIA CORPORATION AND SUBSIDIARIESSchedule C - Non-Current Marketable Equity Securities, Other Long-Term Investments and Other Investments


Ending BalanceBeginning Balance Additions Deductions

Not Accounted Investments

Dividends Received/

Accrued from

Equity MethodAmountin Pesos

Amountin Pesos

for by the

88

OtherCharged to Charged to Changes

Additions Cost and Other AdditionsDescription at Cost Expenses Accounts (Deductions)

OTHER ASSETS

Deposits (a) 36,770,959 205,855 23,554,601 13,010,503 Input taxes (b) 24,703,189 17,758,004 28,912,455 13,548,738 Deferred mine exploration costs - net 1,814,991 15,122,391 1,215,922 15,721,460 Others 576,799 576,800

Total P 63,865,938 32,880,395 1,421,777 52,467,056 - P 42,857,501

Notes :

(a) Charged to other accounts represent amounts reclassified to Deferred Rent Expense and the related Interest Income (or Retained Earnings for amounts pertaining to previous years), as a result of the adoption of PAS 39, Financial Instruments (please see Note 3 of the Notes to Consolidated Financial Statements).

(b) Charged to other accounts represents application against output taxes. Other deductions represent reclassification to recoverable input taxes as other current assets.

Deduction

Beginning Balance

MACROASIA CORPORATION AND SUBSIDIARIESSchedule E - Intangible Assets - Other Assets


Ending Balance

89

Number ofShares Reserved

Number of for Options,Number of Shares Issued Warrants, Directors,

Shares and Conversions, and Related Officers andTitle of Issue Authorized Outstanding Other Rights Parties Employees Others

Common stock 2,000,000,000 1,250,000,000 500,000,000 801,359,750 53,933,048 394,707,202

Total 2,000,000,000 1,250,000,000 500,000,000 801,359,750 53,933,048 394,707,202

Number of Shares Held By

MACROASIA CORPORATION AND SUBSIDIARIESSchedule I - Capital Stock


90

91

FORM 17-A

INDEX TO EXHIBITS

Page No. (3) Plan of acquisition, reorganization, arrangement, liquidation or

succession NA

(5) Instruments defining the rights of security holders, including Indentures NA

(8) Voting trust agreement NA (9) Material contracts NA (10) Annual reports to security holders, Form 17-Q or quarterly

report to security holders – n1 NA

(13) Letter re-change in certifying accountant - n2 NA (16) Report furnished to security holders NA (18) Subsidiaries and affiliates of the registrant 92 (19) Published reports regarding matters submitted to vote

of security holders NA

(20) Consent of experts and independent counsel NA (21) Power of Attorney NA

92

EXHIBIT 18 – SUBSIDIARIES AND AFFILIATES OF THE REGISTRANT MacroAsia Corporation has five (5) consolidated subsidiaries and three (3) unconsolidated associates each of which is owned as follows:

Name Jurisdiction Ownership

MacroAsia Properties Development Corp. Philippines 100%

MacroAsia Air Taxi Services, Inc. Philippines 100%

MacroAsia-Menzies Airport Services Corp. Philippines 70%

MacroAsia-Eurest Catering Services, Inc. Philippines 67%

MacroAsia Mining Corporation 1 Philippines 67%

Lufthansa Technik Philippines, Inc. Philippines 49%

Cebu Pacific Catering Services, Inc. Philippines 40%

SembLog-MacroAsia Philippines, Inc. 2 Philippines 49%

1 Incorporated on September 25, 2000 but has not yet commenced operations.

2 Incorporated on October 18, 2005 but has not yet commenced operations.

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