AYALA CORPORATION SEC 17A ENDING DEC. 31, 2016.pdf - COVER SHEET 3 A Y A R I L A C O R P O R A T I O N 4 2 1 8 A N D S U B S I D I A E S(Company's Full

AYALA CORPORATION SEC 17A ENDING DEC. 31, 2016.pdf - COVER...

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Unformatted text preview: COVER SHEET 3 A Y A R I L A C O R P O R A T I O N 4 2 1 8 A N D S U B S I D I A E S (Company's Full Name) 3 2 F T A N G E A L O P A A V 3 5 F , T O W E R O N E A N D A Z A , A Y A L A T R I A N G L E N U E , M A K A T C I T L I E E X C H , A Y 2 1 Y (Business Address: No. Street City / Tow n / Province) 1 2 Josephine G. De Asis 908-3000 Contact Person Company Telephone Number 3 1 1 7 - A 0 Month Day Fiscal Year 4 Month Day Annual Meeting Secondary License Type, if Applicable C F D Dept. Requiring this Doc. Amended Articles Number/Section Total Amount of Borrow ings 6 7 0 6 P 4 0 B. Total No. Of Stockholders bonds Domestic Foreign To be accomplished by SEC Personnel concerned File Number LCU Document I.D. Cashier S TA M P S Remarks = pls. Use black ink for scanning purposes SEC FORM 17-A 1 SEC No. 34218 File No. _____ AYALA CORPORATION (Company’s Full Name) 32F to 35F, Tower One and Exchange Plaza Ayala Triangle, Ayala Avenue Makati City (Company’s Address) 908-3000 (Telephone Number) December 31, 2016 (Fiscal Year Ending) (Month & Day) SEC Form 17- A (Form Type) SEC FORM 17-A 2 13. Aggregate market value of the voting stock held by non-affiliates: About P208.6 billion (based on bid stock prices of Ayala Corporation common shares as of March 31, 2017 and outstanding shares owned by the public as of December 31, 2016) APPLICABLE ONLY TO ISSUERS INVOLVED IN INSOLVENCY/SUSPENSION OF PAYMENTS PROCEEDINGS DURING THE PRECEEDING FIVE YEARS 14. Check whether the issuer has filed all documents and reports required to be filed by Section 17 of the Code subsequent to the distribution of securities under a plan confirmed by a court or the Commission. Not applicable Yes [ ] No [ ] DOCUMENTS INCORPORATED BY REFERENCE 15. Briefly describe documents incorporated by reference and identify the part of the SEC Form 17-A into which the document is incorporated: 2016 Consolidated Financial Statements of Ayala Corporation and Subsidiaries 2016 Consolidated Financial Statements of Bank of the Philippine Islands and Subsidiaries 2016 Consolidated Financial Statements of Globe Telecom, Inc. and Subsidiaries 2016 Opinion on and Individual Supplementary Schedules 2016 Annual Corporate Governance Report SEC FORM 17-A 4 TABLE OF CONTENTS PART I Item 1 Item 2 Item 3 Item 4 BUSINESS AND GENERAL INFORMATION Business Properties Legal Proceedings Submission of Matters to a Vote of Security Holders PART II Item 5 OPERATIONAL AND FINANCIAL INFORMATION Market for Registrant’s Common Equity and Related Stockholder Matters Management’s Discussion and Analysis or Plan of Operations Financial Statements and Supplementary Schedules Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Item 6 Item 7 Item 8 6 109 116 127 128 132 148 148 PART III Item 9 Item 10 Item 11 Item 12 CONTROL AND COMPENSATION INFORMATION Directors and Executive Officers of the Registrant Executive Compensation Security Ownership of Certain Beneficial Owners and Management Certain Relationships and Related Transactions 150 159 161 163 PART IV Item 13 COPORATE GOVERNANCE Corporate Governance 166 PART V Item 14 EXHIBITS AND SCHEDULES Exhibits and Reports on SEC Form 17-C (Current Report) 167 SIGNATURES INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES SEC FORM 17-A 5 PART I - BUSINESS AND GENERAL INFORMATION Item 1. Business Ayala Corporation (the Company or Ayala) is the holding company of one of the oldest and largest business groups in the Philippines that traces its history back to the establishment of the Casa Roxas business house in 1834. The Company was incorporated in January 23, 1968, and its Class A Shares and Class B Shares were first listed on the Manila and Makati Stock Exchanges (the predecessors of the PSE) in 1976. In 1997 the Company’s Class A and Class B Shares were declassified and unified as Common Shares. As of December 31, 2016, the Company is 48.96% owned by Mermac, Inc., 10.17% owned by Mitsubishi Corporation and the rest by the public. Its registered office address and principal place of business is 32F to 35F, Tower One and Exchange Plaza, Ayala Triangle, Ayala Avenue, Makati City. The Company is a limited liability corporation having a renewable term of 50 years. On April 15, 2016 during its annual meeting of stockholders, the stockholders ratified the amendment of the Fourth Article of the Articles of Incorporation to extend the corporate term for 50 years from January 22, 2018. The extension of corporate life was approved by SEC on April 5, 2017. The Company is organized as a holding company holding equity interests in subsidiaries, associates and joint ventures that compose the Ayala Group (the Group). The Group is one of the most significant business groups in the Philippines. The Group was initially primarily focused on real estate, banking and insurance. In the 1970s and 1980s, the Group expanded its existing businesses through organic growth and acquisitions. During this period, the Group also materially diversified its activities and disposed of interests that it considered peripheral to its business strategy. In recent years, Ayala’s business activities continued to develop to include: (a) real estate, (b) financial services, (c) telecommunications, (d) water infrastructure, (e) electronics manufacturing, (f) power generation (g) transport infrastructure, (h) automotive, (i) international real estate (j) healthcare, and (k) education. In 2016, a new initiative was launched – the establishment of industrial technologies group that will integrate the electronics manufacturing, automotive and potential investments in complementary industrial technologies. Ayala’s real estate business is primarily conducted through its subsidiary, Ayala Land, Inc. (“Ayala Land” or “ALI”), a diversified real estate company in the Philippines. Its involvement in financial services is through an affiliate, the Bank of the Philippine Islands (“BPI”), which, together with its subsidiaries (together, the “BPI Group”), form a universal banking group in the Philippines. Ayala’s telecommunications business is carried out through an affiliate, Globe Telecom, Inc. (“Globe”), a leading telecommunications companies in the Philippines. Ayala’s investments in water infrastructure is under Manila Water Company, Inc. (“Manila Water” or “MWC”). Its international business in electronics manufacturing services is under Integrated Micro-Electronics, Inc. (“IMI”). Ayala’s automotive dealerships are under AC Industrial Technology Holdings Inc. (“AC Industrials”) formerly Ayala Automotive Holdings, Corp., while its interests in international real estate assets are held under AG Holdings. Ayala’s recent investments in the power sector are held under AC Energy Holdings, Inc. (ACEHI), while its first toll road project (the 4-kilometer Daang-Hari connector road to the South Luzon Expressway) is held under the parent company. The Company has established AC Infrastructure Holdings Corp. ("AC Infra") as its vehicle for transport infrastructure related investments. Ayala’s investments in healthcare is conducted through Ayala Healthcare Holdings (“AC Health”) while its forprofit education business is operated through Ayala Education, Inc. (“AC Education”). The lists of subsidiaries and associates and joint ventures are contained in the attached Company’s Consolidated Financial Statements for December 31, 2016. For management purposes, the Group is organized into the following business units: Parent Company - represents operations of the Parent Company including its financing entities such as ACIFL, AYCFL, PFIL and MHI. Real estate and hotels - planning and development of large-scale fully integrated mixed-used communities that become thriving economic centers in their respective regions. This include development and sale of residential, leisure and commercial lots and the development and leasing SEC FORM 17-A 6 of retail and office space and land in these communities; construction and sale of residential condominiums and office buildings; development of industrial and business parks; development and sale of high-end, upper middle-income and affordable and economic housing; strategic land bank management; hotel, cinema and theater operations; and construction and property management. Financial services and insurance - commercial banking operations with expanded banking license. These include diverse services such as deposit taking and cash management (savings and time deposits in local and foreign currencies, payment services, card products, fund transfers, international trade settlement and remittances from overseas workers); lending (corporate, consumer, mortgage, leasing and agri-business loans); asset management (portfolo management, unit funds, trust administration and estate planning); securities brokerage (on-line stock trading); foreign exchange and capital markets investments (securities dealing); corporate services (corporate finance, consulting services); investment banking (trust and investment services); a fully integrated bancassurance operations (life, non-life, pre-need and reinsurance services); and other services (internet banking, foreign exchange and safety deposit facilities). Telecommunications (Telecoms) - provider of digital wireless communications services using a fully digital network; domestic and international long distance communication services or carrier services; broadband internet and wireline voice and data communication services; also licensed to establish, install, operate and maintain a nationwide local exchange carrier (LEC) service, particularly integrated local telephone service with public payphone facilities and public calling stations, and to render and provide international and domestic carrier and leased line services. In recent years, operations include developing, designing, administering, managing and operating software applications and systems, including systems designed for the operations of bill payment and money remittance, payment facilities through various telecommunications systems operated by telecommunications carriers in the Philippines and throughout the world and to supply software and hardware facilities for such purposes. Water infrastructure - contractor to manage, operate, repair, decommission, and refurbish all fixed and movable assets (except certain retained assets) required to provide water delivery, sewerage and sanitation, distribution services, pipeworks, used water management and management services. In 2016, a new business initiative was undertaken where the group will exclusively provide water and used water services and facilities to all property development projects of major real estate companies. Electronics manufacturing - global provider of electronics manufacturing services (EMS) and power semiconductor assembly and test services with manufacturing facilities in Asia, Europe, and North America. It serves diversified markets that include those in the automotive, industrial, medical, telecommunications infrastructure, storage device, and consumer electronics industries. Committed to cost-effective and innovative customized solutions (from design and product development to manufacturing and order fulfillment), the company's comprehensive capabilities and global manufacturing presence allow it to take on specific outsourcing needs. Power generation - unit that will build a portfolio of power generation assets using renewable and conventional technologies which in turn will operate business of generating, transmission of electricity, distribution of electricity and supply of electricity, including the provision of related services. Automotive, IT/BPO and Others - includes operations of Automotive unit’s business on manufacturing, distribution and sale and providing repairs and services for passenger cars and commercial vehicles. In 2016, this unit launched initiatives to include industrial manufacturing activity for long-term synergy and integration with automotive business. This segment also includes the Information Technology and BPO services unit (venture capital for technology businesses and emerging markets; onshore and offshore outsourcing services in the research, analytics, legal, electronic discovery, document management, finance and accounting, full-service creative and marketing, human capital management solutions, and full-service accounting); International unit (investments in overseas property companies and projects); Aviation (air-chartered services); consultancy, agri-business and other operating companies. This business segment group also includes the start-up companies like Infrastructure (development arm for its transport infrastructure investments); education, human capital resource management and health services. Please refer to Note 29 on Operating Segment Information of the Company’s Consolidated Financial Statements regarding operating segments which presents assets and liabilities as of December 31, SEC FORM 17-A 7 2016 and 2015 and revenue and profit information for the years ended December 31, 2016, 2015 and 2014. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. Intersegment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. Segment revenue, segment expense and segment results include transfers between operating segments. Those transfers are eliminated in consolidation. For the detailed discussion on the specific subsidiaries falling under each business unit as well as the major transactions of the Group, please refer to Note 2 on Group Information of the Consolidated Financial Statements for December 31, 2016 which forms part of the Annex of this SEC17A report. Other major transactions and developments were also disclosed in the Company’s previously filed SEC17Q and SEC17-C reports, listing of which also forms part of the Annex of this SEC17A report. The consolidated financial statements of the Group as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 were endorsed for approval by the Audit Committee on March 8, 2017 and authorized for issue by the Board of Directors (BOD) on March 10, 2017. Based on SEC’s parameters, the significant subsidiaries of Ayala Corporation as of December 31, 2016 are Manila Water Co, Inc. (MWC – established in 1997), Ayala Land, Inc. (ALI - organized in 1988), and Integrated Micro-Electronics, Inc. (IMI - organized in 1980). Except as stated in the succeeding paragraphs and in the discussion for each of the Company’s significant subsidiaries, there has been no other business development such as bankruptcy, receivership or similar proceeding not in the ordinary course of business that affected the registrant for the past three years. As to the material reclassification, merger, consolidation or purchase or sale of a significant amount of assets: For detailed discussion as to material reclassification, merger, consolidation and purchase transactions with subsidiaries, please refer to Note 2 Group Information, Note 12 Investments in Associates and Joint Ventures and Note 24 on Business Combinations and Transactions with Non-controlling Interest of the Company’s Consolidated Financial Statements for December 31, 2016 which forms part of the Annex of this SEC17A report. Distribution methods of the company’s products and services This is not applicable to the Company being a holding company. The Company’s operating companies, however, have their respective distribution methods of products and services. Please refer to Significant Subsidiaries, Associates and Joint Ventures portion below. Competition The Company is subject to significant competition in each of the industry segments where its subsidiaries operate. Please refer to Significant Subsidiaries, Associates and Joint Ventures portion below for a discussion on Ayala Land, Inc. (ALI), Integrated Micro-Electronics, Inc. (IMI), and Manila Water Company, Inc. (MWC), significant subsidiaries, and Bank of the Philippine Islands (BPI), and Globe Telecom (Globe), significant associates and joint ventures. Transactions with related parties The Company and its subsidiaries, in their regular conduct of business, have entered into transactions with associates and other related parties principally consisting of advances, loans, reimbursement of expenses, various guarantees, construction contract, and management, marketing, and administrative service agreements. Sales and purchases of goods and services to and from related parties are made at normal commercial prices and terms. Related party transactions are further discussed in the Note 31 of the accompanying consolidated financial statements of the Company. Developmental and Other Activities Being a holding company, the Company has no material patent, trademark, or intellectual property right to a product or any of its direct services. The Company’s operating companies, however, may have these material intellectual property rights, but the dates and terms of their expiration or renewal is not SEC FORM 17-A 8 perceived to have a material adverse effect on the Company. The Company complies with all existing government regulations and environmental laws, the costs of which are not material. As a holding company, it has no material development activities. Employees Ayala is committed to promoting the safety and welfare of the employees. It believes in inspiring the employees, developing their talents, and recognizing their needs as business partners. Strong and open lines of communication are maintained to relay Ayala’s concern for their and safety, and deepen their understanding of Ayala’s value-creating proposition. The Company has a total workforce of 148 employees as of December 31, 2016, classified as follows: Staff Managers and Executives Consultants 55 85 8 148 The Company expects to increase its number of employees in the next 12 months. The Company has an existing Collective Bargaining Agreement (CBA) with the Ayala Corporation Employees Union for a period of 5 years, from January 2012 until December 2016. The CBA generally provides for improvement in compensation and benefits. Union and Management relations continue to be harmonious. The Company’s management had not encountered difficulties with its labor force, nor have strikes been staged in the past. In addition to the basic salary and 13th month pay, other supplemental benefits provided by the Company to its employees include: mid-year bonus, performance bonus, retirement benefit, life and health insurance, medical and dental benefits, and various loan facilities. Risks For detailed discussion on Risks, please refer to Note 32 on Financial Instruments of the Company’s Consolidated Financial Statements for December 31, 2016 as well as the Company’s 2016 Annual Corporate Governance Report which both form part of the Annex of this SEC17A report. SEC FORM 17-A 9 SIGNIFICANT SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES AYALA LAND, INC. Background and Business Ayala Land, Inc. (alternately referred to as “ALI”, Ayala Land or “the Company” in the entire discussion of Ayala Land, Inc.) is the real estate arm of the Ayala Group. Its defining project was the 1948 development of a planned mixed-use community on 930 hectares of swamp and grassland in the Makati district of Metro Manila. Over the course of the following 25 years, the Ayala Group transformed Makati into the premier central business district of the Philippines and a site of some of Metro Manila’s most prestigious residential communities. Ayala Land has become the largest real estate company in the Philippines engaged principa...
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  • Corporation, Subsidiary, Makati City, Ayala Corporation, AYALA LAND

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