Document 6526142

COVER SHEET
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(Business Address; No. Street City / Town / Province)
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c/o Atty. Abner C. Gener, Jr.
7270431 / 7256328
Contact Person
Company Telephone Number
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STAMPS
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SECURITIES AND EXCHANGE COMMISSION
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 calendar year ended December 31, 2006
2.
Commission identification Number 51048.
4.
Exact name of registrant as specified in its charter: FILINVEST DEVELOPMENT CORPORATION
5.
Philippines
Province, Country or other jurisdiction of Code
3. BIR Tax Identification No. 042-000-053-167.
6.
8.
(SEC Use Only)
Industry Classification Code:
7.
173 P. Gomez St., San Juan, Metro Manila
Address of principal office
9.
Not applicable
Former name, former address, and former fiscal year, if
changed since last report
10.
Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the RSA
Number of Shares of Common Stock
Outstanding and Amount of Debt Outstanding
Title of Each Class
727-04-31 to 39
Registrant’s telephone number, including area code
Common stock, =P=1.00 par value
Preferred stock, =P=1.00 par value
11.
12.
5,955,725,452 shares
P11,563M long-term debt
Are any or all of these securities listed in the Philippines Stock Exchange?
Yes [ X ]
No [
]
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
12 months (or for such shorter period that the registrant was required to file such reports) :
Yes [ X ]
No [ ]
(b) Has been subject to such filing requirements for the past 90 days.
Yes [
13.
]
No [ X ]
Aggregate market value of the voting stock held by non-affiliates as of December 31, 2006.
P 2,105 million
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TABLE OF CONTENTS
PART I - BUSINESS AND GENERAL INFORMATION
Item 1
Item 2
Item 3
Item 4
Business
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Page No.
4
20
21
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PART II - OPERATIONAL AND FINANCIAL INFORMATION
Item 5
Market for Registrant’s Common Equity and Related Stockholder Matters
Item 6
Item 7
Item 8
Management's Discussion and Analysis or Plan of Operations
Financial Statements
Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
23
24
30
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PART III – CONTROL AND COMPENSATION INFORMATION
Item 9
Item 10
Item 11
Item 12
Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions
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PART IV - COMPLIANCE WITH LEADING PRACTICES ON CORPORATE
GOVERNANCE
PART V - EXHIBITS AND SCHEDULES
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Item 14
34
34
a. Exhibits
b. Reports on SEC Form 17-C (Current Report)
SIGNATURES
34
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3
PART I - BUSINESS AND GENERAL INFORMATION
Item 1. Business
Filinvest Development Corporation (“FDC” or the “Company”) is the listed holding company of the Filinvest Group of Companies.
Although incorporated only on April 27, 1973, FDC traces its roots to the consumer finance and banking business established in the early
years by the Group’s patriarch, Andrew L. Gotianun, Sr.. Driven by its key management objectives of consistent profitability, strong
balance sheet, and absolute credit worthiness, FDC has since established a well-known reputation for quality and reliability as it evolved
into one of the country’s major business groups.
For the past three (3) years, FDC’s revenues were generated from its leasing, investing and managing activities and currently from real
estate development, and from the following major subsidiaries and joint ventures engaged in three (3) main business activities, namely:
a.
Residential property development
Filinvest Land, Inc. (FLI); incorporated on November 14, 1989 as Citation Homes, Inc. and later changed its name and
started operations in August 1993 when FDC spun off its real estate business.
b.
Commercial property development
Filinvest Alabang, Inc. (FAI); incorporated on August 25, 1993
Festival Supermall, Inc. (FSI); incorporated on March 21, 1997
Cyberzone Properties, Inc. (CPI); incorporated on January 14, 2000
Filinvest Asia Corporation (FAC); incorporated on January 22, 1997
c.
Banking and financial services
East West Banking Corporation (EWBC); incorporated on March 22, 1994
With over 33 years of experience in an industry that is highly sensitive to the financial crises, market downturns, and political upheaval,
the Filinvest Group has emerged as one of the few survivors in the country.
FDC and its subsidiaries have carefully built and nurtured a distinguished performance record in the real estate development, which was
recognized by international bankers, funds managers, other global institutional investors, and the international financial community. In the
2005 Euromoney Real Estate Awards, Filinvest received the Award for Investment Management in the Philippines. This was the result of a
survey designed by the London-based international finance magazine to provide a qualitative and quantitative review of the best services
in real estate.
On September 29, 2006, the Company had a major reorganization among its subsidiaries and joint ventures. The main objectives were to
allow FLI, the residential arm of the Group and also its largest subsidiary, to increase its asset base and to diversify and balance its
revenue base by providing higher and more stable revenues leveraging into growth investment sectors, like the Business Process
Outsourcing (BPO) office/business park development and stability through a position in the mall market. FLI acquired from FAI, the
Festival Supermall and its 60% ownership interest in CPI. CPI is the owner of the development in the IT park known as “Northgate
Cyberzone”, a PEZA-registered, located within Filinvest Corporate City (FCC), and with BPO and call center companies mostly as its
tenants. Festival Supermall is a shopping center located in a 10-hectare land also in FCC, and with a gross leasable area of 135,163 sq.m.
FLI also acquired the 60% ownership interest in FAC from its parent company, FDC. FAC is the owner of 50% of the spaces in PBCom
Tower located in Ayala Avenue, Makati City which is currently 100% leased-out. As consideration for these acquisitions, FLI issued a
total of 5.6 billion common shares and assumed a total debt of P2.5 billion from FDC and FAI. Independent appraisers valued the three
properties.
Also in September 2006, FLI entered into an agreement with Africa Israel Investments (Philippines), Inc. (AIIPI) to form Filinvest AII
Philippines, Inc. (FAPI), which will undertake the development of Timberland Sports and Nature Club (the Club) and about 50-hectares of
land comprising Phase II of Timberland Heights and the construction of two medium-rise buildings. Under the terms of the agreement,
FLI will contribute the land, all of the Class A shares of the Club and development costs of approximately P100 million, and AIIPI will
contribute P250 million to FAPI. FLI and AIIPI will own 60% and 40% of FAPI, respectively.
4
Other than the acquisitions stated above, there are no material reclassifications, mergers, consolidations or purchases or sales of significant
amount of assets (not ordinary) by the Company and/or its significant subsidiaries during the past three (3) years.
There is also no bankruptcy, receivership or similar proceedings filed by the Company and/or any of its significant subsidiaries during the
past three (3) years.
Organization Structure
The chart below sets out the current structure of FDC and its subsidiaries, joint ventures and affiliates.
FDC
Property
Development
Banking & Financial
Service
• Filinvest Land, Inc.
• Filinvest Alabang,
Inc.
• Filinvest Supermall,
Inc.
• Filinvest Asia Corp.
• Cyberzone
Properties, Inc.
• Filinvest AII Phils.,
Inc.
• EastWest Banking
Corp.
• Filinvest (Cayman
Islands) Ltd.
• FDC Capital
(Cayman Islands)
Ltd.
• FLI Capital (Cayman
Islands) Ltd.
Others
• FSM Cinema, Inc.
• Northgate
Convergence Corp.
• H.B. Fuller (Phil.),
Corp.
Business Strategies
Focus on core property business
FDC’s overall strategy remains focused and anchored on the strength and expansion of its core property business, which has developed a
strong brand name recall and association with quality that spans across all sectors of the property industry: from low and medium-cost
residential to high-end commercial property development, to mixed-use, self-contained communities, industrial and technological parks
and leisure property developments.
In 1994, FDC made a strategic decision to diversify its business risks into non-property related business, which capitalizes on FDC’s
strengths, and complements its property development activities by incorporating EWBC. This decision initiated the re-entry into the
banking industry, an area where the Filinvest Group had management expertise in the 70s to 80s.
For the year 2006, the non-property business contributed 22% to FDC’s consolidated net revenues. The contribution is expected to
continuously grow significantly over time.
Strong recurring income base
FDC has been building up its recurring income base, through its investment in Festival Supermall, the 200,000 sq.m. premier regional
shopping center located in southern Metro Manila, and South Station Mall, a low-income retail shopping center located inside the terminal
area within FCC. The development of mixed-use retail complex such as, the Westgate in FCC, the I.T. buildings in Northgate Cyberzone,
5
various commercial lots in FCC, and commercial units in PBCom Tower in Makati City are all set to contribute significantly to its
recurring income base.
The Group has over 50,000 square meters of PEZA accredited I.T. zone prime office space in Makati City and Alabang, Muntinlupa City
principally aimed at the growing call center and back-office market. Through CPI and FAC, the Company has taken advantage of the
BPO boom and now supplies over 7,000 call center seats. As of December 31, 2006 its investment properties registered close to 100%
occupancy.
To take advantage of the pressing demand for I.T. offices, CPI started constructing four “iHub” buildings, which are scheduled for
delivery within the next two years. This is in addition to its current seven (7) operational buildings, thereby increasing its leasing portfolio
to almost 121,000 square meters by year 2008.
The Group registered a 30% compounded growth rate in its rental revenue base from P342 million in 2000 to P1,252 million in 2006. Mall
and rental revenue grew by 26%, from P989 million in 2005 to P1.3 billion in 2006.
Disciplined approach to investment, divestment, and risk-taking
In recent years and under challenging economic conditions, Filinvest Group follows a strict discipline in identifying prospective projects
by measuring profitability, cashflow and performance potential against risks and defined standards. It has reviewed periodically its
investment portfolio in order to determine divestment of those businesses that fail to meet these standards. The same system is also
helpful in determining the preferred capital structure for its undertakings, i.e., whether or not to take a dominant equity position or to go on
a joint venture in order to spread out the investment risk even further.
In September 2006, FLI entered into a joint venture with AIIPI to form FAPI. FAPI will develop Phase II of the 677-hectare township in
San Mateo, the Timberland Heights and the Timberland Sports and Club, which is designed to be a world-class family country club in a
mountain resort setting. FLI owns 60% interest in FAPI.
Controlled growth
It has always been the Group’s philosophy to implement a controlled and conservative growth strategy. As a resulting policy, only
properties and projects with ready and sustainable market and can support the Company’s desired returns are developed. During slow
growth cycles, this strategy is further calibrated by adjusting project initiation and investment criteria upwards, to make them more
stringent and reflective of the anticipated sales slowdown, and to conserve the company’s liquid resources and investment capacity.
Proper timing of project offerings and investments is considered critical to fully exploit the opportunities in the market. Controlled growth
is a tested way of ensuring that the Group’s ability to take advantage is maximized.
Efficient financial management
The Company closely monitors its capital and cash positions and carefully manages its land acquisitions, construction costs, cash flows,
and fixed charges. By attempting to keep the construction cycle relatively short, the Company seeks to reduce the impact of any margin
deterioration resulting from rising construction costs. It also intends to reduce its financing risk by beginning the construction of most
housing units only after a buyer has paid at least 15% of the total purchase price and has also qualified for a bank mortgage or in-house
financing, thereby reducing working capital needs. The Company also prefers to enter into joint venture arrangements to develop land
rather than purchasing land outright, which reduces its capital requirements and can increase returns. Further, it intends to continue to fund
development costs using medium-to-long-term financing, which can help mitigate any negative effects of a sudden downturn in the
Philippine economy or a sudden rise in interest rates, and to rediscount installment contracts receivables as necessary to enhance its
liquidity position.
FDC has made serious efforts to manage its liabilities. In 2006, the Group took advantage of the liquidity and low interest rates to improve
the maturities and financing costs of its existing debts.
Landbank
The Group maintains a landbank of approximately 2,406.39 hectares, including 348.66 hectares contributed by joint venture partners,
mostly for its residential housing and subdivision lot development. This landbank grew slowly and cautiously in the past. The Group has
not acquired any significant properties since the onset of the Asian recession in 1997.
6
Decisions when acquiring land investment property are selectively made after a thorough scan of areas with market and population
growth. Further studies are comprehensive analyses of national and regional development thrusts, communication and transportation
infrastructure growth, employment growth, technical viability of project development, and competitive trends.
Professional management
To keep the company dynamic and competitive, its management and strategic directions are determined and implemented with a purely
rational and systematic approach. It is also the stated policy of the Group that the company is run professionally in order that it will
survive its founders.
Business Development for 2006
Business development for 2006 in property development focused still on maximizing returns on its existing landbank and buildings by
improving sales turnover of inventory and building space occupancy. FLI and FAI capitalized on the recent positive economic growth and
favorable social trends in the Philippines to strengthen its market position in its core residential house and lot business, and further develop
commercial offices and retail properties.
The Group achieves its objectives by continuing to grow its residential housing and lot business by leveraging on its reputation as one of
the Philippines’ leading real estate companies. FLI, the residential arm of the Group, intends to enter underserved and underdeveloped
markets in potential growth areas and regions throughout the country. Development of new projects in its existing markets, particularly in
the affordable and middle-income sectors, has been accelerated. FLI intends to tap first-time home buyers, as there are still large number
of Filipinos such as OFWs and young professionals without first homes. New project formats have also been developed to anticipate and
meet market demands. Examples are: designing homes on small lots that can be expanded vertically without the necessity to vacate the
home when decided to have a second-storey constructed; introducing the “entrepreneurial village” which allows the entrepreneurs with
small-to-medium size businesses to live and work in a residential development with access to government agencies that assist small
business people; designing and locating farm estates that can serve as primary home products catering to customers such as retirees and
farming enthusiasts.
In addition, the Group also enhanced the value of its commercial properties by capitalizing on the expected growth in Philippine consumer
spending and in the BPO business. FLI’s newly acquired Festival Supermall and CPI, and FAI’s FCC further enhanced its competitive
strengths through pro-active leasing and management, asset enhancement and expansion, and by capitalizing on its extensive real estate
experience, size and access to resources.
On the banking sector, EWB focused on consumer financing through aggressive marketing of consumer products across geographical
areas, better service through strong information technology system, and product innovation. Growth in consumer loans mainly sourced
from auto loans, credit cards and salary loans was made possible through new programs and wider distribution and network channels.
Two (2) new Personal Banking Centers (PBCs) were opened in 2006 and five (5) existing branches were relocated to more strategic
locations. Four (4) new ATMs were installed in addition to the upgrading of ten ATMs all over the network. At the same time it offered
product innovations such as the Appliance Tie-up, OFW Salary Loan and Modified Salary Loan. Investments in new application software,
network and data servers, and data processing backup and disaster recovery centers supported the needs of clients for efficient, fast and
innovative banking services.
Revenue Mix
Historically, the Group’s property-related operations accounted for the largest portion of FDC’s consolidated revenues. For the year 2006,
the Company’s consolidated net revenues amounted to P5.9 billion with revenue contribution from the following:
•
•
•
•
Residential Property Development
Commercial Property Development
Leasing
Financial and Banking Services
33%
24%
21%
22%
Real Estate Development
Filinvest Land, Inc.
7
FLI posted a 40% growth in net income, from P583 million in 2005 to P818 million in 2006. Total consolidated assets stood at P41 billion
while stockholders’ equity hit P29 billion.
Sales reservations grew 11% in 2006 to P3.7 billion from P3.3 billion in 2005 due to continued strong performance of the affordable and
middle-income sectors, and mounting performance of industrial estate sector.
The company’s sales growth is attributed to strong OFW demand, affordable financing, and strong government support. The new
Expanded Value Added Tax (EVAT) law has been favorable to FLI since it exempts sales of house and lot packages priced up to P2.5
million, and lot only packages up to P1.5 million, from EVAT. The company benefited substantially from OFW income with about 39%
of total buyers belonging to this sector.
FLI strengthened its position in affordable and middle-income markets by introducing a broader range of products in various locations.
These accounted for 52% of total sales in 2006. Special focus was also made on geographical expansion outside Metro Manila to tap the
housing market nationwide.
The following table sets forth FLI’s on-going housing and land development projects and their land development status:
Location
Area (in Ha)1
Status of Development2
Project Name
Socialized
Belvedere Townhomes
Belmont Hills
Blue Isle
Affordable
Aldea Del Sol
Tanza, Cavite
Tanza, Cavite
Sto. Tomas, Batangas
55.56
10.76
41.57
Completed
Completed
Completed
Lapu Lapu City, Cebu
8.29
Alta Vida
Blue Grass County
Brookeside Lane
Crystal Aire
Fairway View
Palmridge
Springfield View
Summerbreeze Townhomes
Summerfield
Westwood Place
Brgy. San Roque, Bulacan
Sto. Tomas, Batangas
Gen. Trias, Cavite
Gen. Trias, Cavite
Dasmariñas, Cavite
Sto. Tomas, Batangas
Tanza, Cavite
Sto. Tomas, Batangas
San Pedro, Laguna
Tanza, Cavite
17.04
6.14
15.66
12.69
26.57
11.11
22.89
5.66
1.87
3.68
Woodville
Middle-Income
Corona del Mar
Filinvest Homes - Tagum
Irvine Place
Gen. Trias, Cavite
20.33
Phase 1-3 Completed
Phase 4 On-going
On-going
On-going
Completed
Completed
Completed
On-going
On-going
On-going
Completed
Phase 1 Completed
Phase 2 On-going
Phase 1 Completed
Pooc Talisay, Cebu City
Tagum City, Davao
Cainta, Rizal
33.90
8.22
2.21
Le Jardin de Ma-a
Mactan Tropics
Northview villas
Ocean Cove
Davao City
Lapu Lapu City, Cebu
Quezon City
Davao City
15.47
5.27
1.10
15.93
On-going
Not yet started
Phase 1A and 2 On-going
Phase 1 Completed
Not yet started
On-going
On-going
Not yet started
1
Project Area means the total land area developed for each project
Indicates progress of completion of all aspects of development, including completion of roads, utilities, gate, clubhouse and landscaping. After
completion of a project, FLI’s remaining expenditures relating to the project are minimal
2
8
Ocean cove 2
Orange Grove
Davao City
Matina, Pangi, Davao city
2.39
31.79
Spring Country
Spring Heights
Southpeak
The Manors at Southpeak
The Pines
Village Square
Villa San Ignacio
High-End
Brentville International
Prominence 2
Treviso
The Village Front
Townships
Filinvest East County
Highlands Pointe
Manor Ridge at Highlands
Mission Hills
Sta. Catalina
Sta. Cecilia
Sta. Clara
Sta. Isabel
Sta. Monica
Sta. Barbara I & II
Primrose hills
Villa Montserrat
Forest Farms3
Tinberland Heights
Banyan Ridge
The Ranch
Mandala Residential Farm
Estates3
Ciudad de Calamba
Aldea Real
Ashton Fields
Montebello
Batasan Hills, Quezon City
Batasan Hills, Quezon City
San Pedro, Laguna
San Pedro, Laguna
San Pedro, Laguna
San Pedro, Laguna
Zamboanga City
24.71
11.39
45.07
1.93
11.59
1.11
13.19
Not yet started
Phase 1 and 2 Completed
Phase3 On-going
Completed
Completed
Completed
Completed
Completed
Completed
Not yet started
Mamplasan, Biñan, Laguna
Mamplasan, Biñan, Laguna
Quezon City
Mamplasan, Biñan, Laguna
22.87
4.27
7.55
4.27
Completed
Completed
Not yet started
Completed
46.50
2.04
Completed
On-going
18.53
7.60
1.34
9.97
15.16
20.13
9.49
7.53
39.21
Completed
Completed
Completed
Completed
Phase 1 Completed
Completed
6.37
5.74
On-going
Not yet started
39.72
On-going
16.87
11.31
12.91
On-going
Completed
Phase 1 On-going
Phase 2 Completed
Completed
Completed
Punta Altezza
Vista Hills
Asenso Village – Calamba
Filinvest Technology Park
Taytay, Rizal
Antipolo, Rizal
Angono, Rizal
Taytay, Rizal
Angono, Rizal
San Mateo, Rizal
On-going
Completed
Completed
Calamba, Laguna
9.66
5.15
20.15
47.78
On-going
Completed
Entrepreneurial
3
Residential farm estates
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Asenso Village – Gen. Trias
Gen. Trias, Cavite
22.13
On-going
Leisure
Residential Farm Estate
Nusa Dua
Tanza, Cavite
32.96
Completed
Talisay, Batangas
21.27
On-going
San Mateo, Rizal
8.00
On-going
Private Membership Club
Laeuna De Taal
Timberland Sports & Nature
Club
New socialized housing units were constructed in existing developed lots of Belmont Hills, Sunny Brooke, Country Meadow and Melody
Plains in 2006. Additional housing units are planned for construction in several sites in General Trias and Tanza, Cavite and in Sto.
Tomas, Batangas for this year to meet the upsurge in demand in the lower income bracket, particularly those working in industrial
locations in the area.
Affordable projects likewise continued to expand in 2006. New phases and additional facilities were added to Springfield View,
Westwood Place, Woodville and Brookside Lane. A new townhouse project called Westwood Mansions is scheduled to be launched in
2007. All these projects are located in Tanza and General Trias, Cavite and residents can now enjoy the recreational amenities of El
Sorrento Sports and Country Club located in the vicinity, which opened in 2006. Also, Brookside Lane launched Shophomes in Phase 5
wherein it offers prime commercial lots ideal for shops, recreational centers, or other business ventures. Palmridge, a high-affordable
project, and Summerbreeze Townhome, both located in Sto. Tomas Batangas, were also formally launched. Summerbreeze 2 will be
offered to the market in the second half of 2007.
Sales of middle-income projects continued to pick-up. In San Pedro, Laguna, sales and development activities continued in the adjacent
communities of Park Spring, Summerfield and Village Square. Also in the area, a new community called the Pines was launched in mid2006. The Pines offers lots which provides refreshing mountain ambience and scenic views of Laguna de Bay. In Quezon City, Northview
Villas 1 and 2 were launched in early 2006.
In the high-end projects, sales of Brentville International climbed by 28% in 2006. This was the result of intensified marketing campaign,
as well as introduction of new house models. The market enthusiastically received two Mediterranean-inspired house models, the
Monalisa and the Madonna collectively known as the Masterpieces Home Collection. Lots in Brentville are almost sold-out and FLI will
soon launch the Arborage, the latest expansion inside the premier subdivision. In Quezon City, an exclusive enclave called Treviso located
near educational and commercial centers was introduced. Treviso is designed as an Italian Village set against the scenic backdrop of the
Montalban mountainscape.
Outside Metro Manila, FLI continues to expand its presence geographically with projects in regional growth areas. These projects
contributed a significant portion to the sales in 2006. In Cebu, new phases and facilities were built in the communities of Mactan Tropics,
Aldea del Sol, and Corona del Mar. In 2007, FLI will launch the exclusive Escala at Corona del Mar which will offer high-end house and
lot packages for sale or long-term lease. Also an upcoming project is the Grand Cenia, a condotel to rise along Archbishop Reyes Avenue
right beside the Cebu Business Park. In Mindanao, FLI launched the residential communities of Filinvest Homes in Tagum City, Ocean
Cove in Davao City, and Villa San Ignacio in Zamboanga City. In 2007, Kembali Coast will be introduced as a perfect island getaway on
Samal Island in Davao. This 50-hectare residential project will feature a 1.5-km beach line, as well as a wide selection of sea-based
amenities and recreational activities. In Palawan, scheduled for launching also in 2007 is the West Palms, a Mediterannean-themed
subdivision in Puerto Princesa. Other projects for development in 2007 are The MacArthur Villas in Tarlac, and Asbery Villas and
Claremont Village, both located in Pampanga.
The year 2006 was another successful year for township developments. Ciudad de Calamba delivered a good sales performance during the
year. Facilities were expanded with the completion of the municipal health center and police detachment on 1000 sq. meter site donated by
FLI to the local government. In progress is the development of main road leading to phases 2 and 3. Residential communities continued to
expand with the launching of Aldea Real and the introduction of new house models and construction of amenities in Punta Altezza and
Montebello. Additional phases of these communities are scheduled in 2007. Four new locators were added to the township’s industrial
anchor, the Filinvest Technology Park Calamba (FTPC), bringing the year-end total to 13 locators. Land development of smaller lot cuts
of around 1,500 sq. meters is underway to tap compact industries and local investments. On the other hand, Filinvest East County (FEC),
which stretches over several municipalities from Taytay to Antipolo and Angono, contributed the second highest sales achievement. In
Highlands Pointe, a commercial area featuring shophouses was launched in Villa Montserrat. The commercial units are almost completely
10
sold out because of its prime location, which is just across the San Beda College. The advantages of living within FEC as a premier
township will further be promoted in 2007. This will be in conjunction with the continuous development of all the projects within the
township and integrated marketing activities, which will continue to strengthen the identity of the township as a whole and will highlight
its premier status in the east of metropolis. In Mission Hills, the Mediterranean-themed Sta. Isabel subdivision was launched in 2006.
Meanwhile, land development and landscaping progressed steadily at Forest Farms, a residential-resort farm. The children’s campsite and
playground were completed, along with the enhancements to the main entry and view deck. Further, in the township of Timberland
Heights, land developments in Mandala West, Mandala North, Mandala South, and Banyan Ridge were accomplished as scheduled.
Farming activities and construction of housed have already started. Mandala East was launched in the second quarter of 2006, completing
the whole 40-hectare Mandala 1 Farm Estates project. Mandala 2 Residential Estates and Banyan 2 are scheduled for launching in second
half of 2007. The Spine Road extension and expansion to the area of Timberland Sports and Nature Club is ongoing and will be completed
before the club opening in the last quarter of 2007. An agreement with the parent organizers of Manila Waldorf School, Inc. to set up a
campus in Timberland Heights is about to be finalized. The planned Timberland Rudolf Steiner School will offer grade school and high
school education, and will espouse the non-traditional Waldorf education movement which makes nature an integral part of its curricula.
Entrepreneurial communities within the Ciudad de Calamba township and another in General Trias, Cavite have been well received as the
marketing group joined several trade fairs and expos to bring the product concept to Filipino entrepreneurs. An investors’ day and exhibit
was held at FCC marketing office to show potential buyers the various businesses they can set up within Asenso Village. FLI also
cooperated with the Government by providing venues within the Asenso Villages for various livelihood and small business seminars and
programs conducted by government agencies. Subject to market conditions, FLI plans to develop additional Asenso Villages in other
locations.
FLI’s leisure projects consist of residential farm estate developments and private membership clubs. In 2006, construction of the
Timberland Sports and Nature Club went full blast. In 2007 developments will focus on the club completion, procurement of operating
equipment, and the hiring and training of management team and staff, as the Club will open in the fourth quarter of the year. In Laeuna de
Taal, development of its first two residential enclaves, the Bahia and the Orilla, continued and is targeted for completion within the early
part of 2007. Planning is ongoing for the other offerings within the resort community such as the Lake Club, accommodation units, and
house and lot packages. The pioneer farm estate project, which is Nusa Dua, continued to expand. The first 30 hectares are almost sold
out, and the fourth phase is scheduled to be open in 2007. The amenities area has been completed and is now fully functional. Residents
and lot owners can now enjoy the use of swimming pool, game room, meditation garden, and children’s playground. A new Balinesethemed unit and a commercial area where the showcase farm will be displayed is planned to be construct in 2007. The same area will also
be the venue for weekend markets where the leisure farmers of Nusa Dua can sell their products.
The recent acquisitions by FLI of stakes in CPI and FAC, and the Festival Supermall have widened its product offerings. CPI owns the
developments in the Northgate Cyberzone information technology park in Alabang. In 2006, Genpact LLC and eTelecare were the new
additions to the rapidly growing number of global contact centers and outsourcing companies operating in the zone. With seven
operational buildings, it has now a gross leasable area (GLA) of 61,533 sq. meters with occupancy close to 100%. New locators coming
in early part of 2007 are Firstsource Solutions, Ltd. and Verizon Communications Phil. In the final stage of construction is the 5132
Building which will bring to 67,836 square meters of GLA upon completion. Also, four “iHub” buildings are under construction and
scheduled for delivery within the next two years. To cater to the needs of the 24/7 community in the zone the Convergence Block was
established, which houses the F@st Bytes, a 24-hour dining and retail hub that opened in third quarter of 2006. This block is also the site
of the I.T. school buildings that houses Informatics International College, Advanced Research and Competency Development Institure
(ARCDI), and YBM Philippines. FAC, on the other hand, owns the PBCom Tower along Ayala Avenue in Makati City via a joint venture
with the Philippine Bank of Communications. The tower is an information technology zone approved by PEZA. Occupancy is 100%
while rental rate increased by 20%. Major tenants are HSBC Electronic Data Processing (Phils), Inc., Crescent Services (Philippines) PTE
Ltd., American Express, Daksh eServices, and eTelecare. Meanwhile, tenants such as Shopwise, Ace Hardware, Savemore Supermarket,
Robinson’s Department Store, and Handyman Home Center anchor the 20-hectare Festival Supermall located in FCC. Among the latest
additions to its 600 tenant base are Powerbooks, People R People, and EP Espada. Soon to open are Charles & Keith, IZOD, Levi’s Girls,
and Slimmers World. Las Paellas, The Old Spaghetti House, Cabalen, and Sid’s Sports Bar. Rezoning was done on the second level to
make way for opening of more boutiques in the area. A portion of the floor was also converted into a Mini Trade Hall which was leased
out to bazaar and trade fair organizers. Two trade fairs by the Department of Trade and Industry have already been booked for 2007. The
Expo Trade Hall located on the fourth level was a favored venue for various job fairs during the year.
FILINVEST ALABANG, INC.
Filinvest Alabang, Inc. (FAI) posted a net income of P418 million in 2006. The company’s consolidated assets stood at P40.5 billion with
year-end debt of P949 million. A total of 65% of its net revenues was derived from leasing operations, including the nine-months rental
revenue from the mall and CPI before the exchange with FLI shares. Sale of lots, condominium and residential units has increased by 20%
during the year.
11
Office Sector
2301 Civic Place
The 10-storey 2301 Civic Place, FLI’s first venture into SOHO (Small Office-Home Office) development, was inaugurated in September
2006. A total of 141 units have been turned over to the owners. Among these, doctors, entrepreneurs, and other buyers in various
professions now occupy 37 units. The ground level of the building now houses a branch of I-Drugs and a medical-themed restaurant called
Recovery Room.
Civic Prime
The success of 2301 Civic Place paved the way for Civic Prime, which also offers flexible-use studios in prime location. The building is
now 93% sold and construction progress has reached the 41% mark with topping-off expected in July 2007.
Scheduled to be launched in 2007 is a master-planned commercial/SOHO complex with four towers, one of which will be a businessman’s
hotel.
Retail Sector
Westgate Center
The 9.5-hectare Westgate Center is now an established retail, dining and wellness destination in the South, with over 40 establishments
and still growing. Two cluster building developments with a total GFA of 10,207 square meters were added in 2006. Both will house more
specialty food outlets for Westgate’s well-heeled clientele. Design plans for other cluster buildings, as well as the anchor entertainment
building were completed last year in preparation for construction in 2007. Nine new leases for service and dining establishments were
awarded in 2006. Among these were Ilustrado Restaurant, Sugarnot Café, Pacific Dive Shop, Arte Esotiko, Golf Bay Central, and several
auto service centers.
South Station
South Station’s Green Building opened new shops in 2006, which include LBC, HBC Home of Beauty Exclusives, Western Union, and
South Point Internet Café. The opening of a pedestrian bridgeway made it more accessible and helped ease traffic flow in the area.
The full development of the South Station Center, envisioned becoming the regional trading post and transport hub, started in the third
quarter of 2006. The retail component will offer a total gross leasable area of 15,000 square meters and will showcase different concepts
such as pet station, garden center, hawkers’ food area and various bargain outlets and specialty shops. The first phase of the project is
scheduled for completion in 2007.
F@st Bytes
F@st Bytes, the 24- hour dining and retail hub, opened its doors to the Northgate Cyberzone community in the last quarter of 2006.
Among the first wave of tenants are McDonald’s, Seven Eleven, Hen Lin, Samurai, Prince of Japur, and Ninak Rice Meals. More sit-down
fast food outlets and cafes have signified their interest to be part of the second phase of development which will be constructed in 2007.
Filinvest Corporate City
In 2006, Wilcon Builders’ Depot opened its biggest branch on a 1.5-hectare lot at the corner of Alabang-Zapote Road and Bridgeway
Avenue. Catering to the southern market, the two-level depot offers a complete selection of tiles, furniture, home accessories, hardware,
and home building tools.
Residential Sector
Palms Pointe
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Palms Pointe is now composed of 148 prime residential lots, of which 74% is sold with a total of 75 lots already turned over to the clients.
It is now home to eight families while nine other houses are in various stages of construction. Amenities such as the clubhouse, covered
court, and playground have been operational since the second quarter of 2006.
The Flats at Parkway
Conditional turnover of the units of the 17-storey Vivant Flats commenced in the last quarter of 2006. The building is scheduled for
blessing within the first semester of 2007, after the complete turnover of the building to the buyers. Residents are already enjoying the use
of amenities such as the swimming pool, function rooms, open courtyard, and children’s playground.
La Vie Flats, the second building in the premium residential block, broke ground in January 2007 and excavation work is in full swing. It
is scheduled for delivery by year 2010.
West Parc Condominiums
The West Parc Condominium community is fast taking shape near the Alabang-Zapote road in FCC. Turnover of Alder, the first building,
began in October 2006. Birch Building was topped off in September 2006 and is scheduled for completion by the first half of 2008. Not
too far behind is the Cedar Building which was soft-launched in April 2006 and is now under construction. The soft launch of West Parc 2
is planned for mid-2007.
Studio One
The 12-Storey Studio One Condominium, located in Northgate Cyberzone, broke ground in November 2006 and is scheduled for
structural topping-off by third quarter of 2007. Designed for the growing 24/7 population within the outsourcing hub, Studio One received
reservations for almost 36% of the total number of saleable units by the end of 2006. Plans are underway for the soft launch of Studio Two
in mid-2007.
Pioneer Pointe
The 28-storey condominium along Pioneer Street in Mandaluyong City is scheduled for completion by the end of 2007. Turnover of units
to the buyers will start in January 2008.
Leisure Sector
The Palms Country Club
The addition of 136 members in year 2006, gained a 39% increase over the previous year. The club also held its first stockholders’
meeting in May 2006. The club continued to be busy hosting banquets, corporate functions, and other events for members. Among the
successful events organized for the members last year were the New Year’s Eve party, Thai Food Festival, Summer Camp 06, and the relaunching of The Palms Deli outlet. For 2007, The Palms will continue to sell the remaining Individual/Corporate A shares. The club is
also gearing up for its fifth anniversary celebration and more varied activities such as photo and art exhibits, epicurean lunches for ladies,
and an international food festival.
SEASCAPES RESORT TOWN
Seascapes Resort Town, FDC’s newest leisure development located in Mactan, Cebu was launched in 2006. Covering an expansive 12hectare seaside property, Seascapes Resort Town is a master-planned resort community that offers private lots, casitas, villas,
condominium units and a Beach Club. The site is just fifteen minutes away from the Mactan International Airport and thirty minutes away
from Cebu City. Planned by international leading resort architects in the world, Seascapes will fill-up the shortage in prime tourist
destination in Cebu. It will not only afford its clients a world-class resort lifestyle vacation but would also allow them to become investors
in a booming tourist trade.
Major accomplishments for last year were the completion of the road access and landscaping, and the establishment of the site marketing
office. Seascapes Beach Club and Spa shares have started to be offered. In 2007, development will go full blast with the selling and land
development of seaside, as well as the groundbreaking for the club, villas, and casitas. Seascapes will also start offering fractional shares
for the casitas and condominiums. Resort operation is set to start by the end of 2008.
13
EAST WEST BANKING CORPORATION
As East West Bank (EWB) focuses more on consumer financing, its total resources grew to reach P30 billion at the end of 2006, marking
a P5.4 billion or 22% increase from the previous year. The expansion in resources was mainly fueled by increases in loan receivables by
P2.4 billion, interbank loans receivable by P1.7 billion, and receivable from Bangko Sentral ng Pilipinas (BSP) by P2.3 billion
This was driven by a higher-than-industry growth in deposit liabilities of 19% or P4 billion. Deposit liabilities at the end of the year is at
P25.2 billion.
Accessibility
Reach of service continued to expand and improve with the opening of two branches in 2006 and the relocation of five existing branches
to more strategic locations to serve customers better. Service was likewise made more accessible with the addition of four new ATMs and
the upgrading of ten ATMs all over the network.
Leveraging on Technology and Processes
Technological innovations and technology support continued to be enhanced in 2006 through a number of automation projects such as the
Corporate Web Remittance Facility, the modification of the existing BizCheque program and the Cheque Prepare using corporate checks.
Knowing that process efficiency is critical in delivering excellent service, the bank worked towards streamlining and improving processes
through the Inter-office Reconciliation System, the Internal Central Negative File System, implementation of the deposit, loan and GL
cube data warehouse, the Fixed Asset System, Credit Card Deduping Program, the enhancement of the Payroll-GL Interface program,
among others.
Consumer Loans
The Bank’s position in consumer loans has further strengthened with the new programs, and wider distribution network and channels.
Product innovations such as the Appliance Tie-up, OFW Salary Loan and Modified Salary Loan made EWBC even more competitive in
the field of consumer finance.
People at the Helm of Success
Human capital was further fortified with effective people management practices. Continuous technical and customer-focused training was
conducted. The Team-based Customer Service Program (TCSP) was run throughout the network in 2006.
Committed to attracting and retaining the best talent in the industry, plans are underway to build a world-class HR team responsive to the
needs of employees. In 2007 and beyond, employees can look forward to improvements toward administrative excellence, strategic
partnership with human resource as well as stronger employee engagement.
Plans for 2007 and Beyond
Positioned on the solid foundation built by its existing competent key people for the past 12 years, the Bank is now joined by seasoned
officers with fresh ideas and a wealth of experience. Armed with strong resolve and agility, flexibility and technological orientation of a
young bank, EWB assumes a more competitive stance in the industry. It hopes to raise the level of service by continuing to streamline
processes, developing external and internal service standards across the organization, and ensuring that its frontline is manned by
technically competent and emotionally-attuned service providers.
Competition
Real Estate Development
Real estate development, ownership, and management are very competitive. The extent and composition of the competition varies by
geographic region and price segment. The Group believes that FLI is strongly positioned in the affordable-income to middle-income
residential subdivision market and in the farm estates. Success in these markets depends on acquiring well-located land at attractive prices
and financing packages often in anticipation of the direction of urban growth. Effective competition depends on a trained and motivated
sales force and delivering quality design and construction at competitive prices. FLI’s name and reputation in the Philippine property
market contributes to its competitive edge over the other market players.
14
FLI directly competes with other major real estate companies positioned either as a full range developer or with subsidiary companies
focused on a specific market segment and geographic coverage. Its direct competitors include the M.B. Villar Group of Companies
(Camella for socialized to affordable projects), and Crown Asia and Brittany for its middle to high-end projects; Extraordinary
Corporation for low-cost housing projects; Moldex Realty, particularly in the affordable to middle-income category; and Ayala Land and
Sta. Lucia Realty Corporation in terms of premium subdivisions. On the farm estate projects, other developers Landco Pacific, Laguna
Property Holdings, Inc., Antipolo Properties and Rumali Land Corp. while on the industrial estates, Carmelray Industrial Park, First
Philippine Holding Corp., and the other developers in the areas of Laguna and Batangas provinces. Due to the financial crisis that hit the
region in recent years, real estate companies now give emphasis to capacity to pay and cash flow considerations. Property firms currently
offer longer downpayment periods, as well as a choice of amortization schedules with graduated interest rates.
Commercial Property Development
The strong property market in the mid-1990s spurred the launch of at least four major business districts in Metro Manila such as FAI’s
Filinvest Corporate City in Alabang, Rockwell in Makati City, Global City in Fort Bonifacio, and Megaworld’s Eastwood in Quezon City.
Commercial lot sales have virtually ceased since then, forcing developers to rely on existing rental revenues to support regular operations.
The existence of large land inventories suggests a long-term buyers’ market that could place a firm cap on price and rental appreciation.
However, FCC enjoys a distinct market niche and is the top choice for those who decide to locate in the South. Makati, Ortigas and Fort
Bonifacio compete for the same market while FCC has limited competition. Its only competitor is the Madrigal Business Park of Ayala
Land which is only 25 hectares and zoned primarily for office development and was sold out even prior to FCC’s launch. Currently, office
spaces in FCC already enjoy a premium over those located in Madrigal.
Leasing
Festival Supermall’s major competitors include SM South Mall of SM Prime Holdings, Alabang Town Center, and Metropolis, all located
in the south. The mall also faces competition from specialty stores, general merchandise stores, discount stores, warehouse outlets and
street markets, as well as from other new malls that may open in the same area. The Company believes that it will be able to compete in
this market on the basis of its tenant mix and amenities, which allows it to attract customers from all economic segments. This
characteristic differentiates the Festival Supermall from nearby malls, which tend to attract customers from more specific economic
segments, such as primarily high-end (Alabang Town Center) and lower to middle income markets (Metropolis Mall and Southmall). The
Company also believes that the Festival Supermall’s location near the South Expressway and within the FCC allows it to draw customers
from nearby transportation hubs and office buildings.
Northgate Cyberzone and FAC’s PBcom Tower competition, particularly in the market for office space for call centers and BPO firms,
include Megaworld Corporation, Robinsons Land Corporation, and Ayala Land, Inc. There are significant barriers that a new entrant must
overcome in order to viably compete in this business, such as having industry-specific technological know-how and the financial capacity
to incur the considerable capital expenditure required. The Group believes that as the available space in traditional business centers such
as Makati City declines, competition for office space will be determined principally on the basis of price and quality. The trend will be for
BPO firms to diversify locations for risk management and labor pool access reasons. The Group expects to be able to compete in this
market because the locations of its leasable office spaces allow BPO firms to tap the labor pool in nearby residential developments and the
provinces to the south of Metro Manila and on the basis of the relative affordability of office space in its buildings, particularly in the
Northgate Cyberzone. The Northgate Cyberzone is also located near a 24-hour transportation terminal within the FCC. CPI has also
developed expertise in developing office space with BPO and call center-specific requirements in mind, particularly in connection with the
built-to-suit buildings constructed for HSBC and Convergys. The Group believes that this will allow it to serve the BPO market and make
its office buildings more attractive to potential tenants.
Banking and Financial Services
The commercial banking industry is dominated by a few large universal banks, which account for almost half of the industry’s total
resources. Most of these banks were results of mergers and acquisitions-strategy that was undertaken to enable them to compete head-on
in a globalized banking environment. Banks saw the need to beef up resources in the face of stiffer competition, especially with the entry
of foreign banks.
The establishment of a wide network and national presence also became imperative, primarily to meet the transactional requirements of
corporations and businesses and to provide wider source of cheap funds. Some of the bigger banks even went beyond local presence and
established branches and representative offices outside the country.
15
The sheer size of these banks, both in terms of resources and network, has allowed them to capture a substantial share of both lending and
fund generation businesses. As a result, these same banks posted the highest earnings among other players in the industry.
For smaller and medium-sized banks, a consistent strategy employed was to niche for a particular market where their core competencies
would enable them to provide competitive advantage against the bigger banks.
As expected, the entry of 10 new foreign banks further heightened competition among commercial banks. While the foreign banks
initially focused on fund generation and trade-related services, eyeing the top corporate and multinational clients as primary target market,
local banks particularly the bigger ones, began shifting their market focus to the middle market clientele and started fully tapping areas
outside Metro Manila as a means to expand market reach.
Patents, Trademarks, Copyrights
The Group does not hold any operations, which are dependent or expected to depend on patents, trademarks, copyrights, franchises,
concessions and royalty agreements.
Government and Environmental Regulation
The real estate business in the Philippines is subject to significant Government regulations, which cover, among other things, land and title
acquisition, development planning and design, construction and mortgage financing, and refinancing. There are no significant costs and
effects of compliance with environmental laws.
After a project plan is prepared, the Group applies for a development permit with the local government. If the land is initially designated
as agricultural land, FLI applies to the Department of Agrarian Reform ("DAR") for a Certificate of Conversion or Exemption, as may be
proper, in order to develop the same for residential purposes.
Once a development permit is obtained, the Group applies for a license to sell the individual lots from the Housing and Land Use
Regulatory Board (HLURB). The Group may also need approval from the Lands Management Bureau (for industrial used lands) or the
Land Registration Authority (for residential used lands) for the relevant subdivision plan.
Project developers are required to submit as part of each application for a development permit an environmental impact statement prepared
by a qualified consultant. Development permits are granted only when the Department of Environment and Natural Resources (DENR)
issues to the developer, a Certificate of Non Coverage for the proposed development plans. Where a property or a project has been
determined to be "environmentally critical" the developer is required to obtain an Environmental Compliance Certificate (ECC). As a
requirement for the issuance of ECC, an Environment Geological and Geohazard Assessment Report shall be submitted.
Subsidiaries engaged in financial services are subject to the rules and regulations as provided for by the BSP and SEC.
Major Risk Factors
Real Estate Development
Property values in the Philippines are affected by the general supply and demand of real estate, the rate of economic and political
developments in the Philippines. A substantial portion of the Group’s earnings depends on continued strength in the Philippine property
market.
In the event new supply exceeds demand as a result of economic uncertainty or slower growth, political instability, increased interest rate,
which reduce the ability of the Group’s customers to finance real estate purchases or otherwise, the financial condition and results of
operations of the Group could be affected.
The profitability of property development activities depends, in part, on the cost of constructing the housing units, and infrastructure
improvements included in the developments. The Group has sought to reduce such costs through standardized housing and infrastructure
design and economies of scale realized through volume purchases and large developments. Inflation in construction costs or the cost of
materials would reduce gross profit margins.
16
To improve its sales generation, the Group introduced different financing schemes that will help prospective buyers of real estate. The
Group also expanded its sales distribution channels, local and international, and improved manpower efficiency to quickly respond to
business development and marketing needs of the Group and its customers.
Banking and Financial Services
As part of the risk identification, monitoring and control process, the Bank defined the various financial risks it encounters in the course of
doing the business. The bank endeavors to make the lists comprehensive and strives to update subject lists as much as possible. The bank
recognizes the following risks:
Risks – on the Bank’s perspective, is the occurrence of an event, either expected or unanticipated, that may have an adverse impact on the
Bank’s operational and/or financial performance leading to a possible loss in the Bank’s capital or earnings.
Risk Management – is a continuous process of identifying, analyzing, measuring, controlling, communicating and evaluating risks. It is a
bank-wide endeavor where all the units of the Bank are expected to share in the responsibility.
Types of Risks:
• Quantifiable Risks – subject to numerical measurement; managed and controlled by general and specific limits.
• Non-Quantifiable Risks – not subject to specific measurement; still significant and not managed in isolation.
Quantifiable Risks
Market Risk or Price Risk refers to risk to earnings and capital arising from adverse changes in the prices or market value of the Bank’s
overall trading and investment portfolios (both on or off-balance sheet) as marked conditions changes.
•
•
•
•
Foreign Exchange Risk – arising from adverse changes in foreign exchange rates
Interest Rate Risk – arising from adverse changes in interest rates
Equity Risk – arising from adverse movements in the price of corporate holdings/shares/stocks
Commodity Risks – arising from adverse changes in the price of physical commodities
Interest rate risk pertains to the risk of losses in the bank’s portfolio in interest bearing instruments such as GS, corporate bonds and notes,
due to adverse changes in interest rates. As such, the bank not only considers the impact of changes in interest rates in its short term
earnings but more importantly on its networth or economic value to mitigate the effects on the bank’s overall liquidity, capital adequacy
and stability.
Market Risk Management Measures is generally and consequently measured and then controlled by a system of limits. RMG defines and
presents for approval to the Risk Committee and Board, the various risks management measures to be used in quantifying market and
interest rate risks. Once approved the following risk measures is used.
Market Risk Measurement
All risk-taking activities are subject to limits, which are sponsored by the Business Unit Heads, recommended by the Risk Management
Committee and approved by the Board of Directors. The following tools are used to effectively manage market risk.
•
•
•
•
•
•
Month to Month Mark to Market - Profit and loss for risk taking activities
VAR Limit (value at risk) - Management tolerance for Potential Loss
Stop Loss Limit - Management tolerance for mark to market loss in a given period
Loss Alert - Early Warning for potentially large losses
Nominal Position limit - Management approved total position
Stress Test - Impact of Extreme Market Movement on Bank Earnings
The success of the risk limit system is contingent on a key operational control.
17
Credit Risk refers to the risk to earnings or capital arising from an obligor/s, customer/s or counterparty/ies failure to perform and/or to
meet the terms of any contract with the Bank, subjecting the Bank to a financial loss. Credit Risk may last for the entire tenor and set at
the full amount of a transaction and in some cases may exceed the original principal exposures.
•
•
•
•
•
•
•
•
Underwriting Risk – default on loans and overdrafts
Contingent Lending Risk – default on letters of credit and guarantees
Counter-party Risk – arising from failure of a counter-party to fulfill all his obligations to the Bank
Counter-party pre-settlement Risk – counter-party default before contract value date
Counter-party settlement Risk – counter-party default on contract value date
Issuer Risk – issuer of securities bought by the bank will renege on their contractual obligation to honor the security on
maturity
Custody Risk – the appointed custodian of the Bank will fail in its duty to safe-keep the Bank’s securities
Country Risk – inflow and outflow control will be imposed by a country’s government.
Credit Risk cover mostly loan portfolio analysis, where the Bank shall employ risk management techniques to quantify and qualify cynical
versus specific risk for a given portfolio under potentially adverse economic conditions. It is expected that in these periods of stress, the
Bank’s loan portfolio will suffer, but the degree of credit quality erosion will depend primarily on the Bank’s own risk culture, lending
policies and controls.
The Bank can reduce credit risks by diversifying its loan portfolio across various sectors and borrowers. This is the underlying principle of
portfolio diversification against loan concentration. In general, the Bank is convinced that excessive concentration of lending in a single
business sector (e.g. real estate development) or geographic area plays a significant role in weakening asset quality. Good diversification
across economic sectors and geographic areas enables the Bank to ride through business cycles without causing undue harm to asset
quality. It likewise allows the Bank to manage risks associated with Bank’s largest exposures.
The Credit Risk Management department was formalized within the institution through the Credit Policy Manual. The same documents
are disseminated throughout the Bank in order that all the Bank’s personnel are knowledgeable of the credit risk methodology of the
institution. Other principles to be followed are that:
a.
b.
c.
Credit approval bodies are formalized within the institution. Credit approval bodies and the risk management organization
of the Bank is independent of the trading unit.
Credit authority and consequently, approval authorities of these approving bodies are well defined.
Senior Management is actively involved in the credit process and the credit analysis and approval function tends to be
centralized – versus the decentralized structure of the marketing and client-relationship process.
The Chief Risk Officer (CRO) manages and oversees the day-to-day activities of the RMG, the IAD and the RCD. The CRO likewise
evaluates all risk policy proposals and reports to be presented to the RMAC. The CRO, through the RMG, shall also coordinate with the
RTUs and the RCCUs of the Bank as regards the submission of requisite reports on their risk compliance and control activities.
Liquidity Risks refers to risks earnings or capital arising from the Bank’s inability to meet in a timely manner its financial commitments
when they fall due without incurring unacceptable losses. This is the ability of the bank to fund increases in assets and meet obligations in
all currencies as they fall due. A strong liquidity management system is characterized by a good management information system,
effective analysis of net funding requirements under alternative scenarios, diversification of funding sources and contingency planning.
•
•
Funding Liquidity Risk – arising from a bank’s inability to meet obligations when they fall due.
Trading Liquidity Risk - arising from a bank’s inability to unwind its position to meet funding needs.
Liquidity management starts with the formulation and dissemination of a clear liquidity strategy that maps out the general approach that
the bank will have to liquefy various quantitative and qualitative targets. The Board of Directors has the responsibility for approving
liquidity strategy. Day to day implementation and monitoring of this strategy is left to the ALCO, which formulates the strategy and have
this reviewed by Risk Management Committee for approval.
Non-Quantifiable Risks
18
Operational Risk refers to risk earnings and capital arising from weaknesses in organizational structure poor oversight function of the
board of directors and senior management, weak internal control system, inadequate internal and external audit coverage and deficient
management info system.
•
•
•
•
Processing Risk – inherent in the execution and settlement of transaction
Accounting Risk – associated with lapses in reporting and audit
Documentation Risk – arising from documentary evidence being incomplete, incorrect and unenforceable.
System Risk – arising from the failure in capacity and security of bank system.
Legal Risk refers to risks to earnings or capital as a result of unenforceable contracts from legal non-conformity, lawsuit or adverse legal
judgment.
•
•
•
Legal Non-conformity Risk – arising from Bank’s products, services or processes being found to be incompatible with the
letter of law.
Customer Lawsuit Risk – arising from legal cases filed against the Bank for its failure to disclose all relevant information
(including risk involved) or breach of contract.
Law Amendment Risk – arising from amendments to the law rendering current products or services inapplicable or less
profitable.
Compliance/Regulatory risk refers to risks arising from violations or nonconformity to laws, rules and regulations, prescribed practices or
ethical standards.
•
•
•
Regulatory Non-conformity Risk – arising from Bank’s products, services or processes being found to be incompatible
with regulators’ rules and regulations.
Regulatory Sanctions – arising from current violations of rules and regulations will mean penalties and future difficulty in
securing licenses and approvals.
Changes in Rules and Regulations – arising from changes in rules and regulations rendering current products and services
inapplicable or less profitable.
Reputational Risk refers to the risk to earnings or capital arising from failure to perform responsibilities expected from a bank resulting to
loss of reputation or erosion of public trust inherent in its banking charter.
•
•
•
Suitability Risk – refers to risk arising from marketing of bank’s financial instruments to unqualified clients.
Disclosure Risk – refers to risk occurring from failure to disclose and ascertain that client comprehends all inherent risk
arising from proposed transactions.
Valuation Risk – refers to risk arising from inaccurate market valuation of financial instruments held on a regular basis.
Personnel Risk refers to risk arising from the possibility that employees or management will fail to perform their duties expected of them
as bank employees.
•
•
Lack of Fit Risk – refers to risk that the appointed personnel do not have the requisite skill or attitude to perform the
assigned task.
Integrity – refers to risk that the assigned personnel do not posses the moral qualification for the job assigned.
Systemic Risk refers to the risk arising from global, regional or industry wide turbulence or crisis.
Strategic Risk refers to the risk to earnings and capital arising from adverse decisions or improper implementation of subject decisions.
Employees
As of December 31, 2006, the Group had a total workforce of 1,803 persons consisting of 82 senior executive officers (6 of which are
consultants), 1402 persons on regular status, 68 on probationary, and 251 persons on contractual or project basis. The Group does not
anticipate substantial increase in the number of its employees within the next twelve (12) months although it is expected that the number
of workforce will increase as a result of the planned additional branches of EWB in 2007. None of the employees are unionized.
The Group has no Collective Bargaining Agreement (CBA) with any of its employees.
19
Item 2. Properties
Properties and Equipment
The Company owns a parcel of land located in San Juan, Metro Manila with an area of 3,246 square meters, which is being used as the
head office of FDC and FLI. The Company through Filinvest Asia Corporations also owns 50% of the office space in PBCom Tower
located along Ayala Avenue, Makati City which office spaces are being leased out to several tenants
FLI is renting spaces for its sales offices in Quezon City, Cavite, Cebu, Davao City, and Zamboanga City. The term of the leases is for
one year, and thereafter, the term of the lease shall be on a month to month basis, or upon the option of both parties, a new contract is
drawn. Total rental payments in 2006 amounted to P32.1 million.
The Bank also leases several premises occupied by its branches with annual escalation of 5% to 10% and for periods ranging from 5 to 15
years, renewable upon mutual agreement of both parties. Total rentals charged to operations amounted to P111 million in 2006.
The Company does not intend to acquire properties for the next 12 months except as needed in the ordinary course of business.
Landbank
It is an integral part of the Group’s strategy to maintain an extensive landbank at all times. The Group currently maintains a landbank,
which it believes, could sustain at least five to ten years of development and sales. The Group’s landbank consists of vacant or
undeveloped land primarily in the Calabarzon and regional urban areas.
As of December 31, 2006, the Group’s landbank consisted of approximately 2,406.39 hectares. The following table shows as at
December 31, 2006 the Group’s landbank and land held under joint ventures in which the Group participates:
Landbank as of December 31, 2006
Location
Metro Manila..….............
Bulacan.......…..............
Rizal.............................
Batangas.....…..............
Cavite..........…..............
Laguna.........….............
Cebu...........…..............
General Santos…..........
Davao
Ormoc
Total.................….........
Group Owned
Joint Venture
( in hectares)
73.401
249.01
802.95
161.23
394.12
313.88
9.41
53.55
0.14
0.05
2,057.73
35.88
0.63
60.02
69.59
29.50
5.27
97.77
50.00
348.66
Potential land acquisitions and participation in joint venture projects are evaluated against a number of criteria, including the attractiveness
of the acquisition price relative to the market, the suitability or the technical feasibility of the planned development. The Company
identifies land acquisitions and joint venture opportunities through active search and referrals. Under the joint venture agreements, the
joint venture partner contributes the land and the Group undertakes the development and marketing of the products. The joint venture
partner is allocated either the developed lots or the proceeds from the sales of the units based on pre-agreed distribution ratio.
In addition to the above listed landbank, the Group also owns part, either direct ownership or joint ownership with the Government
through the Public Estates Authority, of the 244 hectare Filinvest Corporate City (FCC) in Alabang, Muntinlupa City. Certain parcels of
land owned by the Group with an aggregate area of 35.88 ha. were mortgaged with financial institutions as security for the Group’s longterm debt.
20
At present the Group believes that the landbank it maintains could sustain at least five to ten years of development and sales, thus, it has,
as a rule, no intention of acquiring substantial rawlands in the next two years, unless an extremely attractive offer is received.
Item 3. Legal Proceedings
The Group is subject to lawsuits and legal actions in the ordinary course of its real estate development and other allied activities.
However, the Group does not believe that any such lawsuits or legal actions will have a significant impact on the financial position or
result of operations of the Group. Noteworthy are the following cases involving the Company and its subsidiaries, Filinvest Land, Inc.
(“FLI”) and Filinvest Alabang, Inc. (“FAI”):
1.
FLI vs. Abdul Backy, et al.
G.R. No. 174715
Supreme Court
This is an offshoot of a civil action for the declaration of nullity of deeds of conditional and absolute sales of certain real properties located
in Tambler, General Santos City executed between the Company’s subsidiary, FLI, and the plaintiffs' patriarch, Hadji Gulam Ngilay. The
Regional Trial Court (“RTC”) of Las Piñas City (Br. 253) decided the case in favor of FLI. On appeal, the Court of Appeals rendered a
decision partly favorable to FLI. FLI’s petition for review on certiorari to question that portion of the decision declaring as void the deeds
of sale of properties covered by free patents issued in 1991, is now pending with the Supreme Court.
2.
Emelita Alvarez, et al. vs. FDC
DARAB Case No. IV-RI-010-95
Adjudication Board, Department of Agrarian Reform
On or about March 15, 1995 certain persons claiming to be beneficiaries under the Comprehensive Agrarian Reform Program (CARP) of
the National Government filed an action for annulment/cancellation of sale and transfer of titles, maintenance of peaceful possession,
enforcement of rights under CARP plus damages before the Regional Agrarian Reform Adjudicator, Adjudication Board, Department of
Agrarian Reform. The property involved, located in San Mateo, Rizal, was purchased by the Company from the Estate of Alfonso
Doronilla. A motion to dismiss is pending resolution.
3.
FLI vs. Flood Affected Homeowners of Meritville Alliance
G.R. No. 165955
Supreme Court
On March 27, 1996 certain alleged flood-affected homeowners of Meritville, a subdivision developed by FLI in a topographically
depressed area of Las Piñas City, filed a complaint with the Housing and Land Use Regulatory Board (HLURB) against FLI to require
elevation of the portions of the subdivision (with an aggregate area of approximately 0.6 hectares) frequently visited by flooding on which
77 housing units have been constructed. FLI has assailed with the Supreme Court the decision of the Court of Appeals affirming the
decisions of the Office of the President and the Board of Commissioners of the HLURB adverse to FLI. The petition of FLI remains
pending with the Supreme Court.
4.
Republic of the Philippines vs. Rolando Pascual, et al.
Civil Case No. 7059
Regional Trial Court
The National Government through the Office of the Solicitor General filed suit against Rolando Pascual, Rogelio Pascual and FLI for
cancellation of title and reversion in favor of the Government of properties subject of a joint venture agreement between the said
individuals and FLI. The Government claims that the subject properties covering about 73.33 hectares are not alienable and disposable
being part of the forest lands. The case is now pending with the RTC of General Santos City (Br. 36).
5.
Adia vs. FLI
CA-G.R. CV No. 87424
Court of Appeals
Various CLOA holders based in Brgy. Hugo Perez, Trece Martirez City filed a complaint with the RTC of Trece Martirez against FLI for
recovery of possession with damages, claiming that in 1995 they surrendered possession of their lands to FLI so that the same can be
developed pursuant to a joint venture arrangement allegedly entered into with FLI. They now seek to recover possession of said lands
21
pending the development thereof by FLI. The RTC rendered a decision ordering FLI to vacate the subject property. FLI appealed the
decision to the Court of Appeals where it is pending.
6.
FDC vs. Commissioner of Internal Revenue
G.R. No. 146941
Supreme Court
This case involves a petition for review on certiorari filed by the Company with the Supreme Court to assail the Court of Appeal’s
Decision dated August 18, 2000. This Decision affirmed the denial by the Court of Tax Appeals of the refund of the amount of
P3,173,868.00 representing creditable withholding taxes overpaid by the Company for the years 1995 and 1996. The case is pending
decision with the Supreme Court.
7.
Padua, et al. vs. DENR, et al.
CA-G.R. SP No. 93908
Court of Appeals
This involves a petition for mandamus to compel the Department of Environment and Natural Resources and Lands Management Bureau
to give due course to “Miscellaneous Sales Patents” filed by individual petitioners in 1969 covering a 3,000 square meter-parcel of land
that now forms part of the Filinvest Corporate City. The petitioners also seek to nullify the “Joint Venture Agreement” dated April 14,
1993 between the Republic of the Philippines and the Company for the horizontal development and subdivision of the Alabang Stock
Farm. The petition is pending with the Court of Appeals.
9.
Alberto D. Hilapo et al. vs. Republic of the Philippines, et al. (Civil Case No. 99-0075, RTC-Muntinlupa, Br. 256); Alberto D.
Hilapo, et al. vs. Hon. Alberto L. Lerma, et al. (CA G.R. SP No. 77969, Court of Appeals); Alberto D. Hilapo, et al. vs. Republic
of the Philippines, et al. (G.R. No. 161639, Supreme Court)
The plaintiffs in Civil Case No. 99-075 claim to be the owners of the 244-hectare parcel of land known as the Alabang Stock Farm which
is the subject of a joint venture between the Republic of the Philippines and the Company. Civil Case No. 99-0075 is a civil action
seeking principally the annulment of Transfer Certificate of Title No. 185552 issued in the name of the Republic of the Philippines which
covers the entire Alabang Stock Farm area subject of the Joint Venture Agreement dated April 14, 1993, as well as the transfer certificates
of title derived therefrom. The RTC of Muntinlupa City dismissed the case. The plaintiffs filed a petition for certiorari (CA G.R. SP No.
77969) with the Court of Appeals seeking the reversal of the dismissal. They now assail before the Supreme Court the decision of the
Court of Appeals dismissing their petition.
10.
Heirs of Rufino Hilapo and Gregoria Arevalo vs. Republic of the Philippines, et al. (Civil Case No. 99-320, RTC-Muntinlupa,
Br. 256)
As in Civil Case No. 99-075 (see above), the plaintiffs in this case claim to be the owners of the 244-hectare parcel of land known as the
Alabang Stock Farm. It seeks principally the annulment of Transfer Certificate of Title No. 185552 issued in the name of the Republic of
the Philippines which covers the entire Alabang Stock Farm area subject of the Joint Venture Agreement dated April 14, 1993, as well as
the transfer certificates of title derived therefrom. The plaintiffs likewise seek the reconveyance of the Alabang Stock Farm in their favor.
By its Resolution dated December 19, 2002, the RTC of Muntinlupa City required the plaintiffs to pay the docket fees corresponding to
the value of the property subject of this case. To date, the plaintiffs have not done so. The case is still pending with the trial court.
11.
Luciano Paz vs. The Republic of the Philippines (Civil Case No. 00-059, RTC-Muntinlupa City); Luciano Paz vs. Hon. N.C.
Perello, et al. (CA G.R. SP No. 66677, Court of Appeals); Luciano Paz vs. Republic of the Philippines, et al. (G.R. No. 157367,
Supreme Court)
In a petition instituted with the RTC of Muntinlupa City (Civil Case No. 00-059) petitioner sought the cancellation of the title of the
Republic of the Philippines over the Alabang Stock Farm and the titles derived therefrom. The trial court dismissed the case on June 4,
2001. The petitioner then instituted a special civil action for certiorari (CA G.R. SP No. 66677) with the Court of Appeals seeking the
nullification of the dismissal of Civil Case No. 00-059. On August 1, 2002, the Court of Appeals promulgated a decision denying due
course and dismissing the petition in CA G.R. SP No. 66677. In April 2003, the petitioner filed a petition for review on certiorari (G.R.
No. 157367) with the Supreme Court seeking the reversal of the dismissal of CA G.R. SP No. 66677 and Civil Case No. 00-059. The case
is still pending with the Supreme Court.
11.
Commissioner of Internal Revenue vs. FDC and FAI (CTA Case No. 6128, Court of Tax Appeals); Commissioner of Internal
Revenue vs. FDC and FAI (CA-G.R. SP No. 74510, Court of Appeals); FDC and FAI vs. Commissioner of Internal Revenue
22
(CA-G.R. SP No. 72992, Court of Appeals); Commissioner of Internal Revenue vs. FDC and FAI (G.R. Nos. 163653 and
167689, Supreme Court)
The Bureau of Internal Revenue (BIR) assessed the Company with deficiency income taxes for taxable years 1996 and 1997 in the sums
of P150,074,066.27 and P5,716,972.03, respectively. It also assessed the Company deficiency documentary stamp taxes for 1996 and
1997 in the sums of P10,425,487.06 and P5,796,699.40, respectively. Finally, it assessed FAI with deficiency income tax of
P1,477,494,638.23.
After exhausting its remedies at the administrative level, the Company and FAI questioned the assessments on both legal and factual
grounds before the Court of Tax Appeals (CTA) in CTA Case No. 6182. After proceedings were duly had, the CTA found merit in the
Company’s and FAI’s petition and, in its Decision dated September 10, 2002, set aside all the assessments except for the assessment of the
Company’s alleged deficiency income tax for 1997 amounting to P5,691,972.03, which it ordered the Company to pay.
The Company appealed the CTA Decision, but only insofar as it upheld the 1997 deficiency income tax assessment against the Company.
In its Decision dated December 16, 2003 in CA-GR SP No. 72992, the Court of Appeals granted the Company’s petition for review and
annulled the said assessment.
The BIR also appealed the CTA Decision. The Court of Appeals denied the BIR’s appeal in CA-GR SP No. 74510 and upheld the CTA
Decision.
The BIR appealed the decisions of the Court of Appeals in CA-GR SP Nos. 72992 and 74510 with the Supreme Court. The BIR’s
petitions for review are docketed as G.R. Nos. 163653 and 167689. Upon motion by the Company, the Supreme Court ordered the
consolidation of G.R. Nos. 163653 and 167689.
12. In February 2007, the Department of Justice issued subpoenas to the directors and certain officers of FLI for a complaint for alleged
capital gains tax and documentary stamp tax deficiencies on the acquisition of rawlands in San Pedro and Calamba, Laguna in 2004.
The Company is not aware of any other information as to any other legal proceedings known to be contemplated by government
authorities or any other entity.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth quarter of the calendar year covered by this report.
PART II - OPERATIONAL AND FINANCIAL INFORMATION
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
Cash Dividend
None declared in 2006 and 2005. The payment of cash dividends in the future will depend upon the company’s earnings, cash flow,
financial condition, capital investment requirements and other factors (including certain restrictions on dividends imposed by the terms of
loan agreements). Pursuant to the loan agreements entered into by the company and certain financial institutions, the Company needs the
lenders’ prior consent in cases of cash dividend declaration.
Market Information
STOCK PRICES
High
Low
2006
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
3.15
4.05
3.35
4.05
1.18
2.65
2.26
1.18
Period End
2.90
2.75
2.85
1.20
23
2005
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
1.78
1.36
1.14
1.24
1.36
1.14
1.08
1.18
1.50
1.16
1.12
1.20
As of April 20, 2007 the closing price of FDC share was at P5.40.
The number of shareholders of record on December 31, 2006 was 5,319 and on April 20, 2007 was 5,141. Common shares issued and
outstanding as of December 31, 2006 were 5,958,123,852.
Top 20 Stockholders
As of December 31, 2006
Shareholders
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
ALG Holdings Corp.
Trust for Michael Gotianun
Jonathan T. Gotianun
Lourdes Josephine G. Yap
PCD Nominee Corp. (Non-Filipino)
PCD Nominee Corp. (Filipino)
FDC Equities Investment Ltd.
Michael Gotianun
Ricardo Alonzo
East-West Banking Corp. FAO Trust Acct. No. 135
Hongkong Bank OBO Manila A/C 118976/150
Andrew Gotianun, Sr &/or Mercedes T. Gotianun
East-West Banking Corp. FAO Trust Acct. No. 132
Josephine G. Yap
Hongkong Bank OBO Manila A/C 118976/150
Hongkong Bank OBO Manila A/C 118976/150
Mercedes T. Gotianun
Filinvest Development Corp. Treasury shares
Helen Reyes
Manuel Castillo
Total
Class of
Securities
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
No. of Shares held
4,201,927,831
415,337,720
339,291,901
329,919,980
219,594,820
182,875,134
79,733,354
38,218,799
23,214,024
19,750,000
10,119,500
7,575,000
6,942,900
6,292,900
5,764,100
4,128,515
3,000,000
2,398,400
2,183,380
2,161,190
% to
Total
70.52%
6.97%
5.69%
5.54%
3.69%
3.07%
1.34%
0.64%
0.39%
0.33%
0.17%
0.13%
0.12%
0.11%
0.10%
0.07%
0.05%
0.04%
0.04%
0.04%
5,900,429,448
99.05%
Recent Sale of Unregistered Securities
There are no securities sold by the Company in the past three (3) years, which were not registered under the Code.
Item 6. Management’s Discussion and Analysis or Plan of Operations
Results of Operations
• 2006
Consolidated net income for the year amounted to P1.43 billion or 21% higher than 2005’ P1.18 billion as a result of the following:
24
Real estate operations posted 19% growth in net revenue, to P4.7 billion from P3.9 billion in 2005.
Sale of lots, condominium and residential units, and club shares collectively grow by 14% to P3.25 billion. Sale of lots and house and lot
packages almost came from all real estate sectors, and new projects generated substantial contribution to sales. In the residential sector,
sales came mostly from Palm Ridge in Batangas (affordable), Sta. Isabel in Mission Hills (middle – income), Villa Mercedita II in Davao
(middle – income), and Brentville in Laguna (high – end). The residential farm estate sector contributed increases in the number of lots
sold in Forest Farm and Nusa Dua, in addition to the transfer of lots to FAPI. Higher recorded sales for Belleview, Belevedere and Blue
Isle subdivisions spurred the growth in sales of socialized housing sector. Intensive marketing activities, promotions and incentives, the
availability of affordable financing packages, and attractive pricing, coupled with strong OFW demand and strong government support,
are the major reasons cited for the good project sale performance. In the commercial development sector, sale of condominiums has
improved mainly due to strong performance of FAI in selling Westparc Alder and Westparc Birch condominium units. For club shares,
118 shares were sold in 2006 compared to 77 in the previous year. Deferred gross profit went down by 65% as a result of lower sales
booked under the installment method, and part of the sales booked during the year came from bank-financing, deferred cash payment, and
PAG-IBIG financing.
In the leasing sector, Mall and rental revenues, accounting for 21% of consolidated net revenue, provided an increase of 26% over last
year’s. The Festival Supermall continuously provided a steady source of revenue. Latest additions to its 600- roster of stores were known
brands such as Powerbooks, People R People, and EP Espada from Thailand. Additions to the dining choices were Las Paellas, The Old
Spaghetti House, Cabalen, Sid Sports Bar, Giligan’s Island, and Aplaya. In the office sector, FAC maintained its 100% occupancy status
while rental rates escalated by 20%. The stronger demand for BPO/contact center locations was cited as the major reason for the good
rental revenue performance. The same reason was referred to for the almost 100% occupancy in Northgate Cyberzone. Capitalizing on its
location, which is south of Metro Manila, the zone has expanded to reach a GLA of 61,533 sq. meters to accommodate the strong demand
for BPO offices. In 2006, newest additions to its growing list of tenants are, Genpact LLC, eTelecare, Firstsource Solutions, and Verizon
Communications Phil. Further, the Convergence Block which caters to the 24/7 community in area, opened in the third quarter of 2006
and houses Informatics International College, Advanced Research and Competency Development Institute, YBM school.
Other income growth was attributed to higher amortization during the year of deferred income arising from the exchange of parcels of
land between FDC, FAI and FLI in 1996 which gain was initially deferred subject to the eventual development and sale of lots to a third
party.
Real estate operating expenses grew by 10% mainly as a result of: higher selling and marketing expenses as a result of product launchings,
special events, advertisements and overhead costs incurred by newly established sales offices as part of the Company’s aggressive
marketing campaign during the year, in addition to the higher brokers’ commissions and incentives as a result of increase in sales; higher
interest expense due to increase in loans but however expected in 2007 to taper off with the replacement of high-cost loans and
prepayments of some loans; higher provision for impairment of assets; and higher miscellaneous expenses resulting from the integration of
FLI’s computer systems and expenses relating to a corporate advertising campaign in 2006.
Banking operations net revenue remained steady in 2006 registering P1.3 billion. Interest income slightly declined which was attributed to
lower interest rates, specifically in regular government securities that went down to 4% during the year compared to 7% in 2005. This
decline was offset by the growth in Other Income mainly coming from service charges, fees and commissions. Banking operating
expenses increased by 18% mainly: from higher provision for probable losses; increased Gross Receipt Tax for Other Income, from 5% in
2005 to 7% this year; and all other operating expenses as a result of expanded activities during the year.
As a result, the Group posted almost P2 billion of Income Before Income Tax or a 16% increase over last year’s, mainly sourced from the
growth in real estate operations. Income tax was at the same level, bringing the Net Income to P1.4 billion or a 21% growth.
The Group’s total assets stood at P86.2 billion, an increase of P7.4 billion or 9% over 2005 level of P78.8 billion. The growth mainly
came from increases in Cash and Cash Equivalents, Loans and Receivables, AFS Financial Assets, and Land and land development,
partially offset by decline in Other Assets.
Cash and cash equivalents, which was at P8.7 billion, increased by 78% over last year, mainly due to the new BSP circular 539
implemented during the year mandating banks to change the liquidity reserve requirement from government securities bought directly
from the BSP to term deposits in the reserve deposit account. This resulted to change in the accounting classification of government
securities as part of the reserve requirement, from Held-to-maturity financial asset to Cash and Cash equivalent. This explained the drop of
the Held-to-maturity asset by P1.6 billion in 2006 compared to 2005. Other reason for the growth in Cash and Cash equivalents is the
increase in liquidity funded from higher deposit level during the year.
25
The increase in Loans and receivables from real estate operations was due to the higher journalized sales in 2006. Loans and receivables
from banking financial services was mainly brought about by upsurge in auto loans, which increased from P2.9 billion in 2005 to P4.5
billion in 2006, as the Bank focused more on consumer financing.
AFS financial assets grew by P2.2 billion as a result of reclassification of some securities held by EWB previously categorized as
Financial Assets at Fair Value Through Profit and Loss (FVPL) in 2005. These securities were not to be traded within the year and
therefore reclassified as AFS financial assets in 2006. This also explained the drop in FVPL in 2006 by P1.8 billion or 73%. Other reason
for the increase in AFS is the higher volume of placements during the year.
Increases in Subdivision lots, condominium and residential units for sale, and Land and land development were due to completed and
continuing projects developed during the year. Several new projects were also introduced. (Please refer to Item 1. Real Estate
Developments for list of project developments and their corresponding status)
Other assets declined by 25% or P409 million, attributed to the conversion into FLI shares on September 29, 2006 of FLI bonds owned by
FDC, the premium of which was classified under Other Assets in 2005.
Total liabilities got higher by 14% or P6 billion as Deposit liabilities significantly increased by almost P5 billion or 24%, mainly credited
to new deposit campaigns launched in 2006. Bills and acceptances payable likewise grew by P1 billion as EWB borrowed from the Trust
fund to support the requirement of the new BSP Circular 539, as discussed earlier. Note however that the Bank gained a 5% spread over
the borrowing rate of 7% from the Trust fund, through investing in BSPs special accounts (RDA and SDA) at 7.5% interest.
Retained earnings’ growth of P1.9 billion or 16% was related to the net income of P1.2 billion earned during the year and the adjustment
to minority interest for additional equity in affiliates amounting to P697 million.
Minority interest dropped by P297 million or 6% as the effective shareholdings of FDC in FLI rose to 65% in 2006 compared to 53% in
2005, by way of asset swap as, previously discussed.
Performance Indicators
2006
Earning per share (basic)
Net Income (Total)
2004
2005
P 0.240 /share
P 0.198 /share
P 0.149 /share
Weighted average number of outstanding
common shares
Price Earnings Ratio
Closing Price
5.01
times
6.06
times
6.86
times
Earnings per share
Return on Gross Revenue
Net Income
17%
15%
14%
0.32
0.33
0.29
Total Revenue
Debt to equity ratio (gross)
Notes Payable & Long-term Debt
Total Stockholders' Equity
EBITDA to Total Interest Paid
EBITDA
3.53
times
3.75
times
2.87
times
26
Total Interest Payment
The profitability of the Company is reflected in the earnings per share, which improved from P0.149 a share in 2004 to P0.240 a share in
2006 mainly due to positive growths consolidated income (total including net income attributed to minority interest) over the three year
period. The price earnings ratio decreased mainly due to the higher earnings per share. The market closing price per share was the same at
P1.20 for the years 2006 and 2005, and at P1.02 in 2004.
Return on gross revenue increased due to improved income generated principally by the real estate operations.
Total debt to equity ratio slightly lowered to 0.32:1 from 0.33:1, from 2005 to 2006, attributed to higher net income earned during the year
while long-term debt remained at almost the same level.
Other Notes to Financial Statements
There are no known trends, events or uncertainties that have had or that are reasonably expected to have favorable or unfavorable impact
on net sales or revenues or income from continuing operations of the Company.
The operating activities of the Company are carried uniformly over the calendar year. There are no significant elements of income or loss
that did not arise from the Company’s continuing operations.
There are no seasonal aspects that had a material effect on the Company’s financial conditions or results of operations.
There are no known events that will trigger the settlement of a direct or contingent financial obligation that is material to the Company.
There are no 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.
FLI recently achieved record-breaking success with its recent follow-on offering where it listed up to 3.7 billion new common shares at
the Philippine Stock Exchange. The follow-on offering last February 2007 was more than five times oversubscribed, raising around $204
million for both the primary and secondary offerings. The offering raised additional funds for FLI’s P5 billion capital expenditure budget
for 2007.
• 2005
Real estate operations posted 16% growth in net revenue, to P3.9 billion from P3.4 billion in 2004. Mall and rental revenues increased by
8% or P71 million with the increased occupancy in Festival Supermall, FAI lots, Westgate, South Central and Cyberzone. The Group
welcomed new tenants such as Wilcon Builder’s Depot and Alabang Home Depot in Filinvest Corporate City; 84 new stores were added
in Festival Supermall; and, Westgate’s newest establishments are Belo Medical Center, Gymboree, Zong Restaurant, UCC Coffee, Wine
Depot, Med Express, Cest Si Bon French Restaurant, and Westgate Alabang Home Depo. FLI expanded its sales by 7% with mostly
coming from the middle-income sector, beefed up by a strong OFW demand. This was offset by the decline in sale of lots and residential
condomimium units of FAI, which decreased by 57% and 42%, respectively. It was however partially eased with the improvement in sale
of commercial condominium units, which increased by 1281%. Coupled with the lower sale of club shares, which went down by 42%, and
higher deferred gross profit due to more sales booked under installment method, total gross profit declined by 3%. Other income rose to
P1.6 billion, up by 90% from P825 million in 2004, mainly sourced from interest in installment contracts receivable, investment in bonds,
and gain from the exchange of land.
Real estate operating expenses grew by 25% mainly as a result of higher fuel costs which increased tripping and transportation expenses;
higher travel expenses because of more regional projects; fees incurred for the increase in capitalization of FLI; incidental expenses for
various loan availments, and higher marketing expenses, and taxes and licenses.
Banking operations net revenue escalated by 68%, to P1.3 billion from P764 million in 2004. With the bank’s focus on consumer
financing, interest income grew by 35% mainly supplied by auto loans, credit card, salary loans, and investments, which increased loans
receivables by 11%. With the bank’s aggressive deposit campaigns and introduction of new products, volume of deposits grew by 15%,
which brought costs of financial services to P1.2 billion or a 28% increase from P922 million in 2004. Operating expenses was at P1.2
billion, a 31% increase over last year’s with the new personal banking centers and advertising costs for the new products and product
lines. The bank capped a successful year with a net income of P117 million, an increase of 139% from P84 million earned the previous
year.
27
As a result, the Group’s EBITDA rose by 14%, to P2.6 billion. Depreciation and amortization increased by 40% due to decomponetization
of Festival Supermall and CPI buildings, changing its useful life from 50 to 20 years, as required by the new reporting standards. Interest
expenses slightly increased by 30% mitigated by the Group’s taking advantage of the low interest rates while obtaining new loans of P4.4
billion, a move which improved the company’s maturity schedule from 2.3 to 4 years and savings of over P100 million a year in terms of
interest costs.
This year’s consolidated net income registered a 33% growth, to P1.2 billion from P885 million the previous year.
Cash and cash equivalents stood at P3.6 billion, an increase of 9% over last year, brought about by cash proceeds from loan availments.
Long-term debt was at P11 billion, up by 21%. On December 12, 2005, the parent company FDC purchased the bonds issued by FLI on
February 7, 2002 amounting to P1.2 billion to Reco Grandhomes Pte. Ltd., a Singaporean company. Prior to the purchase and amendment
of the subscription agreement on December 14, 2005, the maturity date of the bond is February 7, 2007 with interest rate at 10% payable
semi-annually and the bonds, unless previously redeemed or converted and cancelled, can be redeemed at an amount such that the
annualized internal rate of return in the bonds is equivalent to 19% per annum. The new agreement between FLI and the parent company
set the maturity of the bonds on December 14, 2010 with interest rate of 12.2% payable quarterly and redemption price equivalent to the
face value of the bonds.
The group’s receivables rose by 51% primarily due to higher installment receivables of FLI. Moreover, this year recorded higher
receivables from financial institutions as a result of more affordable financing packages offered by banks to customers. Subdivision Lots,
Condominiums, and Residential Lots for Sale increased to P7.7 billion from last year’s P7 billion mainly as a result of land and housing
developments for Brentville, Mandala Farm Estate, Aldea del Sol, Fuente de Villa Abrille and other new projects set up during the year.
Other Assets were higher by 33% with the increase in prepayments, additional costs of computer systems, and deferred charges incurred in
connection with newly-availed long-term debts.
Accounts payable and accrued expenses increase of 10% was due to temporary advances and payments outstanding as of year-end.
Unrealized gross profit on Installment Contracts Receivable, Sale of Condominium units and Club shares increased by 56% with higher
sales booked by FLI during the year. Estimated liability for land and property development was up by 151% with the provisions for new
and on-going projects such as Samanea, Timberland Heights, Forest Farm, the new regional projects, Villa Montserrat, and Palms Pointe.
With the growth in net income, Retained Earnings stood at P12 billion, at 7% growth over last year.
• 2004
FLI booked total sales of P2.236 billion which is 52% higher than the 2003 sales. On the other hand FAI’s net earnings after tax
amounted to P231.9 million, a 162% growth over the past year. The Company, for the year 2004, posted a positive growth of about 223%
in terms of consolidated net income. Net income for the year amounted to P885 million or an increase of P717.5 million from P167.5
million last years as a result of the factors mentioned below.
On the real estate operations, for the year 2004, the Company’s consolidated sale of lots, condominium and residential units and club
shares increased by 44% from P2.022 billion in 2003 to P2.911 billion. The commercial property and condominium developer, FAI
posted a 72% increase in the sale of its commercial lots and condominium projects compared to last year while the residential property
developer, FLI posted a 52% increase in the sale of its residential units. During 2004, FAI sold more commercial lots and started booking
the sales of lots from its premiere project, the Palms Pointe, a residential development across The Palms Country Club. FLI on the other
hand, reported higher sales from the middle-income and affordable projects. However, because of fewer club shares sold in 2004 as FAI
is nearing completion of the sale of total authorized shares to be sold, sale of club shares decreased from P197.4 million in 2003 to P102.7
million. Realized (deferred) gross profit from prior years’ real estate sales increased from (P56.7 million) to P46.2 million. The increase is
due to the partial recognition of profit from previous years’ sales of condominium projects, installment sales and discounting of
receivables.
The financial and banking services recorded a positive growth in revenues as interest income increased by 48% from P984.3 million to
P1.450 billion coming mostly from additional loans granted. Receivable from customers increased from P8.249 billion as of end 2003 to
P9.109 billion as of end 2004. Also, the other income of financial and banking services increased by 19% due to higher service charges
fees, commissions and other income earned during the year 2004. Thus, net revenues of the financial and banking services increased by
13% to P763.6 million for the year ended December 31, 2004.
The Group generated consolidated net revenues of P4.135 billion during the year, 8% higher than the P3.831 billion net revenues
generated last year.
28
The increase in the operating expenses of the financial and banking services from P805.4 million to P917 million for 2004 is due mainly to
additional expenses incurred by the new ten (10) personalized banking centers opened during the year 2004, additional manpower,
amortization and depreciation of fixed assets and deferred charges on the acquisition of new equipment and software and additional
provision for probable losses booked in 2004.
Because of the huge provision for income tax in 2003 resulting from the utilization of a substantial portion of FDC’s NOLCO, provision
for income tax decreased by 29% from P627.6 million in 2003 to P485.1 million in 2004.
Receivables increased by 17% from P3.756 billion in 2003 to P4.408 billion as of December 31, 2004 due to higher sales booked by the
commercial lots, condominium and residential units.
Receivable from customers increased from P8.249 billion as of December 31, 2003 to P9.109 billion as of December 31, 2004 because of
additional loans granted by the bank resulting from the aggressive campaign for its loan programs catering mostly to the consumer/retail
market. During the year 2004, the bank added ten (10) new personalized banking centers, which also contributed to its loans and deposit
generation.
Investments increased by P2.474 billion from P4.080 billion in 2003 due to additional acquisitions made during the year 2004 of trading
and investment securities by the financing and banking services unit.
Property and equipment increased by P4.969 billion or 25% mainly because of higher revaluation of land of a subsidiary booked during
the year. This also explains the increase in revaluation increment in land account under stockholders’ equity from P8.223 billion in 2003
to P11.188 billion in 2004.
Deferred tax assets decreased by 14% due to the adjustment on this account corresponding to the net loss carry over utilized and/or written
off by the Group during the current year.
Other assets decreased by 20% from P2.029 billion in 2003 to P1.614 million as of December 31, 2004 due to amortization of deferrals
and prepayments during the year and reduction in advances to contractors/suppliers, creditable withholding tax and other assets.
Deposit liabilities increased by 27% from P13.697 billion in 2003 to P17.410 as of December 31, 2004 because of the aggressive
marketing, intensified promotional activities, launching of new and attractive products and additional branches opened by EWBC.
Income tax payable represents the current provision for income tax net of the application of creditable withholding tax of a subsidiary.
The increase in deferred tax liabilities of P1.908 billion represents mainly the deferred tax on the additional revaluation increment in land
booked in 2004 as earlier mentioned.
Bonds payable decreased by 9% due to the payment of US$2.15 million guaranteed convertible bonds that matured last February 28,
2004.
Unrealized gross profit on installment contracts receivable, sales of condominium units and club shares decreased by 19% because of the
realization of gross profit pertaining to receivables discounted during the year.
The decrease in estimated liability for land and property development of P129.4 in 2004 represents land development and construction
costs spent during the year.
As of December 31, 2004 the total consolidated assets stood at P76.878 billion while stockholders’ equity amounted to P29.404 billion.
The consolidated bonds payable and long-term debt amounted to P9.535 billion as of December 31, 2004. The debt to equity ratio was
0.29:1.00 as of December 31, 2004.
The Company has no material commitments for capital expenditures, except for the ongoing project developments of its real estate
subsidiaries and the initial expenses necessary for the new branches of its bank subsidiary which expenses can be adequately covered by
the subsidiaries’ operating cashflow. Aside from significant peso fluctuations and hike in interest rates, there are no events or uncertainties
that are reasonably expected to have a material impact on the Company’s short term or long-term liquidity or on the Company’s revenues
from continuing operations.
29
INFORMATION ON INDEPENDENT ACCOUNTANT
Audit and Audit-Related Fees
The aggregate fees billed to the Group for professional services rendered by the external auditor for the examination of the annual
financial statements amounted to P2.6 in 2006 and P2.4 in 2005, net of VAT. There are no other assurance and related services by the
external auditor that are reasonably related to the performance of the audit or review of the Group’s financial statements.
Tax Fees
The Group has not engaged the services of the external auditor for tax accounting, compliance, advice, planning and any other form of tax
services.
All Other Fees
There are no other fees billed in each of the last two (2) years for products and services provided by the external auditor, other than the
services reported under items mentioned above.
The Audit Committee based on the recommendation by the Internal Audit and management, evaluates the need for such professional
services and approves the engagement and the fees to be paid for the services.
Item 7. Financial Statements
The consolidated financial statements and schedules listed in the accompanying Index to Financial Statements and Supplementary
Schedules (page 37) are filed as part of this Form 17-A1.
Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
There have been no changes during the two most recent fiscal years or any subsequent interim period in independent accountant who was
previously engaged as principal accountant to audit the Company’s financial statements.
There have been no disagreements with the Company’s independent accountants on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
PART III - CONTROL AND COMPENSATION INFORMATION
Item 9. Directors and Executive Officers of the Registrant
The following are the Directors and Executive Officers of FDC:
Andrew L. Gotianun Sr.
Chairman Emeritus and
Director
Mr. Gotianun, 79, Filipino, is the founder of the Filinvest group of companies and is
presently serving in various capacities in the member companies of the group, including
Filinvest Alabang, Inc. and East West Banking Corporation where he sits as Chairman. He
has been a director of the Company for more than five years.
Jonathan T. Gotianun
Chairman
Mr. Gotianun, 53, Filipino, is also a director of Filinvest Land, Inc. and the President of
Davao Sugar Central Co., Inc., High Yield Sugar Farms Corporation and Cotabato Sugar
Central Co., Inc., and Vice-Chairman of East West Banking Corporation. He served as
director and Senior Vice-President of Family Bank and Trust Co. until 1984. He has been
a director of the Company for more than five years. He obtained a Master’s degree in
Business Administration from Northwestern University.
Lourdes Josephine
Gotianun-Yap
President and Director
Mrs. Yap, 51, Filipino, is also a director of Filinvest Land, Inc. and the Executive VicePresident of Filinvest Alabang, Inc. and President of The Palms Country Club, Inc. She
received her Master’s degree in Business Administration from the University of Chicago.
She has been the President of the Company since the year 2000.
30
Mercedes T. Gotianun
Director
Mrs. Gotianun, 78, Filipino, is also the Chairperson and Chief Executive Officer of
Filinvest Land, Inc. and director of Filinvest Alabang, Inc. She was involved in the
operations of Family Bank and Trust Co. since its founding in 1970 and was President and
Chief Executive Officer of the said bank from 1978 to 1984. She obtained her degree from
the University of the Philippines. She has been the director of the Company for more than
five years.
Andrew T. Gotianun Jr.
Director
Mr. Gotianun, 54, Filipino, is also the Vice-Chairman of Filinvest Land, Inc. He served as
director of Family Bank and Trust Co. from 1980 to 1984. He has been in the realty
business for more than 16 years. He has been a director of the Company for more than five
years.
Lamberto U. Ocampo
Independent Director
Mr. Ocampo, 81, Filipino, is also an independent director of Filinvest Land, Inc., having
been elected as such in 2002. He is a civil engineer by profession. He served as director
of DCCD Engineering Corporation from 1957 to 2001, as its Chairman from 1993 to 1995
and its President from 1970 to 1992.
Cornelio C. Gison
Independent Director
Mr. Gison, 65, Filipino, is also an independent director of Filinvest Land, Inc., having been
elected as such in 2006. He was Undersecretary of the Philippine Department of Finance
from 2000 to 2003. He is a consultant of Sycip Gorres & Velayo, and a member of the
Advisory Board of the Metropolitan Bank & Trust Co., and a director of the Intex
Holdings Group.
Michael Edward T.
Gotianun
Vice President
Mr. Gotianun, 49, Filipino, is also a director of Filinvest Land, Inc., Filinvest Alabang, Inc.
and Festival Supermall, Inc. He served as a general manager of Filinvest Technical
Industries, Inc. from 1987 to 1990 and as loans officer of Family Bank and Trust Co. from
1979 to 1984. He obtained his Bachelor’s Degree in Business Management from the
University of San Francisco in 1979.
Nelson M. Bona
Treasurer
Mr. Bona, 55, Filipino, was formerly an Executive Vice-President of East West Banking
Corporation and Managing Director of Millenia Broadband Communications, Inc. and
Filinvest Capital, Inc.
Abner C. Gener, Jr.
Corporate Secretary
Mr. Gener, 36, Filipino, joined the Company in September 2000. He is also the Assistant
Corporate Secretary of Filinvest Land, Inc. and the Corporate Secretary of Filinvest
Alabang, Inc., Festival Supermall, Inc. and The Palms Country Club, Inc.
Mr. Andrew L. Gotianun, Sr. is married to Mrs. Mercedes T. Gotianun and together they are the parents of Messrs. Andrew T. Gotianun,
Jr., Jonathan T. Gotianun and Michael Edward T. Gotianun, and Mrs. Lourdes Josephine Gotianun-Yap. Mrs. Yap is married to Mr.
Joseph M. Yap.
The directors of the Company are elected at the annual stockholders’ meeting to hold office until their respective successors have been
duly appointed or elected and qualified. Officers are appointed or elected by the Board of Directors typically at its first meeting following
the annual stockholders’ meeting, each to hold office until his successor shall have been duly elected or appointed and qualified.
The Company is not aware of any legal proceedings involving its directors or executive officers that materially affect their ability or
integrity to act as such directors or officers.
The Company is not aware of the occurrence of any of the following events within the past five years up to the date of this annual report:
(a) any bankruptcy petition filed by or against any business in which any of its directors or officers was a general partner or officer either
at the time of the bankruptcy or within two years prior to that time; (b) any conviction by final judgment in a criminal proceeding,
domestic or foreign, of, or any criminal proceeding, domestic or foreign, pending against, any of its directors or officers in his capacity as
such director or officer; (c) any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring, suspending or otherwise limiting the involvement of any
of its directors or officers in any type of business, securities, commodities or banking activities, and (d) any finding by a domestic or
foreign court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or comparable foreign body, or a
31
domestic or foreign exchange or electronic marketplace or self regulatory organization that any of its directors or officers has violated a
securities or commodities law, and the judgment has not been reversed, suspended or vacated, which occurred during the past five years.
There is no person, not being an executive officer of the Company, who is expected to make a significant contribution to its business. The
Company, however, occasionally engages the services of consultants.
There were no transactions during the last two years or any proposed transactions, to which the Company was or is to be a party, in which
any director or officer, any security holder or any member of the immediate family of any of the foregoing persons had or is to have a
direct or indirect material interest.
Item 10. Executive Compensation
Information as to the aggregate compensation paid or accrued during the last two fiscal years and to be paid in the ensuing fiscal year to
the Company’s Executive Officer and other officers as follows:
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Name and Principal Position
Jonathan T. Gotianun
Chairman
Lourdes Josephine Gotianun-Yap
Director and President
Andrew L. Gotianun, Sr.
Director
Mercedes T. Gotianun
Director
Andrew T. Gotianun, Jr.
Director
Alfredo V. Asuncion
Independent Director
Lamberto U. Ocampo
Independent Directore
All officers and directors as a group unnamed
Year
Salary
Bonus
Other Annual
Compensation
2007-Estimated
2006
18.7M
18.7M
1.6M
1.6M
-
20.3 M
20.3 M
2005
18.9M
3.1M
-
22.0 M
TOTAL
Except for per diem of P25,000 being paid to each independent directors for every meeting attended, there are no other arrangements to
which directors are compensated, for any services provided as director, including any amounts payable for committee participation or
special assignments in 2006 and ensuing year.
There is no employment contract between the Company and the above named executive officers.
There are no outstanding warrants or options held by the Company’s CEO, the above named executive officers, and all officers and
directors as a group.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(1) Security Ownership of Certain Record and Beneficial Owners
The names, addresses, citizenship, number of shares held, and percentage to total of persons owning more than five percent (5%) of the
outstanding voting shares of the Company (all common) as of December 31, 20067 are as follows:
32
Title of
Class
Name and Address of Record
Owner/
Relationship
with
Company
Name of Beneficial Owner/
Relationship with Record
Owner
Citizenship
No. of Shares
Held
Percentage
Held
Common
ALG Holdings Corporation (“ALG”)4
173 P. Gomez Street, San Juan, Metro
Manila/
Majority Owner of the Company
Trust for Michael Gotianun
173 P. Gomez Street, San Juan, Metro
Manila/
Trustee is a Vice President of the
Company
Jonathan T. Gotianun
173 P. Gomez Street, San Juan, Metro
Manila/
Chairman of the Company
Lourdes Josephine G. Yap
173 P. Gomez Street, San Juan, Metro
Manila/
President of the Company
N.A.
Filipino
4,201,927,831 (B)
70.52%
Michael Gotianun/ Trustee
of Record Owner
Filipino
415,337,720 (R)
6.97%
N.A.
Filipino
339,291,901(B)
5.69%
N.A.
Filipino
339,291,901 (B)5
5.69%
Common
Common
Common
Total number of shares of all record and beneficial owners as a group is 5,295,849,353 shares, or 88%.
Except as stated above, the board of directors and management of the Company have no knowledge of any person who, as of the date of
the annual report was directly or indirectly the beneficial owner of more than five percent (5%) of the Company’s outstanding shares of
common stock or who has voting power or investment power with respect to shares comprising more than five percent (5%) of the
Company’s outstanding common stock.
(2) Security Ownership of Management
The names, citizenship, number of shares held and percentage to total of persons forming part of the management of the Company as of
December 31, 2006 are as follows:
Title
Class
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
Common
of
Name
Trust for Michael Gotianun
Andrew L. Gotianun, Sr.
Mercedes T. Gotianun
Andrew T. Gotianun, Jr.
Lourdes Josephine G. Yap
Jonathan T. Gotianun
Andrew L. Gotianun, Sr. and/or
Mercedes T. Gotianun
Michael T. Gotianun
Joseph M. Yap and/or Josephine G.
Yap
Lamberto U. Ocampo
Cornelio C. Gison
Citizenship
Amount and Nature of
Record/Beneficial Owner
% of Ownership
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
415,337,720 (R)
1,458 (B)
3,078,554 (B)
1,554 (B)
339,291,901 (B)
339,291,901 (B)
7,575,000 (B)
6.97%
Negligible
Negligible
Negligible
5.69%
5.69%
Negligible
Filipino
Filipino
38,218,799 (B)
200,000 (B)
Negligible
Negligible
Filipino
Filipino
1 (R)
1 (R)
Negligible
Negligible
Total ownership of all directors and officers as a group is 1,142,996,889 shares or 19%.
3) Voting, Trust Holders of 5% or more
There are no persons holding 5% or more of a class of shares under any voting trust or similar agreement
(4) Changes in Control
4
Mr. Andrew L. Gotianun Sr. and Josephine G. Yap are typically named by ALG as its proxy to vote at the annual meeting of stockholders the shares owned and held by it
in the Company.
5
In addition, Josephine G. Yap holds jointly with Joseph M. Yap 200,000 shares of stock of the Company.
33
The Company is not aware of any agreement, which may result in a change in control of the registrant.
Item 12. Certain Relationships and Related Transactions
The Company and its subsidiaries in their normal course of business, have certain related party transactions with affiliates principally
consisting of advances and intercompany charges.
The Company retains the law firms of Sycip Salazar Hernandez & Gatmaitan, Estelito P. Mendoza, and Roco Kapunan Migallos Perez &
Luna and is paying them legal fees that the Corporation believes to be reasonable for the services rendered.
There is no other transaction during the last two years, or proposed transactions, to which the Company was or is to be a party, in which
any director or executive officer, any nominee for election as a director, any security holder or any member of the immediate family of any
of the foregoing persons, had or is to have a direct or indirect material interest.
PART lV. COMPLIANCE WITH LEADING PRACTICES ON CORPORATE GOVERNANCE
By way of evaluation of the level of compliance by the management and Board of the Company with its Manual on Corporate
Governance, the Compliance Officer is made to report at the meetings of the Board what the pertinent requirements on corporate
governance are at the time and the Board determines how best to comply with such requirements.
Part of the measures being adopted by the Company in order to comply with the leading practices on corporate governance is the
participation and attendance by members of top level management and the Board at seminars on corporate governance initiated by
accredited institutions. The Company welcomes proposals, whether sourced internally or from institutions and entities such as the SEC to
improve corporate governance.
There are no known material deviations from the Company’s Manual on Corporate Governance.
PART V EXHIBITS AND SCHEDULES
Item 14. Exhibits and Reports on SEC Form 17-C
(a) Exhibits - see accompanying Index to Exhibits
The following exhibit is filed as a separate section of this report:
The other exhibits, as indicated in the Index to Exhibits are either not applicable to the Company or require no answer.
(b) Reports on SEC Form 17-C
Reports on SEC Form 17-C were filed during the last-six month period covered by this report and are listed below:
SEC Form 17-C dated January 11, 2006 on the authority conferred by the Board of Directors on the Company to negotiate the amendment
of certain terms and conditions of the Php1.2-Billion Convertible Bonds issued by FLI and purchased by the Company from the previous
bondholder
SEC Form 17-C dated January 11, 2006 on the authority conferred by the Board of Directors on the Company to negotiate an additional
P400-million loan from Sunlife of Canada (Phils.), Inc.
SEC Form 17-C dated January 23, 2006 on the execution of an “Amendment Agreement” between the Company and FLI covering the
amendments to the terms and conditions of the Php1.2-billion Convertible Bonds issued by FLI
SEC Form 17-C dated January 30, 2006 on the signing by the Company of a commitment letter governing the terms of its additional
Php400-million loan with Sunlife of Canada (Phils.), Inc.
SEC Form 17-C dated April 17, 2006 on the fixing of the record date in connection with the annual meeting of the Company’s
stockholders scheduled on May 26, 2006
34
SEC Form 17-C dated May 3, 2006 on the execution by the Company of an Omnibus Corporate Notes Facility Agreement with the
Development Bank of the Philippines (DBP) covering the terms of the issuance by the Company of corporate notes in favor of DBP for
the principal amount of Php1 billion
SEC Form 17-C dated May 5, 2006 on the election by the Company to convert into FLI common stock a P163-million portion of the
Php1.2-billion Convertible Bonds issued by FLI
SEC Form 17-C dated May 12, 2006 on the intention of the Company to convert from time to time into FLI common stock the remaining
balance on the Php1.2-billion Convertible Bonds issued by FLI
SEC Form 17-C dated May 12, 2006 on the authority conferred by the Board of Directors on the Company to convert its preferred “A”
shares in EastWest Banking Corporation into common stock
SEC Form 17-C dated May 26, 2006 on the results of the annual stockholders’ meeting of the Company for 2006
SEC Form 17-C dated July 26, 2006 on the appointment of the officers of the Company and the members of its Audit, Nomination and
Compensation Committees
SEC Form 17-C dated September 25, 2006 on the authority conferred by the Board of Directors on the Company to assign its shares in
FAC to FLI in exchange for FLI shares, and to convert the remaining balance on the Php1.2-billion Convertible Bonds issued by FLI
SEC Form 17-C dated September 29, 2006 on the Company’s election to convert into FLI common stock the remaining Php1.035 Billionportion of the Php1.2-billion Convertible Bonds issued by FLI
SEC Form 17-C dated September 29, 2006 on the execution by the Company, FLI and FAI of a Deed of Exchange whereby the Company
assigned all its rights in FAC to FLI in exchange for FLI shares
SEC Form 17-C dated November 16, 2006 on the service by the Company of a letter to the Presidential Adviser on Revenue Enhancement
concerning the ongoing investigation by the interagency task force chaired by him into alleged anomalies in tax payments on certain land
sales as reported in a news article in the November 11, 2006 issue of the Philippine Daily Inquirer
35
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES
FORM 17-A, Item 7
Consolidated Financial Statements
Statement of Management’s Responsibility for Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 2006 and 2005
Consolidated Statements of Income and Retained Earnings for the years ended
December 31, 2006 and 2005
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows for the years ended
December 31, 2006 and 2005
Notes to Consolidated Financial Statements
Supplementary Schedules
MARKETABLE SECURITIES - (CURRENT MARKETABLE SECURITIES AND
OTHER SHORT-TERM CASH INVESTMENTS)
NA
AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES,
RELATED PARTIES AND PRINCIPAL STOCKHOLDERS (OTHER THAN
AFFILIATES)
NA
NON-CURRENT MARKETABLE EQUITY SECURITIES, OTHER
LONG-TERM INVESTMENTS, AND OTHER INVESTMENTS
NA
D.
INDEBTEDNESS TO UNCONSOLIDATED SUBSIDIARIES AND AFFILIATES
NA
E.
PROPERTY, PLANT AND EQUIPMENT
NA
F.
ACCUMULATED DEPRECIATION
NA
G.
INTANGIBLE ASSETS / OTHER ASSETS
NA
H.
LONG-TERM DEBT
I.
INDEBTEDNESS TO AFFILIATES AND RELATED PARTIES (LONG-TERM
LOANS FROM RELATED COMPANIES)
NA
J.
GUARANTEES OF SECURITIES OF OTHER ISSUERS
NA
K.
CAPITAL STOCK
A.
B.
C.
*
*
* These schedules which are required by Part IV of SRC Rule 12 are contained in the Company’s Audited Consolidated
Financial Statements or the Notes to Consolidated Financial Statements.
37
INDEX TO EXHIBITS
Form 17- A
No.
*
A
Page
No.
*
(3)
Plan of Acquisition, Reorganization, Arrangement, Liquidation, or Succession
(5)
Instrument Defining the Rights of Security Holders, Including Indentures
*
(8)
Voting Trust Agreement
*
(9)
Material Contracts
*
(10)
Annual Report to Security Holders, Form 17-Q or Quarterly Report to Security
Holders
*
(13)
Letter re Change in Certifying Accountant
*
(16)
Report Furnished to Security Holders
*
(18)
Subsidiaries of the Registrant
A
(19)
Published Report Regarding Matters Submitted to Vote of Security Holders
*
(20)
Consent of Experts and Independent Counsel
*
(21)
Power of Attorney
*
(29)
Additional Exhibits
*
These exhibits are either not applicable to the Company or require no answer.
This schedule is contained on Note 1 of the Company’s 2006 audited Consolidated Financial Statements
38