PHILIPPINE STOCK EXCHANGE 4 Floor, PSE Center … IS Definitive 2007 final 6.28.07...June 28, 2007 PHILIPPINE STOCK EXCHANGE 4th Floor, PSE Center Tektite Towers, Exchange Road Ortigas

June 28, 2007

PHILIPPINE STOCK EXCHANGE

4th Floor, PSE Center Tektite Towers, Exchange Road Ortigas Center, Pasig City

Attention: ATTY. PETE M. MALABANAN

Head Disclosure Department

Dear Atty. Malabanan:

In compliance with PSE’s disclosure regulations for publicly listed companies, we hereby submit the following reports:

Letter stating the corrections made in the Form 20 IS Definitive submitted last June 25. 2007

Final Form 20-IS Definitive (Annual Meeting of Stockholders stamped received by the Securities and Exchange Commission)

Notice to Stockholders for the Annual Meeting on July 20, 2007

Agenda for the Annual Meeting on July 20, 2007

Thank you and we trust that this meets your requirements.

Very truly yours,

AMADOR T. SENDIN

VP – Planning and Business Devt CIO/ Compliance Officer

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

COVER SHEET

4 0 5 2 4

SEC Registration Number

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

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

(Company’s Full Name)

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

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

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

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

1 2 3 1 2 0 - I S 0 7 2 0

Month Day (Form Type) Month Day(Calendar Year) (Annual Meeting)

NA

(Secondary License Type, If Applicable)

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

S T A M P S

Remarks: Please use BLACK ink for scanning purposes.

A. GENERAL INFORMATION

Item 1. Date, Time and Place of Meeting of Security Holders

The meeting will be on July 20, 2007 at 3:00 P.M. at the Kachina Room, Century Park Hotel, 599 P. Ocampo St., Malate, Manila.

The complete mailing address of the registrant is: 12th Floor Allied Bank Center, 6754 Ayala Avenue, Makati City, Philippines

The approximate date on which the Information Statement is first to be sent or given to Security Holders is June 29, 2007.

Item 2. Dissenters’ Right of Appraisal

Any stockholder of the Company shall have the right to dissent and demand payment of the fair value of his shares in case (i) any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholder or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence; (ii) any sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets; and (iii) of merger or consolidation.

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

None of the proposed corporate actions of MacroAsia Corporation qualifies as a an instance, which allows the exercise by the stockholders of their appraisal rights.

Item 3. Interest of Certain Persons in or Opposition to Matters to be Acted Upon

(a) There are no matters to be acted upon other than the election to office of directors and officers.

(b) There are no directors of the Company who have informed the latter in writing that they intend to oppose any action to be taken by the Company at the meeting.

2

B. CONTROL AND COMPENSATION INFORMATION

Item 4. Voting Securities and Principal Holders Thereof

(a) All the outstanding 1,250,000,000 common shares of the registrant as of the record date are entitled to be voted at the rate of one (1) vote per share.

(b) The record date for purposes of determining the stockholders entitled to vote is June 20, 2007.

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

Only stockholders as of the record date of June 20, 2007 are entitled to vote.

No discretionary authority to cumulate votes is solicited.

(d) Security Ownership of Certain Record & Beneficial Owners & Management

1. Security Ownership of Certain Record and Beneficial Owners of more than 5% of Registrant’s Securities as of May 31, 2007 are:

Title of Class

Name, Address of Record Owner and Relationship with

Issuer

Name of Beneficial Owner and Relationship with Record Owner

Citizenship No. of Shares Held

% of Class

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

Triton Securities Corp.1

(Shareholder)

Edwin L. Luy, President2

Irene Tan Luy, Treasurer2

Enrique Luy, Jr., Vice-Pres.2

Filipino Filipino Filipino

218,622,571 17.49

COMMON Fortune Tobacco Corporation Parang, Marikina City (Shareholder)

Shareholdings, Inc.3

Lucio Tan, President4

Camen Khao Tan, Shareholder Mariano Tanenglian, Treasurer

4


88,000,000 7.04

COMMON Asia Brewery, Inc. 6

th Flr. Allied Bank Center

6754 Ayala Ave., Makati City (Shareholder)

Shareholdings, Inc. 3

Lucio Tan, President4

Camen Khao Tan, Shareholder Mariano Tanenglian, Treasurer

4


88,000,000 7.04

COMMON Baguio Gold Holdings Corp. 7

th Flr. Allied Bank Center

6754 Ayala Ave., Makati City (Shareholder)

Trust Mark Holdings Corp.

Jaime Bautista, CEO5

Filipino

88,000,000 7.04

1 Under PCD participants,only Triton owns more than 5% of MacroAsia’s common shares (Triton owns 6.76% of MAC shares)

2Designation in Triton Securities Corporation

3Shareholdings, Inc. owns 99% of Fortune Tobacco and Asia Brewery

4 Designation in Shareholdings, Inc.

5 Designation in Trust Mark Holdings Corp.

Officers authorized to vote by the above corporate shareholders shall be based on its proxy forms submitted to the Corporation

3

2. Security Ownership of Management as of May 31, 2007:

Title of Class

Name of Beneficial Owner Amount and Nature of Ownership

Citizenship % of Class

COMMON Washington Z. SyCip Chairman

41,545,250 Direct (Beneficial)

American 3.32 %

COMMON Joseph T. Chua President and CEO

125,000 Direct 2,200,000 Indirect

(Beneficial)

Filipino <1%

COMMON Mariano Tanenglian Vice Chairman

125,000 Direct (Beneficial)

Filipino <1%

COMMON Lucio K. Tan Jr. Director


Filipino <1%

COMMON Jaime J. Bautista Treasurer


Filipino <1%

COMMON George SyCip Director

10,862,798 Direct (Beneficial)

American <1%

COMMON Stewart C. Lim 100,000 Direct (Beneficial)

Filipino <1%

COMMON Enrique Aboitiz, Jr. Independent Director


Filipino <1%

COMMON Johnip Cua Independent Director

10,000,000 Indirect (Beneficial)

Filipino <1%

Reynaldo O. Munsayac VP-Finance and Administration

- - -

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

- - -

Christopher C. LuVP- Marketing and Facilities Management

- - -

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

- - -

Total 65,308,048 5.22%

To the extent known to the Corporation, there is no person holding more than 5% of the Company’s voting stock under a voting trust or similar agreement.

(e) Changes in Control:

Since 1998, the Registrant has not had any single controlling shareholder, and there are no arrangements that may result in a change in control of the Company during the period covered by this report.

4

Item 5. Directors and Executive Officers

Directors and Executive Officers as of May 31, 2007:

Name/Position/Citizenship Age

Term as Director

Period Served as Director

Business Experiencefor the Past 5 Years

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

85 1 yr. Since August, 1997

He is the Chairman of the Board of Lufthansa Technik Philippines, Inc. and the Board of Trustees and Governors of the Asian Institute of Management (Phils.). He is also a Member of the International Advisory Board of the American International Group (New York). For more than five years, he’s been a Director of Philippine Airlines (PAL), Belle Corporation, PHINMA, State Land Group, Cityland Development, Benpres Holdings Corp., PNB and Solid Group, Inc. among others.

Mariano Tanenglian (Chairman – Investment Committee; Member – Nomination Committee; Member – Compensation Committee)(Filipino)


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

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


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

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


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

Lucio K. Tan, Jr. (Member – Investment Committee; Member – Compensation Committee) (Filipino)


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

George SyCip (Member – Investment Committee)(American)

50 1 yr. Since July, 1996

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

5

Johnip Cua (Independent Director) (Chairman – Compensation Committee; Member – Audit Committee; Member – Investment Committee) (Filipino)

50 1 yr. SinceDecember,

2006

He is the Chairman of the Board of the Advertising Foundation of the Philippines and Board of Trustees of Xavier School, Vice President of Interbake Marketing, Director of Teambake

Enrique M. Aboitiz Jr. (Independent Director) (Chairman – Audit Committee; Member – Nomination Committee) (Filipino)

52 1 yr. SinceDecember,

2006

He is currently the President and Chief Executive Officer of Aboitiz Transport System Corporation. He was a Board member of the Philippine Stock Exchange (2002), Chairman of the Board of Hapag Lloyd Philippines, among others.

Stewart C. Lim (Member – Investment Committee)(Filipino)

51 1 yr. Since July, 2002

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

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

Executive Officers:

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

54 10 yrs. SinceNovember, 1996

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

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

46 8 yrs. Since May 1999

She is the Corporate Secretary of MacroAsia Catering Services Inc., MacroAsia-Menzies Airport Services Corp., MacroAsia Properties Development Corp., MacroAsia Air Taxi Services Inc., Kabuhayan, Kaunlaran, & Kalikasan, Inc. and MacroAsia Mining Corp. She worked with various Government Institutions from 1987 to 1999, holding key positions such as Legal Officer of the National Bureau of Investigation (NBI) from 1987-1989, Arbitration Specialist of POEA from 1989 to 1990, Director II (Chief, Legal Service) of Philippine Health Insurance Corporation from 1990 to 1996 and Graft Investigation Officer II at the Ombudsman from 1997 to 1999. She also held the position of Human Resources Manager of Grand Air from 1996 to 1997.

Christopher C. Lu (VP-Marketing and Facilities Management) (Filipino)

52 9 yrs. Since March, 1998

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

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

44 > 4 yrs. Since October 2003

He is a Director of Cebu Pacific Catering Services, Inc. and MacroAsia Mining Corporation. He was the Finance Manager of MacroAsia Catering Services, Inc. from July 2000 to October 2003, and was Finance Controller of MIASCOR Catering from June 1998 to June 2000. His first employment was with the Central Bank of the Philippines, from which he left as Division Chief, after almost a decade of service.

6

Significant Employee:

Ria S. Dela Cruz (Financial Accountant) (Filipino)

27 >1 yr. Since March, 2007

She served as Chief Accountant of i2i Incorporated and Billing Head of Starcom Worldwide Philippines. She worked as an Accountant of Smartnet Philippines from 2002 to 2004.

(b) Family Relationships

Lucio K. Tan, Jr., director, is the brother-in-law of Joseph T. Chua, President and Chief Executive Officer and the nephew of Mariano Tanenglian, Director of MacroAsia Corporation. Washington Sycip, Chairman of the Board, is the father of George Sycip, Director.

(c) Involvement in Certain Legal Proceedings

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

(d) No director had resigned or declined to stand for re-election to the board of directors since the date of the last annual meeting of security holders (21 July 2006) due to disagreement with the registrant on any matter relating to the registrant's operations, policies or practices.

(e) The registrant has not had any transaction or proposed transaction in which any director, executive officer, nominee or stockholder had a direct or indirect interest during the last two (2) years.

(f) Certain Relationships and Related Transactions

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

(2) MacroAsia Properties Development Corporation (MAPDC), as an ecozone operator, leases land from Manila International Airport Authority and subsequently leases the same to its Ecozone locators which include Lufthansa Technik Philippines (LTP), an affiliate. Monthly fees due from LTP consists of MAPDC’s cost of leasing the land from MIAA plus administrative fees.

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

7

(4) MacroAsia-Menzies Airport Services Corporation provides ground handling services to various airline companies at Ninoy Aquino International Airport and Mactan Cebu International Airport, including Air Philippines, an affiliate. The ground handling service rates being charged to Air Philippines are competitive and were the results of negotiations between Mac-Menzies and Air Phils.

(5) MacroAsia-Menzies Airport Services Corporation rented aviation equipment from Philippine Airlines (as discussed in “3” above). In 2004, PAL has outstanding trade payables with MacroAsia Catering Services Inc. (MACS). Since Mac-Menzies, on the other hand, has outstanding rent payable to PAL, Mac-Menzies assumed PAL’s obligation to MACS by way of offsetting. Mac-Menzies paid MACS in 2005.

(6) MacroAsia Catering Services Inc. (MACS) various advances from Philippine Airlines (PAL) represented raw materials purchased on an arm’s-length transaction. The purchase price of the raw materials were competitive and the results of negotiations between MACS and PAL.

(7) MacroAsia Catering Services Inc. (MACS) also provided catering services to Lufthansa Technik Philippines (LTP), an affiliate. The meal prices charged to LTP were the results of arms-length negotiations between MACS and LTP.

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

(9) There are no other on-going contractual or other commitments between the Group and the aforementioned affiliates.

(g) The registrant has no parent company.

NOMINATIONS FOR DIRECTORS INCLUDING INDEPENDENT DIRECTORS

(a) As of June 2, 2006, the deadline for submission of nominations for election as directors, including the independent directors, the Company received nominations for the individuals named below :

1. Washington Z. SyCip 6. George SyCip 2. Mariano Tanenglian 7. Stewart Lim 3. Lucio K. Tan, Jr. 8. Johnip Cua 4. Joseph T. Chua 9. Enrique M. Aboitiz, Jr. 5. Jaime J. Bautista b

[Please see Items 4.(d) and 5 (pp. 3 to 6) for information about the nominees as required under Part IV (A) and (C) of Annex “C” of SRC Rule 12.1]

Nominees forIndependent Director Nominated By

Relationshipwith Nominee

Johnip Cua Joevy Serenio None

Enrique M. Aboitiz, Jr. Joevy Serenio None

8

The Company has adopted the SRC Rule 38 (Requirements on Nomination and Election of Independent Directors) and compliance therewith has been made.

(b) Guidelines on the Nomination and Election of Independent Directors

I. Independent director means a person who, apart from his fees and shareholdings, is independent of management and free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with his exercise of independent judgment in carrying out his responsibilities as a director in any covered company and includes, among others, any person who:

A. Is not a director or officer of the company or of its related companies or any of its substantial shareholders except when the same shall be an independent director of any of the foregoing;

B. Does not own more than two percent (2%) of the shares of the company and/or its related companies or any of its substantial shareholders;

C. Is not related to any director, officer or substantial shareholder of the company, any of its related companies or any of its substantial shareholders. For this purpose, relatives include spouse, parent, child, brother, sister, and the spouse of such child, brother or sister;

D. Is not acting as a nominee or representative of any director or substantial shareholder of the company, and/or any of its related companies and/or any of its substantial shareholders, pursuant to a Deed of Trust or under any contract or arrangement;

E. Has not been employed in any executive capacity by the company, any of its related companies and/or by any of its substantial shareholders within the last two (2)1years;

F. Is not retained, either personally or through his firm or any similar entity, as professional adviser, by the company, any of its related companies and/or any of its substantial shareholders, within the last two (2) 2 years; or

G. Has not engaged and does not engage in any transaction with the company and/or with any of its related companies and/or with any of its substantial shareholders, whether by himself and/or with other persons and/or through a firm of which he is a partner and/or a company of which he is a director or substantial shareholder, other than transactions which are conducted at arms length and are immaterial.

II. No person convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years, or a violation of the SRCCode, committed within five (5) years prior to the date of his election, shall qualify as an independent director. This is without prejudice to other disqualifications which the company’s Manual on Corporate Governance provides.

III. Any controversy or issue arising from the selection, nomination or election of independent directors shall be resolved by the SEC by appointing independent directors from the list of nominees submitted by the stockholders.

9

IV. Qualifications and Disqualifications

A. An independent director shall have the following qualifications: (i) He shall have at least one hundred thousand (100,000) shares of stock of

the corporation; (ii) He shall be at least a college graduate or he shall have been engaged or

exposed to the business of the corporation for at least five (5) years; (iii) He shall possess integrity/probity; and (iv) He shall be assiduous.

B. No person enumerated under Section II (5) of the Code of Corporate Governance shall qualify as an independent director. He shall likewise be disqualified during his tenure under the following instances or causes:

(i) He becomes an officer or employee of the corporation where he is such member of the board of directors/trustees, or becomes any of the persons enumerated under Section II (5) of the Code on Corporate Governance;

(ii) His beneficial security ownership exceeds two percent (2%) of the outstanding capital stock of the company where he is such director;

(iii) Fails, without any justifiable cause, to attend at least 50% of the total number of Board meetings during his incumbency;

(iv) Such other disqualifications which the covered company’s Manual on Corporate Governance provides.

V. Number of Independent Directors

A. All companies are encouraged to have independent directors. However, issuers of registered securities and public companies are required to have at least two (2) independent directors or at least twenty percent (20%) of its board size, whichever is the lesser. Provided further that said companies may choose to have more independent directors in their boards than as above required.

VI. Nomination and Election of Independent Director/s

A. Prior to the Stockholders’ Meeting, nomination of Independent directors shall be conducted by the Nomination Committee. All recommendations shall be signed by the nominating stockholders, together with the acceptance and conformity by the would-be nominees.

B. The Committee shall pre-screen the qualifications and prepare a final list of all candidates and put in place screening policies and parameters to enable it to effectively review the qualifications of the nominees for independent director/s.

C. After the nomination, the Committee shall prepare a Final List of Candidates which shall contain all the information about all the nominees for independent directors. The list shall be made available to the SEC and to all the stockholders through the filing and distribution of the Information Statement, or in such other reports the company is required to submit to the SEC. The name of the person or group of persons who recommended the nomination of the independent director shall be identified in such report including any relationship with the nominee.

D. Only nominees whose names appear on the Final List of Candidates shall be eligible for election as Independent Director/s. No other nominations shall be entertained after the Final List of Candidates shall have been prepared. No further nominations shall be entertained or allowed on the floor during the actual annual stockholders’/memberships’ meeting.

10

E. Specific slot/s for independent directors shall not be filled-up by unqualified nominees.

F. In case of failure of election for independent director/s, the Chairman of the Meeting shall call a separate election during the same meeting to fill up the vacancy.

VII. Termination/Cessation of Independent Directorship

A. In case of resignation, disqualification or cessation if independent directorship and only after notice has been made with the SEC within 5 days from such resignation, disqualification or cessation, the vacancy shall be filled by the vote of at least a majority of the remaining directors, if still continuing a quorum, upon the nomination of the committee otherwise, said vacancies shall be filled by the stockholders in a regular or special meeting called for the purpose. An independent director so elected to fill a vacancy shall serve only for the unexpired term of his predecessor in office.

Item 6. Compensation of Directors and Executive Officers

(a) Summary Compensation Table

Name and Principal Position Year Salaries(P’mil)

Bonus OtherAnnual

Compen-sation

Executive Officers Joseph T. Chua, President/ CEO Reynaldo O. Munssayac, VP-Finance & Administration Marivic T. Moya, VP-Human Resources, Legal and External Relations Christopher C. Lu, VP-Marketing & Facilities Management Amador T. Sendin, VP-Planning & Business Development, Compliance/Corporate Information Officer

All Directors and Officers as a Group Unnamed

2005(Actual)

10.46

11.79

- -

Executive Officers Joseph T. Chua, President/ CEO Reynaldo O. Munssayac, VP-Finance & Administration Marivic T. Moya, VP-Human Resources, Legal and External Relations Christopher C. Lu, VP-Marketing & Facilities Management Amador T. Sendin, VP-Planning & Business Development, Compliance/Corporate Information Officer


2006(Actual)

15.29

16.31

- -

Executive Officers Joseph T. Chua, President/ CEO Reynaldo O. Munssayac, VP-Finance & Administration Marivic T. Moya, VP-Human Resources, Legal and External Relations Christopher C. Lu, VP-Marketing & Facilities Management Amador T. Sendin, VP-Planning & Business Development, Compliance/Corporate Information Officer Rufo Cabanlig, VP – Operations on Mining


2007(Estimate)

17.58

18.76 13.81

11

(b) Members of the Board do not receive any regular compensation from the Company, except for every regular, special or committee meeting actually attended, for which members of the Board of Directors receive a per diem of P20,000 to P50,000.

Bonus is in pursuant of Section 3.11 of the Corporation’s Amended By-laws which states that “the members of the Board of Directors shall receive as additional compensation an amount not to exceed five per centum (5%) of the net profit of the Corporation before payment of income tax for each year, to be divided in such manner and proportions they may deem fit and acceptable”

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

(d) Employment Contracts and Termination of Employment and Change-in-Control Arrangements.

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

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

(e) Warrants and Options Outstanding: Repricing

The Company’s P50 million warrants were not exercised by the shareholders/ officers/directors and had already expired last July 21, 2005.

Item 7. Independent Public Accountants

(a) SyCip Gorres Velayo & Co. (SGV) will be recommended to security holders as the registrant’s independent public accountants for the current year (2007). SGV was the registrant’s external auditor for the previous year.

Pursuant to the General Requirements of SRC Rule 68, Par. 3(b)(iv) (Qualifications and Reports of Independent Auditors) on the rotation of the external auditors, the Company has engaged SGV & Co. as external auditor of the Company, and Ms. Josephine Estomo has been Partner In-Charge for less than five years since 2002.

(b) There were no changes in nor disagreement with the accountants during the last three years or any subsequent interim periods.

(c) Representatives of the principal accountants are expected to be present at the security holders’ meeting. They will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.

12

(d) External Audit Fees

2006 2005

Regular annual audit of financial statements P1,828,050 P1,733,390 Others (out of pocket expenses) 172,100 98,700

Total P2,000,150 P1,832,090

Item 11. Financial and Other Information

(a) The audited consolidated financial statements as of and for the two years ended December 31, 2006, and the most recent unaudited quarterly interim reports (as of and for the quarter ended March 31, 2007), are filed herewith as part of this Form 20-IS Preliminary (pp.19-70 pp.93-129)

(b) Management's Discussion and Analysis and Plan of Operation are filed herewith as part of this Form 20-IS Preliminary (pp.71-92)

D. OTHER MATTERS

Item 15. Action with Respect to Reports

The Minutes of the Previous Meeting of Security Holders held on 21 July 2006 (attached hereto on pages (15 to 17), the President’s report and the registrant’s audited financial statements as of December 31, 2006 will be presented for approval by the security holders.

Security Holders are to be furnished copies of the above-mentioned reports/minutes on or before the date of the stockholders’ meeting.

A copy of the minutes of the previous meeting of security holders, and the Company's Quarterly Report as of and for the period ended March 31, 2007 are attached hereto. The President’s report will apprise the shareholders of developments during the past year and provide highlights for the ensuing year.

Item 18. Other Proposed Actions

(a) Ratification/Approval of all acts and resolutions of the Board of Directors as set forth in the minutes of the meetings of the Board of Directors held during the same period and in the disclosures that have been duly filed with the SEC and the PSE. These resolutions include :

(1) Execution of a Sale and Purchase Agreement with Compass Group International B.V. for its share in MacroAsia Catering Services Inc..

(2) Negotiation and conclusion with Menzies Aviation Group relative to the purchase of Menzies shareholdings and settlement of subscription deposit with MacroAsia-Menzies Airport Services Corporation.

13

MINUTES OF THE ANNUAL MEETING OF THE STOCKHOLDERS OF MACROASIA CORPORATION

Held on 21 July 2006 at 3:00 P.M. at the Corregidor B Room, Century Park Hotel

599 Pablo Ocampo, Sr. St., Malate, Manila

I. CALL TO ORDER

The Chairman, Mr. Washington Z. SyCip, called the meeting to order and presided over the same. The Corporate Secretary, Ms. Marivic T. Moya, recorded the minutes of the meeting.

II. CERTIFICATION OF NOTICE

Ms. Moya stated that in accordance with Section 2.03 of Article II of the By-Laws of the Corporation, notices for the meeting were sent by mail and/or special messengerial service at least ten (10) days prior to the date of the meeting to all stockholders of record as of 21 June 2006, the record date fixed by the Board of Directors of the Corporation for the meeting. A certification issued by Allied Banking Corporation, the Corporation’s Stock and Transfer Agent, is attached hereto as Annex “A”. Ms. Moya further stated that notices were published in The Philippine Star on 16 July 2006. An Affidavit of Publication issued by PhilStar Daily, Inc., publisher of The Philippine Star, is attached hereto as Annex “A-1”.

Ms. Moya therefore certified that notices for the meeting were duly sent.

III. CERTIFICATION OF QUORUM

Ms. Moya stated that based on the attendance record and the proxies and/or powers of attorney on hand, stockholders owning Nine Hundred Ninety-three Million Seven Hundred Twenty Six Thousand Forty Eight (993,726,048) shares representing 79.50% of the total issued and outstanding capital stock of the Corporation were present or represented in the meeting.

Ms. Moya certified that a quorum existed for the valid transaction of business.

IV. APPROVAL OF PREVIOUS MINUTES

The Chairman then proceeded to the next item in the Agenda, which pertains to the reading and approval of the Minutes of the Annual Stockholders’ Meeting held on 15 July 2005.

After discussion and upon motion duly made and seconded, the stockholders approved the Minutes of the Annual Stockholders’ Meeting held on 15 July 2005.

15

V. MANAGEMENT REPORT

Mr. Joseph T. Chua, the Corporation’s President and Chief Executive Officer, reported on the results of operations of the Corporation an its subsidiaries for the year ended 31 December 2005. A copy of the President’s report is attached hereto as Annex “B”.

Mr. Chua thereafter informed the stockholders that the Board of Directors has approved the declaration of a cash dividend of P0.03 per share payable on or before 1 September 2006 to stockholders of record of the Corporation as of 17 August 2006.

VI. APPROVAL OF THE AUDITED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2005 .

The Chairman then proceeded to the next item on the Agenda, which pertains to the approval of the Audited Financial Statements of the Corporation for the year ended 31 December 2005.

Upon motion duly made and seconded, the stockholders approved the Audited Financial Statements of the Corporation for the year ended 31 December 2005.

VII. APPROVAL, CONFIRMATION AND RATIFICATION OF ALL ACTS, PROCEEDINGS AND RESOLUTIONS OF THE BOARD OF DIRECTORS AND MANAGEMENT

The Chairman then proceeded to the next item on the Agenda, which pertains to the approval, confirmation and ratification of all acts, proceedings and resolutions of the Board of Directors and Management of the Corporation since the last Annual Stockholders’ Meeting held on 15 July 2005.

Upon motion duly made and seconded, the stockholders approved the following resolution:

“RESOLVED, That all acts, proceedings and resolutions of the Board of Directors and of Management since the last Annual Stockholders’ Meeting held on 15 July 2005 up to today’s meeting be, as they are hereby approved, confirmed and ratified.”

VIII. ELECTION OF DIRECTORS

The following were unanimously elected as Directors of the Corporation to act as such for the ensuing year and until the election and qualification of their successors:

Washington Z. SyCip Mariano C. Tanenglian

Joseph T. Chua Lucio K. Tan, Jr. Jaime J. Bautista George Y. SyCip Stewart C. Lim

Enrique M. Aboitiz, Jr.– Independent Director Johnip G. Cua – Independent Director

16

IX. APPOINTMENT OF EXTERNAL AUDITOR

The Chairman then proceeded to the next item on the Agenda, which pertains to the appointment of External Auditors of the Corporation for the ensuing year.

Upon motion duly made and seconded, SGV & Co. was unanimously appointed as External Auditor of the Corporation for the ensuing year.

X. ADJOURNMENT

There being no further business to transact, upon motion duly made and seconded, the meeting was adjourned.

CERTIFIED CORRECT:

MARIVIC T. MOYA Corporate Secretary

ATTEST:

WASHINGTON Z. SYCIP Chairman

17

MANAGEMENTREPORT

18

- 23 -

MACROASIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31

2006

2005(Restated, Note 2)

ASSETS

Current Assets

Cash and cash equivalents (Notes 5, 15 and 21) P=219,760,093 P=200,963,727

Receivables - net (Notes 6, 15 and 21) 229,090,074 161,217,328

Inventories - at cost (Note 7) 31,952,931 24,043,484

Other current assets (Note 8) 85,335,823 82,515,952

Total Current Assets 566,138,921 468,740,491

Noncurrent Assets

Investments in associates (Note 9) 1,203,060,341 1,242,374,610

Property and equipment - net (Note 10) 300,199,416 337,506,008

Investment property - net (Notes 11 and 15) 118,680,000 118,680,000

Accrued rental receivable (Note 15) 87,020,316 79,013,572

Deferred rent expense (Note 27) 17,917,422 19,073,320

Goodwill (Note 2) 17,531,232 –

Deferred tax assets - net (Note 23) 9,197,260 8,410,175

Deposits and other noncurrent assets - net (Note 12) 52,746,742 42,857,501

Total Noncurrent Assets 1,806,352,729 1,847,915,186

TOTAL ASSETS P=2,372,491,650 P=2,316,655,677

LIABILITIES AND EQUITY

Current Liabilities

Note payable (Note 13) P=14,000,000 P=27,500,000

Loans from and payables to subsidiaries’ stockholders (Note 16) 3,145,566 19,732,606

Accounts payable and accrued liabilities (Notes 14 and 21) 147,642,759 120,945,290

Income tax payable 1,279,204 861,070

Dividends payable 7,434,520 7,137,132

Total Current Liabilities 173,502,049 176,176,098

Noncurrent Liabilities

Accrued rental payable (Note 27) 87,020,316 79,013,572

Unearned rent income (Note 15) 17,917,422 19,073,320

Rental deposit (Note 15) 1,707,662 1,034,395

Accrued retirement benefits payable (Note 20) 7,297,467 6,359,106

Deferred tax liability (Note 23) – 220,804

Total Noncurrent Liabilities 113,942,867 105,701,197

Total Liabilities 287,444,916 281,877,295

Equity

Attributable to the equity holders of the parent:

Capital stock - P=1 par value (Note 24)

Authorized - 2,000,000,000 shares

Issued - 1,250,000,000 shares (held by 963 and 977 equity holders in 2006 and 2005, respectively) 1,250,000,000 1,250,000,000

Additional paid-in capital (Note 24) 281,437,118 281,437,118

Share in foreign currency translation adjustments of an associate (Note 9) (189,476,666) (30,860,108)

Retained earnings (Notes 2 and 26) 690,364,081 471,015,682

2,032,324,533 1,971,592,692

Minority interests (Notes 2 and 16) 52,722,201 63,185,690

Total Equity 2,085,046,734 2,034,778,382

TOTAL LIABILITIES AND EQUITY P=2,372,491,650 P=2,316,655,677

See accompanying Notes to Consolidated Financial Statements.

- 24 -


CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31

2006

2005(Restated,

Note 2)

2004(Restated,

Note 2)

SERVICE REVENUE

In-flight catering P=685,928,038 P=544,773,792 P=452,924,401

Rental and administrative (Note 15) 185,455,504 184,502,135 184,502,135

Ground handling and aviation (Note 15) 83,262,378 73,295,879 72,535,408

Charter flights 13,184,093 6,811,400 12,397,777

967,830,013 809,383,206 722,359,721

DIRECT COST (Note 17) 706,730,682 608,134,886 544,459,045

GROSS PROFIT 261,099,331 201,248,320 177,900,676

Selling expenses (Note 19) (11,121,279) (14,304,368) (13,977,894)

General and administrative expenses (Note 18) (207,195,606) (168,314,848) (147,011,282)

Equity in net income of associates (Note 9) 256,476,152 119,333,806 76,955,111

Foreign exchange gain (loss) - net (24,753,598) (13,313,864) 655,999

Interest income (Note 15) 7,047,306 5,470,563 3,610,756

Financing charges (Notes 13, 15 and 16) (2,561,145) (1,151,881) (3,789,248)

Others - net 5,284,673 8,039,664 16,139,826

INCOME BEFORE INCOME TAX 284,275,834 137,007,392 110,483,944

PROVISION FOR INCOME TAX (Note 23) Current 20,030,048 16,639,983 7,473,049

Deferred (1,007,887) (4,026,106) (2,333,563)

19,022,161 12,613,877 5,139,486

NET INCOME P=265,253,673 P=124,393,515 P=105,344,458

Attributable to: Equity holders of the parent (Note 2) P=256,848,399 P=119,053,116 P=99,593,368

Minority interests (Note 2) 8,405,274 5,340,399 5,751,090

P=265,253,673 P=124,393,515 P=105,344,458

Basic/Diluted Earnings Per Share (Note 25) P=0.2055 P=0.0952 P=0.0797


- 25 -


CONSOLIDATED STATEMENTS OF CASH FLOWS


2006 2005 2004

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax P=284,275,834 P=137,007,392 P=110,483,944Adjustments for: Depreciation and amortization (Note 10) 63,654,029 63,736,146 64,007,488 Equity in net income of associates (Note 9) (256,476,152) (119,333,806) (76,955,111) Unrealized foreign exchange loss (gain) - net 24,753,598 12,331,888 (698,504) Interest income (7,047,306) (5,470,563) (3,610,756) Financing charges 2,561,145 1,151,881 3,789,248 Gain on sale of equipment (9,996) (136,114) (314,140) Dividend income – (1,200) –

Operating income before working capital changes 111,711,152 89,285,624 96,702,169Decrease (increase) in: Receivables (77,178,576) (8,336,432) (12,203,325) Inventories (7,909,447) (425,463) (1,714,178) Other current assets (15,593,045) (27,024,955) 12,892,785Increase (decrease) in: Accounts payable and accrued liabilities 25,004,649 (20,416,731) 13,338,670 Rental deposit – – (208,330)Provisions (reversals of allowances) for doubtful accounts and other losses (Note 18) 7,066,609 6,825,895 (9,122,808)

Retirement benefits cost (Note 20) 1,341,406 1,394,140 1,594,734Benefits paid and contributions to the fund (Note 20) (500,000) (715,231) (300,000)

Cash generated from operations 43,942,748 40,586,847 100,979,717Interest received 6,900,347 5,234,534 3,602,363Financing charges paid (2,561,145) (3,498,168) (3,568,150)Income taxes paid, including creditable withholding taxes (13,788,742) (12,984,014) (11,801,239)

Net cash from operating activities 34,493,208 29,339,199 89,212,691

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of minority interest (Note 2) (36,400,000) – –Acquisitions of property and equipment (Note 10) (24,627,838) (33,429,647) (22,413,409)Dividends received (Note 9) 140,173,863 36,606,046 4,800,000Proceeds from sales of: Property and equipment and other noncurrent assets 10,000 391,350 353,000 Tax credit certificates – – 7,646,021Additional investment in an associate (Note 9) – (5,508,286) –Collections of advances to an associate – – 3,127,541Increase in other noncurrent assets (9,119,019) (2,546,164) (3,006,629)

Net cash from (used in) investing activities 70,037,006 (4,486,701) (9,493,476)

(Forward)

- 26 -


2006 2005 2004

CASH FLOWS FROM FINANCING ACTIVITIES

Payments of notes payable (P=13,500,000) (P=17,500,000) (P=14,254,281)Payments of loans from and payables to subsidiaries’ stockholders (16,587,040) – (21,625,000)

Dividends paid (37,202,612) (25,000,000) –Proceeds from availment of note payable – 45,000,000 –

Net cash from (used in) financing activities (67,289,652) 2,500,000 (35,879,281)

EFFECT OF EXCHANGE RATE CHANGES ON

CASH AND CASH EQUIVALENTS (18,444,196) (7,997,819) 1,020,627

NET INCREASE IN CASH AND

CASH EQUIVALENTS 18,796,366 19,354,679 44,860,561

CASH AND CASH EQUIVALENTS

AT BEGINNING OF YEAR 200,963,727 181,609,048 136,748,487

CASH AND CASH EQUIVALENTS

AT END OF YEAR (Note 5) P=219,760,093 P=200,963,727 P=181,609,048


- 27 -


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information and Business Operations

Corporate Information MacroAsia Corporation (the Company) was incorporated in the Philippines on February 16, 1970

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

The accompanying consolidated financial statements were authorized for issue by the Board of Directors (BOD) on March 29, 2007.

Business Operations The principal activities of the Company and its subsidiaries (the Group) are described in Note 4.

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

Through Lufthansa Technik Philippines, Inc. (LTP), an associate, which has a maintenance, repairs and overhaul facility in the Philippines, it provides globally competitive heavy maintenance and engineering services for specific models of Airbus and Boeing aircraft for airline clients all over the world.

The Company positions itself for further growth and expansions as it pursues development projects outside the aviation support services. It ventured into the third party logistics business with Sembcorp Logistics Ltd. (SembLog, a company incorporated in Singapore) on January 24, 2005 (see Note 9). Further, with the recent developments in the Philippine mining industry, the Company is reviving its mining business (see Notes 12 and 30).

2. Summary of Significant Accounting Policies and Financial Reporting Practices

Basis of Financial Statements Preparation and Presentation The accompanying consolidated financial statements have been prepared on a historical cost basis,

and are presented in Philippine pesos, the Company’s functional currency.

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

Reporting Standards (PFRS).

- 28 -

Changes in Accounting Policies The accounting policies adopted in 2006 are consistent with those of the previous financial years,

except as follows:

The Group has adopted the following new and amended PFRSs in 2006. The adoption of these new and amended standards did not have any effect on the consolidated financial statements of the Group except for the additional disclosures required. These additional disclosures have been included in the accompanying consolidated financial statements.

Amendments to Philippine Accounting Standard (PAS) 19, Employee Benefits, provides additional disclosures about trends in the assets and liabilities in the define benefit plans and the assumptions underlying the components of the defined benefit cost. This change did not have recognition or measurement impact as the Group chose not to apply the new option offered to recognize actuarial gains and losses outside of the consolidated statement of income.

Amendments to PAS 21, The Effects of Changes in Foreign Exchange Rates, provides that all exchange differences arising from a monetary item that forms part of the Group’s net investment in a foreign operation are recognized in a separate component of equity in the consolidated financial statements regardless of the currency in which the monetary item is denominated.

Amendments to PAS 39, Financial Instruments: Recognition and Measurement:

Amendment for financial guarantee contracts requires financial guarantee contracts that are not considered to be insurance contracts to be recognized initially at fair value and to be remeasured at the higher of the amount determined in accordance with PAS 37, Provisions,

Contingent Liabilities and Contingent Assets and the amount initially recognized less, when appropriate, cumulative amortization recognized in accordance with PAS 18, Revenue.

Amendment for hedges of forecast intragroup transactions permits the foreign currency risk of a highly probable intragroup forecast transaction to qualify as the hedged item in a cash flow hedge, provided that the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction and that the foreign currency risk will affect the consolidated statement of income.

Amendment for the fair value option restricts the use of the option to designate any financial asset or any financial liability to be measured at fair value through the consolidated statement of income.

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

- 29 -

Basis of Consolidation The accompanying consolidated financial statements comprise the financial statements of the

Company and the following subsidiaries:

Percentage of ownership

2006 2005

Direct Indirect Direct Indirect

MacroAsia Air Taxi Services, Inc. (MAATS) 100 – 100 –MAPDC 100 – 100 –MacroAsia-Menzies Airport Services Corporation (MASCORP) 70 – 70 –Airport Specialists’ Services Corporation (ASSC)* 100 – – 70MacroAsia-Eurest Catering Services, Inc. (MECS)** 80 – 67 –MacroAsia Mining Corporation (MMC)*** 67 – 67 –

* A wholly-owned subsidiary of the Company; prior to 2006, ASSC is a wholly-owned subsidiary of MASCORP; has ceased commercial operations effective May 1, 2001.

** In 2006, the Company bought the 13% minority interest of Compass Group International B.V. (Compass) in MECS.

*** Incorporated on September 25, 2000; has not started commercial operations.

The consolidated financial statements comprise the financial statements of the Company and the above subsidiaries as of December 31, 2006 and 2005 and for the three years in the period ended December 31, 2006. The financial statements of the subsidiaries are prepared using accounting policies, consistent with those of the Company. All significant intra-group balances, transactions, income and expenses, profits and losses resulting from intra-group transactions are eliminated in full in the consolidation.

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

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. Control is achieved where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Consolidation of subsidiaries ceases when control is transferred out of the Group. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of income from the date of acquisition or up to the date of disposal, as appropriate.

Minority InterestMinority interest represents the portion of the net assets of consolidated subsidiaries not held by the Group, and are presented separately in the consolidated statements of income and within the equity section of the consolidated balance sheets, separate from parent’s equity.

The losses applicable to the minority in a consolidated subsidiary may exceed the minority Interest’s equity in the subsidiary. The excess, and any further losses applicable to the minority, are charged against the majority interest except to the extent that the minority has a binding obligation to and is able to make good the losses. If the subsidiary subsequently reports profits, the majority interest is allocated all such profits until the minority’s share of losses previously absorbed by the majority is recovered.

The acquisition of minority interests is not considered a business combination under PFRS 3, Business Combinations, and therefore, the re-measurement of the net assets acquired to their fair

- 30 -

values, as not permissible, is not performed. Acquisitions of minority interests are accounted for using the parent entity extension concept method, wherein the difference between the consideration and the book value of the net assets acquired is recognized as goodwill.

Acquisitions of minority interests in 2006

a. Minority interest in MECS

On June 28, 2006, the Company acquired the 13% minority interest of Compass [formerly Eurest International B.V. (Eurest)] in MECS, increasing the Company’s ownership in MECS from 67% to 80%. The acquisition was made for a consideration of P=36.4 million. The book value of the net assets acquired was P=18.9 million; the excess of the consideration over the net book value of the net assets acquired of P=17.5 million was accounted for as goodwill. Goodwill is subject to an annual impairment test.

b. Minority interest in ASSC

Toward the end of 2006, the Company also acquired for P=25,412 MASCORP’s 100% ownership in ASSC. The effective ownership of the Company in ASSC was thus increased from 70% to 100%. Through the restructuring, the Company effectively acquired the 30% minority interest of Menzies Aviation Group Services (Asia Pacific) LLC (Menzies) in ASSC through its 30% investment in MASCORP. Also because of the restructuring, ASSC became a direct subsidiary of the Company.

The transaction was accounted for by the Company similar to a pooling of interests method of accounting as this is a transaction under common control that has no substance at the Company’s level. The transaction resulted in a reduction in retained earnings as of January 1, 2004, with a corresponding increase in minority interest amounting to P=481,765. Also as a result, net income attributable to minority interest (the parent company) in 2005 and 2004 increased (decreased) by P=6,406 and (P=14), respectively.

Future changes in minority interests

On June 20, 2006, Menzies informed MASCORP’s BOD that Menzies has decided to sell its 30% shareholding in MASCORP.

On December 7, 2006, MASCORP’s BOD approved a resolution authorizing MASCORP to execute a Deed of Release (a closing document under the Sale and Purchase Agreement between MASCORP and Menzies) for the purpose of releasing Menzies and its nominee-directors in MASCORP from any indebtedness or liabilities in connection with Menzies’ potential divestment. Also, simultaneous to the execution of the Sale and Purchase Agreement, MASCORP’s BOD approved a resolution authorizing MASCORP to fully pay the loan extended by Menzies, amounting to P=9.5 million.

As of March 29, 2007, the divestment of Menzies from MASCORP and the payment of MASCORP for the loan are not yet consummated pending completion of documentation requirements

Investments in AssociatesAssociates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for under the equity method of accounting in the consolidated financial statements. Under this method, the investments in associates are carried in the consolidated balance sheets at cost plus post-acquisition changes in the Company’s share in the net assets of the

- 31 -

associate, less any impairment in value. Dividends are considered return of capital and are deducted from the investment account.

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

The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share in the losses of an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate.

Investments in associates pertain to the Company’s investments in the shares of stock of Cebu Pacific Catering Services Inc. (CPCS), 40%-owned; and LTP and SembLog-MacroAsia Philippines, Inc. (SMP), 49%-owned (see Note 9). Since the Company has no joint control but instead has significant influence over these associates, the Company accounts for its investments in compliance with the provisions of PAS 28, Investments in Associates.

Functional Currency and Foreign Currency Translation Each entity in the Group determines its own functional currency and the items included in the

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

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

The financial position and results of operations of an associate whose functional currency is not the currency of a hyperinflationary economy is translated into the Group’s presentation currency using the following procedures:

a. Assets and liabilities for each consolidated balance sheet presented are translated at the closing rate at the balance sheet date.

b. Income and expenses for each consolidated income statement are translated using the average rate.

c. All resulting exchange differences are recognized as a separate component of equity.

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

investments that are readily convertible to known amounts of cash with original maturities of three

- 32 -

months or less from dates of acquisition and are subject to an insignificant risk of changes in value.

Financial Assets and Financial Liabilities Financial assets and financial liabilities are recognized initially at fair value. Transaction costs are

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

The Group recognizes a financial asset or a financial liability in the consolidated balance sheet when it becomes a party to the contractual provisions of the instrument.

Financial assets are classified into the following categories: a. Financial asset at fair value through profit or loss b. Loan and receivable c. Held-to-maturity investment d. Available-for-sale financial asset

Financial liabilities, on the other hand, are classified into the following categories: a. Financial liability at fair value through profit or loss b. Other liability

The Group determines the classification at initial recognition and, where allowed and appropriate, re-evaluates this classification at every reporting date.

a. Financial assets or financial liabilities at fair value through profit or loss

Financial assets or financial liabilities classified in this category are designated by management on initial recognition when the following criteria are met:

The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on them on a different basis, or

The assets and liabilities are part of a group of financial assets and financial liabilities, respectively, or both financial assets and financial liabilities, which are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, or

The financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.

Financial assets and financial liabilities at fair value through profit or loss are recorded in the consolidated balance sheet at fair value. Changes in fair value are recorded in trading gain - net on financial assets and financial liabilities designated at fair value through profit or loss. Interest earned is recorded in interest income, while dividend income is recorded in other

- 33 -

income according to the terms of the contract, or when the right of the payment has been established. Interest incurred is recorded in interest expense.

The Company has not designated any financial asset or financial liability as at fair value through profit or loss.

b. Loans and receivables

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

Classified as loans and receivables are the Group’s trade receivables, and advances to officers and employees.

c. Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities wherein the Group has the positive intention and ability to hold to maturity. Held-to-maturity investments are carried at cost or amortized cost in the consolidated balance sheet. Amortization is determined using the effective interest rate method. Assets under this category are classified as current assets if maturity is within 12 months from the balance sheet date and noncurrent assets if maturity is more than a year.

The Group has not designated any financial asset as held-to-maturity.

d. Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. Available-for-sale financial assets are carried at fair value in the consolidated balance sheet. Changes in the fair value of investments classified as available-for-sale financial assets are recognized in equity, except for the foreign exchange fluctuations on available-for-sale debt securities and the related effective interest which are taken directly to the consolidated statement of income. These changes in fair values are recognized in equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the consolidated statement of income.

The Group has not designated any financial asset as available-for-sale. e. Other financial liabilities

This category pertains to financial liabilities that are not held for trading or not designated as fair value through profit or loss upon the inception of the liability. These include liabilities arising from operations (e.g., payables, accruals).

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

Derecognition of Financial Assets and Financial Liabilities

- 34 -

Financial assets

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

a. the rights to receive cash flows from the asset have expired;

b. the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or

c. the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

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

Financial liabilities

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

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss.

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

a. Assets carried at amortized cost

If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rates (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through the use of an allowance account. The amount of loss, if any, is recognized in the consolidated statement of income.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in the group of financial assets with similar credit risk and characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is recognized are not included in a collective assessment of impairment.

- 35 -

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

b. Assets carried at cost

If there is an objective evidence that an impairment loss of an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or a derivative asset that is link to and must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.

c. Available-for-sale financial assets

If an available-for-sale financial asset is impaired, the amount comprising the difference between its cost (net of any principal payment and amortization) and its current fair value, less any impairment loss previously recognized in the consolidated statement of income, is transferred from equity to the consolidated statement of income. Reversals in respect of equity instruments classified as available-for-sale are not recognized in the consolidated statement of income. Reversals of impairment losses on debt instruments are reversed through the consolidated statement of income, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in the consolidated statement of income.

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

balance sheet if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the consolidated balance sheet.

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

bringing the product to its present location and condition are accounted for at purchase cost, determined primarily on the basis of the moving average method.

NRV of food and beverage is the estimated selling price in the ordinary course of business less the estimated costs of completion and estimated costs necessary to make the sale. In the case of materials and supplies, NRV is the recoverable value of the inventories when disposed of at their current conditions.

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

impairment in value.

The initial cost of property and equipment comprises of its purchase price, including import duties, taxes, borrowing costs and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property and equipment have been put into operation, such as repairs and maintenance and overhaul costs, are

- 36 -

normally charged to operations in the period when the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of property and equipment.

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

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

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

No. of years

Building 25 Kitchen and other operations equipment 3 to 10 Office furniture, fixtures and equipment 3 to 7 Transportation equipment 5 Helicopter spare parts 3 to 5 Aviation equipment 5

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

Depreciation and amortization of an item of property and equipment begins when it becomes available for use, i.e., when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation and amortization ceases at the earlier of the date that the item is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with PFRS 5, Noncurrent Assets Held for Sale and

Discontinued Operations, and the date the asset is derecognized.

The residual values, useful lives and depreciation and amortization methods are reviewed periodically to ensure that the residual values, periods and methods of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and equipment.

When property and equipment are sold or retired, their cost and related accumulated depreciation and amortization and any impairment in value are removed from the accounts, and any gain or loss resulting from their disposal is included in the consolidated statement of income.

Investment PropertyInvestment property pertains to land held for appreciation in value that is measured at cost less any impairment in value.

Investment property is derecognized when it has either been disposed of or when the investment property is permanently withdrawn from use and no future benefit is expected from its disposal. Any gains or losses resulting from the derecognition of an investment property is recognized in the consolidated statement of income in the year of derecognition.

- 37 -

Impairment of Non-financial Assets The Group assesses at each reporting date whether there is an indication that property and

equipment, investment property and goodwill may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset

does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses of continuing operations are recognized in the consolidated statement of income in those expense categories consistent with the function of the impaired asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

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

included under the “Deposits and other noncurrent assets” in the consolidated balance sheet. When, as a result of the exploration work, recoverable reserves are determined to be present in quantities that can be commercially produced, exploration expenditures and subsequent development costs are capitalized as mine and mining properties and classified as part of property and equipment.

A valuation allowance is provided for estimated unrecoverable costs based on the technical assessment by the Group of the future prospects of each mining property. When a project is abandoned, the related deferred mine exploration costs are written-off.

Revenue Revenue is recognized to the extent that it is probable that the economic benefits associated with the transactions will flow to the Group and the revenue can be reliably measured.

Sale of goods

Catering revenue is recognized upon delivery of goods to and acceptance by airline clients and other customers.

Rendering of services

Revenue from ground handling and aviation and administrative services, and charter flights is recognized when the related services are rendered.

- 38 -

Rental income

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

Interest income

Interest income is recognized as the interest accrues using, where applicable, the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial assets to the net carrying amount of the financial asset.

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

Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses for the plan at the end of the previous reporting year exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plan.

Past service cost is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a retirement plan, past service cost is recognized immediately.

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

If the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan, net actuarial losses of the current period and past service cost of the current period are recognized immediately to the extent that they exceed any reduction in the present value of those economic benefits. If there is no change or an increase in the present value of economic benefits, the entire net actuarial losses of the current period and past service cost of the current period are recognized immediately to the extent that they exceed any reduction in the present value of those economic benefits. Similarly, net actuarial gains of the current period after the deduction of past service cost of the current period exceeding any increase in the present value of the economic benefits stated above are recognized immediately if the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan. If there is no change or a decrease in the present value of the economic benefits, the entire net actuarial gains of the current period after the deduction of past service cost of the current period are recognized immediately.

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

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

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

- 39 -

Provisions and Contingencies Provisions are recognized when the Group has a present obligation (legal or constructive) as a

result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the effective future cash flows at a pretax rate that reflects current market assessment of the time value of money and where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provisions due to the passage of time is recognized as an interest expense.

Contingent liabilities are not recognized in the consolidated financial statements. These are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the consolidated balance sheet but disclosed when an inflow of economic benefits is probable.

Income TaxCurrent tax

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the balance sheet date.

Deferred tax

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

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

Deferred tax liabilities are not provided on non-taxable temporary differences associated with investments in domestic subsidiaries, associates and interest in joint ventures. With respect to investments in other subsidiaries, associates and interests in joint ventures, deferred tax liabilities are recognized except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

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

- 40 -

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off the deferred tax assets against the deferred tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

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

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

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

equity holders of the parent by the weighted average number of shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued upon conversion of all dilutive potential ordinary shares. Currently, the Group has no potential dilutive shares.

Future Changes in Accounting PoliciesThe following are the new accounting standards and Philippine Interpretation International Financial Reporting Interpretations Committee (IFRIC) interpretations that will become effective subsequent to 2006:

PFRS 7, Financial Instruments: Disclosures, and the complementary amendment to PAS 1, Presentation of Financial Statements: Capital Disclosures (effective for annual periods beginning on or after January 1, 2007), introduces new disclosures to improve the information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, as well as sensitivity analysis to market risk. It replaces PAS 30, Disclosures in the Financial Statements of Banks

and Similar Financial Institutions, and the disclosure requirements of PAS 32, Financial

Instruments: Disclosure and Presentation. It is applicable to all entities that report under PFRS. The amendment to PAS 1 introduces disclosures about the level of an entity’s capital and how it manages capital.

PFRS 8, Operating Segments (effective for annual periods beginning on or after January 1, 2009), requires a management approach to reporting segment information. PFRS 8 will replace PAS 14, Segment Reporting, and is required to be adopted only by entities whose debt or equity instruments are publicly traded, or are in the process of filing with the Philippine SEC for purposes of issuing any class of instruments in a public market.

Philippine Interpretation IFRIC 7, Applying the Restatement Approach under PAS 29, Financial Reporting in Hyperinflationary Economies (effective for annual periods beginning

- 41 -

on or after March 1, 2006), provides guidance on how to apply PAS 29 when an economy first becomes hyperinflationary, in particular the accounting for deferred tax.

Philippine Interpretation IFRIC 8, Scope of PFRS 2 (effective for annual periods beginning on or after May 1, 2006), requires PFRS 2 to be applied to any arrangements where equity instruments are issued for consideration which appears to be less than fair value.

Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives (effective for annual periods beginning on or after June 1, 2006), establishes that the date to assess the existence of an embedded derivative is the date an entity first becomes a party to the contract, with reassessment only if there is a change to the contract that significantly modifies the cash flows.

Philippine Interpretation IFRIC 10, Interim Financial Reporting and Impairment (effective for annual periods beginning on or after November 1, 2006), prohibits the reversal of impairment losses on goodwill and available for sale equity investments recognized in the interim financial reports even if impairment is no longer present at the annual balance sheet date.

Philippine Interpretation IFRIC 11, PFRS 2 - Group and Treasury Share Transactions,(effective for annual periods beginning on or after March 1, 2007), requires arrangements whereby an employee is granted rights to an entity’s equity instruments to be accounted for as an equity-settled scheme by the entity even if (a) the entity chooses or is required to buy those equity instruments (e.g., treasury shares) from another party, or (b) the shareholders of the entity provide the equity instruments needed. It also provides guidance on how subsidiaries, in their separate financial statements, account for such schemes when the subsidiary’s employees receive rights to the equity instruments of the parent.

Philippine Interpretation IFRIC 12, Service Concession Arrangements (effective for annual periods beginning on or after January 1, 2008), covers contractual arrangements arising from entities providing public services.

The effects of the adoption of these standards and interpretations, if any, will be included in the Group’s consolidated financial statements when the Group adopts them upon their effectivity.

3. Significant Accounting Judgments and Estimates

The preparation of the accompanying consolidated financial statements in accordance with PFRS requires the Group to exercise judgments, make estimates and use assumptions that affect the reported amounts of assets, liabilities, income and expenses and related disclosures. Future events may occur which will cause the assumptions used in arriving at the estimates to change. The effects of any change in estimates are reflected in the consolidated financial statements as they become reasonably determinable.

Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Determination of the Group’s functional currency

Judgment is exercised in assessing various factors in determining the functional currency of each entity within the Group, including prices of goods and services, competition, cost and expenses, and other factors including the currency in which financing is primarily undertaken. Additional

- 42 -

factors are considered in determining the functional currency of a foreign operation, including whether its activities are carried as an extension of that of the Company rather than being carried out with significant autonomy.

The Group, based on the relevant economic substance of the underlying circumstances, has determined its functional currency to be Philippine peso. It is the currency of the primary economic environment in which its subsidiaries and two of its associates operate. The functional currency of LTP, one of the Company’s associated companies, has been determined to be United States (US) dollar.

Classification of financial instruments

The Group classifies a financial instrument, or its components, on initial recognition as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, a financial asset or an equity instrument. The substance of a financial instrument, rather than its legal form, governs its classification in the Group’s consolidated balance sheet.

The Group determines the classification at initial recognition and re-evaluates this classification at every reporting date. More information on this is presented in Note 29.

Estimation of allowance for doubtful accounts

Allowance for doubtful accounts is provided for accounts that are specifically identified to be doubtful of collection. The level of allowance is evaluated by management on the basis of factors that affect the collectibility of the accounts.

In addition to specific allowance against individually significant receivables primarily from airline customers, the Group also assesses at least on an annual basis a collective impairment allowance against credit exposures which, although not specifically identified as requiring a specific allowance, have a greater risk of default than when the receivables were originally granted to customers. This collective allowance is based on various factors such as historical performance of the customers within the collective group, deterioration in the markets in which the customers operate, various country risks, overall performance of the airline industry, and technological obsolescence which affects the confidence of the air transport market, as well as identified structural weaknesses or deterioration in the cash flows of customers.

The carrying value of the Group’s receivables amounted to P=229.1 million and P=161.2 million as of December 31, 2006 and 2005, respectively. Related allowance for doubtful accounts amounted to P=2.0 million and P=8.9 million as of December 31, 2006 and 2005, respectively (see Note 6).

Recognition of deferred tax assets

The Group reviews the carrying amounts of deferred tax assets at each balance sheet date and adjusts the balance of deferred tax assets to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized.

Deferred tax assets recognized amounted to P=9.2 million and P=8.4 million as of December 31, 2006 and 2005, respectively. More details are provided in Note 23 to the consolidated financial statements.

Estimation of useful lives and residual values of property and equipment

The Group estimates the useful lives and residual values of property and equipment based on the internal technical evaluation and experience with similar assets. Estimated lives of property and equipment are reviewed periodically and updated if expectations differ from previous estimates

- 43 -

due to physical wear and tear, technical and commercial obsolescence and other limits on the use of the assets.

The carrying value of property and equipment as of December 31, 2006 and 2005 amounted to P=300.2 million and P=337.5 million, respectively (see Note 10).

Impairment of non-financial assets

The Group assesses at each reporting date whether there is any indication that property and equipment, investment property and goodwill may be impaired. If such indication exists, the entity shall estimate the recoverable amount of the asset, which is the higher of an asset’s fair value less costs to sell and its value in use. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash generating unit and also to choose the approximate pre-tax discount rate to calculate the present value of those cash flows.

As of December 31, 2006 and 2005, the carrying value of the Group’s property and equipment, investment property and goodwill amounted to P=436.4 million and P=456.2 million, respectively, on which an impairment loss on investment properties of P=25.2 million has been recognized as of both balance sheet dates (see Note 11).

Estimation of retirement benefits cost

The Group’s retirement benefits cost is actuarially computed. This entails using estimation of the present value of the Group’s obligation using certain assumptions like annual salary increases, rate of return on plan assets and discount rates. Total accrued retirement benefits payable amounted to P=7.3 million and P=6.4 million as of December 31, 2006 and 2005, respectively (see Note 20).

Provisions

The Group provides for present obligations (legal or constructive) when it is probable that there will be an outflow of resources embodying economic benefits that will be required to settle said obligations. An estimate of the provision is based on known information at the balance sheet date, net of any estimated amount that may be reimbursed to the Group. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. The amount of provision is reassessed at least on an annual basis to consider new relevant information.

The Group has not recognized any provision in 2006 and 2005.

4. Segment Information

The Group’s operating businesses are organized and managed separately according to the nature of the aviation-support services provided by the Company’s four operating subsidiaries and MMC, which is the basis on which the Group reports its primary segment information.

The operating subsidiaries include MECS (in-flight catering services), MASCORP (ground handling and aviation services), MAATS (helicopter chartering), and MAPDC (economic zone development/operation). The operations of these subsidiaries are further described as follows:

MECS provides the meal requirements of certain foreign and domestic passenger airlines. It operates an in-flight catering business at the NAIA and the MDA.

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

- 44 -

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

MAPDC is the economic zone developer/operator of the MacroAsia Ecozone at NAIA (see Note 22), with LTP as the anchor locator and to whom MAPDC has sub-leased the property it leases from Manila International Airport Authority (MIAA) (see Note 27).

On the other hand, the Group’s non-operating subsidiaries consist of:

MMC serves as the institutional vehicle through and under which the business of a mining enterprise may be established, operated and maintained. It has not yet started commercial operations.

ASSC provides manpower support for any and all ground handling requirements of aircraft passenger and cargo.

The Group has only one geographic segment.

Segment assets include the operating assets used by a segment and consist principally of cash and cash equivalents, receivables, inventories, other current assets, and property and equipment, net of allowances, depreciation and impairment in value. Segment liabilities include all operating liabilities and consist principally of accounts payable, accrued wages and other accrued liabilities. Segment assets and liabilities do not include deferred taxes.

Financial information on the Group’s business segments as of and for the years ended December 31, 2006, 2005 and 2004 are as follows:

2006 2005 2004

SERVICE REVENUE - External In-flight catering P=685,928,038 P=544,773,792 P=452,924,401

Rental and administrative 185,455,504 184,502,135 184,502,135

Ground handling and aviation 83,262,378 73,295,879 72,535,408

Charter flights 13,184,093 6,811,400 12,397,777

Total segment and consolidated revenue P=967,830,013 P=809,383,206 P=722,359,721

2006

2005(Restated,

Note 2)

2004(Restated,

Note 2)

RESULT - Segment result In-flight catering services P=88,789,747 P=64,101,958 P=40,481,401

Rental and administrative services 8,513,332 6,852,676 6,638,085

Ground handling and aviation services (7,206,201) (6,568,912) (610,045)

Charter flights services 3,570,690 (619,590) 3,805,817

Mining (47,282) (33,615) (29,291)

Total segment result 93,620,286 63,732,517 50,285,967

Unallocated corporate expenses and eliminations 57,165,272 (45,103,413) (21,873,277)

Other income - net 133,490,276 118,378,288 82,071,254

- 45 -

Provision for income tax (19,022,161) (12,613,877) (5,139,486)

Consolidated net income P=265,253,673 P=124,393,515 P=105,344,458

Attributable to:

Equity holders of the parent P=256,848,399 P=119,053,116 P=99,593,368

Minority interests 8,405,274 5,340,399 5,751,090

Consolidated net income P=265,253,673 P=124,393,515 P=105,344,458

OTHER INFORMATION

2006 2005

Segment assets

In-flight catering services P=613,840,969 P=551,939,712

Rental and administrative services 138,074,033 256,833,017

Ground handling and aviation services 75,329,197 81,225,090

Charter flights services 19,268,151 15,320,323

Mining 5,857,582 21,774,982

Total segment assets 852,369,932 927,093,124

Investments in associates 1,203,060,341 1,242,374,610

Investment properties - net 118,680,000 118,680,000

Unallocated corporate assets 198,381,377 28,507,943

Consolidated total assets P=2,372,491,650 P=2,316,655,677

2006 2005

Segment liabilities

In-flight catering services P=456,710,489 P=432,661,285

Rental and administrative services 130,582,267 224,487,034

Ground handling and aviation services 18,806,580 19,665,755

Charter flights services 2,071,075 962,238

Mining 86,048 49,116

Total segment liabilities 608,256,459 677,825,428

Eliminations (300,748,509) (364,854,181)

Unallocated corporate liabilities (20,060,034) (31,093,952)

Consolidated total liabilities P=287,447,916 P=281,877,295

2006 2005 2004

Capital expenditures

In-flight catering services P=14,962,272 P=11,418,917 P=34,604,578

Rental and administrative services 277,129 2,524,458 2,914,989

Ground handling and aviation services 8,070,788 9,010,493 13,416,102

Charter flights services 61,376 87,163 –

Total P=23,371,565 P=23,041,031 P=50,935,669

2006 2005 2004

Depreciation and amortization


Rental and administrative services 921,583 1,740,440 2,289,029

Ground handling and aviation services 11,144,572 9,944,893 7,560,023

Charter flights services 148,409 285,240 294,816

Unallocated corporate depreciation and amortization 6,687,283 6,160,818 6,637,268

Total P=63,654,029 P=63,736,146 P=64,007,488

- 46 -

2006 2005 2004

Noncash expenses other than

depreciation and amortization


Rental and administrative services – – 83,374,360

Total P=6,950,000 P=6,000,000 P=181,609,048

5. Cash and Cash Equivalents

Cash and cash equivalents consist of:

2006 2005

Cash P=46,058,961 P=76,801,735

Short-term deposits 173,701,132 124,161,992

P=219,760,093 P=200,963,727

Cash in banks earn interest at the respective bank deposits rates. Short-term deposits are made for varying periods of up to three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.

As of December 31, 2006 and 2005, the account includes foreign currency amounting to US$1.1 million held by Morgan Stanley in trust for the Company.

6. Receivables

Receivables consist of:

2006 2005

Trade - net of allowance for doubtful accounts of P=1,984,892 in 2006 and P=8,934,937 in 2005 P=210,091,288 P=140,947,832

Advances to:

Officers and employees 1,447,585 3,180,853

Suppliers and contractors and others (Note 15) 1,179,190 7,916,905

Dividend receivable (Note 9) – 3,000,000

Accrued interest and others 16,372,011 6,171,738

P=229,090,074 P=161,217,328

7. Inventories

Inventories, all carried at cost, consist of:

2006 2005

Food and beverage P=17,049,294 P=15,549,773

Materials and supplies 14,903,637 8,493,711

P=31,952,931 P=24,043,484

- 47 -

8. Other Current Assets

Other current assets consist of:

2006 2005

Input taxes - net of allowance for probable losses of P=11,787,911 in 2006 and P=16,747,839 in 2005 P=49,169,278 P=43,089,988

Tax credit certificates 23,694,566 19,445,847

Creditable withholding taxes 7,159,848 12,983,020

Prepaid expenses and others 5,312,131 6,997,097

P=85,335,823 P=82,515,952

Input taxes represent the value added taxes (VAT) paid on purchases of goods and services which can be recovered as tax refund/credit from the Bureau of Internal Revenue (BIR) or the Bureau of Customs.

9. Investments in Associates

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


interest 2006 2005

Acquisition costs:

LTP 49 P=935,759,560 P=935,759,560

SMP 49 5,508,286 5,508,286

CPCS 40 5,000,000 5,000,000

946,267,846 946,267,846

Accumulated equity in net earnings:

Beginning of year 326,966,872 247,237,912

Share in associates’ net earnings for the year 256,476,152 119,333,806

Dividends declared (137,173,863) (39,604,846)

End of year 446,269,161 326,966,872

Share in foreign currency translation adjustments: Beginning of year (30,860,108) (57,836,112)

Net foreign currency translation adjustments for the year (158,616,558) 26,976,004

End of year (189,476,666) (30,860,108)

P=1,203,060,341 P=1,242,374,610

LTPOn July 12, 2000, the Company entered into an agreement with Lufthansa Technik AG, a corporation organized and existing under the laws of the Federal Republic of Germany, and

- 48 -

formed LTP. LTP provides maintenance, repairs and overhaul services on aircraft and components at the NAIA and MCIA. The agreement provides for supermajority (i.e., two-thirds) vote of directors for the approval of the annual budget as well as other critical corporate acts of the agreement.

On December 10, 2002, the BOD approved the additional capital infusion to LTP amounting to US$4.9 million. The Company made the additional capital infusion on February 19, 2003.

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

Amount of Contribution MacroAsia SembLog

2005 US$65,000 US$31,850 US$33,150 2006 120,000 58,800 61,200

US$185,000 US$90,650 US$94,350

On October 18, 2005, the Philippine SEC approved the incorporation of SMP. SMP started commercial operations in 2006.

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

Summarized financial information of the associates are as follows:

2006

LTP CPCS SMP Total

Current assets P=3,564,752,675 P=31,235,783 P=9,915,171 P=3,605,903,629

Noncurrent assets 2,095,327,547 18,751,150 1,062,022 2,115,140,719

Current liabilities 2,465,765,475 6,818,692 2,628,070 2,475,212,237

Noncurrent liabilities 436,712,514 – – 436,712,514

Equity before foreign currency translation adjustments 3,084,739,827 43,168,241 8,349,123 3,136,257,191

Foreign currency translation adjustments (327,137,594) – – (327,137,594)

Revenue 10,565,721,094 78,674,500 4,472,672 10,648,868,266

Cost and expenses 10,041,081,718 53,119,269 6,939,579 10,101,140,566

Gross profit 1,874,908,760 32,834,538 3,265,571 1,911,008,869

Net income (loss) 506,378,556 23,898,611 (2,466,907) 527,810,260

2005

LTP CPCS SMP Total

- 49 -

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

(Forward)

2005

LTP CPCS SMP Total

Equity before foreign currency translation adjustments P=2,665,033,164 P=45,479,693 P=10,866,030 P=2,721,378,887Foreign currency translation adjustments (177,942,453) – – (177,942,453)Revenue 9,665,879,061 70,597,743 27,092 9,736,503,896 Cost and expenses 9,419,454,738 49,983,674 271,062 9,469,709,474 Gross profit 1,267,499,424 27,030,552 27,092 1,294,557,068 Net income (loss) 227,850,784 19,217,305 (243,970) 246,824,119

2004

LTP CPCS SMP Total

Foreign currency translation adjustments (P=274,133,733) P=– P=– (P=274,133,733)Revenue 8,839,051,350 63,596,348 – 8,902,647,698 Cost and expenses 8,686,717,919 44,856,533 – 8,731,574,452 Gross profit 913,186,489 22,659,356 – 935,845,845 Net income 143,910,116 17,549,211 – 161,459,327

10. Property and Equipment

Property and equipment consist of:

December 31, 2006

January 1, Retirements/ December 31,

2006 Additions Disposals 2006

Cost

Building P=252,029,410 P=– P=– P=252,029,410

Kitchen and other operations equipment 196,459,610 9,632,868 (25,147,004) 180,945,474

Transportation equipment 84,938,047 2,755,260 (2,431,460) 85,261,847

Helicopter unit and spare parts 45,325,791 960,452 – 46,286,243

Aviation equipment 64,908,533 3,260,764 – 68,169,297

Office furniture, fixtures and equipment 36,395,552 13,891,491 (8,206,508) 42,080,535

Building and leasehold improvements 26,078,404 69,768 – 26,148,172

706,135,347 30,570,603 (35,784,972) 700,920,978

Accumulated Depreciation and

Amortization

Building (68,249,430) (10,139,614) – (78,389,044)

Kitchen and other operations equipment (142,764,910) (23,002,331) 25,147,004 (140,620,237)

Transportation equipment (60,315,002) (8,804,937) 2,431,460 (66,688,479)

Helicopter unit and spare parts (22,840,534) (4,775,082) – (27,615,616)

Aviation equipment (33,193,643) (9,073,587) – (42,267,230)

Office furniture, fixtures and equipment (27,940,147) (5,957,420) 8,206,504 (25,691,063)

Building and leasehold improvements (18,473,029) (1,901,058) – (20,374,087)

- 50 -

(373,776,695) (63,654,029) 35,784,968 (401,645,756)

Net Book Value 332,358,652 (33,083,426) (4) 299,275,222

Construction in progress 5,147,356 (4,223,162) – 924,194

Total P=337,506,008 (P=37,306,588) (P=4) P=300,199,416

December 31, 2005

January 1, Retirements/ December 31,

2005 Additions Disposals 2005

Cost

Building P=247,149,416 P=4,879,994 P=– P=252,029,410

Kitchen and other operations equipment 194,367,481 2,092,129 – 196,459,610

Transportation equipment 78,793,660 6,630,245 (485,858) 84,938,047

Helicopter unit and spare parts 41,754,058 3,571,733 – 45,325,791

Aviation equipment 59,385,964 7,269,913 (1,747,344) 64,908,533

Office furniture, fixtures and equipment 32,462,690 3,969,109 (36,247) 36,395,552

Building and leasehold improvements 25,923,248 155,156 – 26,078,404

679,836,517 28,568,279 (2,269,449) 706,135,347

Accumulated Depreciation and

Amortization

Building (57,238,589) (11,010,841) – (68,249,430)

Kitchen and other operations equipment (117,549,263) (25,215,647) – (142,764,910)

Transportation equipment (50,984,344) (9,562,136) 231,478 (60,315,002)

Helicopter unit and spare parts (18,553,450) (4,287,084) – (22,840,534)

Aviation equipment (26,168,119) (8,772,866) 1,747,342 (33,193,643)

Office furniture, fixtures and equipment (24,387,335) (3,588,205) 35,393 (27,940,147)

Building and leasehold improvements (17,173,662) (1,299,367) – (18,473,029)

(312,054,762) (63,736,146) 2,014,213 (373,776,695)

Net Book Value 367,781,755 (35,167,867) (255,236) 332,358,652

Construction in progress 2,841,245 2,306,111 – 5,147,356

Total P=370,623,000 (P=32,861,756) (P=255,236) P=337,506,008

Non-cash in investing activities in 2006 consist of the acquisitions of operations and aviation equipment amounting to P=1.7 million on credit. Unpaid acquisitions of production and operations equipment in 2004 aggregating to P=2.8 million were fully paid in 2005.

11. Investment Property

Investment property pertains to a parcel of land held for appreciation in value with the following details:

Cost P=143,880,000

Less impairment loss 25,200,000

P=118,680,000

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

In 2002, an impairment loss of P=25.2 million became evident and was recognized on land held for future development. This write-down represents the estimated excess of the carrying value of the

- 51 -

property over its recoverable amount, which is based on the estimated net selling price of the property based on the report of an independent firm of appraisers.

The fair value of the investment property approximates its carrying value based on a valuation performed by an independent appraiser as of December 31, 2006 and 2005.

12. Deposits and Other Noncurrent Assets

Deposits and other noncurrent assets consist of:

2006 2005

Deposits (Note 27) P=12,317,240 P=13,010,503

Input taxes 23,637,534 13,548,738

Deferred mine exploration costs - net of allowance for unrecoverable costs of P=1,215,922 (Note 30) 15,410,580 15,721,460

Others 1,381,388 576,800

P=52,746,742 P=42,857,501

Deposits include a Treasury Note placement amounting to P=5.0 million, which MECS assigned to MIAA in compliance with the terms of MECS’ concession agreement with MIAA (see Note 27).

Input taxes represent value-added taxes equivalent to 10% (applicable to goods and services purchased prior to January 1, 2006) or 12% (for goods and services purchased after January 1, 2006) of the value of goods and services purchased by MECS from VAT-registered suppliers.

The recovery of deferred mine exploration costs depends upon the success of exploration activities and future development of the corresponding mining properties as well as the discovery of recoverable reserves in quantities that can be commercially produced.

13. Note Payable

Note payable pertains to an uncollateralized short-term loan obtained by MECS from a local bank to settle its loans from and payables to the Company. This short-term loan carries interest of 9.1% repriced monthly based on rate mutually agreed upon by MECS and the bank. Financing charges in 2006 and 2005 amounted to P=2.2 million and P=1.9 million, respectively.

14. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consist of:

2006 2005

Accounts payable:

Trade P=50,678,802 P=37,052,199

Non-trade 27,873,679 24,933,352

Accrued:

Technical Assistance Fees (TAF) and Fees on Sales (FOS) 14,297,880 16,983,231

(Forward)

2006 2005

- 52 -

Utilities P=3,582,288 P=6,026,777

Volume discounts 17,228,410 14,495,117

Withholding taxes payable 9,172,433 4,825,487

Other accrued liabilities 24,809,267 16,629,127

P=147,642,759 P=120,945,290

Other accrued liabilities mainly pertain to accruals for payroll-related expenses and taxes other than income tax.

15. Related Party Transactions

Group

The Group has outstanding Philippine peso and US dollar-denominated short-term investments as well as current and savings deposits, which bear interest based on prevailing market rates, with Allied Banking Corporation (ABC), an affiliate. Total deposits and cash equivalents amounted to P=91.1 million and P=72.2 million as of December 31, 2006 and 2005, respectively.

In addition, the Company leases from ABC the office space it currently occupies. The lease agreement is for a period of two years with an annual rental rate that is subject to review every year. Total rent expense amounted to P=1.7 million, P=1.5 million and P=0.8 million in 2006, 2005 and 2004, respectively.

The Group has a trust fund for its retirement plan with ABC. As of December 31, 2006 and 2005, the fund assets amounted to P=0.8 million and P=0.3 million, respectively.

MAPDC

MAPDC has a contract with LTP covering the sub-lease of a parcel of land located within NAIA. The contract, which commenced on September 1, 2000, shall be for a period of 25 years and renewable for another 25 years thereafter, subject to mutual agreement of the parties. The rental charge, which is at normal market rate, shall be subject to a fixed price escalation and guaranty. Monthly fee due from LTP is equivalent to MAPDC’s cost of leasing the land from MIAA, plus administrative fees (see Note 27). MAPDC received refundable rental deposit from LTP amounting to P=24.6 million (included as part of rental deposit account in the consolidated balance sheets).

Rental deposits received from LTP amounting to P=24.6 million was valued and reported at its present value of P=1.7 million and P=1.0 million as of December 31, 2006 and 2005, respectively. The difference between the face amount and present value of the deposits at inception date amounting to P=19.1 million was treated as unearned rent income and is being amortized on a straight-line basis over the term of the lease. The related amortization amounted to P=1.0 million in 2006 and 2005.

Further, as a result of the straight-line recognition of operating lease income, accrued rental receivable amounted to P=87.0 million and P=79.0 million as of December 31, 2006 and 2005, respectively.

MASCORP

MASCORP provides ground handling services to Air Philippines, Inc. (Air Phil.), an affiliate. Fees for these services amounted to P=36.4 million, P=31.0 million and P=30.3 million in 2006, 2005 and 2004, respectively. The related receivables as of December 31, 2006 and 2005 amounted to P=10.2 million and P=3.0 million, respectively.

- 53 -

In December 2006, MASCORP purchased aviation equipment from PAL for P=0.3 million on credit.

In 2004, MASCORP assumed PAL’s trade payables to MECS amounting to P=3.2 million by way of offset against MASCORP’s rent payables to PAL. These were subsequently paid off in 2005.

MECS

MECS has various advances from PAL aggregating to P=6.4 million and P=3.3 million as of December 31, 2006 and 2005, respectively, relating to MECS’ operations in the passenger lounge at NAIA.

MECS provides catering services in LTP’s canteen. MECS’ revenue from catering services amounted to P=27.4 million and P=8.8 million in 2006 and 2005, respectively.

Compensation of Key Management Personnel

Benefits of the Company’s key management personnel, all short-term, amounted to P=16.3 million, P=11.8 million and P=10.2 million in 2006, 2005 and 2004, respectively.

16. Loans from and Payables to Subsidiaries’ Stockholders

Loans from and payables to subsidiaries’ stockholders consist of:

a. Accrued interest payable of MECS to the Company’s current partner in MECS, Singapore Airport Terminal Services Ltd. (SATS) and former partner, Eurest, aggregating to P=3.1 million and P=10.2 million as of December 31, 2006 and December 31, 2005, respectively. The loans were used to support the construction of MECS’ kitchen facility and its working capital requirements.

b. Noninterest-bearing loan of MASCORP from the Company’s corporate partner in MASCORP, Menzies, amounting to P=10.1 million as of December 31, 2004. In 2005, the BOD of Menzies and BOD of MASCORP resolved that said noninterest-bearing loans are in substance strategic investment in MASCORP rather than liability of MASCORP, hence, the loan was reclassified and presented as “Deposit for future stock subscription” in MASCORP’s 2005 balance sheet.

17. Direct Cost

Direct cost consists of:

2006 2005 2004

Food P=293,211,934 P=216,081,019 P=169,906,012

Lease (Note 27) 161,466,052 160,512,683 168,360,898

Salaries and wages 96,747,836 75,390,693 60,096,745

Depreciation (Note 10) 46,161,322 47,502,368 45,955,238

Overhead 41,783,750 45,613,933 41,567,263

Employee benefits (Note 20) 17,292,778 14,652,621 22,208,822

Repairs and maintenance 5,854,941 5,612,084 6,768,784

Storage and brokerage 4,790,396 2,476,541 2,117,216

- 54 -

Laundry 4,409,528 3,406,806 2,931,574

Rent 3,422,807 10,714,236 7,848,214

Others 31,589,338 26,171,902 16,698,279

P=706,730,682 P=608,134,886 P=544,459,045

18. General and Administrative Expenses

General and administrative expenses consist of:

2006 2005 2004

Salaries and wages P=55,439,569 P=48,385,605 P=43,021,359

Taxes and licenses 22,995,821 3,486,003 4,969,970

Employee benefits (Note 20) 21,668,859 20,220,569 18,516,437

Depreciation and amortization (Note 10) 17,492,707 16,233,778 18,052,250

Repairs and maintenance 10,871,768 8,559,297 5,498,937

Rent (Note 15) 9,231,972 7,712,593 6,118,191

Professional and legal fees 8,347,339 8,369,979 4,986,238

Provision for doubtful accounts 7,066,609 6,949,279 4,929,149

Utilities 6,667,097 7,624,458 6,435,190

Supplies 6,398,858 7,019,416 5,895,166

Security and janitorial 5,958,840 5,873,170 5,971,094

Technical assistance fees (Note 27) 3,621,527 3,681,756 1,410,712

Transportation and travel 1,946,715 3,747,892 1,623,241

Insurance 1,642,050 1,695,865 1,733,242

Entertainment, amusement and recreation 1,014,490 2,856,777 2,211,245

Project and development – 2,368,995 –

Others 26,831,385 13,529,416 15,638,861

P=207,195,606 P=168,314,848 P=147,011,282

19. Selling Expenses

Selling expenses consist of:

2006 2005 2004

Fees on sales (Note 27) P=8,110,853 P=8,307,044 P=5,876,051

Advertising and promotions 3,010,426 5,997,324 8,101,843

P=11,121,279 P=14,304,368 P=13,977,894

20. Retirement Benefits Costs

The Group has a funded, non-contributory defined benefit group retirement plan, administered by a trustee, covering all of their permanent employees. The following tables summarize the components of the net benefit expense recognized in the consolidated statements of income and the funded status and amounts recognized in the consolidated balance sheets:

The details of net benefits expense are as follows:

2006 2005 2004

Current service cost P=888,882 P=904,606 P=1,068,478

- 55 -

Interest cost on benefit obligation 567,389 571,120 526,256

Expected return on plan assets (33,622) (30,000) –

Net actuarial gain recognized during the year (81,243) (51,586)

–

P=1,341,406 P=1,394,140 P=1,594,734

Portions recognized in:

Direct cost P=739,327 P=754,104 P=829,694

General and administrative expenses 602,079 640,036 765,040

P=1,341,406 P=1,394,140 P=1,594,734

The details of benefit liability are as follows:

2006 2005

Defined benefit obligation P=20,979,160 P=4,013,020

Fair value of plan assets 830,875 336,213

20,148,285 3,676,807

Unrecognized net actuarial gains (losses) (12,947,773) 2,682,299

P=7,200,512 P=6,359,106

The details of benefit liability and asset by company are as follows:

Entity 2006 2005

Net benefit liability Company, MECS,

MASCORP, ASSC P=7,297,467 P=6,359,106

Net benefit asset (presented as part of

Deposits and other noncurrent assets) MAATS and

MAPDC P=96,955 P=–

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

2006 2005

Defined benefit obligation, January 1 P=4,013,020 P=4,079,436

Current service cost 888,882 904,606

Interest cost 567,389 571,120

Benefits paid – (715,231)

Actuarial loss (gain) on obligation 15,509,869 (826,911)

Defined benefit obligation, December 31 P=20,979,160 P=4,013,020

Changes in fair value of plan assets are as follows:

2006 2005

Fair value of plan assets, January 1 P=336,213 P=300,000

Expected return on plan assets 33,622 30,000

Actual contributions to the plan 500,000 –

Actuarial gain (loss) on plan assets (38,960) 6,213

Fair value of plan assets, December 31 P=830,875 P=336,213

Actual return on plan assets (P=5,338) P=36,213

- 56 -

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

2006 2005

Cash and cash equivalents 69.78 8.60

Investments in government securities 36.11 89.40

Receivables 0.43 2.00

Payables (6.32) –

100.00 100.00

The Group expects to contribute P=4.3 million in 2007.

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

The principal assumptions used in determining retirement benefits for the Group’s plan as of January 1 of each years are as follows:

2006 2005 2004

Number of employees 424 287 201

Average discount rate per annum 12% 14% 12%

Average expected annual rate of return on plan assets 10% 10% 10%

Average future annual increase in salary 5% 5% 5%

Average discount rate as of December 31, 2006 is 8.13% based on the interpolated MART1 government bond rates with terms consistent with the obligations of the plan.

Amounts for the current and previous years are as follows:

2006 2005

Defined benefit obligation P=20,979,160 P=4,013,020

Plan assets 830,875 336,213

Experience adjustment on plan liabilities 1,202,482 –

Experience adjustment on plan assets (38,960 –

21. Foreign Currency-Denominated Monetary Assets and Liabilities

The Group’s foreign currency-denominated monetary assets and liabilities as of December 31 are as follows:

2006 2005

Peso Peso

US Dollars Equivalent US Dollars Equivalent

Assets

Cash and cash equivalents 3,580,036 175,552,920 2,736,848 145,217,155

Receivables 3,897,535 191,096,159 2,208,129 117,163,325

7,477,571 366,649,079 4,944,977 262,380,480

Liabilities

Accounts payable and accrued liabilities 185,437 9,091,996 78,232 4,150,990

Net foreign currency-denominated

monetary assets 7,292,134 357,557,083 4,866,745 258,229,490

- 57 -

As of December 31, 2006 and 2005, the exchange rates of the Philippine peso to United States dollar were P=49.03 and P=53.06 to US$1, respectively. As of March 29, 2007, the exchange rate was P=48.18 to US$1.

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

Philippine Economic Zone Authority (PEZA)

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

b. On August 31, 2000, PEZA approved the application of MAPDC to register and operate a special economic zone (MacroAsia Ecozone) at Philippine Airlines Technical Center (PATC). Under the terms of its registration, MAPDC is subject to certain requirements and is entitled to certain tax benefits provided for under Republic Act No. 7916 (The Special

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

23. Income Taxes

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

2006 2005

Deferred tax assets (liability) on:

Allowances for:

Probable losses of a subsidiary P=2,580,306 P=4,383,729

Doubtful accounts of a subsidiary 329,744 697,655

Accrued retirement benefits costs of subsidiaries 1,417,085 1,133,005

Retirement plan asset of a subsidiary (9,547) –

Unrealized foreign exchange losses of subsidiaries 4,838,099 2,195,786

Unamortized past service cost 41,573 –

Lease rental:

Receivables of a subsidiary 4,351,016 3,950,679

Liabilities of a subsidiary (4,351,016) (3,950,679)

P=9,197,260 P=8,410,175

Deferred tax liability on unrealized foreign

exchange gain of the Company and a subsidiary P=– P=220,804

d. As of December 31, 2006, the Company’s and MASCORP’s MCIT that can be credited against future RCIT due is as follows:

- 58 -

Incurred in Available for Credit Until Year Ended December 31 Year Ending December 31 Amount

Company 2004 2007 P=703,3792005 2008 614,907 2006 2009 539,662

1,857,948

MASCORP 2005 2008 164,409 2006 2009 362,446

526,855

P=2,384,803

MCIT incurred in 2003 by the Company amounting to P=948,399 expired in 2006.

c. As of December 31, 2006, the following NOLCO of the Company, MASCORP and ASSC are available for deduction from future taxable income as follows:

Incurred in Available Until Year Ended December 31

Year Ending December 31

AvailableNOLCO Tax Effect

Company 2005 2008 P=13,319,850 P=4,661,9472006 2009 31,872,131 11,155,246

45,191,981 15,817,193

MASCORP 2005 2008 3,819,261 1,336,741 2006 2009 3,953,250 1,383,638

7,772,511 2,720,379

ASSC 2004 2007 3,486 1,115 2005 2008 18,535 6,487 2006 2009 27,825 9,739

49,846 17,341

P=53,014,338 P=18,554,913

NOLCO incurred in 2003 by ASSC amounting to P=59,359, with tax effect of P=17,075, also expired in 2006.

d. As of December 31, 2006, 2005 and 2004, the deductible temporary differences, MCIT and NOLCO for which no deferred tax assets were recognized in the consolidated balance sheets are as follows:

2006 2005 2004

Deductible temporary differences on:

Share in foreign currency translation adjustments of an associate P=189,476,666 P=30,860,108 P=57,836,1

Impairment in value of investment property 25,200,000 25,200,000 25,200,0

Deferred revenue 9,964,246 10,743,175 11,522,106

Allowances for probable losses on:

Doubtful accounts 1,042,766 7,585,951 6,473,510

Input VAT 4,415,608 3,879,838 3,053,944

- 59 -

Deferred mine exploration costs 1,215,922 1,215,922 1,215,922

Accrued retirement benefits payable 3,248,653 3,147,669 1,448,936

Unrealized foreign exchange losses 10,930,458 6,905,317 3,594

Preoperating expenses 658,759 423,357 101,507

NOLCO 53,014,338 17,220,491 6,077,480

Excess MCIT 2,384,803 2,431,094 2,274,669

e. The current provision for income tax in 2006 and 2005 consists of the MCIT of the Company and MASCORP, the RCIT of MECS and MAATS, the 5% final tax on MAPDC’s gross income from its PEZA-registered activities (see Note 22).

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

f. A reconciliation of the provision for income tax computed based on income before income tax at the statutory tax rates to the provision for income tax as shown in the consolidated statements of income is as follows:

2006 2005 2004

Provision for income tax computed at the

statutory tax rates P=99,496,542 P=44,527,402 P=35,354,862

Adjustments resulting from:

Equity in net income of associates (89,766,653) (38,783,487) (24,625,635)

Deductible temporary differences for which no

deferred tax assets were recognized in prior years

but were used or for which deferred tax assets

were recognized in current year (2,562,740) (272,625) (4,445,270)

Deductible temporary differences

for which no deferred tax assets

were recognized 15,164,784 10,506,614 939,396

Interest income already subjected to

final tax at lower rates (2,621,836) (1,777,933) (1,043,962)

Nondeductible loss/income exempt from tax

or subjected to final tax 2,952,894 1,820,331 1,633,164

Change in tax rate and others (3,640,830) (3,406,425) (2,673,069)

Provision for income tax P=19,022,161 P=12,613,877 P=5,139,486

g. On November 31, 2006, the President signed into law Republic Act (RA) No. 9361 which amends Section 110 (B) of the Tax Code. This law, which became effective on December 13, 2006, provides that if the input tax, inclusive of the input tax carried over from the previous quarter, exceeds the output tax, the excess input tax shall be carried over to the succeeding quarter or quarters. The Department of Finance, through the BIR, issued Revenue Regulations (RR) No. 2-2007 to implement provisions of the said law. Based on the regulation, the amendment shall apply to the quarterly VAT returns to be filed after the effectivity of RA No. 9361 except VAT returns covering taxable quarters ending earlier than December 2006.

h. On May 24, 2005, the new Expanded-Value Added Tax (E-VAT) law was signed as RA No. 9337 or the E-VAT Act of 2005. The E-VAT law took effect on November 1, 2005 following the approval on October 19, 2005 of RR 16-2005 which provides for the implementation of the rules of the new E-VAT law. Among the relevant provisions of the new E-VAT law are:

- 60 -

i. change in corporate income tax rate from 32% to 35% for the next three years effective on November 1, 2005, and 30% starting on January 1, 2009 and thereafter

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

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

On January 31, 2006, the President of Philippines, upon recommendation of the Secretary of Finance, approved the 2% increase in VAT rate effective on February 1, 2006.

24. Stock Rights and Warrants

On March 22, 2000, the Board of Governors of the Philippine Stock Exchange (PSE) approved the Company’s application to list 250 million Rights Shares with 500 million Warrants attached to and detachable from the Rights Shares (the Offer) to eligible shareholders in good standing as of the record date of April 12, 2000. The Philippine SEC issued on July 19, 2000 a Certificate of Permit to Offer Securities for Sale to the Company. The Rights Shares were offered at a price of P=2.0 each, payable in full on the basis of one Rights Share for every four common shares held as of the record date. No fractional shares were issued. The Warrants were issued at a price of P=0.1 each, payable in full on the basis of two Warrants attached to and detachable from each Rights Share. Subscription to the Warrants was optional. However, eligible shareholders subscribed to the Warrants upon subscription to the Rights Shares.

Each Warrant entitles the holder thereof to the right to subscribe to one New Common Share with a par value of P=1.0 in the capital of the Company at an exercise price of P=6.0. Initially, the Warrants were exercisable within 10 trading days immediately before the end of the three-year period from the listing date. Furthermore, each Warrant granted the right to additional Warrants or adjustment to the terms of the Warrants upon the occurrence of certain events such as:a. Change in par value of each share b. Payment of stock dividends c. Merger, consolidation and/or reorganization d. Disposition of a substantial portion of the Company’s assets to stockholders for cash e. Offer of new shares at a price lower than the exercise price

In view of the Philippine SEC’s approval of the Offer, the Company filed an application for increase in authorized capital stock from P=1.0 billion, divided into 1 billion shares, to P=2.0 billion, divided into 2 billion shares, all with par value of P=1.0 per share, as approved by the stockholders on July 18, 1997. The application was approved by the Philippine SEC on June 2, 2000.

The Rights Shares represented 20% of the Company’s total number of shares outstanding of 1.25 billion immediately after the Offer. Subsequently, upon full exercise of the Warrants, the outstanding shares of the Company will increase to 1.75 billion. The Rights Shares and the underlying Shares of the Warrants will be eligible for payment of dividends in accordance with the Company’s dividend policy, which depends upon the Company’s earnings, cash flows and financial condition, among other factors.

As of December 31, 2000, the Rights Shares and the Warrants have been fully subscribed and paid-up. The additional paid-in capital of P=231.4 million (net of stock issuance costs of P=18.6 million) resulting from the issuance of 250 million shares subscribed at P=2.0 per share and

- 61 -

the outstanding warrants amounting to P=50.0 million are presented in the equity section of the consolidated balance sheets.

On June 4, 2002, the Board of Directors extended the exercise period of the Warrants from the 10 trading day period immediately preceding the end of three years from the listing date of the Warrants to the 10 trading day period immediately preceding the end of five years from the listing date of the Warrants. The extension was approved by the Philippine SEC and the PSE on July 12, 2002 and August 28, 2002, respectively.

In 2005, the extension of the exercise period of the warrants has expired. The P=50.0 million warrants were accordingly reclassified to additional paid-in capital in the equity section of the consolidated balance sheets.

25. Basic/Diluted Earnings Per Share

Basic/diluted earnings per share are computed as follows:

2006

2005(Restated,

Note 2)

2004(Restated,

Note 2)

Net income attributable to equity holders of the parent P=256,848,399 P=119,059,116 P=99,593,368

Divided by weighted average number of

common shares outstanding 1,250,000,000 1,250,000,000 1,250,000,000

P=0.2055 P=0.0952 P=0.0797

26. Retained Earnings and Dividends

The undistributed earnings of subsidiaries and associates amounting to P=445.8 million and P=313.3 million as of December 31, 2006 and 2005, which are included as part of retained earnings, are not available for declaration as dividends until declared by such subsidiaries and associates.

On July 15, 2005, the Company declared cash dividends of P=25.0 million (or P=0.02 per share) to stockholders of record as of July 29, 2005. The cash dividends were fully paid on August 24, 2005.

On July 21, 2006, the Company declared cash dividends of P=37.5 million (or P=0.03 per share) to stockholders of record as of August 7, 2006. The cash dividends unpaid balance amounted P=0.2 million as of December 31, 2006.

27. Significant Agreements and Commitments

a. Concession Agreement

i. MECS has a concession agreement with Manila International Airport Authority (MIAA) to exclusively operate an in-flight catering service for civil and/or military aircraft operating at NAIA and/or MDA. The concession agreement is for a period of five years from the start of operations of the catering services, renewable every year thereafter upon

- 62 -

mutual agreement of the parties. In consideration of the concession privilege, MECS pays MIAA a monthly concession privilege fee equivalent to 7% of MECS’s monthly gross income on catering services. MECS also assigned its Treasury Note placement amounting to P=5.0 million, included under “Deposits and other noncurrent assets” account, to MIAA in compliance with the concession agreement.

The concession agreement expired on August 2003. Starting October 13, 2003, the concession contract commenced on a month-to-month basis.

Total fees paid in relation to this concession agreement amounted to P=53.2 million, P=42.1 million and P=32.7 million in 2006, 2005 and 2004, respectively.

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

Total related payments made by MASCORP amounted to P=5.1 million, P=5.2 million and P=5.6 million in 2006, 2005 and 2004, respectively.

b. License and Technical Assistance Agreement

In 1996, MECS entered into a license and technical assistance agreement with Eurest whereby Eurest shall grant to the Company the following:

i. The license to exclusively use the System for the purpose of establishing and operating an in-flight or airline catering business at NAIA, the MDA, and the general aviation areas

ii. The benefits and advantages of the System by rendering to the Company technical assistance in establishing and operating its business

In consideration of the foregoing, MECS pays Eurest, subject to certain conditions as specified in the agreement, the following:

i. Fee based on a certain percentage of sales

ii. TAF at a fixed rate based on earnings before depreciation, interest and taxes

The agreement is for 10 years from date of execution up to 2007. It shall be renewed automatically for another 10 years unless terminated by either party. Total FOS for Eurest amounted to P=1.3 million, P=5.5 million and P=4.0 million in 2006, 2005 and 2004, respectively. TAF amounted to P=0.4 million, P=1.8 million and P=1.2 million in 2006, 2005 and 2004, respectively.

The license and technical assistance agreement with Eurest expired on June 28, 2006 in line with the divestment of Eurest from the Company (see Note 2).

c. Marketing and Commercial Assistance Agreement

In 1998, MECS entered into an agreement with SATS whereby SATS shall provide marketing and commercial services to the Company. In consideration of the foregoing, the Company pays SATS, subject to certain conditions as specified in the agreement, the following fees:

- 63 -

i. Fee based on a certain percentage of sales

ii. Marketing and commercial assistance fee at a fixed rate based on earnings before depreciation, interest and taxes

This agreement shall continue in force for as long as the Company, Eurest and SATS remain as shareholders of MECS unless terminated by one party. Total FOS for SATS amounted to P=2.5 million, P=2.8 million and P=1.8 million in 2006, 2005 and 2004, respectively. Marketing and commercial assistance fees amounted to P=1.7 million, P=1.8 million and P=1.2 million in 2006, 2005 and 2004, respectively.

Despite the divestment of Eurest (see Note 2), the marketing and commercial assistance agreement was continued and held in force as agreed between the Company and SATS.

d. Lease Agreements

i. In 1996, the Company assigned all its rights and obligations to MECS under the lease agreement it entered in the same year with MIAA for the use of a parcel of land where the catering concession facilities are located. The lease contract is for a period of 10 years from the start of the construction of the facilities, renewable every five years under such terms and conditions as may be agreed upon by both parties. Minimum annual rental payment amounts to P=8.5 million. Upon expiration of the lease agreement, both parties mutually agreed to continue the lease on a renewable short-term basis using the terms in effect during the last year that the original lease agreement was in force.

Lease expense relating to this lease agreement amounted to P=8.2 million both in 2006 and 2005 and P=6.5 million in 2004.

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

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

2. MAPDC and/or its sub-lessee intends to invest US$200 million over the next five years into the PATC at NAIA by introducing additional capabilities and enhancing the competitiveness of PATC in terms of productivity, quality, turnover time and customer orientation.

3. The monthly rental fee shall be P=53.34 per square meter or a total of P=12.1 million, with guaranty deposit of two months advance rental. The rental and other charges shall be subject to a fixed price escalation of 5% starting on the sixth year and by another 5% on years 11, 16 and 21. The escalation shall be on a compounded basis.

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

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

- 64 -

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

Future minimum rentals payable as of December 31, 2006 under MAPDC’s operating lease agreement with MIAA are as follows:

Amount

Within one year P=152,505,941

After one year but not more than five years 620,190,826

After more than five years 2,310,560,320

The rental deposit made to MIAA amounting to P=24.6 million is reported at amortized cost in the consolidated balance sheets. The difference between the face amount of the refundable deposit and its present value at the inception of the lease, amounting to P=19.1 million, was treated as a deferred rent expense and is being amortized over the lease term.

Further, as a result of the straight-line recognition of operating lease expense, accrued rental payable amounted to P=87.0 million and P=79.0 million as of December 31, 2006 and 2005, respectively.

iii. MASCORP has a lease agreement with MIAA for the lease of office space and staging area in the following locations:

1. Terminal 1 for a period of one year, with a monthly rental of P=0.2 million and renewable at the sole option of MIAA.

2. Terminal 2 for a period of two years from May 16, 2006 up to May 15, 2008, with a monthly rental of P=0.1 million. Of this monthly rental, P=37,798 pertains to the additional space occupied by MASCORP effective October 1, 2006. As of March 29, 2007, Lease Contract for Terminal 2 is still in-process.

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

28. Financial Risk Management Objectives and Policies

The Group’s principal financial instruments comprise of its note payable, receivables, and accounts payable and accrued liabilities. These were obtained and/or incurred primarily to raise funds for the Group’s operations. The Group has other financial assets and liabilities such as cash and cash equivalents which arise directly from operations.

It is, and has been throughout the year under review, the Group’s policy that no trading in financial instruments shall be undertaken.

- 65 -

The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk and credit risk. The BOD reviews and approves policies for managing these risks and they are summarized as follows:

Interest rate risk

The Group’s exposure to the risk for changes in market interest rates relates primarily to the Group’s notes payable and long-term debt obligations with floating interest rates. The Group has a practice of keeping its interest-bearing liabilities to third parties within a threshold that can be serviced through operating cash flows. Management closely monitors the behavior of interest rates to ensure that cash flow interest rate risk is kept within management’s tolerable level. Finally, interest-bearing liabilities are ordinarily incurred on a short-term basis only.

Liquidity risk

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of operating cash flows, advances from related parties and short-term bank loans.

Foreign currency risk

The Group’s transactional currency exposure arises from sales in currencies other than its functional currency and retaining its cash substantially in currency other than its functional currency. Approximately 95% of the MECS’ sales are denominated in currencies other than its functional currency. MECS does not enter into forward contracts to mitigate this risk as all the receivables are current.

Credit risk

The Group trades only with related parties and duly evaluated and approved creditworthy third parties. It is the Group’s policy that all customers that wish to trade on credit terms are subjected to credit verification procedures. In addition, receivable balances are monitored on a continuous basis with the result that the Group’s exposure to bad debts is not significant.

With respect to credit risk arising from other financial assets of the Group, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying values of these instruments. The Group only deals with financial institutions that have been approved by the BOD of the Company and that of its subsidiaries.

29. Financial Instruments

Fair ValuesThe following is a comparison by category of carrying amounts and fair values of the Group’s financial instruments that are reflected in the consolidated financial statements as of December 31:

2006 2005

Carrying

amount Fair value

Carrying

amount Fair val

Financial assets

Cash and cash equivalents P=219,760,093 P=219,760,093 P=200,963,727 P=200,963,7Receivables 229,090,074 229,090,074 161,217,328 161,217,3

P=448,850,167 P=448,850,167 P=362,181,055 P=362,181,0

Financial liabilities

Note payable P=14,000,000 P=14,000,000 P=27,500,000 P=27,500,0

Accounts payable and

- 66 -

accrued liabilities 147,642,759 147,642,759 120,945,290 120,945,2

Dividends payable 7,434,520 7,434,520 7,137,132 7,137,1

Rental deposit 1,707,662 1,707,662 1,034,395 1,034,3

Loans from and payables

to subsidiaries’

stockholders 3,145,566 3,145,566 19,732,606 19,732,6

P=173,930,507 P=173,930,507 P=176,349,423 P=176,349,4

The carrying amounts of the Group’s financial assets and financial liabilities shown in the above table approximate their fair values because of their short-term nature. In the case of refundable deposits (included as part of deposits and other non-current assets account in the consolidated balance sheets), its fair value is not significantly different from its carrying amount of P=1.7 million and P=1.5 million as of December 31, 2006 and 2005, respectively.

Interest Rate RiskThe following table sets out the carrying amounts, by maturity, of the Group’s note payable that is exposed to interest rate risk: December 31, 2006

Rate

Within

1 year 1-2 years 2-3 years 3-4 years 4-5 years Total

Note payable Variable

*

P=14,000,000 P=– P=– P=– P=– P=14,000,000

* See Note 13 for interest rate.

December 31, 2005

Rate

Within

1 year 1-2 years 2-3 years 3-4 years 4-5 years Total

Note payable Variable

*

P=27,500,000 P=– P=– P=– P=– P=27,500,000

* See Note 13 for interest rate.

30. Status of Mining Cases and Event After the Balance Sheet Date

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

On November 26, 2004, the Mines Adjudication Board (MAB) of DENR issued a resolution in favor of the Company, declaring the seven lease contracts of the Company as subsisting prior to their expirations without prejudice to any decision or order that the Secretary may render on the same. No preferential right over the same mining lease claims is accorded to Blue Ridge or Celestial without prejudice to the determination by the Secretary over the matter at the proper time.

Blue Ridge filed a Motion for Reconsideration with the DENR, while Celestial filed an appeal before the Court of Appeals (CA).

On April 25, 2005, the Company received a copy of the decision of the CA affirming the November 26, 2004 decision of MAB. A Motion for Reconsideration was filed by Celestial

- 67 -

but the same was denied by the CA. Celestial filed for a Petition for Review on Certiorari before the Supreme Court (SC).

On September 19, 2005, Blue Ridge filed a Petition for Review before the CA. On February 20, 2006, Celestial filed a Motion for Issuance of Temporary Restraining Order (TRO)/Preliminary Prohibitory Injunction/Mandatory Injunction before the SC.

On March 28, 2006, the Company received the Mineral Production Sharing Agreement (MPSA) from the MGB of the DENR. The MPSA covers 1,114 hectares of land situated in Brooke’s Point, Palawan. With the MPSA, the Company shall have the exclusive right to conduct mining operations within, but not title over, the contracted area. Mining operations that are allowed include exploration, development and utilization for commercial purposes of nickel, chromite, iron and other associated mineral deposits that may be found in the area.

The MPSA runs for a term not exceeding 25 years from the date of the grant of the MPSA, and is renewable for another term not exceeding 25 years under the same terms and conditions, without prejudice to changes that will be mutually agreed upon by the Government and the Company.

On April 6, 2006, the Company received a copy of the order of the SC denying Celestial’s Motion for Issuance of TRO for lack of merit and Celestial filed a Motion for Reconsideration on April 20, 2006.

On May 18, 2006, the Petition for Review filed by Blue Ridge before the CA was granted. The CA decision reversed and set aside the previous rulings of the MAB, cancelled the claims of the Company and gave Blue Ridge the preferential right over the mining areas.

On June 6, 2006, the Company filed its Motion for Reconsideration on the decision of the CA in favor of Blue Ridge. Celestial likewise filed its Motion for Reconsideration on the same decision dated June 2, 2006.

On June 27, 2006, Blue Ridge filed a Petition for TRO with the SC to enjoin the Company and the MAB from enforcing and implementing the subject MPSA. On July 5, 2006, the Second Division of the SC docketed the Blue Ridge petition and ordered the consolidation of the case with that of the Celestial case with the first Division and Blue Ridge filed a manifestation with the Motion to Consolidate Celestial’s Petition for Review on July 31, 2006.

On August 16, 2006, the Third Division of the SC issued a Resolution 1) requiring the Company and the MAB, including Celestial, to comment on the petition filed by Blue Ridge, 2) noting without action Blue Ridge’s Manifestation with Motion to Cosolidate and Petition for TRO, and 3) denying with finality, Celestial’s Motion for Reconsideration on the denial of its Petition for TRO. The Company is preparing to elevate the decision of the Special Tenth Division of the CA to SC.

b. During the first quarter of 2007, the Company has agreed to allow nickel mining companies Jinchuan Group Ltd. and JCP Geo-Ex Services to explore its nickel laterite property in Brooke’s Point, Palawan by signing a service agreement with the two companies to allow them to further explore the mine site.

- 68 -


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

Attributable to Equity Holders of the Parent

Share in Foreign

C urrency

Additional Translation

Paid-In Warrants Adjustments of Retained

Capital Stock Capital Outstanding an Associate Earnings Minority

(Note 24) (Note 24) (Note 24) (Note 9) (Note 26) Total Interests Total

BALANCES AT DECEMBER 31, 2003,

AS PREVIOUSLY REPORTED P=1,250,000,000 P=231,437,118 P=50,000,000 (P=50,720,579) P=277,850,963 P=1,758,567,502 P=42,377,256 P=1,800,944,758

Adjustment relating to acquisition of

minority interest (Note 2) – – – – (481,765) (481,765) 481,765 –


AS RESTATED 1,250,000,000 231,437,118 50,000,000 (50,720,579) 277,369,198 1,758,085,737 42,859,021 1,800,944,758

Net foreign currency translation adjustments

for the year recognized directly in equity

(Note 9) – – – (7,115,533) – (7,115,533) – (7,115,533)

Net income for the year – – – – 99,593,368 99,593,368 5,751,090 105,344,458

Total income and expense for the year – – – (7,115,533) 99,593,368 92,477,835 5,751,090 98,228,925

BALANCES AT DECEMBER 31, 2004 P=1,250,000,000 P=231,437,118 P=50,000,000 (P=57,836,112) P=376,962,566 P=1,850,563,572 P=48,610,111 P=1,899,173,683


AS PREVIOUSLY REPORTED P=1,250,000,000 P=231,437,118 P=50,000,000 (P=57,836,112) P=377,444,345 P=1,851,045,351 P=48,128,332 P=1,899,173,683




AS RESTATED 1,250,000,000 231,437,118 50,000,000 (57,836,112) 376,962,566 1,850,563,572 48,610,111 1,899,173,683



(Note 9) – – – 26,976,004 – 26,976,004 – 26,976,004


Total income and expense for the year – – – 26,976,004 119,053,116 146,029,120 5,340,399 151,369,519

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

Advances of minority stockholder to a

subsidiary converted to equity – – – – – – 9,235,180 9,235,180

Cash dividends at P=0.02 per share (Note 26) – – – – (25,000,000) (25,000,000) – (25,000,000)

BALANCES AT DECEMBER 31, 2005 P=1,250,000,000 P=281,437,118 P=– (P=30,860,108) P=471,015,682 P=1,971,592,692 P=63,185,690 P=2,034,778,382

(Forward)

- 69 -

Attributable to Equity Holders of the Parent

Share in Foreign

C urrency

Additional Translation

Paid-In Warrants Adjustments of Retained

Capital Stock Capital Outstanding an Associate Earnings Minority

(Note 24) (Note 24) (Note 24) (Note 9) (Note 26) Total Interests Total


AS PREVIOUSLY REPORTED P=1,250,000,000 P=281,437,118 P=– (P=30,860,108) P=471,503,867 P=1,972,080,877 P=62,697,505 P=2,034,778,382




AS RESTATED 1,250,000,000 231,437,118

–

(30,860,108) 471,015,682 1,971,592,692 63,185,690 2,034,778,382



(Note 9) – – – (158,616,558) – (158,616,558) – (158,616,558)


Total income and expense for the year – – – (158,616,558) 256,848,399 98,231,841 8,405,274 106,637,115

Acquisition of minority interest (Note 2) – – – – – – (18,868,763) (18,868,763)

Cash dividends at P=0.03 per share (Note 26) – – – – (37,500,000) (37,500,000) – (37,500,000)

BALANCES AT DECEMBER 31, 2006 P=1,250,000,000 P=281,437,118 P=– (P=189,476,666) P=690,364,081 P=2,032,324,533 P=52,722,201 P=2,085,046,734


ii. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There was neither a change in nor disagreements with accountants during the last three fiscal years or any subsequent interim period.

iii. Management’s Discussion and Analysis (MD&A) or Plan of Operation

Overview

In 2006, MacroAsia Corporation (MAC) carried on its operations through its four (4)

subsidiaries and three (3) associated companies.

MAC operates an in-flight kitchen at the Ninoy Aquino International Airport (NAIA) through MacroAsia Catering Services, Inc. (80%-owned) and another similar kitchen at the Mactan-Cebu International Airport (MCIA) through Cebu Pacific Catering Services, Inc. (40%-owned). These two (2) kitchens service the in-flight catering needs of most international airlines flying out of Manila and Cebu. MAC’s aircraft ground-handling operations at NAIA are carried out by its 100%-owned subsidiary, MacroAsia-Menzies Airport Services Corporation. Lufthansa Technik Philippines (LTP) which is a joint venture with Lufthansa Technik AG Germany, provides world-class aircraft maintenance, repair and overhaul (MRO) services at both NAIA and MCIA.

MAC also operates an economic zone at NAIA through its 100%-owned subsidiary, MacroAsia Properties Development Corporation (MAPDC), the registered developer/operator of the economic zone. Through another 100%-owned subsidiary, MacroAsia Air Taxi Services, Inc. (MAATS), MAC provides aircraft charter services from its base at the Manila Domestic Airport.

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

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

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

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

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

70

2006 Compared with 2005

The MacroAsia Group of Companies continued to grow bigger, as the current reporting year’s net income after tax rose to P265 million, an 114% surge over last year’s P124 million. The significant increase is attributable mainly to the higher revenues from in-flight catering services and higher equity share in the net income of associated companies. Despite the stiff competition, revenue from catering services went up by P141 million (or 26%) year on year due principally to more airline clients and higher number of flights serviced, and therefore, higher number of meals uplifted. The Company’s share in net income of its associates grew by P137 million (or 115%) year on year significantly because of the increase in the revenues of LTP, particularly from aircraft overhaul services to airline customers.

Revenue from rental and administrative fees remained at the same level because lease rental is being accounted for on a straight-line basis over the lease term, in compliance with Philippine Accounting Standards (PAS) 17. Ground handling revenues was slightly up by P10 million (or 14%) due to increase in the number of (non-routine) flights serviced. Charter flight revenues also had a significant jump of P6 million (or 94%) from last year’s P6.8 million due mainly to increase in the number of charter flights serviced. Thus, the Group achieved a 20% (or P159 million) increase in consolidated revenues for the full year 2006 over last year’s P809 million.

The Company was able to manage direct costs, selling, general & administrative expenses quite well, thus, direct cost and expenses in relation to revenues were down by 2% and 1%, respectively. Year-on-year though, direct costs of P707 million increased by P99 million (or 16%) due mainly to the continuous rise in energy and fuel prices, increases in raw materials costs, direct labor and subcontract costs. Selling and general & administrative expenses of P218 million was also up by P36 million (or 20%) due principally to higher salaries and wages, repairs & maintenance of kitchen equipment, provision for doubtful accounts, professional and legal fees, and expenses incurred for new and prospective businesses.

The Company incurred a net foreign exchange loss of P25 million as compared to a net foreign exchange loss of P13 million in 2005 as a result of lower peso exchange rate against the US dollar (i.e., collection of dollar denominated receivables was settled at a lower peso conversion rate compared to the booking rate previously used). From P1.2 million last year, interest expense was up by P1.4 million (or 122%) due to higher loan balances and higher interest rates during the year. Interest income of P7 million, however, was higher by P1.5 million (or 29%) year-on-year, due to higher cash balances and higher prevailing interest rates during the year. Other income fell by P2.8 million (or 34%) from last year’s P8 million mainly because there was no one-time downward adjustment of equipment rental this year unlike the year before.

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

Provision for income tax of P19 million was up by P6.4 million (or 51%) year-on-year due primarily to higher taxable net income of the operating subsidiaries.

71

The Group’s thrust on expanding its revenue portfolio and implementing effective cost saving strategies resulted to a 116% (or P138 million) increase in total consolidated net income attributable to equity holders of the parent, from previous year’s P119 million to P257 million in 2006.

As of December 31, 2006, total consolidated assets was higher by P55 million (or 2.4%) compared to its level as of 2005 yearend due principally to the increases in cash and cash equivalents, trade receivables, inventories and other current assets.

Cash and cash equivalents of P219.8 million grew by P18.8 million (or 9%) due principally to cash dividends received from associated companies, namely, CPCS and LTP, and the increase in meal volumes from the catering business.

Receivables (net) and inventories were significantly higher by P68 million (or 42%) and by P7.9 million (or 33%), respectively, principally because of additional airline clients serviced, increases in meal uplifts and the corresponding increase in raw materials requirements of the Company’s catering business.

Other current assets consists of unused input taxes, creditable withholding taxes, office supplies and prepaid insurance covers for the building, equipment and the staff. From P82.5 million, total other current assets went up by P2.8 million (or 3%) due mainly to additional tax credit certificates and input taxes accumulated during the year.

The Company had a better current ratio of 3.26:1 as of December 31, 2006 compared to 2.66:1 as of December 31, 2005.

Investments in associates of P1.24 billion as of the end of last year decreased by P39 million to P1.20 billion, or a 3% decrease over 2005’s yearend balance, due primarily to the net effect of the Company’s incremental equity share in the net income/loss of associated companies and cash dividends received from LTP and CPCS during the current reporting year.

Property and equipment of P300 million was lower by P37 million (or 11%) mainly due to depreciation. On the other hand, accrued rental receivable and payable of P87 million was up by P8 million (or 10%) due primarily to additional accrual of rental income and expense in compliance with PAS 17, which requires the recognition of rentals on a straight-line basis (average) over the lease term. Goodwill of P17.5 million arose from the Company’s acquisition of the 13% minority interest of Compass (formerly Eurest International B. V.) in MECS. Deferred tax assets also increased by P0.8 million (or 9%) mainly because of higher future deductible items and unrealized foreign exchange losses. Deposits and other noncurrent assets increased by P10 million (or 23%) due to the increase in input taxes generated during the year.

Notes payable obtained by one of the operating subsidiaries had gone down from last year’s balance P27.5 million to P14 million as partial settlements were made during 2006.

72

Accounts payable and accrued liabilities went up by P27 million (or 22%) because of the increased volume of business handled during the year. Income tax liability also went up by P0.4 million (or 49%) over last year’s as a result of the higher taxable income of the Group. Accrued rental payable and unearned rent income are contra-accounts for accrued rental receivable and deferred rent assets, resulting from compliance with PAS 17. Total loans from and payables to subsidiaries’ stockholders registered a considerable decline of P16.6 million (or 84%) due to sustained and more aggressive account settlements by the operating subsidiaries. Accrued retirement benefits costs of P7.3 million was higher by P0.9 million (or 15%) due to incremental accruals of benefit expense for the year, based on the results of recent actuarial valuation. No deferred tax liability was recognized in 2006 because there were no unrealized foreign exchange gains during the year (as the peso continued to be stronger against the US dollar).

The Company’s P50 million warrants were not exercised by the shareholders and had already expired last July 21, 2005. Thus, the total amount was reclassified to additional paid-in capital resulting to a new balance of P281 million as of the end of 2005.

The Company’s share in cumulative translation adjustment of an associate (LTP) amounting to P189 million was greater by P159 million (or 513%) due to higher foreign currency translation adjustments of the said associate.

Minority interest represents the 20% equity share of SATS in MECS; and the 30% equity participation of Menzies Aviation Group in MASCORP. Changes in minority interest are dependent on the results of operations of the joint venture companies concerned.

Year-on-year, debt-to-equity ratio remained at 0.14:1. Book values per share as of December 31, 2006 and 2005 were P1.67 and P1.63, respectively

2005 Compared with 2004

The Company continues to grow, as 2005’s net income rose to P124.40 million, an 18% jump over last year’s P105.34 million. The significant increase is credited mainly to higher revenues from in-flight catering services and equity in net income of associated companies. Despite the stiff competition, revenue from catering services went up by P91.85 million (or 20%) due principally to higher number of flights serviced, and therefore, higher number of meals served. The Company’s share in net income of its associates grew by P42.38 million (or 55%) primarily because of the increase in the revenues of Lufthansa Technik Philippines (LTP), particularly from aircraft overhaul services to airline customers.

Revenue from rental and administrative fees was at the same level of P184.50 million because it is accounted for on a straight-line basis over the lease term, in compliance with Philippine Accounting Standards (PAS) 17. Ground handling revenues was slightly up by P0.76 million (or 1%) due to increased number of (non-routine) flights serviced. However, charter flight revenues had a significant decline of P5.59 million (or 45%) compared to last year’s P12.40 million due mainly to the decrease in the number of charter flights serviced. It should be noted though, that there was a national elections held during the previous year which resulted to a higher number of clients and revenue flights. Nevertheless, the Group still posted a 12% (or P87.02 million) increase in combined revenues for the full year 2005 over last year’s P722.36 million.

73

Except for energy and fuel, the company was able to manage all other direct costs, selling and general & administrative expenses quite well, thus, direct cost and expenses in relation to revenues were maintained at 75% and 22% level, respectively. Year-on-year though, direct costs of P608.13 million increased by P63.68 million (or 12%) due mainly to the continuous rise in energy and fuel prices, increases in raw materials costs, direct labor and subcontract costs. Selling and general & administrative expenses of P182.62 million was also up by P21.63 million (or 13%) due principally to higher salaries and wages, repairs & maintenance of kitchen equipment, provision for doubtful accounts, professional and legal fees, and expenses incurred for new and prospective businesses.

The Company incurred a net foreign exchange loss of P13.31 million as compared to a net gain of P0.66 million in year 2004 as a result of lower Peso exchange rate against the US dollar (i.e., collection of dollar denominated receivables was settled at a lower peso conversion rate compared to the booking rate previously used). From P3.79 million last year, interest expense declined by P2.64 million (or 70%) due to lower loan balances and lower interest rates. Interest income of P5.47 million, however, was higher by P1.86 million (or 52%) year-on-year, due to higher cash balance and interest rates during the year. Other income fell by P8.10 million (or 50%) mainly because there was a P14 million adjustment of rental payable last year.

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

Provision for income tax of P12.61 million increased by P7.47 million (or 145%) year-on-year due primarily to higher taxable net income of the operating subsidiaries.

The Group’s thrust on expanding its revenue portfolio and implementing effective cost saving strategies resulted to a 20% (or P19.05 million) increase in total consolidated net income attributable to equity holders of the parent, from previous year’s P99.59 million to P119.06 million in 2005.

As of December 31, 2005, total consolidated assets was higher by P136.32 million (or 6%) compared to its level as of 2004 yearend due principally to the increases in cash and cash equivalents, investments in associated companies and other current assets.

Cash and cash equivalents of P200.96 million grew by P19.35 million (or 11%) due principally to cash dividends received from associated companies, namely, CPCS and LTP, and the increase in meal volumes from the catering business.

Receivables (net) and inventories were slightly higher by P6.39 million (or 4%) and by P0.42 million (or 2%), respectively, principally because of additional airline clients serviced and the resulting increase in raw materials requirements, respectively, of the Company’s catering business, vis-à-vis the increase in meal uplift volumes.

Other current assets consists of unused input taxes, creditable withholding taxes, office supplies and prepaid insurance coverages for the building, equipment and the staff. From P64.09 million, total other current assets went up by P18.42 million (or 29%) due mainly to additional tax credit certificates and input taxes.

74

The Company had a better current ratio of 3:1 as of December 31, 2005 compared to 2.74:1 as of December 31, 2004.

Investments in associates of P1.13 billion rose by P112.21 million to P1.24 billion, or a 10% increase over 2004’s yearend balance, due significantly to the net effect of the Company’s P119.33 million incremental share in the net income of associates, receipt of cash dividends and the recent P5.51 million cash investment in SembLog-MacroAsia, a new joint venture company with Sembcorp Logistics Ltd., a company listed in the Singapore Stock Exchange.

Property and equipment of P337.51 million decreased by P33.12 million (or 9%) primarily due to depreciation. On the other hand, accrued rental receivable and payable of P79.01 million increased by P12.85 million (or 19%) due primarily to additional accrual of rental income and expense in compliance with PAS 17, which requires the recognition of rentals on a straight-line basis (average) over the lease term. Deferred tax assets also increased by P1.72 million (or 26%) mainly because of higher future deductible losses and unrealized foreign exchange losses.

MacroAsia Properties Development Corporation (MAPDC), a wholly-owned subsidiary, has a refundable noninterest-bearing deposit amounting to P=24.59 million related to its lease contract with Manila International Airport Authority (MIAA), (please see Note 27 of the Notes to Consolidated Financial Statements) and, on the other hand, a refundable deposit payable of the same amount related to its sublease contract with LTP.

Upon adoption of PAS 39 on January 1, 2005, MAPDC revalued and reported the deposits at their present value of P=1.03 million, as such, deposits and other noncurrent assets decreased by P21 million (or 33%). Consequently, rental deposit (refundable to LTP) also decreased by P23.55 million (or 96%). As of December 31, 2005, the related unearned rent income and deferred rent expense amounted to P19.07 million. The 2004 balances were not restated because the Group availed of the exemption under Philippine Financial Reporting Standards (PFRS) 1 and charged the effect of adopting PAS 32 and PAS 39, the standards on financial instruments, to retained earnings as of January 1, 2005.

Notes payable of P45 million was obtained by one of the operating subsidiaries during the month of May to partially settle its outstanding loans/advances from its shareholders. With a committed monthly amortization of P2.5 million, year-end balance stood at P27.50 million.

Accounts payable and accrued liabilities, as well as total loans from and payables to subsidiaries’ stockholders had a considerable decline of P25.33 million (or 17%) and P10.07 million (or 34%), respectively, due to the sustained account settlements by the operating subsidiaries. Income tax payable also dropped by P0.34 million (or 28%) due to the application of available creditable withholding taxes.

Accrued retirement benefits costs of P6.36 million was higher by P0.68 million (or 12%) due to incremental accruals of expense for the year, based on the results of the actuarial valuation. Deferred tax liability was lower by P0.084 million (or 27%) due to lower unrealized foreign exchange gain.

75

The Company’s P50 million warrants were not exercised by the shareholders and had already expired last July 21, 2005. Thus, the total amount was reclassified to additional paid-in capital resulting to a new balance of P281 million as of the end of 2005.

The Company’s share in cumulative translation adjustment of joint venture LTP amounting to P30.86 million was lesser by P26.98 million (or 47%) due to lower foreign currency translation adjustments of the said joint venture.

Minority interest represents the 20% equity share of Singapore Airport Terminal Services and the 13% equity share of Eurest International B.V. in Macroasia-Eurest Catering Services, Inc.; and the 30% equity participation of Menzies Aviation Group in MacroAsia-Menzies Airport Services Corporation. Changes in Minority Interest are a factor of the results of operations of the joint - venture companies concerned.

Year-on-year, debt-to-equity ratio remained at 0.14:1. Book values per share as of December 31, 2005 and 2004 were P1.63 and P1.52, respectively.

2006 Compared with 2007 Projection

With the current growth trend in the country’s economy together with the aggressive promotion of Philippine tourism, the Group projects a 19% increase in total revenues in 2007 compared to the level in year 2006, which would come mainly from the airline catering business, as well as from the ground handling sector. The Group anticipates increases in in-flight meal uplifts from existing and new airline clients, and expects to secure additional ground handling airline clients in 2007. The Company will continue to push for a more effective cost control system to further maximize profits without sacrificing the quality of the products and services the Company provides. A lower direct cost ratio of 16% (in relation to total operating revenues) is projected to be achieved in 2007.

Key Performance Indicators (KPI)

COMPANY RETURN ON NET

SALES

RETURN ON

INVESTMENT

RETURN ON EQUITY COST RATIO EXPENSE RATIO

2006 2005 2006 2005 2006 2005 2006 2005 2006 2005

CONSOLIDATED 27% 15% 13% 6% 13% 6% 73% 75% 23% 22%

MECS 6% 4% 21% 5% 23% 17% 66% 66% 21% 22%

MAPDC 2% 3% 4% 3% 4% 4% 94% 94% 2% 2%

MASCORP -6% -9% -9% -11% -9% -11% 93% 92% 15% 16%

MAATS 22% 2% 16% 1% 16% 1% 48% 79% 24% 21%

76

1. Return on Net Sales (RNS)

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

The Company significantly goes beyond its targeted RNS for 2006 due to higher revenues and share in net income of associates, as evidence by its 12% increase against last year.

2. Return on Investment (ROI)

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

The Group was also able to attain its projected ROI for 2006, and was 7% higher than 2005 due primarily to higher earnings.

3. Return on Equity (ROE)

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

Like ROI, Actual 2006 ROE was higher by 7% compared to 2005 due mainly to higher earnings.

4. Cost and Expense Ratio

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

Cost ratio for 2006 is lower by 2% compared to 2005 due to higher earnings and controlled direct costs. Expense ratio on the other hand increased by 1% due to higher general and administrative expenses compared with 2005

77

Plans and Prospects

With the recent favorable decision of the Mines Adjudication Board of the Dept. of Environment and Natural Resources regarding its mining cases and its receipt of its MPSA in 2006, the Company is reviving its nickel mining project in Palawan. While exploration activities are currently on-going, MAC is now in the process of looking for interested global players in the nickel mining industry for a possible business development venture.

MAC, its subsidiaries and affiliates will continue to build on their existing core businesses and pursue new viable opportunities. On-going aggressive marketing efforts for existing business and cost-cutting programs will be sustained for the next twelve (12) months to improve both consolidated revenues and net earnings. MAC shall always look for potential global partners for the development of other aviation-related businesses and support services, such as the development of an aviation fuel tank farm and cargo handling/warehousing facilities among others.

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

MAC or any of its subsidiaries and affiliates does not expect to buy or sell any significant assets (plant or equipment).

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

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

iv.Description of The General Nature and Scope of Business

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

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

78

Geographical market split, (i.e., North America, Southeast Asia) is not applicable to the MAC Group of Companies since it does not have any revenues/ sales from services rendered outside the Philippines. However, from 2004 to 2006, an average of 66% of the total gross operating revenues reported represented revenues from foreign airlines that fly to the Philippines. Further, net income from these foreign airlines account for an average of 10% of the total net income reported for the last three years.

The Company’s financial strength relative to its competitors lies in its high liquid assets relative to its operational funding needs and adequate capital to continue and expand its existing businesses and develop or venture into new business activities.

On the other hand, perceived market strength of leading competitors is only in the ground handling sector, where the Company remains as the youngest player who is still trying to penetrate the international or foreign airline market at both NAIA and MCIA.

MAC enjoys some advantages when it comes to the other service areas due to its high quality services, very competitive pricing, advance aircraft (MRO) technology, and a carefully packaged inter-related aviation support logistics being marketed and provided by its subsidiary/affiliated companies.

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

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

CPCS is the first and presently still the only world-class airline catering company at MCIA. Managed by Cathay Pacific Catering Services, and with a work force of fifty-nine (59) employees (7 in administration and 52 in operations), as of December 31, 2006, it serves both domestic and international airlines. The bulk of its revenues though comes from export sales.

CPCS owns a two-storey kitchen facility designed to fully meet projected total airline catering demands and to easily accommodate further expansion in the future. The facility occupies an area measuring 1,800 square meters and is capable of producing over 3,000 meals a day in accordance with stringent international hygiene standards. The facility was designed and developed by Cathay Pacific Catering Services (HK).

CPCS is presently serving an average of 1,000 meals a day, using local raw materials for its menus. It procures its raw materials from the local market and does not have any major raw materials supply contracts. CPCS services the two major airlines of the Philippines (PAL and Cebu Pacific) and the bulk of foreign airlines flying to Cebu. Its foreign airline clients include Cathay Pacific, Silk Air, Qatar Airways and Mandarin Airlines (top-up service). PAL and Cathay Pacific Airways account for more than 20% of the Company’s sales and the loss of either airline will have a significant effect on the Company’s operations.

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

79

MacroAsia’s equity in the net income of its associated companies, on the average over the last three years, account for more than 17% of the Company’s total gross revenues. CPCS contributed an average of 6% out of the total MAC equity in the net income of associates.

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

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

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

MacroAsia Air Taxi Services, Inc. (MAATS) is a wholly-owned subsidiary of MAC which was incorporated in June of 1996. MAATS is a licensed non-scheduled domestic flight operator providing helicopter chartering services from its base at the General Aviation Area, Manila Domestic Airport to any point within the Philippines. MAATS is duly licensed by the Civil Aeronautics Board (CAB) and holds a current Air Carrier Operating Certificate (ACOC) (No. 4AN9800035) issued by the Air Transportation Office (ATO).MAATS is greatly dependent on the two aforementioned licenses, without which the Company cannot provide charter services to the public. Both licenses are renewed annually. Thus, the Company ensures that the helicopter receives a year-round preventive maintenance in accordance with the manufacturer’s specifications, and comply with the stringent requirements of CAB and ATO. The Company’s pilot and mechanics also continue to undergo year-round training in the U.S. to maintain a record of safety and reliability.

As of December 31, 2006, this subsidiary has 3 employees (all in operations).

MAATS started commercial operations in October 1996. It has since been leasing MAC’s Ecureuil AS350-BA 5-passenger helicopter for its chartering business. Revenues derived from chartering operations are 100% domestic, with majority of its customers being local businessmen.

MAATS' strictly adheres to the stringent safety standards and procedures set by the local regulating agencies. It ensures that its staff underwent continuous year-round training with emphasis on safety and customer service, a practice that has lifted the Company ahead of its competitors.

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

MAATS’ charter flight revenues for the last three years account for an average of less than two percent (2%) of the Company’s consolidated gross operating revenues.

80

MAATS does not have any major existing supply or sales contracts and is not dependent on any single or few customers that account for more than 20% of its business. It also provides charter services to affiliated companies but is not dependent on any one of them.

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

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

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

MAPDC has a 25-year lease covering the 23-hectare property occupied by the Ecozone with the Manila International Airport Authority (MIAA). Today, the MacroAsia Special Ecozone is the only operational special ecozone at the NAIA.

The MacroAsia Special Ecozone presently has a workforce of 6 staff (4 in operations and 2 in administration) and generates revenues which are 100% domestic.

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

For the past three years, MAPDC’s average rental income represented 23% of the Group’s consolidated gross operating revenues.

Lufthansa Technik Philippines is an associated company of MAPDC as it is 49% owned by MacroAsia Corporation.

MAPDC is subject to PEZA rules and regulations and is not aware of any other existing or probable government regulations that may have any adverse effects on its business.

MAPDC does not have any other significant agreements or patents, copyrights, licenses, franchises, concessions, or royalty agreement. The Company did not incur any research and development costs during the last three fiscal years.

81

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

In 2006, the Board of Directors of MACS decided to change name of the company from MacroAsia-Eurest Catering Services Inc. to its present name.

MACS’ in-flight kitchen facility now occupies an area measuring about 6,500 sq. m., situated on a two-hectare lot being leased from the MIAA. It has a maximum kitchen capacity of approximately 8,000 meals a day. An extra floor space of about 1,500 sq. m. had previously been added for extra warehousing and production space. MACS’ catering capacity could easily be further expanded to 10,000 meals per day without any major renovations. The kitchen was designed by the International Engineering Division of Eurest In-flight Services.

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

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

MACS is the only airline caterer in the Philippines that holds an ISO certification, aside from HACCP and HALAL certificates from independent and professional certifying organizations. MACS also strictly complies with environmental regulations. One of the government agencies which closely monitor MACS is the Environmental Management Bureau of the Laguna Lake Development Authority. This government agency monitors the production area to ensure that waste disposal regulations are fully complied with to protect the environment.

Recently, MACS has been conferred the “Gold Award for Best Caterer” by Cathay Pacific Airways, a recognition that places MACS among the world’s best, considering that Cathay Pacific was choosing from among 50 of its service providers from all over the world.

82

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

MACS' trade revenues are predominantly classified as export sales. In 2004, 2005 and 2006, this subsidiary's sales contributions to MAC’s consolidated gross operating revenues were 63%, 67%, and 69%, respectively. MACS’ airline clients include Cathay Pacific Airways, Singapore Airlines, Saudi Arabia Airlines, Emirates, China Airlines, Northwest, Qatar, KLM Royal Dutch and Qantas, Japan Airlines and Korean Air among others. MACS is also servicing the Northwest Lounge at the NAIA and operates Sampaguita Lounge, a public lounge in Terminal 1.

Today, MACS currently provides in-flight catering services to about 15 of the foreign airlines that fly to Manila, making MACS the dominant and preferred in-flight caterer of foreign airlines in NAIA. MACS serves more than 2.3 million meals per annum or an average production of about 6,300 meals a day. MACS is servicing an average of 17 international flights a day.

MACS' share in NAIA’s total foreign airlines market was about 57% in 2006 (49% in 2005). The local competitors of MACS (MIASCOR-Gate Gourmet and PAL) share about 27% of the NAIA foreign airlines market while the remaining 16% of the market are airlines that double uplift meals from their respective regional base or from other airline caterers in Hong Kong, Taiwan, Malaysia, Macau or Shanghai.

With a manpower base of 233 staff (7 managerial positions, 44 in administration, and 182 in operations) as of December 31, 2006, MACS is operating at about 70% of its present capacity and can easily accommodate more airline customers. MACS employs seasonal workers to service peak demands.

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

MacroAsia-Menzies Airport Services Corporation (MASCORP) was incorporated on September 12, 1997 to provide, manage, promote and/or service any and all ground handling requirements of military and/or commercial aircraft for passengers and cargo. MASCORP commenced its ground handling operations on April 19, 1999 at the NAIA, and has been generating both domestic and export sales. It has a work force of around 269 staff (247 are in operations, 14 in administration and 8 in managerial positions) as of December 31, 2006.

On June 15, 1999 the Company originally signed a joint venture agreement with Ogden Aviation Philippines B.V. (formerly Ogden Water Systems of Muscat B.V.). Ogden Aviation Philippines B.V. was subsequently acquired by Menzies Aviation Group in 2001, thus, MASCORP then become a joint venture between MAC (70%) and Menzies Aviation Group (30%). On April 12, 2007, by mutual agreement between the two partners, MAC bought all Menzies share making MASCORP a 100% owned subsidiary of MAC.

83

On July 2, 1999, a wholly-owned subsidiary of MASCORP, Airport Specialists' Services Corporation (ASSC), was incorporated primarily to manage and promote, service and/or provide manpower support for any and all ground handling requirements of private, military and/or commercial aircraft. ASSC commenced operations immediately after its incorporation but had ceased operations shortly thereafter. Toward the end of 2006, MAC acquired MASCORP’s 100% ownership in ASSC. The effective ownership of MAC in ASSC was thus increased from 70% to 100%. Through the restructuring, MAC effectively acquired the 30% minority interest of Menzies Aviation Group in ASSC. Consequently, ASSC became a direct subsidiary of MAC.

MASCORP’s present clients include Thai International Airways, Air Philippines, Korean Airlines, Japan Airlines, PAL and Southeast Asian Airlines. Thai Airways and Air Philippines represent more than 50% of MASCORP’s present revenues; the loss of either airline will have a significant effect on continuity of its operations.

This subsidiary contributes an average of 10% of the Group’s total operating revenues for the years ended December 31, 2006, 2005 and 2004.

There are five other active ground handling companies operating at NAIA: MIASCOR, Swissport, PAL, Philippine Airport Ground Services (PAGS), and DNATA Incorporated. Through its aggressive marketing efforts, capability to offer a total aviation product (in synergy with the catering and MRO business of MAC), and competitiveness, MASCORP is currently increasing its market share at NAIA. Among the ground handlers in Manila, MASCORP is the only service provider present in all three terminals (Terminal 1 and 2 and the Manila Domestic Terminal).

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

MASCORP’s operations is very much dependent upon its concession agreement with MIAA which grants the Company the right to operate ground handling services at the NAIA and/or the Manila Domestic Airport. MASCORP secures such right by yearly renewal of the agreement and paying the monthly CPF (7% of gross revenue) on time.

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

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

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

84

LTP is currently providing aircraft maintenance, repair and overhaul services from its facility in NAIA to PAL, Lufthansa Airlines, Singapore Airlines, Cathay Pacific Airways and other international airlines that fly to Manila. It also provides technical ground handling services to Air Niugini, China Airlines, Egypt Air, Eva Air, KLM Royal Dutch, Korean Air, Malaysia Airlines, Silk Air, Singapore Airlines and Cathay Pacific Airways.

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

LTP’s personnel went up to 2,652 as of December 31, 2006 (1,797 in production and 855 as support personnel) from last year’s level of 2,374 employees.

LTP’s net income contributes 94% to MAC’s total share in the net income of associated companies.

As an ecozone locator, LTP has a 25-year lease contract with MAPDC. It also has a long-term technical services agreement with PAL and Lufthansa Technik AG of Germany. PAL accounts for more than 80% of LTP's present business; the loss of this account will have a significant impact on LTP's operations.

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

Toll-MacroAsia Philippines, Inc. (TMP) is the newest joint venture of MAC (49%) with Sembcorp Logistics Ltd (SembLog, at 51%), Singapore’s leading supply chain provider. In 2006, Australia's biggest logistics company, Toll Holdings (Toll) acquired SembLog.

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

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

85

TMP has 8 employees (2 in managerial positions and 6 in operations. It has engaged the services of a number of suppliers like Seaquest Logistics and Airtropolis Consolidator Inc.

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

Major risks involved

The businesses of the Company are aviation-support oriented and some of the major risks that would have a significant impact on the Company’s operations are those emanating from acts of terrorism and incidents that affect the airline business as a whole. Similar past events had almost crippling effects on the aviation industry to which the Company is heavily dependent at present.

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

Transactions with and/or Dependence on Related Parties

Please see Note 15 under the Company’s Consolidated Notes to Financial Statements (p.28)

Significant Agreements and Commitments

Please see Note 27 under the Company’s Consolidated Notes to Financial Statements (p.39)

Other Information

No bankruptcy, receivership or similar proceedings have been instituted against MAC and its subsidiaries or associates. Furthermore, no material reclassification, merger, consolidation, or purchase or sale of a significant amount of assets not in the ordinary course of business has taken place.

The total number of employees of MAC, its subsidiaries and associates as of December 31, 2006 is 3,253 while in 2005 the level was about 2,800.

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

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

86

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

The average annual cost of compliance to applicable environmental laws for the last three years was below P500,000.

Properties

MacroAsia Corporation (MAC) owns an Ecureuil AS 350-BA five passenger helicopter as of December 31, 2006. It has a rental agreement with MAATS (a wholly owned subsidiary) at a monthly lease payment of P44,000 (fixed) plus P5,236/revenue flying hour, for the use of the aircraft for a period of six (6) months, renewable thereafter for periods of six (6) months at the option of the parties.

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

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

On September 01, 2000, MAPDC executed a 25-year lease agreement with the MIAA covering a 23-hectare area located at NAIA at a monthly lease payment of P56.01 per square meter. With the full support of the PEZA, MAPDC has transformed the area into an Economic Zone, and has signed a 25-year lease agreement with LTP, its anchor locator.

MacroAsia Catering Services, Inc. (MACS), by way of assignment from MAC, acquired a ten (10) year lease on a 2-hectare lot at the NAIA which is renewable every five years thereafter at the parties’ option. MACS’ license and technical assistance agreement with Eurest and its commercial marketing assistance agreement with SATS have ceased in November 2006. Thus, the Eurest mark and system will no longer be used by MACS, and SATS will no longer be obliged to market MACS’ services to foreign airlines. In those agreements, SATS and Eurest were entitled to receive from MACS technical assistance fees on sales as remuneration. These fees was no longer applicable since November 2006.

87

MacroAsia-Menzies Airport Services Corporation (MASCORP) entered a lease contract with PAL in November 1998 covering the lease of airline ground handling equipment at a monthly payment of P468,460. The lease was originally for one (1) year renewable upon mutual written agreement on a year-to-year basis. As of December 31, 2006, subject ground handling equipment had been purchased by MASCORP from PAL.

Legal Proceedings

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

On November 26, 2004, the Mines Adjudication Board (MAB) issued a resolution in favor of the Company by declaring seven (7) mining lease contracts of the latter as subsisting prior to their expirations without prejudice to any decision or order that the DENR Secretary may render on the same. No preferential right over the said mining claims is accorded to Blue Ridge or Celestial also without prejudice to the determination by the DENR Secretary over the matter at the proper time. Blue Ridge filed a Motion for Reconsideration with the MAB, while Celestial filed a Petition for Review before the Court of Appeals (CA).

On February 20, 2005, Celestial filed a Motion for issuance of a Temporary Restraining Order/Preliminary Prohibitory Injunction/Mandatory Injunction before the Supreme Court (SC). On April 25, 2005, the Company received a copy of the Decision of the CA affirming the November 26, 2004 decision of the MAB. A motion for consideration was filed by Celestial but the same was denied by the CA. Celestial filed a Petition for Review on Certiorari before the SC.

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

On March 28, 2006, MAC received a Mineral Production Sharing Agreement (MPSA) from the Mines and Geosciences Bureau (DENR). The MPSA, which covers about 1,114 hectares of land situated in Brooke’s Point, Palawan, grants the Company the exclusive right to conduct mining operations within, but not title over, the contracted area. Mining operations include exploration, development and utilization for commercial purposes of nickel, chromite, iron and other associated mineral deposits that may be found in the area.

The MPSA runs for a term not exceeding twenty-five (25) years from the date of the grant of the MPSA, and is renewable for another 25 years.

On April 06, 2006, the Company received a copy of the order of the SC denying Celestial’s Motion for Issuance of TRO for lack of merit.

On April 20, 2006, Celestial filed a Motion for Reconsideration on the denial of their Motion for TRO.

On May 18, 2006, the Petition for Review filed by BlueRidge before the CA was granted. The CA decision reversed and set aside the previous rulings of the MAB, cancelled the claims of the Company and gave BlueRidge the preferential right over the mining areas.

88

On May 29, 2006, Celestial filed a Manifestation stating the there are now two contradictory decisions issued by the Special 10th Division (BlueRidge vs. MAB et. al.) and the 12th Division (Celestial vs. MAB, et. al. CA GR no. 87931 of the CA.

On June 6, 2006, the Company filed its Motion for Reconsideration on the decision of the CA in favor of the BlueRidge. Celestial likewise filed its Motion for Reconsideration on the same decision dated 02 June 2006.

On June 27, 2006, BlueRidge filed a Petition for TRO with the SC to enjoin the Company and the MAB from enforcing and implementing the subject MPSA.

On July 05, 2006, the Second division of the SC docketed the BlueRidge petition and ordered the consolidation of the case with that of the Celestial case with the First Division.

On July 31, 2006, BlueRidge filed a manifestation with the Motion to Consolidate Celestial’s Petition for Review pending before the Second Division.

On August 16, 2006, The Third Division of the SC issued a Resolution 1) requiring the Company and the MAB, including Celestial, to comment on the petition filed by BlueRidge, 2) noting without action Blue Ridge’s Manifestation with Motion to Consolidate and Petition for TRO, and 3) denying with finality, Celestial’s Motion for Reconsideration on the denial of its Petition for TRO. The Company is preparing to elevate the decision of the Special Tenth Division of the CA to SC.

vi. Market Price of Shares and Dividends

MacroAsia Corporation’s common shares are listed and traded at the Philippine Stock Exchange and the approximate number of holders of its common equity as of May 31, 2007 is 935.

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

The high and low prices of the Company's share during 2006 and 2005 are as follows:

High and Low Share Prices

2007 High LowMarch 31, 2007 P 3.40 P 3.00

June 21, 2007 4.95 4.85

2006 High LowFirst Quarter P 2.10 P 1.20

Second Quarter 2.90 1.72Third Quarter 2.65 1.90Fourth Quarter 2.60 1.94

2005 High LowFirst Quarter P 2.75 P 2.00

Second Quarter 2.00 1.68

Third Quarter 1.92 1.68Fourth Quarter 1.78 1.44

89

The top 20 stockholders of MacroAsia Corporation as of May 31, 2007 are:

Name No. of Shares Held

% of Total

1 PCD Nominee Corporation (Filipino) 218,622,571 17.49

2 Fortune Tobacco Corporation 88,000,000 7.04

3 Asia Brewery, Inc. 88,000,000 7.04

4 Baguio Gold Holdings Corporation 88,000,000 7.04

5 Luy, Jr., Enrique 60,110,000 4.81

6 Solar Holdings Corporation 59,000,000 4.72

7 PCD Nominee Corporation (Non-Filipino) 56,386,838 4.51

8 Himmel Industries, Inc. 50,000,000 4.00

9 Foremost Farms, Inc. 50,000,000 4.00

10 Grandspan Development Corp. 50,000,000 4.00

11 Profound Holdings, Inc. 47,500,000 3.80

12 Pioneer Holdings Equities, Inc. 47,405,000 3.79

13 Basic Holdings Corp. 47,370,000 3.79

14 Safeway Holdings & Equities Inc. 46,500,000 3.72

15 Chua, Rowena T. 43,223,000 3.46

16 Sycip, Washington Z. 41,545,250 3.32

17 Gem Holdings, Inc. 31,750,000 2.54

18 Palomino Ventures, Inc. 28,900,000 2.31

19 Triton Securities Corporation 25,000,000 2.00

20 Pan-Asia Securities Corporation 13,528,250 1.08

Dividends

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

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

The Company declared cash dividends of P0.05 per share during its regular board meeting last March 29, 2007. Said cash dividends were paid on or before May 19, 2007 to shareholders of record as of April 24, 2007.

90

vii. Information on Independent Accountant and Other Related Matters External Audit Fees

2006 2005 Regular annual audit of financial statements P1,828,050 P1,733,390 Others (out of pocket expenses) 172,100 98,700

Total P2,000,150 P1,832,090

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

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

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

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

viii. CORPORATE GOVERNANCE

(a) Evaluation System

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

(b) Measures To Fully Comply

The Company conducts Strategic and Corporate Planning Workshops attended by its Directors and top-level management, primarily to identify and strengthen the mission and vision and the strategies to carry out its objectives based on leading practices on good corporate governance.

The Company also holds regular weekly Management Meetings. These meetings are presided by the President/CEO and attended by other officers of the Company and the Presidents/Chief Operating Officers of the operating subsidiaries and affiliates. Business risks are likewise discussed on these meetings.

(c) Deviations

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

(d) Plan to Improve

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

91

COVER SHEET

4 0 5 2 4

SEC Registration Number

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

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

(Company’s Full Name)

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

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

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

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

1 2 3 1 1 7 - Q

Month Day (Form Type) Month Day(Calendar Year) (Annual Meeting)

NA

(Secondary License Type, If Applicable)

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

944 P78 M

Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

S T A M P S

Remarks: Please use BLACK ink for scanning purposes.

TABLE OF CONTENTS

Page No.

PART I – FINANCIAL INFORMATION

Item 1 Consolidated Financial Statements 1

Item 2 Management’s Discussion and Analysis of Financial 1-5 Condition and Results of Operations

PART II – OTHER INFORMATION 6

SIGNATURES 6

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULE 7

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

The Consolidated Financial Statements listed in the accompanying Index to Financial Statements and Supplementary Schedules are filed as part of this Form 17-Q (pages 7 to 34)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Financial Conditions and Results of Operations

Total consolidated assets of P2.50 billion as of March 31, 2007 went up by 5% (or P123.31

million) and 4% (or P93.83 million) compared to December 31, 2006 and year-on-year balances, respectively, due primarily to the increases in cash and cash equivalents, receivables, other noncurrent assets and investments in associated companies.

Cash and cash equivalents were higher by P86.94 million (or 42%) year-on-year mainly due to

the aggressive collection of receivables and proceeds from loans of the catering subsidiary.

Net receivables slightly increased by only P6.79 million (or 3%) compared to December 31, 2006

balance despite the big increase in meal volumes of airline clients mainly due to better collections of receivables and the additional provisions for doubtful accounts for the current year. Year-on-year balance however, decreased by P86.94 million (or 42%) due to last year’s recognition of receivables for LTP’s declared cash dividends.

Inventories went up by 30% (or P7.4 million) year-on-year due essentially to the increase in raw

materials requirements of the Company’s catering business, caused by the increased in meal uplift volume of airline clients.

Other Current Assets include unused input taxes, office supplies, creditable withholding taxes

and prepaid insurance coverages for the building, equipment and staff. Total current assets decreased by 19.76% (or P16.86 million) against December 31, 2006 balance and 14.78% (or P11.87 million) from its P80.35 million level as of the same period last year because of the utilization of tax credit certificates by the Company’s catering business.

The Company’s current ratio went slightly down to 3.00:1 as of March 31, 2007 (from 3.32:1 as of

December 31, 2006 and 3.85:1 as of March 31, 2006)

Investments in associates maintained a 5% increase (P64.78 million and P67.73 million

respectively) against December 31, 2006 balance and year-on-year balances due primarily to the net effect of the Company’s incremental share in the net income of its associates.

Property and Equipment of P288.72 million decreased by P11.48 million (or 3.82%) and P36.40

million (or 11.19%) compared to December 31 and March 31, 2006 balances, respectively, due to depreciation. On the other hand, accrued rental receivable and payable of P89.02 million increased by P8.00 million (or 10%) year-on-year due primarily to additional accrual of rental

95

income and expense in compliance with PAS 17, which requires the recognition of rentals on a straight-line basis (average) over the lease term.

Deposits and other non current assets rose by P2.80 million (or 5%) and P4.63 million (or 9%),

when compared to the December 31 and March 31, 2006 levels, mostly because of additional deposits to suppliers for the expansion of the catering kitchen facilities to accommodate new airline clients.

Accounts payable and accrued liabilities declined by P34.56 million (or 23%) and P9.65 million

(or 8%), when compared to December 31 and March 31, 2006 balances due to the sustained account settlements by the operating subsidiaries. Income tax payable on the other hand increased by P11.38 (or 1322%) year-on-year due to higher taxable income of operating units and less creditable withholding taxes available as of the end of the reporting quarter.

Notes payable of P77.95 consist of unsecured short-term loans obtained from a local bank by

one of the operating subsidiaries to settle loans from a stockholder. These loans bear interest at an annual average rate of 8.78%.

Rental deposit (refundable to LTP) of P1.54 million decreased by P0.16 million (or 10%)

compared against its 2006 yearend balance due to straight-line amortization in accordance with PAS 39.

Accrued retirement benefits of P7.30 million went up by P0.58 million (or 9%) year-on-year due

to incremental accruals for the year based on the results of independent actuarial valuation.

Minority interest represents the 20% equity share of Singapore Airport Terminal Services in

MacroAsia Catering Services Inc. and the 30% equity participation of Menzies Aviation Group in MacroAsia-Menzies Airport Services Corporation. Changes in minority interest are dependent on the results of operations of the associate companies concerned.

Cumulative translation adjustments in the equity section of the balance sheets represents the

Group’s share in Lufthansa Technik’s foreign currency translation adjustments.

The Group’s total revenues were higher by P47.90 million (or 23%) compared to the P212.84

million earned in the same quarter last year due primarily to the P31.01 million (or 21%) increased in revenues from in-flight catering services. Revenues from catering services went up due to the increase in number of flights serviced and therefore higher number of meals served. Charter flight revenues tremendously increased by P4.36 million (or 220%) due to higher number of charter flights.

Direct costs in relation to operating revenues went down by 8% compared to its level of 75% as

of the first quarter of 2006 due to lower direct overhead costs. Operating expenses in relation to operating revenues, on the other hand, went up by 1% from 20%, as of March 31, 2006 due to increase in general and administrative expenses.

Equity in net income of associated companies was lower by P2.43 million (or 4%) due to

decrease in net income of LTP. Net foreign exchange loss of P2.47 million went down by P4.24 million (or more than 100%), year-on-year as a result of the lower Peso exchange rate against the US Dollar (i.e., payment of dollar denominated payables was settled at a lower peso conversion rate compared to the booking rate previously used). Interest income went up by P0.36 million (or 58%) due mainly to higher cash balance as of March 31, 2007 as against the same period of 2006. Financing charges of P1.33 million was also up by P0.40 million (or 30%) as a result of higher borrowings.

96

Equity in net income of associates represents MacroAsia Corporation’s (MAC) share in the net

income/ loss of its affiliated companies. Changes in shares from period to period are dependent upon the results of the operations of the affiliates/associated companies.

Provision for income tax increased by P10.05 million (or more than 500%) year-on-year due

primarily to higher taxable net income of subsidiaries.

Year-on-year, consolidated after tax net income of P78.96 million for the three months ended

March 31, 2007 increased by P10.69 million (or 16%) due to increases in operating revenues particularly of the Company’s catering business.

Material Events and/ or Uncertainties

NAIA Terminal 3 Contract with PIATCO

MacroAsia Corporation is presently engaged in aviation-support businesses at the Ninoy Aquino International Aiport (NAIA), Manila Domestic Airport and the General Aviation Areas. It provides in-flight catering services, ground handling services for passenger and cargo aircraft, helicopter charter flight services, and operates/develops economic zone. The Group is also pursuing other aviation related businesses and support services, such as the development of a modern aviation fuel tank farm, an aviation training center and cargo warehouse facility.

On January 21, 2004, the Supreme Court denied with finality the second motion for reconsideration of Philippine International Air Terminals Co. Inc. (PIATCO) over the Supreme courts decision nullifying PIATCO’s 1997 concession agreement to Build-Operate-Transfer arrangement (PIATCO contract) for the new international flight terminal – the NAIA Passenger Terminal 3 or “Terminal 3” – in Manila. Accordingly, the Supreme Court affirmed its May 5, 203 ruling, which voided the PIATCO contract and upheld the government’s decision to nullify all contracts with PIATCO for the construction of Terminal 3.

Under the said PIATCO contract, upon the completion of Terminal 3, all international flight operations would be moved from NAIA Passenger Terminal 1 (Terminal 1) and the Centennial Terminal (Terminal 2) to Terminal 3. PIATCO was to be the operator of Terminal 3 and would take over the functions of Manila International Airport-Ninoy Aquino International Airport (MIA-NAIA), including control over the amounts of fees and charges to be levied. Further, PIATCO ant its affiliate, Philippine Airport and Ground Services Inc., a NAIA service operator, were expected to have a total and exclusive control of Terminal 3 operations, which includes ground handling services (ramp and passenger) and in-flight catering among others. Accordingly, the operations of existing service operators that are providing such airport-related services to international carriers at Terminal 1 and 2 would have been affected upon transfer of their airline customers to Terminal 3.

Two of the Company’s subsidiaries, namely MacroAsia Catering Services Inc. (MACS, 80% owned) and MacroAsia-Menzies Airport Services Corporation (MASCORP, 70% owned) are providing in-flight catering and ground handling services, respectively, at Terminal 1.

With the above affirmed Supreme Court’s decision, the Management of MacroAsia Corporation believe that the issues emanating from the disputed provisions of the PIATCO contract have been resolved and the said Supreme Court’s decision has allowed the present service operators at NAIA, which includes MECS and MASCORP, to continue servicing their airline customers.

97

Other Matters

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

2. Management is not aware of any trends, demands, commitments, events or other uncertainties that may or will have a material negative impact on the company’s liquidity.

3. There are no unusual items or incidents affecting the issuer’s assets, liabilities, equity, net income or cash flows.

4. The Company has not issued, repurchased or repaid any debt or equity securities during the current interim reporting period.

5. The Company had declared cash dividends of P0.03 per share during its annual general meeting last July 21, 2006. Said cash dividends were paid on or before September 1, 2006 to stockholders of record as of August 7, 2006.

During its special meeting last March 29, 2007, the Company declared cash dividends of P0.05 per share. Said cash dividends is payable on or before May 19, 2007 to stockholders of record as of April 24, 2007.

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

Under the MPSA, the Company shall have the exclusive right to conduct mining operations within, but not title over, the contracted area. Mining operations that are allowed include exploration, development and utilization for commercial purposes of nickel, chromite, iron and other associated mineral deposits that may be found in the area.

The MPSA runs for a term not exceeding twenty-five (25) years from the date of the grant of the MPSA and is renewable for another term not exceeding 25 years under the same terms and conditions, without prejudice to changes that will be mutually agreed upon by the Government and the Company.

MacroAsia Corporation has completed a high-profile exploration of the area covered by the mentioned MPSA and is now performing a more detailed exploration of the MPSA area.

7. MacroAsia Corporation (MAC) signed on June 28, 2006, a sale and purchase agreement with Compass Group International B.V. (formerly Eurest International B.V) whereby MAC acquires the 13% shareholdings of the Compass Group in MacroAsia-Eurest Catering Services (MECS).

By mutual agreement of the three joint venture partners in MECS, the transaction effectively increases the shareholding of MacroAsia Corporation in MECS to 80%, and the balance of 20% stays with Singapore Air Terminal (SATS) as venture partner.

8. No material events have occurred subsequent to the end of the current interim period that should be reflected in the financial statements for the interim period.

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

98

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

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

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

99


INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES

FORM 17-Q, Item 1

Page No.

Consolidated Financial Statements

Consolidated Balance Sheets 8

Consolidated Statements of Income 9

Consolidated Statements of Changes in Equity 10

Consolidated Statement of Cash Flows 11

Supplementary Schedule

Summarized Income Statement Information for Unconsolidated Subsidiaries 12-14

Aging of Trade Accounts Receivable 16

Notes to Consolidated Financial Statements 16-35

101


CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2007 AND DECEMBER 31, 2006

(In Thousand Pesos)

MARCH 2007 DECEMBER 2006

(UNAUDITED) (AUDITED)

ASSETS

Current Assets

Cash and cash equivalents P 294,902 P 219,760

Receivables - net 235,878 229,090

Inventories - at cost 32,331 31,953

Other current assets 68,476 85,336

Total Current Assets 631,587 566,139

Noncurrent Assets

Investments in associates 1,267,841 1,203,060

Property and equipment - net 288,719 300,199

Investment property - net 118,680 118,680

Accrued rental receivable 89,022 87,020

Deferred rent expense 17,679 17,917

Goodwill 17,531 17,531

Deferred tax assets - net 9,197 9,197

Deposits and other noncurrent assets - net 55,545 52,747

Total Noncurrent Assets 1,864,214 1,806,353

TOTAL ASSETS P 2,495,801 P 2,372,492

LIABILITIES AND EQUITY

Current Liabilities

Notes payable P 77,945 P 14,000

Accounts payable and accrued liabilities 113,081 147,643

Income tax payable 12,244 1,279

Dividends payable 7,435 7,435

Total Current Liabilities 210,704 170,356

Noncurrent Liabilities

Accrued rental payables 89,022 87,020

Unearned rent income 17,679 17,917

Rental deposit 1,543 1,708

Loans from and payables to subsidiaries' stockholders 5,644 3,146

Accrued retirement benefits payable 7,297 7,297

Total Noncurrent Liabilities 121,185 117,088

Total Liabilities 331,890 287,445

Equity

Capital stock - P 1 par value

Authorized - 2,000,000,000 shares

Issued and fully paid - 1,250,000,000 shares 1,250,000 1,250,000

Additional paid-in capital 281,437 281,437

Share in foreign currency translation adjustments of an associate (189,796) (189,477)

Retained earnings 766,083 690,364

Total equity attributable to equity holders of the parent 2,107,724 2,032,325

Minority Interest 56,187 52,722

Total Equity 2,163,911 2,085,047

TOTAL LIABILITIES AND EQUITY P 2,495,801 P 2,372,492

(UNAUDITED)

102


CONSOLIDATED STATEMENTS OF INCOME

FOR THE PERIODS ENDED MARCH 31, 2007 AND 2006

(In Thousands Except Earnings Per Share)

MARCH 2007 MARCH 2006

SERVICE REVENUE

In-flight catering P 178,044 P 146,942

Rental and administrative 46,364 46,126

Ground handling and aviation 29,971 17,784

Charter flights 6,350 1,986

260,730 212,837

DIRECT COSTS 176,569 160,598

GROSS PROFIT 84,161 52,239

Selling expenses (1,395) (3,286)

General and administrative expenses (54,621) (39,822)

Equity in net income of associates 65,769 68,200

Foreign exchange gain/(loss) - net (2,469) (6,711)

Interest income 624 260

Financing charges (1,331) (929)

Others - net 12 57

INCOME BEFORE INCOME TAX 90,750 70,008

PROVISION FOR INCOME TAX (11,786) (1,738)

NET INCOME FOR THE PERIOD 78,964 68,270

Attributable to :

Equity holders of the parent 74,781 67,965

Minority interests 4,183 304

NET INCOME FOR THE PERIOD 78,964 68,269

Basic Earnings Per Share * P 0.0598 P 0.0544

Number of outstanding share 1,250,000 1,250,000

* Earnings per share is computed as = net income attributable to equity holders of the parent divided by

the weighted average number of common shares.

(UNAUDITED)

103


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


(In Thousand Pesos)

Capital Stock

Additional

Paid-in

Capital

Warrants

Outstanding

Share in Foreign

Currency Translation

Adjustments of an

Associate

Retained

EarningsTotal

Minority

InterestTotal

BALANCES AT DECEMBER 31, 2005 P 1,250,000 P 281,437 P (30,860) P 471,504 P 1,972,081 P 62,698 P 2,034,778

Issuance of rights shares

Issuance of warrants


for the period 15,119 15,119 15,119

Net Profit 67,965 67,965 304 68,269

BALANCES AT MARCH 31, 2006 1,250,000 281,437 (15,741) 539,469 2,055,165 63,002 2,118,167

BALANCES AT DECEMBER 31, 2006 P 1,250,000 P 281,437 P (189,477) P 692,671 P 2,034,632 P 52,005 P 2,086,636

Issuance of rights shares

Issuance of warrants

Adjustments to beginning balance of Retained Earnings (1,370) (1,370)


for the period (319) (319)

Net Profit 74,781 74,781 4,183 78,964

BALANCES AT MARCH 31, 2007 1,250,000 281,437 (189,796) 766,083 2,109,413 56,187 2,163,911

Attributable to the Equity Holders of the Parent

(UNAUDITED)

104


CONSOLIDATED STATEMENTS OF CASH FLOWS


(In Thousand Pesos)

2007 2006

CASH FLOWS FROM OPERATING ACTIVITIES

Net Profit P 78,964 P 68,269

Adjustments to reconcile net profit to net cash used in

operating activities:

Depreciation and amortizations 58,352 15,045

Equity in net earnings of an affiliate (65,769) (68,200)

Changes in assets and liabilities:

Increase/Decrease in:

Receivables (6,788) (124,467)

Inventories (378) (854)

Other current assets 16,859 2,167

Accounts payable and accrued liabilities (34,727) 2,134

Income tax payable 10,965 (2,500)

Net cash provided by/(used in) operating activities P 57,479 P (108,406)

CASH FLOWS FROM INVESTING ACTIVITIES

Decrease/(Increase) in property and equipment (46,872) (2,652)

Decrease/(Increase) in other assets (2,579) (7,456)

Decrease/(Increase) in investments 669 125,467

Receipt of dividends

Net cash used in investing activities P (48,781) P 115,359

CASH FLOWS FROM FINANCING ACTIVITIES

Advances from Shareholders 2,499 43

Notes payable 63,945

Dividends payable

Obligation under capital lease

Net cash provided by/(used in) financing activities P 66,444 P 43

NET INCREASE/DECREASE IN CASH P 75,141 P 6,996

AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 219,760 200,964

CASH AND CASH EQUIVALENTS AT END OF THE QUARTER P 294,902 P 207,960

FOR THE PERIOD ENDED

JANUARY TO MARCH

(UNAUDITED)

105

LUFTHANSA TECHNIK PHILIPPINES, INC.

SUMMARIZED STATEMENTS OF INCOME

FOR THE PERIOD ENDED MARCH 31, 2007 AND 2006

IN THOUSAND PESOS

2007 2006 2007

REVENUE P 2,701,514 P 2,491,432 P 2,435,300

LESS: COST OF SALES 1,705,676 1,475,641 1,420,550

GROSS PROFIT 995,838 1,015,791 1,014,750

LESS: OPERATING EXPENSES 867,075 839,458 889,800

INCOME FROM OPERATIONS 128,763 176,333 124,950

LESS: OTHER CHARGES 241 29,522 16,900

INCOME BEFORE INCOME TAX 128,522 146,811 108,050

LESS: PROVISION FOR INCOME TAX 5,164 11,622 7,700

NET INCOME P 123,358 P 135,189 P 100,350

EQUITY SHARE IN NET INCOME (49%) P 60,445 P 66,243 P 49,172

(UNAUDITED)

SUMMARIZED INCOME STATEMENT INFORMATION FOR

UNCONSOLIDATED SUBSIDIARY

ACTUAL BUDGET

106

CEBU PACIFIC CATERING SERVICES



2007 2006 2007

REVENUE P 33,546,201 P 18,393,091 P 24,769,086

LESS: COST OF SALES 16,402,603 10,489,286 14,046,663

GROSS PROFIT 17,143,598 7,903,805 10,722,423

LESS: OPERATING EXPENSES 1,740,394 1,584,144 1,747,889

INCOME FROM OPERATIONS 15,403,204 6,319,661 8,974,534

ADD: OTHER INCOME/(CHARGES) (355,191) (1,076,330) 125,434

INCOME BEFORE INCOME TAX 15,048,014 5,243,331 9,099,968

LESS: PROVISION FOR INCOME TAX 859,518 350,529 538,481

NET INCOME P 14,188,496 P 4,892,802 P 8,561,487

EQUITY SHARE IN NET INCOME (40%) P 5,675,398 P 1,957,121 P 3,424,595

(UNAUDITED)



ACTUAL BUDGET

107

SEMBLOG - MACROASIA PHILIPPINES



2007 2006 2007

REVENUE P 7,725,000 P - P 26,198,000

LESS: COST OF SALES 7,193,000 - 23,141,000

GROSS PROFIT 532,000 - 3,057,000

LESS: OPERATING EXPENSES 1,300,000 257,000 3,476,000

INCOME (LOSS) FROM OPERATIONS (768,000) (257,000) (419,000)

ADD: OTHER INCOME/(CHARGES) 51,000 19,000 -

INCOME(LOSS) BEFORE INCOME TAX (718,000) (238,000) (419,000)

LESS: PROVISION FOR INCOME TAX - - -

NET INCOME (LOSS) P (718,000) P (238,000) P (419,000)

EQUITY SHARE IN NET INCOME(LOSS) (49%) P (351,820) P (116,620) P (205,310)

(UNAUDITED)



ACTUAL BUDGET

108


AGING OF TRADE ACCOUNTS RECEIVABLE

For the period ended March 31, 2007

Total Receivables

Amount Current 1-30 days 31-60 days 61-90 days over 90 days

A. SORIANO AVIATION 79,606 1,970 5,194 72,442

AGES AVIATION CENTER 208,817 25,671 17,991 62,410 22,738 80,006

AIR MACAU 16,122 9,827 3,124 3,171

AIR NIUGINI 1,589,484 405,129 392,300 792,055

AIR PALAU 487,020 487,020

AIR PHILIPPINES 10,491,534 4,163,169 4,368,284 1,132,536 750,504 77,040

CATHAY PACIFIC 4,317,781 2,000,000 1,742,082 575,699

CEBU PACIFIC CATERING 101,677 3,506 19,827 33,662 10,960 33,722

CENTENNIAL AIR 972,221 972,221

CHINA AIRLINES 4,627,858 3,561,633 1,024,452 41,773

CHINA SOUTHERN 787,161 787,161

DHL EXPRESS CORPORATION 119,267 68,580 50,687

DNATA WINGS 205,994 19,618 70,543 17,000 98,833

EMIRATES AIRLINES 18,262,109 13,889,558 4,372,552

EVA AIR 35,973 35,973

FEDERAL EXPRESS 41,757 3,143 6,551 16,006 16,057

FLEET WATCH FLIGHT 70,546 70,546

GLOBAN AVIATION 9,775 9,775

GLORIA JEANS COFFEE 501,749 501,749

JAPAN AIRLINES 21,373,902 7,025,289 6,677,416 7,479,850 191,347

KLM ROYAL DUTCH AIRLINES 11,483,537 7,367,779 3,926,058 189,700

KOREAN AIRLINES 5,796,157 5,796,157

KUWAIT AIRLINES 509,709 509,709

LUFTHANSA GERMAN AIRLINES 166,889 92,733 12,975 45,944 15,237

LUFTHANSA TECHNIK PHILS. 130,672 94,606 12,974 13,802 9,290

MEDICAL CITY 38,790 38,790

NATIONWIDE AVIATION SUPPORT 22,726 22,726

NET JET TRANSPORTES 179,626 143,870 35,756

NORTHWEST AIRLINES 5,663,461 4,891,353 44,845 35,230 692,033

NORTHWEST CARGO 34,336 5,485 28,851

NORTHWEST LOUNGE 689,787 225,875 157,353 306,559

NORTHWEST LOUNGE MECS 361,584 91,123 52,343 44,347 173,771

NORTHWEST MANILA OFFICE 9,220 9,220

OTHERS 225,084 171,511 11,641 15,590 11,888 14,454

PACIFIC AIR ASIA CARGO AIRLINES 164,220 164,220

PHIL. AIRPORT & GROUND SERVICES 4,559 4,559

PHILIPPINE AIRLINES 9,748,669 5,630,178 3,854,551 232,867 31,073

POLAR AIR CARGO 142,100 142,100

QANTAS AIRWAYS 7,587,245 2,299,445 2,392,146 2,567,632 328,022

QATAR AIRLINE LOUNGE 162,416 56,692 30,045 22,101 53,578

QATAR AIRWAYS 5,637,866 3,738,289 1,747,289 28,265 124,023

SAUDI ARABIAN AIRLINES 46,514,931 7,553,555 6,718,981 6,779,981 7,573,131 17,889,283

SINGAPORE AIRLINES 11,700,993 7,964,831 3,281,711 13,931 440,520

SOUTHEAST ASIAN 94,032 45,431 48,601

TACO BELL 564,748 41,633 250,459 275,713 (3,057)

THAI AIRWAYS INTERNATIONAL 2,789,833 2,789,833

UNITED AVIATION SERVICES CORP. 34,423 34,423

WORLD AVIATION CORP. 488,569 30,591 457,978

TOTAL 175,246,535 80,403,132 41,022,854 19,032,662 8,987,930 25,799,958

Customers

P E R I O D

109

MACROASIA CORPORATION AND SUBSIDIARIES/ AFFILIATES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Significant Accounting Judgments and Estimates

The preparation of the accompanying consolidated financial statements in accordance with

PFRS requires the Group to exercise judgments, make estimates and use assumptions that

affect the reported amounts of assets, liabilities, income and expenses and related

disclosures. Future events may occur which will cause the assumptions used in arriving at

the estimates to change. The effects of any change in estimates are reflected in the

consolidated financial statements as they become reasonably determinable.

Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

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

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

The Group, based on the relevant economic substance of the underlying circumstances, has determined its functional currency to be Philippine peso. It is the currency of the primary economic environment in which its subsidiaries and two of its associates operate. The functional currency of LTP, one of the Company’s associated companies, has been determined to be United States (US) dollar.

Classification of financial instrumentsThe Group classifies a financial instrument, or its components, on initial recognition as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, a financial asset or an equity instrument. The substance of a financial instrument, rather than its legal form, governs its classification in the Group’s consolidated balance sheet.

The Group determines the classification at initial recognition and re-evaluates this classification at every reporting date.

Estimation of allowance for doubtful accountsAllowance for doubtful accounts is provided for accounts that are specifically identified to be doubtful of collection. The level of allowance is evaluated by management on the basis of factors that affect the collectibility of the accounts.

In addition to specific allowance against individually significant receivables primarily from airline customers, the Group also assesses at least on an annual basis a collective impairment allowance against credit exposures which, although not specifically identified as requiring a specific allowance, have a greater risk of default than when the receivables were originally granted to customers. This collective allowance is based on various factors such as historical performance of the customers within the collective group, deterioration in the markets in which the customers operate, various country risks, overall performance of the airline industry, and technological obsolescence which affects the confidence of the air

110

transport market, as well as identified structural weaknesses or deterioration in the cash flows of customers. The carrying value of the Group’s receivables amounted to P235.9 million and P229.1million as of March 31, 2007 and December 31, 2006, respectively. Related allowance for doubtful accounts amounted to P28.5 million and P2.0 million as of March 31, 2007 and December 31, 2006 respectively.

Recognition of deferred tax assetsThe Group reviews the carrying amounts of deferred tax assets at each balance sheet date and adjusts the balance of deferred tax assets to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized.

Deferred tax assets recognized amounted to P9.2 million as of March 31, 2007 and December 31, 2006.

Estimation of useful lives and residual values of property and equipment The Group estimates the useful lives and residual values of property and equipment based

on the internal technical evaluation and experience with similar assets. Estimated lives of property and equipment are reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear, technical and commercial obsolescence and other limits on the use of the assets.

The carrying value of property and equipment as of March 31, 2007 and December 31, 2006 amounted to P288.7 million and P300.2 million, respectively.

Impairment of non-financial assetsThe Group assesses at each reporting date whether there is any indication that property and equipment, investment property and goodwill may be impaired. If such indication exists, the entity shall estimate the recoverable amount of the asset, which is the higher of an asset’s fair value less costs to sell and its value in use. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash generating unit and also to choose the approximate pre-tax discount rate to calculate the present value of those cash flows.

As of March 31, 2007and December 31, 2006, the carrying value of the Group’s property and equipment, investment property and goodwill amounted to P424.9 million and P436.4 million, respectively, on which an impairment loss on investment properties of P25.2 million has been recognized as of both balance sheet dates.

Estimation of retirement benefits cost The Group’s retirement benefits cost is actuarially computed. This entails using estimation of

the present value of the Group’s obligation using certain assumptions like annual salary increases, rate of return on plan assets and discount rates. Total accrued retirement benefits payable amounted to P7.3 million as of March 31, 2007 and December 31, 2006, respectively.

ProvisionsThe Group provides for present obligations (legal or constructive) when it is probable that there will be an outflow of resources embodying economic benefits that will be required to settle said obligations. An estimate of the provision is based on known information at the balance sheet date, net of any estimated amount that may be reimbursed to the Group. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. The amount of provision is reassessed at least on an annual basis to consider new relevant information.

111

The Group has not recognized any provision in 2006 and 2005.

2. Summary of Significant Accounting Policies and Financial Reporting Practices

Basis of Financial Statements Preparation and Presentation The accompanying consolidated financial statements have been prepared on a historical cost

basis, and are presented in Philippine pesos, the Company’s functional currency.

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

Financial Reporting Standards (PFRS).

Changes in Accounting Policies The accounting policies adopted in 2007 and 2006 are consistent with those of the previous

financial years, except as follows:

The Group has adopted the following new and amended PFRSs in 2006. The adoption of these new and amended standards did not have any effect on the consolidated financial statements of the Group except for the additional disclosures required. These additional disclosures have been included in the accompanying consolidated financial statements.

Amendments to Philippine Accounting Standard (PAS) 19, Employee Benefits, provides additional disclosures about trends in the assets and liabilities in the define benefit plans and the assumptions underlying the components of the defined benefit cost. This change did not have recognition or measurement impact as the Group chose not to apply the new option offered to recognize actuarial gains and losses outside of the consolidated statement of income.

Amendments to PAS 21, The Effects of Changes in Foreign Exchange Rates, provides that all exchange differences arising from a monetary item that forms part of the Group’s net investment in a foreign operation are recognized in a separate component of equity in the consolidated financial statements regardless of the currency in which the monetary item is denominated.

Amendments to PAS 39, Financial Instruments: Recognition and Measurement:

Amendment for financial guarantee contracts requires financial guarantee contracts that are not considered to be insurance contracts to be recognized initially at fair value and to be remeasured at the higher of the amount determined in accordance with PAS 37, Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognized less, when appropriate, cumulative amortization recognized in accordance with PAS 18, Revenue.

Amendment for hedges of forecast intragroup transactions permits the foreign currency risk of a highly probable intragroup forecast transaction to qualify as the hedged item in a cash flow hedge, provided that the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction and that the foreign currency risk will affect the consolidated statement of income.

Amendment for the fair value option restricts the use of the option to designate any financial asset or any financial liability to be measured at fair value through the consolidated statement of income.

PFRS 6, Exploration for and Evaluation of Mineral Resources, permits an entity to develop an accounting policy for exploration and evaluation assets without specifically

112

considering the requirements of PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. Thus, under PFRS 6, an entity may continue to use the accounting policies applied immediately before adopting PFRS 6. This includes continuing to use recognition and measurement practices that are part of those accounting policies. It also requires entities recognizing exploration and evaluation assets to perform and impairment test on those assets when facts and circumstances suggest that the carrying amount of the assets may exceed their recoverable amount. It varies in recognition of impairment from that in PAS 36, Impairment of Assets, but measures the impairment in accordance with that standard once the impairment is identified.

Basis of Consolidation The accompanying consolidated financial statements comprise the financial statements of the

Company and the following subsidiaries:


Direct Indirect

MacroAsia Air Taxi Services, Inc. (MAATS) 100 –MAPDC 100 –MacroAsia-Menzies Airport Services Corporation (MASCORP)

70 –

Airport Specialists’ Services Corporation (ASSC)* 100 –MacroAsia Catering Services, Inc. (MACS)** 80 –MacroAsia Mining Corporation (MMC)*** 67 –

* A wholly-owned subsidiary of the Company; prior to 2006, ASSC is a wholly-owned subsidiary of MASCORP; has ceased commercial operations effective May 1, 2001.

** In 2006, the Company bought the 13% minority interest of Compass Group International B.V. (Compass) in MACS.

*** Incorporated on September 25, 2000; has not started commercial operations.

The consolidated financial statements comprise the financial statements of the Company and the above subsidiaries as of March 31, 2007 and December 31, 2006. The financial statements of the subsidiaries are prepared using accounting policies, consistent with those of the Company. All significant intra-group balances, transactions, income and expenses, profits and losses resulting from intra-group transactions are eliminated in full in the consolidation.

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

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. Control is achieved where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Consolidation of subsidiaries ceases when control is transferred out of the Group. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of income from the date of acquisition or up to the date of disposal, as appropriate.

113

Minority Interests Minority interest represents the portion of the net assets of consolidated subsidiaries not held

by the Group, and are presented separately in the consolidated statements of income and within the equity section of the consolidated balance sheets, separate from parent’s equity.

The losses applicable to the minority in a consolidated subsidiary may exceed the minority interest’s equity in the subsidiary. The excess, and any further losses applicable to the minority, are charged against the majority interest except to the extent that the minority has a binding obligation to and is able to make good the losses. If the subsidiary subsequently reports profits, the majority interest is allocated all such profits until the minority’s share of losses previously absorbed by the majority is recovered.

The acquisition of minority interests is not considered a business combination under PFRS 3, Business Combinations, and therefore, the re-measurement of the net assets acquired to their fair values, as not permissible, is not performed. Acquisitions of minority interests are accounted for using the parent entity extension concept method, wherein the difference between the consideration and the book value of the net assets acquired is recognized as goodwill.

Future changes in minority interests

On June 20, 2006, Menzies informed MASCORP’s BOD that Menzies has decided to sell its 30% shareholding in MASCORP.

On December 7, 2006, MASCORP’s BOD approved a resolution authorizing MASCORP to execute a Deed of Release (a closing document under the Sale and Purchase Agreement between MASCORP and Menzies) for the purpose of releasing Menzies and its nominee-directors in MASCORP from any indebtedness or liabilities in connection with Menzies’ potential divestment. Also, simultaneous to the execution of the Sale and Purchase Agreement, MASCORP’s BOD approved a resolution authorizing MASCORP to fully pay the loan extended by Menzies, amounting to P9.5 million.

As of March 31, 2007, the divestment of Menzies from MASCORP and the payment of MASCORP for the loan are not yet consummated pending completion of documentation requirements.

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

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

The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share in the losses of an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not

114

recognize further losses, unless it has incurred obligations or made payments on behalf of the associate.

Investments in associates pertain to the Company’s investments in the shares of stock of Cebu Pacific Catering Services Inc. (CPCS), 40%-owned; and LTP and Toll-MacroAsia Philippines, Inc. (TMP), 49%-owned. Since the Company has no joint control but instead has significant influence over these associates, the Company accounts for its investments in compliance with the provisions of PAS 28, Investments in Associates.Functional Currency and Foreign Currency Translation

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

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

The financial position and results of operations of an associate whose functional currency is not the currency of a hyperinflationary economy is translated into the Group’s presentation currency using the following procedures:

a. Assets and liabilities for each consolidated balance sheet presented are translated at the closing rate at the balance sheet date.

b. Income and expenses for each consolidated income statement are translated using the average rate.

c. All resulting exchange differences are recognized as a separate component of equity.

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

investments that are readily convertible to known amounts of cash with original maturities of three months or less from dates of acquisition and are subject to an insignificant risk of changes in value.

Financial Assets and Financial Liabilities Financial assets and financial liabilities are recognized initially at fair value. Transaction

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

115

The Group recognizes a financial asset or a financial liability in the consolidated balance sheet when it becomes a party to the contractual provisions of the instrument.

Financial assets are classified into the following categories: a. Financial asset at fair value through profit or loss b. Loan and receivable c. Held-to-maturity investment d. Available-for-sale financial asset

Financial liabilities, on the other hand, are classified into the following categories: a. Financial liability at fair value through profit or loss b. Other liability

The Group determines the classification at initial recognition and, where allowed and appropriate, re-evaluates this classification at every reporting date.

a. Financial assets or financial liabilities at fair value through profit or loss

Financial assets or financial liabilities classified in this category are designated by management on initial recognition when the following criteria are met:

The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on them on a different basis, or

The assets and liabilities are part of a group of financial assets and financial liabilities, respectively, or both financial assets and financial liabilities, which are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, or

The financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.

Financial assets and financial liabilities at fair value through profit or loss are recorded in the consolidated balance sheet at fair value. Changes in fair value are recorded in trading gain - net on financial assets and financial liabilities designated at fair value through profit or loss. Interest earned is recorded in interest income, while dividend income is recorded in other income according to the terms of the contract, or when the right of the payment has been established. Interest incurred is recorded in interest expense.

The Company has not designated any financial asset or financial liability as at fair value through profit or loss.

b. Loans and receivables

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

116

Classified as loans and receivables are the Group’s trade receivables, and advances to officers and employees.

c. Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities wherein the Group has the positive intention and ability to hold to maturity. Held-to-maturity investments are carried at cost or amortized cost in the consolidated balance sheet. Amortization is determined using the effective interest rate method. Assets under this category are classified as current assets if maturity is within 12 months from the balance sheet date and noncurrent assets if maturity is more than a year.

The Group has not designated any financial asset as held-to-maturity.

d. Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. Available-for-sale financial assets are carried at fair value in the consolidated balance sheet. Changes in the fair value of investments classified as available-for-sale financial assets are recognized in equity, except for the foreign exchange fluctuations on available-for-sale debt securities and the related effective interest which are taken directly to the consolidated statement of income. These changes in fair values are recognized in equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the consolidated statement of income.

The Group has not designated any financial asset as available-for-sale.

e. Other financial liabilities

This category pertains to financial liabilities that are not held for trading or not designated as fair value through profit or loss upon the inception of the liability. These include liabilities arising from operations (e.g., payables, accruals).

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

Derecognition of Financial Assets and Financial LiabilitiesFinancial assets

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

a. the rights to receive cash flows from the asset have expired;

b. the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or

c. the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

117

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

Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged or

cancelled or expires.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss.

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

a. Assets carried at amortized cost

If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rates (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through the use of an allowance account. The amount of loss, if any, is recognized in the consolidated statement of income.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in the group of financial assets with similar credit risk and characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is recognized are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

b. Assets carried at cost

If there is an objective evidence that an impairment loss of an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or a derivative asset that is link to and must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.

118

c. Available-for-sale financial assets

If an available-for-sale financial asset is impaired, the amount comprising the difference

between its cost (net of any principal payment and amortization) and its current fair value,

less any impairment loss previously recognized in the consolidated statement of income,

is transferred from equity to the consolidated statement of income. Reversals in respect

of equity instruments classified as available-for-sale are not recognized in the

consolidated statement of income. Reversals of impairment losses on debt instruments

are reversed through the consolidated statement of income, if the increase in fair value of

the instrument can be objectively related to an event occurring after the impairment loss

was recognized in the consolidated statement of income.

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

consolidated balance sheet if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the consolidated balance sheet.

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

bringing the product to its present location and condition are accounted for at purchase cost, determined primarily on the basis of the moving average method.

NRV of food and beverage is the estimated selling price in the ordinary course of business less the estimated costs of completion and estimated costs necessary to make the sale. In the case of materials and supplies, NRV is the recoverable value of the inventories when disposed of at their current conditions.

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

and any impairment in value.

The initial cost of property and equipment comprises of its purchase price, including import duties, taxes, borrowing costs and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property and equipment have been put into operation, such as repairs and maintenance and overhaul

costs, are normally charged to operations in the period when the costs are incurred. Insituations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of property and equipment.

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

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

119

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

No. of years

Building 25Kitchen and other operations equipment 3 to 10Office furniture, fixtures and equipment 3 to 7Transportation equipment 5Helicopter spare parts 3 to 5 Aviation equipment 5

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

Depreciation and amortization of an item of property and equipment begins when it becomes available for use, i.e., when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation and amortization ceases at the earlier of the date that the item is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations, and the date the asset is derecognized.

The residual values, useful lives and depreciation and amortization methods are reviewed periodically to ensure that the residual values, periods and methods of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and equipment.

When property and equipment are sold or retired, their cost and related accumulated depreciation and amortization and any impairment in value are removed from the accounts, and any gain or loss resulting from their disposal is included in the consolidated statement of income.

Investment PropertyInvestment property pertains to land held for appreciation in value that is measured at cost less any impairment in value.

Investment property is derecognized when it has either been disposed of or when the investment property is permanently withdrawn from use and no future benefit is expected from its disposal. Any gains or losses resulting from the derecognition of an investment property is recognized in the consolidated statement of income in the year of derecognition.

Impairment of Non-financial Assets The Group assesses at each reporting date whether there is an indication that property and

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

120

An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

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

included under the “Deposits and other noncurrent assets” in the consolidated balance sheet. When, as a result of the exploration work, recoverable reserves are determined to be present in quantities that can be commercially produced, exploration expenditures and subsequent development costs are capitalized as mine and mining properties and classified as part of property and equipment.

A valuation allowance is provided for estimated unrecoverable costs based on the technical assessment by the Group of the future prospects of each mining property. When a project is abandoned, the related deferred mine exploration costs are written-off.

Revenue Revenue is recognized to the extent that it is probable that the economic benefits associated with the transactions will flow to the Group and the revenue can be reliably measured.

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

and other customers.

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

recognized when the related services are rendered.

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

Interest income Interest income is recognized as the interest accrues using, where applicable, the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial assets to the net carrying amount of the financial asset.

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

Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses for the plan at the end of the previous reporting year exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plan.

121

Past service cost is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a retirement plan, past service cost is recognized immediately.

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

If the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan, net actuarial losses of the current period and past service cost of the current period are recognized immediately to the extent that they exceed any reduction in the present value of those economic benefits. If there is no change or an increase in the present value of economic benefits, the entire net actuarial losses of the current period and past service cost of the current period are recognized immediately to the extent that they exceed any reduction in the present value of those economic benefits. Similarly, net actuarial gains of the current period after the deduction of past service cost of the current period exceeding any increase in the present value of the economic benefits stated above are recognized immediately if the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan. If there is no change or a decrease in the present value of the economic benefits, the entire net actuarial gains of the current period after the deduction of past service cost of the current period are recognized immediately.

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

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

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

Provisions and Contingencies Provisions are recognized when the Group has a present obligation (legal or constructive) as

a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the effective future cash flows at a pretax rate that reflects current market assessment of the time value of money and where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provisions due to the passage of time is recognized as an interest expense.

Contingent liabilities are not recognized in the consolidated financial statements. These are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the consolidated balance sheet but disclosed when an inflow of economic benefits is probable.

122

Income TaxCurrent tax

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the balance sheet date.

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

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

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

Deferred tax liabilities are not provided on non-taxable temporary differences associated with investments in domestic subsidiaries, associates and interest in joint ventures. With respect to investments in other subsidiaries, associates and interests in joint ventures, deferred tax liabilities are recognized except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

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

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off the deferred tax assets against the deferred tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

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

Events After the Balance Sheet DatePost-year-end events that provide additional information about the Group’s position at the balance sheet date (adjusting events), if any, are reflected in the consolidated financial statements.

Post-year-end events that are not adjusting events are disclosed in the notes to consolidated financial statements when material.

123

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

ordinary equity holders of the parent by the weighted average number of shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued upon conversion of all dilutive potential ordinary shares. Currently, the Group has no potential dilutive shares.

Future Changes in Accounting Policies

The following are the new accounting standards and Philippine Interpretation International

Financial Reporting Interpretations Committee (IFRIC) interpretations that will become

effective subsequent to 2006:

PFRS 7, Financial Instruments: Disclosures, and the complementary amendment to PAS

1, Presentation of Financial Statements: Capital Disclosures (effective for annual periods

beginning on or after January 1, 2007), introduces new disclosures to improve the

information about financial instruments. It requires the disclosure of qualitative and

quantitative information about exposure to risks arising from financial instruments,

including specified minimum disclosures about credit risk, liquidity risk and market risk, as

well as sensitivity analysis to market risk. It replaces PAS 30, Disclosures in the

Financial Statements of Banks and Similar Financial Institutions, and the disclosure

requirements of PAS 32, Financial Instruments: Disclosure and Presentation. It is

applicable to all entities that report under PFRS. The amendment to PAS 1 introduces

disclosures about the level of an entity’s capital and how it manages capital.

PFRS 8, Operating Segments (effective for annual periods beginning on or after January

1, 2009), requires a management approach to reporting segment information. PFRS 8

will replace PAS 14, Segment Reporting, and is required to be adopted only by entities

whose debt or equity instruments are publicly traded, or are in the process of filing with

the Philippine SEC for purposes of issuing any class of instruments in a public market.

Philippine Interpretation IFRIC 7, Applying the Restatement Approach under PAS 29,

Financial Reporting in Hyperinflationary Economies (effective for annual periods

beginning on or after March 1, 2006), provides guidance on how to apply PAS 29 when

an economy first becomes hyperinflationary, in particular the accounting for deferred tax.

Philippine Interpretation IFRIC 8, Scope of PFRS 2 (effective for annual periods

beginning on or after May 1, 2006), requires PFRS 2 to be applied to any arrangements

where equity instruments are issued for consideration which appears to be less than fair

value.

Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives (effective for

annual periods beginning on or after June 1, 2006), establishes that the date to assess

the existence of an embedded derivative is the date an entity first becomes a party to the

contract, with reassessment only if there is a change to the contract that significantly

modifies the cash flows.

Philippine Interpretation IFRIC 10, Interim Financial Reporting and Impairment (effective

for annual periods beginning on or after November 1, 2006), prohibits the reversal of

impairment losses on goodwill and available for sale equity investments recognized in the

interim financial reports even if impairment is no longer present at the annual balance

sheet date.

124

Philippine Interpretation IFRIC 11, PFRS 2 - Group and Treasury Share Transactions,

(effective for annual periods beginning on or after March 1, 2007), requires arrangements

whereby an employee is granted rights to an entity’s equity instruments to be accounted

for as an equity-settled scheme by the entity even if (a) the entity chooses or is required

to buy those equity instruments (e.g., treasury shares) from another party, or (b) the

shareholders of the entity provide the equity instruments needed. It also provides

guidance on how subsidiaries, in their separate financial statements, account for such

schemes when the subsidiary’s employees receive rights to the equity instruments of the

parent.

Philippine Interpretation IFRIC 12, Service Concession Arrangements (effective for

annual periods beginning on or after January 1, 2008), covers contractual arrangements

arising from entities providing public services.

The effects of the adoption of these standards and interpretations, if any, will be included in the Group’s consolidated financial statements when the Group adopts them upon their effectivity.

3. Segment Infomation

The Group’s operating businesses are organized and managed separately according to the nature of the aviation-support services provided by the Company’s four operating subsidiaries and MMC, which is the basis on which the Group reports its primary segment information.

The operating subsidiaries include MACS (in-flight catering services), MASCORP (ground handling and aviation services), MAATS (helicopter chartering), and MAPDC (economic zone development/operation). The operations of these subsidiaries are further described as follows:

MACS provides the meal requirements of certain foreign and domestic passenger airlines. It operates an in-flight catering business at the NAIA and the MDA.

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

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

MAPDC is the economic zone developer/operator of the MacroAsia Ecozone at NAIA, with LTP as the anchor locator and to whom MAPDC has sub-leased the property it leases from Manila International Airport Authority (MIAA).

On the other hand, the Group’s non-operating subsidiaries consist of:

MMC serves as the institutional vehicle through and under which the business of a mining enterprise may be established, operated and maintained. It has not yet started commercial operations.

ASSC provides manpower support for any and all ground handling requirements of aircraft passenger and cargo.

125

The Group has only one geographic segment.

Segment assets include the operating assets used by a segment and consist principally of cash and cash equivalents, receivables, inventories, other current assets and property and equipment, net of allowances, depreciation and impairment in value. Segment liabilities include all operating liabilities and consist principally of accounts payable, accrued wages and other accrued liabilities. Segment assets and liabilities do not include deferred taxes.

4. Seasonality of Cyclicality of Interim Operations

The Group’s business operations are generally not affected by seasonality, except for the normal seasonal swings in the airline/ travel industry, which do not have a significant impact on interim operations.

5. Segment Revenues and Results for Business Segments

Financial information on the Group’s business segments as of and for the quarters ended March 31, 2007, 2006, and 2005 are as follows:

(in thousands) MARCH 2007 MARCH 2006 MARCH 2005

REVENUE - External In-flight catering services 178,044 146,942 126,101 Rental and administrative fees 46,364 46,126 46,126 Ground handling and aviation services 29,971 17,784 17,186 Charter flights 6,350 1,986 1,922

Total 260,730 212,838 191,335

RESULT – Segment result In-flight catering services 18,869 17,492 17,539 Rental and administrative fees 2,626 2,466 2,826 Ground handling and aviation services 1,363 (1,292) (726) Charter flights 2,703 34 475 Mining (12) (8)

Total 25,561 18,688 20,106

OTHER INFORMATION

Segment Assets In-flight catering services 629,440 556,445 575,393

Rental and administrative fees 250,464 255,021 244,962 Ground handling and aviation services 102,225 78,733 99,989 Charter flights 23,470 15,250 16,219 Mining 5,895 6,052 6,168

Total 1,019,496 911,501 942,731

126

(in thousands) MARCH 2007 MARCH 2006 MARCH 2005

Segment Liabilities In-flight catering services 444,856 434,805 467,112

Rental and administrative fees 129,667 233,128 217,663 Ground handling and aviation services 44,340 40,754 66,885 Charter flights 2,959 260 1,035 Mining 124 51 28

Total 621,995 708,998 752,723

Capital Expenditures In-flight catering services 16,658 2,241 119

Rental and administrative fees 443 59 2,115 Ground Handling and aviation services 9,721 291 304 Charter flights - 27 34

Total 26,822 2,618 2,572

Depreciation and Amortization In-flight catering services 2,874 11,076 11,895

Rental and administrative fees 101 284 368 Ground handling and aviation fees 359 2,582 2,382 Charter flights 42 58 -

Total 3,376 14,000 14,645

Non-cash expenses other than depreciation In-flight catering services - - Rental and administrative fees - - Ground handling and aviation services - - Charter flights - -

Total - -

6. Earnings Per Share Basic per earnings per share are computed by dividing net income attributable to equity holders of the parent by the weighted average number of shares outstanding during the year.

7. Number of Shareholders As of March 31, 2007 944 As of December 31, 2006 963

8. Key Performance Indicators

Return on Net Return on Company Sales Investment Return on Equity Cost Ratio Expense Ratio

2007 2006 2007 2006 2007 2006 2007 2006 2007 2006

Consolidated 24.71% 31.93% 2.96% 3.27% 3.07% 3.31% 67.72% 75.46% 21.48% 20.25% MACS 8.48% 1.96% 6.69% 1.86% 10.22% 2.22% 61.18% 67.60% 12.41% 20.50% MAPDC 5.66% 5.12% 2.04% 10.92% 2.04% 10.92% 92.62% 93.31% 1.78% 1.34% MASCORP 3.18% -12.13% 2.35% -5.68% 2.35% -5.68% 80.10% 92.42% 14.69% 14.85% MAATS 42.56% 3.18% 13.18% 0.42% 13.18% 0.42% 23.11% 90.38% 12.41% 7.93%

127

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

Consolidated RNS was lower by 7% year on year due mainly to increase in direct costs and decrease in equity in net income of associated companies.

b. Return on Investment (ROI)

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

Consolidated ROI was slightly lower than last year’s 3% due mainly to increase in interest bearing liabilities.

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

Consolidated ROE was maintained at 3% compared to the same period last year due primarily to higher operating revenues.

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

Year-on-year, direct cost ratio went down by 8% compared to its level of 75% due to lower direct overhead cost. Expense ratio, on the other hand, was up by 1% due to increase in general and administrative expenses.

128

The registrant will provide a copy of SEC Form 17-A free-of-charge upon written request addressed to Ms. Sandra C. Estrellado, Executive Assistant to the Vice President – Finance and Administration, 12

th Floor, Allied Bank Center, 6754 Ayala Avenue,

Makati City.

Documents

PHILIPPINE STOCK EXCHANGE 4 Floor, PSE Center … IS Definitive 2007 final 6.28.07...June 28, 2007 PHILIPPINE STOCK EXCHANGE 4th Floor, PSE Center Tektite Towers, Exchange Road Ortigas