COVER SHEET “A” - MacroAsia · PDF fileOF THE SECURITIES REGULATION CODE AND SECTION 141 OF CORPORATION CODE OF THE PHILIPPINES ... Makati City Zip Code Address of

4 0 5 2 4 SEC Registration Number

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

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

(Company’s Full Name)

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

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

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

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

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

(Calendar Year) (Annual Meeting)

NA (Secondary License Type, If Applicable)

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

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

COVER SHEET

“A”

MACROASIA CORPORATION December 31, 2003

SEC Form 17-A

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

OF CORPORATION CODE OF THE PHILIPPINES

1. For the fiscal year ended December 31, 2003 2. SEC Identification Number 40524 3. BIR Tax Identification No. 004-666-098 4. Exact name of issuer as specified in its charter MACROASIA CORPORATION 5. City of Makati, Metro Manila 6. ________________________________ Province, Country or other jurisdiction Industry Classification Code Incorporation or organization 7. 12th Floor, Allied Bank Center, 6754 Ayala Avenue, 1226

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

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

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

Common Stock, P 1 par value

1,250,000,000 shares outstanding Warrants 50,000,000 shares outstanding

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

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

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

Yes ( X ) No ( )

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

Yes ( X ) No ( )

13. Aggregate market value of the voting stock held by non-affiliates: P 158,912,903

TABLE OF CONTENTS Page No. PART I – BUSINESS AND GENERAL INFORMATION Item 1 Business 1 Item 2 Properties 8 Item 3 Legal Proceedings 9 Item 4 Submission of Matters to a Vote of Security Holders 9 PART II – OPERATIONAL AND FINANCIAL INFORMATION Item 5 Market for Issuer’s Common Equity and Related Stockholder Matters 9 Item 6 Management’s Discussion and Analysis or Plan of Operation 11 Item 7 Financial Statements 17 Item 8 Changes in and Disagreements with Accountants On Accounting and Financial Disclosure 17 PART III – CONTROL AND COMPENSATION INFORMATION Item 9 Directors and Executive Officers of the Issuer 18 Item 10 Executive Compensation 21 Item 11 Security Ownership of Certain Beneficial Owners and Management 24 Item 12 Certain Relationships and Related Transactions 24 PART IV – CORPORATE GOVERNANCE 25 PART V – EXHIBITS AND SCHEDULES Item 13 a. Exhibits 25 b. Reports on SEC Form 17-C 25 SIGNATURES 26 INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES 27 INDEX TO EXHIBITS 70

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MACROASIA CORPORATION

DECEMBER 31, 2003

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

MacroAsia Corporation (MAC) - Formerly known as Infanta Mineral and Industrial Corporation, MAC is a publicly-listed company incorporated on February 16, 1970 to primarily engage then in the business of geological exploration and development. On January 26, 1994, the Securities and Exchange Commission (SEC) approved the amendments to the Articles of Incorporation of Infanta, changing its original purpose from geological exploration and development to that of a holding company, and its corporate name to Cobertson Holdings Corporation ("Cobertson"). In November 1995, the SEC further approved the change in the Company’s name from Cobertson Holdings Corporation to MacroAsia Corporation (MAC). MAC began commercial operation as a holding company under its amended charter in 1996. MAC is presently engaged in aviation-related businesses. It provides aircraft maintenance, repairs and overhaul, charter flight services, airport ground handling services, in-flight catering services and operates a special economic zone at the Ninoy Aquino International Airport (NAIA). All subsidiaries and associated companies render services directly to the airline customers at NAIA and Mactan-Cebu International Airport (MCIA). Sales/revenues/net income from foreign sales constitute contribution from foreign airlines flying to and from NAIA. Geographical market split, i.e., North America, Southeast Asia, is not applicable. However, from 2001 to 2003, an average of 64% of the total gross operating revenues reported represented revenues from foreign airlines that fly to Manila and Cebu. Further, net income from these foreign airlines account for an average of 10% of the total net income reported for the last three years. On the other hand, perceived market strength of leading competitors lies only in the ground handling area, where the Company can be considered as a young player still trying to penetrate the international or foreign airline market at NAIA. Other than the above, the Company has the advantage when it comes to the other areas due to its high quality services, very competitive pricing, advance aircraft technology, and the carefully packaged inter-related aviation support logistics being marketed and provided by its subsidiary/affiliated companies. MAC continues to operate through four (4) subsidiaries and two (2) affiliates, as more fully discussed below. Cebu Pacific Catering Services, Inc. (CPCS), is MacroAsia’s first in-flight catering venture which started commercial operation in October 1996. MAC holds 40% equity in this joint venture, while its partners Cathay Pacific Catering Services of Hongkong, and MGO Pacific Resources Corporation hold 40% and 20% equity, respectively.

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CPCS is the first and presently still the only world-class airline catering company at Mactan-Cebu International Airport. Managed by Cathay Pacific Catering Services, and with a work force of about fifty-six (56) employees (7 in administration and 49 in operations), as of December 31, 2003, it serves both domestic and international airlines. The bulk of its revenues comes from export sales. CPCS owns a two-storey kitchen facility designed to meet projected total airline catering demands until year 2005 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 600 to 700 meals a day, using local raw materials for its menus. It procures its raw materials from the local market and does not have any major raw materials supply contracts. Its airline clients include Philippine Airlines, Cathay Pacific Airways, Silk Air, and Qatar Airways. Philippine Airlines and Cathay Pacific Airways each account for more than 20% of the Company's sales, and the loss of either airline will have a significant effect on the Company’s operations. There are four (4) domestic airlines and three (3) international airlines regularly flying the Cebu route. CPCS is servicing all ex-Cebu flights bound for HongKong, Taiwan, Singapore, and Japan, as well as chartered flights to/from Cebu. Being the only in-flight catering company in Cebu, CPCS expects to provide most if not all of the catering services for future ex-Cebu flights to other regional destinations. MacroAsia’s equity in net earnings of associated companies, on the average over the last three years, account for almost 9% of the Company’s total gross revenues. And CPCS contributed an average of 5% out of the total equity in net income of associates earned by MAC. As a registered entity, CPCS is subject to the rules and regulations of the Philippine Economic Zone Authority. It is not aware of any existing or probable government regulations that would have an adverse effect on its operations. CPCS did not incur any research and development costs during the last three fiscal years. MacroAsia Air Taxi Services, Inc. (MAATS) is a wholly-owned subsidiary, incorporated in June 1996. MAATS is a licensed non-scheduled domestic flight operator providing helicopter chartering services from its base at the General Aviation Area, Manila Domestic Airport to any point within the Philippines. MAATS is duly licensed by the Civil Aeronautics Board and holds a current Air Carrier Operating Certificate (ACOC) issued by the Air Transportation Office. This subsidiary has 3 employees (2 in operations and 1 in administration). MAATS started commercial operations in October 1996. It has since been leasing MacroAsia Corporation’s Ecureuil AS350-BA 5-passenger helicopter for its chartering business. Revenues derived from chartering operations are 100% domestic, with majority of its customers being local businessmen.

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MAATS' marketing strategy remains focused on safety and convenience, as it strictly adheres to the stringent safety standards and procedures set by regulating agencies. It ensures that its staff undergo continuous year-round training with emphasis on safety and customer service, a practice that has kept the Company ahead of its competitors. MAATS has only few remaining competitors such as JAKA, Air Span, and Air Ads and it expects to be ahead of its competitors by keeping focused on operational safety and customers' convenience and by maintaining its competitiveness. MAATS’ charter flight revenues for the last three years account for an average of less than one percent (1%) of the Company’s consolidated gross operating revenues. MAATS does not have any major existing supply or sales contracts and is not dependent on any single or few customers that account for more than 20% of its business. It also provides charter services to affiliated companies but is not dependent on any one of them. There are no existing or probable government regulations that may have an adverse effect on MAATS operations. It did not incur any research and development expenditures during the last three fiscal years. MacroAsia Properties Development Corporation (MAPDC), another wholly-owned subsidiary, was incorporated on June 4, 1996 to primarily engage in the acquisition, development and sale of real properties. After it completed its first infrastructure project in 1997 and following the Asian economic crisis, the Company suspended pursuing property development projects as a core business and refocused its efforts on aviation-support businesses. On September 01, 2000 MAPDC was registered as an Ecozone Developer/Operator with the Philippine Economic Zone Authority (PEZA). As such, it enjoys tax incentives as provided by PEZA. It started commercial operations again on the same date, this time as the ecozone developer/operator of the 23-hectare Macroasia Ecozone at the Ninoy Aquino International Airport, with Lufthansa Technik Philippines, Inc. as its anchor locator for the next 25 years. MAPDC has a 25-year lease covering the 23-hectare property occupied by the ecozone with the Manila International Airport Authority. The Macroasia Ecozone is the only existing ecozone at NAIA. The MacroAsia Ecozone was established to attract and provide support to other locators/investors engaged primarily in the provisioning of aviation-related services. It presently has a workforce of eight staff (5 in operations and 3 in administration) and generates revenues which are considered 100% domestic. MAPDC's operations do not require the intensive use of raw materials or like items. It does not therefore have any major existing supply contracts. For the past three years, MAPDC’s average rental income represented 27% of the Company’s consolidated gross operating revenues. Lufthansa Technik Philippines is an affiliated company of MAPDC as it is 49% owned by MacroAsia Corporation.

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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. MacroAsia Eurest Catering Services, Inc. (MECS), incorporated on November 5, 1996, is a joint venture among MacroAsia Corporation (67%), Eurest International B.V. (13%) and Singapore Airport Terminal Services (20%). MECS began commercial operations on September 1, 1998 with only two (2) airline customers, Singapore Airlines and Air Macau. Today, MECS currently provides in-flight catering services to 13 of the foreign airlines that fly to Manila. In terms of number of meals, MECS serves in excess 1 million meals per annum or an average production of over 3,000 meals a day. MECS is servicing an average of 11 international flights a day. MECS has a license and technical assistance agreement with Eurest International B.V. wherein Eurest shall render technical assistance to MECS in establishing and operating an in-flight catering business at the Ninoy Aquino International Airport (NAIA), the Manila Domestic Airport and the general aviation areas. Furthermore, the license enables MECS to exclusively use the Mark and System of Eurest. In 1998, MECS also executed a marketing and commercial assistance agreement with Singapore Airport Terminal Services ("SATS"), whereby SATS shall provide marketing and commercial services to MECS for its in-flight catering business. MECS' in-flight kitchen facility now occupies an area measuring about 6,500 sq. m., on a two-hectare lot being leased from the Manila International Airport Authority. It now has a maximum kitchen capacity of approximately 7,500 meals a day. An extra floor space of about 1,000 sq. m. has been added for extra warehousing and production space. The kitchen 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. MECS, with its state-of-the-art facility, continues to strictly comply with both international and local hygiene standards and environmental regulations. It has consistently passed all the regular audits conducted by the Bureau of Quarantine, the Medina Audit for Lufthansa and other airlines and the periodic audits by other airlines as part of their hygiene and quality enhancement programs. It has a fully-equipped laboratory manned by in-house microbiologists to ensure that high standards are maintained at all times. MECS also holds a valid Halal Certificate from the Office of Muslim Affairs, Office of the President. A government agency closely monitoring MECS is the Environmental Management Bureau of the Laguna Lake Development Authority. This government agency monitors the production area to ensure that waste disposal regulations are fully complied with to protect the environment. MECS is the first and only in-flight caterer and one of the very few food companies in the Philippines to be ISO-certificated. It earned the "1999 Best Hygiene Award" from Cathay Pacific Airways, and the "Silver Quality Award for Asia/India" from Lufthansa Airlines. The local suppliers of MECS include, among others, ScanAsia Overseas, Inc. for dairy products, L.G. Arambulo Enterprises and Marlett Marketing Corp. for fresh fruits and vegetables, Mother Earth Products, Inc. for meat products, and Deepsea Products, Inc. for seafoods. On the other hand, international suppliers include Wenatchee Marketing

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Inc., Tuckerbag, Inc., Leos Fine Foods Co., Ltd. for meat products, Snorre Food for seafoods, and Bur-can Gen. Mdsng and Raynier Marketing for general supplies. MECS’ suppliers provide quality products that have passed the hygiene tests conducted periodically by its in-house microbiologists. MECS does not have existing major supply contracts and is not dependent on any single raw materials supplier. It uses available local raw materials whenever possible. Almost all of MECS' trade revenues are classified as export sales. In 2001, 2002 and 2003, this subsidiary's sales contributions to MacroAsia's consolidated gross operating revenues were 60%, 58% and 61%, respectively. MECS’ airline clients include Cathay Pacific Airways, Singapore Airlines, Saudi Arabia Airlines, Emirates, China Airlines, Northwest, Air France, Qatar, and Qantas. These airlines contribute over 95% of MECS' total revenues. Two airline customers contribute more than 40% of MECS’ total revenues, and the loss of these accounts will adversely affect MECS’ operations. MECS is also servicing the Cathay Pacific and Lufthansa Airlines lounges at the NAIA. MECS' estimated share in the NAIA foreign airlines market was about 45% as of December 31, 2003 (52% in 2002). With a manpower complement of about 189 staff (5 managerial positions, 41 in administration, and 143 in operations) as of December 31, 2003, MECS is operating at about 50% of its present capacity and can easily accommodate more airline customers. Its competitors include Philippine Airlines and Manila International Airport Services Corporation. MECS is a BOI-registered entity and complies with BOI rules and regulations. It is not aware of any other existing or probable government regulations that would have an adverse impact on its on-going business. MECS had no research and development activities during each of the last three fiscal years. MacroAsia-Menzies Airport Services Corporation (Mac-Menzies) was incorporated on September 12, 1997 to provide, manage, promote and/or service any and all ground handling requirements of military and/or commercial aircraft for passengers and cargo. Mac-Menzies commenced its ground handling operations on April 19, 1999 at the Ninoy Aquino International Airport ("NAIA"), and generates both domestic and export sales. It has a work force of around 219 staff (203 are in operations, 11 in administration, and 5 in managerial positions) as of December 31, 2003. On June 15, 1999 the Company originally signed a joint venture agreement with Ogden Aviation Philippines B.V. (formerly Ogden Water Systems of Muscat B.V.). Ogden Aviation Philippines B.V. was subsequently acquired by Menzies Aviation Group in 2001. Mac-Menzies is jointly owned by MacroAsia (70%) and Menzies Aviation Group (30%). On July 2, 1999, a wholly-owned subsidiary of Mac-Menzies, Airport Specialists' Services Corporation ("ASSC"), was incorporated primarily to manage and promote, service and/or provide manpower support for any and all ground handling requirements of private, military and/or commercial aircraft. ASSC commenced operations immediately after its incorporation but had ceased operations in 2001. Mac-Menzies’ present clients include Thai International Airways, Air Philippines, Centennial Air and United Aviation Services. Thai Airways and Air Philippines represent

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more than 80% of Mac-Menzies' present revenues; the loss of either airline will have an adverse effect on the continuing operations of Mac-Menzies. This subsidiary contributes an average of 13% of the Group’s total revenues for the years ended December 31, 2003, 2002, and 2001. Other ground handling companies operating at the Ninoy Aquino International Airport ("NAIA"), include Manila International Airport Services Corporation ("MIASCOR"), Philippine Airlines ("PAL"), Philippine Airport Ground Services ("PAGS"), and DNATA Wings ("WINGS"). Through aggressive marketing efforts, Mac-Menzies expects to further increase its market share at NAIA. Mac-Menzies is not aware of any existing or probable government regulations that would have an adverse effect on its business. It had no research and development activities during the last three fiscal years. Lufthansa Technik Philippines, Inc. (LTP) is a joint venture between Macroasia Corporation (49%) and Lufthansa Technik AG of Germany (51%). It is the only company which provides a wide range of aircraft maintenance, repairs and overhaul services at the Ninoy Aquino International Airport in Manila and the Mactan-Cebu International Airport. Following the signing of the joint venture agreement on July 12, 2000, and its subsequent registration with the Philippine Economic Zone Authority (PEZA) as an economic zone locator on August 30, 2000, LTP started its commercial operations on September 01, 2000. It generates both domestic and export revenues and enjoys tax incentives, being a PEZA-registered entity. LTP is currently providing aircraft maintenance, repair and overhaul services from its facility in NAIA to Philippine Airlines, Lufthansa Airlines, Singapore Airlines and other international airlines. It also provides technical ground handling services to Air Niugini, China Airlines, Egypt Air, Eva Air, KLM Royal Dutch, Korean Air, Malaysia Airlines, Silk Air, Singapore Airlines, and Cathay Pacific Airways. The number of personnel went up to 2,231 as of December 31, 2003 (1,401 in production, and 830 as support personnel) from last year’s 2,004 employees, primarily due to the completion of the facility expansion for the overhaul of Airbus 330 and Airbus 340 aircraft. As previously discussed, almost 9% of the Company’s total revenues is provided by its share in the net earnings of its associated companies. And an average of 95% of this share is MAC’s share in LTP’s net income. As an ecozone locator, LTP has a 25-year lease contract with MacroAsia Properties Development Corporation. It also has a long-term technical services agreement with Philippine Airlines and Lufthansa Technik AG of Germany. Philippine Airlines accounts for more than 20% of LTP's present business; the loss of the account may have a significant impact on LTP's operations. LTP is not aware of any existing or probable government regulations that would have an adverse impact on its on-going business. It had no research and development activities during the last three fiscal years.

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Major risks involved The businesses of the Company are aviation-support oriented. One of the major risks that would have a significant impact on the Company’s operations are acts of terrorism and peace and order situation. Past events have had almost crippling effects on the aviation industry which the Company supports. Periodic strategic planning sessions with top management are being held to identify, assess and formulate related contingency plans to at least minimize the adverse impacts of the risks on the Company’s operations. Transactions with and/or Dependence on Related Parties

Please see Note 15 under the Company’s Consolidated Notes to Financial Statements (p. 52)

Significant Agreements and Commitments

Please see Note 27 under the Company’s Consolidated Notes to Financial Statements (p. 59) Other Information No bankruptcy, receivership or similar proceedings have been instituted against MacroAsia Corporation and its subsidiaries or affiliates. Furthermore, no material reclassification, merger, consolidation, or purchase or sale of a significant amount of assets not in the ordinary course of business has taken place. The total number of employees of MacroAsia Corporation and its subsidiaries as of December 31, 2003 is about 2,700 (2,500 in 2002).

The Company provides health/medical insurance/benefits to its employees through an independent Health Maintenance Organization (HMO). None of the Company and its subsidiaries and associated companies is subject to any Collective Bargaining Agreement (CBA). And there has been no strike, nor any attempt of protest against the Company during the past three years. MacroAsia Corporation or any of its subsidiaries has not issued any short term or long term commercial papers to date. The average annual cost of compliance to environmental laws for the last three years was below P50,000.

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Item 2. – PROPERTIES

MacroAsia Corporation (MAC) owns an Ecureuil AS 350-BA five passenger helicopter as of December 31, 2002. It has a rental agreement with MacroAsia Air Taxi Services, Inc. (a wholly owned subsidiary) for the use of the aircraft for a period of six (6) months, renewable thereafter for periods of six (6) months at the option of the parties. In 1996, the Company entered into a concession agreement with MIAA to exclusively operate an in-flight catering service for civil and/or military aircraft operating at the NAIA and/or the Manila Domestic Airport. The concession agreement is for a period of five (5) years from the start of operations of the catering service, renewable every year thereafter upon mutual agreement of the parties. Subsequent to this, MacroAsia entered into a lease agreement with MIAA for the use of a parcel of land where its catering concession facilities will be constructed. The lease contract is for a period of 10 years starting six (6) months after the start of the construction of the facilities, renewable every five (5) years thereafter. MAC has assigned all rights and obligations under this concession agreement to MacroAsia Eurest Catering Services Inc. (MECS), one of its subsidiary companies. MacroAsia Properties Development Corporation (MAPDC), a wholly-owned subsidiary of MacroAsia Corporation, owns five parcels of land with a total area of 7,912 square meters, located at East Service Road, Sucat, Muntinlupa, Metro Manila. These properties which were acquired in 1996 for future development are used as collateral for the loans of MacroAsia Eurest Catering Services (MECS), an associated company. On September 01, 2000, MAPDC executed a 25-year lease agreement with the Manila International Airport Authority covering a 23-hectare area located at NAIA at a monthly lease payment of P53.34 per square meter. With the full support of the Philippine Economic Zone Authority, MAPDC has transformed the area into an Economic Zone, and has signed a 25-year lease agreement with Lufthansa Technik Philippines, Inc., its anchor locator. MacroAsia Eurest Catering Services, Inc. (MECS), by way of assignment from MAC, acquired a ten (10) year lease on a 2-hectare lot at the Ninoy Aquino International Airport which is renewable every five years thereafter at the parties’ option. MECS has a license and technical assistance agreement with Eurest Spain, a related party. In the agreement, MECS was granted an exclusive right to use the mark and system of Eurest which shall also render to MECS technical assistance in establishing and operating its catering business. MECS also has a commercial marketing assistance agreement with Singapore Airport Terminal Services (SATS) wherein SATS will market the services of MECS to foreign airlines. As remuneration, MECS is to pay Eurest Spain and SATS a total fee based on sales and earnings before depreciation, interest and taxes. MacroAsia-Menzies Airport Services Corporation (Mac-Menzies) entered a lease contract with Philippine Airlines, Inc. in November 1998 covering the lease of airline ground handling equipment. The lease was originally for one (1) year renewable upon mutual written agreement on a year to year basis. The lease has since been renewed on a yearly basis.

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Item 3. – LEGAL PROCEEDINGS

As of the end of 2002, MacroAsia Corporation has pending cases against Blue Ridge Mining Corporation and Celestial Nickel Mining Exploration Corporation, DENR Case Nos. 97-1 & 97-2, with the Mines Adjudication Board, Department of Environment and Natural Resources. The cases consist of two (2) petitions to cancel Macroasia Corporation’s Mining Lease Contracts, filed by Blue Ridge Mining Corporation and Celestial Nickel Mining Exploration Corporation. The cases have been consolidated into a single case which is presently still awaiting final decision by the Mines Adjudication Board (MAB) of the Department of Environment and Natural Resources, as of December 31, 2002.

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

submitted to the vote of security holders of the Corporation.

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

MacroAsia Corporation’s common shares are listed and traded at the Philippine Stock Exchange and the approximate number of holders of its common equity as of December 31, 2003 is 1,034. 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 2003 and 2002 are as follows: 2003 High Low First Quarter P 0.60 P 0.40 Second Quarter 0.67 0.45 Third Quarter 0.87 0.53 Fourth Quarter 0.75 0.58

2002 High Low First Quarter P 1.54 P 1.10 Second Quarter 1.20 0.80 Third Quarter 0.80 0.65 Fourth Quarter 0.67 0.40 (As of April 5, 2004 0.50 0.50)

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The top 20 stockholders of MacroAsia Corporation as of December 31, 2003 are: Name No. of Shares

Held % of

Total 1 PCD Nominee Corporation (Filipino) 229,374,326 18.35 2 Fortune Tobacco Corporation 88,000,000 7.04 3 Asia Brewery, Inc. 88,000,000 7.04 4 Luy, Jr., Enrique 67,610,000 5.41 5 JNJ Realty Philippine Corp. 64,399,543 5.15 6 Solar Holdings Corporation 59,000,000 4.72 7 Sycip, Washington Z. 50,545,250 4.04 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 Pan-Asia Securities Corp. 45,905,250 3.67 16 PCD Nominee Corporation (Non-Filipino) 45,160,588 3.61 17 Gem Holdings, Inc. 31,750,000 2.54 18 Baguio Gold Holdings Corporation 30,000,000 2.40 19 Palomino Ventures, Inc. 28,900,000 2.31 20 Wonderoad Corporation 12,500,000 1.00

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

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Item 6. – Management Discussion and Analysis or Plan of Operation

Overview In 2003, MacroAsia Corporation (MAC) carried on its operations through its four (4) subsidiaries and two (2) associated companies.

MAC operates an in-flight kitchen at the Ninoy Aquino International Airport through MacroAsia Eurest Catering Services, Inc. (67%-owned) and another similar kitchen at the Mactan-Cebu International Airport (MCIA) through Cebu Pacific Catering Services, Inc. (40%-owned). These two (2) kitchens service the in-flight catering needs of most international airlines flying out of Manila and Cebu. MAC’s aircraft ground-handling operations at NAIA are carried out by its 70%-owned subsidiary, MacroAsia-Menzies Airport Services Corporation. Lufthansa Technik Philippines (LTP) which is a joint venture with Lufthansa Technik AG Germany, provides world-class aircraft maintenance, repair, and overhaul (MRO) services at both NAIA and MCIA. MAC also operates an economic zone at NAIA through its 100%-owned subsidiary, MacroAsia Properties Development Corporation (MAPDC), the registered developer/operator of the economic zone. Through another 100%-owned subsidiary, MacroAsia Air Taxi Service, Inc. (MAATS), MAC provides aircraft charter services from its base at the Manila Domestic Airport.

MAC focused on expanding its businesses from within its operating subsidiaries and affiliates. Due to the prevailing investment climate, the company opted to wait and to steer clear of the prevailing economic hardship instead of putting up new joint venture companies. Along this line, MAC joined Lufthansa Technik AG of Germany in expanding the operations of LTP in order to accommodate the overhaul of Airbus 330 and Airbus 340 aircraft in the Philippines. Total joint investment for this expansion was placed at about US$10 million. 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 events 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.

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2003 Compared with 2002 Consolidated revenues of P624 million for the current reporting year were higher by P16.5 million (or 2.72%) compared to 2002’s P607 million. Revenues from catering operations and charter flight services went up by P25.24 million (or 7.16%), and P1.20 million (or 26.68%), respectively. Ecozone rentals remained at the same level, while ground handling and aviation services were down by P8.46 million (or 10.60%). Meal revenues were up due to additional airline clients secured during the third quarter period, while increased number of helicopter flights resulted to higher charter flight revenues. Decrease in ground/aircraft service was due to the decrease in the number of flights of airline customers. On the other hand, total direct costs and operating expenses increased by about 3% in proportion to operating revenues due mainly to the rising cost of raw materials and fixed overhead costs. Other income (net) of P91.58 million, however, increased by more than 100% compared to its total in year 2002, primarily because of the P25.38 million increase (or 49%) in the Company’s share in the net earnings of associated companies. (Please note however, that there was a P25.2 million real estate asset-impairment charge recognized in the books in 2002.) Foreign exchange gain of P12.26 million increased by P1.93 million (or 18.73%) over its total amount in 2002 due to the further weakening of the Philippine peso against the US dollar. The above asset write-down represented the excess of the carrying value of the land held for future development over its recoverable amount based on its estimated fair market value as determined by an independent firm of appraisers. Without this asset impairment charge, net other income for 2003 would have been higher than 2002’s total by only 33.5%.

Interest income (net) decreased by P2.92 million (or 26.39%) mainly because of lower cash balance, resulting from the additional equity infusion by the Company into Lufthansa Technik Philippines, Inc. (LTP) to fund the expansion of the latter’s facilities for a second Airbus aircraft overhaul line. Consolidated net income of P75.15 million (after tax and minority interests) for the full year ended December 31, 2003 was higher by P33.15 million (or 78.95%) compared against last year’s P42 million. Again, it should be noted though that the Company booked an asset impairment charge of P25.17 million, and charged foreign exchange losses to operations in December of last year in compliance with International Accounting Standards. Cash and cash equivalents as of December 31, 2003 decreased by P237 million (or by 63.41%) due primarily to the additional equity infusion of P264.6 million by the Company into Lufthansa Technik Philippines, Inc. (LTP), an associated company, last February, 2003 to fund the expansion of LTP’s facilities for a second overhaul line for Airbus aircraft. Accounts receivable and inventory balances as of yearend 2003 were slightly down by P2.84 million (or 1.91%) and P1.21 million (or 5.22%), respectively, compared to the December 31, 2002 levels.

13

Other current assets increased by P48.07 or almost twice its balance last December 31, 2002 due mainly to the reclassification from “Other Non-current Assets” account of the P16 million tax credits received and P44 million input taxes. The Company's current ratio as of December 31, 2003 was at 2.55:1 (4.7:1 as of December 31, 2002). As of December 31, 2003, debt-to-equity ratio of the Company was at 0.13:1 (0.14:1 as of December 31, 2002)

Interests in joint venture was up by P324 million (or 45%) compared to its balance as of December 31, 2002 principally due to the additional capital infusion into LTP, as mentioned earlier, and MacroAsia’s share in the net earnings of the associated joint venture company. Other noncurrent assets as of December 31, 2003 decreased by P39 million (or 30%) compared to its 2002 yearend balance primarily because of a reclassification of input taxes to “other current assets” account, as previously discussed. The balance of accounts payable and accrued expenses as of December 31, 2003 was higher by P14.93 million (or by 16.27%) compared to its ending balance last year because of higher raw materials purchases in relation to higher sales volume of the in-flight catering business. Income tax payable of P1.32 million increased by P 1.03 million (or 3x of what was due in 2002) because MECS’ income tax holiday status has already expired last April 2003, while notes payable, as well as other short-term and long-term debts have continued their declines due to the sustained account settlements by the operating subsidiaries to minimize financing charges. Notes payable (decreased by P1.72 million or 10.78%), as well as other long-term debts continue their declines due to the sustained account settlements by the operating subsidiaries. The increase in loans from subsidiary’s stockholders of P21.12 million was just a reclassification from noncurrent liabilities to current liabilities. 2003 Compared to 2004 Projection For the next twelve months, the Company anticipates higher consolidated operating revenues compared to the current year’s total due to an 18% projected increase in in-flight meal volumes from existing and forecasted new airline clients, and a 40% increase in charter flight revenues due to the upcoming national and local elections. The Group expects a 41% increase in net other income mainly due to the expected increase in equity/share in the net earnings of associated companies. Moreover, the Company will attempt to further reduce total costs and expenses by as much as 8% (in relation to total operating revenues) through continuous efficiency campaign, cost-consciousness drive, innovation in systems and procedures, and labor reduction, but without sacrificing the quality of the products and services the Company provides.

14

The Company looks forward to better operational results and higher net income of P151.42 million (or more than 100% increase over what was earned in 2003) through efficient cost reductions, and enhanced performance of its subsidiaries and associated companies for year 2004. 2002 Compared with 2001 (As Restated)

2002 was a period when businesses appeared helpless as far as revenues were concerned, a period when companies had to resort to in-house cost-cutting and cost controls to survive the global economic downturn. It was a period marred with worldwide financial scandals, forcing governments to implement stricter financial reporting standards and to mandate full compliance to strict International Accounting Standards (IAS) which require more conservative accounting treatments of intangible assets, changes in valuation of property, plant and equipment, and impairment of assets, among others and a more comprehensive disclosure on related party transactions and financial reporting of interests in joint ventures.

2002 was without question another operationally tough year for MacroAsia Corporation, its subsidiaries and associated companies. Consolidated revenues for the year were lower by P60 million (or 8.97%) compared to 2001’s P667 million. Revenues from catering operations went down by P50 million (or 12.37%); ecozone rentals were pretty much at the same level; ground handling fees were down by P9 million (or 10.55%); and charter flight revenues were lower by P1.48 million (or 25%) when compared to the previous year’s level. These are attributable to the lingering global effect of 9/11 and the conflict in the Middle East, which restrict foreign travels, scale down the flight frequencies of international and domestic airlines and force airlines to continuously cut on their costs. Passenger loads and flight frequencies of airlines are the two most important factors that affect the revenue levels of the company’s operating units. While revenues declined in 2002, direct costs and operating expenses kept their upward swing as the rising prices of raw materials and essential supplies and utilities like power and diesel fuel appeared uncontrollable. In proportion to operating revenues, total direct costs and operating expenses were up by some 5% looking back at 2001 level. Income from operations of P2.28 million (as restated) is lower by P33.30 million (or 94%) compared to 2001 (as restated). This decrease could have been higher had the Company not successfully achieved labor cost reduction in relation to achieving greater operational efficiencies, and reduction in raw materials costs through maximized substitution of local produce in lieu of imported goods. These in-house initiatives implemented consistently during the year proved to be the most viable alternatives available at hand for survival as series of adverse global developments put tremendous restraints on revenues and added pressure on costs relentlessly. Other income (net) also took a 50% dip from a total of P86.63 million in 2001 to P43.43 million in 2002, but mainly because of the P25.2 million asset-impairment charge recognized in the books, and the decrease of P23 million (or 30.87%) in equity in net earnings of associated companies. This write-down represents the excess of the carrying value of the land held for future development over its recoverable amount based on its estimated fair market value as determined by an independent firm of appraisers. Without this asset impairment loss, net other income would have just gone down only by about 21% from last year’s P86.63 million level. In addition, MacroAsia’s share in the unrealized

15

foreign exchange loss of P21.4 million in 2002 which was deferred by LTP was expensed at consolidation level in accordance with the Group’s policy. The decrease of P13.1 million (or 54.2%) in interest income were significantly offset by the increase in foreign exchange gain of P5.4 million (or 111%), the increase in miscellaneous income of P1.07 million (or 845%) due to rental refunds, and the huge decrease of P11.7 million or (67%) in interest expenses from last year’s total of P17.3 million. Income before income tax of P45.71 million was P76.50 million (or 62.60%) lower than 2001’s P122.21 million. Provision for income tax was also down by 4% from 2001’s P2.92 million mainly because of computational adjustments for income already subjected to final tax at source, equity in net earnings of associated companies and effects of changes in tax rates. After considering minority interest, net income after tax for the current reporting year was P42 million (as restated) (P116 million in 2001, as restated), which was lower by P74 million (or 64%) than last year’s. Earnings per share for 2002 was thus lower by 64% at P0.0336 (P0.0925 in 2001).

Looking at the Company’s financial condition, one will note the relative high liquidity levels of 4.7:1 and 3.58:1 for the years ended December 31, 2002 and 2001, respectively. This was an offshoot of the policy of the Company to stay liquid during difficult financial times in order to at least minimize if not totally avoid high financial costs. Capital expenditures were deferred as much as possible and only those absolutely necessary for successful operations were implemented. As of the end of 2002, cash and cash equivalents stood at P374 million, which was only slightly lower by 1.44% than the balance of P379 million as of the end of 2001. Receivables were up by P8.46 million (or by 6%) from a P141 million balance as of the end of the previous year to P149 million as of December 31, 2002. The prevailing slow receivable turn-over rate was one of the adverse effects of the economic difficulties being felt by the aviation industry worldwide. Inventories of P23 million as of the end of 2002 were lower by P6.42 million or by 21.75% than the December 31, 2001 balance of P29.5 million. Lower volume of business, optimum substitution of less costly local raw materials for imported ones, and stream-lining of inventory re-order system brought about this lowering of inventories as of the end of the year. The level of the Company’s total current liabilities continued its stiff declines over the past few years. Total current liabilities of P158.68 million as of the end of 2001 was further lowered by about P36.32 million (or by 23%) to P122.37 million as of December 31, 2002. This significant reduction in current liabilities was achieved more by the much quicker payable turn-over rate during the year as the Company aims to shorten the settlement period for suppliers’ accounts within acceptable industry standards.

As of December 31, 2002 and 2001, the Company’s total assets and equity were at the same level of P2 billion. Book values per share as of December 31, 2002 and 2001 were P1.34 and P1.31, respectively.

16

Key Performance Indicators (KPI)

Company Return on Net Sales

Return on Investment

Return on Equity Cost Ratio Expense Ratio

2003 2002 2003 2002 2003 2002 2003 2002 2003 2002

Consolidated 12% 7% 4% 2% 4% 2% 75% 73% 27% 27%

MECS 0.13% 1% 0.09% 1% 0.48% 4% 65% 60% 28% 29%

MAPDC 1% -13% 10% -134% 10% -134% 96% 97% 3% 2%

MASCORP -4% 0.06% -14% 0.21% -14% 0.21% 83% 79% 23% 19%

MAATS 4% 4% 2% 2% 2% 2% 78% 80% 17% 23%

1. Return on Net Sales (RNS)

RNS is the ratio of the Company’s net income after tax to net sales computed by dividing net income 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 for 2003 was higher than 2002 by 5% due mainly to the increase in other income (equity in net earnings of associated companies) and the decrease in the provision for income taxes for the year. This ratio, however, was lower by 2% compared to the expected ratio of 14% principally because of lower revenues and higher cost and expenses when compared to the 2003 forecast.

2. Return on Investment (ROI)

ROI is the ratio of the Company’s net income after tax to shareholders’ equity and interest bearing liabilities computed by dividing net income by total shareholders’ equity and interest-bearing liabilities. This ratio measures the amount of income earned on invested capital. 2003 consolidated ROI was 2% higher than 2002 due to higher net income and lower interest-bearing liabilities. But compared to 2002 forecast, this ratio was slightly lower by 1% due to the lower than expected 2003 net income.

3. Return on Equity (ROE)

ROE is the ratio of the Company’s net income after tax to shareholders’ equity. This is computed by dividing net income after tax by the total shareholders’ equity. This KPI is a measure of the owners’ return for every peso of invested equity. This year’s ROE was 2% higher than 2002 due to higher net income, but 1% lower than the anticipated 5% ratio due to lower 2003 net income compared to forecast.

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4. Cost and Expense Ratio

Cost ratio is computed by dividing total cost over total net revenues, and 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. The 75% cost ratio for 2003 was higher by 2% due to the rising cost of raw materials and fixed overhead costs, while, expense ratio maintained its level at 27% due to the Company’s commitment to minimize expenses.

Plans and Prospects As before, MacroAsia Corporation, its subsidiaries and affiliates will continue to build on their existing businesses and pursue new viable opportunities. On-going aggressive marketing efforts for existing business and cost-cutting programs will be sustained for the next twelve (12) months to improve both consolidated revenues and net earnings. MacroAsia shall always look for potential global partners for the development of other aviation-related businesses and support services, such as the development of an aviation training center and cargo handling/warehousing facilities among others. MacroAsia and its subsidiaries expect to maintain a respectable liquidity position and will need to raise additional funds only if new major projects materialize. MacroAsia or any of its subsidiaries and affiliates do not expect to buy or sell any significant assets (plant or equipment). The total number of employees however is expected to further increase within the next 12 months as a result of anticipated increase in the volume of aircraft maintenance, repairs, and overhaul business. 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 are expected to undergo specialized training and development in Germany and other locations overseas.

Item 7. – Financial Statements The consolidated financial statements are filed as part of this Form 17-A (pp. 30-62) Item 8. – 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.

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

Name

Age

Term as Director

Period Served as Director

Business Experience for the Past 5 Years

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

82 1 yr. Since August, 1997

He is the Chairman of Lufthansa Technik Philippines, Inc., and State Investment Trust, Inc. For more than five years, he’s been a Director of Philippine Airlines, Belle Corporation, PHINMA, State Land Group, and Cityland Development among others.

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


He is the Chairman of J.F. Rubber Phils., and the Managing Director of Goodwind Development Corp. He is also a Director of Philippine Airlines (starting August 2003) and Basic Holdings Corporation.

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


He is presently the Vice Chairman of Philippine Airlines, 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.

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


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

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


He is presently the Chairman and President of Basic Capital Investments Corp, and President of PNB Forex, Inc., and 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 Air Philippines, Balabac Resources & Holdings Co., Inc., and Baguio Gold Holding Corporation.

George SyCip (Director; Member – Audit Committee) (American)

47 1 yr. Since July, 1996

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

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


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

Peter B. Favila (Independent Director) (Filipino)


He is a Director of Philippine Stock Exchange, Philippine Clearing House Corp., Platinum Plans Phils., Inc., Asian Petroleum Corp., and Allied Pacific Equity Consultants, Inc. He was President of Allied Banking Corporation from 1998 to 2001 and was the President and CEO of the Philippine National Bank from 1995 to 1998 among others

Stewart C. Lim (Director) (Filipino)


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

The Directors' term of office is one year. Election for the Board of Directors is conducted during the annual stockholders' meeting held every third Friday of July. Executive Officers: Daniel Roman S. Pido (VP-Operations) (Filipino)

56 6 yrs. Since February, 1997

He is the President and CEO of MacroAsia - Eurest Catering Services, Inc, MacroAsia Air Taxi Services Inc., MacroAsia Properties Development Corp., and a Director of Cebu Pacific Catering Services, Inc. He held the position of AVP-Special Assistant to the President and COO of Philippines Airlines from 1994 to 1997.

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

51 7 yrs. Since November, 1996

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

Atty. Marivic T. Moya (VP-Legal/Human Resources) (Filipino)

43 4 yrs. Since May 1999 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

20

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-Business Development) (Filipino)

49 5 yrs. Since March, 1998

He is the Vice President of MacroAsia-Menzies Airport Services Corporation.

Significant Employee: Maria Corazon M. Pineda, Jr. (Chief Accountant) (Filipino)

28 > 1 yr. Since August, 2002

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

Family Relationships: Lucio K. Tan, Jr., director, is the brother-in-law of Joseph T. Chua, President and Chief

Executive Officer and the nephew of Mariano Tanenglian, Director of MacroAsia Corporation. Washington Sycip, Chairman of the Board, is the father of George Sycip, Director and the father-in-law of Atty. Florentino M. Herrera III, Corporate Secretary, and one of the partners of Herrera Teehankee & Faylona Law Offices, one of our corporate lawyers.

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 original date of filing this report (i.e., April 15, 2004). 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.

21

Item 10. – EXECUTIVE COMPENSATION The following table summarizes the actual aggregate compensation of all directors and officers of the Company for 2002 and 2003, as well as the estimated aggregate compensation for the year 2004: (a) Summary Compensation Table

Name and Principal Position

Year

Salaries (P'mil)

Bonus

Other Annual

Compen-sation

Executive Officers Lucio K. Tan, Jr., President/CEO Joseph T. Chua, Chief Operating Officer Daniel S. Pido, VP-Business Development Reynaldo O. Munsayac, VP-Finance & Administration

Marivic T. Moya, VP-Legal/Human Resources Christopher C. Lu, VP-Business Development All Directors and Officers as a Group Unnamed

2002

(Actual)

9.46

9.99

-

-

Executive Officers Joseph T. Chua, President/CEO Daniel S. Pido, VP-Operations Reynaldo O. Munsayac, VP-Finance & Administration Marivic T. Moya, VP-Legal/Human Resources Christopher C. Lu, VP-Business Development All Directors and Officers as a Group Unnamed

2003

(Actual)

9.29

9.86

-

-

Executive Officers Joseph T. Chua, President/CEO Reynaldo O. Munsayac, VP-Finance & Administration Marivic T. Moya, VP-Legal/Human Resources Christopher C. Lu, VP-Business Development All Directors and Officers as a Group Unnamed

2004

(Estimate)

9.58

10.19

-

-

(b) Compensation of Directors

(1) Members of the Board do not receive any regular compensation from the Company, except for every regular or special meeting actually attended, each member of the Board of Directors receives a per diem of P2,000.00.

(2) There are no material terms of, nor any other arrangements with regard to

compensation as to which directors are compensated, or are to be compensated, directly or indirectly, for any services provided as a director.

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(c) Employment Contracts and Termination of Employment and Change-in-Control Arrangements. (1) Executive officers’ compensation consists of a monthly negotiated salary, a fixed

monthly allowance, and 13th month pay. (2) There are no other compensatory plan or arrangement with the named executive

officers, which results or will result from the resignation, retirement or any other termination of the executive officer's employment with the Company and its subsidiaries or from a change-in-control of the Company or a change in the named executive officer's responsibilities following a change-in-control.

(d) Warrants and Options Outstanding: Repricing

(1) Warrants Held by Officers and Directors as of December 31, 2003 :

Name of Owner/Address

Amount of Ownership (Number of Warrants)

Date of Grant

Market Price at Date of Grant

Joseph T. Chua President/Chief Executive Officer

50,000

- -

Daniel Roman S. Pido VP - Operations

- - -

Reynaldo O. Munsayac VP – Finance & Administration

- - -

Marivic T. Moya VP – Legal/Human Resources

- - -

Christopher C. Lu VP – Business Development

- - -

All officers and directors as a group

27,802,000 - -

Total warrants outstanding 500,000,000 - -

The warrants were issued at a price of P0.10 each, which entitled the holder thereof the

right to subscribe to one new common share with a par value of P1 in the capital of the Company, at an exercise price of P6 within ten (10) trading days immediately preceding the end of five years from the listing date of the warrants, i.e., July 21, 2005. 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 :

i. change in par value of each share; ii. payment of stock dividends; iii. merger, consolidation, and/or reorganization; iv. disposition of a substantial portion of the Company’s assets to stockholders for cash;

and v. offer of new shares at a price lower than the exercise price

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In addition, 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. Please note, however, that there were no grants of warrants to any director, officer, or employees, other than the exercised entitlements of their existing shares. (2) There has been no change/adjustment/amendment to the price of the Company’s

outstanding stock warrants since the date of registration. Item 11. – Security Ownership of Certain Beneficial Owners & Management (1) Security Ownership of Certain Record and Beneficial Owners as of December 31, 2003 : Title of Class

Name of Owner/Address

Relationship with Issuer

Name of Beneficial Owner and

Relationship with Record Owner

No. of Shares

Held

% of Class

COMMON PCD Nominee Corporation

G/F MSE Building 6754 Ayala Ave., Makati City

Shareholder Triton Securities Corp.

229,374,326 18.35%

COMMON Fortune Tobacco Corporation Parang, Marikina City

Shareholder Shareholdings, Inc. 88,000,000 7.04%

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

Shareholder Shareholdings, Inc. 88,000,000 7.04%

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

Shareholder - 67,610,000 5.41%

COMMON JNJ Realty Philippine Corp. J.M. Basa, Tupas, Cebu City

Shareholder Edwin Lu Julieta Lu Maria Cristina Lu Maria Lu Do Evangeline Lu

64,399,543 5.15%

Note: The above listed beneficial or record owner did not acquire additional shares from options, warrants, rights,

conversion privilege or similar obligations, or otherwise within thirty (30) days from 31 December 2003. All beneficial owners are Filipino citizens.

Based on the sworn Corporate Secretary’s Certificates submitted by the respective companies named below, the registered stockholders of the above corporations holding more than 5% of the outstanding shares of Macroasia Corporation are as follows:

TRITON SECURITIES CORP. ** SHAREHOLDINGS, INC. **

Edwin Luy Irene Tan Luy Enrique Luy, Jr.

Lucio Tan Benito Tan Kee Hiong Mariano Tanenglian Carmen Khao Tan

** The beneficial owners of the above corporations are the natural persons acting together, to direct the voting or

disposition of the shares held by the corporation.

24

(2) Security Ownership of Management as of December 31, 2003 :

Title of Class

Name of Owner/Position

Amount of Ownership

Nature of Ownership

% of Class

COMMON Joseph T. Chua

President and CEO 425,000 B <1%

Daniel Roman S. Pido

VP - Operations - - -

Reynaldo O. Munsayac

VP – Finance & Admin Support - - -

Marivic T. Moya

VP – Legal/Human Resources - - -

Christopher C. Lu

VP – Business Development - - -

Security Ownership of All Directors and Officers as a Group COMMON All directors and officers 63,058,048 B 5.04%

(3) Voting Trust Holders of 5% or More :

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

(4) Changes in Control:

There was no significant change in control of MacroAsia Corporation in 2003. The management team also remained the same.

Item 12. – Certain Relationships and Related Party Transactions

Please see Note 15 under the Company’s Notes to Financial Statements (p. 52)

25

PART IV- CORPORATE GOVERNANCE

(a) Evaluation System

While still in the process of formalizing an 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 are presided by the CEO and attended by other officers of the Company and the Presidents/Chief Operating Officers of the Subsidiaries and Affiliates.

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

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

PART V- EXHIBITS AND SCHEDULES

Item 13. – Exhibits and Reports on SEC Form 17-C a) Exhibits – See accompanying Index to Exhibits (p. 27 and 71) b) Reports on SEC Form 17-C

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

(1) Election of Directors and Officers held on 18 July 2003; and

(2) Resignation of Atty. Gemma Santos as Corporate Secretary, and election

of Atty. Florentino M. Herrera III, as replacement – reported on December

29, 2003.

27

MACROASIA CORPORATION

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

Page No.

Consolidated Financial Statements Statement of Management’s Responsibility for Financial Statements 28 Report of Independent Public Accountants 31 Consolidated Balance Sheets as of December 31, 2003 and 2002 32 Consolidated Statements of Income for the years ended December 31, 2003,

2002 and 2001 33

Consolidated Statement of Changes in Equity for the years ended December 31, 2003, 2002 and 2001

34

Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001

35

Notes to Consolidated Financial Statements 37

Supplementary Schedules Report of Independent Public Accountants on Supplementary Schedules * 63 A. Marketable Securities – (Current Marketable Equity Securities and Other

Short-term Cash Investments) 64

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

65

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

66

D. Indebtedness of Unconsolidated Subsidiaries and Related Parties * E. Intangible Assets – Other Assets 67 F. Long-Term Debt * G. Indebtedness to Related Parties 68 H. Guarantees of Securities of Other Issuers * I. Capital Stock 69 * These schedules, which are required by paragraph 4(e) of SRC Rule 68.1, have been omitted because they are either not

required, not applicable, or the information required to be presented is included in the Company's consolidated financial statements or the notes to consolidated financial statements.

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)

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COVER SHEET

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Report of Independent Auditors The Stockholders and the Board of Directors MacroAsia Corporation 12th Floor, Allied Bank Center 6754 Ayala Avenue, Makati City We have audited the accompanying consolidated balance sheets of MacroAsia Corporation and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in equity and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the Philippines. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MacroAsia Corporation and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the Philippines. C. A. MANLAPIG Partner CPA Certificate No. 26164 SEC Accreditation No. 0084-A Tax Identification No. 123-305-048 PTR No. 7012992 January 5, 2004 Makati City March 26, 2004

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MACROASIA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31

2003 2002

(Restated, Note 2) ASSETS Current Assets Cash and cash equivalents (Notes 4 and 15) P=136,748,487 P=373,760,956 Receivables - net (Note 5) 146,324,058 149,167,549 Inventories - at cost (Note 6) 21,903,843 23,109,390 Other current assets (Notes 7 and 23) 78,574,993 30,506,058 Total Current Assets 383,551,381 576,543,953 Noncurrent Assets Investment in associate (Notes 8 and 15) 21,085,270 20,935,232 Investment in joint venture (Notes 9 and 15) 1,043,489,505 719,584,928 Property and equipment - net (Note 10) 371,040,202 389,186,415 Land held for future development - net (Notes 11 and 17) 118,680,000 118,680,000 Other assets (Notes 12, 23 and 27) 90,627,179 129,377,706 Total Noncurrent Assets 1,644,922,156 1,377,764,281 TOTAL ASSETS P=2,028,473,537 P=1,954,308,234 LIABILITIES AND EQUITY Current Liabilities Notes payable (Note 13) P=14,254,281 P=15,976,200 Accounts payable and accrued liabilities (Notes 14 and 20) 106,744,440 91,809,711 Income tax payable 1,322,336 293,384 Dividends payable 7,137,132 7,137,145 Loans from subsidiary’s stockholders (Note 16) 21,125,000 – Current portion of: Long-term debt (Note 17) – 6,481,481 Obligations under capital lease (Note 27) – 669,277 Total Current Liabilities 150,583,189 122,367,198 Noncurrent Liabilities Loans from and payables to subsidiaries’ stockholders (Note 16) 57,845,076 86,305,625 Rental deposit (Note 15) 24,588,996 24,588,996 Total Noncurrent Liabilities 82,434,072 110,894,621 Total Liabilities 233,017,261 233,261,819 Minority Interest 41,201,679 41,939,376 Equity Capital stock - P=1 par value (Note 24) Authorized - 2,000,000,000 shares Issued - 1,250,000,000 shares 1,250,000,000 1,250,000,000 Additional paid-in capital (Note 24) 231,437,118 231,437,118 Warrants outstanding (Note 24) 50,000,000 50,000,000 Retained earnings (Note 26) 222,817,479 147,669,921 Total Equity 1,754,254,597 1,679,107,039 TOTAL LIABILITIES AND EQUITY P=2,028,473,537 P=1,954,308,234 See accompanying Notes to Consolidated Financial Statements.

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MACROASIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31 2002 2001 2003 (Restated, Note 2) (Restated, Note 2)

REVENUE In-flight catering services P=377,811,496 P=352,567,107 P=402,315,992 Rental and administrative fees (Note 15) 169,233,204 170,709,127 169,899,607 Ground handling and aviation services 71,356,788 79,814,564 89,228,463 Charter flights 5,650,778 4,460,567 5,939,923 624,052,266 607,551,365 667,383,985

DIRECT COSTS (Note 18) 470,843,136 442,230,688 465,638,318

GROSS PROFIT 153,209,130 165,320,677 201,745,667

OPERATING EXPENSES (Note 19) Selling 17,040,055 9,492,775 15,555,817 General and administrative 153,494,823 153,546,048 150,613,004 170,534,878 163,038,823 166,168,821

INCOME (LOSS) FROM OPERATIONS (17,325,748) 2,281,854 35,576,846

OTHER INCOME (CHARGES) Equity in net income of joint venture and associate (Notes 8 and 9)

77,040,560

51,655,702

74,725,277

Foreign exchange gain - net 12,255,368 10,322,434 4,902,540 Interest income (Note 15) 8,155,411 11,079,797 24,186,263 Interest expense (6,799,648) (5,655,446) (17,312,246) Impairment loss on land held for future development (Note 11)

–

(25,172,303)

–

Others - net 931,944 1,199,496 126,880 91,583,635 43,429,680 86,628,714

INCOME BEFORE INCOME TAX AND MINORITY INTEREST 74,257,887 45,711,534 122,205,560

PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 23) Current 5,450,288 1,050,984 1,059,370 Deferred (5,602,262) 1,750,646 1,859,532 (151,974) 2,801,630 2,918,902

INCOME BEFORE MINORITY INTEREST 74,409,861 42,909,904 119,286,658

MINORITY INTEREST 737,697 (916,035) (3,621,647)

NET INCOME P=75,147,558 P=41,993,869 P=115,665,011

Basic Earnings Per Share (Note 25) P=0.0601 P=0.0336 P=0.0925 See accompanying Notes to Consolidated Financial Statements.

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MACROASIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Years Ended December 31 2002 2001 2003 (Restated, Note 2) (Restated, Note 2)

CAPITAL STOCK - P=1 par value (Note 24) P=1,250,000,000 P=1,250,000,000 P=1,250,000,000

ADDITIONAL PAID-IN CAPITAL (Note 24) 231,437,118 231,437,118 231,437,118

WARRANTS OUTSTANDING (Note 24) 50,000,000 50,000,000 50,000,000

RETAINED EARNINGS (Note 26) Beginning of year As previously reported 162,727,947 159,707,960 76,935,739 Change in accounting for preoperating expenses (Note 2)

(15,058,026)

(54,031,908)

(86,924,698)

As restated 147,669,921 105,676,052 (9,988,959) Net income for the year 75,147,558 41,993,869 115,665,011 End of year 222,817,479 147,669,921 105,676,052

TOTAL EQUITY P=1,754,254,597 P=1,679,107,039 P=1,637,113,170 See accompanying Notes to Consolidated Financial Statements.

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

2003 2002

(Restated, Note 2) 2001

(Restated, Note 2)

CASH FLOWS FROM OPERATING ACTIVITIES Net income P=75,147,558 P=41,993,869 P=115,665,011 Adjustments for: Depreciation and amortization (Notes 18 and 19)

52,824,048

47,584,244

49,873,076

Provision for income tax (151,974) 2,801,630 2,918,902 Provision for doubtful accounts and other losses

17,270,877

8,428,511

4,974,524

Provision for retirement benefits 3,328,972 2,707,494 2,580,096 Provision for input tax claims 2,394,679 – 788,183 Equity in net income of joint venture and associate (Notes 8 and 9) (77,040,560) (51,655,702) (74,725,277) Minority interest (737,697) 916,035 3,621,647 Loss (gain) on sale of equipment 219,471 2,326 (79,489) Impairment loss on land held for future development (Note 11)

–

25,172,303

–

Unrealized foreign exchange gain (1,896,850) (9,622,201) (5,028,316) Interest income (8,155,411) (11,079,797) (24,186,263) Interest expense 6,799,648 5,655,446 17,312,246 Write-off of accounts receivable – – 11,550 Operating income before working capital changes 70,002,761 62,904,158 93,725,890 Decrease (increase) in: Receivables (7,845,917) (10,121,001) (27,677,875) Inventories 1,205,547 6,424,992 (10,459,880) Other current assets (1,000,126) (5,405,530) (2,815,528) Increase (decrease) in: Accounts payable and accrued liabilities 11,892,976 (42,373,330) (29,477,138) Rental deposit – (49,159) 430,863 Cash generated from operations 74,255,241 11,380,130 23,726,332 Interest received 6,905,068 10,863,702 24,089,211 Interest paid (1,541,022) (2,500,238) (13,912,633) Income taxes paid (5,272,093) (536,548) (1,227,696) Net cash from operating activities 74,347,194 19,207,046 32,675,214

CASH FLOWS FROM INVESTING ACTIVITIES Additional investment in joint venture (Note 9) (264,600,000) – – Acquisition of property and equipment (31,464,619) (23,866,704) (21,637,517) Proceeds from sale of property and equipment and other assets

340,501

240,208

410,000

Dividends received (Notes 8 and 9) 17,585,945 17,354,125 – Receipts from (advances to) associate 4,341,741 (16,737,530) 9,200,000 Increase in other assets (14,195,807) (9,894,233) (17,139,418) Net cash used in investing activities (287,992,239) (32,904,134) (29,166,935) (Forward)

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- 2 - Years Ended December 31

2003 2002


(Restated, Note 2)

CASH FLOWS FROM FINANCING ACTIVITIES Loans and advances received from (paid to) subsidiaries’ stockholders (P=15,675,000) P=13,077,134 P=12,311,036 Proceeds from issuance of notes payable 5,352,000 10,220,000 – Payment of: Notes payable (14,890,951) (12,500,000) (27,274,000) Obligations under capital lease (669,277) (1,152,715) (934,195) Long-term debt – (11,111,111) (11,111,111) Dividends paid (13) (515,196) – Net cash used in financing activities (25,883,241) (1,981,888) (27,008,270)

NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 2,515,817 10,232,570 3,297,429

NET DECREASE IN CASH AND CASH EQUIVALENTS (237,012,469) (5,446,406) (20,202,562)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 373,760,956 379,207,362 399,409,924

CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 4) P=136,748,487 P=373,760,956 P=379,207,362 See accompanying Notes to Consolidated Financial Statements.

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MACROASIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Corporate Information and Business Operations Corporate Information MacroAsia Corporation (the “Company”) was incorporated in the Philippines on February 16,

1970 under the name “Infanta Mineral & Industrial Corporation” to engage in the business of geological exploration and development. On January 26, 1994, its Articles of Incorporation was amended to change its primary purpose from exploration and development to that of engaging in the business of a holding company, and change its corporate name to “Cobertson Holdings Corporation.” On November 6, 1995, the Company’s Articles of Incorporation was again amended to change its corporate name to its present name.

The Company and its subsidiaries (see Note 2) (the “Group”) had an average number of

employees of 447 in 2003 and 464 in 2002. 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 on March 26, 2004.

Business Operations The Group is presently engaged in aviation-support businesses at the Ninoy Aquino International Airport (“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 an economic zone. These activities are further described in Note 3. 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 a 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 Court’s decision nullifying PIATCO’s 1997 concession agreement for a 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, 2003 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 PIATCO contract, upon 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 would be the operator of Terminal 3 and shall 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 and its affiliate, Philippine Airport and Ground Services, Inc., a NAIA service operator, were expected to have 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 Terminals 1 and 2 would be affected upon transfer of their airline customers to Terminal 3.

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- 2 - Two of the Company’ s subsidiaries, namely MacroAsia-Eurest Catering Services, Inc. (“ MECS” ,

67%- 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 Supreme Court’ s ruling, management believes that the issues emanating from the

disputed provisions of the PIATCO contract have been resolved and would now allow the present service operators at NAIA, which include MECS and MASCORP, to continue servicing their airline customers.

2. Summary of Significant Accounting Policies The principal accounting policies adopted in preparing the consolidated financial statements of

the Group are as follows: Basis of Preparation The accompanying consolidated financial statements have been prepared using the historical cost

basis and in conformity with accounting principles generally accepted in the Philippines.

Adoption of New Accounting Standards On January 1, 2003, the Group adopted the following Statement of Financial Accounting

Standards (“ SFAS” )/International Accounting Standards (“ IAS” ), which became effective in 2003:

• SFAS 10/IAS 10, Events After the Balance Sheet Date, prescribes the accounting and

disclosures related to adjusting and non-adjusting subsequent events. Additional disclosures required by the standard, principally the date of authorization for issue of the consolidated financial statements, were included in the consolidated financial statements.

• SFAS 37/IAS 37, Provisions, Contingent Liabilities and Contingent Assets, provides the

criteria for the recognition and bases for measurement of provisions, contingent liabilities and contingent assets. It also specifies the disclosures that should be included with respect to these items. Adoption of this standard has no effect on the consolidated financial statements.

• SFAS 38/IAS 38, Intangible Assets, establishes the criteria for the recognition and

measurement of intangible assets. It also requires that expenditures on research, startup, training, advertising and relocation be expensed as incurred.

Accordingly, the Company’ s subsidiaries, namely MECS, MASCORP and MacroAsia Mining

Corporation (“ MMC” ), joint venture and associate, changed their method of accounting for preoperating expenses by charging to expense the remaining unamortized balance of preoperating expenses. Previously, such expenses were deferred and, except for MMC, amortized.

The Company’ s subsidiaries and associate accounted for the effect of the change retroactively

and their comparative statements for 2002 and 2001 have been restated. On the other hand, the Company’ s joint venture, Lufthansa Technik Philippines, Inc. (“ LTP” , see Note 9) accounted for the effect of the change using the allowed alternative treatment and reported the cumulative effect of the change amounting to P=38,399,865 in its 2003 statement of income.

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- 3 -

For purposes of applying the equity method, the Company accounted for the effect of the

change in accounting policy of its subsidiaries, joint venture and associate retroactively and the comparative statements for 2002 and 2001 have been restated. The change increased consolidated net income for 2002 and 2001 by P=38,973,882 and P=32,892,790, respectively. Retained earnings as of December 31, 2002, 2001 and 2000 were reduced by P=15,058,026, P=54,031,908 and P=86,924,698, respectively.

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

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

Percentage of Ownership Direct Indirect MacroAsia Air Taxi Services, Inc. (“ MAATS” ) 100 – MacroAsia Properties Development Corporation (“ MAPDC” ) 100 – MASCORP 70 – Airport Specialists’ Services Corporation (“ ASSC” )* – 70 MECS 67 – MMC** 67 – * A wholly owned subsidiary of MASCORP; has ceased commercial operations effective May 1, 2001 (see Note 28). **Incorporated on September 25, 2000; has not started commercial

operations.

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

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

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

Investment in Associate

Investment in associate is accounted for under the equity method. An associate is an entity in which the Company has significant influence, mainly through representation in the associate’ s board of directors and participation in policy-making processes, and which is neither a subsidiary nor a joint venture.

The investment in associate is 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.

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- 4 -

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

Investment in Joint Venture Investment in joint venture is accounted for under the equity method. Under this method, the

investment is carried in the consolidated balance sheets at cost plus post-acquisition changes in the Company’ s share of net assets of the joint venture, less any impairment in value. The consolidated statements of income reflect the Company’ s share in the results of operations of the joint venture. Unrealized gains arising from transactions with its joint venture are eliminated to the extent of the Group’ s interest in the joint venture, against the investment in joint venture. Unrealized losses are eliminated similarly but only to the extent that there is no evidence of impairment of the asset transferred.

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

investments that are readily convertible to known amounts of cash with original maturities of three months or less from date of acquisition and are subject to an insignificant risk of changes in value.

Receivables Receivables are stated at face value less allowance for doubtful accounts. Inventories Inventories are stated at the lower of cost and net realizable value. Cost incurred in bringing the

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

Input Tax Input tax is stated at 10% of purchase cost of goods and services less any allowance for probable

loss.

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 its purchase price, including import duties, taxes, borrowing costs and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property and equipment have been put into operation, such as repairs and maintenance and overhaul costs, are normally charged to operations in the period when the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future

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- 5 -

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

Depreciation is computed using the straight-line method over the estimated useful lives of the

assets as follows:

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

Building and leasehold improvements are amortized over the term of the lease or the life of the asset (which ranges from two to five years), whichever is shorter.

The useful lives and depreciation and amortization method are reviewed periodically to ensure that the period and method of depreciation and amortization are consistent with the expected pattern of economic benefits from items 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 put into operational use.

Land Held for Future Development Land held for future development is stated at acquisition cost less impairment in value. Helicopter Unit and Spare Parts for Sale Helicopter unit and spare parts for sale are stated at the lower of cost less accumulated

depreciation, which is determined based on flight hours, and net realizable value.

Asset Impairment Starting January 1, 2002, the carrying values of long-lived assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amounts, the assets or cash-generating units are written down to their recoverable amounts. The recoverable amount of the asset is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses, if any, are recognized in the consolidated statements of income.

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- 6 - 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 In-flight catering revenue is recognized upon delivery of goods to and acceptance by the airlines. 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 recognized over the lease term based on the provisions of the lease contract.

Interest Income Interest income is recognized on a time proportion basis that reflects the effective yield on the asset.

Retirement Benefits Costs

The costs of the Group’ s defined benefit retirement plan, covering substantially all of its employees, are actuarially determined using the projected unit credit method. This method reflects services rendered by employees to the date of valuation and incorporates assumptions concerning employees’ projected salaries. Retirement benefits costs include the current service cost plus amortization of past service cost, experience adjustments, and changes in actuarial assumptions over the expected average remaining working lives of the covered employees. In 2001 and prior years, the Group (except MECS, which determined retirement benefits costs using the projected unit credit method) accrued retirement benefits equivalent to the estimated amounts required to be paid to regular employees pursuant to Republic Act No. 7641. The effect of the change in the method of determining the cost of retirement benefits is not material to the Group.

Borrowing Costs

Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are directly attributable to the acquisition or construction of a qualifying asset. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the assets are substantially ready for their intended use. If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognized.

Leases Operating lease payments are recognized as expense in the consolidated statements of income

based on the terms of the lease agreement.

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- 7 - Income Tax Deferred tax assets and liabilities are recognized for the future tax consequences attributable to

temporary differences between the financial reporting bases of assets and liabilities and their related tax bases, the net operating loss carryover (“ NOLCO” ) and the carryforward benefit of the excess of minimum corporate income tax (“ MCIT” ) over the regular corporate income tax. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled, and NOLCO and MCIT are expected to be applied.

A valuation allowance is provided when some portion or all of the deferred tax assets are not

expected to be realized in the future. Any change in the valuation allowance on deferred tax assets is included in the computation of provision for income tax for the year.

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

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

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

shares outstanding during the year. Diluted earnings per share is computed by dividing net income by the weighted average number

of shares outstanding during the year, adjusted for the effect of any dilutive warrants.

New Accounting Standards Effective Subsequent to 2003 The Accounting Standards Council has approved the following accounting standards, which will

be effective subsequent to 2003:

• SFAS 12/IAS 12, Income Taxes, prescribes the accounting treatment for current and deferred income taxes. The standard requires the use of a balance sheet liability method in accounting for deferred income taxes. It requires the recognition of a deferred tax liability and, subject to certain conditions, deferred tax asset for all temporary differences with certain exceptions. The standard provides for the recognition of a deferred tax asset when it is probable that taxable income will be available against which the deferred tax asset can be used. It provides for the recognition of a deferred tax liability with respect to asset revaluations. It also specifies the disclosures that should be included with respect to these items. The Group will adopt SFAS 12/IAS 12 in 2004 and, based on current circumstances, believes that the effect of adoption of this standard will not be material.

• SFAS 17/IAS 17, Leases, prescribes the accounting policies and disclosures to apply to

finance and operating leases. Finance leases are those that transfer substantially all risks and rewards of ownership to the lessee.

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- 8 -

A lessee is required to capitalize finance leases as assets and recognize the related liabilities

at the lower of the fair value of the leased asset and the present value of the minimum lease payments. The lessee should also depreciate the leased asset. Lease payments under an operating lease should be recognized as an expense in the consolidated statements of income on a straight-line basis over the lease term unless another systematic basis is more representative of the time pattern of the user’ s benefit.

A lessor is required to record finance leases as receivables at an amount equal to the net

investment in the lease. Lease income should be recognized on the basis of a constant periodic rate of return on the lessor’ s outstanding net investment. On the other hand, a lessor should present as an asset and depreciate accordingly assets that are subject to operating leases. Lease income under an operating lease should be recognized in the consolidated statements of income on a straight-line basis over the lease term unless another systematic basis is more representative of the time pattern in which user’ s benefit derived from the leased asset is diminished.

The Group will adopt SFAS 17/IAS 17 in 2004 and, based on presently available estimates,

the new standard is expected to result in the recognition by MAPDC of additional lease expense and liability of about P=15 million and additional rental income, including administrative fees, of about P=17 million in 2004.

• SFAS 21/IAS 21, The Effects of Changes in Foreign Exchange Rates, provides for restrictive conditions for the capitalization of foreign exchange losses. The Group will adopt SFAS 21/IAS 21 in 2005. As of December 31, 2003, the Group has no undepreciated capitalized foreign exchange adjustments.

On December 11, 2003, the Securities and Exchange Commission (“ SEC” ) issued SEC Memorandum Circular No. 14, Series of 2003, Guidelines on Preparation of Functional Currency Financial Statements, which allows the use of functional currency other than Philippine pesos for financial statement purposes and contains the guidelines for the use of such functional currency. LTP is planning to adopt the functional currency reporting beginning January 1, 2004 and has yet to determine the full impact of the adoption on its financial statements.

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

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

These 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 foreign and domestic passenger airlines. It operates

an in-flight catering business at NAIA and the Manila Domestic Airport (“ MDA” ). • MASCORP provides both ramp and passenger handling and aviation services to a foreign

airline at NAIA and a domestic carrier at MDA.

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- 9 -

• 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 sub-leased the property it leased from Manila International Airport Authority (“ MIAA” ) (see Note 27).

• MMC was incorporated to serve as the institutional vehicle through and under which the

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

The Group has only one geographic segment. Segment assets include the operating assets used by a segment and consist principally of cash and

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

Financial information on the Group’ s business segments as of December 31, 2003 and 2002 and

for each of the three years in the period ended December 31, 2003 is as follows:

2003 2002 2001 REVENUE - External In-flight catering services P=377,811,496 P=352,567,107 P=402,315,992 Ecozone development/operation 169,233,204 170,709,127 169,899,607 Ground handling and aviation services 71,356,788 79,814,564 89,228,463 Charter flights 5,650,778 4,460,567 5,939,923 Total segment and consolidated revenue P=624,052,266 P=607,551,365 P=667,383,985

2003 2002


(Restated, Note 2) RESULT - Segment result In-flight catering services P=27,616,498 P=38,040,181 P=61,005,863 Ecozone development/operation 1,190,777 2,372,938 4,145,791 Ground handling and aviation services (4,611,337) 4,472,903 4,814,111 Charter flights (39,877) (152,740) 87,519 Mining (36,040) (32,066) 221,191 Total segment result 24,120,021 44,701,216 70,274,475 Unallocated corporate expenses and eliminations

(41,445,769)

(42,419,362)

(34,697,629)

Income (loss) from operations (17,325,748) 2,281,854 35,576,846 Other income - net 91,583,635 43,429,680 86,628,714 Benefit from (provision for) income tax 151,974 (2,801,630) (2,918,902) Minority interest 737,697 (916,035) (3,621,647) Consolidated net income P=75,147,558 P=41,993,869 P=115,665,011

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- 10 -

OTHER INFORMATION

2003 2002

(Restated, Note 2) Segment assets In-flight catering services P=583,803,603 P=585,843,399 Ecozone development/operation 50,522,301 59,825,150 Ground handling and aviation services

89,918,872

92,096,753

Charter flights 12,487,186 12,088,692 Mining 6,203,088 6,239,128 Total segment assets 742,935,050 756,093,122 Interest in joint venture 1,043,489,505 719,584,928 Investment in associate 21,085,270 20,935,232 Land held for future development - net 118,680,000 118,680,000 Unallocated corporate assets 102,283,712 339,014,952 Consolidated total assets P=2,028,473,537 P=1,954,308,234

Segment liabilities In-flight catering services P=489,430,571 P=486,344,616 Ecozone development/operation 150,803,761 162,032,744 Ground handling and aviation services

36,895,141

65,703,204

Charter flights 544,208 451,377 Mining 25,000 25,000 Total segment liabilities 677,698,681 714,556,941 Eliminations (516,508,295) (519,207,770) Unallocated corporate liabilities 71,826,875 37,912,648 Consolidated total liabilities P=233,017,261 P=233,261,819

2003 2002

Capital expenditures In-flight catering services P=28,210,567 P=19,001,234 Ecozone development/operation 1,868,949 4,353,423 Ground handling and aviation services

1,790,315

334,442

Charter flights 45,050 1,990 Mining – – Total P=31,914,881 P=23,691,089

2003 2002 2001 Depreciation and amortization In-flight catering services P=39,865,982 P=35,324,667 P=38,925,581 Ecozone development/operation 2,022,148 1,209,184 438,798 Ground handling and aviation services

5,563,095

6,163,802

7,538,401

Charter flights 243,824 289,260 475,692 Mining – – – Total P=47,695,049 P=42,986,913 P=47,378,472

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- 11 -

2003

2002

(Restated, Note 2)

2001

(Restated, Note 2) Noncash expenses other than depreciation and amortization In-flight catering services P=11,127,479 P=– P=– Ecozone development/operation – 25,172,303 – Ground handling and aviation services

5,143,399

5,143,399

1,042,766

Charter flights – – 291,866 Total P=16,270,878 P=30,315,702 P=1,334,632

4. Cash and Cash Equivalents Cash and cash equivalents (see Note 15) consist of:

2003 2002 Cash P=116,432,957 P=43,734,130 Cash equivalents 20,315,530 330,026,826 P=136,748,487 P=373,760,956

Cash in banks earns 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, 2003, cash includes foreign currency amounting to US$1.03 million held by

Morgan Stanley in trust for the Company. 5. Receivables Receivables consist of:

2003 2002 Trade - net of allowance for doubtful accounts of P=29,129,322 in 2003 and P=23,005,798 in 2002

P=116,842,927

P=107,828,674

Advances to: Officers and employees 15,765,517 15,855,178 Suppliers and contractors 5,680,641 6,732,044 Related parties (Note 15) 5,008,404 12,371,988 Accrued interest 4,513 1,001,945 Others 3,022,056 5,377,720 P=146,324,058 P=149,167,549

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- 12 - 6. Inventories Inventories consist of:

2003 2002 Food and beverage P=12,707,117 P=15,894,941 Materials and supplies 9,196,726 7,214,449 P=21,903,843 P=23,109,390

7. Other Current Assets Other current assets consist of:

2003 2002 Tax credit certificates P=15,927,037 P=– Input taxes recoverable 44,516,253 – Creditable withholding taxes 9,507,408 6,619,271 Deferred tax assets - net (Note 23) 3,824,967 – Input tax - net of allowance for probable loss of P=4,885,841 in 2003 and P=2,491,162 in 2002

1,407,723

2,958,768

Prepaid expenses and others 3,391,605 20,928,019 P=78,574,993 P=30,506,058

Input taxes recoverable represent the value added taxes (“ VAT” ) paid on purchases of goods and

services which can be recovered as tax refund/credit, subject to approval by the Bureau of Internal Revenue (“ BIR” ). Of the input taxes recoverable as of December 31, 2003, tax credit certificates amounting to P=7.7 million have been received from the BIR as of March 26, 2004.

8. Investment in Associate

a. Investment in associate pertains to the Company’ s investment in shares of stock of Cebu Pacific Catering Services, Inc. (“ CPCS” , 40%-owned). The details are shown below:

2003 2002

(Restated, Note 2) Acquisition cost P=5,000,000 P=5,000,000 Accumulated equity in net earnings: Beginning of year, as previously reported 16,426,084 18,239,565 Change in accounting for preoperating expenses (Note 2)

(490,852)

(674,486)

Beginning of year, as restated 15,935,232 17,565,079 Equity in net income for the year 2,950,038 3,370,153 Dividends received (2,800,000) (5,000,000) End of year 16,085,270 15,935,232 P=21,085,270 P=20,935,232

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- 13 -

CPCS is the Company’ s first in-flight catering venture, which started commercial operations in 1996. It is the only in-flight catering company at Mactan-Cebu International Airport (“ MCIA” ) and serves both domestic and international airlines.

b. Summarized financial information on CPCS follows:

2003 2002

(Restated, Note 2) Current assets P=32,789,422 P=26,524,141 Noncurrent assets 24,567,372 28,859,020 Current liabilities 4,643,617 3,045,080 Equity 52,713,177 52,338,081

2003 2002


(Restated, Note 2) Revenue P=42,337,933 P=45,463,655 P=50,988,943 Gross profit 10,931,002 10,902,686 13,201,766 Income from operations 6,349,202 8,036,925 10,395,183 Net income 7,375,096 8,425,383 11,080,199

9. Investment in Joint Venture

a. Investment in joint venture represents the Company’ s 49% interest in LTP as follows:

2003 2002

(Restated, Note 2) Acquisition cost P=671,159,560 P=671,159,560 Additional investment during the year 264,600,000 – 935,759,560 671,159,560 Accumulated equity in joint venture earnings: Beginning of year, as previously reported 60,390,094 59,587,949 Change in accounting for preoperating expenses (Note 2)

(11,964,726)

(47,094,005)

Beginning of year, as restated 48,425,368 12,493,944 Share in joint venture net income for the year 74,090,522 48,285,549 Dividends received (14,785,945) (12,354,125) End of year 107,729,945 48,425,368 P=1,043,489,505 P=719,584,928 On July 12, 2000, the Company entered into a joint venture agreement with Lufthansa Technik AG, a corporation organized and existing under the laws of the Federal Republic of Germany, and formed LTP. LTP provides maintenance, repairs and overhaul services on aircraft and components at NAIA and MCIA. The joint venture agreement provides for supermajority (i.e., two-thirds) vote of directors for the approval of the annual budget as well as other critical corporate acts of the joint venture.

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- 14 - On December 10, 2002, the Board of Directors approved the additional capital infusion to

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

b. Summarized financial information pertaining to LTP (after adjustment to conform with the

Group accounting policy on foreign currency transactions in 2003 and 2002, and change in accounting for preoperating expenses in 2003) follows:

2003 2002

(Restated, Note 2) Current assets P=2,584,048,853 P=2,997,636,247 Noncurrent assets 2,591,880,073 2,364,213,174 Current liabilities 1,819,890,135 2,721,752,151 Noncurrent liabilities 1,249,181,662 1,194,434,087 Equity 2,106,857,129 1,445,663,183

2003 2002


(Restated, Note 2) Revenue P=7,919,256,843 P=7,992,935,556 P=7,760,028,847 Gross profit 1,108,302,618 875,612,346 781,354,547 Income from operations 422,681,473 334,735,797 403,196,209 Net income 151,205,146 98,541,937 143,455,505

10. Property and Equipment Property and equipment consist of:

January 1, Retirement/ December 31, 2003 Additions Disposal 2003 Cost Building P=242,724,553 P=42,560 P=– P=242,767,113 Kitchen and other operations equipment

160,091,198

7,564,197

(265,200)

167,390,195

Transportation equipment 73,223,240 3,641,749 (221,818) 76,643,171 Aviation equipment 47,343,646 88,288 – 47,431,934 Office furniture, fixtures and equipment

28,039,943

3,252,781

(308,179)

30,984,545

Building and leasehold improvements

23,150,469

2,772,779

–

25,923,248

574,573,049 17,362,354 (795,197) 591,140,206 Accumulated Depreciation and Amortization

Building (36,723,678) (10,178,515) – (46,902,193) Kitchen and other operations equipment

(73,070,517)

(18,710,588)

260,717

(91,520,388)

Transportation equipment (33,868,315) (8,904,589) 221,818 (42,551,086) Aviation equipment (15,122,070) (4,405,769) – (19,527,839) Office furniture, fixtures and equipment

(16,760,257)

(3,609,388)

308,179

(20,061,466)

Building and leasehold improvements

(9,841,797)

(4,492,851)

–

(14,334,648)

(185,386,634) (50,301,700) 790,714 (234,897,620) Net Book Value 389,186,415 (32,939,346) (4,483) 356,242,586 Construction in progress – 14,797,616 – 14,797,616 Total P=389,186,415 (P=18,141,730) (P=4,483) P=371,040,202

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- 15 - 11. Land Held 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 was indicated and recognized on land held for future

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

12. Other Assets Other assets consist of:

2003 2002

(Restated, Note 2) Input taxes P=25,760,805 P=70,488,886 Helicopter unit and spare parts for sale - net 25,761,385 21,615,713 Refundable deposits (Note 27) 36,750,894 36,506,421 Deferred tax assets - net (Note 23) 1,777,295 – Others 576,800 766,686 P=90,627,179 P=129,377,706

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

On June 30, 2000, the Board of Directors approved a proposal to sell the Company’ s helicopter unit. Thus, the net book value of the helicopter unit as of December 31, 2000 was reclassified from the “ Property and equipment” account to the “ Helicopter unit and spare parts for sale” account. Depreciation expense on the aircraft amounted to P=2,522,348 in 2003 and P=1,366,440 in 2002.

Refundable deposits include a Treasury note placement amounting to P=5 million, which MECS

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

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- 16 - 13. Notes Payable Notes payable consist of Philippine peso and United States dollar-denominated short-term loans

amounting to P=0.379 million and US$250,000 as of December 31, 2003 and US$300,000 as of December 31, 2002. These loans were obtained by MECS from local banks to finance its working capital requirements. These loans bear interest, which are repriced every 30 days, at the average rate of 6.88% in 2003 and 7.83% in 2002 for the United States dollar loans, and 12.52% in 2003 and 14.38 % in 2002 for the Philippine peso-denominated loans. The US$50,000 loan from local bank is secured by a real estate mortgage on parcels of land owned by an affiliate with carrying value of P=118.7 million as of December 31, 2003. As of March 26, 2004, notes payable amounting to US$100,000 have been paid in full.

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

2003 2002 Accounts payable: Trade P=33,306,940 P=29,466,457 Non-trade 27,184,952 21,789,825 Accrued rent 15,789,970 11,448,065 Accrued retirement benefits (Note 20) 10,874,598 8,803,760 Other accrued liabilities 19,587,980 20,301,604 P=106,744,440 P=91,809,711

15. Related Party Transactions

a. The Company and its subsidiaries have 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 a local affiliated bank. Total deposits and investments amounted to P=43.7 million in 2003 and P=42.6 million in 2002. Also, MECS had loans with an affiliated bank to finance the construction of its kitchen facility (see Note 17).

b. The receivable from a related party of MAPDC with a balance of P=5.01 million as of

December 31, 2003 pertains to the sale of a tax credit certificate, which was fully collected in February 2004. On the other hand, the advances amounting to P=12.4 million that was granted by MAPDC in 2002 to another related party was collected in 2003, including interest income of P=1.07 million.

c. The Company granted an interest-bearing loan to CPCS originally amounting to P=10.4 million

for CPCS’ working capital requirements. On March 19, 1999, the Company’ s Board of Directors approved a resolution converting such loan into a noninterest-bearing loan and granting a new noninterest-bearing loan. In 2001, CPCS fully paid the balance of these loans amounting to P=9.2 million as of December 31, 2000.

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- 17 -

d. MAPDC has a contract with LTP covering the sub-lease of a parcel of land located within

NAIA. The contract, which commenced on September 1, 2000, shall be for a period of 25 years and renewable for another 25 years thereafter. The rental charge, which is at normal market rate, shall be subject to a fixed price escalation and guaranty. Monthly fee due from LTP is equivalent to MAPDC’ s cost of leasing the land from MIAA, plus administrative fees (see Note 27). MAPDC received refundable rental deposit from LTP amounting to P=24.6 million.

16. Loans from and Payables to Subsidiaries’ Stockholders This account consists of: (a) interest-bearing loans, accrued interest and fees payable to the Company’ s two corporate partners in MECS, namely Singapore Airport Terminal Services Ltd. (“ SATS” ) and Compass Group International B.V., formerly known as Eurest International B.V. (“ Eurest” ) amounting to P=32.9 million and P=36 million, respectively, as of December 31, 2003, and P=38.9 million and P=37.7 million, respectively, as of December 31, 2002. The loans were used to support the construction of MECS’ kitchen facility and its working capital requirements; and (b) noninterest-bearing loan from the Company’ s corporate partner in MASCORP, Menzies Aviation Group Services (Asia Pacific) LLC, amounting to P=10 million as of December 31, 2003 and 2002, for MASCORP’ s working capital requirements. The currently maturing balances of the loans from SATS and Eurest amounting to P=12.5 million and P=8.6 million, respectively, as of December 31, 2003 are payable monthly until December 2004 and bear interest based on the average prime lending rates (repriced quarterly) of Philippine commercial banks plus 4%.

17. Long-term Debt

The long-term debt in 2002 consists of two five-year loans obtained in 1998 by MECS from an affiliated bank to finance the construction of its kitchen facility and its working capital requirements. The interest on the loans averaged 9.5% in 2003 and 9.72% in 2002. The loans are payable in monthly installments up to July 14, 2003, and collateralized by a real estate mortgage on parcels of land owned by MAPDC with a carrying value of P=118.7 million as of December 31, 2003 (see Note 11). MECS has fully paid the long-term debt as of December 31, 2003.

18. Direct Costs Direct costs consist of:

2003 2002 2001 Lease expense (Note 27) P=145,243,752 P=146,516,101 P=145,818,237 Food cost 132,910,806 112,163,977 118,210,015 Salaries and wages 62,215,316 64,574,444 72,802,165 Depreciation (Note 19) 39,316,487 28,638,244 30,315,672 Overhead costs 34,038,024 31,334,041 40,807,444

(Forward)

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- 18 -

2003 2002 2001 Rent P=10,685,141 P=12,101,413 P=13,434,876 Employee benefits (Note 20) 10,609,940 8,249,473 7,476,055 Storage and brokerage 3,395,939 4,364,036 4,117,355 Repairs and maintenance 1,905,810 6,510,609 7,538,976 Laundry costs 1,491,905 3,013,005 3,272,260 Others 29,030,016 24,765,345 21,845,263 P=470,843,136 P=442,230,688 P=465,638,318

19. Operating Expenses Operating expenses consist of:

2003 2002


(Restated, Note 2) Selling: Advertising and promotions P=12,131,268 P=5,248,854 P=10,712,341 Fees on sales (Note 27) 4,908,787 4,243,921 4,843,476 17,040,055 9,492,775 15,555,817 General and administrative: Salaries and wages 39,914,088 38,545,181 32,464,529 Employee benefits (Note 20) 19,174,291 23,844,425 24,781,020 Provision for doubtful accounts

16,270,878

8,428,511

4,986,074

Depreciation and amortization

13,507,561

18,946,000

19,557,404

Rent 8,874,067 8,064,563 4,607,404 Supplies 6,215,305 7,861,834 7,343,238 Security and janitorial 5,954,665 7,354,919 4,655,338 Professional and legal fees 5,432,153 4,113,850 3,954,987 Repairs and maintenance 5,374,228 4,868,799 3,179,240 Utilities 4,400,272 3,633,360 4,783,952 Taxes and licenses 4,109,763 3,842,567 3,975,145 Transportation and travel 3,824,872 3,447,531 4,972,944 Entertainment, amusement and recreation 2,299,222 7,510,988 7,556,220 Insurance 1,472,279 1,655,797 1,505,232 Technical assistance fees (Note 27)

–

21,673

3,431,648

Others 16,671,179 11,406,050 18,858,629 153,494,823 153,546,048 150,613,004 P=170,534,878 P=163,038,823 P=166,168,821

Depreciation expense of MECS amounting to P=5,876,973 and P=11,022,908 in 2002 and 2001,

respectively, were reclassified from operating expenses to direct costs to conform with the 2003 presentation, which was based on a technical review of usage of the related property and equipment.

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- 19 - 20. Retirement Benefits Costs

The Group provides for estimated retirement benefits based on the projected unit credit actuarial cost method. Based on the Group’ s most recent actuarial valuation as of August 1, 2002, the actuarial and unfunded present value of retirement benefits amounted to P=10,073,355. The principal actuarial assumptions used to determine retirement benefits were a salary increase and an expected return on plan assets of 10% per annum. Actuarial valuations shall be made every two years. Total retirement benefits charged to operations amounted to P=3,328,972 in 2003, P=2,707,494 in 2002 and P=2,580,096 in 2001.

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:

2003 2002 Peso Peso US Dollars Equivalent US Dollars Equivalent Assets Cash and cash equivalents 2,149,542 119,484,442 6,363,945 338,905,527 Receivables: Trade 1,665,710 92,590,156 1,618,919 86,213,912 Others – – 17,856 950,903 3,815,252 212,074,598 8,000,720 426,070,342 Liabilities Notes payable 250,000 13,896,500 300,000 15,976,200 Accounts payable and accrued liabilities 76,644 4,260,333 79,110 4,212,924 Loans from subsidiary’ s stockholders 180,023 10,006,759 180,023 9,586,945 506,667 28,163,592 559,133 29,776,069 Net foreign currency-denominated monetary assets 3,308,585 183,911,006 7,441,587 396,294,273

As of December 31, 2003 and 2002, the exchange rates of the Philippine Peso to United States

Dollar were P=55.586 and P=53.254 to US$1, respectively. As of March 26, 2004, the exchange rate is P=56.422 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.

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- 20 -

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 components of the Group’ s current deferred tax assets (included as part of “ Other current assets” account in the consolidated balance sheets) and noncurrent deferred tax assets (included as part of the “ Other assets” account in the consolidated balance sheets) are as follows:

2003 2002

(Restated, Note 2) Total Current Noncurrent Total Current Noncurrent Deferred tax assets on: Allowance for: Doubtful accounts P=9,321,383 P=9,321,383 P=– P=7,361,855 P=7,361,855 P=– Impairment loss 8,055,137 – 8,055,137 8,055,137 – 8,055,137 Probable loss on input

VAT 1,297,262 320,000 977,262 210,965 – 210,965 Probable loss on

deferred charges 389,095 – 389,095 389,095 – 389,095 NOLCO 2,125,763 2,125,763 – 5,749,212 5,749,212 – Accrued retirement

benefits 3,460,525 – 3,460,525 3,124,273 – 3,124,273 Unrealized foreign exchange loss 134,328 134,328 – 87,107 87,107 – Customer rental deposit 66,666 66,666 – – – – Preoperating expenses 23,109 – 23,109 1,151,068 1,139,496 11,572 MCIT 2,328,721 2,328,721 – 1,924,374 1,924,374 – 27,201,989 14,296,861 12,905,128 28,053,086 16,262,044 11,791,042 Deferred tax liabilities on unrealized foreign exchange gain (636,937) (636,937) – (3,135,135) (3,135,135) – 26,565,052 13,659,924 12,905,128 24,917,951 13,126,909 11,791,042 Less valuation allowance 20,962,790 9,834,957 11,127,833 24,917,951 13,126,909 11,791,042 P=5,602,262 P=3,824,967 P=1,777,295 P=– P=– P=–

b. As of December 31, 2003, the Company’ s MCIT that can be credited against future regular

corporate income tax due are as follows:

Incurred in Available for Credit Year Ended December 31

Until Year Ending December 31

Amount

2001 2004 P=757,431 2002 2005 622,891 2003 2006 948,399 P=2,328,721

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- 21 - MCIT incurred in 2000 by the Company amounting to P=517,266 expired in 2003.

c. As of December 31, 2003, the Company’ s and ASSC’ s NOLCO available for deduction from future taxable income are as follows:

Incurred in Available Until Year Ended December 31

Year Ending December 31

NOLCO Tax Effect

Company 2002 2005 P=6,369,075 P=2,038,104ASSC 2001 2004 187,926 60,1362002 2005 32,950 10,5442003 2006 53,059 16,979 273,935 87,659 P=6,643,010 P=2,125,763

NOLCO incurred in 2000 by the Company and ASSC amounting to P=3,437,773, with tax

effect of P=1,100,087, expired in 2003.

d. The current provision for income tax in 2003 consists of the MCIT of the Company, MECS and MASCORP, the regular corporate income tax of MAATS, and the 5% final tax on MAPDC’ s gross income from its PEZA-registered activities and regular corporate income tax on MAPDC’ s non-PEZA-registered activities (see Note 22). In 2002 and 2001, the current provision for income tax represents the Company’ s MCIT, MAATS’ regular corporate income tax, and the 5% final tax on MAPDC’ s gross income from its PEZA-registered activities.

e. A reconciliation of the provision for income tax computed at the statutory tax rates to the

provision for (benefit from) income tax as shown in the consolidated statements of income is as follows:

2003 2002


(Restated, Note 2) Provision for income tax computed at the statutory tax rate

P=23,762,524

P=14,627,691

P=39,105,779

Adjustments resulting from: Equity in net income of joint venture and associate

(24,652,979)

(16,529,825)

(23,912,088)

Increase (decrease) in valuation allowance on deferred tax assets

(3,955,161)

2,299,423

(1,361,853)

Nondeductible loss (income exempt from tax or subjected to final tax) (Note 22)

4,109,104

7,322,559

(4,455,857) Expired NOLCO and MCIT 1,617,353 676,363 838,724 Interest income already subjected to final tax at lower rates (782,822) (3,673,951) (7,643,433) Net effect of difference in tax rate and others

(249,993)

(1,920,630)

347,630

Provision for (benefit from) income tax (P=151,974) P=2,801,630 P=2,918,902

� �#��

- 22- 24. Stock Rights and Warrants

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

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

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

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

i. Change in par value of each share; ii. Payment of stock dividends; iii. Merger, consolidation and/or reorganization; iv. Disposition of a substantial portion of the Company’ s assets to stockholders for cash; and v. Offer of new shares at a price lower than the exercise price. In view of SEC’ s approval of the Offer, the Company filed an application for increase in

authorized capital stock from P=1 billion, divided into 1,000,000,000 shares, to P=2 billion, divided into 2,000,000,000 shares, all with par value of P=1 per share, as approved by the stockholders on July 18, 1997. The application was approved by the SEC on June 2, 2000.

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

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

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

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

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

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

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

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

� �#��

- 23 - 25. Earnings Per Share Basic earnings per share is computed as follows:

2003

2002 (Restated, Note 2)

2001 (Restated, Note 2)

Net income P=75,147,558 P=41,993,869 P=115,665,011 Divided by weighted average number of common shares outstanding 1,250,000,000 1,250,000,000 1,250,000,000 P=0.0601 P=0.0336 P=0.0925

Shares issuable upon exercise of the Warrants (see Note 24) have no dilutive effect on basic

earnings per share since the average market price per common share is lower than the exercise price.

26. Retained Earnings

The undistributed earnings of subsidiaries, joint venture and associate amounting to P=81.2 million and P=21.5 million as of December 31, 2003 and 2002, respectively, which are included in retained earnings are not available for declaration as dividends until declared by such subsidiaries, joint venture and associate.

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

concession agreement it entered in the same year with MIAA to exclusively operate an in-flight catering service for civil and/or military aircraft operating at the NAIA and/or MDA. The concession agreement is for a period of five years from the start of operations of the catering services, renewable every year thereafter upon mutual agreement of the parties. In consideration for the concession privilege, MECS pays MIAA a monthly concession privilege fee in the amount equivalent to 7% of MECS’ monthly gross income on catering services. MECS also assigned its Treasury Note placement amounting to P=5 million (included under the “ Refundable deposits” account, see Note 12) to MIAA in compliance with the concession agreement.

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

� �#��

- 24 - b. License and Technical Assistance Agreement In 1996, MECS entered into a license and technical assistance agreement with one of its

shareholders, Eurest, whereby Eurest shall grant MECS the following:

i. The license to exclusively use the Mark and System of Eurest (the “ System” ) for the purpose of establishing and operating an in-flight or airline catering business at NAIA, Manila Domestic Airport and the general aviation areas; and

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

assistance in establishing and operating its business.

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

i. Fee based on a certain percentage of sales; and

ii. Technical assistance fee at a fixed rate based on earnings before depreciation,

interest and taxes. This agreement shall remain for an initial period of 10 years from date of execution. It shall

be automatically renewed for another 10-year period unless terminated by either party. Total fees on sales for Eurest in 2003, 2002 and 2001 amounted to P=3.3 million, P=2.8 million and P=3.2 million, respectively. Technical assistance fees amounted to P=0.01 million in 2002 and P=1.5 million in 2001.

c. Marketing and Commercial Assistance Agreement In 1998, MECS entered into an agreement with SATS, a shareholder of MECS, whereby

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

i. Fee on based on a certain percentage of sales; and

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

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

remain as shareholders of MECS, unless terminated by one party. Total fees on sales for SATS amounted to P=1.6 million in 2003, P=1.4 million in 2002 and P=1.6 million in 2001. Management and commercial assistance fees amounted to P=0.01 million in 2002 and P=1.5 million in 2001, respectively.

� �#��

- 25 -

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

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

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

23 hectares of land within NAIA for 25 years. Significant terms and conditions of the contract are as follows: 1. MAPDC is allowed to sub-lease the leased property to an affiliate. It is understood

that 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 (see Note 15) 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 deposits of two months advance rental and 12 postdated checks issued every anniversary date of the lease contract. The rental and other charges shall be subject to a fixed price escalation of 5% starting on the sixth year and by another 5% on years 11, 16 and 21. The escalation shall be on a compounded basis.

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

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

business; and b. MIAA or the government decides to transfer the airport to another location,

making it impossible for MAPDC to conduct its business. Future minimum rental payable as of December 31 under MAPDC’ s operating lease with

MIAA are as follows:

Amount Within one year P=145,243,753 After one year but not more than five years 757,688,246 After more than five years 2,625,739,265

iii. MASCORP entered into a lease agreement with MIAA for the lease of office space for a

period of one year, with monthly rental of P=209,480, and renewable at the sole option of MIAA.

� �#��

- 26 - iv. In October 1998, MASCORP entered into a lease agreement with Philippine Airlines, Inc.

for the lease of airline ground handling equipment and office space at monthly rental charges amounting to P=415,000 and P=25,330, respectively. The lease is for a period of one year, which commenced on November 15, 1998, renewable upon mutual written agreement on a year-to-year basis.

v. In 2000, the Company purchased transportation equipment for its officers through local

bank financing, payable in 36 months. In December 2001, an additional transportation equipment for an officer was purchased from an associate for which the Company incurred an additional P=0.3 million in financing costs. Future financing obligations amounting to P=0.7 million are presented as “ Obligations under capital lease” in the 2002 consolidated balance sheets. As of December 31, 2003, these obligations have been fully paid.

28. Other Matters

a. The Company has a pending case against Blue Ridge Mining Corporation (Blue Ridge) and Celestial Nickel Mining Corporation (Celestial) for the cancellation of mining lease contracts filed by Blue Ridge and Celestial against the Company. This case presently awaits decision by the Mines Adjudication Board of the Department of Environment and Natural Resources.

b. Effective May 1, 2001, ASSC ceased its operations. On the same date, all its employees were

absorbed by MASCORP. At present, there is still no definite plan with respect to the future operations of ASSC.

� �#��

Report of Independent Auditors On Supplementary Schedules The Stockholders and the Board of Directors MacroAsia Corporation 12th Floor, Allied Bank Center 6754 Ayala Avenue, Makati City We have audited in accordance with auditing standards generally accepted in the Philippines, the financial statements of MacroAsia Corporation and subsidiaries included in this Form 17-A and have issued our report thereon dated March 26, 2004. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the Index to Financial Statements and Supplementary Schedules are the responsibility of the Company’s management and are presented for purposes of complying with Securities Regulation Code Rule 68 and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. C. A. MANLAPIG Partner CPA Certificate No. 26164 SEC Accreditation No. 0084-A Tax Identification No. 123-305-048 PTR No. 7012992 January 5, 2004 Makati City March 26, 2004

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9�:+=�,&*�>�? ��@�/&A�B�C�.+D �@& E�FG%5H�>I? ��@�/&A�B�.&C�D �B��/J�J�JLK < M3) K N =�O K ;�:

P�Q"!ERS9�T�7UT�*+M K�V = K � � E.W�X 7! N+N&Y *&Z�6 4 %54 6 =E, V = K � �.�/&D F

[�\"]_â`�bdc e f�g�h3g�i�h3j�k�j f+l3m c lGh�b�n�oGj p&e�m�Ûq&b�r+p3s_\(t b�i�f+t

Number of Shares orPrincipal

Name of Issuing Entity and Amount of BondsAssociation of Each Issue and Notes

INTERNATIONAL EXCHANGE BANK P 6,145,655 P P 872,990

PHILIPPINE BANK OF COMMUNICATIONS 4,701,812 670,086

ALLIED BANKING CORPORATION 9,468,063 282,009

Total P 20,315,530 P - P 1,825,085

MACROASIA CORPORATION AND SUBSIDIARIESSchedule A - Marketable Securities - (Current Marketable Equity Securities and Other Short-term Cash Investments)

For the Year Ended December 31, 2003

Amount Income

Received

Value Basedon Market

Quotations atBalance Sheet and Accrued

During the YearShown in theBalance Sheet Date

64

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

Rank and file employees P 5,408,737 567,496 742,729 5,233,504 P 5,233,504 Joseph Chua, Chief Executive Officer * 992,750 992,750 - - Daniel S. Pido, VP - Operations - 94,861 94,861 94,861 Amador Sendin, Finance & Admin. Mgr. * 457,332 457,332 - - Marivic Moya, VP - Legal/HR 58,333 125,957 58,333 125,957 125,957 Reynaldo Munsayac, VP - Finance * 4,368,000 4,368,000 - - Christopher Lu, VP - Mktg./Bus. Dev't * 3,189,825 10,106,444 3,189,825 10,106,444 10,106,444 Willy Liwanag, Commercial Manager 131,600 131,600 - - Dindo Ylagan, Account Manager * 1,090,271 1,090,271 - - Raul Cruz, General Manager 158,330 67,256 20,835 204,751 204,751

Total P 15,855,178 10,962,014 11,051,675 - 15,765,517 - P 15,765,517

* liquidated as company expenses with proper supporting documents

Deductions

Beginning ofPeriod

Balance at


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

End of Period

Balance at

65

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

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

Bonds & Notes Owned for the Periood Others Investees Others Owned Bonds & Notes

Interest in Joint VentureLufthansa Technik Philippines, Inc. 588,000,000 49% P 731,549,654 74,090,522 264,600,000 14,785,945 11,964,726 49% 833,000,000 P 1,043,489,505

Investment in AssociateCebu Pacific Catering Services, Inc. 5,000,000 40% P 21,426,084 2,950,038 2,800,000 490,852 40% 5,000,000 P 21,085,270

Total 593,000,000 P 752,975,738 77,040,560 264,600,000 17,585,945 12,455,578 838,000,000 P 1,064,574,775 P -

Note :

1. Addition under "Others" represents additional investment during the year.

2. Deduction under "Others" represents net effect of change in accounting policy (please see Note 2 of the Company's Notes to Consolidated Financial Statements).

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


Ending BalanceBeginning Balance Additions Deductions

Not Accounted Investments

Dividends Received/

Accrued from

Equity MethodAmountin Pesos

Amountin Pesos

for by the

66

OtherCharged to Charged to Changes

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

OTHER ASSETS

Input tax 70,488,886 44,728,081 25,760,805 Helicopter unit & spare parts for sale - net 21,615,713 6,668,020 2,522,348 25,761,385 Refundable deposits 36,506,421 244,473 36,750,894 Deferred tax assets - - 1,777,295 1,777,295 Other long term investments 766,686 189,886 576,800

Total P 129,377,706 8,689,788 2,522,348 44,917,967 - P 90,627,179

Deduction

Beginning Balance

MACROASIA CORPORATION AND SUBSIDIARIESSchedule E - Intangible Assets - Other Assets


Ending Balance

67

Name of Related Party

Singapore Airport Terminal Services P 38,975,212 P 32,965,110 (Private) Ltd.

Menzies Aviation (Philippines) B.V. 9,586,945 10,006,758

Eurest International B.V. 37,743,468 35,998,208

Total P 86,305,625 P 78,970,076

Balance at Beginning of Period Balance at End of Period

MACROASIA CORPORATION AND SUBSIDIARIESSchedule G - Indebtedness to Related Parties (Long-Term Loans from Related Companies)


68

Number ofShares Reserved

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

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

Common stock 2,000,000,000 1,250,000,000 500,000,000 722,830,250 63,058,048 464,111,702

Total 2,000,000,000 1,250,000,000 500,000,000 722,830,250 63,058,048 464,111,702

Number of Shares Held By

MACROASIA CORPORATION AND SUBSIDIARIESSchedule I - Capital Stock


69

70

FORM 17-A

INDEX TO EXHIBITS

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

succession NA

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

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

report to security holders – n1 NA

(13) Letter re-change in certifying accountant - n2 NA (16) Report furnished to security holders NA (18) Subsidiaries and affiliates of the registrant 71 (19) Published reports regarding matters submitted to vote

of security holders NA

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

71

EXHIBIT 18 – SUBSIDIARIES AND AFFILIATES OF THE REGISTRANT MacroAsia Corporation has five (5) consolidated subsidiaries and two (2) unconsolidated affiliates each of which is owned as follows:

Name Jurisdiction Ownership

MacroAsia Properties Development Corp. Philippines 100%

MacroAsia Air Taxi Services, Inc. Philippines 100%

MacroAsia-Menzies Airport Services Corp. Philippines 70%

MacroAsia-Eurest Catering Services, Inc. Philippines 67%

MacroAsia Mining Corporation* Philippines 67%

Lufthansa Technik Philippines, Inc. Philippines 49%

Cebu Pacific Catering Services, Inc. Philippines 40%

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

Documents

COVER SHEET “A” - MacroAsia · PDF fileOF THE SECURITIES REGULATION CODE AND SECTION 141 OF CORPORATION CODE OF THE PHILIPPINES ... Makati City Zip Code Address of