INDEPENDENT AUDITOR’S REPORT THE BOARD OF DIRECTORS ... · Venture distributed share of P2.156 billion from 1996 to 2012 on the proceeds of the Alabang Stock Farm Joint Venture

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Quezon City

INDEPENDENT AUDITOR’S REPORT

THE BOARD OF DIRECTORSPhilippine Reclamation Authority Makati City

Report on the Financial Statements

We have audited the accompanying financial statements of Philippine Reclamation Authority (PRA), which comprise the statement of financial position as at December 31, 2012, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with state accounting principles generally accepted in the Philippines, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.

Basis for Qualified Opinion

We were not able to establish the correctness of the National Government’s Joint Venture distributed share of P2.156 billion from 1996 to 2012 on the proceeds of the Alabang Stock Farm Joint Venture Project and of the PRA’s Management Fee of P164.656 million for the same period computed based on such proceeds because the Joint Venture Financial Statements were not examined/ validated by PRA as/the NG-authorized representative in the Project. Further, the Sales Reports, wher£ the NG’s distributed share was based, were not certified by the Joint Venture authorized signatory and were also not supported by pertinent documents. Consequently, we were not able to determine whether any adjustments were necessary on the Assets Held-in-Trust- Department of Environment and Natural Resources (DENR) account and its corollary account, both with balances of P2JD83 billion as of December 31, 2012, and on the Management Fee account for the year ended December 31, 2012 of P21.704 million and Prior Years’ (1996-2011) Management Fee of P142.952 million.

Qualified Opinion

In our opinion, except for the possible effects of the matter discussed in the Basis for Qualified Opinion paragraph, the financial statements present fairly, in all material respects, the financial position of the Philippine Reclamation Authority as at December 31, 2012, and of its financial performance and its cash flows for the year then ended in accordance with state accounting principles generally accepted in the Philippines.

Emphasis of Matter

As stated in Note 29, the Supreme Court (SC) en banc declared as null and void in2002 the Amended Joint Venture Agreement (AJVA) between AMARI and PRA stating that there was a constitutional ban on private corporations from acquiring alienable lands of the public domain. Several Motions for Reconsideration were filed by PRA and the Office of the Solicitor General (OSG) and private parties in 2002 and2003 but these were denied with finality by the SC. On January 14, 2004, the OSG, for and in behalf of PRA, filed a “Motion of Leave of this Honorable Court to File Motion for Clarification", praying for a clarificatory resolution addressing the concerns raised in said motion.

Management believes that the SC decision pertains only to the AJVA between PRA and AMARI and does not by itself apply to other PRA reclamation contracts. For the decision to be applied to other similar projects, a separate case will have to be filed in court. However, the COA General Counsel, in his opinion dated January 24, 2005, opined that the pronouncement of the SC in Chavez vs. Public Estates Authority, et. al., 394 SCRA 152 similarly applies to other PRA contracts and projects. The financial implications of this contingent event could not presently be determined and, as such, no adjustments were made on the financial statements to provide for this uncertainty.

As further stated in Note 29, PRA was assessed on February 5, 2003 by the Bureau of Internal Revenue for alleged deficiency in Value Added Tax (VAT) for taxable years 1996-1999 in the total amount of P117.363 million including increments. On March 31, 2004, BIR issued its Final Decision on Disputed Assessment formally assessing PRA of VAT for P41.529 million including interests and surcharges for taxable year 2000. PRA, through the Office of Government Corporate Counsel, filed a Petition for Arbitration with the Department of Justice. The case is now submitted for decision after the parties filed their respective Memorandum. The aforementioned VAT deficiencies for CYs 1996-2000 in the total amount of P69.324 million, exclusive of interest and surcharges, were settled/remitted to BIR in December 2010 after negotiation with the BIR. On January 4, 2011, PRA filed with the BIR an applicltion for the abatement or cancellation of PRA’s interest and surcharge tax liabilities on the said deficiencies in the amount of P89.034 million and is now pending at BIR Quezon City.

Report on the Supplementary Information Required Under Revenue Regulations 15-2010

Our audit was conducted for the purpose of forming an opinion on the basic financial statements as a whole. The supplementary information on taxes, duties and license fees in Note 31 to the financial statements is presented for purposes of filing with the Bureau of Internal Revenue and is not a required part of the basic financial statements. Such information is the responsibility of management. The information has been subjected to the auditing procedures applied in our audit of the basic financial statements. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements taken as whole.

COMMISSION ON AUDIT

By:

TEODORA M. LACERNASupervising Auditor

May 27, 2013

PHILIPPINE RECLAMATION AUTHORITY STATEMENT OF FINANCIAL POSITION December 31, 2012(With comparative figures as of December 31, 2011)(In Philippine Peso)

Notes 2012 2011ASSETSCurrent Assets JCash and cash equivalents 4 3,856,836,144 2,871^025,266Trade and other receivables-net 5 3,290,838,140 1,263,823,279Inventories 6 2,639,284,939 3,438,739,145Prepaid expenses 7 10,069,999 13,319,741Other current assets 8 1,552,407 1,537,415

Total current assets 9,798,581,629 7,588,444,846

Non-Current AssetsNon-current receivables-net 9 1 11,451,265,598 12,592,285,779Investments 10 539,857,289 544,083,570Property and equipment-net 11 116,722,424 118,949,057Investment property 12 8,480,051,951 8,480,051,951Other non-current assets 13 30,374,604 30,374,604Assets held-in-trust 14 2,806,818,103 2,544,628,189

Total non-current assets 23,425,089,969 24,310,373,150

TOTAL ASSETS 33,223,671,598 31,898,817,996

LIABILITIES AND EQUITY Current LiabilitiesPayables 15 2,331,769,589 1,945,744,705Inter-agency payables 16 795,751,233 228,822,906Other liabilities 17 236,400,700 242,482,275

Total current liabilities 3,363,921,522 2,417,049,886

Non-Current LiabilitiesTrust agreement 14 2,806,818,103 2,544,628,189Deferred tax liability 18 1,347,530,514 1,341,572,514Due to National Treasury 19 119,858,167 121,168,220Due to other GOCCs 20 110,413,320 110,413,320

Total non-current liabilities 4,384,620,104 4,117,782,243Deferred credits 21 10,985,449,097 11,943,181,023Total Liabilities 18,733,990,723 18,478,013,152Equity 14,489,680,875 13,420,804,844

TOTAL LIABILITIES AND EQUITY 33,223,671,598 31,898,817,996

See accompanying Notes to Financial Statements.

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PHILIPPINE RECLAMATION AUTHORITY STATEMENT OF COMPREHENSIVE INCOME For the Year Ended December 31, 2012(With comparative figures for the year ended December 31, 2011)(In Philippine Peso)

Notes 2012 2011OPERATING INCOMEBusiness income 23 2,939,034,607 1,662,829,736Other business income 24 92,379,575 119,680,439Rent income 25 79,342,960 82,667,209Service income 26 50,560,861 21,112,765General income 564,993 619,120

' 3,161,882,996 1,886,909,269

OPERATING EXPENSESPersonal ServicesSalaries and wages 58,298,110 61,402,712Other compensation 20,689,076 21,093,733Personnel benefits contribution t 7,329,231 13,384,099Other personnel benefits 1,954,148 2,472,859

88,270,565 98,353,403Maintenance and Other Operating ExpensesProfessional services 28,403,021 23,144,575Bad debts, depreciation and amortization 9,675,072 8,135,981Utility 6,543,691 6,024,664Repairs and maintenance 6,290,809 5,299,098Representation 6,145,189 4,635,646Travelling 5,013,424 7,890,745Communication 3,975,896 3,622,965Supplies and materials 3,323,216 3,586,809Gender and development program 2,849,038 1,893,622Rent 2,034,146 2,315,552Taxes, insurance premiums and other fees 1,843,325 4,736,542Training 1,032,245 5,778,236Advertising 900,349 316,889Extraordinary and miscellaneous 831,388 5,928,935Donations 400,000 100,000Printing and binding 294,447 394,496Subscription 120,315 138,958Membership dues and contribution to organizations 45,700 5,700Real estate taxes - 50,749,327Other maintenance and other operating expenses 27 5,526,733 4,337,439

85,248,004 139,036,179TOTAL EXPENSES 173,518,569 237,389,582INCOME FROM OPERATIONS 2,988,364,427 1,649,519,687OTHER INCOME (EXPENSES)Interest income on savings and short-term investments 74,554,721 83,952,890Financial expenses (3,892,313) (5,146,291)

70,662,408 78,806,599NET PROFIT BEFORE TAX 3,059,026,835 1,728,326,286INCOME TAX EXPENSE 28 895,562,870 493,312,019NET PROFIT 2,163,463,965 1,235,014,267


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PHILIPPINE RECLAMATION AUTHORITY STATEMENT OF CHANGES IN EQUITY For the Year Ended December 31, 2012(With comparative figures for the year ended December 31, 2011)(In Philippine Peso)

Note 2012 2011PAID-UP CAPITAL 22Balance at beginning of the year 3,248,276,057 3,248^76,057Additions(deductions) - -

Balance at end of the year 3,248,276,057 3,248,276,057

RETAINED EARNINGSBalance at beginning of the year Net profit for the year Dividends for the year Correction of prior years' errors

10,172,528,787 2,163,463,965

, (1,082,100,709) (12,487,225)

9,973,064,1851,235,014,267(617,507,134)(418,042,531)

Balance at end of the year 11,241,404,818 10,172,528,787

14,489,680,875 13,420,804,844


PHILIPPINE RECLAMATION AUTHORITYSTATEMENT OF CASH FLOWSFor the Year Ended December 31, 2012(With comparative figures for the year ended December 31, 2011)(In Philippine Peso)

Notes 2012 2011CASH FLOWS FROM OPERATING ACTIVITIESCollection of receivablesCollection of incomePayment of operating expensesRemittance of GSIS/Pag-IBIG/withholding taxesRemittances to PEMPCO and insurance companiesPayment of real property taxPayment of payablesRemittance of dividends to the BTrRestricted funds 13 Miscellaneous

1,195,216,2151,224,208,318

(91,058,935)(396,195,896)

(2,523,729)(967,394)

(22,891,654)(700,000,000)

28,971,871

1,27^,267,207 142,726,414

(120,961,570) (193,600,807)

(7,759,023) (1,294,048)

(12,414,385) (543,294,645)

(818,536) 12,676,025

Corporate income tax paid1,234,758,796(312,532,132)

552,526,632(201,352,409)

Net Cash from Operating Activities 922,226,664 351,174,223

CASH FLOWS FROM INVESTING ACTIVITIESInterest on short-term investments Interest on tender deposits Proceeds from sale of junk items Disbursement to projects Advances to PEA employees Purchase/payment of property and equipment

75,382,239

(9,719,011)(880,551)

(1,198,463)

83,509,92550,156

6,000(370,694,265)

(2,993,298)(6,080,752)

Net Cash Provided by (Used in) Investing Activities 63,584,214 (296,202,234)NET INCREASE IN CASH AND CASH EQUIVALENTS 985,810,878 54,971,989

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,871,025,266 2,816,053,277

CASH AND CASH EQUIVALENTS AT END OF YEAR 4 3,856,836,144 2,871,025,266


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PHILIPPINE RECLAMATION AUTHORITY NOTES TO FINANCIAL STATEMENTS

1. CORPORATE INFORMATION

The Philippine Reclamation Authority (PRA), formerly Public Estates Authority (PEA), was created on February 04, 1977 by virtue of Presidential Decree No. 1084. It serves primarily as a clearing house of all reclamation projects in the country and is mandated to be self-sustaining. It has also created assets for the government by converting under-utilized land into valuable and income-generating reTal estate properties. In addition, PEA is involved in a wide range of projects and delivery of services related to land development and urban renewal, infrastructure projects, as well as financing and construction of buildings, particularly for other government agencies. By virtue of Executive Order (E.O.) No. 380 issued on October 24, 2004, PEA was renamed Philippine Reclamation Authority (PRA).

On June 24, 2006, under E.O. No. 543, the power of the President to approve reclamation projects was delegated to PRA through its governing board, subject to compliance with existing laws and rules, and subject to the condition that reclamation contracts to be executed with any person or entity shall go through public bidding.

On October 19, 2007, E.O. No. 672 was issued defining and clarifying the responsibilities of DENR and PRA in the approval and implementation of reclamation projects nationwide.

On May 14, 2009, E.O. No. 798 was issued transferring the PRA from the Department of Public Works and Highways to the Department of Environment and Natural Resources.

The total permanent employees of PRA were 145 in 2012.

The registered office address of PRA is at 7th Floor Legaspi Towers 200, Paseo de Roxas, City of Makati, Metro Manila.

2. BASIS OF FINANCIAL STATEMENTS PREPARATION

The financial statements of the PRA have been prepared in compliance with the generally accepted state accounting principles in the Philippines and are presented in Philippine peso.

3. SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with maturities of three months or less from dates of acquisition and that are subject to an insignificant risk of change in value.

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Accounts Receivable

Accounts receivable are stated at face value net of allowance for doubtful accounts.

Allowance for doubtful accounts is maintained at a level considered adequate to provide for potentially uncollectible receivables. The level of allowance is provided at various approved rates based on aging of accounts receivable and specific identification.

Inventories ^

Completed buildings are recorded at cost. Expenditures incurred for their further development are added as part of the cost. Reclaimed lands are recorded at cost.

Investments

Investments in marketable securities, subsidiaries and stocks are stated at cost.i

Investment property

Investment property is recorded using the Fair Market Value Model. Appraisal of investment property is made every five (5) years and any gain or loss arising from the change in fair value is recognized in profit, or loss. For prudence, the fair value considered is the latest lowest available appraisal of the property.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and any impairment in value except for Roads, Highways & Bridges. Depreciation is calculated on a straight-line basis over the estimated lives of the assets, 50 years for building and structures and 5-10 years for other properties.

The initial cost of property and equipment is comprised of the purchase price and any costs directly attributable to bringing the asset to its working condition and location for its intended use. Expenditures incurred after the assets have been put into operations, such as repairs and maintenance and overhaul costs, are normally recognized in profit or loss. Any expenditures that prolong the future economic benefits expected to be obtained from the use of the property and equipment are capitalized. Any resulting gain or loss from the retirement or disposition of property is recognized in profit or loss.

Building and structures are carried at current available appraised value.

Roads, highways and bridges include road lot components of Seaside Channel Reclamation Project. The values assigned, based on the assessed value, were credited to the Appraisal Capital account.

Impairment of Assets

The carrying values of property and equipment, investments and other long-lived assets are reviewed for impairment whenever events or changes in circumstances

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indicate that the carrying values of the assets may not be recoverable. If any such indication exists, and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount and an impairment loss is recognized in profit or loss.

Borrowing Costs

Borrowing costs are recorded as expense. These include interest and other financing charges incurred in connection with the borrowing of funds.

rRevenue Recognition

Income from Lease-Purchase Agreements of completed building projects, where collectibility is reasonably assured, is accounted for under the full accrual method. Linder this method, the difference between the cost and contract price on installment sale is deferred and accrued as rental income as the installments become due based on the agreed payment schedule. On the other hand, income from installment sale of condominium units, housing units and lots is recognized using the installment method. Linder this method, the difference between the cost and contract price on installment sale is deferred but recognized as income from installment sales upon receipt of payment, computed based on the actual amount received multiplied by the gross profit rates of individual sales contract.

Revenues from rent, as well as management and regulatory fees derived from administrative and property management, are recognized when earned. Supervision fees are accrued as earned based on the actual development costs incurred for the period of supervised projects.

4. CASH AND CASH EQUIVALENTS

This account consists of:________________________________________________________ 2012____________ 2011Cash on Hand and in Banks 13,847,893 17,285,781Cash Equivalents___________________________ 3,842,988,251 2,853,739,485___________________________________ 3,856,836,144 2,871,025,266

Cash in Banks earn interest at fixed rates based on the prevailing bank deposit rates.

Cash Equivalents are short-term investments which are made for varying periods of up to three (3) months depending on the immediate cash requirements, and earn interest at the prevailing short-term rates.

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5. TRADE AND OTHER RECEIVABLES

This account consists of receivables arising from:2012 2011

Trade ReceivablesAccounts ReceivableDue from NGAsDue from GOCCsDue from Subsidiaries/Affiliates

1,176,619,4581,101,571,022

994,199,9611,218,244

28,245,231160,582,689

1,000,906,799754,501

3,273,608,685 1,190*489,220Non-Trade Receivables

Advances to Officers and Employees Due from Officers and Employees Due from GOCCs Interest Receivables Others

7,590387,064

6,361,59310,473,208

33,596363,453

36,302,3616,997,831

29,636,81817,229,455 73,334,059

3,290,838,140 1,263,823,279

Accounts Receivable includes collectibles from the buyers of Coastal Plaza Condominium Project (CPCP) and CBP-1A lots. Likewise, included under this account are amounts due from various entities representing accrued supervision/regulatory fees equivalent to 2.5% of the development costs of various reclamation projects and the Alabang Stock Farm (ASF) Project.

Trade Receivables from National Government Agencies (NGAs) pertain to the current portion of receivables from:

2012 2011Commission on Elections (COMELEC) Sandiganbayan (SB)Bureau of Internal Revenue (BIR)DENR/ASFProfessional Regulations Commission (PRC)

964,656,00084,823,58947,163,0104,928,423

84,823,58948,810,0794,928,423

22,020,5981,101,571,022 160,582,689

Receivables from COMELEC pertain to the principal balance and Value-added Tax on the sale of 20,160-square meter lot located at the Central Business Park-1 A (CBP-1A).

Receivables from DENR/ASF represent advances made by the Filinvest Alabang, Inc. (FAI) for payment of real property taxes of housing projects which were charged against PRA’s supervision fees. Offsetting of this account will be made against NG Funds.

Trade Receivables from Government Owned and/or Controlled Corporations (GOCCs) represent the current portion of receivables from:

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2012 2011New PAGCOR „ 949,210,490 955,917,328National Development Company_________________ 44,989,471_______44,989,471

994,199,961 1,000,906,799

Receivables from New PAGCOR include the current portion of the receivables arising from the sale by PRA of the 15-hectare property of the Nayong Pilipino Foundation (NPF) at MIA Road, Pasay City. Said property was the subject of exchange of properties between PRA and NPF. j

yDue from Subsidiaries/Affiliates are shares of PRA from the earnings of the PEA Tollway Corporation (PEATC) under the new arrangement of 9% of the latter’s gross receipts.

Non-Trade Receivables - Others account pertains to the current portion of the contractual mortgage loans for Pabahay 2000 housing units, motor vehicles and computers availed of by PRA officers and employees.

6. INVENTORIES

This account consists of the following:2012 2011

Reclaimed LandsCentral Business Park IB/C 1,258,928,153 1,258,928,153Central Business Park IA 991,048,708 1,794,497,263Central Business Park II 8,284,370 8,284,370

Finished Goods Inventory Coastal Plaza Lots 164,538,450 162,924,600

Work in ProcessBASECO Reclamation Project 214,104,759 214,104,759Offshore Quarrying 2,380,499 -

2,639,284,939 3,438,739,145

Reclaimed Lands - CBP I represent PRA’s share in its Joint Venture Agreement with Shoemart Inc. recorded at assigned cost and share on the land reclaimed at Islands B and C out of the agreement with R-1 Consortium, which was booked at cost plus the additional development cost incurred to bring the property to its present state.

Reclaimed Lands - CBP II represent the transfer cost of 9,770- square meter lot at Manila-Cavite Coastal Road and Reclamation Project (MCCRRP).

Coastal Plaza Lots pertain to the value of lots totaling 15,364 square meters. These properties were appraised by independent appraisers in June 2008. Fair market values range from P3,000 to P6,000 per square meter.

Work in Process-BASECO Reclamation Project represents the disbursements relative to the reclamation, borehole testing, processing of Environmental Compliance Certificate (ECC) of the project and other related expenses.

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7. PREPAID EXPENSES

This account consists of:2012 2011

Advances to Contractors 7,913,514 6,634,288Prepaid Office Supplies 1,052,190 916,654Input VAT 794,218 806,881Prepaid Insurance 269,141 205,845Prepaid Rent 40,936 05,137Creditable Withholding VAT - 3,623,706Creditable Expanded Withholding Tax - 1,027,230

10,069,999 13,319,741

Advances to Contractors represent advance payment to contractors for mobilizationand to suppliers for purchases already paid but not yet delivered.

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8. OTHER CURRENT ASSETS

This account substantially pertains to the guaranty deposits with Meralco for powerservices connection.

9. NON-CURRENT RECEIVABLES


Non-Current Trade Receivables Accounts Receivables Due from GOCCs Due from NGAs Due from Subsidiaries/Affiliates

225,955,11910,574,787,110

268,335,3953,654,634

245,368,60011,568,987,071

399,992,7983,654,634

Allowance for Doubtful Accounts11,072,732,258

8,702,33212,218,003,103

7,964,87911,064,029,926 12,210,038,224

Non-Current Non-Trade Receivables Due from GOCCs Due from LGUs Due from NGAsDue from Officers and Employees Others

173,088,300132,859,88850,822,760

992,50129,472,223

135,751,767132,859,88850,822,760

992,50161,820,639

387,235,672 382,247,55511,451,265,598 12,592,285,779

Trade Receivables from Government Owned and/or Controlled Corporations (GOCCs) represent the non-current portion of the receivables arising from the sale of lots to the following:

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2012 2011New PAGCOR 10,439,818,698 11,389,029,188National Development Company (NDC) 134,968,412 179,957,883

10,574,787,110 11,568,987,071

Trade Receivables from National Government Agencies (NGAs) pertain to the non- current portion of receivables from the following:

2012_______ 2011Bureau of Internal Revenue (BIR) Sandiganbayan (SB)Department of Labor & Employment (DOLE)

209,330,23552,901,630

6,103,530

256,493,245137,725,219

5,774,334268,335,395 399,992,798

The amounts due from BIR and SB pertain to the Lease with Option to Purchase Agreements for the completed buildings financed and constructed by PRA for these agencies. Receivables from DOLE refer to architectural and engineering services and other costs incurred preparatory to the construction of the DOLE Regional Office building in Davao City.

Due from Subsidiaries/Affiliates represents the 70% share in the net revenue of the Port Center Development Corporation (PCDC).

Non-Trade Receivables from LGUs represent Value-Added Tax (VAT) due from the following:

2012 2011City Government of Paranaque 66,490,639 66,490,639City Government of Pasay 66,369,249 66,369,249

132,859,888 132,859,888

The VAT due from the City Government of Paranaque pertains to the property conveyed as payment of PRA’s real property tax obligations pursuant to the Memorandum of Agreement between PRA and the City of Paranaque dated May 5, 2008. Deed of Conveyance was executed on October 21, 2008 wherein TCT#162852 (9,937 square meters), OCT#207 (5,266 square meters), CPCP commercial lot (1,547 square meters), Lot 5155 (12,375 square meters) and the 145 CPCP condominium units were conveyed to Paranaque City. On the other hand, the VAT due from the City Government of Pasay pertains to the property conveyed as payment of PRA's real property tax obligations pursuant to the Compromise Agreement between PRA and the City of Pasay dated July 25, 2003. Linder the said Agreement, the City will shoulder all costs and expenses including documentary stamp tax and value-added tax. Deeds of Conveyances were executed in 2004 to 2010 wherein a total of 12,661.19 square meters were conveyed to the City. In 2011, PRA conveyed 1,153.39 square meters to Pasay City Government as payment of real property tax for the year 2011.

Notwithstanding the execution of the above-stated agreements, it is PRA’s position that reclaimed lands are lands of the public domain (Chavez vs. PEA and Amari Coastal Bay Development Corp., July 09, 2002). Applying the jurisprudence laid down by the Supreme Court in the MIAA and Philippine Fisheries cases, reclaimed lands, being lands of the public domain, are exempt from real property tax except

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when the use of the said property has been given or granted to a taxable person either for a consideration or otherwise. In such case, these reclaimed lands are subject to real property taxes and the payment thereof shall be the responsibility of PRA or the taxable person concerned, should there be an agreement to that effect. This has been confirmed by the OGCC, in its Opinion No. 273 of December 22, 2006, series of 2006 and letter dated September 28, 2007 of the Office of the Solicitor General.

In a decision dated July 18, 2012, the Supreme Court’s Third Division granted the PRA’s petition to overturn the January 8, 2010 ruling of the Paranaque City Regional Trial Court (RTC) Branch 195, which favored the city government’s claim for real property taxes on the agency’s reclaimed properties in Paranaque City. The Supreme Court ruling ordered that “xxx All reclaimed properties owned by the Philippine Reclamation Authority are hereby declared EXEMPT from real estate taxes. All real estate tax assessments, including the final notices of real estate tax delinquencies, issued by the City of Paranaque on the subject reclaimed properties; the assailed auction sale, dated April 7V 2003; and the Certificates of Sale subsequently issued by the Paranaque City Treasurer in favor of the City of Paranaque, are all declared VOID.”

Non-Trade Receivables - Others account pertains substantially to the non-current portion of the contractual mortgage loans for Pabahay 2000 housing units, motor vehicles and computers availed by PRA officers and employees amounting to P22.012 million and P26.349 million as of December 31, 2012 and 2011, respectively.

10. INVESTMENTS

This account consists of investments in:2012 2011

Joint Venture-MCTEP 531,565,169 535,791,450Subsidiaries and Affiliates 7,000,000 7,000,000Shares of Stocks -Service Enterprises 1,292,120 1,292,120

539,857,289 544,083,570

Investment in Joint Venture-Manila Cavite Toll Expressway Project (MCTEP) pertains to PRA’s investment in the Project which includes the initial development costs incurred under the 1981 construction contract with the Philippine National Construction Corporation (PNCC) and the subsequent completion and upgrading costs under the 1989 R-1 Consortium contract. The total cost incurred is amortized over a period of 35 years.

In 1990, a Toll Operation Certificate was issued to PRA by the Republic of the Philippines (ROP), through the Toll Regulatory Board (TRB), for the construction, operation and maintenance of the R-1 Expressway and R-1 Expressway Extension as toll facilities for twenty-five (25) years. Subsequently, in 1994, PRA and the Malaysian corporations, Majlis Amana Rakyat (MARA) and Renong Berhad (RENONG) entered into a JVA where they agreed to develop the MCTE, which now includes the C5 Link Expressway, and to operate the same for thirty-five (35) years.

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In consideration of their respective obligations, the parties agreed that their proportionate share in the project income shall initially be 10%-90% in favor of the Malaysian parties and thereafter, 60%-40% in favor of PRA.

In 1995, RENONG assigned its rights and obligations under the JVA to United Engineers (Malaysia) Berhad (UEM). The Malaysian parties, UEM and MARA, then incorporated and assigned their rights and obligations to UEM-MARA Philippines Corporation (UMPC), which represented them in the Toll Operation Agreement (TOA) executed with the ROP and PRA.

yOn November 14, 2006, an Operations and Maintenance Agreement was executed between PRA, UEM-MARA Philippines Corporation (UMPC) and TRB. Under this agreement, the revenue sharing was amended/modified temporarily wherein PRA shall receive 8.5% of gross toll revenue while UMPC shall receive 91.5% of the gross toll revenue absorbing all Operating and Maintenance costs and expenses. PRA’s share shall be increased by 0.5% every periodic Toll Rate Adjustment under the TOA but not to exceed 10% of gross toll revenue.

The amended revenue sharing arrangement shall be implemented during the period of the existence of the loan which is payable for a period of eight (8) years under the Omnibus Loan Agreement of August 25, 2006 and the repayment of the equity of the Equity Contractor which shall be converted into subordinated debt pari passu with the Lenders for a period which shall not exceed an additional three (3) years after the period of eight (8) years.

On May 20, 2010, the PRA Board of Directors approved the extension of the effectivity of the Operations and Maintenance Agreement for a period of four (4) years from August 25, 2017 to August 25, 2021, or upon full settlement of the funding to be obtained, whichever comes first, subject to the compliance of several terms and conditions.

Investment in Subsidiaries / Affiliates includes PRA’s investment in stocks in the following:

PEA Tollway Corporation (PEATC) - This is a wholly-owned subsidiary of PRA incorporated in 1997 to manage, operate, maintain the MCTEP and to collect toll fees therefrom. Its authorized capital stock consists of 50,000 shares with a par value of P100 per share, of which 20,000 shares had been subscribed and fully paid by PRA.

Bay Dredging, Inc. (BDI) - This is a subsidiary where PRA has 40% equity interest. It was incorporated in 1998 to (a) own, lease, or hire dredging equipment suitable for dredging and reclamation under Philippine condition; (b) train and acquire modern, scientific, efficient, and environment-friendly dredging and reclamation technology from experts all over the world; (c) participate in dredging contracts in the Philippines; (d) enter into contracts to reclaim areas planned for reclamation; and (e) enter into contracts to supply dredge fill materials to all reclamation projects. Its authorized capital stock consists of 500,000 shares with a par value of P100 per share, of which 50,000 shares had been subscribed and fully paid by PRA.

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Shares of Stocks-Service Enterprises pertain to shares of stocks with MERALCO and PLDT.

11. PROPERTY AND EQUIPMENT

This account consists of the following:

(Amounts stated in thousand pesos)Build ing

&Structures

M otorVehicles

Furniture & Other

Equipm ent

Roads,Hways,Bridges

C onstruction in Progress

------------

Total

A t D e c e m b e r 31, 2011

C ostA ccum u la ted D eprecia tion

99 ,127(42,767)

20,341(15,974)

19,700(12,341)

48,621 2 ,242 190,031(71,082)

N et B ook Value 56 ,360 4,367 7,359 48,621 2 ,242 118,949

Y ear E n d e d D e c e m b e r 31, 2012O pe n ing N et B ook V alue

A dd ition s /A d jus tm ents

D eprecia tion fo r the Y e a r

56 ,360

(2,947)

4,367

922

(1 ,191)

1.7,359

2,867

(1,878)

48,621 2 ,242 118,949

3,789

(6,016)

C los ing Net Book V a lue 53 ,413 4,098 8,348 48,621 2,242 116,722

A t D e c e m b e r 31, 2012

C ost

A ccum u la ted D eprecia tion

99,127

(45,714)

21 ,263(17,165)

22,567

(14,219)48,621 2,242 193,820

(77,098)

N et B o o k V a lu e 53,413 4,098 8,348 48,621 2,242 116,722

Buildings and Structures refer to the eight (8) condominium units at the Legaspi Towers 200 with appraised value of P38,000 to P40.000 per square meter or a total of P99,127,500 as of June 2008 as appraised by Asian Appraisal Co., Inc.

Roads, Highways and Bridges include the roads and open spaces of Seaside Reclamation Project recorded at 50% level of CY 2000 assessed value of P6,000 per square meter.

The costs of the detailed architectural and engineering design on the proposed construction of PRA Building are recorded under Construction in Progress account. A ground breaking ceremony was held sometime in February 2009 at the proposed site in Central Business Park 1-A. However, by virtue of a Supreme Court Decision dated May 5, 2010, ownership of the lot was made in favor of Benedicto Yujuico, hence, the proposed PRA Building is shelved temporarily.

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12. INVESTMENT PROPERTY

Investment Property represents lands and other assets held for undetermined future use. The valuation used includes the latest lowest appraisal available for the property as appraised by independent appraisers. This account includes the following:

2012 2011Three Islands 6,704,979,000 6,704,979,000Asiaworld 788,648,000 78.8:648,000R-1 Landstrips 632,819,600 632,819,600Bacolod Reclamation 323,868,000 323,868,000Libertad Channel 29,737,351 29,737,351

8,480,051,951 8,480,051,951

Three Islands in Paranaque City consist of the 157.844 hectare-reclaimed land at various elevation recorded at June 2008 appraisal conducted by Cal-Fil Appraisal and Management, Inc. and Asian Appraisal Co., Inc. The islands were valued at P4.000 - P4,500 per square meter or P6,704,979,000.

Asiaworld in Paranaque City represents Lots 2A & 2B of the Reclamation Plan under TCT Nos. 010-2010002529 and 010-2010002530 from old TCT No. 162869 with areas of 10,524 square meters and 17,642 square meters, or a total area of 28,166 square meters, recorded at appraised value of P28,000 per square meter. This was originally part of the Inland Channel and later reclaimed by Asiaworld.

R1 Landstrips in Paranaque City pertain to the 154,272 square meter lots along the Coastal Road area recorded at June 2007 arid June 2008 appraisals ranging from P2,200 to P15,000 per square meter with a total value of P632,819,600.

Bacolod Reclamation in Bacolod City represents land share from Bacolod Reclamation Project with an area of 46,793 square meters recorded at appraised value of P6,000 per square meter and the 8,622 square meters valued at P5.000 per square meter representing share of the JV partner conveyed to PRA in 2010 as payment of reclamation supervision fees.

Libertad Channel in Pasay City represents the transfer cost of 19,199 square meter- property from Pasay Hongkong Realty Development Corp. at P29,737,351 inclusive of the cost of relocating informal settlers in the area.

13. OTHER NON-CURRENT ASSETS


Restricted Funds-PVB 8,248,565 8,248,565Other Receivables 912,564 912,564Others 21,213,475 21,213,475

30,374,604 30,374,604

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Restricted Funds represent the amount of P8.249 million at Philippines Veterans Bank (PVB) which was used as security for the Surety Bonds from insurance companies as a requirement in the execution of the awards in various cases against PRA.

Other Receivables comprise of receivables from BIR-San Pablo representing initial cost incurred by PRA for the construction of BIR-San Pablo Building such as architectural design, survey, appraisal, fencing and other expenses. PRA is negotiating for the collection of this account.

Others pertain to the cost incurred by PRA for the feasibility study of the Laguna de Bay Reclamation Project amounting to P18,088,781 and the initial expenses for the Sangley Point Development Project amounting to P3,124,694.

14. ASSETS HELD-IN-TRUST

This account consists of assets held-in-trust fbr:___________________________________________________ 2012_____________2011Dep’t. of Environment and NaturalResources (DENR) 2,803,891,590 2,541,791,339Government Financial Institutions (GFIs) 2,607,151 2,527,272Ombudsman (QMB)______________________________ 319,362_________309,578__________ 2,806,818,103 2,544,628,189

Assets Held-in-Trust for DENR represent the National Government’s (NG) equity on the development of its 244-hectare Alabang Stock Farm (ASF) which is the subject of the 1993 JVA between the RP and Filinvest Development Corporation (FDC). Under a 1990 MOA with DENR, PRA renders management and supervision services to the project for a management fee of 7.5% of the gross revenues of the project and supervision fee of 2.5% of the project cost.

As of December 31, 2012, FDC has remitted to PRA the amount of P2.156 billion representing 26% NG’s share from the proceeds of the ASF project. Interest income therefrom was P245.590 million. Out of this amount, P1.553 billion was remitted to the Bureau of Treasury, P307.369 million as PRA’s 7.5% management fee, P49.090 million was disbursed for the project and the balance is included under the Cash and Receivable account.

FDC had also turned over to PRA a total of 20,932 housing units, of which 14,922 have been transferred/sold to National Housing Authority (NHA), 3,201 to the Department of Environment and Natural Resources (DENR), 1,329 to the National Home Mortgage and Finance Corporation (NHMFC), 885 allocated to the Local Government Unit (LGU) of San Pedro, Laguna, 493 sold to the employees of the PRA, 59 sold to Bases Conversion Development Authority (BCDA), 27 sold to members of the Armed Forces of the Philippines (AFP), 10 sold to Laguna Lake Development Authority (LLDA), and 6 sold to the Philippine Ports Authority (PPA). A total of P135.658 million was collected as of December 31, 2012 from the disposed/sold housing units. On the other hand, P14.280 million was released in 2004 to the NHA as a start-up fund for the 14,922 housing units transferred to it.

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This fund shall cover the initial years’ operating cost of the proposed Project Management Offices (PMOs).

The JVA also provides a P200 million escrow fund to finance the replication of the affected government facilities in the area. The Escrow Fund of P200 million earned interest in the amount of P198.100 million. A total of P277.366 million was disbursed to replicate the affected government facilities and a total of P56.814 million was remitted to the Bureau of Treasury, leaving a balance of P63.920 million as of December 31, 2012.

yBreakdown of PRA’s accountability on the Assets Held-in-Trust for DENR is shown below:

2012 2011AssetsCash and Cash EquivalentsReceivables from Housing Units SoldLand InventoryHousing Units InventoryFinished Goods Inventory - Saleable LotsRoads/Open SpacesNG ShareProperty, Plant and Equipment Other Assets

546,374,206 164,865,487

77,922 t 219,450

612.999.000 1,215,154,500

398.022.000 546,757

47,042,040

274,376,137166,446,964

77,922219,450

630,046,5001,215,154,500

398,022,000546,757

38,713,8842,985,301,362 2,723,604,114

LiabilitiesPayablesInter-Agency Payables Deferred Credits to Income Other Liabilities

10,465,912273,369

167,689,5682,980,924

10,215,792273,369

168,381,0512,942,563

181,409,773 181,812,775

EquityDENR /ASF ShareRemaining Housing Units Received from FDC Without Cost Escrow Fund Income for the Year

2,350,885,441

219,450

63,920,484388,866,215

2,350,885,441219,450

63,920,484126,765,964

2,803,891,590 2,541,791,339

Other Assets substantially represent accumulated creditable withholding tax deducted by FDC from the proportionate share of NG from the proceeds of sale of lots.

PRA had deferred the remittance of the Cash Held-in-Trust amounting to P495.196 million to the NG as share from the proceeds of the Joint Venture for the development of the Alabang Stock Farm (ASF), pending the resolution on the issue of the 175-hectare area declared by the NG as Bird Sanctuary. The value of the said area will be deducted from the dividends due to NG to enable PRA to recoup the value of the assets.

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The corresponding credit account of Assets Held-in-Trust is Trust Agreements presented under Liabilities.

15. PAYABLES


Dividends Payable 1,571,193,843 1,189 093,134 756,576,604Accounts Payable 760,468,848

Due to Officers and Employees 106,898 74,9672,331,769,589 1,945,744,705

Dividends Payable represents dividends due to NG out of PRA’s operations for the following periods:

2012 2011Current Year Previous Years

1,082,100,709489,093,134

617,507,134571,586,000

1,571,193,843 1,189,093,134

Republic Act No. 7279 (UDHA Law) promulgated in 1992 provides that 50% of the annual net income of PRA shall be remitted to the National Housing Authority (NHA), to carry out its programs of land acquisition for resettlement purposes. Subsequently, Republic Act No. 7656 (Dividends Law) was promulgated in 1993 requiring government-owned or controlled corporations to remit 50% of their annual net earnings as dividends to the National Government. Again another law was enacted in 1997, Republic Act No. 8435, appropriating 50% of PRA’s net earnings for the Agriculture and Fisheries Modernization.

In 1995, the Department of Justice, in compliance with DOF’s request for legal opinion on dividend distribution, issued DOJ Opinion No. 050 harmonizing the effects of RA 7279 and RA 7656 (RA 8435 was not then in existence). The DOJ opines that the profit distribution under RA 7279 should be deducted from the annual net income of PRA for remittance to NHA. Thereafter, dividends corresponding to 50% of the remaining balance of the annual net earnings of PRA should be declared and remitted to the NG under RA 7656.

PRA has religiously complied with the payment to the NG of the dividends computed based on the DOJ opinion. It has not, however, complied with RA 7279 and RA 8435 pending action by Congress and Senate on PRA’s appeal to harmonize the three (3) laws.

For the years 1993 to 1999, PRA computed dividends based on net earnings after deducting the 50% appropriated by RA 7279 for NHA. The earnings for NHA, however, was not recorded and remitted. In 2003, PRA recomputed the dividends due on those years to comply with RA 7656 or Dividends Law only, considering that PRA under its charter is mandated to operate on a self-liquidating basis and does not get any subsidy from the NG for its operations.

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On September 27, 2007, PRA and Light Rail Transit Authority (LRTA) signed a Memorandum of Agreement for the Grant of Right-of-Way by PRA to LRTA over a 27,355-square meter lot located in the City of Paranaque and the Municipality of Bacoor, Cavite for the implementation of the LRT Line 1 South Extension Project. The value of the PRA property acquired by LRTA for the right of way of LRT Line 1 South Extension Project in the amount of P571.586 million was proposed to be deducted from the PRA’s dividends due to NG.

In January 2011, PRA remitted dividends to the Bureau of Treasury in^the total amount of P534 million representing unremitted dividends in 2009 and the amount due to NG in 2010. Likewise, in March 2012, PRA remitted P700 million dividends to the Bureau of Treasury.

Accounts Payable comprises of accounts due to the following:

2012 2011AMARI Coastal Bay Development Corp. t 589 ,499,084 589,499,084Shoemart, Inc. 85,000,000 85,000,000Manila Bay Development Corp. 57,097,431 57,097,431Accrued Expenses 28,802,171 24,908,934Vouchers Payable 70,162 71,155

760,468,848 756,576,604

Due to AMARI Coastal Bay Development Corp. includes the P300 million initial reimbursement made by AMARI on PRA’s partially reclaimed land valued at P1.894 billion. With the final declaration by the Supreme Court in 2003 that the AJVA is null and void, the P300 million initial reimbursement was set up as a liability to AMARI. It also includes the P289.499 million estimated advances by AMARI for relocation expenses in the Three Islands and CBP-1 Projects of PRA, subject to adjustment upon validation of documents related thereto.

Due to Shoemart, Inc. refers to the loan availed by PRA from Shoemart, Inc., the proceeds of which were used to pay the relocation expense incurred in clearing the CBP-1A area and is payable in land.

Due to Manila Bay Development Corporation (MBDC) pertains to the difference between their claim for reimbursement for the relocation expenses and regulatory fee due to PRA amounting to P52.175 million pursuant to the Memorandum of Agreement executed between PRA and MBDC dated October 21, 1999 and the P4.922 million documentary stamp taxes advanced by MBDC.

16. INTER-AGENCY PAYABLES


Due to BIR Due to GSIS Due to Pag-IBIG Due to Philhealth

793,928,2121,707,203

70,13845,680

227,741,003962,79547,10872,000

795,751,233 228,822,906

Due to BIR account consists of the following:2012 2011

Income Tax Value-Added Tax Withholding Taxes

631,446,509149,301,538

13,180,165

197,538,13926,931,799

3,271,065793,928,212 227,741,003

<In CY 2012, PRA settled the P197.538 million balance of the income tax due for CY2011. In line with BIR’s endeavor to effectively achieve its goal in collecting taxes for the taxable year 2012 by launching a Tax Campaign Kick Off Program in Revenue Region No. 8 last February 9, 2012 at Makati Sports Center, the amount of P143.011 million was remitted on the same day to the Bureau of Treasury thru Electronic Filing and Payment System (EFPS). The remaining P54.527 million was remitted in May2012.

The income tax payable balance of P631.446 million as of December 31, 2012 pertains to the income tax due for the last quarter of CY 2012.

17. OTHER LIABILITIES

The account balance as of December 31, 2012 of P236.400 million substantially pertains to the obligation due to the R-1 Consortium for the design and construction of the Roxas Canal West Bridge under Implementing Agreement No. 5 dated December 21, 2001 and the construction of CBP l-B and C segment of Central Boulevard under Implementing Agreement No. 6 dated March 14, 2002.

18. DEFERRED TAX LIABILITY

This account is the deferred tax consequence attributable to a taxable temporary difference computed by multiplying the amount of taxable temporary difference by the tax rate. Temporary difference is the difference between the tax basis of an asset or liability and its reported amount in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability is recovered or settled, respectively.

In 2009, PRA recorded gain on investments arising from the increase in fair market value of investment property in the amount of P1.069 billion (PAS No. 40) which resulted in Financial Income Higher than Taxable Income. The P3.40 billion prior

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years’ adjustments consist of the net increase in the value of land in Three Islands and along R-1 Landstrip for 2007 and 2008 in the amount of P1.443 billion and P1.960 billion, respectively.

In 2012, PRA made an adjustment of P5.958 million in deferred tax liability as a result of P19.860 million increase in fair market value of property and equipment recorded in the books in 2010.

19. DUE TO NATIONAL TREASURY

This account consists of the following:2012

*

2011Advances by the NG for the Debt

Servicing of the FCDU Loan 110,459,528 110,459,528Cost of Pabahay 2000 Housing Units

Availed of by PRA '• 9,398,639 10,708,692119,858,167 121,168,220

Advances by the NG for the Debt Servicing of the Foreign Currency Deposit Unit (FCDU) Loan were made by the Bureau of the Treasury (BTr) upon recommendation/approval from the Department of Finance (DOF), the loan being guaranteed by the ROP. Requests for NG advances were resorted to by PRA due to the non-remittance by the TRB of the amount actually disbursed by PRA for the right- of-way acquisition (ROWA) of the Manila-Cavite Toll Expressway Project (MCTEP).

Pursuant to DOF Memorandum Circular No. 7-97, guarantee fee is 1% per annum based on the outstanding balance of the guaranteed borrowings. Likewise, pursuant to DOF Order No. 9-87, interest based on the average 364-day Treasury Bill rate is charged on net lending representing payments made by the BTr on the servicing of foreign and domestic loans.

The amount of P110.459 million consists of P62.014 million guarantee fee and P48.445 million unsettled portion of the interest on NG Advances.

Cost of Pahahay 2000 Housing Units is decreased by collections for the housing units sold which were deposited to the Pabahay bank account under the Land and Other Assets-DENR account.

20. DUE TO OTHER GOCCs

This account pertains to that part of the promissory notes issued by PRA in payment for all of PNCC’s rights over the Manila Cavite-Coastal Road and Reclamation Project (MCCRRP), which note was later on assigned by the PNCC to Philippine Exports and Foreign Loan Guarantee Corporation (Philguarantee), now Trade Investment Corporation (TIDCorp).

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21. DEFERRED CREDITS

This account consists of the deferred income on the following:

2012 2011Receivables on Installment Sales

Lots and Condominium Units 10,275,678,244 11,173,930,174PRA Housing Program 68,390 68,390

Investments in Joint Venture - MCTEP 526,691,383 527,996,035Receivables on Lease r

BIR Building Project 164,736,451 201,409,752Sandiganbayan Building Project 18,206,647 39,708,690

Receivables on Car Loan 67,982 67,98210,985,449,097 11,943,181,023

Deferred Credits on Receivables on Installment Sales refer to the balance of the future income from sale of lots, condominiunq and housing units to various lot buyers at PRA’s Cahacao Bay Reclamation, condominium unit buyers at Coastal Plaza Condominium, CBP-1A lot buyers (including installment sales to PAGCOR) and awardees of PRA’s Pabahay 2000 Housing Program projects.

Deferred Credits on Investments in Joint Venture-MCTEP refer to the value of the unreclaimed land used in payment to R-1 Consortium for the upgrading of the R-1 Expressway, which is being amortized as income over the 35-year franchise period (see Note 10).

Deferred Credits on Receivables on Lease refer to the balance of PRA’s future income from lease-purchase agreements with the Sandiganbayan and the Bureau of Internal Revenue.

Decreases in deferred credits represent realized income arising from collection of receivables.

22. PAID-UP CAPITAL

The details of this account are shown below:2012 2011

Initial Cash Releases 4,645,933 4,645,933Equity Releases in Payment of

Notes Payable to PNCC 545,116,700 545,116,700Equity Releases for the Mindanao

Railway System Project 5,000,000 5,000,000Conversion into Equity of the

Balance of Notes Payable to PNCC 43,592,980 43,592,980Conversion into Equity of PRA’s

Assumed Obligation with PNB Inclusive of Interest and Charges 2,649,920,444 2,649,920,444

3,248,276,057 3,248,276,057

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— ------------------X T - .---------------------------------------------- — ------------------

PRA has an authorized capital stock divided into three (3) million no par value shares pursuant to P.D. 1084 and 1085 both dated February 4, 1977. Two (2) million shares were subscribed by the NG at a stated value of P734.139 million, payable by the transfer of all its rights and interests in the Manila-Cavite Coastal Road and Reclamation Project (MCCRRP) with a fair value of P729.139 million and the payment of P5 million in cash. By virtue of PD No. 1085, PRA subrogated to the rights of the Republic of the Philippines in respect to the 1973 contract entered by the latter with the PNCC on the reclamation works and construction of the MCCRRP.

f 'On December 29,1981, PRA entered into a MOA with PNCC, with the latter giving up in favor of PEA/PRA all its rights and participation and to the areas of reclaimed land and the latter paying the sum of P1,517.959 million by assuming PNCC’s obligation with PNB of P788.820 million and by issuance of promissory notes of P729.139 million. Payments for the notes shall come from the equity releases from the NG.

A total of P545.117 million was released by the BTr in payment for the notes. The balance of the notes of P43.593 million, whiGh was assigned by PNCC to the Asset Privatization Trust (APT), was converted to NG equity in PRA in accordance with Administrative Order (AO) No. 397 issued on May 13, 1998. AO 397 further provided for the recognition by the Committee on Privatization (COP)/APT of PRA’s assumption of PNCC’s obligation with PNB in the amount of P788.820 million together with the accrued interests and charges of P1.861 billion as of June 30, 1986 and the conversion into NG equity in PRA of the resulting obligations as a consequence of the foregoing totaling P2.650 billion.

23. BUSINESS INCOME


Sale of LotsSale of Housing UnitsSale of Coastal Plaza Condominium UnitsFines and Penalties-Housing

2,938,266,406691,424

12,43964,338

1,661,687,194746,411

34,150361,981

2,939,034,607 1,662,829,736

Sale of Lots includes sale of reclaimed individuals and government entities.

lands on cash and installment basis to

24. OTHER BUSINESS INCOME


Income from Joint Venture- PEA Tollway Corporation

Income from Dacion en Pago92,379,575 74,478,187

45,202,25292,379,575 119,680,439

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Income from Dacion en Pago was derived from the conveyance of PRA’s properties for payment of real estate taxes due to the City of Pasay.

Based on a Compromise Agreement between PRA and the City Government of Pasay, PRA will pay its real property tax liabilities from 2001 and onwards through conveyance of a portion of its CBP-1A property. Thus, conveyance is made for an area equivalent to the tax assessment every year.

As dacion en pago is considered transaction deemed sale, income is cojnputed based on the agreed price vis-a-vis the cost of the property conveyed. Thfcre is no cash outflow on PRA’s part except the payment to BIR of the relevant income taxes.

25. RENT INCOME

This account consists income from the following:2012 2011

Bureau of Internal RevenueCBP-1ASandiganbayan

36,673,30030,006,10112,663,559

31,661,83530,668,74620,336,628

79,342,960 82,667,209

26. SERVICE INCOME


Reclamation IncomeRegulatory, Processing, Filing Fees and Penalties

Supervision and Management Fee Alabang Stock Farm Project

25,872,723

24,688,138

8,576,826

12,535,93950,560,861 21,112,765

27. OTHER MAINTENANCE AND OPERATING EXPENSES

This account consists of other non-recurring expenses which are not classified in any of the specific maintenance and other operating expense accounts.

28. INCOME TAX EXPENSE

This account is the Corporate Income Tax for the year equivalent to 30% of the Net Profit Before Income Tax excluding income subjected to final tax.

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29. CONTINGENCIES

Supreme Court (SC) Decision on PRA-AMARIAJVA

In 2002, the Supreme Court en banc declared as null and void the Amended Joint Venture Agreement (AJVA) between AMARI and PRA stating that there is a constitutional ban on private corporations from acquiring alienable lands of the public domain.

J

Several Motions for Reconsideration were filed by PRA and the Office of the Solicitor General (OSG) and private parties in 2002 and 2003, but these were denied with finality by the SC. On January 14, 2004, OSG, for and in behalf of PRA, filed a Motion of Leave of this Honorable Court to File Motion for Clarification, praying for a clarificatory resolution addressing the concerns raised in said motion. The financial implications of this contingent event could not presently be determined and, as such, no adjustments were made on the financial statements to provide for this uncertainty.

Value-Added Tax Assessments

On February 05, 2003, PRA received from BIR a Formal Assessment Notice for alleged deficiency in Value-Added Taxes (VAT) for the taxable years 1996 to 1999 in the total amount of P117.363 million including increments. The following transactions were covered by the assessment: (a) the transfer of the 10 hectares undeveloped reclaimed property to Shoemart, Inc. as the transaction was made “in the course of trade or business”, (b) the supervision fee and management fee for services rendered by PRA to the DENR, (c) the refunds made to the buyer of units at the Coastal Plaza Condominium Project, and (d) rental payments for the buildings constructed by PRA for BIR. PRA, in its letters dated March 12 and April 14, 2003, contested the assessment of VAT on the above transactions and requested BIR to reconsider and/or re-evaluate the Formal Assessment. The same was, however, denied through a letter dated July 3, 2003.

On August 15, 2003, PRA through the OGCC, filed a case in the Court of Tax Appeals (CTA). On September 17, 2003, the BIR filed a Motion to Dismiss on the ground that the CTA has no jurisdiction over the case. An Opposition and Supplemental Opposition were filed by PRA on September 25, 2003 and October 2, 2003, respectively. On October 16, 2003, the CTA promulgated a Resolution dismissing the petition for lack of jurisdiction. PRA then filed a Motion for Reconsideration on November 6, 2003 which was denied on January 9, 2004. On February 16, 2004, PRA through the OGCC filed a Petition (for arbitration / mediation appeal on disputed assessment) before DOJ.

On March 31, 2004, BIR issued its Final Decision on Disputed Assessment formally assessing PRA of VAT for the taxable year 2000 amounting to P41.529 million including interest and surcharges. On April 29, 2004, PRA filed a Petition for Arbitration with the DOJ. On July 23, 2004, BIR and PRA through OGCC filed its Motion to Admit Reply to the Answer of BIR on August 27, 2004. In a meeting held on June 10, 2005 between BIR and PRA, the former proposed that during the pendency of the arbitration case, PRA will pay the principal amount of VAT less penalties and interests which was relayed to OGCC on August 5, 2005. Last hearing was held on January 26, 2006.

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The abovementioned PRA’s VAT deficiencies for CYs 1996-2000 in the total amount of P69.324 million, exclusive of interest and surcharge, was settled/remitted to BIR in December 2010 after negotiation with the BIR. On January 4, 2011, PRA filed with the BIR an application for the abatement or cancellation of PRA’s interest and surcharge tax liabilities on the said deficiencies in the amount of P89.034 million and is now pending at BIR Quezon City.

Pasay Hongkong Realty Development Corporation (PHRDC)y

This pertains to the P26.388 million claim of PHRDC for the cost of improvements it put in place at PRA’s CBP-I property, over and above the amount due to the latter arising from the exchange of real properties pursuant to the MOA entered into between PHRDC and PRA dated June 11, 1990. The validity of the claim is being questioned by PRA's Resident COA Auditor as the improvements put in place have not been validated by the COA Technical Services Office in the absence of the required documents.

Romago, Inc. 1

This refers to CIAC Case No. 18-2004 filed by Romago, Inc. on March 17, 2004 with the Construction Industry Arbitration Council (CIAC) against Heritage Park Management Corporation (HPMC) and PRA for a sum of money amounting to P24.468 million. This account represents unpaid accomplishment for electrical / lighting works at the Heritage Park Project. On December 20, 2004, PRA received a copy of the October 22, 2004 Decision of the CIAC, holding both PRA and HPMC jointly and severally liable to Romago, Inc in the amount of P16.211 million. PRA filed a Petition for Review to the Court of Appeals on January 3, 2005 which was denied on July 14, 2005. The parties filed their respective Memorandum and on December 20, 2005, the Court of Appeals promulgated its Decision reducing the amount of actual damages to P8.936 million.

PRA and Romago, Inc. filed their respective Motions for Reconsideration which were both denied in a Resolution dated August 24, 2006. Petitions for Review were filed by PRA and Romago, Inc. before the Supreme Court on October 30, 2006 and November 17, 2006, respectively. In SC Resolution dated February 14, 2007, both Petitions for Review filed by PRA and Romago, Inc. were consolidated.

On September 26, 2007, PRA filed its Comment to Romago’s Petition for Review to which Romago, Inc. filed its Reply on September 22, 2010.

Comment was filed by Romago, Inc. to which PRA through OGCC filed its Reply dated December 18, 2009 in compliance with the Resolution dated October 10, 2007.

The Supreme Court, in its Notice dated March 2, 2011, required the parties to submit their respective Memoranda to which PRA and Romago, Inc. complied on June 13, 2011 and October 17, 2011, respectively.

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Henry T. Sy, Jr.

Civil Case No. 05-575 was filed against PRA on June 29, 2005 at the Regional Trial Court of Makati, Branch 149 to compel PRA to execute the necessary deed, of conveyance covering the 19,274 square meters parcel of land located in CBP 1A, relative to the Agreement entered into between PRA and SM Inc. dated May 12, 1994, the Joint Venture Agreement dated August 9, 1994 and the Deed of Undertaking dated June 29, 1995. Under the said Deed of Undertaking, SM Inc. shall advance P85 million to be used for the relocation of squatters at CBR 1A and PRA shall repay the same with lands at CBP 1A. The case was referred to mediation and was terminated on October 5, 2005. On February 28, 2008, judgment was issued in favor of Mr. Henry Sy, Jr. ordering PRA to convey and transfer the title and ownership, including the delivery of possession, to Henry Sy. Notice of Appeal was filed by PRA through OGCC on March 26, 2008. The Court of Appeals (CA), in its resolution dated November 4, 2008, required PF*A to file Appellant’s Brief, to which PRA through OGCC complied. The appeal is deemed submitted for decision and ordered re-raffled for study and report.

<On March 10, 2011, the CA directed the parties to manifest, within ten (10) days from receipt of notice, whether or not supervening events have transpired that would render the resolution of the appeal moot and academic. On March 28, 2011, PRA through OGCC filed its Manifestation.

On December 13, 2012, PRA filed its Memorandum dated December 11, 2012 and Memorandum dated December 12, 2012 was also filed by Plaintiff-Appelle Sy.

Other Contingencies

PRA is contingently liable for other lawsuits and claims filed by third parties, the outcomes of which are not presently determinable. In the opinion of Management, the eventual liability under these lawsuits, if any, will not have a material effect on the financial statements.

30. AUTHORIZATION FOR ISSUE

The Board of Directors approved and authorized for issue PRA’s financial statements as of December 31, 2012 on March 22, 2013.

However, several adjustments were made to conform to the recommendations brought about by the Audit Observation Memoranda regarding PRA’s transactions for the CY 2012. Hence, the adjusted and final financial statements were issued only on April 10, 2013.

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31. SUPPLEMENTARY INFORMATION REQUIRED UNDER REVENUE REGULATIONS 15-2010

In compliance with the requirements set forth by BIR pursuant to RR 15-2010, hereunder are the information on taxes, duties and license fees paid or accrued during the taxable year:

i) PRA is a VAT-registered government-owned or controlled corporation with VAT output tax declaration of P379.426 million for the year based on the amount reflected in the sales account of P3.162 billion. y

>i) The amount of VAT input taxes claimed are broken down as follows:a) Beginning of the year P 806,880b) Current year’s purchases:

1 .Goods other than for resale or manufacture 1,739,6632. Services lodged under other Accounts 2,499,294

c) Claims for tax credit 4,251,619d) Balance at the end of the year 794,218

iii) Other taxes and licensesa) Local

Community tax certificate (CTC)b) National

BIR annual registration

10,500

500

iv) Amount of withholding taxes paid for the year amounted to:a) Tax on compensationb) Creditable withholding taxesc) Final withholding taxes

P 8,364,076 1,825,780 1,205,391

v) Corporate income taxes paida) Balance of CY 2011b) 1st quarter 2012c) 2nd quarter 2012d) 3rd quarter 2012e) 4th quarter 2012

P197,538,13910,389,68188,818,07018,931,260

145,977,349

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Documents

INDEPENDENT AUDITOR’S REPORT THE BOARD OF DIRECTORS ... · Venture distributed share of P2.156 billion from 1996 to 2012 on the proceeds of the Alabang Stock Farm Joint Venture